HDFC Finance Project Report PDF

SAAB MARFIN MBA
Project Report of the

Summer Internship Project
At
Topic- MUTUAL FUND COMPARISON AND ANALYSIS
BY BABASAB PATIL
MUTUAL FUND COMPARISON AND ANALYSIS
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Table of Contents
S.no Topic Page No.

1 Executive Summary
2 Company Profile
3 Industry Profile
I. Introduction
II. History of Mutual funds
III. Regulatory framework
IV. Concept Of Mutual Fund
V. Types of Mutual Fund
VI. Advantages Of Mutual Fund
VII. Terms Used In Mutual Funds
VIII. Fund management
IX. Risk
X. Basis Of Comparisons
XI. How to pick right fund
4 Systematic Investment Plan and Lump Sum investment

5 Rebalancing and its effects.
6 Research Methodology
I. Problem statement
II. Research Objective
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III. Data source
IV. Data Anlysis
V. Scope of Study
VI. Limitations
7 Findings and Analysis

8 Rankings
9 Conclusion
1. Executive Summary
The topic of this project is Mutual Fund Comparison and Analysis. The mutual fund
industry in India has seen dramatic improvements in quantity as well as quality of
product and service offerings in recent years and hence here focus is on
comparing schemes of different mutual fund companies on different performance
parametrers. Along with this project also touches on the aspect of Systematic
Investment Plan and Rebalancing.
Project analysis past three years data of different mutual fund schemes. Different
measures like beta ,Sharpe, Treynor, Jensen etc. have been taken to analyse the
performance.
An effort has been made to work on the concepts that have been taught in class
along with other useful parameters so that better study can be done.
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2. Company Profile
Vision Statement:
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HDFC Asset Management Company Ltd (AMC) was incorporated under the
Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset
Management Company for the HDFC Mutual Fund by SEBI vide its letter dated July 3,
2000.
The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T. Parekh
Marg, 169, Back bay Reclamation, Churchgate, Mumbai - 400 020.
In terms of the Investment Management Agreement, the Trustee has appointed the
HDFC Asset Management Company Limited to manage the Mutual Fund. The paid
up capital of the AMC is Rs. 25.161 crore.
Zurich Insurance Company (ZIC), the Sponsor of Zurich India Mutual Fund, following
a review of its overall strategy, had decided to divest its Asset Management
business in India. The AMC had entered into an agreement with ZIC to acquire the
said business, subject to necessary regulatory approvals.
Following the decision by Zurich Insurance Company (ZIC), the sponsor of Zurich
India Mutual Fund, to divest its Asset Management Business in India, HDFC AMC
acquired the schemes of Zurich India Mutual Fund effective from June 19, 2003.
HDFC AMC has a strong parentage – CO Sponsored by Housing Development

Finance Corporation Limited (HDFC Ltd.) and Standard Life Investment Limited, the
investment arm of The Standard Life Group, UK.
The present equity shareholding pattern of the AMC is as follows:
Housing Development Finance Corporation Limited was incorporated in 1977

as the first specialized Mortgage Company in India, its activities include
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housing finance, and property related services (property identification,
valuation etc.), training and consultancy. HDFC Ltd. contributes the 60% of
the paid up equity capital of the AMC.
Standard Life Insurance Limited is a leading Asset management company
with approximately US$ 282 billion of asset under management as on June
30, 2007. The company operates in UK, Canada, Hong Kong, China, Korea,
Ireland and USA to ensure it is able to form a truly global investment view.
SLI Ltd. contributes the 40% of the paid up equity capital of the AMC.
The AMC is managing 24 open-ended schemes of the Mutual Fund viz. HDFC
Growth Fund (HGF), HDFC Balanced Fund (HBF), HDFC Income Fund (HIF), HDFC
Liquid Fund (HLF), HDFC Long Term Advantage Fund (HLTAF), HDFC Children's Gift
Fund (HDFC CGF), HDFC Gilt Fund (HGILT), HDFC Short Term Plan (HSTP), HDFC
Index Fund, HDFC Floating Rate Income Fund (HFRIF), HDFC Equity Fund (HEF),
HDFC Top 200 Fund (HT200), HDFC Capital Builder Fund (HCBF), HDFC Tax Saver
(HTS), HDFC Prudence Fund (HPF), HDFC High Interest Fund (HHIF), HDFC Cash
Management Fund (HCMF), HDFC MF Monthly Income Plan (HMIP), HDFC Core &
Satellite Fund (HCSF), HDFC Multiple Yield Fund (HMYF), HDFC Premier Multi-Cap
Fund (HPMCF), HDFC Multiple Yield Fund . Plan 2005 (HMYF-Plan 2005), HDFC
Quarterly Interval Fund (HQIF) and HDFC Arbitrage Fund (HAF).The AMC is also
managing 11 closed ended Schemes of the HDFC Mutual Fund viz. HDFC Long
Term Equity Fund, HDFC Mid-Cap Opportunities Fund, HDFC Infrastructure Fund,
HDFC Fixed Maturity Plans, HDFC Fixed Maturity Plans - Series II, HDFC Fixed
Maturity Plans - Series III, HDFC Fixed Maturity Plans - Series IV, HDFC Fixed
Maturity Plans - Series V, HDFC Fixed Maturity Plans - Series VI, HFDC Fixed
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- Series V, HDFC Fixed Maturity Plans - Series VI, HFDC Fixed Maturity Plans -
Series VII and HFDC Fixed Maturity Plans - Series VIII.
The AMC is also providing portfolio management / advisory services and such
activities are not in conflict with the activities of the Mutual Fund. The AMC has
renewed its registration from SEBI vide Registration No. - PM / INP000000506
dated December 8, 2006 to act as a Portfolio Manager under the SEBI (Portfolio
Managers) Regulations, 1993.
3. Industry Profile
I. Introduction
The Indian mutual fund industry has witnessed significant growth in the past few
years driven by several favourable economic and demographic factors such as
rising income levels, and the increasing reach of Asset Management Companies
and distributors. However, after several years of relentless growth ,the industry
witnessed a fall of 8% in the assets under management in the financial year
2008-2009 that has impacted revenues and profitability. Whereas in 2009-10 the
industry is on the road of recovery.
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II. History of Mutual Funds
The mutual fund industry in India started in 1963 with the formation of Unit Trust
of India, at the initiative of the Government of India and Reserve Bank of India. The
history of mutual funds in India can be broadly divided into four distinct phases.
First Phase – 1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set
up by the Reserve Bank of India and functioned under the Regulatory and
administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from
the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory
and administrative control in place of RBI. The first scheme launched by UTI was
Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 Crores of assets under
management.
Second Phase – 1987-1993 (Entry of Public Sector Funds)
1987 marked the entry of non- UTI, public sector mutual funds set up by public
sector banks and Life Insurance Corporation of India (LIC) and General Insurance
Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund
established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab
National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of
India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund
in June 1989 while GIC had set up its mutual fund in December 1990.
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At the end of 1993, the mutual fund industry had assets under management of
Rs.47, 004 Crores.
Third Phase – 1993-2003 (Entry of Private Sector Funds)
With the entry of private sector funds in 1993, a new era started in the Indian
mutual fund industry, giving the Indian investors a wider choice of fund families.
Also, 1993 was the year in which the first Mutual Fund Regulations came into being,
under which all mutual funds, except UTI were to be registered and governed. The
erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first
private sector mutual fund registered in July 1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more

comprehensive and revised Mutual Fund Regulations in 1996. The industry now
functions under the SEBI (Mutual Fund) Regulations 1996.
The number of mutual fund houses went on increasing, with many foreign mutual
funds setting up funds in India and also the industry has witnessed several mergers
and acquisitions. As at the end of January 2003, there were 33 mutual funds with
total assets of Rs. 1, 21,805 Crores. The Unit Trust of India with Rs.44, 541 Crores
of assets under management was way ahead of other mutual funds
Fourth Phase – since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the Specified Undertaking of the Unit
Trust of India with assets under management of Rs.29, 835 crores as at the end of
January 2003, representing broadly, the assets of US 64 scheme, assured return
and certain other schemes. The Specified Undertaking of Unit Trust of India,
functioning under an administrator and under the rules framed by Government of
India and does not come under the purview of the Mutual Fund Regulations.
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The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is
registered with SEBI and functions under the Mutual Fund Regulations. With the
bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000
Crores of assets under management and with the setting up of a UTI Mutual Fund,
conforming to the SEBI Mutual Fund.
The graph indicates the growth of assets over the years:
Assets of the mutual fund industry touched an all-time high of Rs639,000 crore
(approximately $136 billion) in May, aided by the spike in the stock market by over 50 per
cent in the last one month and fresh inflows in liquid funds, data released by the
Association of Mutual Funds in India (AMFI) shows yesterday.
The country's burgeoning mutual fund industry is expected to see its assets
growing by 29% annually in the next five years. The total assets under management
in the Indian mutual funds industry are estimated to grow at a compounded annual
growth rate (CAGR) of 29 per cent in the next five years," the report by global
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consultancy Celent said. However, the profitability of the industry is expected to
remain at its present level mainly due to increasing cost incurred to develop
distribution channels and falling margins due to greater competition among fund
houses, it said.
III. Regulatory Framework
Securities and Exchange Board of India (SEBI)
The Government of India constituted Securities and Exchange Board of India, by an

