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CHAPTER-1

INTRODUCTION

INVESTMENT
An investment is the use of capital to create more money through the
acquisition of a security that promise the safety of the principal and generate a
reasonable return.

Reason Of Investment
One of the important reasons why one needs to invest wisely is to

meet the cost of ination. Ination is the rate at which the cost of

living increases. The cost of living is simply what it costs to buy the

goods and services you need to live. Ination causes money to lose

value because it will not buy the same amount of a good or a service

in the future as it does now or did in the past. For example, if there

Was a 6% ination rate for the next 20 years, a Rs. 100 purchase

today would cost Rs. 321 in 20 years. This is why it is important to

Consider inflation as a factor in any long-term investment strategy.

Remember to look at an investments real rate of return, which is

The return after ination. The aim of investments should be to provide

a return above the ination rate to ensure that the investment does not

Decrease in value. For example, if the annual interest rate is 6%, then

The investment will need to earn more than 6% to ensure it increases

in value. If the after-tax return on your investment is less than the

ination rate, then your assets have actually decreased in value; that

is, they wont buy as much today as they did last year.

INTEREST
When we borrow money, we are expected to pay for using it
this is known as Interest. Interest is an amount charged to the borrower for the
privilege of using the lenders money. Interest is usually calculated as a
percentage of the principal balance (the amount of money borrowed). The
percentage rate may be xed for the life of the loan, or it may be variable,
depending on the terms of the loan.

Types of investment
1. Short Term Financial Investment:
Saving Bank Account-it is often the rst banking product
people use, which offers low interest (4%-5% p.a.), making them
only marginally better than xed deposits.
Money Market Funds-These are a specialized form of mutual
funds that invest in extremely short-term xed income instruments
and thereby provide easy liquidity. Unlike most mutual funds,
money market funds are primarily oriented towards protecting your
capital and then, aim to maximise returns. Money market funds
usually yield better returns than savings accounts, but lower than
bank fixed deposits.

Long Term Financial Investment:


Post Ofce Savings: Post Ofce Monthly Income Scheme
is a low risk saving instrument, which can be availed through any
post ofce. It provides an interest rate of 8% per annum, which is
paid monthly. Minimum amount, which can be invested, is Rs.
1,000/- and additional investment in multiples of 1,000/-.
Maximum amount is Rs.3,00,000/- (if Single) or Rs.6,00,000/- (if
held Jointly) during a year Basics of Financial Markets a year. It
has a maturity period of 6 years. A bonus of 10% is paid at the time
of maturity. Premature withdrawal is permitted if deposit is more
than one year old. A deduction of 5% is levied from the principal
amount if withdrawn prematurely; the 10% bonus is also denied.
Public Provident Fund: A long term savings instrument with a
maturity of 15 years and interest payable at 8% per annum
compounded annually. A PPF account can be opened through a
nationalized bank at anytime during the year and is open all
through the year for depositing money. Tax benets can be availed
for the amount invested and interest accrued is tax-free. A
withdrawal is permissible every year from the seventh nancial
year of the date of opening of the account and the amount of
withdrawal will be limited to 50% of the balance at credit at the
end of the 4th year immediately preceding the year in which the
amount is withdrawn or at the end of the preceding year whichever
is lower the amount of loan if any.

Bonds: It is a xed income (debt) instrument issued for a period


of more than one year with the purpose of raising capital. The
central or state government, corporations and similar institutions
sell bonds. A bond is generally a promise to repay the principal
along with a xed rate of interest on a speci ed date, called the
Maturity Date.
Mutual Funds: These are funds operated by an investment
company which raises money from the public and invests in a
group of assets (shares, debentures etc.), in accordance with a
stated set of objectives. It is a substitute for those who are unable to
invest directly in equities or debt because of resource, time or
knowledge constraints. include professional money management,
buying in small amounts and diversication. Mutual fund units are
issued and redeemed by the Fund Management Company based on
the funds net asset value (NAV), which is determined at the end of
each trading session. NAV is calculated as the value of all the
shares held by the fund, minus expenses, divided by the number of
units issued. Mutual Funds are usually long term investment
vehicle though there some categories of mutual funds, such as
money market mutual funds which are short term instruments.

