1.

1 ABOUT THE INDUSTRY

The Indian financial system based on four basic components like Financial Market, Financial
Institutions, Financial Service, Financial Instruments. All are play important role for smooth
activities for the transfer of the funds and allocation of the funds. The main aim of the Indian
financial system is that providing the efficiently services to the capital market. The Indian
capital market has been increasing tremendously during the second generation reforms. The
first generation reforms started in 1991 the concept of LPG. (Liberalization, privatization,
Globalization).
The spread of the banking system has been a major factor in promoting financial
intermediation in the economy and in the growth of financial savings with progressive
liberalization of economic policies, there has been a rapid growth of capital market, money
market and financial services industry including merchant banking, leasing and venture
capital, leasing, hire purchasing. Consistent with the growth of financial sector and second
generation reforms its need to fruition of the financial sector. Its also need to providing the
efficient service to the investor mostly if the investors are supply small amount, in that point
of view the mutual fund play vital for better service to the small investors. The main vision
for the analysis for this study is to scrutinize the performance of five star rated mutual funds,
given the weight of risk, return, and assets under management, net assets value, book value
and price earnings ratio.
MUTUAL FUND INDUSTRY
The mutual fund industry in India began with the setting up of the Unit Trust of India (UTI)
in 1963 by the Government of India. Till the year 2000, UTI has grown to be a dominant
player in the industry with the assets of over Rs. 76,547crores as of March 31, 2000. The UTI
is governed by a special legislation, the Unit Trust of India Act, 1963. in 1987 public sector
banks and insurance companies were permitted to set up mutual funds. Also the two
insurance companies LIC and GIC established mutual funds. Securities Exchange Board of
India (SEBI) formulated the Mutual Fund (Regulation) 1993, which for the first time
established a comprehensive regulatory framework for the mutual fund industry. Since then
several mutual funds have been set up by the private and the joint sectors.
Right from its existence, Banks, whether nationalize or corporate, always dominated others,
in case of public investments or retail investments. But in past few years due to various
1

reasons like continuously falling of interest rates, various scams, etc, investors will have to
look for various other instruments avenues that will give them better returns with
minimization of risks.
Here Mutual Funds Industry has very important role to play in providing alternative
investment avenue to entire gamut of investors in scientific and professional manner. Indian
Mutual Fund Industry has been definitely maturing over the period. In four decades of its
existence in India mutual funds have gone through various structural changes and gained
prominent position in Financial Industry. Because of easy of investments, professional
management and diversification more and more investors are gaining confidence in Mutual
Funds. Even government policies like abolishment of long term capital benefit taxes added
advantage to the growth of Mutual Funds.
The Mutual Fund Industry has been in India for a long time. This came into existence in
1963 with the establishment of Unit Trust of India, a joint effort by the Government of India
and the Reserve Bank of India. The next two decades from 1986 to 1993 can be termed as the
period of public sector funds with entry of new public sector players into the mutual fund
industry namely, Life Insurance Corporation of India and General Insurance Corporation of
India.
The year of 1993 marked the beginning of a new era in the Indian mutual fund industry with
the entry of private players like Morgan Stanley, J.P Morgan, and Capital International. This
was the first time when the mutual fund regulations came into existence. SEBI (Securities
Exchange Board of India) was established under which all the mutual funds in India were
required to be registered. SEBI was set up as a governing body to protect the interest of
investor. By the end of 2008, the number of players in the industry grew enormously with 46
fund houses functioning in the country.
With the rise of the Mutual Fund Industry, establishing a mutual fund association became a
prerequisite. This is when AMFI (Association of Mutual Funds India) was set up in 1995 as a
non-profit organization. Today AMFI ensures mutual funds function in a professional and
healthy manner thereby protecting the interest of the mutual funds as well as its investors.
The Mutual Fund Industry is considered as one of the most dominant players in the world
economy and is an important constituent of the financial sector and India is no exception. The
industry has witnessed startling growth in terms of the products and services offered, returns
2

churned, volumes generated and the international players who have contributed to this
growth. Today the industry offers different schemes ranging from equity and debt to fixed
income and money market.
It is interesting to note that the major benefits of investing in mutual funds is to capitalize on
the opportunity of a professionally managed fund by a set of fund managers who apply their
expertise in investment. This is beneficial to the investors who may not have the relevant
knowledge and skill in investing. Besides investors have an opportunity to invest in a
diversified basket of stocks at a relatively low price. Each investor owns a portion of the fund
and hence shares the rise and fall in the value of the fund. A mutual fund may invest in
stocks, cash, bonds, or a combination of these.
Mutual Funds are considered as one of the best available investment options as compared to
other alternatives. They are much cost efficient and also easy to invest in. the biggest
advantage is that they provide diversification, by reducing risk and maximizing returns.
India is ranked one of the fastest growing economies in the world. Despite this huge
progression in the industry, there still lies huge potential and room for growth. India has a
saving rate of more than 35% of GDP, with 80% of the population who saves. These savings
could be channelized in the mutual funds sector as it offers wide investment options. In
addition, focusing on the rapidly growing tier II and tier III cities within India will provide a
huge scope for this sector. Further tapping rural markets in India will benefit mutual fund
companies from the growth in agriculture and allied sectors. With subsequent ease of
regulations, it is estimated that the Mutual Fund Industry will grow at a rate of 30-35% in the
next 3 to 5 years and reach US 300 bn by 2015.
HISTORY OF MUTUAL FUND INDUSTRY IN INDIA
The origin of Mutual Fund Industry in India is with the introduction of the concept of mutual
fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the year
1987 when non-UTI players entered the industry. In the past decade, Indian Mutual Fund
Industry had seen dramatic improvements, both quality wise as well as quantity wise.
Before, the Monopoly of the Market had seen an ending phase; the Assets UnderManagement
(AUM) was Rs. 67bn. The private sector entry to the fund family raised the AUM to Rs. 470
bn in March 1993 and till April 2004; it reached the height of 1,540 bn. Putting the AUM of
the Indian Mutual Funds Industry into comparison, the total of it is less than the deposits of
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SBI alone, constitute less than 11% of the total deposits held by the Indian banking industry.
The main reason of its poor growth is that the Mutual Fund Industry in India is new in the
country. Large sections of Indian investors are yet to be intellectuatedwith the concept.
Hence, it is the prime responsibility of all mutual fund companies, to market the product
correctly abreast of selling. The Mutual Fund Industry can be broadly put into four phases
according to the development of the sector. Each phase is briefly described as under.
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 crore of assets under management.
Second Phase - 1987-1993 (Entry of Public Sector Funds)
It marked the entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by
CanbankMutual 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
in 1989 and GIC in 1990. The end of 1993 marked Rs.47, 004 as assets under management.
Third Phase - 1993-2003 (Entry of Private Sector Funds)
With the entry of private sector funds in 1993, a new era started in the Indian mutual fund
industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year
in which the first Mutual Fund Regulations came into being, under which all mutual funds,
except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged
with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The
1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensiveand 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.
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Fourth Phase - since February 2003

This phase brought bitter experience for UTI. It was bifurcated into two separate entities. One
is the Specified Undertaking of the Unit Trust of India with AUM of Rs. 29, 835 crores (as on
January 2003). 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 FundLtd,
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 AUM 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 September, 2004, there were 29 funds, which
manage assets of Rs.153108 crores under 421 schemes.
KEY GROWTH DRIVERS FOR THE MUTUAL FUNDS
The mutual funds industry has been growing annually at the rate of 9% for the past 5 years.
Further the annual composite growth rate of the industry is expected to be around 13% in the
next 10 years. The industry, which in 1993 had less than 10 schemes, today has more than
460 schemes offered by mutual funds. The schemes are more diverse and offer a wide array
of choices to investors.The following factors have attributed to the spurt growth of the
industry in recent times:
1. Buoyant Stock Market
If there is one major reason for the industry to grow at such levels it is the booming
stock market over the past few years.
2. Product Innovation
The innovative schemes launched by the mutual fund houses have given investors
option to choose funds, which suits their investment needs. Introduction of innovative
schemes like hybrid funds, children funds, and fixed maturity plans and new schemes
such as exchange traded funds and commodity based funds have helped galvanized
the industry growth.
3. Increased Competition
The entry of new players, both foreign as well as local, has helped the industry to
expand further. This has been ably supported by a slew of new schemes from existing
players as well. Further, the consolidation in the industry has just started. Many big
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international fund houses like Fidelity and Vanguard have entered the market whose
individual assets are more than the size of the entire Indian mutual fund industry.
4. Tax Incentives
Tax benefits extended to the mutual fund investors investing in equity mutual fund
schemes too have acted as a catalyst for the growth of the industry. As of now,
dividend is tax-free in the hands of investors. Also, the removal of long-term capital
gains tax is a major catalyst.
5. Technology
The technology wave, which has transformed many industries, in how they operate
and survive, has also come to the aid of the mutual fund in dusty to widen its reach,
offer flexibility and convenience to investors. The advantages include lower
distribution costs through online transactions, more customized and personal advice to
customers and reaching out to the growing young and net-savvy population of India.
KEY CHALLENGES TO THE GROWTH OF MUTUAL FUNDS
1. Poor Reach
Lack of deeper distribution networks and channels is hurting the growth of the
industry. This is an area of concern for the mutual fund industry which has not been
able to penetrate deeper into the country and has been limited to metros and A class
cities. If the mutual fund industry comes up with better distribution modes and
increases its reach it could tap into a huge potential investor markets of the rural and
other B and C class cities, which are also witnessing good growth in disposable
incomes.
2. Banks Still Dominate
The biggest hindrance to the growth of the industry lies in its inability to attract the
savings of the public, which constitute the major investment sources in other
developed mutual fund markets. A large pool of money in savings in India is still with
the state run and private banks.
3. Impact of Global Developments
Though the economic reforms have brought India on the global investment map, this
also exposes Indian financial market, including Indian mutual fund industry, to the
volatility in international markets. Fluctuations in the global markets and financial
systems will now be evident as the Indian markets get linked to other foreign markets.
Managing risks in such a scenario will be a key challenge for the Indian mutual fund
industry.
4. Operational Hassles
Operational inefficiencies are still hampering the growth prospects of the industry.
Lengthy transaction cycles and old fashioned returns distribution modes like cheque6

based returns are preventing the industry to grow at good rates. The rapid
obsolescence of technology and huge upfront investment costs are also getting in the
way of mutual funds from embracing the technology wave.
5. Lack of Investment Advisors
The lack of investment advisors, especially to give personalized investment advice to
the investors is creating roadblocks for the growth in mutual funds. Further the
awareness levels in India about the mutual fund industry are largely restricted to the
high income investors and A class cities. These rules out the potentially huge B,
C class cities and rural areas, which have strong growth potential. Lack of access,
distribution modes and advisors in these areas have blocked out a large pool of
potential investors for the industry.
Trend in Mutual Funds Industry
The Indian Mutual fund industry, despite all that has been said about it is still in a nascent
stage and has extremely bright future ahead. The industry is still one-tenth size of the
banking deposits in the country. The private sector mutual fund industry in its resent avatar
is barely 7 years old. The total asset under management over the past 4 to 5 tears has almost
remain stagnant around the Rs 100, 000 crore mark.
This has put a question mark in front of the claims that mutual funds are growing part of the
financial savings and planning industry in India. It holds scope for growth. In India this
industry began with the setting up of the Unit Trust Of India (UTI) in 1964 by the
government of India in order to mobiles small saving. During the past 37 years, UTI has
grown to be a dominant player in the industry with assets with over Rs 76,547 crore as of
March2000. However, trouble hit UTI has lost its dominant position in the industry and the
asset under management has slipped drastically to Rs 46,396 crore.
Private sector mutual funds, which were permitted along with foreign partners in 1993, now
enjoy a dominant position in the country. Kothari Pioneer Mutual fund was the first fund to
be established in the private sector with foreign fund. The private sector now controls around
RS 45,818 crore assets under management, almost half the size of the industry. The mutual
fund industry has become a fastest growing sector in the countrys capital and financial
market with an average compounded growth rate of 20 percent over the past five years. This
is despite increasing competition with more than 30 asset management companies for
investors money.

