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A STUDY ON

PERFORMANCE OF MUTUAL FUNDS


IN
ASSET MANAGEMENT COMPANY
LIMITED.

PROJECT REPORT

This project is submitted in the partial fulfillment of requirement


For the award of the degree of
MASTER OF BUSINESS ADMINISTRATION

Project submitted by:-


G.S GANI RAJU
ROLL.NO. 078-06-0102
(2006-2008)

SRI INDU INSTITUTE OF MANAGEMENT


(AFFILIATED TO OSMANIA UNIVERSITY)
Hyderabad.
2006-2008
CONTENTS

I.INTRODUCTION PAGE
NUMBERS

a. Introduction to mutual funds 1

b. Scope of the study 24

c. Objectives of the study 24

e. Methodology 25

II.PROFILE OF INDUSTRY AND COMPANY

a.. Industry 26

b. Company 34

III. PERFORMANCE OF MUTUAL FUNDS 41


(TOOLS AND ANALYSIS)

IV. CONCLUSION AND SUGESSTIONS 71

V. BIBLIOGRAPHY 73
DECLARATION

I Here by Declare that the Project report titled “Performance of

MUTUAL FUNDS” Prepared under the Guidance G.S GANI RAJU

Faculty of SRI INDU INSTITUTE OF MANAGEMENT towards partial


fulfillment of

Requirement for the Award of the degree of M.B.A.

The Project report has not been submitted to any other

University for the Award of any Degree or Diploma.

G.GANI RAJU
ACKNOWLEDGEMENT

The presentation of this project has given me an opportunity to express my

Profound gratitude to all concern in guiding me. Foremost I would like to thank

Mr. Gopal (Manager of Inida Infoline Company Chaitanyapuri Branch) for


giving me

an opportunity to undertake this project work.

I would like to gratitude Mr.S .SURESH for assisting and guiding me to

Complete the project Work. For providing an Opportunity to undergo a project


study

program.

G.S.GANI RAJU
Introduction to Mutual Funds:

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 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.

The flow chart below describes broadly the working of a Mutual Fund.
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. 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.
ORGANISATION OF A MUTUAL FUND:

There are many entities involved and the diagram below illustrates the organizational
set up of a Mutual Fund:

Mutual Funds diversify their risk by holding a portfolio of instead of only one asset.
This is because by holding all your money in just one asset, the entire fortunes of your
portfolio depend on this one asset. By creating a portfolio of a variety of assets, this risk
is substantially reduced.

Mutual Fund investments are not totally risk free. In fact, investing in Mutual Funds
contains the same risk as investing in the markets, the only difference being that due to
professional management of funds the controllable risks are substantially reduced. A
very important risk involved in Mutual Fund investments is the market risk. However,
the company specific risks are largely eliminated due to professional fund management.

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 earns 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).

• The investment portfolio of the mutual fund is created according to The stated

Investment objectives of the Fund.

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, professional management and diversification.

ADVANTAGES OF MUTUAL FUNDS

• Reduced Risk.
• Diversified investment.
• Botheration free investment.
• Revolving type of investment (Reinvestment).
• Selection and timings of investment.
• Wide investment opportunities.
• Investments care.
• Tax benefits.

STRUCTURE OF A MUTUAL FUND

0100090000037800000002001c00000000000400000003010800050000000b02000000
00050000000c02510ac90d040000002e0118001c000000fb021000070000000000bc020
00000000102022253797374656d000ac90d000058bd110072edc63020781c000c02000
0c90d0000040000002d01000004000000020101001c000000fb029cff00000000000090
01000000000440001254696d6573204e657720526f6d616e00000000000000000000000
00000000000040000002d010100050000000902000000020d000000320a5a00ffff0100
040000000000c50d470a20002d00040000002d010000030000000000
INVESTORS PROFILE

An investor normally prioritizes his investment needs before undertaking an


investment. So different goals will be allocated to different proportions of the total
disposable amount. Investments for specific goals normally find their way into the debt
market as risk reduction is of prime importance, this is the area for the risk-averse
investors and here, Mutual Funds are generally the best option. One can avail of the
benefits of better returns with added benefits of anytime liquidity by investing in open-
ended debt funds at lower risk, this risk of default by any company that one has chosen
to invest in, can be minimized by investing in Mutual Funds as the fund managers
analyze the companies financials more minutely than an individual can do as they have
the expertise to do so.

Moving up the risk spectrum, there are people who would like to take some risk and
invest in equity funds/capital market. However, since their appetite for risk is also
limited, they would rather have some exposure to debt as well. For these investors,
balanced funds provide an easy route of investment, armed with expertise of investment
techniques, they can invest in equity as well as good quality debt thereby reducing risks
and providing the investor with better returns than he could otherwise manage. Since they
can reshuffle their portfolio as per market conditions, they are likely to generate moderate
returns even in pessimistic market conditions.
Next comes the risk takers, risk takers by their nature, would not be averse to
investing in high-risk avenues. Capital markets find their fancy more often than not,
because they have historically generated better returns than any other avenue, provided,
the money was judiciously invested. Though the risk associated is generally on the higher
side of the spectrum, the return-potential compensates for the risk attached.

NEED OF THE STUDY

The project’s idea 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 a lay-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; they also give handy return to the investor. 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.

TYPES OF MUTUAL FUNDS

1. OPEN-ENDED MUTUAL FUNDS:-

The holders of the shares in the Fund can resell them to the issuing Mutual Fund
Company at the time. They receive in turn the net assets value (NAV) of the shares at
the time of re-sale. Such Mutual Fund Companies place their funds in the secondary
securities market. They do not participate in new issue market as do pension funds or
life insurance companies. Thus they influence market price of corporate securities.
Open-end investment companies can sell an unlimited number of Shares and thus keep
going larger. The open-end Mutual Fund Company Buys or sells their shares. These
Companies sell new shares NAV plus a Loading or management fees and redeem
shares at NAV.In other words, the target amount and the period both are indefinite in
such funds

2. CLOSED-ENDED MUTUAL FUNDS:-

A closed–end Fund is open for sale to investors for a specific period, after
which further sales are closed. Any further transaction for buying the units or
repurchasing them, Happen in the secondary markets, where closed end Funds are
listed. Therefore new investors buy from the existing investors, and existing investors
can liquidate their units by selling them to other willing buyers. In a closed end Funds,
thus the pool of Funds can technically be kept constant. The asset management
company (AMC) however, can buy out the units from the investors, in the secondary
markets, thus reducing the amount of funds held by outside investors. The price at
which units can be sold or redeemed Depends on the market prices, which are
fundamentally linked to the NAV. Investors in closed end Funds receive either
certificates or Depository receipts, for their holdings in a closed end mutual Fund.

ORGANISATION AND MANAGEMENT OF MUTUAL FUNDS:-

In India Mutual Fund usually formed as trusts, three parties are generally involved viz.

• Settler of the trust or the sponsoring organization.


• The trust formed under the Indian trust act, 1982 or the trust company
registered under the Indian companies act, 1956
• Fund managers or The merchant-banking unit
• Custodians.

MUTUAL FUNDS TRUST:-

Mutual fund trust is created by the sponsors under the Indian trust act, 1982
Which is the main body in the creation of Mutual Fund trust
The main functions of Mutual Fund trust are as follows:

♦ Planning and formulating Mutual Funds schemes.


♦ Seeking SEBI’s approval and authorization to these schemes.
♦ Marketing the schemes for public subscription.
♦ Seeking RBI approval in case NRI’s subscription to Mutual Fund is Invited
♦ Attending to trusteeship function. This function as per guidelines can be
assigned to separately established trust companies too. Trustees are required to
submit a consolidated report six monthly to SEBI to ensure that the guidelines
are fully being complied with trusted are also required to submit an annual
report to the investors in the fund.

FUND MANAGERS (OR) THE ASSETS MANAGEMENT COMPANY (AMC)

AMC has to discharge mainly three functions as under:

I.Taking investment decisions and making investments of the funds through


market dealer/brokers in the secondary market securities or directly in the
primary capital market or money market instruments
II. Realize fund position by taking account of all receivables and realizations,
moving corporate actions involving declaration of dividends,etc to compensate
investors for their investments in units; and
III.Maintaining proper accounting and information for pricing the units and
arriving at net asset value (NAV), the information about the listed schemes and
the transactions of units in the secondary market. AMC has to feed back the
trustees about its fund management operations and has to maintain a perfect
information system.

CUSTODIANS OF MUTUAL FUNDS:-

Mutual funds run by the subsidiaries of the nationalized banks had


their respective sponsor banks as custodians like canara bank, SBI, PNB, etc.
Foreign banks with higher degree of automation in handling the securities have
assumed the role of custodians for mutual funds. With the establishment of stock
Holding Corporation of India the work of custodian for mutual funds is now being
handled by it for various mutual funds. Besides, industrial investment trust
company acts as sub-custodian for stock Holding Corporation of India for
domestic schemes of UTI, BOI MF, LIC MF, etc

Fee structure:-

Custodian charges range between 0.15% to 0.20% on the net value of


the customer’s holding for custodian services space is one important factor which
has fixed cost element.

RESPONSIBILITY OF CUSTODIANS:-

♦ Receipt and delivery of securities


♦ Holding of securities.
♦ Collecting income
♦ Holding and processing cost
♦ Corporate actions etc

FUNCTIONS OF CUSTOMERS

♦ Safe custody
♦ Trade settlement
♦ Corporate action
♦ Transfer agents

RATE OF RETURN ON MUTUAL FUNDS:-


An investor in mutual fund earns return from two sources:
♦ Income from dividend paid by the mutual fund.
♦ Capital gains arising out of selling the units at a price higher than the
acquisition price

Formation and regulations:

1. Mutual funds are to be established in the form of trusts under the Indian trusts
act and are to be operated by separate asset management companies (AMC s)
2. AMC’s shall have a minimum Net worth of Rs. 5 crores;
3. AMC’s and Trustees of Mutual Funds are to be two separate legal entities and
that an AMC or its affiliate cannot act as a manager in any other fund;
4. Mutual funds dealing exclusively with money market instruments are to be
regulated by the Reserve Bank Of India
5. Mutual fund dealing primarily in the capital market and also partly money
market instruments are to be regulated by the Securities Exchange Board Of
India (SEBI)
6. All schemes floated by Mutual funds are to be registered with SEBI

Schemes:-

1. Mutual funds are allowed to start and operate both closed-end and open-end
schemes;
2. Each closed-end schemes must have a Minimum corpus (pooling up) of Rs 20
crore;
3. Each open-end scheme must have a Minimum corpus of Rs 50 crore
4. In the case of a Closed –End scheme if the Minimum amount of Rs 20 crore
or 60% of the target amount, which ever is higher is not raised then the entire
subscription has to be refunded to the investors;
5. In the case of an Open-Ended schemes, if the Minimum amount of Rs 50 crore
or 60 percent of the targeted amount, which ever is higher, is no raised then
the entire subscription has to be refunded to the investors.

