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A STUDY ON

INVESTOR'S PERCEPTION TOWARDS MUTUAL FUNDS

IN

KARVY STOCK BROKING PVT. LTD.

BY

K.UDAY KUMAR REDDY(H.NO.130909672152)

Project submitted in partial fulfillment for the award of the Degree of MASTER OF BUSINESS ADMINISTRATION

ByOsmania University , Hyderabad 500007

2009-2011

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DECLARATION

I (K.UDAY KUMAR REDDY) here by declare that this project

Report titled A STUDY ON INVESTOR'S PERCEPTION TOWARDS

MUTUAL FUNDS submitted by me to the department of HITM is a bonafide

work undertaken by me and it is not submitted to any other University or Institution

for the award of any degree / diploma / certificate or published any time before.

Name & address of the student Signature of the Student

K.UDAY KUMAR REDDY

HT NO:130909672152

HITMKPHB

RR DIST.

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CERTIFICATE

This is to certify that the project Report titled A STUDY ON

INVESTOR'S PERCEPTION TOWARDS MUTUAL FUNDS submitted in

partial fulfillment for the award of the degree of MASTER OF BUSINESS

ADMINISTRATION was carried out by HITM under my guidance. This has not

been submitted to any other university or Institution for the award of any degree /

diploma / Certificate.

Name & Address of the Supervisor Signature of the Supervisor

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S.No. TABLE OF CONTENT PAGE NO .

I

II

III

IV

V

VI

VII

CHAPTER-1

INTRODUCTIONOBJECTIVESRESEARCH METHODOLOGYLIMITATIONS

CHAPTER-2

REVIEW OF LITERATURE

CHAPTER-3

INDUSTRY PROFILECOMPANY PROFILE

CHAPTER-4

DATA ANALYSIS & INTERPRETATIONFINDINGS

CHAPTER-5

SUMMARY& CONCLUSIONSSUGGESTIONS

BIBLIOGRAPHY

ANNEXURE

5-89

1011

12-30

31-3839-46

47-7071

72-7475-76

77-78

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INTRODUCTION

Investment can be defined as an item of value purchased for income or

capital appreciation. Investments are made to achieve a specific objective and savings

are made to meet an unforeseen event.

There are various avenues of investments in accordance with individual

preferences. Investments are made in different asset classes depending on an

individuals risk and return characteristics Investment choices are physical assets andfinancial assets.

Gold and Real estates are examples of physical assets, which have a physical

form to them. There is a strong preference for these assets, as these assets can be

purchased with cash and held for a long term. The obvious disadvantages with

physical assets are the risks of loss and theft, lower levels of return; illiquid secondary

markets; and adhoc valuations and transactions.

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Financial assets are securities, which are certificates embodying a financial

contract between parties. Bonds, Equity shares, Deposits and Insurance policies are

some of the examples of financial assets. In financial assets investors only hold the

proof of their investments in the form of a certificate or account. These products are

usually liquid, transferable and in most cases, stored electronically with high degree

of safety.

But a minimum amount of cash is always kept in hand for transactions and

contingencies. To face the contingencies and unexpected events the insurance came

into existence.

Another avenue of investment is mutual funds. It is created when investors

put their money together. It is therefore a pool of the investors funds. The most

important characteristics of a mutual fund is that the contributors and the beneficiaries

of the fund are the same class of people, namely the investors. The term mutual means

that investors contribute to the pool, and also benefit from the pool. There are no other

claimants to the funds. The pool of funds held mutually by investors is the mutual

fund.

A mutual fund pools the money of people with similar investment goals.

The money in turn is invested in various securities depending on the objectives of the

mutual fund scheme, and the profits (or loss) are shared among investors in proportion

to their investments.

Mutual fund schemes are usually open-ended (perpetually open for

investments and redemptions) or closed end (with a fixed term). A mutual fund

scheme issues units that are normally priced at Rs.10 during the initial offer. Thus, the

number of units you own as against the total number of units issued by the mutual

fund scheme determines your share in the profits or loss of a scheme.

In the case of open-end schemes, units can be purchased from or sold

back to the fund at a Net Asset Value (NAV) based price on all business days.

The NAV is the actual value of a unit of the fund on a given day. Thus,

when you invest in a mutual fund scheme, you normally get an account statement

mentioning the number of units that have been allotted to you and the NAV based

price at which the units have been allotted. The account statement is similar to your

bank statement.Mutual funds invest basically in three types of asset classes:

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Stocks: Stocks represent ownership or equity in a company, popularly known as

shares.

Bonds: These represent debt from companies, financial institutions or Government

agencies.

Money market instruments: These include short-term debt instruments such as

treasury bills, certificate of deposits and inter-bank call money.

A mutual funds business is to invest the funds thus collected, according to the wishes

of the investors who created the pool. In many markets these wishes are articulated as

investment mandates.

Analysis of The perception towards these mutual funds is done here in

this project. Even what factors the investors look before investing can also be

observed.

OBJECTIVES

To study the level of awareness of mutual funds

To analyse the perception of investors towards mutual funds.

To study the factors considered by the investors and those which

ultimately influence him while investing.

To determine the type of mutual fund investor prefers the most.

RESEARCH METHODOLOGY

Primary data is data that is tailored to a companys needs, by customizing true

approach focus groups, survey, field-tests, interviews or observation.

Primary data delivers more specific results than secondary research, which is

an especially important consideration when one launching a new product or service.

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In addition, primary research is usually based on statistical methodologies. The tiny

sample can give an accurate representation of a particular market.

Secondary data is based on information gleaned from studies previously

performed by government agencies, chambers of commerce, trade associations and

other organizations. This includes census bureau information. Much kind of this

information can be found in libraries or on the web, but looks and business

publications, as well as magazines and newspapers.

Analysis of individual investment patterns can be done by this primary data

analysis. In this project I have done a survey with a questionnaire with a sample size

of 100 individuals who are employees and tax payees. The questionnaire includes the

economic status of the individuals, age group, marital status, investments made etc.

As Karvy securities ltd. distributes several investment products like mutual

funds, insurance, shares, debentures etc. This survey will help them in developing

marketing strategies for their investment products.

LIMITATIONS

Geographic Scope: The sample used for the study has been taken from the investorsof the twin cities Hyderabad and Secunderabad.

Frame work: Sampling frame (i.e the list of population members) from which thesample units are selected was incomplete as it takes into consideration only those(target investors) who have made their investments during March and April 2006.

Although adequate care was taken to elicit the accurate information from therespondents, some of them have felt difficulty in crystallizing their feelings intowords. Apart from the problem faced in articulating, it is the validity of the feedback can be speculated.

Despite the above limitations the study is useful in that it does point out the trends andhelps to identify the dimensions for improving the scope of mutual funds.

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MUTUAL FUNDS

THEORITICAL BACKGROUND

Mutual fund is a mechanism for pooling the resources by issuing units to the

investors and investing funds in securities in accordance with objectives as disclosed

in offer document.

A mutual fund is an investment vehicle for investors who pool their savings for

investing in diversified portfolio of securities with the aim of attractive yields andappreciation in their value.

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

sectors and thus the risk is reduced .Mutual funds issues units to the investors in

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

known as unit-holders. The profit or losses are shared by the investors in proportion to

their investments. The mutual funds normally come out with a number of schemes

with different investment objectives, which are launched from time to time. A mutualfund is required to be registered with securities and exchange board of India.

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A mutual fund is setup in the form of a trust, which has

1. Sponsor

2. Trustees

3. Asset Management Company and

4. Custodian.

The trust is established by a sponsor or more than one sponsor who is like promoter of

a company. The trustees of mutual fund hold its property for the benefit of the unit-

holders. Asset management company (AMC) approved by SEBI manages the funds

by making investments in various types of securities.

Respective asset management companies (AMC) management mutual fund schemes.

Different business groups have sponsored these AMC s. some international funds are

also operation independently in India like Aliens and Template.

