Comparatives Study Between Mutual Funds Offer by Various

Companies in Indian Market.

TABLE OF CONTENTS
Introduction to Mutual Funds Mutual Funds Industry Phases Performance Measures of Mutual Funds Company Profile Research Methodology Data Analysis and Interpretation Observations Limitations of the study Suggestions Conclusion References Annexure 4 24 26 32 36 41 59 60 61 63 64 65

ACKNOWLEDGMENT Knowledge is an experience gained in life, it is the choicest possession, which should not be shelved but should be happily shared with others. I express my gratitude to my esteemed guide, Faculty guide _________________ for their valuable critiques, assistance and encouragement, which enabled me to carry on the project successfully. They gave me a wonderful opportunity to work on this project. Their time-to-time guidance and incessant support helped me to broaden my outlook on the project I am highly obliged for their support throughout the Training. I would like to thanks to all for give their valuable inputs and time.

Introduction to Mutual Funds:

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.

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 the other words, a Mutual Fund allows investors to indirectly take a position in a basket of assets. 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 among a wide cross-section of industries

and sectors thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at same time. Investors of mutual funds are known as unit holders. The investors in proportion to their investments share the profits or losses. 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 Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public.

ORGANISATION OF A MUTUAL FUND:

There are many entities involved and the diagram below illustrates the organizational set up of a Mutual Fund:

(For detailed definitions in the above chart refer to annexure 1) Mutual Funds diversify their risk by holding a portfolio of instead of only one asset. This is because by holding all your money in just one asset, the entire fortunes of your portfolio depend on this one asset. By creating a portfolio of a variety of assets, this risk is substantially reduced.

Mutual Fund investments are not totally risk free. In fact, investing in Mutual Funds contains the same risk as investing in the markets, the only difference being that due to professional management of funds the controllable risks are substantially reduced. A very important risk involved in Mutual Fund investments is the market risk. However, the company specific risks are largely eliminated due to professional fund management.

IMPORTANT CHARACTERISTICS OF A MUTUAL FUND

A Mutual Fund actually belongs to the investors who have pooled their Funds. The ownership of the mutual fund is in the hands of the Investors. A Mutual Fund is managed by investment professional and other Service providers, who earns a fee for their services, from the funds. The pool of Funds is invested in a portfolio of marketable investments. The value of the portfolio is updated every day. The investors share in the fund is denominated by units. The value of the units changes with change in the portfolio value, every day. The value of one unit of investment is called net asset value (NAV). The investment portfolio of the mutual fund is created according to The stated Investment objectives of the Fund.

OBJECTIVES OF A MUTUAL FUND:

To Provide an opportunity for lower income groups to acquire without Much difficulty, property in the form of shares. To Cater mainly of the need of individual investors, whose means are small? To Manage investors portfolio that provides regular income, growth, Safety, liquidity, tax advantage, professional management and diversification.

ADVANTAGES OF MUTUAL FUNDS:

Reduced Risk. Diversified investment. Botheration free investment. Revolving type of investment (Reinvestment). Selection and timings of investment. Wide investment opportunities. Investments care. Tax benefits.

STRUCTURE OF A MUTUAL FUND

Sponsor

Trustee s

Mutual fund

ASSET MANAGEMENT COMPANY

Custodia n

Registra r

INVESTORS PROFILE:
An investor normally prioritizes his investment needs before undertaking an investment. So different goals will be allocated to different proportions of the total disposable amount. Investments for specific goals normally find their way into the debt market as risk reduction is of prime importance, this is the area for the risk-averse investors and here, Mutual Funds are generally the best option. One can avail of the benefits of better returns with added benefits of anytime liquidity by investing in open-ended debt funds at lower risk, this risk of default by any company that one has chosen to invest in, can be minimized by investing in Mutual Funds as the fund managers analyze the companies financials more minutely than an individual can do as they have the expertise to do so. Moving up the risk spectrum, there are people who would like to take some risk and invest in equity funds/capital market. However, since their appetite for risk is also limited, they would rather have some exposure to debt as well. For these investors, balanced funds provide an easy route of investment, armed with expertise of investment techniques, they can invest in equity as well as good quality debt thereby reducing risks and providing the investor with better returns than he could otherwise manage. Since they can reshuffle their portfolio as per market conditions, they are likely to generate moderate returns even in pessimistic market conditions. Next comes the risk takers, risk takers by their nature, would not be averse to investing in high-risk avenues. Capital markets find their fancy more often than not, because they have historically generated better returns than any other avenue, provided, the money was judiciously invested. Though the risk associated is generally on the higher side of the spectrum, the return-potential compensates for the risk attached.

TYPES OF MUTUAL FUNDS:

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1.

OPEN-ENDED MUTUAL FUNDS:-

The holders of the shares in the Fund can resell them to the issuing Mutual Fund company at the time. They receive in turn the net assets value (NAV) of the shares at the time of re-sale. Such Mutual Fund Companies place their funds in the secondary securities market. They do not participate in new issue market as do pension funds or life insurance companies. Thus they influence market price of corporate securities. Open-end investment companies can sell an unlimited number of Shares and thus keep going larger. The open-end Mutual Fund Company Buys or sells their shares. These companies sell new shares NAV plus a Loading or management fees and redeem shares at NAV.In other words, the target amount and the period both are indefinite in such funds 2. CLOSED-ENDED MUTUAL FUNDS:-

A closedend Fund is open for sale to investors for a specific period, after which further sales are closed. Any further transaction for buying the units or repurchasing them, Happen in the secondary markets, where closed end Funds are listed. Therefore new investors buy from the existing investors, and existing investors can liquidate their units by selling them to other willing buyers. In a closed end Funds, thus the pool of Funds can technically be kept constant. The asset management company (AMC) however, can buy out the units from the investors, in the secondary markets, thus reducing the amount of funds held by outside investors. The price at which units can be sold or redeemed Depends on the market prices, which are fundamentally linked to the NAV. Investors in closed end Funds receive either certificates or Depository receipts, for their holdings in a closed end mutual Fund.

ORGANISATION AND MANAGEMENT OF MUTUAL FUNDS:In India Mutual Fund usually formed as trusts, three parties are generally involved viz. Settler of the trust or the sponsoring organization. The trust formed under the Indian trust act, 1982 or the trust company registered under the Indian companies act, 1956 Fund mangers or The merchant-banking unit Custodians. 9

MUTUAL FUNDS TRUST:Mutual fund trust is created by the sponsors under the Indian trust act, 1982 Which is the main body in the creation of Mutual Fund trust The main functions of Mutual Fund trust are as follows: Planning and formulating Mutual Funds schemes. Seeking SEBIs approval and authorization to these schemes. Marketing the schemes for public subscription. Seeking RBI approval in case NRIs subscription to Mutual Fund is Invited Attending to trusteeship function. This function as per guidelines can be assigned to separately established trust companies too. Trustees are required to submit a consolidated report six monthly to SEBI to ensure that the guidelines are fully being complied with trusted are also required to submit an annual report to the investors in the fund.

FUND MANAGERS (OR) THE ASSES MANAGEMENT COMPANY (AMC)

AMC has to discharge mainly three functions as under: I. Taking investment decisions and making investments of the funds through market dealer/brokers in the secondary market securities or directly in the primary capital market or money market instruments II. Realize fund position by taking account of all receivables and realizations, moving corporate actions involving declaration of dividends,etc to compensate investors for their investments in units; and III. Maintaining proper accounting and information for pricing the units and arriving at net asset value (NAV), the information about the listed schemes and the transactions of units in the secondary market. AMC has to feed back the trustees

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about its fund management operations and has to maintain a perfect information system.

CUSTODIANS OF MUTUAL FUNDS:Mutual funds run by the subsidiaries of the nationalized banks had their respective sponsor banks as custodians like canara bank, SBI, PNB, etc. Foreign banks with higher degree of automation in handling the securities have assumed the role of custodians for mutual funds. With the establishment of stock Holding Corporation of India the work of custodian for mutual funds is now being handled by it for various mutual funds. Besides, industrial investment trust company acts as subcustodian for stock Holding Corporation of India for domestic schemes of UTI, BOI MF, LIC MF, etc

Fee structure:Custodian charges range between 0.15% to 0.20% on the net value of the customers holding for custodian services space is one important factor which has fixed cost element.

