Mutual Fund Project Report

TO STUDY THE OUTLOOK OF CUSTOMERS TOWARDS INVESTMENT WITH SPECIAL REFERENCE TO MUTUAL FUNDS IN BHOPAL CITY AT KARVY STOCK BROKING LIMITED Submitted by Suchita Khushalani (MBA F.T. Course Semester III) BATCH: -2016-2018

Submitted in Partial Fulfillment of the requirements of Oriental College of Management for the Award of the degree in Master of Business Administration

ORIENTAL COLLEGE OF MANAGEMENT BARKATULLAH VISHWAVIDYALAYA YEAR 2017

ACKNOWLEDGEMENT

As everyone who has helped in a project work, it is quite impossible to acknowledge every individual by name who has played some part in this work. I feel difficult to express in words my profound sense of gratitude to most respected persons who helped me to make this work possible. This project report is a sincere attempt to carefully and systematically gather facts about “Karvy Stock Broking Limited” as part of course curriculum of Master of Business Administration (MBA). I acknowledge my gratitude to respected Executive Director Sir Dr. P.K Chopra has been kind enough to suggest improvement of this work and make it broad based. I would like to express my sincere regards and thanks to Director Madam Dr. Shikha Bhargava, my project supervisor Prof. Amit Khare and entire faculty members for their guide and support. I would like to thank everyone who contributed to this project. Especially my mentor Mr. Vaibhav Gupta who helped me to understand market situation during the internship program. Finally, of course, great debts are owed to all my friends and family whose whole hearted support has given me the inspiration and dedication to complete this work.

Sincerely,

SUCHITA KHUSHALANI Place: Bhopal Date:

DECLARATION FOR PROJECT REPORT

I do hereby solemnly declare that the work presented in this Project Report entitled “To Study The Outlook Of Customers Towards Investment With Special Reference To Mutual Funds In Bhopal City” is a bona fide work done by me and has not been previously submitted to any other University, College, and Organization for any academic Qualification, Certificate and Bachelor of Management Studies Degree. I hereby warrant that the work I have presented do not breach any existing copyright acts. The work confirms to the guidelines for presentation and style set out in the relevant documentation.

Date: Signature: (Name: Suchita Khushalani) MBA FULL TIME III Semester MBA –Specialization in Finance, HR Oriental College of Management

S. No.

Particulars

Page No.

1

Introduction of the project

1-3

1.1

Objectives of the study

4

1.2

Research Methodology

5

1.3

Sampling Method

6

1.4

Scope of the study

7

1.5

Limitations

7

2

Introduction of the company

8-26

3

Mutual Fund Overview

27-56

4

Data Analysis and Interpretation

57-72

6

Learnings

73-76

7

References and Appendix

77-82

1 INTRODUCTION OF THE PROJECT  Introduction  Project Report Objectives  Research Methodology  Sampling method  Scope Of The Study  Time Frame  Geographical Area  Limitations

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1 1.1 Introduction A mutual fund is a scheme in which several people invest their money for a common financial cause. The collected money invests in the capital market and the money, which they earned, is divided based on the number of units, which they hold. The mutual fund industry started in India in a small way with the UTI Act creating what was effectively a small savings division within the RBI. Over a period of 25 years this grew fairly successfully and gave investors a good return, and therefore in 1989, as the next logical step, public sector banks and financial institutions were allowed to float mutual funds and their success emboldened the government to allow the private sector to foray into this area. The advantages of mutual fund are professional management, diversification, economies of scale, simplicity, and liquidity. The disadvantages of mutual fund are high costs, over-diversification, possible tax consequences, and the inability of management to guarantee a superior return. The biggest problems with mutual funds are their costs and fees it include Purchase fee, Redemption fee, Exchange fee, Management fee, Account fee & Transaction Costs. There are some loads which add to the cost of mutual fund. Load is a type of commission depending on the type of funds. Mutual funds are easy to buy and sell. You can either buy them directly from the fund company or through a third party. Before investing in any funds one should consider some factor like objective, risk, Fund Manager’s and scheme track record, Cost factor etc. There are many, many types of mutual funds. You can classify funds based Structure (openended & close-ended), Nature (equity, debt, balanced), Investment objective (growth, income, money market) etc. The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks and smaller private sector players.

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Reliance Mutual Fund, UTI Mutual Fund, ICICI Prudential Mutual Fund, HDFC Mutual Fund and Birla Sun Life Mutual Fund are the top five mutual fund company in India. Reliance mutual funding is considered to be most reliable mutual funds in India. People want to invest in this institution because they know that this institution will never dissatisfy them at any cost. You should always keep this into your mind that if particular mutual funding scheme is on larger scale then next time, you might not get the same results so being a careful investor you should take your major step diligently otherwise you will be unable to obtain the high returns.

Share market plays a very vital role in growing one country’s economy. It provides a means for the investors to extract the best from their idle money kept with them which in turn is used by the corporate in productive activity. Mutual Fund is the safest to invest the money in share market as it carries less risk and has promising returns. Thus keeping the above thing in mind, this report has been prepared to understand the mindset of the investors towards mutual fund and this project will also entail the ways through which the investment in mutual funds can be increased so as to further help in growth of the country’s economy.

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1.2 Project Objectives: The objective of the study is to ascertain people mind set for the investment, their understanding and involvement in investment opportunities to make use of their idle money kept in their banks. To gain an overview of the current performance trends of the Indian mutual fund industry and investors’ preference, the present thesis is intended to evaluate the performance of mutual funds and its impact of diversification of portfolio on risk and risk potential of mutual funds, in particular. It is felt necessary to understand the preferences of mutual funds with respect to the risk tolerance, return expectation, tenure of investment and investment influencing factors etc. in relation to age, qualification, gender, marital status, occupation and income levels. The objectives of the study are:

1. To present the trends in the growth of Indian mutual funds. 2. To find the relationship of age, qualification, gender, occupation and income with the preferences of mutual funds. 3. To study the customer investment portfolio about mutual fund. 4. To suggest suitable measures for strengthening investment in mutual funds in India. 5. To discover the relationship between the risk and investment activities of the investor.

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1.3 Research Methodology

This report is based on primary as well as secondary data, however primary data collection was given more important since it is overhearing factor in attitude studies. One of the most important users of Research Methodology is that it helps in identifying the problem, collecting, analyzing the required information or data and providing an alternative solution to the problem. It also helps in collecting the vital information that is required by the Top Management to assist them for the better decision making both day to day decisions and critical ones. a) Research Design: The research is descriptive in nature. The data has been collected through structured questionnaire and conclusion has been drawn solely for the understanding of the researcher. The data used for the purpose of drawing is primary and secondary data. b) Data Collection Method: The data collection method used was structured questionnaire and personal interviews. b.1) Primary Data: 

Questionnaire

b.2) Secondary Data 

Newspapers/ journals



Websites



Mutual Funds Brochures

c) Sample Area: Bhopal

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1.4 Sampling Method: The sample was collected through convenient sampling. The sample includes the customers of Karvy Stock Broking Limited and is the investors in share market. a) Sample Size: 50 respondents b) Sampling Unit: Businessmen, Government Servant, Retired Individuals c) Data Source: Primary data and Secondary data d) Data Collection: The data was collected through personal interview/structured questionnaire. e) Data interpretation: For case of understanding and making meaningful inferences, the data has been compiled in tables/graphs/diagrams. f) Duration Of The Study: The study was carried out for a period of 45 days, from 2th May 2017 To.15thJune 2017 g) Tools and Techniques: For the purpose of hypothesis testing, Chi Square test is used and percentage and average has been calculated wherever necessary.

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1.5 Scope of the Study Karvy Stock Broking Limited is one of the top stock brokers in India. The report covers the understanding of the stock market by common individuals and their attitude towards mutual fund investment, their mind set towards the industry and their involvement in this economic process to make use of their redundant money. In India mutual fund industry is growing at a rapid speed after liberalization of policy of the government. There are total 46 mutual fund houses in India out of which 38 are private sector AMCs and the remaining are public sector and UTI AMCs. The private sector mutual funds are Indian, Foreign, Joint venture predominantly Indian and Joint venture predominantly Foreign. Hence, the public sector sponsored mutual funds along with UTI is facing severe competition. Banking companies and Insurance companies also entered into mutual funds industry which is another reason for severity of competition. As the private sector mutual funds are offering a wide array of schemes with different structures and objectives, the risk and returns vary. There is a wide scope to evaluate the performance of mutual funds in various dimensions like risk-return, risk adjusted return and return from alternative investments.

