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SUNIL KUMAR YADAV BBA 2007-2010 Semester-VI

Enrollment no-A7006407046





AMITY UNIVERSITY UTTAR PRADESH Lucknow Campus Amity Business School


Certified that this report is prepared based on the Dissertation project undertaken by me on the topic RECENT TRENDS IN MUTUAL FUNDS under the able guidance of Lecturer Dr. Richa Raghuvanshi in partial fulfillment of the requirement for award of degree of Bachelor of Business Administration from Amity University Uttar Pradesh.

Date: ___________________ Signature Name:- Sunil Kr. Yadav Student Signature Name: -Dr. Richa Raghuvanshi Faculty Guide Signature Name: Prof. R.P Singh Director ABS.


Certified that this report is prepared based on the Dissertation project undertaken by Sunil Kumar Yadav under my guidance in partial fulfillment of the requirement for award of degree of Bachelor of Business Administration from Amity University Uttar Pradesh. This project report is authentic and is an outcome of hard labor of the student. As a faculty guide I wish him all the best for a bright and a successful future.

Date: ___________________

Signature Name: - Dr. Richa Raghuvanshi Faculty Guide

Abstract Over the past decades mutual funds have grown intensely in popularity and have experienced a considerable growth rate. Mutual funds are popular because they make it easy for small investors to invest their money in a diversified pool of securities. As the mutual fund industry has evolved over the years, there have arisen many questions about the nature of operations. This Report on Mutual Funds provides an in-depth coverage of the mutual fund industry and its operations in an interactive format. It is intended to familiarize with the basic concepts related to mutual funds. The Report first provides the fundamentals, explaining what mutual funds are and how they work. Recent trends in Mutual funds have also been shown. Data Analysis of Indian LargeCap Mutual fund market has been done to give a comparative analysis of the top 6 funds in the category. Various factors surrounding the performance of these mutual funds are then highlighted along with a brief of various applications. Finally, the report depicts the conclusion.

In preparing this dissertation report a considerable amount of thinking and informational inputs from various sources were involved. I express my deep sense of gratitude to Dr.Richa Raghuvanshi, my faculty guide for her excellent spirit, effective guidance, encouragement and constant criticism, which gave me the confidence to complete the term paper effectively. In spite of having a very busy schedule, she made sure in every way that I acquire the best possible exposure and knowledge during my preparation of research report under her guidance. Shee gave all the time and attention, which I needed to complete my research and compile my term paper in as much orderly way as possible. I am also thankful to all those people, who are directly or indirectly associated with the timely completion my term paper, without which I otherwise would not have able to complete my dissertation report.

Sunil Kumar Yadav BBA , Semester VI (2007-2010)


Abstract Chapter 1 Introduction 1.1Objective of the study 1.2Scope of the study 1.3Need of the study 1.4Limitation of the study Chapter -2 History And Growth Of Mutual Fund 2.1 Definition and evolution 2.2 How an Investor can earn through MFs 2.3 Characteristics of Mutual Fund 2.4 Critical views about MF 2.5 Types of Mutual Funds 2.6 Structure of Mutual Funds 2.7 Other Types of Investment Companies 2.8 Performance Measures Of Mutual Funds Chapter 3- Company Profile Chapter 4 Research Methodology Chapter 5 Recent Trends in Mutual Funds Chapter 6 Conclusion Chapter7 Bibliography


Objective of the study To understand the different aspects of Mutual Fund. To understand the limitations and benefits of investment in Mutual Fund. Analysis of Mutual fund portfolios for different type of investor. Recent trend and development in the field of Mutual fund.

SCOPE OF THE STUDY A large number of players have entered the market and trying to gain market share in this rapidly improving market. Hence there is a need for every company to understand the needs and wants of the investor. Understanding the investor perception of risk is one of the methods to identify the preferences of the investor. The study will be helpful to know the investors perception of risk of mutual fund products. This project report may be helpful for the company to device or alter their sales promotion strategies for various mutual fund products. NEED OF THE STUDY Mutual fund is a retail product designed to target small investors, salaried people and others who are intimated by the stock market but nevertheless, like to reap the benefits of stock market investing. Investors are a highly heterogeneous group. Hence there is a need to design products to their expectation. Hence understanding the risk perception of investors is an important attribute to determine their expectation.

LIMITATIONS OF THE STUDY The project has certain limitations that were unavoidable. The limitations fall beyond the control of the researcher while collecting and analyzing the data.

Analysis and interpretation of results depends only on the data Only a sample of sources has been taken for the study. Some of the information on internet may be biased.

obtained from websites and journals.




DEFINITION Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund.

Mutual funds invest in three broad categories of financial assets: 1. 2. 3. Stock: Equity and equity related instrument. Bond: cash : Debt instruments that have a maturity of more then one year. Debt instrument that have a maturity of less then one year

and bank deposit.

As per the US Securities and Exchange Commission, a mutual fund is a company that pools money from many investors and invests the money in stocks, bonds, short-term moneymarket instruments, other securities or assets, or some combination of these investments. The combined holdings which the mutual fund owns are known as its portfolio. Each share represents an investor's proportionate ownership of the fund's holdings and the income those holdings generate. 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. The United States leads with the number of mutual fund schemes. There are more than 8000 mutual fund schemes in the U.S.A.


(i)-MUTUAL FUNDS Mutual Fund Operation Flow Chart


ORGANISATION OF A MUTUAL FUND There are many entities involved and the diagram b

illustrates the oganisational set up of a mutual fund



ADVANTAGES OF MUTUAL FUNDS The advantages of investing in a Mutual Fund are: Professional Management Diversification Convenient Administration Return Potential Low Costs Transparency Choice of schemes Tax benefits



The aim of growth funds is to provide capital appreciation over the medium to longterm. Such schemes normally invest a major part of their corpus in equities. Such 15

funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences.

Debt/Income Schemes

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and Money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets..

Sector Specific Schemes

These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Types of Mutual funds There are more than 10,000 mutual funds in North America, each having different risks and rewards. Each fund has a predetermined investment objective that tailors the fund's assets, regions of investments and investment strategies. Most mutual funds fall into one of three main categories equity funds (stocks), fixed income funds (bonds), and money market funds. All mutual funds are variations of these three asset classes. For example, while equity funds that invest in fast-growing companies are known as growth funds, equity funds that invest only in companies of the same sector or region are known as specialty funds. 1 Money market mutual funds It consists of short term debt instruments. These mutual funds carry lower risks than other mutual funds; in USA such funds can invest only in certain high-quality, short-term investments issued by the U.S. government, U.S. corporations, and state and local


governments. Money market funds dont offer very high returns as they try to keep their net asset value (NAV) which represents the value of one share in a fund at a stable $1.00 per share. Loss of principle here is highly unlikely; but the NAV may fall below $1.00 if the fund's investments perform poorly. Investor losses have been rare, but they are possible. Inflation risk the risk that inflation will outpace and erode investment returns over time can be a potential concern for investors in money market funds.


2 Bond/fixed income funds Bond funds invest primarily in securities known as bonds. A bond is a type of security that resembles a loan. When a bond is purchased, money is lent to the company, municipality, or government agency that issued the bond. In exchange for the use of this money, the issuer promises to repay the amount loaned (the principal; also known as the face value of the bond) on a specific maturity date. In addition, the issuer typically promises to make periodic interest payments over the life of the loan. A bond fund share represents ownership in a pool of bonds and other securities comprising the funds portfolio. Although there have been past exceptions, bond funds tend to be less volatile than stock funds and often produce regular income. For these reasons, investors often use bond funds to diversify, provide a stream of income, or invest for intermediate-term goals. Like stock funds, bond funds have risks and can make or lose money. Types of Risk After a bond is first issued, it may be traded. If a bond is traded before it matures, it may be worth more or less than the price paid for it. The price at which a bond is traded can be affected by several types of risk. Credit Risk:It refers to the risk of loss of principal or loss of a financial reward resulting from a borrower's failure to repay a loan or otherwise meet a contractual obligation. It is lower for funds investing in insured or Treasury bonds and higher for those investing in junk bonds. Interest Rate Risk: The risk that the market value of the bonds will go down when interest rates go up. Because of this, an investor can lose money in any bond fund, including those that invest only in insured bonds or Treasury bonds. Funds that invest in longer-term bonds tend to have higher interest rate risk.


Prepayment Risk: The chance that a bond will be paid off early. For example, if interest rates fall, a bond issuer may decide to pay off (or "retire") its debt and issue new bonds that pay a lower rate. When this happens, the fund may not be able to reinvest the proceeds in an investment with as high a return or yield. 3 Stock funds It represents the largest category of mutual funds; its objective is long term capital growth since historically, stocks have done better than other types of investments over the long term. Overall "market risk" poses the greatest potential danger for investors in stocks funds. Stock prices can fluctuate for a broad range of reasons such as the overall strength of the economy or demand for particular products or services. Stock funds are of different types, some of which are given below:
Growth funds

focus on stocks that may not pay a regular dividend but have the potential for

large capital gains.

Income funds

invest in stocks that pay regular dividends.

Index funds

aim to achieve the same return as a particular market index, such as the S&P

500 Composite Stock Price Index, by investing in all or perhaps a representative sample of the companies included in an index.
Specialty funds invest

only in companies of the same sector or region.

Sector funds

may specialize in a particular industry segment, such as technology or

consumer products stocks.


Money Market Funds Funds invest insecurities of short term nature which generally means securities of less than one year maturity.The typical short term interest bearing instruments these funds invest in Treasury Bills issued by governments, Certificate of Deposits issued by banks and Commercial Paper issued by companies.The major strengths of money market funds are the liquidity and safety of principal that the investors can normally expect from short term investments. Gilt Funds Gilts are the governments securities with medium to long term maturities typically of over one year (under one year instruments being money market securities ). In India, we have now seen the emergence of government securities or gilt funds that invest in government paper called dated securities. Since the issuer is the government ,these funds have little risk of default and hence offer better protection of principal. However , investors have to recognize the potential changes in values of debt securities held by the funds that are caused by changes .in the market price of debt securities held by the funds that are caused by changes in the market price of debt securities quoted on the stock exchanges.

