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comparative study on mutual fund
1. A
PROJECT REPORT
On
“Comparatives Study Between Top 5 Mutual Funds offered in
Motilal Oswal Securities Ltd.’’
A Dissertation submitted to
(Session 2008-10)
Submitted by:
CHITRANJAN I. BIRANWAR
PGDM, MBA
ROLL NO 8214
Academic Guide : Corporate Guide:
Prof.Meghendra Gajpal Ms Sheela Kathane
KOHINOOR BUSINESS SCHOOL
KHANDALA
(Affiliated to AICTE and YCMOU University)
1
2. TABLE OF CONTENTS
Introduction to Mutual Funds 4
Mutual Funds Industry Phases 21
Company Profile 24
Research Methodology 30
Introduction of AMCs 32
Performance Measures of Mutual Funds 36
Limitations of the study 46
Suggestions 47
Conclusion 47
References 49
Annexure 50
2
3. ACKNOWLEDGMENT
“Knowledge is an experience gained in life, it is the choicest
possession, which should not be shelved but should be happily shared with
others”.
I express my gratitude to my corporat guide Ms.Sheela Kathane and
Faculty guide Pro.Meghendra Gajpal, KOHINOOR BUSINESS SCHOOL
for their valuable critiques, assistance and encouragement, which enabled
me to carry on the project successfully. They gave me a wonderful
opportunity to work on this project. Their time-to-time guidance and
incessant support helped me to broaden my outlook on the project I am
highly obliged for their support throughout the Training.
I would like to thanks to all for give their valuable inputs and time.
3
4. Introduction to 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 appreciations realized are 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.
A Mutual Fund is a body corporate registered with the Securities and Exchange Board
of India (SEBI) that pools up the money from individual/corporate investors and invests
the same on behalf of the investors/unit holders, in Equity shares, Government
securities, Bonds, Call Money Markets etc, and distributes the profits. In the other
words, a Mutual Fund allows investors to indirectly take a position in a basket of assets.
Mutual Fund is a mechanism for pooling the resources by issuing units to the investors
and investing funds in securities in accordance with objectives as disclosed in offer
4
5. document. Investments in securities are spread among a wide cross-section of industries
and sectors thus the risk is reduced. Diversification reduces the risk because all stocks
may not move in the same direction in the same proportion at same time. Investors of
mutual funds are known as unit holders.
The investors in proportion to their investments share the profits or losses. The mutual
funds normally come out with a number of schemes with different investment
objectives which are launched from time to time. A Mutual Fund is required to be
registered with Securities Exchange Board of India (SEBI) which regulates securities
markets before it can collect funds from the public.
ORGANISATION OF A MUTUAL FUND:
There are many entities involved and the diagram below illustrates the organizational
set up of a Mutual Fund:
(For detailed definitions in the above chart refer to annexure 1)
Mutual Funds diversify their risk by holding a portfolio of instead of only one asset.
This is because by holding all your money in just one asset, the entire fortunes of your
portfolio depend on this one asset. By creating a portfolio of a variety of assets, this risk
is substantially reduced.
5
6. Mutual Fund investments are not totally risk free. In fact, investing in Mutual Funds
contains the same risk as investing in the markets, the only difference being that due to
professional management of funds the controllable risks are substantially reduced. A
very important risk involved in Mutual Fund investments is the market risk. However,
the company specific risks are largely eliminated due to professional fund management.
IMPORTANT CHARACTERISTICS OF A MUTUAL FUND
• A Mutual Fund actually belongs to the investors who have pooled their
Funds. The ownership of the mutual fund is in the hands of the Investors.
• A Mutual Fund is managed by investment professional and other
Service providers, who earns a fee for their services, from the funds.
• The pool of Funds is invested in a portfolio of marketable investments.
• The value of the portfolio is updated every day.
• The investor’s share in the fund is denominated by “units”. The value
of the units changes with change in the portfolio value, every day. The
Value of one unit of investment is called net asset value (NAV).
• The investment portfolio of the mutual fund is created according to The stated
Investment objectives of the Fund.
OBJECTIVES OF A MUTUAL FUND:
• To Provide an opportunity for lower income groups to acquire without
Much difficulty, property in the form of shares.
• To Cater mainly of the need of individual investors, whose means are small?
• To Manage investors portfolio that provides regular income, growth,
Safety, liquidity, tax advantage, professional management and diversification.
6
7. ADVANTAGES OF MUTUAL FUNDS:
• Reduced Risk.
• Diversified investment.
• Botheration free investment.
• Revolving type of investment (Reinvestment).
• Selection and timings of investment.
• Wide investment opportunities.
• Investments care.
• Tax benefits.
STRUCTURE OF A MUTUAL FUND
Sponsor
Mutual
fund
Trustee
s
ASSET
MANAGEMENT
COMPANY
Custodia
n
Registra
r
7
8. INVESTORS PROFILE:
An investor normally prioritizes his investment needs before undertaking an
investment. So different goals will be allocated to 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. One can avail of the
benefits of better returns with added benefits of anytime liquidity by investing in open-
ended debt funds at lower risk, this risk of default by any company that one has chosen
to invest in, can be minimized by investing in Mutual Funds as the fund managers
analyze the companies financials more minutely than an individual can do as they have
the expertise to do so.
Moving up the risk spectrum, there are people who would like to take some risk and
invest in equity funds/capital market. However, since their appetite for risk is also
limited, they would rather have some exposure to debt as well. For these investors,
balanced funds provide an easy route of investment, armed with expertise of investment
techniques, they can invest in equity as well as good quality debt thereby reducing risks
and providing the investor with better returns than he could otherwise manage. Since
they can reshuffle their portfolio as per market conditions, they are likely to generate
moderate returns even in pessimistic market conditions.
Next comes the risk takers, risk takers by their nature, would not be averse to investing
in high-risk avenues. Capital markets find their fancy more often than not,
because they have historically generated better returns than any other avenue,
provided, the money was judiciously invested. Though the risk associated is
generally on the higher side of the spectrum, the return-potential compensates for
the risk attached.
8
9. TYPES OF MUTUAL FUNDS:
1. OPEN-ENDED MUTUAL FUNDS:-
The holders of the shares in the Fund can resell them to the issuing Mutual Fund
company at the time. They receive in turn the net assets value (NAV) of the shares at
the time of re-sale. Such Mutual Fund Companies place their funds in the secondary
securities market. They do not participate in new issue market as do pension funds or
life insurance companies. Thus they influence market price of corporate securities.
