Professional Documents
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Introduction to Portfolio Management
As the risk return characteristics of individual securities as well as portfolios also change.
This calls for periodic review and revision of investment portfolios of investors.
An investor invests his funds in a portfolio expecting to get good returns consistent with
the risk that he has to bear. The return realized from the portfolio has to be measured and
the performance of the portfolio has to be evaluated.
The selection of portfolio depends upon the objectives of the investor. The selection of
portfolio under different objectives are dealt subsequently
If the main objective is getting adequate amount of current income, sixty percent of the
investment is made in debt instruments and remaining in equity. Proportion varies
according to individual preference.
Here the investor requires a certain percentage of growth as the income from the capital
he has invested. The proportion of equity varies from 60 to 100 % and that of debt from 0
to 40 %. The debt may be included to minimize risk and to get tax exemption.
It means that value of the investment made increases over the year. Investment in real
estate can give faster capital appreciation but the problem is of liquidity. In the capital
market, the value of the shares is much higher than the original issue price.
Usually, the risk adverse investors are very particular about the stability of principal.
Generally old people are more sensitive towards safety.
The traditional approach of portfolio building has some basic assumptions. An investor
wants higher returns at the lower risk. But the rule of the game is that more risk, more
return. So while making a portfolio the investor must judge the risk taking capability and
the returns desired.
Diversification
Once the asset mix is determined and risk – return relationship is analyzed the next step is
to diversify the portfolio. The main advantage of diversification is that the unsystematic
risk is minimized.
In the early years of the century analyst used financial statements to find the value of the
securities. The first to be analyzed using this was Railroad Securities of the USA. A
booklet entitled ―The Anatomy of the Railroad‖ was published by Thomas F. Woodlock
in 1900. As the time progressed this method became very important in the investment
field, although most of the writers adopted different ways to publish there data.
They generally advocated the use of different ratios for this purpose. John Moody in his
book ―The Art of wall Street Investing‖, strongly supported the use of financial ratios to
know the worth of the investment. The proposed type of analysis later on became the
―common-size‖ analysis.
The other major method adopted was the study of stock price movement with the help of
price charts. This method later on was known as Technical Analysis. It evolved during
1900-1902 when Charles H. Dow, the founder of the Dow Jones and Co. presented his
view in the series of editorials in the Wall Street Journal in USA. The advocates of
technical analysis believed that stock prices movement is ordered and systematic and the
definite pattern could be identified. There investment strategy was build around the
identification of the trend and pattern in the stock price movement.
First phase is known as Speculative Phase. Investment was not a wide spread activity, but
a cake of few rich people. The process is speculative in nature. Investment management
was an art and needed skills. Price manipulation was resorted to by the investors. During
this time period pools and corners were used for manipulation. The result of this was the
stock exchange crash in the year 1929. Finally the daring speculative ventures of
investors were declared illegal in the US by the Securities Act of 1934.
Second phase began in the year 1930. The phase was of professionalism. After coming up
of the Securities Act, the investment industry began the process of upgrading its ethics,
establishing standard practices and generating a good public image. As a result the
investments market became safer place to invest and the people in different income group
started investing. Investors began to analyze the security before investing.
During this period the research work of Benjamin Graham and David L. Dood was
widely publicized and publicly acclaimed. They published a book ―Security Analysis‖ in
1934, which was highly sought after. There research work was considered first work in
the field of security analysis and acted as the base for further study. They are considered
as pioneers of security analysis as a discipline.
Third phase was known as the scientific phase. The foundation of modern portfolio
theory was laid by Markowitz. His pioneering work on portfolio management was
described in his article in the Journal of Finance in the year 1952 and subsequent books
published later on.
The work of Markowitz was extended by the William Sharpe, John Linter and Jan
Mossin through the development of the Capital Asset Pricing Model (CAPM).
If we talk of the present the last two phases of Professionalism and Scientific Analysis
are currently advancing simultaneously with investment in various financial instruments
becoming safer, with proper knowledge to each and every investor.
There was a time when portfolio management was an exotic term. A practice which is
beyond the reach of the small investor, but the time has changed now. Portfolio
management is now a common term and is widely practiced in INDIA. The theories and
concepts relating to portfolio management now find there way in the front pages of the
financial newspapers and magazines.
Along with the spread of the securities investment way among Indian investors have
changed due to the development of the quantitative techniques. Professional portfolio
management, backed by research is now being adopted by mutual funds, investment
consultants, individual investors and big brokers. The Securities Exchange Board of India
(SEBI) is a regulatory body in INDIA. It ensures that the stock market is free from fraud,
and of course the main objective is to ensure that the investor‘s money is safe.
The trend towards liberalization and globalization of the economy has promoted free flow
of capital across international borders. Portfolio not only now include domestic securities
but foreign too. So financial investments can‘t be reaped without proper management.
Risk minimization.
Safeguarding capital.
Capital Appreciation.
Choosing optimal mix of securities.
Keeping track on performance.
A mutual fund is a form of collective investment that pools money from many investors
and invests the money in stocks, bonds, short-term money market instruments, and/or
other securities.
Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is invested by the fund manager in
different types of securities depending upon the objective of the scheme. These could
range from shares to debentures to money market instruments. The income earned
through these investments and the capital appreciation realized by the scheme is shared
by its unit holders in proportion to the number of units owned by them. Thus a Mutual
Fund is the most suitable investment for the common man as it offers an opportunity to
invest in a diversified, professionally managed portfolio at a relatively low cost. The
small savings of all the investors are put together to increase the buying power and hire a
professional manager to invest and monitor the money. Anybody with an investible
surplus of as little as a few thousand rupees can invest in Mutual Funds. Each Mutual
Fund scheme has a defined investment objective and strategy.
The flow chart below describes broadly the working of a mutual fund.
