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“COMPARATIVE ANALYSIS OF SELECTED EQUITY SCHEMES IN MUTUAL FUNDS”
Conducted at HDFC Ltd. Chandigarh
Submitted in partial fulfillment of the requirements for the two years full time Masters of Business Administration of Punjab Technical University, Jalandhar (Session-2008-09)
SUBMITTED BY DALJEET SINGH SAINI ROLL NO 7081222669
CERTIFICATE OF COMPLETION
This is to certify that Mr. DALJEET SINGH SAINI of MBA (4TH semester) has successfully completed his project titled “Comparative Analysis of Selected Equity Schemes in Mutual Funds” under the guidance of Professor Shipra Pathak (Faculty IGCE). The project is in the partial fulfillment of his MBA curriculum (2007-2009).
Professor Shipra Pathak (Project Guide)
To The Director Gian Jyoti Institute of Management & Technology Phase - 2, Mohali
Respected Sir, I, the undersigned, hereby declare that the Summer Training Report entitled “Comparative Analysis of Selected Equity Schemes in Mutual Funds” submitted by me is a result of my own work under continuous guidance and kind co-operation of my Project Guide, Mrs. Harpinder Kaur. I have not submitted this training report to any other university for the award of any degree.
Chandigarh. And I sincerely thank my family and friends for the constant support and help in the successful completion of my project.ACKNOWLEDGEMENT “Appreciation can make a day. Your willingness to put it into words is all that is necessary”. I also thank Dr. I express my gratitude to the company for extending this opportunity to me. even change a life. I truly acknowledge the cooperation and help made by Mr. MONIKA AGGARWAL for guiding my judgment. my course coordinator and project incharge for her able guidance. I take this opportunity to thank Mrs. HARPINDER KAUR. PRABHUJEEV SINGH BAJAJ. my project guide at HDFC Ltd. SIMRAN ARORA . continuous support and cooperation throughout my project. has been a great learning experience for me. Two months of training at HDFC Ltd. constantly pushing the upper limits of my capabilities and encouraging me to deliver more.
1 2 3 4 5 6 7 TOPIC INTRODUCTION INDUSTRY PROFILE RESEARCH METHODOLOGY FUND COMPARISON COMPARATIVE ANALYSIS CONCLUSION SUGESSIONS BIBLIOGRAPHY PAGE NO. . 1 1.TABLE OF CONTENTS CHAPTER NO.
with so many market entrants and a plethora of schemes available to the investors. It involves performance evaluation of five mutual funds based on the evaluation models: Sharpe.EXECUTIVE SUMMARY Mutual funds are a topic. Standard Deviation. which is of interest to both investors and academicians all over the world. an overview of HDFC Ltd and HDFC Mutual Funds has been given along with the study on performance evaluation of mutual funds. Then. However. the question is the choice of mutual fund. experience and his style etc have not been taken in to consideration. Mutual Funds as a medium-to-long term investment option are preferred as a suitable investment option by investors. And the other factors such as fund manager’s background. Alpha and Beta. . The study focuses on this problem of mutual fund selection by investors. The performance measures used in the study only depict the quantitative result based on the past return and risk associated with it. This report starts with the basics on Mutual Funds and its present industry scenario. It is to be noted that while analyzing the performance of a mutual fund both qualitative and quantitative measures should be considered.
CHAPTER-1 INTRODUCTION .
known as the net asset value per share (NAV). and collects the dividend or interest income.INTRODUCTION A Smart investor is the one who is able to correctly plan and decide in which profitable and safe instrument to invest. To lock up one’s hard-earned money in a savings bank account is not enough to counter the monster of inflation. bonds. realizing capital gains or losses. Mutual funds are money-managing institutions set up to professionally invest the money pooled in from the public. One has to look into various factors before deciding on the instruments in which to invest. These schemes are managed by Asset Management Companies (AMC). In a mutual fund. A sound investment is one which gives the investor reasonable returns after deducting outgo of tax as well as the invisible tax of inflation. The investment proceeds are then passed along to the individual investors. which are sponsored by different financial institutions or companies. The meaning of a mutual fund is a form of collective investment that pools money from many investors and invests their money in stocks. One must invest wisely and get maximum returns. . shortterm money market instruments. and/or other securities. is calculated daily based on the total value of the fund divided by the number of shares currently issued and outstanding. the fund manager trades the fund's underlying securities. To save is not enough. The value of a share of the mutual fund.
which has enough teeth to safeguard investors’ interest. There are also funds meant exclusively for young and old. gilt and balanced funds. small and large investors.Mutual funds are one of the best investments ever created because they are very cost effective and very easy to invest in. Investors of all categories could choose to invest on their own in multiple options but opt for mutual funds for the sole reason that all benefits come in a package. benefits provided by them cut across the boundaries of investor category and thus create for them. investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. Moreover. By pooling money together in a mutual fund. debt. A mutual fund is the ideal investment vehicle for today’s complex and modern financial scenario. Indian MF industry offers a plethora of schemes and serves broadly all type of investors. The range of products includes equity funds. the setup of a legal structure. ensures that the investors are not cheated out of their hardearned money. liquid. a universal appeal. . Though still at a nascent stage. All in all.
1 INDUSTRY PROFILE .CHAPTER-1.
debentures and other securities. A mutual fund. professionally managed basket of securities at a relatively low cost.1 CONCEPT A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. is diversified—its assets are invested in many different securities. The money thus collected is then invested in capital market instruments such as shares. minimum investment requirements on many funds are low enough that even the smallest investor can get started in mutual funds. mutual funds provide the benefit of having someone else manage your investments and diversify your money over many different securities that may not be available or affordable to you otherwise. a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified. by its very nature. The income earned through these investments and the capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them. furthering your chances to diversify. For the individual investor.1. . Thus. Beyond that. Today. there are many different types of mutual funds with different objectives and levels of growth potential.1.
. These returns are then passed back to investors.1.2 WORKING OF A MUTUAL FUND Investors pool their money with the fund manager and then the fund manager invests the money in securities.1. These securities further generate returns.
3 ORGANISATION OF A MUTUAL FUND There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund: .1.(i) 1.
default-free dealings and a general reputation of fairness. the sponsor has to obtain a license from SEBI. scheduled bank or financial institution. For this. such as on capital track record (at least 5 years operation in financial services).1. In order to run a mutual fund in India. . The sponsor initiates the idea to set up a mutual fund. “Sponsor” is defined under SEBI Regulations as any person who is acting alone or in combination with another body corporate. a sponsor has to satisfy certain conditions. establishes a mutual fund. a sponsor is to a mutual fund.1.4 MUTUAL FUND: RELATIONSHIP AMONGST THE ENTITIES INVOLVED ♦ SPONSOR What a promoter to a company. It could be registered company.
SEBI rules mandate that at least two third of the trustees be independent i. There is the head of the fund house. They check if the asset management company’s investments are within defined limits and whether the fund’s assets are protected. who manages its schemes. In order to ensure they are impartial and fair. It’s the AMC that employs fund managers and analysts. and fund managers. . Trustees are appointed by sponsors.e. Trustees can be held accountable for financial irregularities in the mutual fund. who track market. Under him comes the Chief Investment Officer (CIO). ♦ ASSET MANAGEMENT COMPANY (AMC) An Asset Management Company is the entity formed by the sponsor to run a mutual fund. and their job is to protect the interest of the unit holders. generally referred to as Chief Executive Officer (CEO). not having any association with the sponsor. A team of analysts. who shapes the fund’s investment philosophy. and submits quarterly reports to the trustees. assists them.♦ TRUSTEES Trustees are like internal regulators in a mutual fund. Trustees float and market schemes and secure necessary approvals. The people in the AMC who should matter the most to you are those who take investment decisions. and can either be individuals or corporate bodies. It’s the AMC that handles all operational matters of a mutual fundfrom launching schemes to managing them to interacting with investors. It also exercises due diligence on investments. and other personnel. sectors and companies.
segregating assets and settlement between schemes. Its responsibilities include receipt and delivery of securities. Most mutual funds. formulated in the interest of the investors. Some fund houses handle such functions in house. also have investor service centers of their own in some cities.♦ CUSTODIAN A custodian handles the investment back office of a mutual fund. ensure that the assets of a mutual fund are not in the hands of its sponsors. This condition. ♦ REGISTRAR Registrar also known as Transfer Agents handles all investor related services. others outsource it to registrar. in addition to registrar. collecting incomedistributing dividends. . This includes issuing and redeeming units. sending fact sheets and annual reports. The sponsor of a mutual fund cannot act as a custodian to the mutual fund.
700 crores of assets under management. at the initiative of the Government of India and Reserve Bank the. Second Phase – 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non.UTI. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. .1. The first scheme launched by UTI was Unit Scheme 1964. public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). In 1978 UTI was delinked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI.1.5 INDIAN MUTUAL FUND INDUSTRY. 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) in 1963. At the end of 1988 UTI had Rs.6.ITS ORIGIN The mutual fund industry in India started in 1963 with the formation of Unit Trust of India.
