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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
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COLLEGE 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 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 39
MUTUAL FUNDS
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 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 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.

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

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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 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

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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

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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.

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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 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

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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 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
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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-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 :
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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 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%

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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 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

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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 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.

Fi xed-Inco me F un ds

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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.

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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 DIS
ADVANTAGE OF
MUTUAL FUND

ADV ANTA GE OF MUTU AL FUN D

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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.

DR AW BA CKS OF MUTU AL FUN DS

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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 com pan y i t sel f


• Co st o f pr od ucti on
• Ex per 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 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.

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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 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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