Act of Parliament in 1992, the apex regulator of all entities that either raise funds
in the capital markets or invest in capital market securities such as shares and
debentures listed on stock exchanges. Mutual funds have emerged as an important
institutional investor in capital market securities. Hence they come under the
purview of SEBI. SEBI requires all mutual funds to be registered with them. It issues
guidelines for all mutual fund operations including where they can invest, what
investment limits and restrictions must be complied with, how they should account
for income and expenses, how they should make disclosures of information to the
investors and generally act in the interest of investor protection. To protect the
interest of the investors, SEBI formulates policies and regulates the mutual funds.
MF either promoted by public or by private sector entities including one promoted
by foreign entities are governed by these Regulations. SEBI approved Asset
Management Company (AMC) manages the funds by making investments in various
types of securities. Custodian, registered with SEBI, holds the securities of various
schemes of the fund in its custody. According to SEBI Regulations, two thirds of the
directors of Trustee Company or board of trustees must be independent.
Association of Mutual Funds in India (AMFI)
With the increase in mutual fund players in India, a need for mutual fund
association in India was generated to function as a non-profit organisation.
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Association of Mutual Funds in India (AMFI) was incorporated on 22nd August,
1995.
AMFI is an apex body of all Asset Management Companies (AMC) which has
been registered with SEBI. Till date all the AMCs are that have launched mutual fund
schemes are its member. It functions under the supervision and guidelines of its
Board of Directors.
Association of Mutual Funds India has brought down the Indian Mutual
Fund Industry to a professional and healthy market with ethical line enhancing
and maintaining standards. It follows the principle of both protecting and
promoting the interests of mutual funds as well as their unit holders.
The objectives of Association of Mutual Funds in India
The Association of Mutual Funds of India works with 30 registered AMCs of

the country. It has certain defined objectives which juxtaposes the guidelines of its
Board of Directors. The objectives are as follows:
This mutual fund association of India maintains high professional and ethical
standards in all areas of operation of the industry.
It also recommends and promotes the top class business practices and code
of conduct which is followed by members and related people engaged in the
activities of mutual fund and asset management. The agencies who are by
any means connected or involved in the field of capital markets and financial
services also involved in this code of conduct of the association.
AMFI interacts with SEBI and works according to SEBIs guidelines in the
mutual fund industry.
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Association of Mutual Fund of India do represent the Government of India,
the Reserve Bank of India and other related bodies on matters relating to the
Mutual Fund Industry.
It develops a team of well qualified and trained Agent distributors. It

implements a program of training and certification for all intermediaries and
other engaged in the mutual fund industry.
AMFI undertakes all India awareness program for investors in order to

promote proper understanding of the concept and working of mutual funds.
At last but not the least association of mutual fund of India also disseminate
information on Mutual Fund Industry and undertakes studies and research
either directly or in association with other bodies.
IV. Concept of Mutual Fund
A Mutual Fund is a trust that pools the savings of a number of investors who share
a common financial goal. The money thus collected is then invested in capital
market instruments such as shares, debentures and other securities. The income
earned through these investments and the capital appreciations realized are shared
by its unit holders in proportion to the number of units owned by them. Thus a
Mutual Fund is the most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed basket of securities
at a relatively low cost. The flow chart below describes the working of a mutual
fund:
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Mutual fund operation flow chart
Mutual funds are considered as one of the best available investments as compare
to others. They are very cost efficient and also easy to invest in, thus by pooling
money together in a mutual fund, investors can purchase stocks or bonds with
much lower trading costs than if they tried to do it on their own. But the biggest
advantage to mutual funds is diversification, by minimizing risk & maximizing
returns.
Organization of a Mutual Fund
There are many entities involved and the diagram below illustrates the
organizational set up of a mutual fund
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V. Types of Mutual Fund schemes in INDIA
Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial
position, risk tolerance and return expectations.
Overview of existing schemes existed in mutual fund category: BY STRUCTURE
Open - Ended Schemes: An open-end fund is one that is available for subscription
all through the year. These do not have a fixed maturity. Investors can conveniently
buy and sell units at Net Asset Value ("NAV") related prices. The key feature of
open-end schemes is liquidity.
Close - Ended Schemes: A closed-end fund has a stipulated maturity period which
generally ranging from 3 to 15 years. The fund is open for subscription only during
a specified period. Investors can invest in the scheme at the time of the initial
public issue and thereafter they can buy or sell the units of the scheme on the
stock exchanges where they are listed. In order to provide an exit route to the
investors, some close-ended funds give an option of selling back the units to the
Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations
stipulate that at least one of the two exit routes is provided to the investor.
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Interval Schemes: Interval Schemes are that scheme, which combines the features
of open-ended and close-ended schemes. The units may be traded on the stock
exchange or may be open for sale or redemption during pre-determined intervals
at NAV related prices.
Overview of existing schemes existed in mutual fund category: BY NATURE
Equity fund: These funds invest a maximum part of their corpus into equities
holdings. The structure of the fund may vary different for different schemes and
the fund manager’s outlook on different stocks. The Equity Funds are
sub-classified depending upon their investment objective, as follows:
-Diversified Equity Funds
-Mid-Cap Funds
-Sector Specific Funds
-Tax Savings Funds (ELSS)
Equity investments are meant for a longer time horizon, thus Equity funds rank
high on the risk-return matrix.
Debt funds: The objective of these Funds is to invest in debt papers. Government
authorities, private companies, banks and financial institutions are some of the
major issuers of debt papers. By investing in debt instruments, these funds ensure
low risk and provide stable income to the investors.
Gilt Funds: Invest their corpus in securities issued by Government, popularly

known as Government of India debt papers. These Funds carry zero Default risk but
are associated with Interest Rate risk. These schemes are safer as they invest in
papers backed by Government.
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Income Funds: Invest a major portion into various debt instruments such as bonds,
corporate debentures and Government securities.
Monthly income plans ( MIPs): Invests maximum of their total corpus in debt
instruments while they take minimum exposure in equities. It gets benefit of both
equity and debt market. These scheme ranks slightly high on the risk-return matrix
when compared with other debt schemes.
Short Term Plans (STPs): Meant for investment horizon for three to six months.
These funds primarily invest in short term papers like Certificate of Deposits (CDs)
and Commercial Papers (CPs). Some portion of the corpus is also invested in
corporate debentures.
Liquid Funds: Also known as Money Market Schemes, These funds provides easy
liquidity and preservation of capital. These schemes invest in short-term
instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These
funds are meant for short-term cash management of corporate houses and are
meant for an investment horizon of 1day to 3 months. These schemes rank low on
risk-return matrix and are considered to be the safest amongst all categories of
mutual funds.
Balanced funds: They invest in both equities and fixed income securities, which are
in line with pre-defined investment objective of the scheme. These schemes aim to
provide investors with the best of both the worlds. Equity part provides growth and
the debt part provides stability in returns.
Further the mutual funds can be broadly classified on the basis of investment
parameter. It means each category of funds is backed by an investment philosophy,
which is pre-defined in the objectives of the fund. The investor can align his own
investment needs with the funds objective and can invest accordingly
By investment objective:
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Growth Schemes: Growth Schemes are also known as equity schemes. The aim of
these schemes is to provide capital appreciation over medium to long term. These
schemes normally invest a major part of their fund in equities and are willing to
bear short-term decline in value for possible future appreciation.
Income Schemes: Income Schemes are also known as debt schemes. The aim of
these schemes is to provide regular and steady income to investors. These schemes
generally invest in fixed income securities such as bonds and corporate debentures.
Capital appreciation in such schemes may be limited.
Balanced Schemes: Balanced Schemes aim to provide both growth and income by
periodically distributing a part of the income and capital gains they earn. These
schemes invest in both shares and fixed income securities, in the proportion
indicated in their offer documents.
Money Market Schemes: Money Market Schemes aim to provide easy liquidity,
preservation of capital and moderate income. These schemes generally invest in
safer, short-term instruments, such as treasury bills, certificates of deposit,
commercial paper and inter-bank call money.
Other schemes
Tax Saving Schemes:
Tax-saving schemes offer tax rebates to the investors under tax laws prescribed
from time to time. Under Sec.80C of the Income Tax Act, contributions made to any
Equity Linked Savings Scheme (ELSS) are eligible for rebate.
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Index Schemes:
Index schemes attempt to replicate the performance of a particular index such as

the BSE Sensex or the Nifty 50. The portfolio of these schemes will consist of only
those stocks that constitute the index. The percentage of each stock to the total
holding will be identical to the stocks index weightage. And hence, the returns
from such schemes would be more or less equivalent to those of the Index.
Sector Specific Schemes:
These are the funds/schemes which invest in the securities of only those sectors or
industries as specified in the offer documents. Ex- Pharmaceuticals, Software, Fast
Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds
are dependent on the performance of the respective sectors/industries. While these
funds may give higher returns, they are more risky compared to diversified funds.
Investors need to keep a watch on the performance of those sectors/industries and
must exit at an appropriate time.
VI. Advantages of Mutual Funds
Diversification – It can help an investor diversify their portfolio with a minimum

investment. Spreading investments across a range of securities can help to reduce
risk. A stock mutual fund, for example, invests in many stocks .This minimizes the
risk attributed to a concentrated position. If a few securities in the mutual fund
lose value or become worthless, the loss maybe offset by other securities that
appreciate in value. Further diversification can be achieved by investing in multiple
funds which invest in different sectors.
Professional Management- Mutual funds are managed and supervised by

investment professional. These managers decide what securities the fund will buy
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and sell. This eliminates the investor of the difficult task of trying to time the
market.
Well regulated- Mutual funds are subject to many government regulations that
protect investors from fraud.
Liquidity- It's easy to get money out of a mutual fund.
Convenience- we can buy mutual fund shares by mail, phone, or over the Internet.
Low cost- Mutual fund expenses are often no more than 1.5 percent of our
investment. Expenses for Index Funds are less than that, because index funds are
not actively managed. Instead, they automatically buy stock in companies that are
listed on a specific index
Transparency- The mutual fund offer document provides all the information about
the fund and the scheme. This document is also called as the prospectus or the
fund offer document, and is very detailed and contains most of the relevant
information that an investor would need.
Choice of schemes – there are different schemes which an investor can choose from
according to his investment goals and risk appetite.
Tax benefits – An investor can get a tax benefit in schemes like ELSS (equity linked
saving scheme)
VII. Terms used in Mutual Fund
Asset Management Company (AMC)

