EXECUTIVE SUMMARY

All investments carry risk in some form or the other. Risk, liquidity and return are the so
called factors which are considered before making an investment. But there is a trade off
between risk and return. Higher the risk higher the return. Lower the risk and lower the
return. The decision of which mode of investment to choose largely depends upon the
investors necessity and the factors which according to him is the most vital one.

People with more security concern choose fixed investment and investments in
government securities and various post office savings. The main reason for choosing such
an investment mode is that the amount invested in the above stated securities seems to be
very secure and hence they seemed to be more preferred one where security is the prime
concern.

People whom returns are most important are ready to take risk to earn fairer risk. The
preferred mode of investment over here is shares and mutual fund. The risk factor in
these modes of investment is basically the returns are basically performance based. If the
company performs well the investors can accept fairer returns but if the company fails to
perform then there can be a threat to the invested amount. Hence the returns are very
volatile with the changes in the market conditions.

Hence it is up to the investors to decide that which is the best kind of investment that
would cater his need. The hypothesis of the study was “Investors still prefer the
traditional funds for investment instead the more modern methods like mutual
fund.”

1
 COMPANY PROFILE

In 1982, a group of Hyderabad-based practicing Chartered Accountants 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, Karvy's 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.

Today, Karvy has access to millions of Indian shareholders, besides companies, banks,
financial institutions and regulatory agencies. Over the past one and half decades, Karvy
has evolved as a veritable link between industry, finance and people. In January 1998,
Karvy became the first Depository Participant in Andhra Pradesh.

An ISO 9002 company, Karvy's commitment to quality and retail reach has made it an
integrated financial services company.

2
 GROUP COMPANIES

Karvy is just not restricted to one or two fields but has a very wide network. It has many
companies which are working in their name. Some of the companies and their functions
in brief are given below.

⇒ Karvy Consultants Limited

Deals in Registrar and Investment Services

⇒ Karvy Securities Limited

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

Deals in Issue management, Investment Banking and Merchant Banking.

⇒ Karvy Stock broking Limited

Deals in equity shares and debentures on the National Stock Exchange (NSE), the
Hyderabad Stock Exchange (HSE) and the Over-The-Counter Exchange of India
(OTCEI).

3
 KEY PEOPLE

Board of Directors - Karvy Consultants Limited

Parthasarathy C
Yugandhar M
Ramakrishna M S
Prasad V Potluri

Board of Directors - Karvy Securities Limited

Parthasarathy C
Yugandhar M
Ramakrishna M S

Board of Directors - Karvy Stock Broking Limited

Parthasarathy C
Yugandhar M
Ramakrishna M S

Board of Directors - Karvy Investor Services Limited

Parthasarathy C
Yugandhar M
Ramakrishna M S

ACHIEVEMENTS

• Largest mobiliser of funds as per PRIME DATABASE

• First ISO - 9002 Certified Registrar in India

4
• 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 accounts for nearly 10 million account
holders
• First Depository Participant from Andhra Pradesh.

5
 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 Customer’s 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 service 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 customer's 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 investors 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.

6
 INTRODUCTION OF MUTUAL FUND AND OTHER
INVESTMENTS

At independence the Indian economy was predominantly agrarian. Most of the

population was employed in agriculture, and most of those people were very poor.
Although there was considerable growth in the 1950s, the long-term rates of growth were
less positive than India's politicians desired and less than those of many other Asian
countries. The rate of growth improved in the 1980s. From FY 1980 to FY 1989, the
economy grew at an annual rate of 5.5 percent, or 3.3 percent on a per capita basis.
Industry grew at an annual rate of 6.6 percent and agriculture at a rate of 3.6 percent. A
high rate of investment was a major factor in improved economic growth. Investment
went from about 19 percent of GDP in the early 1970s to nearly 25 percent in the early
1980s. India, however, required a higher rate of investment to attain comparable
economic growth than did most other low-income developing countries, indicating a
lower rate of return on investments. Part of the adverse Indian experience was explained
by investment in large, long-gestating, capital-intensive projects.

Private savings financed most of India's investment, but by the mid-1980s further
growth in private savings was difficult because they were already at quite a high level. As
a result, during the late 1980s India relied increasingly on borrowing from foreign
sources.

By the 20th and the 21st century the level of savings made by the people increased
tremendously. These savings were invested in some or the other modes available either
for contingency purpose or to secure future. The major fields of investment were
insurance , bank fixed deposits, private fixed deposits, post office savings,
government securities, gold/silver, stocks, mutual funds , IPO(initial public
offering), real property etc.

7
.

MUTUAL FUNDS

INTRODUCTION

A Mutual Fund is a trust that pools the savings of a number of investors who
share a common financial goal. The money thus collected is invested by the fund
manager in different types of securities depending upon the objective of the scheme.
These could range from shares to debentures to money market instruments. The income
earned through these investments and the capital appreciation realized by the scheme is
shared by its unit holders in proportion to the number of units owned by them (pro rata).
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 portfolio at a relatively low
cost. Anybody with an inventible surplus of as little as a few thousand rupees can invest
in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and
strategy.

Mutual funds provide a way for people to pool their money together to create a
larger fund which is looked after by a professional fund manager. This fund is then
divided into equal shares, called units.

Following the stock, bond or money markets and taking advantage of the best
investment opportunities is a full time job requiring a great deal of knowledge, research
and in-depth analysis. Many people do not have the time or expertise to undertake this.
With mutual funds, professional fund managers and analysts do all this for you. You
benefit from their expertise.