A BRIEF HISTORY OF MUTUAL FUND

The concept of mutual fund is a new feather in Indian capital market but not to

international capital markets. The formal origin of mutual funds can be traced to

Belgium where society generated Belgium was established in 1822 as an investment

company to finance investments in National Industries with high associated risk. The

concept of mutual funds spread to USA in the beginning of 20 th century and three

investment companies were started in 1924 since then the concept of mutual funds has

been growing all around the world

In India, first mutual fund was started in 1964 when unit trust of India (UTI) was

established in the similar line of operation of the UK.

The term Mutual fund has not been explained in British literature but it is considered

as synonym of investment trust of

DEFINITIONS

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The concept of mutual fund has been defined in various ways.

The mutual fund as an important vehicle for bringing wealth holders and deficit units

together indirectly

...Mr. James pierce

Mutual fund as financial intermediaries which being a wide variety of securities with

in the reach of the most modest of investors.

Frank Relicy

According to SEBI mutual fund regulations 1993, Mutual fund means a fundestablished in the form of trust by sponsor to raise moneys by the trustees through thesale of units to the public under one or more schemes for investing in securities inaccordance with these regulations.

CONCEPT OF MUTUAL FUNDS

A Mutual Fund is a trust that pools the savings of a number of investors whoshare a common financial goal. The money thus collected is then invested in capital

market instruments such as shares, debentures and other securities. The income

earned through these investments and the capital appreciation realized are shared by

its unit holders in proportion to the number of units owned by them. Thus a Mutual

Fund is the most suitable investment for the common man as it offers an opportunity

to invest in a diversified, professionally managed basket of securities at a relatively

low cost.

The flow chart below describes broadly the working of a mutual fund:

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VALUE CHAIN OF MUTUAL FUND

SPONSOR:

Any person who, acting alone or in combination with another body corporate,establishes a mutual fund.

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Asset Management Company

A firm that invests the pooled funds of retail investors in securities in line with the

stated investment objectives. For a fee, the investment company provides more than

diversification, liquidity, and professional management service than is normally

available to individual investors.

Trustee

The Board of Trustees or the Trustee company who hold the property of the Mutual

Fund in trust for the benefit of the unit holders.

Mutual Fund

A fund established in the form of a trust to raise money through the sale of units to

the public or a section of the public under one or more schemes for investing in

securities, including money market instruments.

Transfer Agent

A transfer agent is employed by a mutual fund to maintain records of shareholder

accounts calculate and disburse dividends and prepare and mail shareholder account

statements, federal income tax information and other shareholder notices.

Custodian

Mutual funds are required by law to protect their portfolio securities by placing

them with a custodian. Nearly all mutual funds use qualified bank custodians.

Unit Holder

A person who is holding units in a scheme of a mutual fund.

CLASSIFICATION OF SCHEMES

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By Structure

Open-ended

A scheme where investors can buy and redeem their units on any business day. Itsunits are not listed on any stock exchange but are bought from and sold to the mutual

fund.

Close-ended

A mutual fund scheme that offers a limited number of units, which have a lock-in

period, usually of three to five years. The units of closed-end funds are often listed on

one of the major stock exchanges and traded like securities at prices, which may be

higher or lower than its NAV.In India 90% of the schemes is open-ended fund and the

rest 10% is close-ended funds. There are 1062 open-ended funds and 119 close-ended

funds.

By Objective

A scheme can also be classified as growth scheme, income scheme, or balanced

scheme considering its investment objective. Such schemes may be open-ended or

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close-ended schemes as described earlier. Such schemes may be classified mainly as

follows:

Growth / Equity Oriented Scheme

The aim of growth funds is to provide capital appreciation over the medium to long-

term. Such schemes normally invest a major part of their corpus in equities. Such

funds have comparatively high risks. These schemes provide different options to the

investors like dividend option, capital appreciation, etc. and the investors may choose

an option depending on their preferences. The investors must indicate the option in

the application form. The mutual funds also allow the investors to change the options

at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

Income / Debt Oriented Scheme

The aim of income funds is to provide regular and steady income to investors. Such

schemes generally invest in fixed income securities such as bonds, corporate

debentures, Government securities and money market instruments. Such funds are

less risky compared to equity schemes. These funds are not affected because of

fluctuations in equity markets. However, opportunities of capital appreciation are also

limited in such funds. The NAVs of such funds are affected because of change in

interest rates in the country. If the interest rates fall, NAVs of such funds are likely to

increase in the short run and vice versa. However, long-term investors may not bother

about these fluctuations.

Balanced Fund

The aim of balanced funds is to provide both growth and regular income as such

schemes invest both in equities and fixed income securities in the proportion indicated

in their offer documents. These are appropriate for investors looking for moderate

growth. They generally invest 40-60% in equity and debt instruments. These funds are

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also affected because of fluctuations in share prices in the stock markets. However,

NAVs of such funds are likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund

These funds are also income funds and their aim is to provide easy liquidity,

preservation of capital and moderate income. These schemes invest exclusively in

safer short-term instruments such as treasury bills, certificates of deposit, commercial

paper and inter-bank call money, government securities, etc. Returns on these

schemes fluctuate much less compared to other funds. These funds are appropriate for

corporate and individual investors as a means to park their surplus funds for short

periods.

Gilt Fund

These funds invest exclusively in government securities. Government securities have

no default risk. NAVs of these schemes also fluctuate due to change in interest rates

and other economic factors as, is the case with income or debt oriented schemes.

Index Funds

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive

index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the

same weight age comprising of an index. NAVs of such schemes would rise or fall in

accordance with the rise or fall in the index, though not exactly by the same

percentage due to some factors known as "tracking error" in technical terms.

Necessary disclosures in this regard are made in the offer document of the mutual

fund scheme.

There are also exchange traded index funds launched by the mutual funds that aretraded on the stock exchanges.

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AVENUES OF INVESTMENTS

Savings form an important part of the economy of any nation. With the savings

invested in various options available to the people, the money acts as the driver for

growth of the country. Indian financial scene too presents a plethora of avenues to the

investors.

Banks:

Considered as the safest of all options, banks have been the roots of the financial

system in India. For an ordinary person though, they have acted as the safest

investment avenue wherein a person deposits money and earns interest on it. One and

all have effectively used the two main modes of investment in banks, savings

accounts and fixed deposits. However, today the interest rate structure in the country

is headed southwards, keeping in line with global trends.

With the banks offering little above 7% in their fixed deposits for one year, the yields

have come down substantially in recent times. Add to this, the inflationary pressures

in economy and you have a position where the savings are not earning. The inflation

is creeping up, to almost 8% at times, and this means that the value of money saved

goes down instead of going up. This effectively mars any change f gaining from the

investments in banks.

Post office Schemes

Among all saving options, post office schemes have been offering the highest rates.Added to it is that the investments are safe with the department being a government of

India entity. So the two basic and most sought for features, those of return safety and

quantum of returns were being handsomely taken care of Public Provident Funds act

as options to save for the post retirement period for most people and have been

considered good option largely due to the fact that returns were higher than most other

options and also helped people gain from tax benefits under various sections. The

following are the post office savings schemes available for the investors:

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Monthly Income scheme:

This scheme offers an interest of 8%p.a, payable monthly and a bonus of 10%

payable at maturity after 6 years. There is no tax deductible at source (TDS)

applicable on investments made in this scheme.

National Savings Scheme:

This scheme offers an interest of 8% p.a; compounded half yearly and payable at

maturity in 6 years.

Post Office Time Deposits:

There are 4 options available to investors depending on the term of investment

desired by the investor. They are:

1 year) this gives an interest of 6.25% p.a

2 year) This gives an interest of 6.5% p.a



Kisan Vikas Patra:

An important feature of this scheme is that it assures that the money invested

doubles in 8 years and 7 months.

Public Provident Fund:

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This scheme gives a return of 8% per annum, compounded annually for maturity of

15 years.

Government of India Bonds:

The GOI Bonds have the following investment options:

6.5% Tax free bonds

There is no ceiling on the amount of investment in these bonds. The effective yields

of these bonds are 9.28% p.a for the period of 5 years and premature encashment

option available to investors only after the completion of 3 years.

