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CHAPTER ONE:

1) INTRODUCTION:

1.1.1 MUTUAL FUND:

The SEBI regulations, 1993 defines a mutual fund as “a fund in the form of a
trust by a sponsor, to raise money by the trustees trough the sale of units to the public,
under one or more schemes, for investing in securities in accordance with these
regulations”

A mutual fund is a professionally-managed firm of collective investments that


pools money from many investors and invests it in stocks, bonds, short-term money
market instruments, and/or other securities. In a mutual fund, the fund manager, who is
also known as the portfolio manager, trades the fund's underlying securities, realizing
capital gains or losses, and collects the dividend or interest income. The investment
proceeds are then passed along to the individual investors. The value of a share of the
mutual fund, known as the net asset value per share (NAV), is calculated daily based on
the total value of the fund divided by the number of shares currently issued and
outstanding.

1.1.2 HISTORY OF THE MUTUAL FUND:

In the beginning:

Historians are uncertain of the origins of investment funds; some cite the closed-end
investment companies launched in the Netherlands in 1822 by King William I as the first
mutual funds, while others point to a Dutch merchant named Adriaan van Ketwich whose
investment trust created in 1774 may have given the king the idea. Van Ketwich probably
theorized that diversification would increase the appeal of investments to smaller
investors with minimal capital. The name of van Ketwich's fund, EENDRAGT MAAKT
MAGT, translates to "unity creates strength". The next wave of near-mutual funds
included an investment trust launched in Switzerland in 1849, followed by similar

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vehicles which is followed by many kind of companies created in Scotland in the 1880s.

The idea of pooling resources and spreading risk using closed-end investments soon took
root in Great Britain and France, making its way to the United States in the 1890s. The
Boston Personal Property Trust, formed in 1893, was the first closed-end fund in the U.S.
The creation of the Alexander Fund in Philadelphia, Pennsylvania, in 1907 was an
important step in the evolution toward what we know as the modern mutual fund. The
Alexander Fund featured semi-annual issues and allowed investors to make withdrawals
on demand.

The Arrival of the Modern Fund :

The creation of the Massachusetts Investors' Trust in Boston, Massachusetts, heralded


the arrival of the modern mutual fund in 1924. The fund went public in 1928, eventually
spawning the mutual fund firm known today as MFS Investment Management. State
Street Investors' Trust was the custodian of the Massachusetts Investors' Trust. Later,
State Street Investors started its own fund in 1924 with Richard Paine, Richard Saltonstall
and Paul Cabot at the helm. Saltonstall was also affiliated with Scudder, Stevens and
Clark, an outfit that would launch the first no-load fund in 1928. A momentous year in the
history of the mutual fund, 1928 also saw the launch of the Wellington Fund, which was
the first mutual fund to include stocks and bonds, as opposed to direct merchant bank
style of investments in business and trade.

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Regulation and Expansion:

By 1929, there were 19 open-end mutual funds competing with nearly 700 closed-
end funds. With the stock market crash of 1929, the dynamic began to change as highly-
leveraged closed-end funds were wiped out and small open-end funds managed to
survive.

Government regulators also began to take notice of the fledgling mutual fund industry.
The creation of the Securities and Exchange Commission (SEC), the passage of
the Securities Act of 1933 and the enactment of the Securities Exchange Act of 1934 put
in place safeguards to protect investors: mutual funds were required to register with the
SEC and to provide disclosure in the form of a prospectus. The Investment Company Act
of 1940 put in place additional regulations that required more disclosures and sought to
minimize and minimize grievience of investor of different catogeries conflicts of interest.

The mutual fund industry continued to expand. At the beginning of the 1950s, the number
of open-end funds topped 100. In 1954, the financial markets overcame their 1929 peak,
and the mutual fund industry began to grow in earnest, adding some 50 new funds over
the course of the decade. The 1960s saw the rise of aggressive growth funds, with more
than 100 new funds established and billions of dollars in new asset inflows.

Hundreds of new funds were launched throughout the 1960s until the bear market of
1969 cooled the public appetite for mutual funds. Money flowed out of mutual funds as
quickly as investors could redeem their shares, but the industry's growth later resumed.

Massachusetts Investors Trust (now MFS Investment Management) was founded on


March 21, 1924, and, after one year, had 200 shareholders and $392,000 in assets. The

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entire industry, which included a few closed-end funds, represented less than $10 million
in 1924.

The stock market crash of 1929 slowed the growth of mutual funds. In response to the
stock market crash, Congress passed the Securities Act of 1933 and the Securities
Exchange Act of 1934. These laws require that a fund be registered with the (SEC) .

1.1.3 SETUP OF MUTUAL FUNDS:

A mutual fund is set up in the form of a trust, which has sponsor, trustees, Asset
Management Company (AMC) and custodian. The trust is established by a sponsor or
more than one sponsor who is like promoter of a company. The trustees of the mutual
fund hold its property for the benefit of the unit holders.

Asset management company (AMC) approved by SEBI managers the fund by


making investments in various schemes of the in its custody. The trustees are vested with
the general power of superintendence and direction over AMC. They monitor the
performance and compliance of SEBI regulations by the mutual fund.

SEBI regulations 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 funds
are required to be registered with SEBI before they launch any scheme. The performance
of a particular scheme of a mutual fund is denoted by net value (NAV).

1.1.4 MUTUAL FUND VS OTHER INVESTMENT:

Mutual funds offer several advantages over investing in individual stocks. For example,
the transaction costs are divided among all the mutual fund shareholders, who also
benefit by having a third party (professional fund managers) apply expertise and dedicate
time to manage and research investment options. However, despite the professional
management, mutual funds are not immune to risks. They share the same risks associated

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with the investments made. If the fund invests primarily in stocks, it is usually subject to
the same ups and downs and risks as the stock market.

1.1.5 SHARE CLASES:

Many mutual funds offer more than one class of shares. For example, you may have seen
a fund that offers "Class A" and "Class B" shares. Each class will invest in the same pool
(or investment portfolio) of securities and will have the same investment objectives and
policies. But each class will have different shareholder services and/or distribution
arrangements with different fees and expenses

1.1.6 DISTRIBUTION CHANNELS IN THE MUTUAL FUND INDUSTRY:

In India, AMCs work with five distinct distribution channels those are direct , banking,
retail, corporate and indiual financial adviser.

• The Direct Channels:


In the direct channel, customers invest in the schemes directly through AMC. In
most cases , the company does not provide any investment advice, so these
investors have to carry out their own research and select schemes themselves. The
fund companies provide several tools to investors who invest through this
channel. This includes monthly a/c statement, processing of transaction, and
maintaince of records. In this channel most investors can invest through websites,
or receive information through telephonic services provided by the company.
About 10-20% of the total sales of an AMC come through this direct channel.

• The banking channel:


The large customer base of banks, in devolped countries, have played an
important role in the selling MFs. In the recent years, this cahannel has also

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opened up in india. Banks operating in india , including public sector, private and
foreign banks have established tie-up with various fund companies for providind
distribution and servicing.

The banking channel is likely to develop as the most vital distribution channel for
fund companies there are several reaons for the same. Customers remain invested
in banks for long periods of time and therefore banks maintain a relationship of
trust with their customers. Customers are rely on advice provided to them by
bankers as they are always on the look out for better investment avenues.
Managers are guiding to customers about various funds.

An additional advantage that banks provide is that the concerned customer


becomes a permanent contact of the banks and therefore can be reached during
launch of (new fund offer) NFO or new schemes any time in the future.

• The retail channel:


A customer can deal with directly with a sub broker belonging to a distribution
company, instead of taking trouble of dealing with several agents. Distribution
companies sell the schemes of several fund houses simultaneously and brokerage
is paid by the AMC whose funds they sell. The retail channel offer the benefits of
specialist knowledge and established client contact and, therefore private fund
houses are generally prefer this channel. Some of the major players in India in this
in this channel are national players lke Karvey, Birla sunlife IL&FS and
cholamandalam. The key factor for this channel to sell a company’s fund used to
be the brokerage paid. The banking and retail channel generally contribute to
about 50-70% of the total Asset Under Management(AUM).

• The corporate channel:

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The corporate channel includes a variety of institutions that invest in shares on the
company’s name. these are businesses, trust, and even state and local
governments. For institutional investors, fund managers prefer to create special
funds and share classes. Corporate can either invest directly in mutual funds, or
through an intermediary such as a distribution house or a bank.

Corporate exhibit varying degrees ‘of awareness of mutual fund products. Most of
the established corporate, such as the TVS industries in Hyderabad, are well-
versed with the performance and composition of various funds. The smaller
companies and start-up firms, however, need to be educating on several aspects of
mutual funds. In order to provide information to such clients, fund companies
usually organize presentation for these companies or set-up meetings with the
finance managers.

• Individual Financial Advisors(IFA) or Agents:

i. The IFA channel is the oldest channel for distribution and was widely employed at
the time when UTI monopoly in the market. In recent times with the emergence
significantly decreased.

ii. An agent who basically acts as an interface between the customer and the fund
house there is a unique systems in place in India , wherein several sub-brokers are
working under one main broker. The huge network of sub-brokers, thus ensure
larger market penetration and geographic coverage. As per AMFI, over one lakh
agents are registered to sell mutual funds and other financial products such as
insurance across the country.

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1.1.7 SEBI REGULATION ON THE INVESTMENT OF A MUTUAL FUND:

The investments of a mutual fund are subjected to a set of regulations prescribed by


SEBI. Presently following restrictions apply.

• No term loan shall be granted by a mutual fund scheme.


• A mutual fund, under all its schemes taken together, will not own more than 10
% of any company’s paid up capital carrying voting rights.

A scheme may invest in another scheme under the same asset management
company or any other mutual fund withought charging any fees, provided

• A scheme may invest in another sheme under the same asset management
company or any other mutual fund without charging any fees, provided that the
aggregate inter – scheme investment made by all the schemes under the same
management.
• Transfers of investment from one scheme to another scheme of mutual fund
permitted provided that:
a. Such transfers are done at the prevailing market price for quoted
instruments on spot basis.
b. The securities so transferred shall be in conformity with the investment
objectives of the schemes to which such transfer has been made.
c. The registration and accounting of the transactions is completed and
ratified in the next meeting of the board of trustees.
• A mutual fund may borrow to meet liquidity needs, for the purpose of repurchase,
redemption of units, or repayment of interest or dividend to the unitholders. Such
borrowings shall not exceed 20% of the net asset of the scheme and the duration
of the borrowing shall not exceed 6 months. The fund may borrow from

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permissible entities at prevailing market rates and may offer the assets of the
schemes as collateral for such borrowings.
• A scheme shaal not invest more than 15% of its NAV in debt instruments issued
by a single issuer which are rated not below investment grade by an authorized
credit rating agencu. Such investment limit may be extended to 20% of the NAV
of the scheme with the prior approval of Board of Trusttes and the Board of Asset
Management Company. This limit, however, is not applicable for investment in
governments securities and money market instruments.
• A scheme shaal not invest more than 10% of its NAV in unrated debt instruments
issued by a single issuer and the total investment in such instruments shall not
exceed 25% of the NAV of the scheme.
• A mutual fund will buy and sell securities on the basis of deliveries. It cannot
make short sales or engage in carry forward transactions.
• A scheme shall not make any investment in
a. Any unlisted security of an associates or group company of the sponsor .
b. Any security issued by way of private placement by an associate or group
company of the sponsor
c. The listed securities of group companies of the sponsor in exess of 25% of the
net assets.
• The investment manager may invest in a scheme from time to time. The percentage of
such investments to the total net assets may vary from time to time and can be upto
100% of the net assets of the schemes.
• A scheme shall not invest more than 10% of its NAV in the equity shares or equity
related instruments of any one company.
• A scheme may invest in ADRs/GDRs of Indian companies listed on overseas stock
exchanges to the extent and in a manner approved by RBI .
A scheme shall not invest more than 5% of its NAV in unlisted euity shares or equity
related instruments in case of an open ended schemes and 10% of its NAV in case a of
closed ended scheme.

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1.1.8 TAX SAVING ON MUTUAL FUND:

A. There are two types of tax-saving funds, equity-linked savings schemes (ELSS) and
pension funds. ELSS schemes are basically diversified equity schemes, which have a
three-year lock-in. Investments here—subject to a maximum of Rs 10,000—receive a
tax rebate of 0 to 20 per cent depending on the income slab. As these are equity
instruments they have the maximum risk-return potential among all asset classes. What
this means is that return has a propensity to vary with great intensity. Although an
average tax-saving mutual fund delivered 16.36 per cent in 2002, the range of returns was
extreme. Thus, in that year, the best tax-saving fund delivered 42.61 per cent and the
worst was down 3.16 per cent. The best way to overcome the vagaries of stock markets is
to diversify. Diversification can be across funds and, more importantly, across time
periods. By investing regularly every year in these funds one can set up a long-term
systematic investment plan.

The other route for saving taxes is pension funds, even though there are currently only
two such funds in operation, Franklin Templeton's Templeton India Pension Fund and
UTI's Retirement Benefit Plan. Introduced for the first time in 1997, pension funds are
hybrid schemes, which have a debt orientation, and carry the same tax benefit as ELSS.

From the tax point of view, bonus units are conceptually similar to dividend stripping,
but somewhat more complex. Bonus units that a fund issue is deemed to have been
acquired at zero cost. Thus, whenever they are sold, the entire sale price is treated as
capital gains. However, at the time of issue of bonus, the NAV of the fund drops in a
proportion that is identical to the ratio at which bonus funds are issued. This fall in the
NAV is a capital loss as far as the original units are concerned and it is here that tax
benefits can be realised. The original units can be sold off with a capital loss, which can
be used to set off other capital gains. The bonus units carry a high tax liability though
since you will pay taxes on the entire sale price.

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Here's an example. Suppose you hold 10,000 units of a fund whose NAV is Rs 15. You
made the purchase less than a year ago at an NAV of Rs 12. If today you decide to sell
these units, you will fetch Rs 1.5 lakh, out of which Rs 30,000 will be short-term capital
gain. On this, you are likely to pay a tax of Rs 9,000—30 per cent of gains.

1.1.9 ROLE OF MUTUAL FUND IN STOCK EXCHANGE:

Mutual funds are an ideal vehicle for investment by retail investors in the stock market
for several reasons.

i. It pools investments of small investors together increasingly thereby the


participation in the stock market.
ii. Mutual funds being institutional investors, can invest in market analysis generally
not available or accessible to individual investors, providing therefore informed
decisions to small investors.
iii. Mutual fund can diversify the portfolio in better way as compared with individual
investors due to the expertise and availability of funds.
Mutual funds in india, because of their mall size and slower growth in the recent past,
have tended to play only a limited role in the stock market.the share of mutual funds in
total turnover of the stock market (BSE+NSE), which was 4.9% in January 2000,
declined to 3.6% by January 2003.

1.1.10 Mutual Funds – FAQs:

(NAV)
Net Asset Value is the market value of the assets of the scheme minus its liabilities. The
per unit NAV is the net asset value of the scheme divided by the number of units
outstanding on the Valuation Date.

Sale Price

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Is the price you pay when you invest in a scheme. Also called Offer Price. It may include
a sales load.

Repurchase Price

Is the price at which a close-ended scheme repurchases its units and it may include a
back-end load. This is also called Bid Price.

Redemption Price

Is the price at which open-ended schemes repurchase their units and close-ended schemes
redeem their units on maturity. Such prices are NAV related.

Sales Load

Is a charge collected by a scheme when it sells the units. Also called, ‘Front-end’ load.
Schemes that do not charge a load are called ‘No Load’ schemes.

Repurchase or ‘Back-end’ Load

Is a charge collected by a scheme when it buys back the units from the unit holders.

1.1.11 COST INVOLVED IN MUTUAL FUNDS:

An investor must know that there are certain costs involved while investing in mutual
funds.

OPERATING EXPENSES:

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These refer to cost incurred to operate a mutual fund. Advisory fee is paid to investment
managers, audit fees to charted accountant, custodial fees, register and transfer agent fees,
trustee fees, agent commission. Operating expenses also known as expenses ratio which
is annual expenses expressed as a percentage of these expenses is required to be reported
in the schemes offer document or prospectus.

Operating expenses
Expenses ratio=
Average net assets

For instant, if funds Rs. 100 crores and expenses Rs. 20 lakhs. Then expenses ratio is 2%
expenses ratio is available in the offer document and fro historical per unit statistics
included in the financial results of the fund which are published by annually, un audited
for the half year ending September 30th and audited for the physically year end 1st March
30th .

Depending upon scheme and net asset, operating expenses are determined by limits
mandated by SEBI mutual funds regulation act. Any excess over specified limits as to
born by Management Company, the trustees or sponsors.

SALES CHARGES:

These are known commonly sale loads, these are charged directly to investor. Sales loads
are used by mutual fund for the payment of agent’s commission, distribution and
marketing expenses. These charges have no effect on the performance of the scheme.
Sales loads are usually expression percentage and or of two types front-end and back-end.

FRONT-END LOAD:

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It is a one time fixed fee paid by an investor when buying a Mutual funds 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 it 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 allowed to the investor.

Amount invested
Number of units allotted=
Public offer price

10,000/10,20= 980 units at a NAV of Rs. 10.

This means units worth 9800 are allotted to him an initial investment Rs.10,000 front end
loads tend to decrease as initial investment amount increase.

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BACK END LOAD:

May be fixed fee redemption or a contingent differed sales charged a redemption so load
continues so long as the redeeming or selling of the units of a fund does not take place in
the event of a back end load is applied. The redemption price is arrive or 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 units of Rs. 10 using the formula Redemption price
10/(1+0.02)= Rs. 9.8 s, what the investor gets in hand is 9800(9.8*1000).

CONTINGENT DEFERRED SALES CHARGES (CDSC):

Contingent differed sales charges of a structured back end load. It is paid when the units
are reading during the initial years of ownership. It is for a predetermined period only
and reduced over the time you invested for a fund. The longer remains in a fund the
lower the CDSC.

The SEBI stipulate the a CDSC may be charge only for first four years after purchase of
units and also stipulate the maximum CDSC that can we charge every year. This is the
SEBI mutual funds regulations 1996 do not allow either the front end load or back end
load to any combination is higher than 7%.

TRANSACTION COST:

Some funds may also impose a switch over fee which is charge on transfer of investment
from one scheme to another within a same mutual funds family and also to switch from

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one plan to another within same scheme.The real estate mutual funds sector is now being
considered as the engine of economic growth.

1.1.12 The objectives of Association of Mutual Funds in India:

The Association of Mutual Funds of India 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 a 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 mutual fund 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.

• Association of Mutual Fund of India 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 team of well qualified and trained Agent distributors. It implements


a programme of training and certification for all intermediaries and other engaged
in the mutual fund industry.

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• AMFI undertakes all India awarness programme for investors inorder to promote
proper understanding of the concept and working of mutual funds.

• At last but not the least association of mutual fund of India also disseminate
informations on Mutual Fund Industry and undertakes studies and research either
directly or in association with other bodies.

1.1.13 The sponsorers of Association of Mutual Funds in India:


Bank Sponsored :

• SBI Fund Management Ltd.


• BOB Asset Management Co. Ltd.
• Canbank Investment Management Services Ltd.
• UTI Asset Management Company Pvt. Ltd.

Institutions:

• GIC Asset Management Co. Ltd.


• Jeevan Bima Sahayog Asset Management Co. Ltd.

Private Sector:

Indian:-

• BenchMark Asset Management Co. Pvt. Ltd.


• Cholamandalam Asset Management Co. Ltd.
• Credit Capital Asset Management Co. Ltd.
• Escorts Asset Management Ltd.
• JM Financial Mutual Fund
• Kotak Mahindra Asset Management Co. Ltd.
• Reliance Capital Asset Management Ltd.

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• Sahara Asset Management Co. Pvt. Ltd
• Sundaram Asset Management Company Ltd.
• Tata Asset Management Private Ltd.

Predominantly India Joint Ventures:-

• Birla Sun Life Asset Management Co. Ltd.


• DSP Merrill Lynch Fund Managers Limited
• HDFC Asset Management Company Ltd.

Predominantly Foreign Joint Ventures:-

• ABN AMRO Asset Management (I) Ltd.


• Alliance Capital Asset Management (India) Pvt. Ltd.
• Deutsche Asset Management (India) Pvt. Ltd.
• Fidelity Fund Management Private Limited
• Franklin Templeton Asset Mgmt. (India) Pvt. Ltd.
• HSBC Asset Management (India) Private Ltd.
• ING Investment Management (India) Pvt. Ltd.
• Morgan Stanley Investment Management Pvt. Ltd.
• Principal Asset Management Co. Pvt. Ltd.
• Prudential ICICI Asset Management Co. Ltd.
• Standard Chartered Asset Mgmt Co. Pvt. Ltd.

1.1.14 Performance of Mutual Funds in India:

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

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

factor after the liberalization.

The Assets Under Management of UTI was Rs. 67bn. by the end of 1987. Let me
concentrate about the performance of mutual funds in India through figures. From Rs.
67bn. the Assets Under Management rose to Rs. 470 bn. in March 1993 and the figure
had a three times higher performance by April 2004. It rose as high as Rs. 1,540bn.

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

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

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GROSS FUND MOBILISATION (RS. CRORES)

P
PRIV
U UBL T
T ATE
FROM T IC OTA
O SECT
I SEC L
OR
TOR

31
- 1
01- M 1,
1,73 21,37
April- ar 6 7,966
2 7
98 ch 7
- 9
99

31
- 1
01- M 3,
4,03 42,17 59,74
April- ar 5
9 3 8
99 ch 3
- 6
00

01- 31 1 6,19 74,35 92,95


April- - 2, 2 2 7
00 M 4
ar 1
ch

2
-
3
01

31
-
01-
4,
6 13,6 1,46,2 1,64,
M
4 13 67 523
April- ar
3
01 ch
-
02

31
5,
01- -
5 22,9 2,20,5 2,48,
April- Ja
0 23 51 979
02 n-
5
03

31
-
01- M
7,25 58,43 65,69
Feb.- ar *
9* 5 4
03 ch
-
03

01- 31 - 68,5 5,21,6 5,90,


April- - 58 32 190
03 M

2
ar
ch
-
04

31
-
01- M
April- ar
1,03, 7,36,4 8,39,
ch -
246 16 662
-
04

05

31
-
01- M
1,83, 9,14,7 10,98
April- ar -
446 12 ,158
05 ch
-
06

1.1.15 MARKET TREND:

A lone UTI with just one scheme in 1964, now competes with as many as 400 odd
products and 34 players in the market. In spite of the stiff competition and losing market
share, UTI still remains a formidable force to reckon with.

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Last six years have been the most turbulent as well as exiting ones for the industry. New
players have come in, while others have decided to close shop by either selling off or
merging with others. Product innovation is now passé with the game shifting to
performance delivery in fund management as well as service. Those directly associated
with the fund management industry like distributors, registrars and transfer agents, and
even the regulators have become more mature and responsible.

The industry is also having a profound impact on financial markets. While UTI has
always been a dominant player on the bourses as well as the debt markets, the new
generation of private funds which have gained substantial mass are now seen flexing their
muscles. Fund managers, by their selection criteria for stocks have forced corporate
governance on the industry. By rewarding honest and transparent management with
higher valuations, a system of risk-reward has been created where the corporate sector is
more transparent then before.

Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCG
and technology sector. Funds performances are improving. Funds collection, which
averaged at less than Rs.100bn per annum over five-year period spanning 1993-98
doubled to Rs.210bn in 1998-99. In the current year mobilization till now have exceeded
Rs.300bn. Total collection for the current financial year ending March 2000 is expected
to reach Rs.450bn.

towards mutual funds has become obvious. The coming few years will show that the
traditional saving avenues are losing out in the current scenario. Many investors are
realizing that investments in savings accounts are as good as locking up their deposits in
a closet. The fund mobilization trend by mutual funds in the current year indicates that
money is going to mutual funds in a big way. The collection in the first half of the
financial year 1999-2000 matches the whole of 1998-99.

India is at the first stage of a revolution that has already peaked in the U.S. The U.S.
boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund

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assets are not even 10% of the bank deposits, but this trend is beginning to change.
Recent figures indicate that in the first quarter of the current fiscal year mutual fund
assets went up by 115% whereas bank deposits rose by only 17%. (Source: Thinktank,
The Financial Express September, 99) This is forcing a large number of banks to adopt
the concept of narrow banking wherein the deposits are kept in Gilts and some other
assets which improves liquidity and reduces risk. The basic fact lies that banks cannot be
ignored and they will not close down completely. Their role as intermediaries cannot be
ignored. It is just that Mutual Funds are going to change the way banks do business in the
future.

PARTICULAR BANKS MUTUAL FUND


RETURN LOW BETTER
RISK HIGH LOW
INVESTMENT OPTION LESS MORE
NETWORK HIGH PENETRATION LOW BUT IMPROVING
LIQUIDITY AT A COST BETTER
QUALITY OF ASSETS NOT TRANSPARENT TRANSPARENT
INTEREST CALCULATION MINIMUM BALANCE BETWEEN EVERY DAY
10TH AND 30TH OF EVERY

MONTH.
ADMINISTRATION EXPENSES HIGH LOW

GUARANTEE MAX. RS 1LACK ON DEPOSIT NONE

Table 1.1

1.1.16 FUTURE OF MUTUAL FUND:

Indian mutual fund industry reached Rs 1,50,537 crore by March 2004. It is estimated
that by 2010 March-end, the total assets of all scheduled commercial banks should be Rs
40,90,000 crore. The annual composite rate of growth is expected 13.4% during the rest
of the decade. In the last 5 years there is an annual growth rate of 9%. According to the

2
current growth rate, by year 2010,

Mutual fund India assets will be double.

• 100% growth in the last 6 years.


• Number of foreign AMC's are in the queue to enter the Indian markets like
Fidelity Investments, US based, with over US$1trillion assets under management
worldwide
• Our saving rate is over 23%, highest in the world. Only channelizing these
savings in mutual funds sector is required.
• We have approximately 29 mutual funds, which is much less than US having
more than 800. There is a big scope for expansion.
• 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are
concentrating on the 'A' class cities. Soon they will find scope in the growing
cities.
• Mutual fund can penetrate rurals like the Indian insurance industry with simple
and limited products.
• SEBI allowing the MF's to launch commodity mutual funds.
• Emphasis on better corporate governance.
• Trying to curb the late trading practices

The asset base will continue to grow at an annual rate of about 30 to 35 % over the next
few years as investor’s shift their assets from banks and other traditional avenues. Some
of the older public and private sector players will either close shop or be taken over.

1.2) ABOUT SPECIFIC AREA OF THE TOPIC CHOOSEN:

1.2.1 Investment management :

Is the professional management of various securities (shares, bonds etc) assets (e.g. real
estate), to meet specified investment goals for the benefit of the investors. Investors may

2
be institutions (insurance companies, pension funds, corporations etc.) or private
investors (both directly via investment contracts and more commonly via collective
investment schemes e.g. mutual funds) .

The term asset management is often used to refer to the investment management of
collective investments, whilst the more generic fund management may refer to all forms
of institutional investment as well as investment management for private investors.
Investment managers who specialize in advisory or discretionary management on behalf
of (normally wealthy) private investors may often refer to their services as wealth
management or portfolio management often within the context of so-called "private
banking".

The provision of 'investment management services' includes elements of financial


analysis, asset selection, stock selection, plan implementation and ongoing monitoring of
investments. Investment management is a large and important global industry in its own
right responsible for caretaking of trillions of dollars, euro, pounds and yen. Coming
under the remit of financial services many of the world's largest companies are at least in
part investment managers and employ millions of staff and create billions in revenue.

1.2.2 Investment managers and portfolio structures:

At the heart of the investment management industry are the managers who invest and
divest client investments.

A certified company investment advisor should conduct an assessment of each client's


individual needs and risk profile. The advisor then recommends appropriate investments.

• ASSET ALLOCATION:

The different asset classes and the exercise of allocating funds among these assets (and
among individual securities within each asset class) is what investment management
firms are paid for. Asset classes exhibit different market dynamics, and different

2
interaction effects; thus, the allocation of monies among asset classes will have a
significant effect on the performance of the fund. Some research suggests that allocation
among asset classes has more predictive power than the choice of individual holdings in
determining portfolio return. Arguably, the skill of a successful investment manager
resides in constructing the asset allocation, and separately the individual holdings, so as
to outperform certain benchmarks (e.g., the peer group of competing funds, bond and
stock indices).

• LONG TERM RETURN:

It is important to look at the evidence on the long-term returns to different assets,


and to holding period returns (the returns that accrue on average over different lengths of
investment). For example, over very long holding periods (eg. 10+ years) in most
countries, equities have generated higher returns than bonds, and bonds have generated
higher returns than cash. According to financial theory, this is because equities are riskier
(more volatile) than bonds which are themselves more risky than cash.

• DIVERSIFICATION:

Against the background of the asset allocation, fund managers consider the degree of
diversification that makes sense for a given client (given its risk preferences) and
construct a list of planned holdings accordingly. The list will indicate what percentage of
the fund should be invested in each particular stock or bond. The theory of portfolio
diversification was originated by Markowitz and effective diversification requires
management of the correlation between the asset returns and the liability returns, issues
internal to the portfolio (individual holdings volatility), and cross-correlations between
the returns.

1.2.3 Performance measurement:

Fund performance is the acid test of fund management, and in the institutional
context accurate measurement is a necessity. For that purpose, institutions measure the

2
performance of each fund (and usually for internal purposes components of each fund)
under their management, and performance is also measured by external firms that
specialize in performance measurement. The leading performance measurement firms
(e.g. Frank Russell in the USA) compile aggregate industry data, e.g., showing how funds
in general performed against given indices and peer groups over various time periods.

In a typical case (let us say an equity fund), then the calculation would be made (as far as
the client is concerned) every quarter and would show a percentage change compared
with the prior quarter (e.g., +4.3% total return in US dollars)..

Generally speaking, it is probably appropriate for an investment firm to persuade its


clients to assess performance over longer periods (e.g., 3 to 5 years) to smooth out very
short term fluctuations in performance and the influence of the business cycle.

An enduring problem is whether to measure before-tax or after-tax performance. After-


tax measurement represents the benefit to the investor, but investors' tax positions may
vary.

• RISK ADJUSTED PERFORMANCE:

Performance measurement should not be reduced to the evaluation of fund returns alone,
but must also integrate other fund elements that would be of interest to investors, such as
the measure of risk taken. Several other aspects are also part of performance
measurement: The need to answer all these questions has led to the development of more
sophisticated performance measures, many of which originate in modern portfolio theory.

Modern portfolio theory established the quantitative link that exists between portfolio
risk and return. The Capital Asset Pricing Model (CAPM) developed by Sharpe (1964)
highlighted the notion of rewarding risk and produced the first performance indicators, be
they risk-adjusted ratios (Sharpe ratio, information ratio) or differential returns compared
to benchmarks (alphas). The Sharpe ratio is the simplest and best known performance
measure. It measures the return of a portfolio in excess of the risk-free rate, compared to

2
the total risk of the portfolio. This measure is said to be absolute, as it does not refer to
any benchmark, avoiding drawbacks related to a poor choice of benchmark.

.Portfolio normal return may be evaluated using factor models. The first model, proposed
by Jensen (1968), relies on the CAPM and explains portfolio normal returns with the
market index as the only factor. It quickly becomes clear, however, that one factor is not
enough to explain the returns and that other factors have to be considered.

1.3) ABOUT THE TOPIC:

1.3.1 MEANING:

A mutual fund is a professionally-managed firm of collective investments that pools


money from many investors and invests it in stocks, bonds, short-term money market
instruments, and/or other securities. In a mutual fund, the fund manager, who is also
known as the portfolio manager, trades the fund's underlying securities, realizing capital
gains or losses, and collects the dividend or interest income. The investment proceeds are
then passed along to the individual investors. The value of a share of the mutual fund,
known as the net asset value per share (NAV), is calculated daily based on the total value
of the fund divided by the number of shares currently issued and outstanding

1.3.2 DEFINITION:

2
The SEBI regulations, 1993 defines a mutual fund as “a fund in the form of a trust by a
sponsor, to raise money by the trustees trough the sale of units to the public, under one or
more schemes, for investing in securities in accordance with these regulations”

1.3.3 CONCEPT OF MUTUAL FUND:

A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities. The income earned through
these investments and the capital appreciation realised are shared by its unit holders in
proportion to the number of units owned by them. Thus a Mutual Fund is the most
suitable investment for the common man as it offers an opportunity to invest in a
diversified, professionally managed basket of securities at a relatively low cost. The flow
chart below describes broadly the working of a mutual fund.

Mutual Fund Operation Flow Chart:

2
Figure1.1

1.3.4 ENTITIES IN MUTUAL FUND OPERATIONS:

In India, the following are involved in a mutual fund operations: the sponsor, the mutual
fund, the trustees, the asset management company, the custodian, and the registrars and
transfer agents.

• Sponsor:

The sponsor of a mutual fund is like the promoter of a company. The sponsor may be a
bank, a financial institution, or a financial service company. It may be indian or foreign.
The sponsor is responsible for setting up and establishing the mutual fund. The sponsor is
the settler of the mutual fund trust. The sponsor delegates the trustee fuction to the
trustees.

• Mutual fund :

The mutual funds constitued as a trust under the Indian trust act, 1881, and registered
with SEBI.

• Trustees:

A trust is a notional entity that cannot contract in its own name. so, the trust enters into
contracts in the name of the trustees. Appointment by the sponsor, the trustees can be
either individuals or a corporate body. Typically it is the latter. The trusees appoint the
asset management company(AMC), secure necessary approval, periodically monitor how
the AMC fuctions, and hold the properties of the various schemes in trust for the benefits
of investors.

• Asset Management Company:

2
It also reffered to as the investment manager, is a separate company appointed by the
trustees to run the mutual fund. The AMC should have a certificate from sebi to act as
portfolio manager under SEBI rules and regulations, 1993.

• Custodian:

The custodian handles the investment back office operations of a mutual fund. It looks
after the receipt and delivery of securities, collection of income, distribution of dividends,
andsegregation of assets between schemes. The sponsor of a mutual fund cannot act as its
custodian.

• Registrars and transfer agents:

The registrars and transfer agents handle investor related services such as issuing units,
redeeming units, sending fact sheets and annual reports, and so on. Some funds handle
such fuctions in house, while others outsource it tobSEBI approved registrars and transfer
agents like karvy and CAMS.The legal structure and organization of mutual funds as laid
down by SEBI guidelines is as follows.

ORGANISATION OF MUTUAL FUND:

SPONCER OF MUTUAL FUND-(COMPANY


,BANK)

BORD OF
TRUSEE

POLICY MAKING BODY FOR


2 FUND
RAISING.
ASSET MANAGEMENT ACTUAL IMPLIMENTATION OF THE POLICY
COMPANY AND INVESTMENT OPERATIONS.

CUSTODIAN
ACTING AS REGISTRAR, TRANSFER AGENT AND
RELATED SERVICE FOR MUTUAL FUND.

INVESTOR

Figure 1.2

1.3.5 Schemes of Mutual funds :

Types of mutual fund scheme:

Operational classification portfolio classification

Open ended Return based:

close ended (income,growth, &income and growth fund)

2
Investment based

(equity, liquid, balanced funds)

Sector based

(real estate, special, index-linked funds)

Leverage based

Others

Figure 1.3 (hedge and offshore funds)

1.3.5 Schemes according to Maturity Period OR by structure:

A mutual fund scheme can be classified into open-ended scheme or close-ended


scheme depending on its maturity period.

Open-ended Scheme: An open-ended fund or scheme is one that is available for


subscription and repurchase on a continuous basis. These schemes do not have a fixed
maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV)
related prices which are declared on a daily basis. The key feature of open-end schemes is
liquidity.

2
Close-ended Scheme: A close-ended fund or scheme has a stipulated maturity period e.g.
5-7 years. The fund is open for subscription only during a specified period at the time of
launch of the scheme. Investors can invest in the scheme at the time of the initial public
issue and thereafter they can buy or sell the units of the scheme on the stock exchanges
where the units are listed. In order to provide an exit route to the investors, some close-
ended funds give an option of selling back the units to the mutual fund through periodic
repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two
exit routes is provided to the investor i.e. either repurchase facility or through listing on
stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.

1.3.6 Schemes according to Investment Objective:

A scheme can also be classified as growth scheme, income scheme, or balanced scheme
considering its investment objective. Such schemes may be open-ended or close-ended
schemes as described earlier. Such schemes may be classified mainly as follows:

Growth / Equity Oriented Scheme:

The aim of growth funds is to provide capital appreciation over the medium to long-
term. Such schemes normally invest a major part of their corpus in equities. Such funds
have comparatively high risks. These schemes provide different options to the investors
like dividend option, capital appreciation, etc. and the investors may choose an option
depending on their preferences.

Income / Debt Oriented Scheme:

The aim of income funds is to provide regular and steady income to investors. Such
schemes generally invest in fixed income securities such as bonds, corporate debentures,
Government securities and money market instruments. Such funds are less risky
compared to equity schemes. These funds are not affected because of fluctuations in
equity markets.

2
Balanced Scheme:

The aim of balanced funds is to provide both growth and regular income as such schemes
invest both in equities and fixed income securities in the proportion indicated in their
offer documents. These are appropriate for investors looking for moderate growth. They
generally invest 40-60% in equity and debt instruments. These funds are also affected
because of fluctuations in share prices in the stock markets. However, NAVs of such
funds are likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund:

These funds are also income funds and their aim is to provide easy liquidity, preservation
of capital and moderate income. These schemes invest exclusively in safer short-term
instruments such as treasury bills, certificates of deposit, commercial paper and inter-
bank call money, government securities, etc. Returns on these schemes fluctuate much
less compared to other funds. These funds are appropriate for corporate and individual
investors as a means to park their surplus funds for short periods.

Gilt Fund:

These funds invest exclusively in government securities. Government securities have no


default risk. NAVs of these schemes also fluctuate due to change in interest rates and
other economic factors as is the case with income or debt oriented schemes.

Index Funds:

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index,
S&P NSE 50 index (Nifty), etc, these schemes invest in the securities in the same
weightage comprising of an index. NAV’s of such schemes would rise or fall in
accordance with the rise or fall in the index, though not exactly by the same percentage

due to some factors known as "tracking error" in technical terms. Necessary disclosures
in this regard are made in the offer document of the mutual fund scheme.
2
Load Funds

A Load Fund is one that charges a commission for entry or exit. That is, each time you
buy or sell units in the fund, a commission will be payable. Typically entry and exit loads
range from 1% to 2%. It could be worth paying the load, if the fund has a good
performance history.

No-Load Funds

A No-Load Fund is one that does not charge a commission for entry or exit. That is, no
commission is payable on purchase or sale of units in the fund. The advantage of a no
load fund is that the entire corpus is put to work.

2
1.3.7 Sector Specific Schemes:

These are the funds/schemes which invest in the securities of only those sectors or industries
as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer
Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the
performance of the respective sectors/industries.

Special Schemes

• Industry Specific Schemes

Industry Specific Schemes invest only in the industries specified in the offer document. The
investment of these funds is limited to specific industries like InfoTech, FMCG,
Pharmaceuticals etc.

• Index Schemes

Index Funds attempt to replicate the performance of a particular index such as the BSE
Sensex or the NSE 50

• Sectoral Schemes

Sectoral Funds are those, which invest exclusively in a specified industry or a group of
industries or various segments such as 'A' Group shares or initial public offerings

Tax Saving Schemes:

These schemes offer tax rebates to the investors under specific provisions of the Income Tax
Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g.
Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also
offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities.
Their growth opportunities and risks associated are like any equity-oriented scheme.

1.3.8 IMPORTANCE OR BENEFITS OF MUTUAL FUND:

The mutual fund industry has grown at a phenomenal rate in the recent past. The following
are some of the important advantages of mutual funds.

Indian academy school of management studies 38


• Channelizing savings for investment:
A number of schemes are being offered by MFs so as to meet the varied requirements
of the peoples and savings are directed towards capital investments directly. In the
absence of MFs these savings would have remained idle.

• Offering wide portfolio investment:


Now the investors can enjoy the wide portfolio investment held by the mutual fund.
The fund diversifies its risks by investing in large varieties of shares and bonds which
cannot be done by small and medium investor. This is investors.This is in accordance
with the maximum ‘not to lay all eggs in one basket

• Providing better yields:


Due to the large funds. Mutual funds are able buy cheaper and sell dearer than the
small and medium investors. Thus they are able to the command better market rates
and lower rates of brokerage. So they provide better yield to their customers .they also
enjoy the economics of large scale and can reduce the cost of capital market
participation

• Redering expertise investment service at low cost:


The management of the fund is generally assigned to professionals who are well
trained and have adequate experience in the field of investment. Thus, investor are
assured of quality services in there best interest. The intermediation fee is the lowest
being 1% in the case of a mutual fund.

• Providing research services:


Each fund maintains large research team, which constantly analyses the companies
and the industries and recommends the fund to buy or sell a particular share. Thus
investment are made purely on the basis of a thorough research.

Indian academy school of management studies 39


• Offering tax benefits:
Certain funds offer tax benefits to its customers. Thus, apart from dividend, interest
and capital appreciation, investors also stand to get the benefit of tax concession.
Under the wealth tax act, investments in MFs are exempted up to Rs. 5 lakhs.

• Introducing flexible investment schedule:


Some mutual funds are permitted the investor exchange their units from one schemes
to another and this flexibility is a great boon to investors.

• Providing greater affordability and liquidity:


Even a very small investor can afford to invest in mutual funds. They provide an
attractive and cost effective alternative to direct purchase of shares. Again there is
greater liquidity. Units can be sold to the fund at any time at the net asset value and
thus quick access to liquid cash is assured. Besides, branches of the sponsoring bank
are always ready to provide loan facility against the unit certificates.

• Simplified record keeping:


The investor has to keep a record of only one deal with the mutual fund. Even if he
does not keep a record, the MF sends statements very often to the investors.

• Supporting capital market:


The savings of the people are directed towards investments in capital market through
these mutual funds. Mutual funds also provide a valuable liquidity to the capital
market, and thus the market is made very active and stable.

• Promoting industrial development:


All industrial units have to raise their funds by resorting to the capital market by the
issue of shares and debentures. The mutual funds not only create a demand for these
capital market instruments but also supply a large source of funds to the market.

Indian academy school of management studies 40


• Diversification: The best mutual funds design their portfolios so individual
investments will react differently to the same economic conditions. For example,
economic conditions like a rise in interest rates may cause certain securities in a
diversified portfolio to decrease in value. Other securities in the portfolio will respond
to the same economic conditions by increasing in value. When a portfolio is balanced
in this way, the value of the overall portfolio should gradually increase over time,
even if some securities lose value.

1.3.8 Drawbacks of Mutual Funds:

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

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


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

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

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

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

Indian academy school of management studies 41


1.3.9 OPTIONS AND VALUE-ADDED SERVICES:

Thanks to the heightened competition in the mutual fund industry, mutual funds now offer
various options and value-added services to attract and retain customers.

• Options:

With respect to a number of schemes, mutual funds offer the following: dividend and growth
options, systematic investment plan, and systematic withdrawal plan.

i. Dividend and growth options When you join a scheme, you can shoose the dividend
option or the growth option. Under the dividend option, the gains of the scheme are paid
out at regular intervals in the form of dividends. Funds may offer daily, weekly,
monthly, quarterly, half-yearly, and annual dividend options.

ii. Under the growth option, investment gains are ploughed back into the scheme and no
dividends are declared. Though the returns from both the dividend and growth options
will be the same, the tax implications may be different.

iii. Systematic investment plan Under the systematic investment plan (SIP), the investor
can invest regular sums of money every month to buy units of a mutual fund scheme.
As the investment is made regularly, the investor buys more units when the price is low
and fewer units when the price is high.

iv. Systematic withdrawal plan A systematic withdrawal plan (SWP) works like a
systematic investment plan in the opposite direction. The SWP allows the investor to
withdraw a fixed amount every month.

• 8.2 Value-added services :

Mutual funds offer value-added services like redemption over phone, triggers and alerts,
cheque book facility, and new points of purchase.

i. Redemption over phone Prudential ICICI for example offers investors the facility of
making a redemption request or switch between schemes over the phone.

ii. Cheque book facility Fund houses take few days to process a redemption request and
then further time is lost when the redemption cheque is in transit. To cut down this

Indian academy school of management studies 42


delay, some fund houses give investors in certain schemes (typically debt scemes), the
some limit, at the time of investment itself. Encashment of the cheque is deemed as
withdrawal, at the scheme’s NAV on the day the cheque is deposited.

1.3.9 HOW TO PICK UP CHOOSEN ONE:

There are few tips which helps the investors to choose right fund.

• The fund offering:


Investors having wide range of offering to choose from different fund each fund is
a distinct offering, pick the one that suits your risk – appetite and profile the best.

• The fund’s performance:


The return clocked by a fund are an important parameter to judge its worth as an
investment avenue, while the fund’s return are historical in nature. It serves as an
indicator of what the fund is capable of performing.

• The fund manager/management style:


The fund manager and his approach to fund management play a vital role in
determining the fund’s success or otherwise. Evaluate the fund manager’s past track
record in the schemes he manages.

• Portfolio management:
The fund’s portfolio can reveal a lot about the fund. Ideally a fund should display a high
degree of consistency in its holdings; similarly the portfolio should be a well-spread one.

• Risk-adjusted return and volatility:


We havw discussed about importance of a fund’s performance i.e. the return it has
delivered; however, the fund showing on the risk-adjusted return front is vital as well. A

Indian academy school of management studies 43


higher sharp ratio is indicative of the fact that the fund has adequately compensated its
investors for risk borne.

• Expense ratio and load:


Expenses incuured by the fund have a significant impact on its performance. The
expenses are incurred for a variety of reasons ranging from management fees to
marketing and selling expenses. Similarly entry/exit load are vital too. An entry load
reduces the amount invested proportionately and only the balance is utilized for
generating returns.

• The fund house:


The fund house is an important entity and due attention must be to it as well. Investors
comfort levels would surely be higher if the fund house is a reputed one has a history
of producing funds that have superior returns.

• Seek advice:
Utilize the services of a financial planner before making investments in mutual funds.
A financial planner will help you create a portfolio comprising of schemes that are
“right” for you.

• The PMS option:


Investors who have a large investible surplus can explore the option of utilizing a
portfolio performance management services (PMS) can be explored. The right
investment plan an important role in enabling you to achieve you financial goals and
objectives.

Indian academy school of management studies 44


CHAPTER TWO:

RESEARCH DESIGN:

2.1. Introduction:

Research refers to a search for knowledge. The advanced learner’s dictionary of current
english lays down the meaning of research as “ a careful investigation or enquiry specially
through search for new facts in any branch of knowledge.”

Research methodology is a way to systematically solve the research problem. It may be


understood as a science of studying how research is done scientifically. In it we study the
various steps that are generally adopted by a research in studying his research problem along
with the logic behind them. It is necessary for the researcher to know how to develop certain
indices or tests, how to calculate the mean, the mode, the median or the standard deviation or
chi-suare, how to apply particular research technique, but they also need to know which of

Indian academy school of management studies 45


these methods or techniques, are relevant and which are not, and what would they mean and
indicate and why. Researchers also by which they can decide that certain techniques and
procedures will be applicable to certain problems and other will not. All this means that it is
necessary for the researcher to design his methodology.

The research methodology has wider dimension and wider scope than that of research
methods. Thus, when we talk of research methodology we not only talk of research methods
but also consider the logic behind the methods we use in the context of our research methods
but also consider the logic behind the methods we use in the context of our research study
and explain why we are using a particular method or technique and why we are not using
other so that research results are capable of being evaluated either by the researcher himself
or by others.

2.2 Review of literature:

A research should be preliminary orientation and background knowledge about the topic and
he should collect the basic concept and information regarding the final in which the topic
includes due to this reasons review of the literature has an important role in research study.

Considering the importance of mutual funds, several academicians have tried to study the
performance of various funds. Initially, their studies have focused on timing and investment
abilities of fund managers. Later, several researchers have tried to study the various factors
and their impact on fund performance. These factors include potential measurement errors
from survivorship bias and misspecification of the benchmark, the impact of fund expenses
and economies of scale, to the personal characteristics of fund managers. Various studies that
focused on factors such as the ability of fund managers to consistently outperform the market
and the fund specific organizational and managerial aspects, came out with contradictory
conclusions.

Jenson’s (1968) study on mutual fund performance of 115 funds over a period spanning from
1945 60 1964, confirmed the efficient market hypothesis. His analysis has shown that the
performance of expense-adjusted fund returns was markedly lower than those randomly
chosen portfolios of a similar risk category. These results were in sync with the findings of
Treynor 91965) and Sharpe (1966). Performance of professionally managed funds also was
not any better than the performance of risk-adjusted index portfolio, which also indicated that

Indian academy school of management studies 46


managers of these funds did not appear to possess private information. Thus, the results of
the early studies prevailed as general conclusions in the erstwhile literature.

However, a number of later studies on the topic, nonetheless, go against the early findings.
For instance, a study by Ippolity (1993) found mutual fund returns after expenses (before
loads) to be superior than the returns offered by risk-adjusted market indices, which indicated
that mutual fund managers may have access to the useful private information. Thus, the
mutual fund managers may produce such excess returns that can offset the expenses of the
fund.

Further studies by Grinblatt and Titman (1992), Hendricks, Patel and Zeckhauser (1993),
Goetzmann and Ibbotson (1994), and Volkman and Wohar (1995) were in support of market
efficiency as they discovered instances of repeated winners amongst fund managers.
Recently, Wermers (2000) decomposed mutual fund returns into a stock picking talent;
features of stockholding and trading costs and expenses. The decomposition helped him
show that stock picking of funds, in fact, enabled the managers to cover their costs. Other
studies by Elton, Gruber, Das and Hlavka (1993), Malkiel (1995) and Carhart (1997)
reinforce the early conclusion of Jensen (1968). While doing away with survivorship bias,
carhart (1997) has shown that the common factors that drive stock returns are responsible for
consistency in mutual fund performance.

On the other hand the Malkiel (1995) study considers both benchmark errors and
survivorship bias and concludes that the previous results indicating market inefficiency were
affected by these factors.

2.3 Statement of the problem:

“ A study on Analysis of the performance of mutual fund with reference to mutual fund
industry.”

2.4. Scope of the study:

The study of mutual fund has the wider scope. Mutual fund is a professionally managed form
of collective investment that pools money from many investors and invest it in stocks, bonds,
short-term money market instruments and other securities. Mutual fund distributors of tax
free municipal bonds income are also tax free to the share holders. Taxable distribution can

Indian academy school of management studies 47


be either ordinary income or capital schems which are equity schemes , debt and hybrid
schems.

The present study includes five-year return of the mutual fund companies and funds in
India. Out of all mutual fund companies we have selected only two companies those are ING
mutual fund and HDFC mutual fund, and only those schemes and funds are included in this
study, which are performed well during from last few years. The schemes covered under the
study are:

i. ING domestic opportunities fund.

ii. ING selected stock fund.

iii. INg dividend yield fund.

iv. ING nifty plus fund.

v. ING L.I.O.N fund .

vi. ING Tax saving fund.

vii. HDFC Growth fund.

viii. HDFC Equity fund.

ix. HDFC top 200 fund.

x. HDFC Capital builder fund.

xi. HDFC index fund(Sensex plan).

xii. HDFC Index fund(Nifty plan).

To evaluate the performance of schemes and funds, the researcher applied Sharpe Index,
Treynor Index and Jensen’s Alpha measure.

2.5. Objectives of the problem:

The major objectives of study are as follows.

 To evaluate investment performance of mutual funds in terms of risk and return.

 To examine the funds sensitivity to the market fluctuations in terms of beta.

 To find out the financial performance of mutual fund schemes.

Indian academy school of management studies 48


 To appraise investment performance of mutual funds with risk adjustment, the
theoretical parameters as suggested by Sharpe, Treynor and Jensen.

 To analyze the performance of various schemes of mutual funds.

 To identify the sector where the mutual fund and how invested.

 To provide valuable suggestions and recommendations.

2.6. Methodology:

Methodology is a way to systematically solve the research problem. It may be understood as


a science of studying how research is done scientifically. In it we study the various steps that
are generally adopted by a research in studying his research problem along with the logic
behind them. Methodology refers to methods adopted to carry out the research and steps
adopted to solve the problem finding solution

2.6.1 Type of the study:

• Descriptive study:

The type of the study or research used in this project is a descriptive research design. It
mainly involves surveys and facts findings enquiries of different kinds. The main objective of
descriptive research is to describe the state of affairs as it exists at present. The major purpose
of descriptive research is a description of the state of the affairs, as it exists at present. Thus a
descriptive study is a fact finding investigation with adequate interpretation. It is the simplest
type of research. It focuses on particular aspects or dimensions of the problem studied. It is
designed that it gathers descriptive information and provides information for formulating
more sophisticated studies. There is a cause effective relationship.

The criteria for selecting this particular design are that, the problem of the project must be
described and not arguable. The data collected is amenable to statistical analysis and has
accuracy and significance. It is possible to develop to valid standards of comparison. It tends
itself to the verifiable procedure of collection and analysis of data.

Indian academy school of management studies 49


Descriptive study objective aim at identifying the various characteristics of a company
problem under study. It can reveal potential relationships between variables with exploratory
research.

2.6.2 Type of data:

Secondary data:

The data which is used for the research is secondary data. The secondary data is the
data which is duplicate of primary data. “The data (published or unpublished) which
have already been collected and processed by some agency or person and taken over
from there and used by any other agency for their statistical work are termed as
person and taken over from there and used by any other agency for their statistical
work are termed as secondary data” as far as second agency is concerned. The second
agency if and when it publishes and files such data becomes the secondary source to
anyone who later uses these data.

In other words secondary source is the agency who publishes for use by others the
data which was not originally collected and processed by it.

2.6.3 Sources of data:

Unpublished sources:

i. The data can be governments or private offices can be collected from these are
unpublished data.

ii. The research work, the secret documents.

Published sources:

Indian academy school of management studies 50


i. Central and state government publication publishes the various statistics like crop
production, population, statistic, wages expenses.

ii. The commerce association, commerce and trade association, Indian chamber of
commerce federation are publishes several data.

iii. News paper, journals, periodicals etc. publishes the several data.

iv. Some private organization, research berceuse, universities publishes several data’s.

Periodicals: ICFAI journals

Internet: google.com

Value research online.com

Nytimes.com

AMFI.com

News papers: financial express

Company journals: Factsheets of ING investment and HDFC.

2.7 Tools for analysis:

2.7.1 Standard deviation:

It is used to measure the variation in individual returns from the average expected return over
a certain period. Standard deviation is used in the concept of risk of a portfolio of
investments; higher standard deviation means a greater fluctuation in expected return.

2.7.2 Beta:

Beta measures the systematic risk and shows how prices of securities respond to the market
forces. It is calculated by relating the return on a security with return for the market. By
convention, market will have beta 1.0 Mutual fund is said to be volatile, more volatile or less
volatile. If beta is greater than 1 the stock is said to be riskier than market. If beta is less than
1, the indication is that stock is less risky in comparison to market. If beta is zero then the
risk is the same as that of the market. Negative beta is rare.

Indian academy school of management studies 51


2.7.3 Sharpe index:

Sharpe index measures risk premium of a portfolio, relative to the total amount for risk in the
portfolio. Sharpe index summarizes the risk and return of a portfolio in a single measure that
categorizes the performance of funds on the risk-adjusted basis. The larger the Sharpe Index,
the portfolio over performance the market and vice versa.

Portfolio Average Return (R ) – Risk Free Rate of Interest (R )


p t
Sharpe Index =
Standard Deviations of the Portfolio Return

2.7.4 Treynor’s Index :

Treynor’s model is on the concept of the characteristics straight line. The characteristics line
has drawn a relationship between the market return and a specific portfolio without taking
into consideration any direct adjustment for risk. It is also known as reward to volatility ratio
and is defined as:

Portfolio Average Return (R )-Risk Free Rate of


Treynor Index = p
Interest (R )
t

Beta Coefficient of Portfolio

2.7.5 Jensen Measures:

It measures the difference between market risk and actuel performance of the fund.

JM = Average return of the portfolio – SML

Indian academy school of management studies 52


2.8 Limitations of the study:

The study also has the some limitations which are as follows:

 The study is restricted to secondary data only

 The time is the main constraint so limited period of time is spent on this study.

 The support from the management side may be limited due to their pre occupied meetings
and work.

 Not possible to get whole information because of their business secret and lack of
awareness among people.

 Mutual fund industries are so developed as compared to stock market.

2.9. CHAPTER SCHME:

Chapter NO. Contents

1 Introduction

2 Research Design

3 Profile of the organization

4 Analysis and interpretation of data

Indian academy school of management studies 53


5 Summary of findings, conclusion and
suggestions.

6 Bibliography
(Annexure)

CHAPTER THREE:

3.1 PROFILE OF THE INDUSTRY:

The Indian mutual fund industry has evolved over distinct stages. The growth of the mutual
fund industry in India can be divided into four phases: Phase I (1964-87), Phase II (1987-
1992), Phase III (1992-1997) and Phase IV (beyond 1997).

Mutual fund industry started in India with the establishment of Unit Trust of India (1964),
which was the only player in the mutual fund industry up to 1987. In 1987, the government
permitted public sector banks and financial institutions to join the fray. From 1993 onwards
the industry was opened up for private participation. Thus, private and foreign players have
started setting up mutual funds in India. Today, mutual funds are one of the fast-growing
sectors in India.

The Indian Mutual Fund industry has grown tremendously in the last decade. There are 29
mutual funds as on March 31st, 2005 with Assets under Management (AUM) of rs. 1,49,600
cr (Table1). AUM crossed Rs. 1,00,000 cr during the year 1999-2000 recording a growth rate
fo 65%. Besides, a vast majority of equity schemes outperformed the market.

The origin of mutual fund industry in India is with the introduction of the concept of mutual
fund by UTI in the year 1963. The main reason of its poor growth is that the mutual fund

Indian academy school of management studies 54


industry in India is new in the country. Large sections of Indian investors are yet to be
intellectuated with the concept. Hence, it is the prime responsibility of all mutual fund
companies, the up with condition to market the product correctly abreast of selling.
The mutual fund industry can be broadly put into four phases according to the development
of the sector. Each phase is briefly described as under.

3.1.1 First Phase – from 1964-87:

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by
the Reserve Bank of India and functioned under the Regulatory and administrative control of
the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial
Development Bank of India (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 totally had Rs.6,700 crores of assets under management.

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

Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by Canbank Mutual
Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund of
(Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC in 1989 and
GIC in 1990. The end of 1993 marked Rs.47,004 as assets under management.

3.1.3 Third Phase - 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund
industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year
in which the first Mutual Fund Regulations came into being, under which all mutual funds,
except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged
with Franklin Templeton) was the first private sector mutual fund registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and
revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI and
(MutualFund)Regulations1996.

Indian academy school of management studies 55


The number of mutual fund houses went on increasing, with many foreign mutual funds
setting up funds in India and also 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.

3.1.4 Fourth Phase - since February 2003

This phase had bitter experience for UTI. It was bifurcated into two separate entities. One is
the Specified Undertaking of the Unit Trust of India with AUM of Rs.29,835 crores (as on
January 2003). The Specified Undertaking of Unit Trust of India, functioning under an and
administrator and under the rules framed by Government of India and does not come under
the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is with
registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation
of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of AUM and with
the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and
with recent mergers taking place among different private sector funds, the mutual fund can
industry has entered its current phase of consolidation and growth. As at the end of
September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421
schemes.

3.2 The major players in the Indian Mutual Fund Industry are:

Indian academy school of management studies 56


GROWTH IN ASSETS UNDER MANAGEMENT:

Figure 1.4

STRUCTURE OF MUTUAL FUND INDUSTRY IN INDIA:

MUTUAL FUND INDUSTRY

Indian academy school of management studies 57


SEBI ASSOCIATION OF MUTAUL
FINDS

MUTUAL FUNDS

SPONSOR BOARD OF ASSET CUSTODIA INVESTOR


TRUSTEES MANAGEMENT N S
COMPANY

PUBLIC SECTOR PRIVATE


SECTOR

UTI BANKS FI
SPONSORE
D SPONSORED

MUTUAL FUND SCHEMES

Figure 1.5

3.3 Rating of Mutual fund schemes in mutual fund industry:

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Mutual fund schemes are periodically evaluated by independent institutions. CRISIL, Value
Research India, and Economic Times are three such institiutions whose rankings or
evaluations are currently very popular.

CRISIL Credit Rating nd Information Services of India Limited (CRISIL) carries out
Composite Performance Rankings that cover all open-ended schemes that disclose their entire
portfolio composition and have NAV information for at least two years. It currently ranks
schemes in five categories, viz., Equity Schemes, Debt Schemes, Gllit Schemes, Balanced
Schemes, and Liquid Schemes. Its ranking is based on four criteria, viz., risk-adjusted return
of the scheme’s NAV, diversification of the portfolio, liquidity, and asset size. The weights
assigned to these criteria vary from category to category.within each category, the top 10
percent are considered vbery good, thenext 20 percent good, the next 40 percent average, the
next 20 percent below average, and the last 10 percent poor.

Value research India like CRISIL, value research India rates schemes in different categories.
Each scheme is assigned a risk grade and a return grade and a composite measure of
performance is calculated by subtracting the risk grade from the return grade. Within each
category, the top 10 percent are consideree five star, the next 22.5 percent four star, the next
35 percent three star, the next 22,5 percent two star, and the last 10 percent one star.

3.4 Some facts for the growth of mutual fund industry in India:

• 100% growth in the last 6 years.

• Number of foreign AMC's are in the que to enter the Indian markets like Fidelity
Investments, US based, with over US$1trillion assets under management worldwide.

• Our saving rate is over 23%, highest in the world. Only channelizing these savings in
mutual funds sector is required.

• We have approximately 29 mutual funds which is much less than US having more
than 800. There is a big scope for expansion.

• 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are
concentrating on the 'A' class cities. Soon they will find scope in the growing cities.

• Mutual fund can penetrate rurals like the Indian insurance industry with simple and
limited products.

Indian academy school of management studies 59


• SEBI allowing the MF's to launch commodity mutual funds.

• Emphasis on better corporate governance.

• Trying to curb the late trading practices.

• Introduction of Financial Planners who can provide need based advice.

3.5 FOLLOWED BY THAT OF COMPANY

Here in this project we considered two companies for analysis part ING Investment pvt.ltd.

(ING Group) and HDFC mutual fund(HDFC GROUP)

3.5.1 ING Group management structure:

ING Vysya Mutual Fund:

ING Vysya Mutual Fund was setup on February 11, 1999 with the same named Trustee
Company. It is a joint venture of Vysya and ING. The AMC, ING Investment Management
(India) Pvt. Ltd. was incorporated on April 6, 1998.

ING Group is known for its philosophy of 'keeping it simple' covering some 60 million
private, corporate and institutional clients in 50 countries. It is the world's fourth largest
financial services group.

ING Vysya Mutual Fund aims to provide investors with the most practical and secure
investment opportunities to invest their valuable savings. This is combined with a range of
innovative options to deliver healthy returns combined with a high degree of security.
Currently, the fund offers four equity, five debt and two hybrid schemes to its investors.

3.5.2 ING Investment Management:

In India ING Investment Management (I) Pvt Ltd has an investor base of over 1,52,677 with
Rs. 5080.97 crores as of June 30th, ’07 (SOURCE: WWW.AMFIINDIA.COM ). With a
presence in 34 locations, we currently manage 21 schemes.

Indian academy school of management studies 60


ING Investment Management (I) Pvt Ltd has been associated with innovation and responsive
adaptability with sharp minds at work. ING Investment Management has sealed a position of
strength and is considered as one of the top contenders to challenge the market leaders. ING
Investment Management has enjoyed many firsts and has always maintained a pioneering
outlook.

A few achievements are highlighted below:

• First Investment Manager to launch a packaged concept in Asset Management


Industry.
• Awarded “Abby Gold 2006” for its advertising Campaign for ING LION Fund.
• Two CRISIL AAAf * products in Debt Fund space. (ING Liquid Fund & ING
Floating Rate Fund).
• First Asset Manager to launch a debt fund based on Credit risk with a portfolio based
on credit monitor. (ING Select Debt Fund).
• First Private Sector Mutual Fund to launch a concept dedicated to women.
(Mahilanivesh)
• ING Dynamic Asset Allocation Fund was awarded “Most Innovative Product” by
Asia Asset Monitor.
• ING Mutual Fund recently launched India’s first DAILY TRANSFER PLAN called
Zoom Investment Pac (ZIP).
• ING Mutual Fund has also pioneered a new reality show on television called Indian
Investor of the Year.

* The assigned rating of AAAf is valid only for ‘ING Floating Rate Fund’ and ‘ING Liquid
Fund’. The rating of the fund is not an opinion of the asset management company’s
willingness or ability to make timely payments to the investor. The rating is also not an
opinion on the stability if the NAV of the fund, which could vary with market developments.

Financial markets:

ING Vysya Bank Financial Markets is a leading player in the Indian Financial Markets
providing one of the widest ranges of products for large corporate, small and medium
enterprises as well as individual needs. Supported by state-of-the-art systems and the
capabilities of the ING Group, we offer competitive pricing and efficient execution across
markets and a comprehensive suite of products.

Indian academy school of management studies 61


Wholesale banking:

Wholesale Banking is a reflection of ING Vysya Bank's ability to provide its corporate
clients in India a full range of commercial, transactional and electronic banking products. The
bank offers a wide array of client-focused corporate banking services, including working
capital finance, trade and transactional services, foreign exchange and cash management, to
name a few.

Isnvestment banking, local debt syndication and securitization:

The bank is uniquely positioned to be able to advise, lead manage and place, thus giving the
customer the advantage of being a full fledged Commercial Bank along with investment
banking. As a Category I merchant banker registered with SEBI, the bank has an advanced
product portfolio that includes the following.

Financial advisory service: for mergers and acquisitions, capital and debt structuring and
restructuring, private capital raising and structured financing. This includes onshore as well
as offshore.

Local debt distributin: both in loan and bond forms, including plain vanilla debt and
structured dedt.

Securitization: We advise our clients on securitising their assets with a view to sell them.
Our services include advisory, structuring portfolios, assist in obtaining ratings for the
portfolios & sell-down of the portfolio.

investment banking services are provided to a range of Indian as well as offshore clients. For
cross border transactions involving global clients, the investment-banking group works
closely with ING Bank's global corporate finance and investment banking office.

Trade finance and commodities:

As an innovative solution provider of international and domestic trade flows of our clients,
we offer an entire range of trade finance products. The product suite, offered in close co-
ordination with the ING global network of structured trade finance units includes

Indian academy school of management studies 62


documentary credit, guarantees, bills/ invoices discounting, supply chain financing, pre/post-
export finance and structured commodity finance.

Letter of credit: letter of credit facilities (inland/ foreign) are provided to the customers for
meeting working capital requirement needs as well as for capital requirements purchases.

Bill Discounting: Bill discounting involves financing of short-term trade receivables through
negotiable instruments/ invoices discounting. This has gained considerable importance in
recent past in view of self-liquidating in nature.

Supply chain financing: SCF refers to trade credit extended by the Bank to partners
involved in comprehensive supply chain process (commodities to cash) commencing from
conversion of raw material into parts/ components, consumed by big manufacturers and
thereafter sold to ultimate consumers through dealers. Core objective is to provide integrated
financial solution to the supply and distribution channels of our corporate clients.

Export credit: ING Vysya provides extensive export credit for pre-shipment and post-
shipment requirements of exporter borrowers in rupees and foreign currencies. We also
arrange discounting of bills under export LCs by overseas banks at competitive pricing with/
without recourse to the exporters.

Private banking:

believe that trust can be built over time by continuously providing quality advice to our
customers."-Michel Tilmant, Chairman, ING Group Welcome to ING Vysya Bank, Private
Banking Division. Our integrated global business in insurance, asset management and
banking enables us to offer clients innovative financial solutions few others can match. ING
Asia Private Banking has been ranked as # 1 for Best quality advice in the Asia Money
2007 survey amongust clients with AUM exceeding 25 million.

Accounts and deposits:

• Rupee savings accounts

• NRE and NRO savings accounts

• NRE and NRO current accounts

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Foregn currency deposit:

Earn Indian Interest Rates on your Foreign Currency deposits with our Foreign Currency
Non-Resident deposit.

3.5.2 HDFC GROUP:

The housing development finance corporation (HDFC) was amongst the first to receive an 'in
principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private
sector, as part of the RBI's liberalisation of the Indian Banking Industry in 1994. The bank
was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered
office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial
Bank in january 1995.

HDFC Mutual Fund:

HDFC Mutual Fund was setup on June 30, 2000 with two sponsorers nemely Housing
Development Finance Corporation Limited and Standard Life Investments Limited.
The Standard Life Assurance Company was established in 1825 and has considerable
experience in global financial markets. In 1998, Standard Life Investments Limited became
the dedicated investment management company of the Standard Life Group and is owned
100% by The Standard Life Assurance Company. With global assets under management of
approximately US$126 billion as at May 15, 2003, Standard Life Investments Limited is one
of the world's major investment companies and is responsible for investing money on behalf
of five million retail and institutional clients worldwide.
The Trustee Company of HDFC Mutual Fund is HDFC Trustee Company Limited and AMC
is HDFC Asset Management Company Limited, incorporated with the SEBI on December
10,1999.

The products of HDFC Mutual Fund are as follows:

• Equity Funds
• Balance Funds
• Debt Funds

Apart from this it also provides the following value added services:

Indian academy school of management studies 64


• SIP (Systematic Investment Plan)
• STP (Systematic Transfer Plan)
• SWAP (Systematic Withdrawal Advantage Plan)

HDFC Bank :

(NYSE: HDB), one amongst the firsts of the new generation, tech-savvy commercial banks
of India, was incorporated in August 1994, after the Reserve Bank of India allowed setting up
of Banks in the private sector. The Bank was promoted by the Housing Development Finance
Corporation Limited, a premier housing finance company (set up in 1977) of India. Net Profit
for the year ended March 31, 2006 was Rs. 1,141 crores. Results of the latest quarter ended
June 2007, indicate that the bank continues to grow in a steady manner.

HDFC bank also have the different banking fuction:

• Personal banking

• Wholesale banking

• NRI banking

Branch network:

Currently HDFC Bank has 753 branches, 1,716 ATMs, in 320 cities in India, and all branches
of the bank are linked on an online real-time basis. The bank offers many innovative products
& services to individuals, corporates, trusts, governnments, partnerships, financial
institutions, mutual funds, insurance companies. It is the pathbreaker in the indian banking
sector.

HDFC PRODUCT RANGE:

HDFC Bank India provides the

following range of products:

• Savings Account

Indian academy school of management studies 65


• HDFC Bank Preferred
• Sweep-In Account
• Super Saver Account
• HDFC Bank Plus
• Demat Account
• HDFC Mutual Fund
• HDFC Standard Life Insurance

HDFC India innovative services

• HDFC Phone Banking


• HDFC ATM
• HDFC Inter-city/Inter-branch Banking
• HDFC Net Banking
• HDFC International Debit Card
• HDFC Mobile Banking
• HDFC Bill Pay

HDFC Bank Loans

• HDFC Personal Loan


• HDFC New Car Loan and Used Car Loan
• HDFC Loan Against Shares
• HDFC Two Wheeler & Consumer Loan
• HDFC Home Loan

Indian academy school of management studies 66


3.3 SPECIFIC DEPARTMENT WHICH YOU STUDIED:

3.3.1 Investment service department:

The Department provides investor needs and aftercare to both new and existing foreign and
citizen enterprises through its One Stop Service Centre (link to How can we help you). This
facility operates with liaison officers from various government and parastatal institutions that
have a direct bearing in providing services to investors.

The main focus of activity is to enable investors in the manufacturing and services sectors to
secure all clearances and approvals necessary to set up and operate business in the country
from under one roof. The assistance provided includes company registration, operating
licenses, visitors visa, residence and work permits as well as infrastructural facilities such as
land, factory buildings, utilities, social prerequisites, power and telephone connections.

The Department literally takes the investor by the hand and helps them walk through all
formalities until the business is established. Thereafter, investors are paid periodic visits
which enable interactions necessary to preempt any difficulties that they may encounter in
their day to day operations.

3.3.2 INVESTOR SERVICES

All share transfers and related operations have so far been conducted in-house by Hindustan
Lever's Investor Service Department, which is registered with the SEBI as a Category 2
Registrar. It is a well equipped department which endeavours to provide efficient and timely
services to its shareholders in share transfers and related operations.

The Company has evaluated the option of outsourcing the investor service function in order
to add further value and to overcome certain limitations like not being able to service
shareholders directly across the counter at various places across the Country where the
shareholders are based. After a careful evaluation, the Company has come to the conclusion
that it will benefit the shareholders if the investor service function is outsourced to an outside
agency which has in addition to specialised expertise, better infrastructure to serve the
investors across the Country. Accordingly, it has been decided that the share registration and
allied operations relating to the equity shares of the Company will be outsourced to Karvy
Computershare Private Limited (Karvy) who are Category I Registrars & Transfer Agents

Indian academy school of management studies 67


registered with SEBI and possess almost 20 years experience in handling share registry
operations. Karvy serves over 250 corporate clients and renders service to an investor base of
over 16 million. It is the largest Registrar & Share Transfer Agents in the Country and serves
the investors through its 193 branches across 135 cities.

The Company has appointed M/s.Karvy Computershare Private Limited (Karvy) as


Registrars and Transfer Agents with effect from 1st July,2004. We are happy to inform you
that all requisite steps in connection with shifting the investor service operations from
Company's office at Navi Mumbai to Karvy's central office at Hyderabad have been
completed and Karvy is fully operational in respect of the Company's share registry work
with effect from 16th July,2004.

Accordingly all operations/correspondence relating to share transfers and allied operations


e.g. demat, change of address, request for issue of duplicate share certificates, exchange of
merged Company's shares, transmission of shares, payment of dividend etc., will be handled
by Karvy and not by Company's office at Navi Mumbai wih effect from 16th July ,2004. You
are, therefore, requested to send all documents/correspondence in relation to the above to
Karvy at the following address after the said date:

3.4 DISCUSSION ABOUT THE PRODUCTS THEY PRODUCE IS


DESIRABLE:

ING domestic opportunity fund:(an open ended equity scheme)

Objective: to provide long-term capital appreciation from a portfolio that is


primarily invested in companies, which derive significant propotion of their
revenue from domestic Indian market place/economy. In case adequate
investment opportunities are not available due to valuation considerations etc,
amongst the primary investment opportunities amongst the general investment
universe.

ING select stock fund (an open ended growth scheme)

Objective: to provide long term capital appreciation from a portfolio that is


invested predominately in equity and equity related securities.

Indian academy school of management studies 68


ING dividend yield fund :( an open ended equity scheme)

Objective: to provide medium to long term capital appreciation and / or


dividend distribution by investing predominantly in equity and equity related
instruments, which offer high dividend yield.

ING midcap fund :( an open ended equity scheme)

Objective: an open-ended scheme, seeking to provide long-term growth of


capital at controlled level of risky by investing primarily in midcap stocks. The
level of risk is somehow what higher than a fund focused on large and liquid
schemes.

ING L.I.O.N. :( Open ended diversified equity scheme)

Objective: it seeks to provide medium to long-term capital appreciation by


investing in stocks across the entire market capitalization.

ING nifty plus fund :( an open ended indexed equity scheme)

Objective: the objective of fund is to invest in companies whose securities are


included in the S&P CNX Nifty index.

ING tax saving fund :( an open ended indexed equity savings scheme)

Objective: to generate medium to long-term growth of capital along with


income tax rebates

ING ATM (against money market): (open-ended diversified equity scheme)

Objective: to generate capital appreciation from a diversified portfolio of


equity and equity related instruments by investing in the stock of companies,
which are financially sound but are undervalued.

Indian academy school of management studies 69


ING C.U.B (competitive upcoming businesses): (open-ended balanced
scheme)

Objective: seeking to provide long-trm capital appreciation by investing pre-


dominantly in a diversified portfolio of equity and equity related securities of
companies of small market capitalization.

ING Dynamic asset:

Objective: the primary investment objective of scheme is to seek to generate


capital appreciation by actively investing in equity/ equity related securities.
The scheme may invest in debt, money market instruments, to the extent
permitted under the regulations. Exposure to debt securities would be in line
with the fund manager ’s caution on the equity market. In case of –ve view on
equity markets the fund manager may choose to have 100% allocation to debt
securities.

ING liquid fund:

Objective: to provide reasonable returns while providing a high level of


liquidity and low risky by investing primarly in money market and debt
securities. The aim is to optimize returns while providing liquidity.

ING liquid plus fund:

Objective: The scheme would aim to provide an investment avenue for


investors preferring good liquidity and an investment horizon of 2 to 6 months.
The scheme would be able to achieve its objectives by investing in a portfolio
of money market and debt instruments.

ING liquid call fund:

Objective: The aim is to optimize returns and take advantage of phases of high
overnight rates and inverted curves while providing liquidity

Indian academy school of management studies 70


ING floating rate fund:

Objective: the primary objective of scheme is to provide income consistent


with the prudent risk from a portfolio comprising substantially of floating rate
instruments. Under normal circumstances 65% of corpus will be invested in
floating rate instruments and upto 35% in fixed rate instruments.

ING income fund:

Objective: to generate attractive income by investing in a diversified portfolio


of debt and money market instruments of varying maturities, and at the same
time provide continuous liquidity along with adequate safety.

ING select debt fund:

Objective: To generate income by investing in higher yielding fixed income


securities by maintaining a higher expose in AA rated securities and money
market instruments of varying maturity dates with view to maximize income
while maintaining optimum balance of yield, safety and liquidity.

ING Gilt fund:

Objective: The primary objective of the scheme is to generate relatively risk


free return by investing in sovereign instruments issued by the central/state
government as defined u/s of public debt act 1944. The scheme will not make
investment in any other type of security such shares, debentures etc.

ING MIP Fund plan-A and ING MIP Fund plan-B

Objective: The primary objective of the scheme is to generate regular income


by investing in diversified portfolio of debt and money market instruments of
varying maturities and at the same provide continuous liquidy along with
adequate safety.

Under plan B the scheme will also seek to generate capital appreciation by
investing a smaller portion of corpus in equity and equity related securities.

Indian academy school of management studies 71


ING Global Real Estate fund:

Objective: The primary aim of the scheme is to seek capital appreciation by


investing predominantly in ING Global Real Estate Securities Fund. The
scheme may invest a certain portion of its corpus in money market instruments
in order to meet liquidity.

HDFC MUTUAL SCHEMES:

HDFC Growth fund:

Objective: To generate long term capital appreciation from a portfolio that is


predominantly invested equity and equity related instruments.

HDFC Equity fund:

Objective: To achieve capital appreciation.

HDFC Top 200 schemes:

Objective: To generate long term capital appreciation from a portfolio of equity


and equity related instruments primarily drawn from the companies in BSE 200
index.

HDFC Capital Builder fund:

Objective: To achieve capital appreciation in long term.

HDFC Core & Satellite Fund:

Objective: To generate capital appreciation through equity investment in


companies whose shares are quoting at prices below their true value.

HDFC Premier Multi-Cap fund:

Objective: To generate capital appreciation in long term through equity


investment by investing in a diversify portfolio of MidCap and Large Cap ‘blue
chip’ companies.

Indian academy school of management studies 72


HDFC Index fund:

Objective:

Nifty plan: to generate returns those are commensurate with the performance of
nifty, subject to tracking errors.

Sensex plan: to generate returns those are commensurate with the performance
of nifty, subject to tracking errors.

Sensex Plus Plan: to invest 80 to 90% of the assets of the plan in companies
whose securities are included in sensex and between 10 to 20% of the net assets
in companies whose securities are not included in the sensex.

HDFC Arbitrage fund:

Objective: To generate income through arbitrage opportunities between cash


and derivative segment and by deployment of surplus cash in debt securities
and money market instruments.

HDFC Children’s gilt fund:

Objective: To generate long term capital appreciation.

HDFC Balanced fund:

Objective: To generate capital appreciation along with current income from a


combined portfolio of equity, debt and money market instruments.

HDFC Prudence Fund:

Objective: To provide periodic returns and capital appreciation over a long


period of time from a judicious mix of equity and debt to minimize capital
erosion.

Indian academy school of management studies 73


HDFC Long Term Advantage fund:

Objective: To generate long term capital appreciation from a portfolio that is


predominantly invested equity and equity related instruments.

HDFC Tax Saver:

Objective: To achieve long term growth of capital.

HDFC MF Monthly Income Plan:

Objective: To generate the regular return through investment primarily in debt


and money market instruments.

HDFC Multiple Yield Fund:

Objective: To generate positive returns over medium time frame with low risk
of capital loss over medium time frame.

HDFC Income Fund:

Objective: To optimize returns while maintaining a balance of safety, yield and


liquidity.

HDFC High Interest Fund (HHIF)

Objective: To generate income by investing in a range of debt and money


market instruments of various maturity dates with a view to maximize income
with safety, yield and security.

HDFC Short Term Plan (STP):

Objective: To generate regular income through investment in debt securities


and money market instruments.

Indian academy school of management studies 74


HDFC Liquid Fund (HLF):

Objective: To enhance income consistent with a high level of liquidity, through


a judicious portfolio mix comprising of money market and debt instruments.

HDFC Cash Management Fund:

Objective: Savings and call plan.

HDFC Floating Rate Income Fund:

Objective: To generate regular income through investment in a portfolio


comprising substantially of floating rate debt/money market instruments, fixed
rate debt/ money market instruments swapped for floating rate return and fixed
rate debt securities and money market instruments.

HDFC Gilt Fund:

Objective: To generate credit risk-free return through instruments in sovereign


securities issued by the central government and or a state govern.

Indian academy school of management studies 75


CHAPTR FOUR:-

“DATA ANALYSIS AND INTERPRETATION”.

1. Statement of the problem:

“Analyses the performance of mutual fund with reference to mutual fund industry.”

2. Objectives:

 To evaluate investment performance of mutual funds in terms of risk and return.

 To examine the funds sensitivity to the market fluctuations in terms of beta.

 To find out the financial performance of mutual fund schemes.

 To appraise investment performance of mutual funds with risk adjustment, the


theoretical parameters as suggested by Sharpe, Treynor and Jensen.

 To analyze the performance of various schemes of mutual funds.

3. Methodology:

Methodology is a way to systematically solve the research problem. It may be understood as


a science of studying how research is done scientifically.

• Type of the study:

o Descriptive study:

The type of the study or research used in this project is a descriptive research design. It
mainly involves surveys and facts findings enquiries of different kinds. The main
objective of descriptive research is to describe the state of affairs as it exists at present.

• Type of data:

o Secondary data:

“The data (published or unpublished) which have already been collected and processed by
some agency or person and taken over from there and used by any other agency for their

Indian academy school of management studies 76


statistical work are termed as person and taken over from there and used by any other
agency for their statistical work are termed as secondary data”.

ANALYSIS AND DISCUSSION:

4.1 ING Domestic Opportunities Fund:

Nature of the scheme: An open ended equity scheme

Scheme objective : To provide long term capital appreciation from a portfolio that is

Primarily invested in companies, which derive significant

Proportion of their revenues from domestic Indian market economy.

Investment pattern: Minimum Rs.5000 and in multiples of Rs.1

Date of launch : 12-09-2002

Fund size : 112.29 Crores

NAV per unit as on 31th January 2008

Growth Option : Rs. 36.28

Dividend Option : Rs. 16.69

Bonus Option : Rs. 36.28

Benchmark : BSE-100

Load structure

Entry load : 2.25% for investment of less than Rs,1 cr. No entry load on

Investment of more than 1 cr.

Exit load/CDSC : 1% on the investment below 1 cr. And redeemed within 180 days,

0.5% if Redeemed after 180 but before 365 days and no exit load on

the investment of more than 1 cr.

Indian academy school of management studies 77


4.1.1Port folio construction as on 31th January 2008:

Assets under Management: Rs. 112.29 crores.

Table 1.1

Sectors and companies % of portfolio


Banks 15.27
Refineries/marketing 9.76
Telecom – services 6.68
Power equipments 5.08
Diversified- construction 4.74
steel 4.40
Passenger / utility vehicles 3.70
cigarettes 3.49
Transmission towers 3.09
Oil exploration/production 2.64
Construction projects 2.50
Consumer electronics 2.34
Housing finance 2.15
Plastic products 2.11
NBFC 2.01
Cement 1.98
Computer-hardware i.92
Pharmaceuticals 1.82
Gas transmission/marketing 1.80
Fabrics and garments 1.79
Fertilizers-nitrogenous 1.64
Power 1.59
Industrial equipment and others 17.5

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4.1.2 Fund performance as on 31th January 2008:

Table 1.2

Period Actual return Benchmark rturn


Last one year 16.10 17.95
Last two year 31.02 32.12

Last three year 41.19 38.92


Last four year 43.28 42.58
Last five year 46.31 42.04

4.1.3 Quantitative data:

Table 1.3

Sharpe ratio 0.918

Treynor ratio 23.69

Jensen ration -4.99

Interpretation:

By comparing these three ratios the fund giving fair return that is 0.918 by taking into
consideration of total risk of 23.19 because it measures the reward to the total risk. By
evaluating treynor ratio this fund performing well it gives 23.69 returns by talking into
consideration of total market risk this fund gave the good return but it can’t perform up to the
benchmark return for last two years so it gave negative result in the Jensen ratio.

Indian academy school of management studies 79


4.2 ING Select Stock Fund:

Nature of the scheme: An open ended growth scheme

Scheme objective : To provide long term capital appreciation from a portfolio that is

Primarily invested in equity and equity related securities.

Investment pattern: Minimum Rs.5000 and in multiples of Rs.1

Date of launch : 06-05-1999

Fund size : 36.55 Crores

NAV per unit as on 31th January 2008

Growth Option : Rs. 36.80

Dividend Option : Rs. 19.44

Benchmark : BSE-100

Load structure

Entry load : 2.25% for investment of less than Rs,1 cr. No entry load on

Investment of more than 1 cr.

Exit load/CDSC : 1% on the investment below 1 cr. And redeemed within 180 days,

0.5% if Redeemed after 180 but before 365 days and no exit load on

the investment of more than 1 cr.

Indian academy school of management studies 80


4.2.1 Portfolio construction as on 31th January 2008:

Asset under management Rs.36.55crores:

Table 1.4

Sectors and companies % portfolio


Banks 11.36
Refiniries/marketing 8.49
Computers-software 8.27
Telecom-services 6.88
Steel 6.04
Financial institutions 5.24
Diversified-constructions 4.06
Power equipments 3.69
Housing finance 3.50
Construction projects 3.47
Cement 2.88
Oil exploration/production 2.81
Industrial minarals 2.80
Cigarates 2.67
Residential/commercial/sez projects 2.44
Construction civil 2.27
Plastic products 1.99
Fabrics and garments 1.90
NBFC 1.90
Passenger/utility vehicles 1.86
Pharmaceuticals 1.86
Printing and publishing 1.84
Ship building 1.84
Stock broking and allied 1.81
Oil exploration 1.33
CBLO/Repo/FD/Cash/Other assets 4.56

4.2.2 Fund performance as on 31th January 2008:

Table 1.5

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Period Actual return Benchmark return

Last one year 17.72 17.95

Last two year 31.85 32.12

Last three year 41.17 38.92

Last four year 38.83 42.58

Last five year 16.07 22.49

4.2.3 Quantitative data:

Table 1.6

Sharp ratio 0.9466

Treynor ratio 23.88

Jensen ratio -1.94

Interpretation:

By comparing these ratios the sharp ratio shows that the fund performing better and giving
fair return that is 0.9466. by evaluating treynor ratio this fund able to give good returns that is
23.88 by considering market risk of 1.01. This fund consistently performing well. Because it
gave less negative value -1.94, it shows that fund generating good returns.

4.3 ING Dividend Yield Fund:

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Nature of the scheme: An open ended equity scheme.

Scheme objective : To provide long term capital appreciation and / or dividend

distribution by investing predominantly in equity and equity

related instruments, which offer high dividend yield.

Investment pattern: Minimum Rs.5000 and in multiples of Rs.1

Date of launch : 24-10-2001

Fund size : 28.89 Crores

NAV per unit as on 31th January 2008

Growth Option : Rs. 15.12

Dividend Option : Rs. 13.74

Bonus option : Rs. 15.12

Benchmark : BSE-100

Load structure

Entry load : 2.25% for investment of less than Rs,1 cr. No entry load on

investment of more than 1 cr.

Exit load/CDSC : 1% on the investment below 1 cr. And redeemed within 180 days,

0.5% if Redeemed after 180 but before 365 days and no exit load on

the investment of more than 1 cr

4.3.1 Portfolio construction as on 31th January 2008:

Indian academy school of management studies 83


Asset under management Rs.28.89 crores:

Table 1.7

Sectors and companies % Portfolio


Banks 15.26
Refineries/marketing 8.71
Fertilizers-nitrogenous 7.14
Electrodes 5.79
Computer software 5.40
Fertilizers-phosphatic 4.70
LPG/CNG/PNG/LNG SUPPLIERS 4.53
Motor cycles/scooters 4.49
Shipping 4.48
Diversified consumer goods 4.30
Oil exploration/ production 4.27
Industrial minerals 3.68
Axles 3.08
Ship building 2.85
Spinning cotton/blended 2.04
Steel 1.90
Steel products 1.87
Cement 1.62
Stock broking and allied 1.11
Petrochemicals 0.70
NBFC 0.09
CBLO/Repo/FD/Cash/Other assets 5.11

4.3.2 Performance of fund as on 31 th 2008:

Indian academy school of management studies 84


Table 1.8

Period Actual return Benchmark return

Last one year 15.77 17.95

Last two year 28.14 32.12

Last three year 35.08 38.92

Last four year 40.02 42.58

Last five year 19.97 43.03

4.3.3 Quantitative data:

Table 1.9

Sharp ratio 0.874

Treynor ratio 33.48

Jensen ration -6.19

Interpretation:

By comparing these ratios the sharp ratios shows that the fund performing well and gives
return like 0.874 by taking total risk 26.07 by evaluating treynor ratio this fund able to give
good return 33.48 by considering market risk of 0.83. This fund gave Jensen of -6.19 more –
ve value because first and last year it perform poor.

Indian academy school of management studies 85


4.4 ING L.I.O.N: (Large cap, Intermediate cap, Opportunities, New Offering)
Fund:

Nature of the scheme: An open ended diversified equity scheme.

Scheme objective : To provide medium to long term capital appreciation by investing

In stocks across the entire capital market capitalization range.

Investment pattern: Minimum Rs.5000 and in multiples of Rs.1

Date of launch : 28-12-2001

Fund size : Rs.53.96 Crores

NAV per unit as on 31th January 2008

Growth Option : Rs. 16.07

Dividend Option : Rs. 16.07

Bonus option : Rs. 16.07

Benchmark : BSE-100

Load structure

Entry load : 2.25% for investment of less than Rs,1 cr. No entry load on

investment of more than 1 cr.

Exit load/CDSC : 1% on the investment below 1 cr. And redeemed within 180 days,

0.5% if Redeemed after 180 but before 365 days and no exit load on

the investment of more than 1 cr.

Indian academy school of management studies 86


4.4.1 Portfolio construction as on 31th January 2008:

Asset under management Rs. 53.96 crores:

Table 1.10

Sectors and companies % portfolio


Banks 13.20
Refineries/marketing 8.44
Computer –software 7.84
Telecom-services 6.16
Steel 5.91
Financial institutions 5.11
Diversified-construction 4.07
Power equipment 4.03
Housing finance 3.06
Pharmaceuticals 3.72
Construction projects 3.36
Cement 2.85
Residential/commercial/sez projects 2.78
cigarettes 2.78
Oil exploration/production 2.76
Fabrics and garments 2.52
Gas transmission/marketing 2.36
Industrial minerals 2.25
Passenger/utility vehicles 2.00
Ship building 1.96
Plastic products 1.79
NBFC 1.48
Stock broking/allied 1.35
Oil exploration 1.35
Fertilizers-phosphatic 1.14
Transmission towers 0.75
CBLO/Repo/FD/Cash/Other assets 4.08

4.4.2 Performance of fund as on 31 th 2008:

Table 1.11

Period Actual return Benchmark return


Last one year 15.20 17.95
Last two year 26.74 32.12
Last three year 35.82 38.92

Indian academy school of management studies 87


Last four years 40.12 42.58
Last five years 25.44 37.09

4.4.3 Quantitative Data:

Table 1.12

Sharp ratio 0.982

Treynor ratio 24.64

Jensen ratio -3.92

Interpretation:

This fund gave the return of 0.982 with total risk of 24.08, shows that this fund is performing
well. By compairing treynor ratio it shows that the fund gave the more return of -3.92 which
shows that the fund can’t out perform even for one time.

4.5 ING Nifty plus Fund:

Nature of the scheme: An open ended index linked equity scheme.

Scheme objective : The objectives of the fund is to invest in companies whose

Securities are included in the S & P CNX Nifty Index.

Investment pattern: Minimum Rs.5000 and in multiples of Rs.1

Date of launch : 23-02-2002

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Fund size : Rs.10.90 Crores

NAV per unit as on 31th January 2008

Growth Option : Rs. 25.78

Dividend Option : Rs. 17.16

Bonus option : Rs. 25.78

Benchmark : S & p CNX Nifty Index.

Load structure

Entry load : 2.25% for investment of less than Rs,1 cr. No entry load on

investment of more than 1 cr.

Exit load/CDSC : 1% on the investment below 1 cr. And redeemed within 180 days,

0.5% if Redeemed after 180 but before 365 days and no exit load on

the investment of more than 1 cr.

4.5.1 Portfolio construction as on 31th January 2008:

Asset under management Rs. 10.90 crores:

Table 1.13

Sectors and companies % Portfolio


Banks 11.36
Telecom-services 11.20

Indian academy school of management studies 89


Refineries/marketing 10.70
Computers-software 9.07
Oli exploration/production 8.47
Power 7.60
Power equipments 6.39
Steel 4.57
Diversified-construction 3.43
Cigarettes 2.86
Housing finance 2.60
Pharmaceuticals 2.09
Cement 1.89
Residential/commercial/sez project 1.69
Aluminium 1.53
Diversified-consumer goods 1.46
Copper & copper products 1.38
Passenger/utility vehicles 1.30
Motor cycles/scooters 1.18
Gas transmission/marketing 1.10
Commercial vehicles 0.53
T V broadcosting and software production 0.39
CBLO/Repo/FD/Cash/Other assets 7.21

4.5.2 Performance of fund as on 31 th 2008:

Table 1.14

Period Actual return Benchmark return

Last one year 11.26 13.44

Last two year 22.70 25.83

Last three year 33.44 35.66

Indian academy school of management studies 90


Last four year 35.85 37.57

Last five year 27.17 30.35

4.5.3 Quantitative Data:

Table 1.15

Sharp ratio 0.939

Treynor ratio 23.16

Jensen ratio -0.356

Interpretation:

This fund gave the more sharp ratio that is 0.939 showed that, fund performing well during
five years history with total risk of 26.07. by evaluating treynor ratio, the fund gave return of
23.16 with little more market risk of 0.91 and fund performing well during five years of
history because it gaves very less difference between actual and benchmark return -0.356.

4.6 ING Tax Savings Fund:

Nature of the scheme: An open ended equity linked savings scheme.

Scheme objective : The objectives of the fund is to generate medium to long term

Growth of capital along with income tax rebate.

Investment pattern: Minimum Rs.5000 and in multiples of Rs.1

Date of launch : 28-03-2002

Indian academy school of management studies 91


Fund size : Rs.58.76 Crores

NAV per unit as on 31th January 2008

Growth Option : Rs. 29.37

Dividend Option : Rs. 14.49

Bonus option : Rs. 29.4

Benchmark : CNX Midcap

Load structure

Entry load : 2.25% for investment of less than Rs,1 cr. No entry load on

investment of more than 1 cr.

Exit load/CDSC : 1% on the investment below 1 cr. And redeemed within 180 days,

0.5% if Redeemed after 180 but before 365 days and no exit load on

the investment of more than 1 cr.

4.6.1 Portfolio construction as on 31th January 2008:

Asset under management Rs. 58.76 crores:

Table 1.16

Sectors and companies % Portfolio


Construction projects 8.70
Pharmaceuticals 7.40
Banks 6.28
LPG/CNG/LNG SUPPLIER 5.69

Indian academy school of management studies 92


Refineries/marketing 4.77
Power equipments 4.64
Trading 4.54
Personal care 3.45
Paints 3.45
Fertilizers-phosphate 3.41
Residential/commercial/sez projects 3.36
Financial institution 3.03
Ship building 3.02
Industrial minerals 2.95
Plastic products 2.89
Fabrics and garments 2.63
Hotels 2.55
Stockbroking and allieds 2.38
Steel 2.17
Fertilizers and nitrogeneous 2.06
Steel products 1.94
Retailing 1.93
Industrial equipment 1.90
Printing and publishing 1.89
Sugar 1.52
Electrodes 1.50
Computer software 1.50
Oil exploration 1.49
Air conditioner 1.33
NBFC 0.09
Aluminium 0.03
CBLO/Repo/FD/Cash/Other assets 3.60

4.6.2 Performance of fund as on 31 th 2008:

Table 1.17

Period Actual return Benchmark return

Last one year 0.62 18.30

Last two year 5.31 38.42

Last three year 33.37 36.63

Last four year 46.28 49.39

Last five year 32.32 38.36

4.6.3 Quantitative data:

Indian academy school of management studies 93


Table 1.18

Sharp ratio 0.741

Treynor ratio 20.64

Jensen ratio -9.518

Interpretation:Sharp ratio shows the reward to total risk associated with fund. That is this
fund gave the return of 0.714 with risk of 26.01. the treynor ratio shows that the fund
performance by considering market risk it gave less return 20.64 because they have to create
awqrness of the fund to the people. Because of new category og fund the Jensen ratio also
very less that is -9.518 shows that fund performance not able to beat the benchmark return.

4.7 HDFC Growth Fund:

Nature of the scheme: An open ended growth scheme.

Scheme objective : The objectives of the fund is to generate long term capital

Appreciation from a portfolio that is invested predominantly in

Equity and equity related instruments.

Investment pattern: for new investor Rs.5000 and in multiples of Rs.100 thereafter.

For existing investor Rs.1000 and in multiples of Rs.100 thereafter.

Date of launch : 11-09-2000

Fund size : Rs.894.707 Crores

NAV per unit as on 31th January 2008

Growth Option : Rs. 68.432

Indian academy school of management studies 94


Dividend Option : Rs. 33.714

Benchmark : Sensex

Load structure

Entry load : 2.25% for investment of less than Rs,5 cr. No entry load on

investment of more than 5 cr.

Exit load/CDSC : 1% on the investment below 5 cr. And redeemed within 365 days,

and no exit load on the investment of more than 5 cr.

4.7.1 Portfolio construction as on 31th January 2008:

Asset under management Rs. 894.707 crores:

Table 1.19

Sectors or industry % Portfolio

Petroleum products 6.14

Banks (state bank of india) 5.88

Consumer non durable goods 5.53

Pharmaceuticals 5.02

Finance 4.68

Banks (icici bank) 4.35

Telecom services 4.32

Industrial capital goods 4.30

Industrial capital goods 3.80

Industrial capital goods 3.58

Indian academy school of management studies 95


Total of ten equity holdings 47.60

Total equity and equity related holdings 93.15

ICICI Bank ltd. 3.33

Jindal Saw ltd. 1.66

Tatal debt/money market instrument 4.99

Other current assets (Repo and CBLO) 1.86

Grand total 100

Net assets 894.707cr

4.7.2 Performance of fund as on 31 th 2008:

Table 1.20

Period Actual return Benchmark return

Last one year 16.55 13.49

Last two year 39.89 25.25

Last three year 42.32 39.11

Last four year 51.42 40.24

Last five year 29.72 19.61

4.7.3 Quantitative data:

Table 1.21

Sharp ratio 4.00

Treynor ratio 30.89

Jensen ratio 8.39

Indian academy school of management studies 96


Interpretation:

This fund gave the more sharp ratio, 4.006 shows that the fund performing better during five
year history with the tatal risk of 7.75. by evaluating Treynor ratio the fund gave the return of
30.89 by considering the beta value of 1.003 it shows that even though in volatile condition
the fund perform well, the Jensen gave the positive return of 8.30 it shows that actual return
is more than benchmark return during 5 year history because it is difference between actual
and benchmark return.

4.8 HDFC Equity Fund:

Nature of the scheme: An open ended growth scheme.

Scheme objective : The objectives of the fund is to generate long term capital

appreciation

Investment pattern : For new investor Rs.5000 and in multiples of Rs.100 thereafter.

for existing investor Rs.1000 and in multiples of Rs.100 thereafter.

Date of launch : 01-01-1995

Fund size : Rs.4, 716 Crores

NAV per unit as on 31th January 2008

Growth Option : Rs. 188.420

Dividend Option : Rs. 49.444

Benchmark : S & P CNX 500

Load structure:

Entry load : 2.25% for investment of less than Rs,5 cr. No entry load on

Indian academy school of management studies 97


investment of more than 5 cr.

Exit load/CDSC : Nil

4.8.1 Portfolio construction as on 31th January 2008:

Asset under management Rs. 4,716 crores:

Table 1.22

Sectors and industry % Portfolio

banks 9.73

Media and entettainment 4.63

Industrial capital goods 4.42

Industrial capital goods 4.14

Banks 3.92

Pharmaceuticals 3.50

Consumer non durables 3.30

Pesticides 3.29

Pharmaceuticals 3.20

Industrial capital goods 3.09

Indian academy school of management studies 98


Total equity holdings 43.27

Total equity and equity related holdings 98.01

Jindal saw ltd. 1.68

Total debt/money market instrument 1.68

Other Current Aseets 0.31

Grand total 100

Net assets 4716 cr

4.8.2 Performance of fund as on 31 th 2008:

Table 1.23

Period Actual return Benchmark return

last one year 9.34 14.94

last two year 24.46 28.17

Last three year 43.43 34.98

Last four year 53.02 42.13

Last five year 40.42 21.99

4.8.3 Quantitative data:

Table 1.24

Sharp ratio 3.74

Treynor ratio 32.98

Indian academy school of management studies 99


Jensen ratio 8.44

Interpretation:

This fund gave the sharp ratio of 3.74 that is reward of 3.47 with risk of 7-77% and giving
good return to the investor. Treynor ratio gave the value of 32.98 means it gave the good
return with overcoming market risk of 0.883 and succeed in the performance. The Jensen
ratio measure that fund beat the benchmark return and gave the return of 8.44.

4.9 HDFC Top 200 Fund:

Nature of the scheme: An open ended growth scheme.

Scheme objective : The objectives of the fund is to generate long term capital

Appreciation from a portfolio of equity and equty-linked

Instruments primarily drawn from the companies in BSE

200 index

Investment pattern: For new investor Rs.5000 and in multiples of Rs.100 thereafter.

for existing investor Rs.1000 and in multiples of Rs.100 thereafter.

Date of launch : 11-10-1996

Fund size : Rs.2,363.26 Crores

NAV per unit as on 31th January 2008

Growth Option : Rs. 147.718

Dividend Option : Rs. 48.858

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Benchmark : BSE Sensex

Load structure

Entry load : 2.25% for investment of less than Rs,5 cr. No entry load on

investment of more than 5 cr.

Exit load/CDSC : 1% on the investment below 5 cr. And redeemed within 365 days,

and no exit load on the investment of more than 5 cr.

4.9.1 Portfolio construction as on 31th January 2008:

Asset under management Rs. 2,363.26 crores:

Table 1.25

Sectors and industry % Portfolio

Banks (ICICI Bank) 8.75

Petroleum products 6.29

Software 4.66

Consumer non durables 3.65

Industrial capital goods 3.52

Banks(SBI) 3.15

Pharmaceuticals 2.70

Telecom services 2.65

Total of top ten equity holdings 41.10

total equity and equity related holdings 96.48

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Debt/money market instrument

Rabo india finance privaye ltd. 0.63

ICICI bank Ltd. 0.42

total debt/money market instrument 1.05

Other Current Assets(including reverse repos’/CBLO 2.47

Grand total 100.00

Net Assets 2,363.26

Net assets (in laks) 236,326.17

4.9.2 Performance of fund as on 31 th 2008:

Table 1.26

Period Actual return Benchmark return


Last one year 15.75 17.75
Last two year 31.47 31.86
Last three year 43.09 36.93
Last four year 53.79 42.23
Last five year 32.24 21.65

4.9.3 Quantitative data:

Table 1.27

Sharp ratio 4.17


Treynor ratio 34.43
Jensen ratio 8.22

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Interpretation:

This fund perform well and gave the sharp value of 4.11 by considering total risk 7.25 and
treynor ratio shows that the fund succeed in overcoming market risk and gave return of
43.43% and Jensen gave positive return 8.22 means that fund beat the benchmark return in
it’s five year history.

4.10 HDFC Capital Builder Fund:

Nature of the scheme: An open ended growth scheme.

Scheme objective : The objectives of the fund is to generate long term capital

appreciation in long term

Investment pattern: for new investor Rs.5000 and in multiples of Rs.100 thereafter.

for existing investor Rs.1000 and in multiples of Rs.100 thereafter.


Date of launch : 01-02-1994

Fund size : Rs.750.63 Crores

NAV per unit as on 31th January 2008

Growth Option : Rs. 88.367

Dividend Option : Rs. 31.510

Benchmark : S & P CNX 500

Load structure

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Entry load : 2.25% for investment of less than Rs,5 cr. No entry load on

investment of more than 5 cr.

Exit load/CDSC : Nil

4.10.1 Portfolio construction as on 31th January 2008:

Asset under management Rs.2,363.26 crores:

Table 1.28

Sectors and industry % portfolio

Banks 6.11

Industrial products 6.06

Banks 5.54

Industrial capital goods 4.47

Auto ancillaries 4.46

Industrial capital goods 4.12

Pharmaceuticals 4.02

Ferrous metals 3.94

Industrial products 3.93

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Chemicals 3.43

Total top ten equity holdings 46.18

Total equity and equity related holdings 95.74

Debt/money market instruments

Jindal saw Ltd. 1.98

Total debt/money market instruments 1.98

Other current Assets(Including reverse repo’s/CBLO 2.28

Grand total 100.00

Net assets 750.63

4.10.2 Performance of fund as on 31 th 2008:

Table 1.29

Period Actual return Benchmark return


Last one year 14.89 14.94
Last two year 37.09 28.17
Last three year 36.50 34.98
Last four year 52.56 42.13
Last five year 30.27 21.99

4.10.3 Quantitative data:

Table 1.30

Sharp ratio 4.29


Treynor ratio 33.17
Jensen ratio -9.20

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Interpretation:

This fund able to compensate the risk and possible of giving return of 4.29, treynor gave the
return of 33.17% with considering market risk of 0.8708 and able to beat the market risk .
Jensen gave the value of 9.20 shows that the fund beat the benchmark return and gave the
good return to the investors.

4.11 HDFC Index Fund:(Sensex plan):

Nature of the scheme: An open ended index linked scheme.

Scheme objective : The objectives of the fund is to generate returns that are commensurate

With the performance of the sensex, subject to tracking record.

Investment pattern: for new investor Rs.5000 and in multiples of Rs.100 thereafter.

for existing investor Rs.1000 and in multiples of Rs.100 thereafter.


Date of launch : 17-07-2002

Fund size : Rs.78.02 Crores

NAV per unit as on 31th January 2008

Growth Option : Rs. 154.2977

Benchmark : Sensex

Load structure

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Entry load : Nil

Exit load/CDSC : 1% on the investment below 5 cr. And redeemed within 365 days,

and no exit load on the investment of more than 5 cr.

4.11.1 Portfolio construction as on 31th January 2008:

Asset under management Rs. 78.02 crores:

Table 1.31

Sectors and industry % Portfolio

Pertrolium products 14.85

Banks(ICICI) 10.39

Industrial capital goods 7.95

Software 6.02

Finance 5.58

Telecom services 4.73

Banks(SBI) 4.29

Consumer Non durables 4.24

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Bank(HDFC) 3.68

Telecom services (Reliance communication) 3.58

Total top ten equity holdings 65.29

Total equity and equity related holdings 98.59

Other Current Assets(Repo/CBLO) 1.41

Grand total 100

Net Assets 78.02 crs.

4.11.2 Performance of fund as on 31 th 2008:

Table 1.32

Period Actual return Benchmark return


Last one year 8.47 14.37
Last two year 18.68 27.75
Last three year 35.37 42.64
Last four year 36.34 44.43
Last five year 32.68 39.50

4.11.3 Quantitative data:

Table 1.33

Sharp ratio 2.62

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Treynor ratio 22.45
Jensen ratio -10.69

Interpretation:

This fund able to compensate the risk and possible to give the return of 2.6. treynor gave the
normal return of 22.45 with beta of 0.949 by considering Jensen ratio we come to know that
the fund has not performed well during five year of history which gave the –ve value of
-10.69.

4.12 HDFC Index Plan (Nifty Plan);

Nature of the scheme: An open ended index linked scheme.

Scheme objective : The objectives of the fund is to generate returns that are commensurate

with the performance of the nifty subject to tracking record.

Investment pattern: for new investor Rs.5000 and in multiples of Rs.100 thereafter.

for existing investor Rs.1000 and in multiples of Rs.100 thereafter.


Date of launch : 17-07-2002

Fund size : Rs.49.42 crores

NAV per unit as on 31th January 2008

Growth Option : Rs. 46.6758

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Benchmark : S & P CNX Nifty

Load structure

Entry load : Nil

Exit load/CDSC : 1% on the investment below 5 cr. And redeemed within 365 days,

and no exit load on the investment of more than 5 cr.

4.12.1 Portfolio construction as on 31th January 2008:

Asset under management Rs. 49.42 crores:

Table 1.34

Sectors and industry % Portfolio

Pertoleum products 11.83

Oil 6.94

Telecom services(Bharati airtel) 5.35

Power 5.31

Banks(ICICI Bank) 4.14

Telecom services(reliance communication) 4.05

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Banks(SBI) 3.87

Industrial capital goods(Larsen and Turbo) 3.50

Industrial capital goods(BHEL) 3.31

Ferrous metals 2.91

Total of top ten equity holdings 51.21

Total of equity and equity related holdings 96.66

Other Current Assets(Includind Repo/CBLO) 3.34

Grand total 100

Net Assets 49.42 crs.

4.12.2 Performance of fund as on 31 th 2008:

Table 1.35

Period Actual return Benchmark return


Last one year 7.06 13.90
Last two year 17.91 27.47
Last three year 31.86 37.67
Last four year 34.85 40.13
Last five year 31.26 35.85

4.12.3 Quantitative data:

Table 1.36

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Sharp ratio 2.45
Treynor ratio 23.06
Jensen ratio -2.49

Interpretation:

This fund gave the return of 2.45% with risk of 7.98, the fund not able to provide better
return to the investor, by compairing the treynor ratio this fund gave the normal return of
23.06 with beta of 0.894. Jensen ratio provide that the fund performing well and not so good
and it gave the negative value of -2.49.

CHAPTER FIVE:

5.1 SUMMARY OF FINDINGS:

Following are the findings of the ING and HDFC funds:

• Sharp ratio indicates that fund performance by considering overall total risk. Some
funds are not able to perform well because of total risk involved in the funds.

• ING investing funds in the some selected sectors. So it is not possible to diversify the
risk associated with funds, so they having more standard deviation.

• Because of volatility in the market conditions. The funds are not able to cross the
benchmark return so fund houses should concentrate on the market conditions.

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• By considering Jensen ratio it shows that no fund has not crossed more time
benchmark return so that’s why Jensen ratio can’t give the +ve return for many funds.

• By considering treynor ratio it shows that the fund performs well during 5 years of
history and able to overcome the market risk.

• From portfolio construction shows that, the fund diversifies it’s risk for some extent
so the fund able to give +ve return based on Jensen ratio.

• In HDFC all funds are having very less standard deviation and it helps the fund to
generate good returns on the fund.

• Out of six funds last two funds that is sensex and index got –ve value based on Jensen
ratio because they gave more preference for bank deposits.

• Out of six equity schemes many funds are crossed the benchmark return because of
the well management of funds and well diversifying of risk.

5.2 CONCLUSION:

“Mutual fund is booming sector now a days and it has lot of scope to generate income and
providing return to the investor, the mutual fund is one of the way to development of country

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and helps to mobilizing dead money in the economy which helps to develop the economic
conditions of the country and people.

Mutual fund helps the people for studying the market conditions, it providing lot of
opportunities to the people for research work and helps the people to know the new things
going on around the world. It gave the more knowledge to the person, because it diversifies
the risk by investing in different securities.”

5.3 SUGGESSTIONS:

Following are the suggestions for the both funds.

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• The fund house has to reduce the total risk involved in the fund in order to increase
the return with good portfolio construction.

• The fund house should select the innovative way of portfolio construction and should
see the attracting areas of investing funds.

• The fund houses should concentrate on the market conditions according to that they
have to set the benchmark and invest in different sectors.

• The fund houses should invest in good and attracting sectors to reduce standard
deviation.

• The fund house should try to reduce little more beta in order to generate more returns
to investors.

• In ING Jensen never gave the +ve value so fund house try to cross the benchmark
return and achieve the objectives of the fund.

• HDFC fund house gave the good return it showed by sharp ratio even though they
have to reduce the total risk by diversifying their portfolio and achieving objectives.

• The HDFC investing in diversifies areas but not in upcoming areas like real estate and
infrastructure better to invest in those areas to increase return.

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• HDFC still it has to reduce the standard deviation to generate more return by reducing
total risk factors associating with mutual funds, and analyses all the factors.

• HDFC has to concentrate on those funds which are performing less than thir
benchmark return and take actions and analyse the market conditions and take correct
steps

5.4 BIBLIOGRAPHY:

BOOK REFERENCES:

V.A.AVADHANI (2006): Security analysis and portfolio management, Himalaya publishing


house. 6th Edition.

L.M.BHOLE (2005) : Financial institutions and market, Tata Mcgraw – hill.

FISHER AND JORDEN (2000): Security analysis and portfolio management, Prentice hall.

WEBSITES:

www.valueresearchonline.com

www.amfindia.com

www.google.com

www.ingim.co.in

www.hdfcfund.com

www.investorsideas.com

Company’s fact sheet and journals.

PUBLISHED MAGAZINES AND ARTICLES:

Thomos davenport (2007): “Mutual fund investment”, investors India.

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Sanjay j bhayani ss(2008): “An empirical analysis of performance evaluation of mutual fund
schemes in india”, capital market(Icfai journals):

P.Prasad Rao(2007): “distribution channels in the mutual fund industry”, Money market(Icfai
journals).

Siddhartha Srivastava(2008): “real estate fund , present conditions and future of the fund”

Capital market(Investment management).

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