. Debt Funds (Income Funds) These funds invest in debt instruments issued not only by the governments, but also by private companies, banks and financial institutions and other entities such as infrastructure companies. By investing in debt these funds target low risk and stable income for the investor as their key objectives. Debt funds are largely considered as income funds as they do not target capital appreciation, look for high current income and therefore distribute a substantial part


of their surplus to investors . The income funds fall largely in the category of debt funds as they invest primarily in fixed income generating debt instruments Diversified Debt Fund A debt fund that invests in all available types of debt securities, issued by entities across all industries and sectors is properly diversified debt fund. While debt fund offer high income and less risk as compared to equity funds, investors need to recognize that debt securities are subject to risk of default by the issuer on payment of interest or principal. A diversified debt fund has the benefit of risk reduction through diversification and sharing of any default related losses by a large number of investors. Hence the diversified debt fund is less risky than the sect oral funds.

Focused Debt Fund Some debt funds have a narrower focus, with less diversification in its investment .Examples include sector ,specialized and off shore debt funds. These are much similar to the equity funds that these are less income oriented oriented and less riskier High Yield Debt Funds Usually debt funds control the borrower default risk by investing in securities issued by the borrowers who are rated by the credit rating agencies and are considered to be of investment grade. There are however, high yield debt funds that seek to obtain higher interest returns by investing in the debt instruments that are considered below investment grade. These funds are exposed to greater risks.


Assured Return Funds An Indian Variant Fundamentally ,mutual funds hold assets in trust for investors. All returns and risks are for account of the investors. The role of the fund manager is to provide the professional management service and to ensure the highest possible return consistent with the investment objective of the fund. The fund manager or the trustees do not give any guarantee of any minimum return to the investor. However in India, historically the UTI offered assured return to the investor. If there is any shortfall it will be borne by the sponsor. While Assured Return funds may certainly be considered to be the lowest risk type within the debt fund category, they are not entirely risk free, as the investors normally lock in their funds for the term of scheme or at least a specific period of time. During this period, changes in the financial market may result in the investor loosing their money.

Fixed Term Plan Series A mutual fund would normally be either open ended or close ended . However in India, mutual funds have evolved an innovative middle option between the two, in response to the investor needs. Fixed Term Plan Series are essentially close ended in nature . In that the mutual fund AMC issues a fixed number of units for each series only for once and closes the issue after an initial offering period like a close end scheme offering. However a close ended scheme would normally make a one time initial offering of units , for a fixed duration generally exceeding a year. Investors have to hold the units until the end of the stated duration or sell them on a stock exchange if listed. Fixed Term Plans are close end but usually for shorter term less than a year . Of course like any close end fund each plan series can be wounded earlier under certain regulatory conditions.


Equity Funds As investors move from debt funds category to equity funds , they face increased risk level . However there are a large variety of equity funds and all of them are not equally risk prone. Investor and their advisors need to sort out and select the right equity fund that risk appetite. Equity funds invest a major portion of their corpus in equity shares issued by the companies, acquired directly in initial public offerings or through the secondary

market . Equity funds would be exposed to the equity price fluctuations risk at the market level , at the industry or the sector level and the company specific level .Equity Funds NAV fluctuates with all these price movement. These price movements are caused by all kinds of external factors, political and social as well economic. The issuers of equity shares offer no guaranteed repayments in case of debt instruments. Hence ,equity funds are generally considered at the higher end of the risk spectrum among all funds available in the market. On the other hand, unlike debt instruments that offer fixed amounts of repayments , equities can appreciate in value in line with the issuers earning potential and so offer the greatest potential for growth in capital. Equity funds adopt different investment strategies resulting in different levels of risk. Hence they are generally separated into different types in terms of their investment styles. Some of these equity funds are as under : Growth Funds Growth funds invest in companies whose earnings are expected to rise at an average. These companies may be operating in sectors like technology considered having a growth potential, but not entirely unproven and speculative. The primary objective of growth fund is capital appreciation over a span of 3 to 5 years. Growth funds are therefore les volatile than funds that target aggressive growth.


Specialty Funds These funds have a narrower portfolio orientation and invest only in companies that meet pre determined criteria. Some funds may build portfolio that will exclude Tobacco companies. Within the specialty funds category some funds may be broad based in terms of investments in the portfolio. However most specialty

funds tend to be concentrated funds, since diversification is limited to one type of investment. Clearly concentrated specialty fund tend to be more volatile than the diversified funds.


Diversified Equity Funds A fund that seeks to invest only in equities for a very small portion in liquid money market securities but is not focused on any one or few sectors or shares may be termed as diversified equity funds. While exposed to all equity risks, diversified equity funds seek to reduce the sector or stock specific risks through diversifications. They have mainly market risk exposure. Such general purpose but diversified funds are clearly at the lower risk level than growth funds. Equity Linked Savings Scheme In India the investors have been given tax concessions to encourage them to invest in equity markets through these special schemes. Investments in these schemes entitles the investors to claim an income tax rebate, but usually has a lock in period before the end of which funds cannot be withdrawn. These funds are subject to the general SEBI investment guidelines for all equity funds and would be in the Diversified Equity Fund category. However as there are no specific restrictions on which sectors these funds ought to invest in ,investors should clearly look for where the AMC proposes to invest and accordingly judge the level of risk involved.


Equity Index Funds An index fund tracks the performance of a specific stock market index. The objective is to match the performance of the stock market by tracking an index that represents the overall market. The fund invests in shares that constitutes the index in the same proportion as the index. Since they generally invests in a diversified market index portfolio these funds take only the overall market risks while reducing the sector and the stock specific risks through diversifications. Value Funds The growth funds that we reviewed above holds shares of the companies with good or improving profit prospects and aim primarily at capital appreciation. These concentrate on future growth prospects may be willing to pay high price/ earnings multiples for companies considered to have good potential. In contrast to the growth investing other funds follow Value Investing Approach. Value funds try to seek out fundamentally sound companies whose shares are currently under priced in the market. Value funds will add only those shares to their portfolios that are selling at low price earningratios ,low market to book value ratios and are undervalued by other yardsticks. Value funds have the equity market price fluctuation risks, but stand often at a lower end of the risk spectrum in comparison with the growth funds. Value stocks may be from a large number of sectors and therefore diversified.

Equity Income Funds Usually income funds are in the debt funds category, as they target fixed income investments . However there are equity funds that can be designed to give the investors a high level of current income along with some steady capital appreciation, investing mainly in shares of companies with high dividend yields.


As an example an equity income fund would invest largely in power/ utility companies shares of established companies that pay higher dividend and whose price do not fluctuate as much as the other shares. These equity funds should therefore be less volatile and less risky than nearly all other equity funds.

Hybrid Funds We have seen that in terms of the nature of financial securities held, there are three major mutual fund types :money market , debt and equity. Many mutual fund mix these different types of securities in their portfolios. Thus, most funds equity or debt always have some money market securities in their portfolios as these securities offer the much needed liquidity. However money market holdings will constitute a lower proportion in the overall portfolios. These are the funds that seek to hold a relatively balanced holdings of debt or equity in their portfolios. Such funds are termed as hybrid funds as they have a dual equity/ bond focus. Balanced Funds A balanced fund is the one that has a portfolio comprising debt instruments, convertible securities, preference and equity shares. Their assets are generally held in more or less equal proportion between debt / money market securities and equities. By investing in a mix of this nature, balanced funds seek to attain the objectives of the income, moderate capital appreciation and preservation of capital and are ideal for investors with a conservative and long term orientation. Growth and Income Funds Unlike income or growth focused funds ,these funds seek to strike a balance between capital appreciation and income for the investor. Their portfolios are a mix between companies with good dividends paying records and those with potential for capital appreciation. These funds would be less risky than the pure growth funds though more risky than the income funds.


Why Invest in a Mutual Fund? Mutual funds make saving and investing simple, accessible, and affordable. Mutual fund offers certain advantages to individual, amateur investors who trade in small denominations. Professional management: Theoretically, professional money managers research, select and monitor the performance of the securities the fund purchases. The mutual fund will have a fund manager that trades the pooled money on a regular basis. Thus investors who dont have the time or expertise to manage their portfolios find MFs convenient as it is a relatively inexpensive way of getting a full-time manager to make and monitor investments for them.


Diversification:Mutual funds typically own several different stocks in many different industries, sometimes going up to a hundred different stocks in large sized mutual funds. It enables diversification and spreading of risk by investing in a portfolio of securities belonging to industries having inversely correlated income streams. Economies of Scale:Since mutual funds buy and sell a large amount of securities at a time, its transaction costs are lower than what an individual investor would pay for trading in securities. Also, because of the pooling of funds, individual investors can make investments in small denominations in the securities market which is not possible if they invest on their own.

Liquidity: Just like an individual stock, a mutual fund allows its investors to readily redeem their shares at the current NAV plus any fees and charges assessed on redemption at any time. The price per share at which the investors can redeem shares is known as the funds net asset value (NAV). NAV is the current market value of all the funds assets, minus liabilities, divided by the total number of outstanding shares.

Convenience:An investor can purchase or sell fund shares directly from a fund or through a broker, financial planner, bank or insurance agent, by mail, over the telephone, and increasingly by personal computer. He can also arrange for automatic reinvestment or periodic distribution of the dividends and capital gains paid by the fund. Funds may offer a wide variety of other services, including monthly or quarterly account statements, tax information, and 24-hour phone and computer access to fund and account information.

Protecting Investors:Not only are mutual funds subject to compliance with their selfimposed restrictions and limitations, they are also highly regulated by the federal government through the U.S. Securities and Exchange Commission (SEC). As part of this government regulation, all funds must meet certain operating standards, observe strict antifraud rules, and disclose complete information to current and potential investors. These laws are strictly enforced and designed to protect investors from fraud and abuse. 29


Disadvantages of Mutual funds Hidden costs:The mutual fund industry tactfully buries costs under layers of jargon. These costs come despite of negative returns. Examples of such costs include sales charges, annual fees, and other expenses; and depending on the timing of their investment, investors may also have to pay taxes on any capital gains distribution they receive even if the fund went on to perform poorly after they bought shares.

