S.No.

TABLE OF CONTENT

CHAPTER-1
INTRODUCTION
OBJECTIVES
RESEARCH METHODOLOGY
LIMITATIONS

II

31-38
39-46

CHAPTER-4
DATA ANALYSIS & INTERPRETATION
FINDINGS

72-74
75-76

CHAPTER- 6
BIBLIOGRAPHY

VI

47-70
71

CHAPTER-5
SUMMARY& CONCLUSIONS
SUGGESTIONS

VI

12-30

CHAPTER-3
INDUSTRY PROFILE
COMPANY PROFILE

IV

5-8
9
10
11

CHAPTER-2
REVIEW OF LITERATURE

III

PAGE NO.

77-78

CHAPTER- 7
ANNEXURE

79-82

INTRODUCTION
Investment can be defined as an item of value purchased for income or
capital appreciation. Investments are made to achieve a specific objective and
savings are made to meet an unforeseen event.
There are various avenues of investments in accordance with individual
preferences. Investments are made in different asset classes depending on an
individuals risk and return characteristics Investment choices are physical assets
and financial assets.
Gold and Real estates are examples of physical assets, which have a
physical form to them. There is a strong preference for these assets, as these
assets can be purchased with cash and held for a long term. The obvious
disadvantages with physical assets are the risks of loss and theft, lower levels of
return; illiquid secondary markets; and adhoc valuations and transactions.
Financial assets are securities, which are certificates embodying a
financial contract between parties. Bonds, Equity shares, Deposits and Insurance
policies are some of the examples of financial assets. In financial assets investors
only hold the proof of their investments in the form of a certificate or account.
These products are usually liquid, transferable and in most cases, stored
electronically with high degree of safety.
But a minimum amount of cash is always kept in hand for
transactions and contingencies. To face the contingencies and unexpected events
the insurance came into existence.
Another avenue of investment is mutual funds. It is created when
investors put their money together. It is therefore a pool of the investors funds.
The most important characteristics of a mutual fund is that the contributors and
the beneficiaries of the fund are the same class of people, namely the investors.
The term mutual means that investors contribute to the pool, and also benefit
from the pool. There are no other claimants to the funds. The pool of funds held
mutually by investors is the mutual fund.
3

A mutual fund pools the money of people with similar investment

goals. The money in turn is invested in various securities depending on the
objectives of the mutual fund scheme, and the profits (or loss) are shared among
investors in proportion to their investments.
Mutual fund schemes are usually open-ended (perpetually open for
investments and redemptions) or closed end (with a fixed term). A mutual fund
scheme issues units that are normally priced at Rs.10 during the initial offer.
Thus, the number of units you own as against the total number of units issued by
the mutual fund scheme determines your share in the profits or loss of a scheme.
In the case of open-end schemes, units can be purchased from or sold
back to the fund at a Net Asset Value (NAV) based price on all business days.
The NAV is the actual value of a unit of the fund on a given day.
Thus, when you invest in a mutual fund scheme, you normally get an account
statement mentioning the number of units that have been allotted to you and the
NAV based price at which the units have been allotted. The account statement is
similar to your bank statement.
Mutual funds invest basically in three types of asset classes:
Stocks: Stocks represent ownership or equity in a company, popularly known as
shares.
Bonds: These represent debt from companies, financial institutions or
Government agencies.

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

treasury bills, certificate of deposits and inter-bank call money.
A mutual funds business is to invest the funds thus collected, according to the
wishes of the investors who created the pool. In many markets these wishes are
articulated as investment mandates.
Analysis of The perception towards these mutual funds is done here
in this project. Even what factors the investors look before investing can also be
observed.

OBJECTIVES

To study the level of awareness of mutual funds

To analyse the perception of investors towards mutual funds.
To study the factors considered by the investors and those which
ultimately influence him while investing.
To determine the type of mutual fund investor prefers the most.

RESEARCH METHODOLOGY

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

approach focus groups, survey, field-tests, interviews or observation.
Primary data delivers more specific results than secondary research,
which is an especially important consideration when one launching a new
product or service. In addition, primary research is usually based on statistical
methodologies. The tiny sample can give an accurate representation of a
particular market.
Secondary data is based on information gleaned from studies previously
performed by government agencies, chambers of commerce, trade associations
and other organizations. This includes census bureau information. Much kind of
this information can be found in libraries or on the web, but looks and business
publications, as well as magazines and newspapers.
Analysis of individual investment patterns can be done by this primary
data analysis. In this project I have done a survey with a questionnaire with a
sample size of 100 individuals who are employees and tax payees. The
questionnaire includes the economic status of the individuals, age group, marital
status, investments made etc.
As Karvy securities ltd. distributes several investment products like
mutual funds, insurance, shares, debentures etc. This survey will help them in
developing marketing strategies for their investment products.

LIMITATIONS

Geographic Scope: The sample used for the study has been taken from the
investors of the twin cities Hyderabad and Secunderabad.
Frame work: Sampling frame (i.e the list of population members) from which the
sample units are selected was incomplete as it takes into consideration only those
(target investors) who have made their investments during March and April
2006.
Although adequate care was taken to elicit the accurate information from the
respondents, some of them have felt difficulty in crystallizing their feelings into
words. Apart from the problem faced in articulating, it is the validity of the
feedback can be speculated.
Despite the above limitations the study is useful in that it does point out the
trends and helps to identify the dimensions for improving the scope of mutual
funds.

MUTUAL FUNDS
9

THEORITICAL BACKGROUND

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

10

A BRIEF HISTORY OF MUTUAL FUND

The concept of mutual fund is a new feather in Indian capital market but not to
international capital markets. The formal origin of mutual funds can be traced to
Belgium where society generated Belgium was established in 1822 as an
investment company to finance investments in National Industries with high
associated risk. The concept of mutual funds spread to USA in the beginning of
20th century and three investment companies were started in 1924 since then the
concept of mutual funds has been growing all around the world
In India, first mutual fund was started in 1964 when unit trust of India (UTI) was
established in the similar line of operation of the UK.
The term Mutual fund has not been explained in British literature but it is
considered as synonym of investment trust of

DEFINITIONS
The concept of mutual fund has been defined in various ways.
The mutual fund as an important vehicle for bringing wealth holders and deficit
units together indirectly
...Mr. James pierce
Mutual fund as financial intermediaries which being a wide variety of securities
with in the reach of the most modest of investors.
Frank Relicy
According to SEBI mutual fund regulations 1993, Mutual fund means a fund
established in the form of trust by sponsor to raise moneys by the trustees
through the sale of units to the public under one or more schemes for investing in
securities in accordance with these regulations.

11

CONCEPT OF MUTUAL FUNDS

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

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

12

VALUE CHAIN OF MUTUAL FUND

SPONSOR:
Any person who, acting alone or in combination with another body corporate,
establishes a mutual fund.
Asset Management Company
A firm that invests the pooled funds of retail investors in securities in line
with the stated investment objectives. For a fee, the investment company
provides more than diversification, liquidity, and professional management
service than is normally available to individual investors.
Trustee
The Board of Trustees or the Trustee company who hold the property of the
Mutual Fund in trust for the benefit of the unit holders.
Mutual Fund
A fund established in the form of a trust to raise money through the sale of
units to the public or a section of the public under one or more schemes for
investing in securities, including money market instruments.
Transfer Agent

13

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

shareholder accounts calculate and disburse dividends and prepare and mail
shareholder account statements, federal income tax information and other
shareholder notices.
Custodian
Mutual funds are required by law to protect their portfolio securities by
placing them with a custodian. Nearly all mutual funds use qualified bank
custodians.
Unit Holder
A person who is holding units in a scheme of a mutual fund.
CLASSIFICATION OF SCHEMES
By Structure
Open-ended
A scheme where investors can buy and redeem their units on any business day.
Its units are not listed on any stock exchange but are bought from and sold to the
mutual fund.
Close-ended
A mutual fund scheme that offers a limited number of units, which have a lockin period, usually of three to five years. The units of closed-end funds are often
listed on one of the major stock exchanges and traded like securities at prices,
which may be higher or lower than its NAV.In India 90% of the schemes is
open-ended fund and the rest 10% is close-ended funds. There are 1062 openended funds and 119 close-ended funds.

