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CRISIL Mutual Fund Year Book Apr13
CRISIL Mutual Fund Year Book Apr13
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Last updated: March 7, 2013
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Table of contents
Foreword ................................................................................................................ 3
Overview................................................................................................................ 5
I - Mutual fund industry reports double digit growth .................................................. 7
II - Way forward for the mutual fund industry.......................................................... 10
III - Equity market up 28% in 2012 ......................................................................... 12
IV - Gilt prices surge as RBI cuts Repo rate ........................................................... 14
Category wise mutual fund performance ........................................................... 17
I - Category wise risk / return trade-off & indicative investment horizons ................ 18
II - Equity & Hybrid Equity - Small & Midcap Funds outperform .............................. 20
III - Sector / Thematic - Banking Funds dominate 2012, Gold Funds lose lustre ..... 21
IV- Debt & Hybrid Debt - Gilt Funds outperform on softening interest rates ............ 22
Articles ................................................................................................................ 23
I - The Science of Financial Planning - Next Frontier for Investment Advisors ........ 25
II - Declining interest rate scenario - Long-term debt funds to benefit ..................... 28
III - Liquid funds - An alternative to savings bank deposits ..................................... 30
IV - Go for paper gold............................................................................................ 32
V - Protect the downside in equities through capital protection oriented funds ........ 34
Factsheets ........................................................................................................... 37
Annexures ........................................................................................................... 63
I - Fund House Wise Ranks (December 2012)....................................................... 65
II - AUM Trends..................................................................................................... 66
III - CRISIL Mutual Fund Ranking Methodology ..................................................... 69
IV - CRISIL Mutual Fund Ranking Category Definitions ......................................... 71
Glossary of terms used in the factsheets ............................................................... 73
List of Abbreviations used in the Year Book ........................................................... 75
Foreword
We are pleased to release the third edition of The CRISIL Mutual Fund Year Book, a one-stop insight on the mutual fund industry.
This is in line with our objective of making markets function better and improving connect with retail investors.
2012 was a turnaround year for the Indian capital markets. Equities emerged as the star performer with the benchmark CNX Nifty
gaining 28%. The debt market too performed well with long-term debt funds gaining prominence due to some easing of monetary
stance by the Reserve Bank of India (RBI) and expectations of further easing by the central bank to pump prime the economy. The
central bank announced a 25 basis points (bps) repo rate cut on January 29, 2013.
The mutual fund industrys average assets under management (AUM) grew by 15% in 2012 to Rs 7.87 trillion in December 2012;
debt funds AUM rose by over 26% to Rs 5.34 trillion and equity funds AUM by 19% to Rs 1.92 trillion. This trend continued even in
2013 when industry AUM touched an all-time high of Rs 8.26 trillion in January 2013. Assets of gold exchange traded funds (ETFs)
climbed to Rs 11.7 billion (bn) in December 2012 as domestic gold prices increased by 12% over the year.
The focus on retail investors and improving the penetration of mutual funds continued through the year with Securities and
Exchange Board of India (SEBI) announcing various guidelines to promote investor education, reduce operational bottlenecks and
costs. The regulator directed fund houses to allocate 2 basis points of their AUM towards investor education initiatives. Meanwhile,
29 asset management companies (AMCs) conducted over ten thousand investor education programs in 200 cities covering nearly
two lakh participants during April 2012 to January 2013. Measures to improve mutual fund penetration included launch of the Rajiv
Gandhi Equity Savings Scheme (RGESS), which provides tax incentives to first-time equity investors. Further, SEBI doled out
incentives to fund houses that distribute their products beyond the top 15 cities. Single plan structures and introduction of direct
plans were other investor friendly measures introduced by the regulator.
It has always been CRISILs endeavour to help investors take better informed investment decisions. As part of our refreshed
content, the Year Book contains articles on select themes which were very pertinent in the year gone by and continue to hold
relevance. It also covers market and industry overview, key industry statistics, way forward and one-page factsheets on schemes
which were CRISIL Fund Rank 1 in all four quarters of 2012.
The CRISIL Mutual Fund Year Book is also available on www.crisil.com free of cost.
We hope you find the coverage informative.
Sandeep Sabharwal
Senior Director Capital Markets
CRISIL Research
Overview
Inflows into income and gilt funds led to asset growth in 2012
Inflows of Rs 613 bn into income funds (long-term debt funds, Fixed Maturity Plans (FMPs), short term and ultra-short term debt
funds) and gilt funds - on expectations of a fall in interest rates following slowing domestic growth - and easing inflation (see Figure
1) resulted in asset growth. Bond prices (Net Asset Value or NAVs) and interest rates (yields) move in opposite directions. Further,
funds with longer average portfolio maturities benefit more in a falling interest rate environment. Accordingly, long term debt
oriented funds benefit from a fall in interest rates and attract more AUM. The RBI lowered its key interest rate (Repo rate) by 0.50%
(50 bps) first in April 2012 and later by 25 bps in January 2013 to 7.75%. AUM of long term bond funds and gilt funds rose by over
317% (YoY) in 2012 to Rs 680 bn while that of short maturity debt funds (including liquid funds) rose by over 22% to Rs 2.31 trillion.
The debt category continued to corner a major share of mutual fund assets with 70% in 2012.
(Rs in bn)
2,000
8,000
1,500
7,000
1,000
500
6,000
0
-500
5,000
-1,000
-1,500
4,000
2008
2009
2010
Inflows/ Outflows
2011
2012
AUM* (RHS)
Equity funds see profit booking though AUM grows with markets
AUM of equity funds rose by nearly 19% (y-o-y) to Rs 1.92 trillion as of December 2012. Equity funds rose on account of mark to
market gains - the benchmark CNX Nifty was up by 28% in 2012 mainly on reform measures announced by the Indian government
and inflows from foreign institutional investors (FIIs). Investors, however, booked profits in equity funds and the category witnessed
net outflows of Rs 156 bn during 2012 compared with inflows of Rs 77 bn in 2011. The CNX Nifty had fallen by over 24% in 2011.
The industry also saw some consolidation with L&T Mutual Fund buying the assets of Fidelity Mutual Fund. AIG Mutual Fund
changed its name to PineBridge Mutual Fund. Srei Infrastructure and Parag Parikh Financial Advisory Services received SEBIs
approval to start mutual fund business in India. Industry players who sold some of their stake to foreign / domestic players were as
follows
Axis Bank inked an agreement with Schroder Singapore Holdings (wholly owned subsidiary of global AMC major Schroders) to
sell Axis Asset Management Companys 25% share for an undisclosed amount.
Religare Enterprises Ltd sold 49% of its stake in Religare Asset Management Ltd to the US-based Invesco Ltd.
Bank of India acquired 51% stake in Bharti AXA Mutual Fund for an undisclosed amount.
Nippon Life Insurance bought a 26% stake in Reliance Capital Asset Management for close to Rs 14.50 bn.
SEBI allowed AMCs to charge additional expenses, up to 30 bps, proportionate to the inflows from locations beyond the top 15
cities to improve the geographical penetration of mutual funds. However, the expenses will be reversed if the inflows are
redeemed within one year.
AMCs allowed fungibility across various expense heads in total expense ratio. This provides them increased flexibility to
allocate costs.
AMCs can annually set aside at least 2 bps of AUM for investor education initiatives.
