MS-100

SYNOPSIS
ON
“RISK ANALYSIS OF SBI MUTUAL FUND”

SUBMITTED BY:
MS. RUPALI
ROLL NO:- 091237813
MBA (FINANCE)

PROJECT GUIDE :
MS. HEENA PANT

SCHOOL OF MANAGEMENT STUDIES

INDIRA GANDHI NATIONAL OPEN UNIVERSITY,
MAIDAN GARHI, NEW DELHI - 110068
 CONTENTS

• INDUSTRY PROFILE

• COMPANY PROFILE

• OBJECTIVE OF THE STUDY

• RESEARCH METHODOLOGY

• FINDINGS

• LIMITATIONS

• CONCLUSION

• BIBLIOGRAPHY
 INDUSTRY PROFILE

INTRODUCTION ABOUT MUTUAL FUND

Investment in share markets are influenced by the analysis & reasoning which help in
predicting the market to some extent. Over the past years a number of technical & theories for
analysis have evolved, these combined with modern technology guides the investor. The big
players in the market, like Foreign Institutional Investors, Mutual Funds, etc. have the expertise
for various analytical tools & make use of them. The small investors are not in a position to
benefit from the market the way Mutual Funds can do. Generally a small investor’s investments
are based on market sentiments, inside information, through grapevine, tips & intuition. The
small investors depend on brokers and brokerage house for his investments. They can invest
through the Mutual Funds who are more experienced and expert in this field than a small
investor himself.

In recent years a large number of players have entered into his market. The project has been
carried out to have an overview of Mutual Fund Industry and to understand investor’s perception
about Mutual Funds in the context of their trading preference, explore investor’s risk perception
& find out their preference over Top Mutual Funds.

ABOUT MUTUAL FUNDS

A Mutual Fund is a trust that pools the savings of a number of investors who share a common
financial goal. The money thus collected is then invested in capital market instruments such as
shares, debentures and other securities. The income earned through these investments and the
capital appreciation realized is shared by its unit holders in proportion to the number of units
owned by them. 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. The flow chart below describes broadly the working of a mutual fund

Structure of the Indian Mutual Fund industry

The largest categories of Mutual Funds are the ones floated by the private sector and by Foreign
Asset Management Companies. The largest of these are Prudential ICICI AMC and Birla Sun
Life AMC. The aggregate corpus of assets managed by this category of AMCs is in excess of
Rs.350 bn.
Earlier the Indian Mutual Fund industry was dominated by the Unit Trust of India which has a
total corpus of Rs.700 bn collected from more than 20 million investors. The UTI has many
funds/schemes in all categories i.e. equity, balanced, income etc. with some being open-ended
and some being closed-ended. The Unit Scheme 1964 commonly referred to as US 64, which is a
balanced fund, is the biggest scheme with a corpus of about Rs.200 bn. UTI was floated by
financial institutions and is governed by a special Act of Parliament. Most of its investors believe
that the UTI is government owned and controlled, which, while legally incorrect, is true for all
practical purposes.

WHY MUTUAL FUNDS

An investor normally prioritizes his investment needs before undertaking investment. So

different goals will be allocated different proportions of the total disposable amount Investments
for specific goals normally find their way into the debt market as risk reduction is of prime
importance. This is the area for the risk-averse investors and here, mutual funds are generally the
best option. The reasons are not difficult to see.

How are the Mutual Funds Structured?

The Mutual Funds are structured in two forms: Company form and Trust form.
• Company Form: These forms of mutual funds are more popular in US.
• Trust Form: In India, mutual funds are organized as Trusts. The Trust is either managed
by a Board of Trustees or by a Trustee Company.
There must be at least 4 members in the Board of Trustees and at least 2/3 of the
members of the board must be independent.
Trustee of one mutual fund cannot be a trustee of another mutual fund.
BENEFITS OF MUTUAL FUND INVESTMENT

