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No AMC AMFI BSE CLB CPF DAAF ELSS EPS FI FMCG FMP FOF MF MIP MMMF NAV NFO NPA NRI NSE ROI SEBI SIP SWP UTI YTM
ABBREVIONS USED Asset Management company Association of Mutual fund in India Bombay Stock Exchange Company Law Board Capital Protection Fund Dynamic Asset Allocation Fund Equity Linked Saving Scheme Earnings Per Share Financial Institution Fast Moving Consumer Goods Fixed Maturity Plan Fund of Funds Mutual Funds Monthly Income Plan Money Market Mutual Fund Net Asset Value New Fund Offer Non Performing Asset Non Resident India National Stock Exchange Return on Investment Securities and Exchange Board of India Systematic Investment Plan Systematic Withdraw Plan Unit Trust of India Yield to Maturity
The project contains the brief description of the mutual fund industry in general. The funds that are selected for study are: 1) SBI Magnum Tax Gain Scheme (G) 2) HDFC Tax Saver (G) 3) Taurus Tax Shield (G) 4) Canara Robeco Equity Tax Saver (G) 5) UTI Equity Tax Saving Plan (G) 6) LIC MF Tax Plan (G) 7) ICICI Pru Tax Plan (G) The Net Asset Value (NAV) of each of these mutual funds over the last three years is taken in account to find out the standard deviation of each of the funds. These are taken into account to measure the returns of those funds. The returns are compared with that of their benchmark index return. Using the NAV value of these mutual funds, beta (β) co-efficient of each of them has been calculated to know whether they are less risky, average risky or high risky funds. Similarly, standard deviation also calculated to understand the risk and return profile of the selected funds. The returns of these funds over the last three years are also be analyzed. The project will also contain the comparison of SBI mutual funds with other asset management funds to analyze the risk and return of the funds. Primary data was collected from the fund manager
Introduction Company Profile Industry Profile
INTRODUCTION TO TAX SAVING SHEMES
INTRODUCTION TOMUTUAL FUND
“Mutual fund is a common pool of money in which investor place their contribution that is to be invested in accordance with the stated objective. The fund belongs to all the investors depending on the proportion of his contribution to the fund.”
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a Mutual Fund.
Definition & Set up of Mutual Fund
In “Mutual Fund book” published by investment company of U.S., “A Mutual Fund is a financial service organization that receives money from shareholders, invest it, earns returns on it, attempts to make it grow and aggress to pay the share holders cash on demand for the current value of his “investment”. The investment managers of the funds manage these savings in such a way that the risk is minimized and steady return is ensured. Securities and Exchange Board of India (Mutual Fund) Regulations, 1996 define “Mutual Fund” as, “a fund established in the form of a trust to raise monies through the sale of units to the public or a section of the people under one or more schemes for investing in securities, including “Money market instruments”.
Mutual Fund as financial intermediaries which being a wide variety of securities within the reach of the most modern investors. Frank Relicy.
The Mutual Fund is an important vehicle for bringing wealth holder and deficit units together directly. James Pierce.
TYPES OF MUTUAL FUNDS:
1. OPEN-ENDED MUTUAL FUNDS: -
The holders of the shares in the Fund can resell them to the issuing Mutual Fund Company at the time. They receive in turn the net assets value (NAV) of the shares at the time of re-sale. Such Mutual Fund Companies place their funds in the secondary securities market. They do not participate in new issue market as do pension funds or life insurance companies. Thus they influence market price of corporate securities. Open-end investment companies can sell an unlimited number of Shares and thus keep going larger. The open-end Mutual Fund Company Buys or sells their shares. These companies sell new shares NAV plus a Loading or management fees and redeem shares at NAV. In other words, the target amount and the period both are indefinite in such funds.
2. CLOSED-ENDED MUTUAL FUNDS:-
A closed–end Fund is open for sale to investors for a specific period, after which further sales are closed. Any further transaction for buying the units or repurchasing them, Happen in the secondary markets, where closed end Funds are listed. Therefore new investors buy from the existing investors, and existing investors can liquidate their units by selling them to other willing buyers. In a closed end Funds, thus the pool of funds can technically be kept constant. The asset management company (AMC) however, can buy out the units from the investors, in the secondary markets, thus reducing the amount of funds held by outside investors. The price at which units can be sold or redeemed Depends on the market prices, which are fundamentally linked to the NAV. Investors in closed end Funds receive either certificates or Depository receipts, for their holdings in a closed end mutual Fund.
MUTUAL FUND SCHEME TYPES:
1) Equity Diversified Schemes These schemes mainly invest in equity. They seek to achieve long-term capital appreciation by responding to the dynamically changing Indian economy by moving across sectors such as Lifestyle, Pharma, Cyclical, Technology, etc. 2) Sector Schemes These schemes focus on particular sector as IT, Banking, etc. They seek to generate longterm capital appreciation by investing in equity and related securities of companies in that particular sector.
