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CHAPTER I- ABOUT MUTUAL FUNDS
AN INTRODUCTION TO MUTUAL FUNDS
Over the past decade, American investors increasingly have turned to mutual funds to save for retirement and other financial goals. Mutual funds can offer the advantages of diversification and professional management. But, as with other investment choices, investing in mutual funds involves risk. And fees and taxes will diminish a fund's returns. It pays to understand both the upsides and the downsides of mutual fund investing and how to choose products that match your goals and tolerance for risk. It is an ideal investment vehicle for a common man in complex and modern financial scenario.
DEFINITION OF MUTUAL FUNDS
Mutual Funds Definition refers to the meaning of Mutual Fund, which is a fund, managed by an investment company with the financial objective of generating high Rate of Returns. These asset management or investment management companies collects money from the investors and invests those money in different Stocks, Bonds and other financial securities in a diversified manner. Before investing they carry out thorough research and detailed analysis on the market conditions and market trends of stock and bond prices. These things help the fund mangers to speculate properly in the right direction. TEEN ANALYST ADVICE: Mutual funds are great because they offer regular investors a chance to diversify their portfolios, which is something they may not be able to do on their own. Consider this, if you want to build a diversified portfolio of 30 stocks, you would probably need $30,000 to get started ($1000 per stock...which is usually the norm). Or you could open up an account with a mutual fund for just $1000. A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, shortterm money market instruments, and/or other securities. The mutual fund will have a fund manager that trades the pooled money on a regular basis. The net proceeds or losses are then typically distributed to the investors annually.
CONCEPT OF MUTUAL FUNDS
A mutual fund, by its very nature, is diversified -- its assets are invested in many different securities. The investments by the Mutual Funds are made in equities, bonds, debentures, call money etc., depending on the terms of each scheme floated by the Fund. The current value of such investments is now a day is calculated almost on daily basis and the same is reflected in the Net Asset Value (NAV) declared by the funds from time to time. This NAV keeps on changing with the changes in the equity and bond market. Any change in the value of the investments made into capital market instruments (such as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. FOR EXAMPLE: If the market value of the assets of a fund is Rs. 100,000 The total number of units issued to the investors is equal to 10,000. Then the NAV of this scheme = (A)/(B), i.e. 100,000/10,000 or 10.00 Now if an investor 'X' owns 5 units of this scheme Then his total contribution to the fund is Rs. 50 (i.e. Number of units held multiplied by the NAV of the scheme). Therefore, the investments in Mutual Funds is not risk free, but a good managed Fund can give you regular and higher returns than when you can get from fixed deposits of a bank etc.
3 SOME OF THE DISTINGUISHING CHARACTERISTICS OF MUTUAL FUNDS INCLUDE THE FOLLOWING: Investors purchase mutual fund shares from the fund itself (or through a broker for the fund) instead of from other investors on a secondary market, such as the New York Stock Exchange or NASDAQ Stock Market. The price that investors pay for mutual fund shares is the fund's per share net asset value (NAV) plus any shareholder fees that the fund imposes at the time of purchase (such as sales loads). Mutual fund shares are "redeemable," meaning investors can sell their shares back to the fund (or to a broker acting for the fund). Mutual funds generally create and sell new shares to accommodate new investors. In other words, they sell their shares on a continuous basis, although some funds stop selling when, for example, they become too large. The investment portfolios of mutual funds typically are managed by separate entities known as "investment advisers" that are registered with the SEC.
HISTORY OF MUTUAL FUNDS
The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the industry. The mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under.
FIRST PHASE - 1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management.
SECOND PHASE - 1987-1993 (ENTRY OF PUBLIC SECTOR FUNDS)
Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92).
4 LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47,004 as assets under management.
THIRD PHASE - 1993-2003 (ENTRY OF PRIVATE SECTOR FUNDS)
1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds.
FOURTH PHASE - SINCE FEBRUARY 2003
This phase had bitter experience for UTI. It was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29,835 crores (as on January 2003).The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of AUM and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.
STRUCTURE OF MUTUAL FUND
Every MF will comprise a sponsor, trustee, AMC, custodian and registrar, and is regulated by SEBI .The structure of mutual fund is discussed in detail. •
The company that sets up the MF is called the sponsor. It is typically a financial institution, bank, investment house or even an individual that contributes at least 40 per cent to the net worth of the asset management company (AMC) .The sponsor initiates the fund's activities by appointing the trustees, the AMC and custodians. •
The trustee monitors the operations of the various schemes and safeguards investor interests. The trustees can also review the AMC’s operations and transactions, including contracts with various agencies such as custodians and registrars. •
ASSET MANAGEMENT COMPANY.
5 The AMC seeks to multiply the invested money in the fund in line with the scheme's investment objective. It should have a networth of at least Rs 10 crore. The AMC is a key player in the MF game and does everything to make the most of your investment. It launches new schemes, manages them, and employs the fund management team, including the fund manager. The sponsor appoints the AMC and the trustees review its operations. •
An MF needs to store and record transactions, for which it relies on banks or financial institutions that are designated custodians. The custodian maintains custody of the securities in which the scheme invests (as distinct from the registrar who tracks the investment by investors in the scheme).The custodian also follows up on various corporate actions, such as rights, bonus and dividends declared by investor companies. •
Registrars and transfer agents (R&T agents) handle all paperwork involving investor servicing. Their services include processing initial public offerings, dispatch of certificates, account statements, annual reports and dividend warrants.
GROWTH OF MUTUAL FUNDS IN INDIA
Over the years not only the new types of mutual funds emerged, the way, in which mutual funds were sold also changed. But, the Growth of Mutual Funds has not stopped. It is continuing to evolve to a better future, where investors will get newer opportunities. In March 2006, mutual funds were net buyers worth Rs.4,041.88 crores, gross purchases being Rs.14889.15 crore and gross sales Rs.10847.27 crore making
Emphasis on better corporate governance. highest in the world. 'B' and 'C' class cities are growing rapidly. US based.6 March the most active month for the mutual fund industry in India. THE GRAPH INDICATES THE GROWTH OF ASSETS OVER THE YEARS: SOME FACTS FOR THE GROWTH OF MUTUAL FUNDS IN INDIA 100% growth in the last 6 years. . Mutual fund can penetrate rural like the Indian insurance industry with simple and limited products.334. We have approximately 29 mutual funds which is much less than US having more than 800. SEBI allowing the MF's to launch commodity mutual funds. Only channelizing these savings in mutual funds sector is required. with over US$1trillion assets under management worldwide. Our saving rate is over 23%. Today most of the mutual funds are concentrating on the 'A' class cities.99 crores. Number of foreign AMC's are in the que to enter the Indian markets like Fidelity Investments. Soon they will find scope in the growing cities. There is a big scope for expansion.3. May of year 2005 was considered the most active month when mutual funds were net buyers of worth Rs.
3. gross purchases being Rs.4% over the next 10 years.88 crores.99 crores The mutual fund industry is expected to grow at a rate of 13. .4% during the rest of the decade.10847. If you don't need the money for 20 years.7 Trying to curb the late trading practices. some steps are made out which help in selecting right mutual fund for you. In today’s world. Many foreign players entered the Indian Mutual Fund Industry eying the opportunities. be sure to obtain as much information about the fund before you invest. It's important to know what your timeline is. each type carrying unique characteristics and different beneficial features. According to the current growth rate. In March 2006.15 crore and gross sales Rs.90. A shorter time horizon means you'll want to stick with a more conservative fund. mutual funds were net buyers worth Rs.334. It is estimated that by 2010 March-end. mutual fund assets will be double. US COMPANIES INVESTING IN MUTUAL FUNDS • • • • FRANKLIN TEMPLETON INDIA MUTUAL FUND MORGAN STANLEY MUTUAL FUND ALLIANCE CAPITAL MUTUAL FUND PRUDENTIAL ICICI MUTUAL FUND STEPS TO CHOOSE RIGHT MUTUAL FUND FOR YOURSELF If you decide to invest in mutual funds. by year 2010. In the last 5 years we have seen annual growth rate of 9%. SCOPE OF MUTUAL FUNDS IN INDIA .041. Introduction of Financial Planners who can provide need based advice.14889. that people sometimes take long time to decide the mutual fund type. you can afford to be more aggressive in your fund choice. Follow these steps: SET LONG-TERM GOALS. The annual composite rate of growth is expected 13. With this growth rate. the total assets of all scheduled commercial banks should be Rs 40.27 crore making March the most active month for the mutual fund industry in India. Several Investment Management Companies have emerged over the years who offer various types of Mutual Funds.000 crore. Here. Among them the US Mutual Funds companies played an important role in the development of the sector. You could potentially invest in a more risky sector like emerging markets. Scope of Mutual Funds has become so wide. the mutual fund investments have become one of the most popular modes of investments.4. they are going to invest in. And don't make assumptions about the soundness of the fund based solely on its past performance or its name. May of year 2005 was considered the most active month when mutual funds were net buyers of worth Rs.
