PAPER – FINANCIAL MANAGEMENT

Term Paper on
Risk and Return Analysis

Submitted To –
Ms. Amanpreet Kaur

Submitted By –
Harpreet Singh
MBA – A
Roll No.- 05

Submitted On-
15/04/2020

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Contents
Synopsis...................................................................................................3
Personal Information..............................................................................4
Life events and Financial needs in next 5 years...................................5
Investor Profile........................................................................................5
Investment Instruments.........................................................................6
Selection of Mutual Fund Scheme.........................................................8
Comparative Analysis..........................................................................12
Conclusion.............................................................................................13

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 Synopsis
Objective of the study-
To perform the comparative risk and return analysis of different investment opportunities
available to an individual.

Group Details:

(To be filled by students) (To be filled by a faculty)

Name of the Student Roll No. Marks Assigned Average Marks

A Harpreet Singh 05

B Shashank K C 25

C Vaibhav Kesharavani 31

Required Content of the study and rubrics:

No. Contents M.M. Marks assigned

A B C
1 Brief overview about your personal and
2
investment Profile.
2 Identifying expected life events and financial
2
needs
3 Determining the category of investor or
1
Identifying your Risk profile
4 Selecting single investment asset/instrument 3
5 Selecting a Mutual Fund scheme/ Portfolio 2
6 Risk and Return analysis of MF scheme/
2
Portfolio
7 Comparative analysis and conclusion 2
Adherence to submission guidelines 1
TOTAL 15
AVERAGE MARKS 15

Personal Information

NAME: Harpreet Singh Sabherwal

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AGE: 25

LOCATION: Delhi NCR

QUALIFICATION: MBA (Finance), Passed CFA Level 3

OCCUPATION: Financial Analyst

EMPLOYER: ICICI Securities Ltd.

EXPERIENCE: 30 months (2.5 years)

SALARY (MONTHLY): Rs. 1,15,000

NO. OF DEPENDENTS: None

MARITAL STATUS: Single

CHILDREN: None

ASSETS AND INVESTMENTS:

i. Senior Citizen Health Insurance Plan (Sum Insured Rs 20,00,000/-)

ii. Savings Account (Balance Rs 4,00,000)
iii. Fixed Deposit (Value Rs 7,50,000)
iv. Car (Remaining Useful Life 3 years)
v. Ancestral Property (worth 3.5 Crore approx.)

FINANCIAL LIABILITIES: Nil

MONTHLY EXPENSES: Rs 75,000 (Inclusive of Income Tax)

SAVINGS PER MONTH: Rs 40,000

Life events and Financial needs in next 5 years

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 EVENTS AMOUNT REQUIRED

VEGAS TRIP Rs 3,00,000

MBA EXECUTIVE (3 years from now) Rs. 25,00,000
NEW CAR (Low-priority) Rs 20,00,000

Investor Profile

CONSERVATIVE/ RISK-AVERSE

Investment Instruments

(A) LISTING INSTRUMENTS FOR FINANCIAL NEEDS

FINANCIAL NEEDS INVESTMENT INSTRUMENTS

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source: HSBC investor risk profile simulator.
LINK: https://www.hsbc.fr/1/2/hsbc-epargne-salariale/en/employee/simulator/investor-profile

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VEGAS TRIP SAVINGS ACCOUNT
MBA EXECUTIVE RECURRING DEPOSITS
NEW CAR LOAN

(B) RISK- RETURN OF RECURRING DEPOSIT (2016-2020)

c

RISK EXPOSURE OF RECURRING DEPOSIT:

i. Recurring deposit interest rates, once determined, do not change during the tenure of
the deposit. 
ii. Penalty charges for non-Deposit of monthly instalments for a/c with maturity period 5
years and less Rs. 1.50 per Rs. 100/- per month.

iii. In case six consecutive instalments are not received, the account shall prematurely be
closed and balance paid to the account holder.
iv. Loans/OD up to 90% of deposited amount available.

(C) FORECAST FOR FUTURE

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 CHANGE IN INTEREST RATE

YEAR ENDING INTEREST RATE (%)

2016 8.5
2017 7.75
2018 7.7
2019 7.6
2020 6.7

FORECASTING FOR FUTURE

2021 * 6.575
2022 6.575
2023 6.575
2024 6.575
2025 6.575

*) Forecasting of interest rate for year 2021 has been done using the Forecast formula in excel,
based upon the historical interest rates of previous five years.

Selection of Mutual Fund Scheme

A) Name of the Mutual Fund Scheme – Kotak Dynamic Bond Fund

B) Features -
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 I. INVESTMENT OBJECTIVE: - The investment objective of the Scheme
is to generate returns by investing in money market instruments having
maturity up to 1 year.

II. SUITABLITY: This product is suitable for investors who are seeking
Income over a short-term investment horizon Investment in money market
securities
III. FUND MANAGER: Mr. Deepak Agrawal is the fund manager of the
scheme. He has been managing the fund since July 11, 2007. Mr. Arjun
Khanna is appointed as the dedicated fund manager for investments in
foreign securities.
IV. NAME OF THE TRUSTEE COMPANY: Kotak Mahindra Trustee
Company Limited.
V. BENCHMARK INDEX: Nifty Composite Debt Index.
VI. AMOUNT OF AUM: Rs. 925.50 Crores
VII. INVESTMENT STRATEGY: The investment strategy is aimed at
maximizing returns through an active management of a portfolio of debt
and money market securities. The Fund Manager would endeavor to
manage the portfolio actively among debt securities such as Government
Securities, Corporate Bonds and Money Market instruments depending on
the view on the interest rates and corporate spreads. In order to be able to
churn the portfolio actively, focus would be on investing in securities
having high liquidity. The Scheme returns
consist of the returns on account of coupon accrual and capital gains.

