PROJECT REPORT

ON
“Comparative Study on Portfolio Construction at
Karvy computer share pvt ltd

BY
I.CHANDAN
(H.NO. 131209672213)
Submitted to the
OSMANIA UNIVERSITY
Hyderabad

Under the guidance of

Mr. VENU MADAV SIR
(ASST.PROF)
In partial fulfillment of the Award of degree of
MASTER OF BUSINESS ADMINISTRATION
MALLA REDDY INSTITUTE OF MANAGEMENT
(Affiliated TO Osmania University)
DULLAPALLY, SECUNDERABAD
2009-2011

DECLARATION

I hereby declare that this project Report titled “ Comparative Study on

portfolio construction at karvy computershare pvt ltd” submitted by me to the
department of OSMANIA UNIVERSITY is a Bonafide Work undertaken by me and it is not
submitted to any other university or institution for the award of any degree diploma/ certificate
or published any time before.

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 I.CHANDAN
Ht.No. 131209672213

TABLE OF CONTENTS

S.NO. TITLE S.NO

CHAPTER-I

1.1. Introduction 02
1.2. Objectives 03
1.3. Need of Study 04
1.4. Scope 04
1.5. Limitations 05
1.6. Methodology 06

CHAPTER-II

2.1 Industry Profile 17

2.2 Company profile 24

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 CHAPTER-III

3.1 DATA ANALYSIS AND INTERPRETATION 40

CHAPTER-IV

4.1. Findings 49
4.2. Suggestions 50
4.3. Conclusions 51

CHAPTER-V

5.1 Bibliography 53

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 CHAPTER-1

INTRODUCTION

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RECEIVABLES MANAGEMENT

The term receivables are defined as ‘debt owned to the firm by customers arising from sale of goods or

services in the ordinary course of business’ . when a firm makes ordinary sale of good or services and

does not receive a payment, the firm grants credit and creates accounts receivables which could be

collected in the future receivable management is also called trade credit management. Thus, accounts

receivables represent an extension of credit to customer, allowing them a reasonable period of time in

which to pay for the goods receivable.

The objectives of receivables management is ‘to promote sales and profits until that point is reached

where the return on investment in further funding receivables is les than the cost of funs raised to

finance that addition credit. The specific cost and benefit which are relevant to the determination of the

objectives of the receivables management.

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 OBJECTIVES OF THE STUDY

1. To understand important credit aspect of the organization as part of the study and there by

understand the changes in financial position.

2. To understand KARVY’S credit policies credit terms collection policies.

3. To identify the strength and weakness of the organization in relation to credit management.

4. To give a detailed account of the problem involved in management receivables of KARVY and

appropriate to help them to make informed decision.

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 SCOPE OF THE STUDY

The scope and period of study is restricted to the following.

1. The scope is limited to the operations of the KARVY.

2. The information obtained from the primary and secondary data was limited
to the KARVY.
3. The key information performances indicated were taken from 2009-10.
4. Comparison analysis was done in comparison of sister units.

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 LIMITAIONS OF STUDY

1. The study is confined to a period of last six years.

2. As most of the data is from secondary sources, hence the accuracy is limited.

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 METHODOLOGY

The study basically depends on:

1. PRIMARY DATA.

2. SECONDARY DATA.

PRIMARY DATA COCLLECTION

The information collected directly without any reference is primary data. In the
study it is mainly through concerned officers or staff member either
individually or collectively, the data includes.

1. Conducting personal interview with officers of the company.

2. Individual observation inference.
3. From the people who are directly involved with transaction of the firm.

SECONDARY DATA COLLECTIN

Study has been taken from secondary sources i.e, published annual report of
the company. Editing, classifying and tabulation of the data for this purpose
performance data of KARVY.

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 CHAPTER-2

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 COMPANY’S PROFILE

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 COMPANY PROFILE

3.1 MISSION OF KARVY:

Their mission is to be a leading, preferred service provider to our customer, and they aim To
achieve this leadership position by building an innovative, enterprising, and technology drive organization
which will set the highest standards of service and business ethics.