MUTUAL FUNDS
A Mutual Fund is a body corporate that pools the savings of a number of
investors and invests the same in a variety of different financial instruments, or
securities. The income earned through these investments and the capital
appreciations realized by the scheme are shared by its unit holders in proportion
to the number of units owned by them. Mutual funds can thus be considered as
financial intermediaries in the investment business that collect funds from the
public and invest on behalf of the investors. The losses and gains accrue to the
investors only. The Investment objectives outlined by a Mutual Fund in its
prospectus are binding on the Mutual Fund scheme. The investment objectives
specify the class of securities a Mutual Fund can invest in. Mutual Funds invest
in various asset classes like equity, bonds, debentures, commercial paper and
government securities.

Mutual funds are commonly categorized by their general investment objectives.


Equity funds consist mainly of common stocks and are organized primarily to
achieve capital appreciation, or growth, rather than periodic distribution of
income. Bond funds, on the other hand, are composed predominantly of
corporate, Government, or municipal bonds and emphasize regular income
rather than growth. Income funds have the same objective as bond funds but
include Government National Mortgage Association securities, Government
securities, and common and preferred stocks as well as bonds. Money market
mutual funds consist of short-term instruments, such as Government securities,
bank CDs, and commercial paper. Short-term municipal bond funds are
composed predominantly of tax-exempt, short-term municipal securities.

Types of mutual funds


Mutual Fund schemes may be classified on the basis of its structure and its
investments.

1. Open end funds:

Available for sale and repurchase at all times based on the net asset
values
Unit capital of the fund is not fixed
Fund size and its total investment go up if more new subscriptions come
in than redemptions and vice versa.

2. CLOSE END FUNDS:

One time sale of fixed number of units.


Investors are not allowed to buy or redeem the units directly from the
funds. Some funds offer repurchase after a fixed period.

Listed on stock exchange and investors can buy or sell units through
exchange. May be traded at a discount or premium to NAV based on

3. INTERVAL FUNDS:

Interval funds combine the features of open-ended and close-ended


schemes. They are open for sale or redemption during pre-determined
intervals at NAV related prices.

PORTFOLIO MANAGEMENT
People have different investment objective and risk appetite so to get the highest
returns asset allocation through active portfolio management is the key element.

Asset allocation is a method that determines how you divide your portfolio
among different investment instruments and provides you with the proper blend
of various asset classes.
It is based on the theory that the type or class of security you own equity, debt
or money market- is more important than the particular security itself. In other
words asset allocation is way to control risk in your portfolio. Different asset
class will react differently to market conditions like inflation, rising or falling
interest rates or a market segment coming into or falling out of favor.

Asset allocation is different from simple diversification. Suppose you diversify


your equity portfolio by investing in five or ten equity funds. You really have
not done much to control risk in your portfolio if all these funds come from only
one particular segment of the market say large cap stocks or mid cap stocks. In
case of an adverse reaction for that segment, all the funds will react similarly
means they will go down. If you build your portfolio with various top
performing growth funds without really bothering to analyze their portfolio
allocation, you may end up with over-exposure to a particular segment. Another
point you need to remember is that growth funds are highly correlated- they
tend to move in the same direction in response to a given market force.The
advantage of asset allocation lies in achieves superior returns when markets are
down while minimizing the exposure of the portfolio to volatility. In fact, asset
allocation is based on certain dimensions that, when combined tend to control
the volatility while achieving targeted returns.

NET ASSET VALUE(NAV)


The net asset value of the fund is the cumulative market value of the assets fund
net of its liabilities. In other words, if the fund is dissolved or liquidated, by
selling off all the assets in the fund, this is the amount that the shareholders
would collectively own. This gives rise to the concept of net asset value per
unit, which is the value, represented by the ownership of one unit in the fund. It
is calculated simply by dividing the net asset value of the fund by the number of
units. However, most people refer loosely to the NAV per unit as NAV, ignoring
the "per unit". We also abide by the same convention.

CALCULATION OF NET ASSET VALUE(NAV)

The most important part of the calculation is the valuation of the assets owned
by the fund. Once it is calculated, the NAV is simply the net value of assets
divided by the number of units outstanding. The detailed methodology for the
calculation of the asset value is given below.