As on June 2002, the industry has Rs 100,703 crore asset under

management spread across 36 funds with more than 390 schemes.

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Exchange Board of India (SEBI) came out with comprehensive regulation in 1993,
which defined the structure of the mutual fund and asset management,
Companies for the first time. The industry is in the process of evolving into a
bigger and better investment medium for all market segment, Say Kavita Hurry,
CEO ING Investment Management, further, currently, ING Investments manages
around Rs.364 crore as on June 2002.

Drastic Transformation:
The industry is undergoing a transformation and is witnessing large number of mergers, acquisitions
and takeovers in the schemes and asset management companies. Mutual fund products are competing
with the banks deposits, Reserves Banks of India (RBI) bonds, pension funds and post offices
schemes that provide not only guaranteed return but also tax-free returns. However, mutual funds are
unable to provide assured return since they are investing in financial markets and returns from them
are, by definition, uncertain.

These transformation benefiting the investor friendly open-ended

schemes, increasing the range of funds to choose from, enhanced transparency and improvement
regulation.

Market Trends:
Alone UTI with just one scheme in 1964 now competes with as many as 400 odd products and 34
players in the market. In spite of the stiff competition and losing market share, UTI still remains a
formidable force to reckon with. Last six years have been the most turbulent as well as exiting ones
for the industry. New players have come in, while others have decided to close shop by either selling
off or merging with others. Product innovation is now pass with the game shifting to performance
delivery in fund management as well as service. Those directly associated with the fund management
industry like distributors, registrars and transfer agents, and even the regulators have become more
mature and responsible.

The industry is also having a profound impact on financial markets. While UTI has always
been a dominant player on the bourses as well as the debt markets, the new generations of
private funds, which have gained substantial mass, are now seen flexing their muscles. Fund
managers by their selection criteria for stocks have forced corporate governance on the
industry. By rewarding honest and transparent management with higher valuations, a system
of risk-reward has been created where the corporate sector is more transparent then before.
Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCG and
technology sector. Funds performances are improving. Funds collection, which averaged at
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less than Rs100bn per annum over five-year period spanning 1993-98 doubled to Rs210bn in
1998-99. In the current year mobilization till now have exceeded Rs300bn. Total collection
for the current financial year ending March 2000 is expected to reach Rs450bn.
What is particularly noteworthy is that bulk of the mobilization has been by the private sector
mutual funds rather than public sector mutual funds. Indeed private MFs saw a net inflow of
Rs. 7819.34 crore during the first nine months of the year as against a net inflow of Rs.
604.40 crore in the case of public sector funds.
Mutual funds are now also competing with commercial banks in the race for retail investors
savings and corporate float money. The power shift towards mutual funds has become
obvious. The coming few years will show that the traditional saving avenues are losing out
in the current scenario. Many investors are realizing that investments in savings accounts are
as good as locking up their deposits in a closet. The fund mobilization trend by mutual funds
in the current year indicates that money is going to mutual funds in a big way. The collection
in the first half of the financial year 1999-2000 matches the whole of 1998-99.
VALUE CHAIN
As a business organisation, a mutual fund management company or fund complex (firm)
undertakes a series of activities designed to generate value ofr its customers. By arraying a
firms strategically important activities, one can construct a firms value chain representation.
This analytic tool has been advanced by Micheael Porter. In grouping a firms activities the
analyst must consider the manner in which the economies of various activities differ and how
rivals distinguish themselves on the basis of these activities.
The first activity is the investment selection. Mutual funds implement their investments
strategy through their selection of security holdings. Funds vary in the amount of latitude
they grant to portfolio managers. Investments may be dectated completely by fund charter, as
is done in an S& P 500 index fund,or security selection may be left completely to the fund
managers discretion, as in a growth fund. To support this function, funds require research
which may be conducted in-house or purchased from vendors either with cash or with softdollar payment from brokers.
The next activity is trading and execution. Once the decision has been made to buy or sell
a particular security, a trade must be executed in the capital markets. This process involves
not only getting the best price for the security, but also administering backoffice functions
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such as custodial servies. This particular link in the chain may seem minor at first glance,
trading and execution expertise are increasingly being recognised as critical activities.
The third item in the chain is customer record keeping and reporting. This refers to the tasks
performed by transfer agents and to the activities and resources required to produce periodic
statements for funds share holders.
The fourth activity, marketing and distribution, describes how the funds communicate
with potential customers and sell their products. Traditionally, open-ended mutual funds
were categorized as either no-laid funds used print and electronic media, word of mouth, and
mailing to appeal to consumers directly whereas load funds hired sales people to market and
sell their products. To pay the sales people, load funds charged customers one-time fees,
called loads.
The final activity in our value chain is investor liquidity services. By this we mean the
activities funds undertake to permit investors to switch among various investment or to
liquidate portfolios.
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 organisation. Association of Mutual Funds in India
(AMFI) was incorporated on 22nd August, 1995.
AMFI is a apex body of all Asset Management Companies (AMFI) 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 holder.
Important Aspects of Association of Mutual Funds of India

AMFI provides professionalism and a proper balance in the mutual fund industry.

10

It promotes the highly-efficient business practices as well as the code of conduct in

the mutual fund industry among its members and those who are involved in mutual fund
investments.

AMFI is registered with SEBI and follows its suggestions while executing its
activities.

AMFI also represents the Government of India, the Reserve Bank of India and other
related higher authority bodies in the mutual fund operations.

It also provides training programs to hone the skills of those who are involved in
mutual fund investments and also develops a team of efficient and skilled agents.

AMFI also carries out various campaigns and awareness programs to inform the
individuals about the basic concept of mutual fund investments.
SEBI Guidelines for Mutual Funds
Securities and Exchange Board of India (SEBI) is a board (autonomous body) created by the
Government of India in 1988 and given statutory form in 1992 with the SEBI Act 1992 with
its head office at Mumbai.
SEBI (MFs) Regulation 1993, defines Mutual Fund as follows; Mutual fund means a fund
established in the form of a trust by a sponsor to raise money by the Trustees through the sale
of units to the public under one or more schemes for investing in Securities in accordance
with these Regulations.
The sponsor has to register the mutual fund with SEBI.
To be eligible to be a sponsor, the body corporate should have a sound track record
and a general reputation of fairness and integrity in all his business transactions.
The sponsor should hold at least 40% of the net worth of the AMC.

A party which is not eligible to be a sponsor shall not hold 40% or more of the net
worth of the AMC.

The sponsor has to appoint the trustees, the AMC and the custodian.
The trust deed and the appointment of the trustees have to be approved by SEBI.

11

 An AMC or its officers or employees can not be appointed as trustees of the mutual
fund.
At least two thirds of the business should be independent of the sponsor.
Only an independent trustee can be appointed as a trustee of more than one mutual
fund, such appointment can be made only with the prior approval of the fund of which
the person is already acting as a trustees.

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1.2 COMPANY PROFILE

Bajaj Capital is one of Indias leading Financial Services companies offering Free Advice on
Investments, Insurance, Tax Saving, Retirement Planning

, Financial Planning, Childrens

Future Planning and other services. We also have a wide range of products and services for
corporate , High Net worth Individuals, and NRIs all under one roof. At Bajaj Capital, we
believe in dreaming big. Dreams inspire us to excel. They ignite hope and kindle in us the
passion to stretch our limits. We also believe that nothing can or should stop us from realizing
our dreams and financial constraints should be the last thing to stop anyone.
Bajaj Capital Ltd is the flagship company of the Bajaj Capital Group. Bajaj Capital Limited
("Bajaj Capital") is India's premier "Investment Services" Company, with nearly 50 years of
experience in helping people protect and grow their wealth. We've helped to create more
millionaires than any other firm in India. But it is our deep personal relationships with clients
that truly set us apart.
No other firm can match the depth of our experience and our dedication to personal service. The
markets may fluctuate, but our dependability never does.
Bajaj Capital has been granted the Certificate of Registration (CoR) by the Securities and
Exchange Board of India (SEBI) to carry on the business of Merchant Bankers (Cat-I)
[INM000010544]; Underwriter [INU000001132]; Stock Broker, as Trading Member of BSE Ltd
(Cash Segment) [INZ000007732]; Depository Participant of NSDL [IN-DP-NSDL-267-2006].
Further, Bajaj Capital has been granted the CoR by AMFI [ARN 0010], to carry on the business
of distribution of mutual funds and has also been granted the CoR [Regn.No.03310 (currently
under renewal) to act as Point of Presence (PoP) by the Pension Fund Regulatory Authority for
the NPS Schemes.
Our bouquet of services includes:

Personalized Investment Services: requires creating a customized 'snapshot' using our

proprietary 360 degree financial assessment tool, at no extra charge.

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360

Degree

Financial

Assessment

Tool:

Our

proprietary

360 Financial

Assessment Tool is a unique scientific method that takes an all-round view of investments
using 3 steps:

Need Analysis:
"Know Your Client" principle is at the heart of our business. We believe that we need to
know our client's risk profile, basic financial situation, to help them the right selection of
the products/schemes.

Scheme

Selection:

We will use our best judgment and ability to present you with the best of the breed
investment schemes to choose from.

Efficient

Execution:

Our service really begins when you have completed your first transaction through us. Our
aim is to be continuously be in touch with you with new offerings.

WHY BAJAJ CAPITAL?

SEBI licensed Category I Merchant Banker, ARN Holder, DP of NSDL.

Nearly 50 years of experience in helping people protect and grow their wealth.

We help in need analysis, scheme selection and efficient execution through our
proprietary 360 degree financial assessment tool.

We offer an incredibly diverse range of financial products and personalized services.

Over 120 offices in 70 cities across India, to maintain a consistency of relationship and
experience.

14

Strong team of qualified and experienced professionals including CA's, MBA's, MBE's,
CFP's, CS's, Legal Experts and others.

