CONTENTS CHAPTER – I 1. 2. 3. 4. 5. 6. 7.
INTRODUCTION Introduction on mutual funds Objectives of the study Scope of the study Application of the study Methodology of the study Tools used for analysis Limitations of the study
CHAPTER – II
INTRADUCTION TO MUTUAL FUNDS
1. Introduction on Mutual fund 2. Introduction on Equity shares 3. Introduction on Index 4. Introduction on Derivatives
CHAPTER – III 2. 3. 4. 5. 6. 7.
COMPANY PROFILE
1. Karvy – Overview Karvy – Early days Karvy – Alliances Milestone Achievements Quality policy & objectives Karvy – stock broking limited
CHAPTER – IV
ANALYSIS & INTERPRETATION
CHAPTER – V
CONCLUSIONS & SUGGESTIONS
1. Conclusions 2. Suggestions
CHAPTER – VI
1
BIBILOGRAPHY
CHAPTER –1 INTRODUCTION
2
INTRODUCTION ON MUTUAL FUNDS Last two decades have witnessed a phenomenal growth in trade and industry the world over. The days are passed when capital used to remain within the boundaries of nations. In this era of globalization and liberalization, technology, capital and other resources are not only crossing the borders of nation but also increasing the volume of international trade. The rapidity with which the concept of corporate finance, bank finance and investment finance have changed in recent years have given birth to new financial products known as Mutual funds. As the name suggests, this is financial instrument that pools the savings of number of investors who share a common financial goal. The money thus collected is invested by the funds manager in different types of securities depending on the objective of the scheme. Mutual funds have become increasingly importance in the world of finance. Mutual funds legally known as “open-ended companies” are subject to regulations set forth by the Investment Company Act 1940, when deciding how to invest. Mutual funds are attractive because they require less of investors, as they offer diversification, experts talk and bond selection, low cost and preferential tax treatment. Additionally Mutual funds do not have a predetermined number of stocks to sell; rather stocks are added to the fund as required by the demand.
3
A mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. This could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciations realized by the scheme are shared by its unit holders in proportion to the number of units owned by them. Thus mutual fund is the most suitable investment for the common man as it offers the opportunity to invest in a diversified professionally managed portfolio at a relatively low cost. Any body with an investible surplus of as little as a few thousand rupees can invest in mutual funds. A mutual fund is the ideal investment vehicle for today’s complex and modern financial scenario. Markets for equity shares, bonds and other fixed income instruments, real estate derivatives and other assets have become mature and information driven. A typical individual is unlikely to have the knowledge, skills, inclination and time to keep track of events, understand their implications and act speedily. Thus a mutual fund is the sum total of many parts, each of which is designated to perform a specific function. SEBI, the market regulator has outlined clearly the role and responsibilities of each entity. How well they function determines, in part, the quality of your experience with the mutual fund. As investment vehicles go, mutual funds are unique being the only ones to operate on the principle of pooling resources. The element of novelty extends to their working also in the kind of investment exposures they offer, the terms they use, the norms for pricing they follow, and lots more. These character traits will unravel through the course of this book.
4
Life makes many demands of us. There’s so much to indulge in and deal with. At work or at home. With family, friends or self. Woven into these threats is the inescapable truth that money is a means to many an end. A house in the sub-urbs, good education for the kids, a set of four wheels to zip around and early retirement. The ends might differ but the means – at least one of them – to reach them remain the same: money. Earned wisely, saved regularly, and invested smartly. People say that they don’t have the discipline, they don’t understand investing, especially the stock market. They don’t have time and don’t really care. Well they should, even if just a little. After all it’s their money and their life and it helps to have their saving working for you. They don’t need to get neck – deep in to their personal finances, but the least they can do, and should do, is get a fix on the big picture. Explore and understand what they want from their investments, and leave the rest to the money managers: mutual funds. These investment vehicles don’t demand them to have a deep understanding of financial matters; they don’t even demand oodles of your time.
5
OBJECTIVES OF THE STUDY 1) The main purpose is to study whether mutual fund is investor’s best choice or not. 2) The objective of doing this project is to make a study of various investment schemes in the secondary market. 3) To ascertain the various fluctuation in different sectoral schemes of mutual funds 4) To examine mutual funds investment with equity shares and also relative to Nifty and Sensex. 5) To assist the community at large in deciding which investment provides best return considering various points at a time. 6) To know how various schemes effect mutual fund investment and its performance taking past records. 7) To study the performance of selected mutual fund companies and equity companies and their performance in 1 year. 8) To reveal the current situation of mutual funds and equities as well as index in last one year in India .
SCOPE OF THE STUDY
6
1)
The study covers the concept and details of mutual funds and
introduction on equity, derivatives and index. 2)
The study also includes returns of equity, mutual funds and
relative index of different sectors. 3)
Equities year high and low is also included in the study.
4)
The project report covers the study of Net Asset Value (NAV) of
mutual funds in different sectors. 5)
The analysis part includes the Net Asset Value (NAV) charts
which gives the clear picture of the present value of the mutual fund company. 6)
The study includes the information regarding the selection of
portfolio for different funds in theory part. 7)
The theory part also includes following information related to
mutual fund :
History of mutual funds
Concept of mutual funds
Why mutual funds
Net Asset Value (NAV)
Types and benefits of mutual funds
Trends in mutual funds
Future scenario
Problem of mutual fund industry in India.
APPLICATION OF THE STUDY
7
1)
The study helps the investor to compare various investment
schemes and the returns from those investments. 2)
The reader can have thorough knowledge on concepts and
trends of mutual funds. 3)
The study helps to have the knowledge of various schemes and
working of mutual funds. 4)
User can make proper analysis of returns in different schemes
comparing the performance of the study period. 5)
The study enables the readers to assess the Net Asset Value
(NAV) by seeing the charts. 6)
Researchers can think of further study by including the data of
large period. 7)
The study also enables us to understand the fluctuations
related to Sensex and Nifty
METHODOLOGY OF THE STUDY
8
All information related to the topic needs to be carefully scrutinized to avoid the risk of biased analysis. Having once identified which information is relevant and need to be collected, we will have to define how this will be done. The method employed in the investigation depends on the purpose and scope of the study. Let us try to understand methodology. 1) RESEARCH DESIGN: Research design is some statement or specification of
procedures for collecting and analyzing the
information required for the solution of some specific problem. Here the exploratory research is used as investigation is mainly concerned with determining the trends and positive and negative returns in different sectors of mutual funds and equities. Exploratory research is generally carried out by three sources of information A) Study of secondary sources B) Discussion with individuals C) Analyzing some specific areas 2) DATA COLLECTION METHODS: The key for creating useful system are selectivity in collection of data and linking that selectivity to the analysis and decision issue of the action to be taken. The accuracy of collected data is of great significance for drawing correct and valid conclusions from the investigation.
The following are the main steps in data collection process a) Type of information required in the investigation b)
Establishing the facts that are available at present and additional facts required.
c)
Identification of sources from where the information can be available.
9
d) Selection of appropriate information i.e. collection method.
3) SOURCES OF INFORMATION: Data available in marketing research are either primary or secondary. Primary data: primary data are generated in an investigation according to the needs of problem in head. Primary data is collected using case study methods. There are some set of Qualitative techniques used for collection of some socio economic information about some phenomenon. Secondary data: Secondary data can be defined as data collected by some one else for purpose other than solving the problem being investigated. Secondary data is collected from external sources which include information from published material of SEBI and some of the information is collected online. The data sources also include various books, journals, magazines, news papers, etc. The organization profile is collected from Branch Manager.
TOOLS USED FOR ANALYSIS
10
TABULATION A Table is a systematic arrangement of statistical data in rows and columns. Rows are horizontal arrangements whereas columns are vertical. Tabulation is a systematic presentation of data in a form suitable for analysis and interpretation. The tables used are as follows: 1) One way table: It presents only one characteristic and hence in answering one or
more independent questions with regard to those
characteristics. 2) Two-way table: It contains sub divisions of a total and is able to answer two
mutually dependent questions.
3) Three-way table: It sub-divides the total in to three distinct categories It is capable of answering three mutually dependent questions
GRAPHICAL REPRESENTATION OF DATA A picture is worth a thousand words. The impression created by a picture has much greater impact than any amount of detailed explanation. Statistical data can be effectively presented in the form of diagrams and graphs. Graphs and Diagrams make complex data simple and easily understandable. They help to compare related data and bring out subtle data with amazing clarity. The Diagram used is as follows:
1) Bar diagrams: Bar diagrams are used specifically for categorical data or series. They consist of the group of equidistant rectangles,
11
one for each group or category of data in which the values of magnitudes are represented by length or height of rectangles. 2) Sample Bar diagram: It is used of comparative study of two or more aspects of a single variable or single category of data. 3) Percentage
bar
diagram:
If
sub-divided
bar
diagrams
are
presented on a percentage basis i.e. each component as a percentage of whole, it is said to be a percentage bar diagram.
