Summer Internship Project Report Submitted To

Kejriwal Institute of Management & Development Dev. Studies

In Partial fulfilment for the Course of

POST GRADUATE DIPLOMA IN MANAGEMENT (PGDM)

By
( Pratap Kumar and Enrolment No. 2016PGDM0021 )

Under the guidance of

Prof. Athar Hussain Ansari & Designation: Asso. Professor & Examination Controller

KEJRIWAL INSTITUTE OF MANAGEMENT & DEVELOPMENT DEV. STUDIES

(Approved by AICTE, Ministry of HRD, New Delhi)
Namkum, Ranchi 834010
Website: www.kimds.co.in

June and Year 2017

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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 Rajeev Ranjan (Cluster Manager, Karvy) and Prof.

Ajit Kumar Singh (Director, KIMDS Ranchi) for providing me with an
opportunity to work with Karvy Stock Broking Limited.

I am highly indebted to Siddharth singh, Ashutosh Tiwari and Arsita Tigga

(financial advisor, Karvy) company project guide, who has providing 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. Athar Hussain Ansari, faculty guide KIMDS, Ranchi who
has sincerely supported me with the valuable insights into the completion of
this project.

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

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 Student’s Declaration

I Pratap Kumar hereby declare that the Project Worked titled “RESEARCH
REPORT ON AFFECT OF INVESTMENT STYLE ON MUTUAL FUND
PERFORMANCE" is the original work done by me and submitted to the
KIMDS in partial fulfilment of requirements for the award of PGDM/MBA is a
record of original work done by me under the supervision of Mr. Prof. Athar
Hussain Ansari of Kejriwal Institute of Management & Dev. Studies

Enrolment No: 2016PGDM0021

Date:

Signature of the student

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 Table of contents
Acknowledgements

Preface

Executive Summary

1. Introduction and design of the study

1.1 CONCEPT INTRODUCTION ---------------------------------------------------- 1 - 10

1.2 SCOPE AND SIGNIFICANCE --------------------------------------------------- 11 - 13
1.3 SCOPE OF THE STUDY --------------------------------------------------- 13
1.4 JUSTIFICATION OF THE PROJECT --------------------------------------------- 14
1.5 BRIEF REVIEW OF STUDY --------------------------------------------------- 15 - 18
1.6 OBJECTIVE OF THE STUDY -------------------------------------------------- 19
1.7 RESEARCH DESIGN -------------------------------------------------- 19 - 22

2. Company profile ------------------------------------------------- 23 - 62

3. Data analysis and interpretation -------------------------------------------------- 63 - 80

4. Summary of Findings and Conclusion -------------------------------------------- 81 - 84

Appendices

Bibliography ------------------------------------------------- 86 - 88

Questionnaire ------------------------------------------------- 89 - 90

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 EXECUTIVE SUMMARY

This project has been a great experience for me and at the same time it gave me enough scope to

implement my analytical ability. Stock Broking leading industry which is basically my concern

industry around which my project has to be revolved is really a very complex industry.

An insight about demat account and share trading and its various aspects. It is purely based on what I

learned at Karvy Stock Broking Ltd. I learnt about mutual fund and all its basics through the project.

This entire topic has been covered in a very systematic way and all the data’s have been well analyzed

with the help of charts and diagram.

The other part consists of data and their analysis, collected through a questionnaire which helps me to

clearly know the terms and condition of different leading stock broking companies and their business

strategies. It covers the topic “Research Report on Affect of Investment Style on Mutual Fund

Performance". The data collected has been well organized and presented. Hope the research findings

and conclusions will be of use.

I have really enjoyed during the time period of summer internship because not only I gained much

better knowledge about the share market trading activities but also about other trading activities. The

practical knowledge gives me enough scope to implement my experience in related companies in the

near future. I am able to know better how to manage the employees work and to take necessary step to

enhance growth and development of the employees as well as the company’s wellness.

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 PREFACE

Financial services is one of the fastest growing sector in the country after the liberalization and still

holds vast opportunities for young and experienced professional among the private stock broking

companies. Karvy Stock Broking Ltd. is one of the key player and has been making efforts to improve

efficiency and customers services.

There are many companies in the market which are providing the financial product like insurance,

mutual funds, demat account services, general insurances, portfolio management services, wealth

management, gold coins, money changing, money transfer and others, including demat account

services. Karvy Stock Broking Ltd. offers stock broking services, mutual fund services, insurance,

commodity, IPO services, Gold coins exchange and foreign exchange service, share registry, mutual

fund registry, and pan service below the single roof. Hence, Karvy Stock Broking Ltd. provides many

financial products on the single window. It consists of six unit namely:-

1) Stock broking services

2) Demat

3) Mutual funds

4) IPO

5) Commodities

6) For-ex

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Unit I : Introduction and Design of the study

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1.1 concept introduction

Different investment avenues are available to investors. Mutual funds also offer good investme nt
opportunities to the investors. Like all investments, they also carry a certain Risks. The investor should
compare the risks and expected yields after adjustment of tax on various instruments while taking
investment decisions .The investors may seek advice from experts and consultants including agents
and distributors of mutual funds schemes while making investment decisions.

With an objective to make the investors aware of functioning of mutual funds, an attempt has been
made to provide information in question –answer format that may help the investors in taking
investment decisions.

Mutual funds now represent perhaps the most appropriate investment opportunity for most investors.
As financial markets become more sophisticated and complex, investor need a financial intermed iar y
who provides the required knowledge on professional expertise on successful investing.

CONCEPT OF MUTUAL FUND:-

A Mutual Fund is a trust that pools the savings of a number of investors who share a Common financ ia l
goal. The money thus collected is invested by the fund manager in different types of securities
depending upon the objective of the scheme. These could range from shares to debentures to money
market instruments. The income earned through these investments and the capital appreciation realized
by the scheme is shared by its unit holders in proportion to the number of units owned by them (pro
rata). Thus a Mutual Fund is the most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost.
Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds.
Each Mutual Fund scheme has a defined investment objective and strategy. It is a mechanism for
pooling the resources by issuing units to the investors and investing funds in securities in accordance
with the objectives as disclosed in offer Document. Investments in securities are spread across a wide
cross-section of industries And sectors and thus the risk is reduced. Diversification reduces the risk
because all Stocks may not move in the same direction in the same proportion at the same time.
Investors of the mutual funds are known as the unit holders. The mutual funds normally come out with
a number of schemes with different investment objectives, which are launched from time to time.
Mutual funds required to be registered with securities and exchange board of India (SEBI), which
regulates securities markets before it can collect funds from the public. (mutual fund, 2017)

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

{Figure-1}

Organization chat of mutual fund

There are many entities involved and the diagram below illustrate the organization set up of a Mutual
fund.

{Figure - 2}

Mutual fund

“Research report on affect of investment style on Mutual Fund performance”

Mutual funds are money-managing institutions set up to professionally invest the money pooled in
from the public. These schemes are managed by Asset Management Companies (AMC), which are
sponsored by different financial institutions or companies. Each unit of these schemes reflects the share

9
of investor in the respective fund and its appreciation is judged by the Net Asset Value (NAV) of the
scheme. The NAV is directly linked to the bullish and bearish trends of the markets as the pooled
money is invested either inequity shares or in debentures or treasury bills.

It is divided into two parts:-

1. KYC (KNOW YOUR CUSTOMER)

2. APPLICATION FORM

1. KYC FORM: Know your customer (KYC) is the process of a business verifying the identity of its
clients. The term is also used to refer to the bank regulation which governs these activities. Know your
customer processes are also employed by companies of all sizes for the purpose of ensuring their
proposed agents', consultants' or distributors' anti-bribery compliance. Banks, insurers and export credit
agencies are increasingly demanding that customers provide detailed anti-corruption due dilige nce
information, to verify their probity and integrity.

Know your customer policies are becoming much more important globally to prevent identity theft,
financial fraud, money laundering and terrorist financing.

KYC form is divided in to two parts:-

Fresh KYC: In FRESH KYC need to attach passport size photo, PAN CARD, ID PROOF.

Cheque KYC: In CHEQUE KYC no need to attach passport size photo, need only PAN CARD, ID
PROOF.

WWW.CVIKRA.COM (with the help of this site we can easily do KYC inquiry)

2. APPLICATION FORM: application form (often simply called an application) is a form or

collection of forms that an individual seeking employment, called an applicant, must fill out as part of
the process of informing an employer of the applicant's availability and desire to be employed, and
persuading the employer to offer the applicant employment.

It is divided into two parts:

(a) Lump sum (5000 minimum)

(b) SIP (1000 minimum)

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(A) LUMPSUM:

A single payment made at a particular time, as opposed to a number of smaller payments or instalme nts’
contract under which a principal (customer or owner) agrees to pay a contractor a specified amount for
completing work without requiring a cost breakdown.

A lump sum is a single payment of money, as opposed to a series of payments made over time.

In this form we need:

• Common form

• KYC form and this form is free from tax.

2. Systematic Investment Plan (SIP)

A systematic investment plan (SIP) is good tool that retail investors can utilize to optimize their
investment strategy. SIP is nothing but a simple method of investing a fixed sum of money in a specific
investment scheme, on a regular basis, for a pre-determined period of time. SIP requires you to invest
a particular amount in a specific mutual fund scheme. In comparison, it functions much like a recurring
deposited. You can plan scheme for yourself and commit a particular sum of money each month on a
date to the scheme. You can begin with as low as rs 500 in ELSS (equity linked saving scheme) scheme
an move on to rupees 1000 a month for other diversified schemes SIP follows a simple mantra- buy
when high and sell when low, simple way to win in the stock markets. If you are a disciplined investor
however, and are interested in mutual funds, then the equity systematic investment plan (IP) would
work well for you. Putting in a sum of money each month will ensure that you have something in when
the market is high, and when it is low securing your position in an unstable market. Geojit BNP Paribas
recently launched SIP for stock investment where in investors with a regular monthly income can invest
their monthly savings in stock of their choice or a basket of stocks. Geojit BNP Paribas provides this
service on internet which makes it easy for investors to plan their savings and investment at regular
intervals. SIP is very useful for a time horizon of 10-15 years. SIP imparts discipline to savings on
giving a post-dated cheques or ECS instruction to any fund saving and investing append automatica lly.

A lump sum is a single payment of money, as opposed to a series of payments made over time. It is
just like a recurring deposit with the post office or bank where you put in a small amount every month.
The difference here is that the amount is invested in a mutual fund.

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SIP mainly helps us to get addicted to an investment principle-

Income - savings = expenditure, instead of following the principle of –

Income - expenditure = savings

SIP can be used in any type of mutual fund, equity or fixed income. This strategy is best used in an
equity fund where an investor can capture the volatility in the equity markets to reduce the cost of
investment. The NAV of any fund is determined by the market price of the stocks the fund has invested
in. A very important aspect to keep in mind is the entry and exit load charged by all mutual funds. In a
normal investment most funds either charge entry load or exit load. But in a SIP along with an entry
load charged for each instalment, an exit load is charged if program is withdrawn before a specified
period. This period could vary from six months to two years.

Working of SIP:-Let us take an example to understand how SIP works. Suppose ‘X’ decides to invest
in a mutual fund though SIP. He commits making a monthly investment of Rs 1000 for a period of
twelve months (starting 1st January 2006) in a fund named ‘ABC’. The payment can be done by issuing
twelve post –dated cheques of Rs 1000 each or though ECS facility (if available).

{Figure – 1}

DATE MONTHLY NAV NUMBER OF UNITS

INVESTMENT (b) (a) / (b)
(a)
1-Jan Rs 1000 46.29 21.603
1-Feb Rs 1000 48.08 20.799
1-March RS 1000 52.78 18.947
1-Apr RS 1000 56.36 17.743
1-May Rs 1000 58.42 17.117
1-Jun Rs 1000 56.42 17.724
1-Jul Rs 1000 62.14 16.093
1-Aug Rs 1000 67.58 14.797
1-Sep Rs 1000 71.70 13.947
1-Oct Rs 1000 76.19 13.125
1-Nov Rs 1000 83.97 11.909
1-Dec Rs 1000 89.92 11.211

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Brief Summary

Monthly Investment: RS 1000

Period of investment: 12 months (1stjan 2017 to 1stdec 2017)

Total amount invested: RS 12,000

Total number of units credited to ‘X’: 194.925

Average cost unit: Rs 61.5621

NOTE: Entry and exit loads are applicable while investing through SIP option also. However, in this
example, load has not been taken into consideration for the purpose of simplification.

Benefits to ‘X’

Convenience and affordability investing as he /she are compelled to fulfil his /her commitment of
making a fixed payment every month

Rupee cost average benefit- By investing though the SIP route, ‘X’ receive 194.925 units at an average
cost of Rs 61.5621. However, had ‘X’ invested the whole of Rs 12000 at one go, he would have
received a different number of units. Suppose ‘X’ had invested Rs 12000 on:

1st Jan 2017- he would have received 259.24 units

1st Jul 2017 – he would have received 193.11 units

1st Dec 2017- he would have received 133.45 units

Since, it is not so simple for anybody to perfectly time the market; it makes a more sensible approach
to invest through SIP option (For long tar, say 3 to 5 years) it actually makes the volatility in the stock
markets work for investors. This example helps us to understand how SIP allows ‘X’ to take benefit
of all the highs and lows of the market during this twelve months ‘time period.

Flexibility to redeem units at any time or making a change in the monthly investment amount.

FEATURES OF SIP

1. Affordable to small investors: it is affordable to pay a small amount regularly than paying a
large amount as a whole. Moreover, many asset management companies (from whom you purchase
mutual funds shares) charge very less to no entry loads for SIP when compared to other one time
investments.

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2. Low market risk through rupee cost averaging: This the best feature in this policy. Success in
stock markets depends on pure Timing .Highest profits can be gained when you invest in the right
stocks at the right time i.e. when the markets are on a high.

3. Easy liquidity: You can have the liberty to exit at any time even before the agree time period.
But some exit load shall be charged.

4. Compounding effect: It means the early you invest the better you gain. Let’s say you planned
for SIP for 10 years investing Rupees 1000 monthly you stopped after 10 years. Then your friend
invested the same amount for 20 years. But due to compound effect, at the end of 20 years, you will
get higher outcome than your friend

Benefits of SIP

 Investments are consistent and steady.