A mutual fund may be either an open-end or a closed-end fund. An open-end mutual fund
does not have a set number of shares; it may be considered as a fluid capital stock. The
number of shares changes as investors buys or sell their shares. Investors are able to buy
and sell their shares of the company at any time for a market price. However the open-
end market price is influenced greatly by the fund managers. On the other hand, closed-
end mutual fund has a fixed number of shares and the value of the shares fluctuates with
the market. But with close-end funds, the fund manager has less influence because the
price of the underlining owned securities has greater influence
Mutual fund is a mechanism for pooling the resources by issuing units to the investors
and investing funds in securities in accordance with objectives as disclosed in offer
document. Investments in securities are spread across a wide cross-section of industries
and sectors and thus the risk is reduced. Diversification reduces the risk because all
stocks may not move in the same direction in the same proportion at the same time.
A mutual fund is set up in the form of a trust, which has sponsor, trustees, Asset
Management Company (AMC) and custodian. The trust is established by a sponsor or
more than one sponsor who is like promoter of a company. The trustees of the mutual
fund hold its property for the benefit of the unit holders. Asset Management Company
(AMC) approved by SEBI manages the funds by making investments in various types of
securities. Custodian, who is registered with SEBI, holds the securities of various
schemes of the fund in its custody. The trustees are vested with the general power of
superintendence and direction over AMC. They monitor the performance and compliance
of SEBI Regulations by the mutual fund.
The performance of a particular scheme of a mutual fund is denoted by Net Asset Value
(NAV). In simple words, Net Asset Value is the market value of the securities held by the
scheme. Since market value of securities changes every day, NAV of a scheme also
varies on day-to-day basis. The NAV per unit is the market value of securities of a
scheme divided by the total number of units of the scheme on any particular date. For
example, if the market value of securities of a mutual fund scheme is Rs 200 lakhs and
the mutual fund has issued 10 lakhs units of Rs. 10 each to the investors, then the NAV
Mutual fund schemes may be classified on the basis of its structure and its investment
objective-:
A) By Structure
1) Open-ended Fund
An open-end fund is one that is available for subscription all through the year. These do
not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset
Value ("NAV") related prices. The key feature of open-end schemes is liquidity. The
term Mutual fund is the common name for an open-end investment company. Being
open-ended means that at the end of every day, the investment management company
sponsoring the fund issues new shares to investors and buys back shares from investors
wishing to leave the fund.
A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15
years. The fund is open for subscription only during a specified period. Investors can
invest in the scheme at the time of the initial public issue and thereafter they can buy or
sell the units of the scheme on the stock exchanges where they are listed. In order to
provide an exit route to the investors, some close-ended funds give an option of selling
back the units to the Mutual Fund through periodic repurchase at NAV related prices.
SEBI Regulations stipulate that at least one of the two exit routes is provided to the
investor. A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years.
The fund is open for subscription only during a specified period at the time of launch of
the scheme. Investors can invest in the scheme at the time of the initial public issue and
thereafter they can buy or sell the units of the scheme on the stock exchanges.
3) Interval Funds
Interval funds combine the features of open-ended and close-ended schemes. They are
open for sale or redemption during pre-determined intervals at NAV related prices.
B) By Investment Objective
1) Growth Funds
The aim of growth funds is to provide capital appreciation over the medium to long term.
Such schemes normally invest a majority of their corpus in equities. It has been proved
2) Income Funds
The aim of income funds is to provide regular and steady income to investors. Such
schemes generally invest in fixed income securities such as bonds, corporate debentures
and Government securities. Income Funds are ideal for capital stability and regular
income.
3) Balanced Funds
The aim of balanced funds is to provide both growth and regular income. Such schemes
periodically distribute a part of their earning and invest both in equities and fixed income
securities in the proportion indicated in their offer documents. In a rising stock market,
the NAV of these schemes may not normally keep pace, or fall equally when the market
falls. These are ideal for investors looking for a combination of income and moderate
growth.
The aim of money market funds is to provide easy liquidity, preservation of capital
and moderate income. These schemes generally invest in safer short-term instruments
such as treasury bills, certificates of deposit, commercial paper and inter-bank call
money. Returns on these schemes may fluctuate depending upon the interest rates
prevailing in the market. Money market funds have relatively low risks, compared to
other mutual funds (and most other investments). By law, they can invest in only
certain high-quality, short-term investments issued by the U.S. government, U.S.
corporations, and state and local governments. Money market funds try to keep their
The mutual fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the Government of India and Reserve Bank the. The history of
mutual funds in India can be broadly divided into four distinct phases
The 2007-08 budget presented by the Finance Minister was also a low impact budget,
compared with the last year, whose fundamental message was for overall growth of the
economy and a positive emphasis to be put on agricultural and rural development, as well
as education, which will certainly give a long term boost to the growth of the economy.
The reduction in fiscal deficit is also a positive step and the government will also increase
spending on education by 34%.
Markets have seen a major correction over the last few trading sessions. On 28 th the
markets was hit hard from both sides, internally as well as externally. The budget had a
few shockers when the dividend distribution tax was hiked, and on the other side the
global market saw major meltdown with the Asian market were beaten the most, Chinese
markets alone lost around 9% over the day. The Indian markets could not sustain the
beating it got from both ends and saw the maximum decline witnessed in the last eight
months. The market was around 200 points down after the markets opened for the day.
The Indian Mutual Fund industry also suffered on announcement of the hike in dividend
distribution tax. The DDT for the money market and liquid mutual funds has been
proposed to be brought at par at 25%. Currently the rate is 12.5% for retail investor and
23% for institutional investors. The FM said that this was being done to restrict the
arbitrage opportunities used by these schemes.
Another proposal put up by the Finance Minister was for Mutual Funds to play a bigger
role in infrastructure development by launching and operating dedicated infrastructure
funds which would directly invest into core sector projects. The Indian Mutual Fund
industry already have schemes which are sector specific and invest into infrastructure
sector through equities. Now after this particular proposal Mutual Funds can directly
invest into infrastructure projects.
FM also allowed delivery based short selling for institutional participants. Mostly in all
developed countries short selling is allowed. In India, till recently only the retail investors
FM has proposed to bring the asset management services offered by individuals under the
service tax bracket. The individuals who provide investment fund management advisory
services will now have to pay service tax. The managers will have to register themselves
with the Central Excise department and have to pay service tax, if their service fee is
more than Rs.8 lakh per annum.