14

By Objective
A scheme can also be classified as growth scheme, income scheme, or balanced
scheme considering its investment objective. Such schemes may be open-ended
or close-ended schemes as described earlier. Such schemes may be classified
mainly as follows:
Growth / Equity Oriented Scheme
The aim of growth funds is to provide capital appreciation over the medium to
long- term. Such schemes normally invest a major part of their corpus in
equities. Such funds have comparatively high risks. These schemes provide
different options to the investors like dividend option, capital appreciation, etc.
and the investors may choose an option depending on their preferences. The
investors must indicate the option in the application form. The mutual funds also
allow the investors to change the options at a later date. Growth schemes are
good for investors having a long-term outlook seeking appreciation over a period
of time.

15

Income / Debt Oriented Scheme

The aim of income funds is to provide regular and steady income to investors.
Such schemes generally invest in fixed income securities such as bonds,
corporate debentures, Government securities and money market instruments.
Such funds are less risky compared to equity schemes. These funds are not
affected because of fluctuations in equity markets. However, opportunities of
capital appreciation are also limited in such funds. The NAVs of such funds are
affected because of change in interest rates in the country. If the interest rates
fall, NAVs of such funds are likely to increase in the short run and vice versa.
However, long-term investors may not bother about these fluctuations.
Balanced Fund
The aim of balanced funds is to provide both growth and regular income as such
schemes invest both in equities and fixed income securities in the proportion
indicated in their offer documents. These are appropriate for investors looking
for moderate growth. They generally invest 40-60% in equity and debt
instruments. These funds are also affected because of fluctuations in share prices
in the stock markets. However, NAVs of such funds are likely to be less volatile
compared to pure equity funds.
Money Market or Liquid Fund
These funds are also income funds and their aim is to provide easy liquidity,
preservation of capital and moderate income. These schemes invest exclusively
in safer short-term instruments such as treasury bills, certificates of deposit,
commercial paper and inter-bank call money, government securities, etc. Returns
on these schemes fluctuate much less compared to other funds. These funds are
appropriate for corporate and individual investors as a means to park their
surplus funds for short periods.

16

Gilt Fund
These funds invest exclusively in government securities. Government securities
have no default risk. NAVs of these schemes also fluctuate due to change in
interest rates and other economic factors as, is the case with income or debt
oriented schemes.
Index Funds
Index Funds replicate the portfolio of a particular index such as the BSE
Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the
securities in the same weightage comprising of an index. NAVs of such schemes
would rise or fall in accordance with the rise or fall in the index, though not
exactly by the same percentage due to some factors known as "tracking error" in
technical terms. Necessary disclosures in this regard are made in the offer
document of the mutual fund scheme.
There are also exchange traded index funds launched by the mutual funds that
are traded on the stock exchanges.
AVENUES OF INVESTMENTS
Savings form an important part of the economy of any nation. With the savings
invested in various options available to the people, the money acts as the driver
for growth of the country. Indian financial scene too presents a plethora of
avenues to the investors.
Banks:
Considered as the safest of all options, banks have been the roots of the financial
system in India. For an ordinary person though, they have acted as the safest
investment avenue wherein a person deposits money and earns interest on it. One
and all have effectively used the two main modes of investment in banks, savings
accounts and fixed deposits. However, today the interest rate structure in the

17

country is headed southwards, keeping in line with global trends. With the banks
offering little above 7% in their fixed deposits for one year, the yields have come
down substantially in recent times. Add to this, the inflationary pressures in
economy and you have a position where the savings are not earning. The
inflation is creeping up, to almost 8% at times, and this means that the value of
money saved goes down instead of going up. This effectively mars any change f
gaining from the investments in banks.
Post office Schemes
Among all saving options, post office schemes have been offering the highest
rates. Added to it is that the investments are safe with the department being a
government of India entity. So the two basic and most sought for features, those
of return safety and quantum of returns were being handsomely taken care of
Public Provident Funds act as options to save for the post retirement period for
most people and have been considered good option largely due to the fact that
returns were higher than most other options and also helped people gain from tax
benefits under various sections. The following are the post office savings
schemes available for the investors:
Monthly Income scheme:
This scheme offers an interest of 8%p.a, payable monthly and a bonus of 10%
payable at maturity after 6 years. There is no tax deductible at source (TDS)
applicable on investments made in this scheme.
National Savings Scheme:
This scheme offers an interest of 8% p.a; compounded half yearly and payable
at maturity in 6 years.

18

Post Office Time Deposits:

There are 4 options available to investors depending on the term of investment
desired by the investor. They are:
1 year) this gives an interest of 6.25% p.a
2 year) This gives an interest of 6.5% p.a
3 year) This gives an interest of 7.25% p.a
4 year) This gives an interest of 7.5% p.a
Kisan Vikas Patra:
An important feature of this scheme is that it assures that the money invested
doubles in 8 years and 7 months.
Public Provident Fund:
This scheme gives a return of 8% per annum, compounded annually for
maturity of 15 years.
Government of India Bonds:
The GOI Bonds have the following investment options:
6.5% Tax free bonds
There is no ceiling on the amount of investment in these bonds. The effective
yields of these bonds are 9.28% p.a for the period of 5 years and premature
encashment option available to investors only after the completion of 3 years.

19

8% Taxable Bonds:
These bonds do not have any TDS charged on them. There is no maximum
limit of investment in these bonds but there should be a minimum investment of
Rs.1, 000. The maturity period is 6 years. The investor has the option of interest
payable half yearly or cumulative. The investors can also avail tax benefit under
section 80L of income Tax Act, up to Rs. 15,000.
Company Fixed Deposits:
Companies have used fixed deposit schemes as a means of mobilizing funds
for their operations and have paid interest on them. The safer a company is rated,
the lesser the return offered has been the thumb rule. However, there are several
potential roadblocks in these.
The danger of financial position of the company not being understood by the
investor lurks.
1. Liquidity is a major problem with the amount being received monthly
after the due dates.
2. The safety of principal amount has been found lacking.
Stock markets:
Stock markets provide an option to invest in a high risk, high return game.
While the potential return is much more than 10-11% any of the options
discussed above can generally generate, the risk is undoubtedly of the highest
order. However, as it might appear, people generally are clueless as to how the
stock market functions and in the process can endanger the hard-earned money.
For those who are not adept at understanding the stock market, the task
of generating superior returns at similar levels of risk is arduous to say the least.
This is where mutual funds come into picture.

20

COMPARISION OF OTHER AVENUES WITH MUTUAL FUNDS

The mutual fund sector operates under stricter regulations as compared to
most other investment avenues. Apart from offering investors tax efficiency and
legal comfort, how do mutual funds compare with other products?
Company Fixed Deposits versus Mutual Funds
Fixed deposits are unsecured borrowings by the company accepting the
deposit. Credit rating of the fixed deposit program is an indication of the inherent
default risk in t he investment. The money of investors in a mutual fund scheme
are invested by the AMC in specified investments under that scheme. These
investments are held and managed in-trust for the benefit of the schemes
investors. On the other hand, there is no such direct correlation between a
companys fixed deposit mobilization, and the avenues where it deploys these
resources.
There can be no certainty of yield, unless a named guarantor assures a
return or to a lesser extent, if the investment is in a serial gilt scheme. O the other
hand, the return under a fixed deposit is certain, subject only to the default risk of
the borrower.
The basic value at which fixed deposits are encashable is not subject to
market risk. However, the value at which units of a scheme are redeemed
entirely depends on the market. If securities have gained value during the period,
then the investor can even earn that is higher than what she anticipated when she
invested. Conversely, she could also end up with a loss.
Early encashment of fixed deposits is always subject to a penalty charged
by the company that accepted the fixed deposit. Mutual fund schemes also have
the option of charging a penalty on early redemption of units (by way of an
exit load).

