A PROJECT REPORT ON COMPARATIVE ANALYSIS OF SECTORAL MUTUAL FUND

AT KARVY STOCK BROKING LTD.

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ACKNOWLEDGEMENT
The project on ““COMPARATIVE ANALYSIS OF SECTORAL MUTUAL FUNDS’’” would not have seen the light of the day without the following people and their priceless support and cooperation. Hence I extend my gratitude to all of them. I would like to thank KARVY STOCK BROKING LTD for giving me an opportunity of learning and contributing through this project. As a student of SIMMC, Pune I would first of all like to express my gratitude to Mrs. P.S. Mangudkar for assigning me such a worthwhile topic “COMPARATIVE ANALYSIS OF MUTUAL FUNDS’’ to work upon in KARVY STOCK BROKING LTD. During the actual project work, Mr. Vikrant Joshi (Project Guide) who set the ball rolling for my project. He has been a source of inspiration through his constant guidance; personal interest; encouragement and help. I convey my sincere thanks to him. In spite of his busy schedule he always found time to guide me through the project. I am also grateful to him for reposing confidence in my abilities and giving me the freedom to work on my project. Without his invaluable help I would not have been able to do justice to the project. The project couldn’t have been completed without timely and vital help of other office staff. Special thanks to Mr. Ravi Gaikwad and Mr.Kuldeep Bhorkar for his invaluable guidance, keen interest, cooperation, inspiration, and of course moral support through my project session.

Kalpesh Tiwari

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INDEX Content
1. Executive Summary 2. Company Profile 3. Introduction 4. The Study 5. Data Analysis 6. Observations and Inferences 7. 8. 9.

Pg.no. 5 8 15 36 66 68 69

Limitation of Study

Conclusion Recommendations

70 71 72

10. Bibliography

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Table
1.

Page No. 25 31 65 66
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Assets under management

2. Snapshot of Mutual funds scheme 3. Fund ranking on the basis of Total Risk 4. Fund Ranking on the basis of Sharp Ratio
5.

Fund ranking on the basis of beta and

R

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EXECUTIVE SUMMARY:The project titled “Comparative Analysis Of Sectoral Mutual Funds” being carried out for KARVY STOCK BROKING LTD. Today an investor is interested in tracking the value of his investments, whether he invests directly in the market or indirectly through Mutual Funds. This dynamic change has taken place because of a number of reasons. With globalization and the growing competition in the investments opportunity available he would have to make guided and rational 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. In order to achieve such an end the investor has 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. This project t is undertaken to help the investors in tracking the performance of their investments in Sectoral Mutual Funds and has been carried out with the objective of giving performance analysis of Sectoral Mutual Fund. 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 Sectoral Funds has been done with respect to its various parameters. Technology Sectors have performed well over the years. FMCG and PHARMA sectors are catching up. Though not much representation was there for banking sector, Reliance Banking Fund Did not perform well. I hope KARVY, Pune will recognize this as well as take more references from this project report.

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CHAPTR 1 :- OBJECTIVE

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1.1

PURPOSE :-

To study and analyse the performance of open ended, sectoral mutual funds (growth).

1.2 OBJECTIVES:1. Finding out the values of various performance measures for some sectoral mutual funds. 2. To know various funds’ involved in various Sectoral Mutual Funds. 3. To know the future of Sectoral Mutual Funds in India.

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CHAPTR 2 :- COMPANY PROFILE

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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 252 cities having about 550 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 ACTIVITIES: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 a member of Hyderabad Stock exchange. It is also a member of National Stock Exchange.

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CORNERSTONES OF STRAREGY:1. Focus on retail segment. 2. Build a strong pan-India network managed by experienced professionals, build presence across both metros and class A/B town. 3. Build full-service capabilities leveraging the network-offer the entire gamut of financial services, backed by strong transaction processing and high volume handling capability. 4. Established a high degree of customer ownership and top-of-mind recall in the local markets- ensures steady customer traffic and repeat business. 5. Build a trusted brand; ensure high visibility

ACHIVEMENTS: Largest independent distributor for financial products  Amongst the top 3 stock brokers  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.

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MISSION OF KARVY:To be a leading, preferred service provider to our customer, and 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.

STOCK BROKING SERVICES:It is an undisputed fact that the stock market is unpredictable and yet enjoys a high success rate as a wealth management and wealth accumulation option. The difference between unpredictability and a safety anchor in the market is provided by in-depth knowledge of market functioning and changing trends, planning with foresight and choosing one & risqué; s options with care. This is what Karvy provide in their Stock Broking services. Karvy offer services that are beyond just a medium for buying and selling stocks and shares. Instead Karvy provide services which are multi dimensional and multi-focused in their scope. There are several advantages in utilizing their Stock Broking services, which are the reasons why it is one of the best in the country. Karvy offers trading on a vast platform; National Stock Exchange, Bombay Stock Exchange and Hyderabad Stock Exchange. More importantly, Karvy makes trading safe to the maximum possible extent, by accounting for several risk factors and planning accordingly. Karvy is assisted in this task by their in-depth research, constant feedback and sound advisory facilities.

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DISTRIBUTION OF FINANCIAL PRODUCTS:The paradigm shift from pure selling to knowledge based selling drives the business today. With their wide portfolio offerings, they occupy all segments in the retail financial services industry. A 1600 team of highly qualified and dedicated professionals drawn from the best of academic and professional backgrounds are committed to maintaining high levels of client service delivery. This has propelled their to a position among the top distributors for equity and debt issues with an estimated market share of 15% in terms of applications mobilized, besides being established as the leading procurer in all public issues. To further tap the immense growth potential in the capital markets they enhanced the scope of their retail brand, Karvy – the Finapolis, thereby providing planning and advisory services to the mass affluent. Here they understand the customer needs and lifestyle in the context of present earnings and provide adequate advisory services that will necessarily help in creating wealth. Judicious planning that is customized to meet the future needs of the customer deliver a service that is exemplary. The market-savvy and the ignorant investors, both find this service very satisfactory. The edge that they have over competition is their portfolio of offerings and their professional expertise. The investment planning for each customer is done with an unbiased attitude so that the service is truly customized. Their monthly magazine, Finapolis, provides up-dated market information on market trends, investment options, opinions etc. Thus empowering the investor to base every financial move on rational thought and prudent analysis and embark on the path to wealth creation.

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ADVISORY SERVICES:Under their retail brand ‘Karvy – the Finapolis', they deliver advisory services to a cross-section of customers. The service is backed by a team of dedicated and expert professionals with varied experience and background in handling investment portfolios. They are continually engaged in designing the right investment portfolio for each customer according to individual needs and budget considerations with a comprehensive support system that focuses on trading customers' portfolios and providing valuable inputs, monitoring and managing the portfolio through varied technological initiatives. This is made possible by the expertise they have gained in the business over the years. Another venture towards being investor-friendly is the circulation of a monthly magazine called ‘Karvy - the Finapolis'. Covering the latest of market news, trends, investment schemes and research-based opinions from experts in various financial fields.

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.

