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PORTFOLIO MANAGEMENT THROUGH 

MUTUAL FUNDS
AMIWESH KUMAR – 27,  amiwesh@gmail.com 
RIZVI ACADEMY OF MANAGEMENT
Acknowledgement

Intellectual alertness, creativity and innovation go side by side in making of a Manager.


In this context, the role of successful execution of the project work can not be denied.
My heartfelt Veneration in due to Prof. Kalim Khan , Director at Rizvi Academy Of
Management, Mumbai, for his guidance on various facets of the project work and for
his timely advice to improve upon shortcomings and I am thankful to him for his
approval to perform this dissertation.
On this note, I feel inexpedient to express my profound indebtedness and sincere
thanks to our venerable Mr. Amit Samant, guide from the institute respectively, for his
indefatigable cooperation, analytical guidance and boundless endeavors, which gave me
great help and revitalization at every step in completing my project.
I would also like to take this opportunity to convey my respect and special
gratitude towards Mr. Amarnath (All India Head, Mahindra) who considered me worthy
of doing project in their esteemed establishment and never failed to satisfy my over-
zealous thirst to obtain information.
I also want to thank Miss Ujjwala (State Head, Mahindra Financial Services
Limited) and Miss Deepali Parkar(Relationship Manager, Mahindra financial Services
Limited) for their kind support for successful completion of this project.
Working on this project has been a great experience. I am thankful to all
concerned people who have played active role in the successful completion of this
project.


INDEX
1) INTRODUCTION 7
2) PROJECT TITLE 8
3) OBJECTIVES 9
4) PURPOSE 10
5) SCOPE 10
6) LIMITATION 11
7) METHODOLOGY 11
8) OVERVIEW OF MUTUAL FUNDS 12
9) CURRENT SCENARIO 15
10) ORGANIZATION OF MUTUAL FUNDS 17
11) TYPES OF MUTUAL FUNDS SCEMES 20
12) PERFORMANCE MEASURES OF
MUTUAL FUNDS 25
13) RISK FACTORS 29
14) DIFFERENT AMC’S IN INDIA 50
15) REFERNECES 57

ABSTRACT

The rise in the level of capital market has manifested the importance Mutual Funds as
investment medium. Mutual Funds are now are becoming a preferred investment
destination for the investors as fund houses offer not only the expertise in managing
funds but also a host of other services.


Over the last five year period from Mar’03 to Mar’08, the money invested by FIIs was
Rs.2,09,213cr into the stock market as compared to Rs.38,964cr by mutual funds, yet
MFs collectively made an annualized return of 34% while it was 30% in case of FIIs.
Total Assets Under Management(AUM) in India as of today is $92b. Volatile markets and
year end accounting considerations have shaved 6% off in March, but much of that
money should flow back in April. The next five years will see the Indian Asset
Management business grow at least 33% annually says a study by McKinsey.
Funds in the diversified equity category which has the largest number of funds(194) as
well as the highest investor interest lost an average of 28.3% in Q4,2007-08 but gained
an average of 21.4% over the four quarters. Equity funds are estimated to have had net
inflows of Rs.7000cr for March 2008.More than 80% of equity funds managed to
outperform Sensex in terms of returns over the last five years.
Investor’s money inflow to mutual funds has sidelined for the time being but the overall
long term fundamental outlook on the economy remains intact. To lower the impact of
volatility one can stay invested in diversified equity funds over a longer period of time
through the route of Systematic Investment Plan.


ABOUT THE COMPANY

A subsidiary of Mahindra & Mahindra Limited, we are one of India’s leading non-banking
finance companies. Focused on the rural and semi-urban sector, we provide finance for
utility vehicles, tractors and cars and have the largest network of branches covering
these areas. Our goal is to be the preferred provider of retail financing services in the
rural and semi-urban areas of India, while our strategy is to provide a range of financial
products and services to our customers through our nationwide distribution network.

Vision of company
“Is to be the leading rural finance company and continue to retain the leadership
position for Mahindra product.”

INVESTMENT ADVISIORY SERVICES


We at Mahindra Finance are all-encompassing of clients’ needs. So while we believe in
making assets easily available, we also believe in catering to those who want to create
wealth from these assets. Our Investment Advisory Services act as an avenue to help
create and multiply wealth.

Mutual Fund Distribution


Recently we have received the necessary permission from Reserve Bank of India (RBI) to
start the distribution of Mutual Fund products through our network. Hitherto we were
only participating in the liability requirements of our customers but with a mutual fund
distribution business, we can also participate in their asset allocation.
When it comes to investing, everyone has unique needs based on their own objectives
and risk profile. While many investment avenues such as fixed deposits, bonds etc. exist,
it is usually seen that equities typically outperform these investments, over a longer
period of time. Hence we are of the opinion that, systematic investment in equity allows
one to create substantial wealth.


However, investing in equity is not as simple as investing in bonds or bank deposits,
because only proper allocation of portfolio gives maximum returns with moderate risk,
and this requires expertise and time.
Our Investment Advisory Services help you invest your money in equity through different
Mutual Fund Schemes. We ensure the best for our clients by identifying products best
suited to individual needs.


INTRODUCTION:
Mutual funds have been a significant source of investment in both government and
corporate securities. It has been for decades the monopoly of the state with UTI being
the key player, with invested funds exceeding Rs.300 bn. (US$ 10 bn.). The state-owned
insurance companies also hold a portfolio of stocks. Presently, numerous mutual funds
exist, including private and foreign companies. Banks - mainly state-owned too have
established Mutual Funds (MFs). Foreign participation in mutual funds and asset
management companies is permitted on a case by case basis.

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:


PROJECT TITLE

“PORTFOLIO MANAGEMENT THROUGH MUTUAL FUNDS”

OBJECTIVE OF THE PROJECT

The objectives of the study on this topic are as follows:

Primary objective:
 To study the influence and role of mutual funds in managing a portfolio.
 To analyze the various risk-return characteristics of Mutual funds and attempt to
establish a link between the demographics (age, income, employment status
etc), risk tolerance of investors.

 To analyze the performance of Top Mutual Funds in India.

Secondary objectives:
 Understanding the various characteristics of different Mutual funds.


 Understanding the Investment pattern of AMC’s
 To get additional clients for the company and making them aware about the
benefits of mutual funds.
 To come up with recommendations for investors and mutual fund companies in
India based on the above study.

PURPOSE OF THE PROJECT


Investment in mutual funds gives you exposure to equity and debt markets. These funds
are marketed as a safe haven or as smart investment vehicles for novice investors.
The middle-class Indian investor who plays hot tips for a quick buck at the bourses is the
stuff of legends. The middle-class Indian investor who runs out of luck and loses not only
his money but his peace of mind too is somewhat less famous by choice. Mutual funds,
on the other hand, sell us middling miracles. Consequently proof enough for a research
on Mutual Funds, which has exacting returns.
Every investor requires a healthy return on his/her investments. But since the market is
very volatile and due to lack of expertise they may fail to do so. So a study of these
mutual funds will help one to equip with unwarranted knowledge about the elements
that help trade between risk and return thereby improving effectiveness. A meticulous
study on the scalability at which the mutual funds operate along with diagnosis of the
market conditions would endure managing the investment portfolio efficiently. The
study would also immunize on risks and foresee healthy returns; incidentally in worst of
conditions it has given a return of 18 per cent.