RESPONSIBILITY OF CUSTODIANS: Receipt and delivery of securities Holding of securities. Collecting income Holding and processing cost Corporate actions etc FUNCTIONS OF CUSTOMERS Safe custody Trade settlement Corporate action Transfer agents

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RATE OF RETURN ON MUTUAL FUNDS:An investor in mutual fund earns return from two sources: Income from dividend paid by the mutual fund. Capital gains arising out of selling the units at a price higher than the acquisition price

Formation and regulations:

1. Mutual funds are to be established in the form of trusts under the Indian trusts act and are to be operated by separate asset management companies (AMC s) 2. AMCs shall have a minimum Net worth of Rs. 5 crores; 3. AMCs and Trustees of Mutual Funds are to be two separate legal entities and that an AMC or its affiliate cannot act as a manager in any other fund; 4. Mutual funds dealing exclusively with money market instruments are to be regulated by the Reserve Bank Of India 5. Mutual fund dealing primarily in the capital market and also partly money market instruments are to be regulated by the Securities Exchange Board Of India (SEBI) 6. All schemes floated by Mutual funds are to be registered with SEBI

Schemes:1. Mutual funds are allowed to start and operate both closed-end and open-end schemes; 2. Each closed-end schemes must have a Minimum corpus (pooling up) of Rs 20 crore; 3. Each open-end scheme must have a Minimum corpus of Rs 50 crore 4. In the case of a Closed End scheme if the Minimum amount of Rs 20 crore or 60% of the target amount, which ever is higher is not raised then the entire subscription has to be refunded to the investors;

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5. In the case of an Open-Ended schemes, if the Minimum amount of Rs 50 crore or 60 percent of the targeted amount, which ever is higher, is no raised then the entire subscription has to be refunded to the investors.

Investment norms:1. No mutual fund, under all its schemes can own more than five percent of any companys paid up capital carrying voting rights; 2. No mutual fund, under all its schemes taken together can invest more than 10 percent of its funds in shares or debentures or other instruments of any single company; 3. No mutual fund, under all its schemes taken together can invest more than 15 percent of its fund in the shares and debentures of any specific industry, except those schemes which are specifically floated for investment in one or more specified industries in respect to which a declaration has been made in the offer letter. 4. No individual scheme of mutual funds can invest more than five percent of its corpus in any one companys share; 5. Mutual funds can invest only in transferable securities either in the money or in the capital market. Privately placed debentures, securitized debt, and other unquoted debt, and other unquoted debt instruments holding cannot exceed 10 percent in the case of growth funds and 40 percent in the case of income funds.

Distribution:
Mutual funds are required to distribute at least 90 percent of their profits annually in any given year. Besides these, there are guidelines governing the operations of mutual funds in dealing with shares and also seeking to ensure greater investor protection through detailed disclosure and reporting by the mutual funds. SEBI has also been granted with powers to over see the constitution as well as the operations of mutual funds, including a common advertising code. Besides, SEBI can impose penalties on Mutual funds after due investigation for their failure to comply with the guidelines.

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MUTUAL FUND SCHEME TYPES:

Equity Diversified Schemes These schemes mainly invest in equity. They seek to achieve long-term capital appreciation by responding to the dynamically changing Indian economy by moving across sectors such as Lifestyle, Pharma, Cyclical, Technology, etc. Sector Schemes These schemes focus on particular sector as IT, Banking, etc. They seek to generate longterm capital appreciation by investing in equity and related securities of companies in that particular sector. Index Schemes These schemes aim to provide returns that closely correspond to the return of a particular stock market index such as BSE Sensex, NSE Nifty, etc. Such schemes invest in all the stocks comprising the index in approximately the same weightage as they are given in that index.

Exchange Traded Funds (ETFs) ETFs invest in stocks underlying a particular stock index like NSE Nifty or BSE Sensex. They are similar to an index fund with one crucial difference. ETFs are listed and traded on a stock exchange. In contrast, an index fund is bought and sold by the fund and its distributors. Equity Tax Saving Schemes These work on similar lines as diversified equity funds and seek to achieve long-term capital appreciation by investing in the entire universe of stocks. The only difference between these funds and equity-diversified funds is that they demand a lock-in of 3 years to gain tax benefits.

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 Dynamic Funds These schemes alter their exposure to different asset classes based on the market scenario. Such funds typically try to book profits when the markets are overvalued and remain fully invested in equities when the markets are undervalued. This is suitable for investors who find it difficult to decide when to quit from equity. Balanced Schemes These schemes seek to achieve long-term capital appreciation with stability of investment and current income from a balanced portfolio of high quality equity and fixed-income securities. Medium-Term Debt Schemes These schemes have a portfolio of debt and money market instruments where the average maturity of the underlying portfolio is in the range of five to seven years. Short-Term Debt Schemes These schemes have a portfolio of debt and money market instruments where the average maturity of the underlying portfolio is in the range of one to two years. Money Market Debt Schemes These schemes invest in debt securities of a short-term nature, which generally means securities of less than one-year maturity. The typical short-term interest-bearing instruments these funds invest in Treasury Bills, Certificates of Deposit, Commercial Paper and Inter-Bank Call Money Market. Medium-Term Gilt Schemes These schemes invest in government securities. The average maturity of the securities in the scheme is over three years. Short-Term Gilt Schemes

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These schemes invest in government securities. The securities invested in are of short to medium term maturities. Floating Rate Funds They invest in debt securities with floating interest rates, which are generally linked to some benchmark rate like MIBOR. Floating rate funds have a high relevance when interest rates are on the rise helping investors to ride the interest rate rise. Monthly Income Plans (MIPS) These are basically debt schemes, which make marginal investments in the range of 1025% in equity to boost the schemes returns. MIP schemes are ideal for investors who seek slightly higher return that pure long-term debt schemes at marginally higher risk.

DIFFERENT MODES OF RECEIVING THE INCOME EARNED FROM MUTUAL FUND INVESTMENTS
Mutual Funds offer three methods of receiving income:

Growth Plan In this plan, dividend is neither declared nor paid out to the investor but is built into the value of the NAV. In other words, the NAV increases over time due to such incomes and the investor realizes only the capital appreciation on redemption of his investment. Income Plan In this plan, dividends are paid-out to the investor. In other words, the NAV only reflects the capital appreciation or depreciation in market price of the underlying portfolio. Dividend Re-investment Plan

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In this case, dividend is declared but not paid out to the investor, instead, it is reinvested back into the scheme at the then prevailing NAV. In other words, the investor is given additional units and not cash as dividend.

MUTUAL FUND INVESTING STRATEGIES:

1. Systematic Investment Plans (SIPs) These are best suited for young people who have started their careers and need to build their wealth. SIPs entail an investor to invest a fixed sum of money at regular intervals in the Mutual fund scheme the investor has chosen, an investor opting for SIP in xyz Mutual Fund scheme will need to invest a certain sum on money every month/quarter/half-year in the scheme. 2. Systematic Withdrawal Plans (SWPs) These plans are best suited for people nearing retirement. In these plans, an investor invests in a mutual fund scheme and is allowed to withdraw a fixed sum of money at regular intervals to take care of his expenses 3. Systematic Transfer Plans (STPs) They allow the investor to transfer on a periodic basis a specified amount from one scheme to another within the same fund family meaning two schemes belonging to the same mutual fund. A transfer will be treated as redemption of units from the scheme from which the transfer is made. Such redemption or investment will be at the applicable NAV. This service allows the investor to manage his investments actively to achieve his objectives. Many funds do not even charge any transaction fees for his service an added advantage for the active investor.

ADVANTAGES OF INVESTING TRHOURGH MUTUAL FUNDS:

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There are several reasons that can be attributed to the growing popularity and suitability of Mutual Funds as an investment vehicle especially for retail investors: ASSET ALLOCATION Mutual Funds offer the investors a valuable tool Asset Allocation. This is explained by an example. An investor investing Rs.1 lakh in a mutual fund scheme, which has collected Rs.100 crores and invested the money in various investment options, will have Rs.1 lakh spread over a number of investment options as demonstrated below:

Investment Type

Percentage of Allocation (% of total portfolio)

Total portfolio of the Mutual Fund scheme (Rs. In crores)

Investors portfolio allocation (Rs.)