Along with the above the FM also proposed for the retail investor to invest abroad
through Mutual Funds. Currently the industry has quite a few mutual fund schemes which
invest dedicatedly abroad. A few more schemes invest partially abroad.
On a whole, the budget other than the DDT hike for the liquid and the money market
mutual funds and the infrastructure funds didn‘t have much in store for the Mutual Fund
industry.
To summarize, the Budget will sustain high economic growth through larger investments,
increased savings and building of manpower capabilities.
Mutual funds can invest in many different kinds of securities. The most common are
cash, stock, and bonds, but there are hundreds of sub-categories. Stock funds, for
instance, can invest primarily in the shares of a particular industry, such as technology or
utilities. These are known as sector funds. Bond funds can vary according to risk (high
yield or junk bonds, investment-grade corporate bonds), type of issuers (government
agencies, corporations, or municipalities), or maturity of the bonds (short or long term).
Both stock and bond funds can invest in primarily US securities (domestic funds), both
US and foreign securities (global funds), or primarily foreign securities (international
funds).
By law, mutual funds cannot invest in commodities and their derivatives or in real estate.
However, there do exist real estate investment trusts, or REITs, which invest solely in
real estate or mortgages, and mutual funds are allowed to hold shares in REITs. A mutual
fund may restrict itself in other ways. These restrictions, permissions, and policies are
found in the prospectus, which every open-end mutual fund must make available to a
potential investor before accepting his or her money.
Most mutual funds' investment portfolios are continually adjusted under the supervision
of a professional manager, who forecasts the future performance of investments
appropriate for the fund and chooses the ones which he or she believes will most closely
match the fund's stated investment objective. A mutual fund is administered through a
parent management company, which may hire or fire fund managers.
ADVANTAGES
Professional Management
Mutual Funds provide the services of experienced and skilled professionals, backed by a
dedicated investment research team that analyses the performance and prospects of
companies and selects suitable investments to achieve the objectives of the scheme.
Diversification
Convenient Administration
Return Potential
Over a medium to long-term, Mutual Funds have the potential to provide a higher return
as they invest in a diversified basket of selected securities.
Low Costs
Mutual Funds are a relatively less expensive way to invest compared to directly investing
in the capital markets because the benefits of scale in brokerage, custodial and other fees
translate into lower costs for investors.
Liquidity
In open-end schemes, the investor gets the money back promptly at net asset value
related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a
stock exchange at the prevailing market price or the investor can avail of the facility of
direct repurchase at NAV related prices by the Mutual Fund.
Transparency
You get regular information on the value of your investment in addition to disclosure on
the specific investments made by your scheme, the proportion invested in each class of
assets and the fund manager's investment strategy and outlook.
Through features such as regular investment plans, regular withdrawal plans and dividend
reinvestment plans, you can systematically invest or withdraw funds according to your
needs and convenience.
Affordability
Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual
fund because of its large corpus allows even a small investor to take the benefit of its
investment strategy.
Choice of Schemes
Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.
Well Regulated
All Mutual Funds are registered with SEBI and they function within the provisions of
strict regulations designed to protect the interests of investors. The operations of Mutual
Funds are regularly monitored by SEBI.
Investors must pay sales charges, annual fees, and other expenses (which we'll
discuss below) regardless of how the fund performs. And, depending on the timing of
their investment, investors may also have to pay taxes on any capital gains
distribution they receive — even if the fund went on to perform poorly after they
bought shares.
Lack of Control
Investors typically cannot ascertain the exact make-up of a fund's portfolio at any
given time, nor can they directly influence which securities the fund manager buys
and sells or the timing of those trades.
Price Uncertainty
With an individual stock, you can obtain real-time (or close to real-time) pricing
information with relative ease by checking financial websites or by calling your
broker. You can also monitor how a stock's price changes from hour to hour — or
even second to second. By contrast, with a mutual fund, the price at which you
purchase or redeem shares will typically depend on the fund's NAV, which the fund
might not calculate until many hours after you've placed your order. In general,
mutual funds must calculate their NAV at least once every business day, typically
after the major U.S. exchanges close.
Your financial goals will vary, based on your age, lifestyle, financial independence,
family commitments, and level of income and expenses among many other factors.
Therefore, the first step is to assess your needs. You can begin by defining your
investment objectives and needs which could be regular income, buying a home or
finance a wedding or educate your children or a combination of all these needs, the
quantum of risk you are willing to take and your cash flow requirements.
Investing in just one Mutual Fund scheme may not meet all your investment needs. You
may consider investing in a combination of schemes to achieve your specific goals.
The best approach is to invest a fixed amount at specific intervals, say every month. By
investing a fixed sum each month, you buy fewer units when the price is higher and more
units when the price is low, thus bringing down your average cost per unit. This is called
rupee cost averaging and is a disciplined investment strategy followed by investors all
over the world. You can also avail the systematic investment plan facility offered by
many open end funds.
It is desirable to start investing early and stick to a regular investment plan. If you start
now, you will make more than if you wait and invest later. The power of compounding
All you need to do now is to for online application forms of various mutual fund schemes
and start investing. You may reap the rewards in the years to come. Mutual Funds are
suitable for every kind of investor - whether starting a career or retiring,
conservative or risk taking, growth oriented or income seeking
A unit holder in a Mutual Fund scheme governed by the SEBI (Mutual Funds)
Regulations is entitled to:
5). Inspect the documents of the Mutual Funds specified in the scheme's offer
document.
The primary criticism of actively managed mutual funds comes from the historical fact
that, over long periods of time, most have not returned as much as an index fund would.
