Mutual Fund

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Before we tend to perceive what's fund, it’s vital to understand the world during
which mutual funds works, the fundamental understanding of stocks and bonds.

Stocks: Stocks represent shares of possession in a very public company. Samples

of public firms embody Reliance, ONGC and Infosys. Stocks square measure thought
of to be the foremost common in hand investment listed on the market.

Bonds: Bonds square measure essentially the cash that you lend to the govt. or a
corporation, and reciprocally you'll be able to receive interest on
your endowed quantity, that is back over preset amounts of your time. Bonds square
measure thought of to be the foremost common loaning investment listed on the
market. There square measure several alternative sorts of investments aside
from stocks and bonds (including annuities, assets, and precious metals), however the
bulk of mutual funds invest in stocks and/or bonds.

WHAT IS FUND

A fund is simply the connecting bridge or a money intermediate that enables a

bunch of investors to pool their cash at the side of a preset investment objective.
The fund can have a fund manager UN agency is answerable for investment the
gathered cash into specific securities (stocks or bonds). Once you invest in a
very fund, you're shopping for units or parts of
the fund and so on investment becomes a stock holder or unit holder of the fund.

Mutual funds square measure thought of mutually of the simplest

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accessible investments as compare to
others they're terribly valueeconomical and additionally simpleto take a
position in, so by pooling cash along in a very fund, investors can buy stocks or bonds
with abundant lower mercantilism prices than if they tried to try to it on their
own. However the largest advantage to mutual funds is diversification, by minimizing
risk returns.

Thus a fund is that the most fitted investment for someone because it offers a
chance to take a position in a very heterogeneous, professionally managed basket of
securities at a comparatively low value. The flow chart below
describes generally the operating of a fund

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Pros & cons of finance in mutual funds:

For investments in open-end investment company, one should

detain mind regarding the execs and cons of investments in open-end investment
company.

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Advantages of finance Mutual Funds:

1. Skilled Management - the essential advantage of funds is that, they're

skilled managed, by well qualified skilled. Investors purchase funds as a result of they
are doing not have the time or the experience to manage their own portfolio. An open-
end investment company is taken into account to be comparatively less costly thanks
to create and monitor their investments.

2. Diversification - getting units in an exceedingly open-end investment

company rather than shopping for individual stocks or bonds, the investors risk
is opened up and reduced up to sure extent. The concept behind diversification is to
take a position in an exceedingly sizable amount of assets in order that a loss in
any explicit investment is reduced by gains in others.

3. Economies of Scale - open-end investment company get and sell giant amounts of
securities at a time, so facilitate to reducing dealings prices, and facilitate to bring
down the typical price of the unit for his or her investors.

4. Liquidity - similar to a private stock, open-end investment

company conjointly permits investors to liquidate their holdings as and after
they wish.

5. Simplicity - Investments in open-end investment company is taken into account to

be simple, compare to alternative accessible instruments within the market, and
therefore the minimum investment is little. Most AMC even have automatic purchase
plans whereby as very little as Rs. 2000, wherever SIP begin with simplyRs.50 per
month basis.

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Disadvantages of finance Mutual Funds:

1. Skilled Management- Some funds doesn’t perform in neither the market, as their
management isn't dynamic enough to explore the accessible chance within
the market, so several capitalists discussion over whether or not or not
the questionable professionals square measure any higher than open-end investment
company or investor himself, for choosing up stocks.

2. Prices – the largest supply of AMC financial gain, is mostly from the entry & exit
load that they charge from associate degree investors, at the time of purchase.
The open-end investment company industries square
measure so charging additional price beneath layers of jargon.

3. Dilution - as a result of funds have little holdings across completely different firms,
high come backs from a number of investments usually do not create a lot of
distinction on the return. Dilution is additionally the results of a
fund obtaining too massive. Once cash pours into funds that have had robust success,
the manager usually has bother finding a decent investment for all the new cash.

4. Taxes - once creating choices regarding your cash, fund managers do not think
about your personal tax state of affairs. For instance, once a fund manager sells a
security, a capital-gain tax is triggered, that affects however profitable the individual
is from the sale. It'd are a lot of advantageous for the individual to defer the capital
gains liability.

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GUIDELINES OF THE SEBI FOR OPEN-END INVESTMENT FIRMS:
To protect the interest of the investors, SEBI formulates policies and regulates the
mutual funds. It notified laws in 1993 (fully revised in 1996) and problems tips from
time to time.

SEBI approved plus Management Company (AMC) manages the funds

by creating investments in varied styles of securities. Custodian, registered with SEBI,
holds the securities of assorted schemes of the fund in its custody.
According to SEBI laws, 2 thirds of the administrators of Trustee Company or board
of trustees should be freelance.
The Association of Mutual Funds in Bharat (AMFI) reassures the investors in units of
mutual funds that the mutual funds operate among the strict restrictive framework. Its
objective is to extend public awareness of the open-end investment company business.
AMFI is also engaged in upgrading skilled standards and in promoting
best business practices in numerous areas like valuation, disclosure, transparency etc.

Documents needed (PAN mandatory):

Proof of identity :

1. PAN card

2. Just in case of non-photo PAN card additionally to repeat of PAN card anyone of
the following: driver's license/passport copy/ elector id/ bank image pass book.
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Proof of address (any of the subsequent) latest invoice, latest electricity bill, Passport,
latest bank passbook/bank financial statement, latest financial statement, voter id,
driving license, identity card, rent agreement.

Offer document: a suggestion document is issued once the AMCs create New
Fund supply (NFO). It best to each capitalist to invite the supply document and
browse it before finance. A suggestion document consists of the following:
Standard supply Document for Mutual Funds (SEBI Format)
 Summary data
 Glossary of outlined Terms
 Risk Disclosures
 Legal and restrictive Compliance
 Expenses
 Condensed money data of Schemes
 Constitution of the open-end investment company
 Investment Objectives and Policies
 Management of the Fund
 Offer connected data.

Key data Memorandum: a key data memoranda, popularly called KIM, is hooked
up beside the open-end investment company kind. And so each capitalist get
to scan it. Its contents are:
1 Name of the fund.
2. Investment objective
3. Plus allocation pattern of the theme.
4. Risk profile of the theme
5. Plans 6. Minimum application amount/ no. of units
7. Benchmark index
8. Dividend policy
9. Name of the fund manager

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10 Expenses of the scheme: load structure, revenant expenses
11. Performance of the theme (scheme come back v/s. benchmark return)
12. Year- wise come back for the last five year.

Distribution channels:

Mutual funds have a really robust channel in order that the last word customers
doesn’t face any issue within the final acquisition. The assorted parties concerned in
distribution of mutual funds are:

1. Marketing by the AMCs: the forms can be obtained from the AMCs directly. The
investors will approach to the AMCs for the forms. a number of the highest AMCs
of Bharat are; Reliance ,Birla Sunlife, Tata, SBI magnum, Kotak Mahindra, HDFC,
Sundaram, ICICI, Mirae Assets, geographic region Robeco, Lotus Bharat, LIC, UTI
etc. whereas foreign AMCs include: commonplacechartered , Franklin Templeton,
Fidelity, JP Morgan, HSBC, DSP Merill kill, etc.

2 .Broker/ sub broker arrangements: the AMCs will at the same time
select broker/sub-broker to popularize their funds. AMCs will fancy the advantage of
enormous network of those brokers and sub brokers.eg: SBI being the highest money
of Bharat has the best network. That the AMCs dealing through SBI has access to
most of the investors.

3. Individual agents, Banks, NBFC: investors will procure the funds through
individual agents, freelance brokers, banks and several other non-
banking money firms too, whichever he finds convenient for him.

Costs associated:

Expenses:
AMCs charge associate degree annual fee, or expense quantitative relation that
covers body expenses, salaries, advertising expenses, brokerage fee, etc. A 1.5%
expense quantitative relation suggests that the AMC charges Rs1.50 for eachRs100 in
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assets beneath management. A fund's expense quantitative relation is usually to the
dimensions of the funds beneath management and to not the returns earned .
Normally, the prices of running a fund grow slower than the expansion within
the fund size - therefore, the a lot of assets within the fund, the lower ought to be its
expense quantitative relation

Loads:

Entry Load/Front-End Load (0-2.25%)-it is the commission charged at the time of

shopping for the fund to hide the price of merchandising, process etc.

