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“COMPARITIVE ANALYSIS OF MUTUAL FUNDS” WITH SPECIAL REFERENCE TO SBI MUTUAL FUND
2008 – 2010
COMPANY GUIDE: MR. KAPIL MALIK (H.O.D.- RETAIL) A report submitted in partial fulfilment for the requirement of MBF program
In pursuit of an MBA degree, summer internship is a critical component of the entire process. ‘SBI FUNDS MANAGEMENT PVT. LTD.’ has given me the opportunity to gain invaluable experience under the guidance of Mr. Gaurav Vatsayan (V.P.-Sales, Delhi Region) & Mr. Kapil Mallik (Head- Retail channel). Their continuous support and valuable in hand experience provided me with the conceptual understanding and practical approach needed to work efficiently for this project. The entire SBI Mutual Fund’s staff is praiseworthy. I would like to pay my regards and sincere thanks to my in charge Mr. Sumit Mahajan for Stimulating suggestions and encouragement helped me in all the time of my internship. Last but not the least; I also would like to thank the entire staff of SBI Mutual Fund and all my friends and colleagues who helped whenever I faced any difficult situation. I hope this report, reflecting my learning in the past fourteen weeks, is as beneficial to the organization as it had been to me. Again, I sincerely thank all of them.
- MRINAL MANISH
MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 2
ENR. NO.- 4108078078
This is to certify that the project on “Comparative Analysis of Mutual Funds with special refernce to SBI Mutual Fund ” has been done by Mr. Mrinal Manish with Reference to SBI Mutual Fund, Ashoka Estate, New Delhi as a part of the requirement of the Management of Business Finance (MBF) summer training program. This study is being submitted for approval to Indian Institute of Finance. I declare that the form and contents of the above mentioned project are original and have not been submitted in part or full, for any other degree or diploma of this or any other Organization / Institute/ University.
Signature: -------------------Name: Mrinal Manish Enrollment No. 4108078078 MBF (2008-2010) Indian Institute of Finance
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Finance & its functions are the part of economic activity. Finance is very essentially needed for all types of organizations viz; small, medium, large-scale industries & service sector. Hence the role of finance manager & the subject finance accounting gained maximum importance. Liberalization, globalization & privatization created new challengers to entrepreneur & corporate in carrying they’re day to day activities. So, “finance is regarded as the life blood of a business organization.” Master of business administrator is professional course which develop a new body of knowledge & skill set & make as available for those seeking challenging carriers in the of liberalization & globalization. The goal of the Summer Training is to give a corporate exposure to the students as well as to give them an opportunity to apply theory into the practice. The real business problems are drastically different from class-room case solving. Summer Project aims to providing little insight into working of an organization to a management trainee. Among every stage of knowledge being inculcated in students, practical training in the corporate world plays a significant role in exhibiting and pruning their capabilities. The purpose behind writing a report is to put in to works the practical training that is imparted into me that gives a better and a clear understanding of the experience I got. “COMPARATIVE ANALYSIS OF MUTUAL FUNDS WITH SPECIAL REFERENCE TO SBI MUTUAL FUND”
MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 4
suggestions and limitations. Chapter 4 basically states the Analysis of the Mutual Funds 5. 1. 2. Chapter 2 deals with review of literature. 4. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 5 . Chapter 1 is an introduction of the mutual fund industry and the company. My project is divided into 5 chapters & they are given as under. Chapter 3 states the methodology being used in the project..” the business world. While preparing this project report I got the knowledge about various aspects regarding financial decisions made in organisation like “SBI Mutual Fund Pvt. Ltd.being a very important aspect of SBI Mutual Fund Pvt. I have tried to explore many areas of the subject in my project report. conclusion. Chapter 5 deals with the use of findings. 3. Ltd.
...........................................100 6.... INTRODUCTION…………………………………………………………15-62 1......109 MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 6 III......46 5............... DATA COLLECTION METHOD……................85 4..62 II......102 FACTOR ANALYSIS.78 2.................... Page no.. COMPANY PROFILE………………………………………………...64-74 RESEARCH METHODOLOGY..........……………………………….......................... NEED OF THE STUDY…………………………...........................86 5.....79 3................................17 3.........107 DISCRIMINANT ANALYSIS... INTRODUCTION TO MUTUAL FUNDS……………………………............... WHY COMPARATIVE ANALYSIS OF MUTUAL FUNDS?... INDUSTRY PROFILE…………………………………………………40 4.............…………..............…………............... NEW FUND OFFER (SBI GETS)...75-119 1.... TERMINOLOGY………………………………………………................. INVESTMENT BEHAVIOUR………......61 6..................... ANALYSIS OF THE INDIVIDUAL INVESTOR…….. REVIEW OF LITERATURE…………......... MOST POPULAR FUNDS OF SBI MUTUAL FUND................…………………….....CONTENTS Chapter I... OTHER WORK EXPERIENCE AND LEARNINGS DURING THE PROJECT ........................ ....15 2.......
.....122 • • • • • NAV............125 2........................181 CONCLUSIONS……………………………………………………….........................147 EQUITY SMALL AND MID CAP FUNDS...................155 EQUITY THEMATIC FUNDS........ EXPECTATION OF THE INDUSTRY FROM BUDGET 2009-10..........129 EQUITY LINKED SAVING SCHEMES...................................................124 STANDARD DEVIATION.........................127 • • • • • EQUITY DIVERSIFIED FUNDS....... INTER FIRM COMPARISION...........7..........138 EQUITY LARGE CAP FUNDS..119 IV. MOST POPULAR FUND HOUSE IN TERMS OF HIGHEST INVESTMENT.............................125 TREYNOR RATIO.................................................................................122 BETA...........................................................184 MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 7 .....124 SHARPE RATIO.........121-176 1................ INTRODUCTION..........…………………………...........................................................165 V........................ COMAPARRATIVE ANALYSIS…….............................176 SWOT ANALYSIS........................
....................... BOARD OF DIRECTORS OF SBI MUTUAL FUND......................................... ANALYSIS ACCORDING TO SAVINGS FROM INCOME. RISK PROFILE OF EQUITY DIVERSIFIED FUNDS.........………........SUGGESTIONS ……………......................................... NAV DETAILS OF EQUITY DIVERSIFIED FUNDS................................... Page 1........................................205 ANNEXURE..............................................................................................130 9......................................... PORTFOLIO ANALYSIS OF EQUITY DIVERSIFIED FUNDS.......................135 11............... RISK PROFILE OF ELSS...........................................133 10......... FACTOR ANALYSIS. NATIONAL DISTRIBUTORS...................59 3..................207 TABLE INDEX Table Name no.............192 GLOSSARY……………………………………………....................140 MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 8 ......................129 8.............................88 5...............................................53 2.....................138 12...................................... FUNDS RETURN OF ELSS............ FUNDS RETURN OF EQUITY DIVERSIFIED FUNDS......105 6.....186 AND RECOMMENDATIONS.....................................106 7.... ANALYSIS OF FUNDS ON THE BASIS OF VARIOUS RATIOS................. DESCRIPTIVE WEIGHTED FACTOR COUNTING METHOD.............103 REFERENCES.... LIMITATIONS…………………………………………………..........81 4..
............173 MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 9 ........................... FUNDS RETURN OF SMALL AND MID CAP.................................................................... COMPARISION OF MUTUAL FUNDS AGAINST OTHER INVESTMENT AVENUES..................................... PORTFOLIO ANALYSIS OF ELSS....... FUNDS RETURN OF EQUITY LARGE CAP....................................153 19................................ PORTFOLIO ANALYSIS OF SMALL AND MID CAP........... RISK PROFILE OF EQUITY THEMATIC ..... NAV DETAILS OF ELSS.......147 16..................................160 22...........142 14.................162 23........................171 27...............149 17.................................................................................167 25.................144 15.. PORTFOLIO ANALYSIS OF EQUITY LARGE CAP.169 26.............13.................................165 24.......... NAV DETAILS OF EQUITY THEMATIC...............................................................151 18............ PORTFOLIO ANALYSIS OF EQUITY THEMATIC... FUNDS RETURN OF EQUITY THEMATIC.... NAV DETAILS OF EQUITY LARGE CAP........158 21........................156 20..................................................... NAV DETAILS OF SMALL AND MID CAP...... RISK PROFILE OF SMALL AND MID CAP...................... RISK PROFILE OF EQUITY LARGE CAP.
.....................87 4............. INVESTMENT OBJECTIVES. ANALYSIS ACCORDING TO OCCUPATION............94 8.109 11.... PRODUCT Page no....... ANALYSIS OF THE PREFERENCES OF THE RESPONDENT............................................................................... ANALYSIS ON THE BASIS OF PURCHASE OF INVESTMENT..............129 13................ PORTFOLIO............. SATISFACTION LEVEL WITH SBI......................131 MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 10 ..CHART INDEX Chart name 1...............................100 10.... FUND RETURNS OF EQUITY DIVERSIFIED FUNDS ..................89 5.... ANALYSIS ACCORDING TO AGE..................................96 9.57 2................................... RISK PREFERENCES...... RISK PROFILE OF EQUITY DIVERSIFIED FUNDS.................................................................119 12.........94 7.......... MOST POPULAR FUND HOUSE.............. PREFERABLE ROUTE TO INVESTING IN MUTUAL FUND....................86 3................................93 6. DEMOGRAPHIC FACTORS.
.171 MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 11 ...................162 28..............................................................................................................139 17......................................... FUND RETURNS OF ELSS.....151 23.............165 29.... PORTFOLIO ANALYSIS OF EQUITY THEMATIC..............133 15..............156 25.................... NAV DETAILS OF ELSS........ PORTFOLIO ANALYSIS OF EQUITY SMALL AND MID CAP .....145 20........................167 30.. RISK PROFILE OF EQUITY THEMATIC...............140 18.135 16....... RISK PROFILE OF ELSS........ PORTFOLIO ANALYSIS OF LARGE CAP................................................................... NAV DETAILS OF EQUITY DIVERSIFIED FUNDS..................... NAV DETAILS OF LARGE CAP.........143 19..........158 26....................................147 21.. NAV DETAILS OF EQUITY THEMATIC........ FUND RETURNS OF EQUITY LARGE CAP............14. NAV DETAILS OF EQUITY SMALL AND MID CAP...................................... PORTFOLIO ANALYSIS OF ELSS.149 22......169 31................................ FUND RETURNS OF EQUITY THEMATIC...... FUND RETURNS OF EQUITY SMALL AND MID CAP... RISK PROFILE OF EQUITY SMALL AND MID CAP...160 27..........................154 24..... RISK PROFILE OF EQUITY LARGE CAP.............. PORTFOLI ANALYSIS OF EQUITY DIVERSIFIED FUNDS...............
To see the interest of people in investing in mutual funds. fund. To know the investment behaviour of investors in mutual fund according To ascertain the percentage of income the investors invest in mutual To know the different attitudes of people regarding risk. To know the investors preferred financial product for investment. SCOPE: MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 12 . to different age group. period of investment. rate of return.EXECUTIVE SUMMARY OBJECTIVE: To know the awareness of mutual funds among people.
Individual financial advisors. To maintain relationships with them and make them aware about the new offerings and sort out their existing problems.e.There are four divisions in SBI MF for the purpose of marketing and sales. There are around 250 ND’s and IFA’s in this region. investors. The various steps includes: 1. which depicts the characteristics of the complete population. RESEARCH DESIGN MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 13 . My area of scope is DELHI region. Application of various tools and techniques to obtain relevant information related to a case. Analysis and interpretation of the data. Collection of relevant data. FII’s. 2. 4. National distributors. 4. distributors and brokers. 5. 2. 3. They give special attention for the retention of customers i. FII’s are taking care by head office in MUMBAI. Selection of a representative sample from the general population. 3. METHODOLOGY FOLLOWED: Methodology basically means the selection of the various methods and techniques in the research-conducted. Generation of a final report. Banking. I am under section of National distributors and Individual financial advisors. Four divisions are: 1.
There are 34 fund houses currently operating in India of which four have been in existence for less than three years. Step4: Comparing and Ranking these funds on the basis of inputs from executives and the rating agencies. Step3: Analyses of the parameters and their relevance in comparing the funds. For the purpose of the research. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 14 . I have selected 5 fund houses as mentioned under: SBI Mutual Fund Birla Reliance Prudential ICICI Franklin Templeton The following methodology is adopted for Comparison Step1: Selection of few well-performing Funds of Big Fund Houses of India. This includes collecting the information through field research. The findings and the analysis have been mentioned further in the report. data is to be analyzed. a personal interview was conducted with the help of questionnaire and the required information was collected for the respondents. DATA COLLECTION The primary data collection was the most important part of the project. Step5: Generation of a project report. For collecting information. Whereas till 2004. DATA ANALYSIS After collecting the data. hardly a few equity schemes were launched each year. Step2: Collection of data (against various parameters) for comparison of Funds. that number has grown by 8-10 times now.
1. INTRODUCTION WHY COMAPARATIVE ANALYSIS OF MUTUAL FUNDS? All over the world. The mutual fund industry in India is regulated by Association of Mutual Funds in India (AMFI). The mutual fund industry in India is of 493. Its popularity with consumer has dramatically increased over the last couple of years worldwide. mutual fund is one of the most popular instruments for investment.287 crores approx. SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an enviable track record in judicious investments and consistent wealth creation. In developed financial market like United States. the mutual fund has a long and successful history. The popularity of mutual fund has increased manifold. mutual has almost overtaken bank deposits and total assets of insurance funds. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 15 .
The fund serves this vast family of investors by reaching out to them through network of over 130 points of acceptance.1955 based on the recommendations of All India Rural Credit Survey Committee(1954) headed by Shri A. 46 investor service desks and 56 district organizers. more particularly in rural and semi-urban areas. Its evolution is not only intimately interwoven with the economic development of modern India but also with our nation building process to an extent perhaps unparalleled in the world. SBI Mutual is the first bank-sponsored fund to launch an offshore fund – Resurgent India Opportunities Fund. the fund manages over Rs. 28 investor service centers. patronized by over 80% of the top corporate houses of the country. one of the world’s leading fund management companies that manages over US$ 500 Billion worldwide. Growth through innovation and stable investment policies is the SBI MF credo State Bank of India was born on 1st July.6 million investors have reposed their faith in the wealth generation expertise of the Mutual Fund. the largest and the highest profit making bank in India. The institution has grown immensely since its inception and today it is India's largest bank. The main objective of SBI is “Extension of Banking facilities on a large scale. In the process it has rewarded its investors handsomely with consistently high returns. SBI Mutual Fund is a joint venture between the State Bank of India and Société Générale Asset Management. through an Act of Parliament. the fund has launched 38 schemes and successfully redeemed fifteen of them. 28500 crores of assets and has a diverse profile of investors actively parking their investments across 36 active schemes. Schemes of the Mutual fund have consistently outperformed benchmark indices and have emerged as the preferred investment for millions of investors and HNI’s. A total of over 4. In twenty years of operation.The fund traces its lineage to SBI . and for diverse other public purposes and to transfer to it the undertaking of the Imperial Bank of India and provide for other matters connected thereto or incidental thereto.D Gorwala.India’s largest banking enterprise.”SBI is the oldest. Moving like colossuses MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 16 . Today.
Only 5% of total potential of this industry has been grabbed. As Indian economy is growing at the rate of 8% per annum. That’s why it is so much interactive. we can see its effect in all areas. SBI with its extensive network of over 9000 branches has vast clientele and extends service not only on commercial basis but also on the basis of social considerations. The mutual fund industry is burgeoning. The project entitled “Comparison of Mutual Fund with special reference to SBI Mutual Fund” gives me an opportunity to enhance my knowledge of mutual funds industry and gives me an insight of business processes of different types of client. The Bank is also on its way to introduce and absorb technology extensively at a rapid speed not only to remain customer-friendly and efficient for existing business but also to manage new business and services in an increasingly dynamic and global environment. As the future prospects for Indian companies are bright. it is completely untapped market. Hence this industry has a lot of opportunities in it.on the Indian financial turf. This is increasing liquidity in the market and hence increasing the money in the hands of people and thus investment. they have lots of opportunities to expand their business worldwide. More and more fund is pouring in our country. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 17 . the investment in Indian companies. The Indian stock market and companies have become lucrative for foreign investors. it has become a symbol of national pride and economic development. INTRODUCTION TO MUTUAL FUNDS Mutual fund is a buzz in the market these days.
the mutual fund vehicle exploits economies of scale in all three areas . These could range from shares to debentures to money market instruments. investments and transaction processing. real estate. bonds and other fixed income instruments. there are thousands of firms offering tens of thousands of mutual funds with different investment objectives. A typical individual is unlikely to have the knowledge.A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The income earned through these investments and the capital appreciations realized by the scheme are shared by its unit holders in proportion to the number of units owned by them (pro rata). understand their implications and act speedily. A mutual fund is the answer to all these situations. inclination and time to keep track of events. Markets for equity shares. professionally managed portfolio at a relatively low cost. Globally. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. A mutual fund is the ideal investment vehicle for today’s complex and modern financial scenario. mutual funds collectively manage almost as much as or more money as compared to banks. In fact. The large pool of money collected in the fund allows it to hire such staff at a very low cost to each investor. An individual also finds it difficult to keep track of ownership of his assets. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 18 . brokerage dues and bank transactions etc. While the concept of individuals coming together to invest money collectively is not new.research. Today. skills. the mutual fund in its present form is a 20th century phenomenon. mutual funds gained popularity only after the Second World War. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. In effect. Price changes in these assets are driven by global events occurring in faraway places. Each Mutual Fund scheme has a defined investment objective and strategy. derivatives and other assets have become mature and information driven. investments. It appoints professionally qualified and experienced staff that manages each of these functions on a full time basis. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified.
these sponsors need approval from a regulator. as in most countries. the sponsors promote the Asset Management Company also. Some of the older public and private sector players will either close shop or be taken over. A sponsor then hires an asset management company to invest the funds according to the investment objective. Typically.g. In the private sector this trend has already started with two MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 19 . Birla Global Finance is the sponsor of the Birla Sun Life Asset Management Company Ltd. It also hires another entity to be the custodian of the assets of the fund and perhaps a third one to handle registry work for the unit holders (subscribers) of the fund. in which it holds a majority stake. E. which has floated different mutual funds schemes and also acts as an asset manager for the funds collected under the schemes. Future Scenario The asset base will continue to grow at an annual rate of about 30 to 35 % over the next few years as investor’s shift their assets from banks and other traditional avenues. In many cases a sponsor can hold a 100% stake in the Asset Management Company (AMC). close down or merge with stronger players in three to four years. In the Indian context.. SEBI (Securities exchange Board of India) in our case. the costs involved in the process and the broad rules for entry into and exit from the fund and other areas of operation. it pre specifies the investment objectives of the fund. the risk associated. Out of ten public sector players five will sell out. In India.A draft offer document is to be prepared at the time of launching the fund. SEBI looks at track records of the sponsor and its financial strength in granting approval to the fund for commencing operations.
But this does not mean there is no room for other players. Importantly. Product innovation is now passé with the game shifting to performance delivery in fund management as well as service. while others have decided to close shop by either selling off or merging with others.mergers and one takeover. Some big names like Fidelity. One important reason for it is that most major players already have presence here and hence these big names would hardly like to get left behind. are looking at Indian market seriously. In spite of the stiff competition and losing market share. many market players have called on the Regulator to initiate the process immediately. The mutual fund industry is awaiting the introduction of derivatives in India as this would enable it to hedge its risk and this in turn would be reflected in it’s Net Asset Value (NAV). Last six years have been the most turbulent as well as exiting ones for the industry. SEBI is working out the norms for enabling the existing mutual fund schemes to trade in derivatives. registrars and transfer agents. and Old Mutual etc. The market will witness a flurry of new players entering the arena. UTI still remains a formidable force to reckon with. so that the mutual funds can implement the changes that are required to trade in Derivatives. Principal. and even the regulators have become more mature and responsible. Here too some of them will down their shutters in the near future to come. New players have come in. Market Trends A lone UTI with just one scheme in 1964 now competes with as many as 400 odd products and 34 players in the market. There will be a large number of offers from various asset management companies in the time to come. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 20 . Those directly associated with the fund management industry like distributors.
FMCG and technology sector. (Source: Think-tank. which averaged at less than Rs100bn per annum over five-year period spanning 1993-98 doubled to Rs210bn in 1998-99. Many investors are realizing that investments in savings accounts are as good as locking up their deposits in a closet. Fund managers. Funds have shifted their focus to the recession free sectors like pharmaceuticals. The basic fact lies that banks cannot MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 21 . 99) This is forcing a large number of banks to adopt the concept of narrow banking wherein the deposits are kept in Gilts and some other assets which improves liquidity and reduces risk. In the current year mobilization till now have exceeded Rs300bn. The power shift towards mutual funds has become obvious. In India. Funds performances are improving.S. the new generations of private funds which have gained substantial mass are now seen flexing their muscles.The industry is also having a profound impact on financial markets. The fund mobilization trend by mutual funds in the current year indicates that money is going to mutual funds in a big way. by their selection criteria for stocks have forced corporate governance on the industry. but this trend is beginning to change. The U. India is at the first stage of a revolution that has already peaked in the U. the Financial Express September. What is particularly noteworthy is that bulk of the mobilization has been by the private sector mutual funds rather than public sector mutual fundsMutual funds are now also competing with commercial banks in the race for retail investor’s savings and corporate float money. The coming few years will show that the traditional saving avenues are losing out in the current scenario. While UTI has always been a dominant player on the bourses as well as the debt markets. Funds collection. a system of risk-reward has been created where the corporate sector is more transparent then before.S. mutual fund assets are not even 10% of the bank deposits. Total collection for the current financial year ending March 2000 is expected to reach Rs450bn. Recent figures indicate that in the first quarter of the current fiscal year mutual fund assets went up by 115% whereas bank deposits rose by only 17%. By rewarding honest and transparent management with higher valuations. boasts of an Asset base that is much higher than its bank deposits.
MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 22 .be ignored and they will not close down completely. WHAT IS A MUTUAL FUND? A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. It offers an opportunity to invest in a diversified. Their role as intermediaries cannot be ignored. which are classified to form portfolios that meet predetermined objectives and criteria. professionally managed basket of securities at a relatively low cost. It is just that Mutual Funds are going to change the way banks do business in the future. With a mutual fund. we get a diversified basket of stocks managed by professionals” These Trusts are run by experienced Investment Managers who use their knowledge and expertise to select individual securities. The flow chart below describes broadly the working of a mutual fund: Pool their money with Investors Fund managers Invest in Passed back to Returns “Mutual Funds are popular among all income levels.
They monitor the performance and compliance of SEBI Regulations by the mutual fund. Organization of a Mutual Fund A mutual fund is set up in the form of a trust. They offer the investors the following main services: Portfolio Diversification Marketability: A new financial asset is created that may be more easily marketable than the underlying securities in the portfolio. The trustees of the mutual fund hold its property for the benefit of the unit holders. The trustees are vested with the general power of superintendence and direction over AMC. Custodian. who is registered with SEBI. Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of securities. TYPES OF MUTUAL FUND SCHEMES MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 23 . trustees.These portfolios are then sold to the public. 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. holds the securities of various schemes of the fund in its custody. which has sponsor.
some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. These do not have a fixed maturity. The key feature of open-end schemes is liquidity. Interval Funds: . Closed ended Funds: A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. In order to provide an exit route to the investors.Mutual fund schemes may be classified on the basis of its structure and its investment objective. Interval funds combine the features of open-ended and close-ended schemes. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. They are open for sale or redemption during pre-determined intervals at NAV related prices By Investment Objective Growth Funds: MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 24 . 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. By Structure: Open-ended Funds: An open-end fund is one that is available for subscription all through the year. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor.
It has been proved that returns from stocks. have outperformed most other kind of investments held over the long term. Income Funds are ideal for capital stability and regular income. In a rising stock market. Such schemes normally invest a majority of their corpus in equities. Growth schemes are ideal for investors having a long term outlook seeking growth over a period of time. certificates of deposit. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 25 . 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. preservation of capital and moderate income. or fall equally when the market falls. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods. Such schemes generally invest in fixed income securities such as bonds. Income Funds: The aim of income funds is to provide regular and steady income to investors. the NAV of these schemes may not normally keep pace.The aim of growth funds is to provide capital appreciation over the medium to long term. Balanced Fund: The aim of balanced funds is to provide both growth and regular income. commercial paper and inter-bank call money. corporate debentures and Government securities. MoneyMarketFunds: The aim of money market funds is to provide easy liquidity. These schemes generally invest in safer short-term instruments such as treasury bills. These are ideal for investors looking for a combination of income and moderate growth.
Other Schemes Tax Saving Schemes: These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. • Index Schemes Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50 • Sectoral Schemes Sectoral Funds are those which invest exclusively in a specified sector. The Act also provides opportunities to investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds. 1961. Special Schemes • Industry Specific Schemes Industry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like InfoTech. and Pharmaceuticals etc. FMCG. This could be an industry or a group of industries or various segments such as 'A' Group shares or initial public offerings MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 26 . Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act.
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.BENEFITS OF MUTUAL FUNDS Diversification Professional management Tax benefits Affordability Transparency Professional Management Mutual Funds provide the services of experienced and skilled professionals. Diversification MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 27 .
bonds. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. mutual funds are a relatively less expensive way to invest compared to directly custodial and other fees translate into lower costs for investors. depending upon the investment objective of the scheme. shares etc. 2002 will be subject to tax in the assessment of all unit-holders. Low Costs Investing in the capital markets because the benefits of scale in brokerage. Affordability A mutual fund invests in a portfolio of assets. mutual funds have the potential to provide a higher return as they invest in a diversified basket of selected securities. Liquidity MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 28 . i. as a measure of concession to Unit holders of open – ended and equity – oriented funds. will be taxed at a concessional rate of 10%.e. However. which would otherwise be extremely expensive. You achieve this diversification through a Mutual Fund with far less money than you can do on your own.Mutual Funds invest in a number of companies across a broad cross – section of industries and sectors. income distributions for the year ending March 31. Return Potential Over a medium to long – term. 2003. Tax Benefits Any income distributed after March 31. An investor can buy into a portfolio of equities.
Tax breaks Last but not the least. Flexibility Through features such as regular investment plans. 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 investor gets the money back promptly at MAV related prices from the mutual fund. Dividends distributed by them are tax-free in the hands of the investor. the proportion invested in each class of assets and the fund manager’s investment strategy and outlook.In open – ended schemes. In closed – ended 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. regular withdrawal plans and dividend reinvestment plans. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 29 . Transparency You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme. mutual funds offer significant tax advantages. you can systematically invest or withdraw funds according to your needs and convenience.
If you hold units beyond one year. Simply put. This reduces your tax liability. In addition. you get the benefits of indexation. Restrictive gains MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 30 . your investment in a mutual fund can fall in value. a subsidiary of the Reserve Bank of India). unlike bank deposits. this must be your mantra: mutual funds do not offer assured returns and carry risk.000 in the scheme in a year No assured returns and no protection of capital If you are planning to go with a mutual fund. tax-saving schemes and pension schemes give you the added advantage of benefits under Section 88. mutual funds are not insured or guaranteed by any government body (unlike a bank deposit. For instance. indexation benefits increase your purchase cost by a certain portion. This is because most closed-end funds that assured returns in the early-nineties failed to stick to their assurances made at the time of launch.They also give you the advantages of capital gains taxation. What’s more. depending upon the yearly cost-inflation index (which is calculated to account for rising inflation). thereby reducing the gap between your actual purchase cost and selling price. You can avail of a 20 per cent tax exemption on an investment of up to Rs 10. There are strict norms for any fund that assures returns and it is now compulsory for funds to establish that they have resources to back such assurances. resulting in losses to investors. where up to Rs 1 lakh per bank is insured by the Deposit and Credit Insurance Corporation.
Hence it is up to you. say. RISK ASSOCIATED WITH MUTUAL FUNDS Credit inflation Political RISKS Liquidity Market Risk-Return Trade Off The most important relationship to understand is the risk-return trade off. However. will see only a 5 per cent appreciation. the investor to decide how much risk you are willing to take. if risk minimization is your objective. But your investment in the mutual fund.Diversification helps. A direct investment in the stock would appreciate by 50 per cent. In order to do this you MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 31 . Reliance appreciated 50 per cent. In our earlier example. Higher the risk greater the returns/loss and lower the risk lesser the returns/loss. which had invested 10 per cent of its corpus in Reliance. the lack of investment focus also means you gain less than if you had invested directly in a single security.
Credit Risk The debt servicing ability of a company through its cash flows determines the Credit Risk faced by you. This is known as Market Risk. Inflation Risk Inflation is the loss of purchasing power over a time. A well–diversified portfolio with some investment in equities might help mitigate this risk.must first be aware of the different types of risks involved with your investment decision. may it be big corporations or smaller midsized companies. This credit risk is measured by independent rating agencies like CRISIL who rate companies and their paper. This is true. A lot of times people make conservative investment decisions to protect their capital but end up with a sum of money that can buy less than what the principal could. at the time of investment. Interest Rate Risk In a free market economy interest rates are difficult and not impossible to predict. Market Risk Sometimes prices and yields of all securities rise and fall. A ‘AAA’ rating is considered the safest whereas a ‘D’ rating is considered poor credit quality. If interest rates MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 32 . A well – diversified portfolio might help mitigate this risk. Broad outside influences affecting the market lead to this. A Systematic Investment Plan (SIP) that works on the concept of Rupee Cost Averaging (RCA) might help mitigate the risk. Changes in interest rates affect the prices of bonds as well as equities.
real estate. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 33 . for example. but you should also be aware of the drawbacks associated with mutual funds. They can create a favourable environment for investment or vice versa. fixed deposits etc. staggering of maturities as well as internal risk controls that lean towards purchase of liquid securities. during one period of time equities might under perform but bonds and money market instruments might do well enough to offset the effect of a slump in the equity Markets. Equity might be negatively affected as well in a rising interest rate environment. Liquidity Risk Liquidity risk arises when it becomes difficult to sell the securities that one has purchased. It simply means that you must spread your investment across different securities (stocks.rise. money market instruments. DISADVANTAGES OF MUTUAL FUNDS There are certainly some benefits to mutual fund investing. Political Risk Changes in government policy and political decision can change the investment environment.). A well-diversified portfolio might help mitigate this risk. the prices of bonds will fall and vice versa. bonds. It can be partly mitigated by diversification. This kind of a diversification may add to the stability of your returns.
Dilution: Although diversification reduces the amount of risk involved in investing in mutual funds. For example. some mutual funds charge high sales commissions. it can also be a disadvantage due to dilution.0% to 1. the mutual fund itself would not double in value because that security is only one small part of the fund's holdings. Fees and Expenses: Most mutual funds charge management and operating fees that pay for the fund's management expenses (usually around 1. and a growing number of critics now question whether or not professional money managers have better stock-picking capabilities than the average investor. And some funds buy and trade shares so often that the transaction costs add up significantly. losses can occur. although regulated by the government. 3. 12b-1 fees. 4. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 34 .5% per year). for which a commission is paid only when you buy and sell . In fact. and it is possible (although extremely unlikely) that you could even lose your entire investment. are not insured against losses. That means that despite the riskreducing diversification benefits provided by mutual funds.1. on average. and redemption fees. around 75% of all mutual funds fail to beat the major market indexes. unlike stock investments. 2. mutual funds tend to do neither exceptionally well nor exceptionally poorly. No Insurance: Mutual funds. Poor Performance: Returns on a mutual fund are by no means guaranteed. credit unions. In addition. Some of these expenses are charged on an ongoing basis. and savings and loans. like the S&P 500. not mutual funds. By holding a large number of different investments. The Federal Deposit Insurance Corporation (FDIC) only insures against certain losses at banks. if a single security held by a mutual fund doubles in value.
This can make it difficult for you when trying to manage your portfolio. Although this provides investors with liquidity. 7. 8. This is especially true of funds that focus on small companies. 6. You can only buy and sell them at the end of the day. which tends to lower the investor's potential return. Inefficiency of Cash Reserves: Mutual funds usually maintain large cash reserves as protection against a large number of simultaneous withdrawals. given that there are strict rules about how much of a single company a fund may own. it means that some of the fund's money is invested in cash instead of assets. after they've calculated the current value of their holdings. You also should remember that you are trusting someone else with your money when you invest in a mutual fund. If a mutual fund has $5 billion to invest and is only able to invest an average of $50 million in each. as a result. then it needs to find at least 100 such companies to invest in. Trading Limitations: Although mutual funds are highly liquid in general. Loss of Control: The managers of mutual funds make all of the decisions about which securities to buy and sell and when to do so.5. For example. the tax consequences of a decision by the manager to buy or sell an asset at a certain time might not be optimal for you. Size: Some mutual funds are too big to find enough good investments. the fund might be forced to lower its standards when selecting companies to invest in. most mutual funds (called open-ended funds) cannot be bought or sold in the middle of the trading day. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 35 .
biotech. at the close of the trading session. So even the process of selecting a fund can be tedious.000 mutual funds in operation. growth). However. size. strategy.Different Types: The advantages and disadvantages listed above apply to mutual funds in general. every sector (e. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 36 . launched. and then dividing by the number of outstanding shares in the fund.g. subtracting all of the fund's liabilities. Mutual funds are available for virtually every investment strategy (e. Mutual funds only calculate their NAVs once per trading day. 1986: UTI Master share. The resulting NAV per share is the price at which shares in the fund are bought and sold (plus or minus any sales fees).g. 1964: UTI launches US-64. and these funds vary greatly according to investment objective. and every country or region of the world. Net Asset Value (NAV)Open-end mutual funds price their shares in terms of a Net Asset Value (NAV) (note that you can calculate NAV for a closed-end fund too. HISTORY OF MUTUAL FUND IN INDIA HISTORY – The Landmarks 1963: UTI is India’s first mutual fund. NAV is calculated by adding up the market value of all the fund's underlying securities. value. 1971: UTI’s ULIP (Unit-Linked Insurance Plan) is second scheme to be Launched. and style. but it will not necessarily be the price at which you buy or sell closed-end shares). internet). there are over 10. India’s first true ‘mutual fund’ scheme.
00. 1996: Sebi’s mutual fund rules and regulations. at the initiative of the Government of India and Reserve Bank. fund of funds launched. mutual fund distributors banned from giving commissions to investors. floating rate funds and Foreign debt funds debut. 2002: UTI bifurcated. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 37 . 2001: US-64 scam leads to UTI overhaul. which forms the basis of most current laws. 1993: Private sector and foreign players allowed. 1992: The Harshad Mehta-fuelled bull market arouses middle-class interest in shares and mutual funds. Kothari Pioneer first private fund house to start operations. 2000: The industry’s assets under management crosses Rs 1. State Bank of India (SBI) first off the blocks. The mutual fund industry in India started in 1963 with the formation of Unit Trust of India. 1998: UTI Master Index Fund is the country’s first index fund.1987: PSU banks and insurers allowed floating mutual funds.000 crore. come into force. 1999: The takeover of 20th Century AMC by Zurich Mutual Fund is the first acquisition in the mutual fund industry. comes under SEBI purview. 1994: Morgan Stanley is the first foreign player. 2003: AMFI certification made compulsory for new agents. SEBI set up to regulate industry. The history of mutual funds in India can be broadly divided into four distinct phases.
Also. 004 crores. SBI Mutual Fund was the first non – UTI Mutual Fund established in June1987 followed by Can Bank Mutual Fund (Dec ‘87). Punjab National Bank Mutual Fund (Aug ‘89). were to be registered and governed. the mutual fund industry had assets under management of Rs.6. UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. Indian Bank Mutual Fund (Nov ‘89). giving the Indian investors a wider choice of fund families. At the end of 1993. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs. under which all mutual funds. a new era started in the Indian mutual fund industry. except UTI. public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). The erstwhile Kothari Pioneer MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 38 . LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. THIRD PHASE: 1993 – 2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993. 700 crores of assets under the management. In 1978. It was set up by the Reserve Bank of India and functioned under the regulatory and administrative control of the Reserve Bank of India. SECOND PHASE: 1987 – 1993 (Entry of Public Sector Funds) 1987 marked the entry of non – UTI. Bank of Baroda Mutual Fund (Oct ‘92). 1993 was the year in which the first Mutual Fund came into being.47. Bank of India (Jun ‘90).FIRST PHASE: 1964 – 87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996.000 crores of assets under management and with the setting up of a UTI Mutual Fund. FOURTH PHASE: since February 2003 In February 2003. the assets of US 64 scheme. sponsored by SBI. It is registered with SEBI and functions under the Mutual Fund Regulations. the mutual fund industry has entered its current phase of consolidation and growth MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 39 . PNB. As at the end of January 2003.(now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. BOB and LIC. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs. and with recent mergers taking place among different private sector funds. there were 33 mutual funds with total assets of Rs. The Unit Trust of India with Rs. representing broadly. The second is the UTI Mutual Fund Ltd.805 crores.21. following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions.44. The number of mutual fund houses went on increasing.541 crores of assets under management was way ahead of other mutual funds.76. assured return and certain other schemes. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.29.835 crores as at the end of January 2003.1. conforming to the SEBI Mutual Fund Regulations.
INDUSTRY PROFILE: MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 40 .
Growth of asset under management from March-1965 to March-2009 STRUCTURE OF MUTUAL FUNDS IN INDIA MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 41 .
open and close – end funds operate under the same regulatory structure. laid down under SEBI (Mutual Fund) Regulations. The Fund Sponsor ‘Sponsor’ is defined under SEBI Regulations as any person who. all mutual funds are constituted along one unique structure – as unit trust. The structure.Like other countries. which is required to be followed by mutual funds in India. i. 1996. acting alone or in combination with another body corporate establishes a mutual fund. India has a legal framework within which mutual funds must be constituted. A mutual fund in India is allowed to issue open – end and close – end schemes under a common legal structure. The sponsor of a fund is akin to the promoter of companies he gets the fund registered with SEBI. in India. In India. The MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 42 .e.
for a person to qualify as a sponsor. must contribute at least 40% of the net worth of the AMC and issues a sound financial track over five years prior to registration. may manage the Trust. They ensure that AMC’s operations are along professional lines. As per the existing SEBI Regulations. They are the primary guardian of the unit holder’s funds and assets.sponsor will form a Trust and appoint a Board of Trustees. Right of Trustees a) Appoint the AMC with the prior approval of SEBI b) Approve each of the schemes floated by the AMC c) Have the right to request any necessary information from the AMC concerning the operations of various schemes managed by the AMC Obligations of the AMC and its Directors MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 43 . Trustees A Board of Trustees – a body of individuals. or a trust company – a corporate body. The Trust is created through a document called the Trust Deed that is executed by the Fund Sponsor in favors of the trustees. All these appointments are made in accordance with the SEBI Regulations. The fund invites investors to contribute their money in the common pool by subscribing to units issued by various schemes established by the Trust as evidence of their beneficial interest in the fund. The Trust or Fund has no legal capacity itself rather it is the Trustee(s) who have legal capacity and therefore the trustees take all acts in relation to the Trust itself. Board of Trustees manages most of the funds in India. Mutual Funds as Trusts Mutual Fund in India is constituted in the form of a Public Trust under the Indian Trust Act 1882.
Bankers A fund’s activities involved dealing with the money on a continuous basis primarily with respect to buying and selling units. paying for investment made. receiving the proceeds from sale of investment and discharging its obligations towards operative expenses. Transfer Agents Transfer Agents are responsible for issuing and redeeming units of the mutual fund and provide other related services such as preparation of transfer documents updating investor’s records. who sell units on behalf of the fund. Distributors AMCs usually appoint distributors or brokers.They must ensure that: a) Investment of funds is in accordance with SEBI Regulations and the Trust Deed b) Take responsibility for the act of its employees and others whose services it has procured c) Do not undertake any other activity conflicting with managing the fund Asset Management Company The role of an Asset Management Company (AMC) is to act as the investment manager of the trust under the Board supervision. A fund may choose to opt this activity in-house or by an outside transfer agent. A fund’s banker therefore plays a crucial role with respect to its financial dealings. Some funds require that all transactions to be routed through such brokers. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 44 .
Association of Mutual Funds in India (AMFI) was incorporated on 22nd August. It functions under the supervision and guidelines of its Board of Directors. The objectives of Association of Mutual Funds in India The Association of Mutual Funds of India works with 30 registered AMCs of the country. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holder. AMFI is a apex body of all Asset Management Companies (AMC) which has been registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. The objectives are as follows: This mutual fund association of India maintains high professional and ethical standards in all areas of operation of the industry. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 45 . ASSOCIATION OF MUTUAL FUNDS IN INDIA With the increase in mutual fund players in India. Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. 1995.Custodian and Depository The custodian is appointed by the Board of Trustees for safekeeping of securities in terms of physical delivery and eventual safe keeping or participating in the clearing system through approved depository companies. a need for mutual fund association in India was generated to function as a non profit organisation. It has certain defined objectives which juxtaposes the guidelines of its Board of Directors.
AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association. AMFI undertakes all India awareness programmed for investor’s in order to promote proper understanding of the concept and working of mutual funds. It develops a team of well qualified and trained Agent distributors. It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. At last but not the least association of mutual fund of India also disseminate information’s on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 46 . the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry. It implements a program of training and certification for all intermediaries and other engaged in the mutual fund industry. Association of Mutual Fund in India does represent the Government of India.
the fund manages over Rs. The institution has grown immensely since its inception and today it is India's largest bank. one of the world’s leading fund management companies that manages over US$ 500 Billion worldwide. Growth through innovation and stable investment policies is the SBI MF credo. A total of over 4. GUIDING PRINCIPLES OF SBI MUTUAL FUND: Consistency MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 47 . the fund has launched 38 schemes and successfully redeemed fifteen of them. SBI Mutual is the first bank-sponsored fund to launch an offshore fund – Resurgent India Opportunities Fund. SBI Mutual Fund is a joint venture between the State Bank of India and Société Générale Asset Management. 28500crores of assets and has a diverse profile of investors actively parking their investments across 36 active schemes. In twenty years of operation. patronized by over 80% of the top corporate houses of the country.India’s largest banking enterprise. 28 investor service centers.6 million investors have reposed their faith in the wealth generation expertise of the Mutual Fund. Today. The fund serves this vast family of investors by reaching out to them through network of over 130 points of acceptance. The fund traces its lineage to SBI .COMPANY PROFILE ABOUT THE ORGANIZATION: SBI Mutual Fund is India’s largest bank sponsored mutual fund. 46 investor service desks and 56 district organizers.
The year 1993 saw sweeping changes being introduced in the mutual fund industry with private sector fund houses making their debut and the laying down of comprehensive mutual fund regulations. Over the years.Value oriented investment philosophy is designed to produce consistent results aiming to beat the benchmark at all times. public sector mutual funds were set up by nationalized banks and life insurance companies. the Indian mutual funds industry has witnessed an exponential growth riding piggyback on a booming economy and the arrival of a horde of international fund houses. Flexibility Offers investors a broad range of managed investment products in various asset classes and risk parameters. within the at most operational flexibility to suit their investment needs. Since then the mutual funds sector remained the sole fiefdom of UTI till 1987 when a slew of non-UTI. Stability Our commitment to the highest quality of service and integrity are the foundation upon which clients can build their trust with us Origin The origin of the Indian mutual funds industry dates back to 1963 when the Unit Trust of India (UTI) came into existence at the initiative of the Government of India and the Reserve Bank of India. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 48 .