1.7 Time Frame: The total time frame for the project period was 6 weeks i.e. 45 days (from 02-05-2017 to 1506-2017)

1.8 Geographical Area:

The study area is confined within the boundaries of city of Bhopal.

1.9 Limitations: The study includes the following limitations: 1. All the possible efforts have been taken to reduce/avoid the biasness by the respondents, but it may still include some. 2. Time frame is limited for making meaningful inferences. 3. Respondents were selected based on convenience sampling, hence the drawbacks attached to the convenience sampling shall accrue to the report. 4. The interpretations are solely based on researcher understanding 5. Geographical area is confined to Bhopal, therefore the findings/ suggestions should not be generalised. 7

2 INTRODUCTION OF THE COMPANY  Company Overview  Karvy Story  Karvy Group Companies  Awards and Accolades  Promoters and Management Team

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2 2.1 Company Overview

Karvy Group The Karvy Group is a premier integrated financial services provider, ranked among the top-5 in the country across its business segments. The Group services over 70 million individual investors in various capacities, and provides investor services to over 600 corporate houses. Karvy Group established its presence through a wide network of over 450 branches, (or 900 offices) covering in excess of 400 cities and towns. Karvy covers the entire spectrum of financial services, viz stock broking, depository participant, distribution of financial products (including mutual funds, bonds and fixed deposits), commodities broking, personal finance advisory services, merchant banking & corporate finance, wealth management, NBFC, among others. The Group is professionally managed and ranks among the best in technology, operations and research across the financial industry. The Karvy Group has evolved over the last three decades and today it assumes many avatars. Broadly the group pursues two lines of businesses and can be represented as follows:

Financial Services 

Equity Broking



Depository Participant



Wealth Management



Commodities Broking



Currency Derivatives



Non-banking Financial Services



Distribution of Financial Products



Realty

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

Registry services for Corporate and Mutual funds



Investment Banking



Insurance Repository



The Finapolis



Forex & Currencies Non-Financial Services



Data Management Services



International BPO



Alternate Energy



Data Analytics



Market Research

2.2 Karvy Story One fateful evening in the summer of 1982, 5 young men who worked for a renowned chartered accountancy firm decided that it was time they struck out on their own to create an enterprise that would someday become an iconic name in the financial services space. They came from ordinary middle class backgrounds. They had two assets; one was their education and the other an unquenchable desire to succeed. They had a lot stacked against them: the environment was not conducive to entrepreneurship; technology was not fully supportive, financial markets were largely unregulated, they were based out of Hyderabad while most key players in the financial world were in Mumbai or other metros and the wolf was at the door. The odds seemed insurmountable. These remarkable young men’s “Never say die” approach held them in good stead over the years. They stuck to their dreams, burnt the midnight oil, embraced technology and made it work for them and through sheer dint of determination, eventually overcame all obstacles. First came the registry business, followed by broking, and the rest became a lesson for every young individual to emulate.

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The Karvy Group is today a well diversified conglomerate. Its businesses straddle the entire financial services spectrum as well as data processing and managing segments. Since most of its financial services were retail focused, the need to build scale and skill in the transaction processing domain became imperative. Also during stressed environment in the financial services segment, the non financial businesses bring in a lot of stability to the group’s businesses. Karvy’s financial services business is ranked among the top-5 in the country across its business segments. The Group services over 70 million individual investors in various capacities, and provides investor services to over 600 corporate houses, comprising the best of Corporate India. The Group offers stock broking, depository participant, distribution of financial products (including mutual funds, bonds and fixed deposits), commodities broking, personal finance advisory services, merchant banking & corporate finance, wealth management, NBFC (loans to individuals, micro and small businesses), Data management, Forex & currencies, Registrar & Transfer agents, Data Analytics, Market Research among others. Karvy prides itself on remaining customer centric as all times through a combination of leading edge technology, Professional management and a wide network of offices across India. Karvy is committed to its quest as an Equal Opportunity Employer and believes in the rights for differently-abled persons. We have over 12% employees who are challenged in some form in one of our prominent businesses. Karvy’s business entities address a heterogeneous swathe of population from the super rich, to the nouveau riche, the ubiquitous middle class, the lower classes (the SEC E3 according to the new Social Economic Classification), urban and the rural folks. All of whom either make a living through large business (corporate world), SMEs, professional services, traders, farmers, labour, blue and white collar jobs and the government. Another key feature of Karvy has been its ability to offer leading edge advice based on incisive ideas that are strongly rooted in high quality research on every conceivable aspect of investments be it equities, forex, commodities, bonds, fixed returns, debt instruments or any other investment grade asset class. The customer has always been at the centre of every Karvy initiative. 11

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2.3 Karvy Companies

Karvy Stock Broking LTD Equity Broking, Depository Participant, Distribution of Financial Products (Mutual Funds, FD and Bonds), Wealth Management Services, Currency Derivatives, Portfolio Management Services Karvy Comtrade LTD Commodities Broking Karvy Capital LTD (Formerly Karvy Capital Private LTD) NBFC & Portfolio Manager Karvy Investment Advisory Services LTD (Formerly known as Karvy Insurance Broking LTD) Investment Advisory Services Karvy Holdings LTD Core Investment Company Karvy Middle East LLC Wealth Management Products for NRI’s Karvy Realty (India) LTD Realty Services Karvy Financial Services LTD Non Banking Financial Services Karvy Insurance Repository LTD Insurance Repository services Karvy Forex & Currencies Private LTD Currency and forex services Karvy Consultants LTD Consultancy and Advisory Services, Publications

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Karvy Computershare Private LTD Registrar and Share Transfer agent Karvy Computershare W.L.L (Formerly known as Fakhro Karvy Computershare W.L.L) Agent for Custody & Registration of Securities, Registered Administrator Karvy Data Management Services LTD Data Management Services Karvy Investor Services LTD Merchant Banking and Corporate Finance Karvy Insights LTD Market Research Karvy Analytics LTD Analytics Karvy Solar Power LTD Power Generation Karvy Global Services LTD Business Process Outsourcing Karvy Global Services Inc, USA Business Process Outsourcing Karvy Inc, USA Institutional Broking

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2.4 Awards & Accolades

Karvy Comtrade Limited received “Market Excellence Award, Commodities – Metal” in Zee Market Excellence Awards 2016 held at the Taj Mahal Palace Hotel, Mumbai on 6th August. The Hon’ble Union Minister for Power, Renewable Energy and Mining, Mr. Piyush Goyal handed over the prestigious award to KCTL representative.

Mr. Rajat Parthasarathy, Director, Karvy Group and Mr. Rajiv Ranjan Singh, Vice-President & Business Head – Stock Broking receiving awards from India’s premier stock exchange BSE – the SKOCH – BSE Order of Merit award and the SKOCH – BSE Aspiring Nation award – in recognition of its efforts to educate, empower and help create an enlightened corps of financial market investors.

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Mr. Sudhendoo Gandhi, GM, KSBL, receiving the “NSDL Star Performer Award 2014” for Highest Asset Value

Mr. Sushil Sinha, Business Head, KCTL & Mr. Suresh Raval, General Manager, KCTL receiving the ‘Broker with Best Corporate Desk for Commodity Broking’ award from Hon’ble Finance Minister then – Sri Pranab Mukerjee at the Bloomberg UTV Financial Leadership Awards 2011

Mr. C Parthasarathy, Chairman, Karvy Group, receiving the ‘Largest E-Broking House in India’ award at the Dun & Bradstreet – BSE Equity Broking Awards 2010

Karvy Stock Broking Limited 2014 Won the prestigious “NSDL Star Performer Award 2014 for Highest Asset Value”. Organized by the National Securities Depository, the NSDL Star Performers Awards recognize the best performers in the securities and depositories space. The award ceremony was organized on Saturday, December 20, 2014, at Taj Coromadel, Chennai. Karvy has won this award consecutively for last two years.

