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S.No. TABLE OF CONTENT PAGE NO.

I CHAPTER-1

INTRODUCTION 5-8
OBJECTIVES 9
RESEARCH METHODOLOGY 10
LIMITATIONS 11

II CHAPTER-2

REVIEW OF LITERATURE 12-30

III CHAPTER-3

INDUSTRY PROFILE 31-38


COMPANY PROFILE 39-46

IV CHAPTER-4

DATA ANALYSIS & INTERPRETATION 47-70


FINDINGS 71

V CHAPTER-5

SUMMARY& CONCLUSIONS 72-74


SUGGESTIONS 75-76

VI CHAPTER- 6

BIBLIOGRAPHY 77-78

VI CHAPTER- 7

ANNEXURE 79-82

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1
INTRODUCTION

Investment can be defined as an item of value purchased for income or


capital appreciation. Investments are made to achieve a specific objective and
savings are made to meet an unforeseen event.

There are various avenues of investments in accordance with individual


preferences. Investments are made in different asset classes depending on an
individuals risk and return characteristics Investment choices are physical
assets and financial assets.
Gold and Real estates are examples of physical assets, which have a
physical form to them. There is a strong preference for these assets, as these
assets can be purchased with cash and held for a long term. The obvious
disadvantages with physical assets are the risks of loss and theft, lower levels
of return; illiquid secondary markets; and adhoc valuations and transactions.
Financial assets are securities, which are certificates embodying a
financial contract between parties. Bonds, Equity shares, Deposits and
Insurance policies are some of the examples of financial assets. In financial
assets investors only hold the proof of their investments in the form of a
certificate or account. These products are usually liquid, transferable and in
most cases, stored electronically with high degree of safety.
But a minimum amount of cash is always kept in hand for
transactions and contingencies. To face the contingencies and unexpected
events the insurance came into existence.
Another avenue of investment is mutual funds. It is created when
investors put their money together. It is therefore a pool of the investors funds.
The most important characteristics of a mutual fund is that the contributors and
the beneficiaries of the fund are the same class of people, namely the investors.
The term mutual means that investors contribute to the pool, and also benefit
from the pool. There are no other claimants to the funds. The pool of funds held
mutually by investors is the mutual fund.

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A mutual fund pools the money of people with similar investment
goals. The money in turn is invested in various securities depending on the
objectives of the mutual fund scheme, and the profits (or loss) are shared
among investors in proportion to their investments.

Mutual fund schemes are usually open-ended (perpetually open for


investments and redemptions) or closed end (with a fixed term). A mutual fund
scheme issues units that are normally priced at Rs.10 during the initial offer.
Thus, the number of units you own as against the total number of units issued
by the mutual fund scheme determines your share in the profits or loss of a
scheme.
In the case of open-end schemes, units can be purchased from or
sold back to the fund at a Net Asset Value (NAV) based price on all business
days.
The NAV is the actual value of a unit of the fund on a given day.
Thus, when you invest in a mutual fund scheme, you normally get an account
statement mentioning the number of units that have been allotted to you and the
NAV based price at which the units have been allotted. The account statement
is similar to your bank statement.
Mutual funds invest basically in three types of asset classes:

Stocks: Stocks represent ownership or equity in a company, popularly known


as shares.

Bonds: These represent debt from companies, financial institutions or


Government agencies.

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Money market instruments: These include short-term debt instruments such
as treasury bills, certificate of deposits and inter-bank call money.
A mutual funds business is to invest the funds thus collected, according to the
wishes of the investors who created the pool. In many markets these wishes are
articulated as investment mandates.

Analysis of The perception towards these mutual funds is done


here in this project. Even what factors the investors look before investing can
also be observed.

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OBJECTIVES

To study the level of awareness of mutual funds

To analyse the perception of investors towards mutual funds.

To study the factors considered by the investors and those which


ultimately influence him while investing.

To determine the type of mutual fund investor prefers the most.

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RESEARCH METHODOLOGY

Primary data is data that is tailored to a companys needs, by customizing true


approach focus groups, survey, field-tests, interviews or observation.

Primary data delivers more specific results than secondary research,


which is an especially important consideration when one launching a new
product or service. In addition, primary research is usually based on statistical
methodologies. The tiny sample can give an accurate representation of a
particular market.
Secondary data is based on information gleaned from studies
previously performed by government agencies, chambers of commerce, trade
associations and other organizations. This includes census bureau information.
Much kind of this information can be found in libraries or on the web, but
looks and business publications, as well as magazines and newspapers.

Analysis of individual investment patterns can be done by this


primary data analysis. In this project I have done a survey with a questionnaire
with a sample size of 100 individuals who are employees and tax payees. The
questionnaire includes the economic status of the individuals, age group,
marital status, investments made etc.

As Sharekhan ltd. distributes several investment products like


mutual funds, insurance, shares, debentures etc. This survey will help them in
developing marketing strategies for their investment products.

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LIMITATIONS

Geographic Scope: The sample used for the study has been taken from the
investors of the twin cities Hyderabad and Secunderabad.

Frame work: Sampling frame (i.e the list of population members) from which
the sample units are selected was incomplete as it takes into consideration only
those (target investors) who have made their investments during March and
April 2006.

Although adequate care was taken to elicit the accurate information from the
respondents, some of them have felt difficulty in crystallizing their feelings into
words. Apart from the problem faced in articulating, it is the validity of the
feedback can be speculated.

Despite the above limitations the study is useful in that it does point out the
trends and helps to identify the dimensions for improving the scope of mutual
funds.

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8
MUTUAL FUNDS

THEORITICAL BACKGROUND
Mutual fund is a mechanism for pooling the resources by issuing units to the
investors and investing funds in securities in accordance with objectives as
disclosed in offer document.
A mutual fund is an investment vehicle for investors who pool their savings for
investing in diversified portfolio of securities with the aim of attractive yields
and appreciation in their value.
Investments in securities are spread across a wide cross-section of industries
and sectors and thus the risk is reduced .Mutual funds issues units to the
investors in accordance with quantum of money invested by them. Investors of
mutual funds are known as unit-holders. The profit or losses are shared by the
investors in proportion to their investments. The mutual funds normally come
out with a number of schemes with different investment objectives, which are
launched from time to time. A mutual fund is required to be registered with
securities and exchange board of India.
A mutual fund is setup in the form of a trust, which has
1. Sponsor
2. Trustees
3. Asset Management Company and
4. Custodian.
The trust is established by a sponsor or more than one sponsor who is like
promoter of a company. The trustees of mutual fund hold its property for the
benefit of the unit-holders. Asset management company (AMC) approved by
SEBI manages the funds by making investments in various types of securities.
Respective asset management companies (AMC) management mutual fund
schemes. Different business groups have sponsored these AMC s. some

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international funds are also operation independently in India like Aliens and
Template.

A BRIEF HISTORY OF MUTUAL FUND

The concept of mutual fund is a new feather in Indian capital market but not
to international capital markets. The formal origin of mutual funds can be
traced to Belgium where society generated Belgium was established in 1822 as
an investment company to finance investments in National Industries with high
associated risk. The concept of mutual funds spread to USA in the beginning of
20th century and three investment companies were started in 1924 since then the
concept of mutual funds has been growing all around the world

In India, first mutual fund was started in 1964 when unit trust of India (UTI)
was established in the similar line of operation of the UK.

The term Mutual fund has not been explained in British literature but it is
considered as synonym of investment trust of

DEFINITIONS

The concept of mutual fund has been defined in various ways.


The mutual fund as an important vehicle for bringing wealth holders and
deficit units together indirectly
...Mr. James pierce
Mutual fund as financial intermediaries which being a wide variety of
securities with in the reach of the most modest of investors.
Frank Relicy

According to SEBI mutual fund regulations 1993, Mutual fund means a fund
established in the form of trust by sponsor to raise moneys by the trustees
through the sale of units to the public under one or more schemes for investing
in securities in accordance with these regulations.

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CONCEPT OF MUTUAL FUNDS

A Mutual Fund is a trust that pools the savings of a number of investors


who share a common financial goal. The money thus collected is then invested
in capital market instruments such as shares, debentures and other securities.
The income earned through these investments and the capital appreciation
realized are shared by its unit holders in proportion to the number of units
owned by them. Thus a Mutual Fund is the most suitable investment for the
common man as it offers an opportunity to invest in a diversified,
professionally managed basket of securities at a relatively low cost.

