CHAPTER – 1

INTRODUCTION

1.1 MUTUAL FUND

1.1.1 DEFINITION

According to SECURITIES EXCHANGE BOARD OF INDIA, “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”

According to ASSOCIATION OF MUTUAL FUNDS IN INDIA

• A Mutual Fund is a pool of money collected from investors and is invested

according to stated investment objectives
• A Mutual Fund is an investment instrument that pools the money of peoples who
share similar investment goals. This money is managed by a team of professional
investment managers employed by an asset management company (AMC).

Mutual funds are money-managing institutions set up to professionally invest the

money pooled in from the public. These schemes are managed by Asset Management
Companies (AMC), which are sponsored by different financial institutions or
companies.

Each unit of these schemes reflects the share of investor in the respective fund
and its appreciation is judged by the Net Asset Value (NAV) of the scheme. The NAV
is directly linked to the bullish and bearish trends of the markets as the pooled money
is invested either inequity shares or in debentures or treasury bills. Indian Mutual
Funds unveils this multi-dimensional avenue, with its intricacies, in a fashionable
manner as mutual funds up-hold ample scope of generating decent returns by some
thoughtful investment

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1.1.2 MUTUAL FUNDS-CONCEPT

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 appreciation realised 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.

There are different objectives, addressing various asset classes as well as

various risk profiles. Each scheme collects a pool of money from investors who may
have similar aims in mind. This pool of money is managed by an Asset Management
Company (AMC). The AMC is distinct from the mutual fund. It receives a fee based
on the percentage of assets that it is managing. In return the investors get a host of
benefits. AMC’s have full-fledged investment management departments that have
qualified fund managers. They are obligated to disclose the portfolio of investments
for each scheme regularly. Besides the mutual fund investor also enjoys tax benefits
like tax free dividends, long term capital gains tax benefit, tax payable only when you
withdraw the money.

1.1.3 MUTUAL FUND OPERATION FLOW CHART

Mutual Fund Operation Flow Chart

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1.1.4 ORGANISATION OF MUTUAL FUNDS

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

Organisation of a Mutual Fund

Each mutual find has a specific stated objective. The fund’s objective is laid out in the
fund’s prospectus, which is the legal document that contains information about fund,
its history, its officers and its performance.

1.1.5 FUND OBJECTIVE

Fund What the fund will invest in

Equity (Growth) Only in stocks

Debt (Income) Only in fixed-income securities

Money Market (including Gilt) In short term money market instruments

(including government securities)

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Balanced Partly in stock and partly in fixed-
income securities, in order to maintain a
‘balance, in returns and risk

1.1.6 BASIS OF MUTUAL FUNDS

FUND HOUSE/FAMILY

A group of funds managed under one umbrella. The most basic fund family would
include a stock, bond and money market-portfolio, although many funds have variants
like sector funds, balanced funds.

NET ASSET VALUE (NAV)

The price or value of one unit of a fund. It is calculated by summing the current
market values of all securities held by the fund, adding in cash and any accrued
income, then subtracting liabilities and dividing the result by the number of units
outstanding. Most open-ended funds companies compute NAVs once a day based on
closing market prices.

FUND’S NET ASSET

The total value of a fund’s cash and securities less its liabilities are obligations.

FUND PORTFOLIO

A group of securities held by the mutual fund. A portfolio could be a mixture of

stocks, bonds and cash.

PORTFOLIO TURNOVER OF A FUND SUPPOSED TO MEAN

A measure of the amount of buying and selling activity in a fund. Turnover is

defined as the lesser of securities should or purchased during a year divided by the

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average of monthly net assets. A turnover of 100 percent, for example, implies
positions are held on average for about a year.

CUSTODIAN

The custodian, an independent organisation, has the physical possessions of all

securities purchased by the mutual fund, and undertakes responsibility for its handling
and safe keeping. For instance, the Stock Holding Corporation of India Ltd (SHCIL)
is the custodian for most fund houses in the country.

ASSET MANAGEMENT COMPANY

A highly regulated organisation that pools money from many people in to a portfolio
structured to achieve certain objectives. Hence it is termed as an Asset Management
Company. Typically an AMC manages several funds – open-end/ closed-end across
several categories- growth, income, balanced. Every mutual fund has an AMC
associated with it.

LOAD

It is charge collected y a mutual fund when it sells units. It can be either front-end
load, (i.e., the charge is collected when an investor buys the units) or back-end load
(i.e., the charge collected when the investor sells back the units). Some schemes do
not charge any load and are called No Load Schemes.

EX-DIVIDEND DATE

Normally, one business day after the record date. Investors purchasing unit on or after
the ex-dividend date are not entitled to collect dividends or bonus units. The NAV
falls by the amount of the dividend distributed and/or bonus issued. The terms ex-
bonus and ex-dividend often are used synonymously.

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CHEQUE WRITING

A service enabling investors to write Cheque against their mutual fund account
balances. Cheque usually must meet a certain minimum amount and the service is
restricted to money-market funds.

CONTINGENT DEFERRED SALES CHARGE (OR CDSC)

A back-end load imposed on an investor if he exists from the fund before a pre-
determined period (say 6 months). The charges decline the longer an investor stays
invested with a fund.

DAILY DIVIDEND FUND

A fund (money-market or bond) that calculates dividends daily, paying out or

reinvesting the same.

INITIAL PUBLIC OFFERING (IPO)

The sale of a company’s shares or a fund house’s mutual fund to investors for the first
time.

ASSET MANAGEMENT FEE

The fee charged by the asset management company (AMC) for portfolio management.
The fee charged on an annual basis is calculated as percentage of net assets under
management.

GROWTH INVESTING

A popular investment style whereby fund managers identify companies showing

promise of above average earnings. Stocks are held primarily for price appreciation as
opposed to dividend income. Growth investors (or managers) are willing to pay a

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premium to acquire a stock if they feel it has the right prospects. Growth investing is
an alternative to value investing.

VALUE INVESTING

As opposed to growth investors, value investors ( or managers) focus on identifying

under-priced stocks. Value investors look out for stocks selling at low prices, but
which have the potential to give attractive returns in future.

HEDGING

A general term used to describe any of several risk-reduction strategies. A fund

manager might partially hedge against a market decline simply by moving a larger
fraction of the portfolio into cash. Alternatively, the manager could sell stock-index
futures contracts. If the market falls, the gains on the shorted futures would more or
less offset the decline in the portfolio’s value.

PASSIVE INVESTING

This is the investment style espoused by index fund managers who simply invest by
benchmarking their portfolio to a common stock market index like the BSE-30 or the
SP CNX-50. The fund manager only invests in stocks in the index in exactly the same
proportion. There is no attempt to beat the benchmark index, but to simply replicate it,
and therefore it is called as passive investing. The index fund will never outperform
the benchmark index, nor does it attempt to.

1.1.7 TYPES OF FUNDS

Open-ended funds:

At any time during the scheme period, investors can enter and exit the fund scheme
(by buying/selling fund units) at its NAV (net of any load charges). Increasingly,
AMCs are issuing mostly open-ended funds.

