A Project Report On “ANALYSIS OF MUTUAL FUNDS SCHEMES”

For
KARVY Stock Broking Ltd.

Submitted In Partial Fulfillment of MASTER IN BUSINESS ADMINISTRATION BY SRUJANA KUMARI MORTHA MBA-I FINANCE SPECIALIZATION

COLLEGE OF MANAGEMENT RESEARCH & ENGINEERING PUNE – 58 (2006)

ACKNOWLEDGEMENT
I, Srujana Kumari Mortha student of College of Management Research & Engineering, Pune have done my summer Training Project for a period of 45 days in KARVY Stock Broking Ltd, Pune. This project is an attempt to share my experience & learning in a short span of time with company like KARVY. A successful project can never be prepared by single effort of a person to whom the project is assigned but also demands help & guardianship of some conversant person, who support actively or passively in the completion of project. I would like to take this opportunity to thank the Management of the company for giving me a chance to undertake project under the kind co-operation and guidance about the different investment options with a fantastic advisory group.I must continue to offer my grateful thanks to Mr. Ravi Gaikwad Sr.Relationship Manager) & Ninad Rughatate (Sr Relationship Manager) for their information & advice about the company to my project report. I am also thankful to my Internal Guide Prof. Shushmita Nande & Prof. Chandrashaker D. Ranade CMRE Pune for his assistance & encouragement, inspiration & various suggestions from starting to the completion of the project.

I also express my gratitude in no less measure to our Director Mr. Anshul B. Sharma, CMRE who guided me towards fulfillment of my project report. I sincerely hope that my project work will help the company in the long run.

SURJANA KUMARI MORTHA

CONTENTS

Sr. No 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Contents Executive Summary Company Profile Objectives & Scope Introduction Industry Prospects AMCs in India Mutual Funds in India Research Methodology Operations & Data Collection Recommendations Limitations Conclusion Annexure Bibliography

EXECUTIVE SUMMARY

With globalization and the growing competition in the investments opportunity available, the investor would naturally be interested in tracking the value of his investments, whether he invests directly in the market or indirectly through Mutual Funds. He would have to make intelligent decisions on whether he gets an acceptable return on his investments in the funds selected by him, or if he needs to switch to another fund. He therefore needs to understand the basis of appropriate preference measurement for the fund, and acquire the basic knowledge of the different measures of evaluating the performance of the fund. Only then would he be in a position to judge correctly whether his fund is performing well or not, and make the right decision. The project titled “Analysis of Mutual Fund Schemes ” is an earnest effort top help the investors in tracking the performance of their investments in Mutual Funds and has been carried out with the objective of giving and understanding of Mutual Fund as a financial product, the meaning, importance, working etc. of Mutual Fund, the current position of Mutual Fund Industry in India, the number of competitors and other Mutual Fund position. The methodology for carrying out the project was very simple that is through secondary data obtained through various mediums like fact sheet of the funds, the Internet, Business magazines, Newspaper, etc. the analysis of Principal PNB Funds has been done with respect to its various

competitors on the basis of its ranking system mentioned in the ‘Analysis and Findings’ part, which is formulated keeping the benefits and convenience to the investors in mind. The funds have been analyzed under various types such as Equity Funds, Income Funds and Balanced Funds. History has shown that investment categories that have had the greatest return potential also have had the greatest risk potential. Likewise, investments with conservative return are generally the least risky. The key to successful and stress free investing, therefore is to strike a balance between the financial objective and the ability to tolerate risk. Generally, this entails diversifying money across a combination of low, medium and high risk investments to create an overall balance, with the potential to meet both short and long term goals. The basic asset classes-stocks, bonds and cash equivalents consist of broad groupings of investments that can be divided further into more distinct and complex classes. Generally, stocks have historically provided maximum growth with higher risks. Bonds can provide both diversification (which helps to reduce overall risk) & a regular income stream and cash equivalents (such as money market funds) provide a less risky alternative to stocks and bonds while providing some protection from the erosion caused by inflation.

