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Investment refers to the process of commitment of funds with the objective of earning additional income or capital appreciation or both. Savings form an important part of the economy of any nation. With savings invested in various options available to the people, the money acts as the driver for growth of the country. Indian financial scene too presents multiple avenues to the investors. Though certainly not the best or deepest of markets in the world, it has ignited the growth rate in mutual fund industry to provide reasonable options for an ordinary man to invest his savings. Investment goals vary from person to person. Today an investor has a lot of investment alternatives to choose from in the market such as shares, debentures, mutual funds, Government securities etc. The investor has to make a wise choice keeping in mind various factors such as objective of investment, risk associated with the investment, tax benefits, liquidity, marketability etc. But it is not an easy task for the investor to identify the right avenue for investment due to many investment constraints such as lack of resources and time to conduct research etc. Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities according to the fund’s objectives. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.
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CONCEPT OF A MUTUAL FUND
The securities and exchange board of India regulations 1993 defines a mutual fund as “a fund established in the form of a trust by a sponsor, to raise monies by the trustees through the sale of units to the public, under one or more schemes, for investing in securities in accordance with these regulations”. A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. A Mutual Fund is a body corporate registered with the Securities and Exchange Board of India (SEBI) that pools up the money from individual/corporate investors and invests the same on behalf of the investors/unit holders, in Equity shares, Government securities, Bonds, Call Money Markets etc, and distributes the profits. In the other words, a Mutual Fund allows investors to indirectly take a position in a basket of assets. Mutual Fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. Investments in securities are spread among a wide cross-section of industries and sectors thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at same time. Investors of mutual funds are known as unit holders. The investors in proportion to their investments share the profits or losses. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time.
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which has enough teeth to safeguard investors" interest. This amounts to a valuation HISTORY OF MUTUAL FUNDS IN INDIA 4 | Page . When investors sell these units at prices higher than their purchase price. Investors earn from a Mutual Fund in three ways: 1 1 Income is earned from dividends declared by mutual fund schemes from time to time.A Mutual Fund is required to be registered with Securities Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public. ensures that the investors are not cheated out of their hard-earned money. small and large investors. There are also funds meant exclusively for young and old. the setup of a legal structure. gilt and balanced funds. This is reflected in the price of each unit. Indian MF industry offers a plethora of schemes and serves broadly all type of investors. If the fund sells securities that have increased in price. they stand to make a gain. Moreover. The range of products includes equity funds. If fund holdings increase in price but are not sold by the fund manager. the fund has a capital gain. the mutual fund units can be sold for a profit. 1 gain. the fund's unit price increases. debt. liquid. Though still at a nascent stage.
UTI Mutual Fund established in June 1987 followed by Canara bank Mutual Fund (Dec 87). At the end of 1993. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. giving the Indian investors a wider choice of fund families. Bank of Baroda Mutual Fund (Oct 92). THIRD PHASE – 1993-2003 With the entry of private sector funds in 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. LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. The first scheme launched by UTI was Unit Scheme 1964.004 crores. the mutual fund industry had assets under management of Rs. public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). a new era started in the Indian mutual fund industry. Bank of India (Jun 90). Also. Punjab National Bank Mutual Fund (Aug 89). 1993 was the year in which the first 5 | Page . At the end of 1988 UTI had Rs.UTI.6. The history of mutual funds in India can be broadly divided into four distinct phases FIRST PHASE – 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. Indian Bank Mutual Fund (Nov 89). SECOND PHASE – 1987-1993 The year 1987 marked the entry of non.47. 700 crores of assets under management. at the initiative of the Government of India and Reserve Bank.The mutual fund industry in India started in 1963 with the formation of Unit Trust of India. SBI Mutual Fund was the first non.
assured return and certain other schemes. The Specified Undertaking of Unit Trust of India. FIFTH PHASE – Growth and Consolidation . 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. FOURTH PHASE – SINCE FEBRUARY 2003: In February 2003. It is registered with SEBI and functions under the Mutual Fund Regulations. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. under which all mutual funds. conforming to the SEBI Mutual Fund Regulations. with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. The number of mutual fund houses went on increasing.835 crores as at the end of January 2003. there were 33 mutual funds with total assets of Rs. sponsored by SBI. except UTI were to be registered and governed.44. more international mutual fund players have entered India like Fidelity. PNB. As at the end of January 2003. and with recent mergers taking place among different private sector funds. the assets of US 64 scheme. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. BOB and LIC.29.541 crores of assets under management was way ahead of other mutual funds. examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life. Simultaneously. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. Franklin Templeton Mutual 6 | Page . One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs. The second is the UTI Mutual Fund Ltd. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs. the mutual fund industry has entered its current phase of consolidation and growth. 1. Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund.000 crores of assets under management and with the setting up of a UTI Mutual Fund.Mutual Fund Regulations came into being. following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities.2004 Onwards The industry has also witnessed several mergers and acquisitions recently. representing broadly.805 crores.21.76. The Unit Trust of India with Rs.
ORGANIZATION OF A MUTUAL FUND A mutual fund is set up in the form of a trust.e. SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i. trustees. All mutual funds are required to be registered with SEBI before they launch any scheme. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players. Also. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. they should not be associated with the sponsors. The sponsor is responsible for setting up and establishing the mutual fund. There were 33funds as at the end of March 2010. The trustees of the mutual fund hold its property for the benefit of the unit holders. 50% of the directors of AMC must be independent. The sponsor may be a bank. who is registered with SEBI. a financial institution. or a financial service company.Fund etc. asset Management Company (AMC) and custodian. The trustees are vested with the general power of superintendence and direction over AMC. approved by SEBI manages the funds by Custodian. ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI) 7 | Page . holds the securities of various schemes of the fund in its custody. Asset Management Company (AMC) making investments in various types of securities. They monitor the performance and compliance of SEBI Regulations by the mutual fund. which has sponsor. The sponsor of a mutual fund is like the promoter of a company.
1995. The Association of Mutual Funds of India works with 30 registered AMCs of the country. ? To interact with the Securities and Exchange Board of India (SEBI) and to represent to SEBI on all matters concerning the mutual fund industry.With the increase in mutual fund players in India. ? To undertake nationwide investor awareness programme so as to promote proper understanding of the concept and working of mutual funds 8 | Page . ? To develop a cadre of well trained Agent distributors and to implement a programme of training and certification for all intermediaries and other engaged in the industry. Till date all the AMCs are that have launched mutual fund schemes are its members. Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders. It functions under the supervision and guidelines of its Board of Directors. Reserve Bank of India and other bodies on all matters relating to the Mutual Fund Industry. ? To represent to the Government.AMFI is an apex body of all Asset Management Companies (AMC) which has been registered with SEBI. a need for mutual fund association in India was generated to function as a non-profit organization. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August. The objectives of Association of Mutual Funds in India are as follows:? To define and maintain high professional and ethical standards in all areas of operation of mutual fund industry ? To recommend and promote best business practices and code of conduct to be followed by members and others engaged in the activities of mutual fund and asset management including agencies connected or involved in the field of capital markets and financial services.
? Escorts Asset Management Ltd. Ltd. ? Deutsche Asset Management (India) Pvt. ? Cholamandalam Asset Management Co. PRIVATE SECTOR : INDIAN ? Benchmark Asset Management Co. Ltd. Ltd ? Sundaram Asset Management Company Ltd. Ltd. Pvt. ? HSBC Asset Management (India) Private Ltd. Pvt. ? Credit Capital Asset Management Co.? Birla Sun Life Asset Management Co. PREDOMINANTLY FOREIGN JOINT VENTURES:? ABN AMRO Asset Management (I) Ltd. ? UTI Asset Management Company Pvt. ? Reliance Capital Asset Management Ltd. ? 9 | Page . ? Predominantly India Joint Ventures:. ? Morgan Stanley Investment Management Pvt. ? ING Investment Management (India) Pvt. ? Canbank Investment Management Services Ltd. Ltd. THE MEMBERS OF AMFI: BANK SPONSORED ? SBI Fund Management Ltd. ? DSP Merrill Lynch Fund Managers Limited ? HDFC Asset Management Company Ltd. Ltd. ? To disseminate information on Mutual Fund Industry and to undertake studies and research directly and/or in association with other bodies. ? Tata Asset Management Private Ltd. Ltd. Ltd. Ltd. ? BOB Asset Management Co. ? Sahara Asset Management Co. Ltd. ? Alliance Capital Asset Management (India) Pvt.. (India) Pvt. ? Fidelity Fund Management Private Limited ? Franklin Templeton Asset Mgmt. ? JM Financial Mutual Fund ? Kotak Mahindra Asset Management Co. Ltd. Ltd. Ltd. ? 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.