Within each of these sectors. just to name a few. They pool the savings of investors and invest them in a well-diversified portfolio of sound investments. They offer a variety of diversified schemes. active or indexed. and is invested according to certain investment objectives. First. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them. The money thus collected is then invested in capital market instruments such as shares. Mutual funds can be broken down into two basic categories: equity and bond funds. Equity funds invest primarily in common stocks. invest mainly in MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 49 . while bond funds various debt instruments. including: international or domestic. debentures and other securities. Mutual Fund acts as investment companies. investors have a myriad of choices to consider. A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. however.” A Mutual Fund is a pool of money. I will cover these topics shortly. Mutual Fund companies are known as asset management companies. and value or growth. collected from investors. I am going to focus my attention on the “nuts and bolts” of how mutual funds operate.Concept “Mutual fund is vehicle that enables a number of investors to pool their money and have it jointly managed by a professional money manager.
Mutual Fund Operation Flow Chart MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 50 .
ORGANIZATION Organization of a Mutual Fund Mutual funds Mutual fund is vehicle that enables a number of investors to pool their money and have it jointly managed by a professional money manager Sponsor MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 51 .
The main responsibility of the Trustee is to safeguard the interest of the unit holders and ensure that the AMC functions in the interest of investors and in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations. 1996. Trustee Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The AMC must have a net worth of at least 10 crores at all times. Asset Management Company (AMC) The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. At least 50% of the directors of the AMC are independent directors who are not associated with the Sponsor in any manner. Transfer Agent The AMC if so authorised by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual Fund. redemption requests MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 52 .Sponsor is the person who acting alone or in combination with another body corporate establishes a mutual fund. The Sponsor is not responsible or liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial contribution made by it towards setting up of the Mutual Fund. The Registrar processes the application form.
13.and dispatches account statements to the unit holders.000 crores of assets and has a diverse profile of investors actively MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 53 . the fund has launched thirty-two schemes and successfully redeemed fifteen of them. SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an enviable track record in judicious investments and consistent wealth creation. Schemes of the Mutual fund have consistently outperformed benchmark indices and have emerged as the preferred investment for millions of investors and HNI’s.India’s largest banking enterprise. The institution has grown immensely since its inception and today it is India's largest bank. one of the world’s leading fund management companies that manages over US$ 330 Billion worldwide. The Registrar and Transfer agent also handles communications with investors and updates investor records. At SBI Mutual Fund. SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an enviable track record in judicious investments and consistent wealth creation. In the process it has rewarded its investors handsomely with consistently high returns. A total of over 20. Today. patronized by over 80% of the top corporate houses of the country. 00. compounding growth OPERATION In eighteen years of operation. The trust reposed on SBI-MF by over 2 million investors is a genuine tribute to its expertise in Fund Management. resources are considerably devoted to gain.000 investors have reposed their faith in the wealth generation expertise of the Mutual Fund. SBI Mutual Fund is a joint venture between the State Bank of India and Société Générale Asset Management. Thus SBI-MF believes in • Proven Skills in Wealth Generation Exploiting expertise. the fund manages over Rs. maintain and sustain profitable insights into market movements. The fund traces its lineage to SBI .
26 investor service centers. BOARD OF DIRECTORS Mr. R. Chief Executive Officer Mr. C A Santosh Chief Manager . Navneet Munot Chief Investment Officer Mr. Gupta Managing Director & Chief Executive Office Mr. Parijat Agrawal Head – Fixed Income MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 54 . Achal K. Ms.parking their investments across 28 active schemes. Srinivas Jain Chief Marketing Officer Mr. Ashutosh P Vaidya Company Secretary & Compliance Officer Mr. 21 investor service desks and 21 district organizers. Aparna Nirgude Chief Risk Officer Mr. Ashwini Kumar Jain Chief Operating Officer Mr.Customer Service. The fund serves this vast family of investors by reaching out to them through network of 82 collection branches. Didier Turpin Dy. S.
Mr. He has over 18 years of experience in the Mutual Fund Industry. Mr.Investment Department : ThierryNardozi Thierry graduated from University of Glamorgan with a BA (Hons) in Business studies. Vice President . Prior to joining SBI MF. Sanjay Sinha has a rich experience in managing funds. Sinha joined SBI Mutual Fund as the Head of Equities in November 2005 and has managed the largest number of funds in SBI MF covering the entire spectrum of equity funds – from index funds. diversified equity funds to sector funds. Thierry has an experience of 14 years within the asset management industry and has been involved in fund management for 10 MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 55 .INVESTMENT TEAM Chief Investment Officer : SanjaySinha Mr. Mr. 2007. Sanjay Sinha has taken over as Chief Investment Officer with effect from June 1. A Post Graduate from IIM Kolkatta. Sinha worked as Senior Fund Manager with UTI Mutual Fund and was managing a corpus of over Rs 28 billion (over US$600 million). He started his career with Irish Life in Dublin before moving to Societe Generale Asset Management.
She has a total of 15 years experience and has been with SBI Funds Management Pvt. Deutsche Asset Management . Subsequently she was appointed as Fund Manager for India Growth Fund. in October 2007. Canada. Ltd since October 2005. Thierry is also a post-graduate of SFAF (European Federation of Financial Analysts Societies). Prior to joining SBI Funds Management Pvt. and dealer for the offshore Funds of UTI.a joint venture between the TATA Group. and TATA TD Waterhouse Securities . Equity : Aashish Wakankar(Vice President & Fund Manager) Aashish Wakankar is a Bachelor of Science from University of Mumbai and holds Post Graduate Diploma in Management Studies from Jamnalal Bajaj Institute of Management Studies.part of Deutsche Bank Group. Ltd. he has worked with Kotak Mahindra Asset Management. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 56 . he was responsible for advising the offshore fund Deutsche India Equity Fund. Head Portfolio Management Services / Fund Manager : NipaLadiwala After obtaining a post graduate degree in Business Management and Law.years. which was listed on NYSE. She was head of Research at UTI Securities before joining SBI Funds Management Pvt. At Deutsche Asset Management. University of Mumbai. Nipa has 6 years experience as Fund Manager. Ltd. He is associated with SBI Funds Management from December 2005. He has more than 12 years of experience in capital markets ranging from institutional equities. India and TD Bank Financial Group. Prior to joining SBI Funds Management. equity research and fund management. as Head of PMS. he was handling institutional and mutual funds invested in European equities. Japan and MetLife Insurance. Nipa worked as an equity analyst.
he was with State Bank of Mauritius Limited. dealing and fund management. Ltd. Before joining SBI Funds Management in October 2005. Prior to joining SBI Funds Management Pvt. He has got 12 years experience in capital markets in areas like research. Prior to joining SBI Funds Management Pvt.Debt / Fixed Income: Parijat Agrawal (Head–Fixed Income) Parijat has done his B. Ltd. since July 2006. Parijat is associated with SBI Funds Management Pvt.. Anand has worked with HSBC securities and domestic brokerage house as equity research analyst for 3 years. he was with Cholamandalam Mutual Fund as Fund Manager – Debt. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 57 . 9 years in Unit Trust of India and 3 years in Cholamandalam AMC Ltd.Vice President & Fund Manager) Mr.Sc (Hons) from Osmania University and his Masters in Financial Management from Jamnalal Bajaj Institute of Management Studies. Murthy (Asst. Murthy did his B. USA and Institute of Chartered Accountants of India. He has over 12 years experience in the Mutual Fund Industry.E (ECE) and PGDM (IIM Bangalore).. OffshoreFunds Anand Gupta Anand holds charter from CFA Institute. Mumbai. Anand has 5 years of experience in capital markets and 3 years of experience in Audit & Business consulting. Ltd. Mumbai as Head – Treasury. Ganti N.
PRODUCT PORTFOLIO MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 58 .
Banks. The distribution channel of SBIMF is as follows Overview of Retail channel The alternative distribution channels that are available are selling. there is a sense of loyalty amongst agents. To be successful in this mission.Distribution channel in SBIMF SBI asset management company mainly emphasize on relationship building with its customers like distributors. the industry will have to ensure that only those agents that have conviction about mutual funds being the most versatile and an ideal investment vehicle for investors are encouraged. for selling units. This is because. or using lead managers and brokers along with sub-brokers. in MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 59 . individual investors etc.
retail distribution through the agents is a preferred alternative for distributing mutual fund products. as the target of communication is restricted to a few groups of individuals. Savings in advertisement and publicity expenses is also affected.anticipation of getting continuous business throughout the year. and the trust and credibility that has been generated or will be generated by being loyal to one institution. As my vertical in the company is retail which includes IFA’s (Individual financial advisors) and National Distributors. The retail channel is subdivided into 5 regions. Therefore. informer and educator. Building a team of agents and other distribution network such as distribution and collecting agents and franchise offices. since the agent will function as a facilitator. The reduced cost benefit will ultimately accrue to the investor in the form of higher returns. will provide the investor the opportunity of having continuous interaction and contact with the mutual fund. In such a system. one achieves brand loyalty through continuous interaction between agents and investors. National Distributors West & Central Delhi East Delhi South Delhi North Delhi Meerut Agra Nitin Kumar Yogesh Kumar & Sumit Suyash Amit Srivastava Abhishek Singh Ajay Chauhan Jitin & Amir Raza Relationship building with active and inactive distributors (IFAs) MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 60 .
through an NSE Broker or their online trading account. for which I have personally visited both active and inactive distributors. AMC have around 2000 distributors in Delhi-NCR region which is sub divided into 5 regions namely:1) North Delhi 2) South Delhi 3) East Delhi 4) West Delhi 5) Central Delhi I have covered some areas of East. West and Central Delhi. In case of inactive distributors the motive was to find out the reasons for which they stopped dealing with SBIMF. SBI GETS would be listed on the National Stock Exchange. just like an equity stock. NEW FUND OFFER (SBI GETS) SBI Mutual Fund had launched a New Fund Offer of the SBI Gold Exchange Traded Scheme (SBI GETS). since one unit of SBI GETS would track the price of even one gram of gold.They could invest in as low as one gram of gold. The NFO of SBI GETS was open till 28th April. The purpose behind these visits was to build a relation with the distributors on the behalf of AMC which in turn help in generating more investment. 2009.During my internship tenure of more than 8 weeks with SBIMF. The investors could be able to easily trade the units of the scheme. In this cumbersome exercise of relationship building I made several observations from the feedback which I got from the distributors and are highlighted below. The scheme helped investors to invest in gold through the convenience of their demat account. Post-NFO. the main task that has been assigned to me was relationship building. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 61 .
with the best network for service delivery through its network of MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 62 . best performing funds. LTD.OTHER WORK EXPERIENCE AT SBI MUTUAL FUND INFORMATION SHARING: • Apart from meeting the distributors the other way to keep in touch with them is to keep updating them about the latest information like NAVs. All this information sharing is done by calling them personally. initiatives like organizing Refresher Courses etc. and has been constantly raising the bar in customer service since 1995. new products. Setup in 1988 as a Software Developer. CAMS moved from Capital Market Transaction Processing (processing Equity IPOs) to Customer Care and Transaction Processing for Mutual Funds. (CAMS) offers a comprehensive package of Transaction Processing and Customer Care services to the Mutual Fund industry. OPERATIONAL SERVICE: • All AMCs in India uses CAMS a software package to provide services to its customers. CAMS today has the most appropriate and advanced technology employed. COMPUTER AGE MANAGEMENT SERVICES PVT.
telephone no. Recording and updating: After meeting the distributors I use to update their records in our database like changing of address. 4) TEAM BUILDING: While working with retail team in SBIMF I have learnt the art of team building and working in a group. and according to me is the best learning during the Summer Internship Project. how to handle various queries from them and several others. and group discussions. Verification of dividend payment. how to represent the funds. some of them are covered below: 1) INTERPERSONAL SKILLS: While visiting the distributors with I have learnt the way of pitching a customer. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 63 . etc. the way they work and move ahead as a team helps them in increasing the AUM of the company and achieving their targets. 3) KNOWLEDGE ENHANCEMENT: With practices like NEWS submission on regular basis. At SBIMF we have learnt the software and worked on it. assignments and daily sensex watch helped me to improve my knowledge regarding both stock market and economic development of the country. the major things that we have done using this software are 1) 2) 3) 4) • Mailing statements to the clients/investors. It includes presentations on various topics like BUDGET’ 08-09. ADR & GDR etc. Brokerage payments. 2) COMMUNICATION SKILLS: During this tenure of three months they have provided me various opportunities to improve my communications skills. Finding out the AUM of distributors.Service Centers in all major cities in India. LEARNING’S DURING THE PROJECT: During this internship of three months. apart from project I have learnt several important skills and gained knowledge which is very important.
Sensex posted a gain of 28% as both foreign and domestic investors poured money. The scale and speed of stock market gain has taken most investors by surprise and ‘left out feeling’ is leading to massive buying in high-beta names. Markets caught fire after the announcement of election results and further fuel was added by positive news flow from global markets. Volatility and risk premiums are touching multi-month low as confidence is coming back into financial markets. Incremental economic data is less negative. The barrage of liquidity is finally finding its way into riskier assets across markets. 2.REVIEW OF LITERATURE June 2009 This was one of the best months for stocks and commodities in a long time. It is up a whopping 79% from the low witnessed on March 9 this year. pile of cash is humongous and MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 64 . Credit spreads collapsed. high yield currencies gained against safe heavens and bond yields rose as investors migrate from defensives to risk-assets. use of EXCEL to make SIP calculators and NAV trackers to attract the customers.5) APPLICATION OF KNOWLEDGE: Another important skill that I have learnt during the project is application of knowledge to real life situations such as handling the investors who have knowledge about the industry.
Some of the long pending reforms related to FDI in sectors like insurance and retail. Investors draw comfort from the fact that a major victory for UPA means greater ability to carry out critical reforms. Indian equities were one of the best performing market this month as investors jumped in after the decisive verdict in favor of UPA government.policy remains extremely supportive. Immediate priority for the government would be to provide adequate fiscal stimulus in order to cushion the economy against headwinds from the global downturn. Commodity prices have also shot up with Reuters CRB index posting one of the biggest monthly gain since 1974. The government must show a roadmap to bring down fiscal deficit over the medium term. While central bankers are still maintaining probably the most accommodative policy ever to combat deflation. As we have been writing that the scale. But the fact remains. continued thrust on agriculture and rural sector and restarting disinvestment programme should be on the agenda. market wisdom as reflected in prices seem to be getting worried about onset of inflation. Normally. The finance minister would have to balance between keeping the fiscal deficit under control and providing more fiscal stimulus. there should be equal focus on building the social infrastructure and higher outlays on education and healthcare which would go a long MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 65 . the sheer power of liquidity can take prices of risk assets to levels far beyond what fundamentals may justify. rationalization of subsidies. Fundamental problems of global imbalances that led to this crisis can’t get resolved so easily and one might argue that the policy response so far is something like treating a ‘hangover’ with more alcohol. magnitude and synchronized nature of policy response this time is simply unprecedented in history. that in the short term. investors seem to be playing a paper currency debasement play through investment in real assets. introduction of GST from 2010-11. Apart from the physical infrastructure. Foreign Institutional Investors invested over $ 4 billion in the month of May and their yearto-date investment has also crossed $ 4 billion. commodities perform during the late stage of the bull market. however.
not just big bang announcements. several corporates are likely to use the opportunity to raise equity. While one can expect liquidity inflows from domestic and foreign investors. India with its demographic advantage. policy announcements and valuation.way in building a solid foundation for sustained economic growth. not outlays. Bond yields moved up on fears of higher government borrowing. the world is looking for new engines of economic growth. We will continue to keep a close watch on evolving economic scenario. Our sectoral bets and stock picks in equity funds are rightly positioned to take advantage of the upturn in equity market. The other point we would like to highlight is that the focus for the government this time should be on outcome. execution. At a time when the global economy is faced with severe challenges. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 66 . People of India have delivered that decisive mandate. we needed a proreforms and stable government which can push structural reforms to unleash the full potential of Indian economy and corporate sector. At this time. we have consistently been advising investors to focus on long term growth potential of Indian economy and take advantage of the downturn to build exposure to equities. Regards. Over the last several months. This election is a game changer. We have been focussing on investing in companies leveraged on domestic consumption and infrastructure build up. The recent rally in equity markets further highlights the importance of discipline in asset allocation in investor’s portfolios. Run up in commodity prices and increase in bond yields globally have also weighed on the sentiments. Interest rates are likely to be range-bound for some time and will offer more trading opportunities. high savings rate and a domestic consumption and investment oriented economy has the potential to de-couple from the rest of the world and deliver higher growth rate on a sustained basis.
gilt and balanced funds. it is obvious that the products required will vary as well. dividend frequency and MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 67 . Ltd ABSTRACT (1) Investments goals vary from person to person. debt. All in all. a universal appeal. schemes and options with respect to rate of returns. Indian Mutual Funds industry offers a plethora of schemes and serves broadly all types of investors. liquid. small and large investors. others might give more weightage to returns alone. The range of products includes equity funds. which has enough teeth to safeguard investors’ interests. the setup of a legal structure. Moreover. benefits provided by them cut across the boundaries of investor category and thus create for them. Somebody else might want to plan for his child's education while somebody might be saving for the proverbial rainy day or even life after retirement. The Mutual Fund industry is having its hands full to cater to various needs of the investors by coming up with new plans.Navneet Munot Chief Investment Officer SBI Funds Management Pvt. ensures that the investors are not cheated out of their hard earned money. Investors of all categories could choose to invest on their own in multiple options but opt for Mutual Funds for the sole reason that all benefits come in a package. There are also funds meant exclusively for young and old. With objectives defying any range. While somebody wants security.
de Finetti”.e. which includes among the outputs a stochastic dominance indicator that reflects both the investors' preference structure and the time occurrence of the returns.liquidity. too. it was felt necessary to understand the working of mutual funds industry in India. for each mutual fund. called data envelopment analysis (DEA). the DEA approach can naturally envisage other output indicators. This approach allows to define mutual fund performance indexes that can take into account several inputs and thus consider different risk measures and. The performance indexes proposed are tested on empirical data. Apart from this the report also includes the details of the work that I have learnt during the project. This model applies an operational research methodology. 30123 Venezia. its merits and demerits. Piazzale Europa. Italy respectively discussed in this paper about “A data envelopment analysis approach to measure the mutual fund performance. their pattern of risk appetite and preferences in various schemes and plans. Italy and Dipartimento di Matematica Applicata. the investment costs (subscription costs and redemption fees). the procedure allows to identify. 1. a generalized version of the DEA mutual fund performance indexes is defined. which allows to measure the relative efficiency of decision making units. Therefore. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 68 . In view of the growing competition in the Mutual Funds industry. In addition. Moreover. Università Ca' Foscari di Venezia. which according to me is the best part of the project as it provided me a practical exposure to the Mutual fund industry and the working of an AMC. Università di Trieste. 34127 Trieste.” In this paper they present a model which can be used to evaluate the performance of mutual funds. a composite portfolio which can be considered as a particular benchmark. ABSTRACT (2) Antonella Basso and Stefania Funari of Dipartimento di Matematica Applicata “B. Dorsoduro 3825/E. above all. various types of schemes available in the Indian market and the investor’s orientation towards Mutual Funds i. in addition to the mean return considered by the traditional indexes.
S.ABSTRACT (3) Peter Tufano and Mathew Sevick of Harvard Business School. This study uses a new database to describe the composition and compensation of boards of directors of U. They find that shareholder fees are lower when fund boards are smaller. Inc.S. Boston and Monitor Company. and are composed of directors who sit on a large fraction of the fund sponsor's other boards. They use these data to examine the relation between board structure and the fees charged by a fund to its shareholders. Cambridge respectively discussed in this paper about “Board structure and fee-setting in the U. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 69 .. have a greater fraction of independent directors. They find some evidence that funds whose independent directors are paid relatively higher directors' fees approve higher shareholder fees. mutual fund industry”. open-end mutual funds.
ABSTRACT (4) MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 70 .
ABSTRACT (5) MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 71 .
ABSTRACT (6) MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 72 .
ABSTRACT (7) MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 73 .
ABSTRACT (8) MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 74 .
• A study was also conducted to measure the performance of various funds on the basis of various performance measuring ratios such as Sharpe ratio. • The study was basically undertaken to understand the financial needs of the customer and to provide or suggest them products and services according to their financial needs. Beta and R-squared.I-Mutual Fund.B. Analysis of the funds on the Basis of various ratios. RESEARCH METHODOLOGY NEED OF THE STUDY: • The need of the study aimed to know the awareness in the public about the various products and services provided by S.3. standard deviation. total expense ratio. PERFORMANCE EVALUATION MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 75 . • The study was undertaken to find out the Banking channel at SBI Mutual Fund.
