Summer Internship Project Report on

Risk Analysis of various Mutual Fund schemes

at
ANAND RATHI SHARE AND STOCK BROKER LIMITED

Submitted by:
Himanshu Patel (151419)

MBA FT (2015-17)
Institute of Management, Nirma University

Date of submission: July 1, 2016

DECLARATION
I hereby declare that this project titled Risk Analysis of various Mutual Fund schemes is an
original work done by me under the guidance of M/s. Hina Nayar. This project is being submitted
to Institute of Management, Nirma University, Ahmedabad, after completion of Summer
Internship at the organisation in partial fulfilment of academic requirement for the award of degree
of Master of Business Administration (MBA). I also declare that this project has neither been
submitted to any other universities nor done by any other student earlier for the award of degree,
diploma, associate ship or any other similar title.

DATE:
PLACE:

Signature:
Himanshu Patel
Roll No: 151419
MBA (FT): 2015-17
Institute of Management,
Nirma University

Contents
Acknowledgement ........................................................................................................................................ 5
Executive Summary:...................................................................................................................................... 6
Joining details................................................................................................................................................ 8
Company Profile............................................................................................................................................ 9
Porters Five Force Model: .......................................................................................................................... 10
Overview of Financial services in India ....................................................................................................... 15
Segments of the financial services sector: .................................................................................................. 16
Overview of Capital market ........................................................................................................................ 17
Asset management ................................................................................................................................. 17
Broking .................................................................................................................................................... 18
Wealth management .............................................................................................................................. 19
Overview of Insurance ............................................................................................................................ 20
Life Insurance .......................................................................................................................................... 20
Non-life insurance ............................................................................................................................... 20
Overview of NBFCs .................................................................................................................................. 21
Indian Mutual Fund Industry ...................................................................................................................... 23
Mutual fund ............................................................................................................................................ 23
Classification of mutual fund .................................................................................................................. 23
By Structure ........................................................................................................................................ 23
By Investment Objective ..................................................................................................................... 24
Other Equity Related Schemes ............................................................................................................... 25
Different Mutual Fund plans ................................................................................................................... 25
Mutual Fund Advantages ........................................................................................................................ 26
Drawbacks of Mutual Funds ................................................................................................................... 28
Types of risk involved with mutual funds ................................................................................................... 29
Various Parameters to Measure Risk .......................................................................................................... 30
Details of Mutual Funds and their constitution. ......................................................................................... 36
Equity Market in Comparison with Mutual fund ........................................................................................ 40
Analysis ....................................................................................................................................................... 42
Equity stock selection approaches.......................................................................................................... 42
Factors to be considered while selecting a Stock ....................................................................................... 43

A. Qualitative Factors .............................................................................................................................. 43

B. Quantitative Factors ........................................................................................................................... 45
Comparison of the stock market with mutual fund.................................................................................... 47
Conclusion and Suggestions........................................................................................................................ 52
Findings ................................................................................................................................................... 52
Suggestions ............................................................................................................................................. 52
Limitations of the study .............................................................................................................................. 53
Further scope of the study ...................................................................................................................... 53
Learning: ..................................................................................................................................................... 55
Application Based Learning:.................................................................................................................... 55
Experiential Learning: ............................................................................................................................. 55
References .................................................................................................................................................. 56
Bibliography ................................................................................................................................................ 57

Acknowledgement
It has been an immensely educating and overwhelming experience working at Anand Rathi. My
internship at Anand Rathi has not only given a thrust to my Career but also helped me enhance my
skills at a personal level.
I extend my heartfelt gratitude to M/s. Hina Nayar, Cluster Head, Anand Rathi, Vadodara,who has
guided me in selecting the project for study and has been an immense source of support and
inspiration throughout the internship period.
My special thanks to Mr Nirav, Equity Team Head, Vadodara, for helping me throughout my
study. I am indebted to them for sharing their knowledge and crucial information on key.
I also sincerely thank my Mentor Prof. Amola Bhatt, Institute of Management, Nirma University
for helping me throughout my study. Last but not the least; I owe my gratitude to all the faculty
members of Institute of Management, Nirma University for making me capable of undertaking the
toughest of task at Anand Rathi delivering a quality output.
The internship at Anand Rathi was a great value-addition and it would thrust me to greater heights
in my career.

Executive Summary:
The mutual fund industry has become very dynamic in terms of number of competitors entering
the industry as well as services offered by the industry. Anand Rathi has focused on transparency
and customer centric approach. This strategy has helped them maintain top position amongst the
brokerage houses.
Various mutual fund schemes are the part of clients portfolio of the brokerage firms. The project
is of study of risk analysis of different mutual fund schemes. During the tenure of my internship I
learned about how different mutual fund schemes are exposed to market risk as well as different
portfolio risk measures such as Trainors alpha, Beta, Sharpe Ratio etc. In the field of equity, I
learned about how by applying certain risk measures we can compare different mutual fund
schemes. I also gain some knowledge about derivative market and its products as well as equity
research techniques though it is not a part of my summer internship project.
This project measures risk only through technical analysis and certain portfolio risk measures.
However, it does not include macroeconomic analysis or fundamental analysis and its effect on
the portfolio. This could be the limitation of the project while analyzing risk as systematic risk
plays important role while analyzing mutual fund schemes.

PART A: Profile of the Organization

Joining details
Date of joining

: 18th April, 2016.

Working days

: Monday-Saturday

Working hours

: 10:00 AM 5:00 PM

Profile

: Intern-Finance

Project Title

: Risk Analysis of various Mutual Fund schemes

Organization Guide : Ms. Hina Nayar

OG position

: Cluster Head Vadodara

Contact

: +91-95740 05646

Deliverables
1. Detailed study of Mutual fund portfolio will help in identifying the risk or the volatility
attached with portfolio
2. It helps in determining the risk of portfolio and so constructing a better one with lesser risk
by choosing different securities

Company Profile

Specialties

Internet Broking, Retail Marketing

Website

http://www.rathionline.com

Industry

Financial Services

Type

Privately Held

Headquarters

India

Company Size

1001-5000 employees

Branch size

10-15 employees
About the company:
AnandRathi is a leading, growth focused full service investment bank. The firm prides itself on
providing bulge-bracket style investment banking services to small and mid-sized enterprises in
India through research - driven ideas backed by experienced, sector - focused investment bankers;
with ready access to global capital pools.

Service Offerings:
Equity Research AnandRathis highly rated 25-member equity research team covers nearly 200
companies across 15 sub-sectors, providing a unique understanding of sectors and companies,
resulting in profitable investment opportunities.
Investment Banking AnandRathis sector focused 30 member investments banking team works
exclusively with small and mid-sized companies, providing them with high quality advice on
capital raising, mergers and acquisitions and restructuring.
Equity trading and distribution AnandRathis rich, 16-year history in equity trading and
distribution to global investor pools makes it uniquely positioned to offer the entire spectrum of
capital market services to small and mid-size companies.
AnandRathi works in industry of financial services.