Mutual Funds save your time and make investing easy and convenient. Pvt. Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities. 6. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. Ltd. You achieve this diversification through a Mutual Fund with far less money than you can do on your own. PROFESSIONAL MANAGEMENT: Mutual Funds provide the services of experienced and skilled professionals. the investor gets the money back promptly at net asset Value related prices from the Mutual Fund. ADVANTAGES OF MUTUAL FUNDS 1. custodial and other fees translate into lower costs for investors. ? Standard Chartered Asset Mgmt Co. LIQUIDITY: In open-end schemes.Principal Asset Management Co. RETURN POTENTIAL: Over a medium to long-term. Ltd. 2. 5. DIVERSIFICATION: Mutual Funds invest in a number of companies across a broad crosssection of industries and sectors. Pvt. In closed-end schemes. 4. Ltd. 1 CONVENIENT ADMINISTRATION: Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries. LOW COSTS: Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage. backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. ? Prudential ICICI Asset Management Co. delayed payments and follow up with brokers and companies. the units can be sold on a stock 10 | P a g e .
NO CUSTOMIZED PORTFOLIOS: The portfolio of securities in which a fund invests is a decision taken by the fund manager. 2. 7. AFFORDABILITY: Investors individually may lack sufficient funds to invest in high-grade stocks. WELL REGULATED: All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. the value of mutual fund shares will go down as well. 10. TRANSPARENCY: You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme. No investment is risk free.exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. 8. 9. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy. regular withdrawal plans and dividend reinvestment plans. the proportion invested in each class of assets and the fund manager's investment strategy and outlook. DRAWBACKS OF MUTUAL FUNDS 1. The operations of Mutual Funds are regularly monitored by SEBI. no matter how balanced the portfolio is but investors encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on their own. Investors have no right to interfere in the decision making 11 | P a g e . NO GUARANTEES: The return of any mutual fund scheme is not assured as the investment or the corpus of the fund is invested in the capital market which may or may not generate returns. if the entire stock market declines in value. you can systematically invest or withdraw funds according to your needs and convenience. FLEXIBILITY: Through features such as regular investment plans.
DIFFERENT TYPES OF MUTUAL FUND SCHEMES BY STRUCTURE1 OPEN-END FUNDS: An open-end fund is one that is available for subscription all through the year. he will pay a sales commission if he buys shares in a Load Fund. 4. because these funds do not employ managers. TAXES: During a typical year. or financial planners. The key feature of open-end schemes is its liquidity. if the investor invests in the Index Funds. If the manager does not perform as well as he had hoped. Some funds also charge sales commissions or "loads" to compensate brokers. most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. he depends on the fund's manager to make the right decisions regarding the fund's portfolio. he might not make as much money on his investment as he had expected. MANAGEMENT RISK: When an investor invests in a mutual fund. 5. Of course. Even if an investor doesn't uses a broker or other financial adviser. 3. FEES AND COMMISSIONS: All funds charge administrative fees to cover their day-today expenses. even if he reinvests the money he made. which some investors find as a constraint in achieving their financial objectives. the investor will pay taxes on the income he receives. he foregoes management risk. financial consultants.process of a fund manager. These funds do not have a fixed maturity and investors can conveniently buy and sell its units at Net Asset Value ("NAV") related prices. If a fund makes a profit on its sales. 12 | P a g e .
In a 13 | P a g e . Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. corporate debentures and Government securities. 1 INTERVAL FUNDS: Interval funds combine the features of open-ended and close-ended schemes. BY INVESTMENT OBJECTIVE1 GROWTH/EQUITY ORIENTED FUNDS: The aim of growth funds is to provide capital appreciation over a period of time usually medium to long term. have outperformed most other kind of investments held over the long term. 1 INCOME/ DEBT ORIENTED FUNDS: The aim of income funds is to provide regular and steady income to investors. some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. They are open for sale or redemption during pre-determined intervals at NAV related prices.1 CLOSED-END FUNDS: A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. Income Funds are ideal for capital stability and regular income. In order to provide an exit route to the investors. 1 BALANCED FUNDS: The aim of balanced funds is to provide both growth and regular income. The fund is open for subscription only during a specified period and investors can invest in the scheme only 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. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor. It has been proved that returns from stocks. Growth schemes are ideal for investors having a long term outlook seeking growth over a period of time. Such schemes normally invest a majority of their corpus in equities. Such schemes generally invest in fixed income securities such as bonds.
etc 1 INDEX FUNDS: The corpus of the Index Fund is invested in the index stocks and it attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE Nifty. the NAV of these schemes may not normally keep pace. certificates of deposit. These schemes generally invest in safer short-term instruments such as treasury bills. preservation of capital and moderate income. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act. Pharmaceuticals. The Act also provides opportunities to investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds. 1961. The investment of these funds is limited to specific industries like InfoTech.rising stock market. OTHER SCHEMES 1 TAX SAVING SCHEMES: These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. or fall equally when the market falls. 14 | P a g e . Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. FMCG. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods. commercial paper and inter-bank call money. These are ideal for investors looking for a combination of income and moderate growth. 1 INDUSTRY SPECIFIC SCHEMES: Industry Specific Schemes invest only in the industries specified in the offer document. 1 MONEY MARKET/LIQUID FUNDS: The aim of money market funds is to provide easy liquidity.
each time you buy or sell units in the fund. 1 FUND OF FUNDS: Mutual funds that do not invest in financial or physical assets. 1 SECTORAL FUNDS: Sectoral Funds are those which invest exclusively in a specified sector. The advantage of a no load fund is that the entire corpus is put to work. The biggest advantage offered by these funds is that they offer diversification. but do invest in other mutual fund schemes offered by different AMCs. flexibility of holding a single share (tradable at index linked prices) at the same time. Typically entry and exit loads range from 1% to 2%. That is. 15 | P a g e . That is. 1 EXCHANGE TRADED FUNDS (ETF): Exchange Traded Funds provide investors with combined benefits of a closed-end and an open-end mutual fund. if the fund has a good performance history. Government securities have no default risk. It could be worth paying the load. 1 LOAD FUNDS: A Load Fund is one that charges a commission for entry or exit. This could be an industry or a group of industries or various segments such as 'A' Group shares or initial public offerings. a commission will be payable.1 GILT FUNDS: These funds invest exclusively in Government securities. which further helps in diversification of risks. Recently introduced in India. these funds are quite popular abroad. Exchange Traded Funds follow stock market indices and are traded on stock exchanges like a single stock at index linked prices. Fund of Funds provide investors with an added advantage of diversifying into different mutual fund schemes with even a small amount of investment. 1 NO-LOAD FUNDS: A No-Load Fund is one that does not charge a commission for entry or exit. no commission is payable on purchase or sale of units in the fund. NAV"s of these funds also fluctuate due to interest rate changes and other economic factors as is the case with income or debt oriented schemes. are known as Fund of Funds.
Interest rate risk relates to future changes in interest rates. 1 POLITICAL RISK. For instance. 1 MARKET RISK.Market risk relates to the market value of a security in the future. The future financial stability of a company cannot be predicted or guaranteed. Business risk is inherent in all business ventures. stability. as citizens. if an investor invests in a long-term debt Mutual Fund scheme and interest rates increase. trade regulations.Business risk is the uncertainty concerning the future existence. the NAV of the scheme will fall because the scheme will be end up holding debt offering lower interest rates. Although collectively. and profitability of the issuer of the security. as investors. we have indirect control through the power of our vote individually. as with any security. does not come without risk. supply and demand. In other words.Changes in the tax laws. 1 BUSINESS RISK. we have virtually no control. Market prices fluctuate and are susceptible to economic and financial trends. administered prices. and many other factors that cannot be precisely predicted or controlled. One of the most basic economic principles is that risk and reward are directly correlated. etc are some of the many political factors that create market risk. the greater the potential risk the greater the potential return. 1 INFLATION RISK. nor 16 | P a g e .RISKS ASSOCIATED WITH MUTUAL FUNDS Investing in Mutual Funds.
which. which has invested in the equity of such a company 1 ECONOMIC RISK. equity stocks of agriculture-based companies will fall and NAVs of Mutual Funds.can the price of its securities. can have an adverse effect on a company’s business. For instance. will fall proportionately. if monsoons fail in a year. Adverse changes in business circumstances will reduce the market price of the company’s equity resulting in proportionate fall in the NAV of the Mutual Fund scheme.Economic risk involves uncertainty in the economy. which have invested in such stocks. in turn. 17 | P a g e .