EQUITY: State Bank of India Infosys Technologies ABB Reliance Industries MICO Tata Power DEBT: Govt. Securities Company Debentures Institution Bonds Money Market Total

57% 15% 12% 10% 9% 7% 4% 43% 20% 10% 9% 4% 100%

57 15 12 10 9 7 4 43 20 10 9 4 100

57,000 15,000 12,000 10,000 9,000 7,000 4,000 43,000 20,000 10,000 9,000 4,000 1,00,000

Thus Asset Allocation is allocating your investments in to different investment options depending on your risk profile and return expectations. DIVERSIFICATION

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Diversification is spreading your investment amount over a larger number of investments in order to reduce risk. For instance, if you have Rs.10,000 to invest in Information Technology (IT) stocks, this amount will only buy you a handful of stocks of perhaps one or two companies. A fall in the market price of any of these company stocks will significantly erode your investment amount instead it makes sense to invest in an IT sector mutual fund scheme so that your Rs.10,000 is spread across a larger number of stocks thereby reducing your risk. PROFESSIONALS AT WORK

Few investors have the time or expertise to manage their personal investments every day, to efficiently reinvest interest or dividend income, or to investigate the thousands of securities available in the financial markets. Fund managers are professionals and experienced in tracking the finance markets, having access to extensive research and market information, which enables them to decide which securities to buy and sell for the fund. For an individual investor like you, this professionalism is built in when you invest in the Mutual Fund. REDUCTION OF TRANSACTION COSTS

While investing directly in securities, all the costs of investing such as brokerage, custodial services etc. Borne by you are at the highest rates due to small transaction sizes. However, when going through a fund, you have the benefit of economies of scale; the fund pays lesser costs because of larger volumes, a benefit passed on to its investors like you. EASY ACCESS TO YOUR MONEY

This is one of the most important benefits of a Mutual Fund. Often you hold shares or bonds that you cannot directly, easily and quickly sell. In such situations, it could take several days or even longer before you are able to liquidate his Mutual Fund investment by selling the units to the fund itself and receive his money within 3 working days.

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TRANSPARENCY

The investor gets regular information on the value of his investment in addition to disclosure on the specific investments made by the fund, the proportion invested in each class of assets and the fund managers investment strategy and outlook. SAVING TAXES

Tax saving schemes of Mutual Funds offer investor a tax rebate under section 88 of the Income Tax Act. Under this section, an investor can invest up to Rs.10,000 per Financial year in a tax saving scheme. The rate of rebate under this section depends on the investors total income. INVESTING IN STOCK MARKET INDEX

Index schemes of mutual funds give you the opportunity of investing in scrips that make up a particular index in the same proportion of weightage that these scrips have in the index. Thus, the return on your investment mirrors the movement of the index. INVESTING IN GOVERNMENT SECURITIES

Gilt and Money Market Schemes of Mutual Funds also give you the opportunity to invest in Government Securities and Money Markets (including the inter banking call money market) WELL-REGULATED INDUSTRY

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. CONVENIENCE AND FLEXIBILITY

Mutual Funds offer their investors a number of facilities such as inter-fund transfers, online checking of holding status etc, which direct investments dont offer.

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RISKS ASSOCIATED WITH MUTUAL FUNDS:Investing in Mutual Funds, as with any security, does not come without risk. One of the most basic economic principles is that risk and reward are directly correlated. In other words, the greater the potential risk the greater the potential return. The types of risk commonly associated with Mutual Funds are: 1) MARKET RISK Market risk relates to the market value of a security in the future. Market prices fluctuate and are susceptible to economic and financial trends, supply and demand, and many other factors that cannot be precisely predicted or controlled. 2) POLITICAL RISK Changes in the tax laws, trade regulations, administered prices, etc are some of the many political factors that create market risk. Although collectively, as citizens, we have indirect control through the power of our vote individually, as investors, we have virtually no control. 3) INFLATION RISK Interest rate risk relates to future changes in interest rates. For instance, if an investor invests in a long-term debt Mutual Fund scheme and interest rates increase, the NAV of the scheme will fall because the scheme will be end up holding debt offering lower interest rates. 4) BUSINESS RISK Business risk is the uncertainty concerning the future existence, stability, and profitability of the issuer of the security. Business risk is inherent in all business ventures. The future financial stability of a company cannot be predicted or guaranteed, nor can the price of its securities. Adverse changes in business circumstances will reduce the market price of the companys equity resulting in proportionate fall in the NAV of the Mutual Fund scheme, which has invested in the equity of such a company.

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5) ECONOMIC RISK Economic risk involves uncertainty in the economy, which, in turn, can have an adverse effect on a companys business. For instance, if monsoons fail in a year, equity stocks of agriculture-based companies will fall and NAVs of Mutual Funds, which have invested in such stocks, will fall proportionately.

MUTUAL FUND INDUSTRY PHASES

The Mutual Fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank of India. The History of Mutual Funds in India can be broadly divided into four distinct phases. First Phase (1964-87)

Unit Trust of India (UTI) was established on 1963 by an act of parliament. It was set up by 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- 1987-1993(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 Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its Mutual Fund in June 1989 while GIC had set up its Mutual Fund in June 1989 while GIC had set up its Mutual Fund in December 1990.

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At the end of 1993, the Mutual Fund industry had assets under management of Rs.47,004 crores. Third Phase-1993-2003 (Entry of Private Sector funds)

With the entry of private sector funds in 1993, a new era started in the Indian Mutual Fund industry, giving the Indian investors a wider choice of fund families. Also, 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 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 with total assets of Rs.1,21,805 Crores. The Unit Trust of India 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 repeal of the Unit Trust of India Act 1963. UTI was bifurcated into two separate entities. One is the specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores As at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The specified Undertaking of Unit Trust of India, 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.

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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. 76,000crores of assets under management and with the setting up of a UTI Mutual Fund, confirming to the SEBI Mutual Fund 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 October 31, 2003, there were 31 funds, which manage assets of Rs.1, 26,726crores under 386 schemes.

PERFORMANCE MEASURES OF MUTUAL FUNDS:

Mutual Fund industry today, with about 30 players and more than six hundred schemes, is one of the most preferred investment avenues in India. However, with a plethora of schemes to choose from, the retail investor faces problems in selecting funds. Factors such as investment strategy and management style are qualitative, but the funds record is an important indicator too. Though past performance alone cannot be indicative of future performance, it is, frankly, the only quantitative way to judge how good a fund is at present. Therefore, there is a need to correctly assess the past performance of different Mutual Funds. Worldwide, good Mutual Fund companies over are known by their AMCs and this fame is directly linked to their superior stock selection skills. For Mutual Funds to grow, AMCs must be held accountable for their selection of stocks. In other words, there must be some performance indicator that will reveal the quality of stock selection of various AMCs. Return alone should not be considered as the basis of measurement of the performance of a Mutual Fund scheme, it should also include the risk taken by the fund manager because different funds will have different levels of risk attached to them. Risk associated with a fund, in a general, can be defined as Variability or fluctuations in the returns generated

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by it. The higher the fluctuations in the returns of a fund during a given period, higher will be the risk associated with it. These fluctuations in the returns generated by a fund are resultant of two guiding forces. First, general market fluctuations, which affect all the securities, present in the market, called Market risk or Systematic risk and second, fluctuations due to specific securities present in the portfolio of the fund, called Unsystematic risk. The Total Risk of a given fund is sum of these two and is measured in terms of standard deviation of returns of the fund. Systematic risk, on the other hand, is measured in terms of Beta, which represents fluctuations in the NAV of the fund vis--vis market. The more responsive the NAV of a Mutual Fund is to the changes in the market; higher will be its beta. Beta is calculated by relating the returns on a Mutual Fund with the returns in the market. While Unsystematic risk can be diversified through investments in a number of instruments, systematic risk cannot. By using the risk return relationship, we try to assess the competitive strength of the Mutual Funds one another in a better way. In order to determine the risk-adjusted returns of investment portfolios, several eminent authors have worked since 1960s to develop composite performance indices to evaluate a portfolio by comparing alternative portfolios within a particular risk class.

