Table of contents

s.no particulars
page no

list of tables 2
list of figures 3
1 Abstract
4
2 Introduction
5
3 Objectives
10
4 Description of the problem
10
5 Company profile
11
6 Review of literature
13
7 Methodology
15
8 Analysis and interpretation
18
9 Findings
36

1
 10 Suggestions
37
11 Conclusion
38
12 References
39

List of tables
• Table 1 showing gender of investors in page 19

• Table 2 showing occupation of investors in page 21

• Table 3 showing monthly household income of investors in page 23

• Table 4 showing investments of the respondents in page 25

• Table 5 showing market that gives more return in page 27

• Table 6 showing the influencing factors of the respondents in making the

investments in page 29

• Table7 showing the factors that respondents consider before investing in page 31

• Table 8 showing the type of investment preferred by the respondents in page 33

2
List of figures;
• Chart Showing Gender Classification in page 20

• Chart Showing the profession of the respondents in page 22

• Chart showing the income levels of the respondents in page 24

• Chart showing the investments of the respondents in page 26

• Chart showing the market that gives more returns in page 28

• Chart showing the market that gives more returns in page 30

3
 • Chart showing the factors that respondents consider before investing in page 32

• Chart showing the type of investment preferred by the respondents in page 34

Abstract

Share market is gaining significant grounds with the onset of booming Indian Economy. The
management thesis involved a “comparative study of share market and mutual funds”.

During the post 1990 period, service sector in most of the Asian economies witnessed growth
fueled by significant changes in their financial sector. India is now being ranked as one of the
fastest growing economy of the world.

During last one decade or so, role of Indian stock market and mutual fund industry as significant
financial service in financial market has really been noteworthy. In fact since 1992, a number of
4
research studies have underlined the importance of these two in the Indian capital market
environment as important investment vehicles. But the existing ‘Behavioral Finance’ studies on
factors influencing selection of mutual fund and stock market schemes are very few and very
little information is available about investor perceptions, preferences, attitudes and behavior. Yet
again, perhaps no efforts are made to analyze and compare the selection behavior of Indian retail
investors towards mutual funds and stock market particularly in post-liberalization period. With
this background this paper makes an earnest attempt to study the behavior of the investors in the
selection of these two investment vehicles in an Indian perspective by making a comparative
study.

INTRODUCTION

Economic success and sound financial system is intertwined in both literature and practice.
Economic reform process of 1991 had a great impact on redefining the financial system of India
leading to overall economic development of the country. Today, India’s financial system is
considered to be sound and stable as compared to many other Asian countries where the financial
market is facing many crises.

India is now being ranked as one of the fastest growing economy of the world. As the eleventh
five-year plan has already in progress, India is targeting a GDP growth rate of around 9%. The
savings of the country is now around 29%. Foreign investors are finding Indian market with high
potential. India’s forex reserve is around $185 billion. Inflation is around 7% which is considered
5
good for a developing economy. Sensex is more than 20000 points in Bombay Stock Exchange.
Some experts have opined that the share of the US in world GDP is expected to fall (from 21 per
cent to 18 per cent) and that of India to rise (from 6 per cent to 11 per cent) by 2025, and India
will emerge as the third pole in the global economy after the US and China. All these favorable
things could have not been possible without the sound financial market.

The role of Indian mutual fund and stock market as significant financial services in financial
market has really been noteworthy during last one decade or so. In fact, both of these products
have emerged as an important segment of financial market of India, especially in channelizing
the savings of millions of individuals into the investment in equity and debt instruments.

From retail investors’ point of view, keeping large amount of money in bank is not wise as
currently bank rate has fallen down below the inflation rate. As in real terms the value of money
decreases over a period of time, the options available for them is to invest their money in stock
market and mutual funds.

MUTUAL FUNDS

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

6
TYPES OF MUTUAL FUND SCHEME

Mutual fund schemes may be classified on the basis of its structure and its investment objective.

BY STRUCTURE

1. Open-end Funds

7
 An open-end fund is one that is available for subscription all through the year. These do
not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value
("NAV") related prices. The key feature of\open-end schemes is liquidity.

2. Closed-end Funds

A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15
years. The fund is open for subscription only during a specified period. Investors can invest in
the scheme at the time of the initial public issue and thereafter they can buy or sell the units of
the scheme on the stock exchanges where they are listed. In order to provide an exit route to the
investors, some close-ended funds give an option of selling back the units to the Mutual Fund
through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one
of the two exit routes is provided to the investor.