21

Bank Fixed Deposits versus Mutual Funds

Bank fixed deposits are similar to company fixed deposits. The major
difference is that banks are more stringently regulated than are companies. They
even operate under stricter requirements regarding Statutory Liquidity
ratio(SLR) and Cash Reserve Ratio (CRR) mandated by RBI.
While the above are for comfort, bank deposits too are subject to default
risk. However, given the political and economic impact of bank defaults, the
government as well as Reserve Bank of India (RBI) tries to ensure that banks do
not fail.
Further, the Deposit Insurance and Credit Guarantee Corporation
(DICGC) protect bank deposits up to Rs. 100,000. The monetary ceiling of
Rs.100,000 is for all the deposits in all the branches of a bank, held by the
depositor in the same capacity and right.
Bonds and Debentures versus Mutual funds
As in the case of fixed deposits, credit rating of a bond or debenture is an
indication of the inherent default risk in the investment. However, unlike fixed
deposits, bonds and debentures are transferable securities.
While an investor may have an early encashment option from the issuer ( for
instance through a put option), liquidity is generally through a listing in the
market, implications of this are:
The value that the investor would realize in an early exit is subject to
market risk. The investor could have a capital gain or a loss. This aspect is
similar to a mutual fund scheme.
A hypothecation or mortgage of identified fixed and / or current assets
could back debt securities, e.g secured bonds or debentures. In such a case, if

22

there is a default, the identified assets become available for meeting redemption
requirements.
An unsecured bond or debenture is for all practical purposes like a fixed
deposit, as far as access to assets is concerned.
A custodian for the benefit of investors in the scheme holds the investment
of a mutual fund scheme.
Equity versus Mutual fund
Investment in both equity and mutual funds are subject to market risk.
Investment in an open-end mutual fund eliminates this direct risk of not being
able to dell the investment in the market. An indirect risk remains, because the
scheme has to realize its investments to pay investors. The AMC is however in a
better position to handle the situation. Further, on account of various SEBI
regulations, such as illiquid securities are likely to be only a part of the schemes
portfolio.
Another benefit of equity mutual fund scheme is that they give investors the
benefit of portfolio diversification through a small investment.

23

RISK AND RETURN GRID:

An investor has mainly three investment objectives.
1. Safety of Principal
2. Return
3. Liquidity
BANKS
Returns

Low

Administrativ
e expenses
Risk

High

Investment
options
Network

Less

BONDS AND
DEBENTURE
S
Low
to Low
to
Moderate moderate
Moderate Moderate
to
to High
high
Low
to Low
to
Moderate moderate
Few
Few

High
penetratio
n
At a cost

Low
penetratio
n
Low

Liquidity

Low

FIXED
DEPOSIT

Quality
of Not
Not
Assets
transparent transparent
Guarantee
Maximum
Rs 1 lakh

Low
penetration

EQUITY
MARKET

MUTUAL
FUND

Low
but Low
but
improving fast
improving

Moderate to high Better

Low
Moderate
High
Many

Low
to Moderate
moderate
High
Not transparent Transparent

to Low
Moderate
More

to Better
Transparent
None

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

24

Calculation of NAV
The most important part of the calculation is the valuation of the assets
owned by the fund. Once it is calculated, the NAV is simply the net value of
assets divided by the number of units outstanding. The detailed methodology for
the calculation of the asset value is given below.
Asset value = (Value of investments+ receivables+ accrued income+ other
current assets- liabilities- accrued expenses) /Number of units outstanding.
ADVANTAGES OF INVESTING IN MUTUAL FUND:
Number of options available
Mutual funds invest according to the underlying investment objective as
specified at the time of launching a scheme. Mutual fund have equity funds, debt
funds, gilt funds and many others that cater to the different needs of the investor.
While equity funds can be as risky as the stock markets themselves, debt funds
offer the kind of security that is aimed for at the time making investments. The
only pertinent factor here is that the fund has to be selected keeping the risk
profile of the investor in mind because the products listed above have different
risks associated with them.
Diversification
Diversification reduces the risk because all stocks dont move in the same
direction at the same time. One can achieve this diversification through a Mutual
Fund with far less money that one can on his own.

Professional Management

25

Mutual Funds employ the services of the skilled professionals who have
years of experience to back them up. They use intensive research techniques to
analyze each investment option for the potential of returns along with their risk
levels to come up with the figures for the performance that determine the
suitability of any potential investment.
Potential of returns
Returns in the mutual are generally better than any option in any other
avenue over a reasonable period of time. People can pick their investment
horizon and stay put in the chosen fund for the duration.
Liquidity
The investors can withdraw or redeem money at the Net Asset Value
related prices in the open-end schemes. In the Closed-end Schemes, the units can
be transacted at the prevailing market price on a stock exchange. Mutual Funds
also provide the facility of direct repurchase at NAV related prices.
Well Regulated
The Mutual Fund industry is very well regulated. All investment has to be
accounted for, decisions judiciously taken. SEBI acts as a true watch dog in this
case and can impose penalties on the AMCs at fault. The regulations designed to
protect the investors interests are implemented effectively.
Transparency
Being under a regulatory frame work, Mutual Funds have to disclose their
holdings, investment pattern and all the information that can be considered as
material, before all investors. This means that investment strategy, outlooks of
the markets and scheme related details are disclosed with reasonable frequency
to ensure that transparency exists in the system.

26

Flexible, Affordable and Low cost

Mutual Funds offer a relatively less expensive way to invest when
compared to other avenues such as capital market operations. The fee in terms of
brokerages, custodial fees and other management fees are substantially lower
than other options and are directly linked to the performance of the scheme.
Investment in Mutual Funds also offer a lot of flexibility with features such as
regular investment plans, regular withdrawal plans and dividend investment
plans enabling systematic investment or withdrawal of funds.
Convenient Administration
Investment in the mutual fund reduces paper work and helps you avoid
many problems such as bad deliveries, delayed payments and follow up with
brokers and companies. Mutual Funds save your time and make investing easy
and convenient.
TAXATION ON MUTUAL FUNDS
An Indian mutual fund registered with the SEBI, or schemes sponsored by
specified public sector banks/financial institutions and approved by the central
government or authorized by the RBI are tax exempt as per the provisions of
section 10(23D) of the income tax act. The mutual fund will receive all income
without any deduction of tax at source under the provisions of section 196(iv), of
the income tax act.

27

28

MUTUAL FUND INDUSTRY

INDUSTRY OVERVIEW
The financial markets in India are in the process of maturing. The
markets witnessed many structural changes in the years gone by primarily due to
the market regulators proactive approach to the changes in the global scenario as
well as to meet the needs of domestic investors.
The RBI has carried out major reforms in the Indian financial markets
in the last few years primarily by reducing Cash Reserve ratio by 4% over three
years and Bank Rate by 5% over five years. It is due to measures like these that
the Indian economy is currently showing fundamental robustness, with the GDP
expected to grow by almost 8%. With rising exports and stable inflation of
around 5%, the foreign exchange reserves are at an all time high of $118 billion.
The interest rates in the country are at record lows and have led to an increase in
credit flow to the commercial sector.
The equity markets have passed through a tumultuous phase in the last
3 years. The improving macro-economic fundamentals of the Indian economy
have led the market players to expect a bright future. During the year, the equity
markets around the world are showing good performance. However the markets
in India outperformed the world major scripts showed around more than 75%
growth in last 12 months. The year began with resumption of peace process with
Pakistan and end of war in Gulf. The market also has welcome robust increase in
agriculture production with more-than-normal monsoons. Most of the
groundwork for the disinvestment completed over the last few years, the last
Government had started disinvestments and new government has already
acquired shape and started it is not reluctant of divestment.