Bajaj Capital Group Journey so far

Bajaj Capital is among the pioneers in investment services industry in India. For nearly five
decades now, Bajaj Capital has been serving Indian investors realizing their aspirations by
helping them create wealth and giving shape to the vision of its founder-chairman, Mr. K.K.
Bajaj.
Bajaj Capital has contributed to the growth of the Indian Capital Market at every step. In 1965,
we were the first to innovate the Companies Fixed Deposit. Today, we are playing an active role
in the growth of the Indian Mutual Fund industry.
Here is a glimpse of our journey through the years.1964
Bajaj Capital sets up its first Investment Centre in New Delhi to guide individual investors on
investment. India's first Mutual Fund, Unit Trust of India (UTI) was incorporated in the same
year.
1965
Bajaj Capital is incorporated as a Company. In the same year, the company introduces an
innovative financial instrument the Company Fixed Deposit. EIL Ltd. (Oberoi Hotels, then
known as Associated Hotels of India Ltd.) becomes the first company to raise resources through
Company Fixed Deposits.
1966
Bajaj Capital expands its product range to include all UTI schemes and Government Saving
Schemes in addition to Company Fixed Deposits.
1969
Bajaj Capital manages its first Equity issue (through an associate company) of Grauer & Wells
India Ltd.; right from drafting the prospectus to marketing the issue.
1975

15

Bajaj Capital starts offering 'need-based' investment solutions to its clients, which today is
popularly known as 'Financial Planning' in the investment world.
1981
SAIL becomes the first Government Company to accept public deposits, followed by IOC,
BHEL, BPCL, HPCL and others; thus opening the floodgates for growth of retail investment
market in India. Bajaj Capital plays an active role in all the schemes as 'Principal Brokers'
1986
Public Sector Undertakings (PSUs) begin making public issues of bonds. MTNL, NHPC, IRFC
offer a series of Bond Issues. Bajaj Capital is among the top ranks of resource mobilisers.
1987
SBI leads the launch of Public Sector Mutual Funds in India. Bajaj Capital plays a significant
role in fund mobilisation for all these players.
1991
SBI issues India Development Bonds for NRIs. Bajaj Capital becomes the top mobiliser with
collections of over US $20 million.
1993
The first private sector Mutual Fund Kothari Pioneer is launched, followed by Birla and
Alliance in the following years. Bajaj Capital plays an active role and is ranked among the top
mobilisers for all their schemes.
1995
IDBI and ICICI begin issuing their series of Bonds for retail investors. Bajaj Capital is the comanager in all these offerings and consistently ranked among the top five mobilisers on an allIndia basis.
1997
Private sector players lead the revival of Mutual Funds in India through Open-ended Debt
schemes. Bajaj Capital consolidates its position as India's largest retail distributor of Mutual
Funds.
1999
Bajaj Capital begins marketing Life and General Insurance products of LIC and GIC (through
associate firms) in anticipation of opening up of the Insurance Sector. Bajaj Capital achieves the
16

milestone of becoming the top 'Pension Scheme' seller in India and launches marketing of GIC's
Health Insurance schemes.
2000
Bajaj Capital implements its vision of being a 'One-stop Financial Supermarket.' The Company
offered all kinds of financial products, through its Investment Centers. Bajaj Capital offers 'fullservice merchant banking' including structuring, management and marketing of Capital issues.
Bajaj Capital reinvents 'Financial Planning' in its international sense and upgrades its entire team
of Investment Experts into Financial Planners.
2002
The Company focuses on creating investor awareness for proper Financial Planning and needbased investing. To achieve this goal, the International College of Financial Planning, was set up
to impart education in Financial Planning. The graduates of this institute become Certified
Financial Planners (CFPs), a coveted professional qualification.
2004
Bajaj Capital obtains the All India Insurance Broking Licence. Simultaneously, a series of wealth
creation seminars are launched all over the country, making Bajaj Capital a household name.
2005
Bajaj Capital launches its software-based programme aimed at encouraging scientific and
holistic investing.
2007
Bajaj Capital launches Stock Broking and Depository (Demat) Services (in one of its group
company).
2008
Bajaj Capital launches Just Trade, an online Platform for investing in Equities, Mutual Funds,
IPO's
Our Mission, Aims & Objectives
Mission Statement

17

Bajaj Capital aims to be the most useful, reliable and efficient provider of Financial Services. It
is our continuous endeavour to be a trustworthy partner to our clients, helping them protect and
grow their wealth, and achieve their life goals.
Our Aim

To serve our clients with utmost dedication and integrity so that we exceed their

expectations and build enduring relationships.

To offer unparalleled quality of service through complete knowledge of products,

constant innovation in services and use of the latest technology.

To always give honest and unbiased financial solutions and earn our client's everlasting

trust.
To serve the community by educating individuals on the merits of investments and in turn

help shape a financially responsible citizen.

To create value for all stake holders by ensuring profitable growth.
To build an amicable environment that accords respect to every individual and permits

their personal growth.

To utilize the power of teamwork to function as a family and build a seamless
organization.

Vision Statement
Our vision is to be the most preferred Investment Services Company in India by providing
clients with informed choices of lasting value, protect and grow wealth for them, to make their
tomorrow better than today.
OUR LOGO
Our logo depicts Lord Ganesha who is the source of all our values and ethics in business.

The large ears of Lord Ganesha remind us to hear more. We listen carefully to our clients

to understand their needs.

The weight of the trunk on the mouth symbolises silence. We work silently, without

blowing our own trumpet.

The long trunk symbolises continuous exploration. We explore all avenues to provide the
best investment opportunities for our clients.
18

The heavy posture of Ganesha symbolizes stability. We help our clients to attain financial

stability through wise investments.

Lord Ganesha is known as the remover of obstacles and bestower of prosperity. We
emulate His example and try our best to help our clients attain prosperity by proper need

analysis, scheme selection and efficient execution..

Our logo has a yellow background. Yellow is the colour of gold, which symbolises
wealth. According to Vedic lore, it is also the colour associated with Brihaspati, the guru

and counsellor of the Gods. We offer our clients sage counsel to make their wealth grow.
The letters are in red colour symbolising power and incessant activity. It symbolises our

aggressive quest for your well-being and happiness.

The white streak represents the trunk of Lord Ganesha. White is the colour of satva guna,
and implies our selfless commitment to your life-long happiness.

2.1 Literature Review and Research Gaps

Early studies on mutual funds included the several works of Treynor (1965), Sharp (1966) and
Jensen (1968), who used the capital asset pricing model to compare risk adjusted returns of funds
with that of a benchmark market portfolio. The findings of Sharpe and Jensen demonstrated that
mutual funds under perform market indexes and suggest that the returns were not sufficient to
compensate investors for the diverse mutual fund charges.
Many authors have done their research on "Mutual Funds to encourage the investors to invest in
mutual funds, and many of them gave valuable suggestions & conclusions. Some of their
findings are listed below:
Devasenathipathi (2011) investigated the performance of public-sector and private-sector
mutual funds for the period of 2005 to 2007. Selected funds of LIC (Public sector) and Reliance
(Private sector) were chosen for the purpose of analysis. Statistical techniques like Mean,
Standard Deviation and Coefficient of Variation were applied to study the consistency in returns
subject to market risks of each fund. The study revealed that performance of all the funds seemed
to be volatile during the study period; as such it was quite difficult to earmark one particular fund
that out performed consistently.
Anand and Murugaiah (2008) examined the components and sources of investment
performance in order to attribute it to specific activities of Indian fund managers. They also
19

attempted to identify a part of observed return which is due to the ability to pick up the best
securities at given level of risk. For this purpose, Fama's methodology is adopted here. The study
covers the period between April 1999 and March 2003 and evaluates the performance of mutual
funds based on 113 selected schemes having exposure more than 90percent of corpus to equity
stocks of 25 fund houses. The empirical results reported reveal the fact that the mutual funds
were not able to compensate the investors for the additional risk that they have taken by
investing in the mutual funds.
Guha (2008) focused on return-based style analysis of equity mutual funds in India using
quadratic optimization of an asset class factor model proposed by William Sharpe. The study
found the Style Benchmarks of each of its sample of equity funds as optimum exposure to 11
passive asset class indexes. The study also analyzed the relative performance of the funds with
respect to their style benchmarks. The results of the study showed that the funds have not been
able to beat their style benchmarks on the average.
A study by Gupta and Aggarwal (2007) sought to check the performance of mutual funds
operation in India. In this regard, quarterly returns performance of all the equity-diversified
mutual funds during the period from January 2002 to December 2006 was tested.
Barua, Raghunathan and Varma (1991) evaluated the performance of Master Share during the
period 1987 to 1991 using Sharpe, Jensen and Treynor measures and concluded that the fund
performed better that the market, but not so well as compared to the Capital Market Line.
Although emerging markets such as India have attracted the attention of investors all over the
world, they have remained devoid of much systematic research, especially in the area of mutual
funds.
John and Donald (1974) examined the relationship between the stated fund objectives and their
risks-return attributes and concluded that on an average, the fund managers appeared to keep
their portfolios within the stated risk. It concludes that mutual funds on aggregate offer superior
returns but they are offset by expenses and load charges.

20

Dr. Ravi Vyas wrote his research paper on Mutual fund investors behaviour and perception in
indore city1 where he suggested that Mutual fund companies should come forward with full
support for the investors in terms of advisory services, participation of investor in portfolio design,
ensure full disclosure of related information to investor, proper consultancy should be given by
mutual fund companies to the investors in understanding terms and conditions of different mutual
fund schemes, such type of fund designing should be promoted that will ensure to satisfy needs of
investors, mutual fund information should be published in investor friendly language and style,
proper system to educate investors should be developed by mutual fund companies to analyze risk
in investments made by them, etc. On the other it is required from government and regulatory
bodies point of view that more laws should be there to secure the funds of investors to be
exploited, more tax rebate should be given on mutual fund investment, proper and effective
grievance system, right of investor education, and more control on asset management companies
should be there.
Dr. Binod Kumar Singh in his research paper A study on investors attitude towards mutual funds
as an investment option2 examined that most of respondents are still confused about the mutual
funds and have not formed any attitude towards the mutual fund for investment purpose. It has
been observed that most of the respondents having lack of awareness about the various function of
mutual funds. Moreover, as far as the demographic factors are concerned, gender, income and level
of education have significantly influence the investors attitude towards mutual funds. On the
other hand the other two demographic factors like age and occupation have not been found
influencing the attitude of investors towards mutual funds. As far as the benefits provided by
mutual funds are concerned, return potential and liquidity have been perceived to be most
attractive by the invertors followed by flexibility, transparency and affordability.

1 http://www.researchersworld.com/vol3/issue3/vol3_issue3_1/Paper_09.pdf

2 http://rspublication.com/ijrm/march%2012/6.pdf

21

Ms. Shalini Goyal in her research paper A mutual fund study in india3 focused on the entire
journey of mutual fund industry in India. Its origin, its fall and rise throughout all these years and
tried to predict what the future may hold for the Mutual Fund Investors in the long run. A mutual
fund, also called an investment company, is an investment vehicle which pools the money of many
investors. The fund's manager uses the money collected to purchase securities such as stocks and
bonds. The securities purchased are referred to as the fund's portfolio. Restrictions on competing
products may have acted as a catalyst for the development of money market and (short-term) bond
funds.
This study was conducted to analyze and compare the performance of different types of mutual
funds in India and concluded that equity funds outperform income funds. This study further
concludes that equity fund managers possess significant market timing ability and institutions
funds managers are able to time their investments, but brokers operated funds did not show market
timing ability.
Ms. Arpita Gupta in her research paper Mutual funds : risk vs. Return, awareness among
investors4 examined that the Indian mutual fund industry is still lacking far behind in terms of
total assets with respect to other developed nations. One of the main reasons for poor growth is
the lack of awareness and investors trust on companies and policy makers Therefore, for
promoting the growth of Indian mutual fund industry, it is very crucial to understand the
investors behavior towards different investment options and for mutual funds. For motivating
investors towards the investment in mutual funds, companies must know the factors in which
these are lacking in comparison to other investment options. From the above discussion, it can be
concluded that Indian mutual fund industry is in its growth phase and possesses a tremendous
scope for development. Some crucial issues which need to be investigated are the analysis of
mutual funds performance in terms of their efficiency, impact of various attributes on
performance and behavior of investors towards mutual funds and other investment options.

3 http://www.academia.edu/5460857/Researchpaper-A-STUDY-ON-MUTUAL-FUNDS-IN-INDIA

4 http://worldwidejournals.com/gra/file.php?val=August_2015_1438858417__26.pdf

22

Mr. Shyam Rajan in his research paper PERFORMANCE EVALUATION OF MUTUAL

FUNDS: AN ANALYSIS OF RISK & RETURN5 examined that a mutual fund is an investment
company that creates a bridge between individual investors or retail investors & corporate giants.
Mutual funds provide a investment options for retail investors or individual investors those who
are not aware about stock market still they want to invest their funds in stock market with a small
amount of money. A mutual fund is a pure intermediary which performs basic function of buying
& selling security on behalf of its investors or unit holders. Mutual funds mobilize saving from a
large number investors & invest these funds in share and other securities mutual funds are sine
qua non for the development of the capital markets & the creation of the equity cult in an
economy.
Prof Gauri Prabhu in her research paper Perception of indian investor towards investment in
mutual funds with special reference to mip funds 6 studied that Mutual Funds provide a platform
for a common investor to participate in the Indian capital market with professional fund
management irrespective of the amount invested. The Indian mutual fund industry is growing
rapidly and this is reflected in the increase in Assets under management of various fund houses.
Mutual fund investment is less risky than directly investing in stocks and is therefore a safer
option for risk adverse investors. Monthly Income Plan funds offer monthly returns and invest
majorly in debt oriented instruments with little exposure to equity. However it has been observed
that most of the investors are not aware of the benefits of investment in mutual funds. This is
reflected from the study conducted in this research paper. This paper makes an attempt to
identify various factors affecting perception of investors regarding investment in Mutual funds.
The findings will help mutual fund companies to identify the areas required for improvement in
order to create greater awareness among investors regarding investment in mutual funds.