Investment norms:-

1. No mutual fund, under all its schemes can own more than five percent of any
company’s paid up capital carrying voting rights;
2. No mutual fund, under all its schemes taken together can invest more than 10
percent of its funds in shares or debentures or other instruments of any single
company;
3. No mutual fund, under all its schemes taken together can invest more than 15
percent of its fund in the shares and debentures of any specific industry, except
those schemes which are specifically floated for investment in one or more
specified industries in respect to which a declaration has been made in the offer
letter.
4. No individual scheme of mutual funds can invest more than five percent of its
corpus in any one company’s share;
5. Mutual funds can invest only in transferable securities either in the money or in
the capital market. Privately placed debentures, securitized debt, and other
unquoted debt, and other unquoted debt instruments holding cannot exceed 10
percent in the case of growth funds and 40 percent in the case of income funds.

Distribution:

Mutual funds are required to distribute at least 90 percent of their profits annually in
any given year. Besides these, there are guidelines governing the operations of mutual
funds in dealing with shares and also seeking to ensure greater investor protection
through detailed disclosure and reporting by the mutual funds. SEBI has also been
granted with powers to over see the constitution as well as the operations of mutual
funds, including a common advertising code. Besides, SEBI can impose penalties on
Mutual funds after due investigation for their failure to comply with the guidelines.

MUTUAL FUND SCHEME TYPES:

Equity Diversified Schemes

These schemes mainly invest in equity. They seek to achieve long-term capital

appreciation by responding to the dynamically changing Indian economy by moving

across sectors such as Lifestyle, Pharma, Cyclical, Technology, etc.

Sector Schemes

These schemes focus on particular sector as IT, Banking, etc. They seek to generate
long-term capital appreciation by investing in equity and related securities of
companies in that particular sector.

♦ Index Schemes

These schemes aim to provide returns that closely correspond to the return of a
particular stock market index such as BSE Sensex, NSE Nifty, etc. Such schemes invest
in all the stocks comprising the index in approximately the same weightage as they are
given in that index.

♦ Exchange Traded Funds (ETFs)

ETFs invest in stocks underlying a particular stock index like NSE Nifty or BSE
Sensex. They are similar to an index fund with one crucial difference. ETFs are listed
and traded on a stock exchange. In contrast, an index fund is bought and sold by the
fund and its distributors.

♦ Equity Tax Saving Schemes

These work on similar lines as diversified equity funds and seek to achieve long-term
capital appreciation by investing in the entire universe of stocks. The only difference
between these funds and equity-diversified funds is that they demand a lock-in of 3
years to gain tax benefits.

♦ Dynamic Funds

These schemes alter their exposure to different asset classes based on the market
scenario. Such funds typically try to book profits when the markets are overvalued and
remain fully invested in equities when the markets are undervalued. This is suitable for
investors who find it difficult to decide when to quit from equity.

♦ Balanced Schemes

These schemes seek to achieve long-term capital appreciation with stability of


investment and current income from a balanced portfolio of high quality equity and
fixed-income securities.
♦ Medium-Term Debt Schemes

These schemes have a portfolio of debt and money market instruments where the
average maturity of the underlying portfolio is in the range of five to seven years.

♦ Short-Term Debt Schemes

These schemes have a portfolio of debt and money market instruments where the

average maturity of the underlying portfolio is in the range of one to two years.

• Money Market Debt Schemes

These schemes invest in debt securities of a short-term nature, which generally means

securities of less than one-year maturity. The typical short-term interest-bearing

instruments these funds invest in Treasury Bills, Certificates of Deposit, Commercial

Paper and Inter-Bank Call Money Market.

♦ Medium-Term Gilt Schemes

These schemes invest in government securities. The average maturity of the securities

in the scheme is over three years.


♦ Short-Term Gilt Schemes

These schemes invest in government securities. The securities invested in are of short to

medium term maturities.

♦ Floating Rate Funds

They invest in debt securities with floating interest rates, which are generally linked to

some benchmark rate like MIBOR. Floating rate funds have a high relevance when

interest rates are on the rise helping investors to ride the interest rate rise.

♦ Monthly Income Plans (MIPS)

These are basically debt schemes, which make marginal investments in the range of 10-

25% in equity to boost the scheme’s returns. MIP schemes are ideal for investors who

seek slightly higher return that pure long-term debt schemes at marginally higher risk.

DIFFERENT MODES OF RECEIVING THE INCOME EARNED FROM


MUTUAL FUND INVESTMENTS

Mutual Funds offer three methods of receiving income:


♦ Growth Plan

In this plan, dividend is neither declared nor paid out to the investor but is built into the
value of the NAV. In other words, the NAV increases over time due to such incomes
and the investor realizes only the capital appreciation on redemption of his investment.

♦ Income Plan
In this plan, dividends are paid-out to the investor. In other words, the NAV
only reflects the capital appreciation or depreciation in market price of the underlying
portfolio.
♦ Dividend Re-investment Plan

In this case, dividend is declared but not paid out to the investor, instead, it is
reinvested back into the scheme at the then prevailing NAV. In other words, the
investor is given additional units and not cash as dividend.

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 TRHOURGH MUTUAL FUNDS:
There are several reasons that can be attributed to the growing
popularity and suitability of Mutual Funds as an investment vehicle especially for retail
investors:

ASSET ALLOCATION
♦ Mutual Funds offer the investors a valuable tool – Asset Allocation. This is
explained by an example.

An investor investing Rs.1 lakh in a mutual fund scheme, which has collected Rs.100
corers and invested the money in various investment options, will have Rs.1 lakh
spread over a number of investment options as demonstrated below:
Investment Type Percentage of Total portfolio of Investors portfolio
Allocation (% of the Mutual Fund allocation (Rs.)
total portfolio) scheme (Rs. In
crores)
EQUITY: 57% 57 57,000
State Bank of India 15% 15 15,000
Infosys Technologies 12% 12 12,000
ABB 10% 10 10,000
Reliance Industries 9% 9 9,000
MICO 7% 7 7,000
Tata Power 4% 4 4,000
DEBT: 43% 43 43,000
Govt. Securities 20% 20 20,000
Company Debentures 10% 10 10,000
Institution Bonds 9% 9 9,000
Money Market 4% 4 4,000
Total 100% 100 1,00,000

Thus ‘Asset Allocation’ is allocating your investments in to different investment


options depending on your risk profile and return expectations.
• DIVERSIFICATION

Diversification is spreading your investment amount over a larger number of investments in order to reduce risk. For
instance, if you have Rs.10,000 to invest in Information Technology (IT) stocks, this amount will only buy you a handful of
stocks of perhaps one or two companies. A fall in the market price of any of these

company stocks will significantly erode your investment amount instead it makes sense to invest in an IT sector mutual fund
scheme so that your Rs.10,000 is spread across a larger number of stocks thereby reducing your risk.

• PROFESSIONALS AT WORK

Few investors have the time or expertise to manage their personal investments every
day, to efficiently reinvest interest or dividend income, or to investigate the
thousands of securities available in the financial markets. Fund managers are
professionals and experienced in tracking the finance markets, having access to
extensive research and market information, which enables them to decide which
securities to buy and sell for the fund. For an individual investor like you, this
professionalism is built in when you invest in the Mutual Fund.

• REDUCTION OF TRANSACTION COSTS

While investing directly in securities, all the costs of investing such as brokerage, custodial services etc. Borne by you are at
the highest rates due to small transaction sizes. However, when going through a fund, you have the benefit of economies of
scale; the fund pays lesser costs because of larger volumes, a benefit passed on to its investors like you.

• EASY ACCESS TO YOUR MONEY

This is one of the most important benefits of a Mutual Fund. Often you hold shares or bonds that you cannot directly, easily
and quickly sell. In such situations, it could take several days or even longer before you are able to liquidate his Mutual Fund
investment by selling the units to the fund itself and receive his money within 3 working days.

• 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.

• SAVING TAXES

Tax saving schemes of Mutual Funds offer investor a tax rebate under section 88 of
the Income Tax Act. Under this section, an investor can invest up to Rs.10,000 per
Financial year in a tax saving scheme. The rate of rebate under this section depends
on the investor’s total income.

• INVESTING IN STOCK MARKET INDEX


Index schemes of mutual funds give you the opportunity of investing in scrips that
make up a particular index in the same proportion of weightage that these scrips
have in the index. Thus, the return on your investment mirrors the movement of the
index.

• INVESTING IN GOVERNMENT SECURITIES

Gilt and Money Market Schemes of Mutual Funds also give you the opportunity to
invest in Government Securities and Money Markets (including the inter banking
call money market)

• WELL-REGULATED INDUSTRY

All Mutual Funds are registered with SEBI and they function within the provisions
of strict regulations designed to protect the interests of investors. The operations of
Mutual Funds are regularly monitored by SEBI.

• CONVENIENCE AND FLEXIBILITY

Mutual Funds offer their investors a number of facilities such as inter-fund transfers,
online checking of holding status etc, which direct investments don’t offer.

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.

SCOPE

The study here has been focused to analyse an open ended equity fund of Asset
Management Company namely India Infoline. The fund performance is analyzed
based on the tools Sharpe’s Ratio, Treynor’s Ratio, β (Beta) Co-efficient, Alpha
Returns.