29

The debt markets have witnessed a rally for over 2 years and now seem
to be stabilizing. The measures to deepen and widen the debt markets continued
throughout the year. A key step in developing the markets was the launch of
Negotiated Dealing System (NDS). NDS allows electronic bidding in primary
markets, thereby bringing about transparency in trading, electronic settlement of
trades and better monitoring and controls. Issuances of a 30-year paper, floaters
ranging from 5 to 15 years and securities with call and put options by the
government will also go a long way in deepening the markets. In a bid to
increase the retail participation, non-competitive bidding is being encouraged by
the RBI.
INDUSTRY STRUCTURE
Global Scenario
At the end of 2006:Q3, mutual fund assets worldwide were $ 17.28 trillion,
having increased 18 percent over the year 2005:Q3.
Worldwide mutual fund assets (trillions of US dollars)

30

Worldwide assets of Equity, Bond, Money Market & Balanced fund

(Billions of US dollars)

31

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

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

Worldwide mutual fund assets by region 2006;Q3

32

At the end of 2006:Q3 by region, 55% of the global assets was in America, 34%
in Europe and the remaining 11% in Africa and Asia / Pacific.
World wide mutual funds by the type of fund 2006;Q2

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

Number of funds 2000-2006;Q3

33

2005

2006

2000

2001

2002

2003

2004

Q4

Q1

Q2

Q3

52,746

51,692

52,849

54,110

54,569

54,984

55,095

55,919

56,095

Equity

22,453

20,381

22,348

22,974

22,688

22,364

22,796

23,043

23,050

Bond

15,474

13,128

12,183

11,619

11,886

13,309

13,127

13,213

13,225

Money Market

6,745

4,692

4,277

4,394

4,974

3,623

3,618

3,598

3,569

Balanced/Mixed

6,375

11,110

11,155

11,228

11,465

11,603

11,111

11,291

11,181

Other

612

1,000

1,195

1,310

1,578

1,997

2,364

2,659

3,017

39,367

41,620

42,393

41,689

42,356

42,093

42,529

42,377

All Reporting Countries

Countries Reporting in
Every Period2
35,962
Equity

15,656

18,637

20,630

20,808

20,018

19,920

19,971

20,052

19,952

Bond

10,867

10,176

9,830

9,946

9,847

9,961

10,004

10,026

10,076

Money Market

2,701

2,786

2,727

2,674

2,652

2,899

2,901

2,867

2,831

Balanced/Mixed

6,149

6,926

7,500

7,723

7,857

8,095

7,674

7,966

7,850

Other

589

842

933

1,242

1,315

1,481

1,543

1,618

1,668

MUTUAL FUNDS IN INDIAN SCENARIO

Unit Trust of India was the first mutual fund set up in India in the year 1963. In
early 1990s, Government allowed public sector banks and institutions to set up
mutual funds.
In the year 1992, Securities and exchange Board of India (SEBI) Act was passed.
The objectives of SEBI are to protect the interest of investors in securities and
to promote the development of and to regulate the securities market.
As far as mutual funds are concerned, SEBI formulates policies and regulates the
mutual funds to protect the interest of the investors. SEBI notified regulations for
the mutual funds in 1993. Thereafter, mutual funds sponsored by private sector
entities were allowed to enter the capital market. The regulations were fully
revised in 1996 and have been amended thereafter from time to time. SEBI has
also issued guidelines to the mutual funds from time to time to protect the
interests of investors.

34

All mutual funds whether promoted by public sector or private sector entities
including those promoted by foreign entities are governed by the same set of
Regulations. There is no distinction in regulatory requirements for these mutual
funds and all are subject to monitoring and inspections by SEBI. The risks
associated with the schemes launched by the mutual funds sponsored by these
entities are of similar type. It may be mentioned here that Unit Trust of India
(UTI) is not registered with SEBI as a mutual fund (as on January 15, 2002).
In February 2003, following the repeal of Unit Trust of India act 1963; UTI was
bifurcated into two separate entities. One is the specified undertaking of UTI
with assets under the management of Rs.29, 835 crores as at the end of January
2003; representing broadly, the assets of US 64 scheme, assured return and
certain other schemes. The specified undertaking administrator & under rules
framed by Government of India and does not come under the purview of mutual
fund regulation.
The second is the UTI mutual fund Ltd sponsored by SBI, BOB & LIC.
It is registered with SEBI & functions under the mutual fund regulations. With
the bifurcation of the erstwhile UTI which had in March 2000, more than Rs
76,000 crores of assets under management and with setting up of a UTI mutual
fund, conforming to the SEBI, mutual fund regulation and with recent mergers
taking place among different private sector funds, the mutual fund industry has
entered its current phase of consolidation and growth.
As at the end of September,2004, there were 29 funds which manage assets of
Rs. 231358.03 crores under 421 schemes.

35

GROWTH IN ASSETS UNDER MANAGEMENT

36

37

The Company Background:

In 1982, a group of Hyderabad-based practicing Chartered Accounts started
Karvy Consultants Limited with a capital of rs.1, 50,000 offering auditing and
taxation services initially. Later, it forayed into the Registrar and Share Transfer
activities and subsequently into financial services. All along, Karvys strong
work ethic and professional background leveraged with Information Technology
enabled it to deliver quality to the individual.
A decade of commitment, professional integrity and vision helped Karvy
achieve a leadership position in its field when it handled the largest number of
issues ever handled in the history of the Indian stock market in a year.
Thereafter, Karvy made inroads into a host of capital-market services,-corporate
and retail which proved to be a sound business synergy.

GROUP OF COMPANIES

KARVY CONSULTANTS LIMITE

Deals in Registrar and Investment Services

KARVY INC

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

bonds and debentures, fixed deposits, insurance policies for the investor.
KARVY INVESTOR SERVICES LIMITED
38

Deals in Issue management, Investment Banking and Merchant Banking.

KARVY STOCK BROKING LIMITED

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

KARVY GLOBAL SERVICES LIMITED

KARVY COMMODITIES BROKING LIMITED

39

BOARD OF DIRECTORS
Mr.C.Parthasarathy
Mr.M.Yugandhar
Mr.M S.Ramakrishna
QUALITY POLICY
To achieve and retain leadership, Karvy shall aim for complete customer
satisfaction, by combining its human and technological resources, to provide
superior quality financial services. In the process, Karvy will strive to exceed
Customers expectations.
Quality objectives
As per the Quality Policy, Karvy will:
Build in-house processes that will ensure transparent and harmonious
relationships with its clients and investors to provide high quality of
services.
Establish a partner relationship with its investor services agents and
vendors that will help in keeping up its commitments to the customers.
Provide high quality of work life for all its employees and equip them
with adequate knowledge & skills so as to respond to its customers
needs.
Continue to uphold the values of honesty & integrity and strive to
establish unparalleled standards in business ethics.
Use state-of-the art information technology in developing new and
innovative financial products and services to meet the changing needs of
invetors and clients.

40

 Strive to be a reliable source of value-added financial products and

services and constantly guide the individuals and institutions in making a
judicious choice of it.
Strive to keep all stake-holders (shareholders, clients, investors,
employees, suppliers and regulatory authorities) proud and satisfied.
ACHIEVEMENTS
Largest mobiliser of funds as per PRIME DATABASE.
First ISO-9002 Certified Registrar in India.
A Category I-Merchant banker.
A Category-I-Registrar to public Issues.
Ranked as The Most Admired Registrar by MARG.
Handled the largest-ever public issue-IDBI
Handled over 500 public issues as registrars.
Handling the reliance Account which for nearly 10 million account
holders.
First Depository Participant from Andhra Pradesh.
Major issues managed as arrangers

Kerala state electricity board.