Exit Load/Back- finish Load (0.25-2.25%)- it's the commission or charged

paid once associate degree capitalist exits from a open-end investment
company, it's obligatory to discourage withdrawals. it should cut back to zero with
increase in holding amount.

MEASURING AND EVALUATING MUTUAL FUNDS PERFORMANCE:

Every capitalist finance within the mutual funds is driven by the shibboleth of either
wealth creation or wealth increment or each. So it’s terribly necessary to unceasingly
appraise the funds’ performance with the assistance of factsheets and newsletters,
websites, newspapers and skilled advisors like SBI open-end investment
company services. If the investors ignore the analysis of funds’ performance then
he will lose hold of it any time.

During this changing business, he will face any of the subsequent problems:

1. Variation within the funds’ performance thanks to amendment in the objective.

2. The funds’ performance will insert comparison to similar funds.
3. There could also be a rise within the varied prices related to the fund.
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4 .Beta, a technical live of the chance associated may additionally surge.
5. The funds’ ratings could go down within
the varied lists revealed by freelance rating
agencies.
6 .It will merge into another fund or can be non-heritable by another fund house.

PERFORMANCE MEASURES:

Equity funds: the performance of equity funds may be measured on the idea of: NAV
Growth, Total come back; Total Return with Reinvestment at NAV, Annualized
Returns and Distributions, Computing Total come back (Per Share financial gain and
Expenses, Per Share Capital Changes, Ratios, Shares Outstanding), the
Expense quantitative relation, Portfolio employee turnover, Fund
Size, dealings prices, Cash Flow, Leverage.
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Debt fund: likewise the performance of debt funds may be measured on the
idea of: generation Comparisons, The financial gain quantitative
relation, business Exposures and Concentrations, NPAs, besides NAV Growth,
Total come back and Expense quantitative relation.

Liquid funds: the performance of the extremely volatile liquid funds may be measured
on the idea of: Fund Yield, besides NAV Growth, Total come back and
Expense quantitative relation.

Concept of benchmarking for performance evaluation:

Every fund sets its benchmark in keeping with its investment objective. The fund
performance is measured as compared with the benchmark. If the fund generates
a larger come back than the benchmark then it's aforesaid that the fund has
outperformed benchmark, if it's adequate benchmark then the correlation between
them is strictly one. And if just in case of come back is less than the benchmark then
the fund is claimed to be underperformed.

Some of the benchmarks square measure:

1. Equity funds: market indices like S&P CNX smashing, BSE100, BSE200, BSE-
PSU, mad cow disease five hundred index, BSE bankex, and alternative sectoral
indices.
2. Debt funds: Interest Rates on different Investments as Benchmarks, I-Bex
Total come back
Index, JPM Treasuries Index Post-Tax Returns on Bank Deposits versus Debt Funds.
3. Liquid funds: Short Term Government Instruments’ Interest Rates as Benchmarks,
JPM T-
Bill Index

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To measure the fund’s performance, the comparisons square measure
sometimes done with:
1. With a market index.
2. Funds from identical generation.
3. Alternative similar merchandise during which investors invest their funds.

Financial coming up with for investor (official. to mutual funds):

Investors square measure needed to travel for money coming up with

before creating investments in any open-end investment company. The target of
economic coming up with is to confirm that the proper quantity of cash is on the
market at the proper time to the capitalist to be able to meet his financial
goals. It's over mere tax coming up with.

Steps in money coming up with are:

Plus allocation.
Choice of fund.
Finding out the options of a theme.

In case of mutual funds, money coming up with is bothered solely with

broad plus allocation, effort the particular allocation of securities and their
management to fund managers. A fund manager has got to closely follow the
objectives expressed within the supply document, as a result of money plans of
users square measure chosen victimization these objectives.

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WHY MUTUAL FUNDS IS THE BETTTER INVESTMENTS PLAN?

If we tend to take a glance at the recent situation within the Indian money market
then we will realize the market flooded with a range of investment choices which has
mutual funds, equities, fastened financial gain bonds, company debentures,
company fastened deposits, bank deposits, PPF, life assurance, gold, assets etc. of
these investment choices can be judged on the idea of assorted parameters such
as- come back, safety convenience, volatility and liquidity. Activity these
investment choices on the idea of the mentioned parameters, we tend to get this in an
exceedingly tabular kind

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 Return Safety Volatility Liquidity Convenience

Equity High Low High High Moderate

Bonds Moderate High Moderate Moderate High

Co. Moderate Moderate Moderate Low Low

Debentures
Co. FDs Moderate Low Low Low Moderate

Bank Low High Low High High

Deposits
PPF Moderate High Low Moderate High

Life Low High Low Low Moderate

Insurance
Gold Moderate High Moderate Moderate Gold

Real Estate High Moderate High Low Low

Mutual High High Moderate High High

Funds

We can see that mutual funds beat out each alternative investment possibility.
On 3 parameters it scores high whereas it’s moderate at one. scrutiny it with the
opposite choices, we discover that equities provides U.S. high returns with high
liquidity however its volatility too is high with low safety that doesn’t makes
it favorite among persons United Nations agency have low risk- appetence. Even the
convenience involved finance in equities is simply moderate.

currently gazing bank deposits, it scores higher than equities in any

respect fronts however lags badly within the parameter of utmost necessary, it scores
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low on come back , therefore it’s not associate degree happening possibility for one
who will afford to require risks for higher come back. The opposite
possibility giving high come back is assets however that even comes with high
volatility and moderate safety level, even the liquidity and
convenience concerned square measure too low. Gold have forever been a
favorite among Indians however after we explore it as associate
degree investment possibility then it positively doesn’t provides a
really bright image. Though it ensures high safety however the returns generated and
liquidity square measure moderate. Equally the opposite investment choices aren't at
par with mutual funds and serve the requirements of solely a
selected client cluster. Simple, we will say that open-end investment
company emerges as a transparent winner among all the choices accessible.
The reasons for this being:

I) Mutual funds mix the advantage of every of the investment products: open-end
investment company is one such possibility which may invest all
told alternative investment choices. Its principle of diversification permits the
investors to style all the fruits in one plate. Simply by finance in it,
the capitalist will fancy the most effective investment possibility as per the investment
objective.

II) Dispense the shortcomings of the alternative possibilities: each other

investment option has a lot of or les some shortcomings. like if some square
measure smart at come back then they're not safe, if some square measure safe then
either they need low liquidity or low safety or both….likewise, there exists no
single possibility which may suited the requirement of everyone. However mutual
funds have positively sorted out this downside. Currently everyone will select their
fund in keeping with their investment objectives.

III) Returns get adjusted for the market movements: because the mutual
funds square measure managed by consultants in order that they square measure able
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to switch to the profitable possibility beside the market movement. Suppose they
predict that market goes to fall then they'll sell a number of their shares and book
profit and might reinvest the number once more in market instruments.

IV) Flexibility of endowed amount: alternative then the higher than mentioned
reasons, there exists a new reason that has established mutual funds in concert of the
biggest money which is that the flexibility that mutual funds supply concerning the
investment quantity. One will begin finance in mutual funds with quantity as low as
Rs. five hundred through SIPs and even Rs. a hundred in some cases.

How do investors choose from funds?

When the market is flooded with mutual funds, it’s a really powerful job for the
investors to settle on the most effective fund for them. Whenever associate degree
capitalist thinks of finance in mutual funds, he should explore the investment
objective of the fund. Then the investors planned out the funds whose investment
objective matches thereupon of the investor’s. Currently the powerful task for
investors begin, they will continue the more method themselves or will select advisors
like SBI after all the investors will save their cash by going the direct route i.e.
through the AMCs directly however it'll solely save 1-2.25% (entry
load) however might price the capitalists in terms of returns if the
investor isn't associate degree professional. Therefore it's forever best to
travel for medium frequency advisors. The medium frequency advisors’
thoughts transcend simply investment objectives and rate of come back. a number
of the essential tools that associate degree capitalist could ignore however associate
degree medium frequency authority can forever explore for square measure as follow:

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1. Rupee price averaging:

The investors going for Systematic Investment Plans(SIP) and Systematic Transfer
Plans(STP) could fancy the advantages of RCA (Rupee price Averaging).
Rupee price averaging permits associate degree capitalist to bring down the
typical price of shopping for a theme by creating a set investment sporadically, like
Rs 5,000 a month and today as low as Rs. 500 or Rs. 100. During this case,
the capitalist is usually at a profit, notwithstanding the market falls. Just in case if the
NAV of fund falls, the investors will get a lot of variety of units and vice-versa.
This ends up in the typical price per unit for the capitalist being less than the typical
value per unit over time.
The capitalist has to pick the investment quantity and therefore the frequency. a lot
of frequent the investment interval, larger the probabilities of taking advantage of
lower costs. Investors may also profit by increasing the SIP quantity
throughout market downturns, which can lead to reducing the typical price and
enhancing returns. Whereas S.T.P. permits investors United Nations agency have
lump sums to park the funds in an exceedingly low-risk fund like liquid funds
and create periodic transfers to a different fund to require advantage of
rupee price averaging.

