“comparative analysis of mutual funds”
TRANSCRIPT
Project Report on
“COMPARATIVE ANALYSIS OF MUTUAL FUNDS”
AT
BIRLA SUNLIFE AMC,
A. RAVIKANTH
09806131
Project submitted in partial fulfillment for the award of the degree of
MASTERS OF BUSINESS ADMINISTRATION
BY
ST.PAUL’S P.G COLLEGE
(Affiliated to Osmania University)
TURKYAMJAL
HYDERABAD-500007.
1
DECLARATION
I hereby declare that this project report titled “COMPARATIVE ANALYSIS OF MUTUAL
FUNDS”, AT BIRLA SUNLIFE AMC submitted by me to the department of ST. PAUL’S
POST GRADUATE COLLEGE is a bonofied student work undertaken by me and it is not
submitted to any other university or institution for the award of any degree diploma/certificate or
published any time before.
NAME & ADDRESS OF THE STUDENT SIGNATURE OF THE STUDENT
PALCE:DATE:
ACKNOWLEDGEMENT
2
At the very outset, I would like to place my sincere thanks to Mr. MUKUL GUPTA
(Managing Director) to permit me to undertake this project entitled “COMPARATIVE
ANALYSIS OF MUTUAL FUNDS”, AT BIRLA SUNLIFE AMC ”. I would like to
express my deep gratitude to SREEDHAR.K (BIRLA SUNLIFE AMC, H.R), who helped
me to get all the information needed to fulfill this project.
I also would like to take this opportunity to profusely thanks our Mrs. UMARANI,
H.O.D of the M.B.A stream and Mr. VISWNATH SHARMA (ASSISTANT PROFESSOR),
and I am very grateful for the guidance through out the project.
Above all I would like to express my deep felt gratitude to my parents, my brother and
friends for their blessings without which this task would have been impossible.
A. RAVIKANTH
3
TABLE OF CONTENTS.
CONTENTS PAGE NUMBERS
1. INTRODUCTION. 2 – 10
2. INDUSTRYPROFILE 11 – 41
3. THE COMPANY PROFILE 42 – 45
4. REVIEW OF LITERARURE 46 - 48
5. DATA ANALYSIS AND INTERPRETATION. 49 – 63
6 SUMMARY AND FINDINGS.
67
7 SUGGESTIONS AND RECOMMENDATIONS. 68
8. CONCLUSION 69
9. BIBILIOGRAPHY 70
INTRODUCTION
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A Mutual Fund is a trust that pools the savings of a number of investors who share a common
financial goal. The money thus collected is invested by the fund manager in different types of
securities depending upon the objective of the scheme. These could range from shares to
debentures to money market instruments. The income earned through these investments and
the capital appreciations realized by the scheme are shared by its unit holders in proportion to
the number of units owned by them (pro rata). 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 portfolio at a relatively low cost. Anybody with an investible surplus
of as little as a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has
a defined investment objective and strategy.
A mutual fund is the ideal investment vehicle for today’s complex and modern financial
scenario. Markets for equity shares, bonds and other fixed income instruments, real estate,
derivatives and other assets have become mature and information driven. Price changes in
these assets are driven by global events occurring in faraway places. A typical individual is
unlikely to have the knowledge, skills, inclination and time to keep track of events, understand
their implications and act speedily. An individual also finds it difficult to keep track of
ownership of his assets, investments, brokerage dues and bank transactions etc.
A mutual fund is the answer to all these situations. It appoints professionally qualified and
experienced staff that manages each of these functions on a full time basis. The large pool of
money collected in the fund allows it to hire such staff at a very low cost to each investor. In
effect, the mutual fund vehicle exploits economies of scale in all three areas – research,
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investments and transaction processing. While the concept of individuals coming together to
invest money collectively is not new, the mutual fund in its present form is a 20 th century
phenomenon. In fact, mutual funds gained popularity only after the Second World War.
Globally, there are thousands of firms offering tens of thousands of mutual funds with different
investment objectives.