 Power of compounding: more the length of investment, more the earnings (early bird
advantage)
 Power of rupee cost averaging: Market’s volatility shall work wonders for you.
 It is an entirely mechanized process and involves no complications.
 It enables to overcome spending and encourage savings, thereby securing future.
 It will not cause strain on one’s budget as investment amount can be so less than one does not
realize its being withheld. (financial planning, 2017)

{Figure – 3}

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Disadvantages of sip

 No downside protection – Investors should remember that despite of all advantages that SIPS
have, they are subject to market risk and do not protect investors from making a loss or ensure
the profits in falling markets.
 Portfolio risk remains- Sips are also subject to security risk. Mutual fund schemes investing in
portfolios that turns out to generate negative returns are bound to make investors incur a loss
even if the investments is made through SIPs
 Matching periodicity to fund flows-SIPs is available in monthly and quietly options. Investors
should opt for option that is in tandem with the periodicity of cash inflows.
 Ignore the market swings-In the short term, sentiments drive the movements in the market
.therefore; investors should not let a short term correction of fall in the markets to bother them.
As long as the long term prospects are intact, the investments are safe.

NET ASSET VALUE

The net asset value of the fund is the cumulative market value of the assets 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 net asset value
per unit, which is the value, represent by the ownership of one unit in the fund it is calculated simply
by deciding 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. (NAV,
2017)

Calculation of NAV

The most important part of the calculating 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 calculations of the asset value is given below.

Asset value = Sum of market value of share/debenture + liquid assets/interest accrued dividends due
on unpaid assets expenses accrued but not paid.

Formula of calculated NAV:

NAV = Fair market value of Scheme’s Investments + Receivables + Accrued income +other assets -
Accrued expenses - Payables - Other liabilities Number of units outstanding.

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Description of systematic investment plan

Investing in SIP enables an investor to take part in the stock markets without actively timing them and
he/she can benefit by buying more units when the price falls and less units when the price rises. This
scheme helps reduce the average cost per unit of investment through a method called Rupee Cost
Averaging. {Table - 2}

Month Investment Current Units

NAV purchased
3rdjan , 2017 1000 10 100
2ndfeb , 2017 1000 5 200
2nd march 2017 1000 15 67
1st april 2017 1000 14 71
2nd may 2017 1000 15 67
1st june 2017 1000 20 50
1st july 2017 1000 22 45
1st august 2017 1000 25 40
1st September 2017 1000 27 37
3rdoctuber 2017 1000 29 34
Total 10,000 711
Average NAV = (10+5+15+14+15+20+22+25+27+29)/10=18.2

For Example: A person invests Rs 1000 for ten months in SIP. We will find out that the actual average
purchase cost of asset would be lower than the average NAV of his investment over 10 months, which
is the key benefit of Rupee Cost Averaging.

Actual average purchase cost as per SIP = (1000X10)/ (100+200+67+71+67+50+45+40+37+34) =

14.06

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1.2 Scope and Significance

How mutual funds work?

A mutual fund is a company that pools investors’ money to make multiple types of investments, known
as the portfolio. Stocks, bonds, and money market funds are all examples of the types of investme nts
that may make up a mutual fund. “A Mutual Fund is an ideal investment vehicle where a number of
investors come together to pool their money with common investment goal. Each Mutual Fund with
different type of schemes is managed by respective Asset Management Company (AMC). An investor
can invest his money in one or more schemes of Mutual Fund according to his choice and becomes the
unit holder of the scheme. The invested money in a particular scheme of a Mutual Fund is then invested
by fund manager in different types of suitable stock and securities, bonds and money market
instruments. Each Mutual Fund is managed by qualified professional man, who use this money to
create a portfolio which includes stock and shares, bonds, gilt, money-market instruments or
combination of all. Thus Mutual Fund will diversify your portfolio over a variety of investme nt
vehicles. Mutual Fund offers an investor to invest even a small amount of money. (how mf work, 2017)

{Figure – 4}

The mutual fund is managed by a professiona l

investment manager who buys and sells securities for
the most effective growth of the fund. As a mutual fund
investor, you become a “shareholder” of the mutual
fund company. When there are profits you will earn
dividends. When there are losses, your shares will
decrease in value.

Mutual funds are, by definition, diversified, meaning

they are made up a lot of different investments. That
tends to lower your risk (avoiding the old “all of your
eggs in one basket” problem).

Because someone else manages them, you don’t have to worry about diversifying individ ua l
investments yourself or doing your own record keeping. That makes it easier to just buy them and
forget about them. That’s not always the best strategy, however your money is in someone else’s hands,
after all.

17
Since the fund manager’s compensation is based on how well the fund performs, you can be assured
they will work diligently to make sure the fund performs well. Managing their fund is their full- time
job! Mutual funds can be open-ended or closed-ended. But many people consider all mutual funds to
be open-ended, while putting closed-ended funds in another category. (home>ca>finance, 2017)

“Open-ended” means that shares are issued in the fund (or sold back to the fund) whenever anyone
wants them. With closed-ended funds, only a certain number of shares can be issued for a particular
fund, and they can only be sold back to the fund when the fund itself terminates. (You can sell closed-
ended funds to other investors on the secondary market, though.)

Load refers to the sales charges added to a mutual fund when you purchase it. The load charge goes to
the fund salesperson as a commission and payment for their research services. Load charges can be up
to 8.5 percent of the selling price and can be figured in as a front-end load (meaning you pay it when
you buy the mutual fund) or a back-end load (meaning you pay when you sell the mutual fund).

Many mutual funds are no-load funds. Yes, that means there is no sales fee charged and the fund is
direct-marketed so you can buy it without the help of a salesperson. With the wealth of information on
the Internet today, it is certainly easier to make smart choices yourself to save money.

In addition to no-load funds, there are also funds that charge up to 3.5 percent as a sales fee. These are
called low-load funds and can still be a good deal.

Mutual funds fall into three categories:

 Equity funds are made up of investments of only common stock. These can be riskier (and earn
more money) than other types.
 Fixed-income funds are made up of government and corporate securities that provide a fixed
return and are usually low risk.
 Balanced funds combine both stocks and bonds in the investment pool and offer a moderate to
low risk. While low risk may sound good, it is also accompanied by lower rates of return-
meaning you risk less, but your investment won’t earn as much. You have to decide how much
risk you’re willing to take on before you invest your money.

If you have invested in a college savings fund or a 401k account, chances are good that already own a
few mutual funds. Mutual funds are great for long-term investments like these. You can also buy
mutual funds directly from a mutual fund company.

Most of these offer no-load funds (or sometimes low-load funds). You can find lists of mutual fund
companies on the Internet and purchase shares by simply filling out an application and mailing a check.

18
Once you are a shareholder, you will receive statements telling you how the fund is doing as well as
how much your own investment is growing.

You can also set up monthly bank transfers to automatically buy more shares every month.

Scope of Mutual Funds

The scope has grown enormously over the years. In the first age of mutual funds, when the investme nt
management companies started to offer mutual funds, choices were few. Even though people invested
their money in mutual funds as these funds offered them diversified investment option for the first
time. By investing in these funds they were able to diversify their investment in common stocks,
preferred stocks, bonds and other financial securities. At the same time they also enjoyed the advantage
of liquidity. With Mutual Funds, they got the scope of easy access to their invested funds on
requirement.

But, in today’s world, Scope of Mutual Funds has become so wide, that people sometimes take long
time to decide the mutual fund type, they are going to invest in. Several Investment Management
Companies have emerged over the years who offer various types of Mutual Funds, each type carrying
unique characteristics and different beneficial features. (scope of mf, 2017)

1.3 Scope of the study

The scope of the study refers to the job that to know about the activities of the organization. The study
means that the analysis of the products of the company on which I have to focus.

During the summer internship programme the volunteer need to find out the cooperate strategies of the
running company and the mile stone which the company has covered during its journey. In the summer
internship programme, it is necessary for me that I involve with the experience guide to get the
knowledge about the company. That is how the company has got the success, Or if it is going in the
loss, why.

In my training period I have found that the Karvy group is the biggest group in Indian companies. I felt
that I can learn the more in the Karvy Stock Broking Ltd.

Karvy Stock Broking Ltd. Is the part of the Karvy Group of Companies which is a growing company
in the financial products.

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1.4 Justification of the project

A project is an idea or plan that is intended to be carried out. The dictionary meaning of a project is
that it is a scheme, design, a proposal of something intended or devised to be achieved.

Newman ET. Al defines that “A project typically has a distinct mission that it is designed to achieve
&clear transmission point, the achievement of the mission”.

A project is an organized unit dedicated to the attainment of a goal –the successful completion of a
development project on time, within budget in conformance with pre –determined programmed
specification. Now a project can be defined as a scientifically evolved work plan devised to achieve a
specific objective within a specified period of time. Every project has a starting point and end point
with specific objectives.

Here, it is also important to mention that while projects can differ in their size, nature, objective, time
duration and complexity, yet they partake of the following three basic attributes:

• A course of action

• Specific objectives, and

• Define time perspective

• Classification of the project;

Project classification is a natural corollary to the study of project idea. Different authorities have
classified projects differently. Following are the major classifications of project:

• Quantifiable &non quantifiable projects

• Sectoral projects

• Techno-economical projects

Duration of the project

The project has taken 2 months in 2017 during PGDM.

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1.5 Brief Review of Studies - (Literature Review)

A large number of studies on the growth and financial performance of mutual funds have been carried
out during the past, in the developed and developing countries. Brief reviews of the following research
works reveal the wealth of contributions towards the performance evaluation of mutual fund, market
timing and stock selection abilities of fund managers.

In India, one of the earliest attempts was made by National Council of Applied Economics Research
(NCAER) in 1964 when a survey of households was undertaken to understand the attitude towards and
motivation for savings of individuals. Another NCAER study in 1996 analysed the structure of the
capital market and presented the views and attitudes of individual shareholders. SEBI – NCAER
Survey (2000) was carried out to estimate the number of households and the population of individ ua l
investors, their economic and demographic profile, portfolio size, and investment preference for equity
as well as other savings instruments. Data was collected from 30, 00,000 geographically dispersed rural
and urban households. Some of the relevant findings of the study are : Households preference for
instruments match their risk perception; Bank Deposit has an appeal across all income class; 43% of
the non-investor households equivalent to around 60 million households apparently lack awareness
about stock markets; and, compared with low income groups, the higher income groups have higher
share of investments in Mutual Funds signifying that Mutual funds have still not become truly the
investment vehicle for small investors.

Made an extensive and systematic study of 152 mutual funds found that mutual fund schemes earned
an average annual return of 12.4 percent, while their composite benchmark earned a return of 12.6
percent. Their alpha was negative with 20 basis points. Overall results did not suggest widespread
inefficiency in the industry. Comparison of fund returns with turnover and expense categories did not
reveal a strong relationship.

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

21
Analysed investment performance of 40 funds based on quarterly returns during the period 1966-71.
He acknowledged that, biases in Sharpe, Treynor, and Jensen’s measures, could be removed by using
mean absolute deviation and semi-standard deviation as risk surrogates compared to the composite
measures derived from the CAPM (Capital Asset Pricing Modal). (Kelmosky, 1973)

Examined 123 mutual funds and identified the existence of positive relationship between objectives
and risk. The study identified the existence of positive relationship between return and risk. The
relationship between objective and risk-adjusted performance indicated that, more aggressive funds
experienced better results. (McDonald and Jhon, 1974)

Study identified a negative correlation between asset size of the fund and the expense ratio. The results
of the study brought out that, larger funds had lower expense acquire information for trading decision
and were consistent with the theory of information pricing. (Conrad S Ciccotello and C Terry Grant"s,
1996)

Evaluated investment performance for the period 1992 to 1996. Aspects of Mutual fund such as fund
diversification, consistency of performance, consistency between risk measures, fund objectives and
risk return relation in general were studied. For the study 80 mutual fund schemes of private and public
sector were taken. Out of 80 schemes, 54 were close-ended and the 26 were open-ended. Results
showed that income growth schemes were the best performers with mean weekly returns of .0087
against mean weekly returns from income growth schemes of .0021 and .0023 respectively. LIC
Dhansahyog, Reliance growth and Birla Income Plus were the best income growth and growth income
schemes respectively. (Gupta and Sehgal, 1997)

Evaluated performance of 80 mutual fund schemes over four years (1992-96). The study tested the
proposition relating to fund diversification, consistency of performance, parameter of performance and
risk-return relationship. The study noticed the existence of inadequate portfolio diversification and
consistency in performance among the sample schemes. (Gutpa and Sehgal, 1998)

Have pointed out that there is no difference in risk attitude between individuals of different gender, but
between the groups, males indicate a stronger inclination to risk tolerance. Gender difference was found

22
at an individual level, but in groups, males expressed a stronger pro-risk position than females. (Ronay
and Kim, 2006)

Used data from nearly 2000 mutual fund investors and found that women take less risk than men in
their mutual fund investments. According to Prince, (1993); Lundeberg et al., (1994), men tend to be
more confident, trade more frequently, rely less on brokers and believe that returns are more predictable
and anticipate higher returns than women. Hinz et al (1997) conducted a study in US by using data
from the Federal Government’s Thrift Saving Plan. Their findings showed women are less likely to
hold risky assets and more likely to allocate assets towards fixed income alternatives. This is also
supported by Prince (1993), Underberg et al (1994).According to them men are more confident than
women. (Dwyer, 2002)

Identified that Prudential ICICI Balanced

Fund, Zurich Equity Fund were the best among the equity funds while Pioneer ITI Treasury scheme
was the best among debt schemes. He concluded that, the efficiency of the fund managers was the key
in the success of mutual funds. (Saha, Tapas Rajan, 2003)

Shows that risk and investment experience tend to indicate a positive correlation. Past experience of
successful investment increases investor tolerance of risk. Inversely, unsuccessful past experience
leads to reduced tolerance to risk. Therefore past investment behaviour affects future investme nt
behaviour. (Byrne, 2005)

Studied that investment experience is an important factor influencing behaviour. Investors with more
experience have relatively high risk tolerance and they construct portfolios of higher risk. (Corter and
Chen, 2006)

In his article, “Learn how to invest in Mutual Funds” discussed the risk and return in mutual funds. He
stated that the risk and return depend on each other, the greater the risks, the higher the potential return;
the lower the risk, the lower the expected return. Mutual funds try to reduce their risk by investing in
a diversified group of individual stocks, bonds, or other securities. He concluded that the invest me nt

23
in stocks can get more return than mutual funds but by investing in mutual funds, the risk is lower.
(Mostafa Soleimanzadeh, june 2006)

Evaluated 40 schemes for the period April 1995 to March 2000. The study identified that majority of
the schemes earned returns higher than the market but lower than 91 days Treasury bill rate. The
average risk of the schemes was higher than the market. 15 schemes had an above average monthly
return. Growth schemes earned average monthly return. The risk and return of the schemes were not
always in conformity with their stated investment objectives. The sample schemes were not adequately
diversified, as the average unique risk was 7.45 percent with an average diversification of 35.01
percent. 23 schemes outperformed both in terms of total risk and systematic risk. 19 schemes with
positive alpha values indicated superior performance. The study concludes that the Indian Mutual
Funds were not properly diversified. (Muthappan P K and Damodharan E, 2006)

Conducted a study on public-sector sponsored and private-sector sponsored mutual funds to investigate
the differences in characteristics of assets held, portfolio diversification, and variable effects of
diversification on investment performance for the period May 2002 to May 2005. The study found that
public-sector sponsored funds do not differ significantly from private-sector sponsored funds in terms
of mean returns However, there is a significant difference between public-sector sponsored mutual
funds and private-sector sponsored mutual funds in terms of average standard deviation, average
variance and average coefficient of variation (COV). The study also found that there is a statistica l
difference between sponsorship classes in terms of ESDAR (excess standard deviation adjusted
returns) as a performance measure. When residual variance (RV) is used as the measure of mutual fund
portfolio diversification characteristic, there is a statistical difference between public-sector sponsored
mutual funds and private-sector sponsored mutual funds for the study period. The model built on testing
the impact of diversification on fund performance found a statistical difference among sponsorship
classes when residual variance is used as a measure of portfolio diversification and excess standard
deviation adjusted

as a performance measure. RV, however, has a direct impact on fund performance measure. (Panwar
s. and Madhumathi R, 2006)

24
1.6 Objective of the Study

Any activity done without an objective in a mind cannot turn fruitful. An objective provides a specific
direction to an activity. Objective may range from very general to very specific but they should be clear
enough to point out with reasonable accuracy what researcher wants to achieve the study and how it
will be helpful to the decision maker in solving the problem.

