1.

1 INTRODUCTION

Investment is the application of money for earning more money. The money we earn
is partly spent and the rest is saved for meeting future expenses. Instead of keeping
the savings idle one may like to channelize their savings in a particular order so that
they get a percentage of return out of it in the future. This is called Investment.

Thus, Investing is a method of purchasing assets in order to gain profit in the

form of reasonably predictable income (dividends, interest, or rentals) and
appreciation over the long term.

In India, traditionally the family savings were invested in immovable assets such
as land & building, fixed deposit, post office savings as well as precious metals.

One needs to invest to:

 Earn return on their idle resources,

 Generate a specified sum of money for a specific
goal in life,
 Make a provision for an uncertain future.
One of the important reasons why one needs to invest wisely is to meet the cost of
Inflation. Inflation is the rate at which the cost of living increases. The cost of living is
simply what it costs to buy the goods and services you need to live. Inflation causes
money to lose value because it will not buy the same amount of a good or a service in
the future as it does now or did in the past. This is why it is important to consider
inflation as a factor in any long-term Investment strategy. The aim of Investments
should be to provide a return above the inflation rate to ensure that the Investment
does not decrease in value.

If the after-tax return on the Investment is less than the inflation rate, then the assets
have actually decreased in value; that is, they won't buy as much today as they did last
year.
By investing early, we allow our investments more time to grow, whereby the concept
of compounding increases the income by accumulating the principal and the interest
or dividend earned on it, year after year.

The three golden rules for all investors are:

 Invest early,
 Invest regularly,
 Invest for long term or short term as per your objective.

Introduction to Mutual Funds

A mutual fund is a professionally managed type of collective investment scheme that

pools money from many investors and invests it in stocks, bonds, short-term money
market instruments and other securities. Mutual funds have a fund manager who
invests the money on behalf of the investors by buying / selling stocks, bonds etc. It is
a substitute for those who are unable to invest directly in equities or debt because of
resource, time or knowledge constraints. Benefits include professional money
management, buying in small amounts and diversification.
Mutual fund units are issued and redeemed by the Fund Management Company based
on the fund's Net Asset Value (NAV), which is determined at the end of each trading
session. NAV is calculated as the value of all the shares held by the fund, minus
expenses, divided by the number of units issued. Mutual Funds are usually long term
investment vehicle though there are some categories of mutual funds, such as money
market mutual funds which are short term instruments.

Currently, the worldwide value of all mutual funds totals more than $US 26 trillion.
The United States leads with the number of mutual fund schemes. There are more
than 8000 mutual fund schemes in the U.S.A. Comparatively, India has around 1000
mutual fund schemes, but this number has grown exponentially in the last few years.
The Total Assets under Management in India of all Mutual funds put together touched
a peak of Rs. 5,44,535 crs. at the end of August 2008.
Why Mutual Fund?

There are various investment avenues available to an investor such as real estate, bank
deposits, post office deposits, shares, etc. A mutual fund is one more type of
Investment Avenue available to investors. There are many reasons why investors
prefer mutual funds.

Buying shares directly from the market is one way of investing. But this requires
spending time to find out the performance of the company whose share is being
purchased, understanding the future business prospects of the company, finding out
the track record of the dividend, bonus issue history of the company etc. Many
investors find it cumbersome and time consuming to pore over so much of
information, get access to so much of details before investing in the shares.

Investors therefore prefer the mutual fund route. They invest in a mutual fund scheme
which in turn takes the responsibility of investing in stocks and shares after due
analysis and research. The investor need not bother with researching hundreds of
stocks. It leaves it to the mutual fund and its professional fund management team.

Another reason why investors prefer mutual funds is because mutual funds offer
diversification. An investor’s money is invested by the mutual fund in a variety of
shares, bonds and other securities thus diversifying the investor’s portfolio across
different companies and sectors. This diversification helps in reducing the overall risk
of the portfolio. It is also less expensive to invest in a mutual fund since the minimum
investment amount in mutual fund units is fairly low (Rs. 500 or so). These are some
of the reasons why mutual funds have gained in popularity over the years.
IMPORTANT CHARACTERISTICS OF A MUTUAL FUND
• A Mutual Fund actually belongs to the investors who have
pooled their Funds. The ownership of the mutual fund is in the
hands of the Investors.

• A Mutual Fund is managed by investment professional and

other Service providers, who earn a fee for their services, from
the funds.

• The pool of Funds is invested in a portfolio of marketable

investments.

• The value of the portfolio is updated every day.

• The investor’s share in the fund is denominated by “units”.

The value of the units changes with change in the portfolio value,
every day. The value of one unit of investment is called net asset
value (NAV)’.
OBJECTIVES OF A MUTUAL FUND

• To Provide an opportunity for lower income groups to acquire

without much difficulty, property in the form of shares.
• To Cater mainly of the need of individual investors, whose
means are small.
• To Manage investors portfolio that provides regular income,
growth, Safety, liquidity, tax advantage and diversification.
 1.2 NEED OF THE STUDY

The main aim of the project is to project Mutual Fund as a better avenue for
investment on a long-term or short-term basis. Mutual Fund is a productive package
for an investor with limited finances, this project creates an awareness that the
Mutual Fund is a worthy investment practice. Mutual Fund is a globally proven
instrument. Mutual Funds are ”Unit Trust” as it is called in some parts of the world
has a long and successful history, of late Mutual Funds have become a hot favorite
of millions of people all over the world.

The driving force of Mutual Funds is the ‘safety of the principal’ guaranteed, plus
the added advantage of capital appreciation together with the income earned in the
form of interest or dividend. The various schemes of Mutual Funds provide the
investor with a wide range of investment options according to his risk bearing
capacities and interest besides. Mutual Funds offers an investor to invest even a
small amount of money, each Mutual Fund has a defined investment objective and
strategy. Mutual Funds schemes are managed by respective asset managed
companies sponsored by financial institutions, banks, private companies or
international firms. A Mutual Fund is the ideal investment vehicle for today’s
complex and modern financial scenario.

