EXECUTIVE SUMMARY

All investments carry risk in some form or the other. Risk, liquidity and return are the so called factors which are considered before making an investment. But there is a trade off between risk and return. Higher the risk higher the return. Lower the risk and lower the return. The decision of which mode of investment to choose largely de ends u on the investors necessity and the factors which according to him is the most vital one. !eo le with more security concern choose fi"ed investment and investments in government securities and various ost office savings. The main reason for choosing such an investment mode is that the amount invested in the above stated securities seems to be very secure and hence they seemed to be more referred one where security is the rime concern. !eo le whom returns are most im ortant are ready to take risk to earn fairer risk. The referred mode of investment over here is shares and mutual fund. The risk factor in these modes of investment is basically the returns are basically erformance based. #f the com any erforms well the investors can acce t fairer returns but if the com any fails to erform then there can be a threat to the invested amount. Hence the returns are very volatile with the changes in the market conditions. Hence it is u to the investors to decide that which is the best kind of investment that would cater his need. The hy othesis of the study was Investors still prefer the traditional funds for investment instead the more modern methods like mutual fund !

C"M#A$Y #R"%I&E

#n $%&', a grou of Hyderabad(based racticing )hartered Accountants started *arvy )onsultants Limited with a ca ital of Rs.$, +,,,,, offering auditing and ta"ation services initially. Later, it forayed into the Registrar and -hare Transfer activities and subsequently into financial services. All along, *arvy.s strong work ethic and rofessional background leveraged with

#nformation Technology enabled it to deliver quality to the individual. A decade of commitment, leadershi rofessional integrity and vision hel ed *arvy achieve a

osition in its field when it handled the largest number of issues ever handled

in the history of the #ndian stock market in a year. Thereafter, *arvy made inroads into a host of ca ital(market services, ( cor orate and retail ( which roved to be a sound business synergy. Today, *arvy has access to millions of #ndian shareholders, besides com anies, banks, financial institutions and regulatory agencies. /ver the ast one and half decades, *arvy has evolved as a veritable link between industry, finance and eo le. #n 0anuary $%%&, *arvy became the first 1e ository !artici ant in Andhra !radesh. An #-/ %,,' com any, *arvy.s commitment to quality and retail reach has made it an integrated financial services com any.

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'R"U# C"M#A$IES
*arvy is 2ust not restricted to one or two fields but has a very wide network. #t has many com anies which are working in their name. -ome of the com anies and their functions in brief are given below. (arv) Consultants &imited 1eals in Registrar and #nvestment -ervices (arv) Se*urities &imited 1eals in distribution of various investment roducts, vi3., equities, mutual funds, Bonds and debentures, fi"ed de osits, insurance olicies for the investor. (arv) Investor Servi*es &imited 1eals in #ssue management, #nvestment Banking and 4erchant Banking. (arv) Sto*k +rokin, &imited 1eals in equity shares and debentures on the 5ational -tock 6"change 75-68, the Hyderabad -tock 6"change 7H-68 and the /ver(The()ounter 6"change of #ndia 7/T)6#8.

(EY #E"#&E

-oard of .ire*tors / (arv) Consultants &imited !arthasarathy ) :ugandhar 4 Ramakrishna 4 !rasad ; !otluri -oard of .ire*tors / (arv) Se*urities &imited !arthasarathy ) :ugandhar 4 Ramakrishna 4 -oard of .ire*tors / (arv) Sto*k -rokin, &imited !arthasarathy ) :ugandhar 4 Ramakrishna 4 -oard of .ire*tors / (arv) Investor Servi*es &imited !arthasarathy ) :ugandhar 4 Ramakrishna 4 -

AC0IEVEME$TS
Largest mobiliser of funds as er !R#46 1ATABA-6

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=irst #-/ ( %,,' )ertified Registrar in #ndia A )ategory( # (4erchant banker. A )ategory( # (Registrar to !ublic #ssues. Ranked as >The 4ost Admired Registrar? by 4AR@. Handled the largest( ever !ublic #ssue ( #1B# Handled over +,, !ublic issues as Registrars. Handling the Reliance Account which accounts for nearly $, million account holders =irst 1e ository !artici ant from Andhra !radesh.

1UA&ITY #"&ICY To achieve and retain leadershi , *arvy shall aim for com lete customer satisfaction, by combining its human and technological resources, to rovide su erior quality financial services. #n the rocess, *arvy will strive to e"ceed )ustomerAs e" ectations. 1UA&ITY "-2ECTIVES As er the Buality !olicy, *arvy willC

Build in(house

rocesses that will ensure trans arent and harmonious

relationshi s with its clients and investors to rovide high quality of services.

6stablish a artner relationshi with its investor service agents and vendors that will hel in kee ing u its commitments to the customers. !rovide high quality of work life for all its em loyees and equi them with adequate knowledge D skills so as to res ond to customer.s needs. )ontinue to u hold the values of honesty D integrity and strive to establish un aralleled standards in business ethics. Ese state(of(the art information technology in develo ing new and innovative financial clients. roducts and services to meet the changing needs of investors and

-trive to be a reliable source of value(added financial roducts and services and constantly guide the individuals and institutions in making a 2udicious choice of it.

I$TR".UCTI"$ "% MUTUA& %U$. A$. "T0ER I$VESTME$TS

At inde endence the #ndian economy was redominantly agrarian. 4ost of the o ulation was em loyed in agriculture, and most of those eo le were very oor. Although there was considerable growth in the $%+,s, the long(term rates of growth were less ositive than #ndia.s oliticians desired and less than those of many other Asian countries. The rate of growth im roved in the $%&,s. =rom =: $%&, to =: $%&%, the economy grew at an annual rate of +.+ ercent, or 9.9 ercent on a er ca ita basis. #ndustry grew at an annual rate of F.F ercent and agriculture at a rate of 9.F ercent. A high rate of investment was a ma2or factor in im roved economic growth. #nvestment went from about $% ercent of @1! in the early $%G,s to nearly '+ ercent in the early $%&,s. #ndia, however, required a higher rate of investment to attain com arable economic growth than did most other low(income develo ing countries, indicating a lower rate of return on investments. !art of the adverse #ndian e" erience was e" lained by investment in large, long(gestating, ca ital(intensive ro2ects. !rivate savings financed most of #ndia.s investment, but by the mid($%&,s further growth in rivate savings was difficult because they were already at quite a high level. As a result, during the late $%&,s #ndia relied increasingly on borrowing from foreign sources. By the ',th and the '$st century the level of savings made by the eo le increased tremendously. These savings were invested in some or the other modes available either for contingency ur ose or to secure future. The ma2or fields of investment were insuran*e 3 +ank fi4ed deposits3 private fi4ed deposits3 post offi*e savin,s3 ,overnment se*urities3 ,old5silver3 sto*ks3 mutual funds 3 I#"6initial pu+li* offerin,73 real propert) et* .

