INTRODUCTION TO THE TOPIC MUTUAL FUND

The Securities and Exchange Board of India (Mutual Funds) Regulations ,1993 defines a Mutual Fund as ³a fund established in the form of a trust by a sponsor ,to raise monies by the trustees through the sale of units to the public ,under one or more schemes ,for investing in securities in accordance with these regulations´. A Mutual Fund is 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 appreciation realized are shared by its unit holders in proportion to the number of units owned by them. 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. Thus ,mutual funds are corporations which pool funds by selling their own shares and reduce risk by diversification.

FINANCIAL SERVICES
The Indian Financial services industry has undergone a metamorphosis since 1990. During the late seventies and eighties, the Indian financial services industry was dominated by commercial banks and other financial institutions which cater to the requirements of the Indian industry. Infact the capital market played a secondary role only. The economic liberalisation has brought in a complete transformation in the Indian financial services industry. Prior to the economic liberalisation, the Indian financial service sector was characterised by so many factors which retarded the growth of this sector.

ORIGIN OF THE FUND
The origin of the concept of mutual fund dates back to the dawn of commercial history. It is said that Egyptians and Phoenicians sold their shares in vessels and caravans with a view to spreading the risk attached with these risky ventures. However, the real credit of introducing the modern concept of mutual fund goes to the Foreign and Colonial Government Trust of London established in 1868. Thereafter, a large number of close-ended mutual funds were formed in the U.S.A. in 1930¶s followed by many countries in Europe ,the Far East and Latin America. In most of the countries ,both open and close-ended types were

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popular .In India ,it gained momentum only in 1980 ,though it began in the year 1964 with the Unit Trust of India launching its first fund ,the Unit Scheme 1964.

HISTORY OF MUTUAL FUNDS
History of Mutual Funds has evolved over the years and it is sure to appear as something very interesting for all the investors of the world. In present world, mutual funds have become a main form of investment because of its diversified and liquid features. Not only in the developed world, but in the developing countries also different types of mutual funds are gaining popularity very fast in a tremendous way. But, there was a time when the concept of Mutual Funds was not present in the economy. There is an ambiguity about the fact that when and where the Mutual Fund Concept was introduced for the first time. According to some historians, the mutual funds were first introduced in Netherlands in 1822. But according to some other belief, the idea of Mutual Fund first came from a Dutch Merchant ling back in 1774. In 1822, that idea was further developed. In 1822, the concept of Investment Diversification was properly incorporated in the mutual funds. In fact, the Investment Diversification is the main attraction of mutual funds as the small investors are also able to allocate their little Funds in a diversified way to lower Risks. After 1822 in Netherlands, the Mutual Funds Concept came in Switzerland in 1849 and thereafter in Scotland in the 1880s. After being popular in Great Britain and France, Mutual fund concept traveled to U.S.A in the 1890s. In 1920s and 1930s, the Mutual Fund popularity reached a new high. There was record investment done in mutual funds. But, before 1920s, the mutual funds were not like the modern day mutual funds. The modern day mutual funds came into existence in 1924, in Boston. Massachusetts Investors Trust introduced the Modern Mutual Funds and the funds were available from 1928. At present this Massachusetts Investors Trust is known as MFS Investment Management Company. After the glorious year of 1928, Mutual fund ideas expanded to different levels and different regulations came for well functioning of the funds. Still today, the funds are evolving and improving in order to offer people much wider choices and better advantages for fulfillment of their various investment needs and financial objectives.
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TYPES OF MUTUAL FUND SCHEMES
Wide variety of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. For instance ,a young businessman would like to get more capital appreciation for his funds and he would be prepared to take greater risks than a person who is just on the verge of his retiring age .So ,it is very difficult to offer one fund to satisfy all the requirements of investors. Therefore ,many types of funds are available to the investor. Mutual Fund schemes can broadly be classified into many types as given below :

On the basis of execution and operation A. Close ± ended Funds
In a closed-ended fund, the total size of the corpus is limited by the size of the initial offer. It has a stipulated maturity period for a fixed period of time. The fund is open for subscription only during the initial public issue. Once the subscription reaches the predetermined level ,the entry of investors is closed .After the expiry of the fixed period ,the entire corpus is disinvested and the proceeds are distributed to the various unit holders in proportion to their holding .Thus , the fund ceases to be a fund ,after the final distribution .Thereafter, one can buy or sell the units of the fund during its tenure on the stock exchanges where the fund is listed. In order to provide an alternative exit 46 route before maturity to the investors, some close-ended funds permit units to be sold back to the fund during pre-determined intervals at NAV related prices.

B. Open ± ended Funds
Investors are permitted to subscribe to new units of the fund at any point of time at a price that is linked to the NAV. Similarly, investors can also sell the units back to the fund at the NAV related price, making it a highly liquid investment. In an open-ended mutual fund there are no limits on the total size of the corpus and there is no fixed maturity of the fund. The main objective of this fund is income generation .The investors get dividend ,rights or bonuses as rewards for their investment. Since the units are not listed on the stock market ,their prices are linked to the Net Asset Value (NAV) of the units .The NAV is determined by the fund and it varies from time to time.

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On the basis of yield and investment pattern A. Income Funds
The aim of these funds is to provide regular and steady income to investors. It concentrates more on the distribution of regular income and it also sees that the average return is higher than that of the income from bank deposits. These funds generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such funds may be limited. These funds are also known as debt funds.

B. Pure Growth Funds (Growth Oriented Funds)
The aim of these funds is to provide capital appreciation over the medium to long term. These funds normally invest a major part of their assets in equities and are willing to bear a short-term decline in the value of their assets in favour of possible future appreciation. They do not offer regular income and they aim at capital appreciation in the long run. Hence, they have been described as ³Nest Eggs´ investments .These funds are also known as equity funds.

C. Balanced/Hybrid Funds
Balanced and hybrid funds aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn to their investors. These funds invest in both equity and fixed income securities, in the proportion indicated in their offer documents. In general, balanced funds invest at least 65% of their corpus in equity securities, while hybrid funds invest less than 65% of their corpus in equity securities. Balanced funds are treated the same as equity funds for purposes of Indian income taxes, and hence dividend income from balanced funds is exempt from income tax . This is otherwise known as ³Income-cum-Growth´ Fund.

D. Specialised Funds
Besides the above, a large number of specialised funds are in existence abroad .They offer special schemes so as to meet the specific needs of specific categories of people like pensioners, widow etc. There are also Funds for investments in securities of specified areas.

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For instance , Japan Fund ,South Korea Fund etc ,In fact ,these funds open the door for foreign investors to invest on the domestic securities of these countries. Again ,certain Funds may be confined to one particular sector or industry like fertilizer ,automobiles ,petroleum etc .These funds carry heavy risks since the entire investment is in one industry. But ,there are high risks taking investors who prefer this type of Fund. Of course ,in such cases ,the rewards may commensurate with the risk taken .At times ,it may be erratic .The best example of this type is the Petroleum Industry Funds in the U.S.A.

E. Money Market Mutual Funds (MMMFs)
These funds are basically open ended mutual funds and as such they have all the features of the open ended fund. But ,they invest in highly liquid and safe securities like commercial paper ,banker¶s acceptances ,certificates of deposits ,Treasury Bills etc .These instruments are called money market instruments .They take the place of shares ,debentures and bonds in a capital market .They pay money market rate of interests. Since MMMFs are a new concept in India ,the RBI has laid down certain stringent regulations. For instance, the entry to MMMFs is restricted only to scheduled commercial banks and their subsidiaries. MMMFs can invest only in specified short term money market instruments like CODs ,Commercial Papers and 182 days Treasury Bills. They can also lend to call market. These funds go for safe and liquid investment. Frequent realisation of interest and redemption of Fund at short notice are the special features of this Fund. The funds will not be subject to reserve requirements. The re-purchase could be subject to a minimum lock in period of 3 months.

