Comparative analysis of Mutual Funds

PROJECT REPORT ON COMPARATIVE ANALYSIS OF MUTUAL FUNDS AT RELIGARE FINANCIAL SERVICES Ltd. Submitted by ARCHANA.K (H.T-NO.213309672059) Submitted to Osmania University In Partial fulfillment for award of the degree of MASTER OF BUSINESS ADMINISTRATION (FINANCE) (2009-2011) Under the guidance of

Ms. Seema Nazneen (Assistant professor)

LALITHA DEGREE & P.G COLLEGE

( Affiliated Osmania University) HYDERABAD.

500 007.

Comparative analysis of Mutual Funds

DECLARATION

I hereby declare that this Project Report titled COMARATIVE ANALYSIS OF MUTUAL FUNDS submitted by me to the Department of Business Management, O.U., Hyderabad, is a bonafide work undertaken by me and it is not submitted to any other University or Institution for the award of any degree diploma / certificate or published any time before.

Name and Address of the Student

Signature of the Student

II

Comparative analysis of Mutual Funds

CERTIFICATION

This is to certify that the Project Report title COMPARATIVE ANALYSIS OF MUTUAL FUNDS submitted in partial fulfillment for the award of MBA Programme of Department of Business Management,O.U. Hyderabad, was carried out by ARCHANA.K H.TNo 213309672059 under my guidance. This has not been submitted to any other University or Institution for the award of any degree/diploma/certificate.

Name and address of the Guide

Signature of the Guide

ABSTRACT
The Indian economy is enjoying aIII boom period. Every individual wants to cash in on this. There are various investment options available to the individual. The

Comparative analysis of Mutual Funds options could be a bank deposit, a post office account, investment in shares, real estate, bullions etc. with so many options available, it is but obvious that one faces a dilemma as to which investment option; one should go for and also at the same time having a diversified portfolio. A mutual fund is an ideal investment option to solve this dilemma. A mutual fund is a pooled investment where like-minded investors come together and invest with a common objective. Thus the funds are pooled from the various investors who are geographically spread. These funds are collected and managed by professionals. Information of the markets is a key factor, which is not widely available to the common man at the precise moment. The professionals solve this problem. Based on the investment objective, the funds collected are invested in various marketable securities, in order to have a diversified portfolio and minimize the risk. The objective of this study is to do a Comparative study on Mutual Funds schemes so as to assist the organization in its vision to give a personalized advice regarding the appropriate Mutual Fund scheme to its clients based on their risk profile and expected returns determined through the administration and analysis of the questionnaire. This report deals with the structu re and regulatory norms of the mutual fund industry and studies the classification of funds into Equity, Balanced and Debt schemes along with Sharpe and Trey nor Ratios to understand risk and returns of the funds. Market Risk associated with each mutual fund scheme has also been calculated by using Beta Coefficient (Systematic Risk) of each of the mutual fund scheme when compared with the Risk of Market Portfolio (i.e. the Benchmark Index) and by using Treynors Ratio. So as to determine the actual risk associated with each of the schemes. Based on this risk and return analysis mutual funds schemes have been categorized into high risk high return, moderate risk moderate return, low risk low return categories.

ACKNOWLEDGEMENT

IV

Comparative analysis of Mutual Funds I gladly take this opportunity to express my deep sense of gratitude to all those who have made it feasible for me to accomplish this report work. I sincerely and honestly acknowledge the grace and needful support of Prof N.GOPALREDDY, The principal, to fulfill this work successfully. My sincere thanks to our H.O.D Ms.G.PRASHANTHI for her encouragement. It is my primary and pleasant duty to express my humble thanks and deep debt of gratitude to my project guidem Ms. Seema Nazneen for her splendid and exemplary guidance. I also thanks to the staff for providing me all help and facilities in carrying out my project and making feel at home. I would like to owe my sincere appreciation to all the Employees of RELIGARE FINANCIAL SERVICES Ltd, who gave me the opportunity for doing this project work, provided a friendly environment and supported through out my project.

Finally, I whole heartedly conveys my thanks to my parents and friends for their unforgettable encouragement in the completion of this work.

ARCHANA.K (21330967205 9)

CONTENTS
V

S. No List of Tables : List of Figures:

Chapter

Comparative analysis of Mutual Funds Page No (i) (ii) 1-5

CHAPTER-1
INTRODUCTION OBJECTIVES OF THE STUDY NEED OF THE STUDY RESEARCH METHODOLOGY SCOPE OF THE STUDY LIMITATIONS

CHAPTER-2
REVIEW OF LITERATURE

6-28

CHAPTER-3
COMPANY PROFILE

29-40

CHAPTER-4

41-61 DATA ANALYSIS & INTERPRETATION

CHAPTER-5
FIDINGS & SUGGESTIONS

62-64

CHAPTER-6
BIBLIOGRAPHY ANNEXURE

65-66 67-68

VI

Comparative analysis of Mutual Funds

LIST OF TABLES

S.No No

Name of Table

Page

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Risk return grid Rupee cost averaging Company value position Reliance growth fund ING Visya Equity fund FT India balanced fund SBI Magnum MIP fund HSBC Cash fund HDFC Short term plan fund All Mutual Funds Schemes

21 25 39 47 49 51 53 55 57 60

Comparative analysis of Mutual Funds

LIST OF FIGURES

S.No
1.

Name of the figure Mutual fund asset percentage working of mutual funds Structure of Mutual Funds Organization of mutual funds Types of mutual fund schemes Investment objective schemes Types of risks Process of company-I Process of company-II Company Service Offerings Reliance Fund Growth ING Visya Equity Fund Growth FT India balanced growth Fund SBI Magnum MIP Fund Growth HSBC Fund growth HDFC Short Term Plan Growth

Page No 08 09 09 11 12 14 19 33 34 40 48 50 52 54 56 58

2. 3.
4. 5. 6.

7.
8.

9. 10. 11.
12. 13. 14. 15. 16.

ii

Comparative analysis of Mutual Funds

CHAPTER-1

Introduction Objectives of study Need of the study Research & Methodology Scope of the study limitations

Comparative analysis of Mutual Funds

INTRODUCTION OF MUTUAL FUNDS Mutual Funds are professionally managed pool of money from a group of investors. A Mutual fund manager invests your funds in securities including stocks and bonds, Money Market instruments or some combination and decides the best time to buy and sell. By pooling your resources with other investors in Mutual Funds, you can diversify even a small investment over a wide spectrum. With the emergence of the capital market at the center stage of the Indian financial system from its marginal role a decade earlier, the Indian capital market also witnessed during the same period a significant institutional development in the form of diversified structure of Mutual Funds. A Mutual fund is a special type of investment institution which acts as an investment conduit. It pools the savings, particularly of the relatively small investors, and invests them in a well-diversified portfolio of sound investment. As an investment intermediary, it offers a variety of services/advantages to the relatively small investors who on their own cannot successfully construct and manage investment portfolio mainly due to the small size of their funds, lack of expertise and experience, and so on. These services include the diversification of portfolio, expertise of the professional management, liquidity of investment, tax shelter, reduced risk and reduced cost. Mutual fund is the most suitable investment mode for the common man as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. Any body with an investible surplus of as little as a few thousand rupees can invest in mutual funds. Each Mutual fund scheme has a defined investment objective and strategy. The most important trend in the Mutual Fund industry is the aggressive expansion of the foreign owned Mutual Fund companies and the decline of the companies floated by nationalized banks and smaller private sector players. Funds issue and redeem shares on demand at the fund's net asset value (NAV). Mutual fund management fees typically range between 0.5% and 2% of assets per year, exchange fees and other administrative charges also apply.

Comparative analysis of Mutual Funds

According to SEBI - Mutual Fund is defined as - A fund established in the form of a trust to raise moneys through the sale of units to the public or a section of the public under one or more schemes for investing in securities, including money market instruments.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 the offer document. NEED OF THE STUDY The Study presents basic concept and trends in the Mutual fund Industry. The Study enables a fresh investor to understand easily the various benefits offered by Mutual Funds and their working in the Market. The Study provides a clear idea on growth of Mutual Funds from past to the present scenario and its scope in the future. At the end of the study, one can conclude what type of investments would be ideal with reference to the risk taking abilities of the investors and which type of investments would suit their financial needs and goals. OBJECTIVES OF THE STUDY To project mutual fund as the productive avenue for investing activities. To show the wide range of investment option available in Mutual Funds by explaining its various schemes To compare & analyze the schemes based on sharpes Ratio,Treynor Ratio, Beta coefficient, Returns& show which scheme is best for investor based on His risk profile. To help the investor in selecting the scheme with the help of risk return factor.

RESEARCH METHODOLOGY All information related to the topic needs to be carefully scrutinized to avoid the risk of biased analysis. Having once identified which information is relevant and need to be collected, we will have to define how this will be done.

