“COMPARATIVE STUDY BETWEEN

MUTUAL FUNDS OFFER BY VARIOUS COMPANIES IN INDIAN MARKET”

TABLE OF CONTENTS
Chapter - 1 Introduction…………………………….………….……………………6 Chapter – 2 Objective and Scope of Study 2.1 Objective…………………………………….………..…………………….8 2.2 Scope of the Study ……………………………….……..………………….8 Chapter – 3 Limitations………………..………………..………….………………....9 Chapter - 4 Theoretical Perspectives 4.1 Industry Profile……………………………………………...…..….……...10 4.2 Concept and Role of Mutual Fund………………………………..….…….12 4.3 Contribution of Various Players in Mutual Fund Market in India …….…..15 1

4.4 Organization and Management of Mutual Funds………….…..…….……..19 4.5 Investor’s profile…………………………………………..……………….25 4.6 Types of Mutual Funds………………………….………….………………30 4.7 Valuation of Mutual funds …………………………..…….……………….41 4.8 Mutual Fund Scheme Types………………………………..………………42 4.9 Different Modes of receiving the income earned from Mutual Fund Investments…………………………………………..……..……………….44 4.10 Advantages of Investing through Mutual Funds……………………..……46 4.11 Evolution and Growth of Mutual Funds…………………………...………50 4.12 Recent Trends in Mutual Fund Industry……………………...………..…..55 4.13 Risk Factors of Mutual Fund……..……………………………………..…60 Chapter – 5 Methodology and Procedure of Work………………………………..64 Chapter – 6 Analysis of Data……………………………….…………...…………..67 Chapter – 7 Conclusions and Recommendation………………….……..………....91 Chapter – 8 Summary………..……………………………………………..……….93 ANNEXURE I - PROJECT PROPOSAL…………………………………………….94 ANNEXURE II - REFERENCES……………………………………………….….....99 ANNEXURE III - LIST OF CHARTS, FIGURES, DIAGRAMS & TABLES..….100

CHAPTER -1

INTRODUCTION
There are a lot of investment avenues available today in the financial market for an investor with an investible surplus. He can invest in Bank Deposits, Corporate Debentures, and Bonds where there is low risk but low return. He may
invest in Stock

of companies where

the risk is high and the returns are also proportionately high. The recent trends in the
Stock Market

have shown that an average retail investor always lost with periodic bearish

tends. People began opting for portfolio managers with expertise in stock markets who would invest on their behalf. Thus we had wealth management services provided by

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many institutions. However they proved too costly for a small investor. These investors have found a good shelter with the
mutual funds.

Mutual fund industry has seen a lot of changes in past few years with multinational companies coming into the country, bringing in their professional expertise in managing funds worldwide. In the past few months there has been a consolidation phase going on in the mutual fund industry in India. Now investors have a wide range of Schemes to choose from depending on their individual profiles. Today an investor is interested in tracking the value of his investments, whether he invests directly in the market or indirectly through Mutual Funds. This dynamic change has taken place because of a number of reasons. With globalization and the growing competition in the investments opportunity available he would have to make guided and rational decisions on whether he gets an acceptable return on his investments in the funds selected by him, or if he needs to switch to another fund. In order to achieve such an end the investor has to understand the basis of appropriate preference measurement for the fund, and acquire the basic knowledge of the different measures of evaluating the performance of the fund. Only then would he be in a position to judge correctly whether his fund is performing well or not, and make the right decision. 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.

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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.

CHAPTER-2

OBJECTIVE AND SCOPE OF STUDY

2.1 OBJECTIVE
The study has following objectives:  To project Mutual Fund as the ‘productive avenue’ for investing activities.

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 To show the wide range of investment options available in Mutual Funds by explaining its various schemes.  To compare the schemes based on Sharpe’s ratio, Treynor’s ratio, β Coefficient, Returns and show which scheme is best for the investor based on his risk profile.  To help an investor make a right choice of investment, while considering the inherent risk factors.  To understand the recent trends in Mutual Funds world.

2.2 SCOPE OF THE STUDY
The study here has been limited to analyze open-ended equity Growth schemes of different Asset Management Companies namely Kotak Mahindra Mutual Fund, Reliance Mutual Fund, HDFC Mutual Fund, Franklin Templeton Mutual Fund, HSBC Mutual Funds each scheme is analysed according to its performance against the other, based on factors like Sharpe’s Ratio, Treynor’s Ratio, β (Beta) Coefficient, Returns.

CHAPTER – 3 LIMITATIONS
Any study which is undertaken has some limitations. This study also has following limitations:

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 The study is limited only to the analysis of different schemes and its suitability to different investors according to their risk-taking ability.  The study is based on secondary data available from monthly fact sheets, websites and other books, as primary data was not accessible.  The study is limited by the detailed study of various schemes of Five Asset Management Company.

CHAPTER - 4 THEORETICAL PERSPECTIVES

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4.1 INDUSTRY PROFILE About Mutual Fund Industry
Mutual Funds are financial intermediaries which pool the savings of numerous individuals and invest the money, thus related in a diversified portfolio of securities, including equity, bonds debentures and other money market instruments, thus spreading and reducing risk. The objective of mutual fund is to maximize the return to the investor who participates in equity indirectly through mutual funds. Even though the mutual fund industry grown in asset value from Rs.7000 Crores to 2,00,000/- Crores today, this is just the tip of the iceberg. According to most Fund Managers, the real boom is yet to come. The sum of Rs.2,00,000/- Crores represents just 3% - 4% of the total market capitalization of 25,00,000 Crore. This compares poorly with the US, where the mutual funds have nearly $ 6.8 billion of market capitalization of roughly Rs.70000 Crore, barely 3% - 4% of total market capitalization. This is not expected, because mutual fund history in India, which dates back to 1964, when the first open-ended mutual fund scheme Unit-64 was launched by Unit Trust of India, is still dominated by it. The focus initially was income earning securities, with only 20 % of the Corpus going into equity. The early 80’s saw other schemes like the growing income, fixed income, and monthly income being introduced by the UTI. But it was only in 1986 that the first pure Growth equity scheme Master share was launched. 1989-90 was another landmark year in the history of mutual funds. For the fist time, the monopoly of UTI over the industry was broken. The government allowed public sector banks and insurance companies to enter this sector to bring in some competition.

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But it was only in 1993, when the private sector was given the green signal to float mutual funds, that excitement and competition came. Not only did the Government allowed Indian companies to float mutual funds, it even allowed foreign funds to set in shop in India and float funds. Thus, in one stroke, this sector was truly privatized. Today there are about 12-14 private players in the market including foreign funds such as Morgan Stanley, besides the nine public sector players and UTI. Together, these funds have mobilized around Rs.6500 Crore from the market. The collections could have been better, had not the public sector funds been busy complying with the SEBI guidelines pertaining to the formation of asset management companies etc. But the best is yet to come. A number of companies have plans to float mutual funds at various stages of implementation. Some of the major names which are likely to come to the market are Tata Sons in collaboration with Kleinwort Benson, ITC Classic with Thread needle UR, Oppenheimer of US, plus a host of others. And according to conservative guesstimates, mutual funds are set to collect over Rs.10000 Crore from the market this year.

The reason for such confidence is that with SEBI firm about the small investor taking the mutual fund route to investments in the stock market, and the regulatory changes making it much more difficult to get allotments in primary markets; small investors will not be left with many opportunities.

4.2 Concept and role of Mutual Fund
WHAT IS MUTUAL FUND

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SEBI Mutual Fund Regulation act, 1996, defines a Mutual Fund as “a fund established in the form of a trust by a sponsor to raise money by the Trustees through the sale of units to the public under one or more schemes for investing in securities in accordance with these regulations”. A Mutual Fund is common pool of money into which Investor place their contributions that are to be invested in accordance with a stated objective. The ownership of the Fund is thus joint or “mutual”; the fund belongings to all investors. A single investor’s ownership of the fund is in the same proportion as the amount of the contribution made by him or her bears to the total amount of the fund. Mutual Fund Operation Flow Chart

(Figure-1)

A Mutual fund uses the money collected from investors to buy those assets, which are specifically permitted by its stated investment objective. Thus, an Equity Fund would buy mainly Equity assets-ordinary shares, preference shares, warrants etc. A bond fund would mainly buy debt instruments such as debentures, bonds or government securities. It is these assets, which are owned by the investors in the same proportions as there contribution bears to the total contribution of all investors put together.

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When an investor subscribes to a mutual fund, he or she buys a part of these assets or the pool of funds that are outstanding at that time. It’s no different from buying “shares” of a joint stock company, in which case the purchase makes the investor a part owner of the company and its assets. In fact, in the USA, a Mutual fund is constituted as an investment company and an investor “buys into the fund”, meaning he buys the shares of the fund. In India, a mutual fund is constituted as a Trust and the investor subscribes to the “units” issued by the fund, which is where the term unit Trust comes from. IMPORTANT CHARACTERISTICS OF THE MUTUAL FUND 1. A mutual fund actually belongs to the investors who have pooled their funds. The ownership of the mutual fund is in the hand of the investor 2. A mutual fund is managed by investment professional and other service providers who earn a fee for their services from the fund 3. The pool of funds is invested in a portfolio of marketable investments. The value of the portfolio is updated every day. 4. The investor’s share in the fund is denominated by “UNIT”. The value of the unit changes with changes in the portfolio value every day the value of the unit of investment is called as the Net Assets Value or NAV. 5. The investment portfolio of the fund is created according to the stated investment objectives of the fund. Every Mutual Fund is managed by a fund manager, who using his investment management skills and necessary research works ensures much better return than what an investor can manage on his own. The capital appreciation and other incomes earned from

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these investments are passed on to the investors (also known as unit holders) in proportion of the number of units they own.

(Figure-2)

When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets of the fund in the same proportion as his contribution amount put up with the corpus (the total amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit holder. Any change in the value of the investments made into capital market instruments (such as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is calculated by dividing the market value of scheme's assets by the total number of units issued to the investors.

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4.3 CONTRIBUTION OF VARIOUS PLAYERS IN MUTUAL FUND MARKET IN INDIA
Currently the total funds under mutual fund management in India are a little over Rs.3, 26,388 crore. Out of this UTI accounts for nearly 70 percent while the private funds account for around 22 percent. The balance 8 percent is managed by mutual funds floated by public sector banks and financial institutions.