Open-end investment companies can sell an unlimited number of Shares and thus keep
going larger. The open-end Mutual Fund Company Buys or sells their shares. These
companies sell new shares NAV plus a Loading or management fees and redeem shares
at NAV.In other words, the target amount and the period both are indefinite in such
funds
2. CLOSED-ENDED MUTUAL FUNDS:-
A closed–end Fund is open for sale to investors for a specific period, after which
further sales are closed. Any further transaction for buying the units or repurchasing
them, Happen in the secondary markets, where closed end Funds are listed. Therefore
new investors buy from the existing investors, and existing investors can liquidate their
units by selling them to other willing buyers. In a closed end Funds, thus the pool of
Funds can technically be kept constant. The asset management company (AMC)
however, can buy out the units from the investors, in the secondary markets, thus
reducing the amount of funds held by outside investors. The price at which units can be
sold or redeemed Depends on the market prices, which are fundamentally linked to the
NAV. Investors in closed end Funds receive either certificates or Depository receipts,
for their holdings in a closed end mutual Fund.
ORGANISATION AND MANAGEMENT OF MUTUAL FUNDS:-
In India Mutual Fund usually formed as trusts, three parties are generally involved viz.
• Settler of the trust or the sponsoring organization.
9
10. • The trust formed under the Indian trust act, 1982 or the trust company
registered under the Indian companies act, 1956
• Fund mangers or The merchant-banking unit
• Custodians.
MUTUAL FUNDS TRUST:-
Mutual fund trust is created by the sponsors under the Indian trust act, 1982
Which is the main body in the creation of Mutual Fund trust
The main functions of Mutual Fund trust are as follows:
♦ Planning and formulating Mutual Funds schemes.
♦ Seeking SEBI’s approval and authorization to these schemes.
♦ Marketing the schemes for public subscription.
♦ Seeking RBI approval in case NRI’s subscription to Mutual Fund is Invited
♦ Attending to trusteeship function. This function as per guidelines can be
assigned to separately established trust companies too. Trustees are required to
submit a consolidated report six monthly to SEBI to ensure that the guidelines
are fully being complied with trusted are also required to submit an annual
report to the investors in the fund.
FUND MANAGERS (OR) THE ASSES MANAGEMENT COMPANY
(AMC)
AMC has to discharge mainly three functions as under:
I. Taking investment decisions and making investments of the funds through
market dealer/brokers in the secondary market securities or directly in the
primary capital market or money market instruments
II. Realize fund position by taking account of all receivables and realizations,
moving corporate actions involving declaration of dividends,etc to compensate
investors for their investments in units; and
10
11. III. Maintaining proper accounting and information for pricing the units and arriving
at net asset value (NAV), the information about the listed schemes and the
transactions of units in the secondary market. AMC has to feed back the trustees
about its fund management operations and has to maintain a perfect information
system.
CUSTODIANS OF MUTUAL FUNDS:-
Mutual funds run by the subsidiaries of the nationalized banks had their respective
sponsor banks as custodians like canara bank, SBI, PNB, etc. Foreign banks with
higher degree of automation in handling the securities have assumed the role of
custodians for mutual funds. With the establishment of stock Holding Corporation
of India the work of custodian for mutual funds is now being handled by it for
various mutual funds. Besides, industrial investment trust company acts as sub-
custodian for stock Holding Corporation of India for domestic schemes of UTI,
BOI MF, LIC MF, etc
Fee structure:-
Custodian charges range between 0.15% to 0.20% on the net value of the
customer’s holding for custodian services space is one important factor which has
fixed cost element.
RESPONSIBILITY OF CUSTODIANS:-
♦ Receipt and delivery of securities
♦ Holding of securities.
♦ Collecting income
♦ Holding and processing cost
♦ Corporate actions etc
11
12. FUNCTIONS OF CUSTODIANS:-
♦ Safe custody
♦ Trade settlement
♦ Corporate action
♦ Transfer agents
RATE OF RETURN ON MUTUAL FUNDS:-
An investor in mutual fund earns return from two sources:
♦ Income from dividend paid by the mutual fund.
♦ Capital gains arising out of selling the units at a price higher than the
acquisition price
Formation and regulations:
1. Mutual funds are to be established in the form of trusts under the Indian trusts
act and are to be operated by separate asset management companies (AMC s)
2. AMC’s shall have a minimum Net worth of Rs. 5 crores;
3. AMC’s and Trustees of Mutual Funds are to be two separate legal entities and
that an AMC or its affiliate cannot act as a manager in any other fund;
4. Mutual funds dealing exclusively with money market instruments are to be
regulated by the Reserve Bank Of India
5. Mutual fund dealing primarily in the capital market and also partly money
market instruments are to be regulated by the Securities Exchange Board Of
India (SEBI)
6. All schemes floated by Mutual funds are to be registered with SEBI
Schemes:-
1. Mutual funds are allowed to start and operate both closed-end and open-end
schemes;
2. Each closed-end schemes must have a Minimum corpus (pooling up) of Rs 20
crore;
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13. 3. Each open-end scheme must have a Minimum corpus of Rs 50 crore
4. In the case of a Closed –End scheme if the Minimum amount of Rs 20 crore
or 60% of the target amount, which ever is higher is not raised then the entire
subscription has to be refunded to the investors;
5. In the case of an Open-Ended schemes, if the Minimum amount of Rs 50 crore
or 60 percent of the targeted amount, which ever is higher, is no raised then
the entire subscription has to be refunded to the investors.
Investment norms:-
1. No mutual fund, under all its schemes can own more than five percent of any
company’s paid up capital carrying voting rights;
2. No mutual fund, under all its schemes taken together can invest more than 10
percent of its funds in shares or debentures or other instruments of any single
company;
3. No mutual fund, under all its schemes taken together can invest more than 15
percent of its fund in the shares and debentures of any specific industry, except
those schemes which are specifically floated for investment in one or more
specified industries in respect to which a declaration has been made in the offer
letter.
4. No individual scheme of mutual funds can invest more than five percent of its
corpus in any one company’s share;
5. Mutual funds can invest only in transferable securities either in the money or in
the capital market. Privately placed debentures, securitized debt, and other
unquoted debt, and other unquoted debt instruments holding cannot exceed 10
percent in the case of growth funds and 40 percent in the case of income funds.
Distribution:
Mutual funds are required to distribute at least 90 percent of their profits annually in
any given year. Besides these, there are guidelines governing the operations of mutual
funds in dealing with shares and also seeking to ensure greater investor protection
through detailed disclosure and reporting by the mutual funds. SEBI has also been
13
14. granted with powers to over see the constitution as well as the operations of mutual
funds, including a common advertising code. Besides, SEBI can impose penalties on
Mutual funds after due investigation for their failure to comply with the guidelines.