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

8
securities at a relatively low cost. The flow chart below describes broadly the working of
a mutual fund:

SHAPE \* MERGEFORMAT

Figure 1 Mutual Fund Operation Flow Chart

9
BENEFITS OF MUTUAL FUNDS

Mutual Funds offer several benefits to an investor such as potential return,

liquidity, transparency, income growth, good post tax return and reasonable safety. There
are number of options available for an investor offered by a mutual fund.

Before investing in a Mutual Fund an investor must identify his needs and
preferences. While selecting a Mutual Fund's schemes he should consider the effect of
inflation rate, diversification of investment, the time period of investment and the risk
factors. There are various types of risk factors as:

 Market Risk
 Credit Risk
 Interest Rate Risk
 Inflation Risk
 Political Environment

A Mutual Fund is an ideal investment vehicle where a number of investors come

together to pool their money with common investment goal. Each Mutual Fund with
different type of schemes is managed by respective Asset Management Company (AMC).
An investor can invest his money in one or more schemes of Mutual Fund according to
his choice and becomes the unit holder of the scheme. The invested money in a particular
scheme of a Mutual Fund is then invested by fund manager in different types of suitable
stock and securities, bonds and money market instruments. Each Mutual Fund is
managed by qualified professionals, who use this money to create a portfolio which
includes stock and shares, bonds, gilt, money-market instruments or combination of all.
Thus Mutual Fund will diversify your portfolio over a variety of investment vehicles.
Mutual Fund offers an investor to invest even a small amount of money.

10
 Mutual Funds offer several benefits to an investor that unmatched by the other
investment options. The major benefits are good post-tax returns and reasonable safety,
the other benefits in investing in Mutual Funds are

Professional Management: Mutual Funds employ the services of experienced and

skilled professionals and dedicated investment research team. The whole team analyses
the performance and balance sheet of companies and selects them to achieve the
objectives of the scheme

Potential Return: Mutual Funds have the potential to provide a higher return to an
investor than any other option over a reasonable period of time.

Diversification: Mutual Funds invest in a number of companies across a wide cross

section of industries and sectors.

Liquidity: The investor can get the money promptly at the net asset value related prices
from the Mutual Funds open-ended schemes. In close-ended schemes, the units can be
sold on a stock exchange at the prevailing market price.

Low Cost: Investment in Mutual Funds is a less expensive way in comparison to a direct
investment in capital market.

Transparency: Mutual Funds have to disclose their holdings, investment pattern and the
necessary information before all investors under a regulation framework.

Flexibility: Investment in Mutual Funds offers a lot of flexibility with features of

schemes such as regular investment plan, regular withdrawal plans and dividend
reinvestment plans enabling systematic investment or withdrawal of funds.

Affordability: Small investors with low investment fund are unable to high-grade or blue
chip stocks. An investor through Mutual Funds can be benefited from a portfolio
including of high priced stock.

11
Well regulated: All Mutual Funds are registered with SEBI, and SEBI acts a watchdog,
so the Mutual Funds are well regulated.

12
DISADVANTAGES

Mutual funds are good investment vehicles to navigate the complex and unpredictable
world of investments. However, even mutual funds have some inherent drawbacks.
Understand these before you commit your money to a mutual fund.

No assured returns and no protection of capital

If you are planning to go with a mutual fund, this must be your mantra: mutual funds do
not offer assured returns and carry risk. For instance, unlike bank deposits, your
investment in a mutual fund can fall in value. In addition, mutual funds are not insured or
guaranteed by any government body (unlike a bank deposit, where up to Rs 1 lakh per
bank is insured by the Deposit and Credit Insurance Corporation, a subsidiary of the
Reserve Bank of India).

There are strict norms for any fund that assures returns and it is now compulsory for
funds to establish that they have resources to back such assurances. This is because most
closed-end funds that assured returns in the early-nineties failed to stick to their
assurances made at the time of launch, resulting in losses to investors.

Restrictive gains

Diversification helps, if risk minimization is your objective. However, the lack of

investment focus also means you gain less than if you had invested directly in a single
security

13
ORGANISATION OF MUTUAL FUNDS

There are many entities involved and the diagram below illustrates the organizational set
up of a mutual fund:

Figure 2 Organization of a Mutual Fund

Mutual funds have a unique structure not shared by other entities such as companies or
firms .The structure of mutual funds in India is governed by SEBI (Mutual Fund)
Regulations, 1996. These regulations make it mandatory for mutual funds to have a three
– tier structure of Sponsor – Trustee – Asset Management Company (AMC). The sponsor
is the promoter of the mutual fund and also appoints the Trustees, custodians, and the
AMC with prior approval of SEBI. The sponsor establishes the mutual fund and registers
the same with SEBI. Sponsor must contribute at least 40% of the capital of the AMC. The
trustees are responsible to the investors in the mutual fund, and appoint the AMC on the
advice of sponsors for managing the investment portfolio. The trustee of one mutual fund
cannot be a trustee of other mutual fund. The trustee of one mutual fund cannot be a
trustee of other mutual fund. The Indian Trust Act governs trustees. If the trustee is a

14
company then the Companies Act also governs it. The AMC is the business face of the
mutual fund, as it manages all the affairs of the mutual fund. Only the SEBI registered
AMC’s can be appointed as investment managers of mutual fund. AMC must have
minimum net worth of Rs. 10 crore, at all times. An AMC too cannot be an AMC or
trustees of other mutual fund.