The study is basically made to analyze the various open-ended equity schemes of
different Asset Management Companies to highlight the diversity of investment that
Mutual Fund offer. Thus, through the study one would understand how a common
man could fruitfully convert a pittance into great penny by wisely investing into the
right scheme according to his risk taking abilities.
 1.3 OBJECTIVES OF THE STUDY

1. To project Mutual Fund as the ‘productive avenue’ for

investing activities.
2. To compare the schemes based on Sharpe’s ratio, Treynor’s
ratio, β Co-efficient, Returns and show which scheme is best
for the investor based on his risk profile.
3. To help an investor make a right choice of investment, while
considering the inherent risk factors.
4. To understand the recent trends in Mutual Funds world.
 1.4 SCOPE OF THE STUDY

The study here has been limited to analyse open-ended equity Growth schemes of
different Asset Management Companies namely Reliance growth fund, Sundaram
BNP Paribas Select Midcap – Growth, Birla Sun Life Mid Cap Fund - Plan A –
Growth, SBI Magnum Global Fund 94 – Growth, Franklin India Prima Fund –
Growth, IDFC premier Equity Fund Plan A- Growth

Each scheme is analysed according to its performance against the other, based on
factors like Sharpe’s Ratio, Treynor’s Ratio, β (Beta) Co-efficient, Returns.

Research is carried out to appraise the financial performance of mutual funds.

 1.5 INDUSTRY PROFILE

Definition

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.

The chart below describes broadly the working of a mutual fund:

STRUCTURE OF MUTUAL FUND IN INDIA:

Sponsor

Trustee Mutual
s fund

ASSET
MANAGEMENT
COMPANY

Custodia Registra
n r

Mutual Funds in India follow a 3-tier structure. There is a Sponsor (the First tier),
who thinks of starting a mutual fund. The Sponsor approaches the Securities &
Exchange Board of India (SEBI), which is the market regulator and also the regulator
for mutual funds. SEBI checks whether the person is of integrity, whether he has
enough experience in the financial sector, his net-worth etc. Once SEBI is convinced,
the sponsor is allowed to create a Public Trust (the Second tier) as per the Indian
Trusts Act, 1882. Trusts have no legal identity in India and cannot enter into
contracts, hence the Trustees are the people authorized to act on behalf of the Trust.
Contracts are entered into in the name of the Trustees. Once the Trust is created, it is
registered with SEBI after which this trust is known as the mutual fund. It is
important to understand the difference between the Sponsor and the Trust. They are
two separate entities. Sponsor is not the Trust; i.e. Sponsor is not the Mutual Fund. It
is the Trust which is the Mutual Fund. The Trustees role is not to manage the
money. Their job is only to see, whether the money is being managed as per stated
objectives. Trustees may be seen as the internal regulators of a mutual fund.

ASSET MANAGEMENT COMPANIES (AMC)

AMC forms the third tier of the mutual fund structure. Trustees appoint the Asset
Management Company (AMC), to manage investor’s money. The AMC in return
charges a fee for the services provided and this fee is borne by the investors as it is
deducted from the money collected from them. The AMC’s Board of Directors must
have at least 50% of Directors who are independent directors. The AMC has to be
approved by SEBI. The AMC functions under the supervision of its Board of
Directors, and also under the direction of the Trustees and SEBI. It is the AMC, which
in the name of the Trust, floats new schemes and manages these schemes by buying
and selling securities. In order to do this the AMC needs to follow all rules and
regulations prescribed by SEBI and as per the Investment Management Agreement it
signs with the Trustees. If any fund manager, analyst intends to buy/ sell some
securities, the permission of the Compliance Officer is a must. A compliance Officer
is one of the most important persons in the AMC. Whenever the fund intends to
launch a new scheme, the AMC has to submit a Draft Offer Document to SEBI. This
draft offer document, after getting SEBI approval becomes the offer document of the
scheme. The Offer Document (OD) is a legal document and investors rely upon the
information provided in the OD for investing in the mutual fund scheme. The
Compliance Officer has to sign the Due Diligence Certificate in the OD. This
certificate says that all the information provided inside the OD is true and correct.
This ensures that there is accountability and somebody is responsible for the OD. In
case there is no compliance officer, then senior executives like CEO, Chairman of the
AMC has to sign the due diligence certificate. The certificate ensures that the AMC
takes responsibility of the OD and its contents.

CUSTODIAN

A custodian’s role is safe keeping of physical securities and also keeping a tab on the
corporate actions like rights, bonus and dividends declared by the companies in which
the fund has invested. The Custodian is appointed by the Board of Trustees. The
custodian also participates in a clearing and settlement system through approved
depository companies on behalf of mutual funds, in case of dematerialized securities.
In India today, securities and units of mutual funds are no longer held in physical
form but mostly in dematerialized form with the Depositories. The holdings are held
in the Depository through Depository Participants (DPs). The deliveries and receipt of
units of a mutual fund are done by the custodian or a depository participant at the
instruction of the AMC and under the overall direction and responsibility of the
Trustees. Regulations provide that the Sponsor and the Custodian must be separate
entities.

HISTORY OF THE INDIAN MUTUAL INDUSTRY

The mutual fund industry in India started in 1963 with the formation of unit trust of
India, at the initiative of the government of India and reserve bank. The history of
mutual funds in India can be broadly divided into four distinct phases.

First phase-1964-87

Unit trust of India (UTI) was established on 1963 by an act of parliament. It was set
up the reserve bank of India and functioned under the regulatory and administrative
control of the reserve bank of India. In 1978 UTI was de-linked from the RBI and the
industrial development bank of India (IDBI) took over the regulatory and
administrative control in place of RBI. The first schemes launched by UTI were unit
schemes 1964. At the end of 1988 UTI scheme 1964. At the end of 1988 UTI had
Rs.6700 Crores of assets under management.