3.2 INTRODUCTION:
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.Karvy Stock Broking Ltd is a member of 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.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 options with care.

Karvy offers services that are beyond just a medium for buying and selling stocks and shares.
Instead they provide services which are multi dimensional and multi-focused in their scope. There are several
advantages in utilizing their Stock Broking services, which are the reasons why it is one of the best in the
country.

Karvy offer trading on a vast platform; National Stock Exchange, Bombay Stock Exchange and
Hyderabad Stock Exchange. More importantly, they make trading safe to the maximum possible extent, by
accounting for several risk factors and planning accordingly. They are assisted in this task by their in-depth
research, constant feedback and sound advisory facilities. Their highly skilled research team, comprising of

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technical analysts as well as fundamental specialists, secure result-oriented information on market trends,
market analysis and market predictions. This crucial information is given as a constant feedback to their
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, they publish a monthly magazine; Karvy;

The Fin polis; 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; Karvy Bazaar
Baatein; keeps the investor more informed on the immediate trends in the stock market. In addition, their
specific industry reports give comprehensive information on various industries. Besides this, they also offer
special portfolio analysis packages that provide daily technical advice on scrip for successful portfolio
management and provide customized advisory services to help the investors to make the right financial moves
that are specifically suited to their portfolio.

To empower the investor further they have made serious efforts to ensure that their research calls are
disseminated systematically to all their stock broking clients through various delivery channels like email,
chat, SMS, phone calls etc.
In the future, their focus will be on the emerging businesses and to meet this objective, they have
enhanced their manpower and revitalized their knowledge base with enhances focus on Futures and Options
as well as the commodities business.

Respect for the individual:

Each and every individual is an essential building block of our organization.

We are the kilns that hone 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

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and personal lives.

Teamwork:
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. Transparency, co-operation, invaluable an individual contribution for
a collective goal, and respecting individual uniqueness within a corporate whole, is 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, is some of our growing
initiatives towards realizing it.

Integrity:
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.

3.3 BOARD OF DIRECTORS:

1. Mr. C Parthasarathy

Chairman and Managing Director

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2. Mr. M Yugandhar

Managing Director

3. Mr. M S Ramakrishna

Director

4. Mr. Prasad V Potluri

Director

3.4 KARVY GROUPS OF COMPANIES ARE:

1) Karvy Consultants Ltd

2) Karvy Stock Broking Ltd

3) Karvy Investors Service Ltd

4) Karvy Computershare Pvt Ltd

5) Karvy Global Service Ltd

6) Karvy Commodities Broking Ltd

7) Karvy Insurance Broking Private Ltd

8) Karvy alliances

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1. KARVY CONSULTANTS LIMITED:

As the flagship company of the Karvy Group, Karvy Consultants Limited has always at remained the
helm of organizational affairs, pioneering business policies, work ethic and channels of progress.

Having emerged as a leader in the registry business, the first of the businesses that Karvy ventured into,
company have now transferred this business into a joint venture with Computer share Limited of Australia,
the world’s largest registrar. With the advent of depositories in the Indian capital market and the relationships
that Company have created in the registry business, Karvy believe that they were best positioned to venture
into this activity as a Depository Participant. Karvy were one of the early entrants registered as Depository
Participant with NSDL (National Securities Depository Limited), the first Depository in the country and then
with CDSL (Central Depository Services Limited). Today, Karvy service over 6 lakhs customer accounts in
this business spread across over 250 cities/towns in India and are ranked amongst the largest Depository
Participants in the country. With a growing secondary market presence, they have transferred this business to
Karvy Stock Broking Limited (KSBL), their associate and a member of NSE, BSE and HSE.

2. KARVY STOCK BROKING LIMITED:

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 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.

Karvy is a Member of National Stock Exchange (NSE), The Bombay Stock Exchange (BSE), and The
Hyderabad Stock Exchange (HSE).

