Comparative Study on Mutual Study Main

THINK INVESTMENTS. THINK KOTAK

FOREWORD

Investments goals vary from person to person. While somebody wants

security,others might give more weightage to returns alone. Somebody else might want

to plan for his child's education while somebody might be saving for the proverbial

rainy day or even life after retirement. With objectives defying any range , it is obvious

that the products required will vary as well.

Indian Mutual Funds industry offers a plethora of schemes and serves broadly all type

of investors. The range of products includes equity funds, debt, liquid, gilt and balanced

funds. There are also funds meant exclusively for young and old, small and large

investors. Moreover, the setup of a legal structure, which has enough teeth to safeguard

investors interests, ensures that the investors are not cheated out of their hard earned

money. All in all, benefits provided by them cut across the boundaries of investor

category and thus create for them, a universal appeal.

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Investors of all categories could choose to invest on their own in multiple options but

opt for Mutual Funds for the sole reason that all benefits come in a package.The Mutual

Fund industry is having its hands full to cater to various needs of the investors by

coming up with new plans, schemes and options with respect to rate of returns,

dividend frequency and liquidity.

In view of the growing competition in the Mutual Funds industry, it was felt necessary

to study the investors orientation towards Mutual Funds i.e. their pattern of risk apetite

and preferences in various schemes, plans and options in order to provide a better

service,

The study is an attempt in that direction.

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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

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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.

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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 investor’s 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.

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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.

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STRUCTURE OF A MUTUAL FUND

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Sponsor

Mutual fundTrustees

ASSET MANAGEMENT COMPANY

Custodian Registrar


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.

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NEED OF THE STUDY

The project’s idea is to project Mutual Fund as a better avenue for investment on a

long-term 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 today’s 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

could fruitfully convert a pittance into great penny by wisely investing into the right

scheme according to his risk taking abilities.

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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 Sharpe’s Ratio, Treynor’s 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 Sharpe’s ratio, Treynor’s ratio, Co-

efficient, 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.

5. To understand the recent trends in Mutual Funds world.

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TYPES OF MUTUAL FUNDS

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 closed–end 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.

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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.

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 SEBI’s approval and authorization to these schemes.

Marketing the schemes for public subscription.

Seeking RBI approval in case NRI’s 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.

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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

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 sub-

custodian for stock Holding Corporation of India for domestic schemes of UTI,

BOI MF, LIC MF, etc

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Fee structure:-

Custodian charges range between 0.15% to 0.20% on the net value of the

customer’s 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

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

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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. AMC’s shall have a minimum Net worth of Rs. 5 crores;

3. AMC’s 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;

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.

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Investment norms:-

1. No mutual fund, under all its schemes can own more than five percent of any

company’s 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 company’s 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

long-term 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.

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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.

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.

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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

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 10-

25% in equity to boost the scheme’s returns. MIP schemes are ideal for investors who

seek slightly higher return that pure long-term debt schemes at marginally higher risk.

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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

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.

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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 :

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:

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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: 57% 57 57,000

State Bank of India 15% 15 15,000

Infosys Technologies 12% 12 12,000

ABB 10% 10 10,000

Reliance Industries 9% 9 9,000

MICO 7% 7 7,000

Tata Power 4% 4 4,000

DEBT: 43% 43 43,000

Govt. Securities 20% 20 20,000

Company Debentures 10% 10 10,000

Institution Bonds 9% 9 9,000

Money Market 4% 4 4,000

Total 100% 100 1,00,000

Thus ‘Asset Allocation’ is allocating your investments in to different investment

options depending on your risk profile and return expectations.

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DIVERSIFICATION

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.

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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.

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 manager’s 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 investor’s 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.

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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 don’t 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.

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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 company’s equity resulting in proportionate fall in the

NAV of the Mutual Fund scheme, which has invested in the equity of such a company.

5) ECONOMIC RISK

Economic risk involves uncertainty in the economy, which, in turn, can have an adverse

effect on a company’s 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.

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Chapter-II PROFILE

(a) INDUSTRY PROFILE

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.

At the end of 1993, the Mutual Fund industry had assets under management of

Rs.47,004 crores.

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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.

28


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 AMC’s and this

fame is directly linked to their superior stock selection skills.

For Mutual Funds to grow, AMC’s 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 AMC’s.