COMPARATIVE STUDY Comparative study is made by comparing the different investment schemes including mutual funds, equity and relative indexes. The returns of mutual funds and equity are compared for different sectors. The Net Asset Value of different mutual fund companies is also shown in the study. Overall the study is done by comparing different investment schemes and what returns they give in the period of 1 year.
LIMITATIONS
12
1)
Equity return is not taken from NSE stock exchange.
2)
The data of mutual fund companies and equity companies is
taken only for 3& 6 months and 1 year due to non availability of data. 3)
Due to limitation of time all sectors are not studied, only
selected sectors have been studied. 4)
Data for mutual funds available on website is day to day basis
data. Data is updated
daily. Hence the data is available as on 31
march 2006. 5) only growth funds are taken. 6) Due to non availability of data NSE scrip Tata consultancy information has not taken.
13
CHAPTER – 2 COMPARATIVE STUDY ON MUTUAL FUNDS AND OTHER INVESTMENT SCHEMES
INTRODUCTION ON MUTUAL FUND
14
The concept of “Mutual fund” is a new feature in the cap of Indian capital market but not to international market. The concept of mutual fund spread to USA in the beginning of 20th century and three mutual fund companies were started in 1924. Mutual funds have been successfully working in the USA and some western countries. These funds have been useful in filling the gap between the demand and supply of capital in the market. A mutual fund motivates small and big investors to entrust their savings to it so that these are professionally employed in sharing good return. A large number of investors have small savings with them. They can at the most buy shares of one or two companies. When small savings are pooled and entrusted to mutual fund then these can be used to buy blue chips where regular returns and capital appreciation are ensured. Fund is an American concept. The terms like investment company, money fund
investment trust and
mutual funds are used
interchangeably and used to describe the same thing in American literature. In British literature mutual funds has not been explained but is considered as a synonym of investment trust of USA.
DEFINITION & MEANING A mutual fund is an investment vehicle for investors, who pool their savings for investing in diversified portfolio of securities with the aim of attractive yields and appreciation in their value.
As per mutual fund book published by investment company institute of US,“Mutual fund is a financial service organization that receives money from shareholders, invest it, earns return on it, attempt to make it grow 15
and agree to pay the shareholder cash on demand for the current value of investment” SEBI (mutual fund) regulations, 1996 defines mutual funds as “A fund established in the form of a trust to raise monies through the sale of units to the public or a section of public under one or more schemes
for
investing
in
securities
including
money
market
instruments” A mutual fund is a special type of institution a trust or an investment company which acts as an investment – intermediary and channelises the savings of large number of people to the corporate securities in such a way that investors get a steady return, capital appreciation and low risk A mutual fund is a trust that pools the savings of a number of investors who wish to start investing but do not have a large amount of capital to work with or who want to take hands of approach and let the professional take all decisions. Mutual funds are basically large funds operated by investment companies and pull money from many different people and then invest according to a certain goal for the fund. This allows for greater diversification than would be possible for a single person with less-than-generous assets and also removes the burden of researching market conditions and constantly adjusting investments accordingly from the individual.
HISTORY OF MUTUAL FUND INDUSTRY
16
The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank the. The history of mutual funds in India can be broadly divided into four distinct phases FIRST PHASE – 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. 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 Canara 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 – 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian
17
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. 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
18
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.
19
GROWTH IN ASSETS UNDER MANAGEMENT ZZZ
Note: Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit Trust of India effective from February 2003. The Assets under management of the Specified Undertaking of the Unit Trust of India has therefore been excluded from the total assets of the industry as a whole from February 2003 onwards.
20
CONCEPT OF MUTUAL FUND A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund:
Mutual Fund Operation Flow Chart
21
ORGANISATION OF A MUTUAL FUND There
are
many
entities
involved
and
the
diagram
below
illustrates the organisational set up of a mutual fund:
WHY MUTUAL FUNDS Let's suppose you're just getting started as an investor and have $5,000 to invest and you have three important goals you want to achieve. First, you don't want to lose your money in a risky venture so you want security, like that found in a certificate of deposit or other fixed income investment. But you also want to make the most money you can, so you want the prospect for growth potential, too. Finally, since you don't have the time or knowledge to actively manage your money, you want professional money management -- occasionally diversifying your investments into promising new opportunities. That sounds like a very good plan, but where can you invest your money and have a chance to meet all three criteria? Certificates of deposit and other fixed income investments offer security, but often with low rates of interest and a fixed potential for growth.
22
Individual stocks may carry greater potential for growth, but $5,000 isn't a lot to invest and if you put it all in one stock, you risk everything if it performs poorly. And, brokers and investment advisors can offer you advice and money management, but at a price -- you pay for their services, which reduces further the amount you have available to invest. More than 80 million people, or one out of every two households in America, invest in mutual funds. Currently, over $6 trillion is invested in mutual funds. While funds have been around since the 1920's, their popularity over the past 25 years has soared. The reasons: Mutual
funds make it easy and less costly for investors to satisfy their need for capital growth, income and/or income preservation Mutual funds bring diversification and professional money management to the individual investor A mutual fund is a company that pools the money of many investors -- its shareholders -- to invest in a variety of different securities. Investments may be in stocks, bonds, money market securities
or
some
combination
of
these.
Those
securities
are
professionally managed on behalf of the shareholders, and each investor holds a pro rata share of the portfolio -- entitled to any profits when the securities are sold, but subject to any losses in value as well. For the individual investor, mutual funds provide the benefit of having someone else manage your investments, take care of record keeping for your account, and diversify your dollars over many different securities that may not be available or affordable to you otherwise. Today, minimum investment requirements on many funds are low enough that even the smallest investor can get started in mutual funds.
A mutual fund, by its very nature, is diversified -- its assets are invested in many different securities. Beyond that, there are many
23
different types of mutual funds with different objectives and levels of growth potential, furthering your chances to diversify.
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, represented by the ownership of one unit in the fund. It is calculated simply by dividing the net asset value of the fund by the number of units. However, most people refer loosely to the NAV per unit as NAV, ignoring the "per unit". We also abide by the same convention. The price measured per unit is called the Net asset value NAV of the unit. Just as a share or a bond is brought at a price, a mutual fund is bought and sold at its NAV. If for example u were to invest Rs.10000 in a scheme when its NAV is Rs.10 you will be allotted 1000 units (10000/10) roughly –the fund charges a nominal processing fee. The NAV of any scheme tells how much each unit of it is worth at any point in time, and is therefore the simplest measure of how it is performing. A scheme’s NAV is its Net assets (market value of the securities is owns minus whatever it owes) divided by the number of units it has issued.
A scheme’s NAV is a dynamic figure. The market value of the scheme’s portfolio changes from day to day as prices of shares and
24
bonds move up or down. The number of units outstanding also changes, as new investors come into the scheme and old ones leave. If the NAV of your schemes rises from Rs.10 to Rs.11 over a period of time, your scheme is said to have generated a return of 10 percent. Similarly if its Net NAV falls form Rs.10 to Rs. 9, it is said to have lost 10 percent. Fund houses have to calculate and disclose, the NAVs of their schemes daily. Fund NAVs can be easily looked up. While the general dailies give a random listing of schemes, the financial papers are more exhaustive in their coverage. When invested in a scheme, its NAV is the figure to track, as it quantifies your returns, and your purchase price will be based on it. Random listing of schemes, the financial papers random listing
TYPES OF MUTUAL FUNDS This section provides descriptions of the characteristics -- such as investment objective and potential for volatility of your investment -- of various categories of funds. These descriptions are organized by the type of securities purchased by each fund: equities, fixed-income, money
market
instruments,
or
some
combination
of
these.
This table organizes these fund types by how aggressive or conservative they are and by investment objective. Because mutual funds have specific investment objectives such as growth of capital, safety of principal, current income or tax-exempt income, you can select one fund or any number of different funds to help you meet your specific goals.
In general mutual funds fall into these general categories:
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Equity Funds invest in shares of common stocks.
Fixed-Income Funds invest in government or corporate securities which offer fixed rates of return.
Balanced Funds invest in a combination of both stocks and bonds.
Money Market Funds for high stability of principal, liquidity and income.
Bond Funds, both tax-exempt and taxable funds to generate income.
Specialty/Sector Funds to diversify holdings within an industry.