3. KARVY INVESTORS SERVICES LIMITED:

Merchant Banking- Recognized as a leading merchant banker in the country, Karvy are registered
with SEBI as a Category I merchant banker. This reputation was built by capitalizing on opportunities in
corporate consolidations, mergers and acquisitions and corporate restructuring, which have earned us the
reputation of a merchant banker. Raising resources for corporate or Government Undertaking successfully
over the past two decades have given us the confidence to renew company focus in this sector.
Karvy quality professional team and their work-oriented dedication have propelled company to offer
value-added corporate financial services and act as a professional navigator for long term growth of
companies clients, which includes leading corporate, State Governments, foreign institutional investors,
public and private sector companies and banks, in Indian and global markets.

4. KARVY COMPUTERSHARE PVT. LIMITED:

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 Karvy have traversed wide spaces to tie up with the world’s largest transfer agent, the leading
Australian company, Computer share Limited. The company that services more than 75 million shareholders
across 7000 corporate clients and makes its presence felt in over 12 countries across 5 continents has entered
into a 50-50 joint venture with KARVY.

Mutual Fund Services:

Karvy have attained a position of immense strength as a provider of across-the-board transfer agency
services to AMC’s, Distributors and Investors.

Nearly 40% of the top-notch AMC’s including prestigious clients like Deutsche AMC and UTI swear
by the quality and range of services that company offer. Besides providing the entire back office processing,
Karvy provide the link between various Mutual Funds and the investor, including services to the distributor,
the prime channel in this operation.

Issue Registry:

In company voyage towards becoming the largest transaction-processing house in the Indian
Corporate segment, KARVY have mobilized funds for numerous corporate, and emerged as the largest
transaction-processing house for the Indian Corporate sector. With an experience of handling over 700 issues,
Karvy today, has the ability to execute voluminous transactions and hard-core expertise in technology
applications have gained company the No.1 slot in the business. Karvy is the first Registry Company to
receive ISO 9002 certification in India that stands testimony to its stature.

Corporate Shareholder Services:

Karvy has been a customer centric company since its inception. Karvy offers a single platform
servicing multiple financial instruments in its bid to offer complete financial solutions to the varying needs of
both corporate and retail investors where an extensive range of services are provided with great volume-
management capability

5. KARVY GLOBAL SERVICES LIMITED:

The specialist Business Process Outsourcing unit of the Karvy Group. The legacy of expertise and
experience in financial services of the Karvy Group serves us well as company enter the global arena with the
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confidence of being able to deliver and deliver well. Here company offers several delivery models on the
understanding that business needs are unique and therefore only a customized service could possibly fit the
bill.

KARVY is in re-engineering and managing processes or delivering new efficiencies, company’s

service meets up to the most stringent of international standards.Providing productivity improvements,
operational cost control, cost savings, improved accountability and a whole gamut of other advantages.
KARVY Operate in the core market segments that have emerging requirements for specialized services. Their
wide vertical market coverage includes Banking, Financial and Insurance Services (BFIS), Retail and
Merchandising, Leisure and Entertainment, Energy and Utility and Healthcare.

6. KARVY COMMODITIES BROKING LIMITED:

At Karvy Commodities, they are focused on taking commodities trading to new dimensions of
reliability and profitability. They have made commodities trading, an essentially age-old practice, into a
sophisticated and scientific investment option.
Company enables trade in all goods and products of agricultural and mineral origin that include
lucrative commodities like gold and silver and popular items like oil, pulses and cotton through a well-
systematized trading platform. The technological and infrastructural strengths and especially the street-smart
skills make them an ideal broker. Their service matrix is holistic with a gamut of advantages, the first and
foremost being their legacy of human resources, technology and infrastructure that comes from being part of
the Karvy Group.

7. KARVY INSURANCE BROKING PRIVATE LIMITED:

At Karvy Insurance Broking Pvt. Ltd., they provide both life and non-life insurance products to retail
individuals, high net-worth clients and corporate. With the opening up of the insurance sector and with a large
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number of private players in the business, they are in a position to provide tailor made policies for different
segments of customers. In their journey to emerge as a personal finance advisor, they will be better positioned
to leverage their relationships with the product providers and place the requirements of their customers
appropriately with the product providers. With Indian markets seeing a sea change, both in terms of
investment pattern and attitude of investors, insurance is no more seen as only a tax saving product but also as
an investment product. By setting up a separate entity, we would be positioned to provide the best of the
products available in this business to the customers.