The present study is understand with the following specific objective.

 To analyse the perception of investors towards mutual funds & other investment.
 To study the factors considered by the investors and those which ultimately influence while
investing.

1.7 Research Design

Research Methodology

This study is descriptive in nature based on survey method. The study aims at finding out the awareness
of the investors towards investments in mutual funds in Piska more, Katatoli and Lalpur (Ranchi,
Jharkhand).

(Descriptive research):

Descriptive research is used to describe characteristics of a population or phenomenon being studied.

It does not answer questions about how/when/why the characteristics occurred. Rather it addresses the
"what" question (what are the characteristics of Minnesota state population or situation being studied?)
The characteristics used to describe the situation or population are usually some kind of categorical
scheme also known as descriptive categories. For example, the periodic table categorizes the elements.
Scientists use knowledge about the nature of electrons, protons and neutrons to devise this categorical
scheme. We now take for granted the periodic table, yet it took descriptive research to devise it.
Descriptive research generally precedes explanatory research. For example, over time the periodic
table’s description of the elements allowed scientists to explain chemical reaction and make sound
prediction when elements were combined.

25
Hence, descriptive research cannot describe what caused a situation. Thus, descriptive research cannot
be used to as the basis of a causal relationship, where one variable affects another. In other words,
descriptive research can be said to have a low requirement for internal validity.

The description is used for frequencies, averages and other statistical calculations. Often the best
approach, prior to writing descriptive research, is to conduct a survey investigation. Qualitative
research often has the aim of description and researchers may follow-up with examinations of why the
observations exist and what the implications of the findings are. (Descriptive research, 2017)

Sources of data collection

Two sources of collecting data has been employed i.e.

1.Primary data – Primary data is that has not been previously published , i.e. the data is derived form
a new or original research study and collected at the source , i.e. in marketing , it is information that is
obtained directly from first-hand sources by means of surveys.

Modes of data collection

Questionnaire – A questionnaire is used as a tool for the systematic collection of relevant informatio n.
A well questionnaire consisting of sample question has been prepared & directed to the respondents.
(Questionnaire is attached at the end of the project).

The questionnaire prepared consists of closed-ended questions.

Interview with the respondents – Some question were asked from the investors regarding their
investments, financial advisor, their knowledge about mutual funds etc. depending on time and attitude
of investors.

2. Secondary data- Secondary data is data collected by someone other than the user. Common sources
of secondary data form book, website, organizational records and data collected through quantitative
or qualitative research. Primary data, by contrast, are collected by the investigator conducting the
research.

Defining the population: For this research our population is investors in mutual funds & investment in
other avenues people in Piska more, Katatoli and Lalpur (Ranchi, Jharkhand) areas.

26
Modes of data collection through-

*cold calling

*Personal in-home surveys

Procedure of collecting primary data - Primary data are those which are collected by the researcher
directly from the field. The researcher has gone to different respondents for the purpose of personal
interview with help of questionnaire.

Procedure of collecting secondary data- Secondary data which are not collected from the enquiry, but
are collected from others source like newspaper, magazine, and internet are known as secondary data.

Population and sample- When studying any problem it is difficult to study all the people of the world
i.e. the population. A sample is a small proportion of a population selected for observation and analysis
it is a collection consisting of a part or subject of the object or individual of the population, which is
selected for the purpose of representing the population refers to few customer of Karvy stock broking
ltd in Ranchi areas. But since the study is confined only to the Ranchi the researcher has selected most
of the customer of this product i.e. 100 respondent.

Sample Size:-100

Sample technique- convenience sampling.

(Convenience sampling):

Convenience sampling is a non-probability sampling technique where subjects are selected because of
their convenient accessibility and proximity to the researcher. The subjects are selected just because
they are easiest to recruit for the study and the researcher did not consider selecting subjects that are
representative of the entire population.

In all forms of research, it would be ideal to test the entire population, but in most cases, the population
is just too large that it is impossible to include every individual. This is the reason why most researchers
rely on sampling techniques like convenience sampling, the most common of all sampling technique s.
Many researchers prefer this sampling technique because it is fast, inexpensive, easy and the subjects
are readily available. (Convenience Sampling, 2017)

27
Example- One of the most common examples of convenience sampling is using student volunteers as
subjects for the research. Another example is using subjects that are selected from a clinic, a class or
an institution that is easily accessible to the researcher. A more concrete example is choosing five
people from a class or choosing the first five names from the list of patients.

In these examples, the researcher inadvertently excludes a great proportion of the population. A
convenience sample is either a collection of subjects that are accessible or a self-selection of individ ua ls
willing to participate which is exemplified by your volunteers.

Limitation of the study

 Much interaction has not been possible with the customer due to
 Indifference or uninterested of the customer to uninterested of the customer to interact with me.
 Different perceptions about the investment option.
 The non – availability of time to them
 Many investors think mutual funds and share are the one and same.

28
Unit II : Company profile

29
One fateful evening in the summer of 1982, 5 young men who worked for a renowned chartered
accountancy firm decided that it was time they struck out on their own to create an enterprise that
would someday become an iconic name in the financial services space. (OUR STORY, 2017)

They came from ordinary middle class backgrounds. They had two assets; one was their education and
the other an unquenchable desire to succeed.

They had a lot stacked against them the environment was not conducive to entrepreneurs hip;
technology was not fully supportive, financial markets were largely unregulated, they were based out
of Hyderabad

While most key players in the financial world were in Mumbai or other metros and the wolf was at the
door. The odds seemed insurmountable.

These remarkable young men’s “Never say die” approach held them in good stead over the years. They
stuck to their dreams, burnt the midnight oil, embraced technology and made it work for them and
through sheer dint of determination, eventually overcame all obstacles.

First came the registry business, followed by broking, and the rest became a lesson for every young
individual to emulate.

Karvy Consultants Limited was established in 1982 at Hydrabad. It was established by a group of
Hydrabad-based practicing Chartered Accountants. At initial stage it was very small in size. It was
started with a capital of Rs. 1, 50,000.

In starting it was only offering auditing and taxation services. Later, it acts into the Registrar and Share
transfer activities and subsequently into financial services and other services like Financial Product
Distribution, Investment Advisory Services, Demat Services, Corporate Finance, Insurance etc.

All along, Karvy’s strong work ethics and professional background leveraged with Informatio n
Technology enabled it to deliver quality to the individual.

A decade of commitment, professional integrity and vision helped Karvy achieving a leadership
position in its field when it handled largest number of corporate and retail that proved to be a sound
business synergy.

Today, Karvy has access to millions of Indian shareholders, besides companies, banks, financ ia l
institutions and regulatory agencies. Over the past one and half decades, Karvy has evolved as a
veritable link between industry, finance and people.

30
In January 1998, Karvy became first Depository Participant in Andhra Pradesh. An ISO 9002
Company, Karvy’s commitment to quality and retail reach has made it an Integrated Financial Services
Company.

Today, company has 230 branch offices in 164 cities all over the India. The company adds 5 new
offices every month to the company’s ever growing national network in every nook and

Corner of the country. The company service over 16 million individual investors, 180 corporate and
handle corporate disbursements that exceed Rs.2500 Crores.

Where Karvy stand in the market?

KARVY is a legendary name in financial services, Karvy’s credit is defined by its mission to succeed,
passion for professionalism, excellent work ethics and customer centric values.

Today KARVY is well known as a premier financial services enterprise, offering a broad spectrum of
customized services to its clients, both corporate and retail. Services that KARVY constantly upgrade
and improve are because of company’s skill in leveraging technology. Being one of the most techno-
savvy organizations around helps company to deliver even more cost effective financial solutions in
the shortest possible time.

What bears ample testimony to Karvy’s success is the faith reposed in company by valued investors
and customers, all across the country. Indeed, with Karvy’s wide network touching every corner of the
country, even the most remote investor can easily access Karvy’s services and benefit from company’s
expert advice.

KARVY Stock Broking Limited

KARVY Stock Broking Limited, one of the cornerstones of the KARVY edifice, flows freely towards
attaining diverse goals of the customer through varied services.

It creates a plethora of opportunities for the customer by opening up investment vistas backed by
research-based advisory services. Here, growth knows no limits and success recognizes no boundaries.

Helping the customer create waves in his portfolio and empowering the investor completely is the
ultimate goal. KARVY Stock Broking Limited is a member of:

 National Stock Exchange (NSE)

31
  Bombay Stock Exchange (BSE)
 Hyderabad Stock Exchange (HSE)
 Karvy Investor Services Limited

Deepening of the Financial Markets and an ever-increasing sophistication in corporate transactions,

has made the role of Investment Bankers indispensable to organizations seeking professional expertise
and counselling, in raising financial resources through capital market apart from Capital and Corporate
Restructuring, Mergers & Acquisitions, Project Advisory and the entire gamut of Financial Market
activities.

Promoters & management team

Mr. C. Parthasarathy is the (Chairman and Managing Director) diversified

financial services Karvy group. C Parthasarathy (CP as he is better known in
the Industry), has the uncanny knack of staying ahead of the curve and the
foresight to spot opportunities that seem invisible on the horizon for the
others. Karvy’s entire history is a case study of turning adversity into
opportunity. CP is a chartered accountant by qualification, whose
entrepreneurial energy drove him to co-found Karvy in 1983 with a less-than-
modest capital of Rs 150,000.Over the years CP’s vision and leadership skills
have helped the group navigate through the turbulent times with a strong sense of purpose and clarity
of thought. CP is one of the pioneers of financial inclusion. Under his leadership Karvy has won
numerous industry awards and accolades. He also is an independent Director in many listed companies.

Mr. M Yugandhar, (Managing Director) is a founder member of the

KARVY Group. He is a Fellow Member of the Institute of Chartered
Accountants of India and has varied experience in the field of financ ia l
services spanning over 30 odd years.

Yugandhar has helped position and build a strong brand for the group in
the registry and other financial services businesses. The registry business
of Karvy is one of its flagship businesses and with the collaboration with
Computershare has grown to become the largest registrar in India for over two decades. Yugandhar

32
has played a key role in building strong relationships with public sector banks and other PSUs which
has helped Karvy win some important mandates from some of India’s renowned companies.

Karvy under his guidance has helped create the equity cult and substantially built retail investor wealth.
He is an Independent Director on the board of several reputed companies.

Mr. M S Ramakrishna, (Director, founder member) of KARVY GROUP, he

is the orchestrator of technology initiatives such as the call center in the
service of the customer.

Mr. Ramakrishna was a member of the Hyderabad Stock Exchange and has
more than 30 years of experience in the financial services arena. He has
helped KARVY diversify into the field of medical transcription.

Management team

Mr. V Mahesh, is the (Managing Director) of Karvy Data Management and

has work experience spanning over 2 decades with in depth exposure to
operations on most financial services businesses. Commencing his
professional stint with the Registry business where he has to his credit
managing over 300 IPOs and other forms of offerings, he was amongst the
first few to work closely on the Book Building process initiated by SEBI in
1995. After initially working with MCS as an Assistant Vice President, he
moved to Karvy. He was also responsible to initiate the process of setting up the Depository participant
business in Karvy and was responsible for both the operations and the marketing of the business. He
has been nominated by the NSDL to various committees which addressed key changes to the overall
processes and policies for the Demat business.

Nurturing the passion for understanding and interpreting technology and processes, he was responsible
to create and set up the centralized broking platform, centralized back office operations for all financ ia l
products and creating a network of over 500 branches covering over 300 locations for Karvy. He is
also instrumental in creating and launching the online platform of Karvy Stock Broking Limited. He is
a Post Graduate in Commerce from University of Madras (M.Com), and also completed Post Graduate
Diploma in Computer Applications.

33
 Mr. V Ganesh (CEO- Karvy computer share) is a Chartered and Cost
Accountant by profession and has over 2.5 decades of experience in the
financial services space and is part of Karvy Group’s leadership team.
Before joining KARVY, he was associated with ITC’s risk manageme nt
and financial audit services department. Earlier he was associated with
Proctor and Gamble and was responsible for product pricing and financ ia l
support functions for P&G’s soaps and health care businesses.

He was instrumental in setting up the Mutual Fund registry business for Karvy. At KARVY, for over
2 decades, Ganesh has been instrumental in building a strong techno-commercial base with emphasis
on establishing a pan India branch network , back office processing, call centre, web initiatives, online
trading, B2B interface etc., in the transfer agency and BPO businesses.

Mr. Sushil Sinha, the Country Head of Karvy Comtrade Ltd, has
successfully made Karvy Comtrade a force to reckon with in the
marketplace. With over 10 years of expertise in the broking sector, he is a
well-known face today in the electronic and print media. Under his aegis,
the company has won numerous honours and awards nationwide,
including the UTV Bloomberg Leadership Award 2011 and India’s Best
Market Analyst Award—for two consecutive years—by Zee Business.