Comparative analysis of Mutual Funds

The Method employed in the investigation depends on the purpose and scope of the study. Primary Data: Primary Data as expressed above was collected through RELIGARE Ltd in course of interviewing through personal interaction. Secondary Data: Secondary data can be defined as - data collected by some one else for purpose other than solving the problem being investigated. Secondary data is collected from external sources which include information from published material of SEBI and some of the information is collected online. The data sources also include various books, magazines, newspapers, websites etc. The organization profile is collected from the Hyderabad Stock Exchange. SCOPE OF THE STUDY needs. The Indian corporate sector is facing the challenge in commensuration of the In this scenario of fluctuating capital markets, the risk level never pays off with The based on the objective, the study has covered two aspects of the Categorization of the various mutual fund schemes into three risk-return Risk profiling of the clients so as to categorize them into high, moderate and Thus, in this scenario, we will help them in selecting the appropriate Mutual

risk involved with the expected level of returns. the returns. business these are: categories on the basis of risk and returns associated with them low risk taking category Fund Schemes so as to minimize their risk and maximize returns as per their individual

Comparative analysis of Mutual Funds

LIMITATIONS

The study is conducted in short period due to which the study may not give aspects of MF schemes The study is limited only to the analysis of different schemes & its suitability to different investors according to their risk taking ability The study is based on secondary data available from monthly fact sheets, web sides, offer documents, magazines & news papers etc.as primary data was not accessible

Study of all the scheme was not possible due to time constrain

Comparative analysis of Mutual Funds

CHAPTER-2

REVIEW OF LITERATURE

MUTUAL FUNDS DEFINITION

Comparative analysis of Mutual Funds A Mutual Fund is a financial intermediary which acts as an instrument of investment. It collects the funds from different investors to a common pool of investible funds and then invest these funds in a wide variety of investment opportunities in diversified portfolios of securities such as Money Markets instrument, corporate and government bonds and equity shares of joint stock companies. The investment may be diversified to spread risk and to ensure good return to the investors. The Mutual Funds employ professional, experts and investment consultants to conduct investment analysis and then to select the portfolio of securities where the funds are to be invested. Each investor owns units, which represent a portion of the holdings of the fund. You can make money from a MF in three ways:1. Income is earned from dividends on stocks and interest on bonds. A Fund pays out nearly all income it receives over the year to fund owners in the form of a distribution. 2. If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in the form of dividends. 3. If fund holdings increase in price but are not sold by the fund manager, the funds shares increase in price. You can then sell your Mutual Fund units for a profit. Funds will also usually give you a choice either to receive a cheque for dividends or to re-invest the same and get more units. GROWTH AND HISTORY OF MUTUAL FUNDS The First investment trust (now called Mutual Fund) began in the Netherlands in the early 1800s. The first in the U.S. was the New York Stock Trust, which started in 1889. Since Boston was the economic center of the nation until the turn of the century, the majority of funds started thereFidelity, Pioneer and Putnum Fund, to name a few. A Fund that was comprised of both stocks and bonds (the Wellington Fund) started in 1928 and is still part of Vanguard. As the 20's crashed to a close, there were 10 Mutual Funds in the nation.

Foundation for the Mutual Fund in India was laid by the parliament in 1963. With the enactment of Unit Trust of India (UTI) Act the then Finance Minister Mr. T.T. 7 Krishnamacharya who initiated the act made it clear to the parliament act UTI would

Comparative analysis of Mutual Funds provide an opportunity for the middle and lower income groups to acquire property in the form of share. Thus UTI came out with the mission of catering to the needs of individuals investors whose means are small, with its maiden fund, an open ended fund in 1964. Distribution of Worldwide Mutual Fund Assets by Region, 2008 (Percentage of Total Assets)

Figure 2.1

At present, there are 20 stock exchanges recognized under the Securities Contracts (Regulation) Act, 1956. These recognized stock exchanges mobilize and direct the flow of savings of the general public into productive channels of investment.) . According the latest statistics the market capitalization (assets) of Mutual Funds in India is amounting to Rs. 3, 00,000 Crores.

FIGURE SHOWING THE WORKING OF MUTUAL FUND 8

Comparative analysis of Mutual Funds

Figure 2.2 STRUCTURE AND CONSTITUENTS OF FUND

MUTUAL FUND

Sponsor
SPONSOR

Trustee

AMC

Custodian

Establishes the MUTUAL FUND Need to have sound financial track record. Appoints TRUSTEES. Appoints Asset Management Company. Must contribute 40% of the net worth of the AMC. Sometimes this power is given by the sponsor to the trustees through the trust deed. At least 50% of directors on the board of Asset Management Company should be independent of the sponsor.

Comparative analysis of Mutual Funds Asset Management Company shall not deal with any broker or firm associated with sponsor beyond 5% of daily gross business of the Mutual Fund. All securities transactions of the Asset Management Company with its associates should be disclosed. TRUSTEE Manages the Mutual Fund and look after the operation of the appointed AMC. The investments are held by the Trustees, in a fiduciary responsibility. Trustees approve each Mutual Fund Scheme floated by AMC. Furnish report to SEBI on half yearly basis on AMC and Fund Functioning. ASSET MANAGEMENT COMPANY AMC acts as investment manager of the trust under the board supervision and direction of the trustees. AMC floats the different Mutual Fund schemes. Submits report to the Trustees on quarterly basis, mentioning activity and compliance factor. AMC is responsible to the trustees. AMC fees have a ceiling, decided by SEBI. Should have a net worth of at least Rs.10 crores at all the times. CUSTODIAN Appointed by board of trustees for safekeeping of securities. Its an entity independent of sponsors. SEBI regulates the securities market in India. According to SEBI every Mutual Fund require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors of AMC must be independent. All Mutual Fund are required to be registered with SEBI before they launch any Scheme.

10

Comparative analysis of Mutual Funds ORGANISATION OF MUTUAL FUND

Figure 2.4 CHARACTERISTICS OF MUTUAL FUNDS 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. Mutual funds are trusts or registered associations managed by investment professionals and other service providers, who earn a fee for their services from the fund. The pools of the funds are invested in a portfolio of marketable investments (Shares and Securities). The value of the portfolio is updated everyday. Mutual funds collect money from small investors and in return, they will issue a certificate in units. The investors share in the fund is denoted by UNITS". The value of the units changes with the change in the portfolios value every day. The profits of investments will be distributed to the unit holders. The unit holders can sell their units in the open market at Net Asset Value (NAV). NET ASSET VALUE (NAV) Mutual Funds invest the money collected from the investors in securities markets. In simple words, Net Asset Value is the market value of the securities scheme also varies on day to day basis. The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on any particular date. The performance of a particular scheme of a Mutual Fund is denoted by Net Asset Value.

11

Comparative analysis of Mutual Funds For example; if the market value of securities of a MF Scheme is Rs. 200 lakhs and the Mutual Fund has issued 10 lakhs units of Rs. 10 each to the investors, then the NAV per unit of the fund is Rs. 20. NAV is required to be disclosed by the MF on a regular basis daily or weekly depending on the type of scheme.

NAV = Market value of the funds investments + Receivables + Accrued Income Liabilities Accrued Expenses Number of Outstanding units SCHEMES OF MUTUAL FUNDS Mutual fund schemes are usually open-ended (Perpetually open for investors and redemption) or close-ended (with a fixed term). A Mutual Fund scheme issues units that are normally priced at Rs.10/- during the initial offer. The number of units you own against the total number of units issued by a Mutual Fund scheme determines your share in the profits or losses in the scheme. TYPES OF MUTUAL FUND SCHEMES The Mutual Funds can be classified under the following types: ACCORDING TO STRUCTURE

STRUCTURE

OPEN-ENDED SCHEME

CLOSED-ENDED SCHEME

INTERVAL SCHEME

12

Comparative analysis of Mutual Funds OPEN - ENDED SCHEME An open-ended scheme is a scheme in which an investor can buy and sell units on a daily basis. The scheme has a perpetual existence and flexible, ever changing corpus. Open-Ended schemes do not have a fixed maturity period. The investors are free to buy and sell any number of units, at any point of time, at prices that are linked to the NAV of the units. In these schemes the investor can invest and disinvest any amount, any time after a short initial lock in period. This scheme gives investors with instant liquidity and fund announces sale and repurchase price from time to time. The units can be bought from and sold to any Mutual Fund. Advantages of Open-ended funds over Close-ended funds Any time Entry Option. This provides ready liquidity to the investors and avoids reliance on transfer deeds, signature verifications and bad deliveries. Allows to enter the fund at any time and even to invest at regular intervals. Any time Exit Option CLOSE ENDED SCHEME A Close-ended scheme has a stipulated maturity period. E.g. 5-7 years. A Closeended scheme is one in which the subscription period for the Mutual Fund remains open only for a specific period, called the redemption period. At the end of this period, the entire corpus is disinvested and the proceeds distributed to unit holders. After final distribution the scheme ceases to exist. Such schemes can be rolled over by approval of unit holders. Reasons for fluctuations in NAV Investors doubts about the abilities of the funds management. Lack of sales effort (Brokers earn less commission on closed end schemes than on open ended schemes). Riskiness of the fund. Lack of marketability of the funds units.