Power Finance Corporation.

A.P. Water resources Development Corporation.

A.P Roads Development corporation.

A.P state electricity board.

Haldia Petrochemicals ltd.

41

Major issues managed as co-managers

IDBI Equity
Morgan Stanley Mutual Fund.
Bank of Baroda
Bank of Punjab Ltd
Corporation Bank
IndusInd Bank Ltd

Jammu and Kashmir bank Ltd

Housing and Urban Development corporation (HUDCO) Ltd

Madras refineries Ltd
Tamil Nadu Newsprint & Paper Ltd
BPL Ltd
Birla 3M Ltd
Essar Steels Ltd
Hindustan Petroleum corporation Ltd
Infosys technologies Ltd
Jindal Vijaynagar Steels Ltd
Nagarjuna Fertilizers & Chemicals Ltd
Rajshree Polyfil Ltd
Karvy securities Ltd.
Karvy has secured over rs.500 crore in the following debt issues.
Andhra Pradesh road development corporation Ltd
ICICI Bonds (private placement)
ICICI Bonds-96
ICICI Bonds-97-I
ICICI Bonds-97-II
ICICI safety Bonds March 98
42

 IDBI Bonds 96
IDBI Flexi Bonds I
IDBI Flexi Bonds II
IDBI Flexi Bonds III
Kerala state electricity Board
Krishna Bhagya Jala Nigam Ltd
Power Finance Corporation Ltd
Andhra Pradesh Water Resources Development Corporation
Andhra Pradesh state Electricity Board
KARVY CAPABILITIES
Technology infrastructure
It has desktops and 200 plus enterprise class servers having licensed
software across technology platforms. It has wide area network connecting
branches all over India. It has 24 * 7 back up and Redundancy support for
critical business data.
PHYSICAL INFRASTRUCTURE
It has 40 branches and 65 investor centers connected with communication
facilities like Email, Fax, Videoconferencing, WAN and LAN.
MAN POWER
It has work force of over 2000 highly trained people. It has experience of
processing over 120 million transactions. The Domain experience in the
areas of Data processing operations, Technology, Management and
Financials and legal processing. It has specialist expertise in quality control
and cast management.
QUALITY PROCESS

43

It is an ISO 9002 certified operations by DNV Norway. It performs regular

internal and external audits for quality standards.
TRAINING
It has full-fledged learning center to train 150 people simultaneously. It
has simulated environment and on the Job training facilities.
BUSINESS CONTINUITY
It is a two-decade-old company of repute in the industry. It has a disaster
recovery center at separate location. It has investment in infrastructure.
VALUES
INTEGRITY
TRANSPARENCY
PASSION FOR QUALITY
HARD WORK AND TEAM PLAY
LEARNING AND INNOVATION
EMPATHY AND HUMILITY
SENSE OF OWNERSHIP.
KARVY ACHIEVEMENTS
Indias # 1 public issue registrars with 655-market share.
# 2 in India in mutual fund registraring and investor servicing.
Amongst the top 5 mobilizers of funds in India.
Among the top 3 depository Participants.
Among the top 5 retail brokers in the country.
ISO 9002 certified operations by DNV.
Among the top 10 medical transcriptionists.
Adjudged as one of the top 50 IT users in India by MIS Asia.

44

45

DATA ANALYSYS

SOME OF THE SCHEMES OF MUTUAL FUNDS:

Standard Chartered Mutual Fund
Schemes:
Grindlays cash fund: It is an Open-ended Income scheme with high liquidity. A
scheme that invests in money market instruments like Treasury Bills, Call
money, Repos , Short-term Corporate Debentures, Commercial Papers,
Certificate of Deposits, etc that provide a high level of stability and easy liquidity
.
Tax:
The GCF is also very taxed efficient. It comes with a daily (compulsory
reinvestment), Weekly (compulsory reinvestment), Monthly and Bi-monthly
dividend options. Each day gains are declared in the form of dividends and then
reinvested after netting it off against Dividend Distribution Tax (currently
20.91%).This dividend is completely tax free. So the net tax incidence is just
20.91% as compared to 36.5925% for comparable non mutual fund option.
Grindlays Floating Rate Fund: It seeks to generate stable returns with a low risk
strategy by creating a portfolio that is substantially invested in good quality
floating rate debt or money market instruments, fixed rate debt and money
market instruments.

46

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

Plans: The fund comes in two plans

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

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

Grindlays Debt Funds: Debt funds are funds that invest only in debt securities
and

are designed to primarily protect your capital and provide better returns

by investing in high quality debt securities.

Operations of Debt funds: There are two important sources of revenue
that a debt fund earns:
a) Interest income
When you invest in a Bank / Company deposit, it offers you a fixed rate of
interest with the principal being returned on maturity. Similarly when a debt fund
invests in various debt securities the issuers of these securities offer a rate of
interest and the principal on maturity. The issuers of these securities could either
could either be various corporates like Reliance, Hindalco, ICICI, Bharat
Petroleum or the Government of India.
b) Mark to Market gain/loss
As interest rates on bank fixed deposits change frequently so do interest rates on
debt securities. Interest rates and debt security prices are in fact the two sides in
seesaw. In general, prices fall when interest rates rise and rise when interest rates
fall. If the interest rates were to decline then newer bonds would be issued at

47

lower interest rates than existing bonds. Consequently old bonds would be dearer
and hence prices of these older bonds would rise.
Similarly if interest rates were to raise then value of old bonds would fall, as
newer bonds would bear higher interest rates. The traded price of a bond may
thus differ from its face value. The longer a bonds period to maturity, the more
its price tend to fluctuate as market interest rates change.

DSP Merrill lynch Mutual Fund:

Schemes
Liquidity Fund:
It is an open-ended fund liquid scheme seeking to generate a reasonable
return commensurate with low risk and high degree of liquidity from a portfolio
constituted of money market securities and high quality debt securities.
Floating rate Fund:
It is an open-ended income scheme seeking to generate income
commensurate with prudent risk from a portfolio substantially constituted of
floating rate debt securities and fixed rate debt securities swapped for floating
rate returns. The scheme may also invest in fixed rate debt securities and money
market securities.
Short term Fund:
It is an open-ended income scheme seeking to generate income commensurate
with prudent risk, from a portfolio constituting of money market securities,
floating rate debt securities and debt securities.
Bond fund:

48

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

return, consistent with prudent risk from a portfolio, which is substantially
constituted of high quality debt securities of issuers predominantly domiciled in
India.

Equity Fund:
It is an open ended growth scheme seeking to generate long term capital
appreciation, from a portfolio which is substantially constituted of equity and
equity related securities of issuers domiciled in India. The scheme may also
invest a certain portion of its corpus in debt and money market securities, in
order to meet liquidity requirements from time to time.
T.I.G.E.R Fund:
It is an open ended growth scheme whose primary investment objective is
to seek to generate capital appreciation, from a portfolio that is substantially
constituted of equity securities of corporates, which could benefits from
structural changes brought about by continuing liberalization in economic
policies by the government and / or from continuing investments in
infrastructure, both by public and private sector.

49

HDFC MUTUAL FUND

Schemes
HDFC Growth Fund:
It is a open ended scheme seeking to generate long term capital
appreciation from a portfolio that is invested predominantly in equity and equity
related instruments
HDFC Equity Fund:
It is an open-ended growth scheme to achieve capital appreciation.
HDFC Top 200 Fund:
It is an open-ended growth scheme seeking to generate long-term capital
appreciation from a portfolio of equity and equity-linked instruments primarily
drawn from the companies in BSC 200 index.
HDFC Balanced Fund:
It is an open ended balanced scheme seeking to generate capital
appreciation along with current income from a combined portfolio of equity and
equity related and debt & money market instruments.
HDFC Tax Savers Fund:
50

It is an open-ended equity linked saving scheme with a lock-in period of 3

yrs seeking to generate long term growth of capital.
HDFC Gilt Fund:
It is an open-ended income scheme seeking to generate credit risk-free
returns through investments in sovereign securities issued by central government
or state government.