SCOPE OF THE PROJECT


The project covers the financial instruments mobilizing in the Indian Capital market in
particular the Mutual Funds.


The mutual funds analysed for their performance are determined over a period of 5
years fluctuations and returns. The elements taken into consideration for choosing some
of the top funds is on the basis of their respective sharpe , beta, ratio, .
The project shelves some of the top asset management companies operating in India ,
segregated on the basis of their performance over a period of time. Scooping further the
project inundates the success ratio of the funds administered by top AMC’s.

LIMITATIONS
A well managed portfolio of various individual scripts which is rare, would not help to
draw a line of difference between portfolio managed through mutual funds and the
former.
The median used to choose the top AMC’s and the mutual funds to be analysed is
relative and personalized and need not be accepted industry wide. Inaccessibility to
certain information and data relating to the project on account of it being confidential.
Market volatility would affect individuals perception which would rather not be likely the
way it is expressed, thus resulting in a very relative data.

METHODOLOGY
A thorough study of literature on the mutual fund industry both in India and abroad will
be done. Different measures will be adopted to understand and evaluate the risks and
returns of funds efficiently and effectively.

An extensive study of various articles and publications of SEBI, AMFI and government of
India and other agencies with respect to the demographics of the population of the
country and their investing pattern will be a part of the methodology adopted. The
project will be carried out mainly through two researches:

Primary research:
 Field visits
 Meeting with the clients
Secondary research:

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 Internet.
 AMFI book.
 Fact sheets of various mutual fund houses.

Overview of Indian Mutual Fund Industry


Assets under management

As of the end on 31 January 2008, the mutual fund industry had a debt and equity
assets of Rs 5,50,157 crore. Its equity corpus of Rs 2,20,263 lakh crore accounts for over
3 per cent of the total market capitalization of BSE, at Rs 58 lakh crore. Its holding in
Indian companies ranges between 1 per cent and almost 29 per cent, making them an
influential shareholder. Together with banks, insurance companies and FIIs- collectively
called institutional investors- they have the ability to ask company managements some
tough questions. India’s market for mutual funds has generated substantial growth in
assets under management over the past 10 years.

Ownership of mutual fund shares


One notable characteristic of India’s mutual fund market is the high percentage of shares
owned by corporations. According to the Association of Mutual Funds in India ( AMFI ) ,
Individual investors held slightly under 50% of mutual fund assets, and corporations held
over 50% as of the end of march 2007. This high percentage of corporate ownership can
be tracked back to tax reforms instituted in 1999 that lowered the tax rate on dividend
and interest income from mutual funds, and made that rate lower than the corporate
tax levied on income from securities held directly by corporations.

Although there is no official data regarding the type investor in each class, the typical
pattern seems to be that individual investors primarily invest in equity funds, while
corporate investors favor bond funds, particularly short-term money market products
that provide a way for corp[orations to invest surplus cash.

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HISTORY OF MUTUAL FUNDS:
The mutual fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the Government of India and Reserve Bank. The history of
mutual funds in India can be broadly divided into four distinct phases.

First Phase – 1964-87


Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up
by the Reserve Bank of India and functioned under the Regulatory and administrative
control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the
Industrial Development Bank of India (IDBI) took over the regulatory and administrative
control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the
end of 1988 UTI had Rs.6,700 crores of assets under management.

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


1987 marked the entry of non- UTI, public sector mutual funds set up by public sector
banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of
India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987
followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug
89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual
Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its
mutual fund in December 1990.
At the end of 1993, the mutual fund industry had assets under management of
Rs.47,004 crores.

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


With the entry of private sector funds in 1993, a new era started in the Indian mutual
fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was

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the year in which the first Mutual Fund Regulations came into being, under which all
mutual funds, except UTI were to be registered and governed. The erstwhile Kothari
Pioneer
(now merged with Franklin Templeton) was the first private sector mutual fund
registered in July 1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive
and revised Mutual Fund Regulations in 1996. The industry now functions under the
SEBI (Mutual Fund) Regulations 1996.The number of mutual fund houses went on
increasing, with many foreign mutual funds setting up funds in India and also the
industry has witnessed several mergers and acquisitions. As at the end of January 2003,
there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of
India with Rs.44,541 crores of assets under management was way ahead of other
mutual funds.

Fourth Phase – since February 2003


In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust
of India with assets under management of Rs.29,835 crores as at the end of January
2003, representing broadly, the assets of US 64 scheme, assured return and certain
other schemes. The Specified Undertaking of Unit Trust of India, functioning under an
administrator and under the rules framed by Government of India and does not come
under the purview of the Mutual Fund Regulations.

CURRENT SCENARIO:
The fund industry has grown phenomenally over the past couple of years, and as on 31
January 2008, it had a debt and equity assets of Rs 5,50,157 crore. Its equity corpus of
Rs 2,20,263 lakh crore accounts for over 3 per cent of the total market capitalization of
BSE, at Rs 58 lakh crore. Its holding in Indian companies ranges between 1 per cent and
almost 29 per cent, making them an influential shareholder. Together with banks,

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insurance companies and FIIs- collectively called institutional investors- they have the
ability to ask company managements some tough questions.
More significant than this stupendous growth has been the regulatory changes that the
capital market watchdog, Securities and Exchange Board of India, introduced in the past
two years. Outgoing Sebi Chairman M.Damodaran’s two year stint as chairman of Unit
Trust of India helped him reform the industry by making it much more transparent than
before. In the process, mutual funds have become a tad cheaper.
Until 2007, for instance, initial issue expenses on close-ended funds, which could be as
high as 6 per cent of the amount raised, could be amortized over the tenure of the fund.
This basically meant that even if an investor put in Rs 1 lakh, effectively only Rs 94,000
got invested by the fund. The initial expenses of the fund include commissions paid to
distributors and money spent on billboards for advertising the new offer. In 2006, the
regulator had scrapped the amortization benefit for open-ended schemes. Not
surprisingly, asset management companies started launching closed-ended funds. Of the
34 new fund offers in 2007, 24 were closed-ended. In January this year, SEBI said all
closed-ended mutual fund schemes too will meet sales and marketing expenses from
the entry load. This made it more transport for investors, because funds had to either
hike their expense ratio (management fee and operating charges as a percentage of
assets under management) or change higher entry load.