13

Comparative analysis of Mutual Funds INTERVAL SCHEMES Interval schemes are those that combine both the features of both open-ended and close-ended schemes. The units may be traded on the stock exchange or may be open for sale redemption during during predetermined intervals at NAV related prices. ACCORDING TO INVESTMENT OBJECTIVE

EQUITY SCHEME

DEBT OR BOND SCHEME

BALANCED SCHEME INVESTMENT OBJECTIVE MONEY MARKET SCHEME GROWTH & INCOME FUND

OTHER SCHEMES

ADVANTAGES OF MUTUAL FUNDS The key advantages of both open and close-end Mutual Funds is that they put professional managers with experience and access to sophisticated financial research to work for you this, and other wide range of key benefits are as follows :-

14

Comparative analysis of Mutual Funds 1) Professional Management Experienced portfolio managers carefully select a funds holdings according to the funds seated investment objective. The portfolio management team continuously monitors and evaluates the funds holdings to help make sure it keeps pace with changing market conditions. The team decides when to buy and sell securities. There is a fee associated with this professional management. 2) Diversification A Single diversified Mutual Fund may invest in dozens even hundreds of different holdings. This approach may reduce the impact on your return if any one investment held by the fund declines. Diversification spreads your assets among different types of holdings and may be one of the best ways to protect yourself amid the complexity and uncertainty of the financial markets. 3) Compounding In a Mutual Fund, you may choose to reinvest your earnings automatically to buy more shares. When you reinvest, not only do you have the potential to earn money on your initial investment, you may also have the opportunity to earn money on the dividends and capital gains you accumulate. Compounding may increase the impact of what you contribute and can help your money grow faster. And the longer you invest, the greater the potential growth. 4) Systematic Investing You can invest in most mutual funds automatically through regular payments directly from your bank account; you can start building a long-term investment program. With systematic investing you invest a fixed amount of money at regular intervals regardless of market conditions, helping out market fluctuations.

15 5) Hassle-free operations

Comparative analysis of Mutual Funds With most Mutual Funds, buying and selling shares, changing distribution options, and obtaining information can be accomplished conveniently by telephone, by mail, or online. Although a funds shareholder is relieved of the day-to-day tasks involved in researching, buying and selling securities, an investor will still need to evaluate a Mutual Fund based on investment goals and risk tolerance before making a purchase decision. Investors should always read the prospectus carefully before investing in any Mutual Fund. 6) Buying Power When you invest in a mutual fund, you join the other investors in a pool of investment money. The result is that you have a partial stake in each company the fund holds for a relatively small amount of principal invested, while potentially offsetting some of the risk associated with holding individual securities. 7) Choice There is an incredible array of mutual funds more than 10,000 available to meet your specific Investment objective. Funds have different investment objectives and degrees of investment risk often indicated through asset classes and subclasses, such as money market funds, fixed income funds, balanced funds, growth and income funds, growth funds and aggressive growth funds. 8) Liquidity Mutual fund shares are liquid and orders to buy or sell are placed during market hours. However, orders are not executed until the close of business when the NAV (Net Asset Value) of the fund can be determined. Fees or commissions may or may not be applicable. Fees and commissions are determined by the specific fund and the Institution that executes the order. 9) Transparency You get regular information on the value of your investments in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund managers investment strategy and outlook.

16 DISADVANTAGE OF MUTUAL FUNDS

Comparative analysis of Mutual Funds 1) Over Diversification Diversification is usually a good thing because it reduces risk, but Mutual Funds sometimes make small investments in so many securities that they become over diversified. In other words, the Mutual Funds holdings in each security may be so small that it is difficult to realize substantial return from any of those holdings, which in turn means that the overall return for each investor is small. 2) Unused Cash Your cash may occasionally serve as liquidity insurance rather than work for you as an investment. The constant availability of shares is certainly convenient for investors in a mutual fund, but it can also operate as a disadvantage. A Mutual Fund manager must always prepare for the possibility than an investor will cash in his or her shares. As a result Mutual Funds must maintain a ready cash supply at all times. 3) Fluctuating Returns Mutual funds are like many other investments without a guaranteed return. There is always the possibility that the value of your mutual fund will depreciate. Unlike fixed-income products, such as Bonds and Treasury Bills, mutual funds experience price fluctuations along with stocks that make up the fund. 4) Costs Despite Negative Returns Investors must pay sales charges, annual fees, service charges and other expenses regardless of how the fund performs. In addition, depending on the timing of their investment, investors may also have to pay taxes on any capital gains distribution they receive even if the fund went on to perform poorly after they bought shares. 5) Misleading Advertisements The misleading advertisements of different funds can guide investors down the wrong path. Some funds may be incorrectly labeled as growth funds, while others are classified as small-cap or income.

6) Evaluating Funds

17

Comparative analysis of Mutual Funds Not offer investors the opportunity to compare the P/E ratio, sales growth, earnings share, etc. A Mutual Funds Net Asset Value gives the investors the total value of the Another limitation of mutual fund is the difficulty they pose for investors interested in researching and evaluating the different funds. Unlike stocks, mutual funds do funds portfolio less liabilities. 7) Poor Transparency Technology used for servicing of investors and for portfolio management and investment decision making is poor and general efficiency and timeliness are lacking as a result of antiquated methods of operation. Telex, telephone and communication systems are poor and antiquated. RISK ASSOCIATED WITH MUTUAL FUND INVESTMENT The Principal that the greater risk you take, the greater the potential reward. Typically, risk is defined as short term price variability. But on a long term basis, risk is the possibility that your accumulated real capital will be insufficient to meet your financial goals. And if you want to reach your financial goals, you must start with an honest. At the cornerstone or investing is the basic appraisal of your own personal comfort zone with regard to risk. Individual tolerance for risk varies, creating a distinct investment personality for each investor. Some investors can accept short-term volatility with ease, others with near panic. So whether you consider you investment temperament to be conservative, moderate or aggressive, you need to focus on how comfortable or uncomfortable you will be as the value of your investment moves up or down TYPES OF RISK All investments involve some form of risk. Even an insured band account is subject to the possibility that inflation will rise faster than your earnings, leaving you with less real purchasing power than when you started (Rs.1000 gets you less than it got your father when he was your age).

Consider these common types of 18 and evaluate them against potential risks rewards when you select an investment.

Comparative analysis of Mutual Funds

Market Inflation

Credit

Interest Rate TYPE OF RISKS

Employees

Exchange Rate

Investment

Government Policies
Figure 2.8 1) Market Risk: At times the prices or yields of the all the securities in a particular market rise or fall due to broad outside influences. When this happens, the stock prices of both an outstanding, highly profitable company and a fledging corporation may be affected. This change in price is due to Market Risk.

2) Inflation Risk:

Some times referred to as loss of purchasing power. Whenever

inflation sprints forward faster than the earnings on your investment, you run the risk 19

Comparative analysis of Mutual Funds that youll actually be able to buy less, not more. Inflation risk also occurs when prices rise faster than your return. 3) Credit Risk: In short, how stable is the company or entity to which you lend your money when you invest. How certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment matures. 4) Interest Risk: Changing interest rates affect both equities and bonds in many ways. Investors are minded that predicting which way rates Effect of loss rev professionals and inability to adapt: An industries key asset is often the personnel who run the business i.e. intellectual properties or the key employees of the respective companies. Given the ever-changing complexion of few industries and the high obsolescence levels, availability of qualified, trained and motivated personnel is very critical for the success of industries in few sectors. It is, therefore, necessary to attract key personnel and also to retain them to meet the changing environment and challenges the sector offers. Failure or inability to attract/retain such qualified key personnel may impact the prospects of the companies in the particular sector in which fund invests. 5) Exchange risk: A number of companies generate revenues in foreign currencies and may have investments or expenses also denominated in foreign currencies. Changes in exchange rates may, therefore, have a positive negative impact on companies which in turn would have an effect on the investment of the fund. 6). Changes in government policy: Changes in government policy especially in regard to the tax benefits may impact business prospects of the companies leading to an impact on the investments made by the fund.

RISK RETURN GRID 20

Comparative analysis of Mutual Funds RISK TOLERANCE/ RETURN EXPECTED Low Debt Bank/company FD, Debt based Funds Balanced Funds, some Diversified Equity Funds are some debt Funds, Mix of share and Fixed Deposits Capital Market, Equity Funds (Diversified as High Equity well as Sector) FOCUS SUITABLE PRODUCTS BENEFITS OFFERED BY MFS Liquidity, Better Post-Tax return Liquidity, Better Post-Tax returns, Better Management, Diversification Diversification, Expertise in stock picking, Liquidity, Tax free dividends COST INVOLVED IN MUTUAL FUNDS An investor must know that there are certain costs can be classified into 2 broad categories: Operating expenses - Which are paid out of the funds earnings Sales charges - That are directly deducted from your investment. It is not compulsory that every mutual fund levy sales charges but they certainly have operating expenses. No doubt they influence returns on investment in a fund. Operating expenses These referred to cost incurred to operate a mutual fund. Advisory fees paid to investment mangers, Audit fees to chartered accountant, custodial fees, register and transfer agent fees, trustee fee, agent commission. Operating expenses also known as expenses ratio which is annual expenses expressed as a percentage of the funds average daily net assets mutual funds.

