IDFC Project

Performance Evaluation of IDFC Mutual Funds
PROJECT REPORT
ON
“PERFORMANCE
EVALUATION OF IDFC
MUTUAL FUNDS”
CHAPTER I
INTRODUCTION
1.1 INTRODUCTION TO THE STUDY
In few years Mutual Fund has emerged as a tool for ensuring one’s financial well being. Mutual
Fund indystry has not only contributed to the India’s growth story but has also helped families
tap into the success of Indian Industries. Inorder to attract more investors towards Mutual Funds
it is essential to evaluate the various funds from time to time. This study uses various tools for
mesuring risks and returns associated with various Equity diversified growth funds offered by
IDFC Mutual funds. This project helps the AMC to tell the investors not only about the various
risks and returns associated with the various scheams but also how the investment is being made
i.e how various companies are chosen for investment inorder to fill the investment objective of
the scheams. Also the various scheams are suggested to investors based on the risk and return
appetite of the invetors.
1.2 STATEMENT OF THE PROBLEM
With a plethora of schemes to choose from, the retail investor faces problems in selecting funds.
Factors such as investments strategy & management style are qualitative, but the funds record is
an important indicator too. Though past performance alone cannot be indicative of future
performance, it is the only quantitative way to judge how good a fund is at present. Therefore,
there is a need to correctly assess the past performance of different mutual funds. The evaluation
of the funds helps the AMC to show the investors how the fund has performed in past few
Quarters, not only this attractive representation of the evaluation helps in attracting the investors.
The evaluation would also help the investors to choose the appropriate scheme in order to ensure
better returns for their investments.
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In this study an attempt is made to evaluate the performance of equity diversified growth
oriented mutual fund schemes of IDFC Mutual Funds on the basis of quarterly returns compared
to benchmark returns. For this purpose, risk adjusted performance measures suggested by
Jenson, Treynor, Sharp and Fama are employed.
1.3 OBJECTIVES OF THE STUDY

• To understand the various mutual fund schemes offered by the IDFC
• To evaluate the performance of various equity diversified growth oriented funds

offered by IDFC Mutual Funds.
• To measure & analyze the return of the selected equity funds offered by IDFC Mutual
Funds and compare them with the benchmarks returns.
• To suggest the investor on basis of the performance of various IDFC mutual schemes
based on investors risk appetite.
1.4 SCOPE OF THE STUDY

 The study considers selected equity diversified growth oriented mutual fund schemes of
IDFC.
 The performance of the mutual fund scheme is evaluated, based on the quarterly returns
from the date of inception of the fund till 31st March 2010.
 The returns of the schemes are compared with their respective benchmarks.
 The sample of seven equity diversified growth oriented schemes selected for the study
represents the population of equity diversified growth schemes offered by IDFC.
1.5 TIME FRAME

The various funds have been evaluated from their date of the inceptions till 31st March 2010.
This time frame was taken in order to check how funds have performed from the time they were
introduced till March 2010.
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1.6 LIMITATIONS OF STUDY

 The study only takes into equity funds offered by IDFCMF.
 The data’s are collected from secondary sources and hence limitation of secondary data is
applicable.
 The study considers only few ratios, which are most significant for the investors.
 The data’s are taken only for the selected periods.
 Insufficient data for analysis.
 Only limited models are taken to find the technical analysis.
1.7 CHAPTER SCHEME
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CHAPTER 2
MUTUAL FUNDS IN INDIA