3) Index Schemes These schemes aim to provide returns that closely correspond to the return of a particular stock market index such as BSE Sensex, NSE Nifty, etc. Such schemes invest in all the stocks comprising the index in approximately the same weightage as they are given in that index. 4) Exchange Traded Funds (ETFs) ETFs invest in stocks underlying a particular stock index like NSE Nifty or BSE Sensex. They are similar to an index fund with one crucial difference. ETFs are listed and traded on a stock exchange. In contrast, an index fund is bought and sold by the fund and its distributors. 5) Tax Saving Schemes
Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax
Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate.
6) Dynamic Funds These schemes alter their exposure to different asset classes based on the market scenario. Such funds typically try to book profits when the markets are overvalued and remain fully invested in equities when the markets are undervalued. This is suitable for investors who find it difficult to decide when to quit from equity. 7) Balanced Schemes These schemes seek to achieve long-term capital appreciation with stability of investment and current income from a balanced portfolio of high quality equity and fixed-income securities. 8) Medium-Term Debt Schemes These schemes have a portfolio of debt and money market instruments where the average maturity of the underlying portfolio is in the range of five to seven years. 9) Short-Term Debt Schemes These schemes have a portfolio of debt and money market instruments where the average maturity of the underlying portfolio is in the range of one to two years. 10) Money Market Debt Schemes These schemes invest in debt securities of a short-term nature, which generally means securities of less than one-year maturity. The typical short-term interest-bearing instruments these funds invest in Treasury Bills, Certificates of Deposit, Commercial Paper and Inter-Bank Call Money Market. 11) Medium-Term Gilt Schemes These schemes invest in government securities. The average maturity of the securities in the scheme is over three years. 12) Short-Term Gilt Schemes These schemes invest in government securities. The securities invested in are of short to medium term maturities. 13) Floating Rate Funds They invest in debt securities with floating interest rates, which are generally linked to some benchmark rate like MIBOR. Floating rate funds have a high relevance when interest rates are on the rise helping investors to ride the interest rate rise.
14) Monthly Income Plans (MIPS) These are basically debt schemes, which make marginal investments in the range of 1025% in equity to boost the scheme’s returns. MIP schemes are ideal for investors who seek slightly higher return that pure long-term debt schemes at marginally higher risk.
DIFFERENT MODES OF RECEIVING THE INCOME EARNED FROM MUTUAL FUND INVESTMENTS
Mutual Funds offer three methods of receiving income: 1) Growth Plan In this plan, dividend is neither declared nor paid out to the investor but is built into the value of the NAV. In other words, the NAV increases over time due to such incomes and the investor realizes only the capital appreciation on redemption of his investment. 2) Income Plan In this plan, dividends are paid-out to the investor. In other words, the NAV only reflects the capital appreciation or depreciation in market price of the underlying portfolio. 3) Dividend Re-investment Plan In this case, dividend is declared but not paid out to the investor, instead, it is reinvested back into the scheme at the then prevailing NAV. In other words, the investor is given additional units and not cash as dividend.
RISKS ASSOCIATED WITH MUTUAL FUNDS
Investing in Mutual Funds, as with any security, does not come without risk. One of the most basic economic principles is that risk and reward are directly correlated. In other words, the greater the potential risk the greater the potential return. The types of risk commonly associated with Mutual Funds are: 1) MARKET RISK Market risk relates to the market value of a security in the future. Market prices fluctuate and are susceptible to economic and financial trends, supply and demand, and many other factors that cannot be precisely predicted or controlled. 2) POLITICAL RISK Changes in the tax laws, trade regulations, administered prices, etc are some of the many political factors that create market risk. Although collectively, as citizens, we have indirect control through the power of our vote individually, as investors, we have virtually no control. 3) INFLATION RISK Interest rate risk relates to future changes in interest rates. For instance, if an investor invests in a long-term debt Mutual Fund scheme and interest rates increase, the NAV of the scheme will fall because the scheme will be end up holding debt offering lower interest rates. 4) BUSINESS RISK Business risk is the uncertainty concerning the future existence, stability, and profitability of the issuer of the security. Business risk is inherent in all business ventures. The future financial stability of a company cannot be predicted or guaranteed, nor can the price of its securities. Adverse changes in business circumstances will reduce the market price of the company’s equity resulting in proportionate fall in the 5) ECONOMIC RISK Economic risk involves uncertainty in the economy, which, in turn, can have an adverse effect on a company’s business. For instance, if monsoons fail in a year, equity stocks of agriculture-based companies will fall and NAVs of Mutual Funds, which have invested in such stocks, will fall proportionately.
SBI funds management private limited is an asset management company, a joint venture between SBI, the country’s largest bank and society general asset management (FRANCE) one of world’s leading fund management companies. With over 20 years of rich experience in fund management, SBI fund management private limited in one of the largest investment firms in India .managing investment mandates of over 46 lakes investors with a network of over 130 points of acceptance spread across India.
