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OBJECTIVE

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OBJECTIVES: Objectives of my project are: Page | 2  To examine whether mutual funds are really having a better prospect in India.  To understand what investor want out of their investment in different schemes of mutual fund, how they compare it with traditional investment instrument, what is the number of increase in the investor base.  To give a brief idea about the benefits available from Mutual Fund investment.  To give an idea of the types of schemes available.  To study some of the mutual fund schemes.  To study some mutual fund companies and their funds.  Explore the recent developments in the mutual funds in India.  To give an idea about the regulations of mutual funds.  To do the detail study of Mutual Funds.

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OVERVIEW OF
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INDIAN MUTUAL FUNDS INDUSTRY

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MUTUAL FUNDS
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 ALL ABOUT MUTUAL FUNDS

 WHAT IS MUTUAL FUND  BY STRUCTURE  BY NATURE  EQUITY FUND  DEBT FUNDS  BY INVESTMENT OBJECTIVE  OTHER SCHEMES  PROS & CONS OF INVESTING IN MUTUAL FUNDS  ADVANTAGES OF INVESTING MUTUAL FUNDS  DISADVANTAGES OF INVESTING MUTUAL FUNDS  MUTUAL FUNDS INDUSTRY IN INDIA  MAJOR PLAYERS OF MUTUAL FUNDS IN INDIA  HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY  CATEGORIES OF MUTUAL FUNDS  INVESTMENT STRATEGIES  WORKING OF A MUTUAL FUND  GUIDELINES OF THE SEBI FOR MUTUAL FUND  COMPANIES DISTRIBUTION CHANNELS  DOES FUND PERFORMANCE AND RANKING PERSIST? PORTFOLIO ANALYSIS TOOLS

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The mutual fund industry can be broadly put into four phases according to the development of the sector. The private sector entry to the fund family rose the AUM to Rs. the monopoly of the market had seen an ending phase. the total of it is less than the deposits of SBI alone.Mutual Funds Industry in India The origin of mutual fund industry in India is with the introduction of the concept of Page | 5 mutual fund by UTI in the year 1963. 5 . Before. it is the prime responsibility of all mutual fund companies. Hence. constitute less than 11% of the total deposits held by the Indian banking industry. Putting the AUM of the Indian Mutual Funds Industry into comparison. to market the product correctly abreast of selling. The main reason of its poor growth is that the mutual fund industry in India is new in the country. both quality wise as well as quantity wise. it reached the height of 1. but it accelerated from the year 1987 when non-UTI players entered the industry. Large sections of Indian investors are yet to be intellectuated with the concept. 67bn.540 bn. In the past decade. Indian mutual fund industry had seen a dramatic improvements. Though the growth was slow. 470 in in March 1993 and till April 2004. the Assets Under Management (AUM) was Rs. Each phase is briefly described as under.

The major players in the Indian Mutual Fund Industry are: Page | 6 Major Players of Mutual Funds In India Period (Last&nbsp1 Week) Rank Scheme Name Date NAV (Rs. 2012 8.64 1 JM Core 11 Fund .03 15.44 5.35 4 Standard Chartered Mar 14.) Last 1 Week 5. 2012 8. 2012 12.42 3 Tata Capital Builder Fund Growth Mar 26 .Growth Mar 26 .12 Since Inception -94.26 5.45 2 Tata Indo-Global Infrastructure Fund Growth Mar 26 .Series 1 .05 -40.07 5 20.92 6 .

65 -17.Growth Mar 26 .17 6 ICICI Prudential Fusion Fund .Series III Institutional . 2012 9.Regular Growth Mar 26 .Enterprise Equity Fund Growth 26 .51 22.2 4.75 -81.56 -0.Retail Growth Mar 26 .01 4.Growth Mar 26 .36 3.Series III . 2012 9.19 4.85 8 ICICI Prudential Fusion Fund .39 9 DBS Chola Small Cap Fund . 2008 6.78 7 .69 7 DSP Merrill Lynch Micro Cap Fund . 2012 Page | 7 5 DBS Chola Infrastructure Fund .62 23. 2012 10.93 4. 2012 10.Growth Mar 26 .

2012 7. 2012 10.94 8 . 2012 9. 2012 141.10 Principal Personal Taxsaver Mar 25 .44 29.89 2.93 1.A.Plan A .39 14 Sahara R.Plan A Growth Mar 26 .14 13.58 -0.Series I Growth Mar 26 .51 3.88 13 Tata SIP Fund .52 15 Tata SIP Fund .E. 2012 124.64 1.86 -49.97 Page | 8 11 Benchmark Split Capital Fund .38 2.66 3.Preferred Units Mar 26 .71 12 ICICI Prudential FMP Series 33 .L Fund Growth Mar 25 .25 2.Series II Growth Mar 26 .91 -7. 2008 9.

NAV = Total value of the fund………………. all expenses are deducted and the resultant value divided by the number of units in the fund is the fund‟s NAV. is mostly calculated daily based on the total value of the fund divided by the number of shares currently issued and outstanding. The value of all the securities in the portfolio in calculated daily. and/or other securities. Call money markets etc. bonds. known as the net asset value (NAV). which pools up the money from individual / corporate investors and invests the same on behalf of the investors /unit holders. and distributes the profits. in equity shares. Government securities. short-term money market instruments. of shares currently issued and outstanding 9 . From this.A mutual fund is a professionally-managed firm of collective investments that pools Page | 9 money from many investors and invests it in stocks..in other words we can say that A Mutual Fund is a trust registered with the Securities and Exchange Board of India (SEBI). No. Bonds. The value of each unit of the mutual fund.

Advantages of a MF – Page | 10 – Mutual Funds provide the benefit of cheap access to expensive stocks Mutual funds diversify the risk of the investor by investing in a basket of assets – A team of professional fund managers manages them with in-depth research inputs from investment analysts. which individual investors cannot access. mutual funds have access to crucial corporate information. 10 . – Being institutions with good bargaining power in markets.

Punjab National Bank Mutual Fund (Aug 89). Bank of India (Jun 90). First Phase – 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India.At the end of 1993. 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.History of the Indian mutual fund industry: The mutual fund industry in India started in 1963 with the formation of Unit Trust of Page | 11 India.700 crores of assets under management.47. SBI Mutual Fund was the first non. public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC).004 crores. At the end of 1988 UTI had Rs.UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87).6. 11 . Bank of Baroda Mutual Fund (Oct 92).UTI. The first scheme launched by UTI was Unit Scheme 1964. LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. The history of mutual funds in India can be broadly divided into four distinct phases. at the initiative of the Government of India and Reserve Bank. Second Phase – 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non. Indian Bank Mutual Fund (Nov 89). the mutual fund industry had assets under management of Rs.

representing broadly. PNB. following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. It is registered with SEBI and functions under the Mutual Fund Regulations. assured return and certain other schemes The second is the UTI Mutual Fund Ltd. BOB and LIC. there were 33 mutual funds with total assets of Rs.153108 crores under 421 schemes. sponsored by SBI. 2004. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. the assets of US 64 scheme. Fourth Phase – since February 2003 In February 2003. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. consolidation and growth. there were 29 funds. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29. except UTI were to be registered and governed. As at the end of January 2003.21.805 crores. 1. As at the end of September. under Page | 12 which all mutual funds. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. which manage assets of Rs.835 crores as at the end of January 2003.Third Phase – 1993-2003 (Entry of Private Sector Funds) 1993 was the year in which the first Mutual Fund Regulations came into being. 12 .