2.1 INDUSTRY PROFILE
The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the
initiative of the Government of India and Reserve Bank of India.
The history of mutual funds in India can be broadly divided into four distinct phases:
First Phase – 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of
Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and
administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI
and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative
control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of
1988 UTI had Rs.6,700 crores of assets under management.
Second Phase – 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI,
public sector mutual funds set up by public sector banks and Life Insurance Corporation of India
(LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non-
UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab
National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun
90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while
GIC had set up its mutual fund in December 1990. 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
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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, 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. The graph indicates the growth of assets over the years.
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2.2 CONCEPT OF A MUTUAL FUND
A mutual fund is a common pool of money into which investors place their contributions
that are to be invested with a stated objective. The ownership of the fund is thus joint or mutual
and the fund belongs to all investors. A single investors ownership of the fund is in the same
ratio as the amount of contribution made by him or bears to the total amount of the fund.
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.
The following simple diagram clearly shows the working of a mutual fund:
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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.
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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.
ORGANISATION OF A MUTUAL FUND
There are many entities involved and the diagram below illustrates the organisational set up of a
mutual fund:
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Mutual funds have a unique structure not shared with other entities such as companies of firms.
It is important for employees & agents to be aware of the special nature of this structure, because
it determines the rights & responsibilities of the fund’s constituents viz., sponsors, trustees,
custodians, transfer agents & of course, the fund & the Asset Management Company(AMC) the
legal structure also drives the inter-relationships between these constituents.
The structure of the mutual fund India is governed by the SEBI (Mutual Funds) regulations,
1996. These regulations make it mandatory for mutual funds to have a structure of sponsor,
trustee, AMC, custodian. The sponsor is the promoter of the mutual fund,& appoints the trustees.
The trustees are responsible to the investors in the mutual fund, & appoint the AMC for
managing the investment portfolio. The AMC is the business face of the mutual fund, as it
manages all affairs of the mutual fund. The mutual fund & the AMC have to be registered with
SEBI. Custodian, who is also registered with SEBI, holds the securities of various schemes of the
fund in its custody
• Sponsor:
The sponsor is the promoter of the mutual fund. The sponsor establishes the Mutual fund &
registers the same with SEBI. He appoints the trustees, Custodians & the AMC with prior
approval of SEBI, & in accordance with SEBI regulations. He must have at least five year track
record of business interest in the financial markets. Sponsor must have been profit making in at
least three of the above five years. He must contribute at least 40% of the capital of the AMC.
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• Trustees:
The Mutual Fund may be managed by a Board of trustees a of individuals, or a trust company – a
corporate body. Most of the funds in India are managed by board of trustees. While the board of
trustees is governed by the provisions of the Indian trust act, where the trustee is the corporate
body, it would also be required to comply with the provisions of the companies act, 1956. the
board of trustee company, as an independent body, act as protector of the unit-holders interest.
The trustees don’t directly manage the portfolio of securities. For this specialist function, they
appoint an AMC. They ensure that the fund is managed by AMC as per the defined objectives &
in accordance with the trust deed & SEBI regulations.
The trust is created through a document called the trust deed i.e., executed by the fund sponsor in
favor of the trustees. The trust deed is required to be stamped as registered under the provision of
the Indian registration act & registered with SEBI. The trustees begin the primary guardians of
the unit-holders funds & assets, a trustee has to be a person of high repute & integrity.
• Asset Management Company(AMC):
The role of an Asset management companies is to act as the investment manager of the trust.
They are the ones who manage money of investors. An AMC takes decisions, compensates
investors through dividends, maintains proper accounting & information for pricing of units,
calculates the NAV, & provides information on listed schemes. It also exercises due diligence on
investments & submits quarterly reports to the trustees. AMCs have been set up in various
countries internationally as an answer to the global problem of bad loans.
Bad loans are essentially of two types: bad loans generated out of the usual banking operations or
bad lending, and bad loans which emanate out of a systematic banking crisis.
It is in the latter case that banking regulators or governments try to bail out the banking system of
a systematic accumulation of bad loans which acts as a drag on their liquidity, balance sheets and
generally the health of banking. So, the idea of AMCs or ARCs is not to bail out banks, but to
bail out the banking system itself.
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SOURCE: AMFI WEBSITE
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.
Load and No-Load Funds
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Marketing of a new mutual fund scheme involves initial expenses. These expenses may be
recovered from the investors in different ways at different times. Three usual ways in which a
fund's sales expenses may recover from the investors are:
1. At the time of investor's entry into the fund/scheme, by deducting a specific amount from
his Initial contribution, or
2. By charging the fund/scheme with a fixed amount each year, during the stated number of
years, or
3. At the time of the investor's exit from the fund/scheme, by deducting a specified
amount from the redemption proceeds payable to the investor.
These charges made by the fund managers to the investors to cover distribution/sales/marketing
expenses often called "loads". The load charged to the investor at the time of his entry into a
scheme is called “front-end or entry load". The load amount charged to the scheme over period
of time is called a deferred load. The load that the investor pays at the time his exit is called a
"back-end or exit load".
Some funds may also charge different amounts of loads to the investors, depending upon how
many years the investor is stayed with the fund; the longer the investor stays with the fund, less
the amount of” exit load" he charged. This is called “contingent deferred sales charge".
Funds that charge front-end, back-end or deferred loads are called load funds. Funds that make
no such charges or loads for sales expenses are called no-load funds.
A load fund's declared NAV does not include the loads. Hence, a new investor must add any
front-end load amount per unit the NAV per unit to calculate his purchase price. An outgoing
investor needs to deduct the amount of any back-end load per unit from his sale price per unit to
get to know the net sale proceeds he would receive.
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.
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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.
Broad Fund types by Nature of Investments
Mutual funds may invest in equities, bonds or other fixed income securities, or short-term
money market securities. So we have Equity, Bond and Money Market Funds. All of them invest
in financial assets. But there are funds that invest in physical assets. For example, we may have
Gold or other Precious Metals Funds, or Real Estate Funds.
Broad Fund Types by Investment Objective
Investors and hence the mutual funds pursue different objectives while investing. Thus, Growth
Funds invest for medium to long-term capital appreciation. Income Funds invest to generate
regular income, and less for capital appreciation. Value Funds invest in equities that are
considered under-valued today, whose value will be unlocked in the future.
Broad Fund Types by Risk Profile
The nature of a fund's portfolio and its investment objective imply different levels of risk
undertaken. Funds are therefore often grouped in order of risk. Thus, Equity funds have a greater
risk of capital loss than a Debt Fund that seeks to protect the capital while looking for income.
Money Market Funds are exposed to less risk than even the Bond Funds,' since they invest in
short-term fixed income securities, as compared to longer-term portfolios of Bond Funds.
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
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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.
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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
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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.
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.
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 Linked Saving Schemes: An Indian Variant
In India, the investors have been given tax concessions to encourage them to invest in equity
markets through these special schemes. Investment in these schemes entitles the investor to claim
an income tax rebate, but usually has a lock-in period before the end of which funds cannot be
withdrawn. These funds are subject to the general SEBI investment guidelines for all equity
funds, and would be in the Diversified Equity Fund category. However, as there are no specific
restrictions on which sectors these funds ought to invest in, investors should clearly look for
where the Fund Management Company proposes to invest and accordingly judge the level of risk
involved.
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
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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.
Hybrid Funds – Quasi Equity/Quasi Debt
Money market holdings will constitute a lower proportion in the overall portfolios of debt or
equity funds. There are funds that, however, seek to hold a relatively balanced holding of debt
and equity securities in their portfolio. Such funds are termed "hybrid funds" as they have a dual
equity/bond focus.
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
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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.
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
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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.
Disadvantages of Mutual Funds:
 Professional Management-
Did you notice how we qualified the advantage of professional management with the
word "theoretically"? Many investors debate over whether or not the so-called
professionals are any better than you or I at picking stocks. Management is by no means
infallible, and, even if the fund loses money, the manager still takes his/her cut. We'll talk
about this in detail in a later section.
 Costs –
Mutual funds don't exist solely to make your life easier--all funds are in it for a profit.
The mutual fund industry is masterful at burying costs under layers of jargon. These costs
are so complicated that in this tutorial we have devoted an entire section to the subject.
 Dilution –
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It's possible to have too much diversification (this is explained in our article entitled "Are
You Over-Diversified?"). Because funds have small holdings in so many different
companies, high returns from a few investments often don't make much difference on the
overall return. Dilution is also the result of a successful fund getting too big. When money
pours into funds that have had strong success, the manager often has trouble finding a good
investment for all the new money.
 Taxes –
When making decisions about your money, fund managers don't consider your personal
tax situation. For example, when a fund manager sells a security, a capital-gain tax is
triggered, which affects how profitable the individual is from the sale. It might have been
more advantageous for the individual to defer the capital gains liability.
2.3 COMPANY PROFILE
IDFC is a leading private sector diversified financial institution established by a consortium of