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Karvy at a Glance

TRANSACTION PROCESSING GROUP

CORPORATE FINANCE GROUP

TECHNOLOGY RESOURCE GROUP

IT ENABLED SERVICE GROUP

E BUSINESS

FINANCIAL PRODUCTS
DISTRIBUTION

GROUP

SUPPORT
HR & Admn. STRATEGIC PLANNING, CORPORATE AFFAIRS, TRAINING & DEVELOPMENT CORPORATE QUALITY SA&FC COMPLIANCE, LEGAL & SECRETARIAL FINANCE & ACCOUNTS

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CHAPTR 3 :- INTRODUCTION

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Introduction
Mutual Funds: An overview 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 invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciations realized by the scheme are shared by its unit holders in proportion to the number of units owned by them (pro rata). 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 portfolio at a relatively low cost. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and strategy. A mutual fund is the ideal investment vehicle for today’s complex and modern financial scenario. Markets for equity shares, bonds and other fixed income instruments, real estate, derivatives and other assets have become mature and information driven. Price changes in these assets are driven by global events occurring in faraway places. A typical individual is unlikely to have the knowledge, skills, inclination and time to keep track of events, understand their implications and act speedily. An individual also finds it difficult to keep track of ownership of his assets, investments, brokerage dues and bank transactions etc.

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A mutual fund is the answer to all these situations. It appoints professionally qualified and experienced staff that manages each of these functions on a full time basis. The large pool of money collected in the fund allows it to hire such staff at a very low cost to each investor. In effect, the mutual fund vehicle exploits economies of scale in all three areas - research, investments and transaction processing. While the concept of individuals coming together to invest money collectively is not new, the mutual fund in its present form is a 20th century phenomenon. In fact, mutual funds gained popularity only after the Second World War. Globally, there are thousands of firms offering tens of thousands of mutual funds with different investment objectives. Today, mutual funds collectively manage almost as much as or more money as compared to banks. A draft offer document is to be prepared at the time of launching the fund. Typically, it pre specifies the investment objectives of the fund, the risk associated, the costs involved in the process and the broad rules for entry into and exit from the fund and other areas of operation. In India, as in most countries, these sponsors need approval from a regulator, SEBI (Securities exchange Board of India) in our case. SEBI looks at track records of the sponsor and its financial strength in granting approval to the fund for commencing operations. A sponsor then hires an asset management company to invest the funds according to the investment objective. It also hires another entity to be the custodian of the assets of the fund and perhaps a third one to handle registry work for the unit holders (subscribers) of the fund. In the Indian context, the sponsors promote the Asset Management Company also, in which it holds a majority stake. In many cases a sponsor can hold a 100% stake in the Asset Management Company (AMC). E.g. Birla Global Finance is the sponsor of the Birla Sun Life Asset Management Company Ltd., which has floated different mutual funds schemes and also acts as an asset manager for the funds collected under the schemes

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History of Mutual Fund in India:
The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank the. The history of mutual funds in India can be broadly divided into four distinct phases First Phase – 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management Second Phase – 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores.

Third Phase – 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families.

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Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds. Fourth Phase – since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of March, 2006, there were 29 funds. The graph indicates the growth of assets over the years. 19

Note: Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit Trust of India effective from February 2003. The Assets under management of the Specified Undertaking of the Unit Trust of India has therefore been excluded from the total assets of the industry as a whole from February 2003 onwards. GROWTH IN ASSETS UNDER MANAGEMENT

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Future Scenario The asset base will continue to grow at an annual rate of about 30 to 35 % over the next few years as investor’s shift their assets from banks and other traditional avenues. Some of the older public and private sector players will either close shop or be taken over. Out of ten public sector players five will sell out, close down or merge with stronger players in three to four years. In the private sector this trend has already started with two mergers and one takeover. Here too some of them will down their shutters in the near future to come. But this does not mean there is no room for other players. The market will witness a flurry of new players entering the arena. There will be a large number of offers from various asset management companies in the time to come. Some big names like Fidelity, Principal, Old Mutual etc. are looking at Indian market seriously. One important reason for it is that most major players already have presence here and hence these big names would hardly like to get left behind. The mutual fund industry is awaiting the introduction of derivatives in India as this would enable it to hedge its risk and this in turn would be reflected in it’s Net Asset Value (NAV). SEBI is working out the norms for enabling the existing mutual fund schemes to trade in derivatives. Importantly, many market players have called on the Regulator to initiate the process immediately, so that the mutual funds can implement the changes that are required to trade in Derivatives. Recent trends in mutual fund industry The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and 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 the 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 21

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. The service levels were also very bad. 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.

List of Members:

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A) Bank Sponsored 1. Joint Ventures - Predominantly Indian a. SBI Funds Management Private Ltd. 2. Others a. BOB Asset Management Co. Ltd. b. Canbank Investment Management Services Ltd. c. UTI Asset Management Co. Private Ltd. B) Institutions a. Jeevan Bima Sahayog Asset Management Co. Ltd. C) Private Sector 1. Indian a. Benchmark Asset Management Co. Private Ltd. b. Cholamandalam Asset Management Co. Ltd. c. Credit Capital Asset Management Co. Ltd. d. Escorts Asset Management Ltd. e. J. M. Financial Asset Management Private Ltd. f. Kotak Mahindra Asset Management Co. Ltd. g. Quantum Asset Management Co. Private Ltd. h. Reliance Capital Asset Management Ltd. i. Sahara Asset Management Co. Private Ltd j. Sundaram Asset Management Co. Ltd. k. Tata Asset Management Ltd. 2. Joint Ventures - Predominantly Indian a. Birla Sun Life Asset Management Co. Ltd. b. DSP Merrill Lynch Fund Managers Ltd.

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c. HDFC Asset Management Co. Ltd. d. Prudential ICICI Asset Management Co. Ltd. 3. Joint Ventures - Predominantly Foreign a. ABN AMRO Asset Management (India) Ltd. b. Deutsche Asset Management (India) Private Ltd. c. Fidelity Fund Management Private Ltd. d. Franklin Templeton Asset Management (India) Private Ltd. e. HSBC Asset Management (India) Private Ltd. f. ING Investment Management (India) Private Ltd. g. Morgan Stanley Investment Management Private Ltd. h. Principal Pnb Asset Management Co. Private Ltd. i. Standard Chartered Asset Management Co. Private Ltd.

TABLE-1 Assets Under Management (AUM) as at the end of Jun-2006 (Rs in

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Lakhs) AUM Mutual Fund Name Excluding Fund Of Fund Of Funds Funds 362896.22 11839.62 104407.77 0 1460946.02 2072.44 16184.32 0 284147.27 0 247516.44 0 505248.34 0 Average AUM For The Month Excluding Fund Of Fund Of Funds Funds 402399.53 11792.14 0 0 1734914.79 2051.1 0 0 350592.38 0 0 0 566548.8 0 0 0 460857.8 0 0 8302.2

1. ABN AMRO Mutual Fund 2. Benchmark Mutual Fund 3. Birla Sun Life Mutual Fund 4. BOB Mutual Fund 5. Canbank Mutual Fund 6. DBS Chola Mutual Fund 7. Deutsche Mutual Fund 8. DSP Merrill Lynch Mutual 1107408.01 0 Fund 9. Escorts Mutual Fund 10760.06 0 10. Fidelity Mutual Fund 470409.9 10732.08 11. Franklin Templeton Mutual 2164985.13 35661.26 Fund 12. HDFC Mutual Fund 2439111.46 0 13. HSBC Mutual Fund 1045085.93 0 14. ING Vysya Mutual Fund 364524.15 11788.98 15. JM Financial Mutual Fund 310496.57 0 16. Kotak Mahindra Mutual Fund 1032562.74 67677.37 17. LIC Mutual Fund 755647.55 0 18. Morgan Stanley Mutual Fund 240711.5 0 19. PRINCIPAL Mutual Fund 1003815.7 0 20. Prudential ICICI Mutual Fund 3014261.75 3800.11 21. Quantum Mutual Fund 2529.69 0 22. Reliance Mutual Fund 2631444.23 0 23. Sahara Mutual Fund 18753.11 0 24. SBI Mutual Fund 1363424.34 0 25. Standard Chartered Mutual 955098.38 2036.64 Fund 26. Sundaram BNP Paribas Mutual 493751.48 0 Fund 27. Tata Mutual Fund 1115870.85 0 28. Taurus Mutual Fund 19978.4 0 29. UTI Mutual Fund 3011531.54 0 Grand Total 26553508.85 145608.5