Asset value is equal to

Sum of market value of shares/debentures

+ Liquid assets/cash held, if any

+ Dividends/interest accrued

Amount due on unpaid assets

Expenses accrued but not paid

Details on the above items

For liquid shares/debentures, valuation is done on the basis of the last or closing
market price on the principal exchange where the security is traded.

For illiquid and unlisted and/or thinly traded shares/debentures, the value has to
be estimated. For shares, this could be the book value per share or an estimated
market price if suitable benchmarks are available. For debentures and bonds,
value is estimated on the basis of yields of comparable liquid securities after
adjusting for illiquidity.
CHAPTER-2
COMPANIES
PROFILE

BLUECHIP MUTUAL FUNDS


A blue-chip stock is the stock of a large, well-established and financially sound
company that has operated for many years. A blue-chip stock typically has a
market capitalization in the billions, is generally the market leader or among the
top three companies in its sector, and is more often than not a household name.
While dividend payments are not absolutely necessary for a stock to be
considered a blue-chip, most blue-chips have a record of paying stable or rising
dividends for years, if not decades. The term is believed to have been derived
from poker, where blue chips are the most expensive chips.

I choose three types of blue-chip mutual fund companies are:-

1. Franklin India Blue chip Fund


2. Indiabulls Bluechip Fund(G)
3. SBI Blue Chip Fund

Franklin India blue chip fund


Indian equity markets, which began the month on positive note with 1QFY16
results showing some encouraging trend of improving margins and the
government reforms in PSU banks space, started sliding towards the later part
of month primarily due to concerns on Chinese Yuan devaluation which led to
volatility in global markets. As a result, the benchmark indices closed the
markets in red, recording losses of over 6%. Among sectorial indices, healthcare
was the only index which closed the month in green led by weak rupee and
series of approvals as compared to the sluggish pace in FY15. Meanwhile,
metals, power and capital goods sectors were among the bottom performers.
Weakness in global commodity prices and persistent fear regarding slowdown
in China, weighed on the performance of metals and power sector. Small cap
equity indices lagged their large cap peers during the month. FPIs turned sellers
during the month leading to an outflow of $2.6 bn.
MACRO & POLICY
Among the macroeconomic indicators, while India Index of Industrial
Production (IIP) for June and inflation for July showed positive trends, trade
deficit broadened and GDP for 1QFY16 came slightly below market
expectations. Meanwhile, on the issue regarding Minimum Alternate Tax
(MAT), certain media reports indicated Shah Panel recommending MAT relief
to FIIs prior to 1 Apr, 2015 however; the government decision on the same is
still pending. Indias IIP growth for June came at 3.8%YoY, indicating a
continued recovery in industrial production. While manufacturing sector (with
biggest weight in the index) accelerated and grew at 4.6%YoY, electricity
showed a slower growth at 1.3%YoY and mining contracted by 0.3%YoY.
Cumulative growth for Apr'15-Jun'15 came in at 3.2% compared to 4.5%
growth in the corresponding period last year. Indias trade deficit widened in
July despite decrease in crude oil prices and stood at $12.8 bn vs. $10.8 bn in
June, primarily due to relatively higher imports and pick up in gold imports.
While total imports continued to contract 10.28%YoY and stood at $35.95 bn,
exports also declined by 10.30%YoY and stood at $23.14 bn. However, in
absolute terms the trade deficit for Apr '15 Jun'15 (estimated at $45.04 bn) is
lower than the same period last year (at$47.55 bn).
Data released after the end of month, showed India's Gross Domestic Product
(GDP) growth for 1QFY16 at 7.0%Y, which was slightly below market
expectations. However, gross value added (GVA), which is a more robust
calculation, increased at a better-than-expected pace, and was also higher than
its growth in the previous quarter. On a seasonally adjusted basis, the sequential
momentum in GVA was the highest seen so far in the new GDP series.

Below is the snapshot of the fact list of franklin india blue chip
fund
SBI BLUECHIP MUTUAL FUNd

Domestic cues included strong earnings from few index majors, policy
regarding capital infusion in public-sector banks and Cabinet's approval of
amendments to the Goods and Services Tax (GST) Bill. Another trigger was the
setting up of a Rs.20,000 crore National Investment and Infrastructure Fund
and a composite cap for Foreign Portfolio Investment (FPI) and Foreign Direct
Investment (FDI), replacing them with a single upper limit in a bid to make
foreign investments easier.