OBJECTIVES

1. To help an investor make a right choice of investment, while considering the


inherent risk factors.
2. To understand the recent trends in Mutual Funds world
3. To show the wide range of investment options available in Mutual Funds by
Explaining its various schemes
4. The scheme is suitable for investors with a time horizon of 2 to 3 years

METHODOLOGY

The Methodology involves randomly selecting Open-Ended equity fund of one fund
house name is . 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.
INDUSTRY PROFILE

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 of India. 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
by 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 scheme launched by UTI was Unit
Scheme 1964. At the end of 1988 UTI had Rs.6,700 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 Canbank Mutual Fund (Dec 87), Punjab National
Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 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 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 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 setting up funds in India and also the industry has witnessed several
mergers and acquisitions. As at the end of January 2003, there were 33 Mutual Funds
with total assets of Rs.1,21,805 Crores. The Unit Trust of India with Rs.44,541 crores
of 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. 76,000crores of assets under management
and with the setting up of a UTI Mutual Fund, confirming 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 October 31, 2003, there were 31 funds, which manage assets of Rs.1,
26,726crores under 386 schemes.

PERFORMANCE MEASURES OF MUTUAL FUNDS:

Mutual Fund industry today, with about 30 players and more than six hundred schemes,
is one of the most preferred investment avenues in India. However, with a plethora of
schemes to choose from, the retail investor faces problems in selecting funds. Factors
such as investment strategy and management style are qualitative, but the funds record
is an important indicator too.
Though past performance alone cannot be indicative of future performance, it
is, frankly, the only quantitative way to judge how good a fund is at present. Therefore,
there is a need to correctly assess the past performance of different Mutual Funds.
Worldwide, good Mutual Fund companies over are known by their AMC’s and this
fame is directly linked to their superior stock selection skills.

For Mutual Funds to grow, AMC’s must be held accountable for their
selection of stocks. In other words, there must be some performance indicator that will
reveal the quality of stock selection of various AMC’s.

Return alone should not be considered as the basis of measurement of the


performance of a Mutual Fund scheme, it should also include the risk taken by the fund
manager because different funds will have different levels of risk attached to them. Risk
associated with a fund, in a general, can be defined as Variability or fluctuations in the
returns generated by it. The higher the fluctuations in the returns of a fund during a
given period, higher will be the risk associated with it. These fluctuations in the returns

generated by a fund are resultant of two guiding forces. First, general market
fluctuations, which affect all the securities, present in the market, called Market risk or
Systematic risk and second, fluctuations due to specific securities present in the
portfolio of the fund, called Unsystematic risk. The Total Risk of a given fund is sum of
these two and is measured in terms of standard deviation of returns of the fund.

Systematic risk, on the other hand, is measured in terms of Beta, which


represents fluctuations in the NAV of the fund vis-à-vis market. The more responsive
the NAV of a Mutual Fund is to the changes in the market; higher will be its beta. Beta
is calculated by relating the returns on a Mutual Fund with the returns in the market.
While Unsystematic risk can be diversified through investments in a number of
instruments, systematic risk cannot. By using the risk return relationship, we try to
assess the competitive strength of the Mutual Funds one another in a better way. In
order to determine the risk-adjusted returns of investment portfolios, several eminent
authors have worked since 1960s to develop composite performance indices to evaluate
a portfolio by comparing alternative portfolios within a particular risk class.

The most important and widely used measures of performance are:

• The Treynor’Measure
• The Sharpe Measure
• Jenson Model
• Fama Model

1) 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.

2) 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.

3) Jenson Model:-

Jenson's model proposes another risk adjusted performance measure. This measure was
developed by Michael Jenson and is sometimes referred to as the differential Return
Method. This measure involves evaluation of the returns that the fund has generated vs.
the returns actually expected out of the fund1 given the level of its systematic risk. The
surplus between the two returns is called Alpha, which measures the performance of a
fund compared with the actual returns over the period. Required return of a fund at a
given level of risk (Bi) can be calculated as:

Ri = Rf + Bi (Rm - Rf)
Where,
Ri represents return on fund, and
Rm is average market return during the given period,
Rf is risk free rate of return, and
Bi is Beta deviation of the fund.

After calculating it, Alpha can be obtained by subtracting required return from
the actual return of the fund.

Higher alpha represents superior performance of the fund and vice versa.
Limitation of this model is that it considers only systematic risk not the entire risk
associated with the fund and an ordinary investor cannot mitigate unsystematic risk, as
his knowledge of market is primitive.

4) Fama Model:-

The Eugene Fama model is an extension of Jenson model. This model compares the
performance, measured in terms of returns, of a fund with the required return
commensurate with the total risk associated with it. The difference between these two is
taken as a measure of the performance of the fund and is called Net Selectivity. The Net
Selectivity represents the stock selection skill of the fund manager, as it is the excess
returns over and above the return required to compensate for the total risk taken by the
fund manager. Higher value of which indicates that fund manager has earned returns
well above the return commensurate with the level of risk taken by him.

Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf)

Where,
Ri represents return on fund,
Sm is standard deviation of market returns,
Rm is average market return during the given period, and
Rf is risk free rate of return.
The Net Selectivity is then calculated by subtracting this required return from
the actual return of the fund.

Among the above performance measures, two models namely, Treynor measure and
Jenson model use Systematic risk is based on the premise that the Unsystematic risk is
diversifiable. These models are suitable for large investors like institutional investors
with high risk taking capacities as they do not face paucity of funds and can invest in a
number of options to dilute some risks. For them, a portfolio can be spread across a
number of stocks and sectors. However, Sharpe measure and Fama model that consider
the entire risk associated with fund are suitable for small investors, as the ordinary
investor lacks the necessary skill and resources to diversify. Moreover, the selection of
the fund on the basis of superior stock selection ability of the fund manager will also
help in safeguarding the money invested to a great extent. The investment in funds that
have generated big returns at higher levels of risks leaves the money all the more prone
to risks of all kinds that may exceed the individual investors' risk appetite.
COMPANY PROFILE (INDIA INFOLINE)

India Infoline Group

The India Infoline group, comprising the holding company, India Infoline Limited
and its wholly-owned subsidiaries, straddle the entire financial services space with
offerings ranging from Equity research, Equities and derivatives trading,
Commodities trading, Portfolio Management Services, Mutual Funds, Life
Insurance, Fixed deposits, GoI bonds and other small savings instruments to loan
products and Investment banking. India Infoline also owns and manages the
The company has a network of 596 branches spread across 345 cities and towns. It
has more than 500,000 customers.

India Infoline Ltd

India Infoline Limited is listed on both the leading stock exchanges in India, viz.
the Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) and
is also a member of both the exchanges. It is engaged in the businesses of Equities
broking, Wealth Advisory Services and Portfolio Management Services. It offers
broking services in the Cash and Derivatives segments of the NSE as well as the
Cash segment of the BSE. It is registered with NSDL as well as CDSL as a
depository participant, providing a one-stop solution for clients trading in the
equities market. It has recently launched its Investment banking and Institutional
Broking business.
A SEBI authorized Portfolio Manager; it offers Portfolio Management Services to
clients. These services are offered to clients as different schemes, which are based
on differing investment strategies made to reflect the varied risk-return preferences
of clients.

India Infoline Media and Research Services Limited.

The content services represent a strong support that drives the broking,
commodities, mutual fund and portfolio management services businesses.
Revenue generation is through the sale of content to financial and media houses,
Indian as well as global.

It undertakes equities research which is acknowledged by none other than Forbes


as 'Best of the Web' and '…a must read for investors in Asia'. India Infoline's
research is available not just over the internet but also on international wire
services like Bloomberg (Code: IILL), Thomson First Call and Internet Securities
where India Infoline is amongst the most read Indian brokers.

India Infoline Commodities Limited.

India Infoline Commodities Pvt Limited is engaged in the business of


commodities broking. Our experience in securities broking empowered us with the
requisite skills and technologies to allow us offer commodities broking as a
contra-cyclical alternative to equities broking. We enjoy memberships with the
MCX and NCDEX, two leading Indian commodities exchanges, and recently
acquired membership of DGCX. We have a multi-channel delivery model, making
it among the select few to offer online as well as offline trading facilities.

India Infoline Marketing & Services


India Infoline Marketing and Services Limited is the holding company of India
Infoline Insurance Services Limited and India Infoline Insurance Brokers Limited.

(a) India Infoline Insurance Services Limited is a registered Corporate Agent with
the Insurance Regulatory and Development Authority (IRDA). It is the largest
Corporate Agent for ICICI Prudential Life Insurance Co Limited, which is India's
largest private Life Insurance Company. India Infoline was the first corporate
agent to get licensed by IRDA in early 2001.

(b) India Infoline Insurance Brokers Limited India Infoline Insurance Brokers
Limited is a newly formed subsidiary which will carry out the business of
Insurance broking. We have applied to IRDA for the insurance broking licence
and the clearance for the same is awaited. Post the grant of license, we propose to
also commence the general insurance distribution business.

India Infoline Investment Services Limited

Consolidated shareholdings of all the subsidiary companies engaged in loans and


financing activities under one subsidiary. Recently, Orient Global, a Singapore-
based investment institution invested USD 76.7 million for a 22.5% stake in India
Infoline Investment Services. This will help focused expansion and capital raising
in the said subsidiaries for various lending businesses like loans against securities,
SME financing, distribution of retail loan products, consumer finance business and
housing finance business. India Infoline Investment Services Private Limited
consists of the following step-down subsidiaries.

(a) India Infoline Distribution Company Limited (distribution of retail loan


products)
(b) Moneyline Credit Limited (consumer finance)
(c) India Infoline Housing Finance Limited (housing finance)

IIFL (Asia) Private Limited

IIFL (Asia) Private Limited is wholly owned subsidiary which has been
incorporated in Singapore to pursue financial sector activities in other Asian
markets. Further to obtaining the necessary regulatory approvals, the company has
been initially capitalized at 1 million Singapore dollars.

Products and Services

We are a one-stop financial services shop, most respected for quality of its advice,
personalized service and cutting-edge technology.
Equities

Indiainfoline provided the prospect of researched investing to its clients, which


was hitherto restricted only to the institutions. Research for the retail investor did
not exist prior to Indiainfoline. Indiainfoline leveraged technology to bring the
convenience of trading to the investor’s location of preference (residence or office)
through computerized access. Indiainfoline made it possible for clients to view
transaction costs and ledger updates in real time.

PMS

Our Portfolio Management Service is a product wherein an equity investment


portfolio is created to suit the investment objectives of a client. We at Indiainfoline
invest your resources into stocks from different sectors, depending on your risk-
return profile. This service is particularly advisable for investors who cannot
afford to give time or don't have that expertise for day-to-day management of their
equity portfolio.

