1

APROJECTREPORTONMUTUALFUND
MANAGEMENT

MUHAMMEDTHOUSIF
(105113684024)
Projectsubmittedinpartialfulfillmentoffortheawardofthedegreeof
BachelorofBusinessAdministration
By
OsmaniaUniversity,Hyderabad500007

Certificate
Thisistocertifythattheprojectworkentitled

APROJECT
REPORTONMUTUALFUNDMANAGEMENT
Isthebonafideworkdoneby

NAME:
ROLLNO.:105113684024

asapartoftheircurriculumintheDepartmentofCommerce
AurorasDegree&PGCollege,
Chikkadpally,Hyderabad500020.

Thisworkhasbeencarriedoutundermyguidance

Mr.VISWANADHAMBULUSU

MrsP.MADHAVILATHAMrs.ANUPAMA.N

Principal

HeadofDepartment Mentor ExternalExaminer

AurorasDegree&PGCollege,Chikkadpally,Hyderabad20.

ANNEXURE I

DECLARATION

I hereby declare that this Project Report titled MUTUAL FUND MANAGEMENT submitted
by me to the Department of Business Management, O.U., Hyderabad, is a bonafide work undertaken
by me and it is not submitted to any other University or Institution for the award of any degree
diploma / certificate or published any time before.

Name and Address of the Student

Signature of the Student

ANNEXURE II
CERTIFICATION
This is to certify that the Project Report titled

MUTUAL FUND MANAGEMENT

submitted in partial fulfilment for the award of BBA Programme of Department of Business
Management, O.U. Hyderabad, was carried out by MUHAMMED THOUSIF under my guidance.
This has not been submitted to any other University or Institution for the award of any
degree/diploma/certificate.

Name of the Mentor

Signature of the Mentor

ACKNOWLEDGEMENT

This project work would not have been complete without the mention of following people.
We express our hearty gratitude to our principal sir MR. VISHWANADHAM BULUSU for
providing us the opportunity and platform to work on the project.

And our project mentor Mrs. ANUPAMA.N who has supported and guided us throughout our
project.

MUTUAL FUND MANAGEMENT

INTRODUCTION:
Many investors with common financial objectives pool their
money. Investors on a proportionate basis, get mutual fund
units for the sum contributed to the pool. The money collected
From investors is invested into shares, debentures and other
securities by the fund manager. The fund manager realizes
gains or losses and collects dividend or interest income. Any
capital gains or losses from such investments are passed on to
the investors in proportion of the number of units held by
them.

OBJECTIVES:
To provide a brief concept about the advantages accessible
for investing in mutual funds.
To carry out a detailed survey on the current advancements
in the mutual funds sector.

To find out the preferences of the investors for asset

management company.

SCOPE:
A big boom has been witnessed in the mutual fund industry in
recent time. A large number of new players have entered the
market and trying to gain market share in this rapidly
improving market. The study will help to know the
preferences of the customers, which company, portfolio, mode
of investment, option for getting return and so on. The study
is limited to secondary data only.

METHODOLOGY:
This report is based on primary as well as secondary data,
however secondary data collection is given more importance.
The research methodology helps in collecting, identifying,
analysing and interpreting the data. The secondary data has
been collected through various journals and websites.

LIMITATIONS:

Sample size may not adequately represent the whole

market.
The data is confined to a certain part.
Secondary data is not reliable.

INTRODUCTION
Mutual fund management is the management of investment fund that pools
money from many investors to purchase securities. It is applied to the collective
investment funds that are regulated and sold to the general public, since there is
no legal definition of the term. Mutual fund companies are also called as
investment companies or registered investment companies.

Advantages of mutual fund management are as follows:-

These funds provide service and convenience.

Mutual funds are regulated by Securities and exchange commission (SEC).
Mutual fund decreases risk, as it holds many securities.
Shareholders may sell their holdings back to the fund at a price equal to the
closing net asset value of funds holdings.

Disadvantages of mutual fund management are as follows:-

Different expenses have to be paid.

Recognition of gains may consume some time.
Oppurtunity to customize is nill.

History:Europe was the first to establish mutual funds. A dutch merchant was credited
for creating the first mutual fund in 1774 by a researcher.

Mutual funds in India:The introduction of a mutual fund in India took place in 1963, when the unit
trust of India was launched by the Government. UTI enjoyed a monopoly in the
Indian mutual fund market until 1987. Then Indian financial companies came
up with their own funds. State bank of India, Canara bank and Punjab national
bank is included in this. As a result of the constitutional amendments bought
forward by the then congress party mutual funds were privatised in 1993.
Kothari pioneer was the first private sector fund to operate in India tat later
merged with Franklin templeton. Mutual fund registration was formulated by
SEBI in 1996. Mutual fund investments are sourced both from companies and
individuals. Since January 2013 individual investors have started investing
directly with the mutual funds, as doing so will reduce the expenses incurred for

10

the management. Investment advisors and banks serve the individuals in direct
investment. Since 2009, Online platforms for investing in mutual funds have
also evolved.

Types of mutual funds:-

Open-end funds: These funds must be willing to buy back their shares from
their investors at the end of each working day at the net asset value computed
that day.
Close-end funds: These funds are issue the shares to the public only once,
when they are created through initial public offering.
Unit investment trusts: Unit investment trusts (UITs) generally have limited
life span, established during their creation. UITs can only issue once to the
public, when they are created.
Exchange traded funds: ETFs that are recently innovated are structured as
open-end investment companies or UTIs.