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

29


associated with a fund, in a general, can be defined as Variability or fluctuations in the

returns generated 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-à-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:

The Treynor’Measure

The Sharpe Measure

Jenson Model

Fama Model

30


1) 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.

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,

31


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.

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)

32


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.

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)

33


Where,


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

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.

34


(B) 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

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

35


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.

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 Group’s 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

36


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 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.

37


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.

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 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.

38

http://www.kotakmahindra.com/

http://www.kotakmahindra.com/

http://www.gs.com/


(III) RESEARCH METHODOLOGY& OBJECTIVES

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.

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.

The comparison between these schemes is made based on the following factors

A) Sharpe’s Ratio

B) Treynor’s Ratio

C) (Beta) co-efficient.

D) Returns

39


A) The Sharpe’s 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.

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,


Rf is risk free rate of return,

and Bi is beta of the fund.

40


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.

C) (Beta) Co-efficient :-

Systematic risk is measured in terms of Beta, which represents fluctuations in the NAV

of the fund vis-à-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-à-vis one another in a better way.

(Beta) is calculated as N ( XY) – X Y

N (X2) – (X) 2

D) Returns :- Returns for the last one-year of different schemes are taken for the

comparison and analysis part.

41


IV 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.

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.

42


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.

43


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

44


FRANKLIN INDIA FLEXI CAP EQUITY FUND

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

45


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

]

46


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.

KOTAK OPPORTUNITIES FUND PERFORMANCE:-

YEAR Rp Rm Rf(Rm-Rf)

(Rp-Rf) X2 XY

(X -Xbar) D2

X Y D

LAST 1 MONTH 5.92 2.84 4.25 -1.41 1.67 1.98 -2.35 -20.11 404.71

LAST 3 MONTHS 24.61 13.11 4.25 8.86 20.36 78.49 180.38 -9.847 96.97

LAST 6 MONTHS 34.42 30.14 4.25 25.89 30.17 670.29 781.10 25.89 670.29

Since Inception 78.17 45.99 4.5 41.49 73.67 1721.42 3056.56 22.78 519.04

TOTAL 74.83 125.87 2472.19 4015.70 18.70 1691.02

Where,

Rp - Portfolio Return- Kotak opportunities

Rm - Market Return-Fund’s bench mark- S& P CNX 500

Rf - Risk free rate of return.

47


CALCULATION OF ARTHMETIC MEAN :-

= X / N

= 74.83/ 4

= 18.70

CALCULATION OF STANDARD DEVIATION (σ ) :-

= √ (X-Xbar) 2 / N

= √1691.02/4

=√422.75

=20.56

CALCULATION OF BETA CO-EFFICIENT:-

= N ( XY) – X Y

N (X2) – (X) 2

= 4(5208.85) – (90.35)(126.21)

4(4117.22) – (90.35) 2

= 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 SHARPE’S RATIO:-

= Rp-Rf / s

=125.87 /20.56

= 6.12

CALCULATION OF TREYNOR’S RATIO :-

= Rp-Rf /

= 125.87/1.54

= 87.73/100

48


=0.8173

GRAPH SHOWING KOTAK OPPORTUNITIES FUND PERFORMANCE:-

KOTAK OPPORTUNITIES

5.92

24.61

34.42

78.17

2.84

13.11

30.14

45.99

4.25 4.25 4.25 4.5

LAST 1 MONTH LAST 3 MONTHS LAST 6 MONTHS SINCE INCEPTION 09SEPTEMBER-2004

RETU

RNS

KOTAK OPPORTUNITIES S& P CNX-500 Rf

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



Last VI Months : It reveals that Kotak Opportunities Returns are 34.42



Since Inception : It reveals that Kotak Opportunities Returns are 78.17,


49


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 : Fund Manager: (Mr.Dhawal Mehta)

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:-


(Rp-Rf) X2 XY

(X -Xbar) D2

X Y D LAST 1MONTH 1.15 3.72 4.25 -0.53 -3.1 0.2809 1.643

-20.7925 432.3280563

LAST 3 MONTHS 16.46 13.82 4.25 9.57 12.21 91.5849 116.8497

-10.6925 114.3295563

LAST 6MONTHS 35.6 31.1 4.25 26.85 31.35 720.9225 841.7475 26.85 720.9225Since Inception 69.64 49.66 4.5 45.16 65.14 2039.4256 2941.7224 24.8975 619.8855063

