Project On Comaparative Study of Mutual Funds

A Project Report
On PERFORMANCE ANALYSIS OF MUTUAL FUND SCHEMES

Submitted in partial fulfillment of the requirement for the degree of Master of Business Administration (MBA) of
DEPARTMENT OF MANAGEMENT STUDIES BHIMTAL KUMAUN UNIVERSITY, NAINITAL
Project Guide: Dr. P.C Kavidayal (Head of the Department)
Submitted By: CHAMAN KUMAR MBA IVth Semester Roll No. : 101581
Department of Management Studies, Kumaun University, Bhimtal (Nainital )|
DECLARATION
I CHAMAN KUMAR hereby declare that project report entitled PERFORMANCE ANALYSIS OF MUTUAL FUND SCHEMES is being submitted in partial fulfillment of requirement of Master of business Administration (MBA) degree course of Kumaun University, under the valuable guidance of Dr. P.C Kavidayal, the head of the department (HOD) The information in this report is based on the data collected by me. It is my original work. I have neither copied from meant for any degree/diploma course nor have submitted for award of any degree/diploma or similar program elsewhere.
Counter Signed By:
Name of the Student: Chaman Kumar
(Dr. P.C KAVIDAYAL)
ROLL NO.:101581
ENROLLMENT NO.:0622844
ACKNOWLEDGEMENT
The successful completion of any task would be incomplete without greeting those who made it possible and who guidance and encouragement made out the effort success. I take this opportunity to thank whole-heartedly and with a deep sense of gratitude. I would like to express my sincere thanks to all those who have endeavored to extend their utmost cooperation and unyielding support to help me to prepare PROJECT WORK on PERFORMANCE ANALYSIS OF MUTUAL FUND SCHEMES I am greatly indebted to my guide and the Head of the Department Mr. P.C KAVIDAYAL, DEPARTMENT OF MANAGEMENT STUDIES, KUMAUN UNIVERSITY, BHIMTAL (NAINITAL) for those seen interest, invaluable guidance and inspiration during the entire course of this PROJECT WORK.
DATE: PLACE: CHAMAN KUMAR
EXECUTIVE SUMMARY
As a part of our study curriculum it is necessary to conduct a project in finance specialization. It provide us an opportunity to understand the particular topic in depth and which leads to through to that topic. Our topic for the project is titled as PERFORMANCE ANALYSIS OF MUTUAL FUND SCHEMES in which emphasis given to the study of different mutual funds in respect to the NAVs performance, growth and customer perception in it. Total Investment scenario is changing, in past people were not interested in investment because there were no good options available for investment. Now there are many options available for investment like life Insurance, Mutual fund, Equity market, Real estate, etc. Presently one of the attractive options for investment available is Mutual Fund. Mutual Funds are providing risk adjusted returns. So while investing people tend more to words mutual fund as they are providing more returns than Insurance and bank deposits also, with a good investment portfolio. Mutual fund companies are providing more liquidity. Since mutual funds are a relatively recent phenomenon in India, general public or investors dont have clarity about this concept. As we have started witnessing the concept of more saving now being entrusted to the funds than to keeping it in banks. So it is very important to manage investors investment objective and perception efficiently. By efficient we mean which reduces the risk of investor and increases return on the other hand. This report has divided into two phases. First phase covered investors background of the study, Introduction of mutual funds, Indian Mutual Fund industry, past trend and present growth as well as future opportunities in the Mutual Fund Industry. Investment options available with individuals in Mutual Funds and at last techniques of managing a clients investment pattern in mutual funds.
Second phase of the report covered equity growth schemes of the four selected Mutual Fund companies where we have compared Mutual Fund of HDFC, SBI, Reliance and UTI with its NAVs performance and growth and investors perceptions of these funds and their preference for investment with their investment objectives is identified through questionnaire survey.
At the end we have identified future growth and opportunities available in Mutual Fund Industry and some recommendation to the prospective investor for investing in Mutual Fund for better return and growth.
TABLE OF CONTENTS
S. No. 1.0 Introduction:
1.1 Introduction 1.2 An Overview on Mutual Fund 1.3 Concept of Mutual Fund 1.4 Types of Mutual Fund 1.5 Advantages & Disadvantages of Mutual Funds 1.6 How Risky Mutual Fund is 1.7 Mutual Fund Risk 1.8 Frequently Used Terms 1.9 Comparison Between Mutual Fund and Other Investment
PARTICULAR
PAGE No.
6-38
6 6 14 19 29 30 31 34 35
1.
2.0 Research and Methodology

2.1 2.2 2.3. 2.4 Statement of the Problem Objective of the Study Need of the Study Data Collection
39-41
39 40 40 40 40 40 41
2.
2.5 Technique Used 2.6 Scope of the Study 2.7 Limitation of the Study
3.0 Discussion &Analysis:
42-57
42 44
3. 4.
3.1 A brief profile of selected AMCs 3.2 Comparative Study of Mutual Funds based on different parameters
4.0 Findings, Suggestion and Conclusion

4.1 Findings 4.2 Suggestions 4.3 Conclusion
58-60
58 59 60
Bibliography
61-61
Chapter Istt
INTRODUCTION
Investment in a portfolio can take different forms. An investor can either invest securities, or can invest through an investment company, also referred to as mutual fund. Mutual fund are financial intermediaries, which collect the savings of investors and invest them in a large and well-diversified portfolio of securities such as money market instruments, corporate and government bonds and equity shares of joint stock companies. A mutual fund is a pool of commingles funds invested by different investors, who have no contact with each other. Mutual funds pools money from a cross section of investors by issuing units, construct a diversified portfolio of stocks, bonds and other investment instruments and invest the same in capital market. Mutual funds are conceived as instructions for providing small investors with avenues of investments in the capital market. Since small investors generally do not have adequate time, knowledge, experience and resources for directly accessing the capital market, them have to rely on and intermediaries, which undertakes informed investment decisions and provides consequential benefits of professional expertise. Except the union trust of India, all mutual funds in India are organized and set up under the Indian Trust Act as Trust. The primary objective of all mutual funds is to provide better returns to investors by minimizing the risk associated with capital market instruments. All the mutual funds aim at achieving one or more of the following. Providing a steady flow of income. Providing high capital appreciation. Providing capital appreciation with income. Providing income or capital appreciation with tax benefits.
AN OVERVIEW ON MUTUAL FUNDS:History of Mutual Funds

The Evolution: In 1774, a Dutch merchant invited subscriptions from investors to set up an investment trust by the name of Eendragt Maakt Magt (translated into English, it means, Unity Creates Strength), with the objective of providing diversification at low cost to small investors. Its success caught on, and more
Department of Management Studies, Kumaun University, Bhimtal (Nainital )| 7
investment trust were launched, with verbose and quirky names that when translated read profitable and prudent or small maters grow by consent. The foreign and colonial Govt. trust, formed in London in 1868, promised start the investor of modest means the same advantages as the large capitalist by spreading the investment over a number of stock. When three Boston securities executives pooled their money together in 1924 to create the first mutual fund, they had no idea how popular mutual funds would become. The idea of pooling money together for investing purposes started in Europe in the mid-1800s. The first pooled fund in the U.S. was created in 1893 for the faculty and staff of Harvard University. On March 21st, 1924 the first official mutual fund was born. It was called the Massachusetts Investors Trust. After one year, the Massachusetts Investors Trust grew from $50,000 in assets in 1924 to $392,000 in assets (with around 200 shareholders). In contrast, there are over 10,000 mutual funds in the U.S. today totaling around $7 trillion (with approximately 83 million individual investors) according to the Investment Company Institute. The stock market crash of 1929 slowed the growth of mutual funds. In response to the stock market crash, Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934. These laws require that a fund be registered with the SEC and provide prospective investors with a prospectus. The SEC (U.S. Securities and Exchange Commission) helped create the Investment Company Act of 1940 which provides the guidelines that all funds must comply with today. With renewed confidence in the stock market, mutual funds began to blossom. By the end of the 1960s there were around 270 funds with $48 billion in assets. In 1976, John C. Bogle opened the first retail index fund called the First Index Investment Trust. It is now called the Vanguard 500 Index fund and in November of 2000 it became the largest mutual fund ever with $100 billion in assets. As of October 2007, there are 8,015 mutual funds that belong to the Investment Company Institute (ICI), a national trade association of investment companies in the United States, with combined assets of , $12.356 trillion.
HISTORY OF MUTUAL FUNDS IN INDIA:The Evolution: The formation of Unit Trust of India marked the evolution of the Indian mutual fund industry in the year 1963. The primary objective at that time was to attract the small investors and it was made possible through the collective efforts of the Government of India and the Reserve Bank of India. The history of mutual fund industry in India can be better understood divided into following phases:
Phase1.Establishment and Growth of Unit Trust of India-196487:

