A project report on

MUTUAL FUNDS
At

Submitted by
Ms. SWETHA. Y.P
HT No
245109'72004
Project submitted in partial fulfillment for
The
Award Of The Degree Of
MASTER OF BUSINESS ADMINISTRATION TO

OSMANIA UNIVERSITY4 Hyderabad -500007

2009-2011
 DECLARATION

I hereby declare that this Project Report titled MUTUAL

FUNDS submitted by me to the Department of Business

Management, $.U., Hyderabad, is a bonafide work undertaken by

me and it is not submitted to any other University or Institution

for the award of any degree diploma * certificate or published any

time before.

Name and Address of the Student Signature of the Student

S+,THA.-.P S+,THA.-.P
 CRIICIO

This is to certify that the Project Report title

,MUTUAL FUNDS submitted in partial fulfilment
for the award of MBA Programme of Department of
Business Management, $.U. Hyderabad, was
carried out by S+,THA -.P under my guidance
This has not been submitted to any other University
or Institution for the award of any
degree/diploma/certificate.

Name and address of the Guide Signature of the Guide

SHRA/ANTHI.N SHRA/ANTHI.N
 CONTENTS

Chapter No. Name o+ the concept Page No.

Introduction
Need of the study

Objectives of the study

I
Scope of the study

Methodology of the study

Limitations of the study

II Review of Literature
III Industry Profile

IV Company Profile

V Data analysis and interpretation

VI Findings# Suggestions and Conclusion

VII Bibliography
CHAPTER I 5 INTRODUCTION
INTRODUCTION

A Mutual Fund is a trust that pools the savings of a number of investors who

share a common financial goal. The money thus collected is then invested in capital
market instruments such as shares, debentures and other securities. The income earned
through these investments and the capital appreciations realized are shared by its unit
holders in proportion to the number of units owned by them. Thus a Mutual Fund is
the most suitable investment for the common man as it offers an opportunity to invest
in a diversified, -professionally managed basket of securities at a relatively low cost.

The project idea is to project mutual funds as the better avenue for investment. Mutual
fund is productive package for a lay-investor with limited finances. Mutual fund is a
very old practice in U.S., and it has made a recent entry into India. Common man in
India still finds 3Bank' as a safe door for investment. This shows that mutual funds
have not gained a strong foot-hold in his life.

The project creates an awareness that the mutual fund is worthy investment practice.
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 a handy return to the investor. The project analyses various schemes of mutual
fund by taking different mutual fund schemes from different AMC'S. The future
challenges for mutual funds in India are also considered.

5
NEED  F THE
STUDY

The study basically made to educate the investors about Mutual Funds. Analyze the
various schemes to highlight the risk and return of diversity of investment that mutual
funds 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 risk2 taking abilities.

A small investor is the one who is able to correctly plan & decide in which profitable &
safe instrument to invest. To lock up one's hard earned money in a savings bank's
account is not enough to counter the monster of inflation. Using simple concepts of
diversification, power of compound interest, stable returns & limited e7posure to equity
investment, one can ma7imize his returns on investments & multiply one's savings.

Investment is a serious proposition one has to look into various factors before deciding
on the instruments in which to invest. To save is not enough. One must invest wisely &
get ma7imum returns. One must plan investment in such a way that his investment

objectives are satisfied. A sound investment is one which gives the investor reasonable
returns with a proper profitable management

This report gives the details about various investment objectives desired by an investor,
details about the concept & working of mutual fund.

9
OBJECTIVES OF THE STUDY

· To understand the concept of Mutual Funds.

· To study the different Sectoral Mutual Funds in India.

· To analyse the performance of different sectoral mutual funds.

· To identify the best Sectoral Mutual Funds to invest in India.

· To suggest the best mutual funds for investors.

SCOPE OF THE STUDY

Now a days, there is a lot of scope for the mutual funds. The Financial managers
have to decide whether to invest in the Shares, bonds, debentures, real estate, gold
and otherCommodities to get the ma7imum benefits for funds. The financial managers

should also reduce the risk from the Investments. The scope of the study is
confirmed to the sectoral funds available in Indian mutual funds.

RESEARCH METHODOLOGY

In the present project work the data as been collected from available source that is
secondary data like websites, Newspapers and magazines. The sample size taken is of :
different sectoral funds

;
Sampling Design

Sampling method use is non probabilistic judgmental sampling. The Mutual Fund
Scheme for the study have been selected based on following ; criteria

1 Type o+ the scheme Open5ended Sectoral

Funds9growth:
2 Minimum Assets Under Mgmt. Rs. #00 6rore
3 Inception Date Prior to 1st April4 200'

Growth option for the entire selected scheme has been considered.

Research Design

1.1enchmar< Index: For this study the 50 shares market inde7 S6P 0N>
NIFTY has been used as the market inde7.

2. Period o+ study: Period of study has been taken as 5 years starting from
1st April, 200? to 10th July 2010.

3. Ris< Free Rate O+ Return: Risk free rate of return refers to that
minimum return on an investment that has no risk of loosing the
investment over which it is earned. For this purpose of this study risk free
rate of return is represented by 1 days Treasury bill.

LIMITATIONS

1. The analysis is based on historical data and thus indicates the past performance
which may not always be indicative of the future performance.

2. Different schemes consider different market indices as their benchmarks, but for
the purpose of uniformity in the study all schemes have to be compared against
same benchmark inde7.

B
;. Sharpe ratio Cin its simplest forms that the relationship between risk and
return
is linear and remain linear throughout its entire range. Various research works
conducted in this regard show that the relationship is not as simple as Capital
Market theory would suggest. This is an inherent weakness of capital Asset
Pricing Model.

B. The time period considered by the study is only three years E a larger period
could have ensured coverage of a full market cycle # thus giving a more real
picture of the performance of the schemes.

<
CHAPTER II 5 REVIEW F
LITERATURE

?
Mutual Funds An
overview

A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is invested by the fund manager in
different types of securities depending upon the objective of the scheme. These could
range from shares to debentures to money market instruments. The income earned
through these investments and the capital appreciations realized by the scheme are
shared by its unit holders in proportion to the number of units owned by them Cpro
rata. Thus a Mutual Fund is the most suitable investment for the common man as it
offers an opportunity to invest in a diversified, professionally managed portfolio at a
relatively low cost. Anybody with an investible surplus of as little as a few thousand
rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined
investment objective and strategy.

A mutual fund is the ideal investment vehicle for today 4s comple7 and modern financial
scenario. Markets for equity shares, bonds and other fi7ed income instruments, real
estate, derivatives and other assets have become mature and information driven. Price
changes in these assets are driven by global events occurring in faraway places. A

typical individual is unlikely to have the knowledge, skills, inclination and time to keep
track of events, understand their implications and act speedily. An individual also finds
it difficult to keep track of ownership of his assets, investments, brokerage dues and
bank transactions etc.

A mutual fund is the answer to all these situations. It appoints professionally qualified
and e7perienced staff that manages each of these functions on a full time basis. The
large pool of money collected in the fund allows it to hire such staff at a very low cost
to each investor.

In effect, the mutual fund vehicle e7ploits economies of scale in all three areas 2
research, investments and transaction processing. While the concept of individuals

:
coming together to invest money collectively is not new, the mutual fund in its present
form is a 90th century phenomenon.

In fact, mutual funds gained popularity only after the Second World War. Globally,
there are thousands of firms offering tens of thousands of mutual funds with different
investment objectives. Today, mutual funds collectively manage almost as much as or
more money as compared to banks.

A draft offer document is to be prepared at the time of launching the fund. Typically, it
pre specifies the investment objectives of the fund, the risk associated, the costs
involved in the process and the broad rules for entry into and e7it from the fund and
other areas of operation. In India, as in most countries, these sponsors need approval
from a regulator, S,BI (Securities e7change Board of India) in our case. S,BI looks at
track records of the sponsor and its financial strength in granting approval to the fund
for commencing operations.