These reports contain a variety of updated financial information. and past performance. Cut through the marketing lingo and focus on three important factors: performance. such as the fund's investment objectives or goals. rankings. Morningstar. Getting started will be easier if you first focus your search on a specific type of fund with a specific investing objective. 2007). GROWTH) TO REACH YOUR GOALS. and persons who control the fund. is a great resource. www. But . SHAREHOLDER REPORTS A mutual fund also must provide shareholders with annual and semi-annual reports within 60 days after the end of the fund's fiscal year and 60 days after the fund's fiscal mid-year. You can order a prospectus and read the Web site.. While they may seem daunting at first. 2007) and Common Sense on Mutual Funds: New Imperatives for the Investor by John C. STATEMENT OF ADDITIONAL INFORMATION ("SAI") Also known as "Part B" of the registration statement. management and consistency. Visit the library or buy some specialized books on mutual fund investing that will build on what you have learned from this unit. and ratings often emphasize how well a fund has performed in the past. Advertisements. investment advisory and other services.com. the SAI explains a fund's operations in greater detail about the history of the fund. Also check with independent research companies that cover mutual funds. principal strategies for achieving those goals.morningstar. and other information. a mutual fund rating and data firm. and performance such as yield and average annual total return information. Some useful references are: Mutual Funds for Dummies by Eric Tyson. fund policies on borrowing and concentration. brokerage commissions. Morningstar Guide to Mutual Funds: Five-Star Strategies for Success (Wiley. There will be plenty of information available on the fund you plan on investing in. LOOK FOR A WELL-MANAGED FUND. a list of the fund's portfolio securities. (For Dummies. your goal should be to build a portfolio that includes both stock and bond funds with various investment objectives and investment styles for maximum diversity. DO MORE READING. Bogle (Wiley. PAST PERFORMANCE A fund's past performance is not as important as you might think. GET SOURCES OF INFORMATION :PROSPECTUS: The prospectus is the fund's selling document and contains valuable information. the identity of officers. tax matters. The prospectus also identifies the fund's managers and advisers and describes how to purchase and redeem fund shares.G. mutual fund prospectuses contain a treasure trove of valuable information.8 IDENTIFY THE TYPES OF FUNDS YOU NEED (E. 2000). principal risks of investing in the fund. fees and expenses. Eventually. directors.
etc. The SEC requires that any mutual fund with a name suggesting that it focuses on a particular type of investment must invest at least 80% of its assets in the type of investment suggested by its name.000 funds by eliminating all the bond and money market funds. Right there. Some sectors of the market can perform badly even when the majority of stocks are going up. and risk. CHECK FOR CONSISTENCY Pick a mutual fund that has yielded good returns year after year. Make sure to read the part of the prospectus that talk about risk. funds that have an investment minimum over $3. and all funds that have not outperformed 60% of comparable funds over the last 3 and 5 five years. LOOKING BEYOND A FUND'S NAME Don't assume that a fund called the "XYZ Stock Fund" invests only in stocks or that the "Martian High-Yield Fund" invests only in the securities of companies headquartered on the planet Mars. DETERMINE YOUR SELECTION CRITERIA AND ELIMINATE FUNDS. Applying these criteria as you research your favorites. That indicates the fund can be successful under a variety of conditions.000 fund universe to a manageable list in short order by using a few criteria to help with the elimination process. KNOW THE RISKS Mutual funds are not thought of as extremely risky investments. cost to invest.9 studies show that the future is often different. these charges may be incurred for buying (frontend load) or selling the fund (back-end load. AVOID SALES CHARGES Also known as loads or commissions. deferred sales or redemption fees). all stock funds with an expense ratio over 1. You can whittle down the over 8. mainly because they invest in hundreds of stocks. This year's "number one" fund can easily become next year's below average fund. suppose you are looking for a stock fund to invest for retirement. any fund where the manager’s tenure is less than 5 years.000. LOOK FOR LOW EXPENSE RATIOS . Perhaps you will toss out all funds that have a sales commission. Stay away from them. pay most attention to performance. you have cut the number to a little over 5. Be aware of what sector or sectors the fund invests in. But funds can still invest up to one-fifth of their holdings in other types of securities — including securities that you might consider too risky or perhaps not aggressive enough. But this is no reason to go into a fund blind. For example. and what can go wrong with these areas.4%.
at a local investment center.10 These ratios represent the annual fees that mutual funds charge and include management fees. Of course. Look for one who has longevity with the fund and company. ASK THE EXPERTS Search the Internet for financial planners. Review the fund company's prospectus before investing. When the price of the fund is low. usually monthly or quarterly. the broker or financial planner executes your order. and in some cases. these fees should be under one percent annually. set up a regular review schedule—generally at the end of the year—to ensure its performance remains consistent with your investment objectives and level of investment risk. administrative costs. your dollars buy more shares. $50) in a mutual fund(s) at periodic intervals. Look at a fund's track record and portfolio. most mutual fund groups offer a toll-free number for telephone assistance. When the fund’s NAV moves higher. you will buy fewer shares.. CONSIDER THE MANAGER Managers determine when a fund's stock or bond should be bought or sold. If possible. CONTINUALLY BUY MORE SHARES One of the best ways to grow your investments is to use a dollar-cost averaging strategy —investing a fixed number of dollars (e. if you are buying a fund with a sales commission. Seek the advice of an accountant and/or a tax expert regarding the implications of your investment before you buy. Who Can Help HOW TO FILL UP THE APPLICATION FORM OF A MUTUAL FUND SCHEME? An investor must mention clearly his name. REVIEW PERIODICALLY After you have selected your mutual fund. number of units applied for and such other information as required in the application form. CALL OR WRITE FOR A PROSPECTUS A prospectus for a mutual fund is the selling document legally required to be distributed to mutual fund investors. distribution fees and some operating expenses. You'll learn the goals and its strategy for achieving them. Don't obsess over a mutual fund's double-digit return. You also can access information on all varieties of mutual funds and what experts consider being the top picks. It describes the fund’s investment strategy as well as the risks and costs of an investment.g. He must give his bank . address. investment advisors and mutual fund companies. MAKE YOUR PURCHASE While you can always do business by mail.
TYPES OF MUTUAL FUNDS A mutual fund has several schemes in which investor can invest. Then there are objective based schemes that offer different risk reward options. There are structure based schemes distinguished by their maturity periods. etc at a later date should be informed to the mutual fund immediately. Any changes in the address. MUTUAL FUNDS CAN CLASSIFY ON THE FOLLOWING BASES:- . bank account number. It has also some special schemes that invest in specific sectors.11 account number so as to avoid any fraudulent encashment of any cheque/draft issued by the mutual fund at a later date for the purpose of dividend or repurchase.
12 MUTUAL FUND RISK Mutual funds face risks based on the investments they hold. RISKS ASSOCIATED WITH MUTUAL FUNDS RISK RETURN TRADE OFF MARKET RISK CREDIT RISK INFLATION RISK INTEREST RATE RISK POLITICAL RISK LIQUIDITY RISK . For example. The risk return trade-off indicates that if investor is willing to take higher risk then correspondingly he can expect higher returns and vise versa if he pertains to lower risk instruments. which provide moderate return with minimal risk. which would be satisfied by lower returns. But as he moves ahead to invest in capital protected funds and the profit-bonds that give out more return which is slightly higher as compared to the bank deposits but the risk involved also increases in the same proportion. if an investors opt for bank FD.
66%.e 22. In case of EQUITY FUNDS. In case of DEBT FUNDS.e 14. subject to STT. in the case of DEBT FUNDS. the mutual fund has to pay a Dividend Distribution Tax (12. no dividend distribution tax is payable by the mutual fund. (10 % + applicable Surcharge + education cess ( @2% on Income Tax and surcharge) + secondary and higher education cess ( @1% on Income Tax and surcharge). long term capital gains computed as ( 10% without cost Inflation index benefit or 20% with cost inflation index benefit whichever is lower + applicable Surcharge + education cess ( @ 2% on Income tax and surcharge) + secondary and higher education cess ( @ 1% on Income Tax and surcharge) to Investor and for Foreign Institutional Investors it is. . tax is applicable as 15%+ applicable Surcharge + education cess ( @2% on Income tax and surcharge) + secondary and higher education cess ( @1% on income tax & surcharge) . Short term capital gains on DEBT FUNDS attract tax at the personal income tax rate applicable to assessee and for FIIs it is 30%+ applicable Surcharge + education cess ( @2% on Income tax and surcharge) + secondary and higher education cess ( @1% on income tax & surcharge) Long term capital gains (profits that accrue from the sale of units after one year from the date of purchase) earned on the sale of EQUITY FUNDS are tax free in hands of Investor. In the case of short term capital gains (profits that accrue from the sale of units within one year from the date of purchase) earned on the sale of EQUITY FUNDS.13 TAXATION OF MUTUAL FUNDS The dividend distributed by both debt funds and equity funds is tax-free in investor’s hands.1625% ) on the amount of dividend distributed to individuals and HUFs and for other than Equity Oriented Funds ( except Money Market & Liquid funds ) it is ( 20% + Surcharge @10% + education cess ( @2% on Income Tax and surcharge) + secondary and higher education cess ( @1% on Income Tax and surcharge i.5 % Surcharge @10% + education cess ( @2% on Income Tax and surcharge) + secondary and higher education cess ( @1% on Income Tax and surcharge i. However.
