EXECUTIVES SUMMARY

The evaluation of financial planning has been increased through decades, which is best seen in customer rise. Now a days investment of saving has assumed great importance. According to the study of the markets, it is being observed that markets are doing well in Mutual fund & ULIP. In near future a proper financial planning is required to invest money in all type of financial product because there is good potential in market to invest. In this project the great emphasis is given to the investors mind in respect to investment in Mutual Fund & ULIP .The needs and wants of the client is taken into consideration. I hope KARVY, Yavatmal will recognize this as well as take more references from this project report. The main objective of this project is to know the Awareness of Mutual Fund among investors and also to know the investing pattern of people in different financial aspect.

CHAPTER 1. INTRODUCTION

1.1 -INTRODUCTION TO STUDY

The field of investment traditionally divided into security analysis and portfolio management. The heart of security analysis is valuation of financial assets. Value in turn is the function of risk and return. These two concepts are in the study of investment .Investment can be defined the commitment of funds to one or more assets that will be held over for some future time period. In today fast growing world many opportunities are available, so in order to move with changes and grab the best opportunities in the field of investments a professional fund manager is necessary. Therefore, in the present scenario the Portfolio management (PM) is fast gaining importance as an investment alternative for the High Networth Investors. Portfolio management (PM) is an investment portfolio in stocks, fixed income, debt, cash, structured products and other individual securities, managed by a professional money manager that can potentially be tailored to meet specific investment objectives. When you invest in PM, you own individual securities unlike a mutual fund investor, who owns units of the entire fund. You have the freedom and flexibility to tailor your portfolio to address personal preferences and financial goals. Although portfolio managers may oversee hundreds of portfolio, your account may be unique.

1.2 -INTRODUCTION TO STOCK EXCHANGE

The emergence of stock market can be traced back to 1830. In Bombay, business passed in the shares of banks like the commercial bank, the chartered mercantile bank, the chartered bank, the oriental bank and the old bank of Bombay and shares of cotton presses. In Calcutta, Englishman reported the quotations of 4%, 5%, and 6% loans of East India Company as

well as the shares of the bank of Bengal in 1836. This list was a further broadened in 1839 when the Calcutta newspaper printed the quotations of banks like union bank and Agra bank. It also quoted the prices of business ventures like the Bengal bonded warehouse, the Docking Company and the storm tug company. Between 1840 and 1850, only half a dozen brokers existed for the limited business. But during the share mania of 1860-65, the number of brokers increased considerably. By 1860, the number of brokers was about 60 and during the exciting period of the American Civil war, their number increased to about 200 to 250. The end of American Civil war brought disillusionment and many Failures and the brokers decreased in number and prosperity. It was in those troublesome times between 1868 and 1875 that brokers organized an informal association and finally as recited in the Indenture constituting the Articles of Association of the Exchange. On or about 9th day of July,1875, a few native brokers doing brokerage business in shares and stocks resolved upon forming in Bombay an association for protecting the character, status and interest of native share and stock brokers and providing a hall or building for the use of the Members of such association. As a meeting held in the broker Hall on the 5th day of February, 1887, it was resolved to execute a formal deal of association and to constitute the first managing committee and to appoint the first trustees. Accordingly, the Articles of Association of the Exchange and the Stock Exchange was formally established in Bombay on 3rd day of December, 1887. The Association is now known as The Stock Exchange.

The entrance fee for new member was Re.1 and there were 318 members on the list, when the exchange was constituted. The numbers of members increased to 333 in 1896, 362 in 1916and 478 in 1920 and the entrance fee was raised to Rs.5 in 1877, Rs.1000 in 1896, Rs.2500 in 1916 and Rs. 48,000 in 1920. At present there are 23 recognized stock exchanges with about 6000 stock brokers. Organization structure of stock exchange varies. 14 stock exchanges are organized as public limited companies, 6 as companies limited by guarantee and 3 are non-profit voluntary organization. Of the total of 23, only 9 stock exchanges have been permanent recognition. Others have to seek recognition on annual basis. These exchange do not work of its own, rather, these are run by some persons and with the help of some persons and institution. All these are down as functionaries on stock exchange. These are: i. Stockbrokers ii. Sub-broker iii.Market makers iv. Portfolio consultants etc.

1. Stockbrokers: Stock brokers are the members of stock exchanges. These are the persons who buy, sell or deal in securities. A certificate of registration from SEBI is mandatory to act as a broker. SEBI can impose certain conditions while granting the certificate of registrations. It is obligatory for the person to abide by the rules, regulations and the buy-law. Stock brokers are commission broker, floor broker, arbitrageur etc.

2. Sub-broker: A sub-broker acts as agent of stock broker. He is not a member of a stock exchange. He assists the investors in buying, selling or dealing in securities through stockbroker. The broker and sub-broker should enter into an agreement in which obligations of both should be specified. Sub-broker must be registered SEBI for a dealing in securities. For getting registered with SEBI, he must fulfill certain rules and regulation. 3. Market Makers: Market maker is a designated specialist in the specified securities. They make both bid and offer at the same time. A market maker has to abide by bye-laws, rules regulations of the concerned stock exchange. He is exempt from the margin requirements. As per the listing requirements, a company where the paid-up capital is Rs. 3 Crore but not more than Rs. 5 core and having a commercial operation for less than 2 years should appoint a market maker at the time of issue of securities. 4. Portfolio Consultants: A combination of securities such as stocks, bonds and money market instruments is collectively called as portfolio. Whereas the portfolio consultants are the persons, firms or companies who advise, direct or undertake the management or administration of securities or funds on behalf of their clients.Traditionally stock trading is done through stock brokers, personally or through telephones. As number of people trading in stock market increase enormously in last few years, some issues like location constrains, busy phone lines, miss communication etc start growing in stock broker offices. Information technology (Stock Market Software) helps stock brokers in solving these problems with Online Stock Trading.