Categories of mutual funds Page | 13 13 .

Hence. Therefore. thereby offering higher returns at relatively lower volatility.g. Redemption of units can be made during specified intervals. such funds show volatile performance.. If the fund is listed on a stocks exchange the units can be traded like stocks (E.  Based on their investment objective: Equity funds: These funds invest in equities and equity related instruments. investment in equity funds should be considered for a period of at least 3-5 years. historically. such funds can yield great capital appreciation as. at any point of time. fresh investments can not be made into the fund. even losses. equities have outperformed all asset classes in the long term. Morgan Stanley Growth Fund). With fluctuating share prices. Therefore. generally smoothens out in the long term. Recently. However. It can be further classified as: 14 .  Close-ended funds: These funds raise money from investors only once. after the offer period. At the same time.Mutual funds can be classified as follow: Page | 14  Based on their structure:  Open-ended funds: Investors can buy and sell the units from the fund. most of the New Fund Offers of close-ended funds provided liquidity window on a periodic basis such as monthly or weekly. short term fluctuations in the market. such funds have relatively low liquidity.

Equity Linked Saving Scheme provides tax benefit to the investors.Invest 100% of the capital in a specific sector. . As a result. they fall between equity and debt funds. iii) Dividend yield funds.it is similar to the equity diversified funds except that they invest in companies offering high dividend yields. construction. -An infrastructure fund invests in power. cements sectors etc. like BSE Sensex or Nifty is tracked. e.i) Index funds. v) Sector funds. vi) ELSS.g. Balanced fund: Their investment portfolio includes both debt and equity. Following are balanced funds classes: 15 .100% of the capital is invested in equities spreading across different sectors and stocks.Invest 100% of the assets in sectors which are related through some e. iv) Thematic funds. on the risk-return ladder.A banking sector fund will invest in banking stocks.In this case a key stock market index. Their individual stock Page | 15 ii) Equity diversified funds. Balanced funds are the ideal mutual funds vehicle for investors who prefer spreading their risk across various instruments. portfolio mirrors the benchmark index both in terms of composition and weightages.g.

Page | 16 Debt fund: They invest only in debt instruments. remaining in debt. and are a good option for investors 16 . ii) Equity-oriented funds -Invest at least 65% in equities.i) Debt-oriented funds -Investment below 65% in equities.

Working Page | 17 Of Mutual Fund 17 .

What Is Mutual Fund A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. ONGC and Infosys. There are many other types of investments other than stocks and bonds (including annuities. The mutual fund will have a fund manager who is responsible for investing the gathered money into specific securities (stocks or bonds). which is back over predetermined amounts of time. the basic understanding of stocks and bonds. it‟s very important to know the area in which mutual funds works. Stocks are considered to be the most common owned investment traded on the market. Bonds are considered to be the most common lending investment traded on the market. and in return you can receive interest on your invested amount. real estate. Stocks : Stocks represent shares of ownership in a public company.Mutual Funds Page | 18 Before we understand what is mutual fund. Bonds : Bonds are basically the money which you lend to the government or a company. but the majority of mutual funds invest in stocks and/or bonds. and precious metals). When you invest in a mutual 18 . Examples of public companies include Reliance.

The flow chart below describes broadly the working of a mutual fund 19 . professionally managed basket of securities at a relatively low cost.fund. Page | 19 Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in. But the biggest advantage to mutual funds is diversification. thus by pooling money together in a mutual fund. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified. by minimizing risk & maximizing returns. you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund. investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own.

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risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry 22 .Overview of existing schemes existed in mutual fund category Page | 22 Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position.

Type of Mutual Fund Schemes BY STRUCTURE Page | 23 Open Ended Schemes An open-end fund is one that is available for subscription all through the year. In order to provide an exit route to the investors. The fund is open for subscription only during a specified period. 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. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor. Close Ended Schemes A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The key feature of open-end schemes is liquidity. These do not have a fixed maturity. 23 .

BY NATURE Under this the mutual fund is categorized on the basis of Investment Objective. By nature the mutual fund is categorized as follow: 24 . 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. which combines the features of open-ended Page | 24 and close-ended schemes.Interval Schemes Interval Schemes are that scheme.

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banks and financial institutions are some of the major issuers of debt papers. thus Equity funds rank high on the risk-return matrix. Debt funds are further classified as:  Gilt Funds: Invest their corpus in securities issued by Government. The Equity Funds are sub-classified depending upon their investment objective. The structure of the fund may vary different for different schemes and the fund manager‟s outlook on different stocks. these funds ensure low risk and provide stable income to the investors. Equity fund: Page | 26 These funds invest a maximum part of their corpus into equities holdings. as follows:     Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (ELSS) Equity investments are meant for a longer time horizon. Debt funds: The objective of these Funds is to invest in debt papers. These Funds carry zero Default risk 26 . Government authorities. 2. By investing in debt instruments. popularly known as Government of India debt papers.1. private companies.

These funds provides easy liquidity and preservation of capital. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds.  Liquid Funds: Also known as Money Market Schemes. inter-bank call money market. corporate debentures and Government securities. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. CPs and CDs. These schemes are safer as they invest in papers backed by Government. 27 . Page | 27  Income Funds: Invest a major portion into various debt instruments such as bonds. Some portion of the corpus is also invested in corporate debentures. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes.  MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities.  Short Term Plans (STPs): Meant for investment horizon for three to six months. These schemes invest in short-term instruments like Treasury Bills. It gets benefit of both equity and debt market.but are associated with Interest Rate risk.

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3. Balanced funds: As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns.

Further the mutual funds can be broadly classified on the basis of investment parameter viz, Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly.

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BY INVESTMENT OBJECTIVE

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Growth Schemes: Growth Schemes are also known as equity schemes. The
aim of these schemes is to provide capital appreciation over medium to long term. 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.

Income Schemes: Income Schemes are also known as debt schemes. 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. 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. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50).

Money Market Schemes: Money Market Schemes aim to provide easy
liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money.

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OTHER SCHEMES

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Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors
under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate.

