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RELIGARE SECURITIES LTD

CHAPTER: 1

INDUSTRY AND COMPANY PROFILE

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RELI 1.1 Mutual Fund-Industry Profile

RE SE

RI IES L

A Mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities (usually stocks or bonds). When you invest in a mutual fund, you are buying shares (or portions) of the mutual fund and become a shareholder ofthe fund. Mutual funds are one of the best investments ever created because they are very cost efficient and very easy to invest in. By pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification. 1.1.1 Organisation of a Mutual Fund There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund

A) Fund Sponsor: A 'sponsor' is a person who, acting alone or in combination with another corporate body, establishes a M . In order to register with SEBI as a M , the sponsor should have a sound financial track record of over five years, and integrity in all his business transactions. Following its registration, in accordance with SEBI Regulations, the sponsor forms a trust, appoints a Board of Trustees and an AMC as a fund manager. Further, a
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cust ian is a

oint

to carry out t

custodial services for t e schemes of the fund. The orth of the AMC (provided that any

sponsor should contribute at least 40% of the net person

ho holds 40 % or more of the net orth of an asset mana ement company should be ould be required to fulfil the eli ibility criteria specified in the

deemed to be a sponsor and SEBI regulations)

B) Trustees: The MF can either be managed by the Board of Trustees, individuals, or by a Trust Company, managed by a Board of Trustees. The trustees are appointed

hich is a body of

hich is a corporate body. Most of the funds in India are ith the approval of SEBI. T o ith sponsors or be

thirds of trustees are independent persons and are not associated associated ith them in any manner

hatsoever. The trustees, being the primary guardians of

the unit holders' funds and assets, have to be persons of high repute and integrity. The Trustees, however, do not directly manage the portfolio of MF. It is managed by the AMC as per the defined objectives, in accordance with trust deed and SEBI (MF)

C) Asset Management Company: The AMC, appointed by the sponsor or the Trustees and approved by SEBI, acts like the investment manager of the Trust. The AMC should have at least a net worth of Rs. 10 crore. It functions under the supervision of its Board of Directors, Trustees and the SEBI. In the name of the Trust, AMC floats and manages different investment 'schemes' as per the SEBI Regulations and the Investment Management agreement signed with the Trustees. The regulations require non-interfering relationship between the fund sponsors, trustees, custodians and AMC.

D) Custodians. A custodian is appointed for safe keeping the securities and participating in the clearing system through approved depository. Custodian also records information on stock splits and other corporate actions. No custodian in which the sponsor or its associate holds 50 % or more of the voting rights of the share capital of the custodian or where 50 % or more of the directors of the custodian represent the interest of the sponsor or its associates should act as custodian for a mutual fund constituted by the same sponsor or any of its associate or subsidiary company.

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E) Registrar and Transfer agent: Registrar and transfer agent maintains record of the unit holders account. A fund may choose to hire an independent .Party registered with SEBI to provide such services or carryout these activities in-house. If the work relating to the transfer of units is processed in-house, the charges at competitive market rates may be debited to the scheme. The registrar and transfer agent forms the most vital interface between the unit holder and mutual fund. Most of the communication between these two parties takes place through registrar and transfer agent.

F) Distributors/Agents: To send their products across the length and breadth of the country, mutual funds take the services of distributors/agents. Distributors comprise of banks, nonbanking financial companies and other distribution companies.

1.1.2 History of Mutual Fund


The concept of mutual fund is not new. At the very dawn of commercial history. Egyptians and Phoenicians were selling shares in vessel and caravans in order to spread risk to these perilous ventures. Much in later in 1822 the society general de belgique was formed, which embodied the modern concept of risk sharing. The foreign and colonial government trust of London in 1868 was the real pioneer in the field of modern day concept of mutual funds. Later in1873, the Scottish American trust was established by Robert Fleming at Dundee. In England the early institution were created under legal form, known as the old English trust. People who had experience in large trust estates were appointed as trustee and capital was entrusted to them for purchasing securities. British investment trusts was successful and are still popular with unit trusts. Although in 19 th century many British investment trusts invested in American stocks, the first American investment trust was closed-end Boston personal property trust created in 1893. It was not until the 1920s that US has experienced a boom in close-end investment trusts. The great bull market of 1920s and 1980s provide fertile for mutual funds. In their first incarnations and heydays, mutual fund plays a central role in the robust stock market of 1920s. the first mutual fund, the Massachusetts investor trust was launched in Boston in 1924. After the 1929 the stock market crash, the close-end investment was known
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as evil trusts that manipulate the stock market and had a hand in causing the great crash of 1929. These changes added to the flourish of securities regulation that took place in 1930s, which created securities exchange commission (SEC). The SEC recommended the passage of legislation. Which materiali ed in 1940? The investment company act of 1940 provides rules and regulation for establishing and management of mutual funds. Since 1940, the growth of open-end mutual funds has been dramatic. The growth of close-end mutual funds has been slower and more erratic but they continue to exist. However economist says that from 1984 to 1990, there has been a rebirth in popularity of close-end mutual funds. Mutual fund assets in United States fell by 2.0% in the first quarter while assets of other countries collectively rose by 2.5%. the strength in fund assets outside the united states reflected weakness of US dollar which slide lower against most currencies. Measured in local currencies, fund assets declined over first quarter in majority of countries including nine of largest. World wide equity fund assets measured in US dollars dropped to 4.2% in the first quarter, most of the stock market came under selling pressure during the quarter, which many European and several Asia-Pacific exchanges posting doubt digit losses. In contrast bond fund assets rose to 5.7% paced by strength in Europe and the Americas. Money market funds assets roses slightly as si able gains in Europe offset declines in the United States and the Asia-Pacific region. Balanced/ mixed fund recorded a small decline in assets Net sales of mutual funds $13 billion in the first quarter of 2003, down from $153 billion in the fourth quarter of 2002. The decline largely resulted from a net outflow of $56 billion from money market funds, which reversed a $117 billion net inflow in the previous quarter. in the low interest rate environment in the United states, the net flow from US money market was $69 billion. Several Asia- pacific countries also experienced net outflow from money market funds. While European countries collectively saw strong net inflows. Equity funds posted a small outflow of $14 in the first quarter, with weakness evident in United States, Canada and most European countries. In contrast Asia-pacific countries checked out a small net inflow. Balanced/mixed funds experienced a small net outflow

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Net sales at bond funds were a robust $87 billion in the first quarter of 2003 and represented 3.6% of assets of those 27 countries reported net flow data. The first quarter pace if maintained for a full year would far outstrip net sales in 2001, a year of strong inflows. The strength in net sales was widespread with 22 countries experiencing inflow to bond funds. At the end of first quarter of 2003, assets of equity funds represented 36% of all worldwide mutual fund assets. The assets share of money market funds was 29% while that of bond fund was 24%. In that 59% of world wide assets were in the Americans at the end of first quarter of 2003, 31% were in Europe and 10% in Africa and Asia/Pacific. The number of mutual funds world wide stood at 53150 at the end of the first quarter of 2003. By type of fund, 43% were equity funds, 22% were bond funds, 21% were balanced/mixed funds and 9% were money market funds. Mutual fund assets were growing fast and consumer bank deposits were slowly, that Americans belief by turn of 21st century, individuals were more money in mutual fund than banking saving deposits. At present, US mutual fund industry spread over 30,000 funds, commanding investment to tune of 25% of the household income and having 50 million share holders accounts. The mutual fund industry in US now occupies premier position in the financial sector while banking and insurance lag behind. The mutual fund industry serves about 50 million investors. Japan tops around number 0f mutual funds with around 5,400 funds were US has only 3,400 funds command four times higher assets than Japan. The UK has 1,40 mutual funds, were as France have 1,000 old fund rank second in assets formation next to US. The growing popularity of US is basically due to good returned compared to the stock market returns and low risk factor. The return of mutual fund much higher than the return of S&P 500 index. In Canada during 1920s many close-end investment companies were organi ed. They were generally known as investment trusts. The first mutual fund to issue to the public in Canada was Canadian investment fund in 1932. The two other funds are now amongst the giants of mutual funds in Canada. Subsequently 100 of mutual funds both open and close-end have been developed and have been expanded in many countries in Europe, the Far East and Latin America. Mutual fund/unit trusts are popular financial intermediaries in many countries. In the US, mutual funds are second largest financial institution, after the banking sector
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whose assets were worth $2161.4 billion at the end of 1994. In December 1995, the European community issued directives to co-ordinate laws, regulations and administrative provision relating to mutual funds. This is popularity known as under taking for collective investment in transferable securities. The directive established a common regulatory scheme for investment policies, public disclosure, structure and control. These policy changes have encouraged the growth of mutual fund all over the globe. Countries in Asia-Pacific area like Hong Kong, Thailand, Singapore and Korea have also entered this field with a big bang.

1.1.3 The Mutual fund industry in India In India mutual fund concept took root on 1960s, after a century-old history elsewhere in the world. Reacting to the needs for a more active mobili ation of house hold saving to provide investible resources to the industry, the idea of first mutual fund in India was born out of the far-sighted version of Shri. T. Krishanamachari, the finance minister. He wrote to the prime minister Pandit Nehru outlining the need for an institution, which would serve as the conduit for these resources to the Indian capital market. The RBI was entrusted to create there special institution. The idea of mutual fund took shape on 1963 with the setting up of enactment of Unit Trust of India (UTI) by farming an act titled the UTI act.1963 to operate both as a financial institution and investment trust. A) First phase (1964-1987):The UTI was set up by reserve bank of India and functioned under the regulatory and administrative control of the reserve bank of India. In 1978, UTI was delinked from RBI and the Industrial development bank of India took over the regulatory and administrative control in place of RBI. At the end of 1988, UTI had 6,700 crores of assets under management. B) Second phase (1987-1993):The second phase witnessed the broadening of the base of the industry on account of entry of mutual funds sponsored by commercial banks and public sector financial institutions. Followed by the government decision to permit nationali ed banks to set up mutual funds, the State Bank of India (1987), Life Insurance Corporation (1989), General Insurance Corporation(1991), Canara Bank(1987), Indian Bank(1990), Bank of India(1990)
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and Punjab national Bank(1990) set up the mutual funds sponsored to the public sector banks. During this period, the total assets of industry grew to about 61,000 crores with the total number of schemes increasing about 167 by the end of 1994. C) Third phase (1993-2003):Entry of private sector funds. A new era began in Indian mutual fund industry with the entry of private sector funds in 1993, giving Indian investors a wide choice of fund families. The phase also signalled the intensification of completion. Kothari Pioneer mutual fund was first private sector fund to be established in association with a foreign fund. The opening up of the market to private players saw international players like Morgan Stanley, Jardine Fleming, JP Morgan, George Soros and capital international entering market. The Assets under management by the end of January 31, march 2005 increased to $34.927mn from $23.260mn in March 1995. The number of mutual fund houses went on increasing with many foreign mutual funds setting up funds in India. The industry has also witnessed several mergers and acquisitions. As at the end of January2003. There were 33 mutual funds with total assets worth Rs1, 21,805 crores. The Unit Trust of India with Rs 44,541 crores of assets under management, what head of the mutual funds. D) Fourth phase (since February 2003):In February 2003. Following the repeal of Unit trust of India Act, 1963, UTI was bifurcated into two separates entities. One is specified undertaking of Unit trust of India with assets under management to tune of 29,835 crores as at the end of January 2003, representing broadly assets of US 64 scheme, assured returns and certain other schemes. The specified under taking of Unit Trust of India and does not come under the purview of mutual fund regulations. The second is the UTI mutual fund Ltd. Sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and function under the mutual fund regulations. With the bifurcation of the erstwhile UTI, which had in march 2000 more than Rs 76,000 crores assets under management and with the setting up of a UTI mutual fund, conforming to the SEBI mutual fund regulation and win 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 October 21, 2003 there were 31 funds which mange the assets worth Rs
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1,26,726 crores under 386 schemes. It still continues to be the largest player in domestic mutual fund industry with an asset under management (AUM) of Rs 23,500 crores as on march 31, 2005. . 1.1.4 Major mutual fund companies in India A) ABN AMRO Mutual Fund ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee (India) Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset Management (India) Ltd. was incorporated on November 4, 2003. Deutsche Bank A G is the custodian of ABN AMRO Mutual Fund B) GIC Mutual Fund GIC Mutual Fund, sponsored by General Insurance Corporation of India (GIC), a Government of India undertaking and the four Public Sector General Insurance Companies, vi . National Insurance Co. Ltd (NIC), The New India Assurance Co. Ltd. (NIA), The Oriental Insurance Co. Ltd (OIC) and United India Insurance Co. Ltd. (UII) and is constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882 C) LIC Mutual Fund Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. It contributed Rs. 2 Crores towards the corpus of the Fund. LIC Mutual Fund was constituted as a Trust in accordance with the provisions of the Indian Trust Act, 1882. . The Company started its business on 29th April 1994. The Trustees of LIC Mutual Fund have appointed Jeevan Bima Sahayog Asset Management Company Ltd as the Investment Managers for LIC D) Chola Mutual Fund Chola Mutual Fund under the sponsorship of Cholamandalam Investment & Finance Company Ltd. was setup on January 3, 1997. Cholamandalam Trustee Co. Ltd. is the Trustee Company and AMC is Cholamandalam AMC Limited