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Close-ended funds:

Redemption can take place only after the period of the scheme is over. However,
close-ended funds are listed on the stock exchanges and investors can buy/sell units in
the secondary market (there is no load).

1.1.8 MAJOR PLAYERS IN THE INDIAN MUTUAL FUNDS INDUSTRY:

 ABN AMRO Mutual Fund

 Birla sun life Mutual Fund
 HDFC Mutual Fund
 HSBC Mutual Fund
 ING Vysya Mutual Fund
 ICICI prudential Mutual Fund
 Sahara Mutual Fund
 State bank of India Mutual Fund
 TATA Mutual Fund
 Kotak Mahindra Mutual Fund
 Unit Trust of India Mutual Fund
 Franklin Templeton India Mutual Fund
 Reliance Mutual Fund
 Standard Chartered Mutual Fund
 Morgan Stanley Mutual Fund
 Escorts Mutual Fund
 Alliance Capital Mutual Fund
 Benchmark Mutual Fund
 Can bank Mutual Fund
 Chola Mutual Fund
 LIC Mutual Fund
 GIC Mutual Fun

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 1.2 INDUSTRY PROFILE

1.2.1 HISTORY OF FUNDS

The origin of mutual fund industry in India is with the introduction of the
concept of mutual fund by UTI in the year 1963. Though the growth was slow, but it
accelerated from the year 1987 when non-UTI players entered the industry.

In the past decade, Indian mutual fund industry had seen dramatic
improvements, both quality wise as well as quantity wise. Before, the monopoly of
the market had seen an ending phase; the Assets under Management (AUM) were Rs.
67bn. The private sector entry to the fund family raised the AUM to Rs. 470 bn in
March 1993 and till April 2004; it reached the height of 1,540 bn.

Putting the AUM of the Indian Mutual Funds Industry into comparison, the
total of it is less than the deposits of SBI alone, constitute less than 11% of the total
deposits held by the Indian banking industry. The main reason of its poor growth is
that the mutual fund industry in India is new in the country. Large sections of Indian
investors are yet to be intellectuated with the concept.

The mutual fund industry can be broadly put into four phases according to the
development of the sector. Each phase is briefly described as under.

First Phase - 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set
up by the Reserve Bank of India and functioned under the Regulatory and
administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from
the RBI and the Industrial Development Bank of India 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.

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Second Phase - 1987-1993 (Entry of Public Sector Funds)

Entry of non-UTI mutual funds. SBI Mutual Fund was the first 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 in 1989 and GIC in 1990. The end of 1993 marked Rs.47004 as assets
under management.

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 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. 121805 crores. The Unit Trust of India with Rs.44541 crores
of assets under management was way ahead of other mutual funds.

Fourth Phase - since February 2003

This phase had bitter experience for UTI. It was bifurcated into two separate
entities. One is the Specified Undertaking of the Unit Trust of India with AUM of

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Rs.29835 crores (as on January 2003). 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.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is
registered with SEBI and functions under the Mutual Fund Regulations. With the
bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000
crores of AUM and with the setting up of a UTI Mutual Fund, conforming 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 September, 2004, there were 29 funds,
which manage assets of Rs.153108 crores under 421 schemes.

1.2.2 PERFORMANCE OF MUTUAL FUNDS IN INDIA

Let us start the discussion of the performance of mutual funds in India from the day
the concept of mutual fund took birth in India. The year was 1963. Unit Trust of India
invited investors or rather to those who believed in savings, to park their money in
UTI Mutual Fund. For 30 years it goaled without a single second player. Though the
1988 year saw some new mutual fund companies, but UTI remained in a monopoly
position.

The performance of mutual funds in India in the initial phase was not even closer to
satisfactory level. People rarely understood, and of course investing was out of
question. But yes, some 24 million shareholders were accustomed with guaranteed
high returns by the begining of liberalization of the industry in 1992. This good record
of UTI became marketing tool for new entrants. The expectations of investors touched
the sky in profitability factor. However, people were miles away from the
preparedness of risks factor after the liberalization.

The Assets under Management of UTI was Rs. 67bn. by the end of 1987. Let me
concentrate about the performance of mutual funds in India through figures. From Rs.
67bn. the Assets under Management rose to Rs. 470 bn. in March 1993 and the figure

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had a three times higher performance by April 2004. It rose as high as Rs. 1,540bn.
The net asset value (NAV) of mutual funds in India declined when stock prices started
falling in the year 1992. Those days, the market regulations did not allow portfolio
shifts into alternative investments. There were rather no choices apart from holding
the cash or to further continue investing in shares. One more thing to be noted, since
only closed-end funds were floated in the market, the investors disinvested by selling
at a loss in the secondary market.

The performance of mutual funds in India suffered qualitatively. The 1992 stock
market scandal, the losses by disinvestments and of courses the lack of transparent
rules in the where about rocked confidence among the investors. Partly owing to a
relatively weak stock market performance, mutual funds have not yet recovered, with
funds trading at an average discount of 1020 percent of their net asset value.

The supervisory authority adopted a set of measures to create a transparent and

competitive environment in mutual funds. Some of them were like relaxing
investment restrictions into the market, introduction of open-ended funds, and paving
the gateway for mutual funds to launch pension schemes.
The measure was taken to make mutual funds the key instrument for long-term
saving. The more the variety offered, the quantitative will be investors.

At last to mention, as long as mutual fund companies are performing with lower risks
and higher profitability within a short span of time, more and more people will be
inclined to invest until and unless they are fully educated with the dos and don’ts of
mutual funds.

1.2.3 FUTURE OF MUTUAL FUNDS IN INDIA

By December 2004, Indian mutual fund industry reached Rs 1,50,537 crore. It

is estimated that by 2010 March-end, the total assets of all scheduled commercial
banks should be Rs 40,90,000 crore.

The annual composite rate of growth is expected 13.4% during the rest of the decade.
In the last 5 years we have seen annual growth rate of 9%. According to the current

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growth rate, by year 2010, mutual fund assets will be double.