The most important and widely used measures of performance are:

1) The TreynorMeasure The Sharpe Measure Jenson Model Fama Model

The Treynor Measure:Developed by Jack Treynor, this performance measure evaluates funds on the basis of Treynor's Index. This Index is a ratio of return generated by the fund over and above risk free rate of return (generally taken to be the return on securities backed by the government, as there

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is no credit risk associated), during a given period and systematic risk associated with it (beta). Symbolically, it can be represented as: Treynor's Index (Ti) = (Ri - Rf)/Bi. Where, Ri represents return on fund, Rf is risk free rate of return, and Bi is beta of the fund. All risk-averse investors would like to maximize this value. While a high and positive Treynor's Index shows a superior risk-adjusted performance of a fund, a low and negative Treynor's Index is an indication of unfavorable performance. 2) The Sharpe Measure :In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is a ratio of returns generated by the fund over and above risk free rate of return and the total risk associated with it. According to Sharpe, it is the total risk of the fund that the investors are concerned about. So, the model evaluates funds on the basis of reward per unit of total risk. Symbolically, it can be written as: Sharpe Index (Si) = (Ri - Rf)/Si Where, Si is standard deviation of the fund, Ri represents return on fund, and Rf is risk free rate of return. While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.

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Comparison of Sharpe and Treynor Sharpe and Treynor measures are similar in a way, since they both divide the risk premium by a numerical risk measure. The total risk is appropriate when we are evaluating the risk return relationship for well-diversified portfolios. On the other hand, the systematic risk is the relevant measure of risk when we are evaluating less than fully diversified portfolios or individual stocks. For a well-diversified portfolio the total risk is equal to systematic risk. Rankings based on total risk (Sharpe measure) and systematic risk (Treynor measure) should be identical for a well-diversified portfolio, as the total risk is reduced to systematic risk. Therefore, a poorly diversified fund that ranks higher on Treynor measure, compared with another fund that is highly diversified, will rank lower on Sharpe Measure. 3) Jenson Model:Jenson's model proposes another risk adjusted performance measure. This measure was developed by Michael Jenson and is sometimes referred to as the differential Return Method. This measure involves evaluation of the returns that the fund has generated vs. the returns actually expected out of the fund1 given the level of its systematic risk. The surplus between the two returns is called Alpha, which measures the performance of a fund compared with the actual returns over the period. Required return of a fund at a given level of risk (Bi) can be calculated as: Ri = Rf + Bi (Rm - Rf) Where, Ri represents return on fund, and Rm is average market return during the given period, Rf is risk free rate of return, and Bi is Beta deviation of the fund. After calculating it, Alpha can be obtained by subtracting required return from the actual return of the fund.

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Higher alpha represents superior performance of the fund and vice versa. Limitation of this model is that it considers only systematic risk not the entire risk associated with the fund and an ordinary investor cannot mitigate unsystematic risk, as his knowledge of market is primitive. 4) Fama Model:The Eugene Fama model is an extension of Jenson model. This model compares the performance, measured in terms of returns, of a fund with the required return commensurate with the total risk associated with it. The difference between these two is taken as a measure of the performance of the fund and is called Net Selectivity. The Net Selectivity represents the stock selection skill of the fund manager, as it is the excess returns over and above the return required to compensate for the total risk taken by the fund manager. Higher value of which indicates that fund manager has earned returns well above the return commensurate with the level of risk taken by him. Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf) Where, Ri represents return on fund, Sm is standard deviation of market returns, Rm is average market return during the given period, and Rf is risk free rate of return. The Net Selectivity is then calculated by subtracting this required return from the actual return of the fund. Among the above performance measures, two models namely, Treynor measure and Jenson model use Systematic risk is based on the premise that the Unsystematic risk is diversifiable. These models are suitable for large investors like institutional investors with high risk taking capacities as they do not face paucity of funds and can invest in a

28

number of options to dilute some risks. For them, a portfolio can be spread across a number of stocks and sectors. However, Sharpe measure and Fama model that consider the entire risk associated with fund are suitable for small investors, as the ordinary investor lacks the necessary skill and resources to diversify. Moreover, the selection of the fund on the basis of superior stock selection ability of the fund manager will also help in safeguarding the money invested to a great extent. The investment in funds that have generated big returns at higher levels of risks leaves the money all the more prone to risks of all kinds that may exceed the individual investors' risk appetite.

COMPANY PROFILE (KOTAK MAHINDRA)

Kotak Mahindra Mutual Fund (KMMF) is managed by Kotak Mahindra Asset Management Company Ltd., a wholly owned subsidiary of Kotak Mahindra

29

Bank Ltd. Kotak Mahindra Mutual Fund launched its Schemes in December 1998 and today manages assets over and above Rs. 7353.82 cr. contributed by more than 1,99,818 investors in various schemes. KMMF has to its credit the launching of innovative schemes and plans like Kotak Gilt and Free Life Insurance with Kotak Bond Deposit Plan. Kotak Mahindra is one of India's leading financial institutions, offering complete financial solutions that encompass every sphere of life. From commercial banking, to stock broking, to mutual funds, to life insurance, to investment banking, the group caters to the financial needs of individuals and corporates. The group has a net worth of around Rs.1,700 crore and employs over 4,000 employees in its various businesses. With a presence in 74 cities in India and offices in New York, London, Dubai and Mauritius, it services a customer base of over 5,00,000 Kotak Mahindra has international partnerships with Goldman Sachs (one of the world's largest investment banks and brokerage firms), Ford Credit (one of the world's largest dedicated automobile financiers) and Old Mutual (a large insurance, banking and asset management conglomerate). Kotak Mahindra Asset Management Company Limited (KMAMC), a wholly owned subsidiary of KMBL, is the asset manager for Kotak Mahindra Mutual Fund (KMMF). KMAMC started operations in December 1998 and has over 1,99,818 investors in various schemes. KMMF offers schemes catering to investors with varying risk - return profiles and was the first fund house in the country to launch a dedicated gilt scheme investing only in government securities. The Kotak Mahindra Group was born in 1985 as Kotak Capital Management Finance Limited. This company was promoted by Uday Kotak, Sidney A. A. Pinto and Kotak & Company. Industrialists Harish Mahindra and Anand Mahindra took a stake in 1986, and that's when the company changed its name to Kotak Mahindra Finance Limited. Since then it's been a steady and confident journey to growth and success. Kotak Mahindra Finance Limited starts the activity of Bill Discounting Kotak Mahindra Finance Limited enters the Lease and Hire Purchase market. The Auto Finance division is started the Investment Banking Division is started.

30

Enters the Funds Syndication sector 1995 Brokerage and Distribution businesses incorporated into a separate company - Kotak Securities. Investment Banking division incorporated into a separate company - Kotak Mahindra Capital Company. 1996 The Auto Finance Business is hived off into a separate company - Kotak Mahindra Primus Limited. Kotak Mahindra takes a significant stake in Ford Credit Kotak Mahindra Limited, for financing Ford vehicles. The launch of Matrix Information Services Limited marks the Groups entry into information distribution. 1998 Enters the mutual fund market with the launch of Kotak Mahindra Asset Management Company. Kotak Mahindra ties up with Old Mutual plc. For the Life Insurance business. Kotak Securities launches kotakstreet.com - its on-line broking site. Formal commencement of private equity activity through setting up of Kotak Mahindra Venture Capital Fund. 2001 Matrix sold to Friday Corporation Launches Insurance Services 2003 Kotak Mahindra Finance Ltd. converts to bank Kotak Mahindra is one of India's leading financial institutions, offering complete financial solutions cities in India and offices in New York, London, Dubai and Mauritius, it services a customer base of over 5,00,000. has international partnerships with Goldman Sachs (one of the world's largest investment banks and brokerage firms), Ford Credit (one of the world's largest dedicated automobile financiers) and Old Mutual (a large insurance, banking and asset management conglomerate that encompass every sphere of life. From commercial banking, to stock broking, to mutual funds, to life insurance, to investment banking, the group caters to the financial needs of individuals and corporates. The group has a net worth of around Rs.1,700 crore and employs over 4,000 employees in its various businesses. With a presence in 74 cities in India and offices in New York, London, Dubai and Mauritius, it services a customer base of over 5,00,000. Kotak Mahindra has international partnerships with Goldman Sachs (one of the world's largest investment banks and brokerage firms), Ford Credit (one of the world's largest

31

dedicated automobile financiers) and Old Mutual (a large insurance, banking and asset management conglomerate). Kotak Mahindra Asset Management Company Limited (KMAMC), a wholly owned subsidiary of KMBL, is the asset manager for Kotak Mahindra Mutual Fund (KMMF). KMAMC started operations in December 1998 and has over 1,99,818 investors in various schemes. KMMF offers schemes catering to investors with varying risk - return profiles and was the first fund house in the country to launch a dedicated gilt scheme investing only in government securities.

