S.No. TABLE OF CONTENT PAGE NO.

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CHAPTER-1

INTRODUCTION OBJECTIVES RESEARCH METHODOLOGY LIMITATIONS

CHAPTER-2

REVIEW OF LITERATURE

CHAPTER-3

INDUSTRY PROFILE COMPANY PROFILE

CHAPTER-4

DATA ANALYSIS & INTERPRETATION FINDINGS

CHAPTER-5

SUMMARY& CONCLUSIONS SUGGESTIONS

CHAPTER- 6

BIBLIOGRAPHY

CHAPTER- 7

ANNEXURE

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INTRODUCTION

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

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

savings are made to meet an unforeseen event.

There are various avenues of investments in accordance with individual

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

individuals risk and return characteristics Investment choices are physical assets

and financial assets.

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

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

assets can be purchased with cash and held for a long term. The obvious

disadvantages with physical assets are the risks of loss and theft, lower levels of

return; illiquid secondary markets; and adhoc valuations and transactions.

Financial assets are securities, which are certificates embodying a

financial contract between parties. Bonds, Equity shares, Deposits and Insurance

policies are some of the examples of financial assets. In financial assets investors

only hold the proof of their investments in the form of a certificate or account.

These products are usually liquid, transferable and in most cases, stored

electronically with high degree of safety.

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

transactions and contingencies. To face the contingencies and unexpected events

the insurance came into existence.

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

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

The most important characteristics of a mutual fund is that the contributors and

the beneficiaries of the fund are the same class of people, namely the investors.

The term mutual means that investors contribute to the pool, and also benefit

from the pool. There are no other claimants to the funds. The pool of funds held

mutually by investors is the mutual fund.

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A mutual fund pools the money of people with similar investment

goals. The money in turn is invested in various securities depending on the

objectives of the mutual fund scheme, and the profits (or loss) are shared among

investors in proportion to their investments.

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

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

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

Thus, the number of units you own as against the total number of units issued by

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

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

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

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

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

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

NAV based price at which the units have been allotted. The account statement is

similar to your bank statement.

Mutual funds invest basically in three types of asset classes:

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

shares.

Bonds: These represent debt from companies, financial institutions or

Government agencies.

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

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

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

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

articulated as investment mandates.

Analysis of The perception towards these mutual funds is done here

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

observed.

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OBJECTIVES

To study the level of awareness of mutual funds

To analyse the perception of investors towards mutual funds.

To study the factors considered by the investors and those which

ultimately influence him while investing.

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

RESEARCH METHODOLOGY

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

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

Primary data delivers more specific results than secondary research,

which is an especially important consideration when one launching a new

product or service. In addition, primary research is usually based on statistical

methodologies. The tiny sample can give an accurate representation of a

particular market.

Secondary data is based on information gleaned from studies previously

performed by government agencies, chambers of commerce, trade associations

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

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

publications, as well as magazines and newspapers.

Analysis of individual investment patterns can be done by this primary

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

sample size of 100 individuals who are employees and tax payees. The

questionnaire includes the economic status of the individuals, age group, marital

status, investments made etc.

As Karvy securities ltd. distributes several investment products like

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

developing marketing strategies for their investment products.

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LIMITATIONS

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

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

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

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

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MUTUAL FUNDS

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THEORITICAL BACKGROUND

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

investors and investing funds in securities in accordance with objectives as

disclosed in offer document.

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

investing in diversified portfolio of securities with the aim of attractive yields

and appreciation in their value.

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

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

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

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

proportion to their investments. The mutual funds normally come out with a

number of schemes with different investment objectives, which are launched

from time to time. A mutual fund is required to be registered with securities and

exchange board of India.

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

1. Sponsor

2. Trustees

3. Asset Management Company and

4. Custodian.

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

promoter of a company. The trustees of mutual fund hold its property for the

benefit of the unit-holders. Asset management company (AMC) approved by

SEBI manages the funds by making investments in various types of securities.

Respective asset management companies (AMC) management mutual fund

schemes. Different business groups have sponsored these AMC s. some

international funds are also operation independently in India like Aliens and

Template.

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A BRIEF HISTORY OF MUTUAL FUND

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

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

Belgium where society generated Belgium was established in 1822 as an

investment company to finance investments in National Industries with high

associated risk. The concept of mutual funds spread to USA in the beginning of

20th century and three investment companies were started in 1924 since then the

concept of mutual funds has been growing all around the world

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

established in the similar line of operation of the UK.

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

considered as synonym of investment trust of

DEFINITIONS

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

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

units together indirectly

...Mr. James pierce

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

with in the reach of the most modest of investors.

Frank Relicy

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

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CONCEPT OF MUTUAL FUNDS

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 then invested in

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

income earned through these investments and the capital appreciation realized

are shared by its unit holders in proportion to the number of units owned by

them. Thus a Mutual Fund is the most suitable investment for the common man

as it offers an opportunity to invest in a diversified, professionally managed

basket of securities at a relatively low cost.

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

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VALUE CHAIN OF MUTUAL FUND

SPONSOR:

Any person who, acting alone or in combination with another body corporate,

establishes a mutual fund.

Asset Management Company

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

with the stated investment objectives. For a fee, the investment company

provides more than diversification, liquidity, and professional management

service than is normally available to individual investors.