Index Schemes: Index schemes attempt to replicate the performance of a
particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index.

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. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time.

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Types of returns:

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There are three ways, where the total returns provided by mutual funds can be enjoyed by investors:

Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution.

If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution.

If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.

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Pros & cons of investing in mutual funds: Page | 32 For investments in mutual fund. 32 . one must keep in mind about the Pros and cons of investments in mutual fund.

Most AMC also have automatic purchase plans whereby as little as Rs. and the minimum investment is small.50 per month basis.Advantages of Investing Mutual Funds: Page | 33 1.Just like an individual stock. they are professional managed. mutual fund also allows investors to liquidate their holdings as and when they want. Liquidity . and help to bring down the average cost of the unit for their investors. Diversification .Investments in mutual fund is considered to be easy. by well qualified professional. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. A mutual fund is considered to be relatively less expensive way to make and monitor their investments. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. Simplicity . the investors risk is spread out and minimized up to certain extent. 3.Purchasing units in a mutual fund instead of buying individual stocks or bonds. thus help to reducing transaction costs.Mutual fund buy and sell large amounts of securities at a time. 2. 5. 2000. 33 . Professional Management . 4. where SIP start with just Rs.The basic advantage of funds is that. compare to other available instruments in the market. Economies of Scale .

at the time of purchase. For example. when a fund manager sells a security. fund managers don't consider your personal tax situation. Costs – The biggest source of AMC income. It might have been more advantageous for the individual to defer the capital gains liability. 4. as their management is not dynamic enough to explore the available opportunity in the market. The mutual fund industries are thus charging extra cost under layers of jargon. is generally from the entry & exit load which they charge from an investors. Taxes . thus many investors debate over whether or not the so-called professionals are any better than mutual fund or investor himself. a capital-gain tax is triggered. 3.when making decisions about your money. Dilution is also the result of a successful fund getting too big.Some funds doesn‟t perform in neither the market. When money pours into funds that have had strong success.Because funds have small holdings across different companies. which affects how profitable the individual is from the sale. 2. high returns from a few investments often don't make much difference on the overall return. Professional Management. the manager often has trouble finding a good investment for all the new money. for picking up stocks.Disadvantages of Investing Mutual Funds: Page | 34 1. 34 . Dilution .

transparency etc. AMFI also is engaged in upgrading professional standards and in promoting best industry practices in diverse areas such as valuation. SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities.Guidelines of the SEBI for Mutual Fund Companies : Page | 35 To protect the interest of the investors. The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual funds that the mutual funds function within the strict regulatory framework. holds the securities of various schemes of the fund in its custody. registered with SEBI. It notified regulations in 1993 (fully revised in 1996) and issues guidelinesfromtimetotime. disclosure. Custodian. Its objective is to increase public awareness of the mutual fund industry. 35 . two thirds of the directors of Trustee Company or board of trustees must be independent. According to SEBI Regulations. SEBI formulates policies and regulates the mutual funds.

ration card. latest electricity bill. Its advisable to every investor to ask for the offer document and read it before investing. An offer document consists of the following: Standard Offer Document for Mutual Funds (SEBI Format)  Summary Information  Glossary of Defined Terms  Risk Disclosures  Legal and Regulatory Compliance 36 .Documents required (PAN mandatory): Page | 36 Proof of identity : 1. Proof of address (any of the following ) :latest telephone bill. latest Demat account statement. latest bank passbook/bank account statement. Photo PAN card 2. Offer document: An offer document is issued when the AMCs make New Fund Offer(NFO). In case of non-photo PAN card in addition to copy of PAN card any one of the following: driving license/passport copy/ voter id/ bank photo pass book. driving license. Passport. voter id. rent agreement.

Plans & options 6. 37 . popularly known as KIM. And thus every investor get to read it. Key Information Memorandum: a key information memorandum. Benchmark index 8. of units 7. Performance of the scheme (scheme return v/s. Risk profile of the scheme 5. Expenses of the scheme: load structure. 4. Year. Expenses  Condensed Financial Information of Schemes  Constitution of the Mutual Fund Page | 37  Investment Objectives and Policies  Management of the Fund  Offer Related Information. benchmark return) 12. Dividend policy 9. recurring expenses 11. Iestment objective 3. Name of the fund manager(s) 10 . Aset allocation pattern of the scheme. 2.wise return for the last 5 financial year. is attached along with the mutual fund form. Minimum application amount/ no. Its contents are: 1 Name of the fund.

eg: SBI being the top financial intermediary of India has the greatest network. UTI etc. independent brokers. So the AMCs dealing through SBI has access to most of the investors. Lotus India. Canara Robeco. whereas foreign AMCs include: Standard Chartered. Sundaram. The various parties involved in distribution of mutual funds are: 1. 3. JP Morgan. some of the top AMCs of India are.Broker/ sub broker arrangements: the AMCs can simultaneously go for broker/subbroker to popularize their funds. HDFC.Distribution channels: Page | 38 Mutual funds posses a very strong distribution channel so that the ultimate customers doesn‟t face any difficulty in the final procurement. HSBC. Individual agents. Banks. Direct marketing by the AMCs: the forms could be obtained from the AMCs directly. Fidelity. whichever he finds convenient for him. banks and several non. NBFC: investors can procure the funds through individual agents. 38 . ICICI.Birla Sunlife. DSP Merill Lynch. Kotak Mahindra.banking financial corporations too. AMCs can enjoy the advantage of large network of these brokers and sub brokers. The investors can approach to the AMCs for the forms. etc. Franklin Templeton. Reliance . SBI magnum. 2 . Tata. LIC. Mirae Assets.

its the commission charged at the time of buying the fund to cover the cost of selling. A 1. processing etc. the costs of running a fund grow slower than the growth in the fund size . Normally.Costs associated: Page | 39 Expenses: AMCs charge an annual fee. It may reduce to zero with increase in holding period.50 for every Rs100 in assets under management. advertising expenses. A fund's expense ratio is typically to the size of the funds under management and not to the returns earned. it is imposed to discourage withdrawals. Exit Load/Back. the more assets in the fund.it is the commission or charged paid when an investor exits from a mutual fund. brokerage fee.25-2. 39 . or expense ratio that covers administrative expenses.25%).5% expense ratio means the AMC charges Rs1.25%).so. etc. salaries. the lower should be its expense ratio Loads: Entry Load/Front-End Load (0-2.End Load (0.

Page | 40 RESEARCH METHODOLOGY 40 .

• SUB OBJECTIVES To find out the purpose of investment. • Secondary Data are the data collected for some purpose other than the problem at hand. newspapers. I have used Secondary Data.Page | 41 RESEARCH METHODOLOGY • MAIN OBJECTIVE To study the Awareness level in general public regarding Mutual funds. DATA COLLECTION METHOD In this research. To find out time period for which an investor invests. 41 . To study the general investment criteria of people. periodicals and Internet. It is less reliable and secured data as compared to primary data. I have collected secondary data from magazines.