Lack of control: Investors typically cannot ascertain the exact make-up of a fund's portfolio at any given time, nor can they directly influence which securities the fund manager buys and sells or the timing of those trades.

Dilution:Because funds have small holdings in so many different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money.

Price Uncertainty:With an individual stock, one can obtain real-time (or close to realtime) pricing information with relative ease by checking financial websites or through a broker, as can one observe stock price changes by the hour or minute. By contrast, with a mutual fund, the price at which one purchases or redeems shares will typically depend on the fund's NAV, which the fund might not calculate until many hours after the order has been placed. In general, mutual funds must calculate their NAV at least once every business day, typically after the major U.S. exchanges close.

Taxes:Fund managers don't consider personal tax situation while making decisions regarding the fund. For example, when a fund manager sells a security, a capital-gains tax is triggered, which affects the profitability of an individual investor from the sale. It might have been more advantageous for the individual to defer the capital gains liability 31

Structure of Mutual Funds A mutual fund is usually either a corporation or a business trust (which is like a corporation). Like any corporation, a mutual fund is owned by its shareholders. Virtually all mutual funds are externally managed; they do not have employees of their own. Instead, their operations are conducted by affiliated organizations and independent contractors.

Other Types of Investment Companies Mutual funds are one of four types of investment companies; the other three are open-end fund, closed-end funds and unit investment trusts.


HISTORY OF INDIAN MUTUAL FUND INDUSTRY 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. 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 a dramatic improvement, both qualities wise as well as quantity wise. Before, the monopoly of the market had seen anending phase; the Assets Under Management (AUM) was Rs67 billion. The private sector entry to the fund family raised the Aum to Rs. 470 billion in March 1993 and till April 2004; it reached the height if Rs. 1540 billion. The Mutual Fund Industry is obviously growing at a tremendous space with 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 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.6,700crores of assets under management. Second Phase 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun90), 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.47,004crores.

Third Phase 1993-2003 (Entry of Private Sector Funds) 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 comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805crores. 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.29,835crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations.Consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108crores under 421 schemes.



The fund industry has grown phenomenally over the past couple of years, and as on 31 January 2008, it had a debt and equity assets of Rs 5,50,157 crore. Its equity corpus of Rs 2,20,263 lakh crore accounts for over 3 per cent of the total market capitalization of BSE, at Rs 58 lakh crore. Its holding in Indian companies ranges between 1 per cent and almost 29 per cent, making them an influential shareholder. Together with banks, insurance companies and FIIs- collectively called institutional investors- they have the ability to ask company managements some tough questions.
More significant than this stupendous growth has been the regulatory changes that the capital market watchdog, Securities and Exchange Board of India, introduced in the past two years. Outgoing Sebi Chairman M.Damodarans two year stint as chairman of Unit Trust of India helped him reform the industry by making it much more transparent than before. In the process, mutual funds have become a tad cheaper. Until 2007, for instance, initial issue expenses on close-ended funds, which could be as high as 6 per cent of the amount raised, could be amortized over the tenure of the fund. This basically meant that even if an investor put in Rs 1 lakh, effectively only Rs 94,000 got invested by the fund. The initial expenses of the fund include commissions paid to distributors and money spent on billboards for advertising the new offer. In 2006, the regulator had scrapped the amortization benefit for open-ended schemes. Not surprisingly, asset management companies started launching closed-ended funds. Of the 34 new fund offers in 2007, 24 were closed-ended. In January this year, SEBI said all closed-ended mutual fund schemes too will meet sales and marketing expenses from the entry load. This made it more transport for investors, because funds had to either hike their expense ratio (management fee and operating charges as a percentage of assets under management) or change higher entry load.


More About Mutual funds According to SEBI "Mutual Fund" means a fund established in the form of a trust to raise monies through the sale of units to the public or a section of the public under one or more schemes for investing in securities, including money market instruments;" To the ordinary individual investor lacking expertise and specialized skill in dealing proficiently with the securities market a Mutual Fund is the most suitable investment forum as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. India has a burgeoning population of middle class now estimated around 300 million. A typical Indian middle class family can pool liquid savings ranging from Rs.2 to Rs.10 Lacs. Investment of this money in Banks keeps the fund liquid and safe, but with the falling rate of interest offered by Banks on Deposits, it is no longer attractive. At best a small part can be parked in bank deposits, but what are the other sources of remunerative investment possibilities open to the common man? Mutual Fund is the ready answer, as direct PMS investment is out of the scope of these individuals. Viewed in this sense India is globally one of the best markets for Mutual Fund Business, so also for Insurance business. This is the reason that foreign companies compete with one another in setting up insurance and mutual fund business shops in India. The sheer magnitude of the population of educated white-collar employees with raising incomes and a well-organized stock market at par with global standards, provide unlimited scope for development of financial services based on PMS like mutual fund and insurance. The alternative to mutual fund is direct investment by the investor in equities and bonds or corporate deposits. All investments whether in shares, debentures or deposits involve risk: share value may go down depending upon the performance of the company, the industry, state of capital markets and the economy. Generally, however, longer the term, lesser is the risk. Companies may default in payment of interest/ principal on their debentures/bonds/deposits; the rate of interest on an investment may fall short of the rate of inflation reducing the purchasing power. While


risk cannot be eliminated, skillful management can minimise risk. Mutual Funds help to reduce risk through diversification and professional management. The experience and expertise of Mutual Fund managers in selecting fundamentally sound securities and timing their purchases and sales help them to build a diversified portfolio that minimises risk and maximises returns.


Chapter III Company Profile



SBI Funds Management Pvt. Ltd. is one of the leading fund houses in the country with an investor base of over 4.6 million and over 20 years of rich experience in fund management consistently delivering value to its investors. SBI Funds Management Pvt. Ltd. is a joint venture between 'The State Bank of India' one of India's largest banking enterprises, and Socit Gnrale Asset Management (France), one of the world's leading fund management companies that manages over US$ 500 Billion worldwide. Today the fund house manages over Rs 28500 crores of assets and has a diverse profile of investors actively parking their investments across 36 active schemes. In 20 years of operation, the fund has launched 38 schemes and successfully redeemed 15 of them, and in the process, has rewarded our investors with consistent returns. Schemes of the Mutual Fund have time after time outperformed benchmark indices, honored us with 15 awards of performance and have emerged as the preferred investment for millions of investors. The trust reposed on us by over 4.6 million investors is a genuine tribute to our expertise in fund management. SBI Funds Management Pvt. Ltd. serves its vast family of investors through a network of over 130 points of acceptance, 28 Investor Service Centres, 46 Investor Service Desks and 56 District Organizers.SBI


Mutual is the first bank-sponsored fund to launch an offshore fund Resurgent India Opportunities Fund. Growth through innovation and stable investment policies is the SBI MF credo.


The investments of these schemes will predominantly be in the stock markets and endeavor will be to provide investors the opportunity to benefit from the higher returns which stock markets can provide. However they are also exposed to the volatility and attendant risks of stock markets and hence should be chosen only by such investors who have high risk taking capacities and are willing to think long term. Equity Funds include diversified Equity Funds, Sectoral Funds and Index Funds. Diversified Equity Funds invest in various stocks across different sectors while sectoral funds which are specialized Equity Funds restrict their investments only to shares of a particular sector and hence, are riskier than Diversified Equity Funds. Index Funds invest passively only in the stocks of a particular index and the performance of such funds move with the movements of the index. Magnum COMMA Fund Magnum Equity Fund Magnum Global Fund Magnum Index Fund


Magnum Midcap Fund Magnum Multicap Fund Magnum Multiplier plus 1993 Magnum Sectoral Funds Umbrella

MSFU- Emerging Business Fund MSFU- IT Fund MSFU- Pharma Fund MSFU- Contra Fund MSFU- FMCG Fund

SBI Arbitrage Opportunities Fund SBI Blue chip Fund SBI Infrastructure Fund - Series I SBI Magnum Taxgain Scheme 1993 SBI ONE India Fund SBI TAX ADVANTAGE FUND - SERIES I

Debt schemes
Debt Funds invest only in debt instruments such as Corporate Bonds, Government Securities and Money Market instruments either

completely avoiding any investments in the stock markets as in Income Funds or Gilt Funds or having a small exposure to equities as in


Monthly Income Plans or Children's Plan. Hence they are safer than equity funds. At the same time the expected returns from debt funds would be lower. Such investments are advisable for the risk-averse investor and as a part of the investment portfolio for other investors. Magnum Childrens benefit Plan Magnum Gilt Fund Magnum Income Fund Magnum Insta Cash Fund Magnum Income Fund- Floating Rate Plan Magnum Income Plus Fund Magnum Insta Cash Fund -Liquid Floater Plan Magnum Monthly Income Plan Magnum Monthly Income Plan - Floater Magnum NRI Investment Fund SBI Premier Liquid Fund

Magnum Balanced Fund invests in a mix of equity and debt investments. Hence they are less risky than equity funds, but at the same time provide commensurately lower returns. They provide a good investment opportunity to investors who do not wish to be completely exposed to equity markets, but is looking for higher returns than those provided by debt funds.


Magnum Balanced Fund


Some of the main competitors of SBI Mutual Fund in Dehradoon are as Follows: i. ii. iii. iv. v. vi. vii. viii. ix. x. ICICI Mutual Fund Reliance Mutual Fund UTI Mutual Fund Birla Sun Life Mutual Fund Kotak Mutual Fund HDFC Mutual Fund Sundaram Mutual Fund LIC Mutual Fund Principal Franklin Templeton



SBI Mutual Fund (SBIMF) has been the proud recipient of the ICRA Online Award - 8 times, CNBC TV - 18 Crisil Award 2006 - 4 Awards, The Lipper Award (Year 2005-2006) and most recently with the CNBC TV - 18 Crisil Mutual Fund of the Year Award 2007 and 5 Awards for our schemes.