CONTRIBUTION OF VARIOUS PLAYERS IN MUTUAL FUNDS MARKET IN INDIA

8% 22% UTI PRIVATE FUNDS PUBLIC BANKS 70%

(Chart-1)

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List of Members: A) Bank Sponsored 1. Joint Ventures - Predominantly Indian a. SBI Funds Management Private Ltd. 2. Others a. BOB Asset Management Co. Ltd. b. Canbank Investment Management Services Ltd. c. UTI Asset Management Co. Private Ltd. B) Institutions a. Jeevan Bima Sahayog Asset Management Co. Ltd. C) Private Sector 1. Indian a. Benchmark Asset Management Co. Private Ltd. b. Cholamandalam Asset Management Co. Ltd. c. Credit Capital Asset Management Co. Ltd. d. Escorts Asset Management Ltd. e. J. M. Financial Asset Management Private Ltd. f. Kotak Mahindra Asset Management Co. Ltd. g. Quantum Asset Management Co. Private Ltd. h. Reliance Capital Asset Management Ltd. i. Sahara Asset Management Co. Private Ltd j. Sundaram Asset Management Co. Ltd. k. Tata Asset Management Ltd. 2. Joint Ventures - Predominantly Indian a. Birla Sun Life Asset Management Co. Ltd.

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b. DSP Merrill Lynch Fund Managers Ltd. c. HDFC Asset Management Co. Ltd. d. Prudential ICICI Asset Management Co. Ltd. 3. Joint Ventures - Predominantly Foreign a. ABN AMRO Asset Management (India) Ltd. b. Deutsche Asset Management (India) Private Ltd. c. Fidelity Fund Management Private Ltd. d. Franklin Templeton Asset Management (India) Private Ltd. e. HSBC Asset Management (India) Private Ltd. f. ING Investment Management (India) Private Ltd. g. Morgan Stanley Investment Management Private Ltd. h. Principal Pnb Asset Management Co. Private Ltd. i. Standard Chartered Asset Management Co. Private Ltd.

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Assets Under Management (AUM) as at the end of MAR-2009 (Rs in Lakhs) Average AUM For The Month Sr No Mutual Fund Name Excluding Fund of Funds - Domestic but including Fund of Funds - Overseas 137694.56 113201.06 106856.68 19651.85 4709622.86 474388.13 102349.02 935510.47 1441273.29 2228.34 18152.64 617290.87 581105.21 1920529.86 N/A 5795644.71 957519.09 5143250.24 1436219.88 252874.88 478756.21 245352.91 1820404.34 2309237.33 16208.46 134585.41 675687.05 5675.51 8096293.55 N/A 602283.90 14592.57 2638268.15 N/A 926706.92 Fund Of Funds Domestic 0 0 0 0 1478.04 0 0 0 0 0 0 2822.87 10648.00 16000.64 N/A 0 0 2360.94 1441.08 18485.84 0 0 16592.36 0 0 0 0 0 0 N/A 0 0 0 N/A 0

1 2 3 4 5 6 7 8 9

AIG Global Investment Group Mutual Fund Baroda Pioneer Mutual Fund Benchmark Mutual Fund Bharti AXA Mutual Fund Birla Sun Life Mutual Fund Canara Robeco Mutual Fund DBS Chola Mutual Fund Deutsche Mutual Fund DSP BlackRock Mutual Fund

10 Edelweiss Mutual Fund 11 Escorts Mutual Fund 12 Fidelity Mutual Fund 13 Fortis Mutual Fund 14 Franklin Templeton Mutual Fund 15 Goldman Sachs Mutual Fund 16 HDFC Mutual Fund 17 HSBC Mutual Fund 18 ICICI Prudential Mutual Fund 19 IDFC Mutual Fund 20 ING Mutual Fund 21 JM Financial Mutual Fund 22 JPMorgan Mutual Fund 23 Kotak Mahindra Mutual Fund 24 LIC Mutual Fund 25 Mirae Asset Mutual Fund 26 Morgan Stanley Mutual Fund 27 PRINCIPAL Mutual Fund 28 Quantum Mutual Fund 29 Reliance Mutual Fund 30 Religare AEGON Mutual Fund 31 Religare Mutual Fund 32 Sahara Mutual Fund 33 SBI Mutual Fund 34 Shinsei Mutual Fund 35 Sundaram BNP Paribas Mutual Fund

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36 Tata Mutual Fund 37 Taurus Mutual Fund 38 UTI Mutual Fund Grand Total (Table-1)

1702987.17 20836.41 4875417.00 49328656.53

0 0 0 69829.77

4.4 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 mangers or The merchant-banking unit Custodians.

STRUCTURE OF A MUTUAL FUND

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Sponsor

Trustee s

Mutual fund

ASSET MANAGEMENT COMPANY

Custodia n

Registra r

(Figure-3)

The structure of mutual fund in India is governed by SEBI (MUTUAL FUND) regulations 1996. These regulations make it mandatory for mutual funds to have a threetier structure of SPONSOR-TRUSTEE-ASSET MANAGEMENT COMPANY (AMC).

Organizational set up of mutual fund

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(Figure-4)

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 ASSES MANAGEMENT COMPANY (AMC)
AMC has to discharge mainly three functions as under:

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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 ranges 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.

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♦ 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:20

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:
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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.

4.5 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 22

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 openended 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.

4.5.1 Who Can Invest In Mutual Funds In India?
Mutual funds in India are open to investment by: a) Residents including 1) Resident Indian Individuals 23

2) Indian Companies 3) Indian Trusts/Charitable Institutions 4) Banks 5) Non-Banking Finance Companies 6) Insurance Companies 7) Provident Funds b) Non Residents including 1) Non-Resident Indians, and 2) Overseas Corporate Bodies (OCBs) and c) Foreign entities, viz; 1) Foreign Institutional Investors (FIIs) registered with SEBI. Foreign citizens/ entities are however not allowed to invest in Mutual funds in India.

4.5.2 Five Easy Steps to Invest in Mutual Funds
1) Search: “Where to look for if we want to invest in MF” a) Contacting an Investment advisor in a bank or a brokerage house or an Independent Financial Advisor is the first step to gathering information. b) Mutual funds units can also be bought over the Internet. c) Mutual funds are much like any other product, in that there are manufacturers who provide the product and there are dealers who sell them. 2) Evaluation: “Evaluation: choosing the right mutual fund for you As an investor one may 24

a) For the short term or long term want to invest b) Want regular income or growth c) Want to target lower risk or higher returns d) Be convinced of a particular sector and want to invest in it 3) Purchase: a) Systematic Investment Plan (SIP): Allows you to save a part of your income regularly, also used to reduce risk when investing in schemes targeting aggressive growth. b) Systematic Withdrawal Plan (SWP): Allows you to withdraw a part of your investment regularly. Used when you want to withdraw your investment for a specific regular payment, like insurance premium payments of monthly/quarterly frequency. c) Automatic debit: Saves the hassle of writing a cheque when making an investment. Your account is debited automatically for the amount invested. d) Dividend Plan: A) Dividend Payout: Under this plan investor can redeem his/her dividend at specific times. B) Dividend Reinvestment: Under this plan investor’s dividend is reinvested back to its principal amount which therefore increases the number of units investor is holding. e) Growth: Under this plan income generated from investment will put back to its invested amount which therefore increases the value of each unit customer is holding. 4) Post Purchase Monitoring: Once you have invested in an ongoing fund, expect a period of two to three days before you receive an account statement on the address mentioned by you in your application form. a) The Account Statement 25

Your account statement indicates your current holding in the scheme that you have invested. b) The transaction slip: The transaction slip at the end of the account statement can be used for additional purchases, redemptions or to intimate the mutual fund on any change in bank mandates/address. c) NAV: The NAVs of all the open-ended schemes are published at the fund's website, financial newspapers and AMFI (Association of Mutual Funds) web-site www.amfiindia.com. 5) EXIT: Every AMC advice that every investor should monitor his/her units NAV periodically but AMC also recommend their unit holders to not get swayed by short term considerations in deciding their exit. Redemption: In case of open ended funds investor can redeem his/her invested amount. Most funds take 1-3 days to credit your account with your redemption proceeds.

4.5.3 Comparison of Investment products:
Investor tends to constantly compare one form of investment with other Investors certainly look for the best returns for different option. However, to determine which

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option is better, the comparison should be made in terms of other benefits that the investor ought to look for in any investment.

Investment Objective Equity FI Bonds Corporate Debentures Corporate FDs Bank Deposits PPF Life Insurance Gold Real Estate Mutual Funds Capital appreciation Income Income Income Income Income Risk cover Inflation hedge Inflation hedge Capital growth & Income

Returns High Moderate Moderate Moderate Low Moderate Low Moderate High High

Risk Tolerance High Low High High Generally low Low Low Low Low High

Investment Horizon Long term Med-long Med Med Flexible Long term Long term Long term Long term Flexible

Liquidity High Moderate Low Low High Moderate Low Moderate Low High

(Table-2)

4.5.4 THE FIVE MOST COMMON MISTAKES MUTUAL
FUND INVESTORS MAKE
 Failing to stay invested for a longer period 27

 Worrying about portfolio turnover or dividends it pays  Being affected by new in the market when you’re supposed to be investing for the long term  Selling out during bad markets  Being impatient and losing confidence too soon.

INVESTORS THINK LONG TERM BUT ACT SHORT TERM…..

4.6 TYPES OF MUTUAL FUNDS
General Classification of Mutual Funds

Open-end Funds | Closed-end Funds Open-end Funds Funds that can sell and purchase units at any point in time are classified as Open-end Funds. The fund size (corpus) of an open-end fund is variable (keeps changing) because of continuous selling (to investors) and repurchases (from the investors) by the fund. An open-end fund is not required to keep selling new units to the investors at all times but is required to always repurchase, when an investor wants to sell his units. The NAV of an open-end fund is calculated every day.