2121472.48 35749.74 2472159.05 1071051.1 0 0 1112345.59 0 229917.2 0 0 0 0 18261.66 1305504.46 0 488223.06 0 0 0 0 69948.17 0 0 0 0 0 0 0 0 0 0

0 0 18970.8 0 2920166.54 0 15273385.24 127843.35

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Types of Mutual Funds Mutual fund schemes may be classified on the basis of its structure and its investment objective. By Structure: Open-ended Funds An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity. Closed-ended Funds A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor. Interval Funds Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices.

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By Investment Objective:Growth Funds The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a majority of their corpus in equities. It has been proven that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long-term outlook seeking growth over a period of time.

Income Funds The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income. Balanced Funds The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls. These are ideal for investors looking for a combination of income and moderate growth. Money Market Funds The aim of money market funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on these schemes may fluctuate depending upon

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the interest rates prevailing in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods. Load Funds A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%. It could be worth paying the load, if the fund has a good performance history. No-Load Funds A No-Load Fund is one that does not charge a commission for entry or exit. That is, no commission is payable on purchase or sale of units in the fund. The advantage of a no load fund is that the entire corpus is put to work. Other Schemes:Tax Saving Schemes These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities to investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds, provided the capital asset has been sold prior to April 1, 2000 and the amount is invested before September 30, 2000. Special Schemes

Industry Specific Schemes

Industry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like InfoTech, FMCG, and Pharmaceuticals etc.

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Index Schemes

Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50

Sectoral Schemes

Sectoral Funds are those, which invest exclusively in a specified industry or a group of industries or various segments such as 'A' Group shares or initial public offerings. • Commodities Funds

Commodities funds specialize in investing in different commodities directly or through commodities future contracts. Specialized funds may invest in a single commodity or a commodity group such as edible oil or rains, while diversified commodity funds will spread their assets over many commodities

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RISK HIERARCHY OF MUTUAL FUNDS

Money Market Funds

Gilt Funds

Debt Funds

Equity Funds Hybrid Funds Aggressive Growth Funds

Flexible Asset allocation Funds

Growth Funds

Risk Level

High Yield Debt Funds

Diversified Equity Funds

Index Funds

Focused Debt Funds

Value Funds Growth and Income funds Balanced Funds

Equity Income Funds

Money Market Funds

Gilt Funds

Diversified Debt Funds

Type of Fund

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TABLE 2
Snapshot of Mutual Fund Schemes Mutual Fund Type Objective Risk Investment Portfolio Treasury Bills, Certificate of Deposits, Commercial Papers, Call Money Who should Investment horizon invest Those who park their funds in current accounts or short-term bank deposits

Liquidity + Moderate Money Income + Market Reservation of Capital Shortterm Funds (Floating - shortterm)

Negligible

2 days - 3 weeks

Liquidity + Moderate Income

Call Money, Commercial Papers, Little Treasury Bills, Interest Rate CDs, Shortterm Government securities. Predominantly Debentures, Credit Risk Government & Interest securities, Rate Risk Corporate Bonds Interest Rate Government Risk securities

Those with surplus short-term funds

3 weeks 3 months

Bond Funds (Floating - Longterm) Gilt Funds Equity Funds Regular Income

Salaried & conservative More than 9 - 12 months investors Salaried & conservative investors Aggressive investors with long term out look.

Security & Income Long-term Capital Appreciation

12 months & more

High Risk

Stocks

3 years plus

Index Funds

To generate returns that Portfolio are NAV varies indices like commensurate with index BSE, NIFTY with returns of performance etc respective indices Growth & Regular Income Balanced ratio Capital of equity and Market Risk debt funds to and Interest ensure higher Rate Risk returns at lower risk

Aggressive investors.

3 years plus

Balanced Funds

Moderate & Aggressive

2 years plus

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Benefits of Mutual Fund investment 1. 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. 2. Diversification: Mutual Funds invest in a number of companies across a broad crosssection of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own. 3. 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. Mutual Funds save your time and make investing easy and convenient. 4. 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. 5. 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.

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6. 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. 7. Transparency: Investors get regular information on the value of your investment in addition to disclosure on the specific investments made by the scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook. 8. Flexibility: Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, one can systematically invest or withdraw funds according to your needs and convenience. 9. 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. 10. Choice of Schemes: Mutual Fund offers a family of schemes to suit your varying needs over a lifetime. This offers investors to further diversify their investments. 11. 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. Limitation of Mutual Fund Investment 33

1. No Control Over Cost: An Investor in mutual fund has no control over the overall costs of investing. He pays an investment management fee (which is a percentage of his investments) as long as he remains invested in fund, whether the fund value is rising or declining. He also has to pay fund distribution costs, which he would not incur in direct investing. However this only means that there is a cost to obtain the benefits of mutual fund services. This cost is often less than the cost of direct investing. 2. No Tailor-Made Portfolios: Investing through mutual funds means delegation of the decision of portfolio composition 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 fund help investors overcome this constraint by offering large no. of schemes within the same fund. 3. Managing A Portfolio Of Funds: Availability of large no. of funds can actually mean too much choice for the investors. He may again need advice on how to select a fund to achieve his objectives. AMFI has taken initiative in this regard by starting a training and certification program for prospective Mutual Fund Advisors. SEBI has made this certification compulsory for every mutual fund advisor interested in selling mutual fund.

4. Taxes:

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During a typical year, most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If your fund makes a profit on its sales, you will pay taxes on the income you receive, even if you reinvest the money you made. 5. Cost of Churn: The portfolio of fund does not remain constant. The extent to which the portfolio changes is a function of the style of the individual fund manager i.e. whether he is a buy and hold type of manager or one who aggressively churns the fund. It is also dependent on the volatility of the fund size i.e. whether the fund constantly receives fresh subscriptions and redemptions. Such portfolio changes have associated costs of brokerage, custody fees etc. which lowers the portfolio return commensurately.