KARVY have wide national network, spanning the length and breadth of India, further supports
these advantages. Further, personalized service is provided here by a dedicated team committed in giving
hassle-free service to the clients.

8. KARVY ALLIANCES:

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.

Distribution of Financial Products:

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The paradigm shift from pure selling to knowledge based selling drives the business today. With their wide
portfolio offerings, they 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 them 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 they enhanced the scope of their
retail brand, Karvy – the Finapolis, thereby providing planning and advisory services to the mass affluent.
Here they 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 they have over competition is their portfolio
of offerings and their professional expertise. The investment planning for each customer is done with an
unbiased attitude so that the service is truly customized on market trends, investment options, opinions etc.

Graph 3.1 Showing Milestones of Karvy

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 Figure no. 3.1 Showing Steps to Stock Selection Process in Karvy

3.5 Portfolio Schemes of karvy:

1. K-Sensible

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Objective
The objective of the K-Sensible Plan is to provide long-term returns by following a disciplined and
focused approach to investments. This is guided by two doctrines – capital preservation and generates steady
long-term returns.
Strategy
• Long-term investing
• Focus on companies which qualify in the three key attributes – Management, Business and
Valuation
• Adequate diversification to mitigate risks
• Maintain reasonable liquidity
Ideal for
• Investors seeking steady long-term returns
• Investment horizon between two to three years
• Low portfolio turnover

2.K-Aggressive
Objective
The objective of the K-Aggressive Plan is to provide a balance between growth, safety and returns.
This is achieved by investing in well-researched companies and employing a strategy of systematic
profit booking. In our stock selection process we continue to focus on companies which qualify in the
three key attributes – Management, Business and Valuation.

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Strategy

• Medium to long-term investing

• Top-down and bottom-up approach
• Judicious mix of growth and value stocks
• Systematic profit booking

• Adequate diversification to mitigate risks

• Maintain reasonable liquidity
Ideal for
• Investors seeking gains from systematic profit booking
• Investment horizon between one to two years
• Medium portfolio turnover

3.K-Energetic

Objective
The objective of the K-Energetic Plan is to provide returns by following an aggressive
style of investing which entails higher risks.

Strategy

• Higher proportion of mid cap stocks

• Short to medium-term investing
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 • Stock specific approach to capture triggers which could yield higher returns
• Adequate diversification to mitigate risks
• Maintain reasonable liquidity

Ideal for

• Investors with high risk profile and seeking short to medium term returns
• Investment horizon between 12 to 15 months
• High portfolio turnover

Figure No. 3.2 INVESTMENT PHILOSOPHY OF KARVY

2. Stock Selection 3. Portfolio Construction

• Management Quality • Focus on: Objectives, Approach

• Earning Growth • Security Selection
• Valuations • Concentration / Weights
• News Flows
• Portfolio Beta
• Timing
1. Sector Selection

• Government Policies
• Stage of Business Cycle
• Future Profitability
• Global/Domestic Linkages

• Identified favored sector

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5. Risk Management 4. Portfolio Rebalancing

• Portfolio Risk • Tactical shifts: Large Vs Mid

• Operational Risk cap
• Tactical shifts: Stock Vs Cash
• Residual Risk • Buy-side Triggers

• Sell-side Triggers

3.6 ACHIVEMENTS:
1. Largest independent distributor for financial products

2. Ranking amongst the top 3 stock broking firms

3. Amongst the top 3 Depository participants

4. Largest network of branches and business associates

5. Ranking amongst top 10 investment Bankers.

6. First ISO-9002 certified registrars

7. Ranking amongst top 3 Mutual Funds distributors

8. Ranking 1st in retail procurement in equity IPOs.

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

10. Fully Fledged IT driven operations ranking 8th in merchant Banking services

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 CHAPTER-4

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 INTRODUCTION OF
RECE IVABLES MANAGEMENT

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Costs :

The major categories of cost associated with the extension of credit and accounts receivables
are :
1. Collection cost.
2. Capital cost
3. Delinquency cost
4. Default cost.