The flow chart below describes broadly the working of a mutual fund:

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VALUE CHAIN OF MUTUAL FUND

SPONSOR:

Any person who, acting alone or in combination with another body


corporate, establishes a mutual fund.

Asset Management Company

A firm that invests the pooled funds of retail investors in securities in line
with the stated investment objectives. For a fee, the investment company
provides more than diversification, liquidity, and professional management
service than is normally available to individual investors.

Trustee

The Board of Trustees or the Trustee company who hold the property of the
Mutual Fund in trust for the benefit of the unit holders.

Mutual Fund

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A fund established in the form of a trust to raise money through the sale of
units to the public or a section of the public under one or more schemes for
investing in securities, including money market instruments.

Transfer Agent

A transfer agent is employed by a mutual fund to maintain records of


shareholder accounts calculate and disburse dividends and prepare and mail
shareholder account statements, federal income tax information and other
shareholder notices.

Custodian

Mutual funds are required by law to protect their portfolio securities by


placing them with a custodian. Nearly all mutual funds use qualified bank
custodians.

Unit Holder

A person who is holding units in a scheme of a mutual fund.

CLASSIFICATION OF SCHEMES

By Structure

Open-ended

A scheme where investors can buy and redeem their units on any business day.
Its units are not listed on any stock exchange but are bought from and sold to
the mutual fund.

Close-ended

A mutual fund scheme that offers a limited number of units, which have a lock-
in period, usually of three to five years. The units of closed-end funds are often

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listed on one of the major stock exchanges and traded like securities at prices,
which may be higher or lower than its NAV.In India 90% of the schemes is
open-ended fund and the rest 10% is close-ended funds. There are 1062 open-
ended funds and 119 close-ended funds.

By Objective

A scheme can also be classified as growth scheme, income scheme, or balanced


scheme considering its investment objective. Such schemes may be open-ended
or close-ended schemes as described earlier. Such schemes may be classified
mainly as follows:

Growth / Equity Oriented Scheme

The aim of growth funds is to provide capital appreciation over the medium to
long- term. Such schemes normally invest a major part of their corpus in
equities. Such funds have comparatively high risks. These schemes provide
different options to the investors like dividend option, capital appreciation, etc.
and the investors may choose an option depending on their preferences. The

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investors must indicate the option in the application form. The mutual funds
also allow the investors to change the options at a later date. Growth schemes
are good for investors having a long-term outlook seeking appreciation over a
period of time.

Income / Debt Oriented Scheme

The aim of income funds is to provide regular and steady income to investors.
Such schemes generally invest in fixed income securities such as bonds,
corporate debentures, Government securities and money market instruments.
Such funds are less risky compared to equity schemes. These funds are not
affected because of fluctuations in equity markets. However, opportunities of
capital appreciation are also limited in such funds. The NAVs of such funds are
affected because of change in interest rates in the country. If the interest rates
fall, NAVs of such funds are likely to increase in the short run and vice versa.
However, long-term investors may not bother about these fluctuations.

Balanced Fund

The aim of balanced funds is to provide both growth and regular income as
such schemes invest both in equities and fixed income securities in the
proportion indicated in their offer documents. These are appropriate for
investors looking for moderate growth. They generally invest 40-60% in equity
and debt instruments. These funds are also affected because of fluctuations in
share prices in the stock markets. However, NAVs of such funds are likely to be
less volatile compared to pure equity funds.

Money Market or Liquid Fund

These funds are also income funds and their aim is to provide easy liquidity,
preservation of capital and moderate income. These schemes invest exclusively
in safer short-term instruments such as treasury bills, certificates of deposit,
commercial paper and inter-bank call money, government securities, etc.

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Returns on these schemes fluctuate much less compared to other funds. These
funds are appropriate for corporate and individual investors as a means to park
their surplus funds for short periods.

Gilt Fund

These funds invest exclusively in government securities. Government securities


have no default risk. NAVs of these schemes also fluctuate due to change in
interest rates and other economic factors as, is the case with income or debt
oriented schemes.

Index Funds

Index Funds replicate the portfolio of a particular index such as the BSE
Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the
securities in the same weightage comprising of an index. NAVs of such
schemes would rise or fall in accordance with the rise or fall in the index,
though not exactly by the same percentage due to some factors known as
"tracking error" in technical terms. Necessary disclosures in this regard are
made in the offer document of the mutual fund scheme.

There are also exchange traded index funds launched by the mutual funds that
are traded on the stock exchanges.

AVENUES OF INVESTMENTS

Savings form an important part of the economy of any nation. With the savings
invested in various options available to the people, the money acts as the driver
for growth of the country. Indian financial scene too presents a plethora of
avenues to the investors.

Banks:

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Considered as the safest of all options, banks have been the roots of the
financial system in India. For an ordinary person though, they have acted as the
safest investment avenue wherein a person deposits money and earns interest
on it. One and all have effectively used the two main modes of investment in
banks, savings accounts and fixed deposits. However, today the interest rate
structure in the country is headed southwards, keeping in line with global
trends. With the banks offering little above 7% in their fixed deposits for one
year, the yields have come down substantially in recent times. Add to this, the
inflationary pressures in economy and you have a position where the savings
are not earning. The inflation is creeping up, to almost 8% at times, and this
means that the value of money saved goes down instead of going up. This
effectively mars any change f gaining from the investments in banks.

Post office Schemes

Among all saving options, post office schemes have been offering the highest
rates. Added to it is that the investments are safe with the department being a
government of India entity. So the two basic and most sought for features,
those of return safety and quantum of returns were being handsomely taken
care of Public Provident Funds act as options to save for the post retirement
period for most people and have been considered good option largely due to the
fact that returns were higher than most other options and also helped people
gain from tax benefits under various sections. The following are the post office
savings schemes available for the investors:

Monthly Income scheme:

This scheme offers an interest of 8%p.a, payable monthly and a bonus of


10% payable at maturity after 6 years. There is no tax deductible at source
(TDS) applicable on investments made in this scheme.

National Savings Scheme:

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This scheme offers an interest of 8% p.a; compounded half yearly and
payable at maturity in 6 years.

Post Office Time Deposits:

There are 4 options available to investors depending on the term of


investment desired by the investor. They are:

1 year) this gives an interest of 6.25% p.a

2 year) This gives an interest of 6.5% p.a

3 year) This gives an interest of 7.25% p.a

4 year) This gives an interest of 7.5% p.a

Kisan Vikas Patra:

An important feature of this scheme is that it assures that the money invested
doubles in 8 years and 7 months.

Public Provident Fund:

This scheme gives a return of 8% per annum, compounded annually for


maturity of 15 years.

Government of India Bonds:

The GOI Bonds have the following investment options:

6.5% Tax free bonds

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There is no ceiling on the amount of investment in these bonds. The effective
yields of these bonds are 9.28% p.a for the period of 5 years and premature
encashment option available to investors only after the completion of 3 years.

8% Taxable Bonds:

These bonds do not have any TDS charged on them. There is no maximum
limit of investment in these bonds but there should be a minimum investment
of Rs.1, 000. The maturity period is 6 years. The investor has the option of
interest payable half yearly or cumulative. The investors can also avail tax
benefit under section 80L of income Tax Act, up to Rs. 15,000.

Company Fixed Deposits:

Companies have used fixed deposit schemes as a means of mobilizing funds


for their operations and have paid interest on them. The safer a company is
rated, the lesser the return offered has been the thumb rule. However, there are
several potential roadblocks in these.

The danger of financial position of the company not being understood by the
investor lurks.

1. Liquidity is a major problem with the amount being received monthly


after the due dates.

2. The safety of principal amount has been found lacking.

Stock markets:

Stock markets provide an option to invest in a high risk, high return game.
While the potential return is much more than 10-11% any of the options

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discussed above can generally generate, the risk is undoubtedly of the highest
order. However, as it might appear, people generally are clueless as to how the
stock market functions and in the process can endanger the hard-earned money.

For those who are not adept at understanding the stock market, the task
of generating superior returns at similar levels of risk is arduous to say the
least. This is where mutual funds come into picture.

COMPARISION OF OTHER AVENUES WITH MUTUAL FUNDS

The mutual fund sector operates under stricter regulations as compared


to most other investment avenues. Apart from offering investors tax efficiency
and legal comfort, how do mutual funds compare with other products?

