Vinod Kumar Report

A PROJECT REPORT ON “COMPARATIVE STUDY OF EQUITY MUTUAL FUNDS & FINANCIALS SYSTEMS WITH AN INTRODUCTION TO IPO” IN PARTIAL FULFILMENT OF MASTER IN BUSINESS ADMISTRATION (MBA-1st year 2005-2006) FOR Karvy Consultancy Ltd, PUNE. BY VINOD KUMAR VERMA MBA (FINANCE) COLLEGE OF MANAGEMENT RESEARCH & ENGINEERING PUNE-411 058.

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KNOWLEDGEMENT I take immense pleasure in completing this project and submitting the final project report. My time with KARVY STOCK BROKING LTD has been full of learning and sense of contribution towards the organization. I would like to thank KARVY STOCK BROKING LTD. for giving me this opportunity for learning and contributing. I take this opportunity to thank all those people who made this experience a memorable one.

A successful project can never be prepared by the singular effort of the person to whom project is assigned but, it also demand the help and guardianship of some conversant person who undersigned actively or passively in the completion of a successful project.

In this context, as a student of College of Management Research & Engineering, Pune I would first of all like to express my thank fullness to Mr. Ravi Gaikwad for assigning me such a worthwhile title (COMPARATIVE STUDY OF EQUITY MUTUAL FUNDS & FINANCIAL -2COLLEGE OF MANAGEMENT RESEARCH & ENGINEERING

SYSTEM WITH AN INTRODUCTION TO IPO‘) to work upon in KARVY STOCK BROKING LTD. I am also thankful to other associates (PFA) who had helped me in this project.

I express my sincere gratitude to our Director Mr.Anshul Sharma for allowing me to carry on this project. Finally, I would like to thank Prof. Sushmita Nande and Mr.Chandrashakar Ranade for always being there when I needed him during the project. I cannot imagine the project without him.

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IND EX S.NO

CONTENTS

PAGE NO

1 2

EXCUTIVE SUMMARY OBJECTIVE AND SCOPE OF REPORT

5 7

3

COMPANY PROFILE

9

4

FINANCIAL SYSTEM OF INDIAN MARKRT

14

5

CLASIFICATION OF FINANCIAL MARKET

17

6

MUTUAL FUND INTRODUCTION

24

7

OTHER SCHEMES

26

8

WHY INVEST IN MUTUAL FUND

29

9

TYPES OF MUTUAL FUNDS

30

10

39

11

ADVANTAGES AND DISADVANTAGE OF MUTUAL FUNDS INITIAL PUBLIC OFFER (IPO)

12

RESEARCH METHODOLOGY

50

13

FINDINGS & RECOMMENDATION

55

14

BIBLIOGRAPHY

57

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46

EXECUTIVE SUMMARY

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EXECUTIVE SUMMARY The main objective in undertaking this project was to supplement academic knowledge with absolute practical exposure to day-to-day functions of an organization. This project: “Study of Indian Financial Market and Development of Surplus Funds (with special reference to Mutual fund Investment)” involved a detail study of the Indian Financial Market (i.e. Money Market, Debt Market, capital Market and Forex Market) and the various Investment avenues such as Treasury bills, Commercial papers, certificate of Deposits, Inter Corporate Deposits, term Deposits, Government Securities, Bonds and Mutual Funds. The project also involved analysis of the past investments of KARVY, estimation of surplus cash (long-term as well as short-term surplus) using techniques like Cash Budgeting and the process of deployment of this surplus cash with special reference to the investments in Mutual funds. The project also involved the study of the various methods to calculate the return on investments such as Percentage Change in NAV, Annualizing the Rate of Return, Risk Adjusted Return etc.

The training at KARVY (INDIA) limited also the day-to-day working at the Corporate Accounts Department with the Sr. Manager of the company.

This project helped me to get a deeper understanding of the dayto-day working and how the decisions regarding the deployment of surplus funds are taken in a firm as large as KARVY (INDIA) Ltd. So as to maximize returns. -6COLLEGE OF MANAGEMENT RESEARCH & ENGINEERING

OBJECTIVE AND SCOPE

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OBJECTIVE AND SCOPE The p ro ject w as cond ucted fo r the fo ll owin g o bjecti ve : -

• To gain an understanding and knowledge of Mutual Funds as an Investment Tool. • To study the product profile of the company. • To evaluate the performance of selected schemes of Mutual Fund of different companies. • To compare the Mutual fund schemes on different parameters such as Annualized Returns, Standard Deviation, Sharpe Ratio, Beta, Alpha and R-squared. • To analyze the performance factor of the Fund based on different drivers associated with the specific fund.