Closed-end Funds Funds that can sell a fixed number of units only during the New Fund Offer (NFO) period are known as Closed-end Funds. The corpus of a Closed-end Fund remains unchanged at all times. After the closure of the offer, buying and redemption of units by 28

the investors directly from the Funds is not allowed. However, to protect the interests of the investors, SEBI provides investors with two avenues to liquidate their positions: 1. Closed-end Funds are listed on the stock exchanges where investors can buy/sell units from/to each other. The trading is generally done at a discount to the NAV of the scheme. The NAV of a closed-end fund is computed on a weekly basis (updated every Thursday). 2. Closed-end Funds may also offer “buy-back of units” to the unit holders. In this case, the corpus of the Fund and its outstanding units do get changed. Load Funds | No-load Funds Load Funds Mutual Funds incur various expenses on marketing, distribution, advertising, portfolio churning, fund manager’s salary etc. Many funds recover these expenses from the investors in the form of load. These funds are known as Load Funds. A load fund may impose following types of loads on the investors:

Entry Load – Also known as Front-end load, it refers to the load charged to an investor at the time of his entry into a scheme. Entry load is deducted from the investor’s contribution amount to the fund.

Exit Load – Also known as Back-end load, these charges are imposed on an investor when he redeems his units (exits from the scheme). Exit load is deducted from the redemption proceeds to an outgoing investor.

• •

Deferred Load – Deferred load is charged to the scheme over a period of time. Contingent Deferred Sales Charge (CDSC) – In some schemes, the percentage of exit load reduces as the investor stays longer with the fund. This type of load is known as Contingent Deferred Sales Charge.

No-load Funds

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All those funds that do not charge any of the above mentioned loads are known as Noload Funds.

Tax-exempt Funds | Non-Tax-exempt Funds Tax-exempt Funds Funds that invest in securities free from tax are known as Tax-exempt Funds. All openend equity oriented funds are exempt from distribution tax (tax for distributing income to investors). Long term capital gains and dividend income in the hands of investors are taxfree. Non-Tax-exempt Funds Funds that invest in taxable securities are known as Non-Tax-exempt Funds. In India, all funds, except open-end equity oriented funds are liable to pay tax on distribution income. Profits arising out of sale of units by an investor within 12 months of purchase are categorized as short-term capital gains, which are taxable. Sale of units of an equity oriented fund is subject to Securities Transaction Tax (STT). STT is deducted from the redemption proceeds to an investor.

BROAD MUTUAL FUND TYPES

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(Figure-5)

1. Equity Funds Equity funds are considered to be the more risky funds as compared to other fund types, but they also provide higher returns than other funds. It is advisable that an investor looking to invest in an equity fund should invest for long term i.e. for 3 years or more. There are different types of equity funds each falling into different risk bracket. In the order of decreasing risk level, there are following types of equity funds:

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a. Aggressive Growth Funds – In Aggressive Growth Funds, fund managers aspire for maximum capital appreciation and invest in less researched shares of speculative nature. Because of these speculative investments Aggressive Growth Funds become more volatile and thus, are prone to higher risk than other equity funds. b. Growth Funds – Growth Funds also invest for capital appreciation (with time horizon of 3 to 5 years) but they are different from Aggressive Growth Funds in the sense that they invest in companies that are expected to outperform the market in the future. Without entirely adopting speculative strategies, Growth Funds invest in those companies that are expected to post above average earnings in the future. c. Speciality Funds – Speciality Funds have stated criteria for investments and their portfolio comprises of only those companies that meet their criteria. Criteria for some speciality funds could be to invest/not to invest in particular regions/companies. Speciality funds are concentrated and thus, are comparatively riskier than diversified funds.. There are following types of speciality funds: i. Sector Funds: Equity funds that invest in a particular sector/industry of the market are known as Sector Funds. The exposure of these funds is limited to a particular sector (say Information Technology, Auto, Banking, Pharmaceuticals or Fast Moving Consumer Goods) which is why they are more risky than equity funds that invest in multiple sectors. ii. Foreign Securities Funds: Foreign Securities Equity Funds have the option to invest in one or more foreign companies. Foreign securities funds achieve international diversification and hence they are less risky than sector funds. However, foreign securities funds are exposed to foreign exchange rate risk and country risk. iii. Mid-Cap or Small-Cap Funds: Funds that invest in companies having lower market capitalization than large capitalization companies are called Mid-Cap or Small-Cap Funds. Market capitalization of Mid-Cap companies is less than that of big, blue chip companies (less than Rs. 2500 crores but more than Rs. 500 crores) and Small-Cap companies have 32

market capitalization of less than Rs. 500 crores. Market Capitalization of a company can be calculated by multiplying the market price of the company’s share by the total number of its outstanding shares in the market. The shares of Mid-Cap or Small-Cap Companies are not as liquid as of Large-Cap Companies which gives rise to volatility in share prices of these companies and consequently, investment gets risky. iv. Option Income Funds*: While not yet available in India, Option Income Funds write options on a large fraction of their portfolio. Proper use of options can help to reduce volatility, which is otherwise considered as a risky instrument. These funds invest in big, high dividend yielding companies, and then sell options against their stock positions, which generate stable income for investors. d. Diversified Equity Funds – Except for a small portion of investment in liquid money market, diversified equity funds invest mainly in equities without any concentration on a particular sector(s). These funds are well diversified and reduce sector-specific or company-specific risk. However, like all other funds diversified equity funds too are exposed to equity market risk. One prominent type of diversified equity fund in India is Equity Linked Savings Schemes (ELSS). As per the mandate, a minimum of 90% of investments by ELSS should be in equities at all times. ELSS investors are eligible to claim deduction from taxable income (up to Rs 1 lakh) at the time of filing the income the expiry of the lock-in period makes him liable to pay
tax return.

ELSS

usually has a lock-in period and in case of any redemption by the investor before
income tax

on such

income(s) for which he may have received any tax exemption(s) in the past. e. Equity Index Funds – Equity Index Funds have the objective to match the performance of a specific stock market index. The portfolio of these funds comprises of the same companies that form the index and is constituted in the same proportion as the index. Equity index funds that follow broad indices (like S&P CNX Nifty, Sensex) are less risky than equity index funds that follow narrow sectoral indices (like BSEBANKEX or CNX indices are less diversified and therefore, are more risky. 33
Bank

Index etc). Narrow

f. Value Funds – Value Funds invest in those companies that have sound fundamentals and whose share prices are currently under-valued. The portfolio of these funds comprises of shares that are trading at a low Price to Earning Ratio (Market Price per Share / Earning per Share) and a low Market to Book Value (Fundamental Value) Ratio. Value Funds may select companies from diversified sectors and are exposed to lower risk level as compared to growth funds or speciality funds. Value stocks are generally from cyclical industries (such as cement, steel, sugar etc.) which make them volatile in the short-term. Therefore, it is advisable to invest in Value funds with a long-term time horizon as risk in the long term, to a large extent, is reduced. g. Equity Income or Dividend Yield Funds – The objective of Equity Income or Dividend Yield Equity Funds is to generate high recurring income and steady capital appreciation for investors by investing in those companies which issue high dividends (such as Power or Utility companies whose share prices fluctuate comparatively lesser than other companies’ share prices). Equity Income or Dividend Yield Equity Funds are generally exposed to the lowest risk level as compared to other equity funds 2. Debt / Income Funds Funds that invest in medium to long-term debt instruments issued by private companies, banks, financial institutions, governments and other entities belonging to various sectors (like infrastructure companies etc.) are known as Debt / Income Funds. Debt funds are low risk profile funds that seek to generate fixed current income (and not capital appreciation) to investors. In order to ensure regular income to investors, debt (or income) funds distribute large fraction of their surplus to investors. Although debt securities are generally less risky than equities, they are subject to
credit risk

(risk of

default) by the issuer at the time of interest or principal payment. To minimize the risk of default, debt funds usually invest in securities from issuers who are rated by credit rating agencies and are considered to be of “Investment Grade”. Debt funds that target high returns are more risky. Based on different investment objectives, there can be following types of debt funds: 34

a. Diversified Debt Funds – Debt funds that invest in all securities issued by entities belonging to all sectors of the market are known as diversified debt funds. The best feature of diversified debt funds is that investments are properly diversified into all sectors which results in risk reduction. Any loss incurred, on account of default by a debt issuer, is shared by all investors which further reduces risk for an individual investor. b. Focused Debt Funds* - Unlike diversified debt funds, focused debt funds are narrow focus funds that are confined to investments in selective debt securities, issued by companies of a specific sector or industry or origin. Some examples of focused debt funds are sector, specialized and offshore debt funds, funds that invest only in Tax Free Infrastructure or Municipal Bonds. Because of their narrow orientation, focused debt funds are more risky as compared to diversified debt funds. Although not yet available in India, these funds are conceivable and may be offered to investors very soon. c. High Yield Debt funds – As we now understand that risk of default is present in all debt funds, and therefore, debt funds generally try to minimize the risk of default by investing in securities issued by only those borrowers who are considered to be of “investment grade”. But, High Yield Debt Funds adopt a different strategy and prefer securities issued by those issuers who are considered to be of “below investment grade”. The motive behind adopting this sort of risky strategy is to earn higher interest returns from these issuers. These funds are more volatile and bear higher default risk, although they may earn at times higher returns for investors. d. Assured Return Funds – Although it is not necessary that a fund will meet its objectives or provide assured returns to investors, but there can be funds that come with a lock-in period and offer assurance of annual returns to investors during the lock-in period. Any shortfall in returns is suffered by the sponsors or the
Asset Management

Companies (AMCs). These funds are generally debt funds

and provide investors with a low-risk investment opportunity. However, the security of investments depends upon the net worth of the guarantor (whose name is specified in advance on the offer document). To safeguard the interests of 35

investors, SEBI permits only those funds to offer assured return schemes whose sponsors have adequate net-worth to guarantee returns in the future. In the past, UTI had offered assured return schemes (i.e. Monthly Income Plans of UTI) that assured specified returns to investors in the future. UTI was not able to fulfill its promises and faced large shortfalls in returns. Eventually, government had to intervene and took over UTI’s payment obligations on itself. Currently, no AMC in India offers assured return schemes to investors, though possible. e. Fixed Term Plan Series – Fixed Term Plan Series usually are closed-end schemes having short term maturity period (of less than one year) that offer a series of plans and issue units to investors at regular intervals. Unlike closed-end funds, fixed term plans are not listed on the exchanges. Fixed term plan series usually invest in debt / income schemes and target short-term investors. The objective of fixed term plan schemes is to gratify investors by generating some expected returns in a short period. 3. Gilt Funds Also known as Government Securities in India, Gilt Funds invest in government papers (named dated securities) having medium to long term maturity period. Issued by the Government of India, these investments have little credit risk (risk of default) and provide safety of principal to the investors. However, like all debt funds, gilt funds too are exposed to interest rate risk. Interest rates and prices of debt securities are inversely related and any change in the interest rates results in a change in the NAV of debt/gilt funds in an opposite direction. 4. Money Market / Liquid Funds Money market / liquid funds invest in short-term (maturing within one year) interest bearing debt instruments. These securities are highly liquid and provide safety of investment, thus making money market / liquid funds the safest investment option when compared with other mutual fund types. However, even money market / liquid funds are exposed to the interest rate risk. The typical investment options for liquid funds include