On the international front, investors cheered the outcome of


the United States Federal Reserve meeting after it kept interest
rates unchanged, modestly upgraded the US economic outlook
and reiterated that rate hike decision will be dependent on
economic data. Greece's agreement about a bailout deal with
its creditor followed by the news that the Greek Parliament
approved the austerity measures to secure the deal also aided
the market rise. Further gains were seen with some recovery in
Chinese equities and Iran's agreement with the world powers
on its nuclear deal also supported the market.

Mutual Funds continued to ride the growth of the markets and


have pumped in a little over Rs. 4300 crores in the equity
markets; the 15th consecutive month that asset managers
have invested in equities. The momentum will only continue
with Employees' Provident Fund Organisation (EPFO) choosing
to invest in Exchange Traded Funds (ETFs). This move will lead
to a sustained flow of domestic savings into equity markets
which will provide stability and reduce vulnerabilities to
international events and global markets. SBI-ETF NIFTY and SBI
SENSEX ETF have been the two chosen schemes into which the
investments will be made. It is with both great pride and
humility that we accept this honour.

Below is the snapshot of the fact list of SBI bluechip Mutual fund
CHAPTER-3
RESEARCH
METHODOLOGY

Research Design

Setting the Objective viz the


variables to study

Collection of the relevant data for


study

Determining Risk and Return Trade


off

Sharpe Ratio Treynor Ratio

Comparative Analysis of Mutual


Fund
Draw Conclusion

Primary Objectives

The main objective of this study is to doing a technical analysis of Mutual Fund
portfolio by taking sample of funds and comparing it with it others

Secondary objectives
To promote investment cult among Indian investors.
To understand the portfolio management process in mutual fund.
To know the importance of statistical measures in portfolio and
investment analysis.
Evaluating fund performance

Collection of data

For the complete study, I collected NAV information of Mutual Fund from the
secondary data base.

Secondary form of data is used for the technical research. Data for the study has
been taken from Technical Trends database. The closing price of mutual fund
NAV was selected for calculating the arithmetic return of the respective mutual
funds.

Time Frame of the Study

A time frame of 1 year is considered for calculating the arithmetic return of the
mutual funds on daily basis.

NAV closing price from 1st August 2014 to 1st August 2015 is considered for
the calculation.

Variables Studied

Risk is defined as the chance that an investment's actual return will


be different than expected. Risk includes the possibility of losing some or the
entire original investment. Different versions of risk are usually measured by
calculating the standard deviation of the historical returns or average returns of
a specific investment. Standard deviation is used as a measure of risk. High
standard deviations indicate a high degree of risk.
Return defined as the gain or loss of a security in a particular period. The return
consists of the income and the capital gains relative on an investment. It is
usually quoted as a percentage. There are no of returns applicable in stock
market like Arithmetic return, log return, exponential returns etc.

Arithmetic return is considered for calculating the return of a security.

Mutual Fund Studied

Procedural steps to be followed for the present study

1) First and foremost step is to calculate arithmetic daily returns from


the given closing value of NAV of the 3 mentioned mutual funds.

Returns are calculated as current day's closing NAV over previous


month's closing NAV.
Mathematically,

Return (Rp) = (NAV t NAV t-1)


NAV t-1
Where,

NAV t: Closing NAV of current day

NAV t-1: Closing NAV of Previous day

2) Average of arithmetic return is calculated

Mathematically,

Average Return = R1 + R2 + +.. Rn


N
3) Standard Deviation of return is calculated

Mathematically,

4) Evaluation of Mutual Fund

4a) Sharpe Ratio is calculated

Sharpe Ratio = (Rp RF) / sd

Rp: Portfolio return.


Rf: Risk free asset return.
Sd: standard deviation of portfolio

4b) Trey nor Ratio is Calculated

Trey nor Ratio = (Rp Rf ) / p


Rp: Portfolio return
RF: Risk free asset return.
p: Beta Risk of portfolio
5) Comparative Analysis of Mutual Fund

Limitations

It is based on Secondary Data.

Time Constraint

Lack of resources