Company Fixed Deposits versus Mutual Funds

Fixed deposits are unsecured borrowings by the company accepting the


deposit. Credit rating of the fixed deposit program is an indication of the
inherent default risk in t he investment. The money of investors in a mutual
fund scheme are invested by the AMC in specified investments under that
scheme. These investments are held and managed in-trust for the benefit of the
schemes investors. On the other hand, there is no such direct correlation
between a companys fixed deposit mobilization, and the avenues where it
deploys these resources.

There can be no certainty of yield, unless a named guarantor assures a


return or to a lesser extent, if the investment is in a serial gilt scheme. O the
other hand, the return under a fixed deposit is certain, subject only to the
default risk of the borrower.

The basic value at which fixed deposits are encashable is not subject to
market risk. However, the value at which units of a scheme are redeemed
entirely depends on the market. If securities have gained value during the

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period, then the investor can even earn that is higher than what she anticipated
when she invested. Conversely, she could also end up with a loss.

Early encashment of fixed deposits is always subject to a penalty


charged by the company that accepted the fixed deposit. Mutual fund schemes
also have the option of charging a penalty on early redemption of units (by
way of an exit load).

Bank Fixed Deposits versus Mutual Funds

Bank fixed deposits are similar to company fixed deposits. The major
difference is that banks are more stringently regulated than are companies.
They even operate under stricter requirements regarding Statutory Liquidity
ratio(SLR) and Cash Reserve Ratio (CRR) mandated by RBI.

While the above are for comfort, bank deposits too are subject to default
risk. However, given the political and economic impact of bank defaults, the
government as well as Reserve Bank of India (RBI) tries to ensure that banks
do not fail.

Further, the Deposit Insurance and Credit Guarantee Corporation


(DICGC) protect bank deposits up to Rs. 100,000. The monetary ceiling of
Rs.100,000 is for all the deposits in all the branches of a bank, held by the
depositor in the same capacity and right.

Bonds and Debentures versus Mutual funds

As in the case of fixed deposits, credit rating of a bond or debenture is an


indication of the inherent default risk in the investment. However, unlike fixed
deposits, bonds and debentures are transferable securities.

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While an investor may have an early encashment option from the issuer ( for
instance through a put option), liquidity is generally through a listing in the
market, implications of this are:

The value that the investor would realize in an early exit is subject to
market risk. The investor could have a capital gain or a loss. This aspect is
similar to a mutual fund scheme.

A hypothecation or mortgage of identified fixed and / or current assets


could back debt securities, e.g secured bonds or debentures. In such a case, if
there is a default, the identified assets become available for meeting redemption
requirements.

An unsecured bond or debenture is for all practical purposes like a fixed


deposit, as far as access to assets is concerned.

A custodian for the benefit of investors in the scheme holds the investment
of a mutual fund scheme.

Equity versus Mutual fund

Investment in both equity and mutual funds are subject to market risk.
Investment in an open-end mutual fund eliminates this direct risk of not being
able to dell the investment in the market. An indirect risk remains, because the
scheme has to realize its investments to pay investors. The AMC is however in
a better position to handle the situation. Further, on account of various SEBI
regulations, such as illiquid securities are likely to be only a part of the
schemes portfolio.

Another benefit of equity mutual fund scheme is that they give investors the
benefit of portfolio diversification through a small investment.

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RISK AND RETURN GRID:

An investor has mainly three investment objectives.

1. Safety of Principal

2. Return

3. Liquidity

BANKS FIXED BONDS AND EQUITY MUTUAL


DEPOSIT DEBENTURE MARKET FUND
S
Returns Low Low to Low to Moderate to Better
Moderate moderate high
Administrativ High Moderate Moderate to Low to Low
e expenses to High high Moderate
Risk Low Low to Low to High Moderate
Moderate moderate
Investment Less Few Few Many More
options
Network High Low Low Low but Low but
penetratio penetratio penetration improving fast improving
n n
Liquidity At a cost Low Low to Moderate to Better
moderate High
Quality of Not Not Not Transparent Transparent
Assets transparen transparen transparent
t t
Guarantee Maximum None
Rs 1 lakh

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Pricing

The net asset value of the fund is the cumulative market value of the asset fund
net of its liabilities. In other words, if the fund is dissolved or liquidated, by
selling off all the assets in the fund, this is the amount that the shareholders
would collectively own. This gives rise to the concept of the net asset value per
unit, which is the value, represented by the ownership of one unit in the fund. It
is calculated simply by dividing the net asset value of the fund by the number
of units. However, most people refer loosely to the NAV per unit as NAV,
ignoring the per unit. We also abide by the same convention.

Calculation of NAV

The most important part of the calculation is the valuation of the assets
owned by the fund. Once it is calculated, the NAV is simply the net value of
assets divided by the number of units outstanding. The detailed methodology
for the calculation of the asset value is given below.

Asset value = (Value of investments+ receivables+ accrued income+ other


current assets- liabilities- accrued expenses) /Number of units outstanding.

ADVANTAGES OF INVESTING IN MUTUAL FUND:

Number of options available

Mutual funds invest according to the underlying investment objective


as specified at the time of launching a scheme. Mutual fund have equity funds,
debt funds, gilt funds and many others that cater to the different needs of the
investor. While equity funds can be as risky as the stock markets themselves,
debt funds offer the kind of security that is aimed for at the time making
investments. The only pertinent factor here is that the fund has to be selected
keeping the risk profile of the investor in mind because the products listed
above have different risks associated with them.

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Diversification

Diversification reduces the risk because all stocks dont move in the same
direction at the same time. One can achieve this diversification through a
Mutual Fund with far less money that one can on his own.

Professional Management

Mutual Funds employ the services of the skilled professionals who have
years of experience to back them up. They use intensive research techniques to
analyze each investment option for the potential of returns along with their risk
levels to come up with the figures for the performance that determine the
suitability of any potential investment.

Potential of returns

Returns in the mutual are generally better than any option in any other
avenue over a reasonable period of time. People can pick their investment
horizon and stay put in the chosen fund for the duration.

Liquidity

The investors can withdraw or redeem money at the Net Asset Value
related prices in the open-end schemes. In the Closed-end Schemes, the units
can be transacted at the prevailing market price on a stock exchange. Mutual
Funds also provide the facility of direct repurchase at NAV related prices.

Well Regulated

The Mutual Fund industry is very well regulated. All investment has to
be accounted for, decisions judiciously taken. SEBI acts as a true watch dog in

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this case and can impose penalties on the AMCs at fault. The regulations
designed to protect the investors interests are implemented effectively.

Transparency

Being under a regulatory frame work, Mutual Funds have to disclose


their holdings, investment pattern and all the information that can be
considered as material, before all investors. This means that investment
strategy, outlooks of the markets and scheme related details are disclosed with
reasonable frequency to ensure that transparency exists in the system.

Flexible, Affordable and Low cost

Mutual Funds offer a relatively less expensive way to invest when


compared to other avenues such as capital market operations. The fee in terms
of brokerages, custodial fees and other management fees are substantially
lower than other options and are directly linked to the performance of the
scheme. Investment in Mutual Funds also offer a lot of flexibility with features
such as regular investment plans, regular withdrawal plans and dividend
investment plans enabling systematic investment or withdrawal of funds.

Convenient Administration

Investment in the mutual fund reduces paper work and helps you avoid
many problems such as bad deliveries, delayed payments and follow up with
brokers and companies. Mutual Funds save your time and make investing easy
and convenient.

TAXATION ON MUTUAL FUNDS

An Indian mutual fund registered with the SEBI, or schemes sponsored


by specified public sector banks/financial institutions and approved by the
central government or authorized by the RBI are tax exempt as per the
provisions of section 10(23D) of the income tax act. The mutual fund will

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receive all income without any deduction of tax at source under the provisions
of section 196(iv), of the income tax act.

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MUTUAL FUND INDUSTRY

INDUSTRY OVERVIEW

The financial markets in India are in the process of maturing. The


markets witnessed many structural changes in the years gone by primarily due
to the market regulators proactive approach to the changes in the global
scenario as well as to meet the needs of domestic investors.

The RBI has carried out major reforms in the Indian financial markets
in the last few years primarily by reducing Cash Reserve ratio by 4% over three
years and Bank Rate by 5% over five years. It is due to measures like these that
the Indian economy is currently showing fundamental robustness, with the
GDP expected to grow by almost 8%. With rising exports and stable inflation
of around 5%, the foreign exchange reserves are at an all time high of $118
billion. The interest rates in the country are at record lows and have led to an
increase in credit flow to the commercial sector.

