A project report on MUTUAL FUNDS

At Submitted by Ms. SWETHA. Y.P HT No: 245109672004 Project submitted in partial fulfillment for The Award Of The Degree Of MASTER OF BUSINESS ADMINISTRATION TO

OSMANIA UNIVERSITY, Hyderabad -500007 2009-2011

DECLARATION

I hereby declare that this Project Report titled MUTUAL FUNDS submitted by me to the Department of Business Management, O.U., Hyderabad, is a bonafide work undertaken by me and it is not submitted to any other University or Institution for the award of any degree diploma / certificate or published any time before.

Name and Address of the Student SWETHA.Y.P

Signature of the Student SWETHA.Y.P

CERTIFICATION This is to certify that the Project Report title EMUTUAL FUNDS submitted in partial fulfilment for the award of MBA Programme of Department of Business Management, O.U. Hyderabad, was carried out by SWETHA Y.P under my guidance. This has not been submitted to any other University or Institution for the award of any degree/diploma/certificate.

Name and address of the Guide

SHRAVANTHI.N

Signature of the Guide

SHRAVANTHI.N

CONTENTS
Chapter No. Name of the concept Introduction Need of the study Objectives of the study I Scope of the study Methodology of the study Limitations of the study II III IV V VI VII Review of Literature Industry Profile Company Profile Data analysis and interpretation Findings, Suggestions and Conclusion Bibliography Page No.

CHAPTER I - INTRODUCTION

INTRODUCTION
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 project idea is to project mutual funds as the better avenue for investment. Mutual fund is productive package for a lay-investor with limited finances. Mutual fund is a very old practice in U.S., and it has made a recent entry into India. Common man in India still finds Bank as a safe door for investment. This shows that mutual funds have not gained a strong foot-hold in his life. The project creates an awareness that the mutual fund is worthy investment practice. 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 a handy return to the investor. The project analyses various schemes of mutual fund by taking different mutual fund schemes from different AMCS. The future challenges for mutual funds in India are also considered.

NEED OF THE STUDY

The study basically made to educate the investors about Mutual Funds. Analyze the various schemes to highlight the risk and return of diversity of investment that mutual funds offer. Thus, through the study one would understand how a common man could fruitfully convert a pittance into great penny by wisely investing into the right scheme according to his risk- taking abilities. A small investor is the one who is able to correctly plan & decide in which profitable & safe instrument to invest. To lock up ones hard earned money in a savings banks account is not enough to counter the monster of inflation. Using simple concepts of diversification, power of compound interest, stable returns & limited exposure to equity investment, one can maximize his returns on investments & multiply ones savings. Investment is a serious proposition one has to look into various factors before deciding on the instruments in which to invest. To save is not enough. One must invest wisely & get maximum returns. One must plan investment in such a way that his investment objectives are satisfied. A sound investment is one which gives the investor reasonable returns with a proper profitable management This report gives the details about various investment objectives desired by an investor, details about the concept & working of mutual fund.

OBJECTIVES OF THE STUDY

To understand the concept of Mutual Funds. To study the different Sectoral Mutual Funds in India. To analyse the performance of different sectoral mutual funds. To identify the best Sectoral Mutual Funds to invest in India. To suggest the best mutual funds for investors.

SCOPE OF THE STUDY

Now a days, there is a lot of scope for the mutual funds. The Financial managers have to decide whether to invest in the Shares, bonds, debentures, real estate, gold and other Commodities to get the maximum benefits for funds. The financial managers should also reduce the risk from the Investments. The scope of the study is confirmed to the sectoral funds available in Indian mutual funds.

RESEARCH METHODOLOGY
In the present project work the data as been collected from available source that is secondary data like websites, Newspapers and magazines. The sample size taken is of 7 different sectoral funds

Sampling 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. 500 Crore Prior to 1st April, 2006

Growth option for the entire selected scheme has been considered.

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 5 years starting from 1st April, 2006 to 10th July 2010. 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.

LIMITATIONS

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. 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. 4. 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.

CHAPTER II - REVIEW OF LITERATURE

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 todays 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. 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

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. 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 9

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.

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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 investors 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 its 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.

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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 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 12

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.

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 longterm. 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 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. 14

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.

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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.

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 Who should Portfolio invest Investment horizon

Money Market

Shortterm Funds (Floating - shortterm)

Those who Treasury Bills, park their Liquidity + Certificate of funds in Moderate Deposits, current Income + Negligible Commercial accounts or Reservation of Papers, Call short-term Capital Money bank deposits Call Money, Commercial Papers, Those with Liquidity + Little Treasury Bills, surplus Moderate Interest Rate CDs, Short- short-term Income term funds Government securities.

2 days - 3 weeks

3 weeks 3 months

Predominantly Debentures, Credit Risk Salaried & Regular Government More than 9 - 12 & Interest conservative Income securities, months (Floating Rate Risk investors Corporate - LongBonds term) Salaried & Gilt Security & Interest Rate Government conservative 12 months & more Funds Income Risk securities investors Aggressive Long-term investors Equity Capital High Risk Stocks with long 3 years plus Funds Appreciation term out look. To generate returns that are Portfolio NAV varies Index commensurate indices like Aggressive with index 3 years plus Funds with returns of BSE, NIFTY investors. performance respective etc indices

Bond Funds

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Balanced Funds

Growth & Regular Income

Balanced ratio Capital of equity and Market Risk debt funds to Moderate & and Interest ensure higher Aggressive Rate Risk returns at lower risk

2 years plus

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 cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. 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:
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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.

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

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10.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 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 funds help investors overcome this constraint by offering large no. of schemes within the same fund.

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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:
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.

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 22

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: The Treynor Measure The Sharpe Measure Jenson Model 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.

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. 23

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 24

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.

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)

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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 '' 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 that the

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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.

rim

i m ________________________
2 m

i is standard deviation of fund returns.(Si) m is standard deviation of market returns.(Sm)

2 m 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=

----------------------------------------------(x x ) ( y y )
2 2 m ean m ean

n { x ( xm e) a (ny ym e) a}n

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 funds 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 everyday, NAV of a fund also varies on a day to day basis. NAVs for open ended schemes are required to be disclosed a daily basis(business day). 27

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 funds volatility and risk. It measures a funds 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 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

from the mean of the sample of n element. Note: - For this project following tools have been used:-

( x

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

Standard Deviation Beta Sharp Ratio R-Square

28

CHAPTER III - INDUSTRY PROFILE

29

FINANCIAL MARKETS

Finance is the pre-requisite for modern business and financial institutions play a vital role in the economic system. It is through financial markets and institutions that the financial system of an economy works. Financial markets refer to the institutional arrangements for dealing in financial assets and credit instruments of different types such as currency, cheques, bank deposits, bills, bonds, equities, etc.

