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MUTUAL FUNDS IN INDIA

MUTUAL FUNDS IN INDIA

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Sections

  • INTRODUCTION TO MUTUAL FUNDS:-
  • HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY
  • ORGANISATION OF A MUTUAL FUND:
  • IMPORTANT CHARACTERISTICS OF A MUTUAL FUND
  • OBJECTIVES OF A MUTUAL FUND:
  • ADVANTAGES OF MUTUAL FUNDS:
  • DISADVANTAGES OF MUTUAL FUNDS
  • STRUCTURE OF A MUTUAL FUND
  • INVESTORS PROFILE:
  • MUTUAL EXPECTATIONS AND BENEFITS
  • TYPES OF MUTUAL FUNDS:
  • ORGANISATION AND MANAGEMENT OF MUTUAL FUNDS:-
  • FUND MANAGERS (OR) THE ASSES MANAGEMENT COMPANY (AMC)
  • CUSTODIANS OF MUTUAL FUNDS:-
  • RESPONSIBILITY OF CUSTODIANS:
  • Formation and regulations:
  • Schemes:-
  • Investment norms:-
  • Distribution:
  • MUTUAL FUND SCHEME TYPES:
  • DIFFERENT MODES OF RECEIVING THE INCOME EARNED FROM MUTUAL FUND INVESTMENTS
  • MUTUAL FUND INVESTING STRATEGIES:
  • ADVANTAGES OF INVESTING TRHOURGH MUTUAL FUNDS
  • RISKS ASSOCIATED WITH MUTUAL FUNDS:-
  • PERFORMANCE MEASURES OF MUTUAL FUNDS:
  • The most important and widely used measures of performance are:
  • COMPANY PROFILE (KOTAK MAHINDRA)
  • RESEARCH METHODOLOGY
  • HYPOTHESIS
  • NEED OF THE STUDY:
  • SCOPE:
  • OBJECTIVES:
  • A) The Sharpe’s Measure :-
  • B) The Treynor Measure :-
  • C) β (Beta) Co-efficient:-
  • DATA ANALYSIS& INTERPRETATIONS:
  • FRANKLIN INDIA FLEXI CAP EQUITY FUND
  • HSBC INDIA OPPORTUNITIES FUND
  • OBSERVATIONS;
  • SUGGESTIONS:-
  • CONCLUSIONS
  • BIBLIOGRAPHY
  • ANNEXURE’S
  • ANNEXURE-I
  • ANNEXURE II

Name

College Project

SUSHIL BARAL
ST. XAVIER’S COLLEGE MUTUAL FUNDS IN INDIA

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INTRODUCTION TO MUTUAL FUNDS: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.

A Mutual Fund is a body corporate registered with the Securities and Exchange Board of India (SEBI) that pools up the money from individual/corporate investors and invests the same on behalf of the investors/unit holders, in Equity shares, Government securities, Bonds, Call Money Markets etc, and distributes the profits. In the other words, a Mutual Fund allows investors to indirectly take a position in a basket of assets. Mutual Fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. Investments in securities are spread among a wide cross-section of industries and sectors thus the risk is reduced. Diversification reduces the risk because all stocks

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may not move in the same direction in the same proportion at same time. Investors of mutual funds are known as unit holders. The investors in proportion to their investments share the profits or losses. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. A Mutual Fund is required to be registered with Securities Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public. http://www.amfiindia.com/showhtml.aspx?page=mfconcept

HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY
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 of India. The history of mutual funds in India can be broadly divided into four distinct phases 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) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 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). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47,004

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except UTI were to be registered and governed. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.44. representing broadly. functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. Third Phase – 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. a new era started in the Indian mutual fund industry.21. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities.29.835 crores as at the end of January 2003. As at the end of January 2003. under which all mutual funds. Also. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.crores.541 crores of assets under management was way ahead of other mutual funds. The number of mutual fund houses went on increasing. there were 33 mutual funds with total assets of Rs. with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions.805 crores. giving the Indian investors a wider choice of fund families. The Unit Trust of India with Rs. 4 . The Specified Undertaking of Unit Trust of India. 1993 was the year in which the first Mutual Fund Regulations came into being. Fourth Phase – since February 2003 In February 2003. assured return and certain other schemes. the assets of US 64 scheme. 1.

http://www.aspx?page=mfindustry 5 .amfiindia.com/showhtml.

the entire fortunes of your 6 .ORGANISATION OF A MUTUAL FUND: There are many entities involved and the diagram below illustrates the organizational set up of a Mutual Fund: (For detailed definitions in the above chart refer to annexure 1) 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.

investing in Mutual Funds contains the same risk as investing in the markets. the company specific risks are largely eliminated due to professional fund management. the only difference being that due to professional management of funds the controllable risks are substantially reduced. • The investment portfolio of the mutual fund is created according to The stated Investment objectives of the Fund. • • • The pool of Funds is invested in a portfolio of marketable investments. The value of the portfolio is updated every day. from the funds.aspx?page=mfconcept#B IMPORTANT CHARACTERISTICS OF A MUTUAL FUND • A Mutual Fund actually belongs to the investors who have pooled their Funds. By creating a portfolio of a variety of assets. property in the form of shares. • A Mutual Fund is managed by investment professional and other Service providers. The value of the units changes with change in the portfolio value. However. this risk is substantially reduced. OBJECTIVES OF A MUTUAL FUND: • To Provide an opportunity for lower income groups to acquire without Much difficulty. http://www. 7 .portfolio depend on this one asset.com/showhtml. The investor’s share in the fund is denominated by “units”. The ownership of the mutual fund is in the hands of the Investors. The value of one unit of investment is called net asset value (NAV). In fact. every day. A very important risk involved in Mutual Fund investments is the market risk.amfiindia. who earns a fee for their services. Mutual Fund investments are not totally risk free.

amfiindia. professional management and diversification. or over the Internet. Safety. • Convenience: You can usually buy mutual fund shares by mail. 8 . and you've got the cash. • Regulatory oversight: Mutual funds are subject to many government regulations that protect investors from fraud. saves time and makes investment easy. • Liquidity: It's easy to get your money out of a mutual fund. whose means are small? To Manage investors portfolio that provides regular income. Hence. Write a check. he requires the help of an expert. It reduces paperwork.aspx?page=ourobjectives ADVANTAGES OF MUTUAL FUNDS: • Diversification: An investor undertakes risk if he invests all his funds in a single scrip. growth. http://www.• • To Cater mainly of the need of individual investors. tax advantage. Mutual funds are managed by professional managers who have the requisite skills and experiences to analyse the performance and prospectus of companies. make a call. This diversification reduces the risk of the investment.com/showhtml. Mutual funds invest in a number of companies across various industries and sectors. phone. liquidity. • Professional Management: An investor lacks the knowledge of the capital market operations and does not have large resources to reap the benefits of investment.

Thus. an investor knows where his/her money is being deployed and in case they are not happy with the portfolio they can withdraw at a short notice. When money pours into funds that have had strong success. • Flexibility: Mutual funds offer a family of schemes. Expenses for Index Funds are less than that. Tax benefits: Mutual fund investors now enjoy income tax benefits.5 percent of your investment. they automatically buy stock in companies that are listed on a specific index • Transparency: Mutual funds transparently declare their portfolio every month. nor can they directly influence which securities the fund manager buys and sells or the timing of those trades. annual fees.• Low cost: Mutual fund expenses are often no more than 1. high returns from a few investments often don't make much difference on the overall return. the manager often has trouble finding a good investment for all the new money. •  Lack of control: Investors typically cannot ascertain the exact make-up of a fund's portfolio at any given time. Examples of such costs include sales charges. Dilution is also the result of a successful fund getting too big. because index funds are not actively managed.amfiindia. and other expenses. Dividends received from mutual funds’ debt schemes are tax exempt to the overall limit of Rs 9000 allowed under section SOL of the Income Tax Act. and depending on the timing of their investment.com/showhtml. Instead. These costs come despite of negative returns.aspx?page=mfconcept#C DISADVANTAGES OF MUTUAL FUNDS •  Hidden costs: The mutual fund industry tactfully buries costs under layers of jargon. investors may also have to pay taxes on any capital gains distribution they receive — even if the fund went on to perform poorly after they bought shares. and investors have the option of transferring their holdings from one scheme to other. •  Dilution: Because funds have small holdings in so many different companies. http://www. 9 .