Porters Five Force Model:

1. Threat of new entrants:
There will not be any new large mass-market players or niche players bursting on the scene, but
there will be new independent broker dealer players as well as discounters, banks, insurance
companies and credit unions. Count as well the independent shops where a broker can set up shop
literally overnight. The costs of self-clearing, recruiting, staffing, technology etc. prevent any new
mass-market or niche players from coming on the scene. The number of sub-industries developing
within the financial services industry has seen dramatic growth over the last couple of decades.
With the fall of Glass-Steagall, the barriers to entry fell impressively. Within each sub-industry,
there are few barriers to entry to prevent rapid growth. For instance, almost anyone can get a job
with an insurance company selling insurance. They can then get licensed to sell securities (mutual
funds and variable annuities). Within the banking system, many client facing employees have at
least a Series 6. Then within the independent/regional and warehouse industries, the only barrier
is the ability to pass the securities exams. Not barriers really, more like a speed bump.
Following are the new entrants in the market.

Prizm Payment

Services,

Gharpay,

ItzCash,

Vortex

Engineering

- Payment

solutions/services

FundsIndia, NetAmbit - Finserv distribution

Platinum Power Wealth Advisors, Probe Equity Research - Advisory and research
respectively

High Mark - Credit bureau

India Micro Pension Services, Kinara Capital - Pure play BFSI

OneAssist Consumer Solutions, Grow VC

2. Bargaining power of suppliers:

Who are the suppliers to a business based on intangibles? Mutual fund companies, hedge funds,
other broker dealers in structured deals, separate account managers, life insurance companies and
companies looking to go public, and believe it or not, advisors fit in this category. Their bargaining
power has grown over the last 20 years from not being paid to move, to deals of up to 300% of
their trailing 12 months production as well as commission and fee payouts and benefits. Today
these mass-market firms must pay their Advisors to stay at work on top of salary, bonuses and
benefits. They are called retention bonuses. Mutual funds, insurance companies, money managers
can gain access to the various firms, but to be in a preferred list, these entities have to pay a little
extra. This is to gain a good spot on the shelf, eye level. Here the heft of the warehouses can gain
the firms more credibility when demanding the shelf space fee
3. Bargaining power of buyer:
Gone are the days when the industry had all the information. I remember in the 80s the phone
would ring at night and the weekends with investors looking for an explanation for the drop in
AT&Ts stock. The newspaper was the only place to get a quote then and if AT&T went exdividend it used to be enough to create a call. Along comes the internet and now the buyers have
access to faster, better and more clear analysis and information than the industry itself provides to
advisors. As if that were enough, now there are multiple sources of information the investor can

access. While their Advisor is stuck with being able to only supply the firms individual-investordigestible research.
4. Threat of substitution:
Wealth management industry provides Wealth transfer, wealth preservation and wealth creation.
Wealth Transfer can be handled by insurance companies. Wealth Preservation is done by banks,
trust companies, life insurance companies. Wealth Creation in India has always been through the
creation of businesses; long, slow disciplined investing; luck with corporate stock options; real
estate and other non-financial markets; all of these not the domain of diversified financial services
companies. Financial Services firms are not the place where investors go to become wealthier. It
is the place wealthy people go in hopes of maintaining their wealth.
5. Intensity of rivalry
These companies raid each others local shops offering checks ranging from 200% to 300% of the
financial advisor are trailing 12-month production. One company I worked for had about 6500
Advisors in the 90s. Recruiting wars were heating up then. Fast forward 13 years, they still have
about 6500 Advisors despite 3 acquisitions and 13 years of recruiting. The industry has been
completely neutered in the equity research departments since 2003; there was a time when the
quality of research was a differentiator and the competition to offer the best advice was furious.
There is no competition to be the lowest cost provider, competition on prices is left up the advisor
sitting in front of the client for the most part. At the firm level, there is almost no way to distinguish
the client experience from one to the other on the mass-market side, other than brand. Following
are the competitors of AnandRathi.

Angel Broking

HDFC securities

IDBI Capital

India Infoline

Indiabulls

Indian Railway Finance Corporation

Infrastructure Development Finance Company

Infrastructure Leasing & Financial Services

Institutional Investor Advisory Services

Karvy Private Wealth

Kotak Securities

LKP Securities

Mahindra & Mahindra Financial Services Limited

MicroFinance Institutions Network

Motilal Oswal Group

Muthoot

Muthoot Finance

NBFC & MFI in India

Polaris Financial Technology

Reliance Capital

Reliance Securities

Religare

RKSV

SMC Global Securities Limited

Value Research

Welspun Investments and Commercials Ltd

Vision
To be a shining example as a leader in innovation and the first choice for clients and employees

Philosophy
The firm's philosophy is entirely client centric, with a clear focus on providing long term value
addition to clients, while maintaining the highest standards of excellence, ethics and
professionalism. The entire firm activities are divided across distinct client groups: Individuals,
Private Clients, Corporate and Institutions.

Core Strengths

Breadth of Services

In line with its client-centric philosophy, the firm offers to its clients the entire spectrum off
financial services ranging from brokerage services in equities and commodities, distribution of
mutual funds, IPOs and insurance products, real estate, investment banking, merger and
acquisitions, corporate finance and corporate advisory.
Clients deal with a relationship manager who leverages and brings together the product specialists
from across the firm to create an optimum solution to the client needs.

In-Depth Research

Our research expertise is at the core of the value proposition that we offer to our clients. Research
teams across the firm continuously track various markets and products. The aim is however
common - to go far deeper than others, to deliver incisive insights and ideas and be accountable
for results.

Management team

Mr. Anand Rathi - Group Chairman

Mr. Pradeep Gupta - Vice Chairman

Mr. Amit Rathi - Managing Director

Overview of Financial services in India

The financial sector comprises insurance companies, commercial banks, non-banking financial
companies, pension funds, co-operatives, mutual funds and several other smaller financial entities.
Almost 60 percent of asset is held by banking sector proving its dominance in the Indian financial
sector.
Service sector plays a crucial role for Gross Domestic Product (GDP) of India. It weights around
57% contributing the highest. Governments continuous efforts to liberalize and regulate the
financial sector help the industry to enhance its capacity.
A Report by Indian Brand Equity Foundation (IBEF) says that an average Indian saving rate is
.3245 which means that out of the income one gets, one saves 32.45% which one either keep as
cash with him, saves in bank accounts (Current account or saving account) or keeps in fixed
deposits. On an average in bank accounts one gets interest of 4% and in fixed deposits one gets 78%.
The Indian Financial market includes primary markets such as Corporate Fixed deposits, NonConvertible Debentures, Mutual Funds, and Public Issues etc. Apart from these primary markets
it also comprises of Insurance sector, Banking Sector and Asset Management Organizations.
With the new hope of revision in Government, increasing income of an average Indian citizen and
increasing penetration of financial system in the country gives the wings of the hope that the
financial service sector will grow and outperform other emerging economies. India being attractive
and untapped market is seen as super-potential investment destination. Since the average saving
rate in India is quite impressive, it provides a huge market for investments options like portfolio
and wealth management services, mutual funds, insurance and all other financial products.
Indian mentality of risk aversion and tradition teaching of investment skews a lot investment
towards gold and real estate. Lack of financial knowledge also impedes the flow of money towards
the financial services. To improve the conditions, the Government of India is improvising on
policies to divert the savings of a common man towards these financial markets to promote growth
through incentives and tax savings on a class of mutual funds which is known as Equity Linked
Saving Schemes (ELSS).