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E) Can bank Mutual Fund Canbank Mutual Fund was setup on December 19, 1987 with Canara Bank acting as the sponsor. Canbank Investment Management Services Ltd. incorporated on March 2, 1993 is the AMC. The Corporate Office of the AMC is in Mumbai. ,

F) Morgan Stanley Mutual Fund Morgan Stanley is a worldwide financial services company and its leading in the market in securities, investment management and credit services. Morgan Stanley Investment Management (MISM) was established in the year 1975. It provides customi ed asset management services and products to governments, corporations, pension funds and non-profit organisations. G) Franklin Templeton Mutual Fund The group, Franklin Templeton Investments is a California (USA) based company with a global AUM of US$ 409.2 bn. (as of April 30, 2005). It is one of the largest financial services groups in the world. Investors can buy or sell the Mutual Fund through their financial advisor or through mail or through their website. H) Standard Charted Mutual Fund Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by Standard Chartered Bank. The Trustee is Standard Chartered Trustee Company Pvt. Ltd. Standard Chartered Asset Management Company Pvt. Ltd. is the AMC which was incorporated with SEBI on December 20,1999 I) Reliance Mutual Fund Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was changed on March 11, 2004. Reliance Mutual Fund was formed for launching of various schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities
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J) Unit Trust of India Mutual Fund UTI Asset Management Company Private Limited, established in Jan 14, 2003, manages the UTI Mutual Fund with the support of UTI Trustee Company Private Limited. UTI Asset Management Company presently manages a corpus of over Rs.20000 Crore. The sponsors of UTI Mutual Fund are Bank of Baroda (BOB), Punjab National Bank (PNB), State Bank of India (SBI), and Life Insurance Corporation of India (LIC). The schemes of UTI Mutual Fund are Liquid Funds, Income Funds, Asset Management Funds, Index Funds, Equity Funds ,etc K) Kotak Mahindra Mutual Fund Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL. It is presently having more than 1,99,818 investors in its various schemes. KMAMC started its operations in December 1998. Kotak Mahindra Mutual Fund offers schemes catering to investors with varying risk - return profiles. It was the first company to launch dedicated gilt scheme investing only in government securities L) TATA Mutual Fund Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsors for Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The investment manager is Tata Asset Management Limited and its Tata Trustee Company Pvt. Limited. Tata Asset Management Limited's is one of the fastest in the country with more than Rs. 7,703 crores (as on April 30, 2005) of AUM M) State Bank of India Mutual Fund State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch offshore fund, the India Magnum Fund with a corpus of Rs. 225 cr. approximately. Today it is the largest Bank sponsored Mutual Fund in India. They have already launched 35 Schemes out of which 15 have already yielded handsome returns to investors. State Bank of India Mutual Fund has more than Rs. 5,500 Crores as AUM. Now it has an investor base of over 8 Lakhs spread over 18 schemes.

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N) Sahara Mutual Fund Sahara Mutual Fund was set up on July 18, 1996 with Sahara India Financial Corporation Ltd. as the sponsor. Sahara Asset Management Company Private Limited incorporated on August 31, 1995 works as the AMC of Sahara Mutual Fund. The paid-up capital of the AMC stands at Rs 25.8 crore. O) Prudential ICICI Mutual Fund The mutual fund of ICICI is a joint venture with Prudential Plc. of America, one of the largest life insurance companies in the US of A. Prudential ICICI Mutual Fund was setup on 13th of October, 1993 with two sponsors, Prudential Plc. and ICICI Ltd. The Trustee Company formed is Prudential ICICI Trust Ltd. and the AMC is Prudential ICICI Asset Management Company Limited P) ING Vysha Mutual Fund ING Vysya Mutual Fund was setup on February 11, 1999 with the same named Trustee Company. It is a joint venture of Vysya and ING. The AMC, ING Investment Management (India) Pvt. Ltd. was incorporated on April 6, 1998.

Q) HSBC Mutual Fund HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital Markets (India) Private Limited as the sponsor. Board of Trustees, HSBC Mutual Fund acts as the Trustee Company of HSBC Mutual Fund.

R) HDFC Mutual Fund HDFC Mutual Fund was setup on June 30, 2000 with two sponsors namely Housing Development Finance Corporation Limited and Standard Life Investments Limited S) Birla Sun Life Mutual Fund Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life Financial. Sun Life Financial is a global organisation evolved in 1871 and is being represented in Canada. Birla Sun Life Mutual Fund follows a conservative long-term approach to investment. Recently it crossed AUM of Rs. 10,000 crores.
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1.2 Company Profile: Religare Securities Ltd


Religare is a financial services company in India, offering a wide range of financial products and services targeted at retail investors, high net worth individuals and corporate and institutional clients. Religare is promoted by the promoters of Ranbaxy Laboratories Limited. Religare operate from six regional offices and 25 sub-regional offices and have a presence in 330 cities and towns controlling 979 locations which are managed either directly by Religare or by our Business Associates all over India, the company has a representative office in London. While the majority of Religare offices provide the full complement of its services yet it has dedicated offices for investment banking, institutional brokerage, portfolio management services and priority client services. The main features of religare include:

y y

Pan India footprint Powerful research and analytics supported by a pool of highly skilled research analysts

Single window for all investments needs through unique customer relationship number

y y

Ethical business practices Offline /Online delivery models

Religare has divided its product and service offering under three broad client interface categories.Retail Spectrum, Wealth Spectrum and Institutional Spectrum as per following details

Equity and Commodity Trading Personal Financial Services Distribution of mutual funds Distribution of insurance Distribution of savings products Personal Credit
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Personal loan services Loans against shares Online Investment Wealth Advisory Services Portfolio Management Services International Equity Priority Client Equity Services Arts Initiative Institutional Equity Broking Investment Banking Merchant Banking Transaction Advisory Services

Retail Spectrum covers equity brokerage services, commodity brokerage services, personal financial services (financial planning for the retail investor, including the distribution of mutual funds, savings products, life insurance and initial public offerings (IPOs)) and personal credit (personal loans services(PLS) and loans against shares (LAS). Historically, the services offered in this spectrum have been the most substantial part of Religare business. Religare Retail Spectrum services in India are being offered through a network of 979 business locations spread across 330 cities and towns and also through Religare online platform, www.religareonline.com, which is being developed as an integrated portal to offer financial and other services. Religare business locati ns include o intermediaries, or Religare Business Associates, who deliver a standard quality of service offering on the basis of a pre-determined revenue sharing ratio for the business generated through them. Religare Retail Spectrum focuses on clients who keep less than Rs. 2.5 million on a continuing basis, in the form of either equity trading account margin, mutual fund investment, portfolio management investments or insurance premiums paid up. We have also increased Religare local commodity locations (or Mandis) to 38 as of March 31, 2007in order to expand Religare retail commodity brokerage services.

Wealth Spectrum covers products and services which are geared to service high net worth individuals and provide wealth advisory services (on an asset allocation model), PMS (discretionary equity investments), priority client equity services (non-discretionary equity trading services), art initiatives (an art fund which we intend shortly to launch as an investment diversification product) and international equity investment
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advisory services. Religare has entered into an exclusive arrangement with Wall Street Electronica, Inc., a New York broker-dealer, to give Indian clients access through us to U.S. markets. Religare Wealth Spectrum focuses on clients who keep at least Rs. 2.5 million on a continuing basis or more in the form of equity trading account margins, mutual fund investments, portfolio management investment or insurance premiums paid up.

Institutional Spectrum covers products and services which cater under one service offering to corporate and institutional clients, including domestic mutual funds, FIIs, banks and corporate customers. The Institutional Spectrum provides services to the institutional investor community through institutional brokerage and investment banking services. We also link corporate clients with a transaction advisory group, which consists of account managers through whom institutional clients are able to access the full range of Religare services.

1.2.1 Religare Product Offerings Religare is driven by ethical and dynamic process for wealth creation. REL through Religare Securities Limited , Religare Finvest Limited , Religare Commodities Limited and Religare Insurance Advisory Services Limited provides integrated financial services to its corporate , retail and wealth management clients. Religare operations are managed by highly skilled professionals who subscribe to Religare philosophy and are spread across its country wide branches . A. Equity trading Trading in equities with Religare truly empowers you for your investment needs . Religare ensures you have a superlative trading experience through high quality service. Religare also has one of the largest retail networks , with its presence in more than 1460 locations across more than 450 towns and cities. This means one can walk into any of these branches and connect to Religares highly skilled and dedicated relationship managers to get the best services.

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B. Commodity trading RCL, an effort of the Religare Group was initiated to spearhead Exchange based commodity trading.RCL is not only a trade facilitator but also caters to the unique needs of exchange based commodity trading

C. Personal financial service Religare s personal financial advisory services cater to the financial needs of individuals by advising them on various financial plans . Religares personal financial advisors , also called financial planners or financial consultants , use their knowledge of investments , tax laws , and insurance to recommend financial options to individuals in accordance with the individuals short term and long term goals .Some of the issues that planners address are general investments , retirement and tax planning .

D. Institutional brocking service The mission of this division is to institutionali e and implement a process driven approach to cater the needs of leading corporate houses and institutions . The division would like to be seen as a one stop investment gateway and knowledge repository for its client servicing their unique and sophisticated needs .The division is structured as a separate SBU and is housed out of Mumbai, manned by a small yet fleet footed and extremely skilled group of top notch professionals drawn from the best in the industry. The key highlights of Religares service platter are: Highly skilled, dedicated dealing, research and sales teams . Dealing capabilities on the NSE, BSE and in the cash and derivatives segment. In-depth detailed and insightful coverage of more than 70 stocks

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E. Investment banking Religare provide innovative, integrated and best fit solutions to our corporate customers. It is our continuous endeavour to provide value enhancement through diverse financial solutions on an ongoing basis, through offerings like corporate debt, private equity, IPO, ECB, FCCB, GDR/ADR etc.

F. Portfolio management service Religare offers PMS to address varying investments preferences . As a focused services , PMS pays attention to details , and portfolios are customi ed to suit the unique requirements of investors . Religare PMS currently extends five portfolio management schemes Panther, Tortoise, Elephant, Caterpillar, and Leo. Each scheme is designed keeping in mind the varying tastes, objectives and risk tolerance of our investors. G.Mutual fund dealing Religare offers mutual fund trading also. Through religare trading platforms we . can buy or sell mutual fund units of all listed asset management companies

1.2.2 VISION To build Religare as a globally trusted brand in the financial services domain . . Present it as the Investment Gateway of India and

1.2.3 MISSION To provide financial care driven by the core values of diligence and transparency.

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1.2.4 Joint Ventures of Religare A.Vistar Religare Religare Enterprise Limited and Vistar Entertainment Ventures Private Limited launched Indias first ever film fund Vistar Religare Film Fund for the film /media business. B.Religare Aegon Religare AEGON AMC -50:50 joint ventures between REL and AEGON , Religare has proposed to form Religare AEGON Asset Management Company Private Limited to offer mutual fund products to the Indian consumers. AEGON, headquartered in Netherlands, is one of the worlds largest life insurance and pension companies, and a strong provider of investment products. The group is present in United states, United kingdom , Canada ,China ,Hungary ,Poland , Spain and Taiwan . C.Religare Macquarie 50:50 joint ventures with Macquarie for wealth management business. Religare Macquarie Wealth Management Limited ,Indias first wealth management joint venture will offer Wealth management services to the Indian customers under the brand, Religare Macquarie private wealth Macquarie Private Wealth , a division of Macquarie Group is one of the largest financial advisory services in Australia . In Australia and New Zealand, Macquarie is a market leader in investment and financial services .In Asia, it offers a full range of investments ,financial market and advisory products and services. In Europe , the Middle East , Africa and the Americans , it focuses on niche opportunities to deliver value to clients.

