1. INTRODUCTION 1.1 What is a Mutual fund?

Mutual fund is an investment company that pools money from shareholders and invests in a variety of securities, such as stocks, bonds and money market instruments. Most open-end Mutual funds stand ready to buyback (redeem) its shares at their current net asset value, which depends on the total market value of the fund's investment portfolio at the time of redemption. Most open-end Mutual funds continuously offer new shares to investors. Also known as an open-end investment company, to differentiate it froma closed-end investment company. Mutual funds invest pooled cash of many investors to meet the fund's stated investment objective. Mutual funds stand ready to sell and redeem their shares at any time at the fund's current net asset value: total fund assets divided by shares outstanding.

In Simple Words, Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in
1

accordancewith quantum of money invested by them. Investors of Mutual funds are known as unit holders. The profits or losses are shared by the investors in proportion to their investments. The Mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. In India, A Mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public. In Short, a Mutual fund is common pools of money in to which investors with common investment objective place their contributions that are to be invested in accordance with the stated investment objective of the scheme. The investment manager would invest the money collected from the investor in to assets that are defined/ permitted by the stated objective of the scheme. For example, an equity fund would invest equity and equity related instruments and a debt fund would invest in bonds, debentures, giltsetc. Mutual fund is a 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.

1.2 Objectives of the Study

The objective of the research is to study and detail analyzes of the IDFC Sterling Equity Fund &IDFC Tax Advantage (ELSS) Fund. To measure the satisfaction level of investors regarding mutual funds. An attempt has been made to measure various variables playing in the minds of investors in terms of safety, liquidity, service, returns, and tax saving. To get insight knowledge about mutual funds. Understanding the different ratios & portfolios so as to tell the distributors about these terms, by this, managing the relationship with the distributors. To know the mutual funds performance levels in the present market. Detail analysis of comparison of two fund i.e. Sterling Equity & Tax Advantages.

1.3History of Mutual Fund in India

The Evolution The formation of Unit Trust of India marked the evolution of the Indian mutual fund industry in the year 1963. The primary objective at that time was to attract the small investors and it was made possible through the collective efforts of the Government of India and the Reserve Bank of India. The history of mutual fund industry in India can be better understood divided into following phases: Phase 1. Establishment and Growth of Unit Trust of India - 1964-87 Unit Trust of India enjoyed complete monopoly when it was established in the year 1963 by an act of Parliament. UTI was set up by the Reserve Bank of India and it continued to operate under the regulatory control of the RBI until the two were delinked in 1978 and the entire control was transferred in the hands of Industrial Development Bank of India (IDBI). UTI launched its first scheme in 1964, named as Unit Scheme 1964 (US-64), which attracted the largest number of investors in any single investment scheme over the years. UTI launched more innovative schemes in 1970s and 80s to suit the needs of different investors. It launched ULIP in 1971, six more schemes between 1981-84, Children's Gift Growth Fund and India Fund (India's first offshore fund) in 1986, Master share (Indias first equity diversified scheme) in 1987 and Monthly Income Schemes (offering assured returns) during 1990s. By the end of 1987, UTI's assets under management grew ten times to Rs 6700 cores. Phase II. Entry of Public Sector Funds - 1987-1993 The Indian mutual fund industry witnessed a number of public sector players entering the market in the year 1987. In November 1987, SBI Mutual Fund from the State Bank of India became the first non-UTI mutual fund in India. SBI Mutual Fund was later followed by Canbank Mutual Fund, LIC Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. By 1993, the assets under management of the industry increased seven times to Rs. 47,004 cores. However, UTI remained to be the leader with about 80% market share.
4

1992-93

Amount Mobilised

Assets

Under Mobilisation as % of gross Domestic Savings 5.2% 0.9% 6.1%

Management 38,247 8,757 47,004

UTI Public Sector Total

11,057 1,964 13,021

Phase III. Emergence of Private Sector Funds - 1993-96 The permission given to private sector funds including foreign fund management companies (most of them entering through joint ventures with Indian promoters) to enter the mutual fund industry in 1993, provided a wide range of choice to investors and more competition in the industry. Private funds introduced innovative products, investment techniques and investor-servicing technology. By 1994-95, about 11 private sector funds had launched their schemes. Phase IV. Growth and SEBI Regulation - 1996-2004 The mutual fund industry witnessed robust growth and stricter regulation from the SEBI after the year 1996. The mobilization of funds and the number of players operating in the industry reached new heights as investors started showing more interest in mutual funds. Inventors interests were safeguarded by SEBI and the Government offered tax benefits to the investors in order to encourage them. SEBI (Mutual Funds) Regulations, 1996 was introduced by SEBI that set uniform standards for all mutual funds in India. The Union Budget in 1999 exempted all dividend incomes in the hands of investors from income tax. Various Investor Awareness Programmes were launched during this phase, both by SEBI and AMFI, with an objective to educate investors and make them informed about the mutual fund industry. In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal status as a trust formed by an Act of Parliament. The primary objective behind this was to bring all mutual fund players on the same level. UTI was re-organized into two parts: 1. The Specified Undertaking, 2. The UTI Mutual Fund

Phase V. Growth and Consolidation - 2004 Onwards The industry has also witnessed several mergers and acquisitions recently, examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international mutual fund players have entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were 29 funds as at the end of March 2006. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players.

1.4 Types of mutual funds

1. Schemes according to Maturity Period:A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period. Open-ended Fund/ Scheme:An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity. Close-ended Fund/ Scheme:A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. 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 the units 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
7

provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.

2. Schemes according to Investment Objective:A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows: Growth / Equity Oriented Scheme:The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time. Income / Debt Oriented Scheme: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, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.

Balanced Fund:The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund:These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.

3. Others: Sector specific funds/schemes:These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. They may also seek advice of an expert. Tax Saving Schemes:These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These
9

schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme. Gilt Fund:These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes. Index Funds :Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc these schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. Fund of Funds (FoF) scheme:A scheme that invests primarily in other schemes of the same mutual fund or other mutual funds is known as a FoF scheme. AnFoF scheme enables the investors to achieve greater diversification through one scheme. It spreads risks across a greater universe. Load or no-load Fund:A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If the entry as well as exit load charged is 1%, then the investors who buy would be required to pay Rs.10.10 and those who offer their units for repurchase to the mutual fund will get only Rs.9.90 per unit. The investors should take the loads into consideration while making investment as these affect their yields/returns. However, the investors should also consider the performance track record and service standards of the mutual fund which are more important. Efficient funds may give higher returns in spite of loads. A no-load fund is one that does not charge for entry or exit.

10

1.5 Advantages& Disadvantage of Mutual Fund

Advantage of Mutual fund 1. Portfolio Diversification Mutual Funds invest in a well-diversified portfolio of securities which enables investor to hold a diversified investment portfolio.

2.

3.

4.

5.

6.