Segments of the financial services sector:

Financial
Services

Capital
Markets
Insurance

Asset management
Broking
Wealth management
Investment banking
Life

Non-life

NBFCs

Asset finance company

Investment company
Loan company

Overview of Capital market

Asset management
The asset management industry in
India is among the fastest growing in the
world Total AUM of the mutual fund
industry clocked a CAGR of 12.8 per cent
over FY0716 (Till September 2015) to
reach USD215.4 billion As on FY16 (Till
September 2015), 43 asset management
companies were operating in the country
Securities and Exchange Board of India
(SEBI) has announced various measures
aimed at increasing the penetration and
strengthening distribution network of mutual
funds As of September 30, 2015, total AUM of mutual fund industry was USD215.4 billion.
Corporate investors account for around 46.6 per cent of total AUM in India, while HNWIs and
retail investors account for 28.9 per cent and 21.5 per cent, respectively The share of corporate
investors declined to 46.6 per cent in FY16 (till September 2015) from 49 per cent in FY14, while
that of HNWIs increased to 28.9 per cent in FY16 (till September 2015) from 27 per cent in FY14.

Broking
Equity market turnover has increased
significantly in recent years. Steadily
rising turnover in financial markets has
led to rapid expansion of the brokerage
segment The annual turnover value in
NSE has witnessed a CAGR of 20.7
per cent between FY96 and FY15 to
reach USD718 billion The number of
companies listed on the NSE rose from
135 in 1995 to 1,769 in December
2015.
The number of listed companies on NSE and BSE increased to 7,024 in FY14 and 8,634 in January
2015 from 6,445 companies during FY10. Net investment (both equity and debt) by FIIs declined
to USD8.6 billion in FY14 versus USD31 billion in the previous year. However, FII investment in
equity markets picked up again during recent months of FY1415 on hopes of better
macroeconomic policies and reform measures by the new government. The brokerage market has
become more competitive with the entry of new players and increasing efforts of existing players
to gain market share.

Wealth management
The number of HNWIs in India has
seen a steady rise and has grown at a
CAGR of 16.6 per cent between 2011
and 2014 India has fourth largest ultrahigh net worth households in the world
according to BCG report entitled
Global Wealth 2015: Winning the
Growth

Game

High

net

worth

households would grow at an even

faster rate till 2019 growing at a CAGR
of about 21.5 per cent.
Considering a minimum HNWI investment of 1020 per cent, the size of the wealth management
industry at around USD5060 billion by 2015 end. Advisory asset management and tax planning
has one of the highest demand among wealth management services by HNWIs; this is followed by
financial planning India has recorded largest growth in HNWI population, 26.2 per cent of
population is part of HNI group and 28.2 per cent of the global HNWI wealth.

Overview of Insurance
Life Insurance
The life insurance market has grown from USD10 billion in FY02 to USD52 billion in FY14 Over
FY0214, life insurance premiums increased at a CAGR of 14.73 per cent Life insurance
penetration grew to 3.1 per cent in FY14 from 2.2 per cent in 2001. However, it is well below the
global average of 6.3, indicating ample scope for growth.
Non-life insurance
The non-life insurance market grew from
USD2.6 billion in FY02 to USD14.0 billion
in FY15 Non-life insurance penetration
rose to 0.80 per cent in 2013-14 from 0.5
per cent in FY02, standing at USD4.2
billion for FY16 (November15) Over
FY0216*, non-life insurance premiums
increased at a CAGR of 9.5 per cent.
Premiums generated by private players
surged at a CAGR of 37.5 per cent, while
public premiums increased 9.0 per cent over
FY0215 Insurers grew at a strong 8.5 per
cent in FY15, with private premiums rising at 10.5 per cent and public premiums at 6.9 per cent in
comparison to FY14.
Motor insurance accounted for 39.4 per cent
of the gross direct premiums earned in FY16*
(up from 41 per cent in FY06), at USD1.01
billion till May15 At USD0.71 billion( Till
September 15), the health segment seized
27.7 per cent share in gross direct premiums
Major private players are ICICI Lombard,
Bajaj Allianz, IFFCO Tokio, HDFC Ergo,
Tata-AIG, Reliance, Cholamandalam, Royal
Sundaram and other regional insurers.

Overview of NBFCs
NBFCs

are

rapidly

gaining

prominence as intermediaries in the

retail finance space. NBFCs finance
more than 80 per cent of equipment
leasing and hire purchase activities in
India As of March 31, 2015, there
were 11,842 NBFCs registered with
the Reserve Bank of India, of which
220 were deposit accepting (NBFCsD) and 11,622 were non deposit
accepting (NBFCs-ND), while around
2094 NBFCs registered companies
certification has been cancelled (As of September 2014) New RBI guidelines on NBFCs with
regard to capital requirements, provisioning norms and enhanced disclosure requirements are
expected to benefit the sector in the long run.

PART B: Main Body of the Project Work

Indian Mutual Fund Industry

The Indian mutual fund industry is dominated by the Unit Trust of India, which has a total corpus
of Rs700bn collected from more than 20 million investors. The UTI has many funds/schemes in
all categories i.e. equity, balanced, income etc with some being open-ended and some being closedended. The Unit Scheme 1964 commonly referred to as US 64, which is a balanced fund, is the
biggest scheme with a corpus of about Rs200bn. Most of its investors believe that the UTI is
government owned and controlled, which, while legally incorrect, is true for all practical purposes.
The second largest category of mutual funds is the ones floated by nationalized banks. Can bank
Asset Management floated by Canara Bank and SBI Funds Management floated by the State Bank
of India are the largest of these. GIC AMC floated by General Insurance Corporation and Jeevan
Bima Sahayog AMC floated by the LIC are some of the other prominent ones.

Mutual fund
The Assets under Management of UTI was Rs. 67bn. by the end of 1987. Let me concentrate about
the performance of mutual funds in India through figures. From Rs. 67bn. the Assets under
Management rose to Rs. 470 bn. in March 1993 and the figure had a three times higher
performance by April 2004. It rose as high as Rs. 1,540bn. The net asset value (NAV) of mutual
funds in India declined when stock prices started falling in the year 1992. Those days, the market
regulations did not allow portfolio shifts into alternative investments. There was rather no choice
apart from holding the cash or to further continue investing in shares. One more thing to be noted,
since only closed end funds were floated in the market the investors disinvested by selling at loss
in the secondary market.

Classification of mutual fund

Mutual fund schemes may be classified on the basis of their structure and their investment
objective
By Structure
1) Open-ended Funds: An Open-ended Fund is one that is available for subscription all
through the year. These do not have a fixed maturity. Investors can conveniently buy and
sell units at Net Asset Value (NAV) related prices.
2) Close-ended Funds: A Close-ended Fund has a stipulated maturity period, which
generally ranges from 3 to 15 years. The fund is open for subscription only during a

specified period. Investors can invest in the scheme at the time of the initial public issue
and thereafter they can buy or sell the units of the scheme on the Stock Exchanges, if they
are listed. The market price at the stock exchange could vary from the scheme's NAV on
account of demand and supply situation, unit holders' expectations and other market
factors.
By Investment Objective
1) Growth Funds: The aim of growth funds is to provide capital appreciation over the
medium to long term. Such schemes normally invest a majority of their corpus in equities.
Growth schemes are ideal for investors who have a long-term outlook and are seeking
growth over a period of time.
2) Income Funds: The aim of Income Funds is to provide regular and steady income to
investors. Such schemes generally invest in fixed income securities such as bonds,
corporate debentures and Government securities. Income Funds are ideal for capital
stability and regular income. Capital appreciation in such funds may be limited, though
risks are typically lower than that in a growth fund.
3) Balanced Funds: The aim of Balanced Funds is to provide both growth and regular
income. Such schemes periodically distribute a part of their earning and invest both in
equities and fixed income securities in the proportion indicated in their offer documents.
This proportion affects the risks and the returns associated with the balanced fund - in case
equities are allocated a higher proportion, investors would be exposed to risks similar to
that of the equity market. Balanced funds with equal allocation to equities and fixed income
securities are ideal for investors looking for a combination of income and moderate growth.
4) Money Market Funds: The aim of Money Market Funds is to provide easy liquidity,
preservation of capital and moderate income. These schemes generally invest in safer shortterm instruments such as Treasury Bills, Certificates of Deposit, Commercial Paper and
Inter-Bank Call Money. Returns on these schemes may fluctuate depending upon the
interest rates prevailing in the market. These are ideal for corporate and individual investors
as a means to park their surplus funds for short periods.