SC OP E The Indian securities market is the scope of this project and funds floated therein. The whole project was based with the agenda to analyze existing mutual funds and determine their performance factors .In depth analysis of individual fund is not the scope but on the other hand performance of funds and finding their reasons as in general is the primary motive behind this project -8COLLEGE OF MANAGEMENT RESEARCH & ENGINEERING

COMPANY PROFILE

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COMPANY PROFILE KARVY, is a premier integrated financial services provider, and ranked among the top five in the country in all its business segments, services over 16 million individual investors in various capacities, and provides investor services to over 300 corporate, comprising the who is who of Corporate India. KARVY covers the entire spectrum of financial services such as Stock broking, Depository Participants, Distribution of financial products mutual funds, bonds, fixed deposit, equities, Insurance Broking, Commodities Broking, Personal Finance Advisory Services, Merchant Banking & Corporate Finance, placement of equity, IPOs, among others.

Karvy has a professional management team and ranks among the best in technology, operations and research of various industrial segments. The birth of Karvy was on a modest scale in 1981. It began with the vision and enterprise of a small group of practicing Chartered Accountants who founded the flagship company …Karvy Consultants Limited. They started with consulting and financial accounting automation, and carved inroads into the field of registry and share accounting by - 10 COLLEGE OF MANAGEMENT RESEARCH & ENGINEERING

1985. Since then, they have utilized their experience and superlative expertise to go from strength to strength…to better their services, to Provide new ones, to innovate, diversify and in the process, evolved Karvy as one of India’s premier integrated financial service enterprise. Thus over the last 20 years Karvy has traveled the success route, towards building a reputation as an integrated financial services provider, offering a wide spectrum of services. And its employee has made this journey by taking the route of quality service, path breaking innovations in service, versatility in service and finally…totality in service. Karvy’s

highly

qualified

manpower,

cutting-edge

technology,

comprehensive infrastructure and total customer-focus has secured for it the position of an emerging financial services giant enjoying the confidence and support of an enviable clientele across diverse fields in the financial world.

Ka rvy g roup of c omp anie s ar e: Kar vy C ons ult ants Lt d Kar vy Stoc k Br ok ing Ltd - 11 COLLEGE OF MANAGEMENT RESEARCH & ENGINEERING

Kar vy Inve stor s Se rv ice Ltd Kar vy C om put er sha re Pv t Lt d Kar vy G lobal Ser vice L td Kar vy C om ra des Ltd Kar vy Ins ur ance B ro kin g P riv ate Lt d Karvy’s values and vision of attaining total competence in our servicing has served as the building block for creating a great financial enterprise, which stands solid on its fortresses of financial strength – its various companies. With the experience of years of holistic financial servicing behind it and years of complete expertise in the industry to look forward to, Karvy has now emerged as a premier integrated financial services provider. And today, it can look with pride at the fruits of its mastery and experience – comprehensive financial services that are competently segregated to service and manage a diverse range of customer requirements.

The major achievements of Karvy are: 1. Among the top 5 stock brokers in India (4% of NSE volumes) 2. India's No. 1 Registrar & Securities Transfer Agents 3. Among the to top 3 Depository Participants - 12 COLLEGE OF MANAGEMENT RESEARCH & ENGINEERING

4. Largest Network of Branches & Business Associates 5. ISO 9002 certified operations by DNV 6. Among top 10 Investment bankers 7. Largest Distributor of Financial Products 8. Adjudged as one of the top 50 IT uses in India by MIS Asia 9. Full Fledged IT driven operations

Bas ic Str ate gy o f K ar vy 1. Focus on retail segment.

2. Build a strong pan-India network managed by experienced Professionals, build presence across metros & class A/B town.

3. Build full-service capabilities leveraging the network-offer the entire gamut of financial services, backed by strong transaction Processing and high volume handling capability.

4. Established a high degree of customer ownership and top-of-mind recall in the local markets- ensures steady customer traffic and repeat business. 5.Build a trusted brand; ensure high visibility.

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FINANCIAL SYSTEM OF INDIAN MARKET

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Financial

sy st em - an ov er vie w:

The financial system of any country consists of specialized and non specialized financial institution; organized and unorganized financial markets, financial instruments and services that facilitate flow of funds from area of surplus funds to the area of deficit. FINANCIAL SYSTEM IS THE COMPOSITION of various institutions market, regulation and laws, practices, money managers, analyst, transactions and claims and liabilities. By making funds available, the financial system helps the growth of modern economics and the increase in the standard of living among its citizens