Having joined Karvy Comtrade in December 2005 as Senior Manager (Business Development), he has
steadily climbed up the organizational ladder to head the business now. Before joining KCTL, he
worked in Geojit Financial Securities for two years. Prior to that, he had worked with the Agriculture
department in the Government of Jharkhand under various capacities for four years.

A science graduate, Mr. Sinha has completed two MBAs, one majoring in Personnel Management &
Industrial Relations from Patna University and the other in Agri Business Management from IIPM,
Bangalore, a Ministry of Commerce, Government of India institution.

Mr. Rajiv R. Singh is the Vice President & Business Head of the Equity
Broking business. He has been associated with Karvy for more than a
decade. He joined Karvy in 2001 and moved up the corporate ladder with
his sheer dedication, commitment and hard work.

34
Rajiv, with an enormous experience in finance industry leads the responsibility of all aspects of Karvy’s
equity broking business which includes strategy, revenue generation, business development and overall
customer satisfaction. Rajiv is widely regarded as a results-driven leader who plays a key role in
building the stock broking business of KSBL and make it one of the largest stock broking houses in
the country. Rajiv also plays a key role in identifying skills and motivating staff in providing
outstanding client service. Rajiv is a Certified Management Accountant–CMA

Mr.J Ramaswamy, the Group Head for Corporate Affairs, is the offic ia l
spokesperson for the Karvy Group. Mr. Ramaswamy has more than 25
years of experience in various spheres of the financial services industry, of
which 10 years has been in the Legal and Secretarial division of Reliance,
handling various public issues, mergers, monitoring performance of various
departments, liaising with regulatory bodies and outside agencies (viz., the
stock exchange, SEBI, DCA and others), and coordinating all the board
meetings. The Corporate Affairs Division is involved in integration and
strategic planning of all the business divisions of Karvy.

Mr. Ramaswamy’s job responsibility encompasses monitoring the performance of all divisions through
regular reviews, initiating and implementing new business initiatives, corporate communication and
media relations, acting as official spokesperson for the entire Group, conceptualizing various policies
and procedures to improve the internal work environment, and working on a parallel platform with the
HR department to develop models for raising productivity and cost-effectiveness. He oversees the
international business of Karvy Global Services.

Who we are {Figure – 5}

The Karvy Group is today a well-diversified

conglomerate. Its businesses straddle the entire
financial services spectrum as well as data
processing and managing segments.

Since most of its financial services were retail

focused, the need to build scale and skill in the
transaction processing domain became
imperative. Also during stressed environment in

35
the financial services segment, the non-financial businesses bring in a lot of stability to the group’s
businesses.

Karvy’s financial services business is ranked among the top-5 in the country across its business
segments. The Group services over 70 million individual investors in various capacities, and provides
investor services to over 600 corporate houses, comprising the best of Corporate India.

The Group offers stock broking, depository participant, distribution of financial products (includ ing
mutual funds, bonds and fixed deposits), commodities broking, personal finance advisory services,
merchant banking & corporate finance, wealth management, NBFC (loans to individuals, micro and
small businesses), Data management, Forex & currencies, Registrar & Transfer agents, Data Analytics,
Market Research among others. Karvy prides itself on remaining customer centric as all times through
a combination of leading edge technology, Professional management and a wide network of offices
across India. Karvy is committed to its quest as an Equal Opportunity Employer and believes in the
rights for differently abled persons. We have over 12% employees who are challenged in some form
in one of our prominent businesses.

Why Karvy

Karvy business entities address a heterogeneous swathe of population from the super-rich, to the
nouveau riche, the ubiquitous middle class, the lower classes (the SEC E3 according to the new Social
Economic Classification), urban and the rural folks.

All of whom either make a living through large business (corporate world), SMEs, professiona l
services, traders, farmers, labour, blue and white collar jobs and the government.

Another key feature of Karvy has been its ability to offer leading edge advice based on incisive ideas

investments be it equities, forex, commodities, bonds, fixed returns, debt instruments or any other
investment grade asset class. The customer has always been at the centre of every Karvy initiative.

Karvy Stock Broking Limited (KSBL) which is the broking arm of Karvy Group, a well-diversif ied
conglomerate whose business encompasses the entire financial services spectrum along with data
processing and managing segments.

Karvy’s financial services business is ranked among the top-five in the country across its business
segments. The Group services over 70 million individual investors in various capacities and provides
investor services to more than 600 corporate houses, comprising the best of Corporate India.

36
Karvy prides itself on being extremely customer centric at all times providing leading edge technology
combined with professional management and servicing through a wide network of offices across India.

Karvy Stock Broking Limited (KSBL) is among the country’s leading financial services organizatio ns
renowned for its quality of investment and advice. KSBL through its wide network of offices across
India offers customized investment solutions to corporate, institutions and individual investors.

KSBL helps investors construct a portfolio by factoring in their risk profile and future financial needs
so that their investments achieve an optimal balance between risk and returns.

Our comprehensive trading account helps clients approach various investment avenues in an integrated
fashion, providing them the facility to transact with ease. We have a combined account facility that
caters to all investment opportunities such as trade in Equities, Derivatives, Currency and also investing
in IPOs, Mutual funds and NCDs.

KSBL was awarded BSE Order of Merit award and the SKOCH – BSE Aspiring Nation award in
recognition to its efforts to educate, empower and help create financial markets literacy among
investors. It has received the NSDL Star Performer Award 2014 for highest asset value generated.

OUR ACCOLADES

 Winners of SKOCH-BSE Order of Merit award 2015

 Winners of SKOCH-BSE Aspiring Nation award 2015
 Won ‘NSDL Star Performer Award 2014 for Highest Asset Value’
 Won ‘Largest E-Broking House in India by Dun & Bradstreet 2010
 Won ‘Broker with Best corporate desk for commodity broking 2011’
 India’s no I registrar and securities transfer agent
 ISO 9002 Certified Operations by DNV
 Largest Independent Distributor
 Most of India’s 500 fortune companies are serviced by Karvy
 Every 20th trade in stock market is done on the Karvy platform
 Every 6th investor in India invests through Karvy
 Amongst top 10 stock brokers in India
 Amongst top 3 depository participants
 Amongst top 10 investment banke

37
 Karvy Stock Broking Limited

(2014)

Won the prestigious "NSDL Star Performer Award 2014 for Highest Asset Value". Organized by the
National Securities Depository, the NSDL Star Performers Awards recognize the best performers in
the securities and depositories space. The award ceremony was organized on Saturday, December 20,
2014, at Taj Coromadel, Chennai. Karvy has won this award consecutively for last two years.

(2010)

"Largest E-Broking House in India" at BSE Equity Broking Awards 2010 by Dun & Bradstreet held
in ITC Grand Maratha, Mumbai. This award is based on the study carried out by the world’s leading
provider of business information, knowledge and insight, Dun & Bradstreet in association with the
oldest stock exchange in India, the Bombay Stock Exchange.

The BSE-D&B Equity Broking Awards recognizes the brokerage firms based on the number of online
accounts, volume of online trade, and service delivery of their online trading platform. Karvy Stock
Broking Limited has won this prestigious award for its state of the art, in-house developed
KarvyOnline, a comprehensive online investment platform that enables investors to invest, anytime
from anywhere.

(2007)

Bagged ace award by receiving the coveted Annual Award for 2006 for "Best CEO, Initiating HR
Practices”, by, the Uttar Pradesh Chapter of National Institute of Personnel Management (NIPM).

The Award has been conferred to Mr. C Parthasarathy, CMD, Karvy Group, for his contribution to HR
practices in Lucknow, organized by UP chapter of NIPM.

(2007)

"Amity Corporate Excellence" award at the 9th International Business Summit and Research
Conference-INBUSH (International Business Horizon) which was held at a glittering function in
Noida. This award was conferred by Amity International Business School, Noida.

2006 ISTD – "Vivekananda National Award" for Excellence in HRD & Training

2004 "Best Depository Participant in the country" award.

38
 Mission statement of Karvy

An organization exists to accomplish something or achieve something. The mission statement indicates
what an organization wants to achieve. The mission statement may be changed periodically to take
advantage of new opportunities or respond to new market conditions.

Karvy’s mission statement is “To Bring Industry, Finance and People together.”

Karvy is work as intermediary between industry and people. Karvy work as investment advisor and
helps people to invest their money same way Karvy helps industry in achieving finance from people
by issuing shares, debentures, bonds, mutual funds, fixed deposits etc.

Company’s mission statement is clear and thoughtful which guide geographically dispersed employees
to work independently yet collectively towards achieving the organization’s goals.

Vision of Karvy

Company’s vision is crystal clear and mind frame very directed. “To be pioneering financial services
company. And continue to grow at a healthy pace, year after year, decade after decade.”

Company’s foray into IT enabled services and internet business has provided an opportunity to explore
new frontiers and business solutions. To build a corporate that sets benchmarks for others to follow.

KARVY COMPETITIVE ADVANTAGE

Every year with this picture keeping in mind ‘Karvy accelerate with Recovery, Revival and
Reappearance.’ Karvy has started 2004 on a strong note with the realization to signal some of the
challenges it faced previous year. In a competitive market and a branded business,Karvy need to
carefully manage itself to avoid down trading or brand shifts by consumers. For Karvy, Aligarh branch
was truly exhilarating because of: Successful implementation of a carefully crafted strategy. Excelle nce
in execution. Immense learning enabling to set up a launch pad for revitalizing itself. Some competitive
advantages are long lasting.

These are intangible, difficult to replicate and thus more sustainable. Karvy has focused on some of
these to gain competitive advantages. There are winning culture and a desire to excel in everything
Karvy do. Strong meaningful relationships with Customers along with Strategic Partners in which
Karvy operate and above all, its own staff. Karvy value and carefully nurture relationships wit h
customers. Karvy truly believe that more than technological prowess and business process innovatio ns,

39
it is the ‘focus on relationships’ which has been the corner stone of satisfying and successful presence
in India over many years.

This has been possible with deep insight of consumer behaviour as well as market demand drivers,
understanding of the arena where to operate and quality execution – all thanks to a ‘greater team’ that
makes this happen.

Karvy’s customers consider themselves part of Karvy family and share their experiences and dreams
with other customers and thus Karvy becomes successful not only in relating customers but also gains
new customers from satisfied prevailing customers. Karvy want to create a strong emotional bond with
new customers promoted by prevailing customers. Karvy has adequate internal control systems and
procedures commensurate with the size nature of its business.

These system and procedures provide reasonable assurance of maintenance of proper accounting
records, reliability of financial information, protection of resources and safeguarding of assets against
unauthorized use.

MARKET SEGMENTS

 Equity cash
 Equity Derivatives
 Debt
 Currency futures

PRODUCTS AND SERVICES

 Trading (Equities, Derivatives)

 Investment banking
 Distribution of financial products
 Demat services, Margin Financing, PMS and Other

SWOT ANALYSIS OF KARVY

Strengths:

 Employees are highly empowered.

 Strong Communication Network.
 Good co-operation between employees.
 Number 1 Registrar and Transfer agent in India.
 Number 1 dealer of Investment Products in India.

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Weaknesses:

 High Employee Turnover.

Opportunity:

 Growth rate of mutual fund industry is 40 to 50% during last year and it expected that this rate
will be maintained in future also. Marketing at rural and semi-urban areas.

Threats:

 Increasing number of local players. Past image of Mutual Fund.

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History of mutual fund

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 then, the history of mutual funds in India can
be broadly divided into four distinct phases. (Home/Research & Information/MF History)

First Phase – 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up 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 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 Canra bank 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 – 1993-2000 With the entry of private sector funds in 1993, a new era started in the Indian
mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 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

The number of mutual fund houses went on increasing, with many foreign mutual funds setting up
funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of
January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 crores. The Unit Trust of
India with Rs.44, 541 crores of assets under management was way ahead of other mutual funds.

42
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 Specified Undertaking of Unit Trust of India,
functioning under an administrator and under the rules framed by Government of India and does not
come under the purview of the Mutual Fund Regulations.

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. With the bifurcation of the erstwhile UTI
which had in March 2000 more than Rs.76, 000 crores of assets under management and with the setting
up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, 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.153108 crores under 421 schemes.

The graph indicates the growth of assets over the years.

{Figure -6}

Note: Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit
Trust of India effective from February 2003.

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ADVANTAGES OF MUTUAL FUNDS:

The following are the major advantages offered by mutual funds to all the investors. (the advantage of
mf, 2017)

Portfolio diversification:

1. Mutual funds normally invest in a well –diversified portfolio or securities. Each investor in a fund
is a part of owner of all of the fund’s assets. This enables him to hold a diversified investment portfolio
even with a small amount of investment that would otherwise require big capital.

2. Professional management: Even if an investor has a big amount of capital available to him, he
Benefits from professional management skills brought by the fund in the Management of the investor’s
portfolio. The investments management skills Along with a need research into available investme nt
options; ensure a much better return than what an investor can manage on his own.

3. Reduction /diversification:

An investor in mutual fund acquires a diversified portfolio, no matter how small his investme nt.
Diversification reduces the risk of loss, as compared to investing directly in one or two shares or
debenture or other investments. This risk reduction is one of the most important investment vehicles.

4. Reduction of transaction costs:

What is true of risk is also true of the transaction costs .a direct Investors bears all the costs of investing
such as brokerage or custody of Securities. When going through a fund, he has the benefit of economies
of scale; the funds pay lesser costs because of larger volumes, a benefit passed on to its Investors.

5. Liquidity:

Investment in a mutual fund is more liquid .an investor can liquidate The investment, by selling the
units to the fund if open-end, or selling them in the market if the fund is closed –end and collect funds
at the end of a specified by the mutual fund or the stock market

6. Convenience and flexibility:

Mutual fund management companies offer many investor services that a direct market investor cannot
get. Investors can easily transfer their holdings from one scheme to the other, get updated market
information and so on.

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Drawbacks of Mutual Funds:

1) No Guarantees: No investment is risk free. If the entire stock market declines in value, the value of
mutual fund shares will go down as well, no matter how balanced the portfolio. Investors encounter
fewer risks when they invest in mutual funds than when they buy and sell stocks on their own.
However, anyone who invests through a mutual fund runs the risk of losing money.

2) Fees and commissions: All funds charge administrative fees to cover their day-to-day expenses.
Some funds also charge sales commissions or "loads" to compensate brokers, financial consultants, or
financial planners. Even if you don't use a broker or other financial adviser, you will pay a sales
commission if you buy shares in a Load Fund.

3) Taxes: During a typical year, most actively managed mutual funds sell anywhere from 20 to 70
percent of the securities in their portfolios. If your fund makes a profit on its sales, you will pay taxes
on the income you receive, even if you reinvest the money you made.