MUTUAL FUND SCHEME TYPES:
Equity Diversified Schemes
These schemes mainly invest in equity. They seek to achieve long-term capital
appreciation by responding to the dynamically changing Indian economy by moving
across sectors such as Lifestyle, Pharma, Cyclical, Technology, etc.
♦ Sector Schemes
These schemes focus on particular sector as IT, Banking, etc. They seek to generate
long-term capital appreciation by investing in equity and related securities of
companies in that particular sector.
♦ Index Schemes
These schemes aim to provide returns that closely correspond to the return of a
particular stock market index such as BSE Sensex, NSE Nifty, etc. Such schemes invest
in all the stocks comprising the index in approximately the same weightage as they are
given in that index.
♦ Exchange Traded Funds (ETFs)
ETFs invest in stocks underlying a particular stock index like NSE Nifty or BSE
Sensex. They are similar to an index fund with one crucial difference. ETFs are listed
and traded on a stock exchange. In contrast, an index fund is bought and sold by the
fund and its distributors.
♦ Equity Tax Saving Schemes
14
15. These work on similar lines as diversified equity funds and seek to achieve long-term
capital appreciation by investing in the entire universe of stocks. The only difference
between these funds and equity-diversified funds is that they demand a lock-in of 3
years to gain tax benefits.
♦ Dynamic Funds
These schemes alter their exposure to different asset classes based on the market
scenario. Such funds typically try to book profits when the markets are overvalued and
remain fully invested in equities when the markets are undervalued. This is suitable for
investors who find it difficult to decide when to quit from equity.
♦ Balanced Schemes
These schemes seek to achieve long-term capital appreciation with stability of
investment and current income from a balanced portfolio of high quality equity and
fixed-income securities.
♦ Medium-Term Debt Schemes
These schemes have a portfolio of debt and money market instruments where the
average maturity of the underlying portfolio is in the range of five to seven years.
♦ Short-Term Debt Schemes
These schemes have a portfolio of debt and money market instruments where the
average maturity of the underlying portfolio is in the range of one to two years.
♦ Money Market Debt Schemes
These schemes invest in debt securities of a short-term nature, which generally means
securities of less than one-year maturity. The typical short-term interest-bearing
instruments these funds invest in Treasury Bills, Certificates of Deposit, Commercial
Paper and Inter-Bank Call Money Market.
♦ Medium-Term Gilt Schemes
15
16. These schemes invest in government securities. The average maturity of the securities
in the scheme is over three years.
♦ Short-Term Gilt Schemes
These schemes invest in government securities. The securities invested in are of short to
medium term maturities.
♦ Floating Rate Funds
They invest in debt securities with floating interest rates, which are generally linked to
some benchmark rate like MIBOR. Floating rate funds have a high relevance when
interest rates are on the rise helping investors to ride the interest rate rise.
♦ Monthly Income Plans (MIPS)
These are basically debt schemes, which make marginal investments in the range of 10-
25% in equity to boost the scheme’s returns. MIP schemes are ideal for investors who
seek slightly higher return that pure long-term debt schemes at marginally higher risk.
DIFFERENT MODES OF RECEIVING THE INCOME EARNED
FROM MUTUAL FUND INVESTMENTS
Mutual Funds offer three methods of receiving income:
♦ Growth Plan
In this plan, dividend is neither declared nor paid out to the investor but is built into the
value of the NAV. In other words, the NAV increases over time due to such incomes
and the investor realizes only the capital appreciation on redemption of his investment.
♦ Income Plan
16
17. In this plan, dividends are paid-out to the investor. In other words, the NAV only
reflects the capital appreciation or depreciation in market price of the underlying
portfolio.
♦ Dividend Re-investment Plan
In this case, dividend is declared but not paid out to the investor, instead, it is
reinvested back into the scheme at the then prevailing NAV. In other words, the
investor is given additional units and not cash as dividend.
MUTUAL FUND INVESTING STRATEGIES:
1. Systematic Investment Plans (SIPs)
These are best suited for young people who have started their careers and need to build
their wealth. SIPs entail an investor to invest a fixed sum of money at regular intervals
in the Mutual fund scheme the investor has chosen, an investor opting for SIP in xyz
Mutual Fund scheme will need to invest a certain sum on money every
month/quarter/half-year in the scheme.
2. Systematic Withdrawal Plans (SWPs)
These plans are best suited for people nearing retirement. In these plans, an investor
invests in a mutual fund scheme and is allowed to withdraw a fixed sum of money at
regular intervals to take care of his expenses
3. Systematic Transfer Plans (STPs)
They allow the investor to transfer on a periodic basis a specified amount from one
scheme to another within the same fund family – meaning two schemes belonging to
the same mutual fund. A transfer will be treated as redemption of units from the scheme
from which the transfer is made. Such redemption or investment will be at the
applicable NAV. This service allows the investor to manage his investments actively to
achieve his objectives. Many funds do not even charge any transaction fees for his
service – an added advantage for the active investor.
17
18. ADVANTAGES OF INVESTING TRHOURGH MUTUAL FUNDS:
There are several reasons that can be attributed to the growing popularity and suitability
of Mutual Funds as an investment vehicle especially for retail investors:
.
• DIVERSIFICATION
Diversification is spreading your investment amount over a larger number of
investments in order to reduce risk. For instance, if you have Rs.10,000 to invest in
Information Technology (IT) stocks, this amount will only buy you a handful of
stocks of perhaps one or two companies. A fall in the market price of any of these
company stocks will significantly erode your investment amount instead it makes
sense to invest in an IT sector mutual fund scheme so that your Rs.10,000 is spread
across a larger number of stocks thereby reducing your risk.
• PROFESSIONALS AT WORK
Few investors have the time or expertise to manage their personal investments every
day, to efficiently reinvest interest or dividend income, or to investigate the
thousands of securities available in the financial markets. Fund managers are
professionals and experienced in tracking the finance markets, having access to
extensive research and market information, which enables them to decide which
securities to buy and sell for the fund. For an individual investor like you, this
professionalism is built in when you invest in the Mutual Fund.
• REDUCTION OF TRANSACTION COSTS
While investing directly in securities, all the costs of investing such as brokerage,
custodial services etc. Borne by you are at the highest rates due to small transaction
sizes. However, when going through a fund, you have the benefit of economies of
18
19. scale; the fund pays lesser costs because of larger volumes, a benefit passed on to its
investors like you.