A. Taxation Funds
A taxation fund is basically a growth oriented fund. But ,it offers tax rebates to the Investors either in the domestic or foriegn capital market .It is suitable to salaried people who want to enjoy tax rebates particularly during the month of February and March. In India, at present the law relating to tax rebates is recovered under Sec.88 of the IT Act, 1961. An investor is entitled to get 20% rebate in Income Tax for investments made under this fund subject to a maximum investment of Rs.10000/- per annum.

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In this respect. Dual funds This is a special kind of closed end fund. they are guaranteed a minimum annual dividend payment. Index Funds Index funs refer to those funds where the portfolios are designed in such a way that they reflect the composition of some broad based market index. lower transaction costs. When the value increases . The gains are distributed to the unit holders. The value of these index linked funds will automatically go up whenever the market index goes up and vice versa. 6 . The holders of capital shares receive all the capital gains earned on those shares and they are not entitled to receive any dividend of any type. However. it involves less administrative expenses. It provides single investment opportunity for two different types of investors. C. This is done by holding securities in the same proportion as the index itself. Since the construction of portfolio is entirely based upon maintaining proper proportions of the index being followed. Those investors who seek current investment income can purchase income shares. it sells two types of investment stocks viz. For this purpose. It is so because only fewer purchases and sales of securities would take place. Bond Funds These funds have porfolios consisting mainly of fixed income securities like bonds. less number of portfolio managers etc. income shares and capital shares. B.the earning capacity of the fund also increases. D. Leveraged Funds These funds are also called borrowed funds since they are used primarily to increase the size of the value of portfolio of a mutual fund. the dual fund is different from a balanced fund.Other Classification A. They receive all the interest and dividends earned from the entire investment portfolio. This is resorted to only when the gains from the borrowed funds are more than the cost of borrowed funds..

However. E. the sources of investments for these funds are from abroad. A fund of funds will typically charge a 7 . It is an investment vehicle which buys. these funds involve much currency and country risk and hence they generally yield higher return. These funds facilitate flow of funds across different countries. Off-Shore Mutual Funds Off-shore mutual funds are those funds which are meant for non-residential investors. F. since . G.manages and sells real estate assets. Off-shore funds are preferred to direct foreign investment. Fund-of-Funds Funds of funds (FoF) are mutual funds which invest in other mutual funds (i. So. They differ from income funds in the sense income funds offer an average returns higher than that from bank deposits and also capital gains lesser than that in equity shares. Hence . These funds are capital gains oriented and thus the thrust area of these funds is µcapital gains¶.. Naturally. these funds tend to be volatile in nature. with free and efficient movement of capital for investment and repatriation. They may also use specialised investment techniques like short term trading .e. The funds at the underlying level are often funds which an investor can invest in individually. develops .these funds are generally invested in speculative stocks. they are funds composed of other funds). they are regulated by the provisions of the foreign countries where those funds are registered.it does not allow foreign domination over host country¶s corporate sector. In other words. H. Aggressive Growth Funds These funds are just the opposite of bond funds.The main thrust of these funds is mostly on income rather than capital gains. though they may be 'institutional' class shares that may not be within reach of an individual shareholder). Property Fund It is a real estate mutual fund. Its investment also includes shares/bonds of companies involved in real estate and mortgage backed companies.option writing etc.

FoF's will often have a higher overall/combined expense ratio than that of a regular fund. if any. American Century Investments. plus a ³performance fee´ of 20% of the hedge fund's profit. Hedge Funds Hedge funds in the United States are pooled investment funds with loose. as these both reduce the return to the investor. but are usually disclosed in the fund's annual report. mutual funds managed by the same advisor). The design of FoFs is structured in such a way as to provide a ready mix of mutual funds for investors who are unable to or unwilling to determine their own asset allocation model. Recently. 8 . during which an investor cannot cash in shares. SEC regulation. nor does it require or prohibit specific investments. prospectus. The cost associated with investing in an unaffiliated underlying fund may be higher than investing in an affiliated underlying because of the investment management research involved in investing in fund advised by a different advisor. and Fidelity have also entered this market to provide investors with these options and take the "guess work" out of selecting funds. A variation of the hedge strategy is the 130-30 fund for individual investors. I.. There may be a "lock-up" period. The fees charged at the underlying fund level are a real cost or drag on performance but do not pass through the FoF's income statement (statement of operations). FoFs have been classified into those that are actively managed (in which the investment advisor reallocates frequently among the underlying funds in order to adjust to changing market conditions) and those that are passively managed (the investment advisor allocates assets on the basis of on an allocation model which is rebalanced on a regular basis). Fund companies such as TIAA-CREF. Some hedge fund managers are required to register with SEC as investment advisers under the Investment Advisers Act of 1940. Vanguard. Hedge funds typically charge a management fee of 1% or more. Most FoFs invest in affiliated funds (i. or statement of additional information.much lower management fee than that of a fund investing in direct securities because it is considered a fee charged for asset allocation services which is presumably less demanding than active direct securities research and management. The Act does not require an adviser to follow or avoid any particular investment strategies.e. unlike mutual funds. The FoF should be evaluated on the combination of the fund-level expenses and underlying fund expenses. although some invest in unaffilated funds (those managed by other advisors) or both.

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In most of the countries . It is said that Egyptians and Phoenicians sold their shares in vessels and caravans with a view to spreading the risk attached with these risky ventures.it gained momentum only in 1980 .INTRODUCTION TO THE INDUSTRY ORIGIN OF THE FUND The origin of the concept of mutual fund dates back to the dawn of commercial history.S.the Far East and Latin America. contributions made to any ³ELSS´ are eligible for tax deduction. However.though it began in the year 1964 with the Unit Trust of India launching its first fund .the Unit Scheme 1964. Thereafter. 1961. the real credit of introducing the modern concept of mutual fund goes to the Foreign and Colonial Government Trust of London established in 1868. The flow chart below describes broadly the working of a mutual fund: 10 .In India . a large number of close-ended mutual funds were formed in the U.both open and close-ended types were popular . Under Section 80C of the Income Tax Act. in 1930¶s followed by many countries in Europe . Equity Linked Savings Scheme (³ELSS´): These funds offer tax rebates to the investors under tax laws prescribed from time to time.A.

Mutual Fund Operation Flow Chart ORGANISATION OF A MUTUAL FUND There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund: Organization of a Mutual Fund ADVANTAGES OF MUTUAL FUNDS The advantages of investing in a Mutual Fund are: Professional Management Diversification Convenient Administration Return Potential Low Costs Liquidity Transparency 11 .

energy or technology. These funds generally invest in safer. they are funds composed of other funds). These funds carry zero default risk but are associated with interest rate risk. Funds of funds Funds of funds (FoF) are mutual funds which invest in other mutual funds (i. such as treasury bills. ‡ Gilt: These funds invest their corpus in securities issued by Government. though they may be 'institutional' class shares that may not be within reach of an individual shareholder). ETFs try to replicate a stock market index.e. popularly known as Government of India debt papers. ‡ Liquid/Money Market: These funds aim to provide easy liquidity. commercial paper and inter-bank call money. The funds at the underlying level are often funds which an investor can invest in individually. A fund of funds will typically charge a much lower management fee than that of a fund investing in direct securities because it is considered a fee charged for asset allocation services which is presumably less demanding than active direct securities research and management. short-term instruments. preservation of capital and moderate income. such as gold or petroleum. The fees charged at the underlying fund level are a real cost or drag on performance but do not pass through the FoF's income 12 . for example.. or a commodity.Flexibility Choice of schemes Tax benefits well regulated ‡ Exchange Traded Funds (³ETF´): Typically. ETFs are open-ended and can be traded on the stock exchanges. certificates of deposit. in particular a market sector.

