company profile and body

8/14/2019 Company Profile and Body

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C OMPANY P RO FILE :

KARVY is a premier integrated financial services provider, and ranked among the top

five in the country in all its business segments, services over 16 million individual

investors in various capacities, and provides investor services to over 300 corporate.

KARVY covers the entire spectrum of financial services such as Stock broking,

Depository Participants, Distribution of financial products like mutual funds, bonds,

fixed deposit, Merchant Banking & Corporate Finance, Insurance Broking,

Commodities Broking, Personal Finance Advisory Services, placement of equity, IPOs,

among others. Karvy has a professional management team and ranks among the best in

technology, operations, and more importantly, in research of various industrial

segments

T O P M A N A G EMEN T :

Mr. C Parthasarthy, Chairman & Managing Director

He is the leader in the financial service industry in India and is

responsible for building Karvy as one of the Indias truly Integrated

Financial Services Provider.

Mr. M Yugandhar, Managing Director

Founder member of the Karvy Consultants Ltd. and has a varied

knowledge in the field of financial services spanning over 20 years.

Institute of Management and Information Science, Bhubaneswar, Karvy Stock Broking Ltd.


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Mutual Fund 2

Mr. M S Ramakrishna, Executive Director

Founder member of KARVY Consultants Limited is the orchestrator of

technology initiatives such as the call centre in the service of the

customer.

A CH IEV EMEN TS :

Among the top 5 stock brokers in India (4% of NSE volumes).

India's No. 1 Registrar & Securities Transfer Agents.

Among the top 3 Depository Participants.

Largest Network of Branches & Business Associates.

ISO 9002 certified operations by DNV.

Among top 10 Investment bankers.

Largest Distributor of Financial Products.

Adjudged as one of the top 50 IT uses in India by MIS Asia.

Full fledged IT driven operations.

K ARVY G RO U P C OMPANY :

KA RV Y C O N SU LTA N TS L IMITED .

KA RV Y

STO CK

BRO K IN G

LIMITED

.KA RV Y IN V ESTO R SERV ICES L IMITED .

KA RV Y TH E F IN A PO LIS .



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Mutual Fund 3

KA RV Y C O MPU TERSH A RE P RIVATE L IMITED .

KA RV Y GLO BA L SERV ICES LIMITED .

KA RV Y M U T U A L FU N D .

KA RV Y C O MTRA D E L IMITED .

KA RV Y IN S U R A N C E BRO K IN G LIMITED .

KA RV Y REA LTY & SERV ICES (IN D I A ) L IMITED .

A B O U T M U T U A L F U N D S :

Mutual Funds constitute a part of a wide spectrum of financial services involving

management of funds by investing in various financial instruments on behalf of various

individuals among others. A mutual fund is a single large professionally managed

organization that combines the fund raised from individual investors who have thesame investment objective. The money raised is invested in a diversified portfolio of

securities including stocks, bonds, debentures and other instruments thus spreading

and reducing the risk. Mutual Funds are the ideal investment vehicle for todays

complex and modern financial scenario. Markets for equity shares, bonds, derivatives

and other assets have become mature and information-driven. A typical individual is

not likely to have the knowledge, skills, inclination and time to keep track of and

understand the causes and implications of the price changes and trends.These

organizations also gain economies of scale because of the large pool of money from



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investors; this lowers the cost of analyzing securities, managing portfolio and trading in

stocks and bonds.

Fig 1: Mutual Fund Flow Chart

The figure 1 Mutual Fund Flowchart depicts the flow of monetary resources and

information from one security to another in the MF Industry. The investors invest

money with the AMCs, which have professional fund managers having knowledge

about the various investment instruments like the stock market, the money market, and

government securities. Based on the objective of a specific mutual fund scheme the pool

of money is invested. This investment generates returns in the form of dividend or

capital appreciation, which in turn is passed on to the investors.

ADVANTAGES OF MUTUAL FUNDS

Some advantages of mutual funds are:-

Diversification



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This is the idea of spreading your eggs around more than one basket. Mutual

funds invest money into many companies, thus decreasing the risk because in

case even some companies get unexpected loss in the value of their shares, the

rise in the value of other companies might nullify this loss.

Professional management

One of the most important benefits is the availability of low cost, highly

professional management services. Mutual funds are managed by highly skilled

managers who have a sound knowledge of the market and wide experience in

investment.

Convenient record-keeping

Mutual funds simplify the process of record-keeping. Bookkeeping

of the investments is handled by the fund.

Switching

Many mutual funds allow investors to switch from one fund to other.

Investment protection

Mutual funds work under the strict regulations of SEBI. They are required to

submit several reports to these agencies and to publish details of their operations

for public information.

More returns

Though risk is more, returns are also very high.

Low initial investment



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The initial amount that a person has to invest is very low in mutual funds. One

can start investing with a mere amount of Rs 500.

Easy liquidity

Schemes of mutual funds can be sold or bought any time in the stock market

according to the convenience of the investor.

Tax benefits

Depending on the schemes, investors of mutual funds get tax benefits. Some

schemes of mutual funds are 100% tax free.

Variety of investments

Mutual funds cater to any type of investor- those interested in regular income,

long-term or short-term growth, liquidity, capital gains, tax benefits etc.

Accessibility

Funds can be purchased directly by an investor or through an authorized

broker/agent, with a low (or no) sales charge.

Retirement benefits

Retirement and pension benefits are another attractive feature of investing in

mutual funds.

DISADVANTAGES OF INVESTING IN MUTUAL FUNDS



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Although what one person may view as a disadvantage another may see as a desirable

quality, below are some factors which may be disadvantages depending on your point

of view:

All mutual funds charge expenses. Whether they are marketing, management or

brokerage fees fund expenses are generally passed back to the investors.

Investors exercise no control over what securities the fund buys or sells.

The buying and selling of securities within the mutual fund portfolio

generates capital gains and losses which are passed back to investors even if

they have not sold any of their mutual fund shares

C L A S S I F I C AT I O N O F M U T U A L F U N D :

S C H E M E S A C C O R D I N G T O M A T U R I T Y P E R I O D :

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

depending on its maturity period.

Open-ended Fund/ Scheme:

An open-ended fund or scheme is one that is available for subscription and repurchase

on a continuous basis. These schemes do not have a fixed maturity period. Investors

can conveniently buy and sell units at Net Asset Value (NAV) related prices which are

declared on a daily basis. The key feature of open-end schemes is liquidity.Institute of Management and Information Science, Bhubaneswar, Karvy Stock Broking Ltd.


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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. SEBI Regulations stipulate that at least one of the two

exit routes is provided to the investor i.e. either repurchase facility or through listing on

stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.

S C H E M E S A C C O R D I N G T O I N V E S T M E N T O B J E C T I V E :

A scheme can also be classified as growth scheme, income scheme, or balanced scheme

considering its investment objective. Such schemes may be open-ended or close-ended

schemes as described earlier. Such schemes may be classified mainly as follows:

Growth / Equity Oriented Scheme:

The aim of growth funds is to provide capital appreciation over the medium to long-term. Such schemes normally invest a major part of their corpus in equities. Such funds

have comparatively high risks. These schemes provide different options to the investors



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like dividend option, capital appreciation, etc. and the investors may choose an option

depending on their preferences. The investors must indicate the option in the

application form. 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.