CHAPTER-2 LITERATURE REVIEW 18 | P a g e .
LITERATURE REVIEW • Performance evaluation of mutual funds is a preferred area of research where a good amount of study has been carried out . Rajdeep Patgiri. These International studies are indirectly related to the topic whereas national studies are directly related to the topic.“Incentives and Mutual Fund Performance: Higher Performance or Just Higher Risk Taking?” The impact of contractual incentives on the risk-taking behavior and the performance of US mutual funds are studied. high-incentive funds deliver higher return. concavity. In order to have an insight and in order to acquaint with the topic “PERFORMANCE EVALUATION OF SELECTED MUTUAL FUNDS IN INDIA” some of the preceding studies have been reviewed. Keith cuthbretson.e. • Dirk nitzche. 19 | P a g e . Niall Sullivan. of the fee structure in the advisory contract are measured. 2006 “Mutual Fund Performance”. i. Studies undertaken are as follows: • • INTERNATIONAL REVIEWS Massimo Massa. 2007. Results show that a high incentive contract induces managers to take more risk and reduces the funds' probability of survival. On the other hand. Incentives using the shape. The net of these two effects is that incentives increase the risk-adjusted performance of the fund. January 19. Out of these studies 6 international studies and 8 national studies are taken into consideration.
particularly when rebalancing is frequent (i. Only very sophisticated investors should pursue an active investment strategy of trying to pick winners . Abnormal returns at each point in time are quantified as the difference between the realized and the model-fitted returns. and (iii) benchmark returns. less than one year) . domestic equity mutual funds.• Key drivers of relative performance are. findings indicate that industries are important in locating outperforming mutual funds. open-end U. • Yonggan Zhao.and then with much caution. March 15. expenses and turnover. load fees. (ii) fund risk-loadings.. The empirical analysis shows that portfolio performance indices are related to their estimated risk sensitivities in an openupward quadratic curve.S. Russ Wermers. 20 | P a g e . Risk sensitivity is estimated through a dynamic matching that minimizes the total fitted error of portfolio returns.but transactions costs and fund fees imply that economic gains to investors from actively switching into winner funds may be marginal.. incorporating predictability in (i) manager skills. March 2005 “A Dynamic Model of Active Portfolio and Mutual Fund Performance Evaluation” Based on the analysis in this paper.e. and that active management adds much more value than documented by prior studies. • Doron Avramov. a dynamic performance measure is defined which relates portfolio's return to its risk sensitivity. Overall. Evidence on picking winners suggests past winner funds persist.2005 “Investing in Mutual Funds when Returns are Predictable” This paper analyzes the performance of portfolio strategies that invest in no-load.
Jonathan Berk. Manager Behavior. eleven showed significant t–values and all other twenty four sample schemes did not prove significant relationship 21 | P a g e .. Bhuvaneswari Palanisamy. Green.• Russ Wermers. December 9. 2002 “Mutual Fund Flows and Performance in Rational Markets” A simple rational model of active portfolio management is developed that provides a natural benchmark against which to evaluate observed relationship between returns and fund flows.that is the central finding of this paper. Consequently.consumers invest heavily in last-year's winning funds. and managers of these winners invest these inflows in momentum stocks to continue to outperform other funds for at least two years following the ranking year. A strong relationship between past performance and the flow of funds exists in this model. consumer and fund manager behavior both play a large role in explaining these long-term continuation patterns . and Performance Persistence” Mutual fund returns strongly persist over multi-year periods . NATIONAL • Murugesan Selvam. 2011 “Analysis of Risk and Return Relationship of Indian Equity (Dividend) Mutual Fund Schemes” The present study analyzed the risk and return relationship of Indian Mutual Fund Schemes (Dividend Option). or to infer the average skill level of active managers. past performance cannot be used to predict future returns. • Richard C. Further.. May 2003 “Is Money Really 'Smart'? New Evidence on the Relation between Mutual Fund Flows. The study found out that out of thirty five sample schemes.
the selected Balanced Funds have been classified into Micro-. Balanced Mutual Fund schemes having at least three years track record are only considered for the study • Deepak Agarwal. It also analyzes data at both the fundmanager and fund-investor levels.and Large sized Balanced Funds. S.Roy.”Measuring Performance of Indian Mutual Funds” This article provides an overview of mutual fund activity in emerging markets.B. December 18.“Short-Term Persistence in Mutual Funds Performance: Evidence from India” 22 | P a g e . For the purpose of analysis. majority (thirty two) of the sample schemes' returns were not significantly different from their market returns and very few number of sample schemes' returns were significantly different from their market returns during the study period. • D. Open end. This paper is a process to analyze the Indian Mutual Fund Industry pricing mechanism with empirical studies on its valuation.between the risk and return. 2007. The study revealed that the performance is affected by the saving and investment habits of the people and the second side the confidence and loyalty of the fund Manager and rewards affects the performance of the MF industry in India. Manoj Jhanwar. It describes about their size and asset allocation. September 15. • Sanjay Sehgal. 2009 “Effect of Fund Size on the Performance of Balanced Mutual Funds: An Empirical Study in the Indian Context” • The study empirically researches the effect of fund size on the performance of select Balanced Funds. Medium. 2007. Small-.Rao. July 22. According to t-alpha values.N.
December 18. thus destroying a major portion of extra-normal returns.A Case of Select Indian Mutual Funds” • By using PCM as a measure. and one year lag. PCM has been calculated for one month. 2007.B. December 19. attempts to assess whether the selected mutual funds are able to provide above-normal return on average .In this paper. one quarter. without using any benchmark. B. The results show that the funds have not been able to beat their style benchmarks on the average. Bijan Roy. This is owing to the fact that zero investment trading strategies generate low gross returns and that the winners’ portfolios involve higher investment costs than losers portfolios. It is found the 'style benchmarks' of each of the sample of equity funds as optimum exposure to eleven passive asset class indexes.“Performance of Indian Equity Mutual Funds vis-a vis Their Style Benchmarks: An Empirical Exploration” In this paper a return based style analysis is done of equity mutual funds in India using quadratic optimization of an asset class factor model proposed by William Sharpe. Ashok Banerjee. • • Soumya Guha Deb. 2006. The relative performance of the funds with respect to their style benchmarks is analyzed.Chakrabarti. it is examined if there is any short-term persistence in mutual funds performance in the Indian context. including the fund of funds trading strategies that implicitly assume short-term persistence. this paper. Empirical findings are consistent with the efficient market hypothesis and have implications for hedge funds and other managed portfolios that rely on innovative investment styles. “Fund Performance Measurement without Benchmark . And using 23 | P a g e . • Kaushik Bhattacharjee.using no more information than what is available to the common investor.
In this paper the performance evaluation of Indian mutual funds in a bear market is carried out through relative performance index. risk-return analysis. Murugaiah. portfolio diversification. “Analysis of Components of Investment Performance . V. and variable effects of diversification on investment performance. there is a significant difference between public-sector sponsored mutual funds and private-sector sponsored mutual funds in terms of average standard deviation. The study found that public-sector sponsored funds do not differ significantly from private-sector sponsored funds in terms of mean returns. and Fama's measure. However. December 18. 2006. Sharp's measure. the mutual funds were unable to generate above-normal return but on the average the combined PCM of all the mutual funds is significantly different from zero. average variance and average coefficient of variation (COV) and e SDAR (excess standard deviation adjusted returns) as a performance measure.Madhumati. It also attempts to identify a part of observed return which is due to the ability to pick up the best securities at given level of risk. Sharp's ratio. Jensen's measure. an attempt has been made to examine the components and sources of investment performance in order to attribute it to specific activities of Indian fund managers.PCM as a measure the study finds that though in the short term. • S. The empirical results reveal the fact that the mutual funds were not able to compensate the investors for the additional risk that they have taken by investing in the mutual funds. • Sharad Pawar. R. Treynor's ratio. Anand. 2006“Characteristics and Performance Evaluation of Selected Mutual Funds in India” The study used sample of public-sector sponsored & private-sector sponsored mutual funds of varied net assets to investigate the differences in characteristics of assets held.An Empirical Study of Mutual Funds in India” In this paper. The results of performance measures suggest that 24 | P a g e .