Second phase- 1987-1993 (entry of public sector funds)

1987 marked the entry of non-UTI, public sector mutual funds set up by public sector
banks and life insurance Corporation of India (LIC) and general Insurance
Corporation of India (GIC). SBI mutual fund was the first non-UTI mutual fund
established in June 1987 followed by can bank mutual fund (Dec 87), Punjab national
bank mutual fund (Aug 89), bank of India (Jun 90), bank of Baroda mutual fund (Oct
92). LIC established its mutual fund in June 1989 while GIC had set up its mutual
fund in December 1990. At the end of 1993, the mutual fund industry had assets
under management of Rs.47, 004 crores.

Third phase-1993-2003 (entry of private sector funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual
fund industry, giving the Indian investors a wider choice of fund families. Also, 1993
was the year in which the first mutual fund regulations came into being, under which
all mutual funds, except UTI were to be registered and governed. The erstwhile
Kothari pioneer (now merged with Franklin Templeton) was the first private sector
mutual fund registered in July 1993.

The 1993 SEBI (mutual fund) regulations were substituted by a more comprehensive
and revised mutual fund regulations in 1996. The industry now functions under the
SEBI (mutual fund) regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual
funds settings up funds in India and the industry has witnessed several mergers and
acquisitions. As at the end of January 2003, there were 33 mutual funds with total
assets under management was way ahead of other mutual funds.

Fourth phase-since February 2003

In February 2003, following the repeal of the unit trust of India act 1963 UTI was
bifurcated into two separate entities. One is the specified undertaking of the unit trust
of India with assets under management of Rs.29, 835 Crores as at the end of January
2003, representing broadly, the assets.

Of US 64 scheme, assured return and certain other schemes. The specified

undertaking of unit trust of India, 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.

The second is the UTI mutual fund Ltd, sponsored by SBI, PNB, BOB, and LIC. It is
registered with SEBI and functions under the mutual fund regulations. With the
bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76, 000
Crores of assets under management and with the setting up of a UTI mutual fund,
conforming to the SEBI mutual fund regulations, and with recent mergers taking
place among different private sector funds, the mutual fund industry has entered its
current phase of consolidation and growth. As at the end of September, 2004, there
were 29funds, which manage assets of Rs.153108 Crores under 421 schemes.

Types of Mutual Funds Schemes in India

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial
position, risk tolerance and return expectations etc. Being a collection of many stocks,
investors can go for picking a mutual fund might be easy. There are over hundreds of
mutual funds scheme to choose from.

It is easier to think of mutual funds in categories, mentioned below.

1. By Structure

o Open - Ended Schemes

o Close - Ended Schemes

2. By Investment Objective
o Growth Schemes
o Income Schemes
o Balanced Schemes
o Money Market Schemes
 • Other Schemes
o Tax Saving Schemes
o Special Schemes
 Index Schemes
 Sector Specific Schemes

Classification of schemes based on structure:

Open - Ended Schemes:

An open-end fund is one that is available for subscription all through the year. These
do not have a fixed maturity. Investors can conveniently buy and sell units at Net
Asset Value ("NAV") related prices. The key feature of open-end schemes is
liquidity.

Close - Ended Schemes:

A closed-end fund has a stipulated maturity period which generally ranging from 3 to
15 years. 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. In
order to provide an exit route to the investors, 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.

Classification of schemes based on the investment objective:

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.

Other schemes:

• 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

MUTUAL FUND INVESTING STRATEGIES:

1. Systematic Investment Plans (SIPs)

These are best suited for young people who have started their careers and need to
build their wealth. SIPs entail an investor to invest a fixed sum of money at regular
intervals in the Mutual fund scheme the investor has chosen, an investor opting for
SIP in xyz Mutual Fund scheme will need to invest a certain sum on money every
month/quarter/half-year in the scheme.

2. Systematic Withdrawal Plans (SWPs)

These plans are best suited for people nearing retirement. In these plans, an investor
invests in a mutual fund scheme and is allowed to withdraw a fixed sum of money at
regular intervals to take care of his expenses
 3. Systematic Transfer Plans (STPs)

They allow the investor to transfer on a periodic basis a specified amount from one
scheme to another within the same fund family – meaning two schemes belonging to
the same mutual fund. A transfer will be treated as redemption of units from the
scheme from which the transfer is made. Such redemption or investment will be at
the applicable NAV. This service allows the investor to manage his investments
actively to achieve his objectives. Many funds do not even charge any transaction
fees for his service – an added advantage for the active investor.

ADVANTAGES OF INVESTING IN MUTUAL FUND

Affordable

Almost everyone can buy mutual funds. Even for a sum of Rs 1,000 an investor can
invest in a mutual fund.

Professional Management

For an average investor, it is a difficult task to decide what securities to buy, how
much to buy and when to sell. By buying a mutual fund, you acquire a professional
fund manager who manages your money. This is the person who decides what to buy
for you, when to buy it and when to sell. The fund manager takes these decisions after
doing adequate research on the economy, industries and companies, before buying
stocks or bonds. Most mutual fund companies charge a small fee for providing this
service which is called the management fee.

Diversification

According to finance theory, when your investments are spread across several
securities, your risk reduces substantially. A mutual fund is able to diversify more
easily than an average investor across several companies, which an ordinary investor
may not be able to do. With an investment of Rs.5000, you can buy stocks in some of
the top Indian companies through a mutual fund, which may not be possible to do as
an individual investor.