Financial market is a broad term describing any marketplace where buyers and sellers participate in the trade of assets such as equities, bonds, currencies and derivatives. They are typically defined by having transparent pricing, basic regulations on trading, costs and fees and market forces determining the prices of securities that trade.

Generally, there is no specific place or location to indicate a financial market. Wherever a financial transaction takes place, it is deemed to have taken place in the financial market. Hence financial markets are pervasive in nature since financial transactions are themselves very pervasive throughout the economic system. For instance, issue of equity shares, granting of loan by term lending institutions, deposit of money into a bank, purchase of debentures, sale of shares and so on.

In a nutshell, financial markets are the credit markets catering to the various needs of the individuals, firms and institutions by facilitating buying and selling of financial assets, claims and services.

30

CLASSIFICATION OF FINANCIAL MARKETS

Financial markets

Organized markets

Unorganized markets

Capital Markets

Money Markets

Money Lenders, Indigenuos Bankers

Industrial Securities Market

Call Money Market

Primary Market

Commercial Bill Market

Secondary market

Treasury Bill Market

Government Securities Market Long-term loan market

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Capital Market The capital market is a market for financial assets which have a long or indefinite maturity. Generally, it deals with long term securities which have a period of above one year. In the widest sense, it consists of a series of channels through which the savings of the community are made available for industrial and commercial enterprises and public authorities. As a whole, capital market facilitates raising of capital.

The major functions performed by a capital market are: 1. Mobilization of financial resources on a nation-wide scale. 2. Securing the foreign capital and know-how to fill up deficit in the required resources for economic growth at a faster rate. 3. Effective allocation of the mobilized financial resources, by directing the same to projects yielding highest yield or to the projects needed to promote balanced economic development.

Capital market consists of primary market and secondary market. Primary market: Primary market is a market for new issues or new financial claims. Hence it is also called as New Issue Market. It basically deals with those securities which are issued to the public for the first time. The market, therefore, makes available a new block of securities for public subscription. In other words, it deals with raising of fresh capital by companies either for cash or for consideration other than cash. The best example could be Initial Public Offering (IPO) where a firm offers shares to the public for the first time. 32

Secondary market: Secondary market is a market where existing securities are traded. In other words, securities which have already passed through new issue market are traded in this market. Generally, such securities are quoted in the stock exchange and it provides a continuous and regular market for buying and selling of securities. This market consists of all stock exchanges recognized by the government of India.

Money Market Money markets are the markets for short-term, highly liquid debt securities. Money market securities are generally very safe investments which return relatively low interest rate that is most appropriate for temporary cash storage or short term time needs. It consists of a number of sub-markets which collectively constitute the money market namely call money market, commercial bills market, acceptance market, and Treasury bill market.

Derivatives Market The derivatives market is the financial market for derivatives, financial instruments like futures contracts or options, which are derived from other forms of assets. A derivative is a security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. The important financial derivatives are the following:

33

Forwards: Forwards are the oldest of all the derivatives. A forward contract refers to an agreement between two parties to exchange an agreed quantity of an asset for cash at a certain date in future at a predetermined price specified in that agreement. The promised asset may be currency, commodity, instrument etc.

Futures: Future contract is very similar to a forward contract in all respects excepting the fact that it is completely a standardized one. It is nothing but a standardized forward contract which is legally enforceable and always traded on an organized exchange.

Options: A financial derivative that represents a contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date). Call options give the option to buy at certain price, so the buyer would want the stock to go up. Put options give the option to sell at a certain price, so the buyer would want the stock to go down.

Swaps: It is yet another exciting trading instrument. Infact, it is the combination of forwards by two counterparties. It is arranged to reap the benefits arising from the fluctuations in the market either currency market or interest rate market or any other market for that matter.

34

Foreign Exchange Market It is a market in which participants are able to buy, sell, exchange and speculate on currencies. Foreign exchange markets are made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors. The forex market is considered to be the largest financial market in the world. It is a worldwide decentralized over-the-counter financial market for the trading of currencies. Because the currency markets are large and liquid, they are believed to be the most efficient financial markets. It is important to realize that the foreign exchange market is not a single exchange, but is constructed of a global network of computers that connects participants from all parts of the world. Commodities Market It is a physical or virtual marketplace for buying, selling and trading raw or primary products. For investors' purposes there are currently about 50 major commodity markets worldwide that facilitate investment trade in nearly 100 primary commodities. Commodities are split into two types: hard and soft commodities. Hard commodities are typically natural resources that must be mined or extracted (gold, rubber, oil, etc.), whereas soft commodities are agricultural products or livestock (corn, wheat, coffee, sugar, soybeans, pork, etc.)

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INDIAN FINANCIAL MARKETS

India Financial market is one of the oldest in the world and is considered to be the fastest growing and best among all the markets of the emerging economies.

The history of Indian capital markets dates back 200 years toward the end of the 18th century when India was under the rule of the East India Company. The development of the capital market in India concentrated around Mumbai where no less than 200 to 250 securities brokers were active during the second half of the 19th century. The financial market in India today is more developed than many other sectors because it was organized long before with the securities exchanges of Mumbai, Ahmadabad and Kolkata were established as early as the 19th century. By the early 1960s the total number of securities exchanges in India rose to eight, including Mumbai, Ahmadabad and Kolkata apart from Madras, Kanpur, Delhi, Bangalore and Pune. Today there are 21 regional securities exchanges in India in addition to the centralized NSE (National Stock Exchange) and OTCEI (Over the Counter Exchange of India). However the stock markets in India remained stagnant due to stringent controls on the market economy that allowed only a handful of monopolies to dominate their respective sectors. The corporate sector wasn't allowed into many industry segments,

36

which were dominated by the state controlled public sector resulting in stagnation of the economy right up to the early 1990s. Thereafter when the Indian economy began liberalizing and the controls began to be dismantled or eased out; the securities markets witnessed a flurry of IPOs that were launched. This resulted in many new companies across different industry segments to come up with newer products and services. A remarkable feature of the growth of the Indian economy in recent years has been the role played by its securities markets in assisting and fuelling that growth with money rose within the economy. This was in marked contrast to the initial phase of growth in many of the fast growing economies of East Asia that witnessed huge doses of FDI (Foreign Direct Investment) spurring growth in their initial days of market decontrol. During this phase in India much of the organized sector has been affected by high growth as the financial markets played an all-inclusive role in sustaining financial resource mobilization. Many PSUs (Public Sector Undertakings) that decided to offload part of their equity were also helped by the well-organized securities market in India. The launch of the NSE (National Stock Exchange) and the OTCEI (Over the Counter Exchange of India) during the mid 1990s by the government of India was meant to usher in an easier and more transparent form of trading in securities. The NSE was conceived as the market for trading in the securities of companies from the large-scale sector and the OTCEI for those from the small-scale sector. While the NSE has not just done well to grow and evolve into the virtual backbone of capital markets in India the OTCEI struggled and is yet to show any sign of growth and development. The integration of IT into the capital market infrastructure has been particularly smooth in India due to the countrys world class IT 37

industry. This has pushed up the operational efficiency of the Indian stock market to global standards and as a result the country has been able to capitalize on its high growth and attract foreign capital like never before. The regulating authority for capital markets in India is the SEBI (Securities and Exchange Board of India). SEBI came into prominence in the 1990s after the capital markets experienced some turbulence. It had to take drastic measures to plug many loopholes that were exploited by certain market forces to advance their vested interests. After this initial phase of struggle SEBI has grown in strength as the regulator of Indias capital markets and as one of the countrys most important institutions.

