A

PROJECT REPORT

ON

MUTUAL FUNDS AND ITS GROWTH

ABSTRACT
A mutual fund is a scheme in which several people invest their money for a common financial cause. The collected money invests in the capital market and the money, which they earned, is divided based on the number of units, which they hold. The mutual fund industry started in India in a small way with the UTI Act creating what was effectively a small savings division within the RBI. Over a period of 25 years this grew fairly successfully and gave investors a good return, and therefore in 1989, as the next logical step, public sector banks and financial institutions were allowed to float mutual funds and their success emboldened the government to allow the private sector to foray into this area. The advantages of mutual fund are professional management, diversification, economies of scale, simplicity, and liquidity. The disadvantages of mutual fund are high costs, over-diversification, possible tax consequences, and the inability of management to guarantee a superior return. The biggest problems with mutual funds are their costs and fees it include Purchase fee, Redemption fee, Exchange fee, Management fee, Account fee & Transaction Costs. There are some loads which add to the cost of mutual fund. Load is a type of commission depending on the type of funds. Mutual funds are easy to buy and sell. You can either buy them directly from the fund company or through a third party. Before investing in any funds one should consider some factor like objective, risk, Fund Managers and scheme track record, Cost factor etc. There are many, many types of mutual funds. You can classify funds based Structure (open-ended & close-ended), Nature (equity, debt, balanced), Investment objective (growth, income, money market) etc. A code of conduct and registration structure for mutual fund intermediaries, which were subsequently mandated by SEBI. In addition, this year AMFI was involved in a number of developments and enhancements to the regulatory framework.

The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks and smaller private sector players. People want to invest in this institution because they know that this institution will never dissatisfy them at any cost. You should always keep this into your mind that if particular mutual funding scheme is on larger scale then next time, you might not get the same results so being a careful investor you should take your major step diligently otherwise you will be unable to obtain the high returns.

TABLE OF CONTENTS

Chapter No.

Name of the concept Introduction Need of the study Objectives of the study

Page No. 7-9 10 11 12 13-17 18 19-41 42-50 51-66 67-84 85-86 87-89 90-91 92-95

I Scope of the study Methodology of the study Limitations of the study II Review of Literature Company Profile III Industry Profile IV Data analysis and interpretation Findings V Suggestions Conclusions Bibliography

LIST OF TABLES

Table No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Respondents Age

Table Title Respondents Profession Marital Status Respondents Income Levels Customer Preferred Investment Sector Individuals Preferred Investment Plan Usage Of Mutual Funds As An Investment By Investors Preferred Type Of Mutual Funds Customers Risk Preference While Taking Decision On MF Investments Type Of Investment Scheme Period Of Investment Plan Preferred Sectoral Funds Reasons For Investing In Mutual Funds Factors For Investing In Mutual Funds Average Returns From Investment In Mutual Funds

Page No. 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84

Mutual Fund Is Better Than Other Investments Advise Friends To Invest In Mutual Funds

LIST OF FIGURES
Figure No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Advise Friends To Invest In Mutual Funds Figure Title Mutual Fund Operation Flow Chart Types Of Mutual Funds Schemes Respondents Age Respondents Profession Marital Status Respondents Income Levels Customer Preferred Investment Sector Individuals Preferred Investment Plan Usage Of Mutual Funds As An Investment By Investors Preferred Type Of Mutual Funds Customers Risk Preference While Taking Decision On MF Investments Type Of Investment Scheme Period Of Investment Plan Preferred Sectoral Funds Reasons For Investing In Mutual Funds Factors For Investing In Mutual Funds Page No. 8 30 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84

Average Returns From Investment In Mutual Funds Mutual Fund Is Better Than Other Investments

CHAPTER- I INTRODUCTION

INTRODUCTION
There are a lot of investment avenues available today in the financial market for an investor with an investable surplus. He can invest in Bank Deposits, Corporate Debentures, and Bonds where there is low risk but low return. He may invest in Stock of companies where the risk is high and the returns are also proportionately high. The recent trends in the Stock Market have shown that an average retail investor always lost with periodic bearish tends. People began opting for portfolio managers with expertise in stock markets who would invest on their behalf. Thus we had wealth management services provided by many institutions. However they proved too costly for a small investor. These investors have found a good shelter with the mutual funds. A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital 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: Mutual Funds are trusts, which accept savings from investors and invest the same in diversified financial instruments in terms of objectives set out in the trusts deed with the view to reduce the risk and maximize the income and capital appreciation for distribution for the members. A Mutual Fund is a corporation and the fund managers interest is to professionally manage the funds provided by the investors and provide a return on them after deducting reasonable management fees. The objective sought to be achieved by Mutual Fund is to provide an opportunity for lower income groups to acquire without much difficulty financial assets. They cater mainly to the needs of the individual investor whose means are small and to manage investors portfolio in a manner that provides a regular income, growth, safety, liquidity and diversification opportunities.

Figure 1: Mutual Fund Operation Flow Chart

Source: Secondary Data

The project is basically carried out to give good guidelines for investors. The project will also educate the investors about mutual funds and its growth. The project idea is to project mutual funds as the better avenue for investment. Mutual fund is productive package for a lay-investor with limited finances. Mutual fund is a very old practice in U.S., and it has made a recent entry into India. Common man in India still finds Bank as a safe door for investment. This shows that mutual funds have not gained a strong foot-hold in his life. The project creates an awareness that the mutual fund is worthy investment practice. The various schemes of mutual funds provide the investor with a wide range of investment options according to his risk-bearing capacities and interest. Besides, they also give a handy return to the investor. The future challenges for mutual funds in India are also considered.

NEED OF THE STUDY

A small investor is the one who is able to correctly plan & decide in which profitable & safe instrument to invest. To lock up ones hard earned money in a savings banks account is not enough to counter the monster of inflation. Using simple concepts of diversification, power of compound interest, stable returns & limited exposure to equity investment, one can maximize his returns on investments & multiply ones savings. Investment is a serious proposition one has to look into various factors before deciding on the instruments in which to invest. To save is not enough. One must invest wisely & get maximum returns. One must plan investment in such a way that his investment objectives are satisfied. A sound investment is one which gives the investor reasonable returns with a proper profitable management. The study basically is made to educate the investors about Mutual Funds. It analyzes the various schemes to highlight the risk and return of diversity of investment that mutual funds offer. Thus, through the study one would understand how a common man could fruitfully convert a pittance into great penny by wisely investing into the right scheme according to his risk- taking abilities. The primary objective of doing this project is to know about mutual funds and its functioning. This project helps us to know in detail about mutual fund industry right from its inception stage, growth and future prospects. It also helps in understanding different schemes of mutual funds. The study is focused on prominent funds in India and their schemes like equity, income, balance as well as the returns associated with those schemes. The project study tries to ascertain the asset allocation, entry load, exit load, associated with the mutual funds. Ultimately this would help in understanding the benefits of mutual funds to investors.

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OBJECTIVES OF THE STUDY

The primary objective of doing this project is to know about mutual funds and its functioning. This project helps us to know in detail about mutual fund industry right from its inception stage, growth and future prospects. It also helps in understanding different schemes of mutual funds. The study is focused on prominent funds in India and their schemes like equity, income, balance as well as the returns associated with those schemes. 1. To give a brief idea about the benefits available from Mutual Fund investment. 2. To project mutual funds as the productive avenue to invest in contrast to the laxity of bank investing 3. To give an idea of the types of schemes available. 4. To help an investor to make a right choice of investment, while considering the inherent risk factors 5. To discuss about the market trends of Mutual Fund investment. 6. To study some of the mutual fund schemes. 7. To study some mutual fund companies and their funds. 8. Observe the fund management process of mutual funds. 9. Explore the recent developments in the mutual funds in India. 10. To give an idea about the regulations of mutual funds.

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SCOPE OF THE STUDY

A mutual fund, also referred to as an open-end fund, is an investment company that spreads its money across a diversified portfolio of securities -- including stocks, bonds, or money market instruments. Shareholders who invest in a fund each own a representative portion of those investments, less any expenses charged by the fund. Mutual fund investors make money either by receiving dividends and interest from their investments, or by the rise in value of the securities. Dividends, interest and profits from the sale of any securities (capital gains) are passed on to the shareholders in the form of distributions. And shareholders generally are allowed to sell (redeem) their shares at any time for the closing market price of the fund on that day. The study is limited to the overview of mutual funds in India. It helps in understanding different schemes of mutual funds. The project tries to explain the asset allocation, entry load, exit load, associated with the mutual funds. The project also helps in understanding the benefits of mutual funds to investors. The project does not advise anyone to invest in a particular mutual fund. It only reviews the advantages and disadvantages of mutual funds and tries to compare the prominent mutual fund companies operating in India.

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RESEARCH METHODOLOGY
Research Methodology is a term made up of two words, research & methodology. Research means search for knowledge. It is a scientific and systematic search for potential information on a specific topic. It is an art of scientific investigation. It is careful investigation or inquiry especially for search of new fact in any branch of knowledge. Research is a systematic method of finding solutions to problems. According to Clifford woody, research comprises of defining and redefining problem, formulating hypothesis or suggested solutions, collecting, organizing and evaluating data, reaching conclusions, testing conclusions to determine whether they fit the formulated hypothesis For the purpose of study, both primary and secondary data has been collected. The observational method and survey research method is used to collect the primary data. The necessary data has also been collected from official records and other published sources. The collected data is classified, tabulated, analyzed and interpreted later. Methods Of Data Collection Data can be of two types primary and secondary data. Primary data are those which are collected afresh and for the first time, and it is in original form. Primary data can be collected either through experiment or through survey. The researcher has chosen the survey method for data collection. The two types of data collection: 1. Primary data 2. Secondary data Primary data Primary data is personally developed data and it gives latest information and offers much greater accuracy and reliability.

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There are various sources for obtaining primary data i.e., Mail survey, personal interview,

Field survey, panel research and observation approach etc. The study to maximum extent dependent on primary data, which is collected by way of structures personal interview with customers.