Liquidity

Unlike several other forms of savings like the public provident fund or National
Savings Scheme, you can withdraw your money from a mutual fund on immediate
basic.
Tax Benefits

Mutual funds have historically been more efficient from the tax point of view. A debt
fund pays a dividend distribution tax of 12.5 per cent before distributing dividend to
an individual investor or an HUF, whereas it is 20 per cent for all other entities. There
is no dividend tax on dividends from an equity fund for individual investor.

Transparency

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

Risks Associated With Mutual Funds

Investing in Mutual Funds, as with any security, does not come without risk. One of
the most basic economic principles is that risk and reward are directly correlated. In
other words, the greater the potential risk the greater the potential return. The types
of risk commonly associated with Mutual Funds are:

1) Market Risk
Market risk relates to the market value of a security in the future. Market prices
fluctuate and are susceptible to economic and financial trends, supply and demand,
and many other factors that cannot be precisely predicted or controlled.
2) Political Risk

Changes in the tax laws, trade regulations, administered prices, etc are some of the
many political factors that create market risk. Although collectively, as citizens, we
have indirect control through the power of our vote individually, as investors, we
have virtually no control.

3) Inflation Risk

Interest rate risk relates to future changes in interest rates. For instance, if an
investor invests in a long-term debt Mutual Fund scheme and interest rates increase,
the NAV of the scheme will fall because the scheme will be end up holding debt
offering lower interest rates.

4) Business Risk

Business risk is the uncertainty concerning the future existence, stability, and
profitability of the issuer of the security. Business risk is inherent in all business
ventures. The future financial stability of a company cannot be predicted or
guaranteed, nor can the price of its securities.

Adverse changes in business circumstances will reduce the market price of the
company’s equity resulting in proportionate fall in the NAV of the Mutual Fund
scheme, which has invested in the equity of such a company.

5) Economic Risk

Economic risk involves uncertainty in the economy, which, in turn, can have an
adverse effect on a company’s business. For instance, if monsoons fail in a year,
equity stocks of agriculture-based companies will fall and NAVs of Mutual Funds,
which have invested in such stocks, will fall proportionately.

1.6 COMPANY PROFILE

INTRODUCTION

Reliance Capital Ltd. is one of India’s leading and fastest growing private sector
financial services companies, and ranks among the top 3 private sector financial
services and banking companies, in terms of net worth. Reliance Capital Ltd. has
interests in asset management, life and general insurance, private equity and
proprietary investments, stock broking and other financial services.

Reliance Mutual Fund (RMF) is one of India’s leading Mutual Funds, with Average
Assets Under Management (AAUM) of Rs. 1,17,314 Crores and an investor base of
over 74.16 Lacs. (AAUM and investor count as on August 31, 2009)

Reliance Mutual Fund, a part of the Reliance - Anil Dhirubhai Ambani Group, is one
of the fastest growing mutual funds in the country.

PRODUCTS

RMF offers investors a well-rounded portfolio of products to meet varying investor

requirements. It constantly endeavors to launch innovative products and customer
service initiatives to increase value to investors. As on 31st December 2008, reliance
mutual fund has a well rounded portfolio of 38 schemes under various categories such
as Equity, debt etc.
Reliance is also a pioneer in launching ATM cum debit cards for withdrawing cash on
account of mutual fund investments.

Reliance Equity Fund and Reliance Natural Resources Fund has set benchmarks
among the equity category in the industry for their highest collection in terms of
AUM and applications.

"Reliance Mutual Fund schemes are managed by Reliance Capital Asset

Management Limited., a subsidiary of Reliance Capital Limited, which holds
93.37% of the paid-up capital of RCAM, the balance paid up capital being held by
minority shareholders."

VISION STATEMENT

To be a globally respected wealth creator with an emphasis on customer care and a

culture of good corporate governance.

MISION STATEMENT

To create and nurture a world-class, high performance environment aimed at

delighting our customers.

SCHEMES

Equity/Growth Schemes

The aim of growth funds is to provide capital appreciation over the medium to long-
term. Such schemes normally invest a major part of their corpus in equities. Such
funds have comparatively high risks. These schemes provide different options to the
investors like dividend option, capital appreciation, etc. and the investors may choose
an option depending on their preferences. The investors must indicate the option in
the application form. The mutual funds also allow the investors to change the options
at a later date. Growth schemes are good for investors having a long-term outlook
seeking appreciation over a period of time.

Debt/Income Schemes

The aim of income funds is to provide regular and steady income to investors. Such
schemes generally invest in fixed income securities such as bonds, corporate
debentures, Government securities and money market instruments. Such funds are
less risky compared to equity schemes. These funds are not affected because of
fluctuations in equity markets. However, opportunities of capital appreciation are also
limited in such funds. The NAVs of such funds are affected because of change in
interest rates in the country. If the interest rates fall, NAVs of such funds are likely to
increase in the short run and vice versa. However, long term investors may not bother
about these fluctuations.

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. They may also seek advice of an expert.

AWARDS WON BY RELIANCE MUTUAL FUND

• The company has been awarded the “India Equity Fund house” by morning
star India. This award has been given for delivering sustained out performance
on a risk-adjusted basis in the Equity category for the period ending December
31, 2008.
• It has been awarded the Morningstar Fund Award in the “India open ended
Small/ Mid Cap” category for its three – year performance ending December
31, 2008.
• It has been awarded the Morningstar Fund Award in the “India Open Ended
Conservation Allocation” category for its three – year performance ending
December 31, 2008.
 2.2 RESEARCH METHODOLOGY

The Methodology involves randomly selecting Open-Ended equity schemes of

different fund houses of the country. The data collected for this project is basically
from two sources, they are:-

1. Primary sources: The monthly fact sheets of different fund

houses and research reports from banks.
2. Secondary sources: Collection of data from Internet and
Books.