STRUCTURE OF A MUTUAL FUND Sponsor Trustee s Mutual fund ASSET MANAGEMENT COMPANY Custodia n Registra r http:/1/2/personal/investments/mutual-fund/mutual-fund-structure 10 .•  Price Uncertainty: With an individual stock. typically after the major U. the price at which one purchases or redeems shares will typically depend on the fund's NAV. In general. with a mutual fund.S. as can one observe stock price changes by the hour or minute. one can obtain real-time (or close to real-time) pricing information with relative ease by checking financial websites or through a broker. mutual funds must calculate their NAV at least once every business day. which the fund might not calculate until many hours after the order has been placed. By contrast. exchanges close.

can be minimized by investing in Mutual Funds as the fund managers analyze the companies financials more minutely than an individual can do as they have the expertise to do so. However. they can invest in equity as well as good quality debt thereby reducing risks and providing the investor with better returns than he could otherwise manage. risk takers by their nature. Moving up the risk spectrum. armed with expertise of investment techniques. this is the area for the risk-averse investors and here. the return-potential compensates for the risk attached. Since they can reshuffle their portfolio as per market conditions. Mutual Funds are generally the best option. One can avail of the benefits of better returns with added benefits of anytime liquidity by investing in openended debt funds at lower risk. Capital markets find their fancy more often than not. since their appetite for risk is also limited.INVESTORS PROFILE: An investor normally prioritizes his investment needs before undertaking an investment. MUTUAL EXPECTATIONS AND BENEFITS 11 . this risk of default by any company that one has chosen to invest in. Investments for specific goals normally find their way into the debt market as risk reduction is of prime importance. they would rather have some exposure to debt as well. provided. because they have historically generated better returns than any other avenue. they are likely to generate moderate returns even in pessimistic market conditions. there are people who would like to take some risk and invest in equity funds/capital market. Next comes the risk takers. balanced funds provide an easy route of investment. So different goals will be allocated to different proportions of the total disposable amount. would not be averse to investing in high-risk avenues. For these investors. Though the risk associated is generally on the higher side of the spectrum. the money was judiciously invested.

But before one rushes to celebrate with new investments. especially equity growth funds. Alliance to the tune of 71% are just to name a few. the bear phases certainly did. being at a modest pace. What was common to MFs in Y2K was the presence of technology. While the bull phases did not raise any questions about the portfolio compositions. maintain IT exposure at 20% to 37% while simultaneously picking up both old and new economy stocks. most fund managers moved to quality portfolio levels and reduced their IT exposure to reasonable levels.Everyone expects the New year to usher an era of joy and prosperity and certainly looks forward to a windfall in terms of good things to come. While the crash in IT share prices has resulted in a re-balancing of portfolios. action on the old economy front would further narrow the gap between the so called ‘click and 12 . media & telecom sector scrip’s in portfolios of most funds. They concur that the fundamentals of IT sector are strong with future growth. They are now of the view that a mixture of old and new economy scrips would form an ideal portfolio. Positive returns seemed like a state of utopia in Y2K. Most equity diversified funds. however. When the bull phase came to an end and when most of the funds stood stripped with the downslide of most of the TMT stocks.the investment vehicle of the small investor. they foresee no indications of a significant slowdown from at least India based companies. Investor is no exception to this. it would be appropriate to take a look at how Y2K treated Mutual Funds (MFs) . What a transformation in an Industry that had witnessed almost triple digit returns in 1999 when BSE Sensex had generated returns of about 65 percent. But fund managers still are willing to bet on TMT stocks despite the tumultuous experience they have had in Y2K. had he invested in the Year 2000 and stayed invested throughout the year. While accepting the possibility of a downward revision of their growth rate. today. Birla Advantage Fund with and exposure of 67%. A happy-go-lucky-man turned investor would have nothing to write home about. NAVs of most of these funds plummeted raising questions on the extent of portfolio diversification.

The asset management company (AMC) 13 . MF Industry in India. They do not participate in new issue market as do pension funds or life insurance companies. the target amount and the period both are indefinite in such funds 2. These companies sell new shares NAV plus a Loading or management fees and redeem shares at NAV. They receive in turn the net assets value (NAV) of the shares at the time of re-sale. Therefore new investors buy from the existing investors.mortar’ and ‘ brick and mortar’ companies-bring with it a greater diversification in MF portfolios. Open-end investment companies can sell an unlimited number of Shares and thus keep going larger. Happen in the secondary markets. http://www. like any other Industry. thus the pool of Funds can technically be kept constant. The Industry is now approaching a stage where a cross section of investing community has begun to comprehend that MFs provide and ideal investment vehicle to meet their varied investment objectives in the long run with adequate emphasis on portfolio diversification. where closed end Funds are listed.karvy. In other words. CLOSED-ENDED MUTUAL FUNDS:- A closed–end Fund is open for sale to investors for a specific period. Thus they influence market price of corporate securities.com/articles/mutualexpect. In a closed end Funds. Any further transaction for buying the units or repurchasing them. after which further sales are closed. MFs have had their share of lessons in Y2K and are waiting for newer horizons in Y2K+1 with abated breath.htm TYPES OF MUTUAL FUNDS: 1. and existing investors can liquidate their units by selling them to other willing buyers. The open-end Mutual Fund Company Buys or sells their shares. OPEN-ENDED MUTUAL FUNDS:The holders of the shares in the Fund can resell them to the issuing Mutual Fund Company at the time. Such Mutual Fund Companies place their funds in the secondary securities market. has had its nascent stage and is still trying to grapple with several inconsistencies. All in all.

Trustees are required to submit a consolidated report six monthly to SEBI to ensure that the guidelines 14 . The price at which units can be sold or redeemed Depends on the market prices.aspx?page=mfconcept#D ORGANISATION AND MANAGEMENT OF MUTUAL FUNDS:In India Mutual Fund usually formed as trusts.amfiindia. ♦ Seeking SEBI’s approval and authorization to these schemes. 1982 or the trust company registered under the Indian companies act. can buy out the units from the investors. http://www.html MUTUAL FUNDS TRUST:Mutual fund trust is created by the sponsors under the Indian trust act. Investors in closed end Funds receive either certificates or Depository receipts. three parties are generally involved viz. thus reducing the amount of funds held by outside investors.com/showhtml.com/mutual-funds/organization. • • • • Settler of the trust or the sponsoring organization. which are fundamentally linked to the NAV. for their holdings in a closed end mutual Fund.however. ♦ Seeking RBI approval in case NRI’s subscription to Mutual Fund is Invited ♦ Attending to trusteeship function. 1956 Fund mangers or The merchant-banking unit Custodians. http://business. 1982 Which is the main body in the creation of Mutual Fund Trust? The main functions of Mutual Fund trust are as follows: ♦ Planning and formulating Mutual Funds schemes. ♦ Marketing the schemes for public subscription. in the secondary markets. The trust formed under the Indian trust act. This function as per guidelines can be assigned to separately established trust companies too.mapsofindia.

etc. industrial investment trust company acts as subcustodian for stock Holding Corporation of India for domestic schemes of UTI. AMC has to feed back the trustees about its fund management operations and has to maintain a perfect information system. Realize fund position by taking account of all receivables and realizations. and III. PNB. BOI MF. etc Fee structure:- 15 .etc to compensate investors for their investments in units. With the establishment of stock Holding Corporation of India the work of custodian for mutual funds is now being handled by it for various mutual funds. Besides. CUSTODIANS OF MUTUAL FUNDS:Mutual funds run by the subsidiaries of the nationalized banks had their respective sponsor banks as custodians like canara bank. LIC MF.are fully being complied with trusted are also required to submit an annual report to the investors in the fund. moving corporate actions involving declaration of dividends. the information about the listed schemes and the transactions of units in the secondary market. FUND MANAGERS (OR) THE ASSES MANAGEMENT COMPANY (AMC) AMC has to discharge mainly three functions as under: I. Foreign banks with higher degree of automation in handling the securities have assumed the role of custodians for mutual funds. Maintaining proper accounting and information for pricing the units and arriving at net asset value (NAV). SBI. Taking investment decisions and making investments of the funds through market dealer/brokers in the secondary market securities or directly in the primary capital market or money market instruments II.

15% to 0. AMC’s and Trustees of Mutual Funds are to be two separate legal entities and that an AMC or its affiliate cannot act as a manager in any other fund. ♦ Capital gains arising out of selling the units at a price higher than the acquisition price Formation and regulations: 1. AMC’s shall have a minimum Net worth of Rs.20% on the net value of the customer’s holding for custodian services space is one important factor which has fixed cost element. 5 crores. ♦ Collecting income ♦ Holding and processing cost ♦ Corporate actions etc FUNCTIONS OF CUSTOMERS ♦ Safe custody ♦ Trade settlement ♦ Corporate action ♦ Transfer agents RATE OF RETURN ON MUTUAL FUNDS:An investor in mutual fund earns return from two sources: ♦ Income from dividend paid by the mutual fund. 3.Custodian charges range between 0. Mutual funds are to be established in the form of trusts under the Indian trusts act and are to be operated by separate asset management companies (AMC s) 2. RESPONSIBILITY OF CUSTODIANS:♦ Receipt and delivery of securities ♦ Holding of securities. 16 .

Mutual funds are allowed to start and operate both closed-end and open-end schemes. Mutual funds dealing exclusively with money market instruments are to be regulated by the Reserve Bank Of India 5. In the case of a Closed –End scheme if the Minimum amount of Rs 20 crore or 60% of the target amount. Each open-end scheme must have a Minimum corpus of Rs 50 crore 4. if the Minimum amount of Rs 50 crore or 60 percent of the targeted amount. except those schemes which are specifically floated for investment in one or more specified industries in respect to which a declaration has been made in the offer letter. Each closed-end schemes must have a Minimum corpus (pooling up) of Rs 20 crore. No mutual fund. 2. which ever is higher. is no raised then the entire subscription has to be refunded to the investors. under all its schemes taken together can invest more than 10 percent of its funds in shares or debentures or other instruments of any single company. 2. 5. No mutual fund. Mutual fund dealing primarily in the capital market and also partly money market instruments are to be regulated by the Securities Exchange Board Of India (SEBI) 6. In the case of an Open-Ended schemes. under all its schemes can own more than five percent of any company’s paid up capital carrying voting rights. 3. under all its schemes taken together can invest more than 15 percent of its fund in the shares and debentures of any specific industry. Investment norms:1. 17 .4. No mutual fund. which ever is higher is not raised then the entire subscription has to be refunded to the investors. 3. All schemes floated by Mutual funds are to be registered with SEBI Schemes:1.

