CHAPTER-1

1
 ABSTRACT

Different investment avenues are available to investors. Mutual funds also offer good
investment opportunities to the investors. Like all investments, they also carry certain
risks. The investors should compare the risks and expected yields after adjustment of tax
on various instruments while taking investment decisions. The investors may seek advice
from experts and consultants including agents and distributors of mutual funds schemes
while making investment decisions.

With an objective to make the investors aware of functioning of mutual funds, an attempt
has been made to provide information in question-answer format which may help the
investors in taking investment decisions.

This project will help the investor to understand the concept of mutual funds and the
benefits that Various companies mutual fund schemes offers .To make a more informed
investment decision while selecting a specific scheme .It is the study on, the performance
of various companies mutual fund schemes regarding to their annualized returns.

It is benefited for the investors to choose the better performance schemes of various
companies mutual funds according to the annualized return.

The market is growing day by day and websites provide the investors with much
information. Investing has easier with the introduction of technology. Though the public
is interested in better investment opportunities, they are not aware of the process involved
in investing in mutual funds. This has to be overcome.

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NEED OF THE STUDY

3
 NEED FOR THE STUDY

The Mutual Fund Industry is having a Profound Impact on Financial Markets. While UTI
has always been a Dominant player on the bourses as well as the Debt Markets, The New
Generations of Private Funds which have gained substantial mass are now seen flexing
their muscles. Fund Managers, by their selection criteria for Stocks have Forced
Corporate Governance on the Industry. By Rewarding Honest and Transparent
Management with higher Valuations, A System of Risk Reward has been created where
the Corporate Sector is more Transparent then before.

While the Industry grew in Leaps & Bounds during the early 1980s, Mutual Fund
Transaction Processing remained a Paper Intensive, Costly, and Manual Process.

Eventually, Concerns began to surface over how the Industry was to Handle the Surging
Volume of Transactions, and the Increased Risk Exposure Inherent in Such Fast Growth.

As a Result, Automation of Transaction processing became necessary thereby Increasing

Efficiency and Accuracy by reducing Manual Processing.

4
OBJECTIVES OF THE STUDY
&

RESEARCH METHODOLOGY

5
 OBJECTIVES OF STUDY

PRIMARY OBJECTIVES:

 To study the Performance, Effectiveness of different Mutual Funds by

different Measures.

 To Compare the Mutual Funds on Performance and classify them Into Better
& Inferior Performance.
SECONDARY OBJECTIVES:

 To analyze Mutual Funds by evaluating a Fund's various

performance and risk attributes.

 To study the transaction processing of mutual funds.

6
 RESEARCH METHODOLOGY

The Methodology followed consists of the following step:

SOURCES OF DATA:
 Secondary Sources: Secondary Sources of Data Included Internet, Books, Offer
Documents Of Various Mutual Funds etc.,
Material Provided by ICICI PRUMutual fund Ltd

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LIMITATIONS

8
 LIMITATIONS TO THE STUDY:

 Most of the information is from secondary data only.

 Study is limited to growth schemes only.

 This is the study conducted within short period, so it may not be covering
all the aspects in detail.

 This project analysis is restricted to performance measures of mutual

funds.

 The comparisons of various schemes have been done on the basis of

theoretical data only

9
 CHAPTER-2

LITERATURE REVIEW

10
 MUTUAL FUND

Mutual fund is a mechanism for pooling the resources by issuing units to the investors
and investing funds in securities in accordance with objectives as disclosed in offer
document.

Investments in securities are spread across a wide cross-section of industries and sectors
and thus the risk is reduced. Diversification reduces the risk because all stocks may not
move in the same direction in the same proportion at the same time. Mutual fund issues
units to the investors in accordance with quantum of money invested by them. Investors
of mutual funds are known as unit holders.

The profits or losses are shared by the investors in proportion to their investments. The
mutual funds normally come out with a number of schemes with different investment
objectives which are launched from time to time. A mutual fund is required to be
registered with Securities and Exchange Board of India (SEBI) which regulates securities
markets before it can collect funds from the public.

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 appreciations realized are shared by its
unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is
the most suitable investment for the common man as it offers an opportunity to invest in a
diversified, professionally managed basket of securities at a relatively low cost. The flow
chart below describes broadly the working of a mutual fund:

11
 ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the organizational set
up of a mutual fund

ADVANTAGES OF MUTUAL FUNDS

The advantages of investing in a Mutual Fund are:

 Professional Management
 Diversification
 Convenient Administration
 Return Potential
 Low Costs
 Liquidity

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  Transparency
 Flexibility
 Choice of schemes
 Tax benefits
 Well regulated

HISTORY OF INDIAN MUTUAL FUND INDUSTRY

The Mutual Fund Industry in India Started in 1963 With the Formation of Unit Trust of
India (UTI), at the Initiative of the Government of India and Reserve Bank of India
(RBI). The History of Mutual Funds in India can be broadly divided into four distinct
phases.

First Phase – 1964-87:

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up
by the Reserve Bank of India and functioned under the Regulatory and Administrative
Control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the
Industrial Development Bank of India (IDBI) took over the Regulatory and
Administrative Control in place of RBI. The First Scheme Launched by UTI was Unit
Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of Assets under Management.

Second phase – 1987-93(Entry of Public Sector Funds):

1987 Marked the entry of Non –UTI, Public Sector Mutual Funds set up by Public Sector
Banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation
of India (GIC).

SBI Mutual Fund was the First Non – UTI Mutual Fund established in June 1987
followed by Canara Bank 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

13
Mutual Fund (Oct 92). LIC established its Mutual Fund in June 1989 while GIC had set
up its Mutual Fund in December 1990.

Third phase – 1993-03(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, 1993
was the year in which the First Mutual Fund Regulations came into being, under which
all Mutual Funds, except UTI were to be registered and governed. The erstwhile Kothari
Pioneer (now merged with Franklin Templeton) was the first private sector Mutual Fund
Registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive
and Revised Mutual Fund Regulations in 1996. The industry now Functions under the
SEBI (Mutual Fund) Regulations 1996.

The Number of Mutual Fund houses went on increasing; With Many Foreign Mutual
Funds Setting up Funds in India and also the Industry has witnessed several Mergers and
Acquisitions.

As at the end of January 2003, there were 33 Mutual Funds Total Assets of Rs.1,21,805
Crores. The UTI with Rs.44,541 crores of Assets under Management was way ahead of
other Mutual Funds.

Fourth phase- since February 2003:

In February 2003, following the repeat of the UTI Act 1963. UTI was bifurcated into two
separate entities. One is the specified Undertaking of the UTI with Assets under
Management of Rs.29, 835 crores as at the end of Jan 2003, representing broadly, The
Assets of US 64 Scheme, Assured Return and certain other schemes.

14
The Specified Undertaking of UTI Functioning under an Administrator and Under the
Rules Framed by Government of India and does not come under the Purview of the
Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, Sponsored by SBI,
PNB, BOB and LIC. It is registered with SEBI and Functions under the Mutual Fund
Regulations. With the Bifurcation of the erstwhile UTI which had in March 2000 More
than Rs. 76,000 crores of AUM and with the setting up of a UTI MF conforming to the
SEBI MF Regulations, and with Recent Mergers taking place among Different Private
Sector Funds, The Mutual Fund Industry has Entered its current phase of consolidation
and growth. As at the end of September, 2004, there were 29funds, which Manage Assets
of Rs.153108 crores under 421 schemes.

GROWTH IN ASSETS UNDER MANAGEMENT

15
 ABOUT MUTUAL FUND

DEFINITION:

A Mutual Fund is a Body Corporate Registered with the Securities and Exchange Board
of India (SEBI) that Pools up the Money from Individual / Corporate Investors and
invests the same on behalf of the Investors /Unit Holders, in Equity Shares, Government
securities, Bonds, Call Money Markets etc., and distributes the profits. In other words, a
Mutual Fund allows an Investor to indirectly take a position in a Basket of Assets.

16
MUTUAL FUND OPERATION FLOW CHART

MUTUAL FUND STRUCTURE:

17
Unit Trust of India Was the First Mutual Fund set up in India in the year 1963. In early
1990s, Government allowed Public Sector Banks and Institutions to set up Mutual Funds.
In the year 1992, SEBI Act was passed. The Objectives of SEBI are – To Protect the
Interest of Investors in Securities and to promote the Development of and to regulate
the Securities Market.

As Far as Mutual Funds are Concerned, SEBI Formulates Policies and Regulates the
Mutual Funds to Protect the Interest of the Investors. SEBI Notified Regulations for the
Mutual Funds in 1993. There after, Mutual Funds Sponsored by Private Sector Entities
were allowed to enter the Capital Market. The Regulations Were Fully revised in 1996
and has been amended thereafter From Time to Time to Protect the Interest of Investors.