The term Asset Management can be defined as a planned program of investing and protecting
an individual's or a company's financial assets with the goal of at least increasing them. Many
banks and other financial institutions have set up asset management services that specialize to
some degree in various styles of asset management. In general, most asset management
services try to find a happy medium between aggressive investing (which can be risky) and
conservative investing (which emphasizes safety). If the client is an individual or a family, the
age of the prime investor usually determines what style of investing is right for them. Younger
investors aim for high asset growth, while older investors shift towards security and a lower
rate of asset growth. There are a number of niche asset management firms that appeal to certain
constituencies and personal preferences of their investors. They may advertise their services as
being focused on political issues, environmental issues, or specific themes such as not
investing in tobacco companies. Other companies seek to invest for growth, but to also make a
positive social impact.
Some examples of socially relevant investments are low-cost housing developments,
alternative fuel projects like windmill farms, and "green" waste management initiatives. There
are some asset management firms that strictly focus on high growth, high risk investments such
as emerging market stocks, options and commodities trading, and junk bonds. Although risky
investing sometimes pays off handsomely, just as often it can result in financial disaster. A
good financial adviser will make you aware of each investment styles' benefits and pitfalls.
6
Typical asset management companies utilize a basic set of resources to achieve success for
their investors:
Investment Services - These are the planned programs that seek to balance growth with risk.
These programs usually combine various types of investments such as stocks, bonds, and
precious metals.
Research - Asset management companies employ an array of researchers and consultants who
concentrate on individual market sectors and try to forecast how each sector will perform in the
short, mid, and long terms.
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STRUCTURE OF MUTUAL FUNDS
There are many entities involved in the mutual funds organization. The structure is explained
below. It mainly comprises the following
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Three key players namely Sponsor, Trust and Asset Management Company are involved in
setting up a mutual fund. They are assisted by other independent administrative entities like
banks, registrars transfer agents and custodians.
Typically, a mutual fund scheme is initiated by a Sponsor, which organizes and markets the
fund. It pre specifies the investment objectives of the fund, the risks associated, the costs
involved in the process and the broad rules for entry into and exit from the fund and other areas
of operation. In India, as in most countries these sponsors need approval from the regulator
viz, SEBI (Securities Exchange Board of India), SEBI looks at track record of the sponsor
and its financial strength.
Sponsor:
Sponsor means any person who acting alone or with another body corporate establishes a
mutual fund. The sponsor of a fund is similar to the promoter of a company as he gets the fund
registered with SEBI. SEBI will register the mutual fund if the sponsor fulfills the following
criteria.
The sponsor should have a sound track record and general reputation of fairness and
integrity in all his business transactions. This means that the sponsor should have been
doing business in financial services worth of the immediately preceding year should be
more than the capital contribution of the sponsor in AMC and the sponsor should show
profits after providing depreciation, interest and tax for three out of the immediately
preceding five years.
The sponsor and any of the directors or principal officers to be employed by the mutual
fund, should not have been found guilty of fraud or convicted of an offence involving
moral turpitude or guilty of economic offences.
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The sponsor forms a trust and appoints a Board of Trustees. He also appoints an Asset
Management Company as fund managers. The sponsor, either directly or acting through
the Trustees also appoints a custodian to hold the fund assets. The sponsor is required to
contribute at least 40 per cent of the minimum net worth of the asset management
company.
Trusts:
A mutual fund in India is constituted in the form of a public Trust created under the Indian
Trust Act, 1882. The sponsor forms the Trust and registers it with SEBI. The fund sponsor
acts as the settler of the Trust, contributing to its initial capital and appoints as trustee to
hold the assets of the Trust for the benefit of the unit holders, who are the beneficiaries of
the trust. The fund then invites investors to contribute their money in the common pool, by
subscribing to ‘units’ issued by various schemes established by the Trust as evidence of
their beneficial interest in the fund. Thus, a mutual fund is just a ‘pass through’ vehicle.
Most of the funds in India are managed by the Board of Trustees, which is an independent
body and acts as protector of the unit holders’ interests. At least, 50 per cent of the trustees
shall be independent trustees (who are not associated with an associate, subsidiary or
sponsor in any manner). The trustees shall be accountable for and be the custodian of
funds/property of respective scheme.