COMPANY PROFILE

About KARVY
KARVY is founded by a group of Hyderabad based CHARTED ACCOUNTANTS in 1982 as a professional service firm. In the span of 20 years KARVY has entered into capital market activity too. KARVY is spread over 163 cities having about 440 offices. Over 450 NSE and BSE terminals spread across the country. Around 6000 active business associates are being attached with KARVY across the country. It also comprises of 3000 employees and professionals

Principal activity of KARVY
KARVY CONSULTANTS LTD. Deals with depository participant services and IT enabled services. KARVY COMPUTERSHARE PRIVATE LIMITED Performs transfer agency services for corporate and Mutual fund and also registrar for IPOs. KARVY INVESTOR SERVICE LIMITED Includes Merchant Banking and Corporate Finance. KARVY SECURITIES LTD. Is a big distributor of equity and other financial product.

In spite of all this KARVY has its RESERCH CENTER in Hyderabad and also member of Hyderabad stock exchange. It is also a member of National Stock Exchange.

CORNERSTONES OF STRAREGY

Focus on retail segment. Build a strong pan-india network managed by experienced professionals, build presence across metros & class A/B town. Build full-service capabilities leveraging the network-offer the entire gamut of financial services, backed by strong transaction processing and high volume handling capability. Established a high degree of customer ownership and top-of-mind recall in the local markets- ensures steady customer traffic and repeat business. Build a trusted brand; ensure high visibility.

ACHIVEMENTS

• • • • • • •

Largest independent distributor for financial products Amongst the top 5 stock brokers Amongst the top 3 Depository participants Largest network of branches and business associates Amongst top 10 investment Bankers. Ranking 1st in retail procurement in equity IPOs. Ranking 8th in Merchant Banking services.

MISSION OF KARVY
Their mission is to be a leading, preferred service provider to our customer, and they aim to achieve this leadership position by building an innovative, enterprising, and technology driven organization which will set the highest standards of service and business ethics.

PRIVATE CLIENT GROUP
This specialized division was set up to cater to the HIGH NET WORTH INDIVIDUAL and institutional clients keeping in mind that they require a different kind of financial planning and management that will augment not just existing finances but there lifestyle as well. Here they follow a hard nosed business approach with the soft touch of dedicated customer care and personalized attention. For this purpose they offer a comprehensive and personalized service that encompasses planning and protection of finances, planning of business needs and retirement needs and the host of other services, all provided on a one-to-one basis. The research report has been widely appreciated by this segment. The delivery and support modules have been fine tuned by giving facility to client to access online portfolio information, constant updates on their portfolios as well as value added advice on portfolio churning, sector switches etc.

OBJECTIVE AND SCOPE

OBJECTIVE:

My project Analysis of Mutual Fund Schemes & Analyzing the Performance Factors” was conducted for the following objective:• • • • • To gain an understanding and knowledge of Mutual Funds as an Investment Tool. To study the product profile of the company. To evaluate the performance of selected schemes of Mutual Fund of different companies. To compare the Mutual fund schemes on different parameters such as Annualized Returns, Standard Deviation, Sharpe Ratio, Beta, Alpha and R-squared. To analyze the performance factor of the Fund based on different drivers associated with the specific fund.

SCOPE:
The scope of the project is limited to Indian Securities Market and related to the Funds actively performing in the market. Mainly analysis part is with the products available with KARVY. However the project covers the overall scenario of the security market in India with different investment options, one of them is Mutual Fund.