Methods that can be used for collection of primary data are as follows: Direct personal observation: Under this method, the investigator presents himself personally before the informant and obtains first hand information. This method provides greater degree of accuracy. Telephone survey: Under this method the investigator, instead of presenting himself before the informants, contacts them on telephone and collects information from them. Indirect personal interview: Under this method, instead of directly approaching the informants, the investigator interviews several third persons who are directly or indirectly concerned with the subject matter of the enquiry and who are in possession of the requisite information. This method is highly suitable where the direct personal investigation is not practicable either because the informants are unwilling or reluctant to supply the information or where the information desired is complex or the study in hand is extensive. Questionnaire method: Under this method, the investigator prepares a questionnaire containing a number of questions pertaining to the field of enquiry. Under this method, the investigator directly contact the person and collect the information through questionnaire related to the data. The aims and objectives of collecting the information, and requesting the respondents to cooperate by furnishing the correct replies and fill the questionnaire with correct information. The success of this method depends upon the proper drafting of the questionnaire and the cooperation of the respondents.

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Secondary data Secondary data is the published data. It is already available for using and its saves time. The mail source of secondary data are published market surveys, government publications advertising research report and internal source such as sales, sales records orders, customers complaints and other business record etc. the study has also depended on secondary data to little extent, which is collected through internal source. Methods that can be used for collection of secondary data are as follows: Published sources: There are a number of national organisations and international agencies, which collect and publish statistical data relating to business, trade, labour, price, consumption, production, etc. These publications of the various organisations are useful sources of secondary data. Unpublished sources: The records maintained by private firms or business houses who may not like to release their data to any outside agency are known as unpublished sources of collection of secondary data.

In case of survey, data can be collected by any one or more of the following ways: Observation Questionnaire Personal or Group Interview Telephone survey Communication with respondents Analysis of documents and historical records Case study Small group study of random behavior

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Questionnaire method of data collection is chosen to collect the data due to limited time in hand. While designing data-collection procedure, adequate safeguards against bias and unreliability must be ensured. Whichever method is selected, questions must be well examined and be made unambiguous. The collected data has been checked for completeness, comprehensibility, consistently and reliability. Secondary data which have already been collected and analyzed by someone else is also used to prepare the report. Various information from journals, historical documents, magazines and reports is also used to prepare the report. For the present piece of research, the following methods have been used: Questionnaire Interview Observation

Sample Of The Study A sample design is a definite plan for obtaining a sample from the sampling frame. It refers to the technique or the procedure the researcher would adopt in selecting some sampling units from which inferences about the population is drawn. Sampling design is determined before any data are actually collected for obtaining a sample from a given population. The researchers must decide the way of selecting a sample.

There are various methods o sampling like systematic sampling, random sampling, deliberate sampling, mixed sampling, cluster sampling, etc. Among these methods of sampling researcher has used random sampling so that bias can be eliminated and sampling error can be estimated. Designing samples should be made in such a fashion that the samples may yield accurate information with minimum amount of research effort.

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Sampling Sampling may be defined as the selection of some part of an aggregate or totality on the basis of which a judgment or inference about an entire population by examining only a part of it. The items so selected constitute what is technically called a sample, their selection process or technique is called sample design and the survey conducted in the basis of sample is described as sample survey. Sample Size In sampling design the most complicated question is: what should be the size of the sample. If the sample size is too small, it may not serve to achieve the objectives and if it is too large, we may incur huge cost and waste resources. So sample must be of an optimum size that is, it should neither be excessively large nor too small. Here, researcher has taken 50 as the sample size. About The Questionnaire In this method a questionnaire is sent to the employees concerned with a request to answer the questions and return the questionnaire. The questionnaire consisted of a number of questions printed or typed in a definite order. The employees have to answer the questions on their own. This method of data collection is chosen due to low cost incurred, it is free from bias of the interviewer and respondents have adequate time.

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LIMITATIONS
Every study has its own limitations in terms of methodology and available resources for its conduct. This study was not an exception and was carried out under the following limitations: The data was collected through questionnaire. The responds from the respondents may not be accurate. The sample taken for the study was only 50 and the results drawn may not be accurate. Since the organization has strict control, it acts as another barrier for getting data. Few respondents were reluctant while answering the questions The time was also one of the hindrances in the research Some important information was not there due to confidentiality involved in it Accuracy of the study is limited due to the possible bias of the respondents The lack of information sources for the analysis part

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CHAPTER II - REVIEW OF LITERATURE

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Mutual Funds
Mutual Funds Overview: There are a lot of investment avenues available today in the financial market for an investor with an investable surplus. He can invest in Bank Deposits, Corporate Debentures, and Bonds where there is low risk but low return. He may invest in Stock of companies where the risk is high and the returns are also proportionately high. The recent trends in the Stock Market have shown that an average retail investor always lost with periodic bearish tends. People began opting for portfolio managers with expertise in stock markets who would invest on their behalf. Thus we had wealth management services provided by many institutions. However they proved too costly for a small investor. These investors have found a good shelter with the mutual funds. A mutual fund, also referred to as an open-end fund, is an investment company that spreads its money across a diversified portfolio of securities -- including stocks, bonds, or money market instruments. Shareholders who invest in a fund each own a representative portion of those investments, less any expenses charged by the fund. Mutual funds have been around for a long time, dating back to the early 19th century. The first modern American mutual fund opened in 1924, yet it was only in the 1990s that mutual funds became mainstream investments, as the number of households owning them nearly tripled during that decade. With recent surveys showing that over 88% of all investors participate in mutual funds, you're probably already familiar with these investments, or perhaps even own some. In any case, it's important that you know exactly how these investments work and how you can use them to your advantage. A mutual fund is a special type of company that pools together money from many investors and invests it on behalf of the group, in accordance with a stated set of objectives. Mutual funds raise the money by selling shares of the fund to the public, much like any other company can sell stock in itself to the public. Funds then take the money they receive from the sale of their shares (along with any money made from previous investments) and use it to purchase various investment vehicles, such as stocks, bonds and money market instruments. In return for the money they give to the fund when purchasing

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shares, shareholders receive an equity position in the fund and, in effect, in each of its underlying securities. For most mutual funds, shareholders are free to sell their shares at any time, although the price of a share in a mutual fund will fluctuate daily, depending upon the performance of the securities held by the fund. Mutual fund investors make money either by receiving dividends and interest from their investments, or by the rise in value of the securities. Dividends, interest and profits from the sale of any securities (capital gains) are passed on to the shareholders in the form of distributions. And shareholders generally are allowed to sell (redeem) their shares at any time for the closing market price of the fund on that day. Concept Of Mutual Funds: A mutual fund is a common pool of money into which investors place their contributions that are to be invested in accordance with a stated objective. The ownership of the fund is thus joint or mutual; the fund belongs to all investors. A single investors ownership of the fund is in the same proportion as the amount of the contribution made by him or her bears to the total amount of the fund. Mutual Funds are trusts, which accept savings from investors and invest the same in diversified financial instruments in terms of objectives set out in the trusts deed with the view to reduce the risk and maximize the income and capital appreciation for distribution for the members. A Mutual Fund is a corporation and the fund managers interest is to

professionally manage the funds provided by the investors and provide a return on them after deducting reasonable management fees. The objective sought to be achieved by Mutual Fund is to provide an opportunity for lower income groups to acquire without much difficulty financial assets. They cater mainly to the needs of the individual investor whose means are small and to manage investors portfolio in a manner that provides a regular income, growth, safety, liquidity and diversification opportunities.

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Definitions: Mutual funds are collective savings and investment vehicles where savings of small (or sometimes big) investors are pooled together to invest for their mutual benefit and returns distributed proportionately. A mutual fund is an investment that pools your money with the money of an unlimited number of other investors. In return, you and the other investors each own shares of the fund. The fund's assets are invested according to an investment objective into the fund's portfolio of investments. Aggressive growth funds seek long-term capital growth by investing primarily in stocks of fast-growing smaller companies or market segments. Aggressive growth funds are also called capital appreciation funds. Why Select Mutual Funds? The risk return trade-off indicates that if investor is willing to take higher risk then correspondingly he can expect higher returns and vise versa if he pertains to lower risk instruments, which would be satisfied by lower returns. For example, if an investors opt for bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest in capital protected funds and the profit-bonds that give out more return which is slightly higher as compared to the bank deposits but the risk involved also increases in the same proportion. Thus investors choose mutual funds as their primary means of investing, as Mutual funds provide professional management, diversification, convenience and liquidity. That doesnt mean mutual fund investments risk free. This is because the money that is pooled in are not invested only in debts funds which are less riskier but are also invested in the stock markets which involves a higher risk but can expect higher returns. Hedge fund involves a very high risk since it is mostly traded in the derivatives market which is considered very volatile.

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History Of Mutual Funds In India: 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. The history of mutual funds in India can be broadly divided into four distinct phases First Phase 1964-87 (UTI Monopoly): Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management. Second Phase 1987-1993 (Entry Of Public Sector Funds): 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores. Third Phase 1993-2003 (Entry Of Private Sector Funds): With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.

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The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds. Fourth Phase Since February 2003: In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

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Recent Trends in Mutual Funds Industry The Indian Mutual fund industry, despite all that has been said about it is still in a nascent stage and has extremely bright future ahead. The industry is still one-tenth size of the banking deposits in the country. The private sector mutual fund industry in its resent avatar is barely 7 years old. The total asset under management over the past 4 to 5 tears has almost remain stagnant around the Rs 100, 000 crore mark. This has put a question mark in front of the claims that mutual funds are growing part of the financial savings and planning industry in India. It holds scope for growth. In India this industry began with the setting up of the Unit Trust Of India (UTI) in 1964 by the government of India in order to mobiles small saving. During the past 37 years, UTI has grown to be a dominant player in the industry with assets with over Rs 76,547 crore as of March2000. However, trouble hit UTI has lost its dominant position in the industry and the asset under management has slipped drastically to Rs 46,396 crore. Private sector mutual funds, which were permitted along with foreign partners in 1993, now enjoy a dominant position in the country. Kothari Pioneer Mutual fund was the first fund to be established in the private sector with foreign fund. The private sector now controls around RS 45,818 crore assets under management, almost half the size of the industry. The mutual fund industry has become a fastest growing sector in the countrys capital and financial market with an average compounded growth rate of 20 percent over the past five years. This is despite increasing competition with more than 30 asset management companies for investors money. As on June 2002, the industry has Rs 100,703 crore asset under management spread across 36 funds with more than 390 schemes. Substantial development have made; spurred on by changes and amendments in regulation as the mutual fund regulation that established a comprehensive legal framework for the mutual fund industry to develop coherently. The securities and Exchange Board Of India (SEBI) came out with comprehensive regulation in 1993 which defined the structure of the mutual fund and asset management Companies for the first time.