Statistical Tools

Usually the returns derived are only considered for choosing the best scheme. But it is
only half of the consideration for choosing the best scheme. The risk should also be
considered in choosing the suitable and best scheme. Therefore, what matters a lot, is
the risk adjusted returns. There are several measures to measure the performance of
the scheme and rate it. Each of these measures uses past performance data.

The various statistical tools are as follows

The Treynor Measure

Developed by Jack Treynor, this performance measure evaluates funds on the basis
of Treynor's Index.
This Index is a ratio of return generated by the fund over and above risk free rate of
return (generally taken to be the return on securities backed by the government, as
there is no credit risk associated), during a given period and systematic risk
associated with it (beta). Symbolically, it can be represented as:

Treynor's Index (Ti) = (Ri - Rf)/Bi.

Where,
Ri represents return on fund,
Rf is risk free rate of return, and
Bi is beta of the fund.

All risk-averse investors would like to maximize this value. While a high and
positive Treynor's Index shows a superior risk-adjusted performance of a fund, a
low and negative Treynor's Index is an indication of unfavorable performance.

The Sharpe Measure

In this model, performance of a fund is evaluated on the basis of Sharpe Ratio,

which is a ratio of returns generated by the fund over and above risk free rate of
return and the total risk associated with it.
According to Sharpe, it is the total risk of the fund that the investors are concerned
about. So, the model evaluates funds on the basis of reward per unit of total risk.
Symbolically, it can be written as:

Sharpe Index (Si) = (Ri - Rf)/Si

Where,
Si is standard deviation of the fund,
Ri represents return on fund, and
Rf is risk free rate of return.

While a high and positive Sharpe Ratio shows a superior risk-adjusted performance
of a fund, a low and negative Sharpe Ratio is an indication of unfavorable
performance.
Comparison of Sharpe and Treynor

Sharpe and Treynor measures are similar in a way, since they both divide the risk
premium by a numerical risk measure. The total risk is appropriate when we are
evaluating the risk return relationship for well-diversified portfolios. On the other
hand, the systematic risk is the relevant measure of risk when we are evaluating less
than fully diversified portfolios or individual stocks. For a well-diversified portfolio
the total risk is equal to systematic risk. Rankings based on total risk (Sharpe
measure) and systematic risk (Treynor measure) should be identical for a well-
diversified portfolio, as the total risk is reduced to systematic risk. Therefore, a
poorly diversified fund that ranks higher on Treynor measure, compared with
another fund that is highly diversified, will rank lower on Sharpe Measure.

Standard Deviation

The most basic of all measures- Standard Deviation allows you to evaluate the
volatility of the fund. It allows you to measure the consistency of the returns.

Volatility is often a direct indicator of the risks taken by the fund. The standard
deviation of a fund measures this risk by measuring the degree to which the fund
fluctuates in relation to its mean return, the average return of a fund over a period of
time.

A security that is volatile is also considered higher risk because its performance may
change quickly in either direction at any moment.

Beta

Beta indicates the level of volatility associated with the fund as compared to the
benchmark. So quite naturally the success of Beta is heavily dependent on the
correlation between a fund and its benchmark. Thus if the fund's portfolio doesn't
have a relevant benchmark index then a beta would be grossly inadequate.
A beta that is greater than 1 means that the fund is more volatile than the benchmark,
while a beta of less than 1 means that the fund is less volatile than the index. A fund
with a beta very close to 1 means the fund's performance closely matches the index or
benchmark.
Investors expecting the market to be bullish may choose funds exhibiting high betas,
which increase investors' chances of beating the market. If an investor expects the
market to be bearish in the near future, the funds that have betas less than 1 are a good
choice because they would be expected to decline less in value than the index.

Formulae

Standard Deviation: √∑(Ři - Ri )2 /n

Beta: n∑XY - ∑X ∑Y
n∑X2 – (∑X)2

Sharpe Ratio: Rt - Rf
S.D

Treyner’s Ratio: Rt - Rf
β
 2.3 LIMITATIONS OF THE STUDY

1. The study is limited only to the analysis of different schemes and its
suitability to different investors according to their risk-taking ability.

2. The study is based on secondary data available from monthly fact sheets,
websites and other books, as primary data was not accessible.

3. The study is limited by the detailed study of various schemes of Five Asset
Management Company.

4. Five years return data not available for IDFC Premier Equity Fund Plan A-
Growth Mutual Fund.
 3.1 DATA ANALYSIS AND INTERPRETATION

HYPOTHESIS

The Hypothesis of the study involves Comparison between

1. Reliance Growth Fund
2. Sundaram BNP Paribas Select Midcap - Growth
3. Birla Sun Life Mid Cap Fund - Plan A – Growth
4. SBI Magnum Global Fund 94 – Growth
5. Franklin India Prima Fund – Growth
6. IDFC Premier Equity Fund Plan A- Growth

(Note: All the data used for analysis is taken on period 16-9-2009)

Reliance Growth – Growth

Fund Objective

The scheme aims at long term growth of capital through research based investment
approach. The funds will be invested in Equity and equity related instruments ,and
there will be an exposure to debt and money market instruments also.