CHAPTER-3 25 | P a g e .most of the mutual fund schemes in the sample of 58 were able to satisfy investor's expectations by giving excess returns over expected returns based on both premium for systematic risk and total risk.
26 | P a g e . The income earned through these investments and the capital appreciation realized by the scheme is shared by its unit holders in proportion to the number of units owned by them. These could range from shares to debentures to money market instruments.RESEARCH DESIGN BACKGROUND OF THE STUDY A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme.
Studies have proved that an investor who analyses and make sense of his investment needs and making the movements according to it could enable the investor to win the game. This study is therefore aimed at comparing the performance of selected mutual fund schemes. Researchers have shown that funds picked are those that advertise heavily and sell aggressively. NEED OF THE STUDY Even today investing in mutual funds is a little difficult for laymen. professionally managed portfolio at a relatively low cost. Each Mutual Fund scheme has a defined investment objective and strategy. Today in India there are more than 800 mutual fund schemes. This is sufficed to baffle the investor. 27 | P a g e .Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified.
the need of the study is to provide a thorough understanding of the functionalities and the factors which contributes to the return so that the investors make more sensible movements rather. STATEMENT OF THE PROBLEM Identifying the right mutual fund for investment with regard to returns and performance OBJECTIVES OF THE STUDY 1. 2.Hence. To help investors in making better choice of mutual fund scheme as per their need. 3. To evaluate investment performance of selected schemes of mutual funds in terms of risk and return. To get an insight knowledge about mutual funds. 28 | P a g e . to be just cajoled by the advertisements and selling spree and invest their money in the most appropriate mutual fund as per their needs.
A large number of new players have entered the market and trying to gain market share in this rapidly improving market.Scope of the Study A big boom has been witnessed in Mutual Fund Industry in recent times. In this situation investors generally get confused in making selection. 29 | P a g e .
RESEARCH METHODOLOGY SOURCES OF DATA: 1. Primary Data: Questionnaire has been filled by the Investors. I surveyed on my Project Topic “An Analysis of Mutual Fund Schemes for Better Choice” on the visiting customers of the Branch. This project report may help the company to make further planning and in strategy making. 30 | P a g e .The research was carried on in Patna. The study will help to do the better and smarter choice of schemes by the customers as per their need and they will not be influenced by the advertisements. I had been sent at one of the branch Of Reliance Capital Asset Management Limited Patna where I completed my Project work.
1 June 2012 to 1 May 2013 Tool in the Study: i) Sharpe Ratio ii) Standard Deviation iii) Average Returns iv) Net Asset Value TOOLS FOR ANALYSIS The following are the tools that have been used to analyze the performance of the selected mutual fund schemes.2. PERFORMANCE ANALYSIS TOOLS 1 31 | P a g e SHARPE INDEX: .e. SAMPLE AMC: Reliance Asset management Co.. SELECTED SCHEMES: All 22 Equity Schemes SAMPLING METHOD: Convenient Sampling method PERIOD OF THE STUDY: Twelve Months i. Ltd. Secondary Data: Secondary data has been collected from various websites and books.
The amount of money gained or lost may be referred to as interest. 32 | P a g e . the portfolio over performance the market and vice versa. Here returns on mutual funds refer to the amount gained or lost by an investor on the investments in mutual funds. gain/loss. relative to the total amount for risk in the portfolio. it measures risk premium of a portfolio.Sharpe index was given by WF Sharpe in 1966. Standard deviation is used in the concept of risk of a portfolio of investments. or net income/loss. higher standard deviation means a greater fluctuation in expected return. The NAV per unit is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date. also known as return on investment (ROI). Absolute returns are considered which refers to the return that an asset achieves over a certain period of time. The value of all the securities in the portfolio in calculated daily. The Formula for NAV is NAV= Market value of the Fund’s Investments+ Receivables +Accrued Income –Liabilities – Accrued Expenses /Number of Outstanding Units RETURN: Rate of return. The larger the Sharpe Index. profit/loss. Sharpe index summarizes the risk and return of a portfolio in a single measure that categorizes the performance of funds on the risk. rate of profit is the ratio of money gained or lost on an investment relative to the amount of money invested. Sharpe Index = Portfolio Average Return (Rp) – Risk Free Rate of Interest (Rt)/ Standard Deviations of the Portfolio Return 1 NET ASSET VALUE: Net Asset Value of the fund is the cumulative market value of the assets of the scheme minus its liabilities.adjusted basis. STATISTICAL TOOL 1 STANDARD DEVIATION: It is used to measure the variation in individual returns from the average expected return over a certain period.
Different tools used for analysis may suggest different results as the approach differs. X: Return for the stock in period. ? : Standard Deviation of Return. The study considers data for only a limited period of time. N: Number of periods PRESENTATION TOOL 1 2 BAR DIAGRAM Pie Charts LIMITATIONS OF THE STUDY: The study is based on the response given by the respondents. The study is based only on selected schemes therefore limiting the area of research. 33 | P a g e . x’: Arithmetic Return.? = ? (x-x') ²/N Where.
CHAPTER-4 34 | P a g e .
The Indian mutual fund industry currently consists of 38 players offering close to 1000 schemes with total Assets under Management (AUM) of Rs. 35 | P a g e .583. 7.81.INDUSTRY PROFILE INDUSTRY AND COMPANY PROFILE The Indian mutual fund industry has evolved from single player in 1964 to a fast growing. at a CAGR of 35 % for the five-year period from 2005 to 2009. competitive market on the back of a strong regulatory framework. The Assets under Management (AUM) have grown at a rapid pace over the past few years.84 crore.
comprising 0. 36 | P a g e .year period from 2004 to 2008 (as of Dec) the Indian mutual fund industry grew at 29 % CAGR as against the global average of 4 percent. India has been amongst the fastest growing markets for mutual funds since 2004.349 funds in the US. the Indian mutual fund industry continues to be a very small market.002 in comparison to 10. 1995 as Reliance Capital Mutual Fund which was changed on March 11. The Indian mutual fund industry is in a relatively nascent stage in terms of its product offerings. The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. and tends to compete with Government securities. the total number of mutual fund schemes was 1. Limited is the Trustee. However.Over the 10-year period from 1999 to 2009 encompassing varied economic cycles.97 trillion as of December 2008. Public sector mutual funds comprised 21 percent of the AUM in 2009 as against 72 percent AUM share in 2001. the industry grew at 22 % CAGR. The public sector has gradually ceded market share to the private sector. in the five. 1882. The increase in revenue and profitability in the Indian mutual fund industry has not been commensurate with the AUM growth in the last 5 years. the mutual funds are beginning to tap Tier 2 and Tier 3 towns as a vital component of their growth strategy. As of Dec 2008. It was registered on June 30. despite clocking growth rates that are amongst the highest in the world. while the profitability of AMCs declined from 24 % in FY 2004 to 14 % in FY 2008. While the mutual fund industry in India continues to be metro and urban centric. The AUM grew at 35 % CAGR in the period from 2005 to 2009.32 % share of the global AUM of USD 18. as the number of public sector players reduced from 11 in 2001 to 5 in 2009. RELIANCE MUTUAL FUND Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act. The industry has witnessed a shift has changed drastically in favour of private sector players.
2004. Reliance Mutual Fund was formed for launching of various schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities.
VISION: To be a globally respected wealth creator with an emphasis on customer care and a
culture of good corporate governance. Reliance Mutual Fund, a part of the Reliance - Anil Dhirubhai Ambani Group, is one of the fastest growing mutual funds in the country. RMF offers investors a well-rounded portfolio of products to meet varying investor requirements and has presence in 118 cities across the country. Reliance Mutual Fund constantly endeavors to launch innovative products and customer service initiatives to increase value to investors. "Reliance Mutual Fund schemes are managed by Reliance Capital Asset Management Limited., a subsidiary of Reliance Capital Limited, which holds 93.37% of thepaid-up capital of RCAM, the balance paid up capital being held by minority shareholders."The fund has more than 235 schemes with AUM of Rs.112565.11 Crs
To create and nurture a world-class, high performance environment aimed at delighting our customers.