An AMC is the legal entity formed by the sponsor to run a mutual fund. The AMC is
usually a private limited company in which the sponsors and their associates or
joint venture partners are the shareholders. The trustees sign an investment
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agreement with the AMC, which spells out the functions of the AMC. It is the AMC
that employs fund managers and analysts, and other personnel. It is the AMC that
handles all operational matters of a mutual fund – from launching schemes to
managing them to interacting with investors.
Fund Offer document

The mutual fund is required to file with SEBI a detailed information memorandum,
in a prescribed format that provides all the information about the fund and the
scheme. This document is also called as the prospectus or the fund offer document,
and is very detailed and contains most of the relevant information that an investor
would need
Trust
The Mutual Fund is constituted as a Trust in accordance with the provisions of the
Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the
Indian Registration Act, 1908. The Trust appoints the Trustees who are responsible
to the investors of the fund.
Trustees
Trustees are like internal regulators in a mutual fund, and their job is to protect the
interests of the unit holders. Trustees are appointed by the sponsors, and can be
either individuals or corporate bodies. In order to ensure they are impartial and fair,
SEBI rules mandate that at least two-thirds of the trustees be independent, i.e., not
have any association with the sponsor.
Trustees appoint the AMC, which subsequently, seeks their approval for the work it
does, and reports periodically to them on how the business being run.
Custodian
A custodian handles the investment back office of a mutual fund. Its
responsibilities include receipt and delivery of securities, collection of income,
distribution of dividends and segregation of assets between the schemes. It also
track corporate actions like bonus issues, right offers, offer for sale, buy back and
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open offers for acquisition. The sponsor of a mutual fund cannot act as a custodian
to the fund. This condition, formulated in the interest of investors, ensures that the
assets of a mutual fund are not in the hands of its sponsor. For example, Deutsche
Bank is a custodian, but it cannot service Deutsche Mutual Fund, its mutual fund
arm.
NAV
Net Asset Value is the market value of the assets of the scheme minus its liabilities.
The per unit NAV is the net asset value of the scheme divided by the number of
units outstanding on the Valuation Date.The NAV is usually calculated on a daily
basis. In terms of corporate valuations, the book values of assets less liability.
The NAV is usually below the market price because the current value of the fund’s
assets is higher than the historical financial statements used in the NAV calculation.
Market Value of the Assets in the Scheme + Receivables + Accrued Income

- Liabilities - Accrued Expenses
NAV =
----------------------------------------------------------------------------
--------------------
No. of units outstanding
Where,
Receivables: Whatever the Profit is earned out of sold stocks by the Mutual fund is
called Receivables.
Accrued Income: Income received from the investment made by the Mutual Fund.
Liabilities: Whatever they have to pay to other companies are called liabilities.
Accrued Expenses: Day to day expenses such as postal expenses, Printing,
Advertisement Expenses etc.
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Calculation of NAV
Scheme ABN
Scheme Size Rs. 5, 00, 00,000 (Five Crores)
Face Value of Units Rs.10/-
Scheme Size 5, 00, 00,000
--------------------------- = ------------------- = 50,
00,000
Face value of units 10
The fund will offer 50, 00,000 units to Public.
Investments: Equity shares of Various Companies.

Market Value of Shares is Rs.10, 00, 00,000 (Ten Crores)
Rs. 10, 00, 00,000

NAV = -------------------------- = Rs.20/-
50, 00,000 units
Thus each unit of Rs. 10/- is Worth Rs.20/-

It states that the value of the money has appreciated since it is more than the face
value.
Sale price
Is the price we pay when we invest in a scheme. Also called Offer Price. It may
include a sales load.
Repurchase price
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Is the price at which units under open-ended schemes are repurchased by the
Mutual Fund. Such prices are NAV related
Redemption Price
Is the price at which close-ended schemes redeem their units on maturity. Such
prices are NAV related
Sales load
Is a charge collected by a scheme when it sells the units. Also called, ‘Front-end’
load. Schemes that do not charge a load are called ‘No Load’ schemes.
Repurchase or ‘Back-end’ Load
Is a charge collected by a scheme when it buys back the units from the unit holders
CAGR (compounded annual growth rate)
The year-over-year growth rate of an investment over a specified period of time.

The compound annual growth rate is calculated by taking the nth root of the total
percentage growth rate, where n is the number of years in the period being
considered.
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VIII. Fund Management
Actively managed funds:
Mutual Fund managers are professionals. They are considered professionals

because of their knowledge and experience. Managers are hired to actively manage
mutual fund portfolios. Instead of seeking to track market performance, active
fund management tries to beat it. To do this, fund managers "actively" buy and sell
individual securities. For an actively managed fund, the corresponding index can
be used as a performance benchmark.
Is an active fund a better investment because it is trying to outperform the market?

Not necessarily. While there is the potential for higher returns with active funds,
they are more unpredictable and more risky. From 1990 through 1999, on average,
76% of large cap actively managed stock funds actually underperformed the S&P
500. (Source - Schwab Center for Investment Research)
Actively managed fund styles:
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Some active fund managers follow an investing "style" to try and maximize fund
performance while meeting the investment objectives of the fund. Fund styles
usually fall within the following three categories.
Fund Styles :
Value: The manager invests in stocks believed to be currently undervalued by

the market.
Growth: The manager selects stocks they believe have a strong potential for
beating the market.
Blend: The manager looks for a combination of both growth and value stocks.
To determine the style of a mutual fund, consult the prospectus as well as other
sources that review mutual funds. Don't be surprised if the information conflicts.
Although a prospectus may state a specific fund style, the style may change. Value
stocks held in the portfolio over a period of time may become growth stocks and
vice versa. Other research may give a more current and accurate account of the
style of the fund.
Passively Managed Funds:
Passively managed mutual funds are an easily understood, relatively safe approach
to investing in broad segments of the market. They are used by less experienced
investors as well as sophisticated institutional investors with large portfolios.
Indexing has been called investing on autopilot. The metaphor is an appropriate
one as managed funds can be viewed as having a pilot at the controls. When it
comes to flying an airplane, both approaches are widely used.
a high percentage of investment professionals, find index investing compelling for

the following reasons:
Simplicity. Broad-based market index funds make asset
allocation and diversification easy.
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Management quality. The passive nature of indexing eliminates any concerns
about human error or management tenure.
Low portfolio turnover. Less buying and selling of securities means lower
costs and fewer tax consequences.
Low operational expenses. Indexing is considerably less expensive than
active fund management.
Asset bloat. Portfolio size is not a concern with index funds.
Performance. It is a matter of record that index funds have outperformed the
majority of managed funds over a variety of time periods.
You make money from your mutual fund investment when:
The fund earns income on its investments, and distributes it to you in the
form of dividends.
The fund produces capital gains by selling securities at a profit, and
distributes those gains to you.
You sell your shares of the fund at a higher price than you paid for them
IX. Risk
Every type of investment, including mutual funds, involves risk. Risk refers to the
possibility that you will lose money (both principal and any earnings) or fail to
make money on an investment. A fund's investment objective and its holdings are
influential factors in determining how risky a fund is. Reading the prospectus will
help you to understand the risk associated with that particular fund.
Generally speaking, risk and potential return are related. This is the risk/return
trade-off. Higher risks are usually taken with the expectation of higher returns at
the cost of increased volatility. While a fund with higher risk has the potential for
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SAAB MARFIN MBA
higher return, it also has the greater potential for losses or negative returns. The
school of thought when investing in mutual funds suggests that the longer your
investment time horizon is the less affected you should be by short-term
volatility. Therefore, the shorter your investment time horizon, the more
concerned you should be with short-term volatility and higher risk.
Defining Mutual fund risk
Different mutual fund categories as previously defined have inherently different

risk characteristics and should not be compared side by side. A bond fund with
below-average risk, for example, should not be compared to a stock fund with
below average risk. Even though both funds have low risk for their respective
categories, stock funds overall have a higher risk/return potential than bond funds.
Of all the asset classes, cash investments (i.e. money markets) offer the greatest
price stability but have yielded the lowest long-term returns. Bonds typically
experience more short-term price swings, and in turn have generated higher
long-term returns. However, stocks historically have been subject to the greatest
short-term price fluctuations—and have provided the highest long-term returns.
Investors looking for a fund which incorporates all asset classes may consider a
balanced or hybrid mutual fund. These funds can be very conservative or very
aggressive. Asset allocation portfolios are mutual funds that invest in other mutual
funds with different asset classes. At the discretion of the manager(s), securities
are bought, sold, and shifted between funds with different asset classes according
to market conditions.
Mutual funds face risks based on the investments they hold. For example, a bond
fund faces interest rate risk and income risk. Bond values are inversely related to
interest rates. If interest rates go up, bond values will go down and vice versa.
Bond income is also affected by the change in interest rates. Bond yields are
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directly related to interest rates falling as interest rates fall and rising as interest
rise. Income risk is greater for a short-term bond fund than for a long-term bond
fund.
Similarly, a sector stock fund (which invests in a single industry, such as