Table 3.1.1 showing the covariance of reliance Growth

Year Rp Rm Rf Rm-Rf Rp-Rf X2 XY X - ¯X D2

X Y
last 1 321.843 434.865 2.19666
year 27.47 21.17 3.23 17.94 24.24 6 6 7 4.825344
last 3 116.942
years 19.36 10.48 3.23 7.25 16.13 52.5625 5 -8.49333 72.13671
last 5 25.27 3.23 22.04 31.62 485.761 696.904 6.29666 39.64801
years 34.85 6 8 7
860.167 1248.71
Total 47.23 71.99 7 3 0 116.6101
where
Rp - Portfolio Return-Reliance growth-growth
Rm - Market Return-Fund’s Benchmark BSE-100
Rf - Risk free rate of return

• CALCULATION OF ARTHMETIC MEAN:-

=Σ X/N
= 47.23/ 3
= 15.74333

• CALCULATION OF STANDARD DEVIATION (σ):-

= √ Σ (X-Xbar)2 / N
= √116.6101/3
= 6.03173

• CALCULATION OF BETA CO-EFFICIENT;-

= N (Σ XY) – Σ XΣ Y
N (Σ X2) – (Σ X) 2
= 3(1248.713) – (47.23)(71.99)
3(860.1677) – (47.23) 2
= 0.989197

• CALCULATION OF SHARPE’S RATIO:-

= Rp-Rf/ σ
= 71.99
6.03
= 11.93522

• CALCULATION OF TREYNOR’S RATIO:-

 = Rp-Rf/β
= 71.99
0.989
= 72.7762
Interpretation

• Last 1 year: It reveals that Reliance growth Fund Returns

are 27.47 as compare to Funds Benchmark Returns Are
21.17, and The Risk Free Rate is 3.23%

• Last 3 years: It reveals that Reliance growth Fund Returns

are 19.36 as compare to Funds Benchmark Returns are 10.48,
and The Risk Free Rate is 3.23%

• Last 5 years: It reveals that Reliance growth Fund Returns

are 34.85 as compare to Funds Benchmark Returns are 25.27
and The Risk Free Rate is 3.23%
 Sundaram BNP Paribas Select Midcap

Fund Objective

The scheme aims to achieve capital appreciation by investing in mid-cap stocks. The
fund defines 'midcap' as a stock whose market capitalization shall not exceed the
market capitalization of the 50th stock (after sorting the securities in the descending
order of market capitalization) listed with the NSE.

Table 3.1.2 showing the covariance of Sundaram BNP Select Midcap Growth

Year Rp Rm Rf Rm-Rf Rp-Rf X2 XY X - ¯X D2

X Y
last 1 321.843 523.130 2.19666
year 32.39 21.17 3.23 17.94 29.16 6 4 7 4.825344
last 3
years 12.83 10.48 3.23 7.25 9.6 52.5625 69.6 -8.49333 72.13671
last 5 485.761 6.29666
years 33.33 25.27 3.23 22.04 30.1 6 663.404 7 39.64801
860.167 1256.13
total 47.23 68.86 7 4 0 116.6101

where
Rp - Portfolio Return- Sundaram BNP Paribas Select Midcap
Rm - Market Return-Fund’s Benchmark BSE Mid Cap
Rf - Risk free rate of return

• CALCULATION OF ARTHMETIC MEAN:-

=Σ X/N
= 47.23/ 3
 = 15.74333

• CALCULATION OF STANDARD DEVIATION (σ):-

= √ Σ (X-Xbar)2 / N
= √116.6101/3
= 6.03173

• CALCULATION OF BETA CO-EFFICIENT;-

= N (Σ XY) – Σ XΣ Y
N (Σ X2) – (Σ X) 2
= 3(1256.134) – (47.23)( 68.86)
3(860.1677) – (47.23) 2
= 1.475417

• CALCULATION OF SHARPE’S RATIO

= Rp-Rf/ σ
= 68.86
6.03
= 11.41629

• CALCULATION OF TREYNOR’S RATIO:-

= Rp-Rf/β
= 68.86
1.475
= 46.67155

Interpretation:-
• Last 1 year: It reveals that Sundaram BNP Paribas select
midcap Fund Returns are 32.39 as compare to Funds
 Benchmark Returns Are 21.17 and The Risk Free Rate is
3.23%)
• Last 3 years: It reveals that Sundaram BNP Paribas select
midcap Fund Returns are 12.83 as compare to Funds
Benchmark Returns are 10.48, and The Risk Free Rate is
3.23%
• Last 5 years: It reveals that Sundaram BNP Paribas select
midcap Fund Returns are 33.33 as compare to Funds
Benchmark Returns are 25.27, and The Risk Free Rate is
3.23%.

Brila Sunlife Midcap Fund Plan A

Fund Objective

The scheme aims at long-term growth of capital at controlled level of risk by

investing primarily in mid-cap stocks, to generate returns higher than a fund focused
on large and liquid stocks.

Table 3.1.3 showing the covariance of Brila Sunlife Midcap fund plan A-
Growth

Year Rp Rm Rf Rm-Rf Rp-Rf X2 XY X - ¯X D2

X Y
last 1 321.843 589.149 2.19666
year 36.07 21.17 3.23 17.94 32.84 6 6 7 4.825344
last 3 101.137
years 17.18 10.48 3.23 7.25 13.95 52.5625 5 -8.49333 72.13671
last 5 485.761 6.29666
years 29.98 25.27 3.23 22.04 26.75 6 589.57 7 39.64801
860.167 1279.85
Total 47.23 73.54 7 7 0 116.6101

where
Rp - Portfolio Return- Brila Sunlife Midcap Fund plan A
Rm - Market Return-Fund’s Benchmark CNX Midcap
Rf - Risk free rate of return

• CALCULATION OF ARTHMETIC MEAN:-

=Σ X/N
 = 47.23/ 3
= 15.74333

• CALCULATION OF STANDARD DEVIATION (σ):-

= √ Σ (X-Xbar)2 / N
= √116.6101/3
= 6.03173

• CALCULATION OF BETA CO-EFFICIENT;-

= N (Σ XY) – Σ XΣ Y
N (Σ X2) – (Σ X) 2
= 3(1279.857) – (47.23)( 73.54)
3(860.1677) – (47.23) 2
= 1.047014

• CALCULATION OF SHARPE’S RATIO:-

= Rp-Rf/ σ
= 73.54
6.03
= 12.19219

• CALCULATION OF TREYNOR’S RATIO:-

= Rp-Rf/β
= 73.54
1.047
= 70.23784

Interpretation:-

• Last 1 year: It reveals that Brila Sunlife Midcap Fund plan A

Returns are 36.07 as compare to Funds Benchmark Returns
are 21.17 and The Risk Free Rate is 3.23%)
• Last 3 years: It reveals that Brila Sunlife Midcap Fund plan
A Returns are 17.18 as compare to Funds Benchmark Returns
are 10.48, and The Risk Free Rate is 3.23%
 • Last 5 years: It reveals that Brila Sunlife madcap Fund plan
A Returns are 29.98 as compare to Funds Benchmark Returns
are 25.27, and The Risk Free Rate is 3.23%

SBI Magnum Global Fund 94 – Growth

Fund Objective
The scheme seeks to prove maximum growth opportunities from a portfolio of equity
and debt instruments of companies having high growth potential.