Asset Management Company
The trustees appoint the Asset Management Company with the prior approval of SEBI.
The AMC is a corny formed and registered under the Companies Act, 1956, to manage the
affairs of the mutual fund and operate the schemes of such mutual funds. It charges a fee
for the services it renders to the mutual fund trust. It acts as the investment manager to the
Trust under the supervision and direction of the trustees. The AMC, in the name of he
Trust, floats and then manages the different investment schemes as per SEBI regulations
and the Trust Deed. The AMC should be registered with SEBI. The AMC of a mutual
fund must have a net worth of at least Rs. 10 Crore at all times and this net worth should be
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in the form of cash. It cannot act as a trustee of any other mutual fund. It is required to
disclose the scheme particulars and base of calculation of NAV. It can undertake specific
activities such as advisory services and financial consultancy. It must submit quarterly
reports to the mutual fund. The trustees are empowered to terminate the appointment of the
AMC and may appoint a new AMC with the prior approval of the SEBI and unit-holders.
At least 50 per cent of the directors of the board of directors of AMC should not be
associated with the sponsor or its subsidiaries or the trustees.
Custodian
The AMC has to hire an outside custodian, which is responsible for the custody of the
assets of the fund. The custodian is also responsible for the receipt of all kinds of cash and
non-cash benefits such as bonus, dividends, rights, etc. The custodian is usually a bank or
any other financially sound institutions.
Transfer Agent
AMC’s also hire a registry and transfer agent which takes care of purchase and sale of the
units of the fund, issues certificates/account statements to investors, issues redemption
checks, maintains the register of members, makes dividend payments and handles investor
related services like change of address, replacement of lost unit certificates etc.
Obligations of an AMC:
The AMC shall take all the reasonable steps and exercise due diligence to ensure
that any scheme is not contrary to the Trust deed and provisions of investment of
funds pertaining to any scheme is not contrary to the provisions of the regulations
and Trust deed.
The AMC shall exercise due diligence and care in all its investment decisions. The
AMC shall be responsible for the acts of commission or commissions by its
employees or the persons whose services have been procured.
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An AMC shall submit to the trustee’s quarterly reports.
The trustees at the request of an AMC can terminate the assignments of the AMC.
An AMC shall not deal in securities through any broker associated with a sponsor
or a firm which is an associate of sponsor beyond 5 per cent of the daily gross
business of the mutual fund.
No AMC shall utilize services of the sponsor or any of its associates, employees, or
their relatives for the purpose of any securities transaction and distribution and sale
of securities, unless disclosure is made to the unit-holders and
brokerage/commission paid is disclosed in half-yearly accounts of the mutual fund.
No person, who has been found guilty of any economic offence or involved in
violation of securities law, should be appointed as key personnel.
The AMC shall abide by his code of conduct specified in the fifth schedule.
The registrars and share transfer agents to be appointed by AMC are to be
registered with SEBI.
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MUTUAL FUND INVESTORS.
Mutual funds in India are open to investment by
(a) Residents including
Resident Indians Individuals, including high net worth individuals and the retail or
small investors
Indian Trusts/Charitable Institutions
Banks
Non-Banking Finance Companies
Insurance Companies
Provident Fund
(b) Non-residents, including
Non-resident Indians
Other Corporate Bodies (OCBs)
(c) Foreign Entities, namely, Foreign Institutional Investors (FIIs) registered with
SEBI. Foreign citizens/entities are however not allowed to invest in mutual funds
in India.
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INDUSTRY PROFILE
HISTORY OF MUTUAL FUNDS IN INDIA
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. 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 Can bank 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.
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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 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.
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The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is
registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of
the erstwhile UTI which had in March 2000 more than Rs.76, 000 crores of assets under
management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual
Fund Regulations, and with recent mergers taking place among different private sector funds,
the mutual fund industry has entered its current phase of consolidation and growth. As at the
end of June, 2006 there were 30 funds, which manage assets of Rs.2, 17,471.82 crores under
428 schemes.
