A Project Report On:

Need of financial advisors for

mutual fund investors
(With special reference to KARVY)

Interim report SUBMITTED BY:

JYOTI VERMA
Roll no. - pgpm/07-09/23

Under the guidance of:

Mr. Rohit vyas prof. p. mahapatra

Product head( MF), Eastern region,

faculty,ASBM,Bhubaneswar
KARVY, Kolkata

ASIAN SCHOOL OF BUSINESS MANAGEMENT,

 BHUBANESWAR

2
 CONTENTS:

serial Page

no Topic no.
1 certificate by organization 4
2 certificate by faculty guide 5
3 Acknowledgement 6
4 executive summary 7
5 company overview 8—17
6 karvy at eastern zone 17—20
7 mutual funds basics 21--31
8 concept of benchmarking 31
9 financial planning for investors 32
why has it becomethe largest financial

10 intermediary? 32-34
11 how investors choose between funds? 34-36
12 most popular stocks among fund managers 37
13 most lucrative sectors among fund managers 38-39
14 Systematic Investment Plan (in details) 39-41
15 does fund ranking and performance persist? 42-43
16 portfolio analysis tools 44-49
17 research report 50

3
 DECLARATION

I, Ms. JyotiVerma do hereby declare that the project report titled “NEED
OF FINANCIAL ADVISORS FOR MUTUAL FUND
INVETORS” is a genuine research work undertaken by me and it has not
been published anywhere earlier.

Date:

Place:

Jyoti Verma

ASBM, Bhubaneswar

4
Mr. Rohit Vyas
Product Head (MF),
Eastern zone, KARVY

Certificate by the organization:

This is to certify that Ms. Jyoti verma, pursuing PGPM at Asian

School of Business Management, Bhubaneswar has worked under
my supervision and guidance on her dissertation entitled “Need
of financial advisors for Mutual Fund
investors” at Karvy Stock Broking Limited,
Kolkata from April 10th 2008 to June 4th 2008. ” To the best of my
knowledge this is an original piece of work.

5
Prof. P.Mahapatra

Asian School of Business Management,

Bhubaneswar

Certificate by the faculty guide:

This is to certify that the project report entitled “Need of

financial advisors for Mutual Fund Investors” at
Karvy Stock Broking Limited is a bonafide record of
work done by Jyoti Verma, and submitted in partial fulfillment of
the requirements of PGPM program of Asian School of Business
Management, Bhubaneswar.

6
 Acknowledgement

Sometimes words fall short to show gratitude, the same happened with me during this
project. The immense help and support received from Karvy stock broking limited
overwhelmed me during the project.

My sincere gratitude to Mr.Alok Chaturvedi (Head, eastern region, karvy) and Dr.
Biswajeet Pattanaik (Director, ASBM, Bhubaneswar), for providing me with an
opportunity to work with karvy stock broking limited.

I am highly indebted to Mr. Rohit Vyas., product head ( MF), eastern zone, karvy and
company project guide, who has provided me with the necessary information and his
valuable suggestion and comments on bringing out this report in the best possible way.

I also thank Prof. P. Mahapatra, faculty guide, ASBM, Bhubaneswar who has sincerely
supported me with the valuable insights into the completion of this project.

I am grateful to Mr. Dhirendra Pradhan (branch head, Karvy, JDR) and all of the
members of Rashbehari Avenue branch, who have helped me in the successful
completion of this project, special mention of Ms. Debarati dey, Ms. Nidhi dhingra, Mr.
Debasish panda and Mr. Jyotirmoyee Bhattacharjee.

Last but not the least; my heartfelt love for my parents, whose constant support and
blessings helped me throughout this project.
7
 Executive summary:

This project has been a great learning experience for me; at the same time it gave me
enough scope to implement my analytical ability. This project as a whole can be divided
into two parts:

 The first part gives an insight about the mutual funds and its various aspects. It is
purely based on whatever I learned at karvy. One can have a brief knowledge
about mutual funds and all its basics through the project. Other than that the real
servings come when one moves ahead. Some of the most interesting questions
regarding mutual funds have been covered. Some of them are: why has it become
one of the largest financial intermediaries? How investors do chose between
funds? Most popular stocks among fund managers, most lucrative sectors for
fund managers, a special report on Systematic Investment Plan, does fund
performance persists and the topping of all the servings in the form of portfolio
analysis tool and its application.

All the topics have been covered in a very systematic way. The language has
been kept simple so that even a layman could understand. All the datas have been
well analyzed with the help of charts and graphs.

8
  The second part consists of datas and their analysis, collected through a survey
done on 200 people. It covers the topic” need of financial advisors for mutual
fund investors”. The data collected has been well organized and presented. Hope
the research findings and conclusions will be of use. It has also covered why
people don’t want to go for financial advisors? The advisors can take further
steps to approach more and more people and indulge them for taking their
advices.

Organization overview

9
Introduction:

“Success is a journey, not a destination.” If we look for

examples to prove this quote then we can find many but there is none like that of karvy. Back in
the year 1981, five people created history by establishing karvy and company which is today
known as karvy, the largest financial service provider of India.

Success sutras of karvy:

The success story of karvy is driven by 8 success sutras adopted by it namely trust,

integrity, dedication, commitment, enterprise, hard

work and team play, learning and innovation,
empathy and humility. These are the values that bind success with karvy.