Chapter IV Research Methodology


RESEARCH METHODOLOGY The nature of the study is descriptive research. This report is based on secondary information that are collected from published as well as un-published sources. One of the most important users of research methodology is that it helps in identifying the problem, collecting, analyzing the required information data and providing an alternative solution to the problem .It also helps in collecting the vital information that is required by the top management to assist them for the better decision making both day to day decision and critical ones. DATA SOURCES The secondary data has been collected through various journals and websites. Various journals and magazines were referred during this course of study. www.ebay.com www.google.com www.yahoo.co.in MagazinesIndia today Outlook Business today NewspaperTimes of india Hindustan times The hindu Economic times




RECENT TRENDS IN THE MUTUAL FUND INDUSTRY The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by the nationalized banks and smaller private sector players. Many nationalized banks got into the mutual fund business in the early nineties and got off to a start due to the stock market boom was prevailing. These banks did not really understand the mutual fund business and they just viewed it as another kind of banking activity. Few hired specialized staff and generally chose to transfer staff from the parent organizations. The performance of most of the schemes floated by these funds was not good. Some schemes had offered guaranteed returns and their parent organizations had to bail out these AMCs by paying large amounts of money as a difference between the guaranteed and actual returns. The service levels were also very bad. Most of these AMCs have not been able to retain staff, float new schemes etc. REGULATORY BODIES SECURITIES EXCHANGE BOARD OF INDIA Mutual Funds in India are comprehensively regulated under the SEBI (Mutual Funds) Regulation, 1996; some of the important provisions are as follows: A Mutual Fund shall be constituted in the form of a trust executed by the sponsor in The sponsor or, if so authorized by the trust deed, the trustees, shall appoint an asset The Mutual Fund shall appoint a custodian. No scheme shall be launched by the AMC unless it is approved by the trustees and the The offer document and the advertisement materials shall not be misleading. No guaranteed return shall be provided in the scheme unless such returns are fully

favour of the trustees. management company.

copy of the offer document has been filed with SEBI.

guaranteed by the sponsor or AMC.


The moneys collected under any scheme of Mutual Fund shall be invested only on The money collected under any money market scheme of Mutual Fund shall be

transferable certificates. invested only in money market instruments in accordance with the direction issued by the Reserve Bank of India. The Mutual Funds cannot be borrowed except to meet temporary liquidity needs. The NAV and the sale and the repurchase price of Mutual Funds scheme must be Every AMC shall keep and maintain proper books of accounts records, documents for

regularly published in daily newspapers. each scheme. ASSOCIATION OF MUTUAL FUNDS OF INDIA With the increase in mutual fund players in India, a need for mutual fund association in India was generated to function as a non-profit organization. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August 1995. AMFI is an apex body of all Asset Management Companies (AMC), which has been registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of board of directors. AMFI 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 interest of mutual funds as well as their unit holders. It has been a forum where mutual funds have been able to present their views, debate and participate in creating their own regulatory framework. The association was created originally as a body that would lobby with the regulator to ensure that the fund viewpoint was heard. Today, it is usually the body that is consulted on matters long before regulations are framed, and it often initiates many regulatorychanges that prevent malpractices that emerge from time to time. AMFI works through a number of committees, some of which are standing committees to address areas where there is a need for constant vigil and improvements and other which are adhoc committees constituted to address specific issues. These committees consist of industry


professionals from among the member mutual funds. There is now some thought that AMFI should become a self-regulatory organization since it has worked so effectively as an industry body. The main objectives of AMFI are as follows:

To define

and maintain high professional and ethical standards in all areas of operation

of the mutual fund industry.

To recommend and promote best business practices and code of conduct to be followed by members and others engaged in the activities of mutual fund and assetmanagement including agencies connected or involved in the field of capital markets.

To interact with the Securities and Exchange Board of India (SEBI) and to represent to SEBI on all matters concerning the mutual fund industry.

To represent to the Government, Reserve Bank of India and other bodies on all matters relating to the Mutual Fund Industry.

To develop a cadre of well trained Agent distributors and to implement a programme of training and certification for all intermediaries and other engaged in the industry.

To undertake nationwide investor awareness programme so as to promote proper understanding of the concept and working of mutual funds.

To disseminate information on Mutual Fund Industry and to undertake studies and research directly and/or in association with other bodies.


PERFORMANCE MEASURES OF MUTUAL FUNDS Mutual Fund industry today, with about 34 players and more than five hundred schemes, is one of the most preferred investment avenues in India. However, with a plethora of schemes to choose from, the retail investor faces problems in selecting funds. Factors such as investment strategy and management style are qualitative, but the funds record is an important indicator too. Though past performance alone cannot be indicative of future performance, it is, frankly, the only quantitative way to judge how good a fund is at present. Therefore, there is a need to correctly assess the past performance of different mutual funds.

Worldwide, good mutual fund companies over are known by their AMCs and this fame is directly linked to their superior stock selection skills. For mutual funds to grow, AMCs must be held accountable for their selection of stocks. In other words, there must be some performance indicator that will reveal the quality of stock selection of various AMCs.

Return alone should not be considered as the basis of measurement of the performance of a mutual fund scheme, it should also include the risk taken by the fund manager because different funds will have different levels of risk attached to them. Risk associated with a fund, in a general, can be defined as variability or fluctuations in the returns generated by it. The higher the fluctuations in the returns of a fund during a given period, higher will be the risk associated with it. These fluctuations in the returns generated by a fund are resultant of two guiding forces. First, general market fluctuations, which affect all the securities present in the market, called market risk or systematic risk and second, fluctuations due to specific securities present in the portfolio of the fund, called unsystematic risk. The Total Risk of a given fund is sum of these two and is


measured in terms of standard deviation of returns of the fund. Systematic risk, on the other hand, is measured in terms of Beta, which represents fluctuations in the NAV of the fund vis--vis market. The more responsive the NAV of a mutual fund is to the changes in the market; higher will be its beta. Beta is calculated by relating the returns on a mutual fund with the returns in the market. While unsystematic risk can be diversified through investments in a number of instruments, systematic risk can not. By using the risk return relationship, we try to assess the competitive strength of the mutual funds vis--vis one another in a better way. In order to determine the risk-adjusted returns of investment portfolios, several eminent authors have worked since 1960s to develop composite performance indices to evaluate a portfolio by comparing alternative portfolios within a particular risk class. The most important and widely used measures of performance are:

The Treynor Measure The Sharpe Measure Jenson Model Fama Model


The Treynor Measure Developed by Jack Treynor, this performance measure evaluates funds on the basis of Treynor's Index. This Index is a ratio of return generated by the fund over and above risk free rate of return (generally taken to be the return on securities backed by the government, as there is no credit risk associated), during a given period and systematic risk associated with it (beta). Symbolically, it can be represented as:

Treynor's Index (Ti) = (Ri - Rf)/Bi. Where, Ri represents return on fund, Rfis risk free rate of return and Biis beta of the fund.

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

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

Sharpe Index (Si) = (Ri - Rf)/Si Where, Si is standard deviation of the fund.


While a high and positive Sharpe Ratio shows a superior riskadjusted performance of a fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.

Comparison of Sharpe and Treynor Sharpe and Treynor measures are similar in a way, since they both divide the risk premium by a numerical risk measure. The total risk is appropriate when we are evaluating the risk return relationship for well-diversified portfolios. On the other hand, the systematic risk is the relevant measure of risk when we are evaluating less than fully diversified portfolios or individual stocks. For a well-diversified portfolio the total risk is equal to systematic risk. Rankings based on total risk (Sharpe measure) and systematic risk (Treynor measure) should be identical for a well-diversified portfolio, as the total risk is reduced to systematic risk. Therefore, a poorly diversified fund that ranks higher on Treynor measure, compared with another fund that is highly diversified, will rank lower on Sharpe Measure.

Jenson Model Jenson's model proposes another risk adjusted performance

measure. This measure was developed by Michael Jenson and is sometimes referred to as the Differential Return Method. This measure involves evaluation of the returns that the fund has generated vs. the returns actually expected out of the fund given the level of its systematic risk. The surplus between the two returns is called Alpha, which measures the performance of a fund compared with the actual returns over the period. Required return of a fund at a given level of risk (Bi) can be calculated as:

Ri = Rf + Bi (Rm - Rf) Where, Rm is average market return during the given period. After calculating it, alpha can be obtained by subtracting required return from the actual return of the fund.


Higher alpha represents superior performance of the fund and vice versa. Limitation of this model is that it considers only systematic risk not the entire risk associated with the fund and an ordinary investor cannot mitigate unsystematic risk, as his knowledge of market is primitive.

Fama Model The Eugene Fama model is an extension of Jenson model. This model compares the performance, measured in terms of returns, of a fund with the required return commensurate with the total risk associated with it. The difference between these two is taken as a measure of the performance of the fund and is called net selectivity.

The net selectivity represents the stock selection skill of the fund manager, as it is the excess return over and above the return required to compensate for the total risk taken by the fund manager. Higher value of which indicates that fund manager has earned returns well above the return commensurate with the level of risk taken by him.

Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf) Where, Sm is standard deviation of market returns. The net selectivity is then calculated by subtracting this required return from the actual return of the fund.

Among the above performance measures, two models namely, Treynor measure and Jenson model use systematic risk based on the premise that the unsystematic risk is diversifiable. These models are suitable for large investors like institutional investors with high risk taking capacities as they do not face paucity of funds and can invest in a number of options to dilute some risks. For them, a portfolio can be spread across a number of stocks and sectors. However, Sharpe


measure and Fama model that consider the entire risk associated with fund are suitable for small investors, as the ordinary investor lacks the necessary skill and resources to diversified. Moreover, the selection of the fund on the basis of superior stock selection ability of the fund manager will also help in safeguarding the money invested to a great extent. The investment in funds that have generated big returns at higher levels of risks leaves the money all the more prone to risks of all kinds that may exceed the individual investors' risk appetite.


RISK FACTOR All investments involve some form of risk. Even an insured bank account is subject to the possibility that inflation will rise faster than your earnings, leaving you with less real purchasing power than when you started (Rs. 1000 gets you less than it got your father when he was your age).

The discussion on investment objectives would not be complete without a discussion on the risks that investing in a mutual fund entails.