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The industry is in the process of evolving into a bigger and better investment medium for all market segment, Say Kavita Hurry, CEO ING Investment Management, further, currently, ING Investments manages around Rs.364 crore as on June 2002. Structure Of Mutual Funds
Sponsor Company Establishes MF as a Trust Registers MF with SEBI Hold Unitholders Fund in MF Ensure Compliance to SEBI Enter into Agreement with MC

Managed by a Board of Trustees

Mutual Fund

Appointed by Board of Trustees

Asset Management Company

Float, MF Funds Managers Fund as Per SEBI guidelines & AMC Agreement

Appointed by Trustees

Custodian

Provides Necessary Custodian Services

Appointed by AMC

Bankers

Provide Banking Services

Appointed by AMC

Registrars and Transfer Agents

Provide Registrars Services and act as transfers Agents

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The formation and operations of mutual funds in India is solely guided by SEBI (Mutual Fund) Regulations, 1993, which came into force on 20 January 1993. The regulations have since been replaced by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, through a notification on 9 December 1996. The above figure gives an idea of the structure of Indian mutual funds. A mutual fund comprises four separate entities, namely sponsor, mutual fund trust, AMC and custodian. They are of course assisted by other independent administrative entities like banks, registrars and transfer agents. We may discuss in brief the formation of different entities, their functions and obligations. The sponsor for a mutual fund can by any person who, acting alone or in combination with another body corporate establishes the mutual fund and gets it registered with SEBI. The sponsor is required to contribute at least 40 per cent of the minimum net worth (Rs 10 crore) of the asset management company. The sponsor must have a sound track record and general reputation of fairness and integrity in all his business transactions. As per SEBI Regulation, 1996, a mutual fund is to be formed by the sponsor and registered with SEBI. A mutual fund shall be constituted in the form of a trust and the instrument of trust shall be in the form of a deed, duly registered under the provisions of the Indian Registration Act, 1908, executed by the sponsor in favour of trustees named in such an instrument. The board of trustees manages the mutual fund and the sponsor executes the trust deeds in favor of the trustees. The mutual fund raises money through sale of units under one or more schemes for investing in securities in accordance with SEBI guidelines. It is the job of the mutual fund trustees to see that the schemes floated and managed by the AMC appointed by the trustees, are in accordance with the trust deeds and SEBI guidelines. It is also the responsibilities of the trustees to control the capital property of mutual funds schemes. The trustees have the right to obtain relevant information from the AMC, as well as a quarterly report on its activities. They can also dismiss the AMC under specific condition as per SEBI regulations.

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t least half the trustees should be independent persons. The AMC or its employees

cannot act as a trustee. No person who is appointed as a trustee of a mutual fund can be appointed as a trustee of any other mutual fund unless he is an independent trustee and prior permission is obtained from the mutual fund in which he is a trustee. The trustees are required to submit half-yearly reports to SEBI on the activities of the mutual fund. The trustees appoint a custodian and supervise their activities. The trustees can be removed only with prior approval of SEBI. Benefits Of Mutual Fund Investments 1. Professional Management: Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. 2. Diversification: Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own. 3. Convenient Administration: Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient. 4. Return Potential: Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.

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5. Low Costs: Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors. 6. Liquidity: In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. 7. Transparency: You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook. 8. Flexibility: Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience. 9. Affordability: Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy.

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Structure And Constituents Of Fund

Figure 2: Types Of Mutual Funds Schemes

TYPES OF MUTUAL FUNDS

BY STRUCTURE
Open - Ended Schemes Close - Ended Schemes Interval Schemes

BY NATURE
Equity Fund Debt Funds Balanced Funds

BY INVESTMENT OBJECTIVE
Growth Schemes Income Schemes Balanced Schemes Money Market Schemes

OTHER SCHEMES
Tax Saving Schemes Index Schemes Sector Specific Schemes

Source: Secondary Data

Mutual fund schemes may be classified on the basis of its structure and its investment objective. 1. By Structure: A. Openended funds: 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. B. Closed-ended funds: A closed end funds has a stipulated maturity period which generally raging from 3 to 15 years. The funds are 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

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can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exist 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. C. Interval Funds: Interval funds combine the features of open-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices. 2. By Nature: A. 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 managers 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. B. 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. 31

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

MIPs: 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.

C. Balanced 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 provides growth and the debt part provides stability in returns. The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls. These are ideal for investors looking for a combination of income and moderate growth.

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D. Money Market Funds: The aim of money funds is 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. Returns on these schemes may fluctuate depending upon the interest rate prevailing in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods. E. Load Funds: A Load Funds is one that charges a commission for entry of exit. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry exit loads range from 1% to 2%. It could be corpus is put to work. F. No-Load Funds: A No-Load Fund is one that does not charge a commission for entry or exit. That is, no commission is payable on purchase or sale of units in the fund. The advantage of a no load is that the entire corpus is put to work. 3. Schemes in Mutual Funds I. Tax Saving Schemes These schemes offer tax rebates to the investor under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. Investments in Equity Linked Saving Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act. The Act also provide opportunities to investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds, provided the capital asset has been sold to April 1, 2000 and the amount is invested before September 30, 2000. II. Industry Specific Schemes: Industry Specific Schemes invest in the industries specified in the offer document. The investment or these funds is limited to specific like InfoTech, FMCG and Pharmaceuticals etc.

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III. Index Schemes: Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE IV. Sectoral Schemes: Sectoral Funds are those, which invest exclusively in a specified industry or a group of industries or various segments such as A Group shares or initial public offerings. 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. Advantages Of Mutual Funds: If mutual funds are emerging as the favorite investment vehicle, it is because of the many advantages they have over other forms and the avenues of investing, particularly for the investor who has limited resources available in terms of capital and the ability to carry out detailed research and market monitoring. The following are the major advantages offered by mutual funds to all investors: 1. Portfolio Diversification: Each investor in the fund is a part owner of all the funds assets, thus enabling him to hold a diversified investment portfolio even with a small amount of investment that would otherwise require big capital. 2. Professional Management: Even if an investor has a big amount of capital available to him, he benefits from the professional management skills brought in by the fund in the management of the investors portfolio. The investment management skills, along with the needed research into available investment options, ensure a much better return than what an investor can manage

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on his own. Few investors have the skill and resources of their own to succeed in todays fast moving, global and sophisticated markets. 3. Reduction/Diversification Of Risk: When an investor invests directly, all the risk of potential loss is his own, whether he places a deposit with a company or a bank, or he buys a share or debenture on his own or in any other from. While investing in the pool of funds with investors, the potential losses are also shared with other investors. The risk reduction is one of the most important benefits of a collective investment vehicle like the mutual fund. 4. Reduction Of Transaction Costs: What is true of risk as also true of the transaction costs. The investor bears all the costs of investing such as brokerage or custody of securities. When going through a fund, he has the benefit of economies of scale; the funds pay lesser costs because of larger volumes, a benefit passed on to its investors. 5. Liquidity: Often, investors hold shares or bonds they cannot directly, easily and quickly sell. When they invest in the units of a fund, they can generally cash their investments any time, by selling their units to the fund if open-ended, or selling them in the market if the fund is close-end. Liquidity of investment is clearly a big benefit. 6. Convenience And Flexibility: Mutual fund management companies offer many investor services that a direct market investor cannot get. Investors can easily transfer their holding from one scheme to the other; get updated market information and so on. 7. Tax Benefits: Any income distributed after March 31, 2002 will be subject to tax in the assessment of all Unit holders. However, as a measure of concession to Unit holders of open-ended equity-oriented funds, income distributions for the year ending March 31, 2003, will be taxed at a concessional rate of 10.5%.

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In case of Individuals and Hindu Undivided Families a deduction upto Rs. 9,000 from the Total Income will be admissible in respect of income from investments specified in Section 80L, including income from Units of the Mutual Fund. Units of the schemes are not subject to Wealth-Tax and Gift-Tax. Disadvantages Of Mutual Funds: 1. No Control Over Costs: An investor in a mutual fund has no control of the overall costs of investing. The investor pays investment management fees as long as he remains with the fund, albeit in return for the professional management and research. Fees are payable even if the value of his investments is declining. A mutual fund investor also pays fund distribution costs, which he would not incur in direct investing. However, this shortcoming only means that there is a cost to obtain the mutual fund services. 2. No Tailor-Made Portfolio: Investors who invest on their own can build their own portfolios of shares and bonds and other securities. Investing through fund means he delegates this decision to the fund managers. The very-high-net-worth individuals or large corporate investors may find this to be a constraint in achieving their objectives. However, most mutual fund managers help investors overcome this constraint by offering families of funds- a large number of different schemes- within their own management company. An investor can choose from different investment plans and constructs a portfolio to his choice. 4. Managing A Portfolio Of Funds: Availability of a large number of funds can actually mean too much choice for the investor. He may again need advice on how to select a fund to achieve his objectives, quite similar to the situation when he has individual shares or bonds to select. 5. The Wisdom Of Professional Management: That's right, this is not an advantage. The average mutual fund manager is no better at picking stocks than the average nonprofessional, but charges fees.

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6. No Control: Unlike picking your own individual stocks, a mutual fund puts you in the passenger seat of somebody else's car 7. Dilution: Mutual funds generally have such small holdings of so many different stocks that insanely great performance by a fund's top holdings still doesn't make much of a difference in a mutual fund's total performance. 8. Buried Costs: Many mutual funds specialize in burying their costs and in hiring salesmen who do not make those costs clear to their clients. Types of Returns on Mutual Fund: 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.