There are also other criticisms levied against mutual funds as a consequence of the first
criticism. One critique covers the concept of the sales load, an upfront or deferred fee as
high as 8.5 percent of the amount invested in a fund. Firstly, some critics do not believe
that this should be charged on a percentage basis instead of a flat fee basis. A so-called
flat fee, annual fee or wrap fee does very little for an investor other than insure that they
will pay an advisor a commission for as many years as their relationship exists. It helps
Mutual funds are also seen by some to have a systemic conflict of interest with regards to
their size. Fund companies typically make money by charging a management fee of
anywhere between 0.5-2.5 percent of the funds total assets. Although theoretically this
could motivate them to cause the fund to perform well, since a well performing fund
would cause the amount invested in the fund to rise and thus increasing the fee earned, it
also could motivate the fund to focus on attracting more and more new investors, as the
new investors adding money to the fund would also cause the assets of the fund to
increase. Many investors believe however that the larger the pool of money one works
with, the harder it is to invest. Thus the harder it becomes for the mutual fund to perform
well. Thus a fund company can be focused on attracting new customers, hurting its
existing investors' performance. A great deal of the funds costs are flat and fixed costs,
such as the salary for the manager. Thus it can be more profitable to the fund to try and
allow it to grow as large as possible, instead of limiting its assets.
Other practices of mutual funds have been criticized from time to time, such as funds
allowing market timing. More recent criticisms have focused on the fund managers
accepting extravagant gifts in exchange for trading stocks through certain investment
banks, who presumably overcharge the fund compared to what another, non-gifting
investment bank would charge
Mutual
Investment Who should Investment
Fund Objective Risk
Portfolio invest horizon
Type
Funds Commercial
Liquidity + Little Those with
(Floating Papers, Treasury 3 weeks -
Moderate Interest surplus
- short- Bills, CDs, Short- 3 months
Income Rate short-term funds
term) term Government
securities.
Bond
Predominantly
Funds
Credit Risk Debentures, Salaried & More than
Regular
& Interest Government conservative 9 - 12
(Floating Income
Rate Risk securities, investors months
- Long-
Corporate Bonds
term)
Salaried &
Gilt Security & Interest Government 12 months
conservative
Funds Income Rate Risk securities & more
investors
Aggressive
Long-term
Equity investors with
Capital High Risk Stocks 3 years plus
Funds long term out
Appreciation
look.
To generate
returns that
are NAV varies Portfolio indices
Index Aggressive
commensurate with index like BSE, NIFTY 3 years plus
Funds investors.
with returns performance etc
of respective
indices
Total market value of the assets or securities – liabilities in the portfolio of the fund
Sale Price
It is the price you pay when you invest in a scheme. It is also called as Offer Price. It may
include a sales load.
Repurchase Price
It is the price at which a close-ended scheme repurchases its units and it may include a
back-end load. This is also called Bid Price.
Redemption Price
It is the price at which open-ended schemes repurchase their units and close-ended
schemes redeem their units on maturity. Such prices are NAV related.
Sales Load
It is a charge collected by a scheme when it sells the units. Also called as ‗Front-end‘
load. Schemes that do not charge a load are called ‗No Load‘ schemes. Generally it is
2.25% for subscription below Rs. 2 Crores, 1.25% for Rs. 2 Crore to Rs. 5 Crore and nil
above Rs. 5 Crore. However the load structure varies from company to company.
RESEARCH:-
specific topic. It is the pursuit of truth with the help of study, observation, comparison
and experiment.
RESEARCH METHOD:-
Research methods may be understood as all those method / techniques that are used by
RESEARCH METHODOLOGY:-
In this we study the various steps that are generally adopted by researcher in studying his
When we talk about research methodology, we not only talk of the research methods but
also the comparison of the logic behind the method we use in the context of our research
study and explain why we are using a particular method and why not others.
Research Objectives
RESEARCH DESIGN: -
A research design is the arrangement of conditions for collection and analysis of data in a
manner that aims to combine relevance to the research purpose with economy in
SAMPLING DESIGN: -
A sample design is a definite plan for obtaining a sample from a given population .It
refers to the technique or the procedure the researcher would adopt in selecting items for
SAMPL E SIZE: -
Nine
ANALYSIS OF DATA: -
The data after collection has to be processed and analyzed with the outline laid for the
purpose at the time of developing the research plan. This is essential for a scientific study
and for insuring that we have all relevant data for making contemplated comparison and
analysis.
The term analysis refer to the computation of certain measures along with searching for
patterns of relationship that exist among data groups .To analyze the data percentages,
graphs, pie charts etc are used. After that interpretations are drawn and finally, a list of
I hope the study will be interesting for a layman, a good experience for the
teacher and a key for the industrial pioneers in understanding and facing challenges.
Investing Ways”. In it 9 mutual funds have been selected and there performance is
compared in last 1 year starting from 1 st February 2006 to 31st January 2007. For this
there Net Asset Values is used and portfolio maintained is studied. Further returns of
different investing ways will be compared in the same mutual fund like One Time
Investment, Systematic Investment Plan. Further study would be done to find out that can
we develop a new way of investing in them and if yes than what the pre requisite for its
implementation. The whole study will be carried out in a manner like firstly different
mutual funds will be selected. Than there NAV‘s will be noted from 1 st February 2006 to
31st January 2007. Using some calculations performance will be compared. Using the
Fact Sheet of the selected mutual fund minute details of each will be studied.
JM INCOME FUND
LIC MF BOND
UTI BOND
Ownership Public
Fund
The fund takes contrarian call on the markets. It has given compounded annual returns of
67% in past 5 years against the category average of 46%. It is the top wealth creator for
the year 2006-07. The fund has mainly shifted its focus to large cap space. It also
contains a large cash component of Rs 120 Crore, which amounts to about 10% of its
portfolio. This prudence, along with its successful bet on banking stocks has helped the
fund out perform the category.
Fund Rating
Magnum Contra-G
Net Assets (Cr) 1,448.78 (28/02/07) Returns upto 1 year are absolute and over 1 year are
annualized.
Benchmark BSE 100
Portfolio
Basic/Engineering 15.67
Composition of Various Sectors
Diversified 13.61
Health Care 12.62
18
% Coposition
Construction 12.37 16
14
Automobile 11.13 12
10 Composition of Various
8 Sectors
FMCG 5.6 6
4
Services 5.53 2
0
Chemicals 4.34
Services
Financial Services
Health Care
Automobile
Basic/Engineerin
Energy
Financial Services 3.77
Technology 2.21
Metals & Metal
Products 1.8
Textiles 1.72 Sector
Energy 10.83
Ownership Private
Reliance Mutual Fund (RMF) was established as a trust under the Indian Trusts Act,
1882 with Reliance Capital Limited (RCL), as the Settlor/Sponsor and Reliance Capital
Trustee Co. Limited (RCTCL), as the Trustee.