Fund manager undergoes through various research works and has better investment management skills which ensure higher returns to the investor than what he can manage on his own. Investors acquire a diversified portfolio of securities Less Risk even with a small investment in a Mutual Fund. The risk in a diversified portfolio is lesser than investing in merely 2 or 3 securities. Low Transaction Due to the economies of scale, mutual funds pay lesser transaction costs. These benefits are passed on to the Costs investors. An investor may not be able to sell some of the shares Liquidity held by him very easily and quickly, whereas units of a mutual fund are far more liquid. Choice of Investors have the option of investing in a scheme having a correlation between its investment objectives Schemes and their own financial goals. Professional Management

7.

Transparency

8.

Flexibility

Funds provide investors with updated information pertaining to the markets and the schemes. All material facts are disclosed to investors as required by the regulator. Investors also benefit from the convenience and flexibility offered by Mutual Funds. Investors can switch their holdings from a debt scheme to an equity scheme and vice-versa. Mutual Fund industry is part of a well-regulated investment environment where the interests of the investors are protected by the regulator. All funds are registered with SEBI and complete transparency is forced.

9.

Safety

11

 Disadvantage of Mutual Funds

1.

Costs

Control Investor has to pay investment management fees and

Not in the Hands fund distribution costs as a percentage of the value of of an Investor his investments (as long as he holds the units), irrespective of the performance of the fund. 2. No Customized The portfolio of securities in which a fund invests is a decision taken by the fund manager. Investors have no right to interfere in the decision making process of a fund manager, which some investors find as a constraint in achieving their financial objectives. 3. Difficulty Selecting Suitable Scheme in Many investors find it difficult to select one option a from the plethora of funds/schemes/plans available. Fund For this, they may have to take advice from financial planners in order to invest in the right fund to achieve their objectives.

Portfolios

12

1.6 Risks Associated With Mutual Funds

Investing in mutual funds as with any security, does not come without risk. One of the most basic economic principles is that risk and reward are directly correlated. In other words, the greater the potential risk, the greater the potential return. The types of risk commonly associated with mutual funds are: Market Risk: Market risk relate to the market value of a security in the future. Market prices fluctuate and are susceptible to economic and financial trends, supply and demand, and many other factors that cannot be precisely predicted or controlled.

Political Risk: Changes in the tax laws, trade regulations, administered prices etc. is some of the many political factors that create market risk. Although collectively, as citizens, we have indirect control through the power of our vote, individually as investors, we have virtually no control.

Inflation Risk: Inflation or purchasing power risk, relates to the uncertainty of the future purchasing power of the invested rupees. The risk is the increase in cost of the goods and services, as measured by the Consumer Price Index.

Interest Rate Risk: Interest Rate risk relates to the future changes in interest rates. For instance, if an investor invests in a long term debt mutual fund scheme and interest rate increase, the NAV of the scheme will fall because the scheme will be end up holding debt offering lowest interest rates.

Business Risk: Business Risk is the uncertainty concerning the future existence, stability and profitability of the issuer of the security. Business Risk is inherent in all business ventures. The future financial stability of a company cannot be
13

predicted or guaranteed, nor can the price of its securities. Adverse changes in business circumstances will reduce the market price of the companys equity resulting in proportionate fall in the NAV of mutual fund scheme, which has invested in the equity of such a company.

Economic Risk : Economic Risk involves uncertainty in the economy, which, in turn can have an adverse effect on a companys business. For instance, if monsoons fall in a year, equity stocks of agriculture bases companies will fall and NAVs of mutual funds, which have invested in such stocks, will fall proportionately.

14

1.7 How is a mutual fund set up?

A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset Management Company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unit holders. Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of securities. Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI Regulations by the mutual fund. SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme. Association of Mutual Funds in India (AMFI) With the increase in mutual fund players in India, a need for mutual fund association in India was generated to function as a non-profit organization. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August, 1995.AMFI is an apex body of all Asset Management Companies (AMC) which has been registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its Board of Directors. Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders.

15

 The objectives of Association of Mutual Funds in India:The Association of Mutual Funds of India works with 30 registered AMCs of the country. It has certain defined objectives which juxtaposes the guidelines of its Board of Directors. The objectives are as follows: This mutual fund association of India maintains high professional and ethical standards in all areas of operation of the industry. AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry. Association of Mutual Fund of India does represent the Government of India, the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry. It develops a team of well qualified and trained Agent distributors. It implements a programme of training and certification for all intermediaries and other engaged in the mutual fund industry. AMFI undertakes all India awareness programme for investors in order to promote proper understanding of the concept and working of mutual funds. At last but not the least association of mutual fund of India also disseminate information on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies.

16

2. COMPANY PROFILE (IDFC)

IDFC is a leading private sector diversified financial institution established by a consortium of strong global & local institutions with the support & sponsorship of the government of India. A majority of IDFCs shareholding (67% as of march 31st, 2008) is held by reputed global stalwarts that include respectable names like government of India, International Finance Corporation (IFC) a member of the world bank group, Government of Singapore, AIG, Morgan Stanley, Goldman Sachs, City Group, JP Morgan among others. The best Indian Financial Institutions such as HDFC, LIC, SBI& IDBI are owners in IDFC, making it an institution of high repute & standing.

2.1 History of IDFC

The Fund was established on March 13th 2000. Now the management of the fund has been taken over by Standard Chartered Bank, the UK based banking conglomerate. The name of the AMC too has been changed from ANZ AMC. Previously sponsored by ANZ Banking Group, Australia, this fund has just set up its operations in the year 2000. Australia & New Zealand Banking Group Limited, the previous sponsor of the fund, is leading International Bank & is also one of the Big Four Australian commercial Banks providing a full range of Banking & financial services with total assets of US $ 97.35 billion as on 30th September, 1999. ANZ funds management is a core business unit of the group &its one of Australias largest fund managers. It has a full range of investment product & services managing more than AUD $ 13267.7 million in customer funds on 30th September 1999. ANZ Banking group as significant presence in 35 nations from the Middle East to through South Asia & East Asia to Pacific

17

2.2 Asset Management

IDFC is determined to construct a comprehensive asset management business that consists of: Private Equity investments through IDFC Private Equity Co. Ltd. Project Equity through IDFC Project Equity Co. Ltd, Public Market Investment Advisory Services through IDFC investment Advisors Limited. IDFC Private Equity manages a corpus of US $ 630 million & is Indias largest & most active private equity focused on Infrastructure. The two funds under management are India Development Fund (IDF) & IDFC Private equity fund. IDFC, along with citigroup& India Infrastructure finance company limited (IIFCL) launched a landmark US $ 5 billion initiative for financing infrastructure projects in India. The Equity fund will be solely managed by IDFC. IDFC plans to raise approximately $ 1.7 billion in private & project funds focused on Infrastructure. The objective is to build a large asset management platform focused on private investments & public markets through a variety of domestic & offshore products.