8% Taxable Bonds :

These bonds do not have any TDS charged on them. There is no maximum limit of

investment in these bonds but there should be a minimum investment of Rs.1, 000.The maturity period is 6 years. The investor has the option of interest payable half

yearly or cumulative. The investors can also avail tax benefit under section 80L of

income Tax Act, up to Rs. 15,000.

Company Fixed Deposits:

Companies have used fixed deposit schemes as a means of mobilizing funds for

their operations and have paid interest on them. The safer a company is rated, thelesser the return offered has been the thumb rule. However, there are several potential

roadblocks in these.

The danger of financial position of the company not being understood by the

investor lurks.

1. Liquidity is a major problem with the amount being received monthly

after the due dates.

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2. The safety of principal amount has been found lacking.

Stock markets:

Stock markets provide an option to invest in a high risk, high return game. Whilethe potential return is much more than 10-11% any of the options discussed above can

generally generate, the risk is undoubtedly of the highest order. However, as it might

appear, people generally are clueless as to how the stock market functions and in the

process can endanger the hard-earned money.

For those who are not adept at understanding the stock market, the task of

generating superior returns at similar levels of risk is arduous to say the least. This is

where mutual funds come into picture.

COMPARISION OF OTHER AVENUES WITH MUTUAL FUNDS

The mutual fund sector operates under stricter regulations as compared to most

other investment avenues. Apart from offering investors tax efficiency and legal

comfort, how do mutual funds compare with other products?

Company Fixed Deposits versus Mutual Funds

Fixed deposits are unsecured borrowings by the company accepting the deposit.

Credit rating of the fixed deposit program is an indication of the inherent default risk

in t he investment. The money of investors in a mutual fund scheme are invested by

the AMC in specified investments under that scheme. These investments are held andmanaged in-trust for the benefit of the schemes investors. On the other hand, there is

no such direct correlation between a companys fixed deposit mobilization, and the

avenues where it deploys these resources.

There can be no certainty of yield, unless a named guarantor assures a return or

to a lesser extent, if the investment is in a serial gilt scheme. O the other hand, the

return under a fixed deposit is certain, subject only to the default risk of the borrower.

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The basic value at which fixed deposits are encashable is not subject to market

risk. However, the value at which units of a scheme are redeemed entirely depends on

the market. If securities have gained value during the period, then the investor can

even earn that is higher than what she anticipated when she invested. Conversely, she

could also end up with a loss.

Early encashment of fixed deposits is always subject to a penalty charged by

the company that accepted the fixed deposit. Mutual fund schemes also have the

option of charging a penalty on early redemption of units (by way of an exit

load).

Bank Fixed Deposits versus Mutual Funds

Bank fixed deposits are similar to company fixed deposits. The major

difference is that banks are more stringently regulated than are companies. They even

operate under stricter requirements regarding Statutory Liquidity ratio(SLR) and Cash

Reserve Ratio (CRR) mandated by RBI.

While the above are for comfort, bank deposits too are subject to default risk.

However, given the political and economic impact of bank defaults, the government

as well as Reserve Bank of India (RBI) tries to ensure that banks do not fail.

Further, the Deposit Insurance and Credit Guarantee Corporation (DICGC)

protect bank deposits up to Rs. 100,000. The monetary ceiling of Rs.100,000 is for all

the deposits in all the branches of a bank, held by the depositor in the same capacity

and right.

Bonds and Debentures versus Mutual funds

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As in the case of fixed deposits, credit rating of a bond or debenture is an indication

of the inherent default risk in the investment. However, unlike fixed deposits, bonds

and debentures are transferable securities.

While an investor may have an early encashment option from the issuer ( for instance

through a put option), liquidity is generally through a listing in the market,

implications of this are:

The value that the investor would realize in an early exit is subject to market

risk. The investor could have a capital gain or a loss. This aspect is similar to a mutual

fund scheme.

A hypothecation or mortgage of identified fixed and / or current assets could

back debt securities, e.g secured bonds or debentures. In such a case, if there is a

default, the identified assets become available for meeting redemption requirements.

An unsecured bond or debenture is for all practical purposes like a fixed deposit, as

far as access to assets is concerned.

A custodian for the benefit of investors in the scheme holds the investment of a

mutual fund scheme.

Equity versus Mutual fund

Investment in both equity and mutual funds are subject to market risk. Investment

in an open-end mutual fund eliminates this direct risk of not being able to dell the

investment in the market. An indirect risk remains, because the scheme has to realize

its investments to pay investors. The AMC is however in a better position to handle

the situation. Further, on account of various SEBI regulations, such as illiquid

securities are likely to be only a part of the schemes portfolio.

Another benefit of equity mutual fund scheme is that they give investors the

benefit of portfolio diversification through a small investment.

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RISK AND RETURN GRID:

An investor has mainly three investment objectives.

1. Safety of Principal

2. Return

3. Liquidity

BANKS FIXEDDEPOSIT

BONDS ANDDEBENTURES

EQUITYMARKET

MUTUALFUND

Returns Low Low to

Moderate

Low to

moderate

Moderate to high Better

Administrativeexpenses

High Moderateto High

Moderate tohigh

Low to Moderate Low

Risk Low Low toModerate

Low tomoderate

High Moderate

Investmentoptions

Less Few Few Many More

Network Highpenetration

Lowpenetration

Low penetration Low butimproving fast

Low butimproving

Liquidity At a cost Low Low tomoderate

Moderate to High Better

Quality of Assets

Nottransparent

Nottransparent

Not transparent Transparent Transparent

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Guarantee MaximumRs 1 lakh

None

Pricing

The net asset value of the fund is the cumulative market value of the asset fund net of

its liabilities. In other words, if the fund is dissolved or liquidated, by selling off all

the assets in the fund, this is the amount that the shareholders would collectively own.

This gives rise to the concept of the net asset value per unit, which is the value,

represented by the ownership of one unit in the fund. It is calculated simply by

dividing the net asset value of the fund by the number of units. However, most people

refer loosely to the NAV per unit as NAV, ignoring the per unit. We also abide by

the same convention.

Calculation of NAV

The most important part of the calculation is the valuation of the assets ownedby the fund. Once it is calculated, the NAV is simply the net value of assets divided

by the number of units outstanding. The detailed methodology for the calculation of

the asset value is given below.

Asset value = (Value of investments+ receivables+ accrued income+ other

current assets- liabilities- accrued expenses) /Number of units outstanding.

ADVANTAGES OF INVESTING IN MUTUAL FUND:

Number of options available

Mutual funds invest according to the underlying investment objective as

specified at the time of launching a scheme. Mutual fund have equity funds, debt

funds, gilt funds and many others that cater to the different needs of the investor.

While equity funds can be as risky as the stock markets themselves, debt funds offer

the kind of security that is aimed for at the time making investments. The only

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pertinent factor here is that the fund has to be selected keeping the risk profile of the

investor in mind because the products listed above have different risks associated with

them.

Diversification

Diversification reduces the risk because all stocks dont move in the same

direction at the same time. One can achieve this diversification through a Mutual

Fund with far less money that one can on his own.

Professional Management

Mutual Funds employ the services of the skilled professionals who have years of experience to back them up. They use intensive research techniques to analyze each

investment option for the potential of returns along with their risk levels to come up

with the figures for the performance that determine the suitability of any potential

investment.

Potential of returns

Returns in the mutual are generally better than any option in any other avenueover a reasonable period of time. People can pick their investment horizon and stay

put in the chosen fund for the duration.

Liquidity

The investors can withdraw or redeem money at the Net Asset Value related

prices in the open-end schemes. In the Closed-end Schemes, the units can be

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transacted at the prevailing market price on a stock exchange. Mutual Funds also

provide the facility of direct repurchase at NAV related prices.