Collection cost:

Collection costs are administrative cost incurred in collection the receivables form the
customer to whom credit sales have been made included in this category of costs are
(A)additional expenses on the creation and maintenance of credit department with staff,
accounts records, stationery, postage and other related items; (B) expenses involved in
acquiring credit information either through outside specialist agencies or by the staff firm
itself.

Capital cost :
The increased level of accounts receivables is an investing in assets. They have to be
financial involving a cost. There is a time-lag between the sales goods to and payments
by, the customers, meanwhile, the firm has to pay employees and supplies of raw
materials, thereby implying that the firm should for additional funds to meet its own
obligations while for payment from its customers.
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Delinquency cost:
This cost arises out of the failure to meet their obligations when payments on credit
sales become due after the expiry of the credit period. Such costs are called delinquency
cost. The important components of this cost are:1)blocking-up of funds for and
extended period.2)cost associated with steps that have to be initiated to collect the
overdue, such as reminders and other collection efforts, legal charges, where necessary,
and so on.

Default cost :
The firm may not be able to recover the over dues because of the inability of the
customer. Such debts are treated as bad debts and have to be written off as they cannot
be realized. Such costs are know has default cost associated credit sales and accounts
receivables.
Credit policies :
In the preceding discussion it has been clearly shown that the firm’s objective with
respect to receivables management is not merely to collect receivables quickly but
attention should also be given to the benefits-cost trade- off involved in the various
areas of accounts receivables management. The first decision area is credit policies.

The credit policies of a firm provides the framework to determine a)whether or not to
extent credit to a customer and b) how much credit to extent. The credit policy decision
firm has two broad dimension.
i. Credit standards; and
ii. Credit analysis.
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Credit standards :

The term credit standards represents the basic criteria for the extension of credit to
customer. The quantitative basis of establishing credit standards are factors such a credit
rating, credit renerence. Average payments period and certain financial ratios. Since we
are interested in illustrating the trade-off between benefits and cost to the firm a whole
we do not consider here these individual components of credits standards. The trade-off
with reference to credit standards covers.

i. The collections cost .

ii. The average collection period/ investment in accounts receivables.
iii. Level of bad debt losses and
iv. Level of sales.

Collection costs :

The implication of relaxed credit standards are :

i. More credit.
ii. A large credit department to service receivable and related matters.
iii. Increase in collection cost.

Investment in receivables or the averagm collection period :

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The investment in accounts receivables involves a capital cost as funds to be arrange by
the firm to finance them customers make payments. Moreover, the higher the average
accounts receivables, the higher is the capital or carrying cost. A change in the credit
standards-relaxation or tightening –leads to a change in the level of accounts receivables
either.
a) Through a change in sales, or
b) Through a change is collections.

Bad debt expenses :

Another factor which is expected to the affected by change in the credit standards is bad
debt expense. They can be expected to increase with relation in credit standards and
decrease it credit standards become more restrictive.
Sales volume :
Change credit standards can also be expected to change the volume of sales. As
standards are relaxed, sales are expected to increase, conversely, a tightening is
expected to cause a decline.

Credit analysis :
Besides establishing credit standards, a firm should develop procedures for evaluating
credit application. The second aspects of credit policies of a firm are credit analysis and
investigation. Two basic steps are involved in the credit investigation process.

a) Obtaining credit information, and

b) Analysis of credit information.
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 Obtaining credit information :
The first step in credit analysis is obtaining credit information on which to have the
evaluation of a customer. The sources of information, broadly speaking are:

i. Internal.
ii. External.