18

2.3 IDFC Product Range

IDFC PRODUCT RANGE

EQUITY FUNDS
CLASSIC

BALANCED FUNDS
ASSET ALLOCATION AGGRESSIVE ASSET ALLOCATION ASSET ALLOCATION MODERATE MONTHLY INCOME PLAN

LIQUID FUNDS
CASH FUND

DEBT FUNDS
SUPER SAVER INCOME

STERLING

LIQUIDITY MANAGER

DYNAMIC BOND

PREMIER

GOVERNMENT SECURITIES

ARBITRAGE

MONEY MANAGER

ENTERPRISE

SSIINVESTMENT

TAX ADVANTAGE

SSI-SHORT TERM

ALL SEASON FUND

19

IDFC Product Range The categories of funds offered by IDFC are Equity funds, Liquid funds & Debt funds which is further categorized in to different types as shown in the chart below:

Equity Fund

Ideal Investment Horizon

Date of Inception

Classic Equity Fund Imperial Equity Fund Premier Equity Enterprise Equity Fund Sterling Equity Fund Strategic Sector(50-50) Tax Advantage (ELSS)Fund Nifty Fund INDIA GDP growth fund

3 yrs or more 3 yrs or more 3 yrs or more 3 yrs or more 3 yrs or more 3 yrs or more Lock in period of 3yrs 3 yrs or more 3 yrs or more

9th Aug 2005 16th March 2006 28thsep 2005 9th June 2006 7th March 2008 3rd Oct 2008 26th Dec 2008 30th April 2010 11th March 2009

Liquid Funds

Ideal Horizon

Investment Date Of Inception

Cash Funds

1 Day or More

2nd July 2001

20

Debt Fund

Ideal Investment Horizon

Dividend Frequency

Date Of Inception

Super Saver Income 1 Year or more Fund- Investment Dynamic Bond Fund Super Saver Income 6 months or more Fund- Medium Term Super saver Income Fund-Short Term Money Manager Fund-Treasury plan 1 day or more 3 months or more 1 Year or more

Quarterly, Half Yearly, Annually Quarterly & Annually

14th July 2000

25th June 2002

Bi-monthly, Monthly, Fortnightly & daily

8th July 2003

Monthly, Fortnightly

14th December 2000

Monthly & Daily/Weekly with compulsory reinvestment

18th February 2003

Money Manager Fund Investment Plan Government Securities Fund-

1 day or more

Daily &WeeklyMonthly, Quarterly and Annual.

9th August 2004

1 year or more

Quarterly/Half yearly/Yearly

9th March 2002

Investment Plan All Seasons Bond 1 year or more Fund Quarterly/Half yearly 13th September 2004 & Annual

21

2.4 SWOT Analysis of IDFC Mutual Fund

Strengths Good brand name of the company in all over India. Flexible products. Expertise in the field of Mutual Fund. Sound Financial Resources of the company as well as sponsors. Strong communication network all over the country.

Weakness Less awareness regarding mutual funds among the investors. Yet to build strong distribution network. Has not yet tapped the potential of rural market.

Opportunities Tap the untapped rural market Increasing income of the people provide an opportunity to come up with products to fulfill their need. Threats The numbers of players are increasing which further increases the competition. Product innovation done by other asset management companies & is able to collect large amounts. Customer mindsets are still rigid & they mostly prefer traditional pattern of investments.

22

3. TOOLS USED FOR ANALYSIS

Worldwide, good mutual fund companies over are known by their AMCs and this fame is directly linked to their superior stock selection skills. For mutual funds to grow, AMCs must be held accountable for their selection of stocks. In other words, there must be some performance indicator that will reveal the quality of stock selection of various AMCs. Return alone should not be considered as the basis of measurement of the performance of a mutual fund scheme, it should also include the risk taken by the fund manager because different funds will have different levels of risk attached to them. Risk associated with a fund, in a general, can be defined as variability or fluctuations in the returns generated by it. The higher the fluctuations in the returns of a fund during a given period, higher will be the risk associated with it. These fluctuations in the returns generated by a fund are resultant of two guiding forces. First, general market fluctuations, which affect all the securities, present in the market, called market risk or systematic risk and second, fluctuations due to specific securities present in the portfolio of the fund, called unsystematic risk. The Total Risk of a given fund is sum of these two and is measured in terms of standard deviation of returns of the fund. Systematic risk, on the other hand, is measured in terms of Beta, which represents fluctuations in the NAV of the fund vis--vis market. The more responsive the NAV of a mutual fund is to the changes in the market; higher will be its beta. Beta is calculated by relating the returns on a mutual fund with the returns in the market. While unsystematic risk can be diversified through investments in a number of instruments, systematic risk cannot. By using the risk return relationship, we try to assess the competitive strength of the mutual funds vis--vis one another in a better way. In order to determine the risk-adjusted returns of investment portfolios, several eminent authors have worked since 1960s to develop composite performance indices to evaluate a portfolio by comparing alternative portfolios within a particular risk class. The most important and widely used measures of performance are:

23

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 Biis beta of the fund. All risk-averse investors would like to maximize this value. While a high and positive Treynor's Index shows a superior risk-adjusted performance of a fund, a low and negative Treynor's Index is an indication of unfavorable performance. The Sharpe Measure

In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is a ratio of returns generated by the fund over and above risk free rate of return and the total risk associated with it. According to Sharpe, it is the total risk of the fund that the investors are concerned about. So, the model evaluates funds on the basis of reward per unit of total risk. Symbolically, it can be written as:

Sharpe Index (Si) = (Ri - Rf)/Si

Where, Si is standard deviation of the fund. While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund, a low and negative Sharpe Ratio is an indication of unfavorable performance. Jenson Model

Jenson's model proposes another risk adjusted performance measure. This measure was developed by Michael Jenson and is sometimes referred to as the Differential Return Method. This measure involves evaluation of the returns that the fund has generated vs. the returns actually expected out of the fund given the level of its systematic risk. The surplus between the two returns is called Alpha, which measures
24

the performance of a fund compared with the actual returns over the period. Required return of a fund at a given level of risk (Bi) can be calculated as:

Ra# = Rf + Bi (Rm - Rf) = Ri [ rf + i( 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 cannot 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:

Ra# = Rf + Si/Sm*(Rm - Rf)

Where, Sm is standard deviation of market returns. The net selectivity is then calculated by subtracting this required return from the actual return of the fund.

25

3.1 Statistical Tools

The various statistical used in this research are -: Mean

The mean is the mathematical average of a set of numbers. The average iscalculated by adding up two or more scores an giving the total by the number of scores.

Mean= X/N
Where: X= Values in the set N= Number of values in the set Here the need to calculate the mean arises because the returns are considered over 12 quarters. So it is necessary to get a average return, that can be used for the calculation. The various mean calculated here are as follows-: Mean of the returns of the portfolio -: Ra Mean of the returns from market or risk free return -: Ra*

Standard Deviation

It measures how widely values are dispersed from the average. Dispersion is the difference between the actual value and the average value. The larger the difference between the closing prices and the average price, the higher the standard deviation will be and the higher the volatility and vice versa.

(R Ra) 2 Standard Deviation of return = N-1

26

Here it is necessary to calculate the standard deviation of the returns of the portfolio to get to know the total risk associated with the portfolio. The various standard deviations calculated here are-: Standard deviation of the return of portfolio -: i Standard deviation of the return of market -: m

Covariance

It is a measure of the degree to which returns on two risky assets move in tandem. A positive covariance means that asset returns move together. A negative covariance means returns move inversely.One method of calculating covariance is by looking at return surprises (deviations from expected return) in each scenario. Another method is to multiply the correlation between the two variables by the standard deviation of each variable.