Other Details: Mutual Fund Setup Date Incorporation Date Sponsor Trustee Chairman CEO / MD
37 | P a g e
Reliance Mutual Fund Jun-30-1995 Feb-24-1995 Reliance Capital Limited Reliance Capital Trustee Co. Ltd. N.A Sundeep Sikka
CIO Compliance Officer Investor Service Officer Assets Managed Other Details Auditors Haribhakti & Co., Chartered Accountants Custodians Deutsche Bank AG Registrars Karvy Computershare Pvt. Ltd. Address One India Bulls Centre - Tower One, 11th & 12th flr, Jupiter Mills, Elphinstone Rd, Mum - 400013 Telephone 022-30994600/Touchbase 30301111 Nos. Fax Nos. 022-30994699 E-mail email@example.com
N.A Mr. Muneesh Sud Mr. Bhalchandra Joshi Rs. 94580.19 crore (Mar-31-2013)
38 | P a g e
DATA COLLECTION AND ANALYSIS
• Secondary data about Net asset value (NAV) of the mutual funds has been collected from the website of Value research online.
Returns have been calculated by applying the formula: Returns(R) = (NAVt –NAVt-1)/NAVt-1*100
Mean returns (Ri) =?R/n
39 | P a g e
92 -8.49% (30/365*6) • Secondary data related to value of net assets (in crores) has been collected from the website of value research online. = Standard deviation • The risk free return is assumed to be 6 percent.D.5 10.23 1.32 247. (σ) =?dx2/n • Sharpe ratio has been calculated by the following formula: Sharpe ratio =Ri-T/S.09 -2.57 241. Where.14 260. Assuming there are 365 days in a year so the 30 days rate comes to be 0.2 -2.36 266. Table 1: Reliance Vision Fund DATE 1-Jun-12 1-Jul-12 1-Aug-12 1-Sep-12 1-Oct-12 1-Nov-12 1-Dec-12 1-Jan-13 1-Feb-13 1-Mar-13 40 | P a g e NAV 231.49 247.34 .2 264.• Standard deviation has been calculated by the formula: S.89 -0.22 -1.35 272.006 RETURN 8.D.29 250.01 269.D. Ri = Mean returns T = Risk free return on treasury bills S.59 2.
02 1.47 -3.27 Standard Deviation SharpeRatio 5.1-Apr-13 1-May-13 Summation Average 238.73 14.28 261.10 Table 2: Reliance Regular Savings Fund DATE 1-Jun-12 41 | P a g e NAV 25.53 9.95 0.67 RETURN .
650742791 -8.49 -3.77 27.22 1-Aug-12 9.775963423 4.45 34.21 -2.89882437 0.41 31.49 33.733331001 0.1-Jul-12 1-Aug-12 1-Sep-12 1-Oct-12 1-Nov-12 1-Dec-12 1-Jan-13 1-Feb-13 1-Mar-13 1-Apr-13 1-May-13 Summation Average Standard Deviation Sharpe Ratio 27.378216637 -2.35595783 5.13 1-Jul-12 9.224198158 2.60194827 25.62 29.79 7.77 31.91553613 2.42 30.07 31.14 8.18 5.95 42 | P a g e .4 0.293193717 1 Table:Reliance Natural Resource Fund DATE NAV RETURN 1-Jun-12 9.92 28.630792227 -2.06 1-Sep-12 9.53 11.254695957 6.33 33.
86 1-Feb-13 10.29 1-Mar-13 9.57 Summation 1.12 Table 4: Reliance Top 200 Fund 43 | P a g e .51 1-Jan-13 10.69 5.27 2.21 1-Nov-12 9.2 1-Dec-12 9.92 -5.71 0.27 1-Apr-13 8.3 1-May-13 9.04 2.626026962 Sharpe Ratio 0.116363636 Standard Deviation 4.42 -8.1-Oct-12 9.76 0.15 2.28 Average 0.
128384682 0.72 14.865800866 42.65 0.44 9.376811594 4.53 12.111821086 41.58 14.665441176 43.831325301 0 0.52 4.164672092 44.72 0.549833095 .44 6.68 2.59 1.560897436 37.8621421 41.315789474 -0.862973761 2.072833212 3.971428571 37.90866107 4.82 1.62 12.61 14.DATE 1-Jun-12 1-Jul-12 1-Aug-12 1-Sep-12 1-Oct-12 1-Nov-12 1-Dec-12 1-Jan-13 1-Feb-13 1-Mar-13 1-Apr-13 1-May-13 Summation Average Standard Deviation Sharpe Ratio NAV 11.59 13.185922975 41.478850758 9.205761317 -5.054805401 -0.25 14.8 13.78 0.19 RETURN 7.53 12.924798568 41.94 0.58 5.261572373 20.298543689 Table 5: Reliance Equity Opportunity Fund DATE 1-Jun-12 1-Jul-12 1-Aug-12 1-Sep-12 1-Oct-12 1-Nov-12 1-Dec-12 1-Jan-13 1-Feb-13 1-Mar-13 1-Apr-13 1-May-13 44 | P a g e NAV RETURN 35 37.73 13.82046332 43.99527177 1.55 13.154639175 -1.
31 1.674657534 12.86087027 3 45 | P a g e .294840295 Standard Deviation Sharpe Ratio Table 6:Reliance Quant Plus Fund DATE 1-Jun-12 1-Jul-12 1-Aug-12 1-Sep-12 1-Oct-12 1-Nov-12 1-Dec-12 1-Jan-13 1-Feb-13 1-Mar-13 1-Apr-13 1-May-13 Summation Average NAV RETURN 11.Summation Average 20.77 9.498525074 20.008070433 14.014832162 12.56 -1.81 9.68 1.61 0.6099819 8 1.927133935 13.7 4.63 1.41 0.68 12.02189781 14.923076923 14.016702977 14.17 4.69881202 13.469573 1.552050473 13.04 3.199048374 13.87363472 5 4 . 0 7 0 6 9 5 8 4 9 0.
28 1.092852779 17.408450704 16.489304813 16.51 4.530979347 13.199468085 15.01 0.862600123 17.402684564 16.79 14.96 0.Standard Deviation 4 .54 3.456018519 15. 4 8 6 5 4 9 9 1 2 0.04 4.9 1.37 0.23 8.19678040 5 46 | P a g e .04 -8.265625 Sharpe Ratio Table 7:Reliance Long Term Equity Fund DATE 1-Jun-12 1-Jul-12 1-Aug-12 1-Sep-12 1-Oct-12 1-Nov-12 1-Dec-12 1-Jan-13 1-Feb-13 1-Mar-13 1-Apr-13 1-May-13 Summation Average NAV RETURN 13.63 6.1645844 5 1.845522898 14.90369473 15.091370558 14.
16 -0.21 3.Standard Deviation Sharpe Ratio 4 .518211921 18.7875669 25.01 3.56 0. 7 7 6 0 3 2 0 7 9 0.43 0.164165931 24.352267723 22.8651030 3 1.08 22.94300943 25.29 0.577464789 24.261007537 25.51 8.39 4.71 7.853374709 24.71500936 6 47 | P a g e .025412394 24.897592819 25.66 1.109014675 Table 8: Reliance Regular Saving Fund (Balanced Option) DATE 1-Jun-12 1-Jul-12 1-Aug-12 1-Sep-12 1-Oct-12 1-Nov-12 1-Dec-12 1-Jan-13 1-Feb-13 1-Mar-13 1-Apr-13 1-May-13 Summation Average NAV RETURN 21.78 2.732447818 22.
58 28.022297122 39.123595506 42.11 5.14 6. 8 7 9 1 5 0 6 0 9 0.17 3.82853434 6 48 | P a g e .770900036 28.9 1.Standard Deviation 3 .54 6.65364673 34.642820644 36.35 2.88 13.93 0.136253041 38.24 4.64602804 39.26873385 Sharpe Ratio Table 9: Reliance Media & Entertainment Fund DATE 1-Jun-12 1-Jul-12 1-Aug-12 1-Sep-12 1-Oct-12 1-Nov-12 1-Dec-12 1-Jan-13 1-Feb-13 1-Mar-13 1-Apr-13 1-May-13 Summation Average NAV RETURN 26.1138778 1 3.756207675 29.136836344 36.607369759 36.49 0.57 12.822763113 32.