A sponsor then hires an asset management company to invest the funds according to the
investment objective. It also hires another entity to be the custodian of the assets of the

fund and perhaps a third one to handle registry work for the unit holders (subscribers)
of the fund.

In the Indian conte7t, the sponsors promote the Asset Management Company also, in
which it holds a majority stake. In many cases a sponsor can hold a 500  stake in the
Asset Management Company (AMC). ,.g. Birla Global Finance is the sponsor of the
Birla Sun Life Asset Management Company Ltd., which has floated different mutual
funds schemes and also acts as an asset manager for the funds collected under the
schemes

G
History o+ Mutual Fund in
India
The mutual fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the Government of India and Reserve Bank the. The history
of mutual funds in India can be broadly divided into four distinct phases

First Phase = 19'"-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up
by the Reserve Bank of India and functioned under the Regulatory and administrative
control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the
Industrial Development Bank of India (IDBI) took over the regulatory and
administrative control in place of RBI. The first scheme launched by UTI was Unit
Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management

Second Phase = 1987-1993 (Entry o+ Public Sector Funds:

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector
banks and Life Insurance Corporation of India (LIC) and General Insurance
Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund
established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab
National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of
India (Jun 90), Bank of Baroda Mutual Fund (Oct 99). LIC established its mutual fund
in June 1989 while GIC had set up its mutual fund in December 1990.

At the end of 1993, the mutual fund industry had assets under management of
Rs.47,004 crores.

Third Phase = 1993-!%%3 (Entry o Private Sector Funds:

With the entry of private sector funds in 1993, a new era started in the Indian mutual
fund industry, giving the Indian investors a wider choice of fund families. Also, 1993
was the year in which the first Mutual Fund Regulations came into being, under which
all mutual funds, e7cept UTI were to be registered and governed. The erstwhile Hothari

9
Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund
registered in July 1993.

The 1993 S,BI (Mutual Fund) Regulations were substituted by a more comprehensive
and revised Mutual Fund Regulations in 1996. The industry now functions under the
S,BI (Mutual Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual
funds setting up funds in India and also the industry has witnessed several mergers and
acquisitions. As at the end of January 2003, there were 33 mutual funds with total
assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets
under management was way ahead of other mutual funds.

Fourth Phase ? since February !00;

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the Specified Undertaking of the Unit
Trust of India with assets under management of Rs.29,835 crores as at the end of
January 2003, representing broadly, the assets of US 64 scheme, assured return and
certain other schemes. The Specified Undertaking of Unit Trust of India, functioning
under an administrator and under the rules framed by Government of India and does
not come under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LI0. It is
registered with S,BI and functions under the Mutual Fund Regulations. With the

bifurcation of the erstwhile UTI which had in March 2000 more than Rs.:6,000 crores of
assets under management and with the setting up of a UTI Mutual Fund, conforming
to the S,BI Mutual Fund Regulations, and with recent mergers taking place among
different private sector funds, the mutual fund industry has entered its current phase of
consolidation and growth. As at the end of March, 2006, there were 29 funds.

10
Future Scenario

The asset base will continue to grow at an annual rate of about 3= to 3<  over the
ne7t
few years as investor4s 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, 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 CNAV.

S,BI is working out the norms for enabling the e7isting 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.

11
Recent trends in mutual fund industry

The most important trend in the mutual fund industry is the aggressive

e7pansion 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
e7ceptions, they have serious plans of continuing the activity in a major way. The
e7perience 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 deep2pocketed 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
e7pectation 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

59
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.

Types o Mutual Funds

Mutual fund schemes may be classified on the basis of its structure and its investment
objective.

1y
Structure
Open-ended Funds

An open-end fund is one that is available for subscription all through the year. These do
not have a fi7ed maturity. Investors can conveniently buy and sell units at Net Asset
Value C"NAV" related prices. The key feature of open-end schemes is
liquidity.

Closed-ended Funds
A closed-end fund has a stipulated maturity period which generally ranging from 3 to
1< years. The fund is open for subscription only during a specified period. Investors can

invest in the scheme at the time of the initial public issue and thereafter they can buy or
sell the units of the scheme on the stock e7changes where they are listed. In order to
provide an e7it route to the investors# some close-ended funds give an option of
selling back the units to the Mutual Fund through periodic repurchase at NAV related
prices. S,!I Regulations stipulate that at least one of the two e7it routes is provided to
the investor.

Inter>al Funds
Interval funds combine the features of open-ended and close-ended schemes. They are
open for sale or redemption during pre-determined intervals at NAV related prices.

13
 
 


The aim of growth funds is to provide capital appreciation over the medium to long-
term. Such schemes normally invest a majority of their corpus in equities. It has been
proven that returns from stocks, have outperformed most other kind of investments
held over the long term. Growth schemes are ideal for investors having a long-term
outlook seeking growth over a period of time.



The aim of income funds is to provide regular and steady income to investors. Such
schemes generally invest in fi7ed income securities such as bonds, corporate debentures
and Government securities. Income Funds are ideal for capital stability and regular
income.


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 fi7ed
income securities in the proportion indicated in their offer documents. In a rising stock
market, the NA/ of these schemes may not normally keep pace, or fall equally when
the market falls. These are ideal for investors looking for a combination of income and
moderate growth.


The aim of money market funds is to provide easy liquidity, preservation of capital and
moderate income. These schemes generally invest in safer short-term instruments such
as treasury bills, certificates of deposit, commercial paper and inter-bank call money.
Returns on these schemes may fluctuate depending upon the interest rates prevailing
in the market. These are ideal for Corporate and individual investors as a means to
park their surplus funds for short periods.

5
B
Load Funds
A Load Fund is one that charges a commission for entry or e7it. That is, each time you
buy or sell units in the fund, a commission will be payable. Typically entry and e7it
loads range from 1% to 2%. It could be worth paying the load, if the fund has a good
performance history.

No-Load Funds
A No2Load Fund is one that does not charge a commission for entry or e7it. That is, no

commission is payable on purchase or sale of units in the fund. The advantage of a no

load fund is that the entire corpus is put to work.

Other
Schemes -

Tax Saving Schemes

These schemes offer ta7 rebates to the investors under specific provisions of the
Indian Income Ta7 laws as the Government offers ta7 incentives for investment in
specified avenues. Investments made in Equity Linked Savings Schemes CELSS
and Pension Schemes are allowed as deduction u/s 88 of the Income Ta7 Act, 1 ?1.
The Act also provides opportunities to investors to save capital gains u/s 54EA and
54E! by investing in Mutual Funds, provided the capital asset has been sold prior to
April 1, 2000 and the amount is invested before September ;0, 2000.

15
Speci)* Schemes

Industry Specific Schemes

Industry Specific Schemes invest only in the industries specified in the offer document.
The investment of these funds is limited to specific industries like InfoTech, FMCG,
and Pharmaceuticals etc.

Index Schemes
Inde7 Funds attempt to replicate the performance of a particular inde7 such as the !S,
Sense7 or the NS, <=

Sector)* Schemes
Sectoral Funds are those, which invest e7clusively in a specified industry or a group of
industries or various segments such as 'A' Group shares or initial public offerings.