MUTUA& %U$.S
I$TR".UCTI"$

A 4utual =und is a trust that ools the savings of a number of investors who share a common financial goal. The money thus collected is invested by the fund manager in different ty es of securities de ending u on the ob2ective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the ca ital a reciation reali3ed by the scheme is shared by its unit holders in ro ortion to the number of units owned by them 7 ro rata8. Thus a 4utual =und is the most suitable investment for the common man as it offers an o ortunity to invest in a diversified, rofessionally managed ortfolio at a relatively low cost. Anybody with an inventible sur lus of as little as a few thousand ru ees can invest in 4utual =unds. 6ach 4utual =und scheme has a defined investment ob2ective and strategy. 4utual funds rovide a way for eo le to ool their money together to create a larger fund which is looked after by a rofessional fund manager. This fund is then divided into equal shares, called units. =ollowing the stock, bond or money markets and taking advantage of the best investment o ortunities is a full time 2ob requiring a great deal of knowledge, research and in(de th analysis. 4any eo le do not have the time or e" ertise to undertake this. Hith mutual funds, rofessional fund managers and analysts do all this for you. :ou benefit from their e" ertise. Thus a 4utual =und is the most suitable investment for the common man as it offers an o ortunity to invest in a diversified, rofessionally managed basket of

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securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fundC -HA!6 IJ 46R@6=/R4AT

%i,ure 8 Mutual %und "peration %lo9 Chart

-E$E%ITS "% MUTUA& %U$.S 4utual =unds offer several benefits to an investor such as are number of o tions available for an investor offered by a mutual fund. Before investing in a 4utual =und an investor must identify his needs and references. Hhile selecting a 4utual =und.s schemes he should consider the effect of inflation rate, diversification of investment, the time eriod of investment and the risk factors. There are various ty es of risk factors asC 4arket Risk )redit Risk #nterest Rate Risk #nflation Risk !olitical 6nvironment otential return,

liquidity, trans arency, income growth, good ost ta" return and reasonable safety. There

A 4utual =und is an ideal investment vehicle where a number of investors come together to ool their money with common investment goal. 6ach 4utual =und with different ty e of schemes is managed by res ective Asset 4anagement )om any 7A4)8. An investor can invest his money in one or more schemes of 4utual =und according to his choice and becomes the unit holder of the scheme. The invested money in a articular scheme of a 4utual =und is then invested by fund manager in different ty es of suitable stock and securities, bonds and money market instruments. 6ach 4utual =und is managed by qualified rofessionals, who use this money to create a ortfolio which includes stock and shares, bonds, gilt, money(market instruments or combination of all. Thus 4utual =und will diversify your ortfolio over a variety of investment vehicles. 4utual =und offers an investor to invest even a small amount of money. $,

4utual =unds offer several benefits to an investor that unmatched by the other investment o tions. The ma2or benefits are good ost(ta" returns and reasonable safety, the other benefits in investing in 4utual =unds are #rofessional Mana,ement: 4utual =unds em loy the services of e" erienced and skilled rofessionals and dedicated investment research team. The whole team analyses the erformance and balance sheet of com anies and selects them to achieve the ob2ectives of the scheme #otential Return: 4utual =unds have the otential to rovide a higher return to an investor than any other o tion over a reasonable eriod of time. .iversifi*ation: 4utual =unds invest in a number of com anies across a wide cross section of industries and sectors. &i;uidit): The investor can get the money rom tly at the net asset value related rices from the 4utual =unds o en(ended schemes. #n close(ended schemes, the units can be sold on a stock e"change at the revailing market rice. &o9 Cost: #nvestment in 4utual =unds is a less e" ensive way in com arison to a direct investment in ca ital market. Transparen*): 4utual =unds have to disclose their holdings, investment attern and the necessary information before all investors under a regulation framework. %le4i+ilit): #nvestment in 4utual =unds offers a lot of fle"ibility with features of schemes such as regular investment lan, regular withdrawal lans and dividend reinvestment lans enabling systematic investment or withdrawal of funds. Afforda+ilit): -mall investors with low investment fund are unable to high(grade or blue chi stocks. An investor through 4utual =unds can be benefited from a ortfolio including of high riced stock.

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<ell re,ulated: All 4utual =unds are registered with -6B#, and -6B# acts a watchdog, so the 4utual =unds are well regulated.

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.ISA.VA$TA'ES

4utual funds are good investment vehicles to navigate the com le" and un redictable world of investments. However, even mutual funds have some inherent drawbacks. Enderstand these before you commit your money to a mutual fund. $o assured returns and no prote*tion of *apital #f you are lanning to go with a mutual fund, this must be your mantraC mutual funds do not offer assured returns and carry risk. =or instance, unlike bank de osits, your investment in a mutual fund can fall in value. #n addition, mutual funds are not insured or guaranteed by any government body 7unlike a bank de osit, where u to Rs $ lakh er bank is insured by the 1e osit and )redit #nsurance )or oration, a subsidiary of the Reserve Bank of #ndia8. There are strict norms for any fund that assures returns and it is now com ulsory for funds to establish that they have resources to back such assurances. This is because most closed(end funds that assured returns in the early(nineties failed to stick to their assurances made at the time of launch, resulting in losses to investors. Restri*tive ,ains 1iversification hel s, if risk minimi3ation is your ob2ective. However, the lack of investment focus also means you gain less than if you had invested directly in a single security