Unit Trust of India enjoyed complete monopoly when it was established in the year 1963 by an act of Parliament. UTI was set up by the Reserve Bank of India and it continued to operate under the regulatory control of the RBI until the two were de-linked in 1978 and the entire control was tranferred in the hands of Industrial Development Bank of India (IDBI). UTI launched its first scheme in 1964, named as Unit Scheme 1964 (US-64), which attracted the largest number of investors in any single investment scheme over the years. UTI launched more innovative schemes in 1970s and 80s to suit the needs of different investors. It launched ULIP in 1971, six more schemes between 198184, Children's Gift Growth Fund and India Fund (India's first offshore fund) in 1986, Mastershare (Inida's first equity diversified scheme) in 1987 and Monthly Income Schemes (offering assured returns) during 1990s. By the end of 1987, UTI's assets under management grew ten times to Rs 6700 crores.
Phase
II.
Entry
of
Public
Sector
Funds
1987-1993:
The Indian mutual fund industry witnessed a number of public sector players entering the market in the year 1987. In November 1987, SBI Mutual Fund from the State Bank of India became the first non-UTI mutual fund in India. SBI Mutual Fund was later followed by Can bank Mutual Fund, LIC Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. By 1993, the assets under management of the industry increased seven times to Rs. 47,004 crores. However, UTI remained to be the leader with about 80% market share.
1992-93
Amount Mobilised
Assets Under Management
Mobilisation as % of gross Domestic Savings
UTI Public Sector Total
11,057
38,247
5.2%
1,964
8,757
0.9%
13,021
47,004
6.1%
Phase III. Emergence of Private Sector Funds - 1993-96:

The permission given to private sector funds including foreign fund management companies (most of them entering through joint ventures with Indian promoters) to enter the mutual fund industry in 1993, provided a wide range of choice to investors and more competition in the industry. Private funds introduced innovative products, investment techniques and investor-servicing technology. By 1994-95, about 11 private sector funds had launched their schemes.
Phase
IV.
Growth
and
SEBI
Regulation
1996-2004:
The mutual fund industry witnessed robust growth and stricter regulation from the SEBI after the year 1996. The mobilisation of funds and the number of players operating in the industry reached new heights as investors started showing more interest in mutual funds. Invetors' interests were safeguarded by SEBI and the Government offered tax benefits to the investors in order to encourage them. SEBI (Mutual Funds) Regulations, 1996 was introduced by SEBI that set uniform standards for all mutual funds in India. The Union Budget in 1999 exempted all dividend incomes in the hands of investors from income tax. Various Investor Awareness Programmes were launched during this phase, both by SEBI and AMFI, with an objective to educate investors and make them informed about the mutual fund industry.
In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal status as a trust formed by an Act of Parliament. The primary objective behind this was to bring all mutual fund players on the same level. UTI was re-organised into two parts: 1. The Specified Undertaking, 2. The UTI Mutual Fund Presently Unit Trust of India operates under the name of UTI Mutual Fund and its past schemes (like US-64, Assured Return Schemes) are being gradually wound up. However, UTI Mutual Fund is still the largest player in the industry. In 1999, there was a significant growth in mobilisation of funds from investors and assets under management which is supported by the following data:
GROSS FUND MOBILISATION (RS. CRORES)
FROM
TO
UTI
PUBLIC SECTOR
PRIVATE SECTOR
TOTAL
01-April-98
31-March-99
11,679
1,732
7,966
21,377
01-April-99
31-March-00
13,536
4,039
42,173
59,748
01-April-00
31-March-01
12,413
6,192
74,352
92,957
01-April-01
31-March-02
4,643
13,613
1,46,267
1,64,523
01-April-02
31-Jan-03
5,505
22,923
2,20,551
2,48,979
01-Feb.-03
31-March-03
7,259*
58,435
65,694
11
01-April-03
31-March-04
68,558
5,21,632
5,90,190
01-April-04
31-March-05
1,03,246
7,36,416
8,39,662
01-April-05
31-March-06
1,83,446
9,14,712 10,98,158
ASSETS UNDER MANAGEMENT (RS. CRORES)
AS ON
UTI
PUBLIC SECTOR
PRIVATE SECTOR
TOTAL
31-03March-99
53,320
8,292
6,860
68,472
Phase
V.
Growth
and
Consolidation
2004
Onwards:
The industry has also witnessed several mergers and acquisitions recently, examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international mutal fund players have entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were 29 funds as at the end of March 2006. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players.
12
Emerging Issues of the Mutual Fund Industry in India:

By end of JUNE 2010, Indian mutual fund industry reached more than Rs. 640000 crore. 100% growth in the last 6 years. Number of foreign AMC's are in the queue to enter the Indian markets. Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual funds sector is required. We have approximately 39 mutual funds which is much less than US having more than 800. There is a big scope for expansion. 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are concentrating on the 'A' class cities. Soon they will find scope in the growing cities. Mutual fund can penetrate rural like the Indian insurance industry with simple and limited products. SEBI allowing the MF's to launch commodity mutual funds. Emphasis on better corporate governance. Trying to curb the late trading practices.
13
GRAPH OF AUM OF INDIA vs AUM OF WORLD:-
PRESENT POSITION:Mutual funds play vital role in resource mobilization and their efficient allocation in a transitional economy like India. Economic transition is usually marked by changes in the financial mechanism, institutional integration, market regulation, re-allocation of savings and investments, and changes in the intersector relationships. These changes often imply negativity which shakes investors confidence in the capital market. Mutual funds perform a crucial task as efficient alligators of resources in such a transitional period. Throughout the world, mutual funds have worked as reliable instruments of change in financial intermediation, development of the capital market, and growth of the corporate sector. The active involvement of mutual funds in promoting economic development can also be seen in their dominant presence in the money and capital markets. Mutual funds make a significant contribution in vibrating both the markets. The spread of equity cult has further increased reliance of the corporate sector on equity financing. The role of mutual funds in the financing of corporate has substantially increased after the SEBI allowed the corporate sector to reserve 20% of their public issues for Indian mutual funds. The percentage share of corporate equity and debentures in the household investors, together with UTI units, have increased from 3.7% in 1980-81 to
17.2% in 1992-93, while the share of less liquid assets like LIC, PF, and pension have shown a marginal increase from 25.1% to 27.2% during the same period. Mutual funds have been the fastest growing institution during this period in the household savings sector. Growing market complications and investment risk in the stock market with high inflation have pushed households further towards mutual funds.
Concept of Mutual Funds

Mutual funds, as the name indicates is the fund where in numerous investors come together to invest in various schemes of mutual fund. Mutual funds are dynamic institution, which plays a crucial role in an economy by mobilizing savings and investing them in the capital market, thus establishing a link between savings and the capital market. A mutual fund is an institution that invests the pooled funds of public to create a diversified portfolio of securities. Pooling is the key to mutual fund investing. Each mutual fund has a specific investment objective and tries to meet that objective through active portfolio management. Mutual fund as a investment company combines or collects money of its shareholders and invests those funds in variety of stocks, bonds, and money
market instruments. The latter include securities, commercial papers, certificates of deposits, etc. Mutual funds provide the investor with professional management of funds and diversification of investment. Investors who invest in mutual funds are provided with units to participate in stock markets. These units are investment vehicle that provide a means of participation in the stock market for people who have neither the time, nor the money, nor perhaps the expertise to undertake the direct investment in equities. On the other hand they also provide a route into specialist markets where direct investment often demands both more time and more knowledge than an investor may possess. The price of units in any mutual fund is governed by the value of underlying securities. The value of an investors holding in a unit can therefore, like an investment in share, can go down as well as up. Hence it is said that mutual funds are subjected to market risk. Mutual fund cannot guarantee a fixed rate of return. It depends on the market condition. If the particular scheme is performing well than more return can be expected. It also depends on the fund manager expertise knowledge. It is also seen that people invest in particular funds depending on who the fund manager is.
The following diagram shows the working of mutual fund:
A 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 invested by the fund manager in different types of securities depending upon the objective
of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciations realized by the schemes are 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 person as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. Since small investors generally do not have adequate time, knowledge, experience & resources for directly accessing the capital market, they have to rely on an intermediary, which undertakes informed investment decisions & provides consequential benefits of professional expertise. The advantage of Mutual Funds to the investors is professional managed low transaction cost, liquidity, transparency, well regulated, diversified portfolios & tax benefits. By pooling their assets through mutual funds, investors achieve economies of scale. A collected corpus can be used to procure a diversified portfolio indicating greater returns has also create economies of scale through cost reduction. This principle has been effective worldwide as more & more investors are going the mutual fund way. This portfolio diversification ensures risk minimization. The criticality such a measure comes in when you factor in the fluctuations that characterize stock markets. The interest of the investors is protected by the SEBI, which acts as a watchdog. Mutual funds are governed by SEBI (Mutual Funds) regulations, 1996.
ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund:
17
Mutual funds have a unique structure not shared with other entities such as companies of firms. It is important for employees & agents to be aware of the special nature of this structure, because it determines the rights & responsibilities of the funds constituents viz., sponsors, trustees, custodians, transfer agents & of course, the fund & the Asset Management Company(AMC) the legal structure also drives the inter-relationships between these constituents. The structure of the mutual fund India is governed by the SEBI (Mutual Funds) regulations, 1996. These regulations make it mandatory for mutual funds to have a structure of sponsor, trustee, AMC, custodian. The sponsor is the promoter of the mutual fund,& appoints the trustees. The trustees are responsible to the investors in the mutual fund, & appoint the AMC for managing the investment portfolio. The AMC is the business face of the mutual fund, as it manages all affairs of the mutual fund. The mutual fund & the AMC have to be registered with SEBI. Custodian, who is also registered with SEBI, holds the securities of various schemes of the fund in its custody.
Sponsor:
The sponsor is the promoter of the mutual fund. The sponsor establishes the Mutual fund & registers the same with SEBI. He appoints the trustees, Custodians & the AMC with prior approval of SEBI, & in accordance with SEBI regulations. He must have at least five year track record of business interest in the financial markets. Sponsor must have been profit making in at least three of the above five years. He must contribute at least 40% of the capital of the AMC.
Trustees:
The Mutual Fund may be managed by a Board of trustees of a individuals, or a trust company a corporate body. Most of the funds in India are managed by board of trustees. While the board of trustees is governed by the provisions of the Indian trust act, where the trustee is the corporate body, it would also be required to comply with the provisions of the companies act, 1956. the board of trustee company, as an independent body, act as protector of the unit holders interest. The trustees dont directly manage the portfolio of securities. For this specialist function, they appoint an AMC. They ensure that the fund is managed by AMC as per the defined objectives & in accordance with the trust deed & SEBI regulations. The trust is created through a document called the trust deed i.e., executed by the fund sponsor in favor of the trustees. The trust deed is required to be stamped as registered under the provision of the Indian registration act &
registered with SEBI. The trustees begin the primary guardians of the unitholders funds & assets, a trustee has to be a person of high repute & integrity.
Asset Management Company(AMC):