4) Management risk: When you invest in a mutual fund, you depend on the fund's manager to make
the right decisions regarding the fund's portfolio. If the manager does not perform as well as you had
hoped, you might not make as much money on your investment as you expected. Of course, if you
invest in Index Funds, you forego management risk, because these funds do not employ managers.

Risk on investing in Mutual Funds

 Market / Interest risk

 Volatility of prices leading to “floating” returns
 Largely mitigated with a holding period of over 6 months
 Credit risk
 Potential default of bonds on the portfolio
 Equity risk
 Possibility of the fund manager not able to meet redemptions

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Mutual fund

A mutual fund (MF) is a mechanism to pool funds from multiple investors and invest these in securities
such as stock, bonds, money-market investment and other similar assets. Equity investment seems
intimidating at times. Mutual fund not only make investments simple but also make an interesting
option. Every investment has its share of risks and reward associated with it. (www.karvyvalue.co m,
2017)

The two factors go hand-in-hand. With mutual fund investment you have the option to decide on the
fund depending on the amount of return expected and your risk appetite. Investors can seek advice
from experts while making investment decisions.

Mutual fund has become popular investment vehicles offering various kinds of schemes with differe nt
investment objectives. In order to offset potential losses, the funds are well diversified.

Mutual fund offer many benefits:

 Professional management of funds

 Highly liquid in nature
 Diversification of the portfolio
 Well-regulated
 Low cost of investment

Schemes according to maturity period in Mutual Fund

1. Open-ended fund: An open-ended fund or scheme is available for subscription and repurchase on a
continuous basis and do not have a fixed-maturity period.

2. Close-ended fund: A close-ended fund has a stipulated maturity period. It is open for subscriptio n
only during a specific period at the time of launch of the scheme.

There are various classes of mutual funds depending upon the nature of investments. Here are three
broad classes from which one can choose to invest, depending upon his risk-return profile.

Equity funds

Balanced funds

Debt funds

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 {Figure - 7}

Equity fund

Index fund

An index fund is a type of mutual fund with a portfolio constructed to match or track the components
of a market index, such as the Standard & Poor's 500 Index (S&P 500). An index mutual fund is said
to provide broad market exposure, low operating expenses and low portfolio turnover. These funds
adhere to specific rules or standards (e.g. efficient tax management or reducing tracking errors) that
stay in place no matter the state of the markets. (index fund, 2017)

Dividend yield funds

A dividend yield fund puts a majority of its portfolio in stocks whose dividend yield is higher than the
Nifty 50, the Sensex, or the Nifty Dividend Opportunities 50 index. The remaining part of the portfolio
can be invested in any stock. Dividend yield is the ratio of the dividend per share to its market price.
In order to ensure that the asking price for this stable dividend is not too high, the dividend yield ratio

47
comes into play. Stocks with a high dividend yield offer the possibility of earning good dividends.
However, high dividend yield can also come from huge one-time dividends. Thus, consistency in
dividend pay-outs matters. Typically, this indicates stability of profits, and that these companies are
generally more cash-rich and reliable. High dividend yields usually are also a factor of relatively lower
prices; i.e., stock prices are low and yields high because the market, at that time, does not prefer them.

That brings up the second reasoning behind a dividend yield strategy. It is that these stocks are also
undervalued or cheap. A dividend yield strategy therefore translates into a value-based one, often
running contrary to the market sentiment. Being value funds, they also contain downsides better, 2008
and 2011 being testaments to this. The volatility of dividend yield funds, on an average, is lower than
that of both diversified and large-cap funds.

Equity diversified fund

A well-diversified equity fund, commonly referred to simply as a diversified equity fund, invests in
companies regardless of whether they are large caps or mid-caps or small caps. (Home >Insurance
Knowledge Centre> Insurance Basics >Diversified Equity Fund, 2017)

What is a Diversified Equity Fund?

A diversified equity fund invests in companies regardless of size and sector. It diversifies investme nts
across the stock market in a bid to maximize gains for investors. They are offered by unit-linked
insurance plans / ULIPs, mutual funds and other investment firms.

Companies listed on the stock exchange come in all sizes and categories.

1. Large companies also called large caps, due to their huge market capitalization or market caps

2. Mid-sized companies or mid-caps with medium capitalizations

3. Smaller companies or small caps with smaller market capitalizations

How Does a Diversified Equity Fund Work?

On the same lines, a diversified equity fund invests in companies across sectors and industries. This
way it can participate in growth across the economy and is not tied down to a particular sector or
industry.

They can choose to invest in companies from:-

 Pharmaceuticals
 Technology

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  Engineering
 Automobiles
 Power / Utilities
 Banking and Financial Services
 Oil and Gas

Put simply, a diversified equity fund invests in companies across sectors, industr ies and market
capitalizations.

Thematic funds

A thematic fund is one where the funds objective is to deliver optimal returns by investing in stocks
which qualify to belong within the particular theme that is considered the theme could vary from multi-
sector, international exposure, commodity exposure etc., unlike a sector fund, theme funds have a
broader spectrum to operate in. Theme based funds are often mistaken to be sector funds. Although
one could draw some broad comparisons, the scope of a theme fund is typically wider.
(HOME>NEWS>BUSINESS>MUTUAL FUNDS, 2017)

Sector funds

Sector fund’s Portfolios consist of investment in only one industry or sector of the market such as
Information Technology, Pharmaceuticals or Fast Moving Consumer goods that have recently been
launched in India. Since sector funds do not diversify into multiple sectors they carry a higher level of
sector and company specific risk than diversified equity funds.

ELSS (Equity Linked Saving Schemes)

What is the meaning of ELSS?

ELSS stands for Equity Linked Savings Scheme. These are tax--saving mutual funds that you can use
to save income tax of up to Rs 1.5 lakh under Section 80C. ELSS funds have a lock--in period of 3
years and invest a majority of their portfolio in the stock market. (cleartax, 2017)

Which are the best taxes saving mutual funds?

There are a number of ELSS funds in the market but the best- performing ones that are our
recommendations are ICICI Prudential Tax Plan, Birla Sun Life Tax Relief 96 and Axis Long Term
Equity.

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1. Are ELSS funds risky?

ELSS funds don’t guarantee returns because they earn from investments in the equity market. However,
the best- performing funds have displayed the capability of generating inflation- beating returns over
the long--term. This is something that fixed income tax- saving investments like PPF and FDs cannot
do.

2. What are the tax benefits of ELSS funds?

Investments of up to Rs 1.5 lakh in ELSS funds earn a tax rebate under Section 80C every year. The
returns generated on the investments are also tax--free in the hands of the investor after completion of
the 3- year lock--in period. In case of SIP investments, redemptions can be done on a first--in--first- -
out basis since each individual SIP has a lock--in of 3 years.

3. What is the ELSS investment tenure?

ELSS funds have a lock--in of 3 years. But you can stay invested in them, with or without further
contributions, for as long as you want. You can also stop an ELSS SIP at any point, but the invested
amount can be withdrawn only after 3 years.

4. Who can invest in ELSS funds?

Individuals as well as HUFs can invest in tax--saving mutual funds. At present, most mutual fund
companies do not accept investments from NRIs who are US and Canadian citizens. NRIs living in
other countries can invest in ELSS funds.

Balance fund

Debt oriented fund

What is a 'Debt Fund?'

A debt fund is an investment pool, such as a mutual fund or exchange-traded fund, in which crore
holdings are fixed income investments. A debt fund may invest in short-term or long-term bonds,
securitized products, money market instruments or floating rate debt. The fee ratios on debt funds are
lower, on average, than equity funds because the overall management costs are lower. (debt fund, 2017)

BREAKING DOWN 'Debt Fund' - The main investing objectives of a debt fund will usually be
preservation of capital and generation of income. Performance against a benchmark is considered to
be a secondary consideration to absolute return when investing in a debt fund.

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Equity oriented fund

Investment in mutual funds has always been a subject matter of discussion for the investors due to its
perplexing nature and taxes involved. An equity fund is an open- or closed-ended fund that invests
primarily in stocks, allowing investors to buy into the fund and, thus, buy a basket of stocks more easily
than they could purchase the individual securities. (Nangia, 2017)

There are thousands of equity funds with each having unique characteristics. Equity funds, in general,
pursue one of these three primary goals: Income, capital gains, or both. Some general equity funds
include aggressive growth funds, small company funds, growth and income funds, index funds, etc.

As per Indian Income Tax Act, equity oriented fund (EO fund) refers to units of Unit Trust of India or
a fund wherein investible funds invested by way of equity shares in domestic companies exceed 65%of
the total proceeds of such fund and which has been set up under a scheme of a mutual fund specified
under Section 10(23D) of the Act. The percentage of equity shareholding of the fund is computed with
reference to the annual average of the monthly averages of the opening and closing amounts.

The gains/losses arising on the transfer of units of EO fund are classified as short-term/long- ter m
capital gains depending upon their period of holding. If the period of holding of the unit of EO fund is
more than 12 months, it is classified as long-term capital gain/loss. Where the period of holding is 12
months or less, it is classified as short-term capital gain/loss.

Long-term capital gain arising on transfer of units of EO fund is exempt from tax where such units are
sold through a recognised stock exchange in India and such sale transaction is subject to Securities
Transaction Tax (STT). However, any such long-term capital gains arising in the hands of a company
shall be considered while computing book profits for the purpose of Minimum Alternate Tax (MAT).

DEBT FUND

Liquid funds

Ideal Parking Grounds for your Surplus money in hand but don’t wish to lock them in fixed deposits?
Then, instead of holding huge sums in your savings bank, you can explore options such as liquid funds.

In the current high interest rate scenario, if you wish your money to earn a bit while you hold them,
then liquid funds can do a better job than savings account. The average return of liquid funds in the
last one year was 9.3 per cent. That is as much as fixed deposit rates.

What they are

51
Liquid funds are simply debt mutual funds that invest your money in very short-term market
instruments such as treasury bills, government securities and call money that hold least amount of risk.
These funds can invest in instruments up to a maturity of 91 days. The maturity is mostly much lower
than that fund.

They are least risky as well as least volatile in the category of mutual funds for the following reason:
one, mutual funds mostly invest in instruments with high credit rating (P1+). Two, unlike other funds,
the NAV of liquid funds is not volatile as the only change in their NAV is mostly as a result of the
interest income that accrues. In other words, given their short-term maturities, these instruments are
hardly traded in the market. They are held until maturity. Hence, their NAV only sees a change to the
extent of interest income accrued, every day, including weekends.

Gilt funds

Definition: Gilt Funds are mutual funds that invest only in government securities. They are preferred
by risk averse and conservative investors who wish to invest in the shadow of secure governme nt
bonds.

Description: Since gilt funds invest only in government bonds, investors are protected from credit risk.
The instruments where these funds invest have sovereign guarantee. Hence no default risk is associated
with these instruments.

These funds can have different maturity profiles. Some may be short term while others are medium
term or long term. Like any other bond funds, these funds too have interest rate risk ingrained in them.

Income fund

Debt funds invest in debt instruments issued not only by governments, but also by private companies,
banks and financial institutions and other entities such as infrastructure companies/utilities. By
investing in debt, these funds target low risk and stable income for the investor as their key objectives.
Debt funds are largely considered as Income funds as they do not target capital appreciation, look
for high current income, and therefore distribute a substantial part of their surplus to investors.
Income funds that target returns substantially above market levels can face more risks.

Fixed maturity plans (FMPS) funds

A close-ended debt fund that invests for a specific period of time and has low risk Investors looking
for a debt exposure in their portfolio generally opt for traditional debt instruments like Bank FDs (Fixed
Deposits), Bonds, NSC (National Savings Certificates), Post Office, etc. Very few investors are aware
that these are not the most tax-efficient investment avenues. The income from these sources is fully

52
taxable (except PPF and PF) and hence the real return (after tax) is often lower than the prevailing rate
of inflation. (mf simplified, 2015)

What is FMP?

FMP (or Fixed Maturity Plan) is a closed-ended debt mutual fund. Such a fund invests only in
instruments whose duration is similar to its own term i.e., it aligns its term with that of its underlying
assets. For example, an 1115-Day FMP would invest in instruments that mature in 1115 days or slightly
before that. Such synchronization done to eliminate the risk of interest rate fluctuation (usually faced
by debt funds).This scheme is apt for investors who seek stable returns from a debt investment.

How does a FMP return look visa-a-versa a Bank FD return?

The table below illustrates returns of a fixed deposit and FMP for a term of three years (assuming the
investment was done in the financial year 2011-12). Remember that indexation benefits (a method of
factoring inflation and reducing the amount of taxable income) are available for investors who invest
in long-term FMPs. 3-year FMPs have a significant tax advantage over fixed deposits.

Note:

*** Cost Inflation Index (CII) for year of redemption (2014-15) is 1024 and year of investment (2011-
12) is 785. The indexed cost of purchase = (A*1024/785)

** Highest bracket of tax rate has been taken based on current IT slabs.

* Tax rate for long-term debt assets (includes surcharge and cess)

Floating rate funds

DEFINITION of 'Floating Rate Fund'

A mutual fund investment is financial instruments which variable or floating interest rate. A floating
rate fund invests in bonds and debt instruments whose coupons fluctuate in line with the underlying
level of interest rates, as opposed to fixed-rate coupons. The biggest advantage of a floating rate fund
is its lower degree of sensitivity to changes in interest rates compared with a fund or instrument with a
fixed coupon rate. Floating rate funds appeal to investors when interest rates are rising, since this will
result in a higher level of interest or coupon payments. They are far less appealing when interest rates
are declining.

53
Arbitrage funds

Arbitrage funds are tailor-made for risk-averse investors and are a safe option to park money when
there is a persistent wobble in the market. (Shetty, 2017)

What are arbitrage funds?

An arbitrage fund - a type of equity mutual fund - rides on the mispricing between the cash markets or
spot markets on the one hand and derivatives or futures markets on the other. The arbitrage
opportunities arising out of substantial volatility bring relatively risk-free returns to the investors. These
funds are tailor-made for risk-averse investors and are a safe option to park money when there is a
persistent wobble in the market.

How arbitrage funds work

The concept underlying arbitrage funds is simple - buying something at a lower price in one market
and selling it at a higher price in another market to pocket profit. Consider this scenario: A company's
stock is trading at Rs 1,000 in the cash market and at Rs 1,500 in the futures market. So, Rs 500 per
share is the profit an investor can make by buying stock in the cash market and simultaneously selling
it in the futures market. Mismatching of prices in the equity market and futures market is the crux of
the arbitrage funds.