Trustee

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

Mutual Fund in trust for the benefit of the unit holders.

Mutual Fund

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

units to the public or a section of the public under one or more schemes for

investing in securities, including money market instruments.

Transfer Agent

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

shareholder accounts calculate and disburse dividends and prepare and mail

shareholder account statements, federal income tax information and other

shareholder notices.

Custodian

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

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

custodians.

Unit Holder

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

CLASSIFICATION OF SCHEMES

By Structure

Open-ended

A scheme where investors can buy and redeem their units on any business day.

Its units are not listed on any stock exchange but are bought from and sold to the

mutual fund.

Close-ended

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

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

listed on one of the major stock exchanges and traded like securities at prices,

which may be higher or lower than its NAV.In India 90% of the schemes is

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

ended funds and 119 close-ended funds.

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By Objective

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

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

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

mainly as follows:

Growth / Equity Oriented Scheme

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

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

equities. Such funds have comparatively high risks. These schemes provide

different options to the investors like dividend option, capital appreciation, etc.

and the investors may choose an option depending on their preferences. The

investors must indicate the option in the application form. The mutual funds also

allow the investors to change the options at a later date. Growth schemes are

good for investors having a long-term outlook seeking appreciation over a period

of time.

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Income / Debt Oriented Scheme

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

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

corporate debentures, Government securities and money market instruments.

Such funds are less risky compared to equity schemes. These funds are not

affected because of fluctuations in equity markets. However, opportunities of

capital appreciation are also limited in such funds. The NAVs of such funds are

affected because of change in interest rates in the country. If the interest rates

fall, NAVs of such funds are likely to increase in the short run and vice versa.

However, long-term investors may not bother about these fluctuations.

Balanced Fund

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

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

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

for moderate growth. They generally invest 40-60% in equity and debt

instruments. These funds are also affected because of fluctuations in share prices

in the stock markets. However, NAVs of such funds are likely to be less volatile

compared to pure equity funds.

Money Market or Liquid Fund

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

preservation of capital and moderate income. These schemes invest exclusively

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

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

on these schemes fluctuate much less compared to other funds. These funds are

appropriate for corporate and individual investors as a means to park their

surplus funds for short periods.

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Gilt Fund

These funds invest exclusively in government securities. Government securities

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

interest rates and other economic factors as, is the case with income or debt

oriented schemes.

Index Funds

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

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

securities in the same weightage comprising of an index. NAVs of such schemes

would rise or fall in accordance with the rise or fall in the index, though not

exactly by the same percentage due to some factors known as "tracking error" in

technical terms. Necessary disclosures in this regard are made in the offer

document of the mutual fund scheme.

There are also exchange traded index funds launched by the mutual funds that

are traded on the stock exchanges.

AVENUES OF INVESTMENTS

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

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

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

avenues to the investors.

Banks:

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

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

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

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

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

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country is headed southwards, keeping in line with global trends. With the banks

offering little above 7% in their fixed deposits for one year, the yields have come

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

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

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

money saved goes down instead of going up. This effectively mars any change f

gaining from the investments in banks.

Post office Schemes

Among all saving options, post office schemes have been offering the highest

rates. Added to it is that the investments are safe with the department being a

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

of return safety and quantum of returns were being handsomely taken care of

Public Provident Funds act as options to save for the post retirement period for

most people and have been considered good option largely due to the fact that

returns were higher than most other options and also helped people gain from tax

benefits under various sections. The following are the post office savings

schemes available for the investors:

Monthly Income scheme:

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

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

applicable on investments made in this scheme.

National Savings Scheme:

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

at maturity in 6 years.

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Post Office Time Deposits:

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

desired by the investor. They are:

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

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

3 year) This gives an interest of 7.25% p.a

4 year) This gives an interest of 7.5% p.a

Kisan Vikas Patra:

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

doubles in 8 years and 7 months.

Public Provident Fund:

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

maturity of 15 years.

Government of India Bonds:

The GOI Bonds have the following investment options:

6.5% Tax free bonds

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

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

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

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8% Taxable Bonds:

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

limit of investment in these bonds but there should be a minimum investment of

Rs.1, 000. The maturity period is 6 years. The investor has the option of interest

payable half yearly or cumulative. The investors can also avail tax benefit under

section 80L of income Tax Act, up to Rs. 15,000.

Company Fixed Deposits:

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

for their operations and have paid interest on them. The safer a company is rated,

the lesser the return offered has been the thumb rule. However, there are several

potential roadblocks in these.

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

investor lurks.

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

after the due dates.

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

Stock markets:

Stock markets provide an option to invest in a high risk, high return game.

While the potential return is much more than 10-11% any of the options

discussed above can generally generate, the risk is undoubtedly of the highest

order. However, as it might appear, people generally are clueless as to how the

stock market functions and in the process can endanger the hard-earned money.

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

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

This is where mutual funds come into picture.

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COMPARISION OF OTHER AVENUES WITH MUTUAL FUNDS

The mutual fund sector operates under stricter regulations as compared to

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

legal comfort, how do mutual funds compare with other products?

