CHAPTER ONE

INTRODUCTION

1
1.1Overview of the Industry-

A mutual fund is a professionally managed type of collective investment scheme

that pools money from many investors and invests it in stocks, bonds, short-term
money market instruments and other securities. Mutual funds have a fund
manager who invests the money on behalf of the investors by buying / selling
stocks, bonds etc. Currently, the worldwide value of all mutual funds totals more
than $US 26 trillion.

There are various investment avenues available to an investor such as real estate,
bank deposits, post office deposits, shares, debentures, bonds etc. A mutual fund
is one more type of Investment Avenue available to investors. There are many
reasons why investors prefer mutual funds. Buying shares directly from the
market is one way of investing. But this requires spending time to find out the
performance of the company whose share is being purchased, understanding the
future business prospects of the company, finding out the track record of the
promoters and the dividend, bonus issue history of the company etc. An informed
investor needs to do research before investing. However, many investors find it
cumbersome and time consuming to pore over so much of information, get access
to so much of details before investing in the shares. Investors therefore prefer the
mutual fund route. They invest in a mutual fund scheme which in turn takes the
responsibility of investing in stocks and shares after due analysis and research.
The investor need not bother with researching hundreds of stocks. It leaves it to
the mutual fund and its professional fund management team. Another reason why
investors prefer mutual funds is because mutual funds offer diversification. An
investor’s money is invested by the mutual fund in a variety of shares, bonds and
other securities thus diversifying the investors portfolio across different
companies and sectors. This diversification helps in reducing the overall risk of
the portfolio. It is also less expensive to invest in a mutual fund since the
minimum investment amount in mutual fund units is fairly low (Rs. 500 or so).
With Rs. 500 an investor may be able to buy only a few stocks and not get the
desired diversification. These are some of the reasons why mutual funds have
gained in popularity over the years.

2
Indians have been traditionally savers and invested money in traditional savings
instruments such as bank deposits. Against this background, if we look at
approximately Rs. 7 lakh crores which Indian Mutual Funds are managing, then it
is no mean an achievement. A country traditionally putting money in safe, risk-
free investments like Bank FDs, Post Office and Life Insurance, has started to
invest in stocks, bonds and shares – thanks to the mutual fund industry.

However, there is still a lot to be done. The Rs. 7 Laky cores stated above,
includes investments by the corporate sector as well. Going by various reports,
not more than 5% of household savings are channelized into the markets, either
directly or through the mutual fund route. Not all parts of the country are
contributing equally into the mutual fund corpus. 8 cities account for over 60% of
the total assets under management in mutual funds. These are issues which need
to be addressed jointly by all concerned with the mutual fund industry. Market
dynamics are making industry players to look at smaller cities to increase
penetration. Competition is ensuring that costs incurred in managing the funds are
kept low and fund houses are trying to give more value for money by increasing
operational efficiencies and cutting expenses. As of today there are around 40
Mutual Funds in the country. Together they offer around 1051 schemes to the
investor. Many more mutual funds are expected to enter India in the next few
years.

All these developments will lead to far more participation by the retail investor
and ample of job opportunities for young Indians in the mutual fund industry.
This module is designed to meet the requirements of both the investor as well as
the industry professionals, mainly those proposing to enter the mutual fund
industry and therefore require a foundation in the subject. Investors need to
understand the nuances of mutual funds, the workings of various schemes before
they invest, since their money is being invested in risky assets like stocks/ bonds
(bonds also carry risk).Let us now try and understand the characteristics of mutual
funds in India and the different types of mutual fund schemes available in the
market.

3
1.1.1 MUTUAL FUNDS : STRUCTURE IN INDIA

For anybody to become well aware about mutual funds, it is imperative for
him or her to know the structure of a mutual fund. How does a mutual fund
come into being? Who are the important people in a mutual fund? What are
their roles? Etc. We will start our understanding by looking at the mutual
fund structure in brief.

Mutual Funds in India follow a 3-tier structure. There is a Sponsor (the First tier),
who thinks of starting a mutual fund. The Sponsor approaches the Securities &
Exchange Board of India (SEBI), which is the market regulator and also the
regulator for mutual funds.

Not everyone can start a mutual fund. SEBI checks whether the person is of
integrity, whether he has enough experience in the financial sector, his net worth etc.
Once SEBI is convinced, the sponsor creates a Public Trust (the Second tier) as per
the Indian Trusts Act, 1882. Trusts have no legal identity in India and cannot enter
into contracts, hence the Trustees are the people authorized to act on behalf of the
Trust. Contracts are entered into in the name of the Trustees. Once the Trust is
created, it is registered with SEBI after which this trust is known as the mutual fund.

It is important to understand the difference between the Sponsor and the Trust. They
are two separate entities. Sponsor is not the Trust; i.e. Sponsor is not the Mutual
Fund. It is the Trust which is the Mutual Fund.

The Trustees role is not to manage the money. Their job is only to see whether the
money is being managed as per stated objectives. Trustees may be seen as the
internal regulators of a mutual fund.

4
MUTUAL FUND COMPANIES IN INDIA

Fig 1.1 Mutual Funds

5
1.2ABOUT THE ORGANISATION

1.2.1 PROFILE OF THE ORGANISATION

SPA Group was promoted by a team of
finance professionals in 1995 with an
objective to provide value added financial
services. Initially, the Group focused as a
niche financial solutions provider in
corporate finance and wealth management
to Indian companies and high net worth
individuals. In January 2000, the Group
expanded its operations and the range of
services. Today, SPA provides services for
securities broking, merchant banking,
wealth management, financial advisory,
corporate finance, risk management and
insurance broking.SPA is being managed by its promoters along with a young and dynamic team
of over 1000+ professionals with rich experience, in their respective fields. The Group has
established itself as one of India’s leading financial advisory house, offering various financial
solutions to its Institutional, corporate and individual clients. Customer centric approach of
SPA’s dedicated professional team has helped carve a niche for itself in financial services arena
and won confidence of its clients. Clients of SPA are from a wide spectrum and comprise of
Banks and other financial institutions, Mutual funds, Insurance companies, foreign institutional
investors, public sector undertakings and government departments, private corporate, trusts and
individuals.

