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Topic- MUTUAL FUND COMPARISON AND ANALYSIS
AMIT AGARWAL PGDM( FINANCE) ROLL NO: 014
MUTUAL FUND COMPARISON AND ANALYSIS
By Amit Agarwal
Under the guidance of
Mr. Bhaskar Singh Jain Branch Manager HDFC AMC. Bimtech. Noida.
Certificate of Approval
The following Summer Project Report titled "Mutual Fund Comparison and Analysis " is hereby approved as a certified study in management carried out and presented in a manner satisfactory to warrant its acceptance as a prerequisite for the award of Post-Graduate Diploma in Business Management for which it has been submitted. It is understood that by this approval the undersigned do not necessarily endorse or approve any statement made, opinion expressed or conclusion drawn therein but approve the Summer Project Report only for the purpose it is submitted.
Summer Project Report Examination Committee for evaluation of Summer Project Report
1. Faculty Examiner
2. PG Summer Project Co-coordinator _______________________
Date: Organizational Guide: Mr. a student of the Post-Graduate Diploma in Business Management has worked under our guidance and supervision. report or book. Date: 4 . Dr.Certificate from Summer Project Guides This is to certify that Mr.Girish Jain BIMTECH . This Summer Project Report has the requisite standard and to the best of our knowledge no part of it has been reproduced from any other summer project. Noida. Address :Pearl Plaza . Bhaskar Singh Designation : Branch Manager Organization: HDFC AMC Ltd. monograph. Amit Agarwal. Ground Floor36/37 Sector 18.
Declaration I hereby declare that the following project report titled “Mutual Fund Comparison and Analysis” is an authentic work done by me. analysis is a profound and honest work of mine. Date: Place: New Delhi Amit Agarwal BIMTECH 5 . This is to declare that all the work indulged in the completion of this work such as research. data collection.
I thank my Faculty Guide.Bhaskar Singh (Branch Manager) who put all their efforts in making me understand the overall theme of the Project and thereby increasing my knowledge. It has been a great learning experience in terms of gaining exposure into the market and knowing how actually a business can be developed and run. I hope HDFC AMC. Their time and efforts have indeed been very fruitful. Girish Jain and Mr.Amit Girdhar with whom I have spent my training period. 6 . They have helped me in every possible manner in my endeavor to complete this Project successfully.study of Sip and Rebalancing . I acknowledge the support and knowledge they have given In this project the great emphasis is given to comparison of different mutual fund schemes. Noida will recognize this as well as take more references from this project report. Saurabh Kumar and Mr. Prof. for giving me this opportunity to undergo this Project in one of the most reputed financial company.Acknowledgement I take this opportunity to firstly thank my institute. I also thank all other employees at HDFC AMC particularly Mr.
Research Methodology I. Limitations Findings and Analysis Rankings Conclusion 1.Table of Contents S. Problem statement II. IV. Page No. How to pick right fund Systematic Investment Plan and Lump Sum investment Rebalancing and its effects. Research Objective Data source Data Anlysis Scope of Study 7 8 9 VI. VIII. X. IV. Executive Summary 7 . Introduction II. History of Mutual funds Regulatory framework Concept Of Mutual Fund Types of Mutual Fund Advantages Of Mutual Fund Terms Used In Mutual Funds Fund management Risk Basis Of Comparisons 4 5 6 XI. III. VI. VII. III. V. V.no 1 2 3 Topic Executive Summary Company Profile Industry Profile I. IX.
Sharpe. 2. Along with this project also touches on the aspect of Systematic Investment Plan and Rebalancing. The mutual fund industry in India has seen dramatic improvements in quantity as well as quality of product and service offerings in recent years and hence here focus is on comparing schemes of different mutual fund companies on different performance parametrers. Jensen etc. have been taken to analyse the performance. Treynor. An effort has been made to work on the concepts that have been taught in class along with other useful parameters so that better study can be done. Company Profile 8 .The topic of this project is Mutual Fund Comparison and Analysis. Project analysis past three years data of different mutual fund schemes. Different measures like beta .
The registered office of the AMC is situated at Ramon House. 2000. In terms of the Investment Management Agreement.400 020.Vision Statement: HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies Act. 9 . and was approved to act as an Asset Management Company for the HDFC Mutual Fund by SEBI vide its letter dated July 3. on December 10. 3rd Floor. the Trustee has appointed the HDFC Asset Management Company Limited to manage the Mutual Fund. 25. 169. Parekh Marg.T. 1956.161 crore. 1999. Churchgate. H. The paid up capital of the AMC is Rs. Back bay Reclamation. Mumbai .
subject to necessary regulatory approvals. and property related services (property identification. valuation etc. UK. training and consultancy. 10 . China. the Sponsor of Zurich India Mutual Fund. 2003.) and Standard Life Investment Limited. Korea. following a review of its overall strategy. to divest its Asset Management Business in India. HDFC AMC has a strong parentage – CO Sponsored by Housing Development Finance Corporation Limited (HDFC Ltd. The company operates in UK. The present equity shareholding pattern of the AMC is as follows: • Housing Development Finance Corporation Limited was incorporated in 1977 as the first specialized Mortgage Company in India. the investment arm of The Standard Life Group. the sponsor of Zurich India Mutual Fund. HDFC Ltd. had decided to divest its Asset Management business in India. HDFC AMC acquired the schemes of Zurich India Mutual Fund effective from June 19. Canada. Following the decision by Zurich Insurance Company (ZIC). Ireland and USA to ensure it is able to form a truly global investment view. The AMC had entered into an agreement with ZIC to acquire the said business. contributes the 60% of the paid up equity capital of the AMC. • Standard Life Insurance Limited is a leading Asset management company with approximately US$ 282 billion of asset under management as on June 30.). 2007. SLI Ltd.Zurich Insurance Company (ZIC). contributes the 40% of the paid up equity capital of the AMC. Hong Kong. its activities include housing finance.
HDFC Prudence Fund (HPF).Series III. HDFC Quarterly Interval Fund (HQIF) and HDFC Arbitrage Fund (HAF).Series V. HDFC Index Fund. HDFC Equity Fund (HEF). HDFC Liquid Fund (HLF). HDFC Children's Gift Fund (HDFC CGF).Series VI.The AMC is also managing 11 closed ended Schemes of the HDFC Mutual Fund viz. HDFC Fixed Maturity Plans . 11 . HFDC Fixed Maturity Plans . Plan 2005 (HMYF-Plan 2005). HDFC Gilt Fund (HGILT). HDFC Tax Saver (HTS).PM / INP000000506 dated December 8. The AMC is also providing portfolio management / advisory services and such activities are not in conflict with the activities of the Mutual Fund. HDFC Fixed Maturity Plans . HDFC Multiple Yield Fund (HMYF). HDFC Short Term Plan (HSTP). HDFC Long Term Advantage Fund (HLTAF). HDFC Income Fund (HIF). HDFC Fixed Maturity Plans . . HDFC Infrastructure Fund. 2006 to act as a Portfolio Manager under the SEBI (Portfolio Managers) Regulations. HDFC Fixed Maturity Plans. HDFC Core & Satellite Fund (HCSF). HDFC Mid-Cap Opportunities Fund. HDFC Balanced Fund (HBF). HDFC Premier Multi-Cap Fund (HPMCF). HDFC High Interest Fund (HHIF). HDFC Top 200 Fund (HT200). HDFC Long Term Equity Fund. HDFC Floating Rate Income Fund (HFRIF). HDFC Multiple Yield Fund .The AMC is managing 24 open-ended schemes of the Mutual Fund viz. HDFC Growth Fund (HGF). HDFC Capital Builder Fund (HCBF). HDFC MF Monthly Income Plan (HMIP).Series II.Series VIII. HDFC Fixed Maturity Plans .Series IV. The AMC has renewed its registration from SEBI vide Registration No. HDFC Fixed Maturity Plans . HDFC Cash Management Fund (HCMF).Series VII and HFDC Fixed Maturity Plans . 1993.
at the initiative of the Government of India and Reserve Bank of India. Industry Profile I. History of Mutual Funds The mutual fund industry in India started in 1963 with the formation of Unit Trust of India.3. The history of mutual funds in India can be broadly divided into four distinct phases. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. However. The first scheme launched by UTI was Unit Scheme 1964. after several years of relentless growth . II. Whereas in 2009-10 the industry is on the road of recovery. and the increasing reach of Asset Management Companies and distributors. Introduction The Indian mutual fund industry has witnessed significant growth in the past few years driven by several favourable economic and demographic factors such as rising income levels.6. 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. 700 Crores of assets under management. 12 . At the end of 1988 UTI had Rs. First Phase – 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament.the industry witnessed a fall of 8% in the assets under management in the financial year 2008-2009 that has impacted revenues and profitability.
Punjab National Bank Mutual Fund (Aug 89). 541 Crores of assets under management was way ahead of other mutual funds Fourth Phase – since February 2003 In February 2003. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs. LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. under which all mutual funds. 21. Also. 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. At the end of 1993. 1993 was the year in which the first Mutual Fund Regulations came into being. assured return and certain other schemes. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. Third Phase – 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993. As at the end of January 2003. except UTI were to be registered and governed. giving the Indian investors a wider choice of fund families.805 Crores. there were 33 mutual funds with total assets of Rs. The Unit Trust of India with Rs. Bank of Baroda Mutual Fund (Oct 92). The number of mutual fund houses went on increasing. a new era started in the Indian mutual fund industry.UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87).44. Indian Bank Mutual Fund (Nov 89). SBI Mutual Fund was the first non. representing broadly. the assets of US 64 scheme. Bank of India (Jun 90). 835 crores as at the end of January 2003.Second Phase – 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. 004 Crores. with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC).29.47.UTI. the mutual fund industry had assets under management of Rs. 1. The Specified Undertaking of Unit Trust of 13 .
