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PROJECT REPORT ON EVALUATON OF MUTUAL FUND

SUBMITTED BY
INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

SATISH KUMAR 09-F1-126

CERTIFICATE

TO WHOMSOEVER IT MAY CONCERN

This is to certify that SATISH KUMAR of INSTITUTE OF MARKETING & MANAGEMENT who is pursuing PGDM (FINANCE) has undergone a summer internship at SBI MUTUAL FUNDS from 28MAY-2010 TO 28-JUL-2010 i.e. ( 8 WEEKS). He has successfully done a project on INVESTMENT AND ANALYSIS IN SBI MUTUAL FUND and a bonafide work has been carried out by him under supervision and guidance of Mr. Vineet Rawat (Relationship Manager). BRIEF DESCRIPTION OF THE PROJECT :

He has tried to analyze the fund performance in mutual fund. Analyzed the different mutal funds with SBI mutual fund.

We wish him Good Luck and All the Best for future.

SHIVAM (NODAL OFFICER)

INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

PREFACE

MBA is a stepping-stone to the management carrier and to develop good manager it is necessary that the theoretical must be supplemented with exposure to the real environment. Theoretical knowledge just provides the base and its not sufficient to produce a good manager thats why practical knowledge is needed. Therefore the research product is an essential requirement for the student of MBA. This research project not only helps me to utilize my skills properly learn field realities but also provides a chance to the organization to find out talent among the budding managers in the very beginning. In accordance with the requirement of MBA course I have summer training project on the Analysis & Investment in SBI Mutual funds. The main objective of the research project was to study the instruments related to mutual funds and make a detailed comparison with others.

INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

OBJECTIVE OF THE PROJECT To get an insight knowledge about mutual funds. To measure the returns earned by the SBI mutual fund schemes and compare them against the benchmark & contemporary schemes of top fund houses in India.

To analyse the investing pattern of fund managers. To know how Mutual Fund industry work

INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

TABLE OF CONTENT

INTRODUCTION 6 HISTORY 8 STRUCTURE OF MUTUAL FUND IN INDIA TYPES OF MUTUAL FUND COST TERMINOLOGY TAXIATION MEARSURE OF RISK/RETURN ADVANTAGES & DISADVANTAGES OF MUTUAL FUND SBI MUTUAL FUND FUNDS OFFERED BY SBI MUTUAL FUND COMPARSION & EVALUATION LIMITATIONS OF THE STUDY RECOMMENDATIONS BIBLOGRAPHY 12 17 25 28 33 36 38 41 44 46 56 57 58 INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

INTRODUCTION As you probably know, mutual funds have become extremely popular over the last few years. What was once just another obscure financial instrument is now a part of our daily lives. Mutual Fund is one of the most preferred investment alternatives for the small investors as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal Mutual funds are managed pooled portfolios. They are managed by professional. They are pooled (money is collected) from the common investors. Its portfolios because its a selection of securities and the proportion of amount invested in the securities. The amount is invested according to schemes and his style. And invests it in stocks, Bonds, short-term money market instruments and other securities. Mutual funds have a fund manager who invests the money on behalf of the investors by buying / selling stocks, bonds etc. Currently, the worldwide value of all mutual funds totals more than $US 26 trillion. The United States leads with the number of mutual fund schemes. There are more than 8000 mutual fund schemes in the U.S.A. Comparatively, India has around more than 1000 mutual fund schemes, but this number has grown exponentially in the last few years as new players are coming to market. There are various investment avenues available to an investor such as real estate, bank deposits, post office deposits, shares, debentures, bonds etc. A mutual fund is one more type of investment avenue available to investors. There are many reasons why investors prefer mutual funds. Buying shares directly from the market is one way of investing. But this requires spending time to find out the performance of the company whose share is being purchased, understanding the future business prospects of the company , finding out the track record of the promoters and the dividend, bonus issue history of the company etc. An informed investor needs to do research before investing. INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

However, many investors find it cumbersome and time consuming to pore over so much of information, get access to so much of details before investing in the shares. Investors therefore prefer the mutual fund route. They invest in a mutual fund scheme which in turn takes the responsibility of investing in stocks and shares after due analysis and research. The investor need not bother with researching hundreds of stocks. It leaves it to the mutual fund and its professional fund management team. Another reason why investors prefer mutual funds is because mutual funds offer diversification

Due to private participation in the Indian mutual fund industry, the challenge to survive and retain investor confidence has been a prime area of concern for fund

managers. For small investors who do not have the time or not have enough knowledge about stock or where to invest his earned money, the alternative is to invest in mutual funds. The performance of the mutual fund products become more complex in context of accommodating both return and risk measurements while giving due importance to investment objectives. In this report, an attempt has been made to study the performance of selected schemes of mutual funds based on risk-return relationship models and measures. The analysis will be made on the basis of mean return, beta risk, coefficient of determination, Sharpe ratio, Treynor ratio and Jensen Alpha. Apart from analyzing the financial performance of various schemes, emphasis will also be on conducting an exploratory research so as to know the awareness level of mutual funds among general public, understand the saving avenue preference among MF investors.

INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

History of mutual fund in india The Evolution The formation of Unit Trust of India marked the evolution of the Indian mutual fund industry in the year 1963. The primary objective at that time was to attract the small investors and it was made possible through the collective efforts of the Government of India and the Reserve Bank of India. The history of mutual fund industry in India can be better understood divided into following phases: Phase 1. Establishment and Growth of Unit Trust of India - 1964-87 Unit Trust of India enjoyed complete monopoly when it was established in the year 1963 by an act of Parliament. UTI was set up by the Reserve Bank of India and it continued to operate under the regulatory control of the RBI until the two were de-linked in 1978 and the entire control was tranferred in the hands of Industrial Development Bank of India (IDBI). UTI launched its first scheme in 1964, named as Unit Scheme 1964 (US-64), which attracted the largest number of investors in any single investment scheme over the years. UTI launched more innovative schemes in 1970s and 80s to suit the needs of different investors. It launched ULIP in 1971, six more schemes between 198184, Children's Gift Growth Fund and India Fund (India's first offshore fund) in 1986, Mastershare (Inida's first equity diversified scheme) in 1987 and Monthly Income Schemes (offering assured returns) during 1990s. By the end of 1987, UTI's assets under management grew ten times to Rs 6700 crores. Phase II. Entry of Public Sector Funds - 1987-1993 The Indian mutual fund industry witnessed a number of public sector players entering the market in the year 1987. In November 1987, SBI Mutual Fund from the State Bank of India became the first non-UTI mutual fund in India. SBI Mutual Fund was later followed by Canbank Mutual Fund, LIC Mutual Fund, Indian Bank Muatual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. By 1993, the assets under management of the industry increased seven times to Rs. 47,004 crores. However, UTI remained to be the leader with about 80% market share. INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

Amou Assets Phase III. 1992nt Under Emergence 93 Mobil Manage of Private ised ment Secor Funds 1993-96 The 11,05 UTI 38,247 5.2% permission 7 given to Public private Secto 1,964 8,757 0.9% sector funds r including foreign fund 13,02 management Total 47,004 6.1% 1 companies (most of them entering through joint ventures with Indian promoters) to enter the mutal fund industry in 1993, provided a wide range of choice to investors and more competition in the industry. Private funds introduced innovative products, investment techniques and investor-servicing technology. By 1994-95, about 11 private sector funds had launched their schemes. Phase IV. Growth and SEBI Regulation - 1996-2004 The mutual fund industry witnessed robust growth and stricter regulation from the SEBI after the year 1996. The mobilisation of funds and the number of players operating in the industry reached new heights as investors started showing more interest in mutual funds. Invetors' interests were safeguarded by SEBI and the Government offered tax benefits to the investors in order to encourage them. SEBI (Mutual Funds) Regulations, 1996 was introduced by SEBI that set uniform standards for all mutual funds in India. The Union Budget in 1999 exempted all dividend incomes in the hands of investors from income tax. Various Investor Awareness Programmes were launched during this phase, both by SEBI and AMFI, with an INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

Mobilisa tion as % of gross Domesti c Savings

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objective to educate investors and make them informed about the mutual fund industry. In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal status as a trust formed by an Act of Parliament. The primary objective behind this was to bring all mutal fund players on the same level. UTI was reorganised into two parts: 1. The Specified Undertaking, 2. The UTI Mutual Fund Presently Unit Trust of India operates under the name of UTI Mutual Fund and its past schemes (like US-64, Assured Return Schemes) are being gradually wound up. However, UTI Mutual Fund is still the largest player in the industry. In 1999, there was a significant growth in mobilisation of funds from investors and assets under management which is supported by the following data:

GROSS FUND MOBILISATION (RS. CRORES) T O 31 M ar ch 99 31 M ar ch 00 31 M ar ch 01 31 UT I PUB LIC SEC TOR PRIV ATE SECT OR TOTA L

FROM

01April98

11 ,6 79

1,73 2

7,966

21,37 7

01April99

13 ,5 36

4,03 9

42,17 3

59,74 8

01April00

12 ,4 13

6,19 2

74,35 2

92,95 7

01April-

4, 64

13,6 13

1,46, 267

1,64,5 23

INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

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01

M ar ch 02 31 Ja n03 31 M ar ch 03 31 M ar ch 04 31 M ar ch 05 31 M ar ch 06

01April02

5, 50 5

22,9 23

2,20, 551

2,48,9 79

01Feb.03

7,25 9*

58,43 5

65,69 4

01April03

68,5 58

5,21, 632

5,90,1 90

01April04

1,03 ,246

7,36, 416

8,39,6 62

01April05

1,83 ,446

9,14, 712

10,98, 158

INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

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ASSETS UNDER MANAGEMENT (RS. CRORES) UT I PUB LIC SEC TOR 8,29 2 PRIV ATE SECT OR 6,860 TO TA L 68, 47 2

AS ON

31March99

53,320

Phase V. Growth and Consolidation - 2004 Onwards The industry has also witnessed several mergers and acquisitions recently, examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international mutal fund players have entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were 29 funds as at the end of March 2006. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players.

INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

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STRUCTURE OF MUTUAL FUND IN INDIA For anybody to become well aware about mutual funds, it is imperative for him or her to know the structure of a mutual fund. How does a mutual fund come into being? Who are the important people in a mutual fund? What are their roles? etc. Mutual Funds in India follow a 3-tier structure. 1) Sponsor 2) Trustees 3) Asset Management Company There is a Sponsor (the First tier), who thinks of starting a mutual fund. The Sponsor approaches the Securities & Exchange Board of India (SEBI), which is the market regulator and also the regulator for mutual funds. Not everyone can start a mutual fund. SEBI checks whether the person is of integrity, whether he has enough experience in the financial sector, his networth etc. Once SEBI is convinced, the sponsor creates a Public Trust (the Second tier) as per the Indian Trusts Act, 1882. Trusts have no legal identity in India and cannot enter into contracts, hence

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The Trustees are the people authorized to act on behalf of the Trust. Contracts are entered into in the name of the Trustees. Once the Trust is created, it is registered with SEBI after which this trust is known as the mutual fund. It is important to understand the difference between the Sponsor and the Trust. They are two separate entities. Sponsor is not the Trust; i.e. Sponsor is not the Mutual Fund. It is the Trust which is the Mutual Fund. The Trustees role is not to manage the money. Their job is only to see, whether the money is being managed as per stated objectives. Trustees may be seen as the internal regulators of a mutual fund. WHO MANAGES INVESTORS MONEY? This is the role of the Asset Management Company (the Third tier). Trustees appoint the Asset Management Company (AMC), to manage investors money. The AMC in return charges a fee for the services provided and this fee is borne by the investors as it is deducted from the money collected from them. The AMCs Board of Directors must have at least 50% of Directors who are independent directors. The AMC has to be approved by SEBI. The AMC functions under the supervision of its Board of Directors, and also under the direction of the Trustees and SEBI. It is the AMC, which in the name of the Trust, floats new schemes and manage these schemes by buying and selling securities. In order to do this the AMC needs to follow all rules and regulations prescribed by SEBI and as per the Investment Management Agreement it signs with the Trustees. If any fund manager, analyst intends to buy/ sell some securities, the permission of the Compliance Officer is a must. A compliance Officer is one of the most important persons in the AMC. Whenever the fund intends to launch a new scheme, the AMC has to submit a Draft Offer Document to SEBI. This draft offer document, after getting SEBI approval becomes the offer document of the scheme. The Offer Document (OD) is a legal document and investors rely upon the information provided in the OD for investing in the mutual fund scheme. The Compliance Officer has to sign the Due Diligence certificate in the OD. This certificate says that all the information provided inside the OD is true and correct. This ensures that there is accountability and somebody is responsible for the OD. In case there is no compliance officer ,then senior executives like CEO, Chairman of the AMC has to sign the due diligence certificate. The certificate ensures that the AMC takes responsibility of the OD and its contents

CONSTITUENTS OF THE MUTUAL FUND

Sponsor

Trustees INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

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Asset management company

Custodian

Distributor

Registrar & Transfer agents

Bankers

Role of sponsor Sponsor is a person who sets up a Mutual Fund Sponsor settles the Trust and executes Trust Deed Sponsor contributes to the initial capital of the Trust Sponsor appoints the Board of Trustees Sponsor appoints Asset Management Company Sponsor contributes minimum 40% of net worth of AMC

Who can be sponsor Criteria of a Sponsor are Positive net worth Minimum 5 years track record History of positive After Tax Profit for 3 out of 5 years including fifth year

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Net Worth more than Contribution for AMC Fit and Proper person

Board of trustees & role Trustees appointed by the Sponsor with SEBI approval At least two third Trustees must be Independent The Trustees have a FIDUCIARY responsibility towards unit holders Trustees not liable for acts done in good faith and if they have exercised adequate due diligence Trustees oversee the functioning of AMC Trustees approve each MF scheme floated by AMC The investments in MFs are held by the Trustees Trustees receive fees for their services

Who can be trustees Eligibility Conditions : Person of high repute and integrity Not guilty of moral turpitude Not convicted for economic offence under securities laws Not a part of AMC eg. Director, Employee or Officer of AMC One can be Trustee of two MFs if approved by Board of Trustees of both the Mutual Funds.

Assets management company Constituted as a Company under the Indian Companies Act Minimum Net worth of Rs. 10 crores for AMC Minimum contribution of sponsor: 40% of share capital of AMC At least 50% of Directors of AMC to be independent INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

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AMC can do only the following businesses Asset Management Services Portfolio Management Services Portfolio Advisory Services

AMC can be terminated/changed with the consent of Majority of Trustees or At least 75% majority of Unit holders

Role of the asset management company AMC is the Fund Manager for managing Mutual Fund Assets AMC floats different MF schemes AMC accountable to the Trustees AMC charges Asset Management Fees subject to ceiling prescribed by SEBI. Asset Management Agreement between AMC and Trustee

Obligation of AMC Limit of 5% of aggregate purchase and sales of Securities under all its scheme per broker per quarter As far as possible AMC to avoid services of its sponsor. All Security transactions with a Sponsor and his associates to be disclosed Disclosure of transactions with a company which has invested more than 5% of NAV in any scheme

Custodian / depositary participant

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Custodian / DP: Appointed by Board of Trustees Keep record & account of Securities / Investments Collects benefits under Securities Sponsor & Custodian / DP cannot be the same entity Registered with SEBI

Registrar and transfer agent Registrar & Transfer Agent: Issues, redeems, transfers units of MF schemes Keeps Unit Holders A/cs upto date Registered with SEBI

TYPES OF MUTUAL FUND A variety of schemes are offered by mutual funds. It is critical for investors to know the features of these products, before money is invested in them. So mutual fund can be classified according to structure , class of investment , investment objectives , risk profiles , other schemes

CLASSSFICATION AS PER STRUCTURE A) Open- ended schemes B) Closed- ended schemes INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

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C) Interval schemes Open-ended schemes An open ended scheme allows the investor to enter and exit at his convenience, anytime (except under certain conditions) These do not have a fixed maturity.You deal with the Mutual Fund for your investments and redemptions.The key feature is liquidity.You can conveniently buy and sell your units at Net Asset Value(NAV) related prices, at any point of time. Closed-ended schemes Schemes that have a stipulated maturity period (ranging from 2 to 15 years) are called close-ended schemes.You can invest in the scheme at the time of the initial issue and thereafter you can buy or sell the units of the scheme on the stock exchanges where they are listed. The market price at the stock exchange could vary from the schemesNAV on account of demand and supply situation, unitholders expectations and other market factors. One of the characteristics of the close-ended schemes is that they are generally traded at a discount to NAV; but closer to maturity, the discount narrows. Some close-ended schemes give you an additional option of selling your units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations ensure that at least one of the two exit routes are provided to the investor under the close ended schemes.

Interval schemes These combine the features of open-ended and close-ended schemes. They may be traded on the stock exchange or may be open for sale or redemption during predetermined intervals at NAV related prices.