These funds will be more profitable when the markets witness considerable volatility. More market
wobble means more mispricing between the two markets to the advantage of these funds.

Monthly income plans (MIPS)

A bank MIS is like a bank fixed deposit where interest earned is paid at regular intervals. The interest
rates are the same as the prevalent fixed deposit rates. An MIP is a debt mutual fund scheme which
invests a small part of the funds (15-25 per cent) in equities. It offers regular income in the form of
periodic (monthly, quarterly, half-yearly) dividend pay-outs. (mondal, 2017)

Due to the presence of equity, MIP returns can be volatile. At times, the scheme may suffer losses,
making dividend pay-outs irregular - both in quantum and frequency. The scheme may, at times, not
pay any dividend at all. In spite of this, MIPs of mutual funds can offer higher returns after adjusting
for tax and hence can be a better option.

Investors wary of fluctuating income from MIPs' dividend option can opt for a systematic withdrawa l
plan, or SWP, which allows regular redemption of a pre-determined amount. An SWP under an MIP
can work as a regular source of income for investors, just like in a bank MIS.

54
INCOME TAP

In a mutual fund scheme, dividend is paid at the discretion of the mutual fund house. The pay-outs
depend on the availability of surplus cash.

To understand this, let us consider a situation where a person invests Rs 1 lakh and opts for withdrawa l
of Rs 1,000 every month. If the MIP generates a 10 per cent annual return, or 0.83 per cent per month,
Rs 830 out of Rs 1,000 will be paid from the scheme's profits and the balance, that is, Rs 170, from the
capital.

Regulatory Aspects of Mutual Funds

•The asset management company shall launch no scheme unless the trustees approve such scheme and
a copy of the offer document has been filed with the Board.

•Every mutual fund shall along with the offer document of each scheme pay filing fees.

•The offer document shall contain disclosures which are adequate in order to enable the investors to
make informed investment decision including the disclosure on maximum investments proposed to be
made by the scheme in the listed securities of the group companies of the sponsor

•The asset management company shall issue to the applicant whose application has been accepted, unit
certificates or a statement of accounts specifying the number of units allotted to the applicant as soon
as possible but not later than six weeks from the date of closure of the initial subscription list and or
from the date of receipt of the request from the unit holders in any open ended scheme. (Regulator y
Aspects of Mutual Funds, 2017)

Rules Regarding Advertisement:

•The offer document and advertisement materials shall not be misleading or contain any statement or
opinion, which are incorrect or false.

Investment Objectives and Valuation Policies:

•The price at which the units may be subscribed or sold and the price at which such units may at any
time be repurchased by the mutual fund shall be made available to the investors. General Obligations:

•Every asset management company for each scheme shall keep and maintain proper books of accounts,
records and documents, for each scheme so as to explain its transactions and to disclose at any point of

55
time the financial position of each scheme and in particular give a true and fair view of the state of
affairs of the fund and intimate to the Board the place where such books of accounts, records and
documents are maintained.

Procedure for Action In Case Of Default:

On and from the date of the suspension of the certificate or the approval, as the case may be, the mutual
fund, trustees or asset Management Company, shall cease to carry on any activity as a mutual fund,
trustee or asset management company, during the period of suspension, and shall be subject to the
directions of the Board with regard to any records, documents, or securities that may be in its custody
or control, relating to its activities as mutual fund, trustees or asset management company.

Restrictions on Investments:

•A mutual fund scheme shall not invest more than 15% of its NAV in debt instruments issued by a
single issuer, which are rated not below investment grade by a credit rating agency authorized to carry
out such activity under the Act. Such investment limit may be extended to 20% of the NAV of the
scheme with the prior approval of the Board of Trustees and the Board of asset Management Company.

•A mutual fund scheme shall not invest more than 10% of its NAV in unrated debt instruments issued
by a single issuer and the total investment in such instruments shall not exceed 25% of the NAV of the
scheme. All such investments shall be made with the prior approval of the Board of Trustees and the
Board of asset Management Company.

•No mutual fund under all its schemes should own more than ten per cent of any company's paid up
capital carrying voting rights.

•Such transfers are done at the prevailing market price for quoted instruments on spot basis.

•The securities so transferred shall be in conformity with the investment objective of the scheme to
which such transfer has been made.

•The initial issue expenses in respect of any scheme may not exceed six per cent of the funds raised
under that scheme.

•Every mutual fund shall buy and sell securities on the basis of deliveries and shall in all cases of
purchases, take delivery of relative securities and in all cases of sale, deliver the securities and shall in
no case put itself in a position whereby it has to make short sale or carry forward transaction or engage
in badly finance.

56
•Every mutual fund shall, get the securities purchased or transferred in the name of the mutual fund on
account of the concerned scheme, wherever investments are intended to be of long-term nature.

•Pending deployment of funds of a scheme in securities in terms of investment objectives of the scheme
a mutual fund can invest the funds of the scheme in short term deposits of scheduled commercial banks.

•No mutual fund scheme shall make any investment in;

1. Any unlisted security of an associate or group company of the sponsor; or

2. Any security issued by way of private placement by an associate or group company of the
sponsor; or the listed securities of group companies of the sponsor which is in excess of 30% of the net
assets [of all the schemes of a mutual fund]

The Rules That Govern the Operation of Mutual Funds

The rules and regulations of mutual funds are extensive.

The key regulations of mutual funds are:

The Investment Company Act of 1940 -- The Act regulates mutual funds (as well as other companies).
The Act focuses on disclosures and information about investment objectives, investment company
structure and operations.

The Securities Act of 1933 -- The Act has the objective of requiring that investors receive certain
significant information pertaining to securities being offered for sale in the public markets.

The Act also prohibits fraud and misrepresentations in the sale of securities.

The Securities Act of 1934 -- The Act created the SEC and empowers the SEC with authority over the
securities industry.

Researching the Rules and Regulations of Mutual Funds

The SEC website offers many useful links helping to research the regulations of mutual funds as well
as other securities laws.

Investors can also find useful information about the rules and governance of mutual funds within a
document called a prospectus, which can usually be found on the mutual fund company's website. The
prospectus, which is required by the SEC, will fully explain the fees, the objective, the operations, and
the market risks of each mutual fund.

57
Although the prospectus and the other requirements of the SEC for mutual funds do not remove the
risks inherent with investing, they do provide a valuable benefit in the form of protections that help
assure investors they are buying what they are intending to buy.

14 Important Steps Taken by SEBI for Regulating Mutual Funds in India

Important steps taken by SEBI for the regulation of mutual funds are listed below:

(1) Formation - Certain structural changes have also been made in the mutual fund industry, as part
of which mutual funds are required to set up asset management companies with fifty percent
independent directors, separate board of trustee companies, consisting of a minimum fifty percent of
independent trustees and to appoint independent custodians.

This is to ensure an arm’s length relationship between trustees, fund managers and custodians, and is
in contrast with the situation prevailing earlier in which all three functions were often performed by
one body which was usually the sponsor of the fund or a subsidiary of the sponsor.

Thus, the process of forming and floating mutual funds has been made a tripartite exercise by
authorities. The trustees, the asset management companies (AMCs) and the mutual fund shareholders
form the three legs. SEBI guidelines provide for the trustees to maintain an arm’s length relations hip
with the AMCs and do all those things that would secure the right of investors.

With funds being managed by AMCs and custody of assets remaining with trustees, an element of
counter-balancing of risks exists as both can keep tabs on each other.

(2) Registration - In January 1993, SEBI prescribed registration of mutual funds taking into account
track record of a sponsor, integrity in business transactions and financial soundness while granting
permission.

This will curb excessive growth of the mutual funds and protect investor’s interest by registering only
the sound promoters with a proven track record and financial strength. In February 1993, SEBI cleared
six private sector mutual funds viz. 20th Century Finance Corporation, Industrial Credit & Investme nt
Corporation of India, Tata Sons, Credit Capital Finance Corporation, Ceat Financial Services and
Apple Industries.

(3) Documents - The offer documents of schemes launched by mutual funds and the scheme
particulars are required to be vetted by SEBI. A standard format for mutual fund prospectuses is being
formulated.

(4) Code of advertisement - Mutual funds have been required to adhere to a code of advertiseme nt.

58
(5) Assurance on returns - SEBI has introduced a change in the Securities Control and Regulatio ns
Act governing the mutual funds. Now the mutual funds were prevented from giving any assurance on
the land of returns they would be providing. However, under pressure from the mutual funds, SEBI
revised the guidelines allowing assurances on return subject to certain conditions.

Hence, only those mutual funds which have been in the market for at least five years are allowed to
assure a maximum return of 12 per cent only, for one year. With this, SEBI, by default, allowed public
sector mutual funds an advantage against the newly set up private mutual funds.

As per basic tenets of investment, it can be justifiably argued that investments in the capital market
carried a certain amount of risk, and any investor investing in the markets with an aim of making profit
from capital appreciation, or otherwise, should also be prepared to bear the risks of loss.

(6) Minimum corpus - The current SEBI guidelines on mutual funds prescribe a minimum start-up
corpus of Rs.50 crore for an open-ended scheme, and Rs.20 crore corpus for closed-ended scheme,
failing which application money has to be refunded.

The idea behind forwarding such a proposal to SEBI is that in the past, the minimum corpus
requirements have forced AMCs to solicit funds from corporate bodies, thus reducing mutual funds
into quasi-portfolio management outfits. In fact, the Association of Mutual Funds in India (AMFI) has
repeatedly appealed to the regulatory authorities for scrapping the minimum corpus requirements.

(7) Institutionalization - The efforts of SEBI have, in the last few years, been to institutionalize the
market by introducing proportionate allotment and increasing the minimum deposit amount to Rs.5000
etc. These efforts are to channel the investment of individual investors into the mutual funds.

(8) Investment of funds mobilized - In November 1992, SEBI increased the time limit from six
months to nine months within which the mutual funds have to invest resources raised from the latest
tax saving schemes. The guideline was issued to protect the mutual funds from the disadvantage of
investing funds in the bullish market at very high prices and suffering from poor NAV thereafter.

(9) Investment in money market - SEBI guidelines say that mutual funds can invest a maximum of
25 per cent of resources mobilized into money-market instruments in the first six months after closing
the funds and a maximum of 15 per cent of the corpus after six months to meet short term liquid ity
requirements.

Private sector mutual funds, for the first time, were allowed to invest in the call money market after
this year’s budget. However, as SEBI regulations limit their exposure to money markets, mutual funds

59
are not major players in the call money market. Thus, mutual funds do not have a significant impact
on the call money market.

(10) Valuation of investment - The transparent and well understood declaration or Net Asset Values
(NAVs) of mutual fund schemes is an important issue in providing investors with information as to the
performance of the fund. SEBI has warned some mutual funds earlier of unhealthy market

(11) Inspection - SEBI inspect mutual funds every year. A full SEBI inspection of all the 27 mutual
funds was proposed to be done by the March 1996 to streamline their operations and protect the
investor’s interests. Mutual funds are monitored and inspected by SEBI to ensure compliance with the
regulations.

(12) Underwriting - In July 1994, SEBI permitted mutual funds to take up underwriting of primary
issues as a part of their investment activity. This step may assist the mutual funds in diversifying their
business.

(13) Conduct - In September 1994, it was clarified by SEBI that mutual funds shall not offer buy
back schemes or assured returns to corporate investors. The Regulations governing Mutual Funds and
Portfolio Managers ensure transparency in their functioning.

(14) Voting rights - In September 1993, mutual funds were allowed to exercise their voting rights.
Department of Company Affairs has reportedly granted mutual funds the right to vote as full- fled ged
shareholders in companies where they have equity investments. (samiksha, 2017)

Stakeholders in regulation of mutual funds in India

The Indian Mutual Fund has come a long way since the establishment of UTI in 1963 the first and the
foremost mutual fund in the country by an act of parliament, known as UTI Act 1963. The governme nt
was conscious of the fact that the mutual fund should be a route to attract small savings from large
levels of investors mainly small and medium income segments. (Llewellyn, 1995)

Over the years, the mutual fund sector has passed through several phases of growth which may be seen
as follows:

• Mutual Fund set up by government and Public Sector Undertaking (PSU) Banks.

• Mutual Fund set up by Foreign and Indian partner.

60
• Mutual Fund set up by private players only.

By now the industry has taken root in our financial system and is actively involved in strengthe ning
the capital market led system of economic growth through the process of disintermediation. Indian
Mutual Funds are regulated by SEBI, whose regulations are quite comprehensive and qualitative ly
superior to those of many other countries. Association of Mutual Funds in India (AMFI) represents the
Asset Management Companies (AMCs) in India. Established as a non-profit organization on 22nd
August, 1995. This association is dedicated for promoting and protecting the interest of mutual funds
and their unit-holders, increasing public awareness of mutual funds and serving the investor‘s interest
by defining and maintaining high ethical and professional standards in the mutual fund industry.

Though RBI role is to regulating banking industry in India but as many mutual fund companies are
backed by banks so indirectly RBI has significant contribution and role for safe guarding the interest
of investors and other stakeholders in India.

List of all stakeholders in Indian mutual fund industry is as follows:

1) RBI

2) SEBI

3) AMFI

4) Ministry of Finance

5) SROs (in general)

6) Income Tax Regulations

7) Investor’s Associations

Stakeholders in Mutual fund industry in India: {figurer - 8}

61
PRINCIPLES OF REGULATORS:

Since now, there are so many numbers of funds making this mutual fund sector complex and
complicated at times as strong need is felt to regulate all the mutual fund players including sponsors,
investors, fund managers, intermediary for orderly growth of the sector and also for ensuring the
conduct of business in transparent and legitimate manner. The mutual funds in India regulated by
various regulators like SEBI, AMFI, other SROs RBI, and Investor‘s Association of India etc. The
following principles are advanced for good governance.

• To correct identified market imperfections and failures in order to improve the market and
enhance competition;

• To increase the benefit to investors from economies of scale; and

• To improve the confidence of investors in the market by introducing minimum standards of

quality.

Regulatory measures can be broadly classified into following categories:

• Imposing capital requirements for investment management firms.

• Monitoring and auditing the operations of investment management firms.

• Disclosure and rating of management firms.

• Providing insurance.

• Setting up minimum standards for investment management firms.

• A close linkage must be established between the regulator and industry.

• The regulator should have enough authority to enforce the regulatory measures.

• The regulators should not indiscriminately change their views as his may create instability in
the market and loss of public confidence.

• The regulators should treat the investors as facilitators in the smooth functioning of the system.