Different expenses incurred in mutual fund management are:-

Management Fee:This fee is rendered or paid to the management company the sponsors that
organize funds, provides the portfolio management or investment advisory
services. Some other administrative services are also provided by the fund

11

manager. The management fee declines as assets (either the specific fund or the
fund family as a whole) increase. The management fee is paid by the fund and is
included in the expense ratio.

Distribution charges:Distribution expenses pay for the marketing, distribution of the funds shares as
well as services to investors. There are three types of distribution charges:

Front-end load or sales charges- These charges is a commission paid to a

broker by a mutual fund when shares are purchased.
Back-end load- Back end loads are paid by the investors when the shares are
redeemed. Only few funds have this charge. The longer the investor holds
shares when the back-end load is declined it is called Contingent deferred sales
charges (CDSC).
A no-load fund- This does not charge a front-end load or back-end load under
any circumstances and does not charge a 12b-1 fee greater than 0.25% of fund
assets.

Securities transaction fees:The buying or selling of the securities in its portfolio are the related expenses
incurred in a mutual fund. Brokerage commissions are also incurred in these
expenses. Securities transaction fees increase the cost basis of investments
purchased and reduce the proceeds from their sales. The amount of securities
transaction fees paid by a fund is normally positively correlated with its trading

12

volume or turnover.

Shareholders transaction fee:Shareholders may be required to pay fees for certain transactions. For example,

The fee for maintaining an individual retirement account for an investor may be
charged by the fund. Redemption fees is charged by some funds when an
investor sells the shares shortly after buying them (usually after 30, 60 or 90
days of purchase); redemption fees are computed as a percentage of the sale
amount. Shareholder transaction fees is not part of the expense ratio.

Fund service charges:-

A mutual fund may for other services including:

Board of directors or trustees fees and expenses
Custody fee
Fund administration fee
Fund accounting fee
Professional services fee
Shareholder communications expenses
Transfer agent service fees and expenses
Miscellaneous fees

13

Leading complexes:

10 top performing mutual funds in first half of 2015 according to the Morning
star are as follows:-

1. T. Rowe price health sciences fund

2. Century small cap select fund (CSMVX)
3. Vanguard health care fund (VGHCX)
4. Fidelity select health care fund
5. Scotia dynamic U.S growth
6. Dreyfus opportunistic: small cap (DSCVX)
7. Thornburg value fund (TVAFX)
8. CGM focus fund (CGMFX)
9. Sequoia (SEQUX)
10.Fidelity small cap stock fund (FSLCX)

Share classes:-

A single mutual fund may give investors a choice of different combinations of

front-end loads, back-end loads and 12b-1 fees, by offering several different
types of shares, known as share classes. All of them invest in the same portfolio
of securities, but each has different expenses and, therefore, a different net asset
value and different performance results. Some of these share classes may be
available only to certain types of investors.

Different types of share classes of funds sold through brokers or other

14

intermediaries are as follows:

Class A- These shares usually charge a front-end sales load with a small
12b-1 fee.
Class B- These shares usually do not have a front-end sales load; they have a
Contingent deferred sales charge (CDSC) that gradually declines over the years,
combined with a high 12b-1 fee.
Class I-These shares usually have very high minimum investment
requirements and are known as institutional shares. They are no-load shares.
Class C- These shares usually have a high 12b-1 fee and a modest contingent
deferred sales charge that is discontinued after one or two years.
Class R- These shares are usually for use in retirement plans such as 401(k)
plans.
Class N- These shares charge a 12b-1 fee of no more than 0.25% of fund
assets.

Controversy regarding mutual funds:According to the critics of fund industry the fund expenses are too high. They
believe that the market for mutual funds is not competitive and it is difficult for
investors to reduce the fees that they pay as there are many hidden costs. They
argue that the most effective way for investors to raise the returns they earn
from the mutual funds is to invest in funds with low expense ratios.

15

REVIEW OF LITERATURE

The mutual fund industry in India started in 1963 with the information
of Unit Trust of India, at the initiative of the Government of India and
Reserve bank of India. The history of Mutual funds in India can be
broadly divided into four distinct phases.

First Phase- 1964-1987:-

Under an Act of Parliament the Unit trust of India was established in

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

Second Phase- 1987-1993 ( Entry of Public sector funds):-

16

The public sector banks and Life Insurance Corporation of India

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

Third Phase-1993-2003( Entry of Private sector funds):-

With the entry of private sector funds in 1993, a new era started in the
Indian mutual fund industry, giving the Indian investors a wider
choice of fund families. Also, the first Mutual fund regulations came
into being in 1993, under which all mutual funds, except UTI were to
be registered and governed. The Erstwhile Kothari pioneer (now
merged with Franklin Templeton) was the first private sector mutual
fund registered in July 1993. At the end of Jan 2003, there were 33

17

mutual funds with total assets of Rs. 1,21,805 crores.

Fourth phase- since February 2003:-

In February 2003 the UTI was bifurcated into two separate entities.
One is the specified undertaking of the unit Trust of India with assets
of Rs. 29,835 crores as at end of Jan 2003. The specified undertaking
of Unit trust of India functioned under an administrator and under the
rules framed by Government of India. The second is the UTI mutual
fund, sponsored by SBI, PNB, BOB and LIC. It is registered with
SEBI (Securities and Exchange board of India) and functions under
the Mutual fund Regulations. The mutual fund industry has entered its
phase of consolidation and growth currently.