2. Rebalancing:

Rebalancing involves booking profit within the fund category that has gone up
and finance within the plus category that's down. Trigger and change square
measure tools which will be wont to rebalance a portfolio. Trigger
facilities enable automatic redemption or switch if a given event happens. The
trigger can be the worth of the investment, Infobahn plus price of the theme, level of
capital appreciation, level of the market indices or maybe a date. The
funds ransomed may be switched to alternative given schemes among identical fund
house. Some fund homes enable such switches while not charging associate
degree entry load.
To use the trigger and switch facility, the capitalist has to specify the event, the
number or the amount of units to be ransomed and therefore the theme into that the
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switch has got to be created. This ensures that the capitalist books some profits and
maintains the plus allocation within the portfolio.

3. Diversification:

Diversification involves finance the number into completely different choices. Just in
case of mutual funds, the capitalist could fancy it afterward conjointly through
dividend transfer possibility. Under this, the dividend is reinvested not
into identical theme however into another theme of the investor's alternative.
For instance, the dividends from debt funds could also be transferred to equity
schemes. This provides the capitalist a little exposure to a
replacement plus category while not risk to the principal quantity. Such
transfers could also be finished or while not entry hundreds, counting on the MF's
policy.

4. Tax efficiency:

Tax issue acts because the “x-factor” for mutual funds. Tax potency affects the
ultimate call of any capitalist before finance. The investors gain through either
dividends or capital appreciation however if they haven’t thought of the
tax issue then they will finish loosing.
Debt funds got to pay a dividend distribution tax of twelve.50 per cent (plus surcharge
and education) on dividends paid out. Investors United Nations agency would like an
everyday stream of financial gain got to choose from the dividend possibility and a
scientific withdrawal arrange that enables them to redeem units sporadically. SWP
implies capital gains for the capitalist.
If it's short-run, then the SWP is appropriate just for investors within the 10-per-cent-
tax bracket. Investors in higher tax brackets can find yourself paying a better rate
as short-run capital gains and will select the dividend possibility.

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If the financial gain is semi-permanent (where the investment has
been command for over one year), the expansion possibility is a lot of tax economical
for all investors. This will be as a result of investors can redeem
units victimization the SWP wherever they'll got to pay ten per cent as semi-
permanent capital gains tax against the twelve.50 per cent insecticide paid by
the medium frequency on dividends.
All the tools mentioned up here square measure employed by all the advisors and
have helped investors in reducing risk, simplicity and affordability. Even
then associate degree capitalist has to examine prices, tax implications and minimum
applicable investment amounts before committing to a service.

What square measure the foremost remunerative sectors for open-end

investment company managers?

This is a matter of utmost interest for all the investors even for people who don’t
invest in mutual funds. As a result of the investments done by the MFs acts as
trendsetters. The investments created by the fund manager square measure used for
prediction. Large investments assure liquidity and reflects limiting image whereas
tight investment policy reflects crunch and investors could foresee for a dark image.
Their investments show that that sector is hot? And can set the market trends.
The professional management of the funds can forever explore for profitable and high
paying sectors. therefore we will have a glance at the most remunerative sectors to
grasp regarding the recent trends:

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 Sector name No. of MFs betting on it
automotive 255
banking & financial 196
services
cement & construction 237
consumer durables 51
conglomerates 218
chemicals 259
consumer non durables 146
engineering & capital 317
goods
food & beverages 175
information technology 284
media & entertainment 218
Manufacturing 259
metals& mining 275
Miscellaneous 250
oil & gas 290
Pharmaceuticals 250
Services 200
Telecom 264
Tobacco 150
Utility 225

From the higher than knowledge collected we will say that engineering &
capital product sector has emerged because the hottest as most of the funds
are looking on it. We will say that this sector is on boom and presents a
bright image. Apart from it alternative sectors on height square measure oil & gas,

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telecom, metals & mining and data technology. Sectors playacting average square
measure automotive, cement & construction, chemicals, media, producing,
miscellaneous, prescription drugs and utility. The sectors that aren't therefore favorite
square measure banking services, conglomerates, shopper non- consumer goods, food
& beverages, services and tobacco and therefore the sector that didn't attract the fund
managers is durables with simply fifty one funds looking on it.

Thus this analysis not solely provides an image of the outlook of fund managers rather
it conjointly reflects the liquidity existing in every of the
sectors. It's not solely helpful for investors of mutual funds rather the investors of
equity and debt too might take a touch from it. Plus allocation by fund
managers square measure supported many researches carried on therefore, it's
forever best for alternative investors to take a glance on that

Systematic investment arrange (in details)

We have already mentioned regarding SIPs briefly within the previous

pages however currently going into details, we'll see however the
ability of combination may gain advantage U.S.. In such case, each
little amounts endowed frequently will grow well. SIP provides a
transparent image of however associate degree early and regular
investment will facilitate the capitalist in wealth creation. Thanks to its
unlimited blessings SIP can be defined as “a methodology of
fund finance frequently to profit frequently from the exchange volatility. Within
the later sections we'll see however returns generated from a number of the SIPs have
outperformed their benchmark.
Now we'll analyze a number of the equity fund SIP s of Birla Sunlife with mad cow
disease two hundred and bank fastened deposits

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DOES FUND PERFORMANCE AND RANKING PERSIST?

This project has been a good learning expertise on behalf of me. However the
analyses that square measure carried onward these pages square
measure extremely on the point of my heart. Once taking a glance at the
information bestowed below, associate degree professional would
possibly underestimate my efforts. One would possibly assume it as a
humdrum task and might select recording historic NAVs since last one month rather
than recording it daily.
But honestly speaking, whereas following the NAVs, I actually developed some
sentiments with these funds. Extremely the ups and downs within the NAVs
affected me as if i m following my very own portfolio. The portfolio consists of
various styles of funds. We can see some funds square measure 5- star
rated however their performances are below the unrated funds. We will
conjointly realize some funds that performed o.k. at the start however step by
step declined either in short- run or end of the day. Some funds have high
NAVS however the returns offered square measure low. We will conjointly see some
funds following same benchmark and reflective numerous NAV and returns. Even
it may be seen that the expense ratios for varied funds varies which can have an effect
on the last word come back.

Now before going into details, let have a glance at those funds: during
this downgrading equity market, we will simply figure out that the one year come
back of the fund that was on seventeenth of Gregorian calendar month couldn't be
sustained until one month. One will planned out that the current come back of funds
has attenuate heaps and afterward its NAV too has come back down. All the
funds square measure showing negative returns for the last one month. Even the
2hybrid funds square measure showing negative monthly returns. Which
means all people who bought these funds a month back should be experiencing a
negative come back. Though the annual come back of the funds have gone down as
compared to what it absolutely was giving a month back. Still the entire come back is
positive. On a mean the equity funds square measure giving a comeback of half-
hour annually, rather than every week equity market.
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Now checking the validity of funds’ ratings, we can see that a number of the funds
are five star or four star rated however their returns lag behind the unrated funds.
Although, since the ratings embrace each risk and come back therefore it'll not be a
complete simply ice to evaluate the funds strictly on
a comeback basis however still we will select it just to evaluate them on the idea of
returns generated.

Looking at the funds, we've 3 five star rated funds, one 4star rated and 6unrated funds.
In alternative method, we've seven equity diversified funds, one equity specialty, one
hybrid: dynamic plus allocation and one hybrid:
debt orientated fund. It's impractical to check each fund in details. Therefore I even
have compared a pair of funds out of this list on the idea of their returns and
expenses.
Here DBS Chola opportunities and ICICI Pro infrastructure
follows identical benchmark S&P CNX smashing. During this case, DBS Chola
opportunities may be a four star rated fund whereas ICICI Pro infrastructure
is associate degree unrated fund. The star rating positively provides DBS a
competitive advantage however currently let have a glance at alternative factors, we
will see that ICICI Pro has extremely performed worse within the last month its one
month come back is -5.8% whereas DBS gave a comeback of -3.07%. We tend
to think about six months come back or yearly returns, positively DBS may be
a winner. We will simply spot the distinction by amendment in their rankings even.
Considering one period come back, we will spot DBS at no.5 whereas ICICI at
no.6 however after we explore the monthly ratings, to our final shock, DBS is at fifty
two and ICICI so much behind at 172. However if we glance at the yearly returns,
then there's not a lot of distinction between them, DBS giving returns of thirty
five.17% whereas ICICI giving thirty four.27. However gazing the expenses, the
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expenses charged by ICICI is lower to it of DBS, which can act because the
final consider selecting the fund in an exceedingly end of the day.