The role of an Asset management companies is to act as the investment manager of the trust. They are the ones who manage money of investors. An AMC takes decisions, compensates investors through dividends, maintains proper accounting & information for pricing of units, calculates the NAV, & provides information on listed schemes. It also exercises due diligence on investments & submits quarterly reports to the trustees. AMCs have been set up in various countries internationally as an answer to the global problem of bad loans. Bad loans are essentially of two types: bad loans generated out of the usual banking operations or bad lending, and bad loans which emanate out of a systematic banking crisis. It is in the latter case that banking regulators or governments try to bail out the banking system of a systematic accumulation of bad loans which acts as a drag on their liquidity, balance sheets and generally the health of banking. So, the idea of AMCs or ARCs is not to bail out banks, but to bail out the banking system itself.
Custodian:
Often an independent organization, it takes custody all securities & other assets of mutual fund. Its responsibilities include receipt & delivery of securities collecting income-distributing dividends, safekeeping of the unit & segregating assets & settlements between schemes. Mutual fund is managed either trust company board of trustees. Board of trustees & trust are governed by provisions of Indian trust act. If trustee is a company, it is also subject Indian Company Act. Trustees appoint AMC in consultation with the sponsors & according to SEBI regulation. All mutual fund schemes floated by AMC have to be approved by trustees. Trustees review & ensure that net worth of the company is according to stipulated norms, every quarter. Though the trust is the mutual fund, the AMC is its operational face. The AMC is the first functionary to be appointed, & is involved in appointment of all other functionaries. The AMC structures the mutual fund products, markets them & mobilizes fund, manages the funds & services to the investors. A draft offer document is to be prepared at the time of launching the fund. Typically, it pre specifies investment objectives of the fund, the risk associated, the cost involved in the process & the broad rules to enter & to exit from the fund & other areas of operation. In India as in most countries, these sponsors
need approval from a regulator, SEBI in our case. SEBI looks at track records of the sponsor & its financial strength granting approval to the fund for commencing operations. A sponsor then hires an asset management company to invest the funds according to the investment objective. It also hires another entity to be the custodian of the assets of the fund & perhaps the third one to handle registry work for the unit holder of the fund.
Registrars & Transfer Agent(R & T Agent):

The Registrars & Transfer Agents(R & T Agents) are responsible for the investor servicing function, as they maintain the records of investors in mutual funds. They process investor applications; record details provide by the investors on application forms; send out to investors details regarding their investment in the mutual fund; send out periodical information on the performance of the mutual fund; process dividend payout to investor; incorporate changes in information as communicated by investors; & keep the investor record up-to-date, by recording new investors & removing investors who have withdrawn their funds.
TYPES OF MUTUAL FUND SCHEMES:

General Classification of Mutual Funds: By Structure:
o Open-ended schemes o Close-ended schemes
Others:
o Load Funds: Entry Load Exit Load Deferred Load Contingent Deferred Sales Charge o No load Funds
20
o Tax-Exempt Funds o Non-Tax-Exempt Funds
By Structure: 1. Open-end Funds:

Funds that can sell and purchase units at any point in time are classified as Open-end Funds. The fund size (corpus) of an open-end fund is variable (keeps changing) because of continuous selling (to investors) and repurchases (from the investors) by the fund. An open-end fund is not required to keep selling new units to the investors at all times but is required to always repurchase, when an investor wants to sell his units. The NAV of an open-end fund is calculated every day.
2. Closed-end Funds:
Funds that can sell a fixed number of units only during the New Fund Offer (NFO) period are known as Closed-end Funds. The corpus of a Closed-end Fund remains unchanged at all times. After the closure of the offer, buying and redemption of units by the investors directly from the Funds is not allowed. However, to protect the interests of the investors, SEBI provides investors with two avenues to liquidate their positions: 1. Closed-end Funds are listed on the stock exchanges where investors can buy/sell units from/to each other. The trading is generally done at a discount to the NAV of the scheme. The NAV of a closed-end fund is computed on a weekly basis (updated every Thursday). 2. Closed-end Funds may also offer "buy-back of units" to the unit holders. In this case, the corpus of the Fund and its outstanding units do get changed.
Other funds: 1. Load Funds:

Mutual Funds incur various expenses on marketing, distribution, advertising, portfolio churning, fund managers salary etc. Many funds recover these
expenses from the investors in the form of load. These funds are known as Load Funds. A load fund may impose following types of loads on the investors: Entry Load Also known as Front-end load, it refers to the load charged to an investor at the time of his entry into a scheme. Entry load is deducted from the investors contribution amount to the fund. Exit Load Also known as Back-end load, these charges are imposed on an investor when he redeems his units (exits from the scheme). Exit load is deducted from the redemption proceeds to an outgoing investor. Deferred Load Deferred load is charged to the scheme over a period of time. Contingent Deferred Sales Charge (CDSS) In some schemes, the percentage of exit load reduces as the investor stays longer with the fund. This type of load is known as Contingent Deferred Sales Charge.
2. No-Load Fund:
All those funds that do not charge any of the above mentioned loads are known as No-load Funds.
3. Tax-exempt Funds:
Funds that invest in securities free from tax are known as Tax-exempt Funds. All open-end equity oriented funds are exempt from distribution tax (tax for distributing income to investors). Long term capital gains and dividend income in the hands of investors are tax-free.
4. Non-Tax-exempt Funds:
Funds that invest in taxable securities are known as Non-Tax-exempt Funds. In India, all funds, except open-end equity oriented funds are liable to pay tax on distribution income. Profits arising out of sale of units by an investor within 12 months of purchase are categorized as short-term capital gains, which are taxable. Sale of units of an equity oriented fund is subject to Securities Transaction Tax (STT). STT is deducted from the redemption proceeds to an investor
BROAD MUTUAL FUND TYPES
1. Equity Funds:
Equity funds are considered to be the more risky funds as compared to other fund types, but they also provide higher returns than other funds. It is advisable that an investor looking to invest in an equity fund should invest for long term i.e. for 3 years or more. There are different types of equity funds each falling
into different risk bracket. In the order of decreasing risk level, there are following types of equity funds: a) Aggressive Growth Funds: In Aggressive Growth Funds, fund managers aspire for maximum capital appreciation and invest in less researched shares of speculative nature. Because of these speculative investments Aggressive Growth Funds become more volatile and thus, are prone to higher risk than other equity funds. b) Growth Funds: Growth Funds also invest for capital appreciation (with time horizon of 3 to 5 years) but they are different from Aggressive Growth Funds in the sense that they invest in companies that are expected to outperform the market in the future. Without entirely adopting speculative strategies, Growth Funds invest in those companies that are expected to post above average earnings in the future. c) Speciality Funds: Speciality Funds have stated criteria for investments and their portfolio comprises of only those companies that meet their criteria. Criteria for some speciality funds could be to invest/not to invest in particular regions/companies. Speciality funds are concentrated and thus, are comparatively riskier than diversified funds. There are following types of speciality funds: i. Sector Funds: Equity funds that invest in a particular sector/industry of the market are known as Sector Funds. The exposure of these funds is limited to a particular sector (say Information Technology, Auto, Banking, Pharmaceuticals or Fast Moving Consumer Goods) which is why they are more risky than equity funds that invest in multiple sectors. Foreign Securities Funds: Foreign Securities Equity Funds have the option to invest in one or more foreign companies. Foreign securities funds achieve international diversification and hence they are less risky than sector funds. However, foreign securities funds are exposed to foreign exchange rate risk and country risk. Mid-Cap or Small-Cap Funds: Funds that invest in companies having lower market capitalization than large capitalization companies are called Mid-Cap or Small-Cap Funds. Market capitalization of Mid-Cap companies is less than that of big, blue chip companies (less than Rs. 2500 crores but more than Rs. 500 crores) and Small-Cap companies have market capitalization of less than Rs. 500 crores. Market Capitalization of a company can be calculated by multiplying the market
ii.
iii.
price of the company's share by the total number of its outstanding shares in the market. The shares of Mid-Cap or Small-Cap Companies are not as liquid as of Large- Cap Companies which gives rise to volatility in share prices of these companies and consequently, investment gets risky. iv. Diversified Equity Funds: Except for a small portion of investment in liquid money market, diversified equity funds invest mainly in equities without any concentration on a particular sector(s). These funds are well diversified and reduce sector-specific or company-specific risk. However, like all other funds diversified equity funds too are exposed to equity market risk. One prominent type of diversified equity fund in India is Equity Linked Savings Schemes (ELSS). As per the mandate, a minimum of 90% of investments by ELSS should be in equities at all times. ELSS investors are eligible to claim deduction from taxable income (up to Rs 1 lakh) at the time of filing the income tax return. ELSS usually has a lockin period and in case of any redemption by the investor before the expiry of the lock-in period makes him liable to pay income tax on such income(s) for which he may have received any tax exemption(s) in the past.
d) Equity Index Funds: Equity Index Funds have the objective to match the performance of a specific stock market index. The portfolio of these funds comprises of the same companies that form the index and is constituted in the same proportion as the index. Equity index funds that follow broad indices (like S&P CNX Nifty, Sensex) are e) Less risky than equity index funds that follow narrow sectoral indices (like BSEBANKEX or CNX Bank Index etc). Narrow indices are less diversified and therefore, are more risky.
2. Debt/Income Funds:
Funds that invest in medium to long-term debt instruments issued by private companies, banks, financial institutions, governments and other entities belonging to various sectors (like infrastructure companies etc.) are known as Debt / Income Funds. Debt funds are low risk profile funds that seek to generate fixed current income (and not capital appreciation) to investors. In order to ensure regular income to investors, debt (or income) funds distribute large fraction of their surplus to investors. Although debt securities are generally less risky than equities, they are subject to credit risk (risk of default) by the issuer at the time of interest or principal payment. To minimize the risk of default, debt funds usually invest in securities from issuers who are rated by credit rating
agencies and are considered to be of "Investment Grade". Debt funds that target high returns are more risky. Based on different investment objectives, there can be following types of debt funds: a) Diversified Debt Funds: Debt funds that invest in all securities issued by entities belonging to all sectors of the market are known as diversified debt funds. The best feature of diversified debt funds is that investments are properly diversified into all sectors which results in risk reduction. Any loss incurred, on account of default by a debt issuer, is shared by all investors which further reduces risk for an individual investor. b) Focused Debt Funds: Unlike diversified debt funds, focused debt funds are narrow focus funds that are confined to investments in selective debt securities, issued by companies of a specific sector or industry or origin. Some examples of focused debt funds are sector, specialized and offshore debt funds, funds that invest only in Tax Free Infrastructure or Municipal Bonds. Because of their narrow orientation, focused debt funds are more risky as compared to diversified debt funds. Although not yet available in India, these funds are conceivable and may be offered to investors very soon. c) Assured Return Funds: Although it is not necessary that a fund will meet its objectives or provide assured returns to investors, but there can be funds that come with a lock-in period and offer assurance of annual returns to investors during the lock-in period. Any shortfall in returns is suffered by the sponsors or the Asset Management Companies (AMCs). These funds are generally debt funds and provide investors with a lowrisk investment opportunity. However, the security of investments depends upon the net worth of the guarantor (whose name is specified in advance on the offer document). To safeguard the interests of investors, SEBI permits only those funds to offer assured return schemes whose sponsors have adequate net-worth to guarantee returns in the future. In the past, UTI had offered assured return schemes (i.e. Monthly Income Plans of UTI) that assured specified returns to investors in the future. UTI was not able to fulfill its promises and faced large shortfalls in returns. Eventually, government had to intervene and took over UTI's payment obligations on itself. Currently, no AMC in India offers assured return schemes to investors, though possible. d) Fixed Term Plan Series: Fixed Term Plan Series usually are closed-end schemes having short term maturity period (of less than one year) that offer a series of plans and issue units to investors at regular intervals.
Unlike closed-end funds, fixed term plans are not listed on the exchanges. Fixed term plan series usually invest in debt / income schemes and target short-term investors. The objective of fixed term plan schemes is to gratify investors by generating some expected returns in a short period.
3. Gilt Funds:
Also known as Government Securities in India, Gilt Funds invest in government papers (named dated securities) having medium to long term maturity period. Issued by the Government of India, these investments have little credit risk (risk of default) and provide safety of principal to the investors. However, like all debt funds, gilt funds too are exposed to interest rate risk. Interest rates and prices of debt securities are inversely related and any change in the interest rates results in a change in the NAV of debt/gilt funds in an opposite direction.
4. Money Market/Liquid Funds:

Money market / liquid funds invest in short-term (maturing within one year) interest bearing debt instruments. These securities are highly liquid and provide safety of investment, thus making money market / liquid funds the safest investment option when compared with other mutual fund types. However, even money market / liquid funds are exposed to the interest rate risk. The typical investment options for liquid funds include Treasury Bills (issued by governments), Commercial papers (issued by companies) and Certificates of Deposit (issued by banks).
5. Hybrid Funds:
As the name suggests, hybrid funds are those funds whose portfolio includes a blend of equities, debts and money market securities. Hybrid funds have an equal proportion of debt and equity in their portfolio. There are following types of hybrid funds in India: a) Balanced Funds: The portfolio of balanced funds include assets like debt securities, convertible securities, and equity and preference shares held in a relatively equal proportion. The objectives of balanced funds are to reward investors with a regular income, moderate capital appreciation and at the same time minimizing the risk of capital erosion. Balanced funds are appropriate for conservative investors having a long term investment horizon.
b) Growth-and-Income Funds: Funds that combine features of growth funds and income funds are known as Growth-and-Income Funds. These funds invest in companies having potential for capital appreciation and those known for issuing high dividends. The level of risks involved in these funds is lower than growth funds and higher than income funds.
6. Commodity Funds:
Those funds that focus on investing in different commodities (like metals, food grains, crude oil etc.) or commodity companies or commodity futures contracts are termed as Commodity Funds. A commodity fund that invests in a single commodity or a group of commodities is a specialized commodity fund and a commodity fund that invests in all available commodities is a diversified commodity fund and bears less risk than a specialized commodity fund. Precious Metals Fund and Gold Funds (that invest in gold, gold futures or shares of gold mines) are common examples of commodity funds.
7. Real Estate Funds:

Funds that invest directly in real estate or lend to real estate developers or invest in shares/securitized assets of housing finance companies, are known as Specialized Real Estate Funds. The objective of these funds may be to generate regular income for investors or capital appreciation.
8. Exchange Traded Funds (ETF):

Exchange Traded Funds provide investors with combined benefits of a closedend and an open-end mutual fund. Exchange Traded Funds follow stock market indices and are traded on stock exchanges like a single stock at index linked prices. The biggest advantage offered by these funds is that they offer diversification, flexibility of holding a single share (tradable at index linked prices) at the same time. Recently introduced in India, these funds are quite popular abroad.
9. Fund of Funds:
Mutual funds that do not invest in financial or physical assets, but do invest in other mutual fund schemes offered by different AMCs, are known as Fund of Funds. Fund of Funds maintain a portfolio comprising of units of other mutual fund schemes, just like conventional mutual funds maintain a portfolio comprising of
equity/debt/money market instruments or non financial assets. Fund of Funds provide investors with an added advantage of diversifying into different mutual fund schemes with even a small amount of investment, which further helps in diversification of risks. However, the expenses of Fund of Funds are quite high on account of compounding expenses of investments into different mutual fund schemes.
Risk Hierarchy of Different Mutual Funds:

Thus, different mutual fund schemes are exposed to different levels of risk and investors should know the level of risks associated with these schemes before investing. The graphical representation hereunder provides a clearer picture of the relationship between mutual funds and levels of risk associated with these funds:
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ADVANTAGES OF MUTUAL FUND