Equity Funds
Aggressive Growth Funds What they invest in:
These funds seek maximum growth of capital
with
secondary
emphasis
on
dividend or interest income. They invest in common stocks with a high potential for rapid growth and capital appreciation. Because they invest in stocks which can experience wide swings up or down, these funds have a relatively low stability of principal. They often invest in the stocks of small emerging growth companies and generally
provide
low
current
income
because these companies usually reinvest their profits in their businesses and pay small dividends, if any. Aggressive growth funds generally incur higher risks than growth funds in an effort to secure more pronounced growth. These funds may invest in a broad range of industries or concentrate on one or more industry sectors. Some use borrowing, short-selling, options and other speculative strategies to
26
leverage their results. Suitable for:
Investors who can assume the risk of potential loss in value of their investment in the hope of achieving substantial and rapid gains. They are not suitable for investors
who
must
conserve
their
principal or who must maximize current income.
Growth Funds What they invest in:
Generally invest in stocks for growth rather than current income. Growth funds are more likely to invest in wellestablished companies where the company itself and the industry in which it operates are thought to have good long-term growth potential. Growth funds provide low current income, but the investor's principal is more stable than it would be in an
aggressive
growth
fund.
While
the
growth
potential may be less over the short term, many growth funds have superior long-term performance records. They are less likely than aggressive growth funds to invest in smaller companies which may provide short-term substantial gains at the risk of Suitable for:
substantial declines. Although growth funds are more conservative than aggressive growth funds, they are still relatively volatile.
They
are
suitable
for
growth-oriented
investors but not investors who are unable to assume risk or who are dependent on maximizing current income from their investments.
27
International/Global Funds What they International funds seek growth through investments invest in: in companies outside the United States. Global funds seek growth by investing in securities around the world, including the United States. Both provide investors with another opportunity to diversify their mutual fund portfolio, since foreign markets do not always move in the same direction as the U.S. The best way to invest abroad is through mutual funds, rather than direct investment in a foreign security. Most investors are unfamiliar with foreign investment practices and currencies and may not have a clear understanding of how economic or political events can affect foreign securities. An investor in an international mutual fund doesn't have to worry about trading practices, recordkeeping, time zones or other laws and customs of a foreign country -- that is all handled by the fund's money manager. International and global funds can invest in common stocks or bonds of foreign firms and governments. Many international funds invest in a particular country or region of the world. Suitable for:
While
international
and
global
funds
offer
opportunities for growth and diversification, these types of funds do carry some additional risks over domestic funds and should be carefully evaluated and selected according to the investor's objectives, timeframe
and
risk
profile.
Because
most
international and global funds are considered to be aggressive growth funds or growth funds, investors must be willing to assume the risk of potential loss in
28
value in the hope of achieving substantial gains. They are not suitable for investors who must conserve their principal or maximize current income. Growth and Income Funds What they invest in: Growth and income funds seek long-term growth of capital as well as current income. The investment strategies used to reach these goals vary among funds Some invest in a dual portfolio consisting of growth stocks and income stocks, or a combination of growth stocks, stocks paying high dividends, preferred stocks, convertible securities or fixed-income securities such as corporate
bonds
and
money
market
instruments. Others may invest in growth stocks and earn current income by selling covered
call
options
on
their
portfolio
stocks. Growth and income funds have low to
Suitable for:
moderate stability of principal and moderate potential for current income and growth. They are suitable for investors who can assume some risk to achieve growth of capital but who also want to maintain a moderate level of current income. Fixed-Income Funds What they invest in:
The goal of fixed income funds is to provide high current income consistent with the preservation of capital. Growth of capital is of secondary importance Income funds that invest primarily in common stocks are classified as equity income funds (see next listing). Those that invest primarily in bonds and preferred stocks are classified as fixed-income funds.
29
These
funds
invest
in
corporate
bonds
or
government-backed mortgage securities that have a fixed
rate
of
return.
Since bond prices fluctuate with changing interest rates, there is some risk involved despite the fund's conservative nature. When interest rates rise, the market price of fixed-income securities declines and so will the value of the income funds' investments. Conversely, in periods of declining interest rates, the value of fixed-income funds will rise and investors will enjoy capital appreciation as well as income Fixed-income funds offer a higher level of current income than money market funds, but a lower stability of principal. They are generally more stable in price than funds that invest in stocks. Within the fixed-income category, funds vary greatly in their stability of principal and in their dividend yields. High-yield funds, which seek to maximize yield by investing in lower-rated bonds of longer maturities, entail less stability of principal than fixed-income funds that invest in higher-rated but lower-yielding securities. Some fixed-income funds seek to minimize risk by investing exclusively in securities whose timely payment of interest and principal is backed by the full faith and credit of the U.S. Government. These include securities issued by the U.S. Treasury, the Government National Mortgage Association ("Ginnie Mae" securities), the Federal National Mortgage Association ("Fannie Maes") and Federal Home Loan Mortgage Suitable for:
Corporation
("Freddie
Macs").
All
are
backed by pools of mortgages. Fixed-income funds are suitable for investors who want to maximize current income and who can
30
assume a degree of capital risk in order to do so. Again, carefully read the prospectus to learn if a fund's investment policy with respect to yield and risk coincides with your own objectives.
Balanced/Equity Income funds What they invest in:
Equity income funds seek high current yield by investing primarily in equity securities of companies which pay high dividends. Unlike interest payments on bonds, dividends on equity securities can change as companies raise or lower their dividends. Since yield-oriented
stocks
are
more
volatile
than
comparably rated fixed-income securities, equity income funds offer less stability of principal than fixed-income funds. Balanced funds are more evenly Suitable for:
invested in equities and income securities. Balanced and equity income funds are suitable for conservative investors who want high current yield with some growth.
Money Market Funds What they invest in:
For the cautious investor, these funds provide a very high stability of principal while seeking a moderate to high current income. They invest in highly-liquid, virtually agencies
risk-free, of
the
short-term debt U.S.
Government,
securities banks
of and
corporations and U.S. Treasury Bills. They have no potential for capital appreciation. Tax-exempt money market funds invest in securities that provide safety of principal, liquidity and income
31
exempt from federal income taxes by investing in short-term,
high-rated
municipal
obligations.
Because of their short-term investments, money market mutual funds are able to keep a constant share price; only the yield fluctuates. Therefore, they are an attractive alternative to bank accounts. With yields that are generally competitive with -- and usually somewhat higher than -- yields on bank certificates of deposit (CDs), they offer several advantages: •
Money can be withdrawn any time without penalty. Money market funds also offer check writing privileges.
•
Although not insured by the FDIC or FSLIC, money market funds invest only in highlyliquid, short-term, top-rated money market instruments.
•
Money
market
funds
are
suitable
for
conservative investors who want high stability of principal and moderate current income with immediate liquidity.
Suitable for:
Money market funds are suitable for conservative investors who want high stability of principal and moderate current income with immediate liquidity.
Municipal Bond Funds What invest in:
they "Muni" bond funds provide higher tax-exempt income than tax-exempt money market funds by investing in longer-maturity (and often lower-rated) securities,
32
which generally offer higher yields than the shortterm, high-rated securities in which tax-exempt money market funds invest Municipal bond funds vary greatly in the quality and maturity of the municipal bonds they invest in. The longer the maturity, the higher the yield. Also, the lower the credit rating of the issuer, the greater the risk and the higher the yield While municipal bond funds generally provide lower yields than income funds with debt obligations of similar maturities and ratings, for an investor in a high marginal tax bracket the after-tax yields of municipal bond funds will be higher. The price and yield
of
municipal
bond
funds
will
fluctuate
moderately with interest rates. As interest rates decline, the value of principal increases while yield decreases; as rates increase, bond prices decline but Suitable for:
yields increase. Suitable for investors in medium to higher tax brackets who want current income free from federal income tax.
Double & Triple Tax-Exempt Bond Funds What invest in:
they These bond funds provide the investor with an even greater tax advantage by investing in municipal bonds of a single state. Triple tax-exempt funds are exempt from income tax in a specific city. Thus they generate income exempt from not only federal income tax but also from state and/or city income tax for residents of those jurisdictions. Like all bond funds, the value of the shares will fluctuate with
33
interest rates, as will the current yield. Also, the stability of principal and yield levels vary with the quality and maturity length of the bonds in which the funds invest. Lack of geographic diversification increases credit risk of these funds compared with Suitable for:
national funds. These funds are suitable for investors in medium to high tax brackets in high tax states who want income with maximum exemption from taxes.