More About Mutual funds


According to SEBI "Mutual Fund" means a fund established in the form of a trust to raise
monies through the sale of units to the public or a section of the public under one or
more schemes for investing in securities, including money market instruments;"
To the ordinary individual investor lacking expertise and specialized skill in dealing
proficiently with the securities market a Mutual Fund is the most suitable investment
forum as it offers an opportunity to invest in a diversified, professionally managed basket
of securities at a relatively low cost. India has a burgeoning population of middle class
now estimated around 300 million. A typical Indian middle class family can pool liquid

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savings ranging from Rs.2 to Rs.10 Lacs. Investment of this money in Banks keeps the
fund liquid and safe, but with the falling rate of interest offered by Banks on Deposits, it
is no longer attractive. At best a small part can be parked in bank deposits, but what are
the other sources of remunerative investment possibilities open to the common man?
Mutual Fund is the ready answer, as direct PMS investment is out of the scope of these
individuals. Viewed in this sense India is globally one of the best markets for Mutual
Fund Business, so also for Insurance business. This is the reason that foreign companies
compete with one another in setting up insurance and mutual fund business shops in
India. The sheer magnitude of the population of educated white-collar employees with
raising incomes and a well-organized stock market at par with global standards, provide
unlimited scope for development of financial services based on PMS like mutual fund
and insurance.
The alternative to mutual fund is direct investment by the investor in equities and bonds
or corporate deposits. All investments whether in shares, debentures or deposits involve
risk: share value may go down depending upon the performance of the company, the
industry, state of capital markets and the economy. Generally, however, longer the term,
lesser is the risk. Companies may default in payment of interest/ principal on their
debentures/bonds/deposits; the rate of interest on an investment may fall short of the
rate of inflation reducing the purchasing power. While risk cannot be eliminated, skillful
management can minimise risk. Mutual Funds help to reduce risk through diversification
and professional management. The experience and expertise of Mutual Fund managers
in selecting fundamentally sound securities and timing their purchases and sales help
them to build a diversified portfolio that minimises risk and maximises returns.

ORGANISATION OF A MUTUAL FUND:


There are many entities involved and the diagram below illustrates the organizational set
up of a mutual fund:

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The Advantages of Investing in a Mutual Fund
The advantages of investing in a Mutual Fund extending PMS to the small investors are
as under:

 Professional Management- The investor avails of the services of experienced and


skilled professionals who are backed by a dedicated investment research team,
which analyses the performance and prospects of companies and selects suitable
investments to achieve the objectives of the scheme.
 Diversification- Mutual Funds invest in a number of companies across a broad
cross-section of industries and sectors. This diversification reduces the risk
because seldom do all stocks decline at the same time and in the same
proportion. You achieve this diversification through a Mutual Fund with far less
money than you can do on your own.
 Convenient Administration - Investing in a Mutual Fund reduces paperwork and
helps you avoid many problems such as bad deliveries, delayed payments and
unnecessary follow up with brokers and companies. Mutual Funds save your time
and make investing easy and convenient.

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 Return Potential Over a medium to long-term - Mutual Funds have the potential
to provide a higher return as they invest in a diversified basket of selected
securities.
 Low Costs - Mutual Funds are a relatively less expensive way to invest compared
to directly investing in the capital markets because the benefits of scale in
brokerage, custodial and other fees translate into lower costs for investors.
 Liquidity- In open-ended schemes, you can get your money back promptly at net
asset value related prices from the Mutual Fund itself. With close-ended
schemes, you can sell your units on a stock exchange at the prevailing market
price or avail of the facility of direct repurchase at NAV related prices which some
close-ended and interval schemes offer you periodically.
 Transparency- You get regular information on the value of your investment in
addition to disclosure on the specific investments made by your scheme, the
proportion invested in each class of assets and the fund manager's investment
strategy and outlook.
 Flexibility- Through features such as regular investment plans, regular withdrawal
plans and dividend reinvestment plans, you can systematically invest or withdraw
funds according to your needs and convenience.
 Choice of Schemes- Mutual Funds offers a family of schemes to suit your varying
needs over a lifetime.
 Well Regulated- All Mutual Funds are registered with SEBI and they function
within the provisions of strict regulations designed to protect the interests of
investors. The operations of Mutual Funds are regularly monitored by SEBI.

Other Special Features of MFs in terms of Portfolio Functions


These are special safeguards for the investor prescribed by SEBI.

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 Portfolio Investment operations are entrusted to a professional company, i.e. The
Asset Management Company. (AMC). Thus while MFs offer PMS functions on
behalf of its unit holders, the actual PMS services are rendered by the AMCs.
 Physical custody of the securities is not with the AMC but with a custodian, an
independent organisation, appointed for the purpose. For instance, the Stock
Holding Corporation of India Ltd. (SCHIL) is the custodian for most fund houses in
the country.

Disadvantages:
1. No Control over Costs

2. No Tailor-made Portfolios

3. Managing a Portfolio of Funds

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Types of mutual fund schemes
The expertise and professional skill developed by different Mutual Funds in Portfolio
Management can be better expressed by listing the different financial products they
have developed to be offered to the investors:

1. Schemes according to Maturity Period:

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


scheme depending on its maturity period.
o An open-ended fund or scheme is one that is available for subscription
and repurchase on a continuous basis. These schemes do not have a fixed
maturity period
o Close-ended Fund/Scheme: A close-ended fund or scheme has a
stipulated maturity period e.g. 5-7 years. The fund is open for
subscription only during a specified period at the time of launch of the
scheme. Investors can invest in the scheme at the time of the initial public
issue and thereafter they can buy or sell the units of the scheme on the
stock exchanges where the units are listed. In order to provide an exit
route to the investors, some close-ended funds give an option of selling
back the units to the mutual fund through periodic repurchase at NAV
related prices. These mutual funds schemes disclose NAV generally on
weekly basis
2. Schemes according to Investment Objective:

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A scheme can also be classified as growth scheme, income scheme, or balanced
scheme considering its investment objective. Such schemes may be open-ended
or close-ended schemes as described earlier. Such schemes may be classified
mainly as follows:
o Growth / Equity Oriented Scheme: The aim of growth funds is to provide
capital appreciation over the medium to long- term. Such schemes
normally invest a major part of their corpus in equities. Such funds have
comparatively high risks. These schemes provide different options to the
investors like dividend option, capital appreciation, etc. and the investors
may choose an option depending on their preferences. The mutual funds
also allow the investors to change the options at a later date. Growth
schemes are good for investors having a long-term outlook seeking
appreciation over a period of time.
o Income / Debt Oriented Scheme: The aim of income funds is to provide
regular and steady income to investors. Such schemes generally invest in
fixed income securities such as bonds, corporate debentures,
Government securities and money market instruments. Such funds are
less risky compared to equity schemes. These funds are not affected
because of fluctuations in equity markets. However, opportunities of
capital appreciation are also limited in such funds. The NAVs of such funds
are affected because of change in interest rates in the country. If the
interest rates fall, NAVs of such funds are likely to increase in the short
run and vice versa. However, long term investors may not bother about
these fluctuations.
o Balanced Fund: The aim of balanced funds is to provide both growth and
regular income as such schemes invest both in equities and fixed income
securities in the proportion indicated in their offer documents. These are
appropriate for investors looking for moderate growth. They generally
invest 40-60% in equity and debt instruments. These funds are also