Vision of karvy:

To achieve & sustain market leadership, Karvy shall aim for complete customer satisfaction, by
combining its human and technological resources, to provide world class quality services. In the
process Karvy shall strive to meet and exceed customer's satisfaction and set industry standards.

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Mission statement:

“Our mission is to be a leading and preferred service

provider to our customers, and we aim to achieve
this leadership position by building an innovative,
enterprising , and technology driven organization
which will set the highest standards of service and
business ethics.”

The success ladder:

Company overview:

11
Karvy was established as karvy and company by five chartered accountants during the
year 1979-80, and then its work was confined to audit and taxation only. Later on it
diversified into financial and accounting services during the year 1981-82 with a capital
of rs.150000. it achieved its first milestone after its first investment in technology. Karvy
became a known name during the year 1985-86 when it forayed into capital market as
registrar.

Evolution of KARVY:

It is well said that success is a journey not a destination and we can see it being proved
by karvy. Under this section we will see that how this “karvy and company” of 1980
became “karvy” of 2008. Karvy blossomed with the setting up of its first branch at
Mumbai during the year 1987-88. The turning point came in the year 1989 when it
decided to enter into one of the not only emerging rather potential field too i.e; stock
broking. It added the feather of stock broking into its cap. At the same time it became
the member of Hyderabad Stock Exchange through associate firm karvy securities ltd
and then karvy never looked back……..it went on adding services one after another, it
entered into retail stock broking in the year 1990. Karvy investor service centers were
set up in the year 1992. Karvy which already enjoyed a wide network through its
investor service centers, entered into financial product distribution services in the year
1993. One year more and karvy was now dealing into mutual fund services too in the
year 1994 but it didn’t stopped there, it stepped into corporate finance and investment
banking in the year 1995.

Karvy’s strategy has always been being the first entrant in the market. Karvy again hit
the limelight by becoming the first registrar in the country to be awarded ISO 9002 in
the year 1997. Then it stepped into the other most happening sector i.e; IT enabled
services by establishing its own BPO units and at a gap of just 1 year it took the path of
e-Business through its website www.karvy.com . Then it entered into insurance services
in the year 2001 with the launch of its retail arm “karvy- the finapolis: your personal
finance advisor”. Then in the year 2002 it launched its PCG(Private Client Group) which
looks after its High Networth Individuals .and maintain their portfolio and provides
them with other financial services. In the year 2003, it commenced secondary debt and
WDM trading.
12
It was a decade which saw many Indian companies going global…..so why the largest
financial service provider of India should lag behind? Hence, karvy launched “karvy
global services limited” after entering into a joint venture with Computershare, Australia
in the year 2004.the year 2004 also saw karvy entering into commodities marketing
through karvy comtrade.

Year 2005 saw karvy establishing a separate branch for its insurance services under the
head “ karvy insurance broking ltd” and in the same year, after being impressed with the
rapid growth of karvy stock broking limited, PCG group of Hong Kong acquired 25%
stake at KSBL. In the year 2006, karvy entered into one of the hottest sector of present
time i.e real estate through Karvy realty& services (India) ltd. hence , we can see now
karvy being established as the lagest financial service provider of the country.

Now karvy group consists of 8 highly renowned entities which are as follow:

1. : The first securities registry to receive ISO 9002 certification in

India. Registered with SEBI as Category I Registrar, is Number 1 Registrar in the
Country. The award of being ‘Most Admired’ Registrar is one among many of the
acknowledgements we received for our customer friendly and competent services.

2. : karvy stock broking ltd. Consists of five units namely stock

broking servics, depository participant, advisory services, distribution of financial
products, advisory services and private client goups.

3. : it is registered with SEBI as a category 1 merchant banker. Its

clientele includesinclude leading corporates, State Governments, foreign institutional
investors, public and private sector companies and banks, in Indian and global markets.

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4. : karvy insurance broking ltd is also a part of karvy stock broking
ltd. At Karvy Insurance Broking Limited both life and non-life insurance products are
provided to retail individuals, high net-worth clients and corporates.

5. : The company provides investment, advisory and brokerage

services in Indian Commodities Markets. And most importantly, it offer a wide reach
through our branch network of over 225 branches located across 180 cities.

6. : Karvy Global is a leading business and knowledge process

outsourcing Services Company offering creative business solutions to clients globally. It
operates in banking and financial services, inurance, healthcare and pharmaceuticals,
media , telecom and technology. It has its sales and business development office in New
York, USA and the offshore global delivery center in Hyderabad, India

7. : Karvy Realty (India) Limited is engaged in the business of real

estate and property services offering:

• Buying/ selling/ renting of properties

• Identifying valuable investments opportunities in the real estate sector
• Facilitating financial support for real estate and investments in properties
• Real estate portfolio advisory services

8. : it is a joint venture between Computershare, Australia and Karvy

Consultants Limited, India in the registry management services industry.

Organization structure of karvy:

14
talking about the organization structure of karvy, we have the board of directors as the supreme
governing body , the chairman being Mr. C parthasarthy, mr. m yugandhar as the managing
director, mr m s ramakrishna andmr. Prasad v. potluri as directors.

The board of diretors head the karvy group, karvy computershares limited, karvy investors
services ltd., karvy comtrade, karvy stock broking ltd., and karvy global services ltd.