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Return Risk Matrix:

HIGHIER RISK MODERATE RETURNS HIGHER RISK HIGHIER RETURNS

Venture Capital

Equity

Bank FD Postal Savings

LOWER RISK LOWER RETURNS

Mutual Funds

LOWER RISK HIGIER RETURNS

Risk Factors Of Mutual Funds: The Risk-Return Trade-Off: The most important relationship to understand is the risk-return trade-off. Higher the risk greater the returns / loss and lower the risk lesser the returns/loss. Hence it is up to you, the investor to decide how much risk you are willing to take. In order to do this you must first be aware of the different types of risks involved with your investment decision. Market Risk: Sometimes prices and yields of all securities rise and fall. Broad outside influences affecting the market in general lead to this. This is true, may it be big corporations or smaller mid-sized companies. This is known as Market Risk. A Systematic Investment Plan (SIP) that works on the concept of Rupee Cost Averaging (RCA) might help mitigate this risk.

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Credit Risk: The debt servicing ability (may it be interest payments or repayment of principal) of a company through its cashflows determines the Credit Risk faced by you. This credit risk is measured by independent rating agencies like CRISIL who rate companies and their paper. A AAA rating is considered the safest whereas a D rating is considered poor credit quality. A well-diversified portfolio might help mitigate this risk. Inflation Risk: Things you hear people talk about: "Rs. 100 today is worth more than Rs. 100 tomorrow." "Remember the time when a bus ride casted 50 paisa?" "Mehangai Ka Jamana Hai." The root cause, Inflation. Inflation is the loss of purchasing power over time. A lot of times people make conservative investment decisions to protect their capital but end up with a sum of money that can buy less than what the principal could at the time of the investment. This happens when inflation grows faster than the return on your investment. A well-diversified portfolio with some investment in equities might help mitigate this risk. Interest Rate Risk: In a free market economy interest rates are difficult if not impossible to predict. Changes in interest rates affect the prices of bonds as well as equities. If interest rates rise the prices of bonds fall and vice versa. Equity might be negatively affected as well in a rising interest rate environment. A well-diversified portfolio might help mitigate this risk. Political / Government Policy Risk: Changes in government policy and political decision can change the investment environment. They can create a favorable environment for investment or vice versa. Liquidity Risk: Liquidity risk arises when it becomes difficult to sell the securities that one has purchased. Liquidity Risk can be partly mitigated by diversification, staggering of maturities as well as internal risk controls that lean towards purchase of liquid securities.

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Major Players In Mutual Fund Industry

Name Of The Fund

No. Of Schemes

Asset Under Management (RS. Crore) 36 1 35 8 14 25 20 19 13 5 25 13 22 33 18 15 3 21 30 1 62 8 52 15 42 3309.03 6.1 3436.79 31 692.04 812.67 3154.67 20.72 83.91 0.7 3919.52 333.29 4707.32 1346.61 537.72 396.31 201.8 1199.2 1907.35 793.87 3517.77 149.76 7006.72 2913.25 3215.40

Alliance Mutual Fund Bench Mark Mutual Fund Birla Mutual Fund Bob Mutual Fund CAN Bank Mutual Fund Chola Mutual Fund India Infoline Mutual Fund Dundee Mutual Fund Escorts Mutual Fund First India Mutual Fund Franklin Tempeltion Mutual Fund GIC Mutual Fund HDFC Mutual Fund IDBI-Principal Mutual Fund IL & FS Mutual Fund ING Mutual Fund JF Mutual Fund JM Mutual Fund Kotak Mutual Fund Morgan Stanley Mutual Fund Pioneer ITI Mutual Fund PNB Mutual Fund PRU ICICI Mutual Fund Reliance Capital Mutual Fund SBI Mutual Fund

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Standard Chartered Mutual Fund SUN F& C Mutual Fund Sundaram Mutual Fund Tata Mutual Fund Taurus Mutual Fund UTI Mutual Fund Zurich India Mutual Fund LIC Mutual Fund

30 26 11 20 11 103 39 27

3294.63 413.11 702.25 893 59.76 509.83 255.11 2340.3

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CHAPTER III - COMPANY PROFILE

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Zen Securities Ltd.

Company Overview Zen Securities Limited (ZSL) is one of the leading financial services company -providing Financial and Investment related Services and Products. The Company commenced as a proprietary concern of M/s K. Ravindra Babu in 1986 was converted to a Limited company in February 1995 as Zen Securities Ltd. Zen has the distinction of being the First Corporate Member from Hyderabad and also the first A.P. based broking firm to start trading on the National Stock Exchange (NSE). ZEN is a registered Member on the Capital Market Segment and Futures & Options segment of both NSE and BSE. ZEN is also a Depository Participant (DP) with National Securities Depository Ltd. (NSDL) and also with Central Depositories Services Ltd. (CDSL). ZEN is also a SEBI Registered Portfolio Manager offering Portfolio Management Services to clients. Zen Comtrade Pvt. Limited a 100% subsidiary of ZSL and is a member of National Commodities & Derivatives Exchange Limited (NCDEX) and Multi Commodity Exchange (MCX). ZEN operates from Hyderabad as it head office and has branches and associates in Andhra Pradesh, Tamil Nadu, Maharashtra, Karnataka, West Bengal and Orissa. The Company operates from over 140 locations with ove 500 trading terminals. Core Values We are committed to honesty, integrity and ethics in all that we do. We create significant value by bringing together innovation, knowledge and experience to help our customers achieve their goals. We treat customers the way we would want to be treated.

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 We deliver happiness to customers, employees and other stakeholders. We work with passion, commitment and enthusiasm to deliver excellence. We are a socially responsible and environment-friendly corporate citizen. Services Offered: 1. Investment advisory services 2. Trading in cash market of NSE and BSE 3. Trading in Futures and Options on NSE and BSE 4. Internet Trading in Stocks, futures and Options both NSE and BSE 5. Mutual Funds advisory service 6. Depository Services in Both NSDL and CDSL 7. Trading in Commodities on MCX and NCDEX 8. Portfolio Management Services 9. NRI Investor Services 10. PAN Application Service 11. Mutual Fund KYC Registration Service 12. New Pension System(NPS) 13. Fixed Income Securities / Fixed Deposits / RBI Bonds / Tax Saving Bonds 1. Stock Broking: Zen Securities Limited provides the following equity related trading services to the investors: Capital Market Segment of NSE and BSE Futures & Options segment of NSE and BSE

ZEN operates from Hyderabad as it head office and has branches and associates in Andhra Pradesh, Tamil Nadu, Maharashtra, Karnataka, West Bengal and Orissa. The Company operates from over 140 locations with over 500 trading terminals

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2. Internet Trading: Internet trading is easy, convenient and reliable with ZenTr@de. Advantages of ZenTr@de - Internet Trading Platform Flexible and advanced trading platform Simple, reliable and easy to use Futures & Options segment of NSE and BSE Integrated payment gateways facilitates online transfer of funds from your banks (ICICI /Axis/Corp / Yes bank etc.) for instant limits (on funds transferred) Integrated with Zen DP account seamless settlement Take full control of trading and trade with privacy from any place of your choice. Choice of Trading from Internet or Branch Choice of Browser based or EXE based trading

Market watch Streaming market quotes Multiple market watch Integrated market watch for viewing NSE / BSE / NSE FAO on one screen Access to trade in NSE / BSE and NSE FAO Segments

INTRADAY and DELIVERY differentiation Different limits for INTRADAY and DELIVERY Auto square off of all INTRADAY orders 15 minutes before close of trading Convert INTRADAY trades to DELIVERY trades on availability of credit/margin source

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Access to statements Stock Statements - View Stocks in your DP account and also Zen Benf account Statements View Cash available in your Zen Broking account Mutual Funds View Transaction/Holding statements with Latest NAVs Networth Statement Networth statement of assets with Zen,

(Stocks+Cash+Mutual funds) 3. Mutual Funds: One stop shop for a range of Mutual fund products from top Mutual funds such as HDFC, ICICI Prudential, Birla sun life, Franklin Templeton, Reliance , HSBC, Sundaram BNP Paribas, Fidelity and many more Cost-effective, prompt and trustworthy service Facility to view your account information online 24 X 7, Updates every day. You can view your latest Holding statement You can view your latest transaction statement You can view value of all your mutual funds in one consolidated statement Easy and convenient application process Good Advice keeping your financial goals in mind Offline presence in various locations convenient to you for better service

4. Depository Services Zen is a depository participant offering flexible, cost effective and transparent depository services to its clients .Zen is a depository participant with the National Securities Depository Limited and Central Depository Services (India) Limited for trading and settlement of dematerialised shares. Zen performs clearing services for all securities transactions through its accounts. Zen offers depository

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services to create a seamless transaction platform execute trades through Zen Securities and settle these transactions through the Zen Depository Services. Zen Depository Services is a part of our value added services for our clients that creates multiple interfaces with the client and provides for a solution that takes care of all your needs Basic Services Provided by Zen DP Account Opening Account Transfers - Market and Off-Market Dematerialisation Re-materialization Pledge

5. Portfolio Management Services We follow a simple yet effective philosophy of wealth creation through a long-term investment strategy that focuses on quality and undervalued businesses run by people of competence and integrity. We firmly believe that there will always be opportunities for wealth creation, irrespective of the Sensex movements. At Zen, we follow an elaborate procedure of studying each company in detail before we in invest in them. We assess the size and durability of the opportunity. We focus on the track record of the company, pedigree of the management, quality of earnings, growth potential and most importantly, sustainability of earnings/ growth. We then shortlist companies applying various quantitative and qualitative filters. We constantly monitor the business and revise the values accordingly. We follow a disciplined approach to investing.