3. There may be an increase in the various costs associated with the fund. Variation in the funds‟ performance due to change in its management/ objective. If the investors ignore the evaluation of funds‟ performance then he can loose hold of it any time.Beta. websites. Therefore it‟s very necessary to continuously evaluate the funds‟ performance with the help of factsheets and news letters. 2. The funds‟ ratings may go down in the various lists published by independent rating agencies. 4 . newspapers and professional advisors like SBI mutual fund services. The funds‟ performance can slip in comparison to similar funds. a technical measure of the risk associated may also surge. In this ever-changing industry.Page | 42 Measuring and evaluating mutual funds performance: Every investor investing in the mutual funds is driven by the motto of either wealth creation or wealth increment or both. he can face any of the following problems: 1. 6 . 5. 42 .It can merge into another fund or could be acquired by another fund house.

Shares Outstanding). Transaction Costs. Total Return and Expense Ratio. Portfolio Turnover Rate. Leverage. Fund Size. Per Share Capital Changes. NPAs. the Expense Ratio. Industry Exposures and Concentrations. Total Return.Page | 43 Performance measures: Equity funds: the performance of equity funds can be measured on the basis of: NAV Growth. The Income Ratio. Liquid funds: the performance of the highly volatile liquid funds can be measured on the basis of: Fund Yield. Total Return and Expense Ratio. Total Return with Reinvestment at NAV. 43 . Annualized Returns and Distributions. Debt fund: likewise the performance of debt funds can be measured on the basis of: Peer Group Comparisons. besides NAV Growth. Cash Flow. Computing Total Return (Per Share Income and Expenses. Ratios. besides NAV Growth.

Liquid funds: Short Term Government Instruments‟ Interest Rates as Benchmarks. BSE-PSU. I-Bex Total Return Index. If the fund generates a greater return than the benchmark then it is said that the fund has outperformed benchmark . The funds performance is measured in comparison with the benchmark. JPM T- 44 . BSE200. Debt funds: Interest Rates on Alternative Investments as Benchmarks. BSE100. and other sectoral indices. JPM T-Bill Index Post-Tax Returns on Bank Deposits versus Debt Funds. BSE 500 index.Page | 44 Concept of benchmarking for performance evaluation: Every fund sets its benchmark according to its investment objective. 3. Some of the benchmarks are : 1. Equity funds: market indices such as S&P CNX nifty. BSE bankex. 2. And if in case the return is lower than the benchmark then the fund is said to be underperformed. if it is equal to benchmark then the correlation between them is exactly 1.

ii) Funds from the same peer group. 45 . Selection of fund. the comparisons are usually done with: I)with a market index.Bill Index Page | 45 To measure the fund’s performance. The objective of financial planning is to ensure that the right amount of money is available at the right time to the investor to be able to meet his financial goals. Financial planning for investors( ref. Studying the features of a scheme. to mutual funds): Investors are required to go for financial planning before making investments in any mutual fund. Steps in financial planning are: Asset allocation. iii) Other similar products in which investors invest their funds. It is more than mere tax planning.

A fund manager has to closely follow the objectives stated in the offer Page | 46 document. bank deposits. life insurance. real estate etc. measuring these investment options on the basis of the mentioned parameters. safety convenience. leaving the actual allocation of securities and their management to fund managers. fixed income bonds. corporate debentures. Why has it become one of the largest financial instruments? If we take a look at the recent scenario in the Indian financial market then we can find the market flooded with a variety of investment options which includes mutual funds.In case of mutual funds. gold. Moderate Moderate Moderate Low Low 46 .return. equities. because financial plans of users are chosen using these objectives. company fixed deposits. all these investment options could be judged on the basis of various parameters such as. we get this in a tabular form Return Safety Volatility Liquidity Convenie nce Equity High Low High High Moderate Bonds Moderate High Moderate Moderate High Co. financial planning is concerned only with broad asset allocation. PPF. volatility and liquidity.

Debenture s Co. FDs Page | 47 Moderate Low Low Low Moderate Bank Deposits PPF Low High Low High High Moderate High Low Moderate High Life Insurance Gold Low High Low Low Moderate Moderate High Moderate Moderate Gold Real Estate Mutual Funds High Moderate High Low Low High High Moderate High High 47 .

we can say that mutual fund emerges as a clear winner among all the options available. even the liquidity and convenience involved are too low. comparing it with the other options. A lthough it ensures high safety but the returns generated and liquidity are moderate. On three parameters it scores high whereas it‟s moderate at one. Similarly the other investment options are not at par with mutual funds and serve the needs of only a specific customer group. so it‟s not an happening option for person who can afford to take risks for higher return. it scores better than equities at all fronts but lags badly in the parameter of utmost important ie. Straightforward. it scores low on return . Now looking at bank deposits.Page | 48 We can very well see that mutual funds outperform every other investment option. 48 . Gold have always been a favourite among Indians but when we look at it as an investment option then it definitely doesn‟t gives a very bright picture.appetite. Even the convenience involved with investing in equities is just moderate. The other option offering high return is real estate but that even comes with high volatility and moderate safety level. we find that equities gives us high returns with high liquidity but its volatility too is high with low safety which doesn‟t makes it favourite among persons who have low risk.

Now everybody can choose their fund according to their investment objectives. there exists one more reason which has established mutual funds as one of the largest financial intermediary and that is the flexibility that mutual funds offer regarding the investment amount. III) Returns get adjusted for the market movements: as the mutual funds are managed by experts so they are ready to switch to the profitable option along with the market movement. Such as if some are good at return then they are not safe. IV) Flexibility of invested amount: Other then the above mentioned reasons. Suppose they predict that market is going to fall then they can sell some of their shares and book profit and can reinvest the amount again in money market instruments. Its principle of diversification allows the investors to taste all the fruits in one plate. But mutual funds have definitely sorted out this problem. if some are safe then either they have low liquidity or low safety or both…. One can start investing in mutual funds with amount as low as 49 . the investor can enjoy the best investment option as per the investment objective. just by investing in it.The reasons for this being: I)Mutual funds combine the advantage of each of the investment products: Page | 49 mutual fund is one such option which can invest in all other investment options.likewise. II)dispense the shortcomings of the other options: every other investment option has more or les some shortcomings. there exists no single option which can fit to the need of eve rybody.