Literature on mutual fund management or performance evaluation is enormous.

A few research studies that have influenced the study, helped in creating this
review of literature.

Sharpe (1966) introduced the measure known as reward-to-variability ratio in

order to evaluate the risk-adjusted performance of mutual funds. From the
period 1945-1963, Sharpe evaluated the return of 34 open-end mutual funds

18

with the help of this ratio. The results showed that to a major extent the capital
market was highly efficient due to which majority of the sample had lower
performance as compared to the Dow Jones index. Sharpe (1966) found only 11
funds outperformed the Dow-Jones industrial average (DJIA), While 23 funds
were out performed by DJIA from the period of 1954-1963.

Jensen (1968) developed own measure to examine the risk portfolios riskadjusted performance and estimate the predictive ability of mutual fund
managers known as Jensens alpha. The measure was based on the theory of
pricing of capital assets. For this purpose 115 open-end mutual funds (For
which dividend and net asset information was available) was taken as a sample
for the period of 1955-1964. After applying the Jensen measure he concluded
that stock prices could be forecasted accurately with the help of mutual funds.
Therefore to take advantage buy and hold strategy could not be used.

Arditti (1971) criticized the reward-to-variability criterion proposed by Sharpe

(1966) on the grounds that it is utilized only the first two moments of
probability distribution of returns. Author proposed that the third moment a
measure of the direction and size of the distributions tail, if it is included in the

19

analysis. Arditti further argued that as positive skewness implied greater

probability of higher return, hence the investors preferred positive skewness.

Therefore if ratios also have relatively high third moments (high positive
skewness) then the assets with relatively low-reward-to-variability ratios would

not be inferior investments. After re-examining the Sharpe (1966) data with this
additional information, the author found that average fund performance was not
inferior to Dow Jones industrial average (DJIA) performance because the
skewness of the DJIA return distribution was significantly less than fund
skewness.

Miller and Nicholas (1980) in the presence of non stationary conducted a

research to examine the risk-return relationships in order to obtain more precise
estimates of alpha and beta. For this purpose this study applied partition
regression and a partition selection rule for estimating the traditional CAPM in
case of non stationarity. For the period of 1973-1974 study applied these
procedures to price appreciation data for the market and 28 mutual funds. The
results indicated a good deal of non-consistency in the risk-return relationships.
Some weak positive relationships and some weak negative relationships
between beats and the rate of return for the market were shown in the results.
On the other hand the results showed some weak positive relationships and
some weak negative relationships between beats and alphas. However

20

significant relationships of either types were found, statistically.

Mc Donald (1973) developed a model to evaluate the investment performance

of funds holding securities in two countries. A sample of eight mutual funds
was taken for this purpose. For the period of 1964-1969 monthly returns of
these funds were calculated and analyzed. The results showed that the French
market was inefficient with respect to the completeness and speed of
dissemination of information and that the funds generally produced superior
risk-adjusted returns. The author concluded by saying that those funds which
invested in French market in 1964-69 generally achieved lower return at a given
level of variance than that reflected in the U.S market returns. The fact that the
funds were generally able to attain superior returns relative to nave portfolio
strategy was also found by Mc Donald.

Mc Donald (1974) conducted a research to study the objectives and

performance (risk and return) of American mutual funds in the period 19601969. Using Treynor (1965) and Sharpe (1966) indexes a sample of 123
American mutual funds was analysed. The results indicated that the stated
objectives were significantly related to subsequent measures of systematic risk
and total variability. Therefore the funds with aggressive objectives generally
produced better performance. The results also showed that 67 funds perform
better than the stock market average in case of Treynors (1965) index while in

21

case of Sharpe (1966) index only 39 mutual funds showed higher performance
than the stock market average. Average fund return increases with increase in
risk was the conclusion by the author.

A study was conducted by Henriksson (1984) in order to analyze the markettiming performance of mutual funds. From February 1968 to June 1980 a
sample of 116 open-end mutual funds were taken. By using parametric and non
parametric techniques author examined the performance of these open-end
mutual funds using monthly data. The returns data included all dividends paid
by the fund and were net of all management costs and fees. The information that
mutual fund managers were unable to follow a successful investment strategy
was shown by both parametric and non parametric tests. The results also
showed that no evidence was found that forecasters were more successful in the
market timing activity with respect to predicting large changes in the value of
the market portfolio relative to smaller changes.

Ippolito (1989) conducted a research to analyze the efficiency in capital markets

when information is costly to obtain. A sample of 143 mutual funds were
reported in 1965 edition of Wiesenberger. The analysis was done for the period
of 1965-1984. Ippolito (1989) employed CAPM model and made a comparison
of results to those reported in Jenson (1968). The results showed that riskadjusted returns in mutual fund industry, net of fees and expenses, were

22

comparable to returns available in index funds. Portfolio turnover and

management fees were unrelated to fund performance was indicated in the
results. Researcher concluded that mutual funds with high turnover fees and
expenses, earn rates of return sufficiently high to offset the higher charges.
Research also concluded that the mutual funds were efficient in the trading and
information-gathering activities.