8 6 0 0 6 8 9 9 9 0.14324203 23.537542662 Table 10 :Reliance Tax Saver Elss Fund DATE 1-Jun-12 1-Jul-12 1-Aug-12 1-Sep-12 1-Oct-12 1-Nov-12 1-Dec-12 1-Jan-13 1-Feb-13 1-Mar-13 1-Apr-13 1-May-13 Summation Average NAV RETURN 19.45592404 2 49 | P a g e .76 2.27 7.708246995 21.13 7.24 10.40380048 23.0151644 6 1.17 5.05 0.Standard Deviation Sharpe Ratio 5 .25 0.232267038 16.377893245 21.08 3.525365434 24.823920266 24.57 -3.941176471 23.902951476 21.13 2.26 0.08605852 24.99 21.544426494 22.
663900415 12.759493671 12 0.13 0.150579151 Table 11: Reliance Arbitrage Advantage Fund DATE 1-Jun-12 1-Jul-12 1-Aug-12 1-Sep-12 1-Oct-12 1-Nov-12 1-Dec-12 1-Jan-13 1-Feb-13 1-Mar-13 1-Apr-13 1-May-13 Summation Average NAV RETURN 11.679694138 11.94 0.803858521 8.52021950 4 0.041666667 11. 2 6 6 Standard Deviation 50 | P a g e .05 0.85 0.502512563 12.416666667 12.54 0.236603462 12.44 0.77456540 9 0 .64 1.Standard Deviation Sharpe Ratio 5 .38 0.814332248 12.77 1.28 1.116838488 11. 1 8 9 2 4 4 8 5 8 0.52 11.484652666 12.
211640212 9.84 1.954400848 9. 2 4 Standard Deviation 51 | P a g e .8 4 0 9 0 9 Sharpe Ratio 0.230680507 9.641775984 9.96 8.67 -0.71 9.515535098 9.10082849 4 4 .338825953 9.43 8.422110553 8.196182397 23.45924225 8.711382114 9.71 3.91 0.34 0.1091134 3 2.45 4.37593985 Table 12:Reliance Index Fund -Nifty Plan DATE 1-Jun-12 1-Jul-12 1-Aug-12 1-Sep-12 1-Oct-12 1-Nov-12 1-Dec-12 1-Jan-13 1-Feb-13 1-Mar-13 1-Apr-13 1-May-13 Summation Average NAV RETURN 7.961456103 9.69 0.92 5.43 0.
58 4.49 2.74366228 109.52201076 9 52 | P a g e .411959309 106.04 6.337264151 Table 13: Reliance Banking Fund DATE 1-Jun-12 1-Jul-12 1-Aug-12 1-Sep-12 1-Oct-12 1-Nov-12 1-Dec-12 1-Jan-13 1-Feb-13 1-Mar-13 1-Apr-13 1-May-13 Summation Average NAV RETURN 87.555269923 91.648826377 122.34 2.510734858 120.963292317 106.25 11.923481857 114.912444079 111.91 0.6532721 96.53 9.925925926 109.7421184 5 2.69 5.Sharpe Ratio 8 5 2 9 8 6 9 0.91 4.38 15.71 0.1 97.031032537 27.
402805611 15.88 0.629811057 14.Standard Deviation Sharpe Ratio 7 .318653868 53 | P a g e .97 5.63 12.442376521 25.078247261 14.35 -6.06018917 12.422535211 15.253077975 Table 14: Reliance Equity Fund DATE 1-Jun-12 1-Jul-12 1-Aug-12 1-Sep-12 1-Oct-12 1-Nov-12 1-Dec-12 1-Jan-13 1-Feb-13 1-Mar-13 1-Apr-13 1-May-13 Summation Average NAV RETURN 11.94720497 14.270411496 13.78 -0.15625 12.50519255 2.87 6.2 -0.97 -2.29 10.856389987 14. 3 1 0 4 1 9 0 2 6 0.8 10.31 0.18 1.648083624 14.
585940019 -2.441902468 -1.171708264 3.134099617 54 | P a g e .56 443.059404665 1.16 453.74 463.64 424.71 457.344250538 10.Standard Deviation 5 .17491975 1.418740573 0.32 418.3 419.384180224 -1.49 505.34 RETURN 6.526793039 7.826312353 -8.18 465.225296139 0.071826193 15.39 496.379538159 5.34926383 0.62 498. 3 1 2 9 8 3 7 7 5 0.308851224 Sharpe Ratio Table 15: Reliance Growth Fund DATE 1-Jun-12 1-Jul-12 1-Aug-12 1-Sep-12 1-Oct-12 1-Nov-12 1-Dec-12 1-Jan-13 1-Feb-13 1-Mar-13 1-Apr-13 1-May-13 Summation Average Standard Deviation Sharpe Ratio NAV 398.
56 10.740585774 3.89 10.557632399 1.63 10.38 9.322957198 -1.99 10.14334471 0.054852321 9.33 9.422134971 0.918273646 -6.63 9.3 10.874649126 4.445907808 0.535905681 1.203883495 2.918976546 7.46 -6.48 9.045248869 Table 17: Reliance Infrastructure Fund DATE 1-Jun-12 55 | P a g e NAV 6.58 RETURN 6.79 9.28 9.34 RETURN .621140383 0.Table 16 :Reliance Small Capital Fund DATE 1-Jun-12 1-Jul-12 1-Aug-12 1-Sep-12 1-Oct-12 1-Nov-12 1-Dec-12 1-Jan-13 1-Feb-13 1-Mar-13 1-Apr-13 1-May-13 Summation Average Standard Deviation Sharpe Ratio NAV 8.
063295067 66.49 4.79 2.1 7.774798928 -10.88 6.116331096 66.326433661 64.698795181 23.932735426 11.90615677 2.38 7.36 2.36 7.14084507 3.52 4.28 69.173286979 .84831579 -0.332311023 61.1-Jul-12 1-Aug-12 1-Sep-12 1-Oct-12 1-Nov-12 1-Dec-12 1-Jan-13 1-Feb-13 1-Mar-13 1-Apr-13 1-May-13 Summation Average 6.273212218 Standard Deviation Sharpe Ratio 6.797468354 1.46 4.13 6 6.63 1.732786138 68.01 9.94 6.870967742 64.596428035 69.43 58.166666667 3.11 7.75 2.05 -3.005334402 0.830053667 65.779179811 -3.46 6.033352838 67.90116279 -2.137426901 Table 18:Reliance Pharma Fund DATE 1-Jun-12 1-Jul-12 1-Aug-12 1-Sep-12 1-Oct-12 1-Nov-12 1-Dec-12 1-Jan-13 1-Feb-13 1-Mar-13 1-Apr-13 1-May-13 Summation Average 56 | P a g e NAV RETURN 55.69 6.879310345 -4.08401084 -7.4 3.96 6.120717781 0.29 -4.63522013 0.
62 15.2 16.759133965 7.25149534 1.839506173 1.79 14. 9 9 6 4 57 | P a g e . 3 6 2 9 1 5 6 4 0.237288136 15.23 16.137184116 -1.85 14.78700361 -0.247771836 -6.66 16.Standard Deviation 3 .386499576 3 .446428571 Sharpe Ratio Table 19: Reliance Equity Linked Saving Fund DATE 1-Jun-12 1-Jul-12 1-Aug-12 1-Sep-12 1-Oct-12 1-Nov-12 1-Dec-12 1-Jan-13 1-Feb-13 1-Mar-13 1-Apr-13 1-May-13 Summation Average Standard Deviation NAV 13.78 15.04 16.83 16.067613252 1.184842884 2.912234043 -0.6 15.34 15.020408163 -1.99 RETURN 6.666666667 4.
09357972 27. 8 1 2 8 4 6 5 0 4 0.716274823 -0.2638209 2.74 42.75 41.026688017 1.478529172 4 .80794702 -1.177944862 Table 20: Reliance NRI Equity Fund DATE 1-Jun-12 1-Jul-12 1-Aug-12 1-Sep-12 1-Oct-12 1-Nov-12 1-Dec-12 1-Jan-13 1-Feb-13 1-Mar-13 1-Apr-13 1-May-13 Summation Average Standard Deviation NAV 34.897993715 2.341975861 -0.114735003 -0.37 37.374220374 Sharpe Ratio 58 | P a g e .099689218 5.34 37.81 45 44.330578512 5.37 43.21 44.36 RETURN 9.35 42.577777778 -5.47 37.83 41.0 2 6 8 9 Sharpe Ratio 0.01 10.