SBI Mutual Fund was the first non. Third Phase – 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993. Indian Bank Mutual Fund (Nov 89). there were 33 mutual funds with total assets of Rs. giving the Indian investors a wider choice of fund families. 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. At the end of 1993. Also.805 crores. The number of mutual fund houses went on increasing. under which all mutual funds. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. Bank of India (Jun 90). Punjab National Bank Mutual Fund (Aug 89).UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87). a new era started in the Indian mutual fund industry. the mutual fund industry had assets under management of Rs. The Unit Trust of India with Rs.21. as at the end of January 2003. . 004 crores. except UTI were to be registered and governed. 1. 541 crores of assets under management was way ahead of other mutual funds.47. 1993 was the year in which the first Mutual Fund Regulations came into being.44. Bank of Baroda Mutual Fund (Oct 92).
29.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. 835 crores as at the end of January 2003. the assets of US 64 scheme. representing broadly. sponsored by SBI. BOB and LIC. The second is the UTI Mutual Fund Ltd. It is 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. It is registered with SEBI and functions under the Mutual Fund Regulations. The graph below illustrates the growth of assets over the years: . PNB. assured return and certain other schemes.
6 MUTUAL FUND INDUSTRY . Fixed maturity plans (FMP s) have been a popular in the past six months. . in the regulatory and investor attitude towards Mutual fund products. the emergence of India as a major investment destination is good for the mutual fund industry as it is witnessing entry of big names like JP Morgan. Standard Chartered Mutual Fund had asset under management of Rs 11549 Crores. The total assets under management have risen to Rs 326.045 Crores in March 2006. Aegon and AIG augurs well for the industry as not only these global investment management firms bring with them the expertise gained internationally but also bring the best international practices in terms of performances and investor services which will benefit the industry in catching up with the developed countries.35488 Crores respectively. may be due to the rising interest rate scenario. Following was ICICI Prudential and UTI Mutual Fund with AUM of Rs.RECENT TIMES The Indian Mutual fund industry has witnessed a sea change in the way it operates. UBS.1. Reliance claimed to be the leader with the largest AUM of Rs 46307 Crores as of March 2007. whereas it is only 8% of GDP in India.1. From a single player the number of players has increased to 30 and the number of schemes has swelled to 640. However. According to a study AUM as a percentage of GDP in the developed nations ranges from 30%-60% of GDP. The percentage of FMP of the total industry corpus has also increased as compared to previous years.329 crores from Rs 231.37870 Crores and Rs.
by year 2010. ♦ 'B' and 'C' class cities are growing rapidly. highest in the world. The annual composite rate of growth is expected 13.000 crores. ♦ We have approximately 29 mutual funds which are much less than US having more than 800.50. ♦ Emphasis on better corporate governance. It is estimated that by 2010 March-end. Today most of the mutual funds are concentrating on the 'A' class cities. ♦ Numbers of foreign AMC’s are in the queue to enter the Indian markets like Fidelity Investments. Indian mutual fund industry reached Rs 1. Only channelizing these savings in mutual funds sector is required.4% during the rest of the decade. There is a big scope for expansion. Some facts for the growth of mutual funds in India ♦ 100% growth in the last 6 years.1. .7 ROAD TO FUTURE By December 2004. In the last 5 years we have seen annual growth rate of 9%. ♦ SEBI allowing the MF's to launch commodity mutual funds. mutual fund assets will be double. US based. the total assets of all scheduled commercial banks should be Rs 40. ♦ Our saving rate is over 23%. with over US$1trillion assets under management worldwide.90.537 crores. Soon they will find scope in the growing cities.1. According to the current growth rate.
Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.ADVANTAGES OF MUTUAL FUNDS ♦ Professional Management Mutual Funds provide the services of experienced and skilled professionals. ♦ Diversification Mutual Funds invest in a number of companies across a Broad cross-section of industries and sectors. . ♦ Return Potential Over a medium to long-term. delayed payments and follow up with brokers and companies. ♦ Convenient Administration Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries. Mutual Funds save your time and make investing easy and convenient. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own. backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme.
custodial and other fees translate into lower costs for investors. The operations of Mutual Funds are regularly monitored by SEBI. the investor gets the money back promptly at net asset value related prices from the Mutual Fund. ♦ Transparency You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme. . ♦ Liquidity In open-end schemes.♦ Low Costs Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage. ♦ Flexibility Through features such as regular investment plans. the proportion invested in each class of assets and the fund manager's investment strategy and outlook. you can systematically invest or withdraw funds according to your needs and convenience. regular withdrawal plans and dividend reinvestment plans. In closed-end schemes. the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. ♦ Well regulated All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors.
If the fund makes a profit on its sales. ♦ Management risk The risk that an investor is taking here is that someone else is managing his money. brokers etc. Given these .DRAWBACKS OF MUTUAL FUNDS ♦ No Guarantees There is no guarantee that the mutual fund will always do well and provide good returns to its unit holders. However. If the manager does not perform as one had hoped then the investor may not make as much money as he had expected. ♦ Fees and Commissions All funds charge administrative fees to cover their operational expenses. the investor has to pay tax on the income he receives even if he reinvests the money he made. ♦ Taxes Most actively managed funds sell anywhere from 20% to 70% of the securities in their portfolio during a typical year. Some funds also charge sales commissions or “loads” to compensate financial consultants or planners. risk is minimized to some extent by investing in mutual funds. as no investment is risk free. He depends on the fund manager to make the right decision regarding the portfolio.
drawbacks.1 lakh on GUARANTEE deposits None . & 30th. if the fund is managed well by taking timely decisions whether to hold or buy/sell stocks. BANKS V/S MUTUAL FUNDS BANKS RETURNS ADMINISTRATIVE High EXP. RISK INVESTMENT Less OPTIONS NETWORK LIQUIDITY QUALITY OF ASSETS INTEREST CALCULATION High penetration At a cost Not transparent Minimum balance between Low Low MUTUAL FUNDS Better Low Moderate More Low but improving Better Transparent Everyday 10th. the mutual fund is sure to build a reputation in the market. Of every month Maximum Rs.
The table below gives an overview into the existing types of schemes in the Industry: Mutual Funds (Types of Schemes) By Investment Objective By Nature By Load Structure Other Schemes ♦Growth schemes ♦ Income Schemes ♦Balanced Schemes ♦ Physical Assets ♦Open-Ended Schemes ♦ Close-Ended Schemes ♦Entry Load ♦ Exit ♦ Tax-Saving Schemes ♦Fixed Maturity Plans ♦ Index Schemes Load ♦CDSC ♦ Hedge Funds .MUTUAL FUNDS . risk tolerance and return expectations etc.TYPES OF SCHEMES Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position.
As a thumb-rule. Growth funds concentrate on value appreciation of securities and not on the regularity of income. an investor cannot be sure of the investment tenure or returns. the higher the gains. Such schemes normally invest a majority of there corpus in equities. the longer a stock is held.On the basis of Investment. The aim of growth funds is to provide capital appreciation in the value of investment.have outperformed most other kind of investment held over the long term. An investor stands a better chance of a substantial appreciation if he invests in stock-based funds. the risk involved in such funds is higher than the income funds. It has been proven that returns from stocks . When investing in stocks. mutual funds are classified as: ♦Equity/growth fund: This is a scheme that invests only in equity. However. The various types of equity schemes are as follows: Equity Diversified Schemes .