HeadOffice:NewDelhi
25,C-BlockCommunityCentre,JanakPuri
NewDelhi–110058Ph–011-25517371/25515086Fax–011-25532644
E-mail – info@spacapital.com

6
COMPANY PROFILE

Established in 1995, SPA Group is a long standing and fast growing integrated financial services
group, providing a large range of services to a varied set of customers that include large
corporations, high net-worth individuals, financial institutions and retail investors. Our service
offerings include merchant banking, securities broking, asset management, mutual funds,
insurance, fixed deposits, government securities and bonds. Though each of these business
entities exists independently, they reflect the group’s core ethos and values that are centered on
creating value through customer’s centric approach. SPA Group’s customer-centric approach,
backed by strong research and passion to excel has helped us achieve a significant position in the
Indian financial services sector. More than 1000 highly skilled professionals are continuously
and consistently working towards enhancing the value and wealth of our customers, even as we
continue to win many awards and accolades for our innovative services and solutions.

insurance sector

Securities limited Mutual fund

Spa Capital
Financial
Merchant banking Products and
management system
services

Fig 1.2.1: SPA Bussiness Diversification

7
MANAGEMENT TEAM

The Core management team of SPA consists of persons having a rich experience in Corporate
Finance and Advisory, Investment Banking, Risk Management, Securities Banking and Wealth
Management.

Mr. Sanjay Joon, President

MBA, having more than 24 years of experience in marketing of financial products and has a
vast experience in information technology and administration. His forte lies in his abilities of
accurately assessing his customers’ need, meeting them and leading an ever team. He heads
Mutual Fund Division of the Group since its inception.

Mr. Sanjay Gupta, Associate Director (Investment Banking)

B.Com (H), Chartered Accountant, Fellow Member of The Institute of Chartered
Accountants of India Has close to 20 years of work experience in the field of
investment and merchant banking, Fixed Income Securities, Project Financing,
Structured & Corporate Finance.

Mr. V K Khattar, Principal Officer

He has to his credit 42 years of rich experience of working with Oriental Insurance Company
Limited and retired as the Regional Manager. He is associated with our Group as the Principal
Officer of the Insurance arm.

Mr. Vivek Gautam, Associate Director

He is having 30 years of experience in the field of Banking & Merchant Banking including 16
years of exclusive experience in Investment Banking. He has worked for 14 years in PNB till
mid 1991 in Managerial positions. Thereafter he was deputed to PNB Capital Services Limited
as Senior Vice President and worked as Head Merchant Banking during 1991 – 1996 and was
associated in lead managing more than 60 public and rights issues for well known Corporate and
Financial Institutions. He was also Head Investment Department dealing in securities for one
year. Thereafter he worked as Director – Bajaj Capital Limited and President Merchant Banking
for 7 years and also as Head Merchant Banking and Executive Director with Allianz Securities

8
Limited for 1 year. He has wide experience in issue management, private placement of equity
and debt, corporate advisory & finance, mergers & takeovers & distribution of financial
products. He is with SPA Group since October 2006 and looking after Merchant Banking

GROUP COMPANIES
SPA Group of companies is the flagship Company of the Group and is engaged in providing
Wealth Management and Financial Advisory services to institutions, corporate, and individuals
since 1995. The Company is a leading distributor of Mutual Funds in the country and presently
has assets over 4500 crore under its management. The Company has successfully positioned
itself as a strategic advisor to its customers for wealth management with its customer centric
approach and innovative solutions.

The Company is registered with Reserve Bank of India as a Non Banking Financial Company.
Presently the shares of the Company are listed on the Delhi Stock Exchange.

1) SPA CAPITAL SERVICES LTD.

SPA Capital Services Ltd., the flagship company of the group provides investment advisory
services. The company is engaged in advisory and
distribution services of Mutual funds and is ranked
amongst top 10 intermediaries in the country. The
Company provides customized solutions to the
requirements of High Net worth Individuals and
Corporate clients. Our strength lies in our ability to
advise on investment strategies and structures, develop
innovative products and distribute amongst a wide
network of investors across the country. We have
constantly working to develop new instruments, tailor made to the requirements of our clients,
enabling them to earn efficient post tax returns in accordance with their specific risk, return and
maturity profiles. The company also has a distribution network of 200 sub-brokers across India
being serviced by its eight branches. The company is currently having Asset Under Management
of over Rs.22,000 crore with above 1 lakh satisfied customers.

9
Additionally, the company provides advisory services for alternate investment options like
portfolio management services in equity, debt and commodities besides investment in venture
capital funds

2) SPA MERCHANT BANKERS LTD.

SPA Merchant Bankers
Limited offers comprehensive
investment banking solutions and
highest quality independent financial
advice to corporate sector and
entrepreneurs. Our service offering
covers private placement of debt
instruments and debt syndication for
both public and private sector
corporates, Capital raising services through private placement of equity, managing
capital issues (IPO, FPO and Right Issues). Besides, we also cater to the entire
spectrum of capital market needs through other services such as Corporate and
Infrastructure advisory, Valuations, Managing Takeovers, Buy Back and Delisting.
We have team comprising of multi-disciplinary professionals with a vast financial
advisory and investment banking experience, who structure various financial
products as per the requirements of the clients.
The Company has made notable and considerable progress in a short span in the debt
merchant banking activities successful various debt primary issues. This is also
reflected through the ranking by Prime Database, which has ranked the Group
amongst the top 10 service providers in this segment. The Company was able to
achieve above ranks on the basis of its performance in just two financial years since
it commenced investment & merchant banking activities.
We have started providing equity capital market related services in the beginning
of 2007 and advise Corporate, Banks and Businesses which are seeking to
mobilize capital from Investor.