38

FINANCIAL MARKET REGULATIONS

Regulations are an absolute necessity in the face of the growing importance of capital markets throughout the world. The development of a market economy is dependent on the development of the capital market. The regulation of a capital market involves the regulation of securities; these rules enable the capital market to function more efficiently and impartially. A well regulated market has the potential to encourage additional investors to partake, and contribute in, furthering the development of the economy. The chief capital market regulatory authority is Securities and Exchange Board of India (SEBI). SEBI is the regulator for the securities market in India. It is the apex body to develop and regulate the stock market in India It was formed officially by the Government of India in 1992 with SEBI Act 1992 being passed by the Indian Parliament. Chaired by C B Bhave, SEBI is headquartered in the popular business district of Bandra-Kurla complex in Mumbai, and has Northern, Eastern, Southern and Western regional offices in New Delhi, Kolkata, Chennai and Ahmedabad. In place of Government Control, a statutory and autonomous regulatory board with defined responsibilities, to cover both development & regulation of the market, and independent powers has been set up.

39

The basic objectives of the Board were identified as:

to protect the interests of investors in securities; to promote the development of Securities Market; to regulate the securities market and For matters connected therewith or incidental thereto.

Since its inception SEBI has been working targeting the securities and is attending to the fulfillment of its objectives with commendable zeal and dexterity. The improvements in the securities markets like capitalization requirements, margining, establishment of clearing corporations etc. reduced the risk of credit and also reduced the market.

SEBI has introduced the comprehensive regulatory measures, prescribed registration norms, the eligibility criteria, the code of obligations and the code of conduct for different intermediaries like, bankers to issue, merchant bankers, brokers and subbrokers, registrars, portfolio managers, credit rating agencies, underwriters and others. It has framed bye-laws, risk identification and risk management systems for Clearing houses of stock exchanges, surveillance system etc. which has made dealing in securities both safe and transparent to the end investor.

Another significant event is the approval of trading in stock indices (like S&P CNX Nifty & Sensex) in 2000. A market Index is a convenient and effective product because of the following reasons:

40

It acts as a barometer for market behavior; It is used to benchmark portfolio performance; It is used in derivative instruments like index futures and index options; It can be used for passive fund management as in case of Index Funds.

Two broad approaches of SEBI is to integrate the securities market at the national level, and also to diversify the trading products, so that there is an increase in number of traders including banks, financial institutions, insurance companies, mutual funds, primary dealers etc. to transact through the Exchanges. In this context the introduction of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD is a real landmark. SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and successively (e.g. the quick movement towards making the markets electronic and paperless rolling settlement on T+2 bases). SEBI has been active in setting up the regulations as required under law.

41

STOCK EXCHANGES IN INDIA

Stock Exchanges are an organized marketplace, either corporation or mutual organization, where members of the organization gather to trade company stocks or other securities. The members may act either as agents for their customers, or as principals for their own accounts. As per the Securities Contracts Regulation Act, 1956 a stock exchange is an association, organization or body of individuals whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities. Stock exchanges facilitate for the issue and redemption of securities and other financial instruments including the payment of income and dividends. The record keeping is central but trade is linked to such physical place because modern markets are computerized. The trade on an exchange is only by members and stock broker do have a seat on the exchange. List of Stock Exchanges in India Bombay Stock Exchange National Stock Exchange OTC Exchange of India Regional Stock Exchanges 1. Ahmedabad 2. Bangalore 3. Bhubaneswar 4. Calcutta 42 5. Cochin 6. Coimbatore 7. Delhi 8. Guwahati 9. Hyderabad 10. Jaipur 11. Ludhiana

12. Madhya Pradesh 13. Madras 14. Magadh 15. Mangalore 16. Meerut 17. Pune 18. Saurashtra Kutch 19. Uttar Pradesh 20. Vadodara

43

BOMBAY STOCK EXCHANGE

A very common name for all traders in the stock market, BSE, stands for Bombay Stock Exchange. It is the oldest market not only in the country, but also in Asia. In the early days, BSE was known as "The Native Share & Stock Brokers Association." It was established in the year 1875 and became the first stock exchange in the country to be recognized by the government. In 1956, BSE obtained a permanent recognition from the Government of India under the Securities Contracts (Regulation) Act, 1956.

In the past and even now, it plays a pivotal role in the development of the country's capital market. This is recognized worldwide and its index, SENSEX, is also tracked worldwide. Earlier it was an Association of Persons (AOP), but now it is a demutualised and corporatised entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualization) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI).

BSE Vision The vision of the Bombay Stock Exchange is to "Emerge as the premier Indian stock exchange by establishing global benchmarks."

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BSE Management Bombay Stock Exchange is managed professionally by Board of Directors. It comprises of eminent professionals, representatives of Trading Members and the Managing Director. The Board is an inclusive one and is shaped to benefit from the market intermediaries participation.

The Board exercises complete control and formulates larger policy issues. The dayto-day operations of BSE are managed by the Managing Director and its school of professional as a management team.

BSE Network The Exchange reaches physically to 417 cities and towns in the country. The framework of it has been designed to safeguard market integrity and to operate with transparency. It provides an efficient market for the trading in equity, debt instruments and derivatives. Its online trading system, popularly known as BOLT, is a proprietary system and it is BS 7799-2-2002 certified. The BOLT network was expanded, nationwide, in 1997. The surveillance and clearing & settlement functions of the Exchange are ISO 9001:2000 certified.

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BSE Facts BSE as a brand is synonymous with capital markets in India. The BSE SENSEX is the benchmark equity index that reflects the robustness of the economy and finance. It was the First in India to introduce Equity Derivatives First in India to launch a Free Float Index First in India to launch US$ version of BSE Sensex First in India to launch Exchange Enabled Internet Trading Platform First in India to obtain ISO certification for Surveillance, Clearing & Settlement 'BSE On-Line Trading System (BOLT) has been awarded the globally recognized the Information Security Management System standard BS7799-2:2002. First to have an exclusive facility for financial training Moved from Open Outcry to Electronic Trading within just 50 days

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BSE with its long history of capital market development is fully geared to continue its contributions to further the growth of the securities markets of the country, thus helping India increases its sphere of influence in international financial markets.