Karvy group being the flagship company looks after the functional departments such as
corporate affairs, group human resources, finance & accounting, training & development,
technology services and corporate quality.

Karvy computershare private limited facilitates mutual fund services, share registry and issue
registry whereas merchant banking is looked after by karvy investor services ltd. Karvy stock
broking ltd heads its another branch too ie. Karvy insurance broking ltd. The services offered by
KSBL are: stock broking, depository, research, distribution, personal client group and
institutional desk. And finally the BPO services are managed by karvy global services ltd.
Summarizing it in a diagram, it can be presented as:

15
Spectrum of services offered by karvy:

Karvy being the top registrar and transfer agent, functions as registrar in most of the issues in the
country. Talking about the mutual fund services offered by karvy, we can get the products of 33
AMCs over here. it deals in both closed ended funds as well as open ended too. Now one must
be thinking why to get the mutual funds from karvy instead of getting it directly from
AMCs???we have great reasons for it: the first one being ; if we avail the services of karvy then
we can get the information about all the AMCs and their products at a single place along with
expert recommendations whereas at an AMC we can get information about the products of that
specific AMC only. And the second being wide network of karvy….nowadays we can find karvy
offices at remote areas too.

Along with these, karvy is very well handling the role of depository participant. Being
registered with both the depositories i.e.; NSDL (national securities depository ltd) and CDSL
(central depository services ltd), karvy can have access to both. Its wide network also facilitates
it in distribution of retail financial products.

16
Karvy believes in being updated always. So it is always ready to use latest technologies so that
its clients always be in touch with the latest happenings along with karvy. It offers e-business
through internet through its website: www.karvy.com . Other than it, it also provides its various
services through SMSes.

Karvy’s services are not limited to its investors only rather its offerings are for its corporate
clients and distributors too. it is very well aware of the fact that in this era of neck to neck
competition, we cant ignore any of the aspects of our business….so there’s a offering for
everybody…everyone’s welcome at karvy.

Why should investors choose for karvy?

Excellence is next to nothing….and here at karvy everybody tries their best to offer excellent
services to its clientele through its offerings maintaining the karvy culture which includes:

1. Controlled and low cost service culture: karvy is there to serve its client at the minimum
possible cost. it controls cost by its various cost- cutting techniques and minimization of
avoidable costs.

2. Large volume processing capability: being the largest financial service provider in the
country, it has the unique distinction of operating its activities on a large scale which benefits all
the parties cordially.

3. Adherence to strict time schedule: karvy knows that time is money and tries it best to finish
the task within the stipulated time schedule.

4. Expertise in coordinating multi-location responses: karvy has got a wide network and hence
one can find its branches at most of the places in India. Thus it enjoys its presence everywhere
and coordinates among itself in solving the queries and in responding to any situation.

5.Expertise in managing independent entities such as banks, post-office etc.: the work culture of
karvy and the ethics followed inside karvy makes its workforce compatible with everybody, so
the karvy people establishes good coordination with independent entities too.

6. Pooling of group resources: karvy group consists of eight subsidiaries, so it can easily pool
up its resources for accomplishment of its goals, whenever needed. The groups can help each
other whenever there are peaks and lows, and even in the case when they have huge targets just
as we saw few years back, Tata group pooling its resources to acquire Corus.

17
How karvy achieved it?

The core competency of karvy lies in the following points due to which it enjoys a competitive
edge over its competitors. The following culture adopted by karvy makes it all time favorite
among its clientele:

1. Professionally managed by qualified and trained manpower.

2. Uniquely structured in-house software and hardware department

3. Query handling within 48 hrs.

4. Strong secretarial, accounting and audit systems.

5. Unique work culture of working 7 days a week in 3 shifts.

6. Unmatched network spreading all over India.

How Achievements sounds synonymous to karvy:

The landmarks achieved by karvy very well define its success story. In the previous
pages, we learnt how a company started by five chartered accountants, named as karvy
and company turned into today’s karvy group, the largest financial intermediary of India.
But success didn’t came to karvy at a flow, the hard work and dedication of its
workforce made it what it is today…gradually it achieved the following landmarks and
now it has became what we call the karvy group, now it is:

1.largest independent distributor for financial products.

2.amongst the top 5 stock broker.

3.among the top 3 depository participants.

4.largest network of branches & business associates.

5.ISO 9002 certified operations by DNV.

6.Amongst top 10 investment bankers.

7.adjudged as one of the top 50 IT users in India by MIS south Asia.

8.full- fledged IT driven operation.

9.India’s no.1 registrar & securities transfer agent.

Clientele of karvy:

18
Karvy’s culture has helped karvy in achieving such a distinct position in the market where it can
boast of its huge client base. Be it a retail investor investing Rs. 500 in a SIP in Reliance mutual
fund or be it the largest corporate house of the country: Reliance industries- everybody is
heading towards karvy for their wealth maximization, lets have a look at the clientele of karvy :

According to the datas published in year 2007, karvy stock broking ltd. Operates
through more than 12000 terminals, more than 290000 accounts are maintained and
commands over 3.14% market share of NSE. The distribution services has access to
more than Rs. 40 billion Assets Under Management. Karvy being a depository
participant with both NSDL and CDSL, manages more than 700000 accounts from more
than 380 locations. Talking about the registry services, it manages over 750 public/ right
issues.at the same time, it is managing over 16 million portfolios as registrar.