INVESTOS SERVICE CENTERS:
SBIMF INVESTORS SERVICE CENTERS:
AHMEDABAD BANGALORE BHILAI BHOPAL BHUBANESHWAR CHANDIGARH CHENNAI COIMBATORE ERNAKULAM GOA GURGAON GUWAHATI HYDERABAD INDORE JAIPUR KANPUR
KOLKATTA LUCKNOW LUDHIANA MUMBAI NAGPUR NEW DELHI PATNA PUNE RANCHI SILIGURI SURAT THIRUVANANTHAPURAM VADODARA VARANASI VIJAYAWADA
Overview of existing schemes e in mutual funds:
1. Equity fund:
These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund manager’s outlook on different stocks. The Equity Funds are sub-classified depending upon their investment objective, as follows: • • • • Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (ELSS)
Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix.
2. Debt funds:
The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as: Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities. Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs and CDs.
3. Balanced funds:
As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns. Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest according.
ORGANISATION OF A MUTUAL FUND:
There are many entities involved and the diagram below illustrates the organizational set up of a Mutual Fund:
Mutual Funds diversify their risk by holding a portfolio of instead of only one asset. This is because by holding all your money in just one asset, the entire fortunes of your portfolio depend on this one asset. By creating a portfolio of a variety of assets, this risk is substantially reduced. Mutual Fund investments are not totally risk free. In fact, investing in Mutual Funds contains the same risk as investing in the markets, the only difference being that due to professional management of funds the controllable risks are substantially reduced. A very important risk involved in Mutual Fund investments is the market risk. However, the company specific risks are largely eliminated due to professional fund management. In India, mutual fund industry incorporated by UTI in 1963. The Indian mutual fund industry dominated by UTI which has a total corpus of Rs.700bn collected from more than 20 million investors. A second largest category of mutual fund is the once floated by a private sector and by foreign asset management companies. In 1986, SBI and CANBANK mutual fund entered the arena. Then BOI, LIC, GIC etc .sponsored by public sector banks. In1993 private international players like Morgan Stanley, JP Morgan and capital international along with the host of domestic players joined the party. In
1999, AMFI is framed to regulate mutual funds and to winning the trust and confidence of investors. Current size of mutual funds is Rs. 1550bn with CAGR of 26.34%.
A Brief History of Mutual Fund
In commercial history of Egyptian it was stated that the shares were in vessels and caravans, in order to spread the risk of business ventures. After sometime in 1822, can investment trust called Society General de “Belgiue” was formed in Belgium. The Royal family of Holland before the separation of Belgium and Holland formed the institution. The institution has set right services in a wide range of companies and produced the percept of diversification later, the investment trust concept attracted many countries and considerable progress was med in Switzerland little in France, Germany, and rest of the Europe. The concept of investment trust gained momentum in Great Britain. The first investment trust, the Foreign and Colonial Government Trust, was founded in London in 1868. Later in 1873, Robert Fleming at Dundee established the Scottish, American Trust. At that time, British bonds were yielding a returns ranging between five and six per cent. In 1933, the US Congress directed the Securities and Exchange Commission (SEC) to investigate the operations of the American Investment Trusts. The SEC recommended the passage of
legislation, which materialized in 1940. The Investment Companies Act of 1940 provides rules and regulations for the establishment and mutual funds. The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank. The history of mutual fund in India can be broadly divided into four distinct phases: First phase: (1964 – 87) - UTI This phase begin with the inception of the Unit Trust of India (UTI). It remained the only mutual fund player in the country till 1987. UTI started its operations in July 1964 “with a view to encouraging savings and investment and participation in the income, profits and gains accruing in the corporation from the acquisition, holding, management and disposal of securities”. In short, it was set up by the Indian Government with a view to augments small savings in the country and to canalize these savings to the capital markets. UTI witnessed a slow and steady growth over the 1970s and 1980s and by the end of 1988 it had an Asset Under Management (AUM) of Rs.6, 700 crores. Second phase: (1987 – 1993) – Entry of Public Sector. Public sector mutual funds set up by sector banks, Life Insurance Corporation of India (LIC) and the General Insurance Corporation of India (GIC) entered the market in 1987. The first non-UTI Mutual Fund was the SBI Mutual Fund established in June 1987, followed by Can Bank Mutual Fund in December 1987, Punjab National Bank in August 1989, India Bank Mutual Fund in November 1989, and Bank of India Mutual Fund in 1990. Bank of Baroda Mutual Fund in October 1992. LIC set up its Mutual Fund in June 1989 awhile GIC established its mutual fund in December 1990, at the end of 1993, the mutual fund industry has asset under management of Rs.47004 crores. Third phase: (1993 – 2003) Entry of Private Sector. With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of funds families. Also, 1993 was the year in which the first mutual fund regulations came into being, under which all mutual funds, except UTI where to be registered and governed. The erstwhile Kothari Pioneer (now merged with the Franklin Templeton) was the first private sector mutual fund registered in July 1993. In 1993 SEBI regulations were substituted by a more comprehensive and revised mutual fund regulations in 1996, the industry now functions under the SEBI regulations 1996.