Other Equity Related Schemes

1) Tax Saving Schemes: These schemes offer tax rebates to the investors under specific
provisions of the Indian Income Tax laws, as the Government offers tax incentives for
investment in specified avenues. Investments made in Equity Linked Savings Schemes
(ELSS) and Pension Schemes are allowed as deduction under Section 88 of the Indian
Income Tax Act, 1961.
2) Index Schemes: Index Funds attempt to replicate the performance of a particular index
such as the BSE Sensex or the NSE S&P CNX 50.
3) Sectoral Schemes: Sectoral Funds are those which invest exclusively in specified sector(s)
such as FMCG, Information Technology, Pharmaceuticals, etc. These schemes carry
higher risk as compared to general equity schemes as the portfolio is less diversified, i.e.
restricted to specific sector(s) / industry (ies).

Different Mutual Fund plans

To cater to different investment needs, Mutual Funds offer various investment options. Some of
the important investment options include:
1) Growth Option: Dividend is not paid-out under a Growth Option and the investor realizes
only the capital appreciation on the investment (by an increase in NAV).
2) Dividend Payout Option: Dividends are paid-out to investors under the Dividend Payout
Option. However, the NAV of the mutual fund scheme falls to the extent of the dividend
payout.
3) Dividend Re-Investment Option: Here the dividend accrued on mutual funds is
automatically re-invested in purchasing additional units in open-ended funds. In most cases
mutual funds offer the investor an option of collecting dividends or re-investing the same.
4) Retirement Pension Option: Some schemes are linked with retirement pension.
Individuals participate in these options for themselves, and corporate participate for their
employees.
5) Insurance Option: Certain Mutual Funds offer schemes that provide insurance cover to
investors as an added benefit.

6) Systematic Investment Plan (SIP): Here the investor is given the option of preparing a
pre-determined number of post-dated cheques in favor of the fund. The investor is allotted
units on a predetermined date specified in the offer document at the applicable NAV.
7) Systematic Encashment Plan (SEP): As opposed to the Systematic Investment Plan, the
Systematic Encashment Plan allows the investor the facility to withdraw a pre-determined
amount / units from his fund at a pre-determined interval. The investor's units will be
redeemed at the applicable NAV as on that day.

Mutual Fund Advantages

The benefits on offer are many with good post-tax returns and reasonable safety being the
hallmark that we normally associate with them. Some of the other major benefits of investing
in them are:
a) Number of available options: Mutual funds invest according to the underlying investment
objective as specified at the time of launching a scheme. So, we have equity funds, debt
funds, gilt funds and many others that cater to the different needs of the investor. The
availability of these options makes them a good option. While equity funds can be as risky
as the stock markets themselves, debt funds offer the kind of security that aimed at the time
of making investments. Money market funds offer the liquidity that desired by big investors
who wish to park surplus funds for very short-term periods.
b) Diversification: Investments spread across a wide cross-section of industries and sectors
and so the risk is reduced. Diversification reduces the risk because not all stocks move in
the same direction at the same time. One can achieve this diversification through a Mutual
Fund with far less money than one can on his own.
c) Professional Management: Mutual Funds employ the services of skilled professionals
who have years of experience to back them up. They use intensive research techniques to
analyze each investment option for the potential of returns along with their risk levels to
come up with the figures for performance that determine the suitability of any potential
investment.

d) Potential of Returns: Returns in the mutual funds are generally better than any other
option in any other avenue over a reasonable period. People can pick their investment
horizon and stay put in the chosen fund for the duration.
e) Get Focused: Investing in individual stocks can be fun because each company has a unique
story. However, it is important for people to focus on making money. Investing is not a
game. Your financial future depends on where you put your hard-earned dollars and it
should not take lightly.
f) Efficiency: By pooling investors' monies together, mutual fund companies can take
advantage of economies of scale. With large sums of money to invest, they often trade
commission-free and have personal contacts at the brokerage firms.
g) Ease of Use: Can you imagine keeping track of a portfolio consisting of hundreds of
stocks? The bookkeeping duties involved with stocks are much more complicated than
owning a mutual fund. If you are doing your own taxes, or are short on time, this can be a
big deal. Wealthy stock investors get special treatment from brokers and wealthy bank
account holders get special treatment from the banks, but mutual funds are nondiscriminatory. It doesn't matter whether you have Rs 1000 or Rs 10,00,000, you are getting
the exact same manager, the same account access and the same investment.
h) Risk: In general, mutual funds carry much lower risk than stocks. This is primarily due to
diversification (as mentioned above). Certain mutual funds can be riskier than individual
stocks, but you have to go out of your way to find them.
i) Transparent & well regulated: The Mutual Fund industry is well regulated both by SEBI
and AMFI. They have, over the years, introduced regulations, which ensure smooth and
transparent functioning of the mutual funds industry. This makes it safer and convenient
for investors to invest through the mutual funds.
j) Market timing becomes irrelevant: One of the biggest difficulties in equity investing is
WHEN to invest, apart from the other big question WHERE to invest. While, investing in
a mutual fund solves the issue of where to invest, SIP helps us to overcome the problem
of when. SIP is a disciplined investing irrespective of the state of the market. It thus
makes the market timing totally irrelevant.

k) Does not strain our day-to-day finances: Mutual Funds allow us to invest very small
amounts (Rs 500 Rs 1000) in SIP, as against larger one-time investment required, if we
were to buy directly from the market. This makes investing easier as it does not strain our
monthly finances. It, therefore, becomes an ideal investment option for a small-time
investor, who would otherwise not be able to enjoy the benefits of investing in the equity
market.
l) Reduces the average cost: In SIP fixed amount regularly is invested. Therefore, you end
up buying more number of units when the markets are down and NAV is low and less
number of units when the markets are up and the NAV is high. This is called rupee-cost
averaging. Generally, we would stay away from buying when the markets are down. We
generally tend to invest when the markets are rising. SIP works as a good discipline as it
forces us to buy even when the markets are low, which actually is the best time to buy.
With stocks, one worry is that the company you are investing in goes bankrupt. With mutual
funds, that chance is next to nil. Since mutual funds, typically hold anywhere from 25-5000
companies, all of the companies that it holds would have to go bankrupt.
It cannot be argued on investing in individual stocks, but the advantages of using mutual funds
can help an investor earn good return with moderate risk.

Drawbacks of Mutual Funds

Mutual funds have their drawbacks and may not be for everyone:
a) 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.
b) 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.
c) Taxes: During a typical year, most actively managed mutual funds sell anywhere from 20
to 70 percent of the securities in their portfolios.
d) Management risk: When you invest in a mutual fund, you depend on the fund's manager
to make the right decisions regarding the fund's portfolio.