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NATIONAL LIMITED

STOCK

EXCHANGE

OF

INDIA

The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a taxpaying company unlike other stock Exchange in the country. On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000.

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NSE GROUP National Securities Clearing Corporation Ltd. (NSCCL) It is a wholly owned subsidiary, which was incorporated in August 1995 and commenced clearing operations in April 1996. It was formed to build confidence in clearing and settlement of securities, to promote and maintain the short and consistent settlement cycles, to provide a counter-party risk guarantee and to operate a tight risk containment system.

NSE.IT Ltd. It is also a wholly owned subsidiary of NSE and is its IT arm. This arm of the NSE is uniquely positioned to provide products, services and solutions for the securities industry. NSE.IT primarily focuses on in the area of trading, broker front-end and back-office, clearing and settlement, web-based, insurance, etc. Along with this, it also provides consultancy and implementation services in Data Warehousing, Business Continuity Plans, Site Maintenance and Backups, Stratus Mainframe Facility Management, Real Time Market Analysis & Financial News. India Index Services & Products Ltd. (IISL) It is a joint venture between NSE and CRISIL Ltd. to provide a variety of indices and index related services and products for the Indian Capital markets. It was set up in May 1998. IISL has a consulting and licensing agreement with the Standard and Poor's (S&P), world's leading provider of investible equity indices, for co-branding equity indices.

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National Securities Depository Ltd. (NSDL) NSE joined hands with IDBI and UTI to promote dematerialization of securities. This step was taken to solve problems related to trading in physical securities. It commenced operations in November 1996.

NSE Facts It uses satellite communication technology to energize participation from around 400 cities in India. NSE can handle up to 1 million trades per day. It is one of the largest interactive VSAT based stock exchanges in the world. The NSE- network is the largest private wide area network in India and the first extended C- Band VSAT network in the world. Presently more than 9000 users are trading on the real time-online NSE application. Today, NSE is one of the largest exchanges in the world and still forging ahead. At NSE, we are constantly working towards creating a more transparent, vibrant and innovative capital market.

OVER THE COUNTER EXCHANGE OF INDIA

OTCEI was incorporated in 1990 as a section 25 company under the companies Act 1956 and is recognized as a stock exchange under section 4 of the securities Contracts

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Regulation Act, 1956. The exchange was set up to aid enterprising promotes in raising finance for new projects in a cost effective manner and to provide investors with a transparent and efficient mode of trading Modeled along the lines of the NASDAQ market of USA, OTCEI introduced many novel concepts to the Indian capital markets such as screen-based nationwide trading, sponsorship of companies, market making and scrip less trading. As a measure of success of these efforts, the Exchange today has 115 listings and has assisted in providing capital for enterprises that have gone on to build successful brands for themselves like VIP Advanta, Sonora Tiles & Brilliant mineral water, etc.

Need for OTCEI: Studies by NASSCOM, software technology parks of India, the venture capitals funds and the governments IT tasks Force, as well as rising interest in IT, Pharmaceutical, Biotechnology and Media shares have repeatedly emphasized the need for a national stock market for innovation and high growth companies. Innovative companies are critical to developing economics like India, which is undergoing a major technological revolution. With their abilities to generate employment opportunities and contribute to the economy, it is essential that these companies not only expand existing operations but also set up new units. The key issue for these companies is raising timely, cost effective and long term capital to sustain their operations and enhance growth. Such companies, particularly those that have been in operation for a short time, are unable to raise funds through the traditional financing methods, because they have not yet been evaluated by the financial world.

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CHAPTER IV - COMPANY PROFILE

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INDIA INFOLINE LIMITED

India Infoline is a one-stop financial services shop, most respected for quality of its information, personalized service and cutting-edge technology. Vision Our vision is to be the most respected company in the financial services space.

India Infoline Group The India Infoline group, comprising the holding company, India Infoline Limited and its wholly-owned subsidiaries, include the entire financial services space with offerings ranging from Equity research, Equities and derivatives trading, Commodities trading, Portfolio Management Services, Mutual Funds, Life Insurance, Fixed deposits, GoI bonds and other small savings instruments to loan products and Investment banking.

India Infoline also owns and manages the websites www.indiainfoline.com and www.5paisa.com. The company has a network of over 2100 business locations (branches and sub-brokers) spread across more than 450 cities and towns. The group caters to approximately a million customers.

Founded in 1995 by Mr. Nirmal Jain (Chairman and Managing Director) as an independent business research and information provider, the company gradually evolved into a one-stop financial services solutions provider.

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India Infoline received registration for a housing finance company from the National Housing Bank and received the Fastest growing Equity Broking House - Large firms in India by Dun & Bradstreet in 2009. It also received the Insurance broking license from IRDA; received the venture capital license; received in principle approval to sponsor a mutual fund; received Best broker- India award from Finance Asia; Most Improved Brokerage- India award from Asia money.

COMPANY STRUCTURE India Infoline Limited is listed on both the leading stock exchanges in India, viz. the Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) and is also a member of both the exchanges. It is engaged in the businesses of Equities broking, Wealth Advisory Services and Portfolio Management Services. It offers broking services in the Cash and Derivatives segments of the NSE as well as the Cash segment of the BSE. It is registered with NSDL as well as CDSL as a depository participant, providing a one-stop solution for clients trading in the equities market. It has recently launched its Investment banking and Institutional Broking business.

A SEBI authorized Portfolio Manager; it offers Portfolio Management Services to clients. These services are offered to clients as different schemes, which are based on differing investment strategies made to reflect the varied risk-return preferences of clients.

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India Infoline Media and Research Services Limited The services represent a strong support that drives the broking, commodities, mutual fund and portfolio management services businesses. It undertakes equities research which is acknowledged by none other than Forbes as 'Best of the Web' and 'a must read for investors in Asia'. India Infoline's research is available not just over the internet but also on international wire services like Bloomberg (Code: IILL), Thomson First Call and Internet Securities where India Infoline is amongst the most read Indian brokers. India Infoline Commodities Limited. India Infoline Commodities Pvt Limited is engaged in the business of commodities broking. Their experience in securities broking empowered them with the requisite

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skills and technologies to allow them to offer commodities broking as a contracyclical alternative to equities broking. It enjoys memberships with the MCX and NCDEX, two leading Indian commodities exchanges, and recently acquired membership of DGCX. It has a multi-channel delivery model, making it among the select few to offer online as well as offline trading facilities. India Infoline Marketing & Services India Infoline Marketing and Services Limited is the holding company of India Infoline Insurance Services Limited and India Infoline Insurance Brokers Limited. India Infoline Insurance Services Limited is a registered Corporate Agent with the Insurance Regulatory and Development Authority (IRDA). It is the largest Corporate Agent for ICICI Prudential Life Insurance Co Limited, which is India's largest private Life Insurance Company. India Infoline was the first corporate agent to get licensed by IRDA in early 2001. India Infoline Insurance Brokers Limited India Infoline Insurance Brokers Limited is a newly formed subsidiary which will carry out the business of Insurance broking.