1.2.4 THE 7 P’S IN MUTUAL FUNDS MARKETING

PRODUCT

• Debt Fund
• Equity Fund
• Gilt Fund
• Liquid Fund
• Growth Plan
• FMCG Plan
• Income Plan
• Technology Fund
• Sweep Plan
• Tax Plan
• Balanced Fund
• Child Care Plan
• Fixed Maturity Plan
• Short & Long Term Plan

PRICE

• Commission to agents/brokers
• Service provision at special rates to large/corporate customers
• Special price and discount facilities provided to regular investors to encourage
consistency

PLACE

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 • The mutual fund companies have their branches or customers service centers
in as many cities as possible i.e., they aim at getting evenly spread out across
the country
• The places where they don’t find it viable to do so... There is a convenient
facility provided to these and other investors too to deal and communicate
with the companies online

PROMOTION

• Advertising
• Issuing broachers, fact sheets, application forms and the likes from exhibition
counters, ATMs, branches, etc. for convenience
• Schemes with mass appeal are advertised with emotional grip through ad
jingles and TVs

PHYSICAL EVIDENCE

• Website
• Corporate office
• Branches
• Customer care centres
• Regular NAV report
• Regular dividend declared

PEOPLE

• Income earners
• Family relations related to income earners (specific funds)
• Different classes of people approached according to their investment motives

PROCESS

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 • Need based formulation of income/fund plans
• More specific than generalised form

1.2.5 ADVANTAGS OF MUTUAL FUNDS

The advantages of investing in a Mutual Fund are:

• Diversification: The best mutual funds design their portfolios so individual

investments will react differently to the same economic conditions. For
example, economic conditions like a rise in interest rates may cause certain
securities in a diversified portfolio to decrease in value. Other securities in the
portfolio will respond to the same economic conditions by increasing in value.
When a portfolio is balanced in this way, the value of the overall portfolio
should gradually increase over time, even if some securities lose value.

• Professional Management: Most mutual funds pay topflight professionals to

manage their investments. These managers decide what securities the fund
will buy and sell.

• Regulatory oversight: Mutual funds are subject to many government

regulations that protect investors from fraud.

• Liquidity: It's easy to get your money out of a mutual fund. Write a check,
make a call, and you've got the cash.

• Convenience: You can usually buy mutual fund shares by mail, phone, or
over the Internet.

• Low cost: Mutual fund expenses are often no more than 1.5 percent of your
investment. Expenses for Index Funds are less than that, because index funds
are not actively managed. Instead, they automatically buy stock in companies
that are listed on a specific index

• Transparency

• Flexibility

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 • Choice of schemes

• Tax benefits

1.2.6 DISADVANTAGES OF MUTUAL FUNDS

Mutual funds have their drawbacks and may not be for everyone:

• No Guarantees: No investment is risk free. If the entire stock market declines

in value, the value of mutual fund shares will go down as well, no matter how
balanced the portfolio. Investors encounter fewer risks when they invest in
mutual funds than when they buy and sell stocks on their own. However,
anyone who invests through a mutual fund runs the risk of losing money.

• Fees and commissions: All funds charge administrative fees to cover their
day-to-day expenses. Some funds also charge sales commissions or "loads" to
compensate brokers, financial consultants, or financial planners. Even if you
don't use a broker or other financial adviser, you will pay a sales commission
if you buy shares in a Load Fund.

• Taxes: During a typical year, most actively managed mutual funds sell
anywhere from 20 to 70 percent of the securities in their portfolios. If your
fund makes a profit on its sales, you will pay taxes on the income you receive,
even if you reinvest the money you made.

• Management risk: When you invest in a mutual fund, you depend on the
fund's manager to make the right decisions regarding the fund's portfolio. If
the manager does not perform as well as you had hoped, you might not make
as much money on your investment as you expected. Of course, if you invest
in Index Funds, you forego management risk, because these funds do not
employ managers

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 1.3 COMPANY PROFILE

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.3,200 crores and employs around
10,800 employees across its various businesses servicing around 2.6 million customer
accounts through a distribution network of branches, franchisees, representative
offices and satellite offices across 300 cities and towns in India and offices in New
York, London, Dubai, Mauritius and Singapore. . The Group services around 4.4
million customer accounts.

1.3.1 CAREERS

You'll find that working with Kotak is so much more than a job.

It's a place where you can contribute, innovate, work and grow with other
intelligent and motivated people. Everyone at every level in every function at Kotak is
encouraged to have original ideas and to share them - here, an entrepreneurial bent of
mind isn't just an asset, and it’s a prerequisite.

Kotak Securities Ltd. is one of the oldest and leading stock broking houses in India
with a market Kotak Securities Ltd. has also been the largest in IPO distribution.

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The company has a full-fledged research division involved in Macro Economic
studies, Sectoral research and Company Specific Equity Research combined with a
strong and well networked sales force which helps deliver current and up to date
market information and news
Kotak Securities Ltd is also a depository participant with National Securities
Depository Limited (NSDL) and Central Depository Services Limited (CDSL),
providing dual benefit services wherein the investors can use the brokerage services
of the company for executing the transactions and the depository services for settling
them
Kotak Securities has 877 outlets servicing over 4,30,000 customers and a coverage of
321 cities. Kotaksecurities.com, the online division of Kotak Securities Limited offers
Internet Broking services and also online IPO and Mutual Fund Investments

1.3.2 THE JOURNEY SO FAR

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 4 Lac
investors in various schemes. KMMF offers schemes catering to investors with

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varying risk - return profiles and was the first fund house in the country to launch a
dedicated gilt scheme investing only in government securities.

We are sponsored by Kotak Mahindra Bank Limited, one of India's fastest growing
banks, with a pedigree of over twenty years in the Indian Financial Markets. Kotak
Mahindra Asset Management Co. Ltd., a wholly owned subsidiary of the bank, is our
Investment Manager.

We made a humble beginning in the Mutual Fund space with the launch of our first
scheme in December, 1998. Today we offer a complete bouquet of products and
services suiting the diverse and varying needs and risk-return profiles of our investors.

We are committed to offering innovative investment solutions and world-class

services and conveniences to facilitate wealth creation for our investors

1.3.3 AWARDS

Awards

NDTV AWARDS, 2006

LIPPER FUND AWARDS, 2006
ICRA AWARDS, 2006
ICRA MFR 1 (December 2004 & December 2005)
OUTLOOK MONEY BEST WEALTH CREATOR
DEBT 2003
CRISIL BEST FUND AWARD 2003

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1.3.4 PRODUCT PROFILE

EQUITY SCHEMES

• Kotak 30
• Kotak Midcap
• Kotak Opportunities
• Kotak Lifestyle
• Kotak Contra
• Kotak Tax Saver
• Kotak Global India
• Kotak MNC
• Kotak TECH
• Kotak Equity Arbitrage Fund
• Kotak Emerging Equity Scheme
• Kotak Global Emerging Market
• Kotak Indo World Infrastructure
• Kotak Starkid Facility

DEBT SCHEME

• Kotak Income Plus

• Kotak Bond
• Kotak Liquid
• Kotak Gilt
• Kotak Flexi Debt
• Kotak Floater Long Term
• Kotak Floater Short Term
• Kotak Twin Advantage Series II

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• Kotak Twin Advantage Series III
• Kotak Wealth Builder Series I

BALANCED

• Kotak Balance
• Kotak Dynamic Asset Allocation

FOF

• Kotak Equity FOF

• Kotak Flexi FOF
• Kotak Flexi FOF Series II
• Series II

ETF

• Kotak Gold ETF

• Kotak PSU Bank ETF
• Kotak Sensex ETF

FMPs

• Kotak FMP 1M Series 1

• Kotak FMP 1M Series 2
• Kotak FMP 3M Series 27
• Kotak FMP 3M Series 28
• Kotak FMP 3M Series 29
• Kotak FMP 3M Series 30
• Kotak FMP 3M Series 31
• Kotak FMP 3M Series 32