• EASY ACCESS TO YOUR MONEY
This is one of the most important benefits of a Mutual Fund. Often you hold shares
or bonds that you cannot directly, easily and quickly sell. In such situations, it could
take several days or even longer before you are able to liquidate his Mutual Fund
investment by selling the units to the fund itself and receive his money within 3
working days.
• TRANSPARENCY
The investor gets regular information on the value of his investment in addition to
disclosure on the specific investments made by the fund, the proportion invested in
each class of assets and the fund manager’s investment strategy and outlook.
• SAVING TAXES
Tax saving schemes of Mutual Funds offer investor a tax rebate under section 88 of
the Income Tax Act. Under this section, an investor can invest up to Rs.10,000 per
Financial year in a tax saving scheme. The rate of rebate under this section depends
on the investor’s total income.
• INVESTING IN STOCK MARKET INDEX
Index schemes of mutual funds give you the opportunity of investing in scrips that
make up a particular index in the same proportion of weightage that these scrips
have in the index. Thus, the return on your investment mirrors the movement of the
index.
• INVESTING IN GOVERNMENT SECURITIES
19
20. Gilt and Money Market Schemes of Mutual Funds also give you the opportunity to
invest in Government Securities and Money Markets (including the inter banking
call money market)
• WELL-REGULATED INDUSTRY
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.
• CONVENIENCE AND FLEXIBILITY
Mutual Funds offer their investors a number of facilities such as inter-fund transfers,
online checking of holding status etc, which direct investments don’t offer.
RISKS ASSOCIATED WITH MUTUAL FUNDS:-
Investing in Mutual Funds, as with any security, does not come without risk. One of the
most basic economic principles is that risk and reward are directly correlated. In other
words, the greater the potential risk the greater the potential return. The types of risk
commonly associated with Mutual Funds are:
1) MARKET RISK
Market risk relates to the market value of a security in the future. Market prices
fluctuate and are susceptible to economic and financial trends, supply and demand, and
many other factors that cannot be precisely predicted or controlled.
2) POLITICAL RISK
Changes in the tax laws, trade regulations, administered prices, etc are some of the
many political factors that create market risk. Although collectively, as citizens, we
have indirect control through the power of our vote individually, as investors, we have
virtually no control.
3) INFLATION RISK
20
21. Interest rate risk relates to future changes in interest rates. For instance, if an investor
invests in a long-term debt Mutual Fund scheme and interest rates increase, the NAV of
the scheme will fall because the scheme will be end up holding debt offering lower
interest rates.
4) BUSINESS RISK
Business risk is the uncertainty concerning the future existence, stability, and
profitability of the issuer of the security. Business risk is inherent in all business
ventures. The future financial stability of a company cannot be predicted or guaranteed,
nor can the price of its securities. Adverse changes in business circumstances will
reduce the market price of the company’s equity resulting in proportionate fall in the
NAV of the Mutual Fund scheme, which has invested in the equity of such a company.
5) ECONOMIC RISK
Economic risk involves uncertainty in the economy, which, in turn, can have an adverse
effect on a company’s business. For instance, if monsoons fail in a year, equity stocks
of agriculture-based companies will fall and NAVs of Mutual Funds, which have
invested in such stocks, will fall proportionately.
MUTUAL FUND INDUSTRY PHASES
The Mutual Fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the Government of India and Reserve Bank of India. The
History of Mutual Funds in India can be broadly divided into four distinct phases.
• First Phase –(1964-87)
Unit Trust of India (UTI) was established on 1963 by an act of parliament. It was set up
by 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
21
22. 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 June 1989 while GIC had set up its
Mutual Fund in December 1990.
At the end of 1993, the Mutual Fund industry had assets under management of
Rs.47,004 crores.
• Third Phase-1993-2003 (Entry of Private Sector funds)
With the entry of private sector funds in 1993, a new era started in the Indian Mutual
Fund industry, giving the Indian investors a wider choice of fund families. Also, 1993
was the year in which the first Mutual Fund Regulations came into being, under which
all Mutual Funds, except UTI were to be registered and governed. The erstwhile
Kothari pioneer (now merged with 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.
22
23. 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. 76,000crores of assets under management
and with the setting up of a UTI Mutual Fund, confirming 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 October 31, 2003, there were 31 funds, which manage assets of Rs.1,
26,726crores under 386 schemes.
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25. COMPANY PROFILE
Company Profile of Motilal Oswal
Motilal Oswal Securities Ltd. (MOSL) is a leading
research and advisory based stock broking house of India, with a dominant position in
both institutional equities and wealth management. Motilal Oswal Financial Services is a
well diversified financial services group having businesses in securities, commodities,
investment banking and venture capital. With 1300 business locations and more than
3,85,000 customers in over 425 cities, Motilal Oswal is well suited to handle all your
wealth creation and wealth management needs. The company has in the last year placed
9.48% with two leading private equity investors - New Vernon Private Equity Limited
and Bessemer Venture Partners at post money company valuation of Rs. 1345 crore.
25
26. The organization finds its strength in its team of young, talented and confident
individuals. Qualified professionals carry out different functions under the able
leadership of its promoters, Mr. Motilal Oswal and Mr. Raamdeo Agrawal. Stringent
employee selection process, focus on continuous training and adoption of best
management practices drive the quest to achieving our Core Purpose and Values.
The Team of Motilal Oswal provides full fledged support to client's through
• Deal Advisory
• Valuation support
• Due diligence
• Implementation support
The Approach is characterized by High quality financial advice resulting in
outstanding execution through:
• Understanding client's businesses and needs and associated risk implications
• Adding value in valuation assumptions, structuring, negotiating, and
• Long term commitment and strong relationships
26
27. Research is the solid foundation on which Motilal Oswal Securities advice is based. Almost 10% of
revenue is invested on equity research and we hire and train the best resources to become advisors. At
present we have 24 equity analysts researching over 26 sectors. From a fundamental, technical and
derivatives research perspective; Motilal Oswal's research reports have received wide coverage in the
media (over a 1000 mentions last year).Motilal Oswal Securities has witnessed rapid organic growth
due to favorable market conditions as well as efforts put in by the company itself.