Thus finally we can conclude that ratings are entirely immaterial for investors.
Here is why they're entirely immaterial to investor:
1. Open-end investment company ratings square measure supported the returns
generated, that is, appreciation of internet plus price, supported the historical
performance. In order that they swear a lot of on the past, instead of this situation.

2. As returns play a key role to decide the ratings, any amendment in

returns can cause re-rating of the open-end investment company. If you
select your open-end investment company solely on the idea of rating, it'll be a
nuisance to stay realigning your investment in line with the revision of the ratings.

3. The ratings don’t price the investment processes followed by the open-end
investment company. As a result, a fund following a particular
method could lose dead set a fund that has given superior returns solely as a result
of it's a star fund manager. However there's a better risk related to a star fund manager
that the ratings don’t replicate. If the star fund manager equal, it will throw
the operating of an open-end investment company out of substances and so have an
effect unit performance.

4. The ratings don’t show the extent of ethics followed by the fund. A fund or fund
manager that's concerned in an exceedingly scam or money irregularities won’t get
poor ratings on the idea of ethics. Because the star ratings explore simply returns, any
wrongdoing administered by the fund or fund manager are going to be fully unheeded.

5. Ratings conjointly don’t think about 2 important factors: transparency and keeping
investors sophisticated. There are not any negative ratings awarded to the fund for
being investor-unfriendly.

6. Ratings don’t match the investor’s risk-appetite with their portfolio. As a matter
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of reality, investments ought to be done solely once considering the
chance appetence of the capitalist. For instance, equities might not be the most
effective investment vehicle for a really conservative capitalist. But ratings fail to
require that under consideration.

Ratings ought to be the start line for creating associate degree

investment call. They're not at all and finish all of open-end investment
company investments. There square measure alternative necessary factors like
portfolio management, age of funds and a lot of, that ought to be taken under
consideration before creating associate degree investment.

An open-end investment company may be a professionally-managed firm of

collective investments that pools cash from several investors and invests it in stocks,
bonds, short-run market instruments, and/or alternative securities.in alternative
words we will say that A open-end investment company may be a trust registered with
the Securities and Exchange Board of Bharat (SEBI), that pools up the money from
individual / company investors and invests identical on behalf of the investors /unit
holders, in equity shares, Government securities, Bonds, decision cash markets etc.,
and distributes the profits.
The worth of every unit of the open-end investment company, called
Infobahn plus price (NAV), is principally calculated daily supported the
entire price of the fund divided by the amount of shares presently issued and
outstanding. The worth of all the securities within the portfolio in calculated daily.
From this, all expenses square measure subtracted and therefore there
sultant price divided by the amount of units within the fund is that the fund’s NAV.

NAV = Total value of the fund……………….

No. of shares currently issued and outstanding

28
PORTFOLIO ANALYSIS TOOLS:

With the increasing variety of open-end investment company schemes, it

becomes terribly troublesome for associate degree capitalist to settle on the kind of
funds for investment. By victimization a number of the portfolio analysis tools,
he will become a lot of equipped to create a well sophisticated alternative.
There square measure several money tools to research mutual funds. Everyone has
their distinctive strengths and limitations likewise. Therefore, one has to use a
mixture of those tools to create a radical analysis of the funds.
The present market has become terribly volatile and
buoyant, therefore it's obtaining troublesome for the investors to
require right finance call. That the best accessible possibility for investors is to settle
on the most effective playacting funds in terms of “returns” that have
yielded most returns.
But if we glance deeply to that, we will realize that the returns
are necessary however it's conjointly necessary to appear at the ‘quality’ of the
returns. ‘Quality’ determines what proportion risk a fund is taking to come up
with those returns. One will create a judgment on the standard of a fund
from varied ratios like variance, sharpe quantitative relation, beta, treynor live, R-
squared, alpha, portfolio turnover quantitative relation, total expense quantitative
relation etc.
Now I even have compared 2 funds of SBI on the idea of ordinary deviation, beta, R-
squared, sharpe quantitative relation, portfolio turnover quantitative relation and total
expense quantitative relation.

29
Standard deviation:
in straightforward terms variance is one among the ordinarily used applied
mathematics parameter to live risk, that determines the volatility of a fund. Deviation
is outlined as any variation from a mean (upward & downward). Since the
markets square measure volatile, the returns fluctuate daily.
High variance of a fund implies high volatility and an occasional variance implies low
volatility.

Beta analysis:
beta is employed to live the chance. It primarily indicates the extent of
volatility related to the fund as compared to the market. Just in case of funds, as
compared to the market. Just in case of funds, beta would indicate the volatility
against the benchmark index. It's used as a brief term higher cognitive process tool. A
beta that's larger than one implies that the fund is a lot of volatile than the benchmark
index, whereas a beta of but one implies that the fund is a lot of volatile than the
benchmark index. A fund with a beta terribly on the point of one suggests that the
fund’s performance closely matches the index or benchmark.
The success of beta is heavily addicted to the correlation between correlation between
a fund and its benchmark. Thus, if the fund’s portfolio doesn’t have a relevant
benchmark index then a beta would be grossly inappropriate. For instance if we tend
to square measure considering a banking fund, we must always explore the beta
against a bank index.

R-Squared (R2):

R square is that the sq. of ‘R’ (i.e.; constant of correlation). It describes the extent of
association between the fun’s market volatility and market risk. The worth of
R- square ranges from0 to1. A high R- square (more than zero.80) indicates that
30
beta may be used as a reliable live to research the performance of a fund. Beta ought
to be unheeded once the r-squared is low because it indicates that the fund
performance is stricken by factors apart from the markets.

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

In the higher than tableR2 is a smaller amount than zero.80 just in case one, implies
that it might be wrong to say that the fund is aggressive on account of high beta. In case
2, the r- square is over zero.85 and beta price is zero.9. it implies that this fund is a
smaller amount aggressive than the market.
Sharpe quantitative relation: Sharpe quantitative relation may be a risk to reward ratio
that helps in scrutiny the returns given by a fund with the chance that the fund has
taken. A fund with a better shape quantitative relation implies that these
returns are generated taking lesser risk. In alternative words, the fund is a smaller
amount volatile and however generating smart returns. Thus, given similar returns, the
fund with a better shape quantitative relation offers an improved avenue for finance.
The quantitative relations calculated as:

Sharpe quantitative relation = (Average return- meaningless rate) / variance

Portfolio turnover ratio: Portfolio turnover may be a live of a

fund's commerce activity and is calculated by dividing the lesser of purchases or sales
(excluding securities with maturities of but one year) by the
typical monthly internet assets of the fund. Turnover is just a live of the share of
portfolio price that has been transacted, not a sign of the share of a fund's holdings
that are modified. Portfolio turnover is that the purchase and sale of securities in an
exceedingly fund's portfolio. A quantitative relation of 100%, then, suggests that the
fund has bought and sold-out all its positions among the last year. Turnover is very
important once finance in any open-end investment company, since the number of
31
turnover affects the fees and prices among the open-end investment company.