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• Kotak FMP 3M Series 33
• Kotak FMP 12M Series 1
• Kotak FMP 12M Series 2
• Kotak FMP 12M Series 3
• Kotak FMP 12M Series 4
• Kotak FMP 12M Series 5
• Kotak FMP 12M Series 6
• Kotak FMP 12M Series 7
• Kotak FMP 13M Series 1
• Kotak FMP 13M Series 2
• Kotak FMP 13M Series 3
• Kotak FMP 13M Series 4
• Kotak FMP 14M Series 1
• Kotak FMP 14M Series 2
• Kotak FMP 14M Series 3
• Kotak FMP 14M Series 4
• Kotak FMP 15M Series 2
• Kotak FMP 15M Series 3
• Kotak FMP 15M Series 4
• Kotak FMP 15M Series 5
• Kotak FMP 16M Series 1
• Kotak FMP 16M Series 2
• Kotak FMP 17M Series 1
• Kotak Quarterly Interval Plan Series 1
• Kotak Quarterly Interval Plan Series 2
• Kotak Quarterly Interval Plan Series 3
• Kotak Quarterly Interval Plan Series 4
• Kotak Quarterly Interval Plan Series 5
• Kotak Quarterly Interval Plan Series 6

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1.4 REVIEW OF LITERATURE

The advanced research on Mutual Fund performance evaluation contributed a

lot to the wealth of knowledge, a brief review of which follows,

Wharton School of Finance and Commerce examined the issues relating to

investment policy, portfolio turnover rate, performance and impact of MFs trading
activity on the stock markets. The study concludes that, on an average, the funds had
not performed well than the composite markets from which they select their
securities. There was no persistent relationship between the annual portfolio turnover
rates and the performance. Further, the funds net purchase has significantly affected
the price movement of individual stocks and to a lesser extent, the price movement of
the markets.

Friend and Vickers evaluated the performance of mutual funds against the
randomly constructed portfolios. The study concludes that MFs on the whole have not
performed superior to random portfolios.

Sharpe study concludes that out of 34 funds selected, 19 had outperformed the
bench-mark in terms of total risk. Treynor evaluated the performance of MF managers
in terms of their ability in market timing. The evidence on 57 MFs shows that, none of
the fund managers has outguessed the market. Jensen evaluated the ability of the fund
managers in selecting the undervalued securities. He concluded that for the sample of
115 MFs, the fund managers were not able to forecast security prices well enough to
recover research expenses and fees.

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 Risk adjusted performance evaluation is also made by Carlson and SEC study.
The broad conclusions arrived by them are, that some of the funds had outperformed
the bench-marks, but there was no consistency in performance.

Norman E. Mains applied neutral risk adjusted performance measure and

concludes that approximately 66 percent of the funds had larger net returns adjusted
for systematic risk.

Klemosky concludes that past risk adjusted performance is not a good guide to
future performance. Kon and Jen, Viet and Chency, Henrikson, and Chang and
Lewellen evaluated the performance of the mutual funds managers in terms of their
ability in market timing and selectivity. The broad conclusion of these studies is that
the fund managers did not possess these abilities. Even if little evidence is there
regarding selectivity, the additional returns earned are not able to cover the research
expenses.

A number of academics, professionals and journalists have written articles

explaining the basic of mutual funds, their characteristics and reviewed the trends in
the growth of mutual funds. They also emphasized the importance of mutual funds in
the development of the capital market in India. A few under this category are: Sudeep
Ghosh, Madan Gopal, Vidyashankar, Batra, Sunil Garodia, Sarkar, Agarwal and
Sadhak. Verma’s book on mutual funds covers the conceptual and regulatory aspects
of the Indian Mutual Funds with some informational data and guidelines to the
investors in selection of mutual funds.

A few articles highlighted the importance and issues for the regulation of
mutual funds. Among them the notable are: Barua, Narayan Bhatt, Bhanu and Bhatt.
Finally, in 1993, SEBI framed regulations for mutual funds.

Jayadev also critically analysed the desperate practices of mutual funds in the
valuation of investments. A few articles touched upon certain aspects of portfolio
management and other issues involved in the management of mutual funds. The
notable among them are Sengupta, Lal and Sharma and Saha and Murthy.

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 Barua and others (1991), made a pioneering attempt to evaluate the
performance of “Master Share” scheme of UTI from the investor point of view. They
employed the Capital Asset Pricing Model (CAPM) and computed the risk of the
“Master Share” scheme (For the period 1987 – 1991). The risk adjusted performance
is measured by using Sharpe, Jensen and Treynor ratios. Here the bench-mark
selected is the “Economic Times Ordinary Share Price Index”. The study concludes
that, “Master Share” has performed better in systematic risk, but not in terms of total
risk. Shared Shukla (1991) evaluated the performance of “Canshare” and “Master
Share” by employing the Sharpe, Jensen and Treynor ratios for the period January

1988 to June 1991. He concludes that the “Master Share” has performed better than
the “Canshare”.

From the investor’s point of view, UTI is regarded as a progressive financial

institution managing the funds most efficiently with low expense ratio. However,
some of the investors strongly felt that, the services of UTI towards investors have
deteriorated. Further, UTI does not have enough transparency in respect of its
investments, particularly regarding the US’ 64 as neither the NAV of that scheme nor
its full investment list is made public.

To conclude, the literature survey reveals that, on an average, MF managers

are not able to offer higher returns than the unmanaged portfolios. Further their ability
in stock selection and market timing is also poor. The recent works indicate that fund
managers are able to offer the superior returns. The implications of these studies are
that the markets are reasonably efficient.

25
 CHAPTER - 2

OBJECTIVES, SCOPE AND LIMITATIONS

2.1 OBJECTIVES OF THE STUDY

PRIMARY OBJECTIVE

• To study the performance of mutual funds schemes in terms of returns of the

investments, risk associated with such investments

SECONDARY OBJECTIVE

• To understand the concept and importance of mutual fund

• To analyze the monthly returns of the selected sectors in mutual funds
• To study the amount of variability in returns and thus measure their
performance
• To analyze the risk involved in the schemes
• To rank the selected mutual fund based on their performance

2.2 SCOPE OF THE STUDY

26
 A better understanding of the mutual funds trend will facilitate allocation of
financial resources to the most profitable investment opportunity. The behaviour of
funds return will enable the investors to make appropriate investment decisions. The
fluctuations of fund returns are due to several economic and non-economic factors.
The study is aimed at ascertaining the behaviour of mutual fund returns.
The study on monthly returns of the funds helps in understanding the
behaviour of the mutual fund market. It helps the investors to be aware about
deviations in the returns of the mutual funds.

The study also helps the customers to ascertain the risk and return of the
funds. This will help the investor’s individuals, in identifying the funds which would
yield higher return and lesser return.

The period of analysis is from 1st January 2007 to 31st June 2008. The role of
mutual funds from the investor’s point of view is alone examined in this study. The
method used for return calculation is the Absolute return method. The performance of
the funds is evaluated on the risk – adjusted basis.