RESERVE BANK OF INDIA (RBI):

Reserve Bank of India is the apex monetary authority of the country. It formulates implements and
monitors the monetary policy and thereby plays a key role in maintaining price stability and ensuring
adequate flow of credit to productive sectors. RBI is the regulator and supervisor of the financial system
in the country. It prescribes broad parameters of banking operations within which the country‘s banking

62
and financial system functions. It was established on April, 1935 according to the Reserve Bank of
India act 1934. Earlier bank sponsored mutual funds were under the dual control of RBI and SEBI.
Presently RBI is only the regulator of all Banks. SEBI is the regulator of all mutual funds. Mutual funds
are affected by the RBI stipulation on structure, issuance, pricing and trading of government securities.

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI):

The Indian mutual fund industry witnessed robust growth and stricter regulation from SEBI since 1996.
The mobilization of funds and the number of players operating in the industry reached new heights as
investors started showing more interest in mutual funds. Safeguarding the interests of investors is one
of the duties of SEBI. Consequently, SEBI (Mutual Funds) Regulations, 1996 and certain other
guidelines have been issued by SEBI that sets uniform standards for all mutual funds in India. All the
mutual funds have to be registered with SEBI. The regulations have laid down a detail procedure for
launching of schemes, disclosure in the offer document, advertisements, listing and repurchase of
close-end schemes, offer period, transfer of units, investments, among others.

Association of Mutual Fund in India (AMFI):

With the increase in mutual fund players in India, a need for mutual fund association in India was
generated to function as a non-profit organization. Association of Mutual Funds in India (AMFI) was
incorporated on 22nd August, 1995. AMFI is an apex body of all Asset Management Companies
(AMC) which has been registered with SEBI. Till date all the AMCs are that have launched mutual
fund schemes are its members. It functions under the supervision and guidelines of its Board of
Directors.

Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professiona l
and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of
both protecting and promoting the interests of mutual funds as well as their unit holders. AMFI is an
industry association, incorporated in 1995. Some researchers say it is not an SRO, so it can just issue
guidelines to members. It cannot enforce regulations. ―AMFI uniquely positioned for a regulatory
role and could become India‘s first SRO. This proposed SRO should appoint representatives capable
of regulating the industry and SEBI also not want to appoint any of its representatives on the board.
But on the other side some of the experts include it into SRO category even in its present status.

Objectives of AMFI:

• To define and maintain high professional and ethical standards in all areas of operation of
mutual fund industry.

63
• To recommend and promote best business practices and code of conduct to be followed by
members and others engaged in the activities of mutual fund and asset management including agencies
connected or involved in the field of capital markets and financial services.

• To interact with the Securities and Exchange Board of India (SEBI) and to represent to SEBI
on all matters concerning the mutual fund industry.

MINISTRY OF FINANCE:

Ministry of Finance is the supervisor of both the RBI and SEBI. Aggrieved parties can make an appeal
to MOF on the SEBI or RBI ruling relating to the mutual funds.

SELF-REGULATORY ORGANIZATION (SRO):

A self-regulatory organization (SRO) is an organization that exercises some degree of regulatory

authority over an industry or profession. The regulatory authority could be applied in addition to some
form of government regulation, or it could fill the vacuum of an absence of government oversight and
regulation i.e. The stock exchanges are regulated by SEBI, but they are registered SROs. It means SEBI
is a frontline regulator and SRO is a sub-regulator that reduces the burden of SEBI.

Objectives of SRO

• Promote the investor protection and insure the market operate in a fair manner.

• Treat all its members in a fair manner.

• Resolve any possible conflict of interest amongst the members.

INVESTOR‟S ASSOCIATION:

Individual investor or group of investors may also formed association for safeguarding their interest so
that their grievances can be heard by appropriate and competent authority in timely manner. In India,
they are working in various formats informally and formally.

KNOW YOUR CUSTOMER (KYC) NORMS FOR MUTUAL FUNDS

The objective of KYC guidelines is to prevent mutual fund companies from being used, intentiona lly
or unintentionally, by criminal elements for money laundering activities. KYC procedures also enable
mutual fund companies to know/understand their customers and their financial dealings better which
in term help them manage their risks prudently.

Mutual fund companies should frame KYC policies incorporating the following four key elements:

64
• Customer Acceptance Policy;

• Customer Identification Procedures;

• Monitoring of Transaction; and

• Customer education

CUSTOMER IDENTIFICATION PROCEDURE (CIP)

Customer Identification means identifying the customer and verifying his/her identity by using reliable,
independent source documents, data or information. Mutual Fund Company needs to obtain suffic ie nt
information necessary to establish, to their satisfaction, the identity of each new customer, whether
regular or occasional, and the purpose of the intended nature of banking relationship.

NRI’S INVESTMENT IN MUTUAL FUNDS

NRI can invest in mutual funds in India and these investments can be made on are pitiable or on a non-
reparable basis, as preferred by the investor. To invest on a reparable ‘basis, the NRI must have a Non
Resident External (NRE) or FCNR Bank account in India. The Reserve Bank of India (RBI) has granted
a general permission to Mutual Funds ‘to offer mutual fund schemes on repatriation basis subject to
the following conditions;

• The mutual fund should comply with the terms and conditions stipulated by Securities and
Exchange Board of India (SEBI)

• The amount representing investment should be received by inward remittance through normal
banking channels, or by debit to an NRE/FCNR account of the non-resident investor.

• The net amount representing a dividend/interest and maturity proceeds of units may be remitted
through normal banking channels or credited to NRE/FCNR account of the investor, as desired by him
subject to payment of applicable tax.

The RBI has granted a general permission to Mutual Funds to offer mutual fund schemes on non-
reparable basis with certain conditions. Funds for investment should be provided by debit to National
Reconnaissance Office (NRO) account of the investor. Alternatively, funds may be invested by inward
remittance or by debit to NRE/FCNR account. The current income in the form of dividends is allowed
to be repatriated.

65
CRISIL Mutual Fund Ranking Methodology

Methodology

CRISIL Mutual Fund Ranking is the relative ranking of mutual fund schemes within a peer group. The
basic criteria for inclusion in the ranking universe are three-year NAV history (one year for liquid,
ultra-short-term debt, short term income, credit oriented funds and five years for consistent
performers), assets under management in excess of cut-off limits and complete portfolio disclosure.
Only open ended schemes are considered. Ranking is based on the following parameters: (CRISIL
Mutual Fund Ranking Methodology, 2017)

1. Superior Return Score (SRS) - SRS is the relative measure of the schemes’ returns and risk
(volatility) compared with their peer group. It is computed for long term income, balanced, monthly
income plan (aggressive) and long term gilt categories. The three-year period of evaluation is divided
into four overlapping period’s ­ the latest 36, 27, 18 and 9 months. Each period has a progressive weight
starting from the longest period: 32.5%, 27.5%, 22.5% and 17.5% respectively. In case of consistent
performers (for balanced and debt categories), SRS is calculated for five years, with each one year
period being weighted progressively with the most recent period having the highest weight age.

2. Mean Return and Volatility - Mean return and volatility are considered as separate parameters in
case of equity funds (large cap, small & mid-cap, equity diversified, equity linked savings schemes or
ELSS and thematic infrastructure), consistent performers (equity as well as short term debt categories
of liquid, ultra-short-term debt and short term income) and credit opportunities funds. SRS is used for
the rest of the categories. Mean return is the average of daily returns based on the scheme’s NAV for
the period under analysis and volatility is the standard deviation of these returns. While the period for
analysis is three years for equity funds, it is one year for liquid, credit oriented, ultra-short-term debt
and short term income funds. The period of analysis is broken into four periods (latest 36, 27, 18 and
9 months for equity categories and latest 12, 9, 6 and 3 months for short term categories). Each period
is assigned a progressive weight starting from the longest period as follows: 32.5%, 27.5%, 22.5% and
17.5% respectively. In case of consistent performers, equity, mean return and volatility are calculated
for five years, with each one year period being weighted progressively with the most recent period
having the highest weight.

3. Portfolio Concentration Analysis - Concentration measures the risk arising out of improper
diversification. For equity securities, diversity score is used as the parameter to measure industry and
company concentration. In case of debt schemes, the company at an individual issuer specific limit of
10%.

66
4. Exposure to Sensitive Sector - In case of debt schemes, the industry concentration is analysed for
any exposure to sensitive sectors which are arrived based on Industry Risk Score (IRS) for various
sectors. CRISIL’s assessment of IRS quantifies the credit risk associated with an industry on a unifor m
scale to ensure comparability across industries. The score captures the influence of various industry
variables on the debt repayment ability of companies in a particular sector over a 3-4 year time horizon.

5. Liquidity Analysis - It measures the ease with which a portfolio can be liquidated. The lower the
score, the better it is. In case of equities, it measures the number of days to liquidate the portfolio.
Liquidity is calculated by taking the average portfolio liquidity score of the past three months.

6. Equity liquidity is computed as follows - Liquidity score of each stock = No. of shares held / Daily
average trading volume of past six months

Portfolio liquidity score = Weighted average liquidity score of the above

Gilt liquidity is measured by analysing the number of days it will take to liquidate the portfolio based
on turnover (volume) and number of securities in the portfolio, the number of days security has got
traded and the number of trades in any security for a three - month period for that security. Corporate
debt liquidity is computed by classifying each security into three categories - liquid, semi liquid and
illiquid - and then evaluating a scheme's exposure to each category.

7. Asset Quality - Asset quality measures the probability of default by the issuer of a debt security to
honour the debt obligation in time.

8. Modified Duration - Modified duration/Average maturity is considered across all debt categories
except liquid to capture the interest rate risk of the portfolio. The lower the value, the better it is.

9. Tracking Error - This is used only for index schemes. The tracking error is an estimation of the
variability in a scheme's performance vis-à-vis the index that it tracks. The lower the tracking error,
the better it is.

Historic CRISIL Mutual Fund Ranking Performance

Historic CRISIL Mutual Fund Ranking performance is considered only for the consistent category.
Quarterly mutual fund rankings during the five year period of analysis are broken into five blocks of
one year each. Each block is differentially weighted with the most recent period having the highest
weight age.

67
CRISIL Mutual Fund Ranking Category Definitions
Category Interpretation
CRISIL Fund Rank 1 Very Good performance in the category (Top 10 percentile of the universe)*
CRISIL Fund Rank 2 Good performance in the category
CRISIL Fund Rank 3 Average performance in the category
CRISIL Fund Rank 4 Below average performance in the category
CRISIL Fund Rank 5 Relatively Weak performance in the category
* If the top 10 percentile figure is not an integer, the same is rounded off to the nearest integer. The
same approach is adopted for CRISIL Fund Rank 2 (11th to 30th percentile), CRISIL Fund Rank 5
(last 91st to 100th percentile) and CRISIL Fund Rank 4 (71st to 90th percentile) clusters. The residual
funds in the universe are placed in the CRISIL Fund Rank 3 cluster.

Eligibility Criteria

• Only open-ended funds are considered

• NAV History

 Three years for equity, hybrid and long term debt schemes
 One year for liquid, ultra-short-term debt, short term income and index funds - Five years for
consistent performers

• Schemes falling under 98 percentile of the category AUM are shortlisted

 Quarterly average AUM is considered

 Schemes meeting inception criteria are eligible schemes

• Complete portfolio disclosure for all three months in the last quarter

• Minimum five schemes in each category

• In case of long term gilt funds, only those funds that have an exposure in excess of 98% over
the past three years to the following are considered for ranking:

 Central and state government securities

 Cash and cash equivalents such as collateralized borrowing and lending obligations CBLOs),
reverse repo, net receivables, etc.

• In case of credit opportunities funds, only the funds that have residual maturity of more than
six months and having predominant exposure to papers rated below AAA are considered.

68
Unit III : Data analysis and interpretation

69
 Part-(a) Personal Information

1. Age wise classification of respondents

(Table 3)

Age No. of respondents

20 - 30 26

31 - 40 23

41 - 50 24

51 - 60 15

Above - 60 12

Total 100

Figure – 9

Respondents age

30
26
23 24
25 20 - 30
Frequency

20 31 - 40
15
15 12 41 - 50
10
51 - 60
5
Above - 60
0
20 - 30 31 - 40 41 - 50 51 - 60 Above - 60

Sample

Interpretation:

According to the survey conducted, out of 100 respondents, 26 respondents between 20 to 30 age
group, 23 respondents between 31-40 age group, 24 respondents between 41-50 age group, 15
respondents between 51-60 age group and 12 respondents between above 60 age group.

70
2. Gender of respondents

(Table 4)

Gender No. of respondents

Male 73

Female 27

Total 100

Figure – 10

Gender of respondents

27
Male

Female
73

Interpretation:

According to the survey conducted, out of 100 respondents, 73 male can be respond for the
questionnaire and 27 female can be respond for the questionnaire.

So, according to the survey conducted man can prefer to go for investment rather than female.

71
3. Education qualification of the respondents

(Table 5)

Qualification No. of respondents

Below high school 5

High school 22

Bachelor degree 36

Master degree 30

Above master 7

Total 100

Figure – 11

Education Qualification of the Respondents

40 36
35
30
30 Below high school
Frequency

25 22
20
High school
15 Bachelor degree
10 7
5
5 Master degree
0
above Master
Below High Bachelor Master above
high school degree degree Master
school
Sample

Interpretation:

According to the survey conducted, out of 100 respondents, 5 respondents qualification are below high
school, 22 respondents qualification are high school, 36 respondents qualification are bachelor degree,
and 30 respondents qualification are master degree and 7 respondents qualification are above master
degree.

72
4. Annual income of the respondents

(Table 6)

Annual income No. of respondents

Not earn now 13
Below 1 lakh 24
1 – 5 lakh 34
5- 10 lakh 29
Total 100

Figure – 12

Income wise Respondents

40
34
35
29
30 Not earn now
24
25
Frequency

Below 1 lakh
20
15 13 1 - 5 lakh
10
5 - 10 lakh
5
0
Not earn now Below 1 lakh 1 - 5 lakh 5 - 10 lakh
Sample

Interpretation:

According to the survey conducted, out of 100 respondents, income group of not earn now are 13,
income group of below 1 lakh are 24, income group of 1 – 5 lakh are 34 and income group 5 – 10 lakh
are 29.

73
 Part – (b) Questionnaire

Q1. Do you invest in mutual fund?

Table -7

Investments No. of respondents

Yes 55
No 45
Total 100

Figure-13

Do you invest in mutual fund?

60 55
Frequency

50 45
40 yes
30
20
10 no
0
yes no
Sample

Interpretation:

According to the survey conducted, out of 100 respondents, 55 respondents invest in mutual fund and
45 respondents do not invest in mutual fund due to various reasons.