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affected because of fluctuations in share prices in the stock markets.
However, NAVs of such funds are likely to be less volatile compared to
pure equity funds.
3. Money Market or Liquid Fund:
These funds are also income funds and their aim is to provide easy liquidity,
preservation of capital and moderate income. These schemes invest exclusively
in safer short-term instruments such as treasury bills, certificates of deposit,
commercial paper and inter-bank call money, government securities, etc. Returns
on these schemes fluctuate much less compared to other funds. These funds are
appropriate for corporate and individual investors as a means to park their
surplus funds for short periods.
4. Gilt Fund:
These funds invest exclusively in government securities. Government securities
have no default risk. NAVs of these schemes also fluctuate due to change in
interest rates and other economic factors as is the case with income or debt
oriented schemes.
5. Index Funds:
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive
index, S&P NSE 50 index (Nifty), etc. These schemes invest in the securities in the
same weightage comprising of an index. NAVs of such schemes would rise or fall
in accordance with the rise or fall in the index, though not exactly by the same
percentage due to some factors known as "tracking error" in technical terms.
Necessary disclosures in this regard are made in the offer document of the
mutual fund scheme. There are also exchange traded index funds launched by
the mutual funds which are traded on the stock exchanges.

6. Sector specific funds/schemes:


These are the funds/schemes, which invest in the securities of only those sectors,
or industries as specified in the offer documents. e.g. Pharmaceuticals, Software,

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Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in
these funds are dependent on the performance of the respective
sectors/industries. While these funds may give higher returns, they are more
risky compared to diversified funds. Investors need to keep a watch on the
performance of those sectors/industries and must exit at an appropriate time.
They may also seek advice of an expert.
7. Tax Saving Schemes:
These schemes offer tax rebates to the investors under specific provisions of the
Income Tax Act, 1961 as the Government offers tax incentives for investment in
specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes
launched by the mutual funds also offer tax benefits. These schemes are growth
oriented and invest pre-dominantly in equities. Their growth opportunities and
risks associated are like any equity-oriented scheme
8. Load or no-load Fund:
A Load Fund is one that charges a percentage of NAV for entry or exit. That is,
each time one buys or sells units in the fund, a charge will be payable. This
charge is used by the mutual fund for marketing and distribution expenses.
However, the investors should also consider the performance track record and
service standards of the mutual fund, which are more important. Efficient funds
may give higher returns in spite of loads.
9. No-load fund: is one that does not charge for entry or exit. It means the investors
can enter the fund/scheme at NAV and no additional charges are payable on
purchase or sale of units.

10. Monthly Income Plan:


 To generate regular income through investments in debt and money
market instruments and also to generate long-term capital appreciation
by investing a portion in equity related instruments.

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 Fund Objective :-Investors seeking regular income through investments in
fixed income securities so as to get monthly/quarterly/half yearly
dividend. The secondary objective of the scheme is to generate long term
capital appreciation by investing a portion of scheme’s assets in equity
and equity related instruments. Suitable for investor with medium risk
profile and seeking regular income.
11. FMP’s ( Fixed Maturity Plans ): These are close-ended income schemes with a
fixed maturity date. The period could range from fifteen days to as long as two
years or more. When the period comes to an end, the scheme matures and
money is paid back. Like an income scheme, FMPs invest in fixed income
instruments i.e. bonds, government securities, money market instruments etc.
The tenure of these instruments depends on the tenure of the scheme.

 FMPs effectively eliminate interest rate risk. This is done by employing a


specific investment strategy. FMPs invest in instruments that mature at
the same time their schemes come to an end. So a 90-day FMP will invest
in instruments that mature within 90 days.
 For all practical purposes, an FMP is an income scheme of a mutual fund.
Hence, the tax incidence would be similar to that on traditional income
schemes. The dividend from an FMP will be tax free in the hands of an
individual investor. However, it would be subject to the dividend
distribution tax.
 Redemptions from investments held for less than a year will be short-
term gains and added to the investor's income to be taxed at slab rates
applicable. If such an investment were held for more than a year, the
long-term gains would get taxed at 20 per cent with indexation or at 10
per cent without. These rates are subject to the surcharge and education
cess as normally applicable. One can avail the benefit of double
indexation and save tax on FMPs held for more than one year.

PERFORMANCE MEASURES OF MUTUAL FUNDS

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Mutual Fund industry today, with about 34 players and more than five hundred
schemes, is one of the most preferred investment avenues in India. However, with a
plethora of schemes to choose from, the retail investor faces problems in selecting
funds. Factors such as investment strategy and management style are qualitative, but
the funds record is an important indicator too. Though past performance alone cannot
be indicative of future performance, it is, frankly, the only quantitative way to judge
how good a fund is at present. Therefore, there is a need to correctly assess the past
performance of different mutual funds.
Worldwide, good mutual fund companies over are known by their AMCs and this fame
is directly linked to their superior stock selection skills. For mutual funds to grow, AMCs
must be held accountable for their selection of stocks. In other words, there must be
some performance indicator that will reveal the quality of stock selection of various
AMCs.
Return alone should not be considered as the basis of measurement of the
performance of a mutual fund scheme, it should also include the risk taken by the fund
manager because different funds will have different levels of risk attached to them. Risk
associated with a fund, in a general, can be defined as variability or fluctuations in the
returns generated by it. The higher the fluctuations in the returns of a fund during a
given period, higher will be the risk associated with it. These fluctuations in the returns
generated by a fund are resultant of two guiding forces. First, general market
fluctuations, which affect all the securities present in the market, called market risk or
systematic risk and second, fluctuations due to specific securities present in the
portfolio of the fund, called unsystematic risk. The Total Risk of a given fund is sum of
these two and is measured in terms of standard deviation of returns of the fund.
Systematic risk, on the other hand, is measured in terms of Beta, which represents
fluctuations in the NAV of the fund vis-à-vis market. The more responsive the NAV of a
mutual fund is to the changes in the market; higher will be its beta. Beta is calculated by
relating the returns on a mutual fund with the returns in the market. While
unsystematic risk can be diversified through investments in a number of instruments,

24 
systematic risk can not. By using the risk return relationship, we try to assess the
competitive strength of the mutual funds vis-à-vis one another in a better way.
In order to determine the risk-adjusted returns of investment portfolios, several
eminent authors have worked since 1960s to develop composite performance indices
to evaluate a portfolio by comparing alternative portfolios within a particular risk class.
The most important and widely used measures of performance are:
Ø The Treynor Measure
Ø The Sharpe Measure
Ø Jenson Model
Ø Fama Model

The Treynor Measure


Developed by Jack Treynor, this performance measure evaluates funds on the basis of
Treynor's Index. This Index is a ratio of return generated by the fund over and above risk
free rate of return (generally taken to be the return on securities backed by the
government, as there is no credit risk associated), during a given period and systematic
risk associated with it (beta). Symbolically, it can be represented as:
Treynor's Index (Ti) = (Ri - Rf)/Bi.
Where, Ri represents return on fund, Rf is risk free rate of return and Bi is beta of the
fund.
All risk-averse investors would like to maximize this value. While a high and positive
Treynor's Index shows a superior risk-adjusted performance of a fund, a low and
negative Treynor's Index is an indication of unfavorable performance.