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.

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 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.



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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 interbank call money, government securities, etc. Returns on these schemes

fluctuate much less compared to other funds. These funds are appropriate for corporate

and individual investors as a means to park their surplus funds for short periods.

Gilt Fund:

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

default risk. NAVs of these schemes also fluctuate due to change in interest rates and

other economic factors as is the case with income or debt oriented schemes.

Index Funds:

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index,

S&P NSE 50 index (Nifty), etc. These schemes invest in the securities in the same weight

age 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.

Asset allocation funds:



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Asset allocation funds contain two or more different classes of assets in their portfolio.

Their objective is to reduce the portfolio risk. Most such funds include domestic and

foreign stocks, bonds, currencies and money market instruments. The portfolio is very

often relocated on the basis of expected changes in the economy and industry, as well as

expected performance of the stocks.

Bond funds:

Bond funds seek to provide investors with safety, liquidity as well as a satisfactory

yield. They are the safest option as the money under such funds is invested in

government and corporate debt securities, which offer predetermined rates of interest.

Bond funds reduce the interest rate, credit opportunity and foreign currency risks. The

various types of bond funds include government bonds (which invest in the

government yield or the treasury portfolio), municipal bond funds (which invest in

municipal securities), adjustment rate bond funds (which invest in mortgage bonds tied

to adjustable rate mortgage), and corporate bond funds (which invest in corporate

debentures). Bond funds are ideal for those who want a regular income together with a

little capital appreciation as they may be placed in a category that falls between low-

risk savings in banks and high-risk savings in equities.

Sector funds:

These are the funds/schemes which invest in the securities of only those sectors or

industries as specified in the offer documents. For example Pharmaceuticals, Software,

Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. Sector funds are the



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most sophisticated investment vehicle, their investment strategy being focused on a

particular sector which is likely to grow at a faster rate in the near/intermediate future,

due to the emergence of a particular industry or economic phenomenon. They invest in

the companies of such industry or industrial sector with the aim of guaranteeing high

capital appreciation, high income, or both. The portfolio is based on the intensive

research.

Money market funds:

Money market funds (MMMFs) are also known as cash funds. The portfolio of MMMFs

consists of short term debt instruments, such as treasury notes, commercial papers,

certificates of deposit and the call money market. They are able to provide better

returns than short-term bank deposits. MMMFs are best suited for investors who want

maximum returns for short-term investments with a minimum of risk.

Venture capital funds:

Venture capital funds seek to provide tax benefits and long-term growth. They usually

invest in unlisted and unquoted companies. They also invest in start-up business,

management buy-outs and new technologies. Investments in such areas are very risky

and it usually takes longer to realize the returns which, of course, may be much higher

than those accruing from other types of funds. The special tax benefits are an attraction

for investors who opt for venture capital funds.

Fund of funds:

Some mutual funds invest the money (received by issuing units) in other close or open-

ended funds. The investment risks of these funds are very low as they get spread at two



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points, but then such funds also involve double charge. However the investment costs

are relatively lower because the fund manager need not incur costs for stock selection

such funds invests in other mutual funds which are performing well. They are suitable

for cautious investors who want to minimize risks.

Load funds:

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. Suppose the NAV per unit is

Rs.10. If the entry as well as exit load charged is 1%, then the investors who buy would

be required to pay Rs.10.10 and those who offer their units for repurchase to the mutual

fund will get only Rs.9.90 per unit. The investors should take the loads into

consideration while making investment as these affect their yields/returns. 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.

No-load funds:

A 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.

Mutual funds cannot increase the load beyond the level mentioned in the offer

document. Any change in the load will be applicable only to prospective investments



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and not to the original investments. In case of imposition of fresh loads or increase in

existing loads, the mutual funds are required to amend their offer documents so that

the new investors are aware of loads at the time of investments.

T H E G L O B A L P E R S P E C T I V E :

Mutual Fund plays an important role in the development of the financial market and

this has been proved in the developed countries like United States, United Kingdom

and Japan. Mutual Funds as a concept developed in the early 20 th century. The first

modern American mutual fund opened in 1924 now called the MFS whereas in India it

was first started in 1963. But the idea of pooling together money for investment

purposes started in Europe in the mid-1800s mainly in Netherlands and Scotland

followed by Belgium, England and France. These developments led to the

establishment of Fidelity Investments that today is the worlds largest MF Company

and other companies like Pioneer, Scudder and Putnam funds. Mutual Funds were

initially termed as trusts.

In the global context Mutual funds have long been a popular investment avenue with

assets under management (AUM) exceeding 60% of the gross domestic product (GDP)

in developed markets like the US. Historically, US investors have been net buyers of

equity mutual funds. Major drivers for that behavior have been the need to build

capital for retirement and the knowledge that the average historical returns on equities

have exceeded that of bond funds. As in prior years, US households remain net buyersof socks and bond through mutual funds and net sellers of these securities through

other means. The number of US households owning mutual funds reached 54.9 million



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as of December 2006. As a result, close to half of the estimated 114.37 million US

households now own mutual funds, and an estimated 96 million individual

shareholders in those households invest in funds.

T HE I N D IA N M U TU A L FU N D I NDUSTRY :

In India mutual funds have been able to command significant investor appetite only in

the recent past with the increasing presence of private sector mutual funds and a

distinct shift in investor preferences towards mutual funds. This has resulted in the

AUM of mutual funds growing around 3.5 times from March 1999. Further the share of

the Indian mutual fund industry in the global pie has doubled in this period. The shift

in investor preference towards mutual funds has been facilitated by fiscal incentives,

availability of higher choices to investors, the gradual change in risk profile of the

investors, increasing returns from equity funds due to good performance of equity

markets as well as the attempts by the SEBI.

Unit Trust of India was the first mutual fund set up in India in the year 1963. In early

1990s, Government allowed public sector banks and institutions to set up mutual funds.

In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The

objectives of SEBI are to protect the interest of investors in securities and to promote

the development of and to regulate the securities market.

As far as mutual funds are concerned, SEBI formulates policies and regulates the

mutual funds to protect the interest of the investors. SEBI notified regulations for the

mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities

were allowed to enter the capital market. The regulations were fully revised in 1996 and



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have been amended thereafter from time to time. SEBI has also issued guidelines to the

mutual funds from time to time to protect the interests of investors.

All mutual funds whether promoted by public sector or private sector entities including

those promoted by foreign entities are governed by the same set of Regulations. There

is no distinction in regulatory requirements for these mutual funds and all are subject

to monitoring and inspections by SEBI. The risks associated with the schemes launched

by the mutual funds sponsored by these entities are of similar type. It may be

mentioned here that Unit Trust of India (UTI) is not registered with SEBI as a mutual

fund (as on January 15, 2002).