These are schemes whose objective is to invest only in equity of those companies which are existing in specific sector like FMCG. As an ELSS is linked to the market. . Dividends are tax-free. Telecom. subject to a maximum investment of Rs 10.000 annually. which offer fixed rates of return to a maximum of 11 per cent. a pharma fund would invest only in pharmaceutical companies.Diversification – Mutual funds reduce the risk by investing in all the sectors. For instance. Instead of putting all your money in one sector or company it's better to invest in various good performing sectors as you reduces the risk of getting involved in a particular sector/company which may perform or may not. Banking. Oil etc. Sectoral Funds tend to have a very high risk reward ratio and investors should be careful of investing all there money in these schemes. Sector funds are risky as they are susceptible to cyclical influences .it is unlikely that the market will favour a particular sector for too long. it can earn substantially more than other Section 88 schemes. This is an ideal category for those who want to participate in the stock market but have little money to invest in blue chip stocks. Equity-linked savings schemes The major portion of investment in ELSS schemes is in equity and offers 20 per cent tax rebates under Section 88. Sector fund An equity scheme that invests in shares of companies operating in specific industries is called a sector fund.
which verify the company’s ability to honor its interest commitments. Such funds distribute the income earned by them periodically amongst the investors. The NAV of a debt fund does not fluctuate as much as that of an equity fund. The various types of Debt Schemes are as follows: Monthly Income Plans These schemes are intended to give monthly income. Those who seek monthly income should invest into this scheme. Bonds are rated by independent credit rating agencies such as Crisil/CARE/ ICRA. The investments are made in stocks yielding higher returns and capital appreciation is of small importance. Bonds can be issued by companies or by the government (state or central).♦ Debt/Income fund: This fund invests in fixed income instruments such as debentures (bonds) and various money market instruments. The aim of income funds is to provide regular and steady income to investors. In the current scenario where debt market is very volatile its better to invest in hybrid funds like MIP with suitable time for capital appreciation. but since mutual funds are subject to market risk. . The conservative investors like to go for capital safety and this scheme is best for them. they do not provide assured returns.
but avoids a lock-in period.Gilt fund Gilts are securities issued by the central government and are said to carry sovereign or minimal risk. Most of them lock funds in for up to three days to protect against banking procedural inefficiencies. government securities are eligible for liquidity support. Those who are seeking income in short term investments of six-eight months with more liquidity should invest in this scheme. Gilt schemes invest in government securities.25. commercial paper. Liquid fund A liquid fund is the same as a money market fund. a liquid fund is ideally suited to investors who want to park their funds for a very short time -. Gilt funds invest in government securities and the investors who want to avail the benefits of capital safety with government security should invest into this scheme. Money market mutual funds (MMMF) This fund invests exclusively in money market instruments. These funds have a minimum lock-in period of 15 days. . The minimum investment in these funds is Rs. Used as an alternative to current account balances.seven to eight days. call or notice money. These instruments include treasury bills. Apart from being the most liquid securities in the debt market. commercial bills accepted by banks and certificate of deposits. government securities with an unexpired maturity of upto one year.000.
The debt investments ensure a basic interest income. Therefore. oil and commodities. ♦ Physical assets: Technically. currently it is not yet possible to have a full-fledged junk bond scheme in India. precious metals (gold. However. The hope is that attractive returns in such poor-quality investments would more than make up for the higher risk of losing the entire investment in some cases. . The aim of balanced funds is to provide growth and regular income. “High yield” bonds is a politically correct way of referring to junk bonds. It is important to know the stocks to bonds ratio in a fund to understand the risks and rewards structure. mutual funds can invest in any asset. steel). losses can eat into the basic interest income and capital. The regulatory frame work in India however does not currently permit Mutual Funds to invest in physical assets. which the fund manager hopes to top up with capital gains on the investment portfolio. silver). with 50-65 per cent in equity and the rest in debt. ♦ Balanced fund: Balanced schemes invest in both equity and debt. SEBI guidelines limit investment in unrated securities and securities that are below investment grade to 25 percent of the net assets of any scheme. This includes real estate.Junk Bond Schemes Junk bond schemes invest in securities that are below investment grade. other metals (aluminum.
open-ended funds provide better liquidity to the investors.e. Other Schemes- . the stock exchanges where these are listed. generally called re-purchase. The unit capital increases. and decreases if existing units are re-purchased.Mutual Funds are classified on the basis of their nature into: ♦ Open-end Schemes: These are schemes that do not have a fixed maturity. After the initial issue is closed. It is always easier to manage a close-ended scheme as the fund managers can evolve long term investment strategies depending upon the life of the scheme. The mutual fund ensures liquidity by announcing sale and re-purchase prices for the units of such a scheme on an ongoing basis. Unlike open-ended funds the corpus of close-ended funds is fixed and an investor can subscribe directly to the scheme only at the time of initial issue. Every such transaction results in a change in the unit capital of the scheme. Thus. These repurchase rates are based upon the net current assets value of the fund. generally called sale. the mutual funds can sell new units to investors desirous of participating in the scheme. Investors who wish to exit from an open-end scheme can offer their units to the mutual fund for redemption. ♦ Close-end Schemes: These are schemes that have a fixed maturity. Similarly. a person can buy or sell the units of the scheme in the secondary market i. when additional units are sold.
These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws. These schemes ensure tax benefits to the investors besides some income and small appreciation in value of units. ♦ Fixed Maturity Plans / Serial Schemes: Fixed Maturity Plans seek to eliminate risk of capital loss by investing in a prespecified debt security. Ex: equity linked saving schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes invest in the securities in the same weightage comprising an index. Index Funds: Index funds replicate the portfolio of a particular index such as BSE sensitive index. though not exactly in the same percentage due to some factors known as “tracking error” in technical terms. the scheme would redeem the security and pay the investor. The investor however can exit earlier. ♦ Hedge Funds or Leveraged Funds: . if an investor is desirous of investing for 4 years. NAVs of such schemes will rise or fall in accordance with rise or fall in the index. Thus. he can invest in a fund that will invest in a pre-specified 4-year security.♦ Tax Saving Schemes: Mutual funds may be designed to suit the tax payers. On maturity. 1961 as the Government offers tax incentives for investment in specified avenues. NSE fifty index.
No-load funds do not charge any load fees. thus investing Rs 3 in the market. in bad market conditions. ♦ Entry load: Entry loads are charged at the time of buying into the fund.Hedge funds are leveraged funds where the fund manager invests a mix of funds belonging to its investors (unit capital and reserves) and funds from lenders (borrowed funds). Thus. There are three basic types of loads: front-end (entry). ♦ Contingent deferred sales charge: . Mutual Funds are classed into load and no-load funds. an additional Rs 2 is borrowed. Borrowed funds have interest and repayment obligations that are independent of how the market performs. A leveraging of two would mean that for every Re 1 of unit capital. On the basis of Load Structure. Funds normally avoid charging loads at both ends. An investor might find an exit load preferable to an entry load as he can anticipate and counter the effects of the load. back-end (exit) and contingent deferred sales charge (CDSC). a non-leveraged fund only needs to bear a loss a leveraged fund would also need to generate additional resources to meet the interest and repayment obligations on borrowed funds. This is the resale price or the price at which units can be bought after the initial offer period. ♦ Exit load: An exit load is charged at the time of redeeming units from the scheme This price is the repurchase or redemption price.
A CDSC is imposed only under certain conditions.000 redeemed within six months. a debt fund could charge a load of 0.5 per cent for investments of over Rs 50. charge only a CDSC. It's the fund's assets minus its liabilities divided by . For instance. FREQUENTLY USED TERMS Net Asset Value (NAV): Commonly written as NAV. While most equity funds charge either entry or exit loads. ♦ Country / Region funds: Country funds invest in securities from a specific country or region. ♦ Offshore funds: Offshore funds mobilize money from investors for investment outside their country. which in turn would be favorable for the securities (equity or debt) of that country. The underlying belief is that the chosen country or region is expected to demonstrate superior performance. On the basis of Geography. Net Asset Value is the current value in rupees of a single share in a mutual fund. most debt funds. because of lower returns.
the price at which investor can sell his holdings to Mutual Fund. it's good. if it goes up.the number of outstanding shares. Systematic Investment Plan (SIP): These are best suited for young people who have started their careers and need to build their wealth. who buys or invests. An investor. It is the price at which a close-ended scheme repurchases its units and it may include a back-end load. Such prices are NAV related. An investor opting for SIP in xyz Mutual Fund scheme will need to invest a certain . SIPs entail an investor to invest a fixed sum of money at regular intervals in the Mutual fund scheme that the investor has chosen. Repurchase Price: The price at which Mutual Fund is willing to buy the units back from the investor is known is known as repurchase price. If the NAV goes down over time. A fund's NAV is calculated at the end of each business day. It is also called Offer Price. pays the sales price. Redemption Price: Redemption price is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. it's bad. Sale Price: The price at which Mutual Fund is willing to sell the units to investor is known as sales price. That is. It may include a sales load. You can track a fund's NAV like you would the price of an individual stock.
rather than save up to make one large investment. Systematic Withdrawal Plan (SWP): These plans are best suited for people nearing retirement. .sum on money every month/quarter/half-year in the scheme. It is far better to invest a small amount of money regularly. an investor invests in a mutual fund scheme and is allowed to withdraw a fixed sum of money at regular intervals to take care of his expenses. In these plans.
2 COMPANY PROFILE .CHAPTER-1.
However. . stand testimony to our success. We also offer specialized financial services to our customer base through partnerships with some of the best financial institutions worldwide. The road to success is a tough and challenging journey in the dark where only obstacles light the path. As we found out nearly three decades ago. nearly three million satisfied customers whose dream we helped realize. has been to enhance residential housing stock and promote home ownership. All you need is the courage to innovate. success on a terrain like this is not without a solution. Now. to property related services and a training facility. Our objective. the skill to understand your clientele and the desire to give them your best. in 1977. the solution for success is customer satisfaction. Today.INTRODUCTION TO HDFC LIMITED Helping Indians experience the joy of home ownership. our offerings range from hassle-free home loans and deposit products. from the beginning.