5 http://shodhganga.inflibnet.ac.in/bitstream/10603/27709/3/03_abstract.pdf

6 http://www.iosrjournals.org/iosr-jef/papers/icsc/volume-1/8.pdf

23

DR.Shantanu Mehta in his research paper Preference of investors for indian mutual funds and
its performance evaluation7 focused on the Consumer behavior from the marketing world and
financial economics have come together to bring to surface an exciting area for study and
research in the form of Behavioral Finance and it has been gaining importance over the recent
years. With reforms in financial sector and the developments in the Indian financial markets,
Mutual Funds (MFs) have emerged to be an important investment avenue for retail (small)
investors. The investment habit of the small investors particularly has undergone a sea change.
Increasing number of players from public as well as private sectors has entered in to the market
with innovative schemes to cater to the requirements of the investors in India and abroad. For all
investors, particularly the small Preference of Investors for Indian Mutual Funds and its
Performance Evaluation. Mutual funds have opened new vistas to millions of small investors by
virtually taking investment to their doorstep. In India, a small investor generally goes for such
kind of information, which do not provide hedge against inflation and often have negative real
returns. He finds himself to be an odd man out in the investment game. Mutual funds have come,
as a much needed help to these investors. Thus the success of MFs is essentially the result of the
combined efforts of competent fund managers and alert investors. A competent fund manager
should analyze investor behavior and understand their needs and expectations, to gear up the
performance to meet investor requirements. Therefore, in this current scenario it is very
important to identify needs of mutual funds investors, their preference for mutual funds schemes
and its performance evaluation. In this research paper, researcher has an objective to know
preference of mutual funds investors and performance evaluation of the preferred schemes by the
investors. The survey is undertaken of 100 educated investors of Ahmadabad and Baroda city
and the major findings reveal the major factors that influence buying behavior mutual funds
investors, sources that investor rely more while making investment and preferable mode to invest
in mutual funds market. The study will be immensely useful to the AMC';s , Brokers, distributors
and to the other potential investors and last but not least to academician as well. Keywords:
Mutual funds, buying behavior, performance evaluation. investors, mutual funds have provided a
better alternative to obtain benefits of expertise- based equity investments to all types of
7 http://www.pbr.co.in/PDF%20Copy/6.pdf

24

investors. So in this scenario where many schemes are flooded in to market, it is important to
analyze needs of consumers and to find out which factors affects consumers' needs the most.
Y Prabhavathi and N T Krishna Kishore in their research paper Investors preferences
towards mutual fund and future investments 8 examined that the advent of Mutual Funds
changed the way the world invested their money. The start of Mutual Funds gave an opportunity
to the common man to hope of high returns from their investments when compared to other
traditional sources of investment .The main focus of the study is to understand the attitude,
awareness and preferences of mutual fund investors. Most of the respondents prefer systematic
investment plans and got their source of information primarily from banks and financial advisors.
Investors preferred mutual funds mainly for professional fund management and better returns
and assessed funds mainly through Net Asset Values and past performance.
The aggressive market that can tap any individual is financial services. Investors have their
individual risk appetite and believe in the market they are entering in. In this volatile market
environment mutual funds play an active role not only in promoting a healthy capital market but
also increase liquidity in the money market. They have been identified as one of the important
factor pushing up the market prices of securities .The analysis of the above study helps us to
understand the attitude and behavior of the investor based on their preferences. Based on the
above approach, it can be noted that investors ought to be cautious in selecting the schemes,
sectors and various asset management companies. Mutual fund industry which has enormous
growth, if better controlled by market regulators with their strict regulations, the resources can be
better allocated in an emerging market economy.
Mr. Darry Hendricks, Jayendu Patel And Richard Zeckhauser 9 in their research
paper Hot hands in mutual funds: short-run persistence of relative
performance

focused on the relative performance of no-load, growth-

oriented mutual funds persists in the near term, with the strongest evidence
for a one-year evaluation horizon. Portfolios of recent poor performers do
8 http://www.ijsrp.org/research-paper-1113/ijsrp-p23111.pdf

9 http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.1993.tb04703.x/full

25

significantly

worse

than

standard

benchmarks;

those

of

recent

top

performers do better, though not significantly so. The difference in riskadjusted performance between the top and bottom octile portfolios is six to
eight percent per year. These results are not attributable to known anomalies
or survivorship bias. Investigations with a different (previously used) data set
and with some post-1988 data confirm the finding of persistence
Judith A. Chevalier and Glenn D. Ellison10 in the research paper Risk Taking
by Mutual Funds as a Response to Incentives examines the agency conflict
between mutual fund investors and mutual fund companies. Investors would
like the fund company to use its judgement to maximize risk-adjusted fund
returns. A fund company, however, in its desire to maximize its value as a
concern has an incentive to take actions which increase the inflow of
investment. We use a semi parametric model to estimate the shape of the
flow-performance relationship for a sample of growth and growth and income
funds observed over the 1982-1992 period. The shape of the flowperformance relationship creates incentives for fund managers to increase or
decrease the riskiness of the fund which are dependent on the fund's yearto-date return. Using a new dataset of mutual fund portfolios which includes
equity portfolio holdings for September and December of the same year, we
show that mutual funds do alter their portfolio riskiness between September
and December in a manner consistent with these risk incentives.
Mr. Burton G. Malkiel11 in research paper Returns from investing in equity mutual funds
suggested that equity mutual fund managers achieve superior returns and that considerable
persistence in performance exists. This study utilizes a unique data set including returns from all
equity mutual funds existing each year. These data enable us more precisely to examine
performance and the extent of survivorship bias. In the aggregate, funds have underperformed
10 http://www.nber.org/papers/w5234

11

26

benchmark portfolios both after management expenses and even gross of expenses. Survivorship
bias appears to be more important than other studies have estimated. Moreover, while
considerable performance persistence existed during the 1970s, there was no consistency in fund
returns during the 1980s.

27

2.2 About the Topic

The Indian capital market has been growing tremendously with the reforms in industry policy,
reforms in public and financial sector and new economic policies of liberalization, deregulation
and restructuring. The Indian economy has opened up and many developments have been taking
place in the Indian capital market and money market with the help of the financial system and
financial institution or intermediaries which faster saving and channel them to their most
efficient use.
The measurement of fund performance has been a topic of increased interest in both the
academic and practitioner communities for the last four decades. It is more so because of
growing scale of mutual theory. The investment environment is becoming increasingly complex.
The study is aimed to understand the organization of mutual fund industry and to examine the
performance of tax saving schemes undertaken for study. It evaluates the performance of selected
schemes in comparison with benchmark index S&P CNX Nifty, and also helps to the employ risk
return measures.
Different investment avenues are available to investors. Mutual funds also offer good investment
opportunities to the investors. Like all investments, they also carry certain risks. The investors
should compare the risks and expected yields after adjustment of tax on various instruments
while taking investment decisions. The investors may seek advice from experts and consultants
including agents and distributors of mutual funds schemes while making investment decisions.
With an objective to make the investors aware of performance of mutual funds, an attempt has
been made to provide information on the comparison of tax saving funds of Bajaj Capital which
may help the investors in taking investment decisions. The analysis is also compared with the
calculations based on the Standard deviation, Beta values, Correlation, Coefficient of
determination, and also Sharpe ratio, Treynors ratio, Jensen measures for the period 2008-12.
This project is carried out to find out the returns of funds thereby studying the performance of
the selected tax saving schemes in the market. The investor invests the funds based on the
returns, net asset value and also the trend prevailing in the market.

28

TAX PLANNING AND MUTUAL FUND

Investors in India have option for the tax-saving mutual fund schemes for the simple reason that
it helps them to save money. The tax-saving mutual funds or the equity-linked savings schemes
(ELSS) receive certain tax exemptions under Section 88 of the Income Tax Act. That is one of
the reasons why the investors in India add the tax-saving mutual fund schemes to their portfolio.
The tax-saving mutual fund schemes are one of the important types of mutual funds in India that
investors can option for. There are several companies in India that offer tax saving mutual fund
schemes in the country.
While planning our investments we spend a considerable amount of time evaluating various
options and determining which suits us the best. But when it comes to planning out investments
from a tax saving perspective, more often than not, we simply go the traditional way and do the
exact same thing that we did in the earlier years. Well, in case you were not aware the guidelines
governing such investments are a lot different this year and lethargy on your part to rework your
investment plan could cost you dear.
TAX SAVING SCHEME
Equity Linked Saving Schemes (ELSS): Equity Linked Saving Scheme (ELSS) is also a type
of mutual fund and falls under the Equity Mutual Fund category. As the name indicates, ELSS
mutual fund invests major portion of its corpus into equity and equity related instruments. But
there are some distinct features which makes ELSS plans different from other equity mutual
funds.
Investments made in ELSS plans are eligible for deduction from the taxable income under
Section 80C of the Income Tax Act. There is no limit for investments in ELSS plans, but
investments of upto Rs 1,00,000 qualify for income tax benefits.
Features of an ELSS Plan
ELSS is an equity linked tax saving investment instrument.

29

Money collected under ELSS plan is mainly invested in equity and equity related
instruments.

This financial product is more suited to those investors who are willing to take high risk
and looking for high returns.
There is no upper limit on investments that can be made in ELSS. However investments
upto INR 1,00,000 made in ELSS in a financial year qualify for deduction from taxable
income under Section 80C of the Income Tax Act.
ELSS comes with a 3 year lock in period.
Long term capital gains earned on investments from ELSS are tax free.
Also dividends earned from ELSS plan are tax free in the hands of the investor.
SWOT ANALYSIS
SWOT Analysis presents the information about external and internal environment of mutual fund
in structured from where by key external opportunity and threats can be compared systematically
with internal capabilities and weakness. The basic objectives of SWOT analysis is provide a
framework to reflect on the industry capabilities to avail opportunities or to overcome thrats
presented by environment.
Strength

Weakness

Full benefit of diversification

Tax benefit
Transparency & flexibility
Expert investment management

Lesser return compared to equity

Poor technology & service level
Lack of proper marketing

Opportunity
Government

Threats
policies

concession
Setting up a specific fund
Technology development

&

Tax

Arrival of more private & foreign players

Introduction of more debt instrument in
market.