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CHAPTER: 2

LITERATURE REVIEW

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Mutual Funds
Invest in a mutual fund, you are buying shares (or portions) of the mutual fund and become a shareholder of the fund. Mutual funds are one of the best investments ever created because they are very cost efficient and very easy to invest in. By pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual A Mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities (usually stocks or bonds). When you funds is diversification. Fund operated by an investment company that raises money from shareholders and invests it in stocks, bonds, options, commodities or money market Mutual funds are pools of money that are managed by an investment company. They offer investors a variety of goals, depending on the fund and its investment charter. Some funds, for example, seek to generate income on a regular basis. Others seek to preserve an investor's money... A mutual fund is a professionally-managed firm of collective investments that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities. In a mutual fund, the fund manager, who is also known as the portfolio manager, trades the fund's underlying securities, reali ing capital gains or losses, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. The value of a share of the mutual fund, known as the net asset value per unit (NAV), is calculated daily based on the total value of the fund divided by the number of shares currently issued and outstanding. Legally known as an "open-end company" under the Investment Company Act of 1940 (the primary regulatory statute governing investment companies). Mutual Funds over the years have gained immensely in their popularity. Apart from the many advantages that investing in mutual funds provide like diversification, professional management, the ease of investment process has proved to be a major enabling factor. However, with the introduction of innovative products, the world of mutual funds nowadays
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has a lot to offer to its investors. With the introduction of diverse options, investors needs to choose a mutual fund that meets his risk acceptance and his risk capacity levels and has similar investment objectives as the investor. With the plethora of schemes available in the Indian markets, an investors needs to evaluate and consider various factors before making an investment decision. Since not everyone has the time or inclination to a closed market, and has started integrating with the world markets, external factors which are complex in nature affect invest and do the analysis himself, the job is best left to a professional. Since Indian economy is no more us too. Factors such as an increase in short-term US interest rates, the hike in crude prices, or any major happening in Asian market have a deep impact on the Indian stock market. Although it is not possible for an individual investor to understand Indian companies and investing in such an environment, the process can become fairly time consuming. Mutual funds (whose fund managers are paid to understand these issues and whose Asset Management Company invests in research) provide an option of investing without getting lost in the complexities. Most importantly, mutual funds provide risk diversification: diversification of a portfolio is amongst the primary tenets of portfolio structuring, and a necessary one to reduce the level of risk assumed by the portfolio holder. Most of us are not necessarily well qualified to apply the theories of portfolio structuring to our holdings and hence would be better off leaving that to a professional. Mutual funds represent one such option. Lastly, Evaluate past performance, look for stability and although past performance is no guarantee of future performance, it is a useful way to assess how well or badly a fund has performed in comparison to its stated objectives and peer group. A good way to do this would be to identify the five best performing funds (within your selected investment objectives) over various periods, say 3 months, 6 months, one year, two years and three years. Shortlist funds that appear in the top 5 in each of these time hori ons as they would have thus demonstrated their ability to be not only good but also, consistent performer

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,

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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--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.

2.1 Classification of mutual fund


Mutual funds are classified in to five categories. They are: 2.1.1 Operational classification

A. Open-ended mutual funds: SEBI regulation defines open-ended schemes as A scheme of mutual funds, which offer units for sale or has any outstanding and redeemable units and one that does not specify any duration for redemption or repurchase of units. Open-end mutual funds are open through out the year for investment and redemption. The units are bought and sold directly by the fund. Therefore there is more certainty and transparency..

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B. Close-end mutual funds: close ended mutual funds have definite period after which their share/units are redeemed. The units are offered to investors through public issues and after the date of closure, the entry to the investors will be closed. Close-ended mutual funds are generally traded among the investors in the secondary market since they are to be quoted on stock exchanges.

2.1.2 Portfolio classification Mutual funds differ with respect to their instruments. Therefore different mutual funds are designed to meet the needs of investors. A. Growth oriented funds or equity oriented funds: The objective of such funds is to provide capital appreciation to their investors and accordingly a sub stain portion of corpus is invested in high growth equity share and other equity related instruments. The scheme may or may not declare dividends. This is a high risk investment fund with high capital gain potential and low current income assurance. The fund is ideal for investors having a long term outlook seeking growth over a period of time. B. Income/debt oriented funds: The main objective of this fund is to provide regular income to the investors in the form of dividends. The dividends may be cumulative or noncumulative on a quarterly, half yearly or yearly basis. The corpus of scheme is invested in fixed income securities like debentures, bonds, money market instruments etc. and a relatively lower percentage ai share. Such funds are less risky compared to equity schemes. C. Balanced funds or income and growth oriented funds: These funds aim at disturbing both income and capital appreciation to their investors. Technically the corpus of this scheme is invested equally in high growth equity shares and in fixed income earning debentures. But after the budget 1999 these funds are investing more than 51% in equity and rest in debt to make returns tax-free in the hands of investors. These funds are also affected because of fluctuations in share prices in stock market. However NAVs of such funds are likely to be less volatile compared to pure equity funds.

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D. Bond funds: Bond funds are more liquid, diversified and conservative investment with modest capital gains. These funds are expected to be very secure with a steady income. Bond funds carry low risk and provide fixed return for those who desire safety. E. Stock funds: Such funds are established for those who are willing to accept significant risk in the hope of very high return. These are called common stock funds. The assets held in the fund are entirely the common stock of diversified of industrial corporations. Such funds are best suited for the risk takers who are interested in capital growth rather than regular income F. Index fund: These funds invest only in those shares, which are included in the market indices and in exactly the same proposition whenever market index goes up, the value of such index fund also goes up. Conversely when the market index comes down the value of such index fund also goes down. Necessary disclosure in this regard are made in the offer document of mutual fund scheme. They are also exchange-traded index funds launched by the mutual funds, which are traded on the stock exchanges. G. Industry funds: the funds invest resources particularly in industries with growth potential like cement, steel, jute, power, real estate. These funds carry high risks and gains as the performance of these funds is directly exposed to a specific sector. While these funds may deliver high returns, they are more risky compared to diversified funds. Investors need to watch on the performance of these sectors/ industries and must exit at an appropriate time. They may also seek the advice of expert. H. Tax relief funds: This is popularly known as equity linked savings schemes. These are essentially close-ended schemes. The investment would be high in equity shares. The investor can claim deduction or rebate in the income tax to extent of his investment in the fund, subject to the provision of income Tax Act, 1961. Tax relief funds are listed on stock exchanges. There would be minimum lock in the period of three years and scheme shall not provide any type of liquidity during this period. I. Leveraged funds: leveraged funds or borrowed funds are used in order to increase the si e of the value of portfolio and benefited the shareholders through gains exceeding the cost of the borrowed funds. Funds are generally unused in speculative and risky investments.

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J. Real estate funds: Real estate funds are closed end type. The fund is name so because primary investment in real estate ventures. Such funds are of various types depending up on real estate transaction. K. Money market mutual funds: These funds are generally invested in money market instruments such as treasury bills, certificate of deposits, commercial papers, bill discounting. These are regulated on the basics of specified guidelines laid down by reserve bank of India. Return on these schemes fluctuates to a much lesser extent compared to other funds. These funds are appropriate for corporate and individual investors as a mean to park their surplus fund for short periods. L. Assets management mutual funds: these are also called assets management companies (AMCs). These funds have special characteristics of dealing with assets other than securities. These funds can acquire various assets and give them on a lease basis to needy lease. M. Liquid funds: These funds invest in short term debt securities with high liquidity. In these type of funds, profitability plays second fiddle, liquidity assumes priority. N. Gilt fund: These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in the interest rates and other economic factors as in the case with income or debt oriented scheme. O. Load or non load funds: A load fund is one that charges a percentage of NAV for entry or exit. That is each time one buys or sells unit in the fund a charge will be payable. This charge is used by mutual funds for marketing and distribution expenses. The investors should take loads in to consideration while making investment as these affect their yields/returns. However the investors should also consider performance track record service standards of mutual fund, which are more important. Efficient funds may yield higher returns in spite of loads. A non load funs is one that does not charge for entry and exit. It means that investors can enter the fund/scheme at NAV purchase or sale of units. If there was no load , investors will be able to buy and sell their units at NAV. However if there is an entry load, new investors will pay a price higher than the NAV, to a
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extent of the load. Similarly investors who exit take away a sum that is lower than the NAV, to an extend of the load. P. Systematic investment plan: Here an investor is given an option of preparing a predetermined number of post-dated cheques in favours of the fund. He will receive units on the date of the cheque at the existing NAV. Q. Systematic withdrawal plan: The systematic withdrawal plan allow the investors the facility to withdraw predetermined amount/units from his fund at a predetermined interval. The investors unit will be redeemed at existing NAV as on the day. R. Retirement pension plan: some schemes are linked with retirement pension. Individuals participate in these plans for themselves while corporate entitles do for their employees. S. Insurance plan: Some schemes launched by UTI and LIC offer insurance cover to investors.

2.1.3 Geographical classification On the basics of geographical limits, mutual funds schemes can be classified as domestic and off-shore mutual funds A. Domestic mutual funds: Domestic mutual funds scheme mobili e the savings of the countrys citi ens. However NRIs and foreign investors can invest in these schemes. All the schemes in vogue in the country are domestic mutual fund schemes. B. Off- shore mutual funds: These funds enable NRIs and international investors to participate in Indian capital market. Further these funds are governed by the rules and procedures laid down for the purpose of approving and monitoring their performance by the department of economic affairs. Ministry of finance and the directions of RBI. 2.1.4 Structural classification From the point of view of financial market structure, mutual funds can be divided in two categories a) capital market mutual funds and b) money market mutual funds. Mutual funds generally invest the pooled resources in capital money market instrument where as money market mutual funds instrument.
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2.1.5 Classification by investment objective A. Equity Schemes These schemes have the primary objective of investing in shares of companies, Equity fund aim to generate high returns over the medium to long term through investment in the stock markets an subscribing to public issues. These schemes invest 75% to 90% of their corpus in equity shares. Considering the nature of investments, these schemes normally carry a high risk, which is compensated with the potential for higher returns, possible from stock markets As superior growth is the primary objective, these schemes are sometimes also referred to as Growth schemes. B. Debt Schemes These schemes have the primary objective of investing in fixed income securities. Investments would normally include debentures, bonds, securities, government securities etc. Investments would he either by subscribing to fixed income instruments issued by the lender or purchase from the debt segment of the stock markets. Debt scheme aim to generate regular over the medium to long term through investment in fixed income securities. As most of their debt investments would be listed and hence liquid, they attempt to achieve better returns by regularly trading these investments and profiting from changes in market interest rates. These schemes invest over 75% to 90% oft their corpus in debt securities with the balance invested into equities. Considering the nature of investments, these schemes normally carry a low risk, which is commenced with regular returns. C. Balanced Schemes These schemes are combination of equity and debt funds having the primary objective of investing in equities and fixed income investments in almost equal proportion. Investments would normally include equities, fully convertible bonds, debentures, bonds, s ecurities, government securities etc, D. Money Market or Liquid Fund These funds also income Hinds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term, instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank
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call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods. E. Index Funds Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSH 50 index (Nifty), etc. These schemes invest in the securities in the same weight age comprising of an index. NAVs of such schemes would rise of fall in accordance with the rise in the index, through not exactly by the same percentage due to some factors known as tracking error in technical terms. Necessary disclosures in [his regard arc made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds, which are traded on the stock exchanges. F. Tax Saving Schemes These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws, as the Government officer's tax incentives for investment in specified avenues. Investments made in Equity Savings Schemes (ELSS) and Pension Schemes are allowed as deduction under Section 88 of the Indian Income Tax Act, 1961.