FINA NCIA L IN ST ITU TI ON S: Financial institutions are business organization that act as mobilizes and depositors of savings and as purveyors of credit of finance. Financial institutions are classified as banking and non-banking institutions, intermediaries and non-intermediaries. Banking institutions are the creators of credit; where as non-banking financial institutions are the purveyors of credit. Banking system in India comprises of commercial and cooperative banks and non-banking financial institutions are LIC, UTI, IDBI, and GIC etc. Intermediaries like banking institution lend as well as mobilize saving; where as non intermediaries like NABARD do the loan business but there resources are not directly obtained from savers. - 15 COLLEGE OF MANAGEMENT RESEARCH & ENGINEERING

FINA NCIA L MAR KE TS ; A financial market can be defined as the market in which financial assets are created or transferred. Financial assets represent a claim to the payment of a sum of money some time in the future and/or periodic payment in the form of interest or dividend. Financial markets perform an important function of mobilization of savings and channeling them in to the most productive uses. The participants in the financial markets are financial institutions, agents, brokers, dealers, borrowers, lenders, savers and other who are interlinked by laws, contracts and communication networks. Financial markets are classified as Primary and Secondary Markets. The primary markets deal in new financial claims and securities and hence are known as new issue markets .The secondary markets deals in securities already issued, existing or outstanding.

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CLASSIFICATION OF FINANCIAL MARKETS

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CLASSIFICATION OF FINANCIAL MARKETS The class if icat ion of Fi nanci al Ma rke ts can be su mm ar ize d as fo ll ows : • Money Market • Debt Market • Forex Market • Capital Market

MON EY MA RK ET S: The money market can be defined as the market for short-term money and financial assets that are near substitutes for money. One of the important functions of a well-developed money market is to channel saving in to short-term productive investments like working capital. Money market aids banking, operates as a medium of integration between sub-markets, promotes maintaining of minimum reserve in the form of cash and liquidity and controls the interest rates. Money market is a collection of market for instruments like call money, treasury bills, commercial papers, certificate of deposits etc. a certain degree of flexibility in the regulatory frame work exists and there are constant endeavors for introducing a new instrument/innovative dealing - 18 COLLEGE OF MANAGEMENT RESEARCH & ENGINEERING

techniques. It is a wholesale market and the volume of funds or financial assets traded are very large i.e. in Crores of rupees.

DEB T MA RK ET : Traditionally debt instruments are known for generating a predetermined income for a given period of time, other than in case of default. Hence they are also known as fixed income instruments. The debt markets in advanced countries are significantly larger and deeper than equity markets. But in India, the trend is just the opposite. The development of debt market in India has not been as remarkable as in the equity markets. However, the debt markets in India have under gone considerable change in the last few years.

The debt market in India is divided into two categories: • Government Securities Market consisting of central govt. and state govt. securities. • Bond market consisting of FI bonds, PSU bonds and corporate bonds.

Foreig n excha nge m arkets: Every sovereign country in the world has a currency. Which is a legal tender in its territory, and which does not act as money outside its boundaries. Foreign exchange market is the one where the country’s currency is traded for another. The rate at which one currency is converted to another is known as the rate of exchange. Foreign exchange market is the largest financial market in the world having a daily turn over of couple of trillion dollars. The key participants in - 19 COLLEGE OF MANAGEMENT RESEARCH & ENGINEERING

Forex market are Importers, exporters, traders, and foreign exchange brokers, speculators speculative transaction account for more than 95% of the turn over on the Forex markets. In India, the key participants in the Forex markets are RBI, banks and business under takings. Business under taking can participate in the Forex markets only to the extend that they need cover for exchange exposure One reason justified for the existence of foreign exchange market is that each nation has decided to keep their sovereign right to have control on their own currency .if every country had the same currency, than there will be no need for a foreign exchange market.

CAP IT AL MA RK ET S: Capital markets provide the resources needed by medium and large-scale industries for investment purposes unlike money markets that provide the resources for working capital needs. While money markets deal in short term claims. Stock markets and govt. bond markets are examples of capital market. Capital markets consist of primary and secondary market. The primary markets create long term instruments through which corporate entities borrow and the secondary market provides liquidity and marketability to this instrument. Companies can raise capital in the primary markets through the issue of shares and debentures for which prior approval of the SEBI is required .the secondary markets that operates through the medium of stock exchange is that segments.

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CO MM ER CIA L PA PE R (C P) : Commercial paper was introduced in India in1990with a view to enable highly rated corporate borrowers to diversify their sources of short-term borrowing and to provide an additional instrument to investors. Commercial paper is a shirt term unsecured promissory note issued to strong and high credit rating companies at a discount to face value by well known. They are issued in multiples of Rs.5lakhs and for maturities between a minimum of 15 days and a maximum up to one year from the date of issue. They have a buy back facility and no prior approval of RBI is needed for the issue of commercial paper. The main advantage of investing in commercial paper is that it offers return as per the prevailing market rate. But they are not liquid and are taxed and hence not very lucrative investment avenue.