Kotak Investment Banking* (KIB), India's premier Investment Bank is a strategic joint venture between Kotak Mahindra Bank Limited (KMBL) and the Goldman Sachs Group, LLP. KMBL has come into existence in March 2003 through the conversion of Kotak Mahindra Bank Ltd. into a Commercial Bank. Kotak Mahindra is one of India's leading financial institutions, offering complete financial solutions that encompass every sphere of life. From commercial banking, to stock broking, to mutual funds, to life insurance, to investment banking, the group caters to the v needs of individuals and corporates.

32

The group has a net worth of over Rs.1,550 crore and employs over 3,000 employees in its various businesses. With a presence in 60 cities in India and offices in New York, London, Dubai and Mauritius, it services a customer base of over 5,00,000. Kotak Mahindra has international partnerships with Goldman Sachs (one of the world's largest investment banks and brokerage firms), Ford Credit (one of the world's largest dedicated automobile financiers) and Old Mutual (a large insurance, banking and asset management conglomerate). Kotak Investment Banking (KIB) and Kotak Institutional Equities represent the securities business of the Kotak Mahindra Group **(KI), both, joint ventures with Goldman Sachs involved in brokerage, distribution and research. We are a full service Investment Bank bringing to our clients the global reach and expertise of Goldman Sachs and the local knowledge and skills of Kotak Mahindra. As a full service Investment Bank, Kotak Investment Banking core business areas include Equity Issuances, Mergers & Acquisitions, Advisory Services and Fixed Income Securities and Principal Business. Our strength lies in understanding our clients' businesses backed by a strong research team and an extensive distribution network, which spans a wide variety of investors across the country. We are also the first Indian Investment Bank to be registered with the Securities & Futures Authority in the UK (through our wholly owned subsidiary) and the National Association of Securities and Dealers in the USA. We are also the first Indian Investment Bank to be appointed by the Government of India as a Co-lead Manager in their international divestment of Gas Authority of India Ltd through a GDR offering. We are today well positioned in an increasing globalised environment to provide full service to its clients based either in India or overseas.

RESEARCH METHODOLOGY
The Methodology involves randomly selecting Open-Ended equity schemes of different fund houses of the country. The data collected for this project is basically from two sources, they are:1. Primary sources: The monthly fact sheets of different fund houses and research reports from banks. 2. Secondary sources: Collection of data from Internet and Books.

33

HYPOTHESIS
The Hypothesis of the study involves Comparison between: 1. Kotak Opportunities fund. 2. Reliance Equity Opportunities fund. 3. Franklin India Flexi fund. 4. HDFC Core & satellite fund. 5. HSBC India Opportunities fund.

NEED OF THE STUDY:

The projects idea is to project Mutual Fund as a better avenue for investment on a longterm or short-term basis. Mutual Fund is a productive package for a lay-investor with limited finances, this project creates an awareness that the Mutual Fund is a worthy investment practice. Mutual Fund is a globally proven instrument. Mutual Funds are Unit Trust as it is called in some parts of the world has a long and successful history, of late Mutual Funds have become a hot favorite of millions of people all over the world. The driving force of Mutual Funds is the safety of the principal guaranteed, plus the added advantage of capital appreciation together with the income earned in the form of interest or dividend. The various schemes of Mutual Funds provide the investor with a wide range of investment options according to his risk bearing capacities and interest besides; they also give handy return to the investor. Mutual Funds offers an investor to invest even a small amount of money, each Mutual Fund has a defined investment objective and strategy. Mutual Funds schemes are managed by respective asset managed companies sponsored by financial institutions, banks, private companies or international firms. A Mutual Fund is the ideal investment vehicle for todays complex and modern financial scenario. The study is basically made to analyze the various open-ended equity schemes of different Asset Management Companies to highlight the diversity of investment that Mutual Fund offer. Thus, through the study one would understand how a common man 34

could fruitfully convert a pittance into great penny by wisely investing into the right scheme according to his risk taking abilities.

SCOPE:
The study here has been limited to analyse open-ended equity Growth schemes of different Asset Management Companies namely Kotak Mahindra Mutual Fund, Reliance Mutual Fund, HDFC Mutual Fund, Franklin Templeton Mutual Fund, HSBC Mutual Fundseach scheme is analysed according to its performance against the other, based on factors like Sharpes Ratio, Treynors Ratio, (Beta) Co-efficient, Returns.

OBJECTIVES:
1. To project Mutual Fund as the productive avenue for investing activities. 2. To show the wide range of investment options available in Mutual Funds by explaining its various schemes. 3. To compare the schemes based on Sharpes ratio, Treynors ratio, Coefficient, Returns and show which scheme is best for the investor based on his risk profile. 4. To help an investor make a right choice of investment, while considering the inherent risk factors. To understand the recent trends in Mutual Funds world. The comparison between these schemes is made based on the following factors A) Sharpes Ratio B) Treynors Ratio C) (Beta) co-efficient. D) Returns

A) The Sharpes Measure:-

35

In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is a ratio of returns generated by the fund over and above risk free rate of return and the total risk associated with it. According to Sharpe, it is the total risk of the fund that the investors are concerned about. So, the model evaluates funds on the basis of reward per unit of total risk. Symbolically, it can be written as: Sharpe Index (Si) = (Ri - Rf)/Si Where, Si is Standard Deviation of the fund. While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.

B) The Treynor Measure:Developed by Jack Treynor, this performance measure evaluates funds on the basis of Treynor's Index. This Index is a ratio of return generated by the fund over and above risk free rate of return (generally taken to be the return on securities backed by the government, as there is no credit risk associated), during a given period and systematic risk associated with it (beta). Symbolically, it can be represented as: Treynor's Index (Ti) = (Ri - Rf)/Bi. Where, Ri represents return on fund, Rf is risk free rate of return, and Bi is beta of the fund. All risk-averse investors would like to maximize this value. While a high and positive Treynor's Index shows a superior risk-adjusted performance of a fund, a low and negative Treynor's Index is an indication of unfavorable performance.

36

C) (Beta) Co-efficient:Systematic risk is measured in terms of Beta, which represents fluctuations in the NAV of the fund vis--vis market. The more responsive the NAV of a Mutual Fund is to the changes in the market; higher will be its beta. Beta is calculated by relating the returns on a Mutual Fund with the returns in the market. While unsystematic risk can be diversified through investments in a number of instruments, systematic risk cannot. By using the risk return relationship, we try to assess the competitive strength of the Mutual Funds vis-vis one another in a better way. (Beta) is calculated as N (XY) XY N (X2) (X) 2

D) Returns:- Returns for the last one-year of different schemes are taken for the
comparison and analysis part.

DATA ANALYSIS& INTERPRETATIONS:

Note: All the data used for analysis is taken up to the period 28-febuary-2006 KOTAK OPPORTUNITIES FUND Kotak opportunities is a open-ended equity Growth scheme. Kotak opportunities is a diversified aggressive equity scheme The fund has portfolio turnover ratio.

37

The fund manager is optimistic on the markets in the long term and expects good returns from the same. The fund manager is of the opinion that the market may not fall due to the abundent liquidity in the system.However the fund managers sees high oil prices a big concern in the global markets.

The fund has invested into equities to the tune of 94.45% of the total portfolio.

RELIANCE EQUITY OPPORTUNITIES FUND: Reliance Equity Opportunities Fund is an Open-Ended Equity Scheme. Reliance Equity Opportunities Fund is an aggressive diversified equity scheme Reliance Equity Opportunities is to seek to generate capital appreciation and provide long term growth opportunities by investing in a portfolio constituted of equity securities and equity related securities. The fund has a high portfolio turnover ratio. It has Instrument type such as Equity & Equity related Instruments and Debt & Money Market Instruments. HDFC Core and Satellite Fund HDFC Core and Satellite Fund is an Open-Ended Equity Scheme. HDFC Core and Satellite Fund is an diversified equity scheme The Scheme may seek investment opportunity in the ADR / GDR / Foreign Equity and Debt Securities, in accordance with guidelines stipulated in this regard by SEBI and RBI from time to time. The net assets of the Scheme will be invested primarily in equity and equity related instruments in a portfolio comprising of 'Core' group of companies and 'Satellite' group of companies. The 'Satellite' group will comprise of predominantly small-mid cap companies that offer higher potential returns but at the same time carry higher risk FRANKLIN INDIA FLEXI CAP EQUITY FUND

38

Franklin india flexi cap Fund is an Open-Ended Equity Scheme. Franklin india flexi cap Fund is an aggressive diversified equity scheme It is an investment avenue that has the potential to provide steady returns and capital appreciation over a five-year period through a mix of fixed income and equity instruments.

