You are on page 1of 54

CHAPTER-1

INTRODUCTION OF THE STUDY

1
Background of the study:
Mutual fund industry in India attaining maturity
Even though the capital market attracts people there are several problems associated with it.
While investing directly in to capital market one to be careful to judge the valuation of the stock
and understand the complexities involved in the stock price fluctuations. So, a person with
moderate knowledge of capital market generally prefers to invest in mutual funds.
In recent times mutual fund industry in India is growing rapidly and is undergoing tremendous
changes. The Indian mutual fund industry has witnessed several structural and regulatory reforms.
Different Investment Avenue are available to investors. Mutual fund also offers good investment
opportunities to the investors. Like all investment, they also carry certain risks. The investors
should compare the risks and expected yields after adjustment of tax on various instruments while
taking investment decisions. The investors may seek advice from experts and consultants including
agents and distributors of mutual funds schemes while investment decisions.
An objective to make the investors aware of functioning of mutual funds, an attempt has been
made to provide information in question-answers format which may help the investors in taking
investment decisions.

Meaning of mutual fund:


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.
Investment in securities are spread across wide cross section of industries and sectors and thus the
risk is reduced .diversification reduces the risk because all stocks may not move in the same
direction in the same proportion at the same time. Mutual fund issues units to the investors in
accordance with quantity of money invested by them. Investors of mutual funds are known as unit
holders.
The profits /loss are shared by the investors in proportion to their investments. The mutual fund
normally comes out with a number of schemes with different investment objectives which are
launched from time to time
Reference: Icfai –university press march-2007, mutual funds book –Prasanna Chandra (author)
2nd edition Mc graw-hills publications.

2
.A mutual fund is required to be registered with securities and exchange board of India (SEBI)
which regulates securities markets before it can collect funds from the pubic.

History of mutual funds:


Unit trust of India was the first mutual fund set up in India in the year 1963. in early 1990s,
government allowed public sector banks and institutions to set up mutual funds.
In the year 1992, securities and exchange board of India (SEBI) act was passed. The objective of
SEBI are to protect the interest of investors in securities and to promote the development of
regulate the securities market.
As far mutual funds are concerned, SEBI formulates policies and regulates the mutual fund s to
protect the interest of the investors. SEBI notified Regulations for the mutual funds in 1993.
Thereafter, mutual funds sponsored by private sector entities were allowed to enter in to capital
market. The regulations were fully revised in 1996 and have been amended thereafter from time to
time. SEBI has also guide lines to the mutual funds time to time to protect the interests of
investors.
All mutual funds whether promoted by public sector or private sector entities including
Those promoted by foreign entities are governed by the same set of regulations. There is no
distinction in regulatory requirements for these mutual funds and all are subject to monitoring and
inspections by the mutual funds sponsored by these entities are of similar type. It may be
mentioned here that unit trust of India (UTI) is not registered with SEBI.

Mutual fund set up:


A mutual fund set up in the form of a trust, which has sponsor, trustees, asset Management
Company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor
who is like promoter of a company. The trustees of the mutual fund hold its property for the
benefit of the unit holders. Asset management company (AMC) approved by SEBI manages the
funds by making investments in various types of securities .custodian, who is registered with
SEBI, holds the securities of various schemes of fund in its custody. The trustees are vested with
the general power of supertendence and direction over AMC they monitor the performance and
compliance of SEBI regulation by the mutual fund.

3
SEBI regulations require that at least two third of the directors of trustee company or board of
trustees may be independent i.e. they should not be independent. All mutual funds are required to
be registered with SEBI before they launch any scheme. How ever, unit trust of India (UTI) is not
registered with SEBI

What is net asset value?


A mutual fund's net asset value, or NAV, is the value of its holdings expressed in per share
amounts. NAV is typically calculated daily after markets have closed. For funds

Market value of the funds investments+receivables+accrued income liabilities – D.


expenses
NAV=
Number of shares or units out standing

Investing in securities that are not traded in public markets, the fund manager is responsible for
estimating a value for such securities when calculating the fund's NAV.

NET ASSET VALUE (NAV) OF A SCHEME:


The performance of a particular scheme of a mutual fund is denoted by net asset value (NAV).
Mutual fund invests the money collected from the investors in securities markets. In simple words,
net asset value is the market value of the securities held by the scheme. Since market value of
securities changes every day, NAV of a scheme also varies on day to day to day basis. The net
asset value per unit is the market value of securities of a scheme divided by the total number of
units of the scheme on any particular date.

4
(Chart-1.1)
The flow chart below describes broadly the working of a mutual fund:

DIFFERENT TYPES OF MUTUAL FUND SCHEMES

A Mutual Fund Schemes Can is classified into open ended and closed ended scheme depending on
its maturity period.

Open ended fund/scheme


An open-ended fund is one that is available for subscription and repurchase on a continuous basis.
These schemes do not have a fixed maturity period. Investors can convenient buy and sell units at
net asset value (NAV) related prices which are declared on a daily basis. The key feature of open –
ended scheme is liquidity.

Closed ended fund/ scheme


A closed ended fund has a stipulated maturity period like 5-7 years. The fund is open for
subscription only during a specified period at the time of launch of the scheme. Investors can
invest in the scheme at the time of initial public issue and thereafter they can buy or sell the units
of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to
the investors, some close-ended funds give an option of selling back the units to the mutual fund
through periodic repurchase at NAV related prices. SEBI regulations stipulate that at least one of

5
the two exit routes is provided to the investors i.e. either repurchase facility or through listing on
stock exchanges. These mutual fund schemes disclose NAV generally on weekly basis.

Investment objectives from the schemes:


A scheme can also be classified as growth funds, income funds or balanced funds considering its
investment objective. Such schemes may be open-ended or close-ended schemes as described
earlier. Such schemes may be classified mainly as follows:

Growth /equity oriented scheme


The aim of the income funds is to provide capital appreciation over the medium to long-term., such
schemes normally invest a major part of their corpus in equities. This fund has comparatively high
risks. These schemes provide different options to the investors like dividend option, capital
appreciation and the investors may choose an option depending on their preferences. The investors
must indicate the option in the application form. Growth schemes are good for investors having a
long –term outlook seeking appreciation over a period of time.