2.3 LIMITATIONS OF THE STUDY

• The period of analysis is very short, so that it could not capture the
consistency in performance of the various schemes

• The size of the funds under each category varies

• Though the investment objective is the same for funds under each schemes,
the portfolio composition of the funds is not 100% same for the funds under
each scheme and so the risk associated with the funds also differs

27
 CHAPTER – 3

RESEARCH METHODOLOGY

The descriptive method of research type employed in the study portrays the
performance of the different funds of the Asset Management Companies under study.
Since descriptive research studies are concerned with describing the characteristics of
a particular individual, or of a group, the same is used for studying the performance of
the mutual fund schemes.

RESEARCH DESIGN

This project analyses the mutual fund market and its fluctuations. The project
aims to analyse the average return of the selected funds for the study. It also measures
the risk involved in investing in the mutual funds. Monthly can be found from the
analysis.

METHOD OF DATA COLLECTION

Various secondary data used for the analysis such as the net asset values of the
different AMCs under study are obtained from the respective AMCs fact sheets and
the websites, the risk free rate which is the rate of return of the 90 – day’s Treasury
bill are obtained from the websites. The return values of the different funds, the
standard deviation values used in the calculation of the Sharpe ratio, and the beta

28
value used for the calculation of the Treynor ratio are manually calculated from the
net asset values under study.

ANALYSIS

The two ways in which the analysis is done are

Risk - adjusted performance evaluation by
• Sharpe ratio
• Treynor ratio
TOOLS USED:

1. BETA

The degrees to which different portfolios are affected by these systematic risks as
compared to the effect on the market as a whole is measured by Beta. The Beta factor
describes the movement in a stock’s or portfolio’s returns in relation to that of the
market return.

The main purpose of using slope or beta is to predict the change in the market. Beta is
a measure of the market or non-diversible risk associated with any given security in
the market. The formula for predicting Beta is as follows:

Returns = (P1-P0/P0)*100

Where,

P1 today’s close
P0 previous close

Beta = Cov (x,y) / var (x)

Where,

X Market Value of Nifty

Y Market Value of the Company

29
The analysis is based on the following rule:

• If the Beta is 1 The company will move along with the market

• If the Beta is >1 The share is more volatile than the market

• If the Beta is <1 The share is less volatile than the market
2. MEAN

A measure of the central tendency of a data set, the mean is the average value in a
data set. It is determined by adding all the values and dividing the sum by the number
of values in the data set.

Mean = ∑ Xi
------
n

where, i = 1,2,3,….n

n = number of samples

3. STANDARD DEVIATION

The standard deviation is less affected than the range by extreme and untypical
values. It is a very accurate measurement for showing how closely the values in the
list cluster around or diverge from the average. The standard deviation is lower if the
values cluster closely around the mean and becomes higher the more they diverge
from it. For the mathematically inclined, the standard deviation is defined as the
square root of the variance, or

Standard deviation = √∑(x-x)2

_______

30
 n

4. SHARPE RATIO

William Sharpe created a metric for fund performance, which enables the
ranking of funds on a risk – adjusted basis. This measure is based on the comparison
of “Excess return” per unit of risk, risk being measured by standard deviation. The
standard deviation measures what is the average dispersion of the returns around the
average value. If the standard deviation is high, the risk inherent in the returns of the
mutual fund is high. Excess return is defined as the actual return of the fund less the
risk free rate. The return on the 90-day treasury bill of the government is taken as the
risk-free rate. This ratio is referred as reward to variability ratio (RVAR).
It is expressed as:

Sharpe ratio = (Rp – Rf)/ σ P

Where,

Rp is the average return of the fund

Rf is average risk free return

σ P is total risk of the fund

5. TREYNOR RATIO

In the Sharpe ratio, we measure return per unit of standard deviation. Instead if
we measured return per unit of beta, we have the Treynor measure of the
performance. Treynor measure uses the market risk to rank funds, while Sharpe
measure uses total return to rank funds. This ratio is referred as reward to volatility
ratio (RVOL)
It is expressed as:

Treynor’s ratio = (Rp – Rf)/β

31
Where,

Rp is the average return of the fund

Rf is average risk free return

β is total risk of the fund

CHAPTER - 4
DATA ANALYSIS AND INTERPRETATION

DATA ANALYSIS AND INTERPRETATION

In this chapter the average return, volatility, variability in returns and risk
parameters of each company are analysed. The analysis is given in the form of tables
and charts.
Risk arises out of the fact that returns do not remain constant or unchanged.
Every change in return is a situation of risk for the investor. The simplest way to
measure risk is to find out, over a period of time, the performance of the fund in
relation to the market indices

Since we know that mutual funds cannot be expected to deliver a pre-specified rate of
return, the measures of risk and return make little sense, unless we are able to say
something about their adequacy. If the fund made 20% return in one period and 8% in
another, we will not be able to say if 20% is too high or not high enough, or if 8% is
too low. Therefore, we should be able to define what we can expect from the fund, in
terms of risk and return.

32
 TABLE NO: 1

TABLE SHOWING MONTHLY RETURNS OF BIRLA SUN LIFE EQUITY

FUND

Month/Year NAV Monthly

Return
2007 Jan 186.8700
Feb 170.5500 -8.73334
Mar 174.2500 2.169452
Apr 186.2300 6.875179
May 202.3600 8.661333
Jun 207.6400 2.609211
Jul 220.8300 6.352341
Aug 217.4500 -1.53059
Sep 240.2700 10.49437
Oct 273.9000 13.99675
Nov 278.4300 1.653888
Dec 307.0600 10.28266
2008 Jan 253.9300 -17.3028
Feb 246.0700 -3.09534
Mar 213.5100 -13.232
Apr 230.0100 7.727975
May 220.8800 -3.96939
Jun 178.5700 -19.1552

33
INTERPRETATION:

Taking the behaviour of the monthly returns of the BIRLA SUN LIFE EQUITY
FUND, the return is found to be highest in the month of October, September,
December-2007 and in January-2008. The lowest return is found in the month of
June, January and march-2008

CHART NO: 1

CHART SHOWING MONTHLY RETURNS OF BIRLA SUN LIFE EQUITY

FUND

34
 MON TH LY R ETU R N S

20
15
10
5
RETURNS

0
M o nthly
-5 Jul
Jun

Jun
Oct
Nov
Ap r

Ap r
May

May
Mar

Mar
Aug
Feb

Feb
Sep
R e turn

2008 ec
Jan
Jan

D
-1 0
2007

-1 5
-2 0
-2 5
MON TH S

TABLE NO: 2

TABLE SHOWING MONTHLY RETURNS OF KOTAK BOND REGULAR

PLAN – GROWTH

Month/Year NAV Monthly

Return

35
 2007 Jan 19.4917
Feb 19.4914 -0.00154
Mar 19.5710 0.408385
Apr 19.6534 0.421031
May 19.7768 0.627881
Jun 19.8977 0.611322
Jul 20.3195 2.119843
Aug 20.3761 0.27855
Sep 20.5363 0.786215
Oct 20.9126 1.832365
Nov 21.0702 0.753613
Dec 21.3455 1.306585
2008 Jan 21.8788 2.498419
Feb 21.6785 -0.9155
Mar 21.4747 -0.9401
Apr 21.5360 0.285452
May 21.6089 0.338503
Jun 21.5187 -0.41742

INTERPRETATION:

Taking the behaviour of the monthly returns of KOTAK BOND REGULAR

PLAN – GROWTH has a positive return in all months of the year 2007, except
February. The highest return is given in the month of January-2008 and in July
October, December-2007. The lowest return is given in the month of March, February
and June - 2008.