Company Fixed Deposits versus Mutual Funds

Fixed deposits are unsecured borrowings by the company accepting the

deposit. Credit rating of the fixed deposit program is an indication of the inherent

default risk in t he investment. The money of investors in a mutual fund scheme

are invested by the AMC in specified investments under that scheme. These

investments are held and managed in-trust for the benefit of the schemes

investors. On the other hand, there is no such direct correlation between a

companys fixed deposit mobilization, and the avenues where it deploys these

resources.

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

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

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

the borrower.

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

market risk. However, the value at which units of a scheme are redeemed

entirely depends on the market. If securities have gained value during the period,

then the investor can even earn that is higher than what she anticipated when she

invested. Conversely, she could also end up with a loss.

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

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

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

exit load).

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Bank Fixed Deposits versus Mutual Funds

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

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

even operate under stricter requirements regarding Statutory Liquidity

ratio(SLR) and Cash Reserve Ratio (CRR) mandated by RBI.

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

risk. However, given the political and economic impact of bank defaults, the

government as well as Reserve Bank of India (RBI) tries to ensure that banks do

not fail.

Further, the Deposit Insurance and Credit Guarantee Corporation

(DICGC) protect bank deposits up to Rs. 100,000. The monetary ceiling of

Rs.100,000 is for all the deposits in all the branches of a bank, held by the

depositor in the same capacity and right.

Bonds and Debentures versus Mutual funds

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

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

deposits, bonds and debentures are transferable securities.

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

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

market, implications of this are:

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

market risk. The investor could have a capital gain or a loss. This aspect is

similar to a mutual fund scheme.

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

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

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there is a default, the identified assets become available for meeting redemption

requirements.

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

deposit, as far as access to assets is concerned.

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

of a mutual fund scheme.

Equity versus Mutual fund

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

Investment in an open-end mutual fund eliminates this direct risk of not being

able to dell the investment in the market. An indirect risk remains, because the

scheme has to realize its investments to pay investors. The AMC is however in a

better position to handle the situation. Further, on account of various SEBI

regulations, such as illiquid securities are likely to be only a part of the schemes

portfolio.

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

benefit of portfolio diversification through a small investment.

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RISK AND RETURN GRID:

An investor has mainly three investment objectives.

1. Safety of Principal

2. Return

3. Liquidity

BANKS FIXED DEPOSIT

BONDS AND DEBENTURES

EQUITY MARKET

MUTUAL FUND

Returns Low Low to Moderate

Low to moderate

Moderate to high Better

Administrative expenses

High Moderate to High

Moderate to high

Low to Moderate

Low

Risk Low Low to Moderate

Low to moderate

High Moderate

Investment options

Less Few Few Many More

Network High penetration

Low penetration

Low penetration

Low but improving fast

Low but improving

Liquidity At a cost Low Low to moderate

Moderate to High

Better

Quality of Assets

Not transparent

Not transparent

Not transparent Transparent Transparent

Guarantee Maximum Rs 1 lakh

None

Pricing

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

net of its liabilities. In other words, if the fund is dissolved or liquidated, by

selling off all the assets in the fund, this is the amount that the shareholders

would collectively own. This gives rise to the concept of the net asset value per

unit, which is the value, represented by the ownership of one unit in the fund. It

is calculated simply by dividing the net asset value of the fund by the number of

units. However, most people refer loosely to the NAV per unit as NAV, ignoring

the per unit. We also abide by the same convention.

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Calculation of NAV

The most important part of the calculation is the valuation of the assets

owned by the fund. Once it is calculated, the NAV is simply the net value of

assets divided by the number of units outstanding. The detailed methodology for

the calculation of the asset value is given below.

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

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

ADVANTAGES OF INVESTING IN MUTUAL FUND:

Number of options available

Mutual funds invest according to the underlying investment objective as

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

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

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

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

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

profile of the investor in mind because the products listed above have different

risks associated with them.

Diversification

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

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

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

Professional Management

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Mutual Funds employ the services of the skilled professionals who have

years of experience to back them up. They use intensive research techniques to

analyze each investment option for the potential of returns along with their risk

levels to come up with the figures for the performance that determine the

suitability of any potential investment.

Potential of returns

Returns in the mutual are generally better than any option in any other

avenue over a reasonable period of time. People can pick their investment

horizon and stay put in the chosen fund for the duration.

Liquidity

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

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

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

also provide the facility of direct repurchase at NAV related prices.

Well Regulated

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

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

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

protect the investors interests are implemented effectively.

Transparency

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

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

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

the markets and scheme related details are disclosed with reasonable frequency

to ensure that transparency exists in the system.

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Flexible, Affordable and Low cost

Mutual Funds offer a relatively less expensive way to invest when

compared to other avenues such as capital market operations. The fee in terms of

brokerages, custodial fees and other management fees are substantially lower

than other options and are directly linked to the performance of the scheme.

Investment in Mutual Funds also offer a lot of flexibility with features such as

regular investment plans, regular withdrawal plans and dividend investment

plans enabling systematic investment or withdrawal of funds.

Convenient Administration

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

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

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

and convenient.

TAXATION ON MUTUAL FUNDS

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

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

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

section 10(23D) of the income tax act. The mutual fund will receive all income

without any deduction of tax at source under the provisions of section 196(iv), of

the income tax act.

