2010

A REPORT
ON
COMPARATIVE ANALYSIS OF MUTUAL FUNDS AND CONSTRUCTION OF AN OPTIMISED PORTFOLIO

By:-

RAJESH KUMAR 09BSHYD0637

SHAREKHAN LIMITED

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A REPORT
ON COMPARATIVE ANALYSIS OF MUTUAL FUNDS AND CONSTRUCTION OF AN OPTIMISED PORTFOLIO By RAJESH KUMAR 09BSHYD0637 SHAREKHAN LIMITED

A Report submitted in partial fulfillment of the requirement of MBA program at IBS Hyderabad

Submitted to:Dr. S. Subramanian Faculty Guide, IBS Hyderabad G.V.L. Narayana Rao (Territory Manager) Company Guide, Sharekhan Ltd. Date of submission: 16 th April, 2010
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Table of Contents
Abstract ......................................................................................................................................................... 1 What are Mutual Funds? .............................................................................................................................. 7 Sponsor ..................................................................................................................................................... 8 Trust/Board of Trustees ............................................................................................................................ 8 Fund Managers/AMC ................................................................................................................................ 9 Custodian .................................................................................................................................................. 9 The Ev olution .............................................................................................................................................. 10 Phase I. Establishment and Growth of Unit Trust of India - 1964-87 ......................................................... 10 Phase II. Entry of Public Sector Funds - 1987-1993 .................................................................................... 10 Phase III. Emergence of Private Secor Funds - 1993-96.............................................................................. 11 Phase IV. Growth and SEBI Regulation - 1996-2004 ................................................................................... 11 Phase V. Growth and Consolidation - 2004 Onwards ................................................................................. 12 Key Events ................................................................................................................................................... 12 Equity funds ................................................................................................................................................ 15 Index funds.............................................................................................................................................. 16 Diversified funds ..................................................................................................................................... 16 Tax-saving funds...................................................................................................................................... 17 Sector funds ............................................................................................................................................ 17 Debt funds................................................................................................................................................... 17 Income funds .......................................................................................................................................... 17 Gilt funds ................................................................................................................................................. 18 Liquid funds............................................................................................................................................. 18 Balanced funds ............................................................................................................................................ 18 Open-ended Funds ...................................................................................................................................... 18 Closed-ended Funds .................................................................................................................................... 19 Interval Funds ............................................................................................................................................. 20 Professional management .......................................................................................................................... 20 Small investments ....................................................................................................................................... 20 Diversified portfolio .................................................................................................................................... 21 Liquidity ....................................................................................................................................................... 21 Low Costs .................................................................................................................................................... 21 3| Page

Transparency ............................................................................................................................................... 21 Flexibility ..................................................................................................................................................... 22 Well Regulated ............................................................................................................................................ 22 Tax breaks ................................................................................................................................................... 22 No assured returns and no protection of capital ........................................................................................ 23 Restrictive gains .......................................................................................................................................... 23 Fees and Commissions ................................................................................................................................ 23 Taxes ........................................................................................................................................................... 24 Management Risk ....................................................................................................................................... 24 Securities and Exchange Board of India (SEBI) ........................................................................................ 24 ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI) ................................................................................... 25 Top Management ........................................................................................................................................ 26 Products: ..................................................................................................................................................... 28 Operations .................................................................................................................................................. 28 NAV of a fund: ............................................................................................................................................. 29 Face Value of the fund: ............................................................................................................................... 29 Load: ............................................................................................................................................................ 29 Different options of a scheme: ................................................................................................................... 29 Growth Option ........................................................................................................................................ 30 Dividend Payout ...................................................................................................................................... 30 Dividend Re-investment.......................................................................................................................... 30 Portfolio Making: ........................................................................................................................................ 31 Practical Exposure in dealing with different customers: ........................................................................... 31 Calculations ................................................................................................................................................. 31 Effect on NAV after declaring dividend: ................................................................................................. 32 Investment Plans: ........................................................................................................................................ 33 Systematic Investment Plan (SIP)............................................................................................................ 33 Systematic Transfer Plan (STP) ............................................................................................................... 33 Systematic Withdrawal Plan (SWP) ........................................................................................................ 34 Standard deviation ...................................................................................................................................... 36 Beta ............................................................................................................................................................. 37 R-Squared .................................................................................................................................................... 38 4| Page

.................................................................... 41 Reliance Div ersified Power Fund .............................................................................................................. 42 ICICI Prudential Dynamic Plan: ..................................................................................................................................... 40 Secondary data ................................... 43 References: ................................. 40 Data collection ................................................................................ 40 Data Analysis ....................................................................................................... 40 Top Equity based funds ............................................................................... 46 5| Page ............................................................................................................................................................................................................................................................................................................................................................................................................................................ 42 HDFC Equity Fund ......................................................................................................................................................................................................................................................................................................................................................... 41 Reliance growth ............................................................ 38 Treynor ratio .................................................... 40 Primary data ................ 39 Why these statistical measures? .....................................................................................Sharpe Ratio ........................................................................................

investment decision is the most difficult decision. This paper gives insight how to calculate NAV. So basically this will help us to know about the top five mutual funds which will give highest returns at optimum risk. Net Asset Value (NAV) is considered as the most reliable indicator of performance of mutual funds. time. Five top scheme has been ranked from three mutual fund families. or desire to undertake the research necessary to avoid wrong decisions. 6| Page . In equity funds. A typical investor does not possess the knowledge. five top funds has been chosen to calculate various statistical tools. trenyor ratio.Warren Buffet For an investor. It will help to do the ranking and put them in an optimized portfolio according to various parameters. beta. Rsquare and how to use them to rank mutual funds. returns. Investment in mutual funds is one of the solutions to avoid wrong investment decisions but what if investor has to choose these instruments from a large pool.Abstract Risk comes from not knowing what you’re doing . sharpe ratio.

Institutions known as Asset Management Companies regulate mutual funds in India. The investors can invest in different schemes of one fund or in different mutual funds altogether and build up their investment portfolio. and/or other securities. and collects the dividend or interest income. debentures which are directly linked to the bullish and bearish tr ends in the market. Money from the common man is pooled in and is diversified into other investment opportunities. The flow chart below describes broadly the working of a mutual fund: 7| Page . as they allow investors to invest in safe. low risk and high-risk companies. The portfolio manager trades the fund's underlying securities. „Mutual Fund is the investment vehicle that is gaining momentum in the Indian ma rket. Professionals are hired into these companies to evaluate the Balance Sheet and Profit and Loss accounts of companies to know which of them are perfor ming and will succeed in the near future. realizing a gain or loss. mutual funds are invested in more subtle companies that have a steady growth rate and thus are not much affected by the share market. The investment proceeds are then passed along to the individual investors.Introduction What are Mutual Funds? A mutual fund is a form of collective investment that pools money from many investors and invests the money in stocks. short-term money-market instruments. Thus bringing high r eturns to the investment. Apart from investments in equities. Financial institutions or companies manage these mutual funds. bonds. This is the advantage of mutual funds over banks and other investment options.