Internal :

Usually, firm require their customer to fill various form and documents giving details
about finance operations. They are also required to furnish reference with whom the
firm can have contacts to judge the suitability of the customer for credit. The type of
information is obtained form internal sources of credit information. Another internal
sources of credit information is derived from the records of the firms contemplating an
extension of credit
External :

The availability of information from external sources to assess the creditworthiness of

customers depends upon the development of institution facilities and industry practices
in India, the external sources of credit information are not as development as in the
industrially advanced countries of the world.

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Financial statements :
one external sources of credit information is the published financial statements. That is
the balance sheet and loss account. Thm financial statements contain very useful
information they throw light on an application’s financial viability, liquidity,
profitability and debt capacity. Although the financial statement do not directly reveal
the past payment of the application. They are very helpful in assessing the overall
financial position of firm.

Bank references :

Another useful of credit information is the bank of the firm which is contemplating the
extension of credit, the modus operandi here is that the firm’s banker collects the necessary
information from the application’s bank. Alternatively, the applicant may be required to ask
his bankers to provide the necessary information either directly to the firm or to its bank.

Trade references:

These refers to the collection of the information from firms with whom the applicant has
dealing and who on the basis of their experience would vouch for the applicant.

Credit bureau reports :

Finally, specialist credit bureau repost from organization specializing in supplying credit
information can also be utilized.
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Analysis of credit information :

Once the credit information has been collected from different sources, it should be analyzed to
determine the credit-worthiness of the applicant. There are no established procedures to
analyze, the firm should devise one to suit its needs. The analysis should cover two aspects:

i. Quantitative. And
ii. Qualitative.

Quantitative:
The assessment of the quantitative aspects is based on the factual information available
from the financial statement, the past records of the from, so on. The first step involved
in this type of assessment is to prepare an Aging Schedule of the account payable of the
application as well as calculate the average age of the accounts payable. This exercise
will give an insight into the past payment pattern of the customer.

Qualitative :
The qualitative assessment should be supplemented by a qualitative subjective
interpretation of the application’s credit-worthiness . the subjective judgment would
cover aspects related to the quality of management. Here , the reference from other
suppliers, bank references and specialist bureau reports would form the basis for the
conclusion to be drawn.

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CREDIT TERMS :
The second decision in accounts receivable management is the credit terms. After the credit
standards been establishment and credit-worthiness of the customer has been assessed, the
management of a firm must determine the terms and conditions on which trade credit will be
made available. The stipulations under which goods are sold on credit are referred to as terms.
The credit term have three components.
1. Credit period, in terms of the duration of time for which trade credit extended-during
this period the overdue amount be paid the customer.
2. Cash discount, if any, which the customer can take advantage of, that is, the overdue
amount be reduce by this amount: and
3. cash discount period, which refers to the duration during which the discount can be
availed of.
Cash discount :
The cash discount has implications for the sales volume, average collection period/average
investment in receivables, bad debt expenses and profit per unit. In taking a decision regarding
the grant of cash discount, the management has to see what happens to the factors of if it
initiates increase, or decrease rate. The changes in the discount rate would both positive
effects. The implications of increasing or initiating cash discount are as follows.
i. The sales volume will increase. The grant of discount implies reduce prices. If the
demand for the produce for the products is elastic in price will result it higher sales
volume.
ii. Since the customers, to take advantage of the discount, would like to pay within the
discount period, the average collection period would be reduced. The reduced in the
collection period would lead to a reduction in the investment in receivable as also cause
fall in bad expense. As a results would increase

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iii. The discount would have a negative effect on the profile. This is because the decrease
in price would affect the profit margin per unit of sale

COLLECTION POLICIES :
The third areas involved in the accounts receivables management is collection policies
they refer to the procedures followed to collection accounts receivables when after the
expiry of the credit period, they become due. These policies cover two aspects :

1 Degree of effort to collect the over dues, and

2.Types of collection efforts.

Degree of collection effort :

To illustrate the effect of the collection effort, the credit policies of a firm may be
categorized into.
i. Strict/light, and
ii. Lenient.