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MUTUAL FUND INDUSTRY

INDUSTRY OVERVIEW

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

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

the market regulators proactive approach to the changes in the global scenario as

well as to meet the needs of domestic investors.

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

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

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

the Indian economy is currently showing fundamental robustness, with the GDP

expected to grow by almost 8%. With rising exports and stable inflation of

around 5%, the foreign exchange reserves are at an all time high of $118 billion.

The interest rates in the country are at record lows and have led to an increase in

credit flow to the commercial sector.

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

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

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

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

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

growth in last 12 months. The year began with resumption of peace process with

Pakistan and end of war in Gulf. The market also has welcome robust increase in

agriculture production with more-than-normal monsoons. Most of the

groundwork for the disinvestment completed over the last few years, the last

Government had started disinvestments and new government has already

acquired shape and started it is not reluctant of divestment.

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

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

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

Negotiated Dealing System (NDS). NDS allows electronic bidding in primary

markets, thereby bringing about transparency in trading, electronic settlement of

trades and better monitoring and controls. Issuances of a 30-year paper, floaters

ranging from 5 to 15 years and securities with call and put options by the

government will also go a long way in deepening the markets. In a bid to

increase the retail participation, non-competitive bidding is being encouraged by

the RBI.

INDUSTRY STRUCTURE

Global Scenario

At the end of 2006:Q3, mutual fund assets worldwide were $ 17.28 trillion,

having increased 18 percent over the year 2005:Q3.

Worldwide mutual fund assets (trillions of US dollars)

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

(Billions of US dollars)

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Composition of world Wide mutual fund assets by the types of fund 2006 Q4

Source: Ici.org

The end of 2006:Q3, mutual fund assets were split into 44% Equity, 18% Money

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

Worldwide mutual fund assets by region 2006;Q3

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At the end of 2006:Q3 by region, 55% of the global assets was in America, 34%

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

World wide mutual funds by the type of fund 2006;Q2

At the end of the fourth quarter of 2006, the number of mutual funds worldwide

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

bond funds, 20 percent were balanced/mixed funds, and 6 percent were money

market funds.

Number of funds 2000-2006;Q3

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2000 2001 2002 2003 20042005 2006Q4 Q1 Q2 Q3

All Reporting Countries1 52,746 51,692 52,849 54,110 54,569 54,984 55,095 55,919 56,095

Equity 22,453 20,381 22,348 22,974 22,688 22,364 22,796 23,043 23,050 Bond 15,474 13,128 12,183 11,619 11,886 13,309 13,127 13,213 13,225 Money Market 6,745 4,692 4,277 4,394 4,974 3,623 3,618 3,598 3,569 Balanced/Mixed 6,375 11,110 11,155 11,228 11,465 11,603 11,111 11,291 11,181 Other 612 1,000 1,195 1,310 1,578 1,997 2,364 2,659 3,017Countries Reporting in Every Period2 35,962 39,367 41,620 42,393 41,689 42,356 42,093 42,529 42,377

Equity 15,656 18,637 20,630 20,808 20,018 19,920 19,971 20,052 19,952 Bond 10,867 10,176 9,830 9,946 9,847 9,961 10,004 10,026 10,076 Money Market 2,701 2,786 2,727 2,674 2,652 2,899 2,901 2,867 2,831 Balanced/Mixed 6,149 6,926 7,500 7,723 7,857 8,095 7,674 7,966 7,850 Other 589 842 933 1,242 1,315 1,481 1,543 1,618 1,668

MUTUAL FUNDS IN INDIAN SCENARIO

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

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

mutual funds.

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

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

to promote the development of and to regulate the securities market.

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

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

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

entities were allowed to enter the capital market. The regulations were fully

revised in 1996 and have been amended thereafter from time to time. SEBI has

also issued guidelines to the mutual funds from time to time to protect the

interests of investors.

34

All mutual funds whether promoted by public sector or private sector entities

including those promoted by foreign entities are governed by the same set of

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

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

associated with the schemes launched by the mutual funds sponsored by these

entities are of similar type. It may be mentioned here that Unit Trust of India

(UTI) is not registered with SEBI as a mutual fund (as on January 15, 2002).

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

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

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

2003; representing broadly, the assets of US 64 scheme, assured return and

certain other schemes. The specified undertaking administrator & under rules

framed by Government of India and does not come under the purview of mutual

fund regulation.

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

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

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

76,000 crores of assets under management and with setting up of a UTI mutual

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

taking place among different private sector funds, the mutual fund industry has

entered its current phase of consolidation and growth.

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

Rs. 231358.03 crores under 421 schemes.

35

GROWTH IN ASSETS UNDER MANAGEMENT

36

37

The Company Background:

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

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

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

activities and subsequently into financial services. All along, Karvys strong

work ethic and professional background leveraged with Information Technology

enabled it to deliver quality to the individual.

A decade of commitment, professional integrity and vision helped Karvy

achieve a leadership position in its field when it handled the largest number of

issues ever handled in the history of the Indian stock market in a year.

Thereafter, Karvy made inroads into a host of capital-market services,-corporate

and retail which proved to be a sound business synergy.