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"R'A$ISATI"$ "% MUTUA& %U$.S There are many entities involved and the diagram below illustrates the organi3ational set u of a mutual fundC

%i,ure = "r,ani>ation of a Mutual %und 4utual funds have a unique structure not shared by other entities such as com anies or firms .The structure of mutual funds in #ndia is governed by -6B# 74utual =und8 Regulations, $%%F. These regulations make it mandatory for mutual funds to have a three K tier structure of - onsor K Trustee K Asset 4anagement )om any 7A4)8. The s onsor is the romoter of the mutual fund and also a oints the Trustees, custodians, and the A4) with rior a roval of -6B#. The s onsor establishes the mutual fund and registers the same with -6B#. - onsor must contribute at least <,L of the ca ital of the A4). The trustees are res onsible to the investors in the mutual fund, and a oint the A4) on the advice of s onsors for managing the investment ortfolio. The trustee of one mutual fund cannot be a trustee of other mutual fund. The trustee of one mutual fund cannot be a trustee of other mutual fund. The #ndian Trust Act governs trustees. #f the trustee is a

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com any then the )om anies Act also governs it. The A4) is the business face of the mutual fund, as it manages all the affairs of the mutual fund. /nly the -6B# registered A4)As can be a ointed as investment managers of mutual fund. A4) must have minimum net worth of Rs. $, crore, at all times. An A4) too cannot be an A4) or trustees of other mutual fund. TY#ES "% MUTUA& %U$.S A 4utual =und may float several schemes which may be classified on the basis of its structure, its investment ob2ectives and other ob2ectives.

A MUTUA& %U$. SC0EMES -Y STRUCTURE Open-Ended Funds: / en(6nded fund scheme is o en for subscri tion all through year. An investor can buy or sell the units at ?5A;? 75et Asset ;alue8 related rice at any time.
ACC"R.I$' T" STUCTURE ACC"R.I$' T" I$VESTME$T "-2ECTIVES "T0ER "-2ECTIVES TY#ES "% MUTUA& %U$.

Close-Ended Funds: A )lose(6nded fund is o en for subscri tion only during a s ecified eriod, generally at the time of initial ublic issue. The )lose(6nded fund scheme is listed on the some stock e"changes where an investor can buy or sell the units of this ty e of scheme. Interval Funds: #nterval =unds combines both the features of / en(6nded funds and )lose(6nded funds.

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- MUTUA& %U$. SC0EMES -Y I$VESTME$T "-2ECTIVES Growth Funds: The ob2ective of @rowth =und scheme is to rovide ca ital a reciation over the medium to long term. This ty e of scheme is an ideal scheme for the investors seeking ca ital a reciation for a long eriod. Income Funds: The #ncome =und schemes ob2ective is to rovide regular and steady income to investors. Balanced Funds: The ob2ective of Balanced =und schemes is to rovide both growth and regular income to investors. Money Market Funds: The ob2ectives of 4oney market funds are to rovide easy liquidity, regular income and reservation of income. C "T0ER %U$.S Tax av!n" chemes: The ob2ective of Ta" -aving schemes is to offer ta" rebates to the investors under s ecific rovisions of the #ndian #ncome Ta" Laws. #nvestments made under some schemes are allowed as deduction uMs && of the #ncome Ta" Act. Industry spec!#!c chemes: #ndustry s ecific schemes invest only in the industries s ecified in the offer document of the schemes. ector!al chemes: The scheme invest articularly in a s ecified industries or initial ublic offering. Index schemes: -uch schemes links with the erformance of B-6 sense" or 5-6. $oan Funds: Loan =unds charges a commission each time when you buy or sale units in the fund. %o-$oan Funds: 5o(Loan =unds does not charge a commission on urchase or sale of the units in the fund.

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"T0ER I$VESTME$TS
Savings form an im ortant art of the economy of any nation. Hith the savings invested in various o tions available to the eo le, the money acts as the driver for growth of the country. #ndian financial scene too resents a lethora of avenues to the investors. Though certainly not the best or dee est of markets in the world, it has reasonable o tions for an ordinary man to invest his savings. A short briefing about each form of investment is given belowC -A$(S )onsidered as the safest of all o tions, banks have been the roots of the financial systems in #ndia. !romoted as the means to social develo ment, banks in #ndia have indeed layed an im ortant role in the rural u liftment. =or an ordinary erson though, they have acted as the safest investment avenue wherein a erson de osits money and earns interest on it. The two main modes of investment in banks, savings accounts and fi"ed de osits have been effectively used by one and all. However, today the interest rate structure in the country is headed southwards, kee ing in line with global trends. Hith the banks offering little above % ercent in their fi"ed de osits for one year, the yields have come down substantially in recent times. Add to this, the inflationary ressures in economy and you have a osition where the savings are not earning. The inflation is cree ing u , to almost & ercent at times, and this means that the value of money saved goes down instead of going u . This effectively mars any chance of gaining from the investments in banks. Hhen you de osit a certain sum with the bank at a fi"ed rate of interest and for s ecified time eriod it is called a bank =i"ed 1e osit 7=18. At maturity, you are entitled to receive the rinci al amount as well as the interest earned at the re(s ecified rate during that eriod. The rate of interest for Bank =i"ed 1e osits varies between < and F er cent, de ending on the maturity eriod of the =1 and the amount invested. The interest can be calculated

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monthly, quarterly, half(yearly, or annually, and varies from bank to bank. They are one the most common savings avenue, and account for a substantial ortion of an average investor.s savings. The facilities vary from bank to bank. -ome services offered are withdrawal through cheques on maturityN break de osit through remature withdrawal, and overdraft facility etc. Interest Rates 6? p a 7 6effe*tive =AAB7 G days to $< days 7Rs.$+ lacs and above8 $+ days to <+ days <F days to $G% days $&, days to less than $ year $ year to less than ' years ' years to less than 9 years 9 years and above ource: State -ank of India Ta+le : Interest Rates #a)a+le on .eposits <.,, <.'+ +.,, +.'+ +.+, +.G+ F.,, @th Ma)