Inte r- co rpo rat e de po sit (I CD) : A deposit made by one company with another, normally for a period of up to six months is referred to as an inter corporate deposit. The cost of funds for a corporate is much higher than a bank. Hence the rates in this market are higher than those in the other markets. Inter corporate deposit are unsecured, and hence the risk is high. The inter corporate deposit market is not well organized with very little information available publicly about transaction details. Also the interest from inter corporate deposit is taxed.

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TERM S DE PO SI TS : Banks accepts term deposit for period ranging from 7 days to 5years. The interest rate on the term deposit varies from 3.5% to 5.7%. The interest rate rises sharply as period of deposit increases from 30 days to 180days. Most banks currently offer about 5.5% for a one-year deposit. Beyond one year the interest rate tapers off. Investing in term deposit provides security of principal along with assure returns. But with the decline interest rate they are less attractive. Also, the post tax returns are also low.

GOVE RN MEN T SECU RI TY : The government securities come prices securities issued by the govt. of India and state govt. this are the lowest risk category instruments in the economy. These securities are issued through auctions conducted by RBI. Where the central bank decides the coupon or discount rate based on the response received. Most of the securities are issued as fixed interest baring securities, though the govt. sometime issues zero coupon instrument and floating rate securities also. The main advantage of investing in G-sec’s is that they guarantee the security of principal along with assured returns as per the coupon rate of the underlying security. Also, they are highly liquid and there is no tax deducted at source. But, trading in G-sec’s requires an SGL account. Also, it requires constant tracing of the price vis-à-vis yield to maximize returns.

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BOND S: The corporate bond market consists of issuers of three deferent categories – govt. owned financial institutions, govt. owned public sector units and private corporate. The financial institutions that do not have access to retail deposit like banks. Depend on bond issues for rising funds. Investments in rest of public sectors unit bonds are tax like any other bonds. The rates in these markets differ for different issuer categories. While top rated private corporate and public sector units are treated as on par, financial institutions pay fewer coupons on the issues. The advantages of investing in bonds are that, even though over the long run stocks out perform bonds. Bonds perform well when stocks lag, hence diversifying the portfolio helps keep returns high during bad times. Also, bonds provide a secure and predictable income. Contrary to popular belief, bonds do appreciate, which helps to make money above the interest the trading price of a bond is its par value. As the outlook on interest rates change, the par value fluctuates on daily basic. If rates decline, bond will increase in Value, and they can be sold at a premium. But, if interested rate rise, the bonds loses value.

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WHAT IS MUTU AL FUN D?

Like most developed and developing countries the mutual fund cult has been catching on in India. There are various reasons for this. Mutual funds make it easy and less costly for investors to satisfy their need for capital growth, income and/or income preservation. And in addition to this a mutual fund brings the benefits of diversification and money management to the individual investor, providing an opportunity for financial success that was once available only to a select few. Understanding Mutual funds is easy as it's such a simple concept: a mutual fund is a company that pools the money of many investors -- its shareholders -- to invest in a variety of different securities. Investments may be in stocks, bonds, money market securities or some combination of these. Those securities are professionally managed on behalf of the shareholders, and each investor holds a pro rata share of the portfolio -- entitled to any profits when the securities are sold, but subject to any losses in value as well.

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For the individual investor, mutual funds provide the benefit of having someone else manage your investments and diversify your money over many different securities that may not be available or affordable to you otherwise. Today, minimum investment requirements on many funds are low enough that even the smallest investor can get started in mutual funds. A mutual fund, by its very nature, is diversified -- its assets are invested in many different securities. Beyond that, there are many different types of mutual funds with different objectives and levels of growth potential, furthering your chances to diversify.

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OTHER SCHEMES

OTHE R S CHE ME S : - 26 COLLEGE OF MANAGEMENT RESEARCH & ENGINEERING

Ind ustr y spec if ic an d sect or al sche mes : Industry specific scheme invest only in the industry specified in the offer document such as InfoTech, FMCG and pharmaceutical etc. sect oral scheme invest exclusively in a specified industry or a group of industries or various segment such as ‘A’ group shares or IPO’S. •

• Index scheme: It attempts to replicate the performance of a particular index such as BSE sensex NSE 50 nifty. These schemes invest only in those scripts that form a particular index. •

Short term plans (STP):

