PREFACE

Practical training is considered to be an essential part of all the professional institutions and those who are aspiring for POST GRADUATE DIPLOMA IN MANAGEMENT. This project is done in the field of Financing.

As aspect of management education, which is receiving attention the evaluation of the practical training, is to bring actual environment in touch of Business Management.

This project works has been done under the kind permission of BONANZA PORTFOLIO LTD. We have done our training in RANCHI under the guidance of the Executives of BONANZA PORTFOLIO LTD.

The report gave a true picture of the practical activities done by us within the jurisdiction. The study area was limited to RANCHI and its adjoining areas. Hence, the result of study is particularly to RANCHI and general to all the towns in Jharkhand.

ACKNOWLEDGEMENT

We take this opportunity to express our deep sense of gratitude to BONANZA PORTFOLIA LTD. for taking us as a Summer Trainee and extending us full support and co-operation towards the completion of this project. We express our deep sense of gratitude to Mr. JOYDEEP (Human Resource Manager) who has given us an opportunity to do the summer project in their organization. We express our sincere thanks to our Project Guide MR. GANPATI CHANDRA GUPTA (A.V.P MARKETING REGIONAL OFFICE RANCHI) I express my gratitude to all my friends who directly or indirectly helped me in this project. And last but not the least. I am grateful to the public of Ranchi for their kind support because only due to their co-operation the project was successfully completed and it was a good learning experience working to understand the real life working of the company.

Submitted by Mebal sanga

DECLARATION
I MEBAL SANGA, here by declare that the project entitled PORTFOLIO MANAGEMENT with reference to BONANZA PORTFOLIO LTD. in RANCHI has done by me and is submitted under P.G.D.M curriculum. All the information, facts and figures are collected by me are to first hand in nature; it is actually based on share trading. Any resemblance from existing work in purely coincidental in nature.

Mebal sanga

Table of Contents 1. Profile of Bonanzas Portfolio Ltd. 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 Group Companies Bonanzas Strength Bonanzas Pillars Bonanzas Affiliation Bonanzas Future Objectives Organisational Char Chronology Chart Bonanzas Products

2. Investment and Portfolio Management 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1.10 1.11 1.12 1.13 1.14 1.15 1.16 1.17 1.18 1.19 1.20 Investment The investment environment

The investment process

Types of investments Objectives of investment Types of investors Characteristic of investment Investment alternatives Risk and return Diversification Portfolio management Portfolio management scheme Portfolio strategy mix Two popular management style Traditional portfolio selection Capital asset pricing model Arbitrage pricing theory Performance evaluation Performance measure Case study

3. Mutual Funds Indirect Investing 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 Background An overview of mutual funds in India Concept Terminologies related to mutual funds Contemporary research Advantages of mutual funds Disadvantages of mutual funds Types of mutual funds Risk hierarchy of mutual funds Model portfolio Case study I Case study II

4. Securities Market 3.1 3.2 3.3 3.4 3.5 3.6 3.7 Primary Market Secondary Market Stock Exchanges in India Equity Percentage allocation to stock component of portfolio SEBI Case study

5. Conclusion 6. Bibliography

PROFILE OF BONANZA PORTFOLIO LTD. Bonanza was established in the year 1994. Within a small phase of time it has grown to become the 5th largest broking* house in India. Group Companies 1. Bonanza Portfolio Ltd. 2. Bonanza Commodity Brokers (P) Ltd. 3. Bonanza Insurance Brokers (P) Ltd. 4. Bonanza Global DMCC, Dubai Bonanzas Vision: To be one of the most trusted and globally reputed financial distribution company. Bonanzas Strengths: Bonanza has over 1600 outlets in more than 450 cities in India. It has more than 2, 34,000 clients comprising of Corporate Financial Institutions & Investors, Mutual Funds. Bonanza has a young dynamic team of 1900 professionals. Strong infrastructure supporting over 3000 trading terminals supporting more than 350 VSAT's to support geographic reach and servicing capabilities. 24x7 service and support via our federal support system

Bonanzas Pillars: Meet the minds behind the corporation Bonanza - The Directors who are leading this gigantic force BONANZA FOUNDERS: Mr. S P Goel The Founder Director of Bonanza who has been instrumental in chartering critical and strategic initiatives. With an experience of 25 years in the finance business he started his career as a CA in 1987. Soon after he embodied several prominent committees on settlement issues (COSI), a policy generating body at the NSE of India Ltd and Dispute Resolution Committee (DRC) of National Stock Exchange Clearing Corporation Limited (NSCCL). MR. SHIVKUMAR GOEL Being the Founder Director of Bonanza, he has been handling IT & risk initiatives since inception. Formerly, he is designated as the CEO of SRF Finance Limited, Delhi. A CA & CS with more than 30 years of experience, he recently was nominated as the executive committee member of Depository Participants Association of India Mr. S K Goel Mr. S.K. Goel has been Bonanza's Founder Director and a prominent CA for more than 35 years. He has been mainly heading Bonanza's northern and eastern zone. He was formerly with the Modis & OSWALS - one of the leading manufacturing companies, in addition to being

empanelled with various major banks as their Internal Auditor

Mr. Vishnu Kumar Agarwal The Founder Director of Bonanza with over 30 years of experience; Mr. Vishnu has proficiently taken charge of Administration, Real Estate Investments and Initiatives for all the group companies of Bonanza

Mr. Anand Prakash Goel He has been playing a pivotal role as Bonanzas Founder Director by resourcefully managing Taxation, Compliance and DP. A qualified CA with more than 30 years of experience in his stride, he has under taken audits for leading banks across India.

Bonanzas Future Objectives Bonanza aims at attaining 5% market share in Equity, Commodity and Currency Segment. Aims at becoming a leading Insurance Broker in India. We aspire to enhance our institutional client base. We are consistently working towards becoming one of the largest online broking internet offering.

ORGANISATION CHART

HEAD OFFICE REGIONAL HEAD

PERSONAL DEPARTMENT

HEAD OF SALES

Territory Development manager

Marketing Development Manager

Finance Department

Account Developmen t

Marketing Development Coordinator

Finance Manager

Customer Executive

Marketing Executive

Account Executive

Accountant

CHRONOLOGY OF ACHIEVEMENT

Ranked 2nd by UTI MF & CNBC TV 18 Financial Awards 2009 in the category Best Financial Advisor- Retail. Top Equity Broking House in terms of branch expansion for 2008* 3rd in terms of Number of Trading Accounts for 2008* 6th in terms of Trading terminals in for two consecutive years 2007- 2008* 9th in terms of Sub Brokers for 2007* Awarded by BSE 'Major Volume Driver 04-05,06-07,07-08 Nominated among the Top 3 for the "Best Financial Advisor Awards '08" in the category of National Distributors Retail instituted by CNBC-TV18 and Opt mix. BONANZAS products

Equity & Derivatives In todays world investment has carved out its place in the list of our basic needs. With an endless gamut to has always outperformed all the other asset classes in India. Investing in stock can earn us returns in two ways, i.e. capital gains and dividends.

Capital Gains: Capital gains are the profits you earn while selling the stock. Example, if you by a share at Rs. 250 and sell it at Rs. 750.

Dividends: Dividends are cash payments that you receive from the company at regular intervals usually listed companies pay dividends regularly.

Derivatives are vital for the financial system as they help to hedge against the risk and also provide you with an opportunity to profit from the anomalies in the manliest. Various derivatives contracts constitute a significant share of all capital market transactions in the domes as well as global market, derivatives contracts are traded on National Stock Exchange (NSE) on a huge scale and their trade is becoming increasingly prevalent even on Bombay. Bonanzas membership of the derivatives segment on both the above mentioned exchanges provides us with benefits of trading in derivatives. This includes, researched trading ideas, hedging and arbitrage strategies positions and countless others.

Bonanzas derivatives market segment has a composite understanding of the equity and derivatives market that is trading / hedging / arbitrage strategies. The latest technologies infrastructure, live market reports, in-depth and affective vividly reflected in our unique analysis tracking services and let writing, hedging strategies etc that are for appropriate and highly profitable derivatives strategies such as spread, bear spread, cover call specific to an individual portfolio. At Bonanza they provide quality services whose functions span beyond more execution of buying and selling our extensive research helps assimilate massive amount of information regarding trends in the economy. The markets, trends of

specific industries or individual companys treasure trove of information will help us as an investor in our investment or in undertaking any investment. The sole purpose is to assist us the investor to make deliberate and calculated decisions that will match your personal needs with suitable investment alternatives. Bonanza can enhance our investing experience with: excellent trade execution capabilities on BSE, NSE, MCX and NCDEX

Overview: Indian markets have recently thrown open a new avenue for retail investors and traders to participate commonly derivatives, diversify their portfolios beyond shares, bonds and real estate, commodities are the best option. Commodities are more than what we think they are. Almost everything you see around is made of what market considers commonly. It could be any kind of movable property, except actionable claims. Money and securities, commodity trade forms the backbone. Commodities offer immense potential to become a separate asset class for market-savvy investors arbitrage and speculators and are easy to understand as far as fundaments of demand and supply are concerned. Historically pricing in commodities futures have been less volatile as compared to equity and bonds. Thus it is providing an effective portfolio diversification option. Like any other market, the one for commodity futures plays a valuable role in price discovery and price. Bonanza provides us with the perfect platform to trade in these highly valuable commodities so that we can benefit and make the most of the thriving markets with a perfect blend of philosophy, knowledge and highly skilled and dedicated professionals. Bonanza strives to offer its client the best investment solutions across the country. Its our belief and tryst that each client is unique and therefore we provide customised solutions to smite their ever unique need. Bonanza portfolio Ltd. Has always been the forerunner in initiating any new financial product and have launched trading facility on the currency derivatives segment for our clients at all three exchanges namely NSE, BSE & MCX-SX.

Exchange traded currency derivatives: In order to upgrade Indian foreign markets in line with international standards a well developed foreign exchange governance and transparency was inevitable. With a view to enable entities to manage risk due to volatility in the currency market the internal working groups of RBI exploded the adventure of introducing currency futures and submitted the report of the internal working group in April 2008, which recommended the introduction of exchange raided currency futures. Bonanza offers you these services so that you can trade in the latest market offering at you comfort and convenience. Presently USD / INR futures are available for trading on NSE / MCXSX / BSE

Exchange Traded interest Rate Derivatives Interest Rate Futures are contractual agreements to buy or sell underlying interest bearing instrument or price. Exchange Traded Interest Rate Futures (ETIRF) are standardized interest rate contracts traded on the The trading in Interest Rate Futures was launched on the National Stock Exchange of India (NSE) on 31st MCX stock Exchange (MCX-SX) and Bombay stock Exchange (BSE)

Overview: Compared to national overseas online Trading or E-broking is still in its early life in India. Yet these days and widely used feature for traders and investors Bonanza believes in being up-to-date with the latest in markets and technology. Keeping that in mind so that they can trade from anywhere, any place at their own convenience. Clients can now keep during trading hours and keep an eye on the market all through online broking. Its tremendously fast. Necessary statements are available to you all the time. Gone are the days when you left orders with a broker, received confirmations on the price and quantity payments made upfront or received after delays. You securities settlement took days to reflect in your trading. Just come online. Log in and a few seconds and fewer clicks later you wouldve completed your transactions Bonanza offers several user- friendly services to customers so that they can manage their portfolios online.

Distribution: Fixed Deposits 1. Fixed Deposit List 2. Prajay Engineers Syndicate limited Forms 3. Ankur Drugs and Pharma Ltd Form 4. JP Associated FD Form 5. Jaypee Infratec FD Form 6. NATIONAL HIGHWAYS AUTHORITY FO INDIA 7. Neesa Groups FD Form 8. SHRIRAM UNNATI- Application Form 9. SHRIRAM UNNATI- Product Note 10. Birla Power FD Form 11. Zenith Birla Limited Form 12. Nabard Bhavishya Nirma Bonds- Form 13. Nabard Bhavishya Nirma Bond-Form 14. Interest rate TN Power Finance 15. DHFL Aashray Deposit Plus Form 16. Asian Electronics Enterprises 17. Apollo Hospital Enterprises 18. Form 2B 19. Mahindra & Mahindra Finance 20. Japee Brochure 21. Unitech Limited Brochure 22. Unitech Fixed Deposit Form 23. ICICI Ltd Deposits Interest Rates w. e. f. 15th March 10 24. ICICI Home Finance Limited 25. Form 15 G 26. Form 15 H 27. HDFC Interest Rate Slip Premium 28. HDFC Interest Rate Slip- Regular 29. HDFC FIXED DEPOSIT FORM

 Futures & Options/ Derivatives trading for those with a higher risk appetite. Online Trading Facility with integrated Depository and Bank Gateway Arbitrage trading strategies Daily market Analysis reports & special situation Research Reports Online real-time back office, available 24/7 Seamless transaction flow. Bonanza helps you identify the opportunities in market and make out of them Trading with us is now as simple as baking an apple pie. You merely have to open an account with bonar ways. Online- on your desktop through different trading platforms Call-n Trade (for online trading clients) Contact or visit your nearest Bonanza branch office to place your orders.