In order to compare the performance of internationally diversified mutual funds

with international equity index and Morgan Stanley index for the United States
a research was conducted by Cumby and Jack (1990). Between 1982 and 1988
sample of fifteen U.S.- based internationally diversified mutual funds were used
in this study. The performance was then compared with the help of Jensen
(1968) measure and positive period weighting measure. The performance of
funds individually or as a whole was not higher than the performance of
international equity index was the conclusion of the results. The authors also
examined the performance of the funds relative to the Morgan Stanley index for
the United States and found some evidence that the funds outperform the U.S.
index.

Grinblatt and Sheridan (1992) conducted a research to analyze whether mutual

fund performance relates to past performance. For this purpose a sample of 279
funds was taken. Study divided the sample into two five year sub periods and

23

calculated the abnormal returns of each fund for each five year sub period. In
the cross-sectional regression the slope coefficient of abnormal returns was
computed. The results indicated a positive persistence in mutual fund
performance and fund managers were able to earn abnormal returns. The past
performance of a fund provides useful information for investors who were
considering an investment in mutual funds was the conclusion of the study.

Malkiel (1995) conducted a research to analyze the performance of equity

mutual funds for the period 1971 to 1991. A data set that included the returns
from all mutual funds in existence in each year of the period was involved in the
study for this purpose. After analyzing the returns from all funds he found that
mutual funds underperformed the market. Survivorship bias was considered to
be important part of analysis. Study also examined the fund returns in the
context of the capital asset pricing framework and neither found any evidence of
excess return nor observed any risk return relationship stated by the capital asset
pricing model. Study concluded that it would be better if the investors
purchased a low expense index fund than to select an active fund manager.

Cai et al. (1996) evaluated the performance of Japanese open-type equity funds
from 1981 to 1992. For this purpose e a sample of 800 open-type mutual funds
run by 9 management companies was taken. Value-weighted single index
benchmark and three-factor benchmark were used in the analysis. This research

24

used Jensen measure, positive period weighting (PPW) measure and conditional
Jensen measure in order evaluate the performance of these funds. The valueweighted and equal-weighted portfolios of 800 mutual funds underperform the
single-index benchmark by approximately 7.0% and 6.0% as shown in the
results. The results showed that most of the funds were inclined to invest more
in large stocks.

Otten and Dennis (1999) analysed the performance of European mutual funds
from 1991 through December 1998. The performance of fund managers along
with the influence of fund characteristics on risk-adjusted performance was
examined in the study. A sample of 506 funds was taken and a 4-factor model
was used for this purpose. The results showed that the European mutual funds
especially small cap funds were able to add value and 4 out of 5 countries
exhibit significant outperformance at an aggregate level. The results also
revealed positive relation between risk-adjusted return and fund size and
negative relation between risk-adjusted and funds expense ratio.

Redman (2000) analyzed the risk adjusted returns for five portfolios of
international mutual funds. The study was conducted for three periods: 19851994, 1985-1989 and 1990-1994. Using Treynors index and Sharpe index the
performance was measured and was compared with the U.S market. Results
showed that under Sharpe (1996) and Treynor (1965) indices the performance

25

of portfolios of International mutual funds was higher than the U.S market from
1985-1994 and 1985-1989. However the performance of U.S equity portfolio
and the market index was higher than global portfolios from 1990-1994.

Aruguslan and Ajay (2008) examined the risk-adjusted performance of U.S

based international equity funds from 1994-2003. The analysis was done for a
five- year period 1999-2003 and a ten-year period (1994-2003). A sample of 50
large U.S based international equity funds was taken and a new method called
modigilani & modigilani (M squared) was applied for this purpose. Both
domestic and international indices were taken in to consideration for the sake of
comparision. The results showed that the risk has great impact on the
attractiveness of funds. Higher return funds may loose attractiveness due to
higher risk while the lower return funds may be attractive to investors due to
lower risk.

Dietze, Oliver and Macro (2009) conducted a research to evaluate the risk
adjusted performance of European investment grade corporate bond mutual
funds. A sample of 19 investment grade corporate bond funds was used for the
period of 5years (July 2000- June 2005). On the basis of Single index model,
several index and asset class factor models the funds were evaluated. To
account for the risk and return characteristics of investment grade corporate
bond funds both maturity based indices and rating based indices were used. The

26

results indicated that the corporate bond funds, on average under-performed the
benchmark portfolios and there was no single fund exhibiting a significant
positive performance. Results also indicated that the risk-adjusted performance
of larger and older funds and funds charging lower fees was higher.

REFERENCES:-

Sharpe (1966), Mutual fund performance, the journal of business, 39, 1, 119138.

Jensen (1968), The performance of mutual funds in the period 1945-1964,

journal of finance, 23, 2, 1-36.

Arditti (1971), Another look at mutual fund performance, journal of finance

and quantitative analysis, 6, 909-912.

Miller & Nicholas(1980),Non stationary & evaluation of mutual funds

performance, the journal of finance & quantitative analysis, 15, 3, 639-654.

Mc Donald (1973), Mutual fund performance: Evaluation of internationallydiversified portfolios, The journal of Finance, 28, 5, 1161-1180.

27

Mc Donald (1974), objectives and performance of Mutual funds 1960-1969,

journal of financial and Quantitative analysis, 9, 3, 311-333.

Henriksson (1984), Market timing and mutual fund performance: An Empirical

Investigation, The journal of Business, 57, 1, 73-96.

