summer internship project on sip & mutual fund

SUMMER TRAINING REPORT ON

SYSTEMATIC INVESTMENT PLANNING WITH

SPECIAL REFRENCE TO MUTUAL FUND

& TRAKING ERROR IN INDEX FUND In

KARVY STOCK BROKING LTD. (At Aligarh)

Submitted By

Aditya Sharma

Roll No.:-0910970002 M.B.A. 3rd Semester Session: 2010-2011

In Partial Fulfillment for the Award of the Degree Master of Business Administration Degree program of Gautam Buddh Technical University Lucknow

Aligarh College of Engineering & Technology Mathura Road, Aligarh (U.P.) 202001

A L I G A R H C O L L E G E O F E N G I N E E R I N G A N D T E C H N O L O G Y

ADITYA SHARMA

SUMMER TRAINING REPORT ON

SYSTEMATIC INVESTMENT PLANNING

WITH

SPECIAL REFRENCE TO MUTUAL FUND

& TRAKING ERROR IN INDEX FUND In

KARVY STOCK BROKING LTD. (At Aligarh)

Submitted By

Aditya Sharma

Roll No.:-0910970002 M.B.A. 3rd Semester Session: 2010-2011

In Partial Fulfillment for the Award of the Degree Master of Business Administration Degree program of Gautam Buddh Technical University Lucknow

Aligarh College of Engineering & Technology Mathura Road, Aligarh (U.P.) 202001


ADITYA SHARMA

TABLE OF CONTENT

SR.NO. PARTICULARS PG. NO.

1 COMPANY PROFILE

2 Company profile 2

Objective of the study 11

3 SYSTEMATIC INVESTMENT PLAN

4 S.I.P. 13

5 Advantage of S.I.P. 15

6 MUTUL FUNDS

7 Mutul Funds 18

8 History 23

9 Indian Mutul funds 28

10 Categories of Mutul Funds 31

11 Working of Mutul funds 35

12 Mutul Funds Company 37

13 SEBI Guidelines 46

14 Structure of Indian Mutul funds 54

15 Mutul funds Cycle 58

16 Competitors Details 59

17 RESEARCH METHODOLOGY

18 Research Methodology 65

19 Research Objective 66


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20 Limitation of the Study 70

21 Research Analysis Interpretation 71

22 Finding 79

23 Conclusion 81

24 Recommendations 82

25 Annexure 84

26 Glossary 88

27 Bibliography 90


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Declaration I, Aditya Sharma , student of Aligarh College of Engineering & Technology 2009-2011 ,declare that ever part of the project report “SYSTEMATIC INVESTMENT PLANNING WITH SPECIAL REFERENCE TO MUTUL FUNDS & TRCKING ERROR IN INDEX FUNDS” that I have submitted is original.

The findings and conclusions of this report are based on my personal study and experience.

Date of Project Submission

(Aditya Sharma)


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Acknowledgment

I sincerely acknowledge the help received from various persons and sources in collection of data and information in completing this satisfactory project.

The entire project report is titled “SYSTEMATIC INVESTMENT PLANNING WITH SPECIAL REFERENCE TO MUTUL FUNDS & TRCKING ERROR IN INDEX FUNDS”.

The entire project report owes its credit to the chlorite guidance and encouragement rendered by Industry mentor Rakesh gupta I record my sincere thanks to him with deep gratitude.

I also take the opportunity to acknowledge my sincere and deep sense of gratitude to the Industry mentor Arvind Sharma whose perception and sagacity is always opened for us.

Last but not the least I would like to thank all the faculties of the institute, and friends for their kind co-operation throughout the project.


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EXECUTIVE SUMMARY

This project has been a great learning experience for me at the same time it gave

me enough scope to implement my analytical ability and enhance my skills.

In few years Mutual Fund has emerged as a tool for ensuring one’s financial well

being. Mutual Funds have not only contributed to the India growth story but have

also helped families tap into the success of Indian Industry. As information and

awareness is rising more and more people are enjoying the benefits of investing in

mutual funds. The main reason the number of retail mutual fund investors remains

small is that nine in ten people with incomes in India do not know that mutual

funds exist. But once people are aware of mutual fund investment opportunities,

the number who decide to invest in mutual funds increases to as many as one in

five people. The trick for converting a person with no knowledge of mutual funds

to a new Mutual Fund customer is to understand which of the potential investors

are more likely to buy mutual funds and to use the right arguments in the sales

process that customers will accept as important and relevant to their decision.


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COMPANY PROFILE


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Karvy Stock Broking Ltd.

The Karvy group was formed in 1983 at Hyderabad, India. KARVY, is a premier integrated

financial services provider, and ranked among the top five in the country in all its business

segments, services over 16 million individual investors in various capacities, and provides

investor services to over 300 corporates, comprising the who is who of Corporate India.

KARVY covers the entire spectrum of financial services such as Stock broking, Depository

Participants, Distribution of financial products like mutual funds, bonds, fixed deposit, Merchant

Banking & Corporate Finance, Insurance Broking, Commodities Broking, Personal Finance

Advisory Services, placement of equity, IPOs, among others. Karvy has a professional

management team and ranks among the best in technology, operations, and more importantly, in

research of various industrial segments.

Karvy computer share limited is India’s largest registrar and transfer agent with a client base of

nearly 500 blue chip corporate, managing over 2 crores accounts. Karvy stock brokers limited,

member of national stock exchange of India and the Bombay stock exchange, rank among the

top five stock brokers in India with over six lakh active account it ranks among the top five

depositary participants in India, registered with NSDL and CSDL, Karvy commorade, member

of NCDEX and MCX ranks among the top three commodities brokers in the country. A Karvy

insurance broker is registered as a broker with IRDA and ranks among the top five insurance

agent in the country. Registered with AMFI as a corporate agent, Karvy is also among top

mutual fund mobilize with over Rs 5000 crores under management. Karvy realty services, which

started in 2006, have quickly established itself as a broker, who adds value in the realty sector.

Karvy global offer niche off to off shoring services to U.S clients.


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Karvy has 575 offices in 375 locations across India and overseas at Dubai and New York. Over

9000 highly qualified people staff Karvy.

Vision of Karvy:

To achieve & sustain market leadership, Karvy shall aim for complete customer satisfaction, by

combining its human and technological resources, to provide world class quality services. In the

process Karvy shall strive to meet and exceed customer's satisfaction and set industry standards.

Mission statement:

“Our mission is to be a leading and preferred service provider to our customers, and we aim to

achieve this leadership position by building an innovative, enterprising , and technology driven

organization which will set the highest standards of service and business ethics.”

THE KARVY CREDO

“Our Clients. Our Focus

Clients are the reason for our being.”

Personalized service, professional care; pro-activeness are the values that help the organisation

nurture enduring relationships with clients.

Respect for the individual Each and every individual is an essential building block

of the organization.

Teamwork

None of us is more important than all of us

Responsible Citizenship

A social balance sheet is as rewarding as a business one.


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As a responsible corporate citizen, Karvy’s duty is to foster a better environment in the society

where we live and work. Abiding by its norms, and behaving responsibly towards the

environment, is some of our growing initiatives towards realizing it.

KARVY GROUP

I. Karvy Stock Broking Limited

Consists of five units namely stock broking servics, depository participant, advisory services,

distribution of financial products, advisory services and private client groups. KARVY Stock

Broking Limited is a member of: 1) National Stock Exchange (NSE) , 2) Bombay Stock

Exchange (BSE)

II. Karvy Comtrade Limited

Karvy Comtrade Limited is another venture of the prestigious Karvy group. The company

provides investment, advisory and brokerage services in Indian Commodities Markets. And most

importantly, it offer a wide reach through our branch network of over 225 branches located

across 180 cities.

III. Karvy Insurance Broking Limited

lt is also a part of Karvy stock broking ltd. At Karvy Insurance Broking Limited both life and

non-life insurance products are provided to retail individuals, high net-worth clients and

corporates. Their wide national network, spanning the length and breadth of India, further

supports these initiatives. Their strengths include personalized service provided by a

dedicated team committed in giving hassle-free service to the clients.

IV. Karvy Investor Services Limited


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Karvy Investor Services Limited (‘KISL’), a SEBI registered Merchant Banker has emerged as a

leading Investment Banking entity in the country with over a decade of experience. KISL has

built its reputation by capitalizing on its qualified professionals, who have successfully executed

a large number of complex and unique transactions. Its clientele includesinclude leading

corporates, State Governments, foreign institutional investors, public and private sector

companies and banks, in Indian and global markets.

V. Karvy Realty(India) Limited

Karvy Realty (India) Limited (KRIL) is promoted by the Karvy Group, India’s largest

financial services group. Karvy Realty (India) Limited is engaged in the business of real estate

and property services offering:

Buying/ selling/ renting of properties

Identifying valuable investments opportunities in the real estate sector

Facilitating financial support for real estate and investments in properties

Real estate portfolio advisory services.

VI. Karvy Financial Services Limited

VII. Karvy Computershare(P) Limited

Karvy Computershare Private Limited is a joint venture between Computershare,

Australia and Karvy Consultants Limited, India in the registry management services

industry.

Computershare, Australia is the world’s largest and only global share registry providing

financial market services and technology to the global securities industry.


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VIII. Karvy Global Services Limited

Karvy Global is a leading business and knowledge process outsourcing Services

Company offering creative business solutions to clients globally. It operates in banking

and financial services, inurance, healthcare and pharmaceuticals, media , telecom and

technology. It has its sales and business development office in New York, USA and the

offshore global delivery center in Hyderabad, India.