which makes it an ideal investment avenue.14 ADVANTAGES OF MUTUAL FUNDS Investing in mutual has various benefits. Following are some of the primary benefits: INVESTORS HAVE ACCESS TO PROFESSIONAL INVESTMENT MANAGEMENT GREATER DIVERSIFICATION LOW COST CONVENIENCE AND FLEXIBILITY LIQUIDITY TRANSPARENCY VARIETY ECONOMIES OF SCALE SIMPLICITY LESS RISK CHOICE OF SCHEMES SAFETY DISADVANTAGES OF MUTUAL FUNDS But mutual funds also have features that some investors might view as disadvantages. such as: PROFESSIONAL MANAGEMENT COSTFUL DILUTION TAXES LACK OF CONTROL PRICE UNCERTAINTY COSTS DESPITE NEGATIVE RETURNS COSTS CONTROL NOT IN THE HANDS OF AN INVESTOR NO CUSTOMIZED PORTFOLIOS .
SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. The basic objectives of the Board were identified as: To protect the interests of investors in securities. These governing make rules and to make it‘s functioning smooth so that care can be taken of all the parties involve in the industry. Custodian.15 DIFFICULTY IN SELECTING A SUITABLE FUND SCHEME - CHAPTER II.REGULATORY BODIES Mutual funds in India are regulated by two following regulatory bodies. To protect the interest of the investors. To regulate the securities market and For matters connected therewith or incidental thereto. PREAMBLE [ACT NO. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time. To promote the development of Securities Market. registered with SEBI. and was subsequently upgraded as a fully autonomous body (a statutory Board) in the year 1992 with the passing of the Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992. SEBI formulates policies and regulates the mutual funds. 15 OF 1992] The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as: . holds the securities of various schemes of the fund in its custody • SECURITIES AND EXCHANGE BOARD OF INDIA • ASSOCIATION OF MUTUAL FUNDS IN INDIA SECURITIES AND EXCHANGE BOARD OF INDIA ESTABLISHMENT In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government of India through an executive resolution.
It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time THE SEBI (MUTUAL FUNDS) REGULATIONS. 1996: The revised regulations embodied far reaching changes in the regulation and functioning of mutual funds. The revised regulations provide for: enhanced level of investor protection empowerment of investors stringent disclosure norms in the offer documents. and to regulate the securities market and for matters connected therewith or incidental thereto” ROLE OF SEBI IN MUTUAL FUND INDUSTRY To protect the interest of the investors.AMFI is an apex body of all Asset Management Companies (AMC) which has been registered with SEBI. Balarama . 1995. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August. so that investors are better informed.. better aware of risks and rewards standardization of norms for valuation of assets.16 “…. a need for mutual fund association in India was generated to function as a non-profit organization. computation of Net Asset Values (NAVs) of schemes of mutual funds and accounting standards and policies complete freedom to asset management companies to structure schemes in accordance with investor preferences removal of quantitative restrictions on investment by mutual funds and replacement by prudential supervision replacement of vetting of offer documents by filing guaranteed return schemes by mutual funds permitted provided returns including capital were guaranteed indication of expected returns based on hypothetical portfolio permitted better governance of mutual funds through higher responsibilities and empowerment of trustees as front-line regulators of mutual funds closer scrutiny through off site and on site inspections code of ethics for asset management companies ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI) With the increase in mutual fund players in India. better advised.to protect the interests of investors in securities and to promote the development of. Till date all the AMCs are that have launched mutual fund schemes are its members ASSOCIATION OF MUTUAL FUNDS IN INDIA 706-708. SEBI formulates policies and regulates the mutual funds.
Net profit was computed to be Rs. originally named Patiala State Bank. PRODUCTS AND SERVICES E-Products (ATM card and International Card) Personal Banking and Internet Banking Agriculture and Rural Banking NRI Services SME & Corporate Banking . Delhi and Chandigarh. BRANCHES AND ATM SERVICES The business of State Bank of Patiala has grown manifold since its establishment. spread across the major cities of India. the majority of branches are located in its home State. Tel No.com/ CHAPTER III. out of which. State Bank of Patiala (SBP). The first branch of Patiala State Bank was in Chowk Fort. There are 766 branches of the bank distributed all over India. Haryana. The bank was bought under the Reserve Bank of India (RBI) in 1948. SBP was founded by Bhupinder Singh. and currently an associate bank of the State Bank of India. Patiala State Bank was set up with a view to catalyze the growth of trade.35 crores.amfiindia. The Bank provides easy access to money to its customers through its ATMs spread over 16 states of India. Patiala. agriculture. : 26590382 / 26590206 / 26590243 / 26590246 FAX No. 3507. There are as many as 750 branches of SBP. Rajasthan.53 crores.366. and industry. Maharaja of the princely state of Patiala of Undivided India. Himachal Pradesh.17 Bandra-Kurla Complex Bandra (East) Mumbai . was founded on 17 November 1917.400 051.CORPORATE PROFILE STATE BANK OF PATIALA State Bank of Patiala is an associate bank of State Bank of India. Our bank has now added a golden chapter to its history by fully computerizing all its branches on 24th January 2003 and became the first fully computerized Public Sector Bank in the country. Total income disclosed by the bank in the Financial Year 2006 to 2007 is Rs. : 26590235 / 26590209 AMFI Website: http://www. Recent records say that State Bank of Patiala is networked by its 830 service outlets. Jammu & Kashmir.
Schemes of the Mutual fund have consistently outperformed benchmark indices and have emerged as the preferred investment for over 5. Head office the mall. Cuffe Parade.400 005.4 millions of investors and HNI’s. 2215078 SBI MUTUAL FUND SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an enviable track record in judicious investments and consistent wealth creation. Maker Tower 'E'. Today.18 Govt.441 crores of assets and has a diverse profile of investors actively parking their investments across 38 active schemes State Bank of India Mutual Funds is headed by Mr. The fund traces its lineage to SBI . In the process it has rewarded its investors handsomely with consistent returns. Business CONTACT State Bank of Patiala. The institution has grown immensely since its inception and today it is India's largest bank. In twenty years of operation.co. State Bank of India Mutual Funds Corporate Office is located at: SBI Funds Management Private Limited 191. Syed Shahabuddin.in Phone-0175-2304943. India. the fund manages over Rs. patronized by over 80% of the top corporate houses of the country. One of the world’s leading fund management companies that manages over US$ 500 Billion worldwide. SBI MUTUAL FUND IS A JOINT VENTURE BETWEEN THE STATE BANK OF INDIA AND SOCIÉTÉ GÉNÉRALE ASSET MANAGEMENT. Mumbai . 34.India’s largest banking enterprise.sbp. Managing Director. KEY PERSONNEL OF SBI MUTUAL FUND . the fund has launched 38 schemes and successfully redeemed fifteen of them. Patiala-147001 Punjab India Website:www.
Gupta Mr. • Magnum COMMA Fund • Magnum Equity Fund • Magnum Global Fund • Magnum Index Fund • Magnum MidCap Fund • Magnum Multicap Fund • Magnum Multiplier Plus 1993 • Magnum NRI Investment Fund . Achal K.IT Fund MSFU . Srinivas Jain Mr. Vinaya Datar MD & CEO Chief Operating Officer Dy. R. Navneet Munot Ms. Ashwini K Jain Mr. C A Santosh Mr. S.Contra Fund MSFU . Aparna Nirgude Mr. However they are also exposed to the volatility and attendant risks of stock markets and hence should be chosen only by such investors who have high risk taking capacities and are willing to think long term. Parijat Agrawal Ms.FlexiAsset Plan • Magnum Sector Funds Umbrella MSFU .Emerging Businesses Fund MSFU .Customer Service Chief Investment Officer Chief Risk Officer Chief Marketing Officer Head – Fixed Income Company Secretary & Compliance Officer SCHEMES IN SBI MUTUAL FUND EQUITY SCHEMES The investments of these schemes will predominantly be in the stock markets and endeavor will be to provide investors the opportunity to benefit from the higher returns which stock markets can provide. Didier Turpin Mr. Chief Executive Officer Chief Manager .19 Mr.FMCG Fund • SBI Arbitrage Opportunities Fund • SBI Blue chip Fund .Pharma Fund MSFU .