36

Treasury Bills (issued by governments), Commercial papers (issued by companies) and Certificates of Deposit (issued by banks). 5. Hybrid Funds As the name suggests, hybrid funds are those funds whose portfolio includes a blend of equities, debts and money market securities. Hybrid funds have an equal proportion of debt and equity in their portfolio. There are following types of hybrid funds in India: a. Balanced Funds – The portfolio of balanced funds include assets like debt securities, convertible securities, and equity and preference shares held in a relatively equal proportion. The objectives of balanced funds are to reward investors with a regular income, moderate capital appreciation and at the same time minimizing the risk of capital erosion. Balanced funds are appropriate for conservative investors having a long term investment horizon. b. Growth-and-Income Funds – Funds that combine features of growth funds and income funds are known as Growth-and-Income Funds. These funds invest in companies having potential for capital appreciation and those known for issuing high dividends. The level of risks involved in these funds is lower than growth funds and higher than income funds. c. Asset Allocation Funds – Mutual funds may invest in financial assets like equity, debt, money market or non-financial (physical) assets like real estate,
commodities

etc.. Asset allocation funds adopt a variable asset allocation strategy

that allows fund managers to switch over from one asset class to another at any time depending upon their outlook for specific markets. In other words, fund managers may switch over to equity if they expect equity market to provide good returns and switch over to debt if they expect debt market to provide better returns. It should be noted that switching over from one asset class to another is a decision taken by the fund manager on the basis of his own judgment and understanding of specific markets, and therefore, the success of these funds depends upon the skill of a fund manager in anticipating market trends.

37

6.

Commodity Funds

Those funds that focus on investing in different commodities (like metals, food grains, crude oil etc.) or commodity companies or commodity futures contracts are termed as Commodity Funds. A commodity fund that invests in a single commodity or a group of commodities is a specialized commodity fund and a commodity fund that invests in all available commodities is a diversified commodity fund and bears less risk than a specialized commodity fund. “Precious Metals Fund” and Gold Funds (that invest in gold, gold futures or shares of gold mines) are common examples of commodity funds. 7. Real Estate Funds Funds that invest directly in real estate or lend to real estate developers or invest in shares/securitized assets of housing finance companies, are known as Specialized Real Estate Funds. The objective of these funds may be to generate regular income for investors or capital appreciation. 8. Exchange Traded Funds (ETF) Exchange Traded Funds provide investors with combined benefits of a closed-end and an open-end mutual fund. Exchange Traded Funds follow stock market indices and are traded on stock exchanges like a single stock at index linked prices. The biggest advantage offered by these funds is that they offer diversification, flexibility of holding a single share (tradable at index linked prices) at the same time. Recently introduced in India, these funds are quite popular abroad. 9. Fund of Funds Mutual funds that do not invest in financial or physical assets, but do invest in other mutual fund schemes offered by different AMCs, are known as Fund of Funds. Fund of Funds maintain a portfolio comprising of units of other mutual fund schemes, just like conventional mutual funds maintain a portfolio comprising of equity/debt/money market instruments or non financial assets. Fund of Funds provide investors with an added advantage of diversifying into different mutual fund schemes with even a small amount 38

of investment, which further helps in diversification of risks. However, the expenses of Fund of Funds are quite high on account of compounding expenses of investments into different mutual fund schemes. * Funds not yet available in India

4.7

VALUATION OF MUTUAL FUND

The net asset value of the Fund is the cumulative market value of the assets Fund net of its liabilities. In other words, if the Fund is dissolved or liquidated, by selling off all the assets in the Fund, this is the amount that the shareholders would collectively own. This gives rise to the concept of net asset value per unit, which is the value, represented by the ownership of one unit in the Fund. It is calculated simply by dividing the net asset value of the Fund by the number of units. However, most people refer loosely to the NAV per unit as NAV, ignoring the “per unit”. We also abide by the same convention. Calculation of NAV The most important part of the calculation is the valuation of the assets owned by the Fund. Once it is calculated, the NAV is simply the net value of assets divided by the number of units outstanding. The detailed methodology for the calculation of the net asset value is given below. The net asset value is the actual value of a unit on any business day. NAV is the barometer of the performance of the scheme. The net asset value is the market value of the assets of the scheme minus its liabilities and expenses. The per unit NAV is the net asset value of the scheme divided by the number of the units outstanding on the valuation date.

39

MUTUAL FUND SCHEME TYPES:
Equity Diversified Schemes These schemes, also commonly called Growth Schemes, seek to invest a majority of their funds in equities and a small portion in money market instruments. 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.

40

♦ 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 The aim of Balanced Funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. This proportion affects the risks and the returns associated with the balanced fund – in case equities are allocated a higher proportion, investors would be exposed to risks similar to that of the equity market. Balanced funds with equal allocation to equities and fixed income securities are ideal for investors looking for a combination of income and moderate growth 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

41

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 1025% 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.

4.9 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.

42

♦ 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 43

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.

4.10 ADVANTAGES OF INVESTING THROUGH 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 crores and invested the money in various investment options, will have Rs.1 lakh spread over a number of investment options as demonstrated below:
Percentage of Total portfolio of the Mutual Fund scheme (Rs. In crores) 57 15 12 10 9 7 4 43 20 10 9 4 100 Investors portfolio allocation (Rs.) 57,000 15,000 12,000 10,000 9,000 7,000 4,000 43,000 20,000 10,000 9,000 4,000 1,00,000

Investment Type
EQUITY: State Bank of India Infosys Technologies ABB Reliance Industries MICO Tata Power DEBT: Govt. Securities Company Debentures Institution Bonds Money Market Total

Allocation (% of total portfolio) 57% 15% 12% 10% 9% 7% 4% 43% 20% 10% 9% 4% 100%
(Table-3)

Thus ‘Asset Allocation’ is allocating your investments in to different investment options depending on your risk profile and return expectations. • DIVERSIFICATION 44

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 45

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.

46

Mutual Fund Investment - Opportunities
• • •

Opportunities of future expansion are very high. Corporate governance of Mutual Funds is being given emphasis. The Mutual funds in India has the scope of penetrating into the rural and semi urban areas. The Securities Exchange Board of India has allowed the introduction of commodity mutual funds

A number of foreign based assets Management Company are venturing into Indian markets.

DISADVANTAGES OF MUTUAL FUNDS
The following are some of the reasons which are deterrent to mutual fund investment: • Costs despite Negative Returns — Investors must pay sales charges, annual fees, and other expenses regardless of how the fund performs. And, depending on the timing of their investment, investors may also have to pay taxes on any capital gains distribution they receive — even if the fund went on to perform poorly after they bought shares. • Lack of Control — Investors typically cannot ascertain the exact make-up of a fund's portfolio at any given time, nor can they directly influence which securities the fund manager buys and sells or the timing of those trades.

47

No Guarantees- No investment is risk free. If the entire stock market declines in value, the value of mutual fund shares will go down as well, no matter how balanced the portfolio. Investors encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on their own. However, anyone who invests through mutual fund runs the risk of losing the money. 4.11

EVOLUTION AND GROWTH OF MUTUAL FUND INDUSTRY

4.11.1

The Evolution

The formation of Unit Trust of India marked the evolution of the Indian mutual fund industry in the year 1963. The primary objective at that time was to attract the small
investors

and it was made possible through the collective efforts of the Government of

India and the Reserve Bank of India. The history of mutual fund industry in India can be better understood divided into following phases: Phase 1. Establishment and Growth of Unit Trust of India – 1964-87 Unit Trust of India enjoyed complete monopoly when it was established in the year 1963 by an act of Parliament. UTI was set up by the Reserve Bank of India and it continued to operate under the regulatory control of the RBI until the two were de-linked in 1978 and the entire control was mobilization in the hands of Industrial Development Bank of India (IDBI). UTI launched its first scheme in 1964, named as Unit Scheme 1964 (US-64), which attracted the largest number of investors in any single years. UTI launched more innovative schemes in 1970s and 80s to suit the needs of different investors. It launched ULIP in 1971, six more schemes between 1981-84, Children’s Gift Growth Fund and India Fund (India’s first offshore fund) in 1986, Mastershare (India’s first equity
investment

scheme over the

48

diversified scheme) in 1987 and Monthly Income Schemes (offering assured returns) during 1990s. By the end of 1987, UTI’s assets under management grew ten times to Rs 6700 crores. Phase II. Entry of Public Sector Funds – 1987-1993 The Indian mutual fund industry witnessed a number of public sector players entering the market in the year 1987. In November 1987, SBI Mutual Fund from the State Bank of India became the first non-UTI mutual fund in India. SBI Mutual Fund was later followed by Canbank Mutual Fund, LIC Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. By 1993, the assets under management of the industry increased seven times to Rs. 47,004 crores. However, UTI remained to be the leader with about 80% market share. Mobilisa tion as % of gross Domesti c Savings 5.2% 0.9% 6.1%

1992-93

Amo unt Mobi lised

Assets Under Manage ment

UTI Public Sector Total

11,05 7 1,964 13,02 1

38,247 8,757 47,004
(Table-4)

Phase III. Emergence of Private Secor Funds – 1993-96 The permission given to private sector funds including foreign fund management Companies (most of them entering through joint ventures with Indian promoters) to enter the mutual fund industry in 1993, provided a wide range of choice to investors and more competition in the industry. Private funds introduced innovative products, 49

investment techniques and investor-servicing technology. By 1994-95, about 11 private sector funds had launched their schemes. Phase IV. Growth and SEBI Regulation – 1996-2004 The mutual fund industry witnessed robust growth and stricter regulation from the SEBI after the year 1996. The Mobilization of funds and the number of players operating in the industry reached new heights as investors started showing more interest in mutual funds. Investors’ interests were safeguarded by SEBI and the Government offered
tax benefits

to

the investors in order to encourage them. SEBI (Mutual Funds) Regulations, 1996 was introduced by SEBI that set uniform standards for all mutual funds in India. The Union Budget in 1999 exempted all dividend incomes in the hands of investors from
income tax.