Total expenses ratio: A live of the entire prices related to managing associate
degree in operation an investment fund like a open-end investment company.
These prices consist primarily of management fees and extra expenses like commerce
fees, legal fees, auditor fees and alternative operational expenses. the entire price of the
fund is split by the fund's total assets to make a share quantity, that represents the

Total expense ratio = (Total fund Costs/ Total fund Assets)

Performance report and portfolio analysis of wine bottle equity fund and wine
bottle number and against their benchmark BSE100:

YTD 1M 3M 6M 1Y 3Y 5Y
Magnu -23.73% 9.02% -7.71% -15.18% 26.61% 45.07% 48.96%
m
equity
fund

Magnu -26.16% 5.57% -11.26% -18.00% 21.44% 45.28% 59.31%

m
multipli
er plus
Bench -17.53% 11.74% -2.56% 11.47% 30.71% 40.46% 44.24%
mark
BSE100

Now within the higher than table, we've 2 funds from SBI wine bottle equity fund
and wine bottle number and following identical benchmark BSE 100. During this
case, we've compared their returns throughout varied time periods. We've their returns
YTD, throughout last one month, 3month, 6 months, 1 year, three year and five year.
If we glance at a protracted term perspective, then wine bottle
number and entirely outperformed each wine bottle equity fund likewise as mad cow

32
disease a hundred. just in case of five year returns, neither the benchmark nor the wine
bottle equity fund stands anyplace close to number and. it's larger than equity fund
by ten.35% and from benchmark by fifteen.07%. however just in case of three year
returns, sure as shooting number and gave the utmost come back however it fell
sharply as compared to its five period come back. A 45.28% come back scored over
equity fund simply by a margin of zero.21% and benchmark by a
mere four.28%. Currently moving right down to one period come back, we will clearly
see that mad cow disease a hundred emerges as a real winner. The benchmark gave
a comeback of thirty.71% however each the funds didn't match it even.

But the last word surprise comes after we explore the data of last six months. Here
not solely the fund manager didn't beat or match the market. Rather they conjointly
performed as laggards, giving negative returns. Once the mad cow disease a
hundred gave returns of eleven.47%, these funds were trailing by twenty nine.47% and
26.65% that may be a large figure. In the last three months too, each the funds were
behind bse100 however all the 3 gave negative returns and therefore the
distinction between them and benchmark was narrowed down.
Again, throughout last one month come back of all 3 got positive however the
funds forever remained behind the benchmark. The mad cow disease a
hundred outscored number and equity fund by six.17% and 2.72% severally. Similarly,
the YTD come back of all three is negative even then the benchmark is at an improved
position than the funds.
From the subsequent analysis we will infer of all the steps
taken; it's not forever attainable for the fund managers to forever beat the market. Also,
the past performance simply tells the background and history of the fund,
by gazing it we tend to cannot interpret that the fund can perform within
the same method within the future too

33
 Quantitative data:
Ratios Magnum equity fund Magnum multiplier plus
Standard deviation 26.00% 26.90%
Beta 0.96% 0.95%
r-squared 0.84%
Sharpe ratio 1.46% 1.42%
Portfolio turnover 31% 25%
Total expense ratio 2.5% 2.5%

Analysis:
 We will see that the quality deviation of each the funds square measure a lot of or
less same even then the S.D of number and is bigger than that of equity fund
by zero.90%. Typically higher the Mount Rushmore State higher is that the risk and
vice-versa. Therefore, wine bottle number and is riskier than wine bottle equity fund.
 The beta of wine bottle equity fund is over that of wine bottle number and.
Therefore, equity fund is a lot of volatile than number and. However beta of each the
funds is smaller than one which means each the funds square measure less volatile
than the market index. As r- square values square measure over zero.80 in each the
cases, we will deem the usage of beta for the analysis of those funds.
 A explore the Sharpe quantitative relation indicates that wine bottle equity has
outperformed number and. A better Sharpe quantitative relation of equity fund depicts
that these come back are generated taking lesser risk than the number and. It's less
volatile than the opposite.
 R-squared of each the funds square measure larger than zero.80. It indicates that
beta may be used as a reliable live to research the performance of those funds. Wine
bottle equity fund’s R- square is higher. Therefore its beta is a lot of reliable.
 Portfolio turnover quantitative relation of wine bottle equity fund
is over number and. It mean the manager is often churning the portfolio of equity fund

34
than of number and. it should cause a rise in expenses however can be
unheeded if might generate higher come back by dynamic the composition of
portfolio.
 Total expense quantitative relation of each the funds square measure same

35
 REVIEW OF LITERATURE

Jack Treynor (1965) developed a methodology for performance evaluation of a

mutual fund that is referred to as reward to volatility measure, which is defined as
average excess return on the portfolio. This is followed by Sharpe (1966) reward to
variability measure, which is average excess return on the portfolio divided by the
standard deviation of the portfolio.
Sharpe (1966) developed a composite measure of performance evaluation and
imported superior performance of 11 funds out of 34 during the period 1944-63.
Michael C. Jensen (1967) conducted an empirical study of mutual funds in the period
of 1954-64 for 115 mutual funds. The results indicate that these funds are not able to
predict security prices well enough to outperform a buy the market and hold policy.
The study ignored the gross management expenses to be free. There was very little
evidence that any individual fund was able to do significantly better than which
investors expected from mere random chance.
Jensen (1968) developed a classic study; an absolute measure of performance based
upon the Capital Asset Pricing Model and reported that mutual funds did not appear to
achieve abnormal performance when transaction costs were taken into account.
Carlsen (1970) evaluated the risk-adjusted performance and emphasized that the
conclusions drawn from calculations of return depend on the time period, type of fund
and the choice of benchmark. Carlsen essentially recalculated the Jensen and Shape
results using annual data for 82 common stock funds over the 1948-67 periods. The
results contradicted both Sharpe and Jensen measures.