30

BASIC MUTUAL FUND INVESTMENT INSTRUMENT

Mutual Funds are investing in 3 types of funds:
Stocks
Bonds
Money market instruments
Broadly, Mutual Funds invest basically in 3 types of asset classes.
1. Stocks :- Stocks represent ownership or equity in a company popularly known as shares.
2. Bonds :- These represent debt from companies, financial institutions or government
agencies.
3. Money Market Instruments:- These include short term dent instrument such as
treasury bills, certificate of deposits, and interbank call money.
Mutual Fund can be classified based on their objectives as:
Sector equity schemes:- These schemes invest in share of companies in as specific
sector.
Diversified equity schemes:- These schemes invest in shares and fixed income of the
economy of companies across different sectors.
Hybrid economy schemes:- These schemes invest in a mix shares and fixed income
instruments.
Income schemes:- These schemes invest in fixed income instruments such as bonds
issued by corporate and financial institutions, and government securities.
Money Market schemes:- These schemes invest in short term instrument such as
certificate of deposits, treasury bills and short term bonds.
ANALYSIS OF MUTUAL FUND
Broadly the analysis categories in 3 types:
Fundamental analysis
Technical analysis
31

 Beta/Modern portfolio theory (MPT)

FUNDAMENTAL ANALYSIS:
The analysis of such fundamental factor general business conditions, industry outlook, earnings,
dividends, quality of management etc.,
In this take consideration on the some following factors:1. Company net asset value.
2. Estimation of True.
3. Value of profit earning ratio.
4. Estimating the market value of current and forecasting.
5. Compare with various ratios like US, UK.
6. Estimate the future yield dividends.
Stock rating:
The rating for common stock depends over the certain of dividend in take the
consideration followings.
1. Ingredients of security analysis.
2. It include historical data, sales, capital etc.,
Economic analysis:
1. Cyclic effect
2. Economic analysis (fashions)
Financial analysis:
1. EPS
2. EBIT
3. ROI
4. PAT
Bond rating;

32

1. AAA high investment grade:

Debentures rated AAA are judged to offer

highest safety of timely payment and interest and principles.

2. AA high safety: It is offer highest safety of timely payment and interest and
principles.
Investment grades
3. A adequate safety: Debentures rates A are judged offer highest safety of timely
payment and interest and principles.
4. BBB moderate safety BBB are judged to offer sufficient safety of timely payment
and interest and principles.
Speculative grade:
5. BB Inadequate safety: Debentures rated BB are judged to offer timely payment
and interest and principles.
6. B high risk
7. C substantial risk: Timely payment possible only in favorable circumstances
continues.

BETA / MPT ANALYSIS

Analysis the responsiveness of the price of a particular company stock to change in the value
some market average.
TECHNICAL ANALYSIS:
An analysis of market based factors such as Stock price movements, charts etc.,
TYPES OF MUTUAL FUND SCHEMES
BY STRUCTURE:
OPEN ENDED SCHEME
CLOSED ENDED SCHEME
INTERVAL SCHEME
33

BY INVESTMENT OBJECTIVE:
GROWTH SCHEME
INCOME SCHEME
MONEY MARKET SCHEME
OTHER SCHEMES:
TAX SAVING SCHEME
SPECIAL SCHEME
INDEX SCHEME
Mutual Fund broadly classified into TWO categories:
1. Open Ended Scheme funds
2. Closed Ended Scheme funds

Now discuss details regarding above fundsOPEN - ENDED SCHEME FUND:

The concept of these funds is that the investors are free to enter or exit the scheme at any point of
time during the fund period. The investors can purchase/ sale units of mutual fund through
mutual fund trust. The prices at which the units are purchased/ sold depend on the NAV of the
fund. At that point of time as specified by the funds. The NAV of fund is the current market value
of their investments. Besides the Net Asset Value, certain funds take an additional charge from
the investors in the form of Entry load or Exit load. Some Examples of Open Ended scheme
funds are:
Templeton India Growth Fund.
PruICICI Discovery Fund.
Kotak Opportunities
Principal Dividend Yield Fund.

34

 Reliance Growth Fund.

CLOSED ENDED SCHEME FUND:

In the care of close ended fund, the investors have to look their funds with the trust for particular
periods of time as a specified y the terms of the offer. The main problem for the investor is that
they cannot move in out of the fund freely. In the case of Closed Ended schemes the prices of
the units are calculated in the same manner as in the case of Open Ended schemes. However
these schemes do not charge an Entry/ Exit load as in the case of open ended scheme.
INTERVAL SCHEME FUND:
The concept of these funds is that the investors are free to Enter/ Exit the scheme at any point of
time during the fund period and the investors have to lock their funds with the trust for a
particular periods of time as a specified by the terms of the offer.
GROWTH FUND:
It is primarily look for growth of capital such funds invests in shorter with potential for growth
and capital appreciation. They invest in well established companies where the company it self
and the industry in which it operates are thought to have well long term growth potential and
hence growth fund provide low current income. Growth potential generally incurred higher risks
than Income Fund, in an effort to secure more pronounced growth. Some growth funds
concentrate on one or more industry sectors and also invest in a Broad range of industries.
Growth funds are suitable for investors who can offer to assume the risk of potential loss in value
their investment in the short term in the hope of achieving substantial and risings gains
.Eventually they are not suitable for investors who must conserve their principal or who must
maximize current income.
GROWTH AND INCOME FUND:
Growth and Income funds seek long term growth of capital as well as current income. The
investment strategies used to reach there goals very among funds. Some invest in a dual portfolio
consisting of growth stock and income stocks, or a combination of growth stocks paying high
35

dividends preferred stock, convertible securities or fixed income securities such as corporate
bonds and money market instruments.
Growth and Income funds have low to moderate stability of principal and moderate potential for
current income and growth they are suitable for investors who can assume some risk to achieve
growth of capital but who also want to maintain a moderate level of current income.
MONEY MARKET SCHEME:

It

is invested only in high liquidity; short- term top rated money market instruments. Money
market funds are suitable for investors who want high stability of principal and current income
with immediate liquidity.
DOS AND DONTS WHILE SELECTING A MUTUAL FUND:
DOS:
Check the track record of the asset management company.
See what is offered in terms of after-sales service.
Opt for an income or growth scheme on the basis of income requirements.
Consider your liquidity needs to choose between an open-or-close-ended fund.
Examine redemption and re-purchase facilities.
DONTS:
Never judge a mutual fund by the name of the group that is floating it.
Dont invest in a mutual fund when the market is on an upswing.
Do not opt for a fund where the NAV independently on the sensex.
Do not view NAV independently of the sensex.
Never but when the unit is quoted at a premium to NAV.

ADVANTAGES OF MUTUAL FUND:

PROFESSIONAL MANAGEMENT: Experienced fund managers supported by research
team, select appropriate securities to the fund. The forecasting of the market is done
effectively.
36

 DIVERSIFICATION: Mutual Fund invests in a diverse range of securities and over many
industries. Hence, all the eggs are not played in one basket. Normally an investor has to have
large sump of money to achieve this objective. If he invests directly in the stock market.
Through Mutual Fund, he can achieve diversification of portfolio at a fraction at of the cost.
CONVINIENT ADMINISTRATION: For the investors there is reduction in paper work
and saving in time. It is also very convenient. Mutual Fund helps in overcoming the problems
relating to bad deliveries delayed payments and the like.
RETURN POTENTIAL: Medium and the long term Mutual Fund have the potential to
provide high return.
LOW COST: The funds handle the investments of a large number of people; they are in a
position to pass on relatively low brokerage and other costs. This is because the funds can
take advantage of the economics of scale.
LIQUIDITY: Mutual Fund provides liquidity in two ways. In open ended schemes, the
investors can get back this money at any time by selling back the units to the fund at NAV
related prices. In closed ended schemes fund, he has the option to sell the units through the
stock exchange.
FLEXIBILITY: Currently most funds have regular investment plans, regular withdrawal
plans and divided reinvestment schemes. A great deal of flexibility is assured in the process.
CHOICE OF SCHEME: Mutual Fund offers a variety of schemes to suit varying needs of
the investors.
WELL REGULATED: The funds are registered with the securities and exchange of board
in India and their operations are continuously monitored.
TRANSPARANCY: Mutual Funds provide information on each scheme about the specific
investments made there under and so on.

SELECTION OF A FUND
Objective of the fund:
The Fund whether income oriented or growth oriented. Consistency of performance: a mutual
fund is always intended to give steady long term returns; hence the investors should measure the
performance of a fund over a period of at least three years.
37

 Historical background:
The success of any fund depends upon the competence of the management, its integrity,
periodicity and experience.
Cost of Operation:
Mutual funds seek to do a better job of the investible funds at a lower cost the he investible fund
at lower cost. The investors compare with their funds with others.
Capacity of innovation:
Some companies introduced innovation schemes to meet the diverse needs of investors.
Investors will look for funds which are capable of introducing innovation in the financial market.
Investor servicing:
The most important factor is prompt and efficient servicing. Service like quick response to
investors queries, prompt dispatch of unit certificates, quick transfer of units etc.,
FACILITIES AVAILABLE TO INVESTORS
Re purchase facilities
Reissue facilities
Roll over facilities
Lateral shifting facilities

Tax Saving Funds:

Section 80c has come as a boon to investors who have an appetite for risk.Until the previous
year, investment in tax saving funds (otherwise known as Equity Linked Savings Schemes) for
the purpose of availing a tax benefit was restricted to Rs 10000 P.A In the current year all such
restrictions have been done away with; an individual assessee now has the flexibility to invest
the Rs 100000 that is allowed uncer section 80/c in any proportion that he wishes (only in PPF is
there an upper limit of Rs 70000 pa) in specified instruments. Naturally, those with a risk
appetite should be looking at increase their exposure to tax-saving funds.

38

But now Tax Benefit will get up to Rs 1,00,000 .These leading tax-saving funds as on 14-112005.Tax saving funds are simply equity funds that have mandatory lock-in of three years. The
lock-in is one of the key strengths of such funds; it allows the fund manager to invest for the long
term and also saves him from the pressures of managing fund inflows and outflows on a day-today basis. In case of tax-savings funds, the fund outflows are known relatively well in advance
and therefore can be planned for. Before we delve further into understanding why tax-saving
funds should be considered for your portfolio,let us first understand risks associated with them.
RISK FACTORS IN MUTUAL FUND
Just like in any other investment, Mutual Fund investment also carry certain risks, the risks in
particular scheme of a mutual fund is a basically a function of five factor.
Market Risk:
In generally, there are certain risks associated with every kind of investments of shares. They
are called market risks. The market risks can be reduced. But cannot be completely
eliminated even by good investment management . The prices of shares are subjected to wide
price fluctuations depending upon market conditions .Eg, cycle boom & slump and
recovery.
Scheme Risks:
There are certain risks inherent in the scheme itself. T all depends upon the nature of the
scheme. For instance, in a pure growth scheme, risks are greater. It is obvious because if one
expects more returns an in the case of a growth scheme, one has to take more risks.
Investment Risks:
Whether the Mutual Fund makes money in shares or loses depends upon the investment
expertise of the Asset management Company (AMC). If the investment advice goes wrong,
the fund has to suffer a lot. The investment expertise of various funds are different and it is
reflected on the returns which they offer to investors.
Business Risk:
The corpus of a Mutual Fund might have been invested in companys shares. If the business
of that company suffers any set back, it cannot declare any dividend.
39

 Political Risk:
Successive Governments bring with them fancy new economy ideologies and policies. It is
often said that many economy decisions are politically motivated. Changed in Government
bring in the risk of uncertainty which every player in the financial service industry has to
face. So Mutual Funds are no exception to it.

Companies selected for performance evaluation of Mutual Funds1.

2.
3.
4.
5.

