Submitted in partial fulfillment for



Submitted by:ANURAG SONI MBA-IIIrd SEM 0828170405




“Knowledge is an experience gained in life, it is the choicest possession, which should not be shelved but should be happily shared with others” Sometimes words fall short to show gratitude, the same happened with me during this project. The immense help and support received from Karvy the finapolis limited overwhelmed me during the project. It was my great fortune to have been associated and work under the dynamic supervision of Mr. Sandeep Srivastava (Branch Manager), Lucknow. It was due to his best efforts, constant source of inspiration, encouragement and co-operation this work has taken the present shape. I am extremely thankful to Mr. Brijesh Srivastava (Area manager), for providing an strength to work in this particular field with which the work has been done efficiently. I am thankful to Ms.Pallavi Lal Asthana, training & placement officer, Sherwood college of engineering, research and technology, Barabanki for allowing me to work at Karvy the finapolis, Lucknow and giving me all the possible helps and valuable suggestions. I wish to express my heartfelt gratitude to my parents who always filled my mind with positive affirmations and crowded out the negative thoughts. Above all I am thankful to all my friends for providing me moral support and timely help, whenever I was in need.



This is to certify that Mr. ANURAG SONI student of SHERWOOD COLLEGE OF ENGINEERING, RESEARCH AND TECHNOLOGY, BARABANKI (U.P.) has successfully completed his project work on “MUTUAL FUNDS IS THE BEST INVESTMENTS PLAN” under my guidance and supervision. I certify that this is an original work and has not been copied from any source.

Signature of Guide:Date:-



The summer project on MUTUAL FUNDS IS THE BEST INVESTMENT PLAN is the original work done by me. This is the property of institute & the use of this report without prior permission of this institute will be considered illegal & actionable.





In few years Mutual Fund has emerged as a tool for ensuring one’s financial well being. Mutual Funds have not only contributed to the India growth story but have also helped families tap into the success of Indian Industry. As information and awareness is rising more and more people are enjoying the benefits of investing in mutual funds. The main reason the number of retail mutual fund investors remains small is that nine in ten people with incomes in India do not know that mutual funds exist. But once people are aware of mutual fund investment opportunities, the number who decide to invest in mutual funds increases to as many as one in five people. The trick for converting a person with no knowledge of mutual funds to a new Mutual Fund customer is to understand which of the potential investors are more likely to buy mutual funds and to use the right arguments in the sales process that customers will accept as important and relevant to their decision. This Project gave me a great learning experience and at the same time it gave me enough scope to implement my analytical ability. The analysis and advice presented in this Project Report is based on market research on the saving and investment practices of the investors and preferences of the investors for investment in Mutual Funds. This Report will help to know about the investors’ Preferences in Mutual Fund means Are they prefer any particular Asset Management Company (AMC), Which type of Product they prefer, Which Option (Growth or Dividend) they prefer or Which Investment Strategy they follow (Systematic Investment Plan or One time Plan). This Project as a whole can be divided into two parts. The first part gives an insight about Mutual Fund and its various aspects, the Company Profile, Objectives of the study, Research Methodology. One can have a brief knowledge about Mutual Fund and its basics through the Project. The second part of the Project consists of data and its analysis collected through survey done on 200 people. For the collection of Primary data I made a questionnaire and surveyed of 200 people. I also taken interview of many People those who were coming at the Karvey where I done my Project. I visited other AMCs in Lucknow to get some knowledge related to my topic. I studied about the products and strategies of other AMCs in Lucknow to know why people prefer to invest in those AMCs. This Project covers the topic “THE MUTUAL FUND IS BEST INVESTMENT PLAN.” The data collected has been well organized and presented. I hope the research findings and conclusion will be of use.







Chapter - 1 Introduction

Before we understand what is mutual fund, it’s very important to know the area in which mutual funds works, the basic understanding of stocks and bonds. STOCKS : Stocks represent shares of ownership in a public company. Examples of public companies include Reliance, ONGC and Infosys. Stocks are considered to be the most common owned investment traded on the market. BONDS : Bonds are basically the money which you lend to the government or a company, and in return you can receive interest on your invested amount, which is back over predetermined amounts of time. Bonds are considered to be the most common lending investment traded on the market. There are many other types of investments other than stocks and bonds (including annuities, real estate, and precious metals), but the majority of mutual funds invest in stocks and/or bonds.

What Is Mutual Fund
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 appreciations 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.


A Mutual Fund is a body corporate registered with the Securities and Exchange Board of India (SEBI) that pools up the money from individual/corporate investors and invests the same on behalf of the investors/unit holders, in Equity shares, Government securities, Bonds, Call Money Markets etc, and distributes the profits. In the other words, a Mutual Fund allows investors to indirectly take a position in a basket of assets. 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. Investments in securities are spread among a wide cross-section of industries and sectors thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at same time. Investors of mutual funds are known as unit holders. The investors in proportion to their investments share the profits or losses. 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 Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public.


When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets of the fund in the same proportion as his contribution amount put up with the corpus (the total amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit holder. Any change in the value of the investments made into capital market instruments (such as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is calculated by dividing the market value of scheme's assets by the total number of units issued to the investors.


OVERVIEW OF EXISTING SCHEME EXISTED IN MUTUAL FUND CATEGORY Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry. TYPES OF MUTUAL FUND SCHEMES BY STRUCTURE Open Ended Schemes An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity. Close Ended Schemes A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor. Interval Schemes Interval Schemes are that scheme, which combines the features of open-ended and close-ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices.

1. EQUITY FUNDS: These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund manager’s outlook on different stocks. The Equity Funds are sub-classified depending upon their investment objective, as follows:
• • • •

Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix. 13

2. DEBT FUNDS: The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as: Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government.

Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities.

MIPs: Monthly income plans invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes.

Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures.

Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds.

3. BALANCE FUNDS: As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provide growth and the debt part provides stability in returns. Further the mutual funds can be broadly classified on the basis of investment parameter viz, Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly.


Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation.

Income Schemes: Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited.

Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50).

Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money.

Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate.

Index Schemes: Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index.

Sector Specific Schemes: These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time.


There are three ways, where the total returns provided by mutual funds can be enjoyed by investors: Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution.

If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution.

If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares

For investments in mutual fund, one must keep in mind about the Pros and cons of investments in mutual fund.

1. Professional Management - The basic advantage of funds is that, they are professional managed, by well qualified professional. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their investments. 2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or bonds, the investors risk is spread out and minimized up to certain extent. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. 3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors. 4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and when they want. 5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small. Most AMC 16

also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.

1. Professional Management- Some funds doesn’t perform in neither the market, as their management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so-called professionals are any better than mutual fund or investor himself, for picking up stocks. 2. Costs – The biggest source of AMC income, is generally from the entry & exit load which they charge from an investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon. 3. Dilution - Because funds have small holdings across different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money. 4. Taxes - when making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the industry. In the past decade, Indian mutual fund industry had seen a dramatic improvements, both quality wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase, the Assets Under Management (AUM) was Rs. 67bn. The private sector entry to the fund family rose the AUM to Rs. 470 in in March 1993 and till April 2004, it reached the height of 1,540 bn. Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than the deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian banking industry. The main reason of its poor growth is that the mutual fund industry in India is new in the country. Large sections of Indian investors are yet to be intellectuated with the concept. Hence, it is the prime responsibility of all mutual fund companies, to market the product correctly abreast of selling. 17

The mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under.

The major players in the Indian Mutual Fund Industry are: Major Players of Mutual Funds In India Period (Last&nbsp1 Week)
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Scheme Name JM Core 11 Fund - Series 1 Growth Tata Indo-Global Infrastructure Fund - Growth Tata Capital Builder Fund Growth Standard Chartered Enterprise Equity Fund - Growth DBS Chola Infrastructure Fund Growth ICICI Prudential Fusion Fund Series III - Institutional Growth DSP Merrill Lynch Micro Cap Fund - Regular - Growth ICICI Prudential Fusion Fund Series III - Retail - Growth DBS Chola Small Cap Fund Growth Principal Personal Taxsaver Benchmark Split Capital Fund Plan A - Preferred Units ICICI Prudential FMP - Series 33 - Plan A - Growth Tata SIP Fund - Series I Growth Sahara R.E.A.L Fund - Growth Tata SIP Fund - Series II Growth Date Mar 26 , 2008 Mar 26 , 2008 Mar 26 , 2008 Mar 26 , 2008 Mar 26 , 2008 Mar 26 , 2008 Mar 26 , 2008 Mar 26 , 2008 Mar 26 , 2008 Mar 25 , 2008 Mar 26 , 2008 Mar 26 , 2008 Mar 26 , 2008 Mar 25 , 2008 Mar 26 , 2008 NAV (Rs.) 8.45 8.26 12.44 14.07 9.01 10.2 9.93 10.19 6.36 124.66 141.51 9.89 10.25 7.64 9.93 Last 1 Week 5.12 5.05 5.03 5 4.65 4.62 4.56 4.51 3.75 3.44 3.14 2.91 2.38 1.86 1.58 Since Inception -94.64 -40.42 15.35 20.92 -17.17 23.69 -0.85 22.39 -81.78 29.97 13.71 -7.88 2.39 -49.52 -0.94


The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the Industry. In the past decade, Indian mutual fund industry had seen a dramatic improvement, both qualities wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase; the Assets Under Management (AUM) was Rs67 billion. The private sector entry to the fund family raised the Aum to Rs. 470 billion in March 1993 and till April 2004; it reached the height if Rs. 1540 billion. The Mutual Fund Industry is obviously growing at a tremendous space with the mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under.

Phase 1. Establishment and Growth of Unit Trust of India - 1964-87
Unit Trust of India enjoyed complete monopoly when it was established in the year 1963 by an act of Parliament. UTI was set up by the Reserve Bank of India and it continued to operate under the regulatory control of the RBI until the two were delinked in 1978 and the entire control was transferred in the hands of Industrial Development Bank of India (IDBI). UTI launched its first scheme in 1964, named as Unit Scheme 1964 (US-64), which attracted the largest number of investors in any single investment scheme over the years. UTI launched more innovative schemes in 1970s and 80s to suit the needs of different investors. It launched ULIP in 1971, six more schemes between1981-84, Children's Gift Growth Fund and India Fund (India's first offshore fund) in 1986, Mastershare (India’s first equity diversified scheme) in 1987 and Monthly Income Schemes (offering assured returns) during 1990s. By the end of 1987, UTI's assets under management grew ten times to Rs 6700 crores.

Phase II. Entry of Public Sector Funds - 1987-1993
The Indian mutual fund industry witnessed a number of public sector players entering the market in the year 1987. In November 1987, SBI Mutual Fund from the State Bank of India became the first non-UTI mutual fund in India. SBI Mutual Fund was later followed by Canbank Mutual Fund, LIC Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. By 1993, the assets under management of the industry increased seven times to Rs. 47,004 crores. However, UTI remained to be the leader with about 80% market share. 19

Mobilis Amo 199293 unt Mob ilise d Assets Under Manage ment ation as % of gross Domest ic Savings UTI Public Sector Total 11,0 57 1,96 4 13,0 21 38,247 5.2%





Phase III. Emergence of Private Secor Funds - 1993-96
The permission given to private sector funds including foreign fund management companies (most of them entering through joint ventures with Indian promoters) to enter the mutual fund industry in 1993, provided a wide range of choice to investors and more competition in the industry. Private funds introduced innovative products, investment techniques and investor-servicing technology. By 1994-95, about 11 private sector funds had launched their schemes.