Ippolito (1989) Efficiency with costly information: A study of Mutual fund

performance, 1965-1984, The Quarterly journal of Economics, 104, 1, 1-23.

Cumby and Jack (1990), Evaluating the performance of International mutual

funds. Journal of Finance 45, 2, 497-521.

Grinblatt and Shridan (1992), the Persistence of Mutual fund performance, The
journal of Finance, 47, 5, 1977-1984.

Malkiel (1995), Returns from investing in equity mutual funds 1971 to 1991,
Journal of Finance, 50, 2, 549-572.

Cai et al (1997), Aggregate performance of Japanese mutual funds, The review

of Financial studies, 10, 2, 237-273.

Otten and Dennis (1999),European mutual fund performance, European

Financial management, 8, 1, 75-101.

28

Redman (2000), the performance of Global and International mutual funds,

journal of Financial and Strategic decisions 13, 1, 75-85.

Aruguslan & Ajay (2007), evaluating large US- based equity mutual funds
using risk-adjusted performance measures, International journal of Commerce
& management, 17, , 6-24.

Dietze, Oliver and Macro (2009), The performance of investment grade

corporate bond funds: evidence from the European market, the European
journal of finance, 15, 2, 191-209.

DATA ANALYSIS AND INTERPRETATION

A mutual fund is a trust that pools the savings of number of investors who share
a common financial goal. The money collected from the investors is invested in
capital market instruments such as shares, debentures and other securities.
Mutual fund issues units to the investors in accordance with amount of money
invested by the investors. Investors of mutual funds are known as unit holders.
The income earned through these investments and capital appreciation is shared
by its unit holders in proportion to the number of units owned by them. Thus a

29

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 lower cost.

In India, there are many companies, both public and private that are engaged in
the trading of mutual funds. Wide varieties of Mutual fund schemes are
available in the market. Investors can invest their money in different types of
mutual funds depending upon their individual investment objectives.
Like different investments plans, mutual funds also offer advantages and
disadvantages, which are important for any investor to consider and understand
before they decide to invest in a mutual fund.

Advantages of Mutual funds:

Diversification, Continuous professional management, Economies of scale,

Liquidity is the important advantages of mutual funds.

Disadvantages of Mutual funds:

Fluctuating returns, Diversification, Misleading advertisement and Operating

costs are the disadvantages of Mutual funds.

Scope of study:

30

The main focus of the study was to know about the performance of the different
mutual fund schemes. Since different companies come out with similar themes
in the same season, it becomes difficulty for the company to constantly perform
well so as to survive the competition and provide maximum capital appreciation
or return. Other than the market, the performance of the fund depends on the
kind of stock or the portfolio selected by the fund managers of the company.
The analysis is done on the performances of funds with the same theme or
sector and reason out why a fund performs better than the others in the lot. It is
limited to investors and their investment preferences. Study objective is to
investigate the return on investment in share market and to understand the fund
sponsor qualities influencing the selection of mutual funds/schemes. And also to
find out that how far the mutual fund schemes are able to win the confidence of
the investors.

Need for the study:

The main purpose of this study is to know about mutual fund and its
functioning. This helps to know in details about mutual fund industry right from
its inception stage, growth and future prospects. It also helps in understanding
different schemes of mutual funds, since the study depends upon different
schemes like equity, debt, balanced as well as the returns associated with those
schemes. The study was done to analyse the returns associated with the different
mutual funds. This also helps in understanding the benefits of mutual funds to
investors.

31

Objectives of the study:

1. To study the various schemes available at Kotak mutual fund and HDFC
Mutual fund.
2. To analyse and compare the performance of different mutual fund
schemes offered by Kotak mutual fund and HDFC mutual fund.
3. To know the factors that affects on the performance of mutual fund
schemes.
4. To find the best scheme available for investors by comparing their
performance.
5. To compare the similar schemes of Kotak mutual fund with HDFC
mutual fund and find out the reasons behind the difference in their
performance.

Research methodology:

The type of data used in the study is mostly secondary data. The sampling area
used is the private sector. The methodology of the sampling used is
Convenience sampling. Period of study is 5 years from 2010-11 to 2014-15.
Methods of data collection used are Fund factsheet published by Kotak mutual
fund and HDFC mutual fund, other published mutual funds and research based
online portals. Statistical tools and techniques used are Standard deviation,
Sharpe ratio, Beta, R- squared, Alpha.

Limitations of the study:

1. Research is based on the secondary data.

2. The study is restricted to only two mutual fund companies.

32

3. The data is limited to performance of the mutual funds only for the period
of last five years.
4. The data is limited to 16 schemes only.

1) KOTAK SELECT FOCUS V/s HDFC CAPITAL BUILDER

FUND:-

Table No. 1.1:

Investment
information
Fund objective

Fund type
Investment plan
Risk grade
Asset size as
31.3.2015

Kotak Select Focus HDFC

Capital
Fund
Builder Fund
The investment objective
of the scheme is to
generate
long-term
capital return from the
portfolio of equity and
equity related securities,
generally focused on a
few selected sectors.
Open-ended equity
Growth
Average
on Rs.2450 crore

NAV as on 31.3.2015

Rs.22.809

The fund seeks to invest

in companies that are
priced below their fair
value there by generating
capital return in the longterm.