The collection policies would be tight if rigorous procedures are following. A

tight collection policy has implications which involves as well as costs. The
management has to consider a trade-off. The effect of tightening the collection
is in the first place, the bad debt expense would decline. Moreover, the average
collection period will be increase. But there would negative effects also. A very
rigorous collection strategy would involve increased collection costs. Yet
another negative effect may be in the decline in the volume of sales.

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 Type of collection efforts :

The second aspect of collection policies relation to the steps that should be taken to
collection over dues from the customer. A well-established collection policy should
have clear- cut guidelines as to the sequence of collection efforts. After the period is
over and payment remains due, the firms should initiate measure to collection them.
The effort should in the beginning be polite , but, with passage of time should in the
beginning be polite, but with passage of tune,, it should gradually becomes strict.

The steps usually taken are :

 Letters, including reminders, to expedite payment.

 Telephone calls for personal contract.
 Personal visits.
 Help of collection agencies.
 Legal action.
The Firm should take recourse to vary stringent measures, like legal action,
only after all other avenues have been fully exhausted. They not only involved
a cost but also affect the relationship with customers should be given due
consideration.

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 Credit granting decision :
Once the firm has assessed the creditworthiness of a customer, it has to decide
whether or not credit should be granted. The firm should is the NPV rule to make the
decision. If the NPV is positive, credit should be granted and if the firm chooses not
to grant any credit, then it will benefit if the customer pays, there is probability that
the customer will default, then the firm may lose its investment. The expected net
payoff of the firm is the difference between the present value of net benefit and
present value of the expected.

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 CHAPTER-6

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 RECEIVABLE
MANAGEMENT OF KARVY

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 RECEIVABLES MANAGEMENT OF KARVY

There are regional operating divisions at various places, which are authorized by
KARVY to the credit amount from customer and deposit the same in the bank.

The ROD, which is nearest to the customer. Will go and collect from the customer.
The debtors are classified in to collectable debtors and deferred debtors collectable
debts are further classified in collectable as verified under verified old and withheld
collectable debts.

The collectable and deferred debts are(reviewed periodically may be fortnightly or

monthly. Such review will be done at the meeting where all department heads are
present.

During such meeting, the concerned of finance or head of commercial department

discuss the necessary steps to be taken to collect and reduce constrains. The actual
cash collected is compared with the budgeted and outstanding balances.

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 PURPOSE OF RECEIVABLES :

If a firm insists on cash sales, the customer will not ready to purchase from firm
since he may not be in a position to pay the cash. So if the firm sells goods in credit,
the customer may purchase more than that on cash. This is run will result in the
increase of profits. On the other hand, the credit is also offered to meet competition
the firm can easily attract customers by offering better credit facilities than
competitors.
MAINTENANCE OF RECEIVABLES :

Maintenance of receivables results in blocking of the financial resources in them. Then

firm has to arrange for additional funds. Which can acquire from outside or from the
profits. In case of the later, the firm bears the opportunity cost of the amount invested the
firm incurs additional administrative costs for maintaining accounting records for
determining the payment due from credit customers and from dmfault customers.

The size of the accounted receivable depends on the level of sales, credit policies, terms of
trade. A firm having a large volume of sales will have large amount of receivables. The
terms are the credit period and cash discount.

TERMS OF CREDIT SALES :

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 The second step in this regard is to decide terms of credit sales and the level of cash
discount. Cash discounts have important bearing on the cost of capital and credit sales.

CREDIT COLLECTION POLICY :

The management should provide for bad debts to keep the losses minimum. A collection
procedure should be estimated and action be taken accordingly. The other step should be to
record the age of debt to facilitate the collection of debts.

SIZE AND POLICY OF CASH DISCOUNT :

Credit and collection policy of the firm affected to the extent the amount of investment in
receivables. The sales department of the concern to who credit should be granted. If the
credit will be extended even to those customer whose credit worthiness is not known. If
credit policy is stringent the credit will be extended only on selective basis to those whose
credit worthiness is proven hence the size of receivable in the account will be lower.
Moreover, if collection is made within stipulated or a sound collection policy is enforced in
e investment in receivable will naturally be lower.