Various Investor Awareness Programmes were launched during this phase, both by SEBI and AMFI, with an objective to educate investors and make them informed about the mutual fund industry. In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal status as a trust formed by an Act of Parliament. The primary objective behind this was to bring all mutal fund players on the same level. UTI was re-organised into two parts: 1. The Specified Undertaking, 2. The UTI Mutual Fund Presently Unit Trust of India operates under the name of UTI Mutual Fund and its past schemes (like US-64, Assured Return Schemes) are being gradually wound up. However, UTI Mutual Fund is still the largest player in the industry. In 1999, there was a significant growth in mobilization of funds from investors and assets under management which is supported by the following data:

50

51

GROSS FUND MOBILISATION (RS. CRORES) UT I PUBL IC SECT OR 1,732 PRIV ATE SECT OR 7,966 TOTA L

FROM

TO

01-April-98

31Marc h-99 31Marc h-00 31Marc h-01 31Marc h-02 31Jan03 31Marc h-03 31Marc h-04 31Marc h-05 31Marc h-06

11, 679 13, 536 12, 413 4,6 43 5,5 05

21,377

01-April-99

4,039

42,173

59,748

01-April-00

6,192

74,352

92,957

01-April-01

13,613

1,46,2 67 2,20,5 51

1,64,52 3 2,48,97 9

01-April-02

22,923

01-Feb.-03

*

7,259*

58,435

65,694

01-April-03

-

68,558

5,21,6 32 7,36,4 16 9,14,7 12

5,90,19 0 8,39,66 2 10,98,1 58

01-April-04

-

1,03,2 46 1,83,4 46

01-April-05

-

52

(Table-5)
ASSETS UNDER MANAGEMENT (RS. CRORES) PUBL IC SECT OR PRIV ATE SECT OR T O T A L 68 53,320 8,292 6,860 ,4 72

U AS ON T I

31March99

Phase V. Growth and Consolidation – 2004 Onwards The industry has also witnessed several mergers and acquisitions recently, examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international mutal fund players have entered India like Fidelity, Franklin Templeton 53

Mutual Fund etc. There were 29 funds as at the end of March 2006. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players. GROWTH IN ASSETS UNDER MANAGEMENT

(Chart-2)

Future Scenario The asset base will continue to grow at an annual rate of about 30 to 35 % over the next few years as investor’s shift their assets from banks and other traditional avenues. Some of the older public and private sector players will either close shop or be taken over. Out of ten public sector players five will sell out, close down or merge with stronger players in three to four years. In the private sector this trend has already started with two mergers and one takeover. Here too some of them will down their shutters in the near future to come. But this does not mean there is no room for other players. The market will witness a flurry of new players entering the arena. There will be a large number of offers from various asset management companies in the time to come. Some big names like Fidelity,

54

Principal, Old Mutual etc. are looking at Indian market seriously. One important reason for it is that most major players already have presence here and hence these big names would hardly like to get left behind. The mutual fund industry is awaiting the introduction of derivatives in India as this would enable it to hedge its risk and this in turn would be reflected in its Net Asset Value (NAV). SEBI is working out the norms for enabling the existing mutual fund schemes to trade in derivatives. Importantly, many market players have called on the Regulator to initiate the process immediately, so that the mutual funds can implement the changes that are required to trade in Derivatives.

4.11.2 GROWTH OF MUTUAL FUND INDUSTRY IN INDIA

55

The Indian Mutual Fund has passed through three phases. The first phase was between 1964 and 1987 and the only player was the Unit Trust of India, which had a total asset of Rs. 6,700 crores at the end of 1988. The second phase is between 1987 and 1993 during which period 8 Funds were established (6 by banks and one each by LIC and GIC). The total assets under management had grown to 61,028 crores at the end of 1994 and the number of schemes was 167. The third phase began with the entry of private and foreign sectors in the Mutual Fund industry in 1993. Kothari Pioneer Mutual Fund was the first Fund to be established by the private sector in association with a foreign Fund. As at the end of financial year 2000(31st march) 32 Funds were functioning with Rs. 1, 13,005 crores as total assets under management. As on august end 2000, there were 33 Funds with 391 schemes and assets under management with Rs 1, 02,849 crores. The securities and Exchange Board of India (SEBI) came out with comprehensive regulation in 1993 which defined the structure of Mutual Fund and Asset Management Companies for the first time. Several private sectors Mutual Funds were launched in 1993 and 1994. The share of the private players has risen rapidly since then. Currently there are 34 Mutual Fund organizations in India managing 1,02,000 crores. While the Indian mutual fund industry has grown in size by about 320% from March, 1993 (Rs. 470 billion) to December, 2004 (Rs. 1505 billion) in terms of AUM, the AUM of the sector excluding UTI has grown over 8 times from Rs. 152 billion in March 1999 to Rs. 1295 billion as at March 2005.

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Asset Under Management (excluding UTI)
1400 1200 AUM (Rs. Bn.) 1000 800 600 400 200 0 1998 1999 2000 2001 2002 2003 2004 2005 114 152 492 365 326 659 1201 1295

(Chart-3)

Though India is a minor player in the global mutual fund industry, its AUM as a proportion of the global AUM has steadily increased and has doubled over its levels in 1999. The growth rate of Indian mutual fund industry has been increasing for the last few years. It was approximately 0.12% in the year of 1999 and it is noticed 0.25% in 2004 in terms of AUM as percentage of global AUM.

Growth rate of Indian MF Industry
0.30% AUM as % of Global AUM 0.25% 0.20% 0.15% 0.10% 0.05% 0.00% 1999 2000 2001 2002 2003 2004

(Chart-4)

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The GDP of different countries

9% 8% 7% 6% 5% 4% 3% 2% 1% 0% China Hong-Kong India Korea Singapore US

(Chart-5)

Now we can see from the above chart that India has robust GDP growth prospects.

4.12 Recent trends in mutual fund industry
The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks and smaller private sector players. Many nationalized banks got into the mutual fund business in the early nineties and got off to a good start due to the stock market boom prevailing then. These banks did not really understand the mutual fund business and they just viewed it as another kind of banking activity. Few hired specialized staff and generally chose to transfer staff from the parent organizations. The performance of most of the schemes floated by these funds was not good. Some schemes had offered guaranteed returns and their parent organizations had to bail out these AMCs by paying large amounts of money as the difference between the guaranteed and actual returns. The service levels were also very bad. Most of these AMCs have not been able to retain staff, float new schemes etc. and it is doubtful whether, barring a few exceptions, they have serious plans of 58

continuing the activity in a major way. The experience of some of the AMCs floated by private sector Indian companies was also very similar. They quickly realized that the AMC business is a business, which makes money in the long term and requires deeppocketed support in the intermediate years. Some have sold out to foreign owned companies, some have merged with others and there is general restructuring going on. The foreign owned companies have deep pockets and have come in here with the expectation of a long haul. They can be credited with introducing many new practices such as new product innovation, sharp improvement in service standards and disclosure, usage of technology, broker education and support etc. In fact, they have forced the industry to upgrade itself and service levels of organizations like UTI have improved dramatically in the last few years in response to the competition provided by these. Some facts for the growth of mutual funds in India
• •

100% growth in the last 6 years. Number of foreign AMC’s is in the queue to enter the Indian markets like Fidelity Investments, US based, with over US$1trillion assets under management worldwide.

Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual funds sector is required.

We have approximately 29 mutual funds which are much less than US having more than 800. There is a big scope for expansion.

‘B’ and ‘C’ class cities are growing rapidly. Today most of the mutual funds are concentrating on the ‘A’ class cities. Soon they will find scope in the growing cities.

Mutual fund can penetrate rurals like the Indian insurance industry with simple and limited products.

SEBI allowing the MF’s to launch commodity mutual funds.

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• • •

Emphasis on better corporate governance. Trying to curb the late trading practices. Introduction of Financial Planners who can provide need based advice.

4.13 RISK FACTORS OF MUTUAL FUNDS
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. An ‘AAA’ rating is considered the safest whereas a ‘D’ rating is considered poor credit quality. A well-diversified portfolio might help mitigate this risk. 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 cost 50 paise?” “Mehangai Ka Jamana Hai.” 60

The root cause, 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 welldiversified 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. Political/Government Policy Risk: Changes in government policy and political decision can change the investment environment. They can create a favorable environment for investment or vice versa. 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.

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Risk Hierarchy of Different Mutual Funds Thus, different mutual fund schemes are exposed to different levels of risk and investors should know the level of risks associated with these schemes before investing. The graphical representation hereunder provides a clearer picture of the relationship between mutual funds and levels of risk associated with these funds:

(Chart-6)

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Snapshot of Mutual Fund Schemes Mutual Fund Type Objective Liquidity + Moderate Income + Reservation of Capital Risk Investment Portfolio Who should invest Those who park their funds in current accounts or short-term bank deposits Investment horizon

Money Market

Short-term Funds (Floating short-term)

Bond Funds (Floating Long-term) Gilt Funds

Treasury Bills, Certificate of Deposits, Negligible Commercial Papers, Call Money Call Money, Commercial Papers, Liquidity + Little Interest Treasury Bills, Moderate Rate CDs, ShortIncome term Government securities. Predominantly Debentures, Credit Risk Government Regular Income & Interest securities, Rate Risk Corporate Bonds Security & Income Long-term Capital Appreciation Interest Rate Government Risk securities

2 days - 3 weeks

Those with surplus short-term funds

3 weeks 3 months

Salaried & conservative investors Salaried & conservative investors Aggressive investors with long term out look.

More than 9 - 12 months

12 months & more

Equity Funds

High Risk

Stocks

3 years plus

To generate returns that are Portfolio NAV varies Index commensurate indices like with index Funds with returns of BSE, NIFTY performance respective etc indices Balanced ratio Capital of equity and Balanced Growth & Market Risk debt funds to Funds Regular Income and Interest ensure higher Rate Risk returns at lower risk (Table-6)

Aggressive investors.