Most FoFs invest in affiliated funds (i. 2050. but are usually disclosed in the fund's annual report.e. FoF's will often have a higher overall/combined expense ratio than that of a regular fund. The design of FoFs is structured in such a way as to provide a ready mix of mutual funds for investors who are unable to or unwilling to determine their own asset allocation model. unlike mutual funds. as these both reduce the return to the investor. SEC regulation.statement (statement of operations). Fund companies such as TIAA-CREF. Recently. mutual funds managed by the same advisor). etc. The more distant the target retirement date. The cost associated with investing in an unaffiliated underlying fund may be higher than investing in an affiliated underlying because of the investment management research involved in investing in fund advised by a different advisor. although some invest in unaffilated funds (those managed by other advisors) or both. The FoF should be evaluated on the combination of the fund-level expenses and underlying fund expenses. if any. Some hedge fund managers are required to register with SEC as investment advisers under the Investment Advisers Act of 1940. plus a ³performance fee´ of 20% of the hedge fund's profit.. and Fidelity have also entered this market to provide investors with these options and take the "guess work" out of selecting funds. American Century Investments. There may be a "lock-up" period. Vanguard. A variation of the hedge strategy is the 130-30 fund for individual investors. 13 . prospectus. The allocation mixes usually vary by the time the investor would like to retire: 2020. nor does it require or prohibit specific investments. the more aggressive the asset mix. during which an investor cannot cash in shares. or statement of additional information. FoFs have been classified into those that are actively managed (in which the investment advisor reallocates frequently among the underlying funds in order to adjust to changing market conditions) and those that are passively managed (the investment advisor allocates assets on the basis of on an allocation model which is rebalanced on a regular basis). Hedge funds typically charge a management fee of 1% or more. Hedge funds Hedge funds in the United States are pooled investment funds with loose. 2030. The Act does not require an adviser to follow or avoid any particular investment strategies.

1. 700 crores of assets under management.HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY The mutual fund industry in India started in 1963 with the formation of Unit Trust of India. The number of mutual fund houses went on increasing. Bank of Baroda Mutual Fund (Oct 92). public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). Third Phase ± 1993-2003 (Entry of Private Sector Funds) The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. Second Phase ± 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non.UTI Mutual Fund established in June 1987 followed by Can bank Mutual Fund (Dec 87). At the end of 1993. Indian Bank Mutual Fund (Nov 89). with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions.47. the mutual fund industry had assets under management of Rs. there were 33 mutual funds with total assets of Rs.805 14 .6. at the initiative of the Government of India and Reserve Bank of India. Bank of India (Jun 90).UTI. 004 crores. LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. At the end of 1988 UTI had Rs. The history of mutual funds in India can be broadly divided into four distinct phases First Phase ± 1964-87 An Act of Parliament established Unit Trust of India (UTI) on 1963. 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. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. SBI Mutual Fund was the first non.21. Punjab National Bank Mutual Fund (Aug 89). As at the end of January 2003.

44. following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. The Specified Undertaking of Unit Trust of India. 15 . 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 graph indicates the growth of assets over the years. 541 crores of assets under management was way ahead of other mutual funds.29. the assets of US 64 scheme. assured return and certain other schemes. 835 crores as at the end of January 2003.crores. Fourth Phase ± since February 2003 In February 2003. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs. representing broadly. The Unit Trust of India with Rs.

bonds. Sale Price Sale Price Is the price you pay when you invest in a scheme. futures. Such prices are NAV related. a mutual fund is one of three basic types of investment companies available in the United States.FREQUENTLY USED TERMS Net Asset Value (NAV) Net Asset Value (NAV) Net Asset Value is the market value of the assets of the scheme minus its liabilities. Redemption Price Redemption Price is the price at which close-ended schemes redeem their units on maturity. Usage. Also called Offer Price. Repurchase Price Repurchase Price Is the price at which units under open-ended schemes are repurchased by the Mutual Fund. Mutual funds may invest in many kinds of securities (subject to its investment objective as set forth in the fund's prospectus. Also called. It may include a sales load. Schemes that do not charge a load are called µNo Load¶ schemes. µFront-end¶ load. stocks. options 16 . The most common securities purchased are "cash" or money market instruments. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date. Sales Load Sales Load Is a charge collected by a scheme when it sells the units. Such prices are NAV related. investment objectives Since the Investment Company Act of 1940. Repurchase or µBack-end¶ Load Repurchase or µBack-end¶ Load Is a charge collected by a scheme when it buys back the units from the unit holders. which is the legal document under SEC laws which offers the funds for sale and contains a wealth of information about the fund). other mutual fund shares and more exotic instruments such as derivatives like forwards.

the fund would invest in securities and likely specific derivates such as S&P 500 stock index futures in order to most closely match the performance of that index. government agencies.or long-term). In the U.S. the fund's objective might state ". Thus. For example.S. such as technology. under normal circumstances. Since fund names in the past may not have provided a prospective investor a good indication of the type of fund it was. for example.S. companies with any market capitalization range. or municipalities). commonly called the "name rule".. A fund may invest primarily in the shares of a particular industry or market sector. corporations.S. or maturity of the bonds (short. and tax rules. Lastly. such as the S&P 500 Index.and swaps. type of issuers (e. Bond funds can vary according to risk (e. In such a fund. Most mutual funds' investment portfolios are continually monitored by one or more employees within the sponsoring investment adviser or management company. Some funds' investment objectives (and or its name) define the type of investments in which the fund invests. high-yield junk bonds or investment-grade corporate bonds). a fund must invest under normal circumstances in at least 80% of the securities referenced in its name.. typically called a portfolio manager and their assistants.g..." This would be "stock" fund or a "domestic/US stock" fund since it stated U. as well as the ongoing performance of investments appropriate for the fund. the SEC issued a rule under the '40 Act which aims to better align fund names with the primary types of investments in which the fund invests.the fund will seek capital appreciation by investing primarily in listed equity securities (stocks) of U. the "ABC Freedom Fund" is such that its name does not imply a specific investment style or objective. an index fund strives to match the performance of a particular market index.. and foreign securities (global funds). both U. at least 80% of its assets in tax-exempt bonds issued by the state of New Jersey and its political subdivisions. Some fund names are not associated with specific securities so the name rule has less relevance in those situations. who invest the funds assets in accordance with its investment objective and trade securities in relation to any net inflows or outflows of investor capital (if applicable). or primarily foreign securities (international funds). Both stock and bond funds can invest in primarily U. These are known as specialty or sector funds. they are not taxed on their income as long as they 17 . utilities or financial services. A mutual fund is advised by the investment adviser under an advisory contract which generally is subject to renewal annually. unlike most other types of business entities. For example. Mutual funds are subject to a special set of regulatory.g. securities (domestic funds). under this rule. the "ABC New Jersey Tax Free Bond Fund" would generally have to invest. accounting. companies.S.

is the NAV plus a sales charge. this is known as a premium or discount. it is the responsibility of the fund manager to form an estimate of their value when computing the NAV. they may be derivatives. Open-end funds sell shares at the POP and redeem shares at the NAV. 5-year and 10-year periods as the "average annual total return" for each fund. Net asset value The net asset value. This is usually calculated at the end of every trading day. If a fund is divided into multiple classes of shares. each class will typically have its own NAV. Some mutual funds own securities which are not regularly traded on any formal exchange. respectively. The public offering price. is calculated by dividing the fund's assets minus liabilities by the number of shares outstanding. the type of income they earn is often unchanged as it passes through to the shareholders. Taxable distributions can be either ordinary income or capital gains. is the current market value of a fund's holdings. or POP. Average annual return US mutual funds use SEC form N-1A to report the average annual compounded rates of return for 1-year. Also.distribute 90% of it to their shareholders and the funds meet certain diversification requirements in the Internal Revenue Code. depending on how the fund earned those distributions. In the absence of a public market for these securities. How much of a fund's assets may be invested in such securities is stated in the fund's prospectus. For most funds. Closedend funds (the shares of which are traded by investors) may trade at a higher or lower price than their NAV. These may be shares in very small or bankrupt companies. or NAV (net asset value). after the close of trading on some specified financial exchange. and so process orders only after the NAV is determined. The price per share. or they may be private investments in unregistered financial instruments (such as stock in a non public company). that is usually expressed as a per-share amount. the NAV is determined daily. minus the fund's liabilities. Mutual fund distributions of tax-free municipal bond income are tax-free to the shareholder. or NAV. The following formula is used:[6] P(1+T)n = ERV Where: 18 . but some funds update their NAV multiple times during the trading day. Net losses are not distributed or passed through to fund investors. reflecting differences in fees and expenses paid by the different classes.