Mutual Fund industry today. Worldwide. general market fluctuations. higher will be the risk associated with it. However. called unsystematic risk. frankly. Beta is calculated by relating the returns on a mutual fund with the returns in the market. The Total Risk of a given fund is sum of these two and is measured in terms of standard deviation of returns of the fund. Return alone should not be considered as the basis of measurement of the performance of a mutual fund scheme. is one of the most preferred investment avenues in India. it should also include the risk taken by the fund manager because different funds will have different levels of risk attached to them. higher will be its beta. Therefore. on the other hand. but the funds record is an important indicator too. can be defined as variability or fluctuations in the returns generated by it. called market risk or systematic risk and second. which represents fluctuations in the NAV of the fund vis-à-vis market. fluctuations due to specific securities present in the portfolio of the fund. it is. the only quantitative way to judge how good a fund is at present. present in the market. For mutual funds to grow. there must be some performance indicator that will reveal the quality of stock selection of various AMCs. The more responsive the NAV of a mutual fund is to the changes in the market. in a general. AMCs must be held accountable for their selection of stocks. In other words. Risk associated with a fund. with about 34 players and more than five hundred schemes. with a plethora of schemes to choose from. While unsystematic risk can be MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 76 . which affect all the securities. Though past performance alone cannot be indicative of future performance. First. is measured in terms of Beta. These fluctuations in the returns generated by a fund are resultant of two guiding forces. Factors such as investment strategy and management style are qualitative. the retail investor faces problems in selecting funds. Systematic risk. The higher the fluctuations in the returns of a fund during a given period. good mutual fund companies over are known by their AMCs and this fame is directly linked to their superior stock selection skills. there is a need to correctly assess the past performance of different mutual funds.
The most important and widely used measures of performance are: • The Treynor Measure • The Sharpe Measure The Treynor Measure Developed by Jack Treynor. this performance measure evaluates funds on the basis of Treynor's Index. In order to determine the risk-adjusted returns of investment portfolios.diversified through investments in a number of instruments. we try to assess the competitive strength of the mutual funds vis-à-vis one another in a better way. during a given period and systematic risk associated with it (beta). Where. systematic risk cannot. Symbolically. it can be represented as: Treynor's Index (Ti) = (Ri . Rf is risk free rate of return and Bi is beta of the fund. several eminent authors have worked since 1960s to develop composite performance indices to evaluate a portfolio by comparing alternative portfolios within a particular risk class. Ri represents return on fund. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 77 . as there is no credit risk associated). This Index is a ratio of return generated by the fund over and above risk free rate of return (generally taken to be the return on securities backed by the government.Rf)/Bi. By using the risk return relationship.
The Sharpe Measure In this model. Symbolically. a low and negative Sharpe Ratio is an indication of unfavorable performance. On the other hand. Comparison of Sharpe and Treynor Sharpe and Treynor measures are similar in a way. it is the total risk of the fund that the investors are concerned about. For a well-diversified portfolio the total risk MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 78 . So.All risk-averse investors would like to maximize this value.Rf)/Si Where. According to Sharpe. The total risk is appropriate when we are evaluating the risk return relationship for well-diversified portfolios. While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund. which is a ratio of returns generated by the fund over and above risk free rate of return and the total risk associated with it. it can be written as: Sharpe Index (Si) = (Ri . While a high and positive Treynor's Index shows a superior risk-adjusted performance of a fund. the model evaluates funds on the basis of reward per unit of total risk. performance of a fund is evaluated on the basis of Sharpe Ratio. Si is standard deviation of the fund. since they both divide the risk premium by a numerical risk measure. the systematic risk is the relevant measure of risk when we are evaluating less than fully diversified portfolios or individual stocks. a low and negative Treynor's Index is an indication of unfavorable performance.
will rank lower on Sharpe Measure. TERMINOLOGY: ALPHA . a beta higher than 1.00. while a beta lower than 1. Beta measures the sensitivity of rates of return on a fund to general market movements. the better a return has the investment yielded compared with other investment objects with the same market risk. The beta may also be negative. which means that the value of the fund will. If the beta ratio exceeds one. move to the opposite direction than the general market development. a poorly diversified fund that ranks higher on Treynor measure. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 79 . Therefore. on average. after allowing for differences in risk. The greater the alpha. BETA – A ratio that measures the market risk of securities or a fund.00 is considered to be less volatile. as the total risk is reduced to systematic risk. The Market's beta is set at 1.00 is considered to be more volatile than the market. Rankings based on total risk (Sharpe measure) and systematic risk (Treynor measure) should be identical for a well-diversified portfolio. compared with another fund that is highly diversified.is equal to systematic risk. Beta measures the volatility of the fund.The alpha ratio illustrates the effect of the portfolio manager’s choice on the fund's return. as compared to that of the overall market. the fund is more sensitive than funds in general to the fluctuations of the stock market. Alpha is an annualized return measure of how much better or worse a fund’s performance is relative to an index of funds in the same category.
Correspondingly. It measures the part of the asset's statistical variance that cannot be mitigated by the diversification provided by the portfolio of many risky assets. The Beta coefficient indicates the percentage change of the fund’s value when the benchmark value changes by one percentage point. measuring beta can give clues to volatility and liquidity in the marketplace. On an individual asset level. The Beta coefficient is a key parameter in the capital asset pricing model (CAPM).8. Beta is also referred to as financial elasticity or correlated relative volatility. its non-diversifiable risk. and can be referred to as a measure of the asset's sensitivity of the asset's returns to market returns. Example: When the beta of the fund is 0. STANDARD DEVIATION MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 80 .8 %. the value of the fund rises by 0. the value of the fund falls on average by 0. because it is correlated with the return of the other assets that are in the portfolio. when the benchmark index falls by one percent. The beta movement should be distinguished from the actual returns of the stocks. On a portfolio level.Beta measures the volatility of the fund’s value relative to the volatility of the fund’s benchmark value. measuring beta is thought to separate a manager's skill from his or her willingness to take risk. its systematic risk or market risk.8 % when the benchmark index rises by one percent.
Statistic that measures the tendency of data to be spread out. Accountants can make important inferences from past data with this measure. The standard deviation, denoted with S and read as sigma, is defined as follows:
IT shows the linear dependency between fund returns and the returns of the benchmark index. Correlation may vary between -1 and 1. The dependency is complete if the fund’s correlation to the benchmark index is 1. If the correlation is zero, there is no dependency.
MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 81
Analysis of Funds on the basis of various ratios.
Std. Deviation Magnum Taxgain Magnum Global Fund Magnum Contra Magnum Comma SBI Arbitrage MSFU IT Magnum Multiplier 31.33% 37.69% NA 33.03% 30.09% 36.19% 30.02%
Portfolio Turnover 18%
0.91 1.07 NA 0.82 0.86
0.96 0.93 NA 0.61 0.93
-0.24 -0.22 NA -0.80 -0.31
74% 64% 1146% 16% 47%
MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 82
From the above table we can clearly see the comparison between various funds of SBI Mutual Fund. In this higher the value of Sharpe and Treynor, better is the fund. • • • Magnum Taxgain Magnum Multiplier and Magnum Contra
are having beta values of 0.88, 0.86 and 0.91 respectively which means that these funds are more sensitive and will give more returns than market when market are in good phase but give negative returns more intensely than market when market in bad phase. High and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund, a low and negative Sharpe Ratio is an indication of unfavorable performance. If the Sharpe figure is positive, the risk taken has paid off, and if the figure is negative, the returns are lower than the risk-free rate. Magnum Taxgain, Magnum Contra and
Are the three funds which are best among all in terms of risk adjusted returns. A scheme with high Treynor ratio such as Equity scheme will enjoy a premium when the markets are bullish and will be affected negatively when the markets are bearish. So in the bullish market Magnum Global and Magnum Multiplier are the best funds to opt for getting better returns.
SCOPE OF THE STUDY: Geographical scopeMRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 83
The geographical scope of the study is not limited. This study can be implemented in any part of the country; though the samples taken were from SBI Mutual Fund branch office at Barakhamba Road, and various banks in the west Delhi region were visited to know their response.
Functional scopeThis study can be used to understand the behavioral aspect of people who invest, what is their investment potential and how much risk can they take. The study throws some light on seven best performing schemes of S.B.I-Mutual Fund. LIMITATIONS OF THE STUDY • Limited information through secondary research report is basic hindrance in finding out the true results related to investments in mutual fund schemes by an investor.
Limited time was another constraint.
Extreme variability in MARKET.
Unawareness among investors is next in the line. The investor does not
want to invest in Mutual Funds because of the myth that investment in these funds lead to insensitive returns. They think that market is highly volatile and will not be able to give him the secured returns.
MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 84
• Through questionnaire:- MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 85 . it becomes necessary to collect data that is appropriate. he wants to invest in a fixed instrument from where he may be able to get secured returns instead of having unasserted returns. DATA COLLECTION METHOD: Primary data collection: In dealing with real life problem it is often found that data at hand are inadequate.• The investor also does not want to invest because of the greater risk attached with equity. The data collection for this study was done in the following manner: • Through personal interviews:- A rigid procedure was followed and we were seeking answers to many pre-conceived questions through personal interviews. Rather. time and other resources at the disposal of the researcher. There are several ways of collecting the appropriate data which differ considerably in context of money costs. • Primary data can be collected either through experiment or through survey. and hence.
It is basically a non-probability sampling procedure which does not afford any basis for estimating the probability that each item in the population has of being included in the sample. Under non-probability sampling the organizers of the enquiry purposively choose the particular units of the universe for constituting a sample on the basis that the small mass that they so select out of a huge one will be typical or representative of the whole. As the primary sampling unit represents a cluster of units based on geographic area. Analysis of Individual Investors DATA ANALYSIS POPULATION:- According to the data collection method adopted. the size of the population is 100. SAMPLING METHOD ADOPTED: The sampling method chosen is Area Sampling.Information to find out the investment potential and goal was found out through questionnaires. Thus. N=100 After collecting the data the following facts were found out:- Out of the 100 people the following percentage composition were interested in the following products:- MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 86 . The geographical area chosen for individual customers was at SBI Mutual Fund main office at Barakhamba Road.
which categories of people are more aware and inclined towards Mutual Fund. further analysis is made as below: MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 87 .23% LIFE INSURANCE-7% REAL ESTATE-6% COMMODITIES-8% NSC (NATIONAL SAVING SCHEME)-10% OTHERS-2% ANALYSIS OF THE PREFERENCES OF THE RESPONDENTS:- The data collected above shows that approximately 65% of people are aware of the market in general and 44% are aware of Mutual Funds in particular.• • • • • • • MUTUAL FUNDS -44% SHARE/BONDS. Thus further analysis is made on the basis of data collected. Therefore.
• • • Analysis according to Age Analysis according to Income Analysis according to Occupation Analysis according to Age: Findings: • As per the above analysis. only 14% of respondents who are below 35 years are interested to invest in SBI-MF. and therefore these MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 88 . education. The reasons being that there are more needs to be fulfilled for this age group viz. entertainment etc.
• The persons having the age equal to or above 50 years. only 28% of respondents are interested to invest in SBI-MF. • Among Medium income category people. The reason being that these people have to fulfill their basic needs as first. • The persons within the age group of 35-50 years only 58% of respondents are interested to invest in SBI-MF. Analysis according to Savings from income: Income Low Medium High Findings: Percentage (%) 34% 18% 48% • The above analysis shows that Low income category is less interested to invest in SBI-MF as compared to high income category. The other reason is that low income category people are having more consumption as compared to their savings. The reasons being that these persons are more inclined to age-old principals and want to invest in schemes giving fixed returns as compared to investing in Mutual Fund. The first and foremost reason behind this is that these people MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 89 . only 18% of the respondents want to invest in SBI-MF. These persons have more investing potential than their counterparts and they want to increase their income through investing in Mutual Funds.people do not have surplus funds to invest in saving schemes or Mutual Funds etc.
• Among High income category people. Analysis according to Occupation: Findings: • From the above analysis.are risk averse and want to invest in those products from which they must get assured returns as compared to investing in Mutual Funds. only 48% of the respondents want to invest in SBI-MF because these people have enough resources for their well being and it does not hurt them to invest a large chunk of their resources in Mutual Funds. it has been learned that only 49% of respondents who are in service are interested to invest in SBI-MF because these people are well MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 90 .
Moreover. the risk profile of business men is quite moderate. Service category people want to secure their future and therefore showed interest in investing under risky ventures. but secure return over equity schemes which are more risky.aware of Mutual Funds and Stock Market. The main reason for such thing is the complete knowledge of o Stock markets o Past performance o Consistent returns o Measurement of risk o Finance knowledge But with the current performance of Mutual Funds on the stock market.These people invest more in Debt schemes than in Equity schemes. • Professional are much interested in investing the Mutual Funds as compared to their counterparts. This is because Debt schemes promise a less. • Businessmen are also interested to invest in SBI-MF. less people are willing to take the huge risk of losing money. Analysis of different category persons about different schemes:SBI MAGNUM TAX GAIN SCHEME (MTGS) MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 91 . Only 32% of respondents who are in business invested in SBI-MF.
This scheme was equally supported by the SBI Tax Advantage series I (new NFO). SBI MAGNUM GLOBAL FUND (MGLF) MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 92 .Tax Planning Mutual Funds have come into their own as a compelling cocktail of savings and returns. surpassing larger rivals such as equity funds in asset growth rates over the past year and-a-half. Thus. service category is more inclined towards MTGS because of the tax exemption and phenomenal returns. a close ended fund offered by SBI MF.
businessmen and professionals are more inclined towards MGLF.S ales 23 46 servicemen businessman 41 professional MGLF is an open-ended equity scheme investing in stocks from selected industries with high growth potential. Due to the high growth potential and investing the resources in money market instruments. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 93 .
And businessmen like this scheme less as compared to their counterparts because businessmen can’t block their money for long time and this scheme provides return in long term.MAGNUM SECTOR UMBRELLA.CONTRA FUND 44 39 servicem en businessm an 17 frofessional Due to the maximum growth opportunity through equity investments in stocks of growth oriented sectors of the economy. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 94 . Servicemen also like it because of huge untapped growth potential of the scheme. professionals like the MSFU-Contra fund the most.
thinking that the fund will further raise in the future at the same pace. Next are the investors who invest when the price (NAV) of the fund is slowly but steadily increasing. 24 % of the investors invest their money when the price of the fund suddenly decreases.Analysis on the basis of purchase of investment The above graph shoes us that people purchase funds. This is because of their expectation for the fund to rise more in the future. in anticipation that they may sell it in the future for a higher price. They do this. They do this in order to take benefit of the decreased cost. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 95 . when the price of the fund suddenly increases.
MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 96 . INVESTMENT HORIZON: From the study it can be concluded that majority of respondents invest in mutual funds from “More than three year” perspective (53%).FINANCIAL BEHAVIOR OF RESPONDENTS: INVESTMENT OBJECTIVES: It can be seen from the following graph that the main investment objective of most of the investors is good returns and capital appreciation. . CHANNELS USED BY RESPONDENTS FOR INVESTING: From study it can easily be inferred that majority of respondents (70%) now invest directly in mutual funds especially after SEBI guidelines came recently that says there will not be any ENTRY LOAD for investors investing in mutual fund schemes directly.
therefore it is very essential today that AMCs and especially SBI should focused on innovating new ways to serve the customers like giving SMS time to time. debit cards etc. giving value added services like free insurance.that’s means once a investor comes to your service he will be there for at least three years. RISK PREFERENCES : The following chart explains that majority of investors (57%) were ready to take moderate level of risk by investing in mutual funds and also rest of the respondents(43%) go for “High Risk and High Return” category. Not a single respondent opt for Low risk and low return category that again proved that it is a myth that Indian Investors are more risk averse when it comes to investment in Stock Markets or Mutual Funds. SCHEME PREFERENCES: ON THE BASIS OF ASSET CLASS: MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 97 .
low awareness etc.When it comes to scheme preferences majority of the investors prefer Balanced Schemes (43%). followed by Equity Schemes (34%) then debt (12%) and finally FMP’s (11%). PREFERABLE ROUTE TO INVESTING IN MUTUAL FUNDS: MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 98 . It shows that there is a huge potential for debt instruments in the market which is unearthed by investors due to its complexity.
SCHEME PREFERENCES: ON THE BASIS OF STRUCTURE: When it come to scheme preference on the basis of its structure. Therefore.” MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 99 . in fact some of the retail investors were confused about the very name of “Interval Schemes.As above chart clearly explains that majority of respondents (57%) take self decision ones they start investing in mutual funds. None of the investors prefer “Interval Scheme”. Only 10 % of respondents take help of Brokers/Advisors when it comes to final decision of investing. service and information to facilitate subsequent investment of investors. majority of retail investors prefer “Open Ended Scheme “ primarily due to flexibility of redemptions. good return and liquidity. it shows that AMCs in general and SBI in particular have to be more informative so that they can provide best material. investments.
Others categories like 10-15 and 20-25 are equally preferred by respondents but it was a positive clue that only 7% of respondents save below 5%.SAVING HABITS: When it comes to Saving Habits of investors it can be seen that majority of respondents saves between 15%-20% p. basis followed by “above 25%” category (20%).a. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 100 .
Most Popular Fund from SBI: Up till this stage the winner is “MAGNUM TAX GAIN” which is preferred by majority of respondents (60%).1904 the choices were ranked and then as per their Rank Sum Score and Z-Values “Mutual Funds” emerges as best choice among respondents. Surprisingly “Gold and Jewellery” is the most unlikely best choice among respondents. “Life insurance” and “Shares and Debentures” are the second best choices. Though it is given 2 nd Rank by majority of investors. Following MFs.1903 and Spearman. due to its three in one benefits which are as follows: MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 101 .SAVING PREFERENCES: Among saving preferences following results came out: Using Method Of Rank Order as given by Cattell.
Tax Benefit Good Return Capital Appreciation SATISFATION LEVEL WITH SBI: MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 102 .
On the basis of that that questionnaire I have analyzed various points which are discussed below. services etc. for this I have carried out a survey by requesting them to fill a questionnaire a sample of which I have attached in the annexure. while dealing with them I have done following tasks:a) Explain them various funds/schemes according to their objective. Interaction with individual/Direct (Walk in) investors Apart from maintaining relationship with the distributors I have also deal with the customers who are coming directly to the AMC for investment which provided me an exposure to selling. As can be seen 33% of the investors are “Reasonably Satisfied” which means that there is more to do on SBI behalf for Customer Satisfaction. how to insist them for making investments etc.Form above chart it can be inferred that up to this stage majority of respondents (47%) are considerably satisfied when they were asked about overall experience with SBI Mutual Funds including funds. c) Solving their problems related to statement. returns. b) Helping them in filling the forms. It also helped me in learning how to deal with different type of customers. d) Insisting them to invest in Systematic Investment Plans (SIP). While interacting with them I have tried to find out various factors effecting their investments in mutual funds. redemption etc. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 103 ..
INVESTMENT BEHAVIOUR MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 104 .
liquidity and return. Various multivariate techniques are applied to identify important characteristics being considered by the Indian investors in the purchase decision. it is important on the part of fund managers and mutual fund product designers to combine various elements of liquidity. The liberalization of the financial sector has sent signals to a wave of changes in savings and investment behavior adding a new dimension to the growth of financial sector. Researchers have attempted to study various need expectations of small investors from different types of mutual funds available in Indian market and identify the risk return perception with the purchase of mutual funds. return and security in making mutual fund products the best possible alternative for the small investors in Indian market. These new instruments are expected to impart greater competitiveness. flexibility and efficiency to the financial sector. prioritization. Growth and development of various mutual fund products in Indian capital market has proved to be one of the most catalytic instruments in generating momentous investment growth in the capital market. There is a substantial growth in the mutual fund market due to a high level of precision in the design and marketing of variety of mutual fund products by banks and other financial institution providing growth. frequent fluctuations in the secondary market and the inherent attitude of Indian small investors to avoid risk.INTRODUCTION: The significant outcome of the government policy of liberalization in industrial and financial sector has been the development of new financial instruments. In this context. With the decline in the bank interest rates. preference building and close monitoring of mutual funds are essentials for fund managers to make this the strongest and most preferred instrument in Indian capital market for the coming years. The Indian financial system in general and the mutual fund industry in particular continue to MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 105 .
The investment habit of the small investors particularly has undergone a sea change. 3) This study has not been conducted over half month period in which most of the time it was slump and fluctuations in the market. particularly the small investors. but the marketer’s search is for identification of “The key buying criteria” or “The key choice criteria” which are defined as certain features of a product offering that are closely associated with preferences. An attempt has also been made to differentiate between the factors which have been considered by the investors who have been investing for less than a year and the ones who have been investing for more than a year.take turnaround from early 1990s. For all investors. LIMITATIONS OF THE STUDY: 1) Sample size is limited to 100 only thus sample size does not adequately represent the national market. 2) Most of the investors were those who came to SBIMF directly. During this period mutual funds have pooled huge investments for the corporate sector. This study aims at tracking investor’s preferences and priorities towards different types of mutual fund products.based equity investments to all types of investors. OBJECTIVES OF THE STUDY: The investors do not evaluate all possible product attributes while making a choice. thus there may be a chance of biasness towards SBIMF’s funds. Thus the responses of the investors are likely to be influenced by the market conditions METHODOLOGY: MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 106 . Increasing number of players from public as well as private sectors has entered in to the market with innovative schemes to cater to the requirements of the investors in India and abroad. mutual funds have provided a better alternative to obtain benefits of expertise.