Table 3.1.4 showing the covariance of SBI magnum Global fund94 Growth
Year Rp Rm Rf Rm-Rf Rp-Rf X2 XY X - ¯X D2
X Y
last 1 321.843 201.82 2.19666
year 14.48 21.17 3.23 17.94 11.25 6 5 7 4.825344
last 3
years 6.33 10.48 3.23 7.25 3.1 52.5625 22.475 -8.49333 72.13671
last 5 485.761 6.29666
years 29.48 25.27 3.23 22.04 26.25 6 578.55 7 39.64801
860.167
Total 47.23 40.6 7 802.85 0 116.6101

where
Rp - Portfolio Return-SBI Magnum Global fund 94 -growth
Rm - Market Return-Fund’s Benchmark BSE-100
Rf - Risk free rate of return

• CALCULATION OF ARTHMETIC MEAN:-

=Σ X/N
= 47.23/ 3
 = 15.74333

• CALCULATION OF STANDARD DEVIATION (σ):-

= √ Σ (X-Xbar)2 / N
= √116.6101/3
= 6.03173
• CALCULATION OF BETA CO-EFFICIENT;-
= N (Σ XY) – Σ XΣ Y
N (Σ X2) – (Σ X) 2
= 3(802.85) – (47.23)( 40.6)
3(860.1677) – (47.23) 2
= 1.403572

• CALCULATION OF SHARPE’S RATIO:-

= Rp-Rf/ σ
= 40.6
6.03
= 6.731071

• CALCULATION OF TREYNOR’S RATIO:-

= Rp-Rf/β
= 40.6
1.40
= 28.92619

Interpretation:-

• Last 1 year: It reveals that SBI Magnum Global fund Returns

are 14.48 as compare to Funds Benchmark Returns are 21.17
and The Risk Free Rate is 3.23%)
 • Last 3 years: It reveals that SBI Magnum Global fund
Returns are 6.33 as compare to Funds Benchmark Returns are
10.48, and The Risk Free Rate is 3.23%
• Last 5 years: It reveals that SBI Magnum Global fund
Returns are 29.48 as compare to Funds Benchmark Returns
are 25.27, and The Risk Free Rate is 3.23%

Franklin India Prima Fund – Growth

Fund Objective

The primary objective of the fund is capital appreciation and secondary objective is
income generation by focussing on mid and small cap industry.

Table 3.1.5 showing the covariance of Franklin India prima fund Growth
Year Rp Rm Rf Rm-Rf Rp-Rf X2 XY X - ¯X D2
X Y
last 1 321.843 341.936 2.19666
year 22.29 21.17 3.23 17.94 19.06 6 4 7 4.825344
last 3
years 5.07 10.48 3.23 7.25 1.84 52.5625 13.34 -8.49333 72.13671
last 5 485.761 6.29666
years 20.58 25.27 3.23 22.04 17.35 6 382.394 7 39.64801
860.167 737.670
Total 47.23 38.25 7 4 0 116.6101
where
Rp - Portfolio Return-Franklin India Prima Fund growth
Rm - Market Return-Fund’s Benchmark S&P CNX 500
Rf - Risk free rate of return

• CALCULATION OF ARTHMETIC MEAN:-

=Σ X/N
= 47.23/ 3
= 15.74333
• CALCULATION OF STANDARD DEVIATION (σ):-
= √ Σ (X-Xbar)2 / N
= √116.6101/3
= 6.03173

• CALCULATION OF BETA CO-EFFICIENT;-

= N (Σ XY) – Σ XΣ Y
N (Σ X2) – (Σ X) 2
= 3(737.6704) – (47.23)( 38.25)
3(860.1677) – (47.23) 2
= 1.161889

• CALCULATION OF SHARPE’S RATIO:-

= Rp-Rf/ σ
= 38.25
6.03
= 6.341464

• CALCULATION OF TREYNOR’S RATIO:-

= Rp-Rf/β
= 38.25
1.16
= 32.92054

Interpretation:-

• Last 1 year: It reveals that Franklin India Prima Fund Returns

are 22.29 as compare to Funds Benchmark Returns are 21.17
and The Risk Free Rate is 3.23%)
 • Last 3 years: It reveals that Franklin India Prima Fund
Returns are 5.07 as compare to Funds Benchmark Returns are
10.48, and The Risk Free Rate is 3.23%
• Last 5 years: It reveals that Franklin India Prima Fund
Returns are 20.58 as compare to Funds Benchmark Returns
are 25.27, and The Risk Free Rate is 3.23

IDFC Premier Equity fund plan A- Growth

Fund objective

The scheme aims to generate long-term capital growth from an actively managed
portfolio of predominantly equity and equity related instruments. It would invest in
small and medium size businesses with good long term potential, which are available
at cheap valuations.