All Mutual Funds whether promoted by Public Sector entities Including those Promoted
by Foreign Entities are Governed by the same set of Regulations. There is no Distinction
in Regulatory Requirements for these Mutual Funds and all are Subject to Monitoring
and Inspections by SEBI. The Risks Associated with the Schemes Launched by the
Mutual Funds Sponsored by these entities is of similar type. It may be mentioned here
that UTI is not registered with SEBI as a Mutual Fund.

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 ADVANTAGES & DISADVANTAGES OF
MUTUAL FUND

ADVANTAGES:

Professional Management:

The Primary Advantage of Funds is the Professional Management of your Money.

Investors Purchase Funds because they do not have the Time or the Expertise to manage
their own Portfolio. A Mutual Fund is a Relatively Inexpensive Way for a Small Investor
to Get a Full-Time Manager to make and Monitor Investments.

Diversification:

By Owning Shares in a Mutual Fund Instead of Owning Individual Stocks or Bonds,

Your Risk is spread out. The Idea behind Diversification is to Invest in a Large Number
of Assets so that a Loss in any Particular Investment is minimized by Gains in Others. In
Other Words, the More Stocks and Bonds You Own, the less any one of them can hurt
you .Large Mutual Funds typically own Hundreds of Different Stocks in Many Different
Industries. It wouldn't be possible for an Investor to build this kind of a Portfolio with a
Small Amount of Money.
Liquidity:

Just like an Individual Stock, A Mutual Fund allows you to Request that Your Shares be
Converted into Cash at any Time.

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Economies of Scale:

Because a Mutual Fund buys and sells Large Amounts of Securities at a Time, Its
Transaction costs are lower than you as an Individual would pay.

Convenience:

Mutual Funds offer services that Make Investing Easier. Fund Shares can be Bought or
Sold by Mail, Telephone, or the Internet, so you can easily Move your Money from one
Fund to another as your Financial needs change. You can even Schedule Automatic
Investments into a Fund from your Bank Account, or you can Arrange Automatic
Transfers from a Fund to your Bank Account to Meet Expenses. Most Major Fund
Companies offer Extensive Recordkeeping Services to help you Track your Transactions,
Complete your Tax returns, and Follow your Funds' Performance.

 Well Regulated:

All Mutual Funds are registered with SEBI and they function within the provisions of
strict regulations designed to protect the interests of 'Investors. The operations of Mutual
Funds are regularly monitored by SEBI.

DISADVANTAGES

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Size:

Some Mutual Funds are too big to Find Enough Good Investments. This is Especially
True of Funds that Focus on Small Companies, Given that there is Strict Rules about how
much of a single company a Fund may own.

Taxes:

Every Buy and Sell within the Mutual Fund creates a Tax consequence for the Investor.

Cash, Cash and More Cash:

Mutual Funds Pool Money from Thousands of Investors, So Everyday Investors are
Putting Money into the Fund as Well as Withdrawing Investments. To Maintain Liquidity
and the Capacity to accommodate Withdrawals, Funds typically have to keep a Large
Portion of their Portfolio as Cash. Having ample Cash is great for Liquidity, but Money
Sitting around as Cash is not working for you and thus is not very advantageous.

No Insurance:

Mutual Funds, Although Regulated by the Government, are not insured against Losses.
The Federal Deposit Insurance Corporation (FDIC) only Insures against Certain Losses at
Banks, Credit Unions, and Savings and Loans, not Mutual Funds. That Means That
Despite the Risk - Reducing Diversification Benefits provided by Mutual Funds, Losses
Can Occur, and It Is possible (although extremely unlikely) that you could even lose your
Entire Investment.
 Risk:

21
22
MUTUAL FUND TYPES

23
TYPES OF SCHEMES:

SCHEMES ACCORDING TO MATURITY PERIOD:

A mutual fund scheme can be classified into open-ended scheme or close-ended scheme
depending on its maturity period.

 Open-ended Fund/ Scheme:

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-end schemes is liquidity.

 Close-ended Fund/ Scheme:

A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 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 issue and thereafter
they can buy or sell the units of the scheme on the stock exchanges where the units are
listed. 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. SEBI Regulations stipulate that at least one of the two exit routes is
provided to the investor i.e. either repurchase facility or through listing on stock
exchanges. These mutual funds schemes disclose NAV generally on weekly basis.

24
SCHEMES ACCORDING TO INVESTMENT OBJECTIVE:

A scheme can also be classified as growth scheme, income scheme, or balanced scheme
considering its investment objective. Such schemes may be open-ended or close-ended
schemes as described earlier. Such schemes may be classified mainly as follows:

 Growth / Equity Oriented Scheme:

The aim of growth funds is to provide capital appreciation over the medium to long-
term. Such schemes normally invest a major part of their corpus in equities. Such funds
have comparatively high risks. These schemes provide different options to the investors
like dividend option, capital appreciation, etc. and the investors may choose an option
depending on their preferences. The investors must indicate the option in the application
form. The mutual funds also allow the investors to change the options at a later date.
Growth schemes are good for investors having a long-term outlook seeking appreciation
over a period of time.

 Income / Debt Oriented Scheme:

The aim of income funds is to provide regular and steady income to investors. Such
schemes generally invest in fixed income securities such as bonds, corporate debentures,
Government securities and money market instruments. Such funds are less risky
compared to equity schemes. These funds are not affected because of fluctuations in
equity markets. However, opportunities of capital appreciation are also limited in such
funds. The NAV's of such funds are affected because of change in interest rates in the
country. If the interest rates fall, NAV’s of such funds are likely to increase in the short
run and vice versa. However, long term investors may not bother about these fluctuations.

 Balanced Fund:

The aim of balanced funds is to provide both growth and regular income as such schemes
invest both in equities and fixed income securities in the proportion indicated in their
offer documents. These are appropriate for investors looking for moderate growth. They

25
generally invest 40-60% in equity and debt instruments. These funds are also affected
because of fluctuations in share prices in the stock markets. However, NAVs of such
funds are likely to be less volatile compared to pure equity funds.

 Money Market or Liquid Fund:

These funds are also income funds and their aim is to provide easy liquidity, preservation
of capital and moderate income. These schemes invest exclusively in safer short-term
instruments such as treasury bills, certificates of deposit, commercial paper and inter-
bank call money, government securities, etc. Returns on these schemes fluctuate much
less compared to other funds. These funds are appropriate for corporate and individual
investors as a means to park their surplus funds for short periods.

 Gilt fund:

These funds invest exclusively in government securities. Government securities have no

default risk. NAVs of these schemes also fluctuate due to change in interest rates and
other economic factors as is the case with income or debt oriented schemes.

 Index funds:

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index,
S&P NSE 50 index (Nifty), etc these schemes invest in the securities in the same weight
age comprising of an index. NAV’s of such schemes would rise or fall in accordance with
the rise or fall in the index, though not exactly by the same percentage due to some
factors known as "tracking error" in technical terms. Necessary disclosures in this regard
are made in the offer document of the mutual fund scheme.

There are also exchange traded index funds launched by the mutual funds which are
traded on the stock exchanges.

26
 Snapshot of Mutual Fund Schemes

Who
Mutual Fund Investment Investment
Objective Risk should
Type Portfolio horizon
invest
Those who
Treasury Bills, park their
Liquidity +
Certificate of funds in
Moderate
Deposits, current
Money Market Income + Negligible 2 days - 3 weeks
Commercial accounts or
Reservation
Papers, Call short-term
of Capital
Money bank
deposits
Call Money,
Short-term Commercial
Funds Papers, Those with
(Floating - Liquidity + Little
Treasury Bills, surplus 3 weeks -
short-term) Moderate Interest
CDs, Short- short-term 3 months
Income Rate
term funds
Government
securities.
Predominantly
Bond Funds Debentures,
Credit Risk Salaried &
Regular Government More than 9 - 12
& Interest conservativ
(Floating - Income securities, months
Rate Risk e investors
Long-term) Corporate
Bonds
Salaried &
Security & Interest Government 12 months &
Gilt Funds conservativ
Income Rate Risk securities more
e investors
Aggressive
Long-term investors
Equity Funds Capital High Risk Stocks with long 3 years plus
Appreciation term out
look.
To generate
returns that
NAV varies Portfolio
are
with index indices like Aggressive
Index Funds commensurat 3 years plus
performanc BSE, NIFTY investors.
e with returns
e etc
of respective
indices
Balanced ratio
Capital
of equity and
Growth & Market Risk
Balanced debt funds to Moderate &
Regular and 2 years plus
Funds ensure higher Aggressive
Income Interest
returns at
Rate Risk
lower risk

THE IDEA BEHIND MUTUAL FUND

27
Mutual Funds in India

28
The year 1993 was a remarkable turning point in the Indian Mutual Fund industry. The
stock investment scenario till then was restricted to UTI (Unit Trust of India) and public
sector. This year marked the entry of private sector mutual funds, giving the Indian
investors a wider choice of selecting mutual funds. From then on, the graph of mutual
fund players has been on the rise with many foreign mutual funds also setting up funds
in India. The industry has also witnessed several mergers and acquisitions proving it
advantageous to the Indian investors.