36
Fama (1972) developed a methodology for evaluating investment performance of
managed portfolios and suggested that the overall performance could be broken down
into several components.
John McDonald (1974) examined the relationship between the stated fund objectives
and their risks and return attributes. The study concludes that, on an average the fund
managers appeared to keep their portfolios within the stated risk. Some funds in the
lower risk group possessed higher risk than funds in the most risky group.
James R.F. Guy (1978) evaluated the risk-adjusted performance of UK investment
trusts through the application of Sharpe and Jensen measures. The study concludes
that no trust had exhibited superior performance compared to the London Stock
Exchange Index.
Henriksson (1984) reported that mutual fund managers were not able to follow an
investment strategy that successfully times the return on the market portfolio. Again
Henriksson (1984) conclude there is strong evidence that the funds market risk
exposures change in response to the market indicated. But the fund managers were not
successful in timing the market.
Grinblatt and Titman (1989) concludes that some mutual funds consistently realize
abnormal returns by systematically picking stocks that realize positive excess returns.
Richard A. Ippolito (1989) concluded that mutual funds on an aggregate offer
superior returns. But expenses and load charges offset them. This characterizes the
efficient market hypothesis.
Ariff and Johnson (1990) made an important study in Singapore and found that the
performance of Singapore unit trusts spread around the market performance with
approximately half of the funds performing below the market and another half
performing above the market on a risk-adjusted basis.
Cole and IP (1993) investigated the performance of Australian equity trusts. The
study found evidence that portfolio managers were unable to earn overall positive
excess risk-adjusted returns.
Vincent A. Warther(1995) in the article entitled “aggregate mutual fund flows and
security returns” concluded that aggregate security returns are highly correlated with
concurrent unexpected cash flows into MFs but unrelated to concurrent expected
flows. The study resulted in an unexpected flow equal to 1 percent of total stock fund
assets corresponds to a 5.7 percent increase in stock price index. Fund flows are
37
correlated with the returns of the securities held by the funds, but not the returns of
other types of securities. The study found an evidence of positive relation between
flows and subsequent returns and evidence of a negative relation between returns &
subsequent flows.
Bansal’s book (1996) “mutual fund management & working” included a descriptive
study of concept of mutual funds, Management of mutual funds, accounting &
disclosure standards, Mutual fund schemes etc.
Sujit sudhakar and Amrit pal singh (1996) of Gawahati University studied the
“Investment in Equity and Mutual Funds”. The study attempted to highlight the
investment decision vis. – a vis. (1) income earning (2) capital appreciation and (3)
tax benefits. The largest population of the survey was mainly urban investing in
corporate scrip’s and mutual funds. The period chosen was 1992-94. It is gathered
that the major investors of mutual funds are salaried & self-employed people. This
was presumably due to tax concessions. The self-employed professionally qualified
practicing persons have a higher investible surplus and they could take the risk of
investing in stock market. It was found that investors are very much conscious of
diversification of their portfolios and they preferred combination of mutual funds and
equity shares. Another noteworthy finding is that majority of the investors have
become, interested in capital Market instruments only after 1985.Further 80 percent of
the respondents have preferred either UTI & SBI mutual fund schemes. Other mutual
funds have not proved to be hit among the investing public in that part of the country.
Another important finding was that middle class investors being first generation
investors tend to hold their portfolio of comparatively longer period for tax benefits
and capital appreciation.
Sadhak’s book (1997) “Mutual funds in India, Marketing strategies and investment
practices” is highly analytical & thought provoking. Much research has gone into
writing of this book and hence highly useful to researchers. An attempt is made of the
first time in presenting Marketing strategies of Mutual funds.
Verma’s book (1997) ‘Guide to mutual funds & Investment portfolios of Indian
mutual funds with some statistical data guidelines to the investors in selection of
schemes etc.
National Council of Applied Economic Research (NCAER) “Urban Saving
survey” noticed that irrespective of occupation followed and educational level and age
38
attained, households in each group thought saving for the future was desirable. It was
found that desire to make provision for emergencies were a very important motive for
saving for old age. It is found out from the survey ‘Survey of Indian Investors’
conducted by NCEAR (2000) and the regulatory authority SEBI, reported that Safety
and liquidity were the primary considerations which had determined the choice of an
investment asset. In this paper NCAER found out the Factors which influence
individual the investment decision, is the difference in the perception of Investors in
the investing process on the basis of Age and the difference in perception of the
Investors on the basis of Gender.
K. Pendaraki (2001) et al. studied construction of mutual fund portfolios, developed
a multi- criteria methodology and applied it to the Greek market of equity mutual
funds. The methodology is based on the combination of discrete and continuous
multi-criteria decision aid methods for mutual fund selection and composition.
UTADIS multi-criteria decision aid method is employed in order to develop mutual
fund’s performance models. Goal programming model is employed to determine
proportion of selected mutual funds in the final portfolios.
Michael K. Berkowitz and Yehuda Katouritz (2002) in their paper examined the
relationship between the fees changes by mutual funds and their performance. The
work distinguished between high & low quality funds and sheds some additional light
on the growing controversy concerning the role of independent directors as monitors
of the fee setting practices written the funds. They found that for high quality
managers, there is a positive relationship between fees & performance. In contrast for
lower Quality Managers, there is a negative relationship between fees and
performance. The authors believed this reflects the incentive for poor managers to
extract shorter benefits from investors as the likelihood of survival is lower for poor
performing managers. The results were consistent with the notion that the independent
directors whose responsibility is to safeguard the interest of shareholders may not be
effective in doing so.
S.Narayan Rao (2003) et. al., evaluated performance of Indian mutual funds in a bear
market through relative performance index, riskreturn analysis, Treynor’s ratio,
Sharpe’s ratio, Jensen’s measure, and Fama’s measure. The study used 269 open-
ended schemes (out of total schemes of 433) for computing relative performance
index. Then after excluding funds whose returns are less than risk-free returns, 58
39
schemes are finally used for further analysis. The results of performance measures
suggest that most of mutual fund schemes in the sample of 58 were able to satisfy
investor’s expectations by giving excess returns over expected returns based on both
premium for systematic risk and total risk.
Bijan Roy & Saikat Sovan Deb (2003) in the article “conditional alpha &
performance persistence for Indian Mutual funds Empirical evidence” investigated the
Indian MF mangers contribution to better performance. The research found that on an
average the Indian MF managers only captures the opportunities from the available
economic information, they do not contribute beyond it. The paper stresses that, the
above basing on when the beta the fund is conditioned to lag economic information
variables, the fund on an average becomes negative. The information variables used in
the study are interest rates, dividend yields, term structure yield spread and a dummy.
The authors also examined the evidence of persistence in the performance of IMF
based on cross sectional regressions of future excess returns on a measure of past fund
performance and used both conditional & unconditional measures of performance as
measure of part fund performance. The results indicated that conditional measures of
past performance predict the future fund returns significantly.
Nalini Prava Tripathy(2005) in the article entitled “An Empirical Evaluation of
Market Timing Abilities of Indian fund Managers on Equity Linked Saving Scheme”
analysed the market timing abilities of Indian Fund manager in form of two models,
one by Treynor and Mazuy and the other by Henriksson and Merton. The results
indicated that Indian fund managers are not able to time the market correctly. There is
only one scheme out of 31 which exhibited the timing ability of the fund manager.
Zakri Y.Bello (2005) matched a sample of socially responsible stock mutual funds
matched to randomly select conventional funds of similar net assets to investigate
differences in characteristics of assets held, degree of portfolio diversification and
variable effects of diversification on investment performance. The study found that
socially responsible funds do not differ significantly from conventional funds in terms
of any of these attributes. Moreover, the effect of diversification on investment
performance is not different between the two groups. Both groups underperformed
Domini 400 Social Index and S & P 500 during the study period.
D.N. Rao (2005) in the study “Investment styles and performance of equity MFs in
India” classified 419 open ended equity MF schemes into six investment styles and
40
analyzed the performance selected open ended equity MF schemes for the period 1
April 2005 – 31 march 2006 pertaining to the two dominant investment styles and
tested the hypothesis whether the differences in performance are statistically
significant. The variables chosen or analyzing financial performance are monthly
compounded mean return, risk per unit return and sharp ratio. A comparison of the
financial performance of 21 open ended equity dividend plans was made and found
that 17 growth plans gave hyper returns than dividend plans but at a higher risk. 1
dividend plan generated higher return than growth plan & 3 growth plans & dividend
plans had the same returns. It was also found that out of 21 growth plans 4 growth
plans had higher co-efficient of variation (risk per unit) than corresponding dividend
plans & 13 dividend plans had higher coefficient of variation than growth plans
offered by AMC. Three growth plans & dividend plans had almost equal risk per unit
return. A comparison of the Sharpe’s ratio’s of growth plans & the corresponding
dividend plans indicated 18 growth plans out of 21 had better risk adjusted excess
returns highlighting the fat that growth plans are likely to reward the investors more
for the extra risk they are assuming. Finally Pearson’s correlation coefficient between
the 2plans found to be moderate and proved equity growth funds provide higher
returns than that of equity dividend funds and differences were statistically
significant.
S. Anand and V. Murugaiah (2006) in the paper “Analysis of Components of
Investment Performance - An Empirical Study of Mutual Funds in India” examined
the components and sources of investment performance in order to attribute it to
specific activities of Indian fund managers. The author also attempted to identify a
part of observed return which is due to the ability to pick up the best securities at
given level of risk. For this purpose, Fama's methodology is adopted here. The study
covered the period between April 1999 and March 2003 and evaluated the
performance of mutual funds based on 113 selected schemes having exposure more
than 90 percent of corpus to equity stocks of 25 fund houses. The empirical results
reported here reveal the fact that the mutual funds were not able to compensate the
investors for the additional risk that they have taken by investing in the mutual funds.
The study concluded that the influence of market factor was more severe during
negative performance of the funds while the impact selectivity skills of fund managers
was more than the other factors on the fund performance in times of generating
41
positive return by the funds. It was also observed from the study that selectivity,
expected market risk and market return factors have shown closer correlation with the