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2010 “Largest E-Broking House in India” at BSE Equity Broking Awards 2010 by Dun & Bradstreet held in ITC Grand Maratha, Mumbai. This award is based on the study carried out by the world’s leading provider of business information, knowledge and insight, Dun & Bradstreet in association with the oldest stock exchange in India, the Bombay Stock Exchange. The BSE-D&B Equity Broking Awards recognizes the brokerage firms based on the number of online accounts, volume of online trade, and service delivery of their online trading platform. Karvy Stock Broking Limited has won this prestigious award for its state of the art, in-house developed KarvyOnline, a comprehensive online investment platform that enables investors to invest, anytime from anywhere.

2007 Bagged ace award by receiving the coveted Annual Award for 2006 for “Best CEO, Initiating HR Practices”, by, the Uttar Pradesh Chapter of National Institute of Personnel Management (NIPM). The Award has been conferred to Mr. C Parthasarathy, CMD, Karvy Group, for his contribution to HR practices in Lucknow, organized by UP chapter of NIPM.

2007 “Amity Corporate Excellence” award at the 9th International Business Summit and Research Conference-INBUSH (International Business Horizon) which was held at a glittering function in Noida. This award was conferred by Amity International Business School, Noida.

2006 ISTD – “Vivekananda National Award” for Excellence in HRD & Training

2004 “Best Depository Participant in the country” award

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Karvy Comtrade Limited 2014 Won the prestigious ZEE Business Award for the “Best Agri. Analyst” 2014 in the fifth edition of India’s Best Market Analyst Awards on Saturday, 13th Dec. 2014 at The LaLit in Mumbai.

2011 Awarded the “Broker with Best Corporate Desk for Commodity Broking” at the prestigious Bloomberg UTV Financial Leadership Awards 2011 held in Hotel Taj Landsend, Mumbai. Hon’ble Finance Minister of India then, Shri. Pranab Mukerjee was the Chief Guest. The awards have been decided by eminent jury consisting of reputed economists, management & financial consultants. Bloomberg UTV Financial Leadership Awards have been instituted to acknowledge the contribution of the country’s financial champions for extraordinary work done in financial sector. This award is a reflection of Karvy Comtrade – Corporate Desk’s unparalleled strengths in providing unique risk management strategies and hedging calculators for Corporates. Karvy Comtrade’s ability to handle large volumes of trade. Efficiently with prompt, accurate and tailor-made services by a talented pool of professionals ensures that Karvy remains relevant to client at all times.

2011 Adjudged as the “Best Analyst in Base Metal Category” at the prestigious “Best Market Analysts Awards 2011” by Zee Business in association with NCDEX (National Commodity & Derivatives Exchange Limited). The award ceremony was graced with the presence of eminent dignitaries. Zee Business Best Market Analyst Awards have been instituted to honour the contributions of India’s leading financial experts in empowering the retail investors. The Nominations for the Awards were invited from Commodities & Stock Broking companies and Fund houses and were being judged on overall returns achieved for the Stocks, Commodities, Sectors and Companies, the analysts tracked from April 2010 to December 2010.

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2.5 Promoters & Management Team

Mr. C. Parthasarathy Chairman & Managing Director

Mr. C. Parthasarathy is the Chairman and Managing Director of the diversified financial services Karvy group. C Parthasarathy (CP as he is better known in the Industry), has the uncanny knack of staying ahead of the curve and the foresight to spot opportunities that seem invisible on the horizon for the others. Karvy’s entire history is a case study of turning adversity into opportunity. CP is a chartered accountant by qualification, whose entrepreneurial energy drove him to co-found Karvy in 1983 with a less-than-modest capital of Rs 150,000. Over the years CP’s vision and leadership skills have helped the group navigate through the turbulent times with a strong sense of purpose and clarity of thought. CP is one of the pioneers of financial inclusion. Under his leadership Karvy has won numerous industry awards and accolades. He also is an independent Director in many listed companies.

Mr. M. Yugandhar Managing Director

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Mr. M Yugandhar, Managing Director is a founder member of the KARVY Group. He is a Fellow Member of the Institute of Chartered Accountants of India and has varied experience in

the

field

of

financial

services

spanning

over

30

odd

years.

Yugandhar has helped position and build a strong brand for the group in the registry and other financial services businesses. The registry business of Karvy is one of its flagship businesses and with the collaboration with Computershare has grown to become the largest registrar in India for over two decades. Yugandhar has played a key role in building strong relationships with public sector banks and other PSUs which has helped Karvy win some important mandates from some of India’s renowned companies. Karvy under his guidance has helped create the equity cult and substantially built retail investor wealth. He is an Independent Director on the board of several reputed companies.

Mr. M. S. Ramakrishna Director

Mr. M S Ramakrishna, Director, founder member of KARVY GROUP, he is the orchestrator of technology initiatives such as the call center in the service of the customer. Mr. Ramakrishna was a member of the Hyderabad Stock Exchange and has more than 30 years of experience in the financial services arena. He has helped KARVY diversify into the field of medical transcription leveraging on the company’s core competency of transaction processing. He is an Independent Director on the board of several reputed companies.

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MANAGEMENT TEAM

Mr. V.Mahesh Managing Director – Karvy Data Management

Mr. V Mahesh, is the Managing Director of Karvy Data Management and has work experience spanning over 2 decades with in depth exposure to operations on most financial services businesses. Commencing his professional stint with the Registry business where he has to his credit managing over 300 IPOs and other forms of offerings, he was amongst the first few to work closely on the Book Building process initiated by SEBI in 1995. After initially working with MCS as an Assistant Vice President, he moved to Karvy. He was also responsible to initiate the process of setting up the Depository participant business in Karvy and was responsible for both the operations and the marketing of the business. He has been nominated by the NSDL to various committees which addressed key changes to the overall processes and policies for the Demat business. Nurturing the passion for understanding and interpreting technology and processes, he was responsible to create and set up the centralized broking platform, centralized back office operations for all financial products and creating a network of over 500 branches covering over 300 locations for Karvy. He is also instrumental in creating and launching the Online platform of Karvy Stock Broking Limited. He is a Post Graduate in Commerce from University of Madras (M.Com). and also completed Post Graduate Diploma in Computer Applications.

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Mr. V. Ganesh CEO – Karvy Computershare

Mr. V Ganesh is a Chartered and Cost Accountant by profession and has over 2.5 decades of experience in the financial services space and is part of Karvy Group’s leadership team. Before joining KARVY, he was associated with ITC’s risk management and financial audit services department. Earlier he was associated with Proctor and Gamble and was responsible for product pricing and financial support functions for P&G’s soaps and health care businesses. He was instrumental in setting up the Mutual Fund registry business for Karvy. At KARVY, for over 2 decades, Ganesh has been instrumental in building a strong techno-commercial base with emphasis on establishing a pan India branch network, back office processing, call center, web initiatives, online trading, B2B interfaces etc., in the transfer agency and BPO businesses.

Mr. Sushil Sinha Wholetime Director – Karvy Comtrade

Mr. Sushil Sinha, the Country Head of Karvy Comtrade Ltd, has successfully made Karvy Comtrade a force to reckon with in the marketplace. With over 10 years of expertise in the broking sector, he is a well-known face today in the electronic and print media. Under his aegis, the company has won numerous honours and awards nationwide, including the UTV

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Bloomberg Leadership Award 2011 and India’s Best Market Analyst Award—for two consecutive years—by Zee Business. Having joined Karvy Comtrade in December 2005 as Senior Manager (Business Development), he has steadily climbed up the organizational ladder to head the business now. Before joining KCTL, he worked in Geojit Financial Securities for two years. Prior to that, he had worked with the Agriculture department in the Government of Jharkhand under various capacities for four years. A science graduate, Mr. Sinha has completed two MBAs, one majoring in Personnel Management & Industrial Relations from Patna University and the other in Agri Business Management from IIPM, Bangalore, a Ministry of Commerce, Government of India institution.

Mr. P. B. Ramapriyan Vice President & Head – Financial Product Distribution

Mr. Ramapriyan is working with Karvy for over 2 decades, He has strength of sorts in the distribution of Financial products including Equity, Bonds, Fixed Deposits and Auto Finance. He has successfully marketed several financial products for large number of corporate of various sizes. He is also responsible for managing the Pan India Network of brokers and sub-brokers. He has been instrumental in Karvy’s success in distribution of debt products.