The equity markets have passed through a tumultuous phase in the


last 3 years. The improving macro-economic fundamentals of the Indian
economy have led the market players to expect a bright future. During the year,
the equity markets around the world are showing good performance. However
the markets in India outperformed the world major scripts showed around more
than 75% growth in last 12 months. The year began with resumption of peace
process with Pakistan and end of war in Gulf. The market also has welcome
robust increase in agriculture production with more-than-normal monsoons.
Most of the groundwork for the disinvestment completed over the last few
years, the last Government had started disinvestments and new government has
already acquired shape and started it is not reluctant of divestment.

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The debt markets have witnessed a rally for over 2 years and now
seem to be stabilizing. The measures to deepen and widen the debt markets
continued throughout the year. A key step in developing the markets was the
launch of Negotiated Dealing System (NDS). NDS allows electronic bidding in
primary markets, thereby bringing about transparency in trading, electronic
settlement of trades and better monitoring and controls. Issuances of a 30-year
paper, floaters ranging from 5 to 15 years and securities with call and put
options by the government will also go a long way in deepening the markets. In
a bid to increase the retail participation, non-competitive bidding is being
encouraged by the RBI.

INDUSTRY STRUCTURE

Global Scenario

At the end of 2006:Q3, mutual fund assets worldwide were $ 17.28 trillion,
having increased 18 percent over the year 2005:Q3.

Worldwide mutual fund assets (trillions of US dollars)

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Worldwide assets of Equity, Bond, Money Market & Balanced fund
(Billions of US dollars)

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Composition of world Wide mutual fund assets by the types of fund 2006 Q4

Source: Ici.org

The end of 2006:Q3, mutual fund assets were split into 44% Equity, 18%
Money market, 20% Bonds, 9% Balanced / Mixed and remaining 8%
unclassified.

Worldwide mutual fund assets by region 2006;Q3

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At the end of 2006:Q3 by region, 55% of the global assets was in America,
34% in Europe and the remaining 11% in Africa and Asia / Pacific.

World wide mutual funds by the type of fund 2006;Q2

At the end of the fourth quarter of 2006, the number of mutual funds
worldwide stood at 54,986. By type of fund, 41 percent were equity funds, 24
percent were bond funds, 20 percent were balanced/mixed funds, and 6 percent
were money market funds.

Number of funds 2000-2006;Q3

33
2005 2006

2000 2001 2002 2003 2004 Q4 Q1 Q2 Q3

All Reporting Countries1 52,746 51,692 52,849 54,110 54,569 54,984 55,095 55,919 56,095

Equity 22,453 20,381 22,348 22,974 22,688 22,364 22,796 23,043 23,050

Bond 15,474 13,128 12,183 11,619 11,886 13,309 13,127 13,213 13,225

Money Market 6,745 4,692 4,277 4,394 4,974 3,623 3,618 3,598 3,569

Balanced/Mixed 6,375 11,110 11,155 11,228 11,465 11,603 11,111 11,291 11,181

Other 612 1,000 1,195 1,310 1,578 1,997 2,364 2,659 3,017

Countries Reporting in
Every Period2 35,962 39,367 41,620 42,393 41,689 42,356 42,093 42,529 42,377

Equity 15,656 18,637 20,630 20,808 20,018 19,920 19,971 20,052 19,952

Bond 10,867 10,176 9,830 9,946 9,847 9,961 10,004 10,026 10,076

Money Market 2,701 2,786 2,727 2,674 2,652 2,899 2,901 2,867 2,831

Balanced/Mixed 6,149 6,926 7,500 7,723 7,857 8,095 7,674 7,966 7,850

Other 589 842 933 1,242 1,315 1,481 1,543 1,618 1,668

MUTUAL FUNDS IN INDIAN SCENARIO

Unit Trust of India was the first mutual fund set up in India in the year 1963. In
early 1990s, Government allowed public sector banks and institutions to set up
mutual funds.

In the year 1992, Securities and exchange Board of India (SEBI) Act was
passed. The objectives of SEBI are to protect the interest of investors in
securities and to promote the development of and to regulate the securities
market.

34
As far as mutual funds are concerned, SEBI formulates policies and regulates
the mutual funds to protect the interest of the investors. SEBI notified
regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored
by private sector entities were allowed to enter the capital market. The
regulations were fully revised in 1996 and have been amended thereafter from
time to time. SEBI has also issued guidelines to the mutual funds from time to
time to protect the interests of investors.

All mutual funds whether promoted by public sector or private sector entities
including those promoted by foreign entities are governed by the same set of
Regulations. There is no distinction in regulatory requirements for these mutual
funds and all are subject to monitoring and inspections by SEBI. The risks
associated with the schemes launched by the mutual funds sponsored by these
entities are of similar type. It may be mentioned here that Unit Trust of India
(UTI) is not registered with SEBI as a mutual fund (as on January 15, 2002).

In February 2003, following the repeal of Unit Trust of India act 1963; UTI
was bifurcated into two separate entities. One is the specified undertaking of
UTI with assets under the management of Rs.29, 835 crores as at the end of
January 2003; representing broadly, the assets of US 64 scheme, assured return
and certain other schemes. The specified undertaking administrator & under
rules framed by Government of India and does not come under the purview of
mutual fund regulation.

The second is the UTI mutual fund Ltd sponsored by SBI, BOB & LIC.
It is registered with SEBI & functions under the mutual fund regulations. With
the bifurcation of the erstwhile UTI which had in March 2000, more than Rs
76,000 crores of assets under management and with setting up of a UTI mutual
fund, conforming to the SEBI, mutual fund regulation and with recent mergers
taking place among different private sector funds, the mutual fund industry has
entered its current phase of consolidation and growth.

35
As at the end of September,2004, there were 29 funds which manage assets of
Rs. 231358.03 crores under 421 schemes.

GROWTH IN ASSETS UNDER MANAGEMENT

36
37
The Company Background:

In 1982, a group of Hyderabad-based practicing Chartered Accounts started


Karvy Consultants Limited with a capital of rs.1, 50,000 offering auditing and
taxation services initially. Later, it forayed into the Registrar and Share Transfer
activities and subsequently into financial services. All along, Karvys strong
work ethic and professional background leveraged with Information
Technology enabled it to deliver quality to the individual.

A decade of commitment, professional integrity and vision helped Karvy


achieve a leadership position in its field when it handled the largest number of
issues ever handled in the history of the Indian stock market in a year.
Thereafter, Karvy made inroads into a host of capital-market services,-
corporate and retail which proved to be a sound business synergy.

GROUP OF COMPANIES

KARVY CONSULTANTS LIMITE

38
Deals in Registrar and Investment Services

KARVY INC

Deals in distribution of various investment products, viz., equities, mutual


funds, bonds and debentures, fixed deposits, insurance policies for the investor.

KARVY INVESTOR SERVICES LIMITED

Deals in Issue management, Investment Banking and Merchant Banking.

KARVY STOCK BROKING LIMITED

Deals in buying and selling equity shares and debentures o the National stock
Exchange (NSE), the Hyderabad Stock Exchange (HSE) and the Over-The-
Counter Exchange of India. (OTCEI).

KARVY COMPUTERSHARES LIMITED

KARVY GLOBAL SERVICES LIMITED

39
KARVY COMMODITIES BROKING LIMITED

40
BOARD OF DIRECTORS

Mr.C.Parthasarathy
Mr.M.Yugandhar
Mr.M S.Ramakrishna

QUALITY POLICY

To achieve and retain leadership, Karvy shall aim for complete customer
satisfaction, by combining its human and technological resources, to provide
superior quality financial services. In the process, Karvy will strive to exceed
Customers expectations.

Quality objectives
As per the Quality Policy, Karvy will:

Build in-house processes that will ensure transparent and harmonious


relationships with its clients and investors to provide high quality of
services.
Establish a partner relationship with its investor services agents and
vendors that will help in keeping up its commitments to the customers.
Provide high quality of work life for all its employees and equip them
with adequate knowledge & skills so as to respond to its customers
needs.
Continue to uphold the values of honesty & integrity and strive to
establish unparalleled standards in business ethics.
Use state-of-the art information technology in developing new and
innovative financial products and services to meet the changing needs of
invetors and clients.

41
Strive to be a reliable source of value-added financial products and
services and constantly guide the individuals and institutions in making
a judicious choice of it.
Strive to keep all stake-holders (shareholders, clients, investors,
employees, suppliers and regulatory authorities) proud and satisfied.

ACHIEVEMENTS

Largest mobiliser of funds as per PRIME DATABASE.