Government Securities and Money Market instruments.SERIES I DEBT SCHEMES Debt Funds invest only in debt instruments such as Corporate Bonds.20 • • • • SBI Infrastructure Fund .Series I SBI Magnum Taxgain Scheme 1993 SBI ONE India Fund SBI TAX ADVANTAGE FUND .Series I SBI Debt Fund Series SDFS 15 Months Fund SDFS 90 Days Fund SDFS 13 Months Fund SDFS 18 Months Fund SDFS 24 Months Fund SDFS 30 DAYS SDFS 30 DAYS SDFS 370 days SDFS 60 Days Fund SDFS 180 Days Fund SDFS 370 days SDFS 30 DAYS SBI Premier Liquid Fund • . Such investments are advisable for the risk-averse investor and as a part of the investment portfolio for other investors. The expected returns from debt funds would be lower. • • • • • • • • • • • • Magnum Children’s Benefit Plan Magnum Gilt Fund Magnum Gilt Fund (Long Term) Magnum Gilt Fund (Short Term) Magnum Income Fund Magnum Income Plus Fund Magnum Income Plus Fund (Saving Plan) Magnum Income Plus Fund (Investment Plan) Magnum Insta Cash Fund Magnum InstaCash Fund -Liquid Floater Plan Magnum Institutional Income Fund Magnum Monthly Income Plan Magnum Monthly Income Plan Floater Magnum NRI Investment Fund SBI Capital Protection Oriented Fund .
The Lipper Award (Year 2005-2006) CNBC TV 18 Crisil Mutual Fund of the Year Award 2007 and 5 Awards for our schemes. • Magnum Balanced Fund EXCHANGE TRADED SCHEME • SBI Gold Exchange Traded Scheme AWARDS SBI Mutual Fund (SBIMF) has been the proud recipient of the following awards ICRA Online Award .Ultra Short Term Fund SBI Short Horizon Fund . 2009 .8 times. but is looking for higher returns than those provided by debt funds.Short Term Fund BALANCED SCHEMES Magnum Balanced Fund invests in a mix of equity and debt investments. They provide a good investment opportunity to investors who do not wish to be completely exposed to equity markets. CNBC TV 18 Crisil Award 2006 . but at the same time provide commensurately lower returns. Hence they are less risky than equity funds.21 • SBI Short Horizon Fund SBI Short Horizon Fund .4 Awards.
22 2008 2007 .
23 2006 .
And moreover only those ELSS schemes of various AMC’ s are taken in this study which are among top 7 in The AUM as on 30 June 2009 and which are having a track record of 5 years. He would have to make intelligent decision that which funds to choose so that he . IMPORTANCE OF THE STUDY The investor would naturally be interested in knowing that which scheme is better for him.PERFORMANCE EVALUATION OF ELSS FUNDS IN INDIA OBJECTIVE OF THE STUDY The objective of the study is to help the investors to find out the best ELSS schemes in India on the basis of various risk adjusted measures and returns so that each and every aspect is studied about ELSS schemes and the investor should invest in the best one.24 CHAPTER IV . SCOPE OF THE STUDY Scope of the study is limited only to ELSS schemes.
STANDARD DEVIATION Standard Deviation allows you to evaluate the volatility of the funds. The Standard Deviation of a fund measures this risk by measuring the degree to which the fund fluctuates in relation to its mean return. RESEARCH METHODOLOGY: DATA COLLECTION As because of the lack of time. SHARPE RATIO Sharpe ratio indicates the quality of returns. . A beta that is greater than one means that the fund is more volatile than the benchmark. It measures fund performance in terms of total risk. the average return of a fund over a period of time. The risk free rate of return is the 91-day t-bill rate.25 can get a good return on his investment. So to help the investor in choosing the right fund by evaluating all the criteria is the motto of this study. It basically indicates the level of volatility associated with the fund as compared to the benchmark. RISK ADJUSTED MEASURES ARE: BETA Beta is a fairly commonly used measure of risk. The Sharpe ratio measures the return of a mutual fund compared to the risk free rate of return. only secondary data is taken for this study and on the basis of this data all evaluation work has been done. It shows the return given by fund per unit of risk it takes. while a beta of less than one means that the fund is less volatile than the index. TOOLS FOR EVALUATING PERFORMANCE The tools which are taken for evaluating the performance are risk adjusted measures and returns of the ELSS schemes.
where 0 represents no correlation and 1 represents full correlation. R-squared values range between 0 and 1.26 R. ELSS schemes have a three-year lock-in period. an R-squared value that is less than 0. and .SQUARED R squared that measures the correlation. An alpha of 1. given its beta. up to maximum Rs100. On the other hand. ALPHA Alpha is the difference between the returns one would expect from a fund. Secondly only those schemes of various AMC’S are taken which are among top 7 in the AUM as on 30 June 2009.The investor also has the option to choose between growth and dividend options. 000 in a financial year. 3. According to the new Income Tax Act. Returns of 1 year are in absolute returns produced by the fund in the last one year whereas the returns for the 2. The R-squared of a fund advises investor if the beta of a mutual fund is measured against an appropriate benchmark. and the return it actually produces. many other ELSS funds are not evaluated. which works to the investors’ benefit as the fund manager can have a portfolio of stocks that can outperform over a period of time. Because of it. the beta of the fund should be trusted. If a fund’s beta has an R-squared value that is close to 1. RETURNS & AUM ELSS Schemes are also been evaluated on the basis of returns given by the schemes over the years. LIMITATIONS OF THE STUDY As because of lack of time I have not calculated the various risk adjusted measures and returns of the various ELSS schemes. EQUITY LINKED SAVING SCHEME An equity-linked saving scheme (ELSS) is a great investment option that offers the twin benefits of tax saving and capital gains.0 means the fund produces a return 1% lower. Equity Linked Saving Scheme is an open-ended equity growth scheme that is offered by mutual funds in line with existing ELSS guidelines . Sec 80C investments in ELSS are allowed as deduction from the total income. Rather I have taken the secondary data so this study relies on the accuracy of data. An alpha of -1. and 5 year are on the CAGR basis.5 indicates that the beta is not particularly useful because the fund is being compared against an inappropriate benchmark.0 means the fund produces a return 1% higher than its beta would predict.
ELSS offers the benefits of tax saving and capital gains.000 to claim an income tax rebate of 20 % FEATURES . The investments under this type of scheme are subject to a lock-in period of 3 years and. one can invest small amount of Rs 500 in ELSS every month. The performance and the ability of the stocks in the long run can never be beaten with any other financial instruments. The units can be easily transferred by filling out a transfer form. On the completion of the three years the investor gets the option to tender the units for repurchase. or assigned after the lock in period of three years.500 and multiples of it. The funds will also ensure that the funds of the plan are invested to the extent of 80% in the specified securities.27 systematic investment plans (SIP). The ELSS beats mostly all the equity based mutual fund schemes. WHY SHOULD ONE INVEST ELSS? • • • • Lock-in for three years helps in staying invested over a long period Investments in equity over a long-term delivers better returns Tax savings and high returns Through SIPs. The minimum investment that can be made on ELSS is Rs.000. In short we can say Equity Linked Saving Scheme is an open-ended equity growth scheme that is offered by mutual funds in line with existing ELSS guidelines. Individuals. pledged. Hindu Undivided Families (HUFs) and companies. The funds should make sure that the investments should be made within a period of six months from the date of closure of the plan every year. 1. Nomination facility is available with ELSS. The dividends earned in this scheme ELSS are tax free. After the completion of three years with a fund they should make sure that they hold 20% of net assets of the plan in short term money instruments and others which would enable them to redeem the investments for those unit holders who wish to tender the units for repurchase. From the date of allotment the fund should be hold for three years. A maximum investment of Rs 10. The fund should be allotted to the investors to those who have applied with the prescribed form before March 31 every year. are allowed the benefit of income deduction up to Rs. The pending investments would be utilized in short term money markets or other liquid instruments. ELSS is one of the best options and an excellent mode of investments. ELSS is the best option for investors who are looking with a time frame of 3-5 years. The short term weakness in the market will glide down and will earn the investor with better returns in the long run. as per the Finance Act 2005.00. ELSS units are transferable. The fund will be terminated at the close of the tenth year from the year of allotment of units. In the case with the death of the investor the nominee will be able to withdraw the investment only after a period of one year from the allotment date. The returns at the maturity period are also tax free. A statement of accounts or certificate of investment will be acknowledged by the fund to the investor.
the units can be sold anytime after the initial lock-in period of three years. ELSSs offer under section 88 tax rebate on investments up to Rs 10. Equity funds (schemes that invest 50 per cent of their funds in equity) are also exempt from dividend tax. In the case of closed-end schemes. depending on whether or not you claim indexation benefits. especially in the case of private mutual funds MINUSES • • High risk Difficult to choose the right fund (But not if you use the services of the Matchmaker! . It gives tax benefits Gives the flexibility to invest small amounts through a Systematic Investment Plan (SIP) TAX BENEFITS: Dividends from mutual funds are fully exempt from income tax under Section 10(33). the minimum lock-in period is three years. PLUSES • • • • • Possibility of high returns Lock-in period of only three years Easy transfer Low tax incidence (10 per cent) on redemption Efficient service. the units can be sold only on the due date specified. to claim tax rebate under Section 88.28 Open-ended mutual funds have no maturity period.000 in a financial year. ADVANTAGES OF ELSS • • • • • • Lock-in for three years prevents unnecessary withdrawals and allows your money to grow over a period of time Investments in equity over a long-term delivers better returns than that of other savings instruments and similar to other equity schemes Tax savings and high returns Long term investment in equities gives better returns than any other investment instrument. at 10 per cent or 20 per cent. In the case of open-ended schemes. However. The difference between the selling price and the cost price is taxable as capital gains in the year of sale.