Distribution: Mutual Fund Overview: Mutual fund one of the most popular forms of investment in India today, but not all Mutual Funds are the same and not everything about them is the simple funds if they are like shares in company. Bonanza makes it simple for us to understand the cycle and psychology of Mutual Funds and their markets so that can make administrative amount multiply in value. Mutual funds are that alternative which offers the ideal platform to participate in Equity & debt market indirectly through professional management that being Bonaza Online. Bonanza recognizes and values our financial goals and provides you with comprehensive solutions to all your financial needs. Let Bonanza serve you making the most knowledgeable investment decisions for you.

Institutional Broking Overview: Bonanza looks into the investment needs of leading corporate houses and institutions. Our specialized services constitutes of the most experienced market professionals and our institutional Broking Services are backed by a insightful research team who provide the most in-depth reports o the markets. We live to serve our clients every exclusive need through our extensive knowledge reporting and perfect blend of guidance and management. At Bonanza we blend caution with aggression in the desired proportion for the community.

Bonanza research desk: the Bonanza Research Desk has one key objectiveempower institutional investors and make it possible for them to perform in formed investment decisions with comprehensive market knowledge, analysis and advisory services. Bonanza believes in providing equity research backed by strong conviction rather than churning out provides institutional clients profitable trade ideas and strategies based on profound experience, research capabilities and proprietary system with help of precise mathematical models and probability theories.

Depository Services Overview: Bonanza offering a multitude of services under one roof also includes unparalleled Depository Services. Bonanza Portfolio Ltd is a regd. Member Depository participant of both CDSL (Central Depository Services Ltd.) and NSDL (National Depository Services Ltd.) giving an option not only to choose your depository service but also the opportunity of trading at one place. It is Bonanzas commitment to design the best investment alternatives and produsts for you. And as one of the top depositary participants we offer

most secure, convinent and hassle-free DEMAT accounts at the most economical rates.

PMS Overview: with the capable and trustworthy portfolio management services you can experience and enjoy all the benefits? At Bonanza proficiency, talent and experty all of which allow Bonanza to bring out the best in your protfolio of investment. With an endeavour to give you the best, Bonanza provides highly professional fund management services which are flexible to address varying investment preferences and deliver maximum retursn to our clients. Here are some of the highlits of our process. Bonanza professional research brings out the brightest stock and sector idea for your portfolio Proactive management means monitoring the operational and stock market performance of all companies in our portfolio on a regular basis. Prudent risk management practives mean better downside protection for your portfolio which also helps converting proper gains into well profits. Greater flexibility to hold cash and allocate investments across sectors and market categories help maximize your returns. Benefits with Bonanza Dedicated portfolio manager Expert initial and ongoing advice and guidance Continual fund monitoring In-depth reporting on portfolio performance

Investment Banking Overview: Bonanza corporate solution Pvt. Ltd. (BCS) is a member of Bonanza Group focused on providing financial & strategic business advisory services. Indian small and Medium Enterprises (SMEs) & middle market corporate with primary objectives. The customer centric & research based approach enables Bonanza to design services to meet their clients special needs with high level of customization at every stage of the transaction, making us their valued partners of growth. In understanding the problems faced by our clients by working closely with them & help them deliver integrated solutions to complex financial & business problems.

BCS specializes in providing advisory services towards strategic business advisory, venture capital / private equity fund raising, debt syndication strategic investments and mergers & acquisitions.

Distribution: IPO Overview: when it comes to IPOs, no one understands the markets and your needs better than Bonanza. With top notch assistance and up to the minute information within reach, you can rest assure you are in safe hands. Bonanza will help us experience investments like it truly is- quick, proficient and pleasant.

INVESTMENT AND PORTFOLIO MANAGEMENT Investment: Investment may be defined as an activity that commits funds in any financial / physical form in the present with an expectation of receiving additional return in future. The expectation brings with it a probability that the quantum of return may vary from a minimum to maximum. This possibility of variation in the actual return is known as investment risk. Thus every investment involves a return and risk. Investment is an activity that is undertaken by those who have savings. Savings can be defined as the excess if income over expenditure. However, all savers need not be investors. The motive of savings does not make a saver an investor. The expectation of return is hence an essential characteristic if investment. Investment activity is recognized when an asset is purchased with an intention to earn an expected fund flow or an appreciation in value. Investment involves employment of funds with the aim of achieving additional income or growth in value. The essential quality of an investment is that it involves the expectation of a reward. Investment, hence, involves the commitment of resources at present that have been saved in the hope that some benefits will accrue from them in future. Investment is an attempt to carefully plan, evaluate and allocate funds to various investment outlets that offer safety of principal and expected returns over a long period of time.

The investment environment Consider the role of financial assets in the economy the relationship between securities and the real assets that actually produce goods and services for customers. Consider why financial assets are important to the functioning of a developed economy. First looks at the types of decisions that confront investors as they assemble a portfolio of assets. These investment decisions are made in an environment where higher returns usually can be obtained only at the price of greater risk and in which it is rare to find assets that are so misprices at to be obvious bargains. The risk-return trade-off and the efficient pricing of financial assets are

central to the investment process, so it is worth pausing for brief discussion of their implications.

The investment process Saving, Investing and Safe Investing Saving means not spending, all of your current income on consumption. Investing, on the other hand is choosing what assets to hold. You may choose to invest in safe assets, risky assets, or a combination of both. In common usage, however, the term saving is often taken to mean investing in safe assets such as an insured bank account. It is easy to confuse saving with safe investing. Example, suppose you earn Rs 100,000 a year from your job and you spend Rs. 80000 of it on consumption. You are saving Rs. 20,000. Suppose you decide to invest all Rs. 20,000 in risky assets. You are still saving Rs. 20,000. But you are not investing it safely. Investment assets can be categorized into broad asset classes, such as stocks, bonds, real estate, commodities and so on. Investors make two types of decisions in constructing their portfolio. The asset allocation decision is the choice among these broad asset classes, while the security selection decision is the choice of which particular securities to hold within each asset class.

Security analysis involves the valuation of particular securities that might be included in the portfolio. For example, an investor might ask whether Merck or Pflizer is more attractively priced. Both bonds and stocks must be evaluated for investment attractiveness, but valuation is far more difficult for stocks because a stocks performance usually is far more sensitive to the conditions of the issuing firm.

Types of investment: Investments may be classified as financial investments or economic investments. In the financial sense, investment is the commitment of funds to derive future income in the form of interest, dividend, premium, pension benefits or appreciation in the value of the initial investment. Hence, the purchase of shares, debentures, and post office savings certifies and insurance policies are all financial investments. Economic investments are undertaken with an expectation of increasing the current economys capital stock that consists of goods and services.

Objectives of investment: The main objectives of an investment process are to minimize risk while simultaneously maximizing the expected returns from the investment and assuring safety and liquidity of invested assets. Investors look for growth / increase in current wealth through investment opportunities. Investors desire to earn as large return as possible but with the minimum of risk. The objectives of safety and liquidity help an investor to design a retirement plan. Investments are made with the objective to provide a hedge or protection against inflation over the investment duration that is to get a higher return than the prevalent inflation rate in the economy. The objective of the investor is to reduce present tax payments and hence invest in tax savings schemes can be considered as short-term investment objectives.

Types of investors: Investor can be classified on the basis of their risk bearing capacity. Investors are classified as: 1. Risk seekers 2. Risk avoiders 3. Risk bearers Investors can also be classified on the basis of groups as individuals investor and institutional investor.

Characteristic investment: The characteristic features of investments are return, risk, safety and liquidity. 1. Return All investments are characterized by the expectation of a return. In fact, investments are made with the primary objective of deriving a return. The expectation of a return may be from income (yield) as well as through capital appreciation. 2. Risk Risk is inherent in any investment. Risk may relate to loss of capital, delay in repayment of capital, non-payment of interest or variability of returns. The investments maturity period, repayment capacity, and nature of returns, commitment and so on determine the risk of an investment. Risk and the expected return of an investment are related. The higher the risk, higher is the expected return. 3. Safety Safety is another feature that an investor desires from investments. The safety of investment is investment is identified with the certainty of return of capital without loss of money or time. 4. Liquidity An investment that is easily saleable or marketable without loss of money and without loss of time is said to possess the characteristics of liquidity. 5. Tax savings Investments are also made keeping in mind the tax shield. An investor tends to prefer maximization of expected return, minimization of risk, safety of funds and liquidity of investments. Investment alternatives: As an investor one has a wide array of investment alternatives available to him. The different investment alternatives are: 1) Non marketable financial assets 2) Equity shares 3) Bonds 4) Money market instruments 5) Mutual fund scheme 6) Life insurance policies

7) Real estate 8) Precious object 9) Financial derivatives 1) Non- marketable financial assets: Non marketable financial assets represent a good portion of financial assets. It can be further classified as:i) ii) iii) iv) Bank deposits Post office deposits Company deposits Provident fund deposits

2) Equity shares: Equity shares represent ownership capital (ownership stake in the company). It can be classified into the following broad categories:i) ii) iii) iv) v) Blue chip shares Growth shares Income shares Cyclical shares Speculative shares

3) Bond: Bonds or debentures represent long-term debt instruments. Bond may be classified into the following categories: i) ii) iii) iv) v) vi) Government securities Savings bonds Government agency securities PSU bonds Debentures of private sector companies Preference shares

4) Money market instruments: Debt instrument which have maturity of less than one year at the time of issue are called money market instruments. The important money market instruments are : i) ii) iii) Treasury bills Commercial papers Certificate of deposit

5) Mutual Funds: Instead of directly buying equity shares and / or fixed income instruments we can participate in various schemes floated by funds which in turn invest in equity shares and fixed income securities. There are three broad types of mutual fund schemes: i) ii) iii) Equity schemes Debt schemes Balanced schemes

6) Life insurance: The important types of insurance policies in India are: i) ii) iii) iv) Endowment assurance policy Money back policy Whole life policy Term assurance policy

7) Real estate: For the bulk of the investors the most important asset in their portfolio is a residential house. Many investors also like to invest in the following types of the real estate: i) ii) iii) Agricultural land Semi-urban land Commercial property

8) Precious object: Precious objects are items that are generally small in size but highly valuable in monetary terms. Some important precious objects are gold, silver, diamond, precious stones and art objects. 9) Financial derivatives: A financial derivative is an instrument whose value is derived from the value of an underlying asset. A summary evaluation of all these investment alternatives in terms of key investment attributed is given in annexure V.

Risk and return: Return: Risk and return can be treated as two sides of investment coin. Return is the primary motive force that drives investment. Return on an asset / investment for a given period is the annual income received plus any change in market price, usually

expressed as a percent of the opening market price. The return of an investment consists of two components: 1) Current return: Current return is measured as the periodic income in relation to the beginning price of the investment 2) Capital return: Capital return is simply the price appreciation (or depreciation) divided by the beginning price of the asset. Thus the total return = current return capital return Return, R = Dt + (Pt-Pt-1) Pt-1 Where, Dt = Annual income / cash dividend at the end of time period t Pt = Security price at the time period t Pt-1 = Security price at the time period t-1 The current return can be zero or positive, whereas the capital rerun can be negative, zero or positive. Risk: Risk refers to the possibility that the actual outcome of an investment will differ from its expected outcome. The greater variability, riskier the security (e.g. shares). The more certain return from an asset (e.g. treasury bills), the less the variability and therefore the less risk. Sources of risk: The three major sources of risk are: Business risk, Interest risk and Market risk. 1) Business risk: The poor business performance may affect the interest of equity shareholders, who have a residual claim on the income and wealth of the firm. It can also affect the interest of debenture holders. A variety of factors like heightened competition, development of substitute products, changes in government policies, inadequate supply of inputs may cause this. 2) Interest rate risk: The changes in interest rate have a bearing on the welfare of investors. As the interest rate goes up, the market price of existing fixed income securities falls and vice versa. It also affects the equity.

3) Market risk: It is type of risk related to the market. There are periods when investors become bullish and their investment horizons lengthen. Investor optimism drives share prices to great height. On the other hand, when a wave of pessimism sweeps the market, investors turn bearish and myopic. Prices of almost all equity shares register decline as fear and uncertainly pervade the market. The expected rate of return is the weighted average of all possible returns multiplied by their respective probabilities. The expected return: n R= Ri x Pri t=1 where, Ri = Return for the ith possible outcome n = Number of outcomes considered Pri = Probability associated with its return Risk refers to the dispersion of returns around an expected value. The most commonly used measures of risk in finance are variance or its square root (the standard deviation). The variance and the standard deviation of a historical return are as follows: n 2 = t=1 Where, (Ri R)2 n-1

2 = Variance of return = Slandered deviation of return R = Return from the stock in period I (I=1................................n) R = Arithmetic mean n = Number of periods

The main reasons for using standard deviation are: Standard deviation is easy to analyze.