Professional Management
Mutual Funds provide the services of experienced and skilled professionals, backed by a
dedicated investment research team that analyses the performance and prospects of companies
and selects suitable investments to achieve the objectives of the scheme.
Diversification
Mutual Funds invest in a number of companies across a broad cross-section of industries and
sectors. This diversification reduces the risk because seldom do all stocks decline at the same
time and in the same proportion
Convenient Administration
Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad
deliveries, delayed payments and follow up with brokers and companies. Return Potential
Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they
invest in a diversified basket of selected securities.
Low Costs
Mutual Funds are a relatively less expensive way to invest compared to directly investing in the
capital markets because the benefits of scale in brokerage, custodial and other fees translate into
lower costs for investors.
Liquidity
In open-end schemes, the investor gets the money back promptly at net asset value related prices
from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the
prevailing market price or the investor can avail of the facility of direct repurchase at NAV
related prices by the Mutual Fund.
Transparency
You get regular information on the value of your investment in addition to disclosure on the
specific investments made by your scheme, the proportion invested in each class of assets and
the fund manager's investment strategy and outlook.

Flexibility
Through features such as regular investment plans, regular withdrawal plans and dividend
reinvestment plans, you can systematically invest or withdraw funds according to your needs and
convenience.
Affordability
Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund
because of its large corpus allows even a small investor to take the benefit of its investment
strategy.
Choice of Schemes
Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.

Well Regulated
All Mutual Funds are registered with SEBI and they function within the provisions of strict
regulations designed to protect the interests of investors. The operations of Mutual Funds are
regularly monitored by SEBI.
Disadvantages of Mutual Funds:

1. Professional Management - Did you notice how we qualified the advantage of professional
management with the word "theoretically"? Many investors debate whether or not the so-called
professionals are any better than you or I at picking stocks. Management is by no means
infallible, and, even if the fund loses money, the manager still takes his/her cut. We'll talk about
this in detail in a later section.

2. Costs - Mutual funds don't exist solely to make your life easier - all funds are in it for a profit.
The mutual fund industry is masterful at burying costs under layers of jargon.
3. Dilution - It's possible to have too much diversification. Because funds have small holdings in
so many different companies, high returns from a few investments often don't make much
difference on the overall return.
4.Taxes - When making decisions about your money, fund managers don't consider your
personal tax situation. For example, when a fund manager sells a security, a capital-gains tax is
triggered, which affects how profitable the individual is from the sale. It might have been more
advantageous for the individual to defer the capital gains liability.
RISKS ASSOCIATED WITH MUTUAL FUNDS

The most important relationship to understand is the risk-return trade-off. Higher the risk greater
the returns/loss and lower the risk lesser the returns/loss.

Hence it is up to you, the investor to decide how much risk you are willing to take. In order to do
this you must first be aware of the different types of risks involved with your investment
decision.

MARKET RISK

Sometimes prices and yields of all securities rise and fall. Broad outside influences affecting the
market in general lead to this. This is true, may it be big corporations or smaller mid-sized
companies. This is known as Market Risk
CREDIT RISK

The debt servicing ability (may it be interest payments or repayment of principal) of a company
through its cash flows determines the Credit Risk faced by you. This credit risk is measured by
independent rating agencies like CRISIL who rate companies and their paper. An ‘AAA’ rating
is considered the safest whereas a ‘D’ rating is considered poor credit quality. A well-diversified
portfolio might help mitigate this risk.

INFLATION RISK

Things you hear people talk about: “Rs. 100 today is worth more than Rs. 100 tomorrow.”
“Remember the time when a bus ride costed 50 paisa?” “Mehangai Ka Jamana Hai.”
The root cause , Inflation. Inflation is the loss of purchasing power over time. A lot of times
people make conservative investment decisions to protect their capital but end up with a sum of
money that can buy less than what the principal could at the time of the investment. This happens
when inflation grows faster than the return on your investment.

INTEREST RATE RISK

In a free market economy interest rates are difficult if not impossible to predict. Changes in
interest rates affect the prices of bonds as well as equities. If interest rates rise the prices of bonds
fall and vice versa.
POLITICAL RISK
Changes in government policy and political decision can change the investment environment.
They can create a favorable environment for investment or vice versa.