Board Of Directors
Chairman and Managing Director:- Motilal Oswal
Non-Executive Director:-Ramdeo Agrawal
Non-Executive Director:-Navin Agrawal
27
28. There are 8 products of Motilal Oswal’s and they are:
1) Equities:- Equity Research is an inherent strength of MOSL. They believe in picking investment
horizon, life stage, and return expectation and investment objectives. These are the some of the ways
through which they give suggestions to their clients and they are:-
a)Client profiling:- Profiling takes into consideration issues like your attitude towards risk, investment
horizon, life stage, and return expectation and investment objectives.
b) Investments & Trading:- MOSL Equity Advisor are experts in providing value based investment
solutions as well as advising you in positional trading, as per your profile.
c) Portfolio Tracking Software:- Your equity portfolio is continuously monitored using portfolio
tracking software.
d) Integrated Approach:- In this there is a combination of cash, derivatives and other leverage
products to help to reach investment goals.
e) Minimum requirements and fees structure:-portfolio size should be 2 lakh plus and fees structure
varies from case to case.
2) Derivatives:-Derivatives instrument provide good leverage opportunity, it is a great tool for
speculation. Their equity advisor will help to maximize your gains from existing corpus.
3) Online trading(e-Broking):- My broker is a single-screen cash and derivatives terminal with online
research-based advice. During the day they will send our Intra-day and delivery calls to help you to
take informed investment decisions.
4)IPO:-Book building and Fixed Price issue are the two types of Initial Public Offerings(IPO) through
which corporate can raise money in the capital market.
Book building public issue the bids are received at different price levels and the demand for the issue is
built up over a period of time. Fixed price issue the issue price is pre ascertained by the issuer.
28
29. 5) Portfolio Management Services:- MOSt PMS help to earn the returns of equities, with maximum
ease and comfort. They offer different approaches to managing your investments.
• Value Portfolio
• Bull’s Eye portfolio
• Next Trillion Dollar Opportunity portfolio
6) Mutual Funds:-It is one of the safest, easiest and convenient ways of successful investment making.
Services offered:-
a) Need based advisory fully backed with solid research.
b) Dedicated mutual fund advisors to understand your needs and building a prudent portfolio.
c) Monthly review of portfolios.
d)monthly fact-sheet covering our analysis of various funds.
e)Knowledge sharing through educational seminars and workshops.
7) Commodities:-Motilal oswal commodities Broker Private Limited (MOCB) offers you an excellent
opportunity to take calls on the movement of prices of commodities traded commodities are global in
nature, les volatile and as liquid as equities thereby allowing you to achieve portfolio diversification.
Tradable Commodities
Precious Metals (Gold, Silver)
Base Metals (Copper and Zinc)
Energy (Crude Oil and Natural Gas)
Grains (Wheat)
Spices (Red Chilli, Cardamom, Jeera, Black Pepper, Turmeric)
Pulses (Chana, Urad, Tur)
Oil Ref. Soya Oil, Mentha Oil, RBD Palm Olien
Others Gaur Seed, Potato, Sugar, Maize, Castor seed, Gaur gum
29
30. 8) Depository Services:-MOSL Depository offers MODES-a DEMAT account linked to the MOSt
Trading account. In the times of T+2 having a demat account linked to your trading account becomes
very convenient.
MOSt efficient centralized depository assures you receive innovative value added reports with
sectorised portfolio break-up and an efficient service at all times (online as well as offline). MOSt is a
member of both NSDL and CDSL and the service is available at all our outlets in India. Non-trading
members also can avail of MODES.
PERFORMANCE MEASURES OF MUTUAL FUNDS:
The most important and widely used measures of performance are:
• NAV Trends
• Funds fact
• Returns
• Risk
• Portfolio Structure
RESEARCH METHODOLOGY
The Methodology involves randomly selecting Open-Ended equity diversified schemes
of different fund houses of the country. The data collected for this project is basically
from two sources, they are:-
1. Primary sources: The monthly fact sheets of different fund houses and research
reports from banks.
2. Secondary sources: Collection of data from Internet and Books.
30
31. HYPOTHESIS
The Hypothesis of the study involves Comparison between following mutual funds that
we offered in motilal oswal securities ltd. Nagpur
1. SBI Magnum Global Fund-94
2. Reliance Growth Fund
3. Birla SunLife Equity Fund
4. HDFC Top-200
5. ICICI Prudential Dynamic Plan-Growth
NEED OF THE STUDY:
The project’s idea is to project Mutual Fund as a better avenue for investment on a
long-term or short-term basis. Mutual Fund is a productive package for a lay-investor
with limited finances, this project creates an awareness that the Mutual Fund is a
worthy investment practice. Mutual Fund is a globally proven instrument.
The driving force of Mutual Funds is the ‘safety of the principal’ guaranteed, plus the
added advantage of capital appreciation together with the income earned in the form of
interest or dividend. The various schemes of Mutual Funds provide the investor with a
wide range of investment options according to his risk bearing capacities and interest
besides; they also give handy return to the investor. Mutual Funds offers an investor to
invest even a small amount of money, each Mutual Fund has a defined investment
objective and strategy. Mutual Funds schemes are managed by respective asset
managed companies sponsored by financial institutions, banks, private companies or
international firms. A Mutual Fund is the ideal investment vehicle for today’s complex
and modern financial scenario.
The study is basically made to analyze the various open-ended equity diversifies
schemes of different Asset Management Companies to highlight the diversity of
investment that Mutual Fund offer. Thus, through the study one would understand how
31
32. a common man could fruitfully convert a pittance into great penny by wisely investing
into the right scheme according to his risk taking abilities.
SCOPE:
The study here has been limited to analyse open-ended equity diversified Growth
schemes of different Asset Management Companies namely SBI Mutual Fund,
Reliance Mutual Fund, HDFC Mutual Fund, Birla Mutual Fund, ICICI Mutual
Fund are analysed according to its performance against the other, based on factors like
NAV Trend, Sharpe’s Ratio, Treynor’s Ratio, β (Beta) Co-efficient, Returns
Portfolio structure.
OBJECTIVES:
1. To project Mutual Fund as the ‘productive avenue’ for investing activities.
2. To show the wide range of investment options available in Mutual Funds by
explaining its various schemes.
3. To compare the schemes based on different parameters and show which
scheme is best for the investor based on his risk profile.
4. To help an investor make a right choice of investment, while considering the
inherent risk factors.
5. To understand the recent trends in Mutual Funds world.
The comparison between these schemes is made based on the following factors.
A) NAV(Net asset value)
B) Fund fact
C) Portfolio structure
Portfolio attributes
Style box
32
33. Sector allocation
Assets allocation
D) Returns
E) Risk
Sharpe’s Ratio
Treynor’s Ratio
Fama model
β (Beta) co-efficient.
INTRODUCTION OF ASSET MANAGEMENT COMPANIES
33
34. HDFC Asset Management Company Limited (AMC)
HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies
Act, 1956, on December 10, 1999, and was approved to act as an Asset
Management Company for the HDFC Mutual Fund by SEBI vide its letter dated
July 3, 2000.