 If the utility of money is represented by a quadratic function, then the expected utility is a function of mean and standard deviation. If a variable is normally distributed its mean and standard deviation contains all the information about its probability distribution Criticism of variance (and standard deviation) as a measure of risk: Variance considers all deviations, negative as well as positive. Investors, however, do not view positive deviations unfavourably in fact they welcome it. When the probability distribution is not symmetrical around its expected value, variance alone does not suffice. In addition to variance, the skew ness of the distribution is also required. The most common statistical measure of risk of an asset is the standard deviation from the mean / expected value of return. Variance = 2 n 2 = t=1 Standard deviations = = 2 = Standard deviation Ri = return for the ith possible outcome Pri = Probability associated with the ith possible outcome R = Expected return (Ri R)2 x Pri n-1

Diversification: Diversification involves constructing the investors portfolio in such a manner that risk minimized, subject to certain restrictions. The fundamental principal of diversification is when securities are combined into a portfolio; the new portfolio will have a lower level of risk than the simple average of the risks of the securities because when some securities are doing poorly, others are doing well. This pattern tends to reduce the extremes in the portfolios returns, so there is less fluctuation in the portfolios value. Diversification leads to an averaging of market risk.

Diversification can substantially reduce unique risk. Random diversification assumes that an investor has no knowledge of the standard deviations and correlation of the available securities. This situation contrasts with the Markowitz approach to portfolio construction. Using estimates of securities risks allows investors to make maximum use of the diversification potential of a group of securities by explicitly considering their standard deviations and correlation. Diversifying a portfolio in this way is referred to as efficient diversification.

Figure 1: Diversification Reduces Portfolio Risk

Portfolio Management Portfolio: Portfolio means a set of different assets. It is a combination of different financial instruments. It will be constructed by stocks,bonds,money market instruments. Portfolio managed by an expert is called portfolio managers. Regularties Body is called as SEBI.It is the regulatory authority in the stock market.It is the most power organization. It is watch dogs of securities market.All means the portfolio managers,share brokers, merchant bankers,lead managers, underwriters etc should be followed by the SEBI guideline and all financial intermediaries will have to get registration certificates from the SEBI. It is a basket of investments or securities in a combined form. A combination of securities held together will give a beneficial result if they grouped in a manner to secure higher return after taking into consideration the risk element.

Portfolio Management Portfolio: Portfolio means a combination of different financial basket of investments or securities in a combined form. Debt securities will yield interest income and equity investments will yield dividend income apart from capital appreciation over a period of time. Various groups of securities when hold together, behave in a different manner and give interest payments and dividends also which are different to the analysis of individual securities. A combination of securities held together will give a beneficial result if they grouped in a manner to secure higher return after taking into consideration the risk element.

Portfolio Management: Portfolio management involves deciding what assets to include in the portfolio, given the goals of the portfolio owner and changing economic conditions. Selection involves deciding what assets to purchase, how many to purchase, when to purchase them, and what assets to divest. These decisions always involve some sort of performance measurement, most typically expected return on the portfolio, and the risk associated with this return (i.e. the standard deviation of the return). Typically the expected return from portfolios of different asset bundles is compared. The unique goals and circumstances of the investor must also be considered. Some investors are more risk averse than others. A portfolio is an appropriate mix of or collection of investments held by an institution or a private individual. In building up an investment portfolio a financial institution will typically conduct its own investment analysis, while a private individual may make use of the services of a financial advisor or a financial institution which offers portfolio management services. Holding a portfolio is part of an investment and risk-limiting strategy called diversification. By owning several assets, certain types of risk (in particular specific risk) can be reduced. The assets in the portfolio could include stocks, bonds, options, warrants, gold certificates, real estate, futures contracts,

production facilities, or any other item that is expected to retain its value. Portfolio returns can be calculated either in absolute manner or in relative manner. Absolute return calculation is very straight forward, where return is calculated by considering total investment and total final value. Time duration and cash flow in portfolio doesnt influence final return. To calculate more accurate return of your investments you have to use complicated statistical models like internal rate of return or modified internal rate of return. The only problem with these models is that, they are very complicated and very difficult to compare by pen and paper. Portfolio management is a complex process or activity that can be divided into seven broad phases: Basis of PORTFOLIO MANANAGEMENT The aim of portfolio management is to take minimum risk and get maximum return to the investors. Risk Return

Approaches

T Specification of investment objectives & constrains

Choice of asset mix

Formulation of portfolio strategy

Selection of securities

Portfolio execution

Portfolio revision

Portfolio evaluation

Portfolio management scheme (RBI guidelines): The portfolio management service (PMS) in a broader sense means aiding for a fee in the development of surplus funds in portfolio channels at the risk and responsibility of the owner of the funds. 1) PMS services to be provided at the customers risk, without guaranteeing them a pre-determined return. 2) The services are to be provided to parties in respect of their long-term investment funds.

3) The minimum period for which funds are to be placed by clients should be one year. 4) The transactions should be booked at market rates only. 5) Proper accounting and documentation has to be ensured. 6) Funds accepted for portfolio management should not be entrusted to another bank for management. 7) A define fee is to be charged for service independent of the return to the client. 8) The funds are expected to be deployed essentially in capital market instruments such as shares, debentures, bonds, securities and are not to be employed for leading in call money / bill market and lending to / placement with corporate bodies. 9) Transactions between the banks investment account and portfolio account are to be strictly at market rates. 10) While putting through transactions on behalf of a portfolio account, a clear indication has to be given that the transactions pertain to the portfolio. 11) The underplayed funds have to be treated as outside borrowings of the bank and CSS / SLR has to be maintained on such funds. 12) The banks liability to its clients in respect of funds accepted for portfolio management has to be properly reflected, in the published accounts.

Portfolio strategy mix: Keith ambachsteer has developed a matrix, which pulls together the elements of timings and selectivity. It can be a useful guide for developing portfolio strategy Ability to select undervalued securities Ability to forecast overall market

Good

Poor

Good

1. Concentrate holdings in selected undervalued securities rather than

1. Concentrate holdings in selected undervalued securities rather than

Poor

diversify broadly 2. Shift beta above and below the desired long-term average based on market forecasts. 1. Hold a broad diversified list of securities 2. Shift beta above and below the desired long-term average based on market forecasts.

diversify broadly 2. Keep beta stable at the desired long-term average

1. Hold a broadly diversified list of securities 2. Keep beta stable at the desired longterm average

Two popular management styles Two management styles popularly used by active portfolio managers are value management and growth management. Value managers typically buy stocks that have low price earnings ratios, low price to book value ratios, below average earnings growth and high dividend yields. Such stocks are referred to as value stocks. Value managers are sometimes called contrarian managers as they often buy out of favour stocks. Growth managers buy stocks that currently enjoy high rate of earnings growth and are expected to experience high rates of earnings growth in future as well. These stocks called growth stocks or glamour stocks typically have high price earnings ratios, high price to 0 book value ratios, above average earnings growth and low dividend yields. The characteristic of value and growth stocks are summarized below: Value stocks Low earnings per share growth Low price earnings ratio Low price-book ratio High dividend yield Betas tend to be less than one Out of favour Growth Stocks High earnings per share growth High price earnings ratio High price-book ratio Low dividend yield Betas tend to be more than one Popular

Traditional portfolio selection Traditional portfolio selection methods give importance to the risk-return combinations. The most commonly used portfolio selection methods are the Markowitz portfolio selection methods and the Sharpe single index method. 1) Markowitz portfolio selection: Markowitz portfolio selection method identifies an investors unique riskreturn preferences, namely utilities. The Markowitz portfolio model has the following assumptions investors are risk averse, investors are utility maxi misers than return maxi misers and all investors have the same time periods and investment horizon. All investor who are a risk seeker would prefer high returns for a certain level of risk and he accepts a portfolio with lower incremental returns for additional risk levels. A risk adverse investor would require high incremental rate of return as compensation for every small amount of increase in risk. A moderate risk taker would have utilities in between these extremes.

Risk Seeker

Rp U2 U1

Moderate Risk Taker

U2 U1 Rp

p Risk Avoider U2 U1

Rp

p The indifference line point that is tangential to the efficient frontier will be the optimal portfolio selection for an investor. U2 U1

Rp

P A

p Markowitz H.M (1952) introduced the term risk penalty to state the portfolio selection rule. A security will be selected into a portfolio if the riskadjusted rate of return is high compared to other available securities. The riskadjusted rate of return is computed as: Risk adjusted return (utility) = expected return-risk penalty Risk penalty = (risk squared / risk tolerance) Risk squared is the variance of the security return and risk tolerance is a number between 0 and 100. Risk tolerance of an investor is stated as a percentage point between these numbers and a very high risk tolerance could be stated as 9 or above and a very low risk tolerance level could be stated as between 0 and 20. 2) Sharpes dingle index portfolio selection method: Sharpe W.E. (1964) justified that portfolio risk is to be identified with respect to their co-movement with the market and not necessarily with respect to within the security co-movement in a portfolio. He therefore concluded that the desirability of a security for its inclusion is directly related to its excess return to beta ration, i.e. (Ri Rf)/i. Where, Ri = Expected return on security i Rf = Return on a riskless security. i = Beta of security i.

Capital asset pricing model (CAPM) The capital asset pricing model has its base in the portfolio theory of Markowitz H.M (1952). Sharpe W.F. (1964), Lintner (1965) and Jan Mossin (1967) have given the CAPM its present structure. Some of the assumptions made by the CAPM are: Number of investors are so large that no single investor can affect prices. Investors can lend or borrow at an identical risk-free rate. There are no transaction cost and income taxes. All investors have the same time period as the investment horizon

 Investors have homogeneous expectations regarding the means, variances and covariance of security returns. CAPM asserts that the selection of portfolio will depend upon the free rte and the market return. The capital asset model consists of a capital market line (CML) and a security market line (SML). The capital market line related expected return and risk for a portfolio of securities. The security market line relates the expected return and risk of individual securities. The capital market line is expressed by the following equation: Ri = Rf + ((Rm Rf) x p) / m The systematic risk or beta can be measured using the following statistical formula: i = (Covim) / m2 = (pim i m) / m2 = (pim i ) / m2 Where, trades = co-variance between security and market returns. m2 pim i m = market variance = correlation between security and market returns = standard deviation of security = market standard deviation

According to the capital market theory, the market compensates or rewards for systematic risk only. The level of systematic risk in an asset is meadured by the beta coefficient (). The CAPM links beta to the level of required return. Security market line is a linear relationship defined by equation; E (ri) = rf + (E(rm)-rf) Expected return = risk free return + (Beta x premium of market) Where, E (ri) = Expected or required rate of return on asset i. rf = risk free rate of return = systematic risk of asset E (rm) = Expected return on market portfolio. The formula says that expected or required return on any security is the sum of two factors:

 The risk free rates, which measures the compensation for investing money without taking any risk and The expected reward for bearing risk, which is equal to the market risk premium multiplied by the securitys beat coefficient. The CAPM is a linear relationship between expected return and risk. The line starts at the point that represents the investment in treasury bills. That investment bears no risk, so its beta is equal to zero. The line then passes through the point that identifies the market portfolio. This portfolio has a beta of one. Limitations: It is based on highly restrictive assumptions There are serious doubts its testability The market factor is not the sole factor influencing stock returns

Arbitrage pricing theory The arbitrage pricing theory (APT), originally developed by Stephen A. Ross, seeks to overcome the shortcomings of the CAPM. It is novel and different approach to determining asset prices. The APT is much more general in that asset prices can be influenced by factors beyond means and variances. The APT assumes that the return on any stock is linearly related to a set of factors also referred to as systematic factors or risk factors. Ri = ai + bi1 + bi2I2 +........................................................+ bij Ij + ei Where; Ri Ai Ij = Return on stocks i = Expected return on stock i if all factors have a value of zero = Value of the jth factor which influences the return on stock i (i=1...........j) Bij Ei = Sensivity of stocks is return to the jth factor = Random error term which has a mean of zero and variance of 2ei This model rests on the following assumptions; E (ei ej) = 0 for all i and j where i is not equal to j.

What are the factors that the effect on the stock returns are not specified by the APT theory. It merely says that stock returns are related in a linear manner to a limited number of factors (or systematic influences) Given the return generating process, the APT establishes an equilibrium risk-return relationship. The key idea which guides the development of the equilibrium relationship is the law of one price which says that two identical things, cannot sell a different prices. Applies to portfolios, it means that two portfolios that have the same risk cannot offer different expected returns. The equilibrium relationship according to the APT is as follows: E (Ri) = 0 + bi1 1 + bi2 2 + ................................................................+ b ij j Where, E (Ri) = Expected return on stock i = Return on a risk free asset = sensitivity of stock i to risk factor j = risk premium for the type of risk associated with factor j The APT has been empirically tested using two different approaches. In the first approach, the technique of factor analysis (a statistical technique) is applied to stock returns to discover the basis factors. These are then examined to see whether they correspond to some economic or behavioural variables. In the second approach, factors are specified a priori, rather than extracted by analyzing returns. The classic approach of Roll and Ross typifies this approach. They employ four factors: Industrial production, Inflation rate, Term structure of interest rates and default risk premium. Sensitivity to unanticipated changes in these factors provides explanation for differences in expected returns among stocks in their study.