RELIABILITY AND VALIDITY In order to check the reliability and validity of the data.As we use Factor analysis we can reduce the number of factors to draw some clear picture for the investors who are looking to invest irrespective of MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 107 . We are going to see how these selected factors affect the investment behaviour of the existing & potential investors. In order to increase the reliability and validity. as the numbers of independent variables are very high. we have excluded the questionnaires filled by those respondents who had a varied opinion These analysis methods are used for the following reasons: 1) Factor analysis is used to classify similar variables under a broad heading.The study is based on a survey of 100 respondents through a questionnaire covering different groups of investors but I could collect 97 complete questionnaire from investors out of which 90 were taken as an effective sample and the data obtained were analyzed by using. we had kept some similar kind of variables in the questionnaire like fund performance and fund manager performance as well as security and attitude towards risk. Factor analysis and Discriminant analysis. 2) Discriminant analysis is used to highlight variables which effect the decision of people investing for less than a year and people who are investing for more than a year. Above mentioned statistical tools have been used to analyze this thing. The questionnaire has been attached in the Annexure.
we have assigned weights to each of the scale giving least weight to 1 and maximum weight to 5. in descending order. RANK 1 2 3 4 5 5 7 8 9 10 11 12 13 13 15 16 17 INDEPENDENT VARIABLES Historical Performance Fund Return Over Market Return Advisor Influence Tax Benefit Lock In Period Reputation Security Type Of Scheme Regular Income Aum Convenience Attitude Towards Risk Fees NAV Fluctuation In Equity Market Personal Attention Prior Experience 1 2 3 2 6 1 3 5 4 8 3 4 3 6 6 4 4 11 2 4 5 5 11 5 5 5 6 10 7 6 10 12 11 18 10 11 3 9 12 25 13 31 29 20 24 15 29 30 32 23 25 18 35 25 4 42 31 35 29 32 28 41 35 32 36 35 30 31 30 34 32 29 5 35 41 25 33 23 27 21 23 27 17 17 17 20 20 18 11 16 MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 108 . Finally. Firstly.market conditions. Secondly. we have counted the responses under each scale. we have added all the weighted responses and ranked accordingly i. Factor analysis will recognize similar factors & club them into one generalized factor and this will help any researcher to observe the most important factors that contribute most to the investment behaviour of the investors.e. DESCRIPTIVE METHOD WEIGHTED FACTOR COUNTING We have ranked the independent variables affecting the buying behavior of consumers by adding the weighted factors.
18 19 20 21 22 23 24 25 26 Prospectus Family Recommendation Fund Rating Internet Promotional Campaign Lot Size Performance Of Fund Manager Economic &Market Conditions Transparency 10 15 24 15 22 20 25 24 33 20 20 28 30 25 30 30 35 34 24 27 13 27 26 25 26 21 18 25 24 15 11 14 10 6 8 5 13 6 12 9 5 7 5 4 2 FACTOR ANALYSIS: As the numbers of independent variables are very high. We can increase the MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 109 . In KMO adequacy level is 50% with 100% significance which makes the model satisfactory. we have tried to classify similar variables under a broad heading through factor analysis.
We can see in the rotated component matrix in factor analysis table that above factors have been recognised as sub-factors and generalized in 5 broad categories. Total variance explained by the model is 64% which means that 64% of the variance has been accounted by the factors. AUM. All this selection has been made by the modal on the basis of factor loadings which we can see in one of the tables of factor analysis. Some of the factors are as follows: (Refer Annexure) VARIABLES Performance of fund manager AUM NAV Type of scheme Personal attention Prior experience Advisor influence Family recommendation Promotional campaign Economic & Market condition Fluctuation in equity market Attitude towards risk FACTORS Technical factors Psychological factors Promotion Market condition There are other factors also which consists of other variables but they cannot be classified under abroad headings. Thus this factor tells us more of the technical side of any given fund under consideration. Investor who ranks this factor or these subMRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 110 . Through rotated component matrix we can classify all the variables into 10 factors. NAV.adequacy level by changing factors like fees load and expenses because it has a very low communality. 5 Broad factors have been described in the following manner:- Financial Factors -This factor has 3 sub-factors namely performance of the fund manager.
he wants personal attention in the sense that new investment opportunities should be informed to him or proper entry & exit points should be recommended to him and the likes. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 111 . personal attention and prior experience are the sub-factors that make this broader category together. fluctuations in the market and attitude towards risk. Security Factors – It includes tax benefits. These kinds of investors are not much experienced as far as these investments are concerned. Economic Factors – This factor includes factors like market condition. Investors who are more concerned about these factors are risk averse investors. These investors wait for the right moment to enter or to start investing in funds. Customer Oriented Factors – Type of scheme. In this category an investor is looking for the different schemes under any particular fund. Marketing Factors – Investors who are going to rate this broad category as the most important for them are more inclined to the factors like advisor influence. prospectus and security as far as their capital investment is concerned. family recommendation and promotional campaign. For these people risk is at the top most priority and if returns are not that much then also its fine with these investors.factors as the most important is definitely looking for very good returns & going to invest after much research as he will definitely looking for a fund having a good performance and decent returns opportunity. Investor is also looking for personal attention being given to his portfolio or investments.
there is no difference in the factors affecting the buying behavior between term 1 and term 2 people. DEMOGRAPHIC FACTORS: • SEX PROFILE: • AGE PROFILE: MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 112 . The term 1 consists of the people who are investing for less than a year whereas term 2 consists of the people who are investing for 1 to 5 years. Therefore. Through group statistics in both the terms standard deviation is quite high and mean is quite low as seen in Appendix.DISCRIMINANT ANALYSIS: Through Discriminant analysis I have tried to highlight variables which effect the decision of a people investing for less than a year and people who are investing for more than a year. I have found that Eigen value is less than 1 and Wilks’ Lambda is more than 0.5 as well as the significance level is quite high which shows that the model is not applicable.
responsibility towards family etc. so we will see to what number it will go because this number will give us a rough idea about mutual fund awareness among women in particular and financial awareness in general. we found that only 1 respondent is female in pilot study. but mainly due to stability in their earnings and career. ACADEMIC QUALIFICATION: MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 113 . Also.From above charts it can be easily be inferred that people aged between 31-40 preferred mutual funds most because of many factors.
therefore it remains to be seen that to what extent post graduates and professional have interest in mutual funds.• MARITAL STATUS: OCCUPTION PROFILE: From above charts it can be easily inferred that: Majority of respondents are graduates. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 114 .
ANNUAL INCOME RANGE: From above chart it can be easily inferred that majority of respondents are from 2.000-5. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 115 .00.00. therefore it remains to be seen that how many young and unmarried investors have preference towards mutual funds. mainly due to their high level of awareness about financial products. MBAs etc. Majority of respondents are married (80%).000 range. Insurance agents. Independent Financial Advisors (IFAs). therefore its remain to be seen that how many are from less than two lakh category because here lies the opportunity for AMCs to generate huge volumes by offering innovative funds. Majority of respondents have their occupation as a professional be it Relationship Mangers.
therefore it is very essential today that AMCs and especially SBI should focused MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 116 . INVESTMENT HORIZON: From study it can be concluded that majority of respondents invest in mutual funds from “More than three year” perspective (53%).FINANCIAL BEHAVIOUR OF THE RESPONDENTS: INVESTMENT OBJECTIVES: Among given options including “others” category majority of respondents prefer good return as their primary objective of investment. that’s means once a investor comes to your service he will be there for at least three years. CHANNELS USED BY RESPONDENTS FOR INVESTING: From the study it can easily be inferred that majority of respondents(70%) now invest directly in mutual funds especially after SEBI guidelines came recently that says there will not be any ENTRY LOAD for investors investing in mutual fund schemes directly.
low awareness etc. 00. debit cards etc.on innovating new ways to serve the customers like giving SMS time to time.33%).66%) with no single retail investor preferring debt or fixed income instruments like Fixed Maturity Plans (FMPs). followed by Balanced Schemes (6. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 117 . INVESTMENT AMOUNT: From pilot study it can be concluded that majority of respondents (46%) have investments in mutual funds in a range of “More than 1.000” category which implies that over a period of time if an investor see that his capital is growing than the probability of his subsequent investment becomes very strong. SCHEME PREFERENCES: ON THE BASIS OF ASSET CLASS: When it comes to scheme preferences majority of retail investors prefer Equity Schemes (93. giving value added services like free insurance. It shows that there is a huge potential for debt instruments in the market which is unearthed by retail investors due to its complexity.
service and information to facilitate subsequent investment of retail investors. Only 10 % of respondents take help of Brokers/Advisors when it comes to final decision of investing. it shows that AMCs in general and SBI in particular have to be more informative so that they can provide best material.PREFERABLE ROUTE TO INVESTING IN MUTUAL FUNDS: As above chart clearly explains that majority of respondents (57%) take self decision once they start investing in mutual funds. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 118 . Therefore.
ON THE BASIS OF STRUCTURE:
When it come to scheme preference on the basis of its structure, majority of retail investors prefer “Open Ended Scheme “ primarily due to flexibility of redemptions, investments, good return and liquidity. None of the investors prefer “Interval Scheme”, in fact some of the retail investors were confused about the very name of “Interval Schemes.”
When it comes to Saving Habits of retail investors it comes out that majority of respondents saves between 15%-20% p.a. basis followed by “above 25%” category (20%), therefore at this stage it is very difficult to say anything about saving preferences about retail investors. Others categories like 10-15 and 20-25 are equally preferred by
MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 119
respondents but it was a positive clue that only 7% of respondents save below 5%.
SBI AND OTHERS:
Most Popular Fund from SBI: Up till this stage the winner is “MAGNUM TAX GAIN” which is preferred by majority of respondents (60%), due to its three in one benefits which are as follows: Tax Benefit Good Return Capital Appreciation
MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 120
SATISFATION LEVEL WITH SBI:
Form above chart it can be inferred that up to this stage majority of respondents (47%) are considerably satisfied when they were asked about overall experience with SBI Mutual Funds including funds, returns, services etc., but it remains to be seen that which category leads with the completion of survey because second best categories preferred by investors is “Reasonably Satisfied” which means that there is more to do on SBI behalf for Customer Satisfaction.
MOST POPULAR FUND HOUSE IN TERMS OF HIGHEST INVESTMENT:
MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 121
When asked about highest investment in an AMC majority of Investors (27%) gave the name of SBI which is followed by Reliance (23%), ICICI (20%), and rest in “others” which is lead by UTI. So there is a stiff competition in the market and it remains to be seen that which fund house take the leads with the completion of the project.
MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 122
COMPARATIVE ANALYSIS MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 123 .4.
Treynor. These fluctuations in the returns generated by a fund are resultant of two guiding forces. in a general. higher will be the risk associated with it.INTRODUCTION: Return alone should not be considered as the basis of measurement of the performance of a mutual fund scheme. Thus. fluctuations due to specific securities present in the portfolio of the fund. it should also include the risk taken by the fund manager because different funds will have different levels of risk attached to them. or NAV. and Jensen etc. The Total Risk of a given fund is sum of these two and is measured in terms of standard deviation of returns of the fund. In order to determine the risk-adjusted returns of investment portfolios. Sharpe. is the sum total of the market value of all the shares held in the portfolio including cash. The higher the fluctuations in the returns of a fund during a given period. First. NAV of a mutual fund unit is nothing but the 'book value'. can be defined as variability or fluctuations in the returns generated by it. Risk associated with a fund. But before that we need to understand all the components that are used to explain the ratios like Beta. less the liabilities divided by the total number of units outstanding. several eminent authors have worked since 1960s to develop composite performance indices to evaluate a portfolio by comparing alternative portfolios within a particular risk class. present in the market. general market fluctuations. Factors affecting NAV: Variation in investment portfolio: MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 124 . the components are as follows: NAV: Net Asset Value. which affect all the securities. called market risk or systematic risk and second. called unsystematic risk.
. Therefore. if the value of that asset changes. sale and repurchase also affects the NAV of the fund. which in turn will result in better valuation for the fund. Sale and repurchase of units: Sale and repurchase of any unit that we have in our portfolio changes the overall NAV of the fund. which in turn may affect the overall value of the fund. Changing the portfolio or replacing any security with the existing security may change the overall NAV of the fund. same investment portfolios with different NAV gives same returns in percentage terms.Variation in the investment portfolio causes changes in the NAV of the fund. then the NAV of the portfolio will come down. We sell this security and after one week when the price of the security becomes Rs 80 we buy it. the securities that we have in the portfolio play pivotal importance. which in turn may change the value of the entire fund. For example. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 125 . Valuations of assets The value that the underlying asset has. keeping all other investments intact. Cost associated with the Fund The cost associated with the fund also affects the NAV of the fund. we have a portfolio in which the security A is priced at Rs 100. All the charges accumulated during the selling of a security are known as Sales charges. it can change the overall NAV of the fund. whose portfolio the fund has managed or is managing. Since. therefore. Funds with low expense ratios are always preferred as they decrease the overall cost of the security.
The beta may also be negative. move to the opposite direction than the general market development. while a beta lower than 1. denoted with S and read as sigma. on average. It also measures the volatility of the fund. The Beta coefficient indicates the percentage change of the fund’s value when the benchmark value changes by one percentage point. Beta measures the volatility of the fund’s value relative to the volatility of the fund’s benchmark value. which means that the value of the fund will. If the beta ratio exceeds one.00 is considered to be less volatile. the fund is more sensitive than funds in general to the fluctuations of the stock market. *Benchmark index that is taken here is Sensex. STANDARD DEVIATION: It measures the tendency of data to be spread out. a beta higher than 1. Beta measures the sensitivity of rates of return on a fund to general market movements. Accountants can make important inferences from past data with this measure. is defined as follows: MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 126 . The standard deviation. The Market's beta is set at 1. as compared to that of the overall market.00.BETA: It is a ratio that measures the market risk of securities or a fund.00 is considered to be more volatile than the market.
If the Sharpe figure is positive. When the markets are more MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 127 . and calculates portfolio’s market risk premium relative to its beta. The only difference being the use of standard deviation instead of beta. This ratio rewards volatility because it shows risk adjusted returns per unit of market risk for that particular scheme. a low and negative Sharpe Ratio is an indication of unfavorable performance. P R = Return of the portfolio. R − R P f Sharpe = σ P σ = The standard deviation of the portfolio. the returns are lower than the risk-free rate. to measure the portfolio risk. It measures portfolio risk with beta. in other words except it uses the total risk of the portfolio rather than just the systematic risk. TREYNOR RATIO: Treynor (1965) was the first researcher developing a composite measure of portfolio performance. P R = Risk free rate. f While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund. and if the figure is negative. the risk taken has paid off.SHARPE RATIO: Sharpe (1966) developed a composite index which is very similar to the Treynor measure which will be discussed on a later stage.
A scheme with high Treynor ratio such as Equity scheme will enjoy a premium when the markets are bullish and will be affected negatively when the markets are bearish. schemes with high Treynor ratio are highly affected and vice versa. All risk-averse investors would like to maximize this value. On the other hand. scheme with low Treynor ratio such as Debt Fund will not be affected greatly. Therefore these measures may not be applicable in evaluating the relative merits of long-term investments. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 128 . The trouble with both Sharpe and Treynor ratios for evaluating "risk-adjusted" returns is that they equate risk with short-term volatility. R − R P f Treynor = β P R P = Portfolio’s actual return during a specified time period. R β P = Beta of the portfolio.volatile. f = Risk-free rate of return during the same period. irrespective of the bullish or bearish run in the markets. While a high and positive Treynor Index shows a superior risk-adjusted performance of a fund. a low and negative Treynor Index is an indication of unfavorable performance.
to select the categories and top performing funds in those categories. The following are those five categories: EQUITY DIVERSIFIED FUNDS EQUITY LINKED SAVING SCHEME EQUITY LARGE CAP EQUITY MID AND SMALL CAP EQUITY THEMATIC The comparative analysis of categories mentioned above is shown as follows as on 2905-09: The following three parameters are considered for comparative analysis: • • • Funds’ Returns Risk Profile Portfolio Analysis LIMITATIONS: MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 129 .INTER FIRM COMPARISON: The main objective of doing Inter Firm Analysis is to judge where SBI EQUITY FUNDS stands in comparison to other Asset Management Companies (AMCs) as per different criterion which are explained as follows. I have taken the help of recently done OUTLOOK MONEY SURVEY.
The comparison of the funds is done using the bar charts and thus arriving at a conclusion after analyzing those charts. fund returns. Comparison of funds is done on the basis of various factors but due to time constrain and non-availability of data. portfolio analysis.).e. METHODOLOGY For the first part of analysis i. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 130 . risk profile. portfolio turnover(in %). For the third part of anlysis i. I have done comparison on the basis of three factors namely return. 3 years and 5 years. I have compared these five funds with respect to their standard deviation. I have taken five top funds of same category of different fund houses and compared their returns for 6 months. alpha and r. sharpe ratio. top 5 holdings. For the second part of anlysis i.e. beta. Also it is not possible to compare all the funds in market under each category.squared. I have compared these five funds with respect to their P/E ratio. that’s why I have selected top 5 funds of each category mentioned above and compared them. cr. fund size(in Rs. 1year.e. risk and portfolio of the fund.
1)EQUITY DIVERSIFIED FUNDS: • Meaning: These are the funds in the market which have investment across the sectors. asset classes and financial instruments to provide optimal benefit of diversification of portfolio to investors. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 131 . The following are the top five funds in the market in this category as per the recently held survey: a) SBI MAGNUM CONTRA b) HSBC EQUITY c) FRANKLIN INDIA PRIMA PLUS d) SBI MAGNUM EQUITY e) RELIANCE GROWTH ANALYSIS: FUNDS RETURNS: As per this criterion funds are compared from past six month duration to five years time. Returns of less than one year are on absolute basis and for more than one year are on compounded basis. Latest returns are shown in the analysis.
55 16.42 14.15 26.Fund Return(in SBI Magnum ‘000 cr.48 34.80 17.18 14.29 19.64 13.42 2.) Contra HSBC Equity Franklin India Prima Plus SBI Magnum Equity Reliance Growth 46.65 43.63 22.79 10.29 29.37 17.36 13.77 6 Months 1Year 3Year 5Year 53.95 AS ON 29-05-09 Online Source: Value Research MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 132 .46 51.36 11.56 -0.
• Magnum Contra has performed very well in last six months which shows the funds’ ability to withstand ups and downs in the market which is the case since December 2008.FINDINGS: • Since two funds from SBI brand are in top five funds. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 133 .64)% when compared to HSBC Equity which has fallen by (34. that’s shows how well the portfolios are managed by the concerned Fund Managers.56)%.It has increased by only (53.
35 Reliance Growth MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 134 .97 -0.94 1.35 0.95 0.31 0.48% return in both time periods.• Hit by global recession.66 SBI Magnum Equity 33.10 28. from one year perspective also both funds from SBI are showing stable returns.41 33.67 0. but not the least from three and five years perspective.03 0.00 0.03 0. RISK PROFILE: SBI Magnum Contra Standard Deviation Sharpe Ratio Beta Alpha RSquared AS ON 29-05-09 Online Source: Value Research 0.84 HSBC Equity Franklin India Prima Plus 29.87 1.50 0.28 0.88 -0.29% and 29.95 0. the horizon which is considered to be very important from investors point of view.03 0.00 -0. It is giving highest return of 16. both funds from SBI.95 0.97 0. especially Magnum Contra outperformed in the category.89 1. • Last.01 32.
• Sharpe ratio. higher the ratio the better it is. which means returns per unit of risk that a fund is able to generate. it shows that these funds are more aggressive in nature than other funds. Therefore. Magnum Contra is not a winner as per this criterion. therefore it is considered to be the direct measure of risk. As Both SBI funds have higher Standard Deviation.FINDINGS: • Since Standard Deviation is the measure which shows variability in the returns from the mean return. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 135 . Accordingly.
Therefore. which shows the co-movement of funds return with Market rate of returns. Reliance Growth is having a r-squared value of . Accordingly.• Beta. e. • Alpha. But a high r-square means that much of change is caused by market sentiments or fundamentals. Since. if a fund has alpha of positive 10 it means fund is giving a return of more than 10 percent when compared to its benchmark or Market. A high positive alpha is good sign for fund. a moderate r-square value ranging between 65-85% is considered good from portfolio management point of view. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 136 . it is suggested that if a fund has very high r-square value it means similar returns can be achieved by investing in the stock markets. On the contrary. Therefore. • R-Squared. Magnum Contra is having one of the highest r-squared value(. is again measure of volatility or risk.g. which explains the change in return caused by market volatility is a good measure of risk. Since Magnum Equity is having highest Beta which is closed to one and also Magnum contra which is second highest shows that they are tend to be aggressive or volatile in nature.88 which means that it is taking the benefit of its portfolio in most optimum way. which measure the excess return over and above the market return is a measure of risk.50%.9) alongwith HSBC Equity it is suggested that some changes has to be made in the portfolio of fund to take benefit of diversification of portfolio. HSBC Equity is winner in this category which is generating a highest positive alpha in the category which is 1.
2 0 57.52 % Source: Value Research 17.) PortfolioTurno ver(in %) Top 5 Holdings AS ON 29-05-09 Online 21.34 3597.49% 14.00 18.00 MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 137 .9 2 97.00 HSBC Equity Franklin India Prima Plus 18.52% 26.62 1153.73 1958.PORTFOLIO ANALYSIS: SBI Magnum Contra P/E ratio Fund Size(in Rs. 7 56.00 SBI Magnum Equity 21.93 1180.71 241.5 0 63.85 48.46 % 31. cr.97 % 33.91 Reliance Growth 14.
Magnum Contra is slowly losing its contrarian approach which reflects in its lowest P/E ratio in the category. it shows that investors have a lot of confidence in funds. high turnover also implies that high transaction cost are charged to fund. Since Sbi Magnum Equity of the funds from SBI have very low turnover.) this shows the Brand SBI has no problem when it comes to raising funds. P/E ratio is high for young/growth funds/stock. High P/E ratio means that investors are paying higher prices for stock when compared to its earnings. However. On the MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 138 . Magnum Equity is having 2nd highest holdings in top five stock. • Concentration Level: As shown in above table. Generally. which means the fund is concentrated towards major stocks in the portfolio.FINDINGS: • P/E RATIO is a measure of investors’ confidence in the fund/stock. • Portfolio Turnover which measures the extent to which the fund is active in terms of its dealings in the markets. Since Magnum Equity is having a highest P/E ratio in the category. • As usual funds from SBI brands have largest Assets under Management (in cr. Like Magnum Contra has second highest AUM in the category only preceded by Reliance Growth. On the contrary. it means that funds were not required to be changed in recent period which ultimately results in greater efficiency. While Magnum Contra is quite diversified fund as it is having second lowest concentration level only next to Reliance Growth.