LIQUIDITY RISK
Liquidity risk arises when it becomes difficult to sell the securities that one has purchased.
Liquidity Risk can be partly mitigated by diversification, staggering of maturities as well as
internal risk controls that lean towards purchase of liquid securities. You have been reading
about diversification above, but what is it? Diversification The nuclear weapon in your arsenal
for your fight against Risk your returns,
 COMPANY PROFILE

State Bank of India

State Bank of India (SBI) (NSE: SBIN, BSE: 500112, LSE: SBID) is the largest state-owned
banking and financial services company with its headquartered in Mumbai, India. The bank is
largest in India by turnover and total assets. The bank traces its ancestry to British India, through
the Imperial Bank of India, to the founding in 1806 of the Bank of Calcutta, making it the oldest
commercial bank in the Indian Subcontinent. Bank of Madras merged into the other two
presidency banks, Bank of Calcutta and Bank of Bombay to form Imperial Bank of India, which
in turn became State Bank of India. The government of India nationalized the Imperial Bank of
India in 1955, with the Reserve Bank of India taking a 60% stake, and renamed it the State Bank
of India. In 2008, the government took over the stake held by the Reserve Bank of India.

SBI provides a range of banking products through its vast network of branches in India and
overseas, including products aimed at non-resident Indians (NRIs). The State Bank Group, with
over 16,000 branches, has the largest banking branch network in India. It also has around 130
branches overseas. With an asset base of $352 billion and $285 billion in deposits, it is a regional
banking behemoth and is one of the largest financial institution in the world. It has a market
share among Indian commercial banks of about 20% in deposits and loans.[2]

The State Bank of India is the 29th most reputed company in the world according to Forbes.[3]
Also SBI is the only bank featured in the coveted "top 10 brands of India" list in an annual
survey conducted by Brand Finance and The Economic Times in 2010.[4]

The State Bank of India is the largest of the Big Four banks of India, along with ICICI Bank,
Punjab National Bank and HDFC Bank—its main competitors.[5] and" GUINNESS BOOK OF
WORLD RECORD " that 56 million transactions happening per day all over the world is
definitely an achievement
History

The roots of the State Bank of India rest in the first decade of 19th century, when the Bank of
Calcutta, later renamed the Bank of Bengal, was established on 2 June 1806. The Bank of Bengal
was one of three Presidency banks, the other two being the Bank of Bombay (incorporated on 15
April 1840) and the Bank of Madras (incorporated on 1 July 1843). All three Presidency banks
were incorporated as joint stock companies and were the result of the royal charters. These three
banks received the exclusive right to issue paper currency in 1861 with the Paper Currency Act,
a right they retained until the formation of the Reserve Bank of India. The Presidency banks
amalgamated on 27 January 1921, and the reorganized banking entity took as its name: Imperial
Bank of India. The Imperial Bank of India remained a joint stock company

Pursuant to the provisions of the State Bank of India Act (1955), the Reserve Bank of India,
which is India's central bank, acquired a controlling interest in the Imperial Bank of India. On 30
April 1955, the Imperial Bank of India became the State Bank of India. The government of India
recently acquired the Reserve Bank of India's stake in SBI so as to remove any conflict of
interest because the RBI is the country's banking regulatory authority.

In 1959, the government passed the State Bank of India (Subsidiary Banks) Act, enabling the
State Bank of India to take over eight former state-associated banks as its subsidiaries. On 13
September 2008, the State Bank of Saurashtra, one of its associate banks, merged with the State
Bank of India.

SBI has acquired local banks in rescues. For instance, in 1985, it acquired the Bank of Cochin in
Kerala, which had 120 branches. SBI was the acquirer as its affiliate, the State Bank of
Travancore, already had an extensive network in Kerala.

PROFILE OF SBI MF
SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an enviable track record
in judicious investments and consistent wealth creation.
The fund traces its lineage to SBI - India’s largest banking enterprise. The institution has grown
immensely since its inception and today it is India's largest bank, patronized by over 80% of the
top corporate houses of the country.

SBI Mutual Fund is a joint venture between the State Bank of India and Société Générale Asset
Management, one of the world’s leading fund management companies that manages over US$
330 Billion worldwide.

