Mutual Funds

Introduction

A mutual fund is the ideal investment vehicle for today’s complex & modern
financial scenario. Markets for enquiry shares bonds and other fixed income instruments, real
estate, derivatives and other assets have become mature and information driven. Price
changes in these assets are driven by global events occurring in faraway places. A typical
individual is unlikely to have the knowledge, skills, inclination and time to keep track of
events, understand their implications and act speedily. An individual also finds it difficult to
keep track of ownership of this assets, investments, brokerage dues & bank transactions etc.

A mutual fund is the answer to all these situations. It appoints professionally qualified
and experienced staff that manages each of these functions on a full time bases. The large
pool of money collected in the fund allows it to hire such staff at a very; low cost to each
investor. In effect the mutual fund vehicle exploits economies of scale in all three areas –
research, investments, transaction processing. While the concept of individual coming
together to invest the money collectively is not new, the mutual fund in its present form is a
20th century phenomenon. In fact mutual funds gained popularity only after the Second World
War. Globally there are thousands of firms offering tens of thousands of mutual funds with
different investment objectives. Today mutual funds collectively manage almost as much as
or more money as compared to banks.

To get a better understanding of mutual funds it is necessary to know the industry in

detail. In the following sections a detailed descriptions of the mutual funds industry will be
discussed.
STATEMENT OF PROBLEM

The purpose of the study is to evaluate the performance of different Mutual Fund
schemes during the study period. So in this study an attempt is made to the performance
of different Mutual Fund and their using Jensen’s performance index, Sharpe’s
performance index, and Treynor index.

OBJECTIVES OF THE STUDY

 To evaluate investment performance of mutual funds in the terms of risk and

return.
 To examine the funds sensitivity to market fluctuations in terms of beta.
 To find out the financial performance of mutual fund schemes.
 To appraise investment performance of mutual funds with risk adjustment, the
theoretical parameters as suggested by Sharpe, Treynor and Jensen.

SCOPE OF THE STUDY:

The present study includes the 5 years average returns of the mutual funds, which
have the total corpus value, is more than 10000 crores. For the study all the mutual
funds companies have been scan and only those scheme are include in the study which
are having the corpus value of more than 400 crores and age of the fund must be more
than 3 years. The study cover only equity diversified which is having more fluctuations
risk and returns.The evaluate the performance of the scheme and funds applied Sharpe’s
index, Treynor’s index and Jensen’s Alpha measures
Methodology
RESEARCH DESIGN
The methodology is the plan, structure and strategy of the investigation process that
sets out to obtain answer to the study. The methodology followed for the collecting
information are using two sources of data namely

 Primary Data

 Secondary Data

Primary Data

The data collected first hand by the researcher concerned with the research problem
refers to the Primary data.

Personal discussion was made with Unit manager and interaction with other personnel
in the organization for this purpose. There is no formal design of questionnaire used in this
study.

Secondary Data

The information available at various sources made for some other purpose but
facilitating the study undertaken is called as Secondary Data.

The various sources that were used for the collection of secondary data are

 Various Text books were used to understand the concepts of portfolio management.

 Websites – Various sites like www.5paise.com, www.sharekhan.com www,

amfi.com www.bseindia.com and other websites.

 Magazines such as Business World, Business Today, Investors Guide, Capital Market.
Limitation of the study

 The data collection was strictly confined to secondary source. No primary data was
associated with the project .
 The time for collection data was limited
 Only limited number of schemes were used
 No comparative study was done
 More reliability on company data

Concept of Mutual Fund-

concepts of Mutual Fund-

1. Many investors with the common objective pool their money in Mutual Fund.
2. Investors on a proportionate basis, get mutual fund units for the sum contributed to
the pool.
3. The money collected by the investors is invested into the shares, debentures and
other securities by the Fund Manager.
4. The Fund manager realizes gains or losses, and collects dividends or interest Income.
5. Any capital gains or losses from such investment are passed on to the
6. Investors in proportion of the number of units held by them.
 Any change in the value of the investments made into capital market instruments (such
as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is
defined as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a
scheme is calculated by dividing the market value of scheme's assets by the total number of
units issued to the investors.

Working of Mutual Fund

To protect the interest of the investors, SEBI formulates policies and regulates the mutual
funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time
to time. MF either promoted by public or by private sector entities including one promoted by
foreign entities is governed by these Regulations.

SEBI approved Asset Management Company (AMC) manages the funds by making
investments in various types of securities. Custodian, registered with SEBI, holds the
securities of various schemes of the fund in its custody.

According to SEBI Regulations, two thirds of the directors of Trustee Company or board of
trustees must be independent.
The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual
funds that the mutual funds function within the strict regulatory framework. Its objective is to
increase public awareness of the mutual fund industry.
AMFI also is engaged in upgrading professional standards and in promoting best industry
practices in diverse areas such as valuation, disclosure, transparency etc.

Meaning of Mutual Fund

Mutual Funds are investment products that operate on the principles of ‘Strength in
Numbers’. They collect money from a large group of investors, pool it together, and invest it
in various securities in line with their objective. They are an alternative to investing directly.
A more convenient alternative yet no less rewarding. Take stocks, trading into the market by
yourself would mean knowing at the very least, how to analyze and track companies, the way
of the market and the intermediaries who will help you buy and sell shares. A mutual fund
that invests in stocks relieves you of all such hassles, while giving you the same investment
option for individual’s handicapped by a lack of investing acumen or time, or generally
disciplined to take charge of their personal finances.