705882353 0.46 9.99161997 1.956043956 1.6 RETURN 9.1 9. 9 8 2 7 6 9 3 8 4 0.59 9.331658291 Sharpe Ratio 59 | P a g e .69 9.254498715 -0.979325354 3.5 8.51 9.829383886 7.231166151 -0.78 8.990599295 -0.19 9.783783784 21.Table 21:Reliance Index FundSensex Plan DATE 1-Jun-12 1-Jul-12 1-Aug-12 1-Sep-12 1-Oct-12 1-Nov-12 1-Dec-12 1-Jan-13 1-Feb-13 1-Mar-13 1-Apr-13 1-May-13 Summation Average Standard Deviation NAV 7.44 8.323275862 3.042752868 -4.374207188 1.25 9.999238179 3 .28 9.
08 59.41 53.481161551 -3.032592593 Sharpe Ratio 60 | P a g e .991902636 0.45 51. 7 5 1 1 0 3 3 5 5 -0.523012552 -9.875344353 -5.300234558 3.957783641 12.16 48.32 54.41 58.96 57.41 56.7 RETURN 10.371124889 -4.96 50.741856819 2.06 50.75 56.65698587 -1.960468002 2.453809331 6 .553921569 4.Table 22 :Reliance Diversified Power Sector Fund DATE 1-Jun-12 1-Jul-12 1-Aug-12 1-Sep-12 1-Oct-12 1-Nov-12 1-Dec-12 1-Jan-13 1-Feb-13 1-Mar-13 1-Apr-13 1-May-13 Summation Average Standard Deviation NAV 49.32035685 -2.
gain/loss. Absolute returns are considered which refers to the return that an asset achieves over a certain period of time.DATA ANALYSIS & INTERPRETATION The following tools have been used to measure the performance of the selected mutual fund in terms of risk and return. The amount of money gained or lost may be referred to as interest.82 2.99 1. Here returns on mutual funds refer to the amount gained or lost by an investor on the investments in mutual funds. 1. or net income/loss.47 2. profit/loss. SCHEMES Media and Entertainment Fund Banking Fund NRI Equity Fund Regular Saving Fund(Equity) Equity Fund Pharma Fund Index Fund-Nifty Plan Index Fund-Sensex Plan Top 200 Fund AVERAGE RETURN 3. also known as return on investment (ROI).17 2.52 2.31 2. RETURN Rate of return (ROR).35 2. rate of profit or sometimes just return.9 61 | P a g e .1 1. is the ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested.
77 0.) tax Saver(ELSS) Fund Equity Linked Savings Fund Growth fund Vision Fund Long Term Equity Fund Small Capital Fund Arbitrage Advantage Fund Diversified Power Sector Fund Natural Resource Fund Infrastrusture Fund AVERAGE RETURN 1.45 1.71 1.11 -0.37 1. Showing returns of the funds (12 months) 62 | P a g e .45 0.27 Table 23.19 0.87 1.SCHEMES Equity oppoptunity Fund Quant Plus Fund regular Savings Fund(Bal.27 1.38 1.86 1.87 0.
Showing returns of the funds (12 months) Any investor would like to maximize the returns on the investments and therefore mutual fund scheme which delivers the highest returns will be selected.5 4 3. Infrastructure fund has delivered the negative return (-.2%) . higher standard deviation means a greater fluctuation in expected return. Standard deviation is used in the concept of risk of portfolio of investments.5 Series1 Series2 Series3 . 2. Here the average returns are considered for the past twelve month period.NRI Fund. Regular Saving Fund .82%) of all the equity scheme.Diversified Pharma Fund Banking Fund Equity Linked Graph 1.Equity and Pharma fund has yielded good return near to (2.27%) among all the funds. It can be observed that Media and Entertainment has yielded the highest return (3.5 0 -0. It is denoted by sigma (σ). used to measure the variation in individual returns from the average expected return over a certain period. STANDARD DEVIATION Standard Deviation is a statistical tool. ssssssschemesSCHEME 63 | P a g e STANDsxssxx xxARD Small Capital Infrastrusture Index Fund- Regular regular Vision Fund SCHEMES Equity 4.5 1 0. Banking Fund .5 2 1.5 3 2.
36 3.81 5.22 4.95 6.48 4.24 4.31 8 7 6 5 4 3 2 1 0 Arbitrage Advantage Regular Saving Fund regular Savings Fund(Balanced Top 200 Fund Equity Linked Savings Fund Natural Resource Fund Infrastrusture Fund Index FundNifty Plan Growth fund NRI Equity Fund Vision Fund 64 | P a g e .77 4.31 5.86 5.12 4.87 3.73 5.62 4.75 6.07 4.98 3.26 3.22 5.18 5.99 4.84 7.Arbitrage Advantage Fund Pharma Fund regular Savings Fund(Balanced Option) Index Fund-Sensex Plan Equity Linked Savings Fund Equity oppoptunity Fund Top 200 Fund Small Capital Fund Index Fund-Nifty Plan Quant Plus Fund Natural Resource Fund Long Term Equity Fund NRI Equity Fund tax Saver(ELSS) Fund Growth fund Equity Fund Regular Saving Fund Media and Entertainment Fund Vision Fund Diversified Power Sector Fund Infrastrusture Fund Banking Fund DEVIATION 0.
risk premium) per unit of total risk.37 0. SHARPE RATIO Sharpe Ratio measures risk premium of a portfolio.33 0. 3.53 0.3 0.29 0.29 0.44 0. It was given by William Sharpe.26 .33 0.e. Banking Fund has the highest SD among all the funds which means it is comparatively more risky as its returns are more volatile. In other words high standard deviation means high risk. Column1 Scheme Relience Media and Entertainment Fund Relience Pharma Fund Relience Arbitrage Advantage Fund Relience NRI Equity Fund Relience Index Fund-Nifty Plan Relience Index Fund-Sensex Plan Relience Equity Fund Relience Regular Saving Fund Relience Equity oppoptunity Fund Relience Top 200 Fund Relience regular Savings Fund(Balanced Option) 65 | P a g e Column3 Sharpe Ratio 0. Arbitrage Advantage Fund has the lowest SD which means it is comparatively less risky to the other funds as its returns are less volatile. followed by Reliance Regular saving Fund (bal).29 0.. Higher Sharpe ratio means higher returns for the same risk level.37 0. relative to the total amount for risk in the portfolio. Showing returns of the funds (12 months) A higher standard deviation means that the returns of the fund have been more volatile than a fund having low standard deviation. Pharma Fund has the next lowest SD. It measures the excess return (i.Graph 2. It is one of the most widely used tools to measure the performance of a mutual fund.
13 0.53) which means it has outperformed all the other funds.1 0. higher the performance of the mutual fund. Pharma Fund has the next highest Sharpe’s ratio.Relience Relience Relience Relience Relience Relience Relience Relience Relience Relience Relience Quant Plus Fund Banking Fund Equity Linked Savings Fund tax Saver(ELSS) Fund Growth fund Long Term Equity Fund Vision Fund Small Capital Fund Diversified Power Sector Fund Natural Resource Fund Infrastrusture Fund 0.1 -0.6 0. which means it.3 0.2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Scheme Sharpe Ratio Graph 3.15 0.12 -0.13 Table 9. has yielded negative returns for the same risk level.4 0. Infrastructure Fund has the Negative Sharpe’s ratio (-. 66 | P a g e .1 0 -0.13) among all the selected funds. Showing Sharpe ratio of the funds (12 months) 0.5 0.25 0.17 0.1 0.03 -0. Showing Sharpe ratio of the funds (12 months ) Reliance Media and Entertainment Fund has the highest Sharpe’s ratio (0.26 0.04 -0.2 0. as higher the Sharpe’s Ratio.