TYPES OF MUTUAL FUNDS

A Mutual Fund may float several schemes which may be classified on the basis of its
structure, its investment objectives and other objectives.

TYPES OF MUTUAL FUND

ACCORDING TO ACCORDING TO
OTHER OBJECTIVES
STUCTURE INVESTMENT OBJECTIVES

A. MUTUAL FUND SCHEMES BY STRUCTURE

Open-Ended Funds: Open-Ended fund scheme is open for subscription all through year.
An investor can buy or sell the units at "NAV" (Net Asset Value) related price at any
time.

Close-Ended Funds: A Close-Ended fund is open for subscription only during a

specified period, generally at the time of initial public issue. The Close-Ended fund
scheme is listed on the some stock exchanges where an investor can buy or sell the units
of this type of scheme.

Interval Funds: Interval Funds combines both the features of Open-Ended funds and
Close-Ended funds.

15
B. MUTUAL FUND SCHEMES BY INVESTMENT OBJECTIVES

Growth Funds: The objective of Growth Fund scheme is to provide capital appreciation
over the medium to long term. This type of scheme is an ideal scheme for the investors
seeking capital appreciation for a long period.

Income Funds: The Income Fund schemes objective is to provide regular and steady
income to investors.

Balanced Funds: The objective of Balanced Fund schemes is to provide both growth and
regular income to investors.

Money Market Funds: The objectives of Money market funds are to provide easy
liquidity, regular income and preservation of income.

C. OTHER FUNDS

Tax Saving Schemes: The objective of Tax Saving schemes is to offer tax rebates to the
investors under specific provisions of the Indian Income Tax Laws. Investments made
under some schemes are allowed as deduction u/s 88 of the Income Tax Act.

Industry specific Schemes: Industry specific schemes invest only in the industries
specified in the offer document of the schemes.
Sectorial Schemes: The scheme invest particularly in a specified industries or initial
public offering.
Index schemes: Such schemes links with the performance of BSE sensex or NSE.
Loan Funds: Loan Funds charges a commission each time when you buy or sale units in
the fund.
No-Loan Funds: No-Loan Funds does not charge a commission on purchase or sale of
the units in the fund.

16
OTHER 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.
Though certainly not the best or deepest of markets in the world, it has reasonable options
for an ordinary man to invest his savings. A short briefing about each form of investment
is given below:

BANKS

Considered as the safest of all options, banks have been the roots of the financial systems
in India. Promoted as the means to social development, banks in India have indeed played
an important role in the rural upliftment. For an ordinary person though, they have acted
as the safest investment avenue wherein a person deposits money and earns interest on it.
The two main modes of investment in banks, savings accounts and fixed deposits have
been effectively used by one and all. However, today the interest rate structure in the
country is headed southwards, keeping in line with global trends. With the banks offering
little above 9 percent 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 percent at times, and this means that the value of money saved goes down instead of
going up. This effectively mars any chance of gaining from the investments in banks.

When you deposit a certain sum with the bank at a fixed rate of interest and for specified
time period it is called a bank Fixed Deposit (FD). At maturity, you are entitled to receive
the principal amount as well as the interest earned at the pre-specified rate during that
period.

The rate of interest for Bank Fixed Deposits varies between 4 and 6 per cent, depending
on the maturity period of the FD and the amount invested. The interest can be calculated

17
monthly, quarterly, half-yearly, or annually, and varies from bank to bank. They are one
the most common savings avenue, and account for a substantial portion of an average
investor's savings.

The facilities vary from bank to bank. Some services offered are withdrawal through
cheques on maturity; break deposit through premature withdrawal, and overdraft facility
etc.

Duration Interest Rates (% p.a.)

(effective 5th May
2003)
7 days to 14 days (Rs.15 lacs and above) 4.00
15 days to 45 days 4.25
46 days to 179 days 5.00
180 days to less than 1 year 5.25
1 year to less than 2 years 5.50
2 years to less than 3 years 5.75
3 years and above 6.00
Source: State Bank of India

Table : Interest Rates Payable on Deposits

18
POST OFFICE SCHEMES

Just like banks, post offices in India have a wide network. Spread across the nation, they
offer financial assistance as well as serving the basic requirements of communication.
Among all saving options, Post office schemes have been offering the highest rates.
Added to it is the fact 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. Though certainly not
the most efficient systems in terms of service standards and liquidity, these have still
managed to attract the attention of small, retail investors. However, with the government
announcing its intention of reducing the interest rates in small savings options, this
avenue is expected to lose some of the investors. 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. This option too is likely to lose
some of its sheen on account of reduction in the rates offered. Post office savings consists
of

National Savings Certificates: National Savings Certificates (NSC) is an assured return

scheme, armed with powerful tax rebates under Section 88 of the Income Tax
Act, 1961. Interest is payable at 8 per cent, compounded half-yearly for a
duration of 6 years.

• National Savings Scheme: National Savings Scheme (NSS) offers an assured

return and tax rebates under Section 88 of the Income Tax Act, 1961. The rate of
interest is 7.5 per cent per annum, compounded annually.
• Kisan Vikas Patra: Kisan Vikas Patra (KVP) doubles your money in 8 years and
7 months with the advantage of premature withdrawal. KVP is sold through all
Head Post Offices and other authorized post offices throughout India. The rate of
return is 8.41 per cent, compounded annually.