3 years plus

Moderate & Aggressive

2 years plus

Chapter – 5
63

Methodology and Procedure of Work
5.1 RESEARCH DESIGN & DATA COLLECTION The Methodology involves randomly selecting Open-Ended equity schemes of different fund houses of the country. The research is on the COMPARATIVES STUDY BETWEEN MUTUAL FUNDS OFFER BY VARIOUS COMPANIES IN INDIAN MARKET. This research is secondary database oriented. Hence the research design used is empirical research. The data has been collected from various secondary sources like websites, various reviews, and journals. 5.2 COMPANY FOCUS For the study, searched many companies and finally focused some companies such that Kotak Mahindra Mutual Fund, Reliance Mutual Fund, HDFC Mutual Fund, Franklin Templeton Mutual Fund, HSBC Mutual Fund etc. each scheme is analyzed according to its performance against the other, based on factors like Sharpe’s Ratio, Treynor’s Ratio, β (Beta) Co-efficient, Returns.

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) 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.

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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 65

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

5.3 Types of Research
5.3.1 Descriptive Research This research is the most commonly used and the basic reason for carrying out descriptive research is to identify the cause of something that is happening. 5.3.2 Exploratory Research This genre of research simply allows the marketer to gain a greater understanding of something that he doesn’t know enough about.

5.4 HYPOTHESIS
The Hypothesis of the study involves Comparison between: 1. Kotak Opportunities fund. 2. Reliance Equity Opportunities fund. 3. Franklin India Flexi fund. 4. HDFC Core & satellite fund. 5. HSBC India Opportunities fund.

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Chapter – 6 Analysis of Data
Note: All the data used for analysis is taken up to the period 28-febuary-2009

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 67

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:
• • • • 1) The Treynor’Measure The Sharpe Measure Jenson Model Fama Model

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, 68

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 69

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.

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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 71

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. KOTAK OPPORTUNITIES FUND • • • • • Kotak opportunities is a open-ended equity Growth scheme. Kotak opportunities is a diversified aggressive equity scheme The fund has portfolio turnover ratio. The fund manager is optimistic 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 abundent liquidity in the system.However the fund managers sees high oil prices a big concern in the global markets. • The fund has invested into equities to the tune of 94.45% of the total portfolio.

RELIANCE EQUITY OPPORTUNITIES FUND: • • • Reliance Equity Opportunities Fund is an Open-Ended Equity Scheme. Reliance Equity Opportunities Fund is an aggressive diversified equity scheme Reliance Equity Opportunities is to seek to generate capital appreciation and provide long term growth opportunities by investing in a portfolio constituted of equity securities and equity related securities. • • The fund has a high portfolio turnover ratio. It has Instrument type such as Equity & Equity related Instruments and Debt & Money Market Instruments. HDFC Core and Satellite Fund • • HDFC Core and Satellite Fund is an Open-Ended Equity Scheme. HDFC Core and Satellite Fund is an diversified equity scheme 72

The Scheme may seek investment opportunity in the ADR / GDR / Foreign Equity and Debt Securities, in accordance with guidelines stipulated in this regard by SEBI and RBI from time to time.

The net assets of the Scheme will be invested primarily in equity and equity related instruments in a portfolio comprising of 'Core' group of companies and 'Satellite' group of companies.

The 'Satellite' group will comprise of predominantly small-mid cap companies that offer higher potential returns but at the same time carry higher risk

FRANKLIN INDIA FLEXI CAP EQUITY FUND • • • Franklin india flexi cap Fund is an Open-Ended Equity Scheme. Franklin india flexi cap Fund is an aggressive diversified equity scheme It is an investment avenue that has the potential to provide steady returns and capital appreciation over a five-year period through a mix of fixed income and equity instruments. • It has a investment team has a rich experience of investing in both equity and fixed income instrument that has translated in to a good investment performance from its hybrid scheme HSBC India opportunities Fund • • • • HSBC India Opportunities Fund is an Open-Ended Equity Scheme. It is a scheme seeking long term capital growth through investments across all market capitalizations, including small, mid and large cap stocks. The investment is to seek aggressive growth by focussing on mid cap companies in addition to investments in large cap stocks. The fund aims to be predominantly invested in equity and equity related securities

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KOTAK OPPORTUNITIES FUND Fund Manager: (Mr. Anand Shah) OBJECTIVE:To generate capital appreciation from a diversified portfolio of equity and equity related securities Kotak Opportunities is a diversified equity scheme, with a flexible investing style. It will invest in sectors, which our Fund Manager believes would outperform others in the short to medium-term. Kotak Opportunities’ specialty lies in giving the Fund Manager flexibility to act based on his views on the market; and in allowing him to invest higher concentrations in sectors he believes will outperform others. As markets evolve and grow, new opportunities for growth keep emerging. Kotak Opportunities would endeavor to capture these opportunities to generate wealth for its investors. ♦ KOTAK OPPORTUNITIES FUND PERFORMANCE:YEAR Rp Rm Rf (RmRf) (RpRf) X2 XY (X -Xbar) D2

X
LAST 1 MONTH LAST 3 MONTHS LAST 6 MONTHS Since Inception TOTAL 5.92 24.61 34.42 78.17 2.84 13.1 1 30.1 4 45.9 9 4.25 4.25 4.25 4.5 -1.41 8.86 25.89 41.49 74.83

Y
1.67 20.36 30.17 1.98 78.49 670.29 -2.35 180.38 781.10 3056.56 4015.70

D
-20.11 -9.847 25.89 22.78 18.70 404.71 96.97 670.29 519.04 1691.02

73.67 1721.42 125.8 7 2472.19 (Table-7)

Where, Rp - Portfolio Return- Kotak opportunities Rm - Market Return-Fund’s bench mark- S& P CNX 500

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Rf - Risk free rate of return. • CALCULATION OF ARTHMETIC MEAN:=Σ X/N = 74.83/ 4 = 18.70 • CALCULATION OF STANDARD DEVIATION (σ ):= √ Σ (X-Xbar) 2 / N = √1691.02/4 =√422.75 =20.56 • CALCULATION OF BETA CO-EFFICIENT:= N (Σ XY) – Σ XΣ Y N (Σ X2) – (Σ X) 2 = 4(5208.85) – (90.35)(126.21) 4(4117.22) – (90.35) 2 = 4(4015.70)-(74.83)-(125.87) 4(2472.19)-(74.83) 2 = 16062.8-9418.85 9888.76-5599 = 6643.95 4289.76 =1.54 • CALCULATION OF SHARPE’S RATIO:= Rp-Rf / σ =125.87 /20.56 = 6.12 • CALCULATION OF TREYNOR’S RATIO:= Rp-Rf / β = 125.87/1.54 75

= 87.73/100 =0.8173 CHART-7 SHOWING KOTAK OPPORTUNITIES FUND PERFORMANCE:KOTAK OPPORTUNITIES

78.17

RETURNS

45.99 34.42 30.14 24.61 13.11 5.92 2.84 4.25 4.25 4.25 4.5

LAST 1 MONTH

LAST 3 MONTHS

LAST 6 MONTHS

SINCE INCEPTION 09 SEPTEMBER-2008

Rf KOTAK OPPORTUNITIES CNX-500 S& P

Interpretation:• Last I Month : It reveals that Kotak Opportunities Returns are 5.92 As compare to Funds Benchmark Returns are 2.84, and The Risk Free Rate is common for next 9 months. (i.e., 4.25%) • Last III Months: It reveals that Kotak Opportunities Returns are 24.61 As compare to Funds Benchmark Returns are 13.11, and The Risk Free Rate is common for next 6 months. (i.e., 4.25%) • Last VI Months: It reveals that Kotak Opportunities Returns are 34.42 As compare to Funds Benchmark Returns are 30.14, and The Risk Free Rate is common for next 3 months. (i.e., 4.25%) • Since Inception: It reveals that Kotak Opportunities Returns are 78.17, As compare to Funds Benchmark Returns are 45.99, and

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There is a slight Increase in Risk Free Rate by 0.25% (i.e., 4.5%) compare to last 9 Months. HDFC CORE& SATELLITE FUND: Objective:The objective of the scheme is to generate capital appreciation through equity investment in companies whose shares are quoting at prices below their true value. ♦ HDFC CORE& SATELLITE FUND PERFORMANCE:YEAR LAST 1MONTH LAST 3 MONTHS LAST 6MONTHS Since Inception TOTAL Rp Rm Rf (RmRf) X 1.15 16.46 35.6 69.64 3.72 13.8 2 31.1 49.6 6 4.25 4.25 4.25 4.5 -0.53 9.57 26.85 45.16 81.05 (RpRf) Y -3.1 12.2 1 31.3 5 65.1 4 105. 6 (Table-8) 0.2809 91.5849 720.9225 2039.4256 2852.2139 1.643 116.8497 841.7475 2941.7224 3901.9626 X2 XY (X -Xbar) D 20.7925 10.6925 26.85 24.8975 20.2625 D2

432.3280563 114.3295563 720.9225 619.8855063 1887.465619

Where, Rp - Portfolio Return-HDFC core & Satellite Fund Rm - Market Return-Fund’s benchmark-BSE-200 Rf - Risk free rate of return. • CALCULATION OF ARTHMETIC MEAN:=Σ X/N = 81.05/4 = 20.26 • CALCULATION OF STANDARD DEVIATION (σ):= √ Σ (X-Xbar)2 / N 77

= √1887.4/4 = √471.75 =21.71 • CALCULATION OF BETA CO-EFFICIENT:= N (Σ XY) – Σ XΣ Y N (Σ X2) – (Σ X) 2 = 4(3901.9) –(81.05)(105.6) 4(4026) – (89.75) 2 = 15607.5-8558.8 11408.8-6569.1 =7048.7 4839 =1.45 • CALCULATION OF SHARPE’S RATIO:=Rp-Rf-/ σ =105.6/21.71 =4.86 • CALCULATION OF TREYNOR’S RATIO:= Rp-Rf/β = 105.6/1.45 = 72.82/100 =0.7282

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CHART-8 SHOWING HDFC CORE& SATELLITE FUND PERFORMANCE
HDFC Core & Satellite Fund Performance
80 70 60 50 40 30 20 10 0 1.15 3.72 4.25 16.46 13.82 4.25 LAST 3 MONTHS 4.25 LAST 6 MONTHS 4.5 69.64

RETURNS

49.66

35.6 31.1

LAST 1 MONTH

SINCE INCEPTION 17 SEPTEMBER-2008

Rp Rm RETURNS Rf

Interpretation: • Last I Month : It reveals that HDFC Core & Satellite Fund Returns are 1.15 as compare to Funds Benchmark Returns are 3.72, and The Risk Free Rate is common for next 9 months. (i.e., 4.25%) • Last III Months: It reveals that HDFC Core & Satellite Fund Returns are 16.46 as compare to Funds Benchmark Returns are 13.82, and The Risk Free Rate is common for next 6 months. (i.e., 4.25%) • Last VI Months: It reveals that HDFC Core & Satellite Fund Returns are 35.6, as compare to Funds Benchmark Returns are 31.1 and The Risk Free Rate is common for next 3 months. (i.e., 4.25%) • Since Inception: It reveals that HDFC Core & Satellite Fund Returns are 69.64,

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as compare to Funds Benchmark Returns are 49.66, and There is a slight increase in Risk Free Rate by 0.25%(4.5%) compare to last 9 Months.