The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. At the end of January 2003, there were 33 mutual funds with total assets of Rs.121805 crores. The Unit Trust of India with Rs.44541 crores of assets under management was way ahead of other mutual funds.
Fourth phase: (Since February 2003) In February 2003, following the repeal of the Unit Trust of India act 1963 UTI was bifurcated into two separate entities. One is the specified undertaking of the Unit Trust of India with assets under management of Rs.29835 crores as at the end of January 2003, representing broadly, the assets of US 64 schemes, assured return and certain other schemes. The specified undertaking of Unit Trust of India, functioning under an administered and under the rules formed by Government of India and does not come under the purview of mutual fund regulations. The second is the UTI Mutual Fund Limited, sponsored by State Bank of India, Punjab National Bank, Bank of Baroda and Life Insurance Corporation. It is registered with SEBI and functions under the mutual fund regulations. With the bifurcation of erstwhile UTI which had in March 2000, more than Rs.76000 crores of assets under management. With the setting up of a UTI mutual fund, confirming to the SEBI mutual fund regulations, and which recent mergers taking place among different private sector funds, the mutual fund industry had entered it current phase of consolidation and growth. As the end of March 2008, there were 35 Mutual Funds, which manage assets of Rs.505152 under 421 schemes.
Entities in a Mutual Fund Operation
In India, the following entities are involved in a mutual fund operation: the Sponsor, the Mutual Fund, the Trustees, the Asset Management Company, the Custodian, and the Registrars and Transfer Agents.
The sponsor of a mutual fund is like the promoter of a company. The sponsor may be a bank, a financial institution, or a financial services company. It may be Indian or foreign. The sponsor is responsible for setting up and establishing the mutual fund. The sponsor is the settler of the mutual fund trust. The sponsor delegates the trustee’s functions to the trustee.
A trust is a notional entity that cannot contract in its own name. So, the trust enters into contracts in the name of the trustees. Appointed by the sponsor, the trustees can be either individuals or a corporate body (a trustee company). To ensure that the trustees are fair and impartial, SEBI rules mandate that at least two-thirds of the trustees are independent – this means they have no association with the sponsor. The trustees appoint the asset management company (AMC), secure necessary approvals, periodically monitor how the AMC functions, and hold the properties of the various schemes in trust for the benefit of investors. Trustees can be held accountable for the financial irregularities of the mutual fund.
➢ Asset Management Companies
Asset Management Companies manage the investment portfolios of schemes. An AMCs income comes from the management fees it charges the scheme it manages. In order to earn the management fee, an AMC has naturally to employ people and bear all the establishment costs that are related to its activity, such as for premises, furniture, computers and other assets, software development, communication costs, etc. These are to be met out of the management fee earned. Within AMC, fund managers are to ensure that schemes funds are invested to achieve the objective of the scheme and in the interest of the unit holder. The CEO, in tern, has to ensure that the fund managers perform this role. In addition, compliance with various rules and regulations, and overall risk management are the responsibility of the mutual fund’s CEO.
The custodians maintain custody of the securities in which the scheme invests – as distinct from the registrar who tracks the investment by investors in the scheme. This ensures an independent record of the investment of the scheme. The custodian also follows up on various corporate actions, such as rights, bonus and dividends declared by the investment company.
An investor’s holding in mutual fund schemes is typically tracked by the scheme’s Registrar and Transfer agent (R&T). Some AMCs prefer to handle this role in-house, i.e. on their own instead of appointing an R&T. The Registrar or the AMC as the case may be maintains an account of the investor’s investment in and disinvestment from the schemes. Requests to invest more money into a scheme or to redeem money against existing investments in a scheme are processed by the R&T.
IMPORTANT CHARACTERISTICS OF A MUTUAL FUND
a) A Mutual Fund actually belongs to the investors who have pooled their Funds. The ownership of the mutual fund is in the hands of the Investors. b) A Mutual Fund is managed by investment professional and other service providers, who earn a fee for their services, from the funds. c) The pool of Funds is invested in a portfolio of marketable investments. d) The value of the portfolio is updated every day. e) The investor’s share in the fund is denominated by “units”. The value of the units changes with change in the portfolio value, every day. The value of one unit of investment is called net asset value (NAV). f) The investment portfolio of the mutual fund is created according to the stated investment objectives of the Fund.