At the cornerstone of investing is the basic principle that the greater the risk you take, the greater the potential reward. Remember that the value of all financial investments will fluctuate. Typically, risk is defined as short-term price variability. But on a long-term basis, risk is the possibility that your accumulated real capital will be insufficient to meet your financial goals. And if you want to reach your financial goals, you must start with an honest appraisal of your own personal comfort zone with regard to risk. Individual tolerance for risk varies, creating a distinct "investment personality" for each investor. Some investors can accept short-term volatility with ease, others with near panic. So whether you consider your investment temperament to be conservative, moderate or aggressive, you need to focus on how comfortable or uncomfortable you will be as the value of your investment moves up or down.

Managing risks Mutual funds offer incredible flexibility in managing investment risk. Diversification and Systematic Investing Plan (SIP) are two key techniques you can use to reduce your investment risk considerably and reach your long-term financial goals.

Diversification 58

When you invest in one mutual fund, you instantly spread your risk over a number of different companies. You can also diversify over several different kinds of securities by investing in different mutual funds, further reducing your potential risk. Diversification is a basic risk management tool that you will want to use throughout your lifetime as you rebalance your portfolio to meet your changing needs and goals. Investors, who are willing to maintain a mix of equity shares, bonds and money market securities have a greater chance of earning significantly higher returns over time than those who invest in only the most conservative investments. Additionally, a diversified approach to investing -- combining the growth potential of equities with the higher income of bonds and the stability of money markets -- helps moderate your risk and enhance your potential return.


Types of risks: Consider these common types of risk and evaluate them against potential rewards when you select an investment.

Market Risk At times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences. When this happens, the stock prices of both, an outstanding, highly profitable company and a fledgling corporation may be affected. This change in price is due to "market risk.

Inflation Risk Sometimes referred to as "loss of purchasing power." Whenever inflation sprints forward faster than the earnings on your investment, you run the risk that you'll actually be able to buy less, not more. Inflation risk also occurs when prices rise faster than your returns.

Credit Risk In short, how stable is the company or entity to which you lend your money when you invest? How certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment matures?

Interest Rate Risk Changing interest rates affect both equities and bonds in many ways. Investors are reminded that "predicting" which way rates will go is rarely successful. A diversified portfolio can help in offsetting these changes.


Effect of loss of key professionals and inability to adapt business to the rapid technological change

An industries' key asset is often the personnel who run the business i.e. intellectual properties of the key employees of the respective companies. Given the ever-changing complexion of few industries and the high obsolescence levels, availability of qualified, trained and motivated personnel is very critical for the success of industries in few sectors. It is, therefore, necessary to attract key personnel and also to retain them to meet the changing environment and challenges the sector offers. Failure or inability to attract/retain such qualified key personnel may impact the prospects of the companies in the particular sector in which the fund invests.

Exchange Risks A number of companies generate revenues in foreign currencies and may have investments or expenses also denominated in foreign currencies. Changes in exchange rates may, therefore, have a positive or negative impact on companies which in turn would have an effect on the investment of the fund.

Investment Risks

The sectoral fund schemes, investments will be predominantly in equities of select companies in the particular sectors. Accordingly, the NAV of the schemes are linked to the equity performance of such companies and may be more volatile than a more diversified portfolio of equities.

Changes in the Government Policy Changes in Government policy especially in regard to the tax benefits may impact the business prospects of the companies leading to an impact on the investments made by the fund.


Financial planning for investors( ref. to mutual funds): Investors are required to go for financial planning before making investments in any mutual fund. The objective of financial planning is to ensure that the right amount of money is available at the right time to the investor to be able to meet his financial goals. It is more than mere tax planning. Steps in financial planning are: Asset allocation. Selection of fund. Studying the features of a scheme. In case of mutual funds, financial planning is concerned only with broad asset allocation, leaving the actual allocation of securities and their management to fund managers. A fund manager has to closely follow the objectives stated in the offer document, because financial plans of users are chosen using these objectives. Why has it become one of the largest financial instruments? If we take a look at the recent scenario in the Indian financial market then we can find the market flooded with a variety of investment options which includes mutual funds, equities, fixed income bonds, corporate debentures, company fixed deposits, bank deposits, PPF, life insurance, gold, real estate etc. all these investment options could be judged on the basis of various parameters such as- return, safety convenience, volatility and liquidity. measuring these form investment options on the basis of the mentioned parameters, we get this in a tabular

Return Equity Bonds High Moderate

Safety Low High

Volatility High Moderate

Liquidity High Moderate

Convenienc e Moderate High


Co. Debentures Co. FDs Bank Deposits PPF Life Insurance Gold Real Estate Mutual Funds

Moderate Moderate Low Moderate Low Moderate High High

Moderate Low High High High High Moderate High

Moderate Low Low Low Low Moderate High Moderate

Low Low High Moderate Low Moderate Low High

Low Moderate High High Moderate Gold Low High

We can very well see that mutual funds outperform every other investment option. On three parameters it scores high whereas its moderate at one. comparing it with the other options, we find that equities gives us high returns with high liquidity but its volatility too is high with low safety which doesnt makes it favourite among persons who have low risk- appetite. Even the convenience involved with investing in equities is just moderate. Now looking at bank deposits, it scores better than equities at all fronts but lags badly in the parameter of utmost important ie; it scores low on return , so its not an happening option for person who can afford to take risks for higher return. The other option offering high return is real estate but that even comes with high volatility and moderate safety level, even the liquidity and convenience involved are too low. Gold have always been a favourite among Indians but when we look at it as an investment option then it definitely doesnt gives a very bright picture. Although it ensures high safety but the returns generated and liquidity are moderate. Similarly the other investment options are not at par


with mutual funds and serve the needs of only a specific customer group. Straightforward, we can say that mutual fund emerges as a clear winner among all the options available. The reasons for this being: I)Mutual funds combine the advantage of each of the investment products: mutual fund is one such option which can invest in all other investment options. Its principle of diversification allows the investors to taste all the fruits in one plate. just by investing in it, the investor can enjoy the best investment option as per the investment objective.

II)dispense the shortcomings of the other options: every other investment option has more or les some shortcomings. Such as if some are good at return then they are not safe, if some are safe then either they have low liquidity or low safety or both.likewise, there exists no single option which can fit to the need of everybody. But mutual funds have definitely sorted out this problem. Now everybody can choose their fund according to their investment objectives.

III) Returns get adjusted for the market movements: as the mutual funds are managed by experts so they are ready to switch to the profitable option along with the market movement. Suppose they predict that market is going to fall then they can sell some of their shares and book profit and can reinvest the amount again in money market instruments.

IV) Flexibility of invested amount: Other then the above mentioned reasons, there exists one more reason which has established mutual funds as one of the largest financial intermediary and that is the flexibility that mutual funds offer regarding the investment amount. One can start investing in mutual funds with amount as low as Rs. 500 through SIPs and even Rs. 100 in some cases.

How do investors choose between funds?


When the market is flooded with mutual funds, its a very tough job for the investors to choose the best fund for them. Whenever an investor thinks of investing in mutual funds, he must look at the investment objective of the fund. Then the investors sort out the funds whose investment objective matches with that of the investors. Now the tough task for investors start, they may carry on the further process themselves or can go for advisors like SBI . Of course the investors can save their money by going the direct route i.e. through the AMCs directly but it will only save 1-2.25% (entry load) but could cost the investors in terms of returns if the investor is not an expert. So it is always advisable to go for MF advisors. The mf advisors thoughts go beyond just investment objectives and rate of return. Some of the basic tools which an investor may ignore but an mf advisor will always look for are as follow:

1. Rupee cost averaging: The investors going for Systematic Investment Plans(SIP) and Systematic Transfer Plans(STP) may enjoy the benefits of RCA (Rupee Cost Averaging). Rupee cost averaging allows an investor to bring down the average cost of buying a scheme by making a fixed investment periodically, like Rs 5,000 a month and nowadays even as low as Rs. 500 or Rs. 100. In this case, the investor is always at a profit, even if the market falls. In case if the NAV of fund falls, the investors can get more number of units and vice-versa. This results in the average cost per unit for the investor being lower than the average price per unit over time. The investor needs to decide on the investment amount and the frequency. More frequent the investment interval, greater the chances of benefiting from lower prices. Investors can also benefit by increasing the SIP amount during market downturns, which will result in reducing the average cost and enhancing returns. Whereas STP allows investors who have lump sums to park the funds in a low-risk fund like liquid funds and make periodic transfers to another fund to take advantage of rupee cost averaging. 2. Rebalancing: 65

Rebalancing involves booking profit in the fund class that has gone up and investing in the asset class that is down. Trigger and switching are tools that can be used to rebalance a portfolio. Trigger facilities allow automatic redemption or switch if a specified event occurs. The trigger could be the value of the investment, the net asset value of the scheme, level of capital appreciation, level of the market indices or even a date. The funds redeemed can be switched to other specified schemes within the same fund house. Some fund houses allow such switches without charging an entry load. To use the trigger and switch facility, the investor needs to specify the event, the amount or the number of units to be redeemed and the scheme into which the switch has to be made. This ensures that the investor books some profits and maintains the asset allocation in the portfolio.

3. Diversification: Diversification involves investing the amount into different options. In case of mutual funds, the investor may enjoy it afterwards also through dividend transfer option. Under this, the dividend is reinvested not into the same scheme but into another scheme of the investor's choice. For example, the dividends from debt funds may be transferred to equity schemes. This gives the investor a small exposure to a new asset class without risk to the principal amount. Such transfers may be done with or without entry loads, depending on the MF's policy. 4. Tax efficiency: Tax factor acts as the x-factor for mutual funds. Tax efficiency affects the final decision of any investor before investing. The investors gain through either dividends or capital appreciation but if they havent considered the tax factor then they may end loosing. Debt funds have to pay a dividend distribution tax of 12.50 per cent (plus surcharge and education cess) on dividends paid out. Investors who need a regular stream of income have to choose between the dividend option and a systematic withdrawal plan that allows them to redeem units periodically. SWP implies capital gains for the investor. 66

If it is short-term, then the SWP is suitable only for investors in the 10-per-cent-tax bracket. Investors in higher tax brackets will end up paying a higher rate as short-term capital gains and should choose the dividend option. If the capital gain is long-term (where the investment has been held for more than one year), the growth option is more tax efficient for all investors. This is because investors can redeem units using the SWP where they will have to pay 10 per cent as long-term capital gains tax against the 12.50 per cent DDT paid by the MF on dividends. All the tools discussed over here are used by all the advisors and have helped investors in reducing risk, simplicity and affordability. Even then an investor needs to examine costs, tax implications and minimum applicable investment amounts before committing to a service.