.uration

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#"ST "%%ICE SC0EMES 0ust like banks, ost offices in #ndia have a wide network. - read across the nation, they offer financial assistance as well as serving the basic requirements of communication. Among all saving o tions, !ost office schemes have been offering the highest rates. Added to it is the fact that the investments are safe with the de artment being a @overnment of #ndia entity. -o the two basic and most sought for features, those of return safety and quantum of returns were being handsomely taken care of. Though certainly not the most efficient systems in terms of service standards and liquidity, these have still managed to attract the attention of small, retail investors. However, with the government announcing its intention of reducing the interest rates in small savings o tions, this avenue is e" ected to lose some of the investors. !ublic !rovident =unds act as o tions to save for the ost retirement eriod for most eo le and have been considered good o tion largely due to the fact that returns were higher than most other o tions and also hel ed eo le gain from ta" benefits under various sections. This o tion too is likely to lose some of its sheen on account of reduction in the rates offered. !ost office savings consists of

$ational Savin,s Certifi*ates: 5ational -avings )ertificates 75-)8 is an assured

return scheme, armed with owerful ta" rebates under -ection && of the #ncome Ta" Act, $%F$. #nterest is ayable at & er cent, com ounded half(yearly for a duration of F years.

$ational Savin,s S*heme: 5ational -avings -cheme 75--8 offers an assured return and ta" rebates under -ection && of the #ncome Ta" Act, $%F$. The rate of interest is G.+ er cent er annum, com ounded annually.

(isan Vikas #atra: *isan ;ikas !atra 7*;!8 doubles your money in & years and G months with the advantage of remature withdrawal. *;! is sold through all Head !ost /ffices and other authori3ed ost offices throughout #ndia. The rate of return is &.<$ er cent, com ounded annually.

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Monthl) In*ome S*heme: The

ost(office monthly income scheme 74#-8

rovides for monthly ayment of interest income to investors. #t is meant for investors who want to invest a lum (sum amount initially and earn interest on a monthly basis for their livelihood. The scheme is, therefore, a boon for retired ersons. The ost(office 4#- gives a return of & er cent lus a bonus of $, er cent on maturity. However, this $, er cent bonus is not available in case of remature withdrawals. Re*urrin, .eposit: A !ost(/ffice Recurring 1e osit Account 7R1A8 is akin to a Recurring 1e osit in a bank, where you invest a fi"ed amount on a monthly basis. The de osit has a fi"ed tenure, and the scheme is a owerful tool for regular savings. As the name says, the R1A is a systematic way of saving money. The scheme is meant for investors who want to de osit a fi"ed amount regularly, in order to get a tidy sum after five years. #f you invest Rs $, every month, you will get back Rs G'&.%, after + years. Time .eposit: A Time 1e osit is an investment o tion that ays annual interest rates between F.'+ and G.+ er cent, com ounded quarterly, and is available through ost(offices across the country.

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C"M#A$Y %IXE. .E#"SITS Another often(used route to invest has been the fi"ed de osit schemes floated by com anies. =inancial institutions and 5on(Banking =inance )om anies 75B=)s8 also acce t such de osits. 1e osits thus mobili3ed are governed by the )om anies Act under -ection +&A. These de osits are unsecured, i.e., if the com any defaults, the investor cannot sell the com any to recover his ca ital, thus making them a risky investment o tion. 5B=)s are small organi3ations, and have modest fi"ed and man ower costs. Therefore, they can ass on the benefits to the investor in the form of a higher rate of interest. 5B=)s suffer from a credibility crisis. -o be absolutely sure to check the credit rating. AAA rating is the safest. According to latest RB# guidelines, 5B=)s and com anies cannot offer more than $< er cent interest on ublic de osits. )om anies have used fi"ed de osit schemes as a means of mobili3ing funds for their o erations and have aid interest on them. The safer a com any is rated, the lesser the return offered has been the thumb rule. However, there are several otential roadblocks in these. =irst of all, the danger of financial osition of the com any not being understood by the investor lurks. The investors rely on intermediaries who more often than not, donAt reveal the entire truth. -econdly, liquidity is a ma2or roblem with the amount being received months after the due dates. !remature redem tion is generally not entertained without cuts in the returns offered and though they resent a reasonable o tion to counter interest rate risk 7es ecially when the economy is headed for a low interest regime8, the safety of rinci al amount has been found lacking. 4any cases like the *uber @rou and 1)4 @rou fiascoes have resulted in low confidence in this o tion.

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S0ARES -hares, also called scri , are the basic building blocks of a com any. A com any.s ownershi is determined on the basis of its shareholding. -hares are, by far, the most glamorous investment o tion for the sim le reason that, over the long term, they offer the highest returns. !redictably, they.re also the riskiest investment o tion. The B-6 -ense" is the most o ular inde" that tracks the movements of shares of 9, blue(chi com anies on a weighted average basis. The rise and fall in the value of the -ense", measured in oints, broadly indicates the rice(movement of the value of shares. /f late, technology has layed a ma2or role in enhancing the efficiency, safety, and trans arency of the markets. The introduction of net trading has made it ossible for an investor to trade in shares at the click of a mouse. T)pes of shares A com any may have many different ty es of shares that come with different conditions and rights. There are four main ty es of sharesC "rdinar) Shares: /rdinary shares are standard shares with no s ecial rights or restrictions. They have the otential to give the highest financial gains, but also have the highest risk. /rdinary shareholders are the last to be aid if the com any is wound u . #referen*e Shares: !reference shares ty ically carry a right that gives the holder referential treatment when annual dividends are distributed to shareholders. Cumulative #referen*e Shares: )umulative reference shares give holders the right that, if a dividend cannot be aid one year, it will be carried forward to successive years. Redeema+le Shares: Redeemable shares come with an agreement that the com any can buy them back at a future date. A com any cannot issue only redeemable shares.