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Mr. Rajiv R. Singh Vice President & Business Head – Karvy Stock Broking Limited

Mr. Rajiv R. Singh is the Vice President & Business Head of the Equity Broking business. He has been associated with Karvy for more than a decade. He joined Karvy in 2001 and moved up the corporate ladder with his sheer dedication, commitment and hard work.

Rajiv, with an enormous experience in finance industry leads the responsibility of all aspects of Karvy’s equity broking business which includes strategy, revenue generation, business development and overall customer satisfaction. Rajiv is widely regarded as a results-driven leader who plays a key role in building the stock broking business of KSBL and make it one of the largest stock broking houses in the country. Rajiv also plays a key role in identifying skills

and

motivating

staff

in

providing

outstanding

client

service.

Rajiv is a Certified Management Accountant–CMA.

Mr. J. Ramaswamy Group Head – Corporate Affairs

Mr. Ramaswamy, the Group Head for Corporate Affairs, is the official spokesperson for the Karvy Group. Mr. Ramaswamy has more than 25 years of experience in various spheres of the financial services industry, of which 10 years has been in the Legal and Secretarial division of Reliance, handling various public issues, mergers, monitoring performance of 24

various departments, liaising with regulatory bodies and outside agencies (viz., the stock exchange, SEBI, DCA and others), and coordinating all the board meetings. The Corporate Affairs Division is involved in integration and strategic planning of all the business divisions of Karvy. Mr. Ramaswamy’s job responsibility encompasses monitoring the performance of all divisions through regular reviews, initiating and implementing new business initiatives, corporate communication and media relations, acting as official spokesperson for the entire Group, conceptualizing various policies and procedures to improve the internal work environment, and working on a parallel platform with the HR department to develop models for raising productivity and cost-effectiveness. He oversees the international business of Karvy Global Services.

Mr. Deepak Gupta Group Head – HR

Mr. Deepak Gupta brings with him over 20 years of experience in HR, spanning financial services, Ites and manufacturing. Prior to joining Karvy, he was Chief People Officer, Human Resources, with Bajaj Finance Limited, a Rahul Bajaj Group Company, based at Pune. He has also had a successful career with a few prominent corporate, including SREI, Enam, CRISIL, CEAT Financial Services and Reliance Industries. Deepak holds a Master’s degree in Human Resources Development from Jamnalal Bajaj Institute of Management and a diploma in Business Management and Industrial Relations.

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Mr. G. Krishna Hari Group Head – Finance

Mr. G. Krishna Hari holds a Bachelors degree in Commerce and is associate member of the Institute of Chartered Accountants of India (ICAI). He has over 27 years of experience in the areas of finance and accounts functions encompassing fund raising, financial reporting, management accounting, working capital management, taxation, budgeting and forecasting and financial due diligence reviews for mergers & acquisitions and investment proposals. He has been associated with the Karvy Group for the past 15 years and is currently designated as the Vice President- Finance & Accounts at Karvy Stock Broking Limited. Prior to joining Karvy, he was the head of finance & accounts division in Asia Pacific Investment Trust Limited, Hyderabad (Formerly Nagarjuna Investment Trust Limited) an NBFC Company.

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3 Mutual Funds Overview  Introduction to Mutual Funds.  Why invest in Mutual Funds.  Advantages of Mutual Funds  Disadvantages of Mutual Funds  How to choose Mutual Funds  Mutual Fund operations flow chart  Types of Mutual Fund  Net Asset Value  Types of returns on Mutual Funds  Mutual Funds distribution channel  Marketing strategies for Mutual funds  Working of mutual funds  Structure of a mutual fund  Regulatory structure of the mutual funds in India  Mutual Funds History in India

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3

3.1 Introduction to Mutual Fund?

A mutual fund is an investment vehicle, which pools money from investors with common investment objectives. It then invests their money in multiple assets, in accordance with the stated objective of the scheme. The investments are made by an ‘asset management company’ or AMC. 

In this segment, we will understand mutual funds and how to trade in them.



History of mutual funds in India

Mutual funds in India have come a long way since 1964 when the Unit Trust of India was the only player.

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By the end of 1988, UTI had total assets worth Rs 6,700 crore. Soon after, eight funds were established by banks, LIC and GIC between 1987 and 1993. The total number of schemes went up to 167 and total money invested – measured by Assets under Management (AUM) – shot up to over Rs 61,000 crore. In 1993, private and foreign players entered the industry, marking the third phase. The first entrant was Kothari Pioneer Mutual fund, which launched in association with a foreign fund. The Securities and Exchange Board of India (SEBI) formulated the Mutual Fund Regulation in 1996, which, for the first time, established a comprehensive regulatory framework for the mutual fund industry. Since then, several mutual funds have been set up by the private and joint sectors. Currently there are around 45 mutual fund organizations in India together handling assets worth nearly Rs 10 lakh crore. Today, the Indian mutual fund industry has opened up many exciting investment opportunities for investors. As a result, we have started witnessing the phenomenon of savings now being entrusted to the funds rather than in banks alone. Mutual Funds are now perhaps one of the most sought-after investment options for most investors. As financial markets become more sophisticated and complex, investors need a financial intermediary who can provide the required knowledge and professional expertise on taking informed decisions. Mutual funds act as this intermediary.

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3.2 Why Invest In Mutual Funds Investing in mutual funds offers a multitude of benefits. Let’s have a look: 

Professional Investment Management:

When you invest in a mutual fund, your money is managed by professional experts. This is one of the primary benefits of investing in mutual funds. Being full-time, high-level investment professionals, a good investment manager is more resourceful and capable of monitoring the companies the mutual fund has invested in, rather than individual investors. The managers have real-time access to crucial market information and are able to execute trades on the largest and most cost-effective scale. Simply put, they have the know-how to trade in the markets that retail investors may not possess. 

Low Investment Threshold 30

A mutual fund enables you to participate in a diversified portfolio for as little as Rs 5000, and sometimes even lesser. And with a no-load fund, you pay little or no sales charges to own them. For example, some bonds and fixed deposits have a minimum investment amount of Rs 25,000. Instead, you can give your money to a mutual fund, which will in turn invest in the bonds and fixed deposits. This could be done for as little as Rs 1000. 

Professional Investment Management:

When you invest in a mutual fund, your money is managed by professional experts. This is one of the primary benefits of investing in mutual funds. Being full-time, high-level investment professionals, a good investment manager is more resourceful and capable of monitoring the companies the mutual fund has invested in, rather than individual investors. The managers have real-time access to crucial market information and are able to execute trades on the largest and most cost-effective scale. Simply put, they have the know-how to trade in the markets that retail investors may not possess. 

Convenience

Investing in mutual funds has its own convenience. You save up on additional paper-work that comes with every transaction, the amount of energy you invest in researching for the stocks, as well as actual market-monitoring and conduction of transactions. With a mutual fund, you don’t have to do any of that. Simply go online or place an order with your broker to buy a mutual fund. Another big advantage is that you can move your funds easily from one fund to another, within a mutual fund family. This allows you to easily rebalance your portfolio to respond to significant fund management or economic changes.

31

3.3 Advantages of Mutual Funds



Liquidity:

In open-ended schemes, you can get your money back at any point in time at the prevailing NAV (Net Asset Value) from the Mutual Fund itself. This makes mutual fund investments highly liquid. Compare that with a fixed deposit or a bond which may have a fixed investment duration. 

Variety

While investing in mutual funds, you are spoilt for choice. You have a number of mutual fund schemes to choose from, which may invest in a whole range of industries and sectors, different kinds of assets, and so on. You can find a mutual fund that matches just about any investment strategy you select. 32

There are funds that focus on blue-chip stocks, technology stocks, bonds, or a mix of stocks and bonds. In fact, the greatest challenge can be sorting through the variety and picking the best for you. 

Transparency

SEBI regulations for mutual funds have made the industry very transparent. You can track the investments that have been made on your behalf to know the sectors and stocks being invested in. In addition to this, you get regular information on the value of your investment. Mutual funds are mandated to publish the details of their portfolio regularly.