Open-ended equity
Growth
Average
Rs.890.8 crore
Rs.199.457

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KOTAK SELECT FOCUS Vs HDFC CAPITAL BUILDER FUND

Table No. 1.2:

YEAR

Kotak Select Focus HDFC

Capital
Fund (%)
Builder Scheme (%)
2014-15
2013-14
2012-13
2011-12
2010-11

57.87
6.18
33.45
-22.29
20.05

51.95
10.37
28.42
-23.64
28.44

Interpretation:

Kotak Select Focus fund and HDFC Capital Builder fund, both schemes are
focused on large sector, so there is long term growth with minimum fluctuation.
Table 1.2 revealed that both schemes have given good return in last five years
except in the year 2011-12v because of down trend in the large cap fund. If the
data of the current year is compared, Kotak Select focus has given more returns
than HDFC Capital Builder fund where as in the year 2013-14, HDFC Capital
Builder scheme was good. It means both the schemes are good and very well
managed as well as giving similar average return in long period.

2) KOTAK MID-CAP V/s HDFC MID-CAP OPPURTUNITIES

FUND

34

Table no: 2.1

Kotak Mid-Cap Fund HDFC

Mid-Cap
Opportunities Fund
Fund objective

Kotak Mid-Cap is an
open-ended
equity
growth scheme. The
investment objective is
to
generate
capital
appreciation. From a
diversified portfolio of
equity & equity related
instruments.
Open-ended equity
Growth
Above average
Below average
on Rs.343 crore

Fund type
Investment plan
Risk grade
Return grade
Asset size as
31.3.2015
NAV as on 31.3.2015 Rs. 51.159

The aim of the fund is to

generate
long-term
capital return from a
portfolio
that
is
substantially constituted
of equity and equity
related securities of mid
and small cap companies.
Open-ended equity
Growth
Above average
Above average
Rs. 9645.8 crore
Rs. 36.748

KOTAK MID-CAP Vs HDFC MID-CAP OPPORTUNITIES FUND

Table No: 2.2

Year

Kotak Mid-Cap (%)

HDFC Mid-Cap

2014-15
2013-14
2012-13
2011-12
2010-11

74.02
-4.91
50.23
-26.90
28.00

76.63
9.64
39.62
-18.31
32.13

35

Interpretation:

Kotak Mid-Cap and HDFC Mid-Cap, both schemes focus on only medium
and small sector, so there are high returns with maximum risk. Table 2.2
shows that HDFC Mid- Cap has given good returns in last 4 years than
Kotak Mid-Cap except in the year 2012-13 where Kotak Mid-Cap has given
11% extra returns. In the current year, both the schemes have given very
good return because of BJP win in the election and stable government.
During the year 2013-14 Kotak Mid-Cap has given negative returns and
HDFC Mid-Cap has given positive return which shows that HDFC Mid-Cap
is very well managed than Kotak Mid-Cap and there is scope for
improvement for Kotak Mid-Cap.

3) KOTAK TAX SERVER Vs HDFC TAX SAVER FUND

Table No: 3.1

Investment
information
Fund objective

Kotak Tax Saver fund HDFC

fund
The investment objective
of the scheme is to
generate
long-term
capital return from a
diversified portfolio of
equity and equity related

Tax

Saver

The scheme seeks capital

return with at least 80
per cent exposure to
equities,
FCDs,
preference shares and
bonds of companies.

36

securities and enable

investors to avail the
income tax rebate, as
permitted from time to
time
Open-ended
Growth
High
Average
on Rs.512 crore

Fund type
Investment plan
Risk grade
Return grade
Asset size as
31.3.2015
NAV as on 31.3.2015

Rs. 31.398

Open-ended
Growth
Above average
Average
Rs.5032.4 crore
Rs. 398.162

KOTAK TAX SAVER FUND Vs HDFC TAX SAVER FUND

Table No: 3.2

Year

Kotak Tax Saver fund

(%)

HDFC Tax Saver

fund (%)

2014-15
2013-14
2012-13
2011-12
2010-11

56.61
-6.25
36.25
-26.03
19.93

56.36
5.09
26.59
-22.62
26.42

Interpretation:

Kotak Tax Saver fund and HDFC Tax Saver are the schemes that invest its
money for 3 year lock period for the purpose of tax saving. The scheme aim

37

is not to achieve high return but saving the Tax. Table 3.2 shows that Kotak
Tax Saver scheme is more aggressive than HDFC Tax Saver because it has
given high positive returns as well as high negative returns. If we compare
the data in the year 2013-14, Kotak Tax Saver has given negative returns
where as HDFC Tax Saver has given positive returns and during the year
2012-13, Kotak Tax Saver has given high returns than HDFC Tax Saver. It
means Kotak scheme is more aggressive than HDFC scheme.