Most popular stocks among fund managers (as on 30th April 2008)

Company Name Reliance industries limited Larsen & toubro limited ICICI bank limited State bank of India Bharti airtel limited Bharat heavy electricals limited Reliance communication ventures ltd Infosys technologies ltd Oil& Natural gas corporation ltd. ITC ltd.

no. of funds 244 206 202 188 184 200 169 159 153 143


We can easily point out that reliance industries limited emerges as a true winner over here attracting the attention of almost244 managers well followed by Larsen & toubro ltd ICICI bank ltd and Bharat heavy electricals ltd. The other companies succeeding in getting a place at top 10 are SBI, Bharti airtel limited, reliance communications, Infosys technologies limited, ONGC and at last ITC ltd.

What are the most lucrative sectors for mutual fund managers? This is a question of utmost interest for all the investors even for those who dont invest in mutual funds. Because the investments done by the MFs acts as trendsetters. The investments made by the fund managers are used for prediction. Huge investments assure liquidity and reflects appositive picture whereas tight investment policy reflects crunch and investors may look forward for a gloomy picture. Their investments show that which sector is hot? And will set the market trends. The expert management of the funds will always look for profitable and high paying sectors. So we can have a look at most lucrative sectors to know about the recent trends:


Sector name

No. of MFs betting on it automotive 255 banking & financial 196 services cement & 237 construction consumer durables 51 conglomerates 218 chemicals 259 consumer non 146 durables engineering & 317 capital goods food & beverages 175 information 284 technology media & 218 entertainment Manufacturing 259 metals& mining 275 Miscellaneous 250 oil & gas 290 Pharmaceuticals 250 Services 200 Telecom 264 Tobacco 150 Utility 225 From the above data collected we can say that engineering & capital goods sector has emerged as the hottest as most of the funds are betting on it. We can say that this sector is on boom and presents a bright picture. Other than it other sectors on height are oil & gas, telecom, metals & mining and information technology. Sectors performing average are 69

automotive, cement & construction, chemicals, media & entertainment, manufacturing, miscellaneous, pharmaceuticals and utility. The sectors which are not so favourite are banking & financial services, conglomerates, consumer non- durables, food & beverages, services and tobacco. And the sector which failed to attract the fund managers is consumer durables with just 51 funds betting on it. Thus this analysis not only gives a picture of the mindset of fund managers rather it also reflects the liquidity existing in each of the sectors. It is not only useful for investors of mutual funds rather the investors of equity and debt too could take a hint from it. Asset allocation by fund managers are based on several researches carried on so, it is always advisable for other investors too take a look on it. It can be further presented in the form of a graph as follow:


Systematic investment plan (in details) We have already mentioned about SIPs in brief in the previous pages but now going into details, we will see how the power of compounding could benefit us. In such case, every small amounts invested regularly can grow substantially. SIP gives a clear picture of how an early and regular investment can help the investor in wealth creation. Due to its unlimited advantages SIP could be redefined as a methodology of fund investing regularly to benefit regularly from the stock market volatility. In the later sections we will see how returns generated from some of the SIPs have outperformed their benchmark. But before moving on to that lets have a look at some of the top performing SIPs and their return for 1 year:



NAV 62.74 22.20 8 18.86 35.31 42.14

NAV Date 30/5/200 8 30/5/200 8 30/5/200 8 30/5/200 8 30/5/200 8

Total Amount 14524.07 13584.94 4 14247.72 8 13791.15 7 13769.15 2

Reliance diversified power sector retail 1000 Reliance regular savings equity principal 1000 global

opportunities fund 1000 DWS investment opportunities fund BOB growth fund 1000 1000


In the above chart, we can see how if we start investing Rs.1000 per month then what return well get for the total investment of Rs. 12000. There is reliance diversified power sector retail giving the maximum returns of Rs. 2524.07 per year which comes to 21% roughly. Next we can see if anybody would have undertaken the SIP in Principal would have got returns of app. 18%. We can see reliance regular savings equity, DWS investment opportunities and BOB growth fund giving returns of 13.20%, 14.92%, and 14.74% respectively which is greater than any other monthly investment options. Thus we can easily make out how SIP is beneficial for us. Its hassle free, it forces the investors to save and get them into the habit of saving. Also paying a small amount of Rs. 1000 is easy and convenient for them, thus putting no pressure on their pockets. Now we will analyze some of the equity fund SIP s of Birla Sunlife with BSE 200 and bank fixed deposits In a tabular format as well as graphical.


Scheme Name


Original inv 144000 114000 66000

Returns at BSE 200


Birla SL tax relief 144 '96 Birla SL equity fund 114 Birla frontline equity 66 fund

553190 388701 156269

1684008 669219 181127


In the above case, we have taken three funds of Birla sunlife namely Birla sunlife tax relief 96, Birla sunlife equity fund and Birla sunlife frontline equity fund. All these three funds follow the same benchmark ie; BSE 200. Here, we have shown how one would have benefitted if he would have put his money into these schemes since their inception. And the amount even is a meager Rs. 1000 per month. Starting from Birla frontline equity fund, we could spot that if someone would have invested Rs. 1000 per month resulting into total investment of Rs. 66000 then it would have amounted to rs.156269 if invested in BSE 200 whereas the fund would have given a total return of Rs 181127. Now moving next to Birla sunlife equity fund, a total investment of 114000 for a total of 114 months at BSE 200 would have given a total return of Rs. 388701 whereas the fund gave a total return of Rs. 669219, nearly double the return generated at BSE 200. And now the cream of all the investments, Birla sunlife tax relief 96. A total investment of Rs. 144000 for a period of 12 years at BSE 200 would have given total returns of just Rs. 553190 but the Birla sunlife tax relief 96 gave an unbelievable total return of Rs 1684008. Thus the above case very well explains the power of compounding and early investment. We have seen how a meager amount of Rs. 144000 turned into Rs. 1684008. It may appear unbelievable for many but SIPs have turned this into reality and the power of compounding is speaking loud, attracting more and more investors to create wealth through SIPs.


Does fund performance and ranking persist?

This project has been a great learning experience for me. But the analyses that are carried onward these pages are really close to my heart. After taking a look at the data presented below, an expert might underestimate my efforts. One might think it as a boring task and can go for recording historic NAVs since last 1 month instead of recording it daily. But frankly speaking, while tracking the NAVs, I really developed some sentiments with these funds. Really the ups and downs in the NAVs affected me as if I m tracking my own portfolio. The portfolio consists of different types of funds. We can see some funds are 5- star rated but their performances are below the unrated funds. We can also find some funds which performed very well initially but gradually declined either in short- run or long run. Some funds have high NAVS but the returns offered are low. We can also see some funds following same benchmark and reflecting diverse NAV and returns. Even it can be seen that the expense ratios for various funds varies which may affect the ultimate return. Now before going into details, lets have a look at those funds: in this downgrading equity market, we can easily make out that the 1 year return of the fund that was on 17 th of april could not be sustained till 1 month. One can sort out that the present return of funds has decreased a lot and subsequently its NAV too has come down. All the funds are showing negative returns for the last 1 month. Even the two hybrid funds are showing negative monthly returns. That means all those who bought these funds a month back must be experiencing a negative return. Although the annual return of the funds have gone down in comparison to what it was offering a month back. Still the total return is positive. On an average the equity funds are offering a return of 30% annually, inspite of a week equity market.


Now checking the validity of funds ratings, we can see that some of the funds are 5 star or 4 star rated but their returns lag behind the unrated funds. Although, since the ratings include both risk and return so it will not be a total justice to judge the funds purely on a return basis but still we can go for it just to judge them on the basis of returns generated. Looking at the funds, we have three 5 star rated funds, one 4star rated and six unrated funds. In other way, we have seven equity diversified funds, one equity specialty, one hybrid: dynamic asset allocation and one hybrid: debt oriented fund. It is not possible to compare each and every fund in details. So I have compared 2 funds out of this list on the basis of their returns and expenses. Here DBS Chola opportunities and ICICI Pru infrastructure follows the same benchmark S&P CNX NIFTY. In this case, DBS Chola opportunities is a 4 star rated fund whereas ICICI Pru infrastructure is an unrated fund. The star rating definitely gives DBS a competitive advantage but now lets have a look at other factors, we can see that ICICI Pru has really performed worse in the last month. Its 1 month return is -5.8% whereas DBS gave a return of -3.07%. Even if we consider 6 months return or yearly returns, definitely DBS is a winner. We can easily spot the difference by change in their rankings even. Considering 1 yr return, we can spot DBS at no.5 whereas ICICI at no.6 but when we look at the monthly ratings, to our ultimate shock, DBS is at 52 and ICICI far behind at 172. But if we look at the yearly returns, then there is not much difference between them, DBS offering returns of 35.17% whereas ICICI offering 34.27. But looking at the expenses, the expenses charged by ICICI is lower to that of DBS, which may act as the ultimate factor in choosing the fund in a long run. Thus at last we can conclude that ratings are totally irrelevant for investors. Here is why they are totally irrelevant to investor: 1. Mutual fund ratings are based on the returns generated, that is, appreciation of net asset value, based on the historical performance. So they rely more on the past, rather than the current scenario. 2. As returns play a key role in deciding the ratings, any change in returns will lead to re-rating of the mutual fund. If you choose your mutual fund only on the basis of rating, it will be a nuisance to keep realigning your investment in line with the revision of the ratings. 3. The ratings dont value the investment processes followed by the mutual fund. As a result, a fund following a certain process may lose out to a fund that has given superior returns only because it has a star fund manager. But there is a higher risk 75

associated with a star fund manager that the ratings dont reflect. If the star fund manager quits, it can throw the working of a mutual fund out of gear and thus affect its performance. 4. The ratings dont show the level of ethics followed by the fund. A fund or fund manager that is involved in a scam or financial irregularities wont get poor ratings on the basis of ethics. As the star ratings look at just returns, any wrongdoing carried out by the fund or fund manager will be completely ignored.