Well Regulated

The Mutual Fund industry is very well regulated. All investment has to be

accounted for, decisions judiciously taken. SEBI acts as a true watch dog in this case

and can impose penalties on the AMCs at fault. The regulations designed to protect

the investors interests are implemented effectively.

Transparency

Being under a regulatory frame work, Mutual Funds have to disclose their

holdings, investment pattern and all the information that can be considered as

material, before all investors. This means that investment strategy, outlooks of the

markets and scheme related details are disclosed with reasonable frequency to ensure

that transparency exists in the system.

Flexible, Affordable and Low cost

Mutual Funds offer a relatively less expensive way to invest when compared to

other avenues such as capital market operations. The fee in terms of brokerages,

custodial fees and other management fees are substantially lower than other options

and are directly linked to the performance of the scheme. Investment in Mutual Funds

also offer a lot of flexibility with features such as regular investment plans, regular

withdrawal plans and dividend investment plans enabling systematic investment or withdrawal of funds.

Convenient Administration

Investment in the mutual fund reduces paper work and helps you avoid many

problems such as bad deliveries, delayed payments and follow up with brokers and

companies. Mutual Funds save your time and make investing easy and convenient.

TAXATION ON MUTUAL FUNDS

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An Indian mutual fund registered with the SEBI, or schemes sponsored by

specified public sector banks/financial institutions and approved by the central

government or authorized by the RBI are tax exempt as per the provisions of section

10(23D) of the income tax act. The mutual fund will receive all income without any

deduction of tax at source under the provisions of section 196(iv), of the income tax

act.

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MUTUAL FUND INDUSTRY

INDUSTRY OVERVIEW

The financial markets in India are in the process of maturing. The markets

witnessed many structural changes in the years gone by primarily due to the market

regulators proactive approach to the changes in the global scenario as well as to meet

the needs of domestic investors.

The RBI has carried out major reforms in the Indian financial markets in the

last few years primarily by reducing Cash Reserve ratio by 4% over three years and

Bank Rate by 5% over five years. It is due to measures like these that the Indian

economy is currently showing fundamental robustness, with the GDP expected to

grow by almost 8%. With rising exports and stable inflation of around 5%, the foreign

exchange reserves are at an all time high of $118 billion. The interest rates in the

country are at record lows and have led to an increase in credit flow to the commercial

sector.

The equity markets have passed through a tumultuous phase in the last 3

years. The improving macro-economic fundamentals of the Indian economy have led

the market players to expect a bright future. During the year, the equity markets

around the world are showing good performance. However the markets in India

outperformed the world major scripts showed around more than 75% growth in last

12 months. The year began with resumption of peace process with Pakistan and end

of war in Gulf. The market also has welcome robust increase in agriculture production

with more-than-normal monsoons. Most of the groundwork for the disinvestment

completed over the last few years, the last Government had started disinvestments and

new government has already acquired shape and started it is not reluctant of

divestment.

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The debt markets have witnessed a rally for over 2 years and now seem to be

stabilizing. The measures to deepen and widen the debt markets continued throughout

the year. A key step in developing the markets was the launch of Negotiated Dealing

System (NDS). NDS allows electronic bidding in primary markets, thereby bringing

about transparency in trading, electronic settlement of trades and better monitoring

and controls. Issuances of a 30-year paper, floaters ranging from 5 to 15 years and

securities with call and put options by the government will also go a long way in

deepening the markets. In a bid to increase the retail participation, non-competitive

bidding is being encouraged by the RBI.

INDUSTRY STRUCTURE

Global Scenario

At the end of 2008:Q3, mutual fund assets worldwide were $ 17.28 trillion, having

increased 18 percent over the year 2007:Q3.

Worldwide mutual fund assets (trillions of US dollars)

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Worldwide assets of Equity, Bond, Money Market & Balanced fund

(Billions of US dollars)

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Composition of world Wide mutual fund assets by the types of fund 2008;Q4

Source: Ici.org

The end of 2008:Q3, mutual fund assets were split into 44% Equity, 18% Money

market, 20% Bonds, 9% Balanced / Mixed and remaining 8% unclassified.

Worldwide mutual fund assets by region 2008;Q3

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At the end of 2008:Q3 by region, 55% of the global assets was in America, 34% in

Europe and the remaining 11% in Africa and Asia / Pacific.

World wide mutual funds by the type of fund 2008;Q2

At the end of the fourth quarter of 2008, the number of mutual funds worldwide stood

at 54,986. By type of fund, 41 percent were equity funds, 24 percent were bond funds,

20 percent were balanced/mixed funds, and 6 percent were money market funds.

Number of funds 2002-2008;Q3

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2002 2003 2004 2005 2006

2007 2008

Q4 Q1 Q2 Q3

All ReportingCountries 1 52,746 51,692 52,849 54,110 54,569 54,984 55,095 55,919 56,095

Equity 22,453 20,381 22,348 22,974 22,688 22,364 22,796 23,043 23,050 Bond 15,474 13,128 12,183 11,619 11,886 13,309 13,127 13,213 13,225 Money Market 6,745 4,692 4,277 4,394 4,974 3,623 3,618 3,598 3,569

Balanced/Mixed 6,375 11,110 11,155 11,228 11,465 11,603 11,111 11,291 11,181

Other 612 1,000 1,195 1,310 1,578 1,997 2,364 2,659 3,017

CountriesReporting inEvery Period 2 35,962 39,367 41,620 42,393 41,689 42,356 42,093 42,529 42,377 Equity 15,656 18,637 20,630 20,808 20,018 19,920 19,971 20,052 19,952 Bond 10,867 10,176 9,830 9,946 9,847 9,961 10,004 10,026 10,076

Money Market 2,701 2,786 2,727 2,674 2,652 2,899 2,901 2,867 2,831

Balanced/Mixed 6,149 6,926 7,500 7,723 7,857 8,095 7,674 7,966 7,850Other 589 842 933 1,242 1,315 1,481 1,543 1,618 1,668

MUTUAL FUNDS IN INDIAN SCENARIO

Unit Trust of India was the first mutual fund set up in India in the year 1963. In early

1990s, Government allowed public sector banks and institutions to set up mutual

funds.

In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The

objectives of SEBI are to protect the interest of investors in securities and to

promote the development of and to regulate the securities market.

As far as mutual funds are concerned, SEBI formulates policies and regulates the

mutual funds to protect the interest of the investors. SEBI notified regulations for the

mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities

were allowed to enter the capital market. The regulations were fully revised in 1996

and have been amended thereafter from time to time. SEBI has also issued guidelines

to the mutual funds from time to time to protect the interests of investors.

All mutual funds whether promoted by public sector or private sector entitiesincluding those promoted by foreign entities are governed by the same set of

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Regulations. There is no distinction in regulatory requirements for these mutual funds

and all are subject to monitoring and inspections by SEBI. The risks associated with

the schemes launched by the mutual funds sponsored by these entities are of similar

type. It may be mentioned here that Unit Trust of India (UTI) is not registered with

SEBI as a mutual fund (as on January 15, 2002).

In February 2003, following the repeal of Unit Trust of India act 1963; UTI was

bifurcated into two separate entities. One is the specified undertaking of UTI with

assets under the management of Rs.29, 835 crores as at the end of January 2003;

representing broadly, the assets of US 64 scheme, assured return and certain other

schemes. The specified undertaking administrator & under rules framed by

Government of India and does not come under the purview of mutual fund regulation.

The second is the UTI mutual fund Ltd sponsored by SBI, BOB & LIC. It is

registered with SEBI & functions under the mutual fund regulations. With the

bifurcation of the erstwhile UTI which had in March 2000, more than Rs 76,000

crores of assets under management and with setting up of a UTI mutual fund,

conforming to the SEBI, mutual fund regulation and with recent mergers taking place

among different private sector funds, the mutual fund industry has entered its current

phase of consolidation and growth.

As at the end of September,2004, there were 29 funds which manage assets of Rs.

231358.03 crores under 421 schemes.

