A STUDY ON

“INVESTOR'S PERCEPTION TOWARDS MUTUAL FUNDS”

IN

KARVY STOCK BROKING PVT. LTD.

BY

K.UDAY KUMAR REDDY

(H.NO.130909672152)

Project submitted in partial fulfillment for the award of the Degree of

MASTER OF BUSINESS ADMINISTRATION
By
Osmania University, Hyderabad – 500007
2009-2011

1
 DECLARATION

I (K.UDAY KUMAR REDDY) here by declare that this project

Report titled “A STUDY ON INVESTOR'S PERCEPTION TOWARDS

MUTUAL FUNDS” submitted by me to the department of HITM is a bonafide

work undertaken by me and it is not submitted to any other University or Institution

for the award of any degree / diploma / certificate or published any time before.

Name & address of the student Signature of the Student

K.UDAY KUMAR REDDY
HT NO:130909672152
HITM
KPHB
RR DIST.

2
 CERTIFICATE

This is to certify that the project Report titled “A STUDY ON

INVESTOR'S PERCEPTION TOWARDS MUTUAL FUNDS” submitted in

partial fulfillment for the award of the degree of MASTER OF BUSINESS

ADMINISTRATION was carried out by HITM under my guidance. This has not

been submitted to any other university or Institution for the award of any degree /

diploma / Certificate.

Name & Address of the Supervisor Signature of the Supervisor

3
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 BIBLIOGRAPHY
77-78

VII ANNEXURE
79-82

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 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
individual’s 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.

5
 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 investor’s 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.
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:

6
Stocks: Stocks represent ownership or equity in a company, popularly known as
shares.

Bonds: These represent debt from companies, financial institutions or Government

agencies.

Money market instruments: These include short-term debt instruments such as

treasury bills, certificate of deposits and inter-bank call money.
A mutual fund’s 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.
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.

RESEARCH METHODOLOGY
Primary data is data that is tailored to a company’s 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.

7
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 Karvy securities 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.

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.

8
9
 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.

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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 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

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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.

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.

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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

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

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 • 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 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

15
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 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

16
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. 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 weight age 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.

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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:

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:

18
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:

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:

19
 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

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.

20
 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 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 scheme’s investors. On the other hand, there is
no such direct correlation between a company’s 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.

21
 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 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

22
 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.

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 scheme’s portfolio.

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

23
 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 DEBENTURES MARKET FUND
Returns Low Low to Low to Moderate to high Better
Moderate moderate
Administrative High Moderate Moderate to Low to Moderate Low
expenses to High high
Risk Low Low to Low to High Moderate
Moderate moderate
Investment Less Few Few Many More
options
Network High Low Low penetration Low but Low but
penetration penetration improving fast improving
Liquidity At a cost Low Low to Moderate to High Better
moderate
Quality of Not Not Not transparent Transparent Transparent
Assets transparent transparent

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Guarantee Maximum None
Rs 1 lakh

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

25
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.

Diversification

Diversification reduces the risk because all stocks don’t 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

26
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 this case
and can impose penalties on the AMC’s 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

27
 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 receive all income without any
deduction of tax at source under the provisions of section 196(iv), of the income tax
act.

28
29
 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.

30
 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 2008:Q3, mutual fund assets worldwide were $ 17.28 trillion, having
increased 18 percent over the year 2007:Q3.

Worldwide mutual fund assets (trillions of US dollars)

31
Worldwide assets of Equity, Bond, Money Market & Balanced fund
(Billions of US dollars)

32
Composition of world Wide mutual fund assets by the types of fund 2008;Q4

Source: Ici.org

The end of 2008: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 2008;Q3

33
At the end of 2008: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 2008;Q2

At the end of the fourth quarter of 2008, 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 2002-2008;Q3

34
 2007 2008
2002 2003 2004 2005 2006 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
2
Every Period 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.

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

35
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.

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:

38
 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, Karvy’s 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

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

39
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

KARVY COMMODITIES BROKING LIMITED

40
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 Customer’s
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 customer’s 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.

• 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.

41
 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.

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

42
• 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
• 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

43
 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
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.

44
 VALUES
INTEGRITY
TRANSPARENCY
PASSION FOR QUALITY
HARD WORK AND TEAM PLAY
LEARNING AND INNOVATION
EMPATHY AND HUMILITY
SENSE OF OWNERSHIP.

KARVY ACHIEVEMENTS

• India’s # 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.

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

47
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 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.

48
 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:

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

49
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:

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:

51
 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:

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.

52
 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.

53
 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:

It is an open-ended growth scheme seeking to generate returns from a portfolio by

investing in Government securities.

Chola monthly income plan:

54
 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.

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

55
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 secret—the 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.

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

56
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 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

57
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?

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?

58
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

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 1950’s, when product
differentiation was the primary marketing strategy used. In the 1970’s and 1980’s,
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

59
 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 offering—product, price, promotion, and place (distribution).
Segmentation can help avoid sending the wrong message or sending message to the
wrong people.
Classification variables
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.

60
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 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

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 Factors considered by investors
While investing
17%
31%
14%

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

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

63
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 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 investor’s

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:

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Sample size Investment
100 pattern
7% 5% 4%
Economic status 2%payees & non-tax payees
Tax
9% 42%

From the above graph, it is clear that 42% opted for an investment in bank deposits,
31% for insurance, 7% for31%
shares, 9% for mutual fund, 2% for bonds, 5% for equity
and remaining 4% have invested in some other investments such as real estates etc.
Bank deposits insurance mutual fund
bonds shares Equity
none

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

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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.

AWARENESS TOWARDS MUTUAL FUNDS:

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 Awareness towards mutual
funds

13%

87%

Aware of mutual fund Not aware of mutual fund

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 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.

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 MUTUAL FUND INVESTMENTS:

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

Mutual fund investments

19%
6%

75%

Equity funds Debt funds Liquid funds

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:

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.

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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
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 (CD’s), 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 don’t 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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71
 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

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

• Match investor’s 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

74
 advisor should be confident and well informed about the management and
portfolio strategies of any mutual funds recommended.
• 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 canal ways ask your advisor, "How am I doing?"
• 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.

75
BIBLIOGRAPHY

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

76
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 WEBSITE’S 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

77
78
 Investor’s perception towards Mutual Funds

PERSONAL INFORMATION

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

ANNEXURE
QUESTIONNAIRE

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

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

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 [] 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

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

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 [] 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.

81