If we took
a look at some of the top corporate houses availing the services of karvy then we have:
Reliance, IOC, IDBI,LIC, Hindustan Unilever, Principal Mutual Fund, Duetsche Mutual Fund,
Yogokawa, Marico Industries, Patni Computers, Morgan Stanley, Glenmark, CRISIL, 3M, Kotak
Mahindra Bank, Bharti Televenture, Infosys Technologies, Wipro, Infotech, IPCL,TATA
consultancy services, UTI mutual fund etc. Thus in total karvy serves over 16 million investors
and 300 corporates.

Now, as the project was carried on in Kolkata, so

there is a special reference to working of karvy at
eastern zone and mutual funds in particular.

KARVY at eastern zone:

Karvy stock Broking Ltd was started 11 yrs ago i.e.; during the year 1996 at Jatin Das road
which was later on established as the regional head office. Presently Mr. Alok Chaturvedi is
heading the eastern zone. Talking about the zonal offices, Karvy has zonal offices at Kolkata,
south Bengal, north Bengal, North east, Jharkhand, Bihar, Orissa and Chhattisgarh. Each zonal
office has got its own zonal heads. Karvy is a member of three stock exchanges of India:
National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and Hyderabad Stock
Exchange (HSE).

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Hierarchical Structure in diagram:

The above diagram shows the hierarchy of Karvy stock broking ltd. It can be easily depicted
from the diagram that the regional head (presently Mr. Alok Chaturvedi) is the supreme in the
eastern region, under whom the various zonal heads operate and under these zonal heads, the
branch heads operate. Between each level o the hierarchy, there exists a coordinator, who acts as
the facilitator between the different heads.

Karvy at Kolkata:

Now if we look at karvy’s branch offices at Kolkata, then there exist ten branches of karvy at
Kolkata, which are as follow:

1. Lake Town.

2. Burra bazaar.
20
 3. Shyam bazaar.

4. Dalhousie.

5. New Alipore.

6. Behala.

7. Jatin Das Road.

8. Phoolbagan.

9. Salt Lake.

10. Howrah.

Structure according to the Products offered by Karvy:

REGIONAL
HEADS

PRODUC
T
Debt
divisio
Realty n

Insura Stock Deposi Merch

Mutua nce comm tory ant &
brokin
KA
l funds brokin odities
g partici inv.ba PMS
g pant nking

KARVY Mutual Fund Services:

21
Mutual funds have servings for everybody. Whichever type of investor you are, you will
surely get a mutual fund meeting your requirements. But investing in mutual funds is no
child’s play therefore karvy mutual fund advisory services is there to guide in each and
every step of investment in mutual funds so that the dream of wealth creation doesn’t
turns into nightmares. Its offerings includes: products of all the 33 major AMCs,
research report about all the existing funds as well as NFOs, customized mutual fund
portfolios designed for individual as well as institutional customers, it not only design
the portfolios rather it offers continuous portfolio revision too depending on changing
market outlook and evolving trends, it further gives access to its online consolidated
portfolio statement. Thus karvy with its various offerings makes the investor feel safe in
this dynamic environment of the Indian financial market.

Karvy Computershare mutual fund services offers investors services, distributor services and
client services. It can be said that karvy is dedicated towards providing quality service to all
these three facets of the investment process.

Karvy being an intermediary is well registered with the Association of Mutual Funds of India
(AMFI). KARVY has got the registration no [ARN 0018] for mutual funds, which is mentioned
on every form. After the procurement of forms from various AMCs, the forms are passed on to
its various zonal and branch offices (as per their requirements) and then further processing is
done either directly or through sub-brokers.

Karvy operates through its sub- brokers, associates and its excellent pool of own direct
employees. The employees are offered salary by karvy whereas the sub- brokers and associates
get certain commission. Karvy has 70 branches and 3 franchisees in the eastern region. All the
work of mutual funds is regulated from Rashbehari avenue branch, an extension of the JDR
branch.

The main source of earning for KARVY is the brokerage offered by the various AMCs known as
pay-in. The amount offered may vary from AMC to AMC. Also, the franchisees have to pay a
certain amount every month. Now karvy also pay a certain amount to the sub brokers and
associates known as pay-out. The payout is decided according to the procurement done by them.

Recruitment:

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Karvy has an enviable pool of dynamic employees. Its people power has a great contribution in
making it the No. 1 financial intermediary. All the employees of karvy dealing in mutual funds
have to go through AMFI test. The recruitment process is at par with the industry standards, it is
mostly done through campus recruitment from reputed B- schools. Other than that, it also
recruits through direct interviews and GDs as per their requirement.

Karvy never compromises with quality that’s the reason it is excelling by providing quality
services to all the investors, clients, AMCs etc. associated with it.

23
Mutual funds

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it’s all about mutual funds:
Mutual funds: A mutual fund is a professionally-managed firm of collective investments that
pools money from many investors and invests it in stocks, bonds, short-term money market
instruments, and/or other securities.in other words we can say that A Mutual Fund is a trust
registered with the Securities and Exchange Board of India (SEBI), which pools up the money
from individual / corporate investors and invests the same on behalf of the investors /unit
holders, in equity shares, Government securities, Bonds, Call money markets etc., and
distributes the profits.

