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A Project Report On:

Need of financial advisors for


mutual fund investors
(With special reference to KARVY)

INTERIM REPORT SUBMITTED BY:

Corporate Guide: Academic guide:


Mr. Vipin kumar Dr. Sharat Sharma
Product Head (MF), SRM University,
KARVY, GHAZIABAD NCR-Campus

ASIAN SCHOOL OF BUSINESS MANAGEMENT,


BHUBANESWAR
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

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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

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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.

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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.

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

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.

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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.

 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

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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:

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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.

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:

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.

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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
Net worth Individuals .and maintain their portfolio and provides them with other financial
services. In the year 2003, it commenced secondary debt and WDM trading.

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
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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.

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.

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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:


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.

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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:

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.

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.

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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.

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:

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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:

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 :
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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.

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

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PRODUCT HEADS
HEA
Realty

Mutual funds Insurance brokingcommodities Stock broking


Depository participant
Merchant & inv.banking

PMS

KA

KARVY Mutual Fund Services:


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.

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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:

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.

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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 India.
In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took

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

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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 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:

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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.

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.

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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.

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

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Risk v/s. return:

Working of a Mutual fund:

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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:

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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
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.
29
 Which feature of the mutual funds allure you most?

Diversification 42
Professional management 29
Reduction in risk and transaction cost 34
Helps in achieving long term goal 30

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

Young unmarried stage 55


Young Married with children stage 32
Married with older children stage 21
Pre retirement stage 27

 Are you availing the services of personal financial advisors?

Yes 87
No 48

30
 Which expertise of the personal financial advisor is demanded most?

Portfolio review & investment 43


recommendation
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?

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

31
Unsure how to find a trustworthy advisor 21
Want to be in control of own investments 43

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.
 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.

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 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 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

33
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 [ ]

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 [ ]

34
 .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 [ ]

 . 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 [ ]

35
 .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:
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

36
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.

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