According to the National Building Organization (NBO). The housing industry is the second largest employment generator in the country.64 million units from urban areas.76 million units is from rural areas and 6. Having identified housing as a priority area in the Ninth Five Year Plan (19972002). In order to achieve this investment target. HDFC was promoted with an initial share capital of Rs. The importance of the housing sector in the economy can be illustrated by a few key statistics. 1. of which 12. the Government needs to make low cost funds easily available and enforce legal and regulatory reforms. the total demand for housing is estimated at 2 million units per year and the total housing shortfall is estimated to be 19. the National Housing Policy has envisaged an investment target of Rs. It is estimated that the budgeted 2 million units would lead to the creation of an additional 10 million man-years of direct employment and another 15 million man-years of indirect employment.500 billion for this sector.4 million units. .HOUSING FINANCE SECTOR Against the milieu of rapid urbanization and a changing socio-economic scenario.100 million. BACKGROUND HDFC was incorporated in 1977 with the primary objective of meeting a social need – that of promoting home ownership by providing long-term finance to households for their housing needs. the demand for housing has grown explosively.
HDFC or Housing Development Finance Corporation Limited. Another objective is to increase the flow of resources to the housing sector by integrating the housing finance sector with the overall domestic financial markets. and to promote home ownership. founded in 1977 by Hasmukhbhai Parekh. To maintain its position as the premier housing finance institution in the country. To provide consistently high returns to shareholders. and . ORGANISATIONAL GOALS ♦ ♦ ♦ ♦ To develop close relationships with individual households. To transform ideas into viable and creative solutions. BUSINESS OBJECTIVES The primary objective of HDFC is to enhance residential housing stock in the country through the provision of housing finance in a systematic and professional manner. is an Indian company which is primarily in the business of providing home loans.
To grow through diversification by leveraging off the existing client
HDFC BANK LIMITED
The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive approval from the Reserve Bank of India to set up a bank in the private sector. The bank was incorporated in August 1994 in the name of HDFC Bank Limited, with its registered office in Mumbai.
HDFC MUTUAL FUND
HDFC Fund is a dominant player in the Indian mutual fund space, recognized for its high levels of ethical and professional conduct and a commitment towards enhancing investor interests.
HDFC STANDARD LIFE INSURANCE COMPANY LIMITED
HDFC and Standard Life first came together for a possible joint venture, to enter the Indian Life Insurance market, in January 1995.
Home Loan Services India Private Limited is a wholly owned subsidiary of HDFC Ltd. The company has been floated as a distribution arm of HDFC with an objective of offering doorstep service to prospective clients of HDFC group. HLSIL offers financial management solutions to individuals encompassing among other products Home Loans, Life Insurance, Mutual Funds, Fixed Deposits and property Solutions.
HDFC CHUBB GENERAL INSURANCE COMPANY LTD
With over one century of experience in the field of non-life insurance from Chubb and HDFC's expertise from the financial segment, HDFC Chubb General Insurance Company Limited has the consumer insight to make its product range world class and comprehensive.
INTELENET GLOBAL SERVICES LIMTED
Two leading global investors - HDFC and Barclays - provide the financial backing Intelenet needs to lead in a global marketplace. HDFC is India's leading financial services conglomerate, while Barclays is a venerable financial services group headquartered in the United Kingdom, ranking among the Top 10 banks in the world based on market capitalization.
At the same time, their combined financial strength provides Intelenet with the ability to remain on the cutting edge of BPO processes while simultaneously maintaining corporate growth and achieving the goals and objectives set forth by our customers.
HDFC Realty is a new, organized electronic marketplace for properties. HDFC Realty provides the entire gamut of real estate services, bringing together the "clicks world" and the "bricks world" in a revolutionary and user-friendly way. They are making available the best guidance and the most professional, transparent, efficient service to the real estate customer.
HDFC SECURITIES LIMITED
HDFC Securities Ltd was promoted by the HDFC Bank & HDFC with the objective of providing the diverse customer base of the HDFC Group and other investors, a capability to transact in the Stock Exchanges & other financial
including the schemes launched from time to time. It conducts the operations of the Mutual Fund and manages assets of the schemes. AMC is a joint venture between housing finance giant HDFC and British investment firm Standard Life Investments Limited.market transactions. HDFC MUTUAL FUND VISION To be a dominant player in the Indian mutual fund space recognized for its high levels of ethical and professional conduct and a commitment towards enhancing investor interests. INTRODUCTION HDFC Mutual Fund has been one of the best performing mutual funds in the last few years.25. and also support it with the highest standards of service. convenience and hassle-free trading tools. the fund has assets of Rs. . HDFC Securities Ltd provides you with the necessary tools to allocate. As of Aug 2006. HDFC Asset Management Company Limited (AMC) functions as an Asset Management Company for the HDFC Mutual Fund.892 crores under management. select and manage your investments wisely.
the Sponsor of Zurich India Mutual Fund. to divest its asset management business in India. following a decision by the Zurich Insurance Company (ZIC). all the schemes of Zurich Mutual Fund in India had been transferred to HDFC Mutual Fund and renamed as HDFC schemes. AMC had entered into an agreement with ZIC to acquire the asset management business.IN 2003. . Consequently.
LIST OF HDFC MUTUAL FUNDS .
on December 10. As per the terms of the Investment Management Agreement. the Trustee has appointed the AMC to manage the Mutual Fund.HDFC ASSET MANAGEMENT COMPANY LIMITED (AMC) HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies Act. 2000. the AMC will conduct the operations of the Mutual Fund and manage assets of the schemes.90 .10 49. and was approved to act as an Asset Management Company for the HDFC Mutual Fund by SEBI vide its letter dated June 30. The present shareholding pattern of the AMC is as follows: PARTICULARS HDFC Limited Standard Life Investments Ltd. 1999. 1956. In terms of the Investment Management Agreement. including the schemes launched from time to time. % OF THE PAID UP CAPITAL 50.
♦ ♦ ♦ ♦ HDFC Index Fund. HDFC Gilt Fund (HGILT). subject to necessary regulatory approvals. ♦ HDFC Fixed Investment Plan. HDFC Top 200 Fund (HT200). The AMC is managing 3 close ended schemes viz. ♦ HDFC Long Term Equity Fund and ♦ HDFC Fixed Maturity Plans And 22 open-ended schemes of the Mutual Fund viz. HDFC Income Fund (HIF). ♦ HDFC Children's Gift Fund (HDFC CGF). ♦ HDFC Tax Saver (HTS). ♦ HDFC Capital Builder Fund (HCBF). ♦ HDFC Liquid Fund (HLF). following a review of its overall strategy.Zurich Insurance Company (ZIC). The AMC had entered into an agreement with ZIC to acquire the said business. ♦ HDFC Long Term Advantage Fund (formerly HDFC Tax Plan 2000)(HTP). HDFC Balanced Fund (HBF). the Sponsor of Zurich India Mutual Fund. . ♦ ♦ ♦ HDFC Growth Fund (HGF). ♦ HDFC Short Term Plan (HSTP). HDFC Floating Rate Income Fund (HFRIF). HDFC Equity Fund (HEF). had decided to divest its Asset Management business in India.
HDFC Multiple Yield Fund (HMYF).♦ HDFC Prudence Fund (HPF). HDFC Premier Multi-Cap Fund. HDFC Core & Satellite Fund (HCSF).Plan 2005 (HMY2005) The AMC is also providing portfolio management / advisory services and such activities are not in conflict with the activities of the Mutual Fund. HDFC Ltd provides a variety of investment services through varied types of mutual funds to its customers. (HPM) and ♦ HDFC Multiple Yield Fund . The following are some of the top mutual fund schemes which HDFC is currently providing according to different investment objectives- ♦ HDFC Growth Fund: HDFC Growth fund is an open-ended growth scheme with the primary objective of the scheme to generate long term capital appreciation from a portfolio that is invested predominantly in equity and equity-related instruments. ♦ HDFC Cash Management Fund (HCMF). ♦ ♦ ♦ ♦ HDFC MF Monthly Income Plan (HMIP). ♦ HDFC High Interest Fund (HHIF). .
Features: Asset allocation: Equity and equity-related Instruments. Minimum application amount: • • New investors: Rs. 5 Crore in value. 1. 5. 100 thereafter. • A no entry load is payable if the units purchased are equal to or greater than 5 crore in value. The investment objective of this scheme is to provide periodic returns and capital appreciation over a long period of time from a judicious mix of equity and debt investments with an aim to prevent / minimize any capital erosion. Entry Load: • An Entry load of 2. Exit Load: Nil ♦ HDFC Prudence Fund: HDFC prudence fund scheme is an open-ended balance scheme. 0%-20% Plans / Options: Growth and Dividend.000 and in multiples of Rs. The dividend plan offers payout and reinvestment facility.25% is payable in respect of each purchase if units are less than Rs. . Money Market Instruments. 100 thereafter. 80%-100% Debt securities.000 and multiples of Rs. Existing Investors: Rs.