First ISO-9002 Certified Registrar in India.
A Category I-Merchant banker.
A Category-I-Registrar to public Issues.
Ranked as The Most Admired Registrar by MARG.
Handled the largest-ever public issue-IDBI
Handled over 500 public issues as registrars.
Handling the reliance Account which for nearly 10 million account
holders.
First Depository Participant from Andhra Pradesh.

Major issues managed as arrangers

Kerala state electricity board.


Power Finance Corporation.
A.P. Water resources Development Corporation.
A.P Roads Development corporation.
A.P state electricity board.
Haldia Petrochemicals ltd.

42
Major issues managed as co-managers

IDBI Equity
Morgan Stanley Mutual Fund.
Bank of Baroda
Bank of Punjab Ltd
Corporation Bank
IndusInd Bank Ltd
Jammu and Kashmir bank Ltd
Housing and Urban Development corporation (HUDCO) Ltd
Madras refineries Ltd
Tamil Nadu Newsprint & Paper Ltd
BPL Ltd
Birla 3M Ltd
Essar Steels Ltd
Hindustan Petroleum corporation Ltd
Infosys technologies Ltd
Jindal Vijaynagar Steels Ltd
Nagarjuna Fertilizers & Chemicals Ltd
Rajshree Polyfil Ltd

Karvy securities Ltd.


Karvy has secured over rs.500 crore in the following debt issues.
Andhra Pradesh road development corporation Ltd
ICICI Bonds (private placement)
ICICI Bonds-96
ICICI Bonds-97-I
ICICI Bonds-97-II
ICICI safety Bonds March 98

43
IDBI Bonds 96
IDBI Flexi Bonds I
IDBI Flexi Bonds II
IDBI Flexi Bonds III
Kerala state electricity Board
Krishna Bhagya Jala Nigam Ltd
Power Finance Corporation Ltd
Andhra Pradesh Water Resources Development Corporation
Andhra Pradesh state Electricity Board

KARVY CAPABILITIES

Technology infrastructure
It has desktops and 200 plus enterprise class servers having licensed
software across technology platforms. It has wide area network
connecting branches all over India. It has 24 * 7 back up and Redundancy
support for critical business data.

PHYSICAL INFRASTRUCTURE
It has 40 branches and 65 investor centers connected with communication
facilities like Email, Fax, Videoconferencing, WAN and LAN.

MAN POWER
It has work force of over 2000 highly trained people. It has experience of
processing over 120 million transactions. The Domain experience in the
areas of Data processing operations, Technology, Management and
Financials and legal processing. It has specialist expertise in quality
control and cast management.

QUALITY PROCESS

44
It is an ISO 9002 certified operations by DNV Norway. It performs regular
internal and external audits for quality standards.
TRAINING
It has full-fledged learning center to train 150 people simultaneously. It
has simulated environment and on the Job training facilities.

BUSINESS CONTINUITY
It is a two-decade-old company of repute in the industry. It has a disaster
recovery center at separate location. It has investment in infrastructure.

VALUES
INTEGRITY
TRANSPARENCY
PASSION FOR QUALITY
HARD WORK AND TEAM PLAY
LEARNING AND INNOVATION
EMPATHY AND HUMILITY
SENSE OF OWNERSHIP.

KARVY ACHIEVEMENTS

Indias # 1 public issue registrars with 655-market share.


# 2 in India in mutual fund registraring and investor servicing.
Amongst the top 5 mobilizers of funds in India.
Among the top 3 depository Participants.
Among the top 5 retail brokers in the country.
ISO 9002 certified operations by DNV.
Among the top 10 medical transcriptionists.
Adjudged as one of the top 50 IT users in India by MIS Asia.

45
46
DATA ANALYSYS

SOME OF THE SCHEMES OF MUTUAL FUNDS:

Standard Chartered Mutual Fund

Schemes:

Grindlays cash fund: It is an Open-ended Income scheme with high liquidity. A


scheme that invests in money market instruments like Treasury Bills, Call
money, Repos , Short-term Corporate Debentures, Commercial Papers,
Certificate of Deposits, etc that provide a high level of stability and easy
liquidity .

Tax:

The GCF is also very taxed efficient. It comes with a daily (compulsory
reinvestment), Weekly (compulsory reinvestment), Monthly and Bi-monthly
dividend options. Each day gains are declared in the form of dividends and then
reinvested after netting it off against Dividend Distribution Tax (currently
20.91%).This dividend is completely tax free. So the net tax incidence is just
20.91% as compared to 36.5925% for comparable non mutual fund option.

Grindlays Floating Rate Fund: It seeks to generate stable returns with a low
risk strategy by creating a portfolio that is substantially invested in good quality
floating rate debt or money market instruments, fixed rate debt and money
market instruments.

47
GFRF primarily invests in Floating rate debentures and bonds, Short
tenor fixed rate instruments and long tenor fixed rate instruments swapped to
floating rate.

Plans: The fund comes in two plans

Short term plan for investors with a time horizon of 1-6 months.
Long term plan for investors with a time horizon of beyond 6 months.

Grindlays Debt Funds: Debt funds are funds that invest only in debt securities
and are designed to primarily protect your capital and provide better returns
by investing in high quality debt securities.

Operations of Debt funds: There are two important sources of revenue


that a debt fund earns:

a) Interest income

When you invest in a Bank / Company deposit, it offers you a fixed rate of
interest with the principal being returned on maturity. Similarly when a debt
fund invests in various debt securities the issuers of these securities offer a rate
of interest and the principal on maturity. The issuers of these securities could
either could either be various corporates like Reliance, Hindalco, ICICI, Bharat
Petroleum or the Government of India.

b) Mark to Market gain/loss

As interest rates on bank fixed deposits change frequently so do interest rates


on debt securities. Interest rates and debt security prices are in fact the two
sides in seesaw. In general, prices fall when interest rates rise and rise when
interest rates fall. If the interest rates were to decline then newer bonds would

48
be issued at lower interest rates than existing bonds. Consequently old bonds
would be dearer and hence prices of these older bonds would rise.

Similarly if interest rates were to raise then value of old bonds would fall, as
newer bonds would bear higher interest rates. The traded price of a bond may
thus differ from its face value. The longer a bonds period to maturity, the more
its price tend to fluctuate as market interest rates change.

DSP Merrill lynch Mutual Fund:

Schemes

Liquidity Fund:

It is an open-ended fund liquid scheme seeking to generate a reasonable


return commensurate with low risk and high degree of liquidity from a
portfolio constituted of money market securities and high quality debt
securities.

Floating rate Fund:

It is an open-ended income scheme seeking to generate income


commensurate with prudent risk from a portfolio substantially constituted of
floating rate debt securities and fixed rate debt securities swapped for floating
rate returns. The scheme may also invest in fixed rate debt securities and
money market securities.

Short term Fund:

It is an open-ended income scheme seeking to generate income commensurate


with prudent risk, from a portfolio constituting of money market securities,
floating rate debt securities and debt securities.

Bond fund:

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It is an open-ended income scheme seeking to generate an attractive
return, consistent with prudent risk from a portfolio, which is substantially
constituted of high quality debt securities of issuers predominantly domiciled in
India.

Equity Fund:

It is an open ended growth scheme seeking to generate long term capital


appreciation, from a portfolio which is substantially constituted of equity and
equity related securities of issuers domiciled in India. The scheme may also
invest a certain portion of its corpus in debt and money market securities, in
order to meet liquidity requirements from time to time.

T.I.G.E.R Fund:

It is an open ended growth scheme whose primary investment objective


is to seek to generate capital appreciation, from a portfolio that is substantially
constituted of equity securities of corporates, which could benefits from
structural changes brought about by continuing liberalization in economic
policies by the government and / or from continuing investments in
infrastructure, both by public and private sector.

50
HDFC MUTUAL FUND

Schemes

HDFC Growth Fund:

It is a open ended scheme seeking to generate long term capital


appreciation from a portfolio that is invested predominantly in equity and
equity related instruments

HDFC Equity Fund:

It is an open-ended growth scheme to achieve capital appreciation.

HDFC Top 200 Fund:

It is an open-ended growth scheme seeking to generate long-term capital


appreciation from a portfolio of equity and equity-linked instruments primarily
drawn from the companies in BSC 200 index.

HDFC Balanced Fund:

It is an open ended balanced scheme seeking to generate capital


appreciation along with current income from a combined portfolio of equity
and equity related and debt & money market instruments.

HDFC Tax Savers Fund:

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It is an open-ended equity linked saving scheme with a lock-in period of 3
yrs seeking to generate long term growth of capital.