35

CHAPTR 4 :- THE STUDY

Sectoral Mutual Fuds Considered:1. Sectoral-Auto
36

2. Sectoral-Bank 3. Sectoral-Basic 4. Sectoral-FMCG 5. Sectoral-Healthcare 6. Sectoral-Infrastructure 7. Sectoral-Media and Entertainment 8. Sectoral-Pharma 9. Sectoral-Power 10. Sectoral-Service 11. Sectoral- Technology

1. Sectoral-Auto:-

37

a) JM Auto Sector Fund:Scheme Snapshot Fund Manager Sandeep Neema Scheme Objective Equity Scheme SubSectoral-Auto Objective Scheme Type Open Min. Investment(Rs) 5000 Total Assets(Rs./Mn) 98.92 Registrars Karvy Computershare Pvt Ltd Launch Date 01-JUN-04 Sector Allocation as on 31-May-06 Sector Auto Auto And Ancillaries Industrial Products Call And Other Assets Asset Allocation Particulars Equity Shares Call And Other Assets as on 31-May-06 Percentage 92.22 7.78

% Of Asset 52.30 31.18 8.74 7.78

Asset Allocation Particulars Equity Shares Call And Other Assets

as on 31-May-06 Percentage 92.22 7.78

b) UTI Thematic Auto Sector Fund
Scheme Snapshot Chandraprakash Fund Manager Padiyar Scheme Objective Equity Scheme Sub-Objective Sectoral-Auto Scheme Type Open Min. Investment(Rs) 5000 Total Assets(Rs./Mn) 875.69 Registrars UTI ISL Ltd. Launch Date 09-MAR-04

Asset Allocation Particulars Equity Shares Net Current Assets

as on 31-May-06 Percentage 97.60 2.40

Sector Allocation Sector Auto Auto And Ancillaries

as on 31-May-06 % Of Asset 68.45 19.56

Asset Allocation Particulars Equity Shares Net Current Assets 38

as on 31-May-06 Percentage 97.60 2.40

Industrial Products Unclassified Net Current Assets

6.52 3.07 2.40

2. Sectoral- Bank:a) UTI Banking Sector Fund Scheme Snapshot Fund Manager Scheme Objective Scheme SubObjective Scheme Type Min. Investment(Rs) Total Assets(Rs./Mn) Registrars Launch Date Sector Allocation Sector Banks Finance Net Current Assets Gautami Desai Equity Sectoral-Bank Open 5000 742.18 UTI ISL Ltd. 09-MAR-04 Asset Allocation Particulars Equity Shares Net Current Assets as on 31-May-06 Percentage 93.59 6.41 Asset Allocation Particulars Equity Shares Net Current Assets as on 31-May-06 Percentage 93.59 6.41

as on 31-May-06 % Of Asset 81.43 12.16 6.41

b) Reliance Banking Fund
Scheme Snapshot Fund Manager Scheme Objective Scheme Sub-Objective Scheme Type Sunil Singhania Equity Sectoral-Bank Open Asset Allocation Particulars Equity Shares Cash And Other Assets as on 30-Jun-06 Percentage 92.39 7.61

39

Min. Investment(Rs) Total Assets(Rs./Mn) Registrars Launch Date

25000 1126.4 Karvy Consultants Limited 08-MAY-03

Sector Allocation as on 30-Jun-04 Sector % Of Asset Banks 72.40 Call And Other Assets 27.60

Asset Allocation Particulars Equity Shares Cash And Other Assets

as on 30-Jun-06 Percentage 92.39 7.61

3. Sectoral-Basic:UTI Petrol Fund
Scheme Snapshot Fund Manager Scheme Objective Scheme Sub-Objective Scheme Type Min. Investment(Rs) Total Assets(Rs./Mn) Registrars Launch Date Gautami Desai Equity Sectoral-Basic Open 5000 1931.21 UTI Investor Services Ltd. 27-MAY-99 Asset Allocation Particulars Equity Shares Net Current Assets as on 31-May-06 Percentage 98.59 1.41

Sector Allocation Sector Petroleum Products Oil Gas Chemicals Net Current Assets 4. Sectoral-FMCG:-

as on 31-May-06 % Of Asset 51.39 21.89 21.58 3.74 1.41

Asset Allocation Particulars Equity Shares Net Current Assets

as on 31-May-06 Percentage 98.59 1.41

a) Franklin FMCG Fund
Scheme Snapshot Fund Manager K N Siva Subramanian,Anil Prabhudas Asset Allocation Particulars Equity Shares Other Current Assets as on 30-Jun-06 Percentage 96.65 3.35

40

Scheme Objective Scheme Sub-Objective Scheme Type Min. Investment(Rs) Total Assets(Rs./Mn) Registrars

Launch Date Sector Allocation as on 31-Mar-00 Sector FMCG Cash & Other Assets

Equity Sectoral-FMCG Open 5000 364.76 Franklin Templeton Asset Management (India) Pvt. Ltd. 15-MAR-99 Asset Allocation Particulars Equity Shares Other Current Assets as on 30-Jun-06 Percentage 96.65

% Of Asset 97.62 2.38

3.35

b) Magnum Sector Funds Umbrella - FMCG Fund
Scheme Snapshot Sanjay Sinha and Fund Manager Nimesh Chandan Scheme Objective Equity Scheme Sub-Objective Sectoral-FMCG Scheme Type Open Min. Investment(Rs) 2000 Total Assets(Rs./Mn) 122.5 Registrars Computer Age Management Services Pvt.Ltd. Launch Date 04-JUN-99 Asset Allocation as on 31-May-06 Particulars Percentage Equity Shares 92.74 Cash And Other 7.26 Assets

Sector Allocation as on 31-May-06 Sector % Of Asset Consumer Non Durables 65.52 Consumer Durables 17.14 Cash And Other Assets 7.26 Textile Products 5.22

Asset Allocation Particulars Equity Shares Cash And Other Assets

as on 31-May-06 Percen tage 92.74 7.26

41

Retailing

4.86

c) Prudential ICICI FMCG Fund
Scheme Snapshot Fund Manager Scheme Objective Scheme Sub-Objective Scheme Type Min. Investment(Rs) Total Assets(Rs./Mn) Registrars Launch Date Prashant Kothari Equity Sectoral-FMCG Open 5000 1001.45 Computer Age Management Services Pvt.Ltd. 16-FEB-99 Asset Allocation as on 30-Jun-06 Particulars Percentage Equity Shares 97.61 Call Money / Reverse 3.61 Repos / Cblo Other Current Assets -1.22

Sector Allocation Sector Consumer Non Durables Retailing Other Current Assets Call Money / Reverse Repos / Cblo Industrial Products

as on 30-Jun06 % Of Asset 75.65 20.92 -1.22 3.61 1.04

Asset Allocation as on 30-Jun-06 Particulars Percentage Equity Shares 97.61 Call Money / Reverse 3.61 Repos / Cblo Other Current Assets -1.22

5. Sectoral- Healthcare:a) J M Healthcare Sector Fund
Scheme Snapshot Fund Manager Scheme Objective Sandeep Neema Equity SectoralScheme Sub-Objective Healthcare Asset Allocation as on 31-May-06 Particulars Percentage Equity Shares 97.02 Call And Other Assets 2.98

42

Scheme Type Min. Investment(Rs) Total Assets(Rs./Mn) Registrars Launch Date Sector Allocation Sector Pharmaceuticals Call And Other Assets

Open 5000 95.9 Karvy Computershare Pvt Ltd 01-JUN-04 as on 31-May-06 % Of Asset 97.02 2.98 Asset Allocation as on 31-May-06 Particulars Percentage Equity Shares 97.02 Call And Other Assets 2.98

6. Sectoral-Infrastructure

a) Tata Infrastructure Fund
Scheme Snapshot Fund Manager Scheme Objective M Venugopal Equity SectoralScheme Sub-Objective Infrastructure Scheme Type Open Min. Investment(Rs) 5000 Total Assets(Rs./Mn) 7886.28 Registrars Computer Age Management Services Pvt.Ltd. Launch Date 25-NOV-04 Asset Allocation Particulars Equity Shares Cash And Other Assets as on 30-Jun-06 Percentage 94.35 5.65