Types of risk involved with mutual funds

Risk is an inherent aspect of every form of investment. For mutual fund investments, risks
would include variability, or period-by-period fluctuations in total return.
Market Risk: At times, the prices or yields of all the securities in a particular market rises or
falls due to broad outside influences. When this happens, the stock prices of both an
outstanding, highly profitable company and a fledgling corporation may be affected. This
change in price is due to "market risk".
Inflation Risk: Sometimes referred to as "loss of purchasing power." Whenever the rate of
inflation exceeds the earnings on your investment, you run the risk that you'll actually be able
to buy less, not more.
Credit Risk: In short, how stable is the company or entity to which you lend your money when
you invest? How certain are you that it will be able to pay the interest you are promised, or
repay your principal when the investment matures?
Interest Rate Risk: Changing interest rates affect both equities and bonds in many ways. Bond
prices are influenced by movements in the interest rates in the financial system. Generally,
when interest rates rise, prices of the securities fall and when interest rates drop, the prices
increase.
Investment Risks: In the sectoral fund schemes, investments will be predominantly in equities
of select companies in the particular sectors. Accordingly, the NAV of the schemes are linked
to the equity performance of such companies and may be more volatile than a more diversified
portfolio of equities.
Liquidity Risk: Thinly traded securities carry the danger of not being easily saleable at or near
their real values. The fund manager may therefore be unable to quickly sell an illiquid bond
and this might affect the price of the fund unfavorably. Liquidity risk is characteristic of the
Indian fixed income market.
Changes in the Government Policy: Changes in Government policy especially in regard to
the tax benefits may impact the business prospects of the companies leading to an impact on
the investments made by the fund.

Various Parameters to Measure Risk

1) BETA
A Beta is a measure of risk that when applied to investment portfolios, provides useful
statistical information. It indicates a funds past price volatility relative to a particular stock
market index.
High beta stocks react strongly to variations in the market, and low beta stocks are less affected
by market variations.

If Beta is 1, then an issue has the same volatility as the general market. It is either
growing at the same rate or declining at the same rate.

If Beta is greater than 1, then an issue is more volatile. At 1.25 it will probably
move 25% more than the market. If the market is in an uptrend, then the security
will gain 25% more than the general market.

If Beta is less than 1, then an issue is less volatile. At 0.5 it probably will move
only 50% or a half of the market. If the market is in a downtrend, it will only lose
50% of what the general market loses.

If beta is less than 0, then the stock is moving in a reverse pattern to the index.
When the index moves up the stock declines and vice versa.

The formula for the Beta of an asset within a portfolio is

Where
ra measures the rate of return of an asset,
rp measures the rate of return of the portfolio of which the asset is a part
Cov(ra,rp) is the covariance between the rate of return.

2) STANDARD DEVIATION
It measures the risk of an asset from the mean/expected value of return. It represents the square
root of the average squared deviations of the individual returns from the expected returns.
3) CORRELATION
It is a statistical measure of the degree to which security returns move together. In order to
diversify risk to have an efficient portfolio, i.e. maximum return for a given level of risk or to
minimize risk for a given level of return, the correlation between returns on different securities
is significant.

Positive correlation means that they move together,

Negative correlation suggests that they move in opposite direction

Zero correlation shows that they show no tendency to vary together in either
positive or negative.

4) SHARPES MEASURE
Sharpes measure evaluates the performance of the portfolio based on the total risk of the
portfolio, that is, standard deviation as a measure of risk. The Sharpes measure of performance
evaluation is given by:
S(x) = ( rx - Rf ) / StdDev(x)
Where,
x = some investment
rx = average annual rate of return of x
Rf = best available rate of return of a "risk-free" security (i.e. cash)
StdDev(x) = standard deviation of rx

5) TREYNORS MEASURE
Treynors measure relates the rate of return earned over and above the risk-free rate to the
portfolio beta during the time period under consideration.

Where
T = Treynor Ratio ,

= Portfolio Return ,

= Risk free return,

= Portfolio Beta

6) SORTINOS MEASURE
The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio or
strategy. The Sortino ratio is a financial ratio, similar to the Sharpe ratio that measures the riskadjusted return of investments or portfolios. Unlike the Sharpe ratio, the Sortino uses
downside-volatility (sometimes referred to as semi-volatility) as the denominator instead of
standard deviation. The use of downside-volatility allows the Sortino ratio to measure the
return of "negative" volatility.
The ratio is calculated as

Where,
R = asset or portfolio realized return;
T = target or required rate of return for the investment strategy under consideration
DR = downside risk

7) P/E RATIO
The P/E ratio (price-to-earnings ratio) of a stock is a measure of the price paid for a share
relative to the annual income or profit earned by the firm per share.

The price per share (numerator) is the market price of a single share of the stock. The earnings
per share(denominator) is the net income of the company for the most recent 12-month period,
divided by number of shares outstanding.
8) PORTFOLIO TURNOVER RATIO
The Portfolio Turnover ratio shows how actively a scheme has been managed in a particular
year. It is the aggregate value of purchases or sales of investments during the year, expressed
as a percentage of average weekly net assets.
9) EXPENSE RATIO
The Expense ratio helps to shed light on a funds efficiency and cost effectiveness. It is the
ratio of total recurring expenses to the average net assets.
10) DIVIDEND YIELD
The gross yield is a significant indicator of mutual fund investment characteristics.
11) TOTAL REURNS
The most common way to tell how well a fund performed is to check its total return, which
includes the impact of appreciation of its value and dividends, if any.
TR= Distributions + Change in NAV
NAV at the beginning of the period

(Graph taken from mutualfundsindia.com)

The risk return trade-off indicates that if investor is willing to take higher risk then
correspondingly he can expect higher returns and vice versa if he pertains to lower risk
instruments, which would be satisfied by lower returns.
Thus investors choose mutual funds as their primary means of investing, as Mutual funds
provide professional management, diversification, convenience and liquidity. That doesnt
mean mutual fund investments risk free. This is because the money that is pooled in are not
invested only in debts funds which are less risky but are also invested in the stock markets
which involves a higher risk but can expect higher returns. Hedge fund involves a very high
risk since it is mostly traded in the derivatives market which is considered very volatile.

Relationship between Return and Risk:

(Figure taken from the website mutualfundsindia.com)

In the above graph it shows that as the standard deviation increases, the returns from the
particular type of fund increases.

Details of Mutual Funds and their constitution.

As on 31st march 2016

ABN AMRO Mutual Fund

Owners

Forei

Domes

hip

gn-

tic -

Private

25%
75%,

Benchmark Mutual Fund

Private

0%,

Sponsor

ABN

AMRO

Asset

Management (Asia) Ltd.

100%

Niche Financial Services

Private Ltd

Birla Mutual Fund

Foreign
JV

50%
50%,

Sun Life (India) AMC

Investments Inc., Birla
Global Finance Ltd

BOB Mutual Fund

Public

0%,

100%

Bank of Baroda

Canbank Mutual Fund

Public

0%,

100%

Canara Bank

DBS Chola Mutual Fund

Private

62.52%

Cholamandalam

37.48

DBS

Finance Ltd.

%,
Deutsche Mutual Fund

Private

DSP Merrill Lynch Mutual

Foreign

Fund

JV

0%

Deutsche

Asset

100

Management

(Asia)

%,

Limited
60%

40%,

DSP Merrill Lynch Ltd,

HMK Investment Pvt.