000 and multiples of Rs.000 and in multiples of Rs. 100 thereafter. The dividend plan offers dividend payout and re-investment facility. ♦ HDFC Top 200 Fund: HDFC Top 200 fund is an open-ended growth scheme. 60% . Money Market Instruments. . Entry Load: • An Entry load of 2. Minimum application amount: • • New investors: Rs. the primary objective of the scheme to generate long term capital appreciation from a portfolio of equity and equity-related instruments primarily drawn from the companies in BSE 200 index. 1.Features: Asset allocation: Equity and equity-related Instruments.25% is payable in respect of each purchase if units are less than Rs. Existing Investors: Rs. • A no entry load is payable if the units purchased are equal to or greater than 5 crore in value. Exit Load: • An exit load of 1% is payable if units are redeemed / switched out within one year from the date of allotment. 40%-60% Debt securities. 5. 100 thereafter. 5 Crore in value.40% Plans / Options: Growth and Dividend.
• A no entry load is payable if the units purchased are equal to or greater than 5 crore in value. 5 Crore in value. 100 thereafter. 5.25% is payable in respect of each purchase if units are less than Rs. Minimum application amount: • • New investors: Rs. . The dividend plan offers dividend reinvestment facility. not more than 20% Plans / Options: Growth and Dividend. Up to 100% Debt and Money Market Instruments.000 and in multiples of Rs.000 and multiples of Rs. Features: Investment Objective: HDFC long-term advantage fund: The primary objective of the scheme is to generate long-term capital appreciation from a portfolio that is invested predominantly in equity and equity-related instruments.Features: Asset allocation: Equity and equity-related Instruments. 1. is an open-ended equity linked savings schemes with the lock in period of 3 years. Existing Investors: Rs. Exit Load: Nil ♦ HDFC Long Term advantage Fund and Tax Saver: HDFC Long Term advantage fund and Tax Saver. Entry Load: • An Entry load of 2. 100 thereafter.
500 and in multiples of Rs. The dividend plan offers dividend payout and re-investment facility. Exit Load: Nil ♦ HDFC Equity Fund: HDFC equity fund is an open-ended growth scheme. the primary objective of the scheme to achieve capital appreciation Features: Plans / Options: Growth and Dividend. Plans / Options: Growth and Dividend. Minimum application amount: • For new and existing investors: Rs.000 and multiples of Rs. 100 thereafter. 1.5 Crore in value. Entry Load: • An Entry load of 2. 5. Existing Investors: Rs. 100 thereafter. 500 thereafter. • A no entry load is payable if the units purchased are equal to or greater than 5 crore in value. .25% is payable in respect of each purchase if units are less than Rs. Minimum application amount: • • New investors: Rs. The dividend plan offers dividend payout and re-investment facility.HDFC Tax Saver: The primary objective of the scheme is to achieve long-term growth of capital.000 and in multiples of Rs.
Existing Investors: Rs. Minimum application amount: • • New investors: Rs. 5 Crore in value. Exit Load: Nil .000 and multiples of Rs.25% is payable in respect of each purchase if units are less than Rs. 100 thereafter. 100 thereafter. the primary objective of the scheme to achieve capital appreciation in the long term. 5. Features: Plans / Options: Growth and Dividend.25% is payable in respect of each purchase if units are less than Rs. Entry Load: • An Entry load of 2. Exit Load: Nil ♦ HDFC Capital Builder Fund: HDFC Capital Builder fund is an open-ended growth scheme. The dividend plan offers dividend payout and re-investment facility.Entry Load: • An Entry load of 2.5 Crore in value. • A no entry load is payable if the units purchased are equal to or greater than 5 crore in value.000 and in multiples of Rs. • A no entry load is payable if the units purchased are equal to or greater than 5 crore in value. 1.
5 Lacs. 100 thereafter. . Existing Investors: Rs. each plan offers growth option only. • No exit load is payable if the purchase / switch in of units are equal to or greater than Rs. the primary objective of the scheme to generate capital appreciation along with current income from the combine portfolio of equity -equity related instruments and debt – money market instrument. ♦ HDFC Balanced Fund: HDFC balanced fund is an open-ended balanced scheme.♦ HDFC Index Fund: HDFC index fund is an open-ended index linked scheme. Features: Plans / Options: This scheme has three plans. 5. 1. Sensex plan and Sensex Plus Plan.5 Lacs. 100 thereafter.000 and in multiples of Rs. At present. Nifty Plan. Entry Load: Nil Exit Load: • An exit load of 1% is payable if units are redeemed / switched out within one year from the date of allotment if the purchase / switch in of units are less than Rs. Minimum application amount: • • New investors: Rs.000 and multiples of Rs.
25% is payable in respect of each purchase if units are less than Rs. Entry Load: • An Entry load of 2. Exit Load: Nil. 100 thereafter.000 and in multiples of Rs. Minimum application amount: • • New investors: .Rs.5 Crore in value. 5. 1. Existing Investors: .Rs. • A no entry load is payable if the units purchased are equal to or greater than 5 crore in value. 100 thereafter. .000 and multiples of Rs.Features: Plans / Options: Growth and Dividend. The dividend plan offers dividend payout and re-investment facility.
CHAPTER-2 RESEARCH METHODOLOGY .
RESEARCH METHODOLOGY RESEARCH PROBLEM In this project. ♦ To know which one of the selected equity scheme is doing very well and which is the best to invest in. ♦ ♦ To find out the risk and return level of selected equity diversified mutual funds. risk and performance. . magazines etc. To give a comparative and descriptive analysis of the portfolios and top holdings these funds. To evaluate the performance of the five equity schemes selected DATA SOURCE In order to achieve the various stated objectives secondary data available on the subject was used and other necessary information has been collected from the HDFC Ltd. This performance study of mutual funds utilizes the four quantitative performance measures based on past records. I have tried to study the performance of certain Mutual Fund schemes on the basis of their returns. journals. Mandi and other Mutual Fund Houses. newspapers. OBJECTIVES OF THE STUDY ♦ for the study.
As standard deviation represents the total risk experienced by a fund. Sharpe ratio is the returns generated by a fund over and above risk free rate of return and the total risk associated with it (standard deviation). the Sharpe ratio reflects the returns generated by undertaking all possible risks. Beta and Alpha value measures of risk and performance of mutual funds. SHARPE RATIO It is a ratio developed by Bill Sharpe to measure risk-adjusted performance. Volatility is often a direct indicator of the risk taken by the fund. STANDARD DEVIATION Standard Deviation is a measure that allows you to evaluate the volatility of the funds. A security that is volatile is also considered higher in risk because its performance may change quickly in either direction at any moment.TOOLS APPLIED Data collected from various secondary sources was used for comparing the Mutual fund schemes using Sharpe ratio. A higher Sharpe ratio is therefore better as it represents a higher return generated per unit . The Standard Deviation of a fund measures this risk by measuring the degree to which the fund fluctuates in relation to its average return over a period of time. Standard Deviation. Put differently it allows you to measure the consistency of the returns.
A negative alpha means the fund is under performing.of risk. 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. it means it's moving up and down more than the rest of the market. Thus. BETA Beta is a statistical measure that shows how sensitive a fund is to market moves. we would like to know how much was attributable to the market as a whole. Therefore. The beta value for an index itself is taken as one. A fund with a beta greater than 1 is considered more volatile than the market. While analyzing the performance of a fund. and how much due to manager’s ability to select stocks. if a fund has a beta higher than value 1. It compares a fund's volatility against the sensex. . and negative beta whenever the market goes down. Investors dream of stocks that enjoy positive beta whenever the market goes up. ALPHA Alpha is a measure of the difference between a fund's expected return and its real return. This is what the fund has earned over and above what it was expected to earn. Alpha can be seen as a measure of a fund manager's performance. This ratio tries to quantify how a fund performs relative to the risk it takes. this is the value added by the fund manager's investment decisions. and a fund with a beta less than 1 means less volatile. A high alpha (more than 1) is a good thing.
In this report. The various mutual fund schemes (equity diversified) which have been selected for comparison are: ♦ HDFC Equity Fund ♦ ♦ ♦ ♦ Reliance Vision Fund Franklin India Prima Plus SBI Magnum Contra Fund DSP Merrill Lynch Top 100 Equity Fund The comparison of the funds has been done on the basis of following parameters: ♦ PORTFOLIO The sub parameters to be considered under portfolio areMarket Capitalization Portfolio Turnover Asset under Management . The schemes selected for comparison are open ended equity schemes of various Mutual fund houses. an attempt has been made to compare the various selected equity diversified schemes.