PNB. conforming to the SEBI Mutual Fund.000 crore (approximately $136 billion) in May.India. The country's burgeoning mutual fund industry is expected to see its assets growing by 29% annually in the next five years. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs. The second is the UTI Mutual Fund Ltd.76. sponsored by SBI. The graph indicates the growth of assets over the years: Assets of the mutual fund industry touched an all-time high of Rs639. BOB and LIC. 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. aided by the spike in the stock market by over 50 per cent in the last one month and fresh inflows in liquid funds. data released by the Association of Mutual Funds in India (AMFI) shows yesterday. The total assets under management in the Indian mutual funds industry are 14 .000 Crores of assets under management and with the setting up of a UTI Mutual Fund. It is registered with SEBI and functions under the Mutual Fund Regulations.
how they should account for income and expenses." the report by global consultancy Celent said. Association of Mutual Funds in India (AMFI) With the increase in mutual fund players in India. According to SEBI Regulations. Custodian. what investment limits and restrictions must be complied with. Mutual funds have emerged as an important institutional investor in capital market securities. the apex regulator of all entities that either raise funds in the capital markets or invest in capital market securities such as shares and debentures listed on stock exchanges. two thirds of the directors of Trustee Company or board of trustees must be independent. it said. 15 . It functions under the supervision and guidelines of its Board of Directors. However. by an Act of Parliament in 1992. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August. SEBI formulates policies and regulates the mutual funds. MF either promoted by public or by private sector entities including one promoted by foreign entities are governed by these Regulations. Regulatory Framework Securities and Exchange Board of India (SEBI) The Government of India constituted Securities and Exchange Board of India. It issues guidelines for all mutual fund operations including where they can invest. holds the securities of various schemes of the fund in its custody. Till date all the AMCs are that have launched mutual fund schemes are its member. III. 1995. SEBI requires all mutual funds to be registered with them. AMFI is an apex body of all Asset Management Companies (AMC) which has been registered with SEBI.estimated to grow at a compounded annual growth rate (CAGR) of 29 per cent in the next five years. a need for mutual fund association in India was generated to function as a non-profit organisation. the profitability of the industry is expected to remain at its present level mainly due to increasing cost incurred to develop distribution channels and falling margins due to greater competition among fund houses. how they should make disclosures of information to the investors and generally act in the interest of investor protection. To protect the interest of the investors. registered with SEBI. SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Hence they come under the purview of SEBI.
• It develops a team of well qualified and trained Agent distributors. It implements a program of training and certification for all intermediaries and other engaged in the mutual fund industry. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders. The objectives of Association of Mutual Funds in India The Association of Mutual Funds of India works with 30 registered AMCs of the country. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association. • AMFI undertakes all India awareness program for investors in order to promote proper understanding of the concept and working of mutual funds. • AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry. • It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. It has certain defined objectives which juxtaposes the guidelines of its Board of Directors. The objectives are as follows: • This mutual fund association of India maintains high professional and ethical standards in all areas of operation of the industry. • Association of Mutual Fund of India do represent the Government of India. 16 .Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical line enhancing and maintaining standards. the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry.
debentures and other securities. Concept of Mutual Fund A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. Organization of a Mutual Fund 17 . The money thus collected is then invested in capital market instruments such as shares.• At last but not the least association of mutual fund of India also disseminate information on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies. investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. They are very cost efficient and also easy to invest in. thus by pooling money together in a mutual fund. But the biggest advantage to mutual funds is diversification. IV. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified. The flow chart below describes the working of a mutual fund: Mutual fund operation flow chart Mutual funds are considered as one of the best available investments as compare to others. 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. by minimizing risk & maximizing returns. professionally managed basket of securities at a relatively low cost.
Overview of existing schemes existed in mutual fund category: BY STRUCTURE 18 . Types of Mutual Fund schemes in INDIA Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position. risk tolerance and return expectations.There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund V.
Open . Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices.Ended Schemes: An open-end fund is one that is available for subscription all through the year. Close . 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 key feature of open-end schemes is liquidity. The Equity Funds are sub-classified depending upon their investment objective. which combines the features of open-ended and close-ended schemes. These do not have a fixed maturity. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices. The fund is open for subscription only during a specified period. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor. as follows: -Diversified Equity Funds -Mid-Cap Funds -Sector Specific Funds -Tax Savings Funds (ELSS) Equity investments are meant for a longer time horizon. 19 . thus Equity funds rank high on the riskreturn matrix. The structure of the fund may vary different for different schemes and the fund manager’s outlook on different stocks. Interval Schemes: Interval Schemes are that scheme. Overview of existing schemes existed in mutual fund category: BY NATURE Equity fund: These funds invest a maximum part of their corpus into equities holdings. some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. In order to provide an exit route to the investors.Ended Schemes: A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years.
Some portion of the corpus is also invested in corporate debentures. Income Funds: Invest a major portion into various debt instruments such as bonds. Gilt Funds: Invest their corpus in securities issued by Government.Debt funds: The objective of these Funds is to invest in debt papers. Equity part provides growth and the debt part provides stability in returns. which are in line with predefined investment objective of the scheme. The investor can align his own investment needs with the funds objective and can invest accordingly 20 . These funds provides easy liquidity and preservation of capital. These schemes are safer as they invest in papers backed by Government. Balanced funds: They invest in both equities and fixed income securities. Short Term Plans (STPs): Meant for investment horizon for three to six months. It means each category of funds is backed by an investment philosophy. Further the mutual funds can be broadly classified on the basis of investment parameter. Monthly income plans ( MIPs): Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. Government authorities. corporate debentures and Government securities. By investing in debt instruments. CPs and CDs. inter-bank call money market. It gets benefit of both equity and debt market. These schemes invest in short-term instruments like Treasury Bills. banks and financial institutions are some of the major issuers of debt papers. which is pre-defined in the objectives of the fund. popularly known as Government of India debt papers. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds. private companies. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes. These Funds carry zero Default risk but are associated with Interest Rate risk. these funds ensure low risk and provide stable income to the investors. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). These schemes aim to provide investors with the best of both the worlds. Liquid Funds: Also known as Money Market Schemes. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months.
contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate. such as treasury bills. commercial paper and inter-bank call money. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation. certificates of deposit. Other schemes Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time.By investment objective: Growth Schemes: Growth Schemes are also known as equity schemes. Money Market Schemes: Money Market Schemes aim to provide easy liquidity. These schemes generally invest in safer. preservation of capital and moderate income. Capital appreciation in such schemes may be limited. Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. in the proportion indicated in their offer documents.80C of the Income Tax Act. 21 . Income Schemes: Income Schemes are also known as debt schemes. Under Sec. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. The aim of these schemes is to provide capital appreciation over medium to long term. short-term instruments. These schemes invest in both shares and fixed income securities.
the returns from such schemes would be more or less equivalent to those of the Index. Advantages of Mutual Funds Diversification – It can help an investor diversify their portfolio with a minimum investment. The percentage of each stock to the total holding will be identical to the stocks index weightage. A stock mutual fund. for example. The returns in these funds are dependent on the performance of the respective sectors/industries. The portfolio of these schemes will consist of only those stocks that constitute the index. Professional Management. This eliminates the investor of the difficult task of trying to time the market. And hence. Petroleum stocks. While these funds may give higher returns. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. If a few securities in the mutual fund lose value or become worthless. Well regulated. Software. Ex. the loss maybe offset by other securities that appreciate in value. Further diversification can be achieved by investing in multiple funds which invest in different sectors. These managers decide what securities the fund will buy and sell. Fast Moving Consumer Goods (FMCG). Sector Specific Schemes: These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. VI.This minimizes the risk attributed to a concentrated position.Mutual funds are subject to many government regulations that protect investors from fraud. Spreading investments across a range of securities can help to reduce risk. they are more risky compared to diversified funds. 22 .Mutual funds are managed and supervised by investment professional. invests in many stocks .Pharmaceuticals. etc.Index Schemes: Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the Nifty 50.