Are mutual funds emerging as preferred investment option? Are they safe and will your
money be secured with them? Before proceeding to answer these questions, a look at
the February 2006, Indian bull market scenario is worth a mention.

For the first time ever, stock market indices in India are at a record high. The Bombay
Stock Exchange closed above the 10,000-mark for the first time ever, an ecstatic event
in the history of the Stock exchange. Market savvy Indian investors have been busy
transacting across sectors such as banking automobile, sugar, consumer durable, fast
moving consumer goods (FMCG) and pharmaceutical scripts. And, the Union Finance
Minister, Mr.P.Chidambaram, has responded positively and advised investors to take
informed decisions or invest through mutual funds.

Mutual funds are not considered any more as obscure investment opportunities. The
mutual funds assets have registered an annual growth rate of 9% over the past 5 years.
Considering the current trend and the relative positive response of the Indian economy,
a much bigger jump is on the anvil.

Some of the major players on the Indian mutual

fund scene:

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ABN AMRO Mutual Fund LIC Mutual Fund

Benchmark Mutual Fund Morgan Stanley Mutual Fund

Birla Mutual Fund PRINCIPAL Mutual Fund

BOB Mutual Fund Prudential ICICI Mutual Fund

Canbank Mutual Fund Reliance Mutual Fund

Chola Mutual Fund ICICI PRUDENTIAL Mutual Fund

Deutsche Mutual Fund SBI Mutual Fund

DSP Merrill Lynch Mutual Fund .0 Chartered Mutual Fund

Escorts Mutual Fund Sundaram Mutual Fund

Fidelity Mutual Fund Tata Mutual Fund

Franklin Templeton Investments Taurus Mutual Fund

HDFC Mutual Fund Unit Trust of India

HSBC Mutual Fund UTI Mutual Fund

ING Vysya Mutual Fund Kotak Mahindra Mutual Fund

JM Financial Mutual Fund

Different Indian mutual funds allow investors various solutions ranging from retirement
planning and buying a house to planning for child's education or marriage. Tax-wise
stocks and mutual funds work similarly since long-term capital gains from both stocks
and equity-oriented mutual funds are tax-free.
In India, SEBI (The Securities and Exchange Board of India) is the
regulating authority that SEBI formulates policies and regulates the mutual
funds to protect the interest of the Indian investors. There have been
revisions and amendments from time to time.

30
Even mutual funds promoted by foreign entities come under the purview of
SEBI when operating in India. SEBI has revised its regulations to allow
Indian mutual funds to invest in both gold and gold related instruments.

How to invest in Mutual Funds

Step One - Identify your Investment needs:

Your financial goals will vary, based on your age, lifestyle, financial
independence, family commitments, and level of income and expenses among many
other factors. Therefore, the first step is to assess your needs. You can begin by defining
your investment objectives and needs which could be regular income, buying a home or
finance a wedding or educate your children or a combination of all these needs, the
quantum of risk you are willing to take and your cash flow requirements.
Step Two - Choose the right Mutual Fund:

The important thing is to choose the right mutual fund scheme which suits your
requirements. The offer document of the scheme tells you its objectives and provides
supplementary details like the track record of other schemes managed by the same Fund
Manager. Some factors to evaluate before choosing a particular Mutual Fund are the track
record of the performance of the fund over the last few years in relation to the appropriate
yardstick and similar funds in the same category. Other factors could be the portfolio
allocation, the dividend yield and the degree of transparency as reflected in the frequency
and quality of their communications. For selecting the right scheme as per your specific
requirements, click here.

Step Three - Select the ideal mix of Schemes:

31
 Investing in just one Mutual Fund scheme may not meet all your investment
needs. You may consider investing in a combination of schemes to achieve your specific
goals.

Step Four - Invest regularly:

The best approach is to invest a fixed amount at specific intervals, say every
month. By investing a fixed sum each month, you buy fewer units when the price is
higher and more units when the price is low, thus bringing down your average cost per
unit. This is called rupee cost averaging and is a disciplined investment strategy followed
by investors all over the world. You can also avail the systematic investment plan facility
offered by many open end funds.

Step Five- Start early:

It is desirable to start investing early and stick to a regular investment plan. If you
start now, you will make more than if you wait and invest later. The power of
compounding lets you earn income on income and your money multiplies at a
compounded rate of return.

Step Six - The final step:

All you need to do now is to Click here for online application forms of various
mutual fund schemes and start investing. You may reap the rewards in the years to come.
Mutual Funds are suitable for every kind of investor - whether starting a career or
retiring, conservative or risk taking, growth oriented or income seeking.

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Rights of a Mutual Fund Unit holder

A unit holder in a Mutual Fund scheme governed by the SEBI (Mutual Funds)
Regulations, is entitled to:

Receive unit certificates or statements of accounts confirming the title within 6

weeks from the date of closure of the subscription or within 6 weeks from the date of
request for a unit certificate is received by the Mutual Fund.

Receive information about the investment policies, investment objectives,

financial position and general affairs of the scheme.

Receive dividend within 42 days of their declaration and receive the redemption
or repurchase proceeds within 10 days from the date of redemption or repurchase.

Vote in accordance with the Regulations to:

Approve or disapprove any change in the fundamental investment policies of the

scheme, which are likely to modify the scheme or affect the interest of the unit holder.
The dissenting unit holder has a right to redeem the investment.
Change the Asset Management Company.
Wind up the schemes.
Inspect the documents of the Mutual Funds specified in the scheme's offer document.

Mutual Funds - A Globally Proven Investment

33
 All investments whether in shares, debentures or deposits involve risk. Share
value may go down depending upon the performance of the company, the industry, state
of capital markets and the economy. Generally however, longer the term lesser the risk.
Companies may default in payment of interest and principal on their
debentures/bonds/deposits. While risk cannot be eliminated, skillful management can
minimize risk. Mutual Funds help to reduce risk through diversification and professional
management. The experience and expertise of Mutual Fund managers in selecting
fundamentally sound securities and timing their purchases and sales help them to build a
diversified portfolio that minimizes risk and maximizes returns.

Worldwide, the Mutual Fund, or Unit Trust as it is called in some parts of the
world, has almost overtaken bank deposits and total assets of insurance funds. As of date,
in the US alone there are over 5,000 Mutual Funds with total assets of over US $ 3
trillion (Rs.l00 lakh crores). In India there are 38 Mutual Funds and over 300 schemes
with total assets of approximately Rs. 100,000 crores. All mutual funds in India are
regulated by the Securities and Exchange Board of India(SEBI) Tax benefits on mutual
funds.
Since, April 1, 2003, all dividends declared by debt-based mutual funds are tax-
free in the hands of the investor. A dividend distribution tax of 15% is be paid by the
mutual fund on the dividends declared by the fund.
Section 2(EA)
No. Units held under the Scheme of the Fund are not treated as assets within the
meaning of Section 2(EA) of the Wealth Tax Act, 1957 and are, therefore, not liable to
Wealth Tax.
Section 2(42A):
Under Section 2(42A) of the Act, a unit of a mutual fund is treated as short-term
capital asset if the same is held for less than 12 months. The units held for more than 12
months are treated as long-term capital asset.
Section 10(23D):
Under provisions of Section 10(23D) of the Act, any income received by the
Mutual Fund is exempt from tax.

34
Section 10(38):
Under Section 10(38) of the Act, long-term capital gains arising from transfer of a
unit of mutual fund is exempt from tax if the said transaction is undertaken after October
1, 2004 and the securities transaction tax is paid to the appropriate authority.
Section 88:
Under Section 88, contributions made from taxable income in the specified
investments qualifies for a tax rebate of 20% where gross total income is up to Rs
150,000 and 15% of the invested amount where gross total income is between Rs 150,000
and Rs 500,000, subject to a maximum aggregated ceiling of Rs 70,000.
Section 111A:
Under Section 111A of the Act, short-term capital gains arising from transfer of a
unit of mutual fund is chargeable to tax @ 10% (plus applicable surcharge) if the said
transaction is undertaken after October 1, 2004 and the securities transaction tax is paid.
However, such securities transaction tax will be allowed as rebate under Section 88E
of the Act if the transaction constitutes business income.