GROWTH IN ASSETS UNDER MANAGEMENT

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The Company Background:

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In 1982, a group of Hyderabad-based practicing Chartered Accounts started Karvy

Consultants Limited with a capital of rs.1, 50,000 offering auditing and taxation

services initially. Later, it forayed into the Registrar and Share Transfer activities and

subsequently into financial services. All along, Karvys strong work ethic and

professional background leveraged with Information Technology enabled it to deliver

quality to the individual.

A decade of commitment, professional integrity and vision helped Karvy achieve a

leadership position in its field when it handled the largest number of issues ever

handled in the history of the Indian stock market in a year. Thereafter, Karvy made

inroads into a host of capital-market services,-corporate and retail which proved to be

a sound business synergy.

GROUP OF COMPANIES

KARVY CONSULTANTS LIMITE

Deals in Registrar and Investment Services

KARVY INC

Deals in distribution of various investment products, viz., equities, mutual funds,

bonds and debentures, fixed deposits, insurance policies for the investor.

KARVY INVESTOR SERVICES LIMITED

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Deals in Issue management, Investment Banking and Merchant Banking.

KARVY STOCK BROKING LIMITED

Deals in buying and selling equity shares and debentures o the National stock

Exchange (NSE), the Hyderabad Stock Exchange (HSE) and the Over-The-Counter

Exchange of India. (OTCEI).

KARVY COMPUTERSHARES LIMITED

KARVY GLOBAL SERVICES LIMITED

KARVY COMMODITIES BROKING LIMITED

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QUALITY POLICY

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

satisfaction, by combining its human and technological resources, to provide superior

quality financial services. In the process, Karvy will strive to exceed Customers

expectations.

Quality objectives

As per the Quality Policy, Karvy will:

Build in-house processes that will ensure transparent and harmonious

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

Establish a partner relationship with its investor services agents and vendors

that will help in keeping up its commitments to the customers.

Provide high quality of work life for all its employees and equip them with

adequate knowledge & skills so as to respond to its customers needs.

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

unparalleled standards in business ethics.

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

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

clients.

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

and constantly guide the individuals and institutions in making a judicious

choice of it.

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

suppliers and regulatory authorities) proud and satisfied.

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ACHIEVEMENTS

Largest mobiliser of funds as per PRIME DATABASE.

First ISO-9002 Certified Registrar in India. A Category I-Merchant banker.

A Category-I-Registrar to public Issues.

Ranked as The Most Admired Registrar by MARG.

Handled the largest-ever public issue-IDBI

Handled over 500 public issues as registrars.

Handling the reliance Account which for nearly 10 million account holders.

First Depository Participant from Andhra Pradesh.

Major issues managed as arrangers

Kerala state electricity board.

Power Finance Corporation.

A.P. Water resources Development Corporation.

A.P Roads Development corporation.

A.P state electricity board.

Haldia Petrochemicals ltd.

Major issues managed as co-managers

IDBI Equity

Morgan Stanley Mutual Fund.

Bank of Baroda

Bank of Punjab Ltd

Corporation Bank

IndusInd Bank Ltd Jammu and Kashmir bank Ltd

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Housing and Urban Development corporation (HUDCO) Ltd

Madras refineries Ltd

Tamil Nadu Newsprint & Paper Ltd

BPL Ltd Birla 3M Ltd

Essar Steels Ltd

Hindustan Petroleum corporation Ltd

Infosys technologies Ltd

Jindal Vijaynagar Steels Ltd

Nagarjuna Fertilizers & Chemicals Ltd

Rajshree Polyfil Ltd

Karvy securities Ltd.

Karvy has secured over rs.500 crore in the following debt issues.

Andhra Pradesh road development corporation Ltd

ICICI Bonds (private placement)

ICICI Bonds-96

ICICI Bonds-97-I

ICICI Bonds-97-II

ICICI safety Bonds March 98

IDBI Bonds 96

IDBI Flexi Bonds I

IDBI Flexi Bonds II

IDBI Flexi Bonds III Kerala state electricity Board

Krishna Bhagya Jala Nigam Ltd

Power Finance Corporation Ltd

Andhra Pradesh Water Resources Development Corporation

Andhra Pradesh state Electricity Board

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KARVY CAPABILITIES

Technology infrastructure

It has desktops and 200 plus enterprise class servers having licensed software

across technology platforms. It has wide area network connecting branches all

over India. It has 24 * 7 back up and Redundancy support for critical business

data.

PHYSICAL INFRASTRUCTURE

It has 40 branches and 65 investor centers connected with communication

facilities like Email, Fax, Videoconferencing, WAN and LAN.

MAN POWER

It has work force of over 2000 highly trained people. It has experience of

processing over 120 million transactions. The Domain experience in the areas of

Data processing operations, Technology, Management and Financials and legal

processing. It has specialist expertise in quality control and cast management.

QUALITY PROCESS

It is an ISO 9002 certified operations by DNV Norway. It performs regular

internal and external audits for quality standards.

TRAINING

It has full-fledged learning center to train 150 people simultaneously. It has

simulated environment and on the Job training facilities.

BUSINESS CONTINUITY

It is a two-decade-old company of repute in the industry. It has a disaster

recovery center at separate location. It has investment in infrastructure.

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VALUES

INTEGRITY

TRANSPARENCY

PASSION FOR QUALITY

HARD WORK AND TEAM PLAY

LEARNING AND INNOVATION

EMPATHY AND HUMILITY

SENSE OF OWNERSHIP.

KARVY ACHIEVEMENTS

Indias # 1 public issue registrars with 655-market share.

# 2 in India in mutual fund registraring and investor servicing.

Amongst the top 5 mobilizers of funds in India.

Among the top 3 depository Participants. Among the top 5 retail brokers in the country.

ISO 9002 certified operations by DNV.

Among the top 10 medical transcriptionists.

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

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DATA ANALYSYS

SOME OF THE SCHEMES OF MUTUAL FUNDS:

Standard Chartered Mutual Fund

Schemes:

Grindlays cash fund: It is an Open-ended Income scheme with high liquidity. A

scheme that invests in money market instruments like Treasury Bills, Call money,

Repos , Short-term Corporate Debentures, Commercial Papers, Certificate of

Deposits, etc that provide a high level of stability and easy liquidity .

Tax:

The GCF is also very taxed efficient. It comes with a daily (compulsory

reinvestment), Weekly (compulsory reinvestment), Monthly and Bi-monthly dividend

options. Each day gains are declared in the form of dividends and then reinvested

after netting it off against Dividend Distribution Tax (currently 20.91%).This

dividend is completely tax free. So the net tax incidence is just 20.91% as compared

to 36.5925% for comparable non mutual fund option.

Grindlays Floating Rate Fund: It seeks to generate stable returns with a low risk

strategy by creating a portfolio that is substantially invested in good quality floating

rate debt or money market instruments, fixed rate debt and money market instruments.

GFRF primarily invests in Floating rate debentures and bonds, Short tenor fixed

rate instruments and long tenor fixed rate instruments swapped to floating rate.

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Plans: The fund comes in two plans

Short term plan for investors with a time horizon of 1-6 months.

Long term plan for investors with a time horizon of beyond 6 months.

Grindlays Debt Funds: Debt funds are funds that invest only in debt securities and

are designed to primarily protect your capital and provide better returns by investing

in high quality debt securities.

Operations of Debt funds: There are two important sources of revenue that a

debt fund earns:

a) Interest income

When you invest in a Bank / Company deposit, it offers you a fixed rate of interest

with the principal being returned on maturity. Similarly when a debt fund invests in

various debt securities the issuers of these securities offer a rate of interest and the

principal on maturity. The issuers of these securities could either could either be

various corporates like Reliance, Hindalco, ICICI, Bharat Petroleum or the

Government of India.

b) Mark to Market gain/loss

As interest rates on bank fixed deposits change frequently so do interest rates on debt

securities. Interest rates and debt security prices are in fact the two sides in seesaw. In

general, prices fall when interest rates rise and rise when interest rates fall. If theinterest rates were to decline then newer bonds would be issued at lower interest rates

than existing bonds. Consequently old bonds would be dearer and hence prices of

these older bonds would rise.