COV (RA, RM) =

(RA RA*) (RM RM*) (N-1)

R-Squared

It is a statistical measure that represents the percentage of a fund or security's movements that can be explained by movements in a benchmark index.R-squared values range from 0 to 100. An R-squared of 100 means that all movements of a security are completely explained by movements in the index. A high R-squared (between 85 and 100) indicates the fund's performance patterns have been in line with the index. A fund with a low R-squared (70 or less) doesn't act much like the index. A higher R-squared value will indicate a more useful beta figure. For example, if a fund has an R-squared value of close to 100 but has a beta below 1, it is most likely offering higher risk-adjusted returns. A low R-squared means you should ignore the beta.
27

Beta

It is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is used in the capital asset pricing model (CAPM), a model that calculates the expected return of an asset based on its beta and expected market returns. Beta is calculated using regression analysis, and you can think of beta as the tendency of a security's returns to respond to swings in the market. A beta of 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market.

Beta =

(RA RA*) (RM RM*)

(RM RM*) 2

OR

Beta (A) =

COV (RA, RM) 2M

Beta value of the benchmark is considered to be 1. SPSS has been used for analyzing the data and for generating various tables.

28

3.2 Terms Used

Net Asset Value (NAV)-: NAV is the term used for the value of a mutual fund share. determine NAV is The calculation to

NAV = (Assets Liabilities) / Outstanding Shares Or NAV = Net Assets / Outstanding Shares

Here the NAV of different funds have been taken from the AMC itself. [NOTE: Opening NAV indicates the value at the beginning of the quarter. Closing NAV indicates the value at the end of the quarter. ]

Return -: Return is defined as income earned for amount invested over a given period of time. It is standardized as % per annum. It can be calculated as follows

Returns =

Ending NAV Beginning NAV

Beginning NAV

Return can also be defined as the amount or rate of proceeds, gain, profit which accrues to an economic agent from an undertaking or enterprise or real/ financial investment. It is a motivating force behind investment, the objective of an investor is usually to maximize return.

29

3.3 Measurement of risk

Beta Coefficient Measure ofRisk:

Beta relates a funds return with a market index. It basically measures the sensitivity of funds return to changes in market index. If Beta = 1 Fund moves with the market i.e. Passive fund If Beta < 1 Fund is less volatile than the market i. e Defensive Fund If Beta > 1 Funds will give higher returns when market rises & higher losses when market falls i.e. Aggressive Fund Ex Marks or R-squared Measure of Risk:

Ex Marks represents co relation with markets. Higher the Ex-marks lower the risk of the fund because a fund with higher Ex-marks is better diversified than a fund with lower Ex-marks. Standard Deviation Measure of Risk: It is a statistical concept, which measures volatility. It measures the fluctuations of funds returns around a mean level. Basically it gives you an idea of how volatile your earnings are. It is broader concept than BETA. It also helps in measuring total risk and not just the market risk of the portfolio.

30

3.4 How to Calculate the Value of a Mutual Fund:

The investors funds are deployed in a portfolio of securities by the fund manager. The value of these investments keeps changing as the market price of the securities change. Since investors are free to enter and exit the fund at any time, it is essential that the market value of their investments is used to determine the price at which such entry and exit will take place. The net assets represent the market value of assets, which belong to the investors, on a given date. Net Asset Value

NAV of a mutual fund is the value of one unit of investment in the fund, in net asset terms. NAV = Net Assets of the scheme / Number of Units Outstanding Where Net Assets are calculated as:(Market value of investments + current assets and other assets + Accrued income current liabilities and other liabilities less accrued expenses) / No. of Units Outstanding as at the NAV date NAV of all schemes must be calculated and published at least weekly for closed-end schemes and daily for open-end schemes. The major factors affecting the NAV of a fund are: Sale and purchase of securities Sale and repurchase of units Valuation of assets Accrual of income and expenses SEBI requires that the fund must ensure that repurchase price is not lower than 93% of NAV (95% in the case of a closed-fund). On the other side, a fund may sell new units at a price that is different from the NAV, but the sale price cannot be higher than 107 % of NAV. Also the difference between the repurchase price and the sale price of the unit is not permitted to exceed 7% of the sale price.

31

3.5 Measuring Mutual Fund Performance:

We can measure mutual funds performance by different method: Absolute Return Method:

Percentage change in NAV is an absolute measure of return, which finds the NAV appreciation between two points of time, as a percentage. e .g: If NAV of one fund changes from Rs.20 to Rs.22 in 12 months then Absolute return = (22 20)/20 X 100 =10% Simple Annual Return Method:

Converting a return value for a period other than one year, into a value for one year, is called as annualisation. In order to annualize a rate, we find out what the return would be for a year, if the return behaved for a year, in the same manner it did, for any other fractional period. E .g: If NAV of one fund changes from Rs.20 to Rs.22 in 6 months then Annual Return = (22 20) /20 X 12/6 X 100 Total Return Method: = 20%

The total return method takes into account the dividends distributed by the mutual fund, and adds it to the NAV appreciation, to arrive at returns. Total Return = (Dividend distributed + Change in NAV)/ NAV at the start X 100

e .g: If NAV of one fund changes from Rs.20 to Rs.22 in 6 months if in between dividend of Rs. 4 has been distributed then Total Return = {4 + (22 20)}/20 X 100 = 30%

32

Total Return when dividend is reinvested:

This method is also called the return on investment (ROI) method. In this method, the dividends are reinvested into the scheme as soon as they are received at the then prevailing NAV (ex-dividend NAV). = ((Value of holdings at the end of the period/ value of the holdings at the beginning) 1)*100 E.g. An investor buys 100 units of a fund at Rs. 10.5 on January 1, 2007. On June 30, 2007 he receives dividends at the rate of 10%. The ex-dividend NAV was Rs. 10.25. On December 31, 2007, the funds NAV was Rs. 12.25. Value of holdings at the beginning period= 10.5*100= 1050 Number of units re-invested = 100/10.25 = 9.756 End period value of investment = 109.756*12.25 = 1344.51 Rs. Return on Investment = ((1344.51/1050)-1)*100 = 28.05% Compounded Average Annual Return Method:

This method is basically used for calculating the return for more than 1 year. In this method return is calculated with the following formula: A = P X (1 + R / 100) N Where P = Principal invested A = maturity value N = period of investment in years R = Annualized compounded interest rate in % R = {(Nth root of A / P) 1} X 100 E. g: If amount invested is Rs. 100 & in the end we get return of Rs. 200 & period of investment is 10 years then annualized compounded return is 200 = 100 (1 + R / 100) 10 Rate = 7.2 %
33

3.6 Returns:
Returns have to be studied along with the risk. A fund could have earned higher return than the benchmark. But such higher return may be accompanied by high risk. Therefore, we have to compare funds with the benchmarks, on a risk adjusted basis. William Sharpe created a metric for fund performance, which enables the ranking of funds on a risk adjusted basis.