Sector Allocation Sector Industrial Capital Goods Cement Construction Power Cash And Other Assets

as on 30-Jun06 % Of Asset 27.29 16.78 16.49 7.00 5.65

Asset Allocation as on 30-Jun-06 Particulars Percentage Equity Shares 94.35 Cash And Other 5.65 Assets

43

Industrial Products Non-ferrous Metals Ferrous Metals Petroleum Products Telecommunications -service Consumer Durables Transportation Dredging Oil Construction Materials

4.81 4.55 3.96 3.83 3.30 2.75 1.12 1.11 0.97 0.40

b) Birla Infrastructure Fund Scheme Snapshot Fund Manager Scheme Objective Scheme SubObjective Scheme Type Min. Investment(Rs) Total Assets(Rs./Mn) Registrars Mahesh Patil Equity SectoralInfrastructure Open 5000 5495.77 Computer Age Management Services Pvt. Ltd. 31-JAN-06 Asset Allocation Particulars Equity Shares Cash And Other Assets as on 30-Jun-06 Percentage 90.96 9.04

Launch Date

Sector Allocation Sector Industrial Capital Goods Cash And Other Assets Banks Industrial Products Auto Cement Other Equities Construction

as on 30-Jun-06 % Of Asset 27.33 9.04 8.11 7.67 7.39 6.97 6.63 5.55

44

Telecommunications -service Transportation Non-ferrous Metals Hotels Ferrous Metals Power c) Can Infrastructure Fund Scheme Snapshot Fund Manager Scheme Objective Scheme SubObjective Scheme Type Min. Investment(Rs) Total Assets(Rs./Mn) Registrars Launch Date

4.85 3.85 3.69 3.44 3.41 2.07

Umesh Kamath Equity SectoralInfrastructure Open 5000 884.65 Computer Age Management Services Limited 11-OCT-05

Asset Allocation as on 30-Jun-06 Particulars Percentage Equity Shares 76.63 T - Bill 16.69 Current Net Assets 5.80 G O I Securities 0.89

Sector Allocation Sector Industrial Capital Goods T - Bill Construction Cement Industrial Products Current Net Assets Power

as on 30-Jun06 % Of Asset 19.63 16.69 11.90 10.83 6.64 5.80 5.43

Asset Allocation as on 30-Jun-06 Particulars Percentage Equity Shares 76.63 T - Bill 16.69 Current Net Assets 5.80 G O I Securities 0.89

45

Petroleum Products Gas Oil Telecom Equipment Transportation Finance Engineering Telecommunications -service Banks Chemicals G O I Securities Consumer Durables

4.79 3.25 2.73 2.45 2.10 1.49 1.46 1.41 1.31 0.90 0.89 0.32

7. Sectoral Media and Entertainment:Reliance Media and Entertainment Fund Scheme Snapshot Fund Manager Sailesh Raj Bhan Scheme Objective Equity Sectoral-Media Scheme Suband Objective Entertainment Scheme Type Open Min. Investment(Rs) 10000 Total Assets(Rs./Mn) 336.8 Registrars Karvy Consultants Limited Launch Date 16-SEP-04 8.Sectoral-Pharma:a) Magnum Sector Funds Umbrella - Pharma Fund und
Scheme Snapshot Asset Allocation as on 30-Jun-06 Sanjay Sinha and Particulars Percentage Fund Manager Nimesh Chandan Equity Shares 98.18 Scheme Objective Equity Net Current Assets 1.82 Scheme Sub-Objective Sectoral-Pharma Scheme Type Open Min. Investment(Rs) 2000 Total Assets(Rs./Mn) 673.8 Registrars Computer Age Management Services Pvt.Ltd.

Asset Allocation Particulars Equity Shares Cash And Other Assets

as on 30-Jun-06 Percentage 94.76 5.24

46

Launch Date
Sector Allocation
Sector

04-JUN-99
as on 30-Jun-06
% Of Asset

Asset Allocation
Particulars

as on 30-Jun-06
Percentage

Pharmaceuticals Healthcare Services Fertilisers And Pesticides Cash And Other Assets

83.20 Equity Shares Net Current Assets 12.00 2.98 1.82

98.18 1.82

b) Franklin Pharma Fund
Scheme Snapshot Fund Manager Scheme Objective Scheme Sub-Objective Scheme Type Min. Investment(Rs) Total Assets(Rs./Mn) Registrars Asset Allocation Satish Ramanathan Particulars Equity Equity Shares Sectoral-Pharma Other Current Assets Open 5000 636.72 Franklin Templeton Asset Management (India) Pvt. Ltd. 15-MAR-99 as on 30-Jun-06 Percentage 94.12 5.88

Launch Date

Sector Allocation as on 31-Dec-04 Sector % Of Asset Pharmaceuticals 93.14 Other Current Assets 6.86

Asset Allocation Particulars Equity Shares Other Current Assets

as on 30-Jun-06 Percentage 94.12 5.88

c) UTI Pharma and Healthcare Fund
Scheme Snapshot Fund Manager Scheme Objective Scheme Sub-Objective Scheme Type Min. Investment(Rs) Total Assets(Rs./Mn) Registrars Launch Date Sector Allocation Sector Pharmaceuticals Net Current Assets Asset Allocation Sanjay Dongre Particulars Equity Equity Shares Sectoral-Pharma Net Current Assets Open 5000 854.8 UTI Investor Services Ltd. 27-MAY-99 as on 31-May-06 % Of Asset 99.00 1.00 Asset Allocation Particulars Equity Shares Net Current Assets as on 31-May-06 Percentage 99.00 1.00

as on 31-May-06 Percentage 99.00 1.00

47

d) Reliance Pharma Fund
Scheme Snapshot Fund Manager Scheme Objective Scheme Sub-Objective Scheme Type Min. Investment(Rs) Total Assets(Rs./Mn) Registrars Launch Date Asset Allocation Sailesh Raj Bhan Particulars Equity Equity Shares Sectoral-Pharma Cash And Other Open Assets 10000 1077.1 Karvy Consultants Limited 10-MAY-04 as on 30-Jun-06 Percentage 94.87 5.13

9. Sectoral-Power:Reliance Diversified Power Sector Fund
Scheme Snapshot Fund Manager Scheme Objective Scheme Sub-Objective Scheme Type Min. Investment(Rs) Total Assets(Rs./Mn) Registrars Launch Date Sunil B Singhania Equity Sectoral-Power Open 10000 5534.2 Karvy Consultants Limited 29-MAR-04 Asset Allocation Particulars Equity Shares Debt And Cash And Other Assets as on 30-Jun-06 Percentage 92.21 7.79

as on 30-Jun04 Sector % Of Asset Treasury Bills 40.77 Engineering 22.68 Call And Other Assets 12.14 Bonds 10.40 Public Sector Units 7.02 Bonds Steel 4.04 Cement 1.75 Diversified 0.40 Power Equipments 0.19 Sector Allocation

Asset Allocation Particulars Equity Shares Debt And Cash And Other Assets

as on 30-Jun-06 Percentage 92.21 7.79

10.Sectoral-Service:a) Prudential ICICI Services Industries Fund

48

Scheme Snapshot Fund Manager Scheme Objective Scheme SubObjective Scheme Type Min. Investment(Rs) Total Assets(Rs./Mn) Registrars