♦ Sector Schemes These schemes focus on particular sector as IT. Banking. etc. securitized debt. They seek to achieve long-term capital appreciation by responding to the dynamically changing Indian economy by moving across sectors such as Lifestyle. Mutual funds can invest only in transferable securities either in the money or in the capital market. Privately placed debentures.investorwords. Besides these. Technology. and other unquoted debt instruments holding cannot exceed 10 percent in the case of growth funds and 40 percent in the case of income funds. 5. Distribution: Mutual funds are required to distribute at least 90 percent of their profits annually in any given year. Cyclical.4. http://www. Besides.com/3174/mutual_fund_custodian. there are guidelines governing the operations of mutual funds in dealing with shares and also seeking to ensure greater investor protection through detailed disclosure and reporting by the mutual funds. including a common advertising code. and other unquoted debt.html MUTUAL FUND SCHEME TYPES: Equity Diversified Schemes These schemes mainly invest in equity. etc. SEBI can impose penalties on Mutual funds after due investigation for their failure to comply with the guidelines. 18 . Pharma. They seek to generate long-term capital appreciation by investing in equity and related securities of companies in that particular sector. SEBI has also been granted with powers to over see the constitution as well as the operations of mutual funds. No individual scheme of mutual funds can invest more than five percent of its corpus in any one company’s share.

♦ 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. Such funds typically try to book profits when the markets are overvalued and remain fully invested in equities when the markets are undervalued. In contrast. ♦ Dynamic Funds These schemes alter their exposure to different asset classes based on the market scenario. ♦ Exchange Traded Funds (ETFs) ETFs invest in stocks underlying a particular stock index like NSE Nifty or BSE Sensex. The only difference between these funds and equity-diversified funds is that they demand a lock-in of 3 years to gain tax benefits. NSE Nifty. ♦ Equity Tax Saving Schemes These work on similar lines as diversified equity funds and seek to achieve long-term capital appreciation by investing in the entire universe of stocks. an index fund is bought and sold by the fund and its distributors. They are similar to an index fund with one crucial difference. etc.♦ Index Schemes These schemes aim to provide returns that closely correspond to the return of a particular stock market index such as BSE Sensex. This is suitable for investors who find it difficult to decide when to quit from equity. ETFs are listed and traded on a stock exchange. 19 . Such schemes invest in all the stocks comprising the index in approximately the same weightage as they are given in that index.

♦ Money Market Debt Schemes These schemes invest in debt securities of a short-term nature. ♦ 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. The securities invested in are of short to medium term maturities. ♦ Monthly Income Plans (MIPS) 20 . Floating rate funds have a high relevance when interest rates are on the rise helping investors to ride the interest rate rise. ♦ Medium-Term Gilt Schemes These schemes invest in government securities. Commercial Paper and Inter-Bank Call Money Market. The average maturity of the securities in the scheme is over three years. ♦ Short-Term Gilt Schemes These schemes invest in government securities. The typical short-term interest-bearing instruments these funds invest in Treasury Bills.♦ 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. which generally means securities of less than one-year maturity. which are generally linked to some benchmark rate like MIBOR. Certificates of Deposit. ♦ Floating Rate Funds They invest in debt securities with floating interest rates.

MUTUAL FUND INVESTING STRATEGIES: 21 . the investor is given additional units and not cash as dividend. In other words. dividend is declared but not paid out to the investor. the NAV only reflects the capital appreciation or depreciation in market price of the underlying portfolio. it is reinvested back into the scheme at the then prevailing NAV. dividends are paid-out to the investor. 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. instead. ♦ Dividend Re-investment Plan In this case. which make marginal investments in the range of 1025% in equity to boost the scheme’s returns. DIFFERENT MODES OF RECEIVING THE INCOME EARNED FROM MUTUAL FUND INVESTMENTS Mutual Funds offer three methods of receiving income: ♦ Growth Plan In this plan. MIP schemes are ideal for investors who seek slightly higher return that pure long-term debt schemes at marginally higher risk. ♦ Income 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.These are basically debt schemes.

ADVANTAGES OF INVESTING TRHOURGH MUTUAL FUNDS: There are several reasons that can be attributed to the growing popularity and suitability of Mutual Funds as an investment vehicle especially for retail investors: ASSET ALLOCATION ♦ Mutual Funds offer the investors a valuable tool – Asset Allocation. will have Rs.100 crores and invested the money in various investment options.1 lakh in a mutual fund scheme. This service allows the investor to manage his investments actively to achieve his objectives. an investor opting for SIP in xyz Mutual Fund scheme will need to invest a certain sum on money every month/quarter/half-year in the scheme. an investor invests in a mutual fund scheme and is allowed to withdraw a fixed sum of money at regular intervals to take care of his expenses 3.1. Many funds do not even charge any transaction fees for his service – an added advantage for the active investor. Such redemption or investment will be at the applicable NAV. Systematic Withdrawal Plans (SWPs) These plans are best suited for people nearing retirement. 2.1 lakh spread over a number of investment options as demonstrated below: 22 . Systematic Transfer Plans (STPs) They allow the investor to transfer on a periodic basis a specified amount from one scheme to another within the same fund family – meaning two schemes belonging to the same mutual fund. A transfer will be treated as redemption of units from the scheme from which the transfer is made. SIPs entail an investor to invest a fixed sum of money at regular intervals in the Mutual fund scheme the investor has chosen. This is explained by an example. An investor investing Rs. Systematic Investment Plans (SIPs) These are best suited for young people who have started their careers and need to build their wealth. In these plans. which has collected Rs.

A fall in the market price of any of these company stocks will significantly erode your investment amount instead it makes sense to invest in an IT sector mutual fund scheme so that your Rs.10. In portfolio EQUITY: State Bank of India Infosys Technologies ABB Reliance Industries MICO Tata Power DEBT: Govt.000 20.) scheme crores) (Rs.10.000 Thus ‘Asset Allocation’ is allocating your investments in to different investment options depending on your risk profile and return expectations.Investment Type Percentage Allocation (% total portfolio) of Total portfolio of Investors of the Mutual Fund allocation (Rs.000 9.000 12.000 4.000 7. if you have Rs.000 43. Securities Company Debentures Institution Bonds Money Market Total 57% 15% 12% 10% 9% 7% 4% 43% 20% 10% 9% 4% 100% 57 15 12 10 9 7 4 43 20 10 9 4 100 57.000 10.00.000 is spread across a larger number of stocks thereby reducing your risk.000 4. • PROFESSIONALS AT WORK 23 .000 10. For instance. this amount will only buy you a handful of stocks of perhaps one or two companies.000 to invest in Information Technology (IT) stocks.000 15. • DIVERSIFICATION Diversification is spreading your investment amount over a larger number of investments in order to reduce risk.000 1.000 9.

Few investors have the time or expertise to manage their personal investments every day, to efficiently reinvest interest or dividend income, or to investigate the thousands of securities available in the financial markets. Fund managers are professionals and experienced in tracking the finance markets, having access to extensive research and market information, which enables them to decide which securities to buy and sell for the fund. For an individual investor like you, this professionalism is built in when you invest in the Mutual Fund. • REDUCTION OF TRANSACTION COSTS

While investing directly in securities, all the costs of investing such as brokerage, custodial services etc. Borne by you are at the highest rates due to small transaction sizes. However, when going through a fund, you have the benefit of economies of scale; the fund pays lesser costs because of larger volumes, a benefit passed on to its investors like you. • EASY ACCESS TO YOUR MONEY

This is one of the most important benefits of a Mutual Fund. Often you hold shares or bonds that you cannot directly, easily and quickly sell. In such situations, it could take several days or even longer before you are able to liquidate his Mutual Fund investment by selling the units to the fund itself and receive his money within 3 working days. • TRANSPARENCY

The investor gets regular information on the value of his investment in addition to disclosure on the specific investments made by the fund, the proportion invested in each class of assets and the fund manager’s investment strategy and outlook. • SAVING TAXES

Tax saving schemes of Mutual Funds offer investor a tax rebate under section 88 of the Income Tax Act. Under this section, an investor can invest up to Rs.10,000 per

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Financial year in a tax saving scheme. The rate of rebate under this section depends on the investor’s total income.

INVESTING IN STOCK MARKET INDEX

Index schemes of mutual funds give you the opportunity of investing in scrips that make up a particular index in the same proportion of weightage that these scrips have in the index. Thus, the return on your investment mirrors the movement of the index. • INVESTING IN GOVERNMENT SECURITIES

Gilt and Money Market Schemes of Mutual Funds also give you the opportunity to invest in Government Securities and Money Markets (including the inter banking call money market) • WELL-REGULATED INDUSTRY

All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI. • CONVENIENCE AND FLEXIBILITY

Mutual Funds offer their investors a number of facilities such as inter-fund transfers, online checking of holding status etc, which direct investments don’t offer.