Table 3.1.6 showing the covariance of IDFC Premier Equity-Growth

X-
Year Rp Rm Rf Rm-Rf Rp-Rf X2 XY ¯X D2
X Y
last 1 321.843
year 25.28 21.17 3.23 17.94 22.05 6 395.577 5.345 28.56903
last 3 167.692
years 26.36 10.48 3.23 7.25 23.13 52.5625 5 -5.345 28.56903
374.406 563.269
Total 25.19 45.18 1 5 0 57.13805

where
Rp - Portfolio Return-IDFC Premier Equity Fund-growth
Rm - Market Return-Fund’s Benchmark BSE 500
Rf - Risk free rate of return

• CALCULATION OF ARTHMETIC MEAN:-

=Σ X/N
= 25.19/ 2
= 12.595
• CALCULATION OF STANDARD DEVIATION (σ):-
= √ Σ (X-Xbar)2 / N
= √57.13805/2
= 7.38733

• CALCULATION OF BETA CO-EFFICIENT;-

= N (Σ XY) – Σ XΣ Y
N (Σ X2) – (Σ X) 2

= 2(563.2695) – (25.19)(45.18)
2(374.4061) – (25.19) 2
= -0.10103

• CALCULATION OF SHARPE’S RATIO:-

= Rp-Rf/ σ
= 45.18
7.38
= 6.115876

• CALCULATION OF TREYNOR’S RATIO:-

= Rp-Rf/β
= 45.18
-0.101
= -447.197

Interpretation:-
 • Last 1 year: It reveals that IDFC Premier Equity Fund
Returns are 25.28 as compare to Funds Benchmark Returns
are 21.17 and The Risk Free Rate is 3.23%)
• Last 3 years: It reveals that IDFC Premier Equity Fund
Returns are 26.36 as compare to Funds Benchmark Returns
are 10.48, and The Risk Free Rate is 3.23%.

OBSERVATIONS;

Observations are made from the data analysis.

The following observations are drawn from the analysis of schemes:

AMC Reliance Sundaram Brila SBI Franklin IDFC

Companies Growth- BNP Sunlife Magnum India Premier
Growth Paribas Midcap Global Prima Equity
Select Fund Fund 94- Fund - Fund -
Statistical Midcap- Plan A Growth Growth Plan A -
Tools Growth Growth

Last 1 year 27.47 32.39 36.07 14.48 22.29 25.28

return
Last 3 years 19.96 12.83 17.18 6.33 5.07 26.36

return
Last 5 years 34.85 33.33 29.98 29.48 20.58 -

return
Std.Deviation( 6.03 6.03 6.03 6.03 6.03 7.38

σ )
Co-efficient (β ) 0.989 1.475 1.047 1.403 1.161 -0.101
Sharpe’s Ratio 11.94 11.42 12.192 6.731 6.34 6.11
Treynor’s Ratio 72.78 46.67 70.24 28.92 32.92 -447.197
 FINDINGS

After interpretation of the above data the following finding have been done
Reliance Growth – Growth
• Fund category: Equity Diversified
• It is an Open-ended Equity scheme
• Since the β is very close to 1 the fund is considered to have a lower risk
when compared to the other funds
• It can also be seen that the fund provides a higer return
• It suits people who are willing to take lesser risk for a greater return

Sundaram BNP Paribas Select Midcap

• Fund category: Equity Diversified
• It is an Open-ended Equity scheme
• Since the β is more than 1(i.e 1.47) the fund is considered to have a higer
risk when compared to the other funds
• It can also be seen that the fund provides a higer return
• The return is not very high for the risk taken

Brila Sunlife Midcap Fund Plan A

• Fund category: Equity Diversified

• It is an Open-ended Equity scheme
• Since the β is very close to 1 the fund is considered to have a lower risk.
• It can also be seen that the fund provides a higer return
 • It suits people who are willing to take lesser risk for a greater return

SBI Magnum Global Fund 94 – Growth

• Fund category: Equity Diversified
• It is an Open-ended Equity scheme
• Since the β is more than 1(i.e 1.40) the fund is considered to have a higer
risk
• It can also be seen that the fund provides above average return
Franklin India Prima Fund – Growth
• Fund category: Equity Diversified
• It is an Open-ended Equity scheme
• Since the β is more than 1 the fund is considered to have a above average
risk.
• It can also be seen that the fund provides a lower return

IDFC Premier Equity fund plan A- Growth

• Fund category: Equity Diversified

• It is an Open-ended Equity scheme
• Since the β is lesser than 1 the fund is considered to have a very low risk
when compared to the other funds
• It can also be seen that the fund provides a higer return
• It suits people who are willing to take lesser risk for a greater return
 SUGGESSTIONS:

Following are the suggestions for the both funds.

• The fund house has to reduce the total risk involved in the fund in order to
increase the return with good portfolio construction.

• The fund house should select the innovative way of portfolio construction and
should see the attracting areas of investing funds.

• The fund houses should concentrate on the market conditions according to that
they have to set the benchmark and invest in different sectors.

• The fund houses should invest in good and attracting sectors to reduce
standard deviation.

• The fund house should try to reduce little more beta in order to generate more
returns to investors.
 CONCLUSION

 It is seen that all the fund are open-ended diversified Equity fund

 It can seen that IDFC fund gives a very high return and a lower risk, so we
say that this fund performs much better than all the other funds, but the sharpe
ratio(i.e) risk-adjusted ratio is low when compared to that of all the other fund

 When we compare Reliance Growth Fund to that of Brila Sunlife Midcap

Fund Plan A, we can find both having lower risk to that of a higher return, but
Reliance fund provides greater return than that of Brila when invested for 3
and 5 years and Brila provides a greater return when invested for 1 year.

 high and positive Sharpe Ratio shows a superior risk-adjusted performance

of a both Reliance and Brila funds

 Other funds like Sundaram and SBI can be rated as average performance as it
has a higher risk when compared to its return, even in this we can see that
sundaram has greater risk that SBI. These funds can be given to people who
are ready to take a higher risk
 The franklin India Prima fund is not suggested as the risk is above average and
the return is below average