Research

Sound investment decisions depend upon reliable fundamental data and stock
selection techniques. Indiainfoline Equity Research is proud of its reputation for,
and we want you to find the facts that you need. Equity investment professionals
routinely use our research and models as integral tools in their work.
They choose Ford Equity Research when they can clear your doubts.
Commodities
Indiainfoline’s extension into commodities trading reconciles its strategic intent to
emerge as a one-stop solutions financial intermediary. Its experience in securities
broking has empowered it with requisite skills and technologies. The Company’s
commodities business provides a contra-cyclical alternative to equities broking.
The Company was among the first to offer the facility of commodities trading in
India’s young commodities market (the MCX commenced operations only in
2003). Average monthly turnover on the commodity exchanges increased from Rs
0.34 bn to Rs 20.02 bn. The commodities market has several products with
different and non-correlated cycles. On the whole, the business is fairly insulated
against cyclical gyrations in the business.
Mortgage
During the year under review, Indiainfoline acquired a 75% stake in Money tree
Consultancy Services to mark its foray into the business of mortgages and other
loan products distribution. The business is still in the investing phase and at the
time of the acquisition was present only in the cities of Mumbai and Pune. The
Company brings on board expertise in the loans business coupled with existing
relationships across a number of principals in the mortgage and personal loans
businesses. Indiainfoline now has plans to roll the business out across its pan-
Indian network to provide it with a truly national scale in operations.

HOME LOANS PERSONAL LOANS


Get expert advice that suits your Freedom to choose from 4 flexible
needs options to repay
Expert recommendations
Loan against residential and
commercial Easy documentation
property
Quick processing and disbursal
Expert recommendations
No guarantor requirement
Easy documentation

Quick processing and disbursal

No guarantor requirement

Invest Online

Indiainfoline has made investing in Mutual funds and primary market so effortless.
All you have to do is register with us and that’s all. No paperwork no queues and
No registration charges.

INVEST IN MUTUAL FUNDS (MF)

Indiainfoline offers you a host of mutual fund choices under one roof, backed by
in-depth research and advice from research house and tools configured as investor
friendly.
APPLY IN INVEST IN PUBLIC OFFERS (IPOs)

You could also invest in Initial Public Offers (IPO’s) online without going through
the hassles of filling ANY application form/ paperwork.
SMS
Stay connected to the market
The trader of today, you are constantly on the move. But how do you stay
connected to the market while on the move? Simple, subscribe to India Infoline's
Stock Messaging Service and get Market on your Mobile!

There are three products under SMS Service:


• Market on the move.
• Best of the lot.
• VAS (Value Added Service )
Insurance
An entry into this segment helped complete the client’s product basket;
concurrently, it graduated the Company into a one-stop retail financial solutions
provider. To ensure maximum reach to customers across India, we have employed
a multi pronged approach and reach out to customers via our Network, Direct and
Affiliate channels. Following the opening of the sector in 1999-2000, a number of
private sector insurance service providers commenced operations aggressively and
helped grow the market.

The Company’s entry into the insurance sector derisked the Company from a
predominant dependence on broking and equity-linked revenues. The annuity
based income generated from insurance intermediation result in solid core
revenues across the tenure of the policy.
Wealth Management Services
Imagine a financial firm with the heart and soul of a two-person organization. A
world-leading wealth management company that sits down with you to understand
your needs and goals. We offer you a dedicated group for giving you the most
personal attention at every level.
Newsletters
The Daily Market Strategy is your morning dose on the health of the markets. Five
intra-day ideas, unless the markets are really choppy coupled with a brief on the
global markets and any other cues, which could impact the market. Occasionally
an investment idea from the research team and a crisp round up of the previous
day's top stories. That's not all. As a subscriber to the Daily Market Strategy, you
even get research reports of India Info line research team on a priority basis.

The Indiainfoline Weekly Newsletter is your flashback for the week gone by. A
weekly outlook coupled with the best of the web stories from Indiainfoline and
links to important investment ideas, Leader Speak and features is delivered in your
inbox every Friday evening.

. The Management
Mr. Nirmal Jain
Nirmal Jain, MBA (IIM, Ahmedabad) and a Chartered and Cost Accountant, founded
India’s leading financial services company India Infoline Ltd. in 1995, providing globally
acclaimed financial services in equities and commodities broking, life insurance and
mutual funds distribution, among others. Mr. Jain began his career in 1989 with
Hindustan Lever’s commodity export business, contributing tremendously to its growth.
He was also associated with Inquire-Indian Equity Research, which he co-founded in
1994 to set new standards in equity research in India.
Mr. R Venkataraman
R Venkataraman, co-promoter and Executive Director of India Infoline Ltd., is a B. Tech
(Electronics and Electrical Communications Engineering, IIT Kharagpur) and an MBA
(IIM Bangalore). He joined the India Infoline board in July 1999. He previously held
senior managerial positions in ICICI Limited, including ICICI Securities Limited, their
investment banking joint venture with J P Morgan of USA and with BZW and Taib
Capital Corporation Limited. He was also Assistant Vice President with G E Capital
Services India Limited in their private equity division, possessing a varied experience of
more than 16 years in the financial services sector.

The Board of Directors


Apart from Nirmal Jain and R Venkataraman, the Board of Directors of India Infoline
comprises
Mr. Sat Pal Khattar (Non Executive Director)
Mr Sat Pal Khattar, - Board member since April 2001 - Presidential Council of Minority
Rights member, Chairman of the Board of Trustee of Singapore Business Federation, is
also a life trustee of SINDA, a non profit body, helping the under-privileged Indians in
Singapore. He joined the India Infoline board in April 2001. Mr. Khattar is a Director of
public and private companies in Singapore, India and Hong Kong; Chairman of
Guocoland Limited listed in Singapore and its parent Guoco Group Ltd listed in Hong
Kong, a leading property company of Singapore, China and Malaysia. A Board member
of India Infoline Ltd, Gateway Distriparks Ltd — both listed — and a number of other
companies he is also the Chairman of the Khattar Holding Group of Companies with
investments in Singapore, India, UK and across the world.

Mr. Nilesh Vikamsey (Independent Director)


Mr. Vikamsey, Board member since February 2005 - a practising Chartered Accountant
and partner (Khimji Kunverji & Co., Chartered Accountants), a member firm of HLB
International, headed the audit department till 1990 and thereafter also handles financial
services, consultancy, investigations, mergers and acquisitions, valuations etc; an ICAI
study group member for Proposed Accounting Standard — 30 on Financial Instruments
— Recognition and Management, Finance Committee of The Chamber of Tax
Consultants (CTC), Law Review, Reforms and Rationalization Committee and
Infotainment and Media Committee of Indian Merchants’ Chamber (IMC) and Insurance
Committee and Legal Affairs Committee of Bombay Chamber of Commerce and
Industry (BCCI).
Mr. Vikamsey is a director of Miloni Consultants Private Limited, HLB Technologies
(Mumbai) Private Limited and Chairman of HLB India.

Mr. Kranti Sinha (Independent Director)


Mr. Kranti Sinha — Board member since January 2005 — completed his masters from
the Agra University and started his career as a Class I officer with Life Insurance
Corporation of India. He served as the Director and Chief Executive of LIC Housing
Finance Limited from August 1998 to December 2002 and concurrently as the Managing
Director of LICHFL Care Homes (a wholly owned subsidiary of LIC Housing Finance
Limited). He retired from the permanent cadre of the Executive Director of LIC; served
as the Deputy President of the Governing Council of Insurance Institute of India and as a
member of the Governing Council of National Insurance Academy, Pune apart from
various other such bodies. Mr. Sinha is also on the Board of Directors of Hindustan
Motors Limited, Larsen & Toubro Limited, LICHFL Care Homes Limited, Gremach
Infrastructure Equipments and Projects Limited and Cinemax (India) Limited.

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Compliance status on revised Clause 49 of the Listing Agreement - Corporate

Provisions
Periodicity
Compliance Status
I. Board of Directors

A) Composition of Board

i.
The Board of directors of the company shall have an optimum combination of executive and non-
executive directors with not less than fifty percent of the board of directors comprising of non-
executive directors
Continuous
IIL Board comprises of six Directors, out of whom, four are non-executive.

ii.
Where the Chairman of the Board is a non-executive director, at least one-third of the Board
should comprise of independent directors and in case he is an executive director, at least half of
the Board should comprise of independent directors.
Continuous
Chairman Mr. Nirmal Jain is an Executive Director. The Board has three independent directors:
Mr. Nilesh Vikamsey, Mr. Sanjiv Ahuja and Mr. Kranti Sinha.

B) Non executive directors’ compensation and disclosures


All fees/compensation, if any paid to non-executive directors, including independent directors,
shall be fixed by the Board of Directors and shall require previous approval of shareholders in
general meeting.

Continuous
The Non executive Directors are paid sitting fees of Rs.20,000/- for each meeting of the Board and
Audit Committee to be attended by them and Rs.10,000/- for any other committee meeting.

The sitting fees for the Board Meeting are approved in the Board Meeting of the Company held on
February 11, 2005, while the fees for committee fees are approved in the Board Meeting held on
February 11, 2005. Approval for commission to non-executive directors is sought in the ensuing
EGM to be held on January 25,2006.

The shareholders’ resolution shall specify the limits for the maximum number of stock options that
can be granted to non-executive directors, including independent directors, in any financial year
and in aggregate.
As and when arises
We have already mentioned in the prospectus that there will not be any fresh grant of stock
options under the same scheme.

The company is proposing a new ESOP scheme, which also provides limits for maximum number
of stock options to non-executive directors. The same is placed before the shareholders in the
ensuing EGM to be held on January 25, 06.

(C) Other provisions as to Board and Committees

i.
The board shall meet at least four times a year, with a maximum time gap of three months between
any two meetings. The prescribed minimum information to be made available to the board.
Continuous
Board Meeting dates since listing:

May 19, 2005


July 21, 2005
September 15, 2005
October 22, 2005
December 29,2005

ii.
A director shall not be a member in more than 10 committees or act as Chairman of more than five
committees across all companies in which he is a director. Furthermore it should be a mandatory
annual requirement for every director to inform the company about the committee positions he
occupies in other companies and notify changes as and when they take place.
Continuous & Annual
Mr. Nirmal Jain, Mr. R. Venkataraman, Mr. Nilesh Vikamsey, Mr. Sat Pal Khattar and Mr. Sanjiv
Ahuja are not committee members in any listed company other than India Infoline Limited.