Section 112:
Under Section 112 of the Act, capital gains, not covered by the exemption under
Section 10(38), chargeable on transfer of long-term capital assets are subject to following
rates of tax:
Resident Individual & HUF --- 20% plus surcharge.
Partnership Firms & Indian Companies --- 20% plus surcharge.
Foreign Companies --- 20% (no surcharge).
'Units' are included in the proviso to the sub-section (1) to Section 112 of the Act
and hence unit holders can opt for being taxed at 10% (plus applicable surcharge)
without the cost inflation index benefit or 20% (plus applicable surcharge) with the cost
inflation index benefit whichever is beneficial.
Section 115AB:

35
 Under Section 115AB of the Income Tax Act, 1961, long-term capital gains in
respect of units purchased in foreign currency by an overseas financial organization held
for a period of more than 12 months will be chargeable at the rate of 10%. Such gains
will be calculated without indexation of cost of acquisition.
No surcharge is applicable for taxes under section 115AB, in respect of corporates.
Section 115E:
Under Section 115E of the Act, capital gains chargeable on transfer of long-term
capital assets of an Non-Resident Indians (NRIs) are subject to following rates of tax:
i) Investment income: --- 20%
ii) Long term capital gains: --- 10%
Section 115R: Under Section 115R, the Income distributed to a unit holder of a
Mutual Fund shall be charged to following rates of tax to be payable by the Mutual Fund.
Amounts distributed to individual or HUF: 12.5%.
Amounts distributed to others: 20.0%.
However, the above distribution tax will be exempted for open-ended Equity-
Oriented Funds (funds investing more than 50% in equity or equity related instruments).
For investment in infrastructure bonds and/or equity-linked saving schemes (ELSS) (not
exceeding Rs 10,000/- under clause (23D) of Section 10), or eligible issue of equity
shares or debentures the maximum qualifying investment limit for tax rebate is Rs
100,000. However, such tax rebate is not available in respect of tax on long-term capital
gains as per Section 112 and short-term capital gains as per Section 111A of the Act.
No. Units of the mutual fund may be given as a gift and no gift tax will be payable either
by the donor or the donee; since mutual funds do not fall within the purview of the Gift
Tax Act.
The capital gain, which is not exempt from tax as explained above, can be invested in the
specified asset mentioned below within 6 months of the sale.

REGULATION ON THE INVESTEMENTS OF

A MUTUAL FUND

36
 The investments of a mutual fund are subject to a set of regulations prescribed by
SEBI. Presently the following restrictions apply;
No term loan shall be granted by a mutual fund scheme.

A mutual fund, under all its schemes taken together, will not own more than 10
percent of any company’s paid up capital carrying voting rights.
A scheme may invest in another scheme under the same asset management company or
any other mutual fund without charging any fees, provided that the aggregate inter-
scheme investments made by all the schemes under the same management or in schemes
under the management of any other asset management company shall not exceed 5
percent of the net asset value of the mutual fund.
Transfers of investments from one scheme to another scheme of a mutual fund are
permitted provided that :
Such transfers are done at the prevailing market price for quoted instruments on spot
basis.
The securities so transferred shall be in conformity with the investments objective of the
scheme to which such transfer has been made.
The registration and accounting of the transaction is completed and ratified in the next
meeting of the Board of Trustees, of the regulations so require.
A mutual fund may borrow to meet liquidity needs, for the purpose of repurchase,
redemption of units, or payment of interest or dividend to the unit holders. Such
borrowing shall not exceed 20 percent of the net assets of the scheme and the duration of
the borrowing shall not exceed 6 months. The fund may borrow from permissible entities
at prevailing market rates and may offer the assets if the scheme as collateral for such
borrowings.
A scheme shall not invest more than 15 percent of its NAV in debt instruments
issued by a single issuer which are rates not below investment grade by an authorized
credit rating agency. Such investment limit may be extended to 20 percent of the NAV of
the scheme with the prior approval of the Board of Trustees and the Board of Asset
Management Company. This limit, however, is not applicable for investments in
government securities and money market instruments.

37
 A scheme shall not invest more than 10 percent of its NAV in unrated debt
instruments issued by a single issuer and the total investment on such instruments shall
not exceed 25 percent of the NAV of the scheme. All such investments shall be made
with the prior approval of the Board of Trustees and the Board of Asset Management
Company.
A mutual fund will buy and sell securities on the basis of deliveries. It cannot
make short sales or engage in carry forward transactions.
A mutual fund can enter into derivatives transactions on a recognized stock
exchange for purposes of hedging and portfolio balancing in accordance with SEBI
guidelines.
A scheme shall not make any investment in (a) any unlisted security of an
associate or group company of the sponsor or (b) any security issued by way of private
placement by an associate or group company of the sponsor or (c) the listed securities of
group companies of the sponsor in excess of 25 percent of the net assets.
The investment manager may invest in a scheme from time to time. The percentage of
such investments to the total net assets may vary from time to time and can be upto 100
percent of the net assets of the scheme. However, the investment manager shall not chare
any fees on its investments in the scheme.
A scheme shall not invest more than 10 percent of its NAV in the equity shares or
equity related instruments of any one company. In sector specific funds, the investment
on single scrip shall not exceed the weightage of the scrip in the representative Sectoral
index / sub-index if any, or 10 percent of the NAV of the scheme whichever is higher.
This limit, however, will not apply to index funds because on that case the exposure to a
company’s stock would depend on the weightage of the stock on the benchmark index.
A scheme invests in ADRs /GDRs of Indian companies listed on overseas stock
exchanges to the extent and in a manner approved by RBI. The fund will employ
necessary measures to manage foreign exchange movements arising out of such
investments.
A scheme shall not invest more than 5 percent of its NAV in unlisted equity shares or
equity related instruments in case of an open ended scheme and 10 percent of its NAV in
case of a close ended scheme.

38
 A fund of fund scheme shall be subject to the following restrictions;
a) It shall not invest in the schemes of any other fund.
b) It shall not invest in assets other than in the schemes of the mutual funds except to
the extent of funds required for meeting the liquidity requirements for the purpose of
repurchase or redemption.
Traded securities have to valued at the last quoted closing price on the exchange where
the security is principally traded. Non- traded securities shall be valued “in good faith” by
the AMC on the basis of appropriate valuation methods.
For the purpose of the financial statements, mutual funds shall mark all investments to
market and carry investments in balance sheet at marked value. However, since the
unrealized gain arising out of appreciation in investments cannot be distributed, provision
has to be made fir the exclusion of this item when arriving at distributable income.

CODE OF CONDUCT

• Mutual fund schemes should not be organized. Managed or the portfolio of

securities selected, in the interest of sponsors, directors of asset management companies
, members of Board of trustee company, associated persons in the interest of special
class of unitholders rather than in the interest if all classes of unitholders of the
schemes.
• Trustees and asset management companies must ensure the dissemination to all
unitholders of adequate, accurate, explicit and timely information fairly presented in a
simple language about the investment policies, investment objectives, financial position
and general affairs if the scheme.

39
• Trustees and asset management companies should avoid excessive concentration
of business with mutual fund firms, affiliates and also excessive holding of units in a
scheme among a few investors.
• Trustees and asset management companies must avoid conflicts if interest in
Trustees and asset management companies must n managing the affairs if the schemes
and keep the interest if all unitholders paramount in all matters.
• Trustees and asset management companies must ensure scheme wise
segregation of [bank accounts] and securities accounts.
• Trustees and asset management companies shall carry out the business and invest in
accordance with the investment objectives stated in the offer documents and take
investment decision solely in the interest of unitholders.
• Trustees and asset management companies must not use any unethical means to
sell; market or induce any investor to buy their schemes.
• Trustees and asset management companies shall maintain high standards of
integrity and fairness in all their dealings and in the conduct if their business.
• Trustees and asset management companies shall render at all times high
standards of service, exercise due diligence, ensure proper care and exercise
independent professional judgment.
• Trustees and asset management companies shall not make any exaggerated
statement, whether oral or written, either about their qualifications or capability to
render investment management services in their achievements.

40
41
 CHAPTER-3
COMPANY PROFILE

INTRODUCTION To ICICI PRUDENTIAL

MUTUAL FUND:
Asset Management Company enjoys the strong parentage of
Prudential plc, one of UK's largest players in the insurance & fund management sectors
and ICICI Bank, a well-known and trusted name in financial services in India. ICICI
Prudential Asset Management Company, in a span of just over eight years, has forged a
position of pre-eminence in the Indian Mutual Fund industry as one of the largest asset
management companies in the country with average assets under management of Rs.
73,822.45 Crore (as of June 30, 2010). The Company manages a comprehensive range of
schemes to meet the varying investment needs of its investors spread across 230 cities in
the country.