Online Stock Market Trading is an internet based stock trading facility. Investor can trade shares through a website without any manual intervention from Stock Broker. There are two different type of trading environments available for online equity trading. 1. Installable software based Stock Trading Terminals This trading environment requires software to be installed on investors computer. This software is provided by the stock broker. This software requires high speed internet connection. These kind of trading terminals are used by high volume intraday equity traders. 2.Web (Internet) based trading application This kind of trading environment doesn't require any additional software installation. They are like other internet websites which investor can access from around the world through normal internet connection.Stock exchanges are like market places, where stockbrokers buy and sell securities for individuals or institutions. As per the SCRA (Securities Contracts Regulation Act) 1956, the definition of securities includes shares, bonds, stocks, debentures, government securities, derivatives of securities, units of collective investment scheme (CIS) etc. The securities market has two interdependent segments: the primary and secondary market. The primary market is the channel for creation of new securities issued by public limited companies or by government agencies. New securities issued in the primary market are traded in the secondary market. The secondary market operates through the over-the-counter (OTC) market and the exchange trade market.

CHAPTER 2. COMPANY PROFILE

2.1 -INTRODUCTION ABOUT COMPANY

In 1982, a group of Hyderabad-based practicing Chartered Accountants started Karvy Computer share Private Ltd., with a capital of Rs.1,50,000 offering auditing and taxation services initially. Later, it forayed into the Registrar and Share Transfer activities and subsequently into financial services. All along, Karvy's strong work ethic and professional background leveraged with Information Technology enabled it to deliver qualityz. A decade of commitment, professional integrity and vision helped Karvy achieve a leadership position in its field when it handled the largest number of issues ever handled in the history of the Indian stock market in a year. Thereafter, Karvy made inroads into a host of capital-market services, corporate and retail - which proved to be a sound businessynergy. Today, Karvy has access to millions of Indian shareholders, besides companies, banks, financial institutions and regulatory agencies. Over the past one and half decades, Karvy has evolved as a veritable link between industry, finance and people. In January 1998, Karvy became the first Depository Participant in Andhra Pradesh. An ISO 9002 company, Karvy's commitment to quality and retail reach has made it an integrated financial services company. 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.

2.2 -COMPANIES ACHEIVEMENTS

Among the top 5 stock brokers in India (4% of NSE volumes) India's No. 1 Registrar & Securities Transfer Agents Among the 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 Largest mobilized of funds as per PRIME DATABASE First ISO - 9002 Certified Registrar in India A Category- I -Merchant banker. A Category- I -Registrar to Public Issues.

2.3 -KARVY GROUP OF COMPANIES

Indias No.1 integrated financial services group

Karvy Group
Direct Member Comm Insura broker ship with oditie nce Stock IRDA 2 Brokin s registrati exchang Broking on g es received NCDEX / in Jan MCX 2005

Distribution

Depository

NSE and BSE membership Equity, Derivatives and Debt market operations 600+ terminals 220,000+ accounts Around 4.5% market share (NSE Cash)

Mutual Funds IPOs Equity, Bonds Debt products Loans Housing, Personal, Auto

Participant with both NSDL and CDSL 640,000+ accounts Amongst the top DPs in the country

Investment Banking
Category 1 Investment Banker registered with SEBI Among top 10 Investment bankers in India IPOs, Debt placements, Corporate restructuring etc.

CHAPTER 3. RESEARCH METHODOLOGY

3.1 -OBJECTIVE OF THE PROJECT

Each research study has its own specific purpose. It is like to discover to Question through the application of scientific procedure. But the main aim of our research to find out the truth that is hidden and which has not been discovered as yet. Our research study has two objectives:-

OBJECTIVES
To know the concept of Portfolio Management.

To know about the schemes offered by the different insurance companies, new IPOs, Mutual Funds.

To know in depth about Insurance, Mutual Funds, Stock, Bonds etc. To know about the awareness towards stock brokers and share market. To study about the competitive position of Karvy Ltd in Competitive Market. To study about the effectiveness & efficiency of Karvy Ltd in relation to its competitors To study about whether people are satisfied with Karvy Services & Management System or not. To study about the difficulties faced by persons while Trading in Karvy. To study about the need of improvement in existing Trading system.

3.2 -Scope of the Study

The study of the Portfolio management is helpful in the following areas. In today's complex financial environment, investors have unique needs which are derived from their risk appetite and financial goals. But regardless of this, every investor seeks to maximize his returns on investments without capital erosion. Portfolio management (PM) recognize this, and manage the investments professionally to achieve specific investment objectives, and not to forget, relieving the investors from the day to day hassles which investment require. It is offers professional management of equity investment of the investor with an aim to deliver consistent return with an eye on risk. Identify the key Stock in each portfolio. To find out the Karvy, PM services effectiveness in the current situation.
It also covers the scenario of the Investment Philosophy of a Fund

Manager.

3.3 -RESEARCH DESISGN OF THE STUDY

This report is based on primary as well secondary data, however primary data collection was given more importance since it is overhearing factor in attitude studies. One of the most important users of research methodology is that it helps in identifying the problem, collecting, analyzing the required information data and providing an alternative solution to the problem .It also helps in collecting the vital information that is required by the top management to assist them for the better decision making both day to day decision and critical ones.

The study consists of analysis about Investors Perception about the Portfolio management offered by Karvy Limited. For the purpose of the study 100 customers were picked up at random and their views solicited on different parameters. The methodology adopted includes Questionnaire

Random sample survey of customers Discussions with the concerned

SOURCES OF DATA
Primary data: Questionnaire Secondary data: Published materials of Karvy Limited. Such as periodicals, journals, news papers, and website.

SAMPLING PLAN Sampling:

Since Karvy Limited has many segments I selected Portfolio management (PM) segment as per my profile to do market research. 100% coverage was difficult within the limited period of time. Hence sampling survey method was adopted for the purpose of the study.

Population:
(Universe) customers & non consumers of Karvy limited

Sampling size:

A sample of hundred was chosen for the purpose of the study. Sample consisted of Investor as based on their Income and Profession as well as Educational Background.

Sampling Methods:
Probability sampling requires complete knowledge about all sampling units in the universe. Due to time constraint non-probability sampling was chosen for the study.

Sampling procedure:
From large number of customers & non consumers sample lot were randomly picked up by me.

Field Study:
Directly approached respondents by the following strategies

Tele-calling Personal Visits Clients References Promotional Activities Database provided by the Karvy Limited.

3.4 -LIMITATION OF THE PROJECT

As only YAVATMAL was dealt in the survey so it does not represent

the view of the total Indian market. The sample size was restricted with hundred respondents. There was lack of time on the part of respondents.