The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T.
Parekh Marg, 169, Backbay Reclamation, Churchgate, Mumbai - 400 020.
In terms of the Investment Management Agreement, the Trustee has appointed the
HDFC Asset Management Company Limited to manage the Mutual Fund. The
paid up capital of the AMC is Rs. 25.161 crore.
Reliance Capital Assets Management Ltd
34
35. Reliance Mutual Fund (RMF) is one of India’s leading Mutual Funds, with Average
Assets Under Management (AAUM) of Rs. 1,02,730 Crs (AAUM for 31st May 09 ) and
an investor base of over 71.30 Lacs.
"Reliance Mutual Fund schemes are managed by Reliance Capital Asset Management
Limited
Reliance Capital Ltd. is one of India’s leading and fastest growing private sector financial
services companies, and ranks among the top 3 private sector financial services and
banking companies, in terms of net worth. Reliance Capital Ltd. has interests in asset
management, life and general insurance, private equity and proprietary investments, stock
broking and other financial services.
Sponsor : Reliance Capital Limited.
Trustee : Reliance Capital Trustee Co. Limited.
Investment Manager : Reliance Capital Asset Management Limited
ICICI Prudential Asset Management Company
ICICI Prudential Asset Management Company enjoys the strong parentage of Prudential
plc, one of UK's largest players in the insurance & fund management sectors and ICICI
Bank, a well-known and trusted name in financial services in India. ICICI Prudential
Asset Management Company, in a span of just over eight years, has forged a position of
pre-eminence in the Indian Mutual Fund industry as one of the largest asset management
companies in the country with average assets under management of Rs. 65,576.64 Crore
(as of May 31, 2009). The Company manages a comprehensive range of schemes to meet
the varying investment needs of its investors spread across 230 cities in the country.
Birla Sun Life Asset Management Company
35
36. Birla Sun Life Asset Management Company Ltd. (BSLAMC), the investment managers
of Birla Sun Life Mutual Fund, is a joint venture between the Aditya Birla Group and the
Sun Life Financial Services Inc. of Canada. The joint venture brings together the Aditya
Birla Group's experience in the Indian market and Sun Life's global experience.
Since its inception in 1994, Birla Sun Life Mutual fund has emerged as one of India's
leading Mutual Funds managing assets of a large investor base. The fund offers a range
of investment options, which include diversified and sector specific equity schemes, fund
of fund schemes, hybrid and monthly income funds, a wide range of debt and treasury
products and offshore funds.
SBI Mutual Fund (SBI MF) is one of the largest mutual funds in the country with
an investor base of over 5.4 million. With over 20 years of rich experience in fund
management, SBI MF brings forward its expertise in consistently delivering value
to its investors.
SBI MF draws its strength from India's Largest Bank State Bank of India
Scheme objectives
HDFC TOP 200-growth
To generate long term capital appreciation from a portfolio of equity and equity-linked
instruments primarily drawn from the companies in BSE 200 index.
Reliance Growth-Growth
The primary investment objective of the Scheme is to achieve long-term growth of
capital by investment in equity and equity related securities through a research based
investment approach.
ICICI Prudential Dynamic plan-growth
lCICI Prudential Dynamic Plan is a diversified equity fund that could be your ideal
choice to make the most of dynamic changes in the market. It has the ability to capture
36
37. upside opportunities across value and growth, large and midcap , index and non-index
stocks. On the flip side it also has ability to move into cash as markets get overvalued.
Birla Sun life Equity Fund-growth
Birla Sun Life Equity Fund is a diversified equity fund enabling investors to capitalize on
the immense growth opportunities provided by the stock market while at the same time
minimizing the risk.
SBI Magnum Global Fund 94 – Growth
To provide the investors maximum growth opportunity through well researched
investments in Indian equities, PCDs and FCDs from selected industries with high
growth potential and Bonds.
Comparative study of Mutual funds based on different
parameter:-(Data are taken up to 8th June 2009)
NAV of Mutual funds:-
HDFC TOP 200-growth 140.26 (13yrs)
Reliance Growth-Growth 327.38 (12yrs)
ICICI Prudential Dynamic plan-growth 69.31 (7yrs)
Birla Sun life Equity Fund-growth 195.66 (11yrs)
SBI Magnum Global Fund 94 – Growth 35.97 (15yrs)
Funds facts:-
Schemes Type of
Scheme
Inception
Date
Fund Size
in Rs. Cr.
Expense
ratio(%)
Portfolio
Turnover
Ratio(%)
HDFC TOP 200-growth Open
Ended
Sep 11,
1996
3314.58 1.89 81.41
Reliance Growth-Growth Open Oct 8, 5235.33 1.83 108
37
38. Ended 1995
ICICI Prudential Dynamic plan-
growth
Open
Ended
Oct 31,
2002
1461.43 2.00 168
Birla Sun life Equity Fund-growth Open
Ended
Aug 27,
1998
950.91 2.16 188
SBI Magnum Global Fund 94 –
Growth
Open
Ended
Sep 30,
1994
1116.9
5
2.15 43
Expense Ratio:-
Expense Ratio is defined as the ratio of expenses incurred by a scheme to its Average
Weekly Net Assets. It means how much of investors money is going for expenses and
how much is getting invested. This ratio should be as low as possible.
Portfolio Turnover:-
Portfolio Turnover is the ratio which helps us to find how aggressively the portfolio is
being churned. If the fund manager churns the entire portfolio twice in a single year then
we would say that the Portfolio Turnover rate is 200% or that the portfolio is churned
once every 6 months.
PORTFOLIO:-
a)Portfolio attributes:
Scheme name P/E Dividend
Yield
Market Cap (Rs.
in crores)
No. of
Stocks
HDFC TOP 200-growth 16.75 as on
Apr – 2009
1.72 as on
Apr – 2009
52,404.75 as
on Apr - 2009
67
Reliance Growth-Growth 18.93 as on
Apr - 2009
1.52 as on
Apr – 2009
40,905.50 as
on Apr - 2009
30
ICICI Prudential Dynamic plan-
growth
16.83 as on
Apr - 2009
1.53 as on
Apr – 2009
58,697.44 as
on Apr - 2009
48
Birla Sun life Equity Fund-growth 18.07 as on
Apr - 2009
1.56 as on
Apr – 2009
74,636.62 as
on Apr - 2009
51
SBI Magnum Global Fund 94 –
Growth
11.84 as on
Apr - 2009
1.91 as on
Apr – 2009
4,135.62 as on
Apr – 2009
60
38
39. P/ E Ratio:-
P/ E Ratio stands for Price Earnings Ratio. It is also known as Price Earnings multiple.