Phase IV. Growth and SEBI Regulation - 1996-2004
The mutual fund industry witnessed robust growth and stricter regulation from the SEBI after the year 1996. The mobilization of funds and the number of players operating in the industry reached new heights as investors started showing more interest in mutual funds. Investor’s interests were safeguarded by SEBI and the Government offered tax benefits to the investors in order to encourage them. SEBI (Mutual Funds) Regulations, 1996 was introduced by SEBI that set uniform standards for all mutual funds in India. The Union Budget in 1999 exempted all dividend incomes in the hands of investors from income tax. Various Investor Awareness Programmes were launched during this phase, both by SEBI and AMFI, with an objective to educate investors and make them informed about the mutual fund industry. In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal status as a trust formed by an Act of Parliament. The primary objective behind this was to bring all mutal fund players on the same level. 20

UTI was re-organised into two parts: 1. The Specified Undertaking, 2. The UTI Mutual Fund

Presently Unit Trust of India operates under the name of UTI Mutual Fund and its past schemes (like US-64, Assured Return Schemes) are being gradually wound up. However, UTI Mutual Fund is still the largest player in the industry. In 1999, there was a significant growth in mobilisation of funds from investors and assets under management which is supported by the following data:
GROSS FUND MOBILISATION (RS. CRORES) PU BL FROM TO U TI IC SE CT OR 31March -99 1 1, 6 79 1 3, 5 36 1 2, 4 13 4, 6 43 5, 5 05 * 13, 613 1,46 ,267 1,64, 523 6,1 92 74,3 52 92,95 7 4,0 39 42,1 73 59,74 8 1,7 32 7,96 6 21,37 7 PRI VAT E SEC TOR TOT AL



31March -00


31March -01 31March -02 31Jan03 31March


01-April02 01-Feb.-03

22, 923 7,2 59*

2,20 ,551 58,4 35

2,48, 979 65,69 4


-03 31March -04 31March -05 31March -06 -


68, 558 1,0 3,2 46 1,8 3,4 46

5,21 ,632

5,90, 190


7,36 ,416

8,39, 662


9,14 ,712

10,98 ,158


Phase V. Growth and Consolidation - 2004 Onwards
The industry has also witnessed several mergers and acquisitions recently, examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international mutual fund players have entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were 29 funds as at the end of March 2006. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players.






Based on their structure:
Open-ended funds: Investors can buy and sell the units from the fund, at any point of time. • Close-ended funds: These funds raise money from investors only once. Therefore, after the offer period, fresh investments can not be made into the fund. If the fund is listed on a stocks exchange the units can be traded like stocks (E.g., Morgan Stanley Growth Fund). Recently, most of the New Fund Offers of closeended funds provided liquidity window on a periodic basis such as monthly or weekly. Redemption of units can be made during specified intervals. Therefore, such funds have relatively low liquidity.


Based on their investment objective:

Equity funds: These funds invest in equities and equity related instruments. With fluctuating share prices, such funds show volatile performance, even losses. However, short term fluctuations in the market, generally smoothens out in the long term, thereby offering higher returns at relatively lower volatility. At the same time, such funds can yield great capital appreciation as, historically, equities have outperformed all asset classes in the long term. Hence, investment in equity funds should be considered for a period of at least 3-5 years. It can be further classified as: i) Index funds- In this case a key stock market index, like BSE Sensex or Nifty is tracked. Their portfolio mirrors the benchmark index both in terms of composition and individual stock weightages. ii) Equity diversified funds- 100% of the capital is invested in equities spreading across different sectors and stocks. iii) Dividend yield funds- it is similar to the equity diversified funds except that they invest in companies offering high dividend yields. iv) Thematic funds- Invest 100% of the assets in sectors which are related through some theme. e.g. -An infrastructure fund invests in power, construction, cements sectors etc. v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A banking sector fund will invest in banking stocks. vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the investors. Balanced fund: Their investment portfolio includes both debt and equity. As a result,
on the risk-return ladder, they fall between equity and debt funds. Balanced funds are the ideal mutual funds vehicle for investors who prefer spreading their risk across various instruments. Following are balanced funds classes:

i) Debt-oriented funds -Investment below 65% in equities. ii) Equity-oriented funds -Invest at least 65% in equities, remaining in debt. Debt fund: They invest only in debt instruments, and are a good option for investors averse to idea of taking risk associated with equities. Therefore, they invest exclusively in fixed-income instruments like bonds, debentures, Government of India securities; and money market instruments such as certificates of deposit (CD), commercial paper (CP) and call money. Put your money into any of these debt funds depending on your investment horizon and needs. 26

i) Liquid funds- These funds invest 100% in money market instruments, a large portion being invested in call money market. ii) Gilt funds ST- They invest 100% of their portfolio in government securities of and treasury bills (T- bills). iii) Floating rate funds- Invest in short-term debt papers. Floaters invest in debt instruments which have variable coupon rate. iv) Arbitrage fund- They generate income through arbitrage opportunities due to mispricing between cash market and derivatives market. Funds are allocated to equities, derivatives and money markets. Higher proportion (around 75%) is put in money markets, in the absence of arbitrage opportunities. v) Gilt funds LT- They invest 100% of their portfolio in long-term government securities. vi) Income funds LT- Typically, such funds invest a major portion of the portfolio in long-term debt papers. vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an exposure of 10%-30% to equities. viii) FMPs- fixed monthly plans invest in debt papers whose maturity is in line with that of the fund.

1. Systematic Investment Plan: under this a fixed sum is invested each month on a fixed date of a month. Payment is made through post dated cheques or direct debit facilities. The investor gets fewer units when the NAV is high and more units when the NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA) 2. Systematic Transfer Plan: under this an investor invest in debt oriented fund and give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual fund. 3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund then he can withdraw a fixed amount each month.



The entire mutual fund industry operates in a very organized way. The investors, known as unit holders,handover their savings to the AMCs under various schemes. The objective of the investment should match with the objective of the fund to best suit the investors’ needs. The AMCs further invest the funds into various securities according to the investment objective. The return generated from the investments is passed on to the investors or reinvested as mentioned in the offer document.




To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds.It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time. SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody. According to SEBI Regulations, two thirds of the directors of Trustee Company or board of trustees must be independent. The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual funds that the mutual funds function within the strict regulatory framework. Its objective is to increase public awareness of the mutual fund industry. AMFI also is engaged in upgrading professional standards and in promoting best industry practices in diverse areas such as valuation, disclosure, transparency etc.

Documents required (PAN mandatory):
Proof of identity : 1. Photo PAN card 2. In case of non-photo PAN card in addition to copy of PAN card any one of the following: driving license/passport copy/ voter id/ bank photo pass book. Proof of address (any of the following ) :latest telephone bill, latest electricity bill, Passport, latest bank passbook/bank account statement, latest Demat account statement, voter id, driving license, ration card, rent agreement. Offer document: An offer document is issued when the AMCs make New Fund Offer(NFO). Its advisable to every investor to ask for the offer document and read it before investing. An offer document consists of the following: Standard Offer Document for Mutual Funds (SEBI Format)  Summary Information  Glossary of Defined Terms  Risk Disclosures  Legal and Regulatory Compliance  Expenses  Condensed Financial Information of Schemes  Constitution of the Mutual Fund  Investment Objectives and Policies  Management of the Fund  Offer Related Information. Key Information Memorandum: a key information memorandum, popularly known as KIM, is attached along with the mutual fund form. And thus every investor get to read it. Its contents are: 31

1 Name of the fund. 2. Iestment objective 3. Aset allocation pattern of the scheme. 4. Risk profile of the scheme 5. Plans & options 6. Minimum application amount/ no. of units 7. Benchmark index 8. Dividend policy 9. Name of the fund manager(s) 10 . Expenses of the scheme: load structure, recurring expenses 11. Performance of the scheme (scheme return v/s. benchmark return) 12. Year- wise return for the last 5 financial year.

Mutual funds posses a very strong distribution channel so that the ultimate customers doesn’t face any difficulty in the final procurement. The various parties involved in distribution of mutual funds are: 1. Direct marketing by the AMCs: the forms could be obtained from the AMCs directly. The investors can approach to the AMCs for the forms. some of the top AMCs of India are; Reliance ,Birla Sunlife, Tata, SBI magnum, Kotak Mahindra, HDFC, Sundaram, ICICI, Mirae Assets, Canara Robeco, Lotus India, LIC, UTI etc. whereas foreign AMCs include: Standard Chartered, Franklin Templeton, Fidelity, JP Morgan, HSBC, DSP Merill Lynch, etc. 2 .Broker/ sub broker arrangements: the AMCs can simultaneously go for broker/subbroker to popularize their funds. AMCs can enjoy the advantage of large network of these brokers and sub brokers.eg: SBI being the top financial intermediary of India has the greatest network. So the AMCs dealing through SBI has access to most of the investors. 3. Individual agents, Banks, NBFC: investors can procure the funds through individual agents, independent brokers, banks and several non- banking financial corporations too, whichever he finds convenient for him. COSTS ASSOCIATED Expenses: AMCs charge an annual fee, or expense ratio that covers administrative expenses, salaries, advertising expenses, brokerage fee, etc. A 1.5% expense ratio means the AMC charges Rs1.50 for every Rs100 in assets under management. A fund's expense ratio is typically to the size of the funds under management and not to the returns 32

earned. Normally, the costs of running a fund grow slower than the growth in the fund size - so, the more assets in the fund, the lower should be its expense ratio. Loads: Entry Load/Front-End Load (0-2.25%)- its the commission charged at the time of buying the fund to cover the cost of selling, processing etc. Exit Load/Back- End Load (0.25-2.25%)- it is the commission or charged paid when an investor exits from a mutual fund, it is imposed to discourage withdrawals. It may reduce to zero with increase in holding period.

Measuring and evaluating mutual funds performance
Every investor investing in the mutual funds is driven by the motto of either wealth creation or wealth increment or both. Therefore it’s very necessary to continuously evaluate the funds’ performance with the help of factsheets and newsletters, websites, newspapers and professional advisors like SBI mutual fund services. If the investors ignore the evaluation of funds’ performance then he can loose hold of it any time. In this ever-changing industry, he can face any of the following problems: 1. Variation in the funds’ performance due to change in its management/ objective. 2. The funds’ performance can slip in comparison to similar funds. 3. There may be an increase in the various costs associated with the fund. 4 .Beta, a technical measure of the risk associated may also surge. 5. The funds’ ratings may go down in the various lists published by independent rating agencies. 6 .It can merge into another fund or could be acquired by another fund house.