19
• Monthly Income Scheme: The post-office monthly income scheme (MIS)
provides for monthly payment of interest income to investors. It is meant for
investors who want to invest a lump-sum amount initially and earn interest on a
monthly basis for their livelihood. The scheme is, therefore, a boon for retired
persons. The post-office MIS gives a return of 8 per cent plus a bonus of 10 per
cent on maturity. However, this 10 per cent bonus is not available in case of
premature withdrawals.

• Recurring Deposit: A Post-Office Recurring Deposit Account (RDA) is akin to a

Recurring Deposit in a bank, where you invest a fixed amount on a monthly basis.
The deposit has a fixed tenure, and the scheme is a powerful tool for regular
savings. As the name says, the RDA is a systematic way of saving money. The
scheme is meant for investors who want to deposit a fixed amount regularly, in
order to get a tidy sum after five years. If you invest Rs 10 every month, you will
get back Rs 728.90 after 5 years.

• Time Deposit: A Time Deposit is an investment option that pays annual interest
rates between 6.25 and 7.5 per cent, compounded quarterly, and is available
through post-offices across the country.

20
COMPANY FIXED DEPOSITS

Another often-used route to invest has been the fixed deposit schemes floated by
companies. Financial institutions and Non-Banking Finance Companies (NBFCs) also
accept such deposits. Deposits thus mobilized are governed by the Companies Act under
Section 58A. These deposits are unsecured, i.e., if the company defaults, the investor
cannot sell the company to recover his capital, thus making them a risky investment
option. NBFCs are small organizations, and have modest fixed and manpower costs.
Therefore, they can pass on the benefits to the investor in the form of a higher rate of
interest.
NBFCs suffer from a credibility crisis. So be absolutely sure to check the credit
rating. AAA rating is the safest. According to latest RBI guidelines, NBFCs and
companies cannot offer more than 14 per cent interest on public 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, the lesser
the return offered has been the thumb rule. However, there are several potential
roadblocks in these. First of all, the danger of financial position of the company not being
understood by the investor lurks. The investors rely on intermediaries who more often
than not, don’t reveal the entire truth. Secondly, liquidity is a major problem with the
amount being received months after the due dates. Premature redemption is generally not
entertained without cuts in the returns offered and though they present a reasonable
option to counter interest rate risk (especially when the economy is headed for a low
interest regime), the safety of principal amount has been found lacking. Many cases like
the Kuber Group and DCM Group fiascoes have resulted in low confidence in this
option.

21
SHARES

Shares, also called scrip, are the basic building blocks of a company. A company's
ownership is determined on the basis of its shareholding. Shares are, by far, the most
glamorous investment option for the simple reason that, over the long term, they offer the
highest returns. Predictably, they're also the riskiest investment option. The BSE Sensex
is the most popular index that tracks the movements of shares of 30 blue-chip companies
on a weighted average basis. The rise and fall in the value of the Sensex, measured in
points, broadly indicates the price-movement of the value of shares. Of late, technology
has played a major role in enhancing the efficiency, safety, and transparency of the
markets. The introduction of net trading has made it possible for an investor to trade in
shares at the click of a mouse.

Types of shares

A company may have many different types of shares that come with different conditions
and rights.

There are four main types of shares:

Ordinary Shares: Ordinary shares are standard shares with no special rights or
restrictions. They have the potential to give the highest financial gains, but also have the
highest risk. Ordinary shareholders are the last to be paid if the company is wound up.

Preference Shares: Preference shares typically carry a right that gives the holder
preferential treatment when annual dividends are distributed to shareholders.

Cumulative Preference Shares: Cumulative preference shares give holders the right
that, if a dividend cannot be paid one year, it will be carried forward to successive years.

Redeemable Shares: Redeemable shares come with an agreement that the company can
buy them back at a future date. A company cannot issue only redeemable shares.

22
INSURANCE

A life insurance policy is a contract between an individual (termed as insured) and an

insurance company (insurer) to pay the insured, or his nominated heirs, a specified sum
of money on the happening of an event. The event could be the expiry of the insurance
policy or the death of the insured before the expiry (date of maturity) of the policy as per
the terms of the policy.

In a simple example, a person takes an insurance policy and nominates his wife as the
beneficiary. On the death of this person, his wife gets the amount for which the life
insurance policy was purchased. There are many variants of a life insurance policy:

1. Whole Life Assurance Plans: These are low-cost insurance plans where the sum
assured is payable on the death of the insured
2. Endowment Assurance Plans: Under these plans, the sum assured is pay-able on the
maturity of the policy or in case of death of the insured individual before maturity of the
policy.
3. Term Assurance Plans: Under these plans, the sum assured is payable only on the
death of the insured individual before expiry of the policy.
4. Pension Plans: These plans provide for either immediate or deferred pension for life.
The pension payments are made till the death of the annuitant (per-son who has a pension
plan) unless the policy has provision of guaranteed period.

Life Insurance Corporation (LIC) is a government company. Till recently, the LIC was
the sole provider of life insurance policies to the Indian public. However, the Insurance
Regulatory & Development Authority (IRDA) has now issued licenses to a few private
companies to conduct the business of life insurance.

23
 DATA ANALYSIS

RESARCH METHODOLOGY

HYPOTHESIS: Investors still prefer the traditional funds for investment instead the
more modern methods like mutual fund

RESEARCH OBJECTIVE

To study

• Investment pattern of investors.