The survey was carried through questionnaire and the questions were based on perception. There may be biasness in information by market participant. Complete data was not available due to company privacy and secrecy. Some people were not willing to disclose the investment profile.

CHAPTER 4. PORTFOLIO MANAGEMENT

PORTFOLIO MANGEMNT (PM)

Portfolio (finance) means a collection of investments held by an institution or a private individual. Holding a portfolio is often part of an investment and risk-limiting strategy called diversification. By owning several assets, certain types of risk (in particular specific risk) can be reduced. There are also portfolios which are aimed at taking high risks these are called concentrated portfolios. Investment management is the professional management of various securities (shares, bonds etc) and other assets (e.g. real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes e.g. mutual funds). The term asset management is often used to refer to the investment management of collective investments, whilst the more generic fund management may refer to all forms of institutional investment as well as investment management for private investors. Investment managers who specialize in advisory or discretionary management on behalf of (normally wealthy) private investors may often refer to their services as wealth management or portfolio management often within the context of so-called "private banking". The provision of 'investment management services' includes elements of financial analysis, asset selection, stock selection, plan implementation and ongoing monitoring of investments. Outside of the financial industry, the term "investment management" is often applied to investments other than financial instruments. Investments are often meant to include projects, brands, patents

and many things other than stocks and bonds. Even in this case, the term implies that rigorous financial and economic analysis methods are used.

4.1 -Need of PM
As in the current scenario the effectiveness of PM is required. As the PM gives investors periodically review their asset allocation across different assets as the portfolio can get skewed over a period of time. This can be largely due to appreciation / depreciation in the value of the investments. As the financial goals are diverse, the investment choices also need to be different to meet those needs. No single investment is likely to meet all the needs, so one should keep some money in bank deposits and / liquid funds to meet any urgent need for cash and keep the balance in other investment products/ schemes that would maximize the return and minimize the risk. Investment allocation can also change depending on ones risk-return profile.

4.2 OBJECTIVE OF PM
There are the following objective which is full filled by Portfolio management. Safety Of Fund: The investment should be preserved, not be lost, and should remain in the returnable position in cash or kind. Marketability: The investment made in securities should be marketable that means, the securities must Liquidity: be listed and traded in stock exchange so as to avoid difficulty in their encashment.

The portfolio must consist of such securities, which could be encashed without any difficulty or involvement of time to meet urgent need for funds. Marketability ensures liquidity to the portfolio. Reasonable return: The investment should earn a reasonable return to upkeep the declining value of money and be compatible with opportunity cost of the money in terms of current income in the form of interest or dividend. Appreciation in Capital: The money invested in portfolio should grow and result into capital gains. Tax planning: Efficient portfolio management is concerned with composite tax planning covering income tax, capital gain tax, wealth tax and gift tax. Minimize risk: - Risk avoidance and minimization of risk are important objective of portfolio management.

4.3 -PORTFOLIO CONSTRUCTION

The Portfolio Construction of Rational investors wish to maximize the returns on their funds for a given level of risk. All investments possess varying degrees of risk. Returns come in the form of income, such as interest or dividends, or through growth in capital values (i.e. capital gains). The portfolio construction process can be broadly characterized as comprising the following steps: 1. Setting objectives. The first step in building a portfolio is to determine the main objectives of the fund given the constraints (i.e. tax and liquidity requirements) that may apply. Each investor has different objectives, time horizons and attitude

towards risk. Pension funds have long-term obligations and, as a result, invest for the long term. Their objective may be to maximize total returns in excess of the inflation rate. A charity might wish to generate the highest level of income whilst maintaining the value of its capital received from bequests. An individual may have certain liabilities and wish to match them at a future date. Assessing a clients risk tolerance can be difficult. The concepts of efficient portfolios and diversification must also be considered when setting up the investment objectives. 2.Defining Policy. Once the objectives have been set, a suitable investment policy must be established. The standard procedure is for the money manager to ask clients to select their preferred mix of assets, for example equities and bonds, to provide an idea of the normal mix desired. Clients are then asked to specify limits or maximum and minimum amounts they will allow to be invested in the different assets available. The main asset classes are cash, equities, gilts/bonds and other debt instruments, derivatives, property and overseas asset

3. Applying portfolio strategy. At either end of the portfolio management spectrum of strategies are active and passive strategies. An active strategy involves predicting trends and changing expectations about the likely future performance of the various asset classes and actively dealing in and out of investments to seek a better performance. For example, if the manager expects interest rates to rise, bond prices are likely to fall and so bonds should be sold, unless this expectation is already factored into bond prices. At this stage, the active fund manager should also determine the style of the portfolio. For example, will the fund invest primarily in companies with large market capitalizations, in shares of companies

expected to generate high growth rates, or in companies whose valuations are low? A passive strategy usually involves buying securities to match a preselected market index. Alternatively, a portfolio can be set up to match the investors choice of tailor-made index. Passive strategies rely on diversification to reduce risk. Outperformance versus the chosen index is not expected. This strategy requires minimum input from the portfolio manager. In practice, many active funds are managed somewhere between the active and passive extremes, the core holdings of the fund being passively managed and the balance being actively managed. 4. Asset selections. Once the strategy is decided, the fund manager must select individual assets in which to invest. Usually a systematic procedure known as an investment process is established, which sets guidelines or criteria for asset selection. Active strategies require that the fund managers apply analytical skills and judgment for asset selection in order to identify undervalued assets and to try to generate superior performance. 5. Performance assessments. In order to assess the success of the fund manager, the performance of the fund is periodically measured against a pre-agreed benchmark perhaps a suitable stock exchange index or against a group of similar portfolios (peer group comparison). The portfolio construction process is continuously iterative, reflecting changes internally and externally. For example, expected movements in exchange rates may make overseas investment more attractive, leading to changes in asset allocation. Or, if many large-scale investors simultaneously decide to switch from passive to more active strategies, pressure will be put on the fund managers to offer more active funds.