Instead. and other personnel. and is very detailed and contains most of the relevant information that an investor would need. Terms used in Mutual Fund Asset Management Company (AMC) An AMC is the legal entity formed by the sponsor to run a mutual fund. The trustees sign an investment agreement with the AMC.It's easy to get money out of a mutual fund. This document is also called as the prospectus or the fund offer document. phone. Convenience. they automatically buy stock in companies that are listed on a specific index Transparency. This document is also called as the prospectus or the fund offer document. in a prescribed format that provides all the information about the fund and the scheme.5 percent of our investment. which spells out the functions of the AMC. or over the Internet. and is very detailed and contains most of the relevant information that an investor would need 23 . Fund Offer document The mutual fund is required to file with SEBI a detailed information memorandum.we can buy mutual fund shares by mail. Choice of schemes – there are different schemes which an investor can choose from according to his investment goals and risk appetite. The AMC is usually a private limited company in which the sponsors and their associates or joint venture partners are the shareholders.Liquidity.Mutual fund expenses are often no more than 1. Expenses for Index Funds are less than that. because index funds are not actively managed.The mutual fund offer document provides all the information about the fund and the scheme. Tax benefits – An investor can get a tax benefit in schemes like ELSS (equity linked saving scheme) VII. Low cost. It is the AMC that handles all operational matters of a mutual fund – from launching schemes to managing them to interacting with investors. It is the AMC that employs fund managers and analysts.
but it cannot service Deutsche Mutual Fund. seeks their approval for the work it does. The Trust appoints the Trustees who are responsible to the investors of the fund. NAV Net Asset Value is the market value of the assets of the scheme minus its liabilities. Deutsche Bank is a custodian. Trustees are appointed by the sponsors. The trust deed is registered under the Indian Registration Act. Its responsibilities include receipt and delivery of securities. Trustees appoint the AMC. i. its mutual fund arm. Custodian A custodian handles the investment back office of a mutual fund..The NAV is usually calculated on a daily basis. 1882 by the Sponsor. In terms of corporate valuations. ensures that the assets of a mutual fund are not in the hands of its sponsor. The NAV is usually below the market price because the current value of the fund’s assets is higher than the historical financial statements used in the NAV calculation. Trustees Trustees are like internal regulators in a mutual fund. This condition. 24 . right offers. and their job is to protect the interests of the unit holders. collection of income. formulated in the interest of investors.e. It also track corporate actions like bonus issues. In order to ensure they are impartial and fair. which subsequently.Trust The Mutual Fund is constituted as a Trust in accordance with the provisions of the Indian Trusts Act. the book values of assets less liability. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date. SEBI rules mandate that at least two-thirds of the trustees be independent. buy back and open offers for acquisition. The sponsor of a mutual fund cannot act as a custodian to the fund. and can be either individuals or corporate bodies. For example. and reports periodically to them on how the business being run. not have any association with the sponsor. offer for sale. distribution of dividends and segregation of assets between the schemes. 1908.
Market Value of the Assets in the Scheme + Receivables + Accrued Income .000 (Five Crores) Face Value of Units Rs. 5.000 ------------------10 = 50.000 units to Public. Liabilities: Whatever they have to pay to other companies are called liabilities. Market Value of Shares is Rs. 00. 00. 00.000 NAV = -------------------------50.000 (Ten Crores) Rs. 00. 00. Calculation of NAV Scheme ABN Scheme Size Rs. 10.10. 00. 00. 00. Accrued Income: Income received from the investment made by the Mutual Fund.000 units = Rs.Liabilities . Receivables: Whatever the Profit is earned out of sold stocks by the Mutual fund is called Receivables. Advertisement Expenses etc. 00. of units outstanding Where.10/Scheme Size --------------------------Face value of units = 5. 00.20/- 25 . Investments: Equity shares of Various Companies.000 The fund will offer 50. Accrued Expenses: Day to day expenses such as postal expenses. Printing. 00.Accrued Expenses NAV = -----------------------------------------------------------------------------------------------No.
Thus each unit of Rs. 10/- is Worth Rs.20/It states that the value of the money has appreciated since it is more than the face value.
Sale price Is the price we pay when we invest in a scheme. Also called Offer Price. It may include a sales load.
Repurchase price Is the price at which units under open-ended schemes are repurchased by the Mutual Fund. Such prices are NAV related
Redemption Price Is the price at which close-ended schemes redeem their units on maturity. Such prices are NAV related
Sales load Is a charge collected by a scheme when it sells the units. Also called, ‘Front-end’ load. Schemes that do not charge a load are called ‘No Load’ schemes.
Repurchase or ‘Back-end’ Load Is a charge collected by a scheme when it buys back the units from the unit holders
CAGR (compounded annual growth rate) The year-over-year growth rate of an investment over a specified period of time. The compound annual growth rate is calculated by taking the nth root of the total percentage growth rate, where n is the number of years in the period being considered.
VIII. Fund Management
Actively managed funds: Mutual Fund managers are professionals. They are considered professionals because of their knowledge and experience. Managers are hired to actively manage mutual fund portfolios. Instead of seeking to track market performance, active fund management tries to beat it. To do this, fund managers "actively" buy and sell individual securities. For an actively managed fund, the corresponding index can be used as a performance benchmark. Is an active fund a better investment because it is trying to outperform the market? Not necessarily. While there is the potential for higher returns with active funds, they are more unpredictable and more risky. From 1990 through 1999, on average, 76% of large cap actively managed stock funds actually underperformed the S&P 500. (Source - Schwab Center for Investment Research)
Actively managed fund styles: Some active fund managers follow an investing "style" to try and maximize fund performance while meeting the investment objectives of the fund. Fund styles usually fall within the following three categories. Fund Styles:
Value: The manager invests in stocks believed to be currently undervalued by the market. Growth: The manager selects stocks they believe have a strong potential for beating the market. Blend: The manager looks for a combination of both growth and value stocks.
To determine the style of a mutual fund, consult the prospectus as well as other sources that review mutual funds. Don't be surprised if the information conflicts. Although a prospectus may state a specific fund style, the style may change. Value stocks held in the portfolio over a period of time may become growth stocks and vice versa. Other research may give a more current and accurate account of the style of the fund. Passively Managed Funds: Passively managed mutual funds are an easily understood, relatively safe approach to investing in broad segments of the market. They are used by less experienced investors as well as sophisticated institutional investors with large portfolios. Indexing has been called investing on autopilot. The metaphor is an appropriate one as managed funds can be viewed as having a pilot at the controls. When it comes to flying an airplane, both approaches are widely used. a high percentage of investment professionals, find index investing compelling for the following reasons:
Simplicity. Broad-based market index funds make asset allocation and diversification easy. Management quality. The passive nature of indexing eliminates any concerns about human error or management tenure.
it also has the greater potential for losses or negative returns. risk and potential return are related. Low operational expenses. and distributes it to you in the form of dividends. The school of thought when investing in mutual funds suggests that the longer your investment time horizon is the less affected you should be by short-term volatility. Asset bloat. the more concerned you should be with short-term volatility and higher risk. involves risk. the shorter your investment time horizon. While a fund with higher risk has the potential for higher return. and distributes those gains to you. Portfolio size is not a concern with index funds. Higher risks are usually taken with the expectation of higher returns at the cost of increased volatility. Less buying and selling of securities means lower costs and fewer tax consequences. 29 . Performance. It is a matter of record that index funds have outperformed the majority of managed funds over a variety of time periods.• Low portfolio turnover. Reading the prospectus will help you to understand the risk associated with that particular fund. Generally speaking. The fund produces capital gains by selling securities at a profit. Risk Every type of investment. including mutual funds. Indexing is considerably less expensive than active fund management. A fund's investment objective and its holdings are influential factors in determining how risky a fund is. • • • You make money from your mutual fund investment when: • • The fund earns income on its investments. You sell your shares of the fund at a higher price than you paid for them • IX. This is the risk/return trade-off. Therefore. Risk refers to the possibility that you will lose money (both principal and any earnings) or fail to make money on an investment.
A stock fund that invests across many industries is more sheltered from this risk defined as industry risk. Income risk is greater for a short-term bond fund than for a long-term bond fund. a bond fund faces interest rate risk and income risk. At the discretion of the manager(s). cash investments (i. These funds can be very conservative or very aggressive. However. bond values will go down and vice versa. Asset allocation portfolios are mutual funds that invest in other mutual funds with different asset classes.e. such as telecommunications) is at risk that its price will decline due to developments in its industry. Investors looking for a fund which incorporates all asset classes may consider a balanced or hybrid mutual fund. Bond yields are directly related to interest rates falling as interest rates fall and rising as interest rise. securities are bought. Bond values are inversely related to interest rates. A bond fund with below-average risk. and in turn have generated higher long-term returns. stock funds overall have a higher risk/return potential than bond funds. Of all the asset classes. Bond income is also affected by the change in interest rates. sold. Similarly. money markets) offer the greatest price stability but have yielded the lowest long-term returns. and shifted between funds with different asset classes according to market conditions. a sector stock fund (which invests in a single industry. Mutual funds face risks based on the investments they hold. For example. for example. stocks historically have been subject to the greatest short-term price fluctuations—and have provided the highest long-term returns. If interest rates go up. Following is a glossary of some risks to consider when investing in mutual funds.Defining Mutual fund risk Different mutual fund categories as previously defined have inherently different risk characteristics and should not be compared side by side. Even though both funds have low risk for their respective categories. The possibility that falling interest rates will cause a bond issuer to redeem—or call—its high-yielding bond before the bond's maturity date 30 . • Call Risk. should not be compared to a stock fund with below average risk. Bonds typically experience more short-term price swings.