Research Design and Methodology a) Need for the Study b) Objective of the study c) Sampling and Data Collection d) Statistical Tools and Technique e) Limitation of the Study
A) NEED FOR THE STUDY
In present market trend, Mutual Fund is one of the revolutionary investment alternatives. In present economic liberalization scenario investors with their huge surplus funds, needs highly diversifiable instrument alternative for moderate returns with low risks, with this the mutual funds got significance in Indian capital market.
And Due to the following Advantages
. ADVANTAGES OF MUTUAL FUNDS:
1) 2) 3) 4) 5) 6) 7) 8) Reduced Risk. Diversified investment. Botheration free investment. Revolving type of investment (Reinvestment). Selection and timings of investment. Wide investment opportunities. Investments care. Tax benefits.
B) OBJECTIVES OF THE STUDY
1. To analyze and evaluate the performance of TAXGAIN funds of various Mutual Fund companies based on past data. 2. To know which Tax gain fund is performing well. 3. Comparison is to be done based on Risk & Return & giving Ranks 4. To provide the information to the Investor as a financial adviser
C) Sampling & Data Collection
SAMPLING TECHNIQUE: Convenience sampling technique (which comes under non-probability sampling method)is taken to select the five balanced funds. DATA COLLECTION:
1. Primary Data: Collected from the fund manager about the funds they are providing
and the investment methods they are following through personal interview. 2. Secondary Data: Collected from the websites related to mutual funds, books, and brochures.
1) SBI Magnum Tax Gain Scheme (G) 2) HDFC Tax Saver (G) 3) Taurus Tax Shield (G) 4) Canara Robeco Equity Tax Saver (G) 5) UTI Equity Tax Saving Plan (G) 6) LIC MF Tax Plan (G) 7) ICICI Pru Tax Plan (G)
D) Statistical Tools & Techniques
1. Mean 2. Standard deviation 3. Beta 4. Sharpe Measure 5. Trey nor Measure
It is the average of all the 3 year returns. It used to calculate Treynor Measure and Sharpe measure.
Standard Deviation (σ)
Standard Deviation is a statistical tool, which measures the variability of returns from the expected value, or volatility. It is denoted by sigma (σ). It is calculated using the formula mentioned below: Where, is the sample mean, xi’s are the observations (returns), and N is the total number of observations or the sample size.
Risk is an important consideration in holding any portfolio. The risk in holding securities is generally associated with the possibility that realized returns will be less than the returns expected. Risks can be classified as Systematic risks and Unsystematic risks. • Unsystematic risks: These are risks that are unique to a firm or industry. Factors such as management capability, consumer preferences, labor, etc. contribute to unsystematic risks. Unsystematic risks are controllable by nature and can be considerably reduced by sufficiently diversifying one's portfolio. • Systematic risks: These are risks associated with the economic, political, sociological and other macrolevel changes. They affect the entire market as a whole and cannot be controlled or eliminated merely by diversifying one's portfolio What is Beta? The degree, to which different portfolios are affected by these systematic risks as compared to the effect on the market as a whole, is different and is measured by Beta. To put it differently, the systematic risks of various securities differ due to their relationships with the market. The Beta factor describes the movement in a stock's or a portfolio's returns in relation to that of the market return. For all practical purposes, the market returns are measured by the returns on the index (Nifty, Mid-cap etc.), since the index is a good reflector of the market.
Formula: Beta is calculated as: Covariance ( Kj, Km) β = -----------------------------------Variance (Km)
Where, Kj is the returns on the portfolio or stock - DEPENDENT VARIABLE Km is the market returns or index - INDEPENDENT VARIABLE Variance is the square of standard deviation. Covariance is a statistic that measures how two variables co-vary, and is given by:
Where, N denotes the total number of observations, and and respectively represent the arithmetic averages of x and y. In order to calculate the beta of a portfolio, multiply the weightage of each stock in the portfolio with its beta value to arrive at the weighted average beta of the portfolio
Sharpe measure reflects the excess return earned on a portfolio per unit of its total risk. It is similar to Trey nor measure except that it employees standard deviation as a measure of risk. Thus,
Average rate of return – Risk free rate Sharpe measure = ----------------------------------------------Standard deviation of return
According to Jack Trey-nor, systematic risk or beta is the appropriate measure of risk. Trey-nor measure of portfolio also related to the portfolio of beta. Thus, Average rate of return-Risk free rate Trey-nor measure = --------------------------------------------Beta Note:
1. The Sharpe measure, the Trey-nor measure as well as the Sharpe measure, postulate a linear
relationship between risk and return though they employ different measures of risk. 2. For a perfectly diversified portfolio both the measures give identical rankings because in such cases the total risk and systematic risk are the same
E) Limitations of the Study
1) Study is confined to the data available from the fact sheets And Websites 2) Tax Gain Schemes of Seven AMC’s are only taken in to account due To Time and Finance constraints. 3) Historical data is not a perfect measure of future performance.