telecommunications) is at risk that its price will decline due to developments in its
industry. A stock fund that invests across many industries is more sheltered from
this risk defined as industry risk.
Following is a glossary of some risks to consider when investing in mutual funds.
Call Risk. The possibility that falling interest rates will cause a bond issuer to
redeem—or call—its high-yielding bond before the bond's maturity date
Country Risk. The possibility that political events (a war, national elections),
financial problems (rising inflation, government default), or natural disasters
(an earthquake, a poor harvest) will weaken a country's economy and cause
investments in that country to decline.
Credit Risk. The possibility that a bond issuer will fail to repay interest and
principal in a timely manner. Also called default risk.
Currency Risk. The possibility that returns could be reduced for Americans
investing in foreign securities because of a rise in the value of the U.S. dollar
against foreign currencies. Also called exchange-rate risk.
Income Risk. The possibility that a fixed-income fund's dividends will decline
as a result of falling overall interest rates.
Industry Risk. The possibility that a group of stocks in a single industry will
decline in price due to developments in that industry.
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X. Basis Of Comparison Of Various Schemes Of Mutual
Funds
Beta
Beta measures the sensitivity of the stock to the market. For example if beta=1.5; it
means the stock price will change by 1.5% for every 1% change in Sensex. It is also
used to measure the systematic risk. Systematic risk means risks which are external
to the organization like competition, government policies. They are
non-diversifiable risks.
Beta is calculated using regression analysis, Beta can also be defined as the
tendency of a security's returns to respond to swings in the market. A beta of 1
indicates that the security's price will move with the market. A beta less than 1
means that the security will be less volatile than the market. A beta greater than 1
indicates that the security's price will be more volatile than the market. For example,
if a stock's beta is 1.2, it's theoretically 20% more volatile than the market.
Beta>11thenxaggressivexstocks
If1beta<1xthen1defensive1stocks
If beta=1 then neutral
So, it’s a measure of the volatility, or systematic risk, of a security or a portfolio in

comparison to the market as a whole.
Many utilities stocks have a beta of less than 1. Conversely, most hi-tech
NASDAQ-based stocks have a beta greater than 1, offering the possibility of a
higher rate of return but also posing more risk.
Alpha
Alpha takes the volatility in price of a mutual fund and compares its risk adjusted
performance to a benchmark index. The excess return of the fund relative to the
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returns of benchmark index is a fundamental ALPHA. It is calculated as a return
which is earned in excess of the return generated by CAPM. Alpha is often
considered to represent the value that a portfolio manager adds to or subtracts
from a fund's return. A positive alpha of 1.0 means the fund has outperformed its
benchmark index by 1%. Correspondingly, a similar negative alpha would
indicate underperformanceof 1%. .
If a CAPM analysis estimates that a portfolio should earn 35% return based on the
risk of the portfolio but the portfolio actually earns 40%, the portfolio's alpha would
be 5%. This 5% is the excess return over what was predicted in the CAPM model.
This 5% is ALPHA.
Sharpe Ratio
A ratio developed by Nobel Laureate Bill Sharpe to measure risk-adjusted

performance. It is calculated by subtracting the risk-free rate from the rate of
return for a portfolio and dividing the result by the standard deviation of the
portfolio returns.
The Sharpe ratio tells us whether the returns of a portfolio are because of smart
investment decisions or a result of excess risk. This measurement is very useful
because although one portfolio or fund can reap higher returns than its peers, it is
only a good investment if those higher returns do not come with too much
additional risk. The greater a portfolio's Sharpe ratio, the better its risk-adjusted
performance has been.
Treynor Ratio
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The treynor ratio, named after Jack Treynor, is similar to the Sharpe ratio, except
that the risk measure used is Beta instead of standard deviation. This ratio thus
measures reward to volatility.
Treynor Ratio = (Return from the investment – Risk free return) / Beta of the
investment.
The scheme with the higher treynor Ratio offers a better risk-reward equation for
the investor.
Since Treynor Ratio uses Beta as a risk measure, it evaluates excess returns only
with respect to systematic (or market) risk. It will therefore be more appropriate for
diversified schemes, where the non-systematic risks have been eliminated.
Generally, large institutional investors have the requisite funds to maintain such
highly diversified portfolios.
Also since Beta is based on capital asset pricing model, which is empirically tested
for equity, Treynor Ratio would be inappropriate for debt schemes.
M- SQUARED
Modigliani and Modigliani recognized that average investors did not find the Sharpe
ratio intuitive and addressed this shortcoming by multiplying the Sharpe ratio by
the standard deviation of the excess returns on a broad market index, such as the
S&P 500 or the Wilshire 5000, for the same time period. This yields the
risk-adjusted excess return. This, too, is a significant and useful statistic, as it
measures the return in excess of the risk-free rate, which is the basis from which
all risky investments should be measured.
M–Squared= [ (Ri – Rf)/ Sd. Inv] * Sd. Mkt + Rf
OR
M–Squared= Sharpe Ratio* Sd. Mkt + Rf
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Ri = Return from the investment

Rf = Risk free return
Sd. Inv= Standard Deviation Investment
Sd. Mkt= Standard Deviation Market
Leverage Factor:
It reports the comparison of the total risk in the fund with the total risk in the
market portfolio and can be used in making investment decisions. It is calculated
by dividing market standard deviation by the fund standard deviation.
Li = Standard deviation of the market

Standard deviation of the fund
for example a leverage factor greater than one implies that standard deviation of
the fund is less than standard deviation of the market index, and that the investor
should consider levering the fund by borrowing money and invest in that particular
fund. while this would tend to increase the risk of investment somewhat ,there
would be an greater than proportional increase in returns. On the other hand
leverage factor less than one implies that the risk of fund is greater than risk of
market index and the investor should consider unlevering the fund by selling of the
part of the holding in the fund and investing the proceeds I a risk free security,
such as treasury bill in this way returns on the investment reduce somewhat, there
would be an greater than proportional reduction in risk.
Standard Deviation:
A measure of the dispersion of a set of data from its mean. The more spread apart
the data is, the higher the deviation. Standard deviation is applied to the annual
rate of return of an investment to measure the investment's volatility (risk).
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A volatile stock would have a high standard deviation. The standard deviation tells
us how much the return on the fund is deviating from the expected normal returns.
Standard deviation can also be calculated as the square root of the variance.
XI. How To Pick The Right Mutual Fund
Identifying Goals and Risk Tolerance

Before acquiring shares in any fund, an investor must first identify his or her goals
and desires for the money being invested. Are long-term capital gains desired, or
is a current income preferred? Will the money be used to pay for college expenses,
or to supplement a retirement that is decades away. One should consider the issue
of risk tolerance. Is the investor able to afford and mentally accept dramatic swings
in portfolio value? Or, is a more conservative investment warranted? Identifying risk
tolerance is as important as identifying a goal. Finally, the time horizon must be
addressed. Investors must think about how long they can afford to tie up their
money, or if they anticipate any liquidity concerns in the near future. Ideally,
mutual fund holders should have an investment horizon with at least five years or
more.
Style and Fund Type

If the investor intends to use the money in the fund for a longer term need and is
willing to assume a fair amount of risk and volatility, then the style/objective he or
she may be suited for is a fund. These types of funds typically hold a high
percentage of their assets in common stocks, and are therefore considered to be
volatile in nature. Conversely, if the investor is in need of current income, he or she
should acquire shares in an income fund. Government and corporate debt are the
two of the more common holdings in an income fund. There are times when an
investor has a longer term need, but is unwilling or unable to assume substantial
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risk. In this case, a balanced fund, which invests in both stocks and bonds, may be
the best alternative.
Charges and Fees

Mutual funds make their money by charging fees to the investor. It is important to
gain an understanding of the different types of fees that you may face when
purchasing an investment.
Some funds charge a sales fee known as a load fee, which will either be charged
upon initial investment or upon sale of the investment. A front-end load/fee is paid
out of the initial investment made by the investor while a back-end load/fee is
charged when an investor sells his or her investment, usually prior to a set time
period. To avoid these sales fees, look for no-load funds, which don't charge a
front- or back-end load/fee. However, one should be aware of the other fees in a
no-load fund, such as the management expense ratio and other administration
fees, as they may be very high.
The investor should look for the management expense ratio. The ratio is simply the
total percentage of fund assets that are being charged to cover fund expenses. The
higher the ratio, the lower the investor's return will be at the end of the year.
Evaluating Managers/Past Results
Investors should research a fund's past results. The following is a list of questions
that perspective investors should ask themselves when reviewing the historical
record:
Did the fund manager deliver results that were consistent with general
market returns?
Was the fund more volatile than the big indexes (it means did its returns vary
dramatically throughout the year)?
This information is important because it will give the investor insight into how the
portfolio manager performs under certain conditions, as well as what historically
has been the trend in terms of turnover and return. Prior to buying into a fund, one
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must review the investment company's literature to look for information about
anticipated trends in the market in the years ahead.
Size of the Fund

Although, the size of a fund does not hinder its ability to meet its investment
objectives. However, there are times when a fund can get too big. For example -
Fidelity's Magellan Fund. Back in 1999 the fund topped $100 billion in assets, and
for the first time, it was forced to change its investment process to accommodate
the large daily (money) inflows. Instead of being nimble and buying small and mid
cap stocks, it shifted its focus primarily toward larger capitalization growth stocks.
As a result, its performance has suffered.
Fund Transactional Activity

Portfolio Turnover
Measure of how frequently assets within a fund are bought and sold by the
managers. Portfolio turnover is calculated by taking either the total amount of new
securities purchased or the amount of securities sold -whichever is less - over a
particular period, divided by the total net asset value (NAV) of the fund. The
measurement is usually reported for a 12-month time period
Fund Performance Metrics