2.2 Portfolio evaluation of mutual funds


Portfolio evaluation is the final step of portfolio management. Portfolio analysis, selection and revision are undertaken with the objective of maximising returns and minimi ing risk. Portfolio evaluation is the stage where we examine to what extent the objective has been achieved. Through portfolio evaluation the investor tries to find out how well the portfolio has performed. The portfolio of securities held by an investor is the result of his investment decisions. Portfolio evaluation is really a study of the impact of such decisions. Without portfolio evaluation portfolio management would be incomplete.

Investment may be carried out by individuals by their own. The funds available with individual investors may not be large enough to create a well diversified portfolio of securities. Moreover , the time ,skill and other resources at disposal of individual investors may not be sufficient to manage the portfolio professionally. Institutional investors such as

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mutual funds and investment companies are better equipped to create and manage well diversified portfolio in a professional fashion. Hence, small investors may prefer to entrust their funds with mutual funds or investment companies to avail the benefits of their professional service and there by achieve maximum return with minimum risk and effort.

Evaluation is an appraisal of performance, Whether the investment actively is carried out by individual investors themselves or through mutual funds and investment companies, different situation arise where evaluation of performance becomes imperative. These situations are discussed below:

A. Self evaluation Where individuals investors undertake the investment actively on their own ,the investment decisions are taken by them. They construct and manage their own portfolio of securities. In such a situation, an investor would like to evaluate the performance of his portfolio in order to identify the mistakes committed by him, This self evaluation will enable him to improve his skills and achieve better performance in future.

B. Evaluation of portfolio managers A mutual fund or investment company usually creates different portfolios with different objectives aimed at different sets of investors. Each such portfolio may be entrusted to different professional portfolio managers who are responsible for the investment decisions regarding the portfolio entrusted to each of them. In such a situation the organi ation would like to evaluate the performance of each portfolio so as to compare the performance of different portfolio managers. C. Evaluation of mutual funds In India, at present, there are many mutual funds as also investment companies operating both in the public sector as well as in the private sector. These compete with each other for mobili ing the investment funds with individual investors and other organi ations by offering attractive returns, minimum risk, high safety and prompt liquidity. Investors and organi ations desirous of placing their funds with these mutual funds would like to know the comparative performance of each so as to select the best mutual fund or investment company. For this, evaluation of the performance of mutual funds and portfolios becomes necessary.

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2.2.1 Evaluation perspective A portfolio comprises several individual securities .In the building up of the portfolio several transactions of purchase and sale of securities take place. Thus, several transactions in several securities are needed to create and revise a portfolio of securities. Hence, the evaluation may be carried out from different perspective or viewpoints such as a transactions view, security view or portfolio view.

A. Transaction view An investor may attempt to evaluate every transaction of purchase and sale of securities, whenever a security is bought or sold, and the transaction is evaluated as regards its correctness and profitability

B. Security view Each security included in portfolio has been purchased at a particular price. At the end of the holding period , the market price of the security may be higher or lower than its cost price or purchase price. Further, during the holding period, interest or dividend might have been received in respect of the security. Thus , it may be possible to evaluate the profitability of holding each security separately. This is evaluation from the security viewpoint.

C. Portfolio view A portfolio is not a simple aggregation of a random group of securities. It is a combination of carefully selected securities, combined in a specific way so as to reduce the risk of investment to the minimum. An investor may attempt to evaluate the performance of the portfolio as a whole without examining the performance of individual securities within the portfolio. This is evaluation from the portfolio view.

Though evaluation may be attempted at transactional level or security level, such evaluation would be incomplete, inadequate and often misleading .Investment is an actively involving risk. Proper evaluation of the investment activity must, therefore, consider return along with risk involved .But risk is the best defined at the portfolio level and not at the security or transactional level. Hence ,the best perspective for evaluation is the portfolio view.

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2.2.2 Meaning of portfolio evaluation Portfolio evaluation refers to the evaluation of the performance of the portfolio. It is essentially the process of comparing the return earned on a portfolio with the return earned on one or more other portfolios or on benchmark portfolio. Portfolio evaluation essentially comprises of two functions. Performance measurement and performance evaluation. Performance measurement is an accounting function which measures the return earned on a portfolio during the holding period or the investment period. Performance evaluation , on the other hand, addresses such issues as whether the performance was superior or inferior ,whether the performance was due to skill or luck, etc.

While evaluating the performance of a portfolio, the return earned on the portfolio has to be evaluated in the context of the risk associated with that portfolio. One approach would be to group portfolios into equivalent risk classes and then compare returns of portfolios within each risk category. An alternative approach would be to specifically adjust the return for the riskiness of the portfolio by developing risk adjusted return measures and use these for evaluating portfolios among different risk levels

Literature on mutual fund performance evaluation is enormous. A few research studies that have influenced the preparation of this paper substantially are discussed in this section. Sharpe, William F. (1966) suggested a measure for the evaluation of portfolio performance. Drawing on results obtained in the field of portfolio analysis, economist Jack L. Treynor has suggested a new predictor of mutual fund performance, one that differs from virtually all those used previously by incorporating the volatility of a fund's return in a simple yet meaningful manner. The first step in portfolio evaluation is calculation of rate of return earned over the holding period. Return may be defined to include changes in the value of the portfolio over the holding period plus any other income earned over the period. In the case of mutual funds the rate of return earned by different mutual funds or mutual fund schemes may be calculated and compared with the rate of return earned by representative stock market index which can be used as benchmark for comparative evaluation. The mutual funds may also be ranked in descending order of their rates of return. But such a straight forward rates of return comparison may be incomplete and sometimes
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even misleading. The differential return earned by mutual funds could be due entirely to the differential risk exposure of funds. Hence the returns have to be adjusted for risk before making any comparison. 2.2.3 Means of Portfolio Evaluation Evaluation of mutual fund is basically based on risk adjusted returns. One obvious method of adjusting for risk is to look at the reward per unit of risk. We know that investment in shares is risky. Risk free rate of interest is the return that an investor can earn on riskless security., i.e. without bearing any risk. The return earned over and above the risk free return is the risk premium per unit of risk. Thus, the reward per unit of risk for different portfolios or mutual funds may be calculated and the funds may be ranked in descending order of the ratio. A higher ratio indicates better performance. 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:

A) 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 unfavourable performance.

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B) 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. All risk-averse investors would like to maximi e 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 unfavourable performance. Comparison of Sharpe and Treynor Sharpe and Treynor measures are similar in a way, since they both divide the risk premium by a numerical risk measure. The total risk is appropriate when we are evaluating the risk return relationship for well-diversified portfolios. On the other hand, the systematic risk is the relevant measure of risk when we are evaluating less than fully diversified portfolios or individual stocks. For a well-diversified portfolio the total risk is equal to systematic risk. Rankings based on total risk (Sharpe measure) and systematic risk (Treynor measure) should be identical for a well-diversified portfolio, as the total risk is reduced to systematic risk. Therefore, a poorly diversified fund that ranks higher on Treynor measure, compared with another fund that is highly diversified, will rank lower on Sharpe Measure. C) 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
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with the actual returns over the period. Required return of a fund at a given level of risk (Bi) can be calculated as: Ri = Rf + Bi (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 cannot mitigate unsystematic risk, as his knowledge of market is primitive. D) 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. 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: Ri = 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. Among the above performance measures, two models namely, Treynor measure and Jenson model use systematic risk based on the premise that the unsystematic risk is diversifiable. These models are suitable for large investors like institutional investors with high risk taking capacities as they do not face paucity of funds and can invest in a number of options to dilute some risks. For them, a portfolio can be spread across a number of stocks and sectors. However, Sharpe measure and Fama model that consider the entire risk

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associated with fund are suitable for small investors, as the ordinary investor lacks the necessary skill and resources to diversified. Moreover, the selection of the fund on the basis of superior stock selection ability of the fund manager will also help in safeguarding the money invested to a great extent. The investment in funds that have generated big returns at higher levels of risks leaves the money all the more prone to risks of all kinds that may exceed the individual investors' risk appetite. Above four methods available for performance evaluation, this study is based on two methods. Namely Sharpe ratio and Treynor ratio. This is because now a days most of the researchers use Sharpe and Traynor ratios for evaluation. The other two are irrelevant for the time being.

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CHAPTER: 3

METHODOLOGY

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3.1 Objective of the study


1. To study the performance of 5 mutual funds in India in the recent past. 2. To evaluate the performance of mutual funds through Sharpe and Treynor ratios 3. To compare the performance with bench mark index of BSE Sensex 4. To suggest suitable mutual funds according to investor characteristics 5. To apply basic statistical concepts to project return and risks of mutual funds

3.2 Scope of the study


Mutual Fund industry today, with about 34 players and more than five hundred schemes, is one of the most preferred investment avenues in India. However, with a plethora of schemes to choose from, the retail investor faces problems in selecting funds. Factors such as investment strategy and management style are qualitative, but the funds record is an important indicator too. Though past performance alone can not be indicative of future performance, it is, frankly, 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.

3.3 Methodology of the study


The methodology used is that evaluating the performance of mutual funds in India and compare with the benchmark index BSE Sensex. For this I take returns of five mutual funds, namely TATA Equity PE,DSP Blackrock TaxSaver, Franklin India Prima Plus, HDFC Prudence and Sundaram BNP Paribas SMILE. In the case of Tata equity PE, Franklin India Prima Plus, and HDFC Prudence I take returns for the last five years(20062010),For Sundaram BNP Paribas SMILE I take returns for the last 4 years(2007-2010) and for DSPBR TaxSaver, I take returns for the last 3 years(2008-2010).Then it is compared with the Sharpe and treynor measures of the benchmark index BSE Sensex. Then apply basic statistical concepts like expected returns, standard deviation and variance, correlation coefficient and covariance

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3.4 Limitations of study


1) Only 5 mutual funds are included for the portfolio evaluation of mutual funds in this study. So the findings and suggestions are only based on the 5 mutual funds included in this study. 2) The study is fully based on secondary data got from the research department of religare securities. So there is chance of personal bias from the researchers of that organisation 3) Basic statistical concepts is based on chances .the chances applied are purely assumptions and not the real chances of the company 4) This study is trying to evaluate the performance on the basis of Sharpe and treynor ratios. there are other methods also available for mutual fund evaluation.