They are: Sponsor The sponsor initiates the idea to set up a mutual fund. 8| Page . default-free dealings and a general reputation of fairness. They check whether the investments of the AMC are within defined limits. AMC and custodian. as with Canara Bank. such as on capital. State Bank of India is the sponsor and SBI Capital Markets the trustee. scheduled bank or financial institution. all Mutual Funds comprise of following four components. Once the AMC is formed. and also they secure necessary approvals. the trustee and the sponsor are the same. track record (at least five years' operation in financial services). whether the fund's assets are protected. like SBI Funds Management. Sometimes. For others. It could be a registered company. Trustees float and market schemes. and also whether the unit holders get their due returns. A sponsor has to satisfy certain conditions.CONSTITUTION OF THE MUTU L FUND Though there are many differences among various Mutual Funds. has to be ascertained. The sponsor appoints the trustees. the sponsor is just a stakeholder Trust/Board of Trustees Trustees hold a fiduciary responsibility towards unit holders by protecting their interests.

An AMC takes investment decisions. compensates investors through dividends. It also exercises due diligence on investments. and provides information on listed schemes and secondary market unit transactions. Among public sector mutual funds. the sponsor or trustee generally also acts as the custodian. Sponsors Board of Trustees Asset Management Company Custodians 9| Page . calculates the NAV. The fund manager is a very important person for the successful working of the various schemes of the fund. Custodian It is often an independent organization. maintains proper accounting and information for pricing of units. and it takes custody of securities and other assets of a mutual fund. It is he who decides the portfolio of companies in which the money is to be invested. and submits quarterly reports to the trustees. This portfolio is selected according to the investment objectives of the AMC as well as the investment strategies for that particular scheme.Fund Managers/AMC They are the ones who manage the investor s money.

Children's Gift Growth Fund and India Fund (India's first offshore fund) in 1986. The histor y of mutual funds in India can be broadly divided into four distinct phases. The primary objective at that time was to attract the small investors and it was made possible through the collective efforts of the Government of India and the Reserve Bank of India. six more schemes between 1981-84. By the end of 1987. Establishment and Growth of Unit Trust of India .1987-1993 The Indian mutual fund industry witnessed a number of public sector players entering the market in the year 1987. which attracted the largest number of investors in any single investment scheme over the years. The Evolution The formation of Unit Trust of India marked the evolution of the Indian mutual fund industry in the year 1963. UTI was set up by the Reserve Bank of India and it continued to operate under the regulatory control of the RBI until the two were de-linked in 1978 and the entire control was transferred in the hands of Industrial Development Bank of India (IDBI). named as Unit Scheme 1964 (US-64). UTI launched its first scheme in 1964. at the initiative of the Government of India and the Reserve Bank of India. SBI Mutual Fund from the State Bank of India became the 10 | P a g e . The history of mutual fund industry in India can be better understood divided into following phases: Phase I. Mastershare (India s first equity diversified scheme) in 1987 and Monthly Income Schemes (offering assured r eturns) during 1990s. UTI launched more innovative schemes in 1970s and 80s to suit the needs of different investors.1964-87 Unit Trust of India enjoyed complete monopoly when it was established in the year 1963 by an act of Parliament.History and Development of Mutual Funds in India The mutual fund industr y in India started in 1963 with the formation of Unit Trust of India. UTI's assets under management grew ten times to Rs 6700 crores. Phase II. It launched ULIP in 1971. Entry of Public Sector Funds . In November 1987.

The mobilization of funds and the number of players operating in the industry reached new heights as investors started showing more interest in mutual funds. Private funds introduced innovative products. 1996 was introduced by SEBI that set uniform standards for all mutual funds in India. 47.1993-96 The permission given to private sector funds including foreign fund management companies (most of them entering through joint ventures with Indian promoters) to enter the mutual fund industry in 1993. However. both by SEBI and AMFI. The UTI Mutual Fund Presently Unit Trust of India operates under the name of UTI Mutual Fund and its past schemes 11 | P a g e . The Specified Undertaking. provided a wide range of choice to investors and more competition in the industry. with an objective to educate investors and make them informed about the mutual fund industry. Bank of India Mutual Fund. Phase III. Investor s' interests were safeguarded by SEBI and the Government offered tax benefits to the investors in order to encourage them. Growth and SEBI Regulation . about 11 private sector funds had launched their schemes. the UTI Act was repealed and UTI was stripped of its Special legal status as a trust formed by an Act of Parliament. Indian Bank Mutual Fund. The primary objective behind this was to bring all mutal fund players on the same level. Phase IV.1996-2004 The mutual fund industry witnessed robust growth and stricter regulation from the SEBI after the year 1996. the assets under management of the industry increased seven times to Rs. UTI remained to be the leader with about 80% market share. In February 2003. 2. SEBI (Mutual Funds) Regulations. UTI was re-organized into two parts: 1. GIC Mutual Fund and PNB Mutual Fund. Emergence of Private Sector Funds . The Union Budget in 1999 exempted all dividend incomes in the hands of investors from income tax. investment techniques and investorservicing technology. By 1994-95. SBI Mutual Fund was later followed by Canbank Mutual Fund. By 1993.first non-UTI mutual fund in India.004 cror es. LIC Mutual Fund. Various Investor Awareness Progr ams were launched during this phase.

India s first true “mutual fund” scheme. more international mutual fund players have entered India like Fidelity. However. Franklin Templeton Mutual Fund etc. launched 1964 UTI launches US-64 1986 UTI Mastershare. Kothari Pioneer first private fund house to start operations. Simultaneously. SEBI set up to regulate industr y 1994 Morgan Stanley is the first foreign player 1996 SEBI s mutual fund rules and regulations. launched 1987 PSU banks and insurers allowed to float mutual funds. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players. 1992 Harshad Mehta-fuelled bull market arouses middle-class interest in shares and mutual funds 1993 Private sector and foreign players allowed. there was a significant growth in mobilization of funds from investors and assets under management. Phase V. examples of which ar e acquisition of schemes of Alliance Mutual Fund by Birla Sun Life. Assured Return Schemes) are being gradually wound up. Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Key Events 1963 UTI. come into force 1998 Master Index Fund is India s first index fund 12 | P a g e . Growth and Consolidation . which form the basis of most current laws.2004 Onwards The industry has also witnessed several mergers and acquisitions recently. India s first mutual fund.(like US-64. State Bank of India (SBI) first off the Block. UTI Mutual Fund is still the largest player in the industry. In 1999. There were 29 funds as at the end of March 2006.