Historical Performance
The investor should see the past returns of the fund and should compare it with
the peer group fund.
Whatever the objective, the mutual fund is an excellent medium to accumulate
financial assets and grow them over time to achieve any of these goals.
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4. Systematic Investment Plan (SIP)
SIP is similar to a Recurring Deposit. Every month on a specified date an amount you choose
is invested in a mutual fund scheme of your choice. The dates currently available for SIPs
are the 1st, 5th, 10th, 15th, 20th and the 25th of a month. There are many benefits of
investing through SIP.
Benefit 1
Become A Disciplined Investor
Being disciplined - It’s the key to investing success. With the Systematic Investment Plan
you commit an amount of your choice (minimum of Rs. 500 and in multiples of Rs. 100
thereof*) to be invested every month in one of our schemes.
Think of each SIP payment as laying a brick. One by one, you’ll see them transform into a
building. You’ll see your investments accrue month after month. It’s as simple as giving at
least 6 postdated monthly cheques to us for a fixed amount in a scheme of your choice. It’s
the perfect solution for irregular investors.
Benefit 2
Reach Your Financial Goal
Imagine you want to buy a car a year from now, but you don’t know where the
down-payment will come from. SIP is a perfect tool for people who have a specific, future
financial requirement. By investing an amount of your choice every month, you can plan for
and meet financial goals, like funds for a child’s education, a marriage in the family or a
comfortable postretirement life.
Benefit 3
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Take Advantage of Rupee Cost Averaging
Most investors want to buy stocks when the prices are low and sell them when prices are
high. But timing the market is timeconsuming and risky. A more successful investment
strategy is to adopt the method called Rupee Cost Averaging. We can reap this benefit by
investing the amounts through a SIP .
Benefit 4
Grow Your Investment With Compounded Benefits
It is far better to invest a small amount of money regularly, rather than save up to make one
large investment. This is because while you are saving the lump sum, your savings may not
earn much interest.
With HDFC MF SIP, each amount you invest grows through compounding benefits as well.
That is, the interest earned on your investment also earns interest. The following example
illustrates this.
Imagine Neha is 20 years old when she starts working. Every month she saves and invests
Rs. 5,000 till she is 25 years old. The total investment made by her over 5 years is Rs. 3
lakhs.Arjun also starts working when he is 20 years old. But he doesn’t invest monthly. He
gets a large bonus of Rs. 3 lakhs at 25 and decides to invest the entire amount.
Both of them decide not to withdraw these investments till they turn 50. At 50, Neha’s
Investments have grown to Rs. 46,68,273* whereas Arjun’s investments have grown to Rs.
36,17,084*. Neha’s small contributions to a SIP and her decision to start investing earlier
than Arjun have made her wealthier by over Rs. 10 lakhs.
*Figures based on 10% p.a. interest compounded monthly.
Benefit 5
Do All This Effortlessly
Investing with SIP is easy. Simply give us post-dated cheques or opt for an Auto Debit from
your bank account for an amount of your choice (minimum of Rs. 500 and in multiples of
Rs. 100 thereof*) and we’ll invest the money every month in a fund of your choice. The
plans are completely flexible. You can invest for a minimum of six months, or for as long as
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you want. You can also decide to invest quarterly and will need to invest for a minimum of
two quarters.
All you have to do after that is sit back and watch your investments accumulate
SIP and LUMPSUM Investment in HDFC EQUITY FUND

YEAR 2007-08
NAV SIP UNITS

Apr-07 151.6 1000 6.596306
May-07 159.28 1000 6.278173
Jun-07 165.31 1000 6.049131
Jul-07 166.8 1000 5.995175
Aug-07 168.83 1000 5.923223
Sep-07 182.84 1000 5.469323
Oct-07 210.1 1000 4.759638
Nov-07 206.18 1000 4.850225
Dec-07 223.32 1000 4.477819
Jan-08 188.42 1000 5.307292
Feb-08 188.24 1000 5.312367
Mar-08 165.78 1000 6.032091
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25
20
NA 15
Series
10
0
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
0 0 0 0 0 0 0 0 0 0 0 0
PERIOD
SIP UNITS : 67.05076

AVERAGE UNIT PRICE=178.968
LUMPSUM: 12000/151.6= 79.155
YEAR 2008-09:
NAV SIP UNITS

Apr-0
8 178.19 1000 5.611987
May08 169.6 1000 5.896226
Jun-08 143.72 1000 6.958119
Jul-08 151.72 1000 6.591306
Aug-0
8 158.92 1000 6.292316
Sep-0
8 145.72 1000 6.862429
Oct-0
8 110.32 1000 9.064375
Nov-0
8 101.81 1000 9.822411
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Dec-0
8 112.38 1000 8.898618
Jan-09 103.75 1000 9.638183
Feb-0
9 98.163 1000 10.18714
Mar-0
9 108.85 1000 9.186786
20
18
16
14
NAV12
10 Series
8
0
6
4
2
00
0 0 0 0 0 0 0 0 0 0 0 0
8 8 8 8 8 8 8 8 8 9 9 9
PERIOD
SIP UNITS : 95.00989

LUMPSUM: 12000/178.19= 67.34385
YEAR 2009-10:
NAV SIP UNITS

Apr-0
9 127.07 1000 7.869678
May09 169.9 1000 5.885919
Jun-0 172.81 1000 5.786702
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9
Jul-09 185.35 1000 5.395344
Aug-0
9 193.03 1000 5.180542
Sep-0
9 211.82 1000 4.720923
Oct-0
9 209.02 1000 4.784163
Nov-0
9 224.32 1000 4.457917
Dec-0
9 231.01 1000 4.328817
Jan-1
0 224.93 1000 4.445828
Feb-1
0 223.39 1000 4.476576
Mar10 235.72 1000 4.242375
25
20
15
NAV
Series
10
0
0 0 0 0 0 0 0 0 0 1 1 1
PERIODS
SIP UNITS : 61.5747
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LUMPSUM: 12000/127.07= 94.4361
In the year 2007-08 when the there is not much change in the opening and ending
NAV there is not much difference in the units earned through SIP investment and
lump sum investment.
There is a constant decrease in the NAV of the fund and there is a noticeable
change in the opening and ending NAV for the year 2008-09. This fall in market
helps the investors in earning more units as the NAV is continuously going down.
As the number of units earned increases as the average unit price of the mutual
fund scheme decreases.
In 2009-10 there continuous increase in the NAV and hence lump sum investment
gives more units compared to SIP investments. Due to low number of units earned
the average unit price is more compared to lump sum investment.
SIP investments are beneficial to investors in obtaining more units when the market
is down. By investing in small amounts but in continuous manner investors can
reap benefits of market volatility.SIP investment benefits the investor as small
amount of money can be invested in a systematic manner hence not burdening
him/her with need to make large investment at one time Hence along with
convenience to the investors it also gives them advantage to reap the benefits of
having extra units when the markets are down.
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5. Portfolio Rebalancing
Rebalancing is defined as the periodic adjustment of a portfolio to restore the