To avoid differential treatment across investor classes, SEBI has directed all AMCs to follow a single expense structure across
plans from October 1, 2012 instead of plans based on the minimum investment amount (for instance institutional and superinstitutional plans). All funds now have only one plan across investor classes.
SEBI introduced Direct Plans from January 1, 2013 through which investors can apply directly to the AMC instead of through
distributors. Such plans will have a lower expense ratio as these will not charge distribution expenses.
The government introduced the RGESS for first time equity investors with an annual income less than or equal to Rs 1 million.
They will be eligible for a 50% tax deduction under Section 80CCG (new section) on investments up to Rs 50,000 in predefined stocks, close-ended mutual fund schemes (listed) and ETFs besides public offerings from select government
companies. The latest Union Budget proposed that the deduction will be allowed for three consecutive financial years while the
income limit was increased to Rs 1.2 mn.
SEBI allowed cash transactions in mutual fund schemes to the extent of Rs 20,000 to enhance the reach to small investors.
Mutual funds allowed to participate in repos in corporate debt securities with some riders.
SEBI stipulated a ceiling of 0.12% for cash market transactions and 0.05% for derivatives dealings with respect to brokerage
and transaction costs to investors.
Mark-to-market valuation component in debt securities applicable to those securities with a residual maturity of more than 60
days from September 30, 2012 compared to 91-days-and-beyond earlier.
Overseas individual investors allowed to invest up to US$1 bn in corporate bonds and debt schemes of mutual funds without
any lock-in period.
SEBI allowed postal agents, retired officials from government, banks, retired teachers, etc. to distribute simple mutual fund
products, to spread out mutual fund distribution.
AMFI issuing mutual fund Common Account Statement (CAS) in an electronic form, called eCAS; this will replace paper
statements.
Securities Transaction Tax (STT) reduced for equity futures and mutual funds/ ETF redemptions. Further, only the seller of
units will need to pay STT. This will be effective from June 1, 2013.
2.
Increased the rate of tax on distributed income (dividends) from 12.5% to 25% for all types of funds, other than equity oriented
funds, in all cases where distribution is made to an individual or a Hindu undivided family (HUF). This amendment will take
effect from June 1, 2013.
3.
Introduction of a special taxation regime in respect of taxation of income of securitisation entities, wherein no additional income
tax shall be payable, if the income distributed by the securitisation trust is received by a person who is exempt from tax under
the Income Tax Act.
4.
ETFs, debt mutual funds and asset-backed securities allowed as investments for provident and pension funds.
5.
Mutual fund distributors can become members in the mutual fund segment of stock exchanges to leverage the stock
exchanges network to improve their reach and distribution.
3. Innovation
Steve Jobs once said: Innovation distinguishes between a leader and a follower. It is true for any industry. Over the years,
different mutual fund products and services have caught investors attention such as gold fund of funds / gold ETFs and
systematic investment plans (SIPs).
Mutual funds in developed markets have a higher penetration through innovative products which offer long-term wealth creation
options such as lifecycle and target maturity funds. In the US retirement industry, close to US$1 trillion or one-fifth of the total
US$4.7 trillion as of 2011 is invested in hybrid funds (a bulk of target date and lifestyle funds is counted in this category). The
nature of these products is such that the asset allocation between equity and fixed income is adjusted based on the investors time
horizon. Additionally, there are annuity products which provide regular income in the post-employment years.
India too needs many more innovations in the retirement space. According to the United Nations population statistics, Indias share
of people aged 65 and older is expected to increase from 5% to 14% between 2010 and 2050, while the share of the oldest age
10
group (80 years and older) is expected to triple from 1% to 3%. With only 12% of Indias current population under pension
coverage, the need for innovation in this space is very high. Many simple innovations could be looked at like fixed income ETFs,
real estate ETFs, strategy-based ETFs among others. Besides innovative products, out-of-the-box thinking is also required on the
distribution side especially to target more new investors.
Use the ATM network to enable customers to buy and sell mutual fund units.
Mutual funds and banks could jointly work on investor awareness programmes along with independent industry experts.
Have a bank-like experience while investing in mutual funds such as updating performance of funds in a mutual fund passbook
through any bank branch.
Summing up
The future of the mutual fund industry rests in the twin-power of increasing financial literacy and showcasing the suitability of mutual
funds in an investors portfolio. AMCs and product distributors need to work closely to achieve the target of higher penetration of
mutual funds in household savings. The launch of RGESS is a step in the right direction to encourage the first-time investor to
look at mutual funds for tax and investment planning. Quintessentially, a more investor-friendly approach in product development,
communication and distribution would go a long way in making mutual funds a pull product.
11
Dec-12
Nov-12
-20
Oct-12
4,500
Sep-12
36
Aug-12
4,800
Jul-12
92
Jun-12
5,100
May-12
148
Apr-12
5,400
Mar-12
204
Feb-12
5,700
Jan-12
260
Dec-11
6,000
Strong global cues included global central banks liquidity easing stance as well as some signs of easing of the European debt
crisis amidst approval of bailout funds for the critically impacted countries. The US Federal Reserve proposed to enhance its bondbuying (stimulus) program by $85 bn per month and resolved to keep interest rates at record lows until mid-2015. The European
Central Bank (ECB) too unveiled a new bond-buying programme aimed at containing the region's debt crisis.
Market gains were capped amid signs of economic weakness in the domestic and global economies. The Indian economic growth
is expected to slide to 5% in 2012-13 as per the latest Economic Survey, the lowest growth rate in almost 10 years. The global
economy too has shown deceleration with the International Monetary Fund (IMF) calculating growth at 3.2% for the calendar year
2012, down from 3.9% seen in the previous year. Worries on the fiscal cliff in the US and lack of any final resolution for the euro
zone debt crisis later in the year also capped gains for the Indian equity market.
12
31-Dec-12
30-Dec-11
Absolute Change
% change
CNX Nifty
5905.10
4624.30
1280.80
27.70
CNX 100
5847.50
4477.35
1370.15
30.60
CNX Bank
12474.25
7968.65
4505.60
56.54
CNX Realty
281.30
184.20
97.10
52.71
CNX FMCG
15175.25
10217.15
4958.10
48.53
CNX Auto
4830.55
3390.55
1440.00
42.47
8505.10
6111.85
2393.25
39.16
3710.15
2711.85
998.30
36.81
CNX Pharma
6035.00
4576.25
1458.75
31.88
CNX Infra
2585.00
2124.90
460.10
21.65
CNX Commodities
2522.40
2113.85
408.55
19.33
CNX Metal
2900.25
2464.60
435.65
17.68
CNX Energy
7927.40
6968.10
959.30
13.77
CNX IT
6024.95
6139.00
-114.05
-1.86
All sectoral indices ended higher in 2012 barring the CNX IT Index (down 1.86%) (see Table 1). Interest rate-sensitive sectors such
as CNX Bank and CNX Realty were up 56.5% and 52.7%, respectively, on strong buying following expectations of more interest
rate cuts by the RBI. CNX FMCG soared 48.5% as investors followed defensive sectors amidst the volatility seen in the market.
The sector benefitted from strong earnings reports from index majors such as Hindustan Unilever (HUL). CNX IT was the only
laggard, as the export-oriented sector was impacted by signs of a slowdown in the global economy, especially the US. Weak
earnings report from index major Infosys also brought down the index in the year.