floating rate funds and foreign debt funds debut 2003 AMFI certification made compulsory for new agents 2004 Long-term capital gains exempt from tax for equity funds. 2. 1.000 crore in October 2007 Mutual funds launch Gold ETFs and schemes that will invest in overseas securities 2008 PAN card becomes mandatory to invest in mutual funds 2009 AMFI committee on introducing different classes of shares in mutual funds 13 | P a g e . 3.00. mutual fund distributors banned from giving commissions to investors. Securities transaction tax introduced 2005 The industry s AUM crosses Rs.1999 The takeover of 20th Century AMC by Zurich Mutual Fund is the first acquisition in the industry 2000 The industr y s Assets Under Management (AUM) cross Rs. 1 lakh in Equity-Linked Savings Schemes (ELSS) for deduction from total taxable income 2006 AUM crosses Rs.000 crore 2001 US-64 scam leads to UTI overhaul 2002 UTI bifurcated. which allows up to Rs.00.000 crore Section 80C introduced. comes under SEBI purview.00.

money market accounts.Types of Mutual Funds Mutual funds usually invest in stocks. bonds. and so on. Mutual funds are categorized by their goal: while some funds are designed to take risks in order to achieve the greatest potential growth. may also utilize investments like certificates of deposit. and depending on the conservativeness of the fund's goal. others are designed to maintain value while yet others 14 | P a g e .

bond funds. sector funds. having holdings in different asset classes and in different types of securities. While the individual investor must ultimately decide what his or her investment profile is. such funds show volatile performance. However. Every scheme is bound by the investment objectives outlined by it in its prospectus. Sundar am BNP Paribas. Yet other types of mutual funds are balanced funds.invest heavily into dividend-yielding stocks in order to provide a source of income for mutual fund participants. it is generally advised that younger investors take greater risks in order to attempt more dramatic growth. Money market funds ar e also low-risk. which determine the classes of securities it can invest in. Aggressive growth mutual funds are thus more popular with younger generations. Each of these types of funds has a different goal and a different investment style. growth funds. There are also „specialized equity funds. and can invest in the entire basket of stocks available in the market. the different Mutual Funds that operate in Indian can be categorized as follows: Mutual Funds by portfolio classification Equity funds These are the highest rung on the mutual fund risk ladder. and income funds. Asset allocation funds are designed to be as diverse as possible. international funds. Based on the asset classes. equities have 15 | P a g e . and any mutual fund manager will be able to explain the differences and advise investors on which most closely meets their needs. Most equity funds are general in nature. DSP Merrill Lynch. regional funds. With share prices fluctuating daily. asset allocation funds are usually lower-risk. such as index funds and sector funds. Due to their diversity. even losses. and have a high level of risk with the potential for higher rates of growth. At First Global we have Equity schemes offered by SBI Mutual Fund Reliance. and commercial paper. which invest only in specific categories of stocks. historically. certificates of deposit. while older investors should invest more conservatively in order to protect their assets. ING Vysya. Money market funds invest only in money markets. unlike capital appreciation funds which seek maximum growth by taking on ver y high levels of risk. these funds can yield great capital appreciation as. stock funds. HDFC and many others. such funds invest only in stocks. such as Treasury bills.

their portf olio mirrors the index they track. Hence. barring a minor "tracking error". your investment would be worth Rs 34. there are four types of equity funds available in the market. Usually. marketing expenses and transaction costs (impact cost and brokerage) to its unit holders. Obviously. Index funds don t need fund managers. assume you invested Rs 1. it arises because the index fund charges management fees. Termed as tracking error. the stock selection is entirely the prerogative of the fund manager. In August. Although by definition.2 per cent.570. if the fund manager s picks languish. Investing through index funds is a passive investment strategy. like the BSE (Bombay Stock Exchange) Sensex or the NSE (National Stock Exchange) S&P CNX Nifty. The idea is to replicate the performance of the benchmarked index to near accuracy. the lower the tracking error. Diversified funds Such funds have the mandate to invest in the entire universe of stocks. the returns will be far lower. Therefore. as there is no stock selection involved.outperformed all asset classes. example Magnum Multicap Fund of SBIMF. these are: Index funds These funds track a key stock market index. as a fund s performance will invariably mimic the index concerned. For instance. such funds are meant to have a diversified portfolio (spread across industries and companies). an index fund like Magnum Index Fund of SBI MF that tracks the Sensex will invest only in the Sensex stocks. the better the Index Fund. when the Sensex was at 3. A tracking error of 1 per cent would bring down your annualized return to 16. At present.2 per cent. which works out to an annualized return of 17. In the increasing order of risk. To illustrate with an example. This discretionary power in the hands of the fund manager can work both ways for an equity fund. on the other hand. On the one hand. both in terms of composition and the individual stock weight ages. the fund is said to have a tracking error of 1 per cent.457. if the Sensex appreciates 10 per cent during a particular period while an index fund mirroring the Sensex rises 9 per cent. there s a difference between the total returns given by a stock index and those given by index funds benchmarked to it. The crux of the matter is that the returns from a diversified fund depend a lot on the fund manager s capabilities to make the right investment decisions. 16 | P a g e . when the index was launched (base: 100).000 in an index fund based on the Sensex on 1 April 1978. astute stock-picking by a fund manager can enable the fund to deliver market-beating returns.

In terms of investment profile. there are specialized schemes.000. namely liquid funds and gilt funds. A sector fund s NAV will zoom if the sector performs well. tax-saving funds get more time to reap the benefits from their stock picks. While the former invests predominantly in money market instruments such as certificates of deposit (CD). as the returns there are the 17 | P a g e .000.Tax-saving funds Also known as ELSS or equity-linked savings schemes. and are a good option for investors averse to taking on the risk associated with equities. Most income funds park a major part of their corpus in corporate bonds and debentures. Magnum IT Fund. evergreen sectors like FMCG and Pharma most other industries alternate between periods of strong growth and bouts of slowdowns. such funds can invest in the entire range of debt instruments. as in Magnum Tax gain Scheme of SBI MF. commercial paper (CP) and call money. whose portfolios sometimes tend to get dictated by redemption compulsions. The only drawback to ELSS is that the investor is locked into the scheme for three years.000 a year in an ELSS. however. Here too. They are: Income funds By definition. tax-saving funds are like diversified funds. one can claim a tax exemption of 20 per cent from his/her taxable income. if the sector languishes. these funds offer benefits under Section 88 of the Income-Tax Act. Sector funds The riskiest among equity funds. The one difference is that because of the three year lock-in clause. and get them right. Debt funds Such funds invest only in debt instruments. on an investment of up to Rs 10. The way to make money from sector funds is to catch these cycles–get in when the sector is poised for an upswing and exit before it slips back. the scheme s NAV too will stay depressed. unless one understands a sector well enough to make such calls. One can invest more than Rs 10. Therefore. sector funds should be avoided. say IT or FMCG like Magnum Contra fund. So. gilt funds do so in securities issued by the central and state governments. but won t get the Section 88 benefits for the amount in excess of Rs 10. unlike plain diversified funds. sector funds invest only in stocks of a specific industry. Magnum FMCG Fund. Barring a few defensive. Debt funds are of three types.