Short-term plans keep the principal intact and allow parking for medium term. These plans have more of debt instruments (85%)and a negligible percentage in G-sec’s. It also has a sizable component of treasury bills that provide liquidity to these scheme an also ensure the returns to be at least above the call money rate. • Floating rates fund They are similar to money market mutual fund in many senses except that these funds will have more instruments that are MIBOR inked and the rest in treasury bills .as a result the returns will always be 10-15basis points more than the money market mutual funds. They provide with a good option of investing short-term surplus (1-3 months). • Fixed maturity plan These schemes are floated by the asset management companies’ (AMC) especially when he debt markets are highly volatile. These schemes tend to reduce the interest rate risk. These funds offer returns around 50-100 basis points higher than the FD’S Asset allocation: cash and cash equivalent 100% - 27 COLLEGE OF MANAGEMENT RESEARCH & ENGINEERING

OTH ER FE ATUR E: All the mutual fund schemes provide the investors with growth, dividend and dividend re-invest options. Growth schemes provide the investor with capital appreciation where as in case of dividend schemes, the dividend periodically distributed to the investor. Dividend scheme are accompanied by dividend distribution tax that is not applicable to growth schemes. This dividend distribution tax brings down the NAV of the scheme every time the dividend is declared. Indexation benefit is applicable for both short-term as well as long-term capital gains. in case of equity schemes long-term gains is exempted from tax and incase of debt fund long term capital gains are taxed at the rate of 10% if indexation is not used and and 20% when the indexation is used. Short-term capital gains are taxed at the normal tax rate. Mutual fund do have a scheme that offer tax rebates to the investors under specific linked saving scheme (ELSS) and pension scheme are allowed deduction under sec 88 of income tax act, 1961.

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WH Y INVEST IN MUTU AL FUN DS Investing in mutual has various benefits, which makes it an ideal investment avenue. Following are some of the primary benefits:

Pro fes sion al i nvest ment m ana ge ment One of the primary benefits of mutual funds is that an investor has access to professional management. A good investment manager is certainly worth the fees you will pay. Good mutual fund managers with an excellent research team can do a better job of monitoring the companies they have chosen to invest in than you can, unless you have time to spend on researching the companies you select for your portfolio. That is because Mutual funds hire full-time, high-level investment professionals. Funds can afford to do so as they manage large pools of money. The managers have real-time access to crucial market information and are able to execute trades on the largest and most cost-effective scale. When you buy a mutual fund, the primary asset you are buying is the manager, who will be controlling which assets are chosen to meet the funds' stated investment objectives.

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TYPES OF MUTUAL FUNDS

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TYPE S O F MUTU AL FUN DS Getting a handle on what's under the hood helps you become a better investor and put together a more successful portfolio. To do this one must know the different types of funds that cater to investor needs, whatever the age, financial position, risk tolerance and return expectations. The mutual fund schemes can be classified according to both their investment objective (like income, growth, tax saving) as well as the number of units (if these are unlimited then the fund is an open-ended one while if there are limited units then the fund is close-ended). This section provides descriptions of the characteristics -- such as investment objective and potential for volatility of your investment -- of various categories of funds. These descriptions are organized by the type of securities purchased by each fund: equities, fixed-income, money market instruments, or some combination of these.

Op en-en de d s ch emes

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Open-ended schemes do not have a fixed maturity period. Investors can buy or sell units at NAV-related prices from and to the mutual fund on any business day. These schemes have unlimited capitalization, open-ended schemes do not have a fixed maturity, there is no cap on the amount you can buy from the fund and the unit capital can keep growing. These funds are not generally listed on any exchange. Open-ended schemes are preferred for their liquidity. Such funds can issue and redeem units any time during the life of a scheme. Hence, unit capital of open-ended funds can fluctuate on a daily basis. The advantages of open-ended funds over close-ended are as follows: Any time exit option, the issuing company directly takes the responsibility of providing an entry and an exit. This provides ready liquidity to the investors and avoids reliance on transfer deeds, signature verifications and bad deliveries. Any time entry option, An open-ended fund allows one to enter the fund at any time and even to invest at regular intervals.

Clo se -en de d sc he mes - 32 COLLEGE OF MANAGEMENT RESEARCH & ENGINEERING

Close-ended schemes have fixed maturity periods. Investors can buy into these funds during the period when these funds are open in the initial issue. After that such schemes cannot issue new units except in case of bonus or rights issue. However, after the initial issue, you can buy or sell units of the scheme on the stock exchanges where they are listed. The market price of the units could vary from the NAV of the scheme due to demand and supply factors, investors’ expectations and other market factors

Cla ssi fica tion ac co rd ing to inv es tm ent o bj ec tiv es Mutual funds can be further classified based on their specific investment objective such as growth of capital, safety of principal, current income or tax-exempt income. In general mutual funds fall into three general categories: 1] Equity Funds are those that invest in shares or equity of companies. 2] Fixed-Income Funds invest in government or corporate securities that offer fixed rates of return. 3] While funds that invest in a combination of both stocks and bonds are called Balanced Funds.