INTRODUCTION

Financial planning is the process of identifying one’s wealth accumulation and protection goals and developing a coordinated plan to help priorities one’s future financial decision. Financial planning should be taken as seriously as a medical prescription, as it deals with ones financial health. It should be seen not just as a means of achieving financial security, but as making a vital contribution to one’s overall happiness and peace of mind. Financial planning can be manageable or overwhelming depending upon how one approaches it. Without guidance; it’s hard to know what one needs and when one needs it. With right information, tools and timeline, the choices become much easier. Intact, too many people are investing in MUTUAL FUNDS. After all it’s common Knowledge that investing in mutual fund is {or at least should be} better than simply letting your cash waste in a saving account, but for most people that’s where the understanding of funds end. It doesn’t help that mutual fund sale people speak a strange language that, that sounding sort of English, is interspersed with jargon like NAV, load/no-load, etc. Originally MUTUAL FUND Swere heralded as a way for the little guy to get a piece of a market. Instead of spending all the free time buried in the financial pages of ECONOMIC TIMES all one has to do is buy a mutual funds and be set on his way to financial freedom. But it’s not that easy .MUTUAL FUNDS are in excellent idea in theory but in reality they haven’t always delivered. Not all mutual funds are created equal, and investing in mutual fund isn’t easy as thronging one’s money at the first sales person who solicits business.

INDUSTRY PROSPECTS

What is a Mutual Fund…?

• • • • • •

• •

A Mutual fund is a common pool of money into which investors place their contributions that are to be invested in accordance to the stated objective. The ownership of the fund is thus “mutual”, the fund belong to all investors. Anybody with an invest able surplus of a few thousand rupees can invest in mutual funds. These investors buy units of a particular mutual fund scheme that has a defined investment objective and strategy. The money thus collected is invested by the fund manager in different types of securities. These could range from shares to debentures to money market instrument, depending upon the schemes stated objective. The income earned through these investments and the capital appreciation realized by the scheme is shared by its unit holders in proportion to the number of units owned by them Types of mutual fund schemes may be classified on the basis of its structure &its investment objective.. Thus a mutual fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost and hence the risk factor is also decreased in some way.

The above figure shows that the investors pool their money with fund manager who invest in number of securities which may be government bonds, stocks, treasury bills, commercial papers, call money etc. these securities generate returns, which may be passed on to investors in the form of dividend or capital appreciation, depending on the investor. E.g.:- If the value of a fund’s asset stands at Rs.1000 and it has 10 investors who have bough 10 units each, the total number of units issued are 100, and the value of one unit is Rs.10 (1000/100). If an single investor in fact owns 3 units, the value of his ownership of the fund will be Rs.30 (1000/10*3 units). The value of the fund’s invested will keep fluctuating with the market pre movements causing the Net Asset Value (NAV) also to fluctuate.

For example, if the value of our fund’s assets increased from 1000 to 1200, the value of our investor’s holding of 3 units will now be (1200/100*3units) Rs.36. the investment value can go up or down, depending on the market value of the fund’s assets.

Benefits of Mutual Funds…?
If mutual funds are emerging as the favorite investment vehicle, it is because of the many advantages they have over other forms and avenues of investing, particularly for investor who has limited resources available in terms of capital and ability to carry out detailed research and market monitoring. The following are the major advantages offered by mutual funds to all investors:-

• • • • • •

Portfolio diversification Professional Management Reduction/Diversification of Risk Reduction of Transaction Costs Liquidity Convenience and Flexibility

PORTFOLIO DIVERSIFICATION:-

Mutual Funds normally invest in a well-diversified portfolio or securities. Each investor in a fund is a part owner of all the fund’s assets. This enables him to hold a diversified investment portfolio even with a small amount of investments that would otherwise require big capital.
• PROFESSIONAL MANAGEMENT:-

Even if an investor has a big amount of capital available to him, he benefits from the professional management skills brought in by the fund in the management of the investor’s portfolio. The investment management skills, along with the needed research into available investment option, ensure a much better return then what an investor can manage by his own. Few investors have the skills and resources of their own to succeed in today’s fast moving, global and sophisticated markets.
• REDUCTION / DIVERSIFICATION OF RISK:-

An investor in a mutual fund acquires a diversified portfolio, no matter how small is investment. Diversification reduces the risk of loss, as compared to investing directly in one or two shares or debentures or other instruments. When an investor invests directly, all the risk of potential loss in his own. A fund investor also reduces his risk in another way. While investing in the pool of funds with other investors, any loss on one or two securities is also shared with other investors. This risk reduction is one of the most important benefits of a collective investment vehicle like the mutual fund.
• REDUCTIOPN OF TRANSACTION COSTS:-

What is true of risk is also true of the transaction costs. A direct investor bears all the costs of investing such as brokerage or custody of securities. When going through a fund, he has the benefit of economies of scale; the funds pay lesser costs because of larger volumes, a benefit passed on to its investors.