CLASSSFICATION AS PER CLASS OF INVESTMENT A) Equity funds B) Bond funds C) Money market funds Equity Funds Funds that invest in stocks represent the largest category of mutual funds. Generally, the investment objective of this class of funds is long-term capital growth with some income. There are, however, many different types of equity funds because there are many different types of equities. A great way to

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understand the universe of equity funds is to use a style box, an example of which is below. The idea is to classify funds based on both the size of the companies invested in and the investment style of the manager. The term value refers to a style of investing that looks for high quality companies that are out of favor with the market. These companies are characterized by low P/E and price-to-book ratios and high dividend yields. The opposite of value is growth, which refers to companies that have had (and are expected to continue to have) strong growth in earnings, sales and cash flow. A compromise between value and growth is blend, which simply refers to companies that are neither value nor growth stocks and are classified as being somewhere in the middle. For example, a mutual fund that invests in large-cap companies that are in strong financial shape but have recently seen their share prices fall would be placed in the upper left quadrant of the style box (large and value). The opposite of this would be a fund that invests in startup technology companies with excellent growth prospects. Such a mutual fund would reside in the bottom right quadrant (small and growth) Money Market Funds The money market consists of short-term debt instruments, mostly Treasury bills. This is a safe place to park your money. You won't get great returns, but you won't have to worry about losing your principal. A typical return is twice the amount you would earn in a regular checking/savings account and a little less than the average certificate of deposit (CD). Bond/Income Funds Income funds are named appropriately: their purpose is to provide current income on a steady basis. When referring to mutual funds, the terms "fixedincome," "bond," and "income" are synonymous. These terms denote funds that invest primarily in government and corporate debt. While fund holdings may appreciate in value, the primary objective of these funds is to provide a steady cashflow to investors. As such, the audience for these funds consists of conservative investors and retirees. Bond funds are likely to pay higher returns than certificates of deposit and money Market investments, but bond funds aren't without risk. Because there are many different types of bonds, bond funds can vary dramatically depending on where they invest. For example, a fund specializing in high-yield junk bonds is much more risky than a fund that invests in government securities. Furthermore, nearly all bond funds are subject to interest rate risk, which means that if rates go up the value of the fund goes down. CLASSSFICATION AS PER INVESTMENT OBJECTIVES A) Growth schemes B) Income schemes INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

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C) Balanced schemes D) Money market schemes Growth Schemes Aim to provide capital appreciation over the medium to long term. These schemes normally invest a majority of their funds in equities and are willing to bear short term decline in value for possible future appreciation. These schemes are not for investors seeking regular income or needing their money back in the short term. Ideal for: Investors in their prime earning years. Investors seeking growth over the long term.

Income Schemes Aim to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited. Ideal for: Retired people and others with a need for capital stability and regular income. Investors who need some income to supplement their earnings. Balanced Schemes Aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. They invest in both shares and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace or fall equally when the market falls.

Ideal for: Investors looking for a combination of income and moderate growth. Money Market / Liquid Schemes Aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short term instruments such as treasury bills, certificates of deposit, commercial paper and interbank call money. Returns on these schemes may fluctuate, depending upon the interest rates prevailing in the market. Ideal for: INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

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Corporates and individual investors as a means to park their surplus funds for short periods or awaiting a more favourable investment alternative. CLASSSFICATION AS PER RISK PROFILES A) High risk funds B) Moderate risk funds C) Low risk funds Risk Return Hierarchy of Different Funds Risk high

Sector Funds Diversified Equity Funds Index Funds Balanced Funds Debt Funds Gilt Funds MMMF

Risk low Low return High return

Money Market Funds Invest in securities of less than 1 year maturity High liquidity & safety of principal Low risk and low returns

Gilt Funds

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Invest only in Government Securities of over 1 year maturity Risk and return low but higher than that of MMF No default risk but carry interest rate risk Fund values drop when interest rates go up & rise when interest rates go down

Debt Funds & Types Invest in Corporate Bonds and Government Securities Risk higher than that of Gilt Funds Aims at regular income distribution and not at capital appreciation Types of Debt Funds: Diversified Debt Funds Focused Debt Funds High yield Debt Funds Assured return Debt Funds Fixed Term Plan Series

Equity Funds & Types Invest in Equity and Equity related instruments High risk and aim at Capital appreciation Types of Equity Funds Aggressive Growth Funds Growth Funds Value Funds Specialty Funds: Sector Funds, Foreign Securities Funds,

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Mid-Cap or Small-Cap Equity Funds, Option Income Funds

Diversified Equity Funds ELSS Funds Equity Index Funds Equity Income or Dividend Yield Fund

CLASSSFICATION AS PER OTHER SCHEMES A) Tax saving schemes B) Special schemes -index schemes - sector specific schemes C) Fixed Maturity Plans D) Fund of Fund E) Exchange traded Funds

Tax Saving Schemes (Equity Linked SavingScheme - ELSS) These schemes offer tax incentives to the investors under tax laws as prescribed from time to time and promote long term investments in equities through Mutual Funds. Ideal for: Investors seeking tax benefits U/S 80c , investors get the exemption of maximum 1lakh.

Index schemes The last but certainly not the least important are index funds. This type of mutual fund replicates the performance of a broad market index such as the S&P 500 or Dow Jones Industrial Average (DJIA). An investor in an index fund figures

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that most managers can't beat the market. An index fund merely replicates the market return and benefits investors in the form of low fees.

Fixed Maturity Plans (FMPs) Fixed Maturity Plans (FMPs) are investment schemes floated by mutual funds and are close-ended with a fixed tenure, the maturity period ranging from one month to three/five years. These plans are predominantly debt-oriented, while some of them may have a small equity component. The objective of such a scheme is to generate steady returns over a fixedmaturity period and protect the investor against market fluctuations. FMPs are typically passively managed fixed income schemes with the fund manager locking into investments with maturities corresponding with the maturity of the plan. FMPs are not guaranteed products. Special Schemes Special Schemes This category includes index schemes that attempt to replicate the performance of a particular index such as the BSE Sensex, the NSE 50 (NIFTY) or sector specific schemes which invest in specific sectors such as Technology, Infrastructure, Banking, Pharma etc. Besides, there are also schemes which invest exclusively in certain segments of the capital market, such as Large Caps, Mid Caps, Small Caps, Micro Caps, 'A' group shares, shares issued through Initial Public Offerings (IPOs), etc. Index fund schemes are ideal for investors who are satisfied with a return approximately equal to that of an index. Sectoral fund schemes are ideal for investors who have already decided to invest in a particular sector or segment. Fund of Funds Fund of Funds are schemes that invest in other mutual fund schemes. The portfolio of these schemes comprise only of units of other mutual fund schemes and cash / money market securities/ short term deposits pending deployment. The first FOF was launched by Franklin Templeton Mutual Fund on October 17, 2003. Fund of Funds can be Sector specific e.g. Real Estate FOFs, Theme specific e.g. Equity FOFs, Objective specific e.g. Life Stages FOFs or Style specific e.g.Aggressive/ Cautious FOFs etc. Please bear in mind that any one scheme may tnot meet all your requirements for all time. You INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

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Exchange Traded Funds Exchange Traded Funds are essentially index funds that are listed and traded on exchanges likestocks. Globally, ETFs have opened a whole new panorama of investment opportunities to retail as well as institutional investors. ETFs enable investors to gain broad exposure to entire stock markets as well as in specific sectors with relative ease, on a real-time basis and at a lower cost than many other forms of investing. An ETF is a basket of stocks that reflects the composition of an index, like S&P CNX Nifty, BSE Sensex, CNX Bank Index, CNX PSU Bank Index, etc. The ETF's trading value is based on the net asset value of the underlying stocks that it represents. It can be compared to a stock that can be bought or sold on real time basis during the market hours. The first ETF in India, Benchmark Nifty Bees, opened for subscription on December 12, 2001 and listed on the NSE on January 8,2002.