(I have deducted the 30.29 COMPARATIVE ANALYSIS OF ELSS AND OTHER TAX SAVING INSTRUMENTS PARTICULARS PPF NSC ELSS ULIP Lock-in Period Min Investment Max Investment qualifying u/s 80C Risk Level Returns 15 Rs.100 3 Rs.15.087/- Let us assume your equity investment grows at the rate of 15% per annum.32. It also has the potential to give you superior returns over other tax saving instruments. (30% tax taxbracket.100000 Rs.000/slab) Net amount Invested = Rs.70000 Rs.00.000/1.000 because you get it up front after your investment as income tax benefit and you effectively only the the the end end end of of of the the the Rs. ELSS has the shortest lock-in period.100000 Rs. 1. # Taxable but accrued interest available for 80C benefits until 5 years Compared to all other tax planning schemes available today. . 70. First Second Third year year year = = = 70. = 30.A 6 Rs.500 3 May differ from plan to plan Rs.000/.500 * Taxability of Tax free Taxable # Interest/Dividend Compounded annually ** Compounded half yearly.52. 1 lakh this year in an ELSS scheme and you are in the highest Invested Income back invested Investment Investment Investment value value value at at at Tax Amount saved = Rs. ELSS IS BETTER OPTION THAN OTHER TAX SAVING INSTRUMENTS THIS CAN BE EXPLAINED WITH THE FOLLOWING ILLUSTRATION Lets assume you invest Rs.250/1.100000 Low 8%* Low 8%** MediumHigh Market linked Tax free Mediumhigh Market linked N.000) 1.000 Rs.
tax saved) Profit percentage = 117% (For 3 years together) SIP – SYSTEMATIC INVESTMENT PLAN ROUTE FOR ELSS One of the best ways to invest in ELSS is to save and invest on a regular basis.000/20).(You invested only Rs. In the current volatile market. Investing a fixed sum regularly means averaging out the cost. starting an SIP would be beneficial to an investor as he can take the benefit of highs as well as the lows and can average out his purchases. as the investor gets fewer units when the price goes up and more when the price goes down. the investor will have bought 50 units (1. 82. SIP helps an investor take advantage of the fluctuations in the stock markets by rupee cost averaging. If Rs 1.087/.30 Assuming you encashed your investment at the end of the 3rd year you will get Rs. a lot of investors enter the market.52. So. it's very important to continue with the SIP even when the markets are falling. the investor ends up buying high and selling low. An SIP ensures that an investor buys more when the markets are falling and less when it's peaking. 70000 effectively remember the RETURNS % PER YEAR = 39% A Returns of 39% per annum is something we cannot expect in any other form of investment. But at a price of Rs 10 per unit. The minimum investment in an ELSS through the SIP route can be as small as Rs 500. 1. Thus ELSS schemes make one of the best investment options. it's psychologically difficult for an investor to enter. .000 is invested a month at a price of Rs 20 a unit. Due to this. On the other hand. But if an investor backs out when the markets are falling. when the market is at a peak. he won't be buying and this will not get him to average his price. A Systematic Investment Plan (SIP) in ELSS gives the best combination of investments available to investors. Rupee cost averaging can be explained with the help of the following example.087/Profit you realized = Rs. he will have bought 100 units (1000/10). the primary reason behind the success of investing through the SIP route. When markets are falling.
which leads to wealth accumulation. So quite naturally the success of beta is heavily dependent on correlation between a fund and its benchmark. backed by dedicated investment research team You can purchase scheme units at a lesser cost as most of the Asset Management Companies (AMCs) charge less “entry load” (for some scheme even NIL) for SIP investments. Since you invest regularly. It basically indicates the level of volatility associated with the fund as compared to the benchmark. BETA B. it makes you disciplined in your savings. Since a fixed amount is invested more units are purchased when a scheme NAV is low and fewer units when the NAV is high. Thus if the fund’s portfolio doesn’t have a relation with the benchmark index then a .PERFORMANCE EVALUATION OF ELSS FUNDS ON THE BASIS OF STANDARD DEVIATION Beta is a fairly commonly used measure of risk. As a result.31 WHY SIP? Mutual Fund investments are managed by qualified and experienced professionals who have the expertise of investment techniques. as compared to normal purchases in the scheme. SIPs make the volatility in the market work in your favour. Thus the average cost of your investment is often reduced. ALPHAS A. STANDARD DEVIATION C. over a period of time these market fluctuations are generally averaged. SHARPE RATIO D. PERFORMANCE EVALUATION OF ELSS FUNDS ON THE BASIS OF RISK ADJUSTED MEASURES:A. R-SQUARED E.
the average return of a fund over a period of time. The Standard Deviations for this fund would then be zero because the fund’s return in any given year does not differ formats four-tear mean of 3%.The fund Will also exhibit a high standard deviation because each year the return of the fund differs from the mean . NAME OF ELSS SCHEME BIRLA SUN LIFE TAX RELIEF 96 BIRLA TAX PLAN HDFC TAX SAVER HDFC LT ADVANTAGE FUND ICICI PRUDENTIAL TAX PLAN LIC MF TAX PLAN SBI MAGNUM TAXGAIN UTI EQUITY TAX SAVINGS BETA 1.00 1. while a beta of less than one means that the fund is less volatile than the index. If. the funds that have betas less than 1 are a good choice because they would be expected to decline less in value than the index. The Standard Deviation of a fund measures this risk by measuring the degree to which the fund fluctuates in relation to its mean return. for example. On the other hand. a fund that in each of the last four years returned.COM) INTERPRETATION:According to beta the best ELSS fund is HDFC LT ADVANTAGE FUND SBI MAGNUM TAX GAIN is at 4th place and at last is BIRLA SUN LIFE TAX RELIEF 96 B.15 0. for example.03 in relation to the BSE Sensex. A security that is volatile is also considered higher risk because its performance may change quickly in either direction at any moment.30%. a fund has a beta of 1. Therefore. would have a mean. Put differently it allows you to measure the consistency of he returns.PERFORMANCE EVALUATION OF ELSS FUNDS ON THE BASIS OF STANDARD DEVIATION Standard Deviation allows you to evaluate the volatility of the funds.89 RANKING 7 4 3 1 5 6 4 2 (SOURCE: WWW.32 beta would be grossly inadequate. Investors expecting the market to be bullish may choose funds exhibiting high betas. of 3%. A beta that is greater than one means that the fund is more volatile than the benchmark.2% and 30% will have mean return of 11%.5%.02 0. the fund has been moving 3% more than the index.88 1. A fund with a beta very close to 1 means the fund’s performance closely matches the index or benchmark. If the investor expects the market to be bearish in the near future. if the BSE Sensex increased 10% the fund would be expected to increase 10.96 0. Volatility is often a direct indicator of the risk taken by the fund. 17%. which increase investors’ chances of beating the market.VALUERESEARCHONLINE.94 0. A fund that has a consistent four-year return of 3%.96 0. or average.
Sharpe ratio indicates the quality of returns.VALUERESEARCHONLINE. the better.PERFORMANCE EVALUATION OF ELSS FUNDS ON THE BASIS OF SHARPE RATIO William Sharpe created a metric for fund performance. A positive Sharpe ratio means the fund did better on a risk adjusted basis than the 91-day t-bill rate. Excess return is defined as the actual return of the fund less risk free rate. The Sharpe ratio measures the return of a mutual fund compared to the risk free rate of return.89 32. This should be similar to money market returns. The risk free rate of return is the 91-day t-bill rate.38 31. better the fund.86 33.55 34. Higher the Sharpe ratio. It shows the return given by fund per unit of risk it takes.94. SBI MAGNUM TAX GAIN is at 4th place and at last is BIRLA SUN LIFE TAX RELIEF 96 C. The Sharpe ratio tells you about history but it does not tell you anything about the future. The recent range of Sharpe Ratios for global equity funds went from as low a – 1. the higher the Sharpe ratio.47 36. It measures fund performance in terms of total risk. Often this ratio is used to determine if a mutual fund is able to beat the money market. This measure is based on the comparison of “excess return” per unit of risk. NAME OF ELSS SCHEME STANDAR D DEVIATIO N 41. .COM) INTERPRETATION:According to Standard Deviation the best ELSS fund is UTI EQUITY TAX SAVINGS. The Trimark Select Growth Fund has a Sharpe ratio over the last 5 years of 0. In other words.57.53 37.73 34.11 to a high of 0.33 return This fund is therefore more risky because it fluctuates widely between negative and positive returns within a short period.96 RANKING BIRLA SUN LIFE TAX RELIEF 96 BIRLA TAX PLAN HDFC TAX SAVER HDFC LT ADVANTAGE FUND ICICI PRUDENTIAL TAX PLAN LIC MF TAX PLAN SBI MAGNUM TAXGAIN UTI EQUITY TAX SAVINGS 8 5 3 2 7 6 4 1 (SOURCE: WWW. which enables the ranking of funds on risk-adjusted return basis. risk being measured by standard deviation. Just because a fund has a positive Sharpe ratio for the last 5 years does not mean it will outperform money market instruments for the next 5 years.