The value of each unit of the mutual fund, known as the net asset value (NAV), is mostly
calculated daily based on the total value of the fund divided by the number of shares currently
issued and outstanding. The value of all the securities in the portfolio in calculated daily. From
this, all expenses are deducted and the resultant value divided by the number of units in the fund
is the fund’s NAV.

NAV = Total value of the fund……………….

No. of shares currently issued and outstanding

Advantages of a MF

– Mutual Funds provide the benefit of cheap access to expensive stocks

– Mutual funds diversify the risk of the investor by investing in a basket of assets

– A team of professional fund managers manages them with in-depth research

inputs from investment analysts.

– Being institutions with good bargaining power in markets, mutual funds have
access to crucial corporate information, which individual investors cannot
access.

History of the Indian mutual fund industry:

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at
the initiative of the Government of India and Reserve Bank. The history of mutual funds in India
can be broadly divided into four distinct phases.

First Phase – 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament by the Reserve Bank
of India and functioned under the Regulatory and administrative control of the Reserve Bank of

25
India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India
(IDBI) took over the regulatory and administrative control in place of RBI. The first scheme
launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets
under management.

Second Phase – 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and
Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC).
SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by
Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank
Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC
established its mutual fund in June 1989 while GIC had set up its mutual fund in December
1990.At the end of 1993, the mutual fund industry had assets under management of Rs.47,004
crores.

Third Phase – 1993-2003 (Entry of Private Sector Funds)

1993 was the year in which the first Mutual Fund Regulations came into being, under which all
mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer
(now merged with Franklin Templeton) was the first private sector mutual fund registered in July
1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and
revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual
Fund) Regulations 1996. As at the end of January 2003, there were 33 mutual funds with total
assets of Rs. 1,21,805 crores.

Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated
into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets
under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the
assets of US 64 scheme, assured return and certain other schemes

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered
with SEBI and functions under the Mutual Fund Regulations. consolidation and growth. As at

26
the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores
under 421 schemes.

Categories of mutual funds:

Mutual funds can be classified as follow:

 Based on their structure:

• Open-ended funds: Investors can buy and sell the units from the fund, at any point of
time.

• Close-ended funds: These funds raise money from investors only once. Therefore, after
the offer period, fresh investments can not be made into the fund. If the fund is listed on

27
 a stocks exchange the units can be traded like stocks (E.g., Morgan Stanley Growth
Fund). Recently, most of the New Fund Offers of close-ended funds provided liquidity
window on a periodic basis such as monthly or weekly. Redemption of units can be
made during specified intervals. Therefore, such funds have relatively low liquidity.

 Based on their investment objective:

Equity funds: These funds invest in equities and equity related instruments. With
fluctuating share prices, such funds show volatile performance, even losses. However,
short term fluctuations in the market, generally smoothens out in the long term, thereby
offering higher returns at relatively lower volatility. At the same time, such funds can
yield great capital appreciation as, historically, equities have outperformed all asset
classes in the long term. Hence, investment in equity funds should be considered for a
period of at least 3-5 years. It can be further classified as:

i) Index funds- In this case a key stock market index, like BSE Sensex or Nifty is tracked.
Their portfolio mirrors the benchmark index both in terms of composition and individual stock
weightages.

ii) Equity diversified funds- 100% of the capital is invested in equities spreading across different
sectors and stocks.

iii|) Dividend yield funds- it is similar to the equity diversified funds except that they invest in
companies offering high dividend yields.

iv) Thematic funds- Invest 100% of the assets in sectors which are related through some theme.
e.g. -An infrastructure fund invests in power, construction, cements sectors etc.

v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A banking sector fund will
invest in banking stocks.

vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the investors.

Balanced fund: Their investment portfolio includes both debt and equity. As a result, on the
risk-return ladder, they fall between equity and debt funds. Balanced funds are the ideal mutual
funds vehicle for investors who prefer spreading their risk across various instruments. Following
are balanced funds classes:

i) Debt-oriented funds -Investment below 65% in equities.

ii) Equity-oriented funds -Invest at least 65% in equities, remaining in debt.

28
Debt fund: They invest only in debt instruments, and are a good option for investors averse to
idea of taking risk associated with equities. Therefore, they invest exclusively in fixed-income
instruments like bonds, debentures, Government of India securities; and money market
instruments such as certificates of deposit (CD), commercial paper (CP) and call money. Put
your money into any of these debt funds depending on your investment horizon and needs.

i) Liquid funds- These funds invest 100% in money market instruments, a large portion being
invested in call money market.

ii)Gilt funds ST- They invest 100% of their portfolio in government securities of and T-bills.

iii)Floating rate funds - Invest in short-term debt papers. Floaters invest in debt instruments
which have variable coupon rate.

iv)Arbitrage fund- They generate income through arbitrage opportunities due to mis-pricing
between cash market and derivatives market. Funds are allocated to equities, derivatives and
money markets. Higher proportion (around 75%) is put in money markets, in the absence of
arbitrage opportunities.

v)Gilt funds LT- They invest 100% of their portfolio in long-term government securities.

vi) Income funds LT- Typically, such funds invest a major portion of the portfolio in long-term
debt papers.

vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an exposure of
10%-30% to equities.

viii)FMPs- fixed monthly plans invest in debt papers whose maturity is in line with that of the
fund.