Performance measures:
Equity funds: the performance of equity funds can be measured on the basis of: NAV Growth, Total Return; Total Return with Reinvestment at NAV, Annualized Returns and Distributions, Computing Total Return (Per Share Income and Expenses, Per Share Capital Changes, Ratios, Shares Outstanding), the Expense Ratio, Portfolio Turnover Rate, Fund Size, Transaction Costs, Cash Flow, Leverage. Debt fund: likewise the performance of debt funds can be measured on the basis of: Peer Group Comparisons, The Income Ratio, Industry Exposures and Concentrations, NPAs, besides NAV Growth, Total Return and Expense Ratio. 33

Liquid funds: the performance of the highly volatile liquid funds can be measured on the basis of: Fund Yield, besides NAV Growth, Total Return and Expense Ratio.

Concept of benchmarking for performance evaluation
Every fund sets its benchmark according to its investment objective. The funds performance is measured in comparison with the benchmark. If the fund generates a greater return than the benchmark then it is said that the fund has outperformed benchmark , if it is equal to benchmark then the correlation between them is exactly 1. And if in case the return is lower than the benchmark then the fund is said to be underperformed.

Some of the benchmarks are :
1. Equity funds: market indices such as S&P CNX nifty, BSE100, BSE200, BSEPSU, BSE 500 index, BSE bankex, and other sectoral indices. 2. Debt funds: Interest Rates on Alternative Investments as Benchmarks, I-Bex Total Return Index, JPM T-Bill Index Post-Tax Returns on Bank Deposits versus Debt Funds. 3. Liquid funds: Short Term Government Instruments’ Interest Rates as Benchmarks, JPM T-Bill Index

To measure the fund’s performance, the comparisons are usually done with:
i) with a market index. ii) Funds from the same peer group. iii) Other similar products in which investors invest their funds.

Financial planning for investors( ref. to mutual funds):
Investors are required to go for financial planning before making investments in any mutual fund. The objective of financial planning is to ensure that the right amount of money is available at the right time to the investor to be able to meet his financial goals. It is more than mere tax planning. Steps in financial planning are: Asset allocation. Selection of fund. Studying the features of a scheme. In case of mutual funds, financial planning is concerned only with broad asset allocation, leaving the actual allocation of securities and their management to fund 34

managers. A fund manager has to closely follow the objectives stated in the offer document, because financial plans of users are chosen using these objectives.

Why has it become one of the largest financial instruments?
If we take a look at the recent scenario in the Indian financial market then we can find the market flooded with a variety of investment options which includes mutual funds, equities, fixed income bonds, corporate debentures, company fixed deposits, bank deposits, PPF, life insurance, gold, real estate etc. all these investment options could be judged on the basis of various parameters such as- return, safety convenience, volatility and liquidity. measuring these investment options on the basis of the mentioned parameters, we get this in a tabular form: Return Equity Bonds Co. Debentures Co. FDs Bank Deposits PPF Life Insurance Gold Real Estate Mutual Funds High Moderate Moderate Moderate Low Moderate Low Moderate High High Safety Low High Moderate Low High High High High Moderate High Volatility High Moderate Moderate Low Low Low Low Moderate High Moderate Liquidity High Moderate Low Low High Moderate Low Moderate Low High Convenienc e Moderate High Low Moderate High High Moderate Gold Low High

We can very well see that mutual funds outperform every other investment option. On three parameters it scores high whereas it’s moderate at one. comparing it with the other options, we find that equities gives us high returns with high liquidity but its volatility too is high with low safety which doesn’t makes it favourite among persons who have low risk- appetite. Even the convenience involved with investing in equities is just moderate. 35

Now looking at bank deposits, it scores better than equities at all fronts but lags badly in the parameter of utmost important ie; it scores low on return , so it’s not an happening option for person who can afford to take risks for higher return. The other option offering high return is real estate but that even comes with high volatility and moderate safety level, even the liquidity and convenience involved are too low. Gold have always been a favourite among Indians but when we look at it as an investment option then it definitely doesn’t gives a very bright picture. Although it ensures high safety but the returns generated and liquidity are moderate. Similarly the other investment options are not at par with mutual funds and serve the needs of only a specific customer group. Straightforward, we can say that mutual fund emerges as a clear winner among all the options available. The reasons for this being: I) Mutual funds combine the advantage of each of the investment products: mutual fund is one such option which can invest in all other investment options. Its principle of diversification allows the investors to taste all the fruits in one plate. just by investing in it, the investor can enjoy the best investment option as per the investment objective. II) Dispense the shortcomings of the other options: every other investment option has more or les some shortcomings. Such as if some are good at return then they are not safe, if some are safe then either they have low liquidity or low safety or both….likewise, there exists no single option which can fit to the need of everybody. But mutual funds have definitely sorted out this problem. Now everybody can choose their fund according to their investment objectives. III) Returns get adjusted for the market movements: as the mutual funds are managed by experts so they are ready to switch to the profitable option along with the market movement. Suppose they predict that market is going to fall then they can sell some of their shares and book profit and can reinvest the amount again in money market instruments. IV) Flexibility of invested amount: Other then the above mentioned reasons, there exists one more reason which has established mutual funds as one of the largest financial intermediary and that is the flexibility that mutual funds offer regarding the investment amount. One can start investing in mutual funds with amount as low as Rs. 500 through SIPs and even Rs. 100 in some cases.


When the market is flooded with mutual funds, it’s a very tough job for the investors to choose the best fund for them. Whenever an investor thinks of investing in mutual funds, he must look at the investment objective of the fund. Then the investors sort out the funds whose investment objective matches with that of the investor’s. Now the tough task for investors start, they may carry on the further process themselves or can go for advisors like SBI . Of course the investors can save their money by going the direct route i.e. through the AMCs directly but it will only save 1-2.25% (entry load) but could cost the investors in terms of returns if the investor is not an expert. So it is always advisable to go for MF advisors. The mf advisors’ thoughts go beyond just investment objectives and rate of return. Some of the basic tools which an investor may ignore but an mf advisor will always look for are as follow: 1. Rupee Cost Averaging (RCA): The investors going for Systematic Investment Plans(SIP) and Systematic Transfer Plans(STP) may enjoy the benefits of RCA (Rupee Cost Averaging). Rupee cost averaging allows an investor to bring down the average cost of buying a scheme by making a fixed investment periodically, like Rs 5,000 a month and nowadays even as low as Rs. 500 or Rs. 100. In this case, the investor is always at a profit, even if the market falls. In case if the NAV of fund falls, the investors can get more number of units and vice-versa. This results in the average cost per unit for the investor being lower than the average price per unit over time. The investor needs to decide on the investment amount and the frequency. More frequent the investment interval, greater the chances of benefiting from lower prices. Investors can also benefit by increasing the SIP amount during market downturns, which will result in reducing the average cost and enhancing returns. Whereas STP allows investors who have lump sums to park the funds in a low-risk fund like liquid funds and make periodic transfers to another fund to take advantage of rupee cost averaging. 2. Rebalancing: Rebalancing involves booking profit in the fund class that has gone up and investing in the asset class that is down. Trigger and switching are tools that can be used to rebalance a portfolio. Trigger facilities allow automatic redemption or switch if a specified event occurs. The trigger could be the value of the investment, the net asset value of the scheme, level of capital appreciation, level of the market indices or even a date. The funds redeemed can be switched to other specified schemes within the same fund house. Some fund houses allow such switches without charging an entry load. To use the trigger and switch facility, the investor needs to specify the event, the amount or the number of units to be redeemed and the scheme into which the switch has to be made. This ensures that the investor books some profits and maintains the asset allocation in the portfolio. 3. Diversification: 37

Diversification involves investing the amount into different options. In case of mutual funds, the investor may enjoy it afterwards also through dividend transfer option. Under this, the dividend is reinvested not into the same scheme but into another scheme of the investor's choice. For example, the dividends from debt funds may be transferred to equity schemes. This gives the investor a small exposure to a new asset class without risk to the principal amount. Such transfers may be done with or without entry loads, depending on the MF's policy. 4. Tax efficiency: Tax factor acts as the “x-factor” for mutual funds. Tax efficiency affects the final decision of any investor before investing. The investors gain through either dividends or capital appreciation but if they haven’t considered the tax factor then they may end loosing. Debt funds have to pay a dividend distribution tax of 12.50 per cent (plus surcharge and education cess) on dividends paid out. Investors who need a regular stream of income have to choose between the dividend option and a systematic withdrawal plan that allows them to redeem units periodically. SWP implies capital gains for the investor. If it is short-term, then the SWP is suitable only for investors in the 10-per-cent-tax bracket. Investors in higher tax brackets will end up paying a higher rate as short-term capital gains and should choose the dividend option. If the capital gain is long-term (where the investment has been held for more than one year), the growth option is more tax efficient for all investors. This is because investors can redeem units using the SWP where they will have to pay 10 per cent as long-term capital gains tax against the 12.50 per cent DDT paid by the MF on dividends. All the tools discussed over here are used by all the advisors and have helped investors in reducing risk, simplicity and affordability. Even then an investor needs to examine costs, tax implications and minimum applicable investment amounts before committing to a service.

Most popular stocks among fund managers (as on 30th April 2008)

Company Name Reliance industries limited Larsen & toubro limited ICICI bank limited State bank of India Bharti airtel limited Bharat heavy electricals limited Reliance communication ventures ltd Infosys technologies ltd Oil& Natural gas corporation ltd. ITC ltd.

no. of funds 244 206 202 188 184 200 169 159 153 143

We can easily point out that reliance industries limited emerges as a true winner over here attracting the attention of almost244 managers well followed by Larsen & toubro ltd ICICI bank ltd and Bharat heavy electricals ltd. The other companies succeeding in getting a place at top 10 are SBI, Bharti airtel limited, reliance communications, Infosys technologies limited, ONGC and at last ITC ltd.

What are the most lucrative sectors for mutual fund managers?