Performance Evaluation Risk and Return of Portfolio Portfolio risk, unlike portfolio return, is more than a simple aggregation of the risks of individual assets.

Portfolio expected return: The expected rate of return on a portfolio is the weighted average of the expected rates of return on assets comprising the portfolio. The expected return for a n-asset portfolio is defined by E(rp) E (rp) = Wi x X E (ri) Where, E (rp) = Expected return from portfolio Wi = Proportion invested in asset I

E (ri) = Expected return for asset I N = Number of assets in portfolio

Portfolio risk (two asset portfolio) Total risk is measured in terms of variance or standard deviation of returns. Unlike portfolio expected return portfolio variance is not the weighted average of variance of returns on individuals assets (securities) in the portfolio. The total risk of portfolio made up of two assets = p2 p2 p2 where, p2 W1 W2 12 1 22 2 12 = Var (p) or variation of return of the portfolio = Fraction of total portfolio invested in asset 1 = Fraction of total portfolio invested in asset 2 = Variance of asset 1 = Standard deviation of asset 1 = Variance of asset 2 = Standard deviation of asset 2 = Coefficient of correlation between the returns of two assets = (W1 1)2 + (W2 2)2 + 2 W1W2 (12 1 2) = W12 12 + W22 22 + 2 W1W2 (12 1 2)

The portfolio variation may be viewed as the sum of four cells in a 2 x 2 matrix: Security 1 Security 2 Security 1 W12 12 W1W2 (12 1 2) Security 2 W1W2 (12 1 2) W22 22

Portfolio risk and correlation: 1) Perfect positive correlation ( = + 1.0) In this case, portfolio standard deviation is the weighted average of the standard deviation of returns on individuals assets. p2 = (W1 1 + (W2 2)2

2) Perfect negative correlation ( = + 1.0) In this case portfolio standard deviation is the difference (non- negative value) caused by the standard deviation of returns on individuals assets. Portfolio variance, p2 = (W1 1 - (W2 2)2 = (W1 1 - W2 2)

Standard deviation, p

3) Zero correlation ( = 0) When the returns on two assets are uncorrelated, portfolio variance is the sum of square of standard deviation of each asset weighted by this proportion in the portfolio. p2 = W12 12 + W22 22 W12 12 + W22 22

Portfolio Risk: n-security case The variance and standard deviation of the return of an n-security portfolio are: p2 p = Wi Wj ij i j = Wi Wj ij i j

where, p2 p Wi Wj ij i j = Variation of portfolio return = Standard deviation of portfolio return = Proportion of portfolio invested in security i = Proportion of portfolio invested in security j = Coefficient of correlation between the returns on securities I and J = Standard deviation of return on security i = Standard deviation of return on security j

Performance measure For evaluation the performances of a portfolio it is necessary to consider both risk and return. Three popularity employed portfolio performance measures are Treynor measure, Sharpe measures and Jensen measures. 1) Treynor measure: According to Jack Treynor, systematic risk or beta is the appropriate measure of risk as suggested by the capital asset pricing model. The Treynor measure of portfolio performance relates the excess return on a portfolio to the portfolio beta. Treynors measure = (Excess return on portfolio return p) / (beta of portfolio p) = (average rate of return on portfolio p Average rate of return on a risk free investment) / (beta of portfolio p). The numerator of the Treynor measure is the risk premium earned by the portfolio, the denominator the systematic risk (beta). Hence the Treynor measure reflects the excess return earned per unit of risk. 2) Sharpe measure: The sharpe measure is similar to the Treynor measure except that it employs standard deviation not beta as the measure of risk. Hence, the sharpe measure reflects the excess return earned on a portfolio per unit of its total risk (standard deviation). Sharpe measure = (average rate of return on portfolio p average rate of return on a risk free investment) / (standard deviation of return of portfolio p) 3) Jensen measure: Jensen measure or Jensen alpha is based on the capital asset pricing model. It reflects the difference between the return actually earned on a portfolio and the return the portfolio was supposed to earn, given its beta as per the capital asset pricing model. Thus the Jensen measure is, average return on portfolio p- (risk free return + portfolio beta (average return on market portfolio risk free return))

Case study: I Objective 1) To test whether linear relationship exists between the response variable (risk) and a set of regresses variable. 2) To test the potential of each of regresses variable in the regression model. Research methodology Population size 2000 (approx.) Sample size 100 (obtained using the formula n= (z2 x p x q x N) / (e2 x (N-1) + Z2 x p xq)) Confidence level 95% Standard error 2% of true value Data source primary data was collected. Closed ended questionnaire was used to know the customers / investors responses. (Annexure VI shows the q uestionnaire used for the purpose of data collection) Software used for analysis Systat 8.0 1. The first objectives of the study are to test whether a linear relationship exists between the response variable (risk) and a set of regresses (independent) variable.

Methodology of the study: Response variable (dependent variable) Risk: Regressor variable (Independent variable) 1. 2. 3. 4. 5. 6. 7. 8. 9. Age Gender Marital status Number of dependents Number of earning members Occupation Income Tenure of investment Return expected

Hypothesis Null Hypothesis, H0: b1 = b2 = b3 = ............................= bj = 0 (i.e.) there doesnt exists a significant linear relationship) Alternate hypothesis, H1: bj 0 (i.e. there exists a linear relationship between the response and regressor variable) If F0 > Ftable (or Pvalue < ) then we should reject the Null hypothesis thus there exists a significant relationship between the response variable and regressor variable. Results and analysis Significance level = 5% Dep var: Risk N: 100 Multiple R: 0.666 Adjusted squared multiple R: 0.403 Effect Coefficient Constant 1.596 Age -0.007 Gender -0.027 Marital -0.271 E Member 0.025 Dependent -0.05 Occupation 0.130 Income 0.275 T Invest 0.100 R Expect 0.080

squared multiple R: 0.417 standard error of estimate: 0.545 T 3.214 -0.939 -0.452 -1.593 0.650 -0713 2.369 3.774 1.537 0.461 P(2 Tail) 0.002 0.351 0.653 0.015 0.021 0.008 0.020 0.018 0.022 0.016

Std Error Std Coef. Tolerance 0.497 0.000 0.008 -0.128 0.561 0.061 -0.054 0.740 0.170 -0.225 0.521 0.038 0.077 0.748 0.080 -0.083 0.775 0.055 0.269 0.811 0.073 0.480 0.645 0.065 0.174 0.815 0.174 0.052 0.834

Analysis of variance Source Sum-of-squares Regression 6.160 Residual 22.263

Df 9 5

Mean square F-ratio 0.684 2.306 0.297

P 0.024

Here we find that the P value obtained is less than the level of significance (i.e. pvalue is 0.024 which is less than .05). We reject the Null hypothesis. Thus, there exists a linear relationship between the risk and the independent variable taken into consideration. Therefore the regression equation is; Risk = 1.596 0.007 x age + 0.80 x gender - .271 x marital status = 0.025 x earning members 0.057 x number of dependents + 0.130 x occupation + 0.275 x income + 0.100 x tenure of investment 0.027 x return expected. Here, the negative signs indicate that these variables are negatively related to the risk and an increase in these variables will decrease the value of the dependent variable (risk). The second objective is to test the potential of each regressor variable in the regression model

Methodology of the study Response and the repressor variables are the same as in the vase of the first objective.

Hypothesis Null hypothesis, H0: bj = 0 (i.e. the individual variable is not significantly contributing to the dependent variable). Alternate hypothesis, H1: bj 0 (i.e. the individual variable is significantly contributing to the dependent variable). If Pvalue < / 2 then we should reject the null hypothesis thus the individual variable is significantly contributing on the dependent variable.

Result and analysis Significance level= 5% Dep Var: Risk N: 100 Multiple R: 0.666 Squared multiple R: 0.417

Adjusted squared multiple R: 0.403

standard error of estimate: 0.545

Effect Coefficient Std Error Std Coef. Tolerance T P(2 Tail) Constant 1.596 0.497 0.000 3.214 0.002 Age -0.007 0.008 -0.128 0.561 -0.939 0.351 Gender -0.027 0.061 -0.054 0.740 -0.452 0.653 Marital -0.271 0.170 -0.225 0.521 -1.593 0.015 E Member 0.025 0.038 0.077 0.748 0.650 0.021 Dependent -0.05 0.080 -0.083 0.775 -0713 0.008 Occupation 0.130 0.055 0.269 0.811 2.369 0.020 Income 0.275 0.073 0.480 0.645 3.774 0.018 T Invest 0.100 0.065 0.174 0.815 1.537 0.022 R Expect 0.080 0.174 0.052 0.834 0.461 0.016 Here from the above we find that for the one variables (gender)the p-value is more than / 2. So for this variable the null hypothesis becomes true. That is this variable is not significantly contributing to the dependent variable (risk). So, it can be excluded from the regression equation. Therefore, the new equation becomes; Risk = 1.596 0.007 x age 0.271 x marital status + 0.025 x earnings members 0.057 x number of dependents + 0.130 x occupation + 0.275 x income + 0.100 x tenure of investment + 0.80 x return expected.

Conclusion The above study has analyzed in details the various factors that contribute to the risk taking capacity of the individual and the existing relationship between the dependent variable (risk) and the independent variables. There exists a linear regression model. So, by using the above model one can calculate the risk of an investor or individual.

Limitation Mind mapping of a customer with a hundred percent accuracy has never been possible while conducting the study there were certain hurdles to be passed on. As it is very well said life is not a road of roses but of stones...... So there are some limitations in every study report. The limitations of my research work are following: My research work is limited to the customers of particular branch (Bonanza, Ranchi) During survey, I found that some of the respondents were not cooperative enough. On certain occasions, there was enough, ambiguity regarding the responses, which I have got from my respondents. Due to time constraints the study is limited to 100 selected samples.

MUTUAL FUNDS INDIRECT INVESTING Background A mutual fund represents a vehicle for collective investment. When anyone participates in the scheme of mutual fund he becomes part owner of the investments held under that scheme. The mutual fund industry is among the most successful financial innovations. Over the past decades, the mutual fund industry, both in US and elsewhere, has grown at a fair pace. While the US domiciled funds accounted for only 15% of the total number of funds available and 60% of the worlds fund assets (Khorana, 2005). Luxembourg accounts for 6.5% of the world mutual fund industry held assets worth $1.8tn. (Investment company institute, 2006), almost doubling those managed in 1998 ($9.6tn). The trends are replicating themselves in significant number of growing economies and India is no exception to it. Since mutual fund industry controls a sizeable stake of corporate equity and plays a fundamental role in stock prices determination, investors are information and investment advice. But emerging markets have received least attention as far as the research work in the field of mutual funds and their performance is concerned. This study is an attempt to track performance of all the equity mutual funds in the Indian mutual fund industry.

An overview of mutual funds in India Till 1986, the Unit Trust of India was the only mutual fund in Indian. Since then public sector Banks and insurance companies have been allowed to set up subsidiaries to few other public sector banks entered the mutual fund industry. In 1992, the mutual fund industry was opened to the private sector and a number of private sector mutual funds such as Birla Mutual Fund, DSP Merrill Lynch Mutual Fund, HDFC Mutual Fund, Principal mutual fund, JM Mutual Fund, Kotak Mutual fund, Reliance Mutual fund, Standard Charted Mutual fund, Tata Mutual fund and Templeton Mutual fund have been set up. The Mutual fund industry in India began with setting up of the Unit Trust of Indian (UTI) in 1964 by the Government of India. UTI has grown to be a dominant player in 1987 public sector banks and two Insurance companies (Life Insurance Company and General Insurance Company) were allowed

to launch mutual funds. Till 1999, UTI had the monopoly in mutual fund industry and controlled around 80% of all mutual fund assets. But now, it holds only 12% of MF assets. Most of the Indian MF companies have foreign tie-ups now. These rapid changes can be attributed to the government deregulation. Securities and exchange board of India (SEBI), regulatory body for Indian capital market, formulated comprehensive regulatory framework for mutual funds in 1993 and allowed private corporate bodies to launch mutual fund schemes. Since then several mutual funds have been set up by the private and joint sectors. As on 31st January 2001, there were 26 Mutual fund companies with 304 schemes. It has more than a decade of competition for Indian Mutual fund industry. The product life cycle of Indian Mutual fund is in growth stage. (Rao, 2002) Indian Mutual funds contribute 0.18% to net assets kitty, 0.55% to the number of schemes at global level and we have a long way to catch up with the developed world. According to data published by association of Mutual funds in India (AMFI), the total assets under management of mutual funds industry rose by 9.45% from Rs. 3, 09,953.04cr in2006. In 1987 the size of the industry was only about Rs. 1,000cr, which has risen to Rs 4,100cr in 1991 and subsequently reached to a figure of Rs. 72,000cr in 1998. Since then, this figure has kept on increasing, indicating the efficiency of the Indian MFs industry. The UTI Mutual fund continues to maintain the top position by adding over Rs. 3,800cr in a month to take its total corpus to Rs. 41,622.51cr prudential ICICI Mutual fund with Rs. 35,232.16cr of assets under management as on 2006 was in the second position. SEBI is constantly working to keep pace with the global market and SEBI has taken several key steps to strengthen the MF industry during 2005-2006. As a very significant step, it allowed Global Depository Receipts (GDRs). It was decided in the financial Bill 2006-2007, to raise the aggregate ceiling for the MF industry to invest in ADRs and GDRs issued by Indian companies from US$1 bn. to US$2 bn. As a result of this Indian investors would be able to invest in global equity markets with a wider choice of stocks to permit greater diversification and the convenience of dealing with an Indian MF.