regardless of the asset size of the fund. i. However. many funds have contractual fees 19 . or 10-year periods at the end of the 1-. as many fund companies include administrative fees in the advisory fee component. n = number of years. usually calculated over a year's time. and usually expressed as a percentage of net asset value. 5-. This value is usually calculated as the value of all transactions (buying.000. and 12b-1/non-12b-1 fees. Thus turnover measures the replacement of holdings. T = average annual total return. Contractual advisory fees may be structured as "flat-rate" fees. under NI 81-106 (required disclosure for investment funds) turnover ratio is calculated based on the lesser of purchases or sales divided by the average size of the portfolio (including cash).. a single fee charged to the fund. 5-. when attempting to compare the total management expenses of different funds. However. Expenses and expense ratios Mutual funds bear expenses similar to other companies. All expenses are expressed as a percentage of the average daily net assets of the fund. The fee structure of a mutual fund can be divided into two or three main components: management fee.e.e.P = a hypothetical initial payment of $1. Turnover Turnover is a measure of the fund's securities transactions. In Canada. the fund counts one security sold and another one bought as one "turnover". selling) divided by 2 divided by the fund's total holdings. ERV = ending redeemable value of a hypothetical $1. it is helpful to define management fee as equal to the contractual advisory fee plus the contractual administrator fee. i. This "levels the playing field" when comparing management fee components across multiple funds.. non-management expense. or 10-year periods (or fractional portion).000 payment made at the beginning of the 1-. Management fees The management fee for the fund is usually synonymous with the contractual investment advisory fee charged for the management of a fund's investments.

real cost of investing though. Sales loads (or contingent deferred sales loads (CDSL)) are included in the fund's total expense ratio (TER) because they pass through the statement of operations for the fund. legal/audit expense. For example. Non-management expenses Apart from the management fee. but is usually available only upon request or by going to the SEC's or fund's website. fund accounting expense. usually charged when 20 . Brokerage commissions are incorporated into the price of securities bought and sold and. Brokerage commissions An additional expense which does not pass through the fund's income statement (statement of operations) and cannot be controlled by the investor is brokerage commissions. Additionally. there are certain non-management expenses which most funds must pay. Brokerage commissions. Investor fees and expenses Fees and expenses borne by the investor vary based on the arrangement made with the investor's broker. Some of the more significant (in terms of amount) non-management expenses are: transfer agent expenses (this is usually the person you get on the other end of the phone line when you want to buy/sell shares of a fund). thus. the advisory fee paid decreases. registration expense (the SEC charges a registration fee when funds file registration statements with it). which may force the fund to make bad trades to obtain the necessary liquidity. board of directors/trustees expense (the members of the board who oversee the fund are usually paid a fee for their time spent at meetings). They are a true. Another way in which the advisory fees remain competitive is by structuring the fee so that it is based on the value of all of the assets of a group or a complex of funds rather than those of a single fund. funds may charge early redemption fees to discourage investors from swapping money into and out of the fund quickly. are a component of the gain or loss on investments.which include breakpoints so that as the value of a fund's assets increases. and printing and postage expense (incurred when printing and delivering shareholder reports). Fidelity Diversified International Fund (FDIVX) charges a 10 percent fee on money removed from the fund in less than 30 days. The amount of commissions incurred by the fund and are reported usually 4 months after the fund's fiscal year end in the "statement of additional information" which is legally part of the prospectus. custodian expense (the fund's assets are kept in custody by a bank which charges a custody fee).

PVT. ASSET MANAGEMENT COMPANY (AMC) The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. LTD. TABLE 1: LIST OF AMC IN INDIA AIG GLOBAL ASSET MANAGEMENT CO. The company will invest on behalf of its clients and give them access to a wide range of traditional and alternative product offerings that would not be to the average investor. At least 50% of the directors of the AMC are independent directors who are not associated with the Sponsor in any manner. The advisors of mutual fund companies are required to achieve "best execution" through brokerage arrangements so that the commissions charged to the fund will not be excessive as well as also attaining the best possible price upon buying or selling.securities are bought and again when sold. The AMC must have a net worth of at least 10 crore at all times. are directly related to portfolio turnover which is a measure of trading volume/velocity (portfolio turnover refers to the number of times the fund's assets are bought and sold over the course of a year). ASSET MANAGEMENT COMPANIES IN INDIA The management of a client's investments by a financial services company. LTD. AXIS ASSET MANAGEMENT CO. usually an investment bank. 21 . The AMC is required t o be approved by the Securities and Exchange Board of India (SEBI) to act as an asset management company of the Mutual Fund. Usually. higher rate of portfolio turnover (trading) generates higher brokerage commissions.

JM FINANCIAL ASSET MANAGEMENT PRIVATE LIMITED J P MORGAN MUTUAL FUND KOTAK MAHINDRA ASSET MANAGEMENT COMPANY LIMITED L&T INVESTMENT MANAGEMENT LIMITED LIC MUTUAL FUND ASSET MANAGEMENT COMPANY LIMITED MIRAE ASSET GLOBAL INVESTMENT MANAGEMENT (INDIA) PVT. DEUTSCHE ASSET MANAGEMENT (INDIA) PVT. GOLDMAN SACHS HDFC ASSET MANAGEMENT COMPANY LIMITED HSBC ASSET MANAGEMENT (INDIA) PRIVATE LTD. LTD. TEMPLETON ASSET MANAGEMENT (INDIA) PRIVATE 22 . ING INVESTMENT MANAGEMENT (INDIA) PVT. QUANTUM ASSET MANAGEMENT CO. LTD. MORGAN STANLEY INVESTMENT MANAGEMENT PVT LTD MOTILAL OSWAL ASSET MANAGEMENT COMPANY LIMITED PEERLESS FUNDS MANAGEMENT CO. DIAWA ASSET MANAGEMENT (INDIA) PRIVATE LIMITED DSP BLACKROCK INVESTMENT MANAGERS PRIVATE LIMITED EDELWEISS ASSET MANAGEMENT LIMITED ESCORTS ASSET MANAGEMENT LIMITED FIDELITY FUND MANAGEMENT PRIVATE LIMITED FRANKLIN LIMITED FORTIS INVESTMENT MANAGEMENT (INDIA) PVT. IDBI ASSET MANAGEMENT LIMITED.BARODA PIONEER ASSET MANAGEMENT COMPANY LIMITED BENCHMARK ASSET MANAGEMENT COMPANY PVT. PRAMERICA ASSET MANAGERS PRIVATE LIMITED PRINCIPAL PNB ASSET MANAGEMENT CO. LTD. PVT. ICICI PRUDENTIAL ASSET MANAGEMENT COMPANY LTD. LTD BHARTI AXA INVESTMENT MANAGER PRIVATE LTD. LTD. PRIVATE LTD. BIRLA SUN LIFE ASSET MANAGEMENT COMPANY LIMITED CANARA ROBECO ASSET MANAGEMENT COMPANY LTD.LTD.LTD. IDFC ASSET MANAGEMENT COMPANY LTD.