This is a question of utmost interest for all the investors even for those who don’t invest in mutual funds. Because the investments done by the MFs acts as trendsetters. The investments made by the fund managers are used for prediction. Huge investments assure liquidity and reflects appositive picture whereas tight investment policy reflects crunch and investors may look forward for a gloomy picture. Their investments show that which sector is hot? And will set the market trends. The expert management of the funds will always look for profitable and high paying sectors. So we can have a look at most lucrative sectors to know about the recent trends: Sector name No. of MFs betting on it automotive 255 banking & financial 196 services cement & 237 construction consumer durables 51 conglomerates 218 chemicals 259 consumer non 146 durables engineering & 317 capital goods food & beverages 175 information 284 technology media & 218 entertainment Manufacturing 259 metals& mining 275 Miscellaneous 250 oil & gas 290 Pharmaceuticals 250 Services 200 Telecom 264 Tobacco 150 Utility 225 From the above data collected we can say that engineering & capital goods sector has emerged as the hottest as most of the funds are betting on it. We can say that this sector is on boom and presents a bright picture. Other than it other sectors on height are oil & gas, telecom, metals & mining and information technology. Sectors performing average 40

are automotive, cement & construction, chemicals, media & entertainment, manufacturing, miscellaneous, pharmaceuticals and utility. The sectors which are not so favourite are banking & financial services, conglomerates, consumer non- durables, food & beverages, services and tobacco. And the sector which failed to attract the fund managers is consumer durables with just 51 funds betting on it. Thus this analysis not only gives a picture of the mindset of fund managers rather it also reflects the liquidity existing in each of the sectors. It is not only useful for investors of mutual funds rather the investors of equity and debt too could take a hint from it. Asset allocation by fund managers are based on several researches carried on so, it is always advisable for other investors too take a look on it. It can be further presented in the form of a graph as follow:

We have already mentioned about SIPs in brief in the previous pages but now going into details, we will see how the power of compounding could benefit us. In such case, 41

every small amounts invested regularly can grow substantially. SIP gives a clear picture of how an early and regular investment can help the investor in wealth creation. Due to its unlimited advantages SIP could be redefined as “a methodology of fund investing regularly to benefit regularly from the stock market volatility. In the later sections we will see how returns generated from some of the SIPs have outperformed their benchmark. But before moving on to that lets have a look at some of the top performing SIPs and their return for 1 year:

Scheme Reliance diversified power sector retail Reliance regular savings equity principal global opportunities fund DWS investment opportunities fund BOB growth fund

Amount 1000 1000 1000 1000 1000

NAV 62.74 22.20 8 18.86 35.31 42.14

NAV Date 30/5/200 8 30/5/200 8 30/5/200 8 30/5/200 8 30/5/200 8

Total Amount 14524.07 13584.94 4 14247.72 8 13791.15 7 13769.15 2

In the above chart, we can see how if we start investing Rs.1000 per month then what return we’ll get for the total investment of Rs. 12000. There is reliance diversified power sector retail giving the maximum returns of Rs. 2524.07 per year which comes to 21% roughly. Next we can see if anybody would have undertaken the SIP in Principal would have got returns of app. 18%. We can see reliance regular savings equity, DWS investment opportunities and BOB growth fund giving returns of 13.20%, 14.92%, and 14.74% respectively which is greater than any other monthly investment options. Thus we can easily make out how SIP is beneficial for us. Its hassle free, it forces the investors to save and get them into the habit of saving. Also paying a small amount of Rs. 1000 is easy and convenient for them, thus putting no pressure on their pockets. Now we will analyze some of the equity fund SIP s of Birla Sunlife with BSE 200 and bank fixed deposits In a tabular format as well as graphical.



Scheme Name Birla SL relief '96 tax


Original inv 144000 114000 66000

Returns at BSE 200



553190 388701 156269

1684008 669219 181127

Birla SL equity 114 fund Birla frontline 66 equity fund

In the above case, we have taken three funds of Birla sunlife namely Birla sunlife tax relief ’96, Birla sunlife equity fund and Birla sunlife frontline equity fund. All these three funds follow the same benchmark ie; BSE 200. Here, we have shown how one would have benefitted if he would have put his money into these schemes since their inception. And the amount even is a meager Rs. 1000 per month. Starting from Birla frontline equity fund, we could spot that if someone would have invested Rs. 1000 per month resulting into total investment of Rs. 66000 then it would have amounted to rs.156269 if invested in BSE 200 whereas the fund would have given a total return of Rs 181127. Now moving next to Birla sunlife equity fund, a total investment of 114000 for a total of 114 months at BSE 200 would have given a total return of Rs. 388701 whereas the fund gave a total return of Rs. 669219, nearly double the return generated at BSE 200. And now the cream of all the investments, Birla sunlife tax relief ’96. A total investment of Rs. 144000 for a period of 12 years at BSE 200 would have given total returns of just Rs. 553190 but the Birla sunlife tax relief ’96 gave an unbelievable total return of Rs 1684008.


Thus the above case very well explains the power of compounding and early investment. We have seen how a meager amount of Rs. 144000 turned into Rs. 1684008. It may appear unbelievable for many but SIPs have turned this into reality and the power of compounding is speaking loud, attracting more and more investors to create wealth through SIPs.

This project has been a great learning experience for me. But the analyses that are carried onward these pages are really close to my heart. After taking a look at the data presented below, an expert might underestimate my efforts. One might think it as a boring task and can go for recording historic NAVs since last 1 month instead of recording it daily. But frankly speaking, while tracking the NAVs, I really developed some sentiments with these funds. Really the ups and downs in the NAVs affected me as if I m tracking my own portfolio. The portfolio consists of different types of funds. We can see some funds are 5- star rated but their performances are below the unrated funds. We can also find some funds which performed very well initially but gradually declined either in short- run or long run. Some funds have high NAVS but the returns offered are low. We can also see some funds following same benchmark and reflecting diverse NAV and returns. Even it can be seen that the expense ratios for various funds varies which may affect the ultimate return. Now before going into details, lets have a look at those funds: in this downgrading equity market, we can easily make out that the 1 year return of the fund that was on 17 th of april could not be sustained till 1 month. One can sort out that the present return of funds has decreased a lot and subsequently its NAV too has come down. All the funds are showing negative returns for the last 1 month. Even the two hybrid funds are showing negative monthly returns. That means all those who bought these funds a month back must be experiencing a negative return. Although the annual return of the funds have gone down in comparison to what it was offering a month back. Still the total return is positive. On an average the equity funds are offering a return of 30% annually, inspite of a week equity market. Now checking the validity of funds’ ratings, we can see that some of the funds are 5 star or 4 star rated but their returns lag behind the unrated funds. Although, since the ratings include both risk and return so it will not be a total justice to judge the funds purely on a return basis but still we can go for it just to judge them on the basis of returns generated. Looking at the funds, we have three 5 star rated funds, one 4star rated and six unrated funds. In other way, we have seven equity diversified funds, one equity specialty, one hybrid: dynamic asset allocation and one hybrid: debt oriented fund. It is not possible to compare each and every fund in details. So I have compared 2 funds out of this list on the basis of their returns and expenses. 44

Here DBS Chola opportunities and ICICI Pru infrastructure follows the same benchmark S&P CNX NIFTY. In this case, DBS Chola opportunities is a 4 star rated fund whereas ICICI Pru infrastructure is an unrated fund. The star rating definitely gives DBS a competitive advantage but now lets have a look at other factors, we can see that ICICI Pru has really performed worse in the last month. Its 1 month return is -5.8% whereas DBS gave a return of -3.07%. Even if we consider 6 months return or yearly returns, definitely DBS is a winner. We can easily spot the difference by change in their rankings even. Considering 1 yr return, we can spot DBS at no.5 whereas ICICI at no.6 but when we look at the monthly ratings, to our ultimate shock, DBS is at 52 and ICICI far behind at 172. But if we look at the yearly returns, then there is not much difference between them, DBS offering returns of 35.17% whereas ICICI offering 34.27. But looking at the expenses, the expenses charged by ICICI is lower to that of DBS, which may act as the ultimate factor in choosing the fund in a long run. Thus at last we can conclude that ratings are totally irrelevant for investors. Here is why they are totally irrelevant to investor: 1. Mutual fund ratings are based on the returns generated, that is, appreciation of net asset value, based on the historical performance. So they rely more on the past, rather than the current scenario. 2. As returns play a key role in deciding the ratings, any change in returns will lead to re-rating of the mutual fund. If you choose your mutual fund only on the basis of rating, it will be a nuisance to keep realigning your investment in line with the revision of the ratings. 3. The ratings don’t value the investment processes followed by the mutual fund. As a result, a fund following a certain process may lose out to a fund that has given superior returns only because it has a star fund manager. But there is a higher risk associated with a star fund manager that the ratings don’t reflect. If the star fund manager quits, it can throw the working of a mutual fund out of gear and thus affect its performance. 4. The ratings don’t show the level of ethics followed by the fund. A fund or fund manager that is involved in a scam or financial irregularities won’t get poor ratings on the basis of ethics. As the star ratings look at just returns, any wrongdoing carried out by the fund or fund manager will be completely ignored. 5. Ratings also don’t consider two very important factors: transparency and keeping investors informed. There are no negative ratings awarded to the fund for being investor-unfriendly. 6. Ratings don’t match the investor’s risk-appetite with their portfolio. As a matter of fact, investments should be done only after considering the risk appetite of the investor. For example, equities may not be the best investment vehicle for a very conservative investor. However ratings fail to take that into account. Ratings should be the starting point for making an investment decision. They are not the be all and end all of mutual fund investments. There are other important factors like 45

portfolio management, age of funds and more, which should be taken into account before making an investment.

With the increasing number of mutual fund schemes, it becomes very difficult for an investor to choose the type of funds for investment. By using some of the portfolio analysis tools, he can become more equipped to make a well informed choice. There are many financial tools to analyze mutual funds. Each has their unique strengths and limitations as well. Therefore, one needs to use a combination of these tools to make a thorough analysis of the funds. The present market has become very volatile and buoyant, so it is getting difficult for the investors to take right investing decision. so the easiest available option for investors is to choose the best performing funds in terms of “returns” which have yielded maximum returns. But if we look deeply to it, we can find that the returns are important but it is also important to look at the ‘quality’ of the returns. ‘Quality’ determines how much risk a fund is taking to generate those returns. One can make a judgment on the quality of a fund from various ratios such as standard deviation, sharpe ratio, beta, treynor measure, R-squared, alpha, portfolio turnover ratio, total expense ratio etc. Now I have compared two funds of SBI on the basis of standard deviation, beta, Rsquared, sharpe ratio, portfolio turnover ratio and total expense ratio. So before going into details, lets have a look at these ratios:

Standard deviation:
In simple terms standard deviation is one of the commonly used statistical parameter to measure risk, which determines the volatility of a fund. Deviation is defined as any variation from a mean value (upward & downward). Since the markets are volatile, the returns fluctuate everyday. High standard deviation of a fund implies high volatility and a low standard deviation implies low volatility.

Beta analysis:
Beta is used to measure the risk. It basically indicates the level of volatility associated with the fund as compared to the market. In case of funds, as compared to the market. In case of funds, beta would indicate the volatility against the benchmark index. It is used as a short term decision making tool. A beta that is greater than 1 means that the fund is more volatile than the benchmark index, while a beta of less than 1 means that the fund is more volatile than the benchmark index. A fund with a beta very close to 1 means the fund’s performance closely matches the index or benchmark. The success of beta is heavily dependent on the correlation between correlation between a fund and its benchmark. Thus, if the fund’s portfolio doesn’t have a relevant benchmark index then a beta would be grossly inappropriate. For example if we are considering a banking fund, we should look at the beta against a bank index. 46

R-Squared (R2):
R squared is the square of ‘R’ (i.e.; coefficient of correlation). It describes the level of association between the fun’s market volatility and market risk. The value of Rsquared ranges from0 to1. A high R- squared (more than 0.80) indicates that beta can be used as a reliable measure to analyze the performance of a fund. Beta should be ignored when the r-squared is low as it indicates that the fund performance is affected by factors other than the markets. For example: Case 1 0.65 1.2 Case 2 0.88 0.9

R2 B

In the above tableR2 is less than 0.80 in case 1, implies that it would be wrong to mention that the fund is aggressive on account of high beta. In case 2, the r- squared is more than 0.85 and beta value is 0.9. it means that this fund is less aggressive than the market. Sharpe ratio: sharpe ratio is a risk to reward ratio, which helps in comparing the returns given by a fund with the risk that the fund has taken. A fund with a higher sharpe ratio means that these returns have been generated taking lesser risk. In other words, the fund is less volatile and yet generating good returns. Thus, given similar returns, the fund with a higher sharpe ratio offers a better avenue for investing. The ratio is calculated as: Sharpe ratio = (Average return- risk free rate) / standard deviation

Portfolio turnover ratio: Portfolio turnover is a measure of a fund's trading
activity and is calculated by dividing the lesser of purchases or sales (excluding securities with maturities of less than one year) by the average monthly net assets of the fund. Turnover is simply a measure of the percentage of portfolio value that has been transacted, not an indication of the percentage of a fund's holdings that have been changed. Portfolio turnover is the purchase and sale of securities in a fund's portfolio. A ratio of 100%, then, means the fund has bought and sold all its positions within the last year. Turnover is important when investing in any mutual fund, since the amount of turnover affects the fees and costs within the mutual fund.