RELIANCE EQUITY OPPORTUNITIES FUND: Investment Objective: The primary investment objective of the scheme is to seek to generate capital appreciation & provide long-term growth opportunities by investing in a portfolio constituted of equity securities & equity related securities and the secondary objective is to generate consistent returns by investing in debt and money market securities. ♦ RELIANCE EQUITY OPPORTUNITIES FUND PERFORMANCE:-

YEAR

Rp

Rm

Rf

(RmRf) X

(RpRf) Y

X2

XY

(X -Xbar) D

D2

LAST 1 MONTH LAST 3 MONTHS LAST 6 MONTHS Since Inception TOTAL

2.4 16.22 29.46 54.99

3.72 13.82 31.1 50.23

4.25 4.25 4.25 4.5

-0.53 9.57 26.85 45.73 81.62

-1.85 11.97 25.21 50.49 85.82 (Table-9)

0.2809 91.5849 720.9225 2091.2329 2904.0212

0.9805 114.5529 676.8885 2308.9077 3101.3296

-20.935 9.57 6.445 45.73 40.81

438.274225 91.5849 41.538025 2091.2329 2662.63005

Where, Rp - Portfolio Return-Reliance equity opportunities fund 80

Rm - Market Return-Fund’s Benchmark BSE-500 Rf - Risk free rate of return.

CALCULATION OF ARTHMETIC MEAN:=Σ X/N = 81.62/ 4 = 20.40

CALCULATION OF STANDARD DEVIATION (σ):= √ Σ (X-Xbar)2 / N = √2662.63/4 = √665.65 =25.80

CALCULATION OF BETA CO-EFFICIENT;= N (Σ XY) – Σ XΣ Y N (Σ X2) – (Σ X) 2 = 4(3101.32) – (81.62)(85.82) 4(2904.02) – (81.62) 2 = 12405-7002.91 11616-6661.82 =5402.09 4954.18 =1.09

CALCULATION OF SHARPE’S RATIO:= Rp-Rf/ σ =85.82 25.23 =7.29

CALCULATION OF TREYNOR’S RATIO:-

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= Rp-Rf/β = 85.82/1.47 = 37.32/100 =0.37

CHART-9 SHOWING RELIANCE EQUITY OPPORTUNITIES FUND PERFORMANCE
RELIANCE EQUITY OPPORTUNITIES FUND
54.99 50.23

RETURNS

29.46

31.1

Rf

16.22

13.82

2.4

3.72 4.25

4.25

4.25

4.5

LAST 1MONTH

LAST 3 MONTHS

LAST 6 MONTHS

SINCE INCEPTION 31 MARCH 2008

RELIANCEBSE-100

Interpretation:• Last I Month: It reveals that Reliance Equity Opportunities Fund Returns are (i.e., 4.25%) • Last III Months: It reveals that Reliance Equity Opportunities Fund Returns are 16.22 as compare to Funds Benchmark Returns are 13.82, and The Risk Free Rate is common for next 6 months. (i.e., 4.25%) 2.4 as compare to Funds Benchmark Returns Are 3.72, and The Risk Free Rate is common for next 9 months.

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Last VI Months: It reveals that Reliance Equity Opportunities Fund Returns are 29.46 as compare to Funds Benchmark Returns are 31.1 and The Risk Free Rate is common for next 3 months. (i.e., 4.25%)

Since Inception: It reveals that Reliance Equity Opportunities Fund Returns are 54.99, as compare to Funds Benchmark returns are 50.23, and There is a slight increase in Risk Free Rate by 0.25%(4.5%) compare to last 9 months.

FRANKLIN INDIA FLEXI CAP EQUITY FUND
Fund Managers: (Mr. K N Siva Subramanian & R Sukumar Rajah) Investment objective: Stocks of companies are usually categorized as large-cap, midcap, and small-cap depending on their market capitalization. History has demonstrated that these categories tend to perform differently through economic and market cycles. For example, mid or small cap stocks could move up sharply during a certain time period while large cap stocks remain range bound and vice versa. On the other hand, large-cap stocks tend to be less volatile than mid & small-cap stocks on account of factors such as size, market leadership..etc. Moreover, such periods of out performance are typically followed by a consolidation phase and a possible reversal of the situation. In order to derive optimal returns from the stock markets, investments need to be diversified and have flexibility to shift allocations across market caps. Designed to help you achieve this with a single investment is Franklin India Flexi Cap Fund (FIFCF). An open-end diversified equity fund, FIFCF seeks to provide medium to long-term capital appreciation by investing in stocks across the entire market capitalization range.

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♦ FRANKLIN INDIA FLEXI CAP FUND PEFORMANCE:(RmRf) X LAST 1MONTH LAST 3 MONTHS LAST 6 MONTHS SINCE INCEPTION March 2, 2005 TOTAL 3.47 16.49 36.58 61.8 3.72 13.82 31.1 50.23 4.25 4.25 4.25 4.5 -0.53 9.57 26.9 45.7 81.6 (RpRf) Y 0.78 12.2 32.3 57.3 101 0.281 91.58 720.9 2091 2904 0.4134 117.1368 868.0605 2620.329 3605.9397 (X -Xbar) D 20.935 10.1 17.28 18.88 25.325 438.274225 102.01 298.5984 356.4544 1195.337025

YEAR

Rp

Rm

Rf

X2

XY

D2

(Table-10)

Where, Rp - Portfolio Return-Franklin flexi cap fund Rm - Market Return-Fund’s Benchmarks S&P CNX-500 Rf - Risk free rate of return. CALCULATION OF ARTHMETIC MEAN:=Σ X/N = 81.6/ 4 = 20.4 84

CALCULATION OF STANDARD DEVIATION (σ):= √ Σ (X-Xbar)2 / N = √1195/4 = √298.75 = 17.28

CALCULATION OF BETA CO-EFFICIENT;= N (Σ XY) – Σ XΣ Y N (Σ X2) – (Σ X) 2 = 4(3605) – (81.6)(101) 4(2904) – (2904) 2 = 14420-8241.6 11616-8433 =6178.4 3183 =1.94 CALCULATION OF SHARPE’S RATIO:= Rp-Rf/ σ =101 17.28 =5.84 CALCULATION OF TREYNOR’S RATIO:= Rp-Rf/β =101/1.94 = 52.06/100 or 0.52

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CHART-10 SHOWING FRANKLIN INDIA FLEXI CAP FUND PERFORMANCE:-

Franklin india flexi cap fund
70 61.8 60 50.23 50 40 30 20

RETURNS

36.58 31.1

16.49

13.82 4.25 4.25 4.5 SINCE INCEPTION March 2, 2008

10 3.47 0 3.72

4.25

LAST 1MONTH

LAST 3 MONTHS Rp Rm

LAST 6 MONTHS Rf

Interpretation: • Last I Month : It reveals that Franklin India flexi Cap Fund Returns are 3.47 as compare to Funds Benchmark Returns are 2.8, and The Risk Free Rate is common for next 9 months. (i.e., 4.25%)

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Last III Months: It reveals that Franklin India flexi Cap Fund Returns are 14.49 as compare to Funds Benchmark Returns are 13.11, and The Risk Free Rate is common for next 6 months. (i.e., 4.25%)

Last VI Months: It reveals that Birla Sun-life Equity Opportunities Fund Returns are 36.58 as compare to Funds Benchmark Returns are 30.14 And the Risk Free Rate is common for next 3 months. (i.e., 4.25%) • Since Inception: It reveals that Birla Sun-life Equity Opportunities Fund Returns are 61.8, as compare to Funds Benchmark Returns are 47.75 and There is a slight Increase in Risk Free Rate by 0.25%(4.5%) compare to last 9 months.

HSBC INDIA OPPORTUNITIES FUND
Fund Manager: (Mr.Sanjiv Duggal) Investment objective: The fund is an open-ended equity scheme seeking long term capital growth through investments across all market capitalizations, including small, mid and large cap stocks. The fund will endeavor to invest in large cap companies as well as identify mid stocks, which have the potential to become blue chip large cap stocks over time. The investment style is to seek aggressive growth by focusing on mid cap companies in addition to investments in large cap stocks. This fund aims to be predominantly invested in equity and equity related securities. However, it could move a significant portion of its assets towards fixed income securities if the fund becomes negative on negative on equity markets. ♦ HSBC INDIA OPPORTUNITIES FUND PEFORMANCE:YEAR Rp Rm Rf (RmRf) X LAST 1 MONTH -0.57 2.81 4.25 -1.44 (RpRf) Y -4.82 2.0736 6.9408 X2 XY (X -Xbar) D -19.695 387.893025 D2

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LAST 3 MONTHS LAST 6 MONTHS Since Inception TOTAL

12.45 27.67 48.62

13.45 28.13 45.88

4.25 4.25 4.5

9.2 23.88 41.38 73.02

8.2 23.42 44.12 70.92

84.64 570.2544 1712.3044 2369.2724

75.44 559.2696 1825.6856 2467.336

9.15 13.67 11.58 14.705

83.7225 186.8689 134.0964 792.580825

(Table-11)

Where, Rp - Portfolio ReturnRm - Market Return, Rf - Risk free rate of return.