• Key factors to be considered before investing.
• Mutual funds scope and acceptance of mutual fund as means of investment as
compared to other investment.

TYPE OF SURVEY

The questionnaire based survey is selected for conducting the research. The questionnaire
based survey is selected because it is the most effective and efficient way to conduct
research of investors investing in mutual fund since they just have to give their opinion
for the question asked by the researcher and also they can just select from the alternatives
given in the questionnaire.

SAMPLING

Non-Probability Sampling

For the study the sampling technique used is that of Non Probability Sampling and the
method is that of Convenience Sampling which represents the non probability samples

24
that can be restricted. Under this method there is freedom to choose whomever the
researcher finds.

SAMPLE SIZE

The population defined for the study is any investor and into any kind of investment. The
population defined would give inferences. So the population is divided here in different
classes. All the professionals, service, businessmen and would include any person who
make any kind of investment became my population. The sample size is approximately
size is kept 100 randomly.

TYPE OF QUESTIONNAIRE

The questionnaire designed contained

 Dichotomous questions
 Multiple-choice questions

Thus it was easy for the investors to select from the alternatives, the alternative which
suits them the best. The data or the data the information collected from the respondents
were the respondents were then compiled, tabulated and classified for analysis and
interpretation with the use of Microsoft Excel, Microsoft Word etc.

LIMITATION:

Every research has certain limitation to it. So also the research conducted had certain
limitation. They are stated as under:

 The respondents were not very much co-operative as they didn’t want to disclose
their level of investments.
 The investors of were difficult to be traced, as there was no database available for
the same.

25
 People generally hesitated to answer the questionnaire thinking that the
questionnaire is a way to market some particular mode of investment.

 Insufficient knowledge of every kind of investment sometimes sticks a respondent

at particular answer, which inversely affect towards the objective of study.
 At the time of survey some of the respondents are busy in their work, which had
restricted them from answering.
 The respondents where not able to justify their stand at points and hence this
proved to be a limitation of the study.

26
 DATA ANALYSIS AND INTERPRETATON

PERCENTAGE OF INCOME SAVED BY THE GENERAL MASS

Savings Percentage

40 37
35 32
30
Respondents

25 21
20
15 10
10
5
0
Below 10-20% 20-30% Above
10% 30%

The chart represents the percentage of the income the respondents generally save. From
the above chart it is clear that a large number of investors save between the range of 10 to
20% percent of their income. Nearly equal numbers of investor save less than 10%. Only
10% of the investors surveyed saved more than 30% of their income. The respondents
who saved between the range of 20 to 30 % was around 21%

27
THE PURPOSE SAVING SERVES

 Contingency
 Secured Future
 Others

Saving purpose

2 15

83

Contigency Secured Future Others

The chart represents the purpose for which the people make a saving. It is pretty clear
from the chart that the maximum number of respondents (i.e.83%) saves to secure their
future. Secure future can be anything from their children’s studies or marriage or for
themselves. The next importance is given for contingency purpose. The others purpose
could be tax benefits or excess money and no specific purpose. The respondents could be
generally being termed as to be more concerned about the future and hence they can be
termed as safe players.

28
THE FACTORS TAKEN INTO ACCOUNT BEFORE INVESTING

 Risk
 Liquidity
 Return
 Tenure
 Others

Investing factors

100
81
80
60
44
Respondents
40
20 14
1 5
0
Risk Liquidity Return Tenure Others

This chart represents the factors that investors consider before making an investment.
From the above chart it is clear that the investors take into account more than one
factor before making an investment. Risk factor has been the prime concern for the
investors for making an investment. 81% of the respondents consider risk as being
one of the main factors to be considered before making an investment. Further the
return was considered to be important for the investments. 44% respondents
considered return to be an important factor whereas 14 % respondents considered
liquidity to be an important factor. Risk was considered to be more important than
Liquidity and Returns. The respondents gave least importance to the tenure factor.

29
 The others over here could be the past records of the investment opportunity or the
goodwill of the same

PERSONS CONSULTED BEFORE MAKING AN INVESTMENT DECISION.

• Family and Relatives

• Peer
• Expert and Professionals
• Self

IN V E S T M E N T C O N S U L T A N T
47 38
50 30

R E SP O ND E N 5
TS
0

F a m ily a n d R e la tPiveeesr s E x p e r ts a n d P r o fe s sSioe nlfa ls

This chart represents the people whose opinions are generally taken by the investors
before making an investment. It is clear from the above diagram that more than one
person’s opinion is taken into consideration before making an investment. Maximum
number of respondents consults family and relatives opinion before making an
investment followed by experts and professionals. Large number of people do not consult
anybody but rely on their intuition and their own experience and knowledge while

30
making an investment. People consulting experts before making an investment have been
increasing over the years but it still has a very long way to go.

31
INVESTMENT AVENUES PREFERED

INVESTMENT AVENUES
95
100
90 79 75
80 67
RESPONDENTS 70 58
60 50
50
40
30 19
20 6 8
10
0
1
Insurance Bank FD/Company FD
Post Office Savings Government Securities
Gold/Silver Stocks
Mutual Fund IPO
Others

The above chart represents the avenue where investments are made. It is clear that the
investors chose more than one avenue as part of their investment. Insurance is a field
where people are keener to make an investment followed by Bank FD/Company FD and
stocks. Mutual fund was not much preferable only 50% of the respondents were actual
investors in the mutual fund industry. Gold/Silver (i.e. bullion) and the IPO (initial public
offering) were the least preferred amongst the respondents as an avenue for investment.
Others over here could include real property. Even Government securities had a
noticeable number of investors. Post office schemes proved to be a very encouraging area
of investment.