RMF has been registered with the Securities & Exchange Board of India (SEBI) vide
registration number MF/022/95/1 dated June 30, 1995. The name of Reliance Capital
Mutual Fund has been changed to Reliance Mutual Fund effective from March 2004.
Reliance Mutual Fund was formed to launch various schemes under which units are
issued to the Public with a view to contribute to the capital market and to provide
investors the opportunities to make investments in diversified securities.
It is a mid cap fund with around 75% in mid cap and a maximum of 25% in large caps.
Large cap exposure gives fund tremendous liquidity but not in bearish time. It uses
opportunistic style of investment i.e. looking at companies that are scalable in sectors
with growth and management passion to grow. It invests nearly in 60 stocks with a
bottom up approach. In top holdings, 5.3% of the assets are invested in Reliance
Industries. The fund also invests across sectors such as steel, infrastructure, textile &
cement, which move with economic and GDP growth. It is also one of the wealth creators
in the year 2006-07. Last year return of this fund is 34.22%.
FUND DATA
SECTOR ALLOCATION
Industry % Allocation
Ferrous Metals 10.81
Industrial Capital Goods 9.72
Software 8.08
Pharmaceuticals 6.89
Fund
FRANKLIN India Prima Fund is a 12 year old diversified equity fund with a specific
focus on mid/small cap stocks from India‘s emerging businesses. The investment
approach is style-agnostic i.e. neither pure growth nor value addition. This style is chosen
keeping in mind that different styles tend to out perform in different market conditions. If
Rs. 1,000 is invested every month for last five years than there present value would have
been Rs 2.12 lakh. Its NAV shoot up from Rs 19.95 in 2001 to Rs. 174.84 in 2006. The
fund holds around 40 stocks in its portfolio, with the top 10 holdings accounting for
43.04% of its net assets. The fund holds about Rs 172 Crore as cash. The corpus of the
fund is Rs 2,418 Crore. The main feature of the fund is that it hasn‘t seen heavy
redemption pressures throughout its 12 years. It is also one of the wealth creator funds.
Last year return of this fund is 20.56%.
Fund Style
Net Assets (Cr) 1,583.62 (28/02/07) Returns upto 1 year are absolute and over 1 year are
annualised.
Benchmark S&P CNX 500
%
% Composition
Sector Composition
Basic/Engineering 15.67 18
% Composition
16
14
Diversified 13.61 12
10
Health Care 12.62 8
6
4
Construction 12.37 2
0
Diversified
Services
Financial Services
Textiles
Technology
Health Care
Automobile
FMCG
Construction
Basic/Engineering
Products
FMCG 5.6
Services 5.53
Chemicals 4.34
Financial Services 3.77 Sector
Technology 2.21
Metals & Metal
Products 1.8
Textiles 1.72
Fund Speak
The main feature of this fund is that it has beaten its category for eight consecutive years.
The fund is not having large portfolio with number of stocks between 30– 40. Top 5
stocks account for 35-40%. The funds investment policy is to buy quality and sustainable
businesses at a reasonable price. So even if a sector don‘t perform well now, but has
potential to perform in future, the fund will hold on to it. The fund is also known for
quick sector move. The fund doesn‘t offer good returns in 1-2 years, but in long term. It
is also the wealth creator fund. Last year return of this fund is 31% nearly.
Top Holding
Sectoral Assets(%)
Industrial Capital Goods 14.22
Consumer Non Durables 12.10
Pharmaceuticals 11.24
Software 9.57
Auto Ancillaries 9.10
Petroleum Products 7.51
Cement 5.61
Telecom - Services 5.10
Banks 4.81
% Assets
12.00
10.00
Engineering 1.65 8.00
6.00
Transportation 1.60 4.00
Chemicals 1.54 2.00
0.00
Transportation
Industrial Capital
Oil
Metals
Banks
Pharmaceuticals
Auto Ancillaries
Power 1.18
Power
Cement
Money Market
Goods
Instruments/Net
Receivables 2.40
Sector
Fund
The fund maintains a complicated portfolio. The fund has constantly figured in the top
25% of its category. The funds mandate is to move around promising sectors. The
portfolio is highly diversified. Technology stock is the favourite, but fund also has
automobiles, FMCG, metals and engineering. If a sector isn‘t performing the fund
believes in buy and hold strategy. There is no mid and small cap stock in the portfolio as
the exposure doesn‘t typically exceeds 30%. Its fund managers are Mr. Anup
Maheshwari and Mr. Soumendra Lahiri. It is also a wealth creator fund. Last year return
of this fund is 36.4%.
Under normal circumstances, it is anticipated that the asset allocation shall be as follows:
Indicative Allocation (% of
Instrument Risk Profile
Corpus)
HIGHLIGHTS
INVESTMENT OBJECTIVE
An Open Ended growth Scheme, seeking to generate long term capital appreciation and
whose secondary objective is income generation and the distribution of dividend from a
Portfolio constituted of equity and equity related securities concentrating on the
Investment Focus of the Scheme.
ASSET ALLOCATION
Equity & Equity related securities: 80% - 100%
Fixed Income securities (Debt* & Money market securities): 0% - 20%.
Debt securities/ instruments are deemed to include securitised debts
Major Holdings
Sector % Assets
MEDIA &
ENTERTAINMENT 8.11
CEMENT 7.9
PETROLEUM
PRODUCTS 7.03
BANKS 6.17
TELECOM - SERVICES 5.84
CONSUMER NON
DURABLES 5.35
CONSTRUCTION 5.15
AUTO 4.55
NON - FERROUS
METALS 3.03
OIL 2.74
TEXTILE PRODUCTS 2.51
PHARMACEUTICALS 2.21
AUTO ANCILLARIES 1.18
INDUSTRIAL 1.15
% Assets
12
PESTICIDES 0.88 10
8
CHEMICALS 0.68 6
4
FERTILISERS 0.44 2
0
TEXTILE
CONSTRUCTION
INDUSTRIAL
RETAILING
TELECOM -
AUTO
PETROLEUM
MEDIA &
CHEMICALS
CONSUMER
FERROUS
CASH &
NON - FERROUS
CASH & EQUIVALENT 4.55
SOFTWARE 14.35
INDUSTRIAL CAPITAL
GOODS 11.98
Sector
Transportation has a share of 0.58% and Retailing has a share of 0.51% in the portfolio.