D EV ELO PMEN T O F T H E I N D IA N M U TU A L FUN D I NDUSTRY :

The Mutual fund Industry can be broadly put into four phases:

First Phase (1964-87) - UTI commenced its operations from July 1964 with a view

to encouraging savings and investment and participation in the income, profits

and gains accruing to the corporation from the acquisition, holding management

and disposal of securities. The first scheme launched by UTI was called the UNIT

Scheme 1964 more popularly US-64.

Second Phase (1987-1993)- Initially, the growth was slow but it accelerated from

the year 1987. In 1987, public sector Mutual Funds was setup by public sector

banks, the LIC (Life Insurance Corporation of India) and the GIC (General

Insurance Corporation of India). SBI (State Bank of India) launched the first non-

UTI Mutual Fund in 1987 followed by other public sector banks.



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Third Phase (1993-2003) - In 1993 the first private sector Mutual Fund was

launched by Kothari Pioneer, which now has merged with Franklin Templeton.

Fourth Phase (Since February 2003) - UTI was bifurcated into two separate entities.

S TRU CTU RE O F I N D IA N M U TU A L FUN D :



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A UM O F T H E I N D IA N M U TU A L FUN D I NDUSTRY :

The following figure shows the growth in AUM of the Indian MF Industry from March,

1965 to March, 2007. There has been a decrease in the AUM of the industry from

January, 2003 to March, 2003. The reason for the fall in the AUM from Rs 121805 crores

in Jan 2003 to Rs 79464 crores in March 2003 was because of the bifurcation of UTI into

two separate entities UTI and UTI Mutual Fund.



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Source: www.amfiindia.com

Fig 2: Growth in AUM of the Indian Mutual Fund Industry

The industry's Asset Under Management (AUM) was Rs 326,388 crore on March 2007,

and swelled by nearly 68 per cent to Rs 548,063 crore till January 2008. During the last

two years, the country's stock markets have grown by nearly 40 per cent each year,

while MFs have out-smarted them by growing at around 50-60 per cent. The size of

AUM in India is around $ 68 billion, which is much below the country's GDP of $ 780

billion. In many developed economies, the AUM size is more than that of the nation's

GDP. The analysts interpret the existing gap as an opportunity for the industry to grow

in the coming years. "In the next three years, the AUM size would go up by roughly

three times to cross the $200 billion mark. The number of players will also double from

today's 32. Many firms will go for consolidation and will add new partners or sell off

their business to foreign partners," Ajay Bagga, CEO of Lotus AMC said.

Assets Under Management (AUM) as at the end of Jan-2008 (Rs in Lakhs)

Mutual Fund Name

AUMAverage AUM For TheMonth

ExcludingFund OfFunds

Fund OfFunds

ExcludingFund OfFunds

Fund OfFunds

1. ABN AMRO Mutual Fund 852984.07 25064.19 810089.12 29070.232. AIG Global Investment GroupMutual Fund

294329.22 0 330416.02 0

3. Benchmark Mutual Fund 561099.88 0 643574.29 04. Birla Sun Life Mutual Fund 3593135.76 1873.23 3207689.2 1989.245. BOB Mutual Fund 8876.69 0 9887.54 06. Canara Robeco Mutual Fund 286313.3 0 320093.77 07. DBS Chola Mutual Fund 301573.78 0 379825.16 0

http://www.amfiindia.com/http://www.amfiindia.com/http://www.amfiindia.com/http://www.amfiindia.com/


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8. Deutsche Mutual Fund 1338870.7 7133.83 1343322.6 7536.55

9. DSP Merrill Lynch Mutual Fund 1913600.42 157490.3 2037804.05 157861.3710. Escorts Mutual Fund 17580.08 0 17533.36 011. Fidelity Mutual Fund 950915.89 3230.72 1042527.28 5304.6912. Franklin Templeton Mutual Fund 2960433.33 25043.01 3161168.91 26133.1513. HDFC Mutual Fund 4376269.85 0 4954432.65 014. HSBC Mutual Fund 1631527.14 0 1721244.48 015. ICICI Prudential Mutual Fund 6404507.55 3814.73 5710911.35 4411.2316. ING Mutual Fund 953827.11 80586.12 977759.17 89179.6417. JM Financial Mutual Fund 1392470.09 0 1432673.79 018. JPMorgan Mutual Fund 251672.89 0 262206.78 0

19. Kotak Mahindra Mutual Fund 2229571.73 36937.07 2273682.41 40730.5120. LIC Mutual Fund 1338739.76 0 1504366.72 021. Lotus India Mutual Fund 1005709.88 0 905972.4 022. Mirae Asset Mutual Fund N/A N/A N/A N/A23. Morgan Stanley Mutual Fund 367023.71 0 405938.54 024. PRINCIPAL Mutual Fund 1423489.88 0 1443140.34 025. Quantum Mutual Fund 5681.6 0 6530.49 026. Reliance Mutual Fund 7721003.73 0 8390538.13 027. Sahara Mutual Fund 22004 0 22739.99 028. SBI Mutual Fund 2758154.06 0 2981139.82 0

29. Standard Chartered Mutual Fund 1311812.64 3504.5 1434491.07 3540.7330. Sundaram BNP Paribas MutualFund

1329182.56 26867.61 1481302.15 28731.92

31. Tata Mutual Fund 1898825.97 0 2133244.76 032. Taurus Mutual Fund 39545.01 0 43627.62 033. UTI Mutual Fund 5265619.27 0 5687816.14 0Grand Total 54806351.55 371545.31 57077690.1 394489.26

RE C E N T

TREN D S

IN

T H E

IN D U STRY

:The important recent development in the Mutual Fund Industry in India has been the

aggressive explosion of the private players. This has been accompanied by the decline



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of companies floated by UTI and other Nationalised banks. UTI saw its death when

their fiasco came to light in the form of two big blows in 1997 and 2001.

Many nationalized banks got into the mutual funds business in the early nineties and

got of to a good start due to the stock market boom prevailing then. These banks did

not really understand the mutual funds business and they viewed it as another kind of

banking activity. The performance of most of the schemes floated by these organisations

was not good.

The recent years have seen a spate in the opening up of the sector, and a large number

of companies have come in to participate in the Mutual Fund Industry. The experience

of some of the AMCs floated by the private sector Indian companies was also very

similar. They quickly realised that the AMC business requires a lot of financial support

as returns are seen only in the long run.

Another major change in the last few years has been that some Mutual Funds have sold

out to foreign owned companies, while some have merged with others and there is a

general restructuring going on right now.

There has been a lot of foreign participation too with many major financial institutions

from abroad coming to the country. The foreign owned companies have deep pockets

and have come here with the expectations of a long haul. They can be credited with the

introduction of many new practices such as new product innovation, sharp

improvement in the service standards and disclosure, usage of technology, broker

education and support etc. The latest trend that has been catching up has been the

tremendous increase in the Joint ventures between Indian MNCs and foreign MNCs for



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conducting the mutual fund business with the Mutual fund being able to leverage the

foreign partners expertise and the domestic players network.