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:

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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 NAV of the Mutual Fund scheme, which has invested in the equity of such a company. 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.

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with about 30 players and more than six hundred schemes. Though past performance alone cannot be indicative of future performance. First. For Mutual Funds to grow. there must be some performance indicator that will reveal the quality of stock selection of various AMC’s. the only quantitative way to judge how good a fund is at present. the retail investor faces problems in selecting funds. which affect all the securities. Factors such as investment strategy and management style are qualitative. present in the market. good Mutual Fund companies over are known by their AMC’s and this fame is directly linked to their superior stock selection skills. These fluctuations in the returns generated by a fund are resultant of two guiding forces. Therefore. However. higher will be the risk associated with it. with a plethora of schemes to choose from. The higher the fluctuations in the returns of a fund during a given period. but the funds record is an important indicator too. it is. fluctuations due to specific securities present in the 27 . there is a need to correctly assess the past performance of different Mutual Funds. Return alone should not be considered as the basis of measurement of the performance of a Mutual Fund scheme. is one of the most preferred investment avenues in India. general market fluctuations.PERFORMANCE MEASURES OF MUTUAL FUNDS: Mutual Fund industry today. called Market risk or Systematic risk and second. AMC’s must be held accountable for their selection of stocks. can be defined as Variability or fluctuations in the returns generated by it. frankly. In other words. Risk associated with a fund. it should also include the risk taken by the fund manager because different funds will have different levels of risk attached to them. Worldwide. in a general.

systematic risk cannot. Ri represents return on fund. higher will be its beta. it can be represented as: Treynor's Index (Ti) = (Ri . as there is no credit risk associated). This Index is a ratio of return generated by the fund over and above risk free rate of return (generally taken to be the return on securities backed by the government. In order to determine the risk-adjusted returns of investment portfolios. called Unsystematic risk. By using the risk return relationship. The Total Risk of a given fund is sum of these two and is measured in terms of standard deviation of returns of the fund. Beta is calculated by relating the returns on a Mutual Fund with the returns in the market.Rf)/Bi. during a given period and systematic risk associated with it (beta). we try to assess the competitive strength of the Mutual Funds one another in a better way. 28 . on the other hand. The most important and widely used measures of performance are: • • • • 1) The Treynor’Measure The Sharpe Measure Jenson Model Fama Model The Treynor Measure:Developed by Jack Treynor. Symbolically. The more responsive the NAV of a Mutual Fund is to the changes in the market. which represents fluctuations in the NAV of the fund vis-à-vis market. is measured in terms of Beta. Where. several eminent authors have worked since 1960s to develop composite performance indices to evaluate a portfolio by comparing alternative portfolios within a particular risk class. Systematic risk. While Unsystematic risk can be diversified through investments in a number of instruments.portfolio of the fund. this performance measure evaluates funds on the basis of Treynor's Index.

which is a ratio of returns generated by the fund over and above risk free rate of return and the total risk associated with it. All risk-averse investors would like to maximize this value. Symbolically. performance of a fund is evaluated on the basis of Sharpe Ratio. it can be written as: Sharpe Index (Si) = (Ri .Rf is risk free rate of return. According to Sharpe. Si is standard deviation of the fund. For a well-diversified portfolio the total 29 . Ri represents return on fund. a low and negative Treynor's Index is an indication of unfavorable performance. While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund. Comparison of Sharpe and Treynor Sharpe and Treynor measures are similar in a way. a low and negative Sharpe Ratio is an indication of unfavorable performance. So. and Rf is risk free rate of return. 2) The Sharpe Measure :In this model. and Bi is beta of the fund. the model evaluates funds on the basis of reward per unit of total risk. On the other hand. While a high and positive Treynor's Index shows a superior risk-adjusted performance of a fund.Rf)/Si Where. since they both divide the risk premium by a numerical risk measure. it is the total risk of the fund that the investors are concerned about. the systematic risk is the relevant measure of risk when we are evaluating less than fully diversified portfolios or individual stocks. The total risk is appropriate when we are evaluating the risk return relationship for well-diversified portfolios.

Higher alpha represents superior performance of the fund and vice versa. Limitation of this model is that it considers only systematic risk not the entire risk associated with the fund and an ordinary investor cannot mitigate unsystematic risk.Rf) Where. Rf is risk free rate of return. Ri represents return on fund. Alpha can be obtained by subtracting required return from the actual return of the fund. This measure was developed by Michael Jenson and is sometimes referred to as the differential Return Method. as his knowledge of market is primitive. After calculating it. the returns actually expected out of the fund1 given the level of its systematic risk.risk is equal to systematic risk. which measures the performance of a fund compared with the actual returns over the period. a poorly diversified fund that ranks higher on Treynor measure. compared with another fund that is highly diversified. Required return of a fund at a given level of risk (Bi) can be calculated as: Ri = Rf + Bi (Rm . 4) Fama Model:- 30 . will rank lower on Sharpe Measure. Rankings based on total risk (Sharpe measure) and systematic risk (Treynor measure) should be identical for a well-diversified portfolio. and Bi is Beta deviation of the fund. The surplus between the two returns is called Alpha. and Rm is average market return during the given period. Therefore. 3) Jenson Model:Jenson's model proposes another risk adjusted performance measure. This measure involves evaluation of the returns that the fund has generated vs. as the total risk is reduced to systematic risk.

as the ordinary investor lacks the necessary skill and resources to diversify. Ri represents return on fund. Sm is standard deviation of market returns. This model compares the performance. The Net Selectivity represents the stock selection skill of the fund manager.The Eugene Fama model is an extension of Jenson model. and Rf is risk free rate of return. two models namely. For them. Required return can be calculated as: Ri = Rf + Si/Sm*(Rm . Rm is average market return during the given period.Rf) Where. the selection of the fund on the basis of superior stock selection ability of the fund manager will also help in safeguarding the money invested to a great extent. Higher value of which indicates that fund manager has earned returns well above the return commensurate with the level of risk taken by him. The Net Selectivity is then calculated by subtracting this required return from the actual return of the fund. a portfolio can be spread across a number of stocks and sectors. Treynor measure and Jenson model use Systematic risk is based on the premise that the Unsystematic risk is diversifiable. However. Moreover. Sharpe measure and Fama model that consider the entire risk associated with fund are suitable for small investors. measured in terms of returns. The difference between these two is taken as a measure of the performance of the fund and is called Net Selectivity. as it is the excess returns over and above the return required to compensate for the total risk taken by the fund manager. These models are suitable for large investors like institutional investors with high risk taking capacities as they do not face paucity of funds and can invest in a number of options to dilute some risks. of a fund with the required return commensurate with the total risk associated with it. Among the above performance measures. The investment in funds that 31 .

000 employees in its various businesses. COMPANY PROFILE (KOTAK MAHINDRA) Kotak Mahindra Mutual Fund (KMMF) is managed by Kotak Mahindra Asset Management Company Ltd. the group caters to the financial needs of individuals and corporates.1.818 investors in various schemes. KMMF has to its credit the launching of innovative schemes and plans like Kotak Gilt and Free Life Insurance with Kotak Bond Deposit Plan. The group has a net worth of around Rs.00. Kotak Mahindra is one of India's leading financial institutions. Kotak Mahindra Mutual Fund launched its Schemes in December 1998 and today manages assets over and above Rs. to life insurance.have generated big returns at higher levels of risks leaves the money all the more prone to risks of all kinds that may exceed the individual investors' risk appetite.. 32 . a wholly owned subsidiary of Kotak Mahindra Bank Ltd. to mutual funds. Ford Credit (one of the world's largest dedicated automobile financiers) and Old Mutual (a large insurance. banking and asset management conglomerate). contributed by more than 1. it services a customer base of over 5. offering complete financial solutions that encompass every sphere of life. With a presence in 74 cities in India and offices in New York.000 Kotak Mahindra has international partnerships with Goldman Sachs (one of the world's largest investment banks and brokerage firms). Dubai and Mauritius. to investment banking.99. From commercial banking.82 cr. 7353. to stock broking. London.700 crore and employs over 4.

KMAMC started operations in December 1998 and has over 1.its on-line broking site. The launch of Matrix Information Services Limited marks the Group’s entry into information distribution. The Kotak Mahindra Group was born in 1985 as Kotak Capital Management Finance Limited. Formal commencement of private equity activity through setting up of Kotak Mahindra Venture Capital Fund. Industrialists Harish Mahindra and Anand Mahindra took a stake in 1986. Kotak Securities launches kotakstreet.818 investors in various schemes. Sidney A. Kotak Mahindra takes a significant stake in Ford Credit Kotak Mahindra Limited. A. For the Life Insurance business.Kotak Mahindra Primus Limited. a wholly owned subsidiary of KMBL.com . and that's when the company changed its name to Kotak Mahindra Finance Limited. The Auto Finance division is started the Investment Banking Division is started. 1996 The Auto Finance Business is hived off into a separate company . Investment Banking division incorporated into a separate company Kotak Mahindra Capital Company. 1998 Enters the mutual fund market with the launch of Kotak Mahindra Asset Management Company. for financing Ford vehicles.return profiles and was the first fund house in the country to launch a dedicated gilt scheme investing only in government securities. This company was promoted by Uday Kotak.Kotak Mahindra Asset Management Company Limited (KMAMC). KMMF offers schemes catering to investors with varying risk . Enters the Funds Syndication sector 1995 Brokerage and Distribution businesses incorporated into a separate company Kotak Securities.99. Kotak Mahindra ties up with Old Mutual plc. is the asset manager for Kotak Mahindra Mutual Fund (KMMF). Pinto and Kotak & Company. Kotak Mahindra Finance Limited starts the activity of Bill Discounting Kotak Mahindra Finance Limited enters the Lease and Hire Purchase market. Since then it's been a steady and confident journey to growth and success. 2001 Matrix sold to Friday Corporation Launches Insurance Services 33 .