whose investment portfolio includes both debt and equity. Example. Magnum Gilt Fund as offered by SBIMF. Example. Balanced funds ar e the ideal mutual funds vehicle for investors who prefer spreading their risk across various instruments. Gilt funds They invest only in government securities and T-bills–instruments on which repayment of principal and periodic payment of interest is assured by the government. there are balanced funds. The key feature of open-end schemes is liquidity. These do not have a fixed maturity. Magnum Children s Benefit plan and Magnum Monthly Income plan. Magnum Income Fund offered by SBI Mutual Fund. unlike income funds. But there is also the risk of default–a company could fail to service its debt obligations. Among debt funds. they fall somewhere between equity and debt funds depending on the fund s debt-equity spilt–the higher the equity holding. So. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. For example. Example. Liquid funds They invest in money market instruments (duration of up to one year) such as treasury bills. Mutual Funds by Structure Open-ended Funds An open-end fund is one that is available for subscription all through the year. Some of the popular schemes are Magnum Balanced Fund. Balanced funds Lastly. Magnum Floating rate plan offered by SBIMF. in normal market conditions. gilt funds tend to give marginally lower returns than income funds. liquid funds are the least volatile. As a result. CPs and CDs. Hybrid Schemes offered by SBIMF. It implies that the capitalization 18 | P a g e . They invest in a pre-determined proportion in equity and debt–normally 60:40 in favor of equity. on the risk ladder.higher than those available on government-backed paper. they don t face the specter of default on their investments. This element of safety is why. the higher the risk. call money. They are ideal for investors seeking low-risk investment avenues to park their short-term surpluses.

the management of such funds becomes more tedious as managers have to work from crisis to crisis. Since there is always a possibility of withdrawals. This is the reason that generally open-ended schemes are equity based. based on declared net asset value (NAV). Open-ended schemes have comparatively better liquidity despite the fact that these are not listed. Crisis may be on two fronts. Closed-ended Funds A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years.e. As a matter of fact all the schemes that SBI mutual funds offer are open ended in nature. that unexpected withdrawals r equire funds to maintain a high level of cash available every time implying thereby idle cash. Further. since repurchase is at a price. If one takes into account the issue expenses. which are actively traded in the market. option to reinvest its dividend is also available. at any time. Moreover. Thus. He could ver y well have to sell his most liquid assets. The fund is open for subscription only during a specified period. Their price is determined on the basis of demand and supply in the market.of the fund is constantly changing as investors sell or buy their shares. Fund managers have to face questions like „what to sell . to match quick cash payments. desiring frequently traded securities. Further. the shares or units are normally not traded on the stock exchange but are repurchased by the fund at announced rates. openended schemes hardly have in their portfolio shares of comparatively new and smaller companies since these are not generally tr aded. Moreover. funds cannot have matching realization from their portfolio due to intricacies of the stock market. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. the realizable amount is certain. Second. i. one is. there is every possibility that the market price may be above or below its NAV. Their price is free to deviate from NAV. it will not be possible to calculate NAV. Their liquidity depends on the efficiency and understanding of the broker entrusted with. Otherwise. No intermediaries are required. In such funds. The portfolio mix of such schemes has to be investments. conceptually close ended fund units cannot be traded at a premium or over NAV 19 | P a g e . success of the open-ended schemes to a gr eat extent depends on the efficiency of the capital market. by virtue of this situation such funds may fail to grab favorable opportunities.. The reason is that investor can approach mutual fund for sale of such units.

who brings to the table an in-depth understanding of the financial markets. Most of us have neither the skill to find good stocks that suit our risk and returns profile nor the time to track our investments–but still want the returns that can be had from equities. we would have to invest a minimum amount of Rs 25. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor. some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. Some of the advantages have been discussed in this section. In order to provide an exit route to the investors. that might be too large an amount for many small investors. Interval Funds Interval funds combine the features of open-ended and close-ended schemes. the fund manager is ideally placed to research various investment options. and invest accordingly for the investor. Professional management It is very difficult for a new investor to analyze equities.. Now.000. Small investments Today. By virtue of being in the market. They are open for sale or redemption during pr e-determined intervals at NAV related prices.e. Much the same is the case if we want to build a decent-sized portfolio of shares of blue-chips.because the price of a package of investments. That is where mutual f unds come in. we need to analyze the advantages of Mutual fund investments. A fund manager is an investment specialist. When investments are made in mutual funds. cannot exceed the sum of the prices of the investments constituting the package. if we want to buy government securities. A mutual fund. the fund manager takes care of the investments. i. 20 | P a g e . Mutual funds: The dvantages If we are talking about the rapid growth of the Mutual funds industry and the competition it is giving to the other investment opportunities. Whatever premium exists that may exist only on account of speculative activities.

Therefore. The value of the investment will halve to Rs 5. which are linked to the fund s prevailing NAV (net asset value). 21 | P a g e .000 invested in one stock. and invests the resultant large sum in a number of securities. That s one of the greatest merits of diversification.however. Now.000. For example– Say. the others can check the erosion in the portfolio value. Low Costs Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage.000-5. gives us an ownership of the same investment pie– at an outlay of Rs 1. The rationale for this is that even if one pick in the portfolio turns bad. don t put all your eggs in one basket. the proportion invested in each class of assets and the fund manager's investment strategy and outlook. for some reason. the depreciation in the fund s portfolio– and hence. That is because a mutual fund pools the monies of several investors. within three to five working days of putting in the request to withdraw. which had parked 10 per cent of its corpus in the Reliance stock. Assuming prices of other stocks in its portfolio stay the same. the stock drops 50 per cent. Transparency The investor gets regular information on the value of the investment made in addition to disclosure on the specific investments made under the scheme. Liquidity There is a freedom to take the money out of open-ended mutual funds whenever one wants. custodial and other fees tr anslate into lower costs for investors. Diversified portfolio One of the most-mentioned tenets of portfolio management is: diversify. no questions asked. Now. Reliance. In other words.000. we get to participate in the investment prospects of a number of securities. on a small outlay. an investor has Rs 10. Most open-ended funds mail the redemption proceeds. say if he had invested the same amount in a mutual fund. the investment–will be 5 per cent.