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Gro wt h Funds Growth funds primarily look for growth of capital with secondary emphasis on dividend. Such funds invest in shares with a potential for growth and capital appreciation. They invest in well-established companies where the company itself and the industry in which it operates are thought to have good long-term growth potential, and hence growth funds provide low current income. Growth funds generally incur higher risks than income funds in an effort to secure more pronounced growth. Some growth funds concentrate on one or more industry sectors and also invest in a broad range of industries. Growth funds are suitable for investors who can afford to assume the risk of potential loss in value of their investment in the hope of achieving substantial and rapid gains. They are not suitable for investors who must conserve their principal or who must maximize current income.

Gro wt h and In co me Funds

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Growth and income funds seek long-term growth of capital as well as current income. The investment strategies used to reach these goals vary among funds. Some invest in a dual portfolio consisting of growth stocks and income stocks, or a combination of growth stocks, stocks paying high dividends, preferred stocks, convertible securities or fixed-income securities such as corporate bonds and money market instruments. Others may invest in growth stocks and earn current income by selling covered call options on their portfolio stocks.

Growth and income funds have low to moderate stability of principal and moderate potential for current income and growth. They are suitable for investors who can assume some risk to achieve growth of capital but who also want to maintain a moderate level of current income.

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Fixed income funds primarily look to provide current income consistent with the preservation of capital. These funds invest in corporate bonds or government-backed mortgage securities that have a fixed rate of return. Within the fixed-income category, funds vary greatly in their stability of principal and in their dividend yields. High-yield funds, which seek to maximize yield by investing in lower-rated bonds of longer maturities, entail less stability of principal than fixed-income funds that invest in higher-rated but lower-yielding securities. Some fixed-income funds seek to minimize risk by investing exclusively in securities whose timely payment of interest and principal is backed by the full faith and credit of the Indian Government. Fixed-income funds are suitable for investors who want to maximize current income and who can assume a degree of capital risk in order to do so.

Balanc ed Funds The Balanced fund aims to provide both growth and income. These funds invest in both shares and fixed income securities in the proportion indicated in their offer documents. Ideal for investors who are looking for a combination of income and moderate growth.

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Mone y Ma rke t Fu nds/L iq ui d Fu nds For the cautious investor, these funds provide a very high stability of principal while seeking a moderate to high current income. They invest in highly liquid, virtually risk-free, short-term debt securities of agencies of the Indian Government, banks and corporations and Treasury Bills. Because of their short-term investments, money market mutual funds are able to keep a virtually constant unit price; only the yield fluctuates. Therefore, they are an attractive alternative to bank accounts. With yields that are generally competitive with - and usually higher than -- yields on bank savings account, they offer several advantages. Money can be withdrawn any time without penalty. Although not insured, money market funds invest only in highly liquid, short-term, top-rated money market instruments. Money market funds are suitable for investors who want high stability of principal and current income with immediate liquidity.

Specialty/Sector Funds These funds invest in securities of a specific industry or sector of the economy such as health care, technology, leisure, utilities or precious metals. The funds enable investors to diversify holdings among many companies within an industry, a more conservative approach than investing directly in one particular company. - 37 COLLEGE OF MANAGEMENT RESEARCH & ENGINEERING

Sector funds offer the opportunity for sharp capital gains in cases where the fund's industry is "in favor" but also entail the risk of capital losses when the Industry is out of favor. While sector funds restrict holdings to a particular industry, other specialty funds such as index funds give investors a broadly diversified portfolio and attempt to mirror the performance of various market averages. Index funds generally buy shares in all the companies composing the BSE Sensex or NSE Nifty or other broad stock market indices. They are not suitable for investors who must conserve their principal or maximize current income.

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ADVANTAGE AND DIS ADVANTAGE OF MUTUAL FUND

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A single mutual fund can hold securities from many issuers. This diversification sharply reduces the risk of serious loss due to problems in a particular company or industry.