Kotak Mahindra has international partnerships with Goldman Sachs (one of the world's largest investment banks and brokerage firms). it services a customer base of over 5.99. to mutual funds. 34 .000. KMMF offers schemes catering to investors with varying risk . the group caters to the financial needs of individuals and corporates.818 investors in various schemes. From commercial banking. it services a customer base of over 5. is the asset manager for Kotak Mahindra Mutual Fund (KMMF). Dubai and Mauritius.00. Kotak Mahindra Asset Management Company Limited (KMAMC).700 crore and employs over 4. banking and asset management conglomerate). London.000. a wholly owned subsidiary of KMBL.1. has international partnerships with Goldman Sachs (one of the world's largest investment banks and brokerage firms).return profiles and was the first fund house in the country to launch a dedicated gilt scheme investing only in government securities. offering complete financial solutions cities in India and offices in New York. to stock broking. The group has a net worth of around Rs. With a presence in 74 cities in India and offices in New York. converts to bank Kotak Mahindra is one of India's leading financial institutions.2003 Kotak Mahindra Finance Ltd.00. to investment banking. banking and asset management conglomerate that encompass every sphere of life. Dubai and Mauritius.000 employees in its various businesses. Ford Credit (one of the world's largest dedicated automobile financiers) and Old Mutual (a large insurance. Ford Credit (one of the world's largest dedicated automobile financiers) and Old Mutual (a large insurance. to life insurance. KMAMC started operations in December 1998 and has over 1. London.

35 . banking and asset management conglomerate). offering complete financial solutions that encompass every sphere of life. Kotak Mahindra has international partnerships with Goldman Sachs (one of the world's largest investment banks and brokerage firms). to investment banking.000 employees in its various businesses. Kotak Mahindra is one of India's leading financial institutions. Ford Credit (one of the world's largest dedicated automobile financiers) and Old Mutual (a large insurance. to stock broking. to life insurance.000.Kotak Investment Banking* (KIB). both. to mutual funds. From commercial banking. India's premier Investment Bank is a strategic joint venture between Kotak Mahindra Bank Limited (KMBL) and the Goldman Sachs Group. KMBL has come into existence in March 2003 through the conversion of Kotak Mahindra Bank Ltd. it services a customer base of over 5. Dubai and Mauritius. London. the group caters to the v needs of individuals and corporates. distribution and research. The group has a net worth of over Rs. LLP. into a Commercial Bank. Kotak Investment Banking (KIB) and Kotak Institutional Equities represent the securities business of the Kotak Mahindra Group **(KI). With a presence in 60 cities in India and offices in New York.1.550 crore and employs over 3.00. joint ventures with Goldman Sachs involved in brokerage.

4. Secondary sources: Collection of data from Internet and Books. As a full service Investment Bank. Kotak Opportunities fund. which spans a wide variety of investors across the country. 36 . HDFC Core & satellite fund. RESEARCH METHODOLOGY The Methodology involves randomly selecting Open-Ended equity schemes of different fund houses of the country. We are also the first Indian Investment Bank to be registered with the Securities & Futures Authority in the UK (through our wholly owned subsidiary) and the National Association of Securities and Dealers in the USA. Kotak Investment Banking core business areas include Equity Issuances.We are a full service Investment Bank bringing to our clients the global reach and expertise of Goldman Sachs and the local knowledge and skills of Kotak Mahindra. We are today well positioned in an increasing globalised environment to provide full service to its clients based either in India or overseas. that is:1. Reliance Equity Opportunities fund. Mergers & Acquisitions. We are also the first Indian Investment Bank to be appointed by the Government of India as a Co-lead Manager in their international divestment of Gas Authority of India Ltd through a GDR offering. The data collected for this project is basically from one sources. 2. Our strength lies in understanding our clients' businesses backed by a strong research team and an extensive distribution network. Advisory Services and Fixed Income Securities and Principal Business. HSBC India Opportunities fund. 3. Franklin India Flexi fund. 5. HYPOTHESIS The Hypothesis of the study involves Comparison between: 1.

Franklin Templeton Mutual Fund. The study is basically made to analyze the various open-ended equity schemes of different Asset Management Companies to highlight the diversity of investment that Mutual Fund offer. A Mutual Fund is the ideal investment vehicle for today’s complex and modern financial scenario. each Mutual Fund has a defined investment objective and strategy. The driving force of Mutual Funds is the ‘safety of the principal’ guaranteed. SCOPE: The study here has been limited to analyse open-ended equity Growth schemes of different Asset Management Companies namely Kotak Mahindra Mutual Fund. of late Mutual Funds have become a hot favorite of millions of people all over the world. HSBC Mutual Fundseach scheme is analysed according to its performance against the 37 . banks. Thus. Mutual Funds schemes are managed by respective asset managed companies sponsored by financial institutions. The various schemes of Mutual Funds provide the investor with a wide range of investment options according to his risk bearing capacities and interest besides. they also give handy return to the investor. through the study one would understand how a common man could fruitfully convert a pittance into great penny by wisely investing into the right scheme according to his risk taking abilities. HDFC Mutual Fund. Reliance Mutual Fund. this project creates an awareness that the Mutual Fund is a worthy investment practice. private companies or international firms. Mutual Fund is a productive package for a lay-investor with limited finances.NEED OF THE STUDY: The project’s idea is to project Mutual Fund as a better avenue for investment on a long-term or short-term basis. Mutual Fund is a globally proven instrument. plus the added advantage of capital appreciation together with the income earned in the form of interest or dividend. Mutual Funds are ”Unit Trust” as it is called in some parts of the world has a long and successful history. Mutual Funds offers an investor to invest even a small amount of money.

To help an investor make a right choice of investment.other. Treynor’s Ratio. 4. 3. To compare the schemes based on Sharpe’s ratio. based on factors like Sharpe’s Ratio. To understand the recent trends in Mutual Funds world. D) Returns A) The Sharpe’s Measure:In this model. it is the total risk of the fund that the investors are concerned about. So. The comparison between these schemes is made based on the following factors A) Sharpe’s Ratio B) Treynor’s Ratio C) β (Beta) co-efficient. performance of a fund is evaluated on the basis of Sharpe Ratio. To project Mutual Fund as the ‘productive avenue’ for investing activities. β Coefficient. it can be written as: 38 . Returns and show which scheme is best for the investor based on his risk profile. Returns. the model evaluates funds on the basis of reward per unit of total risk. According to Sharpe. To show the wide range of investment options available in Mutual Funds by explaining its various schemes. while considering the inherent risk factors. Treynor’s ratio. which is a ratio of returns generated by the fund over and above risk free rate of return and the total risk associated with it. 2. β (Beta) Co-efficient. Symbolically. OBJECTIVES: 1.

Rf is risk free rate of return. C) β (Beta) Co-efficient:Systematic risk is measured in terms of Beta. this performance measure evaluates funds on the basis of Treynor's Index. Ri represents return on fund. higher will be its beta. The more responsive the NAV of a Mutual Fund is to the changes in the market. Symbolically.Rf)/Si Where. it can be represented as: Treynor's Index (Ti) = (Ri . While unsystematic risk can be 39 .Rf)/Bi. All risk-averse investors would like to maximize this value.Sharpe Index (Si) = (Ri . as there is no credit risk associated). While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund. a low and negative Treynor's Index is an indication of unfavorable performance. during a given period and systematic risk associated with it (beta). While a high and positive Treynor's Index shows a superior risk-adjusted performance of a fund. B) The Treynor Measure:Developed by Jack Treynor. and Bi is beta of the fund. Si is Standard Deviation of the fund. Where. Beta is calculated by relating the returns on a Mutual Fund with the returns in the market. This Index is a ratio of return generated by the fund over and above risk free rate of return (generally taken to be the return on securities backed by the government. which represents fluctuations in the NAV of the fund vis-à-vis market. a low and negative Sharpe Ratio is an indication of unfavorable performance.

By using the risk return relationship. we try to assess the competitive strength of the Mutual Funds vis-à-vis one another in a better way. 40 .Returns for the last one-year of different schemes are taken for the comparison and analysis part.However the fund managers sees high oil prices a big concern in the global markets.45% of the total portfolio. The fund manager is of the opinion that the market may not fall due to the abundent liquidity in the system. The fund manager is optimistic on the markets in the long term and expects good returns from the same. DATA ANALYSIS& INTERPRETATIONS: Note: All the data used for analysis is taken up to the period 28-febuary-2006 KOTAK OPPORTUNITIES FUND • • • • • Kotak opportunities is a open-ended equity Growth scheme. β (Beta) is calculated as N (Σ XY) – Σ XΣ Y N (Σ X2) – (Σ X) 2 D) Returns:.diversified through investments in a number of instruments. Kotak opportunities is a diversified aggressive equity scheme The fund has portfolio turnover ratio. • The fund has invested into equities to the tune of 94. systematic risk cannot.