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6. NRI Services ZEN Securities offers a total solution to its NRI clients. We offer services under the RBI's Portfolio Investment Scheme (PIS) to buy and sell shares through the Indian stock exchanges. We coordinate with the RBI approved Bank to open an NRI account. We will also open the Brokerage account and the Demat Account for the NRI. These three accounts will be opened simultaneously in the NRI's name. We will coordinate the transfer of shares to/from NRI's demat account and money to/from NRI's bank account as per the settlement. We have setup a separate NRI Services team to guide the NRI through the application process and the day to day investment process. Founder of Zen Securities Shri Ravindra Babu Kantheti founded Zen Securities Ltd as a stock broking company and led its evolution into a highly respectable financial services company known for its ethics and values. He passionately believed that one can be successful in business without compromising on ethics. Thru Zen he demonstrated this philosophy and inspired every one of us by setting an example. His ethical, transparent and trustworthy approach to business has inspired all of us to build a very vibrant, successful and strong organisation. We at Zen totally rededicate ourselves to continue to build the organisation on sound foundations of trust, values and relationship with clients, servicing their investment needs as set out by our founder Sri K.Ravindra Babu. Board of Directors Directors of Zen Securities Ltd. have considerable experience and expertise ranging over many industries such as financial services, pharmaceuticals,

48

manufacturing, banking and Information Technology among others. They are some of the most highly respected people in their professional circles. Mr. Pratap Kantheti, Managing Director Mr. Pratap Kantheti is the Managing Director of the company. He is a Chartered Financial Analyst (CFA) and also has a Masters in Business Administration (MBA) in Finance. He has a deep understanding of and exposure to the financial services sector. Mr. Satish Kantheti, Jt. Managing Director Mr. Satish Kantheti looks after the Portfolio Management Services and Equity Research divisions of the Company. He is a Chartered Financial Analyst (CFA) and also has a Masters in Business Administration (MBA) in Finance. He overseas the Equity Research division and the Portfolio Management divisions. Mr. K. Gandhi, Director Mr. K. Gandhi is one of the founder directors of the company. He holds a Masters degree in Electrical and Communication Engineering from IIT Bombay. He has extensive experience in IT and General Management. Mr. Satyanarayana Ch. Ravi (RS), Whole Time Director Mr. Satyanarayana Ch. Ravi has more than two decades of experience in the fields of Management, Administration, Manufacturing, and Marketing. He holds a Bachelors degree in Chemical Engineering. Mr. Sambasiva Rao Patibandla, Executive Director Mr. Sambasiva Rao has worked with several multinational pharmaceuticals companies before incorporating and running a successful pharmacy business venture in U.S. He relocated to India entered the Stock broking industry in 1994. He is the Executive Director of company. He has a Masters degree in Pharmacy. Mr. Narayanan Narayanan, Director Mr. Narayanan is a very experienced Investment Analyst and Tax Consultant possessing a deep understanding about investments and stock market dynamics. 49

Mr. Ajay Kumar Mikkilineni, Director Mr. Ajay Kumar Mikkilineni has over a decade of experience in senior positions of the Pharmaceutical industry and also has twelve years of experience in the banking sector. He holds a Masters degree in Agriculture. Mr. K.Venkat Reddy,Director Mr. K.Venkat Reddy is a chemical engineer. He worked in reputed industrial houses in Paper & Power sectors for 16 years and in Financial markets for 10 years. He has extensive experience in the areas of project management and strategic management. Mr. K. Narasimha Rao, Director Mr. K. Narasimha Rao is a Post Graduate in Literature. He is the Chief Agent of A.P. LIC Mutual Fund since June 2002. He is an LIC agent since 1980 and has extensive knowledge about the securities and insurance markets. Mr. Namashivaya Renukuntla, Director and Head of Compliance Mr. Namashivaya Renukuntla has vast experience in the field of stock broking and has a deep understanding of the regulatory framework of the Capital Markets. He heads the Commodity Broking business of the Company. He holds a bachelors degree in Civil Engineering and a Masters in Business Administration (MBA.)

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INDUSTRY PROFILE
Financial Markets Finance is the pre-requisite for modern business and financial institutions play a vital role in the economic system. It is through financial markets and institutions that the financial system of an economy works. Financial markets refer to the institutional arrangements for dealing in financial assets and credit instruments of different types such as currency, cheques, bank deposits, bills, bonds, equities, etc. Financial market is a broad term describing any marketplace where buyers and sellers participate in the trade of assets such as equities, bonds, currencies and derivatives. They are typically defined by having transparent pricing, basic regulations on trading, costs and fees and market forces determining the prices of securities that trade. Generally, there is no specific place or location to indicate a financial market. Wherever a financial transaction takes place, it is deemed to have taken place in the financial market. Hence financial markets are pervasive in nature since financial transactions are themselves very pervasive throughout the economic system. For instance, issue of equity shares, granting of loan by term lending institutions, deposit of money into a bank, purchase of debentures, sale of shares and so on. In a nutshell, financial markets are the credit markets catering to the various needs of the individuals, firms and institutions by facilitating buying and selling of financial assets, claims and services.

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CLASSIFICATION OF FINANCIAL MARKETS

Financial markets

Organized markets

Unorganized markets Money Lenders, Indigenuos Bankers

Capital Markets

Money Markets

Industrial Securities Market

Call Money Market

Primary Market

Commercial Bill Market

Secondary market Government Securities Market Long-term loan market

Treasury Bill Market

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Capital Market The capital market is a market for financial assets which have a long or indefinite maturity. Generally, it deals with long term securities which have a period of above one year. In the widest sense, it consists of a series of channels through which the savings of the community are made available for industrial and commercial enterprises and public authorities. As a whole, capital market facilitates raising of capital. The major functions performed by a capital market are: 1. 2. Mobilization of financial resources on a nation-wide scale. Securing the foreign capital and know-how to fill up deficit in the

required resources for economic growth at a faster rate. 3. Effective allocation of the mobilized financial resources, by directing the

same to projects yielding highest yield or to the projects needed to promote balanced economic development. http://www.economywatch.com/market/market-types/financial-markettypes.htmlCapital market consists of primary market and secondary market. Primary market: Primary market is a market for new issues or new financial claims. Hence it is also called as New Issue Market. It basically deals with those securities which are issued to the public for the first time. The market, therefore, makes available a new block of securities for public subscription. In other words, it deals with raising of fresh capital by companies either for cash or for consideration other than cash. The best example could be Initial Public Offering (IPO) where a firm offers shares to the public for the first time. Secondary market: Secondary market is a market where existing securities are traded. In other words, securities which have already passed through new issue market are traded in this market. Generally, such securities are quoted in the stock exchange and it provides a

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continuous and regular market for buying and selling of securities. This market consists of all stock exchanges recognized by the government of India. Money Market: Money markets are the markets for short-term, highly liquid debt securities. Money market securities are generally very safe investments which return relatively low interest rate that is most appropriate for temporary cash storage or short term time needs. It consists of a number of sub-markets which collectively constitute the money market namely call money market, commercial bills market, acceptance market, and Treasury bill market. Derivatives Market: The derivatives market is the financial market for derivatives, financial instruments like futures contracts or options, which are derived from other forms of assets. A derivative is a security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. The important financial derivatives are the following: Forwards: Forwards are the oldest of all the derivatives. A forward contract refers to an agreement between two parties to exchange an agreed quantity of an asset for cash at a certain date in future at a predetermined price specified in that agreement. The promised asset may be currency, commodity, instrument etc. Futures: Future contract is very similar to a forward contract in all respects excepting the fact that it is completely a standardized one. It is nothing but a standardized forward contract which is legally enforceable and always traded on an organized exchange. Options: A financial derivative that represents a contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period

54

of time or on a specific date (exercise date). Call options give the option to buy at certain price, so the buyer would want the stock to go up. Put options give the option to sell at a certain price, so the buyer would want the stock to go down. Swaps: It is yet another exciting trading instrument. Infact, it is the combination of forwards by two counterparties. It is arranged to reap the benefits arising from the fluctuations in the market either currency market or interest rate market or any other market for that matter. Foreign Exchange Market It is a market in which participants are able to buy, sell, exchange and speculate on currencies. Foreign exchange markets are made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors. The forex market is considered to be the largest financial market in the world. It is a worldwide decentralized over-the-counter financial market for the trading of currencies. Because the currency markets are large and liquid, they are believed to be the most efficient financial markets. It is important to realize that the foreign exchange market is not a single exchange, but is constructed of a global network of computers that connects participants from all parts of the world. Commodities Market It is a physical or virtual marketplace for buying, selling and trading raw or primary products. For investors' purposes there are currently about 50 major commodity markets worldwide that facilitate investment trade in nearly 100 primary commodities. Commodities are split into two types: hard and soft commodities. Hard commodities are typically natural resources that must be mined or extracted (gold, rubber, oil, etc.), whereas soft commodities are agricultural products or livestock (corn, wheat, coffee, sugar, soybeans, pork, etc.) Indian Financial Markets India Financial market is one of the oldest in the world and is considered to be the fastest growing and best among all the markets of the emerging economies. The history of Indian capital markets dates back 200 years toward the end of the 18th

55

century when India was under the rule of the East India Company. The development of the capital market in India concentrated around Mumbai where no less than 200 to 250 securities brokers were active during the second half of the 19th century. The financial market in India today is more developed than many other sectors because it was organized long before with the securities exchanges of Mumbai, Ahmadabad and Kolkata were established as early as the 19th century. By the early 1960s the total number of securities exchanges in India rose to eight, including Mumbai, Ahmadabad and Kolkata apart from Madras, Kanpur, Delhi, Bangalore and Pune. Today there are 21 regional securities exchanges in India in addition to the centralized NSE (National Stock Exchange) and OTCEI (Over the Counter Exchange of India). However the stock markets in India remained stagnant due to stringent controls on the market economy that allowed only a handful of monopolies to dominate their respective sectors. The corporate sector wasn't allowed into many industry segments, which were dominated by the state controlled public sector resulting in stagnation of the economy right up to the early 1990s. Thereafter when the Indian economy began liberalizing and the controls began to be dismantled or eased out; the securities markets witnessed a flurry of IPOs that were launched. This resulted in many new companies across different industry segments to come up with newer products and services. A remarkable feature of the growth of the Indian economy in recent years has been the role played by its securities markets in assisting and fuelling that growth with money rose within the economy. This was in marked contrast to the initial phase of growth in many of the fast growing economies of East Asia that witnessed huge doses of FDI (Foreign Direct Investment) spurring growth in their initial days of market decontrol. During this phase in India much of the organized sector has been affected by high growth as the financial markets played an all-inclusive role in sustaining financial resource mobilization. Many PSUs (Public Sector Undertakings) that decided to offload part of their equity were also helped by the well-organized securities market in India.