· Commodities Funds
Commodities funds specialize in investing in different commodities directly or through
commodities future contracts. Specialized funds may invest in a single commodity or a
commodity group such as edible oil or rains, while diversified commodity funds will
spread their assets over many commodities

5?
 RISK HIERARCHY OF MUTUAL FUNDS

$isk
%evel

&y'e of Fund

5:
TABLE 2




     
    
Those who
Treasury Bills, park their
Liquidity +
Certificate of funds in
Moderate
 Deposits, current
Income + Negligible 2 days - 3 weeks
 Commercial accounts or
Reservation of
Papers, Call short-term
Capital
Money bank
deposits

 Papers, Those with

Liquidity +
 Little Treasury Bills, surplus 3 weeks -
 Moderate short-term
Interest Rate CDs, Short- 3 months
Income
 term funds
Government
securities.
 Predominantly
 Debentures,
Credit Risk Salaried &
Regular Government More than  12
& Interest conservative
-
 Income Rate Risk s ecurities,
C investors months
 orporate
 Bonds
Salaried &
 Security & Interest Rate Government
conservative 12 months & more
 Income Risk securities
investors
Aggressive
Long-term investors

Capital High Risk Stocks with long 3 years plus

Appreciation term out
look.
To generate
returns that are Portfolio
NA/ varies
 commensurate indices like Aggressive
with inde7 3 years plus
 with returns of BSE,NIFTY investors.
performance
respective etc
indices

1
G
 Balanced ratio
Capital of equity and
Growth &
Balanced Market Risk debt funds to Moderate &
Regular 9 years plus
Funds and Interest ensure higher Aggressive
Income
Rate Risk returns at
lower risk

Benefits of Mutual Fu invest ent

$. Professional Management:
Mutual Funds provide the services of e7perienced and skilled professionals,
backed by a dedicated investment research team that analyses the performance and
prospects of companies and selects suitable investments to achieve the objectives
of the scheme.

!. Diversification:
Mutual Funds invest in a number of companies across a broad cross2section of

industries and sectors. This diversification reduces the risk because seldom do all
stocks decline at the same time and in the same proportion. You achieve this
diversification through a Mutual Fund with far less money than you can do on
your own.

;. Convenient Administration:
Investing in a Mutual Fund reduces paperwork and helps you avoid many
problems such as bad deliveries, delayed payments and follow up with brokers and
companies. Mutual Funds save your time and make investing easy and convenient.

". Return Potential:

5

 Over a medium to long-term, Mutual Funds have the potential to provide a
higher return as they invest in a diversified basket of selected securities.

#. Low Costs:
Mutual Funds are a relatively less e7pensive way to invest compared to directly
investing in the capital markets because the benefits of scale in brokerage, custodial
and other fees translate into lower costs for investors.

'. Liquidity:
In open-end schemes, the investor gets the money back promptly at net asset

value related prices from the Mutual Fund. In closed-end schemes, the units can be
sold on a stock e7change at the prevailing market price or the investor can avail of
the facility of direct repurchase at NA/ related prices by the Mutual Fund.

(. Transparency:
Investors get regular information on the value of your investment in addition to
disclosure on the specific investments made by the scheme, the proportion invested

in each class of assets and the fund managerJs investment strategy and outlook.

@. Flexibility:
Through features such as regular investment plans, regular withdrawal plans
and dividend reinvestment plans, one can systematically invest or withdraw funds
according to your needs and convenience.

&. Affordability:
Investors individually may lack sufficient funds to invest in high-grade stocks. A
mutual fund because of its large corpus allows even a small investor to take the
benefit of its investment strategy

9=
 $%.Well Regulated:
All Mutual Funds are registered with S,!I 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 S,!I.

Limitation of Mutual Fund Investment

$. No Control Over Cost:

An Investor in mutual fund has no control over the overall costs of investing. He
pays an investment management fee Cwhich is a percentage of his investments 
as
long as he remains invested in fund, whether the fund value is rising or declining.
He also has to pay fund distribution costs, which he would not incur in direct
investing.

However this only means that there is a cost to obtain the benefits of mutual fund
services. This cost is often less than the cost of direct investing.

!. No Tailor5Made Portfolios:

Investing through mutual funds means delegation of the decision of portfolio

composition to the fund managers. The very high net worth individuals or large
corporate investors may find this to be a constraint in achieving their objectives.

However, most mutual funds help investors overcome this constraint by offering
large no. of schemes within the same fund.

95
 ;. Managing A Portfolio f
Funds:
A)ailability o lar"e no% o unds can actually mean too much choice or the
in)estors% &e may a"ain need ad)ice on ho' to select a und to achie)e his
objecti)es%
AMFI has ta(en initiati)e in this re"ard by startin" a trainin" and certiication
pro"ram or prospecti)e Mutual Fund Ad)isors% S,!I has made this certiication
compulsory or e)ery mutual und ad)isor interested in sellin" mutual und%

". Taxes:
Durin" a typical year # most acti)ely mana"ed mutual unds sell any'here rom 9=

to := percent o the securities in their portolios% I your und ma(es a proit on its sales #
you 'ill pay ta7es on the income you recei)e # e)en i you rein)est the money
you made%

#. Cost of Churn:

The portolio o und does not remain constant% The e7tent to 'hich the portolio
chan"es is a unction o the style o the indi)idual und mana"er i%e% 'hether he is a
buy and hold type o mana"er or one 'ho a""ressi)ely churns the und% It is also
dependent on the )olatility o the und si1e i%e% 'hether the und constantly recei)es
resh subscriptions and redemptions% Such portolio chan"es ha)e associated costs o
bro(era"e# custody ees etc% 'hich lo'ers the portolio return commensurately%

Conceptual background of the s

iar
n
+seliethctian"pleuthnodrsa%oFacstcohres uschto acshoioseestrmom
n) en#tthsterarteet"ayilinan
)desmtora"ceemsepnrt
ana e
mse
8ualitati)e # but the unds record is an important obstlyelmes indicator too% Thou"h past perormance
alone can not be indicati)e o uture perormance # it is# ran(ly# the only 8uantitati)e 'ay to
jud"e ho' "ood a und is at present%

Thereore # there is a need to correctly assess the past perormance o dierent

mutual unds% +orld'ide # "ood mutual und companies o)er are (no'n by their AM0s
and
99
this ame is directly lin(ed to their superior stoc( selection s(ills% For mutual unds to
"ro' # AM0s must be held accountable or their selection o stoc(s% In other 'ords #
there must be some perormance indicator that 'ill re)eal the 8uality o stoc( selection
o )arious AM0s%

because dierent unds 'ill ha)e dierent le)els o ris( attached to them% For
e)aluatin" the perormance o selected Sectoral Mutual Fund schemes ris(2return
relation models ha)e been used li(e

m The Treynor
Measure
m The Sharpe
Measure
m @enson
Model
0 Fama Model

The Treynor Measure

De)eloped by @ac( Treynor # this perormance measure e)aluates unds on the basis o
TreynorJs Inde7% This Inde7 is a ratio o return "enerated by the und o)er and abo)e
ris( ree rate o return C"enerally ta(en to be the return on securities bac(ed by the
"o)ernment# as there is no credit ris( associated # durin" a "i)en period and systematic
ris( associated 'ith it Cbeta% Symbolically # it can be represented as

TreynorJs Inde7 (Ti)  (0i 5

0f)1i.

+here# 0i represents return on fund4 0f is risk free rate of return and 1i is beta of
the fund.

All ris(2a)erse in)estors 'ould li(e to ma7imi1e this )alue% +hile a hi"h and positi)e
TreynorJs Inde7 sho's a superior ris(2adjusted perormance o a und # a lo' and
ne"ati)e TreynorJs Inde7 is an indication o una)orable perormance%

9;
Method. This measure involves evaluation of the returns that the fund has generated
vs. the returns actually e7pected out of the fund 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 C0i can be calculated as:-

0i = 0f + 1i (0m - 0f)

Where, 0m is average market return during the given period. 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 can not mitigate unsystematic risk,
as his knowledge of market is primitive.

Fama Model
The Eugene Fama model is an e7tension 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
e7cess return 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:-

0i = 0f + SiSmG(0m -
0f)

9<
Where, Sm is standard deviation of market returns. 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 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 investors4 as the ordinary investor lacks the necessary
skill and resources to diversified.