strong global & local institutions with the support & sponsorship of the government of India. A
majority of IDFC’s shareholding (67% as of march 31st, 2008) is held by reputed global stalwarts
that include respectable names like government of India, International Finance Corporation (IFC)
– a member of the world bank group, Government of Singapore, AIG, Morgan Stanley, Goldman
Sachs, City Group, JP Morgan among others. The best Indian Financial Institutions such as
HDFC, LIC, SBI & IDBI are owners in IDFC, making it an institution of high repute & standing.
HISTORY OF IDFC
The Fund was established on March 13th 2000. Now the management of the fund has been taken
over by Standard Chartered Bank, the UK based banking conglomerate. The name of the AMC
too has been changed from ANZ AMC. Previously sponsored by ANZ Banking Group,
Australia, this fund has just set up its operations in the year 2000. Australia & New Zealand
Banking Group Limited, the previous sponsor of the fund, is leading International Bank & is also
one of the “Big Four” Australian commercial Banks providing a full range of Banking &
financial services with total assets of US $ 97.35 billion as on 30th September, 1999. ANZ funds
management is a core business unit of the group & its one of Australia’s largest fund managers.
It has a full range of investment product & services managing more than AUD $ 13267.7 million
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in customer funds on 30th September 1999. ANZ Banking group as significant presence in 35
nations from the Middle East to through South Asia & East Asia to Pacific
ASSET MANAGEMENT
IDFC is determined to construct a comprehensive asset management business that consists of :
 Private Equity investments through IDFC Private Equity Co. Ltd.
 Project Equity through IDFC Project Equity Co. Ltd,
 Public Market Investment Advisory Services through IDFC investment Advisors

Limited.
IDFC Private Equity manages a corpus of US $ 630 million & is India’s largest & most active
private equity focused on Infrastructure. The two funds under management are India
Development Fund (IDF) & IDFC Private equity fund.
IDFC, along with citigroup & India Infrastructure finance company limited (IIFCL) launched a
landmark US $ 5 billion initiative for financing infrastructure projects in India. The Equity fund
will be solely managed by IDFC. IDFC plans to raise approximately $ 1.7 billion in private &
project funds focused on Infrastructure. The objective is to build a large asset management
platform focused on private investments & public markets through a variety of domestic &
offshore products.
IDFC PRODUCT
RANGE
DEBT FUNDS
BALANCED
ASSET
EQUITY FUNDS
STRATEGI LIQUID FUNDS
FUNDS CASH
SMALL
C TAX ASSET
ASSET FUND
ARBITRA MONTHLY
AND
ENTERPRI
CLASSIC
ADVANTA
PREMIER ALLOCATION
ALLOCATION
ALLOCATION 22
IMPERIAL
SECTOR
GE SE
GE INCOME PLAN
MIDCAP MODERATE
AGGRESSIVE
EEVV
SUPER SAVER
INCOME
(SSI)
LIQUIDI
TY
DYNAMIC BOND
MANAG
ERR
GOVERNMENT
SECURITIES
MONEY MANAGER
SSI-INVESTMENT
SSI-SHORT TERM
ALL SEASON
FUND
23
IDFC PRODUCT RANGE
The categories of funds offered by IDFC are Equity funds, Debt funds & Liquid funds which is
further categorized in to different types as shown in the chart below:
EQUITY FUND IDEAL INVESTMENT DATE OF

HORIZON INCEPTION
Classic Equity Fund 3 yrs or more 9th Aug 2005
Imperial Equity Fund 3 yrs or more 16th March 2006
Premier Equity 3 yrs or more 28th sep 2005

Enterprise Equity Fund 3 yrs or more 9th June 2006
Small & Midcap Equity 1 yrs or more 7th March 2008
(SME)fund
Strategic Sector(50-50) 3 yrs or more 3rd Oct 2008
Tax Advantage (ELSS)Fund Lock in period of 3yrs 26th Dec 2008
Nifty Fund 3 yrs or more 30th April 2010

INDIA GDP growth fund 3 yrs or more 11th March 2009
24
25
DEBT FUND IDEAL INVESTMENT DIVIDEND FREQUENCY DATE OF

HORIZON INCEPTION
Super Saver Income 1 Year or more Quarterly, Half Yearly, 14th July 2000
Fund- Investment Annually
Dynamic Bond Fund 1 Year or more Quarterly & Annually 25th June 2002
Super Saver Income 6 months or more Bi-monthly, Monthly, 8th July 2003
Fund- Medium Term Fortnightly & daily
Super saver Income 3 months or more Monthly, Fortnightly 14th December

Fund-Short Term 2000
Money Manager Fund- 1 day or more Monthly & Daily/Weekly 18th February
Treasury plan with compulsory 2003
reinvestment
Money Manager 1 day or more Daily & Weekly(with 9th August 2004
Fund –Investment Plan reinvestment facility in both
Plan A &plan B), Monthly,
Quarterly and Annual.
Government Securities 1 year or more Quarterly/Half yearly/Yearly 9th March 2002