Steps to Stock Selection Process

Types of assets
The structure of a portfolio will depend ultimately on the investors objectives and on the asset selection decision reached. The portfolio structure takes into account a range of factors, including the investors time horizon, attitude to risk, liquidity requirements, tax position and availability of

investments. The main asset classes are cash, bonds and other fixed income securities, equities, derivatives, property and overseas assets. Cash and cash instruments Cash can be invested over any desired period, to generate interest income, in a range of highly liquid or easily redeemable instruments, from simple bank deposits, negotiable certificates of deposits, commercial paper (short term corporate debt) and Treasury bills (short term government debt) to money market funds, which actively manage cash resources across a range of domestic and foreign markets. Cash is normally held over the short term pending use elsewhere (perhaps for paying claims by a non-life insurance company or for paying pensions), but may be held over the longer term as well. Returns on cash are driven by the general demand for funds in an economy, interest rates, and the expected rate of inflation. A portfolio will normally maintain at least a small proportion of its funds in cash in order to take advantage of buying opportunities. Bonds Bonds are debt instruments on which the issuer (the borrower) agrees to make interest payments at periodic intervals over the life of the bond this can be for two to thirty years or, sometimes, in perpetuity. Interest payments can be fixed or variable, the latter being linked to prevailing levels of interest rates. Bond markets are international and have grown rapidly over recent years. The bond markets are highly liquid, with many issuers of similar standing, including governments (sovereigns) and state-guaranteed organizations. Corporate bonds are bonds that are issued by companies. To assist investors and to help in the efficient pricing of bond issues, many bond issues are given ratings by specialist agencies such as Standard & Poors and Moodys. The highest investment grade is AAA, going all the way down to D, which is graded as in default. Depending on expected movements in future interest rates, the capital values of bonds fluctuate daily, providing investors

with the potential for capital gains or losses. Future interest rates are driven by the likely demand/ supply of money in an economy, future inflation rates, political events and interest rates elsewhere in world markets. Investors with short-term horizons and liquidity requirements may choose to invest in bonds because of their relatively higher return than cash and their prospects for possible capital appreciation. Long-term investors, such as pension funds, may acquire bonds for the higher income and may hold them until redemption for perhaps seven or fifteen years. Because of the greater risk, long bonds (over ten years to maturity) tend to be more volatile in price than medium- and short-term bonds, and have a higher yield. Equities Equity consists of shares in a company representing the capital originally provided by shareholders. An ordinary shareholder owns a proportional share of the company and an ordinary share carries the residual risk and rewards after all liabilities and costs have been paid. Ordinary shares carry the right to receive income in the form of dividends (once declared out of distributable profits) and any residual claim on the companys assets once its liabilities have been paid in full. Preference shares are another type of share capital. They differ from ordinary shares in that the dividend on a preference share is usually fixed at some amount and does not change. Also, preference shares usually do not carry voting rights and, in the event of firm failure, preference shareholders are paid before ordinary shareholders. Returns from investing in equities are generated in the form of dividend income and capital gain arising from the ultimate sale of the shares. The level of dividends may vary from year to year, reflecting the changing profitability of a company. Similarly, the market price of a share will change from day to day to reflect all relevant available information. Although not guaranteed, equity prices generally rise over time, reflecting general economic growth, and have been found over the long term to generate growing levels of income in excess of the rate of inflation. Granted, there may be periods of time, even

years, when equity prices trend downwards usually during recessionary times. Derivatives Derivative instruments are financial assets that are derived from existing primary assets as opposed to being issued by a company or government entity. The two most popular derivatives are futures and options. The extent to which a fund may incorporate derivatives products in the fund will be specified in the fund rules and, depending on the type of fund established for the client and depending on the client, may not be allowable at all. A futures contract is an agreement in the form of a standardized contract between two counterparties to exchange an asset at a fixed price and date in the future. The underlying asset of the futures contract can be a commodity or a financial security. Each contract specifies the type and amount of the asset to be exchanged, and where it is to be delivered (usually one of a few approved locations for that particular asset). Futures contracts can be set up for the delivery of cocoa, steel, oil or coffee. Likewise, financial futures contracts can specify the delivery of foreign currency or a range of government bonds. The buyer of a futures contract takes a long position, and will make a profit if the value of the contract rises after the purchase. The seller of the futures contract takes a short position and will, in turn, make a profit if the price of the futures contract falls. When the futures contract expires, the seller of the contract is required to deliver the underlying asset to the buyer of the contract. Regarding financial futures contracts, however, in the vast majority of cases no physical delivery of the underlying asset takes place as many contracts are cash settled or closed out with the offsetting position before the expiry date. An option contract is an agreement that gives the owner the right, but not obligation, to buy or sell (depending on the type of option) a certain asset for a specified period of time. A call option gives the holder the right to buy

the asset. A put option gives the holder the right to sell the asset. European options can be exercised only on the options expiry date. US options can be exercised at any time before the contracts maturity date. Option contracts on stocks or stock indices are particularly popular. Buying an option involves paying a premium; selling an option involves receiving the premium. Options have the potential for large gains or losses, and are considered to be high-risk instruments. Sometimes, however, option contracts are used to reduce risk. For example, fund managers can use a call option to reduce risk when they own an asset. Only very specific funds are allowed to hold options. Property Property investment can be made either directly by buying properties, or indirectly by buying shares in listed property companies. Only major institutional investors with long-term time horizons and no liquidity pressures tend to make direct property investments. These institutions purchase freehold and leasehold properties as part of a property portfolio held for the long term, perhaps twenty or more years. Property sectors of interest would include prime, quality, well-located commercial office and shop properties, modern industrial warehouses and estates, hotels, farmland and woodland. Returns are generated from annual rents and any capital gains on realization. These investments are often highly illiquid.

4.4 -RISK AND RISK AVERSION

Portfolio theory also assumes that investors are basically risk averse, meaning that, given a choice between two assets with equal rates of return they will select the asset with lower level of risk. For example, they purchased various type of insurance including life insurance, Health insurance and car insurance. The Combination of risk preference and risk aversion can be explained by an attitude toward risk that depends on the amount of money involved.