Data Analysis & Interpretation
DATA ANALYSIS & INTERPRETATION
1) SBI MAGNUM TAX GAIN SCHEME (G)
Top of Form Bottom of Form Fund Type Investment Plan Asset Size (Rs cr) Minimum Investment Launch Date Benchmark Fund Manager Growth 4,466.97 (Jul-31-2009) Rs.500 Mar 31, 1993 BSE 100 Jayesh Shroff Open-Ended
S.N 1 2 3 4 5 6 7 8 9 10
From Date 1/7/1999 1/7/2000 1/7/2001 1/7/2002 1/7/2003 1/7/2004 1/7/2005 1/7/2006 1/7/2007 1/7/2008
NAV 4.94 10.58 4.56 4.81 4.93 8.91 22.3 32.407 48.52 40.82
TO Date 30/06/2000 30/06/2001 30/06/2002 30/06/2003 30/06/2004 30/06/2005 30/06/2006 30/06/2007 30/06/2008 30/06/2009
NAV 10.166 4.5 4.73 4.89 8.81 22.06 32.35 48.14 42.36 45.65 SUM AVG
Return X Return (%) Y (%) 105.7 -57 3.7 1.7 78.6 147.5 45.1 48.5 -12.7 11.8 372.9 37.29 33.5290 -33.3281 0.8062 9.9523 40.6442 47.9072 42.0194 41.1213 -7.8244 7.4387 182.2661 18.2266 Trey nor 85.8014
Std Dev 60.6937
Graphical representation of Returns of SBI MAGNUM Tax Gain
Interpretation: SBI Magnum Tax gain Fund is Performing Since 10 Years with
Average Return Standard deviation
Sharpe Trey nor
2) HDFC TAX SAVER (G)
Top of Form Bottom of Form Fund Type Investment Plan Asset Size (Rs cr) Minimum Investment Last Dividend Launch Date Benchmark Fund Manager Growth 1,740.73 (Jul-31-2009) Rs.500 Rs.21.00 (Apr-03-2000) Dec 18, 1995 S&P CNX 500 Vinay Kulkarni Open-Ended
Graphical representation of Returns of HDFC Tax Saver
S. N 1 2 3 4 5 6 7 8 9 10 From Date 1/7/1999 1/7/2000 1/7/2001 1/7/2002 1/7/2003 1/7/2004 1/7/2005 1/7/2006 1/7/2007 1/7/2008 NAV TO Date NAV 19.3 16.1 19.01 24.67 37.75 78.11 115.19 156.53 126.45 146.73 SUM AVG Std Dev 55.9107 Beta 0.3062 Return X (%) 165.8 -18.6 16.9 28.2 53.5 104 45.4 35.2 -19.6 19.7 430.5 43.05 Sharpe 0.6447 Return Y (%) 33.1390 32.4036 6.1971 15.3151 38.9987 52.1976 34.8081 40.5029 11.7534 8.2792 185.281 1 18.5281 Trey nor 117.733 1 40 7.26 30/06/200 0 19.79 30/06/200 1 16.26 30/06/200 2 19.24 30/06/200 3 24.6 30/06/200 4 38.28 30/06/200 5 79.21 30/06/200 6 115.8 30/06/200 7 157.21 30/06/200 8 122.53 30/06/200 8 9
Interpretation: HDFC Tax Saver has been performing for 10 years
Average Return Standard deviation
Beta Sharpe Trey nor
0.353 0.499 85.809
3) TAURUS TAX SHIELD (G)
Top of Form Bottom of Form Fund Type Investment Plan Asset Size (Rs cr) Minimum Investment Launch Date Benchmark Fund Manager Growth 23.20 (Jul-31-2009) Rs.500 Mar 31, 1996 BSE 200 Prasanna Pathak Open-Ended
S. N 1 2 3 4 5 6 7 8 9 10
From Date 1/7/1999 1/7/2000 1/7/2001 1/7/2002 1/7/2003 1/7/2004 1/7/2005 1/7/2006 1/7/2007 1/7/2008
Retur nX (%) 9.93 6.61 8.69 -6 -33.2 29.2 13.7 -16.7 118.8 -21.5 32 9.9 20.2 146.4 14.64
Return Y (%) 25.4689 -31.8441 9.4303 14.8946 38.1437 47.2757 37.9174 41.7983 -9.1563 7.2458 181.1747 18.1174 Trey nor 32.4999
10.56 30/06/2000 9.9 30/06/2001 6.73 30/06/2002 9 30/06/2003 10.33 30/06/2004 8.69 30/06/2005 19.16 30/06/2006 15.17 30/06/2007 20.41 30/06/2008 21.8 30/06/2009
10.23 8.6 19.01 15.05 20.03 22.44 26.21 SUM AVG
Std Dev 42.7133
Graphical representation of Returns of Taurus Tax Shield
Interpretation: Taurus Tax Shield has been performing for 10 years
Average Return 37.29
Beta Sharpe Trey nor
0.353 0.499 85.809
4) CANARA ROBECO EQUITY TAX SAVER (G)
Top of Form
Bottom of Form
Open-Ended Growth 53.26 (Jul-31-2009) Rs.500 Mar 31, 1993 BSE 100 Anand Shah