Therefore 45 respondent invest in other avenues available in industry.

74
Q2. Reason for not investing in mutual fund?

Table 8

Reason for not investing No. of respondents

Invest in mutual fund 55
Never heard about mutual fund 5
Awareness 9
Lack of saving 4
Risky 13
Not interested to invest in mutual fund 7
I invest in other avenues 7
Total 100

Figure – 14

REASONS FOR NOT INVEST IN MUTUAL FUND

invest in mf
5 9
Never heard mf
4 awareness
55
13 Lack of saving
Risky
7 Not interest in mf
7
Invest in other avenues

Interpretation:

According to the survey conducted, out of 100 respondents, from the above figure it is clear that most
of the respondents invest in mutual fund but the respondents invest in other avenues due to such reason.
5 respondents never heard about mutual fund, 9 respondents never invest due to awareness, 4
respondents never invest due to lack of saving, 13 respondents never invest due to perception of risky,
7 respondents never invest due to not interest in mutual fund, 7 respondents never invest due to invest
in other avenues.

75
Q3. Whom suggest to select your investment plans?

Table – 9

Suggest to select investment plans No. of respondents

Own 33
Financial advisor 26
Friends 21
Other 20
Total 100

Figure – 15

whom suggest to select your investment plans?

35
30 33 own
25
Frequency

26
20 financial advisor
21 20
15
10
friends

5
others
0
own financial friends others
advisor
S ample

Interpretation:

According to the survey conducted, out of 100 respondents, 33 respondents invest own decisions, 26
respondent take decisions from financial advisor, 21 respondents go with friends decision and rest of
20 take decision with others.

76
Q4. Do you consult while making an investment choice?

Table-10

Consult when choose No. of respondent

investment
Every time 29
Often 35
Sometimes 20
Never 16
Total 100

Figure-16

Do you consult while making an investment choice ?

40
35
35 every time
29
30
FREQUENCY

25 often
20
20 16
15 sometimes
10
5
never
0
every ti me often s ometi mes never
SAMPLE

Interpretation:

According to the survey conducted, out of 100 respondents, 29 respondents consult every time while
making an investment choice, 35 respondents often consult while making an investment choice, 20
respondents sometimes consult while making an investment choice and 16 respondents never consult
while making an investment choice.

77
Q5. What kind of investment option you prefer? (Choose more than one)

. Table-11

Kinds of investment prefer No. of respondents

Mutual fund 48
Equity market 41
Fixed deposit 56
Gold 57
Insurance 46
Other 64
Total 322

Figure- 17

70 Investment prefer
60
64 mutual fund
50 56 57 56
48 equity market
frequency

40
41
30 fixed deposit

20 gold
10
insurance
0
mutual equity fixed gold insurance other other
fund market deposit
s a mple

Interpretation:

According to the survey conducted, out of 100 respondents, 48 respondent invest in mutual fund, 41
respondents invest in equity market, 56 respondent invest in fixed deposit, 57 respondent invest in gold,
and 56 respondent investment in insurance and 64 respondent invest in other avenues.

Other avenues are following 13 respondent invest in real estate, 12 respondent invest in post office, 13
respondent invest in public provident fund (ppf), 16 respondent invest in recurring deposit, 10
respondent invest in sukanya samriddhi account.

78
Q6. Why do you prefer Q5 option? (Choose more than one)

Table-12

Perception during invest No. of respondents

Assured return 65
Safety & security 51
Profitability 64
Tax exemption 34
Other 0
Total 214

Figure-18

why do you prefer q5 option?

70 65 64
assured return
60
51
50 safety & security
frequency

40 34
profitability
30
20 tax exemption
10
0 other
0
assured safety & profitability tax other
return security exemption
s a mple

Interpretation:

According to the survey conducted, out of 100 respondents, 65 respondent invest for the assured return,
51 respondent invest for the safety & security, 64 respondent invest for the profitability, and 34
respondent invest for the tax exemption and other factor not affect the respondent.

79
Q7. How long would you like to invest?

Table - 13

Investment periods No. of respondent

Less than 1 year 9
Between 2 to 5 year 27
More than 5 year 64
Total 100

Figure – 19

Ivestment periods
9

less than 1yr.

27

between 2yr. To 5 yr.

64
more than 5yr.

Interpretation:

According to the survey conducted, out of 100 respondents, 64 respondent invest during less than 1
year, 27 respondents investment duration is between 2 year to 5 year and only 9 respondent invest less
than 1 year.

80
Q8. How much risk you can take to own investment?
Table – 14

Risk taken in investment No. of respondent

Low 24
Minimum 20
Moderate 38
High risk 18
Total 100

Figure – 20

Risk taken in investment

38 low
40
35
30 24 minimum
25 20
18
frequency

20
15 moderate
10
5
0 high risk
low minimum moderate high risk
sample

Interpretation:

According to the survey conducted, out of 100 respondents, 24 respondent can take low risk on their
investment, 20 respondent can take minimum risk on their investment, 38 respondent can take moderate
risk on their investment and 18 respondent can take high risk on their investment.

81
Q9. How much money you can invest?

Table – 15

Money invest No. of respondent

5000 17
5000-15000 36
15000-25000 30
More than 25000 17
Total 100

Figure – 21

5,000
40 36
35 30
30
5,000-15,000
frequency

25
20 17 17
15
15,000-25,000
10
5
0
more than
5,000 5,000-15,000 15,000-25,000 more than
25,000
25,000
sample

Interpretation:

According to the survey conducted, out of 100 respondents, 17 respondent invest 5,000 rupees on their
investment, 36 respondent invest 5,000 – 15,000 rupees on their investment, 30 respondent invest
15,000 – 25,000 rupees on their investment, and 17 respondent invest more than 25,000 rupees on their
investment.

82
Q10. You can invest your money to full fill ………………………… need?

Table – 16

Investment motive No. of respondent

Personal 17
Financial help 27
Future planning 34
other 22
Total 100

Figure – 22

Perpose for investment

40 personal
34
35
30 27 financial help
frequency

25 22
20 17 future planning
15
10 other
5
0
personal financial help future other
planning
sample

Interpretation:

According to the survey conducted, out of 100 respondents, 17 respondent invest their money to full
fill personal need, 27 respondent invest their money to full fill financial help need, 34 respondent invest
their money to full fill future planning need, and 22 respondent invest their money to full fill other
need.

83
Q11. Are you satisfied from your investment?

Table - 17

Satisfied from investment No. of respondents

Yes 58

No 42

Total 100

Figure – 23

Satisfied from investment

70
58
60

50
42
frequency

40 yes
30

20 no
10

0
yes no
sample

Interpretation:

According to the survey conducted, out of 100 respondents, 58 respondents is purely satisfied from
their investment with no issue but 42 respondent is not satisfied from their investment due to many
reason which is specified in next page {table - 18}.

84
 Table – 18

Reason for not No. of respondent

satisfied No (42)

No answer 58

Surplus 8

Calculation 16

Late respond 12

Low margin 6

Total 100

Figure – 24

Dissatisfied from investment

70
58
60 no answer
50

40
surplus
frequency

30
calculation
20 16
12
8 6 late respond
10

0
no answer surplus calculation late low margin
low margin
respond
sample

Interpretation:

According to the survey conducted, out of 100 respondents, 58 respondent is no answer due to
respondent satisfied from their investment & 42 respondent not satisfied from their investment. Reason:
- 8 respondent not satisfied from surplus, 16 respondent not satisfied from calculation of return &
investment schemes, 12 respondent is not satisfied due to late respond their investment schemes and 6
respondent not satisfied due to low margin of the return.

85
Q12. Choose the following services you preferred most comfortable? (More than one)

Table – 19

Preferred services No. of respondent

Telephone service 69
Online service 46
Mobile app service 39
Personal service 51
Total 100

Figure – 25

Most comfortable service

80
69
70 telephone service
60
51
50 46
39
frequency

40 online service
30
20
mobile app service
10
0
telephone online service mobile app personal personal service
service service service

sample

Interpretation:

According to the survey conducted, out of 100 respondents, 69 respondent use telephone service, 46
respondent use online service, 39 respondent use mobile app service and 51 respondent use personal
service on their branch most of the service use more than one option.

86
Unit IV : Finding & conclusion

87
Findings :

 The trend for investment is changing rapidly besides the traditional pattern of investment and
people today they are ready to undertake risk and also bear the volatility of changing mutual
fund market scenario.
 Today’s scenarios is more bright for the mutual fund because Nifty cross 10,000 (exact fig10,
014 on 29-07-2017) and Sensex goes 32,309.88 (on 29-07-2017) which recorded higher in the
Indian history.
 This shows that people with the income more than 1-5 lakh are likely to attract toward this
market and they are ready to bear the risk. Around 34% of investors earn more than Rs 1-5 lakh
in this survey. But according to this survey I found 17 respondents in data who not earn now
who also enter in this market.
 It is also found that when the period of investment is higher, the returns are comparatively better
than shorter period of investment, in case of all CRISIL rank 1 to 5.
 While investing, one should consider both NAV and also total returns. They cannot completely
rely on the ranks based on either NAV/ returns.
 Costs of Equity/debt oriented schemes must be considered and calculated separately which
helps in finding out net returns, instead of gross returns.
 SIP returns are very good in all types of plans like ELSS, Balanced, etc., with so many times
of higher returns than Non-SIP returns.
 Qualification and knowledge plays an important role investing decision. According to this
survey around 36% of investors have degree of bachelor degree.
 From the above it is obvious that risk taking capacity is directly related with age, income and
knowledge of the investors.
 Mutual funds are the instruments which give higher returns in long term. In my survey also I
found that most of the investors around more than 5 year invest 64 respondents.
 According to survey fixed deposit, gold, insurance and other investment are affect the market
of mutual fund by 56, 57, 56, and 64 respectively.

88
Conclusions :
 Since it is service based industry, the customer plays vital role, so in order to satisfy the
customer appoint more no of well qualified agents who can communicate respondents to
improve the services, hence give more advertisement in Newspaper, local TV channel, to
overcome the overcrowding and non-availability of telephone links proper measure should be
taken.
 Majority of the 26 respondents are very happy with the services given by Karvy agents.
 The mutual fund industry is growing at a tremendous pace. A large number of plans have come
up from different financial resources. But in comparison with other investment avenues, only a
small segment of the investors invest in mutual funds and the main sources of information still
are the financial advisors followed by advertisement in different media. Also there is tendency
to invest in fixed deposit due to the security attached to it. In order to excel and make mutual
funds a success, company’s still need to create awareness and understand the psyche of the
Indian customer. I have the opinion that the three leading categories of agencies involved i.e.,

(1) The regulatory authorizes like SEBI, IRDA;

(2) AMFI and

(3) Mutual fund asset management companies have to conduct education and orientation programmes
in collaboration with yet other three kind of leading organisation i.e.

 Universities
 Institutes and
 Stock exchanges, on various expects of mutual fund schemes , so that the investors will enhance
their knowledge for making more prudent investment decisions.

89
Suggestions :

To mutual fund companies-

 Regional Languages: The fact books may be printed also in regional languages so that
penetration in rural areas may be achieved.
 Educating the public and the investors: Workshops or seminars explaining the importance and
risk factor associated with different classes of assets may be conducted from time to time for
the existing investors. At the same time awareness programmes more in all areas and more in
number should be conducted for the public.
 Understanding the Psychology of the Investors

To mutual fund investors-

 Understand the purpose of investment: The first point to analyse before investing in a fund is
to find out whether the objective matches with the scheme. It is necessary, as any mismatch of
the same would directly affect the prospective probable returns.
 Low risk tolerance: Those investors with less risk tolerance should go for debt schemes, as they
are relatively safe, when compared to other schemes like equity Aggressive investors can go
for equity investments. Investors that are even more aggressive can opt for schemes that invest
in specific industry or sector.
 Track Record: Investors should go through the scheme's track record.
 Period of Investment: One should look at covering the volatility exposure which can be done
by holding onto the investment for longer periods.
 Awareness of fund manager: The investors who are aware of professionalism of Fund
Managers, it is advisable to follow them by shifting over to those funds to get good returns.
 Continuous Monitoring: Investors should continuously monitor their portfolio and revise their
funds by updating according to the market position.
 Starting small for first time investors: Finally, first-time mutual fund investors are often advised
to start small, and all investors can practice diversification to lower risk.

90
Appendices

91
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94
 Questionnaire

Karvy Stock Broking Ltd.

Dear sir / Madam,

I am a student of Kejriwal Institute of Management & Development Studies. I am doing a summer

internship on the topic “An analysis on affect of investment style on mutual fund performance” as a
part of my PGDM academic curriculum. I would like to assure you that the inputs given by you shall
be kept confidential and would only be used for academic purpose.

Regards,

Pratap kumar

Batch (2016-18) Part-(A)

Personal information

1. Name: - …………………………………………………………….

2. Age :- Below 20 20-30 31-40 41-50 51-60 Above 60

3. Gender :- male female

4. Education Qualification: - ………………………………………....

5. Mobile no. / Email id: - ……………………………………………

6. Occupation Details [Please tick (✔)]

Private sector Public sector Housewife Government service

Retire Agriculture Student other please specify

7. Gross annual income (₹) Details [Please tick (✔)]

Not earn now Below 1 Lakh 1-5 Lakh 5-10 Lakh

10-15 Lakh >25 Lakh

Part- (B)

Questionnaire

1. Do you invest in Mutual fund? [Please tick (✔)]

Yes No.

95
2. Reasons for not investing in Mutual fund? [Please choose option (✔)
Never heard about Mutual funds Awareness

Lack of saving Risky Not interested to invest in Mutual fund

I Invest in other Avenues

3. Whom suggest to select your Investment plans?

Own Financial advisor Friends Other please specify

4. Do you consult while making an investment choice?

Every time Often Sometimes Never

5. What kind of investment option you prefer? (choose more than one)

Mutual fund Equity market Fixed deposit Gold

Insurance Other please specify

6. Why do you prefer Q5 option? (choose more than one)

Assured return Safety & security Profitability Tax exemption

Other please specify

7. How long would you like to invest? [Please tick (✔)]

Less than 1yr. Between 2 yr. to 5 yr. More than 5 yr.

8. How much risk you can take to own investment?

Low Minimum Moderate High risk

9. How much money you can invest?

5,000 5,000-15,000 15,000-25,000 more than 25,000

10. You can invest your money to full fill …………………….needs? Personal Financia l
help Future planning other please specify

11. Are you satisfied from your investment?

Yes No If No, Reason please specify

12. Choose the following services you preferred most comfortable? (More than one)

Telephone service online service Mobile app service

Personal service

96