India Infoline Investment Services Limited Consolidated shareholdings of all the subsidiary companies engaged in loans and financing activities under one subsidiary. Recently, Orient Global, a Singapore-based investment institution invested USD 76.7 million for a 22.5% stake in India Infoline Investment Services. This will help focused expansion and capital raising in the said

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subsidiaries for various lending businesses like loans against securities, SME financing, distribution of retail loan products, consumer finance business and housing finance business. India Infoline Investment Services Private Limited consists of the following step-down subsidiaries. India Infoline Distribution Company Limited (distribution of retail loan products) Moneyline Credit Limited (consumer finance) India Infoline Housing Finance Limited (housing finance)

IIFL (Asia) Private Limited IIFL (Asia) Private Limited is wholly owned subsidiary which has been incorporated in Singapore to pursue financial sector activities in other Asian markets. Further to obtaining the necessary regulatory approvals, the company has been initially capitalized at 1 million Singapore dollars.

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IIFL MANAGEMENT THE MANAGEMENT TEAM

Mr. Nirmal Jain, Chairman & Managing Director Nirmal Jain, MBA (IIM, Ahmadabad) and a Chartered and Cost Accountant, founded Indias leading financial services company India Infoline Ltd. in 1995, providing globally acclaimed financial services in equities and commodities broking, life insurance and mutual funds distribution, among others.

Mr. R Venkataraman, Executive Director R Venkataraman, co-promoter and Executive Director of India Infoline Ltd., is a B. Tech (Electronics and Electrical Communications Engineering, IIT Kharagpur) and an MBA (IIM Bangalore). He joined the India Infoline board in July 1999.

THE BOARD OF DIRECTORS

Apart from Nirmal Jain and R Venkataraman, the Board of Directors of India Infoline Ltd. comprises: Mr. Nilesh Vikamsey, Independent Director Mr. Vikamsey, Board member since February 2005 - a practicing Chartered Accountant and partner (Khimji Kunverji & Co., Chartered Accountants), a member firm of HLB International, headed the audit

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department till 1990 and thereafter also handles financial services, consultancy, investigations, mergers and acquisitions, valuations etc Mr Sat Pal Khattar, Non Executive Director Mr Sat Pal Khattar, - Board member since April 2001 - Presidential Council of Minority Rights member, Chairman of the Board of Trustee of Singapore Business Federation, is also a life trustee of SINDA, a non profit body, helping the under-privileged Indians in Singapore. He joined the India Infoline board in April 2001. Mr Kranti Sinha, Independent Director Mr. Kranti Sinha Board member since January 2005 completed his masters from the Agra University and started his career as a Class I officer with Life Insurance Corporation of India. Mr Arun K. Purvar, Independent Director Mr. A.K. Purvar Board member since March 2008 completed his Masters degree in commerce from Allahabad University in 1966 and a diploma in Business Administration in 1967.

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PRODUCTS & SERVICES Equities India Infoline provided the prospect of researched investing to its clients, which was hitherto restricted only to the institutions. Research for the retail investor did not exist prior to India Infoline. India Infoline leveraged technology to bring the convenience of trading to the investors location of preference (residence or office) through computerized access. India Infoline made it possible for clients to view transaction costs and ledger updates in real time. The Company is among the few financial intermediaries in India to offer a complement of online and offline broking. The Companies network of branches also allows customers to place orders on phone or visit our branches for trading. Commodities India Infolines extension into commodities trading reconciles its strategic intent to emerge as a one stop solutions financial intermediary. Its experience in securities broking has empowered it with requisite skills and technologies. The Companies commodities business provides a contra-cyclical alternative to equities broking. The Company was among the first to offer the facility of commodities trading in Indias young commodities market (the MCX commenced operations in 2003). Average monthly turnover on the commodity exchanges increased from Rs 0.34 bn to Rs 20.02 bn.

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Insurance An entry into this segment helped complete the client's product basket; concurrently, it graduated the Company into a one stop retail financial solutions provider. To ensure maximum reach to customers across India, it has employed a multi pronged approach and reaches out to customers via our Network, Direct and Affiliate channels. India Infoline was the first corporate in India to get the agency license in early 2001. Invest Online India Infoline has made investing in Mutual funds and primary market so effortless. Only registration is needed. No paperwork no queues and No registration charges. India Infoline offers a host of mutual fund choices under one roof, backed by in-depth research and advice from research house and tools configured as investor friendly. Wealth Management The key to achieving a successful Investment Portfolio is to have a carefully planned financial strategy based on a thorough understanding of the client's investment needs and risk appetite. The IIFL Private Wealth Management Team of financial experts will recommend an appropriate financial strategy to effectively meet customers investment requirements.

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Asset Management India Infoline is a leading pan-India mutual fund distribution house associated with leading asset management companies. It operates primarily in the retail segment leveraging its existing distribution network to reach prospective clients. It has received the in-principle approval to set up a mutual fund. Portfolio Management IIFL Portfolio Management Service is a product wherein an equity investment portfolio is created to suit the investment objectives of a client. India Infoline invests the clients resources into stocks from different sectors, depending on clients risk-return profile. This service is particularly advisable for investors who cannot afford to give time or don't have that expertise for day-to-day management of their equity portfolio. Newsletters As a subscriber to the Daily Market Strategy, clients get research reports of India Infoline research team on a priority basis. The Indiainfoline Weekly Newsletter is the flashback for the week gone by. A weekly outlook coupled with the best of the web stories from Indiainfoline and links to important investment ideas, Leader Speak and features is delivered in the clients inbox every Friday evening.