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CHAPTER: 4

ANALYSIS AND INTERPRETATIONS

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4.1 Tata Equity PE


The fund seeks to provide capital appreciation by investing 70 per cent of the total assets in stocks having a trailing P/E ratio less than that of the BSE Sensex at the time of investment With bold allocations to Metals, Energy and Financials, it delivered a return of 84 per cent (category average: 59%). The funds strategy is unique: To invest at least 70 per cent of its net assets in stocks that have a trailing P/E less than that of the Sensex at the time of investment. At first blush it would appear that the portfolio would naturally be value based. Not necessarily. Simply because the fund managers gravitate towards low PE stocks does not translate into them offloading when it goes up. Moreover, they have a free hand with the balance 30 per cent. The funds diverse portfolio wont see too much of aggression with individual stock bets, though strong sector exposures have been the norm. Neither do they deliberately gravitate towards any market cap. Given its mandate to invest in undervalued companies, preferably those with a price earning ratio is lower than that of its benchmark index (the Sensex).Now TATA equity PE has taken its time to prove its worth. Those who had invested at the time which it has launched in June 2004 had their share of disappointment in the initial years .but those who take patience to allow the fund to come to terms with the market are reaping the rewards now Table 4.1A No 1 2 3 4 5 6 7 8 9 10 11 12 13 Portfolio of TATA Equity PE %of Holding 7.9 6.8 6.6 13 13.4 13.9 2.7 2.5 2.2 1.7 1.7 .9 10.5
40

Sectors Financial services Automobiles Pharma Energy Consumer goods IT Industrial manufacturing Services Cement Fertilisers Telecom Construction Metals

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4.1.1 Portfolio Overview of Tata Equity PE In the portfolio of Tata Equity PE ,IT and Consumer goods holds major share by holding 13.9% and 13.4% respectively. It also gives importance to metals by investing 10.5%.Sectors like financial services, automobiles, and pharma holds 7.9%,6.8% and 6.6% respectively. And minor investments in other sectors. It is an equity fund so major investments are in the category of equity shares. So the risk is little high compared to other schemes. In this fund the top 5 stock holdings are Mphasis, Cadila health, Hindustan zinc, First source sol and voltas Given its bias to undervalued securities ,it is but natural for this fund to have a mid cap orientation .Nearly 80% of the funds portfolio thus comprises of mid and small cap stocks .most of which have been acquired at least a year back. Unlike most other funds of the industry today that have been betting on energy and infrastructure space since the revival of the markets. Tata equity PE shows a clear inclination for information technology and consumer goods sectors. At their peak information technology stocks accounted for nearly a quarter of the funds portfolio in august -September 2009. Currently the funds exposure to the information technology is nearly 14%.Some of the interesting IT picks ,that have yielded generous returns for the fund in the last few months include Mphasis,patni computers and NIIT Technologies. It is however surprising to see that the funds continuous to hold a small percentage of Tanla Solutions which it had invested into about a couple of years ago-for not only this stock had been badly bruised in the meltdown but it continues to struggle to revive to its premeltdown levels. Apart from IT, some of its other good picks that have nearly doubled in the current rally include Hindustan Zinc ,Exide industries,GAIL,Gujrat cements and Shree cements which it had invested in the down turn. Also some of its timely picks around May-June this year like Cadila Health care ,Castrol India and eClerx have reaped extremely handsome returns in the last few months.

However ,not all its calls can be termed timely. Its decision to exit from blue chips such as State bank of India, Infosys and HDFC Bank in the current year do come as a surprise, especially after having held onto them for nearly a year

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4.1.2 Portfolio Evaluation of Tata Equity PE For evaluating the performance of Tata Equity PE, We select returns from the last five years. Chart 4.1A Returns of TATA Equity PE

RETURNS
120 100 80 60 40

20 0 -20 -40 -60 -80


1 2 3 4 5

RETURNS

2005

2006

2007

2008

2009

Table 4.1B calculation of standard deviation Year Return: Tata Equity PE(X) . 2009 2008 2007 2006 2005 TOTAL 103.59 -53.84 83.60 29.03 39.97 X =202.35 10730 2899 6989 843 1597 X =23058 2 X

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Standard Deviation
S.D =

=54.53
Table 4.1C Year
2006 2007 2008 2009 2010 Total

calculation of risk free return for 5 years


Risk free return
6.25 8.25 9.50 7.00 6.50 37.5

For calculating risk free return we select average of reserve banks fixed interest rates Risk free return for 5 years = 37.5/5
= 7.5

Table 4.1D Particulars Average return

Statistical Measures Value 40.47 7.5% 1.03 54.53

Risk free return BETA Standard Deviation

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A..Sharpe ratio of TATA Equity PE Sharp ratio = rp rf p where rp = return of the portfolio rf = risk free return p= standard deviation of the portfolio

For calculating Sharpe ratio of TATA Equity PE we take return of the portfolio (rp) as the average return for the last five years(2005 - 2009)

Sharpe ratio

40.47-7.5 54.53 = .60

B. Treynor ratio of TATA Equity PE

Treynor ratio =

rp rf p

where

rp = return of the portfolio rf = risk free return p = beta of the portfolio

For calculating Treynor ratio of TATA Equity PE, we take return of the portfolio (rp) as the average return for the last five years(2005 - 2009) Treynor ratio = 40.47-7.5 1.03 =32

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Reward to variability ratio of Tata equity PE is .60. It shows the funds strong performance in the last five years. So this fund is very favourable among mutual fund investors. According to the Sharpe ratio is concerned the fund shows high quality risk adjusted performance because the Sharpe ratio is positive and high level Reward to volatility ratio is also favourable in the case of Tata equity PE. The funds Traynor ratio for the last five years is 32.Traynor ratio is also positive and in a high level. It shows funds superior risk adjusted performance. Tata equity is an equity oriented fund. So funds major part of investment in equities. So it got opportunity to become part of the previous rallies. Its major problem is that its risk quotient is little high because of the high equity exposure. But its previous performance shows that the funds are capable to overcome this risk quotient.

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4.2 DSP Blackrock Tax Saver


DSP Blackrock tax saver has completed about three years of in the mutual fund industry. Launched in December 2006 the fund has however already made its mark as a reasonable performer in both the bull and bear phases of the market in such a short span of time. The scheme seeks to generate medium to long-term capital appreciation from a diversified portfolio that is substantially constituted of equity and equity related securities Table 4.2A No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Portfolio of DSPBR Txasaver %of Holding 14.3 3.6 12.7 13.2 2.2 7.9 11.8 5.2 1.8 3.9 4.0 5.9 4.5 6.2

Sectors Financial services Automobiles FMCG Energy Consumer goods IT Health care Services Textiles Chemicals Diversified Construction Metals Engineering

4.2.1 Portfolio Overview of DSP Blackrock Tax Saver The funds top holding in financial services with an investment of 14.3%the other major holdings include FMCG(12.7?%), Health care(11.8), energy(13.2),and IT with 7.9% of investment. The top five companies are reliance industries, Infosys,SBI,HDFC Bank and ITC Like many other diversified equity schemes DSP Blackrock TaxSaver has multi cap composition with prominent names such as Reliance industries, Infosys,SBI,HDFC Bank,ITC,TCS,L&T,Bhel,ICICI Bank and others forming part of its portfolio. In line with its
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other popular schemes from the DSP Blackrock basket, TaxSaver is highly diversified with nearly 80 stocks in the portfolio. Given such an extensive diversification and its moderate asset size of about Rs 775 crore, the fund exposure to a particular stock is less than 5%. While this definitely reduce the stock specific risk of the portfolio. It rises the workload for the fund manager who now needs to keep in touch with 80 stocks and develop in their respective sectors .DSP Blackrock is however well known in the market for its diversification skills and has not disappointed its investors so far. While the fund was launched at the peak of the bull run most of the stocks in the portfolio were picked up in 2008and by mid 2009 at reasonable valuation. It has thus made healthy profits on investments in RIL,Infosys,HDFC Bank,Dr Reddys Laboratories,REC,Shree renuka sugars,P&G ,Jindal steel and power and ICICIBank among others. At the same time ,stocks that are yet to yield decent returns include SBI,Voltas,Piramel Health care and Cairn India among others. Some of the funds recent picks include CESC,Kajaria ceramics,Heidelberg cement India Ltd,Hindustan zinc OCL India. To roughly gauge the funds profitable holding today, if one were to consider the closing stock prices as of end of January 2010,80% of the fund s holding is estimated to be in green light now. 4.2.2 Portfolio Evaluation of DSP Blackrock Tax Saver For evaluating the performance of DSP Blackrock Tax Saver , We select returns from the last three years. Chart 4.2A Returns of DSPBR Taxsaver

RETURNS
100
50 0 RETURNS

1 -50 -100

2007

2008

2009
47

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Table 4.2B Year

Calculation of standard deviation Return: DSPBR(X) . 2 X

2009 2008 2007 TOTAL

84.22 -56.08 81 X =109.14

7093 3144 6561 X =16798

Standard Deviation
S.D . =

=65.39

Table 4.2C Calculation of risk free return for 3 years


Year 2008 2009 2010 Total Risk free return 9.50 7.00 6.50 31.25

For calculating risk free return we select average of reserve banks fixed interest rates Risk free return for 4 years = 23/3
= 7.66

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Table 4.2D Particulars

Statistical Measures Value 36.38 7.5% .96 65.39

Average return Risk free return BETA Standard Deviation

A. Sharpe ratio of DSPBR TaxSaver Sharp ratio = rp rf p where rp = return of the portfolio rf = risk free return p= standard deviation of the portfolio

For calculating Sharpe ratio of DSPBR TaxSaver we take return of the portfolio (rp) as the average return for the last Three years(2007 - 2009) Sharpe ratio = 36.38-7.66 65.39 B Treynor ratio of DSPBR Tax saver = .44

Treynor ratio =

rp rf p

where

rp = return of the portfolio rf = risk free return p = beta of the portfolio

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For calculating Treynor ratio of DSPBR Tax saver, we take return of the portfolio (rp) as the average return for the last Three years(2007 - 2009)

Treynor ratio

= 36.38-7.66 .96 = 29.91

DSPBR TaxSavers reward to variability ratio is .63 .The funds reward to variability is satisfied level in this case of DSP Blackrock tax saver. So funds performance is superior as compared with Sharpe ratio. This is mainly because of the funds equity exposure. The Treynor ratio of this fund is 29.91 .According to the Traynor ratio the fund shows reasonable performance since its inception.. The funds Traynor ratio shows that the risk adjusted performance is so well till now except in the crisis year. The fund start its operation in 2007. It is an equity linked saving scheme. Its equity exposure helps to reap high returns in the previous two rallies. The important thing is that the fund manages to minimize it loss in the recession time also.

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4.3 Franklin India Prima Plus


Launched in September 1994 by Kothari pioneer ,which was acquired by Franklin Templeton Asset Management Company .Franklin India Prima Plus is one of the oldest funds in India. The scheme aims to provide growth of capital and regular dividend from a portfolio of equity, debt and money market instruments and focussing on wealth creating companies across all sectors and market cap ranges. Table 4.3A No 1 2 3 4 5 6 7 8 9 10 11 12 13 Portfolio of Franklin India Prima Plus %of Holding 25.2 5.1 2.4 14.3 10.6 5.7 7.5 1.8 2.6 5.2 4.8 3.4 2.7

Sectors Financial services Automobiles Pharma Energy Consumer goods IT Industrial manufacturing Services Cement Telecom Media Construction Metals

4.3.1 Portfolio Overview of Franklin India Prima Plus Financial sector is the leading sector in the portfolio of Franklin India(25.2%).Energy and consumer goods holds 14.3% and 10% respectively. Other major sectors include industrial manufacturing(7.5),IT(5.7),Telecom(5.2) Automobiles (5.1) and Media 4.8).Top 5 stock holdings include HDFC bank (5.3),Bharati airtel(5.2),kotak mahindra (4.3),Infosys (4.2) and Nestle India (3.7) With over 17000 crore of Asset Under Management the fund is diversified with an average of 60 stocks in its portfolio at any given time. While the fund has favoured
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financial services companies for quite some times now, it is now gradually begun to built up the portfolio of energy stocks since October 2008. The move into the energy stocks considers a clear shift from the consumer goods scrips that has dominated the funds portfolio since 2005.It is probably this extensive exposure in the defensive consumer goods category that saved the fund in the meltdown but also stunted its growth in 2007.That consumer goods is Prima Pluss favourite is also reflected from the fact that even today the sector accounts for nearly 11% of its portfolio. Though this share has come down from over 15%until July 2009.Some of the other sectors that have caught the funds fancy include automobiles whose share in the portfolio surged from 1.5 % in June 2009 to about 5%as on September 2009 An interesting fact about this fund is that unlike other diversified equity schemes which had drastically truncated their equity exposure during the meltdown ,Prima plus continued to remain invested in equities to the tune of 90% -95% of its AUM and yet managed to perform better than those which had escaped to the shelter of cash. While the fund has a decent portfolio with well recognized stocks ,its calls like exiting HDFC,L&T and Hero Honda in march 2009 after holding them for a fairly long time may have cost the fund dearly in the calendar year. While it did add back Hero Honda in July 2009,the stock had already witnessed a decent run-up during the period it was absent from the fund. The fund has also exited Shree cements and Axis bank in May 2009and once again both these stocks turned out to be blockbuster hits of the current rally. 4.3.2 Portfolio Evaluation of Franklin India Prima Plus For evaluating the performance of Franklin India, We select returns from the last 5 years. Chart 4.3A Returns of Franklin India Prima Plus

RETURNS
100 50 0 RETURNS

1
-50

-100

2005

2006

2007

2008

2009
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Table 4.3B Year

calculation of standard deviation Return: Franklin India (X) . 2 X

2009 2008 2007 2006 2005 TOTAL

73.10 -47.71 54.90 49.36 47.61 X =177.26

5343 2276 3014 2436 2266 X =15335

Standard Deviation
S.D =42.54

= = . .