1. Portfolio Diversification: Mutual Funds invest in a well-diversified
portfolio of securities which enables investor to hold a diversified investment portfolio (whether the amount of investment is big or small).
2. Professional Management: Fund manager undergoes through various

research works and has better investment management skills which ensure higher returns to the investor than what he can manage on his own.
3. Less Risk: Investors acquire a diversified portfolio of securities even with

a small investment in a Mutual Fund. The risk in a diversified portfolio is lesser than investing in merely 2 or 3 securities.
4. Low Transaction Costs: Due to the economies of scale (benefits of

larger volumes), mutual funds pay lesser transaction costs. These benefits are passed on to the investors.
5. Liquidity: An investor may not be able to sell some of the shares held by him very easily and quickly, whereas units of a mutual fund are far more liquid. 6. Choice of Schemes: Mutual funds provide investors with various
schemes with different investment objectives. Investors have the option of investing in a scheme having a correlation between its investment objectives and their own financial goals. These schemes further have different plans/options
7. Transparency: Funds provide investors with updated information

pertaining to the markets and the schemes. All material facts are disclosed to investors as required by the regulator.
8. Flexibility: Investors also benefit from the convenience and flexibility

offered by Mutual Funds. Investors can switch their holdings from a debt scheme to an equity scheme and vice-versa. Option of systematic (at regular intervals) investment and withdrawal is also offered to the investors in most open-end schemes.
9. Safety:
Mutual Fund industry is part of a well-regulated investment environment where the interests of the investors are protected by the regulator. All funds are registered with SEBI and complete transparency is forced.
Disadvantages of Mutual Funds

1. Professional Management:An illusion: In India the level of financial
literacy is law. At the same time all the schemes of mutual fund companies are not professionally managed. There is a dearth of qualified investment managers. It has also be noticed that advisors insist for churning the portfolio as they get commission on every transaction.
2. Costs: Mutual funds don't exist solely to make your life easier - all funds
are in it for a profit. The mutual fund industry is masterful at burying costs under layers of jargon. These costs are so complicated that in this tutorial we have devoted an entire section to the subject.
3. Dilution: It's possible to have too much diversification. 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.
4.Taxes: When making decisions about your money, fund managers don't
consider your personal tax situation. For example, when a fund manager sells a security, a capital-gains tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.
HOW RISKY YOUR MUTUAL FUND IS:Investors always judge a fund by the return it gives, never by the risk it took. In any historical analysis of a mutual fund, the return is remembered but the risk is quickly forgotten. So a fund manager may have used very high-risk strategies (that are bound to fail disastrously in the long run), hoping that his wins will be remembered (as they often are), but the risk he took will soon be forgotten.
WHAT IS RISK?
Risk can be defined as the potential for harm. But when anyone analyzing mutual funds uses this term, what is actually being talked about is volatility. Volatility is nothing but the fluctuation of the Net Asset Value (price of a unit
of a fund). The higher the volatility, the greater the fluctuations of the NAV. Generally, past volatility is taken as an indicator of future risk and for the task of evaluating mutual fund; this is an adequate (even if not ideal) approximation.
MUTUAL FUND RISK

Mutual funds face risks based on the investments they hold. For example, a bond fund faces interest rate risk and income risk. Bond values are inversely related to interest rates. If interest rates go up, bond values will go down and vice versa. Bond income is also affected by the change in interest rates. Bond yields are directly related to interest rates falling as interest rates fall and rising as interest rise. Income risk is greater for a short-term bond fund than for a long-term bond fund. Similarly, a sector stock fund (which invests in a single industry, such as telecommunications) is at risk that its price will decline due to developments in its industry. A stock fund that invests across many industries is more sheltered from this risk defined as industry risk.
Following is a glossary of some risks to consider when investing in mutual funds: CALL RISK:The possibility that falling interest rates will cause a bond issuer to redeem or call its high-yielding bond before the bond's maturity date.
COUNTRY RISK:The possibility that political events (a war, national elections), financial problems (rising inflation, government default), or natural disasters (an earthquake, a poor harvest) will weaken a country's economy and cause investments in that country to decline.
CREDIT RISK:The possibility that a bond issuer will fail to repay interest and principal in a timely manner. Also called default risk.
CURRENCY RISK:The possibility that returns could be reduced for Americans investing in foreign securities because of a rise in the value of the U.S. dollar against foreign currencies. Also called exchange-rate risk.
INCOME RISK:The possibility that a fixed-income fund's dividends will decline as a result of falling overall interest rates.
INDUSTRY RISK:The possibility that a group of stocks in a single industry will decline in price due to developments in that industry.
INFLATION RISK:The possibility that increases in the cost of living will reduce or eliminate a fund's real inflation-adjusted returns.
INTEREST RATE RISK:The possibility that a bond fund will decline in value because of an increase in interest rates.
MANAGER RISK:The possibility that an actively managed mutual fund's investment adviser will fail to execute the fund's investment strategy effectively resulting in the failure of stated objectives.
MARKET RISK:The possibility that stock fund or bond fund prices overall will decline over short or even extended periods. Stock and bond markets tend to move in cycles, with periods when prices rise and other periods when prices fall.
PRINCIPAL RISK:The possibility that an investment will go down in value, or "lose money," from the original or invested amount.
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HOW RISK IS MEASURED:There are two ways in which you can determine how risky a fund is.
STANDARD DEVIATION:Standard Deviation is a measure of how much the actual performance of a fund over a period of time deviates from the average performance. Since Standard Deviation is a measure of risk, a low Standard Deviation is good.
SHARPE RATIO:This ratio looks at both, returns and risk, and delivers a single measure that is proportional to the risk adjusted returns. Since Sharpe Ratio is a measure of risk-adjusted returns, a high Sharpe Ratio is good."
HOW TO CHECK THE FUNDS RISK:So how would you figure out how risky a mutual fund is? Value Research a mutual fund research outfit, carries out a rating every month which is also carried on rediff.com. If you would like to take a look at the latest ratings, click on the relevant month viz March, April, May. In this rating, each fund is given a star. The funds with a 5-star( rating are the best. Those with a 1-star( ) rating are the worst. )
This star rating is based on risk-adjusted return. In a very simple way, it gives investors an understanding of whether a fund is taking an acceptable amount of risk in generating the kind of returns it is doing.
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Risk Return Matrix in different sources of investments:
Frequently Used Terms

Net Asset Value (NAV):
Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date. The net asset value (NAV) is the market value of the funds underlying securities. It is calculated at the end of the trading day. Any open-end funds buy or sell order received on that day is traded based on the net asset value calculated at the end of the day. The NAV per units is such Net Asset Value divided by the number of outstanding units Market Value of Assets - Liabilities NAV = - - - - - - - - - - - - - - - - - - - - - - - - - - - - Units Outstanding
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For eg., if the market value of the securities of a mutual fund scheme is Rs. 200 lakhs & the mutual fund has issued 10 lakhs units at Rs. 10 to the investors, then the NAV per unit of the fund is Rs.20. NAV is required to be disclosed by the mutual funds on a regular basis- daily or weekly- depending
Sale Price:
Is the price you pay when you invest in a scheme or NAV a unit holder is charged while investing in an open-ended scheme is sale price. Also called Offer Price. It may include a sales load if applicable.
Repurchase Price:
Is the price at which a close-ended scheme repurchases its units and it may include a back-end load. This is also called Bid Price.
Redemption Price:
Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related.
Sales Load:
Is a charge collected by a scheme when it sells the units. Also called, Frontend load. A load is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing & distribution expenses. Suppose the NAV per unit is Rs.10. if the entry as well as exit load charged were 1%, then the investors who buy would be required to pay Rs.10.10 & those who offer their units for repurchase to the mutual fund will get only Rs.9.9 per unit. The investors should take the loads into consideration while making investment as these affect their yields/returns.
No Load
Schemes that do not charge a load are called No Load schemes. A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units.
COMPARISON BETWEEN MUTUAL FUND & OTHER INVESTMENTS