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The launch of the NSE (National Stock Exchange) and the OTCEI (Over the Counter Exchange of India) during the mid 1990s by the government of India was meant to usher in an easier and more transparent form of trading in securities. The NSE was conceived as the market for trading in the securities of companies from the largescale sector and the OTCEI for those from the small-scale sector. While the NSE has not just done well to grow and evolve into the virtual backbone of capital markets in India the OTCEI struggled and is yet to show any sign of growth and development. The integration of IT into the capital market infrastructure has been particularly smooth in India due to the countrys world class IT industry. This has pushed up the operational efficiency of the Indian stock market to global standards and as a result the country has been able to capitalize on its high growth and attract foreign capital like never before. The regulating authority for capital markets in India is the SEBI (Securities and Exchange Board of India). SEBI came into prominence in the 1990s after the capital markets experienced some turbulence. It had to take drastic measures to plug many loopholes that were exploited by certain market forces to advance their vested interests. After this initial phase of struggle SEBI has grown in strength as the regulator of Indias capital markets and as one of the countrys most important institutions. Financial Market Regulations Regulations are an absolute necessity in the face of the growing importance of capital markets throughout the world. The development of a market economy is dependent on the development of the capital market. The regulation of a capital market involves the regulation of securities; these rules enable the capital market to function more efficiently and impartially. A well regulated market has the potential to encourage additional investors to partake, and contribute in, furthering the development of the economy. The chief capital market regulatory authority is Securities and Exchange Board of India (SEBI). SEBI is the regulator for the securities market in India. It is the apex body to develop and regulate the stock market in India It was formed officially by the Government of India in 1992 with SEBI Act 1992 being passed by the Indian Parliament. Chaired by C B Bhave, SEBI is headquartered in the popular business 57

district of Bandra-Kurla complex in Mumbai, and has Northern, Eastern, Southern and Western regional offices in New Delhi, Kolkata, Chennai and Ahmedabad. In place of Government Control, a statutory and autonomous regulatory board with defined responsibilities, to cover both development & regulation of the market, and independent powers has been set up. The basic objectives of the Board were identified as:

to protect the interests of investors in securities; to promote the development of Securities Market; to regulate the securities market and For matters connected therewith or incidental thereto. Since its inception SEBI has been working targeting the securities and is

attending to the fulfillment of its objectives with commendable zeal and dexterity. The improvements in the securities markets like capitalization requirements, margining, establishment of clearing corporations etc. reduced the risk of credit and also reduced the market. SEBI has introduced the comprehensive regulatory measures, prescribed registration norms, the eligibility criteria, the code of obligations and the code of conduct for different intermediaries like, bankers to issue, merchant bankers, brokers and sub-brokers, registrars, portfolio managers, credit rating agencies, underwriters and others. It has framed bye-laws, risk identification and risk management systems for Clearing houses of stock exchanges, surveillance system etc. which has made dealing in securities both safe and transparent to the end investor. Another significant event is the approval of trading in stock indices (like S&P CNX Nifty & Sensex) in 2000. A market Index is a convenient and effective product because of the following reasons:

It acts as a barometer for market behavior; It is used to benchmark portfolio performance; It is used in derivative instruments like index futures and index options;

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It can be used for passive fund management as in case of Index Funds. Two broad approaches of SEBI is to integrate the securities market at the

national level, and also to diversify the trading products, so that there is an increase in number of traders including banks, financial institutions, insurance companies, mutual funds, primary dealers etc. to transact through the Exchanges. In this context the introduction of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD is a real landmark. SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and successively (e.g. the quick movement towards making the markets electronic and paperless rolling settlement on T+2 bases). SEBI has been active in setting up the regulations as required under law. Stock Exchanges In India Stock Exchanges are an organized marketplace, either corporation or mutual organization, where members of the organization gather to trade company stocks or other securities. The members may act either as agents for their customers, or as principals for their own accounts. As per the Securities Contracts Regulation Act, 1956 a stock exchange is an association, organization or body of individuals whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities. Stock exchanges facilitate for the issue and redemption of securities and other financial instruments including the payment of income and dividends. The record keeping is central but trade is linked to such physical place because modern markets are computerized. The trade on an exchange is only by members and stock broker do have a seat on the exchange.

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List of Stock Exchanges in India Bombay Stock Exchange National Stock Exchange OTC Exchange of India Regional Stock Exchanges 1. Ahmedabad 2. Bangalore 3. Bhubaneswar 4. Calcutta 5. Cochin 6. Coimbatore 7. Delhi 8. Guwahati 9. Hyderabad 10. Jaipur 11. Ludhiana 12. Madhya Pradesh 13. Madras 14. Magadh 15. Mangalore 16. Meerut 17. Pune 18. Saurashtra Kutch 19. Uttar Pradesh 20. Vadodara

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BOMBAY STOCK EXCHANGE

A very common name for all traders in the stock market, BSE, stands for Bombay Stock Exchange. It is the oldest market not only in the country, but also in Asia. In the early days, BSE was known as "The Native Share & Stock Brokers Association." It was established in the year 1875 and became the first stock exchange in the country to be recognized by the government. In 1956, BSE obtained a permanent recognition from the Government of India under the Securities Contracts (Regulation) Act, 1956. In the past and even now, it plays a pivotal role in the development of the country's capital market. This is recognized worldwide and its index, SENSEX, is also tracked worldwide. Earlier it was an Association of Persons (AOP), but now it is a demutualised and corporatised entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualization) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). BSE Vision The vision of the Bombay Stock Exchange is to "Emerge as the premier Indian stock exchange by establishing global benchmarks." BSE Management Bombay Stock Exchange is managed professionally by Board of Directors. It comprises of eminent professionals, representatives of Trading Members and the Managing Director. The Board is an inclusive one and is shaped to benefit from the market intermediaries participation. The Board exercises complete control and formulates larger policy issues. The day-to-day operations of BSE are managed by the Managing Director and its school of professional as a management team.

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BSE Network The Exchange reaches physically to 417 cities and towns in the country. The framework of it has been designed to safeguard market integrity and to operate with transparency. It provides an efficient market for the trading in equity, debt instruments and derivatives. Its online trading system, popularly known as BOLT, is a proprietary system and it is BS 7799-2-2002 certified. The BOLT network was expanded, nationwide, in 1997. The surveillance and clearing & settlement functions of the Exchange are ISO 9001:2000 certified. BSE Facts BSE as a brand is synonymous with capital markets in India. The BSE SENSEX is the benchmark equity index that reflects the robustness of the economy and finance. It was the First in India to introduce Equity Derivatives First in India to launch a Free Float Index First in India to launch US$ version of BSE Sensex First in India to launch Exchange Enabled Internet Trading Platform First in India to obtain ISO certification for Surveillance, Clearing & Settlement 'BSE On-Line Trading System (BOLT) has been awarded the globally recognized the BS7799-2:2002. First to have an exclusive facility for financial training Moved from Open Outcry to Electronic Trading within just 50 days Information Security Management System standard

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NATIONAL

STOCK

EXCHANGE

OF

INDIA

LIMITED

The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a taxpaying company unlike other stock Exchange in the country. On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000.

NSE GROUP COMPANIES

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National Securities Clearing Corporation Ltd. (NSCCL) It is a wholly owned subsidiary, which was incorporated in August 1995 and commenced clearing operations in April 1996. It was formed to build confidence in clearing and settlement of securities, to promote and maintain the short and consistent settlement cycles, to provide a counter-party risk guarantee and to operate a tight risk containment system. NSE.IT Ltd. It is also a wholly owned subsidiary of NSE and is its IT arm. This arm of the NSE is uniquely positioned to provide products, services and solutions for the securities industry. NSE.IT primarily focuses on in the area of trading, broker frontend and back-office, clearing and settlement, web-based, insurance, etc. Along with this, it also provides consultancy and implementation services in Data Warehousing, Business Continuity Plans, Site Maintenance and Backups, Stratus Mainframe Facility Management, Real Time Market Analysis & Financial News. India Index Services & Products Ltd. (IISL) It is a joint venture between NSE and CRISIL Ltd. to provide a variety of indices and index related services and products for the Indian Capital markets. It was set up in May 1998. IISL has a consulting and licensing agreement with the Standard and Poor's (S&P), world's leading provider of investible equity indices, for cobranding equity indices. National Securities Depository Ltd. (NSDL) NSE joined hands with IDBI and UTI to promote dematerialization of securities. This step was taken to solve problems related to trading in physical securities. It commenced operations in November 1996. NSE Facts It uses satellite communication technology to energize participation from around 400 cities in India.

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NSE can handle up to 1 million trades per day. It is one of the largest interactive VSAT based stock exchanges in the world. The NSE- network is the largest private wide area network in India and the first extended C- Band VSAT network in the world.

Presently more than 9000 users are trading on the real time-online NSE application.

Today, NSE is one of the largest exchanges in the world and still forging ahead. At NSE, we are constantly working towards creating a more transparent, vibrant and innovative capital market.

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OVER THE COUNTER EXCHANGE OF INDIA

OTCEI was incorporated in 1990 as a section 25 company under the companies Act 1956 and is recognized as a stock exchange under section 4 of the securities Contracts Regulation Act, 1956. The exchange was set up to aid enterprising promotes in raising finance for new projects in a cost effective manner and to provide investors with a transparent and efficient mode of trading Modeled along the lines of the NASDAQ market of USA, OTCEI introduced many novel concepts to the Indian capital markets such as screen-based nationwide trading, sponsorship of companies, market making and scrip less trading. As a measure of success of these efforts, the Exchange today has 115 listings and has assisted in providing capital for enterprises that have gone on to build successful brands for themselves like VIP Advanta, Sonora Tiles & Brilliant mineral water, etc. Need for OTCEI: Studies by NASSCOM, software technology parks of India, the venture capitals funds and the governments IT tasks Force, as well as rising interest in IT, Pharmaceutical, Biotechnology and Media shares have repeatedly emphasized the need for a national stock market for innovation and high growth companies. Innovative companies are critical to developing economics like India, which is undergoing a major technological revolution. With their abilities to generate employment opportunities and contribute to the economy, it is essential that these companies not only expand existing operations but also set up new units.

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CHAPTER IV DATA ANALYSIS & INTERPRETATIONS

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1.