It has a investment team has a rich experience of investing in both equity and fixed income instrument that has translated in to a good investment performance from its hybrid scheme

HSBC India opportunities Fund HSBC India Opportunities Fund is an Open-Ended Equity Scheme. It is a scheme seeking long term capital growth through investments across all market capitalizations, including small, mid and large cap stocks. The investment is to seek aggressive growth by focussing on mid cap companies in addition to investments in large cap stocks. The fund aims to be predominantly invested in equity and equity related securities

KOTAK OPPORTUNITIES FUND Fund Manager: (Mr. Anand Shah) OBJECTIVE:To generate capital appreciation from a diversified portfolio of equity and equity related securities Kotak Opportunities is a diversified equity scheme, with a flexible investing style. It will invest in sectors, which our Fund Manager believes would outperform others in the short to medium-term. Kotak Opportunities speciality lies in giving the Fund Manager flexibility to act based on his views on the market; and in allowing him to invest higher concentrations in sectors he believes will outperform others. As markets evolve and grow, new opportunities for growth keep emerging. Kotak Opportunities would endeavour to capture these opportunities to generate wealth for its investors.

39

 KOTAK OPPORTUNITIES FUND PERFORMANCE:YEAR Rp Rm Rf (RmRf) (RpRf) X2 XY (X -Xbar) D2

X
LAST 1 MONTH LAST 3 MONTHS LAST 6 MONTHS Since Inception TOTAL 5.92 24.61 34.42 78.17 2.84 13.1 1 30.1 4 45.9 9 4.25 4.25 4.25 4.5 -1.41 8.86 25.89 41.49 74.83

Y
1.67 20.36 30.17 73.67 125.87 1.98 78.49 670.29 1721.42 2472.19 -2.35 180.38 781.10 3056.56 4015.70

D
-20.11 -9.847 25.89 22.78 18.70 404.71 96.97 670.29 519.04 1691.02

Where, Rp - Portfolio Return- Kotak opportunities Rm - Market Return-Funds bench mark- S& P CNX 500 Rf - Risk free rate of return. CALCULATION OF ARTHMETIC MEAN:= X / N = 74.83/ 4 = 18.70 CALCULATION OF STANDARD DEVIATION ( ):= (X-Xbar) 2 / N = 1691.02/4 =422.75 =20.56 CALCULATION OF BETA CO-EFFICIENT:= N (XY) XY N (X2) (X) 2 = 4(5208.85) (90.35)(126.21) 4(4117.22) (90.35) 2

40

= 4(4015.70)-(74.83)-(125.87) 4(2472.19)-(74.83) 2 = 16062.8-9418.85 9888.76-5599 = 6643.95 4289.76 =1.54 CALCULATION OF SHARPES RATIO:= Rp-Rf / =125.87 /20.56 = 6.12 CALCULATION OF TREYNORS RATIO:= Rp-Rf / = 125.87/1.54 = 87.73/100 =0.8173 GRAPH SHOWING KOTAK OPPORTUNITIES FUND PERFORMANCE:-

41

K O T A K O P P O R T U N IT IE S

7 8 .1 7

RETURNS

4 5 .9 9 34.42 3 0 .1 4 24.61 13.11 5.92 2 .8 4 4 . 2 5 4.25 4.25 4 .5

L A S T 1 M O N TH

L A S T 3 M O N TH S

L A S T 6 M O N TH S

S IN C E IN C E P TIO N 0 9 S E P TE M B E R -2 0 0 4

K O TA K O P P O R TU N ITIE SP C N X-5 0 R f S& 0

Interpretation: Last I Month : It reveals that Kotak Opportunities Returns are 5.92 As compare to Funds Benchmark Returns are 2.84, and The Risk Free Rate is common for next 9 months. (i.e., 4.25%) Last III Months: It reveals that Kotak Opportunities Returns are 24.61 As compare to Funds Benchmark Returns are 13.11, and The Risk Free Rate is common for next 6 months. (i.e., 4.25%) Last VI Months: It reveals that Kotak Opportunities Returns are 34.42 As compare to Funds Benchmark Returns are 30.14, and The Risk Free Rate is common for next 3 months. (i.e., 4.25%) Since Inception: It reveals that Kotak Opportunities Returns are 78.17, As compare to Funds Benchmark Returns are 45.99, and There is a slight Increase in Risk Free Rate by 0.25% (i.e., 4.5%) compare to last 9 Months. HDFC CORE& SATELLITE FUND:

42

Objective:The objective of the scheme is to generate capital appreciation through equity investment in companies whose shares are quoting at prices below their true value. HDFC CORE& SATELLITE FUND PERFORMANCE:YEAR LAST 1MONTH LAST 3 MONTHS LAST 6MONTHS Since Inception TOTAL Rp Rm Rf (RmRf) X 1.15 16.46 35.6 69.64 3.72 13.8 2 31.1 49.6 6 4.25 4.25 4.25 4.5 -0.53 9.57 26.85 45.16 81.05 (RpRf) Y -3.1 12.2 1 31.3 5 65.1 4 105.6 0.2809 91.5849 720.9225 2039.4256 2852.2139 1.643 116.8497 841.7475 2941.7224 3901.9626 X2 XY (X -Xbar) D 20.7925 10.6925 26.85 24.8975 20.2625 D2

432.3280563 114.3295563 720.9225 619.8855063 1887.465619

Where, Rp - Portfolio Return-HDFC core & Satellite Fund Rm - Market Return-Funds benchmark-BSE-200 Rf - Risk free rate of return. CALCULATION OF ARTHMETIC MEAN:= X / N = 81.05/4 = 20.26 CALCULATION OF STANDARD DEVIATION ():= (X-Xbar)2 / N = 1887.4/4 = 471.75 =21.71 CALCULATION OF BETA CO-EFFICIENT:= N (XY) XY 43

N (X2) (X) 2 = 4(3901.9) (81.05)(105.6) 4(4026) (89.75) 2 = 15607.5-8558.8 11408.8-6569.1 =7048.7 4839 =1.45 CALCULATION OF SHARPES RATIO:=Rp-Rf-/ =105.6/21.71 =4.86 CALCULATION OF TREYNORS RATIO:= Rp-Rf/ = 105.6/1.45 = 72.82/100 =0.7282

GRAPH SHOWING HDFC CORE& SATELLITE FUND PERFORMANCE:-

44

H D F C C o r e & S a te llite F u n d P e rfo rm a n c e

80 70 60 50 RETURNS 40 30 20 10 1 .1 5 0 L A S T 1 M O N TH LA S T 3 M O N TH S LA S T 6 M O N TH S S IN C E IN C E P T IO N 1 7 S E P TE M B E R 2004 16.46 3 5 .6 3 1.1 49 .66 69.64

1 3.82 4.25 4.2 5 4.5

3 .7 2

4.2 5

Rp Rm Rf

Interpretation: Last I Month : It reveals that HDFC Core & Satellite Fund Returns are 1.15 as compare to Funds Benchmark Returns are 3.72, and The Risk Free Rate is common for next 9 months. (i.e., 4.25%) Last III Months: It reveals that HDFC Core & Satellite Fund Returns are 16.46 as compare to Funds Benchmark Returns are 13.82, and The Risk Free Rate is common for next 6 months. (i.e., 4.25%) Last VI Months: It reveals that HDFC Core & Satellite Fund Returns are 35.6, as compare to Funds Benchmark Returns are 31.1 and The Risk Free Rate is common for next 3 months. (i.e., 4.25%) Since Inception: It reveals that HDFC Core & Satellite Fund Returns are 69.64, as compare to Funds Benchmark Returns are 49.66, and There is a slight increase in Risk Free Rate by 0.25%(4.5%) compare to last 9 Months. RELIANCE EQUITY OPPORTUNITIES FUND:

45

Investment Objective: The primary investment objective of the scheme is to seek to generate capital appreciation & provide long-term growth opportunities by investing in a portfolio constituted of equity securities & equity related securities and the secondary objective is to generate consistent returns by investing in debt and money market securities. RELIANCE EQUITY OPPORTUNITIES FUND PERFORMANCE:-