Sharpe Ratio

Risk Premium Funds Standard Deviation

Treynor Ratio

Risk Premium Funds Beta

Risk Premium = Difference between the Funds Average return and Risk free return on government security or treasury bill over a given period .

34

3.7 Liquidity:
Most of the funds being sold today are open-ended. That is, investors can sell their existing units, or buy new units, at any point of time, at prices that are related to the NAV of the fund on the date of the transaction. Since investors continuously enter and exit funds, funds are actually able to provide liquidity to investors, even if the underlying markets, in which the portfolio is invested, may not have the liquidity that the investor seeks.

Expense Ratio:

Expense ratio is defined as the ratio of total expenses of the fund to the average net assets of the fund. Expense ratio can actually understate the total expenses, because brokerage paid on transactions of a fund are not included in the expenses. According to the current SEBI norms, brokerage commissions are capitalized and included in the cost of the transactions.

Expense ratio

Total Expenses Average Net Assets

35

Composition of the Portfolio:

Credit quality of the portfolio is measured by looking at the credit ratings of the investments in the portfolio. Mutual Fund fact sheets show the composition of the portfolio and the investments in various asset classes over time. Portfolio turnover rate is the ratio of lesser of asset purchased or sold by funds in the market to the net assets of the fund.If Portfolio ratio is 100% means portfolio has been changed fully. When Portfolio ratio is high means expense ratio is high.

Portfolio Ratio =

Total Sales & Purchase Net Assets of fund

In order to meaningfully compare funds some level of similarity in the following factors has to be ensured: Size of the funds Investment objective Risk profile Portfolio composition Expense ratios

36

3.8 Fund evaluation against benchmark:

Funds can be evaluated against some performance indicators which are known as benchmarks. There are 3 types of benchmarks: 1. Relative to market as whole: There are different ways to measure the performance of fund w.r.t market as Equity Funds Index Fund An Index fund invests in the stock comprising of the index in the same ratio. This is a passive management style. For example, Market Index Fund Nifty Index Fund BSE Sensex NIFTY

The difference between the return of this fund and its index benchmark can be explained by TRACKING ERROR. 2. Active Equity Funds: The fund manager actively manages this fund. To evaluate performance in such case we have to select an appropriate benchmark. Large diversified equity fund Sector fund 3. Debt Funds: Debt fund can also be judged against a debt market index e.g. I-BEX BSE 100 Sectoral Indices

37

4. STERLING EQUITY FUND

Nature: Equity Average AUM (Jan-Mar): 1,387.38 Crores Inception Date: 7 March 2008 Fund Manager: Mr. Kenneth Andrade (Since Inception)

4.1 About this fund

Sterling Equity Fund is benchmarked to CNX Midcap sectors and within that there is active stock selection. The portfolio bias is towards companies that are financially sound, have proven business models, tend to lead markets and are consolidating.

4.2 Investment objective

The investment objective of the Scheme is to seek to generate capital appreciation from a diversified portfolio of equity and equity related instruments. The Scheme will predominantly invest in sterling equity and equity related instruments. Sterling equity and equity related instruments will be the stocks included in the CNX Midcap index or equity and equity related instruments of such companies which have a market capitalization lower than the highest components of CNX Midcap Index. The Scheme may also invest in stock other than mid cap stocks (i.e. in stocks, which have a market capitalisation of above the market capitalisation range of the defined small midcap stocks) and derivatives. On defensive consideration, the Scheme may also invest in debt and money market instruments. However there is no assurance that the investment objective of the scheme will be realized.

38

4.3Current Strategy
Currently the portfolio stands diversified amongst companies with secular growth levels otherwise called defensives, businesses with large outsourcing capabilities or companies who are internationally competitive and de-risked from the domestic economic environment and companies which tend to move with the economic environment called cyclical. Despite the argument of environment growing slower we are moderately inching up into the cyclical part of the economy given the favorable valuations, as we believe that companies with a dominant market share and growing cash flows would consolidate this space going forward. Our portfolio will go through a change from the present 42 stock diversified portfolio and we would highlight the same as we get into the next cycle.

4.4 Other Parameter:

Particulars Beta R-Square Standard deviation Sharpe Ratio Sterling Equity 0.73 0.86 4.81% 0.37

Asset Allocation
Particulars Equity Debt Sterling Equity 81.94 18.06

39

4.5 Portfolio

40

Asset Class

Range of allocation (% Risk Profile of Net Assets) Equities & Equity related 65 100 High instruments included in the CNX Midcap Index or Equity and Equity related instruments of companies which have a market capitalization lower than the highest components of CNX 15 50 Midcap Index, of which 50 100 Small Cap Stocks shall be: Midcap Stocks shall be: Equity & Equity related 0 35 High instruments of companies which have a market capitalization higher than the highest component of CNX Midcap Index (i.e. in Equity and Equity related instruments of companies with market capitalization above the defined SmallMid cap stocks) Debt and Money Market 0 35 Low to Medium instruments(including Securitised Debt instruments)

41

42

5. TAX ADVANTAGE (ELSS) FUND 5.1 Investment objective -:

The scheme shall seek to generate long-term capital growth from an actively managed portfolio of predominately equity and equity related instruments.

5.2 Investment style-:

The scheme will invest in well managed growth companies that are available at reasonable value. Companies would be identified through a systematic process of forecasting earnings based on a deep understanding of industry growth potential and interaction with company management.

5.3 Benchmark-:
BSE200 is the benchmark for this fund. It consists of 200 scripts and it is easy to track because they are not very concentrated and stocks are more liquid.

Particulars Average Return Beta R-Square Standard deviation Treynor Sharpe Jensons alpha Fama

Tax Advantage Fund (ELSS) 12.6891 0.5001 0.910 12.2311 10.016 0.4095 1.3013 1.122

BSE 200 15.0941 1

23.3288 7.4141 0.3178 0 0

43

ELSS FUND (TAX ADVANTAGE)

60 50 40

RETURNS

30 20 10 0 -10 1 2 3 TIME HORIZON Fund returns Market returns 4 5

The average return of the fund is 12.6891 where as that of the benchmark is 15.0941. The beta value of the fund is 0.5001 which means that the fund is less volatile than the benchmark. R-square value is 0.910. The standard deviation of the fund is 12.2311 whereas that of the bench mark is 23.3288 which show that the fund is less volatile than the benchmark, as the total risk associated with it less than that of the benchmark.

A higher Treynor ratio of 10.016 shows that the fund has a superior-risk adjusted performance as compared to the benchmark which has Treynor ratio of 7.4141

A higher Sharpe ratio (0.4095) of the fund as compared to lower Sharpe ratio if the benchmark (0.3178) means that the total risk adjusted performance of the fund is more than that of the benchmark.

A positive Jensens alpha value (1.3031) shows us that the fund returns are more than what the investors expect with a given value of 0.5001

A positive Famas net selectivity value (1.122) shows us that the fund returns
are more than what investors expect with respect to the total risk (standard deviation) of the fund as well as the market.