72 Prima 43.nseindia. NAV DETAILS OF FUNDS AS ON 29TH MAY.other hand Reliance Growth is having highest Portfolio Turnover which means Fund Manager is churning the portfolio very quickly which in turn increasing the transaction cost charged to the fund.39 319.com India NAV 45.2009 FUND SBI Magnum Contra HSBC Equity Franklin Plus SBI Magnum Equity Reliance Growth AS ON 29-05-09 31.36 MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 139 .00 80.21 Source: www.
the scrip is contrarian for us. this fund considers the underlying company’s valuations and compares that with what it believes the company’s true valuations should be and then decide whether to invest in it or not.CONCLUSION: After considering all three parameters mentioned above it can be concluded that MAGNUM CONTRA is the best fund in the category because unlike a typical contrarian fund that focus on out of flavor stocks. but we it to grow by 30%.” MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 140 . According to its Fund Manager Pankaj Gupta “if the market expects a stock to grow by 20%.
Sintex and Welspun Gujarat Stahl Rohern throughout 2007. It increased its exposure to interest-rate sensitive sectors such as Auto and Banking.Fund also played on some contrarian bets like it invested in TATA STEEL after it acquired the Anglo-Dutch Steel Major CORUS despite market shunning it. you can’t withdraw any amount from your account.Infact. These scheme are most popular among retail investors(also see in Appendices) due to its three-in-one feature which means these MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 141 .Also. Fund kept a high exposure to the capital goods sector. 2) EQUITY LINKED SAVING SCHEME : (ELSS) These are the open ended saving schemes which generally have lock-in-period of three years which means that once you have invested certain amount in your fund. a move that eventually benefited the fund in 2007. one of the preferred in 2007. Fund mainly focused on high-growth stocks like JP Associates.
schemes are able to satisfy three different investment objectives simultaneously which are mentioned as follows: Tax Benefit Good Return Capital Appreciation
The following are the top five performing funds in ELSS category: a) SBI MAGNUM TAX GAIN 93 b) PRINCIPAL TAX SAVINGS c) BIRLA SUN LIFE TAX RELIEF 96 d) SUNDARAM BNP PARIBAS TAX SAVER e) KOTAK TAX SAVER
ANALYSIS: FUNDS’ RETURN:
MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 142
As per this criterion funds are compared from past six month duration to five years time. Latest returns are shown in the analysis. Returns of less than one year are on absolute basis and for more than one year are on compounded basis:
Fund Returns(in ‘000 cr.) 6 Months 1 Year 3 Year 5 Year
SBI Magnum Tax Gain 48.39 8.81 13.01 40.02
Principal Tax Savings 30.32 -16.51 3.68 21.29
Birla Sunlife Tax Relief 96 55.49 9.34 12.44 22.25
Sundaram BNP Paribas Tax Saver 41.78 16.48 19.11 35.99
Kotak Tax Saver 43.98 2.73 9.91 NA
AS ON 29-05-09 Online
Source: Value Research
MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 143
In six month category Magnum Tax gain has performed very well, it is preceeded only by Birla Sunlife Tax Relief when compared to other similar funds like Sundaram Tax Saver, Principal Tax saving and HDFC Long term advantage.
In one year category, fund has performed averagely well than other funds like Principal Tax saving, and Kotak Tax Saver. Fund has given only 8.81% return against the best of Sunadaram BNP Paribas Tax Saver’s 16.48%.
Last but not the least, it is good news that fund has outperformed all other funds in Three Year and Five Year Category giving returns of 13.01% and 40.02% respectively because this is the most preferred Investment Horizon among retail investors. In the 3 years category only Sundaram BNP Paribas Tax Saver shown higher returns of 19.11% than Magnum Taxgain’s.
SBI Magnum Taxgain 93 Standard Deviation Sharpe Ratio Beta -0.11 0.93 -0.25 1.02 -0.13 1.07 -0.03 0.91 31.01 Principal Tax Savings 36.15 Birla Sun Life Tax Relief 96 36.74 Sundaram BNP Paribas Tax Saver 31.42 Kotak Tax Saver 33. 79 0.2 7 0.9 7
MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 144
Alpha R- Squired AS ON 29-05-09 Online
-4.00 -0.28 0.90 0.87 0.8 8.5 6 Source: Value Research
Since Standard Deviation is the measure which shows variability in the returns from the mean return, therefore it is considered to be the direct and primary measure of risk. In case of Magnum Tax Gain, it has the lowest standard deviation in the category which means that the fund has not much risky portfolio.
Sharpe ratio, which means returns per unit of risk that a fund is able to generate. Therefore, higher the ratio the better it is. Accordingly, Magnum Tax
MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 145
as per this criterion are trailing compared to other funds in this category. which explains the change in return caused by market volatility is a good measure of risk. if a fund has alpha of positive 10 it means fund is giving a return of more than 10 percent when compared to its benchmark or Market. Magnum TAX Gain which is having one of the lowest beta in the category and also less than 1(. which shows the co-movement of funds return with Market rate of returns. Therefore. All funds in this category are showing negative ratio which indicates that funds are not able to justify well whatever it hac investments in risky assets.28%.90). As per this criterion Sundaram BNP Tax Saver is leading the category having lowest negative alpha of -0. Therefore. e. • Beta. it is suggested that if a fund has very high r-square value it means similar returns can be achieved by investing in the stock markets. Magnum Taxgain is at the 2nd position with negative alpha of -2. All funds except for Magnum Taxgain(0.78%. A high positive alpha is good sign for fund. PORTFOLIO ANALYSIS: MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 146 .9) shows that the fund is actually very less sensitive to stock market movement. • R-Squared.Gain is among the best fund as it is having 2 nd highest ratio in the category.94) and BSL Tax Relief 96(0. is again measure of volatility or risk. But a high R-squared means that much of change is caused by market sentiments or fundamentals.g. a moderate r-square value ranging between 65-85% is considered good from portfolio management point of view. which measure the excess return over and above the market return is a measure of risk. • Alpha.
Cr.21% Kotak Tax 16.48% Birla Sunlife Tax Relief 96 16.12 703.94 17.SBI Magnum Taxgain 93 P/E Ratio Fund Size(in Rs.19% Sundaram BNP Paribas 16.13 3133.) Portfolio Turnover(in %) 5 Top Holdings AS ON 29-05-09 Online 19.91 Principal Tax Savings 14.1(30-0409) 20.56 591.62 Saver 32.20 23.64% 18.91 175.66(3004-09) 24.69(30-0409) 22.54(3004-09) 30.14 24.39% Source: Value Research FINDINGS: From the above table it can be concluded that: MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 147 .43 29.63(30-0409) 22.
strong brand. • Portfolio Turnover which measures the extent to which the fund is active in terms of its dealings in the markets.62. In this case Investors have faith in SBI Magnum Taxgain 93 as it is having highest P/E ratio(18. P/E ratio is high for young/growth funds or stock. However. As it is clearly visible from the table that Magnum Tax Gain(24. • Concentration Level: As it is clearly visible from the table that Kotak Tax Saver is most diversified fund as it is having lowest holdings in Top five holdings while Tax gain from SBI has 2nd lowest level of concentration level which means it is better diversified than other two funds in the same category.• P/E RATIO is a measure of investors’ confidence in the fund/stock. as a result of strong distribution network. Therefore. NAV DETAILS OF FUNDS AS ON 29TH MAY. SBI Mutual Funds in particular should build on strength of its Sponsor. Generally. High P/E ratio means that investors are paying higher prices for stock when compared to its earnings. • Again Magnum Tax gain has largest Assets under Management (AUM).91) from SBI has lower ratio compared to Sundaram BNP Paribas Tax Saver(30.2009 FUND NAV MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 148 . Though Kotak Tax Saver is also having a better figure of 16. and the message of faith that SBI name itself give to masses of investors. high turnover also implies that high transaction cost are charged to fund.13).20) in the category it can be concluded that portfolio was changed least number of time which again resulted in greater efficiency.
SBI Magnum Tax Gain 93 Principal Tax Savings Birla Sun Life Tax Relief 96 Sundaram BNP Paribas Tax saver Kotak Tax Saver AS ON 29-05-09 46.03 71.88 13.09 57.com MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 149 .79 Source: www.nseindia.15 34.
Principal Tax Saving fund is the second best fund and also most consistent fund in the category. the stocks which have growth potentials and also have high risk when compared to large cap.CONCLUSION: After considering all the three parameter mentioned above. Madhukon Projects. 3)EQUITY MID AND SMALL CAP: These are the equity funds which invest primarily in mid cap and small cap stocks. Also. since ELSS has more of Retail money Mr. by investing predominantly in a well diversified basket of equity stocks of companies whose market capitalization is less than Rs 2000 crore. The fund has no sectoral bias and invested in stocks across market capitalization. Essen Rea Roll which helped in generating more returns. OBJECTIVE: The main objective of such funds is to provide long term growth in capital along with liquidity.The fund also invested in under-researched companies like Adhunik Metaliks. Though shift towards Large-Cap stocks did not help in 2007 therefore Fund manager Jayesh Shroff has been forced to cut holdings in small and medium companies from 86% in mid-2005 to around 25% now.Shroff decided to play less aggressive strategy. The following are the top five performing funds in this category as on date: a) ICICI PRU EMERGING STAR b) MAGNUM GLOBAL 94 MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 150 . After all large cap stocks are less volatile and schemes investing them have low downside risk. it can be concluded that MAGNUM TAX GAIN tops the chart.
43 -9.66 Magnum Global 94 85.61 Magnum Multiplier Plus 93 55.26 -21.55 Reliance Growth 64.c) MAGNUM MULTIPIER PLUS 93 d) RELIANCE GROWTH e) SUNDARAM BNP PARIBAS SELECT MIDCAP INST ANALYSIS: FUNDS’ RETURN: Fund Returns(in’000cr.77 -5.40 -29.68 Sundaram BNP Paribas Select Midcap NA NA MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 151 . ) 3 Months 1 Year ICICI PRU Emerging STAR 68.
20 Source: Value Research NA NA FINDINGS: • Since two funds from SBI brand are in top five funds. • In Three month category.82 -0.32 35. while both funds Reliance Growth and Multipier Plus 93 have fallen by maximum value.30 11. Magnum Global is the winner since it has fallen by minimum value. that’s shows how well the portfolios are managed by the concerned Fund Managers.3 Year 5 Year AS ON 29-05-09 Online -3.97 24.95 33. It means these funds were not able to withstand Ups MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 152 .36 31.21 10.
• In five year category.e. • In three year category which is one of the preferred choice of a retail investor Magnum Multiplier Plus 93 is 2nd highest giving the return of 10.22 Magnum Multiplier Plus 9330. again Reliance Growth is the winner giving a handsome return of 35.66% return in past one year.95% return. while Multiplier plus is giving a return of 33.32% at Second Position and Magnum Global is giving a return of 31. RISK ANALYSIS: ICICI PRU Emerging Standard Deviation MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 153 Magnum Global 94 37.24 .21% which is not a bad return. • Hit by the mammoth of recession in one Year category Winner is Magnum Multiplier Plus 93 giving the highest return of -5.20%. from March 2009 to May 2009 compared to other well performing fund in the same period.30% while Reliance Growth is at 1st position giving 11.90 Reliance Growth 33.35 Sundaram BNP Paribas NA STAR 38.55%. while funds like ICICI Pru Emerging STAR are giving lowest returns in the category giving only -29.and Downs in the Indian stock markets in past three months i.
97 0.Fund having lowest MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 154 .90 0.07 14.05 12.83 -0.e.80 0.Sharpe Ratio Beta Alpha RSquired AS ON 29-05-09 Online -0.01 0.82 -0. Second is Magnum Global having Standard Deviation of 37.07 0. Standard Deviation is highest for ICICI Pru Emerging Star which means it is the most risky fund in the category.35 0.08 0.40 1.78 0.88 NA NA NA NA Source: Value Research FINDINGS: • The primary measure of risk i.90 -1.22%.34 1.
Magnum Multiplier Plus is having lowest Beta of 0.Magnum Global(0.07 in the category.80% deficit return than its benchmark. because all R-Square values are near about .08 which justify its risk.7 or less than that which means all funds are taking the benefit of Professional Management. since a major part is being played by other facors.83) and Reliance Growth(0.90 which means that it is less sensitive to the market and hence less risky. Now.82).Standard Deviation is also from SBI. • All funds in this category are showing negative ratio which indicates that funds are not able to justify well whatever it hac investments in risky assets. Multiplier Plus is having lowest ratio(-0. ICICI Pru Emerging STAR is having • ICICI Pru Emerging Star is having a highest Beta of 1. • Reliance Growthis having a highest value of alpha in the category. It is giving 0.88) are having best RSquared value in the category. PORTFOLIO ANALYSIS: MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 155 .But three funds ICICI Pru Emerging Star(0. • Last. which means it is the most highly sensitive fund to the market in the category. a Sharpe Ratio of -0.40) again indicating its aggressive nature. Multiplier Plus 93 is having 30.35 % excess return than its benchmark. but not the least all funds in this category have good R-Squared value. Multiplier Plus from SBI has second best alpha which is giving -1.90% as Standard Deviation. 2nd highest return per unit of risk in the category is from SBI.
68% STAR 12.60 % 746.20 47.34 59.61 Magnum Global 94 11.AS ON 29-05-09 ICICI PRU Emerging P/E Ratio Turnover(in %) Fund size(in Rs.49 NA Sundaram BNP Paribas NA NA NA Value Research Online FINDINGS: MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 156 .9 2 17.15(3 0-04-09) 24.00 Source: Reliance Growth 14.64 90.39 91.72 Magnum Multiplier Plus 93 21.69 3597.87( 30-0409) 18.0 0(300414.96% 687.cr) Top 5 Holdings 256.
• Portfolio Turnover which measures the extent to which the fund is active in terms of its dealings in the markets. Reliance Growth is having a largest Fund Size of Rs. Reliance with its Brand Name and effective Marketing Strategy has no problem when it comes to raising fund from public.746. On the other hand.69% implying less transaction cost being charged to the fund.Infact. it shows that the fund is well managed and is having a lowest transaction costs. as visible from table itself that. followed by Magnum Global 94 (Rs.it is the most diversified fund in the category.e.687. However. Also Reliance Growth is having moderate value of 59.15 Cr) which shows popularity of these funds in the market.Magnum Multiplier Plus 93 is having highest P/E ratio of 21.92 Crore in the category. Magnum Multiplier Plus 93 is having lowest Diversification as it is having highest holding in top five stocks (24. P/E ratio is high for young/growth funds or stock. ICICI Pru Emerging STAR is having lowest percentage (14. high turnover also implies that high transaction cost are charged to fund.3597. As it is clearly visible from the table that Magnum Multiplier Plus is having lowest turnover ratio of 47% compared to highest of 91. High P/E ratio means that investors are paying higher prices for stock when compared to its earnings.60) of holding in its Top five Stocks i. In this case both funds from SBI are having high P/E Ration in the category. Magnum Global 94 is having a lowest P/E Ratio of 11.61% in case of ICICI Pru Emerging Star and 90.87 Cr)and SBIs Magnum Multiplier Plus (Rs.• P/E RATIO is a measure of investors’ confidence in the fund/stock. Generally. • Fund Size.64 which shows investors are comparatively lacking confidence in the fund.68) in the category.20 in the category. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 157 .72% in case of Magnum Global 94. • Concentration Level: As visible from table.
57 319.2009 FUND ICICI PRU EMERGING STAR MAGNUM GLOBAL 94 MAGNUM MULTIPIER PLUS 93 RELIANCE GROWTH SUNDARAM AS ON 29-05-09 BNP NAV 21.com SELECT MIDCAP INST MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 158 .NAV DETAILS OF FUNDS AS ON 29TH MAY.21 PARIBAS 100.52 Source: www.81 58.42 35.nseindia.
4)EQUITY LARGE CAP: These are the funds which have investments predominantly in large cap stock. These are the less risky stocks and hence generally have low growth rates when compared to small and mid-cap stocks. Magnum Equity have been taken. The following are the top performing funds in the category: A) BIRLA SUN LIFE FRONTLINE EQUITY MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 159 .CONCLUSION: After considering all three parameters discussed above it can be concluded that MAGNUM MULTIPLIER PLUS FUND is the best fund in the category followed by Reliance Growth. These are the stocks which has a solid track record and sound fundamentals. In this category fund from SBI. since it has significant exposure to large cap stocks (92.16%).
I.65 Sundaram BNP Paribas S.79 10.M.I.E.79 45.99 -0.18 Reliance Vision 59.M.89 -7.B) SUNDARAM BNP PARIBAS S.L.E.L.42 Kotak 30 Magnum Equity 51.96 -12.) 3 Months 1 Year Birla Sunlife Frontline Equity 61.81 MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 160 . REG C) KOTAK 30 D) MAGNUM EQUITY E) RELIANCE VISION ANALYSIS: FUNDS’ RETURN: Fund returns(in ‘000cr. Reg 80.18 -5.
42% given by Kotak 30.89%) compared to highest fall in Kotak 30(45.I.63 NA 9.29 9.M.53 14.63 27. • Hit by the mammoth of recession in one year category. Magnum Equity from SBI was not able to withstand ups and downs in the market witnessed in last three months since it is fallen to 51.81%. Reg is the winner.83 Source: Value Research Online FINDINGS: • In past three months. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 161 . Also.E.79% which is second highest fall. Sundaram BNP Paribas S. since it has fallen to only (80.21 28. giving the highest return of 10. Magnum Equity top the charts.37 22.L.95 10.69 29.96).3 Year 5 Year AS ON 29-05-09 17. when compared to the lowest of -12.
29% while Magnum Equity stands at only return of 22.95%. 4TH position giving the RISK PROFILE: MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 162 .• In three Year category Sundaram BNP Paribas Select Focus top the charts giving a x return of 17.69% followed closely by Magnum Equity giving a return of 14. • In Five year category Birla Sun Life Frontline Equity top the charts giving a return of 29.63%.
67 0.00 1.60 0.10 1.91 -2.92 29. 38.14 0.41 0.E.95 FINDINGS: MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 163 .91 Kotak 30 Source: Magnum Equity 33.07 -0.11 0.12 -3.95 Reliance Vision 30.00 0.01 0.05 0.L.36 Sundaram BNP Paribas S.I.99 0.AS ON 29-05-09 Birla Sunlife Frontline Standard Deviation Sharpe Ratio Beta Alpha R-Squired Value Research Online 0.90 -0.79 -0.M.89 4.95 0.96 Equity 29.98 -0.
96 which tells us that All funds are significantly influenced by Market and thus not taking help of Professional Management at its optimum.I. • As per Alpha measure of risk.On the other hand RELIANCE VISION is not able to generate Alpha Returns and it is one of the lowest alpha generating fund in the category (2. Since Beta is more than 1 it means Fund is highly sensitive to the market. • SUNDARAM BNP PARIBAS S.E. SUNDARAM BNP PARIBAS S. • The return per unit of risk is highest in case of Birla Sun Life Frontline Equity(0.M. REG is having highest Beta (1.E.L.11) in the category indicating that fund is not able to generate enough return compared to the risk its taking while investing. giving the highest excess returns than the market (4. • All funds in the category are having higher R-Squared Value. therefore whenever Stock Market will fall or rise fund will fall or rise more than the market. Reg is having the highest risk in the category compared to lowest risky Birla Sun Life Frontline Equity (29. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 164 .89) in the category again signifying that it is having lowest risky profile in the category.L. Among the funds Birla Sun Life Frontline Equity is having highest value of .12) in the category signifying its aggressive nature.M.41) which is also having lowest risk in the category while RELIANCE VISION is having one of the lowest Sharpe Ratio(-0.95%).I.• As per the Standard Deviation.60%).36%). Birla Sun Life Frontline Equity is again the best fund in the category. Birla Sun Life Frontline Equity is having lowest Beta (.
) Top 5 Holdings Online Equity 15.02 2589.11% Magnum Equity 21.52% Reliance Vision 14.L.M.29 241.46% Sundaram BNP Paribas S.02(3004-09) 26.14(3004-09) 28.83 130.31 688.14(3004-09) 32.91(3004-09) 31.I. 14.26(3004-09) 20.E.67 10.22 26.52 17.71 32.cr.93% Kotak 30 17.21% AS ON 29-05-09 Source: Value Research MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 165 .PORTFOLIO ANALYSIS: Birla Sunlife Frontline P/E Ratio Portfolio Turnover(in Fund%) Size(in Rs.45 481.81 17.