A beta of 1 indicates that the security's price will move with the market. Beta is calculated using regression analysis. • X. it means the stock price will change by 1. Beta can also be defined as the tendency of a security's returns to respond to swings in the market. The possibility that a group of stocks in a single industry will decline in price due to developments in that industry. Also called default risk.S.• Country Risk. if a stock's beta is 1. it's theoretically 20% more volatile than the market.5% for every 1% change in Sensex. The possibility that political events (a war. Systematic risk means risks which are external to the organization like competition. a poor harvest) will weaken a country's economy and cause investments in that country to decline. national elections). The possibility that a fixed-income fund's dividends will decline as a result of falling overall interest rates. financial problems (rising inflation. Also called exchange-rate risk. They are non-diversifiable risks. government default). The possibility that returns could be reduced for Americans investing in foreign securities because of a rise in the value of the U. • Credit Risk.2. government policies. 31 . or natural disasters (an earthquake. A beta less than 1 means that the security will be less volatile than the market. Basis Of Comparison Of Various Schemes Of Mutual Funds Beta Beta measures the sensitivity of the stock to the market. It is also used to measure the systematic risk. • • Income Risk. A beta greater than 1 indicates that the security's price will be more volatile than the market. Currency Risk. Industry Risk. For example. dollar against foreign currencies. For example if beta=1. The possibility that a bond issuer will fail to repay interest and principal in a timely manner.5.
The excess return of the fund relative to the returns of benchmark index is a fundamental ALPHA. a similar negative alpha would indicate underperformanceof 1%. most hi-tech NASDAQ-based stocks have a beta greater than 1. offering the possibility of a higher rate of return but also posing more risk. Alpha is often considered to represent the value that a portfolio manager adds to or subtracts from a fund's return. Correspondingly. It is calculated as a return which is earned in excess of the return generated by CAPM. This 5% is the excess return over what was predicted in the CAPM model. It is calculated by subtracting the risk-free rate from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. or systematic risk. of a security or a portfolio in comparison to the market as a whole. This 5% is ALPHA.0 means the fund has outperformed its benchmark index by 1%. A positive alpha of 1. the portfolio's alpha would be 5%. 32 . Alpha Alpha takes the volatility in price of a mutual fund and compares its risk adjusted performance to a benchmark index. it’s a measure of the volatility.Beta>11thenxaggressivexstocks If1beta<1xthen1defensive1stocks If beta=1 then neutral So. Sharpe Ratio A ratio developed by Nobel Laureate Bill Sharpe to measure risk-adjusted performance. Conversely. Many utilities stocks have a beta of less than 1. . If a CAPM analysis estimates that a portfolio should earn 35% return based on the risk of the portfolio but the portfolio actually earns 40%.
The Sharpe ratio tells us whether the returns of a portfolio are because of smart investment decisions or a result of excess risk. The scheme with the higher treynor Ratio offers a better risk-reward equation for the investor. it is only a good investment if those higher returns do not come with too much additional risk. 33 .SQUARED Modigliani and Modigliani recognized that average investors did not find the Sharpe ratio intuitive and addressed this shortcoming by multiplying the Sharpe ratio by the standard deviation of the excess returns on a broad market index. such as the S&P 500 or the Wilshire 5000. M. which is the basis from which all risky investments should be measured. This ratio thus measures reward to volatility. except that the risk measure used is Beta instead of standard deviation. where the non-systematic risks have been eliminated. named after Jack Treynor. Treynor Ratio = (Return from the investment – Risk free return) / Beta of the investment. large institutional investors have the requisite funds to maintain such highly diversified portfolios. is a significant and useful statistic. is similar to the Sharpe ratio. This measurement is very useful because although one portfolio or fund can reap higher returns than its peers. It will therefore be more appropriate for diversified schemes. Generally. it evaluates excess returns only with respect to systematic (or market) risk. This. the better its risk-adjusted performance has been. as it measures the return in excess of the risk-free rate. which is empirically tested for equity. for the same time period. This yields the risk-adjusted excess return. Since Treynor Ratio uses Beta as a risk measure. Also since Beta is based on capital asset pricing model. too. The greater a portfolio's Sharpe ratio. Treynor Ratio The treynor ratio. Treynor Ratio would be inappropriate for debt schemes.
Inv= Standard Deviation Investment Sd. Li = Standard deviation of the market Standard deviation of the fund for example a leverage factor greater than one implies that standard deviation of the fund is less than standard deviation of the market index. On the other hand leverage factor less than one implies that the risk of fund is greater than risk of market index and the investor should consider unlevering the fund by selling of the part of the holding in the fund and investing the proceeds I a risk free security. It is calculated by dividing market standard deviation by the fund standard deviation. Inv] * Sd. while this would tend to increase the risk of investment somewhat . Standard Deviation: 34 . there would be an greater than proportional reduction in risk.there would be an greater than proportional increase in returns. such as treasury bill in this way returns on the investment reduce somewhat. Mkt= Standard Deviation Market Leverage Factor: It reports the comparison of the total risk in the fund with the total risk in the market portfolio and can be used in making investment decisions. Mkt + Rf Ri = Return from the investment Rf = Risk free return Sd. and that the investor should consider levering the fund by borrowing money and invest in that particular fund. Mkt + Rf OR M–Squared= Sharpe Ratio* Sd.M–Squared= [ (Ri – Rf)/ Sd.
then the style/objective he or she may be suited for is a fund. Conversely. These types of funds typically hold a high percentage of their assets in common stocks. Are long-term capital gains desired. Style and Fund Type If the investor intends to use the money in the fund for a longer term need and is willing to assume a fair amount of risk and volatility. One should consider the issue of risk tolerance. Standard deviation is applied to the annual rate of return of an investment to measure the investment's volatility (risk). is a more conservative investment warranted? Identifying risk tolerance is as important as identifying a goal. or is a current income preferred? Will the money be used to pay for college expenses. How To Pick The Right Mutual Fund Identifying Goals and Risk Tolerance Before acquiring shares in any fund. Investors must think about how long they can afford to tie up their money. The standard deviation tells us how much the return on the fund is deviating from the expected normal returns. XI. or to supplement a retirement that is decades away. the time horizon must be addressed. if the investor is in need of current income. Finally. mutual fund holders should have an investment horizon with at least five years or more. and are therefore considered to be volatile in nature. A volatile stock would have a high standard deviation. Ideally. Is the investor able to afford and mentally accept dramatic swings in portfolio value? Or. Government and corporate debt are the two of the more common holdings in an income fund. There are times when an investor has a longer term need. Standard deviation can also be calculated as the square root of the variance.A measure of the dispersion of a set of data from its mean. the higher the deviation. but is 35 . he or she should acquire shares in an income fund. or if they anticipate any liquidity concerns in the near future. The more spread apart the data is. an investor must first identify his or her goals and desires for the money being invested.
Some funds charge a sales fee known as a load fee. as they may be very high. which will either be charged upon initial investment or upon sale of the investment. such as the management expense ratio and other administration fees. Evaluating Managers/Past Results Investors should research a fund's past results. the lower the investor's return will be at the end of the year. In this case. However. A front-end load/fee is paid out of the initial investment made by the investor while a back-end load/fee is charged when an investor sells his or her investment. as well as what historically has been the trend in terms of turnover and return.or back-end load/fee. a balanced fund. The ratio is simply the total percentage of fund assets that are being charged to cover fund expenses. The investor should look for the management expense ratio. Size of the Fund Although. the size of a fund does not hinder its ability to meet its investment objectives. To avoid these sales fees. one should be aware of the other fees in a noload fund. usually prior to a set time period. Back in 1999 36 . The following is a list of questions that perspective investors should ask themselves when reviewing the historical record: • • Did the fund manager deliver results that were consistent with general market returns? Was the fund more volatile than the big indexes (it means did its returns vary dramatically throughout the year)? This information is important because it will give the investor insight into how the portfolio manager performs under certain conditions. However. It is important to gain an understanding of the different types of fees that you may face when purchasing an investment. look for no-load funds. Prior to buying into a fund. one must review the investment company's literature to look for information about anticipated trends in the market in the years ahead.unwilling or unable to assume substantial risk. Charges and Fees Mutual funds make their money by charging fees to the investor. which invests in both stocks and bonds. For example . The higher the ratio.Fidelity's Magellan Fund. may be the best alternative. there are times when a fund can get too big. which don't charge a front.
the mutual fund is an excellent medium to accumulate financial assets and grow them over time to achieve any of these goals. 10th. it shifted its focus primarily toward larger capitalization growth stocks.the fund topped $100 billion in assets. As a result. its performance has suffered. The measurement is usually reported for a 12-month time period Fund Performance Metrics Historical Performance The investor should see the past returns of the fund and should compare it with the peer group fund. and for the first time. The dates currently available for SIPs are the 1st. 20th and the 25th of a month. 5th. it was forced to change its investment process to accommodate the large daily (money) inflows.over a particular period. Benefit 1 Become A Disciplined Investor 37 . Portfolio turnover is calculated by taking either the total amount of new securities purchased or the amount of securities sold -whichever is less . 4. 15th. Systematic Investment Plan (SIP) SIP is similar to a Recurring Deposit. divided by the total net asset value (NAV) of the fund. Whatever the objective. There are many benefits of investing through SIP. Instead of being nimble and buying small and mid cap stocks. Fund Transactional Activity Portfolio Turnover Measure of how frequently assets within a fund are bought and sold by the managers. Every month on a specified date an amount you choose is invested in a mutual fund scheme of your choice.