Mr. Kranti Sinha is a member of 2 committees other than IIL and is a Chairman in only one
committee at IIL.

iii.
The Board shall periodically review compliance reports of all laws applicable to the company,
prepared by the company as well as steps taken by the company to rectify instances of non-
compliances.
Continuous
Board reviews the compliance reports as placed before it.

(D) Code of Conduct


i.
The Board shall lay down a code of conduct for all Board members and senior management of the
company. The code of conduct shall be posted on the website of the company.
Continuous
Code of conduct is specified and put on the website of the company

ii.
All Board members and senior management personnel shall affirm compliance with the code on an
annual basis. The Annual Report of the company shall contain a declaration to this effect signed
by the CEO.
Annual
Will be obtained at the end of the financial year.

II Audit Committee

(A) Qualified and Independent Audit Committee


A qualified and independent audit committee shall be set up, giving the terms of reference subject
to the following:
Continuous
Complied

i.
The audit committee shall have minimum three directors as members. Two-thirds of the members
of audit committee shall be independent directors.
Continuous
Audit committee of IIL Comprises of four directors – Mr. Nilesh Vikamsey, Mr. Kranti Sinha, Mr.
Sanjiv Ahuja and Mr. Sat Pal Khattar.

ii.
All members of audit committee shall be financially literate and at least one member shall have
accounting or related financial management expertise.
Continuous
Complied with. Mr. Nilesh Vikamsey and Mr. Sanjiv Ahuja are both experienced Chartered
Accountants. Mr. Nilesh Vikamsey also holds a Diploma in Information System Audit (DISA)
from the ICAI and is a partner in M/s. Khimji Kunverji and Company, Chartered Accountants,
Mumbai from 1985. Mr. Ahuja is a Certified Public Accountant who started his career with
Accenture Consulting (Formerly Andersen Consulting) in 1988 and presently an Executive
Director with Corporate Brokers Intl Pvt Ltd, a reputed Singapore based M & A firm and a
member of Singapore Indian Chamber of Commerce and Industry.

iii.
The Chairman of the Audit Committee shall be an independent director;
Continuous
Complied with. Chairman of the Audit Committee is Mr. Nilesh Vikamsey who is an Independent
Director.

iv.
The Chairman of the Audit Committee shall be present at Annual General Meeting to answer
shareholder queries;
Annual
Mr. Vikamsey, Chairman of the Audit Committee was present at the 10th Annual General Meeting
of the Company.

v.
The audit committee may invite such of the executives, as it considers appropriate. The finance
director, head of internal audit and a representative of the statutory auditor may be present as
invitees for the meetings of the audit committee;
Quarterly
Complied
vi
The Company Secretary shall act as the secretary to the committee.
Continuous
Complied with. (New company secretary is being appointed)

B) Meeting of Audit Committee


The audit committee should meet at least four times in a year and not more than four months shall
elapse between two meetings.
Continuous
Audit Committee meetings since listing:
May 19, 2005,
July 21, 2005,
October 22,2005

The quorum shall be either two members or one third of the members of the audit committee
whichever is greater, but there should be a minimum of two independent members present.

Continuous
All the three the meetings have recorded full presence of members.

(C) Powers of Audit Committee


The audit committee shall have the prescribed powers.
Continuous
Audit Committee has all powers as prescribed in Clause 49 of the Listing agreement.
D) Role of Audit Committee
The role of the audit committee shall include the following:

1.
Oversight of the company’s financial reporting process and the disclosure of its financial
information to ensure that the financial statement is correct, sufficient and credible.
Quarterly
Complied with.

2.
Recommending to the Board, the appointment, re-appointment and, if required, the replacement or
removal of the statutory auditor and the fixation of audit fees.
Annual
Complied with. Remuneration decided in the audit committee meeting.

3.
Approval of payment to statutory auditors for any other services rendered by the statutory
auditors.
Continuous
Taken up as and when arises.

4.
Reviewing, with the management, the annual financial statements before submission to the board
for approval.
Annual
Complied with.

5.
Reviewing, with the management, the quarterly financial statements before submission to the
board for approval
Quarterly
Complied with

6.
Reviewing, with the management, performance of statutory and internal auditors, adequacy of the
internal control systems.
Quarterly
Complied with

7.
Reviewing the adequacy of internal audit function, if any, including the structure of the internal
audit department, staffing and seniority of the official heading the department, reporting structure
coverage and frequency of internal audit.
Quarterly
Complied with

8.
Discussion with internal auditors any significant findings and follow up there on.
Quarterly
Complied with

9.
Reviewing the findings of any internal investigations by the internal auditors into matters where
there is suspected fraud or irregularity or a failure of internal control systems of a material nature
and reporting the matter to the board.
Quarterly
Complied with

10.
Discussion with statutory auditors before the audit commences, about the nature and scope of
audit as well as post-audit discussion to ascertain any area of concern.
Annual
Complied with

11.
To look into the reasons for substantial defaults in the payment to the depositors, debenture
holders, shareholders (in case of non payment of declared dividends) and creditors
Quarterly
Not applicable

(E) Review of information by Audit Committee


The Audit Committee shall mandatorily review the following information:

1.
Management discussion and analysis of financial condition and results of operations;
Quarterly / Annual
Done in the Meeting held on 19th May, 2005 for consideration Annual Report for the Year ended
March 31, 2005. Subsequently in the meetings for consideration of Quality results.

2.
Statement of significant related party transactions (as defined by the audit committee), submitted
by management;
Quarterly
Discussed in Audit committee meetings while considering Annual / Quarterly financial Results.

3.
Management letters / letters of internal control weaknesses issued by the statutory
auditors;
Annual
Was reviewed in the Meeting held on 19th May 2005 while considering Annual Accounts.

4.
Internal audit reports relating to internal control weaknesses; and
Quarterly
Internal Audit Report of IIL and IISPL discussed in meetings held on 19 th May, July 21. 2005 and
October 22, 2005

5.
The appointment, removal and terms of remuneration of the Chief internal auditor shall be subject
to review by the Audit Committee
Annual / As and when required
Appointment of Internal Auditor discussed in meeting held on 19th May 2005.

III. Subsidiary Companies

i.
At least one independent director on the Board of Directors of the holding company shall be a
director on the Board of Directors of a material non-listed Indian subsidiary company.
Continuous
Mr. Sanjiv Ahuja, Independent Director on the Board of the Holding Company is also a Director
on the Board of India Infoline Securities Pvt. Ltd., India Infoline.com Distribution Company
Limited and India Infoline Insurance Services Limited.

ii.
The Audit Committee of the listed holding company shall also review the financial statements.
uarterly
Complied

iii.
The minutes of the Board meetings of the unlisted subsidiary company shall be placed at the
Board meeting of the listed holding company. The management should periodically bring to the
attention of the Board of Directors of the listed holding company, a statement of all significant
transactions and arrangements entered into by the unlisted subsidiary company.
Quarterly / Annual
Complied.

IV. Disclosures

(A) Basis of related party transactions

i.
A statement in summary form of transactions with related parties in the ordinary course of
business shall be placed periodically before the audit committee.
Quarterly
Complied

ii.
Details of material individual transactions with related parties, which are not in the normal course
of business, shall be placed before the audit committee.
Quarterly
Complied.

iii.
Details of material individual transactions with related parties or others, which are not on an arm’s
length basis should be placed before the audit committee, together with Management’s
justification for the same.
Quarterly
Complied.

(B) Disclosure of Accounting Treatment


Where in the preparation of financial statements, a treatment different from that prescribed in an
Accounting Standard has been followed, the fact shall be disclosed in the financial statements,
together with the management’s explanation as to why it believes such alternative treatment is
more representative of the true and fair view of the underlying business transaction in the
Corporate Governance Report.
Quarterly / Annual
Complied

(C) Board Disclosures – Risk management


The company shall lay down procedures to inform Board members about the risk assessment and
minimization procedures. These procedures shall be periodically reviewed to ensure that executive
management controls risk through means of properly defined framework
Annual
Will be made along with the next annual report.

(D) Proceeds from public issues, rights issues, preferential issues etc
When money is raised through an issue (public issues, rights issues, preferential issues etc.), it
shall disclose to the Audit Committee, the uses / applications of funds by major category (capital
expenditure, sales and marketing, working capital, etc), on a quarterly basis as a part of their
quarterly declaration of financial results. Further, on an annual basis, the company shall prepare a
statement of funds utilized for purposes other than those stated in the offer document /
prospectus /notice and place it before the audit committee. Such disclosure shall be made only till
such time that the full money raised through the issue has been fully spent. This statement shall be
certified by the statutory auditors of the company. The audit committee shall make appropriate
recommendations to the Board to take up steps in this matter.
Quarterly
Disclosure being made to Audit committee as well as Board while considering quarterly financial
results

(E) Remuneration of Directors

i
All pecuniary relationship or transactions of the non-executive directors vis-à-vis the company
shall be disclosed in the Annual Report

Annual
Only transactions: payment of sitting fees – disclosed in the annual report.

ii.
Further the prescribed disclosures on the remuneration of directors shall be made in the section on
the corporate governance of the Annual Report:
Annual
Complied with

iii.
The company shall publish its criteria of making payments to non-executive directors in its annual
report.
Annual
Complied

iv.
The company shall disclose the number of shares and convertible instruments held by non-
executive directors in the annual report.
Annual
Compiled

v.
Non-executive directors shall be required to disclose their shareholding (both own or held by / for
other persons on a beneficial basis) in the listed company in which they are proposed to be
appointed as directors, prior to their appointment. These details should be disclosed in the notice
to the general meeting called for appointment of such director
Annual / as and when arises
Complied.