Fund-Investment Plan
All Seasons Bond 1 year or more Quarterly/Half yearly & 13th September
Fund Annual 2004
Liquid Funds IDEAL INVESTMENT DATE OF INCEPTION

HORIZON
26
Cash Funds 1 Day or More 2nd July 2001
Source: Fund review of IDFC for the month of May 2010
SWOT ANALYSIS OF IDFC MUTUAL FUND
Strengths
 Good brand name of the company in all over India.
 Flexible products.
 Expertise in the field of Mutual Fund.
 Sound Financial Resources of the company as well as sponsors.
 Strong communication network all over the country.
Weakness
 Less awareness regarding mutual funds among the investors.
 Yet to build strong distribution network.
 Has not yet tapped the potential of rural market.
Opportunities
 Tap the untapped rural market
 Increasing income of the people provide an opportunity to come up with products to fulfill
their need.
Threats
 The numbers of players are increasing which further increases the competition.
 Product innovation done by other asset management companies & is able to collect large
amounts.
 Customer mindsets are still rigid & they mostly prefer traditional pattern of investments.
CHAPTER 3
27
REVIEW OF LITERATURE
CHAPTER 4
RESEARCH METHODOLOGY
28
4.1 RESEARCH DESIGN
The research design is descriptive in nature, the study attempts to analyze & evaluate the existing
data system, through the financial data. For this purpose, risk adjusted performance measures
suggested by Jenson, Treynor, Sharpe and Fama are employed. Here the comparison is done on
the various schemes offered by IDFC Mutual Fund and is used to check how did the fund
perform during the recession and how it is performing when the market is on its path of recovery.
The analysis is done on the percentage of returns from the last three consecutive years (2007-10)
4.2 SAMPLING DESIGN
The sampling design used is convenience Sampling. Seven equity diversified growth oriented
mutual fund schemes offered by IDFC have been selected.
In this study seven equity diversified growth oriented schemes have been considered. They are-:
 Enterprise Equity Fund
 Imperial Equity Fund
 Premier Equity Fund
 Strategic Sector (50-50) Fund
 Tax Advantage(ELSS) Fund
 Small And Midcap Equity Fund
The Research method is descriptive in nature. The whole study is based on secondary data. They
are:
1. Information collected from the company.
2. Information from the internet.
3. Data collected from newspaper, books, journals and from reports of researchers.
4. Data collected from National stock Exchange websites & brochures.
4.3 TOOLS USED FOR ANALYSIS
29
Worldwide, good mutual fund companies over are known by their AMCs and this fame is
directly linked to their superior stock selection skills. For mutual funds to grow, AMCs must be
held accountable for their selection of stocks. In other words, there must be some performance
indicator that will reveal the quality of stock selection of various AMCs.
Return alone should not be considered as the basis of measurement of the performance of a
mutual fund scheme, it should also include the risk taken by the fund manager because different
funds will have different levels of risk attached to them. Risk associated with a fund, in a
general, can be defined as variability or fluctuations in the returns generated by it. The higher the
fluctuations in the returns of a fund during a given period, higher will be the risk associated with
it. These fluctuations in the returns generated by a fund are resultant of two guiding forces. First,
general market fluctuations, which affect all the securities, present in the market, called market
risk or systematic risk and second, fluctuations due to specific securities present in the portfolio
of the fund, called unsystematic risk. The Total Risk of a given fund is sum of these two and is
measured in terms of standard deviation of returns of the fund. Systematic risk, on the other
hand, is measured in terms of Beta, which represents fluctuations in the NAV of the fund vis-à-
vis market. The more responsive the NAV of a mutual fund is to the changes in the market;
higher will be its beta. Beta is calculated by relating the returns on a mutual fund with the returns
in the market. While unsystematic risk can be diversified through investments in a number of
instruments, systematic risk cannot. By using the risk return relationship, we try to assess the
competitive strength of the mutual funds vis-à-vis one another in a better way.
In order to determine the risk-adjusted returns of investment portfolios, several eminent authors
have worked since 1960s to develop composite performance indices to evaluate a portfolio by
comparing alternative portfolios within a particular risk class. The most important and widely
used measures of performance are:
 The Treynor Measure