you can plan for and meet financial goals. The total investment made by her over 5 years is Rs. 5. The following example illustrates this. He gets a large bonus of Rs. But he doesn’t invest monthly. This is because while you are saving the lump sum. Every month she saves and invests Rs. Benefit 2 Reach Your Financial Goal Imagine you want to buy a car a year from now. 100 thereof*) to be invested every month in one of our schemes. Benefit 4 Grow Your Investment With Compounded Benefits It is far better to invest a small amount of money regularly. It’s the perfect solution for irregular investors. each amount you invest grows through compounding benefits as well. 3 lakhs.Arjun also starts working when he is 20 years old. With HDFC MF SIP. Imagine Neha is 20 years old when she starts working. That is. Benefit 3 Take Advantage of Rupee Cost Averaging Most investors want to buy stocks when the prices are low and sell them when prices are high. the interest earned on your investment also earns interest. A more successful investment strategy is to adopt the method called Rupee Cost Averaging. One by one. But timing the market is timeconsuming and risky.000 till she is 25 years old. By investing an amount of your choice every month. future financial requirement. your savings may not earn much interest. 500 and in multiples of Rs.It’s the key to investing success. 3 lakhs at 25 and decides to invest the 38 . you’ll see them transform into a building. It’s as simple as giving at least 6 postdated monthly cheques to us for a fixed amount in a scheme of your choice. rather than save up to make one large investment. SIP is a perfect tool for people who have a specific. Think of each SIP payment as laying a brick.Being disciplined . With the Systematic Investment Plan you commit an amount of your choice (minimum of Rs. like funds for a child’s education. but you don’t know where the down-payment will come from. a marriage in the family or a comfortable postretirement life. You’ll see your investments accrue month after month. We can reap this benefit by investing the amounts through a SIP .
a.850225 4. The plans are completely flexible.17. Benefit 5 Do All This Effortlessly Investing with SIP is easy.273* whereas Arjun’s investments have grown to Rs.596306 6.477819 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 39 .28 165.entire amount.759638 4. 10 lakhs.68.32 SIP 1000 1000 1000 1000 1000 1000 1000 1000 1000 UNITS 6. Neha’s small contributions to a SIP and her decision to start investing earlier than Arjun have made her wealthier by over Rs.278173 6. All you have to do after that is sit back and watch your investments accumulate SIP and LUMPSUM Investment in HDFC EQUITY FUND YEAR 2007-08 NAV 151. Neha’s Investments have grown to Rs.923223 5.8 168. 100 thereof*) and we’ll invest the money every month in a fund of your choice.84 210.18 223. 500 and in multiples of Rs. 46.1 206.6 159. You can also decide to invest quarterly and will need to invest for a minimum of two quarters.049131 5. At 50. Both of them decide not to withdraw these investments till they turn 50.83 182. or for as long as you want. 36.31 166. interest compounded monthly. *Figures based on 10% p.084*.995175 5.469323 4. You can invest for a minimum of six months. Simply give us post-dated cheques or opt for an Auto Debit from your bank account for an amount of your choice (minimum of Rs.
896226 6.186786 40 .85 SIP 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 UNITS 5.75 98.898618 9.822411 8.72 110.78 1000 1000 1000 5.155 AVERAGE UNIT PRICE=151.032091 250 200 NAV 150 Series1 100 50 0 Apr07 May07 Jun07 Jul07 Aug07 Sep07 Oct07 Nov07 Dec07 Jan08 Feb08 Mar08 PERIOD SIP UNITS : 67.611987 5.19 169.18714 9.Jan-08 Feb-08 Mar-08 188.968 LUMPSUM: 12000/151.6 143.81 112.42 188.6= 79.591306 6.163 108.38 103.064375 9.307292 5.958119 6.24 165.6 YEAR 2008-09: Apr-08 May08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 NAV 178.638183 10.92 145.72 151.292316 6.862429 9.312367 6.05076 AVERAGE UNIT PRICE=178.72 158.32 101.
445828 4.Oct.01 224.395344 5.39 235.34385 AVERAGE UNIT PRICE=178.9 172.180542 4.786702 5.3026 LUMPSUM: 12000/178.35 193.72 SIP 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 UNITS 7.Aug.Jul.Sep.242375 41 .May.784163 4.82 209.Feb.869678 5.720923 4.02 224.93 223.00989 AVERAGE UNIT PRICE=126.Jan.03 211.Mar08 08 08 08 08 08 08 08 08 09 09 09 PERIOD Series1 SIP UNITS : 95.19= 67.Jun.476576 4.885919 5.19 YEAR 2009-10: Apr-09 May09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar10 NAV 127.Dec.328817 4.07 169.200 180 160 140 NAV 120 100 80 60 40 20 0 Apr.32 231.Nov.457917 4.81 185.
SIP investment benefits the investor as small amount of money can be invested in a systematic manner hence not burdening him/her with need to make large investment at one time Hence along with convenience to the investors it also gives them advantage to reap the benefits of having extra units when the markets are down.Feb.4361 AVERAGE UNIT PRICE=127.885 LUMPSUM: 12000/127. As the number of units earned increases as the average unit price of the mutual fund scheme decreases.Oct. In 2009-10 there continuous increase in the NAV and hence lump sum investment gives more units compared to SIP investments. There is a constant decrease in the NAV of the fund and there is a noticeable change in the opening and ending NAV for the year 2008-09.Aug.5747 AVERAGE UNIT PRICE=194.07= 94.Dec.May.Nov.07 In the year 2007-08 when the there is not much change in the opening and ending NAV there is not much difference in the units earned through SIP investment and lump sum investment.Sep. By investing in small amounts but in continuous manner investors can reap benefits of market volatility. This fall in market helps the investors in earning more units as the NAV is continuously going down. 42 .Jun.Jan.Jul. Due to low number of units earned the average unit price is more compared to lump sum investment.250 200 NAV 150 Series1 100 50 0 Apr. SIP investments are beneficial to investors in obtaining more units when the market is down.Mar09 09 09 09 09 09 09 09 09 10 10 10 PERIODS SIP UNITS : 61.
46%). If an investor's investment strategy or risk threshold has changed. It is the process of selling assets that are performing well and buying assets that are underperforming. 43 . he can rebalance his investments so that asset classes in the portfolio align with his new asset allocation plan. Ex-if there is a portfolio with a 50%stocks / 50% bonds policy asset mix. If stocks return 25% return while bonds produce a 5% return. stocks become overweighed at the end of the year (54% vs. Portfolio rebalancing is one of the very few ways to generate additional returns for a portfolio without incurring any additional risk. Portfolio Rebalancing Rebalancing is defined as the periodic adjustment of a portfolio to restore the original asset allocation mix of your mutual fund portfolio.5. Rebalancing involves selling 4% in stocks and buying 4% in bonds to bring the asset mix back to the desired 50/50 asset mix.
as a result of which. but when the market began a sharp fall in 2000. Many even added to their already over weighted positions by buying more and more. people often take on more risk than they're suited for . the portfolio's 60% stock allocation grew to nearly 80%. assuming the stellar performance trend would continue indefinitely. investment goals and time horizon. a portfolio in the 1990s became too aggressive 44 . their investments were pounded—more than they likely expected and more than if had they rebalanced. Rebalancing in volatile market In rising stock markets. Rebalancing effects Financial Research studied a portfolio of 60% stocks and 40% bonds to see what would happen if no rebalancing took place. they ended up with a larger percentage of stocks in their portfolios than their risk levels warranted.One of a very important step before rebalancing is to assign a strategic asset allocation plan appropriate to risk profile. As the stock market performed well from 1994 to 1999. This portfolio became over weighted in stocks just in time for the 2000 bear market Without rebalancing.
the portfolio's allocation had flipped. By 2002.but the same mix of 60% stocks and 40% bonds. a portfolio in the 2000s became too conservative 45 . the stock market was falling. starting in 2000. This time. Without rebalancing. consisting of 40% stocks and 60% bonds.
The value of regular rebalancing A regular rebalancing plan helps instill discipline in investing process. a rebalanced portfolio had lower risk and similar to slightly higher returns. In most cases. The chart below shows what happened when we rebalanced a portfolio with a moderate risk profile annually from 1970 through 2006. Rebalancing lowered risk and increased returns 46 .
3.Source: The Schwab Center for Financial Research with data from Ibbotson Associates. but it would also keep the portfolio on target for our goals and in line with our desired level of risk Advantages of rebalancing 1. Overall. It generates stable return. or more precisely. By rebalancing we can retain control of the overall risk of a portfolio. 47 . In a volatile market. 2. rebalancing does add value. Because of this it is possible to reduce your position in an asset class that is still on the rise thus reducing your potential for short-term gains. Rebalancing has proven to be more efficient than a buy and hold strategy over a full market cycle and by rebalancing periodically back to the original weighting of the portfolio. It keeps portfolio’s risk within tolerable limit. over a full market cycle of (on average) 5-7 years. A buy and hold strategy can be more profitable over the short term as rebalancing sole driving force is to sell off what is up and buy what is down. rebalancing could add to fees. it has also been effective at risk reduction. Inc. It will instill the discipline essential for investment success.
Stable and assured returns. High Liquidity Cons . Each person should concentrate on both returns and risk.High returns.4. not suitable for short term investment Debt Pros .Maximize returns Understanding debt and equity Equity Pros . Good investment for short term goals Cons . Low risk in Long term.Risky.When we combine Equity and Debt. and when we apply technique of Portfolio Rebalancing. both risk and returns are well managed.Stability . 48 . returns are better than Debt but less than Equity.Low returns Equity + Debt. but at the same time risk is also minimized. the investor systematically takes profit in these expense asset classes and reinvests the proceeds into the underperforming assets. Analysis of investments in Equity and Debt and how rebalancing the portfolio will help in -Risk Management . By rebalancing the portfolio.