32
MODES OF AWARENESS FOR MUTUAL FUNDS

M ODE S OF AW ARE NE S S

60 48
40
R ESPO N D
ENT S 20 18 15
3 1
0
N e ws pa pe r 1 udio / V ide o A dve rtis e m e nt
A
M a ga zine s P ro fe s s io na ls
O the rs

This input was basically required from the respondents who didn’t invest in mutual funds.
This means that this question was meant for 50 respondents who did not invest in mutual
fund. This chart represents the ways in which respondents who are not investing into
mutual funds came to know about mutual funds. Newspapers have been the best mode of
advertising for mutual fund .About 96% people have come to know about mutual fund
through newspaper advertisement followed by magazines. The share of professionals has
been less as compared to other modes. This says there is lot of scope further. Magazines
and other mode has been the least contributor.

33
SCHEMES OF MUTUAL FUND THAT THE GENERAL MASS WAS AWARE
OF

SCHEMES OF MUTUAL FUND

33
35 15
30
25
RESPOND 20
ENTS 15 8
10 5
5
0
Equity Debt MIP Balanced Not Aware

This chart represents the schemes of mutual funds of which respondents not investing in
mutual funds are aware of. MIP i.e. monthly Income Plan seems to be more popular
amongst the respondents. So that could be an area where the mutual fund industry can
cash in. The popularity was followed by equity schemes and by debt schemes. There
were 8 respondents out of 50 i.e. fairly 16% who were not aware about any schemes of
mutual fund industry. The prime concern of the industry people should over here be to
educate people regarding the mutual fund industry and its various schemes and how it can
prove to be beneficial to an ordinary man.

34
FUTURE OF MUTUAL FUND

FUTURE O F M UT UAL FUNDS

4%
34%

62%

YESNO CANT SAY

The above chart represents the inclination of the respondents to invest in the mutual fund
industry. 31 of the 50 respondents are not investing in mutual fund industry and are not
willing to do so. Hence it becomes important for the mutual fund industry try to
overcome the barriers for these respondents and persuade them to invest in mutual fund.
This would be a tough job but can prove to be a good potential market. There are about
4% respondents out of these 50 respondents who are not able to give an opinion whether
they would be interested in investing in the mutual fund industry. To get them invest in
the same would be relatively easy job. There are only 17 respondents who are willing to
invest in mutual fund and hence they can be easily converted into mutual fund investors.

35
REASONS FOR NOT CHOOSING MUTUAL FUND AS AN INVESTMENT
AVENUE

• Less Secured
• Unfavorable market conditions
• Bad Past Record of MFs
• Unfavorable Returns
• Others

REASONS

40 26 22
RESPOND 9 10 10
20
ENTS

0
UNFAVOURABLE MARKET CONDITIONS PAST RECORDS

UNFAVOURABLE RETURNS LESS SECURED

OTHERS

This chart represents the reasons why the respondents were not investing in mutual fund.
Over here there was no single main reason that was restricting the respondents to invest
in mutual fund. The other reasons over here were lack of knowledge, the feeling that it is
not backed by any legislative body, not interested and satisfied with other forms of
investment. The main reason over here was lack of knowledge and fear as they believed
that it was not backed by any body and hence their investment was not protected. It is this
category that mutual fund industry can cash in. They can start educating people about the
mutual fund and hence can widen their base. The other reason was that respondents
considered it to be less secured than the other investments. Security seemed to be a threat

36
for the respondents. Even the past bad records of the mutual fund industry seemed to be a
reason for their disinterest in the mutual fund. There were respondents who thought that
the returns were not enough. That could be an area where it would be difficult to bring in
confidence. Even the market conditions seemed to be a prime concern for the
respondents. The market as in such seems to be very volatile and hence this restricted the
people from investing in mutual fund industry. The reasons were not very strong but that
were enough for the respondents for not investing in mutual fund.

37
PROCEDURE OF MUTUAL FUND

P R O C E D U R E O F M U TU AL FU N D

16%

84%

Y E S NO

This chart represents the respondents, who invested in mutual fund, view whether they
found the procedure of the mutual fund too long. It is a general believe that the procedure
of mutual fund is too long. The reason for this is that the forms of mutual fund forms
were very long as compared to other forms of investment like shares etc. But the
respondents at large did not find it too complex because it was their agents who took the
pain. Hence their work load was too less.

38
MUTUAL FUND AS COMPARED TO OTHER MODES OF INVESTMENT IN
SOME SELECTED FACTORS

RISK FACTOR

RISK FACTOR

31
17
40
2
RESPONDENTS
20
0

MORE
LESS INDIFERRENT

This chart represents the preference of respondents of mutual fund over as far as the risk
factor is considered. From the above chart it is quite clear that mutual fund is considered
to be more risky as compared to other forms of investment. About 62% of the
respondents investing in mutual fund are of the opinion that mutual fund is more risky as
against other forms of investment. There were few respondents that were of the opinion
that it was relatively same for every form of investment. But there were about 34% of the
respondents who thought that mutual funds were less risky then other forms of
investment. The risk factor was generally attributed to the volatile market and the
unpredictable company’s market.