BALANCED FUND
The aim of balanced funds is to provide both growth and regular income as such schemes invest
both in equities and fixed income securities in the proportion indicated in their offer documents.
These are appropriate for investors looking for moderate growth. They

(Chart-1.2)
The Risk-Return Trade-off

6
(Chart-1.3)

Generally invest 40- 60% in equity and debt instruments. These funds are also affected because of
fluctuations in share prices in the stock markets. However, NAVs of funds are likely to be less
volatile compared to pure equity funds.

MONEY MARKET /LIQUID FUND


These funds are also income funds and their aim is to provide easy liquidity, preservation of
capital and moderate income. These schemes invest exclusively in safer short-term instruments
such as treasury bills, certificates of deposit, commercial paper and inter- bank call money,
government securities, etc. returns on these schemes fluctuate much less compared to other funds.
These funds are appropriate for corporate and individual investors as a means to park their surplus
funds for short periods.

Gilt fund
These funds invest exclusively in government securities. Government securities have no default
risk. NAVs of these schemes also fluctuate due to change in interest rate and other economic
factors as in the case with income /debt oriented schemes.

INDEX FUNDS
Index funds replicate the portfolio of a particular index such as BSE sensitive index, s&p NSE 50
INDEX (Nifty) ,etc these schemes invest in the securities in the same weight age comprising of an
index. NAV of such schemes would rise or fall in index though not exactly by the same percentage

7
due to some factors known as “tracking error” in technical terms .necessary disclosures in this
regard are made in the offer document of the mutual fund scheme.
There are also exchange traded index funds launched by the mutual funds by the mutual funds
which are traded on the stock exchanges.

These are the funds which invest in the securities of only those sectors or industries as specified in
the offer documents.eg pharmaceuticals, software, fast moving consumer goods
(FMCG),petroleum stocks, etc. the returns in these funds are dependent on the performance of the
respective sectors .while these funds may give higher returns, they are more risky compared to
diversified funds .

TAX SAVING SCHEMES


These schemes offer tax rebates to the investors under the income tax act 1961 as the government
offers tax incentives for investment in specified avenues e.g. equity linked Saving schemes (ELSS)
pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth
oriented and invest pre –dominantly in equities .Their growth opportunities and risk associated are
like any equity-oriented scheme.

ORGANISATION OF A MUTUAL FUND:

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

8
SALE / REPURCHASE /REDUMPTION PRICE
The price or NAV a unit holder is charged while investing in an open-ended scheme is called sales
price. It may include sales load, if applicable.
Repurchase or redemption price is the price or NAV an open-ended scheme purchases or redeems
its units from the unit holders. It may be include exit load. if applicable.

ASSURED RETURN SCHEME


Assured return schemes are those schemes that assure a specific return to the unit holders
irrespective of performance of the scheme.
A scheme cannot promise return unless such returns are fully guaranteed by the sponsor or AMC
and this is required to be disclosed in the offer document.
Investors should carefully read the offer document whether return is assured for the entire period
of the scheme or only for a certain period. Some schemes assure returns one year at a time and
they review and change it at beginning of the next year.

Can a mutual fund change the asset allocation while deploying funds of investors?
In the market trends, any prudent fund managers can change the asset allocation i.e. he can invest
higher or lower percentage of the fund in equity or debt instruments compared to what is disclosed

9
in the offer document. It can be done on a short term basis on defensive consideration i.e. to
protect the NAV. Hence the fund managers are allowed certain flexibility in altering the asset
allocation considering the interest of the investors. In case the mutual fund wants to change the
asset allocation on a permanent basis, they are required to inform the unit holders and giving them
option to exit the scheme at prevailing NAV without any load.

How to invest in a scheme of mutual funds


Mutual fund normally comes out with an advertisement in newspapers publishing
the date of launch of the new schemes. Investors can also contact the agents and distributors of
mutual funds who are spread all over the country for necessary information and application forms
can be deposited with mutual funds through the agents and distributors who provide such services.
Now a day, the post offices and banks also distribute the units of mutual funds. However, the
investors may please note that the mutual funds schemes being marketed by banks and post offices
should not be taken as their own schemes and no assurance of returns is given by them.

Can non- resident Indians (NRIs) invest in mutual funds?


Yes, non resident Indians can also invest in mutual funds. Necessary details in this respect are
given in the offer document of the schemes.

How much one should can invest in debt or equity oriented schemes
An investor should take into his risk taking capacity, age factor, financial position etc. as already
mentioned, the schemes invest in different types of securities as in the offer documents and offer
different returns and risks. Investors may also consult financial experts before taking decisions.
Agents and distributors may also help in this regard.

How to fill up the application form of a mutual fund scheme


An investor must mention clearly his name, address, number of units applied for and other such
information as required in the application form. He must give his bank account number so as to
void any fraudulent encashment of any cheque /draft

10
Issued by the mutual fund at a later for the purpose of dividend or repurchase. Any changes in the
address, bank account number, etc at a later date should be informed to the mutual fund
immediately.
What should an investor look in to officer document?
Which contains for useful information, is required to be the prospective investor by the mutual
fund? The application form for subscription to a scheme is an integral part of the offer document.
SEBI has prescribed minimum disclosures in the offer document. An investor, before investing in
a scheme, should carefully read the offer document. due care must be given to portions relating to
main features of the scheme, risk factors, initial issue expenses and recurring expenses to be
charged to the scheme, entry or exit loads, sponsors track record, educational qualification and
experience of key personnel including fund managers, performance of other schemes launched by
the mutual fund in the past, pending litigation and penalties imposed etc.

When will be the investor can get certificate after investing in a mutual fund?
Mutual funds are required to dispatch certificates or statements of within six weeks from the date
of closure of the initial subscription of the scheme. In case of close –ended schemes, the investors
would get either a DEMAT account statement or unit certificates as these are traded in the stock
exchanges. In case of open-ended schemes, a statement of account is issued by the mutual fund
within 30 days from the date of closure of initial public offer of the scheme. The procedure of
repurchase is mentioned in the offer document.

How long will take for transfer of units after purchase from stock markets in case of close-
ended scheme.

According to SEBI regulations, transfer of units is required to be done within thirty days from the
date of lodgment of certificates with the mutual fund.

How much time will take to receive dividend/repurchase proceeds from unit holder
A mutual fund is required to dispatch the unit holder the dividend warrants within 30
Days of the declaration of the dividend and the redemption or repurchase proceeds within 10
working days from the date of redemption or repurchase request made by the unit holder.