25% (entry load) but could cost the investors in terms of returns if the investor is not an expert. Then the investors sort out the funds whose investment objective matches with that of the investor‟s. 500 through SIPs and even Rs. Page | 50 How do investors choose between funds? When the market is flooded with mutual funds. Rupee cost averaging: The investors going for Systematic Investment Plans(SIP) and Systematic Transfer 50 .e. Of course the investors can save their money by going the direct route i. it‟s a very tough job for the investors to choose the best fund for them. 100 in some cases. Whenever an investor thinks of investing in mutual funds. he must look at the investment objective of the fund. Some of the basic tools which an investor may ignore but an mf advisor will always look for are as follow: 1. So it is always advisable to go for MF advisors. Now the tough task for investors start. they may carry on the further process themselves or can go for advisors like SBI . The mf advisors‟ thoughts go beyond just investment objectives and rate of return. through the AMCs directly but it will only save 1-2.Rs.

The trigger could be the value of the investment. Trigger facilities allow automatic redemption or switch if a specified event occurs. 2. Trigger and switching are tools that can be used to rebalance a portfolio.Plans(STP) may enjoy the benefits of RCA (Rupee Cost Averaging). greater the chances of benefiting from lower prices. which will result in reducing the average cost and enhancing returns. the investor is always at a profit. like Rs 5.000 a month and nowadays even as Page | 51 low as Rs. 500 or Rs. Investors can also benefit by increasing the SIP amount during market downturns. Rebalancing: Rebalancing involves booking profit in the fund class that has gone up and investing in the asset class that is down. even if the market falls. level of the market indices or even a date. Rupee cost averaging allows an investor to bring down the average cost of buying a scheme by making a fixed investment periodically. the net asset value of the scheme. This results in the average cost per unit for the investor being lower than the average price per unit over time. the investors can get more number of units and vice-versa. Whereas STP allows investors who have lump sums to park the funds in a low-risk fund like liquid funds and make periodic transfers to another fund to take advantage of rupee cost averaging. The funds redeemed can be switched to other specified schemes within the 51 . More frequent the investment interval. In case if the NAV of fund falls. The investor needs to decide on the investment amount and the frequency. 100. In this case. level of capital appreciation.

52 . 4. Tax efficiency: Tax factor acts as the “x-factor” for mutual funds. This gives the investor a small exposure to a new asset class without risk to the principal amount. the dividends from debt funds may be transferred to equity schemes. In case of mutual funds.same fund house. Some fund houses allow such switches without charging an entry load. Such transfers may be done with or without entry loads. To use the trigger and switch facility. depending on the MF's policy. Diversification: Diversification involves investing the amount into different options. Under this. This ensures that the investor books some profits and maintains the asset allocation in the portfolio. the dividend is reinvested not into the same scheme but into another scheme of the investor's choice. 3. the investor needs to specify the event. For example. Tax efficiency affects the final decision of any investor before investing. The investors gain through either dividends or capital appreciation but if they haven‟t considered the tax factor then they may end loosing. the Page | 52 amount or the number of units to be redeemed and the scheme into which the switch has to be made. the investor may enjoy it afterwards also through dividend transfer option.

Debt funds have to pay a dividend distribution tax of 12. tax implications and minimum applicable investment amounts before committing to a service. If the capital gain is long-term (where the investment has been held for more than one year). 53 . the growth option is more tax efficient for all investors. SWP implies capital gains for the investor.50 per cent (plus surcharge and education cess) on dividends paid out. Investors who need a regular stream of income have to choose between the dividend option and a systematic withdrawal Page | 53 plan that allows them to redeem units periodically. Investors in higher tax brackets will end up paying a higher rate as short-term capital gains and should choose the dividend option. If it is short-term. All the tools discussed over here are used by all the advisors and have helped investors in reducing risk. Even then an investor needs to examine costs. simplicity and affordability. This is because investors can redeem units using the SWP where they will have to pay 10 per cent as long-term capital gains tax against the 12.50 per cent DDT paid by the MF on dividends. then the SWP is suitable only for investors in the 10-per-cent-tax bracket.

ITC ltd.Page | 54 Most popular stocks among fund managers (as on 30th April 2012) Company Name Reliance industries limited Larsen & toubro limited ICICI bank limited State bank of India Bharti airtel limited Bharat heavy electricals limited Reliance ventures ltd Infosys technologies ltd Oil& Natural gas corporation ltd. communication no. of funds 244 206 202 188 184 200 169 159 153 143 54 .

Page | 55 no. Bharti airtel limited. reliance communications. Infosys technologies limited. The investments made by the fund managers are used for prediction. Huge investments assure liquidity and reflects appositive picture whereas tight 55 . of funds 300 250 200 150 100 50 0 no. What are the most lucrative sectors for mutual fund managers? This is a question of utmost interest for all the investors even for those who don‟t invest in mutual funds. ONGC and at last ITC ltd. of funds We can easily point out that reliance industries limited emerges as a true winner over here attracting the attention of almost244 managers well followed by Larsen & toubro ltd ICICI bank ltd and Bharat heavy electricals ltd. The other companies succeeding in getting a place at top 10 are SBI. Because the investments done by the MFs acts as trendsetters.

So we can have a look at most lucrative sectors to know about the recent . Sector name No.investment policy reflects crunch and investors may look forward for a gloomy picture. The expert management of the funds will always look for profitable and high paying Page | 56 sectors. of MFs betting on it automotive banking services cement & construction consumer durables conglomerates chemicals consumer durables engineering & capital 317 goods food & beverages information technology media & entertainment Manufacturing metals& mining 175 284 218 259 275 237 51 218 259 non 146 & 255 financial 196 56 . Their investments show that which sector is hot? And will set the market trends.

food & beverages. metals & mining and information technology. Asset allocation by fund managers are based on several researches carried on so. cement & construction. We can say that this sector is on boom and presents a bright picture. And the sector which failed to attract the fund managers is consumer durables with just 51 funds betting on it. it is always advisable for other investors too take a look on it. chemicals. It can be further 57 . The sectors which are not so favourite are banking & financial services. pharmaceuticals and utility.durables. telecom. miscellaneous. Thus this analysis not only gives a picture of the mindset of fund managers rather it also reflects the liquidity existing in each of the sectors. Other than it other sectors on height are oil & gas. consumer non.Miscellaneous oil & gas Pharmaceuticals Page | 57 Services Telecom Tobacco Utility 250 290 250 200 264 150 225 From the above data collected we can say that engineering & capital goods sector has emerged as the hottest as most of the funds are betting on it. media & entertainment. It is not only useful for investors of mutual funds rather the investors of equity and debt too could take a hint from it. services and tobacco. manufacturing. Sectors performing average are automotive. conglomerates.

Page | 58 Axis Title 50 100 150 200 250 300 350 0 automotive banking & financial services cement & construction consumer durables conglomerates chemicals consumer non durables engineering & capital goods food & beverages information technology media & entertainment manufacturing metals& mining miscellaneous presented in the form of a graph as follow: 58 oil & gas pharmaceuticals services telecom tobacco utility .