IX. Karvy Data Management Services Limited

Karvy Data Management Services is the domestic BPO arm of the Karvy Group and

services corporates across various industry verticals and business horizons.

KDMS is committed to provide best in class, value driven business solutions to its clients

by way of its innovative techniques and technology framework. KDMSL is a fully owned

subsidiary of Karvy Stock Broking Limited (KSBL), incorporated in April 2008 and is

head quartered at Hyderabad.

X. Karvy Consultants Limited

The first securities registry to receive ISO 9002 certification in India. Registered with

SEBI as Category I Registrar, is Number 1 Registrar in the Country.


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KARVY Mutual Fund Services:

Mutual funds have servings for everybody. Whichever type of investor you are, you will surely

get a mutual fund meeting your requirements. But investing in mutual funds is no child’s play

therefore Karvy mutual fund advisory services is there to guide in each and every step of

investment in mutual funds so that the dream of wealth creation doesn’t turns into nightmares. Its

offerings includes: products of all the 33 major AMCs, research report about all the existing

funds as well as NFOs, customized mutual fund portfolios designed for individual as well as

institutional customers, it not only design the portfolios rather it offers continuous portfolio

revision too depending on changing market outlook and evolving trends, it further gives access

to its online consolidated portfolio statement. Thus Karvy with its various offerings makes the

investor feel safe in this dynamic environment of the Indian financial market.

Karvy Computershare mutual fund services offers investors services, distributor services and client

services. It can be said that Karvy is dedicated towards providing quality service to all these three facets

of the investment process.

Karvy being an intermediary is well registered with the Association of Mutual Funds of India (AMFI).

KARVY has got the registration no [ARN 0018] for mutual funds, which is mentioned on every form.

After the procurement of forms from various AMCs, the forms are passed on to its various zonal and

branch offices (as per their requirements) and then further processing is done either directly or through

sub-brokers.

Karvy operates through its sub- brokers, associates and its excellent pool of own direct employees. The

employees are offered salary by Karvy whereas the sub- brokers and associates get certain commission.

Karvy has 70 branches and 3 franchisees in the eastern region. All the work of mutual funds is regulated

from Rashbehari avenue branch, an extension of the JDR branch.

The main source of earning for KARVY is the brokerage offered by the various AMCs known as pay-in.

The amount offered may vary from AMC to AMC. Also, the franchisees have to pay a certain amount

every month. Now Karvy also pay a certain amount to the sub brokers and associates known as pay-out.

The payout is decided according to the procurement done by them.


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List of Mutual Fund Clients of KARVY:

1 Alliance Mutual Fund

2 Birla Mutual Fund

3 Bank of Baroda Mutual Fund

4 Can Bank Mutual Fund

5 Chola Mutual Fund

6 Deutsche Mutual Fund

7 DSP Merrill Lynch Mutual Fund

8 Franklin Templeton Investments

9 GIC Mutual Fund

10 HDFC Mutual Fund

11 HSBC Mutual Fund

12 IL & FS Mutual Fund

13 JM Mutual Fund

14 Kotak Mutual Fund

15 LIC Mutual Fund

16 Punjab National Bank Mutual Fund

17 Prudential ICICI Mutual Fund

18 Principal Mutual Fund

19 Reliance Mutual Fund


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Quality policy:

To achieve and retain leadership, Karvy shall aim for complete customer satisfaction, by

combining its human and technological resources, to provide superior quality financial

services. In the process, Karvy will strive to exceed Customer's expectations.

Quality Objectives As per the Quality Policy, Karvy will:

Build in-house processes that will ensure transparent and harmonious

relationships with its clients and investors to provide high quality of services.

Establish a partner relationship with its investor service 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 customer's needs .

Continue to uphold the values of honesty & integrity and strive to establish

unparalleled standards in business ethics.

Use state-of-the art information technology in developing new and innovative

financial products and services to meet the changing needs of investors and

clients.

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

constantly guide the individuals and institutions in making a judicious choice of

same.

20 State Bank of India Mutual Fund

21 Standard Chartered Mutual Fund

22 Sundaram Mutual Fund

23 SUN F&C Mutual Fund

24 Tata Mutual Fund


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Strive to keep all stake-holders (shareholders, clients, investors, employees,

suppliers and regulatory authorities) proud and satisfied.

Achievements

Among the top 5 stock brokers in India (4% of NSE volumes)

India's No. 1 Registrar & Securities Transfer Agents

Among the top 3 Depository Participants

Largest Network of Branches & Business Associates

ISO 9002 certified operations by DNV

Among top 10 Investment bankers

Largest Distributor of Financial Products

Adjudged as one of the top 50 IT users in India by MIS Asia

Full Fledged IT driven operations.

VALUES: Trust

Integrity

Dedication

Commitment

Transparency

Enterprise

Hard work and team play

Learning & innovation

Empathy and humility


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OBJECTIVES OF THE STUDY

A big boom has been witnessed in Mutual Fund Industry in recent times. A large number of new players have entered the market and trying to gain market share in this rapidly improving market.

1. To find out the Preferences of the investors for Asset Management Company.

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


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What is Systematic Investment Plan (SIP)?

SIP is an investment option that is presently available only with mutual funds. The other

investment option comparable to SIP is the recurring deposit schemes from Post Offices and

Banks. Basically, under an SIP option, an investor commits to making a regular (monthly)

investment in a particular mutual fund/deposit.

How to invest in SIP?

The SIP option is available with all types of funds like equity, income or gift.

An investor can avail the SIP option by giving post-dated cheques of Rs.500 or Rs.1000

according to the funds’ policy.

If an investor wants to put more than Rs.500 or Rs.1000 in any given month he will have

to fill in a new form for SIP intimating the fund that he is changing his SIP structure.

Also he will be allowed to change the SIP structure only in the multiples of the SIP

amount.

If an investor is investing in two different schemes of the same fund he can fill in a

common SIP form for all the schemes. However, if the first holders in those schemes are

different then they will have to fill different SIP forms, as the first holder has to sign on

the form.

The investor can get out of the fund i.e. redeem his units any time irrespective of whether

he has completed his minimum investment in that scheme. In that case, his post-dated

cheques will be returned back to him.


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Let’s take an example:

An investor ‘ARJUN’ wants to invest in fund ‘A’ which can be an equity, income

or gift.

The policy of fund ‘A’ for entering in an SIP is that the investor will have to

issue 6 post-dated cheques of Rs.500/- in case of monthly option or 4 cheques in a

quarterly option. The minimum investment for all its schemes is Rs.5000.

‘ARJUN’ issues 6 post-dated cheques of Rs.500/- each in the name of fund ‘A’

with the first cheque being dated as on 7th May 2001.

Now in the month of August 2001 ‘ARJUN’ wants to change his SIP structure

from Rs.500/- to Rs.1000/-. In this case, he will have to intimate the fund and will

have to fill a new SIP form issuing new post-date cheques of Rs.1000/- each.

‘ARJUN’ is investing in three different schemes of fund ‘A’. In two of the

schemes ‘ARJUN’ is the first holder and in the third scheme his wife is the first

holder. In this case, he can fill a common SIP form where he is the first holder

and where his wife is he first holder, e will have to fill in a new SIP form.

In the month of September 2001, ‘ARJUN’ wants to exit from the fund. He will

just have to give a redemption request to the fund wherein is units will be

redeemed and his remaining post-dated cheques will be returned back to him

irrespective of whether he has completed his minimum investment in the fund.

Investing in SIP is also known as Rupee Cost Averaging. The advantage of rupee cost averaging

is that the Net Asset Value (NAV) is averaged out, as the investor will be entering the fund at

different NAV’s, which may be higher or lower depending on the market condition.

Let’s take the example of ‘ARJUN’ wherein he has started investing in units every month since

he issued the first cheque on 7th May 2001. In this example we assume that he does not change

his SIP structure and also does not redeem the units.


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Investment in fund ‘A’ of Mr. ARJUN

Period Investment(Rs.) NAV(Rs. per unit) Units allocated

7th May’01 500.00 10.00 50

7th June’01 500.00 13.00 38.5

7th July’01 500.00 10.50 47.6

7th Aug’01 500.00 9.50 52.6

7th Sep’01 500.00 8.00 62.5

TOTAL a=2500 b=251.2

Actual average NAV (Rs.) = Rs.10.2 per unit

NAV for ARJUN= Rs.9.95 per unit (a/b)

The above table shows clearly how rupee cost averaging works and how it was beneficial to

‘ARJUN’. The actual average NAV of a fund is Rs.10.2/- per unit, but the average NAV for

‘ARJUN’ is Rs.9.95/- per unit, which is lower than the current NAV.

An investor who is not having a lump-sum amount to invest and also does not want to take much

risk on his investment should always select a ‘Systematic Investment Plan’ option. This will

enable him to invest regularly i.e. improve investing discipline. Also, the investor stands to

benefit from rupee cost averaging.


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ADVANTAGES OF SIP

Power of Compounding

SIP helps you to start investing at an early age to meet the greater expenses of your life.

Saving a small sum of money regularly makes money work with greater power of

compounding with significant impact on wealth accumulation.

Rupee Cost Averaging SIP minimizes the effects of investing in volatile markets. It helps you average out your

cost by generating superior returns in the long run. It reduces the risk associated with

lump-sum investments. Since you get more units when the NAV drops and fewer when it

rises, the cost averages out over time. Thus the average cost of your investment is often

reduced.