. ♦ RETURNS NAV 1 year 3 year Returns since inception ♦ RISK AND VOLATILITY The sub parameters for analysis are: Standard Deviation Sharpe Ratio Beta Alpha ♦ ENTRY LOAD. EXIT LOAD. INVESTMENT STYLE.Sectoral Holdings. BENCHMARK.
CHAPTER-3 FUND COMPARISON .
HDFC EQUITY FUND . FUND DETAILS: ASSET MANAGEMENT COMPANY LAUNCH DATE FUND MANAGER TYPE OF SCHEME NATURE OF SCHEME STYLE OF INVESTMENT TOTAL ASSETS (RS.0% 0% . The capitalization of fund is categorized as large. December. Bet.GROWTH FUND OBJECTIVE: The scheme is aimed at generating long-term capital appreciation by predominantly investing in equity oriented securities. IN CRORES) BENCHMARK INDEX ENTRY LOAD EXIT LOAD HDFC Asset Management Ltd. FUND STYLE: Investment style of the manager is growth pattern.2. 1994 Chandresh Nigam Open-Ended Equity Large Cap 4517 (29/06/ 2007) BSE 100 • Amt.1. 0 to 49999999 . greater than 50000000 .25% Amt.
PORTFOLIO CHARACTERISTICS: Asset Allocation As on 30/06/07 Equity Debt Others % Net Assets 98.76 MARKET CAPITALISATION Giant Large Mid Small % OF PORTFOLIO 33.41 45.24 Others % Net Assets 98.24 Asset Allocation 100 80 60 40 20 Equity 0 0 Debt 1.94 13.10 4.91 .00 1.76 0.
81 6. Petroleum & Refinery Finance Auto & Auto ancillaries Electronics % NET ASSETS 11.21 9.SECTORAL ALLOCATION: As on 30/06/07 Computers .06 5.95 5.76 10.11 7% 8% 6% Com puters 15% 13% Diversified Pharm aceuticals Electricals Banks Entertainm ent 9% 9% 9% 12% 12% Oil & Gas Finance Autom obiles Electronics .94 6.Software & Education Diversified Pharmaceuticals Electricals & Electrical Equipments Banks Entertainment Oil & Gas.42 7.5 6.92 9.
23 4. Bharat Heavy Electricals Ltd Infosys Technologies Ltd State Bank of India CMC Ltd Divis Laboratories Limited % NET ASSETS 5.6 3.24 SINCE INCEPTION 25.33 4.74 LAST 3 YEARS 53.09 3.41 .52 4.49 3.TOP 10 HOLDINGS: COMPANY Crompton Greaves Ltd Larsen & Toubro Ltd Amtek Auto Ltd Reliance Industries Ltd Punj Lloyd Ltd.23 4.25 PERFORMANCE: (20/07/07) LAST 1 YEAR HDFC EQUITY FUND–GROWTH (%) 55.33 5.28 3.
Bet. 1995 Kunj Bansal Open-Ended Equity-Diversified Large Cap 3103. Bet. 0 to 49999999 .2. Bet. 20000000 to 49999999 -1. & Amt.5% Amt. 0 to 6 Months.0. Bet. 0 to 19999999 . 0 to 49999999 .25% Amt. FUND STYLE: Investment style of the manager is growth pattern. FUND DETAILS: ASSET MANAGEMENT COMPANY LAUNCH DATE FUND MANAGER TYPE OF SCHEME NATURE OF SCHEME STYLE OF INVESTMENT TOTAL ASSETS (RS. EXIT LOAD .37 (29/06/ 2007) BSE 100 • Amt.25% Amt.1% If redeemed bet. IN CRORES) BENCHMARK INDEX ENTRY LOAD Reliance Capital Asset Management Ltd. greater than 50000000 . October. RELIANCE VISION – GROWTH FUND OBJECTIVE: The scheme aims to generate capital appreciation by primarily investing in growth oriented stocks. 6 to 12 Months.2.0%. greater than 50000000 .0% If redeemed bet. The capitalization of fund is categorized as large. & Amt.
49 SECTORAL ALLOCATION: .PORTFOLIO CHARACTERISTICS: Asset Allocation As on 30/06/07 Equity Debt Others % Net Assets 86.00 13.70 22.73 7.4 0.4 MARKET CAPITALISATION Giant Large Mid Small % OF PORTFOLIO 37.6 Asset Allocation 100 80 60 40 20 Equity 0 13.08 32.6 0 Debt Others % Net Assets 86.
49 4. Transmission & Equip Banks Telecom Electronics Miscellaneous Housing & Construction % NET ASSETS 14.31 8.48 6.45 5..50 4.89 5.As on 29/07/07 Diversified Computers .50 3.58 6% 7% 7% 5% Diversified 20% Com puters Pharm aceuticals Autom obiles Pow er Banks Telecom 8% 9% 10% 15% 13% Electronics Miscllaneous Construction TOP 10 HOLDINGS: .Software & Education Pharmaceuticals Auto & Auto ancillaries Power Gen.24 10.71 3.
50 3.7 .97 PERFORMANCE: (20/07/07) LAST 1 YEAR RELIANCE VISION – GROWTH (%) 56.65 4.50 4.58 2.67 5.04 SINCE INCEPTION 29.COMPANY Divis Laboratories Ltd Larsen & Toubro Ltd Reliance Industries Ltd Infosys Technologies Ltd Alstom Projects India Ltd Reliance Communication Ventures Ltd Siemens Ltd HDFC Bank Ltd Jai Prakash Associates Ltd Grasim Industries Ltd % NET ASSETS 8.70 3.88 LAST 3 YEARS 53.60 5.48 5.59 4.
IN CRORES) BENCHMARK INDEX ENTRY LOAD EXIT LOAD Franklin Templeton Asset Management (India) Pvt.0.1% If redeemed bet. 0 to 6 Months .5% . 0 to 49999999 . debt and money market instruments and focusing on wealth creating companies across all sectors. FUND DETAILS: ASSET MANAGEMENT COMPANY LAUNCH DATE FUND MANAGER TYPE OF SCHEME NATURE OF SCHEME STYLE OF INVESTMENT TOTAL ASSETS (RS.0% If redeemed bet.25% Amt. Bet. 6 to 12 Months . greater than 50000000 .2. 1994 Sukumar Rajah Open-Ended Equity Diversified Large Cap 1290 (29/06/ 2007) BSE 100 Amt. The capitalization of fund is categorized as large. FRANKLIN INDIA PRIMA PLUS – GROWTH FUND OBJECTIVE: The scheme aims to provide growth of capital and regular dividend from a portfolio of equity. September.3. FUND STYLE: Investment style of the manager is growth pattern. Ltd.
01 6.33 0.33 MARKET CAPITALISATION Giant Large Mid Small % OF PORTFOLIO 33.67 Others % Net Assets 93.79 SECTORAL ALLOCATION: .81 39.09 25.31 1.PORTFOLIO CHARACTERISTICS: Asset Allocation As on 30/06/07 Equity Debt Others % Net Assets 93.67 Asset Allocation 100 80 60 40 20 Equity 0 0.01 Debt 6.
As on 29/06/07 Diversified Banks Entertainment Telecom Finance Computers .40 7.57 3.69 8.04 11.36 5% 9% 5% 4% Diversified 17% Banks Entertainm ent Telecom 15% Finance Com puters Autom obiles Electronics Paints Construction 9% 11% 11% 14% .48 3.70 8.59 3.15 6.06 10.Software & Education Auto & Auto ancillaries Electronics Paints Housing & Construction % NET ASSETS 13.
61 4.45 4.88 LAST 3 YEARS 50.44 4. SBI MAGNUM CONTRA FUND .33 PERFORMANCE: (20/07/07) LAST 1 YEAR FRANKLIN INDIA PRIMA PLUS (%) 63.63 4.TOP 10 HOLDINGS: COMPANY Bharati Tele – Ventures Reliance Industries Ltd Infosys Technologies Ltd Motor Industries Co (MICO) Kotak Mahindra Bank Ltd Television Eighteen India Ltd Housing Development Finance Corporation Ltd (HDFC) Siemens Ltd Infrastructure Development Finance company Zee Telefilms Ltd % NET ASSETS 5.20 3.49 3.38 4.35 4.57 3.25 4.48 SINCE INCEPTION 24.