Moreover, the selection of the fund on the basis of superior stock selection ability of the
fund manager will also help in safeguarding the money invested to a great e7tent. 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 e7ceed the individual investors'
risk appetite.

BETA
!eta measures a stock's volatility, the degree to which its price fluctuates in relation to
the overall market. In other words, it gives a sense of the stock's market risk compared

to the greater market. !eta is used also to compare a stock's market risk to that of other
stocks. Investment analysts use the Greek letter '' to represent beta .

This measure is calculated using regression analysis. A beta of 1 indicates that the
security's price tends to move with the market. A beta greater than 1 indicates that the

9?
securityJs price tends to be more volatile than the market, and a beta less than 1 means it
tends to be less volatile than the market.
 I
r im
σi
I σm

is correlation coefficient between market returns and fund returns.

rim

σi is standard deviation of fund returns.(Si)

σ is
m standard deviation of market returns.(Sm)

σm9 is market variance.

Coefficient of Determination C R9 D 55 a measure of reliability of Beta

5
Beta depends on the inde7 used to calculate it. It can happen that the inde7 bears no
correlation with the movements in the fund. Due to this reason, it is essential to take a
look at statistical value called Coefficient of Determination along with Beta. It shows
how reliable the beta number is. It varies between zero and one.

Value of 1 indicates perfect correlation with the ind7. Thus, an If ( R9D ==.64 it
implies that 64 of the variation in the portfolio returns is due to variations in the
market returns. Mathematically it is the square of correlation coefficient(R).

n∑Q xC− x m eD ×a C yn −y

R= meD a
∑Cx xmean D9 × ∑Cy − y mean D

Where > and - are returns on the portfolio and returns on the market respectively.
Beta and ( R 9 D should thus be used together when e7amining a fund's risk profile.

NET ASSET VALUE (NAV)

NAV per unit of a scheme on a day is the net market value of the securities held by the
total no. of the units of the scheme on the particular day. It is actually the value of of
net asset per unit. Since the market value of securities changes everyday, NAV of a
fund also varies on a day to day basis. NAV's for open ended schemes are required to
be disclosed a daily basis(business day).

9:
 Net Assets of the scheme
NA/

No. of units outstanding

Where,
Numerator= Market value of investment+receivables+other Accrued Income +Other
Assets- Accrued E7penses-Other Payables-Other Liabilities.

Standard Deviation- a measure o+ Total Risk

Standard Deviation is the most common statistical measure of judging a fund's

volatility and risk. It measures a fund's total risk i.e. sum of systematic risk and
unsystematic risk. Mathematically it gives a 'quality rating' of an avg. The SD of an
avg. is the amt. By which the no. that go in to an avg. deviate from that avg. It tells us
how closely an avg. represents the underlying avg. But one thing to be kept in mind is
that a high Standard Deviation may be a measure of volatility, but it does not
necessarily mean that such a fund is worse than one with a low Standard Deviation. If
the first fund is a much higher performer than the second one, the deviation will not
matter much.

SD= 5 ∑ C x i − xmean D
n

∑ C−x x meanD 9gives the square of the sum of differences of each value in the sample
i

from the mean of the sample of 'n' element.

Note - For this project following tools have been

used-
· Standard Deviation
· Beta
·
Sharp Ratio
· R-SBuare

9
G
CHAPTER III 5 INDUSTRY PROFILE

9
FINANCIAL MARKETS

Finance is the pre2requisite for modern business and financial institutions play a vital

role in the economic system. It is through financial markets and institutions that the

financial system of an economy works. Financial markets refer to the institutional

arrangements for dealing in financial assets and credit instruments of different types

such as currency, cheques, bank deposits, bills, bonds, equities, etc.

Financial market is a broad term describing any marketplace where buyers and sellers

participate in the trade of assets such as equities, bonds, currencies and derivatives.

They are typically defined by having transparent pricing, basic regulations on trading,

costs and fees and market forces determining the prices of securities that trade.

Generally, there is no specific place or location to indicate a financial market. Wherever

a financial transaction takes place, it is deemed to have taken place in the financial

market. Hence financial markets are pervasive in nature since financial transactions are

themselves very pervasive throughout the economic system. For instance, issue of

equity shares, granting of loan by term lending institutions, deposit of money into a

bank, purchase of debentures, sale of shares and so on.

In a nutshell, financial markets are the credit markets catering to the various needs of

the individuals, firms and institutions by facilitating buying and selling of financial

assets, claims and services.

;=
 


















;5
Capital Market

The capital market is a market for financial assets which have a long or indefinite

maturity. Generally, it deals with long term securities which have a period of above one

year. In the widest sense, it consists of a series of channels through which the savings

of the community are made available for industrial and commercial enterprises and

public authorities. As a whole, capital market facilitates raising of capital.

The major functions performed by a capital market

are
5. Mobilization of financial resources on a nation-wide scale.

2. Securing the foreign capital and know-how to fill up deficit in the required

resources for economic growth at a faster rate.

3. Effective allocation of the mobilized financial resources, by directing the same

to projects yielding highest yield or to the projects needed to promote balanced

economic development.

Capital market consists of primary market and secondary market.

Primary market  Primary market is a market for new issues or new financial
claims.
Hence it is also called as New Issue Market. It basically deals with those securities

which are issued to the public for the first time. The market, therefore, makes available

a new block of securities for public subscription. In other words, it deals with raising of

fresh capital by companies either for cash or for consideration other than cash. The best

e7ample could be Initial Public Offering CIPO where a firm offers shares to the
public
for the first time.

32
Secondary market Secondary market is a market where e7isting securities are
traded.
In other words, securities which have already passed through new issue market are

traded in this market. Generally, such securities are quoted in the stock e7change and it

provides a continuous and regular market for buying and selling of securities. This

market consists of all stock e7changes recognized by the government of India.

Money Market

Money markets are the markets for short-term4 highly liquid debt securities. Money

market securities are generally very safe investments which return relatively low

interest rate that is most appropriate for temporary cash storage or short term time

needs. It consists of a number of sub-markets which collectively constitute the money

market namely call money market, commercial bills market, acceptance market, and

Treasury bill market.

Derivatives Market

The derivatives market is the financial market for derivatives, financial instruments like

futures contracts or options, which are derived from other forms of assets. A derivative

is a security whose price is dependent upon or derived from one or more underlying

assets. The derivative itself is merely a contract between two or more parties. Its value

is determined by fluctuations in the underlying asset. The most common underlying

assets include stocks, bonds, commodities, currencies, interest rates and market

inde7es. The important financial derivatives are the

following

33
· Forwards: Forwards are the oldest of all the derivatives. A forward contract

refers to an agreement between two parties to e7change an agreed quantity of an

asset for cash at a certain date in future at a predetermined price specified in that

agreement. The promised asset may be currency, commodity, instrument etc.

· Futures: Future contract is very similar to a forward contract in all respects

e7cepting the fact that it is completely a standardized one. It is nothing but a

standardized forward contract which is legally enforceable and always traded on

an organized e7change.

·
Options: A financial derivative that represents a contract sold by one party
(option writer) to another party (option holder). The contract offers the buyer

the right, but not the obligation, to buy (call) or sell (put) a security or other

financial asset at an agreed2upon price (the strike price) during a certain period

of time or on a specific date (e7ercise date). Call options give the option to buy

at certain price, so the buyer would want the stock to go up. Put options give the

option to sell at a certain price, so the buyer would want the stock to go down.

· Swaps: It is yet another e7citing trading instrument. Infact, it is the combination

of forwards by two counterparties. It is arranged to reap the benefits arising

from the fluctuations in the market either currency market or interest rate

market or any other market for that matter.