fund return.
Sharad Panwar and R. Madhumathi (2006) in the paper entitled “characteristics
and performance evaluation of selected mutual funds in India” studied a sample of
public sector sponsored & private sector sponsored funds of varied net assets to
investigate the differences in characteristics of assets held, portfolio diversification
and variable effects of diversification on investment performance for the period may
2002 to may 2005. The paper resulted that public sector sponsored funds also not
differ significantly from private sector sponsored funds in term of mean returns
percent however they said there is a significant difference between public sector
sponsored MFs. & private sector sponsored MFs in terms of average standard
deviation, average variance and average co-efficient of variation. It is also found out
that there is no statistical difference between sponsorship classes in terms of excess
standard deviation adjusted returns as a performance measure. When they used
residual variance (RV) as a measure of MF portfolio diversification characteristic,
there was a statistical difference between public – sector sponsored mutual fund and
private sector sponsored MF for the study period. The model built on testing the
impact of diversification on fund performance they found a statistical difference
among sponsorship classes when residual variance is used as a measure of portfolio
diversification and excess standard deviation adjusted returns as a performance
measure.
D.N. Rao (2006)“4 step model to evaluate performance of mutual funds in Saudi
Arabia” studied 4 step model for selecting the right equity fund and illustrated the
same in the context of equity mutual funds in Saudi Arabia. The study revealed that
most of the funds invested in Arab stocks had been in existence for less than a year
and the volatility of the GCC stock markets contributed to the relatively poor
performance of these funds and the turnaround of these funds could take place only
with the rallying of GCC and other Arab markets. Out of the six categories of equity
mutual funds in Saudi Arabia discussed above, Funds invested in Asian and European
stocks were more consistent in their performance and yielded relatively higher returns
than other categories, though funds invested in Saudi stocks yielded higher 3-year
returns. Given the future outlook of Asian economies, particularly China and India
42
and the newly emerging economies such as Brazil and Russia, funds invested in the
stocks of these countries are likely to continue their current performance in near
future.
Ajay Khorana, Peter Tufano and Lei Wedgein (2007) in the study named “Board
structure, mergers, and shareholders wealth. A study of the mutual fund industry”
studied mutual fund mergers between 1999 and 2001 to understand the role and
effectiveness of fund boards. The study found some fund mergers typically across
family mergers benefit target shareholders but are costly to target fund directors. Such
mergers are more likely when funds underperform and their boards have a larger
percentage of independent tributes, suggesting that more independent boards tolerate
less under performance before initiating across family mergers. The paper indicated
the effect is most pronounced when all of the funds directors are independent, not the
75 percent level of independence required by the SEC. It is also said higher paid
target fund board is less likely to approve across family mergers that cause substantial
reductions in their compensation.
Karoui, Aymen and Meier, Iwan (2008) in the paper “Performance and
characteristics of mutual fund” studied the performance and portfolio characteristics
of 828 newly launched U.S. equity mutual funds over the time period 1991-2005
using Carhart (1997) 4 factor asset pricing model. The study revealed new U.S.
equity mutual funds outperformed their peers by 0.12 percent per month over the first
three years. However, there were distinct patterns in this superior risk adjusted
performance estimated using Carhart’s (1997) 4 factor model. The number of fund
that started to outperform older funds shrunk substantially after one to three years.
These results suggested that the initially favorable performance was to some extent
due to risk taking and not necessarily superior manager skill. Scrutinizing the returns
further confirmed that the returns of the fund started to exhibit higher standard
deviations and higher unsystematic risk that could not be explained by the risk
exposure to the four factors of the Carhart model.
Paramita Mukherjee & Suchismita(2008) Bose in the paper “Does the Stock
Market in India Move with Asia? A Multivariate Co-integration Vector Auto
regression Approach” if the Indian stock market moves with other markets in Asia
and the United States in an era of capital market reforms and the sustained interest of
foreign investors in that market. By using techniques of co-integration, vector auto
43
regression, vector error correction models, and Granger causality, the research
indicated that, though there is definite information leadership from the U. S. market to
all Asian markets, the U. S. indexes do not uniquely influence the integration of Asian
markets, while Japan is found to play a unique role in the integration of Asian
markets. The U. S. market is seen not only to influence, but also to be influenced by
information from most of the major Asian markets. The Indian stock return in recent
times is definitely led by major stock index returns in the United States, Japan, as well
as other Asian markets, such as Hong Kong, South Korea, and Singapore. More
important, returns on the Indian market are also seen to exert considerable influence
on stock returns in major Asian markets.
Sowmya Guha, Deb & Ashok Banerjee (2009) in the article entitled “Downside
risk analysis of Indian equity MFs A value at risk approach” put forward downside
risk lends of Indian equity MF using a VaR measure.
Three parametric models random walk, moving average, exponentially weighted
moving average and one non parametric model were employed to predict the VaR of a
sample of equity MFs in India in a rolling basis and actual changes in NAV registered
by the funds were compared with the estimated VaR post facto. The results indicated
presence of considerable downside risk for an investor in equity MFs for the study
period under consideration. The study also tested the robustness of the models using
two popular back testing approaches. The statistical tests of the models based on the
framework indicated that random walk model & moving average model suffered from
a down ward bias and err by underestimating the VaR frequently. The EWMA and
historical simulation methods are relatively free from that bias but they show a few
instances of providing too conservating estimates of VaR. The researchers have put
forward on case for adapting VaR based risk management systems for investment
industry as a whole in India.
Soumya Guha Deb, Ashok Banerjee and B.B. Chakrabarti (2009) studied “Return
Based Style Analysis (RBSA) to evaluate equity mutual funds in India” using
quadratic optimization of an asset class factor model proposed by William Sharpe and
analysis of the relative performance of the funds with respect to their style
benchmarks. The study found that the mutual funds generated positive monthly
returns on the average, during the study period of January 2000 through June 2005.
The ELSS funds lagged the Growth funds or all funds taken together, with respect to
44
returns generated. The mean returns of the growth funds or all funds were not only
positive but also significant. The ELSS funds also demonstrated marginally higher
volatility (standard deviation) than the Growth funds.
Dr. Kavita Chavali (2009) has done an empirical study named “Investment
performance of equity – linked saving schemes”. Analysis was made to compare
equity linked saving schemes with other traditional forms of tax saving schemes,
analyzed equity linked saving schemes picked at random on the basis of risk & return
and also made an attempt to understand level of awareness regarding mutual funds
among balanced class and various factors that informed individual investors to invest
in equity linked saving schemes. The analysis has been made by selecting 5 sectors
and diversified portfolio composition of ELSS. The results of the study were based
upon comparison of ELSS funds on the basis of return, risk (SD Beta, Alpha, Sharpe
ratio) with its benchmarks S&P.CNX Nifty. The study is further extended by
analyzing the questionnaire filled in by the investors. The study proved that it is not
just the past performance of returns, but qualitative criteria like reputation and
performance of fund house, credential and expertise of fund manager and other funds
managed by him affects the performance of ELSS. It also proved that ELSS can be
considered for investment because of dual advantage of tax savings and high returns
but the right choice has to be made by the investor which matches the risk appetite.
Dr. Hitesh S. Viramgami (2009) in his article “Resource mobilization by Indian
mutual fund industry” has made an attempt to analyze total resource mobilization by
the mutual funds industry for eight year period (2001-2007). The study entitled
“Resource mobilization by Indian Mutual Fund Industry” shows that 70 percent of the
resources mobilized are from liquid / MM Schemes, growth schemes, ELSS and
income funds offered by private sector mutual funds share of public sector has
decreased to 8.81 percent over the study period. The author said for orderly growth of
resource mobilization of mutual funds the investor’s protection should be of prime
importance and should not be prejudiced after investments made by them.
Suppa-Aim and Teerapan (2010) in the thesis “Mutual fund performance in
emerging markets the case of Thailand” specifically investigates mutual funds in one
of the emerging economies, Thailand, using a more extensive dataset than previous
studies; it controls for investment policy and tax-purpose differences, as unique
characteristics of mutual funds in Thailand. The authors scrutinized how fund
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managers perform and what strategy they use in managing their portfolios; and ask
whether any fund characteristics can explain fund performance. The study also
explored the impact of liquidity on performance and performance measures. In this
context the result indicated that mutual fund managers, as a whole, do not have
selectivity or timing ability and they do not give value added to investors. Most of the
fund managers in Thailand invest heavily in small and growth stocks. Flexible fund
managers are, in comparison, more active and adjust their portfolios dynamically
according to economic information. There is persistence in performance in general
mutual funds. This evidence is statistically and economically significant although it
derives mainly from poorly performing funds which continue to perform badly. Size,
age and fund family also have explanatory power in fund performance but it is
specific to investment policy and the evidence is not economically significant. Net
cash flows, in general, have no impact on fund performance. However, the significant
amount of cash inflows can severely lower performance in mutual fund since the fund
managers are unable to allocate their portfolio immediately and leave large amounts
in their cash position.
Liquidity also plays a major role in mutual fund performance. The study also found
that funds which contain more illiquid assets in their portfolios perform better and this
suggests that there is a liquidity premium in mutual funds. As a result, a liquidity-
augmented model which includes one liquidity factor is proposed. Results from this
proposed model show that our liquidity factor, as measured by stock turnover ratio,
has explanatory power for fund performance, in particular in low liquidity portfolios.
However, our liquidity factor is unable completely to explain the liquidity premium in
mutual funds because the evidence of a liquidity premium is still present. Finally, the
study reveals the policy implications of introducing the tax-benefit funds scheme in
Thailand. The study found that the tax-benefit funds perform significantly better than
general funds and this is also true even when controlled for other fund characteristics.
The tax-benefit fund managers are more passive than managers of general funds but
they do not employ any different strategy from that used by managers of general
funds. Tax-benefit funds are more sensitive to cash flows and contain slightly more
illiquid stocks in their underlying assets. Thus, the superior performance in tax benefit
funds is not only attributable to the liquidity premium, but also to the fund managers’