 The Sharpe Measure
 Jenson Model
 Fama Model
The Treynor Measure
Developed by Jack Treynor, this performance measure evaluates funds on the basis of Treynor's
Index. This Index is a ratio of return generated by the fund over and above risk free rate of return
(generally taken to be the return on securities backed by the government, as there is no credit risk
associated), during a given period and systematic risk associated with it (beta). Symbolically, it
can be represented as:
Treynor's Index (Ti) = (Ri - Rf)/Bi.
Where, Ri represents return on fund, Rf is risk free rate of return and Bi is beta of the fund.
30
All risk-averse investors would like to maximize this value. While a high and positive Treynor's
Index shows a superior risk-adjusted performance of a fund, a low and negative Treynor's Index
is an indication of unfavorable performance.
The Sharpe Measure
In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is a ratio of
returns generated by the fund over and above risk free rate of return and the total risk associated
with it. According to Sharpe, it is the total risk of the fund that the investors are concerned about.
So, the model evaluates funds on the basis of reward per unit of total risk. Symbolically, it can be
written as:
Sharpe Index (Si) = (Ri - Rf)/Si
Where, Si is standard deviation of the fund.
While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund, a
low and negative Sharpe Ratio is an indication of unfavorable performance.
Jenson Model
Jenson's model proposes another risk adjusted performance measure. This measure was
developed by Michael Jenson and is sometimes referred to as the Differential Return Method.
This measure involves evaluation of the returns that the fund has generated vs. the returns
actually expected out of the fund given the level of its systematic risk. The surplus between the
two returns is called Alpha, which measures the performance of a fund compared with the actual
returns over the period. Required return of a fund at a given level of risk (Bi) can be calculated
as:
Ra# = Rf + Bi (Rm - Rf)
α = Ri – [ rf + βi( Rm – Rf)]
Where, Rm is average market return during the given period. After calculating it, alpha can be
obtained by subtracting required return from the actual return of the fund.
Higher alpha represents superior performance of the fund and vice versa. Limitation of this
model is that it considers only systematic risk not the entire risk associated with the fund and an
ordinary investor can not mitigate unsystematic risk, as his knowledge of market is primitive.
Fama Model
The Eugene Fama model is an extension of Jenson model. This model compares the
performance, measured in terms of returns, of a fund with the required return commensurate with
the total risk associated with it. The difference between these two is taken as a measure of the
performance of the fund and is called net selectivity.
31
The net selectivity represents the stock selection skill of the fund manager, as it is the excess
return over and above the return required to compensate for the total risk taken by the fund
manager. Higher value of which indicates that fund manager has earned returns well above the
return commensurate with the level of risk taken by him.
Required return can be calculated as: Ra# = Rf + Si/Sm*(Rm - Rf)
Where, Sm is standard deviation of market returns. The net selectivity is then calculated by
subtracting this required return from the actual return of the fund.
STATISTICAL TOOLS
The various statistical used in this research are -:
Mean
The mean is the mathematical average of a set of numbers. The average is calculated by adding
up two or more scores an giving the total by the number of scores.
Mean= ∑X
Where:
X= Values in the set
N= Number of values in the set
Here the need to calculate the mean arises because the returns are considered over 12 quarters.
So it is necessary to get a average return, that can be used for the calculation.
The various mean calculated here are as follows-:
Mean of the returns of the portfolio -: Ra
Mean of the returns from market or risk free return -: Ra*
Standard Deviation
It measures how widely values are dispersed from the average. Dispersion is the difference
between the actual value and the average value. The larger the difference between the closing
prices and the average price, the higher the standard deviation will be and the higher the
volatility and vice verse.
32
∑ (R – Ra) 2
Standard Deviation of return = N-1
Here it is necessary to calculate the standard deviation of the returns of the portfolio to get to
know the total risk associated with the portfolio.
The various standard deviation calculated here are-:
Standard deviation of the return of portfolio -: σi
Standard deviation of the return of market -: σm
Covariance
It is a measure of the degree to which returns on two risky assets move in tandem. A positive
covariance means that asset returns move together. A negative covariance means returns move
inversely.
One method of calculating covariance is by looking at return surprises (deviations from expected
return) in each scenario. Another method is to multiply the correlation between the two variables
by the standard deviation of each variable.
∑ (RA – RA*) (RM –

a) COV (RA, RM) = RM*)
(N-1)
R-Squared
It is a statistical measure that represents the percentage of a fund or security's movements that
can be explained by movements in a benchmark index.
R-squared values range from 0 to 100. An R-squared of 100 means that all movements of
a security are completely explained by movements in the index. A high R-squared (between 85
and 100) indicates the fund's performance patterns have been in line with the index. A fund with
a low R-squared (70 or less) doesn't act much like the index.
A higher R-squared value will indicate a more useful beta figure. For example, if a fund has an
33
R-squared value of close to 100 but has a beta below 1, it is most likely offering higher risk-
adjusted returns. A low R-squared means you should ignore the beta.
Beta
It is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to

the market as a whole. Beta is used in the capital asset pricing model (CAPM), a model that
calculates the expected return of an asset based on its beta and expected market returns..
Beta is calculated using regression analysis, and you can think of beta as the tendency of a
security's returns to respond to swings in the market. A beta of 1 indicates that the security's
price will move with the market. A beta of less than 1 means that the security will be less volatile
than the market. A beta of greater than 1 indicates that the security's price will be more volatile
than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the
market.
∑ (RA – RA*) (RM –
a) Beta =
RM*)
(RM – RM*) 2
OR
COV (RA,
Beta (βA) =
RM)
σ2M
Beta value of the benchmark is considered to be 1.
SPSS has been used for analyzing the data and for generating various tables.
4.4 TERMS USED

Net Asset Value (NAV)-: is the term used for the value of a mutual fund share. The
calculation to determine NAV is
NAV = (Assets – Liabilities) / Outstanding Shares

Or
NAV = Net Assets / Outstanding Shares
34
Here the NAV of different funds have been taken from the AMC itself.
[ NOTE:
Opening NAV indicates the value at the beginning of the quarter.
Closing NAV indicates the value at the end of the quarter. ]
Return -: = return is defined as income earned for amount invested over a given period of time.
It is standardized as “%” per annum. It can be calculated as follows
Ending NAV – Beginning

NAV
a) Returns =
Beginning NAV
Return can also be defined as the amount or rate of proceeds, gain, profit which accrues to an
economic agent from an undertaking or enterprise or real/ financial investment. It is a motivating
force behind investment, the objective of an investor is usually to maximize return.
CHAPTER 5
DATA ANALYSIS AND INTERPRETATION