3. Interval Funds
Interval funds combine the features of open-ended and close-ended schemes. They are
open for sale or redemption during pre-determined intervals at NAV related prices.

ADVANTAGES OF MUTUAL FUNDS

Mutual funds make saving and investing simple, accessible, and affordable. The advantages
of mutual funds include professional management, diversification, variety, liquidity,
affordability, convenience, and ease of recordkeeping—as well as strict government regulation
and full disclosure.

• Diversification:

The best mutual funds design their portfolios so individual investments will react
differently to the same economic conditions. For example, economic conditions like a rise in
interest rates may cause certain securities in a diversified portfolio to decrease in value. Other

8
 securities in the portfolio will respond to the same economic conditions by increasing in
value. When a portfolio is balanced in this way, the value of the overall portfolio should
gradually increase over time, even if some securities lose value.

• Professional Management:
Most mutual funds pay topflight professionals to manage their investments. These managers
decide what securities the fund will buy and sell.

• Liquidity:
It's easy to get your money out of a mutual fund. Write a check, make a call, and you've got the
cash.

• Convenience:
You can usually buy mutual fund shares by mail, phone, or over the Internet.

• Low cost: Mutual fund expenses are often no more than 1.5 percent of your investment.
Expenses for Index Funds are less than that, because index funds are not actively managed.
Instead, they automatically buy stock in companies that are listed on a specific index

SHARE MARKET

Share or stock is a document issued by a company, which entitles its holder to be one of
the owners of the company. A share is issued by a company or can be purchased from the stock
market.

Shares in the Share Market are either traded through :

(a) Stock Exchange These are organized market places where stocks, bonds are other
equivalents are traded between the buyers and sellers where exchange acts as a counter - party to
both the participants in case of any default.

9
(b) Over-the -Counter (OTC) These are not centralized exchanges and the trade takes place
through a network of dealers.

Basically, Share Market can be divided into two parts :-

1 Primary Market It is the market where new issues of securities are offered to the investors.
2 Secondary Market An investor of a secondary market buys a security from another participant
of the same and not from any issuing corporation .

WHY SHARES;

1) Easy Liquidity

2) Dividend Income

3) Tax Advantages

OBJECTIVES

 To analyze mutual funds and equity market.

 To study investors behavior on mutual funds and equity market.

 Find out the facilities provided by mutual funds and stock market and what will
the benefits in future.

 To identify the objective of investment plan of an Indian individual investor.

 To know the preferred investment avenues of the Indian individual investor

 To know the risk tolerance level of the individual investor and suggest a suitable
portfolio
10
 DEFINING THE PROBLEM;

A stock is a investment in a particular company where mutual fund is a bundle of

investments. A single stock is risky where as mutual funds allow us to diversify
investments, but give up control of specific investments. In this context the present study
aims to undertake a comparative study on mutual funds and stock market. Then Particular
the various advantages and disadvantages of investing in share market and mutual funds
from investors perspective will be examined and an attempt is made to identify the better
choice for the investor.

COMPANY PROFILE

KARVY is a premier integrated financial services provider and ranked among the top five in the
country in all its business segments. It services over 16 million individual investors in various
capacities and provides investor services to over 300 corporate, comprising who is who of
Corporate India.

It is a member of all three:-

 National Stock Exchange (NSE)

11
  Bombay Stock Exchange (BSE)

 Hyderabad Stock Exchange (HSE)

Karvy utilized its experience and superlative expertise to capitalize on its strengths and
better its service, innovate and provide new ones. It diversified in the process and thus evolved as
India’s premier integrated financial service enterprise.

Karvy has been a customer centric company since its inception. It offers a single platform
servicing multiple financial instruments in its bid to offer complete financial solutions to the
varying needs of both corporate and retail investors, where an extensive range of services are
provided with great volume-management capability.

KARVY covers the entire spectrum of financial services such as Stock broking, Depository
Participants, Distribution of financial products - mutual funds, bonds, fixed deposit, equities,
Insurance Broking, Commodities Broking, Personal Finance Advisory Services, Merchant
Banking & Corporate Finance placement of equity, IPOs, among others. Karvy has a
professional management team and ranks among the best in technology, operations and research
of various industrial segments.