Reason: As our Equity has gone up.47 17558. we make sure that it is increased so that we don't loose out on any opportunity. Many people are confused that if there equity has done very well then shall they book profits and get out with money and wait for markets to come down so that they can reinvest.Case 1: Equity: Debt goes up. The rebalancing analysis can be done with the help of an example. we will loose out on the profits if Equity provides great returns.71 12961. so once you get good profit in something which was risky you transfer some part to non-risk Debt.03 49 . Case 3: Understanding the Game of Equity and Debt As we know that the markets are unexpected and they can go in any direction. The sensex levels on the below mentioned dates were: Dates 1st January 07 1st July 07 1st January 08 1st July 08 st 1 January 09 1st July 09 1st January 10 1st June 10 Sensex 13942. Action: Decrease the Debt part and shift it to Equity. Portfolio rebalancing is the same thing but a little different name and methodology. so its better to be safe. so that Equity: Debt is same as earlier. Reason: As out Equity part has decreased.68 9903. Action: Decrease the Equity part and shift it to Debt so that Equity:Debt is same as earlier. if we rebalance and bring down your Equity Exposure.24 14664. once our equity exposure has gone up.73 16572. Limitations of this strategy is that.26 20300. we could loose a lot of it if something bad happens. we shift the excess part to Debt so that it is safe and grows at least. Case 2: Equity: Debt Goes Down. Eight sensex levels have been selected starting from 1 st January 2007 till 1st June 2010 semiannually.46 14645.
47/14645.26 * 100 12961.62% 50 .44% = -36.46/9903.68 – 20300.71-14664.68 * 100 14645.46*100 17558.18% 20300.03 -17558.71/20300.53/17558.68/12961.14645.Working note: 14664.53* 100 = -5.24/13942.59 % = 47.47 – 9903.26/14664.53.47 * 100 = 38.46 – 12961.26-13942.88 % = 19.15% = -23.89% and 16572.24*100 = 5.71 * 100 9903.
8 106099.9 6 105043.98 92966. 8 92966.96 71032.8 equity+debt with rebalancing 107089.7 136377.7. So it will be 105178. Now in the next quarter return is 38.88 19.15 -23.9 51 .9 8 71032.8 Similarly the rest calculations will be.5 111237.44 -36.Jan 08 Jan 08.July 07 July 07.6385=92966. 6 debt@9 % 109000 118810 129503 141158 153862 167709 182802 equity + debt without rebalancing 107090 132210.so the amount will be 105178.Jun 10 Returns (%) 5.62 Equity 105178.Time period Jan 07.4 156031.9 114504.3844=145605.4 132490.July 08 July 08 .18% returns in the first quarter.7*1. 9 125939.98*0.4788=105043.3 129459 146830 150837.8*0. 1 118873.7 Analysis: As we can see clearly from the above table that.Hence if we consistently rebalance our portfolio we get more returns while reducing risk in our portfolio. we are getting 5. Working note: (Assumption: tax has been ignored for calculation purposes) For equity: 1 lack is the amount of investment.Jan 10 Jan 10 .7641=71032.Jan 10 Jan 09.2 106148. 7 145605.3 158668.18 38.July 09 July 09. 145605.89 -5.59 47.44 %.96*1.
8 For equity + debt (50:50) of amount 100000 with rebalancing: 1st quarter: 50*105178. 52 .6 For debt @ 9% For 1st quarter: 9%*100000=109000 For 2nd quarter: 9%*109000=118810 For 3rd quarter: 9% 118810=129503 For 4th quarter: 9% 129503=141158 For 5th quarter: 9% 141158=153862 For 6th quarter: 9% 153862=167709 For 7th quarter: 9% 167709=182802 For equity + debt (50:50) of amount 100000 without rebalancing: (118873.so in order to bring it to our original 50:50 ratio we will now rebalance.105043.35 and 50.1 125939.000 in equity becomes 52589.we can see that our 50.6+182802)/2 = 150837.000 in debt becomes 54500 .9*1.70= 52589.6 So at the end the amount becomes 118873.1*0.9438= 118873.40 .1989=125939.35 50*109000=54500 So total capital now is =107089.
68 *1.7 So the total capital now becomes=132490.56 The total amount now is 114504.3844= 74127.68 becomes 58363.7disrupting our 50:50 ratio. 66245. Calculating the returns now.68 Now this 54175 amount becomes the opening balance for quarter 2.68 and 50*107089.Now again 53544.2nd quarter: 50*107089.47*1.15% and in debt it is 9%. so we will again rebalance it For 3rd quarter: 50%*132490. 53 .68 amount becomes 74127. 53544.9=66245. For 4th quarter 50%* 114504.47 Calculating return in these two figures. in equity the return is -36.9 .6385=42296.47*.2= 57252.9=66245.12 and 50% 114504.68 66245.25and 53544.09 =72207.40 =53544.40=53544.2=57252.47 50%*132490.09 =58363.68 *1.2.25 53544.
34*1.1989 = 81727.12*1.09 = 74303.34 53074.3843= 43743.69*1.34 53074.3 For 7th quarter 50% 156031.7 =53074.3= 78015.4= 68168.65 78015.7 For 5th quarter 50%*106148.4 For 6th quarter 50% * 136337.65 50% 156031.09= 57851.69 68168.81 The final amount will be 106148.4= 68168.87 So the total is 156031.3= 78015.62 54 .65*.34 50% * 106148.09 = 62404.9438 = 73631.34*1.7 =53074.12 *1.87 57252.69*1.69 50% * 136337.44 68168.03 So the total is 136337.4788= 78486.57252.
8/100000) 0.7/100000) 0.a So it can be concluded that with the help of rebalancing we are getting 2. 55 .46% p.78015.a = 14.2857 .7 Analysis Comparing the debt+ equity with and without rebalancing.2857 .09 % p.09 = 85037. Calculating CAGR without rebalancing: (150837.26% higher CAGR while reducing the risk and maintaining our desired portfolio allocation.1 Calculating CAGR with rebalancing: (158668.1 = 12.65*1.06 So the final total is 158668.
To compare the schemes with the returns of benchmark for the past three years. Data Sources Primary data Most of the data about the schemes of HDFC has been provided by the HDFC Asset Management Company. 56 . books and from Internet. To compare the performance of various 5 star rated equity diversified mutual fund schemes over a period of three years. Through this we aim to evaluate the performance in terms of risk and the returns of the schemes. company fact sheets. My industry mentor helped me obtain monthly portfolios and returns data of schemes which were available to him and also helped me acquire data from company’s intranet. Research Methodology I. Secondary data Data collection: Secondary data is collected from various published journals. II. To identify the level of risk involved in investing in various equity diversified mutual fund schemes. II. Research Objective 1. 2. Problem Statement Aim of the project is to analyze the performance flagship equity diversified schemes of six fund houses by calculating different performance measures for the data of past three years. 3.6.
VI Limitations Of The Study 1. 2.IV. calculations. Data analysis The data that has been collected for this study has been analysed by widely used performance parameters as: • • • • • Treynor Ratio Sharpe Ratio Jensen’s Alpha M Squared Leverage Factor Other analysis are done by using graphs. Time constraints: Due to shortage or less availability of time it may be possible that all the related and concerned aspects may not be covered in the project. For this study past three years data of the schemes and their benchmarks have been taken into consideration. Analysis done is limited to the availability of data. It helps us see how the funds stand in comparison with each other. V Scope Of The Study This study calculates different measures to compare equity diversified schemes of different fund houses . tables etc. 3. Only past three year data has been taken in this project which might not give complete scheme performance. 57 .
M. For our study here six schemes have been selected: • • • • • HDFC EQUITY FUND ICICI PRUDENTIAL DISCOVERY FUND UTI OPPUTTUNITIES FUND IDFC PREMIER EQUITY PLAN A RELIANCE RSF FUND SUNDARAN BNP PARIBAS S. the next 22. Five star indicate that a fund is in the 10% of its category in terms of historical risk adjusted returns Four star indicate that fund is in the next 22. Value research Funds ratings are a composite measure of historical risk adjusted returns.I.E REG- • 58 .L. Effective since July 2008. In the case of equity and hybrid funds this rating is based on the weighted average monthly returns for the last 3 and 5 – year period.5%are assigned 2 star bottom 10% receive 1 star.additional qualifying criteria. whereby a fund with less than Rs.middle 35% receive 3 star. Each category must have a minimum of 10 funds to be rated. 5 crore of average AUM in the past six months will not be eligible for rating. In the case of debt fund this rating is based on the weighted average weekly returns for the last 18 months and 3 years period and in case of short term debt funds –weekly returns for the last 18 months.7 Findings And Analysis Here six funds of different companies are taken which are rated 5 star by Value Research Ratings.5% .
9 59 .SCHEME PROFILE: • HDFC EQUITY FUND AMC Fund Category Scheme Plan Scheme Type Launch Date Fund Manager Benchmark Assets (RS crore) HDFC Asset Management Company Ltd.2004 S&P CNX Nifty Mr. Equity diversified Growth Open Ended January 01. Sankaren Naren 1088. 1995 Mr. Prashant Jain S&P CNX 500 6355.7 • ICICI PRUDENTIAL DISCOVERY FUND AMC Fund Category Scheme Plan Scheme Type Launch Date Benchmark Fund Manager Assets (RS crore) ICICI Prudential Asset Management Co. Ltd. Equity diversified Growth Open Ended August 16.