But before moving on to that lets have a look at some of the top performing SIPs and their return for 1 year: Total Scheme Amount NAV NAV Date Amount Reliance diversified power 1000 62.728 1000 35.31 30/5/2008 13791. In the later sections we will see how returns generated from some of the SIPs have outperformed their benchmark.157 59 . every small amounts invested regularly can grow substantially.Page | 59 Systematic investment plan (in details) We have already mentioned about SIPs in brief in the previous pages but now going into details.944 1000 18. SIP gives a clear picture of how an early and regular investment can help the investor in wealth creation. Due to its unlimited advantages SIP could be redefined as “a methodology of fund investing regularly to benefit regularly from the stock market volatility.74 30/5/2008 14524.86 30/5/2008 14247.208 30/5/2008 13584. In such case.07 sector retail Reliance equity principal global opportunities fund DWS investment opportunities fund regular savings 1000 22. we will see how the power of compounding could benefit us.

BOB growth fund Page | 60 1000 42. 18%.14 30/5/2008 13769.152 In the above chart. 60 . we can see how if we start investing Rs. We can see reliance regular savings equity. it forces the investors to save and get them into the habit of saving. Thus we can easily make out how SIP is beneficial for us. Next we can see if anybody would have undertaken the SIP in Principal would have got returns of app. Its hassle free. 14. Now we will analyze some of the equity fund SIP s of Birla Sunlife with BSE 200 and bank fixed deposits In a tabular format as well as graphical. thus putting no pressure on their pockets. Also paying a small amount of Rs.1000 per month then what return we‟ll get for the total investment of Rs.07 per year which comes to 21% roughly. DWS investment opportunities and BOB growth fund giving returns of 13. 12000.20%. 1000 is easy and convenient for them.92%. There is reliance diversified power sector retail giving the maximum returns of Rs. 2524.74% respectively which is greater than any other monthly investment options. and 14.

OF Page | 61 INSTALMENT Scheme Name S Original inv Returns BSE 200 at FUND RETURNS Birla SL tax relief '96 144 144000 553190 1684008 Birla SL equity fund Birla fund frontline equity 114 114000 388701 669219 66 66000 156269 181127 61 .NO.

Starting from Birla frontline equity fund. we could spot that if someone would have invested Rs. Here. Birla sunlife tax relief ‟96. 669219. And the amount even is a meager Rs. Birla sunlife equity fund and Birla sunlife frontline equity fund. 144000 for a period of 12 years at 62 .156269 if invested in BSE 200 whereas the fund would have given a total return of Rs 181127. 1000 per month. All these three funds follow the same benchmark ie. 388701 whereas the fund gave a total return of Rs. And now the cream of all the investments. a total investment of 114000 for a total of 114 months at BSE 200 would have given a total return of Rs. 1000 per month resulting into total investment of Rs. 66000 then it would have amounted to rs. nearly double the return generated at BSE 200. Now moving next to Birla sunlife equity fund. BSE 200. we have taken three funds of Birla sunlife namely Birla sunlife tax relief ‟96. A total investment of Rs.Chart Title 1800000 1600000 1684008 Page | 62 1400000 1200000 1000000 800000 600000 400000 200000 0 Birla SL tax relief '96 144000 553190 669219 388701 114000 181127 156269 66000 Original inv Returns at BSE 200 FUND RETURNS BIrla SL equity Birla frontline fund equity fund In the above case. we have shown how one would have benefitted if he would have put his money into these schemes since their inception.

Does fund performance and ranking persist? This project has been a great learning experience for me. an expert might underestimate my efforts. But frankly speaking. We can see some funds are 5. We have seen how a meager amount of Rs. 1684008. attracting more and more investors to create wealth through SIPs. But the analyses that are carried onward these pages are really close to my heart. The portfolio consists of different types of funds. It may appear unbelievable for many but SIPs have turned this into reality and the power of compounding is speaking loud. One might think it as a boring task and can go for recording historic NAVs since last 1 month instead of recording it daily.BSE 200 would have given total returns of just Rs. After taking a look at the data presented below. Page | 63 Thus the above case very well explains the power of compounding and early investment.star rated but their performances are below the unrated funds. 144000 turned into Rs. 553190 but the Birla sunlife tax relief ‟96 gave an unbelievable total return of Rs 1684008. We can also find some funds which performed very well initially but gradually declined either 63 . Really the ups and downs in the NAVs affected me as if I m tracking my own portfolio. I really developed some sentiments with these funds. while tracking the NAVs.

Looking at the funds. We can also see some funds following same benchmark and reflecting diverse NAV and returns. All the funds are showing negative returns for the last 1 month. one 4star rated and six unrated funds. inspite of a week equity market.run or long run. In other way. we have three 5 star rated funds. since the ratings include both risk and return so it will not be a total justice to judge the funds purely on a return basis but still we can go for it just to judge them on the basis of returns generated. One can sort out that the present return of funds has decreased a lot and subsequently its NAV too has come down. Now before going into details. one equity specialty. Although. Even it can be seen that the expense ratios for various funds varies Page | 64 which may affect the ultimate return. we can see that some of the fu nds are 5 star or 4 star rated but their returns lag behind the unrated funds. Even the two hybrid funds are showing negative monthly returns. On an average the equity funds are offering a return of 30% annually. we can easily make out that the 1 year return of the fund that was on 17th of april could not be sustained till 1 month. lets have a look at those funds: in this downgrading equity market. one hybrid: dynamic asset allocation and one hybrid: debt oriented fund. Now checking the validity of funds‟ ratings. Some funds have high NAVS but the returns offered are low.in short. It 64 . That means all those who bought these funds a month back must be experiencing a negative return. Still the total return is positive. we have seven equity diversified funds. Although the annual return of the funds have gone down in comparison to what it was offering a month back.

Its 1 month return is 5. appreciation of net asset value. we can spot DBS at no. If you choose your mutual fund only on the 65 . We can easily spot the difference by change in their rankings even. based on the historical performance.8% whereas DBS gave a return of -3. Here is why they are totally irrelevant to investor: 1. Thus at last we can conclude that ratings are totally irrelevant for investors.6 but when we look at the monthly ratings. we can see that ICICI Pru has really performed worse in the last month. But looking at the expenses. Even if we consider 6 months return or yearly returns.5 whereas ICICI at no. then there is not much difference between them. definitely DBS is a winner. DBS offering returns of 35.27.17% whereas ICICI offering 34. any change in returns will lead to re-rating of the mutual fund. As returns play a key role in deciding the ratings. So I have compared 2 funds out of this list on the basis of their returns and expenses. So they rely more on the past. In this case. DBS Chola opportunities is a 4 star rated fund whereas ICICI Pru infrastructure is an unrated fund. Here DBS Chola opportunities and ICICI Pru infrastructure follows the same Page | 65 benchmark S&P CNX NIFTY. which may act as the ultimate factor in choosing the fund in a long run.is not possible to compare each and every fund in details. But if we look at the yearly returns.07%. The star rating definitely gives DBS a competitive advantage but now lets have a look at other factors. DBS is at 52 and ICICI far behind at 172. to our ultimate shock. that is. 2. Considering 1 yr return. the expenses charged by ICICI is lower to that of DBS. Mutual fund ratings are based on the returns generated. rather than the current scenario.