4) KOTAK 50 Vs HDFC TOP 200 FUND

Table No: 4.1

Investment
information
Fund objective

Fund type
Investment plan

Kotak 50 fund

HDFC Top 200 fund

The investment objective

of the scheme is to
generate capital return
from a portfolio of
predominantly
equity
and
equity
related
securities. The portfolio
will generally comprise
of
equity
related
instruments of around 50
companies which may go
up to 59 companies.
Open-ended equity
Growth

The
schemes
seeks
capital appreciation and
would invest up to 90 per
cent in equity and
remaining
in
debt
instruments. Also, the
stocks would be drawn
from the companies in
the BSE 200 index as
well as 200 largest
capitalized companies in
India.
Open-ended equity
Growth

38

Risk grade
Return grade
Asset size as on
31.3.2015
NAV as on 31.3.2015

Average
Above average
Rs. 725 crore

Average
Above average
Rs. 13488.4 crore

Rs. 173.55

Rs. 342.678

KOTAK 50 Vs HDFC 200 FUND

Table No: 4.2

Year
2014-15
2013-14
2012-13
2011-12
2010-11

KOTAK 50 (%)

HDFC TOP 200 (%)

42.46
4.26
23.41
-18.46
16.29

46.52
4.06
32.43
-24.30
25.05

Interpretation:

Kotak 50 scheme has been focusing on top 50 to 59 companies where as

HDFC 200 has been focusing on top 200 companies. These schemes have
been focusing on top companies, so there are high returns with minimum
fluctuation. If the data available above is compared, it can be said that both
schemes are very good and very well managed. The schemes have been
given positive returns in last 5 years except in the year 2011-12 because of
European crisis, unstable government and high inflation rate. HDFC Top 200

39

was more aggressive than Kotak 50, so it has high positive as well as
negative returns.

5) KOTAK BALANCE Vs HDFC BALANCED FUND

Table No: 5.1
Investment
information

Kotak Balance fund

Fund objective

To achieve growth by
investing in equity &
equity
related
instruments,
balanced
with income generation
by investing in debt &
money
market
instruments.

Fund type

HDFC Balanced fund

The scheme seeks to

generate
capital
appreciation with current
income from a combined
portfolio of equity and
debt instruments. Under
normal circumstances the
scheme would take 60%
exposure
to
equity
instruments while the
balance
would
be
allocated
to
debt
instruments.
Open-ended and Hybrid Open-ended and Hybrid
equity- oriented
equity- oriented
Growth
Growth
Below average
Below average
Below average
Below average
Rs. 3541 crore
on Rs. 371 crore

Investment plan
Risk grade
Return grade
Asset size as
31.3.2015
NAV as on 31.3.2015

Rs. 15.65

Rs. 107.455

KOTAK BALANCE Vs HDFC BALANCED FUND

40

Table No: 5.2

Year

Kotak Balance fund

(%)

HDFC Balanced fund

(%)

2014-15
2013-14
2012-13
2011-12
2010-11

28.55
6.23
24.79
-14.06
12.43

51.47
8.78
26.58
-10.57
25.49

Interpretation:

Kotak Balance fund and HDFC Balanced fund, both schemes have been
investing its money into equity as well as Debt fund, so there are high
returns with minimum fluctuations. As seen in the above information HDFC
Balanced fund has given very good returns than Kotak Balance during last 5
years. Its shows that HDFC Balanced fund, is well managed and very good
portfolio than Kotak Balanced fund, so investors should select HDFC
scheme should select HDFC scheme than kotak in Balanced fund.

6) KOTAK SENSEX ETF FUND Vs HDFC INDEX FUNDSENSEX PLAN

41

Table No: 6.1

Investment
information
Fund objective

Fund type

Kotak Sensex ETF HDFC Index fundfund

Sensex plan
The scheme aims to
generate returns that are
commensurate with the
performance of BSE
Sensex,
subject
to
tracking errors.
Open-ended and Equity Open-ended and Equity;
large cap
large cap
Growth
Growth
Average
Average
Average
Below average
Rs 83.6 crore
on Rs 8 crore

Investment plan
Risk grade
Return grade
Asset size as
31.3.2015
NAV as on 31.3.2015

The objective of the

scheme is to provide
returns that correspond
to the total returns of
BSE Sensex index

Rs 281.08 crore

Rs. 237.20 crore

KOTAK SENSEX ETF FUND Vs HDFC INDEX FUNDSENSEX PLAN

Table No: 6.2
Year

Kotak Sensex ETF

fund (%)

HDFC Index fundSensex plan (%)

2014-15
2013-14
2012-13
2011-12
2010-11

31.12
10.34
27.24
-23.94
18.32

30.63
10.06
26.53
-25.17
17.56

Interpretation:

42

Kotak Sensex fund and HDFC Index fund Sensex plan, both the schemes
are indexed scheme which means their portfolio is similar to Index and in
this case the portfolio of both the schemes are matched to Sensex top 30
Blue chip companies. Table above shows that both the schemes have
given similar returns because their portfolio is similar but still there is
little difference in every year because of their cash money ratio means
their investment in cash form. So it can be said that both schemes are
very good and investors can select any scheme according to their
convenience.

Risk analysis of different mutual fund schemes of Kotak as on

31 March, 2015:
Tools

Standard
deviation
Sharpe
ratio
Beta
R-squared
Alpha

Kotak
select
focus
fund
15.29

Kotak
mid-cap
fund

Kotak
Kotak 50 Kotak
tax saver fund
balance
fund
fund

Kotak
sensex
ETF fund

19.25

16.70

15.41

9.81

13.64

1.19

1.01

0.87

0.90

0.91

0.82

1.00
0.89
8.18

1.13
0.72
8.15

1.08
0.87
3.68

1.03
0.93
3.43

0.84
0.90
2.46

0.94
0.98
1.76

Interpretation:
There are five major indicators of risk in investment. These are applicable