3.4 Disadvantages Of Investing In Mutual Funds

1. No Control Over Costs: An investor in a mutual fund has no control of the overall costs of investing. The investor pays investment management fees as long as he remains with the fund, albeit in return for the professional management and research. Fees are payable even if the value of his investments is declining. A mutual fund investor also pays fund distribution costs, which he would not incur in direct investing. However, this shortcoming only means that there is a cost to obtain the mutual fund services. 2. No Tailor-Made Portfolio: Investors who invest on their own can build their own portfolios of shares and bonds and other securities. Investing through fund means he delegates this decision to the fund managers. The very-high-net-worth individuals or large corporate investors may find this to be a constraint in achieving their objectives. However, most mutual fund managers help investors overcome this constraint by offering families of funds- a large number of different schemes- within their own management company. An investor can choose from different investment plans and constructs a portfolio to his choice.

33

3. Managing A Portfolio Of Funds: Availability of a large number of funds can actually mean too much choice for the investor. He may again need advice on how to select a fund to achieve his objectives, quite similar to the situation when he has individual shares or bonds to select. 4. The Wisdom Of Professional Management: That’s right, this is not an advantage. The average mutual fund manager is no better at picking stocks than the average nonprofessional, but charges fees. 5.

No Control:

Unlike picking your own individual stocks, a mutual fund puts you in the passenger seat of somebody else’s car 6. Dilution: Mutual funds generally have such small holdings of so many different stocks that insanely great performance by a fund’s top holdings still doesn’t make much of a difference in a mutual fund’s total performance. 7. Buried Costs: Many mutual funds specialize in burying their costs and in hiring salesmen who do not make those costs clear to their clients.

3.5 How To Choose A Fund Money is precious. It is hard-earned. You can’t just put your money in an investment vehicle or

mutual

fund

without

some

research.

Here are some things to keep in mind while choosing a fund:

34



Past Performance:

History is important. Before investing, check the historic performance of the mutual fund scheme, the asset manager’s investment decisions, fund returns and so on. While the past performance is not an indicator of the future, it could help you figure out what to expect in the future. You can understand the investment philosophies of the fund and the kind of returns it is offering to investors over a period of time. It would also make sense to check out the two-year and one-year returns for consistency. Statistics such as how the fund had performed in the bull and bear markets of the immediate past would help you understand the strength of a fund. Tracking the fund’s performance in the bear market is particularly important because the true test of a portfolio is often revealed in how little it falls during a bearish phase. 

Match The Scheme’s Risk With Your Profile:

Even though a mutual fund diversifies its portfolio to reduce risk, they may eventually invest in a single type of asset. The risk of the fund varies with the kind of assets it is invested in. For this reason, check if the mutual fund fits your risk profile and investment horizon. For example, certain sector-specific schemes come with a high-risk, high-return tag. Such plans 35

are suspect to crashes in case the industry or sector loses the market’s fancy. If the investor is risk-averse, he could instead opt for a debt scheme with little risk. However, if you are a long-term investor, who doesn’t mind risk, you could go ahead with the sector-specific mutual fund scheme. For this reason, most investors prefer balanced schemes, which invest in a combination of equities and debts. They are less risky that pure equity or growth funds, which are likely to give greater returns, but more risky than pure debt plans. 

Diversification

While choosing a mutual fund, one should always consider factors like the extent of diversification that a mutual fund offers to your portfolio. A mutual fund can offer diversification either by investing in multiple assets, or by balancing your overall portfolio. For example, suppose your portfolio contains 70% exposure to stocks from different industries, then it makes sense to invest the 30% in a debt fund to balance the portfolio. Similarly, if your portfolio has a lot of exposure to a particular sector like IT, then avoid investing in a mutual fund that also invests in IT. This way, you can balance your exposure to a similar kind of risk. 

Know Your Fund Manager:

The success of a fund, to a great extent, depends on the fund manager. Some of the most successful funds are run by the same managers. It would be sensible to always ask about the fund manager before investing as well as knowing about changes in the fund manager’s strategy or any other significant developments that an AMC may have undergone. For instance, if the portfolio manager, who generated the fund’s successful performance, is no longer managing that particular fund, you may do well to wait and analyze the pros and cons of investing in that fund. 

Read The Fine Print:

The prospectus says a lot about the fund. Reading the fund’s prospectus is a must to learn about its investment strategy and the risk that it is prone to. Funds with higher rates of return may carry a higher element of risk. Hence, it is of utmost importance that an investor always

36

chooses a particular scheme after considering his financial goals and weighs them against the mutual fund’s risk. That said, remember that all funds carry some level of risk. Just because a fund invests in government or corporate bonds does not mean that it does not have any risk. 

Costs:

A fund with high costs must perform better than a low-cost fund to generate returns for you. Even small differences in fees can translate into large differences in returns over a period of time. So, ensure the costs and returns tally. There is no point in spending extra if it is delivering the same kind of returns like a low-cost fund. 

Patience:

Finally, an investor must not enter and exit mutual funds as and when the market turns. Market cycles are natural. Be patient. Like stocks, mutual funds too pay off only if you have the patience to wait. This applies for both buying and selling. Don’t pick a fund simply because it has shown a spurt in value in the current rally. Ensure its returns are consistent. Similarly, don’t sell off a mutual fund just because it is not performing well due to poor market conditions. However, it makes little sense to hold on to a fund that lags behind the market year after year.

37

3.6 Mutual Fund Operation Flow Chart 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.

A mutual fund is the answer to all these situations. It appoints professionally qualified and experienced staffs that manage each of these functions on a full time basis. The large pool of money collected in the fund allows it to hire such staff at a very low cost to each investor. In effect, the mutual fund vehicle exploits economies of scale in all three areas – research, investments and transaction processing. While the concept of individuals coming together to 38

invest money collectively is not new, the mutual fund in its present form is a 20th century phenomenon. In fact, mutual funds gained popularity only after the Second World War. Globally, there are thousands of firms offering tens of thousands of mutual funds with different investment objectives. Today, mutual funds collectively manage almost as much as or more money as compared to banks. Thus a mutual fund is the most suitable investment for the common man as its offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. Thus the mutual fund is packed product which consists of following attributes:-

 Professionally manage portfolio  Diversification  Convenience  Tax benefits u/s 80c  Liquidity  Lesser risk

Mutual fund scheme is prepared by fund manager of that company where offer document contains  Load structure (exit load /exit load)  Type of fund  Investment objective 39

 Asset allocation  Plans and options  Minimum application  Bench mark index

The graph indicates the growth of HDFC Top 200 Funds over the years.

40

3.7 Types Of Mutual Funds Schemes In India

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. thus mutual funds has Variety of flavors, Being a collection of many stocks, an investors can go for picking a mutual fund might be easy. There are over hundreds of mutual funds scheme to choose from. It is easier to think of mutual funds in categories, mentioned below.

TYPES OF MUTUAL FUNDS BY STRUCTURE

BY NATURE

BY INVESTMENT OBJECTIVE

OTHER SCHEMES

Open - Ended Schemes

Equity Fund

Growth Schemes

Tax Saving Schemes

Close - Ended Schemes

Debt Funds

Income Schemes

Index Schemes

Interval Schemes

Balanced Funds

Balanced Schemes

Sector Specific Schemes

Money Market Schemes

BY STRUCTURE

1. Open – Ended Schemes: An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value (“NAV”) related prices. The key feature of open-end schemes is liquidity. 41

2. Close – Ended Schemes: A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor. 3. Interval Schemes: Interval Schemes are that scheme, which combines the features of open-ended and closeended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices.

By Nature

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

Diversified Equity Funds



Mid-Cap Funds



Sector Specific Funds



Tax Savings Funds (ELSS)

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Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix. 2. Debt Funds: The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as: 

Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government.



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



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



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



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

3. Balanced Funds: 43

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

By Investment Objective: Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation. Income Schemes: Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited. Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50). Money Market Schemes:

44

Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Load Funds: A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%. It could be worth paying the load, if the fund has a good performance history. No-Load Funds: A No-Load Fund is one that does not charge a commission for entry or exit. That is, no commission is payable on purchase or sale of units in the fund. The advantage of a no load fund is that the entire corpus is put to work. Other Schemes Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate. Index Schemes: Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index. Sector Specific Schemes: These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. E.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, 45

they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time.