10
 We offer following opportunities to clients to raise funds through the following:
 Private Equity Advisory
 Initial Public Offering (IPOs)
 Follow on Public Offering (FPOs)
 Qualified Institutional Placements (QIPs)
 Right Issues
 Preferential Allotments and
 Foreign Currency convertible bonds (FCCBs)

3) SPA SECURITIES LTD.

SPA Securities Limited is a SEBI registered securities broking Company. The Company is a
member of Wholesale Debt Market, Capital Market and Futures and Options Segment of the
National Stock Exchange of India Limited. The Company is also a registered member of the
Over the Counter Exchange of India.

The Company is focused primarily on providing securities

broking services to institutional clients and is empanelled as
an approved securities broker with all the major
Nationalized, Private and Co-operative banks, corporate
houses, Insurance Companies, Financial Institutions, Asset
Management Companies and Provident Fund Trusts. The
Company had a turnover of Rs. 25000 crores at NSE-WDM
for the financial year ended March 2005. Equity broking for
institutions was commenced in 2004 end. In its first full year
of the operations, the Company achieved a turnover of over
Rs.1500 crores in calendar year 2005.

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4 ) SPA INSURANCE BROKING SERVICES LIMITED
SPA Insurance Broking Services Limited is the arm of the SPA Group providing entire range of
insurance service in insurance right from meeting
insurance need of clients to cover its risk spectrum,
advisory, claim settlement and also meet requirement of
clients if they wish to outsource entire gamut of
insurances related functions. The Company is registered
with Insurance Regulatory Development Authority as
approved Broker. The Company is empanelled with
almost all the life and general insurance companies as a
Direct Broker. The Company is functioning as life and general insurance direct broker and risk
assessors.

5) SPA COM TRADE LTD.

SPA Com trade Pvt. Ltd., the commodities broking arm of the group has recently
commenced operations. The company is catering to existing customers of the group
by providing research based commodity broking services.

12
CLIENTS OF SPA GROUP

Fig1.2.2:Spa group clients

13
1.3 ABOUT THE TOPIC

1.3.1.1 INTRODUCTION TO MUTUAL FUND

A mutual fund is just the connecting bridge or a financial intermediary that allows a group of
investors to pool their money together with a predetermined investment objective. The mutual
fund will have a fund manager who is responsible for investing the gathered money into specific
securities (stocks or bonds). When you invest in a mutual fund, you are buying units or portions
of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund.

Mutual funds are considered as one of the best available investments as compare to others they
are very cost efficient and also easy to invest in, thus by pooling money together in a mutual
fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to
do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing
risk & maximizing returns.

14
Fig1.3.1 Process in mutual funds

15
1.3.1.2 HISTORY OF MUTUAL FUNDS
The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the
initiative of the Government of India and Reserve Bank of India. The history of mutual funds in
India can be broadly divided into four distinct phases

First Phase – 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the
Reserve Bank of India and functioned under the Regulatory and administrative control of the
Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development
Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The
first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700
crores of assets under management.

Second Phase – 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and
Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC).
SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by
Canara bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank
Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC
established its mutual fund in June 1989 while GIC had set up its mutual fund in December
1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47,004
crores.

Third Phase – 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund
industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in
which the first Mutual Fund Regulations came into being, under which all mutual funds, except
UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with
Franklin Templeton) was the first private sector mutual fund registered in July 1993.

16
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and
revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual
Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual funds setting
up funds in India and also the industry has witnessed several mergers and acquisitions. As at the
end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The
Unit Trust of India with Rs.44,541crores of assets under management was way ahead of other
mutual funds.

Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated
into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets
under management of Rs.29, 835 crores as at the end of January 2003, representing broadly, the
assets of US 64 scheme, assured return and certain other schemes.

17
The Graph indicates the growth of assets over the years

The Specified Undertaking of Unit Trust of India, functioning under an administrator and under
the rules framed by Government of India and does not come under the purview of the Mutual
Fund Regulations.

The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and LIC. It is registered with
SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile
UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with
the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and
with recent mergers taking place among different private sector funds, the mutual fund industry
has entered its current phase of consolidation and growth.

The graph indicates the growth of assets over the years.

Fig 2.2: Mutual Funds Growth

Fig 1.3.2:Mutual Funds Growth

18
1.3.1.3 ORGANIZATION OF A MUTUAL FUND

Fig: 1.3.3: Mutual Fund Organizational Structure

Fig 1.3.3:Mutual Fund Organization structure

19
Fig: 1.3.4: Types of Mutual Fund

20
1.Equity funds:
These funds invest a maximum part of their corpus into equities holdings. The structure of the
fund may vary different for different schemes and the fund manager’s outlook on different
stocks. The Equity Funds are sub-classified depending upon their investment objective, as
follows:
 Diversified Equity Funds
 Mid-Cap Funds
 Sector Specific Funds
 Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-
return matrix.

2. Debt funds:
. By investing in debt instruments, these funds ensure low risk and provide stable income to the
investors. Debt funds are further classified as:
 Gilt Funds
 Income Funds
 MIP.
 Short Term Plans (STP)
 Liquid Funds

3. Balanced funds:
They invest in both equities and fixed income securities, which are in line with pre-defined
investment objective of the scheme. These schemes aim to provide investors with the best of
both the worlds. Equity part provides growth and the debt part provides stability in returns.

Further the mutual funds can be broadly classified on the basis of investment parameter
viz, By investment objective:

 Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these
schemes is to provide capital appreciation over medium to long term.

21
  Income Schemes: Income Schemes are also known as debt schemes. The aim of these
schemes is to provide regular and steady income to investors. These schemes generally
invest in fixed income securities such as bonds and corporate debentures.