Mutual funds are not magic investment vehicles that do it all you’ll have to
come to terms with the fact that they assure neither returns nor the value of yours
original investment. You’ll have to accept the reality that even they, who are
supposedly experts in investments matter, can go wrong. These are inherent risks, but
these can be managed. Mutual funds offer several advantages that make them a
powerful and convenient wealth creation vehicle worthy of yours consideration

Characteristics of a Mutual Fund

 A Mutual fund actually belongs to the investors who have pooled their funds. The
ownership of the mutual funds is in the hands of the investors.
 In case of mutual fund the contributors and the beneficiaries of the funds are the
same class of people namely the investors.
 Investment professionals manage a mutual fund and other service providers, who
earn a fee for their services provided, from the fund.
  The pool of funds is invested in a portfolio of marketable investments. The value of
the portfolio is updated every day.

The investor’s share in the fund is denominated by “UNITS”. The value of the units
changes with the change in the portfolio’s value, everyday. The value of one unit of
investment is called as the net asset value or NAV

how are the mutual funds structured?

Mutual funds can be structured in the following ways:

 Company form, in which investors hold shares of the mutual fund. In this structure,
management of the fund is in the hands of an elected board, which in turn appoints
investment managers to manage the fund.
 Trust form, in which the funds of the investors are held by a trust, on behalf of the
investors. The trust appoints investment managers and monitors their functioning in
the interest of investors.

The company form of organization is very popular in the United States. In India,
mutual funds are organized as trusts. The trust is created by sponsor, who is the actually the
entity interested in creating the mutual fund business. The trust is either managed by a Board
of trustees, or by a trustee company, formed for this purpose. The investor’s funds are
held by the trust.
Types of Mutual Funds

Types of Mutual Funds

By Structure By Investment Objective Other Schemes

Open Ended Schemes

Tax Saving Schemes (ELSS)
Growth Schemes

Close Ended Schemes

Income Schemes Special Schemes

Interval Schemes
Balanced Schemes Index Schemes

Sector Specific Schemes

Money Market Schemes

Open-End Funds

An open-ended fund is one that has unit’s available foe sale and repurchase at all
times. An investor can buy or redeem units from the fund itself at a price based on the Net
Asset Value (NAV) per unit. NAV per unit is obtained by dividing the amount of the market
value of the fund’s assets by the number of units outstanding. The number of outstanding
goes up or down every time the fund issues new units or repurchase existing units.
Closed-End Funds

Unlike an open-end fund, the ‘unit capital ‘of a closed-ended fund is fixed, as it
makes a one-time sale of a fixed number of units. Closed-ended funds do not allow investors
but or redeem units directly from the funds. However, to provide the much-needed liquidity
to investors, any closed-end funds get themselves listed on stock exchanges. Trading through
a stock exchange enables investors to buy or sell units of a closed-end mutual fund from each
other.

Tax Exempt and Non-Tax Exempt Funds

Generally, when a fund invests in tax-exempt securities, it is called a tax-exempt

fund. In the U.S.A, For example, municipal bonds pay interest that is tax-free, while interest
on corporate and other bonds is taxable. In India, after the 1999 Union Government Budget,
all of the dividend income received from many of the Mutual funds is tax-free in the hands of
the investor.

However, funds other than Equity Funds have to pay a distribution tax, before
distributing income to investors. In other words, equity mutual fund schemes are tax-exempt
investment avenues, while other funds are taxable for distributable income.

While Indian Mutual funds currently offer tax-free income, any capital gains arising
out of sale of fund nits are taxable. All these tax considerations are important in the decision
on where to invest as the tax exemptions or concessions alter returns obtained from these
investments. Hence, classification Of Mutual funds from the taxability perspective has great
significance for investors.

Money Market Funds

Often considered the lowest rung order of risk level, Money Market Funds invest in
securities of a short-term nature, which generally means securities of less than one-year
maturity. The typical, short-term interest-bearing instruments these funds invest in include
Treasury Bills issued by governments. Certificates of Deposit issued by banks and
Commercial Paper issued by companies. In India Money market Mutual funds also invest in
the inter-bank call money market. The major strengths of money market funds are the
liquidity and safety or principal that investors can normally expect from short-term
investments.

Gilt Funds

Gilts are government securities with medium to long-term maturities, typically of

over one year (under one-year instruments being money market securities). In India we have
now seen the emergence of Government Securities or Gilt Funds that invest in government
paper called dated securities (unlike Treasury Bills that mature less These funds have little
risk of default and hence offer better protection of principal.

However, investors have to recognize the potential changes in values of debt

securities held by the funds that are caused 'by changes in the market price of debt securities
quoted on the stock exchanges (Just like the equities).Debt securities' prices fall when
interest rate levels increase (and vice versa).

Debt Funds (or Income Funds)

Next in the order of risk level, we have the general category Debt Funds. Debt funds
invest in debt instruments issued not only by governments, but also by private companies,
banks and financial institutions and other entities such as infrastructure companies/utilities.

By investing in debt, these funds target low risk and stable income for the investor as
their key objectives. However, as compared to the money market funds, they do have a
higher price fluctuation risk, since they invest longer-term securities. Similarly compared to
Gilt Funds, general debt funds do have a higher risk of default by their borrowers.

Debt Funds are largely considered as Income Funds as they do not target capital
appreciation, look for high current income, and therefore distribute a substantial part of their
surplus to investors. Income funds that target returns substantially above market levels can
face more risks. The Income Funds fall largely in the category of Debt Funds as they invest
primarily in fixed income generating debt instruments. Again, different investment
objectives set by the fund managers would result in different risk profiles.

Diversified Debt Funds

A debt fund that invests in all available types of debt securities, issued by entities
across all industries and sectors is a properly diversified debt fund.

While debt funds offer high income and less risk than equity funds, investors need to
recognize that debt securities are subject to risk of default by the issuer on payment of interest
or principal.

A diversified debt fund has the benefit of risk reduction through diversification and
sharing of any default-related losses by a large number of investors. Hence a diversified debt
fund is less risky than a narrow-focus fund that invests in debt securities of a particular sector
or industry.