S O ME FA CTS FO R T HE G RO WTH O F M U TU A L FUN D I N I N D IA :

250% growth in the last 5 years.

Emphasis on better corporate governance.

Trying to curb the late trading practices.

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

worldwide.

Our saving rate is over 23%, highest in the world. Only channelizing these

savings in mutual funds sector is required.

We have approximately 29 mutual funds which is much less than US having

more than 800. There is a big scope for expansion.

'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are

concentrating on the 'A' class cities. Soon they will find scope in the growing

cities.

Mutual fund can penetrate rural like the Indian insurance industry with simple

and limited products.

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

Introduction of Financial Planners who can provide need based advice.

L ITERATURE R EV IEW :



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The number of researches in field of mutual funds in India is low as compared to the

other developed and developing nation. There is wide range of quantitative and

technical tools which helps to evaluate, manage and compare the performance of

different portfolios. In this area the pioneer work was by Sharpe (1966) who had

developed a composite measure that considers return and risk for the performance

evaluation of mutual funds. He evaluated the performance of 34 open-ended mutual

funds during the period 1944-1963 the method developed by him for the evaluation. In

his study he revealed the fact that the average mutual fund performance was markedly

inferior to an investment in the market. He also said that the good performance was

associated with low expense ratio and only little relationship was discovered between

the fund size and performance. A study carried out by Treynor & Mazuy (1966) didnt

find any statistical evidence that investment managers of around 57 funds were unable

to predict the market movement in advance. The study suggested that investment in

mutual fund was highly dependent on fluctuation in the general market. The main cruxof the study was that the improvement in the rate of return was due to the fund

managers ability to identify the under priced share in the market. Jensen M C (1968)

assesses the ability of the fund managers in selecting the undervalued securities. In his

study he took a sample of 115 mutual funds and concluded that the fund managers

were unable to forecast the price of the security well enough to recover research

expenses and fees. E. Fama (1970) developed a method for evaluating the investment

performance of the portfolios. He revealed the fact that the overall performance of the

managed portfolio can be divided into several components. He backed the fund

managers for picking up the best securities at a stated level of risk (ability of selection)



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for higher returns and also due to the prediction of general market movement (timing

ability). He further subdivided the return on portfolio into two parts namely the

security selection and return for bearing risk. The model developed by him combined

concepts from modern theories of portfolio selection and capital market equilibrium

with those of the traditional concept.

Some of the important studies in this area were also done in India. These were by M

Jayadev (1996), S. A. Dave (1998), Susan Thomas (1998), Vivek kulkarni, Anjan

Chakrabarti & Harsha Rungta, Amitab Gupta, S Vijayalakshmi, Biswadeep Mishra,

Ramesh Chander, M S Narasimhan and many more as well. Jyadev (1996) evaluated the

performance of 62 mutual fund schemes using Net Asset Value (NAV) data for period

from 1987-1995. He reported fine performance for many schemes when total risk was

considered. However 50% of the schemes outperformed the standard portfolio in terms

of systematic risk. His study concluded that Indian mutual funds were not properly

diversified and also the Famas selectivity ability was lacking in the Indian fundmanagers. S. A. Dave (1998) discussed the performance on the mutual fund industry

and then analyzes the individual fund as well. Susan Thomas (1998) studied the

performance of Master share and MSGF for the period 1994-1995 and used Jensen

methodology for evaluating performance of the funds. Vivek kulkarni in his article

explained the framework for performance evaluation, criteria for selecting benchmark,

CRISIL methodology for measuring risk and the effect of fund management fees in a

performance evaluation. Anjan Chakrabarti & Harsha Rungta (2000) in their study

attempts to identify and evaluate the performance of mutual fund by focusing on

private sector equity fund. The study reveals that there was no one to one link betweenInstitute of Management and Information Science, Bhubaneswar, Karvy Stock Broking Ltd.


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performance by return and performance by risk-adjusted return. Amitab Gupta (2001)

in his study evaluates selected schemes with respect to the broad based BSE national

Index to observe whether these schemes were able to beat the market. He also observed

whether the returns match the risk undertaken and the market timing ability of the

fund managers. The results indicate that 52% schemes earned higher returns as

compare to the market return whereas 48% generated low return. The results

pertaining to market timing abilities of the fund managers in context of the two

different models, the Treynor & mazuy and Heniksson & Merton do not provide

support to the hypothesis that the Indian Fund Manager are able to time the market

correctly. M. S. Narasimhan and S Vijayalakshmi (2001) studied 76 mutual funds of

around 25 fund houses evaluating time performance and diversification. The study uses

two alternative methods for observation. First, the portfolio return & risk and

correlation between the stocks of each scheme computed and compare with each other.

Second, the method to understand the correlation among the frequently appearingstocks in the portfolio. The standard deviation, average return and coefficient of

variation of these stocks when compared reveal that in almost all cases the risk is higher

compare to return. The study also observes the fund managers ability to predict the

near future. Portfolios of the fund were compared with the top 100 performers of that

period. The result shows that there is a shift in the investment strategy for holding a

diversified portfolio and in optimizing the risk return of investment in the specific

period. Biswadeep Mishra evaluated the timing and selectivity skills of the mutual

funds. In his research paper he tries to examine the non-stationary of mutual fund betas

and find its causes as well. He used Chen & Stockum (1986) model, which uses



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generalized varying parameters regression procedure to evaluate mutual funds

selectivity, beta instability and timing skills. This model also removes some of the

limitation that was there in the Jensens measures. He concluded that the selected

mutual fund had no timing ability but at individual level some of the schemes had

timing skills. The generalized varying parameters (GVP) reveal that the systematic risk

of Indian mutual fund did not remain stable over time. The study also examined the

portfolio management practices of the mutual fund manager with respect to portfolio

management, portfolio evaluation, portfolio construction and disclosure practices.

Thus, many of these studies evaluated the performance of the mutual fund in terms of

risk and return parameters. However all the studies conducted so far with respect to

performance evaluation of Indian mutual fund are subject to some criticism on the fact

that there were relatively small sample size, short time period, limited scope of

schemes, etc. Thus the literature survey reveals that there is still vast scope for advance

research in this field.

R ISK T O LERA N CE :

Risk tolerance is a complex psychological concept that is a key feature of financial

outlook and planning. Risk tolerance is the level of risk that an individual believes he or

she is willing to accept. It is important to note that risk tolerance is a complex attitude,

and like any attitude, it has multiple levels of interpretation. Risk tolerance reflects an

individuals values, beliefs and personal goals, and overlaps with feelings of wanting to

feel confident and in control (Young & ONeill, 1992). Financial risk tolerance involves



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perceptions about how confident people are in their ability to make good financial

decisions, their views about borrowing money, and how much of a risk in terms of

financial loss they believe they could accept in achieving financial gains in the longer

term.

In summary, risk tolerance is the degree to which a client is willing and able to accept

the possibility of uncertain outcomes being associated with their financial decisions.