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 CHAPTER-7

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 IMPORTANT RATIO IN
RECEIVABLMES MANAGEMENT

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 IMPORTANT RATIOS &
RECEIVABLMES MANAGEMENT:

Ratio analysis is a widely used tool of financial analysis. It is

defined as the systematic use ratio to interpret the financial statement so that
strength and weakness of a firm as its historical performance and current financial
conditions can be determined.

1).DEBTORS TURNOVER RATIO : debtors turnover ratio expresses the

relationship between and net credit sales. It is calculated as…

NET CREDIT SALES

DEBTORS TURNOVER RATIO = ----------------------------------------------
DEBTORS TURNOVER RATIO

2). AVERAGE COLLECTION PERIOD :

Average collection period expresses the relationship between number of days in the year and
debtors turnover ratio. It is calculated as….
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 NUMBER OF DAYS IN A YEAR
AVERAGE COLLETION PERIOD = ---------------------------------------------
DEBTORS TURNOVER RATIO

DEBTORS TURNOVERS RATIO

Years 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007-

2001 2002 2003 2004 2005 2006 2007 2008
Net 13193 15351 13783 17449 17466 26721 28949 310235
credit 7 9 8 0 8 7 1
sales
Average 84880 85001 81237 82829 11223 13532 17730 215291
debtors 8 2 1
Ratio’s 1.55 1.81 1.69 2.10 1.55 1.97 1.63 1.44
(Table-3)
DEBTORS TURNOVER RATIO

400000 Net credit sales

300000
RATIO 200000 Average debtors
100000
0 Ratio’s
2000- 2002- 2004- 2006-
2001 2003 2005 2007
YEARS

(Graph-3)

NET CREDIT SLES

DEBTORS TURNOVER RATIO = ----------------------------------------
AVERAGE DEBTORS

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Interpretation :

the KARVY company net sale is continuously increase and average debtors also
increase and the debtors turnover ratio is in 2009 to 2010 it is decrease .

AVERAGE COLLECTION PERIOD

Years 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007-
2001 2002 2003 2004 2005 2006 2007 2008
N of 365 365 365 365 365 365 365 365
days
Debtors 1.55 1.81 1.69 2.10 1.55 1.97 1.63 1.44
turnover
ratio
Ratio’s 235.4 201.6 215.9 173.8 235.4 185.2 223.9 253.47
8 5 7 0 8 7 2

(Table-4)
AVERAGE COLLECTION PERIOD N of
days
400
350 Debtor
300 s
250 turnov
RATIO 200 er ratio
150 Ratio’s
100
50
0
2000- 2002- 2004- 2006-
2001 2003 2005 2007
YEARS

(graph-4)
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AVERAGE NUMBER OF DAYS A YAER
COLLECTION PERIOD = -------------------------------------
DEBTORS TURNOVER RATIO
Interpretation :

The average collection period of Bhel Company is decrease when compare to the
2000 it is 235.48 and in 2008 it is 253.47. and the debt turnover ratio is also decrease in
2000 it is 1.55 and in 2008 it is 1.44.

CHAPTER -8

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 CONCLUSIONS & SUGGESTIONS

I have studied in detail the procedure followed by karvy for receivable management.
The follow are the aspects studied.

1. Continuous monitoring of debtor movement.

2. Coordination with regional managers regarding timely collection of debtors.

3. debtors turnover ratio in 2005-2006 is 1.97. the ratio has increased than previous year

expect 2003-2004 which was 2.10. the decrease in ratio shows the inefficient
management. They should concentrate more on collection of the debts.

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 CHAPTER -9
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 BIBLOGRAPHY

 FINANCIAL MANAGEMENT : PRASANNA CHANDRA

 FINANCIAL MANAGEMENT : I.M.PANDEY
 FINANCIAL MANAGEMENT : M.Y. KHAN & P.R.JAIN
 ANNUAL REPORT OF BHEL
 CASH & RECEIVABLE MANAGEMENT OF BHEL.

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MRIM
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