44

5.4 Portfolio

45

46

5.5 Tax Treatment For The Investors (Unit Holders):Tax benefits of investing in the Mutual Fund As per the taxation laws in force as at the date of the Offer Document, some broad income tax implications of investing in the units of the Scheme are stated below. The information so stated is based on the Mutual Fund's understanding of the tax laws in force as of the date of the Offer Document, which have been confirmed by its auditors. As the tax consequences are specific to each investor and in view of the changing tax laws, each investor is advised to consult his or her or its own tax consultant with respect to the specific tax implications arising out of his or her or its participation in the Scheme. Implications of the Income-tax Act, 1961 as amended by the Finance Act, 2006 To the Unit holders (a.) Tax on Income In accordance with the provisions of section 10(35)(a) of the Act, income received by all categories of unit holders in respect of units of the Fund will be exempt from income-tax in their hands. Exemption from income tax under section 10(35) of the Act would, however, not apply to any income arising from the transfer of these units.

(b.) Tax on capital gains As per the provisions of section 2(42A) of the Act, a unit of a Mutual Fund, held by the investor as a capital asset, is considered to be a short-term capital asset, if it is held for 12 months or less from the date of its acquisition by the unit holder. Accordingly, if the unit is held for a period of more than 12 months, it is treated as a long-term capital asset.

47

Computation of capital gain Capital gains on transfer of units will be computed after taking into account the cost of their acquisition. While calculating long-term capital gains, such cost will be indexed by using the cost inflation index notified by the Government of India. Individuals and HUFs, are granted a deduction from total income, under section 80C of the Act uptoRs. 100,000, in respect of specified investments made during the year (please also refer paragraph d). Long-term capital gains As per Section 10(38) of the Act, long-term capital gains arising from the sale of unit of an equity oriented fund entered into in a recognized stock exchange or sale of such unit of an equity oriented fund to the mutual fund would be exempt from income-tax, provided such transaction of sale is chargeable to securities transaction tax.Pursuant to an amendment made in the Finance Act, 2006, effective 1 April 2006, companies would be required to include such long term capital gains in computing the book profits and minimum alternated tax liability under section 115JB of the Act. Short -term capital gains As per Section 111A of the Act, short-term capital gains from the sale of unit of an equity oriented fund entered into in a recognized stock exchange or sale of such unit of an equity oriented fund to the mutual fund would be taxed at 10 per cent, provided such transaction of sale is chargeable to securities transaction tax. The said tax rate would be increased by a surcharge of: 10 per cent in case of non-corporate Unit holders, where the total income exceeds Rs.1,000,000, 10 per cent in case of resident corporate Unit holders, and 2.5 per cent in case of non-resident corporate unit holders irrespective of the amount of taxable income. Further, an additional surcharge of 2 per cent by way of education cess would be charged on amount of tax inclusive of surcharge.
48

 In case of resident individual, if the income from short term capital gains is less than the maximum amount not chargeable to tax, then there will be no tax payable. Non-residents In case of non-resident unit holder who is a resident of a country with which India has signed a Double Taxation Avoidance Agreement (which is in force) income tax is payable at the rates provided in the Act, as discussed above, or the rates provided in the such agreement, if any, whichever is more beneficial to such non-resident unit holder. Investment by Minors Where sale / repurchase is made during the minority of the child, tax will be levied on either of the parents, whose income is greater, where the said income is not covered by the exception in the proviso to section 64(1A) of the Act. When the child attains majority, such tax liability will be on the child. Losses arising from sale of units - As per the provisions of section 94(7) of the Act, loss arising on transfer of units, which are acquired within a period of three months prior to the record date (date fixed by the Fund for the purposes of entitlement of the unit holder to receive the income from units) and sold within a period of nine months after the record date, shall not be allowed to the extent of income distributed by the Fund in respect of such units. - As per the provisions of section 94(8) of the Act, where any units ("original units") are acquired within a period of three months prior to the record date (date fixed by the Fund for the purposes of entitlement of the unit holder to receive bonus units) and any bonus units are allotted (free of cost) based on the holding of the original units, the loss, if any, on sale of the original units within a period of nine months after the record date, shall be ignored in the computation of the unit holder's taxable income. Such loss will however, be deemed to be the cost of acquisition of the bonus units. -Each Unit holder is advised to consult his / her or its own professional tax advisor before claiming set off of long-term capital loss arising on sale / repurchase of units of
49

an equity oriented fund referred to above, against long-term capital gains arising on sale of other assets. Short-term capital loss suffered on sale / repurchase of units shall be available for set off against both long-term and short-term capital gains arising on sale of other assets and balance short-term capital loss shall be carried forward for set off against capital gains in subsequent years. Carry forward of losses is admissible maximum upto eight assessment years. (c.) Tax withholding on capital gains Capital gains arising to a unit holder on repurchase of units by the Fund should attract tax withholding as under: No tax needs to be withheld from capital gains arising to a FII on the basis of the provisions of section 196D of the Act. In case of non-resident unit holder who is a resident of a country with which India has signed a double taxation avoidance agreement (which is in force) the tax should be deducted at source under section 195 of the Act at the rate provided in the Finance Act of the relevant year or the rate provided in the said agreement, whichever is beneficial to such non-resident unit holder. However, such a nonresident unit holder will be required to provide appropriate documents to the Fund, to be entitled to the beneficial rate provided under such agreement. No tax needs to be withheld from capital gains arising to a resident unit holder on the basis of the Circular no. 715 dated 8 August 1995 issued by the CBDT. Subject to the above, the provisions relating to tax withholding in respect of gains arising from the sale of units of the various schemes of the fund are as under: No tax is required is to be withheld from long term capital gains arising from sale of units in equity oriented fund schemes, that are subject to securities transaction tax. In respect of short-term capital gains arising to foreign companies (including Overseas Corporate Bodies), the Fund is required to deduct tax at source at the rate of 10.46 per cent (10 per cent tax plus 2.5 per cent surcharge thereon plus additional surcharge of 2 per cent by way of education cess on the tax plus
50

surcharge). In respect of short-term capital gains arising to non-resident individual unit holders, the Fund is required to deduct tax at source at the rate of 11.22 per cent (10 per cent tax plus 10 per cent surcharge thereon2 plus additional surcharge of 2 per cent by way of education cess on the tax plus surcharge). (d.) Wealth Tax Units held under the Schemes of the Fund are not treated as assets within the meaning of section 2(ea) of the Wealth Tax Act, 1957 and therefore, not liable to wealth-tax. (e.) Securities Transaction Tax Nature of Transaction Current tax rate Tax rate effective (%) 1 June 2006 (%) Delivery based purchase transaction in equity shares or units of equity oriented fund entered in a recognized stock exchange 0.1 0.125 Delivery based sale transaction in equity shares or units of equity oriented fund entered in a recognized stock exchange 0.1 0.125 Non-delivery based sale transaction in equity shares or units of equity oriented fund entered in a recognized stock exchange. 0.02 0.025 Sale of units of an equity oriented fund to the mutual fund 0.2 0.25 Value of taxable securities transaction in case of units shall be the price at which such units are purchased or sold. A deduction in respect of securities transaction tax paid is not permitted for the purpose of computation of business income or capital gain. However, if the total income of an assessee includes any business income arising from taxable securities transactions, he shall be entitled to a rebate3 from income-tax of an amount equal to the securities transaction tax paid by him in respect of the taxable securities transactions entered during the course of his business. The maximum amounts of total income, not chargeable to tax are as under: Type of person Maximum amount of income not chargeable to tax