Specialty/Sector Funds What they invest in:
These funds invest in securities of a specific industry or sector of the economy such as health care, high technology, leisure, utilities or precious metals Because such funds invest primarily in one sector, they do not offer the element of downside risk protection found in mutual funds that invest in a broad range of industries. However, the funds do enable investors to diversify holdings among many companies within an industry, a more conservative approach than investing directly in one particular company Sector funds offer the opportunity for sharp capital gains in cases where the fund's industry is "in favor" but also entail the risk of capital losses when the industry is out of favor While sector funds restrict holdings to a particular industry, other specialty funds such as index funds
34
give investors a broadly-diversified portfolio and attempt to mirror the performance of various market averages. Index funds generally buy shares in all the companies composing the S&P 500 Stock Index or other broad stock market indices Asset allocation funds move funds among a variety of markets and instruments in response to the fund manager's view of relative market prospects. They are broadly diversified and sometimes have higher management fees since there may be a variety of securities in the portfolio. These funds are suitable for investors who can tolerate a moderate to high degree of risk, are seeking capital appreciation and to
whom
dividend
income
is
secondary
in
importance. And whatever the instruments, social responsibility funds apply moral and ethical as well Suitable for:
as economic principles in the selection of securities. Specialty funds are suitable for investors seeking to invest in a particular industry who can monitor industry performance regularly and alter investment strategies accordingly. Investors must be willing to assume the risk of potential loss in value of their investment in the hope of achieving substantial gains. They are not suitable for investors who must conserve their principal or maximize current income.
BENEFITS OF MUTUAL FUNDS 1) Professional Investment Management: By pooling the funds of thousands of investors, mutual funds provide full-time, high-level professional management that few individual investors can afford to obtain independently. Such management is vital to achieving results in today's complex markets. Your fund managers' interests are tied to yours, 35
because
their
compensation
is
based
not
on
sales
commissions, but on how well the fund performs. These managers have instantaneous access to crucial market information and are able to execute trades on the largest and most cost-effective scale. In short, managing investments is a full-time job for professionals. 2) Diversification: Mutual funds invest in a broad range of securities. This limits investment risk by reducing the effect of a possible decline in the value of any one security. Mutual fund shareowners can benefit from diversification techniques usually available only to investors wealthy enough to buy significant positions in a wide variety of securities. 3) Low Cost: If you tried to create your own diversified portfolio of 50 stocks, you'd need at least $100,000 and you'd pay thousands of dollars in commissions to assemble your portfolio. A mutual fund lets you participate in a diversified portfolio for as little as $1,000, and sometimes less. And if you buy a no-load fund, you pay or no sale charges to own them. 4)
Convenience and Flexibility: You own just one security rather than many, yet enjoy the benefits of a diversified portfolio and a wide range of services. Fund managers decide what securities to trade, clip the bond coupons, collect the interest payments and see that your dividends on portfolio securities are received and your rights exercised. It's easy to purchase and redeem mutual fund shares, either directly online or with a phone call.
5)
Quick, Personalized Service: Most funds now offer extensive websites with a host of shareholder services for immediate access to information about your fund account. Or a phone call puts you in touch with a trained investment specialist at a mutual fund company who can provide information you can use to make your own investment choices, assist you with buying and selling your fund shares, and answer questions about your account status.
36
6)
Ease of Investing: You may open or add to your account and conduct transactions or business with the fund by mail, telephone or bank wire. You can even arrange for automatic monthly investments by authorizing electronic fund transfers from your checking account in any amount and on a date you choose. Also, many of the companies featured at this site allow account transactions online.
7) Total Liquidity, Easy Withdrawal: You can easily redeem your shares anytime you need cash by letter, telephone, bank wire or check, depending on the fund. Your proceeds are usually available within a day or two. 8) Life Cycle Planning: With no-load mutual funds, you can link your investment plans to future individual and family needs -- and make changes as your life cycles change. You can invest in growth funds for future college tuition needs, then move to income funds for retirement, and adjust your investments as your needs change throughout your life. With no-load funds, there are no commissions to pay when you change your investments. 9) Market Cycle Planning: For investors who understand how to actively manage their portfolio, mutual fund investments can be moved as market conditions change. You can place your funds in equities when the market is on the upswing and move into money market funds on the downswing or take any number of steps to ensure that your investments are meeting your needs in changing market climates. A word of caution: since it is impossible to predict what the market will do at any point in time, staying on course with a long-term, diversified investment view is recommended for most investors. 10) Investor Information: Shareholders receive regular reports from the funds, including details of transactions on a year-to-date basis. The current net asset value of your shares (the price at which you may purchase or redeem them) appears in the mutual fund price
37
listings of daily newspapers. You can also obtain pricing and performance results for the all mutual funds at this site, or it can be obtained by phone from the fund. 11) Periodic Withdrawals: If you want steady monthly income, many funds allow you to arrange for monthly fixed checks to be sent to you, first by distributing some or all of the income and then, if necessary, by dipping into your principal. 12) Dividend Options: You can receive all dividend payments in cash. Or you can have them reinvested in the fund free of charge, in which case the dividends are automatically compounded. This can make a significant contribution to your long-term investment results. With some funds you can elect to have your dividends from income paid in cash and your capital gains distributions reinvested. 13) Automatic Direct Deposit: You can usually arrange to have regular, third-party payments -- such as Social Security or pension checks -- deposited directly into your fund account. This puts your money to work immediately, without waiting to clear your checking account, and it saves you from worrying about checks being lost in the mail. 14) Recordkeeping Service: With your own portfolio of stocks and bonds, you would have to do your own recordkeeping of purchases, sales, dividends, interest, short-term and long-term gains and losses. 15) Safekeeping: When you own shares in a mutual fund, you own securities in many companies without having to worry about keeping stock certificates in safe deposit boxes or sending them by registered mail. You don't even have to worry about handling the mutual fund stock certificates; the fund maintains your account on its books and sends you periodic statements keeping track of all your transactions. 16) Retirement and College Plans: Mutual funds are well suited to Individual Retirement Accounts and most funds offer IRA-approved
38
prototype and master plans for individual retirement accounts (IRAs) and Keogh, 403(b), SEP-IRA and 401(k) retirement plans. Funds also make it easy to invest -- for college, children or other long-term goals. Many offer special investment products or programs tailored specifically for investments for children and college. 17) Online Services: The internet provides a fast, convenient way for investors to access financial information. A host of services are available to the online investor including direct access to no-load companies. 18) Sweep Accounts: With many funds, if you choose not to reinvest your stock or bond fund dividends, you can arrange to have them swept into your money market fund automatically. You get all the advantages of both accounts with no extra effort. 19) Asset Management Accounts: These master accounts, available from many of the larger fund groups, enable you to manage all your financial service needs under a single umbrella from unlimited check writing and automatic bill paying to discount brokerage and credit card accounts. 20) Margin: Some mutual fund shares are marginable. You may buy them on margin or use them as collateral to borrow money from your bank or broker. Call your fund company for details.
MARKET TRENDS Alone UTI with just one scheme in 1964, now competes with as many as 400 odd products and 34 players in the market. In spite of the stiff competition and losing market share, UTI still remains a formidable force to reckon with. Last six years have been the most turbulent as well as exiting ones for the industry. New players have come in, while others have 39
decided to close shop by either selling off or merging with others. Product innovation is now passé with the game shifting to performance delivery in fund management as well as service. Those directly associated with the fund management industry like distributors, registrars and transfer agents, and even the regulators have become more mature and responsible. The industry is also having a profound impact on financial markets. While UTI has always been a dominant player on the bourses as well as the debt markets, the new generation of private funds which have gained substantial mass are now seen flexing their muscles. Fund managers, by their selection criteria for stocks have forced corporate governance on the industry. By rewarding honest and transparent management with higher valuations, a system of risk-reward has been created where the corporate sector is more transparent then before. Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCG and technology sector. Funds performances are improving. Funds collection, which averaged at less than Rs100bn per annum over five-year period spanning 1993-98 doubled to Rs210bn in 1998-99. In the current year mobilization till now have exceeded Rs300bn. Total collection for the current financial year ending March 2000 is expected to reach Rs450bn.
What is particularly noteworthy is that bulk of the mobilization has been by the private sector mutual funds rather than public sector mutual funds. Indeed private MFs saw a net inflow of Rs. 7819.34 crore during the first nine months of the year as against a net inflow of Rs.604.40 crore in the case of public sector funds.
40
Mutual funds are now also competing with commercial banks in the race for retail investor’s savings and corporate float money. The power shift towards mutual funds has become obvious. The coming few years will show that the traditional saving avenues are losing out in the current scenario. Many investors are realizing that investments in savings accounts are as good as locking up their deposits in a closet. The fund mobilization trend by mutual funds in the current year indicates that money is going to mutual funds in a big way. The collection in the first half of the financial year 1999-2000 matches the whole of 1998-99. India is at the first stage of a revolution that has already peaked in the U.S. The U.S. boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund assets are not even 10% of the bank deposits, but this trend is beginning to change. Recent figures indicate that in the first quarter of the current fiscal year mutual fund assets went up by 115% whereas bank deposits rose by only 17%. (Source: Thinktank, The Financial Express September, 99)
This is forcing a large
number of banks to adopt the concept of narrow banking wherein the deposits are kept in Gilts and some other assets which improves liquidity and reduces risk. The basic fact lies that banks cannot be ignored and they will not close down completely. Their role as intermediaries cannot be ignored. It is just that Mutual Funds are going to change the way banks do business in the future.