TOTAL 81.05 105.6 2852.2139 3901.9626 20.2625 1887.465619

Where,

Rp - Portfolio Return-HDFC core & Satellite Fund

Rm - Market Return-Fund’s benchmark-BSE-200


CALCULATION OF ARTHMETIC MEAN:-

= X / N

= 81.05/4

= 20.26

CALCULATION OF STANDARD DEVIATION (σ) :-

= √ (X-Xbar)2 / N

= √1887.4/4

50


= √471.75

=21.71

CALCULATION OF BETA CO-EFFICIENT:-

= N ( XY) – X Y

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


=Rp-Rf-/ σ

=105.6/21.71

=4.86


= Rp-Rf/

= 105.6/1.45

= 72.82/100

=0.7282

51


GRAPH SHOWING HDFC CORE& SATELLITE FUND PERFORMANCE:-

HDFC Core & Satellite Fund Performance

1.15

16.46

35.6

69.64

3.72

13.82

31.1

49.66

4.25 4.25 4.25 4.5

0

10

20

30

40

50

60

70

80

LAST 1 MONTH LAST 3 MONTHS LAST 6 MONTHS SINCE INCEPTION 17 SEPTEMBER-2004

RETU

RNS

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,

52


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:

Fund Managers: Mr. Sunil Singhania & Mr.Sailesh Raj Bhan

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:-


(Rp-Rf) X2 XY

(X -Xbar) D2

X Y D

LAST 1 MONTH 2.4 3.72 4.25 -0.53 -1.85 0.2809 0.9805 -20.935 438.274225

LAST 3 MONTHS 16.22 13.82 4.25 9.57 11.97 91.5849 114.5529 9.57 91.5849

LAST 6 MONTHS 29.46 31.1 4.25 26.85 25.21 720.9225 676.8885 6.445 41.538025

Since Inception 54.99 50.23 4.5 45.73 50.49 2091.2329 2308.9077 45.73 2091.2329

TOTAL 81.62 85.82 2904.0212 3101.3296 40.81 2662.63005

Where,

Rp - Portfolio Return-Reliance equity opportunities fund

53


Rm - Market Return-Fund’s Benchmark BSE-500



= X / N

= 81.62/ 4

= 20.40


= √ (X-Xbar)2 / N

= √2662.63/4

= √665.65

=25.80

CALCULATION OF BETA CO-EFFICIENT;-

= N ( XY) – X Y

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


= Rp-Rf/ σ

=85.82

25.23

=7.29


= Rp-Rf/

54


= 85.82/1.47

= 37.32/100

=0.37

GRAPH SHOWING RELIANCE EQUITY OPPORTUNITIES FUND

PERFORMANCE:-

RELIANCE EQUITY OPPORTUNITIES FUND

2.4

16.22

29.46

54.99

3.72

13.82

31.1

50.23

4.25 4.25 4.25 4.5

LAST 1MONTH LAST 3 MONTHS LAST 6 MONTHS SINCE INCEPTION 31 MARCH2005

RETU

RNS

RELIANCE BSE-100 Rf

Interpretation:-

Last I Month : It reveals that Reliance Equity Opportunities Fund Returns are

2.4 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 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%)

55


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.

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:-

56



(Rp-Rf) X2 XY

(X -Xbar) D2

X Y D

LAST 1MONTH 3.47 3.72 4.25 -0.53-

0.78 0.281 0.4134-

20.935 438.274225

LAST 3 MONTHS 16.49 13.82 4.25 9.57 12.2 91.58 117.1368 10.1 102.01

LAST 6 MONTHS 36.58 31.1 4.25 26.9 32.3 720.9 868.0605 17.28 298.5984SINCE INCEPTION March 2, 2005 61.8 50.23 4.5 45.7 57.3 2091 2620.329 18.88 356.4544

TOTAL 81.6 101 2904 3605.9397 25.325 1195.337025

Where,

Rp - Portfolio Return-Franklin flexi cap fund

Rm - Market Return-Fund’s Benchmarks S&P CNX-500



= X / N

= 81.6/ 4

= 20.4


= √ (X-Xbar)2 / N

= √1195/4

= √298.75

= 17.28


= N ( XY) – X Y

N (X2) – (X) 2

= 4(3605) – (81.6)(101)