the degree to which a fund’s volatility is a result of the day-to-day fluctuations experienced by the overall market.35 0.23 0. If a fund’s beta has an R-squared value that is close to 1. more specifically. The R-squared of a fund advises investor if the beta of a mutual fund is measured against an appropriate benchmark.17 RANKING 2 4 3 5 6 8 1 7 (SOURCE: WWW.VALUERESEARCHONLINE. you should also consider another statistic-R squared that measures the correlation. an R-squared value that is less than 0. the beta of the fund should be trusted. where 0 represents no correlation and 1 represents full correlation.COM) INTERPRETATION: According to Sharpe Ratio the best ELSS fund is SBI MAGNUM TAX GAIN and at last place is LIC MF TAX PLAN D. Rsquared describes the level of association between the fund’s volatility and market risk. Thus whilst considering the beta of any security.PERFORMANCE EVALUATION OF ELSS FUNDS ON THE BASIS OF R-SQUARED The success of Beta is dependent on the correlation of a fund to its benchmark or its index. On the other hand. Measuring the correlation of a fund’s movements to that of an index.36 0.25 0.20 0.94 RANKING 3 .5 indicates that the beta is not particularly useful because the fund is being compared against an inappropriate benchmark NAME OF ELSS SCHEME BIRLA SUN LIFE TAX RELIEF 96 R. R-squared values range between 0 and 1.34 NAME OF ELSS SCHEME BIRLA SUN LIFE TAX RELIEF 96 BIRLA TAX PLAN HDFC TAX SAVER HDFC LT ADVANTAGE FUND ICICI PRUDENTIAL TAX PLAN LIC MF TAX PLAN SBI MAGNUM TAXGAIN UTI EQUITY TAX SAVINGS SHARPE RATIO 0.19 0.SQUARED 0.14 0.
It allows you to ascertain if the fund’s return outperformed the market. and the return it actually produces.Squared the best ELSS fund are three funds i. E. given its beta. Once the beta of a fund is known.VALUERESEARCHONLINE. If a fund returns more than its beta then it has a positive alpha and if it return less. then it has a negative alpha. An alpha of -1.96 4 2 5 6 1 1 1 (SOURCE: WWW. alpha compares the fund’s performance to that of the benchmark’s risk-adjusted returns.95 0. the greater the returns it must generate in order to produce a high alpha.87 0.0 means the fund produces a return 1% lower. The higher a fund’s risk level.96 0. SBI MAGNUM TAX GAIN. Normally one would like to see a positive alpha for all of the funds you own. The accuracy of an alpha rating depends on two factors: .90 0.e.93 0.COM) INTERPRETATION:According to R. LIC MF TAX PLAN. So the limitations that apply to beta would also apply to alpha. Alpha can be used to directly measure the value added or subtracted by a fund’s manager. PERFORMANCE EVALUATION OF ELSS FUNDS ON THE BASIS OF ALPHAS Alpha is the difference between the returns one would expect from a fund.35 BIRLA TAX PLAN HDFC TAX SAVER HDFC LT ADVANTAGE FUND ICICI PRUDENTIAL TAX PLAN LIC MF TAX PLAN SBI MAGNUM TAXGAIN UTI EQUITY TAX SAVINGS 0. But a high alpha does not means a fund is doing a bad job nor is the vice versa true. An alpha of 1.96 0. UTI EQUITY TAX SAVINGS and at last is ICICI PRUDENTIAL TAX PLAN. Because alpha measures the out-performance relative to beta. given the same amount of risk.0 means the fund produces a return 1% higher than its beta would predict.
40 -6.66 1.COM) ALPHA 1.VALUERESEARCHONLINE.54 -4. 5 YEAR RETURN E. 1 YEAR RETURN B.18 -2.36 • • The assumption that market risk.95 -2. 2 YEAR RETURN C. is the only risk measure necessary.82 RANKING 2 4 3 5 6 8 1 7 INTERPRETATION: According to ALPHAS the best ELSS fund is SBI MAGNUM TAX GAIN and at last place is LIC MF TAX PLAN PERFORMANCE EVALUATION OF ELSS FUNDS ON THE BASIS OF RETURNS & AUM A. PERFORMANCE EVALUATION OF ELSS FUNDS ON THE BASIS OF 1 YEAR RETURN .20 -4.26 -3. The strength of the fund’s correlation to a chosen benchmark such as the BSE Sensex or the Nifty NAME OF ELSS SCHEME BIRLA SUN LIFE TAX RELIEF 96 BIRLA TAX PLAN HDFC TAX SAVER HDFC LT ADVANTAGE FUND ICICI PRUDENTIAL TAX PLAN LIC MF TAX PLAN SBI MAGNUM TAXGAIN UTI EQUITY TAX SAVINGS (SOURCE: WWW. AUM A. 3 YEAR RETURN D. as measured by beta.
78 -2.97 RANKING 3 7 1 2 5 6 4 8 *THE RETURNS WHICH ARE SHOWN IN THE TABLE IS ABSOLUTE IN TERMS OF LAST ONE YEAR (SOURCE: WWW.37 NAME OF ELSS SCHEME BIRLA SUN LIFE TAX RELIEF 96 BIRLA TAX PLAN HDFC TAX SAVER HDFC LT ADVANTAGE FUND ICICI PRUDENTIAL TAX PLAN LIC MF TAX PLAN SBI MAGNUM TAXGAIN UTI EQUITY TAX SAVINGS RETURNS (%) 10.COM) INTERPRETATION:According to 1 YEAR RETURNS the best ELSS fund is HDFC TAX SAVER.VALUERESEARCHONLINE.08 6.63 1.68 0.VALUERESEARCHONLINE.95 9.86 RANKING 6 8 1 4 2 7 3 5 *THE RETURNS WHICH ARE SHOWN IN THE TABLE ARE NOT ABSOLUTE THEY ARE GIVEN ACCORDING TO CAGR (SOURCE: WWW.08 -1. SBI MAGNUM TAX GAIN is at 4th place and at last is UTI EQUITY TAX SAVINGS B.42 11.18 3.07 18.71 -0.COM) .PERFORMANCE EVALUATION OF ELSS FUNDS ON THE BASIS OF 2 YEAR RETURN NAME OF ELSS SCHEME BIRLA SUN LIFE TAX RELIEF 96 BIRLA TAX PLAN HDFC TAX SAVER HDFC LT ADVANTAGE FUND ICICI PRUDENTIAL TAX PLAN LIC MF TAX PLAN SBI MAGNUM TAXGAIN UTI EQUITY TAX SAVINGS RETURNS (%) -4.13 -7.24 -4.02 7.51 -0.
48 8.36 23.58 23.PERFORMANCE EVALUATION OF ELSS FUNDS ON THE BASIS OF 5 YEAR RETURNS NAME OF ELSS SCHEME BIRLA SUN LIFE TAX RELIEF 96 BIRLA TAX PLAN HDFC TAX SAVER HDFC LT ADVANTAGE FUND ICICI PRUDENTIAL TAX PLAN LIC MF TAX PLAN SBI MAGNUM TAXGAIN UTI EQUITY TAX SAVINGS RETURNS( %) 21.30 9.23 30.66 27.PERFORMANCE EVALUATION OF ELSS FUNDS ON THE BASIS OF 3 YEAR RETURNS NAME OF ELSS SCHEME BIRLA SUN LIFE TAX RELIEF 96 BIRLA TAX PLAN HDFC TAX SAVER HDFC LT ADVANTAGE FUND ICICI PRUDENTIAL TAX PLAN LIC MF TAX PLAN SBI MAGNUM TAXGAIN UTI EQUITY TAX SAVINGS RETURNS( %) 14.81 14.51 8.38 INTERPRETATION:According to 2 year returns basis the best ELSS fund is HDFC TAX SAVER.VALUERESEARCHONLINE.09 6.95 18.24 RANKING 6 5 2 4 3 8 1 7 *THE RETURNS WHICH ARE SHOWN IN THE TABLE ARE NOT ABSOLUTE THEY ARE GIVEN ACCORDING TO CAGR . C.76 RANKING 2 5 3 4 7 8 1 6 *THE RETURNS WHICH ARE SHOWN IN THE TABLE ARE NOT ABSOLUTE THEY ARE GIVEN ACCORDING TO CAGR (SOURCE: WWW.15 10.70 12.COM) INTERPRETATION:According to 3 YEAR RETURNS the best ELSS fund is SBI MAGNUM TAX GAIN and at last place is LIC MF TAX PLAN D. SBI MAGNUM TAX GAIN is at 3rd place at last is BIRLA TAX PLAN.27 37.01 12.