Convenience and Regularity SIP gives you the convenience to pay through Axis Bank Electronic clearance service

(ECS) or Auto Debit. You can decide the amount and the mutual fund scheme. A fixed

amount will automatically get debited from your account on a date specified by you.

Disciplined Approach towards Investment

Since you invest regularly, it makes you disciplined in your savings, which leads to

wealth accumulation. Disciplined investing is vital to earning good returns.


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MUTUAL FUNDS


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MUTUAL FUNDS

A mutual fund is nothing more than a collection of stocks and/or bonds. You can think of a

mutual fund as a company that brings together a group of people and invests their money in

stocks, bonds, and other securities. Each investor owns shares, which represent a portion of the

holdings of the fund.

Mutual fund is a trust that pools the savings of a number of investors who share a common

financial goal. This pool of money is invested in accordance with a stated objective. The joint

ownership of the fund is thus “Mutual”, i.e. the fund belongs to all investors. 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 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. A Mutual Fund

is an investment tool that allows small investors access to a well-diversified portfolio of equities,

bonds and other securities. Each shareholder participates in the gain or loss of the fund. Units are

issued and can be redeemed as needed. The fund’s Net Asset value (NAV) is determined each

day. Investments in securities are spread across a wide cross-section of industries and sectors

and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in

the same direction in the same proportion at the same time. Mutual fund issues units to the

investors in accordance with quantum of money invested by them. Investors of mutual funds are

known as unit holders.

You can make money from a mutual fund in three ways:

1) 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.


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2) 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.

3) 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.

The competition among funds has led to the launch of newer products, tailor-made

to suit the requirements of investors. Mutual funds now offer products for the entire range of

needs of investors. The encouraging response to index funds and sector funds shows the growing

maturity among investors. Open-end funds, which provide liquidity to investors at daily NAV

related prices are growing in popularity. The funds have been adopting technology to provide

good service to investors and with the proposed introduction of electronic funds transfer and the

growing trend towards E-Commerce; the efficiency of service will increase even further.

In the coming years mutual funds as saving intermediaries will play a greater role in bringing the

gap between investors and issuers, especially in the area of equity funds. At present these funds

represents 13% of BSE market capitalization. This is expected to go up with increasing flows

into financial savings, especially the mutual fund with the growth and stability in the capital

market flows into equity funds are expected to go up.

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 is 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.

Mutual funds, also referred to as investment companies, offer an alternative investment choice

for individuals with a long-term horizon. The way they operate is that individual investor money

are pooled and invested in many different companies. Assets are professionally managed to meet

various investment objectives. They issue and sell shares to share holders and also redeem them

(buy them back) upon request. Prices of shares are set daily at the close of business, based on the


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value of all investments in the mutual fund’s portfolio. Their major advantages are

diversification and professional management, which are not readily available to small investors

outside the mutual fund arena. Money market mutual funds are short-term funds. They invest in

short-term cash and cash equivalent instruments, such as Treasury bills, certificates of deposit,

and short term notes. Mutual funds may own stocks and bonds of many different companies.

A mutual fund is the ideal investment vehicle for today’s complex and modern financial

scenario. Markets for equity shares, bonds and other fixed income instruments, real estate,

derivatives and other assets have become mature and information driven. Price changes in these

assets are driven by global events occurring in faraway places. A typical individual is unlikely to

have the knowledge, skills, inclination and time to keep track of events, understand their

implications and act speedily. An individual also finds it difficult to keep track of ownership of

his assets, investments, brokerage dues and bank transactions etc.


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When an investor subscribes for the units of a mutual fund, he becomes part owner of the

assets of the fund in the same proportion as his contribution amount put up with the corpus

(the total amount of the fund). Mutual Fund investor is also known as a mutual fund

shareholder or a unit holder.

Any change in the value of the investments made into capital market instruments (such as

shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is

defined as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV

of a scheme is calculated by dividing the market value of scheme's assets by the total

number of units issued to the investors.


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HISTORY OF MUTUAL FUNDS In 1924 three Boston securities executives pooled their money together to create the first mutual

fund. The idea of pooling money together for investing purposes started in Europe in the mid-

1800s. The first pooled fund in the U.S was created in 1893 for the faculty and staff of Harvard

University on March 21st, 1924 the first official mutual fund was born. It was called the

Massachusetts Investors Trust.

However in India UTI was the first to introduce mutual funds in the Indian markets and it

commenced its operations from July 1964, 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 in1993.

Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital

market. The regulations were fully revised in 1996 and have been amended thereafter from time

to time. SEBI has also issued guidelines to the mutual funds from time to time to protect the

interests of investors.

All mutual funds whether promoted by public sector or private sector entities including those

promoted by foreign entities are governed by the same set of 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. The end of

millennium marks 36 years of existence of mutual funds in our country. The ride through these

36 years is not been smooth. Investor opinion is still divided. While some are for mutual funds

others are against it.


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Mutual fund schemes: Mutual funds offer a variety of schemes to investor so as to provide steady income or growth or

both. They differ according to the investment policies. The funds like individual investor have a

different goal. Of the investor who will first ascertain his investment objectives, thinking that the

units of a fund have an investment goal paralleling his objectives.

Mutual Funds Basics: As you probably know, mutual funds have become extremely popular over the last 20 years.

What was once just another obscure financial instrument is now a part of our daily lives.

In fact, to many people, investing means buying mutual funds. After all, it's common knowledge

that investing in mutual funds is (or at least should be) better than simply letting your cash waste

away in a savings account, but, for most people, that's where the understanding of funds ends. It

doesn't help that mutual fund salespeople speak a strange language that, sounding sort of like

English, is interspersed with jargon like MER, NAVPS, load/no-load, etc.

Originally mutual funds were heralded as a way for the little guy to get a piece of the market.

Instead of spending all your free time buried in the financial pages of the investment Journal, all

you have to do is buy a mutual fund and you'd be set on your way to financial freedom. As you

might have guessed, it's not that easy. Mutual funds are an excellent idea in theory, but, in

reality, they haven't always delivered. Not all mutual funds are created equal, and investing in

mutual funds isn't as easy as throwing your money at the first salesperson who solicits your

business.


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Important Characteristics of a Mutual Fund:

A Mutual Fund actually belongs to the investors who have pooled their

Funds. The ownership of the mutual fund is in the hands of the Investors.

A Mutual Fund is managed by investment professional and other

Service providers, who earns a fee for their services, from the funds.

The pool of Funds is invested in a portfolio of marketable investments.

The value of the portfolio is updated every day.

The investor’s share in the fund is denominated by “units”. The value of the units

changes with change in the portfolio value, every day. The value of one unit of

investment is called net asset value (NAV).

The investment portfolio of the mutual fund is created according to The stated

Investment objectives of the Fund.

Advantages of Mutual Funds: Professional Management - The primary advantage of funds (at least

theoretically ) is the professional management of your money. Investors purchase funds

because they do not have the time or the expertise to manage their own portfolio. A

mutual fund is a relatively inexpensive way for a small investor to get a full-time

manager to make and monitor investments.

Diversification - By owning shares in a mutual fund instead of owning individual

stocks or bonds, your risk is spread out. The idea behind diversification is to invest in a

large number of assets so that a loss in any particular investment is minimized by gains in

others. In other words, the more stocks and bonds you own, the less any one of them can

hurt you (think about Enron). Large mutual funds typically own hundreds of different

stocks in many different industries. It wouldn't be possible for an investor to build this

kind of a portfolio with a small amount of money.


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Economies of Scale - Because a mutual fund buys and sells large amounts of

securities at a time, its transaction costs are lower than you as an individual would pay.

Liquidity - Just like an individual stock, a mutual fund allows you to request that your

shares be converted into cash at any time.

Simplicity - Buying a mutual fund is easy! Pretty well any bank has its own line of

mutual funds, and the minimum investment is small. Most companies also have

automatic purchase plans whereby as little as Rs 500 can be invested on a monthly basis.

Disadvantages of Mutual Funds: Professional Management - Did you notice how we qualified the advantage of

professional management with the word "theoretically"? Many investors debate over

whether or not the so-called professionals are any better than you or I at picking stocks.

Management is by no means infallible, and, even if the fund loses money, the manager

still takes his/her cut.

Costs - Mutual funds don't exist solely to make your life easier--all funds are in it for a

profit. The mutual fund industry is masterful at burying costs under layers of jargon.

Because funds have small holdings in so many different companies, high returns from a

few investments often don't make much difference on the overall return. Dilution is also

the result of a successful fund getting too big. When money pours into funds that have

had strong success, the manager often has trouble finding a good investment for all the

new money.

Taxes - When making decisions about your money, fund managers don't consider your

personal tax situation. For example, when a fund manager sells a security, a capital-gain


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tax is triggered, which affects how profitable the individual is from the sale. It might have

been more advantageous for the individual to defer the capital gains liability.

Risk Involved in Mutual Funds All investments involve some form of risk, which should be evaluated them potential rewards

when an investment is selected.

Market risk At times the prices or yields of all the securities in a particular market rise or fall due to broad

outside influences. When this happens, the stock prices of both an outstanding, highly profitable

company and a fledgling corporation may be affected. This change in price is due to “market

risk”.

Interest rate risk Sometimes referred to as “loss of purchasing power”. Whenever inflation sprints

forward faster than the earnings on your investment, you run the risk that you will

actually be able to buy less, not more. Inflation risk also occurs when prices rise

faster than your returns.

Credit risk In short, how stable is the company or entity to which you lend your money when you invest?

How certain are you that it will be able to pay the interest you are promised, or repay your

principal when the investment matures?