Ltd. Equity diversified Growth Open Ended September 28. Equity diversified Growth Open Ended July 16.• UTI OPPORTUNITIES FUND AMC Fund Category Scheme Plan Scheme Type Launch Date Benchmark Fund Manager Assets (RS crore) UTI Asset Management Co.2005 BSE 100 Mr. Harsh Upadhyaya 1432.78 • IDFC PREMIER EQUITY PLAN A AMC Fund Category Scheme Plan Scheme Type Launch Date Benchmark Fund Manager Assets (RS crore) IDFC Asset Management Company Ltd.25 60 . 2005 BSE 500 Mr. Kenneth Andrade 1443.
M.139 For all the above schemes returns of the past three years i. standard deviation.I. sharpe ratio. Ltd. Arpit Malaviya 2722. Ltd. 61 . Similarly returns are taken for the benchmarks of the respective schemes. 2007-10 .L. S Krishna Kumar 695. have been considered.2005 CNX midcap Mr.• RELIANCE RSF FUND AMC Fund Category Scheme Plan Scheme Type Launch Date Benchmark Fund Manager Assets (RS crore) RELAINCE Asset Management Co.e.2005 BSE 100 Mr. Equity diversified Growth Open Ended February 15. Equity diversified Growth Open Ended June 8. treynor ratio have been done for all the schemes for all years separately. beta.E REG-G AMC Fund Category Scheme Plan Scheme Type Launch Date Benchmark Fund Manager Assets (RS crore) ICICI Prudential Asset Management Co. Calculation of different parameters like average return .39 • SUNDARAM BNP PARIBAS S.
11 3.I.M.50 4. 2008-09 and 2009-10. that the funds have yielded the maximum return. Low returns in this year were because of recession that hit the market.56) (2.79 4.L.27 3.AVERAGE MONTHLY RETURN SCHEMES HDFC EQUITY FUND ICICI PRUDENTIAL DISCOVERY FUND UTI OPPORTUNITIES FUND IDFC PREMIER EQUITY PLAN A RELIANCE RSF FUND SUNDARAM BNP PARIBAS S. The lowest return giving fund for the year was UTI Opportunities Fund and the value was 4. During the period of analysis.86) (1.86) 2009-10 5. STANDARD DEVIATION SCHEMES 2007-08 2008-09 2009-10 62 .83) (3.38 2. Performance in the year 2008-09 was the least in all the three years.72 1.31) (2.11% of ICICI Prudential Discovery Fund.14%.77 6.65 2008-09 (2. In the year 2007-08 highest returns were given by Reliance RSF Fund with returns being 4.95 7.10.46 5. it was in the year 2009.86% and highest were of UTI Opportunities Fund with returns of -1.5%. Among them.38% and lowest returns were 1.83%. Least returns this year was from Sundaram BNP Paribas SMILE REG-G fund with the returns being -3.14 5. the top return was provided by ICICI Prudential Discovery Fund with a value of 7.30 The table above average monthly returns of the mutual fund schemes for 2007-08.E REG-G 2007-08 1.9) (3.
I.09 0.M.whereas HDFC Equity fund showed minimum deviation of 8%. The higher the value of standard deviation. the greater will be the volatility in the fund's returns.11 0.12 0.10 0.07 0.12 0. UTI Opportunities Fund had the minimum standard deviation of 10% For the year 2009-10 Reliance RSF Fund was the most volatile fund with standard deviation of 12%.08 0.HDFC EQUITY FUND ICICI PRUDENTIAL DISCOVERY FUND UTI OPPUTTUNITIES FUND IDFC PREMIER EQUITY PLANA RELAINCE RSF FUND SUNDARAN BNP PARIBAS S.09 0. IDFC Premier Equity Plan A had the least value of 7% BETA 63 .09 0.10 0.L.08 0.11 Standard Deviation of a fund depicts. In 2007-08 .12 0.12 0 . that how much the returns of the fund have deviated from the mean level.10 0.10 0.E REG-G 0.standard deviation of 10% was highest among all for Reliance RSF Fund and Sundaram BNP Paribas SMILE REG-G meaning that the fund's return fluctuated in either direction (up or down) by 10% from its average return .13 0. In the year 2008-09 Sundaram BNP Paribas SMILE REG-G showed the maximum volatility by having standard deviation of 13%.09 0.
87 0. The low risky fund for this financial year was UTI Opportunities Fund and the value was 0.02.diversifiable risk of a portfolio. the beta lies at a range from 0. Normally. During the financial year 2007.99.1 next was Relaince RSF Fund with beta of 1.84.71.I.M.99 0.91 0.Low risk fund for this year was IDFC Equity Plan A with beta value of 0.09. In this case.97 2009-10 0.10 Beta measures the non.71 1.80 0. The high risky fund for the financial year 2009.87 1.98 0.9. Therefore.00 0.SCHEMES HDFC EQUITY FUND ICICI PRUDENTIAL DISCOVERY FUND UTI OPPORTUNITIES FUND IDFC PREMIER EQUITY PLAN A RELAINCE RSF FUND SUNDARAM BNP PARIBAS S.95 0.10. The lowest risky fund was ICICI Prudential Discovery Fund with a beta of 0.82 0.L. the value of beta lies somewhere between 0.87 0.71 to 1. high risky fund was Reliance RSF Fund and the value was 1.10 was Sundaram BNP Paribas SMILE REG-G Fund with the Beta value of 1. Reliance RSF Fund was considered as the highest risky fund as it was having highest beta value of 0. In the year 2008.08.87 0.4 and 1. SHARPE RATIO 64 . the sample involves only equity diversified schemes.82.95 2008-09 0.84 0.02 1.86 0.E REG-G 2007-08 0.
The selected mutual fund schemes showed the best risk adjusted performance during the financial year 2009.94 14.97 9. The fund having the least Sharpe value is ICICI Prudential Discovery Fund with a value of 0.63.63) (3. In the year 2007-08.48 10. It means that the fund has provided the maximum risk adjusted return as compared to other funds. Funds were even having negative Sharpe ratio.44 13.11 6. The least performance was shown by UTI Opportunities Fund which has a ratio of 9.L. Among them. The performance of all selected mutual fund schemes was really low during the financial year 2008. IDFC Premier Equity Plan A is the fund which has shown the maximum Sharpe ratio of 6.I.11 5.94. 2008-09 and 200910.63 4.SCHEMES HDFC EQUITY FUND ICICI PRUDENTIAL DISCOVERY FUND UTI OPPUTTUNITIES FUND IDFC PREMIER EQUITY PLAN A RELIANCE RSF FUND SUNDARAM BNP PARIBAS S. Sharpe ratio is a measure of the excess return per unit of risk in an investment asset of a trading strategy.40) (3. The Sharpe ratio is used to characterize how well the return of an asset compensates the investor for the risk taken.23) (3.24 3. The lowest risk adjusted performance was shown by Reliance RSF Fund and the value was -3.09.87 The above table shows the Sharpe ratio of various schemes for the financial years 2007-08.63 10.64.11.06 0.63.E REG-G 2007-08 2.10. UTI Opportunities Fund which showed the risk adjusted performance with a Sharpe ratio of -3.64) (3.47) (3.M.59 2008-09 (3. TREYNOR RATIO SCHEMES 2007-08 2008-09 2009-10 65 .54) 2009-10 11. IDFC Equity Plan A was considered as the best one with a ratio of 14.23 which was best among all.
The ratio is 0.43) (0.47) 1.46) (0. IDFC Equity Plan A Fund is having the maximum Treynor’s ratio of 0.43) (0.It was during the financial year 2009.G Fund. The scheme having the lowest Treynor ratio is ICICI Prudential Discovery Fund.32 and the least performing fund was SUNDARAM BNP Paribas SMILE REG.07. Among them.32) (0.38) (0.I.19 0. The value was -0. The financial year 2008. that the funds showed the highest performance among the three years of analysis.09 was a low performance year for almost all mutual fund schemes. Some schemes showed even a negative Treynor’s ratio.11 Treynor’s ratio measures the fund’s performance in relation to the market’s performance.2008-09 and 2009-10.26 1. This shows that the fund is having a low risk adjusted performance.60 0.60.M. The lowest performance was shown by UTI Opportunities Fund.E REG-G 0.L. In the year 2007-08.37 0. ICICI Prudential Discovery Fund is the fund which showed the maximum Treynor’s ratio during this financial year.07 0.53 0. the top performing fund was ICICI Prudential Discovery Fund.46 1.73 0. The value was 0. The table shows the Treynor’s ratio of selected mutual fund schemes for three financial years 2007-08. . The returns reduced significantly as compared to previous financial year.01 1.10. JENSEN ALPHA SCHEMES 2007-08 2008-09 2009-10 66 . The value was 1. It means that the scheme has a better risk adjustedperformance as compared to other schemes. All the funds were having its highest Treynor ratio during this financial year. Its value was -0.99 1.HDFC EQUITY FUND ICICI PRUDENTIAL DISCOVERY FUND UTI OPPORTUNITIES FUND IDFC PREMIER EQUITY PLAN A RELAINCE RSF FUND SUNDARAM BNP PARIBAS S.73.99.37 (0.47.