5. Ratings also dont consider two very important factors: transparency and keeping investors informed. There are no negative ratings awarded to the fund for being investor-unfriendly. 6. Ratings dont match the investors risk-appetite with their portfolio. As a matter of fact, investments should be done only after considering the risk appetite of the investor. For example, equities may not be the best investment vehicle for a very conservative investor. However ratings fail to take that into account.

Ratings should be the starting point for making an investment decision. They are not the be all and end all of mutual fund investments. There are other important factors like portfolio management, age of funds and more, which should be taken into account before making an investment.

Portfolio analysis tools:


With the increasing number of mutual fund schemes, it becomes very difficult for an investor to choose the type of funds for investment. By using some of the portfolio analysis tools, he can become more equipped to make a well informed choice. There are many financial tools to analyze mutual funds. Each has their unique strengths and limitations as well. Therefore, one needs to use a combination of these tools to make a thorough analysis of the funds. The present market has become very volatile and buoyant, so it is getting difficult for the investors to take right investing decision. so the easiest available option for investors is to choose the best performing funds in terms of returns which have yielded maximum returns. But if we look deeply to it, we can find that the returns are important but it is also important to look at the quality of the returns. Quality determines how much risk a fund is taking to generate those returns. One can make a judgment on the quality of a fund from various ratios such as standard deviation, sharpe ratio, beta, treynor measure, R-squared, alpha, portfolio turnover ratio, total expense ratio etc. Now I have compared two funds of SBI on the basis of standard deviation, beta, R-squared, sharpe ratio, portfolio turnover ratio and total expense ratio. So before going into details, lets have a look at these ratios:

Standard deviation: in simple terms standard deviation is one of the commonly used statistical parameter to measure risk, which determines the volatility of a fund. Deviation is defined as any variation from a mean value (upward & downward). Since the markets are volatile, the returns fluctuate everyday. High standard deviation of a fund implies high volatility and a low standard deviation implies low volatility.

Beta analysis: beta is used to measure the risk. It basically indicates the level of volatility associated with the fund as compared to the market. In case of funds, as compared to the market. In case of funds, beta would indicate the volatility against the benchmark index. It is used as a short term decision making tool. A beta that is greater than 1 means that the fund is more volatile 77

than the benchmark index, while a beta of less than 1 means that the fund is more volatile than the benchmark index. A fund with a beta very close to 1 means the funds performance closely matches the index or benchmark. The success of beta is heavily dependent on the correlation between correlation between a fund and its benchmark. Thus, if the funds portfolio doesnt have a relevant benchmark index then a beta would be grossly inappropriate. For example if we are considering a banking fund, we should look at the beta against a bank index. R-Squared (R2): R squared is the square of R (i.e.; coefficient of correlation). It describes the level of association between the funs market volatility and market risk. The value of R- squared ranges from0 to1. A high R- squared (more than 0.80) indicates that beta can be used as a reliable measure to analyze the performance of a fund. Beta should be ignored when the rsquared is low as it indicates that the fund performance is affected by factors other than the markets.

For example: R2 B Case 1 0.65 1.2 Case 2 0.88 0.9

In the above tableR2 is less than 0.80 in case 1, implies that it would be wrong to mention that the fund is aggressive on account of high beta. In case 2, the r- squared is more than 0.85 and beta value is 0.9. it means that this fund is less aggressive than the market. Sharpe ratio: sharpe ratio is a risk to reward ratio, which helps in comparing the returns given by a fund with the risk that the fund has taken. A fund with a higher sharpe ratio means that


these returns have been generated taking lesser risk. In other words, the fund is less volatile and yet generating good returns. Thus, given similar returns, the fund with a higher sharpe ratio offers a better avenue for investing. The ratio is calculated as: Sharpe ratio = (Average return- risk free rate) / standard deviation Portfolio turnover ratio: Portfolio turnover is a measure of a fund's trading activity and is calculated by dividing the lesser of purchases or sales (excluding securities with maturities of less than one year) by the average monthly net assets of the fund. Turnover is simply a measure of the percentage of portfolio value that has been transacted, not an indication of the percentage of a fund's holdings that have been changed. Portfolio turnover is the purchase and sale of securities in a fund's portfolio. A ratio of 100%, then, means the fund has bought and sold all its positions within the last year. Turnover is important when investing in any mutual fund, since the amount of turnover affects the fees and costs within the mutual fund. Total expenses ratio: A measure of the total costs associated with managing and operating an investment fund such as a mutual fund. These costs consist primarily of management fees and additional expenses such as trading fees, legal fees, auditor fees and other operational expenses. The total cost of the fund is divided by the fund's total assets to arrive at a percentage amount, which represents the TER: Total expense ratio = (Total fund Costs/ Total fund Assets)

Performance report and portfolio analysis of magnum equity fund and magnum multiplier plus against their benchmark BSE100:

Magnu m equity fund Magnu m multipli

YTD -23.73%

1M 9.02%

3M -7.71%

6M -15.18%

1Y 26.61%

3Y 45.07%

5Y 48.96%









er plus -17.53% Bench mark BSE100







Now in the above table, we have two funds from SBI ie; magnum equity fund and magnum multiplier plus following the same benchmark i.e; BSE 100. In this case, we have compared their returns during various time periods. We have their returns YTD, during last 1 month, 3month, 6 months, 1 year, 3 year and 5 year. If we look at a long term perspective, then magnum multiplier plus totally outperformed both magnum equity fund as well as bse 100. In case of 5 year returns, neither the benchmark nor the magnum equity fund stands anywhere near multiplier plus. It is greater than equity fund by 10.35% and from benchmark by 15.07%. but in case of 3 year returns, surely multiplier plus gave the maximum return but it fell sharply in comparison to its 5 yr return. A 45.28% return scored over equity fund just by a margin of 0.21% and benchmark by a mere 4.28%. now moving down to 1 yr return, we can clearly see that bse 100 emerges as a true winner. The benchmark gave a return of 30.71% but both the funds failed to match it even.

But the ultimate surprise comes when we look at the datas of last 6 months. Here not only the fund mangers failed to beat or match the market. Rather they also performed as laggards, giving negative returns. When the bse 100 gave returns of 11.47%, these funds were trailing by 29.47% and 26.65% which is a huge figure. In th last 3 months too, both the funds were behind bse100 but all the three gave negative returns and the difference between them and benchmark was narrowed down. Again, during last 1 month return of all three got positive but the funds always remained behind the benchmark. The bse 100 outscored multiplier plus and equity fund by 6.17% and 2.72% respectively. Similarly, the YTD return of all 3 is negative even then the benchmark is at a better position than the funds. From the following analysis we can infer that inspite of all the steps taken; it is not always possible for the fund managers to always beat the market. Also, the past performance just tells the background and history of the fund, by looking at it we cannot interpret that the fund will perform in the same way in the future too. The datas can be presented in the form of a graph as follow: 80

Quantitative data: Ratios Standard deviation Beta r-squared Sharpe ratio Portfolio turnover Total expense ratio Magnum equity fund 26.00% 0.96% Magnum multiplier plus 26.90% 0.95% 0.84% 1.42% 25% 2.5%

1.46% 31% 2.5%

Analysis: We can see that the standard deviation of both the funds are more or less same even then the S.D of multiplier plus is greater than that of equity fund by 0.90%. Generally higher the SD higher is the risk and vice-versa. Therefore, magnum multiplier plus is riskier than magnum equity fund.


The beta of magnum equity fund is higher than that of magnum multiplier plus. Therefore, equity fund is more volatile than multiplier plus. But beta of both the funds is smaller than 1 that means both the funds are less volatile than the market index. As rsquared values are more than 0.80 in both the cases, we can rely on the usage of beta for the analysis of these funds. A look at the Sharpe ratio indicates that magnum equity has outperformed multiplier plus. A higher Sharpe ratio of equity fund depicts that these return have been generated taking lesser risk than the multiplier plus. It Is less volatile than the other. R-squared of both the funds are greater than 0.80. it indicates that beta can be used as a reliable measure to analyze the performance of these funds. Magnum equity funds R- squared is higher. So its beta is more reliable. Portfolio turnover ratio of magnum equity fund is higher than multiplier plus. It mean the manager is frequently churning the portfolio of equity fund than of multiplier plus. It may lead to an increase in expenses but could be ignored if could generate higher return by changing the composition of portfolio. Total expense ratio of both the funds are same i.e.; 2.5%


In the form of a chart:


Measuring Risks: Impact On Investor to Higher volatility in returns volatility in

Risk Measure Implication High average More sensitive maturity modified duration Low average Less maturity

and interest rate changes sensitive

to Lower returns

and interest rate changes

modified duration Greater allocation Low risk default to high credit rated instruments Greater allocation Higher risk of default to low rated instruments

Lower yield with lower risk Higher yield but with greater risk


1. Systematic Investment Plan: under this a fixed sum is invested each month on a fixed date of a month. Payment is made through post dated cheques or direct debit facilities. The investor gets fewer units when the NAV is high and more units when the NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA) 2. Systematic Transfer Plan: under this an investor invest in debt oriented fund and give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual fund. 3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund then he can withdraw a fixed amount each month.




Mutual Fund Companies in India

The concept of mutual funds in India dates back to the year 1963. The era between 1963 and 1987 marked the existance of only one mutual fund company in India with Rs. 67bn assets under management (AUM), by the end of its monopoly era, the Unit Trust of India (UTI). By the end of the 80s decade, few other mutual fund companies in India took their position in mutual fund market .The new entries of mutual fund companies in India were SBI Mutual Fund, Canbank Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund. The succeeding decade showed a new horizon in indian mutual fund industry. By the end of 1993, the total AUM of the industry was Rs. 470.04 bn. The private sector funds started penetrating the fund families. In the same year the first Mutual Fund Regulations came into existance with re-registering all mutual funds except UTI. The regulations were further given a revised shape in 1996. Kothari Pioneer was the first private sector mutual fund company in India which has now merged with Franklin Templeton. Just after ten years with private sector players penetration, the total assets rose up to Rs. 1218.05 bn. Today there are 33 mutual fund companies in India.