 Balanced Schemes: Balanced Schemes aim to provide both growth and income by
periodically distributing a part of the income and capital gains they earn. These schemes
invest in both shares and fixed income securities, in the proportion indicated in their offer
documents (normally 50:50).

 Money Market Schemes: Money Market Schemes aim to provide easy liquidity,
preservation of capital and moderate income. These schemes generally invest in safer,
short-term instruments, such as treasury bills, certificates of deposit, commercial paper
and inter-bank call money.

Other schemes :
 Tax Saving Schemes

 Index Schemes

 Sector Specific Schemes

1.3.1.4 FUND MANAGEMENT

Actively managed funds:

Mutual Fund managers are professionals. They are considered professionals because of their
knowledge and experience. Managers are hired to actively manage mutual fund portfolios.
Instead of seeking to track market performance, active fund management tries to beat it. To do
this, fund managers “actively” buy and sell individual securities. For an actively managed fund,
the corresponding index can be used as a performance benchmark.

22
Actively managed fund styles: Fund styles usually fall within the following three categories.

Fund Styles:
 Value: The manager invests in stocks believed to be currently undervalued by the
market.

 Growth: The manager selects stocks they believe have a strong potential for beating

the market.

 Blend: The manager looks for a combination of both growth and value stocks.

Passively Managed Funds:

Passively managed mutual funds are an easily understood, relatively safe approach to investing
in broad segments of the market. They are used by less experienced investors as well as
sophisticated institutional investors with large portfolios.

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1.3.2 PORTFOLIO MANAGEMENT SERVICES

What is Portfolio Management?

Portfolio Management Services, called, as PMS are the advisory services provided by corporate
financial intermediaries. It enables investors to promote and protect their investments that help
them to generate higher returns. It devotes sufficient time in reshuffling the investments on hand
in line with the changing dynamics. It provides the skill and expertise to steer through these
complex, volatile and dynamic times. It is a choice of selecting and revising spectrum of
securities to it with the characteristics of an investor. It prevents holding of stocks of
depreciating-value. It acts as a financial intermediary and is subject to regulatory control of
SEBI.

1.3.2.1 PHASES OF PORTFOLIO MANAGEMENT

 Security Analysis
 Portfolio Analysis
 Portfolio Selection
 Portfolio Revision
 Portfolio Evaluation

 Security Analysis :
(a)Fundamental analysis: This analysis concentrates on the fundamental factors
Affecting the company such as EPS (Earning per share) of the company, the dividend
Payout ratio, competition faced by the company, market share, quality of management
Etc.

(b) Technical analysis: The past movement in the prices of shares is studied to identify
trends and patterns and then tries to predict the future price movement. Current
Market price is compared with the future predicted price to determine the mispricing.
Technical analysis concentrates on price movements and ignores the fundamentals of
the shares.

24
(c) Efficient market hypothesis: This is comparatively more recent approach. This
Approach holds that market prices instantaneously and fully reflect all relevant
available information. It means that the market prices will always be equal to the
Intrinsic value.

25
  PortfolioAnalysis:
A period is a group of securities held together as investment. It is an attempt to spread
the risk over. The return & risk of each portfolio has to be calculated mathematically
and expressed quantitatively. Portfolio analysis phase of portfolio Management consists
of identifying the range of possible portfolios that can be constituted from a given set of
securities and calculating their risk for further analysis.

 Portfolio Selection :
The goal of portfolio construction is to generate a portfolio that provides the highest
returns at a given level of risk. Harry Markowitz portfolio theory provides both the
Conceptual framework and the analytical tools for determining the optimal portfolio
in a disciplined and objective way.

 Portfolio Revision :
The investor/portfolio manager has to constantly monitor the portfolio to ensure that
It continues to be optimal. As the economy and financial markets are highly volatile
Dynamic changes take place almost daily. As time passes securities which were once
Attractive may cease to be so. New securities with anticipation of high returns and
Low risk may emerge.

 Portfolio Evaluation :
Portfolio evaluation is the process, which is concerned with assessing the
Performance of the portfolio over a selected period of time in terms of return & risk.
The evaluation provides the necessary feedback for better designing of portfolio the
Next time around.

26
1.3.2.2 TYPES OF PORTFOLIO MANAGEMENT

Fig1.3.5:Types of Portfolio Management

The discretionary portfolio management services:

In this type of services, the client parts with his money in favour of manager, who in return,
handles all the paper work, makes all the decisions and gives a good return on the investment
and for this he charges a certain fees

The Non-discretionary portfolio management services:

The manager function as a counsellor, but the investor is free to accept or reject the
manager’s advice; the manager for a services charge also undertakes the paper work. The
manager concentrates on stock market instruments with a portfolio tailor made to the risk
taking ability of the investor

27
1.3.2.3 MANAGING PORTFOLIO
ASSET ALLOCATION
The process of dividing a portfolio among major asset categories such as bonds, stocks or
Cash. The purpose of asset allocation is to reduce risk by diversifying the portfolio. The ideal
Asset allocation differs based on the risk tolerance of the investor.

To help determine which securities, asset classes and subclasses are optimal for
Your portfolio; let’s define some briefly:

 Large-cap stock –These are shares issued by large companies with a market
capitalization generally greater than $10 billion.

 Mid-cap stock – These are issued by mid-sized companies with a market cap
generally between $2 billion and $10 billion.

 Small-cap stocks – These represent smaller-sized companies with a market cap of

less than $2 billion. These types of equities tend to have the highest risk due to lower
liquidity.

 International securities These types of assets are issued by foreign companies and
listed on a foreign exchange. International securities allow an investor to diversify
outside of his or her country, but they also have exposure to country risk – the risk
that a country will not be able to honour its financial commitments.

 Emerging markets – This category represents securities from the financial markets
of a developing country. Although investments in emerging markets offer a higher
potential return, there is also higher risk, often due to political instability, country risk
and lower liquidity.