Birla Sun Life Mutual Fund:

Schemes
Birla Advantage Fund:
It is an open-ended diversified equity fund and portfolio remains over wait
across banks MNC pharma, IT and Telecom.
Birla Dividend Yield Plus:
It is an open-ended growth scheme investing in high dividend yield companies
and continuously having a positive outlook on banking sector.
Birla Mid cap Fund:
It is an open ended growth scheme investing primarily in mid cap stocks
and the portfolio remains well diversified across pharmaceutical, banking,
consumer non durable, IT, Hotels.
Birla MNC Fund:
It is an open-ended growth scheme investing in multi national companies
and the portfolio remains over weight across consumer non-durable, IT, Agro
chemicals.
Birla Gilt Plus:
51

It is an open-ended government security scheme.

Birla Equity Plan:
It is an open-ended equity linked savings scheme with a lock-in for three
years.

Kotak Mutual Fund

Schemes:
Kotak 30:
It is an open-ended equity growth scheme seeking to generate capital
appreciation from a portfolio of predominantly and equity related securities with
investment in, generally, not more than 30 stocks.
Kotak opportunities:
It is an open-ended equity growth scheme seeking to generate capital
appreciation from a diversified portfolio of equity and equity related securities.
Kotak Global India:
It is an open-ended growth scheme seeking to generate capital appreciation
from a diversified portfolio of equity and equity related securities issued by
globally competitive Indian companies.
Kotak Liquid:
It is an open-ended debt scheme to provide reasonable returns and high
level of liquidity by investing in debt and money market instruments of different
maturities so as to spread the risk across different kinds of issuers in debt
markets.
52

Chola mutual fund:

Schemes:Cholamandalam growth fund:
It is an open ended scheme seeking to generate long term capital appreciation,
income through investments in equity & equity related instruments; the
secondary objective is to generate some current income and distributive
dividend.
Chola midcap fund:
It is an open ended scheme seeking to generate capital appreciation by investing
primarily in mid cap stocks. The scheme will invest primarily that have a market
capitalization between Rs.300 crores to Rs. 3000 crore.
Chola opportunities fund:
It is an open ended scheme which will invest mainly to generate long term
capital appreciation from a diversified portfolio of equity and equity related
securities.
Chola Multi-cap fund:
It is an open-ended growth scheme which will provide long term capital
appreciation by investing in a well diversified portfolio of equity and equity
related instruments across all ranges of market capitalization.
Chola Gilt investment plan:

53

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

by investing in Government securities.

Chola monthly income plan:

It is an open-ended growth scheme seeking to generate monthly income through
investment in range of debt, equity and money market instruments.

CHOOSING FUNDS
When it comes down to it, the decision to invest in a mutual fund is one
you have to make on your own. When you try to choose an investment, however,
it is a good idea to seek the guidance of a financial advisor who will review its
objective to make sure it supports your financialgoal.
As an investor, your goals are unique, and a financial advisor can help
match you with the best funds. Remember, however, when you are choosing
funds, to consider how much risk you are comfortable with and when you'll need
the money. If you have the time to weather the market's ups and downs, you may
want to consider equity investments.
Before you select a mutual fund, it is essential to read the prospectus
carefully to learn all you can about the fund's performance, investment goals,
risks, charges and expenses.
DECISION MAKING FACTORS WHILE INVESTING IN MUTUAL
FUNDS
Before looking at the mutual funds available to you, it may be best to decide
the mix of stock, bond, and money market funds you prefer. Some experts
believe this is the most important decision in investing. Here are some general
points to keep in mind when deciding what your investment strategy should be.
54

Diversify. It is a good idea to spread your investment among mutual funds that
invest in different types of securities. Stocks, bonds, and money market securities
work differently. Each offers different advantages and disadvantages. You may
also want to diversify within the same class of securities. Diversifying can keep
you from putting all your eggs in one basket and therefore, may increase your
returns over along period of time.
Consider the effects of inflation. Since the money you set aside today may be
intended to be used several years down the road, you need to look at inflation.
Inflation measures the increase of general prices over time.
Conservative investments like money market funds often may be popular
because they are managed to keep a steady value. But their return after
accounting for the inflation rate can be very low, perhaps even negative.
For example, a 4% inflation rate over a period of many years could erase a
money market fund's 3% yield over the same period of time. So even though
such an investment may give some safety of principal, it may not be able to grow
enough in value over the years or even keep up with the rate of inflation.
Patience is a virtue. It's no secretthe prices of common stocks can change
quite a bit from day to day. Therefore, the part of your account invested in stock
funds would likely fluctuate in value much the same way.
If you don't need your money right away (for at least 5 years), you probably don't
need to panic if the stock market declines or you find that your quarterly
statement shows the value of your investment has fallen. In the past, the stock
market has regained lost value over time. Although you are not assured it will do
so in the future, try to be patient and allow your stock funds time
recover.

55

to

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

changing

funds.

Look at your age. Younger investors may be more at ease with stock funds,
because they have time to wait out the short-term ups and downs of stock prices.
By investing in a stock fund, they might be able to receive high returns over the
long-term.
On the other hand, people who are closer to retirement may be more interested in
protecting their money from possible drops in prices, since they'll need to use it
soon. In this case, it may be wise to place a greater percentage of money in bond
and/ or money market funds, which may not have such large changes in
value.
How can you determine an investment mix appropriate for your age? One
way is to subtract your age from 100. The answer you come up with may be a
good number to start with in deciding what portion of your total investments to
put into

stock mutualfunds.

Risk. When you are choosing funds, be sure to consider how much risk you are
comfortable with and how close you are to retirement. If retirement is around the
corner, you may want a portfolio with very little risk. On the other hand, if you
are younger, and have the time to weather the market's ups and downs, you may
want to choose a more aggressive investment strategy.
READ FUND DOCUMENTS
Your primary source of data concerning the mutual fund will be the prospectus.
It is a legal document illustrating the rules and regulations that a mutual fund
must follow and contains information on the fund's goal and strategy, risks,

56

performance, financial highlights fees and expenses, and a wide variety of

information that you should know before investing.

What are the fund' s goal and strategy?

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

decide if they match your personal objectives. Some funds generate

income for their shareholders, while others concentrate on capital appreciation.

Some focus on a combination of the two, and others are oriented towards tax
benefits or preservation of capital.
Funds also implement differing strategies to help accomplish their goals. The
Goals and Strategies section of a prospectus details the types of securities in
which fund managers can invest and how managers analyze them
Funds can be limited to domestic investments, focus on a certain country or
region, or invest anywhere in the world. In addition, some funds invest only in
specific industries or in particular types of companies. Others invest in large-,
medium- or small-capitalization companies.
What are the risks?
As with all investments, each fund, whether domestic, international or sector
specific, carries different risks. The Main Risks section of a prospectus explains
which ones are associated with the securities in that particular fund, which may
help you decide what level of risk you're comfortable having in your investment
portfolio.
How has a fund performed?

57

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

What are financial highlights?

In this section a prospectus lists 5 years of annual financial information, if a fund
is less than 5 years old, provides data since inception. Information includes net
asset values at the beginning and end of each year, and details the gains or losses,
dividends and distributions that account for any changes.
Financial Highlights also show fund asset information such as net assets ratios to
average net assets for expenses and net investment income, and portfolio
turnover rates.
What are the expenses of a fund?
Operating a fund entails some costs you should be aware of. The Fees and
Expenses section breaks out these costs and who pays them. In addition, an
example of fund expenses is provided to help you compare the cost of investing
in one fund versus another.
Who's managing the fund?
In the Management section, a prospectus gives a brief biography of a fund' s
managers, including how long they have worked on the fund and their overall
industry

experience.