For the purpose of my research I have developed a questionnaire containing eight

questions. Each question in the questionnaire has some pre defined options (either

three or four). Each option carries some weight age. After the client fills up the

questionnaire, a score is calculated to determine the Risk Tolerance Level of each

client.

The following table shows the range of scores with their corresponding risk tolerance

levels.Score Risk Tolerance Level

0-07 Low tolerance for risk



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08-12 Below-average tolerance for risk

13-17 Average/moderate tolerance for risk

18-23 Above average tolerance for risk

24-28 High tolerance for risk

Now after the risk tolerance score is known and the client profiling has been

successfully done, one can use this information to make investment decisions.For this, the top mutual fund schemes (based on the return generated by them) will be

evaluated using various financial parameters like:

NAV (Rs.): The Net Asset Value is the market value of the assets of the scheme

minus its liabilities. The net asset value per unit on any business day is

computed as follows:

NAV = Receivables + Accrued Income Liabilities Accrued Liabilities

Number of shares or unit outstanding

% Return as on NAV date: This is the most important way to tell how well a

fund has performed. It includes the impact of appreciation of its value and

dividends, if any.

Fund Management: The return on a fund depends not only on the quality of the

portfolio but also on the quality of the management. The performance of the



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mutual fund depends on the amount of expertise available with the managing

company.

Initial Investment: Every mutual fund has a minimum investment. Generally,

this minimum investment is a few thousand rupees, but for some funds it may

be as high as one lakh. For instance, the minimum application amount for HDFC

Liquid Fund was rupees one lakh. Investors should check the minimum

investment limits and delete the fund from his/her list, if the minimum is above

his/her intended investment.

Entry / Exit Load: Load is charged to the investor when the investor buys or

redeems (repurchases) units. It is an adjustment to the NAV, to arrive at the

price. It is primarily used to meet the expenses related to sale and distribution of

units.

Load that is charged on sale of units is called as entry load . An entry load will

increase the price above the NAV, for the investor.

Load that is charged when the investor redeems his units is called as exit load .

Exit load reduces the redemption proceeds of the investor.

An exit load that varies with the holding period of an investor is called as CDSC

(Contingent deferred sales charge).

Expense Ratio: This important statistic helps to shed light on a funds efficiency

and cost effectiveness. By definition, it is the ratio of total recurring expenses to

average net assets. Lower numbers are desirable.



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Apart from these parameters, the method adopted by Karvy Stock Broking Ltd. will

also be used to analyze the performance of the various funds.

After evaluating the different schemes, the risks involved in these investments will be

studied. Different mutual fund schemes are exposed to different levels of risk and

investors should know the level of risks associated with these schemes before investing.

V A RIO U S K IN D S O F R ISK :

Instrument Risk: What are the risks and opportunities in the three general

groups of mutual funds money market, bond, and stock as well as in the

different sub classifications within those groups?

Market Risk: How do market forces affect the inherent risk exposure of different

types of funds?

Portfolio Risk: What special characteristics of the make-up of a specific fund

its holdings and the investment techniques used by the manager define its

unique risk profile?

Business Risk: What type of business risk (like competitive position) affects the

earnings of a company whose shares are a part of a fund portfolio?

Different strategies can be followed for reducing these risks. Some of these risks can be

controlled by diversifying the portfolio. But all risks may not be totally eliminated. An

appropriate investment strategy is, thus, necessary in order to control the risks

associated with selection of investment instruments.

S TRATEG IES FO R R ISK R ED U CTIO N :



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Diversification by Investment Style: An investment style is simply a set of

rules, guidelines, or procedures followed by fund managers when selecting

stocks. Each investment manager has a special style of investing. It is always best

to diversify into funds with different approaches to the market because these

funds can produce significantly different results.

Diversification by Investment Objective: There are different types of funds like:

industry specific fund (aggressive fund), diversified and balanced fund

(moderate fund), bond fund (conservative fund) and money market fund

(extremely conservative). Each of these funds has different objectives. An

investor should invest a proportion of his/her investible resources among all

these funds so that his/her risk is further reduced.

Finally, choosing the right mutual fund scheme on a portfolio level will be done i.e.

determine which scheme is best for a particular client. Certain points need to be kept in

mind while choosing the right mutual fund:

Do not be swayed by peripherals.

Go through the investment mix carefully

Past record is not always reliable

Know the fund managers of the company.

P E R F O R M A N C E E VA L U AT I O N :



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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 marketfluctuations, 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



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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--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,

systematic risk cannot be. By using the risk return relationship, we try to assess the

competitive strength of the mutual funds vis--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:

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.



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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.

Sharpe and Treynor measures are similar in a way, since they both divide the risk

premium by a numerical risk measure. 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 ReturnInstitute of Management and Information Science, Bhubaneswar, Karvy Stock Broking Ltd.


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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 relieve unsystematic risk, as his knowledge of

market is primitive.

If you're a typical investor, you want to know how well your investments are doing

over time. If you only buy one stock and then hold onto it, it's pretty easy to figure out

how you're doing by simply comparing the current value of the stock to the amount

you initially invested.

NAV (NET ASSET VALUE):

Things get a lot more complicated once you have multiple stocks in your portfolio and

you're buying and selling shares at different times for different prices. Performance gets

even harder to measure if you invest additional cash or take money out of the portfolio

every once in a while: adding cash to the portfolio increases its value, but not its

performance. Net Asset Value provides a way to objectively measure your performance



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over time in spite of all the changes you make to your portfolio. Since other investment

vehicles like mutual funds use NAV, it also provides a way to compare your

performance to professionally managed funds and indices, like the S&P 500.

The performance of a scheme is reflected in its net asset value (NAV) which is disclosed

on daily basis in case of open-ended schemes and on weekly basis in case of close-

ended schemes. The NAVs of mutual funds are required to be published in

newspapers. The NAVs are also available on the web sites of mutual funds. All mutual

funds are also required to put their NAVs on the web site of Association of Mutual

Funds in India (AMFI) www.amfiindia.com and thus the investors can access NAVs of

all mutual funds at one place.

The mutual funds are also required to publish their performance in the form of half-

yearly results which also include their returns/yields over a period of time i.e. last six

months, 1 year, 3 years, 5 years and since inception of schemes.

FACTORS TO CONSIDER:

As an investor you need to consider factors like your own risk profile, the fund's

management style and performance.

1. Risk profile

Investors have a risk profile that dictates how much risk they can take on to achieve

their investment objective. In this backdrop, they must identify mutual funds that can

help them meet their investment objectives at the desired risk level.

For instance, some equity funds adhere to the growth style of investment (aggressively

managed funds), while others follow the value style of investment (conservativelyInstitute of Management and Information Science, Bhubaneswar, Karvy Stock Broking Ltd.


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managed funds). So it is important for investors to select a fund that takes on risk in

line with their own risk appetite.

2. Fund management style

Fund houses have varying fund management styles and processes. Some pursue the

individualistic style, where the fund manager rather than the investment process plays

a dominant role in the investment process. As opposed to this, there are fund houses

that pursue a team-based investment approach where the investment process holds

sway over the individual.