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CHAPTER V DATA ANALYSIS & INTERPRETATIONS

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 Sectoral Mutual Funds Considered:1. Auto Sector - UTI Transportation and Logistics Fund 2. Banking Sector - UTI Banking Sector Fund 3. FMCG Sector - Franklin FMCG Fund 4. Infrastructure Sector - Tata Infrastructure Fund 5. Power Sector - Reliance Diversified Power Sector Fund 6. Service Sector - Prudential ICICI Services Industries Fund 7. Technology Sector - Franklin Infotech Fund

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1. Auto Sector:UTI Transportation and Logistics Fund

Scheme Snapshot CIO: A K Shridhar Fund Manager: Anoop Bhaskar Address: UTI Towers, `Gn` Block, Bandra-Kurla Complex, Bandra (East), Mumbai 400051 Phone: 91 22 5678 6666 / 56578210 Total Assets(Rs./Mn): 719.8 Fax: 91 22 2652 4921 Registrars: UTI Technology Services Limited website: www.utimf.com Launch Date: 09-MAR-04 Scheme Objective: The scheme aims to provide to investors growth of capital over a period of time as well as to make periodical distribution of income from investment in stocks of respective sectors of the Indian economy. Category: Equity Sub-Category: Sectoral-Auto Type: Open Min. Investment(Rs): 5000

Asset Allocation
Equity Shares Net Current Assets Unlisted Equities Short Term Deposits
As on 31-OCT-10

95.83 3.40 0.70 0.07

Top 5 holdings
Mahindra & Mahindra Limited Tata Motors Limited Ashok Leyland Limited Bajaj Auto Limited Eicher Motors Limited

As on 31-OCT-10
7.56 7.23 6.18 5.96 5.89

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2. Banking Sector:UTI Banking Sector Fund

Scheme Snapshot CIO: A K Shridhar Fund Manager: Arun Khurana, Anoop Bhaskar Address: UTI Towers, `Gn` Block, Bandra-Kurla Complex, Bandra (East), Mumbai 400051 Phone: 91 22 5678 6666 / 56578210 Total Assets(Rs./Mn): 2312.5 Fax: 91 22 2652 4921 Registrars: UTI Technology Services Limited website: www.utimf.com Launch Date: 09-MAR-04 Scheme Objective: To generate capital appreciation through investments in the stocks of the companies/institutions engaged in the banking and financial services activities. Category: Equity Sub-Category: Sectoral-Bank Type: Open Min. Investment(Rs): 5000

Asset Allocation
Equity Shares Short Term Deposits Net Current Assets
As on 31-OCT-10

97.97 2.22 -0.19

Top 5 holdings
I C I C I Bank Limited State Bank Of India H D F C Bank Limited Axis Bank Limited Bank Of Baroda

As on 31-OCT-10
19.73 13.71 12.51 10.11 7.28

3. FMCG Sector:Franklin FMCG Fund

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Scheme Snapshot CIO: Santosh Kamath Fund Manager: Anil Prabhudas Address: Level 4, Wockhardt Towers, Bandra - Kurla Complex, Bandra (East), Mumbai - 400051 Phone: 91 22 5632 5820 Total Assets(Rs./Mn): 485.42 Fax: 91 22 2281 0923 website: http://www.templetonindia.com Registrars: Franklin Templeton Asset Management (India) Pvt. Ltd. Launch Date: 15-MAR-99 Scheme Objective: Seeks to provide long term capital appreciation by investing primarily in shares of companies operating in the FMCG industry. Category: Equity Sub-Category: Sectoral-FMCG Type: Open Min. Investment(Rs): 5000

Asset Allocation
Equity Shares Call And Other Assets Corporate Debt / Bonds
As on 30-NOV-10

96.13 2.84 1.03

Top 5 holdings
Nestle India Limited I T C Limited Asian Paints Limited Pidilite Industries Limited Marico Limited

As on 30-NOV-10
14.97 11.27 9.25 6.48 6.08

4. Infrastructure Sector Tata Infrastructure Fund

Scheme Snapshot

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CIO: Ved Prakash Chaturvedi Fund Manager: M Venugopal Address: Fort House, 221 Dr. D. N. Road, Mumbai 400 001 Phone: 91 22 56505200 / 251 / 252

Category: Equity Sub-Category: Sectoral-Infrastructure Type: Open Min. Investment(Rs): 5000 Total Assets(Rs./Mn): 18972.93

Fax: 91 22 5631 5194 website: http://www.tatamutualfund.com Registrars: Computer Age Management Services Pvt.Ltd. Launch Date: 25-NOV-04 Scheme Objective: The investment objective of the Scheme is to provide income distribution and / or medium to long term capital gains by investing predominantly in equity/equity related instrument of the companies in the infrastructure sectors.

Asset Allocation
Equity Shares Cash And Other Assets
As on 30-NOV-10

95.22 4.78

Top 5 holdings
I C I C I Bank Limited Crompton Greaves Limited Cash And Other Assets

As on 30-NOV-10
4.97 4.79 4.78 4.70 4.58

Oil & Natural Gas Corporation Limited H D F C Bank Limited

5. Power Sector:Reliance Diversified Power Sector Fund

Scheme Snapshot

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CIO: K Rajagopal Fund Manager: Sunil Singhania

Category: Equity Sub-Category: Sectoral-Power

Address: One Indiabulls Centre, Tower1, Jupiter Mills Type: Open Compound, 841, Senapati Bapat Marg, Elphinstone Road, Mumbai - 400 013 Min. Investment(Rs): 5000 Phone: 91 22 3099 4600 Fax: 91 22 3041 4899 website: http://www.reliancemutual.com/ Total Assets(Rs./Mn): 50211.2 Registrars: Karvy Computershare Private Limited Launch Date: 29-MAR-04

Scheme Objective: The primary investment objective of the scheme is to seek to generate continous returns by actively investing in equity and equity related or fixed income securities of Power and other associated companies

Asset Allocation
Equity Shares Derivatives,Cash And Other Receivables
As on 30-NOV-10

94.65 5.35

Top 5 holdings
Other Equities Cummins India Limited Torrent Power Limited I C I C I Bank Limited

As on 30-NOV-10
8.33 6.32 5.99 5.48 5.35

Cash And Other Assets And Derivatives

6. Technology Sector:Franklin Infotech Fund

Scheme Snapshot

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CIO: Santosh Kamath

Category: Equity

Fund Manager: Anand Radhakrishnan, Murali Yerram Sub-Category: Sectoral-TMT Address: Level 4, Wockhardt Towers, Bandra - Kurla Complex, Bandra (East), Mumbai - 400051 Phone: 91 22 5632 5820 Total Assets(Rs./Mn): 1403.5 Fax: 91 22 2281 0923 website: http://www.templetonindia.com Registrars: Franklin Templeton Asset Management (India) Pvt. Ltd. Launch Date: 22-JUL-98 Scheme Objective: Seeks to provide long term capital appreciation by investing primarily in Information Technology industry. Type: Open Min. Investment(Rs): 5000

Asset Allocation
Equity Shares Other Current Assets Unlisted Equities
As on 30-NOV-10

96.38 3.62 0.00

Top 5 holdings
Infosys Technologies Limited Tata Consultancy Services Limited Wipro Limited Cash And Other Assets

As on 30-NOV-10
52.15 25.32 9.48 3.62 3.56

Oracle Financial Services Software Limited

7. Service Sector:Prudential ICICI Services Industries Fund

Scheme Snapshot

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CIO: Nilesh Shah Fund Manager: Sanjay Parekh Address: 3rd Floor, Hallmark Business Plaza, Sant Dyaneshwar Marg, Bandra (East), Mumbai - 400 051 Phone: 91 22 22679665 / 22679676/ 22697989

Category: Equity Sub-Category: Sectoral-Services Type: Open Min. Investment(Rs): 5000 Total Assets(Rs./Mn): 2802.4

Fax: 91 22 22630419 website: http://www.icicipruamc.com Registrars: Computer Age Management Services Pvt.Ltd. Launch Date: 13-OCT-05 Scheme Objective: to generate capital appreciation and income distribution to unitholders by investing predominantly in equity/equity related securities of the companies belonging to the service industry and balance in debt securities and money market instruments including call money.