31-Dec-12
30-Dec-11
Absolute Change
% Change
13104.14
12217.56
886.58
7.26
Nasdaq Composite
3019.51
2605.15
414.36
15.91
5897.81
5572.28
325.53
5.84
10395.18*
8455.35
1939.83
22.94
3167.08
2646.35
520.73
19.68
22656.92
18434.39
4222.53
22.91
Global equity markets too reported a positive trend; key global equity indices analysed closed positive in 2012 (see Table 2). The
positive growth for global equities was led by the US markets which rose on hopes of domestic economic recovery, especially after
the US Federal Reserve enhanced its bond-buying program in the year. Re-election of Barack Obama as the US President and
abatement of the US fiscal crisis also aided the US markets. Global equities were supported by measures taken in Europe to ease
the debt crisis in the form of easy monetary stance adopted by major central banks and approval of bailout to highly fiscal debtridden countries in the region.
Japans Nikkei was the biggest index gainer, up around 23% as the export-oriented index was helped by weakening of yen
throughout the year. The index was also helped by stimulus measures both fiscal and monetary-induced in the country during the
year. Hong Kongs Hang Seng came a close second, helped by the positive global cues and hopes of revival in growth in the
domestic economy. Meanwhile, Britains FTSE gained the least, up around 6% as gains for the index were capped by weak
domestic economic indicators and worries about the European debt crisis.
13
(Rs Trillion)
13%
2.50
12%
2.00
11%
1.50
10%
1.00
9%
0.50
8%
Mibor
Repo
29-Dec-12
03-Dec-12
07-Nov-12
12-Oct-12
16-Sep-12
21-Aug-12
26-Jul-12
30-Jun-12
04-Jun-12
09-May-12
13-Apr-12
18-Mar-12
21-Feb-12
26-Jan-12
0.00
31-Dec-11
7%
LAF (RHS)
Gilt prices rose in the calendar year especially in the second half driven by expectations of monetary easing by the RBI following
signs of slowing gross domestic product (GDP) growth and fall in the inflation rate (wholesale price index or WPI). Indias GDP is
expected to slow down to 5% growth rate in 2012-13 as per the Central Statistical Office (CSO) compared with 6.2% seen in the
previous fiscal. CRISIL Research also expects that growth in the Indian economy is likely to fall below the 5% mark in the second
half of the current financial year. The WPI inflation rate fell to 7.18% in December 2012 compared with 7.74% in the year ago
period. This fell further to 6.84% in February 2013, however higher compared to a three year low of 6.62% in January 2013.
The repo rate cut coupled with other liquidity infusing measures by the RBI also augured well for gilts. Sentiments for gilts improved
due to strong measures by the central government to reduce fiscal deficit pressures and raising of FIIs limits in gilts by $5bn to
$15bn. The yield on the 10-year benchmark paper 8.15%, 2022 fell to 8.05% as of December 31, 2012, down 51 bps from 8.56% in
the year ago period. The yield sharply declined further to 7.87% as of February 28, 2013 on expectations of more repo rate cuts
ahead.
14
8.6%
8.4%
8.2%
31-Dec-12
30-Nov-12
31-Oct-12
30-Sep-12
31-Aug-12
31-Jul-12
30-Jun-12
31-May-12
30-Apr-12
31-Mar-12
29-Feb-12
31-Jan-12
31-Dec-11
8.0%
10 Yr G-Sec Yield
31-Dec-11
31-Dec-12
31-Dec-11
Call
9.50%
8.55%
10 year AAA
8.92%
9.41%
CBLO
8.66%
7.45%
4.25
6.00
Repo Rate
8.00%
8.50%
23.00
24.00
3 month CP
8.99%
9.65%
31966
26710
3 month CD
8.44%
9.37%
333
395
91-day T Bill
8.16%
8.58%
3363
2431
8.00%
8.28%
50272
43656
1 year AAA
8.85%
9.69%
64773
58279
1 Year CP
9.45%
10.10%
77.61
74.91
1 Year CD
8.75%
9.67%
354
408
5-year G-Sec
8.03%
8.43%
WPI Inflation
7.18%
7.74%
10-year G-Sec
8.05%
8.56%
CPI Inflation
11.17%
6.49%
15
16
17
Investment
Category
Investment Universe
Benchmark
Index
Expected
Returns
Risk
Indicative
Investment
Horizon
High
High
More than 5
years
High
High
More than 5
years
Small and
Midcap
Equity
Equity Oriented
Funds
Very High
More than 5
years
ELSS
Equity Oriented
Funds
High
High
More than 5
years
Index
Equity Oriented
Funds
High
High
5 years
Arbitrage
Equity Oriented
Funds
Low
More than 1
year
Thematic
Equity
Equity Oriented
Sector Funds
Relevant
sectoral
indices
Very High
More than 5
years
Capital
Protected
Equity Oriented
Hybrid Funds
CRISIL
Low
Monthly
Income
Plans Index
/ CRISIL
Balanced
Funds Index
Low
3-5 years
Balanced
Equity Oriented
Hybrid Funds
CRISIL
Balanced
Fund Index
Moderate
Moderate
5 Years
Debt Oriented
Funds
Usually
compared
with FD
rates
Moderate
Moderate
30 days to 5
years
10 FMPs
18
CNX 500
The index
that is
tracked by
the fund.
Very High
S Fund
No Type
Investment
Category
11 Liquid
Debt Oriented
Funds
Investment Universe
Benchmark
Index
Expected
Returns
Risk
Indicative
Investment
Horizon
Very Low
Less than
90 days
CRISIL
Low
Liquid Funds
index
Very Low
Less than 1
year
CRISIL
Short Term
Bond Funds
index
Moderate
Low
More than 1
year
CRISIL
Composite
Bond Funds
index
Moderate
Moderate
3 years
15 Gilt
Debt Oriented
Funds
Moderate
Moderate
3 years
16 Monthly
Income
Plans
Debt Oriented
Hybrid Funds
CRISIL
Monthly
Income
Plans Index
Moderate
Moderate
3 Years
Moderate
5 years
19
1 Year
2 Years
3 Years
5 Years
7 Years
10 Years
29.19
-0.23
5.48
0.09
12.34
22.83
32.33
0.66
6.58
1.06
12.42
25.27
41.69
3.36
9.52
0.99
12.20
28.03
ELSS
32.05
0.33
6.14
-0.83
9.11
22.82
Index Funds
27.72
-1.78
4.22
-1.29
10.18
17.37
17.64
3.15
5.20
1.73
8.08
NA
26.99
3.98
7.87
4.07
12.23
18.55
CNX Nifty
27.70
-1.89
4.32
-0.77
11.03
18.35
CNX 500
31.84
-2.02
3.09
-2.39
9.83
19.88
CNX Smallcap
36.81
-4.88
2.09
-8.54
7.83
NA
CNX Midcap
39.16
-2.01
4.59
-1.56
11.24
23.82
13.41
6.48
8.54
-0.58
1.92
4.94
21.28
1.89
5.64
2.83
10.15
14.17
Benchmark Indices
Analysis
All equity oriented categories ended in the positive in 2012 due to upbeat domestic equity markets. The small and midcap category
was the biggest gainer in the year, up nearly 42% mainly on the back of a rally in mid-cap stocks. The CNX Midcap index was also
up by 39% in 2012. This category also outperformed other categories in the 3 and 10 year period. Diversified equity funds were the
topmost gainers in the 7 year period. The equity oriented hybrid category, represented by balanced funds, performed strongly in the
year 2012, with returns of 27% marginally lower than those of the CNX Nifty index. These funds mainly benefitted due to their
dynamic allocation to equities, which rose during the year in a bullish market. A reduction in key interest rates also benefited the
debt component of these funds as interest rates and bond prices move in opposite directions. Thus bonds benefit when interest
rates fall. These funds also outperformed other equity categories in 2 and 5 year period.