Net Asset Value
Ownership Private
The group has a net worth of around Rs.2,900 crore and employs around 8,800
employees across its various businesses servicing around 2 million customer accounts
through a distribution network of branches, franchisees, representative offices and
Fund
This fund has generated a decent income for its investors with reasonably low level of
volatility. 60-70% of its portfolio consists of high yield assets such as bonds, commercial
paper, corporate deposits and securitised debts. The balance is employed in riskier
government securities. Risk management is most important for this fund. Emphasis on
high yield portfolio has kept the fund‘s volatility low. It is the fourth best performing
income fund in past six months based on returns. The portfolio of the scheme consists of
debt and money market instruments. The investment strategy is to invest across wide
maturity horizons and different kind of issuers in debt market, the G-Sec component is
normally maintained between 30-50% and it generally doesn‘t invest in corporate bonds
with less than AA rating. It is to be noted that NAV of this fund never fell down, even
when the Sensex was down. The fund is income generator. Last year return of this fund is
7%.
Investment Objective
To generate stable long term returns with low risk strategy and capital appreciation/
accretion through investment in debt instruments and related securities besides
preservation of capital.
JM Financial Mutual Fund is one of India's first private sector mutual funds-an integral
part of the first wave that commenced operations in 1993-94. Today, they are among the
top most mutual funds in the country, ranked by assets managed, and enjoy a superior
performance record.
The Group's origins can be traced back to the 1950s when the Kampani family began to
get involved in India's then nascent capital markets. J.M. Financial and Investment
Consultancy Services was founded on September 15, 1973. Under the leadership of
Chairman Nimesh N. Kampani, the JM Group has played a stellar and multi-faceted role
in the development of India's capital markets. Apart from helping companies raise
finance, JM has also been instrumental in educating a burgeoning and prospering middle
Their mission is to manage risk effectively while generating top quartile returns across all
product categories. They believe that to cultivate investor loyalty, they must provide a
safe haven for their investments.
They are focused on helping their investors realize their investment goals through prudent
advice, judicious fund management, impeccable research, and strong systems of
managing risk scientifically.
Fund
The fund has given a one year return of 2.6% and five year return of 7.7%. The
philosophy behind investment is that invest in papers that offers value to the investor i.e.
they consider the relative value and the spread offered by the paper in a maturity bucket
instead of just the absolute yield. The fund is in medium risk-return segment. The net
assets are mainly invested in AAA rated instruments. The top 5 holdings account for
55.6% of total assets. The major risks associated are Interest Rate Risk, Liquidity Risk,
and Reinvestment Risk. Nearly 25% of total assets are held as cash. The portfolio
basically includes corporate bonds, money market instruments, g-sec investments. The
fund is income generator. Last year return of this fund is 3%.
UTI Mutual Fund is managed by UTI Asset Management Company Private Limited who
has been appointed by the UTI Trustee Company Private Limited for managing the
schemes of UTI Mutual Fund and the schemes transferred / migrated from UTI Mutual
Fund.
The UTI Asset Management Company has its registered office at : UTI Tower, Gn
Block, Bandra - Kurla Complex, Bandra (East), Mumbai - 400 051 will provide
professionally managed back office support for all business services of UTI Mutual Fund
(excluding fund management) in accordance with the provisions of the Investment
Management Agreement, the Trust Deed, the SEBI (Mutual Funds) Regulations and the
objectives of the schemes. State-of-the-art systems and communications are in place to
ensure a seamless flow across the various activities undertaken by UTI AMC.
UTI AMC is a registered portfolio manager under the SEBI (Portfolio Managers)
Regulations, 1993 on February 3 2004, for undertaking portfolio management services
and also acts as the manager and marketer to offshore funds through its 100 % subsidiary,
UTI International Limited, registered in Guernsey, Channel Islands.
UTI Mutual Fund has come into existence with effect from 1st February 2003. UTI Asset
Management Company presently manages a corpus of over Rs. 34500 Crore.
UTI Mutual Fund has a track record of managing a variety of schemes catering to the
It has reset and upgraded transparency standards for the mutual funds industry. All the
branches, UFCs and registrar offices are connected on a robust IT network to ensure cost-
effective quick and efficient service. All these have evolved UTI Mutual Fund to position
as a dynamic, responsive, restructured, efficient, and transparent and SEBI compliant
entity.
Fund
It is a income scheme with relatively low volatility and stable returns. Time horizon of
investment is medium. Investing way being conservative, so a portfolio of Corporate
Bonds and g-sec is made. The fund has seen a slow but sure growth in NAV. The fund
avoids extreme swings in either maturity or duration. It has a corpus of Rs. 388.98 Crore.
The top 10 holdings has major share of corporate bonds than g-sec. nearly 61.7% holding
is of AAA rated bonds. Emphasis is on adding value through multiple, diversified
strategies combined with volatility analytics, and adjustment to traditional variables such
as sector, coupon & quality of companies. The average maturity of its portfolio is 3 years.
Its fund manager is Mr. Amandeep Chopra. Last year return of this fund is 4.7%.
Portfolio
MARKET- % TO
NAME OF THE INSTRUMENT QUANTITY VALUE NAV
Debt Instruments -
(b) Unlisted
NCDR 6.58% INDUSTRIAL DEVELOPMENT BANK OF INDIA LIMITED.