Launch Date

Deven Sangoi Equity SectoralServices Open 5000 3518.08 Computer Age Management Services Pvt.Ltd. 13-OCT-05
as on 30Jun-06 % Of Asset 16.12 12.44 9.35

Asset Allocation Particulars Equity Shares Call Money / Reverse Repos / Cblo Other Current Assets Term Deposits Futures

as on 30-Jun-06 Percentage 89.10 8.90 0.97 0.56 0.47

Sector Allocation Sector I T - Software Banks Auto And Ancillaries Call Money / Reverse Repos / Cblo Transportation Industrial Capital Goods Construction Finance Hotels Pesticides Pharmaceuticals Textiles Products Retailing Power Media And Entertainment Industrial Products Consumer Durables Telecommunications -service Other Current Assets Term Deposits Futures Gas

Asset Allocation as on 30-Jun-06 Particulars Percentage Equity Shares 89.10 Call Money / Reverse 8.90 Repos / Cblo Other Current Assets 0.97 Term Deposits 0.56 0.47 8.90 Futures

5.41 5.38 4.91 4.74 4.53 4.49 4.37 4.29 3.64 2.34 1.99 1.86 1.65 1.59 0.97 0.56 0.47 0.00

b) Tata Service Industries Fund Scheme Snapshot Fund Manager M Venugopal Scheme Objective Equity Asset Allocation as on 30-Jun-06 Particulars Percentage Equity Shares 97.08 49

Scheme SubSectoralCash And Other Objective Services Assets Scheme Type Open Debt Min. Investment(Rs) 5000 Total Assets(Rs./Mn) 1716.22 Registrars Karvy Computershare Private Limited Launch Date 09-FEB-05

2.82 0.10

Sector Allocation Sector I T - Software Hotels Media And Entertainment Construction Retailing Telecommunications -service Cash And Other Assets Banks Dredging Textile Products Finance Debt

as on 30-Jun-06 % Of Asset 33.67 24.68 11.78 10.10 6.35 5.99 2.82 1.40 1.24 1.10 0.75 0.10

11.Sectoral- Technology:a) Franklin Infotech Fund Scheme Snapshot Fund Manager Scheme Objective Scheme SubObjective Scheme Type Min. Investment(Rs) Total Assets(Rs./Mn) Registrars S.Chellappa Equity Sectoral-TMT Open 5000 1452.29 Franklin Templeton Asset Management (India) Pvt. Ltd. 22-JUL-98 as on 31-MarAsset Allocation Particulars Equity Shares Other Current Assets Unlisted Equities as on 30-Jun-06 Percentage 99.26 0.74 0.00

Launch Date Sector Allocation

Asset Allocation as on 30-Jun-06 50

Sector IT Cash And Other Assets

00 % Of Asset 83.85 16.11

Particulars Equity Shares Other Current Assets Unlisted Equities

Percentage 99.26 0.74 0.00

b) Birla Sun Life New Millennium
Scheme Snapshot Mahesh Patil, Fund Manager Nimesh Chandan Scheme Objective Equity Scheme Sub-Objective Sectoral-TMT Scheme Type Open Min. Investment(Rs) 5000 Total Assets(Rs./Mn) 850.34 Registrars Computer Age Management Services Pvt.Ltd. Launch Date 15-DEC-99 Sector Allocation as on 30-Jun06 % Of Asset 71.31 Asset Allocation Particulars Equity Shares Cash And Other Assets as on 30-Jun-06 Percentage 90.48

9.52

Sector I T - Software Telecommunications 12.86 -service Cash And Other Assets 9.52 Media And Entertainment 6.32

Asset Allocation Particulars Equity Shares Cash And Other Assets

as on 30-Jun-06 Percentage 90.48

9.52

c) Kotak Technology Plan
Scheme Snapshot Fund Manager Scheme Objective Scheme Sub-Objective Scheme Type Min. Investment(Rs) Total Assets(Rs./Mn) Registrars Launch Date Sector Allocation Sector I T - Software Asset Allocation Sajit Pisharodi Particulars Equity Equity Shares Sectoral-TMT Collateral Borrowing Open And Lending 5000 Obligation 436.03 Term Deposits Computer Age Unlisted Equities Management Net Current Assets / Services Pvt.Ltd. Liabilities 21-MAR-00 as on 30Jun-06 % Of Asset 93.91 Asset Allocation Particulars Equity Shares Collateral Borrowing And Lending as on 30-Jun-06 Percentage 95.73 4.59 1.15 0.00 -1.46

as on 30-Jun-06 Percentage 95.73 4.59

51

Net Current Assets / Liabilities Collateral Borrowing And Lending Obligation Telecommunications -service Term Deposits

-1.46 4.59 1.82 1.15

Obligation Term Deposits 1.15 Unlisted Equities 0.00 Net Current Assets / -1.46 Liabilities

d) Magnum Sector Funds Umbrella - IT Fund
Scheme Snapshot Asset Allocation Sanjay Sinha and Particulars Fund Manager Nimesh Chandan Equity Shares Scheme Objective Equity Net Current Assets Scheme Sub-Objective Sectoral-TMT Scheme Type Open Min. Investment(Rs) 2000 Total Assets(Rs./Mn) 564.5 Registrars Computer Age Management Services Pvt.Ltd. Launch Date 04-JUN-99 Sector Allocation Sector IT Service Net Current Assets Telecom Media And Entertainment Consumer Goods Pharmaceuticals Others as on 30-Jun06 % Of Asset 75.22 6.69 4.81 3.08 3.05 2.31 1.17 3.67 Asset Allocation Particulars Equity Shares Net Current Assets as on 30-Jun-06 Percentage 95.19 4.81

as on 30-Jun-06 Percentage 95.19 4.81

e) UTI Software Fund
Scheme Snapshot Fund Manager Scheme Objective Scheme Sub-Objective Scheme Type Min. Investment(Rs) Total Assets(Rs./Mn) Registrars Launch Date Sector Allocation Sanjay Dongre Equity Sectoral-TMT Open 5000 1149.73 UTI Investor Services Ltd. 27-MAY-99 as on 30-Jun06 Asset Allocation Particulars Equity Shares Net Current Assets as on 30-Jun-06 Percentage 98.93 1.07

Asset Allocation Particulars

as on 30-Jun-06 Percentage

52

Sector I T - Software Media And Entertainment Net Current Assets Scheme Snapshot Fund Manager Scheme Objective Scheme Sub-Objective Scheme Type Min. Investment(Rs) Total Assets(Rs./Mn) Registrars Launch Date Sector Allocation

% Of Asset 94.43 4.50 1.07

Equity Shares Net Current Assets

98.93 1.07

f) UTI Services Sector Fund
Gautami Desai Equity Sectoral-TMT Open 5000 1933 UTI Investor Services Ltd. 27-MAY-99 as on 30-Jun06 % Of Asset 28.35 14.26 9.94 7.35 6.92 6.71 4.61 4.12 4.05 3.86 3.22 2.97 2.02 1.63 0.00 Asset Allocation Particulars Equity Shares Net Current Assets Unlisted Equities as on 30-Jun-06 Percentage 98.37 1.63 0.00

Sector I T - Software Banks Textile Products Hotels Telecommunications -service Construction Power Industrial Capital Goods Finance Transportation Media And Entertainment Gas Courier Net Current Assets Unclassified