Costs Costs are the biggest problem with mutual funds. These costs eat into your return, and they are the main reason why the majority of funds end up with subpar performance. What's even more disturbing is the way the fund industry hides costs through a layer of financial complexity and jargon. Some critics of the INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

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industry say that mutual fund companies get away with the fees they charge only because the average investor does not understand what he/she is paying for. Fees can be broken down into two categories: 1. Ongoing yearly fees to keep you invested in the fund. 2. Transaction fees paid when you buy or sell shares in a fund (loads). The Expense Ratio The on going expenses of a mutual fund are represented by the expense ratio. This is sometimes also referred to as the management expense ratio (MER). The expense ratio is composed of the following: The cost of hiring the fund manager(s) - Also known as the management fee, this cost is between 0.5% and 1% of assets on average. While it sounds small, this fee ensures that mutual fund managers remain in the country's top echelon of earners. Think about it for a second: 1% of 250 million (a small mutual fund) is $2.5 million - fund managers are definitely not going hungry! It's true that paying managers is a necessary fee, but don't think that a high fee assures superior performance Administrative costs - These include necessities such as postage, record keeping, customer service, cappuccino machines, etc. Some funds are excellent at minimizing these costs while others (the ones with the cappuccino machines in the office) are not. The last part of the ongoing fee (in the United States anyway) is known as the 12B-1 fee. This expense goes toward paying brokerage commissions and toward advertising and promoting the fund. That's right, if you invest in a fund with a 12B-1 fee, you are paying for the fund to run commercials and sell itself! On the whole, expense ratios range from as low as 0.2% (usually for index funds) to as high as 2%. The average equity mutual fund charges around 1.3%1.5%. You'll generally pay more for specialty or international funds, which require more expertise from managers. Are high fees worth it? You get what you pay for, right? Wrong. Just about every study ever done has shown no correlation between high expense ratios and high returns. This is a fact. If you want more evidence, consider this quote from the Securities and Exchange Commission's website: "Higher expense funds do not, on average, perform better than lower expense funds." Loads are just fees that a fund uses to compensate brokers or other salespeople for selling you the mutual fund. All you really need to know about loads is this: don't buy funds with loads. In case you are still curious, here is how certain loads work:

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Front-end loads - These are the most simple type of load: you pay the fee when you purchase the fund. If you invest $1,000 in a mutual fund with a 5% front-end load, $50 will pay for the sales charge, and $950 will be invested in the fund. Back-end loads (also known as deferred sales charges) - These are a bit more complicated. In such a fund you pay the a back-end load if you sell a fund within a certain time frame. A typical example is a 6% back-end load that decreases to 0% in the seventh year. The load is 6% if you sell in the first year, 5% in the second year, etc. If you don't sell the mutual fund until the seventh year, you don't have to pay the back-end load at all. A no-load fund sells its shares without a commission or sales charge. Some in the mutual fund industry will tell you that the load is the fee that pays for the service of a broker choosing the correct fund for you. According to this argument, your returns will be higher because the professional advice put you into a better fund. There is little to no evidence that shows a correlation between load funds and superior performance. In fact, when you take the fees into account, the average load fund performs worse than a no-load fund.

What to Know Before You Buy Mutual Fund Net asset value (NAV), which is a fund's assets minus liabilities, is the value of a mutual fund. NAV per share is the value of one share in the mutual fund, and it is the number that is quoted in newspapers. You can basically just think of NAV per share as the price of a mutual fund. It fluctuates everyday as fund holdings and shares outstanding change. When you buy shares, you pay the current NAV per share plus any sales front-end load. When you sell your shares, the fund will pay you NAV less any back-end load.

Identifying Goals and Risk Tolerance Before acquiring shares in any fund, you need to think about why you are investing. What is your goal? Are longterm capital gains desired, or is a current income preferred? Will the money be used to pay for college expenses, or to supplement a retirement that is decades away? Identifying a goal is important because it will help you hone in on the right fund for the task. For really short-term goals, money market funds may be the right choice, For goals that are few years in the future, bond funds may be appropriate. For long-term goals, stocks funds may be the way to go.

Of course, you must also consider the issue of risk tolerance. Can you afford and accept dramatic swings in portfolio value? If so, you may prefer stock funds over bond funds. Or is a more conservative investment warranted? In that case, bond funds may be the way to go.

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The next question to consider include are you more concerned about trying to outperform your funds benchmark index or are you more concerned about the cost of your investments? If the answer is cost, index funds are likely the right choice for you. Additional questions, to consider include how much money you have to invest, whether you should invest in a lump sum or a little bit over time and whether taxes are a concern for you

Evaluating Performance Perhaps you've noticed all those mutual fund ads that quote their amazingly high one-year rates of return. Your first thought is "wow, that mutual fund did great!" Well, yes it did great last year, but then you look at the three-year performance, which is lower, and the five year, which is yet even lower. What's the underlying story here? Let's look at a real example from a large mutual fund's performance: 1 year 53% 3 year 20% 5 year 11%

Last year, the fund had excellent performance at 53%. But, in the past three years, the average annual return was 20%. What did it do in years 1 and 2 to bring the average return down to 20%? Some simple math shows us that the fund made an average return of 3.5% over those first two years: 20% = (53% + 3.5% + 3.5%)/3. Because that is only an average, it is very possible that the fund lost money in one of those years. It gets worse when we look at the five-year performance. We know that in the last year the fund returned 53% and in years 2 and 3 we are guessing it returned around 3.5%. So what happened in years 4 and 5 to bring the average return down to 11%? Again, by doing some simple calculations we find that the fund must have lost money, an average of -2.5% each year of those two years: 11% (53% + 3.5% + 3.5% - 2.5% - 2.5%)/5. Now the fund's performance doesn't look so good! It should be mentioned that, for the sake of simplicity, this example, besides making some big assumptions, doesn't include calculating compound interest. Still, the point wasn't to be technically accurate but to demonstrate the importance of taking a closer look at performance numbers. A fund that loses money for a few years can bump the average up significantly with one or two strong years.

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TERMINOLOGY SYSTEMATIC WITHDRAWAL PLAN (SWP) SWP stands for Systematic Withdrawal Plan. Here the investor invests a Lumpsum amount and withdraws some money regularly over a period of time. This results in a steady income for the investor while at the same time his principal also gets drawn down gradually. Say for example an investor aged 60 years receives Rs. 20 lakh at retirement. If he wants to use this money over a 20 year period, he can withdraw Rs. 20,00,000/ 20 = Rs. 1,00,000 per annum. This translates into Rs. 8,333 per month. (The investor will also get return on his investment of Rs. 20 lakh, depending on where the money has been invested by the mutual fund). In this example we have not considered the effect of Compounding. If that is considered, then he will be able to either draw some more money every month, or he can get the same amount of Rs. 8,333 per month for a longer period of time. The conceptual difference between SWP and MIP is that SWP is an investment style whereas MIP is a type of scheme. In SWP the investors capital goes down whereas in MIP, the capital is not touched and only the interest is paid to the investor as dividend. SYSTEMATIC TRANSFER PLAN (STP) In SIP investors money moves out of his savings account into the scheme of his choice. Lets say an investor has decided to invest Rs 5,000 every month, such that Rs. 1,000 gets invested on the 5th, 10th, 15th, 20th and 25th of the month. This means that the Rs. 5000, which will get invested in stages till 25th will remain in the savings account of the investor for 25 days and earn interest @ 3.5%. If the investor moves this amount of Rs. 5000 at the beginning of the month to a Liquid Fund and transfers Rs. 1000 on the given dates to the scheme of his choice, then not only will he get the benefit of SIP, but he will earn slightly higher interest as well in the Liquid Funds as compared to a bank FD. As the money is being invested in a Liquid Fund, the risk level Associated is also minimal. Add to this the fact that liquid funds do not have any entry/ exit loads. This is known as STP. SYSTEMATIC INVESTMENT PLAN (SIP) INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

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A systematic Investment Plan SIP) is a vehicle offered by mutual funds to help you save regularly. Its similar to a recurring deposit with bank or a post office where you put in a small amount month. The difference here is that the amount is invested in a mutual fund. The minimum amount to be invested can be as small as RS.100 and the frequency of investment is usually monthly / quarterly. An SIP allows you to take part in the stock market without trying to second guess its movements. An SIP means you commit yourself to investing a fixed amount every month. Lets say it is RS.1,000. When the NAV is high, you will get fewer units and vice-versa. Its makes you disciplined in your savings. Every month you are forced to keep aside a fixed amount. This could either be debited directly from your account or you could give the mutual fund post-dated cheques. If, however, you do sell your units within a year, you ould be charged an exit load. So it pays to stay invested for the long-run. The best way to enter a mutual fund is via an SIP. But to get the benefit of an SIP. Think of a least a three yearr time frame when you wont touch your money.

Net AssetValue (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 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 units under open-ended schemes are repurchased by the Mutual Fund. Such prices are NAV related. Redemption Price Is the price at which 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 orBack-endLoad Is a charge collected by a scheme when it buys back the units from the unitholders.

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CHOOSING BETWEEN DIVIDEND PAYOUT, DIVIDEND REINVESTMENT AND GROWTH OPTIONS WHICH ONE IS BETTER FOR THE INVESTOR? Investors often get confused between the above mentioned (Dividend Payout, Dividend Reinvestment and Growth Options) three options which he has to choose while investing in mutual funds units. These options have to be selected by the investor at the time of purchasing the units and many a times investors feel that the dividend reinvestment option is better than growth as they get more number of units. Lets understand the three options : A) Growth Option Growth option is for those investors who are looking for capital appreciation. Say an investor aged 25 invests Rs 1 lakh in an equity scheme. He would not be requiring a regular income from his investment as his salary can be used for meeting his monthly expenses. He would instead want his money to grow and this can happen only if he remains invested for a long period of time. Such an investor should go for Growth option. The NAV will fluctuate as the market moves. So if the scheme delivers a return of 12% after 1 year, his money would have grown by Rs. 12,000. Assuming that he had invested at a NAV of Rs. 100, then after 1 year the NAV would have grown to Rs 112. Notice here that neither is any money coming out of the scheme, nor is the investor getting more units. His units will remain at 1,000 (1,00,000/ 100) which he bought when he invested Rs. 1 lakh @ Rs. 100/ unit. B) Dividend Payout Option In case an investor chooses a Dividend Payout option, then after 1 year he would Receive Rs. 12 as dividend. This results in a cash outflow from the scheme. The impact of this would be that the NAV would fall by Rs. 12 (to Rs. 100 after a year. In the growth option the NAV became Rs. 112) . Here he will not get any more number of units (they remain at 1,000), but will receive Rs 12,000 as dividend (Rs. 12 per unit * 1,000 units). Dividend Payout will not give him the benefit of compounding as Rs. 12,000 would be taken out of the scheme and will not continue to grow like money which is still invested in the scheme . C) Dividend Reinvestment Option

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In case of Dividend Reinvestment option, the investor chooses to reinvest the dividend in the scheme. So the Rs. 12, which he receives as dividend gets invested into the scheme again @ Rs. 100. This is because after payment of dividend, the NAV would fall to Rs. 100. Thus the investor gets Rs. 12,000/ Rs. 100 = 120 additional units. Notice here that although the investor has got 120 units more, the NAV has come down to Rs. 100. Hence the return in case of all the three options would be same. For Growth Option, the investor will have 1000 units @ 112, which equals to Rs. 1,12,000 while for Dividend Reinvested Option the investor will have 1120 units @ Rs. 100 which again amounts to Rs. 1,12,000. Thus it can be seen that there is no difference in either Growth or Dividend Reinvestment Plan. It must be noted that for equity schemes there is no Dividend Distribution Tax, however for debt schemes, investor will not get Rs. 12 as dividend, but slightly less due to Dividend Distribution Tax. In case of Dividend Reinvestment Option, he will get slightly lesser number of units and not exactly 120 due to Dividend Distribution Tax. In case of Dividend Payout option the investor will lose out on the power of compounding from the second year onwards.

Concept Clarifier Power of Compounding Compound Interest refers to interest earned on interest. The formula for Compound Interest is: A = P *( 1 + r)t Where, A = Amount P = Principal invested r = rate of interest per annum t= Number of Years As can be seen, the three variables that affect the final Amount are Principal, rate of interest and time for which money is invested. It is time which acts as the biggest determinant as it pulls up the value in an exponential manner. Hence it is important to invest for the long term to get the benefit of compounding.

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As for choosing the right optionits totally depending on the understanding & need of the investors. But it is better to choice the growth optionbecause its removes your hurdle around taxation matter.

TAXATION IN MUTUAL FUNDS Taxation in case of Mutual Funds must be understood, Primarily, from Capital Gains, Securities Transaction Tax (STT) and Dividends point of view. Tax rules differ for equity and debt schemes and also for Individuals, NRIs, OCBs and corporates. Investors also get benefit under section 80C of the Income Tax Act if they invest in a special type of equity scheme, namely, Equity Linked Savings Scheme.

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As per SEBI Regulations, any scheme which has minimum 65% of its average weekly net assets invested in Indian equities, is an equity scheme. An investor in such a scheme will not have to pay any tax on the capital gains which he makes, provided he holds the scheme s units for a period of more than 12 months. While exiting the scheme, the investor will have to bear a Securities Transaction Tax (STT) @ 0.25% of the value of selling price. However, if the investor makes a profit by selling his units at a higher NAV (capital gains), within 12 Months, then such a capital gain is treated as being short-term in nature, and hence taxed @ 15% of the profits. Investors in all other schemes have to pay capital gains tax, either short term or long term. In case a scheme invests 100% in foreign equities, then such a scheme is not considered to be an equity scheme from taxation angle and the investor has to pay tax even on the long term capital gains made from such a scheme. In case investors make capital gains within 12 months, for non-equity schemes, the capital gains are added to their income and then the total income is taxed as per their tax slab. This is known as taxation at the marginal rate. For long-term capital gains made by investors in non-equity schemes, they have to pay tax either @ 10% or @ 20%, depending upon whether investors opt for indexation benefit or not.

CAPITAL GAINS TAXATION NIL NIL NIL NIL

FIIs

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TDS RATE@ UNDER THE ACT

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FIIs

RESISDENTS

NRIs/PIOs/OTHER NON FII NON-RESISDENTS

MANAGEMENT(IMM),NEW DELHI NIL 30% FOR NON-RESISDENT NON CORPORATES,40% FOR NON-RESISDENT CORPORATES(U/S 195) NIL 15% FOR ALL NON-RESIDENTS (U/S 195) NIL 20% FOR NON-RESIDENTS NIL NIL

30%(U/S 115AD)

15% ON THE REDEMPTION OF THE UNITS,WHERE

INSTITUTE OF MARKETING AND

10% ITH NO INDEXATION BENEFIT (U/S 115AD)

EXEMPTION IN CASE OF REDEMPTION OF UNITS WHERE STT

UNDER THE ACT

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NRIs/PIOs RESISDENTS

MANAGEMENT(IMM),NEW DELHI NON-EQUITY SCHEMES TAXABLE AT NORMAL RATES OF TAX APPLICABLE TO THE ASSESEE EQUITY SCHEMES STT IS PAYABLE ON REDEMPTION (U/S 111A) NON-EQUITY SCHEMES 10% WITHOUT INDEXATION, OR 20 % WITH INDEXATION ,WHICHEVER IS LOWER (U/S 112) EQUITY SCHEMES IS PAYABLE ON REDEMPTION (U/S 10(38))

SHORT TERM CAPITAL GAIN

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INDEXATION BENEFIT Indexation is a procedure by which the investor can get benefit from the fact that inflation has eroded his returns. Indexation works on the simple concept that if an investor buys a unit @ Rs. 10 and sells it @ Rs. 30 after 5 years, then his profit of Rs. 20 per unit needs to be adjusted for the inflation increase during the same time period. This is because inflation reduces purchasing power. What Rs. 100 could have bought when he bought the unit @ Rs.10, would now have increased in price due to inflation. Thus he can now buy less for the same Rs. 100. If during the same time, inflation has increased by 12%, then the adjusted cost of the unit purchased (at todays price) would be Rs. 10 * (1 + 12%) = Rs. 11.2. So his profit would not be Rs. 20, but Rs. 30 Rs. 11.2 = Rs. 18.8. Thus, by adjusting his buying price for inflation, he has effectively negated the impact of inflation there by reducing his profits. Obviously, his tax liability would reduce by doing so. The Government allows the investor to choose how he would like to calculate his tax. In case he chooses not to take the benefit of indexation, his profit would be Rs. 20 and he would have to pay a tax @ 10% on the capital gain. Thus he would pay tax of 20 * 10% =Rs. 2. In case he opts for the indexation benefit, his profit would be Rs. 18.8, as calculated earlier. Since he has taken the benefit of indexation, he needs to pay tax at a higher rate of 20%. Thus his tax liability would be 18.8 * 20% = Rs. 3.76. In this case he would obviously opt for paying tax without taking the benefit of indexation as his tax liability is less in that case. Investors get the benefits of indexation , in the case when the value is not appreciate too much. In this particular an investors can get of indexation benefit as tax liability is goes down by using indexation.

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Measures of return / risk and portfolio performance

The various measures of return / risk and portfolio performance used in the present study are presented below:

Return The returns are computed on the basis of the NAV of the different schemes and returns in the market index are calculated on basis of NSE Nifty on the respective date. The return from a Mutual fund scheme (Rst) at time t is as follows:

Where NAVt and NAVt-1 are net assets values for time period t and t-1, respectively.

Risk-Free Rate of Return (Rf) In this study, the weekly yields on 91-day Treasury bills have been used as risk free rate.

Risk The risk is calculated on the basis of week-end NAV. The following measures of risks associated with mutual funds have been for the study: Beta (): i.e., funds volatility as regard market index measuring the extent of co-movement of fund with that of the benchmark index. =( x / y ) X correlation between x and y x = Standard Deviation of security X y = Standard Deviation of Market Standard Deviation (): i.e., funds volatility or variation from the average expected return over a certain period.

Sharpe Ratio INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

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The Sharpe measure provides the reward to volatility trade-off. It is the ratio of the fund portfolios average excess return divided by the standard deviation of returns and is given by:

Where ARP = average return on mutual fund portfolio over the sample period, ARf = average risk free return over the sample period, and p = standard deviation of excess returns over the sample period.

By dividing the average return of the portfolio in excess of the risk-free return by the standard deviation of the portfolio, the Sharpe ratio measures the risk premium earned per unit of risk exposure. In other words, this ratio measures the change in the portfolio's return with respect to a one unit change in the portfolio's risk. The higher this "Reward-to-Variability-Ratio" the more attractive is the evaluated portfolio because the investor receives more compensation for the same increase in risk. Treynor Ratio The Treynor measure is similar to the Sharpe ratio, except that it defines reward (average excess return) as a ratio of the CAPM beta risk. Treynor's performance measure is defined as the risk premium earned per unit of risk taken. Thus, the Treynor ratio is computed as the average return of the portfolio in excess of the risk-free return divided by the portfolio's beta. Treynors ratio is given by:

Where Betap = beta risk value for the mutual fund portfolio.

ADVANTAGES OF MUTUAL FUNDS

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The advantages of mutual funds are given below: -

Portfolio Diversification :- Mutual funds invest in a number of companies. This diversification reduces the risk because it happens very rarely that all the stocks decline at the same time and in the same proportion. So this is the main advantage of mutual funds.

Professional Management :-

Mutual funds provide the services of experienced

and skilled professionals, assisted by investment research team that analysis the performance and prospects of companies and select the suitable investments to achieve the objectives of the scheme.

Low Costs:- Mutual funds are a relatively less expensive way to invest as compare to directly investing in a capital markets because of less amount of brokerage and other fees.

Liquidity:-

This is the main advantage of mutual fund, that is whenever

an investor needs money he can easily get redemption, which is not possible in most of other options of investment. In open-ended schemes of mutual fund, the investor gets the money back at net asset value and on the other hand in close-ended schemes the units can be sold in a stock exchange at a prevailing market price.

Transparency :-

In mutual fund, investors get full information of the

value of their investment, the proportion of money invested in each class of assets and the fund managers investment strategy

Flexibility :-

Flexibility is also the main advantage of mutual fund.

Through this investors can systematically invest or withdraw funds according to their needs and convenience like regular investment plans, regular withdrawal plans, dividend reinvestment plans etc.

Convenient Administration :- Investing in a mutual fund reduces paperwork

and helps investors to avoid many problems like bad deliveries, delayed

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payments and follow up with brokers and companies. Mutual funds save time and make investing easy.

Affordability :- Investors individually may lack sufficient funds to invest in

high-grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy.

Well Regulated :- All mutual funds are registered with SEBI and they
function with in the provisions of strict regulations designed to protect the interest of investors. The operations of mutual funds are regularly monitored by SEBI.

DISADVANTAGES OF MUTUAL FUNDS Mutual funds have their following drawbacks:

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 mutual fund runs the risk of losing the 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 dont use a broker or other financial advisor, 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 you reinvest the money you made.

Management Risk:- When you invest in mutual fund, you depend on fund
manager to make the right decisions regarding the funds portfolio. If the

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manager does not perform as well as you had hoped, you might not make as much money on your investment as you expected. Of course, if you invest in index funds, you forego management risk because these funds do not employ managers.

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SBI MUTUAL FUND. A PARTNER FOR LIFE.

INCORPORATED Ownership Ownership Pattern Sponsor Total Assets (Rs Cr) Equity Schemes Debt Schemes Liquid Schemes Customer Care

29/06/1987 Public Foreign - 37%, Domestic-63% State Bank of India, Societe Generale Asset Management 33,728 crore, for june 2010-07-25 `18 9 3 1-1800-425-5425(MTNL/BSNL) 080-26599420 Customer.delight@sbimf.com

Trustee Company Chief Executive & Managing Director Chief Investment Officer Investor Relations Officer Address Telephone Fax Website

SBI Mutual Fund Trustee Company Pvt.Ltd. Achal Kumar Gupta Navneet Munot G Kandasubramanian 191, Maker Tower 'E' 19th Floor,Cuffe Parade Mumbai - 400005 (022) 22180221-25, 27 (022) 22189663 www.sbimf.com

Sbi mutual fund

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SBI Mutual Fund, India's largest bank sponsored mutual fund, is a joint venture between the State Bank of India and Societe Generale Asset Management, one of the world's top-notch fund management companies. Over the years, SBI Mutual Fund has carved a niche for itself through prudent investment decisions and consistent wealth creation. Since its inception, SBI Funds Management Private Ltd. has launched thirty-two schemes and successfully redeemed fifteen of them. Throughout this journey, SBI Mutual Fund has profusely rewarded the 20,00,000 investors who have reposed their faith in it.

Today, the SBI fund boasts of an expertise of managing assets over Rs. 13,000 crores and has a diverse profile of investors actively parking their investments across 28 active schemes. A vast network of 82 collection branches, 26 investor service centres, 21 investor service desks and 21 district organizers helps the SBI Mutual Fund to reach out to their investors.

SBI mutual funds are sponsored by India's largest bank. One of the reasons that these mutual funds are so popular is because they have a very good track record of getting money for their investors. Another large contributor to SBI mutual funds is Socit Gnrale Asset Management who manages over 500 billion USD around the entire world. Usually endeavors initiated by SBI mutual funds have paid off for their investors. Their main motto is "Growth through innovation and stable investment policies."

History of SBI mutual fund INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

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SBI mutual funds were started over twenty years ago. Since then they have built to an investor base of over 5.4 million people throughout the entire world. SBI mutual funds have come up with 38 different schemes to increase the wealth of their investors. Fifteen of those have paid off, increasing the holdings of their investors by a substantial amount. This is one of the highest success rates of any mutual fund. SBI has also branched out into an offshore fund called the Resurgent India Opportunities Fund. HIGHLIGHTS 1. The purpose of SBI mutual fund is to build the wealth of the investors. This is done through the different schemes that the bank comes up with. The SBI mutual fund has the same purposes as any other mutual fund. The idea is to grow the wealth of investors, in a safe and controlled environment. SBI mutual fund has been one of the best mutual funds to bring this about for investors, and almost always performs on a higher level than other mutual funds. 2. SBI mutual funds and bank have been the recipients of many prestigious awards for investment banking. These include: the ICRA Online Award, which it has received eight times; the Lipper Award which it received one time, and the CNBC TV-18 Crisil Award twice. They have also received five different awards for their successful schemes that they have enacted. 3. Theories as to why SBI bank and mutual funds are so successful are varied. It may be because they have an excellent staff of knowledgeable people that really know where to invest. It could also be because the Indian bank is not tied to the United State's economy. This is probably a large factor because the United State's economy is so unsteady now, but the SBI mutual funds still remain strong. SBI also provides one of the strongest research departments among all other mutual funds, which also aides in the reliability of the mutual funds and helps keep it strong through economic trials and downfalls. 4. SBI mutual funds are great funds to invest in. Someone looking for a stable fund that is sure to grow throughout the years will appreciate the stability and care that SBI mutual funds takes in investing their investor's money. They have many highly talented and professional managers. Mr. Achal K. Gupta, who is the managing director and executive officer, and Mr. Didier Turpin, who is the chief investment officer, keep SBI mutual funds one of the best run investment banks.

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FUNDS OFFERED BY SBI

EQUITY SCHEMES A) Large cap & blend schemes 1) Magnum Multicap Fund 2) Magnum Equity Fund 3) Magnum Index Fund 4) Magnum Multiplier Plus 5) SBI Blue Chip 6) Magnum Taxgain Scheme 7) SBI One Fund

B) Sectorial schems 1) Magnum Sector Funds Umbrella-Contra Fund 2) Magnum Sector Funds Umbrella-FMCG Fund 3) Magnum Sector Funds Umbrella-IT Fund 4) Magnum Sector Funds Umbrella-Pharma Fund 5) Magnum Comma Fund

C) Small & Mid Cap Schemes 1) Magnum Global Fund 2) Magnum Midcap Fund

D) Market neutral strategy SBI Arbitrage Opportunities Fund

E) Hybrid Schemes- Equity Oriented INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

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1) Magnum Balanced Fund 2) Magnum NRI Investment Fund

DEBT SCHEMES 1) Magnum Childrens Benefit Plan 2) Magnum Income Plus Fund 3) Magnum Income Fund Floating Rate Plan 4) Magnum Monthly Income Plan 5) Magnum Income Fund 6) Magnum Monthly Income Plan Floater 7) SBI Dymanic Bond Fund 8) Magnum Gilt Fund 9) SBI Short Horizon Debt Fund

LIQUID SCHEMES 1) Magnum Instacash Fund-Liquid Floater 2) SBI Premier Liquid Fund 3) Magnum Instacash Fund

FIXED MATURITY PLANS (FMPs)

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COMPARISON AND EVALUATION LARGE CAP SCHEMES The main aim of this type of scheme is to provide the investors long term capital appreciation by investing primarily in Large Cap companies.

SCHEME Magnum Equity Fund Kotak 30 Birla Sun Life Equity Fund ICICI Prudential Power HDFC Equity Fund Reliance Vision Fund UTI Master Plus

TIME OF INCEPTION 01/01/1991 29/12/1998 27/08/1998 01/10/1994 01/01/1995 08/10/1995 31/12/1991

FUND Magnum Equity Fund Kotak 30 Birla Sun Fund Life

1 YEAR 32.96% 29.89

3YEAR 10.70% 9.52% 7.46%

5 YEAR 24.69% 24.01% 22.68%

SINCE INCEPTION 15.94% 24.25% 31.55%

Equity 32.42%

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ICICI Prudential Power

33.68%

5.79%

21.80%

16.18%

HDFC Equity Fund Reliance Vision Fund UTI Master Plus

46.52% 35.29% 21.36%

15.25% 8.57% 3.32%

27.96% 23.73% 18.16%

23.18% 24.92% 13.96%

FUND

STANDARD DEVIATION Magnum Equity Fund 36.74% Kotak 30 32.14% Birla Sun Life Equity 36.98% Fund ICICI Prudential Power HDFC Equity Fund Reliance Vision Fund UTI Master Plus 32.22% 10% 4.2691% 19%

BETA 0.93 0.89 0.92 0.91 0.9190 0.8515 0.89

SHARPE RATIO 0.32 0.97 0.06 0.17 0.14 0.0411

PORTFOLIO TURNOVER 1.73 221.71%

0.57 TIMES 60.30% 1.53 0.53

Conclusion When we look the yearly performance under large cap schemes ,HDFC Mutual Fund outperforms in this category and Reliance Mutual fund @ 46.52% .And SBI Mutual Fund & Birla Sun Life Mutual Fund are giving the same approx..36% returns & come at second place. But when we look at the return from the inception of schemes, Then the Birla Sun Life Mutual Fund outperform from all the schemes. And SBI Mutual Fund underperform under this category. & he has very tough competition with all other schemes. SBI return is 15.94% ,which is less then all other schemes INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

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Under risk & return category, the Reliance mutual fund has low standard deviation, its means return are going to suitable under it.And the SBI Mutual Fund & Birla Sun Life Mutual Fund have very high standard deviation, its means that in near future return will vary according market volatility. Beta 1 is considered as good for any investment. But for SBI Mutual Fund & Birla Sun Life Mutual Fund & HDFC Mutual Fund are near to 1.and In sharpe ratio kotak 30 has highest Sharpe ratio , which means the investors will get volatility benefits under this. The Sharpe ratio measures the risk premium earned per unit of risk exposure. In other words, this ratio measures the change in the portfolio's return with respect to a one unit change in the portfolio's risk. The higher this "Rewardto-Variability-Ratio" the more attractive is the evaluated portfolio because the investor receives more compensation for the same increase in risk. Under the corpus part, Reliance mutual fund have a highest corpus around 3716.90 crore as on july 2010.

SECTORIAL SCHEMES SCHEME Magnum Sector Funds Umbrella-Contra Fund Kotak Contra Birla Sun Life Buy India Fund ICICI Prudential FMCG Fund HDFC Long Term Advantage Fund Reliance Pharma Fund UTI TIME OF INCEPTION 14/07/1999 27/07/2005 15/01/2000 31/01/1999 01/01/2002 08/06/2004

FUND Magnum Sector Funds Umbrella-Contra Fund Kotak Contra Birla Sun Life Buy India Fund ICICI Prudential FMCG Fund HDFC Long Term Advantage Fund Reliance Pharma Fund UTI

1 YEAR 29.14% 37.57% 52.13% 62.16% 40.06% 110.58%

3YEAR 10.74% 10.24% 11.36% 12.73% 7.87% 28.23%

5 YEAR 26.41% ----------19.52% 23.14% 18.85% 32.13%

SINCE INCEPTION 27.48% 15.90% 14.27% 17.40% 30.63% 31.89%

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FUND

STANDARD DEVIATION Magnum Sector 35.69% Funds UmbrellaContra Fund Kotak Contra 32.68% Birla Sun Life Buy 33.66% India Fund ICICI Prudential 27.53% FMCG Fund HDFC Long Term 9.40% Advantage Fund Reliance Pharma 3.9664% Fund UTI

BETA 0.91 0.88 0.81 1.08 0.86 0.6191

SHARPE RATIO 0.31 0.91 0.18 0.38 0.11 0.1277

PORTFOLIO TURNOVER 0.92% 300.70%

0.42 times

0.32

CONCLUSION When we look at the yearly performance of the schemes , Reliance Pharma fund is outperform from all the category under sectorial schemes @ 110.58% almost double the return from all other schemes. But watching the returns from the inception, then the Reliance Pharma Fund & HDFC long Term Advantage Fund are at the first place @ 31% approx And then comes Magnum Contra Fund @ 27.48% this is old fund from both above fund, which means this fund outperform under this category. Under the risk category, Magnum Contra Fund has a highest standard deviation @35.69%, which means that the future will greatly affect with market volatility, which means if the market goes up then scheme return moves so much up then the other fund. And for sharpe ratio, kotak 30 @ .91, which means that investors will get volatility benefits under this.Then comes Magnum Contra Fund@ 0.31.In other words, this ratio measures the change in the portfolio's return with respect to a one unit change in the portfolio's risk. because the investor receives more compensation for the same increase in risk. Under the AUM part, Magnum Contra fund holds @3692.24 crore, which is almost sum all other category. Its means he holds the big AUM under this.

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SMALL & MID CAP SCHEMES The main objective of these funds is to provide long term appreciation by investing in securities belonging to small and midcap category. These funds are more risky than those mentioned above. Midcap companies are those companies whose market capitalization at the time of investment is lower than the last stock in the S&P CNX Nifty Index less 20% (upper range) and above Rs 200 crores.

SCHEME Magnum Global Fund Reliance Growth Fund HDFC Mid-Cap Opportunities Fund ICICI Prudential Emerging S.T.A.R. Fund Birla Sun Life Mid-Cap Fund UTI Mid-Cap Fund Kotak Mid-Cap

TIME OF INCEPTION 30/09/1994 08/10/1995 25/06/2007 28/10/2004 03/10/2002 07/04/2004 24/02/2005

FUND Magnum Global Fund Reliance Growth Fund HDFC Mid-Cap Opportunities Fund ICICI Prudential

1 YEAR 47.69% 40.82% 60.36% 56.11%

3YEAR 4.27% 14.23% 12.37% 1.04%

5 YEAR 22.56% 27.77% --------19.98%

SINCE INCEPTION 14.33% 29.64% 12.57% 23.82%

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Emerging S.T.A.R. Fund Birla Sun Life Mid-Cap 47.68% Fund UTI Mid-Cap Fund 60.32% Kotak Mid-Cap 53.95%

13.34% 10.77% 1.65%

26.24% 16.62% 17.38%

36.03% 21.69% 17.68%

FUND

STANDARD DEVIATION Magnum Global Fund 44.31% Reliance Growth Fund 4.3827% HDFC Mid-Cap 9.10% Opportunities Fund ICICI Prudential 41.12% Emerging S.T.A.R. Fund Birla Sun Life Mid-Cap 41.38% Fund UTI Mid-Cap Fund 21% Kotak Mid-Cap 39.05%

BETA 1.09 0.8514 0.77 0.87 0.94 0.95 1.03

SHARPE RATIO 0.19 0.0648 0.12 0.10 0.19

PORTFOLIO TURNOVER 1.58 0.40 17.64% 0.73 times

0.89

0.79% 380.96%

Conclusion When we look at the yearly performance under Small & Midcap category,then UTI Mid-Cap Fund & HDFC Mid-Cap opportunities Fund are outperform@60% approx.. & Magnum Global return is 47.69% But when we look at the returns from the inception of fund, then Birla Sun Life Mid-Cap Fund outperform from all other fund. But real sense Reliance Growth fund outperform all the schemes @29.64% as this old scheme since 95. And Birla Sun Life Mid-Cap Fund is new fund from 02. And Magnum Global Fund is lacking behind under this category@14.33%. Under the risk category,the Magnum Global Fund has highest standard deviation@44.31% , which means that return will moves in a big difference as INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

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market moves in both way. And then ICICI Prudential Emerging S.T.A.R. Fund, Birla Sun Life Mid-Cap Fund & Kotak Mid-Cap Fund have a standard deviation@40% approx And beta for Magnum Global Fund & Kotak Mid-Cap Fund are more then 1, which means return are volatile. Investor are going to take risk under it. Sharpe ratio for Kotak Mid-Cap Fund@0.89 , which means that investor are going to enjoy risk in it. Under the AUM part,really best fund of Reliance Mutual Fund is Growth Fund, they are holding AUM of 7681.36 crores. Almost sum of all the schemes under it.

HYBRID SCHEMES These funds basically try to provide long term capital appreciation by investing in high growth companies. At the same time these funds try to balance the risk by investing in relatively safe portfolio of debt.

SCHEME Magnum Balanced Fund Reliance Regular Savings Fund HDFC Balanced Fund UTI Balanced Fund ICICI Prudential Balanced Fund Kotak Balance Birla Sun Life 95 Fund

TIME OF INCEPTION 31/12/1995 09/06/2005 11/09/2000 02/01/1995 03/11/1999 25/11/1999 10/02/1995

FUND Magnum Balanced Fund Reliance Regular Savings Fund HDFC Balanced Fund UTI Balanced Fund ICICI Prudential Balanced Fund Kotak Balance Birla Sun Life 95 Fund

1 YEAR 21.69% 32.69% 40.86% 27.44% 27.22% 23.97% 30.73%

3YEAR 8.78% 20.25% 16.18% 9.25% 5.01% 8.90% 13.11%

5 YEAR 19.29% 16.15% 19.62% 15.69% 15.38% 17.97% 21.43%

SINCE INCEPTION 17.87% 19.03% 18.01% 17.92% 14.52% 18.09% 24.44%

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FUND

Magnum Fund Reliance Regular Savings Fund HDFC Balanced Fund UTI Balanced Fund ICICI Prudential Balanced Fund Kotak Balance Birla Sun Life 95 Fund

STANDARD DEVIATION Balanced 28.15% 3.4659%

BETA 1.14 0.6765

SHARPE RATIO 0.26 0.0945

PORTFOLIO TURNOVER 2.21 3.49 16.93%

23.68% 25.60% 27.79% 0.96 1.12.. 0.94 0.28

0.60 times 235.35%

CONCLUSION When we look at the yearly performance under Hybrid Fund, HDFC Balanced Fund outperforms other fund under it. And his return is 40.86%. And Reliance Regular Savings Fund & Birla Sun Life95 Fund return are around 31%. All the fund have tough competition under this category. But looking at the returns since inception of scheme, Birla Sun Life95 Fund is at 24.44%,and giving the best return under hybrid category. And all the other funds like Magnum Balanced Fund, Reliance Regular Savings Fund, HDFC Balanced Fund & UTI Balanced Fund returns are approx.18%. Under the risk profile, the standard deviation of Birla Sun Life95 Fund & Magnum Balanced Fund are around 28%. Which means that return will vary as per condition up & down. And beta of Birla Sun Life95 Fund & Magnum Balanced Fund are more then 1, it is at 1.14 approx.. return are going to vary as per market condition & beta more then 1 is considered as good to invest, because return expection is very high under it. And sharpe ratio of kotak balance is very high then all, which means investors are going to enjoy risk factor in this fund Under AUM part, Reliance Regular Savings Fund holds the AUM of 2896.92 crores, which is the Biggest part then all other contemporary schemes.

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EQUITY LINKED SAVING SCHEMES The prime objective of this scheme is to deliver the benefits of investment in a portfolio of equity shares, while offering deduction on such investment made in the scheme under section 80C of the Income Tax Act, 1961. The money invested under these schemes is locked for a period of 3 years.

SCHEME Magnum Taxgain Scheme Kotak Tax Saver Birla Sun Life Tax Relief 96 ICICI Prudential Tax Plan HDFC Tax Saver Reliance Tax Saver (ELSS) Fund UTI Equity Tax Savings Plan

TIME OF INCEPTION 31/03/1993 23/11/2005 29/03/1996 19/08/1999 31/03/1996 22/09/2005 15/12/1999

FUND Magnum Taxgain Scheme Kotak Tax Saver Birla Sun Life Tax Relief 96 ICICI Prudential Tax Plan HDFC Tax Saver Reliance Tax Saver (ELSS) Fund UTI Equity Tax Savings

1 YEAR 30.30% 31.83% 37.22% 53.74% 48.75% 40.48% 28.24%

3YEAR 7.29% 2.47% 6.95% 12.25% 11.70% 8.98% 3.33%

5 YEAR 21.97% 21.96% 19.75% 22.80% N.A. 14.19%

SINCE INCEPTION 18.40% 13.23% 32.37% 26.80% 32.46% 15.59% 18.44%

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Plan

FUND

Magnum Scheme Kotak Tax Saver Birla Sun Life Tax Relief 96 ICICI Prudential Tax Plan HDFC Tax Saver Reliance Tax Saver (ELSS) Fund UTI Equity Tax Savings Plan

STANDARD DEVIATION Taxgain 34.21% 39.05% 41.85% 36.13% 9.40% 4.1556% 19%

BETA 0.87 1.03 1.04 0.97 0.86 0.7924 0.90

SHARPE RATIO 0.22 0.89 0.04 0.35 0.11 0.0443

PORTFOLIO TURNOVER 0.37% 380.96%

1.91 TIMES 22.37% 1.33 0.56

CONCLUSION When we look at the yearly performance under it,the ICICI Prudential Tax Plan outperforms in this category and cleary beating all other contemporary schemes. Return of this scheme is 53.75%. And HDFC Tax Saver is also giving good return of 48.75%. Looking at the return, since the inception of scheme, then the HDFC Tax Saver and Birla Sun Life Tax Relief 96 gives the return approx.. at 32-33% outperforms in this category. Giving the topclass return to investors in every way as a return and tax benefit. INSTITUTE OF MARKETING AND MANAGEMENT(IMM),NEW DELHI

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Under risk profile,the standard deviation of HDFC Tax Saver and Birla Sun Life Tax Relief 96 is very high , means returns are going to vary as market condition. And Magnum Taxgain Scheme has also high standard deviation of 34.21%.Return under these scheme will going to affect by market condition. And beta for HDFC Tax Saver and Birla Sun Life Tax Relief 96 is also very high and its more then 1 , means its going to some extent of risk involved under it. Investors who are searching big return , are going to benefit under this scheme. And sharpe ratio for HDFC Tax saver is very high around 0.89, its means that the investors are most suitably rewarded for the extra risk. Under AUM part, Magnum Taxgain Scheme holds 5635.07 crores, a very big part of investing scheme. This is a back bone SBI Mutual fund. Its performance goes down from few years, but the expection of investor is huge with this scheme.

LIMITATIONS OF THE STUDY

The study is limited to only top mutual fund schemes by top mutual fund industry.

Mutual funds are ranked on the basis of their Asset under Management(AUM).Not on the basis of skills of fund manager.

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RECOMMENDATIONS The performance of the mutual fund depends on the previous years Net Asset Value of the fund. All schemes are doing well. But the future is uncertain. So, the SBI mutual fund should take the following steps: 1. The expectation of the people from the mutual funds is high. So, the portfolio of the fund should be prepared taking into consideration the expectations of the people. 2. Try to reduce fund charges, administration charges and other charges which helps to invest more funds in the security market and earn good returns. 3. Different campaigns should be launched to educate people regarding mutual funds. 4. Companies should give handsome brokerage to brokers so that they get attracted towards distribution of the funds. Here is that place company need to focus more as company is doing but is lacking behind just because of distributor channel not working their task.

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BIBLIOGRAPHY

www.nseindia.com; www.amfiindia.com; www.sbimf.com; www.investopedia.com; www.iciciprudentialmutualfund.com; www.birlasunlifemutualfund.com; www.utimutualfund.com; www.kotakmutualfund.com www.reliancemutualfund.com www.hdfcmutualfund.com www.amfiindia.com; Sir - Vineet Rawat (Relationship Manager) SBI mutual fund material

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