C. LIST OF INDUSTRIES INCLUDED IN MUTUAL FUND

Sector % to
NAV
Financial Services 47.06
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 Government Sector 36.35
Telecom 7.69
Services 5.73
Net Current Assets 2.40
Collateralized Borrowing and Lending 0.64
Obligation/ Reverse Repo
Construction 0.13

D. LIST OF COMPANIES INVESTED IN MUTUAL FUND

Issuer % to
NAV
Government Sector 36.35
Power Finance Corporation Ltd. 8.15
State Bank of India. 7.72
Reliance Jio Infocomm Ltd. 7.69
Indian Railway Finance Corporation Ltd. 6.74
Rural Electrification Corporation Ltd. 6.16
LIC Housing Finance Ltd. 6
Sikka Ports & Terminals Ltd. 5.73
Bank Of Baroda 4
AXIS Bank Ltd. 3.98

RISK-RETURN ANALYSIS OF MUTUAL FUND SCHEME

Absolute Returns (%) for each financial year for the last 5 years

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 Year ending Absolute Return (5%)

2016 10.20
2017 8.34
2018 11.2
2019 6.17
2020 8.88

Source: Key Information Memorandum, Kotak Dynamic Bond Fund

Risk Exposure of Kotak Dynamic Bond Fund

The Scheme may invest in government securities, corporate bonds and money market
instruments. While the liquidity risk for money market instruments and short maturity corporate
bonds may be low, it may be high in case of medium to long maturity corporate bonds. The
Scheme may also be exposed to price risk in case of government securities and corporate bonds
arising out of the interest rate risk. The investments in corporate bonds could also lead to a credit
risk. Risk associated WITH Money markets are:

i. Credit risk
ii. Sovereign risk
iii. Interest rate risk
iv. Reinvestment risk
v. Liquidity Risk

FORECASTING RISK-RETURN FOR FUTURE 5 YEARS

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Year ending Return (%)

2016 10.2
2017 8.34
2018 11.2
2019 6.17
2020 8.88

FORECASTING FOR FUTURE

2021 * 7.515
2022 7.454
2023 5.5205
2024 8.3752
2025 3.79355

*) Future rates are predicted with the help of forecast formula using Excel.

Risk Exposure in future years

 Past performance of the Sponsor/AMC/Mutual Fund does not guarantee future
performance of the scheme.
 As the price / value / interest rates of the securities in which the scheme invests
fluctuates, the value of your investment in the scheme may go up or down. The value of
investments may be affected, inter-alia, by changes in the market, interest rates, changes
in credit rating, trading volumes, settlement periods and transfer procedures; the NAV is
also exposed to Price/Interest-Rate Risk and Credit Risk and may be affected inter-alia,
by government policy, volatility and liquidity in the money markets and pressure on the
exchange rate of the rupee.
 Investment in Mutual Fund Units involves investment risks such as trading volumes,
settlement risk, liquidity risk, default risk including the possible loss of principal.
 The Sponsor is not responsible or liable for any loss resulting from the operation of the
scheme beyond the initial contribution of Rs.2,50,000 made by it towards setting up the
Fund.
 The above-mentioned scheme is not guaranteed or assured return scheme.

Comparative Analysis

(A) Performance of instruments in previous 5 years –

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 Particulars Recurring Deposit SIP in mutual fund

Returns:

Monthly Instalment 40,000 40,000

No. of months 60 60
Amount Invested Rs. 24,00,000 Rs. 24,00,000
Maturity Amount RS. 2998790 Rs. 30,25,483
Interest Earned Rs 5,98,790 Rs 6,25,483
Absolute Return (%) 24.9% 26.06%

Risk:

Standard Deviation 0% 2.82%

Expense Ratio Rs 1.5 per Rs 100 for 1.45% as management fees
default in payment

(B) Expected performance in future 3 years –

Particulars Recurring Deposit SIP in mutual fund

Returns:

Monthly Instalment 40,000 40,000

No. of months 36 36
Amount Invested 14,40,000 14,40,000
Maturity Amount 15,95,873 1588291
Interest Earned 1,55,873 148291
Absolute Return 10.82% 10.29%

Risk:

Standard deviation 0% 2.82%*

Expense Ratio Rs 1.5 per Rs100 for default 1.45% as management fees
in payment
Explanation –
My investment preference would be to choose Recurring Deposit as an instrument for
fulfilling my future financial goals. The reasons are as follows:
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 i. It provides an element of certainty and control whereas mutual funds are affected
by volatility in the market.
ii. The interest rate of recurring deposit remains constant, irrespective of future
changes, unlike mutual funds.
iii. Based on the forecast above, recurring deposit offers more interest at practically
zero risk.
iv. The actual return provided to investor is subject to deduction of management fees
and other hidden expenses. Thus, actual amount credited to his account will be
less than what is shown above.

Conclusion

i. In order to meet my financial need, I need to arrange Rs 25 lakhs for pursuing MBA
Executive.
ii. By investing in recurring deposit for 36 months, Rs 16 lakhs (appox.) will be arranged by
which I can pay first two instalments of the fees.
iii. Remaining Rs 10 lakhs will have to be paid 4 years from now. The FD currently valued
at Rs 7,50,000 will be valued at Rs 9,65,000 (assuming 6.5% interest rate) four years
from now.
iv. Savings account can be used to fund the remaining Rs 35000.

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