20
III - Sector / Thematic - Banking Funds dominate 2012, Gold Funds lose lustre
Category Average Returns %
1 Year
2 Years
3 Years
5 Years
7 Years
10 Years
40.81
27.19
26.43
12.96
18.44
29.39
32.23
9.84
16.96
13.71
14.68
NA
55.64
1.60
11.87
6.65
18.30
NA
Sector Funds - IT
6.34
-7.54
2.80
-0.50
7.36
17.23
Thematic - Infra
28.34
-7.84
-3.31
-8.43
9.69
9.51
Gold Funds*
11.09
20.39
20.86
21.96
NA
NA
CNX FMCG
48.53
26.95
28.14
19.09
19.24
21.37
CNX Pharma
31.88
8.92
17.09
13.70
15.36
19.40
CNX Bank
56.54
2.85
11.36
4.80
15.54
26.08
CNX IT
-1.86
-10.30
1.17
4.59
6.38
-10.88
CNX Infrastructure
21.65
-13.52
-10.46
-15.54
3.84
NA
11.95
21.62
22.05
23.28
NA
NA
Benchmark Indices
Analysis
In the sector and thematic funds category, Banking & Finance dominated in 2012 and were up by 56% on expectations of interest
rate cuts by the RBI thus reducing the cost of funds for the sector. The RBI cut the key repo rate by 0.50% in April 2012 and by
0.25% in January 2013. Defensive sectors like FMCG, Pharma & Healthcare were the next best performers as volatile markets
prompted investors to go for stocks of these sectors as well. IT sector funds were the worst performers in 2012 as the export
oriented sector was plagued by worries of slowdown in the global economy and weak earnings report from index majors. FMCG
sector funds dominated the performance of longer periods like 2, 3, 7 and 10 years.
Gold funds, especially Gold ETFs, which have seen huge demand in the past two years, posted lacklustre performance in 2012 due
to range bound gold prices. However, these funds have given nearly 22% annualised returns in the 5-year period of their existence.
21
IV- Debt & Hybrid Debt - Gilt Funds outperform on softening interest rates
Category Average Returns %
1 Month
3 Months
6 Months
1 Year
2 Years
3 Years
1.14
2.39
5.42
10.53
9.27
7.73
0.74
2.18
4.94
9.95
9.53
8.01
Liquid Funds
0.71
2.10
4.41
9.52
9.05
7.68
0.71
2.14
4.47
9.62
9.25
7.94
Gilt Funds
1.43
2.66
5.16
11.00
8.46
7.03
0.85
2.14
4.81
9.38
8.12
7.06
0.66
2.03
4.56
9.15
8.48
7.21
0.65
1.97
3.94
8.54
8.33
7.25
1.51
3.17
6.11
12.01
8.46
7.70
Benchmark Indices
Hybrid - Debt
Category Average Returns %
1 Year
2 Years
3 Years
14.47
7.18
7.17
12.51
7.48
7.05
12.12
6.78
6.86
Benchmark Indices
CRISIL Monthly Income Plans Index
Point-to-Point returns as of December 31, 2012
Categories as per CRISIL Mutual Fund Ranking of December 2012 except International Funds
Returns beyond one year are annualised
CRISIL Composite Bond Funds Index (CompBex) is the benchmark index for Long Term Bond Funds
Highlighted cells denote the maximum returns in that time period
Analysis
All debt oriented categories ended positive across time periods as on December 31, 2012. Gilt Funds outperformed in 2012 on
expectations of monetary easing by the RBI. The central bank cut the repo rate by 0.50% in April 2012 and by 0.25% in January
2013. Interest rates and bond prices move in opposite directions and long tenure bonds benefit more than short tenure bonds when
interest rates fall. Thus, a fall in interest rates contributed to higher NAVs for long-term income funds. Short-term income funds
outperformed over the 2 and 3-year periods in line with the high interest rate scenario in the earlier periods.
The debt hybrid category, viz., Monthly Income Plans (MIPs), notched up strong gains in 2012 helped by a strong performance in
both the equity and the debt component. The CNX Nifty was up by 28% in 2012 while a softening interest rate stance by the RBI
benefited the debt component. MIP Aggressive funds performed better compared to MIP Conservative funds as the former has
a higher exposure (15-30%) to equities compared with the latter (0-15%).
22
Articles
23
24
separately
Plan prepared by specialists like certified financial planners
These are strategic long-term plans and are only monitored for
One size fits all traditional product portfolio and includes bank
25
Data gathering and risk profiling: Involves analysing information about the persons financial situation (details of assets,
liabilities, income, expenses and investments) and administering a questionnaire to assess ones risk appetite. Based on the
answers (which are scored), the final score is mapped to a risk profile from low risk appetite to high risk appetite viz.,
conservative, moderate, moderately aggressive, aggressive and very aggressive.
2.
Needs analysis: Involves a discussion on an individuals financial needs such as debt repayment obligations, funds required
for childrens education/marriage, leisure and travel as well as charity if needed. A financial planner then prepares a cash flow
statement based on the current state of finances and investments to check whether all goals can be met in the desired time.
Disposable
Value of
Liabilities
Expenses
Income that
Investments
like EMI
(growing by
flows into
(growing by
10% p.a.)
etc
10% p.a.)
investments (g)
12% p.a.)
d=a-b-c
Year 1
500,000
125,000
250,000
125,000
Year 2
550,000
125,000
275,000
150,000
140,000
Year 3
605,000
125,000
302,500
177,500
324,800
Year 4
665,500
125,000
332,750
207,750
562,576
Year 5
732,050
125,000
366,025
241,025
862,765
500,000
Year 6
805,255
125,000
402,628
277,628
676,245
Income
Calendar (growing by
year
Goals
Goal Status
Marriage Expenses-Goal
Year 7
885,781
125,000
442,890
317,890
1,068,337
500,000
Year 8
974,359
125,000
487,179
362,179
992,575
Year 9
1,071,794
125,000
535,897
410,897
1,517,324
Year 10
1,178,974
125,000
589,487
464,487
2,159,608
Met
Goals are subtracted partly from disposable income and partly from investment value
Table 5 shows a typical cash flow based on annual income, expenses, liabilities like EMI, net disposable income after
subtracting income from expenses / liabilities. The investors three goals, i.e., car, marriage and down-payment of second
home are met through disposable income and partial withdrawal of investments. It is possible to improve these cash flows and
meet additional goals through scientific financial planning wherein investments would be optimally deployed based on risk
profile and asset allocation.
3.
Asset allocation: This basically maps an investors risk appetite to a portfolio which contains a mix of asset classes (say
equity, debt and gold). The portfolio is allocated across these asset classes in an optimal manner based on a mathematical
model. Accordingly, an investor with a lower risk appetite (conservative) will have a higher allocation to debt while an investor
with a higher risk appetite (very aggressive) will have higher allocation to equity.
26
A typical asset allocation chart is shown in Table 6. If one observes, the allocation towards gold and equity increases as the
portfolio becomes aggressive (higher risk appetite). Further, as gold and equity have a higher risk and return profile, returns
are commensurate with higher risks.