Table 4.3C calculation of risk free return for 5 years


Year 2006 2007 2008 2009 2010 Total Risk free return 6.25 8.25 9.50 7.00 6.50 37.5

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For calculating risk free return we select average of reserve banks fixed interest rates Risk free return for 5 years = 37.5/5
= 7.5

Table 4.3D Particulars

Statistical Measures Value 35.45 7.5% .90 42.54

Average Return Risk free return BETA Standard Deviation

A. Sharpe ratio of Franklin India Prima Plus Sharp ratio = rp rf p where rp = return of the portfolio rf = risk free return p= standard deviation of the portfolio

For calculating Sharpe ratio of Franklin India Prima Plus we take return of the portfolio (rp) as the average return for the last Five years(2005 - 2009)

Sharpe ratio

= 35.45-7.5 42.54 = .65

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B. Treynor ratio of Franklin India Prima plus

Treynor ratio =

rp rf p

where

rp = return of the portfolio rf = risk free return p = beta of the portfolio

For calculating Treynor ratio of Franklin India Prima plus , we take return of the portfolio (rp) as the average return for the last five years(2005 - 2009)

Treynor ratio

= 35.45-7.5 .90 =31.05

Franklin India performed well in last five years. Its reward to variability ratio is .65.Franklin Indias major share is in financial sector. It help them to earn good returns in the current rally. Franklin Indias reward to volatility ratio is 31.05. so it is well performed to overcome systematic risk also. Till the meltdown Franklin India is an average performer. In meltdown the fund is got success in minimizing losses as compared by BSE Sensex. But in current bull run it become failure to earn benefits up to BSE Sensex. The funds performance record aptly substantiates its tendency to do well in down turns than rallies

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4.4 HDFC Prudence Fund


HDFC Prudence is a balanced fund. Yet its returns ,particularly in the recent past ,have surpassed even those of a broader market indices-the Sensex and the nifty.HDFC Prudence was launched in January 1994.It is one of the oldest equity oriented hybrid fund of the country today. Its humungous asset size of over Rs 3200crore also makes it the largest and the most popular schemes in the category of balanced funds. The scheme seeks periodic returns and long-term capital appreciation from a balanced portfolio of debt and equity. Table 4.4A No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Portfolio of HDFC Prudence Fund %of Holding 17.9 3.6 9.2 5.1 8.9 4.1 4.7 1.8 0.4 0.6 3.3 4.1 6.5 2.1 0.7

Sectors Financial services Automobiles Pharma Energy Consumer goods IT Industrial manufacturing Services Paper Metals Chemicals Construction Media Textiles Miscellaneous

4.4.1 Portfolio Overview of HDFC Prudence Fund In the portfolio of HDFC Prudence the highest holding sector is financial services(17.9). Then followed by pharma (9.2)consumer goods(8.9),media (6.5),energy (5.1) etc. The highest holding companies are ONGC(3.6),SBI (3.5)LIC Housing(3.3),Bank of Baroda(2.9) and Pidlite Industries(2.4). With its 75% of assets invested in equity, the fund is extremely well diversified and on average holds 55-60 stocks in the portfolio. And within the
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equity portfolio the fund has a clear bias towards mid and small cap stocks that account for more than half of its equity portfolio. While the fund has been holding many of its stocks for over a couple of years now, churning the portfolio occasionally ,some of its recent acquisitions have turned out to be multi baggers. Its recent picks like Lupin,Punj Lioyd,Simplex infrastructure ,CRISIL,Maharashtra seamless and Biocon during march may 2009 have more than doubled till date. As far as its long term investment is concerned ,it is benefitting mainly from the returns on some of the large cap blue chip companies it had pick early. These include stock like SBI,Bank of baroda,TCS,P&G,Crompton Greaves and sun pharma among others. Initial investment in each of these stocks date back to early2007 and even beyond.At the same time ,some of its long term mid and small cap acquisitions like ISMT,Indo Rama synthetics ,Uniphos Enterprises ,Himatsingka Seide and Ahmednagar Forgings ,among others, have fallen off grace since the time they were accumulated about two and half years ago In terms of sector oriented compositions, financial services and pharmaceuticals have been dominating the funds portfolio since 2008.In fact pharmaceuticals sector especially in the mid cap space, has attracted attention of many fund managers in the last few months. As far as the funds debt compositions is concerned, the fund mostly invests in high rate papers those with AA+ or AAA rating and sovereign papers. 4.4.2 Portfolio Evaluation of HDFC Prudence Fund For evaluating the performance of HDFC Prudence , We select returns from the last 5 years Chart 4.4A Returns of HDFC Prudence

RETURNS
100 80 60 40 20 0 -20 -40 -60

2005

2006

2007

2008

2009
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Table 4.4B calculation of standard deviation Year Return: HDFC Prudence (X) 2009 2008 2007 2006 2005 TOTAL 84.84 -42.00 43.00 33.00 47.00 X =165.84 . 7198 1764 1849 1089 2209 X =14109 2 X

Standard Deviation
S.D
.

=
.

=41.49 Table 4.4C calculation of risk free return for 5 years

Year 2006 2007 2008 2009 2010 Total

Risk free return 6.25 8.25 9.50 7.00 6.50 37.5

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For calculating risk free return we select average of reserve banks fixed interest rates Risk free return for 5 years = 37.5/5
= 7.5

Table 4.4D Particulars

Statistical Measures Value 33.16 7.5% 1.07 41.49

Average return Risk free return BETA Standard Deviation

A. Sharpe ratio of HDFC Prudence Sharp ratio = rp rf p where rp = return of the portfolio rf = risk free return p= standard deviation of the portfolio

For calculating Sharpe ratio of HDFC Prudence we take return of the portfolio (rp) as the average return for the last Five years (2005 - 2009)

Sharpe ratio

=33.16-7.5 41.49 = .61

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B Treynor ratio of HDFC Prudence

Treynor ratio =

rp rf p

where

rp = return of the portfolio rf = risk free return p = beta of the portfolio

For calculating Treynor ratio of HDFC Prudence, we take return of the portfolio (rp) as the average return for the last five years (2005 - 2009)

Treynor ratio

= 33.16-7.5 1.07 =23.98

HDFC Prudence is a balanced fund. Its reward to variability ratio is .61.As far as a balance fund is concerned its Sharpe ratio is very high. It shows the superior performance of the fund. Its reward to volatility ratio is 23.98. when compared to other funds its beta(un is little high. because of the balanced nature of this fund.. so the reward to volatility ratio is little low. But a balance fund is concerned HDFC Prudence outperformed in last five years

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4.5 Sundaram BNP Paribas SMILE


Sundaram BNP Paribas SMILE has rewarded many of its investors who chose to stay with the funds irrespective of market conditions .SMILE(Small and Medium Indian Leading Equities Fund),as the name suggests invest in small and mid caps stocks and has emerged as one of the leading funds in this category during its five year long performance history. The scheme aims to achieve capital appreciation by investing at least 65 per cent of its assets in diversified stocks that are generally termed as 'small and mid caps'. Small and midcaps are defined as any equity stock whose market capitalization is equal to or lower than the market capitalization of the largest market capitalization stock in CNX Midcap 200 index. With this offering you can be sure of ample diversification amongst sectors as well as stocks. Over the past one year, the number of stocks has averaged at 50, which is a considerable change from its earlier days when it touched 96. While around 40 per cent of its investment universe comprises of stocks that have been held in the portfolio for less than six months, there are a number of stocks which have been held for considerable lengths of time. Its worth noting that in most stocks it offloads positions completely before buying them afresh. Table 4.5A No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Portfolio of Sundaram BNP Paribas SMILE %of Holding 11,9 10. 7.7 8.5 12.1 8.9 6.3 7.0 1,0 1.3 1.0 4.6 12. 1.2

Sectors Financial services Automobiles Pharma Energy Consumer goods IT Industrial manufacturing Services Cement Textiles Media Construction Metals Fertilisers

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15 16

Industrial capital goods Miscellaneous

2.4 .9

4.5.1 Portfolio Overview of Sundaram BNP Paribas SMILE In the portfolio of Sundaram BNP SMILE consumer goods is the leading sector with 12.1%of investment. Then it is followed by metals and financial services with 12%and 11.9% respectively. The other sectors include automobiles(10),Information Technology (8.9),Energy(8.5) ,Pharma(7.7),Services (7) and Industrial Manufacturing(6.3). top stock holders are Polaris software(3.9),Ashok Leyland(3.2),Sree Renuka Sugars(3.2),Bajaj Auto(2.9) and Sesa Goa(2.8) For a fund managing about 560 crore of assets Sundaram BNP Paribas SMILE is extensively diversified and with over 60 stocks in its portfolio at any given point of time. But what is even more interesting is the funds strategy to churn the portfolio aggressively each month. So aggressive is the churning that the fund ,on an average ,does not hold a stock for more than six months in a row. Most of the stocks that the fund currently holds have been acquired around and after July 2009. An analysis of the funds portfolio clearly reveals an inclination to trade rather than hold the investments for the long term. And this fund applied this strategy uniformly to both large and mid cap stocks in the portfolio. Thus unlike many other funds that prefer to stay invested in individual blue chip counters and trade the mid caps, SMILE has no such biases and all the stocks in its portfolio are available for trade at all times While one can argue that such an aggressive churning allows the fund manager to participate in the market momentum, another school of thought reckons that such frequent trades may result in missing out on multi baggers that usually arise from long term holding .More over such a frequent churning also raises the cost of managing the portfolio. For instance one of SMILEs investments ,Punjab National Bank in November 2008 would have more than doubled today had it not exited the fund within three months in February 2009.Similarly, the fund made an early exit from Axis bank in may 2009 after investing at an extremely lucrative valuation in March 2009.This stocks again has more than doubled since then. Nevertheless the same strategy has also helped the fund in minimizing its losses in stocks, such as India cements and Paramount communications where a timely exit did help.
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4.5.2 Portfolio Evaluation of Sundaram BNP Paribas SMILE For evaluating the performance of Sundaram BNP Paribas SMILE, We select returns from the last 4 years Chart 4.5A Returns of Sundaram BNP Paribas SMILE

RETURNS
140

120 100 80 60 40 RETURNS


20 0 -20 -40

-60 -80

2006

2007

2008

2009

Table 4.5B Year

Calculation of standard deviation Return: Sundaram BNP SMILE (X) . 14505 3320 6588 956 X =25369 2 X

2009 2008 2007 2006 TOTAL

120.44 -57.62 81.17 30.92 X =174.91

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Standard Deviation
S.D

= = = .66.55

Table 4.5C calculation of risk free return for 4 years


Year 2007 2008 2009 2010 Total Risk free return 8.25 9.50 7.00 6.50 31.25

For calculating risk free return we select average of reserve banks fixed interest rates Risk free return for 4 years = 31.25/4
= 7.81

Table 4.5D Particulars Average return

Statistical Measures Value 43.72 7.81% 1.18 66.55

Risk free return BETA Standard Deviation

A. Sharpe ratio of Sundaram BNP Paribas SMILE Sharp ratio = rp rf p where rp = return of the portfolio rf = risk free return p= standard deviation of the portfolio

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For calculating Sharpe ratio of Sundaram BNP Paribas SMILE we take return of the portfolio (rp) as the average return for the last Four years (2006 - 2009)