 Money market – Money market securities are debt securities that are extremely
liquid investments with maturities of less than one year. Treasury bills make up the
majority of these types of securities.

28
  Real-estate investment trusts (REITs) REITs trade similarly to equities, except the
underlying asset is a share of a pool of mortgages or properties, rather than ownership
of a company

1.3.2.4 INVESTOR TYPES

There are many different types of investors in the stock market, investors can be classified
into the following types: Aggressive, Conservative, and Balanced

Aggressive Investor
Aggressive investors tend to concentrate on equity investments such as individual stocks and
mutual funds. They are open to more risk, willing to see large short term swings in market
performance on an annualized basis. They aim for large growth in the market.

Balanced investors
Balanced investors will have a time horizon of 5 to 10 years and choose to diversify across
both aggressive growth-oriented investments and more conservative interest-earning
investments. They emphasize income over growth. Balanced investors are medium risk
investors.

Conservative Investor
Conservative investors have a 2 to 5 year time horizon, typically because they are nearing
retirement or have a short-term need for their investment. They prefer a higher level of
income than does the stable investor. Conservative investors are low to medium risk
investors.

29
1.3.2.5 SEBI GUIDELINE FOR PMS

 For investment in listed securities, an investor is required to open a Demat account in

his/her own name

 Minimum investment amount of clients for such schemes to Rs 25 lakh from the
earlier Rs 5 lakh.

 Portfolio manager will not be allowed to hold the unlisted securities, besides the listed
securities, belonging to the portfolio account, in its own name on behalf of its clients.

 Portfolio manager cannot offer/ promise indicative or guaranteed returns to clients.

 The portfolio manager is required to have a minimum net worth of Rs. 2 crore.

30
CHAPTER TWO

RESEARCH METHODOLOGY

31
2.1 OBJECTIVES OF THE STUDY
Primary objectives
 The main objective of this study is to evaluate and create a portfolios consisting the
best mutual fund schemes which will earn highest possible returns and will minimize
the risk.

Secondary objectives
 To understand the concept of portfolio management and its relation to Mutual funds
in a current scenario
 To find the problem areas in mutual funds portfolio management service.
 To find the corrective measures in mutual funds portfolio management service.

2.2 NEED FOR THE STUDY

Portfolio management services is becoming a rapidly growing area serving a broad array of
investors both individual and institutional-with investment portfolios ranging in asset size
from thousands to cores of rupees.

Increased market volatility- risk and return parameters of financial assets are continuously
changing so your assets in the portfolio should be properly managed.

Portfolio’s created by portfolio manager should be as per investor’s Behaviour and their
objective, risk appetite. Portfolio creation is important and it should be as per investor class
otherwise it would not fulfill its financial needs

Portfolio revision is another vital aspect in an investor’s Portfolio because continuous

revision is needed to gain higher returns with manageable risk.

SPA CAPITAL SERVICE Ltd. Is mainly into Financial Advisory Sevice and has started
mutualfunds later ,Now It is ranked among Top 10 intermediaries in mutual funds service .
CRM activity was conducted in order to know the customer perception about Portfolio
management Service.

32
Therefore a Detailed study on Portfolio management services in mutual funds specially
focusing on portfolio creation of different types of investor on the basis of risk, Portfolio
revision and mutual fund comparison.

33
2.3 METHODOLOGY

2.3.1 RESEARCH DESIGN:

A research design is a systematic plan to study a scientific problem. The design of a study
defines the study type (descriptive, correlation, semi-experimental, experimental, review,
meta-analytic) and sub-type (e.g. descriptive-longitudinal case study), research
question, hypotheses, independent and dependent variables, experimental design, and, if
applicable, data collection methods and a statistical analysis plan. Research design is the
framework that has been created to seek answers to research questions. This research is
followed by the causal research design because it seeks to generate a cause and effect
relationship between the securities or variables and the after effect of those variables on the
decision making by the Portfolio Manager. It is also possible to have an idea about the
relation between variables. The advantage of causal research is that it is easier to make a
decision keeping in mind the effect or result of that cause.

These project is basically depends upon following researches:

 Descriptive Research & Analytical Research

 Quantitative research

 Descriptive Research-Descriptive research is used to describe characteristics of a

population or phenomenon being studied. It does not answer questions about
how/when/why the characteristics occurred.
 Analytical Research-Analytical research is a specific type of research that involves
critical thinking skills and the evaluation of facts and information relative to the
research being conducted.
 Quantitative Research-Quantitative methods emphasize objective measurements and
the statistical ,mathematical ,or numerical analysis of data collected through polls,
surveys, websites,or by manipulating preexisting statistical data using computational
techniques.

34
2.3.2 SOURCE OF DATA COLLECTION:

Researchers need to consider the sources on which to base and confirm their research and
findings. They have a choice between primary data and secondary sources and the use of
both, which is termed triangulation, or dual methodology. Primary Data is the data collected
by the researcher themselves, i.e. interview, observation, action research, case studies, life
histories, questionnaires, ethnographic research, longitudinal studies. Secondary Sources are
data that already exists i.e. previous research, official statistics, mass media product, diaries,
letters, government reports, web information, historical data and information.

Researchers need to consider the sources on which to base and confirm their research and
findings. They have a choice between primary data and secondary sources and the use of
both.

This project research is based on SECONDARY DATA where the data are collected that
already exist in form of:

 For data collection purpose the secondary source was used like mutual fund factsheet,
books, Statstical websites (like Money Control,Yahoo Finance)
 This data was used in Portfolio revision and comparison of mutual funds schemes on
the basis of various performance measures

2.3.3 Research Instruments used:

Financial calculations: - This was done necessary calculations by using various Financial
tools in Ms excel to find the various performance measures and Risk adjusted returns of
various mutual funds.