YEAR

Rp

Rm

Rf

(RmRf) X

(RpRf) Y

X2

XY

(X -Xbar) D

D2

LAST 1 MONTH LAST 3 MONTHS LAST 6 MONTHS Since Inception TOTAL

2.4 16.22 29.46 54.99

3.72 13.82 31.1 50.23

4.25 4.25 4.25 4.5

-0.53 9.57 26.85 45.73 81.62

-1.85 11.97 25.21 50.49 85.82

0.2809 91.5849 720.9225 2091.2329 2904.0212

0.9805 114.5529 676.8885 2308.9077 3101.3296

-20.935 9.57 6.445 45.73 40.81

438.274225 91.5849 41.538025 2091.2329 2662.63005

Where, Rp - Portfolio Return-Reliance equity opportunities fund Rm - Market Return-Funds Benchmark BSE-500 Rf - Risk free rate of return. CALCULATION OF ARTHMETIC MEAN:= X / N = 81.62/ 4 = 20.40 CALCULATION OF STANDARD DEVIATION ():= (X-Xbar)2 / N 46

= 2662.63/4 = 665.65 =25.80 CALCULATION OF BETA CO-EFFICIENT;= N (XY) XY N (X2) (X) 2 = 4(3101.32) (81.62)(85.82) 4(2904.02) (81.62) 2 = 12405-7002.91 11616-6661.82 =5402.09 4954.18 =1.09 CALCULATION OF SHARPES RATIO:= Rp-Rf/ =85.82 25.23 =7.29 CALCULATION OF TREYNORS RATIO:= Rp-Rf/ = 85.82/1.47 = 37.32/100 =0.37 GRAPH SHOWING RELIANCE EQUITY OPPORTUNITIES FUND PERFORMANCE:-

47

R E L IA N C E E Q U IT Y O P P O R T U N IT IE S F U N D
54 .99 5 0 .23

RETURNS

2 9.4 6

3 1.1

16 .2 2

13 .8 2

2.4

3 .7 2 4.2 5

4 .2 5

4 .2 5

4 .5

LA S T 1M O N TH

L A S T 3 M O N TH S

L A S T 6 M O N TH S

S IN C E IN C E P TIO N 31 M A R C H 20 0 5

R E L IA N C E B S E -1 0 0 R f

Interpretation: Last I Month: It reveals that Reliance Equity Opportunities Fund Returns are 4.25%) Last III Months: It reveals that Reliance Equity Opportunities Fund Returns are 16.22 as compare to Funds Benchmark Returns are 13.82, and The Risk Free Rate is common for next 6 months. (i.e., 4.25%) Last VI Months: It reveals that Reliance Equity Opportunities Fund Returns are 29.46 as compare to Funds Benchmark Returns are 31.1 and The Risk Free Rate is common for next 3 months. (i.e., 4.25%) Since Inception: It reveals that Reliance Equity Opportunities Fund Returns are 54.99, as compare to Funds Benchmark returns are 50.23, and There is a slight increase in Risk Free Rate by 0.25%(4.5%) compare to last 9 months. 2.4 as compare to Funds Benchmark Returns Are 3.72, and The Risk Free Rate is common for next 9 months. (i.e.,

48

FRANKLIN INDIA FLEXI CAP EQUITY FUND

Fund Managers: (Mr. K N Siva Subramanian & R Sukumar Rajah) Investment objective: Stocks of companies are usually categorized as large-cap, midcap, and small-cap depending on their market capitalization. History has demonstrated that these categories tend to perform differently through economic and market cycles. For example, mid or small cap stocks could move up sharply during a certain time period while large cap stocks remain range bound and vice versa. On the other hand, large-cap stocks tend to be less volatile than mid & small-cap stocks on account of factors such as size, market leadership..etc. Moreover, such periods of out performance are typically followed by a consolidation phase and a possible reversal of the situation. In order to derive optimal returns from the stock markets, investments need to be diversified and have flexibility to shift allocations across market caps. Designed to help you achieve this with a single investment is Franklin India Flexi Cap Fund (FIFCF). An open-end diversified equity fund, FIFCF seeks to provide medium to long-term capital appreciation by investing in stocks across the entire market capitalization range. FRANKLIN INDIA FLEXI CAP FUND PEFORMANCE:(RmRf) X LAST 1MONTH LAST 3 MONTHS LAST 6 MONTHS 3.47 16.49 36.58 3.72 13.82 31.1 4.25 4.25 4.25 -0.53 9.57 26.9 (RpRf) Y 0.78 12.2 32.3 0.281 91.58 720.9 0.4134 117.1368 868.0605 (X -Xbar) D 20.935 10.1 17.28 438.274225 102.01 298.5984

YEAR

Rp

Rm

Rf

X2

XY

D2

49

SINCE INCEPTION March 2, 2005 TOTAL

61.8

50.23

4.5

45.7 81.6

57.3 101

2091 2904

2620.329 3605.9397

18.88 25.325

356.4544 1195.337025

Where, Rp - Portfolio Return-Franklin flexi cap fund Rm - Market Return-Funds Benchmarks S&P CNX-500 Rf - Risk free rate of return. CALCULATION OF ARTHMETIC MEAN:= X / N = 81.6/ 4 = 20.4 CALCULATION OF STANDARD DEVIATION ():= (X-Xbar)2 / N = 1195/4 = 298.75 = 17.28 CALCULATION OF BETA CO-EFFICIENT;= N (XY) XY N (X2) (X) 2 = 4(3605) (81.6)(101) 4(2904) (2904) 2 = 14420-8241.6 11616-8433 =6178.4 3183 =1.94 CALCULATION OF SHARPES RATIO:-

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= Rp-Rf/ =101 17.28 =5.84 CALCULATION OF TREYNORS RATIO:= Rp-Rf/ =101/1.94 = 52.06/100 or 0.52 GRAPH SHOWING FRANKLIN INDIA FLEXI CAP FUND PERFORMANCE:F ra n k lin in d ia fle x i c a p fu n d
70 6 1 .8 60 50.23 50 40 RETURNS 30 20 10 3 .4 7 0 L A S T 1 M O N TH L A S T 3 M O N TH S Rp Rm L A S T 6 M O N TH S Rf S IN C E IN C E P TIO N M a rc h 2 , 2 0 0 5 3 .7 2

3 6 .5 8 3 1 .1

1 6 .4 9

1 3 .8 2 4 .2 5 4 .2 5 4 .5

4.25

Interpretation: Last I Month : It reveals that Franklin India flexi Cap Fund Returns are 3.47 as compare to Funds Benchmark Returns are 2.8, and The Risk Free Rate is common for next 9 months. (i.e., 4.25%)

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Last III Months: It reveals that Franklin India flexi Cap Fund Returns are 14.49 as compare to Funds Benchmark Returns are 13.11, and The Risk Free Rate is common for next 6 months. (i.e., 4.25%)

Last VI Months: It reveals that Birla Sun-life Equity Opportunities Fund Returns are 36.58 as compare to Funds Benchmark Returns are 30.14 and The Risk Free Rate is common for next 3 months. (i.e., 4.25%) Since Inception: It reveals that Birla Sun-life Equity Opportunities Fund Returns are 61.8, as compare to Funds Benchmark Returns are 47.75 and There is a slight Increase in Risk Free Rate by 0.25%(4.5%) compare to last 9 months.