A discussion of portfolio or fund management must include some thought given to the concept of risk. Any portfolio that is being developed will have certain risk constraints specified in the fund rules, very often to cater to a particular segment of investor who possesses a particular level of risk appetite. It is, therefore, important to spend some time discussing the basic theories of quantifying the level of risk in an investment, and to attempt to explain the way in which market values of investments are determined Definition of Risk Although there is a difference in the specific definitions of risk and uncertainty, for our purpose and in most financial literature the two terms are used interchangeably. Composite risks involve the different risk as explained below:(1). Interest rate risk: It occurs due to variability cause in return by changes in level of interest rate. In long runs all interest rate move up or downwards. These changes affect the value of security. RBI, in India, is the monitoring authority which effectalises the change in interest rate. Any upward revision in interest rate affects fixed income security, which carry old lower rate of interest and thus declining market value. Thus it establishes an inverse relationship in the prize of security.

TYPES Cash equivalent Long term Bond

RISK EXTENT Less vulnerable to interest rate risk More vulnerable to interest rate risk.

(2) Purchasing power risk: It is known as inflation risk also. This risk emanates from the very fact that inflation affects the purchasing power adversely. Purchasing power risk is more in inflationary times in bonds and fixed income securities. It is desirable to invest in such securities during deflationary period or a period of decelerating inflation. Purchasing power risk is less in flexible income securities like equity shares or common stuffs where rise in dividend income offset increase in the rate of inflation and provide advantage of capital gains. (3) Business risk: Business risk emanates from sale and purchase of securities affected by business cycles, technological change etc. Business cycle affects all the type of securities viz. there is cheerful movement in boom due to bullish trend in stock prizes where as bearish trend in depression brings downfall in the prizes of all types of securities. Flexible income securities are nearly affected than fix rate securities during depression due to decline n the market prize. (4) Financial risk: Financial risk emanates from the changes in the capital structure of the company. It is also known as leveraged risk and expressed in term of debt equity ratio. Excess of debts against equity in the capital structure indicates the company to be highly geared or highly levered. Although leveraged companys earnings per share (EPS) are more but dependence on borrowing exposes it to the risk of winding up. For, its inability to the honor its commitments towards the creditors are most important.

Here it is imperative to express the relationship between risk and returwhich is depicted graphically below.

Maximize returns, minimize risks

4.5 -RISK VERSUS RETURN

Risk versus return is the reason why investors invest in portfolios. The ideal goal in portfolio management is to create an optimal portfolio derived from the best riskreturn opportunities available given a particular set of risk constraints. To be able to make decisions, it must be possible to quantify the degree of risk in a particular opportunity. The most common method is to use the standard deviation of the expected returns. This method measures spreads, and it is the possible returns of these spreads that provide the measure of risk. The presence of risk means that more than one outcome is possible. An investment is expected to produce different returns depending on the set of circumstances that prevail. For example, given the following for Investment A: Circumstance I II III IV It is possible to calculate: 1.The expected (or average) return Mean (average) = x = expected value (EV) = px Circumstanc e I II 10% 12% 0.2 0.3 2.0 3.6 Return(x) Probability(p) Px Return(x) 10% 12% 15% 19% Probability(p) 0.2 0.3 0.4 0.1

III IV

15% 19%

0.4 0.1

6.0 1.9

Expected Return (px) = 13.5%

2.The Standard deviation Standard deviation == p(x- x) 2

Also. Variance (VAR) is equal to the standard deviation squared or 2

Deviation from Circumstance Return Probability expected Return (x -x) I II III IV 10% 12% 15% 19% 0.2 0.3 0.4 0.1 -3.5% -1.5% +1.5% +5.5% p (x -x)2 2.45 0.68 0.90 3.03

VARAIANCE= 7.06

Standard deviation

() = Variance = 7.06 = 2.66%

The standard deviation is a measure of risk, whereby the greater the standard deviation, the greater the spread, and the greater the spread, the greater the risk. If the above exercise were to be performed using another investment that offered the same expected return, but a different standard deviation, then the following result might occur:

Plan Investment A Investment B

Expected Return 9% 9%

Risk(standard deviation) 2.5% 4.0%

Since both investments have the same expected return, the best selection of investment would be Investment A, which provides the lower risk. Similarly, if there are two investments presenting the same risk, but one has a higher return than the other, that investment would be chosen over the investment with the lower return for the same risk. In the real world, there are all types of investors. Some investors are completely risk averse and others are willing to take some risk, but expect a higher return for that risk. Different investors will also have different tolerances or threshold levels for riskreturn trade-offs i.e. for a given level of risk, one investor may demand a higher rate of return than another investor.

INDIFFERNCE CURVE Suppose the following situation exists

Plan Investment A Investment B

Expected Return 10% 20%

Risk(Standard Deviation) 5% 10%

The question to ask here is, does the extra 10% return compensate for the extra risk? There is no right answer, as the decision would depend on the particular investors attitude to risk. A particular investors indifference curve

can be ascertained by plotting what rate of return the investor would require for each level of risk to be indifferent amongst all of the investments. For example, there may be an investor who can obtain a return of 50% with zero risk and a return of 55 %with a risk or standard deviation of 5% who will be indifferent between the two investments. If further investments were considered, each with a higher degree of risk, the investor would require still higher returns to make all of the investments equally attractive. The investor being discussed could present the following as the indifference curve shown in Figure. Indifference Curve Expected Return 50% 55% 70% 100% 120% 230% Risk 0% 5% 10% 15% 18% 25%

Risk

Indifference curve

It could be the case that this investor would have different indifference curves given a different starting level of return for zero risk. The exercise would need to be repeated for various levels of riskreturn starting points. An entire set of indifference curves could be constructed that would portray a particular investors attitude towards risk

Indifference Curve

Utility scores
At this stage the concept of utility scores can be introduced. These can be seen as a way of ranking competing portfolios based on the expected return and risk of those portfolios. Thus if a fund manager had to determine which investment a particular investor would prefer, i.e. Investment A equaling a return of 10% for a risk of 5% or Investment B equaling a return of 20% for a risk of 10%, the manager would create indifference curves for that particular investor and look at the utility scores. Higher utility scores are assigned to portfolios or investments with more attractive riskreturn profiles. Although

several scoring systems are legitimate, one function that is commonly employed assigns a portfolio or investment with expected return or value EV and variance of returns 2the following utility value: U = EV 0.005A2 where: U = utility value A = an index of the investors aversion, (the factor of .005 is a scaling convention that allows expression of the expected return and standard deviation in the equation as a percentage rather than a decimal). Utility is enhanced by high expected returns and diminished by high risk. Investors choosing amongst competing investment portfolios will select the one providing the highest utility value. Thus, in the example above, the investor will select the investment (portfolio) with the higher utility value of 18.