Investment strategies:

1. Systematic Investment Plan: under this a fixed sum is invested each month on a fixed date
of a month. Payment is made through post dated cheques or direct debit facilities. The investor
gets fewer units when the NAV is high and more units when the NAV is low. This is called as the
benefit of Rupee Cost Averaging (RCA)

2. Systematic Transfer Plan: under this an investor invest in debt oriented fund and give
instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual
fund.

29
3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund then he
can withdraw a fixed amount each month.

Risk v/s. return:

30
Working of a Mutual fund:

31
The entire mutual fund industry operates in a very organized way. The investors, known as unit
holders,handover their savings to the AMCs under various schemes. The objective of the
investment should match with the objective of the fund to best suit the investors’ needs. The
AMCs further invest the funds into various securities according to the investment objective.
The return generated from the investments is passed on to the investors or reinvested as
mentioned in the offer document.

Regulatory Authorities:

To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. It
notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time.

SEBI approved Asset Management Company (AMC) manages the funds by making investments in
various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of
the fund in its custody.
According to SEBI Regulations, two thirds of the directors of Trustee Company or board of trustees
must be independent.
The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual funds that
the mutual funds function within the strict regulatory framework. Its objective is to increase public
awareness of the mutual fund industry. AMFI also is engaged in upgrading professional standards and
in promoting best industry practices in diverse areas such as valuation, disclosure, transparency etc.

Documents required (PAN mandatory):

Proof of identity :1.photo PAN card
2. In case of non-photo PAN card in addition to copy of PAN card any one of the following: driving
license/passport copy/ voter id/ bank photo pass book.
Proof of address (any of the following ) :latest telephone bill, latest electricity bill, Passport, latest bank
passbook/bank account statement, latest Demat account statement, voter id, driving license, ration card,
rent agreement.
Offer document: an offer document is issued when the AMCs make New Fund Offer(NFO). Its
advisable to every investor to ask for the offer document and read it before investing. An offer
document consists of the following:
Standard Offer Document for Mutual Funds (SEBI Format)
Summary Information
Glossary of Defined Terms

32
 Risk Disclosures
Legal and Regulatory Compliance
Expenses
Condensed Financial Information of Schemes
Constitution of the Mutual Fund
Investment Objectives and Policies
Management of the Fund
Offer Related Information.
Key Information Memorandum: a key information memorandum, popularly known as KIM, is
attached along with the mutual fund form. And thus every investor get to read it. Its contents are:
1.name of the fund.
2.investment objective
3.asset allocation pattern of the scheme.
4.risk profile of the scheme
5.plans & options
6.minimum application amount/ no. of units
7.benchmark index
8.dividend policy
9.name of the fund manager(s)
10.expenses of the scheme: load structure, recurring expenses
11.performance of the scheme (scheme return v/s. benchmark return)
12.year- wise return for the last 5 financial year.

Distribution channels:

mutual funds posses a very strong distribution channel so that the ultimate customers doesn’t face any
difficulty in the final procurement. The various parties involved in distribution of mutual funds are:

1.Direct marketing by the AMCs: the forms could be obtained from the AMCs directly. The
investors can approach to the AMCs for the forms. some of the top AMCs of India are;
Reliance ,Birla Sunlife, Tata, SBI magnum, Kotak Mahindra, HDFC, Sundaram, ICICI, Mirae
Assets, Canara Robeco, Lotus India, LIC, UTI etc. whereas foreign AMCs include: Standard
Chartered, Franklin Templeton, Fidelity, JP Morgan, HSBC, DSP Merill Lynch, etc.
2.broker/ sub broker arrangements: the AMCs can simultaneously go for broker/sub-broker to

33
popularize their funds. AMCs can enjoy the advantage of large network of these brokers and
sub brokers.eg: KARVY being the top financial intermediary of India has the greatest network.
So the AMCs dealing through KARVY has access to most of the investors.
3.Individual agents, Banks, NBFC: investors can procure the funds through individual agents,
independent brokers, banks and several non- banking financial corporations too, whichever he
finds convenient for him.

Costs associated:
Expenses:
AMCs charge an annual fee, or expense ratio that covers administrative expenses, salaries,
advertising expenses, brokerage fee, etc. A 1.5% expense ratio means the AMC charges Rs1.50
for every Rs100 in assets under management. A fund's expense ratio is typically to the size of
the funds under management and not to the returns earned. Normally, the costs of running a
fund grow slower than the growth in the fund size - so, the more assets in the fund, the lower
should be its expense ratio
Loads:
Entry Load/Front-End Load (0-2.25%)- its the commission charged at the time of buying
the fund to cover the cost of selling, processing etc.
Exit Load/Back- End Load (0.25-2.25%)- it is the commission or charged paid when an
investor exits from a mutual fund, it is imposed to discourage withdrawals. It may reduce to
zero with increase in holding period.

Measuring and evaluating mutual funds performance:

Every investor investing in the mutual funds is driven by the motto of either wealth creation or
wealth increment or both. Therefore it’s very necessary to continuously evaluate the funds’
performance with the help of factsheets and newsletters, websites, newspapers and
professional advisors like karvy mutual fund services. If the investors ignore the evaluation of
funds’ performance then he can loose hold of it any time. In this ever-changing industry, he can
34
face any of the following problems:

1.variation in the funds’ performance due to change in its management/ objective.