original asset allocation mix of your mutual fund portfolio. If an investor's
investment strategy or risk threshold has changed, he can rebalance his
investments so that asset classes in the portfolio align with his new asset allocation
plan. It is the process of selling assets that are performing well and buying assets
that are underperforming. Portfolio rebalancing is one of the very few ways to
generate additional returns for a portfolio without incurring any additional risk.
Ex-if there is a portfolio with a 50%stocks / 50% bonds policy asset mix.
If stocks return 25% return while bonds produce a 5% return, stocks become
overweighed at the end of the year (54% vs. 46%). Rebalancing involves selling 4% in
stocks and buying 4% in bonds to bring the asset mix back to the desired 50/50
asset mix.
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One of a very important step before rebalancing is to assign a strategic asset allocation
plan appropriate to risk profile, investment goals and time horizon.
Rebalancing in volatile market
In rising stock markets, people often take on more risk than they're suited for ,as a result
of which, they ended up with a larger percentage of stocks in their portfolios than their risk
levels warranted, Many even added to their already over weighted positions by buying
more and more, assuming the stellar performance trend would continue indefinitely, but
when the market began a sharp fall in 2000, their investments were pounded—more than
they likely expected and more than if had they rebalanced.
Rebalancing effects
Financial Research studied a portfolio of 60% stocks and 40% bonds to see what
would happen if no rebalancing took place. As the stock market performed well from 1994
to 1999, the portfolio's 60% stock allocation grew to nearly 80%. This portfolio became
over weighted in stocks just in time for the 2000 bear market
Without rebalancing, a portfolio in the 1990s became too aggressive
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but the same mix of 60% stocks and 40% bonds, starting in 2000. This time, the stock
market was falling. By 2002, the portfolio's allocation had flipped, consisting of 40% stocks
and 60% bonds.
Without rebalancing, a portfolio in the 2000s became too conservative
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The value of regular rebalancing
A regular rebalancing plan helps instill discipline in investing process. In most cases, a
rebalanced portfolio had lower risk and similar to slightly higher returns. The chart below
shows what happened when we rebalanced a portfolio with a moderate risk profile annually
from 1970 through 2006.
Rebalancing lowered risk and increased returns
Source: The Schwab Center for Financial Research with data from Ibbotson Associates, Inc.
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Rebalancing has proven to be more efficient than a buy and hold strategy over a full
market cycle and by rebalancing periodically back to the original weighting of the portfolio,
it has also been effective at risk reduction. A buy and hold strategy can be more profitable
over the short term as rebalancing sole driving force is to sell off what is up and buy what
is down. Because of this it is possible to reduce your position in an asset class that is still
on the rise thus reducing your potential for short-term gains. Overall, or more precisely,
over a full market cycle of (on average) 5-7 years, rebalancing does add value.
By rebalancing we can retain control of the overall risk of a portfolio. In a volatile market,
rebalancing could add to fees, but it would also keep the portfolio on target for our goals
and in line with our desired level of risk
Advantages of rebalancing
1. It keeps portfolio’s risk within tolerable limit.
2. It generates stable return.
3. It will instill the discipline essential for investment success.
4. By rebalancing the portfolio, the investor systematically takes profit in these expense
asset classes and reinvests the proceeds into the underperforming assets.
Analysis of investments in Equity and Debt and how rebalancing the portfolio will help in
-Risk Management
- Stability
- Maximize returns
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Understanding debt and equity
Equity
Pros - High returns, Low risk in Long term, High Liquidity
Cons - Risky, not suitable for short term investment
Debt
Pros - Stable and assured returns, Good investment for short term goals
Cons - Low returns
Equity + Debt- When we combine Equity and Debt, returns are better than Debt but less
than Equity, but at the same time risk is also minimized, and when we apply technique of
Portfolio Rebalancing, both risk and returns are well managed.
Each person should concentrate on both returns and risk.
Case 1: Equity: Debt goes up.
Action: Decrease the Equity part and shift it to Debt so that Equity:Debt is same as earlier.
Reason: As our Equity has gone up, we could loose a lot of it if something bad happens; we
shift the excess part to Debt so that it is safe and grows at least.
Case 2: Equity: Debt Goes Down.
Action: Decrease the Debt part and shift it to Equity, so that Equity: Debt is same as earlier.
Reason: As out Equity part has decreased, we make sure that it is increased so that we
don't loose out on any opportunity. Limitations of this strategy is that, once our equity
exposure has gone up, if we rebalance and bring down your Equity Exposure, we will loose
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out on the profits if Equity provides great returns.
Case 3: Understanding the Game of Equity and Debt
As we know that the markets are unexpected and they can go in any direction, so its better
to be safe. Many people are confused that if there equity has done very well then shall they
book profits and get out with money and wait for markets to come down so that they can
reinvest. Portfolio rebalancing is the same thing but a little different name and
methodology, so once you get good profit in something which was risky you transfer some
part to non-risk Debt.
The rebalancing analysis can be done with the help of an example.
Eight sensex levels have been selected starting from 1st January 2007 till 1st June 2010
semiannually. The sensex levels on the below mentioned dates were:
Dates Sensex
1st January 07 13942.24
1st July 07 14664.26
st
1 January 08 20300.71
1st July 08 12961.68
1st January 09 9903.46
1st July 09 14645.47
1st January 10 17558.73
st
1 June 10 16572.03
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Working note:
14664.26-13942.24/13942.24*100 = 5.18%
20300.71-14664.26/14664.26 * 100 = 38.44%
12961.68 – 20300.71/20300.71 * 100 = -36.15%
9903.46 – 12961.68/12961.68 * 100 = -23.59 %
14645.47 – 9903.46/9903.46*100 = 47.88 %
17558.53- 14645.47/14645.47 * 100 = 19.89% and
16572.03 -17558.53/17558.53* 100 = -5.62%
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equity +
debt equity+debt
Return without with
Time period s (%) Equity debt@9% rebalancing rebalancing
Jan 07- July 105178.
07 5.18 7 109000 107090 107089.4
July 07- Jan 145605.
08 38.44 8 118810 132210.5 132490.9
Jan 08- July 92966.9
08 -36.15 8 129503 111237.8 114504.2
July 08 - Jan 71032.9
10 -23.59 6 141158 106099.3 106148.7
Jan 09- July 105043.
09 47.88 9 153862 129459 136377.4
July 09- Jan 125939.
10 19.89 1 167709 146830 156031.3
Jan 10 - Jun 118873.
10 -5.62 6 182802 150837.8 158668.7
Analysis:
As we can see clearly from the above table that,Hence if we consistently rebalance
our portfolio we get more returns while reducing risk in our portfolio.
Working note:
(Assumption: tax has been ignored for calculation purposes)
For equity: 1 lack is the amount of investment, we are getting 5.18% returns in the
first quarter. So it will be 105178.7. Now in the next quarter return is 38.44 %,so
the amount will be 105178.7*1.3844=145605.8
Similarly the rest calculations will be;
145605.8*0.6385=92966.98
92966.98*0.7641=71032.96
71032.96*1.4788=105043.9
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105043.9*1.1989=125939.1
125939.1*0.9438= 118873.6
So at the end the amount becomes 118873.6
For debt @ 9%
For 1st quarter: 9%*100000=109000
For 2nd quarter: 9%*109000=118810
For 3rd quarter: 9% 118810=129503
For 4th quarter: 9% 129503=141158
For 5th quarter: 9% 141158=153862
For 6th quarter: 9% 153862=167709
For 7th quarter: 9% 167709=182802
For equity + debt (50:50) of amount 100000 without rebalancing:
(118873.6+182802)/2 = 150837.8
For equity + debt (50:50) of amount 100000 with rebalancing:
1st quarter: 50*105178.70= 52589.35
50*109000=54500
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SAAB MARFIN MBA
So total capital now is =107089.40 .we can see that our 50,000 in equity becomes
52589.35 and 50,000 in debt becomes 54500 .so in order to bring it to our
original 50:50 ratio we will now rebalance.
2nd quarter: 50*107089.40 =53544.68 and
50*107089.40=53544.68
Now this 54175 amount becomes the opening balance for quarter 2.
Calculating the returns now,
53544.68 *1.3844= 74127.25
53544.68 *1.09 =58363.7
So the total capital now becomes=132490.9 .Now again 53544.68 amount

becomes 74127.25and 53544.68 becomes 58363.7disrupting our 50:50 ratio. so
we will again rebalance it
For 3rd quarter:
50%*132490.9=66245.47
50%*132490.9=66245.47
Calculating return in these two figures. in equity the return is -36.15% and in debt
it is 9%.
66245.47*.6385=42296.68
66245.47*1.09 =72207.56
The total amount now is 114504.2.
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For 4th quarter
50%* 114504.2=57252.12 and
50% 114504.2= 57252.
57252.12 *1.3843= 43743.87
57252.12*1.09 = 62404.81
The final amount will be 106148.7
For 5th quarter
50%*106148.7 =53074.34
50% * 106148.7 =53074.34
53074.34*1.4788= 78486.34
53074.34*1.09= 57851.03
So the total is 136337.4
For 6th quarter
50% * 136337.4= 68168.69
50% * 136337.4= 68168.69
68168.69*1.1989 = 81727.44
68168.69*1.09 = 74303.87
So the total is 156031.3
For 7th quarter
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50% 156031.3= 78015.65
50% 156031.3= 78015.65
78015.65*.9438 = 73631.62
78015.65*1.09 = 85037.06
So the final total is 158668.7
Analysis
Comparing the debt+ equity with and without rebalancing.
0.2857
Calculating CAGR without rebalancing: (150837.8/100000) - 1 =
12.46% p.a
0.2857
Calculating CAGR with rebalancing: (158668.7/100000) -1 = 14.09 %
p.a
So it can be concluded that with the help of rebalancing we are getting 2.26%
higher CAGR while reducing the risk and maintaining our desired portfolio
allocation.
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6. Research Methodology
I. Problem Statement
Aim of the project is to analyze the performance flagship equity diversified

schemes of six fund houses by calculating different performance measures for the
data of past three years. Through this we aim to evaluate the performance in terms
of risk and the returns of the schemes.
II. Research Objective
1. To compare the performance of various 5 star rated equity diversified mutual

fund schemes over a period of three years.
2. To compare the schemes with the returns of benchmark for the past three
years.
3. To identify the level of risk involved in investing in various equity diversified
mutual fund schemes.
II. Data Sources
Primary data
57
SAAB MARFIN MBA
Most of the data about the schemes of HDFC has been provided by the HDFC Asset
Management Company.
My industry mentor helped me obtain monthly portfolios and returns data of

schemes which were available to him and also helped me acquire data from
company’s intranet.
Secondary data
Data collection: Secondary data is collected from various published journals,

company fact sheets, books and from Internet.
IV. Data analysis
The data that has been collected for this study has been analysed by widely used
performance parameters as:
Treynor Ratio
Sharpe Ratio
Jensen’s Alpha
M Squared
Leverage Factor
Other analysis are done by using graphs, calculations, tables etc.
V Scope Of The Study
This study calculates different measures to compare equity diversified schemes of

different fund houses . For this study past three years data of the schemes and
their benchmarks have been taken into consideration. It helps us see how the funds
stand in comparison with each other.
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SAAB MARFIN MBA
VI Limitations Of The Study
1. Time constraints: Due to shortage or less availability of time it may be possible

that all the related and concerned aspects may not be covered in the project.
2. Only past three year data has been taken in this project which might not give
complete scheme performance.
3. Analysis done is limited to the availability of data.
7 Findings And Analysis
Here six funds of different companies are taken which are rated 5 star by Value
Research Ratings. Value research Funds ratings are a composite measure of
historical risk adjusted returns. In the case of equity and hybrid funds this rating is
based on the weighted average monthly returns for the last 3 and 5 – year period.
In the case of debt fund this rating is based on the weighted average weekly
returns for the last 18 months and 3 years period and in case of short term debt
funds –weekly returns for the last 18 months. Each category must have a minimum
of 10 funds to be rated. Effective since July 2008,additional qualifying criteria,
whereby a fund with less than Rs. 5 crore of average AUM in the past six months
will not be eligible for rating.
Five star indicate that a fund is in the 10% of its category in terms of historical risk
adjusted returns Four star indicate that fund is in the next 22.5% ,middle 35%
receive 3 star, the next 22.5%are assigned 2 star bottom 10% receive 1 star.
For our study here six schemes have been selected:

HDFC EQUITY FUND
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ICICI PRUDENTIAL DISCOVERY FUND
UTI OPPUTTUNITIES FUND
IDFC PREMIER EQUITY PLAN A
RELIANCE RSF FUND
SUNDARAN BNP PARIBAS S.M.I.L.E REG-
SCHEME PROFILE:
HDFC EQUITY FUND
AMC HDFC Asset Management Company Ltd.

Fund Category Equity diversified
Scheme Plan Growth
Scheme Type Open Ended
Launch Date January 01, 1995
Fund Manager Mr. Prashant Jain
Benchmark S&P CNX 500
Assets (RS 6355.7
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crore)
ICICI PRUDENTIAL DISCOVERY FUND
AMC ICICI Prudential Asset Management Co. Ltd.

Scheme Plan Growth
Launch Date August 16,2004
Benchmark S&P CNX Nifty
Fund Manager Mr. Sankaren Naren
Assets (RS
crore) 1088.9
UTI OPPORTUNITIES FUND
AMC UTI Asset Management Co. Ltd.

Scheme Plan Growth
Launch Date July 16,2005
Benchmark BSE 100
Fund Manager Mr. Harsh Upadhyaya
Assets (RS
crore) 1432.78
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IDFC PREMIER EQUITY PLAN A
AMC IDFC Asset Management Company Ltd.

Scheme Plan Growth
Launch Date September 28, 2005
Benchmark BSE 500
Fund Manager Mr. Kenneth Andrade
Assets (RS
crore) 1443.25
RELIANCE RSF FUND
AMC RELAINCE Asset Management Co. Ltd.