(F) Management

i
As part of the directors’ report or as an addition thereto, a Management Discussion and Analysis
report should form part of the Annual Report to the shareholders. This Management Discussion &
Analysis should include discussion on the following matters within the limits set by the company’s
competitive position:
Annual
Complied

ii.
Senior management shall make disclosures to the board relating to all material financial and
commercial transactions, where they have personal interest that may have a potential conflict with
the interest of the company at large.
Annual
Complied

G) Shareholders

i.
In case of the appointment of a new director or re-appointment of a director the shareholders must
be provided with the prescribed information:
As and when arises
Complied

ii.
Quarterly results and presentations made by the company to analysts shall be put on company’s
web-site, or shall be sent in such a form so as to enable the stock exchange on which the company
is listed to put it on its own web-site.
Continuous
Quarterly results – disclosed on the website, presentations to analysts – disclosed

iii
A board committee under the chairmanship of a non-executive director shall be formed to
specifically look into the redressal of shareholder and investors complaints like transfer of shares,
non-receipt of balance sheet, non-receipt of declared dividends etc. This Committee shall be
designated as ‘Shareholders/Investors Grievance Committee’.

Continuous
The Share Transfer Cum Investors Grievance Committee was formed to look into the matter on
January 27, 2005. The Committee comprises of all the independent directors and has Mr. Kranti
Sinha as its Chairman.

iv.
To expedite the process of share transfers, the Board of the company shall delegate the power of
share transfer to an officer or a committee or to the registrar and share transfer agents. The
delegated authority shall attend to share transfer formalities at least once in a fortnight.
Continuous
Delegated to officials before transfer to the Registrar and Transfer Agent and thereafter, to the
RTA.

V. CEO/CFO certification
The CEO, i.e. the Managing Director or Manager appointed in terms of the Companies Act, 1956
and the CFO i.e. the whole-time Finance Director or any other person heading the finance function
discharging that function shall certify specific confirmations to the Board. Also CEO and CFO to
certify Annual financial statements
Annual
Complied.

VI. Report on Corporate Governance

i.
There shall be a separate section on Corporate Governance in the Annual Reports of company,
with a detailed compliance report on Corporate Governance. Non-compliance of any mandatory
requirement of this clause with reasons thereof and the extent to which the non-mandatory
requirements have been adopted should be specifically highlighted.
Annual
Complied

ii.
The companies shall submit a quarterly compliance report to the stock exchanges within 15 days
from the close of quarter as per the prescribed format. The report shall be signed either by the
Compliance Officer or the Chief Executive Officer of the company
Quarterly
Complied

VII. Compliance

1.
The company shall obtain a certificate from either the auditors or practicing company secretaries
regarding compliance of conditions of corporate governance as stipulated in this clause and annex
the certificate with the directors’ report, which is sent annually to all the shareholders of the
company. The same certificate shall also be sent to the Stock Exchanges along with the annual
report filed by the company.
Annual
Complied

2.
The non-mandatory requirements may be implemented as per the discretion of the company.
However, the disclosures of the compliance with mandatory requirements and adoption.
Annual
Will be done in the next Annual reports henceforth
PERFORMANCE OF MUTUAL FUNDS

The comparison between these schemes is made based on the following factors

A)Sharpe’s Ratio
B)Treynor’s Ratio
C)β (Beta) co-efficient.
D)Alpha Co-efficient
E)Returns

A) The Sharpe’s 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.

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.

B) 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.

C) β (Beta) Co-efficient:-

Systematic risk is measured in terms of Beta, which represents fluctuations in the NAV
of the fund vis-à-vis market. The more responsive the NAV of a Mutual Fund is to the
changes in the market; higher will be its beta. Beta is calculated by relating the returns
on a Mutual Fund with the returns in the market. While unsystematic risk can be
diversified through investments in a number of instruments, systematic risk cannot. By
using the risk return relationship, we try to assess the competitive strength of the
Mutual Funds vis-à-vis one another in a better way.
β (Beta) is calculated as N (Σ XY) – Σ XΣ Y
N (Σ X2) – (Σ X) 2
D) Alpha Co-efficient:-

It is the excess return of the fund above risk adjusted market return, given its level of
risk as measured by beta. An investment with a positive alpha indicates that the fund
has performed better than expected, given its beta. And a negative alpha indicates that
the fund has under performed, for its risk

E) Returns:- Returns for the last one-year of different schemes are taken for the
comparison and analysis part.

THE PERFORMANCE DATA:

♦ Follows a bottom up stock specific approach and invests in a mix of large cap
stocks.

♦ The fund has portfolio turnover ratio.

♦ The fund manager is bullish on the markets in the long term and expects good
returns from the same.
♦ The fund manager is of the opinion that the market may not fall due to the
abundant liquidity in the system. However the fund manager sees high oil
prices a big concern in the global markets.
♦ The fund has invested into equities to the tune of 93% of the total portfolio
.the fund manager would continue to hold 7-10% of the portfolio in cash.
♦ During the month the fund has exited out of the stocks like BPCL, Tata
Chemicals and Glaxo pharma.However the fund has entered into stocks
wockhardt and HCL Technologies.
♦ The fund is recommended for investors willing to take above average risk.

INVESTMENT OBJECTIVE
To generate capital appreciation from a portfolio of predominantly equity and
equity related securities with investment in, generally, not more than 30 stocks.
SCHEME PHILOSOPHY

The sheme is a diversified equity growth scheme, with a portfolio of generally not more
than 30 choicest stocks, handpicked by fund management team. The portfolio comprises
of stocks with an emphasis on financial strength of the company, quality of management,
brands and franchises, its track record and the market liquidity of the stock regardless of
the sector to which they belong.

month α
&year Sensex compan β Sharpe’s Treynor’s
1999 σ y Ratio Ratio
σ
Quarter1
March 1.5990 1.3300 0.9142 4.4229 4.3948 0.0942
April 2.6850 2.5080 0.7604 -8.2309 -8.2935 -0.2580
May 2.0580 1.4960 0.7983 9.2397 9.1937 -0.2511
Total 6.3420 5.3340 2.4729 5.4317 5.2950 -0.4149
Average 2.1140 1.7780 0.8243 1.8106 1.7650 -0.1383
Quarter2
June 1.3760 1.0020 0.1091 0.9498 0.4436 0.0224
July 1.6420 1.3450 0.7518 10.0963 10.0531 0.1335
August 1.2230 1.0340 0.8452 10.9635 10.9416 0.2142
Total 4.2410 3.3810 1.7061 22.0096 21.4383 0.3701
Average 1.4137 1.1270 0.5687 7.3365 7.1461 0.1234
HALF
YEAR 2.4707 2.0160 0.9809 8.2418 8.0286 0.0542
AVERAGE
Quarter3
September 1.3160 3.5900 0.8009 9.6744 9.6451 0.5614
October 1.9980 1.9950 - -1.8390 -0.2190 0.1078
1.8047
November 0.9620 0.9760 0.6860 16.6223 16.6810 0.7714
Total 4.2760 6.5610 - 24.4577 26.1071 1.4406
0.3178
Average 1.4253 2.1870 - 8.1526 8.7024 0.4802
0.1059
Quarter4
December 1.3740 1.3780 0.8395 14.4418 14.4140 0.4758
January 00 1.7220 1.8680 0.6207 -2.9830 -3.0448 0.0090
February 2.3400 1.9970 0.7089 5.3791 5.3201 0.1720
Total 5.4360 5.2430 2.1691 16.8379 16.6893 0.6568
Average 1.8120 1.7477 0.7230 5.6126 5.5631 0.2189
HALF
YEAR 2.5247 2.8412 0.6701 9.6889 9.9143 0.4590
AVERAGE
YEAR 3.7330 3.4366 1.3159 13.0863 12.9857 0.2837
AVERAGE

month
&year Sensex company β Sharpe’s Treynor’s α
2000 σ σ Ratio Ratio
Quarter1
March 1.6030 1.6030 0.8341 -14.0810 -14.1155 -0.2826
April 3.3220 2.9420 0.8360 -7.0441 -7.0955 -0.4022
May 2.7490 2.6580 0.8849 -3.1573 -3.1978 -0.2663
Total 7.6740 7.2030 2.5550 -24.2824 -24.4088 -0.9511
Average 2.5580 2.4010 0.8517 -8.0941 -8.1363 -0.3170
Quarter2
June 1.3290 1.3250 0.9479 3.7581 3.7401 -0.1126
July 1.9830 1.8270 1.0039 -14.5490 -14.5759 -0.0793
August 1.1160 1.4320 1.2593 7.9499 7.9442 0.0715
Total 4.4280 4.5840 3.2111 -2.8410 -2.8916 -0.1204
Average 1.4760 1.5280 1.0704 -0.9470 -0.9639 -0.0401
HALF
YEAR 2.7550 2.7285 1.4962 -4.9941 -5.0320 -0.1987
AVERAGE
Quarter3
September 2.0690 1.9360 0.9521 -11.2122 -11.2442 -0.0239
October 1.6410 3.3050 1.0717 -8.6300 -8.6679 0.1592
November 1.4010 1.1140 0.7668 0.6351 0.6107 -0.0845
Total 5.1110 6.3550 2.7906 -19.2071 -19.3014 0.0508
Average 1.7037 2.1183 0.9302 -6.4024 -6.4338 0.0169
Quarter4
December 1.4350 1.3070 0.8865 -2.3576 -2.4160 -0.0555
January 01 1.2510 1.0620 0.8098 5.5239 5.5063 -0.0248
February 1.5640 1.1170 0.6956 -4.8939 -4.9265 -0.1653
Total 4.2500 3.4860 2.3919 -1.7276 -1.8362 -0.2456
Average 1.4167 1.1620 0.7973 -0.5759 -0.6121 -0.0819
HALF
YEAR 2.2685 2.2212 1.2624 -3.7771 -3.8290 -0.0734
AVERAGE
YEAR 3.8893 3.8391 2.1274 -6.8826 -6.9465 -0.2354
AVERAGE