Ltd., ADIKO Investment

Pvt. Ltd.
Escorts Mutual Fund

Private

Fidelity Mutual Fund

Private

0%,

100%

Escorts Finance Ltd

0%

Fidelity

100

Internal

Investment Advisors

%,
Franklin

Foreign

25%

Franklin Resources, Inc.

JV

75%,

HDFC Mutual Fund

Private

0%,

100%

HDF Corporation Ltd

HSBC Mutual Fund

Private

--

100%

HSBC

Securities

and

Capital Markets (India)

Private Limited
ING Mutual Fund

Foreign
JV

14.32%

National

Nederlanden

85.68

Interfinance B.V (ING

%,

Group),ING Vysya Bank

Ltd., Kirti Equities Pvt.
Ltd.(Mehta

JM Financial Mutual Fund

Private

0%,

100%

J.M
Consultancy

Financial
Services

Private Ltd, J.M Share &

Stock Brokers Ltd.
Kotak Mutual Fund

Private

0%,

100%

Kotak Mahindra Finance

Ltd

LIC Mutual Fund

Public

0%,

100%

Life
Corporation of
India

Insurance

Morgan Stanley Mutual Fund

Foreign
JV

Principal Mutual Fund

25%
75%,

Private

Witter & Company

35%

65%,
Prudential

ICICI

Mutual

Foreign
JV

55%,

Quantum Mutual Fund

Private

0%,

Principal

Financial

Services Inc.
45%

Fund

Morgan Stanley Dean

Prudential

plc,

ICICI

Bank
100%

Quantum

Advisors

Private Limited
Reliance Mutual Fund

Private

0%,

100%

Reliance Capital Ltd

Sahara Mutual Fund

Private

0%

100%

Sahara

Ind

Fin.

Corporation Ltd
SBI Mutual Fund

Public

63%
37%,

Stan Chartered MF

Foreign

SBI, Societe Generale

AM

25%

Standard Chartered Bank

JV

75%,

Sundaram Mutual Fund

Private

0%,

100%

Sundaram Finance Ltd

Tata Mutual Fund

Foreign

0%,

100%

Tata

JV

InvestCorp

Ltd,

Tata Sons Ltd

Taurus Mutual Fund

Private

0%,

100%

HB Portfolio Ltd

UTI

Public

100

0%

UTI

100%

SBI, LIC, PNB, Bank of

%
UTI Mutual Fund

Public

0%,

Baroda
(Source: website mutualfundsindia.com)

Recommendations regarding the fund selection depending upon the risk of the investor:

Debt Funds and bond funds are preferred in low risk, low return scenario:
However, the bond funds faces interest rate risk. Income risk is the possibility that a
fixed Income funds dividends will decline as a result of falling overall interest rates.
There have been instances of investors locking in debt or income fund. They on
seeing how returns pay up huge exit loads and get out of such schemes. Hence, it is
very important that investors first measure their risk appetite. Once they understand
their risk tolerance level they can choose the appropriate investment vehicle.

For those willing to take high risks, equity and sector funds are the picks: Sector
funds limit their stock selection to the specific sectors and are not amply diversified.
Since all the stocks are restricted to a particular sector like FMCG, pharma, or civil,
if the sector takes a beating, the returns will be directly impacted. Equity Funds invest
wholly in the stock markets. They have the same volatility as the investments in the
stock market.

Balance Funds are a good alternative for those who seek something between high
risk sector funds and low risk bond funds: balanced funds invest 80 to 90 percent
of their money in equity instruments and generate decent returns. The remaining
money is locked in safe debt instruments. Investors should build a well-diversified
portfolio.

Equity Market in Comparison with Mutual fund

Capital markets are the markets for the long term funds. It enhances capital formation, which has
a very significant role to play in the development of any economy.
Primary Market is a place where new offerings by Companies are made either as an Initial
Public Offering (IPO) or Rights Issue.
Secondary Market is a market where securities are traded after being initially offered to
the public in the Primary Market and/or listed on the Stock Exchange. Majority of trading
is done in this market which comprises of equity market and debt market. As the secondary
market is created for the securities raised in the primary markets, the depth of the secondary
market depends upon the primary markets.
Indias financial market began its transformation path in the early 1990s. The banking sector
witnessed sweeping changes, including the elimination of interest rate controls, reductions in
reserve and liquidity requirements and an overhaul in priority sector lending. Persistent efforts by
the Reserve Bank of India (RBI) to put in place effective supervision and prudential norms since
then have lifted the country closer to global standards.
Around the same time, Indias capital markets also began to stage extensive changes. The
Securities and Exchange Board of India (SEBI) was established in 1992 with a mandate to
protect investors and usher improvements into the microstructure of capital markets, while the
repeal of the Controller of Capital Issues (CCI) in the same year removed the administrative
controls over the pricing of new equity issues.
For over a century, Indias capital markets, which consist primarily of debt and equity markets,
have increasingly played a significant role in mobilizing funds to meet public and private entities
financing requirements. The advent of exchange-traded derivative instruments in 2000, such as
options and futures, has enabled investors to better hedge their positions and reduce risks. In total,
Indias debt and equity markets were equivalent to 130% of GDP at the end of 2005. This is an
impressive stride, coming from just 75% in 1995, suggesting issuers growing confidence in
market based financing. However, the size of the countrys capital markets relative to the United
States, Malaysias and South Koreas remains low, implying a strong catch-up process for India.
Indias capital markets have experienced sweeping changes since the beginning of the last decade.

Its market infrastructure has advanced while corporate governance has progressed faster than in
many other emerging market economies. But still we can say there is plenty of room for
improvement and further reforms are needed to make India a world-class financial centre.

Analysis
Equity stock selection approaches
When the objective of the analysis is to determine what stock to buy and at what price, there are
two basic methodologies:
1. Fundamental Analysis
Fundamental Analysis is a technique that attempts to determine a securitys value by focusing on
underlying factors that affect a company's actual business and its future prospects. As with most
analysis, the goal is to derive a forecast and profit from future price movements. To forecast future
stock prices, fundamental analysis combines economic, industry, and company analysis to derive
a stock's current fair value and forecast future value. If fair value is not equal to the current stock
price, fundamental analysts believe that the stock is either over or under valued and the market
price will ultimately gravitate towards fair value.
2. Technical Analysis
Technical Analysis maintains that all information is reflected already in the stock price, so
fundamental analysis is a waste of time. Trends 'are your friend' and sentiment changes predate
and predict trend changes. Investors' emotional responses to price movements lead to recognizable
price chart patterns. Technical analysis does not care what the 'value' of a stock is. Their price
predictions are only extrapolations from historical price patterns.
In short, Fundamental Analysis tells us which stocks to buy, whereas the other Technical Analysis
gives us an indication as to when to buy the stocks. Investors use both these different but somewhat
complementary methods for stock picking. Many fundamental investors use technicals for
deciding entry and exit points. Many technical investors use fundamentals to limit their universe
of possible stock to 'good' companies. In my project I have decided to limit my study to only
Fundamental Analysis.