Our preference is for the team-based style of investing since it is more stable and the

mutual fund (and its investors) is not over-dependent on an individual.

3. Mutual fund performance



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It is imperative for investors to evaluate a mutual fund on parameters related to risk

like Standard Deviation and Sharpe Ratio as also NAV appreciation. The risk

parameters evaluate the volatility in performance (Standard Deviation) and returns

generated by the fund per unit of risk borne (Sharpe Ratio).

The best deal for an investor will come from a mutual fund that has higher NAV

appreciation and Sharpe Ratio and lower Standard Deviation.

IMPORTANCE OF BENCHMARKING

Financial journalists are not equipped to analyze mutual funds. In most cases they are

simply reporting the performance figures they received from the managers themselves

or the marketing/public relations people. Mutual fund rating services are good data

collectors but lack any real sophistication in fund analysis. These services are oriented

toward the retail fund investor. Consequently sophisticated advisors, plan sponsors and

consultants must perform their own mutual fund analysis.

(The two biggest mistakes in quantitative mutual fund analysis are improper

benchmarking and end point bias. How can you avoid these mistakes?

A benchmark is a standard of measurement for mutual fund performance. Benchmarks

come in many different varieties, but an index or index mutual fund is the preferred

benchmark for most professional money managers and financial advisors. For example,

the Standard & Poor 500 stock index or the Vanguard 500 Index mutual fund can be

good benchmarks for evaluating the performance of a mutual fund that invests in large

capitalization. If we classify mutual funds by the capitalization of stocks that they own

(e.g., large-cap, small-cap), we would probably want benchmarks classified by



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capitalization. Since we view benchmarking as only the first step in the potential sell

decision, we believe you should seek a benchmark that is reasonably close to the fund

you are evaluating; however, there is little point in seeking the "perfect" benchmark The

most common error made when measuring a managers performance is the selection of

an improper benchmark. Morningstars star ratings, for example, are based on funds

performance relative to a broad group of fund returns, as opposed to a more specific

benchmark that reflects the manager's true style. Because of this, on February 28, 2000,

at the very peak of the growth stock bubble, most of Morningstars five star funds were

growth funds while there were no five star value funds. Two years later, after the value

funds did well and the growth funds crashed, most of the five star funds were value

funds.

K E Y T E R M I N O L O G Y :

ALPHA - The alpha ratio illustrates the effect of the portfolio managers choice on the

fund's return. The greater the alpha, the better a return has the investment yielded

compared with other investment objects with the same market risk. Alpha is an

annualized return measure of how much better or worse a funds performance is

relative to an index of funds in the same category, after allowing for differences in risk.

BETA A ratio that measures the market risk of securities or a fund. If the beta ratio

exceeds one, the fund is more sensitive than funds in general to the fluctuations of the

stock market. The beta may also be negative, which means that the value of the fund

will, on average, move to the opposite direction than the general market development.

Beta measures the sensitivity of rates of return on a fund to general market movements.



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Beta measures the volatility of the fund, as compared to that of the overall market. The

Market's beta is set at 1.00; a beta higher than 1.00 is considered to be more volatile than

the market, while a beta lower than 1.00 is considered to be less volatile.

Beta measures the volatility of the funds value relative to the volatility of the funds

benchmark value. The Beta coefficient indicates the percentage change of the funds

value when the benchmark value changes by one percentage point.

Example: When the beta of the fund is 0.8, the value of the fund rises by 0.8 % when the

benchmark index rises by one percent. Correspondingly, when the benchmark index

falls by one percent, the value of the fund falls on average by 0.8 %.

The Beta coefficient is a key parameter in the capital asset pricing model (CAPM). It

measures the part of the asset's statistical variance that cannot be mitigated by the

diversification provided by the portfolio of many risky assets, because it is correlated

with the return of the other assets that are in the portfolio.

For example, if every stock in the New York Stock Exchange was uncorrelated with

every other stock, then every stock would have a Beta of zero, and it would be possible

to create a portfolio that was nearly risk free, simply by diversifying it sufficiently so

that the variations in the individual stocks' prices averaged out. This would be like

owning a casino royale: essentially none of the business risk of owning a casino comes

from the uncertain outcomes of the games of chance played by the customers, because

http://en.wikipedia.org/wiki/Capital_asset_pricing_modelhttp://en.wikipedia.org/wiki/Variancehttp://en.wikipedia.org/wiki/Diversification_(finance)http://en.wikipedia.org/wiki/Correlationhttp://en.wikipedia.org/wiki/Casinohttp://en.wikipedia.org/wiki/Casinohttp://en.wikipedia.org/wiki/Capital_asset_pricing_modelhttp://en.wikipedia.org/wiki/Capital_asset_pricing_modelhttp://en.wikipedia.org/wiki/Capital_asset_pricing_modelhttp://en.wikipedia.org/wiki/Variancehttp://en.wikipedia.org/wiki/Variancehttp://en.wikipedia.org/wiki/Variancehttp://en.wikipedia.org/wiki/Diversification_(finance)http://en.wikipedia.org/wiki/Diversification_(finance)http://en.wikipedia.org/wiki/Diversification_(finance)http://en.wikipedia.org/wiki/Correlationhttp://en.wikipedia.org/wiki/Correlationhttp://en.wikipedia.org/wiki/Correlationhttp://en.wikipedia.org/wiki/Casinohttp://en.wikipedia.org/wiki/Casinohttp://en.wikipedia.org/wiki/Casino


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those are uncorrelated, and average out over any significant period of time. In reality,

investments tend to be correlated, more so within an industry, or when considering a

single asset class (such as equities), as was demonstrated in the Wall Street crash of

1929. This correlated risk, measured by Beta, is what actually creates almost all.

Standard Deviation: Statistic that measures the tendency of data to be spread out.

Accountants can make important inferences from past data with this measure. The

standard deviation, denoted with S and read as sigma , is defined as follows:

For example, one-and-one-half years of quarterly returns for XYZ stock follow:

From the preceding table, note that

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The XYZ stock has returned on the average 10% over the last six quarters and the

variability about its average return was 11.40%. The high standard deviation (11.40%)

relative to the average return of 10% indicates that the stock is very risky,

Correlation shows the linear dependency between fund returns and the returns of the benchmark index. Correlation may vary between -1 and 1. The dependency is complete

if the funds correlation to the benchmark index is 1. If the correlation is zero, there is no

dependency.



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P E R F O R M A N C E O F T O P 1 0 M U T U A L F U N D S

D W S I N V E S T M E N T O P P O R T U N I T Y F U N D : Trailing Returns Column1 Column2As of 09 May 2008 Fund Return Category ReturnYear-to-Date -20.81 -24.661-Week -3.11 -3.981-Month 8.3 5.373-Month -3.72 -7.591-Year 51.39 19.672-Year 24.97 10.63-Year 43.75 32.475-Year -- 46.21

Mutual fund industry is one of the attracting industries in most recent few years. DWS

Investment Opportunity fund is one of the most promising funds in last one - two

years. One-year return of the fund is about 52% which makes it top performer within

the diversified category. Since its inception, the fund has been among the better

opportunity within the range of flexi-cap funds (funds which can invest across the

market capitalization range). The funds return is more than the market return of the

category in which it belongs. Even the returns of Nifty and Sensex are comparativelyless than the return of the fund for all the different time period taken into consideration.