;B
Foreign Exchange Market

It is a market in which participants are able to buy, sell, e7change and speculate on

currencies. Foreign e7change markets are made up of banks, commercial companies,

central banks, investment management firms, hedge funds, and retail fore7 brokers and

investors. The fore7 market is considered to be the largest financial market in the

world. It is a worldwide decentralized over-the-counter financial market for the trading

of currencies. Because the currency markets are large and liquid, they are believed to be

the most efficient financial markets. It is important to realize that the foreign e7change

market is not a single e7change, but is constructed of a global network of computers

that connects participants from all parts of the world.

Commodities Market

It is a physical or virtual marketplace for buying, selling and trading raw or primary

products. For investorsJ purposes there are currently about 50 major commodity
markets worldwide that facilitate investment trade in nearly 500 primary

commodities. Commodities are split into two types hard and soft commodities.
Hard
commodities are typically natural resources that must be mined or e7tracted (gold,

rubber, oil, etc.), whereas soft commodities are agricultural products or livestock (corn,

wheat, coffee, sugar, soybeans, pork, etc.)

;5
India Financial market is one of the oldest in the world and is considered to be the

fastest growing and best among all the markets of the emerging economies.

The history of Indian capital markets dates back 200 years toward the end of the

1Gth century when India was under the rule of the East India Company. The

development of the capital market in India concentrated around Mumbai where

no less than 200 to 2<0 securities brokers were active during the second half of
the 19th century.

The financial market in India today is more developed than many other sectors because

it was organized long before with the securities e 7 changes of Mumbai,

Ahmadabad and Kolkata were established as early as the 19th century.

By the early 1960s the total number of securities e7changes in India rose to eight,

including Mumbai, Ahmadabad and Kolkata apart from Madras, Kanpur, Delhi,

Bangalore and Pune. Today there are 21 regional securities e7changes in India

in addition to the centralized NSE (National Stock E7change) and OTCEI (Over

the Counter E7change of India).

However the stock markets in India remained stagnant due to stringent controls on the

market economy that allowed only a handful of monopolies to dominate their

respective sectors. The corporate sector wasnJt allowed into many industry segments,

;6
which were dominated by the state controlled public sector resulting in stagnation of

the economy right up to the early 1990s.

Thereafter when the Indian economy began liberalizing and the controls began to be
dismantled or eased outE the securities markets witnessed a flurry of IPO's that were

launched. This resulted in many new companies across different industry segments to

come up with newer products and services. A remarkable feature of the growth of the

Indian economy in recent years has been the role played by its securities markets in

assisting and fuelling that growth with money rose within the economy. This was in

marked contrast to the initial phase of growth in many of the fast growing economies of

East Asia that witnessed huge doses of FDI (Foreign Direct Investment) spurring

growth in their initial days of market decontrol. During this phase in India much of the

organized sector has been affected by high growth as the financial markets played an

all-inclusive role in sustaining financial resource mobilization. Many PSUs (Public

Sector Undertakings) that decided to offload part of their equity were also helped by
the well-organized securities market in India. The launch of the NSE (National Stock

E7change) and the OTCEI (Over the Counter E7change of India) during the mid 1990s

by the government of India was meant to usher in an easier and more transparent form

of trading in securities. The NSE was conceived as the market for trading in the

securities of companies from the large-scale sector and the OTCEI for those from the

small-scale sector. While the NSE has not just done well to grow and evolve into the

virtual backbone of capital markets in India the OTCEI struggled and is yet to show any

sign of growth and development. The integration of IT into the capital market

infrastructure has been particularly smooth in India due to the country's world class IT

;:
industry. This has pushed up the operational efficiency of the Indian stock market to

global standards and as a result the country has been able to capitalize on its high

growth and attract foreign capital like never before. The regulating authority for capital

markets in India is the SEBI CSecurities and E7change Board of India. SEBI came
into
prominence in the 599=s after the capital markets e7perienced some turbulence. It had

to take drastic measures to plug many loopholes that were e7ploited by certain market

forces to advance their vested interests. After this initial phase of struggle SEBI has

grown in strength as the regulator of India's capital markets and as one of the country's

most important institutions.

;G
The basic objectives of the Board -ere identified
as
to protect the interests of investors in securities;
to promote the development of Securities Market;
to regulate the securities market and
For matters connected therewith or incidental thereto.

Since its inception S,!I has been working targeting the securities and is attending to

the fulfillment of its objectives with commendable zeal and de7 terity. The

improvements in the securities markets like capitalization requirements, margining,

establishment of clearing corporations etc. reduced the risk of credit and also reduced

the market.

S,!I has introduced the comprehensive regulatory measures, prescribed registration

norms, the eligibility criteria, the code of obligations and the code of conduct for

different intermediaries like, bankers to issue, merchant bankers, brokers and sub-

brokers, registrars, portfolio managers, credit rating agencies, underwriters and others.

It has framed bye-laws, risk identification and risk management systems for Clearing

houses of stock e7changes, surveillance system etc. which has made dealing in

securities both safe and transparent to the end investor.

Another significant event is the approval of trading in stock indices Clike S&P CN>

Nifty & Sense7 in 9000. A market Inde7 is a convenient and effective product
because
of the following
reasons

B0
 It acts as a barometer for market behavior;

It is used to benchmark portfolio performance;

It is used in derivative instruments like inde7 futures and inde7 options;

It can be used for passive fund management as in case of Inde7 Funds.

Two broad approaches of SE!I is to integrate the securities market at the national level,

and also to diversify the trading products, so that there is an increase in number of

traders including banks, financial institutions, insurance companies, mutual funds,

primary dealers etc. to transact through the E7changes. In this conte7t the introduction

of derivatives trading through Indian Stock E7changes permitted by SE!I in 2000 AD

is a real landmark.

SE!I has enjoyed success as a regulator by pushing systemic reforms aggressively and

successively Ce.g. the quick movement towards making the markets electronic and

paperless rolling settlement on TK2 bases . SE!I has been active in setting up the

regulations as required under law.

B5
12. Madhya Pradesh
13. Madras
14. Magadh
1<. Mangalore
1?. Meerut
1:. Pune
1G. Saurashtra Hutch
1. Uttar
Pradesh
2=. /adodara

43
 Stlatt Emhart!!! brmed

3SE
T he edge is effic ienc y
BAY STOCK EXCHANGE

A very common name for all traders in the stock market, BSE, stands for Bombay
Stock E7change. It is the oldest market not only in the country, but also in Asia. In

the early days, BSE was known as "The Native Share 6 Stock Brokers Association."

It was established in the year 1G:5 and became the first stock e7change in the country

to be recognized by the government. In 1956, BSE obtained a permanent recognition

from the Government of India under the Securities Contracts (Regulation) Act, 1956.

In the past and even now, it plays a pivotal role in the development of the countryJs

capital market. This is recognized worldwide and its inde7, SENSE>, is also tracked

worldwide. Earlier it was an Association of Persons (A$P), but now it is a

demutualised and corporatised entity incorporated under the provisions of the

Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualization)

Scheme, 9005 notified by the Securities and E7change Board of India (SEBI).

BSE Vision

The vision of the Bombay Stock E7change is to "Emerge as the premier Indian stock

e7change by establishing global benchmarks."