Similarly if interest rates were to raise then value of old bonds would fall, as newer

bonds would bear higher interest rates. The traded price of a bond may thus differ

from its face value. The longer a bonds period to maturity, the more its price tend to

fluctuate as market interest rates change.

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DSP Merrill lynch Mutual Fund:

Schemes

Liquidity Fund:

It is an open-ended fund liquid scheme seeking to generate a reasonable return

commensurate with low risk and high degree of liquidity from a portfolio constituted

of money market securities and high quality debt securities.

Floating rate Fund:

It is an open-ended income scheme seeking to generate income commensurate

with prudent risk from a portfolio substantially constituted of floating rate debt

securities and fixed rate debt securities swapped for floating rate returns. The scheme

may also invest in fixed rate debt securities and money market securities.

Short term Fund:

It is an open-ended income scheme seeking to generate income commensurate with

prudent risk, from a portfolio constituting of money market securities, floating rate

debt securities and debt securities.

Bond fund:

It is an open-ended income scheme seeking to generate an attractive return,

consistent with prudent risk from a portfolio, which is substantially constituted of

high quality debt securities of issuers predominantly domiciled in India.

Equity Fund:

It is an open ended growth scheme seeking to generate long term capital

appreciation, from a portfolio which is substantially constituted of equity and equity

related securities of issuers domiciled in India. The scheme may also invest a certain

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portion of its corpus in debt and money market securities, in order to meet liquidity

requirements from time to time.

T.I.G.E.R Fund:

It is an open ended growth scheme whose primary investment objective is to

seek to generate capital appreciation, from a portfolio that is substantially constituted

of equity securities of corporates, which could benefits from structural changes

brought about by continuing liberalization in economic policies by the government

and / or from continuing investments in infrastructure, both by public and private

sector

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HDFC MUTUAL FUND

Schemes

HDFC Growth Fund:

It is a open ended scheme seeking to generate long term capital appreciation

from a portfolio that is invested predominantly in equity and equity related

instruments

HDFC Equity Fund:

It is an open-ended growth scheme to achieve capital appreciation.

HDFC Top 200 Fund:

It is an open-ended growth scheme seeking to generate long-term capital appreciation

from a portfolio of equity and equity-linked instruments primarily drawn from the

companies in BSC 200 index.

HDFC Balanced Fund:

It is an open ended balanced scheme seeking to generate capital appreciation

along with current income from a combined portfolio of equity and equity related and

debt & money market instruments.

HDFC Tax Savers Fund:

It is an open-ended equity linked saving scheme with a lock-in period of 3 yrs

seeking to generate long term growth of capital.

HDFC Gilt Fund:

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It is an open-ended income scheme seeking to generate credit risk-free returns

through investments in sovereign securities issued by central government or state

government.

Birla Sun Life Mutual Fund:

Schemes

Birla Advantage Fund:

It is an open-ended diversified equity fund and portfolio remains over wait

across banks MNC pharma, IT and Telecom.

Birla Dividend Yield Plus:

It is an open-ended growth scheme investing in high dividend yield companies and

continuously having a positive outlook on banking sector.

Birla Mid cap Fund:

It is an open ended growth scheme investing primarily in mid cap stocks and the

portfolio remains well diversified across pharmaceutical, banking, consumer non

durable, IT, Hotels.

Birla MNC Fund:

It is an open-ended growth scheme investing in multi national companies and theportfolio remains over weight across consumer non-durable, IT, Agro chemicals.

Birla Gilt Plus :

It is an open-ended government security scheme.

Birla Equity Plan:

It is an open-ended equity linked savings scheme with a lock-in for threeyears.

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Kotak Mutual Fund

Schemes:

Kotak 30:

It is an open-ended equity growth scheme seeking to generate capital

appreciation from a portfolio of predominantly and equity related securities with

investment in, generally, not more than 30 stocks.

Kotak opportunities:

It is an open-ended equity growth scheme seeking to generate capital

appreciation from a diversified portfolio of equity and equity related securities.

Kotak Global India:

It is an open-ended growth scheme seeking to generate capital appreciation

from a diversified portfolio of equity and equity related securities issued by globally

competitive Indian companies .

Kotak Liquid:

It is an open-ended debt scheme to provide reasonable returns and high level of

liquidity by investing in debt and money market instruments of different maturities so

as to spread the risk across different kinds of issuers in debt markets.

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Chola mutual fund

Schemes:Cholamandalam growth fund:

It is an open ended scheme seeking to generate long term capital appreciation, income

through investments in equity & equity related instruments; the secondary objective isto generate some current income and distributive dividend.

Chola midcap fund:

It is an open ended scheme seeking to generate capital appreciation by investing

primarily in mid cap stocks. The scheme will invest primarily that have a market

capitalization between Rs.300 crores to Rs. 3000 crore.

Chola opportunities fund:

It is an open ended scheme which will invest mainly to generate long term capital

appreciation from a diversified portfolio of equity and equity related securities.

Chola Multi-cap fund:

It is an open-ended growth scheme which will provide long term capital appreciation

by investing in a well diversified portfolio of equity and equity related instruments

across all ranges of market capitalization.

Chola Gilt investment plan:

It is an open-ended growth scheme seeking to generate returns from a portfolio by

investing in Government securities.

Chola monthly income plan:

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It is an open-ended growth scheme seeking to generate monthly income through

investment in range of debt, equity and money market instruments.

CHOOSING FUNDS

When it comes down to it, the decision to invest in a mutual fund is one you

have to make on your own. When you try to choose an investment, however, it is a

good idea to seek the guidance of a financial advisor who will review its objective to

make sure it supports your financialgoal.

As an investor, your goals are unique, and a financial advisor can help

match you with the best funds. Remember, however, when you are choosing funds, to

consider how much risk you are comfortable with and when you'll need the money. If

you have the time to weather the market's ups and downs, you may want to consider

equity investments.

Before you select a mutual fund, it is essential to read the prospectus

carefully to learn all you can about the fund's performance, investment goals, risks,

charges and expenses.

DECISION MAKING FACTORS WHILE INVESTING IN MUTUAL FUNDS

Before looking at the mutual funds available to you, it may be best to decide the mix

of stock, bond, and money market funds you prefer. Some experts believe this is the

most important decision in investing. Here are some general points to keep in mind

when deciding what your investment strategy should be.

Diversify. It is a good idea to spread your investment among mutual funds that invest

in different types of securities. Stocks, bonds, and money market securities work

differently. Each offers different advantages and disadvantages. You may also want to

diversify within the same class of securities. Diversifying can keep you from putting

all your eggs in one basket and therefore, may increase your returns over along period

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of time.

Consider the effects of inflation. Since the money you set aside today may be

intended to be used several years down the road, you need to look at inflation.

Inflation measures the increase of general prices over time.

Conservative investments like money market funds often may be popular because

they are managed to keep a steady value. But their return after accounting for the

inflation rate can be very low, perhaps even negative.

For example, a 4% inflation rate over a period of many years could erase a money

market fund's 3% yield over the same period of time. So even though such an

investment may give some safety of principal, it may not be able to grow enough in

value over the years or even keep up with the rate of inflation.

Patience is a virtue. It's no secretthe prices of common stocks can change quite a

bit from day to day. Therefore, the part of your account invested in stock funds would

likely fluctuate in value much the same way.

If you don't need your money right away (for at least 5 years), you probably don't

need to panic if the stock market declines or you find that your quarterly statement

shows the value of your investment has fallen. In the past, the stock market has

regained lost value over time. Although you are not assured it will do so in the future,

try to be patient and allow your stock funds time to recover.

Remember the saying, "buy low, and sell high." Switching out of a stock mutual fund

when prices are low is usually not the way to make the most of your investment. Of

course, if a fund continues to under-perform over time as well as your other fund

choices, you may want to consider changing funds.

Look at your age. Younger investors may be more at ease with stock funds, because

they have time to wait out the short-term ups and downs of stock prices. By investing

in a stock fund, they might be able to receive high returns over the long-term.