Total expenses ratio: A measure of the total costs associated with managing and
operating an investment fund such as a mutual fund. These costs consist primarily of management fees and additional expenses such as trading fees, legal fees, auditor fees and other operational expenses. The total cost of the fund is divided by the fund's total assets to arrive at a percentage amount, which represents the TER: 47

Total expense ratio = (Total fund Costs/ Total fund Assets)

Performance report and portfolio analysis of magnum equity fund and magnum multiplier plus against their benchmark BSE100:
Magnu m equity fund YTD -23.73% 1M 9.02% 3M -7.71% 6M -15.18% 1Y 26.61% 3Y 45.07% 5Y 48.96%

Magnu -26.16% m multipli er plus -17.53% Bench mark BSE100













Now in the above table, we have two funds from SBI ie; magnum equity fund and magnum multiplier plus following the same benchmark i.e; BSE 100. In this case, we have compared their returns during various time periods. We have their returns YTD, during last 1 month, 3month, 6 months, 1 year, 3 year and 5 year. If we look at a long term perspective, then magnum multiplier plus totally outperformed both magnum equity fund as well as bse 100. In case of 5 year returns, neither the benchmark nor the magnum equity fund stands anywhere near multiplier plus. It is greater than equity fund by 10.35% and from benchmark by 15.07%. but in case of 3 year returns, surely multiplier plus gave the maximum return but it fell sharply in comparison to its 5 yr return. A 45.28% return scored over equity fund just by a margin of 0.21% and benchmark by a mere 4.28%. now moving down to 1 yr return, we can clearly see that BSE 100 emerges as a true winner. The benchmark gave a return of 30.71% but both the funds failed to match it even. But the ultimate surprise comes when we look at the data of last 6 months. Here not only the fund mangers failed to beat or match the market. Rather they also performed as laggards, giving negative returns. When the BSE 100 gave returns of 11.47%, these funds were trailing by 29.47% and 26.65% which is a huge figure. In the last 3 months too, both the funds were behind bse100 but all the three gave negative returns and the difference between them and benchmark was narrowed down. Again, during last 1 month return of all three got positive but the funds always remained behind the benchmark. The BSE 100 outscored multiplier plus and equity fund by 6.17% and 48

2.72% respectively. Similarly, the YTD return of all 3 is negative even then the benchmark is at a better position than the funds. From the following analysis we can infer that inspite of all the steps taken; it is not always possible for the fund managers to always beat the market. Also, the past performance just tells the background and history of the fund, by looking at it we cannot interpret that the fund will perform in the same way in the future too. The data can be presented in the form of a graph as follow:

Ratios Standard deviation Beta r-squared Sharpe ratio Portfolio turnover Total expense ratio Magnum equity fund 26.00% 0.96% 1.46% 31% 2.5% Magnum multiplier plus 26.90% 0.95% 0.84% 1.42% 25% 2.5%


 We can see that the standard deviation of both the funds are more or less same even then the S.D of multiplier plus is greater than that of equity fund by 0.90%. Generally higher the SD higher is the risk and vice-versa. Therefore, magnum multiplier plus is riskier than magnum equity fund.  The beta of magnum equity fund is higher than that of magnum multiplier plus. Therefore, equity fund is more volatile than multiplier plus. But beta of both the funds is smaller than 1 that means both the funds are less volatile than the market index. As rsquared values are more than 0.80 in both the cases, we can rely on the usage of beta for the analysis of these funds.  A look at the Sharpe ratio indicates that magnum equity has outperformed multiplier plus. A higher Sharpe ratio of equity fund depicts that these return have been generated taking lesser risk than the multiplier plus. It Is less volatile than the other.  R-squared of both the funds are greater than 0.80. it indicates that beta can be used as a reliable measure to analyze the performance of these funds. Magnum equity fund’s R- squared is higher. So its beta is more reliable.  Portfolio turnover ratio of magnum equity fund is higher than multiplier plus. It mean the manager is frequently churning the portfolio of equity fund than of multiplier plus. It may lead to an increase in expenses but could be ignored if could generate higher return by changing the composition of portfolio.  Total expense ratio of both the funds are same i.e.; 2.5%






Mutual Fund in India has emerged as a critical institutional linkage among various financial segments like savings, capital markets and the corporate sector. As various taxes the government offers incentives and benefits on mutual funds investment, their role in the mobilization of savings and the development of the economy will assume more significance. They provide much needed impetus to direct and indirect support to the corporate sector. Above all, mutual funds having given a new direction to the flow of personal savings and enables small medium investors in remote rural and semi rural area to reap the benefits of stock markets investments. Indian mutual fund are thus playing a very crucial development role in allocating resources in the emerging market economy. A perceptible change is sweeping across the mutual fund landscape in India. Factors such as changing investors need and their appetite for risk , emergence of internet as a powerful servicing platform and above all the growing commoditization of mutual fund products are acting as major catalysts putting pressure on industry players to formulate strategies to stay the course. In the changed scenario today product innovation is increasingly becoming one of the key determinants of success. Building and sustaining a powerful brand is also becoming an issue of paramount importance. Increased deregulation of the financial markets in the country coupled with the introduction of derivative products offer tremendous scope for the industry to design and sell innovative schemes to suit individual customer needs. Distribution has taken a whole new mode like banks, post offices and co-branded credit cards are bound meaning with the introduction of automated trading clearing and settlement system. Factors such as cross selling through modes like banks, post offices and co-branded credit cards are bounds to play decisive role in the success of the industry players. Globally it has seen that the top ten players account for a greater pie of the market hare. With competition getting intense in the domestic industry churning in the industry looks imminent

 Net Asset Value (NAV): Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.  Sale Price: Is the price you pay when you invest in a scheme? Also called Offer Price. It may include a sales load.  Repurchase Price : 53

Is the price at which a close-ended scheme repurchases its units and it may include a back-end load? This is also called Bid Price.  Redemption Price: Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related.  Repurchase or ‘Back-end’ Load: Is a charge collected by a scheme when it buys back the units from the unit holders?  Sales Load : Is a charge collected by a scheme when it sells the units. Also called, ‘Front-end’ load. Schemes that do not charge a load are called ‘No Load’ schemes.

 Product Innovation: Product innovation is an important part of mutual fund industry. Over the years mutual fund have been reshaping the financial landscape of investors, drawing in monies from various segments and providing a whole new range of products with easy access to financial products. Considering the fact that the current regulations provide ample freedom in terms of product designing and the mutual fund schemes have distinct objectives that characterize them there is a room for product innovation. While the focus of the industry will remain on the plain vanilla products with add-ons to tackle the changes in the economic environment the specialty products will help players in creating a niche for themselves.  Customer Focus: Mutual funds especially in the private sectors have set new standards in providing prompt and efficient service to investors by taking advantages of technology. In fact they have redefined the concept of service in the Indian context by helping investors in understanding economic trends and their impact on mutual funds disclosure of portfolio evaluating fund performance answering questions on specifics of mutual fund investing and offering information /advice through a newsletter etc. Moreover healthy 54

competition among mutual funds will ensure that the industry continues to innovate to satisfy the needs of mutual funds investors better than even before.  Market Innovation: Over a period of time the mutual fund industry has made progress in reaching a situation where investors are encouraged in making informed decision and the seller has to cater to this need. The fact realizing these banks and some of the distributors have started offering tailor made asset allocation service bundled up with other services such as tax advice and a wide range of research services etc. In other words they provide supermarkets that allow investor to select from a variety of schemes run by various mutual fund  Brand Building: As the mutual fund industry continues its effort to achieve consistent growth funds with a strong brand will be in a better position to market their products compared to the competition. Corporate image would really matter when prospects star looking at the products rank them on the basis of image performance services and costs. While there is no short cut for establishing track record both in term of fund management as well as customer service a strong brand will ensure increased awareness among investing public and that will encourage distributors to push the products. Moreover will take them beyond traditional markets and enable them to expand geographical operations. Therefore serious players will continue to do a focus and sustained brand building exercise.

 Distribution strategy: In a country as big as India geographically diversified and densely populated there is a need to have a network of distribution sufficiently large and varied to tap investment from all corners and segments. The mutual fund industry has already taken several initiatives to sharpen the skills of intermediaries as also find new method of harnessing people’s saving.  Information Technology: The mutual fund industry will have to use the technology to reach masses so that services can be provided in a cost advantageous manner. The development of independent distribution network will be an important element for mutual fund industry. Never in the history of Indian mutual fund industry had the information flows as freely as it does today. The distributors who are not technology savvy will have to act quickly and empower themselves with the growing power of internet. Information technology has an important role to play in marketing of mutual fund products. In fact IT enables much more sophisticated database marketing leading to better relationship building. Net-based marketing has the potential to be highly relevant, personalized and productive. 55

Chapter – 2 Company Profile


“Success is a journey, not a destination.”
If we look for examples to prove this quote then we can find many but there is none like that of karvy. Back in the year 1981, five people created history by establishing karvy and company which is today known as karvy, the largest financial service provider of India.

Success sutras of karvy:
The success story of karvy is driven by 8 success sutras adopted by it namely trust, integrity, dedication, commitment, enterprise, hard work and team play, learning and innovation, empathy and humility. These are the values that bind success with karvy. The Karvy group was formed in 1983 at Hyderabad, India. Karvy ranks among the top player in almost all the fields it operates. Karvy Computershare Limited is India’s largest Registrar and Transfer Agent with a client base of nearly 500 blue chip corporates, managing over 2 crore accounts. Karvy Stock Brokers Limited, member of National Stock Exchange of India and the Bombay Stock Exchange, ranks among the top 5 stock brokers in India. With over 6, 00,000 active accounts, it ranks among the top 5 Depositary Participant in India, registered with NSDL and CDSL. Karvy Comtrade, Member of NCDEX and MCX ranks among the top 3 commodity brokers in the country. Karvy Insurance Brokers is registered as a Broker with IRDA and ranks among the top 5 insurance agent in the country. Registered with AMFI as a corporate Agent, Karvy is also among the top Mutual Fund mobilizer with over Rs. 5,000 crores under management. Karvy Realty Services, which started in 2006, has quickly established itself as a broker who adds value, in the realty sector. Karvy Global offers niche off shoring services to clients in the US. Karvy has 575 offices over 375 locations across India and overseas at Dubai and New York. Over 9,000 highly qualified people staff Karvy.