Expected Return(EV) 10% 20%

Standard deviation() 5% 10%

Utility=EV-.005A2 10 0.005 *4 *25 = 9.5 20 0.005 *4 *100 = 18 (Assume A= 4 in this

case)

4.6 -PORTFOLIO DIVERSIFICATION

There are several different factors that cause risk or lead to variability in returns on an individual investment. Factors that may influence risk in any given investment vehicle include uncertainty of income, interest rates, inflation, exchange rates, tax rates, the state of the economy, default risk and liquidity risk (the risk of not being able to sell on the investment). In addition, an investor will assess the risk of a given investment (portfolio) within the context of other types of investments that may already be owned, i.e. stakes in pension funds, life insurance policies with savings components, and property.

One way to control portfolio risk is via diversification, whereby investments are made in a wide variety of assets so that the exposure to the risk of any particular security is limited. This concept is based on the old adage do not put all your eggs in one basket. If an investor owns shares in only one company, that investment will fluctuate depending on the factors influencing that company. If that company goes bankrupt, the investor might lose 100 per cent of the investment. If, however, the investor owns shares in several companies in different sectors, then the likelihood of all of those companies going bankrupt simultaneously is greatly diminished. Thus, diversification reduces risk. Although bankruptcy risk has been considered here, the same principle applies to other forms of risk.

RISK RETURN MATRIX

Covariance and Correlation

The goal is to hold a group of investments or securities within a portfolio potentially to reduce the risk level suffered without reducing the level of return. To measure the success of a potentially diversified portfolio, covariance and correlation are considered. Covariance measures to what degree the returns of two risky assets move in tandem. A positive covariance

means that the returns of the two assets move together, whilst a negative covariance means that they move in inverse directions.

Covariance

COV(x, y) = p(x-x) (y-y)

probability.

for two investments x and y, where p is the

Covariance is an absolute measure, and covariances cannot be compared with one another. To obtain a relative measure, the formula for correlation coefficient [r] is used.

Correlation coefficient

r=

COVxy xy

To illustrate the above, here is the example:

Circumstance

Probability

x-x

y-y

p(x-x) (y-y)
-0.7 0 0.9 -2.2
COVxy =-2.0

I II III IV

0.2 0.3 0.4 0.1

+1.0 0 +1.5 -4

-3.5 -1.5 +1.5 +5.5

For data regarding (y y), see earlier example. Assume that a similar exercise has been run for data regarding (x x). Assume the variance or 2 of x= 2.45, and the variance or 2 of y = 7.06. Thus, the correlation coefficient would be

-2.0

= -0.481

 2.45

*7.056

If, the same example is run again, but using a different set of numbers for y, a different correlation coefficient might result of say, 0.988. It can be concluded that a large negative correlation confirms the strong tendency of the two investments to move inversely. Perfect positive correlation:- (correlation coefficient = +1) occurs when the returns from two securities move up and down together in proportion. If these securities were combined in a portfolio, the offsetting effect would not occur. Perfect negative correlation:- (correlation coefficient = 1) takes place when one security moves up and the other one down in exact proportion. Combining these two securities in a portfolio would increase the diversification effect. Uncorrelated:- (correlation coefficient = 0) occurs when returns from two securities move independently of each other that is, if one goes up, the other may go up or down or may not move at all. As a result, the combination of these two securities in a portfolio may or may not create a diversification effect. However, it is still better to be in this position than in a perfect positive correlation situation. Unsystematic and systematic risk:As mentioned previously,

diversification diminishes risk: the more shares or assets held in a portfolio or in investments, the greater the risk reduction. However, it is impossible to eliminate all risk completely even with extensive diversification. The risk that remains is called market risk; the risk that is caused by general market influences. This risk is also known as systematic risk or non-diversifiable risk.

The risk that is associated with a specific asset and that can be abolished with diversification is known as unsystematic risk, unique risk or diversifiable risk.

Total risk = Systematic risk + Unsystematic risk Systematic risk = the potential variability in the returns offered by a security or asset caused by general market factors, such as interest rate changes, inflation rate movements, tax rates, state of the economy. Unsystematic risk = the potential variability in the returns offered by a security or asset caused by factors specific to that company, such as profitability margins, debt levels, quality of management, susceptibility to demands of customers and suppliers. As the number of assets in a portfolio increases, the total risk may decline as a result of the decline in the unsystematic risk in that portfolio. The relationship amongst these risks can be quantified as follows

TR2 = SR2 + UR2 or 2i = s2 + u2

Where:

= the investments total risk (standard deviation) s = the investments systematic risk u =the investments unsystematic risk. The correlation coefficient between two investment opportunities can be expressed as:

s = i CORim
Where, s = the investment systematic risk i = the investments total risk (systematic and unsystematic)

CORim = the correlation coefficient between the return of the investment and those of the market. If an investment were perfectly correlated to the market so that all its movements could be fully explained by movements in market, then all of the risk would be systematic & i =
s If

an investment were not correlated at all

to the market, then all of its risk would be un

4.7 -TECHNOQUES OF PORTFOLIO MANAGEMENT

Various types of portfolio require different techniques to be adopted to achieve the desired objectives. Some of the techniques followed in India by portfolio managers are summarized below.

(1). Equity portfolioEquity portfolio is affected by internal and external factors: (a) Internal factors Pertain to the inner working of the particular company of which equity shares are held. These factors generally include: (1) Market value of shares (2) Book value of shares (3) Price earnings ratio (P/E ratio) (4) Dividend payout ratio (b) External factors (1) Government policies (2) Norms prescribed by institutions (3) Business environment (4) Trade cycles

(2). Equity stock analysis

The basic objective behind the analysis is to determine the probable future value of the shares of the concerned company. It is carried out primarily fewer than two ways. : (a) Earnings per share (b) Price earnings ratio (A) Trend of earning: A higher price-earnings ratio discount expected profit growth.