Mutual funds offer several advantages over investing in individual stocks. For example, the transaction costs are divided among all the mutual fund shareholders, which allows for cost-effective diversification. Investors may also
benefit by having a third party (professional fund managers) apply expertise and dedicate time to manage and research investment options, although there is dispute over whether professional fund managers can, on average, outperform simple index funds that mimic public indexes. Whether actively managed or passively indexed, mutual funds are not immune to risks. They share the same risks associated with the investments made. If the fund invests primarily in stocks, it is usually subject to the same ups and downs and risks as the stock market.
SHARE CLASSES:Many mutual funds offer more than one class of shares. For example, you may have seen a fund that offers "Class A" and "Class B" shares. Each class will invest in the same pool (or investment portfolio) of securities and will have the same investment objectives and policies. But each class will have different shareholder services and/or distribution arrangements with different fees and expenses. These differences are supposed to reflect different costs involved in servicing investors in various classes; for example, one class may be sold through brokers with a front-end load, and another class may be sold.
INDEX FUNDS VS. ACTIVE MANAGEMENT:An index fund maintains investments in companies that are part of major stock (or bond) indices, such as the S&P 500, while an actively managed fund attempts to outperform a relevant index through superior stock-picking techniques. The assets of an index fund are managed to closely approximate the performance of a particular published index. Since the composition of an index changes infrequently, an index fund manager makes fewer trades, on average, than does an active fund manager. For this reason, index funds generally have lower trading expenses than actively managed funds, and typically incur fewer short-term capital gains which must be passed on to shareholders.
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BONDS FUNDS:Bond funds account for 18% of mutual fund assets. Types of bond funds include term funds, which have a fixed set of time (short-, medium-, or long-term) before they mature. Municipal bond funds generally have lower returns, but have tax advantages and lower risk. High-yield bond funds invest in corporate bonds, including high-yield or junk bonds. With the potential for high yield, these bonds also come with greater risk.
MONEY MARKET FUNDS:Money market funds hold 26% of mutual fund assets in the United States. Money market funds entail the least risk, as well as lower rates of return. Unlike certificates of deposit (CDs), money market shares are liquid and redeemable at any time. The interest rate quoted by money market funds is known as the 7 Day SEC Yield.
FUNDS OF FUNDS;Funds of funds (FoF) are mutual funds which invest in other underlying mutual funds (i.e., they are funds comprised of other funds). The funds at the underlying level are typically funds which an investor can invest in individually. A fund of funds will typically charge a management fee which is smaller than that of a normal fund because it is considered a fee charged for asset allocation services. The fees charged at the underlying fund level do not pass through the statement of operations, but are usually disclosed in the fund's annual report, prospectus, or statement of additional information. The fund should be evaluated on the combination of the fund-level expenses and underlying fund .
EQUITY FUNDS:Equity funds, which consist mainly of stock investments, are the most common type of mutual fund. Equity funds hold 50 percent of all amounts invested in mutual funds in the United States. Often equity funds focus investments on particular strategies and certain types of issuers.
Growth vs Value:
Another distinction is made between growth funds, which invest in stocks of companies that have the potential for large capital gains, and value funds, which concentrate on stocks that are undervalued. Value stocks have historically produced higher returns; however, financial theory states this is compensation for their greater risk. Growth funds tend not to pay regular dividends. Income funds tend to be more conservative investments, with a focus on stocks that pay dividends. A balanced fund may use a combination of strategies, typically including some level of investment in bonds, to stay more conservative when it comes to risk, yet aim for some growth direct to the public with no load but a "12b-1 fee" included in the class's expenses (sometimes referred to as "Class shares). Still a third class might have a minimum investment of $10,000,000 and be available only to financial institutions (a so-called "institutional" share class). In some cases, by aggregating regular investments made by many individuals, a retirement plan (such as a 401 (k) plan) may qualify to purchase "institutional" shares (and gain the benefit of their typically lower expense ratios) even though no members of the plan would qualify individually. As a result, each class will likely have different performance results. A multi-class structure offers investors the ability to select a fee and expense structure that is most appropriate for their investment goals (including the length of time that they expect to remain invested in the fund).
Load and expenses:

A front-end load or sales charge is a commission paid to a broker by a mutual fund when shares are purchased, taken as a percentage of funds invested. The value of the investment is reduced by the amount of the load. Some funds have a deferred sales charge or back-end load. In this type of fund an investor pays no sales charge when purchasing shares, but will pay a commission out of the proceeds when shares are redeemed depending on how long they are held. Another derivative structure is a level '" load fund, in which no sales charge is paid when buying the fund, but a back-end load may be charged if the shares purchased are sold within a year.
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Chapter IInd
RESEARCH & METHODOLOGY
Statement of the Problem:
Mutual funds are trying hard to wean away the conservative Indian investor from bank deposits. Mutual funds, over the last decade have emerged as a popular investment option, as they offer a wide array of products aimed at investors with different risk appetites and investment objectives. But still, over 40% of Indian household savings, according to a Karvy Private Wealth report, find their way into bank deposits. And now, the mutual fund industry, which has, till now, been able to tap just about 3.8% of household savings in India, is planning to bite into that pie with greater product diversification and innovation. Mutual funds offer higher and more tax-efficient returns than savings accounts. While we earn an annual interest of 3.5% on deposits in savings account, by investing in liquid funds we make on an average 5.5% a year. we can invest in these funds for as short a period as one day. No exit load is charged for any withdrawal.
Fixed Deposit vs. Mutual funds

Mutual fund investment is made in those areas from where which are less risky rather than investing money in open market. Government institutions are also included in this. According to experts, if you want to invest your money for time duration of one month up to 2 years, then investment in short term mutual fund is better than investment in Fixed deposit. Fixed deposit investment is unable to pay you smart return on short term investment. On the other hand, top funds can give you return of 8%-9%. Scope of higher return in short term mutual funds is also high because it is easier to change its portfolio according to market conditions.
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Such kinds of funds have one more benefit. They don't have exit load or the exit load is lesser than penalty to be paid on encashing the fixed deposit before maturity date. Such mutual funds are also more income tax friendly. In case of fixed deposit, income from FD is accumulated in the salary of the investor for the purpose to calculate taxable income. On the other hand, tax is levied on income from mutual funds according to short term capital gain norms. .
Objectives of the Study:

To study performance of selected mutual fund schemes. To compare the fund performance with respect to Nifty To make suggestions to investors based on performance analysis
Need of the Study:

Many small investors are tempted to invest in the markets these days. But they do not have the knowledge and expertise to take decisions. More over them have limited funds and time. Therefore mutual funds are a good option for them. This study shows the performance of a few funds and compares it with NIFTY.
Data Collection:
For the project study the data has been collected from the secondary sources like websites, fact sheets etc.
Techniques Used:
Data collected from secondary source have been analyzed making use of simple statistical tool.
Scope of the Study:

The historical performance of the fund is compared with performance of the market (Nifty). Both the historical data of the fund and the market is used for analysis. The internal factors contributing for the performance of this specific
fund is not include in the scope of the study. The scope of the study is confined to the performance of this specific fund in comparison to the prevailing market conditions. The market being a major factor affecting the mutual funds performance, the market plays a critical role despite the precautions taken by the fund managers. The care taken by the fund mangers does not fall in the scope of the study. The scope of the study is limited to the performance of the fund in the existing market conditions.
Limitations of the Study:

The present project work has been studied to analysis to study on A Comparative Study of Selected Mutual Funds With Reference To Nifty. The following limitation has been founded during the study of project 1. The study is limited only to the analysis of Equity Growth scheme and its suitability to different investors according to their risk taking ability. 2. The study is based on secondary data available fact sheets, websites and other books as primary data was not accessible. 3. Data pertaining to 2011-2012 was considered for analysis 4. The sample size chosen for the project study is not sufficient enough to give suggestions to investors.
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Chapter IIIrd
DISCUSSION & ANALYSIS
In this chapter an attempt has been made to analyze the data with the help of simple statistical tools so that the objectives of the project are achieved.
A brief profile of selected AMCs

1. HDFC:
HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset Management Company for the HDFC Mutual Fund by SEBI vide its letter dated July 3, 2000. The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T. Parekh Marg, 169, Backbay Reclamation, Churchgate, Mumbai 400 020. In terms of the Investment Management Agreement, the Trustee has appointed the HDFC Asset Management Company Limited to manage the Mutual Fund. The paid up capital of the AMC is Rs. 25.169 crore.
2. Reliance:
Reliance Mutual Fund ('RMF'/ 'Mutual Fund') is one of Indias leading Mutual Funds, with Average Assets Under Management (AAUM) of Rs. 82,306 Crores and an investor count of over 66.11 Lakh folios. (AAUM and investor count as of Oct - Dec '11 ) Source : http://www.amfiindia.com/ Reliance Mutual Fund, a part of the Reliance Group, is one of the fastest growing mutual funds in India. RMF offers investors a well-rounded portfolio of products to meet varying investor requirements and has presence in 179 cities across the country. Reliance Mutual Fund constantly endeavors to launch innovative products and customer service initiatives to increase value to investors. Reliance Capital Asset Management Limited (RCAM) is the asset manager of Reliance Mutual Fund. RCAM a subsidiary of Reliance Capital Limited, which holds 92.93% of the paid-up capital of RCAM, the balance paid up capital being held by minority shareholders.
Reliance Capital Ltd. is one of Indias leading and fastest growing private sector financial services companies, and ranks among the top 3 private sector financial services and banking companies, in terms of net worth. Reliance Capital Ltd. has interests in asset management, life and general insurance, private equity and proprietary investments, stock broking and other financial service Sponsor Trustee Investment Manager / AMC Statutory Details : Reliance Capital Limited : Reliance Capital Trustee Co. Limited : Reliance Capital Asset Management Limited : The Sponsor, the Trustee and the Investment Manager are incorporated under the Companies Act 1956.
SBI:
SBI Mutual Fund is one of the largest mutual fund in the country with an investors base of over 4.5 million. With over 20 years of rich experience in fund management. SBI MF brings forward its expertise in consistently delivered value in its investors. SBI MF draw its strength from Indias largest bank state bank of india.
UTI:
UTIAMC presently manages a corpus of over Rs 5781734.00 lakhs as on December 31st 2011(source: www.amfiindia.com). UTI Mutual Fund has a track record of managing a variety of schemes catering to the needs of every class of citizens. It has a nationwide network consisting 148 UTI Financial Centres (UFCs) and UTI International offices in London, Dubai and Bahrain. UTI AMC has a well-qualified, professional fund management team, which has been fully empowered to manage funds with greater efficiency and accountability in the sole interest of the unit holders. The fund managers are ably supported by a strong in-house securities research department. To ensure investors interests, a risk management department is also in operation.
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Comparative Study of Mutual Funds based on different parameters: (Data are taken upto May 2012 )
1. HDFC CORE & SATELLITE FUND GROWTH:
Portfoli Attributes P/E P/B Dividend Yield Market Cap (Rs. in crores) Large Mid Small Top 5 Holding (%) No. of Stocks Expense Ratio (%) 18.68 as on Apr - 2012 3.59 as on Apr - 2012 1.35 as on Apr - 2012 44,201.33 as on Apr - 2012 47.96 as on Apr - 2012 23.20 as on Apr - 2012 8.26 as on Apr 2012 41.76 as on Apr - 2012 21 2.32 Style Box
NAV:
Latest NAV Benchmark Index - BSE200 52 - Week High 52 - Week Low 34.02 as on May 14, 2012 1,997.47 as on May 14, 2012 41.55 as on Jul 7, 2011 31.86 as on Dec 20, 2011
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NAV GRAPH:
RETURN:
SCHEME PERFORMANCE (%) AS ON MAY 14, 2012 1 Month 3 Months 6 Months -5.80 -8.54 -4.95 1 Year -14.23 3 Years 20.26 5 Years 6.13 Since Inception 17.33
RISK:
Mean Standard Deviation Sharpe Beta 0.40 3.84 0.08 0.88 Treynor Sortino Correlation Fama 0.34 0.11 0.88 0.16
Interpretation:
The above table shows the returns of HDFC core & satellite fund growth. It has highest returns of 20.26 for three year and lowest return -8.54 for three month and average return of this fund is -1.188 .The risk in this fund is 3.84 A low Standard Deviation is good.
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2. RELIANCE EQUITY FUND GROWTH:

Portfoli Attributes 19.57 as on Apr - 2012 4.49 as on Apr 2012 1.10 as on Apr 2012 Style Box
P/E
P/B
Dividend Yield
Market Cap (Rs. 57,207.07 as on Apr - 2012 in crores) Large 59.69 as on Apr 2012 12.38 as on Apr 2012 NA 41.38 as on Apr 2012 21 2.02
Mid Small Top 5 Holding (%) No. of Stocks Expense Ratio (%)
NAV:
Latest NAV Benchmark Index - S&P Nifty 52 - Week High 52 - Week Low 11.77 as on May 14, 2012 4,907.80 as on May 14, 2012 14.00 as on Jul 7, 2011 10.53 as on Dec 20, 2011
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NAV GRAPH:
RETURNS:
SCHEME PERFORMANCE (%) AS ON MAY 14, 2012 1 Month 3 Months 6 Months -6.87 -9.25 -1.65 1 Year -13.72 3 Years 3.50 5 Years -0.08 Since Inception 2.70
RISK:
Mean Standard Deviation Sharpe Beta 0.07 3.41 -0.01 0.80 Treynor Sortino Correlation Fama -0.05 -0.02 0.77 -0.13
Interpretation:
The above table shows the returns of Reliance equity fund growth. It has highest returns of 3.5 for three year and lowest return -13.72 for one year and average return of this fund is -4.6783 .The risk in this fund is 3.41 A low Standard Deviation is good so Reliance has 3.41 in comparison to HDFC's 3.84.
3. SBI MAGNUM EQUITY FUND GROWTH:

Portfolio Attributes P/E 23.68 as on Apr - 2012 5.32 as on Apr 2012 1.28 as on Apr 2012 Style Box
P/B
Dividend Yield
Market Cap (Rs. 109,540.26 as on Apr - 2012 in crores) Large Mid Small Top 5 Holding (%) No. of Stocks Expense Ratio (%) 91.80 as on Apr 2012 NA NA 34.26 as on Apr 2012 27 2.26
NAV:
Latest NAV Benchmark Index - S&P Nifty 52 - Week High 52 - Week Low 40.10 as on May 14, 2012 4,907.80 as on May 14, 2012 44.46 as on Jul 7, 2011 36.44 as on Dec 20, 2011
49
NAV GRAPH:
RETURNS:
RISK:
Interpretation:
The above table shows the returns of SBI magnum equity fund growth. It has highest returns of 17.24 for three year and lowest return -6.99 for one year ,And average return of this fund is 1.025 .The risk in this fund is 3.76
4. UTI EQUITY FUND GROWTH:

Portfoli Attributes P/E 23.86 as on Apr - 2012 6.88 as on Apr 2012 1.37 as on Apr 2012 85,549.33 as on Apr - 2012 82.67 as on Apr - 2012 11.89 as on Apr - 2012 1.09 as on Apr 2012 23.55 as on Apr - 2012 77 1.45 Style box
P/B
Dividend Yield Market Cap (Rs. in crores) Large
Mid
Small Top 5 Holding (%) No. of Stocks Expense Ratio (%)
NAV:
Latest NAV Benchmark Index - BSE100 52 - Week High 52 - Week Low 51.39 as on May 14, 2012 8,487.67 as on May 14, 2012 56.27 as on Jul 25, 2011 46.66 as on Dec 20, 2011
51
NAV GRAPH:
RETURNS:
RISK:
Interpretation:
The above table shows the returns of UTI equity fund growth. It has highest returns of 19.24 for three year and lowest return -5.91 for three month ,And average return of this fund is 1.92 .The risk in this fund is 3.08 A low Standard Deviation is good so Reliance has 3.08 in comparison to others.
Nifty Returns
S. No 1 2 3 4 5 6 Nifty 1 Month 3 Month 6 Month 1 Year 3 Year 5 Year Returns -7.9 -12.5 -1.3 -10.5 4.1 2.9
GRAPH SHOWING NIFTY RETURNS:
Nifty Returns
6 4 2 0 1 month -2 -4 -6 -8 -10 -12 -14 Nifty Returns 3month 6 month 1 yr 3 yr 5 yr
Interpretation:
The above table and graph shows the returns of nifty which is used for the comparison with the return of different schemes of different AMCs.
COMPARATIVE AVERAGE RETURNS OF FUNDS

S. No 1 2 3 4 Funds HDFC Core & Satelite Fund Growth Reliance Equity Fund Growth SBI Magnum Equity Fund Growth UTI Equity Fund Growth Average Returns -1.19 -4.68 1.02 1.92
GRAPH SHOWING COMPARATIVE AVERAGE RETURNS:
Comparative Average Returns

2
0 HDFC Core & Reliance Satelite Fund Equity Fund Growth growth SBI Magnum Equity fund Growth UTI Equity Fund Growth Comparative Average Returns -2
-1
-3
-4
-5
Interpretation:
The above table shows the average returns of different schemes of different AMCs where the UTI Equity Fund Growth fund has the highest average return(i.e. 1.92) and Reliance Equity Fund Growth fund has lower average return(i.e.-4.68) among all comparative schemes.
COMPARATIVE RISK OF FUNDS S. No.

1 2 3 4
Funds
HDFC Core & Satelite Fund Growth Reliance Equity Fund Growth SBI Magnum Equity Fund Growth UTI Equity Fund Growth
Risk
3.84 3.41 3.76 3.08
GRAPH SHOWING COMPARATIVE RISK:
Comparative Risk
4 3.5 3 2.5 2 1.5 1 0.5 0 HDFC Core & Satelite Fund Growth Reliance Equity Fund Growth SBI Magnum Equity Fund Growth UTI Equity Fund Growth
Comparative Risk
Interpretation:
The above table shows the risk of different schemes of different AMCs where the HDFC Core & Satelite Fund Growth fund has the highest risk(i.e. 3.84) and UTI Equity Fund Growth fund has lower average return(i.e.3.08) among all comparative schemes.
COMPARATIVE STUDY ON FUND RETURNS TO NIFTY RETURNS

S. No 1 2 3 4 Funds HDFC Core & Satelite Fund Growth Reliance Equity Fund Growth SBI Magnum Equity Fund Growth UTI Equity Fund Growth Average Returns -1.19 -4.68 1.02 1.92 Nifty Returns -4.2 -4.2 -4.2 -4.2
55
GRAPH SHOWING COMPARISON OF FUND RETURNS
TO NIFTY RETURNS:
4 3 2 1 0 -1 -2 -3 -4 -5 HDFC Core & Satelite Fund Growth Reliance Equity Fund growth SBI Magnum Equity fund Growth UTI Equity Fund Growth Average Returns Average Nifty Returns
Interpretation:
The above table and graph shows that HDFC Core & Satelite Fund Growth has negative average return(i.e. -1.19) but more than nifty return(i.e.-4.2) and SBI Magnum Equity Fund Growth and UTI Equity Fund Growth have positive average return (i.e. 1.02 and 1.92 respectively ) which is more than nifty return and Reliance Equity Fund Growth has -4.68 average return which is less than the nifty return -4.2.
COMPARATIVE STUDY ON FUND AVERAGE RETURNS TO FUND RISK