CHART NO: 2

CHART SHOWING MONTHLY RETURNS OF KOTAK BOND REGULAR

PLAN – GROWTH

36
 MONTHLY RETURNS

3
2.5
2
1.5
RETURNS

1
Monthly Return
0.5
0
Ja n

Jun

Jun
Nov
A ug

May
Jul

Ja n
May

Oct
Mar
A pr

Mar
A pr
Feb

Feb
Sep

2008 ec
-0.5

D
2007

-1
-1.5
MONTHS

TABLE NO: 3

TABLE SHOWING MONTHLY RETURNS OF SBI MAGNUM EQUITY

FUND GROWTH

Month/Year NAV Monthly

Return

37
 2007 Jan 28.5300
Feb 26.4900 -7.15037
Mar 26.6100 0.453001
Apr 28.4400 6.877114
May 29.6000 4.078762
Jun 30.6100 3.412162
Jul 32.6800 6.762496
Aug 32.4200 -0.79559
Sep 36.1000 11.35102
Oct 42.4800 17.67313
Nov 43.9600 3.483992
Dec 47.2400 7.461328
2008 Jan 39.0400 -17.3582
Feb 36.9100 -5.45594
Mar 33.0500 -10.4579
Apr 36.0300 9.016641
May 34.2800 -4.85706
Jun 27.6800 -19.2532

INTERPRETATION:

From, SBI MAGNUM EQUITY FUND GROWTH, the monthly return is

found to be highest in the month of October, September, December-2007 and April-
2008. The lowest return is to be found in the month of June, January and march-
2008. More over in the year 2007, the monthly returns are positive, except February
and March.

CHART NO: 3

CHART SHOWING MONTHLY RETURNS OF SBI MAGNUM EQUITY

FUND GROWTH

38
 MONTHLY RETURNS

20
15
10
5
RETURNS

0
Monthly Return
Jan

Jun
Jun
May

Nov

May
Jul
A ug

J an
Oct
Mar
A pr

Ap r
Mar
Fe b

S ep

Fe b
2008 ec
-5

D
2007

-10
-15
-20
-25
MONTHS

TABLE NO: 4

TABLE SHOWING MONTHLY RETURNS OF RELIANCE EQUITY FUND –

GROWTH

Month/Year NAV Monthly

39
 Return
2007 Jan 11.7700
Feb 10.9400 -7.05183
Mar 11.0400 0.914077
Apr 11.6700 5.706522
May 12.3500 5.826907
Jun 12.7500 3.238866
Jul 13.3300 4.54902
Aug 13.1200 -1.57539
Sep 14.4700 10.28963
Oct 16.3500 12.9924
Nov 16.5600 1.284404
Dec 17.7700 7.306763
2008 Jan 15.4700 -12.9432
Feb 14.6300 -5.42986
Mar 13.2800 -9.22761
Apr 14.1600 6.626506
May 13.4700 -4.87288
Jun 11.7000 -13.1403

INTERPRETATION:

Taking the behaviour of the monthly returns of RELIANCE EQUITY FUND

– GROWTH, the monthly return is found to be highest in the month of September,
December, May and April -2007 and also in April -2008. The lowest return is to be
found in the month of February and august- 2008. More over in the year 2008, the
return is very low.

CHART NO: 4

CHART SHOWING MONTHLY RETURNS OF RELIANCE EQUITY FUND –

GROWTH

40
 MONTHLY R ETU RNS

15

10

5
RETURNS

0 M o nthly R e turn
Jun

Jun
Jul

Oct
Nov
A pr

Ap r
May

A ug
Mar

May
Mar
Fe b

Fe b
S ep

2008 Dec
-5
J an
Jan
2007

-1 0

-1 5
MON TH S

TABLE NO: 5

TABLE SHOWING MONTHLY RETURNS OF FRANKLIN FMCG FUND –

GROWTH

Month/Year NAV Monthly

41
 Return
2007 Jan 35.5700
Feb 33.3300 -6.29744
Mar 32.5900 -2.22022
Apr 33.3696 2.392145
May 35.5662 6.582638
Jun 34.9689 -1.6794
Jul 36.5093 4.405057
Aug 36.5742 0.177763
Sep 38.6985 5.808193
Oct 40.6198 4.964792
Nov 40.0261 -1.4616
Dec 42.9567 7.321723
2008 Jan 39.5953 -7.82509
Feb 38.3438 -3.16073
Mar 38.1678 -0.45901
Apr 40.3658 5.758781
May 39.5867 -1.9301
June 34.8624 -11.9341

INTERPRETATION:

The monthly return of FRANKLIN FMCG FUND – GROWTH, is found to be

highest in the month of December, may, September -2007 and in April -2008. The
lowest return is given in the month of June, January – 2008 and February -2007. In
the year 2008, FRANKLIN FMCG FUND has the lowest return in all months, except
April.

CHART NO: 5

CHART SHOWING MONTHLY RETURNS OF FRANKLIN FMCG FUND –

GROWTH

42
 MON TH L Y R E TU R N S

10

0
RETURNS

Jul Monthly Return

May

Mar
May
Mar
Apr

Apr
Jun
Fe b

Aug

Fe b
Nov

June
Sep
Oct

20 08 Dec
Jan
Jan

-5
200 7

-10

-15
M ON THS

TABLE NO: 6

TABLE SHOWING MONTHLY RETURNS OF ICICI PRUDENTIAL FMCG

–GROWTH

Month/Year NAV Monthly

43
 Return
2007 Jan 41.6100
Feb 39.4200 -5.26316
Mar 39.0700 -0.88787
Apr 38.7400 -0.84464
May 41.9800 8.363449
Jun 42.4500 1.119581
Jul 44.0500 3.76914
Aug 44.4700 0.953462
Sep 46.9200 5.509332
Oct 48.6100 3.601876
Nov 48.9800 0.76116
Dec 57.7700 17.9461
2008 Jan 50.3200 -12.896
Feb 48.5800 -3.45787
Mar 46.5200 -4.24043
Apr 49.9600 7.394669
May 47.8600 -4.20336
June 41.0100 -14.3126

INTERPRETATION:

From the monthly returns of ICICI PRUDENTIAL FMCG –GROWTH, the

highest return is found in the month of December, may, September -2007 and in April
-2008. The lowest return is found in the month of June, January, march -2008 and also
in February -2007.