Sahara Tax Gain Fund

Reliance Tax Saver Fund
Tata India Tax Saving Fund
DHFL Premica Tax Plan
HDFC Tax Saver

Sahara Tax Gain Fund

Sahara Mutual Fund (the Mutual Fund) has been constituted as a trust on 18/07/1996 in
accordance with the provisions of the Indian Trusts Act, 1882 (2 of 1882) with Sahara India
Financial Corporation Limited, as the Sponsor and Board of Trustees as the Trustee. The Trust
Deed has been registered under the Indian Registration Act, 1908. The Mutual Fund was
registered with SEBI on 1/10/1996 under Registration Code MF/030/96/0.
FUND MANAGEMENT & INVESTMENT PROCESS: The Investment operations of the
Sahara Mutual Fund scheme(s) are managed by Sahara Asset Management Company Private
Limited, companys fund management team. The team comprises of Mr. Naresh Kumar Garg,
Chief Executive Officer, Mr. A.N. Sridhar, Fund Manager (Equity) and Mr. Ashwini Kumar,
Fund Manager (Debt) and a group of research / investment personnel ( excluding dealing
personnel), possessing collectively with them a vast and varied knowledge base relating to
financial markets and systems. The key personnel have experience in advising / managing funds
in Indian financial markets. The Investment Committee: The committee will lay down the
investment policy and philosophy, review performance with regard to the objectives of the
schemes on a regular basis. It would lay down the broad framework for investment management
by the fund manager while the day to day management of the fund would rest with the fund
40

Manager. The investment committee reviews the portfolios periodically, assess the liquidity
positions and make suggestions to the fund manager. The Investment Committee comprises of
Mr. Naresh Kumar Garg, Chief Executive Officer, Mr. A.N. Sridhar- Fund Manger (Equity) and
Mr. Ashwini Kumar, Fund Manager (Debt). The Investment Process: The Fund Manager in
accordance with the policies formulated by the Investment Committee handles the day-to-day
investment management. The focus of the Fund Manager is to ensure that the objectives of each
Fund are kept foremost whilst taking decisions regarding asset allocation and selection. Careful
attention is at all times paid to SEBI guidelines regarding restriction on investments / investment
limits as prescribed from time to time. These restrictions relate to single company / group
investments, investments in associate companies, investments in unrated debt instruments etc.
Typically, wherever any investment in unrated paper is involved, prior approval of the Trustees
and the Board of the AMC is sought. There is a daily meeting of the Fund Management Team
which discusses issues on the various information available. The research analysts give their
inputs. These meetings help the fund manager in taking investment decisions. The Fund Manager
relies extensively on research provided by external agencies that are used to formulate a view on
the likely trends and impact on the markets. This is supplemented by in-house research. The
hierarchical structure is typically vertical, with the Fund Managers reporting to the Chief
Executive Officer. The Board of Directors of the AMC and the Trustees are presented regular
reports on the portfolio performance on a stand-alone basis as well as a comparison with relevant
benchmarks and with peer group from the industry. Sahara Mutual Fund 17 Based on a
comprehensive review of credit, macro economic factors, external and internal inputs, the
Investment Committee decide the portfolio balance to arrive at a suitable mix of risk and return.
The key objective is to optimize returns vis--vis risk. Depending on the needs, derivatives may
be used with a view to minimizing risk and protecting the returns of the portfolio. The buy/sell
decisions would be recorded by the fund manager in the form of a Fund wise requisition slips
keeping in mind the investment objectives, investment restrictions and the applicable guidelines.
These sheets would contain details such as quantity of scrip/security, indicative price, reasons for
buy/sell etc. The requisition slip would be sent to the Dealers for execution. The risk manager/
mid office would review all buying and selling transactions to check that they are inline with the
stated fund objectives, investment restrictions, stipulated guidelines and suggest corrective action
to the fund manager wherever required. It would also check the portfolio risks periodically and
41

suggests corrective action wherever required. The Fund Manager shall review the portfolio on a
daily basis, in conjunction with the expected cash flows in to and out of the various Funds and in
line with the investment objectives and guidelines. The complete portfolio statement elaborating
classifications, limits and valuations would be placed for scrutiny before the Trustees and the
Board of Directors of the AMC at their meetings, which would be typically at least bimonthly /
once in a quarter.
Reliance Tax Saver Fund
Reliance Mutual Fund ('RMF') is one of Indias leading Mutual Funds, with Average Assets
under Management (AUM) of Rs. 90,636 Crores and an investor count of over 58.42 and 64.53
Lakh folios. (AUM and investor count as of Oct to Dec '12). Reliance Mutual Fund, a part of the
Reliance Group, is one of the fastest growing mutual funds in India. RMF offers investors a wellrounded portfolio of products to meet varying investor requirements and has presence in 179
cities across the country. Reliance Mutual Fund constantly endeavors to launch innovative
products and customer service initiatives to increase value to investors. Reliance Capital Asset
Management Limited (RCAM) is the asset manager of Reliance Mutual Fund. RCAM is a
subsidiary of Reliance Capital Limited (RCL). Presently, RCL holds 65.23% of its total issued
and paid-up equity share capital and the balance of its issued and paid up equity share capital is
held by other shareholders which includes Nippon Life Insurance Company (NLI), holding
26% of RCAMs total issued and paid up equity share capital. NLI acquired the said 26% share
holding in RCAM on August 17, 2012.
Reliance Capital Ltd. is one of Indias leading and fastest growing private sector financial
services companies, and ranks among the top 3 private sector financial services and banking
companies, in terms of net worth. Reliance Capital Ltd. has interests in asset management, life
and general insurance, private equity and proprietary investments, stock broking and other
financial services.
Reliance Mutual Fund (RMF) was initially set up as a Trust in accordance with the provisions of
the Indian Trust Act, 1882 by Reliance Capital Limited acting as a Settler /Sponsor, vide a Trust
Deed dated April 25, 1995 (the Original Trust Deed).The Original Trust Deed was duly
registered under the Indian Registration Act, 1908. The Original Trust Deed was subsequently
42

amended from time to time. In order to consolidate all amendments to the Original Trust Deed in
one document, an Amended and Restated Trust Deed was executed on March 15, 2011 (the
Amended and Restated Trust Deed). The Amended and Restated Trust Deed was subsequently
registered under the Indian Registration Act, 1908 and the Amended and Restated Trust Deed
was duly filed with SEBI. Reliance Capital Trustee Co. Limited entered into an Investment
Management Agreement dated May 12, 1995 with Reliance Capital Asset Management Ltd.
(RCAM) to function as the Investment Manager for all the Schemes of RMF.
TATA India Tax Saving Fund
Tata mutual fund has two reasons for its popularity:
The different schemes offered by Tata mutual fund takes care of the every investor irrespective of
the way of earning and even the nature of the investor. The efficient fund management and risk
control strategies by Tata mutual fund ensures a consistent performance over years. The investors
are free to choose a fund which can match their investment and benefit needs keeping in mind
the extent if risk they can take.
There are three main products of Tata mutual fund but they are subcategorized to create a huge
list of schemes.
The three main products are:
Equity
Debt
Balanced funds
DHFL Premica Tax Plan
DHFL was founded in 1984 by Late Shri Rajesh Kumar Wadhawan with a vision to provide
financial access to the lower and middle income segments of the society. Today, led by Mr. Kapil
Wadhawan, CMD, DHFL, the Company is one of India's leading mortgage finance institutions
with presence in over 450 locations across the country, in addition to representative offices in
Dubai and London.
43

All through its years of growth, DHFL has stayed with its core vision of financial inclusion. The
Company's wide network, coupled with insights into local customer needs has enabled the
Company to provide meaningful financial access to customers even in India's smallest towns.
With a strong business foundation, an extensive distribution network, proven industry expertise
and a deep understanding of the Indian customer, DHFL is one of India's largest financial
services companies
.
DHFL Pramerica Asset Managers Private Limited (the AMC), a private limited company
incorporated under the Companies Act, 1956, has been appointed as the investment manager of
DHFL Pramerica Mutual Fund by the Trustee under an Investment Management Agreement
between the Trustee and the AMC.
Headquartered in Mumbai, DHFL Pramerica MF has a presence in 19 cities across the country
including branches in Ahmedabad, Bangalore, Chennai, Delhi, Hyderabad, Kolkata and Pune.
DHFL Pramerica brings a rich blend of global resources, intellectual acumen and local
investment expertise and is committed to designing superior and meaningful, wealth-building
solutions for our investors. DHFL Pramerica provides unique training and education programs
for building exceptional capabilities and best business practices for its business associates.

HDFC Tax Saver

HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies Act,
1956, on December 10, 1999, and was approved to act as an Asset Management Company for the
HDFC Mutual Fund by SEBI vide its letter dated July 3, 2000.
HDFC Mutual Fund is one of the largest mutual funds and well-established fund house in the
country with consistent fund performance across categories since its incorporation on December
10, 1999. While our past experience does make us a veteran, but when it comes to investments,
we have never believed that the experience is enough.

44

Investment Philosophy
The single most important factor that drives HDFC Mutual Fund is its belief to give the investor
the chance to profitably invest in the financial market, without constantly worrying about the
market swings. To realize this belief, HDFC Mutual Fund has set up the infrastructure required to
conduct all the fundamental research and back it up with effective analysis. Our strong emphasis
on managing and controlling portfolio risk avoids chasing the latest "fads" and trends.
In terms of the Investment Management Agreement, the Trustee has appointed the HDFC Asset
Management Company Limited to manage the Mutual Fund. The paid up capital of the AMC is
Rs. 25.169 crore.
Zurich Insurance Company (ZIC), the Sponsor of Zurich India Mutual Fund, following a review
of its overall strategy, had decided to divest its Asset Management business in India. The AMC
had entered into an agreement with ZIC to acquire the said business, subject to necessary
regulatory approvals.
On obtaining the regulatory approvals, the following Schemes of Zurich India Mutual Fund have
migrated to HDFC Mutual Fund on June 19, 2003.

HDFC TaxSaver (ELSS)

The nature of the scheme is open ended equity linked savings (ELSS) scheme with a lock-in
period of 3 years. It will be comes in market at March 31, 1996. The minimum application
amount is for new & existing investors Rs.500 and in multiples of Rs. 500 thereafter.

45

3.1 Purpose of the study

The selection of topic is a crucial factor in any research study. There should be newness and it
should give maximum scope to explore the ideas from different angles. Generally, most of the
investors investing in mutual funds in order to avail tax benefits and also to earn returns, in this
connection they would park their funds in the tax saving schemes. A study required to analyze
the performance of selected tax saving schemes to fulfill the objectives of the investors. Hence
the study has been undertaken.
3.2 Research Objectives of the study.
The main objective of the study is to make investors aware of performance and provide
information on the comparison of tax saving funds of selected asset management companies. The
specific objectives are:
To employ performance evaluation measure using risk return models.
To compare the performance of selected tax saving schemes in comparison with market
portfolio.
To measure the comparative beta analysis of selected mutual funds.
3.3 Research Methodology of the study
Methodology is a way to systematically solve the research problem. It explains various steps that
are generally adopted by a researcher in studying the research problem. The methodology used in
this study is based on report and balance sheet of the company.
3. 3.1 Research Design
Research Design is the strategy for the study and the plan by which the strategy is to be carried
out. It is the set of decisions that make up the master plan specifying the methods and procedures
for the collection, measurement and analysis of data.
Research has used descriptive research. Descriptive studies are fact finding
investigation with adequate interpretation. It focuses on particular aspects of in the
study. It is designed to gather descriptive information and provides information for

46

formulating more sophisticated studies. This research was done on the basis of
already existing information. This research uses facts and

information already available in the balance sheet in order to assess the working capital of
company.
3.3.2 Method of data collection
Secondary data: The secondary data are those which have already been collected by someone
else and which have already been passed through the statistical process. This study is mainly
based on secondary data. The data is collected from the records and reports of the company. The
information is also collected from the data published by the company. Further, information has
also been collected by visiting websites of the company.
3.3.3 Tools for Performance Measures
In this study, the tools used for the analysis are Standard Deviation, Beta,
Correlation, Coefficient of Determination, Treynors Ratio, Sharp Ratio and Jensen
Measure for a period of 5 years from 2008 to 2012.
Average Mean: The most popular & widely used measure for representing
the entire data by one value is what most layman call an average & what
the statistician call the arithmetic mean. It is obtained by adding together
all the items & by dividing this total by the number of items.

Where:
X

= Average Mean

X = Sum of the frequency

N = Total number of frequency.

47

X
N

 Standard Deviation: The degree that a single value in a group of values

varies from the mean (average) of the distribution. Standard deviation is a
statistical measure that uses past performance of an investment or portfolio
to determine the potential range of future performance and assess the
probability of that performance. Standard deviations can be calculated for an
individual security or for the entire portfolio.