The Sharpe Measure


In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is
a ratio of returns generated by the fund over and above risk free rate of return and the
total risk associated with it. According to Sharpe, it is the total risk of the fund that the
investors are concerned about. So, the model evaluates funds on the basis of reward
per unit of total risk. Symbolically, it can be written as:
Sharpe Index (Si) = (Ri - Rf)/Si
Where, Si is standard deviation of the fund.
While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a
fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.
Comparison of Sharpe and Treynor

25 
Sharpe and Treynor measures are similar in a way, since they both divide the risk
premium by a numerical risk measure. The total risk is appropriate when we are
evaluating the risk return relationship for well-diversified portfolios. On the other hand,
the systematic risk is the relevant measure of risk when we are evaluating less than fully
diversified portfolios or individual stocks. For a well-diversified portfolio the total risk is
equal to systematic risk. Rankings based on total risk (Sharpe measure) and systematic
risk (Treynor measure) should be identical for a well-diversified portfolio, as the total
risk is reduced to systematic risk. Therefore, a poorly diversified fund that ranks higher
on Treynor measure, compared with another fund that is highly diversified, will rank
lower on Sharpe Measure.
Jenson Model
Jenson's model proposes another risk adjusted performance measure. This measure
was developed by Michael Jenson and is sometimes referred to as the Differential
Return Method. This measure involves evaluation of the returns that the fund has
generated vs. the returns actually expected out of the fund given the level of its
systematic risk. The surplus between the two returns is called Alpha, which measures
the performance of a fund compared with the actual returns over the period. Required
return of a fund at a given level of risk (Bi) can be calculated as:
Ri = Rf + Bi (Rm - Rf)
Where, Rm is average market return during the given period. After calculating it, alpha
can be obtained by subtracting required return from the actual return of the fund.
Higher alpha represents superior performance of the fund and vice versa. Limitation of
this model is that it considers only systematic risk not the entire risk associated with the
fund and an ordinary investor cannot mitigate unsystematic risk, as his knowledge of
market is primitive.

Fama Model
The Eugene Fama model is an extension of Jenson model. This model compares the
performance, measured in terms of returns, of a fund with the required return
commensurate with the total risk associated with it. The difference between these two
is taken as a measure of the performance of the fund and is called net selectivity.

26 
The net selectivity represents the stock selection skill of the fund manager, as it is the
excess return over and above the return required to compensate for the total risk taken
by the fund manager. Higher value of which indicates that fund manager has earned
returns well above the return commensurate with the level of risk taken by him.
Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf)
Where, Sm is standard deviation of market returns. The net selectivity is then calculated
by subtracting this required return from the actual return of the fund.
Among the above performance measures, two models namely, Treynor measure and
Jenson model use systematic risk based on the premise that the unsystematic risk is
diversifiable. These models are suitable for large investors like institutional investors
with high risk taking capacities as they do not face paucity of funds and can invest in a
number of options to dilute some risks. For them, a portfolio can be spread across a
number of stocks and sectors. However, Sharpe measure and Fama model that consider
the entire risk associated with fund are suitable for small investors, as the ordinary
investor lacks the necessary skill and resources to diversified. Moreover, the selection of
the fund on the basis of superior stock selection ability of the fund manager will also
help in safeguarding the money invested to a great extent. The investment in funds that
have generated big returns at higher levels of risks leaves the money all the more prone
to risks of all kinds that may exceed the individual investors' risk appetite.
RISK FACTOR
All investments involve some form of risk. Even an insured bank account is subject to the
possibility that inflation will rise faster than your earnings, leaving you with less real
purchasing power than when you started (Rs. 1000 gets you less than it got your father
when he was your age).
The discussion on investment objectives would not be complete without a discussion on
the risks that investing in a mutual fund entails.
At the cornerstone of investing is the basic principle that the greater the risk you take,
the greater the potential reward. Remember that the value of all financial investments
will fluctuate. Typically, risk is defined as short-term price variability. But on a long-term
basis, risk is the possibility that your accumulated real capital will be insufficient to meet
your financial goals. And if you want to reach your financial goals, you must start with an

27 
honest appraisal of your own personal comfort zone with regard to risk. Individual
tolerance for risk varies, creating a distinct "investment personality" for each investor.
Some investors can accept short-term volatility with ease, others with near panic. So
whether you consider your investment temperament to be conservative, moderate or
aggressive, you need to focus on how comfortable or uncomfortable you will be as the
value of your investment moves up or down.
Managing risks
Mutual funds offer incredible flexibility in managing investment risk. Diversification and
Systematic Investing Plan (SIP) are two key techniques you can use to reduce your
investment risk considerably and reach your long-term financial goals.
Diversification
When you invest in one mutual fund, you instantly spread your risk over a number of
different companies. You can also diversify over several different kinds of securities by
investing in different mutual funds, further reducing your potential risk. Diversification is
a basic risk management tool that you will want to use throughout your lifetime as you
rebalance your portfolio to meet your changing needs and goals. Investors, who are
willing to maintain a mix of equity shares, bonds and money market securities have a
greater chance of earning significantly higher returns over time than those who invest in
only the most conservative investments. Additionally, a diversified approach to investing
-- combining the growth potential of equities with the higher income of bonds and the
stability of money markets -- helps moderate your risk and enhance your potential
return.
Types of risks:
Consider these common types of risk and evaluate them against potential rewards when
you select an investment.

Market Risk

28 
At times the prices or yields of all the securities in a particular market rise or fall due to
broad outside influences. When this happens, the stock prices of both, an outstanding,
highly profitable company and a 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 inflation sprints forward
faster than the earnings on your investment, you run the risk that you'll actually be able
to buy less, not more. Inflation risk also occurs when prices rise faster than your returns.
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. Investors are
reminded that "predicting" which way rates will go is rarely successful. A diversified
portfolio can help in offsetting these changes.
Effect of loss of key professionals and inability to adapt business to the rapid
technological change
An industries' key asset is often the personnel who run the business i.e. intellectual
properties of the key employees of the respective companies. Given the ever-changing
complexion of few industries and the high obsolescence levels, availability of qualified,
trained and motivated personnel is very critical for the success of industries in few
sectors. It is, therefore, necessary to attract key personnel and also to retain them to
meet the changing environment and challenges the sector offers. Failure or inability to
attract/retain such qualified key personnel may impact the prospects of the companies
in the particular sector in which the fund invests.