This is a ratio of the current market price (CMP) of a share to its earning per share (EPS).
A fund which invests in stocks based upon their P/E ratios. Thus when a stock is trading
at a historically low P/E multiple, the fund will buy the stock, and when the P/E ratio is at
the upper end of the band, the scheme will sell
.
Style box:
HDFC TOP 200-growth
Reliance Growth-Growth
ICICI Prudential Dynamic plan-growth
Birla Sun life Equity Fund-growth
39
40. SBI Magnum Global Fund 94 – Growth
The idea is to classify funds based on both the size of the companies invested in and the
investment style of the manager.
The term “Value” refers to a style of investing that looks for high quality companies that
are out of favor with the market.
These companies are characterized by low P/E ratios, price-to-book ratios, and high
dividend yields, etc. the opposite of value is “Growth’’, which refers to companies that
have had (and are expected to continue to have) strong growth in earnings, sales, and
cash flow, etc.
A compromise between value and growth is “Blend,” which simply refers to companies
that are neither value nor growth stocks and so are classified as being somewhere in the
middle.
For example, a mutual fund that invests in large-cap companies who are in strong
financial shape but have recently seen their share price fall would be placed in the upper
left quadrant of the style box (large and value). The opposite of this would be a fund that
invests in startup technology companies with excellent growth prospects. Such a mutual
fund would reside in the bottom right quadrant
Sector allocation:-
HDFC TOP 200-
growth
Reliance
Growth-Growth
ICICI Prudential
Dynamic plan-
growth
Birla Sun life
Equity Fund-
growth
SBI Magnum
Global Fund 94 –
Growth
40
42. Personal Care 2.08
Pharmaceuticals
8.15
Power Generation,
Transmission &
Equip 0.67
Rubber & Tyres
0.25
Steel 1.36
Telecom 3.59
Tobacco & Pan
Masala 2.77
Transport & Travel
0.51
Refinery 6.30
Paper 1.62
Pharmaceuticals
6.13
Plastic 4.12
Power
Generation,
Transmission &
Equip 1.82
Steel 4.96
Sugar 2.47
Telecom 3.79
Trading 2.29
Pharmaceuticals
12.37
Power
Generation,
Transmission &
Equip 2.37
Rubber & Tyres
0.45
Steel 0.43
Tea 1.13
Telecom 6.37
Tobacco & Pan
Masala 2.51
Transmission &
Equip 10.94
Printing &
Stationary 0.56
Steel 1.82
Telecom 7.64
Textiles 1.90
Tobacco & Pan
Masala 2.89
1.29
Oil & Gas,
Petroleum &
Refinery 3.47
Paints 0.33
Paper 0.19
Pharmaceuticals
5.47
Plastic 2.24
Power
Generation,
Transmission &
Equip 2.15
Shipping 1.14
Steel 4.72
Telecom 2.87
Textiles 1.6
Assets allocation:-
Scheme name Equity Debt Cash & Equivalent Chart
HDFC TOP 200-
growth
96.64 0.30 3.06
Reliance Growth-
Growth
82.56 0.00 17.44
ICICI Prudential
Dynamic plan-
growth
83.76 0.00 16.24
Birla Sun life
Equity Fund-
growth
93.98 0.00 6.02
42
43. SBI Magnum
Global Fund 94 –
Growth
83.18 1.44 15.38
RISK AND RETURN:-
RETURNS-( Scheme Performance (%) as on Jun 8, 2009)
Scheme name 3 Months 6 Months 1 Year 3 Years 5 Years Since
Inception
HDFC TOP 200-
growth
75.84 61.11 6.24 22.28 30.59 23.36
Reliance Growth-
Growth
77.42 62.78 -2.94 22.85 36.10 29.06
ICICI Prudential
Dynamic plan-growth
55.01 48.82 -4.36 18.32 31.97 34.04
Birla Sun life Equity
Fund-growth
76.05 56.45 -5.62 18.68 30.08 31.74
SBI Magnum Global
Fund 94 – Growth
96.13 75.12 -17.22 7.88 31.72 10.23
Returns:- Returns of different schemes are taken for the comparison and analysis
part in (CAGR) Compounded Annual Growth Rate.
Risk-
Scheme name Sharpe ratio Treynor ratio Fama Beta(β )
HDFC TOP 200-
growth
-0.07 -0.39 0.32 0.88
Reliance Growth-
Growth
-0.14 -0.87 0.09 0.78
ICICI Prudential
Dynamic plan-
growth
-0.10 -0.61 0.11 0.80
Birla Sun life
Equity Fund-
growth
-0.13 -0.79 -0.03 0.89
SBI Magnum -0.20 -1.27 0.43 0.89
43
44. Global Fund 94 –
Growth
1) 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,
Ri represents return on fund, and
Rf is risk free rate of return.
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
2) 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.
44
45. 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.
.
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.
3) 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.
45
46. The Net Selectivity represents the stock selection skill of the fund manager, as it is the
excess returns 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,
Ri represents return on fund,
Sm is standard deviation of market returns,
Rm is average market return during the given period, and
Rf is risk free rate of return.
The Net Selectivity is then calculated by subtracting this required return from
the actual return of the fund.
Among the above performance measures, model namely; Treynor measure use
Systematic risk is 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 diversify. 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.
46
47. C) β (Beta) Co-efficient:-
Systematic risk is measured in terms of Beta, which represents fluctuations in the NAV
of the fund vis-à-vis market. The more responsive the NAV of a Mutual Fund is to the
changes in the market; higher will be its beta. Beta is calculated by relating the returns
on a Mutual Fund with the returns in the market. While unsystematic risk can be
diversified through investments in a number of instruments, systematic risk cannot. By
using the risk return relationship, we try to assess the competitive strength of the
Mutual Funds vis-à-vis one another in a better way.
β (Beta) is calculated as N (Σ XY) – Σ XΣ Y
N (Σ X2
) – (Σ X) 2
LIMITATIONS OF THE STUDY
1. The study is limited only to the analysis of different schemes and its suitability
to different investors according to their risk-taking ability.
2. The study is based on secondary data available from monthly fact sheets,
websites and other books, as primary data was not accessible.
3. The study is limited by the detailed study of various schemes of Five Asset
Management Company.
SUGGESTIONS:-
• The Asset Management Company must design the portfolio in such a way, to
increase the returns.
47
48. • The Asset Management Company must design the portfolio in such a way, to lessen
the risk that is common in the market.