Factors to be considered while selecting a Stock

The Selection of a stock is generally done from a three-dimensional perspective namely:
A. Qualitative Factors
The principal objective of qualitative analysis is to identify sustainable competitive advantages of
each company and to determine the level of confidence and conviction in corporate management.
The analysis includes evaluating both internal and external factors that may have an impact on a
company's ability to sell its product. It also involves having regular open dialogue with
management and regular conference calls to discuss recent developments. The intent is to be longterm holders of the company one purchases. Strong belief in management is required in order to
maintain conviction during the short-term adversities that virtually all companies experience.
The various qualitative factors to be considered are:
Industry
Industry is a grouping used to describe a company's main business activity. It is generally
determined by the major source of a company's income. A hot sector is a sector of the economy
experiencing a higher than regular growth rate. If companies across an industry show solid
earnings and revenue figures, that industry may be showing signs that it is in its growth phase. Our
goal is to select securities that area in a hot industry.
Scale of Opportunity: The trick lies in identifying Sectors which present huge scope of
opportunities. This involves finding sectors whose market cap are way beyond that of the total
industry.
For example, when Mobile Telephony was in growing stage in India in 2004, Bharti Airtel was
trading at a market cap of $ US 1.5 billion against a total market size of US $ 100 billion. Three
years down the line and we can see the remarkable returns given by the stock.
Going forward we can estimate the case of the Indian Retail sector. The Indian Retail market is
presently worth US $ 300 billion and the collective market cap of the leaders in the listed space
was less than 1% in 2003 and is at a similar level currently. The total share of organized retail has
gone up from 2% in 2003 to 3% in 2006 and is estimated to hit 10% by 2010.

Company

Market Capitalization

Pantaloon Retail

US $ 1 billion

Titan

US $ 756 million

Shopper Stop

US $ 358 million

Trent

US $ 263 million

Total market cap of listed Retail players

US $ 2.37 billion

Total size of the Retail market

US $ 300 billion

Percentage to the total Retail Market

0.79%

Industry Leader: The top two or three stocks in a strong industry group can have incredible
growth, while others in the group may barely move. One should buy the best companies, the ones
that lead their sectors and are number one in their particular field. The number one market leader
is not the biggest one. It is the one with the highest annual growth, earning per share, and price
relative strength. Its a company that has competitive advantage over its competitors. A company
that is offering the best product
Management: Great management can make a difference between an average business and an
extraordinary one. Our goal as an investor is to find management teams that think like
shareholders; executives who treat the company as if they own a piece of it. One way to find out
about the management and how much they really care about shareholders is to check the top
executives compensation plans.
Competitive Advantage: Generally, there are different ways that a company can create
sustainable competitive advantage:

1. Creating a really different product

2. Creating a strong brand
3. Keeping costs down
4. Locking in customers by creating high switching cost
5. Locking out competitors

Research and Development: One should consider the following questions in this respect

Does the Company have anything in the pipeline?

What are the Companys technological capabilities?

Can the Company bring to market new products in a timely manner?

Shareholding Pattern: One should carefully analyze the Shareholding Pattern of the Companies.
If the institutional holding is very high on can say that the stock is fully researched but at the same
time its upside is also limited. One should also track Promoter holding to see whether promoters
involve in Insider Trading or not.
Analyst Coverage: Analysts issue their recommendations on individual companies. Analyst
coverage is useful to gauge market consensus on a stock price movement. A stock with no analyst
coverage could be a hidden value stock.

B. Quantitative Factors
These factors include analyzing the financial statements of a company through Ratio Analysis.
Ratio analysis includes calculating the various ratios and interpreting them in the context of the
company. The ratios help as to examine the critical parameters of a company like Profitability,
Liquidity, Valuation, Leverage and Price of the shares. The important ratios used for the purpose
of stock selection are:
Price-Book Value (P/BV)
Enterprise Value (EV)

 EV/EBITDA
Operating Profit Margin (OPM)
Price/ Earnings Ratio (P/E)
Beta
Market Capitalization (MC)
PEG Ratio
Dividend payout ratio
Dividend Yield
ROCE
ROE
DEBT EQUITY

Comparison of the stock market with mutual fund

It is a known fact that that mutual fund investments actually enter into the stock market. The returns
so particularly depend on the performance of the stock market. But then the question arises whether
mutual funds are actually capable of performing better than the stock market.
Comparison of stock market with mutual fund becomes an important issue and so here in this
section I have tried to compare few of the best mutual fund schemes with the stock market.
1) Comparison of S&p Bse 100 and UTI equity
Risk free return(assumed)

0.07

Covariance

0.004566

Variance

0.005645

Beta

0.83

Standard deviation

0.1562

Market Return

0.1025

Fund Return

0.1356

Expected Return using CAPM model

0.1203

Sharp ratio

0.24

Here, from the covariance and beta of BSE 100 and UTI Equity its pretty clear that gold normally
will provide return even if other market based assets do not.
ANALYSIS: After Covariance of this mutual fund with respect to the market is positive. This
tells that the movement of the NAV of this scheme depends on the movement of the market. The
covariance clears the point that the moves in the same direction and in parallel with the stock
market either upwards or downwards.
Beta of this particular scheme is very close to 1 which says that this fund has a average well
diversified portfolio. This means that the portfolio of this scheme is moderately aggressive. This
funds return moves in the same direction with respect to the market and with the same intensity
as the market.

If we look at the return of this fund it is clearly outperformed the market. The return of BSE 100
has for the period of 1st February 2013 to 7th March 2014 has been 10.25 %. The expected return
of this fund as per CAPM should have been 12.03%. But the funds performed and have given a
return of 13.56%.
The Sharpe ratio of the fund is 0.24 which is good. This means that for every single unit of risk
there is a probability of earning an extra return of 0.24 units.
2) NIFTY V/S ICICI Prudential Dynamic Fund
Risk free return(assumed)

0.07

Covariance

0.000391

Variance

0.000417

Beta

0.83

Standard deviation

0.1609

Market Return

0.1116

Fund Return

0.2006

Expected Return using CAPM model

0.1022

Sharpe ratio

0.22

ANALYSIS: Covariance of this mutual fund with respect to the market is positive. This tells that
the movement of the NAV of this scheme depends on the movement of the market. The covariance
clears the point that the moves in the same direction and in parallel with the stock market either
upwards or downwards.
Beta of this particular scheme is very close to 1 which says that this fund has a average well
diversified portfolio. This means that the portfolio of this scheme is moderately aggressive. This
funds return moves in the same direction with respect to the market and with the same intensity
as the market.
If we look at the return of this fund it is clearly outperformed the market. The return of NIFTY has
for the period of 1st February 2013 to 7th March 2014 has been 11 %. The expected return of this

fund as per CAPM should have been 10.02%. But the funds outperformed and have given an
excellent return of 20.06%.
The Sharpe ratio of the fund is 0.22 which is good. This means that for every single unit of risk
there is a probability of earning an extra return of 0.22 units.
3) S&P BSE Sensex Vs Franklin India Bluechip
Covariance

0.000367

Market Variance

0.000523

Beta

0.86

ST. dev

0.1568

Risk free return(Assumed)

0.07

Market return

0.1246

Fund return

0.2237

Expected return using Capm Model

0.188546

Sharpe ratio

ANALYSIS : Covariance of this mutual fund with respect to the market is positive . This tells that
the movement of the NAV of this scheme depends on the movement of the market. The covariance
clears the point that the moves in the same direction and in parallel with the stock market either
upwards or downwards.
Beta of this particular scheme is less than 1 which says that this fund has a below average volatility.
This means that the portfolio of this scheme is less aggressive. This funds return moves in the
same direction with respect to the market but not with the same intensity as the market.
If we look at the return of this fund it is clearly outperformed the market. The return of BSE Sensex
has for the period of 1st February 2013 to 7th March 2014 has been 12.46 %. The expected return
of this fund as per CAPM should have been 18.85%. But the fund outperformed and has given an
excellent return of 22.37%.