Scheme Plan Growth
Launch Date June 8,2005
Benchmark BSE 100
Fund Manager Mr. Arpit Malaviya
Assets (RS
crore) 2722.39
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SUNDARAM BNP PARIBAS S.M.I.L.E REG-G
AMC ICICI Prudential Asset Management Co. Ltd.

Scheme Plan Growth
Launch Date February 15,2005
Benchmark CNX midcap
Fund Manager Mr. S Krishna Kumar
Assets (RS
crore) 695.139
For all the above schemes returns of the past three years i.e. 2007-10 , have been
considered. Similarly returns are taken for the benchmarks of the respective schemes.
Calculation of different parameters like average return , beta, standard deviation,
sharpe ratio, treynor ratio have been done for all the schemes for all years separately.
AVERAGE MONTHLY RETURN
SCHEMES 2007-08 2008-09 2009-10

HDFC EQUITY FUND 1.72 (2.56) 5.95
ICICI PRUDENTIAL DISCOVERY
FUND 1.11 (2.86) 7.50
UTI OPPORTUNITIES FUND 3.27 (1.83) 4.14
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IDFC PREMIER EQUITY PLAN
A 3.79 (3.31) 5.46
RELIANCE RSF FUND 4.38 (2.9) 5.77
SUNDARAM BNP PARIBAS
S.M.I.L.E REG-G 2.65 (3.86) 6.30
The table above average monthly returns of the mutual fund schemes for 2007-08,
2008-09 and 2009-10. During the period of analysis, it was in the year 2009- 10, that the
funds have yielded the maximum return. Among them, the top return was provided by
ICICI Prudential Discovery Fund with a value of 7.5%. The lowest return giving fund for the
year was UTI Opportunities Fund and the value was 4.14%.
Performance in the year 2008-09 was the least in all the three years. Least returns this
year was from Sundaram BNP Paribas SMILE REG-G fund with the returns being -3.86% and
highest were of UTI Opportunities Fund with returns of -1.83%. Low returns in this year
were because of recession that hit the market.
In the year 2007-08 highest returns were given by Reliance RSF Fund with returns being
4.38% and lowest returns were 1.11% of ICICI Prudential Discovery Fund.
STANDARD DEVIATION
SCHEMES 2007-08 2008-09 2009-10

HDFC EQUITY FUND 0.08 0.12 0.10
FUND 0.09 0.12 0.09
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UTI OPPUTTUNITIES FUND 0.09 0.10 0.08
IDFC PREMIER EQUITY
PLANA 0.09 0.11 0.07
RELAINCE RSF FUND 0.10 0.12 0.12
SUNDARAN BNP PARIBAS
S.M.I.L.E REG-G 0.10 0.13 0 .11
Standard Deviation of a fund depicts, that how much the returns of the fund have
deviated from the mean level. The higher the value of standard deviation, the
greater will be the volatility in the fund's returns. In 2007-08 ,standard deviation of
10% was highest among all for Reliance RSF Fund and Sundaram BNP Paribas SMILE
REG-G meaning that the fund's return fluctuated in either direction (up or down)
by 10% from its average return ,whereas HDFC Equity fund showed minimum
deviation of 8%.
In the year 2008-09 Sundaram BNP Paribas SMILE REG-G showed the maximum
volatility by having standard deviation of 13%. UTI Opportunities Fund had the
minimum standard deviation of 10%
For the year 2009-10 Reliance RSF Fund was the most volatile fund with standard
deviation of 12%. IDFC Premier Equity Plan A had the least value of 7%
BETA
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SCHEMES 2007-08 2008-09 2009-10

FUND 0.84 0.98 0.87
UTI OPPORTUNITIES FUND 0.95 0.82 0.80
IDFC PREMIER EQUITY
PLAN A 0.87 0.87 0.71
S.M.I.L.E REG-G 0.95 0.97 1.10
Beta measures the non- diversifiable risk of a portfolio. Normally, the value of beta lies
somewhere between 0.4 and 1.9. In this case, the sample involves only equity diversified
schemes. Therefore, the beta lies at a range from 0.71 to 1.10. During the financial year
2007- 08, Reliance RSF Fund was considered as the highest risky fund as it was having
highest beta value of 0.99. The lowest risky fund was ICICI Prudential Discovery Fund with
a beta of 0.84.
In the year 2008- 09, high risky fund was Reliance RSF Fund and the value was 1. The low
risky fund for this financial year was UTI Opportunities Fund and the value was 0.82.
The high risky fund for the financial year 2009- 10 was Sundaram BNP Paribas SMILE
REG-G Fund with the Beta value of 1.1 next was Relaince RSF Fund with beta of 1.02.Low
risk fund for this year was IDFC Equity Plan A with beta value of 0.71.
SHARPE RATIO
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SCHEMES 2007-08 2008-09 2009-10

FUND 0.63 (3.47) 13.97
UTI OPPUTTUNITIES FUND 4.11 (3.23) 9.94
A 6.11 (3.63) 14.63
S.M.I.L.E REG-G 3.59 (3.54) 10.87
The above table shows the Sharpe ratio of various schemes for the financial years 2007-08,
2008-09 and 2009- 10. Sharpe ratio is a measure of the excess return per unit of risk in
an investment asset of a trading strategy. The Sharpe ratio is used to characterize how well
the return of an asset compensates the investor for the risk taken. The selected mutual
fund schemes showed the best risk adjusted performance during the financial year 2009-
10. Among them, IDFC Equity Plan A was considered as the best one with a ratio of 14.63.
The least performance was shown by UTI Opportunities Fund which has a ratio of 9.94.
The performance of all selected mutual fund schemes was really low during the financial
year 2008- 09. Funds were even having negative Sharpe ratio. The lowest risk adjusted
performance was shown by Reliance RSF Fund and the value was -3.64. UTI Opportunities
Fund which showed the risk adjusted performance with a Sharpe ratio of -3.23 which was
best among all.
In the year 2007-08, IDFC Premier Equity Plan A is the fund which has shown the
maximum Sharpe ratio of 6.11. It means that the fund has provided the maximum risk
adjusted return as compared to other funds. The fund having the least Sharpe value is ICICI
Prudential Discovery Fund with a value of 0.63.
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TREYNOR RATIO
SCHEMES 2007-08 2008-09 2009-10
FUND 0.07 (0.32) 1.73
A 0.60 (0.46) 1.46
RELAINCE RSF FUND 0.53 (0.43) 1.01
S.M.I.L.E REG-G 0.37 (0.47) 1.11
Treynor’s ratio measures the fund’s performance in relation to the market’s performance.
The table shows the Treynor’s ratio of selected mutual fund schemes for three financial
years 2007-08,2008-09 and 2009-10. .It was during the financial year 2009- 10, that the
funds showed the highest performance among the three years of analysis. All the funds
were having its highest Treynor ratio during this financial year. Among them, the top
performing fund was ICICI Prudential Discovery Fund. The value was 1.73. The lowest
performance was shown by UTI Opportunities Fund. The value was 0.99.
The financial year 2008- 09 was a low performance year for almost all mutual fund
schemes. The returns reduced significantly as compared to previous financial year. Some
schemes showed even a negative Treynor’s ratio. ICICI Prudential Discovery Fund is the
fund which showed the maximum Treynor’s ratio during this financial year. The value was
-0.32 and the least performing fund was SUNDARAM BNP Paribas SMILE REG- G Fund. Its
value was -0.47.
In the year 2007-08, IDFC Equity Plan A Fund is having the maximum Treynor’s ratio of
0.60. It means that the scheme has a better risk adjustedperformance as compared to
other schemes. The scheme having the lowest Treynor ratio is ICICI Prudential Discovery
Fund. The ratio is 0.07. This shows that the fund is having a low risk adjusted performance.
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JENSEN ALPHA
SCHEMES 2007-08 2008-09 2009-10

HDFC EQUITY FUND (0.0109) (0.0026) 0.0110
FUND (0.0207) (0.0050) 0.0377
UTI OPPORTUNITIES FUND (0.0013) 0.0052 (0.0111)
A 0.0693 0.0097 (0.0005)
RELAINCE RSF FUND 0.0235 (0.0342) 0.0045
S.M.I.L.E REG-G (0.0026) (0.0024) (0.0018)
Jensen’s performance index is used as a measure of absolute performance of the portfolio.

The above table shows the Jensen’s alpha measure for the financial years2007-08,
2008-09 and 2009- 10. In the year 2007-08, the highest risk- adjusted performance is
shown by IDFC Premier Equity Plan A with a value of 0.0693. The lowest risk- adjusted
performance was shown by ICICI Prudential Discovery Fund and the value was -0.0207.
During the financial year 2008- 09, the least value was shown by Relaince RSF Fund and
the value was -0.0342. The highest risk adjusted performance for this financial year was
shown by IDFC Premier Equity Plan A and the value was 0.0097.
For the year 2009-10, the highest Jensen’s measure is for ICICI Prudential Discovery Fund
and the value is 0.0377. The lowest value is for UTI Opportunities Fund and it is -0.0111.
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M^2(M SQUARE)
SCHEMES 2007-08 2008-09 2009-10

HDFC EQUITY FUND 0.2340 (0.3512) 1.1423
FUND 0.1033 (0.3309) 1.5213
IDFC PREMIER EQUITY
PLAN A 0.5952 (0.4399) 1.5624
S.M.I.L.E REG-G 0.4012 (0.4211) 1.124
The M-squared is a performance measurement using return per unit of total risk as
measured by the standard deviation. The table above shows that in the year 2007-08 IDFC
Premier Equity Plan A fund scored high on it with a value of 0.5952 and ICICI Prudential
Discovery Fund showed least value with 0.10.
In 2008-09 all the funds showed negative performance as the markets were down too.
Among all UTI Opportunities Fund showed best performance with value of -0.3225 and
IDFC Equity Plan A gave the minimum value of -0.4399.
For the year 2009-10 IFDC Premier Equity Plan A Fund showed highest values of 1.5624
among all the funds. And UTI Opportunities Fund had the minimum values of 0.98.
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LEVERAGE FACTOR (Li):
SCHEMES 2007-08 2008-09 2009-10