41
COMPARISON OF BANKS, MUTUAL FUNDS, EQUITY & DERIVATIVES BANKS Returns Administra tive exp. Risk Investmen t options Network High
EQUITY
DERIVATIVES
Low High
MUTUAL FUNDS Better Low
Better Low
Better Low
Low Less
Moderate More
High More
High Less
Low but improving Better Transparent
High penetration Better Transparent
High penetration Better -
Everyday
NA
NA
None
NA
NA
penetration
Liquidity At a cost Quality of Not transparent assets Interest Minimum balance calculation between 10th. & 30th. Of every month
Guarantee
Maximum Rs.1 lakh on deposits
RECENT TRENDS IN MUTUAL FUND INDUSTRY The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and
42
the decline of the companies floated by nationalized banks and smaller private sector players. Many nationalized banks got into the mutual fund business in the early nineties and got off to a good start due to the stock market boom prevailing then. These banks did not really understand the mutual fund business and they just viewed it as another kind of banking activity. Few hired specialized staff and generally chose to transfer staff from the parent organizations. The performance of most of the schemes floated by these funds was not good. Some schemes had offered guaranteed returns and their parent organizations had to bail out these AMCs by paying large amounts of money as the difference between the guaranteed and actual returns. The service levels were also very bad. Most of these AMCs have not been able to retain staff, float new schemes etc. and it is doubtful whether, barring a few exceptions, they have serious plans of continuing the activity in a major way. The experience of some of the AMCs floated by private sector Indian companies was also very similar. They quickly realized that the AMC business is a business, which makes money in the long term and requires deep-pocketed support in the intermediate years. Some have sold out to foreign owned companies, some have merged with others and there is general restructuring going on. The foreign owned companies have deep pockets and have come in here with the expectation of a long haul. They can be credited with introducing many new practices such as new product innovation, sharp improvement in service standards and disclosure, usage of technology, broker education and support etc.
In fact, they have forced the industry to upgrade itself and service levels of organizations like UTI have improved dramatically in the last few years in response to the competition provided by these.
43
SELECTING FUNDS FOR YOUR PORTFOLIO The chart below can be used to identify the types of funds best suited to your particular investment objectives. Refer to it as you begin to formulate your portfolio. If Your Basic Objective Is
You Want The Following Fund Type
These Funds Potential Potential Potential Invest Capital Current Risk Primarily In Appreciation Income
Common stocks with potential for Aggressive Maximum very rapid Growth Capital growth. May Growth employ International certain aggressive strategies Growth High Capital Growth
Specialty/ Sector International
Current Income & Growth & Capital Income Growth
Common stocks with long-term growth potential
Very High
Very Low
High to Very High
High to Very Very Low High High
Common stocks with potential for high Moderate dividends and capital appreciation
Moderate
Moderate to High
High Current Income
Fixed Income Both highdividendVery Low Equity paying stocks Income and bonds
High to Low to Very High Moderate
Current Income & Protection of Principal
General Money Market Funds
None
Moderate Very Low to High
None
Moderate Low to High
Money market instruments
Tax-Free Short-term Income & Tax-Exempt municipal Protection Money notes and of Market bonds Principal
44
Current Income & Maximum Safety of Principal
U.S.Treasury U.S. and agency Government issues None Money guaranteed Market by the U.S. Government
Moderate Low to High
FUTURE SCENARIO The asset base will continue to grow at an annual rate of about 30 to 35 % over the next few years as investor’s shift their assets from banks and other traditional avenues. Some of the older public and private sector players will either close shop or be taken over. Out of ten public sector players five will sell out, close down or merge with stronger players in three to four years. In the private sector this trend has already started with two mergers and one takeover. Here too some of them will down their shutters in the near future to come. But this does not mean there is no room for other players. The market will witness a flurry of new players entering the arena. There will be a large number of offers from various asset management companies in the time to come. Some big names like Fidelity, Principal, and Old Mutual etc. are looking at Indian market seriously. One important reason for it is that most major players already have presence here and hence these big names would hardly like to get left behind.
The
mutual
fund
industry
is
awaiting
the
introduction
of
derivatives in India as this would enable it to hedge its risk and this in turn would be reflected in its Net Asset Value (NAV). SEBI is working out the norms for enabling the existing mutual fund schemes to trade in derivatives. Importantly, many market players have called on the Regulator to initiate the process immediately, so that
45
the mutual funds can implement the changes that are required to trade in Derivatives.
PROBLEMS & PROSPECTS OF MUTUAL FUNDS 1)
Wrong positioning : The mutual funds in India have been quite wrongly promoted as an alternative to equity industry. Thus creating very high expectations in the minds of the investors. In a falling market, these expectations have been belied. Only the pure equity schemes can be compared with the stock market index. However pure equity schemes are few in India, further, investment is not purely linked to a particular index. Therefore returns form mutual funds cannot really be compared with stock market index.
2)
Limited product range: Indian mutual funds have remained centered around a limited product range basically income, incomecum-growth and tax saving schemes. Efforts to develop and expand the market through innovative new products have been negligible. These have happened due to the tendency to avoid risk, inability to understand future market developments, and change in investor preference. Therefore the extent of mutual funds market has remained limited.
3)
Confused market situation: probably the introduction and implementation of new regulatory norms has contributed in some measure to market sluggishness, as the emerging market was, initially, not able to respond to the regulatory objectives.
4)
Absence of Innovative Marketing Network: The absence of product diversification and a confused market situation has been made worse by the absence of an innovative marketing network for
46
mutual funds. The agent oriented network has largely been failure because most of the agents have not been specifically trained to sell mutual funds products, 5) Lack of adequate research infrastructure: the passive approach of some mutual funds in managing investor’s funds is compounded by the lack of adequate research infrastructure. Consequently, returns commensurate with the market movement could not be realized by many schemes, which has tended to show up Indian mutual funds in a bad light. 6) Inefficient management: Management is considered to be a key factor for the operational efficiency of any business venture. This factor becomes even more crucial for service ventures such as mutual funds. What mutual funds require are managers who have a clear understanding of prevailing and emerging market potential, investor preference and macro economic fundamentals. 7)
Lack of investor’s education: The market success of any new product particularly a financial product depends largely on its acceptance by consumers, in this case investors. Mutual funds must undertake a well design and comprehensive program of investor education especially aimed at investors in rural and semi-urban areas. However this has been mostly neglected in India.
8)
Lack of media support: investors understanding about mutual funds product and it feature must be increased as it was found to be very low so far. This problem requires quick and structured attention. This can be solved with effective use of media. A positive media support is also required and mutual funds need to be media friendly. A very closer coordination between AMFI, mutual funds and the media to promote investor education in India.
47
9)
Ignorance of liquidity management: over emphasis on asset management has often ignored the crucial importance of liability management in mutual funds, leading many Indian funds into a liquidity trap at the time of redemption. A more scientific approach needs to be adopted by the funds.
10) Risk management ignored: Derivatives have been widely used by the mutual funds as a measure of risk management as a complex and competitive market place. Further the practice of stock lending, used widely in the western market has induced efficiency in funds management a regulatory environment for mutual funds need to encouraged this practices in India.
INTRODUCTION ON EQUITY SHARES Equity is a term commonly used to describe the ordinary share capital of the business. Ordinary share in the equity capital of the business entitle the holders to all distributed profits after the holders of debentures and preference shares have been paid. Ordinary shares are issued to the owners of the company. It is important to understand the market values of company’s shares have little relationship to their
48
nominal or face value. The market value of the company share is determined by the price another investor is prepared to pay for them. In the case of publicly quoted companied, this is reflected in the market value of the ordinary shares traded on the stock exchange. In case of privately owned companies, where there is unlikely to be much trading in shares, market value is often determined when the business is sold or when the minority share holding is valued for taxation purpose. Differed ordinary shares are a form of ordinary shares which are entitled to a dividend only after a certain date or only if profits rise above a certain amount. Voting rights might also differ from those attach to other ordinary shares. Financing a company through the sale of stock in accompany is known as equity financing. Alternatively debt financing can be done to avoid giving up shares of ownership of the company. Equity financing are usually used for longer term investment projects such as investment in a new factory or a new foreign market. Equity investment generally refers to the buying and holding of shares of stock on a stock market by individuals and funds in anticipation of income from dividends and capital gain as the value of stock rises. It also sometimes refers to the acquisition of equity (ownership) participation in a private (unlisted) company or a start up. (A company being created or newly created). When the investment is in infant companies it is refer to as venture capital investing and is generally understood to be higher risk than investment in listing, going concern situations.