42
Key Indicators
At inception
As on June 30, 2010
May 1998
Average Assets Under
Rs. 160 Crore Rs. 73,822.45 Crore
Management
Number of Funds Managed 2 40

Sponsors

Securities and Exchange Board of India, vide its letter no. MFD/PM/567/02
dated June 4, 2002, has accorded its approval in recognizing ICICI Bank Ltd.
as a co-sponsor consequent to the merger of ICICI Ltd. with ICICI Bank Ltd.

ICICI Bank is India's second-largest bank with total assets of Rs. 3,997.95
billion (US$ 100 billion) at March 31, 2008 and profit after tax of Rs. 41.58
billion for the year ended March 31, 2008. ICICI Bank is second amongst all
the companies listed on the Indian stock exchanges in terms of free float
market capitalization Free float holding excludes all promoter holdings,
strategic investments and cross holdings among public sector entities. The
Bank has a network of about 1,308 branches and 3,950 ATMs in India and
presence in 18 countries. ICICI Bank offers a wide range of banking products
and financial services to corporate and retail customers through a variety of
delivery channels and through its specialised subsidiaries and affiliates in the
areas of investment banking, life and non-life insurance, venture capital and
asset management. The Bank currently has subsidiaries in the United
Kingdom, Russia and Canada, branches in Unites States, Singapore, Bahrain,
Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and
representative offices in United Arab Emirates, China, South Africa,
Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has
established branches in Belgium and Germany. ICICI Bank's equity shares are

43
listed in India on Bombay Stock Exchange and the National Stock Exchange
of India Limited and its American Depositary Receipts (ADRs) are listed on
the New York Stock Exchange (NYSE). (Source: Overview at
www.icicibank.com).

Headquartered in London, Prudential plc and its affiliated companies together

constitute one of the world's leading financial services groups. Prudential
provides insurance and financial services in a number of markets around the
world, including in Asia, the US, the UK, Europe and the Middle East.
Founded in 1848, the company has £249 billion in funds under management
(as of 31 December 2008) and more than 21 million customers worldwide.

Prudential has been writing life insurance in the United Kingdom for 160
years and has had the largest long-term fund in the United Kingdom, for over
a century. In the United Kingdom, Prudential is a leading retirement savings
and income solutions and life assurance provider. M&G is Prudential's fund
management business in the United Kingdom and Europe, with almost £140
billion in funds under management (as of 31 December 2008). In the United
States, Jackson National Life, which we acquired in 1986, is one of the largest
life insurance companies providing retirement savings and income solutions.

In Asia, Prudential is the leading Europe-based life insurer in terms of market

coverage and number of top three ranking positions. It is also one of the
largest and most successful fund managers in Asia with more top five market
rankings than any other regional player. Today, Prudential has life insurance
and fund management operations spanning 13 diverse markets in Asia.

Prudential plc is incorporated and with its principal place of business in the
United Kingdom. It is not affiliated in any manner with Prudential Financial,
Inc., a company whose principal place of business is in the United States.

44
PRODUCTS OF ICICI PRUDENTIAL MUTUAL
FUND:
Equity schemes

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

• Dynamic Plan.

• Power Fund.

• Tax Plan.

• Focused Blue Chip.

• Indo Asia Fund.

45
• Emerging S.T.A.R Fund.

• Growth Plan.

• Discovery Fund.

• Opportunities Fund.

• Child Care Plan (Gift).

• Target Returns Fund.

• Infrastructure Fund.

• Service Industries Fund.

• Fast moving consumer good Fund.

• Banking & Financial Fund.

• Technology Fund.

• Monthly Income Plan Fund.

• Monthly Income Plan25.

46
 • Child Care Plan (Study).

INCOME SCHEME FUNDS:

• Liquid income Plan.

• Flexible Income Plan.

• Floating Income Plan.

• Ultra Short Term.

• Short Term Plan.

DEBT SCHEME FUMDS:

Debt invest only in debt instruments such as corporate bonds, Govt. securities
and money market instruments either completely avoiding any investment in stock
markert as in income funds or gilt funds or having a small exposure as in monthly income
plans or child plans. Hence they are safer than equity funds. At the same time the
expected returns would be lower. Such investments are advisable for the risk-averse
investors and as a part of investment portfolio for other investors.
• Income Opportunities.

• Income Plan Fund.

BALANCED SCHEMES FUNDS:
Icici pru balanced fund invest in mix of both equity and debt
investments. Hence there is less risk when compared to equity funds, but at the same time
provide commensurately less returns. They provide a good investment opportunity to
investors who do not wish to expose completely to equity market, but is looking for
higher returns provided by debt markets.

47
 • Balanced Fund.

COMPETITORS OF ICICI PRUDENTIAL

MUTUAL FUND
Some of the main competitors of ICICI PRUDENTIAL Mutual Fund in Hyderabad
are as Follows:

i. S.B.I Mutual Fund

ii. Reliance Mutual Fund

iii. U T I Mutual Fund

iv. Birla Sun Life Mutual Fund

v. Kotak Mutual Fund

vi. HDFC Mutual Fund

vii. Sundaram Mutual Fund

viii. L.I.C Mutual Fund

ix. Principal

x. Franklin Templeton

48
49
AWARDS AND ACHIEVEMENTS:

Category - Mixed Asset INR Flexible

Seven Star Fund of the Year

ICRA Mutual Fund Awards 2010
Category - Open Ended Equity - Tax Planning

Seven Star Fund of the Year

ICRA Mutual Fund Awards 2010
Category - Open Ended Equity - Diversified
Defensive

CNBC - TV 18
CRISIL Mutual Fund Awards 2010
Category - Most Innovative Fund of the Year

CNBC - TV 18
CRISIL Mutual Fund Awards 2010
Category - Liquid Fund

Seven Star Fund of the Year

ICRA Mutual Fund Awards 2010
Category - Open Ended Gilt

CNBC - TV 18
CRISIL Mutual Fund Awards 2010
Category - Gilt Funds

50
VISION

To provide best value for money to investors through innovative products, trading
investments strategies state of the art of technology and personalized services.

OUR BUSINESS PHILOSOPHY

Ethical practices and transparency in all our dealings customer interest above our own
always deliver what we promise effective cost management .

QUALITY ASSURANCE POLICY

we are committed to being the leader in providing world class products and services
which exceed the expectations of our customers achieved by teamwork and a process of
continuous improvement

SERVICES
ICICI PRU DIET
Wealth Creation & Concept of Model Portfolio
Periodic Evaluation

ICICI PRU ANYWHERE

Expert Advice
Timely Entry & Exit
De-Risking Portfolio.

COMMODITIES MARKETS
Indian markets have recently thrown open a new avenue for retail investors and traders to
participate: commodity derivatives. For those who want to diversify their portfolios
beyond shares, bonds and real estate, commodities is one of the best.

51
Commodities actually offer immense potential to become a separate asset class for
market-savvy investors, arbitrageurs and speculators. Commodities are easy to
understand and are based on the fundamentals of demand and supply. Retail investors
should understand the risks and advantages of trading in commodities futures before
taking a leap. Historically, prices in commodities futures have been less volatile
compared with equity and bonds, thus providing an efficient portfolio diversification
option.

ICICI PRU ADVANTAGE

At ICICI PRU we provide clients with an effective platform to participate and trade in
Commodities Futures with both the leading Commodity Exchanges of the country

TOP QUALITY RESEARCH

Professionally qualified analysts with rich industry experience
Research on 25 Agro Commodities, Precious Metals, Base Metals,Energy.
products and Polymers

ONLINE TRADING
Single Screen customized market watch for MCX / NCDEX with BSE /NSE.Streaming
quotes & intra-day trading calls

PRO-ACTIVE RELATIONSHIP MANAGEMENT

Relationship management desk
Educating clients on commodities futures market

INVESTMENT ADVISORY
To derive optimum returns from equity as an asset class requires professional guidance
and advice. Professional assistance will always be beneficial in wealth creation.
Investment decisions without expert advice would be like treating ailment without the
help of a doctor.

52
RESEARCH DEPARTMENT
Strong research has always been our forte. Our investment advisory department is backed
by an experience research team. This team comprises of 12 sectorial special analysts and
a Research Head. Their vast experience and expertise in spotting great investments
opportunities has always been beneficial for our clients.