11
The mutual fund scheme can change the nature from one specified in the offer document
yes, however no change in the nature or terms of the scheme e.g. structure, investment pattern etc
can be carried out unless a written communication is sent to each unit holder and an advertisement
is given in one English daily having nationwide circulation and in a newspaper published in the
language of the region where the head office of the mutual fund is situated. The unit holders have
the right to exit the scheme at the prevailing NAV without any exit load if they do not want to
continue with the scheme. The mutual funds are also required to follow similar procedure while
converting the scheme from close –ended to open-ended scheme and in case of change in sponsor.

If mutual fund scheme is wound up, what happens to money invested?


In case of winding up of a scheme, the mutual funds pay a sum based on prevailing NAV after
adjustment of expenses. Unit holders are entitled to receive a report on winding up from the
mutual funds which gives all necessary details.

How can the investors redress their complaints?


Investors would find the name of contact person in the offer document of the mutual fund scheme
that they may approach in case of any query, complaints or grievances. Trustees of a mutual fund
monitor the activities of the mutual fund. The names of the directors of asset Management
Company and trustees are also given in the offer documents. Investors can also approach SEBI for
reprisal of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned
mutual fund and follows up with them till the matter is resolved. Investors may send their
complaints too.
What is the procedure for registering a mutual fund with SEBI?
An applicant proposing to sponsor a mutual fund in India must apply in Form A with a fee of
Rs.25, 000. The application is examined and once the sponsor satisfies certain conditions such as
being in the financial services business and possessing positive net worth for the last five years,
having net profit in three out of the last five years and
Possessing the general reputation of fairness and integrity in all business transactions, it is required
to complete the remaining formalities for setting up a mutual fund. These

12
include inter alias, executing the trust deed and investment management agreement, setting up a
trustee company/board of trustees comprising two- thirds independent trustees, incorporating the
asset management company (AMC), contributing to at least 40% of the net worth of the AMC and
appointing a custodian. Upon satisfying these conditions, the registration certificate is issued
subject to the payment of registration fees of Rs.25.00 lacks For details, see the SEBI (Mutual
Funds) Regulations, 1996.

What is the procedure for redressal of investor grievances?


When investors send complaints to SEBI, SEBI takes up the matter with the concerned mutual
funds and follows up with them till they are resolved.

Procedure for Change in the Controlling Interest of the Asset Management Company:

Requirement of Regulations
According to Regulation 22(e) of SEBI (Mutual Funds) Regulations, 1996, no change in the
controlling interest of the asset management company can be made unless,
Prior approval of the trustees and the Board (i.e. SEBI) is obtained;
a written communication about the proposed change is sent to each unit holder and an
advertisement is given in one English daily newspaper having nationwide circulation and in a
newspaper published in the language of the region where the Head Office of the mutual fund is
situated; and
the unit holders are given an option to exit on the prevailing Net Asset Value without any exit
load.
All the conditions prescribed above are required to be complied with. It is advised that the mutual
funds should give at least 30 days time period to the unit holders to exercise the exit option.
New Sponsors
In case the applicant proposing to take the control of the mutual fund is not an existing mutual
fund registered with SEBI, it should apply to SEBI for registration under SEBI (Mutual Funds)
Regulations, 1996.

13
The entire procedure for registration under SEBI (Mutual Funds) Regulations, 1996 is given on the
SEBI website under the heading "How to get registered as a mutual fund" in the ‘Mutual Fund’
section.
Undertakings by new trustees/Sponsors In case of new sponsors or in case of taking over of the
schemes by an existing mutual fund, the undertakings on the following lines are required to be
given in the interest of unit holders:
Taking full responsibility of the management and the administration of the schemes including the
matters relating to the reconciliation of accounts (as if the schemes had been floated by the new
trustees on the date of taking over).
Assumption of the trusteeship of the assets and liabilities of the schemes including unclaimed
dividends and unclaimed redemptions.
Assuming all responsibilities and obligations relating to the investor grievances, if any, in respect
of the schemes taken over, in accordance with and pursuant to the SEBI (Mutual Funds)
Regulations.

Disclosures to Unit holders


While seeking the approval of SEBI for change in the controlling interest of the asset management
company, the mutual fund handing over the control to another person, should also file the draft
letter to be sent to the unit holders.
The draft letter to the unit holders should include the following information –
(a) The activities of the new sponsor and its financial performance as prescribed in the standard
offer document;
(b) In case of taking over of the schemes by an existing mutual fund registered with SEBI, the
draft letter should also include the condensed financial information of all the schemes in the format
prescribed in the standard offer document;
(c) The amount of unclaimed redemption and dividend and also the procedure for claiming such
amount by the unit holders.

Communication by SEBI
While approving the change in controlling interest of the AMC, SEBI may communicate any
further observations, as necessary.

14
Revision of Offer Documents
The information given in the offer documents of existing schemes shall be revised and updated
pursuant to the change in controlling interest of the mutual fund. Such addendum shall also be
filed with SEBI, as required under the SEBI (Mutual Funds) Regulations and Guidelines.
Other Situations
In case of any other situation like indirect control of the asset management company or

Change in the promoters of the sponsor, etc, the mutual fund should provide full information to
SEBI for advice on the further course of action.
In case of any difficulty, SEBI will guide the applicant step by step after getting application for
change in the controlling interest of the asset management company. Normally, all replies are sent
within 21 working days from the date of getting each communication from the applicant during the
process of change in the controlling interest of the asset management company.

An investor has various alternative avenues to invest his savings in. hence , savings are risk and
return characteristics. The objective of the investor is to minimize the risk involved in investment
and maximize the return from the investment.
The objective of the investor should be:

Maximization of return
Minimization of risk
Hedge against inflation

15
REVIEW OF LITERATURE
In the area of risk and return analysis two well known economist made effort to study the
relation between risk and return and they are the people who quantify the risk and return aspects of
an instrument .they are Harry markowitz and William Sharpe.
Very broadly the investment process consists of two tasks. The first task is security analysis which
focuses on assessing the risk and return characteristics of the available investment alternatives. The
second task is portfolio selection which involves choosing the best possible portfolio from the set
of feasible portfolio.