Conservative
Moderate
Moderately Aggressive
Aggressive
Very Aggressive
Gold
5%
5%
10%
10%
15%
Equity
5%
20%
40%
60%
75%
Long-Term Debt
10%
15%
20%
20%
5%
Short-Term Debt
80%
60%
30%
10%
5%
Rs 2.48 mn
Rs 3.74 mn
Rs 5.56 mn
Rs 7.24 mn
Rs 8.61 mn
9.50%
14.10%
18.70%
21.90%
24.00%
Initial Investment of Rs 1
mn after 10 years till Feb
28, 2013*
Annualised Returns*
*Data represented for equity by CRISIL Fund Rank 1 Equity Funds, for long-term debt by CRISIL Fund Rank 1 Debt Long Term Funds, for
short-term debt by CRISIL Fund Rank 1 Liquid Funds and for gold by returns of LBMA gold prices converted to Indian Rupees (does not
consider duties and other aspects of landing costs).
4.
Product recommendation: The aforesaid asset allocation is mapped to products across mutual funds, ULIPs, direct equity,
insurance and fixed deposits, among others.
5.
Monitoring the financial plan: A financial plan needs regular monitoring and alterations depending upon a change in the
clients financial position and needs. This may include exiting from underperforming products and switching to better products.
Further, a reallocation of funds needs to be done if goals are achieved earlier than expected or vice versa.
Conclusion
Familiar with market volatilities, todays investors intend to secure their future and meet their financial aspirations through prudent
long-term planning. Scientific financial planning is an upcoming and highly advantageous tool for investors to have a holistic view of
the past and future finances with embedded goals. Financial institutions such as large banks and financial companies have realised
this shift and developed customised financial tools to meet investors requirements. The challenge is to make this service available
for investors of all financial classes and across geographies. Here, it is apt to say if one fails to plan, one plans to fail.
27
managers
to
make
and
monitor
4.
5.
Exit loads Investors must check whether any exit load is applicable
28
Credit risk Investors can gauge the credit risk of a debt fund by the
1.
Market Cycles
As on
As on
Gilt
Start Date End Date Years Start Date end date Funds Funds Funds Debt Funds Rates (%)
Secular decline in
yields in 2000-04
1-Apr-00
30-Apr-04
4.08
11.1
5.19
6.97
11.89
16.15
12.17
10.50
4.25
5.19
9.54
6.45
3.69
3.32
5.86
5.38
9.54
5.32
9.17
34.61
60.12
17.81
7.88*
3.29
5.32
8.45
6.49
4.74
1.93
6.54
9.88
8.45
7.87
9.06
10.91
11.99
9.48
9.04*
Conclusion
Historically, long-term debt funds have given superior returns in a falling interest rate scenario. Assuming interest rates are cut,
returns from long-term debt funds are expected to increase during the current falling interest rate cycle too. However, the quantum
of returns will depend on the pace and degree of rate cuts. It has been observed that those who invested early in the interest rate
cycle gained more than those who invested later as the cycle matured. Investors can refer to the quarterly CRISIL Mutual Fund
Ranking available on www.crisil.com to choose superior performing funds in these categories.
29
Fixed deposit
Liquid funds
Liquidity
High
Medium
High
Annualised returns
4%#
6.50-8.75%*
7.11 - 10.00%**
No
Yes
1 day
Government-backed
Government-backed
No guarantee
guarantee of up to Rs 1 lakh
guarantee of up to Rs 1 lakh
High
High
Medium
No@@
Minimum lock-in
Principal guarantee
Safety (to the principal amount)
Penalty (on early withdrawals)
No
Yes
Yes
No
No
0-30%^
0-30%^
Tax
Liquid funds, although not backed by any principal guarantee, are relatively safe instruments as the portfolios of liquid funds mostly
comprise A1+ rated CPs and CDs (highest rating for these types of securities) with a maximum maturity of 91 days. CRISILs
rating of A1+f signifies very strong protection against losses from credit defaults.
These charges vary across banks. For term deposits with SBI, the depositor would receive 0.5% less for any premature withdrawal provided the
30
However, the marginally higher risk in liquid funds as compared to a savings deposit is compensated by superior returns of liquid
funds especially post tax (see Table 10)
Table 10: 1-year returns across investment types (as of February 28, 2013)
Investment type
Investment amount
Indicative
Pre-tax returns
Tax rate
Post-tax returns
Post tax
(Rs)
yield
(Rs)
(highest)
(Rs)
yield
4.00%#
20,000
30.900%
16,910
3.38%
6.50%*
32,500
30.900%
22,458
4.49%
9.29%^
46,450
28.325%
36,197
7.24%
9.29%^
46,450
10.300%**
41,805
8.36%@
Savings account
Fixed deposits
Liquid fund Dividend
500,000
#some banks offer more than 4% but with a higher minimum balance requirement
*State Bank of India fixed deposit rate for 241 days to less than 1 year
^ 1-year returns of CRISIL Fund Rank 1 Liquid Funds (ranks as of December 2012)
** Tax rate without indexation, assuming an investment of 1 year and 1 day
@yields could be higher if indexation benefits are availed
Conclusion
Liquid fund is an alternate investment avenue for individuals to park their short term surplus funds. While bank deposits (fixed and
savings) are easier to access and offer some degree of principal protection, the higher yield combined with the liquidity and taxation
benefits make liquid funds an attractive option. However, liquid funds are not completely risk-free, and an investor must carry out
basic checks before investing. Further, investors must spread their savings across fixed deposits, savings bank account and liquid
funds, thereby enjoying the benefits each of these avenues have to offer.
31
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Gold
4.82
23.27
15.77
0.00
21.41
21.77
17.15
28.04
20.99
23.44
32.53
9.54
Equity
-16.18
3.25
71.90
10.68
36.34
39.83
54.77
-51.79
75.76
17.95
-24.62
27.70
Debt
25.25
21.66
11.54
-2.87
5.71
5.01
6.80
23.22
-6.37
6.18
5.05
12.01
32
In another analysis, Table 12 shows seven scenarios of investing across asset classes, i.e., equity, debt and gold over a 10-year
period. The table looks at investing in one, two or all three asset classes over this time frame. While a singular investment in equity
(Portfolio G) or gold (Portfolio F) has given the highest returns of 18% in the 10-year period, it goes against the thumb rule of
portfolio diversification. In the composite portfolios, the highest returns of 18% were delivered by a combination of equity and gold
(Portfolio D). Further, the most diversified Portfolio C (equity + debt + gold) performed better (14% vs 12%) than Portfolio E (equity
+ debt), which highlights that adding gold to ones portfolio helps investors not only earn better returns but also reduce the
downside risk.