3.3 Net Asset Value (NAV):

Since each owner is a part owner of a mutual fund, it is necessary to establish the value of his part. In other words, each share or unit that an investor holds needs to be assigned a value. Since the units held by investor evidence the ownership of the fund’s assets, the value of the total assets of the fund when divided by the total number of units issued by the mutual fund gives us the value of one unit. This is generally called the Net Asset Value (NAV) of one unit or one share. The value of an investor’s part ownership is thus determined by the NAV of the number of units held. 3.9 Types of Returns on Mutual Fund: There are three ways, where the total returns provided by mutual funds can be enjoyed by investors: 

Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution.



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

If

fund

increase sold the

in

by

the

fund’s

holdings price but are not fund

manager,

shares increase

in price. You

can

your

mutual

fund shares for

a profit. Funds

will also usually

give

choice either to

you

a

then

sell

receive a check for distributions or to reinvest the earnings and get more shares.

46

3.10 Mutual Funds Distribution Channels Investors have varied investment objectives and can be classified as aggressive, moderate and conservative, depending on their risk profile. For each of these categories, asset management companies (AMCs) devise different types of fund schemes, and it is important for investors to buy those that match their investment goals. Funds are bought and sold through distribution channels, which play a significant role in explaining to the investors the various schemes available, their investment style, costs and expenses. There are two types of distribution channels-direct and indirect. In case of the former, the investors buy units directly from the fund AMC, whereas indirect channels include the involvement of agents. Let us consider these distribution channels in detail. Direct channel This is good for investors who do not need the advisory services of agents and are wellversed with the fundamentals of the fund industry. The channel provides the benefit of low cost, which significantly enhances the returns in the long run. Indirect channel This channel is widely prevalent in the fund industry. It involves the use of agents, who act as intermediaries between the fund and the investor. These agents are not exclusive for mutual funds and can deal in multiple financial instruments. They have an in-depth knowledge about the functioning of financial instruments and are in a position to act as financial advisers. Here are some of the players in the indirect distribution channels.

a) Independent financial advisers (IFA): These are individuals trained by AMCs for selling their products. Some IFAs are professionally qualified CFPs (certified financial planners). They help investors in choosing the right fund schemes and assist them in financial planning. IFAs manage their costs through the commissions that they earn by selling funds.

47

b) Organized distributors: They are the backbone of the indirect distribution channel. They have the infrastructure and resources for managing administrative paperwork, purchases and redemptions. These distributors cater to the diverse nature of the investor community and the vast geographic spread of the country by establishing offices in rural and semi urban locations.

c) Banks: They use their network to sell mutual funds. Their existing customer base serves as a captive prospective investor base for marketing funds. Banks also handle wealth management for their clients and manage portfolios where mutual funds are one of the asset classes. The players in the indirect channel assist investors in buying and redeeming fund units. They try to understand the risk profile of investors and suggest fund schemes that best suits their objectives. The indirect channel should be preferred over the direct channel when investors want to seek expert advice on the risk-return mix or need help in understanding the features of the financial securities in which the fund invests as well as other important attributes of mutual funds, such as benchmarking and tax treatment.

3.11 Marketing Strategies for Mutual Funds

Business Accounts The most common sales and marketing strategies for mutual funds is to sign-up companies as a preferred option for their retirement plans. This provides a simple way to sign-up numerous accounts with one master contract. To market to these firms, sales people target human resource professionals. Marketing occurs through traditional business-to-business marketing techniques including conferences, niche advertising and professional organizations. For business accounts, fund representatives will stress ease of use and compatibility with the company’s present systems.

48

Consumer Marketing Consumer marketing of mutual funds is similar to the way other financial products are sold. Marketers emphasize safety, reliability and performance. In addition, they may provide information on their diversity of choices, ease of use and low costs. Marketers try to access all segments of the population. They use broad marketing platforms such as television, newspapers and the internet. Marketers especially focus on financially oriented media such as CNBC television and Business week magazine. Performance Mutual funds must be very careful about how they market their performance, as this is heavily regulated. Mutual funds must market their short, medium and long-term average returns to give the prospective investor a good idea of the actual performance. For example, most funds did very well during the housing boom. However, if the bear market that followed is included, performance looks much more average. Funds may also have had different managers with different performance records working on the same funds, making it hard to judge them.

Marketing Fees Mutual funds must be very clear about their fees and report them in all of their marketing materials. The main types of fees include the sales fee (load) and the management fee. The load is an upfront charge that a mutual fund charges as soon as the investment is made. The management fee is a percentage of assets each year, usually 1 to 2 percent.

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3.12 Working Of Mutual Funds The mutual fund collects money directly or through brokers from investors. The money is invested in various instruments depending on the objective of the scheme. The income generated by selling securities or capital appreciation of these securities is passed on to the investors in proportion to their investment in the scheme. The investments are divided into units and the value of the units will be reflected in Net Asset Value or NAV of the unit. NAV is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the valuation date. Mutual fund companies provide daily net asset value of their schemes to their investors. NAV is important, as it will determine the price at which you buy or redeem the units of a scheme. Depending on the load structure of the scheme, you have to pay entry or exit load.

3.13 Structure Of A Mutual Fund India has a legal framework within which Mutual Fund have to be constituted. In India open and close-end funds operate under the same regulatory structure i.e. as unit Trusts. A Mutual Fund in India is allowed to issue open-end and close-end schemes under a common legal structure. The structure that is required to be followed by any Mutual Fund in India is laid down under SEBI (Mutual Fund) Regulations, 1996.

50

The Fund Sponsor: Sponsor is defined under SEBI regulations as any person who, acting alone or in combination of another corporate body establishes a Mutual Fund. The sponsor of the fund is akin to the promoter of a company as he gets the fund registered with SEBI. The sponsor forms a trust and appoints a Board of Trustees. The sponsor also appoints the Asset Management Company as fund managers. The sponsor either directly or acting through the trustees will also appoint a custodian to hold funds assets. All these are made in accordance with the regulation and guidelines of SEBI. As per the SEBI regulations, for the person to qualify as a sponsor, he must contribute at least 40% of the net worth of the Asset Management Company and possesses a sound financial track record over 5 years prior to registration. Mutual Funds as Trusts: A Mutual Fund in India is constituted in the form of Public trust Act, 1882. The Fund sponsor acts as a 51ettler of the Trust, contributing to its initial capital and appoints a trustee to hold the assets of the trust for the benefit of the unit-holders, who are the beneficiaries of the trust. The fund then invites investors to contribute their money in common pool, by scribing to “units” issued by various schemes established by the Trusts as evidence of their beneficial interest in the fund. 51

It should be understood that the fund should be just a “pass through” vehicle. Under the Indian Trusts Act, the trust of the fund has no independent legal capacity itself, rather it is the Trustee or the Trustees who have the legal capacity and therefore all acts in relation to the trusts are taken on its behalf by the Trustees. In legal parlance the investors or the unitholders are the beneficial owners of the investment held by the Trusts, even as these investments are held in the name of the Trustees on a day-to-day basis. Being public trusts, Mutual Fund can invite any number of investors as beneficial owners in their investment schemes. Trustees: A Trust is created through a document called the Trust Deed that is executed by the fund sponsor in favor of the trustees. The Trust- the Mutual Fund – may be managed by a board of trustees- a body of individuals, or a trust company- a corporate body. Most of the funds in India are managed by Boards of Trustees. While the boards of trustees are governed by the Indian Trusts Act, where the trusts are a corporate body, it would also require to comply with the Companies Act, 1956. The Board or the Trust company as an independent body, acts as a protector of the of the unit-holders interests. The Trustees do not directly manage the portfolio of securities. For this specialist function, the appoint an Asset Management Company. They ensure that the Fund is managed by ht AMC as per the defined objectives and in accordance with the trusts deeds and SEBI regulations. The Asset Management Companies: The role of an Asset Management Company (AMC) is to act as the investment manager of the Trust under the board supervision and the guidance of the Trustees. The AMC is required to be approved and registered with SEBI as an AMC. The AMC of a Mutual Fund must have a net worth of at least Rs. 10 Crores at all times. Directors of the AMC, both independent and non-independent, should have adequate professional expertise in financial services and should be individuals of high morale standing, a condition also applicable to other key personnel of the AMC. The AMC cannot act as a Trustee of any other Mutual Fund. Besides its role as a fund manager, it may undertake specified activities such as advisory services and financial consulting, provided these activities are run independent of one another and the AMC’s resources (such as personnel, systems etc.) are properly segregated by the activity.