Age of the Respondent Respondents Age Age <=24 25-28 29-32 >33 No. of Respondents 8 18 22 2 50 Percentage (%) 16% 36% 44% 4% 100%

Table 1: S.No. 1 2 3 4

Total Source: Primary Data Respondents Age

Figure 3:

Age Of Respondents 25 20 15 10 5 0 <=24 25-28 Age 29-32 >33 8 18 22

No. of Respondents

Source: Primary Data Interpretation The above graph illustrates that majority of the respondents i.e. people are in the age group of 29-32 years. Eight respondents in the survey are less than or equal to 24; 18 persons are in the age between 25-28 years; and only 2 persons are aged about 33 years.

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2.

Profession Profession Of The Respondents Option Businessman Private Employed Government Employed Others No. of Respondents 11 18 16 5 50 Percentage (%) 22% 36% 32% 10% 100%

Table 2: S. No. 1 2 3 4

Total Source: Primary Data

Figure 4: Profession Of The Respondents

Profession Of The Respondents 20 18 16

No. of Respondents

15 11 10 5 5

0 Businessman Private Employed Government Employed Others

Source: Primary Data Interpretation Of the 50 sample chosen for the survey, 36% of the respondents, representing 18 people, are privately employed. 32% of the respondents are government employed, while 22% are businessman, representing 11 people.

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3.

Marital Status Marital Status Option Married Single No. of Respondents 36 14 50 Percentage (%) 72% 28% 100%

Table 3: S. No. 1 2

Total Source: Primary Data

Figure 5: Marital Status

Marital Status

No 28%

Yes 72%

Source: Primary Data Interpretation Out of the total 50 sample chosen, 36 respondents are married and 14 people are not married. The marital status of a person has much of importance while making investments, as people tend to invest more money, keeping in mind of the future of their children.

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4.

Income Level Of The Respondents Respondents Income Levels Reasons <5,000 Rs 5,000 10,000 10,000 20,000 Above 20,000 Total No. of Respondents 19 30 1 50 Percentage (%) 0% 38% 60% 2% 100%

Table 4: S.No. 1 2 3 4

Source: Primary Data

Figure 6: Respondents Income Levels

36 30
No. of Respondents

24 19

12

0 0 <5,000 Rs 5,000 10,000 10,000 20,000

1 Above 20,000

Source: Primary Data Interpretation The above table shows that over 60% of the respondents are in the higher income group of more than Rs. 10,000 income per month.

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5.

Preferred Sector For Investing Money Customer Preferred Investment Sector Option Private Sector Government Sector No. of Respondents 28 22 50 Percentage (%) 56% 44% 100%

Table 5: S.No. 1 2

Total Source: Primary Data

Figure 7: Customer Preferred Investment Sector

Preferred Investment Sector

Government Sector 44%

Private Sector 56%

Source: Primary Data Interpretation The above graph depicts that 28 of the total 50 respondents prefer to invest their money in private sector, while 22 people prefer to invest in government sector.

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6.

Preferred Investment Plan Individuals Preferred Investment Plan Type of Investment Bank FD ULIP Mutual Funds Stock Market SIP No. of Respondents 8 13 10 11 8 50 Percentage (%) 16% 26% 20% 22% 16% 100%

Table 6: S.No. 1 2 3 4 5

Total Source: Primary Data

Figure 8: Individuals Preferred Investment Plan

Individuals Preferred Investment Plan

15 13

No. of Respondents

11 10 10 8 8

0 Bank FD ULIP Mutual Funds Stock Market SIP

Source: Primary Data Interpretation The above graph indicates that 26% of the respondents, representing 13 people, prefer to invest in ULIPs, 11 people preferred investing in stocks, and 10 people preferred investing in mutual funds. 7. Have You Ever Used Mutual Funds As An Investment Before?

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Table 7: S.No. 1 2

Usage Of Mutual Funds As An Investment By Investors Option Yes No No. of Respondents 36 14 50 Percentage (%) 72% 28% 100%

Total Source: Primary Data

Figure 9: Usage Of Mutual Funds As An Investment By Investors

Yes 72%

No 28%

Source: Primary Data Interpretation The above graph indicates that 36 respondents invests their money in mutual funds, anticipating low risk and good returns. While 14 respondents said that they never invest their money in mutual funds.

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8.

What type of mutual funds you prefer? Preferred Type Of Mutual Funds Option Debt Funds Equity Funds Hybrid Funds No. of Respondents 14 26 10 50 Percentage (%) 28% 52% 20% 100%

Table 8: S.No. 1 2 3

Total Source: Primary Data

Figure 10: Preferred Type Of Mutual Funds

Equity Funds 52%

Hybrid Funds 20% Debt Funds 28%

Source: Primary Data Interpretation The above graph indicates that 26 people representing 52% prefer to invest mostly in equity funds, while 28% prefer in debt funds and 20% prefer in hybrid funds.

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9.

Risk Preference In Mutual Fund (MF) Investment Plans Customers Risk Preference While Taking Decision On MF Investments Option High Risk Moderate Risk Low Risk No. of Respondents 10 15 25 50 Percentage (%) 20% 30% 50% 100%

Table 9: S.No. 1 2 3

Total Source: Primary Data

Figure 11: Customers Risk Preference While Taking Decision On MF Investments

Customers Risk Preference While Taking Decision On Investments 28 25

No. of Respondents

21 15 14 10 7

0 High Risk Moderate Risk Low Risk

Source: Primary Data Interpretation The above graph indicates that 50% of the people preferred low risk, whereas 30% of the respondents preferred moderate risk. High risk sample was low with 20%. It has been observed in the survey that people who are of below 30 have willingness to achieve high growth for fulfill their dreams and therefore, they want to invest their money in pure equity funds rather then debt or hybrid funds.

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10. What type of scheme you prefer much? Table 10: Type Of Investment Scheme S.No. 1 2 Option Open-Ended Closed-Ended No. of Respondents 31 19 50 Percentage (%) 62% 38% 100%

Total Source: Primary Data

Figure 12: Type Of Investment Scheme

Yes 62%

No 38%

Source: Primary Data Interpretation The above graph indicates that 31 people representing 62% prefer to invest in open-ended mutual funds, driven by the investor getting the money back promptly at net asset value related prices from the Mutual Fund. Only 19 prefer to invest in closed-ended investment mutual funds.

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11. What is your period of Investment? Table 11: Period Of Investment Plan S.No. 1 2 Option Long Term Short Term No. of Respondents 24 26 50 Percentage (%) 48% 52% 100%

Total Source: Primary Data

Figure 13: Period Of Investment Plan

No 52%

Yes 48%

Source: Primary Data Interpretation The above graph indicates that 24 people representing 48% prefer to invest in mutual funds for a long term period, while 26 people said it is for a short term period.

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12. In which sectoral fund do you prefer much in investing? Table 12: Preferred Sectoral Funds S.No. 1 2 3 4 5 Option Real Estate Funds Financial Funds Utility Funds Technology Funds Healthcare Funds No. of Respondents 14 8 4 16 8 50 Percentage (%) 28% 16% 8% 32% 16% 100%

Total Source: Primary Data

Figure 14: Preferred Sectoral Funds

Utility Funds 8%

Technology Funds 32%

Financial Funds 16% Real Estate Funds 28%

Source: Primary Data Interpretation

Healthcare Funds 16%

The above graph indicates that 16 people representing 32% prefer to invest in technology funds, while 28% prefer in real estate funds, and 16% each prefer in investing in financial and healthcare funds. Only 8% of the total respondents prefer in investing in utility funds.

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13. Why do you prefer in investing in mutual funds? Table 13: Reasons For Investing In Mutual Funds S.No. 1 2 Option Tax Savings Risk Cover Others No. of Respondents 24 10 16 50 Percentage (%) 48% 20% 32% 100%

Total Source: Primary Data

Figure 15: Period Of Investment Plan

Risk Cover 20%

Others 32% Tax Savings 48%

Source: Primary Data Interpretation The above graph indicates that 24 people representing 48% prefer to invest in mutual funds for tax saving purposes, while 10 people said it is for minimum risk cover with better returns.

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14. How do you invest in mutual funds? Table 14: Factors For Investing In Mutual Funds S.No. 1 2 3 4 Option Thorough Research Friends Advise Brokers Advise Other No. of Respondents 16 10 15 9 50 Percentage (%) 32% 20% 30% 18% 100%

Total Source: Primary Data

Figure 16: Factors For Investing In Mutual Funds

Friends Advise 20% Thorough Research 32%

Brokers Advise 30%

Other 18%

Source: Primary Data Interpretation Of the 50 sample chosen, 16 people said that they prefer making investments in mutual funds after making a thorough research, while 15 people said through brokers advise, and 10 respondents said because of friends advise.

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15. What are your average returns from investment in mutual funds? Table 15: Average Returns From Investment In Mutual Funds S.No. 1 2 3 4 <5% 6-10% 11-15% >15% Option No. of Respondents 11 18 12 9 50 Percentage (%) 22% 36% 24% 18% 100%

Total Source: Primary Data

Figure 17: Average Returns From Investment In Mutual Funds

11-15%, 12 6-10%, 18 <5%, 11 >15%, 9

Source: Primary Data Interpretation Of the 50 sample chosen, 18 people said that their return on investments in mutual funds were in between 6-10%, while 12 people said it is between 11-15%.

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16. Do you think mutual fund is better than other investments? Table 16: Mutual Fund Is Better Than Other Investments S.No. 1 2 Yes No Option No. of Respondents 40 10 50 Percentage (%) 80% 20% 100%

Total Source: Primary Data

Figure 18: Mutual Fund Is Better Than Other Investments

Yes 80%

No 20%

Source: Primary Data Interpretation The above graph indicates that 40 people representing 80% said mutual fund is better than other type of investments. Only 10 people said mutual fund is not much preferred investment.

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17. Do you advise your friends to invest in mutual funds? Table 17: Advise Friends To Invest In Mutual Funds S.No. 1 2 Yes No Option No. of Respondents 43 7 50 Percentage (%) 80% 20% 100%

Total Source: Primary Data

Figure 19: Advise Friends To Invest In Mutual Funds

Yes 86%

No 14%
Source: Primary Data Interpretation The above graph indicates that 43 people representing 86% said that they would advise their friends in investing in mutual funds, while only 7 people said they would not advise their friends in investing in mutual funds.