GROUP OF COMPANIES

KARVY CONSULTANTS LIMITE

Deals in Registrar and Investment Services

KARVY INC

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

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

KARVY INVESTOR SERVICES LIMITED

38

Deals in Issue management, Investment Banking and Merchant Banking.

KARVY STOCK BROKING LIMITED

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

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

Counter Exchange of India. (OTCEI).

KARVY COMPUTERSHARES LIMITED

KARVY GLOBAL SERVICES LIMITED

KARVY COMMODITIES BROKING LIMITED

39

BOARD OF DIRECTORS

Mr.C.Parthasarathy

Mr.M.Yugandhar

Mr.M S.Ramakrishna

QUALITY POLICY

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

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

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

Customers expectations.

Quality objectives

As per the Quality Policy, Karvy will:

Build in-house processes that will ensure transparent and harmonious

relationships with its clients and investors to provide high quality of

services.

Establish a partner relationship with its investor services agents and

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

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

with adequate knowledge & skills so as to respond to its customers

needs.

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

establish unparalleled standards in business ethics.

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

innovative financial products and services to meet the changing needs of

invetors and clients.

40

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

services and constantly guide the individuals and institutions in making a

judicious choice of it.

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

employees, suppliers and regulatory authorities) proud and satisfied.

ACHIEVEMENTS

Largest mobiliser of funds as per PRIME DATABASE.

First ISO-9002 Certified Registrar in India.

A Category I-Merchant banker.

A Category-I-Registrar to public Issues.

Ranked as The Most Admired Registrar by MARG.

Handled the largest-ever public issue-IDBI

Handled over 500 public issues as registrars.

Handling the reliance Account which for nearly 10 million account

holders.

First Depository Participant from Andhra Pradesh.

Major issues managed as arrangers

Kerala state electricity board.

Power Finance Corporation.

A.P. Water resources Development Corporation.

A.P Roads Development corporation.

A.P state electricity board.

Haldia Petrochemicals ltd.

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Major issues managed as co-managers

IDBI Equity

Morgan Stanley Mutual Fund.

Bank of Baroda

Bank of Punjab Ltd

Corporation Bank

IndusInd Bank Ltd

Jammu and Kashmir bank Ltd

Housing and Urban Development corporation (HUDCO) Ltd

Madras refineries Ltd

Tamil Nadu Newsprint & Paper Ltd

BPL Ltd

Birla 3M Ltd

Essar Steels Ltd

Hindustan Petroleum corporation Ltd

Infosys technologies Ltd

Jindal Vijaynagar Steels Ltd

Nagarjuna Fertilizers & Chemicals Ltd

Rajshree Polyfil Ltd

Karvy securities Ltd.

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

Andhra Pradesh road development corporation Ltd

ICICI Bonds (private placement)

ICICI Bonds-96

ICICI Bonds-97-I

ICICI Bonds-97-II

ICICI safety Bonds March 98

42

IDBI Bonds 96

IDBI Flexi Bonds I

IDBI Flexi Bonds II

IDBI Flexi Bonds III

Kerala state electricity Board

Krishna Bhagya Jala Nigam Ltd

Power Finance Corporation Ltd

Andhra Pradesh Water Resources Development Corporation

Andhra Pradesh state Electricity Board

KARVY CAPABILITIES

Technology infrastructure

It has desktops and 200 plus enterprise class servers having licensed

software across technology platforms. It has wide area network connecting

branches all over India. It has 24 * 7 back up and Redundancy support for

critical business data.

PHYSICAL INFRASTRUCTURE

It has 40 branches and 65 investor centers connected with communication

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

MAN POWER

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

processing over 120 million transactions. The Domain experience in the

areas of Data processing operations, Technology, Management and

Financials and legal processing. It has specialist expertise in quality control

and cast management.

QUALITY PROCESS

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

internal and external audits for quality standards.

TRAINING

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

has simulated environment and on the Job training facilities.

BUSINESS CONTINUITY

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

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

VALUES

INTEGRITY

TRANSPARENCY

PASSION FOR QUALITY

HARD WORK AND TEAM PLAY

LEARNING AND INNOVATION

EMPATHY AND HUMILITY

SENSE OF OWNERSHIP.

KARVY ACHIEVEMENTS

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

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

Amongst the top 5 mobilizers of funds in India.

Among the top 3 depository Participants.

Among the top 5 retail brokers in the country.

ISO 9002 certified operations by DNV.

Among the top 10 medical transcriptionists.

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

44

45

DATA ANALYSYS

SOME OF THE SCHEMES OF MUTUAL FUNDS:

Standard Chartered Mutual Fund

Schemes:

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

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

money, Repos , Short-term Corporate Debentures, Commercial Papers,

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

.

Tax:

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

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

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

reinvested after netting it off against Dividend Distribution Tax (currently

20.91%).This dividend is completely tax free. So the net tax incidence is just

20.91% as compared to 36.5925% for comparable non mutual fund option.

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

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

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

market instruments.

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

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

rate.

Plans: The fund comes in two plans

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

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

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

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

by investing in high quality debt securities.