LIQUIDITY:Often, investors hold shares or bonds they cannot directly, easily and quickly sell. Investment in mutual funds, on the other hand, is more liquid. An investor can liquidate the investment, by selling the units to the fund if open-end, or selling them in the market if the fund is close-end, and collect funds at the end of a period specified by the mutual fund or the stock market.

CONVENIENCE AND FLEXIBILITY:-

Mutual Fund management companies offer many investor services that a direct market investor cannot get. Investors can easily transfer their holding from one scheme to the other, get updated market information, and so on.

Limitations of Mutual Funds…?

While the benefits of investing through mutual funds far outweigh the disadvantages, an investor and his advisor will do well to be aware of a few shortcoming of using the mutual funds as investment vehicle.

1. NO CONTROL OVER COST:An investor in a mutual fund has no control over the overall cost of investing. He pays investment management fees as long as he remains with the fund, albeit in return for the professional management and research. Fees are usually payable as a percentage of the value of his investments, whether the fund value is rising or declining. A mutual fund investor also pays fund distribution costs, which he would not incur in direct investing. However, this shortcoming only means that there is a cost to obtain the benefits of mutual fund services. However, this cost is often less than the cost of investing by the investors.
1. NO TAILOR-MADE PORTFOLIO:

Investors who invests on their own can build their own portfolio of shares, bonds and other securities. Investing through mutual funds means he delegates this decision to the fund managers. The very high-net-worth individuals or large corporate investors may find this to be a constraint in achieving their objectives. However, most mutual funds help investors overcome this constraint by offering families of schemes-a large number of different schemes-within the same fund. An investor can choose from different investment plans and construct a portfolio of his choice.
1. MANAGING A PORTFOLIO OF FUNDS: -

Availability of a large number of funds can actually mean too much choice for the investor. He may again need advice on how to select a fund to achieve his objectives, quite similar to the situation when he has to select individual shares or bonds to invest in.

History of Indian Mutual Funds Industry…?

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of Reserve Bank and Government of India. The objective then was to attract the small investors and introduce them to market investments. Since then, the history of mutual funds in India can be broadly classified into distinct phases, which are as under:

Unit Trust of India (UTI)

In 1963, UTI was established by an act of Parliament and given a monopoly. Operationally, UTI was set up by the Reserve Bank of India, but was later de-linked from the RBI (Reserve Bank of India). The first and still one of the largest schemes, launched by UTI was Unit Scheme 1964. Over the years, US64 attracted, and probably still has, the largest number of investors in any single investment scheme. It was also at least partially the first open-end scheme in the country, now moving towards becoming fully open-end.

Later in 1970s and 80s, UTI started innovating and offering different schemes to suit the needs of different classes of investors. Unit Linked Insurance Plan (ULIP) was launched in 1971. Six new schemes were introduced between 1981 and 1984. During 1984-87, new schemes like Children’s Gift Growth fund (1986) and Master share (1987) were launched. Master share could be termed as the first diversified equity investment scheme in India. The first Indian Offshore Fund, India Fund, was launched in August 1986.

The mutual fund industry in India not only started with UTI, but still counts UTI as its largest player with the largest corpus of invest able funds among all mutual funds currently operating in India. Until 1980s, UTI’s operations in the stock market often determined the direction of market movements. At the end of 1988 UTI had Rs.6,700 Crores of Assets Under Management (AUM).