.MARKET SEGMENTATION
58

Market segmentation is the division of market into homogeneous groups,

which will respond differently to promotions, communications, advertising and
other marketing mix variables. A different marketing mix can target each group,
or segment, because the segments are created to minimize inherent differences
between respondents within each segment and maximize differences between
each segment.
Market segmentation was first described in the 1950s, when product
differentiation was the primary marketing strategy used. In the 1970s and
1980s, market segmentation began to take off as a means of expanding sales and
obtaining competitive advantages.
Uses of Market Segmentation
There are many good reasons for dividing a market into smaller segments. The
primary reasons:
Easier marketing
It is easier to address the needs of smaller groups of customers,
particularly if they have many characteristics in common (e.g. seek the same
benefits, same age, gender, etc.).
Find niches
Identify under-served or un-served markets. Using niche marketing,
segmentation can allow a new company or new product to target less contested
buyers and helps a mature product seek new buyers.
Efficient
More efficient use of marketing resources is by focusing on the best
segments for the investor offeringproduct, price, promotion, and place
(distribution). Segmentation can help avoid sending the wrong message or
sending message to the wrong people.
Classification variables

59

Classification variables are used to classify survey respondents into

market segments. Almost any demographic, geographic, Psychographic or
behavioral variable can be used to classify people into segments.
Demographic variables Age, gender, income, ethnicity, martial status,
education, occupation, household size, length of residence, type of residence, etc.
Geographic variables City, state, zip code, census tract, country, region,
metropolitan or rural location, population density, climate, etc.
Psychographic variables Attitudes, lifestyle, hobbies, risk aversion, personality
traits, leadership traits, magazines read, television programs watched, PRIZM
clusters, etc.
Behavioral variables Brand loyalty, usage level, benefits sought, distribution
channels used, reaction to marketing factors, etc.
Summary
Target marketing or market segmentation based on customer needs and
wants can increase profits. Target market identifies customer groups and the
reasons they purchase. Market segmentation helps a business be more responsive
to changing customer needs. An overall marketing plan or strategy visually
shows how all aspects of a marketing effort work together. The ultimate goal of
any business is to sell the product or service.

PRIMARY DATA FOR THE PROJECT:

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

60

It also throws light on the factors, which influence them to make decisions while
investing. Further the interaction with few of the investors goes a long way in
understanding the inlaid reasons for their decisions.

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

100

Economic Status Criterion

Tax payees & Non tax payees

Age groups

23 years and above

Martial Status Criterion

Married, Married with children &

Unmarried

61

FACTORS CONSIDERED BY INVESTORS

WHILE INVESTING

Every investor considers several factors while investing in any of the products as
it deals with the most important need of life money.
The five main factors that were considered are:
1. Safety & security
2. Tax exemption
3. Liquidity
4. Profitability
5. Return pattern

Factors considered by investors

While investing
17%
14%
12%

31%

Safety & security

26%
Tax exemption

Liquidity

Profitability

Return pattern

62

SAMPLE SIZE
ECONOMIC STATUS

100
TAX PAYEES AND NON-TAX PAYEES

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

In a developing country like India most of the people fall in the lower middle
class and middle class sectors. The attitude of the investors is of primary
concern. As more and more options that warrant high returns are available in the
market, investor tends to be more skeptical. So, while investing in any avenue,
their first priority is safety and security. Even the age of the investor plays a
major role in the decision-making. For example, if the investor is in the age of 50
and above, he usually looks for low or no risks while investing. Therefore, 31%
of investors surveyed preferred safety & security.
Next is the tax exemption; as there is tremendous boom in the corporate
sector and the remuneration system for a particular sector has changed. This
created a change in income levels and thereby affected the expenditure patterns.
In the past, it took employee years of time to reach a five-figured salary. But,
gradually the system has changed. Even the employee in the lower level or the
middle level of the corporate ladder is receiving a handsome emolument. So,
they are opting for the exemption of tax. Therefore, the next preference is for tax
exemption that is 26% of the total.
Besides investors going for Safety & security, there are investors who opt
for return on investments they made. They are mainly in the age group of 23 and
35. Because these investors are likely to think that, at this age they are mentally
more stable and feel that they can cope with financial risks. Any profits made

63

would further bolster their financial stability. And so, 17% went with return
pattern of their investment. In the same way, 14% of the investors look for
profitability, especially those who are already doing business, i.e. those who are
already accustomed to taking risks.Out of the total, 12% of investors preferred
liquidity. The main reason for this could be that, that making the invested money
liquefied as and when required is important, and this is not possible if the
investments are made in any insurance, Bank deposits, etc.
Though there are numerous factors that can be attributed to an investors
psyche, by large, we can conclude that maximum number of investors is
investing in those sectors where there is safety & security for their principal. The
other factors antecede safety.

INVESTMENT PATTERN:

Investment pattern
7% 5% 4%
2%
9%

42%

31%
Bank deposits

insurance

mutual fund

bonds

shares

Equity

none
Sample size

100

Economic status

Tax payees & non-tax payees

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

64

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

ANALYSIS OF THE ABOVE GRAPH:

The investment pattern of an investor is also very important because this shows
the avenues where the people are really interested. Here, 42% have invested in
bank deposits as it is very safe and risk free. Out of the sample of 100,it is
observed that those who opted for an investment in banks in the form of deposits
are found to be in the age group of 40 and above and are in government services.
The next preference, as observed in the pie chart for investment pattern is
Insurance. People generally opt for life insurance because it promotes a sense
of safety & security for the dependents on the person and even his belongings.
So, the next priority is insurance. 7% of the investors went for an investment in
shares as it brings quick returns, although shares are prone to high risks.
As shown 9% of the investors opted for an investment in mutual funds.
From this we can infer that the market of mutual fund is picking up slowly.
According to the survey, the people who have invested in the mutual funds
belong to high-income range and they want an exemption from tax and a mere
2% opted for bonds, 5% for investment in equity and 4% have invested in other
investments such as Real estate to make quick returns on their investments.

65

AWARENESS TOWARDS MUTUAL FUNDS:

Awareness towards mutual

funds
13%

87%
Aware of mutual fund

Not aware of mutual fund

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

Of the sample surveyed, almost all of the people are aware of mutual funds. They
are aware of the term mutual fund. Though the questionnaire cannot identify
the extent of the awareness. Through the interaction it is found that they are not
actually aware of the advantages in investing mutual funds, various types of
mutual funds and different schemes offered in it. It is found that People often
have an inhibition that investments in mutual funds can be done only by those
who have surplus amount of money with them and want to avail tax redemption.
66

MUTUAL FUND INVESTMENTS:

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

Mutual fund investments

19%
6%
75%

Equity funds

Debt funds

Liquid funds

Sample size

16

Criterion

Mutual fund investors in the survey

From the graph, it is clear that only 16 out of 100 invested in mutual funds. From
those 16, 12 have invested in Equity funds, 3 in liquid funds and the remaining 1
in debt funds.
ANALYSIS OF THE ABOVE GRAPH:
Only 16 out of 100 invested in mutual funds this can be mainly attributed to the
low level of awareness, various inhibitions and a not so clear idea about the
mutual funds. It is very important to have a clear perception of mutual funds,
67

how they work and how the money is invested in different portfolios according
to the investors choice.
Investors who opted for equity funds are 12 of 16 percent. Equity funds
being the majority preference can be reasoned as they want their investments to
be put in various sectors i.e. DIVERSIFIED FUNDS so that they can make
profits out of it easily. Even some went for INDEX FUNDS as the investments
are made in Bench Nark Index Stock like BSE, NSE.
A few (3%of 16%) investors made investments in liquid funds as they
want a Short term investments where the investor need not wait for much time
for the return. These are also called as Money Markets for short term.
Only a single investor went for debt funds where investments are in various
debt products like Certificate of Deposits (CDs), Commercial papers and call
money as the investor want a secured investment, which he can avail in Debt
Funds.