Focused Debt Funds

Some debt funds have a narrower focus, with less diversification in its investments.
Examples include sector, specialized and offshore debt funds.

These funds are similar to the funds described later in the equity category except
that debt funds have a substantial part of their portfolio invested in debt instruments and are
therefore more income oriented and inherently less risky than equity funds. However 'the
Indian financial markets have demonstrated that debt funds should not be automatically
considered to be less risky than equity funds, as there have been relatively large default by
issuers of debt and many funds have non-performing assets in their debt portfolios. It
should also be recognized that market values of debt securities will also fluctuate more as
Indian debt markets witness more trading and interest rate volatility in the future.

High Yield Debt Funds

 Usually, Debt Funds control the borrower default risk by investing in securities issued
by borrowers who are rated by credit rating agencies and are considered to be of "investment
grade". There are High Yield Debt Fund that seek to obtain higher returns by investing in
debt instruments that are considered "below investment grade”.’ Clearly, these funds are
exposed to higher risk.

In U.S.A., funds that invest in debt instruments that are not backed by tangible assets
and rated below investment grade (popularly known as junk bonds) are called Junk Bond
Funds. These funds tend to be more volatile than other debt funds, although they may earn
higher returns as a result of the higher risks taken.

Assured Return Funds

Fundamentally, mutual funds hold assets in trust for investors. All returns and risks
are for account of the investor. The role of the fund Manager is to provide the professional
management service and to ensure the highest possible return consistent with the investment
objective of the fund. Assured return debt fund certainly reduce the risk level.

Fixed Term Plans

Fixed Term Plans are closed-end, but usually for shorter term-less than a year. Being
of short duration, they are not listed on a stock exchange. As investors move from Debt
Fund category to Equity Funds they face increased risk level.

However, there is a large variety of Equity Funds and all of them are not equally
risk-prone. Investors and their advisors need to sort out and select the right equity fund that
suits their risk appetite

Equity funds invest a major portion of their corpus in equity shares issued by
companies, acquired directly in initial public offerings or through the secondary market.
Equity funds would be exposed to the equity price fluctuation risk at the market level at the
industry or sector level and at the company-specific level. Equity Funds Net Asset Values
fluctuate with all these price movements. These prices are caused by all kinds of external
factors, political and social as well as economic. Hence, Equity Funds are generally
considered at the higher end of the risk spectrum among all funds available in the market.
Equity funds adopt different investment strategic resulting in different levels of risk. Hence,
they are generally separated into different types in terms of their investment styles. Some of
the major types of equity funds, arranged in order of higher to lower risk level.

Aggressive Growth Funds

There are many types of stocks/shares available in the market; Blue Chips that are
recognized market leaders, less researched stocks that are considered to have future growth
potential, and even some speculative stocks of somewhat unknown or unproven issuers.
Fund managers seek out and invest in different types of stocks in line with their own
perception of potential returns and appetite for risk.

Aggressive growth funds target maximum capital appreciation, invest in less

researched or speculative shares and may adopt speculative investment strategies to attain
their objective of high returns for the investor. Consequently, they tend to be more volatile
and riskier than other funds.

Growth Funds

These funds invest in companies whose earnings are expected to rise at an above
average rate. These companies may be operating in sectors like technology considered having
a growth potential, but not entirely unproven and speculative. The primary objective of
Growth Funds is capital appreciation over a three to five year span. Growth funds are
therefore less volatile than funds that target aggressive growth.
Specialty Funds

These funds have a narrow portfolio orientation and invest in only companies that
meet pre-defined criteria. For example, at the height of the South African apartheid regime,
many funds in the U.S. offered plans that promised not to invest in South African companies.
Some funds may build portfolios that will exclude Tobacco companies. Funds that invest in
particular regions such as the Middle East or the ASEAN countries are also an example of
specialty funds. Within the Specialty Funds category, some funds may be broad-based in
terms of the types of investments in the portfolio. However, most specialty funds tend to be
concentrated funds, since diversification is limited to one type of investment. Clearly,
concentrated specialty funds tend to be more volatile than diversified funds.

Sector Funds

Sector funds' portfolios consist of investments in only one industry or sector of the
market such as Information on Technology, Pharmaceuticals or Fast Moving Consumer
Goods that have recently been launched in India. Since sector funds do not diversify into
multiple se Offshore Funds.

Offshore Funds

These funds invest in equities in one or more foreign countries thereby achieving
diversification across the country's borders. However they also have additional risks - such as
the foreign exchange rate risk - and their performance depends on the economic conditions of
the countries they invest in. Offshore Equity Funds may invest in a single country (hence
riskier) or many countries (hence more diversified).

Small Cap Equity Funds

These funds invest in shares of companies with relatively lower market capitalization
than that of big, blue chip companies. They may thus be more volatile than other funds, as
smaller companies' shares are not very liquid in the markets. In terms of risk characteristics,
small company funds may be aggressive-growth or just growth type.

Option Income Funds

Option Income Funds write options on a significant part of their portfolio. While
options are viewed as risky instruments, they may actually help to control volatility, if
properly used. Conservative option funds invest in large, dividend paying companies, and
then sell options against their stock positions. This ensures a stable Income stream in the form
of premium income through selling options and dividends.

Diversified Equity Funds

A fund that seeks to invest only in equities except for a very small portion in liquid
money market securities, but is not focused on any one or few sectors or shares, may be
termed a diversified equity funds seek to reduce the sector or stock specific risks through
diversification. They have mainly market risk exposure. Diversified funds arc clearly at the
lower risk level than growth funds

Equity Index Funds

An index fund tracks the performance of a specific stock market index. The objective
is to match the performance of the stock market by tracking an index that represents the
overall market. The fund invests in shares that constitute the index and in the same proportion
as the index. Since they generally invest in a diversified market index portfolio, these funds
take only the overall market risk, while reducing the sector and stock specific risks through
diversification.
Value Funds

Value Funds try to seek out fundamentally sound companies whose shares arc
currently under-priced in the market. Value Funds will add only those shares to their
portfolios that are selling at low price-earnings ratios, low market to book value ratios and are
undervalued by other yardsticks.