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CHAPTER V FINDINGS, SUGGESTIONS & CONCLUSION

85

FINDINGS
1. Majority of the respondents i.e. people are in the age group of 29-32 years 2. 36% of the respondents, representing 18 people, are privately employed 3. Out of the total 50 sample chosen, 36 respondents are married and 14 people are not married 4. Over 60% of the respondents are in the higher income group of more than Rs. 10,000 income per month 5. 36 respondents invests their money in mutual funds, anticipating low risk and good returns 6. 26 people representing 52% prefer to invest mostly in equity funds 7. 50% of the people preferred low risk, whereas 30% of the respondents preferred moderate risk. High risk sample was low with 20%. 8. 31 people representing 62% prefer to invest in open-ended mutual funds, driven by the investor getting the money back promptly at net asset value related prices from the Mutual Funds. 9. 24 people representing 48% prefer to invest in mutual funds for a long term period, while 26 people said it is for a short term period. 10. 16 people representing 32% prefer to invest in technology funds, while 28% prefer in real estate funds, and 16% each prefer in investing in financial and healthcare funds 11. 24 people representing 48% prefer to invest in mutual funds for tax saving purposes 12. 16 people said that they prefer making investments in mutual funds after making a thorough research 13. people said that their return on investments in mutual funds were in between 6-10%, while 12 people said it is between 11-15% 14. 40 people representing 80% said mutual fund is better than other type of investments

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SUGGESTIONS 1. Assess yourself: Self-assessment of ones needs; expectations and risk profile is of prime importance failing which, one will make more mistakes in putting money in right places than otherwise. One should identify the degree of risk bearing capacity one has and also clearly state the expectations from the investments. Irrational expectations will only bring pain. 2. Try to understand where the money is going: It is important to identify the nature of investment and to know if one is compatible with the investment. One can lose substantially if one picks the wrong kind of mutual fund. In order to avoid any confusion it is better to go through the literature such as offer document and fact sheets that mutual fund companies provide on their funds. 3. Don't rush in picking funds, think first: one first has to decide what he wants the money for and it is this investment goal that should be the guiding light for all investments done. It is thus important to know the risks associated with the fund and align it with the quantum of risk one is willing to take. One should take a look at the portfolio of the funds for the purpose. Excessive exposure to any specific sector should be avoided, as it will only add to the risk of the entire portfolio. Mutual funds invest with a certain ideology such as the "Value Principle" or "Growth Philosophy". Both have their share of critics but both philosophies work for investors of different kinds. Identifying the proposed investment philosophy of the fund will give an insight into the kind of risks that it shall be taking in future. 4. Invest. Dont speculate: A common investor is limited in the degree of risk that he is willing to take. It is thus of key importance that there is thought given to the process of investment and to the time horizon of the intended investment. One should abstain from speculating which in other words would mean getting out of one fund and investing in another with the intention of making quick money. One would do well to remember that nobody can

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perfectly time the market so staying invested is the best option unless there are compelling reasons to exit. 5. Dont put all the eggs in one basket: This old age adage is of utmost importance. No matter what the risk profile of a person is, it is always advisable to diversify the risks associated. So putting ones money in different asset classes is generally the best option as it averages the risks in each category. Thus, even investors of equity should be judicious and invest some portion of the investment in debt. Diversification even in any particular asset class (such as equity, debt) is good. Not all fund managers have the same acumen of fund management and with identification of the best man being a tough task, it is good to place money in the hands of several fund managers. This might reduce the maximum return possible, but will also reduce the risks. 6. Be regular: Investing should be a habit and not an exercise undertaken at ones wishes, if one has to really benefit from them. As we said earlier, since it is extremely difficult to know when to enter or exit the market, it is important to beat the market by being systematic. The basic philosophy of Rupee cost averaging would suggest that if one invests regularly through the ups and downs of the market, he would stand a better chance of generating more returns than the market for the entire duration. The SIPs (Systematic Investment Plans) offered by all funds helps in being systematic. All that one needs to do is to give post-dated cheques to the fund and thereafter one will not be harried later. The Automatic investment Plans offered by some funds goes a step further, as the amount can be directly/electronically transferred from the account of the investor. 7. Do your homework: It is important for all investors to research the avenues available to them irrespective of the investor category they belong to. This is important because an informed investor is in a better decision to make right decisions. Having identified the risks associated with the investment is important and so one should try to know all aspects associated with it. Asking the intermediaries is one of the ways to take care of the problem.

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8. Find the right funds: Finding funds that do not charge many fees is of importance, as the fee charged ultimately goes from the pocket of the investor. This is even more important for debt funds as the returns from these funds are not much. Funds that charge more will reduce the yield to the investor. Finding the right funds is important and one should also use these funds for tax efficiency. Investors of equity should keep in mind that all dividends are currently tax-free in India and so their tax liabilities can be reduced if the dividend payout option is used. Investors of debt will be charged a tax on dividend distribution and so can easily avoid the payout options. 9. Keep track of your investments: Finding the right fund is important but even more important is to keep track of the way they are performing in the market. If the market is beginning to enter a bearish phase, then investors of equity too will benefit by switching to debt funds as the losses can be minimized. One can always switch back to equity if the equity market starts to show some buoyancy. 10. Know when to sell your mutual funds: Knowing when to exit a fund too is of utmost importance. One should book profits immediately when enough has been earned i.e. the initial expectation from the fund has been met with. Other factors like non-performance, hike in fee charged and change in any basic attribute of the fund etc. are some of the reasons for to exit. For more on it, read "When to say goodbye to your mutual fund." 11. Investments in mutual funds too are not risk-free and so investments warrant some caution and careful attention of the investor. Investing in mutual funds can be a dicey business for people who do not remember to follow these rules diligently, as people are likely to commit mistakes by being ignorant or adventurous enough to take risks more than what they can absorb. This is the reason why people would do well to remember these rules before they set out to invest their hard-earned money.

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CONCLUSION Mutual Funds now represent perhaps most appropriate investment opportunity for most investors. As financial markets become more sophisticated and complex, investors need a financial intermediary who provides the required knowledge and professional expertise on successful investing. As the investor always try to maximize the returns and minimize the risk. Mutual fund satisfies these requirements by providing attractive returns with affordable risks. The fund industry has already overtaken the banking industry, more funds being under mutual fund management than deposited with banks. With the emergence of tough competition in this sector mutual funds are launching a variety of schemes which caters to the requirement of the particular class of investors. Risk takers for getting capital appreciation should invest in growth, equity schemes. Investors who are in need of regular income should invest in income plans. The stock market has been rising for over three years now. This in turn has not only protected the money invested in funds but has also to helped grow these investments. This has also instilled greater confidence among fund investors who are investing more into the market through the MF route than ever before. India's largest mutual fund, UTI, still controls nearly 80 per cent of the market. Also, the mutual fund industry as a whole gets less than 2 per cent of household savings against the 46 per cent that go into bank deposits. Some fund managers say this only indicates the sector's potential. "If mutual funds succeed in chipping away at bank deposits, even a triple digit growth is possible over the next few years. To conclude: There is a great potential for investment in Mutual Funds as people wants to save for various future obligation. Since Rate of Interest on Bank deposit is falling people will be attracted towards investments in Mutual Funds because of high rate of returns.

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Comparatively people of small towns are less aware of other investment avenues viz Mutual Fund.

People of young age group are ready to take risk and they can be targeted for investment in Mutual Fund.

People with less experience were inclined towards investment in the Mutual Funds. It attracted as a safer avenue as compared to share market.

Mutual Funds are more of an investment option than the speculative avenue. People tend to gain through long investments rather than through short term.

Income funds and ELSS are among the few top funds. People are not willing to take much risk and bear loss.

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BIBLIOGRAPHY

Books: 1. FINANCIAL MARKET AND SERVICES -Gordon and Natarajan 2. Investments Analysis & Portfolio Management by Prasana Chandra & V.K.Bhalla 3. Financial Accounting by I.M. Panday

Magazines

1. Business India 2. Business World

News Papers

1. Economic Times 2. Business Standard.

Websites:
www.utimf.com www.reliancemutual.com www.amfiindia.com www.wikipedia.com www.mutualfundsindia.com www.bseindia.com

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Annexure Questionnaire
Name. Occupation Contact No....

1. Profession a. Businessman b. Private Employed c. Government Employed d. Others [ ] [ ] [ ] [ ]

2. Marital Status a. Married b. Single [ ] [ ]

3. Income Level Of The Respondents a. <5,000 Rs b. 5,000 10,000 c. 10,000 20,000 d. Above 20,000 4. Preferred Sector For Investing Money a. Private Sector b. Government Sector [ ] [ ] [ ] [ ] [ ] [ ]

5. Preferred Investment Plan a. Bank FD b. ULIP c. Mutual Funds [ ] [ ] [ ]

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d. Stock Market

[ ]

6. Have You Ever Used Mutual Funds As An Investment Before a. Yes b. No [ ] [ ]

7. What type of mutual funds you prefer? a. Debt Funds b. Equity Funds c. Hybrid Funds [ ] [ ] [ ]

8. Risk Preference In Mutual Fund (MF) Investment Plans a. High Risk b. Moderate Risk c. Low Risk [ ] [ ] [ ]

9. What type of scheme you prefer much a. Open-Ended b. Closed Ended [ ] [ ]

10. What is your period of Investment a. Long Term b. Short Term [ ] [ ]

11. In which sectoral fund do you prefer much in investing a. Real Estate Funds b. Financial Funds c. Utility Funds d. Technology Funds e. Healthcare Funds [ ] [ ] [ ] [ ] [ ]

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12. Why do you prefer in investing in mutual funds a. Tax Savings b. Risk Cover c. Others [ ] [ ] [ ]

13. How do you invest in mutual funds a. Thorough Research b. Friends Advise c. Brokers Advise d. Others [ ] [ ] [ ] [ ]

14. What are your average returns from investment in mutual funds a. <5% b. 6-10% c. 11-15% d. >15% [ ] [ ] [ ] [ ]

15. Do you think mutual fund is better than other investments a. Yes b. No [ ] [ ]

16. Do you advise your friends to invest in mutual funds c. Yes d. No [ ] [ ]

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