RELIGARE ASSET MANAGEMENT CO. PRIVATE LTD.RELIANCE CAPITAL ASSET MANAGEMENT LTD. SAHARA ASSET MANAGEMENT COMPANY PRIVATE LIMITED SBI FUNDS MANAGEMENT PRIVATE LIMITED SUNDARAM BNP PARIBAS ASSET MANAGEMENT COMPANY LIMITED TATA ASSET MANAGEMENT LIMITED TAURUS ASSET MANAGEMENT COMPANY LIMITED UTI ASSET MANAGEMENT COMPANY LIMITED 23 .

the "Sponsors"). Pursuant to the 2002 Act and a transfer agreement dated January 15. was repealed by Parliament pursuant to The Unit Trust of India (Transfer of Undertaking and Repeal) Act. 2003. and in October 2002. Punjab National Bank and Bank of Baroda as its sponsors (collectively. Life Insurance Corporation of India. Unit Trust of India played a pioneering role in the development and growth of India's capital markets. the Unit Trust of India Act. As a result. 24 . and UTI Mutual Fund. 2002 (the "2002 Act"). which was established as a SEBI registered mutual fund with State Bank of India. amidst the global recession and equity markets downturn. The Government of India intervened to protect the interests of the unitholders. of Unit Trust of India were transferred to UTI Mutual Fund. In July 2001. Unit Trust of India. Unit Trust of India suspended dealings in its flagship fund. As the first mutual fund provider in India. five overseas funds and the Senior Citizens Unit Plan. with initiatives such as launching the first unit linked insurance plan in 1971 and the first retirement benefit plan in 1994. Unit Trust of India was bifurcated into two separate entities: the Specified Undertaking of Unit Trust of India ("SUUTI"). Unit Scheme 1964 ("US-64"). 37 SEBI-compliant funds. because there was a material gap between the underlying net asset value of the fund and the repurchase price of the units. among the President of India and the Sponsors.INTRODUCTION TO THE COMPANY History and Corporate Structure Our predecessor. was established in 1964 by an Act of the Parliament and over time grew into one of the largest financial intermediary institutions in India catering to a diverse group of investors through a wide variety of funds. 1993. which was vested with the assets of Unit Trust of India's US-64 and assured return funds. 1963.

645 million. 2002 and appointed by UTI Trustee Company Private Limited. UTI AMC was converted into a public limited company on November 14. UTI AMC acquired 14 funds. Below is a chart outlining our corporate structure (all three subsidiaries are 100% owned by UTI AMC): 25 . In 2004. Infrastructure Leasing & Financial Services Mutual Fund ("IL&FS Mutual Fund"). 2007. 2003. 18. UTI AMC commenced operations with effect from February 1.UTI Asset Management Company Private Limited ("UTI AMC") was incorporated on November 14. to manage the funds of UTI Mutual Fund. with AUM at the time of Rs. from another mutual fund provider. as the trustee of UTI Mutual Fund ("UTI Trustee").

26 .

The products are backed by world-class service and delivered to customers through the growing branch network.000 crore.000 crore.Wholesale Banking Services. The balance sheet size of the combined entity is more than Rs. as well as through alternative delivery channels like ATMs. in 2000. It was among the first companies to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector. the Bank provides a wide range of commercial and transactional banking services. HDFC Bank was the first bank in India to launch an International Debit Card in association with VISA (VISA 27 . Coleman & Co. India's largest housing finance company. Retail banking services The objective of the Retail Bank is to provide its target market customers a full range of financial products and banking services. cash management. etc. including working capital finance. corporate finance and m erchant banking. . Treasury.000. Times Bank Limited (owned by Bennett. 1. mutual funds. In 2008 HDFC Bank acquired Centurion Bank of Punjab taking its total branches to more than 1. Wholesale banking services blue-chip manufacturing companies in the Indian corp to small & mid-sized corporates and agri-based businesses. money markets and debt trading and equity research.75 shares of Times Bank.63. transactional services.. Phone Banking. / Times Group) was merged with HDFC Bank Ltd. trade services.000 crore and net advances of about Rs. Shareholders of Times Bank received 1 share of HDFC Bank for every 5. The bank is also a leading provider of for its to corporate customers. For these customers. Retail Banking Services. NetBanking and Mobile Banking. It has entered the banking consortia of over 50 corporates for providing working capital finance. 1. stock exchange members and banks. giving the customer a one-stop window for all his/her banking requirements.89.22. It is also providing sophisticated product structures in areas of foreign exchange and derivatives. Business focus HDFC Bank deals with three key business segments.HISTORY HDFC Bank was incorporated in 1994 by Housing Development Finance Corporation Limited (HDFC). The amalgamated bank emerged with a base of about Rs. trade services. The Bank started operations as a scheduled commercial bank in January 1995 under the RBI's liberalization policies. This was the first merger of two private banks in India.

Plus/Cirrus and American Express Credit/Charge cardholders. All branches are linked on an online real-time basis. These services are provided through the bank's Treasury team. Treasury Within this business. Visa Electron/Maestro. etc.016 networked ATMs across these cities. Customers in over 500 locations are also serviced through Telephone Banking. Being a clearing/settlement bank to various leading stock exchanges. 28 . the Bank has branches in the centres where the NSE/BSE have a strong and active member base. The Bank has an network of 1725 branches spread in 780 cities across India. By March 2009.000 Point-of-sale (POS) terminals for debit / credit cards acceptance at merchant establishments. To comply with statutory reserve requirements. the bank had a total card base (debit and credit cards) of over 13 million.Foreign Exchange and Derivatives. and Equities. HDFC Bank's ATM network can be accessed by all domestic and international Visa/MasterCard. The Bank is also one of the leading players in the ³merchant acquiring´ business with over 70. The Bank also has 5. The Treasury business is responsible for managing the returns and market risk on this investment portfolio.Electron) and issues the Mastercard Maestro debit card as well. Loans. The Bank has a presence in all major industrial and commercial centres across the country. Bill Payments. Distribution network An HDFC Bank Branch HDFC Bank is headquartered in Mumbai. the bank has three main product areas . The Bank launched its credit card business in late 2001. The Bank is well positioned as a leader in various net based B2C opportunities including a wide range of internet banking services for Fixed Deposits. Moreover. Local Currency Money Market & Debt Securities. the bank is required to hold 25% of its deposits in government securities.

and the entertainment sector by acquiring Adlabs. The group was formed after the two feuding brothers Mukesh Ambani and Anil Ambani. stock broking. Reliance Energy. Reliance was headed by his sons. distribution of financial products. By 2002 Reliance had grown into a 15bn$ conglomerate. private equity and proprietary investments. Dhirubhai started the equity cult in India. split Reliance Industries. power sector. Reliance later entered into financial services.History Reliance group was founded by Dhirubhai Ambani in 1966 as a polyester firm. Reliance Capital and RNRL. depository services. Reliance Mutual Fund is India's largest Mutual Fund. 2002. After the death of Dhirubhai Ambani on July 6.7 million customers and has the largest distribution network. Later this group entered the power sector through Reliance Power. petroleum refining. arm Reliance 29 . consumer finance and other activities in financial services. Reliance General Insurance is a general insurance company and among the top 3 private sector insurers.[3][4] Anil Ambani got the responsibility of Reliance Infocomm. Reliance Money is brokerage and distributor of financial products in India with over 2. This led to a new beginning called RELIANCE. Capital y y y y y y y y y y y y Reliance Capital Reliance Life Insurance Reliance General Insurance Reliance Venture Reliance Mutual Fund Reliance Money Reliance Securities Reliance Consumer Finance Reliance Venture Capitalist Reliance Asset Reconstruction Reliance PMS ICEX -Stock exchange Reliance Capital (Rel Cap) has interests in asset management and mutual funds. Its brokerage. life and general insurance.