Value funds have the equity market price fluctuation risks, but stand often at a lower end of
the risk spectrum in comparison with the Growth Funds. Value Stocks may be from a large
number of sectors and therefore diversified.

Equity Income funds

Usually income funds are in the Debt Funds category, as they target fixed income
investments. However, there are equity funds that can be designed to give the investor a high
level of current income along with some steady capital appreciation, investing mainly in
shares of companies' with high dividend yields.

Balanced Fund

A balanced fund is one that has a portfolio comprising debt instruments, convertible
securities, and Preference equity shares. Their assets are generally held in more or less equal
proportions between debt/money market securities and equities. By investing in a mix of this
nature, balanced funds seek to attain the objectives of income, moderate capital appreciation
and preservation of capital, and are ideal for investors with a conservative and long-term
orientation.

Growth-and-Income Funds

Unlike income-focused or growth-focused funds, these funds seek to strike a balance

between capital appreciation and income for the investor. Their portfolios are a mix between
companies with good dividend paying records and those with potential for capital
appreciation. These funds would be less risky than pure growth funds, though more risky than
income fund.

TYPES OF MUTUAL FUND:-

MUTUALFUND WHO Objective Investment Risk Ideal
TYPE SHOULD portfolio investment
INVEST

Diversified equity Moderate and High growth Equity shares High 1-3years
funds aggressive
investors

Sector fund Aggressive High growth Equity shares Very high 1-3years
investors
Index fund Moderate To generate Portfolio like Returns of 1-3years
investors returns which BSE. Sensex, NAV, very
are similar to Nifty,etc with index
the returns of performance
the respective
index
Equity linked Moderate and Long-term Equity shares High 1-3years
saving aggressive growth with
scheme(ELSS) investors tax saving

Balance fund Moderate and Growth and Balance ratio of Capital Over 2
aggressive regular equity and debt market risk years
investors income fund to ensure and interest
higher returns at rate risk
lower risk
Bond funds Salaried and Regular Predominantly Credit risk Over
conservative income debenture and interest 9-12months
investors government rate risk
securities,
corporate bonds

Gilt fund Salaried and Security and Government Interest rate Over 12
conservative income securities risk months
investors
Short-term funds Investors with Liquidity and Call money Linked 3weeks
surplus short- moderate commercial interest rate 3months
term fund income papers, treasury risk
bill short-term
G-secs

Liquidity funds Investors who Liquidity Treasury bills, Negligible 2days

park their +moderate certificate of Risk 3weeks
fund in income deposits ,
current preservation commercial
account or of capital papers,
short term securities call
bank fixed money
deposits
Benefits of Mutual Fund

 Portfolio Diversification

Return on investment from just one industry or sector are subject to how well or
poorly the industry fares. But with mutual fund one’s money is invested across different
sector. This reduces the risk of low returns on investments, because rarely do different sectors
decline at the same time.

 Professional Management

A mutual fund draws on the professional expertise of a team of research analysts and
fund managers in investing one’s saving in a number of securities.

 Reduction of Transaction Costs

The purchase or sale of financial assets through the exchanges entails a certain
proportion of changes known as transaction made. Investments through mutual fund reduce
these costs considerably as they enjoy the benefits of economies of scale.

 Liquidity

If one invests in an open-ended mutual fund, one can claim the money at net asset
value related prices from the mutual fund itself.

 Convenience and Flexibility

One has access to up-to-date information on the value of the investment in addition to
the investments that have been made by the scheme, the proportion allocated to different
assets and the fund manager’s investment strategy.
 Return Potential

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

 Transparency

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

 Affordability

Investors individually may lack sufficient funds to invest in high-grade stocks. A

mutual fund because of its large corpus allows even a small investor to take the benefit of its
investment strategy.

 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. The operations of Mutual
Funds are regularly monitored by SEBI.
History of the Indian Mutual Fund Industry

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

First Phase – 1964-87

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

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

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector
banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of
India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987
followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89),
Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund
(Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund
in December 1990. At the end of 1993, the mutual fund industry had assets under
management of Rs.47,004 crores.

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

With the entry of private sector funds in 1993, a new era started in the Indian mutual
fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the
year in which the first Mutual Fund Regulations came into being, under which all mutual
funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now
merged with Franklin Templeton) was the first private sector mutual fund registered in July
1993.
 The 1993 SEBI (Mutual Fund) Regulations were substituted by a more
comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions
under the SEBI (Mutual Fund) Regulations 1996.