BENEFITS AT ICICI PRU

Expert Advice: Our expert investment advisors are based at various branches across India
to provide assistance in designing and monitoring portfolios.
Timely Entry & Exit: Our advisors will regularly monitor your investments and will
guide you to book timely profits. They will also guide you in adopting switching
techniques from one stock to another during various market conditions.
De-Risking Portfolio: A diversified portfolio of stocks is always better than concentration
in a single stock. Based on our research, we diversify the portfolio in growth oriented
sectors and stocks to minimize the risk and optimize the returns.

PORTFOLIO MANAGEMENT SERVICES

Successful investing in Capital Markets demands ever more time and expertise.
Investment Management is an art and a science in itself. Professional Investment
Management Services are no longer the privilege of only large institutional investors.
Portfolio Management Services (PMS) is one such service that is fast gaining eminence
as an investment avenue of choice for High Networth Investors like you. PMS is a
sophisticated investment vehicle that offers a range of specialized investment strategies to
capitalize on opportunities in the market. The Portfolio Management Service combined
with competent fund management, dedicated research and technology, ensures a
rewarding experience for its clients
ICICI PRU PMS brings with it years of experience, expertise, research and the backing of
India's leading stock mutual fund house. At ICICI PRU, experienced portfolio
management is the difference. You will enjoy a relationship with a portfolio manager
equipped to design and implement a portfolio around your unique needs. We will advise
you on a suitable product based on factors such as your investment horizon, return

53
expectations and risk tolerance. By entrusting the management of your Portfolios to
ICICI PRU, you can enjoy convenience without compromising on quality.

ICICI PRU MUTUAL FUND

The ICICI PRU Mutual Fund distribution and advisory division offers you the
opportunity to diversify your investment portfolio. By offering a choice of investment
schemes from all major mutual fund providers we have taken our 100% retail-focused
philosophyfurther.
ICICI PRU Mutual Fund offers options catering to investors with varying risk-return
profiles. We also help investors to choose the best mutual fund, based on their investment
needs..

ICICI PRU ADVANTAGE

Wide presence across India
Facility to transact Online as well as Offline
Schemes of all major fund houses available
Latest NFO's, MF News & Fund Manager views
Information & tools to help select the right scheme
Dedicated customer helpdesk
24 X 7 web enabled Backoffice1

DEPOSITORY PARTICIPANT
You must be aware that ICICI PRU Mutual fund Ltd has started its depository services
by registering with CDSL. There are various benefits of holding your demat account with
us but the biggest advantage is that you shall be ensured of a risk free, prompt and
efficient depository process. Since our association is slated for a long time, we are in a
much better position to know your requirement regarding your holding and transfer of
securities.No physical instructions are required for your sell obligations.
The transaction charges that are being levied by us are the lowest in the industry as we
believe in providing quality services at the most affordable costs.
You have an option of choosing the products offered by CDSL:

54
Easy facility: You can view, download and print the updated holding of your demat
account along with valuation of holding.
Easiest facility:
You can, by using this facility, submit your own delivery instructions on the
internet without the intervention of your DP. This is in addition to all the facilities
provided under the 'Easy' facility.
We would like you to know that the state of art technology being arranged for you is the
best in the industry and all this is done so that you have convenience of accessing
information from any desired location.

Private Client Group

ICICI PRU offers personalized advisory services to affluent HNI investors and
actively assists them in managing their portfolio. PCG can seek guidance on specific
stocks in their portfolio and can get pro active advice for timely exit and fresh
investments. Here we also design customized products and services for our clients based
on there risk profile, returns need and time horizon.
Our experienced research team, in-depth analysis and customized value added products
and services give us an immense advantage in assisting you to generate wealth on a
longer and consistent basis.

Features
Minimum Portfolio size of Rs.1Cr. for residents and Rs.1.5Cr for NRIs is the eligibility
for PCG.
Portfolios are customized after a due discussion with clients and our research team.
Deployment of funds can be among various investing avenues available with us including
PMS, mutual fund, advisory.
Meetings and one to one discussion with our fund managers, chief investment officer and
Research director.

55
 CHAPTER-4

PERFORMANCE MEASURES OF MUTUAL

FUNDS

56
 PERFORMANCE MEASURE OF MUTUAL
FUNDS

BETA:

Beta is- a fairly commonly used Measure of Risk. It basically indicates the Level of
volatility associated with the Fund as compared to the Benchmark.

A beta that is greater than one means that the fund is more volatile than the benchmark,
while a beta of less than one means that the fund is less volatile than the index. A fund
with a beta very close to 1 means the fund's performance closely matches the index or
benchmark

BETA= n∑(x y)-∑(x)∑(y)/n(x2)-∑(x2)

Or
Beta = Co-variance(SENSEX, Stock)/ Variance(SENSEX)

ALPHA:

Alpha is the difference between the returns one would expect from a fund, given its beta,
and the return it actually produces.

An alpha of -1.0 means the fund produced a return 1% higher than its beta would predict.
An alpha of 1.0 means the fund produced a return 1% lower. If a fund returns more than
its beta then it has a positive alpha and if it returns less then it has a negative alpha.

Alpha=y-β

57
STANDARD DEVIATION:

The most basic of all measures- Standard Deviation allows you to evaluate the volatility
of the fund. Put differently it allows you to measure the consistency of the returns.

Volatility is often a direct indicator of the risks taken by the fund. The standard deviation
of a fund measures this risk by measuring the degree to which the fund fluctuates in
relation to its mean return, the average return of a fund over a period of time.

COEFFICIENT OF DETERMINATION:

The coefficient of determination is a statistical measure of the association between the

dependent and independent variables in a regression analysis. In mutual fund
performance reports, the R2 measures how closely the fund tracks or moves in relation to
its benchmark.

RISK FREE RATE:

The theoretical Rate of Return attributed to an investment with Zero Risk. The Risk-Free
Rate represents the Interest on an Investor's Money that he or she would expect from an
absolutely Risk-Free Investment over a specified period of time.

TREYNORS MEASURE:

A Ratio developed by Jack Trey nor that measures Returns earned in excess of that which
could have been earned on a risk less investment per each unit of market risk.

The Trey nor ratio is calculated as:

(Avg Return of the Portfolio - Avg Return of the Risk-Free Rate) / Beta of the
Portfolio.

58
SHARPES MEASURE:

A Ratio developed by Nobel Laureate William F. Sharpe to measure Risk-adjusted

Performance. It is calculated by subtracting the Risk-Free Rate from the Rate of Return
for a portfolio and dividing the result by the Standard deviation of the portfolio returns.

JENSEN MEASURE:
A Risk-adjusted Performance Measure that represents the Average Return on a portfolio
over and above that predicted by the Capital Asset Pricing Model (CAPM), given the
portfolio's beta and the average market return. This is the portfolio's alpha. In fact, the
concept is sometimes referred to as "Jensen's alpha."

59
ICICI PRUDENTIAL GROWTH FUND (GROWTH
PLAN)

∑(X)∑(Y) = 889.5219

BETA = n∑(XY) – ∑ (X) ∑ (Y) / n∑ (X^2) – ∑ (X) ^2

= 0.974608

Therefore, The Beta of ICICI PRUDENTIAL Portfolio was 0.97

ALPHA = Avg(Y) – (Beta(Avg(X)))

= 0.629774

Therefore, The Alpha of ICICI PRUDENTIAL Portfolio was 0.629

COEFFICIENT OF CORRELATION :

= (n∑ (XY) – ∑ (X) ∑ (Y)) / ((n∑ (Y^2) –∑ (Y) ^2)(n∑ (X^2) – ∑ (X) ^2)) ^ (1/2)
= 0.267

COEFFICIENT OF DETERMINATION:

= (0.267) ^2 = 0.071289

Variance (X) = R(X)R(X) = 74.56584

60
 Std Deviation (σ)(X) =8.64

Variance (Y) = R(Y)*R(Y) = 64.13441

Std Deviation (σ) (Y) =8.00

RFR = 6.5634% per Annum.

TREYNOR’S MEASURE :

= (Avg ROR – RFR) / Beta.

T (X) = (2.309286 – 0.55) =1.76

T (Y) = (2.880423 – 0.55)/ 0.97=2.40

Therefore, the Treynor’s measure of S&P cnx Nifty was 1.76 & ICICI
PRUDENTIAL Portfolio was 2.40

SHARPE’S MEASURE = (Avg ROR – RFR) /Standard Deviation(σ).