HDFC Gilt Fund:

It is an open-ended income scheme seeking to generate credit risk-free


returns through investments in sovereign securities issued by central
government or state government.

Birla Sun Life Mutual Fund:

Schemes

Birla Advantage Fund:

It is an open-ended diversified equity fund and portfolio remains over


wait across banks MNC pharma, IT and Telecom.

Birla Dividend Yield Plus:

It is an open-ended growth scheme investing in high dividend yield companies


and continuously having a positive outlook on banking sector.

Birla Mid cap Fund:

It is an open ended growth scheme investing primarily in mid cap stocks


and the portfolio remains well diversified across pharmaceutical, banking,
consumer non durable, IT, Hotels.

Birla MNC Fund:

It is an open-ended growth scheme investing in multi national companies


and the portfolio remains over weight across consumer non-durable, IT, Agro
chemicals.

Birla Gilt Plus:

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It is an open-ended government security scheme.

Birla Equity Plan:

It is an open-ended equity linked savings scheme with a lock-in for three


years.

Kotak Mutual Fund

Schemes:

Kotak 30:

It is an open-ended equity growth scheme seeking to generate capital


appreciation from a portfolio of predominantly and equity related securities
with investment in, generally, not more than 30 stocks.

Kotak opportunities:

It is an open-ended equity growth scheme seeking to generate capital


appreciation from a diversified portfolio of equity and equity related securities.

Kotak Global India:

It is an open-ended growth scheme seeking to generate capital


appreciation from a diversified portfolio of equity and equity related securities
issued by globally competitive Indian companies.

Kotak Liquid:

It is an open-ended debt scheme to provide reasonable returns and high


level of liquidity by investing in debt and money market instruments of
different maturities so as to spread the risk across different kinds of issuers in
debt markets.

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Chola mutual fund:

Schemes:Cholamandalam growth fund:

It is an open ended scheme seeking to generate long term capital appreciation,


income through investments in equity & equity related instruments; the
secondary objective is to generate some current income and distributive
dividend.

Chola midcap fund:

It is an open ended scheme seeking to generate capital appreciation by


investing primarily in mid cap stocks. The scheme will invest primarily that
have a market capitalization between Rs.300 crores to Rs. 3000 crore.

Chola opportunities fund:

It is an open ended scheme which will invest mainly to generate long term
capital appreciation from a diversified portfolio of equity and equity related
securities.

Chola Multi-cap fund:

It is an open-ended growth scheme which will provide long term capital


appreciation by investing in a well diversified portfolio of equity and equity
related instruments across all ranges of market capitalization.

Chola Gilt investment plan:

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It is an open-ended growth scheme seeking to generate returns from a portfolio
by investing in Government securities.

Chola monthly income plan:

It is an open-ended growth scheme seeking to generate monthly income


through investment in range of debt, equity and money market instruments.

CHOOSING FUNDS

When it comes down to it, the decision to invest in a mutual fund is


one you have to make on your own. When you try to choose an investment,
however, it is a good idea to seek the guidance of a financial advisor who will
review its objective to make sure it supports your financialgoal.

As an investor, your goals are unique, and a financial advisor can


help match you with the best funds. Remember, however, when you are
choosing funds, to consider how much risk you are comfortable with and when
you'll need the money. If you have the time to weather the market's ups and
downs, you may want to consider equity investments.

Before you select a mutual fund, it is essential to read the


prospectus carefully to learn all you can about the fund's performance,
investment goals, risks, charges and expenses.

DECISION MAKING FACTORS WHILE INVESTING IN MUTUAL


FUNDS

Before looking at the mutual funds available to you, it may be best to decide
the mix of stock, bond, and money market funds you prefer. Some experts
believe this is the most important decision in investing. Here are some general
points to keep in mind when deciding what your investment strategy should be.

55
Diversify. It is a good idea to spread your investment among mutual funds that
invest in different types of securities. Stocks, bonds, and money market
securities work differently. Each offers different advantages and disadvantages.
You may also want to diversify within the same class of securities. Diversifying
can keep you from putting all your eggs in one basket and therefore, may
increase your returns over along period of time.
Consider the effects of inflation. Since the money you set aside today may be
intended to be used several years down the road, you need to look at inflation.
Inflation measures the increase of general prices over time.

Conservative investments like money market funds often may be popular


because they are managed to keep a steady value. But their return after
accounting for the inflation rate can be very low, perhaps even negative.

For example, a 4% inflation rate over a period of many years could erase a
money market fund's 3% yield over the same period of time. So even though
such an investment may give some safety of principal, it may not be able to
grow enough in value over the years or even keep up with the rate of inflation.

Patience is a virtue. It's no secretthe prices of common stocks can change


quite a bit from day to day. Therefore, the part of your account invested in
stock funds would likely fluctuate in value much the same way.

If you don't need your money right away (for at least 5 years), you probably
don't need to panic if the stock market declines or you find that your quarterly
statement shows the value of your investment has fallen. In the past, the stock
market has regained lost value over time. Although you are not assured it will
do so in the future, try to be patient and allow your stock funds time to
recover.

56
Remember the saying, "buy low, and sell high." Switching out of a stock
mutual fund when prices are low is usually not the way to make the most of
your investment. Of course, if a fund continues to under-perform over time as
well as your other fund choices, you may want to consider changing
funds.

Look at your age. Younger investors may be more at ease with stock funds,
because they have time to wait out the short-term ups and downs of stock
prices. By investing in a stock fund, they might be able to receive high returns
over the long-term.
On the other hand, people who are closer to retirement may be more interested
in protecting their money from possible drops in prices, since they'll need to
use it soon. In this case, it may be wise to place a greater percentage of money
in bond and/ or money market funds, which may not have such large changes in
value.

How can you determine an investment mix appropriate for your age? One
way is to subtract your age from 100. The answer you come up with may be a
good number to start with in deciding what portion of your total investments to
put into stock mutual funds.

Risk. When you are choosing funds, be sure to consider how much risk you are
comfortable with and how close you are to retirement. If retirement is around
the corner, you may want a portfolio with very little risk. On the other hand, if
you are younger, and have the time to weather the market's ups and downs, you
may want to choose a more aggressive investment strategy.

READ FUND DOCUMENTS

Your primary source of data concerning the mutual fund will be the
prospectus. It is a legal document illustrating the rules and regulations that a
mutual fund must follow and contains information on the fund's goal and

57
strategy, risks, performance, financial highlights fees and expenses, and a wide
variety of information that you should know before investing.

What are the fund' s goal and strategy?

Goals vary from fund to fund, and they're important to understand so


you can decide if they match your personal objectives. Some funds
generate income for their shareholders, while others concentrate on capital
appreciation. Some focus on a combination of the two, and others are oriented
towards tax benefits or preservation of capital.

Funds also implement differing strategies to help accomplish their goals. The
Goals and Strategies section of a prospectus details the types of securities in
which fund managers can invest and how managers analyze them

Funds can be limited to domestic investments, focus on a certain country or


region, or invest anywhere in the world. In addition, some funds invest only in
specific industries or in particular types of companies. Others invest in large-,
medium- or small-capitalization companies.

What are the risks?

As with all investments, each fund, whether domestic, international or sector


specific, carries different risks. The Main Risks section of a prospectus explains
which ones are associated with the securities in that particular fund, which may
help you decide what level of risk you're comfortable having in your
investment portfolio.

How has a fund performed?

58
While historical performance doesn't predict how a fund will do in the future,
you may be interested in how it performed in past market environments.
Depending on the age of the fund, a prospectus will provide its 1- 5- and 10-
year average annual returns, including a comparison to its benchmark index
over the same period.

What are financial highlights?

In this section a prospectus lists 5 years of annual financial information, if a


fund is less than 5 years old, provides data since inception. Information
includes net asset values at the beginning and end of each year, and details the
gains or losses, dividends and distributions that account for any changes.

Financial Highlights also show fund asset information such as net assets ratios
to average net assets for expenses and net investment income, and portfolio
turnover rates.

What are the expenses of a fund?

Operating a fund entails some costs you should be aware of. The Fees and
Expenses section breaks out these costs and who pays them. In addition, an
example of fund expenses is provided to help you compare the cost of investing
in one fund versus another.

Who's managing the fund?

In the Management section, a prospectus gives a brief biography of a fund' s


managers, including how long they have worked on the fund and their overall
industry experience.