A
B
E
F
Aggressive
Asset
class
Debt
Total
Debt
Gold
Total
Equity
Debt
Gold
Total
Equity
Gold
Total
Equity
Debt
Total
Gold
Total
Equity
Total
Amount invested
in 2003
30,000
30,000
15,000
15,000
30,000
10,000
10,000
10,000
30,000
15,000
15,000
30,000
15,000
15,000
30,000
30,000
30,000
30,000
30,000
10-year Annualised
Returns
7%
7%
7%
18%
12%
18%
7%
18%
14%
18%
18%
18%
18%
7%
12%
18%
18%
18%
18%
Profit
earned
26,683
26,683
13,341
63,280
65,427
43,536
8,894
42,187
83,855
65,304
63,280
128,573
65,304
13,341
66,716
126,561
126,561
130,609
130,609
Total value of
Investment in 2013
56,683
56,683
28,341
78,280
95,427
53,536
18,894
52,187
113,855
80,304
78,280
158,573
80,304
28,341
96,716
156,561
156,561
160,609
160,609
Conclusion
Gold as an asset class plays a very important role in an investors portfolio as it not only provides stability to returns but also gives
an opportunity to maximise wealth over a longer time frame. Further, moving from purchasing physical gold to buying gold in paper
form through mutual funds has its own advantages of transparency in pricing, purity, liquidity, convenience as well as no storage
risk. Paper gold is also advantageous from a tax perspective vis--vis physical gold or e-gold. However, in the short term, gold
prices can be volatile due to demand-supply concerns and economic conditions owing to which investors need to adopt SIPs over
longer time frames of five years and beyond. The percentage allocation to gold will depend on an investors risk and return
objectives.
33
CPOFs: A walk-through
CPOFs are close-ended hybrid schemes offered by domestic mutual funds. They invest 75-80% of the corpus in debt and the
balance in equity assets; for instance, from a principal of, say, Rs 100, Rs 80 is allocated to debt and Rs 20 to equities. The debt
component is invested in highest rated securities or government bonds such that it grows to Rs 100 over the period of the
CPOF. At the end of the tenure, besides having their principal protected, investors can earn returns largely based on the equity
market movement. Investors need not worry about any downside in the equity market as the debt component protects the
principal even in a worst case scenario (if the equity component gets completely wiped out). Investors must, however, note that
the capital protection offered is not a guarantee but only assured by the schemes portfolio characteristics (structure). The capital
protection is assured only at the time of maturity and not during the tenure of the fund.
SEBI guidelines stipulate that the structure must be rated by a credit rating agency from the view point of assessing the degree
of certainty for achieving the objective of capital protection. Further, the rating should be reviewed on a quarterly basis. The
highest rating for a CPOF is AAA(so), which indicates the highest degree of certainty regarding timely payment of the face value
of the units to unit holders on maturity of the scheme.
CPOFs have a lock-in period of one, two, three or five years and are listed on the stock exchanges for liquidity purposes.
However, trading is thin as most investors tend to stay invested over the lock-in-period. These funds mostly use the CRISIL
MIPEX as their benchmark index in line with their asset allocation.
Taxation
CPOFs are taxed similar to debt funds where short-term gains (units held for less than 12 months) are taxed as per the individual
tax bracket (maximum 30% plus cess) and long-term capital gains (units held for more than 12 months) are taxable at 10% (plus
cess) without indexation and 20% (plus cess) with indexation (considers the impact of inflation over the holding period). The
lesser of the two outcomes is considered for tax purposes.
Risks
Credit risk is the biggest risk to CPOF; it is the risk of default of the debt instruments held in the portfolio. Credit risks may be
mitigated by ensuring that the debt instruments in the scheme are always of a very high credit quality. Current SEBI regulations
restrict CPOFs from investing in debt instruments rated below AAA.
34
On the performance front, CRISILs analysis reveals that capital protection funds that have matured have not only given positive
returns but most have also outperformed the CNX Nifty (see Table 13). Most CPOFs that matured returned 5-9% annualized gains
over their tenure while the equity market performance (CNX Nifty) ranged from marginally negative to 10% positive. However, the
same (outperformance vis--vis the CNX Nifty) may not be necessarily repeated in future. CPOF returns could vary in a broad
range (see Table 14) depending on the equity market (bullish or bearish) as well as the tenure of the CPOF.
Annualised returns
Term
Maturity Date
Scheme
CNX Nifty
5-years
2-Aug-12
5.50%
3.50%
5-years
14-Jun-12
7.10%
3.90%
5-years
20-Dec-12
3.98%
0.51%
5-years
23-Aug-12
5.16%
5.26%
5-years
22-Mar-12
6.70%
4.90%
Birla Sun Life Capital Protection Oriented Fund - 3 Year Plan - Growth
3 years
3-Aug-10
5.39%
7.26%
3 years
1-Jun-10
6.72%
4.97%
3 years
14-Jun-10
7.70%
7.60%
3 years
23-Aug-10
8.90%
9.78%
3 years
22-Feb-10
7.43%
5.83%
27 months
29-Jun-12
5.20%
-0.20%
Table 14: Sensitivity Analysis of CPOF Performance in Bull and Bear Markets
Period
Principal
Component
component
Final Debt
Component
Final
Pre-tax
Post tax
Redemption
Returns
Returns
Amount
p.a.
p.a.*
Bull Market - Case 1 - If equity grows by 15% and debt grows by 9% (annualised)
3 years
100
77
23
35
100
135
10.42%
9.47%
5 years
100
65
35
70
100
170
11.25%
10.31%
Bear Market - Case 2 - If equity declines by 15% and debt grows by 9% (annualised)
3 years
100
77
23
14
100
114
4.46%
4.03%
5 years
100
65
35
16
100
116
2.93%
2.65%
Summing up
CPOFs are an attractive option for investors keen on investing in equities but wary of the downside risks. The uncertainty on the
direction of the equity markets has enhanced the attraction for this category of funds. This can be seen from the rise in assets
under management (AUM) of the category by over three times in the last two years from Rs 18.29 bn in December 2010 (12
schemes) to Rs 60.25 bn in December 2012 (58 schemes). Risk-averse investors can, thus, move beyond fixed deposits and take
exposure to equities without worrying about negative returns or erosion of their capital. However, decisions must be based on ones
risk profile, goals, liquidity requirements and scheme due diligence.
35
36
Factsheets
37
38
Category
Scheme Name
10
Index funds
11
12
13
14
15
16
Gilt funds
17
18
19
20
21
22
Liquid funds
this condition was not satisfied, funds with the highest number of CRISIL Fund Rank 1s in 2012 have been included. Only select categories of the
mutual fund ranking have been included. Ranks in the factsheet are as of December 2012.