Project Report
1SE Facts

BSE as a brand is synonymous with capital markets in India. The BSE SENSE> is

the benchmark equity inde7 that reflects the robustness of the economy and finance. It

was the


•
First in India to introduce Equity Derivatives
· First in India to launch a Free Float Inde7

· First in India to launch US  version of BSE

Sense7
· First in India to launch E7change Enabled Internet Trading Platform

· First in India to obtain ISO certification for Surveillance # Clearing 6

Settlement

JBSE On2 Line Trading System 4 CBOLT  has been awarded the globally

recognized the Information Security Management System standard

BS779922200
2.
· First to have an e7clusive facility for financial training

· Moved from Open Outcry to Electronic Trading within just <0 days

Project Report
%SE with its long history of capital market development is fully geared to continue

its contributions to further the growth of the securities markets of the country, thus

helping India increases its sphere of influence in international financial markets-

Project Report
     

 


The National Stock E7change of India Limited has genesis in the report of the High

Powered Study Group on Establishment of New Stock E 7changes, which

recommended promotion of a National Stock E7change by financial institutions (FI4s)

to provide access to investors from all across the country on an equal footing. Based

on the recommendations, NSE was promoted by leading Financial Institutions at the

behest of the Government of India and was incorporated in November 1992 as a ta72

paying company unlike other stock E7change in the country.

$n its recognition as a stock e7change under the Securities Contracts (Regulation)

Act, 19<? in April 199;, NSE commenced operations in the Wholesale Debt Market

(WDM) segment in June 1994. The Capital Market (Equities) segment commenced
operations in November 1994 and operations in Derivatives segment commenced in

June 2000.

Project Report
NSE GROUP

National Securities Clearing Corporation Ltd. (NSCCL)

It is a wholly owned subsidiary, which was incorporated in August 199< and

commenced clearing operations in April 199?. It was formed to build confidence in

clearing and settlement of securities, to promote and maintain the short and consistent

settlement cycles, to provide a counter-party risk guarantee and to operate a tight risk

containment system.

NSE.IT Ltd.

It is also a wholly owned subsidiary of NS, and is its IT arm. This arm of the NS, is

uniquely positioned to provide products, services and solutions for the securities

industry. NS,.IT primarily focuses on in the area of trading, broker front-end and

back-office, clearing and settlement, web-based, insurance, etc. Along with this, it

also provides consultancy and implementation services in Data Warehousing,

Business Continuity Plans, Site Maintenance and Backups, Stratus Mainframe

Facility Management, Real Time Market Analysis & Financial News.

India Index Services  Products Ltd.

(IISL)
It is a joint venture between NS, and CRISIL Ltd. to provide a variety of indices and

inde7 related services and products for the Indian Capital markets. It was set up in
May 199G. IISL has a consulting and licensing agreement with the Standard and

Poor's CS&P, world's leading provider of investible equity indices, for co-
branding
equity indices.

Project Report
Regulation Act, 1 5?. The e7change was set up to aid enterprising promotes in

raising finance for new projects in a cost effective manner and to provide investors

with a transparent and efficient mode of trading Modeled along the lines of the

NASDAQ market of USA, $T0EI introduced many novel concepts to the Indian

capital markets such as screen2based nationwide trading, sponsorship of companies,

market making and scrip less trading. As a measure of success of these efforts, the

E7change today has 115 listings and has assisted in providing capital for enterprises

that have gone on to build successful brands for themselves like VIP Advanta, Sonora

Tiles 6 Brilliant mineral water, etc.

Need for OTCEI:

Studies by NASS0$M, software technology parks of India, the venture capitals funds

and the government4s IT tasks Force, as well as rising interest in IT, Pharmaceutical,

Biotechnology and Media shares have repeatedly emphasized the need for a national

stock market for innovation and high growth companies. Innovative companies are

critical to developing economics like India, which is undergoing a major

technological revolution. With their abilities to generate employment opportunities

and contribute to the economy, it is essential that these companies not only e7pand

e7isting operations but also set up new units. The key issue for these companies is

raising timely, cost effective and long term capital to sustain their operations and

enhance growth. Such companies, particularly those that have been in operation for a

short time, are unable to raise funds through the traditional financing methods,

because they have not yet been evaluated by the financial world.

Project Report
CHAPTER I3 5 COMPANY PROFILE

Project Report
 INDIA INFLINE
LIMITED
India Infoline is a one-stop financial services shop, most respected for quality of its

information, personalized service and cutting-edge technology.

Vision

Our vision is to be the most respected company in the financial services space.

India In+o*ine Group

The India Infoline group, comprising the holding company, India Infoline Limited
and its wholly-owned subsidiaries, include the entire financial services space with

offerings ranging from Equity research, Equities and derivatives trading,

Commodities trading, Portfolio Management Services, Mutual Funds, Life Insurance,

Fi7ed deposits, .oI bonds and other small savings instruments to loan products and

Investment banking.

India Infoline also owns and manages the websites www.indiainfoline.com and

www.5paisa.com. The company has a network of over 9100 business locations

(branches and sub-brokers) spread across more than B50 cities and towns. The group

caters to appro7imately a million customers.

Founded in 1995 by Mr. Nirmal Jain (Chairman and Managing Director) as an

independent business research and information provider, the company gradually

evolved into a one-stop financial services solutions provider.

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India Infoline received registration for a housing finance company from the National

Housing Bank and received the 'Fastest growing Equity Broking House - Large

firms' in India by Dun 6 Bradstreet in 900 . It also received the Insurance

broking
license from IRDA; received the venture capital license; received in principle

approval to sponsor a mutual fund; received 'Best broker- India' award from Finance

Asia; 'Most Improved Brokerage- India' award from Asia money.

CMP STRUCTURE
A
India Infoline Limited is listed on both the leading stock e7changes in India, viz. the

Stock E7change, Mumbai (BSE) and the National Stock E7change (NSE) and is also

a member of both the e7changes. It is engaged in the businesses of Equities broking,

Wealth Advisory Services and Portfolio Management Services. It offers broking

services in the Cash and Derivatives segments of the NSE as well as the Cash

segment of the BSE. It is registered with NSDL as well as CDSL as a depository

participant, providing a one-stop solution for clients trading in the equities market. It

has recently launched its Investment banking and Institutional Broking business.

A SEBI authorized Portfolio Manager; it offers Portfolio Management Services to

clients. These services are offered to clients as different schemes, which are based on

differing investment strategies made to reflect the varied risk-return preferences of

clients.

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 India I n folin Ltd
' ,.ir 6~....it co-1 , c.. gar , .

I I

India Info! inc. India Infaine IIFL (Asiiaa )} India Infoline India Infolinc
Investment C Pt G Ltd Media & Markating
Services Ltd Ltd Research Swding Ltd
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Moneylino India Irifolirie Itydia Infoli Ile India Infoline India 114°1h-ie.
Credi I Ltd Housing Diatrifaution Insurance I n5uran cc
Finance Ltd Co Ltd Sullins Ltd brokers Ltd
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India In+o*ine Media and Research Services Limited

The services represent a strong support that drives the broking, commodities, mutual

fund and portfolio management services businesses. It undertakes equities research

which is acknowledged by none other than Forbes as 'Best of the Web' and ' a must

read for investors in Asia'. India Infoline's research is available not just over the

internet but also on international wire services like Bloomberg CCode 

IILL ,
Thomson First Call and Internet Securities where India Infoline is amongst the most

read Indian brokers.

India In+o*ine Commodities Limited.

India Infoline Commodities Pvt Limited is engaged in the business of commodities

broking. Their e7perience in securities broking empowered them with the requisite

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skills and technologies to allow them to offer commodities broking as a contra-

cyclical alternative to equities broking. It enjoys memberships with the MC> and

NCD,>, two leading Indian commodities e7changes, and recently acquired

membership of DGC>. It has a multi-channel delivery model, making it among the

select few to offer online as well as offline trading facilities.

India In+o*ine Marketing 

Services
India Infoline Marketing and Services Limited is the holding company of India

Infoline Insurance Services Limited and India Infoline Insurance Brokers Limited.

· India Infoline Insurance Services Limited is a registered Corporate Agent with

the Insurance Regulatory and Development Authority CIRDA. It is the

largest
Corporate Agent for ICICI Prudential Life Insurance Co Limited, which is

IndiaJs largest private Life Insurance Company. India Infoline was the first

corporate agent to get licensed by IRDA in early 2005.