Partially Debt, Medium Partially Equity

The break up of these expenses is required to be reported in the schemes offer document (or) prospectus 21 Operating expenses

Expenses Ratio =

Comparative analysis of Mutual Funds ----------------------------Average Net Assets

For instant, if funds Rs. 100 Crores and expenses 20 lakhs. Then expenses ratio is 2% expenses ratio is available in the offer document and from historical per unit statistics included in the financial results of the fund which are published by annually. UN audited for the half year ending Sep30 and audited for the physically year end in March 30. Depending upon schemes and net asset, operating expenses are determined by limits mandated by SEBI Mutual fund regulation Act. Any excess over specified limits as to be born by Asset Management Company, the trustees or sponsors. Sales charges: These are known commonly sales loads; these are charged directly to investor. Sales loads are used by mutual fund for the payment of agents commission, distribution and marketing expensed. These charges have not effect on the performance of the scheme. Sales loads are usually express in percentage and or of two types front-end and back end. Front-end load: It is a one time fixed fee paid by an investor when buying

a mutual fund scheme. It determines public offer price which intern decides how much of your initial investment actually get invested the standard practice of arriving a public offer price is as follows: Net Asset Value Public offer price = --------------------------(1- front end load) Let us assume, an investor invests Rs.10, 000 in a scheme that charges a 2%front end load at a NAV per unit RS. 10 using the formula public offer price =10/ (1-0.02) is Rs. 10.20. So only 980 units are allotted to the investor

Amount invested Number of units allotted = -------------------------22 Public offer price

Comparative analysis of Mutual Funds 10,000/10..20= 980 units at a NAV of Rs. 10 This means units worth 9800 are allotted to him on an initial investment of Rs. 10,000. Front end loads tent to decrease as initial investment amount increase. Back end load: May be a fixed fee redemption (or) a contingent deferred sales charges-a redemption load continues so long as the redeeming or selling of the units of the units of a fund does not take place in the event of back end load is applied. The redemption price is arriving at using following formula. Net Asset Value Redemption price = -----------------------------(1+ back end load) Let us assume an investor redeems units valued at Rs. 10,000 in a scheme that charges a 2% back end load at a NAV per unit of Rs. 10. Using the formula redemption price 10/ (1+0.02) = Rs. 9.8 So, what the investor gets in hand is 9800(908*1000) Contingent Deferred Sales Charges (CDSC): Contingent deferred sales charges are a structured back end load. It is paid when the units are redeemed during the initial years of ownership. It is for a pre determined period only and reduced over the time youre invested for a fund. The longer the investor remains in fund the lower the CDSC. The SEBI (mutual fund Regulation 1996) stipulate that a CDSC may be charge only for first 4 years after purchase of units and also stipulate the maximum CDSC that can we charge every year. The SEBI Mutual funds Regulation 1996 do not allow either the front end load or back end load to any combination is higher that 7%.

Transaction cost: Some funds may also impose a switch over fee which is a charge on transfer of investment from one scheme to another with in a same mutual fund family and also to switch from on plan (short term) to another (long term) within same scheme. 23 SYSTEMATIC INVESTING PLANS (SIPs)

Comparative analysis of Mutual Funds It is an investment vehicle, where you need to deposit a fixed amount at regular intervals (monthly, quarterly, etc.) in a MF scheme; just like you do in a recurring deposit account with a bank or the post office. Regular Investing is not easy. Owing to lack of time, most people invest sporadically. The result? The returns are rarely optimal. However, there is a foolproof way of investing a fixed amount of money at regular intervals: Chola Mutual Funds Systematic Investment Plan (SIP). SIP uses the concept of rupee cost averaging, ensuring investors buy more when prices are low; and fewer units when prices are high. Benefits of Systematic Investment Plans Discipline Saving: Inculcating discipline in your investment has been easier. Your investment is done on a regular basis by the mutual fund without any intervention required by you. The best part is that you will not feel the pain of having to save since the money will move from your bank account automatically. Rupee Cost Averaging: The SIP helps you take advantage of the fluctuation in the stocks market by rupee cost averaging. The investor buys more units when the prices are low and fewer units cost. Assume you are investing Rs.1000/- each for next four months.

Month 1

Amount Invested 1000

Purchase Price 10 24

No of Units Purchased 100

2 3 4

1000 1000 1000

Comparative analysis of Mutual Funds 09 111.11 10 11 100 90.9

Total Investment = Rs. 4000; No of units purchased is 402.21. The average cost per units work out to be Rs9.95. As illustrated, over time you have a lower average cost per unit. By investing a fixed amount of money at regular intervals, you as an investor stand to gain reasonable returns and create significantly wealth-over time. Lower Cost of Investing: Getting into SIP program does not required large investment amounts at regular intervals. Even as small as Rs. 1000 can be invested at regular intervals Builds Investment Kitty: You have to give Post-Dated cheque (PDCs) to the mutual fund for deposit on specific dates, for the amount you want to invest. These cheques are presented to your bank account on these dates and the funds are withdrawn from your account for investment in the mutual fund scheme at the prevailing NAV. Other than making the initial investment and issuing the cheques at the beginning, no further efforts are required from you. Overcoming market volatility: SIPs help you avoid missing market falls because of lack of time to track the market. You dont have the responsibility of actively monitoring market movement to be able to enter during falls.

Market timing doesnt work: Trying to time the markets, i.e. entering when the markets fall and exiting when the markets rise, usually does not work. It is best to take the systematic investment approach to stay above market Redemption of Units: 25

Comparative analysis of Mutual Funds The units can be redeemed (i.e. sold back to the mutual fund) or switched-out subject to completion of lock in period, on every business day at the redemption price. The redemption/switch out request can be made by way of a written request, on a pre printed form or by using the relevant tear off section of the transaction slip enclosed with the account statement, which should be submitted at/may be sent by mail to any of the ISCs. Redemption price: Redemption price will be calculated on the basis of the loads of different plans/options. The redemption price per unit will be calculated using the following formula: Redemption Price = Application NAV * (1 exit Load, if any)

Example for calculation of redemption Price If the application NAV is Rs.10.00; Exit/redemption load is 2%, then the redemption price will be calculated as follows: = Rs.10.00 *(1-0.02) = Rs.10.00 * (0.98) = Rs.9.80 ASSOCIATION OF MUTUAL FUNDS OF INDIA With the increase in Mutual Fund players in India, a need for mutual fund association in India was generated to function as a non-profit organization. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August 1995.

AMFI is an APEX body of all Asset Management Companies (AMC), which has been registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its Board of Directors. Association of Mutual Funds of India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and 26

Comparative analysis of Mutual Funds maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders. Objectives The AMFI works with 30 registered AMCs of the country. It has certain defined objectives, which juxtaposes the guidelines of its Board of Directors. The objectives are as follows: This mutual fund association of India maintains high professional and ethical standards in all areas of operation of the industry. It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of MF and asset management. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association. AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry. AMFI do represent the Government of India, the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry. It develops a term of well-qualified and trained Agent distributors. It implements a programmed of training and certification for all intermediaries and other engaged in the mutual fund industry. AMFI undertakes all India awareness programmed for investors in order to promote proper understanding of the concept and working of mutual funds.

BEFORE INVESTING IN MUTUAL FUNDS 1) profile. 2) Select the scheme which is giving income according to your requirements. (Short term returns like income fund, long term returns like growth fund). 27 First choose a scheme (equity/debt/balanced) according to your returns/risk

3) 4) 5) 6) 7) 8) 9)

Comparative analysis of Mutual Funds Select the fund which gives maximum returns and high security and liquidity Then compare similar schemed offered by various MFs and their track Study the track record of the fund manager. Examine the investment strategy of the scheme. Check the load (entry/exit). Check out on special facilities like switching options, account statements, Do not buy in to new schemes that are deceptively being offered at par.

and low risk. record. Examine the track record of the mutual fund and its sponsors.

sale/repurchases policy etc. RIGHTS AND OBLIGATIONS OF INVESTORS Right to proportionate beneficial ownership. Right to timely service. Right to information.Right to approve changes in fundamental attributes. Rights to wind up a scheme. Right to terminate the AMC. LEGAL LIMITATIONS TO INVESTORS RIGHTS 1) 2) 3) 4) 5) Investors cannot sue the trust. Investors can initiate legal proceedings against the trustees. Sponsors of mutual funds have no obligations to meet the shortfall in nonOnly if the OD has specifically provided such guarantee by a named sponsor, Prospective investors cannot sue the trust/the AMC or any other

assured schemes. the investors have the right to sue the sponsor. constituent.Companies act cannot protect investors as fund investors are neither share holders in the AMC nor depositors.

28

Comparative analysis of Mutual Funds

CHAPTER-3

COMPANY PROFILE

COMPANY PROFILE:

Religare is one of the leading integrated financial services institutions of India, backed by a blue chip promoter pedigree and a proven track record. Religares businesses are broadly clubbed across 3 key verticals, the retail, institutional and the wealth spectrum, catering to a diverse and wide base of clients spread across the length and breadth of the country. Structurally, all business are operated through various 29 subsidiaries held through the holding company Religare Enterprises Limited.

Comparative analysis of Mutual Funds The company offers a diverse bouquet of services and through its consolidated network reach, Religare is present in more than 1300 locations across more than 400 cities and towns. As part of its recent initiatives the group has also started expanding globally. Religare has also successfully partnered with Aegon, one of the global leaders to launch Life Insurance, Mutual Fund and Pension products in India and with Macquarie Company, for a wealth management joint venture. The vision of the company is to build Religare as a globally trusted brand in the financial services domain and present it as the Investment Gateway of India. All employees of the group relentlessly strive to provide financial care, driven by the core values of diligence and transparency Mission - To provide financial care driven by the core values of diligence & transparency Brand Essence The company Core essence is diligence and ethical and dynamic processes for wealth creation drive it Brand Identity Name Religare is a Latin word that translates as 'to bind together'. This name has been chosen to reflect the integrated nature of the financial services the company offers. The name is intended to unite and bring together the phenomenon of money and wealth to co-exist and serve the interest of individuals and institutions, alike.

Symbol The Religare name is paired with the symbol of a four-leaf clover. The four-leaf clover is used to define the rare quality of good fortune that is the aim of every financial plan. It has traditionally been considered good fortune to find a single four leaf clover considering that statistically one may need to search through over 10,000 three-leaf clovers to even find one four leaf clover. Each leaf of the four-leaf clover has a special meaning in the sphere of Religare. 30

Comparative analysis of Mutual Funds The first leaf of the clover represents Hope. The aspirations to succeed. The dream of becoming. Of new possibilities. It is the beginning of every step and the foundations on which a person reaches for the stars.

The second leaf of the clover represents Trust. The ability to place ones own faith in another. To have a relationship as partners in a team. To accomplish a given goal with the balance that brings satisfaction to all not in the binding but in the bond that is built.

The third leaf of the clover represents Care. The secret ingredient that is the cement in every relationship.

The truth of feeling that underlines sincerity and thetriumph of diligence in every aspect. From it springs true warmth of service and the ability to adapt to evolving environments with consideration to all.

The fourth and final leaf of the clover represents Good Fortune. Signifying that rare ability to meld opportunity and planning with circumstance to generate those often looked for remunerative moments of success.

Hope. Trust. Care. Good fortune. All elements perfectly combine in the emblematic and rare, four-leaf clover to visually symbolize the values that bind together and form the core of the Religare vision.

RETAIL SPECTRUM Equity Trading Trading in Equities with Religare truly empowers you for your investment needs. A highly process driven, diligent approach backed by powerful Research & Analytics and one of the best in class dealing rooms ensures that you have a superlative experience. 31

Comparative analysis of Mutual Funds Further, Religare also has one of the largest retail networks, with its presence in more than 1,217 locations across more than 392 towns & cities. This means, you can walk into any of these branches and connect toreligareshighly skilled and dedicated relationship managers to get the best services. You could also choose to enjoy the freedom to execute your own trades through Religares online mechanism Commodities Trading Religare Commodities Limited (RCL) was initiated to spearhead Exchange based Commodity Trading. As a member of NCDEX, MCX and NMCE, RCL is a trade facilitator providing the platform to trade in commodities. Grounded in the Religare philosophy, highly skilled and dedicated professionals strive to offer the client best investment solutions across the country. Online Investment Investing online will never be the same again withreligares360 degree portal www.religareonline.com Now you can not just invest online in Equities, IPOs, Mutual Funds, Commodities and much more but, also get TRADE REWARDS each time you invest. Personal Financial Services Religare has recently entered into personal financial advisory services. It caters to the financial needs of individuals by advising them on various financial plans.

Religares Personal financial advisors, also called financial planners or financial consultants, use their knowledge of investments, tax laws, and insurance to recommend financial options to individuals in accordance with the individuals short-term and longterm goals. Some of the issues that planners address are general investments, retirement and tax planning. Product offerings Mutual Funds 32

Comparative analysis of Mutual Funds Insurance - Life & Non - Life Bonds Funds IPOs Small Savings Instruments PHILOSOPHY Define Refine. Achieve..

At Religare The Company believes Our clients are people, not accounts hence successful investment management relationship begins with a clear understanding of each clients specific needs, concerns and long term objectives. Religares investment philosophy applies a disciplined approach to building a customized strategy designed to meet your individual financial goals and tolerance for risk. PROCESS

The Religare Edge Pan India foot print 33 Dedicated team of trained and skilled advisors

Comparative analysis of Mutual Funds Strong pedigree driven by diligent processes and ethical business practices

Wide & varied platter of products & services to choose from

Our Process

WEALTH SPECTRUM Wealth Management @ Religare To provide investment advisory and execution services To work hand in hand with clients to identify and analyze their long-term goals, risk tolerance and existing asset base To Utilize Religares full-suite platform with an open architecture along with a fully focused client centric approach to offer customized solutions for clients Supported by dedicated team of highly skilled and qualified wealth managers and research professionals.

Critical Steps in Religares Client Centric Operating Process Risk Profiling Research & Asset Allocation 34

Comparative analysis of Mutual Funds Product Recommendations Review & Rebalancing International Advisory Fund Management Services (AFMS) - A new horizon for international investments Religares wealth clients is an opportunity to invest in international financial instruments (currently limited to the US). Equities, Mutual Funds and Debts are some the key instruments available and the clients have the option to choose from various asset allocation modules. Portfolio Management Service Religare offers PMS to address varying investment preferences. As a focused service, PMS pays attention to details, and portfolios are customized to suit the unique requirements of investors. Religare PMS currently extends five portfolio management schemes - Panther, Tortoise, Elephant, Caterpillar and Leo. Each scheme is designed keeping in mind the varying tastes, objectives and risk tolerance of Religares investors Investment Philosophy We believe that Religares investors are better served by a disciplined investment approach, which combines an understanding of the goals and objectives of the investor with a fine tuned strategy backed by research. Stock specific selection procedure based on fundamental research for making sound investment decisions. Focus on minimizing investment risk by following rigorous valuation disciplines. Capital preservation. Selling discipline and use of Derivatives to control volatility.

Schemes Panther 35 The Panther portfolio aims to achieve higher returns by taking aggressive positions across sectors and market capitalization. It is suitable for the High Risk High

Comparative analysis of Mutual Funds Return investor with a strategy to invest across sectors and take advantage of various market conditions. Tortoise The Tortoise portfolio aims to achieve growth in the portfolio value over a period of time by way of careful and judicious investment in fundamentally sound companies having good prospects. The scheme is suitable for the Medium Risk Medium Return investor with a strategy to invest in companies, which have consistency in earnings, growth and financial performance. Elephant The Elephant portfolio aims to generate steady returns over a longer period by investing in Securities selected only from BSE 100 and NSE 100 index. This plan is suitable for the Low Risk Low Return investor with a strategy to invest in blue chip companies, as these companies have steady performance and reduce liquidity risk in the market. Caterpillar The Caterpillar portfolio aims to achieve capital appreciation over a long period of time by investing in a diversified portfolio. This scheme is suitable for investors with a high-risk appetite. The investment strategy would be to invest in scrips which are poised to get a re-rating either because of change in business, potential fancy for a particular sector in the coming years/months, business diversification leading to a better operating performance, stocks in their early stages of an upturn or for those which are in sectors currently ignored by the market.

Leo Leo is aimed at retail customers and structured to provide medium to long-term capital appreciation by investing in stocks across the market capitalization range. This scheme is a mix of moderate and aggressive investment strategies. Its aim is to have a balanced 36

Comparative analysis of Mutual Funds portfolio comprising selected investments from both Tortoise and Panther. Exposure to Derivatives is taken within permissible regulatory limits. The Religare Edge We serve you with a diligent, transparent & process driven approach and ensure that your money gets the care it deserves. No experts, only expertise. PMS brought to you by Religare with its solid reputation of an ethical and scientific approach to financial management. While The Company offer you the services of a Dedicated Relationship Manager who is at your service 24x7, The Company do not depend on individual expertise alone. For you, this means lower risk, higher dependability and unhindered continuity. Moreover, you are not limited by a particular individuals investment style. No hidden profits. The company ensures that a part of the broking at Religare Portfolio Management Services is through external broking houses. This means that your portfolio is not churned needlessly. Using more broking firms gives us access to a larger number of reports and analysis, enabling us to make better, more informed decisions. Furthermore, your portfolio is customized to suit your investment objectives. Daily disclosures. Religare Portfolio Management Services gives you daily updates on your investment. You can pinpoint where your money is being invested, 24x7, instead of waiting till the end of the month to keep track. No charge till you profit*.So sure are The company of religaresapproach to Portfolio Management that The company do not charge you for Religares services, until your investments start showing profit. With customized investment options Religare Portfolio Management Services invites you to invest across five broad portfolios to suit your investment needs

INSTITUTIONAL SPECTRUM Institutional Broking Services The mission of this division is to institutionalize and implement a process driven 37 approach to cater to the needs of leading corporate houses and institutions. The division

Comparative analysis of Mutual Funds would like to be seen as a one-stop investment gateway and knowledge repository for its clients servicing their unique and sophisticated needs.The division is structured as a separate SBU and is housed out of Mumbai, manned by a small yet fleet footed and extremely skilled group of top-notch professionals drawn from the best in the industry. The key highlights of Religares service platter are: Highly skilled, dedicated dealing, research and sales teams Dealing capabilities on the NSE, BSE and in the cash and derivatives segment In-depth, detailed and insightful coverage of more than 60 stocks across diverse sectors. The sectors covered are FMCG, Hotels, Media, Pharma, Auto, Cement, Steel pipes, Logistics, Telecom, Construction and much more. Companys Current clientele includes some major domestic mutual funds, insurance companies, companies and FIIs We provide innovative, integrated and bestfit solutions to Religares corporate customers. It is Religares continuous endeavor to provide value enhancement through diverse financial solutions on an on-going basis, through offerings like corporate debt, private equity, IPO, ECB, FCCB, GDR/ADR etc. Religare's Investment Companying Division offers the following services: Corporate Finance It focus on finding partners for Religares clients, who not only help in adding value, but also improve the future valuation of the organization. The company specialize in structured financing and in providing advisory services related to financial planning, modeling and advising on financial requirements.

Religares wide range of Corporate Finance solutions to Religares clients: Placement of Debt 38 Syndication of Domestic Loan / Foreign Currency Loan

Comparative analysis of Mutual Funds Securitization Debt Swap & Loan Restructuring Short Term Corporate Debt Working Capital (Cash Credit & Short term Loan) Capital Market Instruments Overseas Acquisition

Merchant Companying IPO/FPO/RIGHTS Mergers & Acquisitions Corporate Advisory Services ADR/GDR/FCCB Buy Back Of Shares Value Proposition Pan India foot print Rich domain knowledge and Industry experts Expertise to meet all your Insurance needs Market understanding, proactive and customer centric Part of a US$ 1.4 Billion Ranbaxy Group Human, technical, physical presence, CRM Best business practices and highest quality service Alliance with global and national players to get you the best deals

Presence Strong Domain Expertise Comprehensive Risk Portfolio Management Flexibility Stability Infrastructure Quality Strategic Partnerships

Our Service Offerings

39

Comparative analysis of Mutual Funds

Research Services We at Religare believe in providing independent research for clients to make investment decisions, with strict emphasis on self-regulation, avoiding possible conflict of interest in objectivity. Varied research reports are prepared on different categories of Equities like Fundamental research Technical research Daily reports Intraday trading tech calls Intraday Derivative call Directional F&O calls Structured products Index Arbitrage Arbitraging between Index (NIFTY) Futures and its constituents (Underlying Stock Futures).

40

Comparative analysis of Mutual Funds

CHAPTER-4

DATA ANALYSIS AND INTERPRETATION

TOOLS USED FOR ANALYSIS 41

Comparative analysis of Mutual Funds TABULATION: A Table is a systematic arrangement of statistical data in rows and columns. Rows are horizontal arrangements whereas columns are vertical arrangements. Tabulation is a systematic presentation of data in a form suitable for analysis and interpretation. PRESENTATION OF DATA: The impression created by a picture has much greater impact than detailed explanation. Statistical data can be effectively presented in the form of diagrams and graphs. Graphs and Diagrams make complex data simple and easily understandable. They help to compare related data and bring out subtle data with amazing clarity. The diagrams used are as follows Factors Affecting NAV The investors funds are deployed in a portfolio of securities by the fund manger. The value of these investments keeps on changing as market price of the securities change. And the market price changes because of the various factors which have analyzed below so that the organization stays alert when such factors happen again. Calculation of NAV Since investors are free to enter and exit the fund at any time, it is essential that the market value of their investments is used to determine the price at which such entry and exit will take place. The net assets represent the market value of assets, which belong to the investors, on a given date. Net Assets are calculated as: Market value of investments + Current assets and other assets + accrued income current liabilities and other liabilities accrued expenses

Net Asset Value or NAV of a mutual fund is the value of one unit of investment in the fund, in net asset terms. It is computed by dividing the net assets of the fund by the number of units that are outstanding in the books of the fund. NAV = Market Value of Assets 42 Liabilities

Comparative analysis of Mutual Funds Units Outstanding

For example, consider a mutual fund that collects Rs.10crore by issuing units of Rs.10 each. Therefore when the mutual fund begins operations, it these funds are invested are as follows: Equity Shares Government Bonds Corporate Bonds Money Market instruments Total Assts Rs. 4,50,00,000 Rs. 3,00,00,000 Rs. 1,50,00,000 Rs. 1,00,00,000 Rs. 10,00,00,000 would have1,00,00,000 units of Rs.10 each. Let us assume that the portfolios in which

After 30 days, the fund is scheduled to open for fresh sales as well as repurchases. The investors, who come into the fund, will buy new units at a price that represents the value of the underlying portfolio. Similarly, investors who redeem their units will do so at a price that reflects the current value of the portfolio in which they originally invested. Therefore the investment portfolio will have to be valued again, to ascertain what its current value is. In the interim, the mutual fund would have incurred expenses, earned incomes, which also will have to be reflected in the price per unit. We call these charges as accrued expenses. Mutual funds have internal accounting policies that that enable the computation of these accruals. Let us assume that the status of the investments at the end of the 30 days is as follows: Equity shares Government Bonds Corporate Bonds Money Market instruments Total assets Rs. 6,50,00,000 Rs. 2,80,00,000 Rs. 1,20,00,000 Rs. 1,00,00,000 Rs. 11,50,00,00

The value of the investments has changed with the change in market prices. We call the process of valuing assets by using market prices, as marking to 43 market. Let us assume that the accrued income and expense are Rs. 1,00,000 and

Comparative analysis of Mutual Funds Rs. 1,35,000 respectively. Let us also assume that the level of current assets and current liabilities were Rs. 4,00,000 and Rs. 3,00,000 respectively. The net assets of the fund can be computed as follows: Market-to-Market value of the investments:11,50,00,000 Plus current assets Plus accrued income 4,00,000 1,00,000 11,55,00,000 Less current liabilities Less accrued expenses 3,00,000 1,35,000 11,50,65,000 Net assets of the fund 11,50,65,000

Since the number of units is 1,00,00,000, the net asset value on this date will be Rs.11.5065.The price at which new investors can buy the units, and existing investors can redeem their units will be based on this number. A fund's NAV may change every day to reflect changes in the value of its portfolio holdings, which in turn respond to changing market conditions.Further, many funds are open-ended, meaning they allow for daily purchases and redemptions,

44

Comparative analysis of Mutual Funds

Significant Factors Affecting NAV Macroeconomic Factor Following are the macroeconomic factors that affect the market price of the securities constituting the portfolio of the mutual fund scheme: Benchmark Index The performance of any mutual fund scheme is measured relative to market indices. Hence, changes in the market index bear significance. This is especially true for portfolios that have a high degree of correlation with the benchmark. Index is "a statistical measure of the changes in a portfolio of stocks representing a portion of the overall market."Ideally, a change in the price of an index would represent an exactly proportional change in the stocks included in the index. Index reflects the performance of the market. Index reflects both the Macroeconomic factors and the micro economic factors that affect the performance of the NAV.Government Policies Government Policies like monetary, credit, fiscal etc do have an effect on thecapital market and in turn the NAV of the mutual fund scheme. Microeconomic Factors There are various microeconomic factors that also affect the valuation of the NAV of the mutual fund scheme these have been explained below: 1. Sale and purchase of securities 2. Sale and repurchase of units 3. Valuation of all investment securities held 4. Accrued income and liabilities 5. Portfolio Turnover 6. Dividend Sale And Purchase Of Securities Fund houses buy securities out of the money invested by people. There might be a rise or fall in the price of these securities due to their sale and purchase and accordingly the value of the NAV will be affected.

45

Comparative analysis of Mutual Funds

Sale And Repurchase Of Units If the investors redeem their units, the fund managers will also have to sell the securities to pay the amount to the investors. It is possible that they have to sell the securities at a lower price. So the NAV of the scheme will also fall Valuation Of All Investment Securities Held If the securities held by the mutual fund are traded on stock exchanges regularly, the process of marking to market is simple. The market price of the security is used to value the security. The market price is used to value the security. The last quoted closing price on the stock exchange is principally traded is used for valuation. A thinly traded securitys market price may not be representative of its underlying value, as it is not valued frequently in the market. Mutual funds have to use fair valuation methodology for such securities. Accrued Income And Liabilities Accrued income includes any income due to the fund but not received at the time of valuation (for example, dividend announced by a company yet to be received). Accrued Liabilities include expenses payable by the fund, for example custodian fees or even the management fees payable to the AMC. These income and liabilities items have to be accrued and included in the computation of the NAV. Portfolio Turnover The turnover rate measures how often the investment manager changes the total holdings in a funds portfolio. Higher the Turnover rate more active is the fund and can capitalize on the short-term profits. Higher Turnover rate results in higher brokerage and other fees. It describes the timing of the market to maximize the return. Dividend Dividend is issued as a percentage of Face value. The NAV of the scheme varies with changes in the value of the portfolio, and the impact of the proportion of income earned by the fund, to what is actually distributed as dividend. Issue of dividend lowers the NAV as the net assets of the fund are lowered.

46

Comparative analysis of Mutual Funds

COMPARA TIVE ANALYSIS OF MUTUAL FUND SCHEMES

Reliance Growth Fund Growth

Treasury Bills Returns Date

30-Mar-09 28-Feb-09 31-Jan-09 29-Dec-08 29-Sep-08 31-Jul-08 30-Jun-08 31-Mar-08 30-Dec-07 30-Sep-07 30-Jun-07 31-Mar-07 31-Dec-06 30-Sep-06 30-Jun-06 31-Mar-06 30-Dec-05 Average

Sensex Returns Index Values 14091 12938 12454 13787 12962 13696 12962 8634.5 9397.9 8788.8 7892.3 5583.6 6602.7 4795.5 5590.6 4453.2 % Returns 8.9104 3.8835 -9.665 6.3649 -5.362 5.6659 50.118 -8.124 6.9306 11.359 41.348 -15.43 37.686 -14.22 25.54
9.666588127

Fund Returns NAV

265.38 266.6 282.83 272.75 240.08 197.98 204 234.93 193.43 178.2 137.65 122.18 114.36 90.4 71.06 76.92 80.04

Interest Rate % Returns 7.8382 7.6985 7.2354 6.9022 6.9939 7.0513 6.4232 6.174 5.7912 5.6232 5.6567 5.7351 5.3741 4.6353 4.4386 4.3079 1.814639 6.400475 4.827446 -1.311143 -0.814034 9.778615 4.036281 6.610029 2.987623 -0.592218 -1.367021 6.717404 15.93856 4.431578 3.033961
4.166146

% Returns
-0.4576144 -5.73842945 3.695692026 13.60796401 21.26477422 -2.95098039 -13.1656238 21.45478985 8.54657688 29.45877225 12.66164675 6.838055264 26.50442478 27.21643681 -7.61830473 -3.89805097 8.588758068

Std. Div. Beta Alpha Sharpe Ratio Treynor Ratio 47

13.68853 0.133264 7.300549 0.323088 33.18683 46

Comparative analysis of Mutual Funds

INTERPRETATION: In 31 mar 08 the highest SENSEX return percentage is 50.118, and the lowest SENSEX return is -15.43 in 31 Dec 06. In 30 Dec 07 the highest fund return percentage is 29.45, and the lowest fund return is -13.16 in 30 Jun 08.

48

Comparative analysis of Mutual Funds

49

ING Vysya Equity Fund - Growth

Treasury Bills Returns Date

30-Mar-09 28-Feb-09 31-Jan-09 29-Dec-08 29-Sep-08 31-Jul-08 30-Jun-08 31-Mar-08 30-Dec-07 30-Sep-07 30-Jun-07 31-Mar-07 31-Dec-06 30-Sep-06 30-Jun-06 31-Mar-06 30-Dec-05 Average

Sensex Returns Index Values 14091 12938 12454 13787 12962 13696 12962 8634.5 9397.9 8788.8 7892.3 5583.6 6602.7 4795.5 5590.6 4453.2 % Returns 8.9104 3.8835 -9.665 6.3649 -5.362 5.6659 50.118 -8.124 6.9306 11.359 41.348 -15.43 37.686 -14.22 25.54
9.666588127

Fund Returns NAV

31.36 31.21 33.43 32.9 30.64 26.32 26.29 29.78 25.59 23.99 20.87 19 19.1 15.95 13.45 14.91 15.95

Interest Rate Returns 7.8382 7.6985 7.2354 6.9022 6.9939 7.0513 6.4232 6.174 5.7912 5.6232 5.6567 5.7351 5.3741 4.6353 4.4386 4.3079

% 1.814639 6.400475 4.827446 -1.311143 -0.814034 9.778615 4.036281 6.610029 2.987623 -0.592218 -1.367021 6.717404 15.93856 4.431578 3.033961
4.166146

% Returns
0.480615187 -6.640741849 1.610942249 7.375979112 16.41337386 0.11411183 -11.71927468 16.37358343 6.669445602 14.94968855 9.842105263 -0.523560209 19.7492163 18.58736059 -9.792085848 -6.520376176 4.810648951

Std. Div. Beta Alpha Sharpe Ratio Treynor Ratio

10.47198 8 0.089957 1 4.94107006 7 0.081545 3 8.060599 2 74

ING Vysya Equity Fund - Growth

INTERPRETATION: In 31 mar 08 the highest SENSEX return percentage is 50.118, and the lowest SENSEX return is -15.43 in 31 Dec 06. In 31 Dec 06 the highest fund return percentage is 19.74, and the lowest fund return is -11.7 in 30 Jun 08

51

FT India Balanced Fund - Growth

Treasury Bills Returns Date

30-Mar-09 28-Feb-09 31-Jan-09 29-Dec-08 29-Sep-08 31-Jul-08 30-Jun-08 31-Mar-08 30-Dec-07 30-Sep-07 30-Jun-07 31-Mar-07 31-Dec-06 30-Sep-06 30-Jun-06 31-Mar-06 30-Dec-05 Average

Sensex Returns Index Values 14091 12938 12454 13787 12962 13696 12962 8634.5 9397.9 8788.8 7892.3 5583.6 6602.7 4795.5 5590.6 4453.2 % Returns 8.9104 3.8835 -9.665 6.3649 -5.362 5.6659 50.118 -8.124 6.9306 11.359 41.348 -15.43 37.686 -14.22 25.54
9.666588127

Fund Returns NAV

35.21 34.94 36.73 35.77 32.78 29.18 27.905 30.87 27.13 25.8 22.18 21.07 20.81 18.81 16.93 17.84 17.88

Interest Rate Returns 7.8382 7.6985 7.2354 6.9022 6.9939 7.0513 6.4232 6.174 5.7912 5.6232 5.6567 5.7351 5.3741 4.6353 4.4386 4.3079

% 1.814639 6.400475 4.827446 -1.311143 -0.814034 9.778615 4.036281 6.610029 2.987623 -0.592218 -1.367021 6.717404 15.93856 4.431578 3.033961
4.166146

% Returns
0.772753291 -4.87340049 2.683813251 9.121415497 12.33721727 4.569073643 -9.604794299 13.78547733 5.15503876 16.32100992 5.268153773 1.249399327 10.63264221 11.10454814 -5.100896861 -0.223713647 4.57485857

Std. Div. Bet Alph Sharpe Ratio Treynor Ratio

7.393480 3 0.059387 6 4.000783 0 0.055280 0 6.882114 97

52

INTERPRETATION: In 31 mar 08 the highest SENSEX return percentage is 50.118, and the lowest SENSEX return is -15.43 in 31 Dec 06. In 30 sep 07 the highest fund return percentage is 16.32, and the lowest fund return is -9.6 in 30 Jun 08

53

54

SBI Magnum MIP - Growth

Treasury Bills Returns Date

30-Mar-09 28-Feb-09 31-Jan-09 29-Dec-08 29-Sep-08 31-Jul-08 30-Jun-08 31-Mar-08 30-Dec-07 30-Sep-07 30-Jun-07 31-Mar-07 31-Dec-06 30-Sep-06 30-Jun-06 31-Mar-06 30-Dec-05 Average

Sensex Returns Index Values 14091 12938 12454 13787 12962 13696 12962 8634.5 9397.9 8788.8 7892.3 5583.6 6602.7 4795.5 5590.6 4453.2 % Returns 8.9104 3.8835 -9.665 6.3649 -5.362 5.6659 50.118 -8.124 6.9306 11.359 41.348 -15.43 37.686 -14.22 25.54
9.666588127

Fund Returns NAV

16.554 16.503 16.724 16.607 16.397 15.961 15.912 15.81 15.346 15.170 14.677 14.259 14.041 13.654 13.422 13.683 13.597

Interest % Rate Returns 7.8382 7.6985 7.2354 6.9022 6.9939 7.0513 6.4232 6.174 5.7912 5.6232 5.6567 5.7351 5.3741 4.6353 4.4386 4.3079 1.814639 6.400475 4.827446 -1.311143 -0.814034 9.778615 4.036281 6.610029 2.987623 -0.592218 -1.367021 6.717404 15.93856 4.431578 3.033961
4.166146

% Returns
0.311466072 -1.324435994 0.703305173 1.285640228 2.729169408 0.309836849 0.641994674 3.025583547 1.158199353 3.357565765 2.935029596 1.554064641 2.828392313 1.735275491 -1.907546136 0.631775591 1.248457286

Std. Di v. Beta Alpha Sharpe Ratio Treynor Ratio

1.524555559 0.021621301 1.39453077 -1.913796428 -134.9451185

INTERPRETATION: In 31 mar 08 the highest SENSEX return percentage is 50.118,and the lowest SENSEX return is -15.43 in 31 Dec 06. In 30 sep 07 the highest fund return percentage is 3.35,and the lowest fund return is -1.907 in 30 Jun 06

HSBC Cash Fund - Reg - Growth

Treasury Bills Returns Interest Rate Returns 7.8382 7.6985 7.2354 6.9022 6.9939 7.0513 6.4232 6.174 5.7912 5.6232 5.6567 5.7351 5.3741 4.6353 4.4386 4.3079

Sensex Returns Index Values 14091 12938 12454 13787 12962 13696 12962 8634.5 9397.9 8788.8 7892.3 5583.6 6602.7 4795.5 5590.6 4453.2

Fund Returns

Date
30-Mar-09 28-Feb-09 31-Jan-09 29-Dec-08 29-Sep-08 31-Jul-08 30-Jun-08 31-Mar-08 30-Dec-07 30-Sep-07 30-Jun-07 31-Mar-07 31-Dec-06 30-Sep-06 30-Jun-06 31-Mar-06 30-Dec-05 Average

% 1.814639 6.400475 4.827446 -1.311143 -0.814034 9.778615 4.036281 6.610029 2.987623 -0.592218 -1.367021 6.717404 15.93856 4.431578 3.033961
4.166146

% Returns 8.9104 3.8835 -9.665 6.3649 -5.362 5.6659 50.118 -8.124 6.9306 11.359 41.348 -15.43 37.686 -14.22 25.54
9.666588127

NAV
12.61 12.52 12.452 12.369 12.163 12.036 11.974 11.797 11.635 11.487 11.34 11.198 11.064 10.934 10.816 10.698 10.581

% Returns
0.713241695 0.551736323 0.664543147 1.701130524 1.048494969 0.521133465 1.49953378 1.395836556 1.288457855 1.290089327 1.270762636 1.210220443 1.188941019 1.09470492 1.099260616 1.105745149 1.102739527

Std. Div. Beta Alpha Sharpe Ratio Treynor Ratio

0.337327 943 0.001302 734 1.090146 533 -9.0813903 8 -2351 .5211 91

57

INTERPRETATION: In 31 mar 08 the highest SENSEX return percentage is 50.118, and the lowest SENSEX return is -15.43 in 31 Dec 06. In 29 Dec 08 the highest fund return percentage is 1.701, and the lowest fund return is 0.52 in 31 July 08

58

HDFC Short Term Plan - Growth

Treasury Bills Returns Interest Rate Returns 7.8382 7.6985 7.2354 6.9022 6.9939 7.0513 6.4232 6.174 5.7912 5.6232 5.6567 5.7351 5.3741 4.6353 4.4386 4.3079

Sensex Returns Index Values 14091 12938 12454 13787 12962 13696 12962 8634.5 9397.9 8788.8 7892.3 5583.6 6602.7 4795.5 5590.6 4453.2

Fund Returns

Date
30-Mar-09 28-Feb-09 31-Jan-09 29-Dec-08 29-Sep-08 31-Jul-08 30-Jun-08 31-Mar-08 30-Dec-07 30-Sep-07 30-Jun-07 31-Mar-07 31-Dec-06 30-Sep-06 30-Jun-06 31-Mar-06 30-Dec-05 Average

% 1.814639 6.400475 4.827446 -1.311143 -0.814034 9.778615 4.036281 6.610029 2.987623 -0.592218 -1.367021 6.717404 15.93856 4.431578 3.033961
4.166146

% Returns 8.9104 3.8835 -9.665 6.3649 -5.362 5.6659 50.118 -8.124 6.9306 11.359 41.348 -15.43 37.686 -14.22 25.54
9.6665881

NAV
12.61 12.52 12.452 12.369 12.163 12.036 12.974 12.797 12.434 12.487 12.138 11.198 11.064 11.934 11.816 11.698 11.581

% Returns
0.713241695 0.551736323 0.664543147 1.701130524 1.048494969 0.521133465 1.49953378 1.395836556 1.288457855 1.290089327 1.270762636 0.210220443 0.188941019 0.09470492 0.099260616 0.105745149 0.99627573

Std. Div. Beta Alpha Sharpe Ratio Treynor Ratio

0.43660937 0.003044982 0.966684114 -7.260193709 -1041 .014553

59

Comparative analysis of Mutual Funds

INTERPRETATION: In 31 mar 08 the highest SENSEX return percentage is 50.118, and the lowest SENSEX return is -15.43 in 31Dec 06. In 29 Dec 08 the highest fund return percentage is 1.701, and the lowest fund return is 0.094 in 30 Sep 06.

60

Comparative analysis of Mutual Funds

Formulae Used FUND RETURN = p1-p0 +D1 P0 Where, P1 = Nav As On Last Day Of That Quarter P0 = Nav As On Last Day Of The Previous Quarter D1 = Dividend For The Year Paid During That Quarter (If There Is Any). Average Fund Return: Fund Returns/No. of Returns Standard Deviation: (Particular Period Fund Return-average fundreturn) 2

Number of returns Beta: Cov(Fund Return, Market Return)/ Variance of Market Return Alpha: Average Fund Return (Beta*Average Market Return) Sharpe Ratio: (Average Fund Return Average T-Bills Returns)/ StdDiv Treynor Ratio: (Average Fund Return Average T-BillReturns)/Beta Note : MarketReturns = Benchmark Index Returns i.e. BSESensexReturns.It is a comprehensive index and is a representative of almost all the important sectors of the market. Also this index is more familiar with the investors so they can track its movement very easily for the purpose of redemption and reinvestment in mutual fund schemes. There is no other benchmark index which is a representative of the whole market for the purpose of the calculation of beta. And this is one of the shortcomings of the Beta that Debt and Money mkt schemes dont have much of a correlation with the market returns.Even the industry experts are of the same view.

61

Comparative analysis of Mutual Funds

TABLE FOR IMPORTANT STATI STI CS OF ALL MUTUAL FUND SCHEMES:

Scheme

Std Div Beta

Alpha

Share Trevnor Ratio Ratio

Re liance Growth GR 13.68853

0.133264 7.300549 0.323089 33.18683

ING Vysya Equity Fund -Gr 10.47199 0.0899572 4.94107 0.081545 8.060599 FT India Bal FundGr 7.39348 0.0593876 4.000783 0.05528 6.882115

SBI Magn um MIPGr 2.281926 0.0094517 1.347769 -1.19505 -288.522 HSBC Cash FundRe g-Gr 0.337328 0.0013027 1.090147 -9.08139 -2351.52 HDFC Short Term Plan-Gr 0.379556 0.0054372 0.943498 -8.35209 -583.034

Following table shows the classification of the various Mutual Fund schemes into High risk-High return, Medium risk-Medium return and Low risk-Low return categories along with their relative rankings based on the above analysis.

62

Comparative analysis of Mutual Funds

High Risk

Medium Risk

Low Risk

High Return

1) Reliance Growth GR 2) ING Vysya Eq Fund-Gr

Medium Return

3) FT India Balanced Fund- Gr 4) SBI Magnum MIP-Gr 5) HSBC Cash Fund-Reg-Gr 6) HDFC Short Term Plan-Gr

Low Return

Note: This categorization and classification is based on the Analysis of Table shown above. Here more weightage is given to the risk while categorizing the schemes into three categories where as return and corpus is given more value while classifying various schemes within the categories. And the schemes which have fared well on these parameters are ranked comparatively well.

63

Comparative analysis of Mutual Funds

CHAPTER -5

FINDINGS SUGGESIONS

FINDINGS: Reliance Growth fund is having highest std.div, alpha, Beta, Share ratio,

64

Comparative analysis of Mutual Funds Trevnor ratio. so its also have highest return. Compare to Reliance Growth fund, the ING vysya Eq. fund The FT India balanced fund, SBI Magn um having medium return having lowest Return compared to Reliance growth & ING vysya because of its having lowest std.div, alpha, Beta, Share ratio, Trevnor ratio The HSBC Cash Fun,HDFC Short Term Plan are having negative share

ratio & treynor ratio while compared to other companies funds SUGGESTIONS The information in this project report will provide the investors the basic knowledge about Mutual Funds and enable them to choose the best investments suiting their risk/return profile. Basing on the information in this project, recommendations made to investors are as follows:Mutual funds provide regular and steady income to investors. Systematic investment plan in Mutual Funds is the best tool for sound investment to small investors who prefer investments in installments. Liquidity, transparency, well regulated and flexibility, are some of the features of Mutual funds which is very advantageous to investors. The entry load and exit load in Mutual Funds is very low which does not affect the ultimate yields. Safety of funds & positive rate of return over inflation are the basic two needs of traditional investor. Mutual Fund is well equipped to cater to these basic desires of investors.

65

Comparative analysis of Mutual Funds The investor must select the right advisory body which has knowledge about the product which are offering. Professionalized advisory is the most important feature to the investors, and research analysis which will be helpful for reducing any kind of risk to overcome.

66

Comparative analysis of Mutual Funds

CHAPTER-6

BIBLIOGRAPHY

BIBLIOGRAPHY

67

Comparative analysis of Mutual Funds

BOOKS:

Security analysis and portfolio management

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DONALD E. FISHER & RONALD J. JORDAN M.Y.KHAN

Financial Services Essentials of Investment & Tax Planning Personal Finance NEWS PAPERS; The Economic Times The New Indian Express MAGAZINES: Business World WEBSITES:

---

ICFAI ASHU DATT

www.mutualfundsindia.com

www.stockholding.com www.moneypore.com

www.amfiindia.com

68

Comparative analysis of Mutual Funds

ANNEXTURE

ANNEXURE

69

Comparative analysis of Mutual Funds

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 are any point of time at a price that is linked to the net asset value (NAV). In case of Close-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 pot it reflects what the unit held by an investor is worth at current market prices. The broad guidelines are issued for a mutual fund. SEBI is the regulatory authority of mutual funds. SEBI has the following broad guidelines pertaining to mutual funds. MFs should be formed as a trust under Indian Trust Act and should be operated by Asset Management Companies. MFs need to set up a Board of Trustee Companies. They should also have their Board of Directors. The net worth of the AMC should be at least Rs 10 Crore. AMC and Trustees of a MF should be two separate and distinct legal entities. AMC or any of its companies cannot act as managers for any other fund. AMC has to get the approval of SEBI for its articles and Memorandum of Association. All MF Schemes should be registered with SEBI. MFs should distribute minimum of 90% of their profits among the investors.

70