.MARKET SEGMENTATION

59
Market segmentation is the division of market into homogeneous
groups, which will respond differently to promotions, communications,
advertising and other marketing mix variables. A different marketing mix can
target each group, or segment, because the segments are created to minimize
inherent differences between respondents within each segment and maximize
differences between each segment.
Market segmentation was first described in the 1950s, when product
differentiation was the primary marketing strategy used. In the 1970s and
1980s, market segmentation began to take off as a means of expanding sales
and obtaining competitive advantages.

Uses of Market Segmentation


There are many good reasons for dividing a market into smaller segments. The
primary reasons:
Easier marketing
It is easier to address the needs of smaller groups of customers,
particularly if they have many characteristics in common (e.g. seek the same
benefits, same age, gender, etc.).
Find niches
Identify under-served or un-served markets. Using niche marketing,
segmentation can allow a new company or new product to target less contested
buyers and helps a mature product seek new buyers.

Efficient
More efficient use of marketing resources is by focusing on the best
segments for the investor offeringproduct, price, promotion, and place
(distribution). Segmentation can help avoid sending the wrong message or
sending message to the wrong people.
Classification variables

60
Classification variables are used to classify survey respondents into
market segments. Almost any demographic, geographic, Psychographic or
behavioral variable can be used to classify people into segments.
Demographic variables Age, gender, income, ethnicity, martial status,
education, occupation, household size, length of residence, type of residence,
etc.

Geographic variables City, state, zip code, census tract, country, region,
metropolitan or rural location, population density, climate, etc.

Psychographic variables Attitudes, lifestyle, hobbies, risk aversion,


personality traits, leadership traits, magazines read, television programs
watched, PRIZM clusters, etc.

Behavioral variables Brand loyalty, usage level, benefits sought, distribution


channels used, reaction to marketing factors, etc.
Summary
Target marketing or market segmentation based on customer needs and
wants can increase profits. Target market identifies customer groups and the
reasons they purchase. Market segmentation helps a business be more
responsive to changing customer needs. An overall marketing plan or strategy
visually shows how all aspects of a marketing effort work together. The
ultimate goal of any business is to sell the product or service.

PRIMARY DATA FOR THE PROJECT:

For the customized needs o the project, primary data was collected
through a survey in the twin cities of Hyderabad & Secunderabad. A Random
sample of 100 investors were surveyed. They were all asked to answer a
questionnaire true to their knowledge. The feedback obtained from the

61
customer was instrumental, gauging the perception of the investors towards
mutual funds. It also throws light on the factors, which influence them to make
decisions while investing. Further the interaction with few of the investors goes
a long way in understanding the inlaid reasons for their decisions.

SECONDARY DATA:

The main sources of secondary data are the web sites of various mutual
fund houses like cholamandalam mutual fund, Franklintempletonindia, ICICI,
BIRLA SUNLIFE, KOTAK and more such houses. Many references were
collected from different libraries to gain an insight on mutual funds. Previous
studies conducted in this field provided valuable help. In addition to the above
sources, Working with Karvy associates and interaction with their personnel
provided a pragmatic edge to my theoretical concepts.

Survey Details

Total Sample Size 100

Economic Status Criterion Tax payees & Non tax payees

Age groups 23 years and above


Martial Status Criterion Married, Married with children &
Unmarried

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FACTORS CONSIDERED BY INVESTORS

WHILE INVESTING

Every investor considers several factors while investing in any of the products
as it deals with the most important need of life money.

The five main factors that were considered are:


1. Safety & security
2. Tax exemption
3. Liquidity
4. Profitability
5. Return pattern

Factors considered by investors


While investing
17%
31%
14%

12% 26%
Safety & security Tax exemption
Liquidity Profitability
Return pattern

63
SAMPLE SIZE 100

ECONOMIC STATUS TAX PAYEES AND NON-TAX PAYEES

The above graph shows that 31% people consider safety & security as the main
factor while investing, 26% goes for Tax exemption, 17% considered return
pattern in the investment, 14% went with profitability and 12% showed interest
in liquidity.

ANALYSIS OF THE ABOVE GRAPH:

In a developing country like India most of the people fall in the lower middle
class and middle class sectors. The attitude of the investors is of primary
concern. As more and more options that warrant high returns are available in
the market, investor tends to be more skeptical. So, while investing in any
avenue, their first priority is safety and security. Even the age of the investor
plays a major role in the decision-making. For example, if the investor is in the
age of 50 and above, he usually looks for low or no risks while investing.
Therefore, 31% of investors surveyed preferred safety & security.

Next is the tax exemption; as there is tremendous boom in the


corporate sector and the remuneration system for a particular sector has
changed. This created a change in income levels and thereby affected the
expenditure patterns. In the past, it took employee years of time to reach a five-
figured salary. But, gradually the system has changed. Even the employee in
the lower level or the middle level of the corporate ladder is receiving a
handsome emolument. So, they are opting for the exemption of tax. Therefore,
the next preference is for tax exemption that is 26% of the total.

Besides investors going for Safety & security, there are investors who
opt for return on investments they made. They are mainly in the age group of
23 and 35. Because these investors are likely to think that, at this age they are

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mentally more stable and feel that they can cope with financial risks. Any
profits made would further bolster their financial stability. And so, 17% went
with return pattern of their investment. In the same way, 14% of the investors
look for profitability, especially those who are already doing business, i.e. those
who are already accustomed to taking risks.Out of the total, 12% of investors
preferred liquidity. The main reason for this could be that, that making the
invested money liquefied as and when required is important, and this is not
possible if the investments are made in any insurance, Bank deposits, etc.

Though there are numerous factors that can be attributed to an investors


psyche, by large, we can conclude that maximum number of investors is
investing in those sectors where there is safety & security for their principal.
The other factors antecede safety.

INVESTMENT PATTERN:

Investment pattern

7% 5% 4%
2%
9% 42%

31%

Bank deposits insurance mutual fund


bonds shares Equity
none

Sample size 100

Economic status Tax payees & non-tax payees

From the above graph, it is clear that 42% opted for an investment in bank
deposits, 31% for insurance, 7% for shares, 9% for mutual fund, 2% for bonds,

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5% for equity and remaining 4% have invested in some other investments such
as real estates etc.

ANALYSIS OF THE ABOVE GRAPH:

The investment pattern of an investor is also very important because this shows
the avenues where the people are really interested. Here, 42% have invested in
bank deposits as it is very safe and risk free. Out of the sample of 100,it is
observed that those who opted for an investment in banks in the form of
deposits are found to be in the age group of 40 and above and are in
government services.

The next preference, as observed in the pie chart for investment pattern
is Insurance. People generally opt for life insurance because it promotes a
sense of safety & security for the dependents on the person and even his
belongings. So, the next priority is insurance. 7% of the investors went for an
investment in shares as it brings quick returns, although shares are prone to
high risks.

As shown 9% of the investors opted for an investment in mutual funds.


From this we can infer that the market of mutual fund is picking up slowly.
According to the survey, the people who have invested in the mutual funds
belong to high-income range and they want an exemption from tax and a mere
2% opted for bonds, 5% for investment in equity and 4% have invested in other
investments such as Real estate to make quick returns on their investments.

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AWARENESS TOWARDS MUTUAL FUNDS:

In the above pie chart, we can observe that nearly 90% of investors are aware
of mutual funds and only 13% people are not aware of it. This shows that most
of the investors know about mutual funds in one or the other way.

ANALYSIS OF THE ABOVE GRAPH:

Of the sample surveyed, almost all of the people are aware of mutual funds.
They are aware of the term mutual fund. Though the questionnaire cannot
identify the extent of the awareness. Through the interaction it is found that
they are not actually aware of the advantages in investing mutual funds, various
types of mutual funds and different schemes offered in it. It is found that

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People often have an inhibition that investments in mutual funds can be done
only by those who have surplus amount of money with them and want to avail
tax redemption.

MUTUAL FUND INVESTMENTS:

Mutual funds are medium risk investments. Though Investing in mutual fund
doesnt assure a fixed amount of returns, nevertheless, they are not low. The
awareness about mutual funds is the primary criterion.

Sample size 16

Criterion Mutual fund investors in the survey

From the graph, it is clear that only 16 out of 100 invested in mutual funds.
From those 16, 12 have invested in Equity funds, 3 in liquid funds and the
remaining 1 in debt funds.

ANALYSIS OF THE ABOVE GRAPH:

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Only 16 out of 100 invested in mutual funds this can be mainly attributed to
the low level of awareness, various inhibitions and a not so clear idea about the
mutual funds. It is very important to have a clear perception of mutual funds,
how they work and how the money is invested in different portfolios according
to the investors choice.