Sharpe ratio

= 43.72-7.81 66.55 = .54

B Treynor ratio of Sundaram BNP Paribas SMILE

Treynor ratio =

rp rf p

where

rp = return of the portfolio rf = risk free return p = beta of the portfolio

For calculating Treynor ratio of Sundaram BNP Paribas SMILE,

we take return of the

portfolio (rp) as the average return for the last four years (2006- 2009) Treynor ratio =43.72-7.81 1.18 =30.43

The reward to volatility ratio of Sundaram BNP SMILE is .66. it shows funds superior and high performance. Its major investments in small and mid cap companies. It increases the total risk of the portfolio. But its Sharpe ratio indicates the strong management of assets by the fund managers. In the current year its return is above 100%.its reward to volatility ratio is also good. Its Treynor ratio is 30.43.Given its midcap orientation Sundaram BNP SMILE has done exceptionally wee during in last five years

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5.6

Comparison between Sharpe and Treynor ratios of Mutual funds

TABLE 4.6A Sharpe and Treynor ratios

NAME
Tata Equity PE DSP Blackrock Franklin India HDFC Prudence Sundaram BNP SMILE

Sharpe Ratio
.60 .44 .65 .61 .54

Treynor Ratio
32 29.91 31.05 23.98 30.43

In the case of Tata equity ,its Sharpe and treynor ratios are in proportionate level because it is a well diversified portfolio. In the case of DSP Blackrock its treynor ratio is little lower proportionate with its Sharpe measure. It shows the funds high systematic risk. Franklin India shows a moderate performance when we compare its Sharpe ratio is equally proportionate with treynor measure. HDFC prudence shows that its systematic risk is little higher. It is because of the less diversified portfolio of HDFC prudence. Sundaram shows relatively proportionate performance in Sharpe and treynor measure. Rankings based on total risk (Sharpe measure) and systematic risk (Treynor measure) should be identical for a welldiversified portfolio, as the total risk is reduced to systematic risk. Therefore, a poorly diversified fund that ranks higher on Treynor measure, compared with another fund that is highly diversified, will rank lower on Sharpe Measure..

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4.7 Market Analysis of BSE Sensex


For evaluating the mutual funds performance we have to calculate the Sharpe ratio of the market index to be used. In India the benchmark index is the BSE Sensex.

4.7.1 Standard Deviation of BSE Sensex Standard deviation for BSE Sensex for five years is for portfolio performance comparison of Tata Equity PE,HDFC Prudence and Franklin India prima plus. Standard deviation for four years is for Sundaram BNP SMILE and three years for DSPBR TaxSaver) Table 4.7A Year Standard Deviation of BSE Sensex for 5 Years Return On Market Index(X) 2009 2008 2007 2006 2005 TOTAL 81 -52 43 47 47 X=166 X 6561 2704 1849 2209 2209 X =15532 2

Standard Deviation
S.D =

=44.76

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Table 4.7B

Standard Deviation of BSE Sensex for 4 Years Year Return On Market Index(X) 2009 2008 2007 2006 81 -52 43 47 X= 119 X 6561 2704 1849 2209 X =13323 2

TOTAL

Standard Deviation
S.D =49.45
=

Table 4.7C

Standard Deviation for 3 Years Year Return On Market Index(X) 2009 2008 2007 81 -52 43 X= 72 X 6561 2704 1849 X =11114 2

TOTAL

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Standard Deviation
S.D

= =

=55.93

4.7.2 Sharpe Ratio of BSE Sensex Sharpe ratio for BSE Sensex for five years is for portfolio performance comparison of Tata Equity PE,HDFC Prudence and Franklin India prima plus. Sharpe ratio for four years is for Sundaram BNP SMILE and three years for DSPBR TaxSaver)

A. Sharpe ratio of BSE Sensex for 5 years Sharp ratio = rp rf p where rp = return of the portfolio rf = risk free return p= standard deviation of the portfolio

For calculating Sharpe ratio of BSE sensex we take return of the portfolio (rp) as the average return for the last Four years (2006 - 2009)

Sharpe ratio

= 33.2-7.5 44.76 = .57

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B. Sharpe ratio of BSE Sensex for 4 years Sharp ratio = rp rf p where rp = return of the portfolio rf = risk free return p= standard deviation of the portfolio

For calculating Sharpe ratio of BSE Sensex we take return of the portfolio (rp) as the average return for the last Four years (2006 - 2009)

Sharpe ratio

= 29.75-7.5 49.45 = .45

C.Sharpe ratio of BSE Sensex for 3 years Sharp ratio = rp rf p where rp = return of the portfolio rf = risk free return p= standard deviation of the portfolio

For calculating Sharpe ratio of BSE sensex we take return of the portfolio (rp) as the average return for the last three years (2008 - 2009)

Sharpe ratio

= 24-7.5 55.93 = .29

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4.7.3 Comparison of Mutual Fund Ratios with Market Index Table 4.7D Sharpe ratios of mutual funds and BSE Sensex
Sharpe Ratio
.60 .44 .65 .61 .54

Mutual Funds
Tata Equity PE DSP Blackrock Franklin India HDFC Prudence Sundaram BNP SMILE

Sharpe Ratio Of Sensex


.57 .29 .57 .57 .45

In this study all the mutual funds show that their reward to variability ratio is more than the reward to variability of the benchmark index i.e. ,BSE Sensex. It shows the better performance of the Indian mutual fund industry. In this study the funds like Tata equity PE, HDFC prudence shows reasonable performance when compared with benchmark index. These funds are managed by big corporate in India. Funds like Franklin India, and Sundaram BNP SMILE are also give well satisfied results to their investors.DSP Blackrock give more than 100 % returns to their investors. the main reason behind this is that the funds inception is in 2007.so it got opportunity to became a part of two big rallies in Indian stock market. So HDFC prudence performance is very superior because it is a balanced fund. So all mutual funds involved in this study are performed very well when we compared with the benchmark index of BSE Sensex

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4.8 Statistical Tools used for predicting Portfolio Returns


Investors assessment of return on a portfolio of Tata equity pe under three different scenarios is as follows. If the return on a portfolio is expected to be r1 with a chance of p1, r2 with a chance of p2and rn with a chance of pn then the overall assessment of investors is based on the expected value of returns, which is computed as follows Expected return=p1r1+p2r2+.+pnrn

4.8.1 Expected Returns

Table 4.8A Scenario 1 2 3

TATA EQUITY PE CHANCES(p) .25 .50 .25 RETURN(r) 103.59 -53.84 83.60 p*r 25.9 -26.9 20.9

Expected return (p*r) = 19.9

Table 4.8B Scenario 1 2 3

DSPBR TAXSAVER CHANCES(p) .25 .50 .25 RETURN(r) 84.22 -56.08 81 p*r 21.05 -28.04 20.25

Expected return (p*r) = 13.26

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Table 4.8C Scenario 1 2 3

FRANKLIN INDIA PRIMA PLUS CHANCES(p) .25 .50 .25 RETURN(r) 73.10 -47.71 54.90 p*r 18.27 -23.85 13.72

Expected return (p*r) = 8.14

Table 4.8D Scenario 1 2 3

HDFC PRUDENCE CHANCES(p) .25 .50 .25 RETURN(r) 84.84 -42.00 43.00 p*r 21.21 -21.00 10.75

Expected return (p*r) = 10.96

Table 4.8E Scenario 1 2 3

SUNDRAM BNP PARIBAS CHANCES(p) .25 .50 .25 RETURN(r) 120.44 -57.62 81.17 p*r 30.11 -28.81 20.2

Expected return (p*r) = 21.5

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4.8.2 Standard deviation and Variance Standard deviation is calculated to measure the average magnitude of the deviation in returns of deviation of returns from the expected value. The squire of standard deviation is called variance. Variance is the average value of the squares of deviations of the observed values from the expected value.

Table 4.8F Scenario

TATA EQUITY PE Chances(p) Return(r) Deviation (r-Ex) (Deviation) P*(r-Ex)

1 2 3 Ex=19.9

.25 .50 .25

103.59 -53.84 83.60

83.69 -73.74 63.7

7004 5337 4047

1751 2668 1014

Variance= P*(r-Ex) =5433 Standard deviation =

= 73

Table 4.8G Scenario

DSPBR TAXSAVER Chances(p) Return(r) Deviation (r-Ex) (Deviation) P*(r-Ex)

1 2 3 Ex=13.26

.25 .50 .25

84.22 -56.08 81

70.96 -69.34 67.74

5035 4808 4588

1258 2404 1147

Variance= P*(r-Ex) =4809 Standard deviation =

= 69

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Table 4.8H Scenario

FRANKLIN INDIA PRIMA PLUS Chances(p) Return(r) Deviation (r-Ex) (Deviation) P*(r-Ex)

1 2 3 Ex=8.14

.25 .50 .25

73.10 -47.71 54.90

64.96 -55.85 46.76

4219 3119 2186

1055 1559 546

Variance= P*(r-Ex) =3160 Standard deviation =

= 56

Table 4.8I Scenario Chances(p)

HDFC PRUDENCE

Return(r)

Deviation (r-Ex)

(Deviation)

P*(r-Ex)

1 2 3 Ex=10.96

.25 .50 .25

84.84 -42.00 43.00

73.88 -52.96 32.04

5458 2804 1026

1364 1402 256

Variance= P*(r-Ex) =3022 Standard deviation =

= 55

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Table 4.8J Scenario Chances(p)

SUNDARAM BNP SMILE Return(r) Deviation (r-Ex) (Deviation) P*(r-Ex)

1 2 3 Ex=21.25

.25 .50 .25

120.44 -57.62 81.17

99.19 -78.87 59.92

9838 6220 3590

2459 3110 897

Variance= P*(r-Ex) =6466

Standard deviation =

= 80

4.8.3 Covariance of mutual funds


Covariance of mutual funds is nothing but the average value of the product of deviation s from respective expected return

Table 4.8K
Scenario Chance P

TATA EQUITY AND DSP BLACKROCK


Return(tata) Rx Return(DSP) Deviation Ry rx-ex Deviation ry-ey Product rx-ex* ry-ey P*( rxex* ryey)

1 2 3

.25 .50 .25

103.59 -53.84 83.60

84.22 -56.08 81

83.69 -73.74 63.7

70.96 -69.34 67.74

5938 5113 4315

1484 2556 1078

Covariance= p1(rx1-Ex)(ry1-Ey)+p2(rx2-Ex)(ry2-Ey)+..+pn(rxn-Ex)(ryn-Ey) Covariance = 5118

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Table 4.8L
Scenario Chance P

TATA EQUITY AND FRANKLIN INDIA


Return(tata) Rx Return(FRANKLIN INDIA) Ry Deviation rx-ex Deviation ry-ey Product rx-ex* ry-ey P*( rxex* ry-ey) 1359 2059 744

1 2 3

.25 .50 .25

103.59 -53.84 83.60

73.10 -47.71 54.90

83.69 -73.74 63.7

64.96 -55.85 46.76

5436 4118 2978

Covariance= p1(rx1-Ex)(ry1-Ey)+p2(rx2-Ex)(ry2-Ey)+..+pn(rxn-Ex)(ryn-Ey) Covariance = 4162

Table 4.8M
Scenario Chance P

TATA EQUITY AND HDFC PRUDENCE


Return(tata) Rx Return(HDFC) Deviation Ry rx-ex Deviation ry-ey Product rx-ex* ry-ey P*( rxex* ryey)

1 2 3

.25 .50 .25

103.59 -53.84 83.60

84.84 -42.00 43.00

83.69 -73.74 63.7

73.88 -52.96 32.04

6183 3905 2040

1545 1952 510

Covariance= p1(rx1-Ex)(ry1-Ey)+p2(rx2-Ex)(ry2-Ey)+..+pn(rxn-Ex)(ryn-Ey) Covariance = 4007

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Table 4.8N
scenario Chance P

TATA EQUITY AND SUNDARAM BNP PARIBAS


Return(tata) Rx Return(SUNDARAM) Deviation Deviation Ry rx-ex ry-ey Product rx-ex* ry-ey P*( rxex* ryey) 2075 2907 954