Portfolio theory, originally proposed by Harry markowitz in the 1950’s was the first formal
attempt to quantify the risk of portfolio and develop a methodology for determining the optimal
portfolio .prior to the development of portfolio theory ,investors dealt with the concept of return
and risk somewhat loosely .Harry markowitz was the first person to show quantitatively why and
how diversification reduce risk .in recognition of his seminal contribution in this field he was
awarded the Nobel prize in economics in 1990.
Harry markowitz developed an approach that helps the investors to achieve his optimal
portfolio position .in this contest William Sharpe and others try to find out an answer for a
question ,what is the relationship between risk and return and they developed capital asset pricing
theory .(CAPM)
The CAPM, in essence, predicts the relationship between the risk of an asset and its expected
return .this relationship is very useful in two important ways .first, it produces a bench mark for
evaluating various instrument .second, it helps us to make an informal guess about the return that
can be expected from an assets that has not yet been traded in the market.

De Bondt and Thayler study the price in relation to book value in a universe of all NYSE and
American Stock Exchange equity issue. It has explained the relation between the market price and
book value, with stock being assigned in quintiles from lowest price to book ratios. The earning
yields effect on stock return is significantly positive only in January for the sub period.

Piotroski investigates whether fundamental analysis can be used to provide abnormal returns, and
right shift the returns spectrum earned by a value investor. He focused on high book to market

16
securities, and show that the mean return earned by a high book to market investor can be shifted
to the right by at least 7.5% annually.
The authors developed portfolio based on four fundamental conditions namely: Single Value P/E,
Market Price <Book Value, established track recode on the shareholders return.
Barely and Myers supported Quality of earning as a key performance measure. It is based
on the following argument “the problem is that the earnings that firms report are book, or
accounting figures, and as such reflect a series of more or less arbitrary choices of accounting
methods. A switch in the depreciation method used for reporting purposes directly affects earning
per share. Other accounting choices which affect reported earning are the valuation of inventory,
the procedures by which the account for two merging companies are combined the choice between
expensing and capitalizing. The total value of the companies existing stock is equal to the
discounted value of that portion of the total dividend stream which will be paid to the stock
outstanding today.
The net cash flow to share holders after paying for future investment is sometime s knows as
“company’s cash flow”. This analysis is done at portfolio return on the excess returns for the
market factors using CAPM.

17
CHAPTER-2
RESEARCH METHODOLOGY

18
STATEMENT OF THE PROBLEM
At present there are many investment avenues available to the investors. The investors consider the
return and risk are involved when choosing the investment. Different investment avenues are
available to investors. Mutual fund also after good investment opportunities to the investors. The
investors should compare the risks and expected yields after adjustment of tax on various
instruments while taking investment decisions.
The investors may seek advice from experts and consultants including agents and distributors of
mutual fund schemes while making investment decisions.

The mutual fund schemes provide to low and middle class investors to enter in to a capital
market.
This type of investors can expect more return from less risky portfolios.
The study of mutual funds, analyzing the performance of hybrid funds is, balanced fun
allocation fund, and capital appreciation on the basis of one year NAV.

OBJECTIVES OF THE STUDY

• To Finding the effectiveness of hybrid funds in mutual funds industry.


• To assess the saving objective among individual investors.

SCOPE OF THE STUDY:


The net asset values of 4 schemes are taking for one year. The various schemes are taking for this
study is:
HDFC mutual fund
UTI mutual fund
KOTAK MAHINDRA mutual fund
ICICI prudential

19
LIMITATION OF THE STUDY:
 The study takes only 4 schemes though thirty two companies are offering mutual fund
schemes.
The comparative study is undertaking based on equity

Each mutual fund has an investment objective. Many funds have similar objectives and can be
placed in groups called styles.

These include:

Equity funds
Debt funds
International funds
Hybrid funds

Here we will take special reference of hybrid funds

Needs of a healthy investment portfolio with special reference to hybrid funds

HYBRID FUNDS
The option available is a hybrid fund which has many products with asset allocation variation of
equity and debt. Hybrid securities are a classic example of capital management tools, combining
elements of debt, and
Equity in a flexible and cost effective manner. In the capital structure, hybrids sit between senior
debt and ordinary equity .while hybrid funds are not likely to be the hottest
Performers, people who invest in them are not usually worried about what’s happening in the
market.
There are two basic types of hybrid funds on the basis of asset allocation
Equity oriented hybrid funds, Debt- oriented hybrid funds
Equity oriented hybrid funds:
Equity oriented hybrid funds are best suited for investors who seek stability and reasonable
returns. The one year average returns till May 7, 2005 was 16.25% which is a decent return
compared to the 25.24% average return of diversified equity fund.

20
100

80

60
Hybrid equity oriented
40 sensex
20 jp Morgan

0
1m onth 3m onth 6m onth 1 year
retun return return return

Debt -oriented hybrid funds:


The prices of these schemes tend to be more stable compared to equity schemes and most of
returns for the investors are generated through dividends or steady capital appreciation.
The one year returns of an average debt oriented hybrid funds is 7% and there is no sign of
recovery in bond market.

There are three main categories of hybrid funds based on investment objectives:
Balanced funds
Asset allocation funds
Flexible funds

Operational definitions
MS excel is used in order to calculate standard deviation variance and average return as well as to
draw charts.
The other kinds of formulae used are

Computation of standard deviation

Rate of return = (closing stock-opening stock)/ (opening stock)*100

Standard deviation calculated as per the excel formulae

Variance= square of the standard deviation

21
DATA COLLECTION:

 The study mainly depends on the secondary data.


Journals
Magazines
News papers

The net asset values of different schemes are obtained from various companies.