Ratings also don‟t consider two very important factors: transparency and keeping investors informed. 4. As the star ratings look at just returns. There are no negative ratings awarded to the fund. If the star fund manager quits. As a matter of fact. For example. 5. a fund following a certain process may lose out to a fund that has given superior returns only because it has a star fund manager. 6. A fund or fund manager that is involved in a scam or financial irregularities won‟t get poor ratings on the basis of ethics. But there is a higher risk associated with a star fund manager that the ratings don‟t reflect. Ratings don‟t match the investor‟s risk-appetite with their portfolio. investments should be done only after considering the risk appetite of the investor. Page | 66 As a result. it can throw the working of a mutual fund out of gear and thus affect its performance. The ratings don‟t show the level of ethics followed by the fund. 66 . However ratings fail to take that into account. any wrongdoing carried out by the fund or fund manager will be completely ignored. The ratings don‟t value the investment processes followed by the mutual fund. equities may not be the best investment vehicle for a very conservative investor. it will be a nuisance to keep realigning your investment in line with the revision of the ratings. 3.basis of rating.

treynor measure. sharpe ratio. we can find that the returns are important but it is also important to look at the „quality‟ of the returns. lets have a look at these ratios: 67 . one needs to use a combination of these tools to make a thorough analysis of the funds. But if we look deeply to it. „Quality‟ determines how much risk a fund is taking to generate those returns.Portfolio analysis tools: Page | 67 With the increasing number of mutual fund schemes. total expense ratio etc. Each has their unique strengths and limitations as well. portfolio turnover ratio. so the easiest available option for investors is to choose the best performing funds in terms of “returns” which have yielded maximum returns. R-squared. he can become more equipped to make a well informed choice. it becomes very difficult for an investor to choose the type of funds for investment. The present market has become very volatile and buoyant. beta. alpha. By using some of the portfolio analysis tools. Therefore. So before going into details. sharpe ratio. beta. Now I have compared two funds of SBI on the basis of standard deviation. There are many financial tools to analyze mutual funds. so it is getting difficult for the investors to take right investing decision. Rsquared. portfolio turnover ratio and total expense ratio. One can make a judgment on the quality of a fund from various ratios such as standard deviation.

Beta analysis: beta is used to measure the risk. In case of funds. as compared to the market. Deviation is defined as any variation from a mean value (upward & downward). A fund with a beta very close to 1 means the fund‟s performance closely matches the index or benchmark. It basically indicates the level of volatility associated with the fund as compared to the market. Thus. we should look at the beta against a bank index. A beta that is greater than 1 means that the fund is more volatile than the benchmark index. It is used as a short term decision making tool. Since the markets are volatile. beta would indicate the volatility against the benchmark index. High standard deviation of a fund implies high volatility and a low standard deviation implies low volatility. The success of beta is heavily dependent on the correlation between correlation between a fund and its benchmark. which determines the volatility of a fund.Standard deviation: Page | 68 in simple terms standard deviation is one of the commonly used statistical parameter to measure risk. if the fund‟s portfolio doesn‟t have a relevant benchmark index then a beta would be grossly inappropriate. In case of funds. the returns fluctuate everyday. 68 . For example if we are considering a banking fund. while a beta of less than 1 means that the fund is more volatile than the benchmark index.

Beta should be ignored when the r-squared is low as it indicates that the fund performance is affected by factors other than the markets.2 Case 2 0. The value of R squared ranges from0 to1. It describes t he level of association between the fun‟s market volatility and market risk.R-Squared (R2): Page | 69 R squared is the square of „R‟ (i.e.65 1. In case 2. which helps in comparing the returns given by a fund with the risk that the fund has taken. the r.squared is more than 0. For example: Case 1 R2 B 0. coefficient of correlation).80 in case 1.80) indicates that beta can be used as a reliable measure to analyze the performance of a fund.squared (more than 0. In other 69 .9 In the above tableR2 is less than 0. A high R. implies that it would be wrong to mention that the fund is aggressive on account of high beta.9.88 0.85 and beta value is 0. Sharpe ratio: sharpe ratio is a risk to reward ratio. it means that this fund is less aggressive than the market.. A fund with a higher sharpe ratio means that these returns have been generated taking lesser risk.

not an indication of the percentage of a fund's holdings that have been changed. The total cost of the fund is divided by the fund's total assets to arrive at a percentage amount. the fund is less volatile and yet generating good returns.risk free rate) / standard deviation Portfolio turnover ratio: Portfolio turnover is a measure of a fund's trading activity and is calculated by dividing the lesser of purchases or sales (excluding securities with maturities of less than one year) by the average monthly net assets of the fund. since the amount of turnover affects the fees and costs within the mutual fund. Total expenses ratio: A measure of the total costs associated with managing and operating an investment fund such as a mutual fund. means the fund has bought and sold all its positions within the last year.words. Turnover is important when investing in any mutual fund. The ratio is calculated as: Page | 70 Sharpe ratio = (Average return. the fund with a higher sharpe ratio offers a better avenue for investing. given similar returns. Portfolio turnover is the purchase and sale of securities in a fund's portfolio. then. which represents the TER: Total expense ratio = (Total fund Costs/ Total fund Assets) 70 . A ratio of 100%. Turnover is simply a measure of the percentage of portfolio value that has been transacted. legal fees. Thus. These costs consist primarily of management fees and additional expenses such as trading fees. auditor fees and other operational expenses.

73% 9.61% Magnu m multipli er plus Bench mark BSE100 -26.24% Now in the above table.71% 40.00% 21.02% -15.53% 11.47% 30.18% 26.28% 59.56% 11. magnum equity fund and magnum multiplier plus following the same benchmark i.26% -18.07% 5Y 48.Performance report and portfolio analysis of magnum equity fund Page | 71 and magnum multiplier plus against their benchmark BSE100: YTD Magnu m equity fund 1M 3M -7.e.71% 6M 1Y 3Y 45.57% -11.96% -23.46% 44. BSE 100.74% -2. we have two funds from SBI ie. we 71 .16% 5.31% -17. In this case.44% 45.