HSBC INDIA OPPORTUNITIES FUND

Fund Manager: (Mr.Sanjiv Duggal) Investment objective: The fund is an open-ended equity scheme seeking long term capital growth through investments across all market capitalizations, including small, mid and large cap stocks. The fund will endeavour to invest in large cap companies as well as identify mid stocks, which have the potential to become blue chip large cap stocks over time. The investment style is to seek aggressive growth by focussing on mid cap companies in addition to investments in large cap stocks. This fund aims to be predominantly invested in equity and equity related securities. However, it could move a significant portion of its assets towards fixed income securities if the fund becomes negative on negative on equity markets. HSBC INDIA OPPORTUNITIES FUND PEFORMANCE:YEAR Rp Rm Rf (RmRf) X LAST 1 MONTH -0.57 2.81 4.25 -1.44 (RpRf) Y -4.82 2.0736 6.9408 X2 XY (X -Xbar) D -19.695 387.893025 D2

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LAST 3 MONTHS LAST 6 MONTHS Since Inception TOTAL

12.45 27.67 48.62

13.45 28.13 45.88

4.25 4.25 4.5

9.2 23.88 41.38 73.02

8.2 23.42 44.12 70.92

84.64 570.2544 1712.3044 2369.2724

75.44 559.2696 1825.6856 2467.336

9.15 13.67 11.58 14.705

83.7225 186.8689 134.0964 792.580825

Where, Rp - Portfolio ReturnRm - Market Return, Rf - Risk free rate of return. CALCULATION OF ARTHMETIC MEAN:= X / N = 73.02/ 4 = 18.25 CALCULATION OF STANDARD DEVIATION ():= (X-Xbar)2 / N = 792.58/4 = 198.14 =14.07 CALCULATION OF BETA CO-EFFICIENT;= N (XY) XY N (X2) (X) 2 = 4(2467.33) (73.02)(70.92) 4(2369.27) (73.02) 2 = 9869.32-5178.57 9477.08-5331.92 =4690.75 4145.18 =1.13 53

CALCULATION OF SHARPES RATIO:= Rp-Rf/ =70.92 14.07 =5.04

CALCULATION OF TREYNORS RATIO: = Rp-Rf/ =70.92/1.13 = 62.76/100 =0.62 GRAPH SHOWING HSBC INDIA OPPORTUNITIES FUND PEFORMANCE:H S B C IN D IA O P P O R T U N IT IE S
60 4 8 .6 2 4 5 .8 8

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40 2 2 7 .6 7 8 .1 3

30 RETURNS

20 1 1 2 .4 5 3 .4 5 10 2.81 0 1 /1 /1 9 0 0 -1 0 H S B C B S E -5 0 0 R f -0 .5/2 / 1 9 0 0 17 1 /3 /1 9 0 0 1 /4 /1 9 0 0 1 /5 /1 9 0 0 1 /6 /1 9 0 0 4 .2 5 4 .2 5 4.25 4.5

Interpretation Last I Month : It reveals that HSBC India Opportunities Fund Returns are -0.57 as compare to Funds Benchmark Returns are 2.81, and The Risk Free Rate is common for next 9 months. (i.e., 4.25%). Last III Months: It reveals that HSBC India Opportunities Fund Returns are 12.45as compare to Funds Benchmark Returns are 13.45, and The Risk Free Rate is common for next 6 months. (i.e., 4.25%). 54

Last VI Months: It reveals that that HSBC India Opportunities Fund are 27.87 as compare to Funds Benchmark Returns are 28.13 and The Risk Free Rate is common for next 3 months. (i.e., 4.25%)

Returns

Since Inception: It reveals that HSBC India Opportunities Fund Returns are 48.82, as compare to Funds Benchmark returns are 45.82, and There is a slight Increase in Risk Free Rate by 0.25 % (4.5%) compare to last 9 months

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OBSERVATIONS;
Observations are made from the data analysis. The following observations are drawn from the analysis of schemes:

KOTAK OPPORTUNITIES FUND

FRANKLIN INDIA FLEXI CAP FUND

RELIANCE EQUITY OPPORTUNITIE S FUND

HDFC CORE & SATELLITE FUND

HSBC INDIA OPPORTUNITIES FUND

Monthly returns

5.92

3.47

2.4

1.15

-0.57

Sharpes Ratio Treynors Ratio Co-efficient () Std.Deviation ()

6.12 0.81 1.54 20.56

5.84 0.52 1.94 17.28

7.29 0.37 1.09 25.80

4.86 0.72 1.45 21.71

5.04 0.62 1.13 14.07

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LIMITATIONS OF THE STUDY

1. The study is limited only to the analysis of different schemes and its suitability to different investors according to their risk-taking ability. 2. The study is based on secondary data available from monthly fact sheets, websites and other books, as primary data was not accessible. 3. The study is limited by the detailed study of various schemes of Five Asset Management Company.

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SUGGESTIONS: The Asset Management Company must design the portfolio in such a way, to increase the returns. The Asset Management Company must design the portfolio in such a way, to lessen the risk that is common in the market. The Asset Management Company must dedicate itself, because it motivates the investors and potential investors to invest in Mutual Funds. The Asset Management Company must manage the Fund efficiently and with dedication to earn the goodwill of the public. The Asset Management Company must make the most advantageous use of print and electronic media in order to motivate the investors and potential investors to invest in Mutual Funds.

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CONCLUSIONS
After interpreting the above data the following conclusions have been made Kotak Opportunities Fund: It is a diversified aggressive equity fund. It is a open-ended equity scheme Since the ratio is high it implies the risk is high As the returns are more in Kotak Opportunities compare to other Four AMCs It is suitable for investors looking for medium risk and moderate returns with in a time period of 1-3 years. Franklin India Flexi Cap Fund: It is a diversified equity fund. It is a open-ended equity scheme Since the ratio is high it implies the risk is high In Franklin the returns are more compare to other Three AMCs (HDFC, RELIANCE, HSBC) Reliance Equity Opportunities Growth Fund: It is a diversified equity fund. It is a open-ended equity scheme Since the ratio is high it implies the risk is high In Reliance Equity Opportunities the returns are medium compare to other AMCs

HDFC Core & Satellite Fund: It is a diversified equity fund.

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It is a open-ended equity scheme In HDFC the returns are low compare to other AMCs It is a value based fund It is a low risky fund

HSBC India Opportunities Fund: It is a diversified equity fund. It is a open-ended equity scheme In HSBC the returns are lesser than other AMCs It is a low risky fund

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BIBLIOGRAPHY Laymans Guide to Mutual Funds By OUTLOOK Mutual Funds Primer By ECONOMIC TIMES
www.amfiindia.com www.kotakmutual.com www.reliancemutual.com

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ANNEXURES ANNEXURE-I
Sponsor Sponsor is the person who acting alone or in combination with another body corporate establishes a Mutual Fund. Sponsor must contribute at least 40% of the net worth of the Investment Managed and meet the eligibility criteria prescribed under the securities and Exchange Board of India (Mutual Fund) Regulations, 1996. The Sponsor is not responsible or liable for any loss or short fall resulting from the operation of the schemes beyond the initial contribution made by it towards setting up the Mutual Fund. Trust The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908. Trustee Trustee is usually a company (Corporate body) or a Board of Trustees (body of individuals). The main responsibility of the trustee is to safeguard the interest of the unit holders and inter alia ensure that the AMC functions in the interest of investors and in accordance with the securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of the Trust Deed and the Offer Documents of the respective 62

Schemes. At least 2/3rd directors of the Trustee are independent directors who are not associated with the Sponsor in any manner.

Asset Management Company (AMC) The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual Fund. The Registrar processes the application form, redemption requests and dispatches account statements to the unit holders. The Registrar and Transfer agent also handles communications with investors and updates investor records.

Unit Holders Unit Holders are those investing in Mutual Fund. Custodian Custodian is the agency, which will have the legal possession of all the securities purchased by the Mutual Fund. SEBI The Stock Exchange Board of India (SEBI) is regulatory authority of the Mutual Funds.

ANNEXURE II
Equity Fund is the one in which much of the portfolio is invested in corporate securities and Debt Fund is the one in which much of the portfolio is invested in Gilt and money market securities.

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In an Open-ended Mutual Fund, there are no limits on the total size of the corpus. Investors are permitted to enter and exit the open-ended Mutual Fund at any point of time at a price that is linked to the net asset value (NAV). In case of Closed-ended funds, the total size of the corpus is limited by the size of the initial offer. A Dividend plan entails a regular payment of dividend to the investors. A Re-investment plan is a plan where these dividends are reinvested in the scheme itself. A Growth plan is one where no dividends are declared and investor only gains through capital appreciation in the NAV of the fund. NAV is the net asset value of the fund. Simply put it reflects what the unit held by an investor is worth at current market prices. The broad guidelines issued for a Mutual Fund: SEBI is the regulatory authority of Mutual Funds. SEBI has the following broad guidelines pertaining to Mutual Funds: Mutual Funds should be formed as a trust under Indian Trust Act and should be operated by Asset Management Companies. Mutual Funds need to set up a Board of Trustee Companies. They should also have their Board of Directories. The net worth of the Asset Management Company should be at least Rs.10 crore. Asset Management Companies and Trustees of a MF should be two separate and distinct legal entities. The Asset Management Companies or any of its companies cannot act AS managers for any other fund. Asset Management Company has to get the approval of SEBI for its articles and Memorandum of Association.

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All Mutual Fund Schemes should be registered with SEBI. Mutual Funds should distribute minimum of 90% of their profits among the investors.

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