month
&year Sensex company β Sharpe’s Treynor’s α
2001 σ σ Ratio Ratio

Quarter1
March 2.6470 1.9600 0.7925 -9.4806 -9.5257 0.0021
April 2.3230 1.5820 0.6681 0.1034 0.0515 0.0740
May 0.8750 0.6220 0.6922 2.5516 2.5614 -0.0037
Total 5.8450 4.1640 2.1528 -6.8256 -6.9128 0.0724
Average 1.9483 1.3880 0.7176 -2.2752 -2.3043 0.0241
Quarter2
June 1.1370 0.9060 0.6767 -3.9203 -3.9427 -0.0555
July 0.8790 0.6050 0.6284 -1.2832 -1.2975 -0.0679
August 0.6240 0.4120 0.5975 -0.5648 -0.5196 0.0257
Total 2.6400 1.9230 1.9026 -5.7683 -5.7598 -0.0977
Average 0.8800 0.6410 0.6342 -1.9228 -1.9199 -0.0326
HALF
YEAR 1.8542 1.3350 0.9930 -3.0604 -3.0721 -0.0205
AVERAGE
Quarter3
September 2.6510 1.6460 0.6530 -9.1861 -9.2415 -0.2790
October 1.3370 0.6780 0.5494 5.2522 5.2315 0.0353
November 1.2480 0.7810 0.6820 5.9392 5.9280 0.0446
Total 5.2360 3.1050 1.8844 2.0053 1.9180 -0.1991
Average 1.7453 1.0350 0.6281 0.6684 0.6393 -0.0664
Quarter4
December 1.2560 2.2000 0.5237 -1.5970 -1.6843 -0.1496
January 02 0.8830 0.6160 0.6293 1.4108 1.4129 0.0283
February 1.4560 1.1220 0.7671 5.3259 5.3012 -0.0134
Total 3.5950 3.9380 1.9201 5.1397 5.0298 -0.1347
Average 1.1983 1.3127 0.6400 1.7132 1.6766 -0.0449
HALF
YEAR 2.0710 1.8302 0.9541 2.0475 1.9963 -0.0781
AVERAGE
YEAR 2.8897 2.2501 1.4701 -2.0366 -2.0739 -0.0595
AVERAGE

month
&year Sensex Company β Sharpe’s Treynor’s α
2001 σ risk Ratio Ratio
Quarter1
March 2.6470 1.9600 0.7925 -9.4806 -9.5257 0.0021
April 2.3230 1.5820 0.6681 0.1034 0.0515 0.0740
May 0.8750 0.6220 0.6922 2.5516 2.5614 -0.0037
Total 5.8450 4.1640 2.1528 -6.8256 -6.9128 0.0724
Average 1.9483 1.3880 0.7176 -2.2752 -2.3043 0.0241
Quarter2
June 1.1370 0.9060 0.6767 -3.9203 -3.9427 -0.0555
July 0.8790 0.6050 0.6284 -1.2832 -1.2975 -0.0679
August 0.6240 0.4120 0.5975 -0.5648 -0.5196 0.0257
Total 2.6400 1.9230 1.9026 -5.7683 -5.7598 -0.0977
Average 0.8800 0.6410 0.6342 -1.9228 -1.9199 -0.0326
HALF
YEAR 1.8542 1.3350 0.9930 -3.0604 -3.0721 -0.0205
AVERAGE
Quarter3
September 2.6510 1.6460 0.6530 -9.1861 -9.2415 -0.2790
October 1.3370 0.6780 0.5494 5.2522 5.2315 0.0353
November 1.2480 0.7810 0.6820 5.9392 5.9280 0.0446
Total 5.2360 3.1050 1.8844 2.0053 1.9180 -0.1991
Average 1.7453 1.0350 0.6281 0.6684 0.6393 -0.0664
Quarter4
December 1.2560 2.2000 0.5237 -1.5970 -1.6843 -0.1496
January 02 0.8830 0.6160 0.6293 1.4108 1.4129 0.0283
February 1.4560 1.1220 0.7671 5.3259 5.3012 -0.0134
Total 3.5950 3.9380 1.9201 5.1397 5.0298 -0.1347
Average 1.1983 1.3127 0.6400 1.7132 1.6766 -0.0449
HALF
YEAR 2.0710 1.8302 0.9541 2.0475 1.9963 -0.0781
AVERAGE
YEAR 2.8897 2.2501 1.4701 -2.0366 -2.0739 -0.0595
AVERAGE

month
&year Sensex company β Sharpe’ Treynor’s α
2002 σ σ s Ratio
Ratio
Quarter1
March 0.9940 0.5910 0.5722 -1.8859 -1.8892 0.0498
April 0.9380 0.5740 0.5699 -1.8875 -1.8883 0.0432
May 1.5450 0.9740 0.6473 -3.6475 -3.6785 0.0602
Total 3.4770 2.1390 1.7894 -7.4209 -7.4560 0.1532
Average 1.1590 0.7130 0.5965 -2.4736 -2.4853 0.0511
Quarter2
June 1.1040 0.6550 0.5629 1.2390 1.2240 0.0167
July 0.9790 0.6400 0.7010 -4.6133 -4.6052 0.0887
August 0.8710 0.4470 0.5194 2.7087 2.7274 -0.0243
Total 2.9540 1.7420 1.7833 -0.6656 -0.6538 0.0811
Average 0.9847 0.5807 0.5944 -0.2219 -0.2179 0.0270
HALF
YEAR 1.5642 0.9372 0.8927 -1.4587 -1.4606 0.0526
AVERAGE
Quarter3
September 0.7810 0.4790 0.6254 -3.8386 -3.8093 -0.0166
October 0.9050 0.4000 0.3483 0.0536 0.0314 0.0019
November 0.6320 0.3600 0.7834 4.4210 4.5111 -0.0810
Total 2.3180 1.2390 1.7571 0.6360 0.7332 -0.0957
Average 0.7727 0.4130 0.5857 0.2120 0.2444 -0.0319
Quarter4
December 0.7210 0.5830 0.8223 3.6921 3.7221 0.0039
January 03 0.6700 0.4580 0.6091 -1.2681 -1.2356 0.0409
February 0.7480 0.4000 0.5210 0.4795 0.5144 0.0271
Total 2.1390 1.4410 1.9524 2.9035 3.0009 0.0719
Average 0.7130 0.4803 0.6508 0.9678 1.0003 0.0240
HALF
YEAR 1.0993 0.6868 0.9437 1.0738 1.1225 0.0080
AVERAGE
YEAR 2.1138 1.2806 1.3645 -0.9218 -0.8994 0.0566
AVERAGE

month
&year Sensex company β Sharpe’ Treynor’s α
2003 σ σ s Ratio
Ratio
Quarter1
March 1.0340 0.6320 0.6384 -2.5780 -2.5771 0.0749
April 1.1090 0.4790 0.3972 -0.9951 -1.0208 0.0567
May 0.7000 0.3000 0.5215 4.2825 4.3674 0.0462
Total 2.8430 1.4110 1.5571 0.7094 0.7695 0.1778
Average 0.9477 0.4703 0.5190 0.2365 0.2565 0.0593
Quarter2
June 0.9480 0.6240 0.8772 9.1417 9.1694 -0.0896
July 1.0140 0.7070 0.6285 3.0411 3.0305 -0.0089
August 1.3340 1.0090 0.8561 8.4789 8.4683 -0.0192
Total 3.2960 2.3400 2.3618 20.6617 20.6682 -0.1177
Average 1.0987 0.7800 0.7873 6.8872 6.8894 -0.0392
HALF
YEAR 1.5725 1.0152 1.0468 7.0055 7.0177 -0.0096
AVERAGE
Quarter3
September 1.6060 1.2560 0.7416 2.4209 2.3878 0.0151
October 1.3260 2.6570 0.6128 7.2279 7.1525 0.1153
November 1.1130 0.8480 0.7246 0.4721 0.4600 0.0639
Total 4.0450 4.7610 2.0790 10.1209 10.0003 0.1943
Average 1.3483 1.5870 0.6930 3.3736 3.3334 0.0648
Quarter4
December 0.8120 0.7070 0.9854 8.7115 8.7355 -0.1316
January 04 1.9230 1.5450 0.7576 -0.6246 -0.6650 0.1616
February 1.3150 0.7680 0.5014 3.2798 3.2383 0.2136
Total 4.0500 3.0200 2.2444 11.3667 11.3088 0.2436
Average 1.3500 1.0067 0.7481 3.7889 3.7696 0.0812
HALF
YEAR 2.0242 1.8002 1.0946 5.4757 5.4363 0.1136
AVERAGE
YEAR 2.5846 1.9153 1.5941 9.7433 9.7358 0.0472
AVERAGE

month
&year Sensex compan β Sharpe’ Treynor’s α
2004 σ y s Ratio
σ Ratio
Quarter1
March 1.2680 0.7930 0.5682 -1.0279 -1.0579 0.0657
April 1.1260 0.8060 0.6035 2.2294 2.2044 0.1912
May 3.6890 2.1490 0.5890 -10.3793 -10.4533 -0.0565
Total 6.0830 3.7480 1.7607 -9.1778 -9.3068 0.2004
Average 2.0277 1.2493 0.5869 -3.0593 -3.1023 0.0668
Quarter2
June 1.2200 3.1930 0.3019 0.0216 -0.1583 0.0358
July 0.9890 0.5650 0.5668 2.3884 2.3892 -0.0440
August 0.8540 0.4790 0.4935 2.6145 2.6182 0.1237
Total 3.0630 4.2370 1.3622 5.0245 4.8491 0.1155
Average 1.0210 1.4123 0.4541 1.6748 1.6164 0.0385
HALF
YEAR 4.0625 3.2863 1.3344 -2.9141 -3.0370 0.1387
AVERAGE
Quarter3
September 0.7000 0.3460 2.5303 2.5826 0.1826 -0.0394
October 0.7480 0.3460 -1.4628 -1.4628 -0.2728 -0.0389
November 0.8420 1.6030 0.6502 4.2030 4.1482 -0.0969
Total 2.2900 2.2950 1.7177 5.3228 4.0580 -0.1752
Average 0.7633 0.7650 0.5726 1.7743 1.3527 -0.0584
Quarter4
December 0.6920 0.3740 0.5518 5.5498 5.6015 0.1451
January 1.2280 0.7000 0.2227 -1.0187 -1.2024 0.0270
05
February 0.6080 0.3740 0.1021 2.6971 2.2696 0.1349
Total 2.5280 1.4480 0.8766 7.2282 6.6687 0.3070
Average 0.8427 0.4827 0.2922 2.4094 2.2229 0.1023
HALF
YEAR 1.2243 0.8652 0.5785 3.2965 2.8992 0.0731
AVERAGE
YEAR 1.6332 1.8449 0.7433 3.3231 3.0660 0.0751
AVERAGE