Investment Plan Asset Size (Rs cr) Minimum Investment Launch Date Benchmark Fund Manager S.N 1 2 3 4 5 6 7 8 9 From Date NAV
TO Date 3.78330/06/2000 6.51530/06/2001 3.32930/06/2002 3.24930/06/2003 3.30730/06/2004 4.57230/06/2005 7.11630/06/2006 10.0630/06/2007 15.45230/06/2008
Return X (%)
Return Y (%) 33.5290 -33.3281 0.8062 9.9523 40.6442 47.9072 42.0194 41.1213 -7.8244
1/7/1999 1/7/2000 1/7/2001 1/7/2002 1/7/2003 1/7/2004 1/7/2005 1/7/2006 1/7/2007
6.309 3.358 3.19 3.276 4.531 6.936 9.989 15.199 13.38
66.8 -48.5 -4.2 0.8 37 51.7 40.4 51.9 -13.4
17.13 SUM AVG
32 214.5 21.45
7.4387 182.2661 18.2266
Std Dev 36.2138
Trey nor 23.3768
Graphical representation of Returns of Canara Robocco Equity Tax Saver
Interpretation: Canara Robocco Equity Tax Saver has been Performing for 10 years
Average Return Standard deviation
Beta Sharpe Trey nor
0.6181 0.399 23.376
5) UTI Equity Tax Savings Plan (G)
Top of Form Bottom of Form Open-Ended
Fund Type Investment Plan Asset Size (Rs cr) Minimum Investment Launch Date Benchmark Fund Manager Growth 427.12 (Jul-31-2009) Rs.500 Dec 15, 1999 BSE Sensitive Index Swati Kulkarni
S.N 1 2 3 4 5 6 7 8 9
From Date 1/7/2000 1/7/2001 1/7/2002 1/7/2003 1/7/2004 1/7/2005 1/7/2006 1/7/2007 1/7/2008
NAV 6.28 7.03 8.81 12.77 19.52 25.01 32.24 29.86 29.57 SUM AVG
Return X (%) -3.00 5.70 18.40 64.70 53.40 30.00 24.90 -6.20 -15.20 172.70 19.1888 Sharpe
Return Y (%) 14.2459 -28.6775 -6.7631 32.5540 49.4434 48.0611 37.9914 -8.3319 7.5209 146.044 4 16.2271 Trey nor 20.5177 46
6.473 30/06/200 1 6.656 30/06/200 2 6.912 30/06/200 3 7.757 30/06/200 4 12.725 30/06/200 5 19.240 30/06/200 6 25.810 30/06/200 7 31.850 30/06/200 8 34.860 30/06/200 9
Std Dev 27.1414
Graphical representation of Returns of UTI Tax Saving Scheme
Interpretation: UTI Tax Saving Scheme has been performing For 9 years
Average Return Standard deviation
0.594 0.449 47
6) LIC MF TAX PLAN (G)
Top of Form Bottom of Form Fund Type Investment Plan Asset Size (Rs cr) Minimum Investment Launch Date Benchmark Fund Manager From Date 1 2 3 4 5 6 NAV Growth 41.86 (Jul-31-2009) Rs.500 Jan 01, 1997 BSE Sensitive Index Ashish Kumar TO Date NAV 6.710 7.500 8.714 Return X Return (%) Y (%) -49.6 14.2459 11.8 28.6775 Open-Ended
1/7/2000 13.31030/06/200 1 1/7/2001 6.71030/06/200 2 1/7/2002 7.65130/06/200 3
13.9 -6.7631 51.1 32.5540 29.1 49.4434 23.7 48.0611 48
1/7/2003 8.78830/06/200 13.278 4 1/7/2004 13.41430/06/200 17.318 5 1/7/2005 17.44430/06/200 21.586
6 7 8 9 1/7/2006 21.62330/06/200 26.966 7 1/7/2007 27.10830/06/200 22.135 8 1/7/2008 22.24430/06/200 24.109 9 SUM AVG Std Dev Beta 24.7 37.9914 -18.3 -8.3319 8.4 7.5209
94.8 146.044 4 10.5333 16.2271 Sharpe Trey nor 9.9874
Graphical representation of Returns of LIC MF Tax Plan
Interpretation: LIC MF Tax Plan has been performing for 9 years
Average Return Standard deviation
Beta Sharpe Trey nor
0.3537 0.1209 9.9874
7) ICICI Pru Tax Plan (G)
Top of Form Bottom of Form Fund Type Investment Plan Asset Size (Rs cr) Minimum Investment Launch Date Benchmark Fund Manager S.N 1 2 3 4 5 6 7 8 9 10 From Date NAV 1/7/1999 1/7/2000 1/7/2001 1/7/2002 1/7/2003 1/7/2004 1/7/2005 1/7/2006 1/7/2007 1/7/2008 10.00 14.51 10.38 13.35 16.59 25.44 54.16 73.37 93.22 80.81 Growth 806.34 (Jul-31-2009) Rs.500 Aug 09, 1999 S&P CNX Nifty Sankaran Naren / Mrinal Singh TO Date 30/06/2000 30/06/2001 30/06/2002 30/06/2003 30/06/2004 30/06/2005 30/06/2006 30/06/2007 30/06/2008 30/06/2009 NAV 14.02 10.4 13.22 16.45 25.18 53.23 73.12 93.38 83.62 85.95 SUM AVG Std Dev Beta Return (%) 40.2 -28.3 27.4 23.2 51.8 109.2 35.0 27.3 -10.3 6.4 281.9 28.19 Sharpe XReturn (%) 23.8750 -25.9053 -4.5608 6.1888 33.1564 44.4574 40.8813 38.0103 -6.4340 10.1199 159.7892 15.9789 Trey nor 50 Y Open-Ended