Conversely, a downward trend in earning results in a low price-earnings ratio to discount anticipated decrease in profits, price and dividend. Rising EPS causes appreciation in price of shares, which benefits investors in lower tax brackets? Such investors have not pay tax or to give lower rate tax on capital gains. Many institutional investor like stability and growth and support high EPS. Growth of EPS is diluted when a company finances internally its expansion program and offers new stock.

EPS increase rapidly and result in higher P/E ratio when a company finances its expansion program from internal sources and borrowings without offering new stock.

(B) Quality of reported earning: Quality of reported earnings affects P/E ratio. The factors that affect the quality of reported earnings are as under:

 Depreciation allowances: Larger (Non Cash) deduction for depreciation provides more funds to company to finance profitable expansion schemes internally. This builds up future earning power of company.

Research and development outlets: There is higher P/E ratio for a company, which carries R&D programs. R&D enhances profit earning strength of the company through increased future sales.

Inventory and other non-recurring type of profit: Low cost inventory may be sold at higher price due to inflationary conditions among profit but such profit may not always occur and hence low P/E ratio. (C) Dividend policy: Dividend policy is significant in affecting P/E ratio. With higher dividend ratio, equity price goes up and thus raises P/E ratio. Dividend rates are raised to push in share prices up. Dividend cover is calculated to find out the time the dividend is protected, In terms of earnings. It is calculated as under: Dividend Cover = EPS / Dividend per Share (D) Investors demand: Demand from institutional investors for equity also enhances the P/E ratio.

(3) Quality of management: -

Investors decide about the ability and caliber of management and hold and dispose of equity academy. P/E ratio is more where a company is managed by reputed entrepreneurs with good past records of management performance.

Types of Portfolios
The different types of Portfolio which is carried by any Fund Manager to maximize profit and minimize losses are different as per their objectives .They are as follows. 1.Aggressive Portfolio: Objective: Growth. This strategy might be appropriate for investors who seek High growth and who can tolerate wide fluctuations in market values, over the short term.

2.Growth Portfolio:

Objective: Growth. This strategy might be appropriate for investors who have a preference for growth and who can withstand significant fluctuations in market value.

3.Balanced Portfolio: Objective: Capital appreciation and income. This strategy might be

appropriate for investors who want the potential for capital appreciation and some growth, and who can withstand moderate fluctuations in market values

4.Conservative Portfolio:

Objective: Income and capital appreciation. This strategy may be appropriate for investors who want to preserve their capital and minimize fluctuations in market value.

CHAPTER 5. DATA ANALYSIS & INTERPRETATION

1. Do you know about the Investment Option available?

Interpretation As the above table shows the knowledge of Investor out of 100 respondent carried throughout the YAVATMAL Area is only 85%. The remaining 15% take his/her residential property as an investment. According to law purpose this is not an investment because of it is not create any profit for the owner. The main problem is that in this time from year 2008-2009 , the recession and the Inflation make the investor think before investing a even a Rs. 100.So , it also create the problem for the Investor to not take interest in Investment option.

2. What is the basic purpose of your Investments?

Interpretation As with the above analysis, it is found 75% people are interested in liquidity, returns and tax benefits. And remaining 25% are interested in capital appreciations, risk covering, and others. In the entire respondent it is common that this time everyone is looking for minimizing the risk and maximizing their profit with the short time of period. As explaining them About the Portfolio management of Karvy, they were quite interested in Protech Services.

3. What is the most important factor you consider at the time of Investment?

Interpretation As the above analysis gives the clear idea that most of the Investors considered the market factor as around 12% for Risk and 23% Return, but most important common things in all are that they are even ready for taking both Risk and Return in around 65% investor. Moreover, the Market is fluctuating now days, so as it also getting improvement. So, Investor are looking for Investment in long term and Shortterm.

4. From which option you will get the best returns?

Interpretation Most of the respondents say they will get more returns in Share Market. Since Share Market is said to be the best place to invest to get more returns. The risk in the investment is also high. Similarly, the Investor are more Interested in Investing their money in Mutual Fund Schemes as that is also very important financial product due to its nature of minimizing risk and maximizing the profit. As the commodities market is doing well from last few months so Investor also prefer to invest their money in Commodities Market basically in GOLD nowadays.

Moreover, even who dont want to take Risk they are looking for investing in Fixed Deposit for long period of time. 5. How much you carry the expectation in Rise of your Income from Investments?

Interpretation The optimism is shown in the attitude of the respondents. The confidence was appreciable with which they are looking forward to a rise in their investments. Major part of the sample feels that the rise would be of around 15%. Only 8% of the respondents were confident enough to expect a rise of upto 35%. As all the respondents were considering the Risk factor also before filling the questionnaire and they were asking about the performance report of all the PM services offered by Karvy limited.

6. If you invested in Share Market, what has been your experience?

Interpretation 20% of the respondents have invested in Share market and received satisfactory returns, 40% of the respondents have not at all invested in Share Market. Some of the investors face problems due to less knowledge about the market. Some of the respondents dont have complete overview of the happenings and invest their money in wrong shares which result in Loss. This is the reason most of the respondents prefer Portfolio management to trade now a days, which gives the Investor the clear idea when is the right time to buy and right time to sell the shares which is recommended by their Fund Manger. 7. How do you trade in Share Market?

Interpretation As we know that Share market is totally based on psychological parameters of Investors, which changed as per the market condition, but at

the same time the around 45% investor trade on the basis of speculation and 31% depend upon Investment option Bonds, Mutual Funds etc. Moreover, the now a days Hedging is most common derivatives tools which is used by the Investor to get more return from the Market ,this is mostly used in the Commodities Market.

8. How do you manage your Portfolio?

Interpretation About 57% of the respondents say they themselves manage their portfolio and 43% of the respondents say they depends on the security company for portfolio Management. 43% of the respondents prefer PM of the company because they dont have to keep a close eye on their investment; they get all the information time to time from their Fund Manager. Moreover, talking about the Karvy PM services they are far satisfied with the Protech and Prop rime Performance during last year. They are satisfied with the quick and active services of Karvy customer services where, they get the updated knowledge about the scrip detail everyday from their Fund Manager. 9. If you trade with Karvy limited then why?