EXPLOITING EXPERTISE, COMPOUNDING GROWTH:

In eighteen years of operation, the fund has launched thirty-two schemes and successfully
redeemed fifteen of them. In the process it has rewarded its investors handsomely with
consistently high returns.
A total of over 20, 00,000 investors have reposed their faith in the wealth generation expertise of
the Mutual Fund.
Schemes of the Mutual fund have consistently outperformed benchmark indices and have
emerged as the preferred investment for millions of investors and HNI’s.
Today, the fund manages over Rs. 35,000 crores of assets and has a diverse profile of investors
actively parking their investments across 28 active schemes.
The fund serves this vast family of investors by reaching out to them through network of 82
collection branches, 26 investor service centers, 21 investor service desks and 21 district
organizers.
SBI Mutual is the first bank-sponsored fund to launch an offshore fund – Resurgent India
Opportunities Fund.
Growth through innovation and stable investment policies is the SBI MF credo.
SBI Mutual Fund, one of the leading mutual funds has been awarded the Most Preferred Mutual
Fund by CNBC Awaaz Consumer Awards 2006, an exhaustive consumer preference survey
conducted by AC Nielson-Org Marg on behalf of CNBC Awaaz, a popular business channel.
Moreover Economic Times has also given SBI MF, the title of being India’s “Second Brand
equity, mutual funds AMC”
The consumer survey spread over 21 cities had 10,000 respondents who chose most preferred
brands from 41 product and services categories. The survey was conducted in 14 states through a
structured questionnaire. Among the financial services, banks, mutual funds, life insurance
companies, credit cards, housing loans, auto loans and financial advisory services were selected
for the brand study. Fast Moving Consumer Goods, Consumer durables, telecom, auto, retail and
hospitality and travel were some of the other sectors, which were considered for this exercise.

Accepting the award, Mr. Deepak Chawla, Managing Director (before), SBI MF said, “SBI MF
is proud to receive this prestigious recognition as it reaffirms its commitment to investors. SBI
Mutual Fund has been consistently spreading the awareness about mutual funds by investor
education campaigns through the media and this has successfully raised awareness about Mutual
funds.
 OBJECTIVE

➢ To study the Mutual funds industry in detail

➢ To study the Investment procedure in Mutual funds
➢ To study the Accounting and Valuation methods of Mutual Funds
➢ To study in brief various Mutual funds promoted by S.B.I.
➢ To study the investors Preference regarding Investment in Mutual Funds
➢ To analysis the risk of mutual fund investment
 RESEARCH METHODOLOGY

The procedure adopted for conducting the research requires a lot of attention as it has direct
bearing on accuracy, reliability and adequacy of results obtained. It is due to this reason that
research methodology, which we used at the time of conducting the research, needs to be
elaborated upon. Research Methodology is a way to systematically study & solve the
research problems. If a researcher wants to claim his study as a good study, he must clearly
state the methodology adopted in conducting the research so that it may be judged by the
reader whether the methodology of work done is sound or not.
The Research Methodology here includes:-
1. Meaning of research
2. Research problem
3. Research design
4. Sampling design
5. Data collection method
6. Analysis and interpretation of Data

❖ Meaning of Research

Research is defined as “a scientific & systematic search for pertinent information on a

specific topic. Research is an art of scientific investigation. Research is a systematized effort
to gain new knowledge. It is a careful investigation or inquiry especially through search for
new facts in any branch of knowledge. Research is an academic activity and this term should
be used in a technical sense. Research com prices defining and redefining problems,
formulating hypothesis or suggested solutions; making deductions and reaching conclusions
to determine whether they fit the formulating hypo thesis. Research is thus, an original
contribution to the existing stock of knowledge making for its advancement. The search for
knowledge through objective and systematic method of finding solution to a problem is
research.
 ❖ Research Design

A research design is the arrangement of conditions for collection and analysis of data in a
manner that aims to combine relevance to the research purpose with economy in procedure.
Research design is the conceptual structure within which research is conducted. It constitutes
the blueprint for the collection measurement and analysis of data. Research design
operational implication to the final analysis of data.
A research design is a framework for the study and is used as a guide in collecting and
analyzing the data. It is a strategy specifying which approach will be used for gathering and
analyzing the data. It also includes the time and cost budget since most studies are done
under these two constraints. Research design can be categorized as:

Research Design

Exploratory Diagnostic
Research Research

Descriptive Experimental
Research Research

The present study is descriptive in nature, as it seeks to describe ideas and insight and to
bring out new relationships. Research design is flexible enough to provide opportunity for
considering different aspects of problems under study. It helps in bringing into focus some
inherent weakness in enterprise regarding which in depth study can be conducted by
management.
In this study I will apply Descriptive Research Design. As Descriptive Research Design is
the description of state of affairs, as it exists at present. In this type of research the researcher
has no control over the variables, he can only report what has happened or what is
happening.