Europe. Reliance Power is having coal mines in Indonesia. Reliance has also made major acquisitions in UK. Global Presence Reliance is having big presence in USA. BIG FM radio station is operating in Singapore. 30 . hiring staff and enhancing the capability of its online trading platform. USA . BIG Cinemas is having large presence USA.Securities is planning to invest Rs 300 crore (Rs 3 billion) for upgrading infrastructure. Malaysia and Netherlands through more than 260 screens and caters to over 25 million consumers. Middle East and the Asia Pacific region through Reliance Globalcom.

This is a close ended debt scheme.The Scheme is also in Dividend Option and Quarterly Dividend Option named HDFC Fixed Maturity Plan-370D-November 2010(17)-2Dividend and HDFC Fixed Maturity Plan-370D-November 2010(17)-2.90 Days-37 close ended scheme.  Religare Medium Term Bond Fund Religare Mutual Fund has launched a new fund named as Religare Medium Term Bond Fund. 31 . PSU and Corporate Bonds and money market instruments maturing on or before the maturity of the scheme. The investment objective of the scheme is to provide regular income. an open ended income scheme.000 and the scheme will not charge any entry or exit load. 2010 to 22 nd November. liquidity and returns to the investors through investments in a portfolio comprising of debt instruments such as government securities.The investment objective of the plan is to generate regular income through investments in debt / money market instruments and government securities maturing on or before the maturity date of the plan. 5000.LITERATURE REVIEW:  HDFC Fixed Maturity Plan-370D This growth was Launched by HDFC Mutual Fund and the NFO Period are from 9 th November. 10 per unit. 2010 with a Minimum Investment is Rs.Qtly Dividend  SBI Debt Fund Series-90 Day±37 SBI Mutual Fund has launched SBI Debt Fund Series. The New Fund Offer (NFO) price for the scheme is Rs. The scheme will be benchmarked against CRISIL Liquid Fund Index. The new issue will be open for subscription from 13 December and close on 24 December 2010. The new fund offer will open on 28th December. 2010 and will close the same day. The minimum application amount will be Rs 5.

Entry load and exit load charge are not applicable for the schemes. The New Fund Offer (NFO) price for the schemes is Rs.Series 53 -18 Months Plan A It is a close ended debt schemes. It is available under the schemes viz. 10 thereafter. The schemes performance will be benchmarked against Crisil Composite Bond Fund Index and the minimum application amount is Rs. The fund seeks to collect a minimum subscription amount of Rs. The investment objective of the schemes is to generate regular returns by investing in a portfolio of fixed income securities/ debt instruments which mature on or before the date of maturity of the schemes. ICICI Prudential FMP . It would further invest in money market instruments. 5 crore under each scheme during the NFO period. 10 per unit. The schemes will allocate upto 100% of assets in Central and State Government securities. Dividend Payout is the only facility available under dividend option. The cumulative option shall be default option under the scheme. cumulative and dividend option. 32 . short term and medium term debt securities / debt instruments and securitized debt with low to medium risk profile. 5000 and in multiples of Rs. The schemes are proposed to be listed on NSE.

And also the performance of various mutual fund schemes are studied. METHODOLOGY  Primary Data: The data that is directly collected is known as primary data. Primary data is also called as first hand data. Therefore in this study we have considered three companies namely in terms of investors perception about the performance of the various companies mentioned above. As a whole this project includes a detailed study of mutual funds. benefits & returns. HDFC & Reliance. 33 . OBJECTIVE OF THE STUDY  To evaluate the performance of mutual fund companies  To compare the performance of different equity tax planning mutual funds of different companies  To study about the customer preferences between the various mutual funds SCOPE OF THE STUDY The scope of the study includes acquiring knowledge about the mutual funds & the mutual fund industry in India. STATEMENT OF THE PROBLEM Nowadays mutual funds have become a very popular mode of investments for the normal layman who is greatly concerned with the safety of his investment & the stability of returns. its evolution in India.TITLE OF THE STUDY: A Study on Performance evaluation of Identified Mutual Fund Scheme in India. their types. Hence this report is a comparative study about the performance of some prominent mutual funds in India namely UTI.

 Secondary Data: The data that is collected from previous records is known as secondary data. As many statistical and financial tools are used. The study was limited to the extent of just evaluation of Mutual Fund equity tax planning schemes. the limitations of these subjects cannot be denied y y Each evaluation measure or variable has its own drawbacks Study is based only on the growth & dividend objective of a scheme and cannot be extrapolated to other objectives as each objective has its own evaluation techniques 34 . TOOLS FOR DATA ANALYSIS  NAV  Sharpe Index  Jensen Index  Treynor Index LIMITATIONS OF THE STUDY y y Only 3 equity funds of different companies were compared and analysed. y y y The study covers only the open ended fund The study does not cover the other schemes.

you make a profit.((Beta x (Benchmark . A total return is expressed in a percentage and tells you how much money you have earned or lost on an investment over time. if the fund achieved it over a year's time. Benchmark: A parameter against which a scheme can be compared. Tata Asset Management Limited is the Asset Management Company. assuming reinvestment of distribution such as dividend payment and bonuses. given its beta. would produce the same cumulative total return if the fund performed consistently over the entire period. An investment with a positive alpha indicates that the fund has performed better than expected. Alpha = Excess Return . Capital Appreciation: As the value of the securities in a portfolio increases. meaning that the value of your investment rises. Annualized Return: This is the hypothetical rate of return.RFR) Benchmark = Total Return of Benchmark Index RFR = Risk free return or Treasury bill Annual Return: The percentage of change in net asset value over a year's time. And a negative alpha indicates that the fund has underperformed. For example. 35 .OPERATIONAL DEFINITIONS OF THE CONCEPTS Alpha coefficient: It is the excess return of the fund above risk adjusted market return. If you sell units at a lower price than you paid for them. assuming that all dividends and capital gains are reinvested. Beta: A measure of the relative sensitivity of a stock or mutual fund to the market. For Tata Mutual Fund. you'll have a capital loss. given its level of risk as measured by beta. If you sell units at a higher price than you paid for them. or capital gain. Asset Management Company: It is a company set up primarily for managing the investment of mutual funds and makes investment decisions in accordance with the scheme objectives. The higher the beta. deed of Trust and other provisions of the Investment Management Agreement. The NSE Nifty is assigned a beta of 1. the more volatile (or more sensitive) the stock or fund is considered to be relative to the market as a whole. the performance of a scheme can be benchmarked against an appropriate index. a fund's Net Asset Value (NAV) increases.

define acceptable levels of risk. Entry Load: Load on purchases/ switch-out of units. Exit Load: Load that is charged on redemptions i. balanced. Because of compounding. the person who makes all the investment decisions. 36 . Compounding occurs if bond income or dividends from stocks or mutual funds are reinvested. the result is compound interest. No-Load Scheme: A Scheme where there is no initial Entry or Exit Load. money has the potential to grow much faster. gilt or liquid scheme Fund Family: It is the AMC which manages the various types of funds. it earns interest.e. i. debt. Equity Schemes: Schemes where more than 50% of the investments are made in the equity shares of various companies. Investment Objective: The identification of attributes associated with an investment or investment strategy. The objective is to provide capital appreciation over a period of time. designed to isolate and compare risks. It could be a growth. and match investments with personal goals. Load: A charge that is levied as a percentage of NAV at the time of entry into the Scheme/Plans or at the time of exiting from the Scheme/Plans. during the exit of the fund Fund Category: It is a type of scheme which the mutual fund company invests its corpus in a particular category. Expenses include management fees and all the other fees associated with the fund's daily operations. Expense Ratio: It is the percentage of fund's value that is paid as expenses. Fund Management Costs: It is the charge levied by an AMC on the investors for managing their funds.e.Compounding: When you deposit money in a bank. When that interest also begins to earn interest. Fund Manager: The person who makes all the final decisions regarding investments of a scheme.