CLASSIFICATION OF MUTUAL FUNDS:

There are many types of mutual funds available to the investor. However, these different types of funds can be grouped into certain classifications for better understanding. From investor’s perspective, we would follow three basic classifications:-

• • •

Open end v/s close end Load and Noload Funds Tax-Exempt and Non-Tax-Exempt Fun

OPEN END V/S CLOSE END:-

An “Open-End Fund” is one that has units available for sale & repurchases all times. An investor can buy or redeem units from the fund itself at a price based on the Net Asset Value (NAV). NAV per unit is obtained by dividing the amount of the market value of the fund’s assets (plus accrued income minus the fund’s liabilities) by the number of units outstanding. The number of units outstanding goes up or down every time the fund issues new units or repurchases existing units. In other words, the ‘unit capital’ of an open-end mutual fund is not fixed but variable. Whereas in “Close-End Fund” it makes a one time of sale of fixed number of units. Later on, unlike open-end funds do not allow investors to buy or redeem units directly from the funds. In this, the fund units can be traded at a discount or premium to NAV based on investor’s perception about the funds future performance and other market factor affecting the demand for or supply of fund’s units. The number of units

outstanding of a close-end fund does not vary on account of trading in the fund’s units at the stock exchange.

LOAD AND NOLOAD FUNDS:-

Marketing of a new mutual fund scheme involves initial expenses. These expenses may be recovered from the investors in different ways at different times. Three usual ways in which fund’s sales expenses may be recovered from the investors are:-

a. At the time of investor’s entry into the fund/scheme, by deducting a specific amount from his initial contribution, or

b. At the time of the investor’s exit from the fund/scheme, by deducting a specified amount from the redemption proceeds payable to the investor.

These charges made by the fund managers to the investors to cover distribution/sales/marketing expenses are often called ‘LOADS’. The load charges to the investor at the time of entry into a scheme is called a “front-end or entry load”. The load amount charged to the scheme over a period of time is called as “deferred load”. The load that an investor pays at the time of his exit is called a “back-end or exit load“. Funds that charge front-end, back-end or deferred loads are called “LOAD FUNDS”. Funds that make no such charges or loads for sales expenses are called “NO-LOAD FUNDS”.

TAX-EXEMPT AND NON-TAX-EXEMPT FUNDS:-

When a fund invests in tax-exempt securities, it is called a Tax-Exempt Fund. In India, after the 1999 union government budget, all of the dividend income received from any of the Mutual Funds is tax free in the hands of investor.However, funds other than Equity funds have to pay adistribution tax, before distributing income to investors. In otherwords, Equity Mutual Fund scheme are tax-exempt investment avenues, while other funds are taxable for distributable income. When a fund invests in non-tax-exempt securities, it is called a Non-Tax-Exempt Fund.

TYPES OF MUTUAL FUNDS:

All mutual funds would be either open or close-end, load or no-load fund. These classifications are general. Following are the different types of mutual funds:-

• • • • • •

Money Market Funds Gilt Funds Debt Fund or Income Fund Equity funds Commodity Funds Real Estate Funds

80 70 60 50 40 30 20 10 0 Income Funds Growth Funds Balanced Funds Money Market Tax Saving Schemes Glit Funds

MONEY MARKET FUNDS:Often considered to be at the lowest rung in the order of risk level, Money Market funds invest in securities of short-term nature, which generally means securities of less than one year aturity. The typical, short term, interest bearing instruments these funds invest in include:- Treasury Bills issued by Government, Certificate of Deposit issued by Banks and Commercial paper issued by Companies. In India, Money Market Mutual Funds also invests in the inter bank call money market.

GILT FUNDS:Gilts are Government securities with medium to long term maturities, typically of over one year (under one-year instruments being money market securities). In India now we have seen the emergence of Government Securities or Gilt funds that invest in government paper called dated security. Since the issuer is the Government/s of India/States, these funds have little risk of default and hence offer better protection of principal.