MATURING 23/08/2010 250 2500 7.98
PTC 8.8479% ICICI BANK LTD MATURING 22/10/2009 25 2366.27 7.55
NCD 6.58% TATA SONS LTD. MATURING 14/05/2008 15 1452.54 4.64
PTC 0% TATA MOTORS LTD. MATURING 14/01/2008 15 1090.64 3.48
NCD 13.05% HONGKONG & SHANGHAI BANKING CORP.LT MATURING
10/08/2009 10 1079.8 3.45
NCD 8.75% CITICORP FINANCE INDIA LTD. MATURING 12/09/2009 100 986.82 3.15
PTC 11.22% STANDARD CHARTERED BANK MATURING 15/05/2014 1000000 736.73 2.35
PTC 11.22% STANDARD CHARTERED BANK MATURING 15/07/2013 900000 594.03 1.9
PTC 0% ICICI BANK LTD MATURING 07/02/2009 20 536.45 1.71
NCD 11.75% CITIBANK N.A. MATURING 31/01/2010 5 530.98 1.69
PTC 11.22% STANDARD CHARTERED BANK MATURING 15/10/2014 500000 380.41 1.21
PTC 11.22% STANDARD CHARTERED BANK MATURING 15/06/2014 500000 369.19 1.18
PTC 11.22% STANDARD CHARTERED BANK MATURING 15/02/2014 511000 364.79 1.16
PTC 11.22% STANDARD CHARTERED BANK MATURING 15/04/2013 167000 106.52 0.34
PTC 11.85% LIC HOUSING FINANCE LTD. MATURING 01/04/2007 25 0.64 *
PTC 11.85% HDFC LTD. MATURING 01/06/2007 20 0.63 *
PTC 10.25% LIC HOUSING FINANCE LTD. MATURING 01/05/2007 7 0.25 *
TOTAL:(b) Unlisted 13096.69
TOTAL:Debt Instruments - 24629.17
Others -
GSEC 7.59% RESERVE BANK OF INDIA MATURING 23/03/2015 150000000 1450.35 4.63
C D KOTAK MAHINDRA BANK LTD. MATURING 21/12/2007 100000000 928.03 2.96
GSEC 7.44% RESERVE BANK OF INDIA MATURING 23/03/2012 85000000 826.64 2.64
TOTAL: 3205.02
Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989 and
contributed Rs. 2 Crores towards the corpus of the Fund. LIC Mutual Fund was
constituted as a Trust in accordance with the provisions of the Indian Trust Act, 1882.
The Settlor is not responsible for the management of the Trust. The Settlor is also not
responsible or liable for any loss or shortfall resulting in any of the schemes of LIC
Mutual Fund.
The Trustees of the LIC Mutual Fund have exclusive ownership of Trust Fund and are
vested with general power of superintendence, discretion and management of the affairs
of the Trust. LIC Mutal Fund Asset Management Company Ltd. was formed on 20th
April 1994 in compliance with the Securities and Exchange Board of India (Mutual
Funds) Regulations, 1993. The Company commenced business on 29th April 1994. The
Trustees of LIC Mutual Fund have appointed LIC Mutual Fund Asset Management
Company Ltd. as the Investment Managers for LIC Mutual Fund. The Trustees are
responsible for appointing a Custodian. The Trustees should also ensure that the activities
of the Trust and the Asset Management Company are in accordance with the Trust Deed
and the SEBI Mutual Fund Regulations as amended from time to time. The Trustees have
also to report periodically to SEBI on the functioning of the Fund.
Fund
Life Insurance Corporation Mutual Fund Bond is one of the consistent performers in the
income category fund. This is due to high exposure to corporate bonds. In August 2006 it
was having 87.4% of its net assets as corporate bonds. It is the only income fund that
doesn‘t give exposure to government security. The average maturity of its portfolio is 1.3
years. Ten year yield of the fund is nearly 7.6-7.7%. In its portfolio 24.3% holding is of
AA- & AA+ bonds. The annual average return is 7.75% in comparison to the category
average of 7.34%. Last year return of this fund is 4.43%.
Portfolio
Net Assets
I C I C I BANK
TIS CO
1.2
10.43 17.1 ACC
2.74
SUNDARAM FINANCE
9.29 FINOLEX INDUSTRIES
GOVT. SECURITIES
RABO INDIA FINANCE
JSW STEEL
16.67
9.29 DSP ML CAPITAL
KOTAK MAHINDRA PRIME
4.79
11.24 4.65 INDIAN RETAIL ABS TRUST
3.44 4.57 4.59
ASSET SECURITIES TRUST
Cash 'n' Call, Current Assets & Receivables
There are basically two ways to invest in a Mutual Fund. These are: -
One Time Investment
Systematic Investment Plan (SIP)
In this way of investment investor pays the entire investment amount in one time only.
The minimum amount that must be invested in such a way is Rs. 5,000/- only. An entry
load of 2.25% (nearly every fund charges) has to be paid by the investor. Depending
upon the Net Asset Value (NAV) of the fund units are allotted to the investor. Let us
understand it with the help of an example.
Let an investor wants to invest Rs 12,000/- in one time only in Reliance Equity Fund. At
the date of investment let the NAV of the fund be Rs 12/- per unit. Than the number of
units that the investor will get is as follows: -
This way of investment is recommended for those investors who are sensitive because
"emotions" may make the investor susceptible to "mistakes in timings of his purchases
and sales". However with this way of investment the investor might loose future
opportunities as available in SIP due to fluctuations in Sensex.
SIP is a method of investing a fixed sum, regularly, in a mutual fund. It is very similar to
regular saving schemes like a recurring deposit.
An SIP allows you to buy units on a given date each month, so that you can implement an
investment / saving plan for yourself. Once you have decided on the amount you want to
invest every month and the mutual fund scheme in which you want to invest, you can
either give post-dated cheques or ECS instruction, and the investment will be made
regularly. SIPs generally start at minimum amounts of Rs 500 per month and the upper
limit for using an ECS is Rs 25000 per instruction. Therefore, if you wish to invest Rs
100,000 per month, you may need to do it on 4 different dates.
In this way of investment investor pays the entire investment amount over a time period
generally 1 year. The minimum amount that must be invested in such a way is Rs. 6,000/-
only i.e. Rs 500/- a month at least continuously for one year. An investor can invest any
amount in multiple of 5. Entry load of 2.25% (nearly every fund charges) has to be paid
by the investor every month. Depending upon the Net Asset Value (NAV) of the fund
units are allotted to the investor. Let us understand it with the help of an example.
So in the month of February the total units holded by the investor are 81.50 + 78.24 =
159.74 units.