1 2 3

.25 .50 .25

103.59 -53.84 83.60

120.44 -57.62 81.17

83.69 -73.74 63.7

99.19 -78.87 59.92

8301 5815 3816

Covariance= p1(rx1-Ex)(ry1-Ey)+p2(rx2-Ex)(ry2-Ey)+..+pn(rxn-Ex)(ryn-Ey) Covariance = 5936

Table 4.8O
scenario Chance P

FRANKLIN INDIA AND DSP BLACKROCK


Return(FRANKLIN INDIA) Rx Return(DSP) Deviation Ry rx-ex Deviation ry-ey Product rx-ex* ry-ey P*( rxex* ry-ey) 1152 1936 791

1 2 3

.25 .50 .25

73.10 -47.71 54.90

84.22 -56.08 81

64.96 -55.85 46.76

70.96 -69.34 67.74

4609 3872 3167

Covariance= p1(rx1-Ex)(ry1-Ey)+p2(rx2-Ex)(ry2-Ey)+..+pn(rxn-Ex)(ryn-Ey) Covariance = 3879

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Table 4.8P
Scenario Chance P

HDFC PRUDENCE AND DSP BLACKROCK


Return(HDFC) Return(DSP) Rx Ry Deviation rx-ex Deviation ry-ey Product rx-ex* ry-ey P*( rxex* ryey)

1 2 3

.25 .50 .25

84.84 -42.00 43.00

84.22 -56.08 81

73.88 -52.96 32.04

70.96 -69.34 67.74

5242 3672 2170

1310 1836 542

Covariance= p1(rx1-Ex)(ry1-Ey)+p2(rx2-Ex)(ry2-Ey)+..+pn(rxn-Ex)(ryn-Ey) Covariance = 3688

Table 4.8Q
scenario Chance P

SUNDARAM BNP AND DSP BLACKROCK


Return(SUNDARAM) Return(DSP) Rx ry Deviation rx-ex Deviation Product rx-ex* ry-ey ry-ey P*( rxex* ryey) 1759 2734 1014

1 2 3

.25 .50 .25

120.44 -57.62 81.17

84.22 -56.08 81

99.19 -78.87 59.92

70.96 -69.34 67.74

7038 5468 4058

Covariance= p1(rx1-Ex)(ry1-Ey)+p2(rx2-Ex)(ry2-Ey)+..+pn(rxn-Ex)(ryn-Ey) Covariance = 5507

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Table 4.8R
scenario Chance P

FRANKLIN INDIA AND HDFC PRUDENCE


Return(FRANKLIN INDIA) Rx Return(HDFC) ry Deviation Deviation rx-ex ry-ey Product rx-ex* ry-ey P*( rxex* ryey) 1199 1478 374

1 2 3

.25 .50 .25

73.10 -47.71 54.90

84.84 -42.00 43.00

64.96 -55.85 46.76

73.88 -52.96 32.04

4799 2957 1498

Covariance= p1 (rx1-Ex)(ry1-Ey)+p2(rx2-Ex)(ry2-Ey)+..+pn(rxn-Ex)(ryn-Ey) Covariance = 305

Table 4.8S
Scenari o Chanc e P

FRANKLIN INDIA AND SUNDARAM BNP PARIBAS


Return(FRANKLI N INDIA) Rx Return(SUNDARA M) Ry Deviatio n rx-ex Deviatio n ry-ey Produc t rxex* ryey P*( rxex* ryey) 161 0 220 2 700

.25 .50 .25

73.10 -47.71 54.90

120.44 -57.62 81.17

64.96 -55.85 46.76

99.19 -78.87 59.92

6443

4404

2801

Covariance= p1 (rx1-Ex) (ry1-Ey) +p2 (rx2-Ex) (ry2-Ey) +..+pn (rxn-Ex)(ryn-Ey) Covariance = 4512

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Table 4.8T
Scenari o Chanc e P

HDFC PRUDENCE AND SUNDARAM BNP PARIBAS


Return(HDFC ) Rx Return(SUNDARAM ) Ry Deviatio n rx-ex Deviatio n ry-ey Produc t rxex* ryey P*( rxex* ryey) 183 2 208 8 500

.25 .50 .25

84.84 -42.00 43.00

120.44 -57.62 81.17

73.88 -52.96 32.04

99.19 -78.87 59.92

7328

4176

1919

Covariance= p1(rx1-Ex)(ry1-Ey)+p2(rx2-Ex)(ry2-Ey)+..+pn(rxn-Ex)(ryn-Ey) Covariance =4400

4.8.4 Correlation Coefficient


The correlation coefficient measures how large the covariance is in relation to the variability in individual returns.

Correlation coefficient=

xy/ x y

A .Tata Equity and DSP BR Taxsaver Correlation coefficient = = 5118/(73*69) 5118/5037 =1.02

B .Tata Equity and Franklin India prima plus Correlation coefficient = = C .Tata Equity and HDFC Prudence Correlation coefficient = =
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4162/(73*56) 4162/4088 =1.02

4007/(73*55) 4007/4015 =1.00


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D .Tata Equity and Sundaram BNP Paribas Correlation coefficient= = 5936/(73*80) 6585/5840 =1.02

E .Franklin India and DSP BR taxsaver Correlation coefficient= = 3879/(56*69) 3879/3864 =1.0

F .HDFC Prudence and DSP BR taxsaver Correlation coefficient = = 3688/(55*69) 3688/3795 =.97

G .Sundaram BNP Paribas and DSP BR taxsaver Correlation coefficient = = 5507/(80*69) 5507/5520 =1.0

H .Franklin India and HDFC Prudence Correlation coefficient= = 3051/(56*55) 3051/3080 =.99

I .Franklin India and Sundaram BNP Paribas Correlation coefficient = = 4512/(56*79) 4512/4424 =1.0

J. HDFC Prudence and Sundaram BNP Paribas Correlation coefficient = = 4400/(55*79) = 4400 /4345

=1.01
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Table 4.8U Comparison of correlation coefficient No 1 2 3 4 5 6 7 8 9 10 Mutual funds Tata equity and DSPBR TaxSaver Tata equity and Franklin India prima plus Tata equity and HDFC Prudence Tata equity and Sundaram BNP SMILE Franklin India and DSPBR Taxsaver HDFC Prudence and DSPBR TaxSaver Sundaram BNP SMILE and DSPBR Franklin India and HDFC Prudence Franklin India and Sundaram BNP SMILE HDFC and Sundaram BNP SMILE Correlation coefficient 1.02 1.02 1.00 1.02 1.00 .97 1.00 .99 1.02 1.01

When the correlation is positive, it indicates that the portfolios are move in the same direction and correlation is 1 or above 1 indicates that the association between returns are perfect and if it is less than 1 the correlation between returns are imperfect. This study reveals that all mutual funds are move in the same direction because the correlation is positive. But the association between HDFC Prudence and DSPBR TaxSaver and Franklin India and HDFC Prudence is not perfect because its correlation coefficient are less than one

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CHAPTER: 5

FINDINGS

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5.1 General Findings


1) Mutual fund performance are positively correlated with the performance of the share market. It reveals that mutual fund performance are highly depends on stock market performance 2) Mutual fund investments are profitable avenues in the long run. When compared with share market, mutual funds are give adequate returns to its investors. Through mutual funds people got high quality services from fund managers which are not available in the case of direct investment. 3) All mutual funds were failed to give positive returns to investors in the current recession periods .This is mainly because of the adverse impact from share market. But some funds could won to minimise the impact of losses to investors

5.2 Special Findings


1) Tata Equity PE Tata equity PE an equity fund turned out to be a big beneficiary generating nearly 84% in the year 2007. The Sensex and the nifty had grossed humble returns of about 43% and 55% respectively while the average of the category of diversified equity schemes was just 59%.In the current calendar year the revival rally helps the fund to compensate the last years fall already. In this year it has given over 100% returns while the Sensex and Nifty trail far behind at about 81% and 76%,respectively. 2) DSP Black Rock Tax Saver Having debuted at the peak of the bull run DSP Blackrock delivered a smashing 84% returns in 2007 against 57% returns by S&P Nifty 500.Its performance belittled not only the Sensex and Nifty returns of about 43 and 50%respectively but also the average returns of about 59%by the category of equity linked tax saving schemes. but the funds performance is not very well in 2008.But in 2009 the fund picked up its pace once again. the fund gained around 84% while the Sensex and nifty gained only 81 and 76% respectively. How ever it fall short of beating S&P CNX 500 which returned about 89% last year.

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3) Franklin India Prima Plus One of the top performing schemes before the dotcom bust ,Franklin India Prima Plus has been an average performer thereafter ,until the meltdown of 2008 turned the wheel of fortune in its favour once again. By restricting its absolute fall to about 48% against 52% of the Nifty and Sensex ,the fund indeed witnessed a huge turn around. The funds performance in the current bull run cannot be termed outstanding either with 73% returns since January this year. It is trailing S&P CNX nifty at 74% and 68% respectively. The funds performance record aptly substantiates its tendency to do well in downturns that rallies. 4) HDFC Prudence Fund Despite the blend of both debt and equity ,HDFC Prudence has displayed a great ability to beat the equity market returns handsomely in its over a decade of long performance history. Thus despite being benchmarked to Crisil balance index the funds performance so far has inevitably raised its benchmark to an equity index like Sensex and nifty. The funds strong come back in the current calendar year. Since January this year the fund has delivered 84% returns ,which is as good as the average of the category of diversified equity schemes. The Sensex and nifty have returned about 81 and 76% respectively, during this period. But this fund fail 42% during 2008 against average decline about 41% by the category of balance funds 5) Sundaram BNP Paribas SMILE Sundaram BNP Paribas SMILE has done exceptionally well during market rallies and has performed at par with its benchmark index BSE Sensex. In the down turn. Considering Sundaram BNP Paribas SMILEs investment strategy it was quite obvious that the fund had to face the heat of the meltdown, more aggressively than the broader market indices, in the following year. The fund even managed to outperform the average returns of 84% by the category of diversified equity schemes.

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CHAPTER: 6

SUGGESTIONS

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6.1 Suggestions
1) Mutual fund investments are provided huge returns in the current rally of stock market, So those who wish to reap returns with minimum risk, Mutual fund is the most suitable avenue for them

2) Invest in equity funds demands a lot of patience and those who can afford this time lag are bound to be rewarded. There are not many equity oriented funds in the country today. And those that exist have minuscule asset under management. However over the last couple of years equity funds prove that it is a worthwhile avenue.

3) Investors are expected to do a lot more home work while choosing an ELSS than other diversified equity schemes as option to exit at will is absent in the case of former. This puts the spotlight on the funds portfolio as there is direct correlation between the funds performance and its portfolio selection.

4) In balanced funds high equity exposure definitely raises its risk quotient. How ever the equity risk is compensated by the exposure of high quality debt instruments. Those who are seeking an investment opportunity in equities with 3-5 years horizon can consider balanced funds

5) Funds investing in small and mid cap companies definitely carry higher risk as compared to multi cap funds that balance investments between large and mid cap stocks. So small and mid cap stocks are suitable to people who are willing to take more risks and are patient enough to ride the wave across market cycles

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6.2 CONCLUSION Investment in stock market is highly common in these days. Stock market investment are one of the most preferred investment avenues. When compared with other investments stock market investments are highly risky. This brings the importance of mutual funds. do not put all eggs in one basket is the basic logic behind mutual fund investment. When compared to stock market, in mutual fund we got high quality service from our fund managers at a lower cost. This study reveals the correlation of mutual fund and share market. Like any other investment there is performance evaluation in mutual fund also. This study trying to evaluate the performance of 5 top mutual funds in India. This shows how the performance is correlated with risk. Today the importance of mutual fund is growing. AMCs in the country now managing 800000 crore as asset under management. So performance evaluation is highly required in mutual funds in now a days

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CHAPTER: 7

BIBLIOGRAPHY

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7.1 Books a) Security analysis and portfolio management, S. Kevin 2009 b) Portfolio management. Samir k barua,jr varmav raghunathan tata mcgrill 1996

7.2 Websites a) Mutualfundsofindia.com b) Valuereserchonline.com c) Economictimes.com d) Icraonline.com

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