SAMPLING METHOD ADOPTED:

Random Sampling

Sample size:

The sample size of my project is limited to 100 only.

Sample Design:

A ‘sample design’ is a definite plan for obtaining a sample from a given population. It refers
to the technique or the procedure the researcher would adopt in selecting items for the
sample. The corporate sea being very fast, it becomes impossible to contact each and every
individual of the universe due to the time and money constraints. Therefore, the study has
been narrowed down to a representative sample to make the study more manageable.

SOURCES OF DATA COLLECTION:

For the completion of this project both Primary and Secondary data are required.

Primary Data Collection:

Primary Data is the first hand information collected directly from the respondents .In
dealing with real life problem it is often found that data at hand are inadequate, and
hence, it becomes necessary to collect data that is appropriate. There are several ways
 of collecting the appropriate data which differ considerably in context of money costs,
time and other resources at the disposal of the researcher. Primary data can be
collected either through observation or through survey. The data collection for this
study was done in the following manner:

Through personal interviews:

A rigid procedure was followed and we were seeking answers to many pre-conceived
questions through personal interviews.

Through questionnaire:

I had prepared a questionnaire for collecting information about second part of the
project. Information to find out the investment potential and goal was found out
through Questionnaires.

Secondary Data Collection:

Secondary data is the second handed data. Secondary Data is collected through
internet, books, journals, and axis mutual fund navigators.

.
 FINDINGS
The study done was a tool to analyze the present setup and to know the investors
perception regarding investment in Mutual Funds. The study proved fruitful and many facts
came to the light. The following were the findings of the study:
• People with less experience were inclined towards investment in the Mutual Funds. It
attracted as a safer avenue as compared to share market.
• 49 % respondents reflected confidence and optimism in the context of their investments.
• Mutual Funds are more of an investment option than the speculative avenue. People tend
to gain through long investments rather than through short term.
• Income funds and ELSS are among the few top funds
• People are not willing to take much risk and bear loss.
• Broker’s advice matters to as much as 32% of the people. Major part of people preferred
self-evaluation as best.
Most of the people looks at the returns that are given by a Funds56% are in this favour and
only 23% people are there who consider Fund name and current NAV of the fund before
investing into a Mutual Fund
Experience was the main factor that made a person invest in mutual funds
 LIMITATIONS

There were certain limitations faced during the study.

➢ Some people were not willing to disclose the investment profile
➢ .The biased ness was being taken care of.
➢ The area of sample was decided after taking into consideration the major factors like
➢ Availability of investors
➢ Approachability,
➢ Time available with investor for interaction, etc.
➢ Lack of awareness about MUTUAL FUNDS
 CONCLUSION

The comparative of various tax-planning funds done on the basis of various factors such as
the performance of the fund over the period of time, their portfolio characteristics and the
risk associated with the scheme. By comparing various funds I analysis that:

• SBI magnum Tax-gain scheme has the wider portfolio than other schemes. It has a
mix of 83 stocks of various sectors, while all other scheme has the portfolio of stocks
between 40-60 stocks. Thus SBI Magnum Tax gain scheme has the larger portfolio
and it diversify the risk accurately.

• Among the above schemes, the performance of SBI magnum Tax-gain is highest for
the period of 3 year and 5 year while, for the period of 1 year or less than 1 year
Principal tax savings scheme is better alternative.

• The risk grade of maximum schemes is average but the HDFC tax saver has the
lowest risk to invest in this scheme.

• The risk analysis done on the basis of Sharpe ratio, Alpha, Beta and R-Squared. I find
that

1 The Sharpe ratio of SBI Magnum tax- gain is highest which shows that a higher return
is generated per unit of risk in this scheme, when compared to other schemes.

2 Positive alpha of a scheme implies that a fund has performed better than expected, given its
level of risk. So higher the alpha better are returns. Based on this proposition SBI Magnum Tax-
gain has the better returns when compared it with its peers.
 BIBLIOGRAPHY

• wwwmutualfundindia.com
• www.sbimf.com
• www.indiainfoline.com
• www.amfiindia.com
• www.sebi.gov.in
• www.google.com

BOOK REFERRED

Kothari, C.R. Research Methodology: Methods and Techniques. New Delhi: New Age
International Ltd, 1985.