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
Annexures
63
64
Fund Rank 1
Fund Rank 2
Fund Rank 3
10
14
43
1
3
12
14
12
23
13
16
38
18
14
35
4
1
21
1
1
1
33
1
7
2
Grand Total
4
1
1
Fund Rank 5
Fund Rank 4
24
15
18
1
1
13
18
1
31
8
15
32
20
12
29
6
1
11
11
39
Grand Total
61
116
195
116
61
549
65
II - AUM Trends
1. AUM by Fund House (Quarterly Average AUM in Rs bn)
AMC
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
1018
981
929
901
887
131
931
886
829
802
843
88
815
765
732
688
695
120
770
730
673
612
604
166
706
708
609
589
578
128
542
517
479
427
421
121
423
405
371
361
373
50
324
309
258
262
302
22
308
302
300
293
306
302
282
274
258
269
33
197
202
208
198
215
-18
180
168
139
121
133
47
146
137
132
141
148
-2
141
127
110
105
118
23
133
90
53
64
68
65
121
39
30
39
46
75
107
106
88
89
86
21
76
74
76
77
74
75
56
58
59
69
69
64
59
58
62
64
55
52
55
61
54
57
55
42
46
53
50
46
49
49
50
48
47
41
39
11
48
43
43
43
43
47
48
40
38
44
42
36
37
37
46
-4
32
38
46
44
48
-16
30
23
20
14
25
26
22
22
19
13
13
25
24
23
21
21
20
20
24
19
21
-1
13
14
14
15
16
-3
12
10
-4
-2
-4
71
74
88
89
7933
7538
6990
6709
6876
1057
66
Gold
General
Funds
Short
Grand
Money
and
Total
AMC
ETF
Debt
FMP
Term Debt
Gilt
Market
others
(Rs bn)
16.95
3.83
22.88
7.87
14.92
0.37
38.70
1.34
106.85
2.73
0.43
0.08
3.07
1.97
11.86
0.05
33.86
54.06
99.41
4.50
5.59
0.30
1.29
243.03
120.91
142.68
4.65
146.52
0.89
769.78
2.76
9.15
5.12
9.55
5.59
32.16
1.16
0.17
0.14
5.14
6.61
16.07
2.03
0.04
1.00
20.44
2.25
8.27
0.25
24.59
0.79
75.72
0.29
2.18
0.06
2.85
5.37
2.13
19.41
41.66
44.65
1.67
69.43
1.44
180.37
112.88
0.43
6.45
51.14
73.00
17.23
3.54
33.48
10.22
308.38
0.60
0.31
0.92
0.07
0.52
2.42
0.13
0.02
0.48
0.29
0.00
1.37
2.30
135.52
1.07
4.53
3.47
139.40
13.85
79.59
2.31
27.21
15.79
422.75
0.95
7.99
33.34
0.06
5.51
47.86
331.70
75.75
1.98
7.90
213.70
115.25
129.98
2.88
134.79
3.67
1017.59
0.02
3.56
15.81
25.74
5.18
0.64
157.90
3.19
9.63
1.01
2.01
151.19
146.37
147.90
0.49
2.01
1.75
6.18
5.25
58.34
0.12
88.59
59.57
2.52
53.47
10.37 184.37
1.31
815.26
9.18
0.07
37.63
0.99
63.55
46.99
2.15
44.25
1.96
301.98
0.43
1.55
1.98
0.06
2.16
5.24
18.07
25.53
2.52
0.20
0.85
1.32
0.04
3.82
4.46
13.21
3.53
2.09
0.08
2.59
0.45
14.27
0.22
51.44
74.67
4.24
22.82
22.32
24.99
55.35
3.28
133.00
29.11
0.52
0.61
12.51
124.30
75.49
17.99
5.46
51.74
6.08
323.81
53.55
0.24
12.18
11.38
11.63
0.79
30.24
0.63
120.64
6.13
1.66
0.63
5.62
7.89
1.85
0.52
32.65
11.87
68.82
4.52
0.04
0.25
0.14
0.32
5.27
15.46
4.58
5.35
25.39
3.30
0.52
2.06
5.88
0.30
2.76
13.91
30.24
47.21
2.36
2.00
0.00
0.21
0.03
7.04
11.64
1.17
7.16
2.66
9.39
20.38
18.48
0.16
0.15
8.21
2.57
0.71
18.95
0.33
49.55
1.49
0.02
0.65
0.36
0.12
2.64
232.39
47.66
5.56
0.88
30.40
188.75
142.59
94.71
1.52
161.88
24.14
930.50
5.39
0.49
0.02
0.81
52.94
23.05
9.64
2.22
45.69
0.29
140.54
0.63
0.21
0.32
0.00
0.00
1.71
2.87
148.93
2.49
3.60
0.41
13.37
85.68
81.13
77.46
2.27
117.78
8.54
541.66
68.36
0.51
21.41
19.38
16.55
0.00
19.22
0.51
145.95
44.07
6.40
0.14
9.60
30.20
42.51
2.09
62.41
197.42
3.71
0.01
3.80
2.48
6.24
0.00
25.53
41.77
1.99
0.56
1.53
1.68
24.36
30.12
200.57
13.36
76.90
1.74
7.36
60.12
72.21
120.77
2.10
151.24
1804.77 75.94
200.94
1128.37
48.47 1716.96
23%
1%
3%
Equity Oriented
0.3%
1%
Others
20%
14%
14%
Debt Oriented
1%
22%
706.38
108.56
7933.31
1%
Others
67
29
70
35
37
80
40
47
28
60
50
19
19
90
7
96
20
69
40
53
38
65
30
56
53
40
20
10
15
11
12
Equity
oriented
Balanced
0
Liquid/
money
market
Gilt
Debt
oriented
Institutional
Gold ETF
Other ETF
Retail
Fund of
funds
HNI
Source: AMFI
Next 10 cities,
14%
Next 20 cities,
5%
Next 75 cities,
5%
Other cities, 2%
Source: AMFI
Income
Funds
Equity
Funds
Balanced
Funds
Liquid / Money
Market Funds
2008
-426.21
315.44
18.47
2009
1467.12
13.63
-8.79
2010
-834.70
-158.38
7.50
2011
-121.65
76.61
13.19
2012
567.45
-156.2
-3.58
162.6
Source: AMFI
68
Gilt
Funds
Gold
ETFs
Other
ETFs
Fund of Funds
Investing Overseas
Total
(Rs bn)
-478.87
37.62
0.64
-36.36
9.49
-559.78
-3.02
-23.15
4.82
-8.47
-4.4
1437.74
62.18
3.43
17.27
4.89
-9.41
-907.22
196.43
-11.40
40.46
2.64
0.48
196.76
30.38
18.26
-1.60
-4.03
613.28
Rs 500 mn
Rs 500 mn
Rs 500 mn
Rs 250 mn
Rs 500 mn
Rs 100 mn
Rs 150 mn
Rs 250 mn
Rs 250 mn
Rs 250 mn
Rs 250 mn
Rs 500 mn
Rs 500 mn
Rs 250 mn
69
Liquidity Analysis
It measures the ease with which the portfolio can be liquidated. In case of equities, liquidity is calculated by taking the weighted
average impact cost of the past three months. Impact cost data used is as published by stock exchanges. Gilt liquidity is measured
by analysing the market turnover, days traded and size of trade in any security for a three-month period for that security. Corporate
debt liquidity is computed by classifying each security into three categories - liquid, semi liquid and illiquid - and then evaluating a
schemes exposure to each category.
Asset Quality
Asset Quality measures the probability of default by the issuer of a debt security to honour the debt obligation in time.
Asset Size
It is considered only for ultra short-term debt and liquid categories to take into account the effect of large fund flows on a schemes
performance and the ability of the scheme to manage such flows optimally. The higher the asset size, the better it is.
Tracking Error
This is used only for index schemes. The tracking error is an estimation of the variability in a schemes performance vis--vis the
index that it tracks. The lower the tracking error, the better it is.
Interpretation
Good performance
Average performance
*If the top 10 percentile figure is not an integer, the same is rounded off to the next integer. The same approach is adopted for CRISIL Fund Rank 2
th
th
st
th
st
th
(11 to 30 percentile), CRISIL Fund Rank 5 (last 91 to 100 percentile) and CRISIL Fund Rank 4 (71 to 90 percentile) clusters. The residual
schemes in the universe are placed in the CRISIL Fund Rank 3 cluster.
70
1. Equity Funds
Schemes that predominantly invest in equity instruments (excluding hybrid schemes) are considered. Schemes with the following
features are excluded
Schemes not open to investors at large and open only to a specific set of investors.
Schemes whose scheme information document/statement of additional information permits dynamic asset allocations (both
debt and equity could vary between 0 and 100%), except on receipt of an undertaking from the AMC, assuring predominant
investment in equity.