5.1 PREMIER EQUITY FUND (PEF)
Investment objective -: The scheme shall seek to generate long-term capital growth from an
actively managed portfolio of predominately equity and equity related instruments.
35
Investment style -: In this fund the focus is on buying great companies at low valuation with a
long term prospective. The scheme portfolio would seek to acquire, inter alia, small and medium
size business with good long term potential, which are available at cheap valuation. Such
securities would be identified through disciplined fundamental research keeping in view medium
to long term trends in the business environment. The scheme shall endeavor to accumulate long
term investor wealth by opening subscriptions to units during periods when stocks are available
at reasonable valuation.
Benchmark -: BSE500 is the benchmark for this fund. It consists of 500 scripts and it represents
20 major industries of the economy.
Particulars Premier Equity fund BSE 500
Average Return 7.8373 5.4698
Beta 1.0297 1
R-Square 0.878
Standard deviation 22.4263 20.4081
Treynor 0.1527 -2.2102
Sharpe 0.007014 -0.1083
Jenson’s alpha 2.4331 0
Fama 2.5860 0
36
PEF
60
40
RETURNS
20
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
-20
-40
TIME HORIZON
Fund returns Market returns
a) The average return of the fund is 7.84% where as that of the benchmark is 5.47%
b) The beta value of the fund is 1.0297 which means that the fund is .0297% more volatile
than the benchmark.
c) R-square value is 0.88
d) The standard deviation of the fund is 22.43 whereas that of the bench mark is 20.41
which shows that the fund is more volatile than the market, as the total risk associated
with it is more than that of the benchmark.
e) A higher Treynor ratio of 0.15 shows that the fund has a superior-risk adjusted
performance as compared to the benchmark which has Treynor ratio of -2.21
f) A positive Sharpe ratio (0.007) of the fund as compared to the negative sharpe ratio if the
benchmark (-0.1083) means that the total risk adjusted performance of the fund is more
than that of the benchmark.
g) A positive Jensens alpha value (2.43) shows us that the fund returns are more than what
the investors expect with a given β value of 1.03.
h) A positive Fama’s net selectivity value (2.59) shows us that the fund returns are more
than what investors expect with respect to the total risk (standard deviation) of the fund
as well as the market.
5.2 STRATEGIC SECTOR (50-50) EQUITY FUND
37
Investment Objective -: The scheme shall seek to generate long-term capital growth from an
Investment style -: in this fund investment up to 50% of the asset of the scheme shall be done in
a chosen sector while the balance amount may be invested in companies across market
capitalization and across sectors. The scheme may also invest in debt and money market
instruments.
Benchmark-: S&P CNX Nifty is the benchmark for this fund. It consists of leading index for
large companies on NSE. It reflects the returns one would get if an investment is made in the
index portfolio. It takes into account only the stock price movements.
Particulars Strategic Sector (50-50) Fund S&P CNX Nifty
Beta 0.7810 1
R-Square 0.91
Treynor 14.2939 5.4124
Sharpe 0.5020 0.3062
Fama 4.3526 0
38
SSF(50-50)
60
50
40
RETURNS
30
20
10
0
-10 1 2 3 4 5
TIME HORIZON
a) The average return of the fund is 18.8436% where as that of the benchmark is 13.0924%.
b) The beta value of the fund is 0.7810 which means that the fund is less volatile than the
benchmark.
c) R-square value is 0.91.
which shows that total risk associated with fund is more than that of the benchmark.
performance as compared to the benchmark which has lower Treynor ratio of 5.4124.
f) Sharpe ratio (0.5020) of the fund is higher as compared to the benchmark’s Sharpe ratio
(0.3062) means that the total risk adjusted performance of the fund is more than that of
the benchmark.
g) A positive Jensen’s alpha value (6.9365) shows us that the fund returns are more than
what the investors expect with a given β value of 0.7810.
39
5.3 TAX ADVANTAGE (ELSS) FUND
Investment style-: The scheme will invest in well managed growth companies that are available
at reasonable value. Companies would be identified through a systematic process of forecasting
earnings based on a deep understanding of industry growth potential and interaction with
company management.
Benchmark-: BSE200 is the benchmark for this fund. It consists of 200 scripts and it is easy to
track because they are not very concentrated and stocks are more liquid.
Tax Advantage Fund

Particulars (ELSS) BSE 200
Beta 0.5001 1
R-Square 0.910
Treynor 10.016 7.4141
Sharpe 0.4095 0.3178
Fama 1.122 0
40
ELSS FUND (TAX ADVANTAGE)
60
50
40
RETURNS
30
20
10
0
1 2 3 4 5
-10
TIM E HORIZON
a) The average return of the fund is 12.6891 where as that of the benchmark is 15.0941.
b) The beta value of the fund is 0.5001 which means that the fund is less volatile than the
benchmark.
which show that the fund is less volatile than the benchmark, as the total risk associated
with it less than that of the benchmark.
performance as compared to the benchmark which has Treynor ratio of 7.4141
f) A higher Sharpe ratio (0.4095) of the fund as compared to lower Sharpe ratio if the
benchmark (0.3178) means that the total risk adjusted performance of the fund is more
than that of the benchmark.
41
5.4 IMPERIAL EQUITY FUND