Asset Allocation
Equity Shares Futures Debt And Cash And Other Assets
As on 30-NOV-10

95.80 2.37 1.82

Top 5 holdings
Infosys Technologies Limited H D F C Bank Limited

As on 30-NOV-10
7.64 7.37 6.00 5.89 5.72

Housing Development Finance Corporation Limited Jaiprakash Associates Limited Bharti Airtel Limited

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CHAPTER VI FINDINGS, SUGGESTIONS & CONCLUSION

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FINDINGS

Rate of Return: Among the funds selected, UTI Banking Sector fund has
given the maximum rate of returns (39%) in the last one year followed by Franklin FMCG (33%). Reliance Diversified Power Sector fund with a return of (7.5%) stood last in the table. Among the funds selected, Reliance Diversified Power has given the maximum rate of returns (37%) in the last five years followed by Tata Infrastructure (24%). UTI Transportation and Logistics with a return of (16.98%) stood last in the table.

Total Risk (Standard Deviation)

UTI Banking Sector fund has the maximum standard deviation of 6.92 while Franklin FMCG has the least standard deviation of 2.96

Systematic Risk (Beta) and Co - relation

UTI Banking Sector fund has the maximum Beta of 1.08 while UTI Transportation and Logistics has the least Beta of 0.55. UTI Banking Sector fund has the maximum co-relation of 1.07 while Franklin FMCG has the least R-Squared of 0.65

Treynor & Sharpe Ratio:

UTI Banking Sector Fund has the maximum Treynor ratio of -0.19 while Reliance Diversified fund has the least Treynor ratio of -0.85. Franklin Infotech has the least Sharpe Ratio of -0.15 while ICICI Prudential Services has the maximum sharpe ratio of 0.01

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SUGGESTIONS & CONCLUSIONS 1. Banking and FMCG sectors have fared well in the last one year and it is suggested to invest in these sectors. 2. It is advised to be keep away from infrastructure funds especially Reliance Infrastructure fund. 3. FMCG has the least risk and Banking has the highest risk among the sectors. It is better to avoid Banking funds for people who want to avoid the risk. 4. Investors who expect slow and steady returns are advised to for FMCG sector. 5. UTI Banking Sector has a beta of greater than 1 (i.e market beta). This implies that Banking Sector has a higher risk compared to the market portfolio. 6. FMCG, Services, Transportation and Logistics sector has the least beta and investors can invest in these funds

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ANNEXURE - I TERMINOLOGY Mutual Fund: An investment tool that pools in investments made by people and that corpus is professionally managed by further investing as per the type of fund thats being operated. The intention is to float money in the market by owning assets components of many companies at the same meeting the assurances made to investors. There is no obligation whatsoever for assured returns. NAV-A cumulative market value of total assets component of its liabilities. Its actually the measure of what each shareholder would aquire if the assets of the company are liquidated. No-Load funds - there is no commission component present to enter and exit of the fund ownership. Its a full involvement of the corpus. ELSS - Equity linked savings scheme is a scheme with a tax rebate allowed as per the Sec 88 in the Indian income tax act, 1961.It provides the investors with the opportunity to save gains on capital through investments made in MFs. Index Funds - An interesting scheme that tries to replicate the behavior of the particular stock index, that is of interest. The portfolio of the fund would majorly consist of equities listed in that index. Sector Funds - An MF scheme that has its portfolio chart of companies that belong to a certain sector, say Oil. This is a high-risk fund, as the performance of that sector would directly reflect in the funds NAV. So, here we are with the diverse market of Mutual Funds. Each one claiming their USP. While MFs certainly are NOT the safest, but they are relatively more safe than the direct involvement in the equity market, given that fact that majority of the investors are either ill-informed or not informed about the way the markets move. So what exactly makes MFs the right kind of fund management tool, espy in a country like India? A country like India or for that matter any developing country has some basic problems which prevent the information to be available freely and that too in an accessible fashion, so with a situation like that, a professionally managed

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agency that would monitor the ups and downs of the market and chart out the best investment strategies would be the best thing to opt for. With so many potential investors in India, MFs can go a long way in getting established, plus with added set of alternatives within the MF schemes each has a scheme ready for the specific needs. Just to have a better perspective, there are various options available in the form of Equity fund, Debt funds, Balance funds and components like Money market funds, Index funds and the likes of it. Lets take a peek at the important ones. Equity Funds: The High risk - High return scheme invests in the equity markets, the risk involved is comparatively higher than but not as high as that of the sector funds that focus investments on specific sectors. But the higher the risk component, the higher is the return rate. However, there is a variant in this type of equity based scheme called the ELSS or the Equity Linked Savings Schemes, the offer a tax rebate under Sec 88 of I-T act, but the investment needs to be locked for at least 3 years! Suitable for risk takers .The problem is that it reacts faster to the market fluctuations, as the NAV would behave the way market behaves. Alliance AMC is supposed to have a good equity fund expertise. Debt Funds: Debt funds invest in the debt component or the fixed income models. So the return is almost certain and the risk is low. However, the returns are also combatively low compared to the principle amount. Investments in these kinds of funds range from Govt.Securities to corporate bonds. If you are looking for shortterm safe investment options then the liquid funds in the category is the answer for you. Several alternatives this category is now available like the income fund, growth fund or any long-term childcare fund and the likes of it. More diverse Debt funds are, more the chances of substantial returns. Balance funds - This type of funds are part equity and part debt funds. The pattern investment in balance funds is usually pre-determined. You have open-ended and closed-ended balance funds, where the funds can be traded in an open ended case just like equities but based on the Net Asset Value (NAV). The closed-ended funds are locked and cannot bet traded.