22 | P a g e . indexation benefits increase the purchase cost by a certain portion. one gets the benefits of indexation. one can systematically invest or withdraw funds according to the needs and convenience. This reduces tax liability. However. Simply put. regular withdr awal plans and dividend reinvestment plans. Well Regulated All Mutual Funds are r egistered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. For holding units beyond one year. Dividends distributed by them are tax-free in the hands of the investor. What s more.Flexibility Through features such as regular investment plans.000 in the scheme in a year. depending upon the yearly cost-inflation index (which is calculated to account for rising inflation). thereby reducing the gap between the actual purchase cost and selling price. even mutual funds have some inherent drawbacks. taxsaving schemes and pension schemes give added advantage of benefits under Section 88. One can avail of a 20 per cent tax exemption on an investment of up to Rs 10. Tax breaks Last but not the least. mutual funds offer significant tax advantages. The operations of Mutual Funds are regularly monitored by SEBI. They also give the advantages of capital gains taxation. Disadvantages of Mutual Funds Mutual funds are good investment vehicles to navigate the complex and unpredictable world of investments.

or financial planners. However. where up to Rs 1 lakh per bank is insured by the Deposit and Credit Insurance Corporation. your investment in a mutual fund can fall in value. Even if you don't use a broker or other financial adviser. unlike bank deposits. But the investment in the mutual fund. Reliance appreciated 50 per cent. In the earlier example. say. will see only a 5 per cent appreciation Fees and Commissions All funds charge administrative fees to cover their day-to-day expenses. Some funds also charge sales commissions or "loads" to compensate brokers.Commission paid while purchasing Units of a particular fund. mutual funds are not insured or guaranteed by any government body (unlike a bank deposit. This is because most closedend funds that assured returns in the early-nineties failed to stick to their assurances made at the time of launch. a subsidiary of the Reserve Bank of India). Exit Load. if risk minimization is the objective. you will pay a sales commission if you buy shares in a Load Fund. For instance. There are strict norms for any fund that assures returns and it is now compulsory for funds to establish that they have resources to back such assurances. which had invested 10 per cent of its corpus in Reliance. The loads are of two types: Entry Load. In addition. Restrictive gains Diversification helps. financial consultants. A direct investment in the stock would appreciate by 50 per cent.No assured returns and no protection of capital Mutual funds do not offer assured returns and carry risk. the lack of investment focus also means that we gain less than if we had invested directly in a single security. 23 | P a g e . resulting in losses to investors.Commission paid while selling back the Units.

Of course. mutual funds sponsored by private sector entities were allowed to enter the capital market. 24 | P a g e . because these funds do not employ managers. one who has invested in it will pay taxes on the income he/she receives. The regulations were fully revised in 1996 and have been amended thereafter from time to time. If a fund makes a profit on its sales. Every mutual fund must be registered with SEBI and registration is granted only where SEBI is satisfied with the background of the fund. investor might not make as much money on his investment as he had expected. Management Risk When one invests in a mutual fund. SEBI has also issued guidelines to the mutual funds from time to time to protect the interests of investors. he/she depends on the fund's manager to make the right decisions regarding the fund's portfolio. If the manager does not perform as well as he had hoped. most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993. Regulation of Mutual Funds in India Securities and Excha nge Board of India (SEBI) As far as mutual funds are concerned. even if he/she reinvests the money he has made. if one had invested in Index Funds. Thereafter. he/she foregoes management risk.Taxes During a typical year.

AMC and custodian where it deems it necessary. 1996 lays down the provisions for the appointment of the trustees and their obligations. ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI) The mutual fund industry has a trade association called Association of Mutual Funds in India (AMFI) modeled on the lines of a Self Regulating Or ganization (SRO) with a view to 'promoting and protecting the interest of mutual funds and their unit-holders. 25 | P a g e . and serving the investor s interest by defining and maintaining high ethical and professional standards in the mutual funds industry'. Every new scheme launched by a mutual fund needs to be filed with SEBI and SEBI reviews the document in regard to the disclosures contained in such documents. records and documents of a mutual fund. The Regulations have also laid down the provisions for the approval of the AMC and the custodian. AMFI plays an important role in disciplining members and assist the regulatory authority in protecting investors' inter est.SEBI (Mutual Funds) Regulations. increasing public awareness of mutual funds. SEBI has the authority to inspect the books of accounts. AMFI has now decided to become a selfregulatory organization since it has worked very effectively as an industry body. SEBI has also laid down advertisement code to be followed by a mutual fund in making any publicity regarding a scheme and its performance. some of which ar e standing committees to address areas where there is a need for constant vigil and improvements and other which are adhoc committees constituted to address specific issues. its trustees. SEBI also has the authority to initiate penal actions against an erring MF. AMFI works through a number of committees. These committees consist of industry professionals from among the member mutual funds.

portfolio management and other structured products. The capital markets at that time was undergoing a sea change in its character and SSKI under the vision and guidance of Shripal Morakhia and the commitment and hardwork of Mr. he joined SSKI (S. Xavier College. started his professional life in sales and marketing in a chemicals company. Today it is India s leading online retail broking house with its presence through 800 „Share Shops in 300 cities and serving more than 6.” Top Management Mr.50. The mission of Share khan is “… to educate and empower the individual investor to make better investment decision through Quality Advice. derivatives..Company Sharekhan limited launched online trading portal on Feb 8th 2000. Kantilal Ishwarlal). Innovative products and superior service.Tarun ShahCEO. Share khan deals with wide variety of products namely equities.000 customers across the nation. research. S. Since then SSKI 26 | P a g e . commodities. a brokerage firm with over five decades of service. Shah was able to change and adopt the new business practices to achieve significant growth in a competitive environment. In 1987. mutual fund. His approach and experience in sales led him to higher challenges that the capital market provided.Mumbai. Sharekhan A science graduate from St. IPO.

equity sales and broker age. finance and legal functions. which included project finance. During his tenure there he set up and headed the Institutional Equity Brokerage Desk at ICICI Securities & Finance Co. Mr. completed his B. Shankar Vailaya heads the operations. investments etc. Ltd. He is responsible for settlements.Tech from IIT (Kanpur) and his PGDM from IIM Kolkata worked with ICICI for 8 years where his work spanned a gamut of functions. Product Development Jaideep Arora. Jaideep Arora Director. Finance and Legal Functions A graduate in commerce from the university of mangalore and an associate of The Member of the institute of Chartered Accountants of India. Operations. Mr. risk and compliance and regulatory & other legal commitments and Treasury. Shanker Vailaya Director. depository operations.has achieved growth in each of its business Institutional Broking. Mr. 27 | P a g e .