CHART NO: 6

CHART SHOWING MONTHLY RETURNS OF ICICI PRUDENTIAL FMCG

–GROWTH

44
 MONTHLY RETURNS

20

15

10

5
RETURNS

0 Monthly Return
Jun

June
Jul

Nov
Jan

May

Au g

May
Oct
A pr

A pr
Mar

Mar
Fe b
Feb

S ep

2008 ec
Jan
-5
D
2007

-10

-15

-20
MONTHS

TABLE NO: 7

TABLE SHOWING MONTHLY RETURNS OF UTI EQUITY FUND –

GROWTH

45
 Month/Year NAV Monthly
Return
2007 Jan 33.3600
Feb 30.7900 -7.70384
Mar 30.7000 -0.2923
Apr 32.7500 6.677524
May 34.8500 6.412214
Jun 34.9200 0.200861
Jul 36.2500 3.808706
Aug 35.7600 -1.35172
Sep 39.8600 11.46532
Oct 44.9500 12.76969
Nov 44.4900 -1.02336
Dec 48.0200 7.934367
2008 Jan 41.4200 -13.7443
Feb 41.6200 0.482859
Mar 38.2200 -8.16915
Apr 40.9400 7.116693
May 39.4100 -3.73718
June 33.6200 -14.6917

INTERPRETATION:

The monthly return of UTI EQUITY FUND – GROWTH, is found to be

highest in the month of December, October, September -2007 and in April -2008. The
lowest return is given in the month of June, January, March – 2008 and February
-2007.

CHART NO: 7

46
 CHART SHOWING MONTHLY RETURNS OF UTI EQUITY FUND –
GROWTH

MONTHLY RETURNS

15

10

5
RETURNS

0
Jan

Jun

June
Nov
May

May
Au g
Jul

Oct

Jan
Ap r

A pr
Mar

Mar
F eb

Se p

F eb
Monthly Return
2008 c
De

-5
2007

-10

-15

-20
MONTHS

TABLE NO: 8

47
 TABLE SHOWING MONTHLY RETURNS OF TATA GROWTH FUND –
GROWTH

Month/Year NAV Monthly

Return
2007 Jan 32.8321
Feb 30.8019 -6.18358
Mar 30.7651 -0.11947
Apr 32.6798 6.223611
May 34.8323 6.586638
Jun 36.5945 5.059097
Jul 37.3677 2.112886
Aug 36.5639 -2.15106
Sep 39.8887 9.093122
Oct 45.2684 13.48678
Nov 45.7497 1.063214
Dec 51.7357 13.08424
2008 Jan 44.2374 -14.4935
Feb 42.4161 -4.1171
Mar 37.5737 -11.4164
Apr 39.8399 6.031346
May 38.4681 -3.44328
June 32.2402 -16.1898

INTERPRETATION:

Taking the behaviour of the monthly returns of TATA GROWTH

FUND – GROWTH, the highest monthly return is found in the month of October,
September, December -2007. The lowest return is to be found in the month of June,
January, February – 2008 and February – 2007.

CHART NO: 8

48
CHART SHOWING MONTHLY RETURNS OF TATA GROWTH FUND –
GROWTH

MONTHLY RETURNS

15

10

5
RETURNS

0
Monthly Return
May

May
Jul

M ar
Mar

Jun

Nov
Fe b

Apr

Aug

Fe b

Apr
June
Sep
Oct

20 08 Dec
J an
Jan

-5
200 7

-10

-15

-20
M ONT HS

TABLE NO: 9

49
TABLE SHOWING MONTHLY RETURNS OF SUNDARAM BNP PARIBAS
GROWTH FUND – GROWTH

Month/Year NAV Monthly

Return
2007 Jan 69.7923
Feb 62.8526 -9.94336
Mar 62.7588 -0.14924
Apr 66.4760 5.922994
May 70.9681 6.757476
Jun 72.5120 2.175484
Jul 76.2717 5.184935
Aug 75.4494 -1.07812
Sep 87.0649 15.39509
Oct 104.0414 19.49867
Nov 106.0243 1.905876
Dec 117.8846 11.1864
2008 Jan 92.9667 -21.1375
Feb 93.4854 0.557942
Mar 80.3063 -14.0975
Apr 88.5268 10.23643
May 86.5095 -2.27874
June 71.8493 -16.9463

INTERPRETATION:

In the SUNDARAM BNP PARIBAS GROWTH FUND – GROWTH, the

monthly return is found to be highest in October, September, December -2007 and in
March – 2008. The lowest return is given in the month of January, June and March –
2008. More over other than these months all has a normal return.

CHART NO: 9

50
CHART SHOWING MONTHLY RETURNS OF SUNDARAM BNP PARIBAS
GROWTH FUND – GROWTH

MON T H L Y R E TU R N S

25
20
15
10
5
RETURNS

0 Monthly Return
Jun
Jul

-5
Oct
Nov
Ap r

Apr
May

Aug

May
June
Mar

Mar
Feb

Sep

F eb
2008 ec
Ja n

Jan
D

-10
2007

-15
-20
-25
MON TH S

TABLE NO: 10

51
 TABLE SHOWING MONTHLY RETURNS OF HDFC EQUITY FUND –
GROWTH

Month/Year NAV Monthly

Return
2007 Jan 151.3890
Feb 141.2280 -6.71185
Mar 142.6020 0.972895
Apr 151.1600 6.001318
May 161.2810 6.695554
Jun 165.3130 2.499984
Jul 172.3250 4.241651
Aug 168.8270 -2.02989
Sep 182.8380 8.299028
Oct 210.3000 15.01985
Nov 206.1760 -1.96101
Dec 223.3240 8.317166
2008 Jan 188.4200 -15.6293
Feb 187.5940 -0.43838
Mar 165.7880 -11.624
Apr 178.1910 7.481241
May 169.6050 -4.81843
June 143.1710 -15.5856

INTERPRETATION:

Taking the behaviour of the monthly returns of HDFC EQUITY FUND –

GROWTH, the monthly return is found to be highest in the month of October,
September, December -2007 and also in April -2008. The lowest return is to be found
in the month of January and June - 2008

CHART NO: 10

52
 CHART SHOWING MONTHLY RETURNS OF HDFC EQUITY FUND –
GROWTH

MON T H LY R E TU R N S

20

15

10

5
RETURNS

0 Monthly Return
Jun
Jul

Nov
Oct
Ap r

Ap r
A ug

June
May

May
Mar

Mar
Feb

Feb
S ep

2008 ec
Jan

Jan

-5
D
2007

-10

-15

-20
MON TH S

TABLE NO: 11

53
 TABLE SHOWING STANDARD DEVIATION (RISK) OF THE FUNDS

FUND NAME RISK

BIRLA 9.98
KOTAK 0.95
SBI 9.99
RELIANCE 7.91
FRANKLIN 5.48
ICICI 7.72
UTI 8.11
TATA 8.87
SUNDARAM 11.16
HDFC 8.75

INTERPRETATION:

The standard deviation is found to be highest in Sundaram BNP Paribas, SBI

Magnum, Birla Sun Life, and Kotak.
The highest standard deviation (Risk) is found to be 11.156.