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

that a debt fund earns:

a) Interest income

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

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

invests in various debt securities the issuers of these securities offer a rate of

interest and the principal on maturity. The issuers of these securities could either

could either be various corporates like Reliance, Hindalco, ICICI, Bharat

Petroleum or the Government of India.

b) Mark to Market gain/loss

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

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

seesaw. In general, prices fall when interest rates rise and rise when interest rates

fall. If the interest rates were to decline then newer bonds would be issued at

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lower interest rates than existing bonds. Consequently old bonds would be dearer

and hence prices of these older bonds would rise.

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

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

thus differ from its face value. The longer a bonds period to maturity, the more

its price tend to fluctuate as market interest rates change.

DSP Merrill lynch Mutual Fund:

Schemes

Liquidity Fund:

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

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

constituted of money market securities and high quality debt securities.

Floating rate Fund:

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

commensurate with prudent risk from a portfolio substantially constituted of

floating rate debt securities and fixed rate debt securities swapped for floating

rate returns. The scheme may also invest in fixed rate debt securities and money

market securities.

Short term Fund:

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

with prudent risk, from a portfolio constituting of money market securities,

floating rate debt securities and debt securities.

Bond fund:

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

return, consistent with prudent risk from a portfolio, which is substantially

constituted of high quality debt securities of issuers predominantly domiciled in

India.

Equity Fund:

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

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

equity related securities of issuers domiciled in India. The scheme may also

invest a certain portion of its corpus in debt and money market securities, in

order to meet liquidity requirements from time to time.

T.I.G.E.R Fund:

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

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

constituted of equity securities of corporates, which could benefits from

structural changes brought about by continuing liberalization in economic

policies by the government and / or from continuing investments in

infrastructure, both by public and private sector.

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HDFC MUTUAL FUND

Schemes

HDFC Growth Fund:

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

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

related instruments

HDFC Equity Fund:

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

HDFC Top 200 Fund:

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

appreciation from a portfolio of equity and equity-linked instruments primarily

drawn from the companies in BSC 200 index.

HDFC Balanced Fund:

It is an open ended balanced scheme seeking to generate capital

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

equity related and debt & money market instruments.

HDFC Tax Savers Fund:

50

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

yrs seeking to generate long term growth of capital.

HDFC Gilt Fund:

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

returns through investments in sovereign securities issued by central government

or state government.

Birla Sun Life Mutual Fund:

Schemes

Birla Advantage Fund:

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

across banks MNC pharma, IT and Telecom.

Birla Dividend Yield Plus:

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

and continuously having a positive outlook on banking sector.

Birla Mid cap Fund:

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

and the portfolio remains well diversified across pharmaceutical, banking,

consumer non durable, IT, Hotels.

Birla MNC Fund:

It is an open-ended growth scheme investing in multi national companies

and the portfolio remains over weight across consumer non-durable, IT, Agro

chemicals.

Birla Gilt Plus:

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It is an open-ended government security scheme.

Birla Equity Plan:

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

years.

Kotak Mutual Fund

Schemes:

Kotak 30:

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

appreciation from a portfolio of predominantly and equity related securities with

investment in, generally, not more than 30 stocks.

Kotak opportunities:

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

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

Kotak Global India:

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

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

globally competitive Indian companies.

Kotak Liquid:

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

level of liquidity by investing in debt and money market instruments of different

maturities so as to spread the risk across different kinds of issuers in debt

markets.

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Chola mutual fund:

Schemes:Cholamandalam growth fund:

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

income through investments in equity & equity related instruments; the

secondary objective is to generate some current income and distributive

dividend.

Chola midcap fund:

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

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

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

Chola opportunities fund:

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

capital appreciation from a diversified portfolio of equity and equity related

securities.

Chola Multi-cap fund:

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

appreciation by investing in a well diversified portfolio of equity and equity

related instruments across all ranges of market capitalization.

Chola Gilt investment plan:

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

by investing in Government securities.

Chola monthly income plan:

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

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

CHOOSING FUNDS

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

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

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

objective to make sure it supports your financialgoal.

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

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

funds, to consider how much risk you are comfortable with and when you'll need

the money. If you have the time to weather the market's ups and downs, you may

want to consider equity investments.

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

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

risks, charges and expenses.

DECISION MAKING FACTORS WHILE INVESTING IN MUTUAL

FUNDS

Before looking at the mutual funds available to you, it may be best to decide the mix of stock, bond, and money market funds you prefer. Some experts believe this is the most important decision in investing. Here are some general points to keep in mind when deciding what your investment strategy should be.

54

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

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

work differently. Each offers different advantages and disadvantages. You may

also want to diversify within the same class of securities. Diversifying can keep

you from putting all your eggs in one basket and therefore, may increase your

returns over along period of time.

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

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

Inflation measures the increase of general prices over time.

Conservative investments like money market funds often may be popular

because they are managed to keep a steady value. But their return after

accounting for the inflation rate can be very low, perhaps even negative.

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

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

such an investment may give some safety of principal, it may not be able to grow

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

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

quite a bit from day to day. Therefore, the part of your account invested in stock

funds would likely fluctuate in value much the same way.

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

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

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

market has regained lost value over time. Although you are not assured it will do

so in the future, try to be patient and allow your stock funds time to

recover.

55

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

fund when prices are low is usually not the way to make the most of your

investment. Of course, if a fund continues to under-perform over time as well as

your other fund choices, you may want to consider changing funds.