Major Mutual Fund Companies in India:ABN AMRO Mutual Fund:ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee (India) Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset Management (India) Ltd. was incorporated on November 4, 2003. Deutsche Bank A G is the custodian of ABN AMRO Mutual Fund. Birla Sun Life Mutual Fund:Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life Financial. Sun Life Financial is a golbalorganisation evolved in 1871 and is being represented in Canada, the US, the Philippines, Japan, Indonesia and Bermuda apart from India. Birla Sun Life Mutual Fund follows a conservative long-term approach to investment. Recently it crossed AUM of Rs. 10,000 crores. Bank of Baroda Mutual Fund (BOB Mutual Fund):Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992 under the sponsorship of Bank of Baroda. BOB Asset Management Company Limited is the AMC of BOB Mutual Fund and was incorporated on November 5, 1992. Deutsche Bank AG is the custodian. HDFC Mutual Fund:HDFC Mutual Fund was setup on June 30, 2000 with two sponsorersnemely Housing Development Finance Corporation Limited and Standard Life Investments Limited. HSBC Mutual Fund:HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital Markets (India) Private Limited as the sponsor. Board of Trustees, HSBC Mutual Fund acts as the Trustee Company of 87

HSBC Mutual Fund..

ING Vysya Mutual Fund:ING Vysya Mutual Fund was setup on February 11, 1999 with the same named Trustee Company. It is a joint venture of Vysya and ING. The AMC, ING Investment Management (India) Pvt. Ltd. was incorporated on April 6, 1998.

Prudential ICICI Mutual Fund:The mutual fund of ICICI is a joint venture with Prudential Plc. of America, one of the largest life insurance companies in the US of A. Prudential ICICI Mutual Fund was setup on 13th of October, 1993 with two sponsorers, Prudential Plc. and ICICI Ltd. The Trustee Company formed is Prudential ICICI Trust Ltd. and the AMC is Prudential ICICI Asset Management Company Limited incorporated on 22nd of June, 1993.

Sahara Mutual Fund:Sahara Mutual Fund was set up on July 18, 1996 with Sahara India Financial Corporation Ltd. as the sponsor. Sahara Asset Management Company Private Limited incorporated on August 31, 1995 works as the AMC of Sahara Mutual Fund. The paid-up capital of the AMC stands at Rs 25.8 crore. State Bank of India Mutual Fund:State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch offshor fund, the India Magnum Fund with a corpus of Rs. 225 cr. approximately. Today it is the largest Bank sponsored Mutual Fund in India. They have already launched 35 Schemes out of which 15 have already yielded handsome returns to investors. State Bank of India Mutual Fund has more than Rs. 5,500 Crores as AUM. Now it has an investor base of over 8 Lakhs spread over 18 schemes. Tata Mutual Fund:Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsorers for Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The investment manager is Tata Asset Management Limited and its Tata Trustee Company Pvt. Limited. Tata Asset Management Limited's is one of the fastest in the country with more than Rs. 7,703 crores (as on April 30, 2005) of AUM.


Kotak Mahindra Mutual Fund:Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL. It is presently having more than 1,99,818 investors in its various schemes. KMAMC started its operations in December 1998. Kotak Mahindra Mutual Fund offers schemes catering to investors with varying risk return profiles. It was the first company to launch dedicated gilt scheme investing only in government securities.

Unit Trust of India Mutual Fund:UTI Asset Management Company Private Limited, established in Jan 14, 2003, manages the UTI Mutual Fund with the support of UTI Trustee Company Privete Limited. UTI Asset Management Company presently manages a corpus of over Rs.20000 Crore. The sponsorers of UTI Mutual Fund are Bank of Baroda (BOB), Punjab National Bank (PNB), State Bank of India (SBI), and Life Insurance Corporation of India (LIC). The schemes of UTI Mutual Fund are Liquid Funds, Income Funds, Asset Management Funds, Index Funds, Equity Funds and Balance Funds. Reliance Mutual Fund:Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was changed on March 11, 2004. Reliance Mutual Fund was formed for launching of various schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities. Standard Chartered Mutual Fund:Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by Standard Chartered Bank. The Trustee is Standard Chartered Trustee Company Pvt. Ltd. Standard Chartered Asset Management Company Pvt. Ltd. is the AMC which was incorporated with SEBI on December 20,1999. Franklin Templeton India Mutual Fund:The group, Frnaklin Templeton Investments is a California (USA) based company with a global AUM of US$ 409.2 bn. (as of April 30, 2005). It is one of the largest financial services groups in the world. Investors can buy or sell the Mutual Fund through their financial advisor or through mail or through their website. They have Open end Diversified Equity schemes, Open end Sector Equity schemes, Open end Hybrid schemes, Open end Tax Saving schemes, Open end Income and Liquid schemes, Closed end Income schemes and Open end Fund of Funds schemes to offer. Morgan Stanley Mutual Fund India:-


Morgan Stanley is a worldwide financial services company and its leading in the market in securities, investmenty management and credit services. Morgan Stanley Investment Management (MISM) was established in the year 1975. It provides customized asset management services and products to governments, corporations, pension funds and non-profit organisations. Its services are also extended to high net worth individuals and retail investors. In India it is known as Morgan Stanley Investment Management Private Limited (MSIM India) and its AMC is Morgan Stanley Mutual Fund (MSMF). This is the first close end diversified equity scheme serving the needs of Indian retail investors focussing on a long-term capital appreciation. Escorts Mutual Fund:Escorts Mutual Fund was setup on April 15, 1996 with Excorts Finance Limited as its sponsor. The Trustee Company is Escorts Investment Trust Limited. Its AMC was incorporated on December 1, 1995 with the name Escorts Asset Management Limited. Alliance Capital Mutual Fund:Alliance Capital Mutual Fund was setup on December 30, 1994 with Alliance Capital Management Corp. of Delaware (USA) as sponsorer. The Trustee is ACAM Trust Company Pvt. Ltd. and AMC, the Alliance Capital Asset Management India (Pvt) Ltd. with the corporate office in Mumbai.


Benchmark Mutual Fund:Benchmark Mutual Fund was setup on June 12, 2001 with Niche Financial Services Pvt. Ltd. as the sponsorer and Benchmark Trustee Company Pvt. Ltd. as the Trustee Company. Incorporated on October 16, 2000 and headquartered in Mumbai, Benchmark Asset Management Company Pvt. Ltd. is the AMC.

Canbank Mutual Fund:Canbank Mutual Fund was setup on December 19, 1987 with Canara Bank acting as the sponsor. Canbank Investment Management Services Ltd. incorporated on March 2, 1993 is the AMC. The Corporate Office of the AMC is in Mumbai.

Chola Mutual Fund:Chola Mutual Fund under the sponsorship of Cholamandalam Investment & Finance Company Ltd. was setup on January 3, 1997. Cholamandalam Trustee Co. Ltd. is the Trustee Company and AMC is Cholamandalam AMC Limited.

LIC Mutual Fund:Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. It contributed Rs. 2 Crores towards the corpus of the Fund. LIC Mutual Fund was constituted as a Trust in accordance with the provisions of the Indian Trust Act, 1882. . The Company started its business on 29th April 1994. The Trustees of LIC Mutual Fund have appointed JeevanBimaSahayog Asset Management Company Ltd as the Investment Managers for LIC Mutual Fund.

GIC Mutual Fund:GIC Mutual Fund, sponsored by General Insurance Corporation of India (GIC), a Government of India undertaking and the four Public Sector General Insurance Companies, viz. National Insurance Co. Ltd (NIC), The New India Assurance Co. Ltd. (NIA), The Oriental Insurance Co. Ltd (OIC) and United India Insurance Co. Ltd. (UII) and is constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882.



MUTUAL FUNDSRISK ASSOCIATED Investing in Mutual Funds, as with any security, does not come without risk. One of the most basic economic principles is that risk and reward are directly correlated. In other words, the greater the potential risk the greater the potential return. The types of risk commonly associated with Mutual Funds are:



Market risk relates to the market value of a security in the future. Market prices fluctuate and are susceptible to economic and financial trends, supply and demand, and many other factors that cannot be precisely predicted or controlled.



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



Interest rate risk relates to future changes in interest rates. For instance, if an investor invests in a long-term debt Mutual Fund scheme and interest rates increase, the NAV of the scheme will fall because the scheme will be end up holding debt offering lower interest rates.




Business risk is the uncertainty concerning the future existence, stability, and profitability of the issuer of the security. Business risk is inherent in all business ventures. The future financial stability of a company cannot be predicted or guaranteed, nor can the price of its securities. Adverse changes in business circumstances will reduce the market price of the companys equity resulting in proportionate fall in the NAV of the Mutual Fund scheme, which has invested in the equity of such a company.



Economic risk involves uncertainty in the economy, which, in turn, can have an adverse effect on a companys business. For instance, if monsoons fail in a year, equity stocks of agriculture-based companies will fall and NAVs of Mutual Funds, which have invested in such stocks, will fall proportionately.


Chapter VI Conclusion


CONCLUSION Mutual funds are the best investment option for those seeking financial advice in making investment decisions. It is also a best option for novice investors. Tailor made mutual funds need to be developed to completely satisfy the investor requirements.The trick for converting a person with no knowledge of mutual funds to a new Mutual Fund customer is to understand which of the potential investors are more likely to buy mutual funds and to use the right arguments in the sales process that customers will accept as important and relevant to their decision. As information and awareness is rising more and more people are enjoying the benefits of investing in mutual funds. The main reason the number of retail mutual fund investors remains small is that nine in ten people with incomes in India do not know that mutual funds exist. But once people are aware of mutual fund investment opportunities, the number who decide to invest in mutual funds increases to as many as one in five people This Project gave me a great learning experience and at the same time it gave me enough scope to implement my analytical ability. The analysis and advice presented in this Project Report is based on market research on the saving and investment practices of the investors and preferences of the investors for investment in Mutual Funds.






MILLENIUM EDITION2000 4. JOHN.A.HASLEM MUTUAL FUNDS RISK ANALYSIS FOR 2003 DECISIION MAKING WEBSITES www.amfi.com www.mutualfundsindia.com www.utimf.com