DEBT FUND OR INCOME FUND:Debt fund invests in Debt instrument issued not only by governments, but also by private companies, banks and financial institutions and other entities such as infrastructure companies or utilities. By investing in Debt, these fund target low risk and stable income for the investor as their key objectives. Debt funds are largely considered as Income Funds as they do not target capital appreciation, look for high current income, and therefore distribute a substantial part of their surplus to investors. Income Funds that target returns substantially above market levels can face more risks. Debt Funds includes:- Diversified Debt Funds, Focused Debt Funds, High Yield Debt Funds, Assured Return Funds- An Indian Variant and Fixed Term Plan Series- Another Indian Variant.

EQUITY FUNDS:In Equity market there is high risk and high return. Equity Funds invests a major portion of their corpus in equity shares issued by companies, acquired directly in Initial Public Offering (IPO) or through the secondary market. Equity funds would be exposed to the equity price fluctuation risk at the market level, at the industry or sector level and at the company specific level. Equity Funds (NAV) Net Asset Value fluctuates with all these price movements. Below some of the major types of equity funds, arranged in order of higher to lower risk level they are:- Aggressive Growth funds, Growth Funds, Specialty Funds, Diversified Equity Funds, Equity Index Funds, Value Funds and Equity Income Funds.

Net Asset Value (NAV) Net Asset Value of the fund is the cumulative market value of the assets fund net of its liabilities. In other words, if the fund is dissolved or liquidated, by selling off all the assets in the fund, this is the amount that the shareholders would collectively own. This gives rise to the concept of net asset value per unit, which is the value, represented by the ownership of one unit in the fund. It is calculated simply by dividing the net asset value of the fund by the number of units. However, most people refer loosely to the NAV per unit as NAV, ignoring the "per unit". We also abide by the same convention

NAV= Net assets of the scheme / Number of units outstanding

HYBRID FUNDS- QUASI EQUITY/QUASI DEBT:Many Mutual Funds mix different types of securities in their portfolios. Thus, most funds, equity or debt, always have some money market securities in their portfolios as these securities offer the much-needed liquidity. There are funds that, however, seek to hold a relatively balanced holding of debt and equity securities in their portfolios. Such funds are termed as Hybrid Funds as they have a dual equity/ bond focus. Some of the funds which comes under this are: Balanced Funds, Growth and Income Funds and Asset Allocation Funds.

COMMODITY FUNDS:Commodity funds specialize in investing in different commodities directly or through shares of commodity companies or through commodity futures contract. Specialized funds may invest in single commodity or a commodity group such as edible oils or grains, while diversified commodity funds will spread their asset over many commodities.

REAL ESTATE FUNDS:Specialized Real Estate Funds would invest in Real Estate directly, or may fund real estate developers, or lend to them, or buy shares of housing finance companies or may even buy their securitized assets. The funds may have a growth orientation or seek to give investors regular income. There has recently been an initiative to offer such as income fund by HDFC. So these are the different Mutual Funds which are available in Indian Securities Market. Based on different consideration the investment is done by the Fund Managers. Each type of Mutual Fund has its own benefits and limitations.

ORGANISATION OF A MUTUAL FUND:-

There are many entities involved for the functioning of a successful fund to make it more effective and the diagram below illustrates the organizational set up of a mutual fund:

MUTUAL FUND SETUP

RECENT TREND IN MUTUAL FUND INDUSTRY:-

The most important trend in mutual fund industry is aggressive expansion of the foreign owned mutual fund companies & the decline of the companies floated by nationalized banks and smaller private sector players. Many nationalized banks got into the mutual fund business in the early nineties and got off to a good start due to the stock market boom prevailing then. These banks did not really understand Mutual Fund business and they just viewed it as another kind of banking activity. Few hired specialized staff and generally chose to transfer staff from the parent organizations. The performance of most of the schemes floated by these funds was not good. Some schemes had offered guaranteed returns and their parent organizations had to bail out these AMCs by paying large amounts of money as the difference between the guaranteed and actual returns. Most of these AMCs have not been able to retain

staff, float new schemes etc. and it is doubtful whether, barring a few exceptions, they have serious plans of continuing the activity in a major way. The experience of some of the AMCs floated by private sector Indian companies was also very similar. They quickly realized that the AMC business is a business, which makes money in the long term and requires deep-pocketed support in the intermediate years. Some have sold out to foreign owned companies, some have merged with others and there is general restructuring going on. The foreign owned companies have deep pockets and have come in here with the expectation of a long haul. They can be credited with introducing many new practices such as new product innovation, sharp improvement in service standards and disclosure, usage of technology, broker education and support etc. In fact, they have forced the industry to upgrade itself and service levels of organizations like UTI have improved dramatically in the last few years in response to the competition provided by these.