Asset Allocation Particulars Equity Shares Net Current Assets Unlisted Equities

as on 30-Jun-06 Percentage 98.37 1.63 0.00

g) Prudential ICICI Technology Fund
Scheme Snapshot Fund Manager Scheme Objective Scheme Sub-Objective Scheme Type Min. Investment(Rs) Total Assets(Rs./Mn) Deven Sangoi Equity Sectoral-TMT Open 5000 1046.92 Asset Allocation as on 30-Jun-06 Particulars Percentage Equity Shares 91.89 Call Money / Reverse 7.22 Repos / Cblo Other Current Assets 0.88

53

Registrars Launch Date

Computer Age Management Services Pvt.Ltd. 05-FEB-00

as on 30Jun-06 Sector % Of Asset I T - Software 64.73 Media And Entertainment 11.80 Pharmaceuticals 10.57 Call Money / Reverse 7.22 Repos / Cblo Industrial Capital Goods 2.31 Telecommunications 2.24 -service Other Current Assets 0.88 Consultancy Services 0.25 Sector Allocation

Asset Allocation Particulars Equity Shares Call Money / Reverse Repos / Cblo Other Current Assets

as on 30-Jun-06 Percentage 91.89 7.22 0.88

i) DSP Merrill Lynch Technology.com Fund
Scheme Snapshot Fund Manager Scheme Objective Scheme Sub-Objective Scheme Type Min. Investment(Rs) Total Assets(Rs./Mn) Registrars Launch Date Sector Allocation Sector I T - Software Media And Entertainment Apoorva Shah Equity Sectoral-TMT Open 1000 256.65 Computer Age Management Services Pvt.Ltd. 18-MAY-00 as on 30Jun-06 % Of Asset 69.56 10.59 Asset Allocation Particulars Equity Shares Net Receivables / Payables Cblo / Reverse Repo Investments as on 30-Jun-06 Percentage 98.76 0.85 0.39

Asset Allocation Particulars Equity Shares Net Receivables / Payables Cblo / Reverse Repo

as on 30-Jun-06 Percentage 98.76 0.85 0.39

54

Telecommunications -service Industrial Capital Goods Computer Hardware Net Receivables / Payables Internet Service Provider Cblo / Reverse Repo Investments

10.45 4.53 3.19 0.85 0.43 0.39

Investments

Conceptual background of the study: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. Worldwide, good mutual fund companies over are known by their AMCs and this fame is directly linked to their superior stock selection skills. For mutual funds to grow, AMCs must be held accountable for their selection of stocks. In other words, there must be some performance indicator that will reveal the quality of stock selection of various AMCs. Return alone should not be considered as the basis of measurement of the performance of a mutual fund scheme, it should also include the risk taken by the fund manager because different funds will have different levels of risk attached to them. For evaluating the performance of selected Sectoral Mutual Fund schemes risk-return relation models have been used like: Ø The Treynor Measure Ø The Sharpe Measure Ø Jenson Model Ø Fama Model The Treynor Measure Developed by Jack Treynor, this performance measure evaluates funds on the basis of Treynor's Index. This Index is a ratio of return generated by the fund over and above risk free rate of return (generally taken to be the return on securities backed by the government, as there is no credit risk associated), during a given period and systematic risk associated with it (beta). Symbolically, it can be represented as: Treynor's Index (Ti) = (Ri - Rf)/Bi.

55

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 maximize this value. While a high and positive Treynor's Index shows a superior risk-adjusted performance of a fund, a low and negative Treynor's Index is an indication of unfavorable performance. The Sharpe Measure In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is a ratio of returns generated by the fund over and above risk free rate of return and the total risk associated with it. According to Sharpe, it is the total risk of the fund that the investors are concerned about. So, the model evaluates funds on the basis of reward per unit of total risk. Symbolically, it can be written as: Sharpe Index (Si) = (Ri - Rf)/Si Where, Si is standard deviation of the fund. While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund, a low and negative Sharpe Ratio is an indication of unfavorable performance. 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. Jenson Model Jenson's model proposes another risk adjusted performance measure. This measure was developed by Michael Jenson and is sometimes referred to as the Differential Return Method. This measure involves evaluation of the returns that the fund has generated vs. the returns actually expected out of the fund given the level of its systematic risk. The surplus between the two returns is called Alpha, which measures the performance of a fund compared with the actual returns over the period. Required return of a fund at a given level of risk (Ri) 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 can not mitigate unsystematic risk, as his knowledge of market is primitive.

56

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 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.

BETA Beta measures a stock's volatility, the degree to which its price fluctuates in relation to the overall market. In other words, it gives a sense of the stock's market risk compared to the greater market. Beta is used also to compare a stock's market risk to that of other stocks. Investment analysts use the Greek letter 'ß' to represent beta. This measure is calculated using regression analysis. A beta of 1 indicates that the security's price tends to move with the market. A beta greater than 1 indicates

57

that the security's price tends to be more volatile than the market, and a beta less than 1 means it tends to be less volatile than the market. β = rim × σi × σm ________________________ 2 σm

σi is standard deviation of fund returns.(Si) σm is standard deviation of market returns.(Sm)
2 σm is market variance.

rim is correlation coefficient between market returns and fund returns.

Coefficient of Determination ( R 2 ) --- a measure of reliability of Beta Beta depends on the index used to calculate it. It can happen that the index bears no correlation with the movements in the fund. Due to this reason, it is essential to take a look at statistical value called Coefficient of Determination along with Beta. It shows how reliable the beta number is. It varies between zero and one. Value of 1 indicates perfect correlation with the indx. Thus, an If ( R 2 ) =0.64 it implies that 64% of the variation in the portfolio returns is due to variations in the market returns. Mathematically it is the square of correlation coefficient(R).

R=

-----------------------------------------------

n∑ { x (− xm e) ×a (ny − ym e) a}n
∑(x − x
m ean

) 2 ×∑ y − y mean ) 2 (

Where X and Y are returns on the portfolio and returns on the market respectively. Beta and ( R 2 ) should thus be used together when examining a fund’s risk profile. NET ASSET VALUE (NAV) NAV per unit of a scheme on a day is the net market value of the securities held by the total no. of the units of the scheme on the particular day. It is actually the value of of net asset per unit. Since the market value of securities changes

58

everyday, NAV of a fund also varies on a day to day basis. NAV’s for open ended schemes are required to be disclosed a daily basis(business day).

NAV =

Net Assets of the scheme ___________________ No. of units outstanding

Where, Numerator= Market value of investment+receivables+other Accrued Income +Other Assets- Accrued Expenses-Other Payables-Other Liabilities. Standard Deviation- a measure of Total Risk Standard Deviation is the most common statistical measure of judging a fund’s volatility and risk. It measures a fund’s total risk i.e. sum of systematic risk and unsystematic risk. Mathematically it gives a ‘quality rating’ of an avg. The SD of an avg. is the amt. By which the no. that go in to an avg. deviate from that avg. It tells us how closely an avg. represents the underlying avg. But one thing thing to be kept in mind is that a high Standard Deviation may be a measure of volatility, but it does not necessarily mean that such a fund is worse than one with a low Standard Deviation. If the first fund is a much higher performer than the second one, the deviation will not matter much.