Mutual Fund Investment . Platinum circle . Charts. 6.400 Mutual funds from 17+ mutual fund families to choose from. 4. 5. Fist step – This is for the people who invest for the first time.Products: 1. Online trading – A customer can trade on his own by using the online trading mode. Trade tiger. Research advantage. 2. 28 | P a g e . Structured products. This contains a blend of quality blue-chip and growth stocks ensuring a balanced portfolio with relatively medium risk profile. They are – Share shops – A customer can directly visit any of the share shop to trade . Thus. Dial & trade – A customer can ring up to any dealer or the relationship manager and can execute his trade. Investments are selected to give consistent. Protech – It uses the knowledge of technical analysis and the power of the derivatives market to identify trading opportunities. based on the convenience of the customer he can choose any of the above modes of transaction. Equity investment – Complete analysis of each stock. 3. steady and sustainable returns Operations Share Khan offers three modes of trade transaction means. Classic – Ease of investment. Proprime – Ideal for investor s looking at steady and superior returns with low to medium risk appetite.Cutting edge tools. Investment products. 7.Relationship management. 8.

the value of a single unit of the fund is known as face value. Exit loads are those charges that an investor needs to pay if redemption is made before specified time period. But in case of tax saving schemes an investor can not withdraw before lock-in period. Different options of a scheme: 29 | P a g e . Load: A load is known as charges paid by the customer. This value is deducted from his investment. There are two types of loads. of units outstanding on that day For the calculation of NAV. It is generally 10 rupees. After that this value goes up or down depending on the total amount of investment and market per formance. NAV for a day = Net Assets of the Scheme/No.LE RNING’S FROM WORKING IN SH REKH N LIMITED NAV of a fund: NAV is the value of one unit of the investment made. Face Value of the fund: When a company issues a new fund. the day on which NAV is calculated by a fu nd is known as VALUATION DATE. but not certainly for all the funds. entry load and exit load. It is computed by dividing the net assets (total assets-total liabilities) of the fund by the number of units outstanding. Entry loads are the charges that an investor has to pay at the time of making an investment.

30 | P a g e . of units increases whenever there is a declaration of dividend. Here no. This amount is calculated as explained in the following page. Dividend Payout This option gives a certain amount of dividend on the investment made by an investor. Dividend Re-investment In this option dividend is not paid to the customer but reinvested in the same scheme.Different Options Growth Option Dividend Payout Figure : Different options of a scheme Dividend Option Dividend Re-investment Growth Option In this option the value of NAV goes up or down depending on market performance on daily basis but no of units remain same as that of the time of investment.

date of investment.20.10.Portfolio Making: Apart f rom doing these projects some other works also have been done in the bank. name of the scheme and option. It has really been a good experience for me. Suppose a person is making an investment of Rs. whether this investment is made through SIP (Systematic Investment Plan) or one time investment. 000 and NAV for the day of investment is Rs. Calculations Calculating no. Then put the important information from the statements to excel sheet. One portfolio is related to one customer. It has given an experience to deal with people of different mind set. How people react to the topic of mutual funds and whether they are aware of its different schemes or not and also if they are interested in making any of the investments. One of them is making portfolios of different customers. (Considering no entry load) Then Total No. In this portfolio making first calls are made to different AMC to send the statements of investments made by different customers. of Units =Total investment made on that day/NAV of the day = 10000/20 = 500 units 31 | P a g e . Practical Exposure in dealing with different customers: It has been a good experience to speak with the customers regarding investments. which contains all the investments made by the customer in the mutual funds of different companies. current value of investment etc. This portfolio basically contains information like amount invested in different funds. of units It can be explained by taking an example. Similarly other portfolios are also made.

of Units = [Total Investment-(total investment*2.27. then Total No.32. After dividend declaring date. NAV of the fund as on 23rd March was Rs.10000.25/100)]/NAV of the day [10000-(10000 *2. 32 | P a g e .75 units Calculation of Dividend amount.Suppose there is an entry load of 2. value of NAV should be lower by Rs. Effect on NAV after declaring dividend: Again let s consider the same example as above. Hence next day NAV should be Rs.25%. No. of units that he would get = 302. when a company declares dividend: Dividend is always calculated on the face value. of units = 5 * 302.34 and its face value is Rs.5 per unit. Total dividend amount given to the investor on the investment of 10000 = Dividend given per unit * Total no. Magnum Global Fund declared a dividend of 50% as on 23rd March 2007.34.285 Rs. It can be shown by taking an example of SBI Magnum Global Fund.257 = 1511.257 units Dividend given per unit = 50 * 10/100 = 5 Rs.10. Suppose a person makes an investment of Rs.25/100)]/20 = 488. NAV goes down by the amount of dividend declared per unit.

Systematic Transfer Plan (STP) This plan allows investor to transfer periodically a specific amount from one scheme to another scheme of the same mutual fund. Investment Plans: Investment Plans Systematic Investment Plan Figure : Different Investment plans Systematic Transfer Plan Systematic Withdrawal Plan Systematic Investment Plan (SIP) In this plan the investor is allowed to invest a fixed amount at regular intervals.27 because it also depends on that day market performance.27. Market timings are not required for making an investment in SIP because no of units are averaged on monthly basis hence this plan makes market timings irrelevant. It gives the investor a way to save and invest. This is a good plan for salar y holders because they can save on monthly basis from their salar y and make investment.But exact value was Rs. 33 | P a g e . It gives the benefit of switching into a scheme which is performing better than the existing one.

and the judgment typically involves specifying the benchmarks and their role in defining performance. The pioneering work on the performance evaluation of mutual 34 | P a g e . investors can allow their decisions to reflect doubts about either the adequacy of the benchmarks or the stock-picking ability of fund managers.Systematic Withdrawal Plan (SWP) Here an investor can periodically withdraw from his fund investment accounts. Hence in this he can receive regular cash inflows. This is a good scheme for retired people. Survey of Existing Literature The number of researches in this area is low in India as compared to other developed nations. The data typically consist of returns on the funds and one or more benchmarks. Mutual fund as a short-to-long term investment option is preferred as a suitable investment option by investors. standard deviation. A wide range of technical and quantitative tools have been produced to evaluate and compare performance of equity funds.g. It helps him to get a regular cash flow. Investing in mutual funds also combines data and judgment. Rather than accept the standard performance measures at face value. Comparative nalysis A comparative analysis of various funds enables an investor to choose most suitable fund for him. Comparative analysis of mutual fund perfor mance combines data and judgment. beta etc. A mutual fund performance often measured by various statistical tool e.