Absolute Returns (as on Apr 20, 07) Performance of HDFC Balanced Fund (G)

Period Returns (%) Ranks #


1mth 6.9 5
3mth -5.5 36
6mth - 34
1year 3.6 22
2year 56.4 19
3year 75.6 19
5year 197.4 18

PERFORMANCE OF HDFC BALANCED FUNDS

250

200

150
RETURNS

Returns (%)
100 Ranks #
50

0
1mth 3mth 6mth 1year 2year 3year 5year
-50
PERIOD

#
Money control Rank within 37 Balanced Schemes (CHART-1.1)

22
Absolute Returns (in %)
2006 14.2 -10 13.6 6.8 26.5
2005 -0.2 2.1 16 3.5 26.5
2004 -4.3 -8.8 11.9 11.7 13.3
2003 -4.8 14.8 19.4 21.4 59.5
2002 11.5 -6.6 -6.6 11.7 14.7

ABSOLUTR RETURNS IN %

70
60
50 Series1
40 Series2
RETURN

30 Series3
20
Series4
10
Series5
0
-10 Qtr1 Qtr2 Qtr3 Qtr4 Annual
-20
PERIOD

(Chart-1.2)

23
Released on 08th April 2005

EXISTING SCHEMES (Rs. in Crore)


Open End Close End Total
No Of No Of No Of
Amount Amount Amount
Schemes Schemes Schemes
Income 131 15751 15 ^ 398 146 16149
Growth 141 1812 2 - 143 1812
Balanced 34 367 1 - 35 367
Liquid /
Money 39 69740 - - 39 69740
Market
Gilt 30 442 - - 30 442
ELSS 20 39 17 - 37 39
Total 395 88151 35 398 430 88549

HDFC balanced funds (G)


As on 20-04- % % Within fund
2007 class
1 week ** 0.6 22
1 month ** 6.9 5
3 months ** -5.5 36
6 months ** -12.1 34
1 year -9.0 -9.0 22
2 year 10.7 22.4 19
3 year 2.6 8.1 19
5 year 10.9 68.0 18

24
HDFC Capital Builder Fund (D)

Annualized Absolute Performance


Returns Returns Rank (#)
As on 20-04 % % Within fund
2007 class
1 week ** 1.6 21
1 month ** 10.3 6
3 months ** -11.1 14
6 months ** -2.8 62
1 year -9.5 -9.5 110
2 year 13.5 28.9 76
3 year 22.8 85.3 22
5 year 32.5 309.2 20

REFERENCE: Association of mutual funds industry

POPULATION

In mutual funds industry there are 1000 companies so far out of this 50 companies are very
important, .from this 50 companies, I have selected 5 mutual fund companies.

SAMPLE SIZE

I have been selected 5 companies from the mutual funds industry .These companies are from 5
mutual fund companies.

25
CHAPTER-3
COMPANY PROFILE:

26
INDUSTRY PROFILE
PHASES
History of the Indian Mutual Fund Industry
First Phase – 1964-87
The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the
initiative of the Government of India and Reserve Bank the. The history of mutual funds in India
can be broadly divided into four distinct phases

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the
Reserve Bank of India and functioned under the Regulatory and administrative control of the
Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development
Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first
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 Can bank
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 December 1990.
At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores

Third Phase – 1993-2003 (Entry of Private Sector Funds)


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

27
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, 000 crores of assets under management and with
the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with
recent mergers taking place among different private sector funds, the mutual fund industry has
entered its current phase of consolidation and growth. As at the end of September, 2004, there
were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

28
The graph indicates the growth of assets over the years

GROWTH IN ASSETS UNDER MANAGEMENT

Note:
Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit
Trust of India effective from February 2003. The Assets under management of the Specified
Undertaking of the Unit Trust of India has therefore been excluded from the total assets of the
industry as a whole from February 2003 onwards

29
HDFC GROUP & BUSINESS:
Group companies

HDFC Limited
HDFC was incorporated in 1977 with the primary objective of meeting a social need - that of
promoting home ownership by providing long-term finance to households for their housing needs.
HDFC was promoted with an initial share capital of Rs. 100 million.

HDFC Bank Limited

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive
approval from the Reserve Bank of India to set up a bank in the private sector. The bank was
incorporated in August 1994 in the name of HDFC Bank Limited, with its registered office in
Mumbai.

HDFC Securities Limited


HDFC Securities Ltd was promoted by the HDFC Bank & HDFC with the objective of providing
the diverse customer base of the HDFC Group and other investors, a capability to transact in the
Stock Exchanges & other financial market transactions.
HDFC sec, provides you with the necessary tools to allocate, select and manage your investments
wisely, and also support it with the highest standards of service, convenience and hassle-free
trading

HDFC Asset Management Company Limited


HDFC Fund is a dominant player in the Indian mutual fund space, recognized for its high levels of
ethical and professional conduct and a commitment towards enhancing investor interests.

30
HDFC Realty Limited
HDFC Realty is a new, organized electronic marketplace for properties. HDFC realty provides the
entire gamut of real estate services, bringing together the "clicks world"
And the "bricks world" in a revolutionary and user-friendly way. Making available the best
guidance and the most professional, transparent, efficient service to the real estate customer.

HDFC Standard Life Insurance


HDFC and Standard Life first came together for a possible joint venture, to enter the Indian Life
Insurance market, in January 1995.

HDFC Ltd:

Housing Finance Sector

Against the milieu of rapid urbanization and a changing socio-economic scenario, the demand for
housing has grown explosively. The importance of the housing sector in the economy can be
illustrated by a few key statistics. According to the National Building Organization (NBO), the
total demand for housing is estimated at 2 million units per year and the total housing shortfall is
estimated to be 19.4 million units, of which 12.76 million units is from rural areas and 6.64 million
units from urban areas. The housing industry is the second largest employment generator in the
country. It is estimated that the budgeted 2 million units would lead to the creation of an additional
10 million man-years of direct employment and another 15 million man-years of indirect
employment.

Having identified housing as a priority area in the Ninth Five Year Plan (1997-2002), the National
Housing Policy has envisaged an investment target of Rs. 1,500 billion for this sector. In order to
achieve this investment target, the Government needs to make low cost funds easily available and
enforce legal and regulatory reforms.

31
Background

HDFC was incorporated in 1977 with the primary objective of meeting a social need – that of
promoting home ownership by providing long-term finance to households for their housing needs.
HDFC was promoted with an initial share capital of Rs. 100 million.

Business Objectives

The primary objective of HDFC is to enhance residential housing stock in the country through the
provision of housing finance in a systematic and professional manner, and to promote home
ownership. Another objective is to increase the flow of resources to the housing sector by
integrating the housing finance sector with the overall domestic financial markets..

Organizational Goals

HDFC’s main goals are to a) develop close relationships with individual households, b) maintain
its position as the premier housing finance institution in the country, c) transform ideas into viable
and creative solutions, d) provide consistently high returns to shareholders, and e) to grow through
diversification by leveraging off the existing client base.
HDFC SECURITIES
PROFILE
HDFC Securities, a trusted financial service provider promoted by HDFC Bank and JP Morgan
Partners and their associates, is a leading stock broking company in the country, serving a diverse
customer base of institutional and retail investors.