35
CHAPTER THREE

DATA ANALYSIS

AND

FINDINGS

36
MUTUAL FUND COMPARSION:

The Five mutual funds taken for comparisons are generally Mid –Micro cap funds and Equity
in nature.

1)DSP –BR MICRO CAP FUND RP(G):

Objective: An open ended diversified equity growth scheme seeking to generate long term
capital appreciation from a portfolio that is substantially constituted of equity and equity
related securities which are not part of the top 300 companies by market capitalisation. From
time to time, the Investment Manager will also seek participation in other equity and equity
related securities to achieve optimal portfolio construction.

Type of Scheme Open-Ended

Nature Equity

Option Growth

Inception Date May 04, 2007

Minimum Investment 5000

Asset Size(cr.)
2,422.99 (Jun-30-2016)

Sector Chemicals,Manufacturing,Banking

&Finance

Stocks SRF,DCB Bank,Atul,Finolex

Cable

Fund Manager Vinit Sambre & Jay Kothari

37
38
2)Franklin (I) Smaller Co’s Fund (G)-

Objective:

Type of Scheme Open-Ended

Nature Equity

Option Growth

Inception Date Jan 01, 2013

Minimum Investment 5000

Asset Size(cr.)
430.42 (Jun-30-2016)

Sector Banking&Finance,Chemical,Enginnering

Stocks Finolex cabels,

Equitas holdings,Atul

Fund Manager R. Janakiraman / HariShyamsunder

39
40
3)Mirae Emerging Bluechip Fund (G)-

Objective: To generate income and capital appreciation from a diversified portfolio

predominantly investing in Indian equities and equity related securities of companies which
are not part of the top 100 stocks by market capitalization and have market capitalization of at
least Rs. 100 Crores at the time of investment. From time to time, the fund manager may also
seek participation in other Indian equity and equity related securities to achieve optimal
portfolio construction. The Scheme does not guarantee or assure any returns.

Type of Scheme Open-Ended

Nature Equity

Option Growth

Inception Date
Jun 22, 2010

Minimum Investment 5000

Asset Size(cr.) 1,411.12 (Jun-30-2016)

Sector Banking &

Finance,Automotive,Pharmaceuticals

Stocks Indusind Bank,Ceat,Torrent pharma

Fund Manager Neelesh Surana

41
42
4)Birla SL Small and midcap fund(G)-

Objective: An Open ended Small and Mid Cap Equity Scheme with an objective to generate
consistent long-term capital appreciation by investing predominantly in equity and equity
related securities of companies considered to be small and midcap The Scheme may also
invest a certain portion of its corpus in fixed income securities including money market
instruments, in order to meet liquidity requirements from time to time.

Type of Scheme Open-Ended

Nature Equity

Option Growth

Inception Date Apr 09, 2007

Minimum Investment 5000

Asset Size(cr.) 191.29 (Jun-30-2016)

Sector Banking,Pharmaceuticals,Cement

Stocks IDFC,Dalmia Bhart,J Kcement

Fund Manager Jayesh Gandhi

43
44
5) Kotak midcap fund-Regular plan(G)-

Objective: To generate capital appreciation from a diversified portfolio of equity and equity
related Investment securities

Type of Scheme Open-Ended

Nature Equity

Option Growth

Inception Date Jan 01,2013

Minimum Investment 5000

Asset Size(cr.) 7.36 (Jun-30-2016)

Sector Banking,Chemicals

Stocks Atul,Finolex cable

Fund Manager Pankaj Tibrewal

45
46
CALCULATION OF AVERAGE RETURN OF MUTUAL FUNDS:

Average Return (R) = (R)/N R=Return during the year

N=Number of years

Period R1 R2 R3 R4 R5

2011 (27.9) (26.5) (15.7) (23.7) (27.4)

2012 40.6 52 46.2 32.5 50.9

2013 3.2 12.3 7.7 4.1 (5.7)

2014 99.7 88.8 83.6 65.7 73.5

2015 19.3 9.4 13.5 12.7 7.2

TOTALRETURN 134.9 136 135.3 91.3 98.5

AVERAGE 26.98 27.2 27.06 18.26 19.7

RETURN

Table 1.

47
DIAGRAMATIC PRESENTATION

MUTUALFUND RETURN
DSP BR 26.98 %
FRANKLIN 27.2 %
MIRAE 27.06 %
BIRLA SL 18.26 %

KOTAK 19.7%

RETURNS

RETURN
30
26.98 27.2 27.06

25

19.7
20 18.26

15
RETURN
10

0
DSP BR FRANKLIN MIRAE BIRLA SL KOTAK

Fig3.1:Average Return

48
 𝟐
𝑹−𝑹
CALCULATION OF RISK OF COMPANIES: where S.D=√ 𝑵−𝟏

STANDARD DEVIATION-

Period S.D1 S.D2 S.D3 S.D4 S.D5

2011 3011.81 2883.69 1828.41 1760.64 2218.41

2012 185.50 615.04 366.34 202.77 973.44

2013 565.48 222.01 374.8 200.50 645.16

2014 5288.19 3794.56 3196.78 2250.55 2894.44

2015 58.98 316.84 183.87 30.91 156.25

Total 9109.96 7832.14 5950.2 4445.37 6887.7

Variance 2277.5 1958.1 1487.6 1111.4 1722

S.D 47.72 44.25 38.57 33.34 41.5

Table 2

49
BETA (SYSTEMATIC RISK) = Covariance (i,m)
Variance (m)
𝟏
Variance = (𝑹 − 𝑹)𝟐 where by Ri = Return of security
𝒏−𝟏

Rm = Return of Market
𝒊−𝒊 (𝐦−𝐦)
Covariance = 𝒏−𝟏

 Nifty mid cap50 index return is considered as Market return(Rm)

1)DSP BLACKROCK:

PERIOD Ri Rm Ri-𝐑𝐢 Rm-𝐑𝐦 (𝐑𝐦 − 𝐑𝐦)𝟐 (Ri- 𝐑𝐢)(𝐑𝐦 −

𝐑𝐦)

2011 (27.9) (40.14) (54.89) (48.09) 2312.64 2639.67

2012 40.6 35.6 13.62 27.65 764.52 376.60

2013 3.2 (2.90) (23.78) (10.85) 117.72 258.01

2014 99.7 45.6 72.72 37.62 1415.26 2735.72

2015 19.3 1.63 (7.68) (6.328) 40.04 48.59

TOTAL 26.98 7.958 4650.18 6058.09

Table 3.1

Average Return (i) = 26.98 %

Average Return (m) = 7.958 %

Systematic Risk (ẞ) = Covariance (i,m)

Variance (m)
= 1514.52/1162.54 = 1.30

50
2) FRANKLIN:

PERIOD Ri Rm Ri-𝐑𝐢 Rm-𝐑𝐦 (𝐑𝐦 − 𝐑𝐦)𝟐 (Ri- 𝐑𝐢)(𝐑𝐦 −

𝐑𝐦)

2011 (26.5) (40.14) (53.7) (48.09) 2312.64 2582.433

2012 52 35.6 24.8 27.65 764.52 685.72

2013 12.3 (2.90) (14.9) (10.85) 117.72 161.66

2014 88.8 45.6 61.6 37.62 1415.26 2317.39

2015 9.4 1.63 (17.8) (6.328) 40.04 112.68

TOTAL 27.2 7.958 4650.18 5859.88

Table 3.2

Average Return (i) = 27.2 %

Average Return (m) = 7.958 %

Systematic Risk (ẞ) = Covariance (i,m)

Variance (m)
= 1464.97/1162.54
= 1.26

51
 3) MIRAE:

PERIOD Ri Rm Ri-𝐑𝐢 Rm-𝐑𝐦 (𝐑𝐦 − 𝐑𝐦)𝟐 (Ri- 𝐑𝐢)(𝐑𝐦 −

𝐑𝐦)

2011 (15.7) (40.14) (42.76) (48.09) 2312.64 2056.32

2012 46.2 35.6 19.14 27.65 764.52 529.22

2013 7.7 (2.90) (19.36) (10.85) 117.72 210.05

2014 83.6 45.6 50.54 37.62 1415.26 2127.03

2015 13.5 1.63 (13.56) (6.328) 40.04 85.80

TOTAL 27.06 7.958 4650.18 5008.42

Table 3.3

Average Return (i) = 27.5 %

Average Return (m) = 7.958 %

Systematic Risk (ẞ) = Covariance (i,m)

Variance (m)
= 1252.105/1162.54
= 1.08

52
 4) BIRLA SUN LIFE:

PERIOD Ri Rm Ri-𝐑𝐢 Rm-𝐑𝐦 (𝐑𝐦 − 𝐑𝐦)𝟐 (Ri- 𝐑𝐢)(𝐑𝐦 −

𝐑𝐦)

2011 (23.7) (40.14) (41.96) (48.09) 2312.64 2017.85

2012 32.5 35.6 14.24 27.65 764.52 393.73

2013 4.1 (2.90) (14.16) (10.85) 117.72 153.63

2014 65.7 45.6 47.44 37.62 1415.26 1784.69

2015 12.7 1.63 (5.56) (6.328) 40.04 35.18

TOTAL 18.26 7.958 4650.18 4385

Table 3.4

Average Return (i) = 22.82 %

Average Return (m) = 7.958 %

Systematic Risk (ẞ) = Covariance (i,m)

Variance (m)
= 1096.25/1162.54 = 0.94

53
 5) KOTAK:

PERIOD Ri Rm Ri-𝐑𝐢 Rm-𝐑𝐦 (𝐑𝐦 − 𝐑𝐦)𝟐 (Ri- 𝐑𝐢)(𝐑𝐦 −

𝐑𝐦)

2011 (27.4) (40.14) (47.1) (48.09) 2312.64 2265.03

2012 50.9 35.6 31.2 27.65 764.52 862.68

2013 (5.7) (2.90) (25.4) (10.85) 117.72 275.59

2014 73.5 45.6 53.8 37.62 1415.26 2023.95

2015 7.2 1.63 (12.5) (6.328) 40.04 79.1

TOTAL 19.7 7.958 4650.18 5506.35

Table 3.5

Average Return (i) = 19.7 %

Average Return (m) = 7.958 %

Systematic Risk (ẞ) = Covariance (i,m)

Variance (m)
= 1376.58/1162.54
= 1.18

54
DIAGRAMATIC PRESENTATION

COMPANY RISK
DSP BR 1.302
FRANKLIN 1.26
MIRAE 1.07
BIRLA SL 0.94

KOTAK 1.184

SYSTEMATIC RISK

RISK
1.4 1.302
1.26
1.184
1.2
1.07
1 0.94

0.8

0.6 RISK

0.4

0.2

0
DSP BR FRANKLIN MIRAE BIRLA SL KOTAK

Fig 3.2: Systematic Risk(Beta)

55
RISK RETURN TRADE OFF

S.NO MUTUAL FUNDS RETURN RISK

1 DSP BR 26.98 1.3

2 FRANKLIN 27.2 1.26

3 MIRAE 27.06 1.08

4 BIRLA SL 18.26 0.94

5 KOTAK 19.7 1.1

Table 4

Fig 3.3:RISK RETURN TRADE OFF

30 27.2 1.4
26.98 27.06

25 1.2

R 19.7 1
20 18.26
E R
0.8
T I
15
U 0.6 S RETURN
R 10 K
0.4 RISK
N
5 0.2

0 0
DSP-BR FRANKLIN MIRAE BIRLA SL KOTAK
MUTUAL FUNDS

Through analysis of above mentiond “Risk and Return Trade Off”chart we can say that it is
not mandatory, there will be always positive relationship between risk and return.