2.the funds’ performance can slip in comparison to similar funds.
3. there may be an increase in the various costs associated with the fund.
4.beta, a technical measure of the risk associated may also surge.
5.the funds’ ratings may go down in the various lists published by independent rating agencies.
6.it can merge into another fund or could be acquired by another fund house.
Performance measures:

Equity funds: the performance of equity funds can be measured on the basis of: NAV
Growth, Total Return; Total Return with Reinvestment at NAV, Annualized Returns and
Distributions, Computing Total Return (Per Share Income and Expenses, Per Share Capital
Changes, Ratios, Shares Outstanding), the Expense Ratio, Portfolio Turnover Rate, Fund Size,
Transaction Costs, Cash Flow, Leverage.

Debt fund: likewise the performance of debt funds can be measured on the basis of: Peer
Group Comparisons, The Income Ratio, Industry Exposures and Concentrations, NPAs,
besides NAV Growth, Total Return and Expense Ratio.

Liquid funds: the performance of the highly volatile liquid funds can be measured on the
basis of: Fund Yield, besides NAV Growth, Total Return and Expense Ratio.

Concept of benchmarking for performance evaluation:

Every fund sets its benchmark according to its investment objective. The funds performance is
measured in comparison with the benchmark. If the fund generates a greater return than the
benchmark then it is said that the fund has outperformed benchmark , if it is equal to
benchmark then the correlation between them is exactly 1. And if in case the return is lower
than the benchmark then the fund is said to be underperformed.
some of the benchmarks are:
1.equity funds: market indices such as S&P CNX nifty, BSE100, BSE200, BSE-PSU, BSE 500

35
index, BSE bankex, and other sectoral indices.
2.debt funds: Interest Rates on Alternative Investments as Benchmarks, I-Bex Total Return
Index, JPM T-Bill Index Post-Tax Returns on Bank Deposits versus Debt Funds.
3. liquid funds: Short Term Government Instruments’ Interest Rates as Benchmarks, JPM T-
Bill Index

To measure the fund’s performance, the comparisons are usually done with:
I)with a market index.
ii)funds from the same peer group.
iii)other similar products in which investors invest their funds.

Financial planning for investors( ref. to mutual funds):

Investors are required to go for financial planning before making investments in any mutual
fund. The objective of financial planning is to ensure that the right amount of money is
available at the right time to the investor to be able to meet his financial goals. It is more than
mere tax planning. Steps in financial planning are:

Asset allocation.
Selection of fund.
Studying the features of a scheme.

In case of mutual funds, financial planning is concerned only with broad asset allocation,
leaving the actual allocation of securities and their management to fund managers. A fund
manager has to closely follow the objectives stated in the offer document, because financial
plans of users are chosen using these objectives.
Why has it become one of the largest financial instruments?

If we take a look at the recent scenario in the Indian financial market then we can find the
market flooded with a variety of investment options which includes mutual funds, equities,
fixed income bonds, corporate debentures, company fixed deposits, bank deposits, PPF, life

36
insurance, gold, real estate etc. all these investment options could be judged on the basis of
various parameters such as- return, safety convenience, volatility and liquidity. measuring
these investment options on the basis of the mentioned parameters, we get this in a tabular
form

37
Return
Safety
Volatility
Liquidity
Convenience

Equity
High
Low
High
High
Moderate

Bonds
Moderate
High
Moderate
Moderate
High

Co.
Debentures
Moderate
Moderate
Moderate
Low
Low

Co. FDs
Moderate
Low
Low
Low 38
  Which feature of the mutual funds allure you most?

Diversification
42

Professional management
29

 According to you which is the most suitable stage to invest in mutual funds?

Young unmarried stage 55

Young Married with children stage 32

39
Married with older children stage 21
Pre retirement stage 27

 Are you availing the services of personal financial advisors?

Yes 87
No 48

40
  Which expertise of the personal financial advisor is demanded most?

Portfolio review & investment recommendation 43

Planning to achieve specific financial goals 35
Managing assets in retirement 30
Access to specialists in areas such as tax 27
planning

 What
is the
major
reason
for
using

financial advisors?
41
Want help with asset allocation 42
Don’t have enough time to make own 23
decision
To explain various investment options 37
Want to have surety about financial goals 33

 What is the major reason for not using financial advisor?

Have access to all resources needed 18

Believe advisors are too expensive 53
Unsure how to find a trustworthy advisor 21
Want to be in control of own investments 43

42
Research findings and conclusions:

 At the survey conducted upon 200 people, 135 are already mutual fund investors or are
interested to invest in future and the remaining 65 are not interested in it. So there is
enough scope for the advisors to convert those 65 participants into investors through
their convincing power and great communication skills.

 Now, when those 65 people were asked about the reason of not investing in mutual
funds, then most of the people held their ignorance responsible for that. They lacked
knowledge and information about the mutual funds. Whereas just 10 people enjoyed
investing in other option. For 18 people, the benefits arousing from these investments
were not enough to drive them for investment in MFs and 12 people expressed no trust
over the fund managers’ decision. Again the financial advisors can tap upon these people
by educating them about mutual funds.