Women Senior citizens Other individuals and HUFs

51

Rs. 135,000 Rs. 185,000 Rs. 100,000

5.6 Tax Rules for Mutual Fund Investors

Equity schemes Other schemes Dividend income Short Term Capital Gains Resident Individua l / HUF 10% Long Term Capital Gain NIL Short Term Capital Gains AS PER SLAB Long Term Capital Gain 10% (20% with indexatio n) Partnersh ip Firms 10% NIL 30% 10% (20% with indexatio n) NIL TAX FREE NIL NIL TAX FREE NIL 28.32% (25%+10% surcharge+ education cess) 28.32% (25%+10% surcharge+ education cess) 14.16% (12.5%+10 %surcharge +3%educat ion cess) 22.66% (20%+10% surcharge+ 3% education cess) AOP/BO I 10% NIL AS PER SLAB 10% (20% with indexatio n) NIL TAX FREE NIL 28.32% (25%+10% surcharge+ education cess) 22.66% (20%+10% surcharge+ 3% education cess) Domestic Compani es 10% NIL 30% 10% (20% with indexatio n) NIL TAX FREE NIL 28.32% (25%+10% surcharge+ education cess) 22.66% (20%+10% surcharge+ 3% education cess) NRIs 10% NIL AS PER SLAB 10% (20% with indexatio n) STC G30% LTC G20% TAX FREE NIL 28.32% (25%+10% surcharge+ education cess) 14.16% (12.5%+10 %surcharge +3%educat ion cess) TDS All Schemes Equity Schemes Liquid Schemes Other Schemes Dividend distribution tax

52

6. COMPARISON BETWEEN BOTH FUNDS WITH THE HELP OF GRAPH

53

Kenneth Andrade Star Fund Manager of IDFC

Head Investment IDFC Mutual Fund (BCom) Kenneth Andrade is working at IDFC Mutual Fund as Head Investment. He has around 15 years experience in Equity Research and fund management. In his last assignment has was designated as Fund Manager (Equity) with Kotak Mahindra Asset Management Company Limited (July 2002- Sept.2005), managed equity portfolios. SSKI Investor Services (March 1999- July 2001)& (Jan 2002 ?..July 2002) was involved in Portfolio advisory- Retail Broking Services, Nimbus Communications(July 2001-Jan 2002) was involved in Broadcasting ?.. Content Development, LKP Shares Brokers Pvt. Ltd (January 1998- March 1999) was a Analyst -Equity Research, Meghraj Financial Services (July 1996-July 1998) was a Portfolio Manager.

54

E very morning around 8:30, Kenneth Andrade is usually among the first employees to walk into the plush IDFC Mutual Fund office at Indiabulls Centre in Mumbais Lower Parel. The interfere with other peoples work. Golden Rules For Winning Portfolio: Andrades principles to stay ahead in the rat race: Pick financially sound companies, preferably debt-free. Choose companies that respect capital. Always stay with the leaders in the industry. Dont buy underlying businesses, buy profitability. Dont ignore absolute value like earnings yield. Monopolistic entities make all the money but be prepared to pay the price for it. Consolidating businesses are better than fragmenting businesses. Never ignore return on capital employed and return on Net worth. If there are many competitors, dont bother to pay even be market valuation. Always stick to what you know best. 42-year-old chief investment

officer tends to be a loner, who keeps to himself and prefers not to

55

7. DATA ANALYSIS
Statistical Tool Kind of investments People prefer most Particular Mutual Fund Fixed Deposit Insurance Saving Other No.of People 2 3 3 3 3

Mean = X/n So here, = 2+3+3+3+3 5 = = Mean =2.8 14/5 2.8

Kind of investments
Mutual Fund Fixed Deposit Insurance Saving Other

56

 Reason behind the investment

Tax Benefits Higher Return Regular Income Other (Please Specify) Mean =3.25 Reason behind the investment 40% 60% 20% 10%

Tax Benefits Higher Return Regular Income Other

Investments which People are familiar and have knowledge A. Equities

No. of people in %
45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Fair Good Very good No. of people in %

57

B. Currencies

No. of people in %
60% 40% 20% 0% Poor Fair Good No. of people in %

C. Commodities

No. of people in %
50% 40% 30% 20% 10% 0% Poor Fair Good Very good

No. of people in %

D. Mutual Fund
No. of people in %
70% 60% 50% 40% 30% 20% 10% 0%

No. of people in %

58

E. Bonds

No. of people in %
80% 60% 40% 20% 0% Poor Fair Good No. of people in %

F. Annuities (Eg. Fixed Deposits)

No. of people in %
45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Fair Good Very Excellent good

No. of people in %

G. Property/ Real Estate

No. of people in %
50% 40% 30% 20% 10% 0% Fair Good Very good No. of people in %

59

 People invested money in mutual fund:

YES 40% NO 60%

People like to invest mutual?

Public (20%) Private (30%)

Mostly invested sector in mutual fund?

Gold fund (20%) Diversified equity fund (10%) Power sector Debt fund

Banking fund (0%)

60

 Most preferable fund option/scheme

Sterling Equity (10%) Tax Advantage (ELSS)(60%) Other (30%)

1. Mode of payment prefer most

One time investment (20%) Systematic Investment Plans (SIPs)(80%)

2. Option prefers most for getting return

Dividend (40%) Growth (60%)

61

3. Return expectation on investment

Up to 8% Between 8% to 18% (80%) Above 18% (20%)

4. Planning to stay invested

Long term > 12 months (80%) Medium term 6 12 months (20%) Short term < 6 months

62

8. FINDINGS

I had observed and analyzed the data and based upon my data interpretation 4 out of 10 people preferred to invest in mutual fund. Hence the company has many opportunities for capturing the market.

Sterling Equity Fund Its a high risk and high return fund. The fund yields a higher return because the investment is made in major growing sectors of the economy. The high risk associated with the fund can be justified by its investment in the growing sectors. The fund manager selects growing companies who choose new technologies or methods for their growth and bring about new cultural trends. Tax advantage (ELSS) It offers twin benefit of tax saving and potential to earn higher return with a minimal lock in period of three years. Fund is highly volatile over a short term which gets smoothened over a longer time frame.