Beta: It describes the relationship between the stocks return and the index returns. The
beta value may be interpreted in the following manner, a 1% change in Nifty index
would cause a 1.042% (beta) change in the particular fund. It is the slope of characteristic
regression line. It signifies that a fund with a beta of more than 1 will rise more than the
market and also fall more than market.

Where,

Beta ( ) =

n XY ( X Y )
n X 2( X )2

n Number of year
x Returns of the index
y Returns of the fund
Correlation: These correlation values indicate the degree to which the fund's
performance is related to its market (using the benchmark as a proxy for the market). A
high correlation to its benchmark is generally considered to be favorable for the fund if
their investment thesis closely follows the benchmark.

r=

dxdy
d x 2 d y 2

Coefficient of Determination: the coefficient of determination is useful because it gives

the proportion of the variance (fluctuation) of one variable that is predictable from the
48

other variable. It is a measure that allows us to determine how certain one can be in
making prediction from the certain model/graph. The coefficient of is the ratio of the
explained variation to total variation for e.g.: if r = 0.922, then r2 = 0.850, which means
85% of the total variation in y can be explained by the linear relationship between x and
y. the other 15% of the total variation are remain unexplained.
Coefficent of Determination = r2
Treynors Ratio: The Treynor Ratio, named after Jack L. Treynor, one of the fathers of
modern portfolio theory, helps analyze returns in relation to the market risk of the fund.
The Ratio, also known as the reward-to-volatility ratio, provides a measure of
performance adjusted for market risk. Higher the Treynor Ratio, the better the
performance under analysis. It is a ratio that helps the portfolio managers to determine
the excess return generated as the difference between the funds return and the risk free
return.

Treynors Ratio =

R pR f
p

Where,

Avarage return on portfolio.

Rf Risk free rate of return.

p Beta on portfolio
Sharpe ratio: The Sharpe index measures the risk premium of the portfolio relative to
the total amount of risk in the portfolio. The Sharpe measure should only be used for
portfolios but not for single securities. The sharpe ratio tells us whether the returns of a
portfolio are because of smart investment decisions or a result of excess risk. This risk
premium is difference between the portfolios average rate of return & the riskfree rate of
interest dividing the result by the standard deviation of the portfolio return.
Thus,

49

Where,

Sharp ratio =

R pR f
p

Avarage return on portfolio.

Rf Risk free rate of return.

Standard deviation on portfolio
Jensens Model: Jansens model proposes another risk adjusted performance measure.
Michael Jenson developed this measure and is something referred as the differential
return method. This measure involves evaluation of returns that the fund has generated
Vs the return actually out of the fund given at that level of systematic risk. The surplus
between the two returns in called Alpha, which measures the performance of a fund
compared with the actual returns over the period. Required rate of return on fund at a
given level of Beta.

Jensen model=R

Rm R f
Rf + p
p

Where:
p

= Portfolio beta

Rp

= Average return of portfolio

Rf

= Risk free rate of return

Rm

= Average market return

3.3.4 Limitations
Due to constraints of time and resources, the study is likely to suffer from certain
limitations. Some of these are mentioned here under so that the findings of the study may
be understood in a proper perspective:

50

 The study was limited by the time constraint; hence extent to study is not
possible.

AVERAGE
YEAR

RETURN
(Y)

2013
2014
2015
Total

12.31
20.40
13.37
46.08

dy = (Y- Y

RETURN

( R y)

)
-3.05
5.04
-1.99

15.36
15.36
15.36

dy2

9.30
25.40
3.96
38.66

The analysis and interpretation purely based on the data collected from various
website. The accuracy of interpretation depends upon the accuracy of these
data.
The return from the mutual fund depends upon the returns of the securities
involved in the portfolio. The return from the market depends upon the
efficiency of the market and other various factor affecting the fund and
economy as a whole. So the researcher doesnt claim the 100% accuracy of
the result conducted from the study.

CALCULATION OF STANDARD DEVIATION OF SELECTED FUNDS

1. Sahara Tax Gain Fund

Table 4.1 Standard Deviation for Sahara Tax Gain Fund

51


Average Return ( R

y) =

Y
N

= 46.08/3
= 15.36
dy2 = 38.66
Variance

V =

d y2
n1

= 38.66/3-1
= 19.33
Standard Deviation (S.D) =

V = 4.39

52

2. Reliance Tax Saver Fund

Table 4.2 Standard Deviation for Reliance Tax Saver Fund
AVERAGE
YEAR

RETURN ( R

RETURN
(Y)

)
23.89
23.89
23.89

dy = (Y - Y )

dy2

-6.96
10.11
-3.13

48.44
102.21
9.79
160.44

2013
2014
2015
Total

16.93
34
20.76
71.69

Average Return ( R

)=

Ry
N

= 71.69/3
= 23.89
dy2= 9373.86
Variance

V =

d y2
n1

= 160.44/3-1
= 80.22
Standard Deviation (S.D) =

V = 8.95

53

3. TATA India Tax Saving Fund

Table 4.3 Standard Deviation for TATA India Tax Saving Fund
AVERAGE
YEAR

RETURN
(Y)

RETURN ( R

)
21.13
21.13
21.13

dy = (Y - Y )

dy2

-4.17
6.29
-2.1

17.38
39.56
4.41
61.35

2013
2014
2015
Total

16.96
27.42
19.03
63.41

Average Return ( R
= 63.41/3
= 21.13
2
dy = 61.35
Variance

V =

y) =

Ry
N

d y2
n1

= 61.35/3-1
=30.67
Standard Deviation (S.D) =

V = 5.53

54

4. DHFL Premica Tax Plan

Table 4.4 Standard Deviation for DHFL Premica Tax Plan

AVERAGE
YEAR

RETURN
(Y)

RETURN ( R

)
17.80
17.80
17.80

dy = (Y - Y )

dy2

-2.88
4.82
-1.92

8.29
23.23
3.68
35.2

2013
2014
2015
Total

14.92
22.62
15.88
53.42

Average Return ( R
= 53.42/3
= 17.80
dy2 = 35.2
Variance

V =

)=

Ry
N

d y2
n1

= 35.2/3-1
= 17.6
Standard Deviation (S.D) =

V = 4.19

55

5. HDFC Tax Saver

Table 4.5 Standard Deviation for HDFC Tax Saver
AVERAGE
YEAR

RETURN
(Y)

RETURN ( R

)
16.48
16.48
16.48

dy = (Y - Y )

dy2

-5.69
7.46
-1.77

32.37
55.65
3.13
91.15

2013
2014
2015
Total

10.79
23.94
14.71
49.44

Average Return ( R

y) =

Ry
N

= 49.44/3
= 16.48
2
dy = 91.15
Variance V =

d y2
n1

= 91.15/3-1
= 45.57
Standard Deviation (S.D) =

V = 6.75

56

Standard deviation and return of selected tax saving schemes

Return

Standard deviation

SAHARA
15.36
4.39
RELIANCE
23.89
8.95
TATA INDIA
21.13
5.53
DHFL
17.80
4.19
HDFC
16.48
6.75
Table 4.6 Return vs. Risk estimate of selected tax saving schemes

Chart 4.1 Showing returns Vs risk of selected tax saving schemes

30
25
20
AVERAGE RETURN

15

STANDARD DEVIATION
10
5
0
SAHARA RELIANCE

TATA

DHFL

HDFC

57

Inference: From the table 4.6 shows that average return and standard deviation details. From the
table it can be seen that Reliance fund making highest average return of 23.89% during the
period. However its also facing highest risk of 8.95 of all the four funds

58

CALCULATION OF BETA VALUES

6.

Sahara Tax Gain Fund

Table 4.7 Beta Calculation for Sahara Tax Gain Fund

Year

Returns on Fund
(Y)

Returns on Index
(X)

XY

2013
2014
2015
Total

12.31
20.40
13.37
46.08

10.5
3.5
18.5
32.5

129.25
71.4
247.34
447.99

Beta ( ) =

n XY ( X Y )
2
2
n X ( X )

= 3(447.99) (46.08*32.5) / 3(464.75) (32.5)2

=0.45

59

X2
110.25
12.25
342.25
464.75

7. Reliance Tax Saver Fund

Table 4.8 Beta Calculation for Reliance Tax Saver Fund

Year

Returns on Fund
(Y)

Returns on Index
(X)

XY

2013
2014
2015
Total

16.93
34
20.76
71.69

15.3
10.4
32.8
58.5

259.02
353.6
680.92
1293.54

Beta ( ) =

n XY ( X Y )
2
2
n X ( X )

= 3(1293.54) (71.69*58.5) / 3(1418.09) (58.5)2

= 0.376

60

X2
234.09
108.16
1075.84
1418.09

8. TATA India Tax Saving Fund

Table 4.9 Beta Calculation for TATA India Tax Saving Fund

Year

Returns on Fund
(Y)

Returns on Index
(X)

XY

2013
2014
2015
Total

16.96
27.42
19.03
63.41

8.9
11.8
22.1
42.8

150.94
323.55
420.56
895.05

Beta ( ) =

n XY ( X Y )
n X 2( X )2

= 3(895.05) (63.41 * 42.8) / 3(706.86 ) (42.8)2

= 0.9

61

X2
79.21
139.24
488.41
706.86

4. DHFL Premica Tax Plan

Table 4.10 Beta Calculation for DHFL Premica Tax Plan

Year

Returns on Fund
(Y)

Returns on Index
(X)

XY

2013
2014
2015
Total

14.92
22.62
15.88
53.42

13.8
12.7
20.5
47

205.98
287.27
325.54
818.7

Beta ( ) =

n XY ( X Y )
n X 2( X )2

= 3(818.7) (53.42 * 47) / 3(771.98) (47)2

= 0.52

62

X2
190.44
161.29
420.25
771.98

5. HDFC Tax Saver

Table 4.11 Beta Calculation for HDFC Tax Saver

Year

Returns on Fund
(Y)

Returns on Index
(X)

XY

2013
2014
2015
Total

10.79
23.94
14.71
49.44

10.7
7
21.5
39.2

115.45
167.58
316.26
599.29

Beta ( ) =

n XY ( X Y )
n X 2( X )2

= 3( 599.29) (49.44 * 39.2) / 3(625.74) (39.2)2

= 0.41

63

114.49
49
462.25
635.74

BETA VALUES OF FIVE SCHEMES

Table 4.12 Beta Values estimate of selected tax saving schemes
FUND

Beta value

Return Index

Findings

SAHARA TAX GAIN FUND

0.45

10.84

DEFENSIVE

RELIANCE TAX SAVER FUND

0.37

19.5

DEFENSIVE

TATA INDIA TAX SAVING

0.90

14.27

DEFENSIVE

DHFL PREMICA TAX PLAN

0.52

15.67

DEFENSIVE

HDFC TAX SAVER

0.41

13.06

DEFENSIVE

Chart 4.2: Beta value plotted with the selected tax saving schemes

20
18
16
14
12
10
8
6
4
2
0

BETA
INDEX

SAHARA

RELIANCE

TATA

DHFL

HDFC

Inference: The result of beta is present in table 4.12. It shows that only all the funds beta value
is (0.98< 1), that means all the funds will perform in defensive way i.e minimizing risk of losing
principal.

64

CALCULATION OF CORRELATION
1. Sahara Tax Gain Fund
Table 4.13 Correlation calculation for Reliance Tax Saver Fund

Returns on Returns on
Year

Fund (Y)

dy =
(Y

Index (X)

dx =
- (X

Y )

2013
2014
2015
Total

12.31
20.4
13.32

10.5
3.5
18.5
32.5

( R

r=

)=

dx2

dx dy

9.30
25.40
3.96
38.66

0.11
53.87
58.67
112.65

10.37
36.99
15.24
62.6

X )

-3.05
5.04
-1.99

Average Return ( R

dy2

-0.34
-7.34
7.66

Rx
N

) = 32.5 / 3 = 10.84

dxdy
d x 2 d y 2

r = 62.6 / (38.66* 112.65)

r = 0.94
1.