4(2904) – (2904) 2

57


= 14420-8241.6

11616-8433

=6178.4

3183

=1.94


= Rp-Rf/ σ

=101

17.28

=5.84


= Rp-Rf/

=101/1.94

= 52.06/100 or 0.52

GRAPH SHOWING FRANKLIN INDIA FLEXI CAP FUND PERFORMANCE:-

Franklin india flexi cap fund

3.47

16.49

36.58

61.8

3.72

13.82

31.1

50.23

4.25 4.25 4.25 4.5

0

10

20

30

40

50

60

70

LAST 1MONTH LAST 3 MONTHS LAST 6 MONTHS SINCE INCEPTION March 2, 2005

RETU

RNS

Rp Rm Rf

Interpretation:

58


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%)

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


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:-


(Rp-Rf) X2 XY

(X -Xbar) D2

59


X Y DLAST 1 MONTH -0.57 2.81 4.25 -1.44 -4.82 2.0736 6.9408 -19.695 387.893025LAST 3 MONTHS 12.45 13.45 4.25 9.2 8.2 84.64 75.44 9.15 83.7225LAST 6 MONTHS 27.67 28.13 4.25 23.88 23.42 570.2544 559.2696 13.67 186.8689Since Inception 48.62 45.88 4.5 41.38 44.12 1712.3044 1825.6856 11.58 134.0964

TOTAL 73.02 70.92 2369.2724 2467.336 14.705 792.580825

Where,

Rp - Portfolio Return-

Rm - Market Return,



= X / N

= 73.02/ 4

= 18.25


= √ (X-Xbar)2 / N

= √792.58/4

= √198.14

=14.07


= N ( XY) – X Y

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

60


4145.18

=1.13


= Rp-Rf/ σ

=70.92

14.07

=5.04

CALCULATION OF TREYNOR’S RATIO : -

= Rp-Rf/

=70.92/1.13

= 62.76/100

=0.62

GRAPH SHOWING HSBC INDIA OPPORTUNITIES FUND

PEFORMANCE:-

HSBC INDIA OPPORTUNITIES

-0.57

12.45

27.67

48.62

2.81

13.45

28.13

45.88

4.25 4.25 4.25 4.5

-10

0

10

20

30

40

50

60

1/1/1900 1/2/1900 1/3/1900 1/4/1900 1/5/1900 1/6/1900

RETU

RNS

HSBC BSE-500 Rf

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%).

61


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%).

Last VI Months : It reveals that that HSBC India Opportunities Fund Returns

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%)

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

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

OPPORT-

UNITIES

FUND

Monthly return’s 5.92 3.47 2.4 1.15 -0.57

Sharpe’s Ratio 6.12 5.84 7.29 4.86 5.04

Treynor’s Ratio 0.81 0.52 0.37 0.72 0.62

Co-efficient () 1.54 1.94 1.09 1.45 1.13

62


Std.Deviation (s) 20.56 17.28 25.80 21.71 14.07

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.

63


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 AMC’s

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.



In Franklin the returns are more compare to other Three AMC’s (HDFC,

RELIANCE, HSBC)

Reliance Equity Opportunities Growth Fund:




In Reliance Equity Opportunities the returns are medium compare to other AMC’s

64


HDFC Core & Satellite Fund:



In HDFC the returns are low compare to other AMC’s

It is a value based fund

It is a low risky fund

HSBC India Opportunities Fund:-



In HSBC the returns are lesser than other AMC’s

It is a low risky fund

LIMITATIONS OF THE STUDY

65


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.

12BIBLIOGRAPHY

Layman’s Guide to Mutual Funds By “OUTLOOK”

Mutual Funds Primer By “ECONOMIC TIMES”

www.amfiindia.com

www.kotakmutual.com

www.reliancemutual.com

66

http://www.reliancemutual.com/

http://www.hdfc.com/

http://www.amfiindia.com/


ANNEXURE’S

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

67


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 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.

68


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.

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.

69


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.

All Mutual Fund Schemes should be registered with SEBI.

Mutual Funds should distribute minimum of 90% of their profits among the investors.

70


71