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I$SURA$CE A life insurance olicy is a contract between an individual 7termed as insured8 and an insurance com any 7insurer8 to ay the insured, or his nominated heirs, a s ecified sum of money on the ha ening of an event. The event could be the e" iry of the insurance olicy or the death of the insured before the e" iry 7date of maturity8 of the olicy as er the terms of the olicy. #n a sim le e"am le, a erson takes an insurance olicy and nominates his wife as the beneficiary. /n the death of this erson, his wife gets the amount for which the life insurance olicy was urchased. There are many variants of a life insurance olicyC 8 <hole &ife Assuran*e #lans: These are low(cost insurance lans where the sum assured is ayable on the death of the insured = Endo9ment Assuran*e #lans: Ender these lans, the sum assured is ay(able on the maturity of the olicy or in case of death of the insured individual before maturity of the olicy. B Term Assuran*e #lans: Ender these lans, the sum assured is ayable only on the death of the insured individual before e" iry of the olicy. C #ension #lans: These lans rovide for either immediate or deferred ension for life. The ension ayments are made till the death of the annuitant 7 er(son who has a ension lan8 unless the olicy has rovision of guaranteed eriod. Life #nsurance )or oration 7L#)8 is a government com any. Till recently, the L#) was the sole rovider of life insurance olicies to the #ndian ublic. However, the #nsurance Regulatory D 1evelo ment Authority 7#R1A8 has now issued licenses to a few rivate com anies to conduct the business of life insurance.

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.ATA A$A&YSIS
RESARC0 MET0"."&"'Y
0Y#"T0ESISC #nvestors still refer the traditional funds for investment instead the more modern methods like mutual fund RESEARC0 "-2ECTIVE To stud) #nvestment attern of investors. *ey factors to be considered before investing. 4utual funds sco e and acce tance of mutual fund as means of investment as com ared to other investment. TY#E "% SURVEY The questionnaire based survey is selected for conducting the research. The questionnaire based survey is selected because it is the most effective and efficient way to conduct research of investors investing in mutual fund since they 2ust have to give their o inion for the question asked by the researcher and also they can 2ust select from the alternatives given in the questionnaire. SAM#&I$' $on/#ro+a+ilit) Samplin, =or the study the sam ling technique used is that of 5on !robability -am ling and the method is that of )onvenience -am ling which re resents the non robability sam les

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that can be restricted. Ender this method there is freedom to choose whomever the researcher finds. SAM#&E SIDE The o ulation defined for the study is any investor and into any kind of investment. The o ulation defined would give inferences. -o the o ulation is divided here in different classes. All the rofessionals, service, businessmen and would include any erson who make any kind of investment became my o ulation. The sam le si3e is a ro"imately si3e is ke t $,, randomly. TY#E "% 1UESTI"$$AIRE The questionnaire designed contained 1ichotomous questions 4ulti le(choice questions Thus it was easy for the investors to select from the alternatives, the alternative which suits them the best. The data or the data the information collected from the res ondents were the res ondents were then com iled, tabulated and classified for analysis and inter retation with the use of 4icrosoft 6"cel, 4icrosoft Hord etc. &IMITATI"$: 6very research has certain limitation to it. -o also the research conducted had certain limitation. They are stated as underC The res ondents were not very much co(o erative as they didnAt want to disclose their level of investments. The investors of were difficult to be traced, as there was no database available for the same.

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 !eo le generally hesitated to answer the questionnaire thinking that the questionnaire is a way to market some articular mode of investment.

#nsufficient knowledge of every kind of investment sometimes sticks a res ondent at articular answer, which inversely affect towards the ob2ective of study. At the time of survey some of the res ondents are busy in their work, which had restricted them from answering. The res ondents where not able to 2ustify their stand at oints and hence this roved to be a limitation of the study.

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.ATA A$A&YSIS A$. I$TER#RETAT"$

#ERCE$TA'E "% I$C"ME SAVE. -Y T0E 'E$ERA& MASS

Savings Percentage
40 35 30 25 20 15 10 5 0 37 32 21 10

Respondents

Below 10%

10-20%

20-30%

Above 30%

The chart re resents the ercentage of the income the res ondents generally save. =rom the above chart it is clear that a large number of investors save between the range of $, to ',L ercent of their income. 5early equal numbers of investor save less than $,L. /nly $,L of the investors surveyed saved more than 9,L of their income. The res ondents who saved between the range of ', to 9, L was around '$L

'G

T0E #UR#"SE SAVI$' SERVES Contin,en*) Se*ured %uture "thers

Saving p rpose

15

!3

"ontigenc#

Sec red $ t re

%t&ers

The chart re resents the ur ose for which the eo le make a saving. #t is retty clear from the chart that the ma"imum number of res ondents 7i.e.&9L8 saves to secure their future. -ecure future can be anything from their childrenAs studies or marriage or for themselves. The ne"t im ortance is given for contingency ur ose. The others ur ose could be ta" benefits or e"cess money and no s ecific ur ose. The res ondents could be generally being termed as to be more concerned about the future and hence they can be termed as safe layers.

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T0E %ACT"RS TA(E$ I$T" ACC"U$T -E%"RE I$VESTI$' Risk &i;uidit) Return Tenure "thers

'nvesting (actors
100 !0 Respondents )0 40 20 0 Ris* +i, idit# Ret rn -en re %t&ers 14 1 5 44 !1

This chart re resents the factors that investors consider before making an investment. =rom the above chart it is clear that the investors take into account more than one factor before making an investment. Risk factor has been the rime concern for the investors for making an investment. &$L of the res ondents consider risk as being one of the main factors to be considered before making an investment. =urther the return was considered to be im ortant for the investments. <<L res ondents considered return to be an im ortant factor whereas $< L res ondents considered liquidity to be an im ortant factor. Risk was considered to be more im ortant than '%

Liquidity and Returns. The res ondents gave least im ortance to the tenure factor. The others over here could be the ast records of the investment o goodwill of the same #ERS"$S C"$SU&TE. -E%"RE MA(I$' A$ I$VESTME$T .ECISI"$ %amil) and Relatives #eer E4pert and #rofessionals Self ortunity or the

'/1.S-2./- "%/S3+-A/47 50 R.SP%/0./ -S 0 Family and Relatives Peers Experts and Professionals Self
This chart re resents the eo le whose o inions are generally taken by the investors before making an investment. #t is clear from the above diagram that more than one ersonAs o inion is taken into consideration before making an investment. 4a"imum number of res ondents consults family and relatives o inion before making an

30 5

38

9,

investment followed by e" erts and rofessionals. Large number of eo le do not consult anybody but rely on their intuition and their own e" erience and knowledge while making an investment. !eo le consulting e" erts before making an investment have been increasing over the years but it still has a very long way to go.