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RiskMean 1.38 Treynor 1.33Standard Deviation 3.7 Sortino 0.57Sharpe 0.35 Correlation 0.95Beta 0.96 Fama 0.44

The fund's risk profile would be similar to that of a normal diversified equity fund. The

fund has performed really well as it is seen from the results of the different method

used to calculate the risk of the fund. The Treynor Ratio, the Sharpe Ratio, Fama etc

have all been positive and the Treynor ratio being more than 1 is significant for the fund

as the investor prefers higher and positive Treyor Ratio which shows the lesser risk andhigher return. The beta value is close to 1 which is again a good sign for the fund as the

fund is moving along with trend in the market.

NAV (Net Asset Value)Latest Nav 12-May-08Benchmark Index - BSE200 9-May-0852 - Week High 4-Jan-0852 - Week Low 15-May-07

The NAV of the DWS Investment opportunity fund has outperformed the expectation

of the market that is the BSE200 which is the benchmark index. From the chart we can

make out that over the NAV of the fund has performed well but in the past few months

due to the high fluctuation in the market the NAV of the fund has decreased. The fund

still looks technically and fundamentally sound enough to continue better return for the

investors.



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Portfolio Characteristic As on 30/04/08Avg Mkt. Cap (Rs Cr) 13,111.12Market Capitalization % of PortfolioLarge 50.36Mid 30.32Small 17.32

The table shows the percentage of money invested in the Large, Mid and Small Cap

companies. More than 50% of the market cap of the company is invested in Large Cap

and then around 30% is invested in the Mid Cap. This shows that the fund manager

trusts creditability of the Large and Mid Cap segment profoundly and had invested

more than 75% in this segment. As in the last few years the Mid Cap had performed

better which had engrossed the fund manager to shift lightly between large-cap and

mid-cap stocks more. A good stock selection and active churning of the portfolio have

helped managers to get better return for their fund.

Top 10 Holdings

Stock Sector % of NAV

Reliance Industries Ltd. Oil & Gas, Petroleum Refinery 6.86



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Tata Steel Ltd. Steel 4.25

HDFC Ltd. Finance 3.68

Sintex Industries Ltd. Plastic 3.41

Bombay Dyeing & Manuf. Co. Ltd. Chemical 0.36

Deep Industries Ltd. Oil & Gas, Petroleum Refinery 3.32

Chennai Online Computer - Software & Education 3.32

ITC Ltd. Tobacco & pan Masala 3.24

Jain Irrigation System Ltd. Plastic 3.16

BHEL Electrical & Electrical Equipments 3.11

The funds timely move to mid-cap stocks, with a slight preference for capital goods,

metals and banks in the past six months had proven to be advantageous for company.

As a proportion of the overall portfolio, the mid-cap exposure has climbed to 34 per

cent from 23 per cent over the last six months. In the past few quarter, for example,

large-cap names such as Tata Power, ITC, and Reliance were shed in favour of new ads

such as Marg Construction, HCC and Gujarat Industries Power. The funds holdings in

some of the top companies of both the large and mid cap had made their way more

influential. If we take a look at return and the earning of these companies we can say

that the funds return are expected to go higher in the near future.

Unlike other funds labeled as "Opportunities" products, DWS Investment Opportunity

does not hold concentrated exposures in its top sectors. Instead, the fund's consent

allows it to dynamically allocate its portfolio between equity and other assets. Its

holding in the Oil & Gas, Steel and Engineering Sector is around 40% and is benefited

with it in its return which in turn had resulted in a better return for the fund. This



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requires timing skills and can add an additional layer of risk to the fund. In practice,

though, the fund has remained fully invested in recent times and hasn't taken recourse

to timing calls. However, it has been quite aggressively managed in active churning of

the portfolio and a flexible allocation to mid-cap stocks. The portfolio also appears to be

quite actively churned, with 21 of the total of 39 stocks held in the portfolio replaced in

a six month time frame. An active profit-booking strategy of the fund managers and the

regular check of sharp run-ups in select mid-cap stocks are behind the success story so

far.As on 30/04/08 % of NAV

Energy 26.53

Metals & Metal Products 12.92

Chemicals 8.98

Consumer Non-Durable 8.37



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Diversified 8.22

Technology 6.16

Financial Services 5.82

Services 5.09

Basic/Engineering 4.53

Automobile 4.16



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Remarks for the fund:

Investors in the DWS Investment Opportunity Fund can retain their units in the fund,

given its strong performance since launch. With a compounded annual return of about

45 per cent, the fund has kept comfortably ahead of its benchmark BSE-200 as well its

peer group of diversified equity funds. As we know that the banking sector is booming

up and with the opening up of the banking sector in 2009 the fund is expected to

outperform in the upcoming years.

R E L I A N C E R E G U L A R S AV I N G E Q U I T Y :

Trailing Returns Column1 Column2As of 09 May 2008 Fund Return Category ReturnYear-to-Date -24.59 -25.011-Month 3.24 4.073-Month -4.24 -3.25

1-Year 46.06 18.693-Year -- 32.075-Year -- 45.58

The fund has been performing well in its segment and has provided a competitive

environment for the other funds in the same category. The returns from the fund have

been increasing over the years. One-year return of the fund is about 46% which makes it

one of the top performers within the diversified category. The proceeds of the Sensex,

Nifty and the category are less than the return offered by the fund.

Risk Mean 1.4 Treynor 1.57Standard Deviation 3.63 Sortino 0.58



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Sharpe 0.36 Correlation 0.84Beta 0.83 Fama 0.48

The riskiness of the fund is similar to that of the equity market because the beta value of

the firm is close to 1 which means that the fund follows the trend prevailing in the

market. The different ratios are positive which means that the fund has less risk and the

fund is more likely to be preferred by the investors.

NAV (Net Asset Value) Column1Latest Nav 22.76 - 5/12/2008Benchmark Index - BSE200 8850 - 5/9/200852 - Week High 31.97 - 1/4/200852 - Week Low 15.97 - 5/16/2007

Similarly like the other funds the NAV of the fund was increasing till Jan 2008 but there

after with fall in the market i.e. with the bearish trend in the market the funds NAV has

also fallen down. From the chart we can make out that the affect of the bench mark

index on the performance of the fund. But now it is more likely to have bullish run as

the effect of it will be reflected with increase in the returns for the investors.