Franklin india flexi cap Fund is an aggressive diversified equity scheme It is an investment avenue that has the potential to provide steady returns and capital appreciation over a five-year period through a mix of fixed income and equity instruments. HDFC Core and Satellite Fund • • • HDFC Core and Satellite Fund is an Open-Ended Equity Scheme. • The net assets of the Scheme will be invested primarily in equity and equity related instruments in a portfolio comprising of 'Core' group of companies and 'Satellite' group of companies. Reliance Equity Opportunities Fund is an aggressive diversified equity scheme Reliance Equity Opportunities is to seek to generate capital appreciation and provide long term growth opportunities by investing in a portfolio constituted of equity securities and equity related securities. • The 'Satellite' group will comprise of predominantly small-mid cap companies that offer higher potential returns but at the same time carry higher risk FRANKLIN INDIA FLEXI CAP EQUITY FUND • • • Franklin india flexi cap Fund is an Open-Ended Equity Scheme. in accordance with guidelines stipulated in this regard by SEBI and RBI from time to time. HDFC Core and Satellite Fund is an diversified equity scheme The Scheme may seek investment opportunity in the ADR / GDR / Foreign Equity and Debt Securities. • • The fund has a high portfolio turnover ratio.RELIANCE EQUITY OPPORTUNITIES FUND: • • • Reliance Equity Opportunities Fund is an Open-Ended Equity Scheme. It has Instrument type such as Equity & Equity related Instruments and Debt & Money Market Instruments. 41 .

It will invest in sectors. which our Fund Manager believes would outperform others in the short to medium-term. Kotak Opportunities’ speciality lies in giving the Fund Manager flexibility to act based on his views on the market. Anand Shah) OBJECTIVE:To generate capital appreciation from a diversified portfolio of equity and equity related securities Kotak Opportunities is a diversified equity scheme. and in allowing him to invest higher concentrations in sectors he believes will outperform others. The fund aims to be predominantly invested in equity and equity related securities KOTAK OPPORTUNITIES FUND Fund Manager: (Mr. with a flexible investing style. new opportunities for growth keep emerging. including small. The investment is to seek aggressive growth by focussing on mid cap companies in addition to investments in large cap stocks. ♦ KOTAK OPPORTUNITIES FUND PERFORMANCE:YEAR Rp Rm Rf (RmRf) (RpRf) X2 XY (X -Xbar) D2 X Y D 42 . As markets evolve and grow.• It has a investment team has a rich experience of investing in both equity and fixed income instrument that has translated in to a good investment performance from its hybrid scheme HSBC India opportunities Fund • • • • HSBC India Opportunities Fund is an Open-Ended Equity Scheme. Kotak Opportunities would endeavour to capture these opportunities to generate wealth for its investors. It is a scheme seeking long term capital growth through investments across all market capitalizations. mid and large cap stocks.

97 670.70 -20.83/ 4 = 18.1 1 30. Rp .61 34.Portfolio Return.29 1721.36 30.9 9 4.11 -9.83 1.84 13.85) – (90.38 781.98 78.25 4.89 22.67 20.25 4.70 • CALCULATION OF STANDARD DEVIATION (σ ):= √ Σ (X-Xbar) 2 / N = √1691.71 96.92 24.70)-(74.8 7 1.847 25.22) – (90.85 9888.67 125.21) 4(4117.Risk free rate of return.8-9418.89 41.Market Return-Fund’s bench mark.25 4.29 519.49 74.76-5599 43 .75 =20.02/4 =√422.19)-(74. • CALCULATION OF ARTHMETIC MEAN:=Σ X/N = 74.42 2472.70 404.83)-(125.42 78.5 -1.56 4015.35) 2 = 4(4015.78 18.19 -2.04 1691.83) 2 = 16062.10 3056.17 2.S& P CNX 500 Rf .35 180.02 Where.49 670.17 73.LAST 1 MONTH LAST 3 MONTHS LAST 6 MONTHS Since Inception TOTAL 5.Kotak opportunities Rm .56 • CALCULATION OF BETA CO-EFFICIENT:= N (Σ XY) – Σ XΣ Y N (Σ X2) – (Σ X) 2 = 4(5208.86 25.41 8.1 4 45.35)(126.87) 4(2472.

2 5 4 . 25 4.84 4.4 2 30 .9 2 2 .6 1 13 .95 4289. 25 4 .8173 GRAPH SHOWING KOTAK OPPORTUNITIES FUND PERFORMANCE:K O T A K O P P O R T U N IT IE S 7 8.12 • CALCULATION OF TREYNOR’S RATIO:= Rp-Rf / β = 125.87/1.54 = 87. 1 7 RETURNS 45 .87 /20.73/100 =0.76 =1.54 • CALCULATION OF SHARPE’S RATIO:= Rp-Rf / σ =125.1 4 24 .99 3 4 .56 = 6.= 6643.5 L A S T 1 M O N TH LA S T 3 M O N TH S L A S T 6 M O N TH S S IN C E IN C E P TIO N 09 S E P TE M B E R -20 0 4 K O TA K O P P O R TU N ITIE&S P C N X-5 0 R f S 0 Interpretation:- 44 .1 1 5.

4.61 As compare to Funds Benchmark Returns are 13.5849 720. 4.25 4.25% (i.4256 1.16 (RpRf) Y -3.46 35..25 4. and There is a slight Increase in Risk Free Rate by 0.25%) • Last III Months: It reveals that Kotak Opportunities Returns are 24..e.8 2 31. As compare to Funds Benchmark Returns are 45. (i.15 16. 4.5%) compare to last 9 Months.53 9.11.3280563 114.14. and The Risk Free Rate is common for next 3 months. and The Risk Free Rate is common for next 9 months.2 1 31.85 45..1 49.57 26. HDFC CORE& SATELLITE FUND: Objective:The objective of the scheme is to generate capital appreciation through equity investment in companies whose shares are quoting at prices below their true value. 4.e.e.3295563 720.6 6 4.6925 26. (i.643 116.17.9225 2039.1 4 0.6 69.3 5 65.8497 841.84.• Last I Month : It reveals that Kotak Opportunities Returns are 5.42 As compare to Funds Benchmark Returns are 30.7925 10. ♦ HDFC CORE& SATELLITE FUND PERFORMANCE:YEAR LAST 1MONTH LAST 3 MONTHS LAST 6MONTHS Since Inception Rp Rm Rf (RmRf) X 1.25%) • Last VI Months: It reveals that Kotak Opportunities Returns are 34. and The Risk Free Rate is common for next 6 months.64 3.7475 2941..2809 91.25%) • Since Inception: It reveals that Kotak Opportunities Returns are 78.5 -0.85 24.72 13.8975 D2 432.99.e.9225 619.8855063 45 .25 4.1 12. (i.92 As compare to Funds Benchmark Returns are 2.7224 X2 XY (X -Xbar) D 20.

Market Return-Fund’s benchmark-BSE-200 Rf .45 • CALCULATION OF SHARPE’S RATIO:=Rp-Rf-/ σ =105.8-6569.05)(105.75) 2 = 15607.71 • CALCULATION OF BETA CO-EFFICIENT:= N (Σ XY) – Σ XΣ Y N (Σ X2) – (Σ X) 2 = 4(3901.Portfolio Return-HDFC core & Satellite Fund Rm .05 105.75 =21.2139 3901.05/4 = 20.26 • CALCULATION OF STANDARD DEVIATION (σ):= √ Σ (X-Xbar)2 / N = √1887.5-8558.6/21.TOTAL 81.8 11408.7 4839 =1.9626 20.4/4 = √471.2625 1887. 6 2852.6) 4(4026) – (89.71 46 .Risk free rate of return.465619 Where.9) –(81. • CALCULATION OF ARTHMETIC MEAN:=Σ X/N = 81. Rp .1 =7048.

=4.6 4 13.1 5 0 L A S T 1 M O N TH L A S T 3 M O N TH S LA S T 6 M O N TH S S IN C E IN C E P TIO N 1 7 S E P TE M B E R 2004 16.7 2 4.25 4.1 4 9 .46 35.6/1.5 3 .82/100 =0.82 4.86 • CALCULATION OF TREYNOR’S RATIO:= Rp-Rf/β = 105.45 = 72.6 31.7282 GRAPH SHOWING HDFC CORE& SATELLITE FUND PERFORMANCE:H D F C C o r e & S a te llite F u n d P e rfo rm a n c e 80 70 60 50 RETURNS 40 30 20 10 1 .25 4.25 Rp Rm Rf Interpretation: 47 .6 6 6 9 .