Concept In a Mutual fund many investors contribute to form a common pool of money. This pool of money is invested in accordance with a stated objective. The ownership of the fund is thus joint or mutual the fund belongs to all investors. A single investors ownership of the fund is in the same proportion as the amount of the contribution made by him bears to the total amount of the fund. A mutual fund uses the money collected from investors to buy those assets which are specially permitted by its stated investment objectives. Thus, a growth fund would buy mainly equity assetsordinary shares, preference shares, warrants etc. An income fund would mainly buy debt instruments such as debentures and bonds. The investors own the funds assets in the same proportion as their contribution bears to the total contributions of al investors put together. 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 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 its offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. a) The working of a Mutual fund: The flow chart below depicts the flow of capital from and the working of Mutual fund. INVESTORS Passed back to Fund their Money with

RETURNS

FUND MANAGER

SECURITIES Figure 1: Mutual Fund Operation Flow Chart Source: www.amfiindia.com

a) Organization of a Mutual Fund There are many entries involved and the diagram below illustrates the organizational set of a Mutual fund:

UNIT HOLDERS

SPONSORS

TRUSTEE

AMC

THE MUTUAL FUND

TRANSFER AGENT

CUSTODIAN

SEBI Figure 2: Organization structure of Mutual Fund Source: www. Amfiindia.com

Terminologies related to Mutual Fund Net asset value (NAV) Net asset value is the market value of the assets of the scheme minus its liabilities. Per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the valuation date. Sale price It is the price one pays even o ne invest in a scheme. It is also called offer price. It may include a sales load. Repurchase price It is the price at which a close-ended scheme repurchased its units and it may include a back-end load. This is also called Bid Price.

 Redemption price It is the price at which open-ended schemes repurchase their units and closeended schemes redeem their units on maturity. Such prices are NAV related. Sales load It is a charge collected by a scheme when it sells the units also called Front end load. Schemes that do not charge a load are called No load schemes. Repurchase or Back-end load It is a charge collected by a scheme when it buys back the units from the unit holders.

Contemporary research related to performance of Mutual Funds One of the earliest studies of mutual fund performance by Jenson (1967) probably laid the foundation of contemporary mutual fund performance studies. He documents that expense- adjusted fund returns are significantly lower than randomly selected portfolios of equivalent risk, thus supporting the notion of efficient markets and the general conclusion prevalent in the early literature that professionally managed funds do not bear a risk adjusted index portfolio. Ippolito (1993) suggests that mutual fund returns, after expensed (but before loads), are equivalent or superior to those available from a risk-adjusted market index implying that mutual fund managers may have access to useful private information. Grinblatt and Titman (1994) & Elton (1996) have concluded that fund returns of other studies may be overstated thus creating only the appearance of performance persistence. Carhart (1997) demonstrates that those common factors driving the stock returns also explain persistence in mutual fund performance. Improper benchmark specification is also cited for causing errors in fund performance as noted by Delva (2001). But the above research has been done in the US financial market. Dhar (1994) exhorts that the performance of mutual fund in India when compared to BSA were below aggregate market performance thus upholding the theory of efficient market hypothesis. Rao (2002) explains differently that most of the mutual fund schemes were able to satisfy investors expectations by giving excess returns over expected returns based on both premium for systematic risk and total risk. But the

research work over the performance of mutual funds in the Indian financial market needs more works to be done and the present study is an attempt to all upon the research works dedicated to performance of mutual funds in India and bridges the gap.

Advantages of mutual funds The advantages of investing in a mutual fund include portfolio diversification professional management, reduction / diversification risk, reduction of transaction costs, liquidity, convenience and flexibility, safety, tax, benefit, transparency, return potential and well regulated funds.

Disadvantages of Mutual Funds While the benefits of investing through mutual funds are outweigh the disadvantages. An investor and his advisor will do well to be aware of a few shortcomings of using the mutual fund as an investment vehicle. The disadvantages of investing in a mutual fund are no control over costs, managing a portfolio of funds, no tailor made portfolios.

Types of Mutual Fund A mutual fund scheme can be classified into open-ended fund and closed-ended fund depending on its maturity period. Open-ended fund - An open ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at net asset value (NAV) related prices, which are declared on a daily basis. The key feature of open-ended scheme is liquidity. Close-ended fund A close-ended funds or scheme has a stipulated maturity period e.g. 3-10 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public offer and therefore they can buy or sell the units of the scheme on the stock exchanges in cases the units are

listed in recognized stock exchanges. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. Depending on the asset-mix, mutual fund schemes are classified into three broad categories: equity schemes, hybrid schemes and debt schemes.

Equity schemes: Equity schemes invest the bulk of their corpus 85% to 95% or even more in equity shares or equity linked instruments and the balance in cash equity schemes may be classified into following subtypes: Diversified equity schemes: These schemes invest in a broadly diversified portfolio of equity stocks. Such schemes have 20 to 50 or even more equity stock from a wide range of industries. Index schemes: An index scheme is an equity scheme that invest its corpus in a basket of equity stocks that comprise a given stock market index such as the S&P Nifty Index or the Sensex, with each stock being assigned a weightage equal to what it had in the index. The principal objective of an index scheme is to give a return in line with the index. Sectoral Schemes: A sectoral scheme invests its corpus in the equity stocks of a given sector such as pharmaceuticals, information technology,

telecommunications, and power and so on. Tax planning schemes: Tax planning schemes or equity linked savings schemes (ELSS) are open to only individuals and HUFs. Subject to such conditions and limitations as prescribed under section 80c of the Income Tax Act, subscriptions to such schemes can be deducted before computing the taxable income.

Hybrid schemes: Hybrid schemes also referred to as balanced schemes; invest in a mix of equity and debt instruments. A hybrid scheme may be equity-oriented or debt-oriented or have a variable asset allocation.

 Equity oriented schemes: An equity oriented hybrid scheme is tilted in favour of equity which may account for about 60% of the portfolio, the balance being invested in debt instruments (bonds and cash) Debt-oriented schemes: A debt-oriented hybrid scheme is tilted in favour of debt instruments with a debt component of 10-15% Variable asset allocation schemes: A variable asset allocation scheme is one where in the proportions of equity and debt is varied, often on the basis of some objective criterion.

Debt schemes: Debt schemes invest in debt instruments viz. Bonds and cash. It can be further classified into; Gilt schemes: A gilt scheme or a government securities scheme invests only in government bonds (which may typically account for 80-85% of the corpus) and cash (which may typically account for 10-15% of the corpus) Mixed debt schemes: Mixed debt schemes invest in government bonds (3040%), corporate bonds (40-45%) and the balance is invested in cash. Floating rate dent schemes: Floating rate debt schemes invest in a portfolio comprising substantially of floating rate debt bonds, fixed rate bonds swapped for floating rate returns and cash. Cash schemes: Cash schemes, also called liquid schemes, invest primarily in money market instruments (treasury bills, commercial papers, certificate of deposit, call money and reverse repos) and deposit with banks. Typically, the average portfolio maturity of such schemes is less than 150 days.

Fund of fund schemes: A fund of fund scheme, instead of investing in stocks or bonds invests in mutual fund schemes. A fund of fund scheme enables the investors to achieve greater diversification through one scheme. It spreads risks across a greater universe.

Risk hierarchy of mutual funds (low to high) Money market funds Gilt funds Diversified debt funds Balanced funds Equity income funds Focused debt funds Value funds Index funds Diversified equity funds High yield debt funds Growth funds Flexible asset allocation funds Aggressive growth funds

Model portfolios (Portfolio comprising of Mutual Funds): In preparation an investment program, the advisor would have to deal with investors at different stages of their life cycle and therefore with different needs. Each type of investor may be advised to have some typically suitable model portfolio. Jacobs gives four different portfolios, which are still of great applicability and a great tool to develop a portfolio for Indian mutual fund investors. Investor Young, unmarried professional Young couple with two incomes and two children Recommended model portfolio 50% in aggressive equity funds 25% in High yield bond funds and growth and income funds 25% in conservative money market funds 10% in money market 30% in aggressive equity funds 25% in High yield bond funds and growth and income funds 35% in municipal bond funds

Investor

Recommended model portfolio

35% in short tern municipal funds Older couple, 35% in long term municipal funds single income 25% in moderately aggressive equity 10% in emerging growth equity Recently retired couple 35% in conservative equity funds for capital preservation / income 25% in moderately aggressive equity for modest capital growth 40% in money market funds

Case study I To study the performance of Indian equity mutual fund Objective: The objectives of the study are as follows: To evaluate the performance of Indian Equity Mutual Fund Schemes To identify the out performance against the equity funds which outperformed the benchmark market pertfolio?

Research methodology Sample: Out of the 313 best performing mutual fund schemes, which is the subject matter of the study? The final number came to 72 funds. Data of Nifty Index had been taken as proxy to market returns for the period as the number of companies trading at Nifty Index is much more when compared to that of the BSE Sensex and Nifty is way ahead of Sensex in terms of market capitalization also. Only equity funds have been taken into study as the assured return schemes.

Methodology of the study Treynors Ratio: Jack Treynor (1965) conceived an index of portfolio performance measure called as reward to volatility ratio, based on systematic risk defined in equation below. He assumes that the investor can eliminate unsystematic risk by holding a diversified portfolio. Hence his performance measure denoted as TP is the excess return over the risk free per unit of systematic risk. In other words it indicates risk premium per unit of systematic risk.

Risk Premium Tp = Systematic risk index =

rp - rf p

Where, Tp = Treynors Ratio, rp = portfolio return, rf = risk free return and p = Beta coefficient for portfolio. as the market beta is 1, Treynors index T p for benchmark portfolio is (rm - rf) where rm = market return. If Tp of the mutual fund scheme is greater than (rm - rf), then the scheme has outperformed the market. The major limitation of the Treynor Index is that it can be applied to the schemes with positive betas during the bull phase of the market. The results will mislead if applied during bear phase of the market to the schemes with negative beta. The second limitation is it ignores the reward for unsystematic or unique risk.

Sharpes Ratio William F. Sharpe (1996) devised an index of portfolio performance measure, referred to as reward to variability ratio denoted by SP defined in equation below. He assumes that a small investor invests fully in the mutual fund and does not hold any portfolio to eliminate unsystematic risk and hence demands a premium for the total risk. S P= Risk Premium = Total Risk p rp - rf

Where Sp = Sharpes Ratio, rp = Portfolio return, rf = risk free return and p = standard deviation of portfolio returns. rm - rf The Sp for benchmark portfolio is m

When m = standard deviation of market returns. If Sp of the mutual fund scheme is not greater than that of the Sharpe ratio over the Trey nor ratio is, it considered the point whether investors are reasonably rewarded for the total risk in comparison to the market. A mutual fund scheme with a relatively large unique risk may outperform the market in Tenors index and may underperform the market in Sharpe ration can be concluded to have relatively large unique risk. Thus the two indices

rank the schemes differently. The major limitation of the shape ration is that it is based on the capital market line (CML). The major character of the capital market li ne is only the efficient portfolios can be plotted on the CML but not inefficient. Hence we assume that a managed portfolio (mutual fund scheme) is an efficient portfolio.