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I$VESTME$T AVE$UES #RE%ERE.

'/1.S-2./- A1./3.S
95 100 0 79 The above chart9re resents the avenue where investments 75are made. #t is clear that the 80 67 investors chose 7 more 0 than one avenue as art 58 of their investment. #nsurance is a field 50 =1M)om any =1 and 60 where eo le are keener to make an investment followed by Bank 50 stocks. 4utual fund was not much referable only +,L of the res ondents were actual 40 investors in the mutual fund industry. @oldM-ilver 7i.e. bullion8 and the #!/ 19 7initial ublic 30 0 8 for investment. 6 offering8 were the least referred amongst the res ondents as an avenue 10 /thers over here0 could include real ro erty. 6ven @overnment securities had a noticeable number of investors. !ost office schemes 1roved to F&'(ompany be a very encouraging area !ns"ran#e $an% F& of investment. R.SP%/0./-S Post )ffi#e Savin*s +old'Silver ,"t"al F"nd 9' )t-ers +overnment Se#"rities Sto#%s !P)

M".ES "% A<ARE$ESS %"R MUTUA& %U$.S

2%0.S %$ A4AR./.SS
60 R.SP%/0 40 ./-S 0 0 .e/spaper ,a*a2ines )t-ers 48 18 3 15 1

1 0"dio' 1ideo 0dvertisement Professionals

This in ut was basically required from the res ondents who didnAt invest in mutual funds. This means that this question was meant for +, res ondents who did not invest in mutual fund. This chart re resents the ways in which res ondents who are not investing into mutual funds came to know about mutual funds. 5ews a ers have been the best mode of advertising for mutual fund .About %FL eo le have come to know about mutual fund through news a er advertisement followed by maga3ines. The share of rofessionals has been less as com ared to other modes. This says there is lot of sco e further. 4aga3ines and other mode has been the least contributor.

99

SC0EMES "% MUTUA& %U$. T0AT T0E 'E$ERA& MASS <AS A<ARE "%

S"5.2.S %$ 23-3A+ $3/0

33 15

35 30 5 R.SP%/0 0 ./-S 15 10 5 0

E3"ity

&e4t

,!P

$alan#ed

.ot 0/are

This chart re resents the schemes of mutual funds of which res ondents not investing in mutual funds are aware of. 4#! i.e. monthly #ncome !lan seems to be more o ular amongst the res ondents. -o that could be an area where the mutual fund industry can cash in. The o ularity was followed by equity schemes and by debt schemes. There were & res ondents out of +, i.e. fairly $FL who were not aware about any schemes of mutual fund industry. The rime concern of the industry eo le should over here be to educate eo le regarding the mutual fund industry and its various schemes and how it can rove to be beneficial to an ordinary man.

9<

%UTURE "% MUTUA& %U$.

$3-3R. %$ 23-3A+ $3/0S

45 345 65 YES NO CANT SAY
The above chart re resents the inclination of the res ondents to invest in the mutual fund industry. 9$ of the +, res ondents are not investing in mutual fund industry and are not willing to do so. Hence it becomes im ortant for the mutual fund industry try to overcome the barriers for these res ondents and ersuade them to invest in mutual fund. This would be a tough 2ob but can rove to be a good otential market. There are about <L res ondents out of these +, res ondents who are not able to give an o inion whether they would be interested in investing in the mutual fund industry. To get them invest in the same would be relatively easy 2ob. There are only $G res ondents who are willing to invest in mutual fund and hence they can be easily converted into mutual fund investors.

9+

REAS"$S %"R $"T C0""SI$' MUTUA& %U$. AS A$ I$VESTME$T AVE$UE &ess Se*ured Unfavora+le market *onditions -ad #ast Re*ord of M%s Unfavora+le Returns "thers

R.AS%/S
40 R.SP%/0 0 ./-S 0
6.F01)6R0$7E ,0R8E9 ().&!9!).S 6.F01)6R0$7E RE96R.S )9:ERS P0S9 RE()R&S 7ESS SE(6RE&

6 9 10 10

This chart re resents the reasons why the res ondents were not investing in mutual fund. /ver here there was no single main reason that was restricting the res ondents to invest in mutual fund. The other reasons over here were lack of knowledge, the feeling that it is not backed by any legislative body, not interested and satisfied with other forms of investment. The main reason over here was lack of knowledge and fear as they believed that it was not backed by any body and hence their investment was not rotected. #t is this

9F

category that mutual fund industry can cash in. They can start educating eo le about the mutual fund and hence can widen their base. The other reason was that res ondents considered it to be less secured than the other investments. -ecurity seemed to be a threat for the res ondents. 6ven the ast bad records of the mutual fund industry seemed to be a reason for their disinterest in the mutual fund. There were res ondents who thought that the returns were not enough. That could be an area where it would be difficult to bring in confidence. 6ven the market conditions seemed to be a rime concern for the res ondents. The market as in such seems to be very volatile and hence this restricted the eo le from investing in mutual fund industry. The reasons were not very strong but that were enough for the res ondents for not investing in mutual fund.

9G

#R"CE.URE "% MUTUA& %U$.

PR%".03R. %$ 23-3A+ $3/0

165

845 ;ES .)

This chart re resents the res ondents, who invested in mutual fund, view whether they found the rocedure of the mutual fund too long. #t is a general believe that the rocedure of mutual fund is too long. The reason for this is that the forms of mutual fund forms were very long as com ared to other forms of investment like shares etc. But the res ondents at large did not find it too com le" because it was their agents who took the ain. Hence their work load was too less.