39
LIQUIDITY FACTOR

L IQ U ID IT Y

5 10

35

L E S S M O R E IN D IF F E R E N T

This chart represents the preference of respondents of mutual fund over as far as the
liquidity factor is considered. From the above chart it is quite clear that mutual fund is
considered to be more liquid than the other form of investment. The investors seem to be
satisfied with mutual fund as far as the liquidity factor was concerned. There were few
who considered the position to be not very satisfactory. And there were dew who
considered it to be same as the other forms of investments.

40
RETURNS

RETURNS
2%

36%

62%

LESS MORE INDIFERRENT

This chart represents the preference of respondents of mutual fund over as far as the
return factor is considered. From the above chart it is quite clear that mutual fund is
considered to be giving more returns than the other forms of investment. The returns of
mutual fund are considered to be fairer than are other forms of investment. There were
very few who considered the returns to be unfair and still few who consider that the
returns were fair in all forms of investment.

41
TAX BENEFITS

TAX BENEFITS
22%
28%

50%
LESS MORE INDIFERRENT

This chart represents the preference of respondents of mutual fund over as far as the tax
benefits are considered. From the above chart it is quite clear that mutual fund is
considered more beneficial as far as tax savings are considered. The tax savings of
mutual fund industry is better for 50% of the respondents as compared to other forms of
investment. There were 28% respondents who considered who considered the savings to
be equal in every form of investment. There were very few respondents who considered
the tax savings from other investment to be better in other investments.

42
 SUMMARY OF THE ANALYSIS

What motivates a person or an organization to buy securities, rather than spending their
money immediately? The most common answer is savings -- the desire to pass money
from the present into the future. People and organizations anticipate future cash needs,
and expect that their earnings in the future will not meet those needs. You may be willing
to invest to make something happen that might not, otherwise -- you could invest to build
a museum, to finance low-income housing, or to re-claim urban neighborhoods. The
dividends from these kinds of investments may not be economic, and thus they are
difficult to compare and evaluate. For most investors, charitable goals aside, the key
measure of benefit derived from a security is the rate of return.

It is clear that the investors are basically quite conservative and hence are not
ready to take any risk with their hard earned money. They are very conscious and hence
are not ready to take any risk. The mutual fund is not very new concept in India it still
seems that the mutual fund has still a very long way to go before they would get highly
established. The maximum numbers of investors still prefers traditional investments like
insurance, fixed deposits and shares and seems to be satisfied and hence are not interested
in investing in mutual funds. Even the concept of IPO (Initial Public Offering) seems to
be less accepted concept. So the hypothesis for the study that the investors still prefer
traditional methods of investment has not proved to be completely wrong from the
analysis done, which is very evident from the above charts. The number of investors
investing in mutual fund seems to be very less as compared to investments modes like
insurance, fixed deposits and shares.

43
 FINDINGS

The findings from the study are as under:

 The people are basically of conservative nature and hence are very precautious
about their hard earned money. Hence they would like to play it safe when it
comes to spending of their money.
 Security and returns are the two main reasons that are taken into consideration
before making an investment.
 Bank fixed deposits and post office savings seem to be most preferred one among
the investors because it is considered to be the most secured one.
 Shares and mutual funds were considered to be very risky and hence that seemed
to be the last choice of the general mass
 Amongst mutual fund and shares people preferred shares because the possessed
complete knowledge about the shares but had very little knowledge about the
mutual fund industry.
 The people who do not invest in mutual fund basically fear that they are less
secured as compared with other investments.
 The others were aware about the concept of mutual fund but were not full aware
of its intricacy hence were not interested in investing in it.
 Most of the investors who invest in Mutual Fund substitute the same against the
Bank Deposits, insurance and other saving schemes. The investors are not willing
to invest in mutual fund industry unless they are guaranteed about minimum
returns.
 The increase in mutual fund and various schemes have left many investors
confused as to which scheme to opt for even if they want to invest in mutual fund.
 The increase in Mutual fund and various schemes have increased competition.
Hence it has been remarked by many investors “mutual funds are too busy trying

44
 to race against each other”. As a result they lose their stabilizing factor in the
market.
 Many investors are not aware about the asset allocation principles stated by
renowned theorists of the mutual fund industry.

45
 CONCLUSIONS
The Ground rules of Investing

Moses gave to his followers 10 commandments that were to be followed till eternity. The
world of investments too has several ground rules meant for investors who are novices in
their own right and wish to enter the myriad world of investments. These come in handy
for there is every possibility of losing what one has if due care is not taken.

1. Assess yourself: Self-assessment of one’s needs; expectations and risk profile is

of prime importance failing which; one will make more mistakes in putting
money in right places than otherwise. One should identify the degree of risk
bearing capacity one has and also clearly state the expectations from the
investments. Irrational expectations will only bring pain.

2. Try to understand where the money is going: It is important to identify the

nature of investment and to know if one is compatible with the investment. One
can lose substantially if one picks the wrong kind of fund. In order to avoid any
confusion it is better to go through the literature such as offer document and fact
sheets that companies provide on their funds.

3. Don't rush in picking funds, think first: One first has to decide what he wants
the money for and it is this investment goal that should be the guiding light for all
investments done. It is thus important to know the risks associated with the fund
and align it with the quantum of risk one is willing to take. One should take a look
at the portfolio of the funds for the purpose. Excessive exposure to any specific
sector should be avoided, as it will only add to the risk of the entire portfolio.
Identifying the proposed investment philosophy of the fund will give an insight
into the kind of risks that it shall be taking in future.