Financial parameters required to be calculated for the computation of the above rations are as under: Return: For each mutual fund scheme under study, the monthly returns are computed as: {(ending NAV beginning NAV) / beginning NAV}. The monthly market returns are computed with Nifty (National Stock Exchange Index) as benchmark. The return on the market portfolio is computed as: Average of daily returns on a monthly basis. Risk: Standard deviation is the measure of total risk. Financial analysis and statisticians prefer to use a quantitative risk surrogate called the variance of returns, denoted by

Var (r) =

Where, ri = return on individual mutual fund unit. Ram = mean rate of return. The square root of the variance is called the standard deviation = Var (r)

The standard deviation and the variance are equally acceptable and equivalent quantities measures of an assets total risk. The variance and standard deviation are computed from monthly returns. Beta: Measure of Systematic Risk: To obtain the measure of systematic risk (Beta) of the mutual fund scheme, market model is applied. The mathematical form of the model is: Rp = + * rm + ep

Where, rp is the return o n the mutual fund scheme, rm is the return on the market, is the intercept, is the slope or the beta coefficient, e p is the error term. Higher values of indicate a high senility of fund returns against market returns; the lower value indicates low senility. Higher values are desired for the mutual funds during bull phase of the market and values is desired the bear phase to outperform the market. The error term ep is an approximation for unique risk. It is assumed that beta is stationary during the period. The constants and are computed through regression analysis by regression the monthly market return with the monthly mutual fund return. The regression also provides the value of r2 (coefficient of determination) that gives the strength of co-relation between the market and the fund returns and indicates the extent of diversification. Co- efficient of Determination: Measure of Diversification: The potential advantage of mutual fund investment is the diversification of portfolio. Diversification reduces the unique or unsystematic or diversifiable risk and thus improves the performance. The diversification extent can be measured by the value of coefficient of determination (r2). A low r2 value indicates the fund large scope for diversification. Risk free asset: By definition, a risk less asset has zero variability of returns. If an investor buys an asset at the beginning of the holding period with the known terminal value, such type of asset can be called a risk- less or risk free asset. Government securities and nationalized bank deposits fall under this category. The 10 year government of India bond has been taken as risk free asset and the average interest rate on such deposits are considered as risk free return. The average annual 10 year GOI bon risk during the period was 7.18571%.

Results & interpretation Table 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 Mutual Fund Birla bal-plan A (D) Birla bal-plan B (G) Birla Equity Plan D opt. Birla plan Opp. Or fund-plan A (D) Birla India Opportunities funs-plan B (G) Birla MNC fund-plan A (D) Birla MNC fund-plan B (G) Birla tax plan 98 BOB Elss 96 Canara Robeco equity Tax saver DBS Chola opportunities fund-cumulative DSP Merrill lynch bald fund-D DSP Merrill lynch bald fund-G DSP Merrill Eq. Fund-regular plan-D DSP Merrill Lynch technology. Com fund-G Escorts income plan-G Escorts tax plan-D Escorts tax plan-G Franklin FMCG fund-G Franklin India bald fund-div Franklin India bald fund-G Franklin India blue chip fund-D Franklin India blue chip fund-G Franklin India G fund Franklin India index fund nifty plan-D Franklin India prima fund-D Franklin India prima fund-G Franklin India prima plus D Franklin India prima plus G Franklin India tax shield-G Franklin India taxshiled-97 Franklin India tax shield-98 Franklin India tax shield-99 Franklin InfoTech fund-D Franklin InfoTech fund-G Franklin Pharma Fund-G Templeton India Pension Plan-D Templeton India Pension Plan-G ICICI Prudential Bald Plan-D ICICI Prudential Bald Plan-G Opt ICICI Prudential FMCG Plan-D Opt 0.121176 0.1333737 0.201697 0.222902 0.22462 0.148167 0.155772 0.190615 0.216027 0.199266 0.191421 0.13072 0.14092 0.202684 0.25559 0.000252 0.19852 0.197394 0.122366 0.129736 0.125665 0.234512 0.210136 0.205765 0.211519 0.201696 0.205615 0.170291 0.194041 0.178227 0.196679 0.203921 0.195617 0.254726 0.26222 0.147273 0.061726 0.067492 0.137547 0.142055 0.151001 -0.00012 0.004201 0.004483 -0.0062 0.002679 0.001468 0.009219 0.013218 -0.00586 -0.01058 -0.00362 0.000598 0.008939 -0.00073 -0.00163 0.006915 -0.00565 0.006534 0.004668 0.006872 0.00917 -0.0029 0.009324 0.006555 0.000682 0.007286 0.18009 0.000803 0.011676 0.022702 0.00558 0.004788 0.005925 -0.01088 -0.00642 0.005543 -6.52E-05 0.007978 0.000397 0.00759 0.007939 Adj. R2 0.481493 0.806204 0.633186 0.385545 0.516175 0.465296 0.661824 0.676721 0.578021 0.507892 0.621072 0.590127 0.777746 0.648304 0.585759 -0.01443 0.432739 0.792433 0.70044 0.7644 0.796252 0.750175 0.888298 0.841467 0.990577 0.468314 0.571358 0.516086 0.830881 0.059105 0.844431 0.869112 0.824971 0.493492 0.55186 0.560694 0.31524 0.722251 0.548626 0.84377 0.537922

42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72

Mutual Fund ICICI Prudential FMCG Plan-G ICICI Prudential G Plan-D Opt ICICI Prudential G Plan-G Opt ICICI Prudential Technology Fund ING bald Fund G Opt ING Core Equity Fund-D Opt ING Core Equity Fund-G Opt JM Bald Fund-D JM Bald Fund-G JM Basic Fund-G Plan JM Equity Fund-D JM Equity Fund-G Kotak 30 Kotak Opportunities Kotak Tax Saver LICMFG Fund-D Opt Principal Equity Fund-D Principal Equity Fund-G Principal G Fund-D Plan Principal G Fund-G Plan Principal Tax Saving Plan Reliance Inc. Fund-Ret Plan G Plan G Opt SBI MSFU Contra-D SBI MSFU FMCG SBI MSFU IT SBI MSFU Pharma-D Sundaram BNP Parib Bal Fund-App Opt Sundaram BNP Parib Money Fund App Sundaram BNP Parib Yax Saver OE-D Tata Infrastructure Fund Tata Equity Fund Average

0.156005 0.227985 0.215641 0.248299 0.156403 0.280546 0.28804 0.138913 0.081168 0.26214 0.189515 0.203337 0.10609 0.151832 0.239559 0.204691 0.178673 0.10272 0.166868 0.191974 0.192597 0.005937 0.167288 0.142583 0.238994 0.151021 0.11741 -0.00083 0.211942 0.20746 0.222429

0.008873 -0.00816 0.005043 -0.00158 -0.00117 -0.01872 -0.01384 -0.00303 0.002985 -0.02122 -0.00546 0.004005 0.004292 0.004096 -0.00928 0.002672 -000077 0.003454 0.000202 0.008212 0.010046 0.006412 0.005529 -0.00157 -0.00663 0.05736 0.007877 0.004993 -0.00601 -0.00217 0.007073

Adj. R2 0.559159 0.714731 0.897498 0.595803 0.688307 0.475855 0.566982 0.602808 0.100962 0.3724 0.551972 0.801352 0.483092 0.506811 0.53880 0.681699 0.63115 0.29516 0.556529 0.83580 0.73571 0.032502 0.414215 0.387347 0.545118 0.428761 0.749628 0.058423 0.493009 0.528446 0.574086 42.437

The above table gives the values of , , Adjusted R2 of the 72 mutual funds studied for the period. All but fund no. 16 and 69 have no significant dependence on the market. A noteworthy point is that the two mutual funds are very poorly diversified. For the rest 70 funds the beta values are significant enough (68 at 1% significance, 1 at 59% significance & 1 at 10% significance). The unsystematic or unique risk of mutual fund is very high and this is due to poor co-relation with the market and the fact is confirmed by low values of r2. The adjusted average r2 being at very low level of just 42.437% gives fund managers enough scope to diversity and get more returns.

Table II: Treynor & Sharpe Ratios Mutual Fund 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Birla bal-plan A (D) Birla bal-plan B (G) Birla Equity Plan D opt. Birla plan Opp. Or fund-plan A (D) Birla India Opportunities fund -plan B (G) Birla MNC fund-plan A (D) Birla MNC fund-plan B (G) Birla tax plan 98 BOB Elss 96 Canara Robeco equity Tax saver DBS Chola opportunities fundcumulative DSP Merrill lynch bald fund-D DSP Merrill lynch bald fund-G DSP Merrill Eq. Fund -regular plan-D DSP Merrill Lynch technology. Com -fund-G Escorts income plan-G Escorts tax plan-D Escorts tax plan-G Franklin FMCG fund-G Franklin India bald fund-div Franklin India bald fund-G Franklin India blue chip fundD Franklin India blue chip fundG Franklin India G fund Franklin India index fund nifty plan-D Franklin India prima fund-D Franklin India prima fund-G Franklin India prima plus D Franklin India prima plus G Treynor Ratio Fund BM 0.033487 0.070248 0.05323 0.027947 0.067885 0.052862 0.10396 0.120805 0.027813 -0.00032 0.032686 0.042433 0.104424 0.049622 0.05264 5.057219 0.024174 0.085586 0.074284 0.0905 0.109087 0.044674 0.098592 0.085505 0.057622 0.089218 0.141215 0.052633 0.112162 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 R/ A R R R R R R A A R R R R A R R A R A R A A R A A R A A R A Sharpe Ration Fund BM 0.07196 0.194202 0.184984 0.053941 0.150908 0.1736 0.260897 0.306493 0.065333 -0.00071 0.07952 0.100688 0.283634 0.123281 0.124455 0.118231 0.049334 0.234612 0.191671 0.243733 0.299739 0.119211 0.285868 0.241407 0.176285 0.189176 0.329839 0.116994 0.314703 0.232051 0.232051 0.232051 0.232051 0.232051 R / A R R R R R

0.232051 R 0.232051 A 0.232051 A 0.232051 R 0.232051 R 0.232051 R

0.232051 R 0.232051 A 0.232051 R 0.232051 R

0.232051 R 0.232051 R 0.232051 A 0.232051 R 0.232051 A 0.232051 A 0.232051 R 0.232051 A 0.232051 A 0.232051 R 0.232051 R 0.232051 A 0.232051 R 0.232051 A

Mutual Fund 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 Franklin India tax shield-G Franklin India taxshiled-97 Franklin India tax shield-98 Franklin India tax shield-99 Franklin InfoTech fund-D Franklin InfoTech fund-G Franklin Pharma Fund-G Templeton India Pension Plan-D Templeton India Pension Plan-G ICICI Prudential Bald Plan-D ICICI Prudential Bald Plan-G Opt ICICI Prudential FMCG Plan-D Opt ICICI Prudential FMCG Plan-G ICICI Prudential G Plan-D Opt ICICI Prudential G Plan-G Opt ICICI Prudential Technology Fund ING bald Fund G Opt ING Core Equity Fund-D Opt ING Core Equity Fund-G Opt JM Bald Fund-D JM Bald Fund-G JM Basic Fund-G Plan JM Equity Fund-D JM Equity Fund-G Kotak 30 Kotak Opportunities Kotak Tax Saver LICMFG Fund-D Opt Principal Equity Fund-D Principal Equity Fund-G Principal G Fund-D Plan Principal G Fund-G Plan Principal Tax Saving Plan Reliance Inc. Fund-Ret Plan G Plan G Opt

Treynor Ratio Fund BM 0.176777 0.081653 0.076882 0.082514 0.016219 0.035097 0.080365 -0.01159 0.115505 0.042896 0.094668 0.09625 0.101756 0.020545 0.078297 0.052013 0.037471 -0.00576 0.013452 0.018574 0.0482 -0.02139 0.022471 0.073015 0.068258 0.070858 0.018778 0.066562 0.045181 0.0682 0.048446 0.094452 0.10393 0.207991 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497

R/ A A A A A R R A R A R A A A R A R R R R R R R R R R R R R R R R A A A

Sharpe Ration Fund BM 0.146348 0.230929 0.220537 0.230704 0.035277 0.080601 0.185995 -0.02032 0.302544 0.09823 0.267635 0.218303 0.235186 0.05354 0.228176 0.123996 0.09586 -0.0123 0.031302 0.044534 0.049978 -0.04059 0.05161 0.201255 0.146932 0.156121 0.042625 0.16949 0.1085 0.179517 0.111716 0.265781 0.274712 0.137594 0.232051 0.232051 0.232051 0.232051 0.232051 0.232051 0.232051 0.232051

R / A R R R R R R R R

0.232051 A 0.232051 R 0.232051 A 0.232051 R

0.232051 A 0.232051 R 0.232051 R 0.232051 R 0.232051 0.232051 0.232051 0.232051 0.232051 0.232051 0.232051 0.232051 0.232051 0.232051 0.232051 0.232051 0.232051 0.232051 0.232051 0.232051 0.232051 0.232051 R R R R R R R R R R R R R R R S S R

Mutual Fund 64 65 66 67 68 69 70 71 72 SBI MSFU Contra-D SBI MSFU FMCG SBI MSFU IT SBI MSFU Pharma-D Sundaram BNP Parib Bal Fund-App Opt Sundaram BNP Parib Money Fund ApP Sundaram BNP Parib Yax Saver OE-D Tata Infrastructure Fund Tata Equity Fund Average

Treynor Ratio Fund BM 0.080375 0.030448 0.029722 0.081663 0.100027 0.885617 0.026085 0.043414 0.087511 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497 0.075497

R/ A A R R A A A R R A 30

Sharpe Ration Fund BM 0.160595 0.013344 0.007839 0.165912 0.265554 -0.7297 0.056707 0.097619 0.204878 0.232051 0.232051 0.232051 0.232051 0.232051 0.232051 0.232051 0.232051 0.232051

R / A R R R R S R R R R 1 6

BM is the (Nifty Index return) Risk free return, R=Underperformer, A=Outperformer. The above table shows the values of Treynor and Sharpe ratios. As per the Treynor ration 30 funds have outperformed the market returns and as per the Sharpe ration 16 funds have outperformed the market returns. The Sharpe ration is a better indicator of the performance as it takes into account complete risk unlike Treynor ratio.