•
India Infoline Insurance Brokers Limited India Infoline Insurance Brokers
Limited is a newly formed subsidiary which will carry out the business of

Insurance broking.

India In+o*ine Investment Services Limited

Consolidated shareholdings of all the subsidiary companies engaged in loans and

financing activities under one subsidiary. Recently, Orient Global, a Singapore-based

investment institution invested USD 7?.7 million for a 22.< stake in India Infoline

Investment Services. This will help focused e7pansion and capital raising in the said

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IIFL MANAGEMENT

· THE MANAGEMENT TEAM

Mr. Nirma* Jain4 Chairman  Managing

Director
Nirmal Jain, MBA (IIM, Ahmadabad) and a Chartered and Cost Accountant, founded

India4s leading financial services company India Infoline Ltd. in 1995,

providing globally acclaimed financial services in equities and

commodities bro(ing, life insurance and mutual funds distribution, among others.

Mr. R 3en<ataraman4 Executive Director

R /en(ataraman, co-promoter and E 7ecutive Director of India

Infoline Ltd., is a B. Tech (Electronics and Electrical Communications

Engineering, IIT Hharagpur) and an MBA (IIM Bangalore). &e joined

the India Infoline board in July 1999.

· THE BOARD OF DIRECTORS

Apart from Nirmal Jain and R /en(ataraman, the Board of Directors of India Infoline

Ltd. comprises :

Mr. Ni*esh 3i<amsey4 Independent Director

Mr. /i(amsey, Board member since February 9005 - a practicing Chartered

Accountant and partner (Hhimji Hun verji 6 Co., Chartered

Accountants), a member firm of &LB International, headed the audit

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department till 1990 and thereafter also handles financial services, consultancy,

investigations, mergers and acquisitions, valuations etc

Mr Sat Pal J,attar4 Non Executive Director

Mr Sat Pal Hhattar, 2 Board member since April 2001 2 Presidential Council of

Minority Rights member, Chairman of the Board of Trustee of

Singapore Business Federation, is also a life trustee of SINDA, a non

profit body, helping the under2privileged Indians in Singapore. &e joined the India

Infoline board in April 2001.

Mr Jranti Sin,a4 Independent Director

Mr. Hranti Sinha Board member since January 200< completed

his masters from the Agra University and started his career as a Class I

officer with Life Insurance Corporation of India.

Mr Arun J. Purvar4 Independent Director

Mr. A.H. Purvar  Board member since March completed his

200G
Masters degree in commerce from Allahabad University in 1966 and a

diploma in Business Administration in 196:. _

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Insurance

An entry into this segment helped complete the client's product basketE concurrently,

it graduated the Company into a one stop retail financial solutions provider. To ensure
ma7imum reach to customers across India, it has employed a multi pronged approach

and reaches out to customers via our Network, Direct and Affiliate channels. India

Infoline was the first corporate in India to get the agency license in early 9005.

Invest Online

India Infoline has made investing in Mutual funds and primary market so effortless.

Only registration is needed. No paperwork no queues and No registration

charges. India Infoline offers a host of mutual fund choices under one roof,

backed by in2depth research and advice from research house and tools configured

as investor friendly.

Wealth Management

The key to achieving a successful Investment Portfolio is to have a carefully planned

financial strategy based on a thorough understanding of the client's investment

needs and risk appetite. The IIFL Private Wealth Management Team of financial

e7perts will recommend an appropriate financial strategy to effectively meet

customer4s investment requirements.

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Asset Management

India Infoline is a leading pan-India mutual fund distribution house associated with

leading asset management companies. It operates primarily in the retail segment

leveraging its e7isting distribution network to reach prospective clients. It has

received the in-principle approval to set up a mutual fund.

Portfolio Management

IIFL Portfolio Management Service is a product wherein an equity investment

portfolio is created to suit the investment objectives of a client. India Infoline

invests the client's resources into stocks from different sectors, depending on

client's risk-return profile. This service is particularly advisable for investors who

cannot afford to give time or don Jt have that e 7pertise for day-to-day

management of their equity portfolio.

Newsletters

As a subscriber to the Daily Market Strategy, client's get research reports of India

Infoline research team on a priority basis. The Indiainfoline Weekly Newsletter is

the flashback for the week gone by. A weekly outlook coupled with the best of
the web stories from Indiainfoline and links to important investment ideas,

Leader Speak and features is delivered in the client's inbo7 every Friday evening.

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Scheme Snapshot
CIO: Santosh Hamath Category: Equity

Fund Manager: Anil Prabhudas Sub5Category: Sectoral-FMC.

Address: Level 4, +ockhardt Towers, Bandra - Hurla Type: Open
Comple7, Bandra (East), Mumbai - 400051
Min. Investment(Rs): 5000
Phone: 91 22 5632 5820
Total Assets(Rs.Mn):
Fax: 91 22 2281 0923 485.42
Registrars: Franklin Templeton Asset Management
http//www.templetonindia.com (India) Pvt. Ltd.

Launch Date: 15-MAR-99

Scheme Objective:
Seeks to provide long term capital appreciation by investing primarily in shares o companies operating in
the
FMC. industry.

Asset Allocation
Equity Shares 96.13
Call And Other Assets 2.84
Corporate Debt / Bonds 1.03
As on 30-NO/-10

Top ( holdings As on )0-/,V-*0

Nestle India Limited 14.9:
I T C Limited 11.2:
Asian Paints Limited 9.25
Pidilite Industries Limited 6.48
Marico Limited 6.08

4. Infrastructure Sector

Tata Infrastructure Fund

Scheme Snapshot

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CIO: /ed Prakash Chaturvedi Category: Equity

Fund Manager: M /enugopal Sub-Category: Sectoral-Infrastructure

Address: Fort House, 221 Dr. D. N. Road, Mumbai - Type: Open

400 001
Min. Investment(Rs): 5000
Phone: 91 22 56505200 / 251 / 252
Total Assets(Rs.Mn):
Fax: 91 22 5631 5194 18972.93
Registrars: Computer Age Management Services
website: Pvt.Ltd.
http  //'''.tatamutualfund.com
Launch Date: 25-NO/-04

Scheme Objective:
The investment objective of the Scheme is to provide income distribution and / or medium to long term capital
gains by investing predominantly in equity/equity related instrument of the companies in the infrastructure sectors.

Asset Allocation
Equity Shares 95.22
Cash And Other Assets 4.78
As on 30-NO/-10

Top ( holdings As on )0-/,V-*0

I C I C I Bank Limited 4.97
Crompton Greaves Limited 4.79
Cash And Other Assets 4.78
Oil 6 Natural Gas Corporation Limited 4.70
H D F C Bank Limited 4.58

5. Power Sector:-

Reliance Diversified Power Sector Fund

Scheme Snapshot

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CIO: H Rajagopal Category: Equity

Fund Manager: Sunil Singhania Sub-Category: Sectoral-Power

Address: One Indiabulls Centre, Tower1, Jupiter Mills Type: Open

Compound, 841, Senapati Bapat Marg, Elphinstone
Road, Mumbai - 400 013 Min. Investment(Rs): 5000

Phone: 91 22 3099 4600 Total Assets(Rs.Mn):

50211.2
Fax: 91 22 3041 4899 Registrars: Harvy Computershare Private Limited

-ebsite: Launch Date: 29-MAR-04

http//www.reliancemutual.com/
Scheme Objective:
The primary investment objective of the scheme is to seek to generate continous returns by actively investing in
equity and equity related or fi7ed income securities of Power and other associated companies

Asset Allocation
Equity Shares 94.65
Derivatives,Cash And Other Receivables 5.35
As on 30-NO/-10