Schemes for which there is a delay in receipt of portfolios from the fund house.
Schemes with a stated objective to predominantly invest in derivatives and /or overseas securities.
d) ELSS
Schemes that invest in equity and equity-related instruments, and are aimed to enable investors to avail tax deduction under
Section 80 C of the Income Tax Act are considered.
f) Index funds
Schemes launched with an objective to generate returns that are commensurate with the performance of their benchmarks Total
Return Index (TRI), subject to tracking errors are considered. Open-ended exchange traded funds (ETFs) are also included. The
following will be excluded:
Index schemes that allow the fund manager to take overweight or underwieght investment positions on stocks that comprise
their benchmark index.
Index schemes that are benchmarked to indices other than S&P BSE Sensex and CNX Nifty.
71
2. Hybrid Funds
a) Balanced funds
Schemes investing more than 65%, but less than 80%, of the AUM in equity securities, and 20-35% in debt securities are
considered. Speciality schemes with the above asset allocation focusing on children, pension, unit-linked insurance, young citizens,
charity, and retirement are not considered.
MIP - Aggressive: where the objective limits investment in equity securities to 15-30% of the corpus.
MIP - Conservative: where the objective limits investment in equity securities to 15% of the corpus.
3) Debt Funds
a) Long term income funds
Schemes that predominantly invest in long-term corporate debt papers and government securities (G-Secs) are considered. These
schemes also invest in short-term and money market securities.
c) Liquid funds
Schemes whose portfolio constitutes money market instruments and short-term debt instruments with a residual maturity of up to
91 days are considered. Only funds with minimum investment amount less than Rs. 1 million are considered.
4) Consistent Performers
Schemes that have rankings in all quarterly CRISIL Mutual Fund Ranking over a 5-year timeframe are considered.
Note: While the above classification will be the guide in selection and creation of peers for the purpose of ranking, CRISIL will be
free to take a subjective call on the inclusion/exclusion of a scheme from among the peers in a ranking category.
72
This measure applies to debt mutual fund schemes. A debt fund portfolio comprises of a large number
of debt securities with different maturities. Therefore, weighted average maturity is calculated to
disclose the average maturity of all debt securities in the portfolio. This explains the sensitivity of a debt
fund to the market interest rate changes
This measure is used to know how much dividend has been paid by a scheme in a year for the price an
investor has paid for buying its units. Any investor whose investment objective is capital consumption
may choose to invest in a scheme with high dividend yield
A measure to determine the cost incurred by a mutual fund company to manage the respective mutual
fund scheme. Expenses such as fund manager's fee, custodial charges, taxes, legal fees etc are
considered to derive the expense ratio. A higher expense ratio may eat into the returns delivered by the
scheme. Therefore, expense caps have been decided by the regulator for respective mutual fund
categories
Jenson's Alpha
A measure to judge the fund manager's capacity to generate excess returns. This ratio enables an
investor to choose a portfolio that can deliver better returns at a given level of risk
Modified Duration
This measure helps in determining the effect of 1% interest rate change on the bond prices. Any change
in the performance of the scheme due to interest rate change is explained by the modified duration
Portfolio Beta
Beta is a measure of volatility of the portfolio with respect to the market, also known as systematic risk.
A beta measure of 1 indicates that the portfolio volatility will be same as that of the index/market. Any
value greater than 1 indicates that the portfolio is more volatile than the index and vice versa
Portfolio P/B
Price to Book Value ratio (P/B) is calculated by dividing the current share price by the book value per
share. The portfolio P/B ratio is arrived at by adding the weighted average P/B ratios of all securities in
the portfolio
Price Earnings ratio (P/E) is defined as the price paid for a share relative to the profit/income earned per
share. Trailing P/E is based on the past earnings i.e the actual earnings of a company. A portfolio's
trailing P/E ratio is compared with the average P/E for the respective mutual fund category in order to
identify whether the portfolio is wisely priced or not
R Squared
A measure that explains the correlation between the scheme portfolio and the benchmark index. The
percentage indicates the dependence of portfolio movement on benchmark movement. A higher R
Square value assures a healthy relationship between the scheme portfolio and benchmark index, and
therefore, a more useful beta value. On the other hand, a lower R Square value indicates that there is
no significant relation between the scheme portfolio and benchmark index
Sharpe Ratio
Sharpe ratio is arrived at by dividing the returns in excess of risk-free return with the standard deviation
of portfolio returns and is also explained as the risk adjusted return measure. This ratio helps in
identifying whether the fund returns are the result of good investment decisions or greater risk taken by
the fund manager. Higher the Sharpe ratio, the better it is
Sortino Ratio
A refined version of Sharpe ratio, this is a risk adjusted measure of return that considers the downside
deviation of portfolio returns as denominator. This ratio penalizes only those returns that are less than
the required rate of return
Standard Deviation
A statistical measure that defines the expected volatility and the risk associated with a portfolio. This
explains the variation/deviation from the average returns delivered by the scheme. A higher standard
deviation means higher volatility and a lower standard deviation means lower volatility
73
Investment Style Box defines the placement of total portfolio of the scheme in the appropriate style. For
debt fund, styles are defined on the basis of credit quality (high, medium and low) and interest rate
sensitivity (high, medium and low). The combination of these two parameters gives nine styles of
investment, e.g. high credit quality with low interest rate risk, low credit quality with medium interest rate
risk etc.
Investment Style Box defines the placement of total portfolio of the scheme in the appropriate style. For
equity fund, styles are defined on the basis of market capitalisation (large-cap, diversified and small and
mid-cap) and investment style (growth, value and blend). The combination of these two parameters
gives nine styles of investment, e.g. large-cap growth, mid and small-cap value, diversified blend etc. In
growth style of investment, the fund manager invests in avenues where the growth rate is higher than
the industry growth rate. In value style of investment, the fund manager invests in securities that are
priced lower than their fair value
Treynor Ratio
A risk adjusted measure of return that considers beta as a measure of volatility. This ratio explains the
returns earned in excess of risk-free return per unit of market risk. Higher the Treynor ratio, the better it
is
74
Bn - Billion
IT - Information Technology
CD - Certificates of Deposit
CP - Commercial Paper
Mn - Million
FD - Fixed Deposit
75
76
Our Capabilities
Making Markets Function Better
Economy and Industry Research
n
n
n
n
n
n
n
Largest and most comprehensive database on Indias debt market, covering more than 15,000
securities
Largest provider of fixed income valuations in India
Value more than Rs.53 trillion (USD 960 billion) of Indian debt securities, comprising outstanding
securities
Sole provider of fixed income and hybrid indices to mutual funds and insurance companies; we maintain
12 standard indices and over 100 customised indices
Ranking of Indian mutual fund schemes covering 70 per cent of assets under management and Rs.4.7
trillion (USD 85 billion) by value
Retained by Indias Employees Provident Fund Organisation, the worlds largest retirement scheme
covering over 60 million individuals, for selecting fund managers and monitoring their performance
Largest independent equity research house in India, focusing on small and mid-cap companies;
coverage exceeds 125 companies
Released company reports on 1,442 companies listed and traded on the National Stock Exchange;
a global first for any stock exchange
First research house to release exchange-commissioned equity research reports in India
Assigned the first IPO grade in India
Contact us
Deepak Mittal
Associate Director - Funds & Fixed Income
Tel: +91 22 3342 8031
Email: deepak.mittal@crisil.com
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