BACKGROUND

The flagship company, Karvy Consultants Limited was found with the vision and enterprise of a
group of practicing Chartered Accountants on a modest scale in 1981 in Hyderabad, where it
now has 13 branches. It initiated with just one activity and later carved roads into fields of
registry and share accounting as well. From then there was no stopping at all.

A decade of commitment, professional integrity and vision helped Karvy achieve a leadership
position in its field. It is known to handle the largest number of issues ever in the history of the
Indian stock market in a particular year. Thereafter, Karvy made inroads into a host of capital
market services, corporate and retail which proved to be a sound business synergy.

12
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 involved 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. A SEBI category 1 registrar, so far Karvy has handled over 675
issues as Registrars to public issues, processed over 52 million applications and is servicing over
16 million investors from various locations spread over 205 cities.

KARVY MILESTONES:

Karvy has travelled a success route over the past 20 years and positioned itself as an
emerging financial service giant in which embeds the confidence and support of enviable patrons
across the financial world. Patrons are also of diversified fields which includes over 16 million
individual investors in various capacities and 300 corporates comprising the best out of the
whole lot .Years of experience of holistic financial services and expertise in this industry has
helped it gain the status it enjoys and cherishes today

Review of literature

Alexei P. Goriaev

A closely related literature examines the dynamic strategies of mutual fund managers. There, the
focus is on the strategic changes of the factor loadings in response to the fund-specific
characteristics such as its past performance. A number of studies examine the so-called
13
tournament hypothesis, which states that funds performing badly during the first part of the year
have an incentive to increase risk in the second part of the year in order to try to catch up with
mid-year winners at the end of the year. Among others, Brown, Harlow, and Starks (1996) find
evidence supporting the tournament hypothesis using a contingency table methodology applied
to monthly data. However, Busse (2001) finds no such evidence using the contingency table
methodology applied to daily data. He explains this divergence in the results by the presence of
the auto- and cross-correlation in fund returns, which was not accounted for in the standard
statistical tests used in the previous studies.

Debjiban Mukherjee

The study pertains to comparative analysis of the Indian Stock Market with respect to various
international counterparts. Exchanges are now crossing national boundaries to extend their
service areas and this has led to cross-border integration. Also, exchanges have begun to offer
cross-border trading to facilitate overseas investment options for investors. This not only
increased the appeal of the exchange for investors but also attracts more volume. Exchanges
regularly solicit companies outside their home territory and encourage them to list on their
exchange and global competition has put pressure on corporations to seek capital outside their
home country. The objective of the whole research was to try and compare the various stock
exchanges based on certain parameters in order to understand the impact of integration of the
financial world on the various entities within it especially in the context of globalization and
increased interest in the capital markets fuelled by surging growth.

The various research papers that have been studied traced the gradual ‘coming of age’ of the
Indian stock market over the past decade without actually arriving at any conclusive evidence on
the comparative position of our stock exchange with that of other global ones. The studies
mainly looked at various aspects of efficiency in the stock market on a stand alone basis and
tried to draw conclusion regarding the state of our maturity. However, we have tried to use the
comparison method to benchmark the performance of our stock market with that of a selection of
global stock exchanges on the basis of their diversity with respect to geo-sociopolitico- economy.

Irwin, Brown, FE (1965) analyzed issues relating to investment policy, portfolio turnover
rate, performance of mutual funds and its impact on the stock markets. The schoolwork
identified that mutual funds had a significant impact on the price movement in the stock market.
The cram concludes that, on an average, funds did not perform better than the composite markets
and there was no persistent relationship between portfolio turnover and fund performance.

14
 Methodology / Analytical Procedures

 Sample size

Sample size is about 100

Hypothesis.

H0; Investors decision is not influenced by the type of investment

15
H1; Investors decision is influenced by the type of investment

Statistical Tools to be Applied

• Simple percentages

• Pearson's Chi square

• Pearson's chi-square is used to assess two types of comparison: tests of goodness of fit
and tests of independence. A test of goodness of fit establishes whether or not an
observed frequency distribution differs from a theoretical distribution. A test of
independence assesses whether paired observations on two variables, expressed in
a contingency table, are independent of each other – for example, whether people from
different regions differ in the frequency with which they report that they support a
political candidate.