ON INDEX INTRODUCTION Stock market talk is everywhere, from T.V and radio, to the newspapers and the web. But what does it mean? When people say that “the market turned a great performance today”. “What is the market anyway?” As it turns out, when most people talk about “the market” they are actually referring to an index. With the growing importance of the stock 49
market in our society the names of indexes such as S & P 500, NIFTY, and SENSEX have become part of our every vocabulary. Index can be defined as “a statistical measure of changes in the portfolio of stocks representing the portion of the overall market.” It would be difficult to track every single security trading in the country. To get around this we take a smaller sample of the market that is representative of the whole. Thus, just a pollster’s use a political survey to gauge the sentiment of population, the investors use indexes to track the performance of the stock market. Ideally change in price of an index would represent and exactly proportionate change in the stocks included in the index. Indexes are great tools for telling us what direction the market is taking, what trends are prevailing. “An index is a number use to represent the changes in a set of values between a base time period and another time period” A stock index is number that helps you measure the levels of the market. Most stock indexes attempt to be proxies for the market they exist in. returns on the index are thus supposed to represent the returns on the market i.e the returns that u could get if u had the entire market in your portfolio.
50
CHAPTER – 3 COMPANY PROFILE
COMPANY PROFILE OVERVIEW Karvy is a premier integrated financial services provider, and ranked among the top five in the country in all its business segments, services over 16 million individual investors in various capacities, and provides investor services to over 300 corporate, comprising the who is
51
who of Corporate India. Karvy covers the entire spectrum of financial services such as Stock broking, Depository Participants, Distribution of financial products - mutual funds, bonds, fixed deposit, equities, Insurance Broking, Commodities Broking, Personal Finance Advisory Services, Merchant Banking & Corporate Finance, placement of equity, IPO’s, among others. Karvy has a professional management team and ranks among the best in technology, operations and research of various industrial segments.
KARVY -IN EARLY DAYS The birth of Karvy was on a modest scale in 1981. It began with the vision and enterprise of a small group of practicing Chartered Accountants who founded the flagship company Karvy Consultants Limited. We started with consulting and financial accounting automation, and carved inroads into the field of registry and share accounting by 1985. Since then, we have utilized our experience and superlative expertise to go from strength to strength…to better our services, to provide new ones, to innovate, diversify and in the process, evolved Karvy as one of India’s premier integrated financial service enterprise.
Thus over the last 20 years Karvy has traveled the success route, towards building a reputation as an integrated financial services provider, offering a wide spectrum of services. And we have made this journey by taking the route of quality service, path Breaking innovations in service, versatility in service and finally…totality in service. Our highly qualified manpower, cutting-edge technology, comprehensive infrastructure and total customer-focus has secured for us the position of an emerging financial services giant enjoying the confidence and support of an enviable clientele across diverse fields in the financial world.
52
Our values and vision of attaining total competence in our servicing has served as the building block for creating a great financial enterprise, which stands solid on our fortresses of financial strength - our various companies. With the experience of years of holistic financial servicing behind us and years of complete expertise in the industry to look forward to, we have now emerged as a premier integrated financial services provider. And today, we can look with pride at the fruits of our mastery and experience – comprehensive financial services that are competently segregated to service and manage a diverse range of customer requirements
KARVY - CREDO OUR FOCUS OUR CLIENTS Clients are the reason for our being. Personalized service, professional care; pro-activeness are the values that help us nurture enduring relationships with our clients.
RESPECT FOR INDIVIDUAL Each and every individual is an essential building block of our organization. We are the kiln that hones individuals to perfection. Be they our employees, shareholders or investors. We do so by upholding their dignity & pride, inculcating trust and achieving a sensitive balance of their professional and personal lives. TEAM WORK
53
None of us is more important than all of us. Each team member is the face of Karvy. Together we offer diverse services with speed, accuracy and quality to deliver only one product: excellence. contributions
Transparency, for
a
co-operation,
collective
goal,
and
invaluable
individual
respecting
individual
uniqueness within a corporate whole, are how we deliver again and again. RESPONSIBLE CITIZENSHIP A social balance sheet is as rewarding as a business one. As a responsible corporate citizen, our duty is to foster a better environment in the society where we live and work. Abiding by its norms, and behaving responsibly towards the environment, are some of our growing initiatives towards realizing it.
INEGRITY Everything else is secondary. Professional and personal ethics are our bedrock. We take pride in an environment that encourages honesty and the opportunity to learn from failures than camouflage them. We insist on consistency between works and actions.
KARVY ALLIANCES
54
Karvy Computer share Private Limited is a 50:50 joint venture of Karvy Consultants Limited and Computer share Limited, Australia. Computer share Limited is world's largest -- and only global -- share registry, and a leading financial market services provider to the global securities industry. The joint venture with Computer share, reckoned as the largest registrar in the world, servicing over 60 million shareholder accounts for over 7,000 corporations across eleven countries spread across five continents. Computer share manages more than 70 million shareholder accounts for over 13,000 corporations around the world. Karvy Computer share Private Limited, today, is India's largest Registrar and Share Transfer Agent servicing over 300 corporate and mutual funds and 16 million investors.
MILESTONE
55
ACHIEVEMENTS Among the top 5 stock brokers in India (4% of NSE volumes) India's No. 1 Registrar & Securities Transfer Agents Among the to top 3 Depository Participants Largest Network of Branches & Business Associates ISO 9002 certified operations by DNV Among top 10 Investment bankers Largest Distributor of Financial Products Adjudged as one of the top 50 IT uses in India by MIS Asia Full Fledged IT driven operations
56
QUALITY POLICY To achieve and retain leadership, Karvy shall aim for complete customer satisfaction, by combining its human and technological resources, to provide superior quality financial services. In the process, Karvy will strive to exceed Customer's expectations.
QUALITY OBJECTIVES As per the Quality Policy, Karvy will:
Build in-house processes that will ensure transparent and
harmonious relationships with its clients and investors to provide high quality of services.
Establish a partner relationship with its investor service agents
and vendors that will help in keeping up its commitments to the customers.
Provide high quality of work life for all its employees and equip
them with adequate knowledge & skills so as to respond to customer's needs.
Continue to uphold the values of honesty & integrity and strive to
establish unparalleled standards in business ethics.
Use state-of-the art information technology in developing new and
innovative financial products and services to meet the changing needs of investors and clients.
57
Strive to be a reliable source of value-added financial products and
services and constantly guide the individuals and institutions in making a judicious choice of same.
Strive to keep all stake-holders (shareholders, clients, investors,
employees, suppliers and regulatory authorities) proud and satisfied.
KARVY STOCK BROKING LIMITED Member - National Stock Exchange (NSE), The Bombay Stock Exchange (BSE), and The Hyderabad Stock Exchange (HSE). Karvy Stock Broking Limited, one of the cornerstones of the Karvy edifice, flows freely towards attaining diverse goals of the customer through varied services. Creating 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.
STOCK BROKING SERVICES It is an undisputed fact that the stock market is unpredictable and yet enjoys a high success rate as a wealth management and wealth accumulation option. The difference between unpredictability and a safety anchor in the market is provided by in-depth knowledge of market functioning and changing trends, planning with foresight and choosing one option with care. This is what we provide in our Stock Broking services.
58
We offer services that are beyond just a medium for buying and selling stocks and shares. Instead we provide services which are multi dimensional and multi-focused in their scope. There are several advantages in utilizing our Stock Broking services, which are the reasons why it is one of the best in the country. We offer trading on a vast platform; National Stock Exchange, Bombay Stock
Exchange and Hyderabad Stock
Exchange.
More
importantly, we make trading safe to the maximum possible extent, by accounting for several risk factors and planning accordingly. We are assisted in this task by our in-depth research, constant feedback and Sound advisory facilities. Our highly skilled research team, comprising of technical analysts as well as fundamental specialists, secure resultoriented information on market trends, market analysis and market predictions. This crucial information is given as a constant feedback to our customers, through daily reports delivered thrice daily; The Pre-session Report, where market scenario for the day is predicted, The Mid-session Report, timed to arrive during lunch break, where the market forecast for the rest of the day is given and The Post-session Report, the final report for the day, where the market and the report itself is reviewed. To add to this repository of information, we publish a monthly magazine & ldquo; Karvy;
59
The Finapolis & rdquo;, which analyzes the latest stock market trends and takes a close look at the various investment options, and products available in the market, while a weekly report, called & ldquo; Karvy Bazaar Baatein & rdquo;, keeps you more informed on the immediate trends in the stock market. In addition, our specific industry reports give comprehensive information on various industries. Besides this, we also offer special portfolio analysis packages that provide daily technical advice on scrip for successful portfolio management and provide customized advisory services to help you make the right financial moves that are specifically suited to your portfolio. Our Stock Broking services are widely networked across India, with the number of our trading terminals providing retail stock broking facilities. Our services have increasingly offered customer oriented convenience, which we provide to a spectrum of investors, high-net worth or otherwise, with equal dedication and competence. But true to our spirit, this success is not our final destination, but just a platform to launch further enhanced quality services to provide you the latest in convenient, customer-friendly stock management. Over the years we have ensured that the trust of our customers is our biggest returns. Factors such as our success in the Electronic custody business has helped build on our tradition of trust even more. Consequentially our retail client base expanded very fast. To empower the investor further we have made serious efforts to ensure that our research calls are disseminated systematically to all our stock broking clients through various delivery channels like email, chat, SMS, phone calls etc.