NAV: Net Asset Value (NAV) is the value of the fund which is obtained by the following formula: Market/Fair Value of Scheme's investments (+) Receivables (+) Accrued Income (+) Other Assets (-) Accrued Expenses NAV = (-) Payables (-) Other Liabilities NAV Change: The difference between today's closing net asset value (NAV) and the previous day's closing net asset value (NAV). the expected returns from an investment are dependent on the risk involved in the investment. such as mortgage and revolving credit lines. It contains all the information required as per the Securities and Exchange Board of India. Net Yield: Rate of return on a security net of out-of-pocket costs associated with its purchase. Offer Document Or Prospectus: The official document issued by mutual funds prior to the launch of a fund describing the characteristics of the proposed fund to all its prospective investors. bonds. services. minus all outstanding debts. Risk Adjusted Returns%: Generally.Mutual Funds: Investments company/trust that pools money from unit holders and invests that money into a variety of securities. including stocks. Individual investors are encouraged to read and understand the fund's prospectus. such as commissions or markups. such as a house. NAV %Change: The percentage change between today's closing net asset value (NAV) and the previous day's closing net asset value (NAV) Net Worth: A person's net worth is equal to the total value of all possessions. stocks. For the purpose of comparing returns from 37 . and fees. such as investment objective and policies. and money-market instruments in line with the funds objective. bonds. and other securities.

A higher standard deviation indicates a wider dispersion of past returns and thus greater historical volatility. it is called a load. Sometimes. SEBI: The Securities and Exchange Board of India. A sales charge is similar to paying a premium for a security in that the customer must pay a higher offering price. 1996 or such other SEBI (MF) Regulations as may be in force from time to time and would include Circulars. Investors may examine historical standard deviation in conjunction with historical returns to decide whether a fund's volatility would have been acceptable given the returns it would have produced. the returns are adjusted for the level of risk before comparison. Sales Charge: Fee on the purchase of new shares of a mutual fund. Standard deviation does not indicate the absolute performance. the difference between the bid and ask price for a security. if any.. Spread: The difference between the rates at which money is deposited in a financial institution and the higher rates at which the money is lent out. the ratio measures the variability of ' excess returns' (defined by returns of the fund over the 'risk free return). Standard Deviation: It is a statistical measurement of the dispersion of a fund's return over a specified time period. Also. Sale Price: The price at which a fund offers to sell one unit of its scheme to investors. A mutual fund can launch more than one scheme. This NAV is grossed up with the entry load applicable. Sharpe Ratio: The Sharpe ratio measures the risk-adjusted return of a fund. Guidelines etc. Such returns (reduced for the level of risk involved) are called risk adjusted returns. 38 . the formula takes a fund's return in excess of a risk-free investment and divides this by the standard deviation of the returns. Higher the Sharpe ratio better is the fund. SEBI Regulations: Securities and Exchange Board of India (Mutual Funds) Regulations. Mathematically. Scheme: It is a fund or plan where the money contributed by the unit holders are maintained and managed and the profit/loss from the scheme accrue only to the unit holders. unless specifically mentioned to the contrary. Simply put.investments involving varying levels of risk. but merely indicates the volatility of its returns over time.

dividends or interest. 39 . taking into account capital appreciation.Total Return%: Return on an investment. and individual tax considerations adjusted for present value and expressed on an annual basis. Greater the ups and downs. more volatile the investment is. volatility refers to the ups and downs of the price of an investment. Unit Holder: A person who holds Unit(s) under any plan of the Scheme. Valuation: Calculating the market value of the assets of a mutual fund scheme at any point of time. Yield: The percentage of return an investor receives based on the amount invested or on the current market value of holdings. Unit: Unit representing a share in the assets of the corresponding plan of the Scheme. Volatility: In investing.

3 10.5 11.18 11.6 13.83 10 10.8 15.89 98.GROWTH HDFC ARBITRAGE FUND JM ARBITRAGE FUND 2006 16.68 12.02 11.33 26.98 29.23 34.94 14.14 10.53 26.10 2009 36.15 15.67 12.29 189.21 2008 27.18 2010 20.35 11.2 11.14 12.23 19.57 45.5 12.4 107.63 11.50 18.92 14.22 25.8 10 12.69 7.00 25.DATA ANALYSIS & INTERPRETATION DIFFERENT FUNDS RETURN (NAV) COMPANY NAME FORTIS EQUITY FUND (DIV) BIRLA EQUTIY FUND (GTH) HDFC EQUITY FUND (DIV) RELLANCE EQUITY FUND (BONUS) SAHARA MIDCAP FUND (GTH) SBI BLUE CHIP FUND (DIV) TATA EQUITY MGT FUND (GROWTH) UTI GROWTH AND VALUE FUND FRANKLIN FMCG FUND ± GROWTH ICICI PRUDENTIAL ± GROWTH UTI SPREAD GROWTH ICICI PRUDENTIAL EQTY-DERI IDFC CLASSIC EQUITY .51 17.52 40 .14 30 12.91 10.83 6.7 10 10.15 10 11.1 190 8.55 30 10.52 11.55 16.9 12.54 10.19 147.25 9.84 21.8 10 2007 19.4 5.77 18.18 36.85 8.74 10.56 11.7 15.34 20.

1000 and in multiples of Rs.70 14. 2011 182 Days -42. 1994 Plans and Options under the Plan: Growth & Dividend Option.23 134.45 140.97 41 .23 2009 12. Exit Load : Nil.5000 and in multiples of Rs. For Investments of Rs. Entry load is 2. 5 crores and above. 10 Minimum Investment: For new investors: Rs. Entry Load is Nil. 100 thereafter.29 1 Year -47.46 HDFC EQUITY FUND-DIVIDEND Objective: To achieve capital appreciation in the long term by investing primarily in equity oriented securities. 5 crores. Entry Load : For investments below Rs.75 Performance % as on Jan 30. HDFC EQUITY Fund Scheme Scheme Code Scheme Name Date NAV (Rs.100 thereafter. For existing investors: Rs.99 151.91 2011 _8. Structure: Open-ended Growth Scheme Inception Date: February 01.25%.) 91 Days ZI001 HDFC Equity Fund .85 2008 15.22 13. Face Value (Rs/Unit): Rs.Identified Mutual Fund Scheme Details Company Name UTI Equity Tax Savings Plan HDFC Tax Saver Fund Reliance Tax Saver Fund 2010 12.10 13.71 11.92 123.Dividend Jan 30 189.46 2007 17.

3 108.6 Graph: Interpretation: The table shows that the fund has performed well in 2008 & 2009 & relatively better in 2007 & 2010 when compared to 2006. 42 .5 1 Year 18.5 148 226 190 Sensex 6680 9390 14015 20300 9952 Nifty 2115 2836 4007 6144 3033 HDFC Tax Saver Fund Scheme Name Date NAV(Rs) Performance percentage as on Feb 4.Year 2006 2007 2008 2009 2010 Fund Return 66.5 HDFC Tax Saver fund Feb 04 216.33 -13. 2011 91 Days 182 Days -1.

RELIANCE Equity Fund scheme Scheme Code Scheme Name Date NAV (Rs. 2011 91 Days 182 Days -4.86 1 Year -40. 2010 Reliance Tax Saver fund Scheme Name Date NAV(Rs) Performance percentage as on Feb 4.14 182 Days -34.15 10 11.Bonus Fund Return 2006 2007 2008 2009 2010 10.2 Reliance TaxSaver Fund Feb 04 19.) 91 Days RC213 Reliance Equity Fund .1 Graph: 43 .2010 Sensex 6680 9390 14015 20300 9952 Nifty 2115 2836 4007 6144 3033 8.3 8.3 Jan 30.3 -10.6 1 Year 14.97 Performance % as on Jan 30.7 15.33 -18.