Exchange Risks
A number of companies generate revenues in foreign currencies and may have
investments or expenses also denominated in foreign currencies. Changes in exchange
rates may, therefore, have a positive or negative impact on companies which in turn
would have an effect on the investment of the fund.
Investment Risks

29 
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.
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.
Measuring Risks:

Risk Measure Implication Impact On Investor


High average maturity and More sensitive to interest Higher volatility in returns
modified duration rate changes
Low average maturity and Less sensitive to interest Lower volatility in returns
modified duration rate changes
Greater allocation to high Low risk default Lower yield with lower risk
credit rated instruments
Greater allocation to low Higher risk of default Higher yield but with
rated instruments greater risk

Wealth Management
Wealth Management is a type of financial planning that provides high net worth
individuals and families with private banking, estate planning, legal resources, and
investment management, with the goal of sustaining and growing long-term wealth.
Whereas financial planning can be helpful for individuals who have accumulated wealth

30 
or are just starting to accumulate wealth, you must already have accumulated a
significant amount of wealth for the wealth management process to be effective.
Services typically include:
 Portfolio Management and Portfolio Rebalancing
 Investment Management and Strategies
 Trust and Estate Management
 Private Banking and Financing
 Tax Advice
 Family Office Structures

Portfolio Management
PORTFOLIO:
A Portfolio is a diversified professionally managed basket of securities. A healthy
investment portfolio has the following features:
 The right mix of assets and liabilities
 Regular monitoring
 Rebalancing portfolio when the asset mix gets skewed
 Optimum returns in a reasonable time period
As per definition of SEBI Portfolio means "a collection of securities owned by an
investor”. It represents the total holdings of securities belonging to any person".
Obviously Portfolio Management refers to the management or administration of a
portfolio of securities to protect and enhance the value of the underlying investment.
SEBI has directed that portfolio management as a service by a financial intermediary is
to be carried out only by corporate entities. Portfolio management by a corporate body
can be either for management of its own pool of securities created out funds collected
from diverse sources or it can be offered as a financial service to other investors, who
choose to avail the expertise and skill of this company to carry out portfolio
investment/management on their behalf. Insurance companies, mutual funds, pension
and provident funds etc. carry out operations of portfolio management for investing
their own funds in remunerative channels. These companies are also referred as

31 
investment companies or institutional investors. In fact they are portfolio managers in
respect of the back-end of their business activities. After initially pooling these funds
from smaller investors, they choose to invest them in a portfolio of securities intended
as a lucrative deployment option.
Portfolio Management
The goal of Portfolio Management is to assemble various securities and other assets
into portfolios that address investor needs and then to manage these portfolios so as to
achieve investment objectives. The investor’s needs are defined in terms of risk, and the
portfolio manager maximizes return for investment risk undertaken.
Portfolio Management consists of three major activities: 1) Asset Allocation, 2) Shifts in
weighting across major assets classes, and 3) Security selection within asset classes.
Asset allocation can best be characterized as the blending together of major asset
classes to obtain the highest long-run return at the lowest risk. Managers can make
opportunistic shifts in asset class weightings in order to improve return prospects over
the longest-term objective.
RISK RETURN TRADE OFF
In selecting asset classes for portfolio allocation, investors need to consider both the
return potential and the riskiness of the asset class. It is clear from empirical estimates
that there is a high correlation between risk and return measured over longer periods of
time. Furthermore capital market theory, posits that there should be a systematic
relationship between risk and return. This theory indicates that securities are priced in
the market so that high risk can be rewarded with high return, and conversely, low risk
should be accompanied by correspondingly lower return.

32 
In the above figure a capital market line showing an expected relationship between risk
and return for representative asset classes arrayed over a range of risk. Note that the
line is upward-sloping, indicating that higher risk should be accompanied by higher
return. Conversely, the capital market relationship can be considered as showing that
higher return can be generated only at the “expense” of higher risk. When measured
over longer periods of time, the realized return and risk of the asset classes conform to
this sort of relationship.
Note that treasury bills are positioned at the low end of the risk range, consistent with
these securities’ generally being considered as representative of risk-free investing, at
least for short holding periods. Correspondingly, the return offered by T-bills is usually
considered as a basic risk-return. On the other hand, equities as a class show the highest
risk and return, with venture capital at the very highest position on the line, as would be
expected. International equities, in turn, are shown as higher risk than domestic
equities. Bonds and real estate are at an intermediate position on the capital market
line, with real estate showing higher risk relative to both corporate and government
bonds.
Types of portfolio based on Risk and Return

33 
Whenever the money is invested a risk of not getting the money back is borne by the
investor. An investor wants a compensation for bearing such a risk also known as
returns. In theory “the higher is the risk the greater are the returns” and vice versa. The
chart below can explain the different types of securities and their associated risk.

Located towards the right of the diagram are investments that offer investors a higher
potential for above-average returns, but this potential comes with a higher risk. Towards
the left are much safer investments, but these investments having a lower potential for
high returns.

Conservative Portfolio
This model is ideal for those who wish to take least amount of risk and want a steady
income over a period of time from his investments. Conservative portfolio is designed by
investing greater proportion in the lower risk securities. Such a portfolio always tends to
generate income for the investor. Such a model aims at protecting the principal value of
the portfolio. Hence the investment is generally done in fixed income and money market
securities. Very less amount of the capital is invested in the equities. The model is often
known as the ‘capital preservation portfolio’.

34 
Moderately Conservative Portfolio
A moderately conservative portfolio is ideal for those who want a fixed and steady
income as well as capital appreciation. This model not only offers a fixed income but
also grows the money of the investor. Although maximum amount of allocation is done
in lower risk securities, investment is also made in equities to some extent so that the
capital grow

Source: Investopedia.com

Source: Investopedia.com

Moderately Aggressive Portfolio

A moderately aggressive portfolio is ideal for those who want a balance of growth and
income. The asset composition is divided among equity and fixed income securities.

35 
Maximum amount of investment is made in the equities. Assets allocated to the fixed
income securities is also no less. Such a model is often referred to as “balance portfolio”

Source: Investopedia.com

Aggressive portfolios mainly consist of equities. So the value tends to fluctuate. Such a
portfolio provides long term appreciation to the capital. But to have some liquidity fixed
income securities are also added to the portfolio. It is always better to invest in such a
portfolio for a longer period of time so that the money gets sufficient time to grow. Such
a portfolio is risky.

Source: Investopedia.com

36 
Very Aggressive Portfolio

A very aggressive portfolio is one which consist mostly of equities. The portfolio is
suitable for those who have risk taking ability. Since the investment is done in equities
hence it provides a growth to the capital. The portfolio is designed for those who can
invest for a longer time period.

Source: Investopedia.com

Investment Risk Pyramid


Once the risk acceptable in the portfolio has been decided by acknowledging the time
horizon and bankroll one can use the risk pyramid approach for balancing the assets.