60
Our foray into commodities broking has been path breaking and we are in the process of converting existing traders in commodities into the more organized mainstream of trading in commodity futures, both as a trading and risk hedging mechanism. In the future, our focus will be on the emerging businesses and to meet this objective, we have enhanced our manpower and revitalized our knowledge base with enhances focus on Futures and Options as well as the commodities business.
DEPOSITORY SERVICES The onset of the technology revolution in financial services Industry saw the emergence of Karvy as an electronic custodian registered with National Securities Depository Ltd (NSDL) and Central Securities Depository Ltd (CSDL) in 1998. Karvy set standards enabling further comfort to the investor by promoting paperless trading across the country and emerged as the top 3 Depository Participants in the country in terms of customer serviced. Offering a wide trading platform with a dual membership at both NSDL and CDSL, we are a powerful medium for trading and settlement of dematerialized shares. We have established live DPMs, Internet access to accounts and an easier transaction process in order to offer more convenience
to
individual
and
corporate
investors.
A
team
of
professional and the latest technological expertise allocated exclusively to our demat division including technological enhancements like SPEEDe; make our response time quick and our delivery impeccable. A wide national network makes our efficiencies accessible to all.
61
DISTRIBUTION OF FINANCIAL PRODUCTS The paradigm shift from pure selling to knowledge based selling drives the business today. With our wide portfolio offerings, we occupy all segments in the retail financial services industry. A 1600 team of highly qualified and dedicated professionals drawn from the best of academic and professional backgrounds are committed to maintaining high levels of client service delivery. This has propelled us to a position among the top distributors for equity and debt issues with an estimated market share of 15% in terms of applications mobilized, besides being established as the leading procurer in all public issues. To further tap the immense growth potential in the capital markets we enhanced the scope of our retail brand, Karvy – the Finapolis, thereby providing planning and advisory services to the mass affluent. Here we understand the customer needs and lifestyle in the context of present earnings and provide adequate advisory services that will necessarily help in creating wealth. Judicious planning that is customized to meet the future needs of the customer deliver a service that is exemplary. The market-savvy and the ignorant investors, both find this service very satisfactory. The edge that we have over competition is our portfolio of offerings and our professional expertise. The investment planning for each customer is done with an unbiased attitude so that the service is truly customized. Our monthly magazine, Finapolis, provides up-dated market information on market trends, investment options, opinions etc. Thus empowering the investor to base every financial move on rational thought and prudent analysis and embark on the path to wealth creation.
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ADVISORY SERVICES Under our retail brand ‘Karvy – the Finapolis', we deliver advisory services to a cross-section of customers. The service is backed by a team of dedicated and expert professionals with varied experience and background in handling investment portfolios. They are continually engaged in designing the right investment portfolio for each customer according to individual needs and budget considerations with a comprehensive support system that focuses on trading customers' portfolios and providing valuable inputs, monitoring and managing the portfolio through varied technological initiatives. This is made possible by the expertise we have gained in the business over the years. Another venture towards being investor-friendly is the circulation of a monthly magazine called ‘Karvy - the Finapolis'. Covering the latest of market news, trends, investment schemes and research-based opinions from experts in various financial fields.
PRIVATE CLIENT GROUP This specialized division was set up to cater to the high net worth individuals and institutional clients keeping in mind that they require a different kind of financial planning and management that will augment not just existing finances but their life-style as well. Here we follow a hard-nosed business approach with the soft touch of dedicated customer care and personalized attention. For this purpose we offer a comprehensive and personalized service that encompasses planning and protection of finances, planning of business needs and retirement needs and a host of other services, all provided on a one-to-one basis.
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CHAPTER – 4 ANALYSIS & INTERPRETATION
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ANALYSIS & INTERPRETATION PREFACE The analysis is done to know whether, Mutual fund, is it investor’s best choice.
The information is collected of different sectors which
include FMCG Sector, , Pharma Sector and Index sector. The returns of selected Mutual funds and selected Equities are calculated for 3&6 months and 1year period. Equities closing price are also given for half year and annually. The information collected is shown in graphical form to make it more simple and easy to understand by the Reader.
The information regarding all Mutual Funds and Equities is
given in the Table. The Analysis is done by comparing the Particular Sector Mutual Funds with Equities and also with Relative Sensex and Nifty, index of BSE and NSE. The average of Particular Sector Mutual Funds and Equities is taken and returns are calculated. Let us take for example, In FMCG Sector the Returns of ICICI Prudential FMCG Fund, Franklin FMCG fund and Magnum FMCG Fund are added and then divided by 3 hence the average is taken as returns of FMCG Mutual Funds in the same way Returns of HLL Equity, Dabur Equity, Colgate Equity, Tata tea Equity and Britannia Equity are also added and divided by 5 and the average is taken as the returns of FMCG sector Equities. The Returns of Relative Sensex and Nifty is Calculated and then the Analysis is done to know the position of Mutual Funds in the market in long term and short term period. The period of 3 months and 6 months is taken as short term and period of 1 year is taken as long term period. The comparison of aggregate Mutual Funds and Equities is shown in Table.
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FMCG – SECTOR MUTUAL FUNDS & EQUITIES (TABLE :4.1) RETURNS OF FMCG SECTOR EQUITIES & MUTUAL FUNDS Absolute returns %
NAME Franklin FMCG Fund Pru ICICI FMCG Fund Magnum FMCG Fund Hind Lever ltd Equity Dabur equity Colgate Equity Britannia Equity Tata tea Equity
3 MONTHS 15.12 0.57 0.21 0.84 -0.82 0.72 0.0019 0.014
6 MONTHS
1 YEAR
-9.9 0.30 0.04 0.95 0.38 0.48 0.08 0.05
55.20 0.12 0.10 0.84 0.01 0.79 0.0013 0.06
RETURNS OF EQUITIES (BAR DIAGRAM – 4.1) RETURNS OF MUTUAL FUNDS & EQUITIES
RETURNS OF FMCGSECTOR EQUITIES & MUTUAL FUNDS 60
Franklin FMCG Fund
40
Pru ICICI FMCG Fund
20 0 -20
66
1
2
3
Magnum FMCG Fund
60 50 Franklin FMCG Fund
40 30
Pru ICICI FMCG Fund
20 10
Magnum FMCG Fund
0 1
-10
2
3
-20
1.2 1 0.8 0.6 0.4 0.2 0 -0.2 -0.4 -0.6 -0.8 -1
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Series1 Series2 Hind Lever ltd Equity
Dabur equity
Colgate Equity
Britannia Equity
Tata tea Equity
Series3
60 50 40
Equity
-20
Britannia
-10
equity
Series3
0
Dabur
10 FMCG
Series2 Magnum
20
FMCG
Series1
Franklin
30
60
50
40
30
Series1 Series2 Series3
20
10
0 Franklin FMCG Fund
Pru ICICI FMCG Fund
Magnum FMCG Fund
Hind Lever ltd Equity
Dabur equity
Colgate Equity
-10
-20
(TABLE :4.1A)
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Britannia Equity
Tata tea Equity
FMCG MUTUAL FUNDS VS EQUITIES & RELATIVE INDEX ABSOLUTE RETURNS IN % NAME
3 MONTHS
6 MONTHS
FMCG SECTOR MUTUAL FUNDS
0.15
0.10
FMCG SECTOR EQUITIES
0.023
0.019
0.017
RELATIVE TO SENSEX
594.13
1476.18
1725.89
RELATIVE TO NIFTY
6561.00
9965.46
9830.72
1 YEAR 0.55
FMCG Mutual Funds includes Franklin FMCG Fund, Prudential ICICI
FMCG Fund and Magnum FMCG fund.