SemiAnnual Dividend Plan.5 UTI Equity Tax Saving Feb 04 16. 5. 44 . 2011 91 Days 182 Days -2. UTI Equity Tax Savings Plan Scheme Name Date NAV(Rs) Performance percentage as on Feb 4. Entry load 0.Interpretation: The fund has performed well in 2008 & 2009 & relatively better in 2007 & 2010 when compared to 2006.16 -15.2004 and amount >=Rs 2 crore.10. 1999 Plans and Options under the Plan: Bonus Plan. 10 Minimum Investment: Rs. Structure: Open Ended Equity Fund Inception Date: October 28.000/Entry Load: Nil for investments made after 10. Exit Load: Nil. Annual Dividend Plan.10.6 1 Year 11.25% for investments made after 10. Face Value (Rs/Unit): Rs. Entry load 2.10.4 UTI GROWTH AND VALUE FUND Objective: To seek capital appreciation through opportunities arising out of listed growth and undervalued stocks.5% for investments made after 10. Growth Plan.2004 and amount < Rs 25 lakhs.2004 and amount >= Rs 25 lakhs and amount < 2 crore.

14 21.91 1 Year -39.55 20.80 Fund Return 2006 2007 2008 2009 2010 19 17.) Performance % as on Jan 30.23 16. 2010 91 Days UT193 UTI Equity Fund Jan 30 21.98 -2. 45 .UTI GROWTH AND VALUE Fund scheme Scheme Code Scheme Name Date NAV (Rs.98 Sensex 6680 9390 14015 20300 9952 Nifty 2115 2836 4007 6144 3033 Graph: Interpretation: The fund has performed well in 2008 & 2009 & relatively better in 2007 & 2010 when compared to 2006.74 182 Days -32.

higher the Beta. it should also include the risk taken by the fund manager because different funds will have different levels of risk attached to them. By using the risk return relationship. Portfolio Performance Measures Return alone should not be considered as the basis of measurement of the performance of a mutual fund scheme. The most important and widely used measures of performance are: 46 .REVIW OF ANALYSIS OF DATA DATA ANALYSIS PLAN Using the following formula. In order to determine the risk-adjusted returns of investment portfolios. The more responsive the NAV of a mutual fund is to the changes in the market. the NAV data thus congregated to find out the average daily returns of the various schemes under consideration: Daily return of the portfolio = (Closing price ± Opening price) / Opening price The returns of the BSE Sensex have been computed by applying the following formula: Returns of the BSE Sensex = (Closing price ± Opening price) / Opening price The Variation of the daily return has been established in order to figure out the Standard Deviation of the schemes under consideration. Beta is calculated by relating the returns on a mutual fund with the returns in the market. Systematic risk. Generally. several eminent authors have worked since 1960s to develop composite performance indices to evaluate a portfolio by comparing alternative portfolios within a particular risk class. which is divided by the Variance of BSE Sensex. which represents fluctuations in the NAV of the fund vis-à-vis market. The Total Risk of a given fund is sum of systematic risk and unsystematic risk and is measured in terms of standard deviation of returns of the fund. higher the risk and lower the Beta. While unsystematic risk can be diversified through investments in a number of instruments. on the other hand. lower the risk. The Beta has been computed on the basis of Covariance of the Fund and BSE Sensex. systematic risk cannot. is measured in terms of Beta. higher will be its beta. we try to assess the competitive strength of the mutual funds vis-à-vis one another in a better way.

y The Sharpe Measure of Performance Si = (Return from the Portfolio .Risk free rate of return)] 47 . y The Jenson Model Of Performance Alpha () = Return from the Portfolio ± [Risk free rate of return + Beta of the Portfolio * (Average market return . a low and negative Treynor's Index is an indication of unfavorable performance.Risk free rate of return)/ Beta of the Portfolio While a high and positive Treynor's Index shows a superior risk-adjusted performance of a fund. a low and negative Sharpe Ratio is an indication of unfavorable performance.Risk free rate of return)/ Std.y The Treynor Measure Of Performance Ti = (Return from the Portfolio .dev of the Portfolio While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund.

39 4.dev of the Portfolio Si=(Rp-Rf)/sd Schems Reliance equity fund-growth UTI growth and value fund HDFC equity fund .22323 -0.04 0.94 0.97 -1.74 0.72 0.469 0.72 0.5 -0.04 0.04 Si -0.85 0.97 1.15 SD 4.04 0.5 -0.dividend Rp -0.SHARPE INDEX Si = (Return from the Portfolio .328 -0.1 BETA 0.04 0.15 BETA Rf Rm B(RmRf)/Rp-Rf [B(Rm-Rf)/RpRf]/B 0.85 Rf 0.Risk free rate of return)/ Std.386 48 .347 -0.455 0.5 -0.94 -0.04 0.56 5.22149 -0.23333 TRENERS INDEX Tn=Rp-Rf/B Schems Reliance equity fundgrowth UTI Growth and Value Fund HDFC equity fund dividend Rp 0.74 0.327 -0.

Ranking of the Portfolio of the various Companies The ranks of funds based on the SHARPE¶S INDEX Name of the company UTI Equity Tax Savings Plan HDFC Tax Saver Fund Reliance Tax Saver Fund Rank 1 2 9 The ranks of the funds based on the Treynor Ratio Name of the company UTI Equity Tax Savings Plan HDFC Tax Saver Fund Reliance Tax Saver Fund Rank 1 2 5 The ranks of the funds based on the Jensen Ratio Name of the company UTI Equity Tax Savings Plan HDFC Tax Saver Fund Reliance Tax Saver Fund Rank 3 5 13 49 .

choice of period). not simply the mean returns. y The statistical point of view asserts is that whatever differences have been observed could have arisen "purely by chance". The average market return (Sensex) during the reference period is negative. 50 .e.Summary of Findings The following inferences can be drawn from the observation of the above research y y y The performance of the Index funds has been bearish during the period. due to sampling (i. i. the performance measures consider different statistics. One thing is obvious that there is no similarity or unanimity in the ranking of various funds by the performance measurement ratios. Besides.e.

y As majority of the investors in India are not aware of Mutual Funds is benefits over other investments. y y Mutual Fund Companies should target upon the insurance agents to sell their product which helps them to grow easily.Suggestions Mutual Fund Asset Management Company¶s is required to take more awareness in not only metros and cities but also in remote areas to induce the investor who invest in capital market. 51 . y The mutual fund Asset Management Companies should educate and give awareness about the concept of Mutual Funds to the investors. It is a useful way to assess how well or badly a fund has performed in comparison to its stated objectives. y Investors should evaluate past performance. is no guarantee of future predictions. Therefore it leads to minimum investment in Mutual Funds. look for stability and also past data.

so the investor can think about the investment in these funds. The main reason for its poor growth is that the mutual fund industry in India is new in the country. Hence. Mutual funds are easy to buy and sell. Investor may either buy them directly from the fund company or through a third party. 52 . to market the product. According to the analysis all Selected Mutual Funds are the well performed funds. today it is one of the safest investment in the country. The awareness about the Mutual Fund is increasing day by day & more number of investing is happening in the Mutual Funds in India.Conclusion It brings together a group of people and invests their money in stocks. Large sections of Indian investors are yet to be intellectuated with the concept. bonds. it is the prime responsibility of all mutual fund companies. and other securities.

2000.1999 y Fischer.6th edition.Frank. y Meir kohn. Investment analysis and Portfolio management .com www.mutualfundanalysis.K and Brown.Bibliography: Books: y C.R. ³Financial Institution and Markets´. KOTHARI ³Research Methodology Methods and Techniques´ 2ND Edition. Tata McGraw Hill. y Chandra.org 53 . Keith C.nseindia.mutualfundsindia. Ronald J. Security Analysis and Portfolio Management. Prasanna.bseindia.rbi. New Age International Publishers.investsmartindia. Donald. 6th edition. www.com www.com www.amfiindia.com www. Investment Analysis and Portfolio Management. published by Tata Mc Graw Hill publishing company limited. y Reilly. 2001.com www.com www. E and Jordan.south western publication. Prentice Hall of India.

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