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

Fourth Phase – since February 2003

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

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is
registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation
of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under
management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual
Fund Regulations, and with recent mergers taking place among different private sector funds,
the mutual fund industry has entered its current phase of consolidation and growth. As at the
end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores
under 421 schemes.
LIST OF MUTUAL FUNDS IN INDIA

Mutual Fund Sponsors Year of

Entry

Bank sponsored
BOB Asset Management Co. Ltd Bank of Baroda 1992
Can Bank Investment Management Canara Bank 1987
Services Ltd.,
S.B.I. Funds Management Ltd., State Bank of India 1987
UTI Asset Management Co., Pvt. SBI, PNB, BOB, LIC 1963
Ltd.,
Institutions
G.I.C. Asset Management Co. Ltd., General Insurance 1990
Corporation & other 4
PSU GIC
Jeevan Bhima Sahyoga Asset LIC 1989
Management Co. Ltd.,
Private Sectors
Benchmark Asset Management Co. NICHE Financial 2001
Pvt. Ltd., Services
Chola Mandalam Asset Chola Mandalam 1997
Management Co. Ltd., Investments
Escorts Asset Management Ltd., Escorts Finance 1996
J. M. Capital Management Pvt. J.M. Shares and Stock 1994
Ltd., Brokers
Kotak Mahindra Asset Management Kotak Mahindra Bank 1998
Co. Ltd.,
Reliance Capital Asset Reliance Capital 1995
Management Co. Ltd.,
Sahara Asset Management Co. Pvt. Sahara India Finance 1996
Ltd.,
Sundaram Asset Management Co. Sunadaram Finance 1996
Ltd.,
Tata Asset Management Pvt. Ltd., Tata Sons 1995
Joint Ventures Predominantly Indian
Birla Sun Life Asset Management Birla Global Finance 1994
Pvt. Ltd.,
D.S.P. Merrill Lynch Fund D.S.P. Merrill Lynch 1996
Manager Ltd.,
 HDFC Asset Management Co. Ltd., HDFC & Std Life 2000
Investment
Joint Ventures Predominantly Foreign
Alliance Capital Asset Management Alliance Capital 1994
Pvt. Ltd., Management
Deutsche Asset Management Pvt. Deutsche Asset 2002
Ltd., Management
Franklin Templeton Asset Franklin Templeton 1996
Management Pvt. Ltd., Investments
HSBC Asset Manageent Pvt. Ltd., HSBC Security 2002
ING Inveatment Management Pvt. ING Group 1999
Ltd.,
Morgan Stanley Investment Morgan Stanley 1993
Management Pvt. Ltd.,
Prudential ICICI Asset Prudential ICICI 1993
Management Pvt. Ltd.,
Principal Asset Management Co. Principal Financial 1994
Pvt. Ltd., Service
Standard Charted Asset Standard Charted Bank 2000
Management Ltd.,
( Source: Outlook Money : Laymen’s guide to MUTUAL FUND )

Techniques of analysis:

1. Return:-Return on a typical investment consists of two components. The basic is

the periodic cash receipts (or income) on the investment, either in the form of interest or
dividends. The second component is the change in the price of the assets-commonly
called the capital gain or loss. This element of return is the difference between the
purchase price and the price at which the assets can be or is sold; therefore, it can be
again or a loss.

The return has been calculated as under:

 NAV t −NAV t−1
Portfolio return: Rit = NAV t−1

Where Rt is the difference between Net Asset Values for two consecutive days dividend by
the NAV of the preceding day.

I it −I it−1
¿
Market return, Rmit = Ialignl ¿ it−1 ¿ ¿

Where Rmt is the difference between market indices of two consecutive day’s dividend by the
market index for the preceding day

2. Risk :

Risk is neither good nor bad. Risk in holding securities is generally associated with the
possibility that realized returns will be less than expected returns. The difference between
the required rate of returns on mutual fund investment and the risk free return is the risk
premium. Risk can be measured in terms of Beta & standard deviations.

 Standard deviation

It is used to measure the variation in individual returns from the average expected
returns over a certain period. Standard deviation is used in the concept of risk of a portfolio
of investments. Higher standard deviation means a greater fluctuation in expected return.

Standard deviation =
σi=
√ ∑ ( R it − Ri )2
i −1
N
Where,

R = Return on security I during time period t

it

R = Return on market index m during time period t.

mt

P =Closing price of security I for time t

it

P = Closing price of security I for time t-1

it-1

I = Closing value of market index corresponding to the period of security I for time t
it

I = Closing value of market index corresponding to the period of security I for time t-1
it-1

N= Number of observations

2
Var=σ

Where,

r = Actual Return

E(r) = Excepted Return

P = Probability

1. Beta:-
 Beta measures the systematic risk and shows how prices of securities respond to the
market forces. It is calculated by relating the return on a security with return for the market.
By convention, market will have beta 1.0.Mutual fund is said to be volatile, more volatile or
less volatile. If beta is grater than 1 the stock is said to be riskier than market. If beta is less
than 1, the indication is that stock is less risky in comparison to market. If beta is zero then
the risk is the same as that of the market. Negative beta is rare.

N ∑ XY −( ∑ X )( ∑ Y )
2
β= N ∑ X 2 −( ∑ X )

Where

N= Number of days

X = Rolling returns of the NSE index

Y = Rolling returns of the schemes

1. SHARPE’S INDEX

Sharpe index measures risk premium of a portfolio, relative to the total amount of risk
in the portfolio. Sharpe index summarizes the risk and return of a portfolio in a single
measure that categorizes the performance of funds on the risk- adjusted basis. The larger the
Sharpe’s index the portfolio over performs the market and vise versa.
 R P −R f
St = σp

Where

St = Sharpe’s index

Rp = portfolio return

Rf = Risk free rate of interest (7.59%)

σ p = Standard Deviation of the portfolio return

2. TREYNOR’S INDEX

Treynor’s model is on the concept of the characteristics straight line. The

characteristics line has drawn a relationship between the market return and a specific
portfolio without taking into consideration any direct adjustment for risk. It is also known as
reward to volatility ratio and is defined as:

The formula for Treynor’s Index is;

R p −Rf
Tn = βp

Where,

R p = portfolio average return

Rf = Risk less rate of interest

β p = Beta co-efficient of portfolio

It measures portfolio risk in terms of beta, which is weighted average of individual security
beta. The ratio is investors, for who the fund represents only a fraction of their total assets.
The higher the ratio better is the performance.