9&

MUTUA& %U$. AS C"M#ARE. T" "T0ER M".ES "% I$VESTME$T I$ S"ME SE&ECTE. %ACT"RS RIS( %ACT"R

R'S6 $A"-%R
This chart re resents the reference of res ondents of mutual fund over as far as the risk factor is considered. =rom the above chart it is quite clear31 that mutual fund is considered 17 to be more risky as com 40 ared to other forms of investment. About F'L of the res ondents investing in mutual fund are of the o inion that mutual fund is more risky as R.SP%/0./-S 0 against other forms of investment. There were few res ondents that were of the o inion that it was relatively same for 0 every form of investment. But there were about 9<L of the res ondents who thought that mutual funds were less risky then other forms of 7ESS ,)RE !.&!FERRE.9 investment. The risk factor was generally attributed to the volatile market and the un redictable com anyAs market.

9%

&I1UI.ITY %ACT"R

+'73'0'-8
5 10

35 7ESS ,)RE !.&!FFERE.9

This chart re resents the reference of res ondents of mutual fund over as far as the liquidity factor is considered. =rom the above chart it is quite clear that mutual fund is considered to be more liquid than the other form of investment. The investors seem to be satisfied with mutual fund as far as the liquidity factor was concerned. There were few who considered the osition to be not very satisfactory. And there were dew who considered it to be same as the other forms of investments.

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RETUR$S

R.-3R/S
5 365

6 5 7ESS ,)RE !.&!FERRE.9

This chart re resents the reference of res ondents of mutual fund over as far as the return factor is considered. =rom the above chart it is quite clear that mutual fund is considered to be giving more returns than the other forms of investment. The returns of mutual fund are considered to be fairer than are other forms of investment. There were very few who considered the returns to be unfair and still few who consider that the returns were fair in all forms of investment.

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TAX -E$E%ITS

-A9 B./.$'-S
85 5

505
7ESS ,)RE !.&!FERRE.9

This chart re resents the reference of res ondents of mutual fund over as far as the ta" benefits are considered. =rom the above chart it is quite clear that mutual fund is considered more beneficial as far as ta" savings are considered. The ta" savings of mutual fund industry is better for +,L of the res ondents as com ared to other forms of investment. There were '&L res ondents who considered who considered the savings to be equal in every form of investment. There were very few res ondents who considered the ta" savings from other investment to be better in other investments.

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SUMMARY "% T0E A$A&YSIS

Hhat motivates a erson or an organi3ation to buy securities, rather than s ending their money immediatelyO The most common answer is savings (( the desire to ass money from the resent into the future. !eo le and organi3ations antici ate future cash needs, and e" ect that their earnings in the future will not meet those needs. :ou may be willing to invest to make something ha en that might not, otherwise (( you could invest to build a museum, to finance low(income housing, or to re(claim urban neighborhoods. The dividends from these kinds of investments may not be economic, and thus they are difficult to com are and evaluate. =or most investors, charitable goals aside, the key measure of benefit derived from a security is the rate of return. #t is clear that the investors are basically quite conservative and hence are not ready to take any risk with their hard earned money. They are very conscious and hence are not ready to take any risk. The mutual fund is not very new conce t in #ndia it still seems that the mutual fund has still a very long way to go before they would get highly established. The ma"imum numbers of investors still refers traditional investments like insurance, fi"ed de osits and shares and seems to be satisfied and hence are not interested in investing in mutual funds. 6ven the conce t of #!/ 7#nitial !ublic /ffering8 seems to be less acce ted conce t. -o the hy othesis for the study that the investors still refer traditional methods of investment has not roved to be com letely wrong from the analysis done, which is very evident from the above charts. The number of investors investing in mutual fund seems to be very less as com ared to investments modes like insurance, fi"ed de osits and shares.

<9

%I$.I$'S
The findings from the study are as underC The eo le are basically of conservative nature and hence are very recautious about their hard earned money. Hence they would like to lay it safe when it comes to s ending of their money. -ecurity and returns are the two main reasons that are taken into consideration before making an investment. Bank fi"ed de osits and ost office savings seem to be most referred one among the investors because it is considered to be the most secured one. -hares and mutual funds were considered to be very risky and hence that seemed to be the last choice of the general mass Amongst mutual fund and shares eo le referred shares because the ossessed com lete knowledge about the shares but had very little knowledge about the mutual fund industry. The eo le who do not invest in mutual fund basically fear that they are less secured as com ared with other investments. The others were aware about the conce t of mutual fund but were not full aware of its intricacy hence were not interested in investing in it. 4ost of the investors who invest in 4utual =und substitute the same against the Bank 1e osits, insurance and other saving schemes. The investors are not willing to invest in mutual fund industry unless they are guaranteed about minimum returns.

<<

 The increase in mutual fund and various schemes have left many investors confused as to which scheme to o t for even if they want to invest in mutual fund. The increase in 4utual fund and various schemes have increased com etition. Hence it has been remarked by many investors >mutual funds are too busy trying to race against each otherP. As a result they lose their stabili3ing factor in the market. 4any investors are not aware about the asset allocation renowned theorists of the mutual fund industry. rinci les stated by

<+

C"$C&USI"$S
The 'round rules of Investin, Moses gave to his followers $, commandments that were to be followed till eternity. The world of investments too has several ground rules meant for investors who are novices in their own right and wish to enter the myriad world of investments. These come in handy for there is every ossibility of losing what one has if due care is not taken. $. Assess )ourself: -elf(assessment of oneAs needsN e" ectations and risk rofile is of rime im ortance failing whichN one will make more mistakes in utting money in right laces than otherwise. /ne should identify the degree of risk bearing ca acity one has and also clearly state the e" ectations from the investments. #rrational e" ectations will only bring ain.

'. Tr) to understand 9here the mone) is ,oin,: #t is im ortant to identify the nature of investment and to know if one is com atible with the investment. /ne can lose substantially if one icks the wrong kind of fund. #n order to avoid any confusion it is better to go through the literature such as offer document and fact sheets that com anies rovide on their funds.