63

9. CONCLUSION & RECOMMENDATIONS:

After going through a two months summer training and survey, I have come to know about different aspects of mutual funds and mutual funds industry. India is an emerging market. Consumption level is rising with rising earning level. Economic indicators micro and macro both show a sky facing arrows. Data shows that there will be more number of billionaires from India than any of other country. The study has shown the performance of the mutual schemes selected in the sample by using different performance measures. From the above analysis, it can be concluded that most of the equity diversified mutual fund growth oriented schemes have performed better in comparison with the market. But return alone should not be considered as the basis of measurement of the performance of a mutual fund scheme, it should also included risk attached to them. Risk associated with a fund, in general, can be defined as variability or fluctuation in the returns generated by it. The higher the fluctuation in the returns, higher will be the risk associated with it. Investments in mutual fund enable the investors to reap the benefits of diversification, specialized service, low cost etc. by investing in mutual funds an investor can optimized his risk and return. An investor is advised to keep revising his portfolio. Some funds give a very high rate of returns and at the same time they involve high risk. So an investor must evaluate both, risk and returns associated with the fund. An investor can switch from a none or a bad performing scheme to a better performing scheme to increase his returns. Sometimes the low returns may be due to wrong choice of the stocks in the portfolio. Thus an investor needs to make an analysis of both risk and return before investing to maximize his earnings.

64

Recommendations Indian market potential is high, investors are willing to pour money in mutual funds, despite some temporary restraints, and other economic factors are in favourable mode. Thus IDFC need proper management of advisory services, more schemes, financial advisors and institutions to cater untouched markets. IDFC need to revise its business strategy. Investors perception is not prioritized yet. Instead of completing targets, advisors working under institutions should consider the requirement of investors. We need to change pattern of selling mutual funds schemes. IDFC should provide better after sales service, so it helps to the investors become loyal to the company. As the competitors provide the better incentives to the banks employs, so they were attract to do more investments. So IDFC should try to give better incentive to them. IDFC is not doing advertisement of its products. So IDFC should focus more on advertisement, so as to increase the sales and create awareness in the public. IDFC only focus on metro cities it should be focusing on urban and as well as rural areas

65

10.ANNEXURE

Name of Respondent

Designation / Title

Phone Number

Email address

Date

Personal Information Occupation: Govt. Service Business Private Service Others Monthly Income (in Rs.): <10000 10001-20000 20001-30000 >30000

66

Your Investment decisions 1. What kind of investments you prefer most? Please tick (). Saving A/c Fixed deposits Insurance Mutual Fund Other (Please Specify) 2. Reason behind the investment (chose any one of them)? Capital appreciation Tax Benefits Higher Return Regular Income Other (Please Specify)

3. Select those investments with which you are familiar and have knowledge?
Investment Products Poor Level of Familiarity/ knowledge Fair Good Very Good Equities Currencies Commodities Mutual Funds Bonds Annuities (Eg. Fixed Deposits) Property/ Real Estate Excellent

67

4. Your biggest fear about investing is :( Please Give Rank)

Particular Unpredictable returns Loss of capital Poor diversification Low risk control Unpredictable of market Complexity of market

Rank

5. Which statement best describes your understanding of Mutual fund and investments?
Yes No

Particular
I understand why markets fluctuates I know the different market sectors I know that different sectors have different growth rates I understand risk characteristics are different for different sectors I know that risk management tools are available to control risk

68

About Mutual Fund 6. Have you ever invested your money in mutual fund? Yes No If yes, a. In which kind of mutual you would like to invest? Public Private b. Which sector you invest in mutual fund? Gold fund Diversified equity fund Power sector Debt fund Banking fund Real estate fund Other (Please Specify)

c. How do you come to know about Mutual Fund? Advertisement Peer Group Banks Financial Advisors d. Where do you find yourself as a mutual fund investor? Totally ignorant Partial knowledge of mutual funds Aware only of any specific scheme in which you invested Fully aware If No, If not invested in Mutual Fund then why? Not aware of MF Higher risk Not any specific reason
69

Comparative study 7. In the following which is the most preferable fund option/scheme for your investment? Sterling Equity Tax Advantage (ELSS) Other

8. Which mode of payment do you prefer most for your investment? One time investment Systematic Investment Plans (SIPs)

9. Which option do you prefer most for getting return? Dividend Growth 10.What is your return expectation on your investment? Up to 8% Between 8% to 18% Above 18% 11.How long are you planning to stay invested? Long term > 12 months Medium term 6 12 months Short term < 6 months

70

11.GLOSSARY: Back-end Load - Charge imposed by a mutual fund when an investor redeems shares. Redemption fees and contingent deferred sales charges are examples. Contingent Deferred Sales Charges - Back-end load imposed on an investor who redeems shares. It is usually expressed as a percentage of the original purchase price or of the value of shares redeemed. In most cases, the longer the investor holds his shares, the smaller the deferred sales charge. Distribution - Payments made to shareholders by the mutual fund. Interest and stock dividends earned by the funds portfolio are passed to shareholders as dividends, while capital gains are passed as capital gains distributions. Dividend Reinvestment Fee - Fee charged when an investor uses dividends paid by a mutual fund to purchase additional shares of the mutual fund. Exchange Fee - Fee charged when an investor switches from one mutual fund to another in the same family of funds. Front-end Load - Sales charge applied at the time the investor purchases shares. Investment Companies - The companies that pool investor monies to purchase securities. The Investment Company Act of 1940 created three types of investment companies: face-amount certificate companies, unit investment trusts and management companies. Management Companies - There are two types: open-end and closed-end. Openend funds, which sell and buy shares back on demand, are called mutual funds. Closed-end funds have a fixed number of shares. After the initial public offering, shares in closed-end funds trade only on exchanges. The price is determined by the market and does not necessarily reflect the net asset value of the shares. Management Fee - A fee paid by the mutual fund to its investment adviser and charged against fund assets, generally 1% or less per year. Net Asset Value - In effect, the share price of a fund computed daily by adding the value of the funds securities and other assets, subtracting liabilities, and dividing by the number of shares outstanding. For a mutual fund with a front-end load, net asset value is identical to the "asked price" or "offering price." Prospectus - A disclosure document which should provide the investor with full and complete disclosure of all material information needed by the investor to
71

make a decision whether or not to invest. The prospectus generally incorporates the SAI by "reference." (See SAI definition.) Redemption Fee - A fee charged to an investor who redeems shares. It is generally expressed as a percentage of the value of shares redeemed. Rule 12b-1 Fee - An asset-based sales load, permitted by SEC Rule 12b-1, representing annual charges of up to 1-1/4% for specific sales or promotional activities of the mutual fund. Over time, the amount paid in Rule 12b-1 fees can surpass the amount paid in sales fees charged by load funds. SAI - A disclosure document called a Statement of Additional Information. The SAI is not required to be furnished by mutual funds to investors unless investors specifically request it. Investors are responsible for information in the SAI, even if they dont request it Total Return - A computation of mutual fund performance which measures changes in total value over a specified time period. Included in the computation are distributions paid to investors, capital gains distributions and unrealized capital gains and losses. Since all fund activity which has an effect on net asset value is represented, this measure provides a picture of performance which is more complete than yie Yield - A measure of mutual fund performance, which is figured by dividing the income generated (dividends, capital gains distribution, etc.) per share for a specific time period by the funds current price per share.

72

12.BIBLIOGRAPHY

www.IDFCMF.com www.moneycontrolindia.com http://www.nse-india.com http://www.amfiindia.com http://www.mutualfundsindia.com http://www.sebi.gov.in www.businessmapsofindia.com www.ceicdata.com www.economictimes.com www.valueresearchonline.com

73

74