68

FINDINGS
Many of the investors are aware of mutual funds but most of their
perception towards them is not positive.
Investors are mainly concerned with the risk factors of mutual funds and
are not directing towards them.
The investors who have invested in mutual funds mainly go for it because
of the Liquidity matter and Tax exemption.
Most of the people dont know the advantages of mutual funds and the
various types of mutual funds.
There are nearly 1173 schemes of mutual funds offered by various mutual
fund houses, which an ordinary person is not aware.
A common investor basically looks for the Tax exemption and Safety &
security while investing.
Investors often feel that those people, who have surplus amount with them
and invest to avail Tax exemption, can do investing in mutual funds.

69

70

SUMMARY
This report is an attempt to provide an analysis of the perception of an investor
towards mutual funds. However, what has been reported is only the tip of iceberg
in terms of data that are available.
However, my examinations suggests that employees are interested to
invest in mutual funds provided sufficiently educated and a know-how is
provided on its working. Though the self-employed are investing in mutual funds
and insurance, they are investing small amounts in them because they do not
want to take high risks.
Karvy stock broking ltd should educate the people about the various
advantages of investing in mutual funds and create an awareness regarding
various investment options.
In conclusion, it is important to remember that the main purpose for
initiating the project is to analyze the perception of an ordinary investor towards
the mutual funds and the aspects that guide him to make investment decisions.
The study does not aim to advocate investments in mutual funds.

71

CONCLUSION

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

72

SUGGESTIONS
Make people aware of mutual funds by:
Arranging free seminars in different organizations about mutual fund
investments.
Arranging stalls in Public places is a good publicity.
More advertisements need to come to explain the various advantages of
mutual funds and even the various schemes offered by them.
What to expect from a financial advisor
The key for mutual fund investors is to define and recognize the value of
professional financial services, and then insist on getting that value. When
you pay a sales charge or a fee, what can you expect a professional to do for
you? Your advisor should at least:

Understand investor needs and help him formulate long-term investment

goalsandobjectives.
Before making specific recommendations, advisor should try to gain a whole
picture of investors past experience, lifestyle and goals, as well as his other
investments and current financial situation. When the investor planning to
retire, for example? Does the investor have life insurance? Does he own real
estate? How secured is his job?

Help the investor develop realistic expectations by discussing the risks and
rewardsofeachinvestment.Every investment choice has its strengths and
weaknesses, and investor should never feel less than fully informed. When
investor ask questions, or have doubts,

73

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

Match investors goals and objectives with appropriate mutual funds.

Investor should expect your advisor to make clear and specific
recommendations, and explain the reasons behind them in terms he can
understand. Of course, the advisor should be confident and well informed
about the management and

portfolio

strategiesofanymutualfundsrecommended.

Continually monitor investor portfolio and help you interpret performance.

Your advisor cannot influence or predict a fund's results. However, he or she
should discuss results with you and help you judge your progress. You should
feel

you

canalwaysaskyouradvisor,"HowamIdoing?"

Conduct regular reviews to ensure that your strategy continues to provide

optimal

that

results

for

you.

One of the most valuable services your advisor can provide is to help you
"stay on course" with your investment program. But "staying on course" long
term does not necessarily mean staying put. Expect your financial advisor to
work with you to adjust your portfolio in response to any significant change
in your lifestyle, priorities, assets or responsibilities.

These are the basic services that investors should expect from their financial
advisors. Beyond the basics, many investors could use even more specialized
assistance, like advice on retirement plan distribution options, setting up and
servicing retirement plans for small businesses and self-employed
individuals,
developing tax-advantaged strategies for children's college education,
insurance, estate, and trust planning; and year-end mutual fund tax advice. If
you need specialized services, there are many financial advisors who can help
you obtain the help you n

74

BIBLIOGRAPHY
S.No. Name of the Author

Publisher

75

Page Nos.

Punithavathi
Pandyan
V.A.Avadhani

1
2

Securities Analysis and Portfolio 29,30,411&412

Management
Investment and Securities Markets in 427,428
India

MAGAZINES:
1. Business standard
2. Economic times
Marketing dictionary A. IVONAVIC
S.NO

WEBSITES

MONTH OF SEARCH

http:// www.karvy.com

May 2007

http:// www.amfiindia.com

May 2007

http:// www.ici.org

May2007

http:// www.google.com

May 2007

http:// www.moneycontrol.com

June 2007

http:// www.franklintempletonindia.com

June 2007

76

77

Investors perception towards Mutual Funds

PERSONAL INFORMATION
A) Name:
B) Type of Business:
C) Address:
D) Telephone:

Mobile:

E) Fax:

Email:

F) Annual Income:

ANNEXURE
1.In which part of these modes have you made your major part of
investment?
[] Shares

[] Equity

[] Bank Deposit

[] Mutual Fund

[] Insurance

[] Bonds

[] Others Specify--------------------------------2.Why do you prefer the above option?

[] Return Pattern

[] Tax Exemption

[] Liquidity

[] Safety & Security

[] Profitability

[] Guaranteed Return

[] Others Specify----------------------------------3.How long would you like to invest?

[] Short term (below 1yr)

[] Medium term (up to 2yrs)

[] Long term (above 3yrs)

4.Have you seen any advertisements for Mutual Funds?
[] Yes

[] No

78

5.If yes, what are the advertisement have you seen for?
[] Birla sunlife mutual funds

[] Reliance mutual fund

[] Chola mutual funds

[] Standard charted mutual funds

[] Franklin Templeton mutual fund [] Sundaram mutual fund

[] HDFC mutual fund

[] UTI mutual fund

[] ING VYSA mutual fund

[] Any other specify--------------------

[] Prudential ICICI mutual fund

6. Rank the following services preferred by you from a financial Advisory
Institution?
Services

Rank

1. Telephone services
2. Online services
3. Mobile services
4. Personal services
7. Mention the names of mutual funds you have invested?
--------------------------------------------------------------------8. In which scheme of mutual funds have you invested?
[] Debt

[] Equity

[] Liquidity

[] Mixed (Debt & Equity)

[] Others specify--------------------------9. What was the approximate return you got on your investment?
[] Debt

[] Equity

[] Liquidity

[] Mixed

[] Others specify--------------------------10. Which factors you consider the most while, investing in mutual funds?
[] Return patterns

[] Performance

[] Services

[] Risk factors

[] Quality of portfolio

[] Professional management

[] Wealth creation

79

11. Which period of dividend income you prefer the most?

[] Monthly

[] Quarterly

[] Half yearly

[] Annual

12. How often you need reminders (recall) about mutual fund?
[] Monthly

[] Quarterly

[] Half yearly

[] Annual

13. If you need so, which mode you would prefer?

[] Account statements

[] Remainder letters

[] Television & Internet

[] News papers & Magazines

14. Please rank your expectations from a mutual funds Advisory concern
Expectations

Rank

1. Right Advice
2. Speed of transaction
3. Research inputs
4. Reputations
5. Reliability
6. Investor facilitation
7. Advertisements
8. Easy procedure
15. Are you willing to invest in mutual funds?
[] Yes

[] No

If no, specify the reason-----------------------------------------If yes, do you need further assistance from Wealth Management
Executives from
Karvy Consultants Ltd?
[] Yes
16.

As

investors

[] No
please

specify

your

needs,

recommendations to Develop the mutual funds.

80

expectations

and