CHAPTER-6 FINDINGS AND CONCLUSION 67 | P a g e .
as it has the lowest Standard Deviation (0. This fund is less risky due to the low risk profile of its portfolio of investments. This is due to the portfolio of its investments which have performed very well. as higher the Sharpe Ratio.FINDINGS The analysis of 22 Equity Schemes of Reliance Mutual funds (Growth option) based on NAV returns for a period of 12 months yielded the following results: Media and Entertainment has outperformed all the other funds as it has yielded the highest return (3.26) among all the funds. investors who are attracted to funds with highest returns will be interested in this mutual fund scheme. Arbitrage Advantage Fund has delivered more consistent returns.53). It can be observed that Media and Entertainment Fund has the best performance according to the Sharpe Ratio (0. Hence. Investors interested in stable returns & less volatility would like to invest in this mutual fund. The investors should select a mutual fund with a higher Sharpe ratio. This means it has outperformed all the other funds.82%) of the entire equity scheme. 68 | P a g e . higher the performance of the mutual fund. The returns of the fund can hence be trusted. as it yields higher returns for the same risk level.
As the famous lines say. “Mutual Fund Investments Are subject To Market Risks. and the huge latent opportunity for growth. Therefore investors should invest in a fund which has a good & capable fund manager to get the best performance. as they should balance both the risk and the return to earn optimum profits. In the light of the current state of industry. as he will be responsible for the fund’s performance.SUGGESTIONS Investors while investing their funds should consider both the risk and the returns associated with the mutual fund. • Explore the demand for Exchange Traded Funds (ETF’s) especially gold ETF’s • Attractive product offerings • Cost Rationalization • Increased investment in technology to support distribution network • Investor Education • Awareness Programs 69 | P a g e Researcher would like to highlight a few imperatives on this road to success- . Please Read The Offer Documents Carefully Before Investing" Another important thing to be remembered is that investors should invest in a mutual fund that matches their objective of investment which should be very clearly decided. A good Fund Manager is also very important for a mutual fund.
53) as well as it has higher standard deviation (5.86) which shows it is more risky as its returns are more volatile. In all. as it has yielded the highest returns (3. It has quarterly net assets of Rs. CONCLUSION Very aggressive investors who want the highest returns and are willing to take higher risk should invest their funds in Media and Entertainment Fund. So.17) in terms of return which shows good position. it is the best mutual fund scheme for investment in regards to returns and performance.• Increase transparency for mutual fund houses. It has quarterly net assets of Rs.36) which indicates its consistency and second best performance according to Sharpe ratio and it ranked fifth (2. particularly at the retail level. comparing the overall performance of all the selected mutual fund schemes. 655 crores which also reflects confidence of so many investors which gives lead to other aggressive investors. But most of my respondents fall in the category of aggressive zone. who want a relatively consistent return. 70 | P a g e . those customers should invest in Reliance Pharma Fund as it has second lowest standard deviation (3. 104 crores which also reflects its good performance.82%) among all the selected mutual funds and has the best performance according to the Sharpe Ratio (0.
March 23 2001 “Mutual Fund Investment in Emerging Markets: An Overview”.ssrn. Green. “Incentives and Mutual Fund Performance: Higher Performance or Just Higher Risk Taking?” www. December 9. Manager Behavior. 2007.com 7. Jonathan Berk. Russ Wermers. Niall Sullivan. www.com 3. Massimo Massa.ssrn. January 19.ssrn.com 5. March 2005 “A Dynamic Model of Active Portfolio and Mutual Fund Performance Evaluation”. Doron Avramov.ssrn.com 2.com 6.com 4. Dirk nitzche. and Performance Persistence. Keith cuthbretson. Russ Wermers. Rajdeep Patgiri. Yonggan Zhao. Richard C.ssrn.ssrn. www. www. 2006“Mutual Fund Performance”.com 71 | P a g e . www. 2002 “Mutual Fund Flows and Performance in Rational Markets”.ssrn. 2005“Investing in Mutual Funds when Returns are Predictable”. Graciela Kaminsky. March 15. www.REFERENCES INTERNATIONAL REVIEWS 1. www. May 2003 “Is Money Really 'Smart'? New Evidence on the Relation between Mutual Fund Flows.
September 15.com 6.com 7. Sharad Pawar. V. 1978 “Is fund growth related to fund performance”. 2001 “Does Mutual Fund Management in India Correspond to its Investment Objective Classification?”. “Analysis of Components of Investment Performance . December 18.www. 2009 “Effect of Fund Size on the Performance of Balanced Mutual Funds: An Empirical Study in the Indian Context”. December 19.ssrn.An Empirical Study of Mutual Funds in India”.Rao.com 2. www. 2007. Bhuvaneswari Palanisamy. www.Roy. Murugesan Selvam. www. Sanjay Sehgal. December 18. S.www. Ashok Banerjee.ssrn.ssrn.ssrn.8. D. Cristina Ortiz. Soumya Guha Deb.com 5. www. 2007. Luis Ferruz.ssrn. 2011 “Analysis of Risk and Return Relationship of Indian Equity (Dividend) Mutual Fund Schemes”www. Bijan Roy. www.A Case of Select Indian Mutual Funds”. Manoj Jhanwar.B. www.com 10. B.Madhumati. December 18. 2007.ssrn.com 3.N.com 9. S. 2006“Characteristics and Performance Evaluation of Selected Mutual Funds in India”. “Short-Term Persistence in Mutual Funds Performance: Evidence from India”. “Fund Performance Measurement without Benchmark . Murugaiah.ssrn.”Measuring Performance of Indian Mutual Funds”. www.com.com 8. Anand. 2006.Chakrabarti.B.“Performance of Indian Equity Mutual Funds vis-a vis Their Style Benchmarks: An Empirical Exploration”. R. July 22. Chm & Eric.ssrn. Deepak Agarwal. 1984 “Mutual fund Investment Performance.V.sssrn.ssrn. NATIONAL REVIEWS 1. Smith.com 72 | P a g e . Kaushik Bhattacharjee.com 4. www.ssrn. 2006.
January 2004.com www. Tata McGraw-Hill Publishing Co Ltd • R Shanmugam. Saikat Sovan Deb.com BIBLIOGRAPHY • Prasanna Chandra.“The Conditional Performance of Indian Mutual Funds: An Empirical Study”.com www. Narayan Rao Sapar. Bijan Roy. 2003.www.ssrn.reliance mutual fund.valueresearchonline.com www. “Performance Evaluation of Indian Mutual Funds”.moneycontrol.” Investment Analysis and Management” (1st Edition). www. “Conditional Alpha and Performance Persistence for Indian Mutual Funds: Empirical Evidence”. December 2003.9. Ravindran Madava.ssrn.com www.ssrn. • • • • • • WEBIOGRAPHY www.mutualfundsindia.com 10. www.com www. Saikat Sovan Deb. Bijan Roy.com 73 | P a g e .amfiindia.com 12.” Investment Analysis and Portfolio Management” (3rd Edition). Kalyani Publishers.ssrn.
Questionnaire Respected Sir / Madam. c)35-45 Yrs. b) 25-35Yrs. d) 45 & above 1 My current and Future Income Sources (salary . GenderEducational QualificationOccupation1 What is your investment objective? b) Small but Stable d) Any Other a Huge Growth Income b 1 Just Tax benefits What is your Investment Horizon? a) Less than 1 Yr. d) 5 Yr. Your honest feedback will help me in arriving at an authentic conclusion.)are: a) Very unstable b) Unstable 74 | P a g e . “ Analysis of Mutual Fund Schemes for Better Choice” . This is a request to help me in carrying out a survey for project. The results will not be revealed and would be used for academic purpose only. & more a)Less than 25 Yrs. I have been pursuing my MBA (Finance) from Dayalbagh Educational Institute.business income etc. Agra. 1 The age group you belong to: b) 1-3 Yr. c) 3-5 Yr. Your support will enable me to assess the current status and insights for further development in mutual fund Industry.
b) Transfer investment to safer asset class.... c) You would give your investments a little more time.... c) More than Inflation....... d Very Experienced Investor......... what would you do? a) Liquidate all investments.............. 75 | P a g e ... d) you are confident about your investment and are not perturbed by notional losses........c) Stable d) Very Unstable 1 a b How well do you understand investing in markets? Don’t understand at all.... 8) Specify reason for investing in mutual fund rather than somewhere else? …………………………………………………………………………………… 10) Any suggestion for better choice of scheme? ........... the value of your investment declines by 20%..................... ...... c Understands how market fluctuates & the Pros & Cons of different investment strategies.......... 1 If a few months after investing......... 7) Your minimum expected return is: a) Normal FD Return b) Inflation Value of the Investment... d) In Proportion to Risk Taken.......... Basic understanding of investing............
76 | P a g e .Thanking you.
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