Source: Investopedia.com

37 
This pyramid can be thought of as an asset allocation tool that investors can use to
diversify their portfolio investments according to the risk profile of each security. The
pyramid, representing the investor's portfolio, has three distinct tiers:
 Base of the pyramid: this area is comprised of investments that are low in risk and
have good returns.
 Middle portion: this area is made of medium risk investments that not only offers
stable returns but also allows capital appreciation.
 Summit (top): the summit is for high risk investments. This is the area of the pyramid
and should be made up of money one can afford to lose.

Portfolio Management
Process of Portfolio Management
Following is the process of portfolio management:

1. Understanding the present market conditions


2. Framing of an Investment Policy
This involves mainly the following two parts:
a. Investment Objectives of an investor
b. Investment Constraints of an investor
3. Portfolio Policies and Strategies
4. Asset Allocation Process
5. Security Selection
6. Portfolio Construction
7. Portfolio Implementation and Execution
8. Portfolio Analysis
9. Portfolio Rebalancing and Revision

After you've built your portfolio of mutual funds, you need to know how to maintain it.
Four common strategies can be followed for the same:

o The "Wing-It" Strategy


This is the most common mutual-fund strategy. Basically, if your portfolio does not have
a plan or a structure, then it is likely that you are employing a wing-it strategy. If you are

38 
adding money to your portfolio today, how do you decide what to invest in? Are you one
that searches for a new investment because you do not like the ones you already have?
A little of this and a little of that? If you already have a plan or structure, then adding
money to the portfolio should be really easy. Most experts would agree that this strategy
will have the least success because there is little to no consistency.
o Market-Timing Strategy
The market timing strategy implies the ability to get into and out of sectors or assets or
markets at the right time. The ability to market time means that you will forever buy low
and sell high. Unfortunately few investors buy low and sell high because investor
behavior is usually driven by emotions instead of logic. The reality is most investors tend
to do exactly the opposite – buy high and sell low. This leads many to believe that
market timing does not work in practice. No one can accurately predict the future with
any consistency.
o Buy-and-Hold Strategy
This is by far the most commonly preached investment strategy. The reason for this is
that statistical probabilities are on your side. Markets generally go up 75% of the time
and down 25% of the time. If you employ a buy-and-hold strategy and weather through
the ups and downs of the market, you will make money 75% of the time. If you are to
be more successful with other strategies to manage your portfolio, you must be right
more than 75% of the time to be ahead. The other issue that makes this strategy most
popular is it is easy to employ. This does not make it better or worse. It is just easy to
buy and hold.

o Performance-Weighting Strategy
This is somewhat of a middle ground between market timing and buy and hold. With
this strategy, you will revisit your portfolio mix from time to time and make some
adjustments. Let's walk through an oversimplified example using real performance
figures.

39 
Let's say that at the end of 2007, you started with an equity portfolio of four mutual
funds and split the portfolio into equal weightings of 25% each.

Fund Allocation(Rs) Allocation (%)

Fund A 25000 25

Fund B 25000 25

Fund C 25000 25

Fund D 25000 25

100000 100

After the first year of investing, the portfolio is no longer an equal 25% weighting
because some funds performed better than others.

 Fund  1-yr return  End balance(Rs)  Allocation (%)

 Fund A  13.60%  28000  26.28

 Fund B  6.80%  26700  24.71

 Fund C  8.50%  27125  25.10

 Fund D  3.40%  25850  23.92

   108075  100

The reality is that after the first year, most investors are inclined to dump the loser (Fund
D) for more of the winner (Fund A). However, the right strategy is to do the opposite to
practice sell high, buy low. Performance weighting simply means that you sell some of
the funds that did the best to buy some of the funds that did the worst. Your heart will
go against this logic but it is the right thing to do because the one constant in investing is
that everything goes in cycles.

40 
In year four, Fund A has become the loser and Fund D has become the winner.

 Fund  1-yr return

 Fund A  -16.00%

 Fund B  22.30%

 Fund C  9.60%

 Fund D  15.20%

Performance weighting this portfolio year after year means that you would have taken
the profit when Fund A was doing well to buy Fund D when it was down. In fact, if you
had re-balanced this portfolio at the end of every year for five years, you would be
further ahead as a result of performance weighting.
The key to portfolio management is to have a discipline that you adhere to. The most
successful money managers in the world are successful because they have a discipline to
manage money and they have a plan. Warren Buffet said it best: "To invest successfully
over a lifetime does not require a stratospheric I.Q., unusual business insight or inside
information. What is needed is a sound intellectual framework for making decisions
and the ability to keep emotions from corroding that framework."

What drives portfolio performance?


According to Mahindra Finance team of wealth management, the most important step in
wealth management is asset allocation. But the least time is spent on this investment
decision. This step affects almost 92% of the returns expected from any portfolio.

41 
Complex Copounds
The crisil complexity classification denotes how easy it is for an investor to understand the risks associated with
different products.
PRODUCT SIMPLE COMPLEX HIGHLY COMPLEX
Debt Funds Gilt, Liquid, Debt funds,Fixed
Maturity
Plans, Interval Funds,
Monthly Income Funds
Mutual Capital protected funds-static Capital protected funds-

Funds- hedge, arbitrage funds Leveraged,


constant,proportion portfolio
Structured insurance,dynamic portfolio
insurance
Mutual Plain equity,sector based Derivative funds,fund of Art funds

Funds-Eqity balanced,gold,etf’s,index funds,international,special

42 
and Others linked funds situation funds
Equity Shares Exchange-traded equity
shares
Equity Buying index/stock options Selling index/stock
(long options),index/stock
Derivatives options(short positions)
futures(buying and selling)
Commodity Commodity futures

Derivatives
Others PPF,NSC/Kisan Vikas Unit-linked insurance plans Real estate investment trusts
Patra,Recuring deposit
Source: CRISIL

Dummy portfolio
Here I have taken two portfolios- 1) only scripts 2) scripts and mutual funds
This dummy portfolio will enable us to understand how the portfolio is managed through
mutual funds. In the first portfolio I have taken a total amount of approx Rs 100000
invested in 5 securities covering 5 different sectors so as to taste the flavor of
diversification. The portfolio has taken the exposure of 100% equity with a blend of
growth and large as its style. The companies taken into the portfolio contains topost
companies in its sector like ITC, Bharti Airtel, ONGC,Parsvnath and ICICI bank.
The time duration of 1 year has been taken so as to taste the long term results. But the
overall results as of 1st juiy, 2008 stands negative. The portfolio gives a loss of Rs
1643.70.The detailed analysis of the portfolio can be well understood with the tables
mentioned below.