Table III: Risk & Return: Mutual Funds Vs bench Mark Portfolio 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 Mutual Fund Birla bal-plan A (D) Birla bal-plan B (G) Birla Equity Plan D opt. Birla plan Opp. Or fund-plan A (D) Birla India Opportunities fund-plan B (G) Birla MNC fund-plan A (D) Birla MNC fund-plan B (G) Birla tax plan 98 BOB Elss 96 Canara Robeco equity Tax saver DBS Chola opportunities fund-cumulative DSP Merrill lynch bald fund-D DSP Merrill lynch bald fund-G DSP Merrill Eq. Fund-regular plan-D DSP Merrill Lynch technology. Com fund-G Escorts income plan-G Escorts tax plan-D Escorts tax plan-G Franklin FMCG fund-G Franklin India bald fund-div Franklin India bald fund-G Franklin India blue chip fund-D Franklin India blue chip fund-G Franklin India G fund Franklin India index fund nifty plan-D Franklin India prima fund-D Franklin India prima fund-G Franklin India prima plus D Franklin India prima plus G Franklin India tax shield-G Franklin India taxshiled-97 Franklin India tax shield-98 Franklin India tax shield-99 Franklin InfoTech fund-D Franklin InfoTech fund-G Franklin Pharma Fund-G Templeton India Pension Plan-D Templeton India Pension Plan-G ICICI Prudential Bald Plan-D ICICI Prudential Bald Plan-G Opt Rp 0.009717782 0.015054749 0.020852403 0.011889516 0.020908241 0.013492346 0.021854052 0.028687303 0.011668469 0.005596042 0.011916879 0.011206861 0.020375457 0.015717678 0.01911426 0.006935932 0.010459037 0.022554282 0.016384086 0.017401014 0.019368446 0.016136472 0.026377794 0.023254025 0.017848107 0.023654845 0.03469591 0.014622979 0.027424109 0.03166415 0.02119214 0.021337804 0.021801086 0.009791521 0.014863098 0.01749567 0.004944329 0.013455659 0.011560163 0.01908111 p 0.056384 0.048376 0.082128 0.115487 0.101043 0.07009 0.062071 0.05131 0.091967 0.090346 0.078683 0.05509 0.051882 0.081583 0.108106 0.010792 0.09727 0.072009 0.05595 0.048172 0.045735 0.087882 0.072473 0.072881 0.069139 0.095122 0.08803 0.076611 0.069158 0.215284 0.069542 0.071089 0.069965 0.117117 0.114181 0.063634 0.035226 0.025767 0.060065 0.050248 rf 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566

41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72

Mutual Fund ICICI Prudential FMCG Plan-D Opt ICICI Prudential FMCG Plan-G ICICI Prudential G Plan-D Opt ICICI Prudential G Plan-G Opt ICICI Prudential Technology Fund ING bald Fund G Opt ING Core Equity Fund-D Opt ING Core Equity Fund-G Opt JM Bald Fund-D JM Bald Fund-G JM Basic Fund-G Plan JM Equity Fund-D JM Equity Fund-G Kotak 30 Kotak Opportunities Kotak Tax Saver LICMFG Fund-D Opt Principal Equity Fund-D Principal Equity Fund-G Principal G Fund-D Plan Principal G Fund-G Plan Principal Tax Saving Plan Reliance Inc. Fund-Ret Plan G Plan G Opt SBI MSFU Contra-D SBI MSFU FMCG SBI MSFU IT SBI MSFU Pharma-D Sundaram BNP Parib Bal Fund-App Opt Sundaram BNP Parib Money Fund ApP Sundaram BNP Parib Yax Saver OE-D Tata Infrastructure Fund Tata Equity Fund Average

Rp 0.020193811 0.021534404 0.010344051 0.022544072 0.018574674 0.01152052 0.004043479 0.009234598 0.008240229 0.00952242 5.4662E-05 0.009918526 0.020506744 0.012901478 0.016418442 0.01015852 0.019284578 0.013732603 0.0172726 0.01374412 0.023792239 0.025676659 0.006894766 0.01910577 0.010001446 0.012763322 0.01992788 0.0141029 0.004925865 0.011188461 0.01466602 0.025125015 0.016222915

p 0.066576 0.067497 0.087488 0.073996 0.104154 0.061136 0.131287 0.123782 0.057936 0.07828 0.138091 0.082514 0.073771 0.049285 0.068911 0.105537 0.080391 0.072867 0.064688 0.072363 0.068222 0.02864 0.008974 0.08325 0.325347 0.906196 0.074333 0.044248 0.001006 0.097492 0.092264 0.095008 0.090999

rf 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566 0.00566

(Market return and the standard deviation for the period are .081157 and .325347 respectively). The above table gives at a glance risk/ return analysis of the funds under study. During the study period, but for fund no. 52, the individual average returns of the funds were positive. All the funds gave better when compared to the risk free rate of return, which in this study was a 10 year government of india bond except for funds no. 10, 37, 48,,52& 70 . But the average return of equity funds when compared to

the market return falls short of expectations thus providing for the opportunity to state that the fund managers dont possess any other information which is deemed to be relevant for investment and the poor diversification done by the fund managers.

Conclusion: The objective of the study was to evaluate the performance of the equity mutual funds in the Indian financial market during January 01 to December 06. The study found that only 30 out of the 72 funds qualities as out performers as per the Treynor Ratio as it takes into account the complete risk i.e the standard deviation. The average performance of equity mutual fund lagged behind the average returns given by proxy of the market i.e Nifty in this study. This is against the general premise of Mutual Funds giving better and assured returns and hence calls for a more comprehensive study of the complete Indian Mutual Fund Industry.

CASE STUDY II TO STUDY THE PERFOMANCE OF INDIAN DEBT MUTUAL FUND. OBJECTIVE The objective of the study is to evaluate the performance of Indian debt mutual fund scheme.

RESEARCH METHODOLOGY Out of the 162 best performing debt mutual fund scheme 10 are taken for the purpose of study. JP Morgan Treasury Index is taken as the bench mark for the study. Debt funds have a fixed interest payment term attach to them and hence are least affected by the movement in the stock market. To quantify the relationship between risk and return precisely there are a number of statistics available. These measurements help determine: Funds volatility () i.e. variation from the average. Funds resemblance (R2) i.e. the extent to which the movement in the fund can be explained by corresponding benchmark index.

 Funds volatility as regards market index () i.e. the extent of co -movement of fund with that of benchmark index. How much is managers role in funds risk adjusted return () i .e. market timing ability of fund managers. RESULTS AND ANALYSIS: Table 1 Show the list of debt mutual fund considered for the study with their date of launch. Table 1 List of Mutual Fund Schemes Studied and their Date of Launch Name of Mutual fund Date of Launch Reliance Short term Dec-02 TATA Short term Bond Aug-02 Kotak Floater ST Jun-03 HDFC Cash Mgmt. Saving Nov-99 ICICI Prudential Liquid Jun-98 HSBC Cash Dec-02 JM Floater ST June-03 DSPML Liquid Inst. Nov-03 UTI Liquid Cash Regular June-03 COEFFICIENT OF DETRMINATION (R2): This coefficient measures the extent to which market index has been able to explain the variation in mutual fund. Since debt funds are less affected by movement in the market so they have coefficient of determination less. However DSPML liquidity Inst. has the highest R 2 (0.76) and Kotak Floater ST (0.13) has the lowest respectively. Other funds have R 2 value between 0.40 0.60. Lower value of R2 indicates that the market doesnt explain substantial part of variation in the return of a particular scheme. Table II shows the R2 values for the schemes selected.

Table II Co-efficient of determination (R2) Name of Mutual Fund R2 Reliance Short term 0.60 TATA short term bond 0.42 Kotak Floater ST 0.13 HDFC cash Mgnt. Saving 0.28 ICICI prudential liquid 0.32 HSBC cash 0.15 JM floater ST 0.43 DSPML liquid Inst. 0.76 SBI premium liquid Inst. 0.30 UTI liquid cash regular 0.28 Systematic Risk (): In debt scheme it may be noted that betas are in the range of 0.10 to 0.40 (except one scheme Reliance short Term (0.47) all the schemes have beta less than one (i.e. market beta) implying thereby that these schemes tended to hold portfolios that were less risky than the market portfolio. It is observed that schemes like kotak Floater ST (0.10), HSBC Cash. (0.10) and JM Floater ST(0.8) has beta value around 0.10. These funds are supposed to be less risky than the other schemes considered for the purpose of study.

Table III shows the systematic risk. Table III SYSTEMATIC RISK () Name of Mutual fund Systematic risk () Reliance Short term 0.47 TATA Short-term bond 0.37 Kotak Floater ST 0.10 HDFC Cash Mgmt. Saving 0.14 ICICI Prudential Liquid 0.16 HSBC Cash 0.10 JM Floater ST 0.08 DSPML Liquid Inst. 0.25 SBI Premium 0.15 UTI Liquid Cash Regular 0.14 Return earned by the schemes: The return earned by the schemes against market return for the corresponding period (for last three years has been taken) Return for both market and the scheme has been calculated the return earned by the schemes and the market return. The benchmark return during the given period is 6.52

Table IV Return earned by the schemes Name of Mutual fund Return earned by the schemes Reliance short Term 7.71 TATA Short-term bond 7.73 Kotak Floater ST 7.02 HDFC Cash Mgmt. Saving 7.04 ICICI Prudential liquid 6.73 HSBC Cash 6.80 JM Floater ST 6.6 DSPML Liquid Inst. 7.32 SBI Premium Liquid Inst. 6.81 UTI Liquid Cash Regular 6.76 Standard Deviation (): It is a statistic to measure the variation in individual returns from the average expected return over a certain period. Reliance short term (0.54) and JM floater ST (0.07) have the maximum and minimum standard deviation respectively. Table V shows the standard deviation of different schemes considered for the study.

Table V Standard deviation () Name of Mutual fund Standard deviation () Reliance short Term 0.54 TATA Short-term bond 0.51 Kotak Floater ST 0.14 HDFC Cash Mgmt. Saving 0.14 ICICI Prudential liquid 0.14 HSBC Cash 0.13 JM Floater ST 0.07 DSPML Liquid Inst. 0.18 SBI Premium Liquid Inst. 0.17 UTI Liquid Cash Regular 0.16

Sharpe Index: It is an excess return earned over the risk-free return per unit of risk involved i.e. per unit of standard deviation. The values greater than the market Sharpe ration indicated that the schemes have outperformed and the schemes showing Sharpe value less than the market. Show that the schemes have underperformed. Out of 10 schemes selected 7 schemes have shown out performance. Schemes like JM floater Sharpe ST (23.12), HDFC cash Mgmt. Saving (17.66), HSBC cash (18.67) have better Sharpe value than the market. The Sharpe ration for the bench mark index is 14.52. Table VI depicts the Sharpe ration of the schemes selected for the study.

Table VI Sharpe Index Name of Mutual fund Reliance short Term TATA Short-term bond Kotak Floater ST HDFC Cash Mgmt. Saving ICICI Prudential liquid HSBC Cash JM Floater ST DSPML Liquid Inst. SBI Premium Liquid Inst. UTI Liquid Cash Regular Sharpe Index 6.50 7.00 16.13 17.66 14.91 18.67 23.12 14.45 16.73 13.97

Jensens measure: It is the regression of excess return of the scheme with excess return of the market, acting as dependent and independent variables respectively. Higher positive value of alpha posted by the scheme indicates its better performance. Table VII depicts the Jensens measure. The table revealed that TAT short term bond (2.96) and JM floater ST (1.55) have the highest and lowest alpha values respectively.

Table VI Jensens Measure Name of Mutual fund Reliance short Term TATA Short-term bond Kotak Floater ST HDFC Cash Mgmt. Saving ICICI Prudential liquid HSBC Cash JM Floater ST DSPML Liquid Inst. SBI Premium Liquid Inst. UTI Liquid Cash Regular Jensens Measure 2.74 2.96 2.08 2.21 1.88 2.30 1.55 2.08 2.20 2.10

Conclusion: The objective of the study was to evaluate the performance of debt mutual fund. Investors have mixed response towards mutual funds. Selected mutual fund have not performed too badly as has been generalized allegation. Out of 10 mutual fund schemes 7 have outperformed according to the Sharpe ratio. However, this should not lead us the conclusion that all mutual funds perform better and hence calls for a more comprehensive study of the complete Indian mutual fund industry.