• The Asset Management Company must dedicate itself, because it motivates the
investors and potential investors to invest in Mutual Funds.
• The Asset Management Company must manage the Fund efficiently and with
dedication to earn the goodwill of the public.
• The Asset Management Company must make the most advantageous use of print
and electronic media in order to motivate the investors and potential investors to
invest in Mutual Funds.
CONCLUSIONS
After interpreting the above data the following conclusions have been made
HDFC Top 200-Growth
• It is a diversified aggressive equity fund.
• It is a open-ended equity scheme
• Since the β ratio is high it implies the risk is high
• As the returns in 1 year is more in HDFC top 200 compare to other four schemes.
• It is suitable for investors looking for medium risk and moderate returns with in a
time period of 1-3 years.
• Sharper’s ratio indicates that the portfolio management in HDFC top 200 is better
than other schemes.
• Treynors ratio indicates that the portfolio management in HDFC top 200 is better
than other schemes.
48
49. Reliance Growth -Growth
• It is a diversified equity fund.
• It is a open-ended equity scheme.
• NAV is highest in reliance in 12 years from its inception compare to other
schemes.
• Reliance have largest fund size of 5235.33crore rupees among all AMCs schemes
• Its expense ratio is very low as compare to other schemes. This is good indicator
of investors’ investment.
• In Reliance Growth the returns in 3 years and 5 years are more compare to other
four AMC’s schemes.
• P/E ratio in reliance is highest as compare to other mutual funds.
• Dividend yield is lowest among all schemes.
• Market capitalization of reliance growth is lowest as compare to other mutual
funds.
• It is suitable for investors looking for medium risk and moderate returns with in a
time period of 3-5 years.
ICICI Prudential Dynamic Plan-Growth
• It is a diversified equity fund.
• It is a open-ended equity scheme
• It is newest scheme of 7 year from its inception among the other schemes.
• In the ICICI Prudential Dynamic Plan returns in 3 and 6 months and from
inception are lower compare to other four AMC’s schemes.
• Since the β ratio is high it implies the risk is high
• In ICICI Prudential Dynamic Plan the returns are low in 3 months and 6 month
and from inception it is high as compare to other AMC’s schemes.
49
50. Birla Sun life Equity Fund-growth
• It is a diversified equity fund.
• It is a open-ended equity scheme
• Its expense ratio is very high as compare to other schemes. This is bad indicator
of investor’s investment.
• Portfolio turnover ratio is very high in Birla sun life equity fund.
• Market capitalization in this fund is highest as low compare to other AMC’s
schemes.
• In Birla Sun life equity fund the returns are lowest in last 5 years as compare to
other AMC’s schemes.
• In Birla sun life the returns are low compare to other AMC’s
• It is a value based fund
• It is a low risky fund
SBI Magnum Global Fund 94 – Growth
• It is a diversified equity fund.
• It is a open-ended equity scheme
• NAV is very low SBI Magnum Global Fund 94 as compare to other AMC’s
schemes.
• It is oldest fund
• In SBI the returns are lesser than other AMC’s
• It is a low risky fund
BIBLIOGRAPHY
Layman’s Guide to Mutual Funds By “Value research”
Mutual Funds Primer By “Times of india”
50
51. www.amfiindia.com
www.mutualfundsindia.com
www.valuereaserch.com
ANNEXURE’S
ANNEXURE-I
Sponsor
Sponsor is the person who acting alone or in combination with another body corporate
establishes a Mutual Fund. Sponsor must contribute at least 40% of the net worth of the
Investment Managed and meet the eligibility criteria prescribed under the securities and
Exchange Board of India (Mutual Fund) Regulations, 1996. The Sponsor is not
responsible or liable for any loss or short fall resulting from the operation of the
schemes beyond the initial contribution made by it towards setting up the Mutual Fund.
Trust
The Mutual Fund is constituted as a trust in accordance with the provisions of the
Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian
Registration Act, 1908.
Trustee
Trustee is usually a company (Corporate body) or a Board of Trustees (body of
individuals). The main responsibility of the trustee is to safeguard the interest of the
unit holders and inter alia ensure that the AMC functions in the interest of investors and
in accordance with the securities and Exchange Board of India (Mutual Funds)
Regulations, 1996, the provisions of the Trust Deed and the Offer Documents of the
51
52. respective Schemes. At least 2/3rd
directors of the Trustee are independent directors
who are not associated with the Sponsor in any manner.
Asset Management Company (AMC)
The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent
to the Mutual Fund. The Registrar processes the application form, redemption requests
and dispatches account statements to the unit holders. The Registrar and Transfer agent
also handles communications with investors and updates investor records.
Unit Holders
Unit Holders are those investing in Mutual Fund.
Custodian
Custodian is the agency, which will have the legal possession of all the securities
purchased by the Mutual Fund.
SEBI
The Stock Exchange Board of India (SEBI) is regulatory authority of the Mutual Funds.
ANNEXURE II
Equity Fund is the one in which much of the portfolio is invested in corporate
securities and Debt Fund is the one in which much of the portfolio is invested in Gilt
and money market securities.
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53. In an Open-ended Mutual Fund, there are no limits on the total size of the corpus.
Investors are permitted to enter and exit the open-ended Mutual Fund at any point of
time at a price that is linked to the net asset value (NAV).
In case of Closed-ended funds, the total size of the corpus is limited by the size of the
initial offer.
• A Dividend plan entails a regular payment of dividend to the investors.
• A Re-investment plan is a plan where these dividends are reinvested in the scheme
itself.
• A Growth plan is one where no dividends are declared and investor only gains
through capital appreciation in the NAV of the fund.
NAV is the net asset value of the fund. Simply put it reflects what the unit held by an
investor is worth at current market prices.
The broad guidelines issued for a Mutual Fund:
SEBI is the regulatory authority of Mutual Funds. SEBI has the following broad
guidelines pertaining to Mutual Funds:
• Mutual Funds should be formed as a trust under Indian Trust Act and should be
operated by Asset Management Companies.
• Mutual Funds need to set up a Board of Trustee Companies. They should also
have their Board of Directories.
• The net worth of the Asset Management Company should be at least Rs.10
crore.
• Asset Management Companies and Trustees of a MF should be two separate and
distinct legal entities.
• The Asset Management Companies or any of its companies cannot act AS
managers for any other fund.
• Asset Management Company has to get the approval of SEBI for its articles and
Memorandum of Association.
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54. • All Mutual Fund Schemes should be registered with SEBI.
• Mutual Funds should distribute minimum of 90% of their profits among the
investors.
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