Kotak 30 and Magnum Equity are having highest Top Five Holdings in the category (32.FINDINGS: • As per P/E Ratio Magnum Equity is the winner in the category. • Portfolio Turnover which measures the extent to which the fund is active in terms of its dealings in the markets.67 which means investors are not much confident about the fund. In this category.L.29). • As per the Fund Size. While SUNDARAM BNP PARIBAS S.L. Reg is having lowest (20.I. Reliance Vision managing the largest fund (2589.E.M. Reg is having lowest P/E Ratio of 14.71 i. Reg is having lowest Portfolio Turnover Ratio (10.52%) respectively. indicating its Brand Name. SUNDARAM BNP PARIBAS S. However.11%) and (31. While Sundaram BNP S. indicating that it is the least diversified fund in the category.E. Brand Penetration in the market. While Magnum Equity is having the 2nd minimum Fund Size indicating the not much popularity of the fund in the market.e.83) suggesting that Fund Manager is managing the fund without much change in the portfolio and thus saving the Transaction cost. Magnum Equity is having the highest Portfolio Turnover Ratio of (32. it is having highest ratio of 21.93%) top MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 166 .02 Cr) in the category.L.I. high turnover also implies that high transaction cost are charged to fund.thus incurring the highest transaction cost.E. On the other hand.M. Investors are really confident about the fund and they are paying much higher than the earnings.I.M. • Concentration Level: As per this criterion.
five holdings indicating that it is the most diversified fund in the category. thus taking the benefit of the Diversification.E.39 198. Reg Kotak 30 Magnum Equity Reliance Vision 76.2009 FUND Birla Sun Life Frontline Equity Sundaram S. NAV DETAILS OF FUNDS AS ON 29TH MAY.M.42 BNP NAV 62.93 31.49 MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 167 .82 Paribas 22.L.I.
now heads overall Investment team.It did well to identify potential winner in public sector banks. as also companies like Crompton Greaves. stressing on small and medium companies that are usually under-researched. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 168 .AS ON 29-05-09 SOURCE: NSE WEBSITE CONCLUSION: After considering all three parameters discussed above it can be concluded that BIRLA SUN LIFE FRONTLINE EQUITY tops the category due to following reasons: • A. He also sharpened the internal processes. Hindustan Dorr-Oliver and Thermax in 2007.Balasubramanian who earlier used to head Fixed Income Team. • Fund Manager Mahesh Patil’s stock and sector selection ability was also the key to fund’s success. he gave a lot of freedom to its analyst and research team to present new stock ideas.
5)EQUITY THEMATIC FUNDS: These are the funds which invest in particular sector or particular group of companies to take advantage of that group.• Mahesh also played fairly aggressive strategy by picking up stocks whose Price levels were attractive. The following are the top performing funds which have been taken for comparison with SBIs thematic fund in the category: A) BIRLA SUN LIFE BASIC INDUSTRIES B) TATA INFRASTRUCTURE C) JM BASIC D) MAGNUM EMERGING BUSINESS FUND MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 169 . therefore Downside risk was also lowest of this fund in the category. • Fund also didn’t take high exposure to any single stock. These funds are generally higher in risk profile and thus provide high return also.
96 -13.) 3 Months 1 Year 3 Year Birla Sunlife Basic Industries 71.62 2.67 -2.12 10.07 12.E) UTI INFRASTRUCTURE ANALYSIS: FUNDS’ RETURNS: Fund returns(in ‘000 cr.89 JM Basic Magnum Emerging Businesses 96.76 -24.42 Tata Infrastructure 66.38 UTI Infrastructure 52.80 MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 170 .76 8.23 123.1 5 -35.77 -8.21 -9.
12).38%. giving a solid return of 123.64 FINDINGS: • In three Months Category JM BASIC is the winner. Birla Sunlife Basic Industries is the winner showing a fall of-8.5 Year AS ON 29-05-09 Online 24.15% followed by Magnum Emerging Business Fund giving a return of 96. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 171 .63 NA NA NA Source: Value Research 33.67%).76% followed by UTI Infrastructure(-9. • In one year category.The 2nd lowest return was given by SBIs Magnum Emerging Business Fund (-24.
21 47.64% which is a quite good return.17 -0. TATA Infrastructure is the winner giving a return of 12.82 UTI Infrastructure 33.23% followed by UTI Infrastructure(10. RISK PROFILE: Birla Sunlife Basic Standard Deviation Sharpe Ratio -0.89%).41 -0.00 J M Basic Magnum Emerging Businesses 0.22 -13. Again the lowest return is given by Magnum Business Fund (-2.88 MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 172 . • In Five Year category data is not available since all the above listed funds are new and have a track record of only three years except UTI Infrastructure giving a return of 33.02 -0.57 Tata Infrastructure 35.• In three year category.21%).05 Industries 34.
D Of 47.88 -0.10 0. SBIs Magnum Emerging Fund is the winner in the category having a lowest Standard Deviation of 0.11 0.45 Source: Value Research 1. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 173 .16 -9.58 0.34 41.93 1.Beta Alpha R-Squired AS ON 29-05-09 Online 1.92 1.D).12 0.00.00 -1.90 FINDINGS: • As per Standard Deviation (S.36 1.05 -0. which is considered to be primary measure of risk.82.On the other hand JM Basic is the looser having the highest S.03 -5.
53 JM Basic Magnum Emerging Businesses 23.90 UTI Infrastructure .72 Tata Infrastructure 17.36. • As per Beta measure of risk. On the other fund. sine it is having highest Beta in the category of 1. All the funds in this category have Beta greater or equal to 1 which show that they are highly sensitive to market sentiments.11 and -0. JM Basic is the most sensitive to the market. As per Alpha Measure of risk. because it is having a moderate value of .58%).88 i.e.34 in ths category which suggests that they have given minimum loss to the investors compared to other funds. it is taking the benefit of diversification.62 11.01 MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 174 . Its lowest in the case of Magnum Emerging Business Fund(-13. the return per unit of risk is negative for all the funds in this category. PORTFOLIO ANALYSIS: Birla Sunlife P/E Ratio Basic 12. • All the funds in this category have negative alpha 1 which show that they are giving negative returns. JM Basic was looser generating a highest negative alpha of (-9. • As per R-Squared Value.41) which means that funds is a looser. JM Basic is having the best value as per MORNING STAR.• As per Sharpe Ratio. Tata Infrastructure and Magnum Emerging Business Fund are showing smallest negative figures of -0.
) Top 5 Holdings AS ON 29-05-09 Online 35.69% 8.23 79.09(3004-09) 27.65(30-0409) 27.02(3004-09) 27.13 51.86% 1294.80 391.36% 46.91 1598.54(3004-09) 30.24% 6.69% Source: Value Research FINDINGS: MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 175 .Portfolio Turnover(in%) Fund Size(in Rs.cr.81 98.47(3004-09) 24.
Birla Sun Life Basic Industries is the most diversified fund in the category because it is having a lowest holding in top five stock in terms of percentages( 24.02 Crores building on its Brand and performance also. UTI Infrastructure is also having a large corpus of 1294. • As per Fund Size. On the other hand JM Basic and Magnum Emerging Business Fund are the least diversified fund in the category having 30.86% holding in top 5 Stock respectively. SBI etc. However.36).13 respectively. • Portfolio Turnover which measures the extent to which the fund is active in terms of its dealings in the markets. SBIs Magnum Emerging Business Fund is the winner in the category. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 176 . However. JM Basic and SBI is the winner since both funds are having lowest Portfolio Turnover ratio which are 8. since it is having highest P/E Ratio of 23.81 implying that Fund manager is churning the Portfolio very quickly.As per P/E ratio.90 in the category which means that Investors are paying almost 24 times of fund’s earnings and have a lot of confidence in the fund. On the other hand Birla Sun Life Basic Industries is having the lowest P/E Ratio in the category implying low investors’ confidence. UTI Infrastructure is having a highest ratio of 51. In the above category. • Concentration Level: As per this criterion. high turnover also implies that high transaction cost are charged to fund.80 and 6.09 crores and this was possible only due to its sound track record since inception because the fund has not have Strong Brand name when compared to other fund house like Reliance. Birla.24% and 27. Tata Infrastructure is the winner in the category having largest Fund Size of 1598.
NAV DETAILS OF FUNDS AS ON 29TH MAY.2009 FUND Birla Sun Life Basic Industries TATA Infrastructure JM Basic Magnum Fund UTI Infrastructure AS ON 29-05-09 www.84 16.nseindia.89 27.98 MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 177 .57 Business 24.com 30.79 Source: Emerging NAV 75.
construction. engineering and banking worked very well. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 178 . among the funds mentioned above TATA INFRASTRUCTURE tops the category due to following reasons: • The scheme’s focus on capital goods. However.Though SBI came up with its infrastructure a bit late in 2007 therefore Magnum Emerging Business fund from SBI has been taken due to its available track record.CONCLUSION: After considering all three parameters discussed above it can be concluded that Infrastructure was the dominant theme in 2008.
Mod. COMPARISON OF MUTUAL FUNDS AGAINST OTHER INVESTMENT AVENUES: PRODUCT SAFETY/CONVI NENCE LIQUIDITY RETURN VOLATILITY Equity FI Bonds Low High High/low Moderate High-Mod.• Out of all infrastructure funds this fund was the least volatile since it had the well diversified portfolio.-High High Moderate MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 179 .
Debentures Corp. Mutual funds are Moderate in volatility compared to some high volatile avenues like equity and real estate. Also. FD Bank Deposit PPF Life Ins. Gold Real Estate MF Moderate Low High High High High Moderate High Low Low High Moderate Low Moderate Low High Mod. Therefore. features mentioned here make Mutual Funds an attractive investment instrument for all investors.-Low Moderate Moderate Low-High Moderate Low-Mod Mod. are safe in nature.-Low High-Low High Low Low Low Low Moderate High Moderate SOURCE:VALUE RESEARCHONLINE. gives high liquidity when compared to other investment avenues.COM FINDINGS: From above table it can be interpreted that Mutual Funds give high return. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 180 .
P. International Equity Funds. The mutual fund industry had the following items in its wish list before the announcement of the budget 2009-10: Bring Equity Fund of Funds. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 181 . Chidambaram as it was the last budget by the UPA govt.EXPECTATIONS OF THE INDUSTRY FROM BUDGET 2009-10: The Budget 2008-09 was expected to be a populist budget presented by the Finance Minister Mr. before the general election in 2009. and Gold ETFs under the definition of Equity Mutual Fund.5.
Overseas Investment Limit for individuals and international funds both should be lifted completely. PSUs should be allowed to invest across all mutual funds irrespective of Public/Private Status. Commodity ETFs should be introduced. Dedicated Infrastructure Funds guidelines should be issued so that the huge infrastructure funding requirements can be met. Dividend Distribution Tax on Money Market / Liquid Mutual Funds should be reduced to 10% from 25% at present. Minimum criterion for equity oriented mutual fund be bought down from 65% to 50% Dividend Distribution Tax on Corporate for Non Equity and Non Liquid Mutual Funds should be reduced to 10% from 20% at present. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 182 .
RELEVANT HIGHLIGHTS OF THE BUDGET 2009-10 The Economy MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 183 . Maybe a separate exemption limit of Rs. 100. where money will be locked for a period for investment in infrastructure projects. Level playing field for MFs vis-à-vis alternative competing instruments.000 can be set-aside for individuals. Tax incentives for individuals to save in dedicated infrastructure funds. Redefine ‘equity-oriented’ schemes to include funds that invest in securities of foreign listed companies and ADR/GDRs issued by Indian and Foreign companies. which vie for intermediation into India’s equity and debt markets. Differential tax incentive (on the lines of equity long term savings) to lure investor’s savings into long-term debt products through mutual funds.
. banks to be encouraged to embrace concept of Total Financial Inclusion. FINANCIAL SECTOR Financial Inclusion Two recommendations of the Committee on Financial Inclusion proposed to be accepted viz. of the UPA Government resulting in an unprecedented average growth rate of 8.5 per cent. including RRBs.7 billion and FII to US$ 18 billion. namely. and debt swapping. 9. by the end of 2007-08.6 per cent and 36. marriage etc. Government to request all scheduled commercial banks to follow the example set by some public sector banks and meet the entire credit requirements of SHG members. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 184 .6 percent in first three years. ex-servicemen etc. The Gross Domestic Product increased by 7.7 per cent and 9. FDI amounted to US$ 12. to add at least 250 rural household accounts every year at each of their rural and semi-urban branches. (i) to advise commercial banks. respectively. social needs like housing. to be appointed as business facilitator or business correspondent or credit counselor.4 per cent respectively.3 per cent.4 per cent and 9. between April. The drivers of growth continue to be 'services' and 'manufacturing' which are estimated to grow at 10. and (ii) to allow individuals such as retired bank officers.December 2007-2008. income generation activities. Saving rate and investment rate estimated to be 35.8 per cent. education.
Capital Markets Measures to expand the market for corporate bonds
Exchange-traded currency and interest rate futures to be launched and transparent credit derivatives market to be developed with appropriate safeguards; Tradability of domestic convertible bonds to be enhanced through the mechanism of enabling investors to separate the embedded equity option from the convertible bond, and trade it separately; Development of a market-based system for classifying financial instruments based on their complexity and implicit risks to be encouraged.
Permanent Account Number (PAN)
Requirement of PAN extended to all transactions in the financial market subject to suitable threshold exemption limits.
Four services brought under service tax net namely, asset management service provided under ULIP, services provided by stock/commodity exchanges and clearing houses; right to use goods, in cases where VAT is not payable; and customized software, to bring it on par with packaged software and other IT services.
MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 185
Threshold limit of exemption for small service providers increased from Rs.8 lakhs per year to Rs.10 lakhs per year; about 65,000 small service providers go out of the tax net.
Direct Taxes Threshold limit of exemption from personal income tax in the case of all assesses increased to Rs.150, 000. The slabs and rates of tax are : Up to Rs.150, 000 Rs.150, 001 to Rs.300, 000 Rs.300, 001 to Rs.500, 000 Rs.500, 001 and above NIL 10 per cent 20 per cent 30 per cent
Every income tax assesses to get relief of minimum of Rs 4,000.
In case of a woman employees, the threshold limit increased from Rs.145,000 to
Rs.180,000; for a senior citizens, the threshold limit increased from Rs.195,000 to Rs.225,000. Senior Citizen Saving Scheme 2004 and the Post Office Time Deposit Account added to the basket of saving instruments under Section 80C of the Income Tax Act.
Additional deduction of Rs.15,000 allowed under Section 80D to an individual paying medical insurance premium for his/her parent or parents.
MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 186
Corporate debt instruments issued in Demat form and listed on recognized stock exchanges exempted from TDS. Parent company allowed to set off the dividend received from its subsidiary company against dividend distributed by the parent company; provided that the dividend received has suffered DDT and the parent company is not a subsidiary of another company.
Rate of tax on short term capital gains under Section 111A & Section 115AD
increased to 15 per cent.
STT paid to be treated like any other deductible expenditure against business income; Levy of STT, in the case of options to be only on premium, where the option is not exercised; liability to be on the seller; where the option is exercised, levy to be on the settlement price and the liability on the buyer; no change in the present rates.
SWOT ANALYSIS OF SBI MUTUAL FUND
Being the 7th biggest AMC,SBI Mutual Fund has a cutting edge over other AMC’s
MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 187
The name SBI is also associated with one of the largest public sector bank in India,and hence people show more faith in SBI Mutual Fund.
SBI Mutual Fund is one of the oldest AMC’s in private sector and schemes which are matured enough pull new investors because of high returns.
Wide variety of funds,ranging from debt funds to equity and a mixture of both in various proportions,give ample amount of choice to customers.
SBI Mutual Fund offers clear and non overlapping positioning of different funds. Winner of ICRA Mutual Fund Awards 2009(Magnum Taxgain Scheme).
Winner of Lipper Fund Awards 2009.
Winner of Outlook Money NDTV Profit Awards- 2008.
Lack of promotional material ,dispensers ,banners. Proper training not being provided to bank officials.
MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 188
• • Share market slump may see downfall in investments. Owing to the impact of global financial crisis the average AUM of the Indian Mutual Fund industry fell by 1. people have accepted it as a one of the major MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 189 . There is little awareness about mutual fund in India.383 crores. THREATS • Competitors like Reliance AMC.OPPORTUNITIES • • Untapped rural market offers huge potential. 26. • Training provided to investors may lead to more investments. The average AUM of SBI Mutual Fund for the month of March 2009 was Rs. Ongoing recession may impose adverse effects FUTURE SCENARIO Mutual funds are the fastest growing segment of the financial services sector in India.ICICI prudential are catching up fast on the market share.287 crores. More focus on PSU’s may enhance business. 493.53% and stood at rs.
I personally visualize a minimum annual growth of between 30 and 35 per cent. I came to know that SBI MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 190 . The mutual fund industry is witnessing the introduction of derivatives in the country. There will be a large number of offers from various asset management companies in the time to come. FINDINGS: 1) Regarding Funds:- While dealing with them I have observed that the performance of the schemes of SBIMF is quite good and the demand for those schemes is also good. But this does not mean there is no room for other players. if I may venture to say) as penetration into semi-urban and rural areas is steadily increasing since more and more households are opting for mutual funds. Out of ten public sector players five will sell out. have entered the Indian market. This enables it to hedge its risk and this in turn would be reflected in its Net Asset Value (NAV). JP Morgan. etc. an encouraging present and a very bright future. One important reason for it is that most major players already have presence here and hence these big names would hardly like to get left behind. since we are on a growth phase (a real take off. The market will witness a flurry of new players entering the arena. In the private sector this trend has already started with two mergers and one takeover. I feel that this industry has a very interesting past. Some big names like Fidelity.investment avenue. close down or merge with stronger players in three to four years. Once people know about the benefits offered by it. mutual funds will become one of the sought after investment avenues. In future.
c) They have also complained that AMC do not provide any fringe benefits on good performance. like unavailability of forms. as it is the largest bank of country. there are lots of opportunities for the SBI Munds Management Pvt Ltd to tap the golden opportunities from the Indian market. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 191 . CONCLUSION The future of primary market is growing at a very high pace. According to them the 3yr and 5yr returns of the funds are very good. SBIMF is not very aggressive in marketing of its funds also the funds of SBIMF are not very innovative (as they don’t have any banking or financial sector fund) 2) Regarding services:Apart from fund performance observations are also made regarding the services of SBIMF. b) Problems related to material.Magnum Tax gain 93 is the most popular fund among individual investors. Taking this thing into consideration. At the same time they we also observed that unlike other AMCs like Reliance. HDFC etc. after analyzing the feedback of distributors I found that the services of SBIMF is not as good as other AMCs and some of the field in which they are lacking a) Complaints related to not delivering the account statements and brokerage on time. One of the reason for great demands of AMCs fund is the Brand Value of SBI. also there are some problems related to courier services. fact sheets and other promotional matters.
if the progress of SBI MF goes in the same way. Mutual funds will become one of the sought after investment avenues. is that they should have a strong network so that prompt services and availability of forms is made available to the investor at a short notice. which it needs to focus on. The only thing. They have much potential to expand their distribution network in northern India. This is not to undermine the bright future of SBI MF. The company is currently following huge investment and growth strategies. There is little awareness about mutual fund in India. than I can say that there is bright future for SBI MF in coming years. It is expanding its area of business. Hence the firm should be selective using growth strategies. just a check to be a cautious. As far as the other investment products marketed by SBI MF are concerned. SUGGESTIONS & RECOMMENDATIONS MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 192 . people have accepted it as a one of the major investment avenue. they have a ready market. Apart from the market growth rate the distribution industry doesn’t seem so attractive.SBI Funds Management Pvt Ltd has emerged a very strong player in the field of distribution of financial product within a short period of one year time in Northern India and is giving stiff competition to all the players in the market including the banks. and if it keeps the traditional base for marketing in India. which is a price sensitive market. we can say that SBI MF has a great future ahead.
expectations and risk profile is of prime importance failing which. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 193 . Irrational expectations will only bring pain. 1. Excessive exposure to any specific sector should be avoided. Try to understand where the money is going: One can lose substantially if one picks the wrong kind of mutual fund. The world of investments too has several ground rules meant for investors who are novices in their own right and wish to enter the myriad world of investments. It is thus important to know the risks associated with the fund and align it with the quantum of risk one is willing to take. Don't rush in picking funds. 3. These come in handy for there is every possibility of losing what one has if due care is not taken. as it will only add to the risk of the entire portfolio. In order to avoid any confusion it is better to go through the literature such as offer document and fact sheets that mutual fund companies provide on their funds. Assess yourself: Self-assessment of one’s needs.A) THE GROUND RULES OF MUTUAL FUND INVESTING The following are the 10 commandments that were to be followed till eternity. one will make more mistakes in putting money in right places than otherwise. 2. think first: one first has to decide what he wants the money for and it is this investment goal that should be the guiding light for all investments done. One should take a look at the portfolio of the funds for the purpose.
Do your homework: It is important for all investors to research the avenues available to them irrespective of the investor category they belong to. since it is extremely difficult to know when to enter or exit the market. So putting one’s money in different asset classes is generally the best option as it averages the risks in each category. 6. Invest. if one has to really benefit from them. The SIPs (Systematic Investment Plans) offered by all funds helps in being systematic. Having identified the risks associated with the investment is important MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 194 . Don’t put all the eggs in one basket: This old age adage is of utmost importance. All that one needs to do is to give post-dated cheques to the fund and thereafter one will not be harried later. it is always advisable to diversify the risks associated. No matter what the risk profile of a person is. Be regular: Investing should be a habit and not an exercise undertaken at one’s wishes. This is important because an informed investor is in a better decision to make right decisions. One should abstain from speculating which in other words would mean getting out of one fund and investing in another with the intention of making quick money 5. Don’t speculate: A common investor is limited in the degree of risk that he is willing to take. it is important to beat the market by being systematic. As we said earlier.4. It is thus of key importance that there is thought given to the process of investment and to the time horizon of the intended investment. 7.