 Out of the 135 persons who already have invested in mutual funds/ are interested to
invest, only 18% have sound knowledge of MFs, 34% people are aware of only the
schemes in which they have invested. 27% possess partial knowledge whereas 21%
stands nowhere in knowledge about MFs.

 33 participants buy forms directly from the AMCs, 28 from brokers only, 55 from
brokers and sub-brokers even then 15 people buy from other sources. The brokers and
sub brokers have the maximum reach so they should try to make those investors aware f
the happenings, even the AMCs should follow it.
43
  When asked about the most alluring feature of MFs, most of them opted for
diversification, followed by reduction in risk, helps in achieving long term goals and
helps in achieving long term goals respectively.

 Most of the investor preferred to invest at a young unmarried stage. Even 32 persons
were ready to invest at a stage of young married with children but person with older
children avoid investing due to increased expenses. But again the number rose to 27 at
pre-retirement stage.

 Out of them 87 were already availing the services of financial advisors whereas 48
didn’t. When asked about the expertise of financial advisors which they liked most? 43
of them favored portfolio review and investment recommendation, followed by planning
to achieve long term goals, managing assets in retirement and access to specialists in
area such as tax planning.

 42 participants regarded asset allocation as the major reason for going for financial
advisors. 37 of them needed them to explain them the various investment options
available.33 of them wanted to make sure that they were saving enough to meet their
financial goals. While just 23 gave the reason- lack of time.

 When asked about one reason for not availing the services of financial advisors, about
53 of them pointed the advisors as expensive. 43 of them wished to be in control of their
own assets.21 of them said that they find it difficult to get trustworthy advisors. Whereas
18 of them said they have access to all the necessary resources required.

Recommendations:

The most vital problem spotted is of ignorance. Investors should be made aware of the benefits.
Nobody will invest until and unless he is fully convinced. Investors should be made to realize
that ignorance is no longer bliss and what they are losing by not investing.

Mutual funds offer a lot of benefit which no other single option could offer. But most of the
people are not even aware of what actually a mutual fund is? They only see it as just another
investment option. So the advisors should try to change their mindsets. The advisors should

44
target for more and more young investors. Young investors as well as persons at the height of
their career would like to go for advisors due to lack of expertise and time.

The advisors may try to highlight some of the value added benefits of MFs such as tax benefit,
rupee cost averaging, and systematic transfer plan, rebalancing etc. these benefits are not offered
by other options singlehandedly. So these are enough to drive the investors towards mutual
funds. Investors could also try to increase the spectrum of services offered.

Now the most important reason for not availing the services of advisors was spotted was being
expensive. The advisors should try to charge a nominal fee at the beginning. But if not possible
then they could go for offering more services and benefits at the existing rate. They should also
maintain their decency and follow the code of ethics so that the investors could trust upon them.
Thus the advisors should try to attract more and more persons and turn them into investors and
finally their clients.

Exhibit 1

Questionnaire:

 .have you invested /are you interested to invest in mutual

funds?

Yes [ ] No [ ] (plz. attempt the next

question)

 .what is the most important reason for not investing in mutual

funds?

Lack of knowledge about mutual funds [ ]

Enjoys investing in other options [ ]

Its benefits are not enough to drive you for investment [ ]

45
 No trust over the fund managers [ ]

 .where do you find yourself as a mutual fund investor?

Totally ignorant [ ]

Partial knowledge of mutual funds [ ]

Aware only of any specific scheme in which you invested [ ]

Fully aware [ ]

 .where from you purchase mutual funds?

Directly from the AMCs [ ]

Brokers only [ ]

Brokers/ sub-brokers [ ]

Other sources [ ]

 .which feature of the mutual funds allure you most?

Diversification [ ]

Professional management [ ]

Reduction in risk and transaction cost [ ]

Helps in achieving long term goals [ ]

 . According to you which is the most suitable stage to invest in

mutual funds?

Young unmarried stage [ ]

Young Married with children stage [ ]

Married with older children stage [ ]

Pre-retirement stage [ ]

46
  . are you availing the services of personal financial advisors?

YES [ ] NO [ ]

 .which expertise of the personal financial advisor is demanded

most?

Portfolio review & investment recommendation [ ]

Planning to achieve specific financial goals [ ]

Managing assets in retirement [ ]

Access to specialist in areas such as tax planning [ ]

 .what is the major reason for using financial advisors?

Want help with asset allocation

[ ]

Don’t have time to make my own investment decision

[ ]

To explain various investment options

[ ]

Want to make sure I am investing enough to meet my financial

goals [ ]

 .what is the major reason for not using financial advisor?

Have access to all resources needed to invest on own [ ]

Believe advisors are too expensive [ ]

Unsure how to find a trustworthy advisor [ ]

Want to be in control of own investment [ ]

Bibliography:
Websites:
47
www.the-finapolis.com

www.karvy.com

www.mutualfundsindia.com

www.valueresearchonline.com

www.moneycontrol.com

www.morningstar.com

www.yahoofinance.com

www.theeconomictimes.com

www.rediffmoney.com

www.bseindia.com

www.nseindia.com

www.investopedia.com

journals & other references:

Karvy –the finapolis

Karvy- business associates manual

The Economic Times

Business Standard

The Telegraph

Business India

Fact sheet and statements of various fund houses.

48
49