Above chart also shows that, In terms of Return Both “Franklin”and “Mirae” are almost
equal but In terms of Risk adjusted return clearly “Mirae” is far better than “Frankiln”.

56
STANDARD DEVIATION:

S.NO MUTUAL FUND STANDARD

DEVIATION
1. DSP BLACK ROCK 47.72

2. FRANKLIN 44.25

3. MIRAE 38.57

4. BIRLA SUN LIFE 33.34

5. KOTAK MAHINDRA 41.5

Table 5

Standard Deviation of a fund depicts, that how much the returns of the fund have deviated
from the mean level. The higher the value of standard deviation, the greater will be the
volatility in the fund's returns. In period 2011-15 , DSP BLACKROCK FUND –
GROWTH had standard deviation of 47.72% meaning that the fund's return fluctuated in
either direction (up or down) by 26.98% from its average return ,whereas BIRLA SUN LIFE
FUND – GROWTH showed minimum deviation of 33.34%.

57
PORTFOLIO PERFORMANCE

1)SHARPE RATIO:( 𝑹𝒑 − 𝑹𝒇/S.D)

2)TREYNOR RATIO: (𝑹𝒑 − 𝑹𝒇/BETA)

S.NO MUTUAL FUND SHARPE TREYNOR

RATIO RATIO
1. DSP BLACK ROCK 0.40 14.40

2. FRANKLIN 0.43 15.10

3. MIRAE 0.49 17.50

4. BIRLA SUN LIFE 0.30 10.4

5. KOTAK MAHINDRA 0.28 9.60

Table 6

The above table shows the Sharpe ratio and Treynor ratio of various schemes for the financial
year 2011-15

Sharpe ratio is a measure of the excess return per unit of risk in an investment asset of a
trading strategy. The Sharpe ratio is used to characterize how well the return of an asset
compensates the investor for the risk taken

Treynor ratio measures the fund’s performance in relation to the market’s performance.

58
FINDINGS :
 Active Management of funds are far better approach than passive management of
Funds because Portfolio’s are continuously checked and revised to take into account
the effect market fluctuations on Investors Portfolio and take appropriate measure.

 Variable plan in portfolio revision gives higher returns in short term period

 Beta is useful tool in measuring risk in mutual funds.

 PMS is Less affordable by Middle class Investor as minimum investment needed is 25

lakhs.

 Sharpe and Treynor ratio are mostly preferred to ascertain the risk and values of
investment

 Portfolio Diversification is necessary in order to manage the risk

Decision: After analysing Sharpe and Treynor ratio, we found-among them “MIRAE
EMERGING BLUECHIP FUND(G)” was the top performer with highest sharpe and
treynor ratio.It means scheme has a better risk adjusted performance compared to the other
schemes.

The least performing fund was “KOTAK MID CAP FUND” with a least risk adjusted
ratios.

59
CHAPTER FOUR

CONCLUSION AND LIMITATIONS

60
CONCLUSION

After studying & analyzing different portfolio’s the following conclusions can be made:

 Winning with stocks means performing at least as well as a major market index over
the long haul. If one can sidestep the common investor mistakes, then one has taken
the first and biggest step in the right direction.

 Portfolio Management services in mutual funds reduces risk without sacrificing

returns.

 PMS involves a proper investment decision with regards to what to buy and sell. It
involves proper money management. It is also known as Investment Management

 If you wish to reap substantial benefits from your various investments & want your
small pile of investment to grow, the right portfolio management service (PMS) is a
prerequisite for it

 Diversified stock portfolios have offered superior long term inflation protection.

 To understand stock funds, one needs to be familiar with the characteristics of the
different types of companies they hold.

 PMS could end up being a well paying affair if you get this one right. So if you are
ready to put your nest egg & step into this world, put each step with a fine-toothed

61
LIMITATION TO THE STUDY:
Although the report has been made on the relevant facts and figures but certain problems
have been faced, which are as follows: -

 The time constraint was one of the major problems.

 To get an insight in the process of portfolio allocation and deployment of funds by

Fund manager is difficult.

 The portfolio of mutual fund investments can change according to the market
Conditions. This project is carried out and evaluated on the basis of the market
conditions from 2011 – 2015

 There are limited numbers of companies present in the research due to which a
potential investor may get limited options to invest and diversify his risk.
 There is limited knowledge about studying and understanding the portfolio structure
and thus is it is misinterpreted then a wrong investment decision can be taken by the
investor.
 Limited data is used in the research study

62
CHAPTER FIVE

SUGGESTION AND LEARNINGS

63
SUGGESTION:
 Portfolio managers should reanalyze their portfolios as similar funds of different
companies have better performance than their competitors.

 Before investing the past performance of several years should be considered and
consistency should be checked rather going for higher returns in recent period

 Active management style should be adopted for short term period

MY LEARNING:
 I have learnt many things analyzing the mutual funds and therby deducing about
their performance

 Relationship of risk and return and their impact on decisions

 Comparsion of mutual funds with performance measure

 I also learnt on the basis of parameter-how we should take these decision

64
BIBLIOGRAPHY

65
REFERENCES

BIBLIOGRAPHY
 ChandraPrasanna,InvestmentAnalysisandPortfolioManagement,4thedition,2014,
McGraw Hill Education(India) Private Limited, New Delhi
 Tripathy Nalini Prava,Mutual Funds in India,1st edition,2007,Excel Books,Delhi.

WEBLIOGRAPHY
 http://www.investing.com.in.investing.com/ratesbond/india-10-yearbond-yield-
historical data
 http://www.valueresearchonline.com/

 http://www.mutualfundsindia.com/
 http://www.nse.com/study material/mutualfunds
 http://www.moneycontrol.com/mf/portfolio/portupmore.php
 https://www.Morningstar.in/finds/factsheets.asp
 http://www.yahoofinance.com/

66