S (X) = (2.309286 – 0.55) / 8.64

= 0.20
S (Y) = (2.880423 – 0.55) / 8.00 = 0.29

61
 Therefore, The Sharpe Measure of S&P cnx Nifty was 0.20 & ICICI
PRUDENTIAL Portfolio was 0.29

JENSEN MEASURE = Portfolio Return – (RFR+ (Market Return – RFR) Beta)

= 2.880423 – (0.55+ (2.309286-0.55) 0.97)

= 0.62

RELIANCE GROWTH FUND (GROWTH PLAN)

∑(X) ∑(Y) = 1679.017

BETA = n∑ (XY) – ∑ (X) ∑ (Y) / n∑ (X^2) – ∑ (X) ^2

= 0.942

Therefore, The Beta of Reliance was 0.942.

ALPHA = Avg (Y) – (Beta(Avg(X)) =0.832.

Therefore, The Alpha of Reliance was 0.832.

COEFFICIENT OF CORRELATION :
= (n∑(XY) – ∑(X)∑(Y)) / ((n∑(Y2) – ∑(Y) ^2)(n∑(X^2) – ∑(X) ^2)) ^ (1/2)

62
 = 0.904

COEFFICIENT OF DETERMINATION:

= (0.904) ^2 = 0.817

Variance (X) = R(X) R(X) = 19.636 Std Deviation (X) =4.431

Variance (Y) = R(Y) R(Y)) = 21.296 Std Deviation (Y) =4.615

RFR = 6.5634 % per Annum.

TREYNOR’S MEASURE = (Avg ROR – RFR) / Beta.

T (X) = (3.09 – 0.55) / 1

=2.54.

T (Y) = (3.774 – 0.55) / 0.942

=3.42.

Therefore, The Treynor’s measure of BSE 100 was 2.54 & Reliance Portfolio was 3.42.

SHARPE’S MEASURE = (Avg ROR – RFR) /Standard Deviation.

63
 S (X) = (3.09 – 0.55) / 4.431 = 0.57

S (Y) = (3.774 – 0.54 / 4.615

= 0.70.

Therefore, The Sharpe Measure of BSE 100 was 0.57 & Reliance Portfolio Was 0.70.

JENSEN MEASURE = Portfolio Return – (RFR+ (Market Return – RFR) Beta)

= 3.774 – (0.55 + (3.09 – 0.55) * 0.942

= 0.831

SUNDARAM GROWTH FUND (GROWTH PLAN)

∑ (X) ∑ (Y) = 1130.154

64
BETA = n∑ (X*Y) –∑ (X) ∑ (Y) / n∑ (X^2) – ∑ (X) ^2

= 2358.677 / 2910.17 = 0.81.

Therefore, The Beta of Sundaram Portfolio was 0.81.

ALPHA = Avg(Y) – (Beta (Avg(X)))

= 0.076.

Therefore, The Alpha of Sundaram Portfolio was 0.076

COEFFICIENT OF CORRELATION:

= (n∑ (XY) – ∑ (X) ∑ (Y)) / ((n∑ (Y^2) – ∑ (Y) ^2)(n∑ (X^2) – ∑ (X) ^2)) ^ (1/2)

= 0.883

COEFFICIENT OF DETERMINATION:

= (0.883) ^2 = 0.78

Variance (X) = R(X)*R(X) = 20.210 Std Deviation (X) =4.5

Variance (Y) = R(Y)*R(Y)) = 17.022 Std Deviation (Y) =4.13

RFR = 6.5634% per Annum.

65
TREYNOR’S MEASURE = (Avg ROR – RFR) / Beta.

T (X) = (3.066 – 0.55) / 1

=2.516

T (Y) = (2.559 – 0.55) / 0.81

=2.48.

Therefore, The Treynor’s Measure of Benchmark (BSE 200) was 2.516 & Sundaram
Portfolio was 2.48

SHARPE’S MEASURE = (Avg ROR – RFR) /Standard Deviation.

S (X) = (3.066 – 0.55) / 4.5

= 0.56

S (Y) = (2.559 – 0.55 / 4.13

= 0.49

Therefore, Sharpe’s Measure of BSE 200 was 0.56 & Sundaram Portfolio was 0.49

JENSEN MEASURE = Portfolio Return – (RFR+ (Market Return –

RFR) * Beta)

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 = 2.559 – (0.55 + (3.066-0.55)*0.81
= -0.029.

HDFC GROWTH FUND (GROWTH PLAN)

∑(X) ∑(Y) = 1046.13752

BETA = n∑(XY) – ∑ (X) ∑ (Y) / n∑ (X^2) – ∑ (X) ^2

= 2557.877 / 2596.823 = 0.86

Therefore, The Beta of HDFC Portfolio was 0.86

ALPHA = Avg(Y) – (Beta*Avg(X))

= 1.16

Therefore, The Alpha of HDFC Portfolio was 1.16

COEFFICIENT OF CORRELATION

= (n∑ (XY) – ∑ (X) ∑ (Y)) / ((n∑ (Y^2) – ∑ (Y) ^2)(n∑ (X^2) – ∑ (X) ^2)) ^ (1/2)

= 0.96

COEFFICIENT OF DETERMINATION = (0.96) ^2

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 = 0.9216

Variance (X) = R(X)*R(X) = 74.56584 Std Deviation(X) =8.64

Variance (Y) = R(Y)*R(Y) = 67.71806 Std Deviation(Y) =8.23

RFR = 6.5634% per Annum.

TREYNOR’S MEASURE = (Avg ROR – RFR) / Beta.

T (X) = (2.309286 – 0.55) / 1

=1.76

T (Y) = (3.145927 – 0.55) / 0.86

=3.02

Therefore, The Treynor’s Measure of s&p cnx was 1.76 & HDFC was 3.02

SHARPE’S MEASURE = (Avg ROR – RFR) /Standard Deviation.

S (X) = (2.309286 – 0.55) / 8.64

= 0.204

S (Y) = (3.1459271 – 0.55) / 8.23

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 = 0.315

Therefore, The Sharpe Measure of s&p cnx was 0.204 & HDFC was 0.315

JENSEN MEASURE = Portfolio Return – (RFR+ (Market Return –

RFR) * Beta)

= 3.1459271 – (0.55+ (2.309286-0.55)*0.86) = 1.08

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 COEFFICIENT
BETA ALPHA COEFFICIENTOF TREYNOR’ SHARPE’S JENSEN
Companies OF CO-
(β) (ά) DETERMINATION S MEASURE MEASURE MEASURE
RELATION
0.97460 0.62977
ICICI 0.26 0.071289 2.40 0.29 0.62
8 4
RELIANCE 0.942 0.832 0.904 0.817 3.42 0.70 0.831
SUNDARAM 0.81 0.076 0.883 0.78 2.48 0.49 -0.029
HDFC 0.86 1.16 0.96 0.9216 3.02 0.315 1.08

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 ANALYSIS
&
INTERPRETATION

INTERPRETATION

71
COMPARITIVE PERFORMANCE OF
VARIOUS GROWTH FUNDS
10
8
6
4 ICICI

2 RELIANCE
0 SUNDARA
M
-2 1 2 3 4 5 6 7 HDFC
2.9 8 1 0.1 2.4 0.3 0.6
ICICI
3.8 4.6 0.9 0.8 3.4 0.7 0.8
RELIANCE
2.6 4.1 0.8 0.8 2.5 0.5
SUNDARAM -0

3.1 8.2 0.9 0.9 3 0.3 1.1

HDFC

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AVERAGE RATE OF RETURN

From the above table & graph, it was found that RELIANCE Fund was having higher
Average Rate of Return of 3.774, followed by HDFC (3.146) which in turn was followed
by ICICI PRUDENTIAL (2.88) & least was for SUNDARAM (2.559), so it indicates that
RELIANCE outperformed other Funds.

STANDARD DEVIATION

From the above table & graph, it was found that HDFC Fund was having higher standard
deviation of 8.23, Followed by ICICI PRUDENTIAL(8.00) which in turn was followed
by RELIANCE(4.615) & least was for SUNDARAM(4.13), so it indicates HDFC has a
greater potential for Volatility.

BETA

From the above table & graph, it was found that ICICI PRUDENTIAL Fund was having
higher beta of 0.9745 Followed by RELIANCE (0.942) which in turn was followed by
HDFC (0.86) and least was for SUNDARAM with (0.81), as ICICI PRUDENTIAL beta
is almost equal to 1 i.e. Markets beta, it Indicates it is more Volatile than the Market.

R SQUARE

From the above table & graph, it was found that HDFC Fund was having higher R Square
of 0.9216; Followed by RELIANCE (0.817), which in turn was followed by
SUNDARAM (0.78) & least was for ICICI PRUDENTIAL (0.071), so it indicates HDFC
Fund well diversification.