9. .onEt rush in pi*kin, funds3 think first: /ne first has to decide what he wants the money for and it is this investment goal that should be the guiding light for all investments done. #t is thus im ortant to know the risks associated with the fund and align it with the quantum of risk one is willing to take. /ne should take a look at the ortfolio of the funds for the ur ose. 6"cessive e" osure to any s ecific sector should be avoided, as it will only add to the risk of the entire ortfolio. #dentifying the ro osed investment hiloso hy of the fund will give an insight into the kind of risks that it shall be taking in future.

<F

<. Invest .onFt spe*ulate: A common investor is limited in the degree of risk that he is willing to take. #t is thus of key im ortance that there is thought given to the rocess of investment and to the time hori3on of the intended investment. /ne should abstain from s eculating which in other words would mean getting out of one fund and investing in another with the intention of making quick money. /ne would do well to remember that nobody can erfectly time the market so staying invested is the best o tion unless there are com elling reasons to e"it. +. .onFt put all the e,,s in one +asket: This old age adage is of utmost im ortance. 5o matter what the risk rofile of a erson is, it is always advisable to diversify the risks associated. -o utting oneAs money in different asset classes is generally the best o tion as it averages the risks in each category. Thus, even investors of equity should be 2udicious and invest some ortion of the investment in debt. 1iversification even in any articular asset class 7such as equity, debt8 is good. 5ot all fund managers have the same acumen of fund management and with identification of the best man being a tough taskN it is good to lace money in the hands of several fund managers. This might reduce the ma"imum return ossible, but will also reduce the risks.

F. -e re,ular: #nvesting should be a habit and not an e"ercise undertaken at oneAs wishes, if one has to really benefit from them. As we said earlier, since it is e"tremely difficult to know when to enter or e"it the market, it is im ortant to beat the market by being systematic. The basic hiloso hy of Ru ee cost averaging would suggest that if one invests regularly through the u s and downs of the market, he would stand a better chance of generating more returns than the market for the entire duration.

G. .o )our home9ork: #t is im ortant for all investors to research the avenues available to them irres ective of the investor category they belong to. This is im ortant because an informed investor is in a better decision to make right decisions. Having identified the risks associated with the investment is im ortant

<G

and so one should try to know all as ects associated with it. Asking the intermediaries is one of the ways to take care of the roblem.

&. %ind the ri,ht funds: =inding funds that do not charge much fees is of im ortance, as the fee charged ultimately goes from the ocket of the investor. This is even more im ortant for debt funds as the returns from these funds are not much. =unds that charge more will reduce the yield to the investor. =inding the right funds is im ortant and one should also use these funds for ta" efficiency. #nvestors of equity should kee in mind that all dividends are currently ta"(free in #ndia and so their ta" liabilities can be reduced if the dividend ayout o tion is used. #nvestors of debt will be charged a ta" on dividend distribution and so can easily avoid the ayout o tions.

%. (eep tra*k of )our investments: =inding the right fund is im ortant but even more im ortant is to kee track of the way they are erforming in the market. #f the market is beginning to enter a bearish hase, then investors of equity too will benefit by switching to debt funds as the losses can be minimi3ed. /ne can always switch back to equity if the equity market starts to show some buoyancy. $,. (no9 9hen to sell )our mutual funds: *nowing when to e"it a fund too is of utmost im ortance. /ne should book rofits immediately when enough has been earned i.e. the initial e" ectation from the fund has been met with. /ther factors like non( erformance, hike in fee charged and change in any basic attribute of the fund etc. are some of the reasons for to e"it. #nvestments in any funds are not risk(free and so investments warrant some caution and careful attention of the investor. #nvesting funds can be a dicey business for eo le who do not remember to follow these rules diligently, as eo le are likely to commit mistakes by being ignorant or adventurous enough to take risks more than what they can absorb. This is the reason why eo le would do well to remember these rules before they set out to invest their hard(earned money. <&

SU''ESTI"$S
The #ndian #nvestment #ndustryAs develo ment and success would de end on various issues such asC Edu*ate the people: There are lots of alternatives available in the resent time. But because of lack of knowledge eo le are not ready to try them. 6ven because of the fear to try new ones the investment industry has limited it self. The same can be done through arranging events that romote such innovations. #re*on*eptions rule: The investment decisions. The reconce tions that a erson carries tries rule his ast record of shares and mutual fund restrict the

eo le in investing in the same. Though the rules and regulations have changed a lot but there are still eo le who are not ready to acce t such facts. &et them kno9 9here there amount in reinvested: The investors should know that the amount that is invested in the com any how the funds are used and for what ur ose .They have the right to know where are their funds reinvested i.e. the com anies should be trans arent. .o not *ut others line for sho9in, )ourself +i,,er: The romoters to romote their funds degrading the other modes of investment and hence this limits their investment sco es itself because this act degrades the com any in the eyes of the customers &ead throu,h Innovation: Although there is enough room in the market, unfortunately in #ndian market, all mutual funds have been chasing the same set of investors with the same set of investors. Re+uild investorFs *onfiden*e: =or a long term growth of the industry, it is a must to win the confidence of the investors and there is no way to do this other roducts and inducements. !roduct differentiation is the first ste towards esca ing com etition and attracting more

<%

than bringing in more trans arency in the o erations, ro er communications between the market layers and their customers.

Mana,e risks throu,h derivatives: #ndia has a wide range of derivatives roducts in the market. 4utual =und should also come forward with more of such roducts. #n the Business Horld dated '<th 5ovember ',,9 there was news that Benchmark fund is coming out with an 6quity Arbitrage =und called >1ynamic Arbitrage =undP. /therwise -6B# has not allowed any A4) to float a hedge fund in #ndia. Edu*ate investorFs a+out the prin*iples: There is no doubt that investorAs education is one area, which has to be concentrated u on in the mutual fund industry. The 4utual funds must come forward to make funds understandable to them. The must be made aware about various asset allocation rinci les.

+,

-I-I&I"'RA#0Y

///<amfi<#om ///<m"t"alf"ndsindia<#om ///<4"sinesslin%<#om ///<%arvy<#om ///<pr"i#i#i<#om ///<s4i<#om !rudential #)#)# fact sheet Hdfc fact sheet monthly fact sheetC =ranklin Tem letonC A ril ',,<

+$