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

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

By investing in a stock fund, they might be able to receive high returns over the

long-term.

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

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

soon. In this case, it may be wise to place a greater percentage of money in bond

and/ or money market funds, which may not have such large changes in

value.

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

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

good number to start with in deciding what portion of your total investments to

put into stock mutualfunds.

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

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

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

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

want to choose a more aggressive investment strategy.

READ FUND DOCUMENTS

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

It is a legal document illustrating the rules and regulations that a mutual fund

must follow and contains information on the fund's goal and strategy, risks,

56

performance, financial highlights fees and expenses, and a wide variety of

information that you should know before investing.

What are the fund' s goal and strategy?

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

can decide if they match your personal objectives. Some funds generate

income for their shareholders, while others concentrate on capital appreciation.

Some focus on a combination of the two, and others are oriented towards tax

benefits or preservation of capital.

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

Goals and Strategies section of a prospectus details the types of securities in

which fund managers can invest and how managers analyze them

Funds can be limited to domestic investments, focus on a certain country or

region, or invest anywhere in the world. In addition, some funds invest only in

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

medium- or small-capitalization companies.

What are the risks?

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

specific, carries different risks. The Main Risks section of a prospectus explains

which ones are associated with the securities in that particular fund, which may

help you decide what level of risk you're comfortable having in your investment

portfolio.

How has a fund performed?

57

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

you may be interested in how it performed in past market environments.

Depending on the age of the fund, a prospectus will provide its 1- 5- and 10-year

average annual returns, including a comparison to its benchmark index over the

same period.

What are financial highlights?

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

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

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

dividends and distributions that account for any changes.

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

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

turnover rates.

What are the expenses of a fund?

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

Expenses section breaks out these costs and who pays them. In addition, an

example of fund expenses is provided to help you compare the cost of investing

in one fund versus another.

Who's managing the fund?

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

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

industry experience.

.MARKET SEGMENTATION

58

Market segmentation is the division of market into homogeneous groups,

which will respond differently to promotions, communications, advertising and

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

or segment, because the segments are created to minimize inherent differences

between respondents within each segment and maximize differences between

each segment.

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

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

1980s, market segmentation began to take off as a means of expanding sales and

obtaining competitive advantages.

Uses of Market Segmentation

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

primary reasons:

Easier marketing

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

particularly if they have many characteristics in common (e.g. seek the same

benefits, same age, gender, etc.).

Find niches

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

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

buyers and helps a mature product seek new buyers.

Efficient

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

segments for the investor offeringproduct, price, promotion, and place

(distribution). Segmentation can help avoid sending the wrong message or

sending message to the wrong people.

Classification variables

59

Classification variables are used to classify survey respondents into

market segments. Almost any demographic, geographic, Psychographic or

behavioral variable can be used to classify people into segments.

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

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

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

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

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

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

clusters, etc.

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

channels used, reaction to marketing factors, etc.

Summary

Target marketing or market segmentation based on customer needs and

wants can increase profits. Target market identifies customer groups and the

reasons they purchase. Market segmentation helps a business be more responsive

to changing customer needs. An overall marketing plan or strategy visually

shows how all aspects of a marketing effort work together. The ultimate goal of

any business is to sell the product or service.

PRIMARY DATA FOR THE PROJECT:

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

through a survey in the twin cities of Hyderabad & Secunderabad. A Random

sample of 100 investors were surveyed. They were all asked to answer a

questionnaire true to their knowledge. The feedback obtained from the customer

was instrumental, gauging the perception of the investors towards mutual funds.

60

It also throws light on the factors, which influence them to make decisions while

investing. Further the interaction with few of the investors goes a long way in

understanding the inlaid reasons for their decisions.

SECONDARY DATA:

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

fund houses like cholamandalam mutual fund, Franklintempletonindia, ICICI,

BIRLA SUNLIFE, KOTAK and more such houses. Many references were

collected from different libraries to gain an insight on mutual funds. Previous

studies conducted in this field provided valuable help. In addition to the above

sources, Working with Karvy associates and interaction with their personnel

provided a pragmatic edge to my theoretical concepts.

Survey Details

Total Sample Size 100

Economic Status Criterion Tax payees & Non tax payees

Age groups 23 years and above

Martial Status Criterion Married, Married with children &

Unmarried

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FACTORS CONSIDERED BY INVESTORS

WHILE INVESTING

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

it deals with the most important need of life money.

The five main factors that were considered are:

1. Safety & security

2. Tax exemption

3. Liquidity

4. Profitability

5. Return pattern

Factors considered by investors While investing

31%

26%12%

14%

17%

Safety & security Tax exemptionLiquidity ProfitabilityReturn pattern

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SAMPLE SIZE 100

ECONOMIC STATUS TAX PAYEES AND NON-TAX PAYEES

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

factor while investing, 26% goes for Tax exemption, 17% considered return

pattern in the investment, 14% went with profitability and 12% showed interest

in liquidity.

ANALYSIS OF THE ABOVE GRAPH:

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

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

concern. As more and more options that warrant high returns are available in the

market, investor tends to be more skeptical. So, while investing in any avenue,

their first priority is safety and security. Even the age of the investor plays a

major role in the decision-making. For example, if the investor is in the age of 50

and above, he usually looks for low or no risks while investing. Therefore, 31%

of investors surveyed preferred safety & security.