73
TREYNOR’S MEASURE

From the above table & graph, it was found that RELIANCE Fund was having higher
Treynor’s Measure of 3.42, followed by HDFC (3.02) which in turn was followed by
SUNDARAM (2.48) & Least was for ICICI PRUDENTIAL (2.40), so it indicates
RELIANCE Fund superior risk adjusted performance over other funds.

SHARPE’S MEASURE

From the above table & graph, it was found that RELIANCE Fund was having higher
Sharpe Measure of 0.7 followed by SUNDARAM (0.49) & HDFC (0.315) & least was
for ICICI PRUDENTIAL (0.29), so even from Sharpe Measure it indicates RELIANCE
Fund has outperformed other .

JENSON MEASURE

From the above table & graph, it was found that HDFC Fund was having higher Jenson
Measure of 1.08, followed by RELIANCE (0.831) which in turn was followed by ICICI
PRUDENTIAL (0.62) & least was for SUNDARAM(-0.03), so it indicates HDFC Fund
has outperformed other funds.

74
PORTFOLIO VS BENCHMARK

HDFC GROWTH PLAN VS. BENCHMARK(S&P CNX)

AVG STD R
PERFORMANCE ROR DEV BETA TREYNOR'S SHARPE SQUARE

HDFC 3.15 8.23 0.86 3.02 0.315 0.9216

S & P CNX 2.31 8.64 1 1.76 0.204 1

10
9
8
7
6
HDFC
5
S & P CNX
4
3
2
1
0
EV

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HDFC GROWTH FUND (GROWTH PLAN):

 Since Average Rate of Return of fund was greater than that of

Benchmark Returns, the HDFC portfolio out performed its benchmark.

 Since Standard Deviation of Fund was lesser than that of Benchmark, The
Risk is less than that of S&P CNX.

 Since Beta (0.86) was almost equal to that of Markets Beta (1), The Funds
performance closely matches the Benchmark.

 Since the Treynor’s Measure for the Fund (3.02) was greater than the S&P
CNX (1.76), it indicates the Funds Superior Risk adjusted Performance.

 Since the Sharpe’s Measure of the Fund Portfolio was greater than the S&P
CNX, it indicates that it has achieved superior excess Return - to - Risk
Relative to the Market Portfolio.

 Also R-Square (0.9216) indicates the Fund’s Well diversification.

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 RELIANCE VS BENCHMARK

AVG STD R
PERFORMANCE ROR DEV BETA TREYNOR'S SHARPE SQUARE

RELIANCE FUND 3.774 4.615 0.942 3.42 0.7 0.817

BSE 100 3.09 4.431 1 2.54 0.57 1

RELIANCE BSE 100

5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
AVG RO R STD DEV BETA TREYNO R'S SHARPE R SQ UARE

77
RELIANCE GROWTH FUND (GROWTH PLAN):

 Since Average Rate of Return of Fund was greater than that of

Benchmark Returns, the Reliance portfolio out performed its benchmark.

 Since Standard Deviation of Fund was greater than that of

Benchmark, The Risk is more to that of BSE 100.

 Since Beta (0.942) was less than that of Markets Beta (1), The
Fund reacts Less Than the Market Reaction. Also Beta Indicates that the
Funds Returns would Increase or Decrease by 0.942 for every beta
(1),Increase or Decrease in the Market Returns, this also means that the
Mutual Fund Fluctuates 0.058 Less than the Market Index.

 Since the Treynor’s Measure for the Fund (3.42) was greater
than the BSE 100 (2.54), it indicates the Funds Superior Risk adjusted
Performance.

 Since the Sharpe’s Measure of the Fund Portfolio was greater

than the BSE 100, it indicates that it has achieved superior excess Return - to -
Risk Relative to the Market Portfolio.

 Since Jenson Factor of the fund was 0.831 it indicates Risk

Adjusted Return.

 Also R-Square (0.817) indicates the Fund’s Well diversification.

78
SUNDARAM GROWTH FUND VS BENCHMARK

AVG STD R
PERFORMANCE ROR DEV BETA TREYNOR'S SHARPE SQUARE
SUNDARAM 2.559 4.13 0.81 2.48 0.49 0.78
BSE200 3.066 4.5 1 2.516 0.56 1

5
4.5
4
3.5
3
SUNDARAM
2.5
BSE200
2
1.5
1
0.5
0
EV

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SUNDARAM GROWTH FUND (GROWTH PLAN):

 Since Average Rate of Return of fund was less than that of Benchmark
Returns, BSE 200 outperformed Sundaram Portfolio.

 Since Standard Deviation of Fund was less than that of Market’s, The Risk
is less to that of Market.

 Since Beta (0.81) was less than that of Markets Beta (1), The Fund is less
volatile than the BSE 100.

 Since the Treynor’s Measure for the Fund (2.48) was less than the BSE 200
(2.516), it indicates that BSE 200 outranked the sundaram fund.

 Since the Sharpe’s Measure of the Fund Portfolio was less than the BSE
200, it indicates the Market Portfolio outranked the sundaram fund.

 Since Jenson Factor of The Fund was -0.029 it indicates the returns earned
are not upto the Risk Free Rate.

 Also R-Square (0.78) indicates the Fund’s Well diversification.

80
 ICICI PRUDENTIAL GROWTH FUND (PLAN) VS
BENCHMARK

PERFORMANCE AVG ROR STD DEV BETA TREYNOR MEASURE SHARPE MEASURE R SQUARE
ICICI 2.88 8 0.98 2.4 0.29 0.07
S&P CNX 2.31 8.64 1 1.76 0.204 1

10
9
8
7
6
IC IC I
5
S&P C NX
4
3
2
1
0
E
TA

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SU
BE
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EA
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A

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R

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A
Y

SH
E
TR

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ICICI PRUDENTIAL GROWTH FUND (GROWTH PLAN):

 Since Average Rate of Return of fund was greater than that of

Benchmark Returns, the ICICI PRUDENTIAL portfolio out performed its
benchmark.

 Since Standard Deviation of Fund was less than that of Benchmark, the
Risk is less to that of S&P CNX

 Since Beta (0.98) is almost equal to one so it indicates that its performance
matches bench mark
 Since the Treynor’s Measure for the Fund (2.4) was greater than the S&P
CNX (1.76), it indicates the Funds Superior Risk adjusted Performance.

 Since the Sharpe’s Measure of the Fund Portfolio was greater .

 than the S&P CNX, it indicates that it has achieved superior excess Return -
to - Risk Relative to the Market Portfolio.

 Also R-Square (0.07) indicates the Fund’s Well diversification.

82
CHAPTER-5
CONCLUSION

83
 CONCLUSION

 This study reviews the entire process of Investor Services.

 Automation of Transaction Processing of Mutual Funds increased Work

Efficiency & Accuracy by reducing Manual Processing.

 Mutual Funds are a method for Investors to Diversify Risk and to benefit
from Professional Money Management.

 The growth oriented Mutual Funds outperformed its Benchmarks except

Sundaram.

 Icici prudential Growth Fund outperformed other funds.

84
SUGGESTIONS

85
 SUGGESTIONS

 Investors should invest in Equities for a Long Term, which

generates higher returns and should invest in Debt Funds for short term.
 It is always better to Make Regular Investments to let the
Corpus grow. Regular Investments help to reduce the Risk of trying to time
the Market. So if one keeps such investment horizon and invests regularly,
one can make gains irrespective of market fall during that period. Many
Mutual Funds offer wavier of Entry Loads when Investments are made
through Systematic Investment Plan. Investor should try to make use of this
opportunity.
 If there is a chance of Withdrawal of Investment, it should be
made in Debt instruments.
 Other Short Term Investments must be made in Low Risk
Investments.
 If you want to Invest in Equities, Invest in UTI Equity as
from past 3 years it is performing better in the market.
 Diversification is the best strategy to mitigate the downside
Risk in an Investment portfolio. Investments should be made in various
Funds so that one is exposed to all Market Capitalizations.
If market slows down (fall in the market) then an investor should shift
from one plan to another plan i.e., from debt to equity etc., to reduce risk.
 Invest in Funds that give you growth now, and Regular
income later in line with your children’s needs.

86
 PORTFOLIO: Money should not be invested in only one
scheme it should be invested in 40% Equity, 30% Debt & Remaining 30%
in others.( proportion may differ from one individual to another individual).

BIBLIOGRAPHY

87
 BIBLOGRAPHY

BOOKS

TITLE OF THE BOOK AUTHOR

1. Mutual Funds in India H. Adhak

2. Indian Financial Management Khan & Jain

3. Investments William & Sharpe

Websites:

 www.nseindia.com

 www.amfiindia.com

 www.bseindia.com

88
 www.arihantcapital.com

 www.icicipruamc.com

 www.reliancemutual.com

89