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Balance funds are good for those who have ascertained the risk-return based on their needs. When to say goodbye to your Mutual Fund? There are some professionals who talk of when to exit from mutual funds like other talk of when to invest in mutual funds. People who want to invest get more than the fixed deposit earning (risk free rate), preferred option is mutual funds. It is important to base the decision on relative performance and not absolute performance. When one fund is down 5% while other funds or the market in general are up 10%, it is very tempting to switch over to what is "hot." Chasing Performance is the best way to shoot oneself in the foot as we just discussed above. When studying relative performance, one should look at his fund and compare it to its peers. However, comparisons should be drawn between parallels and so equity funds cannot and should not be compared with debt funds. When choosing a benchmark, one must select funds in the same category. If ones fund was down 2% and the average equity fund was down 4%, then there is no good enough reason to sell it. One should compare the returns posted by his fund with that of the peers across various horizons such as 1-year, 3-year and above. A short-term view can often lead to committing hara-kiri, as it doesnt present the full picture. If it has underperformed the average of its peers in all cases, then it sure is one of the better reasons to exit from the fund. A change in life stage Investments are done with a certain objective in mind and life stages are often a determining factor of what a person needs. A young man can afford to take more risks than a person nearing his retirement can. In such cases, it pays to withdraw money from the equity investments made earlier and put them in safer, more conservative debt funds that offer stable returns without compromising on risk. So a change in life stages would be one such reason to consider switching into a fund that matches with ones needs. As one nears retirement, one might want to consider more conservative

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funds. If one gets married, one might need to compromise ones risk tolerance and desired returns with that of the spouse. This could trigger off the need to exit. A major change in any basic attribute of the fund when the fund changes any basic attribute as mentioned by it in its offer documents, the investors have a choice of getting out of it. Even SEBI has provided for an exit route being made available to the investors. Changes like a change in Asset Management Company or in investment style of fund or change of structure say from closed-end to open-end etc. are good enough reasons for an investor to consider switching or exiting from it as they are certainly likely to affect the fund in a major way. Fund doesnt comply with its objective One of the important parameters in the selection of the fund is alignment of the risk profiles of the investor and fund. The objective of the fund says a lot about how the fund plans to invest. If the objective is not being complied with, it is one of the exit points worth considering. For example, the three funds discussed above, Alliance Equity, Birla Advantage and ING Growth all claim to be diversified equity funds yet they had huge exposures to select ICE sector scripts that not only added volatility than is expected out of diversified funds but also in a way, went against their stated objective. The Fund's Expense Ratio Rises a small rise in an expense ratio is not a big deal, however a significant rise can result in substantial reduction of yields and so it would be better to exit the fund. In the case of bond funds or money market funds, it is highly unlikely that the fund can increase its returns enough to justify an increase in the fund's expenses. The Fund Manager has changed a simple change of fund managers, in itself, is not enough reason to sell a fund on a short-term basis. If it is a passively managed fund (index fund), then one has little to no reason to worry. However, if it is an actively managed fund, then has to keep the eyes open on the new manager. Observing the styles, stock picking and risks undertaken by the new manager is important for it discloses a lot about how the fund

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might fare in the future. If satisfied, one will have no reason to complain later but the process needs time and so an investor has to observe the fund manager for some time before one takes a decision. Enough has been earned However, nothing is as important as to rein the horses in time. The primary principle behind safety of investment is to take risks that can be tolerated. The principle also is specific on the expectations that the investor must have from any investment. Just as it is important to set realistic targets that one hopes to achieve from the investment, it is also important to exit when target as expected has been achieved irrespective of the fact that it might be generating better returns in a short-term. The above list is certainly not exhaustive and individuals will have other better reasons to quit as well. Its just that most dont know when to apply thought and so these would come in handy.

TIPS FOR MUTUAL FUND INVESTORS: (SUGGESTIONS) These are the few exact as regards investment in MFs taken from the book with Marketing for the 90s given by the Wall Street. 1. Check your letter of offer of funds prospectus to guard yourselves against any hidden fees. 2. Ensue that the funds track record is the same as that of the current management 3. Avoid MFs that charge exit fees at he back end door (fee s charged by MF from the unit holders at he time to redemption of the units.) 4. Buy the funds with no sale charged loads.(a load is a charge by the fund when investor buys it is called the entry load or when he sells is called the exit load.) 5. If the charge its heavy by the M F to discourage the investors from taking short positions in the funds units because too many investors sell their units at a time then the fund has to sell its holdings to meet the obligations that yield into vital of

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the fines overall return. Most short funds like guilt funds (these are the funds the invest only in government securities and treasury bills thus the investors have an opportunities to buy risk free securities). These funds yield a better return than a money market fund. It is good for the investors who desire safety of principal amount). Money market funds (these funds in views in money market instruments such as treasury bills, govt. bonds, certificates of bank deposits, commercial deposits). They charge no loads, however loads are limited by SEBI to 7%. 6. Check funds performance in bear as well a the bull market. 7. Guard fund risk by checking its portfolio for diversification volatility.

KEY STEPS FOR FINANCIAL PLANNING INSURE YOURSELF BEFORE YOU INVEST Insurance is the pre-requisite of all investments the main purpose of insurance is to protect your current life style after retirement. It acts as a shield against all type of financial risks. Investor has to realize that insurance is more for safe guarding against risk faced in life rather than being an investment for profit. CHOOSE SIMPLE INVESTMENT Our daily life is full of complications the day-to-day grind leaves us with little energy to keep track of our financial investments. That is copy an investor should choose

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simple & uncomplicated instruments. Therefore he has to invest the hassle free instruments. UTILIZE THE POWER OF COMPOUNDING Compounding means payment of interest on accumulated interest. Thus money earned by you works hard & earns more money for you. This implies that not only the principal earns income for you but interest generated by you also earns income. One important factor is the time period. Longer the time higher the benefit INVEST IN INTRUMENTS THAT KEEP YOU AHEAD OF INFLATION That silently creeps up from behind & starts eating your hard earned savings even before you realize the situation. An investor should look at the real return (the rate of return minus the rate of inflation) while considering an investment. He should invest in instruments, which provide profitable-post-inflation returns.

REDUCE TAX ON YOUR INVESTMENT There are two realities in the life. One is death & the other is tax. It is advisable that investments should be so planned that least possible tax would be required to be paid. Smart move for the investor is to save every rupee from tax man. GO FOR STABLE & REALISTIC RETURNS Stability of returns is more important that increased profit. Usually these are associated with high volatile investment options like equities & even with government securities or gilts as they also run high market risk. The asset allocation is suggested according to the risk profile of an investor. So invest in the best option & get the maximum returns.

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BIBLIOGRAPHY
www.njindiainvest.com www.moneycontrol.com www.amfiindia.com www.karvy.com www.valueresearchonline.com MUTUAL FUND PRODUCT AND SERVICES---- TAXMAN AMFI COURSE BOOK

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