Karvy was started by a group of five chartered accountants in 1979. The partners decided to offer, other than the audit services, value added services like corporate advisory services to their clients. The first firm in the group, Karvy Consultants Limited was incorporated on 23rd July, 1983. In a very short period, it became the largest Registrar and Transfer Agent in India. This business was spun off to form a separate joint venture with Computershare of Australia, in 2005. Karvy’s foray into stock broking began with marketing IPOs, in 1993. Within a few years, Karvy began topping the IPO procurement league tables and it has consistently maintained its position among the top 5. Karvy was among the first few members of National Stock Exchange, in 1994 and became a member of The Stock Exchange, Mumbai in 2001. Dematerialization of shares gathered pace in mid-90s and Karvy was in the forefront educating investors on the advantages of dematerializing their shares. Today Karvy is among the top 5 Depositary Participant in India. While the registry business is a 50:50 Joint Venture with Computer share of Australia, we have equity participation by ICICI Ventures Limited and Barings Asia Limited, in Karvy Stock Broking Limited. For a snapshot of our organization structure, Karvy has always believed in adding value to services it offers to clients. A top-notch research team based in Mumbai and Hyderabad supports its employees to advise clients on their investment needs. With the information overload today, Karvy’s team of analysts help investors make the right calls, be it equities, mf, insurance. On a typical working day Karvy:    Has more than 25,000 investors visiting our 575 offices. Publishes/broadcasts at least 50 buy/ sell calls. Attends to 10,000+ telephones calls

 Mails 25,000 envelopes, containing Annual Repots, dividend cheques/ advises, allotment/ refund advises    Executes150,000+ trades on NSE/ BSE Executes 50,000debit/ credit in the despositary accounts Advises3,000+ clients on the investments in mutual funds


KARVY, is a premier integrated financial services provider, and ranked among the top five in the country in all its business segments, services over 16 million individual investors in various capacities, and provides investor services to over 300 corporates, comprising the who is who of Corporate India. KARVY covers the entire spectrum of financial services such as Stock broking, Depository Participants, Distribution of financial products like mutual funds, bonds, fixed deposit, Merchant Banking & Corporate Finance, Insurance Broking, Commodities Broking, Personal Finance Advisory Services, placement of equity, IPOs, among others. Karvy has a professional management team and ranks among the best in technology, operations, and more importantly, in research of various industrial segments.


Karvy Financial Planning, Your Ambition Our Profession.
After having fortified our position across the personal finance spectrum, we are now commencing a "comprehensive personal financial planning service" which is in line with our ambition of emerging as a personal finance advisor.

Our vision is:
To cater to the unique needs and requirements of the mass affluent by providing complete financial solutions and thereby transform their dreams into reality to bring a better tomorrow.

“Our mission is to be a leading and preferred service provider to our customers, and we aim to achieve this leadership position by building an innovative, enterprising , and technology driven organization which will set the highest standards of service and business ethics.”



Board of Directors - Karvy Computershare Private Limited

William Stuart Crosby C Parthasarathy M Yugandhar M S Ramakrishna Chandra Balaraman James Wong

Chairman Managing Director Managing Director Director Director Director

Board of Directors -Karvy consultant Limited


C Parthasarathy M Yugandhar M S Ramakrishna C Parthasarathy M Yugandhar M S Ramakrishna

Chairman Managing Director Director Chairman Managing Director Director

Board of Directors -Karvy Stock Broking Limited

C Parthasarathy M Yugandhar M S Ramakrishna Akash Mehta Peter Wing Hung So

Chairman Director Director Director Director

Board of Directors -Karvy Investor Service Limited

C Parthasarathy M Yugandhar M S Ramakrishna

Chairman Director Director

Board of Directors -Karvy Global Service

C Parthasarathy M Yugandhar M S Ramakrishna

Director Director Director


Board of Directors -Karvy Comtrade Limited

C Parthasarathy M Yugandhar M S Ramakrishna

Chairman Director Director

Board of Directors -Karvy Insurance Broking Limited

C Parthasarathy M Yugandhar M S Ramakrishna

Chairman Director Director

Mutual Funds

KARVY as Mutual Fund investment advisor Investment is the stepping stone to achieving one's financial dreams. Mutual funds offer an opportune way to long-term wealth creation. However, with more and more funds flooding the market, the task of selecting the most suitable scheme gets even more complicated. Mutual Fund Advisory Service at Karvy guides you through this 63

maze and ensures that your investments are backed by our quality research. We, at Karvy help you to reach your goals by offering:
• • • • •

Products of 33 AM Research reports (existing funds & NFOs; strategy reports etc.) Customized mutual fund portfolios Portfolio revision (depending on changing market outlook and evolving trends) Access to online consolidated portfolio statement

About KARVY Insurance Broking Ltd. (KIBL): At KIBL we provide both life and non-life insurance products to retail individuals, high net-worth clients and corporates. With the opening up of the insurance sector, we are in a position to provide holistic and tailor made policies for different segments of customers. With Indian markets seeing a sea change, both in terms of investment pattern and attitude of investors, insurance is no more seen as only a tax saving product but also as a product which provides a financial solution for the customer. Our wide national network, spanning the length and breadth of India, further supports these initiatives. Our strengths include personalized service provided by a dedicated team committed in giving hassle-free service to the clients.

Tax Planning
KARVY as an Income Tax advisor In line with KARVY’s ambition of emerging as a personal finance advisor, we are now launching a tax advisory module, thereby providing assistance with respect to personal income tax planning. This service inter-alia includes the following: Investment planning Tax planning • Preparation of theme based reports on important events like Pre budget expectations, Budget analysis, New Economic survey etc.
• •


• • • •

Regular strategy reports through a fortnightly tax refresher called HUM TUM Personalized assistance in the context of salary structuring Tax free retirement planning Other innovative strategies on tax planning

Bonds - FDs Fixed Income Securities & Trading (K-FIST) Background - It was started in December 2002 with a roll out from 7 dedicated centers of Karvy. The Retail Debt Market division which is centralized at the HO in Hyderabad provides fixed income products to its clients and is primarily a fund based activity. The deal sizes vary from Rs.10,000 to Rs.5 crores. Products - Central Government securities, State Development Loans, State Guaranteed bonds, Public Sector Undertaking Bonds, Financial Institution Bonds, and Bank bonds of SLR/Non-SLR category, both taxable and tax-free. Target clients - Provident Fund Trusts, Educational & Religious trusts, charitable trusts, and Co-operative banks, Regional Rural Banks, Corporates, and High Net worth Individuals Standard Operating Procedures - Based on the specific needs of the prospects Quotes of all category of bonds are sent. The selection of instrument is done and post negotiation (if any) the settlement date is finalized. Contract notes are exchanged and written confirmations are obtained before initiating the trade settlement. On the agreed settlement date, the funds and securities are exchanged between the parties. Primarily all the trades are in the electronic mode only. The Wholesale Debt Market division is centralized at Mumbai and is a voice based order matching activity which is fee based. The deal size is a minimum of Rs.5 cr. And the reporting is done on the NSE. Products - Central Government securities, State Development Loans, State Guaranteed bonds, Public Sector Undertaking Bonds, Financial Institution Bonds, and Bank bonds of SLR/Non-SLR category, both taxable and tax-free. Target clients- Co-operative banks, commercial banks, Corporates, Financial Institutions, Insurance companies and Asset Management Companies. 65

Standard Operating Procedures - The dealers generate 2-way quotes during the trading hours and match the institutional buyers and sellers. The deal contract notes are generated and exchanged between the 2 parties. The fees are collected by raising debit notes on a monthly basis.

An Initial Public Offer (IPO) is a means of collecting money from the public by a company for the first time in the market to fund its projects. In return, the company gives the share to the investors in the company. In an IPO, the Lead managers decide the price of the issue. In a book building offer, the syndicate members decide the indicative price range and the investors decide the price of the issue through a tender method draft prospectus provides the information on the financials of the company, promoters, background, tentative issue price etc. It is filed by the Lead Managers with the Securitie s& Exchange Board of India (SEBI) to provide issue details.

Financial Planning
In its ambition to emerge as a complete financial advisor, KARVY has recently launched its personal financial planning wing, KARVY Financial Planning. It proposes to cater all advice to its customer pertaining to personal finance. With India emerging as a strong market, the investments avenues have also increased, to advice our customers the right avenue according to their suitability. Our vision is "To cater to the unique needs and requirements of the mass affluent by providing complete financial solutions and thereby enabling them to transform their dreams into reality."

karvy is one of the largest financial stores in India. It is a one stop shop for all financial services. However, it is off late, emerging as a financial doctor, a financial planner. 66

There are various benefits of having a relation with Karvy because of the following reasons: 1. Sound research team in equities, F&O, income tax, insurance, mutual funds 2. An ever expanding network of branches to provide you service at your door step 3. A wide basket of products which includes: stock broking, commodity broking, derivatives trading, insurance broking, tax planning, mutual funds advice, property services etc. 4. Personalized service catering to your unique tastes and requirements 5. Over a decade of experience in the financial services spectrum 6. A member of FPSB and an exclusive team of CFPs involved in the preparation of financial plan 7. An ever expanding product portfolio consisting of future products like Mint Street, co-branded credit cards etc. 8. An efficient and effective top management 9. Professional management 10. Passion for making you financial successful.

Karvy help you to help yourself to take care of all your financial need by the way of planning them well. This is done by a simple process. We follow a PDCA cycle for this. STEP I – PLAN STEP II - DO STEP III - CHECK STEP IV - ACT .. And subsequently help you in answering few questions for your self like. • Where to invest ?

• • •

Is it worth taking risk ? Equity or Mutual Fund ? Continue or foreclose the loan ? 67

• • •

Am I doing enough with regard to tax planning ? Am I overspending ? How much will I need to invest to realize my financial freedom ?

The success ladder:



Karvy being the top registrar and transfer agent, functions as registrar in most of the issues in the country. Talking about the mutual fund services offered by karvy, we can get the products of 33 AMCs over here. it deals in both closed ended funds as well as open ended too. Now one must be thinking why to get the mutual funds from karvy instead of getting it directly from AMCs???we have great reasons for it: the first one being ; if we avail the services of karvy then we can get the information about all the AMCs and their products at a single place along with expert recommendations whereas at an AMC we can get information about the products of that specific AMC only. And the second being wide network of karvy….nowadays we can find karvy offices at remote areas too. Along with these, karvy is very well handling the role of depository participant. Being registered with both the depositories i.e.; NSDL (national securities depository ltd) and CDSL (central depository services ltd), karvy can have access to both. Its wide network also facilitates it in distribution of retail financial products. Karvy believes in being updated always. So it is always ready to use latest technologies so that its clients always be in touch with the latest happenings along with karvy. It offers e-business through internet through its website: www.karvy.com . Other than it, it also provides its various services through SMSes. Karvy’s services are not limited to its investors only rather its offerings are for its corporate clients and distributors too. it is very well aware of the fact that in this era of neck to neck competition, we cant ignore any of the aspects of our business….so there’s a offering for everybody…everyone’s welcome at karvy.