CALCULATION OF ARTHMETIC MEAN:=Σ X/N = 73.02/ 4 = 18.25

CALCULATION OF STANDARD DEVIATION (σ):= √ Σ (X-Xbar)2 / N = √792.58/4 = √198.14 =14.07

CALCULATION OF BETA CO-EFFICIENT;= N (Σ XY) – Σ XΣ Y N (Σ X2) – (Σ X) 2 = 4(2467.33) – (73.02)(70.92) 4(2369.27) – (73.02) 2 = 9869.32-5178.57 9477.08-5331.92 =4690.75 88

4145.18 =1.13 • CALCULATION OF SHARPE’S RATIO:= Rp-Rf/ σ =70.92 14.07 =5.04 • CALCULATION OF TREYNOR’S RATIO: = Rp-Rf/β =70.92/1.13 = 62.76/100 =0.62 CHART-11 SHOWING HSBC INDIA OPPORTUNITIES FUND PEFORMANCE:H S B C IN D IA O P P O R T U N IT IE S
60 48 .62 4 5.8 8

50

40 2 27 .6 7 8.1 3

30 RETURNS

20 1 12 .4 5 3.4 5 10 2 .8 1 0 1 /1/19 00 -10 H S B C B S E -5 00 R f -0 .57 /19 00 1 /2 1/3 /19 0 0 1 /4 /1 900 1/5 /19 00 1 /6 /19 00 4.2 5 4.25 4.25 4 .5

Interpretation • Last I Month : It reveals that HSBC India Opportunities Fund Returns are -0.57 as compare to Funds Benchmark Returns are 2.81, and The Risk Free Rate is common for next 9 months. (i.e., 4.25%). 89

Last III Months: It reveals that HSBC India Opportunities Fund Returns are 12.45 as compare to Funds Benchmark Returns are 13.45, and The Risk Free Rate is common for next 6 months. (i.e., 4.25%). • Last VI Months: It reveals that that HSBC India Opportunities Fund are 27.87 as compare to Funds Benchmark Returns are 28.13 and The Risk Free Rate is common for next 3 months. (i.e., 4.25%) Returns

Since Inception: It reveals that HSBC India Opportunities Fund Returns are 48.82, as compare to Funds Benchmark returns are 45.82, and There is a slight Increase in Risk Free Rate by 0.25 % (4.5%) compare to last 9 months

OBSERVATIONS;
Observations are made from the data analysis. The following observations are drawn from the analysis of schemes:

KOTAK OPPORTUNITIES FUND

FRANKLIN INDIA FLEXI CAP FUND

RELIANCE EQUITY OPPORTUNITIE S FUND

HDFC CORE & SATELLITE FUND

HSBC INDIA OPPORTUNITIES FUND

Monthly return’s

5.92 6.12 0.81 1.54 20.56

3.47 5.84 0.52 1.94 17.28

2.4 7.29 0.37 1.09 25.80

1.15 4.86 0.72 1.45 21.71 90

-0.57 5.04 0.62 1.13 14.07

Sharpe’s Ratio Treynor’s Ratio Co-efficient (β ) Std.Deviation (σ )

(Table-12)

Chapter – 7 Conclusion and Recommendation
CONCLUSIONS
After interpreting the above data the following conclusions have been made Kotak Opportunities Fund: • • • • • It is a diversified aggressive equity fund. It is a open-ended equity scheme Since the β ratio is high it implies the risk is high As the returns are more in Kotak Opportunities compare to other Four AMC’s It is suitable for investors looking for medium risk and moderate returns with in a time period of 1-3 years. Franklin India Flexi Cap Fund: • • • It is a diversified equity fund. It is a open-ended equity scheme Since the β ratio is high it implies the risk is high 91

In Franklin the returns are more compare to other Three AMC’s (HDFC, RELIANCE, HSBC)

Reliance Equity Opportunities Growth Fund: • • • • It is a diversified equity fund. It is a open-ended equity scheme Since the β ratio is high it implies the risk is high In Reliance Equity Opportunities the returns are medium compare to other AMC’s HDFC Core & Satellite Fund: • • • • • It is a diversified equity fund. It is a open-ended equity scheme In HDFC the returns are low compare to other AMC’s It is a value based fund It is a low risky fund

HSBC India Opportunities Fund:• • • • It is a diversified equity fund. It is a open-ended equity scheme In HSBC the returns are lesser than other AMC’s It is a low risky fund

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. 92

• • •

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.

Chapter – 8 SUMMARY
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 93

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. The data is collected through websites, various reviews, and journals. No primary data is involved; hence there is no sample design. Further, mutual fund industry is discussed in detail, including evolution and growth and future scenario of mutual fund industry.

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Title of the Project:
COMPARATIVE STUDY BETWEEN MUTUAL FUNDS OFFER BY VARIOUS COMPANIES IN INDIAN MARKET

Objective:
 To project Mutual Fund as the ‘productive avenue’ for investing activities.  To show the wide range of investment options available in Mutual Funds by explaining its various schemes.  To compare the schemes based on Sharpe’s ratio, Treynor’s ratio, β Coefficient, Returns and show which scheme is best for the investor based on his risk profile.  To help an investor make a right choice of investment, while considering the inherent risk factors. • To understand the recent trends in Mutual Funds world.

Need for the Topic:
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 95

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.

Methodology and Procedure of Work:
The Methodology involves randomly selecting Open-Ended equity schemes of different fund houses of the country. The research is on the COMPARATIVES STUDY BETWEEN MUTUAL FUNDS OFFER BY VARIOUS COMPANIES IN INDIAN MARKET. This research is secondary database oriented. Hence the research design used is empirical research. The data has been collected from various secondary sources like websites, various reviews, and journals.

Statistical Technique to be used:
The scheme is analyzed according to its performance against the other, based on factors like Sharpe’s Ratio, Treynor’s Ratio, β (Beta) Co-efficient, Returns. 96

Chapterisation:
This dissertation consists of eight chapters, each chapter deals with different aspects of this project. The first chapter contains the introduction to the mutual fund industry in this dynamic environment and the various schemes of mutual fund available for investment and investor’s approach towards these schemes. The second chapter deals with the way in which the study has been conducted. The important topics of this chapter are objective of this study and the scope of the study. The third chapter deals with the limitations of this study. The fourth chapter deals with the theoretical perspective which include, Industry Profile, Concept and Role of mutual fund, Various market players in Mutual Fund market, Organization and Management of Mutual Funds, Investor’s Profile, Various Mutual Fund Schemes, Advantages of Investing through Mutual Funds, Evolution & Growth of Mutual Funds, Recent trends in Mutual Fund Industry and Risk Factors of Mutual Fund. The Fifth chapter deals with Methodology and Procedure of work. The Sixth chapter deals with a detailed analysis of data. The Seventh chapter deals with Conclusion and Recommendations The final and eighth chapter contains Summary of the Project Report.

97

ANNEXURE II
REFERENCES
WEBSITES • • • • • • • http://www.appuonline.com/mf/knowledge/industry.html http://finance.indiamart.com/markets/mutual_funds/ http://business.mapsofindia.com/mutual-funds/ http://www.mutualfundsindia.com/ http://www.amfiindia.com/ http://www.kotakmutual.com/ http://www.reliancemutual.com/

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• • • • • • • •

http://www.hdfcfund.com/ http://www.investopedia.com/ http://www.moneycontrol.com/mutualfundindia/ http://www.valueresearchonline.com/ http://myiris.com/mutual/ http://www.njindiainvest.com/ http://www.wikipidia.com/ http://www.indiainfoline.com/

OTHER REFERENCES:
• • • • Layman’s Guide to Mutual Funds By “OUTLOOK” Mutual Funds Primer By “ECONOMIC TIMES” MUTUAL FUND PRODUCT AND SERVICES---- TAXMAN Sarkar, A.K., 1991, “MUTUAL FUNDS IN INDIA : EMERGING TRENDS”

ANNEXURE III
LIST OF CHARTS, FIGURES & TABLES
LIST OF CHARTS:
Chart – 1 Contribution of Various Players in Mutual Fund market in India...…………..15 Chart – 2 Growths in Assets under Management .............................................................54 Chart – 3 Asset Under Management.. …………………………………………………....57 Chart – 4 Growth rate of Indian Mutual Fund Industry………………………………….57 99

Chart – 5 GDP of Different Countries………...………………………………….…..….58 Chart – 6 Risk Hierarchy of different Mutual Funds………………………………….....62 Chart – 7 Kotak Opportunities Fund Performance………………………………………76 Chart – 8 HDFC Core & Satellite Fund Performance …………………………….....….79 Chart – 9 Reliance Equity Opportunities Fund Performance…………………………....82 Chart – 10 Franklin India Flexi Cap Fund Performance………………………………...86 Chart – 11 HSBC India Opportunities Fund Performance ………………..…….………89

LIST OF FIGURES:
Figure – 1 Mutual Fund Operation Flow chart…………………………………………12 Figure – 2 Concept of Mutual Fund…………….………………………………..…….14 Figure – 3 Structure of Mutual Fund………………………………………………...…19 Figure – 4 Organization of Mutual Fund…………………………………..……...……20 Figure – 5 Broad Mutual Fund Types…………………………………..……...………33

LIST OF TABLES:
Table – 1 Table – 2 Table – 3 Table – 4 Table – 5 Table – 6 Table– 7 Table– 8 Table – 9 Table – 10 Table – 11 Table – 12 Asset Under Management (AUM)…………………………...…………18 Comparison of Investment Products..……………………………….…..29 Asset Allocation………….………………………………………..…….46 Fund Mobilization in Phase-II…………………………………..………51 Gross Fund Mobilization in Phase-III ………….…………………..…...53 Snapshot of Mutual Fund Schemes………………………………..…….63 Kotak Opportunities Fund Performance…………………………………74 HDFC Core & Satellite Fund Performance ………………………….....77 Reliance Equity Opportunities Fund Performance……………………....80 Franklin India Flexi Cap Fund Performance………..…………………...84 HSBC India Opportunities Fund Performance ………………..………...87 Observations from Analysis of Schemes…………………………..…….90

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