With access to extensive research, market information, and skilled securities traders, the advisor decides which security to buy and sell for the fund. Mutual fund’s have the financial muscle that proves beneficial for taken the advantage of the market condition. Also, the post-tax returns of mutual funds are much higher than the compared to other avenues. Dive rs if icat ion A crucial element in investing is asset allocation. It plays a very big part in the success of any portfolio. However, small investors do not have enough money to properly allocate their assets. By pooling your funds with others, you can quickly benefit from greater diversification. Mutual funds invest in a broad range of securities. This limits investment risk by reducing the effect of a possible decline in the value of any one security. Mutual fund unit-holders can benefit from Diversification techniques usually available only to investors wealthy enough to buy significant positions in a wide variety of securities. Low Co st

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A mutual fund let's you participate in a diversified portfolio for as little as Rs.5, 000, and sometimes less. And with a no-load fund, you pay little or no sales charges to own them. Co nven ience a nd F lexib ilit y Investing in mutual funds has its own convenience. While you own just one security rather than many, you still enjoy the benefits of a diversified portfolio and a wide range of services. Fund managers decide what securities to trade collect the interest payments and see that your dividends on portfolio securities are received and your rights exercised. It also uses the services of a high quality custodian and registrar. Another big advantage is that you can move your funds easily from one fund to another within a mutual fund family. Liq ui dit y In open-ended schemes, you can get your money back promptly at net asset value related prices from the mutual fund itself. Tr anspa renc y Regulations for mutual funds have made the industry very transparent. You can track the investments that have been made on you behalf and the specific investments made by the mutual fund scheme to see

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where your money is going. In addition to this, you get regular information on the value of your investment. Va ri et y There is no shortage of variety when investing in mutual funds. You can find a mutual fund that matches just about any investing strategy you select. There are funds that focus on blue-chip stocks, technology stocks, bonds or a mix of stocks and bonds. The greatest challenge can be sorting through the variety and picking the best for you.

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Mutual funds also suffer from drawbacks. Unlike fixed income products such as bonds and treasury bills, mutual funds experience price fluctuations. The professional management offered by mutual fund comes at a cost that reduces the over all pay out. These costs include shareholder fees, annual fund operating fees etc. •

No Guar ante es :

No investment is risk free. If the entire stock market declines in value, the value of mutual fund shares will go down as well, no matter how balanced the portfolio. Investors encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on their own. However, anyone who invests through a mutual fund runs the risk of losing money. •

Fee s and c om mi ss ion s: All funds charge administrative fees to cover their day-to-day expenses.

Some funds also charge sales commissions or "loads" to compensate brokers, financial consultants, or financial planners. Even if you don't use a broker or other financial adviser, you will pay a sales commission if you buy shares in a Load Fund. •

Tax es :

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During a typical year, most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If your fund makes a profit on its sales, you will pay taxes on the income you receive, even if you reinvest the money you made. •

Manag em en t ri sk :

When you invest in a mutual fund, you depend on the fund's manager to make the right decisions regarding the fund's portfolio. If the manager does not perform as well as you had hoped, you might not make as much money on your investment as you expected. Of course, if you invest in Index Funds, you forego management risk, because these funds do not employ managers.

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MUT UALFU ND VS/S OT HE RS INSTRUMENT RETURN SAFETY VOLATILITY LIQUIDITY Equity High Low High High/low Bonds Moderate High Moderate Moderate Debenture Moderate Moderate Moderate Low Bank Deposits Low High Low High Mutual funds High High Moderate High

Mutual fund is the preferred avenue for investment because: • Mutual fund combines the advantage of each of products. • They dispense the short coming of the other avenues • The returns get adjusted to the market movements. • The post tax returns are higher as compared to the other avenues. • Investment can be averaged out. • Minimizing the risk element.

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INITIAL PUBLIC OFFER

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INITIAL PUBLIC OFFER On the hot issue that got through in the offering, the shares are LIMITED AND THE DEMAND MIGHT BE HIGH. Generally a firm that has shares to sell will allot shares to its top brokers. It’s a sort of reward if there are no effective dates the broker will allocate the portion of the issues to the costumers. They want them to hold the security for a longer duration of time .if the client sells quickly the probability the broker wont get his commission. And if you do that don’t expect the broker to call you back with another hot offer. The company, its advisors, and the underwriter, will determine the amount of money, which can be raised. Once the amount is determined, the price per share and the no. Of share is determined that is to be offered to the public the company’s financial projections also needs to be weighted. This includes the current trend in the investment community as to what is selling and what isn’t selling right now. Many times there are no real good direct comparison to other companies in your industry. When this happens there are other things, which will be looked at. This includes. • Account ing po lici es th em se lf an d t hei r e ff ect o n re po rt ing • Assets • Back or de rs • Co st o f cap ital • Gene ra l an d a dm inist rat ive expense • Lon g te rm debt • Pro fi t m ar gi n • Receiv able The • • •