Amitab Gupta (2001) in his study. But all did it on the basis of single parameter. The study also tested the market timing abilities of the fund managers. R-Squared etc. the authors devise a test of mutual fund historical success in anticipating major moves in the market. Rates of return for 57 funds (1953-1962) were employed to investigate whether the volatility of a fund is higher in years when the market does well than in years when the market does poorly.e.funds was done by Sharpe (1966) who has developed a composite measure that considers return and he evaluated the performance of 34 open-ended mutual funds during the period 1944-63 by the measures developed by him. It used risk adjusted performance. the selected schemes were evaluated with respect to the broad based BSE National Index to find out whether the schemes were able o beat the market. From this. Sharpe ratio. beta more than one while the r emaining 35 schemes (48%) generated lower returns than that of the market that means a beta lower than one. to facilitate an investor. they conclude that none of the managers outguess the market and that these managers should not be held responsible for failing to foresee changes in market direction. They explain that the only way a fund can translate ability to outguess the market into higher returns for shareholders is to var y the fund's volatility systematically in a manner that results in an northwards characteristic line. It also examined whether the returns were commensurate with the risk undertaken by the fund managers. The results indicate that 38 schemes (52%) earned higher returns in comparison to the market return i. A study performed by Treynor & Mazuy (1966) found no statistical evidence that investment manager of any 57 funds were not able to guess the market movements in advance. So the literature survey reveals that there is still further scope for advanced research in this area where we can use more than one parameter like Beta. To address risk the issue. most of these studies evaluated the performance of mutual funds in India in terms of risk adjusted return parameters. It was revealed in his study that good performance was associated with low expense ratio and only low relationship was discovered between fund size and performance. The present 35 | P a g e . They compute a characteristic line wherein the rate of return for a managed fund is plotted against the rate of return for a suitable market index. Thus. There is no evidence of curvature in characteristic lines for any of the funds.

Selection of Funds and nalysis tools Each mutual fund offers a variety of schemes to suit differing needs of investor. Want to invest for the short term or long term 2. Risk is an important factor in determining how to efficiently manage a portfolio of investments because it determines the variation in returns on the asset and/or portfolio and gives investors a mathematical basis for investment decisions. For example. or the risk of a portfolio of securities. you have a choice between two Mutual Funds: Fund A historically returns 5% with a standard deviation of 10%. because Fund B's additional percentage point of r eturn generated (an additional 20% in dollar terms) is 36 | P a g e . the expected return on the asset will increase as a result of the risk premium earned – in other words. The Bank/Brokerage house/Individual Financial Advisor helps investors make the choice based on their needs as investor may 1. an investor may decide that Fund A is the better choice. The overall concept of risk is that as it increases. Want regular income or growth 3. Be convinced of a particular sector and want invest in it To analyze these fund risk-return based analysis is proposed which will cherish through following tools: Standard deviation Standard deviation is a r epresentation of the risk associated with a given security. On the basis of risk and return.study attempts to compare various equity funds in India according to their category and will analyze on the basis of above statistical tools. Want to target lower risk or higher returns 4. investors should expect a higher return on an investment when said investment carries a higher level of risk. while Fund B returns 6% and carries a standard deviation of 20%.

Use this measurement. A negative beta shows that the asset inversely follows the market.rp) is the covariance between the rates of return. combined with the average return on the funds. Taking the average of the squared variances results in the measurement of overall units of risk associated with the asset. Correlations are evident between companies within the same industry.not worth double the degree of risk associated with Stock A. Beta Beta coefficient is a measure of volatility of a stock or portfolio in relation to the rest of the financial market. A positive beta means that the asset generally follows the market. The larger the variance in a period. the greater risk the security carries. subtracting the expected return from the actual return results is the variance. An asset with a beta of 0 means that its price is not at all correlated with the market. The formula for the Beta of an asset within a portfolio is . but is equally likely to earn 10% less than the expected return. where ra measur es the rate of return of the asset. In this example. Fund B is likely to fall short of the initial investment more often than Fund A under the same circumstances. and can be referred to as a 37 | P a g e . For each period. the asset generally decreases in value if the market goes up. that asset is independent. and will return only one percentage point more on average. rp measures the r ate of return of the portfolio of which the asset is a part and Cov(ra. Fund A has the potential to earn 10% more than the expected return. Beta is also referred to as financial elasticity or correlated relative volatility. E(X) = Expected Return Calculating the average return (or arithmetic mean) of a security over a given number of periods will generate an expected return on the asset. Finding the square root of this variance will result in the standard deviation of the investment tool in question. X = Return. Square the variance in each period to find the effect of the result on the overall risk of the asset. as a basis for comparing funds. or even within the same asset class.

On an individual asset level. it is only a good investment if those higher returns do not come with too much additional risk. 38 | P a g e . its non-diversifiable risk. a sector may be performing well and may have good prospects. This measurement is ver y useful because although one portfolio or fund can reap higher returns than its peers. However. For example. On a portfolio level. the better its risk-adjusted performance has been.measure of the asset's sensitivity of the asset's returns to market returns. Sharpe Ratio The Sharpe ratio tells us whether a portfolio's returns are due to smart investment decisions or a result of excess risk. or fund as the case may be. measuring beta can give clues to volatility and liquidity in the marketplace. R-Squared values range between 0 and 100. the degree to which a fund's volatility is a result of the day-to-day fluctuations experienced by the overall market. its systematic risk or market risk. Beta is a measure of risk and not to be confused with the attractiveness of the investment. An inappropriate benchmark will skew more than just beta. R-Squared R-Squared of a fund advises investors if the beta of a mutual fund is measured against an appropriate benchmark. where 0 represents the least correlation and 100 represents full correlation. Measuring the correlation of a fund's movements to that of an index. or more specifically. the beta of the fund should be trusted. RSquared describes the level of association between the fund's volatility and market risk. The beta movement should be distinguished from the actual returns of the funds. The greater a portfolio's Sharpe ratio. measuring beta is thought to separate a manager's skill from his or her willingness to take risk. On the other hand. If a fund's beta has an RSquared value that is close to 100. it should not be taken as a reflection on the overall attractiveness or the loss of it for the sector. an R-Squared value that is close to 0 indicates that the beta is not particularly useful because the fund is being compared against an inappropriate benchmark. but the fact that its movement does not correlate well with the broader market index may decrease its beta.

such as that of the 364 days Treasury bills . R Sharpe Ratio = Where: RP = Expected portfolio return sP = Portfolio standard deviation = s P – RF P RF = Risk free rate Treynor ratio Treynor ratio is a measurement of the returns earned in excess of that which could have been earned on a riskless investment (i. It is similar to the Sharpe ratio. the Treynor ratio is a risk-adjusted measure of return based on systematic risk.The Sharpe ratio is calculated by subtracting the risk-free rate . rp = portfolio return rf = risk free rate ß = portfolio beta P – RF ß In other words. Higher the Treynor ratio.from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. with the difference being that the Treynor ratio uses beta as the measurement of volatility. Treasury Bill) (per each unit of market risk assumed). better the performance under analysis. R T= where T = Treynor ratio. 39 | P a g e . however systematic risk instead of total risk is used.e. The Treynor ratio (sometimes called reward-to-volatility ratio) relates excess return over the risk-free rate to the additional risk taken.