Top ( holdings As on )0-/,V-*0

Other Equities 8.33
Cummins India Limited 6.32
Torrent Power Limited 5.99
I C I C I Bank Limited 5.48
Cash And Other Assets And Derivatives 5.35

6. Technology Sector:-

Franklin In+otech Fund

Scheme Snapshot

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 CHAPTER 3I
FINDINGS4 SUGGESTIONS 
CONCLUSION

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ANNEKURE - I
TERMINOLOGY
Mutual Fund An investment tool that pools in investments made by people and
that corpus is professionally managed by further investing as per the type of fund
that's being operated. The intention is to float money in the market by owning assets
components of many companies at the same meeting the assurances made to
investors. There is no obligation whatsoever for assured returns.
NA3-A cumulative market value of total assets component of its liabilities. It's
actually the measure of what each shareholder would aquire if the assets of the
company are liquidated.
No-Load funds - there is no commission component present to enter and e7it
of the fund ownership. It's a full involvement of the corpus.
ELSS - Equity linked savings scheme is a scheme with a ta7 rebate allowed as
per the Sec 88 in the Indian income ta7 act, 1 ?1.It provides the investors with
the
opportunity to save gains on capital through investments made in MFs.
Index Funds - An interesting scheme that tries to replicate the behavior of
the particular stock inde7, that is of interest. The portfolio of the fund would majorly
consist of equities listed in that inde7.

Sector Funds - An MF scheme that has its chart of companies that

belong to a certain sector, say Oil. This is a high-risk fund, as the performance of that
sector would directly reflect in the funds NA/. So, here we are with the diverse
market of Mutual Funds. Each one claiming their USP. While MFs certainly are
NOT the safest, but they are relatively more safe than the direct involvement in the
equity market, given that fact that majority of the investors are either ill-informed or
not informed about the way the markets move.

So what e7actly makes MFs the right kind of fund management tool, espy in a
country like IndiaX A country like India or for that matter any developing country has
some basic problems which prevent the information to be available freely and that too
in an accessible fashion, so with a situation like that, a professionally managed

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funds. If one gets married, one might need to compromise one4s risk tolerance and
desired returns with that of the spouse. This could trigger off the need to e7it.
A major change in any basic attribute of the fund
when the fund changes any basic attribute as mentioned by it in its offer documents,
the investors have a choice of getting out of it. Even SE!I has provided for an e7it
route being made available to the investors. Changes like a change in Asset
Management Company or in investment style of fund or change of structure say from
closed-end to open-end etc. are good enough reasons for an investor to consider
switching or e7iting from it as they are certainly likely to affect the fund in a major
way.
Fund doesn t comply with its objective
One of the important parameters in the selection of the fund is alignment of the risk
profiles of the investor and fund. The objective of the fund says a lot about how the
fund plans to invest. If the objective is not being complied with, it is one of the e7it
points worth considering. For e7ample, the three funds discussed above, Alliance
Equity, !irla Advantage and ING Growth all claim to be diversified equity funds yet
they had huge e7 posures to select ICE sector scripts that not only added volatility
than is e7pected out of diversified funds but also in a way, went against their stated

objective.
The FundOs Expense Ratio Rises
a small rise in an e7pense ratio is not a big deal, however a significant rise can
result in substantial reduction of yields and so it would be better to e7it the fund. In
the case of bond funds or money market funds, it is highly unlikely that the fund
can increase its returns enough to justify an increase in the fundJs e7penses.
The Fund Manager has changed
a simple change of fund managers, in itself, is not enough reason to sell a fund on a
short-term basis. If it is a passively managed fund Cinde7 fund, then one has little
to
no reason
eyes to the
open on worry.
newHowever,
manager. ifObserving
it is an actively managed
the styles, stock fund, then
picking andhas to keep the
risks
undertaken by the new manager is important for it discloses a lot about how the fund

Project Report
might fare in the future. If satisfied, one will have no reason to complain later but
the process needs time and so an investor has to observe the fund manager for some
time before one takes a decision.
Enough has been earned
However, nothing is as important as to rein the horses in time. The primary principle
behind safety of investment is to take risks that can be tolerated. The principle also is
specific on the e7pectations that the investor must have from any investment. Just as it
is important to set realistic targets that one hopes to achieve from the investment, it is
also important to e7it when target as e7pected has been achieved irrespective of the
fact that it might be generating better returns in a short2term.
The above list is certainly not e7haustive and individuals will have other
better reasons to quit as well. It's just that most don't know when to apply thought
and so these would come in handy.

TIPS FOR MUTUAL FUN ESTORS

9SUGGESTIONS:
These are the few e7act as investment in MF's taken from the book with
ZMarketing for the ='s[ give
n by the Wall Street.
5. Check your letter of offer of funds prospectus to guard yourselves against any
hidden fees.
9. Ensue that the funds track record is the same as that of the current management
;. Avoid MF's that charge e7it fees at he back end door (fee s charged by MF from
the unit holders at he time to redemption of the units.)
B. Buy the funds with no sale charged loads.(a load is a charge by the fund when
investor buys it is called the entry load or when he sells is called the e7it load.)
<. If the charge it's heavy by the M F to discourage the investors from taking short
positions in the funds units because too many investors sell their units at a time
then the fund has to sell its holdings to meet the obligations that yield into vital of

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 the fines overall return. Most short funds like guilt funds (these are the funds the
invest only in government securities and treasury bills thus the investors have an
opportunities to buy risk free securities). These funds yield a better return than a
money market fund. It is good for the investors who desire safety of principal
amount). Money market funds (these funds in views in money market instruments
such as treasury bills, govt. bonds, certificates of bank deposits, commercial
deposits). They charge no loads, however loads are limited by S,!I to 7.
?. Check fund4s performance in bear as well a the bull market.
7. Guard fund risk by checking its portfolio for diversification volatility.

KEY STEPS FOR FINANCIAL PLANNING

INSURE YOURSELF BEFORE YOU INVEST

Insurance is the pre-requisite of all investments the main purpose of insurance is to

protect your current life style after retirement. It acts as a shield against all type of
financial risks. Investor has to realize that insurance is more for safe guarding
against risk faced in life rather than being an investment for profit.

CHOOSE SIMPLE INVESTMENT

Our daily life is full of complications the day-to-day grind leaves us with little energy
to keep track of our financial investments. That is copy an investor should choose

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simple & uncomplicated instruments. Therefore he has to invest the hassle free
instruments.

UTILIZE THE POWER OF COMPOUNDING

Compounding means payment of interest on accumulated interest. Thus money

earned by you works hard & earns more money for you. This implies that not only
the principal earns income for you but interest generated by you also earns income.
One important factor is the time period. Longer the time higher the benefit

INVEST IN INTRUMENTS THAT JEEP YOU AHEAD OF INFLATION

That silently creeps up from behind & starts eating your hard earned savings even
before you realize the situation. An investor should look at the real return Cthe rate
of return minus the rate of inflation while considering an investment. &e should
invest in instruments# which provide profitable-post-inflation returns.

REDUCE TAX ON YOUR INVESTMENT

There are two realities in the life. One is death & the other is ta7. It is advisable that
investments should be so planned that least possible ta7 would be required to be
paid. Smart move for the investor is to save every rupee from ta7 man.

GO FOR STABLE  REALISTIC

RETURNS

Stability of returns is more important that increased profit. Usually these are
associated with high volatile investment options like equities & even with
government securities or gilts as they also run high market risk. The asset allocation
is suggested according to the risk profile of an investor. So invest in the best option
& get the ma7imum returns.

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 BIBIOGR

> www.njindiainvest.com
> www.moneycontrol.com
> www.amfiindia.com
>
> wwwwww.
> MUTUAL FUND P!DU"T AND #$ TA(MAN
%&"$#
> AMF& "!U#$ )!!*

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http://slidepdf.com/reader/full/blackbook-project-on-mutual-funds