Why should investors choose for Karvy?
Excellence is next to nothing….and here at karvy everybody tries their best to offer excellent services to its clientele through its offerings maintaining the karvy culture which includes: 1. Controlled and low cost service culture: karvy is there to serve its client at the minimum possible cost. it controls cost by its various cost- cutting techniques and minimization of avoidable costs. 2. Large volume processing capability: being the largest financial service provider in the country, it has the unique distinction of operating its activities on a large scale which benefits all the parties cordially. 3. Adherence to strict time schedule: karvy knows that time is money and tries it best to finish the task within the stipulated time schedule. 4. Expertise in coordinating multi-location responses: karvy has got a wide network and hence one can find its branches at most of the places in India. Thus it enjoys its presence everywhere and coordinates among itself in solving the queries and in responding to any situation. 5.Expertise in managing independent entities such as banks, post-office etc.: the work culture of karvy and the ethics followed inside karvy makes its workforce compatible 70

with everybody, so the karvy people establishes good coordination with independent entities too. 6. Pooling of group resources: karvy group consists of eight subsidiaries, so it can easily pool up its resources for accomplishment of its goals, whenever needed. The groups can help each other whenever there are peaks and lows, and even in the case when they have huge targets just as we saw few years back, Tata group pooling its resources to acquire Corus.

How Karvy achieved it?
The core competency of Karvy lies in the following points due to which it enjoys a competitive edge over its competitors. The following culture adopted by karvy makes it all time favorite among its clientele: 1. Professionally managed by qualified and trained manpower. 2. Uniquely structured in-house software and hardware department 3. Query handling within 48 hrs. 4. Strong secretarial, accounting and audit systems. 5. Unique work culture of working 7 days a week in 3 shifts. 6. Unmatched network spreading all over India.

How Achievements sounds synonymous to karvy
The landmarks achieved by karvy very well define its success story. In the previous pages, we learnt how a company started by five chartered accountants, named as karvy and company turned into today’s karvy group, the largest financial intermediary of India. But success didn’t came to karvy at a flow, the hard work and dedication of its workforce made it what it is today…gradually it achieved the following landmarks and now it has became what we call the karvy group, now it is: 1. Largest independent distributor for financial products. 2. Amongst the top 5 stock broker. 3. Among the top 3 depository participants. 4. Largest network of branches & business associates. 5. ISO 9002 certified operations by DNV. 6. Amongst top 10 investment bankers. 7. Adjudged as one of the top 50 IT users in India by MIS south Asia. 8. Full- fledged IT driven operation. 9. India’s no.1 registrar & securities transfer agent.

Clientele of Karvy
Karvy’s culture has helped Karvy in achieving such a distinct position in the market where it can boast of its huge client base. Be it a retail investor investing Rs. 500 in a SIP in Reliance mutual fund or be it the largest corporate house of the country: Reliance industries- everybody is heading towards Karvy for their wealth maximization, lets have a look at the clientele of Karvy : 71

According to the data published in year 2007, Karvy stock broking ltd. Operates through more than 12000 terminals, more than 290000 accounts are maintained and commands over 3.14% market share of NSE. The distribution services has access to more than Rs. 40 billion Assets Under Management. Karvy being a depository participant with both NSDL and CDSL, manages more than 700000 accounts from more than 380 locations. Talking about the registry services, it manages over 750 public/ right issues at the same time, it is managing over 16 million portfolios as registrar. If we took a look at some of the top corporate houses availing the services of Karvy then we have: Reliance, IOC, IDBI,LIC, Hindustan Unilever, Principal Mutual Fund, Duetsche Mutual Fund, Yogokawa, Marico Industries, Patni Computers, Morgan Stanley, Glenmark, CRISIL, 3M, Kotak Mahindra Bank, Bharti Televenture, Infosys Technologies, Wipro, Infotech, IPCL,TATA consultancy services, UTI mutual fund etc. Thus in total Karvy serves over 16 million investors and 300 corporates.

Structure according to the Products offered by Karvy:



Debt divisi on

Mut ual fund s

Insur ance brok ing

com mod ities

Stock broki ng

Depos itory partici pant

Merc hant & inv.ba nking



Some of the main competitors of Karvy Mutual Fund in Lucknow are as Follows: i. ii. iii. iv. v. vi. vii. viii. ix. x. ICICI Mutual Fund Reliance Mutual Fund UTI Mutual Fund Birla Sun Life Mutual Fund Kotak Mutual Fund HDFC Mutual Fund Sundaram Mutual Fund LIC Mutual Fund Sherkhan Franklin Templeton


• • • • • • • • •

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 accounts for nearly 10 million account holders First Depository Participant from Andhra Pradesh. 73

Chapter - 3 Objectives and scope


1. To find out the Preferences of the investors for Asset Management Company. 2. To know the Preferences for the portfolios. 3. To know why one has invested or not invested in SBI Mutual fund 4. To find out the most preferred channel. 5. To find out what should do to boost Mutual Fund Industry.

A big boom has been witnessed in Mutual Fund Industry in resent times. A large number of new players have entered the market and trying to gain market share in this rapidly improving market. The research was carried on in Lucknow I had been sent at one of the branch of Karvy, The Finapolis Lucknow where I completed my Project work. I surveyed on my Project Topic “A study of preferences of the Investors for investment in Mutual Fund” on the visiting customers of the Karvy. The study will help to know the preferences of the customers, which company, portfolio, mode of investment, option for getting return and so on they prefer. This project report may help the company to make further planning and strategy.


Chapter – 4 Research Methodology


This report is based on primary as well secondary data, however primary data collection was given more importance since it is overhearing factor in attitude studies. One of the most important users of research methodology is that it helps in identifying the problem, collecting, analyzing the required information data and providing an alternative solution to the problem .It also helps in collecting the vital information that is required by the top management to assist them for the better decision making both day to day decision and critical ones.

Research is totally based on primary data. Secondary data can be used only for the reference. Research has been done by primary data collection, and primary data has been collected by interacting with various people. The secondary data has been collected through various journals and websites.

The study was carried out for a period of two months, from 3rd June to 3rd August 2009

The sample was selected of them who are the customers/visitors of Karvy of India, Lucknow Branch, irrespective of them being investors or not or availing the services or not. It was also collected through personal visits to persons, by formal and informal talks and through filling up the questionnaire prepared. The data has been analyzed by using mathematical/Statistical tool.


The sample size of my project is limited to 200 people only. Out of which only 120 people had invested in Mutual Fund. Other 80 people did not have invested in Mutual Fund.

Data has been presented with the help of bar graph, pie charts, line graphs etc.

  Some of the persons were not so responsive. Possibility of error in data collection because many of investors may have not given

actual answers of my questionnaire.  Sample size is limited to 200 visitors of Karvy,The Finapolis Lucknow Branch, out of

these only 120 had invested in Mutual Fund. The sample. size may not adequately represent the whole market.  Some respondents were reluctant to divulge personal information which can affect the

validity of all responses.  The research is confined to a certain part of Lucknow


Chapter -5 DataAnalysis & Interpretation


1. (a) Age distribution of the Investors of Lucknow:

Age Group No. of Investors

<= 30 12

31-35 18

36-40 30

41-45 24

46-50 20

>50 16

Investors invested in Mutual Fund

11 11 11 11 11 11 1 1 <=11 1 1 -1 1 11 -11 11 -11 1 1 -1 1 >11 Age group of the Investors 11 11 11 11 11 11

According to this chart out of 120 Mutual Fund investors of Lucknow the most are in the age group of 36-40 yrs. i.e. 25%, the second most investors are in the age group of 41-45yrs i.e. 20% and the least investors are in the age group of below 30 yrs.


(b). Educational Qualification of investors of Lucknow:
Educational Qualification Graduate/ Post Graduate Under Graduate Others Total Number of Investors 88 25 7 120

6% 23%


Graduate/Post Graduate

Under Graduate


Out of 120 Mutual Fund investors 71% of the investors in Lucknow are Graduate/Post Graduate, 23% are Under Graduate and 6% are others (under HSC).


c). Occupation of the investors of Lucknow:

Govt. Service Pvt. Service Business Agriculture Others .

No. of Investors
30 45 35 4 6

50 No. of Investors 40 30 20 10 0 Govt. Service Pvt. Service Business 35 45 30 4 Agriculture 6 Others

Occupation of the customers

In Occupation group out of 120 investors, 38% are Pvt. Employees, 25% are Businessman, 29% are Govt. Employees, 3% are in Agriculture and 5% are in others.


(d). Monthly Family Income of the Investors of Lucknow: Income Group
<=10,000 10,001-15,000 15,001-20,000 20,001-30,000 >30,000
50 45 40 35 30 25 20 15 10 5 0

No. of Investors

12 28 43 32

No. of Investors

43 28 5 <=10 12 10-15 15-20 20-30 >30 32

Income Group of the Investorsn (Rs. in Th.)

In the Income Group of the investors of Lucknow, out of 120 investors, 36% investors that is the maximum investors are in the monthly income group Rs. 20,001 to Rs. 30,000, Second one i.e. 27% investors are in the monthly income group of more than Rs. 30,000 and the minimum investors i.e. 4% are in the monthly income group of below Rs. 10,000


(2) Investors invested in different kind of investments: Kind of Investments Saving a/c Fixed deposits Insurance Mutual Fund Post office (NSC) Shares/Debentures Gold/Silver Real Estate No. of Respondents 195 148 152 120 75 50 30 65

Kinds of Investment

G ffi ce ol d ur /S (N g an SC ilv A/ ce er c )

65 30 50 75 120 152 148 195 0 50 100 150 200 250


vi n

In s

Po st


No.of Respondents

Interpretation: From the above graph it can be inferred that out of 200 people,
97.5% people have invested in Saving A/c, 76% in Insurance, 74% in Fixed Deposits, 60% in Mutual Fund, 37.5% in Post Office, 25% in Shares or Debentures, 15% in Gold/Silver and 32.5% in Real Estate.


3. Preference of factors while investing:
Factors (a) Liquidity (b) Low Risk (c) High Return (d) Trust

No. of Respondents





1 8%




L iquidity

L R k ow is

H hR ig eturn

Trus t

Out of 200 People, 32% People prefer to invest where there is High Return, 30% prefer to invest where there is Low Risk, 20% prefer easy Liquidity and 18% prefer Trust


4. Awareness about Mutual Fund and its Operations:

Response No. of Respondents

Yes 135

No 65



Y es


From the above chart it is inferred that 67% People are aware of Mutual Fund and its operations and 33% are not aware of Mutual Fund and its operations.


5. Source of information for customers about Mutual Fund:
Source of information Advertisement Peer Group Bank Financial Advisors No. of Respondents 18 25 30 62

7 0 6 0 5 0 4 0 3 0 2 0 2 5 1 0 1 8 0 Advertisem entPeer Group

No. of R espondents

6 2 3 0 B nk a F inancia l Advisors

S ource of Inform ation

From the above chart it can be inferred that the Financial Advisor is the most important source of information about Mutual Fund. Out of 135 Respondents, 46% know about Mutual fund Through Financial Advisor, 22% through Bank, 19% through Peer Group and 13% through Advertisement.


6. Investors invested in Mutual Fund:
Response YES NO Total No. of Respondents 120 80 200

No 40%

Yes 60%

Out of 200 People, 60% have invested in Mutual Fund and 40% do not have invested in Mutual Fund.