The MPT is a standard financial and academic methodology used for assessing the performance of equity. A rating will be given to each fund by each statistical measur e. All of these measurements are intended to help investors determine the risk-return parameters of their investments. Journals. These statistical measures I have just discussed can provide some balance to the risk-return equation. Data Analysis After collection of historical data each fund will be compared with other funds within its category on the basis of aforementioned analysis tools. Many investors tend to focus exclusively on investment return. fixed-income and mutual fund investments by comparing them to market benchmarks. Fund fact sheets of various fund houses. Research papers. Websites of the leading AMCs and AMFI for inf ormation on product s performance and historical data. magazines. For example if a fund is having highest Sharpe Ration in its category. Data collection Primary data Sharekhan’s data base Other financial intermediaries Secondary data Research Report published by renowned mutual fund distributors. These statistical measures are historical predictors of investment risk/volatility and are all major components of Modern Portfolio Theory (MPT).Why these statistical measures? Above mentioned tools are main indicators of investment risk that apply to the analysis of stocks and mutual fund portfolios. with little concern for investment risk. it will be given 10 points and second highest will be getting points in proportion to highest Sharpe 40 | P a g e .

Three main categories have been taken to compare mutual fundsA. Equity based B. Debt based C. Sector Allocation(%) Banks Construction and Infrastructure Consumer Durables and Electronics 7% 12% 4% 6% 10% 6% Miscellaneous Non Ferrous metals 10% FI Current Assets Engineering and Capital Goods 2% 18% 2% 6% 7% 4% 4% 2% Petroleum. Further these rating will form a combined rating by adding all separate rating to suggest investors according to their investment behavior.Ratio. Gas and petrochemical products Power & Control equipment Manufacturer 41 | P a g e . ETF (Exchange traded fund) Top Equity based funds Reliance Diversified Power Fund The primary investment objective of the Scheme is to generate consistent returns by investing in equity equity related or fixed income securities of power and other companies associated with the power sector.

Pesticides & Agrochemicals FI Food & Food Processing. Beverages ICICI Prudential Dynamic Plan: Seeks to generate capital appreciation by actively investing in equity and equity related securities.Reliance growth The primary investment objective is to achieve long term growth of capital by investing in equity and equity related securities through a research based investment approach. the Scheme may invest in debt. For def ensive considerations. Sector Allocation(%) Agriculture 1% 2% 2% 1% 2% 8% 8% 19% 1% 1% 1% 2% 2% 6% 6% 2% 3% 10% 2% 7% 4% 3% 1% 3% 3% Banks Auto & Auto Ancillaries Construction and Infrastructure Current Assets Engineering and Capital Goods Fertilizers. money market instruments and derivatives 42 | P a g e .

Sector Allocation(%) 1% 0% 2% 0% 2% 11% 11% 6% 1% 4% 1% 3% 6% 6% 2% 1% 3% 3% Chemicals Banks 2% 6% 1% 6% 21% Auto & Auto Ancillaries Airliners 43 | P a g e .Sector Allocation 1% 1% 13% 2% 5% 10% 12% 3% 1% 2% 1% 1% 2% Fertilizers. Pesticides & Agrochemicals 3% Banks 5% 1% 2% 9% 23% Current Assets Engineering and Capital Goods 3% HDFC Equity Fund Aims at providing capital appreciation through investments predominantly in equity oriented securities.

Reliance Pharma Growth Fund To generate consistent r eturns by investing in equity or fixed income securities of pharma and other associated companies Sector Allocation 6% 8% 2% 1% Current Assets Food & Food Processing. Beverages Healthcare services Miscellaneous 83% Pharmaceuticals & Biotechnology 44 | P a g e .

28 0.83 4.74 4. 45 | P a g e .86 5.85 -0. At last one final ranking will be done by analyzing the previous rankings and it will be used to construct optimized portfolio.87 -0.96% 0.87 -0.12% 0.77 4.01 0.06 Reliance Pharma Fund 31.1 -0.27 0.87 -0.61 0.11 Sharpe Ratio Treynor Ratio Fama These top five funds will be ranked on the scale of 1-10 on the given parameters like returns.06 -0.20% 0.79 4.78 -0.74 0.75 -0. similarly other categories funds also be given ranking.09 HDFC E quity Fund 29.51 0.Equit Standard Fund Returns Corelation Deviation Beta Reliance Diversified Power Fund 41.31% 0. risk and other ratios.75% 0.08 -0.7 0.14 -0. Some funds will score more in risk parameters where some will score more in return parameter.22 ICICI Prudential Dynamic Plan 29.66 0. Structure and composition of an optimized portfolio will change according to time and need of investors.14 -0.8 -0.39 Reliance Growth Fund 29.

Harvard Business Review. 2008). working paper. Prateek . Suma. 2001. (working paper) April. Dinesh Kumar. 29-139.References: Motwani. 2010).1. A Study on the Effect of Macroeconomic Variables on Indian Mutual Funds (December 15. 1965). “Performance Evaluation of Indian Mutual Funds”. Available at SSRN: http://ssrn. Center for Monitoring Indian Economy. 43. No. 2008). Indian Mutual Fund Industry . Sapar. 63-75. Ravindran. Narayan Rao and Madava. Joint Publication of Association of Mutual funds in India and UTI Institute of Capital Markets. Available at SSRN: http://ssrn.The Road Ahead!! !! (October 25. “How to rate Management of Investment Funds”. Jack L. Available at SSRN: http://ssrn. Treynor.. Measuring Competition in the Financial Sector: Analysis of the Indian Mutual Fund Scenario (February 27.com/abstract=1316442 Shah Ajay and Thomas Susan.com/abstract=1335257 Latha. 1994. “Performance Evaluation of Professional Portfolio Management in India”.com/abstract=1560343 Dash. 46 | P a g e . (January-February. “Mutual Fund Year Book-2000”. Mihir and G. pp. pp.

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