46
4. Invest. Don’t speculate: A common investor is limited in the degree of risk that
he is willing to take. It is thus of key importance that there is thought given to the
process of investment and to the time horizon of the intended investment. One
should abstain from speculating which in other words would mean getting out of
one fund and investing in another with the intention of making quick money. One
would do well to remember that nobody can perfectly time the market so staying
invested is the best option unless there are compelling reasons to exit.

5. Don’t put all the eggs in one basket: This old age adage is of utmost
importance. No matter what the risk profile of a person is, it is always advisable
to diversify the risks associated. So putting one’s money in different asset classes
is generally the best option as it averages the risks in each category. Thus, even
investors of equity should be judicious and invest some portion of the investment
in debt. Diversification even in any particular asset class (such as equity, debt) is
good. Not all fund managers have the same acumen of fund management and with
identification of the best man being a tough task; it is good to place money in the
hands of several fund managers. This might reduce the maximum return possible,
but will also reduce the risks.

6. Be regular: Investing should be a habit and not an exercise undertaken at one’s

wishes, if one has to really benefit from them. As we said earlier, since it is
extremely difficult to know when to enter or exit the market, it is important to
beat the market by being systematic. The basic philosophy of Rupee cost
averaging would suggest that if one invests regularly through the ups and downs
of the market, he would stand a better chance of generating more returns than the
market for the entire duration.

7. Do your homework: It is important for all investors to research the avenues

available to them irrespective of the investor category they belong to. This is
important because an informed investor is in a better decision to make right
decisions. Having identified the risks associated with the investment is important

47
 and so one should try to know all aspects associated with it. Asking the
intermediaries is one of the ways to take care of the problem.

8. Find the right funds: Finding funds that do not charge much fees is of
importance, as the fee charged ultimately goes from the pocket of the investor.
This is even more important for debt funds as the returns from these funds are not
much. Funds that charge more will reduce the yield to the investor. Finding the
right funds is important and one should also use these funds for tax efficiency.
Investors of equity should keep in mind that all dividends are currently tax-free in
India and so their tax liabilities can be reduced if the dividend payout option is
used. Investors of debt will be charged a tax on dividend distribution and so can
easily avoid the payout options.

9. Keep track of your investments: Finding the right fund is important but even
more important is to keep track of the way they are performing in the market. If
the market is beginning to enter a bearish phase, then investors of equity too will
benefit by switching to debt funds as the losses can be minimized. One can
always switch back to equity if the equity market starts to show some buoyancy.

10. Know when to sell your mutual funds: Knowing when to exit a fund too is of
utmost importance. One should book profits immediately when enough has been
earned i.e. the initial expectation from the fund has been met with. Other factors
like non-performance, hike in fee charged and change in any basic attribute of the
fund etc. are some of the reasons for to exit.

Investments in any funds are not risk-free and so investments warrant some caution
and careful attention of the investor. Investing funds can be a dicey business for
people who do not remember to follow these rules diligently, as people are likely to
commit mistakes by being ignorant or adventurous enough to take risks more than
what they can absorb. This is the reason why people would do well to remember these
rules before they set out to invest their hard-earned money.

48
 SUGGESTIONS

The Indian Investment Industry’s development and success would depend on various
issues such as:

 Educate the people: There are lots of alternatives available in the present time.
But because of lack of knowledge people are not ready to try them. Even because
of the fear to try new ones the investment industry has limited it self. The same
can be done through arranging events that promote such innovations.
 Preconceptions rule: The preconceptions that a person carries tries rule his
investment decisions. The past record of shares and mutual fund restrict the
people in investing in the same. Though the rules and regulations have changed a
lot but there are still people who are not ready to accept such facts.
 Let them know where there amount in reinvested: The investors should know
that the amount that is invested in the company how the funds are used and for
what purpose .They have the right to know where are their funds reinvested i.e.
the companies should be transparent.
 Do not cut others line for showing yourself bigger: The promoters to promote
their funds degrading the other modes of investment and hence this limits their
investment scopes itself because this act degrades the company in the eyes of the
customers
 Lead through Innovation: Although there is enough room in the market,
unfortunately in Indian market, all mutual funds have been chasing the same set
of investors with the same set of products and inducements. Product
differentiation is the first step towards escaping competition and attracting more
investors.
 Rebuild investor’s confidence: For a long term growth of the industry, it is a
must to win the confidence of the investors and there is no way to do this other
than bringing in more transparency in the operations, proper communications
between the market players and their customers.

49
 Manage risks through derivatives: India has a wide range of derivatives
products in the market. Mutual Fund should also come forward with more of such
products. In the Business World dated 24th November 2003 there was news that
Benchmark fund is coming out with an Equity Arbitrage Fund called “Dynamic
Arbitrage Fund”. Otherwise SEBI has not allowed any AMC to float a hedge fund
in India.
 Educate investor’s about the principles: There is no doubt that investor’s
education is one area, which has to be concentrated upon in the mutual fund
industry. The Mutual funds must come forward to make funds understandable to
them. The must be made aware about various asset allocation principles.

50
 BIBILIOGRAPHY

www.amfi.com
www.mutualfundsindia.com
www.businesslink.com
www.karvy.com
www.pruicici.com
www.sbi.com
Prudential ICICI fact sheet
Hdfc fact sheet monthly fact sheet: Franklin Templeton: April
2004

51