Inflation risk Changing interest rates affect both equities and bonds in many ways. Investors are

reminded that “predicting” which way rates will go is rarely successful. A diversified portfolio

can help in offsetting these changes.

Effect of loss of key professional and inability to adopt


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An industries’ key asset is often the personnel who run the business i.e. intellectual

properties of the key employees of the respective companies. Given the ever-changing

complexion of few industries and the high obsolescence levels, availability of qualified, trained

and motivated personnel is very critical for the success of industries in few sectors. It is,

therefore, necessary to attract key personnel and also to retain them to meet the changing

environment and challenges the sector offers. Failure or inability to attract/retain such qualified

key personnel may impact the prospects of the companies in the particular sector in which the

fund invests.

Exchange risks A number of companies generate revenues in foreign currencies and may have

investments or expenses also denominated in foreign currencies. Changes in exchange rates may,

therefore, have a positive or negative impact on companies which in turn would have an effect

on the investment of the fund.

Investment risks The sectoral fund schemes, investments will be predominantly in equities of select

companies in the particular sectors. Accordingly, the NAV of the schemes are linked to the

equity performance of such companies and may be more volatile than a more diversified

portfolio of equities.

Changes in government policy Changes in Government policy especially in regard to the tax benefits may impact the business

prospects of the companies leading to an impact on the investments made by the fund.


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HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India,

at the initiative of the Government of India and Reserve Bank. Though the growth was

slow, but it accelerated from the year 1987 when non-UTI players entered the Industry.

In the past decade, Indian mutual fund industry had seen a dramatic improvement, both

qualities wise as well as quantity wise. Before, the monopoly of the market had seen an

ending phase; the Assets Under Management (AUM) was Rs67 billion. The private sector

entry to the fund family raised the Aum to Rs. 470 billion in March 1993 and till April

2004; it reached the height if Rs. 1540 billion.

The Mutual Fund Industry is obviously growing at a tremendous space with the mutual

fund industry can be broadly put into four phases according to the development of the

sector. Each phase is briefly described as under.

First Phase – 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament 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.


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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 Canbank 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)

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.

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. As at the end of

January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores.


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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 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.

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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CATEGORIES OF MUTUAL FUND:


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Mutual Funds Can Be Classified As Follow : Based on their structure:

Open-ended funds: Investors can buy and sell the units from the fund, at any point

of time.

Close-ended funds: These funds raise money from investors only once. Therefore,

after the offer period, fresh investments cannot be made into the fund. If the fund is

listed on a stocks exchange the units can be traded like stocks (E.g., Morgan

Stanley Growth Fund). Recently, most of the New Fund Offers of close-ended

funds provided liquidity window on a periodic basis such as monthly or weekly.

Redemption of units can be made during specified intervals. Therefore, such funds

have relatively low liquidity.

Based on their investment objective: Equity funds: These funds invest in equities and equity related instruments. With

fluctuating share prices, such funds show volatile performance, even losses.

However, short term fluctuations in the market, generally smoothens out in the

long term, thereby offering higher returns at relatively lower volatility. At the

same time, such funds can yield great capital appreciation as, historically, equities

have outperformed all asset classes in the long term. Hence, investment in equity

funds should be considered for a period of at least 3-5 years. It can be further

classified as:

i) Index funds- In this case a key stock market index, like BSE Sensex or Nifty

is tracked. Their portfolio mirrors the benchmark index both in terms of

composition and individual stock weightages.

ii) Equity diversified funds- 100% of the capital is invested in equities spreading

across different sectors and stocks.


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iii|) Dividend yield funds- it is similar to the equity diversified funds except that

they invest in companies offering high dividend yields.

iv) Thematic funds- Invest 100% of the assets in sectors which are related

through some theme.

e.g. -An infrastructure fund invests in power, construction, cements sectors etc.

v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A banking

sector fund will invest in banking stocks.

vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the investors.

Balanced fund: Their investment portfolio includes both debt and equity. As a

result, on the risk-return ladder, they fall between equity and debt funds. Balanced

funds are the ideal mutual funds vehicle for investors who prefer spreading their

risk across various instruments. Following are balanced funds classes:

i) Debt-oriented funds -Investment below 65% in equities.

ii) Equity-oriented funds -Invest at least 65% in equities, remaining in debt.

Debt fund: They invest only in debt instruments, and are a good option for

investors averse to idea of taking risk associated with equities. Therefore, they

invest exclusively in fixed-income instruments like bonds, debentures,

Government of India securities; and money market instruments such as

certificates of deposit (CD), commercial paper (CP) and call money. Put your

money into any of these debt funds depending on your investment horizon and

needs.

i) Liquid funds- These funds invest 100% in money market instruments, a large

portion being invested in call money market.

ii) Gilt funds ST- They invest 100% of their portfolio in government securities of

and T-bills.


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iii) Floating rate funds - Invest in short-term debt papers. Floaters invest in debt

instruments which have variable coupon rate.

iv) Arbitrage fund- They generate income through arbitrage opportunities due to

mis-pricing between cash market and derivatives market. Funds are allocated to

equities, derivatives and money markets. Higher proportion (around 75%) is put in

money markets, in the absence of arbitrage opportunities.

v) Gilt funds LT- They invest 100% of their portfolio in long-term government

securities.

vi) Income funds LT- Typically, such funds invest a major portion of the

portfolio in long-term debt papers.

vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an

exposure of 10%-30% to equities.

viii) FMPs- fixed monthly plans invest in debt papers whose maturity is in line

with that of the fund.

INVESTMENT STRATEGIES

1. Systematic Investment Plan: Under this a fixed sum is invested each month

on a fixed date of a month. Payment is made through post dated cheques or direct

debit facilities. The investor gets fewer units when the NAV is high and more

units when the NAV is low. This is called as the benefit of Rupee Cost Averaging

(RCA).

2. Systematic Transfer Plan: Under this an investor invest in debt oriented fund

and give instructions to transfer a fixed sum, at a fixed interval, to an equity

scheme of the same mutual fund.


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3. Systematic Withdrawal Plan: If someone wishes to withdraw from a mutual

fund then he can withdraw a fixed amount each month.

Working of a Mutual fund:

The entire mutual fund industry operates in a very organized way. The investors, known as unit

holders, handover, their savings to the AMCs under various schemes. The objective of the

investment should match with the objective of the fund to best suit the investors’ needs. The

AMCs further invest the funds into various securities according to the investment objective. The

return generated from the investments is passed on to the investors or reinvested as mentioned in

the offer document.


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Mutual Fund Companies in India The concept of mutual funds in India dates back to the year 1963. The era between 1963 and

1987 marked the existence of only one mutual fund company in India with Rs. 67bn assets under

management (AUM), by the end of its monopoly era, the Unit Trust of India (UTI). By the end

of the 80s decade, few other mutual fund companies in India took their position in mutual fund

market.

The new entries of mutual fund companies in India were SBI Mutual Fund, Canbank Mutual

Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual

Fund.

The succeeding decade showed a new horizon in Indian mutual fund industry. By the end of

1993, the total AUM of the industry was Rs. 470.04 bn. The private sector funds started

penetrating the fund families. In the same year the first Mutual Fund Regulations came into

existence with re-registering all mutual funds except UTI. The regulations were further given a

revised shape in 1996.

Kothari Pioneer was the first private sector mutual fund company in India which has now

merged with Franklin Templeton. Just after ten years with private sector players penetration, the

total assets rose up to Rs. 1218.05 bn. Today there are 33 mutual fund companies in India.


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Major Mutual Fund Companies in India ABN AMRO MUTUL FUND:-

ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee (India) Pvt.

Ltd. as the Trustee Company. The AMC, ABN AMRO Asset Management (India) Ltd. was

incorporated on November 4, 2003. Deutsche Bank A G is the custodian of ABN AMRO Mutual

Fund.

Birla Sun Life Mutual Fund:- Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life Financial.

Sun Life Financial is a global organisation evolved in 1871 and is being represented in Canada,

the US, the Philippines, Japan, Indonesia and Bermuda apart from India. Birla Sun Life Mutual

Fund follows a conservative long-term approach to investment. Recently it crossed AUM of Rs.

10,000 crores.

Bank of Baroda Mutual Fund (BOB Mutual Fund):- Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992 under the

sponsorship of Bank of Baroda. BOB Asset Management Company Limited is the AMC of BOB

Mutual Fund and was incorporated on November 5, 1992. Deutsche Bank AG is the custodian.

HDFC MUTUL FUND:-

HDFC Mutual Fund was setup on June 30, 2000 with two sponsors namely Housing

Development Finance Corporation Limited and Standard Life Investments Limited.

HSBC Mutual Fund:- HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital Markets


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(India) Private Limited as the sponsor. Board of Trustees, HSBC Mutual Fund acts as the Trustee

Company of HSBC Mutual Fund.

ING Vysya Mutual Fund:- ING Vysya Mutual Fund was setup on February 11, 1999 with the same named Trustee

Company. It is a joint venture of Vysya and ING. The AMC, ING Investment Management

(India) Pvt. Ltd. was incorporated on April 6, 1998.

Prudential ICICI Mutual Fund:- The mutual fund of ICICI is a joint venture with Prudential Plc. of America, one of the largest

life insurance companies in the USA. Prudential ICICI Mutual Fund was setup on 13th of

October, 1993 with two sponsors, Prudential Plc. and ICICI Ltd. The Trustee Company formed

is Prudential ICICI Trust Ltd. and the AMC is Prudential ICICI Asset Management Company

Limited incorporated on 22nd of June, 1993.