20% DEBT AND MONEY MARKET SECURITIES MARCH 1996 AJAY GARG OBJECTIVE LAUNCH DATE FUND MANAGER .COM) INTERPRETATION:According to AUM the best ELSS fund is SBI MAGNUM TAX GAIN and at last place is LIC MF TAX PLAN.ANALYSIS AND FINDINGS • BIRLA SUN LIFE TAX RELIEF 96 AMC BIRLA SUN LIFE ASSET MANAGEMENT COMPANY LTD AN OPEN-ENDED EQUITY LINKED SAVINGS SCHEME (ELSS) WITH THE OBJECTIVE OF LONG TERM GROWTH OF CAPITAL THROUGH A PORTFOLIO WITH A TARGET ALLOCATION OF 80% EQUITY.9 140.3 1566.9 759.PERFORMANCE EVALUATION OF ELSS FUNDS ON THE BASIS OF AUM NAME OF ELSS SCHEME BIRLA SUN LIFE TAX RELIEF 96 BIRLA TAX PLAN HDFC TAX SAVER HDFC LT ADVANTAGE FUND ICICI PRUDENTIAL TAX PLAN LIC MF TAX PLAN SBI MAGNUM TAXGAIN UTI EQUITY TAX SAVINGS AUM ( RS IN CRORES) 888.4 397.0 798.8 4167.39 (SOURCE: VALUERESEARCHONLINE.9 40. CHAPTER V.COM) INTERPRETATION:According to 5 year returns the best ELSS Fund is SBI MAGNUM TAX GAIN and at last place is LIC MF TAX PLAN E.9 RANKING 3 7 2 5 4 8 1 6 *THE RETURNS WHICH ARE SHOWN IN THE TABLE ARE NOT ABSOLUTE THEY ARE GIVEN ACCORDING TO CAGR (SOURCE: WWW.VALUERESEARCHONLINE.
18 % 2 YEAR -4.94 ALPHAS 1.38 10.23 17.30 % NET ASSETS 500 2.58 % .46 10.43 4.91 4. 888.40 MIN INVESTMENT AMOUNT ENTRY LOAD EXIT LOAD NAME OF HOLDING TOP 5 HODINGS RELIANCE INDUSTRIES LARSEN & TOUBRO RELIANCE INFRASTRUCTURE INFOSYS TECHNOLOGIES JINDAL STEEL & POWER TOP 5 SECTORS SECTORS FINANCIAL ENERGY METALS ENGINEERING TECHNOLOGY BENCHMARK NET ASSETS AS ON 30 JUNE 2009 BSE 200 RS.73 SHARPE RATIO 0.18 7.84 6.25% FOR INVESTMENTS BELOW RS 5 CRORE NIL RISK ADJUSTED MEASURES (As on 30 JUNE 2009) BETA 1.73 4.18 RETURNS (AS ON 30 JUNE 2009) 1 YEAR 10.9 CRORE 6.30 % 5 YEAR 21.13 % 3 YEAR 14.34 % NET ASSET 24.15 STANDARD DEVIATION 41.35 RSQUARED 0.
25% FOR INVESTMENTS BELOW RS 5 CRORE NIL LAUNCH DATE FUND MANAGER MIN INVESTMENT AMOUNT ENTRY LOAD EXIT LOAD NAME OF HOLDING TOP 5 HODINGS RELIANCE INDUSTRIES RELIANCE PETROLEUM INFOSYS TECHNOLOGIES INDIAN OIL CORP.80 8.74 % NET ASSET 20.51 10.95 8.56 9. JAI PRAKASH ASSOCIATES TOP 5 SECTORS SECTORS ENERGY SERVICES METALS CONSTRUCTION ENGINEERING BENCHMARK NET ASSETS AS ON 30 JUNE 2009 SENSEX RS.96 3.00 3. 140.67 % NET ASSETS RISK ADJUSTED MEASURES (As on 30 JUNE 2009) .41 • BIRLA TAX PLAN AMC OBJECTIVE BIRLA SUN LIFE ASSET MANAGEMENT COMPANY LTD AN OPEN-ENDED EQUITY LINKED SAVINGS SCHEME (ELSS) WITH THE OBJECTIVE TO ACHIEVE LONG-TERM GROWTH OF CAPITAL ALONG WITH INCOME TAX RELIEF FOR INVESTMENT FEBRUARY 1999 SANJAY CHAWLA 500 2.94 3.3 CRORE 6.95 3.
42 BETA 0.70 % 5 YEAR 23.95 RETURNS (As on 30 JUNE 2009) 1 YEAR 3.25% FOR INVESTMENTS BELOW RS 5 CRORE LAUNCH DATE FUND MANAGER MIN INVESTMENT AMOUNT ENTRY LOAD EXIT LOAD TOP 5 HOLDINGS NIL NAME OF HOLDING ICICI BANK RELIANCE INDUSTRIES STATE BANK OF INDIA BLUE STAR INFOSYS TECHNOLOGIES % NET ASSETS 6.67 3.86 SHARPE RATIO 0.23 RSQUARED 0.07 % 2 YEAR -7.96 STANDARD DEVIATION 34. DECEMBER 2000 CHIRAG SETALVAD RS 500 2.19 4.72 4.23 % • HDFC LT ADVANTAGE FUND AMC OBJECTIVE HDFC ASSET MANAGEMENT COMPANY LTD TO GENERATE LONG TERM CAPITAL APPRECIATION FROM A PORTFOLIO THAT IS INVESTED PREDOMINANTLY IN EQUITY AND EQUITY-RELATED INSTRUMENTS.51 .60 3.68 % 3 YEAR 9.93 ALPHAS -2.
43 TOP 5 SECTORS SECTORS FINANCIAL FMCG ENGINEERING AUTOMOBILE TECHNOLOGY BENCHMARK NET ASSETS AS ON 30 JUNE 2009 SENSEX RS.90 ALPHAS -3.20 RSQUARED 0.02 % 2 YEAR -1. KULKARNI RS 500 2.53 SHARPE RATIO 0.18 RISK ADJUSTED MEASURES (AS ON 30 JUNE 2009) BETA 0. MARCH 1996 VINAY R.0 CRORE % NET ASSET 16.95 11.71 6.51 % 5 YEAR 23.54 RETURNS (AS ON 30 JUNE 2009) 1 YEAR 11.55 12.71 % 3 YEAR 10.21 6.88 STANDARD DEVIATION 32. 759.25% FOR INVESTMENTS BELOW RS 5 CRORE NIL .66 % • HDFC TAX SAVER AMC OBJECTIVE LAUNCH DATE FUND MANAGER MIN INVESTMENT AMOUNT ENTRY LOAD EXIT LOAD HDFC ASSET MANAGEMENT COMPANY LTD TO ACHIEVE LONG TERM GROWTH OF CAPITAL.
36 % .18 3.04 9.42 % 2 YEAR 0.83 % NET ASSET 19.35 4.38 5.26 RETURNS (AS ON 30 JUNE 2009) 1 YEAR 18.15 % 5 YEAR 30.89 SHARPE RATIO 0.08 % 3 YEAR 12.94 STANDARD DEVIATION 33.42 9. REDDY'S LAB BHARTI AIRTEL TOP 5 SECTORS SECTORS FINANCIAL HEALTH CARE ENERGY TECHNOLOGY FMCG BENCHMARK NET ASSETS AS ON 30 JUNE 2009 S&P CNX 500 RS.25 RSQUARED 0.9 CRORE 6.95 ALPHAS -2. 1566.30 4.31 8.52 % NET ASSETS RISK ADJUSTED MEASURES (AS ON 30 JUNE 2009) BETA 0.44 NAME OF HOLDING TOP 5 HODINGS ICICI BANK STATE BANK OF INDIA CROMPTON GREAVES DR.79 11.
9 CRORE RISK ADJUSTED MEASURES (AS ON 30 JUNE 2009) .44 10.34 9. AUGUST 1999 SANKARAN NAREN RS 500 2.61 5.17 5.42 11.94 6.45 • ICICI PRU TAX PLAN AMC OBJECTIVE ICICI PRUDENTIAL ASSET MANGEMENT COMPANY LTD THE FUND IS A BLEND OF LARGE AND MID/SMALL CAP FUND.03 4.56 12.79 LAUNCH DATE FUND MANAGER MIN INVESTMENT AMOUNT ENTRY LOAD EXIT LOAD TOP 5 HODINGS TOP 5 SECTORS SECTORS ENERGY TECHNOLOGY ENGINEERING HEALTH CARE FINANCIAL BENCHMARK NET ASSETS AS ON 30 JUNE 2009 S&P CNX NIFTY RS.25% FOR INVESTMENTS BELOW RS 5 CRORE NIL NAME OF HOLDING RELIANCE INDUSTRIES WIPRO INFOSYS TECHNOLOGIES CADILA HEALTHCARE NTPC % NET ASSETS 8. WITH THE OBJECTIVE OF BEING ABLE TO PROVIDE STEADY RETURNS AND MAINTAINED EQUITY EXPOSURE OF 93%. 798.93 % NET ASSETS 16.