In the same way investor will invest Rs 1000/- every month continuously for next 10
months. Depending upon the NAV every month investor will get units after deducting the
entry load.
The main advantage in SIP is that if Sensex is down on the day of investment than
previous day investor will get more units as NAV will also fall generally. The investor
can invest using SIP every month, quarterly, half yearly.
It is to be noted that Investor can do additional purchase any time both in One time
investment as well as SIP.
Instead of simply adding X-amount into your portfolio every month (week, semester,
year...) you decide in the beginning, how much your portfolio shall be worth any given
time. (I.e. you start with a sum X to start with, and you decide to increase your portfolio
by a certain sum per month.)
The value of your portfolio will of course fluctuate according the movements of the
markets, and thus will you have to put in more money every month, when the markets
drop (to keep up with your projected growth) or less when the markets rise. There might
even be times when you will have to withdraw moneys when markets make a big jump
up.
This all seems logic in an academic sense, as it really forces you to buy low, and sell
high. This investment way is not practiced till time.
Comparison of returns from a fund in same time period using different investment
ways
Assumptions
1 There is no withdrawals from the selected funds from 1 st February, 2006 to 2nd January,
2007 by the investor.
Fund: -
RELIANCE GROWTH FUND
Calculations
In the same way units purchased for the next 11 months has been calculated.
Here our objective is that in 1 st month the value of our investment should be Rs 1,000/-
and in 2nd month it should be Rs 2,000/-. Similarly in the beginning of 12 th month it
should be Rs 12,000/-.
Calculations
Now
On March 01, 2006
In the same way we will calculate the investment require to be made in next ten months.
It is being assumed that Entry Load will be charged every month like in case of SIP.
Returns
Kotak Mahindra
Using the same way and method as used in calculation of return of Reliance using Value
Averaging we will find that
One year return = 1.73%
Average Price = Rs 18.7653
Average Cost = Rs 19.17
Like a traveler, who after completing his long and arduous journey reaches his
destination and looks back upon the area covered by him for recalling the important
landmarks and experiences he came across; similarly, it would be desirable to review
the various aspects of the present study. So prior to winding up this study, an attempt is
made to summarize its major findings and suggestions on the basis of forgoing chapters.
1. All the Equity related funds invested in high growth, current high importance sectors
Like Energy, Infrastructure, IT, Telecom, Oil, Auto etc.
2. To maintain liquidity all the mutual funds have cash holdings of nearly 10% out of
there total assets. Maintaining cash also enables them to invest in any lucrative
instrument as it comes.
3. NAV of all the equity related funds fell down in June, July, and August 2006 due to
Fall in the Sensex. However those funds which invested in safer instruments like Bonds,
Government Securities there NAV were not much affected.
5. The one year equity related funds is higher than other funds. It proves the principal of
high risk, high return.
7. As the NAV increases, the number of units which an investor gets decreases and vice-
versa.
8. Average Price which a investor has to pay to invest in a mutual fund was found to be
less in one time investment than opting for SIP or Value Averaging (if available).
9. Average Price which an investor has to pay to invest in a mutual fund was found to be
equal in SIP and Value Averaging.
10. Average Cost associated with a mutual fund was found to be least in one time
investment than Value Averaging, whose average cost was further less than that
associated with SIP.
11. Average Price, Average Cost in one time investment was found to be less in
comparison to other investing ways. This is one of the reasons why its one year returns
are more.
12. To practically implement value averaging the minimum amount condition like in SIP
has to be eliminated. As we have seen in the calculations at one time investor was
investing Rs. 1596/- and at other Rs 158/- only.
13. One year return in One time investment was found to be more than in Value
Averaging investment way, which was further high than one year return using SIP.
1. Best time to invest in stock market is when it is down because with same investment
money he will get more value.
2. Mutual Fund is the best way to enter into market particularly for those investors who
want good returns with minimum risk as fund of mutual funds is handled by an expert.
5. Mutual Fund Companies must devise fund considering the end investor in mind.
7. Since there are large number of mutual funds in which an investor can invest, so he
must choose the fund in which investment is to be made by clearly understanding the
little aspects associated with it.
8. Those investors who are risk averse must invest in open ended funds because he can
look at the past performance of the fund under consideration.
9. Diversification of portfolio is must as it will reduce the unsystematic risk and give the
return an edge.
Each investment alternative has its own strengths and weaknesses. Equity related funds
give more returns, but the risk associated is also very high. It would be clearer from the
fact that when Sensex was down in the middle of 2006, the NAV of all the equity related
funds fell down. On the other hand investing in safer instruments like Bank Deposits,
Government Bonds….gives investor the assured return with nearly no risk. But the
returns are very less in comparison to other instruments. So if an investor wants to get
good returns with minimum risk he must invest in basket of securities. Selecting a fund is
not an easy task. So he must do his homework very clearly. While choosing the fund it is
also very necessary that he chose funds investing in different sectors. Mutual Funds are
probably the best investment tool for those persons who don‘t know the basics of Stock
Market but wish to invest in it. As mutual fund investments are taken, care by expert fund
managers so chances of making a loss in the investment are very less.
Right now practical application of investing in mutual fund by using Value Averaging
appears to be difficult. But if it is applied than by investing a small amount an investor
will be able to get good returns in comparison to SIP. A lot of research has to be done
onto it. In last we can conclude that those investors who wish to get good returns with
minimum risk they must invest in mutual funds. But while investing they must consider
there investment objectives, expected returns, risk taking capability. Depending upon
these they must choose the instrument in which they should invest. Further they should
insure that they make investment in basket of instruments as this will give those
advantages of various sectors, at the same time minimize the risk.
www.reliancemutual.com
www.sbimf.com
www.franklintempletonindia.com
www.hdfcfund.com
www.dspmlmutualfund.com
www.kotakmutual.com
www.jmmutual.com
www.licmutual.com
www.utimf.com
www.valueresearchindia.com
www.amfiindia.com
www.mutualfundindia.com
Books
Verma, Dr J.C., ―Mutual Funds & Investment Portfolio‖, Bharat Publications, 2nd
Edition.