HDFCsec.com provides investors a robust platform to trade in Equities in NSE and BSE , and
derivatives in NSE. Our website will support you with the highest standards of service,
convenience and hassle-free trading tools.

Our research team tracks the economy, industries and companies to provide you the latest
information and analysis. Our content offers financial information, analysis, investment guidance,
news & views, and is designed to meet the requirements of everyone from a beginner to a savvy
and well-informed trader. With HDFCsec.com, you get:

32
Speed:
Our state-of-the art technology enables to instantly trade on the BSE and NSE.
Convenience
You can trade with us online or on the phone from the convenience of your home or office. Use
the 3-in-1 Advantage account to seamlessly move funds and securities across your bank DEMAT
and trading account. This way, you do not have to issue CHEQUE or delivery instructions.
Transparency:
With our trusted pedigree, you can be assured that you get the best services in a transparent
manner. By broking with us, you are in total control of your funds and stocks.
Expertise:
Our Group has decades of experience in providing financial services to customers in a transparent
and trusted manner. We have a dedicated, motivated and experienced team of professionals to
provide you top class service.
Timely and Relevant Information:
We 33realize the importance of making information available to you as it happens. Empowered
with the latest news, developments and research, you will be able to take informed decisions.
You’re Interest:
For us, your interest comes first. We endeavor to provide high quality investment services, in a
simple, direct and cost-effective way to help you achieve your financial goals.
Our Offerings
Cash-on-Carry on both NSE and BSE by taking delivery of shares.
Online trading for Resident & NRIs.
Day trading, on both NSE and BSE, wherein all the positions are compulsorily squared up on the
same trading day.
Trade Futures & Options on the NSE.
Online IPO’s.
Telephone - based trading for Equities, Derivatives and IPO’s.

33
HDFC REALTY.COM
Profile
The property market in India abounds with possibilities and potential ... but for the large part, it is
still highly fragmented and disorganized.

HDFCrealty.com is you’re new, organized electronic marketplace for properties. We provide the
entire gamut of real estate services, bringing together the "clicks world" and the "bricks world" in a
revolutionary and user-friendly way. Making available the best guidance and the most
professional, transparent, efficient service to the real estate customer.

HDFCrealty.com brings together India's most exhaustive database of properties. It acts as a one-
stop online hub for information, comparative analyses, transactions, market reach and
comprehensive professional services. For property anywhere in India. For customers anywhere in
the world HDFCrealty.com, the company behind this site, has been formed by Housing
Development Finance Corporation Limited (HDFC).
HDFC has since emerged as the largest residential mortgage finance institution in the country.
HDFC is India’s largest Housing Finance Company and is an expert on the housing sector,
property markets and the real estate business. HDFC has a strong retail orientation with high
quality customer service being the driving force for its activities. This expertise and service
orientation has developed and strengthened over the last 22 years. Today HDFC has an office
network of 63 offices all over the country and an overseas office in Dubai. HDFC has financed
over 1.5 million dwelling units with loan approvals and disbursements amounting to Rs. 225
billion and Rs. 186 billion respectively.

HDFC Chubb

With over one century of experience in the field of non-life insurance from Chubb and
HDFC's expertise from the financial segment, HDFC Chubb General Insurance Company Limited
has the consumer insight to make its product range world class and comprehensive.
Motor Insurance

34
We understand and care for your vehicle beyond just the policy issue and speedy claims. HDFC
Chubb's Motor Insurance product mainly focuses on Motor Package Policy for private cars & two
wheelers.
Home Insurance
With Home Insurance, we will offer you cover for your home and belongings against fire and
burglary. Our Home Insurance will bring you the convenience of purchase from HDFC's home
loan counters.
Accident & Health
Accidents can happen anywhere and at anytime, which is why the HDFC Chubb Accident and
Travel policy is designed to protect you from the financial consequences.

Avail of the Group Accident Policy, Hospital cash-Accident policy and Business Travel policy.

HDFC standard life

HDFC Standard Life Insurance Company Ltd. is one of India’s leading private life insurance
companies, which offers a range of individual and group insurance solutions. It is a joint venture
between Housing Development Finance Corporation Limited (HDFC Ltd.), India’s leading
housing finance institution and one of the subsidiaries of Standard Life plc, leading providers of
financial services in the United Kingdom. Both the promoters are well known for their ethical
dealings and financial strength and are thus committed to being a long-term player in the life
insurance industry – all important factors to consider when choosing your insurer.

BSE

The Stock Exchange, Mumbai is not in any manner answerable, responsible or liable to any person
or persons for any acts of omission or commission, errors, mistakes, and/or violation, actual or
perceived, by us or our partners, agents, associates, etc., of any of the Rules, Regulations, Bye-
laws of the Stock Exchange, Mumbai, SEBI Act or any other laws in force from time to time. The
Stock Exchange, Mumbai is not answerable, responsible, or liable for any information on this
Website or for any services rendered by us, our employees, and our servants.

35
PRODUCT PROFILE:
Equity funds
Debt funds
Balanced funds

Debt Instruments
Equity
Money Market Instruments
NBFC Deposits
Company Deposits
Bonds
Debentures
Bank Deposits ( FDs and savings accounts)
Government Small Savings Schemes (E.g. PPF)

Mutual Funds
Balanced schemes

36
Nature of Scheme Open Ended Balanced Scheme
Inception Date September 11, 2000
Dividend Plan, Growth Plan. The Dividend Plan offers
Option/Plan
Dividend Payout and Reinvestment Facility.
Entry Load · In respect of each purchase / switch-in of Units less
(as a % of the Applicable NAV) than Rs. 5 crore in value, an Entry Load of 2.25% is
payable.
· In respect of each purchase / switch-in of Units equal
to or greater than Rs. 5 crore in value, no Entry Load is
payable.
Exit Load
Nil
(as a % of the Applicable NAV)
For new investors: Rs.5000 and in multiples of Rs.100
thereafter.
Minimum Application Amount
For existing investors: Rs. 1000 and in multiples of Rs.
100 thereafter.
Lock-In-Period Nil
Net Asset Value Periodicity Every Business Day.
Redemption Proceeds Normally dispatched within 3 Business days
Tax Benefits
(As per present Laws)

Investment Pattern
Defensive or aggressive posture at any point in time. Risk will also be controlled
Income securities including structured obligations etc.) Include, but are not limited to:
Debt obligations of / Securities issued by the Government of India, State and local Governments,
Government Agencies and statutory bodies (which may or may not carry a state / central
government guarantee).
Securities that have been guaranteed by Government of India and State Governments.
Securities issued by Corporate Entities (Public / Private sector undertakings).
Securities issued by Public / Private sector banks and development financial institutions.