• The first step in the chi-square test is to calculate the chi-square statistic. In order to avoid
ambiguity, the value of the test-statistic is denoted by Χ2 rather than χ2 (i.e.
uppercase chi instead of lowercase); this also serves as a reminder that the distribution of
the test statistic is not exactly that of a chi-square random variable. However some
authors do use the χ2 notation for the test statistic. An exact test which does not rely on
using the approximate χ2 distribution is Fisher's exact test: this is significantly more
accurate in evaluating the significance level of the test, especially with small numbers of
observation.

• The chi-square statistic is calculated by finding the difference between each observed and
theoretical frequency for each possible outcome, squaring them, dividing each by the
theoretical frequency, and taking the sum of the results. A second important part of
determining the test statistic is to define the degrees of freedom of the test: this is
essentially the number of observed frequencies adjusted for the effect of using some of
those observations to define the "theoretical frequencies".

DATABASE

 Specification of target population

16
  All customers who visit the karvy stock broking Ltd

 Sampling Unit

 This study is done on karvy stock broking Ltd customers

 Sample Design

 Sample designs are basically of two types’ viz., non-probability sampling and
probability sampling.

 Non-probability sampling

Types of Data
 The primary data are those which are collected afresh and for the first time, and
thus happen to be original in character.

 The secondary data, on the other hand, are those which have already been
collected by someone else and which have already been passed through the
statistical process.

17
 Data collection methods
 Questionnaire:

18
 Data Analysis & Inferences

Table & Chart 1

Question : Gender

Male

Female

Table 1 Showing Gender Classification:

male 70 70%

19
 Female 30 30%

Chart Showing Gender Classification:

20
Inference

From the total of 100 sample elements 70 were found to be male and the
rest of 30 elements are female. This classification shows that major
portion of the investors are male who are involved in investments in
various sectors.

Table & Chart 2

Question:

Occupation

a) Government Employee
b) Private Employee
c) Self Employed
d) Student
21
Table 2 showing the profession of the respondents:

govt employee 21 21%

private employee 36 36%

Selfemployed 33 33%

Student 10 10%

Chart 2 Showing the profession of the respondents:

22
Inference:

Private Employees and Self Employed are the most who prefer to invest
with 33% and 36% respectively. This shows that other two categories
like Govt Employees & Students are not much involved in to the
investments due to their income levels and less awareness.

Table & Chart 3

Question:

Your monthly household income

a) Less than 15000

b) 15001-25000
c)25001 and above

23
Table Showing income levels of the respondents:

< Rs 15000 15 15%

Rs 15000 -
Rs 25000 62 62%

> Rs 25000 23 23%

Chart showing the income levels of the respondents:

24
Inference:

People with the Income levels that are in between Rs 15000 - > Rs 25000
are greater in number then the people with the income level les then Rs
15000.

Table & Chart 4

Question:

Where do you invest your savings?

25
i. Mutual funds
ii. Equity

Table showing the investments of the respondents:

mutual
funds 39 39%

Share
market 61 61%

Chart showing the investments of the respondents:

26
Inference:

Share Market is the platform where major proportion of the respondents’

investments goes in. Above chart shows that the share market with a 61%
of share is chosen widely by the respondents for the investments and
followed by mutual funds with a 39% of respondents preferring to invest
in.

Table & Chart 5

Question:

Which sectors give more return?

27
i. Share market
ii. Mutual Funds

Table showing the market that gives more returns:

mutual
funds 42 42%

Share 58%
market 58

Chart showing the market that gives more returns:

28
Inference:

As inferred from the chart 4 that share market is widely chosen by the
respondents, chart 5 gives the reason for them to chose this. 58% of
respondents have answered that share market give them the more returns
on their investments and that makes them to chose this sector. Mutual
funds follow with a percentage of 42%, respectively.

Table & Chart 6

Question:

29
Your investment decisions are influenced by

i. Oneself
ii. Broker
iv. Market Research
v. Friends/Relatives

Table showing the influencing factors of the respondents in making the

investments:

Oneself 25 25%

Broker 42 42%

market research 19 19%

friends/relatives 14 14%

Chart showing the influencing factors of the respondents in making the

investments:
30
Inference:

Brokers occupy the first place in influencing the respondents in investing.