On the other hand, people who are closer to retirement may be more interested in

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protecting their money from possible drops in prices, since they'll need to use it soon.

In this case, it may be wise to place a greater percentage of money in bond and/ or

money market funds, which may not have such large changes in value.

How can you determine an investment mix appropriate for your age? One way is

to subtract your age from 100. The answer you come up with may be a good number

to start with in deciding what portion of your total investments to put into stock

mutual funds.

Risk. When you are choosing funds, be sure to consider how much risk you are

comfortable with and how close you are to retirement. If retirement is around the

corner, you may want a portfolio with very little risk. On the other hand, if you are

younger, and have the time to weather the market's ups and downs, you may want to

choose a more aggressive investment strategy.

READ FUND DOCUMENTS

Your primary source of data concerning the mutual fund will be the prospectus. It is a

legal document illustrating the rules and regulations that a mutual fund must follow

and contains information on the fund's goal and strategy, risks, performance, financial

highlights fees and expenses, and a wide variety of information that you should know

before investing.

What are the fund' s goal and strategy?

Goals vary from fund to fund, and they're important to understand so you can

decide if they match your personal objectives. Some funds generate income for their

shareholders, while others concentrate on capital appreciation. Some focus on acombination of the two, and others are oriented towards tax benefits or preservation of

capital.

Funds also implement differing strategies to help accomplish their goals. The Goals

and Strategies section of a prospectus details the types of securities in which fund

managers can invest and how managers analyze them

Funds can be limited to domestic investments, focus on a certain country or region, or invest anywhere in the world. In addition, some funds invest only in specific

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industries or in particular types of companies. Others invest in large-, medium- or

small-capitalization companies.

What are the risks?

As with all investments, each fund, whether domestic, international or sector specific,

carries different risks. The Main Risks section of a prospectus explains which ones are

associated with the securities in that particular fund, which may help you decide what

level of risk you're comfortable having in your investment portfolio.

How has a fund performed?

While historical performance doesn't predict how a fund will do in the future, you

may be interested in how it performed in past market environments. Depending on the

age of the fund, a prospectus will provide its 1- 5- and 10-year average annual returns,

including a comparison to its benchmark index over the same period.

What are financial highlights?

In this section a prospectus lists 5 years of annual financial information, if a fund is

less than 5 years old, provides data since inception. Information includes net asset

values at the beginning and end of each year, and details the gains or losses, dividends

and distributions that account for any changes.

Financial Highlights also show fund asset information such as net assets ratios to

average net assets for expenses and net investment income, and portfolio turnover

rates.

What are the expenses of a fund?

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Operating a fund entails some costs you should be aware of. The Fees and Expenses

section breaks out these costs and who pays them. In addition, an example of fund

expenses is provided to help you compare the cost of investing in one fund versus

another.

Who's managing the fund?

In the Management section, a prospectus gives a brief biography of a fund' s

managers, including how long they have worked on the fund and their overall industry

experience.

MARKET SEGMENTATION

Market segmentation is the division of market into homogeneous groups,

which will respond differently to promotions, communications, advertising and other

marketing mix variables. A different marketing mix can target each group, or

segment, because the segments are created to minimize inherent differences

between respondents within each segment and maximize differences between each

segment.

Market segmentation was first described in the 1950s, when product

differentiation was the primary marketing strategy used. In the 1970s and 1980s,

market segmentation began to take off as a means of expanding sales and obtaining

competitive advantages.

Uses of Market Segmentation

There are many good reasons for dividing a market into smaller segments. The

primary reasons:

Easier marketing

It is easier to address the needs of smaller groups of customers, particularly if

they have many characteristics in common (e.g. seek the same benefits, same age,

gender, etc.).

Find niches

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Identify under-served or un-served markets. Using niche marketing,

segmentation can allow a new company or new product to target less contested buyers

and helps a mature product seek new buyers.

Efficient

More efficient use of marketing resources is by focusing on the best segments

for the investor offeringproduct, price, promotion, and place (distribution).

Segmentation can help avoid sending the wrong message or sending message to the

wrong people.

Classification variables

Classification variables are used to classify survey respondents into market

segments. Almost any demographic, geographic, Psychographic or behavioral

variable can be used to classify people into segments.

Demographic variables Age, gender, income, ethnicity, martial status, education,

occupation, household size, length of residence, type of residence, etc.

Geographic variables City, state, zip code, census tract, country, region,

metropolitan or rural location, population density, climate, etc.

Psychographic variables Attitudes, lifestyle, hobbies, risk aversion, personality

traits, leadership traits, magazines read, television programs watched, PRIZM

clusters, etc.

Behavioral variables Brand loyalty, usage level, benefits sought, distribution

channels used, reaction to marketing factors, etc.

Summary

Target marketing or market segmentation based on customer needs and wants

can increase profits. Target market identifies customer groups and the reasons they

purchase. Market segmentation helps a business be more responsive to changing

customer needs. An overall marketing plan or strategy visually shows how all aspects

of a marketing effort work together. The ultimate goal of any business is to sell the

product or service.

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PRIMARY DATA FOR THE PROJECT:

For the customized needs o the project, primary data was collected through a

survey in the twin cities of Hyderabad & Secunderabad. A Random sample of 100investors were surveyed. They were all asked to answer a questionnaire true to their

knowledge. The feedback obtained from the customer was instrumental, gauging the

perception of the investors towards mutual funds. It also throws light on the factors,

which influence them to make decisions while investing. Further the interaction with

few of the investors goes a long way in understanding the inlaid reasons for their

decisions.

SECONDARY DATA:

The main sources of secondary data are the web sites of various mutual fund

houses like cholamandalam mutual fund, Franklintempletonindia, ICICI, BIRLA

SUNLIFE, KOTAK and more such houses. Many references were collected from

different libraries to gain an insight on mutual funds. Previous studies conducted in

this field provided valuable help. In addition to the above sources, Working with

Karvy associates and interaction with their personnel provided a pragmatic edge to

my theoretical concepts.

Survey Details

Total Sample Size : 100

Economic Status Criterion : Tax payees & Non tax payees

Age groups : 23 years and above

Martial Status Criterion : Married, Married with children & Unmarried

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FACTORS CONSIDERED BY INVESTORS

WHILE INVESTING

Every investor considers several factors while investing in any of the products as it

deals with the most important need of life money.

The five main factors that were considered are:

1. Safety & security

2. Tax exemption

3. Liquidity

4. Profitability

5. Return pattern

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SAMPLE SIZE 100

ECONOMIC STATUS TAX PAYEES AND NON-TAX PAYEES

The above graph shows that 31% people consider safety & security as the main factor

while investing, 26% goes for Tax exemption, 17% considered return pattern in the

investment, 14% went with profitability and 12% showed interest in liquidity.

ANALYSIS OF THE ABOVE GRAPH:

In a developing country like India most of the people fall in the lower middle class

and middle class sectors. The attitude of the investors is of primary concern. As more

and more options that warrant high returns are available in the market, investor tends

to be more skeptical. So, while investing in any avenue, their first priority is safety

and security. Even the age of the investor plays a major role in the decision-making.

For example, if the investor is in the age of 50 and above, he usually looks for low or

no risks while investing. Therefore, 31% of investors surveyed preferred safety &

security.

Next is the tax exemption; as there is tremendous boom in the corporatesector and the remuneration system for a particular sector has changed. This created a

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Factors considered by investorsWhile investing

31%

26%12%

14%

17%

Safety & security Tax exemption

Liquidity Profitability

Return pattern


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change in income levels and thereby affected the expenditure patterns. In the past, it

took employee years of time to reach a five-figured salary. But, gradually the system

has changed. Even the employee in the lower level or the middle level of the

corporate ladder is receiving a handsome emolument. So, they are opting for the

exemption of tax. Therefore, the next preference is for tax exemption that is 26% of

the total.