43

to the analysis of Stocks, Bonds and Mutual fund portfolios. They are
alpha, beta, R-squared, Standard deviation and Sharpe ratio. The data
from the table revealed that standard deviation of Kotak mid-cap is higher
than other funds. It has indicated that Kotak mid-cap scheme is more
volatile because a higher SD indicates that the Net asset value(NAV) of
that mutual fund is more volatile and, it is riskier than a fund with lower
SD. While comparing Sharpe ratio, it can be said that only Kotak select
focus has risk adjusted performance because a mutual fund with a higher
Sharpe ratio is better because it implies that it has generated higher
returns for every unit of risk was taken. Beta compares a funds volatility
to a benchmark index over a 36 month time period. All the funds except
kotak balance fund and Kotak sensex ETF fund have more than 1 Beta
which shows that these funds are more volatile than their benchmark. A
beta of lesser than 1 indicates the investments is less volatile than the
market and these schemes are conservative in nature. R-squared reflects
the percentage of a funds movement that can be explained by
movements in its benchmark index. If compared all the schemes in Kotak
mutual fund, it can be said that all the funds are giving similar returns to
their benchmark except kotak mid-cap which is having 0.72 R-squared. If
the funds R-squared value is between 0.85 to 1, the funds performance
should be trusted. Alpha basically is the difference between the returns an
investor expects from a fund, given its beta, and the return it actually

44

produces. If compared Alpha mentioned in the above table, it can be said

that Kotak select focus and Kotak mid-cap has outperformed its
benchmark index and it offered higher positive Alpha. A positive Alpha
means the fund has outperformed its benchmark index. Whereas, a
negative Alpha means the fund has underperformed to its benchmark
index. The more positive an Alpha is healthier for investors.

Risk analysis of different mutual fund schemes as on 31 march,

2015:
Tools

Standard
deviation
Sharpe
ratio
Beta
Rsquared
Alpha

HDFC
capital
builder
fund
14.68

HDFC
mid-cap
fund

HDFC
saver

HDFC
top 200
fund

HDFC
balanced
fund

HDFC
index
fund

15.94

17.62

18.43

11.91

13.48

1.07

1.36

0.80

0.69

1.21

0.80

0.96
0.90

0.89
0.64

1.10
0.82

1.21
0.90

0.92
0.73

0.93
0.98

5.96

12.76

3.05

0.52

7.26

1.42

Interpretation:The data from the above table has shown that Standard deviation of
HDFC Top 200 fund and HDFC tax saver are higher than other funds
which means that these two fund are more volatile in nature and riskier

45

than other funds. All other funds are also having high returns ( High risk
high returns). While comparing Sharpe ratio, HDFC mid-cap is having
higher Sharpe ratio which means this fund has generated high returns
with minimum risk taken and it has better risk adjusted performance as
compared to others. Beta compares funds volatility to its benchmark
index, if compare Beta then it can be said that HDFC top 200 fund is
more volatile than its benchmark and generated high returns. More than 1
beta indicates that funds are more risky and aggressive in nature than its
benchmark. R-squared shows the correlation between funds movement to
its bench mark index. If compared all the schemes of HDFC, it can be
said that most of the funds are giving similar returns to their benchmark
but HDFC mid-cap and HDFC balanced fund are different than their
benchmark because these schemes are having less R-squared. If
compared above schemes Alpha then it can be said that HDFC mid-cap
and HDFC balanced fund are having higher Alpha and these funds have
outperformed its benchmark index because higher positive Alpha shows
higher positive returns.

REFERENCES

46

BOOKS:-

1. Jaydev, Investment policy & performance of Mutual funds, Kanishka

publishers & Distributors, New Delhi (1998).
2. Rao, Mohana P, Working of mutual fund organisations in India,
Kanishka Publishers, New Delhi ( 1998)
3. Sahadevan S. and Thiripalraju M, Mutual funds: Data, Interpretation
and Analysis, Prentice hall of India private Limited, New Delhi ( 1997)

Journals, Research papers and Articles:

1. Abhishek kumar ( 2012), Trend in Behavioural Finance and Asset
mobilization in Mutual fund industry of India, International Journal
of Scientific and Research publications, Volume 2, Issue 10, October
2012, pp 1-15.

2. Ansari, Mutual funds in India: Emerging trends, The chartered

Accountant, Vol. 42 (2), ( August 1993), pp. 88-93.

3. Bansal L K, Challenges for Mutual funds in India, Chartered

secretary, Vol. 21 (10), ( October 1991), pp. 825-26.

4. Batra and Bhatia, Indian Mutual funds: A study of Public sector,

paper presented, UTI institute of Capital market, Mumbai (1992)

47

5. Gupta Amitabh, Investment performance of Indian mutual funds: An

Empirical study, Finance India, Vol. XIV (3), ( September 2000), pp.
833-866.

6. Gupta Ramesh, Mutual funds, The Management Accountant, Vol.

24(5), ( May 1989), pp. 320-322.

Factsheets:
1. HDFC Fund Factsheet
2. Kotak Fund Factsheet

Websites:
1.

http:// www.kotakmutual.com

2. http:// www.valueresearch.com
3. http:// www.moneycontrol.com
4. http:// www.amfiindia.com
5. http:// www.bseindia.com
6. http:// www.nseindia.com
7. http:// business. maps of India.com
8. http:// en.wikipedia.org/wiki/mutual fund
9. http:// MBA lectures.com/mutual funds

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