This shows that the expertise of the brokers in investments realm satisfies
and convinces the customers to go for the investments. 25% of the
respondents said that they are aware of te investments and chose to
invest without being influenced by any other source.

Table & Chart 7

31
Question:

What are the factors which you considered before investing?

1. Current Market Position

2 Goodwill of the companies
3 Returns
4 Risk

Table showing the factors that respondents consider before investing:

Current market 33 33%

goodwill of companies 12 12%

Returns 40 40%

Risk 15 15%

Chart showing the factors that respondents consider before investing:

32
Inference:

Returns always attract and pull the customers for investment. This is
proved to be true from the above chart. 40% of the respondents said they
invest only to by looking at the returns that companies gave in the past.
33% of the investors say that the current market condition also plays a
significant role in choosing the investment. Whereas 15% & 12% of the
people say that low risk and good will of the company drives them to
invest respectively.

Table & Chart 8

33
Question:

what type of investments would you prefer

1 Long term

2 Short term

Table showing the type of investment preferred by the respondents:

Long Term 67 67%

Short Term 33 33%

34
Chart showing the type of investment preferred by the respondents:

Inference:

67% of the respondents are willing to invest in the long term plans and
the rest of 33% chose the short term schemes.

35
 Chi square analysis;

To test the null hypothesis;

Chi square test of independence between the categoril variables ,viz investors decision and
type of investment is conducted the pearson`s chi square statistic value is obtained as 1.0926
with a p value of 0.77which clearly shows that the null hypothesis cannot rejected. Therefore we
concluded that there is no relation between investors decision and type of investments.

Findings

• From table and chart 1 the major portion of the investors are male who are involved in
investments in various sectors.

• From table and chart 2 government Employees & Students are not much involved in to
the investments due to their income levels and less awareness but private employees and
self employed are investing more because they were aware of various available

36
 investments. The investors have a wide difference with respect to their profession and
also the different investment patterns vary widely.

• From the table and chart 3 people who are earning above 15000/- and below 25000/- are
involving in investment activities.

• From the table and chart 4 people are more investing their savings in share market only
because more risk will gives more return.

• From the table and chart 5 share market will give more return compared to mutual funds
and major people opinion is that share market will give more return even it involves in
more risk.

• From the table and chart 6 most of the investors decisions are influenced by broker
because psychologically broker will prepare the customer to invest in various available
investments and own decisions of customers in order to earn more can also influence to
invest in available investments.

• From the table and chart 7 investors will considered the returns and next current market
position for investing in various available investments.

• From the table and chart 8 , even though investors are expecting more returns they are
ready to go for long term investments for security and risk is low in long term
investments.

• This study concluded that there is no relation between investors decision and type of
investments through chi square test.

Suggestions

37
  In the modern world females also started investing but necessary awareness should be
provided to them for involving them in more investment activities.

 Government employees may involve in investment activities as they have many sources
of income but creating awareness about stock market and private sector mutual funds
schemes and provide security to their investments may help in encouraging them more.

 As students have less sources of income they can also involve in less investing activities
where risk is less.

 People with low level income groups can also invest in available investment activities
where they is low risk and more return and decisions should be taken by throw study of
market.

 Since mutual funds are also giving more returns but people are investing more in share
market only. So mutual fund offer companies may take necessary steps in providing
more returns with in less time.

 Brokers always thought to increase the companies share in market by involving more
customers in investing activities but security for the customer investments may not given
by them. So always take decision of investment activities by through study of market and
growth rate in the market.

 As a investor, returns is the main considering factor for investing but along with that
market position and goodwill of the company should also take in to consideration for
investment.

 Short term gains are not permanent but long term gains give certain output which helps a
lot in long run. So investing in long run is more preferable.

CONCLUSION

The strategy adopted by me in completion of this project help me a lot till now in making
comparison between share market and mutual funds. From the analysis we can say that if there is
more risk there is more return and we can say that share market is totally dependent on the risk

38
taken by the investors in investing in shares. And in mutual funds there is less risk as the money
of investors invested in different sectors so it can divide the risk in different portfolio adopted by
mutual funds companies.

At last I can say that money invested in this rise and fall market it is better to invest in
mutual funds for those investors who are risk adverse and for those who are risk taker it is better
for them to invest in share market.

We can also say that in share market customers is decision maker while in mutual funds
investors is totally dependent on assets management company, investors do not have active
control on money invested by him/her.

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