Sahara Mutual Fund:- Sahara Mutual Fund was set up on July 18, 1996 with Sahara India Financial Corporation Ltd. as

the sponsor. Sahara Asset Management Company Private Limited incorporated on August 31,

1995 works as the AMC of Sahara Mutual Fund. The paid-up capital of the AMC stands at Rs

25.8 crore.

State Bank of India Mutual Fund:- State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch offshore

fund, the India Magnum Fund with a corpus of Rs. 225 cr. approximately. Today it is the

largest Bank sponsored Mutual Fund in India. They have already launched 35 Schemes out of

which 15 have already yielded handsome returns to investors. State Bank of India Mutual Fund

has more than Rs. 5,500 Crores as AUM. Now it has an investor base of over 8 Lakhs spread

over 18 schemes.


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Tata Mutual Fund:- Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsors for Tata

Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The investment manager

is Tata Asset Management Limited and its Tata Trustee Company Pvt. Limited. Tata Asset

Management Limited's is one of the fastest in the country with more than Rs. 7,703 crores (as on

April 30, 2005) of AUM.

Kotak Mahindra Mutual Fund:- Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL. It is

presently having more than 1,99,818 investors in its various schemes. KMAMC started its

operations in December 1998. Kotak Mahindra Mutual Fund offers schemes catering to investors

with varying risk - return profiles. It was the first company to launch dedicated gilt scheme

investing only in government securities.

Unit Trust of India Mutual Fund:- UTI Asset Management Company Private Limited, established in Jan 14, 2003, manages the UTI

Mutual Fund with the support of UTI Trustee Company Private Limited. UTI Asset Management

Company presently manages a corpus of over Rs.20000 Crore. The sponsors of UTI Mutual

Fund are Bank of Baroda (BOB), Punjab National Bank (PNB), State Bank of India (SBI), and

Life Insurance Corporation of India (LIC). The schemes of UTI Mutual Fund are Liquid Funds,

Income Funds, Asset Management Funds, Index Funds, Equity Funds and Balance Funds.

Reliance Mutual Fund:- Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The

sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the

Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was changed

on March 11, 2004. Reliance Mutual Fund was formed for launching of various schemes under


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which units are issued to the Public with a view to contribute to the capital market and to provide

investors the opportunities to make investments in diversified securities.

Standard Chartered Mutual Fund:- Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by Standard

Chartered Bank. The Trustee is Standard Chartered Trustee Company Pvt. Ltd. Standard

Chartered Asset Management Company Pvt. Ltd. is the AMC which was incorporated with SEBI

on December 20,1999.

Franklin Templeton India Mutual Fund:- The group, Franklin Templeton Investments is a California (USA) based company with a global

AUM of US$ 409.2 bn. (as of April 30, 2005). It is one of the largest financial services groups in

the world. Investors can buy or sell the Mutual Fund through their financial advisor or through

mail or through their website. They have Open end Diversified Equity schemes, Open end Sector

Equity schemes, Open end Hybrid schemes, Open end Tax Saving schemes, Open end Income

and Liquid schemes, Closed end Income schemes and Open end Fund of Funds schemes to offer.

Morgan Stanley Mutual Fund India:- Morgan Stanley is a worldwide financial services company and its leading in the market in

securities, investment management and credit services. Morgan Stanley Investment Management

(MISM) was established in the year 1975. It provides customized asset management services and

products to governments, corporations, pension funds and non-profit organizations. Its services

are also extended to high net worth individuals and retail investors. In India it is known as

Morgan Stanley Investment Management Private Limited (MSIM India) and its AMC is Morgan

Stanley Mutual Fund (MSMF). This is the first close end diversified equity scheme serving the

needs of Indian retail investors focusing on a long-term capital appreciation.


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Escorts Mutual Fund:- Escorts Mutual Fund was setup on April 15, 1996 with Escorts Finance Limited as its sponsor.

The Trustee Company is Escorts Investment Trust Limited. Its AMC was incorporated on

December 1, 1995 with the name Escorts Asset Management Limited.

Alliance Capital Mutual Fund:- Alliance Capital Mutual Fund was setup on December 30, 1994 with Alliance Capital

Management Corp. of Delaware (USA) as sponsor. The Trustee is ACAM Trust Company Pvt.

Ltd. and AMC, the Alliance Capital Asset Management India (Pvt) Ltd. with the corporate office

in Mumbai.

Benchmark Mutual Fund:-

Benchmark Mutual Fund was setup on June 12, 2001 with Niche Financial Services Pvt. Ltd. as

the sponsor and Benchmark Trustee Company Pvt. Ltd. as the Trustee Company. Incorporated

on October 16, 2000 and headquartered in Mumbai, Benchmark Asset Management Company

Pvt. Ltd. is the AMC.

Canbank Mutual Fund:- Canbank Mutual Fund was setup on December 19, 1987 with Canara Bank acting as the sponsor.

Canbank Investment Management Services Ltd. incorporated on March 2, 1993 is the AMC. The

Corporate Office of the AMC is in Mumbai.

Chola Mutual Fu nd:- Chola Mutual Fund under the sponsorship of Cholamandalam Investment & Finance Company


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Ltd. was setup on January 3, 1997. Cholamandalam Trustee Co. Ltd. is the Trustee Company and

AMC is Cholamandalam AMC Limited.

LIC Mutual Fund:- Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. It contributed

Rs. 2 Crores towards the corpus of the Fund. LIC Mutual Fund was constituted as a Trust in

accordance with the provisions of the Indian Trust Act, 1882. . The Company started its business

on 29th April 1994. The Trustees of LIC Mutual Fund have appointed Jeevan Bima Sahayog

Asset Management Company Ltd as the Investment Managers for LIC Mutual Fund.

GIC Mutual Fund:- GIC Mutual Fund, sponsored by General Insurance Corporation of India (GIC), a Government of

India undertaking and the four Public Sector General Insurance Companies, viz. National

Insurance Co. Ltd (NIC), The New India Assurance Co. Ltd. (NIA), The Oriental Insurance Co.

Ltd (OIC) and United India Insurance Co. Ltd. (UII) and is constituted as a Trust in accordance

with the provisions of the Indian Trusts Act, 1882.


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MUTUAL FUNDS- DO’s and DONT’s

We all have come across ads which say that “Mutual Funds are subject to market risk, please read the offer document carefully before investing”. Likewise there are many dos and don’ts one has to keep in mind before getting into investing in mutual funds. The following points might help one to optimize his/her investment decision—

Assess yourself:

Self-assessment of one’s 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.

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.

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


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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.

Invest. Don’t 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 perfectly time the market so staying invested is the

best option unless there are compelling reasons to exit.

Don’t 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 one’s 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.

Be regular:

Investing should be a habit and not an exercise undertaken at one’s 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.


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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.

Find the right funds:

Finding funds that do not charge much 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.

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.

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.


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SEBI GUIDELINES FOR MUTUAL FUND

Mutual funds cannot invest more than 10 per cent of the total net assets of a scheme in the short-

term deposits of a single bank, the Securities and Exchange Board of India said on Monday.

Announcing guidelines for parking of funds in short-term deposits of scheduled commercial

banks (SCBs) by mutual funds, the regulator said that investment cap would also take into

account the deposit schemes of the bank's subsidiaries.

The SEBI has also defined 'short term' for funds' investment purposes as a period not exceeding

91 days.

Besides, the parking of funds in short-term deposits of all SCBs has been capped at 15 per cent

of the net asset value (NAV) of a scheme, which can be raised to 20 per cent with prior approval

of the trustees.

The parking of funds in short-term deposits of associate and sponsor SCBs together should not

exceed 20 per cent of total deployment by the MF in short-term deposits, it added.

The SEBI said that these guidelines are aimed at ensuring that funds collected in a scheme are

invested as per the investment objective stated in the offer document of an MF scheme.

The new guidelines would be applicable to all fresh investments whether in a new scheme or an

existing one. In cases of an existing scheme, where the scheme has already parked funds in short-

term deposits, the asset management company have been given three-months time to conform

with the new guidelines.

The SEBI has also asked the trustees of a fund to ensure that no funds are parked by a scheme in

short term deposit of a bank, which has invested in that particular scheme.

The SEBI guidelines say that asset management companies (AMCs) shall not be permitted to

charge any investment and advisory fees for parking of funds in short-term deposits of banks in

case of liquid and debt-oriented schemes.


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What are the new SEBI guidelines all about? Relevant extract of the SEBI circular released on June 30, 2009 (SEBI/IMD/CIR No. 4/168230/09) is as

follows:

'In order to empower the investors in deciding the commission paid to distributors in accordance with

the level of service received, to bring about more transparency in payment of commissions and to

incentivize long term investment, it has been decided that:

There shall be no entry load for all mutual fund schemes

The scheme application forms shall carry a suitable disclosure to the effect that the upfront

commission to distributors will be paid by the investor directly to the distributor, based on his

assessment of various factors including the service rendered by the distributor.

Of the exit load or CDSC charged to the investor, a maximum of 1% of the redemption

proceeds shall be maintained in a separate account which can be used by the AMC to pay

commissions to the distributor and to take care of other marketing and selling expenses. Any

balance shall be credited to the scheme immediately

The distributors should disclose all the commissions (in the form of trail commission or any

other mode) payable to them for the different competing schemes of various mutual funds from

amongst which the scheme is being recommended to the investor.