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superior ability, as well as to the long-term restrictions which help tax-benefit fund
managers to reduce nondiscretionary trading cost in these funds.
Dr. Susheel Kumar Mehta (2010) in the article named “SBI vs. UTI – a comparison
of performance of mutual funds schemes”. has taken 10 UTI and 10 SBI mutual funds
and analyzed their performance. The study concluded that preference of UTI & SBI
mutual funds has been better in 2007 – 08. When compared to 2006-07 SBI
performance was & good in both the years. No consistency for both the companies’
mutual funds in terms of returns. Consistency is observed for risk. UTI money market
mutual funds dividend & SBI magnum income plus fund- saving plan growth are
found to be least risky among selected schemes of UTI & SBI. UTI were more
defensive than SBI schemes. SBI magnum comma fund – dividend had been the most
aggressive scheme & UTI money market mutual funds daily dividend has been the
most differential scheme. Aggressiveness was the right strategy. SBI’s magnum
comma fund dividend has preference very well during both the years. During 2006-07
all the selected schemes gave dismal performance which gave same preference. As of
market based on risk adjusted measures of Sharpe, Treynor & Jensen. During 2007-
08 only one of the selected UTI schemes master value fund growth option preformed
better followed by MEF – G. & MBF – G performed better than market. Whereas SBI
– MCF dividend follow by MEF – G & MBF-G – preformed better than Market. As
superior stock selection is concerned none of the portfolio Manager selected UTI &
SBI showed skills during 2006-07. It was only 2007-08 managers of SBI MCF – D-
eructed some superior stock selection skills.
Dr.V.Rama Devi and Nooney Serien Kumar(2010) in the paper entitled
“Performance evaluation A comparative study between Indian & Foreign equity
Mutual funds” studied the performance of Indian & Foreign equity Mutual funds,
evaluated the performance of diff equity mutual funds on basis of risk – return
parameters and also evaluated the performance of Indian & Foreign equity Mutual
funds on risk adjusted measures suggested by Sharpe, Treynor & Jensen. The
researchers has selected of Indian & Foreign equity funds and classified into the
following categories. Indian equity diversified funds-Index funds, Tax saving funds
and Technology funds. Foreign equity diversified funds-Foreign equity Index, Tax
saving and Technology funds. The research has taken 40 IEDFS, 18 IEIFS, 16 IETSF
and 5 IETFS. They concluded that the Foreign Equity Funds significantly differ from
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one another with in the respective foreign Investment style. Even Indian equity
mutual funds significantly differ from one another with in the respective Investment
style. The paper also indicated that the tremendous success of the mutual funds
industry is due to the fact that it has done more than any other financial industry to
offer solid products tailored to meet real financial needs and marketed those products
responsibly and it cannot be ignored that rapid changes and Market pressures are
challenging. The authors stressed that it cannot be remained pigeonholed by outdated
thinking or anticipated business practices the mutual fund industry has to maintain
long term health and investor protection has to be maintained for its future success.
Lakshmi N (2010) in the research paper entitled “performance of the Indian MF
industry a study with special reference to growth schemes” found out that MF serve
those individuals including to invest but lack the newline technical investment
expertise. Funds mobilized by the industry had grown new here by 57 percent and
AUM by 14 percent during 1997-2006. Analysis of performance of newline seven
schemes should that, all the sample schemes outperformed the newline market in
terms of absolute returns without adequate returns to over total newline risk. All the
three risk adjective performance measures showed newline underperformance of
sample schemes. Investors and fund Managers agreed newline that investing in MF
were less risky. Goodwill was the main newline criterion of choosing MF
organizations. Investors were moderately newline satisfied with the performance &
services offered by the industry.
Ms.Nidhi Walia, Dr (Ms) Ravi Kiran(2010) in the paper “Efficient Market
Hypothesis, Price Volatility, and Performance of Mutual Funds” studied about mutual
fund organizations to identify if mutual fund managers can outperform by estimating
market movements. The purpose of this study was to determine whether the variables
such as demographic characteristics (age, gender) and investment patterns could be
used individually or in combination to both differentiate among levels of men and
women investment decisions and risk tolerance and develop some guidelines to the
investment managers to design their investment schemes by considering these views
of individuals.
The study states that Mutual fund organizations have responsibility towards investors
to provide them optimal returns using their abilities to efficiently tap market timings
along-with desired diversification. Mutual fund portfolio management is a real
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dynamic decision process whereby continuous evaluation and monitoring is
demanded from efficient fund managers. Ever improved technologies and
deregulation have significantly contributed towards improving the operational
efficiency of mutual fund managers yet the investors risk perception gap is widening.
Results of the study support Efficient Market Hypothesis (EMH) and conclude that
Mutual fund managers cannot identify similar patterns in market movements and
stock market follows Random Walk. It can be concluded that the modern investor is
a mature and adequately groomed person. In spite of the phenomenal growth in the
security market and quality Initial Public Offerings (IPOs) in the market, the
individual investors prefer investments according to their risk preference. For e.g.
Risk averse peoples chooses life insurance policies, fixed deposits with banks and
post office, PPF and NSC. Occasions of blind investments are scarce, as a majority of
investors are found to be using some source and reference groups for taking decisions.
Though they are in the trap of some kind of cognitive illusions such as overconfidence
and narrow framing, they consider multiple factors and seek diversified information
before executing some kind of investment transaction.
Sanjay Kumar Mishra and Manoj Kumar (2011) “How mutual fund investors
objective and subjective knowledge impacts their information search and processing
behaviour” in the article attempted to prove how Contrary to the popular belief that
objective knowledge (OK) (that is, what is actually stored in the memory) and
subjective knowledge (SK) (that is, what individuals perceive they know) differently
impact information search and information-processing behavior, with an empirical
study conducted on 268 mutual funds (MF). Investors suggest no significant
difference in the impact of OK and SK on the width and depth of information search
and information processing. The study suggested that OK and SK significantly
positively impact the width and depth of information search and information-
processing behaviour, however, no significant difference exists in the way they
impact. The possible explanation put forward is that even though MF investors may
suffer from self-deception (that is, pseudo expertise) and report high knowledge (that
is, high SK), the impact of SK on actual investment behaviour is not significantly
different from that of OK.
Sathya Swaroop Debasish in the paper “Investigating Performance of Equity-based
Mutual Fund Schemes in Indian Scenario” mutual funds said the performance of the
49
mutual fund products become more complex in context of accommodating both return
and risk measurements while giving due importance to investment objectives. The
paper attempted to study the performance of selected schemes of mutual funds based
on risk-return relationship models and measures. A total of 23 schemes offered by six
private sector mutual funds and three public sector mutual funds have been studied
over the time period April 1996 to March 2009 (13 years). The analysis has been
made on the basis of mean return, beta risk, and coefficient of determination, Sharpe
ratio, Treynor ratio and Jensen Alpha. The overall analysis finds Franklin Templeton
and UTI being the best performers and BSL, HDFC and LIC mutual funds showing
poor below-average performance when measured against the risk-return relationship
models.
Deepak Agrawal (2011) in the study “Measuring Performance of Indian Mutual
Funds” touched the development of Indian capital market and deregulations of the
economy in 1992. Since the development of the Indian Capital Market and
deregulations of the economy in 1992 there have been structural changes in both
primary and secondary markets. Mutual funds are key contributors to the
globalization of financial markets and one of the main sources of capital flows to
emerging economies. Despite their importance in emerging markets, little is known
about their investment allocation and strategies. This article provided an overview of
mutual fund activity in emerging markets. It described about their size and asset
allocation. The paper is a process to analyze the Indian Mutual Fund Industry pricing
mechanism with empirical studies on its valuation. The data is also analyzed at both
the fund-manager and fund-investor levels. The study revealed that the performance is
affected by the saving and investment habits of the people and the second side the
confidence and loyalty of the fund Manager and rewards affects the performance of
the MF industry in India.
Zhi Da, Pengjie Gao, and Ravi Jagannathan(2011) in the article “Impatient
Trading, Liquidity Provision, and Stock Selection by Mutual Funds” showed that a
mutual fund's stock selection skill can be decomposed into additional components that
include liquidity-absorbing impatient trading and liquidity provision. The study
proved that past performance predicts future performance better among funds trading
in stocks affected more by information events Past winners earn a risk-adjusted after-
fee excess return of 35 basis points per month in the future. Most of that superior
50
performance comes from impatient trading. The paper also states that impatient
trading is more important for growth-oriented funds, and liquidity provision is more
important for younger income funds.

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