3 JENSEN’S PERFORMANCE INDEX

The absolute risk adjusted return measure was developed by Michael Jensen and
commonly known as Jensen’s measure. It is mentioned as a measure of absolute
performance because a definite standard is set and against that the performance is measured.
The standard is based on the manager’s predictive ability. Successful prediction of security
price would enable the manager to earn higher returns than the ordinary investor expects to
earn in a given level of risk.

The basic model of Jensen is given below.

R p =α +β (R m−R f )

Where,
R p = Average return of portfolio

Rf = Risk less rate of interest

α= The intercept

β= A measure of systematic risk

Rm= Average market return

The return of the portfolio varies in the same proportion of β to the difference
between the market return and risk less rate of interest. Beta is assumed to reflect the
systematic risk. The fund’s portfolio beta would be equal to one if it takes a portfolio of all

market securities. The β would be greater than one if the fund’s portfolio consists of
securities that are riskier than portfolio of all market securities.
 SENSEX

Name of Scheme returns(annualized) 5yrs

2009 2008 2007 2006 2005 Avg return
84.49 -48.14 47.41 45.52 41.2 34.096
franklin india bluechip
75.26 -48.31 66.43 44.14 39.71 35.446
HDFC GROWTH
80.6 -47.08 46.59 45.54 41.44 33.418
HDFC INDEX SENSEX PLUS
JM EQUITY 60.39 -61.54 46.75 44.09 52.18 28.374

LICMF EQUITY 69.06 -57.27 63.17 28.65 23.32 25.386

LICMF GROWTH 79.21 -56.23 -56.23 30.84 31.76 24.968

LICMF INDEX SENSEX ADVANTAGE 74.51 -54.54 35.85 32.1 41.69 25.922

TATA GROWTH 91.65 -60.23 65.02 27 42.33 33.154

TATA PURE EQUITY 77.18 -49.21 61.32 42.63 44.35 35.254

TEMPLETON INDIA GROWTH 104.7 -51 63.11 30.52 34.93 36.452

NAV t −NAV t−1

NAV t−1
Portfolio return: Rit =
Where, Rit is the difference between Net Asset Values, for two consecutive day’s
dividend by the NAV of the preceding day.

1. Risk
 Beta

* Returns are annualized

N ∑ XY−( ∑ X)( ∑ Y )

 =
N ∑ X 2 −(∑ X)2

Where N = Number of days

X = Rolling returns of the NSE index

Y= Rolling returns of the schemes

Beta describes the relationship between the stock’s return and the index returns. it describes
the risk in the portfolio with comparing market risk as 1 .

If Beta =1 that indicates one percent change in market index return causes exactly one
percent change in the stock returns. It indicates that the stock moves in tandem with the
market

If Beta <1 that indicates then the stock is less volatile compared to the market.

If Beta >1Then the stock is more volatile compared to the market.

The stock value with more then 1 beta value is considered to be risky. If Beta –ve:-Negative
Beta indicates that the stock returns moves in the opposite direction to the market return.

SENSEX

SL. 5yrs
NO Avg
Name of Scheme returns(annualized) return
200 200 200 SD S,D of Beta correlatio
9 2008 7 6 2005 index n
1 84.4 - 47.41 45.5 41.2 34.096 49.14 50.2 0.98 1.00
 9 48.14 2
franklin india bluechip
2 75.2 - 44.1
HDFC GROWTH 6 48.31 66.43 4 39.71 35.446
49.13 50.2 0.96 0.98
3 - 45.5
80.6
HDFC INDEX SENSEX 47.08 46.59 4 41.44 33.418
PLUS 47.67 50.2 0.95 1.00
4 60.3 - 44.0
JM EQUITY 9 61.54 46.75 9 52.18 28.374
50.65 50.2 0.98 0.98
5 69.0 - 63.1 28.6
LICMF EQUITY 6 57.27 7 5 23.32 25.386
50.45 50.2 0.96 0.96
6 LICMF GROWTH 79.21 -56.23 -56.23 30.84 31.76 24.968
49.55 50.2 0.98 0.71
7 LICMF INDEX
SENSEX
ADVANTAGE 74.51 -54.54 35.85 32.1 41.69 25.922
48.01 50.2 0.95 0.99
8 TATA GROWTH 91.65 -60.23 65.02 27 42.33 33.154
57.62 50.2 1.11 0.97
9 TATA PURE EQUITY 77.18 -49.21 61.32 42.63 44.35 35.254
49.27 50.2 0.97 0.99
10 TEMPLETON INDIA
GROWTH 104.7 -51 63.11 30.52 34.93 36.452
57.13 50.2 1.09 0.96

Beta
The beta shows the volatility of the fund with comparison to market. A Beta of less than 1 is
said to be less risky funds. The TATA GROWTH fund is having highest beta of 1.11 when
compared to other funds under SENSEX as benchmark. the study shows that the fund is more
volatile than market and riskier because its beta is more than 1.

STANDARD DEVIATION ;
The s.d measures the risk of the security. It shows the how much risk involved in getting the
return from security. From the study it has been found that the TATA GROWTH (i.e s.d
57.62) fund is having highest s.d among the other funds and the index SENSEX(50.23). This
shows that the fund deviates more than the market in getting the return and also considered to
be riskier fund.
 Correlation
From the analysis it is found that all the funds are positively correlated. Here franklin india
bluechip & HDFC INDEX SENSEX PLUS which has highest correlation compare others
which is more than one this two mutual fund company are highly correlated index