SECURITIES MARKET (STOCK / SHARES) Primary market: In the primary market, securities are offered to public for subscription for the purpose of raising capital or fund. The issue of securities, shares or bonds in the primary market is subject to fulfilment of a number of pre-issue guideline issued by SEBI and various provisions of company act.

Secondary market: Secondary market refers to a market where securities are traded after being initially offered to the public in the primary market and / or listed on the stock exchange. Majority of the trading is done in the secondary market. For the general investor, the

secondary market provides markets serve as a monitoring and control conduit by facilitating value-enhancing control activities, enabling implementation of incentivebased management contracts and aggregating information (via price discovery) that guides management decisions.

Stock exchange in India: There are 22 recognized stock exchange in Indi. Interms of legal structure, the stock exchange in India could be divided into two broad groups 19 stock exchanges which were set up as companies either limited by guarantees or by shares and the 3 stock exchanges which were associations of persons (AOP) viz. BSE, ASE and Madhya Pradesh stock exchange. The 19 stock exchanges, which have been functioning as companies include: The stock exchanges of Banglore, Bhubaneshwar, Kolkatta, Cochin, Coimbatore, Delhi, Guahati, Hydrabad, Interconnected SE, Jaipur, SaurastraKuch, Uttarpradesh and Vadodara. Apart from NSE, all stock exchanges whether established as corporate bodies or association of person (AOPs) were non-profit making organizations.

The national Stock Exchange: Inaugurated in 1994, the Bombay Stock Exchange seeks to establish a nation-wide trading facility for debt, equities and hybrids, facilitate equal access to investors across the country, impart fairness, efficiency and transparency to securities, shorten settlement cycle and meet international securities market standards.

The Bombay Stock exchange: Established in 185, the Bombay Stock Exchange (BSE) is one of the oldest organized exchanges in the world with a long, colourful and chequered history. The BSE switched from the open outcry system to the screen-based system in 1995. Jobbers play an important role on BSE. A jobber is a broker who trades on his own account and hence offers a two way quote or a bid-ask quote. Investors have to transact via a jobber or broker.

Equity: Equity is the ownership interest in a company of holders of its common and preferred stock. The various kind of equity shares are as follows: 1. Equity shares: An equity share commonly referred to as ordinary share represents the form of fractional ownership in which shareholders, as a fractional owner, undertake the maximum entrepreneurial risk associated with a business venture. 2. Rights issue / rights shares: The issue of new securities to existing shareholders at a ration to those already held. 3. Bonus shares: Shares issued by the companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years or out of share premium account. 4. Preferred stock / preference shares: Owners of these shares are entitled to a fixed dividend or divided caldulated at a fixed rate to be paid regularly before divided can be paid in respect of equity shares. 5. Cumulative preference shares: A type of preference shares on which dividend accumulated if remain unpaid. All arrears of performance dividend have to be paid out before paying dividend on equity shares. 6. Cumulative convertible preference shares: A type of preference shares where the dividend payable on the same accumulates, if not paid. After a specified date, these shares will be converted into equity capital of the company. 7. Participating preference share: The right of certain preference shareholders to participate in profits after a specified fixed dividend contracted for its paid. Participation right is linked with the quantum dividend paid on the equity shares over and above a particular specified level.

Percentage allocation to the stock component of portfolio Greater tolerance for risk should tilt the portfolio in favour of stocks whereas an investor with lesser tolerance for risk should tilt the portfolio in favour of bonds. An investor with a long investment horizon should tilt his portfolio in favour of stocks

whereas an investor with a shorter investment horizon should tilt his portfolio in favour of bonds. Time horizon Short Medium High Low 0 25 50 25 50 75 Risk Tolerance Moderate 50 75 100 High

The securities and exchange board of India The government of India enacted the SEBI Act, 1992 on 4th April, 1992 to provide for the establishment of a board, called the securities and exchange board of India (SEBI) to protect the interests of investors insecurities and to promote the development of and to regulate the securities market and for mattes connected therewith or incident thereto.

Functions of SEBI: 1. It shall be the duty to protect the interests of investors in securities and to promote the development of and to regulate the securities market. 2. The board shall have the same powers as are vested in a civil court under the code of civil procedure, 1908 (5 of 1908), while trying a suit. 3. The board may take measures to undertake inspection of any book, or register or other document or record of any listed public company or a public company (not being intermediaries) which intends to get its securities listed on any recognized stock exchange where the board has reasonable grounds to believe that such company has been indulging in insider trading of fraudulent and unfair trade practices relating to securities market.

CASE STUDY: To analyse the performance of some stocks of BSE stock exchange Methodology: The study is based on 30 securities taken from the forward list of Bombay Stock Exchange. The securities having highest turnover have been selected, as they seem

to represent the market more convincingly. The values of stock of BSE Sensex have been taken for the time period of one year. The purpose of the study is to make the people, who participate in stock trading aware about the volatility and returns of different stocks (companies) taken into consideration. The analysis has been made on the basis of coefficient of determination. Beta risk, return and weight age in sensex. The list of companies is shown below: 1. A.C.C. 3. Bharti Televentures 5. Cipla Limited 7. Grasim Limited 9. HDFC 11. Hindalco 13. ICICI Bank 2. Jaiprakash Associates 4. BHEL 6. DLF Limited 8. Gujrat Ambuja Cement 10. HDFC Bank 12. Hindustan Lever 14. Infosys Technologies

The list of companies is shown below: 15. ITC Limited 17. Mahindra & Mahindra 19. National Thermal Power 21. Ranbaxy Lab 23. Reliance Communication 25. Satyam Computer 27. Tata Consultancy 29. Tata Steel Results and analysis Coefficient of determination (R2): The coefficient of determination measures the extent to which market index has been able to explain the variation in stocks. Table I reveals that the maximum and minimum values of R2 were found in the case of Reliance (0.76) and Gujarat Ambuja Cement (0.17) respectively. Low value of R2 indicates less correlation with the market. High value of R 2 shows that the stock contains the market variability. It may be seen that the stocks like Reliance energy (0.51), ICICI Bank (0.64), Reliance communication (0.59), State Bank of India (0.55) have more value of correlation of determination. And stocks like Hidustan lever (0.22), Ranbaxy Lab (0.29), Bharti televentures (0.31) have less value of R 2. The lower 16. Larsen & Toubro 18. Maruti Udyog 20. ONGC 22. Reliance 24. Reliance Energy 26. State Bank of India 28. Tata Motors 30. Wipro Limited

value of R2 indicates that the market does not explain substantial part of variation in the return of the stock. Table 1 sows the correlation coefficient of different stocks. Name A.C.C. Jaiprakash Associates Bharti Tele ventures Bhel Cipla Ltd. DLF Ltd. Grasim Ind Gujarat Ambuja Cement HDFC HDFC Bank Hindalco Hindustan Lever ICICI Bank Infosys Technologies ITC Ltd. Larsen & Toubro Mahindra & Mahindra Maruti Udyog National Thermal power ONGC Ranbaxy Lab. Reliance Reliance Communication Reliance energy Satyam Computer State Bank of India Tata Consultancy Tata motors Tata Steel Wipro Ltd. Coefficient of determination (R2) 0.31 0.48 0.31 0.52 0.19 0.54 0.45 0.17 0.46 0.54 0.49 0.22 0.54 0.32 0.30 0.55 0.33 0.30 0.56 0.55 0.29 0.76 0.59 0.51 0.24 0.55 0.33 0.45 0.47 0.35

Systematic risk (): Table 2 shows or presents the systematic risk of 30 stocks considered for the purpose of the study. The highest and lowest beta values are of Reliance energy (1.68) and Gujarat Ambuja Cement (0.40) respectively. Beta coefficient compares the variability of stock to the market as a whole. It is relative measure by convention, market will have beta 1.0. If a stock has a beta value of 0.40 it means it has 40% of the volatility of the market. Reliance communications (1.17),

Tata steel (1.11), Reliance (1.16), ICICI Bank (1.28) have the beta values greater than 1. Whereas stocks like Cipla Ltd. (0.46), Tata Motors (0.79), ITC Ltd. (0.68), Maruti Udyog (0.67), Ranbaxy Lab (0.62), Tata consultancy (0.72) have beta values less than 0.8. Less than 1 beta value means that these stocks are less risky than the market as a whole. Table 2 below shows the systematic risks of different stocks. Name A.C.C. Jaiprakash Associates Bharti Tele ventures Bhel Cipla Ltd. DLF Ltd. Grasim Ind Gujarat Ambuja Cement HDFC HDFC Bank Hindalco Hindustan Lever ICICI Bank Infosys Technologies ITC Ltd. Larsen & Toubro Mahindra & Mahindra Maruti Udyog National Thermal power ONGC Ranbaxy Lab. Reliance Reliance Communication Reliance energy Satyam Computer State Bank of India Tata Consultancy Tata motors Tata Steel Wipro Ltd. Returns earned for a period of one year Table 3 depicts the return earned by schemes against market return for the corresponding period (percentage variation in the stock price over last one year). We find that Reliance energy (164.18%) gives the maximum return where as Tata Systematic risk () 0.79 1.60 0.77 1.12 0.46 1.46 0.76 0.40 1.01 1.00 1.24 0.53 1.28 0.72 0.68 1.11 0.72 0.67 1.18 1.04 0.62 1.16 1.17 1.68 0.66 1.03 0.72 0.79 1.11 0.76

consultancy (-23.92%) gives the minimum return. The stocks giving negative return aer wipro Ltd. (-10.27%), Tata motors (-12.58%), Maruti Udyog (-9.26%), Mahindra & Mahindra (-11.57%), Infosys technologies (-867%), ICICI Bank (-4.30%) and Cipla Ltd. (-2.11%). The stocks giving good returns are Jaiprakash associates (94.94%), Larsen & Toubro (50.27%), HDFC (49.93%), Reliance (48.55%), Hindalco (37.45%).

Returns (1 year) % A.C.C. -11.33 Jaiprakash Associates 94.94 Bharti Tele ventures 6.02 Bhel 35.61 Cipla Ltd. -2.11 DLF Ltd. 23.72 Grasim Ind -3.96 Gujarat Ambuja Cement 0.66 HDFC 49.93 HDFC Bank 32.91 Hindalco 37.45 Hindustan Lever 22.60 ICICI Bank -4.30 Infosys Technologies -8.67 ITC Ltd. 34.35 Larsen & Toubro 50.27 Mahindra & Mahindra -11.57 Maruti Udyog -9.26 National Thermal power 24.21 ONGC 12.99 Ranbaxy Lab. 23.82 Reliance 48.55 Reliance Communication 14.79 Reliance energy 164.18 Satyam Computer 2.68 State Bank of India 39.21 Tata Consultancy -23.92 Tata motors -12.58 Tata Steel 46.33 Wipro Ltd. -10.27 Weightage in sensex: If we compare the weightage of different stocks in sensex we find that Reliance (15.54%) and ACC (0.66%) are at top and bottom level respectively (among the stocks taken for the study). The stocks having weightage greater than 5% are Bharti Tele venture (5.18%), HDFC (5.52%), Infosys technologies (8.47%), ITC Ltd.

Name

(5.11%) Larsen & Toubro (6.98%). The stocks having weightage less than 1% are Maruti Udyog (0.98%), Gujarat Ambuja Cement (0.71%), Cipla Ltd. (0.95%). Name A.C.C. Jaiprakash Associates Bharti Tele ventures Bhel Cipla Ltd. DLF Ltd. Grasim Ind Gujarat Ambuja Cement HDFC HDFC Bank Hindalco Hindustan Lever ICICI Bank Infosys Technologies ITC Ltd. Larsen & Toubro Mahindra & Mahindra Maruti Udyog National Thermal power ONGC Ranbaxy Lab. Reliance Reliance Communication Reliance energy Satyam Computer State Bank of India Tata Consultancy Tata motors Tata Steel Wipro Ltd. Weightage (%) in Sensex 0.66 1.33 5.18 2.54 0.95 1.34 1.36 0.71 5.52 3.43 1.47 2.30 7.80 8.47 5.11 6.98 1.04 0.98 1.90 3.29 1.23 15.54 3.71 1.67 2.97 3.65 2.24 1.19 4.11 1.32

Conclusion: The above discussion on performance of different stocks of BSE sensex corroborates our findings from survey that investors have a mixed response towards stocks. If we see carefully we will find that as the sayings more risk more return, the selected stocks show more return for the more beta values (beta greater than 1) except one or two cases. Automobile industries have shown negative returns during the given period. Pharmaceutical industries, telecommunication, power and energy industries had shown positive return during the period.

BIBLIOGRAPHY

Books & MAGAZINES

1. 2. 3. 4.

Portfolio Management by S. Kevin Security analysis & Portfolio management by Prasanna Chandra Value research Security analysis & Portfolio management by Punithavathy Pandian

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