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ASSETS UNDER MANAGEMENT
Mutual Fund Name AUM
(As on 30.06.2006)ABN AMRO Mutual Fund 3850.01
Benchmark Mutual Fund 1341.83
Birla Sunlife Mutual Fund 15883.65
BOB Mutual Fund 230.16
Can bank Mutual Fund 3036.37
Chola Mutual Fund 2411.90
Deutsche Mutual Fund 6515.55
DSP Merrill Lynch Mutual Fund 9142.42
Fidelity Mutual Fund 4756.88
Franklin Templeton Mutual Fund 22870.90
HDFC Mutual Fund 25695.00
HSBC Mutual Fund 11212.43
ING Vysya Mutual Fund 4760.84
JM Financial Mutual Fund 3818.49
Kotak Mahindra Mutual Fund 13011.43
LIC Mutual Fund 9786.97
Principal Mutual Fund 11841.52
Prudential ICICI Mutual Fund 31431.52
Reliance Mutual Fund 26218.79
SBI Mutual Fund 14078.76
Standard Chartered Mutual Fund 113446.10
TATA Mutual Fund 12341.92
UTI Mutual Fund 30958.05
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RECENT TRENDS IN MUTUAL FUND INDUSTRY
The most important trend in the mutual fund industry is the aggressive expansion of the foreign
owned mutual fund companies and the decline of the companies floated by nationalized banks
and smaller private sector players.
Many nationalized banks got into the mutual fund business in the early nineties and got off to a
good start due to the stock market boom prevailing then. These banks did not really understand
the mutual fund business and they just viewed it as another kind of banking activity. Few hired
specialized staff and generally chose to transfer staff from the parent organizations. The
performance of most of the schemes floated by these funds was not good. Some schemes had
offered guaranteed returns and their parent organizations had to bail out these AMCs by paying
large amounts of money as the difference between the guaranteed and actual returns. The
service levels were also very bad. Most of these AMCs have not been able to retain staff, float
new schemes etc. and it is doubtful whether, barring a few exceptions, they have serious plans
of continuing the activity in a major way.
The experience of some of the AMCs floated by private sector Indian companies was also very
similar. They quickly realized that the AMC business is a business, which makes money in the
long term and requires deep-pocketed support in the intermediate years. Some have sold out to
foreign owned companies, some have merged with others and there is general restructuring
going on.
The foreign owned companies have deep pockets and have come in here with the expectation
of a long haul. They can be credited with introducing many new practices such as new product
innovation, sharp improvement in service standards and disclosure, usage of technology,
broker education and support etc. In fact, they have forced the industry to upgrade itself and
service levels of organizations like UTI have improved dramatically in the last few years in
response to the competition provided by these.
Mutual fund schemes may be classified on the basis of its structure and its investment
objective.
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Types of Mutual Fund Schemes:
The objectives of mutual funds are to provide continuous liquidity and higher yields with high
degree of safety to investors. Based on these objectives, different types of mutual fund
schemes have evolved.
Functional Portfolio Geographical Other
Open-ended Scheme
Close-ended Scheme
Interval Scheme
Income Funds
Growth Funds
Balanced Funds
Money Market Mutual Funds
Domestic
Off-shore
Sectoral Specific
Tax Saving
ELSS
Special
Gilt Funds
Load funds
Index Funds
ETFs
P/E Ratio Funds
Functional Classification of Mutual Funds
1. Open-Ended Scheme: In case of open-ended schemes, the mutual fund continuously
offers to sell and repurchase its units at Net Asset Value (NAV) or NAV-related prices.
Unlike close-ended schemes, open-ended ones do not have to be listed on the stock
exchange and can also offer repurchase soon after allotment. Investors can enter and exit
the scheme any time during the life of the fund.
Open-ended schemes do not have a fixed corpus. The corpus of fund increase or decreases,
depending on the purchase or redemption of units by investors.