Besides investors going for Safety & security, there are investors who opt for

return on investments they made. They are mainly in the age group of 23 and 35.

Because these investors are likely to think that, at this age they are mentally more

stable and feel that they can cope with financial risks. Any profits made would further

bolster their financial stability. And so, 17% went with return pattern of their

investment. In the same way, 14% of the investors look for profitability, especially

those who are already doing business, i.e. those who are already accustomed to taking

risks.Out of the total, 12% of investors preferred liquidity. The main reason for this

could be that, that making the invested money liquefied as and when required is

important, and this is not possible if the investments are made in any insurance, Bank

deposits, etc.

Though there are numerous factors that can be attributed to an investors

psyche, by large, we can conclude that maximum number of investors is investing in

those sectors where there is safety & security for their principal. The other factors

antecede safety.

INVESTMENT PATTERN:

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Sample size 100

Economic status Tax payees & non-tax payees

From the above graph, it is clear that 42% opted for an investment in bank deposits,

31% for insurance, 7% for shares, 9% for mutual fund, 2% for bonds, 5% for equity

and remaining 4% have invested in some other investments such as real estates etc.


The investment pattern of an investor is also very important because this shows the

avenues where the people are really interested. Here, 42% have invested in bank

deposits as it is very safe and risk free. Out of the sample of 100,it is observed that

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Investment pattern

42%

31%

9%2%

7% 5% 4%

Bank deposits insurance mutual fund

bonds shares Equitynone


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those who opted for an investment in banks in the form of deposits are found to be in

the age group of 40 and above and are in government services.

The next preference, as observed in the pie chart for investment pattern is

Insurance. People generally opt for life insurance because it promotes a sense of

safety & security for the dependents on the person and even his belongings. So, the

next priority is insurance. 7% of the investors went for an investment in shares as it

brings quick returns, although shares are prone to high risks.

As shown 9% of the investors opted for an investment in mutual funds. From

this we can infer that the market of mutual fund is picking up slowly. According to

the survey, the people who have invested in the mutual funds belong to high-incomerange and they want an exemption from tax and a mere 2% opted for bonds, 5% for

investment in equity and 4% have invested in other investments such as Real estate to

make quick returns on their investments.

AWARENESS TOWARDS MUTUAL FUNDS:

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Awareness towards mutual

funds

87%

13%

Aware of mutual fund Not aware of mutual fund

In the above pie chart, we can observe that nearly 90% of investors are aware of

mutual funds and only 13% people are not aware of it. This shows that most of the

investors know about mutual funds in one or the other way.


Of the sample surveyed, almost all of the people are aware of mutual funds. They areaware of the term mutual fund. Though the questionnaire cannot identify the extent

of the awareness. Through the interaction it is found that they are not actually aware

of the advantages in investing mutual funds, various types of mutual funds and

different schemes offered in it. It is found that People often have an inhibition that

investments in mutual funds can be done only by those who have surplus amount of

money with them and want to avail tax redemption.

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MUTUAL FUND INVESTMENTS :

Mutual funds are medium risk investments. Though Investing in mutual fund doesnt

assure a fixed amount of returns, nevertheless, they are not low. The awareness about

mutual funds is the primary criterion.

Mutual fund investments

75%

6%

19%

Equity funds Debt funds Liquid funds

Sample size 16

Criterion Mutual fund investors in the survey

From the graph, it is clear that only 16 out of 100 invested in mutual funds. From

those 16, 12 have invested in Equity funds, 3 in liquid funds and the remaining 1 in

debt funds.


Only 16 out of 100 invested in mutual funds this can be mainly attributed to the low

level of awareness, various inhibitions and a not so clear idea about the mutual funds.

It is very important to have a clear perception of mutual funds, how they work and

how the money is invested in different portfolios according to the investors choice.

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Investors who opted for equity funds are 12 of 16 percent. Equity funds being the

majority preference can be reasoned as they want their investments to be put in

various sectors i.e. DIVERSIFIED FUNDS so that they can make profits out of

easily. Even some went for INDEX FUNDS as the investments are made in Bench

Nark Index Stock like BSE, NSE.

A few (3%of 16%) investors made investments in liquid funds as they want a

Short term investments where the investor need not wait for much time for the return.

These are also called as Money Markets for short term.

Only a single investor went for debt funds where investments are in various debt

products like Certificate of Deposits (CDs), Commercial papers and call money asthe investor want a secured investment, which he can avail in Debt Funds.

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FINDINGS

Many of the investors are aware of mutual funds but most of their perception

towards them is not positive.

Investors are mainly concerned with the risk factors of mutual funds and are

not directing towards them.

The investors who have invested in mutual funds mainly go for it because of

the Liquidity matter and Tax exemption.

Most of the people dont know the advantages of mutual funds and the various

types of mutual funds.

There are nearly 1173 schemes of mutual funds offered by various mutual

fund houses, which an ordinary person is not aware.

A common investor basically looks for the Tax exemption and Safety &

security while investing.

Investors often feel that those people, who have surplus amount with them and

invest to avail Tax exemption, can do investing in mutual funds.

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SUMMARY

This report is an attempt to provide an analysis of the perception of an investor

towards mutual funds. However, what has been reported is only the tip of iceberg interms of data that are available.

However, my examinations suggests that employees are interested to invest in

mutual funds provided sufficiently educated and a know-how is provided on its

working. Though the self-employed are investing in mutual funds and insurance, they

are investing small amounts in them because they do not want to take high risks.

Karvy stock broking ltd should educate the people about the various

advantages of investing in mutual funds and create an awareness regarding various

investment options.

In conclusion, it is important to remember that the main purpose for initiating

the project is to analyze the perception of an ordinary investor towards the mutual

funds and the aspects that guide him to make investment decisions. The study does

not aim to advocate investments in mutual funds.

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CONCLUSION

Mutual funds are still and would continue to be the unique financial tool in the

country. One has to appreciate the fact that every aspect of life as its periods of high

and lows. This has been the case with the stock markets. Why not apply the same

logic to mutual funds? Mutual funds have not failed in any country where they

worked with regulatory frame work. Their future is bright. The poor performance of

many mutual funds schemes may be mostly attributed to the quality of personal

involved and their matter of fund management.

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SUGGESTIONS

Make people aware of mutual funds by:

Arranging free seminars in different organizations about mutual fund investments.

Arranging stalls in Public places is a good publicity.

More advertisements need to come to explain the various advantages of mutual

funds and even the various schemes offered by them.

What to expect from a financial advisor

The key for mutual fund investors is to define and recognize the value of

professional financial services, and then insist on getting that value. When you

pay a sales charge or a fee, what can you expect a professional to do for you?

Your advisor should at least:

Understand investor needs and help him formulate long-term investment

goalsand objectives. Before making specific recommendations, advisor should try to gain a whole

picture of investors past experience, lifestyle and goals, as well as his other

investments and current financial situation. When the investor planning to retire,

for example? Does the investor have life insurance? Does he own real estate?

How secured is his job?

Help the investor develop realistic expectations by discussing the risks andrewardsofeachinvestment.Every investment choice has its strengths and

weaknesses, and investor should never feel less than fully informed. When

investor ask questions, or have doubts, Investor should expect your financial advisor to answer honestly, and help him

develop a strategy that is both realistic and comfortable for him.

Match investors goals and objectives with appropriate mutual funds.

Investor should expect your advisor to make clear and specific recommendations,and explain the reasons behind them in terms he can understand. Of course, the

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advisor should be confident and well informed about the management and

portfolio strategies of any mutual funds recommended. Continually monitor investor portfolio and help you interpret performance.

Your advisor cannot influence or predict a fund's results. However, he or she

should discuss results with you and help you judge your progress. You should feel

that you canal ways ask your advisor, "How am I doing?" Conduct regular reviews to ensure that your strategy continues to provide optimal

results for you. One of the most valuable services your advisor can provide is to help you "stay on

course" with your investment program. But "staying on course" long term does

not necessarily mean staying put. Expect your financial advisor to work with you

to a

Documents

UDAY REDDY1