FUND 0.89 0.92 0.98
UTI OPPORTUNITIES FUND 1.01 1.20 1.18
IDFC PREMIER EQUITY
PLAN A 1.009 1.22 1.45
S.M.I.L.E REG-G 1.00 1.02 0.88
The above table shows the leverage factor of various schemes for the financial years
2007-08, 2008-09 and 2009- 10. In 2007-08 leverage factor is highest for HDFC Equity
fund this means that it has low fund standard deviation compared to market standard
deviation and hence investor should consider levering this fund by investing more in it.
Similarly for IDFC Premier Equity plan A in 2008-09 and 2009-10 investor should consider
to invest more as they are having leverage factor more than one.
For year 2007-08, Reliance RSF Fund has the lowest Leverage factor and also less than one
means fund standard deviation is more than market standard deviation and hence investor
should consider unlevering this fund by selling of part of holding in the fund . Similarly for
Sundaram BNP Paribas SMILE REG- G fund in 2008-09 and ICICI Prudential Discovery Fund
in 2009-10 investor should take similar steps as there leverage factor is less than one.
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SAAB MARFIN MBA
8. Rankings
2007-08
Leverage
Rank Sharpe Treynor Jensen M2 Factor
IDFC
PREMIER IDFC PREMIER
IDFC PREMIER EQUITY PLAN EQUITY PLAN IDFC PREMIER HDFC EQUITY
1 EQUITY PLAN A A A EQUITY PLAN A FUND
UTI
RELIANCE RSF RELIANCE RELIANCE RSF RELIANCE RSF OPPORTUNITIES
2 FUND RSF FUND FUND FUND FUND
SUNDARAM SUNDARAM
UTI BNP PARIBAS BNP PARIBAS UTI
OPPORTUNITIES S.M.I.L.E S.M.I.L.E OPPORTUNITIES IDFC PREMIER
3 FUND REG-G REG-G FUND EQUITY PLAN A
During the financial year 2007- 08, Treynor’s ratio, Sharpe, Jensen’s and
M-Squared measure rate IDFC Premier Equity Plan A as the best one, whereas,
HDFC Equity Fund got the best rating in case of Leverage Factor. Thus, the best
picks of financial year 2007- 08 include HDFC Equity Fund, IDFC Equity Plan A ,
Reliance RSF Fund , UTI Opportunities Fund .
2008-09
Leverage
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ICICI
UTI PRUDENTIAL UTI
OPPORTUNITIES DISCOVERY IDFC PREMIER OPPORTUNITIES IDFC PREMIER
1 FUND FUND EQUITY PLAN A FUND EQUITY PLAN A
ICICI
UTI UTI PRUDENTIAL UTI
HDFC EQUITY OPPUTTUNITIES OPPUTTUNITIES DISCOVERY OPPORTUNITIES
2 FUND FUND FUND FUND FUND
ICICI
PRUDENTIAL SUNDARAM
DISCOVERY HDFC EQUITY BNP PARIBAS HDFC EQUITY HDFC EQUITY
3 FUND FUND S.M.I.L.E REG-G FUND FUN
In the year 2008-09 according to Jensen Alpha and Leverage Factor IDFC Equity
Plan A was the best performing fund whereas on the basis of M-Squared and
Sharpe ratio UTI OpportunitiesFund was the best in performance . ICICI Prudential
Discovery Fund did best on M-Squared . Amongst the top three ranked fund were
Sundaram BNP Paribas SMILE REG and HDFC Equity Fund .
2009-10
Leverage
ICICI ICICI
PRUDENTIAL PRUDENTIAL
IDFC PREMIER DISCOVERY DISCOVERY IDFC PREMIER IDFC PREMIER
1 EQUITY PLAN A FUND FUND EQUITY PLAN A EQUITY PLAN A
ICICI IDFC ICICI
PRUDENTIAL PREMIER PRUDENTIAL UTI
DISCOVERY EQUITY PLAN HDFC EQUITY DISCOVERY OPPORTUNITIES
2 FUND A FUND FUND FUND
HDFC EQUITY HDFC EQUITY RELIANCE RSF HDFC EQUITY HDFC EQUITY
3 FUND FUND FUND FUND FUND
In the year 2009-10, ICICI Prudential Discovery Fund performed well on Treynor
Ratio and Jensen Alpha whereas IDFC Premier Equity Plan A performed well on
Sharpe Ratio,M-Squared and Leverage Factor. HDFC Equity Fund, Reliance RSF Fund,
UTI Opportunities fund were other funds that were also in the top three performing
funds.
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SAAB MARFIN MBA
9. Conclusion
In this study the performance of various mutual fund schemes in the equity
diversified segment was considered. Analysis was based on the risk and returns of
various schemes. On analysis, it was revealed that there is a certain amount of risk
involved, while investing in equity diversified schemes, as the beta values of
schemes falls within a range of 0.71 and 1.10. The study also revealed the fact that
almost all the equity diversified schemes were affected in the year 2008-09 when
recession had hit the market. Values for average returns, Sharpe and Treynor were
lowest. Whereas in the year 2009-10 when the market were recovering and
investors were again showing faith in the market schemes showed good risk
adjusted performance, as most of the schemes were having positive values in case
of the performance measures. Schemes like IDFC Equity Plan A and HDFC Equity
Fund were the top performing schemes in different parameters for 2007-08. In
2008-09 UTI Opportunities Fund, IDFC Equity Plan A and ICICI Prudential Discovery
Fund were the best of all and in 2009-10 IDFC Equity Plan A and ICICI Prudential
Discovery Fund performed the best.
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SAAB MARFIN MBA
The study is highly beneficial to the investors as it gives them chance to compare
and analyze different scheme. Thus, the it helps the investors of all classes, in
seeing how the different five star rated funds stand in comparison with each other.
Along with this we are also able to see that in the difference between Systematic
and Lump sum investment. We found out that if markets are down then then SIP
helps us in securing more units. In todays time when market movements cannot be
predicted investors tend to go for SIP as it does help them take advantage of the
low market rates. Also it removes the burden of investing large amount of money at
one time.
Further the effects of rebalancing showed that the returns that were earned when
rebalancing was done was higher compared to the returns that were earned without
rebalancing. Hence setting rules for rebalancing your mutual fund portfolio and
adhering to those rules will ensure that you sell high and buy low in the process of
maintaining the desired composition. One need to decide up front how often
he/she will rebalance their portfolio. One should plan on doing it at least once a
year and possibly quarterly. Also, one should set target ranges and rebalance any
funds as soon as they blow through the upper or lower end of their ranges.
References
1. Naresh Malhotra, Research Methodology
2. Reilly/Brown, Investment Analysis and Portfolio Management.
3. www.valueresearchonline.com
4. www.moneycontrol.com
5. www.nseindia.com
6. www.bseindia.com
7. www.hdfcfund.com.
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SAAB MARFIN MBA
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SAAB MARFIN MBA

Project Report of the

Topic- MUTUAL FUND COMPARISON AND ANALYSIS

MUTUAL FUND COMPARISON AND ANALYSIS

S.no Topic Page No.

4 Systematic Investment Plan and Lump Sum investment

7 Findings and Analysis

HDFC AMC has a strong parentage – CO Sponsored by Housing Development

The present equity shareholding pattern of the AMC is as follows:

Housing Development Finance Corporation Limited was incorporated in 1977

II. History of Mutual Funds

First Phase – 1964-87

Second Phase – 1987-1993 (Entry of Public Sector Funds)

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

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more

Fourth Phase – since February 2003

The graph indicates the growth of assets over the years:

III. Regulatory Framework

Securities and Exchange Board of India (SEBI)

The Government of India constituted Securities and Exchange Board of India, by an

Association of Mutual Funds in India (AMFI)

The objectives of Association of Mutual Funds in India

The Association of Mutual Funds of India works with 30 registered AMCs of

It develops a team of well qualified and trained Agent distributors. It

AMFI undertakes all India awareness program for investors in order to

IV. Concept of Mutual Fund

Mutual fund operation flow chart

Organization of a Mutual Fund

Overview of existing schemes existed in mutual fund category: BY STRUCTURE

Overview of existing schemes existed in mutual fund category: BY NATURE

-Diversified Equity Funds

-Sector Specific Funds

-Tax Savings Funds (ELSS)

Gilt Funds: Invest their corpus in securities issued by Government, popularly

Tax Saving Schemes:

Index schemes attempt to replicate the performance of a particular index such as

Sector Specific Schemes:

VI. Advantages of Mutual Funds

Diversification – It can help an investor diversify their portfolio with a minimum

Professional Management- Mutual funds are managed and supervised by

Liquidity- It's easy to get money out of a mutual fund.

VII. Terms used in Mutual Fund

Asset Management Company (AMC)

Fund Offer document

Market Value of the Assets in the Scheme + Receivables + Accrued Income

The fund will offer 50, 00,000 units to Public.

Investments: Equity shares of Various Companies.

Rs. 10, 00, 00,000

Thus each unit of Rs. 10/- is Worth Rs.20/-

Repurchase or ‘Back-end’ Load

CAGR (compounded annual growth rate)

The year-over-year growth rate of an investment over a specified period of time.

VIII. Fund Management

Actively managed funds:

Mutual Fund managers are professionals. They are considered professionals

Is an active fund a better investment because it is trying to outperform the market?

Actively managed fund styles:

Value: The manager invests in stocks believed to be currently undervalued by

Passively Managed Funds:

a high percentage of investment professionals, find index investing compelling for

You make money from your mutual fund investment when:

Defining Mutual fund risk

Different mutual fund categories as previously defined have inherently different