52

The AMC must always act in the interest of the unit-holders and reports to the trustees with respect to its activities. Custodian and Depositories: Mutual Fund is in the business of buying and selling of securities in large volumes. Handling these securities in terms of physical delivery and eventual safekeeping is a specialized activity. The custodian is appointed by the Board of Trustees for safekeeping of securities or participating in any clearance system through approved depository companies on behalf of the Mutual Fund and it must fulfill its responsibilities in accordance with its agreement with the Mutual Fund. The custodian should be an entity independent of the sponsors and is required to be registered with SEBI. With the introduction of the concept of dematerialization of shares the dematerialized shares are kept with the Depository participant while the custodian holds the physical securities. Thus, deliveries of a fund’s securities are given or received by a custodian or a depository participant, at the instructions of the AMC, although under the overall direction and responsibilities of the Trustees. Bankers: A Fund’s activities involve dealing in money on a continuous basis primarily with respect to buying and selling units, paying for investment made, receiving the proceeds from sale of the investments and discharging its obligations towards operating expenses. Thus the Fund’s banker plays an important role to determine quality of service that the fund gives in timely delivery of remittances etc. Transfer Agents: Transfer agents are responsible for issuing and redeeming units of the Mutual Fund and provide other related services such as preparation of transfer documents and updating investor records. A fund may choose to carry out its activity in-house and charge the scheme for the service at a competitive market rate. Where an outside Transfer agent is used, the fund investor will find the agent to be an important interface to deal with, since all of the investor services that a fund provides are going to be dependent on the transfer agent.

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3.14 Regulatory Structure Of Mutual Funds In India: The structure of mutual funds in India is guided by the SEBI. Regulations, 1996.These regulations make it mandatory for mutual fund to have three structures of sponsor trustee and asset Management Company. The sponsor of the mutual fund and appoints the trustees. The trustees are responsible to the investors in mutual fund and appoint the AMC for managing the investment portfolio. The AMC is the business face of the mutual fund, as it manages all the affairs of the mutual fund. The AMC and the mutual fund have to be registered with SEBI.

3.15 Mutual Funds History in India The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank of India. The history of mutual funds in India can be broadly divided into four distinct phases First Phase – 1964-1987 Unit Trust of India (UTI) was established in 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs. 6,700 crores of assets under management. Second Phase – 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non-UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non-UTI Mutual Fund established in June 1987 followed by 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. 54

Third Phase – 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs. 44,541 crores of assets under management was way ahead of other mutual funds.

Fourth Phase – since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs. 29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs. 76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth.

55

The graph indicates the growth of assets over the years.

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4 Data Analysis and Interpretation Data Analysis and Interpretation Q. 1) What is your age? Table No. 1 Age

18-40

41-52

53-65

65 +

No. of

21

15

10

4

respondents

Pie Chart No. 1

Interpretation: This pie chart depicts that majorly investment is done by the age group of 18-40, no doubt with high risk appetite they are able to gain high returns. Thereby it is followed by the age group of 41-52 which covers 30% of the population 12% less than the former. It clearly shows that the risk appetite and investment habit reduces with age.

57

Q. 2) What is your Occupation? Table No. 2

Occupation

Govt. Sector

Pvt. Sector

Bus.

Other

Nos.

8

23

8

10

Pie Chart No. 2

Interpretation: It can be seen from the pie chart above that majorly people who belong to private sector are interested in investment in share market, through equity or mutual funds. It is followed by Govt employees and businessmen.

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Q. 3) Which option do you prefer for investment?

Table No. 3

Investment

Equity Scrip’s

Mutual Funds

No. of respondents

26

24

Pie Chart No. 3

Interpretation: The ratio of preference for investment is very close; it comes to 12:13. Investment in equity is 4% greater than mutual funds. It shows that the population is a mixed population of both conservative investors and aggressive investors.

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Q. 4) Which according to you is more risky as investment?

Table No. 4 Investment

Equity Scrip’s

Mutual Funds

No. of respondents

26

24

Pie Chart No. 4

Interpretation: This pie chart shows that 82% i.e. 41 out of 50 respondents presume that investment in equity scrips carry high risk as regardless of high risk as seen in question 2 they prefer investing in equity scrips, this shows that the population has a high risk appetite.

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Q. 5)

How long have you been investing? Table No. 5 Equity Scrip

Time

<1

1-2 years

2-3 years

No.

8

12

8

3 and above years 14

Table No. 6 Mutual Fund Time

<1

1-2 years

2-3 years

No.

14

8

7

3 and above years 9

Bar Graph No. 1

Interpretation: It can be seen that people have just started investing in mutual funds and equity was a popular investment as 28% i.e. 14 people have been involved with equity with 3 or more than 3 years and when compared to mutual funds people have just started to invest in mutual funds as only 28% i.e. 14 people out of 50 have invested in mutual fund for less than 1 year and only 9 people i.e. 18% people have invested for 3 or more than 3 years. 61

Q. 6) Which investment avenue has generated higher returns?

Table No. 7 Investment

Equity Scrip’s

Mutual Funds

No. of respondents

38

12

Pie Chart No. 5

Interpretation: Equity scrip with high risk also carries high return and hence the population also knows about it. This shows that the population presumes that the security level differs with the investment from equity to mutual funds and so does the return.

62

Q. 7) What do you prefer as your investment strategies? Table No. 8 Investment

Planned

Unplanned

No. of respondents

38

12

Pie Chart No. 6

Interpretation: The above chart clearly reflects that the population believes in planned investment. Irrespective of investment in equity or mutual fund it is planned and well structured. With reference to Q. 2, conclusion can be drawn that investors want to manage their own funds and do not let other person to play with their funds for a fixed return. Also the return rate of equity is high so it can also be a probable reason for such behavior.

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Q. 8) While investing your money which factor you prefer most? Table No. 9 Factor

Liquidity

High Return

Low Risk

Co’s Repo

No. of respondents

4

26

12

8

Pie Chart No. 7

Interpretation: The above chart visibly proves that the population is interested in high returns regardless of high risk associated with the investment. It is followed by low risk option which is comprised by 24%. More than half that is 52% of the population are interested in returns.

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Q. 9) How do you come to know about Mutual Fund? Table No. 10

Medium

Advertisement

Peers

Banks

F.A

No.

17

11

12

10

Pie Chart No. 8

Interpretation: From the chart it is clear that advertisement medium is underperforming and awareness drive should be spread through advertisement channels.

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Q. 10) Are you aware that mutual fund company's (AMC's) will invest your money in scrips?

Table No. 11

Answer

Yes

NO

No.

33

17

Pie Chart No. 9

Interpretation: The inference drawn from this is that population does not know about the fund manager concept and believe that they are investing it in the same way as investment in equity scrips. From further personal interview it was instituted that people see it as investment in equity with low risk facility and thus low return. People investing in mutual fund only invest as they have a perception that their fund is secured.

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Q. 11) How do you rate the risks associated with Mutual Funds? Table No. 12 Risk

Low

Moderate

High

No.

10

10

30

Pie Chart No. 10

Interpretations: The above chart depicts that half of the population is well aware of the risk that mutual fund carries but as understood from the Q. 9 that they are not aware of the fund manager proves that they are not properly educated about the mutual funds and investment in mutual funds may rise with the educating the investors of the same.

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Q. 12) Is there a need for creating awareness among the public of Bhopal about the benefits of investing in Mutual Funds? Table No. 13

View No.

Strongly Agree 16

Agree

Neutral

Disagree

15

17

2

Strongly Disagree 0

Pie Chart No. 11

Interpretation: The above chart exhibits that 17 out of 50 are impartial of the awareness drive for mutual funds. It is followed by people who strongly agree for the awareness drive and subsequently 30% people agree for the awareness programs thus in total 62% of the population agree for the programs and hence have sense that people are not well aware of mutual funds and consequently don’t put their hard earned money in it to earn wealth.