43 
44 
The second portfolio contains a blend of securities and mutual funds so as to
manage the portfolio in an efficient manner. Here to get a feel of diversification I have
taken 5 scripts which are common as in the first portfolio but this time with a little
changes in the amount. This time I have taken a total amount of Rs 100000 with Rs
50000 in scripts and Rs 50000 in mutual funds which are again not concentrated. In the
mutual funds I have taken gold ETFs , balanced fund, index fund and opportunities fund.
The reason being as the portfolio has already taken the exposure of 100% equity in the
scripts. Therefore to bang upon the diversification I have taken different mutual fund
schemes. The result has been astonishing with approx 1 year as the time duration and a
net profit on the whole portfolio standing at Rs 14513. The analysis can be observed
with the charts provided below. This portfolio explores the experience of portfolio
diversification with an asset allocation in equity and a little in debts and others. It also
gets an exposure of mid cap and small cap.

45 
46 
Finally to summarise and come to a conclusion we can for sure observe and deduce that
portfilo can really be managed through mutual funds. A number of permutation and
combination can be applied to design a model portfolio containing mutual funds. I have
just arrived at one portfolio which if present has really done wonders.

47 
Different AMC’s in India
The Mutual Fund Industry in India has grown steadily over the last couple of years and is
today managing assets in excess of Rs 5,50,000 crore meeting different investment needs of
millions of retail and institutional clients across debt, equity and hybrid asset class.

Ownershi Domestic
Incorpora
p Foreign- - Sponsor
st
As on 31 march 2008 ted On
ABN AMRO Mutual
27/5/200 ABN AMRO Asset Managemen
Fund
4 Private 75%, 25% (Asia) Ltd.
Benchmark Mutual
Niche Financial Services Privat
Fund
_ Private 0%, 100% Ltd
Sun Life (India) AM
23/12/19 Investments Inc., Birla Globa
Birla Mutual Fund
94 Foreign JV 50%, 50% Finance Ltd
30/10/19
BOB Mutual Fund
92 Public 0%, 100% Bank of Baroda
15/12/19
Canbank Mutual Fund 87 Public 0%, 100% Canara Bank
DBS Chola Mutual Cholamandalam DBS Financ
Fund 3/1/1997 Private 37.48%, 62.52% Ltd.
28/10/20 Deutsche Asset Managemen
Deutsche Mutual Fund 02 Private 100%, 0% (Asia) Limited
DSP Merrill Lynch Ltd, HM
DSP Merrill Lynch 16/12/19 Investment Pvt. Ltd., ADIKO
Mutual Fund 96 Foreign JV 40%, 60% Investment Pvt. Ltd.
15/4/199
Escorts Mutual Fund 6 Private 0%, 100% Escorts Finance Ltd
17/2/200 Fidelity Internal Investmen
Fidelity Mutual Fund 5 Private 100%, 0% Advisors
19/2/199
Franklin 6 Foreign JV 75%, 25% Franklin Resources, Inc.

48 
30/6/200
HDFC Mutual Fund 0 Private 0%, 100% HDF Corporation Ltd
HSBC Securities and Capita
HSBC Mutual Fund 7/2/2002 Private -- 100% Markets (India) Private Limited
National Nederlande
Interfinance B.V (ING
11/2/199 Group),ING Vysya Bank Ltd
ING Mutual Fund 9 Foreign JV 85.68%, 14.32% Kirti Equities Pvt. Ltd.(Mehta
J.M Financial Consultanc
JM Financial Mutual 15/9/199 Services Private Ltd, J.M Shar
Fund 4 Private 0%, 100% & Stock Brokers Ltd.
23/6/199
Kotak Mutual Fund 8 Private 0%, 100% Kotak Mahindra Finance Ltd
19/6/198
LIC Mutual Fund 9 Public 0%, 100% Life Insurance Corporation of
India
Morgan Stanley 5/11/199 Morgan Stanley Dean Witter &
Mutual Fund 3 Foreign JV 75%, 25% Company
25/11/19
Principal Mutual Fund 94 Private 65%, 35% Principal Financial Services Inc.
Prudential ICICI 25/8/199
Mutual Fund 3 Foreign JV 55%, 45% Prudential plc, ICICI Bank
2/12/200 Quantum Advisors Privat
Quantum Mutual Fund 5 Private 0%, 100% Limited
30/6/199
Reliance Mutual Fund 5 Private 0%, 100% Reliance Capital Ltd
18/7/199
Sahara Mutual Fund 6 Private 0% 100% Sahara Ind Fin. Corporation Ltd
29/6/198
SBI Mutual Fund 7 Public 37%, 63% SBI, Societe Generale AM
13/3/200
Stan Chartered MF 0 Foreign JV 75%, 25% Standard Chartered Bank
Sundaram Mutual 24/8/199
Fund 6 Private 0%, 100% Sundaram Finance Ltd

49 
30/6/199 Tata InvestCorp Ltd, Tata Son
Tata Mutual Fund 5 Foreign JV 0%, 100% Ltd
20/8/199
Taurus Mutual Fund 3 Private 0%, 100% HB Portfolio Ltd
UTI 1/2/1964 Public 100% 0% UTI
UTI Mutual Fund 1/2/2003 Public 0%, 100% SBI, LIC, PNB, Bank of Baroda

Top 5 Fund Houses


Fund House No. of top rated Total rated
funds
funds
Reliance Mutual 10 17
Fund
ICICI Prudential 21 38
Mutual Fund
Tata Mutual Fund 14 30
Birla Sunlife 18 39
Mutual Fund
HSBC Mutual 6 13
fund
Source: Value Research

50 
Fund Analysis Parameters

51 
52 
REFERENCES:

I. http://en.wikipedia.org/wiki/Mutual_fund
II. http://finance.indiamart.com/markets/mutual_funds/
III. http://www.moneycontrol.com/mutualfundindia
IV. http://www.mutualfundsindia.com/icra_m_power_institutional.asp#q3
V. http://www.amfiindi.com/navhistoryreport.asp

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VI. www.nseindia.com
VII. www.bseindia.com
VIII. http://www56.homepage.villanova.edu/david.nawrocki/briefhistoryofdownsideri
sknawrocki.pdf
IX. www.businessweek.com/investing/insights/blog/archives/2007/10/new_researc
h_co.html
X. www.unf.edu/~oschnuse/draft7.pdf
XI. www.sebigov.in
XII. www.kotaksecurities.com
XIII. http://www.moneycontrol.com/indiamutualfunds/mfinfo/14/51/snapshot/imdes
c/UTI%20Leadership%20Equity%20Fund%20(G)/fdec/UTI%20Asset%20Mgmt
%20Company%20Pvt.%20Ltd./imid/MUT096/imffid/UT
XIV. www.valueresearchonline.com
XV. www.waytowealth.com
XVI. www.eurekasecurities.comm
XVII. www.myrisis.com
XVIII. www.geojit.com
XIX. www.capitalmarket.com
XX. Investors Guide to Mutual Funds- January 2008
XXI. Business Today(July2,2006 edition)
XXII. Business World( March3, 2008 edition)
XXIII. Value research
XXIV. Economic times
XXV. & Factsheet of Different AMC’s.

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