This circular shall be applicable for :

Investments in mutual fund schemes (including additional purchases and switch-in to a scheme

from other schemes) with effect from August 1, 2009

Redemptions from mutual fund schemes (including switch-out from other schemes) with effect

from August 1, 2009


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New mutual fund schemes launched on and after August 1, 2009; and Systematic Investment Plans

(SIPs) registered on or after August 1, 2009'

PERFORMANCE MEASURES OF MUTUAL FUNDS:

Mutual Fund industry today, with about 30 players and more than six hundred schemes, is one

of the most preferred investment avenues in India. However, with a plethora of schemes to

choose from, the retail investor faces problems in selecting funds. Factors such as investment

strategy and management style are qualitative, but the funds record is an important indicator

too.

Though past performance alone cannot be indicative of future performance, it is, frankly, the

only quantitative way to judge how good a fund is at present. Therefore, there is a need to

correctly assess the past performance of different Mutual Funds. Worldwide, good Mutual

Fund companies over are known by their AMC’s and this fame is directly linked to their

superior stock selection skills.

For Mutual Funds to grow, AMC’s must be held accountable for their selection of stocks. In

other words, there must be some performance indicator that will reveal the quality of stock

selection of various AMC’s.

Return alone should not be considered as the basis of measurement of the performance of a

Mutual Fund scheme, it should also include the risk taken by the fund manager because

different funds will have different levels of risk attached to them. Risk associated with a fund,

in a general, can be defined as Variability or fluctuations in the returns generated by it. The

higher the fluctuations in the returns of a fund during a given period, higher will be the risk

associated with it. These fluctuations in the returns generated by a fund are resultant of two

guiding forces. First, general market fluctuations, which affect all the securit ies, present in the

market, called Market risk or Systematic risk and second, fluctuations due to specific securities

present in the portfolio of the fund, called Unsystematic risk. The Total Risk of a given fund is

sum of these two and is measured in terms of standard deviation of returns of the fund.

Systematic risk, on the other hand, is measured in terms of Beta, which represents fluctuations

in the NAV of the fund vis-à-vis market. The more responsive the NAV of a Mutual Fund is to


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the changes in the market; higher will be its beta. Beta is calculated by relating the returns on a

Mutual Fund with the returns in the market. While Unsystematic risk can be diversified

through investments in a number of instruments, systematic risk cannot. By using the risk

return relationship, we try to assess the competitive strength of the Mutual Funds one another

in a better way. In order to determine the risk-adjusted returns of investment portfolios, several

eminent authors have worked since 1960s to develop composite performance indices to

evaluate a portfolio by comparing alternative portfolios within a particular risk class.

The most important and widely used measures of performance are:

The Treynor’Measure

The Sharpe Measure

Jenson Model

Fama Model

The Treynor Measure:-

Developed by Jack Treynor, this performance measure evaluates funds on the basis of

Treynor's Index. This Index is a ratio of return generated by the fund over and above risk

free rate of return (generally taken to be the return on securities backed by the

government, as there is no credit risk associated), during a given period and systematic

risk associated with it (beta). Symbolically, it can be represented as:

Treynor's Index (Ti) = (Ri - Rf)/Bi.

Where,

Ri represents return on fund,

Rf is risk free rate of return, and

Bi is beta of the fund.


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All risk-averse investors would like to maximize this value. While a high and positive

Treynor's Index shows a superior risk-adjusted performance of a fund, a low and

negative Treynor's Index is an indication of unfavorable performance.

The Sharpe Measure :-

In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is

a ratio of returns generated by the fund over and above risk free rate of return and the

total risk associated with it.

According to Sharpe, it is the total risk of the fund that the investors are concerned

about. So, the model evaluates funds on the basis of reward per unit of total risk.

Symbolically, it can be written as:

Sharpe Index (Si) = (Ri - Rf)/Si

Where,

Si is standard deviation of the fund,

Ri represents return on fund, and

Rf is risk free rate of return.

While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of

a fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.

Comparison of Sharpe and Treynor

Sharpe and Treynor measures are similar in a way, since they both divide the risk

premium by a numerical risk measure. The total risk is appropriate when we are


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evaluating the risk return relationship for well-diversified portfolios. On the other hand,

the systematic risk is the relevant measure of risk when we are evaluating less than

fully diversified portfolios or individual stocks. For a well-diversified portfolio the total

risk is equal to systematic risk. Rankings based on total risk (Sharpe measure) and

systematic risk (Treynor measure) should be identical for a well-diversified portfolio,

as the total risk is reduced to systematic risk. Therefore, a poorly diversified fund that

ranks higher on Treynor measure, compared with another fund that is highly

diversified, will rank lower on Sharpe Measure.

Jenson Model:-

Jenson's model proposes another risk adjusted performance measure. This measure was

developed by Michael Jenson and is sometimes referred to as the differential Return

Method. This measure involves evaluation of the returns that the fund has generated vs.

the returns actually expected out of the fund1 given the level of its systematic risk. The

surplus between the two returns is called Alpha, which measures the performance of a

fund compared with the actual returns over the period. Required return of a fund at a

given level of risk (Bi) can be calculated as:

Ri = Rf + Bi (Rm - Rf)

Where,

Ri represents return on fund, and

Rm is average market return during the given period,

Rf is risk free rate of return, and

Bi is Beta deviation of the fund.

After calculating it, Alpha can be obtained by subtracting required return from the

actual return of the fund. Higher alpha represents superior performance of the fund

and vice versa. Limitation of this model is that it considers only systematic risk not the


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entire risk associated with the fund and an ordinary investor cannot mitigate

unsystematic risk, as his knowledge of market is primitive.

Fama Model:-

The Eugene Fama model is an extension of Jenson model. This model compares the

performance, measured in terms of returns, of a fund with the required return

commensurate with the total risk associated with it. The difference between these two is

taken as a measure of the performance of the fund and is called Net Selectivity.

The Net Selectivity represents the stock selection skill of the fund manager, as it is the

excess returns over and above the return required to compensate for the total risk taken

by the fund manager. Higher value of which indicates that fund manager has earned

returns well above the return commensurate with the level of risk taken by him.

Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf)

Where,

Ri represents return on fund,

Sm is standard deviation of market returns,

Rm is average market return during the given period, and

Rf is risk free rate of return.

The Net Selectivity is then calculated by subtracting this required return from the actual

return of the fund.

Among the above performance measures, two models namely, Treynor measure and

Jenson model use Systematic risk is based on the premise that the Unsystematic risk is

diversifiable. These models are suitable for large investors like institutional investors with

high risk taking capacities as they do not face paucity of funds and can invest in a number


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of options to dilute some risks. For them, a portfolio can be spread across a number of

stocks and sectors. However, Sharpe measure and Fama model that consider the entire risk

associated with fund are suitable for small investors, as the ordinary investor lacks the

necessary skill and resources to diversify. Moreover, the selection of the fund on the basis

of superior stock selection ability of the fund manager will also help in safeguarding the

money invested to a great extent. The investment in funds that have generated big returns

at higher levels of risks leaves the money all the more prone to risks of all kinds that may

exceed the individual investors' risk appetite.


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STRUCTURE OF INDIAN MUTUAL FUNDS

Mutual fund industry is highly regulated by the government keeping in view of the protection of

investor’s interest as well as to maintain operational transparency.

In India SEBI Regulations Act, 1996, guides the formation and operation of Mutual Funds. A

Mutual Fund comprises of 4 separate entities.

1. Sponsor

2. Board of Trusties

3. Asset Management Company

4. Custodian and Depositories

5. Distributors

1. Sponsor:

“Sponsor” is defined under SEBI regulation as any person who, acting alone or in combination

with another body corporate, establishes a mutual fund. The sponsor gets the fund registered with

SEBI. The sponsors form a trust and appoint a Board of Trustees.

The sponsor must contribute at least 40% of the net worth of the AMC.

The sponsor must possess a sound financial track record over 5 years prior to registration.


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2. Board of Trustees:

Mutual funds are managed by Board of Trustees. Trust is created by a document called the Trust

Deed that is executed by fund sponsor in favour of trustees.

The trustees appoint the AMC and custodian with the prior approval of SEBI.

They also approve all the schemes floated by the AMC.

They have right to dismiss the AMC, with the approval of SEBI.

Half of the trustees should be independent persons. Neither the AMC, nor its employees

can act as trustee.

A trustee can not be appointed as a trustee of two or more mutual funds until and unless

he is an independent person or has permission from the Mutual Fund where he is trustee.

Trustees can be removed only by prior approval of SEBI.

3. Asset Management Company:

The role of an AMC is to act as the investment manager of the Trust under the Board supervision

and direction of the Trustees.

The AMC is required to be approved and registered with SEBI.

The AMC of a Mutual Fund must have a net worth of at least Rs. 10 crore at all time.

The AMC can not act as a trustee of any other Mutual Fund.

They will float schemes only after obtaining the prior approval of the Trustees and SEBI.

The director of AMC should be a person of reputed of high standing and at least have

five years experience in relevant field.

AMC can be terminated with 75% unit holders or majority of trustees.


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4. Custodian and Depositories:

As per SEBI Regulations Mutual Funds shall have a custodian who is not any way associated

with the AMC. It carry outs the activity of safe keeping the securities or participating, in any

clearing system. The custodian should be independent from sponsors and AMC and should have

a sound track record and adequate relevant experience.

As Indian capital markets are moving away from having physical certificates to ownership of

these securities in “dematerialized” form with Depository. Mutual Fund’s “dematerialized”

securities are hold by depository participant.

5. Distributors:

For a fund to sell units across a wide retail base of individual investors, an established network of

distribution agents is essential. AMCs usually appoint Distributors or Brokers, who sell units on

behalf of the fund. A broker usually acts on behalf of several mutual funds simultaneously and

may have several sub-brokers under him for the purpose of distribution of units.