7. Reason for not invested in Mutual Fund:
Reason Not Aware Higher Risk Not any Specific Reason No. of Respondents

65 5 10



Not Aware H her R k ig is Not Any

Out of 80 people, who have not invested in Mutual Fund, 81% are not aware of Mutual Fund, 13% said there is likely to be higher risk and 6% do not have any specific reason.

8. Investors invested in different Assets Management Co. (AMC): Name of AMC

No. of Investors 55 75

HDFC Reliance ICICI Prudential Kotak Others
Others HDFC Name of AMC Kotak SBIMF ICICI Reliance UTI 0 20 40 No. of Investors 60 30 45 55 56 75 75 80

30 75 56 45 70

In Lucknow most of the Investors preferred UTI and Reliance Mutual Fund. Out of 120 Investors 62.5% have invested in each of them, only 46% have invested in SBIMF, 47% in ICICI Prudential, 37.5% in Kotak and 25% in HDFC.

9. Reason for invested through Karvy: Reason No. of Respondents

Associated with Karvy Brand Value Agents Advice

15 25 15



46% A s s o c ia te d w ith B raa rnv d V a lu g e n t s A d v ic e K y Ae

Out of 55 investors through Karvy 27% have invested because of its association with Karvy, 27% invested on Agent’s Advice, 46% invested because of its brand value.

10. Reason for not invested through Karvy: Reason
Not Aware Agent’s Advice

No. of Respondents
37 28 91



A g e n t s A d vNi c et A w a r e o

Out of 65 people who have not invested through Karvy, 57% were not aware of Karvy as a mutual fund advicer, 43% due to Agent’s Advice.

11. Preference of Investors for future investment in Mutual Fund: Name of AMC

No. of Investors 76 45 35 82

ICICI Prudential Kotak Others(Karvy)

80 60 75

Others K otak Nam of AMC e IC I Prudential IC R eliance H F DC UTI S BIMF 0 20 35 45 60


80 82

76 40 60 80 100

No. of Inves tors

Out of 120 investors, 68% prefer to invest in Reliance, 67% in ICICI Prudential, 63% in SBIMF, 62.5% in Others (Karvy), 50% in Kotak, 37.5% in UTI and 29% in HDFC Mutual Fund.

12. Channel Preferred by the Investors for Mutual Fund Investment:
Channel No. of Respondents Financial Advisor 72 Bank 18 AMC 30



F ncia Advisor ina l B ank AMC


Out of 120 Investors 60% preferred to invest through Financial Advisors, 25% through AMC and 15% through Bank.

13. Mode of Investment Preferred by the Investors:
Mode of Investment No. of Respondents One time Investment 78 Systematic Investment Plan (SIP) 42 94



One tim Inves ent e tm


Out of 120 Investors 65% preferred One time Investment and 35 % Preferred through Systematic Investment Plan.

14. Preferred Portfolios by the Investors: Portfolio
Equity Debt Balanced

No. of Investors
56 20 44 95






B alance

From the above graph 46% preferred Equity Portfolio, 37% preferred Balance and 17% preferred Debt portfolio

15. Option for getting Return Preferred by the Investors:
Option No. of Respondents Dividend Payout 25 Dividend Reinvestment 10 Growth 85 96


8% 71%
Dividend Payout Dividend R einves ent tm Growth

From the above graph 71% preferred Growth Option, 21% preferred Dividend Payout and 8% preferred Dividend Reinvestment Option.

16. Preference of Investors whether to invest in Sectoral Funds: Response Yes No No. of Respondents 25 95




Y es


Out of 120 investors, 79% investors do not prefer to invest in Sectoral Fund because there is maximum risk and 21% prefer to invest in Sectoral Fund.

Chapter – 6

Findings and Conclusion

 In Lucknow, the Age Group of 36-40 years were more in numbers. The second most Investors were in the age group of 41-45 years and the least were in the age group of below 30 years.  In Lucknow most of the Investors were Graduate or Post Graduate and below HSC there were very few in numbers.  In Occupation group most of the Investors were Govt. employees, the second most Investors were Private employees and the least were associated with Agriculture.  In family Income group, between Rs. 20,001- 30,000 were more in numbers, the second most were in the Income group of more than Rs.30,000 and the least were in the group of below Rs. 10,000.  About all the Respondents had a Saving A/c in Bank, 76% Invested in Fixed Deposits, Only 60% Respondents invested in Mutual fund.  Mostly Respondents preferred High Return while investment, the second most preferred Low Risk then liquidity and the least preferred Trust. 99

 Only 67% Respondents were aware about Mutual fund and its operations and 33% were not.  Among 200 Respondents only 60% had invested in Mutual Fund and 40% did not have invested in Mutual fund.  Out of 80 Respondents, 81% were not aware of Mutual Fund, 13% told there is not any specific reason for not invested in Mutual Fund and 6% told there is likely to be higher risk in Mutual Fund.  Most of the Investors had invested in Reliance or UTI Mutual Fund, ICICI Prudential has also good Brand Position among investors, SBIMF places after ICICI Prudential according to the Respondents.  Out of 55 clients of Karvy 27% have invested due to they are associated with Karvy, 27% Invested because of Advisor’s Advice and 46% due to its brand value.  Most of the investors who did not invested through Karvy 57% were not Aware of Karvy as a mutual fund adviser, and 43% due to Agent’s advice.  For Future investment the maximum Respondents preferred Reliance Mutual Fund, the second most preferred ICICI Prudential, Karvy has been preferred after them.  60% Investors preferred to Invest through Financial Advisors, 25% through AMC (means Direct Investment) and 15% through Bank.  65% preferred One Time Investment and 35% preferred SIP out of both type of Mode of Investment.  The most preferred Portfolio was Equity, the second most was Balance (mixture of both equity and debt), and the least preferred Portfolio was Debt portfolio.  Maximum Number of Investors Preferred Growth Option for returns, the second most preferred Dividend Payout and then Dividend Reinvestment.  Most of the Investors did not want to invest in Sectoral Fund, only 21% wanted to invest in Sectoral Fund.

Running a successful Mutual Fund requires complete understanding of the peculiarities of the Indian Stock Market and also the psyche of the small investors. This study has made an attempt to understand the financial behavior of Mutual Fund investors in connection with the preferences of Brand (AMC), Products, Channels etc. I observed that many of people have fear of Mutual Fund. They think their money will not be secure in Mutual Fund. They need the knowledge of Mutual Fund and its related terms. Many of people do not have invested in mutual fund due to lack of awareness although they have money to invest. As the awareness and income is growing the number of mutual fund investors are also growing. “Brand” plays important role for the investment. People invest in those Companies where they have faith or they are well known with them. There are many AMCs in Lucknow but only some are performing well due to Brand awareness. Some AMCs are not performing well although some of the schemes of them are giving good return because of not awareness about Brand. Reliance, UTI, Karvy, ICICI Prudential etc. they are well known Brand, they are performing well and their Assets Under 100

Management is larger than others whose Brand name are not well known like Principle, Sundaram, etc. Distribution channels are also important for the investment in mutual fund. Financial Advisors are the most preferred channel for the investment in mutual fund. They can change investors’ mind from one investment option to others. Many of investors directly invest their money through AMC because they do not have to pay entry load. Only those people invest directly who know well about mutual fund and its operations and those have time.

Chapter – 7

Suggestions And Recommendations

 The most vital problem spotted is of ignorance. Investors should be made aware of the benefits. Nobody will invest until and unless he is fully convinced. Investors should be made to realize that ignorance is no longer bliss and what they are losing by not investing.  Mutual funds offer a lot of benefit which no other single option could offer. But most of the people are not even aware of what actually a mutual fund is? They only see it as just another investment option. So the advisors should try to change their mindsets. The advisors should target for more and more young investors. Young investors as well as persons at the height of their career would like to go for advisors due to lack of expertise and time.  Mutual Fund Company needs to give the training of the Individual Financial Advisors about the Fund/Scheme and its objective, because they are the main source to influence the investors. 102

 Before making any investment Financial Advisors should first enquire about the risk tolerance of the investors/customers, their need and time (how long they want to invest). By considering these three things they can take the customers into consideration.  Younger people aged under 35 will be a key new customer group into the future, so making greater efforts with younger customers who show some interest in investing should pay off.  Customers with graduate level education are easier to sell to and there is a large untapped market there. To succeed however, advisors must provide sound advice and high quality.  Systematic Investment Plan (SIP) is one the innovative products launched by Assets Management companies very recently in the industry. SIP is easy for monthly salaried person as it provides the facility of do the investment in EMI. Though most of the prospects and potential investors are not aware about the SIP. There is a large scope for the companies to tap the salaried persons.


• • •


A study of preferences of the investors for investment in mutual funds.
1. Personal Details: (a). Name:(b). Address: (c). Age:(d). Qualification:Graduation/PG Under Graduate Others Phone:-


(e). Occupation. Pl tick (√) Govt. Ser (g). What is your monthly family income approximately? Pl tick (√). Up to Rs. 10,001 to Rs.10,000 15000 Rs. 15,001 to 20,000 Rs. 20,001 to 30,000 Rs. 30,001 and above Pvt. Ser Business Agriculture Others

2. What kind of investments you have made so far? Pl tick (√). All applicable. a. Saving account e. Post OfficeNSC, etc 3. While investing your money, which factor will you prefer? . (a) Liquidity (b) Low Risk (c) High Return (d) Trust b. Fixed deposits f. Shares/Debentures c. Insurance g. Gold/ Silver d. Mutual Fund h. Real Estate

4. Are you aware about Mutual Funds and their operations? Pl tick (√).



5. If yes, how did you know about Mutual Fund? a. Advertisement b. Peer Group c. Banks d. Financial Advisors Yes No

6. Have you ever invested in Mutual Fund? Pl tick (√). 7. If not invested in Mutual Fund then why? (a) Not aware of MF (b) Higher risk (c) Not any specific reason

8. If yes, in which Mutual Fund you have invested? Pl. tick (√). All applicable. a. Karvy b. SBIMF c. HDFC d. Reliance e. Kotak f. Other. specify


9. If invested in Karvy, you do so because (Pl. tick (√), all applicable). a. They have a record of giving good returns year after year. b. Agent’ Advice c. Any other source 10. If NOT invested in Karvy, you do so because (Pl. tick (√) all applicable). a. You are not aware of Karvy b. Karvy gives less return compared to the others. c. Agent’ Advice 11. When you plan to invest your money in asset management co. which AMC will you prefer? Assets Management Co. a. Karvy b. SBIMF c. Reliance d. HDFC e. Kotak f. ICICI 12. Which Channel will you prefer while investing in Mutual Fund? (a) Financial Advisor (b) Bank (c) AMC

13. When you invest in Mutual Funds which mode of investment will you prefer? Pl. tick (√). a. One Time Investment b. Systematic Investment Plan (SIP)

14. When you want to invest which type of funds would you choose? a. Having only debt portfolio b. Having debt & equity portfolio. c. Only equity portfolio.

15. How would you like to receive the returns every year? Pl. tick (√). a. Dividend payout b. Dividend re-investment c. Growth in NAV


16. Instead of general Mutual Funds, would you like to invest in sectorial funds? Please tick (√). Yes No


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