In the year 2007-08.0342) (0. The above table shows the Jensen’s alpha measure for the financial years2007-08.0013) 0.0342.09.HDFC EQUITY FUND ICICI PRUDENTIAL DISCOVERY FUND UTI OPPORTUNITIES FUND IDFC PREMIER EQUITY PLAN A RELAINCE RSF FUND SUNDARAM BNP PARIBAS S.0024) 0.0693. 2008-09 and 2009.0005) 0.0207.0111) (0.0207) (0. The lowest value is for UTI Opportunities Fund and it is -0.0097. The lowest risk.0693 0.0052 0.E REG-G (0.0377.M.L. the least value was shown by Relaince RSF Fund and the value was -0.0235 (0.0110 0.0026) (0.adjusted performance was shown by ICICI Prudential Discovery Fund and the value was -0.0377 (0.0018) Jensen’s performance index is used as a measure of absolute performance of the portfolio. M^2(M SQUARE) 67 .0045 (0.0050) 0. the highest Jensen’s measure is for ICICI Prudential Discovery Fund and the value is 0. The highest risk adjusted performance for this financial year was shown by IDFC Premier Equity Plan A and the value was 0. For the year 2009-10.I.0111.0109) (0. the highest risk.0097 (0.10.0026) (0. During the financial year 2008.adjusted performance is shown by IDFC Premier Equity Plan A with a value of 0.
I. And UTI Opportunities Fund had the minimum values of 0.M.124 The M-squared is a performance measurement using return per unit of total risk as measured by the standard deviation.5624 among all the funds. The table above shows that in the year 2007-08 IDFC Premier Equity Plan A fund scored high on it with a value of 0.2340 0.4012 2008-09 (0.3225 and IDFC Equity Plan A gave the minimum value of -0.4211) 2009-10 1.1423 1.5624 1.98.5952 0.E REG-G 2007-08 0.4711 0.10.3512) (0.3309) (0.3225) (0. Among all UTI Opportunities Fund showed best performance with value of -0.4399.5056 0. In 2008-09 all the funds showed negative performance as the markets were down too.0319 1.L. For the year 2009-10 IFDC Premier Equity Plan A Fund showed highest values of 1.5213 0.4399) (0. LEVERAGE FACTOR (Li): SCHEMES 2007-08 2008-09 2009-10 68 .SCHEMES HDFC EQUITY FUND ICICI PRUDENTIAL DISCOVERY FUND UTI OPPORTUNITIES FUND IDFC PREMIER EQUITY PLAN A RELIANCE RSF FUND SUNDARAM BNP PARIBAS S.5952 and ICICI Prudential Discovery Fund showed least value with 0.3698) (0.1033 0.9809 1.
2008-09 and 2009.89 1. Reliance RSF Fund has the lowest Leverage factor and also less than one means fund standard deviation is more than market standard deviation and hence investor should consider unlevering this fund by selling of part of holding in the fund .96 1.00 0.88 The above table shows the leverage factor of various schemes for the financial years 2007-08.02 1. Similarly for Sundaram BNP Paribas SMILE REG. 8.00 1.009 0.95 0.45 0.10.HDFC EQUITY FUND ICICI PRUDENTIAL DISCOVERY FUND UTI OPPORTUNITIES FUND IDFC PREMIER EQUITY PLAN A RELAINCE RSF FUND SUNDARAM BNP PARIBAS S. In 2007-08 leverage factor is highest for HDFC Equity fund this means that it has low fund standard deviation compared to market standard deviation and hence investor should consider levering this fund by investing more in it.92 1. Rankings 69 .20 1.14 0.G fund in 2008-09 and ICICI Prudential Discovery Fund in 2009-10 investor should take similar steps as there leverage factor is less than one.E REG-G 1.02 0.98 1.87 1.18 1. Similarly for IDFC Premier Equity plan A in 2008-09 and 2009-10 investor should consider to invest more as they are having leverage factor more than one.22 0.I.L.01 1. For year 2007-08.M.
IDFC Equity Plan A . 2008-09 Rank Sharpe UTI OPPORTUNITIES FUND HDFC EQUITY FUND ICICI PRUDENTIAL DISCOVERY FUND Treynor ICICI PRUDENTIAL DISCOVERY FUND UTI OPPUTTUNITIES FUND HDFC EQUITY FUND Jensen M2 UTI OPPORTUNITIES FUND ICICI PRUDENTIAL DISCOVERY FUND HDFC EQUITY FUND Leverage Factor 1 IDFC PREMIER EQUITY PLAN A UTI OPPUTTUNITIES FUND SUNDARAM BNP PARIBAS S. UTI Opportunities Fund .E REG-G IDFC PREMIER EQUITY PLAN A UTI OPPORTUNITIES FUND HDFC EQUITY FUN 2 3 In the year 2008-09 according to Jensen Alpha and Leverage Factor IDFC Equity Plan A was the best performing fund whereas on the basis of M-Squared and Sharpe ratio UTI OpportunitiesFund was the best in performance . the best picks of financial year 2007. Jensen’s and M-Squared measure rate IDFC Premier Equity Plan A as the best one. Treynor’s ratio.I.I. 2009-10 70 .E REGG M2 IDFC PREMIER EQUITY PLAN A RELIANCE RSF FUND UTI OPPORTUNITIES FUND Leverage Factor HDFC EQUITY FUND UTI OPPORTUNITIES FUND IDFC PREMIER EQUITY PLAN A 1 2 3 During the financial year 2007.E REG-G Jensen IDFC PREMIER EQUITY PLAN A RELIANCE RSF FUND SUNDARAM BNP PARIBAS S. Thus.L.2007-08 Rank Sharpe IDFC PREMIER EQUITY PLAN A RELIANCE RSF FUND UTI OPPORTUNITIES FUND Treynor IDFC PREMIER EQUITY PLAN A RELIANCE RSF FUND SUNDARAM BNP PARIBAS S.L. HDFC Equity Fund got the best rating in case of Leverage Factor. Sharpe.08. Reliance RSF Fund . Amongst the top three ranked fund were Sundaram BNP Paribas SMILE REG and HDFC Equity Fund .M.M.08 include HDFC Equity Fund. ICICI Prudential Discovery Fund did best on M-Squared . whereas.L.I.M.
Conclusion 71 . HDFC Equity Fund.Rank Sharpe IDFC PREMIER EQUITY PLAN A ICICI PRUDENTIAL DISCOVERY FUND HDFC EQUITY FUND Treynor ICICI PRUDENTIAL DISCOVERY FUND IDFC PREMIER EQUITY PLAN A HDFC EQUITY FUND Jensen ICICI PRUDENTIAL DISCOVERY FUND HDFC EQUITY FUND RELIANCE RSF FUND M2 IDFC PREMIER EQUITY PLAN A ICICI PRUDENTIAL DISCOVERY FUND HDFC EQUITY FUND Leverage Factor IDFC PREMIER EQUITY PLAN A UTI OPPORTUNITIES FUND HDFC EQUITY FUND 1 2 3 In the year 2009-10. 9. UTI Opportunities fund were other funds that were also in the top three performing funds. ICICI Prudential Discovery Fund performed well on Treynor Ratio and Jensen Alpha whereas IDFC Premier Equity Plan A performed well on Sharpe Ratio.M-Squared and Leverage Factor. Reliance RSF Fund.
Further the effects of rebalancing showed that the returns that were earned when rebalancing was done was higher compared to the returns that were earned without rebalancing. as the beta values of schemes falls within a range of 0. We found out that if markets are down then then SIP helps us in securing more units. as most of the schemes were having positive values in case of the performance measures. The study is highly beneficial to the investors as it gives them chance to compare and analyze different scheme. the it helps the investors of all classes. One should plan on doing it at least once a year and possibly quarterly. Analysis was based on the risk and returns of various schemes. Hence setting rules for rebalancing your mutual fund portfolio and adhering to those rules will ensure that you sell high and buy low in the process of maintaining the desired composition. On analysis. while investing in equity diversified schemes. Also. Thus. Also it removes the burden of investing large amount of money at one time. In todays time when market movements cannot be predicted investors tend to go for SIP as it does help them take advantage of the low market rates. Schemes like IDFC Equity Plan A and HDFC Equity Fund were the top performing schemes in different parameters for 2007-08. References 72 . it was revealed that there is a certain amount of risk involved.In this study the performance of various mutual fund schemes in the equity diversified segment was considered. Along with this we are also able to see that in the difference between Systematic and Lump sum investment.10.71 and 1. Sharpe and Treynor were lowest. one should set target ranges and rebalance any funds as soon as they blow through the upper or lower end of their ranges. The study also revealed the fact that almost all the equity diversified schemes were affected in the year 2008-09 when recession had hit the market. In 2008-09 UTI Opportunities Fund. Values for average returns. One need to decide up front how often he/she will rebalance their portfolio. IDFC Equity Plan A and ICICI Prudential Discovery Fund were the best of all and in 2009-10 IDFC Equity Plan A and ICICI Prudential Discovery Fund performed the best. Whereas in the year 2009-10 when the market were recovering and investors were again showing faith in the market schemes showed good risk adjusted performance. in seeing how the different five star rated funds stand in comparison with each other.
www. www. www. 3.1. Investment Analysis and Portfolio Management.com.nseindia.hdfcfund.moneycontrol.com 4.com 5.com 6.bseindia. www. 73 . Reilly/Brown. Naresh Malhotra.com 7. www. Research Methodology 2.valueresearchonline.
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