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MUTUAL FUND – A GLOBALLY PROVEN INVESTMENT

Worldwide, the mutual fund has a long and successful history. The popularity of mutual fund has

increased manifold. In developed financial market, like US mutual funds have almost overtaken

bank deposits and total assets of over US $ 3 trillion.

In India, Mutual Fund industry started with the setting up of UTI in 1964. Public sector banks

and financial institution began to establish Mutual Funds in 1987. The private sector and foreign

institutions were allowed to set up Mutual Fund in 1993.


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MUTUAL FUND CYCLE

[Fig.9: Mutual Fund Cycle]

[Source: amfiindia.com]

From above cycle, it can be observed clearly that how the money from the investors flow and they get returns out of it. With a very small amount of fund, investors pool their money with fund managers. After studying the market, the fund manager invests money of the investors in various securities like shares, bonds, debentures, government securities etc. to achieve goal of the investors. With ups and downs in the market returns are generated and they are passed on to the investors in form of dividend or capital gain or lost. The above cycle is very clear and also very effective. The fund manager while investing on behalf of investors takes into consideration various factors like time, risk; amount etc. so that he/she can make proper investment decision.


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COMPETITORS DETAILS

1. Bajaj Capital

It was established in 1964 at Delhi. In 1965 it innovates a new financial instrument ‘Companies

Fixed Deposits’ and becomes the first company to raise Fixed Deposits. The objective of

company is to provide professional guidance to investors on where, when and how to invest and

to assist the corporate sector in its resource raising activities. Bajaj Capital became the first

company to set up ‘Investment Centers’ all over India for this purpose. Today, Bajaj Capital has

90 offices in over 40 important Indian Cities and has a team of around 500 employees

nationwide.

Services provided

Merchant banking

Buying and Selling of Money Market Investments

Distribution of financial products

Investment Advisory Service

» Company fixed deposits

» Bonds

» Mutual funds

» Life insurance

» General insurance

» Pension schemes

» Post office schemes

» Tax saving schemes


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» Insurance linked investment schemes

» Initial public offerings

» Housing loans

» NRI schemes

» Car insurance

» Financial Planning

» Investment planning

» Retirement planning

» Insurance planning

» Children's future planning

» Tax planning

» Short-term cash flow planning

2. MCS Ltd.

It is established in 1985 in Delhi. It is one of the largest Data Processing House employing more

than 600 people.

Volumes Handled

Share registry activities for over 100 corporate servicing over 10 million investors.

Mutual fund operations for 25 funds, servicing over 4.5 million investors.

Billing & settlement plan for Indian operations of IATA Geneva for 1.2 million tickets

per annum covering (26 airlines & over 1200 agents).

Services Offered:

Registrars and Transfer Agents

Registrars to IPO’s /Right Issues

Registrars to Open Offers

Registrars to Mutual Funds


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Data Processing for Airlines

Print Shop Services

MCS is a major player in these activities in the Country with a market share of about 25%. MCS

today provides these services to over 140 Corporate and Mutual Funds for a total investor base of

15 million.

3. N.J.India Investments Pvt. Ltd.

NJ India Invest (formerly known as NJ Capital stocks) was started in 1994 to cater to the

growing financial services sector. NJ India Invest evolved out as a client focused need based

investment advisory firm. NJ regards mutual fund as one of the best investment avenue available

to satisfy any kind of investment need.

4. ICICI Securities Ltd.

ICICI Securities Limited (i-SEC) is a wholly owned investment-banking subsidiary of ICICI

Limited. ICICI is the only non-Japanese Asian financial institution to be listed on the New York

Stock Exchange (NYSE). ICICI Securities was formed on 22nd Feb. 1993, when ICICI's

Merchant Banking Division was spun off into a new company, ICICI Securities today is India's

leading Investment Bank and one of the most significant players in the Indian capital markets.

ICICI Brokerage Services Limited (IBSL) set up in March 1995, IBSL is a 100% subsidiary of i-

SEC. It commenced its securities brokerage activities in February 1996 and is registered with the

National Stock Exchange of India Limited and The Stock Exchange, Mumbai.

ICICI has started a website ICICIdirect.com which is the most comprehensive website, which

allows you to invest in Shares, Mutual funds, Derivatives (Futures and Options) and other

financial products.

ICICI has a large network of branches all over India. Services offered:


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Merchant Banking

Demat Service

Stock Broking

5. HDFC

HDFC is the leading financial company in India. IT has large network of branches all over India.

HDFC Securities which is fully subsidiary of HDFC provides demat service.

HDFC and its subsidiary provides following services.

Demat Service

Life Insurance

Banking Service

Housing Finance

Vehicle Finance

Education Loan

Personal Loan

Mutual Fund

6. Kotak Securities Ltd.

Kotak Securities needs no introduction as one of the largest stock broking houses in the country

and a leading distributor of primary market offerings. Kotak Securities limited is a joint venture

between Kotak Mahindra Bank and Goldman Sachs, the international investment banking and

brokerage firm.


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Kotak Securities is a corporate member of both the BSE and the NSE. It is also a depository

participant with the National Securities Depository Limited (NSDL) for trading and settlement of

dematerialized shares.

Services offered:

Stock Broking

Financial Product Distribution

Demat Services

Investment Advisory Services

7. Motilal Oswal Securities Ltd.

Motilal Oswal Securities Ltd (MOSt) is one of the leading equity research and broking houses of

India. MOSt has a 20-member research team, which is engaged round the clock in analyzing the

Indian economy and corporate sectors to identify equity investment ideas. Asia Money Broker's

Poll 2002 has rated MOSt as one of the best Indian broking house, for research, for the second

time since 2000.

Motilal Oswal is member of NSDL and CDSIL for DP. It has wide network of branches. It has

158 branches all over India.

Services Offered:

Demat Services

Stock Broking

Investment Advisory Service


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RESEARCH METHODOLOGY


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RESEARCH METHODOLOGY Sources To know how a company is performing and whether they have any cutting edge advantage over

competitors, an intensive study of the market is absolutely necessary.

In order to understand the performance of different companies in the market, we did two types of

surveys, primary survey and secondary survey.

Primary survey

Primary survey included:-

Visiting websites and fixing appointments with their agents.

Creation of database of prospective clients from different sources calling them up to fix

appointment and then visiting them.

Prepare a questionnaire for the market survey.

Meeting different people to know their views, perception and preference of different

mutual funds.

Secondary survey

Secondary survey included of consulting books, magazines, journals, internet and also taking

reference from:-

Library.

Internet

Karvy the fin polis


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RESEARCH OBJECTIVES

Any activity done without an objective in a mind cannot turn fruitful. An objective provides a

specific direction to an activity. Objectives may range from very general to very specific, but

they should be clear enough to point out with reasonable accuracy what researcher wants to

achieve through the study and how it will be helpful to the decision maker in solving the

problem.

The objective of any research is basically divided into two categories.

Primary Objective:

To find out market potential of Karvy Investor Service Ltd.

Secondary Objectives:

Following are secondary objectives.

To assess an awareness of mutual funds in Aligarh.

To find out level of awareness of mutual funds in Aligarh.

To find out how many investment advisors are interested in dealing of mutual fund.

To find out how many investment advisors are willing to work with Karvy.


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1. Research Design: A research design is a pattern or an outline of a research project’s working. It is a statement of

only the essential elements of a study, those that provide the basic guidelines for the details of

the project. It comprises a series of prior decision that taken together provide master plans for

executing a research projects.

A research design serves as a bridge between what has been established i.e., the research

objectives and what is to be done, in conduct of the study to relish those objectives. If there were

no research design, the research would have only foggy notions as about what is to be done.

I have used ‘Cross-Sectional Design’ of ‘Exploratory Type’. The research is of both

qualitative as well as quantitative type.

2. Unit of Analysis: Mutual Fund Advisors. Characteristics of interest:

Advisor’s knowledge about Mutual Fund

Advisor’s knowledge about Karvy

Advisor’s interest in getting knowledge of Mutual Fund

Advisor’s willingness to deal in Mutual Fund with Karvy

Advisor’s preference in selecting tax saving instrument of investment

Advisor’s preference in selecting dealer


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3. Sources of Data: a. Primary Source: The primary data is collected using sampling method and by survey using questionnaire. b. Secondary Source: Secondary data includes information regarding present market scenario, Information regarding

Mutual Funds and competitors are collected by Internet, Magazines and News papers and books.

4. Sample Planning: Sample Size: 100 units

Sample Extent: Aligarh

Sampling Design: A Sample Design is a definite plan for obtaining a sample from a given population. It refers to

the technique or method the researcher would adopt in selecting items for the sample.

I have used both ‘Convenience Sampling Method’ and ‘Snow Ball Sampling Method’.

5. Data Collection Method: I have used ‘Survey Method’ to collect data. I have collected data using questionnaire. Questionnaire Plan

I have used ‘Structured Questionnaire’ for gathering the required data through contacting

respondent personally.


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Type of Information:

I have collected Fact, Awareness, Attitude, Future action plan and reason using questionnaire.

Type of Questions: ‘Close-ended questions’ of ‘Dichotomous’ and ‘Multiple Choice’ type are asked in the

questionnaire for data collection.

6. Data Analysis & Interpretation:

Data Analysis is based on the data collected by way of Questionnaires. From the collected data

findings are extracted. The data is tabulated and frequency distribution chart is prepared.


