Vinod Kumar Report

8/14/2019 Vinod Kumar Report

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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

thankKARVY 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

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COLLEGE OF MANAGEMENT RESEARCH & ENGINEERING


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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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INDEX

S.NO CONTENTS PAGE NO

1 EXCUTIVE SUMMARY 5

2 OBJECTIVE AND SCOPE OF REPORT 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 ADVANTAGES AND DISADVANTAGE OF

MUTUAL FUNDS

39

11 INITIAL PUBLIC OFFER (IPO) 46

12 RESEARCH METHODOLOGY 50

13 FINDINGS & RECOMMENDATION 55

14 BIBLIOGRAPHY 57

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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 Investmentavenues 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 day-

to-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.

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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.

SCOPEThe 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

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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

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1985. Since then, they have utilized their experience and superlative

expertise to go from strength to strengthto better their services, to

Provide new ones, to innovate, diversify and in the process, evolvedKarvy as one of Indias 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

finallytotality in service.

Karvys 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 dKar vy Stoc k Br ok ing Ltd

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Kar vy Inve stor s Se rv ice LtdKar vy C om put er sha re Pv t Lt dKar vy G lobal Ser vice L tdKar vy C omra des LtdKar vy Ins ur ance B ro kin g P riv ate Lt d

Karvys values and vision of attaining total competence in ourservicing 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

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4. Largest Network of Branches & Business Associates

5. ISO 9002 certified operations by DNV

6. Among top 10 Investment bankers7. 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 vy1. 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 financialinstitutions 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.

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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 inter-

linked 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 asfollows :

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

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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 pre-

determined 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 countrys

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

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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-termborrowing 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 neededfor 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 raterises 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-secs 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-secs requires an SGL account. Also, it requires

constant tracing of the price vis--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 outlookon 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 youotherwise. 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 growthpotential, furthering your chances to diversify.

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OTHER SCHEMES

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Ind ustr y spec if ic an d sect or al sche mes : Industry specific scheme invest only in the industry specified inthe 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 IPOS.

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-secs. 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 planThese 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 FDS Asset allocation: cash

and cash equivalent 100%

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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 mentOne 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 becauseMutual 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 becontrolling 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 DSGetting 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 numberof 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.

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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 bonusor 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 esMutual 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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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 forinvestors 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 ofreturn. 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 FundsThe 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 ndsFor 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 currentincome 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.

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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 DISADVANTAGE 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 funds 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 ionA 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 yInvesting 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 yIn open-ended schemes, you can get your money back promptly at net

asset value related prices from the mutual fund itself.

Tr anspa renc yRegulations 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.

VarietyThere 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.

DR AW BA CKS OF MUTU AL FUN DS- 42 -



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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 comesat 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.

Taxes:

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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 incomeyou 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 makeas 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

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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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


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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 areLIMITED AND THE DEMAND MIGHT BE HIGH. Generally a firm that has

shares to sell will allot shares to its top brokers. Its 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 dont 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 companys financial projections also needs to be weighted. This

includes the current trend in the investment community as to what is selling

and what isnt 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 ders 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 com pan y i t sel f Co st o f pr od ucti on Exper ience Gr owt h o ppo rt unit y

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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 shareholdersand 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 companys story Companies that

have recently gone through an initial public offering have a story to tell. try

to combine in paragraphs.

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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 dont realize that they need to

structure the annual report to appeal to difference.

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METH OD OL OG YThis 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 bedeveloped 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 andalso primary data collected by carrying out by the survey which has beencarried 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 thepopulation, which will predict the behavior of the whole universe.

b. The sampl ing s ize put un de r two categ or ies : Probabilitysampling 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 sothat 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 themutual 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 peoplewants 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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http://www.karvy.com/http://www.equitymaster.com/http://www.karvy.com/http://www.equitymaster.com/


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Vinod Kumar Report

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