Interpretation As the above research shows the reasons and the parameters on which investor lie on Karvy and they do the trade. Among hundred respondents 35% respondents do the trade with the company due to its research Report, 28% based on Brokerage Rate whereas 22 % are happy with its Services. Last but not the least, 15% respondents are depends upon the tips of Karvy which gives them idea where to invest and when to invest. At the time of research what I found is that still Karvy need to make the clients more knowledge about their PM product.

10. Are you using Portfolio management (PM) of Karvy?

Interpretation As talking about the Investment option, in most of clients it was common that they know about the Option but as the PM of Karvy have different Product

offering, Product Characteristics and the Investment amount is also different this makes the clients to think differently. It is found that 56% of Karvy client where using PM services as for their Investment Option.

11. Which Portfolio Type you preferred?

Interpretation The above analysis shows, in which portfolio the investor like to deal more in PM. As 45% investor likes to go for Equity Portfolio and 28% with Balanced Portfolio, whereas around 27% investor like to, go for Debt Portfolio.

12. Does Karvy Limited keep it PM process Transparent?

Interpretation The above analysis is talking about the Karvy Transparency of their PM services. In hundred respondents 63% said that they get all the information about their scrip buying and selling information day by day, where as 37% of respondents are not satisfied with the PM information and Transparency because they dont get any type of extra services in PM as they were saying.

CHAPTER 6. CONCLUSSION & SUGGESTION

6.1 -OBSERVATION AND FINDING

About 85% Respondents knows about the Investment Option, because remaining 15% take his /her residential property as Investment, but in actual it not an investment philosophy carries that all the Investment does not create any profit for the owner. More than 75% Investors are investing their money for Liquidity, Return and Tax benefits. At the time of Investment the Investors basically considered the both Risk and Return in more %age around 65%.

 As among all Investment Option for Investor the most important area to get more return is share around 22%after that Mutual Fund and other comes into existence. More than 76% of Investors feels that PM is less risky than investing money in Mutual Funds. As expected return from the Market more than 48% respondents expect the rise in Income more than 15%, 32% respondents are expecting between 15-25% return.

As the experience from the Market more than 34% Investor had lose their money during the concerned year, whereas 20% respondents have got satisfied return. About 45% respondents do the Trade in the Market with Derivatives Tools Speculation compare to 24% through Hedging .And the rest 31% trade their money in Investments. Around 57% residents manage their Portfolio through the different company whereas 43%Investor manage their portfolio themselves. The most important reasons for doing trade with Karvy limited is Karvy Research Department than its Brokerage rate Structure. Out of hundred respondents 56% respondents are using Karvy PM services. Investors preferred more than 45% equity Portfolio, 28%Balanceed Portfolio and about 27% Debt Portfolio with Karvy PM.

 About 52% Respondents earned through Karvy PM product, whereas 18% investor faced loses also. More than 63% Investor are happy with the Transparency system of Karvy limited.
As based on the good and bad experience with Karvy limited around

86% are ready to recommended the PM of Karvy to their peers, relatives etc.

6.2 -CONCLUSION AND SUGGESTIONS

On the basis of the study it is found that Karvy Ltd is better services provider than the other stockbrokers because of their timely research and personalized advice on what stocks to buy and sell. Karvy Ltd. provides the facility of Trade tiger as well as relationship manager facility for encouragement and protects the interest of the investors. It also provides the information through the internet and mobile alerts that what IPOs are coming in the market and it also provides its research on the future prospect of the IPO. We can conclude the following with above analysis. Karvy Ltd has better Portfolio management than Other Companies It keeps its process more transparent.

 It gives more returns to its investors. It charges are less than other portfolio management It provides daily updates about the stocks information. Investors are looking for those investment options where they get maximum returns with less returns. Market is becoming complex & it means that the individual investor will not have the time to play stock game on his own. People are not so much ware aware about the Investment option available in the Market.

Suggestions

The company should also organize seminars and similar activities to enhance the knowledge of prospective and existing customers, so that they feel more comfortable while investing in the stock market. Investors must feel safe about their money invested. Investors accounts must be more transparent as compared to other companies. Karvy limited must try to promote more its Portfolio management through Advertisements. Karvy needs to improve more its Customer Services

 There is need to change in lock in period in all three PM i.e.Protech, Proprime, Pro Arbitrage.

ANNEXURE

ANNEXURE
QUESTIONNAIRE

NAME. AGE OCCUPATION... NO.................................. PHONE

1. Do you know about the Investments Option available? A) YES B) NO

2. What is the basic purpose of your Investments? A) Liquidity Covering E) Capital Appreciation F) Others B) Return C) Tax Benefits D) Risk

3. What is the most important factor you consider at the time of Investment? A) Risk B) Return C) Both

4. From which option you will get the best returns? A) Mutual Funds E) Fixed Deposits B) Shares F) Property C) Commodities Market D) Bonds G) Others

5. Investing in PM is far safer than Investing in Mutual Fund. Do you agree? A) Yes B) No

6. How much you carry the expectation in Rise of your Income from Investments? A) Upto 15% B) 15-25% C) 25-35% D) More than 35% C) Unsatisfactory Results 7. If you invested in Share Market, what has been your experience? A) Satisfactory Return D) No 8. How do you trade in Share Market? A) Hedging B) Speculation C) Investment B) Burned Finger

9. How do you manage your Portfolio? A) Self B) Depends on the company for portfolio

10. If, you trade with Karvy limited then why? A) Research B) Brokerage C) Services D) Investments Tips

11. Are you using Portfolio management (PM) of Karvy? A) Yes B) No

12. Which Portfolio Type you preferred? A) Equity B) Debt C) Balanced

13. How was your experience about Portfolio management (PM) of Karvy Limited? A) Earned B) Faced Loss C) No profit No loss

14. Does Karvy Limited keep it PM process Transparent? A) Yes B) No

15. Do you recommend Karvy PM to others? A) Yes B) No

BIBLIOGRAPHY

BIBLIOGRAPHY
BOOKS REFERED: INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT BY:- PRASANNA CHANDRA RESEARCH METHODOLOGY BY:- C.K.KOTHARI WEBSITES REFERED www.mutualfundsindia.com www.indiacapital.com www.moneypore.com www.valueresearchonline.com www.amfi.com www.indiafn.com www.karvey.com