2. 0 to 6 Months. greater than 50000000 .0% If redeemed bet. 0 to 49999999 .1% Amt.FUND OBJECTIVE: The scheme aims to provide the investors maximum growth opportunity through equity investments in stocks of growth oriented sectors. 1999 Pankaj Gupta Open-Ended Equity Diversified Large Cap 1837.0% PORTFOLIO CHARACTERISTICS: Asset Allocation . & Amt. greater than 50000000 . FUND STYLE: Investment style of the manager is a blend between growth and value. FUND DETAILS: ASSET MANAGEMENT COMPANY LAUNCH DATE FUND MANAGER TYPE OF SCHEME NATURE OF SCHEME STYLE OF INVESTMENT TOTAL ASSETS (RS. 0 to 49999999 . Ltd July. Bet.25% Amt. The capitalization of the fund is categorized as large.0 (29/06/ 2007) BSE 100 • Amt. Bet. IN CRORES) BENCHMARK INDEX ENTRY LOAD EXIT LOAD SBI Funds Management Pvt.
05 MARKET CAPITALISATION Giant Large Mid Small Tiny % OF PORTFOLIO 27.48 5.47 Asset Allocation 100 80 60 40 20 Equity 0 4.43 6.As on 29/06/07 Equity Debt Others % Net Assets 90.48 Debt 5.43 .05 4.93 1.10 39.47 Others % Net Assets 90.09 SECTORAL ALLOCATION: As on 29/06/07 Diversified % NET ASSETS 10.54 26.
16 4.88 7.75 5.48 5.09 5.03 7.32 8% 8% 6% Diversified 16% Construction Automobile 12% Electricals Pharmaceuticals Steel Banks Engineering 9% 9% 9% 11% 12% Oil & Gas Cem ent TOP 10 HOLDINGS: COMPANY Reliance Industries Ltd % NET ASSETS 4.84 .19 6. Petroleum & Refinery Cement 8.23 6.Housing & Construction Auto & Auto ancillaries Electricals & Electrical Equipments Pharmaceuticals Steel Banks Engineering & Industrial Machinery Oil & Gas.
4.53 PERFORMANCE: (20/07/07) LAST 1 YEAR SBI MAGNUM CONTRA FUND (%) 61.56 SINCE INCEPTION 35.44 3.19 2. DSP MERRILL LYNCH TOP 100 EQUITY FUND GROWTH FUND OBJECTIVE: .19 5.52 3.79 3.72 LAST 3 YEARS 67.34 3.30 3.Jaiprakash Associates Ltd Praj Industries Ltd Bharat Heavy Electricals Ltd (BHEL) State Bank Of India Crompton Greaves Ltd Hindustan Zinc Ltd Welspun-Gujarat Stahl Rohen Ltd Mahindra & Mahindra Ltd Zee Entertainment Enterprises Ltd.99 3.84 2.
2. 2003 Apoorva Shah Open-Ended Equity Diversified Large Cap 438.7 (29/06/ 2007) BSE 100 Amt. FUND STYLE: Investment style of the manager is a blend between growth and value. listed in India. by market capitalization. The capitalization of the fund is categorized as large. FUND DETAILS: ASSET MANAGEMENT COMPANY LAUNCH DATE FUND MANAGER TYPE OF SCHEME NATURE OF SCHEME STYLE OF INVESTMENT TOTAL ASSETS (RS.25% Amt. 0 to 49999999 . Bet. from a portfolio that largely consists of equity and equity related securities of the 100 largest corporates.The Fund is seeking to generate capital appreciation.0% 0% PORTFOLIO CHARACTERISTICS: Asset Allocation . greater than 50000000 . IN CRORES) BENCHMARK INDEX ENTRY LOAD EXIT LOAD DSP Merrill Lynch Fund Managers Ltd February.
46 36.90 .17 Others N.11 5.55 Debt Equity 5.A 0 SECTORAL ALLOCATION: As on 29/06/07 Oil & Gas.00 11.06 7.61 10.55 5.63 11.00 4. Petroleum & Refinery Computers .28 2. Transmission & Equip Electricals & Electrical Equipments Pharmaceuticals % NET ASSETS 12.92 12..Software & Education Banks Diversified Finance Telecom Power Gen.63 5.As on 30/06/07 Equity Debt Others % Net Assets 92.32 5.54 % Net Assets 80 Large 60 Mid Small 40 20 2.28 52.17 Asset MARKET CAPITALISATION Allocation PORTFOLIO % OF Giant 100 92.
27 4.95 3.Housing & Construction 4.19 3.32 4.73 6% 6% 6% 6% Oil & Gas 15% Com puters Banks 16% Diversified Finance Telecom Pow er Electricals 7% 10% 13% 15% Pharmaceuticals Construction TOP 10 HOLDINGS: COMPANY Bharati Tele – Ventures Reliance Industries Ltd Reliance Petroleum Ltd Larsen & Toubro Limited Infosys Technologies Ltd Bharat Electronics Ltd HCL Technologies Ltd % NET ASSETS 5.92 .45 4.37 4.
77 SINCE INCEPTION 54.67 3.52 3.60 LAST 3 YEARS 50.28 PERFORMANCE: (20/07/07) LAST 1 YEAR DSPML TOP 100 EQUITY FUND GROWTH (%) 59.47 .Housing Development Finance Corporation Ltd (HDFC) Satyam Computer Services Ltd State Bank of India (SBI) 3.
CHAPTER-4 COMPARATIVE ANALYSIS .
it should also include the risk taken by the fund manager because different funds will have different levels of risk attached to them. A higher value of standard deviation means higher risk. Variation = b = ∑ (return-mean) 2 .RATING ON THE BASIS OF RISK ADJUSTED RETURN: Return alone should not be considered as the basis of measurement of the performance of a mutual fund scheme. It gives you a 'quality rating' of an average. But higher standard deviation does not mean that fund is a bad fund in comparison to fund having lesser standard deviation. It is a comprehensive risk measure that considers both market return and company return. in a general. If the fund is giving more returns with higher standard deviation than the other fund having low returns. higher will be the risk associated with it. ♦ STANDARD DEVIATION The Total Risk of a given fund is measured in terms of standard deviation of returns of the fund. then higher standard deviation does not matter much. Therefore. In other words. standard deviation tells us how much the values have deviated from the average of the values. The Standard Deviation is the amount by which the numbers that go into an average deviate from that average. The higher the fluctuations in the returns of a fund during a given period. can be defined as variability or fluctuations in the returns generated by it. the schemes have been rated on the basis of the risk associated with their returns. Risk associated with a fund.
34 DEVIATION RELIANCE VISION FRANKLIN INDIA PRIMA PLUS SBI MAGNUM CONTRA DSPML TOP 100 5.31 STANDARD DEVIATION 5.8 6.6 5.58 5.8 HDFC Equity Reliance Vision Franklin India Prim a Plus FUNDS 5.34 5.Standard deviation = σ = √b HDFC EQUITY FUND STANDARD 5.66 SBI Magnum Contra DSPML Top 100 ANALYSIS A higher value of standard deviation means higher risk.2 STANDARD DEVIATION 6 5.31 6.4 6.4 5.66 5. but it does not necessarily mean that such a fund is .58 6. A high Standard Deviation may be a measure of volatility.8 5.2 5 4.80 5.
If the first fund is a much higher performer than the second one. the deviation will not matter much. # The highest standard deviation amongst all the equity diversified funds is that of SBI Magnum Contra. ♦ SHARPE RATIO . # Reliance Vision is having average risk associated with it.worse than the one with a low Standard Deviation. it is considered as one of the most stable returns giving fund. This fund falls in the category of high risk and high returns. # HDFC Equity Fund is having the least risk associated with it in comparison to all other schemes and thus.
67 DSPML TOP 100 0.Rf) σ Where SI = Sharpe Index Ri = Return on the fund Rf = Risk free rate of return σ = Standard Deviation HDFC EQUITY FUND SHARPE 0.56 . This ratio tries to quantify how a fund performs relative to the risk it takes.63 RELIANCE VISION FRANKLIN INDIA PRIMA PLUS SBI MAGNUM CONTRA 0.It is a ratio developed by Bill Sharpe to measure risk-adjusted performance.57 0. It is a ratio of returns generated by the fund over and above risk free rate of return and the total risk associated with it (standard deviation). Symbolically it is written as SI = (Ri . 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.60 0.
63 0.68 0.6 0.5 HDFC Equity Reliance Vision Franklin India Prim a Plus FUNDS 0. We accept this volatility only because we want higher returns.52 0.67 followed by HDFC Equity Fund with 0.54 0.62 SHARPE 0.67 SHARPE 0.56 SBI Magnum Contra DSPML Top 100 ANALYSIS At times high returns are generally associated with a high degree of volatility. .0.64 0.57 0.60. # SBI Magnum Contra is having the highest Sharpe ratio of 0.66 0.63 and Reliance Vision with 0. # It implies that SBI Magnum Contra gives highest returns against per unit of risk in comparison to the other schemes. The Sharpe ratio represents this trade off between risk and returns.58 0. A higher Sharpe ratio is therefore better as it represents a higher return generated per unit of risk.6 0.56 0.