month
&year Sensex company β Sharpe’ Treynor’s α
2005 σ σ s Ratio
Ratio
Quarter1
March 0.8830 0.4690 0.1186 -3.2261 -3.6041 -0.1161
April 1.1090 0.4120 0.1666 -3.5171 -3.7316 -0.1282
May 0.6980 0.3460 0.1107 3.5208. 3.1519 0.1310
Total 2.6900 1.2270 0.3959 -6.7432 -4.1838 -0.1133
Average 0.8967 0.4090 0.1320 -2.2477 -1.3946 -0.0378
Quarter2
June 0.7210 0.9840 -0.6886 1.8165 1.9646 0.2763
July 0.8940 0.4580 0.0081 4.8660 -2.4125 0.2477
August 0.9110 0.5830 0.2303 3.6971 3.5341 0.1613
Total 2.5260 2.0250 -0.4502 10.3796 3.0862 0.6853
Average 0.8420 0.6750 -0.1501 3.4599 1.0287 0.2284
HALF
YEAR 1.2903 0.8795 -0.0841 2.3360 0.3314 0.2096
AVERAGE
Quarter3
September 1.1260 0.7000 0.1191 4.9699 4.5520 0.1868
October 1.2360 0.9590 3.1373 -6.1537 -6.1102 2.1632
November 0.8540 0.9110 0.4224 5.0026 5.0085 0.0421
Total 3.2160 2.5700 3.6788 3.8188 3.4503 2.3921
Average 1.0720 0.8567 1.2263 1.2729 1.1501 0.7974
Quarter4
December 1.0770 1.1350 -0.4087 2.5158 2.7155 0.1959
January 0.9270 0.6550 0.2298 4.1830 4.0135 0.1659
06
February 1.6120 0.5090 -0.0133 2.4173 7.0444 0.1366
Total 3.6160 2.2990 -0.1922 9.1161 13.7734 0.4984
Average 1.2053 0.7663 -0.0641 3.0387 4.5911 0.1661
HALF
YEAR 1.7413 1.1947 0.5491 3.6752 5.1662 0.5648
AVERAGE
YEAR 2.1610 1.4768 0.1905 4.1736 2.9145 0.4920
AVERAGE

HALF
YEAR Sensex compan β Sharpe’ Treynor’s α
AVERAG σ y s Ratio
E σ Ratio
Aug-99 2.4707 2.0160 0.9809 8.2418 8.0286 0.0542
Feb-00 2.5247 2.8412 0.6701 9.6899 9.9143 0.4590
Aug-00 2.7550 2.7285 1.4962 -4.9941 -5.0320 -0.1987
Feb-01 2.2685 2.2212 1.2624 -3.7771 -3.8290 -0.0734
Aug-01 1.8542 1.3350 0.9930 -3.0604 -3.0721 -0.0205
Feb-02 2.0710 1.8302 0.9541 2.0475 1.9963 -0.0781
Aug-02 1.5642 0.9372 0.8927 -1.4587 -1.4606 0.0526
Feb-03 1.0993 0.6868 0.9437 1.0738 1.1225 0.0080
Aug-03 1.5725 1.0152 1.0468 7.0055 7.0177 -0.0096
Feb-04 2.0242 1.8002 1.0946 5.4757 5.4363 0.1136
Aug-04 4.0625 3.2863 1.3344 -2.9141 -3.0370 0.1387
Feb-05 1.2243 0.8652 0.5785 3.2965 2.8992 0.0731
Aug-05 1.2903 0.8795 -0.0841 2.3360 0.3314 0.2096
Feb-06 1.7413 1.1947 0.5491 3.6752 5.1662 0.5648

Month
&YEAR Sense Mf β Sharpe’ Treynor’s α
AVERAGE x compan s Ratio
σ y Ratio
σ
Mar-99 3.7330 3.4366 1.3159 13.0863 12.9857 0.2837
Mar-00 3.8893 3.8391 2.1274 -6.8826 -6.9465 -0.2354
Mar-01 2.8897 2.2501 1.4701 -2.0366 -2.0739 -0.0595
Mar-02 2.1138 1.2806 1.3645 -0.9218 -0.8994 0.0566
Mar-03 2.5846 1.9153 1.5941 9.7433 9.7358 0.0472
Mar-04 1.6332 1.8449 0.7433 3.3231 3.0660 0.0751
Mar-05 2.1610 1.4768 0.1905 4.1736 2.9145 0.4920
Total Avg 2.7149 2.2919 1.2580 2.9265 2.6832 0.0942
CONCLUSIONS

• The Sharp ratio is above 1 in the year 1999 it means the fund performance is
good.
• In the year 2000 the Sharpe ratio is below 1 it means the fund performance is
not good this is due to the sensex fall.
• In the year 2001 the Sharpe ratio is below 1 it means the fund performance is
not good and Treynor’s ratio is also negative due sensex fall.

• In the year 2002 the Sharpe ratio is below 1 it means the fund performance is
not good and Treynor’s ratio is also negative due sensex fall.
• In the year 2003 there raise in sensex due to that the Sharpe ratio is above 1 it
means the fund performance is good.
• In the year 2004 the Sharpe ratio is above 1 it means the fund performance is
good.
• In the year 2005 there rapid raise in sensex .Sharpe ratio is above 1 the fund
performance is good.

After observing the data it is found that the Mutual fund is


performing well except in 2000, 2001 and 2002. It is observed based on Sharpe’s
Ratio, Treynor’s Ratio and Alpha. With all these we can conclude that the Mutual
(Dividend) fund giving good returns to the investors and the fund manager’s portfolio
decisions are going in a right way.

SUGGESTIONS:-

• The Asset Management Company must design the portfolio in such a way, to
increase the returns.
• The Asset Management Company must design the portfolio in such a way, to
lessen the risk that is common in the market.
• The Asset Management Company must dedicate itself, because it motivates the
investors and potential investors to invest in Mutual Funds.
• The Asset Management Company must manage the Fund efficiently and with
dedication to earn the goodwill of the public.
• The Asset Management Company must make the most advantageous use of
print and electronic media in order to motivate the investors and potential
investors to invest in Mutual Funds.
• The Sharpe ratio should have 1, we can say the performance is good when
observed data it is showing above 1 in all years except during the year of 2000,
2001 and 2002. In these three years it is found negative figures .It is said to be
worked under inefficiency. To maintain good performance the portfolio mix
should have a good portfolio.
• According to Treynor’s ratio, it is suggested to have positive figures. It is found
in the years of 2000, 2001 and 2002 there were a negative figures. It is not
healthy to the investors and even to the organization. To avoid it the firm should
have a good portfolio mix.

BIBLIOGRAPHY

BOOK’S:

Security analysis
And portfolio Punithavathi pandian First Vikas publishing house,2001.
Management Edition
.
Investment Advani Third Himalaya publisher, 1999.
Edition

Investment William F.sharpe


Gordon j. alexander Fifth Eastern economy edition, 1998.
Jeffery v. bailey Edition

Guide to Mutual Funds “OUTLOOK” By Layman’s

“ECONOMIC TIMES” Mutual Funds Primer

www.amfiindia.com
www.indiainfoline.com

ANNEXURE’S
ANNEXURE-I

Sponsor

Sponsor is the person who acting alone or in combination with another body corporate
establishes a Mutual Fund. Sponsor must contribute at least 40% of the net worth of the
Investment Managed and meet the eligibility criteria prescribed under the securities and
Exchange Board of India (Mutual Fund) Regulations, 1996. The Sponsor is not
responsible or liable for any loss or short fall resulting from the operation of the
schemes beyond the initial contribution made by it towards setting up the Mutual Fund.

Trust

The Mutual Fund is constituted as a trust in accordance with the provisions of the
Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian
Registration Act, 1908.

Trustee

Trustee is usually a company (Corporate body) or a Board of Trustees (body of


individuals). The main responsibility of the trustee is to safeguard the interest of the
unit holders and inter alia ensure that the AMC functions in the interest of investors and
in accordance with the securities and Exchange Board of India (Mutual Funds)
Regulations, 1996, the provisions of the Trust Deed and the Offer Documents of the
respective Schemes. At least 2/3rd directors of the Trustee are independent directors
who are not associated with the Sponsor in any manner.
Asset Management Company (AMC)

The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent
to the Mutual Fund. The Registrar processes the application form, redemption requests
and dispatches account statements to the unit holders. The Registrar and Transfer agent
also handles communications with investors and updates investor records.

Unit Holders

Unit Holders are those investing in Mutual Fund.

Custodian

Custodian is the agency, which will have the legal possession of all the securities
purchased by the Mutual Fund.

SEBI

The Stock Exchange Board of India (SEBI) is regulatory authority of the Mutual Funds.
ANNEXURE II

Equity Fund is the one in which much of the portfolio is invested in corporate
securities and Debt Fund is the one in which much of the portfolio is invested in Gilt
and money market securities.

In an Open-ended Mutual Fund, there are no limits on the total size of the corpus.
Investors are permitted to enter and exit the open-ended Mutual Fund at any point of
time at a price that is linked to the net asset value (NAV).
In case of Closed-ended funds, the total size of the corpus is limited by the size of the
initial offer.

• A Dividend plan entails a regular payment of dividend to the investors.


• A Re-investment plan is a plan where these dividends are reinvested in the
scheme itself.
• A Growth plan is one where no dividends are declared and investor only gains
through capital appreciation in the NAV of the fund.

NAV is the net asset value of the fund. Simply put it reflects what the unit held by an
investor is worth at current market prices.

The broad guidelines issued for a Mutual Fund:

SEBI is the regulatory authority of Mutual Funds. SEBI has the following broad
guidelines pertaining to Mutual Funds:

• Mutual Funds should be formed as a trust under Indian Trust Act and should be
operated by Asset Management Companies.
• Mutual Funds need to set up a Board of Trustee Companies. They should also
have their Board of Directories.

• The net worth of the Asset Management Company should be at least Rs.10
crore.

• Asset Management Companies and Trustees of a MF should be two separate and


distinct legal entities.

• The Asset Management Companies or any of its companies cannot act AS


managers for any other fund.

• Asset Management Company has to get the approval of SEBI for its articles and
Memorandum of Association.

• All Mutual Fund Schemes should be registered with SEBI.

• Mutual Funds should distribute minimum of 90% of their profits among the
investors.