S. No 1 2 3 4 Funds HDFC Core & Satelite Fund Growth Reliance Equity Fund Growth SBI Magnum Equity Fund Growth UTI Equity Fund Growth Average Returns -1.19 -4.68 1.02 1.92 Risk 3.84 3.41 3.76 3.08
56
GRAPH SHOWING COMPARISON OF FUND AVERAGE
RETURNS TO FUND RISK:

4 3 2 1 0 -1 -2 -3 -4 -5 HDFC Core & Satelite Fund Growth Reliance Equity Fund growth SBI Magnum Equity fund Growth UTI Equity Fund Growth Average Returns Risk
Interpretation:
The above table and graph shows that HDFC Core & Satelite Fund Growth has negative average return(i.e. -1.19) and high risk among all comparative schemes(i.e. 3.84), Reliance Equity Fund Growth has lowest return(i.e. -4.68) and the risk in this fund is 3.41, SBI Magnum Equity Fund Growth has a average return of 1.02 and 3.76 risk and UTI Equity Fund Growth fund has a higher return among all comparative schemes (i.e. 1.92) and lower risk among all comparative schemes (i.e.3.08)
RANKS ACCORDING TO AVERAGE RETURNS

S. No 1 2 3 4 Funds UTI Equity Fund Growth SBI Magnum Equity Fund Growth HDFC Core & Satelite Fund Growth Reliance Equity Fund Growth Average Returns 1.92 1.02 -1.19 -4.68 Rank 1 2 3 4
57
Interpretation:
The above table shows the ranks according to average returns where UTI Equity Fund Growth has highest return thats why it got first rank and Reliance Equity Fund Growth has lowest average return thats why it got fourth rank.
RANKS ACCORDING TO RISK

S. No 1 2 3 4 Funds UTI Equity Fund Growth Reliance Equity Fund Growth SBI Magnum Equity Fund Growth HDFC Core & Satelite Fund Growth Risk 3.08 3.41 3.76 3.81 Rank 1 2 3 4
Interpretation:
The above table shows the ranks according to risk where UTI Equity Fund Growth has lowest risk thats why it got first rank and HDFC Core & Satelite Fund Growth has highest risk thats why it got fourth rank.
58
Chapter IVth
FINDINGS
The present project work has been undertaken to analyze the buying and selling strategies of MUTUAL FUNDS. During the project the following facts have been identified.
The following funds have higher returns than returns of Nifty:
HDFC Core & Satelite Fund Growth has average return of -1.18833 which nifty has average return of -4.2 Reliance Equity Fund Growth has average return -4.6783 which nifty has average return of -4.2 SBI Magnum Equity Fund Growth has average return .025 which nifty has average return of -4.2 UTI Equity Fund Growth has average return of 1.92167 which nifty has average return of -4.2 UTI Equity Fund Growth has first highest return .The return of that fund is 1.92167 and risk of that fund is 3.08 SBI Magnum Equity Fund Growth has second highest return. The return of that fund is 1.025 and risk of that fund is 3.76. HDFC Core & Satelite Fund Growth third highest return. The return of that fund is -1.18833 and risk of that fund is 3.84
Good performers:
59
SUGGESTIONS
After doing analysis and interpretations, the above findings have been identified. On this basis of findings, the following suggestions can be made according to investors profiles. 1. The investors who want more returns at less risk can invest in the following funds: a) UTI Equity Fund b) SBI Magnum Equity Fund Growth 2. The investors who can not take risk and satisfy with less return they should invest in the following funds: a) Reliance Equity Fund Growth 3. Mutual funds are the best source to invest in as the procedure being adopted is safe and sound. 4. The riskiness and the profitability profile are matched and investor has ample areas to remain invested. 5. The profile scenario of the Mutual funds market is yielding better average Returns at a lucrative rate. 6. With comparing the profile of the mutual funds with that of the nifty, these seem to be cheaper source of finance at minimum risk to remain invested in. 7. Some mutual fund product (HDFC & Reliance) is well set in the growth trajectory which could be considered for the portfolio management. 8. These are providing a benchmark for the long investor to remain invested at the negligible risk.
60
CONCLUSION
The project studied a few mutual fund schemes. Their performance was compared with nifty index performance during the same period. The performance of mutual fund was better than that of nifty. It reaffirmed that Mutual Funds are appropriate vehicles of Investment for small investors whether actively managed or passively managed Mutual Funds reflects on better Market performance.
61
BIBLIOGRAPHY
REFFERED BOOKS
1. Title Security analysis and portfolio management Punithavati Pandian
Author
Publisher Vikas Publishing House Pvt Ltd, 2009 2. Title Author
Investment Management V.K. Bhalla
Publisher S. Chand & Company Ltd.
INTERNET SITE
1. www.nse-india.com 2. www.mutualfundsindia.com 3. www.amfi.com 4. www.valueresearchindia.com 5. www.moneycontrol.com
FACT SHEETS
1. HDFC Core & Satelite Fund Growth 2. Reliance Equity Fund Growth 3. SBI Magnum Equity Fund Growth 4. UTI Equity Fund
62

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A Project Report

On PERFORMANCE ANALYSIS OF MUTUAL FUND SCHEMES

DEPARTMENT OF MANAGEMENT STUDIES BHIMTAL KUMAUN UNIVERSITY, NAINITAL

Project Guide: Dr. P.C Kavidayal (Head of the Department)

Department of Management Studies, Kumaun University, Bhimtal (Nainital )|

Counter Signed By:

Name of the Student: Chaman Kumar

(Dr. P.C KAVIDAYAL)

Department of Management Studies, Kumaun University, Bhimtal (Nainital )|

DATE: PLACE: CHAMAN KUMAR

Department of Management Studies, Kumaun University, Bhimtal (Nainital )|

Department of Management Studies, Kumaun University, Bhimtal (Nainital )|

Department of Management Studies, Kumaun University, Bhimtal (Nainital )|

2.0 Research and Methodology

3.0 Discussion &Analysis:

4.0 Findings, Suggestion and Conclusion

Department of Management Studies, Kumaun University, Bhimtal (Nainital )|

AN OVERVIEW ON MUTUAL FUNDS:History of Mutual Funds

Department of Management Studies, Kumaun University, Bhimtal (Nainital )|

Phase1.Establishment and Growth of Unit Trust of India-196487:

Department of Management Studies, Kumaun University, Bhimtal (Nainital )|

Assets Under Management

Mobilisation as % of gross Domestic Savings

UTI Public Sector Total

Phase III. Emergence of Private Sector Funds - 1993-96:

Department of Management Studies, Kumaun University, Bhimtal (Nainital )|

ASSETS UNDER MANAGEMENT (RS. CRORES)

Department of Management Studies, Kumaun University, Bhimtal (Nainital )|

Emerging Issues of the Mutual Fund Industry in India:

Department of Management Studies, Kumaun University, Bhimtal (Nainital )|

GRAPH OF AUM OF INDIA vs AUM OF WORLD:-

Concept of Mutual Funds

The following diagram shows the working of mutual fund:

ORGANISATION OF A MUTUAL FUND

Department of Management Studies, Kumaun University, Bhimtal (Nainital )|

Asset Management Company(AMC):

Registrars & Transfer Agent(R & T Agent):

TYPES OF MUTUAL FUND SCHEMES:

Department of Management Studies, Kumaun University, Bhimtal (Nainital )|

o Tax-Exempt Funds o Non-Tax-Exempt Funds

By Structure: 1. Open-end Funds:

Other funds: 1. Load Funds:

BROAD MUTUAL FUND TYPES

4. Money Market/Liquid Funds:

7. Real Estate Funds:

8. Exchange Traded Funds (ETF):

Risk Hierarchy of Different Mutual Funds:

Department of Management Studies, Kumaun University, Bhimtal (Nainital )|

ADVANTAGES OF MUTUAL FUND

2. Professional Management: Fund manager undergoes through various

3. Less Risk: Investors acquire a diversified portfolio of securities even with

4. Low Transaction Costs: Due to the economies of scale (benefits of

7. Transparency: Funds provide investors with updated information

8. Flexibility: Investors also benefit from the convenience and flexibility

Disadvantages of Mutual Funds

MUTUAL FUND RISK

Department of Management Studies, Kumaun University, Bhimtal (Nainital )|

Department of Management Studies, Kumaun University, Bhimtal (Nainital )|

Risk Return Matrix in different sources of investments:

Frequently Used Terms

Department of Management Studies, Kumaun University, Bhimtal (Nainital )|

COMPARISON BETWEEN MUTUAL FUND & OTHER INVESTMENTS

Department of Management Studies, Kumaun University, Bhimtal (Nainital )|

Load and expenses:

Department of Management Studies, Kumaun University, Bhimtal (Nainital )|

Fixed Deposit vs. Mutual funds