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Q. 13) Which are the primary sources of your knowledge about Mutual Funds as an investment option? Table No. 14 Television Rating

1

2

3

4

5

Nos.

6

10

14

14

6

Table No. 15 Internet Rating

1

2

3

4

5

Nos.

11

11

15

13

0

Table No. 16 Newspaper/ journal Rating

1

2

3

4

5

Nos.

8

18

16

7

1

Table No. 17 Friends and Family Rating

1

2

3

4

5

Nos.

8

14

15

12

1

Bar Graph No. 2

Interpretation: The bar chart above shows that people get information from all the possible sources but it can be seen from Q. 9 that people are not fully literate in mutual funds but they are familiar with this term. 69

Q. 14) Do you think that investors should be educated about the mutual funds?

Table No. 18 Response

Yes

No

May Be

No

29

7

14

Pie Chart No. 12

Interpretation: The above chart shows that majority of the population want to know more about the mutual fund and desire for some mutual fund awareness campaign. There are many mutual fund schemes and investors wish to understand the schemes.

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Q. 15) Do you know the features of Mutual Fund? Table No. 19 Response

Yes

No

May Be

No

12

19

19

Pie Chart No. 13

Interpretation: About 38% of the population believes that they are not been educated about mutual funds and they do not know all the features and benefits of mutual fund. This may be one of the major reasons for low investment in mutual fund. Considering it the safest mode to invest in share market, it may draw huge investments and thus increase in wealth as well as contribute in the country’s economy.

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Hypothesis Testing Options

Equity Scrip

Mutual Fund

Total

Male

28

3

31

Female

13

6

19

Total

41

9

50

Options

Observed

Expected

28

18

10

3

7

-4

13

12

1

6

13

-7

50

50

Residual (O-E)

Residual2 (O-E)

2

(O-E)2/Exp

Male Equity Scrip Mutual Fund

100

5.555556

16

2.285714

1

0.083333

49

3.769231

Female Equity Scrip Mutual Fund Total

11.69383

Degree of Freedom (√) = (r-1) (c-1) i.e. (2-1) (2-1) => (√) = 1 The table value of chi square at degree of freedom (df) = 1 and significance level at the rate of 5 % is 3.841 and the calculated value is 11.69. Since the calculated value is higher than the table value the hypothesis "There is no significant difference in the risk level of mutual fund and share

trading as presumed by customers " , stands false and the alternate hypothesis "There is significant difference in the risk level of mutual fund and share trading as presumed by customers", stands true

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5 Learnings

 Findings  Conclusion  Recommendations

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5 5.1 FINDINGS

Through this research the inferences drawn are: People belonging to age group of 18-40 are more likely to invest in share market.  Investors like investing in equity market as they head for higher returns.  Private sector individuals are more likely to make investment; it is then followed by govt. sector employees and businessmen, which shows that risk appetite in private sector employees is high.  The null hypothesis, “There is no significant difference in the risk level of mutual fund and share trading as presumed by customers” stands false as it can be seen from Q. 4, people believe that equity scrip is more risky.  But on the other hand, as inference drawn from Q. 8, investors also believe that equity has higher returns for which reason they invest in equity scrips.  92% of the population consider planned investment and hence calculated risk is taken by the investors, as seen from Q. 7  Also, people are not fully literate in mutual funds and invest in it due to low risk but have no knowledge about the product.  People would like to know more about the product, as seen from Q. 12 and Q. 14.

 Mutual fund is a great avenue for investment and lack of circulation of product knowledge hinders the investment.

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5.2 CONCLUSION Mutual Funds represent perhaps most appropriate investment opportunity for most investors. As financial markets become more sophisticated and complex, investors need a financial intermediary who provides the required knowledge and professional expertise on successful investing. As the investor always try to maximize the returns and minimize the risk. Mutual fund satisfies these requirements by providing attractive returns with affordable risks. The fund industry has already overtaken the banking industry, more funds being under mutual fund management than deposited with banks. With the emergence of tough competition in this sector mutual funds are launching a variety of schemes which caters to the requirement of the particular class of investors. Risk takers for getting capital appreciation should invest in growth, equity schemes. Investors who are in need of regular income should invest in income plans. The stock market has been rising for over three years now. This in turn has not only protected the money invested in funds but has also helped to grow these investments. This has also instilled greater confidence among fund investors who are investing more into the market through the MF route than ever before.

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5.3 Recommendation

1. As seen from Q. 13 very few people come to know about mutual funds from Television, newspaper and journals, thus, AMFI should conduct adequate awareness programmes about the benefits of investing in mutual funds and provide information to public regarding different new schemes. 2. As seen from Q. 13, AMFI, brokers and SEBI should come up with some aggressive marketing strategies to penetrate the Indian market which has a great potential to tap onto. 3. As seen from Q. 15, people do not affirm their knowledge in mutual funds and thus should be educated. 4. As seen from Q. 7, people adopt planned investment strategy and thus their knowledge and proper marketing of mutual fund products will ensure an increase in investment in mutual funds.

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6 References & Appendix

 Bibliography  Appendix

77

6 6.1 Bibliography



Karvy Story, Retrieved from, https://www.karvy.com/our-story



Karvy Promoters and Management Team, Retrieved from https://www.karvy.com/promoters-management-team



Karvy Group Companies, retrieved from, https://www.karvy.com/our-companies



Karvy Group Awards and Accolades, retrieved from https://www.karvy.com/awards-accolades



Analysis of mutual fund HDFC top 200 chart, retrieved from, http://www.moneycontrol.com/mutual-funds/nav/hdfc-top-200-fund/MZU009



Mutual Fund in India, retrieved from, https://en.wikipedia.org/wiki/Mutual_funds_in_India



Mutual Funds Histrory, retrieved from, https://www.amfiindia.com/researchinformation/mf-history

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6.2 Annexure Questionnaire Q. 1)

What is your name?

Q. 2)

What is your age *

o 18-40 o 41-52 o 53-65 o 65 and above

Q. 3)

What is your contact number?

Q. 4)

What is your gender? *

o Male o Female

Q. 5)

What is your highest level of education completed?

o 10th o 12th o Graduate o Post Graduate and above

Q. 6)

Are you Employed, full time, part time, not employed, retired?

o Full time o Part time o Not Employed o Retired

Q. 7)

What is your annual income? * 79

o <2,00,000 o 2,00,000-5,00,000 o 5,00,000-10,00,000 o 10,00,000 and above

Q. 8)

What is your occupation?

o Govt Sector o Private Sector o Business o Others

Q. 9)

Which option do you prefer for investment? *

o Equity Scrips o Mutual Funds

Q. 10)

Which according to you is more risky as investment? *

o Equity Scrips o Mutual Funds

Q. 11)

How long have you been investing? >1 year

1-2 years

2-3 years

3 and above years

Equity Scrips Mutual Funds

Q. 12)

Which investment avenue has generated higher returns? *

o Equity Scrips o Mutual Funds

Q. 13)

What do you prefer as your investment strategies? *

o Planned Investment o Unplanned Investment 80

Q. 14)

While investing your money which factor you prefer most? *

o Liquidity o High Return o Low Risk o Company Reputation

Q. 15)

Are you aware that mutual fund company's (AMC's) will invest your money in

scrips? * o Yes o No

Q. 16)

How do you rate the risks associated with Mutual Funds? *

o Low o Moderate o High

Q. 17)

Is there a need for creating awareness among the public of Bhopal about the

benefits of investing in Mutual Funds? o Strongly agree o Agree o Neutral o Disagree o Strongly disagree

Q. 18)

Do you think that investors should be educated about the mutual funds? *

o Yes o No o Maybe

Q. 19)

Which are the primary sources of your knowledge about Mutual Funds as an

investment option? * 81

(Corresponding to your choices how would you rate their influence on your final Mutual Fund purchase decision. Please rank them on a scale of 1-5 with 1 representing minimal influence and 5 representing Strong influence)

1

2

3

4

5

Television Internet Newspaper/ Journals

Friends and Family

Financial Advisors

Q. 20)

Do you know the features of Mutual Fund? o Yes o No o May be

82