The Sharpe ratio of the fund is high i.e. 2 which is excellent. This means that for every single unit
of risk there is a probability of earning an extra return of 2 units. Thus the risk return trade off with
this stock is satisfactory.
4) BSE 200 V/S SBI Magnum Comma Growth Fund
Covariance

0.000313

Variance

0.000523

Beta

0.90

Stdev

0.1892

Risk free Return(Assumed)

0.07

Market return

0.1008

Fund return

0.2012

Expected return using CAPM Model

0.1305

Sharpe ratio

-0.72

ANALYSIS : Covariance of this mutual fund with respect to the market is positive . This tells that
the movement of the NAV of this scheme depends on the movement of the market. The covariance
clears the point that the moves in the same direction and in parallel with the stock market either
upwards or downwards.
Beta of this particular scheme is less than 1 which says that this fund has a below average volatility.
This means that the portfolio of this scheme is less aggressive. This funds return moves in the
same direction with respect to the market but not with the same intensity as the market.
If we look at the return of this fund it is clearly outperformed the market. The return of SENSEX
has for the period of 1st February 2013 to 7th March 2014 has been 11 %. The expected return of
this fund as per CAPM should have been 13.05%. But the funds outperformed and have given an
excellent return of 20.12%.

The Sharpe ratio of the fund is high i.e. -0.72which is to be considered ok. This means that for
every single unit of risk there is a probability of earning an extra return of 0.72 units. Thus the risk
return trade off with this stock is satisfactory.

Conclusion and Suggestions

From the above study it can be finally concluded that the mutual fund industry in India is growing
in India because to the brisk growth of the capital market. Most of the funds mobilized by various
AMCs are actually pumped into the capital market. The performance of mutual funds actually
depends in the performance of the stock market. We have seen in the recent past that the the
performance of the mutual fund has been impressive but the future growth will still depend on the
capital market behaves. Risk element always exists in mutual fund investment as they do not
guarantee any sure shot returns. But an investor can consider his risk being minimized as he gets
the expertise of fund managers and since the investments made by fund houses are in large amounts
the cost of investments also gets reduced. The top 10 % of the schemes that have performed the
best are mostly the equity diversified schemes. This explains the dependencies of returns are on
equities. There is no denying the fact that the returns have also gone down as and when the stock
markets have fell. Diversification of investments by AMCs has been the key of their success in
India.

Findings
The key findings of the following study have been highlighted below:
1) Investments in equity diversified mutual funds are heavily depended on mutual and thus
the risk involved is very high.
2) The risk return trades off in mutual funds have been very satisfactory. Equity growth
schemes having high risk have generated a return in a range of 30% to 40%, whereas the
debt funds those have relatively low risk have given a moderate return of 6% to 8%.
3) Mutual Fund investments do not guarantee any fixed returns which might create fear in the
minds of risk free investors.

Suggestions
From the above study the following recommendations can be given to an investor.
1) For investors willing to take high risks, equity and sector funds are the picks:
2) Balance Funds are a good alternative for those who seek something between high risk
sector funds and low risk bond funds.
3) Debt Funds and bond funds are preferred in low risk, low return scenario.

4) Salaried persons earning a fixed salary can go for Systematic Investment Plan (SIP).

Limitations of the study

1) The time horizon is very short, so in depth analysis could be done only of few
schemes.
2) The project is dependent on the relevance of the secondary data (eg, factsheets of
various schemes and investments vehicles of different companies) collected from the
internet which might not be correct.
3) The study has been done on only a handful of schemes so it cannot be generalized to
the entire industry.
4) The internal information about the creation of various asset classes and formation
was not revealed to the internees.

Further scope of the study

There is lot of scope for improvement in the research for evaluating mutual fund performances.
1) Various other multi-criteria decision models could be tested for evaluating mutual fund
performances.
2) Testing of fund performances in the long run can be done.
3) Extended sample of public-sector sponsored, private-sector Indian sponsored and privatesector foreign sponsored mutual funds can be taken for generating results. Portfolio risk
through the measure of value at risk (VaR) can also be tested for differences in mutual fund
classes.
4) Mutual fund schemes used can be of varied class such as balanced fund, money market
fund, sectoral funds etc.
5) Hypothesis testing can also be done to predict the future performance of any scheme.

PART C: Learning from the summer

training

Learning:
Application Based Learning:

A thorough and rigorous training of CFM and RM helped me a lot to formally

structure this project, do the research and analyses the problems.

My extra study of CFA level 1 topics such as Portfolio Management, Risk

Management, Derivatives Management etc. were very useful while analyzing
different mutual fund schemes.

Analyzing the market trend based on supply and demand as studied in micro
economics. The international business has also affected the market e.g. Brexit, exit
of Raghuram Rajan etc.

Apart from all this I learned how to be a part of an organization, how to interact
with the members. Being an intern people didnt readily accept me, they considered
me an outsider who would eventually leave the organization in some time but
slowly and gradually I learned to one of them.

Experiential Learning:

It helped me understand the various mutual fund schemes which can be

distinguished based on risk attached with the scheme

The reporting procedure used at the firm helped me to deliver the required
information in very crisp and concrete manner. I learned to write less and
communicate more.

I get to know how to detailed process of Portfolio Management and analysis of

mutual fund schemes and advise the clients.

Basics of technical analysis can help in selecting securities while preparing

portfolio for mutual fund schemes.

It helped me understand the direct implications of various events, national and

international on the public sentiments and the stock prices and its impact on mutual
funds.

The analysis I did included closing figures of stock exchange and NAV of the
mutual fund schemes therefore we had to constantly play with the numbers. Along
with detailed study of market and brainstorming with my mentor I was able to
understand it better and its implications of the companys performance.

References
1) Tripathy Nalini Prava Mutual Funds in India. Emerging Issues Vol 1 ( 2007) ,123158
2) Riter,Jay,R1998, The buying and selling behavior of individual investors at the turn of the
year, journal of finance 43, 701-717.
3) Frazzini Andrea, Dumb Money: Mutual Fund flows as the cross-section of stock returns,
NCFMs AMFI Material on mutual funds(workbook)
4) Nalini Prabha Tripathy , Market Timing Abilities and Mutual Fund Performance- An
Empirical Investigation into Equity Linked Saving Schemes (2006) XIMB Journal of
management ,Vilakshan, April 200 ,pp 6-8
5) Fact Sheets Of different AMCs.

Bibliography
1) Jaidev M , Investment policy and performance of Mutual Fund
2) Sadak H. Mutual Funds in India
3) Pandey I.M , Financial Management
4) Damodaran Aswanth Corporate Finance
5) Tripathy Nalini Prava Mutual Funds in India. Emerging Issues
6) Panwar Sharad and Madhumathi R Characterstics and Performance of selected
mutual funds in India.
7) Frazzini Andrea, Dumb Money: Mutual Fund flows as the cross-section of stock
returns, NCFMs AMFI Material on mutual funds(workbook)
8) Sankaran Sundar, Mutual fund Handbook ,A guide for distributors and intelligent
investors
9) AMFI Module
10) Fund factsheet Of various Schemes
11) WEBSITES:
a. www.valueresearchonline.com
b. www.moneycontrol.com
c. www.amfiindia.com
d. www.bseindia.com
e. www.indiainfoline.com
f. www.capitalmarket.com
g. www.mutualfundindia.com
h. www.nseindia.com
i. www.capitaline.com