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LIMITATIONS OF THE STUDY

1. Useful Financial insights are not easily available.

2. Due to time constraint sufficient research on all the investment tools is difficult.

3. The survey sample is not very large for analysis.

4. Properly convincing people to invest in mutual funds is challenging.

5. Due to recession there is liquidity crunch in the market.

6. There might have been tendencies among the respondents to amplify or filter their

responses under the testing conditions.

7. The research is confined to Aligarh and does not necessarily shows a pattern applicable to

other parts of the country.


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RESEARCH ANALYSIS AND INTERPRETATION

1. (a) Age distribution of the Investors of Aligarh

Interpretation:

According to this chart Mutual Fund investors of Aligarh the most are in the age group

of 36-40 yrs. i.e. 25%, the second most investors are in the age group of 41-45yrs i.e.

20% and the least investors are in the age group of below 30 yr.

12 14

2520 18

11

0

5

10

15

20

25

30

<=30 31-35 36-40 41-45 46-50 >50

Inve

stor

s in

vest

ed in

Mut

ual

Fund

Age group of the Investors


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(b). Educational Qualification of investors of Aligarh

Interpretation: Out of 120 Mutual Fund investors 71% of the investors in Aligarh are

Graduate/Post Graduate, 23% are Under Graduate and 6% are others.

2. - Investor invested in different kind of investment

Interpretation: From the above graph it can be inferred that, 97.5% people have

invested in Saving A/c, 76% in Insurance, 74% in Fixed Deposits, 60% in Mutual Fund,

71%

23%

6%

Graduate/Post Graduate Under Graduate Others

Saving A/c

Fixed Deposits

InsuranceMutual Fund

Post Office(NSC)

Shares/Debentures

Gold/SilverReal Estate


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37.5% in Post Office, 25% in Shares or Debentures, 15% in Gold/Silver(MCX) and 32.5%

in Real Estate.

3. - Preference of factors while investing

Interpretation:

32% People prefer to invest where there is High Return, 30% prefer to invest where

there is Low Risk, 20% prefer easy Liquidity and 18% prefer Trust.

20%

30%32%

18%

Liquidity Low Risk High Return Trust


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4. - Awareness about Mutual Fund and its Operations

Interpretation:

From the above chart it is inferred that 67% People are aware of Mutual Fund and its

operations and 33% are not aware of Mutual Fund and its operations.

5. - Investors invested in Mutual Fund

67%

33%

Yes No

Yes60%

No40%


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Interpretation: 60% have invested in Mutual Fund and 40% do not have invested in

Mutual Fund.

6. - Reason for not invested in Mutual Fund

Interpretation: who have not invested in Mutual Fund, 81% are not aware of

Mutual Fund, 13% said there is likely to be higher risk and 6% do not have any specific

reason.

81%

13% 6%

Not Aware Higher Risk Not Any


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7. - Investors invested in different Assets Management Co. (AMC)

Interpretation:

In Aligarh most of the Investors preferred UTI and Reliance Mutual Fund. 62.5%

investors have invested in each of them, only 46% have invested in Karvy, 47% in ICICI

Prudential, 37.5% in Kotak and 25% in HDFC.

75

75

56

55

45

30

70

0 20 40 60 80

UTI

Reliance

ICICI

karvy

Kotak

HDFC

Others

No. of Investors

Nam

e of

AM

C


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8. - Preference of Investors for future investment in M.F.

Interpretation: 68% prefer to invest in Reliance, 67% in ICICI Prudential, 63% in

SBIMF, 62.5% in Others, 50% in Kotak, 37.5% in UTI and 29% in HDFC Mutual Fund.

0 20 40 60 80 100

SBIMF

UTI

HDFC

Reliance

ICICI Prudential

Kotak

Others

76

45

35

82

80

60

75

No. of Investors

Nam

e of

AM

C


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9. - Mode of Investment Preferred by the Investors

Interpretation:

65% preferred One time Investment and 35 % Preferred through Systematic Investment

Plan.

65%

35%

One time Investment SIP


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FINDINGS

In Aligarh in the Age Group of 36-40 years were more in

numbers. The second most Investors were in the age group of

41-45 years and the least were in the age group of below 30

years.

In Aligarh most of the Investors were Graduate or Post Graduate

and below HSC there were very few in numbers.

About all the Respondents had a Saving A/c in Bank, 76%

Invested in Fixed Deposits, Only 60% Respondents invested in

Mutual fund.

Mostly Respondents preferred High Return while investment,

the second most preferred Low Risk then liquidity and the least

preferred Trust

Most of the Investors had invested in Reliance or UTI Mutual

Fund, ICICI Prudential has also good Brand Position among


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investors, SBIMF places after ICICI Prudential according to the

Respondents.


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CONCLUSIONS

Mutual Fund Advisors give emphasis on mutual funds than other investment options.

Mutual Funds have given a new direction to the flow of personal saving and enable small and

medium investors in remote rural and semi urban areas to reap the benefits of the stock market

investment. Indian Mutual Funds are thus playing a very important developmental role in

allocation of scares resources in the emerging economy.

Karvy is not able to provide sufficient services to the investors due to unawareness among

advisors regarding services.

The awareness level of investor is low in advisors are interested in dealing in mutual fund.

Very less advisors know about services provided by Karvy.


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RECOMMENDATIONS

There is high potential market for Mutual Fund Advisors in Aligarh, but this market

needs to be explored as investors are still hesitated to invest their money in Mutual

Funds.

In Aligarh investors have inadequate knowledge about Mutual Funds, So proper

Marketing of various schemes is required, company should arranges more and more

seminars on Mutual Funds.

Awareness of MF services provided by Karvy is also very low so company needs proper

marketing of their all services by advertising, distribution of pamphlet, arranging

seminars etc.

Most of advisors are not interested in dealing of Mutual Funds because they don’t want to

expand their services due to lack of time, so company should provide them knowledge

about single window services by which investor can get all financial services from one

place.

Company should also provide knowledge about the growth rate and the expected growth

rate of Mutual Fund industry in India.

Most of people aware of life insurance, NSC and PPF for tax saving so, company should

market various tax saving schemes of Mutual Funds and their benefits.


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The interface among the investors and the Mutual Fund Companies is the agents, so the

agents should have proper knowledge about Mutual Funds as well as market so that they

can help investors in their investment decisions. The quality of agents performance and

investors trust on them can be improved only if they are permanent in nature.


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ANNEXURE

QUESTIONNAIRE We assure you that all the information that will be collected from you will remain fully confidential and it is used for study purpose only. 1. Personal Details:

(a). Name:-

(b). Add: - Phone:-

(c). Age:-

(d). Qualification:-

Graduation/PG Under Graduate Others


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2. What kind of investments you have made so far? Pl tick (√). All applicable.

a. Saving account b. Fixed deposits c. Insurance d. Mutual Fund

e. Post Office-NSC,

etc

f.

Shares/Debentures

g. Gold/ Silver h. Real Estate

3. While investing your money, which factor will you prefer?

.

(a) Liquidity (b) Low Risk (c) High Return (d) Trust

4. Are you aware about Mutual Funds and their operations? Pl tick (√). Yes No

5. If yes, in which Mutual Fund you have invested? Pl. tick (√). All applicable.

a. SBIMF b. UTI c.

HDFC

d. Reliance e. Kotak f. Other. specify


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6. When you plan to invest your money in asset management co. which AMC will you prefer?

Assets Management Co.

a. SBIMF

b. UTI

c. Reliance

d. HDFC

e. Kotak

f. ICICI

7. When you invest in Mutual Funds which mode of investment will you prefer? Pl. tick (√).

a. One Time Investment b. Systematic Investment Plan (SIP)

8. Do you know about MF services provided by Karvy’s Aligarh Branch?

Yes

No

9. In future will you attend seminar arranged by Karvy to guide investors about MF?


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Yes

No

If No Why?

10. Will you like to work with Karvy Securities Ltd for dealing in mutual fund? Yes

No

If No Why?


ADITYA SHARMA

GLOSSARY

Corporate advisory services

Merchant bankers offer customised solutions to solve the financial problems of their

clients. Merchant bankers study the working capital practices that exist within the

company and suggest alternative policies. They also advise the company on rehabilitation

and turnaround strategies, which would help companies to recover from their current

position. They also provide advice on appropriate risk management strategies.

Loan syndication

Arrangement of loans for clients, by analysing their cash flow pattern, so that the terms of

borrowing meet the client’s cash requirements and offer assistance in loan documentation

procedures.

Portfolio

Total number of all holdings held by a company is called portfolio. The portfolio mix is

aimed at spreading the risk over different sectors. It consists of all assets of company.

NAV

Net Asset Value is the current market worth of the mutual fund shares. It is calculated

daily by taking the funds total asset securities, cash and any accrued earning deducting

liabilities, and dividing the reminder by the number of shares outstanding.


ADITYA SHARMA

Depository

The principal function of a depository is to dematerialize securities and enable their

transactions in book-entry form. A depository established under the Depositories Act can

provide any service connected with recording of allotment of securities or transfer of

ownership of securities in the record of a depository.

Capital gain

The profit made from selling shares, mutual funds etc.

IPO

Abbreviation for initial public offering. Generally associated with admission to listing of

the share capital on the stock exchange.


ADITYA SHARMA

BIBLIOGRAPHY

www.lic.co.in

www.wikipedia.com

www.tata-aig-life.com

www.birlasunlife.com

www.irdaindia.org

www.google.com

www.karvy.com

www.sebi.gov.in

Journals, books & other references:

Karvy – the fin polis

The Economic Times

Research methodology (C.R. Kothari)

summer internship project on sip & mutual fund

Documents