65

2. Reliance Tax Saver Fund

TABLE 4.14 Correlation calculation for Sahara Tax Gain Fund
Returns on Returns on
Year

Fund (Y)

dy =
(Y

Index (X)

dx =
- (X

Y )

2013
2014
2015
Total

16.93
34
20.76

15.3
10.4
32.8
58.5

-6.96
10.11
-3.13

Average Return ( R

( R

r=

)=

Rx
N

) = 58.5 / 3 = 19.5

dxdy
d x 2 d y 2

r = 161.29 / (160.36 * 378.25)

66

dx2

dx dy

48.44
102.21
9.71
160.36

48.44
82.81
163.84
378.25

29.23
92
40.06
161.29

X )

-4.2
-9.1
12.8

r = 0.65

dy2

3. TATA INDIA TAX SAVING FUND

TABLE 4.15 Correlation calculation for TATA India Tax Saving Fund

Returns on Returns
Year

Fund (Y)

dy =
(Y

on Index
(X)

2013
2014
2015
Total

16.96
27.42
19.03

dx =
- (X

Y )

8.9
11.8
22.1
42.8

( R

r=

)=

dx2

dx dy

17.38
39.56
4.41
61.35

28.83
6.10
61.30
96.23

22.39
15.53
16.443
34.36

X )

-4.17
6.29
-2.1

Average Return ( R

dy2

-5.37
-2.47
7.83

Rx
N

) = 42.8 / 3 = 14.27

dxdy
d x 2 d y 2

r = 34.36 / (61.35 * 126.69)

r = 0.38

67

4. DHFL PREMICA TAX PLAN

TABLE 4.16 Correlation calculation for DHFL Premica Tax Plan

Returns on Returns
Year

Fund (Y)

on

dy =
(Y

Index

(X)
2013
2014
2015
Total

14.92
22.62
15.88

dx =
- (X

Y )

13.8
12.7
20.5
47

( R

r=

)=

dx2

dx dy

8.29
23.23
3.68
35.2

3.49
8.82
23.32
35.63

5.38
14.31
9.27
28.96

X )

-2.88
4.82
-1.92

Average Return ( R

dy2

-1.87
-2.97
4.83

Rx
N

) = 47 / 3 = 15.67

dxdy
d x 2 d y 2

r = 28.96 / (35.2 * 35.63)

r = 0.81

68

5. HDFC TAX SAVER

TABLE 4.17 Correlation calculation for HDFC Tax Saver
Returns
Year

on

Returns

Fund on

(Y)

dy =

Index

dx =
(X

(Y - Y

(X)

dy2

dx2

dx dy

X )

)
2013

10.70

10.7

-5.69

-2.36

32.37

5.56

13.42

2014

23.94

7.46

-6.06

55.65

36.72

45.20

2015

14.71

21.5

-1.77

8.44

3.13

71.23

14.93

91.15

113.51

73.55

Total

39.2

Average Return ( R

( R

r=

)=

Rx
N

) = 39.2 / 3 = 13.06

dxdy
d x 2 d y 2

r = 73.55 / (113.5 * 91.15)

r = 0.72

69

Reliance Tax Saver Fund

Correlation (r)
0.654

Sahara Tax Gain Fund

0.948

TATA India Tax Saving Fund

0.389

DHFL Premica Tax Plan

0.817

HDFC Tax Saver

0.723

CORRELATION VALUES OF FIVE SCHEMES

Table 4.18 Correlation estimates of selected tax saving schemes

Chart 4.3 Correlation on selected tax saving schemes

70

1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0

Column2

Inference: Table 4.18 present the result of correlation estimated of selected tax saving schemes
the analysis reveals that all the scheme are highly correlated with market index suggesting direct
relationship between returns of tax saving schemes and benchmark index. It shows that the
results follow the market index.

71

COEFFICIENT OF DETERMINATION OF FIVE SELECTED SCHEMES

Table 4.19 Coefficient of determination estimates of selected tax saving schemes

Funds

Correlation (r)

Reliance Tax Saver Fund

0.654

Coefficient
of
Determination
(r2)
0.427

Sahara Tax Gain Fund Fund

0.948

0.898

TATA India Tax Saving Fund

0.389

0.151

DHFL Premica Tax Plan

0.817

0.667

HDFC Tax Saver

0.723

0.522

Chart 4.4 Coefficient of determination on selected tax saving schemes

1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0

coffecient
coefficient of
determination

SAHARA RELIANCE

TATA

DHFL

HDFC

Inference: The result of coefficient of determination is present in table 4.19. It shows the
percentage of variation attributes to the market movement. It is seen that except all the schemes
are highest values of (r2) indicates that much of the variation in return of the scheme are return by
market.
72

MEASURING THE PERFORMANCE OF THE SCHEMES

1. Treynor Ratio

Treynor Ratio =

R pR f
p

SAHARA

= 15.36 8 / 0.45

= 16.36

RELIANCE = 23.89 8 / 0.37

= 42.94

TATA INDIA = 21.13 8 / 0.9

=14.50

DHFL = 17.80 8 / 0.52

HDFC

= 18.84

= 16.48 8 / 0.41

73

= 20.68

2. Sharpe Ratio

Sharpe Ratio =

R pR f
p

SAHARA

RELIANCE = 23.89 8 / 80.22 = 0.198

TATA INDIA = 21.13 8 / 30.67 = 0.428

DHFL = 17.80 8 / 17.6 = 0.556

HDFC

= 15.36 8 / 19. 33 = 0.380

= 16.48 8 / 45.57 = 0.186

74

3. Jensen Model

Jensen model = R p-[Rf+p( R

-Rf)]

SAHARA

RELIANCE = 23.89 [8+0.37 (19.5 - 8)]= 11.64

TATA INDIA = 21.13 -[8 +0.9 ( 14.27-8 )]= 7.49

DHFL = 17.80 [8+0.52(15.67-8)]= 2.13

HDFC

= 15.36- [8+0.45(10.84-8)] = 6.09

= 16.48-[8+ 0.41 (13.06-8)]= 6.41

75

STATISTICAL ANALYSIS OF FUND PERFORMANCE

Table 4.20 Statistical Analysis of selected tax saving scheme Performance
Fund

Treynors

Sharpe

Jensen

Total

Rank

SAHARA
RELIANCE
TATA
DHFL
HDFC

Measure
16.36
42.94
14.5
18.84
20.68

Measure
0.380
0.198
0.428
0.556
0.186

Measure
6.09
11.64
7.49
2.13
6.41

22.83
54.77
22.41
21.52
27.06

III
I
IV
V
II

Chart 4.5 Statistical Analysis of selected tax saving schemes Performance

45
40
35
30
25

Treynors'

20

Sharpe
Jensen

15
10
5
0
SAHARA

RELIANCE

TATA

DHFL

HDFC

Inference: The result of Treynors, Sharpe and Jensen method is present in table 4.20. It show
the performance level of all the five selected tax saving schemes. It is seen that analysis of
returns in relation to the market risk of the fund. The higher returns are ranked accordingly
RELIANCE fund is ranked 1st, HDFC fund 2nd, SAHARA fund is 3rd, DHFL fund is 4th and
TATA INDIA fund is 5th by using all the three methods.

76

5.1 FINDINGS
In order to know the performance of the tax saving schemes in mutual fund as per the research
design from five selected AMC company data was collected. Further the data was analyzed in
previous chapter evaluating by (Average return, standard deviation, beta, and correlation,
coefficient of determination and methods of performance measures) to getting some finding.

Reliance Tax Saver has a higher risk (standard deviation) of 8.95, which has given the
highest return among selected schemes. In the case of return, DHFL premica has given
less return when compared to its benchmark of market index with a high risk (standard
deviation) of 4.19%.

Beta of the selected schemes have posted a beta value less than 1; thus belonging to
defensive category. A beta (<1) implies that this schemes tend to hold portfolio that were
less risky than the market portfolio. So all the schemes have defensive performance.
According to correlation it is found that the entire schemes are highly correlated with
market index.
According to coefficient of determination it is seen that except TATA india tax Saving
Fund Scheme all other scheme are highest values of (r 2) indicates that much of the
variation in return of the scheme are return by market.
All the five tax saving schemes have positive sharp ratio. The highest sharp ratio is found
in DHFL Tax Saver. While suggest that the fund has generated adequate returns as against
the level of risk.
The maximum treynors value of index are found in Reliance Tax Saver (42.94) and
minimum value was found in TATA india tax saving fund (14.5). it indicates that the
schemes have provied adequate returns as against the risk involved in the investment.
Further, as per Jensen model the highest extra return that portfolio is generating is
11.64% in the case of Raliance tax saver as compared to other schemes.

77

5.2 SUGGESTIONS
Investors can go ahead in investing in Reliance Tax Saving, HDFC tax saver and Sahara
Tax Gain Fund for acquiring better returns as well as tax savings.
TATA India tax saving plan has to revise , DHFL Premica Tax Plan portfolio has to
increase fund returns and provide investors a more secure investment option along with
tax saving.
The Reliance Tax Saver Fund scheme tends to hold portfolio that were less risky than the
market portfolio.
According return against the risk schemes will be ranked accordingly The higher returns
are ranked accordingly RELIANCE fund is ranked 1 st, HDFC fund 2nd, SAHARA fund is
3rd, DHFL fund is 4th and TATA INDIA fund is 5th by using all the three methods.
AMCs should take more efforts on spreading awareness about taxing mutual funds as
these investment instruments provides a higher return with tax saving schemes.
It should also induce technology that reduces turnaround time for services like
investment, redemptions and transfers and bring them on par with bank in turnaround
time.

78

6.1 CONCLUSION
Mutual funds are one of the best investments ever created because they are very cost efficient
and very easy to invest in. All the selected schemes have allocated majority of corpus to large
cap stock and some schemes also have allocation to mid cap. Various external causes affect the
fund performance. It is suggestible for the investors to choose the right scheme according to their
risk apatite tolerance and objective of the scheme. And it is always suggested to invest in equity
schemes for longer tenure. Investors while investing in the mutual funds is very cautious. All the
five selected tax saving schemes have positive sharp ratio. The highest sharp ratio is found in
DHFL Tax Saver. While suggest that the fund has generated adequate returns as against the level
of risk. The maximum treynors value of index are found in Reliance Tax Saver (42.94) and
minimum value was found in TATA india tax saving fund (14.5). it indicates that the schemes
have provied adequate returns as against the risk involved in the investment. Further, as per
Jensen model the highest extra return that portfolio is generating is 11.64% in the case of
Raliance tax saver as compared to other schemes.

79

BIBLIOGRAPHY
Books:
Gordon E. (2008) Financial Markets and Services, Mumbai; Himalaya Publising House.
Sadhak H. (2008) Mutual Funds in India (Marketing Strategies and Investment
Practices), New Delhi; Sage Publication.
Chandra P. (2010) Investment Analysis and Portfolio Management, Noida; Tata Mcgraw
Hill Education.
Gupta C.S. (2005) Fundamental of Statistics, Mumbai; Himalaya Publication House.
Kothari C.R. (2008) Research Methodology (Methods of Techniques), New Delhi; New
Age International (P) Ltd.
Mehrotra C.H. (2012) Direct Taxes Law & Practice, Agra; Sahitya Bhawan Publication.
Journals:
Vasu S. (2012)

Performance of Tax saving Funds of Selected Asset Management

Companies: A Comparative Analysis, International Jornal of Research in Commerce &

Management, October, Vol. 3,No. 10
Arora H. (2012) Are Mutual fund Outperforming Market?, Zenith International Jornal of
Business Economics & Management Research, June, Vol. 2, No.6
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81