15 as compare to Funds Benchmark Returns are 3..25%) • Last III Months: It reveals that HDFC Core & Satellite Fund Returns are 16.. 4.e. as compare to Funds Benchmark Returns are 31. ♦ RELIANCE EQUITY OPPORTUNITIES FUND PERFORMANCE:- YEAR Rp Rm Rf (RmRf) X (RpRf) Y X2 XY (X -Xbar) D D2 48 .25%) • Since Inception: It reveals that HDFC Core & Satellite Fund Returns are 69.1 and The Risk Free Rate is common for next 3 months.6. and The Risk Free Rate is common for next 9 months.• Last I Month : It reveals that HDFC Core & Satellite Fund Returns are 1. as compare to Funds Benchmark Returns are 49.25%) • Last VI Months: It reveals that HDFC Core & Satellite Fund Returns are 35..82.5%) compare to last 9 Months. (i. 4.e. and There is a slight increase in Risk Free Rate by 0.46 as compare to Funds Benchmark Returns are 13. (i.e.66.64. RELIANCE EQUITY OPPORTUNITIES FUND: Investment Objective: The primary investment objective of the scheme is to seek to generate capital appreciation & provide long-term growth opportunities by investing in a portfolio constituted of equity securities & equity related securities and the secondary objective is to generate consistent returns by investing in debt and money market securities.72. (i.25%(4. 4. and The Risk Free Rate is common for next 6 months.

2329 2662.9077 3101.82 720.72 4.2329 2904.91 11616-6661.62 25.09 4954.73 40.2809 0.9805 -20.23 4.1 50.65 =25.935 438.63/4 = √665.82 4.LAST MONTH LAST MONTHS LAST MONTHS Since Inception TOTAL 1 2.21 50.81 41.25 4.82 =5402.97 91.5 26.5529 9.40 • CALCULATION OF STANDARD DEVIATION (σ):= √ Σ (X-Xbar)2 / N = √2662.62)(85.25 9.63005 13.3296 6. • CALCULATION OF ARTHMETIC MEAN:=Σ X/N = 81.8885 2308.22 6 29.Market Return-Fund’s Benchmark BSE-500 Rf .57 91.445 45.4 3 16.80 • CALCULATION OF BETA CO-EFFICIENT.Risk free rate of return.25 -0.538025 2091.53 -1.85 0.18 49 .32) – (81.62) 2 = 12405-7002.9225 2091.02) – (81. Rp .Portfolio Return-Reliance equity opportunities fund Rm .62/ 4 = 20.0212 676.82) 4(2904.85 45.49 85.274225 Where.57 11.99 31.5849 114.73 81.5849 3.= N (Σ XY) – Σ XΣ Y N (Σ X2) – (Σ X) 2 = 4(3101.46 54.

4 6 3 1 .=1.4 as compare to Funds Benchmark Returns Are 3.23 RETURNS 2 9 .25 4 .72. and The Risk Free Rate is common for next 9 months.72 4.25%) 2. (i.29 • CALCULATION OF TREYNOR’S RATIO:= Rp-Rf/β = 85.2 2 1 3 .1 1 6 .25 4.9 9 50. 50 .32/100 =0.47 = 37.2 5 4 .5 L A S T 1 M O N TH L A S T 3 M O N TH S L A S T 6 M O N TH S S IN C E IN C E P TIO N 3 1 M A R C H 2005 R E L IA N C EB S E -1 0 0 R f Interpretation:• Last I Month: It reveals that Reliance Equity Opportunities Fund Returns are 4.8 2 2.e.37 GRAPH SHOWING RELIANCE EQUITY OPPORTUNITIES FUND PERFORMANCE:R E L IA N C E E Q U IT Y O P P O R T U N IT IE S F U N D 5 4 .4 3.23 =7.09 • CALCULATION OF SHARPE’S RATIO:= Rp-Rf/ σ =85.82 25..82/1.

etc. and small-cap depending on their market capitalization.e. History has demonstrated that these categories tend to perform differently through economic and market cycles...5%) compare to last 9 months. midcap.23.1 and The Risk Free Rate is common for next 3 months. K N Siva Subramanian & R Sukumar Rajah) Investment objective: Stocks of companies are usually categorized as large-cap. FIFCF seeks to provide medium to 51 . Moreover.25%) • Last VI Months: It reveals that Reliance Equity Opportunities Fund Returns are 29. and The Risk Free Rate is common for next 6 months.25%(4.25%) • Since Inception: It reveals that Reliance Equity Opportunities Fund Returns are 54. large-cap stocks tend to be less volatile than mid & small-cap stocks on account of factors such as size.46 as compare to Funds Benchmark Returns are 31. 4.99. FRANKLIN INDIA FLEXI CAP EQUITY FUND Fund Managers: (Mr.• Last III Months: It reveals that Reliance Equity Opportunities Fund Returns are 16.82. and There is a slight increase in Risk Free Rate by 0.. For example.e. (i. such periods of out performance are typically followed by a consolidation phase and a possible reversal of the situation.22 as compare to Funds Benchmark Returns are 13. 4. market leadership. In order to derive optimal returns from the stock markets. as compare to Funds Benchmark returns are 50. investments need to be diversified and have flexibility to shift allocations across market caps. (i. Designed to help you achieve this with a single investment is Franklin India Flexi Cap Fund (FIFCF). mid or small cap stocks could move up sharply during a certain time period while large cap stocks remain range bound and vice versa. An open-end diversified equity fund. On the other hand.

9 45.25 4.25 4.49 36.Market Return-Fund’s Benchmarks S&P CNX-500 Rf .274225 102.78 12. Rp .57 26.Portfolio Return-Franklin flexi cap fund Rm .935 10.4 CALCULATION OF STANDARD DEVIATION (σ):= √ Σ (X-Xbar)2 / N = √1195/4 = √298. 2005 TOTAL 3.7 81.Risk free rate of return.6/ 4 = 20.75 = 17.long-term capital appreciation by investing in stocks across the entire market capitalization range.82 31.329 3605. CALCULATION OF ARTHMETIC MEAN:=Σ X/N = 81.2 32.1 17.1 50.0605 2620.1368 868.23 4.88 25.28 18.47 16. ♦ FRANKLIN INDIA FLEXI CAP FUND PEFORMANCE:(RmRf) X LAST 1MONTH LAST 3 MONTHS LAST 6 MONTHS SINCE INCEPTION March 2.5 -0.325 YEAR Rp Rm Rf X2 XY D2 0.72 13.25 4.28 52 .58 61.9 2091 2904 0.3 101 (X -Xbar) D 20.337025 Where.58 720.4134 117.3 57.6 (RpRf) Y 0.5984 356.8 3.4544 1195.9397 438.01 298.281 91.53 9.

94 CALCULATION OF SHARPE’S RATIO:= Rp-Rf/ σ =101 17.CALCULATION OF BETA CO-EFFICIENT.6 11616-8433 =6178.52 GRAPH SHOWING FRANKLIN INDIA FLEXI CAP FUND PERFORMANCE:- 53 .84 CALCULATION OF TREYNOR’S RATIO:= Rp-Rf/β =101/1.= N (Σ XY) – Σ XΣ Y N (Σ X2) – (Σ X) 2 = 4(3605) – (81.06/100 or 0.28 =5.4 3183 =1.94 = 52.6)(101) 4(2904) – (2904) 2 = 14420-8241.

and The Risk Free Rate is common for next 6 months.25%) • Since Inception: It reveals that Birla Sun-life Equity Opportunities Fund Returns are 61. 2 0 0 5 3.11..e.25 Interpretation: • Last I Month : It reveals that Franklin India flexi Cap Fund Returns are 3.1 16 . 4.47 as compare to Funds Benchmark Returns are 2. 54 . 4.25%) • Last III Months: It reveals that Franklin India flexi Cap Fund Returns are 14. (i. (i.25%(4.F ra n k lin in d ia fle x i c a p fu n d 70 61.e..8.8.2 5 4.72 36. and The Risk Free Rate is common for next 9 months.e.25 4. 4 9 13.58 31. 4.58 as compare to Funds Benchmark Returns are 30.8 2 4 .. (i.25%) • Last VI Months: It reveals that Birla Sun-life Equity Opportunities Fund Returns are 36.14 and The Risk Free Rate is common for next 3 months. as compare to Funds Benchmark Returns are 47.5%) compare to last 9 months.75 and There is a slight Increase in Risk Free Rate by 0.8 60 5 0.47 0 L A S T 1 M O N TH L A S T 3 M O N TH S Rp Rm L A S T 6 M O N TH S Rf S IN C E IN C E P TIO N M a rc h 2.49 as compare to Funds Benchmark Returns are 13. 2 3 50 40 RETURNS 30 20 10 3.5 4.