CHART NO: 11

CHART SHOWING STANDARD DEVIATION (RISK) OF THE FUNDS

54
 RISK LEVEL

0
2
4
6
8
10
12
BI
R
LA
KO
TA
K

R SB
EL I
AN I
FR CE
AN
KL
IN
IC
IC
I

FUNDS
U
TI

55
S U TA
N TA
DA
STANDARD DEVIATION

TABLE NO: 12
AM
H
DF
C
RISK
 TABLE SHOWING SHARPE RATIO

FUND NAME SHARPE RANK

BIRLA -1.58 4
KOTAK -12.06 10
SBI -1.25 2
RELIANCE -1.27 3
FRANKLIN -2.53 9
ICICI -1.91 8
UTI -1.77 6
TATA -1.78 7
SUNDARAM -1.08 1
HDFC -1.74 5

INTERPRETATION:

The evaluation based on Sharpe ratio shows that the risk-adjusted performance
of Kotak and Franklin are very low with high risk. Sundaram ranked first and the
return from the fund is found to be best among other funds. Next to that SBI and
Reliance has a good return. The performance of other funds has normal risk and
returns.

CHART NO: 12

56
 CHART SHOWING SHARPE RATIO

S H A R P E 'S R A T IO

UTI
ICICI
-2

TA TA
SBI

HD FC
BIR LA

KLIN
NCE

ARAM
KOTA

-4
RELIA
FRAN

SUND
-6
RISK

S HA RP E
-8

-10

-12

-14
FUNDS

TABLE NO: 13

TABLE SHOWING TREYNOR’S RATIO

57
 FUND NAME TREYNOR’S RANK

BIRLA -15.89 3
KOTAK -16.32 4
SBI -15.29 2
RELIANCE -17.20 6
FRANKLIN -28.27 10
ICICI -23.36 9
UTI -17.85 7
TATA -17.94 8
SUNDARAM -12.63 1
HDFC -16.58 5

INTERPRETATION:

The evaluation based on the Treynor’s ratio shows a negative performance in

all the funds. From this Sundaram and SBI shows lowest risk level and has the highest
returns. The lowest performance is seen in the funds such as Franklin and ICICI. It
has the highest risk rate.

CHART NO: 13

58
 CHART SHOWING TREYNOR’S RATIO

T REYNO R'S RAT IO

I
I

UT
KO A

N D TA
IC
K

FC
RE SB

IN
FR CE

AM
RL

TA

-5

IC

SU T A
KL

HD
AN

AR
BI

AN
LI

-10
VALUES

-15 TREYNOR

-20

-25

-30
FUN DS

CHAPTER – 5

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 FINDINGS, SUGGESTIONS AND CONCLUSIONS

5.1 FINDINGS

Price fluctuation is a statistical measure of the tendency of market to rise or fall

sharply within a short period of time. Generally higher the fluctuations of a fund,
greater are its price swings. A larger fluctuation means returns fluctuate in a wide
range.

• Taking the behaviour of returns, it is studied that Sundaram BNP Paribas,

Kotak, UTI and SBI Magnum have given higher returns than other funds
The average highest return is found to be 0.776

• The standard deviation is found to be highest in Sundaram BNP Paribas, SBI

Magnum, Birla Sun Life, Kotak
The highest standard deviation (risk) is found to be 11.156

• The least beta value is found for Franklin FMCG Fund – Growth with 0.49
and ICICI Prudential with 0.63 thus indicating less risk and lower fluctuations

• Taking the behaviour of the monthly returns of the selected funds the returns
are found to be highest in the months of October, September, December-2007
and in January-2008

• From the monthly returns of the funds, the lowest returns are mostly found in
the months of June, January, march -2008 and also in February -2007

• Taking the overall risk and returns of the selected companies Sundaram has
the highest return with lowest risk

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• The evaluation based on Sharpe ratio shows that the risk-adjusted performance
of Kotak and Franklin are very low i.e. with high risk

• Sundaram BNP Paribas and SBI Magnum has showed a increased

performance based on Sharpe ratio

• In the case of Treynor’s ratio a negative performance is shown in all the funds
due to larger fluctuations

• Sundaram BNP Paribas and SBI Magnum shows a low risk performance based
on the Treynor’s ratio

• The lowest performance is shown in Franklin and ICICI Prudential in the case
of Treynor’s ratio

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SUGGESTIONS

For the successful investment, the investor should focus on the following

• Investor should understand the basic elements of mutual fund investing and
their fund affect on the potential value of the investments over the years.

• Investors should fix their objectives; should fix their risk level and have to
assess the risk associated with the different funds; this would help to select the
fund that meets their needs.

• Investors should know about Trustees of the AMC, sponsor companies, its
policies, any pending legal issues with SEBI or AMFI. All these information
can be obtained from the websites, fund prospectus, etc.

• Investors should know about the past performance of the various funds.

• Investors should consider the tax implications.

• As the stock market have direct impact on Mutual Funds, knowledge of share
market activities and share price movement is important to effectively manage
the investments.

• In the field of management, dynamism and well-timed decisions are a must. A

delayed decision even for a day reduces the returns for the fund and may
increase the cost.

• The investors should carefully manage and plan the amount which they will be
investing in the market.

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5.3 CONCLUSION

Form the investor’s point of view, it is always important to look at the funds, which
are ranked, as out-performers are able to consistently do so. Every time a ranking of
the mutual fund is published, it is found that fund appears in varying orders, with no
clear consistent winning or losing fund. In the mutual fund marketing, the past
performance is used as an important tool. Investors have to look for consistency,
though it is known that new investments flow into top performing funds, based on
performance ranking. The quality of the fund managers also plays a vital part in
deciding the performance of the fund.

In the short history of mutual funds in the country, last two year was one of the best
ever. The stock market staged a smart rally on the strength of attractive valuations,
strong economic growth, encouraging corporate results and foreign funds. An investor
can succeed in his investments only when he is able to select the right fund. The
investor should keenly watch the situations like market price, economy, company
progress, returns, and the risk involved in a fund before taking particular decision.

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 REFERENCES

1. Bhalla .V.K., “Investment Management”, Security Analysis and Portfolio

Management, S.Chand & co Ltd, New Delhi, 2nd Edition, 1997

2. Jayadev.M “Investment Policy and Performance of Mutual Funds”,

Kanishka Publishers, New Delhi

3. Kothari.C.R., “Research Methods and Techniques”, Wishwa Prakashan

Publishing, New Delhi, 1990

4. Punithavathi Pandian, “Security Analysis and Portfolio Management”,

Vikas Publishing House Pvt. Ltd.,

WEBSITES

1. www.amfi.com
2. www.mutualfundsindia.com
3. www.indiainfoline.com

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