AMCs IN INDIA:

Institutions:GIC Asset Management Company Limited IL & FS Asset Management Company Limited Jeevan Bima Sahayog Asset Management Company Limited

INDIAN Private Sector:

Benchmark Asset Management Company Limited Cholamandalam Asset Management Company Limited Escorts Asset Management Company Limited J.M. Capital Asset Management Company Limited Kotak Mahindra Asset Management Company Limited Sundaram Asset Management Company Limited Reliance Capital Asset Management Company Limited

Tata Asset Management Company Private Limited

JOINT VENTURE-PREDOMINANTELY INDIAN

Birla Sunlife Asset Management Company Private Limited Credit Capital Asset Management Company Limited DSP Merill Lynch Fund Mergers Limited Sahara Asset Management Company Private Limited HDFC Asset Management Company Limited

JOINT-VENTURE-PREDOMINANTLY FOREIGN

ABN AMRO Asset Management India Limited Alliance Capital Asset Management (India) Private Limited Deutsche Asset Management (India) Private Limited HSBC Asset Management (India) Private Limited ING Investment Management (India) Private Limited Morgan Stanley Investments Management Private Limited Principal PNB Asset Management Company Private Limited Prudential ICICI Management Company Limited SC Asset Management Company Private Limited Franklin Templeton Asset Management (India) Pvt. Limited

MUTUAL FUNDS IN INDIA:

HOW TO JUDGE A MUTUAL FUND:-

The Indian mutual fund (MF) industry reached Rs. 1,50,537 crore in December 2004. The industry witnessed a 100% growth in the last six years. By year 2010, MF assets are expected to double. India has 29 MFs compared to 800 in the US. In the last one year, the number of retail investors in India has increased steadily. The big question is how to judge a MF before investing? It is important for an investor to consider a fund's performance over several years. Different fund managers adopt different strategies to improve performance. While one fund manager may have played it cautious by investing in good quality stocks over the years and given a return of 30% over a five-six year period, another one who invested in speculative stocks may have struck gold in that year, thereby outperforming tits counterpart by a long way. Thus it is important to look at consistency of returns over a period of time rather than going by absolute returns generated in the short term. An investor should consider certain drawbacks before investing in MF. Unlike a fixed deposit, MF does not give any guarantee on returns. If the entire stock market declines in value, the value of MF shares will go down as well. An investor has to shell out an entry and exit load.

When you invest in a MF, you depend on the fund's managers to make the right decisions regarding the fund's portfolio. If the manager does not perform well, you might not make as much money on you investment as you expected. The short-term focus of money managers and pressure from unit holders for immediate performance are obstacles to long-term growth. Most funds lack the cash reserves to pay off the massive redemptions which will follow a market panic. Fund managers can change without notice.

RESEARCH METHODOLOGY:

“A research is a careful investigation or enquiry, especially through search foe new facts in any branch of knowledge. It is a systemized effort to gain more knowledge.”

“Research Methodology is a way to systematically solve the research problem. It includes not only the research methods, but also the logic behind using the methods.” The methods of research used in this project were as follows:-

Analytical Research Applied Research

Analytical Research:In analytical research the researcher has to use the facts already available, and analyze these to make the critical evaluation of the material. In this project I have used many raw data from the various sources and analyzed it for underlying trends.

Applied Research:Applied Research aims at finding a solution for an immediate problem. Research aimed at certain conclusions (say a solution) facing a concrete social or business problem is an example of applied research. Thus the central aim of applied research is to find a solution for some pressing practical problem. In this project, in the last section, by means of assumptions I have found the feasibility of a project that the organization means to undertake.