SD=

1 ∑( x i − x mean ) 2 n

sample from the mean of the sample of ‘n’ element. Note: - For this project following tools have been used:• • • • Standard Deviation Beta Sharp Ratio R-Square

∑( x

i

− x mean ) 2 gives the square of the sum of differences of each value in the

Methodology

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Sapling Design Sampling method use is non probabilistic judgmental sampling. The Mutual Fund Scheme for the study have been selected based on following 3 criteria 1 2 3 Type of the scheme Minimum Assets Under Mgmt. Inception Date Open-ended Sectoral Funds(growth) Rs. 100 Crore Prior to 1st April, 2003

Growth option for all the selected sheme has been considered. Sample Size The sample size of this study is 4 sectors. There were 11 sectors but following 7 could not qualify:1. Auto Sector 2. Basic 3. Infrastructure. 4. Health Care 5. Media 6. Power 7. Service

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Research Design 1. Benchmark Index For this study the 50 shares market index S&P CNX NIFTY has been used as the market index. 2. Period of study Period of study has been taken as 3 years starting from 1st April,2003 to 21st July 2006. 3. Risk Free Rate Of Return Risk free rate of return refers to that minimum return on an investment that has no risk of loosing the investment over which it is earned. For this purpose of this study risk free rate of return is represented by 91 days Treasury bill of 5.32%.

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CHAPTR 5 :- DATA ANALYSIS

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Data Collection Following is a description of the sources & methodology followed to collect the data required. 1. NAV For the study NAVs of the funds have been taken at every weekend i.e. the NAVs on Friday during the period of the study have been considered. NAV data have been taken from the website www.myris.com and in some cases the websites of the respective funds.
2. Benchmark Index

The data is sourced from the website of National Stock Exchange. www.nse-india.com 3. Selection of the Schemes Details pertaining to the type of the scheme, Assets under management and Launch date were sourced from the websites www.valueresearchonline.com.

TABLE 3: Fund ranking on the basis of Total Risk(Standard Deviation of weekly returns)

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Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Scheme Name FranklinFMCG UTI software Magnum FMCG Franklin InfoTech. Birla Sunlife new millennium DSPML Technology Kotak Tech Franklin Pharma UTI Pharma & Healthcare Magnum IT Prudential ICICI FMCG Prudential ICICI Technology Magnum Pharma Reliance Banking

Sector FMCG TECH. FMCG TECH. TECH. TECH. TECH PHARMA PHARMA TECH. FMCG TECH. PHARMA BANKING

Standard Deviation 6.19 6.41 6.54 6.58 6.75 6.75 6.89 6.96 7.12 7.30 7.31 7.59 7.87 7.90

TABLE 4: Fund ranking on the basis of Sharp Ratio

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Sr. No.

Scheme Name S&P CNX NIFTY

Sector

Sharp Ratio 5.8077

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Birla Sunlife new millennium DSPML Technology Franklin InfoTech. Prudential ICICI FMCG Magnum IT UTI Software Magnum Pharma Franklin FMCG Prudential ICICI Technology Magnum FMCG Kotak Franklin Pharma Reliance Banking UTI Pharma & Healthcare

TECH TECH. TECH. FMCG. TECH. TECH. PHARMA FMCG TECH. FMCG TECH. PHARMA BANKING PHARMA

.50 .49 .49 .49 .48 .48 .47 .44 .43 .42 .40 .32 .31 .29

Table 5:- Fund ranking on the basis of Beta and R-square
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Sr. No.

Scheme Name S&P CNX NIFTY

Sector TECH TECH TECH PHARMA PHARMA TECH PHARMA TECH TECH TECH BANKING FMCG FMCG FMCG

Beta 1.0000 .92 .92 .90 .89 .89 .87 .86 .84 .84 .81 .73 .72 .71 .61

R2
1.0000 .96 .89 .75 .78 .95 .91 .94 .60 .76 .72 .76 .57 .77 .52

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Franklin InfoTech Kotak Tech Magnum IT Magnum Pharma UTI Pharma & Healthcare UTI Software Franklin Pharma Prudential ICICI Tech DSPML Technology Birla Sunlife New Millennium Reliance Banking Prudential ICICI FMCG Franklin FMCG Magnum FMCG

OBSERVATIONS AND INFERENCES
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Total Risk (Standard Deviation) All 14 funds are having high standard deviation as compared to market. It is between 6 to 8 for all sectoral funds qualified. Franklin FMCG and UTI Software are the best among all with standard deviation of 6.19 and 6.41 Reliance banking and Magnum Pharma are bad performers among all with standard deviation of 7.90 and 7.87. Systematic Risk(Beta) and Coefficient of Determination( R 2 ) None of the schemes have beta greater than 1(i.e. market beta) suggesting that all these funds were holding a portfolio which was less risky as compared with the market portfolio. Still they have generated returns greater than the benchmark index’s rate of return. This shows a good performance. Avg. beta for the group works out to .82214 and 9 schemes have beta value greater than this. 3 schemes have beta greater than 0.9 making them riskier in the group but still lesser risky than market portfolio. Franklin Infotech and Kotak tech have performed well on this parameter. They both were having beta as .92. But Franklin Infotech is having greater ( R 2 ) Kotak tech i.e. Franklin is having .96 where as Kotak’s ( R 2 ) is .89 FMCG sector has performed worst in this parameter. Magnum FMCG, Franklin FMCG, Prudential ICICI FMCG have performed badly. Their ( R 2 ) is .52,.77,.57 respectively. This shows that apart from these schemes having higher risk as inferred previously by the high values of standard deviation of their returns, they show a low value of data implying that the variations in their returns are largely not explainable by the variations in the market returns.

Limitation of study
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1. The analysis is based on historical data and thus indicates the past performance which may not always be indicative of the future performance. 2. Different schemes consider different market indices as their benchmarks, but for the purpose of uniformity in the study all schemes have to be compared against same benchmark index. 3. Weekly NAVs have been considered for the study. Daily NAVs would have given more precise result fop the study.
4. Sharpe ratio (in its simplest forms) that the relationship

between risk and return is linear and remain linear throughout its entire range. Various research works conducted in this regard show that the relationship is not as simple as Capital Market theory would suggest. This is an inherent weakness of capital Asset Pricing Model.
5. The time period considered by the study is only three years; a

larger period could have ensured coverage of a full market cycle, thus giving a more real picture of the performance of the schemes.

Conclusion
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Good Performers. Following 6 schemes have scored well on all parameters. 1. Franklin Infotech 2. UTI Software 3. Birla Sunlife 4. Franklin FMCG 5. DSPML Technology 6. Kotak Tech Technology sector is the best performer among all the compared sectors. Non Performers Our schemes which can be identified as non performing on the basis of the parameters considered in the study are :1. Prudential ICICI Tech. 2. Reliance Banking 3. Magnum FMCG 4. Prudential ICICI-FMCG 5. Franklin Pharma\ 6. UTI Pharma.

RECOMMENDATIONS
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1. Technology sectoral funds have performed well on all

parameters, hence it is good bet for investments. 2. FMCG and Pharma are avg. performers. Still they can be good for long run. 3. In Banking Sector Reliance was only fund which qualified but it was worst performer in all parameters.
4. Karvy should keep Mutual Fund Awareness Programme’s

on regular basis for investors and clients as future belongs to mutual fund in India specially Sectoral Mutual Funds.

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BIBLIOGRAPHY

 www.njindiainvest.com

 www.moneycontrol.com  www.amfiindia.com  www.karvy.com  MUTUAL FUND PRODUCT AND SERVICES---- TAXMAN  AMFI COURSE BOOK  www.valueresearch.com

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