Money Market Instruments Include

37
Commercial papers
Commercial bills
Treasury bills
Government securities having an unexpired maturity up to one year
Call or notice money
Certificate of deposit
Stance bills
Permitted securities under a repo / reverse repo agreement
Any other like instruments as may be permitted by RBI / SEBI from time to time
Investments will be made through secondary market purchases, initial public offers, other public
offers, placements and right offers (including renunciation). The securities could be listed,
unlisted, privately placed, secured / unsecured, rated / unrated of any maturity.
The AMC retains the flexibility to invest across all the securities / instruments in debt and money
market.
Investment in debt securities will usually be in instruments which have been assessed as "high
investment grade" by at least one credit rating agency authorized to carry out such activity under
the applicable regulations. Pursuant to SEBI Circular No. MFD/ CIR/9/120/2000 dated November
24, 2000; the AMC may constitute committee(s) to approve proposals for investments in unrated
debt instruments. The AMC Board and the Trustee shall approve the detailed parameters for such
investments. The details of such investments would be communicated by the AMC to the Trustee
in their periodical reports. It would also be clearly mentioned in the reports, how the parameters
have been complied with. However, in case any unrated debt security does not fall under the
parameters, the prior approval of Board of AMC and Trustee shall be sought. Investment in debt
instruments shall generally have a low risk profile and those in money market instruments shall
have an even lower risk profile. The maturity profile of debt instruments will be selected in
accordance with the Fund Managers view regarding current market conditions, interest rate
outlook and the stability of ratings.
RISK CONTROL
The overall portfolio structure would aim to maintain risk at a moderate level. The Fund Manager
would avoid adopting either a very defensive or aggressive posture at any point in time. Risk will
also be controlled

38
Through portfolio diversification and a conscious focus on maintaining adequate levels of liquidity
at all points in time. Macro economic risk will be addressed through a constant review of the
business and economic environment. The AMC may from time to time, review and modify the
Schemes? Investment strategy if such changes are considered to be in the best interest of Unit
holders and appropriate to the existing market situation. Investments in securities and instruments
not specifically mentioned earlier may also be made, provided they are permitted by SEBI
Regulations.
HYBRID FUNDS
- is a mutual fund scheme that invests in schemes of mutual funds
- Does not invest directly in shares or debentures

Structure of Hybrid funds


Balanced funds
Capital appreciation
Asset allocation fund
Flexible funds
Money market fund

How does an HDFC mutual fund work?


Investments primarily in schemes recommended by a designated agency
Recommendations based on research methodology
Investments in top recommended schemes
Periodic review and rebalancing, quarterly

HDFC hybrid funds: Benefits

The whole is greater then the sum of its parts


A unique first time product

Suited for retail investors

39
A FIRST, once again from HDFC mutual funds

Advisory
Investments in best of breed balanced schemes
At all times

Convention automatic rebalancing


Less paper work
Efficient investment vehicle
Tax efficiency
Load benefits

The Risk-Return Trade-off

The most important relationship to understand is the risk-return trade-off. Higher the risk greater
the returns/loss and lower the risk lesser the returns/loss.
Hence it is up to you, the investor to decide how much risk you are willing to take. In order to do
this you must first be aware of the different types of risks involved with your investment decision.

Market Risk

Sometimes prices and yields of all securities rise and fall. Broad outside influences affecting the
market in general lead to this. This is true, may it be big corporations or smaller mid-sized
companies. This is known as Market Risk. A Systematic Investment Plan (“SIP”) that works on
the concept of Rupee Cost Averaging (“RCA”) might help mitigate this risk

Credit Risk
The debt servicing ability (may it be interest payments or repayment of principal) of a company
through its cash flows determines the Credit Risk faced by you. This credit risk is measured by
independent rating agencies like CRISIL who rate companies and their paper. A ‘AAA’ rating is
considered the safest whereas a ‘D’ rating is considered poor credit quality. A well-diversified
portfolio might help mitigate this risk.

40
Inflation Risk
Things you hear people talk about:
“Rs. 100 today is worth more than Rs. 100 tomorrow.”
“Remember the time when a bus ride costed 50 paise?”
“Mehangai Ka Jamana Hai.”
The root cause, Inflation. Inflation is the loss of purchasing power over time. A lot of times people
make conservative investment decisions to protect their capital but end up with a sum of money
that can buy less than what the principal could at the time of the investment. This happens when
inflation grows faster than the return on your investment. A well-diversified portfolio with some
investment in equities might help mitigate this risk.

Interest Rate Risk

In a free market economy interest rates are difficult if not impossible to predict. Changes in
interest rates affect the prices of bonds as well as equities. If interest rates rise the prices of bonds
fall and vice versa. Equity might be negatively affected as well in a rising interest rate
environment. A well-diversified portfolio might help mitigate this risk
Liquidity Risk

Liquidity risk arises when it becomes difficult to sell the securities that one has purchased.
Liquidity Risk can be partly mitigated by diversification, staggering of maturities as well as
internal risk controls that lean towards purchase of liquid securities

Financial Planning

The first and most important step in your life as an investor is to define your goals at the onset of
your investing activity. This will map the road ahead for you in terms of time, amount, type of
asset and risk. At this point of time you must also decide how much you are willing to save. When
you look at defining your goals think carefully and try to include all your requirements, here are a
few things that might help you:

41
Retirement – In how many years?
How much money will you need?
How long will you need it for?
Daughter’s/Son’s wedding – When and how much?
Daughter’s/Son’s education – When and how much?
Purchase of big ticket items e.g. House, Car etc. –
Again, when and how much?
A simple way to get an overall perspective is to draw a time line starting from today with the
amount you have saved up till now labeled at time zero. Going forward you can label your major
outflows as and when they occur till retirement and then the steady outflows for your retirement
income. Please remember your worst enemy “Inflation” and factor this into your targets.
Remember that in an inflationary environment an apple will cost more tomorrow than today. For
example:

There are three major asset classes that you can put your money into, namely equities, fixed
income and money market instruments. In order to decide how much of your money goes into
which investment class you must first consider a few important factors (most of these will be
tackled by you during your goal definition phase):

Return expected on your investment


Amount you will be able to save (present as well as future)
Cash outflows you might have at certain points of time in the future
Risk appetite
Amount you will require for your retirement
Liquidity
You’re Age

42
Aggressive Portfolio

MODERATE PORTFOLIO

CONSERVATIVE PORTFOLIO

AGE Main Objectives Portfolio Strategy


20-29 Aggressive Growth – Sow the seeds, plan 50% - Growth Funds
for housing and create a safety cushion 30% - Balanced Funds
20% - Money Markets / Cash
30-39 Growth – Save for housing, children’s 45% - Growth Funds
expenses (present and future – education 30% - Balanced Funds
etc.) and safety cushion 05% - Blue Chip Stocks
20% - Money Markets / Cash

43
40-49 Growth – Children’s expenses (present and 40% - Growth Funds
future – education etc.) and safety cushion 30% - Balanced Funds
10% - Blue Chip Stocks
20% - Money Markets / Cash
50-59 Retirement – Save for retirement and build 30% - Growth Funds
on safety cushion 40% - Balanced Funds
10% - Blue Chip Stocks
20% - Money Markets / Cash
60-69 Safety – Preserve investments/ savings and 10% - Balanced Funds
opt for minimal growth 15% - Income Funds
10% - Blue Chip Stocks
20% - Dividend Stocks
30% - Certificates of Deposits (Shorter-
term)
15% - Money Markets / Cash
70- Safety – Preserve investments/ savings 30% - Income Funds
25% - Dividend Stocks
35% - Certificates of Deposits (Shorter-
term)
10% - Money Markets / Cash

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.
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.

44
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 neither (Trey nor 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 neither Trey nor measure, compared with another fund that is
highly diversified, will rank lower on Sharpe Measure.

45
CHAPTER-4
ANALYSIS AND INTERPRETATION OF
DATA

46
RISK AND RETURN OF THE MUTUAL FUNDS b/w 1-6-05TO 30-5-06
comparison Equity fund Balanced fund

S.D C.V S.D C.V


UTI 0.0661 2.934 0.01096 4.873
HDFC 0.000270 12.16 0.38017 16.38
ICICI prudential 0.01419 63.40 0.01093 48.8
KOTK Mahindra 0.0239 14.64 0.00125 55.56

10,000

1,000 equity(c,v)
balance(c.v)
100

10

1
l

a
TI

ia
FC

dr
nt
U

in
D

de
H

ah
ru

M
Ip

TK
IC

KO
IC

Reference: Annexure

47
Interpretation::

1. In the case of UTI the risk is higher in equity fund but the movement of the fund price is in the
same direction (+ve), 0.0661. In HDFC the risk is higher in balanced fund. In the case of icici the
risk is high in equity fund. In Kotak Mahindra the risk is low .Totally HDFC is very low risk in
equity fund compared to all companies (0, 00125).

2. In four companies, the risk is least risky one, in equity. But in the case of ICICI Prudential
displays a high risk in equity. Because UTI is the government mutual fund. They never cannot take
risk. Because economical risk, social risk, and political risk .so we can see in asset under
management is 69.28 Lakhs .The ICICI have been taking number of business. The higher levels
are not concentrating for a particular business. So the customers can get psychological risk. When
the customers get risk then the company will get high risk. Ex: ICICI (asset under management
(AUM) is 20880lakhs.

48
CHAPTER-5

FINDINGS SUGGESTIONS AND


CONCLUSION

49
Findings:

Suppose A invested in balanced schemes and B invested in equity schemes. In equity schemes
invest every quarter, both are changing the portfolios similarly. In equity is fixed period of time
.The investor cannot change when the less returns. In this analysis equity returns are 63.40%
compared to balanced funds. The investor have high risky. In ICICI is private mutual fund so the
investors can invest government (UTI) mutual fund. The higher level managers cannot take more
risk. Because they have political risk, cultural risk economic risk.
Risk factor is greater than the balanced scheme. In UTI funds asset under management total
69.28lakhs .but in ICICI prudential fund asset under management is 20880.65 Lakhs

In balanced schemes investor can invest in any company .this will be giving more returns
compared to equity schemes.
In a hybrid schemes there is no need to pay capital gain tax and also the entry load in between. But
in equity schemes in changing the portfolios the person is suppose to pay capital gain tax as well as
the entry load if he is selling and going for new scheme.
From the analysis part it’s very clear that hybrids schemes are giving a better return than equity
schemes.
From the analysis it’s very clear that if a person is reinvesting the amount as capital gain, it will
earn more returns.

50
Suggestions:

The investors invest in mutual funds industry can see the expected returns. The investor will go
through the returns of the funds .so investor must have to see where we get more returns in any
scheme investor can invest.
The investor will choose the balanced schemes in fund schemes.
MAR vis-à-vis conventional measures
MAR: return expected by investors at the time of investing realistic (divides volatility into positive
and negative)
Capture absolute negative returns as well as returns below the opportunity cost
Minimum access able return=risk-free return + risk premium
*Risk –free return assumed = average daily returns from liquid
Schemes (averaged over 1 month)
*investors will be polled each quarter to determine risk premium required
To invest in balanced schemes

51
CONCLUSION:

The investors invest in any mutual fund company they are expecting more returns of the funds. If
the investor will get more returns and less risk the balanced scheme will give this return. In
balanced scheme we will get more returns compared to equity schemes.
In portfolio investment is growing rapidly because of this return. The investors are also investing
in mutual fund industry the reason is the les risk and more returns. So the investment can do better
way, means in balanced schemes funds return’s more compared to equity schemes when I have
analyzed in returns standard deviations and covariance, funds will get more returns in mutual
funds industry.

52
BIBLIOGRAPHY:

www.amfi.com

www.valueresearch.com

www.bseindia.com

www.finditonline.com

Investment analysis and portfolio management 2nd edition Prasanna


Chandra

Tata Mc graw-hill publications.

The Icfai University press journal march -2007

Out look money magazine January-2007

53
54