Graphical representation of Returns of ICICI Pru Tax Saver
Interpretation: ICICI Pru Tax Saver has been performing for 10 fyears
Average Return Standard deviation
Beta Sharpe Trey nor
0.4598 0.5689 46.078
Comparison and Ranking of the Funds Based on Sharpe & Trey-nor Measures
Calculation of Sharpe's Index:
Mean Return Risk Fund name LIC MF ICICI Pru HDFC SBI MAGNUM UTI Equity CANARA ROBECO 21.45 7 14.45 42.7133 TAURUS 14.64 7 7.64 0.1788 6 37.29 19.1888 7 7 30.29 27.1414 12.1888 36.2138 0.399 5 0.449 4 10.5333 28.19 43.05 Return 7 7 7 free Risk Premium 29.2175 3.5333 37.2445 21.19 55.9107 36.05 60.6937 0.499 3 0.6447 1 0.5689 2 0.1209 7 Std Dev Sharpe Rank
Calculation of Trey nor's Index:
Fund Mean Risk free 52 Risk Beta Trey nor Rank
name LIC MF ICICI Pru HDFC
Return 10.5333 28.19 43.05 SBI 37.29
Return 7 7 7 7
Premium 3.5333 21.19 36.05 30.29 0.3537 0.4598 0.3062 0.353 9.9874 46.0798 117.7331 85.8014 7 3 1 2
MAGNUM UTI Equity CANARA ROBECO TAURUS 14.64 7 7.64 0.235 32.4999 4 21.45 7 14.45 0.6181 23.3768 5 19.1888 7 12.1888 0.594 20.5177 6
Scattered diagram for the Mean & Standard deviation:
X-axis : Standard deviation
Y-axis : Mean Return
Summary-Findings & Conclusions Suggestions Bibliography
Findings & Conclusions
1) SBI Magnum Tax Gain Scheme is Giving High Risk Premium 30.29 than that of LIC MF with 3.533 even both are having same Market Risk Beta. So I conclude that SBI Magnum tax gain is performing better than LIC MF tax plan. 2) HDFC Tax Saver is giving high average return of 55.91 Here I conclude that HDFC is giving good average return. 3) SBI Magnum Tax Gain Scheme got 2nd & 3rd Rank with respect to Trey nor and Sharpe measures. So SBI Magnum tax gain is better in the cases of two measures viz.. Sharpe & Treynor 4) Sensitive index or Beta Of Canara Robecco is high i.e 0.6181. 56 43% and at low Standard deviation
So it undergoes more fluctuation to the market.
ICICI Tax plan is performing better than the LIC MF & Taurus plans.
1. As HDFC tax Saver and SBI magnum Tax gain Schemes has been performing well for the past 10 years so it is better to invest in this funds
As Tax-saving schemes offer tax rebates, Under Sec.80(C) of the Income Tax Act, it is better to invest in the Tax Funds, as we can get good returns & also tax exemption.
3. As the stock markets are in the bullish trend it is better to invest in the funds which have Beta values above 0.5. 4. Average return of sensex is around 18%, since inception. And the performance of Mutual funds is much above the sensex performance. So I suggest everybody to invest in Mutual funds. 5. Average bank rates are also around 8%. So I suggest the investors to invest in Mutual Funds.
AMFI Mutual Fund Testing Program- “A work book by Association of Mutual Funds in India
➢ ICFAI Mutual Fund Text Book ➢ Right and Remedies – “SEBI note on Investor Grievance”
➢ Economic Times ➢ Times of India ➢ Business Line
➢ Business World ➢ Business Analysis ➢ Business Standards
➢ www.amfi.com ➢ www.sbimf.com ➢ www.sebi.com ➢ www.moneycontrol.com ➢ www.valueresearchonline.com