BSE 100

5yrs
Avg
Name of Scheme returns(annualized) return
SD BETA CORR
200 200 ELAT
9 8 2007 2006 2005 ION
-
DSPBR T.I.G.E.R 75.9 58.1
9 9 82.85 52.43 53.57 41.33 57.23 1.09 0.96
DSPBR TOP 100 EQUITY -
REG 77.1 45.5
3 4 64.93 46.6 42.9 37.204 48.30 0.95 0.99
MAGNUM CONTRA
90.55 -53.14 66.29 50.48 70.92 45.02 56.70 1.11 0.98
MAGNUM EQUITY
87.94 -56.29 71.28 51.47 42.77 39.434 56.32 1.11 0.99
MANUM GLOBAL
119.56 -66.65 52.37 56.63 78.02 47.986 69.39 1.36 0.98
MAGNUM MULTIPLIER
PLUS
87.53 -55.19 64.89 49.83 70.17 43.446 56.76 1.11 0.98
MORGAN STANLY
GROWTH
81.76 -56.76 46.47 36.22 47.83 31.104 52.03 1.03 0.99
RELIANCE GROWTH
97.4 -54.11 76.85 41 68.73 45.974 59.49 1.15 0.97
RELIANCE VISION
82.13 -51.92 56.62 45.8 53.47 37.22 51.66 1.02 0.99
TAURUS BONAZA
79.3 -61.92 62.27 36.84 60.4 35.378 56.45 1.10 0.98
 BETA

The beta shows the volatility of the fund with comparison to market. A Beta of less than 1 is
said to be less risky funds. The magnum global fund is having highest beta of 1.36 when
compared to other funds under bse 100 as benchmark. the study shows that the fund is more
volatile than market and riskier because its beta is more than 1.

STANDARD DEVIATION;
The s.d measures the risk of the fund. It shows the how much risk involved in getting the
return from fund. From the study it has been found that the DSPBR T.I.G.E.R(i.e. s.d 57)
fund is having highest s.d among the other funds and the index BSE 100(50). This shows that
the fund deviates more than the market in getting the return and also considered to be riskier
fund.

Correlation
From the analysis it is found that all the funds are positively correlated. Here difference
between the companies are not much significant still DSPBR TOP 100 EQUITY REG & MAGNUM
EQUITY COMPANIES ARE HIGHELY CORRELATED COMPARE TO OTHERS .

S&P CNX NIFTY

5yrs
Name of Avg
Scheme returns(annualized) return
SL SD S,D of BETA CORR
NO 200 200 index ELATI
9 8 2007 2006 2005 ON
1 DSPBR EQUITY -D
90.65 -49.7 70.29 47.09 52.93 42.252 54.13 48.8 1.11 1.00
2 DSPBR
OPPORTUNITIES
86.45 -55.1 59.85 43.96 49.88 37.008 54.00 48.8 1.10 1.00
3 DWS ALPHA
EQUITY REG
65.17 -48.3 67.15 49.01 31.22 32.85 47.62 48.8 0.96 0.98
4 -
ESCORTS GROWTH72.2 59.1
3 6 78.75 29.52 55 35.268 56.12 48.8 1.11 0.96
5 -
FORTIS EQUITY 56.7 56.5
6 3 68.3 37.81 54.38 32.144 50.75 48.8 0.99 0.96
6 ICICI PRU 134. - 39.65 28.69 63.74 42.368 68.01 48.8 1.27 0.91
 DISCCOVERY 54.5
32 6
7 -
ICICI PRU 79.9 44.7
DYNAMIC 3 9 40.78 58.31 58.51 38.548 48.61 48.8 0.95 0.96
8 L & T GROWTH
75.88 -58.72 51.07 38.89 41.84 29.792 51.57 48.8 1.05 1.00
9 L & T
OPPORTUNITIES
96.92 -60.02 87.06 38.7 37.52 40.036 62.18 48.8 1.25 0.98
10 SAHARA GROWTH
69.71 -43.15 60.32 42.32 39.06 33.652 44.76 48.8 0.91 1.00

BETA
The beta shows the volatility of the fund with comparison to market. A Beta of less than 1 is
said to be less risky funds. The L & T OPPORTUNITIES fund is having highest beta of 1.25
when compared to other funds under S&P CNX NIFTY as benchmark. the study shows that
the fund is more volatile than market and riskier because its beta is more than 1

STANDARD DEVIATION;
The s.d measures the risk of the fund It shows the how much risk involved in getting the
return from fund. From the study it has been found that the L & T OPPORTUNITIES (i.e. s.d
62.18) fund is having highest s.d among the other funds and the index S&P CNX NIFTY
(48.80). this shows that the fund deviates more than the market in getting the return and also
considered to be riskier fund.

CORRELATION
From the analysis it is found that all the funds are positively correlated. Here difference
between the companies is not much significant still DSPBR OPPORTUNITIES
L & T GROWTH companies are highly correlated compare to others.
 SHARPS INDEX RNKING
FUND RANK PERFORMANCE
RATIO SENSEX
FUND NAME Sensex
4
franklin india bluechip 33.95
2
HDFC GROWTH 35.30
5
HDFC INDEX SENSEX
PLUS 33.27
JM EQUITY 7
28.24
LICMF EQUITY 9
25.25
LICMF GROWTH 10
24.83
LICMF INDEX SENSEX 8
ADVANTAGE
25.78
TATA GROWTH 6
33.03
TATA PURE EQUITY 3
35.11
TEMPLETON INDIA GROWTH 1
36.33