Investment style -: the scheme seeks to invest predominately in companies based on the
potential value unlocking (subsidiary listing), strong growth in domestic demand and emerging
sector in Indian economy.
Imperial Equity
Particulars Fund S&P CNX Nifty
Beta 0.876 1
R-Square 0.966
Treynor -3.7240 -3.586
Sharpe -0.2107 -0.2065
Jenson’s alpha -0.1209 0
Fama -0.0669 0
42
IEF
50
40
30
20
RETURNS
10
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
-10
-20
-30
TIM E HORIZON
b) The beta value of the fund is 0.876 which means that fund is less volatile than the
benchmark.
d) The standard deviation of the fund is 15.4842 and that of the benchmark is 17.3623
which tell us that the total risk associated with the fund is less than that of the benchmark.
e) The Treynor ratio of fund is -3.724, and that of the benchmark is -3.586.
f) The Sharpe ratio for the fund is -0.2107, and that of the benchmark is -0.2065.
g) Jensens alpha value (-0.1209) shows us that the fund returns are less than what the
investors expect with a given β value of 0.876.
h) Fama’s net selectivity value (-0.0669) shows us that the fund returns are less than what
investors expect with respect to the total risk (standard deviation) of the fund as well as
the market.
5.5 CLASSIC EQUITY FUND
43
Investment style -: The scheme seeks to achieve out of performance through sector rotation,
theme selection, market cap bias and bottom up stock picking
Benchmark-: BSE200 is the benchmark for this fund. It consists of 200 scripts and it is easy to
track because they are not very concentrated and stocks are more liquid.
Particulars Classical Equity Fund BSE 200
Beta 0.8578 1
R-Square 0.961
Treynor -3.7696 -2.4066
Sharpe -0.1841 -0.1199
Jenson’s alpha -1.1692 0
Fama -1.1273 0
CEF
60
40
RETURNS
20
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
-20
-40
TIM E HORIZON
benchmark.
44
which tell us that the total risk associated with the fund is less than that of the benchmark.
g) Jensens alpha value (-1.1692) shows us that the fund returns are less than what the
investors expect with a given β value of 0.8578.
h) Fama’s net selectivity value (-1.1273) shows us that the fund returns are less than what
investors expect with respect to the total risk (standard deviation) of the fund as well as
the market.
5.6 ENTERPRISE EQUITY FUND
actively managed portfolio of predominately equity and equity related instruments. The scheme
may also invest in the debt and money market instruments to generate reasonable income.
Investment style -: The scheme endeavors to generate capital appreciation through investing in
equities by inter alia adopting the mode of applying for IPO or subsequent public offer made by
the companies. If well priced IPOS are not available the funds collected may be invested in the
index, hence generating market returns from the index.
45
Particulars Enterprise Equity fund S&P CNX Nifty
Beta 0.8851 1
R-Square 0.965
Treynor -5.3570 -2.7746
Sharpe -0.2981 -0.1571
Fama -2.2419 0
EEF
50
40
30
RETURNS
20
10
0
-10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
-20
-30
TIME HORIZON
benchmark.
which mean that the total risk associated with the fund is less than that of the benchmark.
46
g) A positive Jensen’s alpha value (-2.2857) shows us that the fund returns are more than
h) A positive Fama’s net selectivity value (-2.2419) shows us that the fund returns are more
5.7 SMALL AND MIDCAP EQUITY FUND
The scheme will predominately invest in small and midcap equity and equity related instrument.
Small and midcap equity and equity related instruments will be the stocks included in the CNX
Midcap index or equity and equity related instruments of such companies which have a market
capitalization lower than the highest components of CNX Midcap index.
The scheme may also invest in stock other than the midcap stocks (i.e. in stocks, which have a
market capitalization of above the market capitalization range of the defined small midcap
stocks) and derivatives. On defensive consideration, the scheme may also invest in debt and
money market instruments.
Investment style -: The scheme will predominately invest in small and midcap equity and equity
related instrument. Small and midcap equity and equity related instruments will be the stocks
included in the CNX Midcap index or equity and equity related instruments of such companies
which have a market capitalization lower than the highest components of CNX Midcap index.
The scheme would predominantly create a portfolio of emerging business and companies that are
aspiring leaders in their respective field of operations.
47
BNCHMARK-: CNX MIDCAP is the benchmark for this fund. It captures the midcap segment
of the market. It is an attractive investment segment with high growth potential.
Particulars Small and Midcap Equity Fund CNX Midcap
Beta 06351 1
R-Square 0.96
Treynor -1.1146 -2.4882
Sharpe - 0.0420 -0.095
Fama 0.8719 0
48
SME FUND
80
60
40
RETURNS
20
0
1 2 3 4 5 6 7 8
-20
-40
TIME HORIZON
benchmark.
which mean that the total risk associated with the fund is less than that of the benchmark.
49
CHAPTER 6
6.1FINDINGS
Premier Equity Fund
 It’s a high risk and high return fund.
 The fund yields a higher return because the investment is made in major growing sectors
of the economy.
 The high risk associated with the fund can be justified by its investment in the
growing sectors.
 The fund manager selects growing companies who choose new technologies or methods
for their growth and bring about new cultural trends.
Strategic Sector (50-50) Fund
 It is a high risk high return fund.
50
 The fund yields a higher return because 50% of the investment is done in nifty stocks
which consist of well established companies and the remaining 50% in specific growing
sectors.
 The risk associated with the fund is primarily due to concentrated risk of a particular
sector.
 The fund manager chooses that sector which he finds promising, doing well now and will
be booming in the near future.
Imperial Equity Fund
 It is a moderate risk-return fund.
 The fund yields a higher return because here the investment is made primarily in well
established and stable companies. The portfolio of the fund is made up of companies
which have made their presence felt not only in the domestic market but also in the
international market. Since these companies are in their maturity phase the fund yields a
stable return.
 The risk compared to its benchmark is lower due to the fact that the investment is being
made in large cap companies.
Classic Equity Fund
 The fund yields a lower return as per the valuation. However it’s a moderate return fund.
 Moderate risk associated with the fund is mainly due to diversified investment, in which
the predominant part is occupied by the well established companies and the remaining by
the small and nimble companies.
 The fund manager chooses those companies which are leaders in their respective sectors
and he also invests in companies
Small and Midcap Equity Fund
 It is a high risk high return fund.
51
 The fund yields a higher return due to its investment in companies with proven business
models and has a good growth potential.
 As per the valuation the risk associated with the fund is low, this may be due to the
choice of benchmark. However the risk level is higher since they are invested in
companies which are in the growth phase.
 Fund manager tries to capture the potential of small and midcap companies, the
companies involved are fast developing and into continuous innovation process of
bringing in new products by utilizing every opportunity.
Enterprise Equity Fund
 It is a low risk low return fund.
 The fund yields a low return due to its passive investment strategy.
 It’s a low risk fund due to investment in nifty stocks which traces the index of large cap
funds.
 The fund manager’s idea in this fund is to minimize the risk and provide a stable return
by investing in nifty stocks which consist of companies which have consistent growth
and high P/E ratio. To add more benefit to the investors the investment is done in the
IPO’S and the shares are sold within 3 days of listing.
Tax advantage (ELSS)
 It offers twin benefit of tax saving and potential to earn higher return with a minimal lock
in period of three years.
 Fund is highly volatile over a short term which gets smoothened over a longer time
frame.
52
6.2CONCLUSION
The study has shown the performance of the equity funds by using different performance
measures. From the above analysis, it can be concluded that most of the equity diversified
mutual fund growth oriented schemes have performed better in comparison with the benchmark.
But return alone should not be considered as the basis of measurement of the performance of a
mutual fund scheme, it should also include risk attached to them. Risk associated with a fund, in
general, can be defined as variability or fluctuation in the returns generated by it. The higher the
fluctuation in the returns, higher will be the risk associated with it.
So in this study the measures that considered not only the risk but also the returns associated
with the funds have been used to evaluate the funds. Based on the various analysis the risk and
returns related with various funds were determined which can be used to recommend the funds
for the different investors based on their risk appetite and the return they expect.
53
6.3Recommendation
On analysis of IDFC Equity Funds the following risk-return relationship is
determined -:
High risk
High potential
return
R
Low risk
e Low return
t
u
Strategic
r Sector [50-
n 50]
Imperial
Enterprise Classic Premier
Small & Midcap
Standard deviation
(risk)
Based on the above the risk-return analysis the following recommendations can be given:
1. SME, PEF, SSF (50-50) may be chosen by aggressive investors who are willing to take
high risk for high return.
2. Investors who prefer to take a moderate risk for their returns may go for CEF and IEF
which are also suitable for first time and cautious investors.
3. EEF is ideal for conservative investors who are looking to enter into equities.
4. ELSS tax advantage fund is suitable for investors who look for twin benefit of tax saving
and potential to earn good return with a minimal lock in period of 3 years.
54
Based on age, various commitment and requirements the following table has been
drafted -:
*
Various stages of Age limit Risk Profile Suggested Funds
investment
Bachelor 21-27 High SME, PEF,
SSF(50-50)
Newly Married 28-32 High-Moderate SME, PEF, SSF(50-