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• Ind ustr y lo ok • Is i t a re gi onal or na tion al co mpan y. It a lso a ccount s fo r • Mar ket s ha res • Ne w p ro duct de velop ment • Pe rcent ag e of s ale • Pa tents , tr ad ema rks , or p ro per ty kno wle dge . When a private company goes through share system it becomes a public offering company perhaps the two most important groups are shareholders and securities analysts. The shareholder letter should provide analyst rather than just telling the story about the past. Be honest with the reader. Articulate what has been going well. Point out the defective region and help the manage meant to rectify the problem. Most of these sections run more than four pages. This sections uses headings and sub-heading. A company with good local press and strong community involmemt will have an easier time recruiting quality personal; from the surrounding area. The average shareholder will send less than 5 minutes reading the annual reports. Infact a well-crafted current shareholder invest lot. A well design annual report is also potentially possible to be passed on to the next potential shareholder. Photographs are very important to the annual reports. Uses them combined with good captions to tell the company’s story Companies that have recently gone through an initial public offering have a story to tell. try to combine in paragraphs. - 48 COLLEGE OF MANAGEMENT RESEARCH & ENGINEERING

Among other things the annual report is a communication tool. Make it readable. Use in to get your magazine out. Subsequently to their initial public offering, most companies don’t realize that they need to structure the annual report to appeal to difference.

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RESEARCH METHODOLOGY

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METH OD OL OG Y This project is the result of an extensive study carried out by various methods which includes surfing sites such of R B I, ICICI prudential, Karvy, Sharekhan.com, Investments.com, indiatimes.com. It also includes interviews with various personalities related to HR and financial management.

Re sea rc h M et ho do lo gy :

Research has its special significance in solving various operational and planning problems of business and industry. Research methodology is the way to systematically solve the research problem.

ASSUM PTI ON S: 1. It has been assumed that sample of 100 respondents represents the whole population. 2. The information given by the customer is unbiased

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Lite ra tur e Surv ey : The project is based on pure findings of facts.

Devel opment

of Wor kin g Hypot hesis :- The Hypothesis could be

developed by discussing with the concerning department heads and guides about this exploratory research and reached to the conclusion that the data is to be collected by personal interaction with the customers, asking them about the services and the improvement required. First of all they are aware of mutual funds or not and then analyzing the findings to reach to the objectives of research. Co llect ion of Data :-There was secondary data available for the study and also primary data collected by carrying out by the survey which has been carried out to through personal interviews of the customers. The sample size was roughly 100. a. Sam plin g me tho ds:

- A sample is the representative of the

population, which will predict the behavior of the whole universe. b. The

sa mpl ing size put un de r two ca teg or ies : Probability

sampling and non-probability sampling.

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Pro ba bility sa mpling : This is the process of selecting the elements or group of elements from as well defined population by such procedure, which gives every element in the population an equal chance of being selected for observation. The sampling method use for this survey is the area sampling, which is a sub type of probability sampling.

Sa mpling si ze : Large sample gives reliable result than small sample. However, it is not feasible to target entire population or even a substantial portion to achieve a reliable result. So, in this aspect selecting the sample to study is known as sample size. Hence, for my project my sample size was 100.

The Sample Size of 100 is not enough to draw a conclusion but as per the time assigned it was difficult to take a sample size more than 100.

The Sample Size consists of both the Professional and Business class people. IT peoples, Doctors, Jewelers, Timber Merchants & Real estate Agents are taken as Sample.

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Ex ec ution of t he pr oj ec t: It is the very important step in the research process accuracy findings depends on how systematically the study has been carried out in time so that it can make some sense when required. I have executed the project after prior discussion with the guide and structured in following steps:

a. Preparation of questionnaire.

b. Collection of list of some of the clients interview of the customer so that more interaction is impossible and the variety of responses can be registered to have a good data for analysis.

c. Visiting the corporate and asking about their feedback on the mutual funds services they are availing. Try to find out their satisfaction level with the existing mutual fund.

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PRO JE CT FINDI NGS  There is a great potential for investment in Mutual Fund as people wants to save for various future obligations.  Since Rate of Interest on Bank deposit is falling people will be attracted towards investments in Mutual Funds because of high rate of returns.  Comparatively people of small towns are less aware of other investment avenues viz Mutual Fund.  People of young age group are ready to take risk and they can be targeted for investment in Mutual Fund.  Some

of the people who were personally contacted showed

reservation about dealing with KARVY CONSULTATION LTD.

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REC OMME ND ATION  Looking to the level of Awareness (VII.III) it is recommended that Mutual Fund promotion companies may be undertaken in the following forms:(i) Advertisement in Newspaper and Magazines. (ii) Hoardings etc.  The prospective clients may be imparted training and education through: (i) Seminar. (ii) Short Duration training programmers.  Small towns may be targeted for business development as this area is untapped relatively and there exist huge potential for business development.  People of young age group who are risk takers by nature may be targeted separately.

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BIBLIOGRAPHY

 WEB SITE  WWW.KARVY.COM

 http:// Mutualfundindia.com  www.equitymaster.com

 Facts sheet of various Mutual Funds

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