Investors who opted for equity funds are 12 of 16 percent. Equity funds
being the majority preference can be reasoned as they want their investments to
be put in various sectors i.e. DIVERSIFIED FUNDS so that they can make
profits out of it easily. Even some went for INDEX FUNDS as the investments
are made in Bench Nark Index Stock like BSE, NSE.

A few (3%of 16%) investors made investments in liquid funds as they


want a Short term investments where the investor need not wait for much time
for the return. These are also called as Money Markets for short term.

Only a single investor went for debt funds where investments are in
various debt products like Certificate of Deposits (CDs), Commercial papers
and call money as the investor want a secured investment, which he can avail
in Debt Funds.

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FINDINGS

Many of the investors are aware of mutual funds but most of their
perception towards them is not positive.
Investors are mainly concerned with the risk factors of mutual funds and
are not directing towards them.

The investors who have invested in mutual funds mainly go for it


because of the Liquidity matter and Tax exemption.

Most of the people dont know the advantages of mutual funds and the
various types of mutual funds.

There are nearly 1173 schemes of mutual funds offered by various


mutual fund houses, which an ordinary person is not aware.

A common investor basically looks for the Tax exemption and Safety &
security while investing.

Investors often feel that those people, who have surplus amount with
them and invest to avail Tax exemption, can do investing in mutual
funds.

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SUMMARY

This report is an attempt to provide an analysis of the perception of an investor


towards mutual funds. However, what has been reported is only the tip of
iceberg in terms of data that are available.

However, my examinations suggests that employees are interested to


invest in mutual funds provided sufficiently educated and a know-how is
provided on its working. Though the self-employed are investing in mutual
funds and insurance, they are investing small amounts in them because they do
not want to take high risks.

Karvy stock broking ltd should educate the people about the various
advantages of investing in mutual funds and create an awareness regarding
various investment options.

In conclusion, it is important to remember that the main purpose for


initiating the project is to analyze the perception of an ordinary investor
towards the mutual funds and the aspects that guide him to make investment
decisions. The study does not aim to advocate investments in mutual funds.

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CONCLUSION

Mutual funds are still and would continue to be the unique financial tool in
the country. One has to appreciate the fact that every aspect of life as its periods
of high and lows. This has been the case with the stock markets. Why not apply
the same logic to mutual funds? Mutual funds have not failed in any country
where they worked with regulatory frame work. Their future is bright. The poor
performance of many mutual funds schemes may be mostly attributed to the
quality of personal involved and their matter of fund management.

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SUGGESTIONS

Make people aware of mutual funds by:

Arranging free seminars in different organizations about mutual fund


investments.

Arranging stalls in Public places is a good publicity.

More advertisements need to come to explain the various advantages of


mutual funds and even the various schemes offered by them.

What to expect from a financial advisor

The key for mutual fund investors is to define and recognize the value of
professional financial services, and then insist on getting that value. When
you pay a sales charge or a fee, what can you expect a professional to do for
you? Your advisor should at least:

Understand investor needs and help him formulate long-term investment


goalsandobjectives.
Before making specific recommendations, advisor should try to gain a
whole picture of investors past experience, lifestyle and goals, as well as his
other investments and current financial situation. When the investor
planning to retire, for example? Does the investor have life insurance? Does
he own real estate? How secured is his job?
Help the investor develop realistic expectations by discussing the risks and
rewardsofeachinvestment.Every investment choice has its strengths and
weaknesses, and investor should never feel less than fully informed. When
investor ask questions, or have doubts,

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Investor should expect your financial advisor to answer honestly, and help
him develop a strategy that is both realistic and comfortable for him.

Match investors goals and objectives with appropriate mutual funds.


Investor should expect your advisor to make clear and specific
recommendations, and explain the reasons behind them in terms he can
understand. Of course, the advisor should be confident and well informed
about the management and portfolio
strategiesofanymutualfundsrecommended.
Continually monitor investor portfolio and help you interpret performance.
Your advisor cannot influence or predict a fund's results. However, he or
she should discuss results with you and help you judge your progress. You
should feel that you canalwaysaskyouradvisor,"HowamIdoing?"

Conduct regular reviews to ensure that your strategy continues to provide


optimal results for you.

One of the most valuable services your advisor can provide is to help you
"stay on course" with your investment program. But "staying on course"
long term does not necessarily mean staying put. Expect your financial
advisor to work with you to adjust your portfolio in response to any
significant change in your lifestyle, priorities, assets or responsibilities.
These are the basic services that investors should expect from their financial
advisors. Beyond the basics, many investors could use even more
specialized assistance, like advice on retirement plan distribution options,
setting up and servicing retirement plans for small businesses and self-
employed individuals,
developing tax-advantaged strategies for children's college education,
insurance, estate, and trust planning; and year-end mutual fund tax advice.
If you need specialized services, there are many financial advisors who can
help you obtain the help you n

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BIBLIOGRAPHY
S.No. Name of the Author Publisher Page Nos.

1 Punithavathi Securities Analysis and Portfolio 29,30,411&412


Pandyan Management
2 V.A.Avadhani Investment and Securities Markets in 427,428
India
MAGAZINES:
1. Business standard
2. Economic times
Marketing dictionary A. IVONAVIC

S.NO WEBSITES MONTH OF SEARCH

1 http:// www.karvy.com May 2007

2 http:// www.amfiindia.com May 2007

3 http:// www.ici.org May2007

4 http:// www.google.com May 2007

5 http:// www.moneycontrol.com June 2007

6 http:// www.franklintempletonindia.com June 2007

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Investors perception towards Mutual Funds

PERSONAL INFORMATION

A) Name:
B) Type of Business:
C) Address:
D) Telephone: Mobile:
E) Fax: Email:
F) Annual Income:

ANNEXURE

1.In which part of these modes have you made your major part of
investment?
[] Shares [] Equity [] Mutual Fund [] Insurance
[] Bank Deposit [] Bonds
[] Others Specify---------------------------------
2.Why do you prefer the above option?
[] Return Pattern [] Tax Exemption
[] Liquidity [] Safety & Security
[] Profitability [] Guaranteed Return
[] Others Specify-----------------------------------
3.How long would you like to invest?
[] Short term (below 1yr) [] Medium term (up to 2yrs)
[] Long term (above 3yrs)

4.Have you seen any advertisements for Mutual Funds?


[] Yes [] No

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5.If yes, what are the advertisement have you seen for?
[] Birla sunlife mutual funds [] Reliance mutual fund
[] Chola mutual funds [] Standard charted mutual funds
[] Franklin Templeton mutual fund [] Sundaram mutual fund
[] HDFC mutual fund [] UTI mutual fund
[] ING VYSA mutual fund [] Any other specify--------------------
[] Prudential ICICI mutual fund
6. Rank the following services preferred by you from a financial Advisory
Institution?
Services Rank
1. Telephone services
2. Online services
3. Mobile services
4. Personal services
7. Mention the names of mutual funds you have invested?
---------------------------------------------------------------------
8. In which scheme of mutual funds have you invested?
[] Debt [] Equity
[] Liquidity [] Mixed (Debt & Equity)
[] Others specify---------------------------
9. What was the approximate return you got on your investment?
[] Debt [] Equity
[] Liquidity [] Mixed
[] Others specify---------------------------
10. Which factors you consider the most while, investing in mutual funds?
[] Return patterns [] Performance
[] Services [] Risk factors
[] Quality of portfolio [] Professional management
[] Wealth creation

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11. Which period of dividend income you prefer the most?
[] Monthly [] Quarterly
[] Half yearly [] Annual
12. How often you need reminders (recall) about mutual fund?
[] Monthly [] Quarterly
[] Half yearly [] Annual
13. If you need so, which mode you would prefer?
[] Account statements [] Remainder letters
[] Television & Internet [] News papers & Magazines
14. Please rank your expectations from a mutual funds Advisory concern
Expectations Rank
1. Right Advice
2. Speed of transaction
3. Research inputs
4. Reputations
5. Reliability
6. Investor facilitation
7. Advertisements
8. Easy procedure
15. Are you willing to invest in mutual funds?
[] Yes [] No
If no, specify the reason------------------------------------------
If yes, do you need further assistance from Wealth Management
Executives from
Karvy Consultants Ltd?
[] Yes [] No
16. As investors please specify your needs, expectations and
recommendations to Develop the mutual funds.

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