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Mutual Fund 52

Portfolio Characteristic As on 30/04/08

Avg Mkt. Cap (Rs Cr) 8,568.83Market Capitalization % of PortfolioLarge 33.02Mid 39.92Small 27,06

Unlike other funds the combination or the mix of the segments by the fund managers is

being of high quality. The fund manager trust the companies as the investors will be

benefited with the outstanding performance. The investment in the large cap , mid cap

and small cap has been extraordinary and the amount invested by the fund managers

had provided better combination as the distribution of the market cap had made the

fund a diversified I different sector.

Top 10 Holdings


Pratibha Industries ltd. Oil & Gas, Petroleum Refinery 6.86

SBI Bank 4.25


Tata Steel Steel 3.41

Divis Laboratories Ltd. Chemical 0.36

Maruti Udyog ltd. Automobiles 3.32

Radico - Khaitan Ltd. Energy & Electrical 3.32

Reliance Energy Ltd. Energy & Electrical 3.24

Bharat Electronics Ltd. Energy & Electrical 3.16

The investment of the fund in the selected companies had made it one of the best

performing funds. Being the flagship company of the Reliance Group, the fund have

key advantages over the other funds. Investment in the diversified companies had

resulted in the better returns for the investors. As many of the top rated funds have a



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Mutual Fund 53

prime investment in the Reliance Industries so as the fund had managed to do the same

as the fund is the scheme of the sister company of the Reliance Industries. Other

companies had also performed well over the years which had benefited the fund to

provide high returns to the investors.

Sector Weightings

As on 30/04/08 % Net Assets

Energy 13.39

Construction 11.55

Technology 9.80

Financial Services 9.44

Basic/Engineering 8.14

Services 4.88

Chemicals 4.26

Textiles 3.32

Health Care 3.26

Automobile 3.22

Consumer Non-Durable 3.21

Diversified 1.86

Metals & Metal Products 1.37



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Mutual Fund 54

Energy sector was chosen over the other sectors by the fund managers by investing in

some of the big companies like the Reliance Energy, BHEL, BEL etc. had made the

portfolio of the fund strong enough to provide high returns to the investors. The other

sectors like the Metal, Chemical, and Technology have also performed well which had

resulted in the overall performance of the fund.


The fund being the flagship of the Reliance Group, one of the biggest corporate houses

in India has an X-factor with it. The fund is anticipated to continue high returns in the

future as the market started gearing up. The environment for the fund is supportive

and had benefited the fund performance.

D B S C H O L A O P P O R T U N I T Y F U N D :

Trailing Returns Column2 Column3 Column4 Column2As on 13/05/08 Fund Return S &P Nifty Sensex Category ReturnYear-to-Date -25.01 -18.34 -16.89 -24.661-Week -3.49 -3.46 -3.6 -3.981-Month 4.07 4.92 6.66 5.373-Month -3.25 3.6 1.52 -7.591-Year 18.69 22.96 22.21 19.672-Year 10.99 17.19 17.15 10.63-Year 32.07 35.99 37.71 32.475-Year 45.58 39.88 41.78 46.21

DBS being the one of the best performing in the recent time had made its impact on

funds in the category. Though the fund didnt started well as the market was fluctuating

in nature and had shown down trend at that time, but now the market has smoothen

up and the recent returns from the fund has been outperforming the other mutual fund.

The returns from the fund are higher than that of the Nifty, Sensex and the category the



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Mutual Fund 55

fund belongs to. In the long run it is expected that the returns from the funds will be

higher than what it is currently are.

RiskMean 1.33 Treynor 1.28Standard Deviation 3.71 Sortino 0.55Sharpe 0.33 Correlation 0.95Beta 0.96 Fama 0.39

Risks provided by these mutual funds are more or less similar to that of the risk

prevailing in the equities. The fund have manage to have low risk and higher return

which attracts the fund manager to put in the money in these funds and have higher

returns for the investors. Beta value of the fund is close to 1 which means that the

market has some serious impact on the fund and in turn fund is reacting to the trend.

The Sharpe Ratio, Fama Ratio, Treynor Ratio all being positive and Treynor ration being

more than 1 has made the mark in the minds of the investor and the fund managers.

NAV (Net Asset Value)Latest Nav 17.63 - 5/13/2008Benchmark Index - BSE200 16753 - 5/13/200852 - Week High 34.58 - 1/4/200852 - Week Low 14.63 - 3/24/2007

NAV of the fund has performed better than that of the other fund. The fund that clearly

pass away the benchmark index BSE200 and the results seem to be good till February.

From the chart we can make out that the fund has pretty similar trend that to off the

benchmark index but later on the fluctuation has increased a lot this is due to the high

volatility in the market which had made the fund a bit slower but the returns had been

good.Institute of Management and Information Science, Bhubaneswar, Karvy Stock Broking Ltd.


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Mutual Fund 56

Portfolio Characteristic As on 30/04/08Avg Mkt. Cap (Rs Cr) 36,887.55Market Capitalization % of PortfolioLarge 38.19Mid 34.75Small 13.28

From the table we can identify that the fund managers have almost equally trusted theLarge and Mid Cap for the investment of the funds collection. Though some small per

cent of money is also invested in small Cap but the returns and earnings of those

companies have been outstanding which had added to the beats to the music of the

performance of the stock. Fund managers make sure that they invest in those stocks

that provide timely returns for the market.

Top 10 Holdings





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Mutual Fund 57

Videocon Leasing & Industrial Finance Ltd. Electrical & Electrical Equipments 2.82

J P Associates Ltd. Construction 2.71

Kotak Mahindra Bank Ltd. Bank 2.53

ICICI Bank Ltd. Bank 2.48

DLF Ltd. Construction 2.4

Reliance Comm. Venture Ltd. Telecom 2.12

Mahindra & Mahindra Ltd. Ancillaries 2.08

Hindustan Construction Co. Ltd. Construction 1.9

Great Offshore Ltd. Shipping 1.86

The fund managers had a great role to play in the performance of the mutual fund. The

right selection of the investment will make the fund more attractive and becomes an eye

catcher for investor. Reliance Industries is one of the favourite pick for any fund and

DBS too had invested 4.27% of its NAV in the company. The returns of the Reliance

Industries are around 25% which had benefited the fund and been able to provide

better returns for the investors. The other companies had also provided with good

returns which had a immensely supported the fund in providing good returns.

When we take a glance at the sectors the fund has invested, we find some interesting

facts. More than 20 % of the NAV has been invested in the Construction sector which

we rarely find, as maximum fund managers invest in Oil & petroleum or Steel sector

but here the scenario is different as the investment in these sectors is even less than 10

per cent of the total investment. Many of the financial service providing companieshave been selected by the mangers for the better returns and the banks in particular

have been the sector of choice for the fund. Nearly 10 per cent is invested in the Energy



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Mutual Fund 58

sector which is a booming sector as the crude oil prices are at its heights. Overall the

selection of the sectors and the companies in them has been good for the fund managers

and it will contribute to provide high returns.


Since the funds investment areas are superior and the returns are of high quality the

fund is expected to continue the returns that it is providing. The sectors such as the

construction, energy and the banks which are currently rated high had been the prime

areas of the investment for the fund. The

company profile and body

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