Next is the tax exemption; as there is tremendous boom in the corporate

sector and the remuneration system for a particular sector has changed. This

created a change in income levels and thereby affected the expenditure patterns.

In the past, it took employee years of time to reach a five-figured salary. But,

gradually the system has changed. Even the employee in the lower level or the

middle level of the corporate ladder is receiving a handsome emolument. So,

they are opting for the exemption of tax. Therefore, the next preference is for tax

exemption that is 26% of the total.

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

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

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

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

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would further bolster their financial stability. And so, 17% went with return

pattern of their investment. In the same way, 14% of the investors look for

profitability, especially those who are already doing business, i.e. those who are

already accustomed to taking risks.Out of the total, 12% of investors preferred

liquidity. The main reason for this could be that, that making the invested money

liquefied as and when required is important, and this is not possible if the

investments are made in any insurance, Bank deposits, etc.

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

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

investing in those sectors where there is safety & security for their principal. The

other factors antecede safety.

INVESTMENT PATTERN:

Sample size 100

Economic status Tax payees & non-tax payees

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

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

Investment pattern

42%

31%

9%2%7%5% 4%

Bank deposits insurance mutual fundbonds shares Equitynone

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5% for equity and remaining 4% have invested in some other investments such

as real estates etc.

ANALYSIS OF THE ABOVE GRAPH:

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

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

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

observed that those who opted for an investment in banks in the form of deposits

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

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

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

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

So, the next priority is insurance. 7% of the investors went for an investment in

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

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

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

According to the survey, the people who have invested in the mutual funds

belong to high-income range and they want an exemption from tax and a mere

2% opted for bonds, 5% for investment in equity and 4% have invested in other

investments such as Real estate to make quick returns on their investments.

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AWARENESS TOWARDS MUTUAL FUNDS:

Awareness towards mutual funds

87%

13%

Aware of mutual fund Not aware of mutual fund

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

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

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

ANALYSIS OF THE ABOVE GRAPH:

Of the sample surveyed, almost all of the people are aware of mutual funds. They

are aware of the term mutual fund. Though the questionnaire cannot identify

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

actually aware of the advantages in investing mutual funds, various types of

mutual funds and different schemes offered in it. It is found that People often

have an inhibition that investments in mutual funds can be done only by those

who have surplus amount of money with them and want to avail tax redemption.

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MUTUAL FUND INVESTMENTS:

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

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

awareness about mutual funds is the primary criterion.

Mutual fund investments

75%

6%

19%

Equity funds Debt funds Liquid funds

Sample size 16

Criterion Mutual fund investors in the survey

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

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

in debt funds.

ANALYSIS OF THE ABOVE GRAPH:

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

low level of awareness, various inhibitions and a not so clear idea about the

mutual funds. It is very important to have a clear perception of mutual funds,

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how they work and how the money is invested in different portfolios according

to the investors choice.

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

being the majority preference can be reasoned as they want their investments to

be put in various sectors i.e. DIVERSIFIED FUNDS so that they can make

profits out of it easily. Even some went for INDEX FUNDS as the investments

are made in Bench Nark Index Stock like BSE, NSE.

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

want a Short term investments where the investor need not wait for much time

for the return. These are also called as Money Markets for short term.

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

debt products like Certificate of Deposits (CDs), Commercial papers and call

money as the investor want a secured investment, which he can avail in Debt

Funds.

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FINDINGS

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

perception towards them is not positive.

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

are not directing towards them.

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

of the Liquidity matter and Tax exemption.

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

various types of mutual funds.

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

fund houses, which an ordinary person is not aware.

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

security while investing.

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

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

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SUMMARY

This report is an attempt to provide an analysis of the perception of an investor towards mutual funds. However, what has been reported is only the tip of iceberg

in terms of data that are available.

However, my examinations suggests that employees are interested to

invest in mutual funds provided sufficiently educated and a know-how is

provided on its working. Though the self-employed are investing in mutual funds

and insurance, they are investing small amounts in them because they do not

want to take high risks.

Karvy stock broking ltd should educate the people about the various

advantages of investing in mutual funds and create an awareness regarding

various investment options.

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

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

the mutual funds and the aspects that guide him to make investment decisions.

The study does not aim to advocate investments in mutual funds.

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CONCLUSION

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

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

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

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

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

performance of many mutual funds schemes may be mostly attributed to the

quality of personal involved and their matter of fund management.

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SUGGESTIONS

Make people aware of mutual funds by:

Arranging free seminars in different organizations about mutual fund

investments.

Arranging stalls in Public places is a good publicity.

More advertisements need to come to explain the various advantages of

mutual funds and even the various schemes offered by them.

What to expect from a financial advisor

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

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

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

you? Your advisor should at least:

Understand investor needs and help him formulate long-term investment

goalsandobjectives.

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

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

investments and current financial situation. When the investor planning to

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

estate? How secured is his job?

Help the investor develop realistic expectations by discussing the risks and

rewardsofeachinvestment.Every investment choice has its strengths and

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

investor ask questions, or have doubts,

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Investor should expect your financial advisor to answer honestly, and help

him develop a strategy that is both realistic and comfortable fo