The beta value for an index itself is taken as one. In other words.30%. the fund has been moving 3% more than the index. a fund has a beta of 1.03 in relation to the BSE sensex. A fund with a beta greater than 1 is considered more volatile than the market. Investors expecting the market to be bullish may choose funds exhibiting high betas. It compares a fund's volatility against the sensex. provides useful statistical information. it means it's moving up and down more than the rest of the market. when applied to investment portfolios. If the investor expects the market to be bearish in the near future. the funds that have betas less than 1 are a good choice because they would be expected to decline less in value than the index. Therefore. if a fund has a beta higher than value 1. . If. and negative beta whenever the market goes down.♦ BETA Beta is a measure of risk that. which increase investors’ chances of beating the market. for example. Therefore. Investors dream of stocks that enjoy positive beta whenever the market goes up. It is a statistical measure that shows how sensitive a fund is to market moves. and a fund with a beta less than 1 means less volatile. if the BSE Sensex increased 10% the fund would be expected to increase 10.
93 0.93 0.82 HDFC Equity Reliance Vision Franklin India Prim a Plus FUNDS SBI Magnum Contra 0.9 0.90 0.86 0.89 0.84 0.89 0.HDFC EQUITY FUND BETA 0.92 BETA 0.96 0.9 0.98 0.96 0.96 BETA DSPML Top 100 .88 0.87 0.94 0.87 RELIANCE VISION FRANKLIN INDIA PRIMA PLUS SBI MAGNUM CONTRA DSPML TOP 100 0.
It is a measure of systematic risk and compares the sensitivity of value of a security with the movement in the market. In this analysis the standard for “Beta” is taken as ranging from 0.5 to 1.0. The reason being “Beta” above 1 represents the movement of fund being aggressive with the movement of market. This holds irrespective of the direction of movement of the market. Safety being important, it is better to invest in a fund having beta less than one. So that if the market falls then your fund will fall less than the market. # We can see that the betas of nearly all the funds are similar apart from beta of DSPML Top 100, followed by SBI Magnum Contra. This implies that these funds are very volatile. # The movement of DSPML Top 100 which is nearing 1 with a value of 0.96 will be almost in sync with the movement of the market.
Alpha is a measure of the difference between a fund's expected return and its real return. Alpha must be evaluated in the context of a fund's beta (volatility) and Rsquared (benchmark index). Alpha can provide a deeper perspective on the performance of equity schemes to a mutual fund investor. While analyzing the performance, we would like to know how much was attributable to the market as a whole, and how much due to manager’s ability to select stocks. Value added by the manager indicates (or alpha) indicates the return that is not attributable to the market, or in other words, the added value the manager achieved over and above the result of the market. A high alpha (more than 1) is a good thing. A negative alpha means the fund is under performing.
HDFC EQUITY FUND ALPHA 1.01
FRANKLIN INDIA PRIMA PLUS
SBI MAGNUM CONTRA
DSPML TOP 100
1.8 1.6 1.4 1.2 ALPHA 1 0.8 0.6 0.4 0.2 0 HDFC Equity Reliance Vision Franklin India Prim a Plus FUNDS 1.01 1 0.77
SBI Magnum Contra
DSPML Top 100
A positive alpha implies that a fund has performed better than expected, given its level of risk. In other words, it measures the gap between the funds expected return and its actual return. So higher the alpha, better are the returns. # SBI Magnum Contra has the highest alpha of 1.67. It indicates that the fund manager has efficiently distributed the funds in a diversified portfolio. # Followed by SBI Magnum Contra, is HDFC Equity Fund with an alpha of 1.01.
04 50.88 53.48 67.72 DSPML TOP 100 56.6 1 Year Returns 3 Year Returns 50. RATING ON THE BASIS OF RETURN: HDFC EQUITY FUND RETURNS 55.74 53.88 50.48 67.88 59.56 50.04 63.24 (Last 3 yrs) RELIANCE VISION FRANKLIN INDIA PRIMA PLUS SBI MAGNUM CONTRA 61. while the beta of this fund is the maximum.56 61.# The lowest alpha is of DSPML Top 100 being 0.60 53.88 63.77 DSPML Top 100 .78 59.55.24 56.74 (Last 1 year) RETURNS 53.77 80 70 60 ALPHA 50 40 30 20 10 0 HDFC Equity Reliance Vision Franklin India Prima Plus FUNDS SBI Magnum Contra 55.
60% and is again a good short term return giving fund. it is found that SBI MAGNUM CONTRA has the highest return of 67. It means that this fund is giving high returns in short term as well as long term.88%. # DSPML TOP 100 has a value of 59. is having the lowest 3 year returns among all the five funds. # FRANKLIN INDIA PRIMA PLUS which is having the highest returns in last one year. It means that the fund is giving high returns in short term only. It means that in short term. It means that both these funds are giving stable returns in short term as well as long term and are thus providing the benefit of stable returns to their investors. it is found that FRANKLIN INDIA PRIMA PLUS has the highest return of 63. # It is closely followed by SBI MAGNUM CONTRA with a value of 61.78%.56%.ANALYSIS ON THE BASIS OF 1 YEAR RETURNS: # While comparing 1 year returns of the five equity schemes. . # It is seen that both HDFC EQUITY FUND and RELIANCE VISION FUND are having somewhat similar 1 year and 3 year returns. ON THE BASIS OF 3 YEAR RETURNS: # While comparing 3 year returns. this fund is giving very good returns.
FUND COMPARISON AT A GLANCE RANKS STANDARD DEVIATION SHARPE BETA ALPHA RATIO RETURNS (Last 3 yrs) SBI MAGNUM CONTRA HDFC EQUITY FUND RELIANCE VISION FRANKLIN INDIA PRIMA PLUS DSPML TOP 100 1 6.63 0.56 2 5.04 4 5.60 0.67 0.48 5 5.90 1.89 0.55 50.77 50.56 0.66 0.57 0.87 1.96 0.93 1.31 0.00 53.77 .34 0.01 53.58 0.67 67.24 3 5.80 0.
CHAPTER-5 CONCLUSION .
In all. Although the fund is having the highest standard deviation. Close to SBI Magnum Contra is HDFC Equity Fund. Hence. it can be concluded from the study above that the top three performing funds according to the study are SBI Magnum Contra. it is concluded that the fund falls in the category of high risk and high returns. it can be concluded that it is the best performing fund during the period of study amongst the five funds selected for study. . the performance indicators discussed above reveal the overall performance of the schemes relative to the risk associated with them. HDFC Equity Fund and Reliance Vision. In order to be accountable for the selection of funds. DSPML Top 100 is a highly volatile fund having the lowest alpha amongst all the five funds while the beta of this fund is the maximum. The overall performance of this fund is favorable as the results of this fund are ranked second amongst the five funds of the study in all the measures used in evaluation. A good mutual fund company is known by its AMC and its choicest stock selection skills.CONCLUSION It can be inferenced from the results above that SBI Magnum Contra has out performed in all the five performance evaluation measures. Mutual funds are an uprising trend amongst investors as they ensure high returns.
A host of factors such as increased competition.The Mutual fund industry is growing at an impressive pace. including retail investors. particularly in the recent times. However. . product innovation to drive growth have contributed to tap the latent needs of investors. there still remains a huge scope of improvement to catch up with the standard level of the developed economies. who have begun to look at mutual funds as a suitable investment avenue. These factors have attributed significantly to the growth of mutual fund industry in India.
CHAPTER-6 SUGGESTIONS .
♦ Entry load usually varies from 2 to 2. Therefore.25%. Thus. Therefore.SUGGESTIONS AND RECOMMENDATIONS ♦ In India. . a few no load based funds should be introduced. less than 3% of household savings are put into mutual funds. ♦ More and more Capital Guaranteed Funds should be introduced. There is great potential for mutual funds in the Indian market. when he is not getting anything in return. more awareness must be created among people about the good returns which the mutual funds have generated in the past. it should be linked to its performance. ♦ Whatever fee is charged by a fund house. This would encourage more and more people and thus would lead to expansion of mutual funds industry. ♦ All the vital information should be disclosed properly to the investors while investment so that they can fully understand the policies of mutual funds. which are very high in comparison to other investment options. ♦ There should be more advertisement so that people can be aware of different schemes of mutual funds and policies. So that the investor feels that it is a fair game and he is not being charged heavily. it would attract more and more customers for the industry and lead to its expansion.
CHAPTER-7 BIBLIOGRAPHY .
easyMF. Sankaran Sundar.com www.sbimf.com www.moneycontrol.amfiindia.hdfc. Third Edition.com www.valueresearchonline.BIBLIOGRAPHY www. 2007 .com www. May 2006 Gupta Shashi K.com www.com www.myiris. Vision Books. 2007 AMFI Mutual Fund Testing Programme – Workbook.templetonindia.com www.com Monthly Factsheets issued by the companies.com www. Indian Mutual Funds – Handbook.mutualfundsindia.com www.reliancemutual. Financial Services.
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