FMCG Equities includes Hindustan lever ltd, Dabur, Colgate, Tata
Tea and Britannia
ABSOLUTE RETURNS OF MUTUAL FUNDS AND EQUITIES 0.6 0.5 FMCG SECTOR MUTUAL FUNDS
0.4 0.3
FMCG SECTOR EQUITIES
0.2
(LINE DIAGRAM 4.1)
0.1 0 1
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2
3
ABSOLUTE RETURNS OF INDEX 12000 10000 RELATIVE TO SENSEX
8000 6000
RELATIVE TO NIFTY
4000 2000 0 1
2
3
ABSOLUTE RETURNS OF INDEX 12000 10000 RELATIVE TO SENSEX
8000 6000
RELATIVE TO NIFTY
4000 2000 0 1
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2
3
(ANALYSIS) As observed from the Table, we can say that ICICI Prudential FMCG Fund, Franklin FMCG Fund and Magnum FMCG Fund Gives good Return. The Bar diagram representation makes it very clear. In FMCG Equities from Table and Bar Diagram we can see that Hindlever gives maximum Returns then any other Equities. The next comes Colgate and TataTea which gives almost the same Returns. Tata tea Equities shows good Returns only in long term period Whereas Dabur gives Negative Returns in short term period.. The Returns of individual Mutual Fund of FMCG Sector in particular period is summed up and then average is taken as the Returns of FMCG Mutual Funds. In the same manner individual Equity is summed up and the average is taken as FMCG Equities. These aggregated Mutual funds and Equities are now compared in Table with the Nifty and Sensex, the Index of NSE and BSE. FMCG Mutual funds, as observed from the Table and
Line
Diagram grows rapidly. FMCG Equities show very good Returns in long term and short term period i.e. in 3 & 6 months and 1 years period . But Dabur shows negative returns in 3 months from the Table . When comparison is made between Mutual Funds and Equities, Returns are not similar in both short term and long term period as we can see clearly from the Line Diagram .
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As Sensex and Nifty grows in the Market, FMCG Mutual Funds shows upward trend where as equities shows down ward. Both Sensex and Nifty is
going at
different level having different
Exchanges. We can see Mutual Funds , Equities , Nifty and Sensex all together in the line Diagram . Overall Performance of Equities and Mutual Funds is not satisfactory, mutual funds shows better yieldings compare to equities. Equities shows negative returns. If investor don’t want to take risk then he must go for Mutual funds as we can observe form the Table that in individual Equity sometimes returns are negative for example in Dabur Equity, but in Mutual Funds we can see negative Returns but compare to equities mutual funds are risk minimising.
PHARMA-SECTOR MUTUAL FUNDS & EQUITIES (TABLE :4.4) HIGH/LOW & RETURNS OF PHARMA SECTOR EQUITIES & MFS ABSOLUTE RETURS % NAME
3MONTHS
Franklin Pharma Fund Magnum Pharma Fund UTI Pharma & health fund
Dr Reddy’s Equity Ranbaxy Equity Orchid equity Cipla equity Sun Pharma Equity
0.07 0.29 0.08 0.083 0.027 0.013 0.025 0.022
6MONTHS 0.05 -0.74 0.01 0.072 0.027 -0.012 0.029 0.024
(BAR DIAGRAM) RETURNS OF MUTUAL FUNDS
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1 YEAR 0.46 -0.02 0.27 0.062 0.042 0.010 0.26 0.030
0.6 0.4
Franklin Pharma Fund
0.2 0 -0.2
1
2
3
Magnum Pharma Fund UTI Pharma & health fund
-0.4 -0.6 -0.8
(BAR DIAGRAM) RETURNS OF MUTUAL FUNDS 0.6 0.4
Franklin Pharma Fund
0.2 0 -0.2 -0.4 -0.6
1
2
3
Magnum Pharma Fund UTI Pharma & health fund
-0.8
(BAR DIAGRAM 4.8) RETURNS OF EQUITIES
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0.3
0.25
0.2
0.15 Series1 Series2 Series3 0.1
0.05
0 Dr Reddy’s Equity
Ranbaxy Equity
Orchid equity
Cipla equity
Sun Pharma Equity
-0.05
60
50
40
30
Series1 Series2 Series3
20
10
0 Franklin FMCG Fund -10
-20
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Pru ICICI FMCG Fund
Magnum FMCG Fund
Hind Lever ltd Equity
Dabur equity
Colgate Equity
Britannia Equity
Tata tea Equity
0.6
0.4
0.2
0 Franklin Pharma Fund
Magnum Pharma Fund
UTI Pharma & health fund
Dr Reddy’s Equity
Ranbaxy Equity Orchid equity
Cipla equity
Sun Pharma Equity
Series1 Series2 Series3
-0.2
-0.4
-0.6
-0.8
(TABLE :4.4A) PHARMA – SECTOR MUTUAL FUNDS VS EQUITIES & RELATIVE INDEX ABSOLUTE RETURNS IN % NAME
3 MONTHS
6 MONTHS
1 YEAR
PHARMA MUTUAL FUNDS
0.44
0.80
0.75
PHARMA EQUITIES
0.17
0.16
0.40
RELATIVE TO SENSEX
594.13
1476.18
1725.89
RELATIVE TO NIFTY
6561.00
9965.46
9830.72
Pharma Sector Mutual Funds include UTI Pharma & Healthcare
Fund, Franklin Pharma Fund, Magnum Pharma Fund.
Pharma Sector Equities includes Dr Reddy Labs, Ranbaxy, orchid
and cipla Sun Pharma.
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0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0
PHARMA MUTUAL FUNDS PHARMA EQUITIES
1
2
3
(LINE DIAGRAM 4.4)
0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0
PHARMA MUTUAL FUNDS PHARMA EQUITIES
1
2
3
12000 10000 RELATIVE TO SENSEX
8000 6000
RELATIVE TO NIFTY
4000 2000 0 1
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2
3
12000 10000 RELATIVE TO SENSEX
8000 6000
RELATIVE TO NIFTY
4000 2000 0 1
2
3
ABSOLUTE RETURNS OF MUTUAL FUNDS, EQUITIES & INDEX
350
300
ABSOLUTE RETURNS
250
200
PHARMA MF PHARMA EQUITIES RELATIVE SENSEX RELATIVE NIFTY
150
100
50
0 3 MTHS
6 MTHS
1 YR PERIOD
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3 YRS
(ANALYSIS) Pharma Sector fund, as, we can see clearly that all Mutual Funds performance in long term period and short term period is very good. From Table we can also see that Dr Reddy’s Equity, Sun Pharma Equity and Ranbaxy & cipla equit also performs well. But we can also notice that Pharma Sector Equity such as
orchid gives
negative Returns in the period of 6months . In the same way equity also gives very poor Returns during the study period. The Returns of individual Mutual Fund of Pharma-sector in particular period is summed up and then average is taken as the Returns of Pharma Sector Mutual Funds. In the same way individual Equity are summed up and average is taken as Pharma Sector Equities. These aggregated Mutual funds and Equities are now compared in Table with the Nifty and Sensex . Pharma Sector Mutual Funds performs well in both short term and long term period as noticed form the Table. But sbi pharma sector shows negetive returns
in 6months and 1 year. equities gives good
Returns in short term but in short term Orchid Equity shows negative returns in 6 months. When Both Pharma Sector Mutual Funds and Equities are compared, Mutual Funds perform better than Equities in long term period. In short term Equities gives good result but in lone term the performance shows downward trend as we can observe from the Line Diagram .
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As relative Sensex and Nifty grows in the Market, Pharma Sector Mutual Funds also shows upward trend but Equities does not show any upward trend in long term period as we can clearly observe in the Line Diagram showing Comparison between Mutual Funds, Equities, Sensex and Nifty.
In long and short Pharma Sector Mutual Funds performs better than Pharma Sector Equities. It is advisable to invest in Pharma Sector Mutual Fund rather than Equity, because we can notice from the Line Diagram that Equities does not show any upward trend with the growth in Mutual Funds, Sensex, and Nifty as we have seen from Table that Individual Pharma Equity gives negative Returns whereas the case is never done with Mutual Funds.
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CHAPTER - 5 CONCLUSIONS & SUGGESTIONS
CONCLUSIONS & SUGGESTIONS •
The Mutual funds shows better yields compare to equities.
•
Even though mutual funds shows in short term negative returns but it is better to invest in mutual funds.
•
in fmcg sector franklin fmcg fund shows negative returns in 6 months.
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•
In pharma sector sbi mutual fund shows negative returns both in short & long term.
•
In fmcg sector in short term dabur gives negative returns in 3 months.
•
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In pharma sector orchid shows negative returns in 6 months.
CHAPTER - 6 BIBILIOGRAPHY
I. TEXT BOOK 1.
Security Analysis Portfolio Management Donald Fisher Ronald A Jordan
2.
Mutual Fund In India H.Sadhak
II.
WEB SITES www.mutualfundsindia.com www.amfiindia.com www.utimf.com
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www.bseindia.com
III. MAGAINES Business India Business World
IV. NEWS PAPERS Economic Times Business Standard.
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