40 RETURNS (AS ON 30 JUNE 2009) 1 YEAR 7. ALLOCATION TO DEBENTURES AND MONEY MARKET INSTRUMENTS CAN BE UP TO 15 PER CENT EACH. MARCH 1997 S RAMASAMY LAUNCH DATE FUND MANAGER .01 % • LICMF TAX PLAN AMC OBJECTIVE LIC MUTUAL FUND ASSET MANAGEMENT COMPANY LTD EARLIER KNOWN AS DHANTAXSAVER '97.00 STANDARD DEVIATION 37.19 RSQUARED 0.24 % 3 YEAR 8.09 % 5 YEAR 27.08 % 2 YEAR -0. THE SCHEME SEEKS MAXIMUM CAPITAL GROWTH WITH EQUITY ALLOCATION UP TO 85 PER CENT OF THE CORPUS.87 ALPHAS -4.47 SHARPE RATIO 0.46 BETA 1.
55 Sharpe ratio 0.91 13.27 % .07 7.96 Alphas -6. 500 2.8 CRORE 8.76 7.81 % 5 YEAR 12.13 5.66 RETURNS (AS ON 30 JUNE 2009) 1 YEAR 6.95 % 2 YEAR -4. 40.47 MIN INVESTMENT AMOUNT ENTRY LOAD EXIT LOAD TOP 5 HODINGS SAIL LARSEN & TOUBRO RELIANCE INDUSTRIES STATE BANK OF INDIA RELIANCE COMMUNICATIONS TOP 5 SECTORS SECTORS FINANCIAL ENERGY COMMUNICATION DIVERSIFIED METALS BENCHMARK NET ASSETS AS ON 30 JUNE 2009 SENSEX RS.51 % 3 YEAR 6.14 R-Squared 0.42 19.25 RS.11 8.31 12.94 13.11 RISK ADJUSTED MEASURES (AS ON 30 JUNE 2009) Beta 1.25% NIL NAME OF HOLDING % NET ASSETS % NET ASSETS 24.02 Standard Deviation 36.
MARCH 1993 LAUNCH DATE FUND MANAGER JAYESH SHROFF MIN INVESTMENT AMOUNT ENTRY LOAD EXIT LOAD TOP 5 HODINGS NIL NAME OF HOLDING RELIANCE INDUSTRIES STATE BANK OF INDIA LARSEN & TOUBRO ICICI BANK JINDAL STEEL & POWER TOP 5 SECTORS SECTORS ENERGY FINANCIAL ENGINEERING DIVERSIFIED METALS BSE 100 RS.68 3. 4167.94 5.47 9.35 8. IT ALSO SEEKS TO DISTRIBUTE INCOME PERIODICALLY DEPENDING ON DISTRIBUTABLE SURPLUS.25% FOR INVESTMENTS BELOW RS 5 CRORE BENCHMARK NET ASSETS AS ON 30 JUNE 2009 .20 4.48 • SBI MAGNUM TAX GAIN SCHEME AMC OBJECTIVE SBI FUNDS MANAGEMENT LTD THE PRIME OBJECTIVE OF THIS SCHEME IS TO DELIVER THE BENEFIT OF INVESTMENT IN A PORTFOLIO OF EQUITY SHARES.69 3.44 %NET ASSETS 20. WHILE OFFERING DEDUCTION ON SUCH INVESTMENTS MADE IN THE SCHEME UNDER SECTION 80COF THE INCOME-TAXACT.47 17.97 RS 500 2.4 CRORE % NET ASSETS 5. 1961.60 10.
FINDINGS OF THE STUDY FINDINGS OF THE STUDY ON THE BASIS OF BETA THE BEST ELSS FUND IS: HDFC LT ADVANTAGE FUND ON THE BASIS OF STANDARD DEVIATION THE BEST FUND IS : UTI EQUITY TAX SAVINGS PLAN ON THE BASIS OF SHARPE RATIO THE BEST ELSS FUND IS: SBI MAGNUM TAX GAIN ON THE BASIS OF R-SQUARED THE BEST ELSS FUND ARE:- .96 ALPHAS 1.78 % 3 YEAR 14.95 % CHAPTER VI.49 RISK ADJUSTED MEASURES (AS ON 30 JUNE 2009) BETA 0.48 % 5 YEAR 37.20 RETURNS (AS ON 30 JUNE 2009) 1 YEAR 9.96 STANDARD DEVIATION 34.63 % 2 YEAR -0.36 RSQUARED 0.38 SHARPE RATIO 0.
He can invest in Bank Deposits. The recent trends in the Stock Market have shown that an average retail investor always lost with periodic bearish tends. People began opting for portfolio managers with expertise . and Bonds where there is low risk but low return. Corporate Debentures.ABOUT THE STUDY INTRODUCTION There are a lot of investment avenues available today in the financial market for an investor with an invest able surplus. CHAPTER VII .50 SBI MAGNUM TAX GAIN LIC MF TAX PLAN UTI EQUITY TAX SAVINGS PLAN ON THE BASIS OF ALPHAS THE BEST ELSS FUND IS: SBI MAGNUM TAX GAIN ON THE BASIS OF 1 YEAR RETURN THE BEST ELSS FUND IS: HDFC TAX SAVER ON THE BASIS OF 2 YEAR RETURN THE BEST ELSS FUND IS : HDFC TAX SAVER ON THE BASIS OF 3 YEAR RETURN BEST ELSS FUND IS : SBI MAGNUM TAX GAIN ON THE BASIS OF 5 YEAR RETURN BEST ELSS FUND IS: SBI MAGNUM TAX GAIN ON THE BASIS OF AUM THE BEST ELSS FUND IS : SBI MAGNUM TAX GAIN So the above are the different schemes which are coming out as best ELSS schemes in the different criteria. He may invest in Stock of companies where the risk is high and the returns are also proportionately high. But SBI MAGNUM TAX GAIN SCHEME 1993 is the best ELSS scheme as it has topped in the six criteria’s which are chosen for the purpose of evaluation.
balance. entry load. pharmacy) funds. the returns. To discuss about the market trends of Mutual Fund investment. The project study was done to ascertain the asset allocation. However they proved too costly for a small investor. bringing in their professional expertise in managing funds worldwide. exit load. Thus we had wealth management services provided by many institutions. SCOPE OF THE STUDY In my project the scope is limited to some prominent mutual funds in the mutual fund industry. Because my study depends upon equity linked saving schemes and the performance evaluation of ELSS. NEED FOR THE STUDY The main purpose of doing this project was to know about mutual fund and its functioning. It also helps in understanding different schemes of mutual funds like equity. balance as well as the returns associated with those schemes. Ultimately this would help in understanding the benefits of mutual funds to investors. global scenarios. growth and future prospects. I analyzed the funds depending on their schemes like equity. Now investors have a wide range of Schemes to choose from depending on their individual profiles. income. risks.. OBJECTIVE To give a brief idea about the benefits available from Mutual Fund investment To give an idea of the types of schemes available. These investors have found a good shelter with the mutual funds. history of mutual funds in India. My study is mainly concentrated on equity schemes.51 in stock markets who would invest on their behalf. Mutual fund industry has seen a lot of changes in past few years with multinational companies coming into the country. types. index funds etc. But there is so many other schemes in mutual fund industry like specialized (banking. In the past few months there has been a consolidation phase going on in the mutual fund industry in India. limitations. income. My study gives an overview of mutual funds – definition. in income schemes the rating of CRISIL. ICRA and other credit rating agencies. infrastructure. benefits. associated with the mutual funds. latest trends. To study some of the mutual fund schemes and analyze them Observe the fund management process of mutual funds Explore the recent developments in the mutual funds in India To give an idea about the regulations of mutual funds . I have analyzed a few prominent mutual funds schemes and have given my findings. This helps to know in details about mutual fund industry right from its inception stage.
BHALLA BIBLIOGRAPHY www.in www. The study is limited to selected mutual fund schemes.BHOLE •INVESTMENT MANAGEMENT .gov. REFERENCE BOOKS: •FINANCIAL INSTITUTIONS AND MARKETS .K.com .sbimf.M. books.52 METHODOLOGY To achieve the objective of studying the stock market data has been collected. The secondary information is mostly taken from websites. The lack of information sources for the analysis part.amfiindia. etc.com www.com www. The study is limited to the different schemes available under the mutual funds selected. LIMITATIONS The time constraint was one of the major problems.V.sebi. journals.mutualfundsindia.L. Research methodology carried for this study is from secondary data.
com www.birlamf.com .com www.53 www.com www.icicimf.valueresearchonline.licmf.com www.com www.utimf.hdfcmf.
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