If we look at a long term perspective.17% and 2.72% respectively. It is greater than equity fund by 10. In case of 5 year returns. When the bse 100 gave returns of 11.have compared their returns during various time periods. Again. 1 year.28%.65% which is a huge figure. 3month. we can clearly see that bse 100 emerges as a true winner. during last 1 month.47% and 26. Similarly. 72 . during last 1 month return of all three got positive but the funds always remained behind the benchmark. Rather they also performed as laggards.07%. neither the benchmark nor the magnum equity fund stands anywhere near multiplier plus. surely multiplier plus gave the maximum return but it fell sharply in comparison to its 5 yr return.21% and benchmark by a mere 4. these funds were trailing by 29. Here not only the fund mangers failed to beat or match the market. then magnum multiplier plus totally outperformed both magnum Page | 72 equity fund as well as bse 100. now moving down to 1 yr return. 3 year and 5 year.71% but both the funds failed to match it even. the YTD return of all 3 is negative even then the benchmark is at a better position than the funds. The benchmark gave a return of 30.47%.35% and from benchmark by 15. In th last 3 months too. 6 months.28% return scored over equity fund just by a margin of 0. A 45. both the funds were behind bse100 but all the three gave negative returns and the difference between them and benchmark was narrowed down. The bse 100 outscored multiplier plus and equity fund by 6. but in case of 3 year returns. But the ultimate surprise comes when we look at the datas of last 6 months. We have their returns YTD. giving negative returns.

00% 20.00% -30. it is not always possible for the fund managers to always beat the market. The datas can be presented in the form of a graph as follow: 70. Also.00% magnum equity magnum multiplier bse 100 73 .00% 40. by looking at it we cannot interpret that the fund will perform in the same way in the future too.From the following analysis we can infer that inspite of all the steps taken.00% 60.00% -10.00% 30. the past Page | 73 performance just tells the background and history of the fund.00% 0.00% 50.00% 10.00% -20.00% -40.

As r.  A look at the Sharpe ratio indicates that magnum equity has outperformed multiplier plus.  The beta of magnum equity fund is higher than that of magnum multiplier plus.90%.84% 1. Generally higher the SD higher is the risk and vice-versa. But beta of both the funds is smaller than 1 that means both the funds are less volatile than the market index. Therefore.96% 26.squared values are more than 0.00% 0.42% 25% 2. magnum multiplier plus is riskier than magnum equity fund. equity fund is more volatile than multiplier plus.5% Magnum equity fund Magnum multiplier plus Analysis:  We can see that the standard deviation of both the funds are more or less same even then the S. we can rely on the usage of beta for the analysis of these funds.D of multiplier plus is greater than that of equity fund by 0.Quantitative data: Ratios Page | 74 Standard deviation Beta r-squared Sharpe ratio Portfolio turnover Total expense ratio 1. A higher Sharpe ratio of equity fund depicts that these return 74 .95% 0.46% 31% 2.80 in both the cases. Therefore.90% 0.5% 26.

 Total expense ratio of both the funds are same i.e. it indicates that beta can be Page | 75 used as a reliable measure to analyze the performance of these funds.  Portfolio turnover ratio of magnum equity fund is higher than multiplier plus. Magnum equity fund‟s R.  R-squared of both the funds are greater than 0.5% 75 . 2. It may lead to an increase in expenses but could be ignored if could generate higher return by changing the composition of portfolio.have been generated taking lesser risk than the multiplier plus.squared is higher. So its beta is more reliable.. It mean the manager is frequently churning the portfolio of equity fund than of multiplier plus.80. It Is less volatile than the other.

95% r-squared 0.42% portfolio 31% 25% expenses 2.90% beta 0.00% 25.84% sharpe 1.00% Axis Title 20.93% 0.46% 1.50% 76 .00% equity fund multiplier plus sd 26.00% 26.00% 10.In the form of a chart: Page | 76 Chart Title 35.00% 15.00% 30.50% 2.00% 0.00% 5.96% 0.

Page | 77 CONCLUSION. FINDINGS & RECOMMENDATION 77 .

 Increasing trend of portfolio management services  It is found that major proportion of wealth management in India is PMS which is basically for HNHs whose earnings are high.they are more volatile than any other investment option but at the same giving high returns also.more profitable it is. • Many investors do not prefer to take Professional Advice.  After comparing the different investment options availiable with the investor it is found that more risker an investment option is. if mutual funds offer steady returns and minimization of risk. 78 . Factors considered for investment is majorly growth and safety.In case of Equities. Majority of the investors are preferred to invest for medium term only . Majority of mutual fund investors is not even aware of the name of the scheme in which they have invested.FINDINGS: • Page | 78 • • • Lack of knowledge is the main reason why people do not invest in mutual funds. they may consider investing in them. • For investors.

Nobody will invest until and unless he is fully convinced.  For investors.  Lack of knowledge is the main reason why people do not invest in mutual funds. if mutual funds offer steady returns and minimization of risk. Investors should be made Page | 79 aware of the benefits.  Factors considered for investment is majorly growth and safety.  Majority of mutual fund investors is not even aware of the name of the scheme in which they have invested.  Many investors do not prefer to take Professional Advice. Investors should be made to realize that ignorance is no longer bliss and what they are losing by not investing.  Majority of the investors are preferred to invest for medium term only . 79 .CONCLUSION:  The most vital problem spotted is of ignorance.  If one investor invests in one company he gains faith in it and he never want to switch to other. they may consider investing in them.

transparency and regular income than risk and liquidity. The advisors should target for more and more young investors. the concept is widely known.RECOMMENDATION  Mutual Fund Company needs to give the training of the Individual Financial Page | 80 Advisors about the Fund/Scheme and its objective. increasing awareness is also very important thing. By considering these three things they can take .  Before making any investment Financial Advisors should first enquire about the risk tolerance of the investors/customers. their need and time (how long they want to invest). Young investors as well as persons at the height of their career would like to go for advisors due to lack of expertise and time  Mutual Fund. because they are the main source to influence the investors  Mutual funds offer a lot of benefit which no other single option could offer. 80 . But most of the people are not even aware of what actually a mutual fund is? They only see it as just another investment option. So the advisors should try to change their mindsets. but many people are still unaware about various schemes of mutual fund.  There is a need to introduce very aggressive scheme which can give maximum returns to investor as they are more concern about return.

BIBLIOGRAPHY Page | 81  BOOKS o “Investment Analysis and Portfolio Management” by Prasana Chandra o Indian financial system by H R Machiraju o Security Analysis and Portfolio Management by Donald E. Fischer and Ronald J. Hague o Research Methodology by Ranjit Kumar o Research Methodology by Dr. CR Kothari  NEWS PAPERS o Economic Times o Business Standard o Financial Express 81 . Jordan sixth edition o Marketing Management by Philip Kotler 12th edition o Market Research by Paul N.

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