92 2.2696 1825.0964 792.12 70.45 28.HSBC INDIA OPPORTUNITIES FUND Fund Manager: (Mr. The investment style is to seek aggressive growth by focussing on mid cap companies in addition to investments in large cap stocks.0736 84.893025 83. The fund will endeavour to invest in large cap companies as well as identify mid stocks.Market Return. Rp .45 27. including small.695 9. ♦ HSBC INDIA OPPORTUNITIES FUND PEFORMANCE:YEAR Rp Rm Rf (RmRf) X LAST 1 MONTH LAST 3 MONTHS LAST 6 MONTHS Since Inception TOTAL -0.Portfolio ReturnRm .3044 2369.5 -1.88 41.9408 75.67 11.25 4.81 13.705 387.2 23. mid and large cap stocks.44 559.58 14.25 4.6856 2467.64 570. However.42 44.580825 D2 Where.2 23. • CALCULATION OF ARTHMETIC MEAN:=Σ X/N 55 .44 9.Sanjiv Duggal) Investment objective: The fund is an open-ended equity scheme seeking long term capital growth through investments across all market capitalizations.336 X2 XY (X -Xbar) D -19.57 12. which have the potential to become blue chip large cap stocks over time.38 73.62 2. it could move a significant portion of its assets towards fixed income securities if the fund becomes negative on negative on equity markets.25 4.82 8.88 4.15 13.13 45.Risk free rate of return. This fund aims to be predominantly invested in equity and equity related securities.2544 1712.8689 134.67 48.7225 186.2724 6. Rf .02 (RpRf) Y -4.

27) – (73.25 • CALCULATION OF STANDARD DEVIATION (σ):= √ Σ (X-Xbar)2 / N = √792.07 =5.33) – (73.57 9477.= N (Σ XY) – Σ XΣ Y N (Σ X2) – (Σ X) 2 = 4(2467.= 73.92 14.92/1.04 • CALCULATION OF TREYNOR’S RATIO: = Rp-Rf/β =70.92 =4690.07 • CALCULATION OF BETA CO-EFFICIENT.18 =1.02)(70.08-5331.92) 4(2369.32-5178.62 GRAPH SHOWING HSBC INDIA OPPORTUNITIES FUND PEFORMANCE:- 56 .13 = 62.02/ 4 = 18.02) 2 = 9869.58/4 = √198.14 =14.13 • CALCULATION OF SHARPE’S RATIO:= Rp-Rf/ σ =70.75 4145.76/100 =0.

e. • Last VI Months: It reveals that that HSBC India Opportunities Fund are 27..5%) compare to last 9 months Returns 57 .e.25 % (4.13 and The Risk Free Rate is common for next 3 months.2 5 4.81 0 1 /1 /19 00 -1 0 H S B C B S E -50 0 R f -0 .25%).45 45 10 2. and There is a slight Increase in Risk Free Rate by 0. • Last III Months: It reveals that HSBC India Opportunities Fund Returns are 12. 25 4 .57 as compare to Funds Benchmark Returns are 2.87 as compare to Funds Benchmark Returns are 28. 25 4 .82. (i.81.45.25%) • Since Inception: It reveals that HSBC India Opportunities Fund Returns are 48. and The Risk Free Rate is common for next 9 months.45as compare to Funds Benchmark Returns are 13.25%).13 30 RETURNS 20 13.. (i.H S B C IN D IA O P P O R T U N IT IE S 60 48 . 67 . 12 . 4. as compare to Funds Benchmark returns are 45.5/2 /19 00 17 1/ 3/190 0 1 /4 /19 00 1/ 5/190 0 1 /6 /19 00 4. 4.e. (i.62 4 5.82.. 88 50 40 28 2 7. and The Risk Free Rate is common for next 6 months. 4.5 Interpretation • Last I Month : It reveals that HSBC India Opportunities Fund Returns are -0.

The following observations are drawn from the analysis of schemes: KOTAK OPPORTUNITIES FUND FRANKLIN INDIA FLEXI CAP FUND RELIANCE EQUITY OPPORTUNITIE S FUND HDFC CORE FUND & SATELLITE HSBC INDIA OPPORTUNITIES FUND 58 .OBSERVATIONS. Observations are made from the data analysis.

84 0.86 0. websites and other books. SUGGESTIONS:• • • • The Asset Management Company must design the portfolio in such a way.52 1.94 17.Deviation (σ ) 20.56 LIMITATIONS OF THE STUDY 1.13 14.04 0. to increase the returns.Monthly return’s 5.12 0.09 25.71 5.47 2.62 1. The Asset Management Company must dedicate itself. to lessen the risk that is common in the market. as primary data was not accessible.54 5.72 1.81 1. 2.80 4.57 Sharpe’s Ratio Treynor’s Ratio Co-efficient (β ) 6. The study is limited only to the analysis of different schemes and its suitability to different investors according to their risk-taking ability.4 1. The study is limited by the detailed study of various schemes of Five Asset Management Company.15 -0.28 7.29 0. because it motivates the investors and potential investors to invest in Mutual Funds.92 3.45 21.07 Std. The Asset Management Company must design the portfolio in such a way.37 1. The study is based on secondary data available from monthly fact sheets. 59 . The Asset Management Company must manage the Fund efficiently and with dedication to earn the goodwill of the public. 3.

• The Asset Management Company must make the most advantageous use of print and electronic media in order to motivate the investors and potential investors to invest in Mutual Funds. It is a open-ended equity scheme Since the β ratio is high it implies the risk is high As the returns are more in Kotak Opportunities compare to other Four AMC’s 60 . CONCLUSIONS After interpreting the above data the following conclusions have been made Kotak Opportunities Fund: • • • • It is a diversified aggressive equity fund.

RELIANCE. It is a open-ended equity scheme In HDFC the returns are low compare to other AMC’s It is a value based fund It is a low risky fund HSBC India Opportunities Fund:• • • • It is a diversified equity fund. HSBC) Reliance Equity Opportunities Growth Fund: • • • • It is a diversified equity fund. It is a open-ended equity scheme In HSBC the returns are lesser than other AMC’s It is a low risky fund 61 .• It is suitable for investors looking for medium risk and moderate returns with in a time period of 1-3 years. It is a open-ended equity scheme Since the β ratio is high it implies the risk is high In Franklin the returns are more compare to other Three AMC’s (HDFC. Franklin India Flexi Cap Fund: • • • • It is a diversified equity fund. It is a open-ended equity scheme Since the β ratio is high it implies the risk is high In Reliance Equity Opportunities the returns are medium compare to other AMC’s HDFC Core & Satellite Fund: • • • • • It is a diversified equity fund.

com www.amfiindia.reliancemutual.kotakmutual.com www.com 62 .BIBLIOGRAPHY Layman’s Guide to Mutual Funds By “OUTLOOK” Mutual Funds Primer By “ECONOMIC TIMES” www.

ANNEXURE’S ANNEXURE-I Sponsor Sponsor is the person who acting alone or in combination with another body corporate establishes a Mutual Fund. Sponsor must contribute at least 40% of the net worth of the 63 .

Asset Management Company (AMC) The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual Fund. the provisions of the Trust Deed and the Offer Documents of the respective Schemes. 64 . Trust The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts Act. The Sponsor is not responsible or liable for any loss or short fall resulting from the operation of the schemes beyond the initial contribution made by it towards setting up the Mutual Fund. The Registrar processes the application form. The main responsibility of the trustee is to safeguard the interest of the unit holders and inter alia ensure that the AMC functions in the interest of investors and in accordance with the securities and Exchange Board of India (Mutual Funds) Regulations. The Registrar and Transfer agent also handles communications with investors and updates investor records. 1996. The trust deed is registered under the Indian Registration Act. 1908. 1996. redemption requests and dispatches account statements to the unit holders. 1882 by the Sponsor. At least 2/3rd directors of the Trustee are independent directors who are not associated with the Sponsor in any manner.Investment Managed and meet the eligibility criteria prescribed under the securities and Exchange Board of India (Mutual Fund) Regulations. Trustee Trustee is usually a company (Corporate body) or a Board of Trustees (body of individuals).

65 . In case of Closed-ended funds.Unit Holders Unit Holders are those investing in Mutual Fund. • • • A Dividend plan entails a regular payment of dividend to the investors. ANNEXURE II Equity Fund is the one in which much of the portfolio is invested in corporate securities and Debt Fund is the one in which much of the portfolio is invested in Gilt and money market securities. Custodian Custodian is the agency. the total size of the corpus is limited by the size of the initial offer. In an Open-ended Mutual Fund. Investors are permitted to enter and exit the open-ended Mutual Fund at any point of time at a price that is linked to the net asset value (NAV). there are no limits on the total size of the corpus. SEBI The Stock Exchange Board of India (SEBI) is regulatory authority of the Mutual Funds. A Growth plan is one where no dividends are declared and investor only gains through capital appreciation in the NAV of the fund. A Re-investment plan is a plan where these dividends are reinvested in the scheme itself. which will have the legal possession of all the securities purchased by the Mutual Fund.

10 crore. Asset Management Companies and Trustees of a MF should be two separate and distinct legal entities. SEBI has the following broad guidelines pertaining to Mutual Funds: • • • • • • • • Mutual Funds should be formed as a trust under Indian Trust Act and should be operated by Asset Management Companies. Asset Management Company has to get the approval of SEBI for its articles and Memorandum of Association.NAV is the net asset value of the fund. The broad guidelines issued for a Mutual Fund: SEBI is the regulatory authority of Mutual Funds. Mutual Funds should distribute minimum of 90% of their profits among the investors. Mutual Funds need to set up a Board of Trustee Companies. The Asset Management Companies or any of its companies cannot act AS managers for any other fund. The net worth of the Asset Management Company should be at least Rs. Simply put it reflects what the unit held by an investor is worth at current market prices. They should also have their Board of Directories. All Mutual Fund Schemes should be registered with SEBI. 66 .

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