The analysis of the trends followed by the mutual funds was Analytical Research.

OPERATIONS & DATA COLLECTION:

From the secondary data available from the fact sheet, internet etc. Analyses between three different types of funds are as follows:-

• • •

Equity Diversified Fund Income Fund Balanced Fund

Mutual Fund companies that are selected for the analysis are as follows:-

• • • •

Principal PNB Mutual Fund Birla Mutual Fund HDFC Mutual fund UTI mutual fund

Interpretation:

HDFC equity is recommended over Principal equity as this fund has a better return as compared to other Mutual Funds. Sharpe Ratio is in direct relation with the Risk and Return means as the risk is increasing so as the return, as in the case of HDFC Equity, its risk is high so as the returns of the fund. Considering the 3-year period than HDFC equity is better than Principal Equity, while the other two mutual funds have not completed 3 years. .

RECOMMENDATION & SUGGESTIONS:

Principal Mutual Fund has almost all the kinds of Debt Funds and those funds are performing quite well since last year, hence it should retain its performance.

Principal Mutual Fund should come up with fund of funds, where the fund manager invests in the different schemes of Principal to make the portfolio of Principal Mutual Fund a complete Mutual Fund organization.

Most of the business for Mutual Fund Industry comes through Distributors/Agents. During the stay in branch office in winter training an impression was formed that advisors are not satisfied by the commission structure. Since, advisors bring mostly retail customers and retail customers have a major share in the total business, company should take some steps to nullify the dissatisfaction among the advisors to reap long term results.

As so many people don’t know about mutual fund & other financial product, industry should do something to gain knowledge as many people do not invest there money use to lack of knowledge &because of high risk.

They should have customer care department.

Industry should intimate investor about the mutual funds that which mutual fund will give them better returns.

LIMITATIONS:

Though the report has given the insight to the various mutual fund schemes but cannot be said fully relevant because of some limitations these are:•

It is difficult to get full insight of how fund managers have deployed their funds.

There are more than 30 companies and offering various ranges of products and analyzing all of them is again a difficult task.

Mutual Fund industry performance is dependent on daily churning of portfolio and Net Asset Value of each fund changes every day, thus the fund which in comparison is doing better today may not perform well tomorrow and thus it affects the analysis process.

Due to the time constraint only four companies share in portfolio is taken for the study. Remaining 26 companies are not studied or difficult to study because of time limitation though they have considerable effect on return.

Funds which are compared have different asset size and time period and they may not be so relevant for comparison. In Debt oriented fund the different rating companies have different criteria to rate their companies and hence it affects on the analysis part of the research.

CONCLUSION:

A Mutual Fund pools the money of people with similar investment goals. The money in turn is invested in various securities depending on the objective of the mutual fund scheme, and the profits (losses) are shared among investors in proportion to their investment.

ANNEXEURE
QUESTIONAIRE:* NAME : * AGE GROUP : a)25-35 b)35-45 c)45-60 d) 60 & above * PLACE : 1.WHAT PERCENTAGE OF INCOME DO YOU INVEST? OVER 50% 10% TO 30% 30% TO 50% Below 10%

2.WHAT ARE THE VARIOUS INVESTMENT SCHEMES IN WHICH YOU INVEST? Bank

Insurance Stock Market Bonds and Debenture PPF (Public provident Funds) NSC (National saving certificate) Post office saving schemes Real Estate Gold Chit Funds

4.ARE YOU AWARE OF MUTUAL FUNDS? Yes No 5.WHAT IS YOUR PERCEPTION ABOUT MUTUAL FUNDS? Safe Risky Others 9. HOW DO YOU LOOK MUTUAL FUND COMPANYS? Brand Name Good Service High Yield Advertisement Any Other Reason……………………………...........................................

BIBLIOGRAPHY

Books and magazines:
• • •

C.R.Kothari Research methodology AMFI MF TEST –Work book Indian business year book-2005

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