10. the initial expectation from the fund has been met with. Know when to sell your mutual funds: Knowing when to exit a fund too is of utmost importance. hike in fee charged and change in any basic attribute of the fund etc. 9.e. are some of the reasons for to exit. Find the right funds: Finding funds that do not charge much fees is of importance. If the market is beginning to enter a bearish phase. as the fee charged ultimately goes from the pocket of the investor.and so one should try to know all aspects associated with it. Finding the right funds is important and one should also use these funds for tax efficiency. 8. One should book profits immediately when enough has been earned i. Funds that charge more will reduce the yield to the investor. Other factors like non-performance. B) WHEN TO SELL YOUR MUTUAL FUND MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 195 . Keep track of your investments: Finding the right fund is important but even more important is to keep track of the way they are performing in the market. Asking the intermediaries is one of the ways to take care of the problem. One can always switch back to equity if the equity market starts to show some buoyancy. This is even more important for debt funds as the returns from these funds are not much. then investors of equity too will benefit by switching to debt funds as the losses can be minimized.
MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 196 . If it has underperformed the average of its peers in all cases. is where most investors make a mistake. In such cases. although valid in certain conditions. as it doesn’t present the full picture. • A change in life stage Investments are done with a certain objective in mind and life stages are often a determining factor of what a person needs. more conservative debt funds that offer stable returns without compromising on risk. then it sure is one of the better reasons to exit from the fund. it pays to withdraw money from the equity investments made earlier and put them in safer. Here are some situations when the investor should consider withdrawing their investments from the funds. • Fund is not performing This reason for selling. who suggest on when to invest in a particular avenue. A young man can afford to take more risks than a person nearing his retirement can. So a change in life stages would be one such reason to consider switching into a fund that matches with one’s needs. some by profession. there is a certain paucity of people who talk of when to exit. 3-year and above. One should compare the returns posted by his fund with that of the peers across various horizons such as 1year. When calculating performance one shouldn’t look at too short a period and make a mistake by comparing apples to oranges. some self-professed.While there are many investment consultants. A short-term view can often lead to committing hara-kiri.
Changes like a change in Asset Management Company or in investment style of fund or change of structure say from closed-end to open-end etc. In the case of bond funds or money market funds. If the objective is not being complied with. The objective of the fund says a lot about how the fund plans to invest. • The Fund’s Expense Ratio Rises A small rise in an expense ratio is not a big deal. however a significant rise can result in substantial reduction of yields and so it would be better to exit the fund. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 197 . the investors have a choice of getting out of it. it is highly unlikely that the fund can increase its returns enough to justify an increase in the fund's expenses. are good enough reasons for an investor to consider switching or exiting from it as they are certainly likely to affect the fund in a major way.• A major change in any basic attribute of the fund When the fund changes any basic attribute as mentioned by it in its offer documents. Even SEBI has provided for an exit route being made available to the investors. • Fund doesn’t comply with its objective One of the important parameters in the selection of the fund is alignment of the risk profiles of the investor and fund. it is one of the exit points worth considering.
then has to keep the eyes open on the new manager. The primary principle behind safety of investment is to take risks that can be tolerated. then one has little to no reason to worry. it is also important to exit when target as expected has been achieved irrespective of the fact that it might be generating better returns in a short-term. It’s just that most don’t know when to apply thought and so these would come in handy. If it is a passively managed fund (index fund). in itself. Waiting longer might not prove beneficial. However. Just as it is important to set realistic targets that one hopes to achieve from the investment. as one need not be lucky all the time. • Enough has been earned However. The principle also is specific on the expectations that the investor must have from any investment. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 198 .• The Fund Manager has changed a simple change of fund managers. is not enough reason to sell a fund on a short-term basis. if it is an actively managed fund.The above list is certainly not exhaustive and individuals will have other better reasons to quit as well. nothing is as important as to rein the horses in time.
I was not given the authority to handle any transaction myself but under the guidance of some superior. Since I have not undertaken the AMFI exam. which is a mandatory condition to work in the operations department. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 199 .LIMITATIONS OF THE PROJECT As my project involves interaction with both prospective as well as existing clients. lack of any identity proof hinders the assignment as people often suspect the authenticity of the concerned person. The company restricts me to deal with its key clients. Being a trainee. I was not able to understand some of the common terms of the mutual funds industry but later I learnt them.
which generally pays a stated rate of interest and to returns the principal amount of the loan on the maturity date. The bonds are rated by an independent rating agency such as CRISIL. Equity MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 200 . Capital Gains The gains made on sale of securities and certain other assets (including units of mutual funds) are called capital gains. Gains on mutual fund units held for a period of 12 months or more are long-term gains. and CARE. General Terms: i. or his/her ability to repay the loan. ICRA. Bonds A debt security issued by government or corporation. Unlike stockholders. iv.GLOSSARY 1. bondholders do not have ownership privileges. Credit rating A measure indicating the bond issuer’s credit worthiness. Compounding Interest earned not only on the initially invested principal but also on accumulated interest during the period. v. The gains can be long-term or short-term depending on the period of holding of the asset and are charged to tax at different rates. iii. ii.
affecting the purchasing power of a currency. ix. viii. and convertible stock are types of equity securities. NSE & other stock exchanges. These are generally listed on BSE. annually based on market conditions. which is periodically adjusted. Inflation risk The possibility that the value of assets or income will be eroded by inflation. Common stocks. These rates often have a specified floor and ceiling. These do not offer an investor much potential for growth. Floating Rate Securities An interest rate. vii. but debt securities are not. Interest rate risk MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 201 . usually based on a standard market rate outside the control of the institution. Fixed income securities A debt security that pays a defined rate of return. as they do not represent ownership. which limit the floating rate. Often mentioned in relation to fixed income Funds as they may minimize the possibility of losing the principal. A mutual fund investing in these types of securities may also be referred to as a fixed income investment or security. This usually refers to government. or preferred stock. which pays a fixed dividend. vi. which pay a fixed rate of interest until the bonds mature.A type of security representing part ownership in a company/corporation. preferred stock. The rates are pre-decided at regular intervals like half yearly. The opposite of having a floating rate is having a fixed rate. corporate or municipal bonds.
Mode of holding: When an investor makes investment only under his name. Owning mutual funds shields an investor to some market risk that a stockholder may be vulnerable to because of their diversification. xii. They can use this account for making investments in India on a repatriable basis. NRE A Non-Resident External Rupee account that NRIs can open with any Indian bank. a bond’s price will rise.The risk that a security’s value will change due to an increase or decrease in interest rates. Money Market Instruments Commercial paper. certificates of deposit and any other instrument specified by the Reserve Bank of India. when the mode of holding is ‘Joint’. call money. the mode of holding can be ‘Joint’ or can also be ‘Anyone or Survivor’. But when the mode of holding is ‘Anyone or Survivor’ the holder / applicants do not have to sign jointly but can be signed by either of the holders/ applicants. However. Market risk The potential loss that is possible as a result of short-term volatility of the stock market indicated by beta. xi. GOI securities with an unexpired maturity up to one year. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 202 . the mode of holding is termed as ‘Single’. xiii. when the investor makes an application with one or more persons as the second or third applicants. x. treasury bills. A bond’s price will always drop as interest rates rise and when interest rates fall. all the applicants have to sign jointly or simultaneously for any transactions. However.
xvii. he is allotted units at the ‘Applicable NAV’ & he is given a unique account / folio number for the investments made by him. Asset Management Company (AMC) MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 203 . Yield to Maturity (YTM) The yield earned by a bond if it is held until its maturity date. Account statement A document similar to a bank account statement that indicates the mutual fund units owned. iii. 2. xv. NRIs have to follow specific rules when investing in India. ii. NRO An Ordinary Non-Resident Rupee account which can be opened for funds coming in from abroad or from local funds. NRI A Non-Resident Indian who is an Indian citizen or a person of Indian origin but who resides abroad. however. A statement is issued each time the investor carries out a transaction. The amount in the account is. Business specific: i.xiv. nonrepatriable. Account Number / Folio Number After the investor makes an investment.
This NAV is relevant if the application is received before that cut-off time on a day. usually experts who are known for smart stock picks. Average Maturity Average time to maturity of all fixed-period investments in the portfolio of a scheme. assuming reinvestment of distribution such as dividend payment and bonuses. Annual Return The percentage of change in net asset value over a year's time. Thus the AMC acts as the investment manager of the trust under the broad supervision and direction of the trustees. A different NAV holds if received thereafter. viii. iv. Assets Under Management (AUM) / Corpus The total amount of money invested by all the investors in a scheme as on a date. Application Form Form prescribed for investors to make applications for subscribing to the units of a fund. AMC charges a fee for the services it renders to the MF trust. The AMC must have a net worth of at least Rs10 crores at all times and it cannot act as a trustee of any other mutual fund. vi. This is an asset management company (AMC).The trustee delegates the task of floating schemes and managing the collected money to a company of professionals. A cut-off time is set by the fund house and all investments or redemption’s are processed at that particular NAV. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 204 . Applicable NAV NAV at which a transaction is effected. vii. v.
xiii. xii. but they vary in maturities. x. Contingent Deferred Sales Charge (CDSC) A type of exit sales load which is charged when units are redeemed within a specific time period following their purchase.ix. xi. Balanced funds A mutual fund scheme with an investment objective of both long-term growth and income. T-notes. Hence instead of receiving dividend. in order to obtain the highest returns consistent with a low risk strategy. Business Day Business day is defined as a day other than (I) Saturday & Sunday (ii) a day on which BOTH the National Stock Exchange and the banks in Mumbai are closed (iii) a day on which the Sale & Redemption of Units is suspended. Bonds. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 205 . the unit holders receive units. through investment in stocks and bonds. T-bills and money market instruments are debt securities. the dividend is reinvested in the scheme itself. Debt securities A general term for any security representing money loaned that must be repaid to the lender at a future date. These charges reduce the longer the units are held. Generally 60% is invested in stocks and 40% in bonds. Dividend Reinvestment In a dividend reinvestment plan.
usually outpace the returns on income investments over the long-term (five to ten years. Holiday NAV MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 206 . The amount sometimes depends on how long the investment was held. xviii. Entry load The load on purchases after the Initial (Public) Offer.xiv. growth is much less consistent. It invests mainly in common stocks with significant growth potential. Exit load The load on redemption other than the Contingent Deferred Sales Charge (CDSC) permitted under SEBI Regulations. however. Ex-Dividend Date The date following the record date for a scheme. which is somewhat regular and consistent in most cases. Equity Schemes A scheme that invests primarily in stocks while seeking to provide relatively high longterm growth of capital. now called NFO (New Fund Offer) xv. When a fund's net asset value reduces by an amount equal to a dividend distribution. Growth investments. xvii. or longer). A fee charged by some funds for redeeming or buying back of units. the smaller the charge. so the longer the time period. Growth funds Mutual funds with a primary investment objective of long-term growth of capital. xvi. Unlike income. xix.
that of the market. xxi. Initial Public Offer (IPO) A fixed time period during which the first sale of units of a scheme are made available to the public. commercial paper and certificates of deposit. xxiii. The term Initial Public Offer used by mutual funds has been replaced by a new term “New Fund Offer” effective June 2. but not exceed. It will tend to invest in stocks and bonds that normally pay high dividends and interest. which they are mirroring.Holiday NAV is the NAV at the day immediately preceding the day which is both a Business Day as well as a working day for banks at the centre where the application is received xx. 2005 by SEBI. The objective is to provide liquidity and preserve the capital. Liquid Funds /Money Market Funds Funds investing only in short-term money market instruments including treasury bills. Index Funds A type of mutual fund in which the portfolios are constructed to mirror a specific market index. Income funds A mutual fund that primarily seeks current income rather than growth of capital. xxii. xxiv. Index funds are expected to provide a rate of return over time that will approximate or match. Mutual fund MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 207 .
a certain percentage of assets under management. xxv. affordability. plus all other assets (e. Typically. Operating Expenses MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 208 . Net Asset Value Market value of one share of a mutual fund on a given day. Minimum Purchase The smallest investment amount a scheme will accept to open a new unit holder account. liquidity and convenience. money market instruments or a combination of those. Each fund’s investments are chosen and monitored by qualified professionals who use this money to create a portfolio. xxvi. This sum is then divided by the fund’s total number of shares outstanding.A Mutual Fund is a common pool of money from numerous investors who wish to save money. bonds. Mutual funds offer investors the advantages of diversification. The NAV is calculated each day by taking the closing market value of all securities owned by a mutual fund. That portfolio could consist of stocks. xxviii. xxvii. also known as the bid price. professional management. and deducting the fund’s liabilities. No Load Fund A fund that sells its units to investors without a sales load / charge. xxix. Unlike the public offering price. cash).g. Management Fee The amount a scheme pays to its asset management company for its services. A fund's management fee is listed in its offer document. the NAV includes no sales charges.
xxxiii. staff. Offer document The offer document or prospectus is a booklet. xxxii. xxxi. subscription and redemption policies. a legal document that provides information about a specific mutual fund such as the fund’s investment objectives. Offering price The price at which mutual fund shares are offered for sale to the public. and money market instruments. load structure. and equipment. Portfolios may include a combination of stocks. Its purpose is to also inform investors of potential risks involved before they decide to invest in a fund and provides other information that could help an individual decide whether the investment is appropriate for him. These expenses are paid from the fund's assets before any earnings are distributed. such as for maintaining offices. Portfolio A pool of individual investments owned by an investor or mutual fund. A list of the fund’s current portfolio will usually be contained in a mutual fund’s annual report. The public offering price represents the net asset value plus any applicable initial sales charges. Also known as offering price. Rate of return MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 209 . xxx. bonds. An abridged offer document of the scheme also accompanies the application form of every scheme.The day-to-day cost a mutual fund incurs in conducting business.
but may offer greater potential returns than funds that diversify their portfolios. Rupee Cost Averaging An investment strategy based on investing equal amounts in a fund at regular intervals. xxxvii. xxxv. we often include dividends with the present value. Sector Fund A fund that invests primarily in securities of companies engaged in a specific industry. xxxiv. xxxvi. if any. Rupee cost averaging cannot guarantee a profit or protect against loss in declining markets. This NAV is grossed up with the entry load applicable. Sector funds entail more risk. Because more shares are bought when prices are low and fewer shares when prices are high. the average cost of your shares may be lower than the average price over the period you bought them. Record Date The date by which mutual fund holders are registered as unit owners to receive any future dividend or capital gains distribution. For equities. xxxviii. Sale price The price at which a fund offers to sell one unit of its scheme to investors. Switching MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 210 .Rate of return is calculated by subtracting the purchase value by the present value and then dividing it by the purchase value.
usually within the family of schemes.The movement of investment from one scheme to another. Systematic Investment Plan (SIP) Allows an investor to periodically invest in units by issuing post-dated cheques or by giving auto debit instructions. Unit The interest of the investors in either of the Schemes. share in the assets of the Schemes. which consists of each Unit representing one undivided. An investor may switch schemes because of market conditions. xxxxiii. Systematic Transfer Program (STP) A plan that allows the investor to give a mandate to the fund to periodically and systematically transfer a certain amount from one scheme to another. sales. Retirees in need of a regular income often opt for this. xxxix. xxxxii. Systematic Withdrawal Plan (SWP) Permits the investor to receive regular payments of a fixed amount or capital appreciation from his investment in a mutual fund scheme on a periodic basis. Transfer Agent A firm employed by a mutual fund to maintain unit holder records. It allows the investor to benefit from rupee cost averaging. xxxx. MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 211 . xxxxi. including purchases. and account balances.
com · www.com · www.google. · www.com · Websites of the AMC’s taken in cases where data was not available on the above two sites.com · www.nseindia.bseindia.com MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 212 .mutualfundsindia.com · www.valueresearchonline.REFERENCES Websites referred: · www.amfiindia.
Sharpe · Market Timing.crisilratings.· www. Ronald J Jordan · Outlook Money · Mutual Funds Review · Money Life · How to rate management of mutual funds : Harvard Business review · Association of mutual funds in India (AMFI) Publications and quarterly reports · Securities and Exchange Board of India · Investopedia · Mutual Fund Performance : W.moneycontrol. and Mutual Fund Performance: An Empirical Investigation · Fact sheets of different fund houses MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 213 .crisil.com · www.com · www.com REFRENCES OF THEORY: · Security Analysis and Portfolio Management : Donald E Fischer. Selectivity.
Q.ANNEXTURE QUESTIONNAIRE.2Which fund from SBI have largest share in your “PORTFOLIO”.3Through which channels do you invest in Mutual fund? (Tick the option) a) Directly b) Through Brokers MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 214 .1 Why do you invest in mutual funds? (Tick the Option) a)Safety b) Good Return c) Tax Benefit d) Capital Appreciation e) Liquidity f)Others (Please Specify………………………………………) Q.1 (FOR INDIVIDUAL INVESTORS) KEEP INVESTING AND KEEP SMILING Q.
Are you willing to tolerate decreases in the value of your account from one month to the next? (Tick the Option) (a) Not at all (b) Somewhat (c) Definitely Q.What is your risk preference? a) High risk and high return b) Moderate risk and Moderate return c) Low risk and low return Q.50000 b) Between Rs.4 How much is your investment horizon? (Tick the option) a) Within a year b)Between 1 – 3years c) More than 3 years Q. 10 Scheme Preferences: (Tick the Option) MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 215 .8How satisfied you are with your experience of investing in SBI Mutual Funds? Highly Satisfied Highly Unsatisfied Q.100000 c)>Rs.7.Q.9 Which Fund House has largest share in your Investment Portfolio: (Mention it) Considerably Satisfied Reasonably Satisfied Unsatisfied Q.Rs.50000.6. 100000 Q.5 How much amount do you invest in Mutual funds? (Tick the option) a) < Rs.
14How much of your income you able to save: Below 5% 5-10% 10-15% 15-20% 20-25% ABOVE 25 MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 216 .11 Saving Preference: (please rank them): (a)Life Insurance (b)Pension and PF Schemes (c)Bank Deposit (d)Shares and Debentures (e)Units of MFs like SBI (f)Gold/Jeweler (f)Others (Please Specify-------------------------------------) Q.13You Prefer: (a)Open Ended Scheme (b) Close Ended Scheme (c) Interval Scheme Q.a) Equity b) Debt c) Balanced d) Fixed Maturity Plan (FMPs) e) Others (Please Specify----------------------------) Q.12 Preferable route to Mutual Fund Investing: (Tick the option) (a)Friend’s Suggestion (b) Newspapers/Magazines (c) Self Decision (d) Television (e) Brokers/Agents (f) others (Please Specify------------------------------------) Q.
Q. Q.Any Suggestion for SBI Mutual Funds: (Please mention it) Q. Factors Historical performance of fund Fund’s returns over market return Performance of Fund manager Current Economic and Market conditions Type of schemes (growth. 3 is neutral. 15Rank following factors that you consider while selecting a scheme: a) Scheme Qualities like track record. Website influence Prior experience with the fund house Fluctuation in equity markets Fees . b) Fund Manager Experience c) Investor Services like disclosure of NAV. entry load etc.e. income. d) Marketing of funds through bill boards.load and expenses Reputation of fund house MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE 1 2 3 4 5 Page 217 . 5 is most important. fund size.16.17. brokers etc. relatives. balanced & others) Expected Dividend going to be deliver by the fund Advisor or broker or agent influence Convenience in investing in the fund Transparency maintained by the fund house Minimum investment or lot size Lock in period in a fund Asset under management Fund rating Fund prospectus or offer document Internet i. friends. A/C statements. Rate the following factors which influences your investment in mutual funds on the importance scale where 1 is least important.
00.00. AGE: Below 30 31-40 41-50 Above 50 3.00.00.000 5.Security provided by the fund in terms of return Tax benefit deriving from investment in the fund NAV or price of fund’s unit Attitude towards risk Friend/family recommendation Promotional campaign of the fund PERSONAL DETAILS: NAME: 1. Marital Status: Married Unmarried 5.001-5. SEX:M TEL. Annual Income: Less than 2. West Delhi North Delhi South Delhi MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 218 . Area: East Delhi Others……………….001- 10. ACADEMIC QUALIFICATION: Graduate Post Graduate Professional Others(Please Specify---------------------------) 4.000 Above10lakh 7. Occupation: Professional Salaried Business Retired Others-------------------- 6.00.NO: F 2.000 2.
SIGNATUR E QUESTIONNAIRE-2 (For Bankers) Q1) what is the age group of the investors? • • • • Under 25 yrs 25 to 45 yrs 45 to 65 yrs Over 65 yrs Q2) Which are the best performing schemes in the market? • • • • • • • • SBI Mutual Fund Reliance Mutual Fund Kotak Mahindra Mutual Fund Birla SunLife Mutual Fund DSP Mutual Fund HDFC Mutual Fund ICICI Mutual Fund Others (Please specify) Q3) Do they want any changes in the existing or future schemes? • • • • Services Dividends Portfolio Others(please specify) Q4) Suggest a portfolio for a dream scheme? • • • IT sector FMCG sector Pharma sector MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 219 .
if any? ___________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ ________________________________ Q8) What is the expected return in that scheme (any specific scheme)? Scheme name: ___________________ • • • Less than 10% 10-15% 15-20% MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 220 .• • • • • • • • Infrastructure Commodities Automobile Energy Telecom Financial services Media & Entertainment Others(Please specify) Q5) What is the approx sales of the best seller scheme? • • • • Less than 10 lakh 10 to 20 lakh 20 to 30 lakh More than 30 lakh Q6) What are the facilities that other Banks/Mutual Fund houses are providing? • • • • Service Commission Product related information Others (Please Specify) Q7) What are your grievances.
• • 20-25% Over 25% Q9) Suggest ways by which we can improve upon our relationship. ___________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ ________________________________ MRINAL MANISH (4108078078) INDIAN INSTITUTE OF FINANCE Page 221 .