50),CEF,IEF
Parents with Kids 33-50 Moderate-Low CEF, IEF,EEF
Approaching Retirement 50-57 Low – Zero EEF
Post Retirement 60 plus Low EEF
(NOTE-: This is based on a general study, however the risk appetite differs from individual
to individual.)
*Source: Mr. Subramanian’sBIBILOGRAPHY

Research on Investments at different
stages of life
BIBLOGRAPHY
Text Books
55
 Prasanna Chandra, investment analysis and portfolio management, TMH

Publications, Second edition.
 Punithavathy Pandean, Security Analysis and portfolio Management, Vikas

publishing House Pvt Ltd.
Websites
 www.idfc.india.com
 www.mutualfundsindia.com
 www.nseindia.com
 www.bseindia.com
 www.moneycontrol.com
 www.yahoofinance.com
Newspapers
 Business line
 Times of india
 Financial express
TV channels
 NDTV Profit
 CNBC 18
56

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Performance Evaluation of IDFC Mutual Funds

1.1 INTRODUCTION TO THE STUDY

appetite of the invetors.

1.2 STATEMENT OF THE PROBLEM

1.3 OBJECTIVES OF THE STUDY

• To evaluate the performance of various equity diversified growth oriented funds

1.4 SCOPE OF THE STUDY

1.5 TIME FRAME

1.6 LIMITATIONS OF STUDY

1.7 CHAPTER SCHEME

MUTUAL FUNDS IN INDIA

2.2 CONCEPT OF A MUTUAL FUND

Meaning of Mutual Fund

Characteristics of a Mutual Fund

HOW ARE THE MUTUAL FUNDS STRUCTURED?

Mutual funds can be structured in the following ways:

ORGANISATION OF A MUTUAL FUND

• Asset Management Company(AMC):

SOURCE: AMFI WEBSITE

Load and No-Load Funds

Tax Exempt and Non-Tax Exempt Funds

Broad Fund types by Nature of Investments

Broad Fund Types by Investment Objective

Broad Fund Types by Risk Profile

Money Market Funds

Debt Funds (or Income Funds)

Aggressive Growth Funds

as Information on Technology, Pharmaceuticals or Fast Moving Consumer Goods that have

Small Cap Equity Funds

Diversified Equity Funds

Equity Linked Saving Schemes: An Indian Variant

Equity Index Funds

Equity Income funds

Hybrid Funds – Quasi Equity/Quasi Debt

BENEFITS OF MUTUAL FUND

 Reduction of Transaction Costs

 Convenience and Flexibility

Disadvantages of Mutual Funds:

2.3 COMPANY PROFILE

IDFC is a leading private sector diversified financial institution established by a consortium of

IDFC is determined to construct a comprehensive asset management business that consists of :

 Private Equity investments through IDFC Private Equity Co. Ltd.

 Project Equity through IDFC Project Equity Co. Ltd,

 Public Market Investment Advisory Services through IDFC investment Advisors

Performance Evaluation of IDFC Mutual Funds

IDFC PRODUCT RANGE

EQUITY FUND IDEAL INVESTMENT DATE OF

Premier Equity 3 yrs or more 28th sep 2005

Nifty Fund 3 yrs or more 30th April 2010

DEBT FUND IDEAL INVESTMENT DIVIDEND FREQUENCY DATE OF

Super saver Income 3 months or more Monthly, Fortnightly 14th December

Government Securities 1 year or more Quarterly/Half yearly/Yearly 9th March 2002

Liquid Funds IDEAL INVESTMENT DATE OF INCEPTION

Cash Funds 1 Day or More 2nd July 2001

Source: Fund review of IDFC for the month of May 2010

SWOT ANALYSIS OF IDFC MUTUAL FUND

 Good brand name of the company in all over India.

 Expertise in the field of Mutual Fund.

 Sound Financial Resources of the company as well as sponsors.

 Strong communication network all over the country.

 Less awareness regarding mutual funds among the investors.

 Yet to build strong distribution network.

 Has not yet tapped the potential of rural market.