Sharps index calculation interprets that TEMPLETON INDIA GROWTH & franklin india bluechip
Have shown good performance compare to other companies and stood at first and second in
ranking. But LICMF EQUITY & LICMF GROWTH have shown comparatively poor
performance and stood at ninth and tenth respectively.
 FUND RANK BSE 100
FUND NAME RATIO
DSPBR T.I.G.E.R 5
41.20
DSPBR TOP 100 EQUITY REG 8
37.06
MAGNUM CONTRA
44.90 3
MAGNUM EQUITY 6
39.31
MAGNUM GLOBAL
47.89 1
MAGNUM MULTIPLIER PLUS 4
43.32
MORGAN STANLY GROWTH 10
30.97
RELIANCE GROWTH
45.86 2
RELIANCE VISION 7
37.08
TAURUS BONAZA 9
35.25

sharps index calculation interprets that MAGNUM GLOBAL & RELIANCE GROWTH have shown
good performance compare to other companies and stood at first and second in ranking. But
TAURUS BONAZA & MORGAN STANLY GROWTH have shown comparatively poor performance
and stood at ninth and tenth respectively
 FUND RANK
RATIO SHARPS
FUND NAME
DSPBR EQUITY -D 2
INDEX OF
42.12 S&P CNX
DSPBR OPPORTUNITIES 5 NIFTY
36.88
DWS ALPHA EQUITY REG 9
32.70
ESCORTS GROWTH 6
35.14
FORTIS EQUITY 8
32.01
ICICI PRU DISCCOVERY 1
42.27
ICICI PRU DYNAMIC 4
38.40
L & T GROWTH 10
29.66
L & T OPPORTUNITIES 3
39.92
SAHARA GROWTH 7
33.50

sharps index calculation interprets that ICICI PRU DISCCOVERY & DSPBR EQUITY –D.
Have shown good performance compare to other companies and stood at first and second in
ranking. But DWS ALPHA EQUITY REG & L & T GROWTH have shown comparatively poor
performance and stood at ninth and tenth respectively
 FUND RANK
FUND NAME RATIO
4 Treynors Ratio
franklin india bluechip 26.95 SENSEX
2
HDFC GROWTH 28.15
6
HDFC INDEX SENSEX PLUS 26.05
JM EQUITY 7
21.23
LICMF EQUITY 9
18.35
LICMF GROWTH 10
17.83
LICMF INDEX SENSEX 8
ADVANTAGE
18.55
TATA GROWTH 5
26.85
TATA PURE EQUITY 3
28.04
TEMPLETON INDIA GROWTH 1
30.03

Treynor’s index calculation interprets that TEMPLETON INDIA GROWTH & HDFC
GROWTH have shown good performance compare to other companies and stood at first and
second in ranking. But LICMF EQUITY & LICMF GROWTH have shown comparatively
poor performance and stood at ninth and tenth respectively

BSE 100
 FUND RANK
FUND NAME RATIO
DSPBR T.I.G.E.R 5
34.91
DSPBR TOP 100 EQUITY REG 8
29.84
MAGNUM CONTRA 3
38.71
MAGNUM EQUITY 6
33.13
MANGUM GLOBAL 1
42.84
MAGNUM MULTIPLIER PLUS 4
37.14
MORGAN STANLY GROWTH 10
24.31
RELIANCE GROWTH 2
39.89
RELIANCE VISION 7
30.36
TAURUS BONAZA 9
29.01
Treynor’s index calculation
interprets that MAGNUM GLOBAL & RELIANCE GROWTH have shown good performance compare
to other companies and stood at first and second in ranking. But TAURUS BONAZA & MORGAN
STANLY GROWTH have shown comparatively poor performance and stood at ninth and tenth
respectively

S&P CNX NIFTY

 FUND RANK
FUND NAME RATIO
DSPBR EQUITY -D 2
42.12
DSPBR OPPORTUNITIES 5
36.88
DWS ALPHA EQUITY REG 8
32.70
ESCORTS GROWTH 6
35.14
FORTIS EQUITY 9
32.01
ICICI PRU DISCCOVERY 1
42.27
ICICI PRU DYNAMIC 4
38.40
L & T GROWTH 10
29.66
L & T OPPORTUNITIES 3
39.92
SAHARA GROWTH 7
33.50

Treynor’s index calculation interprets that ICICI PRU DISCCOVERY & DSPBR EQUITY –D
have shown good performance compare to other companies and stood at first and second in
ranking. But FORTIS EQUITY & L & T GROWTH have shown comparatively poor
performance and stood at ninth and tenth respectively

FINDINGS AND SUGGESTIONS

FINDINGS

1) With the base of Return MANUM GLOBAL (BSE 100) has giving more return comparing to
other bench mark schemes returns like ICICI PRU DISCCOVERY (S&P CNX
NIFTY) has giving second highest return
2) With the help of correlation we can find out That is each scheme has positively
correlated
3) On the base of Sharpe Index and Treynors Index , ICICI PRU DISCCOVERY
is the best because its giving high return

SUGGESTIONS

The following are some suggestions and recommendations:

 As per SEBI guidelines it is mandatory that all the expenses should be disclosed to
SEBI and investors. But in actual practice they do not disclose all expense. They
disclose only the percentage of changes. Asset management companies should
inform every expense clearly.

 Trading in mutual fund is done only by a few customers. This is because people
are ignorant of this .So adequate training should be provided to the customers.
 The mutual fund industry faces a great challenge in the form of educating
distributors or advisors as well as investors about how to perceive and project
MFs. More awareness is needed in Indian investors. So more marketing technique
is needed. This will help to attract more customers
 Asset Management Company’s performance is also a key factor. AMC should be
careful in each movement. Otherwise investors will switch over to other
investment opportunities.
 The industry will have to ensure that it has enough trained personnel – especially
fund managers and marketing managers who are able to handle the increasing
business.
 PROJECT REPORT
PART- B

TOPIC- Mutual Funds Analysis

SUBMITTED TO,

RASHMI KODIKAL
ASS’ PROFESSOR,
PG DER’T OF BUSINESS ADMINISTRATION
P.A.C.E MANGALORE

SUBMITTED BY,

Raju,S,Waggar
4TH SEM, REG NO. 4PAO8MBA35
PG DER’T OF BUSINESS ADMINISTRATION
P.A.C.E MANGALORE

DATE OF SUBMISSION: 05/04/2010

REMARK: