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Submitted in partial fulfillment of the requirement for MBA Degree Programme of Uttar Pradesh Technical University, Lucknow
Project Guide:
Mr.Nitin Pathak Invertis university Bareilly Presented By: Rahul Kumar Srivastava MBA IVth sem. 0901570089 IIMS, Bareilly
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ACKNOWLEDGEMENT
There is always a sense of gratitude which one express to other for the helpful so needy services they render during all phases of life. I would like to express my gratitude towards all those who have been helpful to me in preparing my winter project. First of all, I consider it a pleasant duty to express my heartfelt appreciation, gratitude and indebtedness to Mr.Nitin Pathak, project guide for his keen interest, invaluable pain taking & excellent guidance, patience, endurance, encouragement & thoughtful advice throughout the project work duration. I am also thankful to all my friends and family who gave me constant & continuous inspiration to complete this project.
PREFACE
The post liberalization era has seen significant changes in product offerings by the mutual fund industry. Today, they have a wide variety of products and services offered by a large number of players. Investors are wooed by fund houses and distribution companies which have their focus on investor servicing. While the Indian customer is thrilled by the variety, he finds it difficult to make the right choice due to similar returns offered by the schemes. Before investing, one should take into consideration various factor such as risk taking ability, short and long term financial goal and liabilities. For instance, if the goal is to save for retirement, one should pick up high risk, high reward equity schemes. Investors should identify their needs and goals instead of following the herd. Following global trends, most fund houses are gearing up to launch schemes specifically for commodities, derivatives and real estate, thus increasing opportunities for the investors. Besides investing in mutual funds, investors are advised to have a mix of previous metal like gold and property in their investment portfolio.
Let us consider some investment options for different age groups. If you are young and have a risk taking ability, buy aggressive equity schemes. But invest prudently in equity funds at current sensex levels. If you buy equity scheme at high levels, ensure that some money is invested when sensex returns to lower levels. Regular investing will take care of market volatility and give decent returns. Young investors can also opt for high risk and high reward sectoral schemes. Also, investing in derivative dedicated scheme is associated with more risk; the returns from this scheme in a
Volatile market will be relatively high. For middle Aged investor, a combination of equity and debt instruments is advised. Middle aged investors should invest in balanced schemes instead of buying vanilla equity schemes.
Most funds have launched balanced funds and equity linked savings schemes where investors, as per the income tax act, qualify for income tax deduction. For an investor looking for regular income, several monthly income schemes have been launched. These schemes have been trailing the market in the past few months, but a look at their long term record reveals that these schemes are good investment vehicles. Before investing in any fund, investors should priorities goals and their financial needs so that short term swings of the market do not affect their overall returns.
EXECUTIVE SUMMARY
At the present time of cut throat competition in every industry every company want to top the chart and want to show as big as possible figure of profits in its balance sheet. It is quite clear today that at present time the growth of any organization is possible onl y wi th the help of hard working and well focused staffs that are the backbone of any
organizations. It was m y great pleasure that I completed m y summer training from State Bank of India Mutual Fund where I got to know that in Mutual Fund Industry the skills o f the man power matters most and increasing number of mutual fund Consultants help the organization to increase its mutual fund of policies which in turn result in growth for the organization. So it is quite clear that mutual fund Consultants matter most for State bank of India Mutual Fund. My job was to create the database for the organization so that the number if mutual fund Consultants could be increased. My job was to approach the individuals and aware them about mutual funds and the way of investment. By this, I am able to understand the needs of the investor at the time of investment. By approaching the individuals, I could understand about the different level of risk bearing capacity. I visited various areas of Lucknow in order to meet different t ypes of people. I was allotted to the branch of SBI.
TABLE OF CONTENT
Sr. No
1.
Page No. 7 11 21 28
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2. 3. 4. 5.
Introduction Organization Profile Mutual Fund Theoretical Concept SBI Mutual Fund Debt Fund Risk Management
Chapter-1 INTRODUCTION
INTRODUCTION
1.1
The post liberalization era has seen significant changes in product offerings by the mutual fund industry. Today, they have a wide variety of products and services offered by a large number of players. Investors are wooed by fund houses and distribution companies which have their focus on investor servicing. While the Indian customer is thrilled by the variety, he finds it difficult to make the right choice due to similar returns offered by the schemes. Before investing, one should take into consideration various factor such as risk talking ability, short and long term financial goal and liabilities. For instance, if the goal is to save for retirement, one should pick up high risk, high reward equity schemes. Investors should identify their needs and goals instead of following the herd. Following global trends, most fund houses are gearing up to launch schemes specifically for commodities, derivatives and real estate, thus increasing opportunities for the investors. Besides investing in mutual funds, investors are advised to have a mix of previous metal like gold and property in their investment portfolio. Let us consider some investment options for different age groups. If you are young and have a risk taking ability, buy aggressive equity schemes. But invest prudently in equity funds at current sensex levels. If you buy equity scheme at high levels, ensure that some money is invested when sensex returns to lower levels. Regular investing will take care of market volatility and give decent returns. Young investors can also opt for high risk and high reward sectoral schemes. Also, investing in derivative dedicated scheme is associated with more risk; the returns from 7
this scheme in a volatile market will be relatively high. For middle aged investor, a combination of equity and debt instruments is advised. Middle aged investors should invest in balanced schemes instead of buying vanilla equity schemes. Most funds have launched balanced funds and equity linked savings schemes where investors, as per the income tax act, qualify for income tax deduction. For an investor looking for regular income, several monthly income schemes have been launched. These schemes have been trailing the market in the past few months, but a look at their long term record reveals that these schemes are good investment vehicles. Before investing in any fund, investors should priorities goals and their financial needs so that short term swings of the market do not affect their overall returns.
1.4-LIMITATIONS:
This study is based on investors expectations on the bases of risk for different different schemes. These expectations are majored on the interaction bases. Interaction was with different different age group people. Risk level is different and the way of managing the risk is also different because different schemes are managed by different managers.
DATA
Data are simply facts, or recorded measures of certain phenomena. Data are in raw
form for all. But to use the data for any organization or work, we need it make it in the suitable format. This form at is known as information.
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Data can be in forms, one is primary data and other can be secondary data. Primary data is that which is gathered and assembled specifically for This data is not published till now. Secondary data or historical data are data previously collected and assembled for some project other than the one in hand. This data can often be found inside the company, in the library, and on the internet. For this project, I used the secondary data, which is taken by the SBI MF. This data is from the SBI MF fact sheet and some internet sites. For the justification of the data, I directly meet with the investor of SBI- MF & the potential investors (Lucknow city). the research project at hand.
METHODOLOGY:
Research is an organized inquiry designed and carried out to provide information to solve the problem. Research is the process of systematically obtaining accurate answers to significant pertinent questions by the use of gathering data, interpretation and work.
DATA COLLECTION:
Data is collected through the company STATE BANK OF INDIA and the internet websites. Data collection is the most important part of any research and mainly it should be trustable. For this purpose, I interact with the general people from the lower class and middle class as well as the high class. By this, I am able to surely and confidently say that collected data are trustable.
MODE OF COLLECTION:
Data collection is the collecting work of our team including four trainees from various institutes with the help of SBI-MF staff members.
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INTERPRETATION:
Interpretation is based on the financial concepts. Interpretations are very important part of any research and it should base on the concepts. I tried to be this project very particular as on concept.
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13
State bank Of Indore State Bank Of Mysore State Bank Of Patiala State Bank Of saurashtra State Bank Of Travancore
Peoples Republic Of
China
15
SBI Capital Market Ltd SBI Factors And Commercial Services Ltd SBI DFHI Ltd SBI Cards And Payment Services Ltd SBI Life Insurance Co. Ltd ( Life Insurance ) SBI Funds Management Pvt. Ltd SBI Canada
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2.8.1 HISTORY:
The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the industry. In the past decade, Indian mutual fund industry had seen dramatic improvements, both quality wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase; the Assets under Management (AUM) was Rs.67bn. The private sector entry to the fund family rose the AUM to Rs.470 bn in March 1993 and till April 2004, it reached the height of 1,540 bn. Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than the deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian banking industry. The main reason of its poor growth is that the mutual fund industry in India is new in the country. Large sections of Indian investors are yet to be intellectuated with the concept. Hence, it is the prime responsibility of all mutual fund companies, to market the product correctly abreast of selling. 17
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Joint agreement with SocGen unit signed - SBI MF seeks to be second biggest:
A joint venture between State Bank of India and Socit Gnrale Asset Management. SGAM has global markets expertise and significant strengths in Risk management and compliance. JV strengths include cultural similarity and clear demarcation of activities based on mutual strengths. SBI Mutual is the first bank-sponsored fund to launch an offshore fund Resurgent India Opportunities Fund. Net worth of Rs.63 Crores and assets over Rs.7000 crores under management. Choice of 28 open ended schemes. Investor base of over 9 lakhs investors. 17 years of Fund Management expertise. Schemes of the Mutual fund have consistently outperformed benchmark indices and have emerged as the preferred investment for millions of investors and HNIs.
The fund serves this vast family of investors by reaching out to them through network of over 130 points of acceptance, 28 investor service centers, 46 investor service desks and 56 district organizers. SBI Mutual is the first bank-sponsored fund to launch an offshore fund Resurgent India Opportunities Fund. Growth through innovation and stable investment policies is the SBI MF credo.
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63%
37%
22
23
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profit organizations. Its services are also extended to high net worth individuals and retail investors. In India it is known as Morgan Stanley Investment Management Private Limited (MSIM India) and its AMC is Morgan Stanley Mutual Fund (MSMF). This is the first close end diversified equity scheme serving the needs of Indian retail investors focusing on a long-term capital appreciation.
CONCLUTION
Mutual fund is really a booming industry now a day. SBI is a major player in this field. Concept of mutual fund is very old as it is since 1980s but till now this industry is suffering a lot. So this needs the extra focus on this particular industry. SBI is one of the well recognized banks in this sector. There is enough opportunity for this industry as well as SBI bank. SBI is also having good efforts and result for the investor and from the investment.
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A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund: -
ADVANTAGES:
It may not be obvious at first why we would want to purchase shares in different securities though a mutual fund middle man instead of simply purchasing the securities own. Mutual funds can offer the following benefits: Diversification can reduce your overall investment risk by spreading your risk across many different assets. With a mutual fund you can diversify your holdings both across companies (e.g. by buying a mutual fund that owns stock in 100 different companies) and across asset classes (e.g. by buying a mutual fund that owns stocks, bonds, and other securities). When some assets are falling in price, others are likely to be rising, so diversification results in less risk than if you purchased just one or two investments. Choice: Mutual funds come in a wide variety of types. Some mutual funds invest exclusively in a particular sector, while others might target growth opportunities in general. There are thousands of funds, and each has its own objectives and focus. The key is for you to find the mutual funds that most closely match your own particular investment objectives. Liquidity is the ease with which you can convert your assets--with relatively low depreciation in value--into cash. In the case of mutual funds, it's as easy to sell a share of a mutual fund as it is to sell a share of stock. Low Investment Minimums: Most mutual funds will allow you to buy into the fund with as little $1,000 or $2,000, and some funds even allow a "no minimum" initial investment, if you agree to make regular monthly contributions of $50 or $100. Whatever the case may be, you do not need to be exceptionally wealthy in order to invest in a mutual fund. Convenience: When you own a mutual fund, you don't need to worry about tracking the dozens of different securities in which the fund invests; rather, all you need to do is to keep track of the fund's performance. It's also quite easy to make monthly contributions to mutual funds and to buy and sell shares in them. 29
Low Transaction Costs: Mutual funds are able to keep transaction costs -- that is, the costs associated with buying and selling securities -- at a minimum because they benefit from reduced brokerage commissions for buying and selling large quantities of investments at a single time. Of course, this benefit is reduced somewhat by the fact that they are buying and selling a large number of different stocks. Annual fees of 1.0% to 1.5% of the investment amount are typical.
Regulation: Mutual funds are regulated by the government under the Investment Company Act of 1940. This act requires that mutual funds register their securities with the Securities and Exchange Commission. The act also regulates the way that mutual funds approach new investors and the way that they conduct their internal operations. This provides some level of safety to you, although you should be aware that the investments are not guaranteed by anyone and that they can (and often do) decline in value.
Risk-free: Mutual funds are relatively risk free in the way they invest and manage the funds. The investment from the pool is well diversified across securities and shares from various sectors. The fundamental understanding behind this is not all corporations and sectors fail to perform at a time. And in the event of a security of a corporation or a whole sector doing badly then the possible losses from that would be balanced by the returns from other shares.
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INTERVAL SCHEMES:
Interval schemes are a combination of open ended and close ended schemes. These schemes remain open for sale and repurchase only during a specified period.
low risk profile funds that seek to generate fixed current income (and not capital appreciation) to investors. In order to ensure regular income to investors, debt (or income) funds distribute large fraction of their surplus to investors. Although debt securities are generally less risky than equities, they are subject to credit risk (risk of default) by the issuer at the time of interest or principal payment. To minimize the risk of default, debt funds usually invest in securities from issuers who are rated by credit rating agencies and are considered to be of "Investment Grade". Debt funds that target high returns are more risky.
Gilt Funds
Also known as Government Securities in India, Gilt Funds invest in government papers (named dated securities) having medium to long term maturity period. Issued by the Government of India, these investments have little credit risk (risk of default) and provide safety of principal to the investors. However, like all debt funds, gilt funds too are exposed to interest rate risk. Interest rates and prices of debt securities are inversely related and any change in the interest rates results in a change in the NAV of debt/gilt funds in an opposite direction.
Hybrid Funds
As the name suggests, hybrid funds are those funds whose portfolio includes a blend of equities, debts and money market securities. Hybrid funds have an equal proportion of debt and equity in their portfolio.
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Commodity Funds
These funds that focus on investing in different commodities (like metals, food grains, crude oil etc.) or commodity companies or commodity futures contracts are termed as Commodity Funds. A commodity fund that invests in a single commodity or a group of commodities is a specialized commodity fund and a commodity fund that invests in all available commodities is a diversified commodity fund and bears less risk than a specialized commodity fund. "Precious Metals Fund" and Gold Funds (that invest in gold, gold futures or shares of gold mines) are common examples of commodity funds.
Fund of Funds
Mutual funds that do not invest in financial or physical assets, but do invest in other mutual fund schemes offered by different AMCs, are known as Fund of Funds. Fund of Funds maintain a portfolio comprising of units of other mutual fund schemes, just like conventional mutual funds maintain a portfolio comprising of equity/debt/money market instruments or non financial assets. Fund of Funds provide investors with an added advantage of diversifying into different mutual fund schemes with even a small amount of investment, which further helps in diversification of risks. However, the expenses of 33
Fund of Funds are quite high on account of compounding expenses of investments into different mutual fund schemes.
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A)-CRISIL:
Composite Performance Ranking 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, Gilt Schemes, Balanced Schemes and Liquid Schemes. Its ranking is based on four criteria, viz. risk adjusted return of the schemes 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 very good, the next 20 percent good, the next 40 percent average, the next 20 percentage below average, and the last 10 percentage poor.
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CIO
Fund Manager
Fund Manager
Dealer
Research Analyst
37
INVESTMENT METHODS:
Investment can be possible in two ways: One time investment Systematic Investment Plan
b) SYSTEMATIC INVESTMENT PLAN(SIP) This is for the systematic plan of saving. In this plan investor has to invest minimum Rs. 6000 in a year. This plan is mainly for the fixed income people. MINIMUM AMOUNT & TIME FOR S.I.P. AMOUNT Rs. 500 TIME For 12 months
Rs. 1000
For 6 months
Rs. 1500
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SIP BENEFITS: Rupee Cost Averaging Capitalize on periodic dips in the stock market and get more units at lower NAV thus lowering your average unit cost resulting in higher returns. Disciplined Investing Approach Plan you investment, select a fund and invest small amounts regularly to build a sizable amount. For as little as Rs 1000/pm a sizable amount can be build. Compounding benefits - The amounts invested early and regularly, help not only in creating a substantial amount of wealth but also returns compounded over the years. Simple and Convenient You do not have to take time from your schedule to make your investments. With a completed application form, one can submit post dated cheques or avail the Magnum Easy Pay (auto-debit) facility.
REQUIREMENTS FOR SIP: For starting S.I.P., we need only three things Bank account Mutual fund scheme which offers SIP facility Rs 500 per month minimum AND every month amount will be debited from investors bank account and units will allocate to investor. EXAMPLE: If invest 1,000 Rs. Per month and get Rs. 70,00,000 in 30 years with 15% return39
No. of years
[FIG. 4.2: GRAPHICAL REPRESENTATION OF YEAR & VALUES]
Systematic Transaction Plan:
Minimum amount- Rs.1000/- month - 6 months Rs.3000/ Quarter - 6 months In respect of STP transactions, an investor would now be permitted to transfer any amount from the switch-out scheme, subject to a minimum transfer of Rs.1000 pm or Rs.3000 per quarter, without any restriction on maintaining the minimum balance requirement as stipulated for the switch out scheme. The minimum period for STP will be at least 6 months.
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RETURN:
Return is the primary motivating force that drives investment. It represents the reward of undertaking investment. The game of investing is all about returns. The return of an investment consists of two components:
CURRENT RETURN:
Current return is measured as the periodic income in relation to the beginning price of the investment. As: - dividend or interest, generated by the investment.
FOR EXAMPLE: It gives 7.0 to 10.0% due to the holding of non convertible debentures which gives maximum interest in all debentures. If fund give 7% average for 3 years, current return for 1 unit-
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CAPITAL RETURN:
Capital return is reflected in the price change. As: - change in assets like equity stocks, debt stocks etc.
FOR EXAMPLE: For 3 years, NAV of 31-April- 2005 is 9.75 Rs. And on 31- April- 2008 is 10.29 Rs. Capital return = 10.29 9.75 = 0.54Rs. / Unit
RISK:
Now question arises what is risk? How an investor can measure it? Risk is called as BETA. Beta is risk factor which present in all type of investment. Risk refers to the possibility that the actual outcome of an investment will differ from its expected outcome. Means Risk is always present but only quantity of risk matters.
CALCULATION: BETA is directly related to the market returns and the fund return. Market is always unexpected and fund is always changeable.
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A)-BUSINESS RISK: As an Investor of corporate securities (Equity shares or Debentures), investor is exposed to the risk of poor business performance. This may be caused by a variety of factors like heightened competition, emergence of new technology, inadequate supply of essential inputs, change in government policies, and so on. It can affect the interest of debenture holders if the ability of the firm to meet its interest and principal payment obligation is impaired.
B)-INTEREST RISK: The changes in interest rate have a bearing on the welfare of investors. As the interest rate goes up, the market price of existing fixed income security falls, and vice versa. Fixed income securities price effect the return.
C)-MARKET RISK: There can be several reasons for the fluctuation; a major cause appears to be the changing psychology of the investors.
TOTAL RISK:
All type of risks is included in measure the total risk.
After understanding only the meaning of risk and return, an investor can not take investment decision. For this, investor should understand the standards of risk and relationship between return and risk.
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There is no any hard and fast rule for any thing. Every decision or investment opportunity have different look to see.
AN EXAMPLE FOR RISK RETURN: If there is 1.00 risk and return is also 10%. QUS. -Do you think it is good?????????? No it is not. In this condition what is the benefit? In it you may lose your 1 Rs. Or can get 0.10 Rs. So return should as according to the level of risk.
RISK ANALYSIS:
Return and risk has relationship for decision only. For a good decision maker there should be inverse proportion. As: - Risk should be minimum and Return should be maximum.
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RISK
Less than 0.5
DECISION
Risk is too less. Enough opportunity to invest. There is risk but not much. Investor can invest on this level. It is the maximum level of risk on which investor can invest. Not good for investment. On this level investor should not invest.
0.5 to 0.9
Equal to 1.00
OPTIONS:
These options are related to the current or periodic return. Investor has two opportunity or option about to receive the current return. Investor has to choose one of them:
GROWTH: In growth option, investor doesnt get the return in money form. Fund managers invest the current return directly in the same fund and allot the units for this current return.
DIVIDEND: In dividend option, investor can get return in money form. Here investor has two options again. As: - Payout - Investor withdraw the current return.
QUANTITAVE DATA:
1)- STANDARD DEVIATION:
Standard deviation is often by the investors to measure the risk of a stock. The basic idea is that the standard deviation is a measure of volatility. In finance, S.D. is applied to the annual rate of return of an investment to measure the investments volatility. S.D. is known as historical volatility and is used by investors as a gauge for the amount of expected volatility.
S.D. ANALYSIS:The more a stocks return varies from the stocks average return, the more volatile of stock. Lesser the Standard Deviation means lesser the Volatility. And it is good condition for the investor.
ANALYSIS: Minimum the risk, maximum the security for the investor.
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3)- R-SQUARE:
R-SQUARE is known as variance. Variance shows how much it is affected by the market fluctuation. The relation between the market and investment return are basically known as variance.
R-SQUARE ANALYSIS: Lesser the variation lesser the risk. Variation should be less for the good investment.
SHARPE RATIO ANALYSIS: If Sharpe Ratio is higher than it is good for the investors.
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OBJECTIVE:
To provide attractive returns to the magnum holders either through periodic dividends or through capital appreciation through an actively managed portfolio of debt, equity, and money market instruments.
INCOME GENRATE:
Income may be generated through the receipt of coupon payments, the amortization of the discount on the debt instruments, receipt of dividends or purchase and sale of securities.
BENCHMARK:
Crisil Composite Bond Fund Index.
SECTORAL BREAKDOWN:
Net Current Asset Non-convertible Debenture
Non-convertible Debenture are from Housing Development Finance Corporation Limited. Net Current Asset 64.08% Non-convertible debenture 35.92%
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DETAILS
Nil Short Term - Nil Long Term With in 6 month- 0.5% After 6 month- Nil Growth Dividend Payout Reinvestment One Time Investment S.I.P. S.T.P.
Options
Investment way
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Fund
-.25
-.23
-.51
0.19
1.89
2.38
N.A.
2.29
Benchmark 1.44
0.39
0.38
2.89
7.96
5.26
N.A.
3.97
QUANTITATIVE DATA: Standard deviation 1.20% Beta 0.45 R-Squared 0.50 Sharpe Ratio -4.04
Ratio
S.D.: Standard Deviation of the Fund is 1.20% It is very less. So it is good condition.
BETA: There is 0.45 beta which is very less. So in this fund there is more security. It is good condition for the investor.
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SHARPE RATIO: Sharpe Ratio of NRI Fund is -4.04 This is negative. It means one of them (risk and return) is negative. Risk can be negative. Return is negative. So it is not beneficial for the investor.
FUND MANAGER:
Mr. Ganti N. Murthy He has a great experience of 16 years in managing funds. In this fund he has only 1 month experience.
OBJECTIVE:
To provide attractive returns to the magnum holders / unit holders by means of capital appreciation through an actively managed portfolio of debt, equity and money market instruments. Income generated though the receipt of coupon payments, the amortization of the discount on the debt instruments, receipt of dividends or purchase and sale of securities in the underlying portfolio, will be reinvested.
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equity market to maximize returns. The ratio can be altered to 75:25 depending on market conditions.
BENCHMARK:
Crisil MIP Blended Index
SECTORAL BREAKDOWN:
Preference Shares 0.05 Net Current Asset 27.91 Certificate of Deposits 9.24 Commercial Paper 20.85 Non-Commercial Paper 26.17 Equity Shares 15.78
Preference share Net equity share,Preferenc curreent 15.78, e share, asset, 16% 0.05, 0% 27.91, 28% non certificate commerci of commerci al paper, deposits, al paper, 26.17, 9.24, 9% 20.85, 26% 21% Net curreent asset certificate of deposits commercial paper non commercial paper equity share
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SIP /STPAs applicable to the normal transaction in the respective Debt Schemes. NAV: NAV of the month APRIL 18.1804 NAV of the month MAY 18.6053
Fund
-1.00
2.34
1.76
0.90
9.24
10.61
10.82
10.48
Benchmark -1.01
1.68
0.62
0.87
11.23
10.28
9.79
N.A.
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QUANTITATIVE DATA:
S.D. RATIO 4.72% BETA 0.97 R - SQUARE 0.83 SHARPE RATIO 0.72
BETA:
Beta of this fund is too high. It means risk level in this fund is too much. But till level of 1.00, beta is acceptable. It has high market risk.
R SQUARE:
R2 shows the variance. The variance of this fund is 0.83 which is more than enough. It is better the lower for the investor. So it is not good on the investors point of you.
SHARPE RATIO:
It is the relation between the return and risk. Ratio in this fund is 0.72 which shows that returns are less in compare to risk.
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OBJECTIVE:
To provide the investors an opportunity to earn, in accordance with their requirements, through capital gains or through regular dividends, return that would be higher than the returns offered by comparable investment avenues through investment in debt & money market securities.
BENCHMARK:
Crisil Composite Bond Fund Index
SECTORAL BREAKDOWN:
Zero Coupon Bond 5.25% Net Current Asset 23.07% Securitized Debt 9.07% Certificate of Deposit 3.22% Commercial Paper 13.73% Dated Govt. Securities 0.70% Non Convertible Debenture 44.96%
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23.07, 23% 44.96, 46% 0.07, 0% 3.22, 3% 13.73, 14% 5.25, 5% 9.07, 9%
Net curreent asset certificate of deposits commercial paper Zero Coupon Bond Securitized Debt Dated Govt. Securities Non Convertible Debenture
NAV:
NAV of April is 10.2101 (D) NAV of May is 10.1989 (D)
A 100% debt fund, investing in high-quality debt instruments Open ended from December 1998 Minimum investment of Rs. 2000 Entry Load : Nil Exit Load: Up Rs. 50 lacs: 0.5%; upto 6 months. Above Rs. 50 lacs : Nil SIP/STP- As applicable to the normal transaction in the respective Debt Schemes.
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FUND PERFORMANCE:
YTD 1m 3m 6m 1y 3y 5y S.Inc
Fund
-1.04
-.11
-2.4
0.35
4.90
4.26
3.68
7.96
Benchmark 1.44
0.39
0.38
2.89
7.96
5.26
4.50
N.A.
QUANTITATIVE DATA:
S.D. RATIO 2.29% BETA 0.98 R - SQUARE 0.64 SHARPE RATIO -1.29
S.D.:
S.D. shows the fluctuation in the returns. There is 2.29% S.D. It shows that expected returns are not more differ to the actual return. So, it is good for investor.
BETA:
is 0.98. Which is too high? But in respect of analysis, it is acceptable till 1.00.
R - SQUARE:
R2 of the fund is 0.64. It shows returns are affected by market and market risk. For this fund, R2 is high. So market conditions effects the returns.
SHARPE RATIO:
Ratio of the fund is -1.29. It shows the returns are in negative. This is not good for the investors. 58
OBJECTIVE:
To provide the investors an opportunity to earn returns through investment in debt & money market securities, while having the benefit of a very high degree of liquidity to meet unexpected needs of cash.
BENCHMARK:
Crisil Liquid Fund Index
NAV:
NAV of April is 10.7024(D) NAV of May is 10.7126(D)
SECTORAL BREAKDOWN:
Net Current Asset 3.89% Securitized Debt 4.15% Certificate of Deposits 25.61% Commercial Paper 49.98% Non Convertible Debenture 16.37%
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Net curreent asset Securitized Debt certificate of deposits commercial paper Non Convertible Debenture
FUND PERFORMANCE:
YTD 1m 3m 6m 1y 3y 5y S.Inc
Fund
2.74
0.64
2.04
4.06
7.60
6.84
6.00
6.91
Benchmark 2.48
0.75
1.96
3.59
7.17
6.37
5.49
N.A.
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QUANTITATIVE DATA:
S.D RATIO 0.35% BETA 0.43 R - SQUARE 0.53 SHARPE RATIO -1.05
S.D.:
Standard Deviation shows the difference between expected return and actual return. Here it is only 0.35%. It means there is not any difference. Its good for investor.
BETA:
is 0.43, which is lesser than 0.5. It shows that risk level is very low.
R-SQUARE:
R2 is 0.53. Which is not much? It shows the effect of market risk on the funds return. It is good for investor point of you.
SHARPE-RATIO:
This ratio shows the return on risk. This is -1.05. This is negative so it is not good.
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OBJECTIVE:
To provide attractive returns to the magnum holders either through periodic dividends or through capital appreciation through an actively managed portfolio of debt & money market instruments. Income may be generated through the receipt of coupon payments, the amortization of the discount on the debt instruments, receipt of dividends or purchase and sale of securities in the underlying portfolio.
BENCHMARK:
Crisil Liquid Fund Index
NAV:
NAV of April is 10.0325(D) NAV of May is 10.0325(D)
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SECTORAL BREAKDOWN:
Zero coupon Bond 1.18% Net Current Asset 17.37% Short Term Deposit 0.98 Securitized Debt 4.68% Certificate of Deposits 28.98% Commercial Paper 31.33% Non Convertible Debenture 15.47%
Net curreent asset Securitized Debt certificate of deposits commercial paper Non Convertible Debenture Zero Coupon Bond Short term Deposit
31.33, 32%
28.98, 29%
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FUND PERFORMANCE:
YTD 1m 3m 6m 1y 3y 5y S.Inc
Fund
2.80
0.67
2.09
4.18
7.78
6.88
N.A.
6.22
Benchmark 2.48
0.75
1.96
3.59
7.17
6.37
N.A.
5.65
QUANTITATIVE DATA:
S.D. RATIO 0.31% BETA 0.34 R - SQUARE 0.44 SHARPE RATIO -1.06
BETA:
of the fund is 0.34. It shows that risk level in this particular fund is very low.
R-SQUARE:
R2 of the fund is 0.44, which is less and good for the investor because returns are not highly effected by the market risk.
SHARPE RATIO:
Sharpe Ratio of the fund is 1.06 which is not good for investor.
RISK MANAGEMENT
A)-OPTIONS:
Options are valuable since they provide protection against unwanted, uncertain happenings. They provide alternatives to bail out from a difficult situation. Options can be exercised on the happening of certain events. Options may be explicit or implicit. Options have assumed considerable significance in finance. They can be written on any asset, including shares, bonds, portfolios, stock indices, etc. They are quite useful in risk management.
CALL OPTION:
A call option is a special contract under which the option owner enjoys the right to buy something without any obligation.
PUT OPTION:
The option to sell an asset is called a put option. It is without any obligation. 65
KEY WORDS:
The prices at which option can be exercised are called an exercise price or a strike price. Buyer of the option is called option holder. Seller of the option is called option writer.
QUS.-What condition is beneficial for whose person? There are three types of conditions:-
IN THE MONEYA put or call option is said to in the money when it is advantageous for the investor to exercise it. In the case of in the money call options, the exercise price is less than the current value of the underlying asset, while in the money put options, the exercise price is higher than the current value of the underlying asset.
OUT OF THE MONEYA put or a call option is out of the money if it is not advantageous for the investor to exercise it. In the case of the out of the money call options, exercise price is higher than the current value of the asset, while in the case of the out of the money put options, the exercise price is lower than the current value of the underlying asset.
AT THE MONEYWhen the holder of a put or call option does not lose or gain whether or not he exercise his option, the option is said to be at the money. In the case of at the money option exercise price is equal to the current value of the underlying asset.
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NOTE: - Option does not come free. The option premium is the price that the holder of
an option has to pay be obtaining a call or a put option. The price will have to be paid, generally in advance, whether or not the holder exercises his option.
The value of the call option at expiration = maximum (share price exercise price, 0)
CALL PREMIUM
The call premium is a cost to the option buyer and again to the call seller. What is the net pay off of the buyer and the seller of a call option when the call premium (that the buyer has to pay to the seller) is involved?
EXAMPLE:The share of Telco is selling for Rs.105. Radhey buys a 3 months call option at a premium of Rs.5. The exercise price is Rs.105. what is Radheys pay off if the share price is Rs.100 or Rs.110 or Rs. 115 at the option is exercised? 67
5 -5
5 -5
105 5 0
105 5 5
PUT OPTION: A put option is a contract that gives the holder a right to sell a specified share (or any other asset) at an agreed exercise price on or before a given maturity price.
ILLUSTRATIONSuppose you expect price of HPCLs share to fall in the near future. So you buy a 3 month put option at an exercise price of Rs.50. current market price is Rs.48.If the price 68
actually fall to Rs.35 after 3 months, you will exercise your option. You will purchase the share for Rs. 35 and sell for Rs.50 and gain is Rs.15. But you will forget your put option if price rise above the exercise price. A put buyer gains when the share price falls below the exercise price; the put option is worthless for you and its value is 0. Exercise price share price at expectation DONT EXERCISE THE PUT OPTION Exercise price = share price at expectation OR Exercise price share price at expectation
Value of put option at expiration = max. {Exercise price share price at expiration, o}
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5 18 7
5 25 0
5 28 -3
5 _
5 _
-5
-5
-7
future turns out to be lower than current price. Put option At-the-money is called a protective put. The combination of a long position in the share and a protective put helps to avoid the investors risk when the share price falls. A naked option is a portion where the option writer does not hold a share in her portfolio that has a counterbalancing effect. The investor can protect herself by taking a covered position. A covered call position is an investment in a share plus the sale of a call on that share. The position is covered because the investor holds a share against a possible obligation to deliver the share. The total value or pay off of a covered call at expiration is the share price minus the value of the call.
Two imp. Determinants of options are the value of the underlying asset and the exercise price. If the underlying asset were a share, the value of a call option would increase as the share price increases. At the expiration date, the holder will know the share price, and he will exercise his option if the exercise price is lower than the share price.
Interest Rate:
The holder of a call option pays Exercise price not when he buys the option, rather, later on, when he exercises his option. Thus, the present value of the exercise price will depend on the interest rate. The value of a call option will increase with rising interest rate since the present value of the exercise price will fall. The effect is reversed in the case of a put option.
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Time to expiration:
The present value of the exercise price also depends on the time to expiration of the option. The present value of the exercise price will be less if time to expiration is longer and consequently, the value of the option will be higher. Further, the possibility of share price increasing with volatility increases if the time to expiration is longer. Longer is the time to expiration, higher is possibility of the option to be more in-the-money.
B)-FUTURES
A forward and futures contract imposes a firm obligation to go through the transaction. A forward or futures contract is not an investment because no cash is paid to buy an asset. It is just a commitment to do a transaction in future. Yet, we study them as part of investments as they are powerful tools to modify portfolio characteristics and hedge other investment.
C)-FORWARD CONTRACT:
An agreement between two parties to exchange an asset for cash at a predetermined future date for a price that is specified today represents a forward contract.
EXAMPLEIf you are agree on January 1 to buy 100 bales of cotton dealer, you have bought forward cotton or you are long forward cotton, whereas the cotton dealer has sold forward cotton or is short forward cotton. No money or cotton changes hand when the deal is signed. The forward contract only specifies the terms of a transaction that will occur in the future. Short position which commits the seller to deliver an item at the contracted price on maturity. Long position which commits the buyer to purchase an item at the contracted price on maturity. 72
FORWARD It is tailor- made contract. There is no secondary market. It usually ends with deliveries. No collateral is required for it. These contracts are settled on maturity date.
FUTURE It is standardized contract. These are traded on organized exchanges. They are settled with the differences. A margin is required in it. These are marked to market on daily basis.
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FOR EXAMPLE:
The Treasury bond futures traded on the Chicago board of trade (CBOT) require the delivery of any treasury bond which has maturity of more than 15 years. Since bonds of different maturity and coupons have different prices, the CBOT applies a conversion factor to adjust for these differences. The conversion factor is based on the bond on the first day of the delivery month on the assumption that the interest rate for the maturity is equal to 8 percent per annum. To illustrate this procedure, let us consider a 10 % coupon bond with a maturity of 18 years. Working with a standard of $100 face value, the value of the bond can be calculated, using a discount rate of 8% Present value of bond = t=36t=1 5/ (1.04) t + 100/ (1.04)36 = 118.92 The conversion factor of the bond is: 118.92/100 = 1.1892 Bond is deemed equivalent to 1.1892. The seller of the features contract can deliver any one of a menu of Treasury bond to fulfill the obligation.
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A party who has a long cash position, current or potential, may sell the futures.
A party who is not currently in cash but who expects to be in cash in the future may buy a futures contract to eliminate uncertainty about the price.
B. SPECULATION:
Speculators buy or sell futures contracts in an attempt to earn a profit. Speculators do not have a prior position that they want to hedge against price fluctuation. Rather they are willing to assume the risk of price fluctuation in the hope of profiting from them. They absorb the excess demand or supply generated by hedgers and assumes the risk fluctuation that hedgers want to avoid. Speculators impart liquidity to the market and their actions, in general, dampen the variability in prices over time.
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C. ARBITRAGEURS:
An arbitrageur uses future contracts to exploits the price differences between different markets. There are two main kinds of arbitrage transactions: A futures arbitrage occurs when a dealer exploits the price differential between two futures markets. A cash-futures arbitrage occurs when a dealer exploits a price misalignment between the cash market and the futures market. SO, we can say that risk is the most important part of any investment. At the time of investment, we should be clear about the risk and then take decision. Risk calculation is not only enough for the investor but he/ she should know about risk management also. Risk management should done as according to the investment and taking all options and future in the mind.
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Know your risk profile Can you live with volatility? Or are you a low-risk investor? Would you be satisfied if your fund invests in fixed-income securities, and yields low but sureshot returns? These are some of the questions you need to ask yourself before investing in a fund.
Identify your investment horizon how long you want to stay invested in a fund is as important as deciding upon your risk profile. A mutual fund is essentially a savings vehicle, not a speculation vehicledont get in with the intention of making overnight gains. Read the offer document carefully this is a must before you commit your money to a fund. The offer document contains essential details pertaining to the fund, including the summary information (type of scheme, name of the asset Management Company and price of units, among other things), investment objectives and investment procedure, financial information and risk factors. Go through fund fact sheet Fund fact sheets give you valuable information of how the fund has performed in the past. You can check the funds portfolio, its diversification levels and its performance in the past. The more fact sheets you examine, the better.
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Diversify across fund houses If you are routing a substantial sum through mutual funds, you should diversify across fund houses. That way, you spread your risk. Do not chase incentives Dont get lured by investment incentives. Some financial intermediaries give upfront incentives, in the form of a percentage of your initial investment, to invest in a particular fund. Dont buy it. Your focus should be to find a fund that matches your investment needs and risk profile, and is a performer. Track your investments One easy way to keep track of your fund is to keep track of the fund performance against its benchmark. In addition, you should run some basic checks in the fund fact sheets and the quarterly reports you get from your fund.
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BIBLOGRAPHY
Books: Investment Analysis and Portfolio Management By PRASANNA CHANDRA Financial Management By I M PANDAY
SBI-MF books
The A to Z of Mutual Funds Your Investment Canvas has grown Bigger (Fact Sheet) Benefiting From Mutual Funds Extra matter provided by the SBI-MF through power-point presentation.
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