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There is no fixed redemption period in open-ended schemes, which can be terminated
whenever the need arises. The fund offers a redemption price at which the holder can sell
units to the fund and exit. Besides, an investor can enter the fund again by buying units
from the fund at its offer price. Such funds announce sale and repurchase prices from time-
to-time.
The key feature of these is liquidity. They increase liquidity of the investors as the units
can be continuously bought and sold. The investors can develop their income or saving
plan due to free entry and exit frame of funds. Open-ended schemes usually come as a
family of schemes which enable the investors to switch over from one scheme to another of
same family.
2. Close-ended schemes: Close-ended schemes have a fixed corpus and a stipulated maturity
period ranging between 2 to 5 years. Investors can invest in the scheme when it is
launched. The scheme remains open for a period not exceeding 45 days. Investors in
close-ended schemes can buy units only from the market, once initial subscription are over
and thereafter the units are listed on the stock exchanges where they can be bought and
sold. The fund has no interaction with investors till redemption except for paying
dividend/bonus. In order to provide an alternate 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. If an investor sells units directly to the fund, he cannot
enter the fund again, as units bought back by the fund cannot be reissued. The close-ended
scheme can be converted into an open-ended one. The units can be rolled over by the
passing of a resolution by a majority of the unit-holders.
3. Interval Scheme: Interval scheme combines the features of open-ended and close-ended
schemes. They are open for sale or redemption during predetermined intervals at NAV-
related prices.
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Portfolio Classification:
Here, classification is on the basis of nature and types of securities and objective of investment.
1. Income Funds: The aim of income funds is to provide safety of investments and regular
income to investors. Such schemes invest predominantly in income-bearing instruments
like bonds, debentures, government securities, and commercial paper. The returns as well
as the risk are lower in income funds as compared to growth funds.
2. Growth Funds: The main objective of growth funds is capital appreciation over the
medium to long term. They invest most of the corpus in equity shares with significant
growth potential and they offer higher return to investors in the long-term. They assume
the risks associated with equity investments. There is not guarantee or assurance of
returns. These schemes are usually close-ended and listed on stock exchanges.
3. Balanced Funds: The aim of balanced scheme is to provide both capital appreciation and
regular income. They divide their investment between equity shares and fixed nice-bearing
instruments in such a proportion that the portfolio is balanced. The portfolio of such funds
usually comprises of companies with good profit and dividend track record. Their
exposure to risk is moderate and they offer a reasonable rate of return.
4. Money Market Mutual Funds: They specialize in investing in short-term money market
instruments like treasury bills, and certificate of deposits. The objective of such funds is
high liquidity with low rate of return.
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Geographical Classification
1. Domestic Funds: Funds which mobilize resources from a particular geographical locality
like a country or region are domestic funds. The market is limited and confined to the
boundaries of a nation in which the fund operates. They can invest only in the securities
which are issued and traded in the domestic financial market.
2. Offshore Funds: Offshore funds attract foreign capital for investment in the country of the
issuing company. They facilitate cross-border fund flow which leads to an increase in
foreign currency and foreign exchange reserves. Such mutual funds can invest in securities
in securities of foreign companies. They open domestic capital market to international
investors. Many mutual funds in India have launched a number of offshore funds, either
independently or jointly with foreign investment management companies. The first
offshore fund, the India Fund, was launched by the Unit Trust of India in July 1986 in
collaboration with the US fund manager, Merrill Lynch.
Others
1. Sectoral: The funds invest in specific core sectors like energy, telecommunications, IT,
Construction, transportation, and financial services. Some of these newly opened-up
sectors offer good investment potential.
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2. Tax Saving Schemes: Tax-saving schemes are designed on the basis of tax policy with
special tax incentives to investors. Mutual funds have introduced a number of tax-saving
schemes. These are close-ended schemes and investments are made for ten years, although
investors can avail of encashment facilities after 3 years. These schemes contain various
options like income, growth or capital appreciation. The latest scheme offered is the
Systematic Withdrawal Plan (SWP) which enables investors to reduce their tax incidence
on dividends from as high as 30 per cent to as low as 3 to 4 per cent.
3. Equity Linked Saving Scheme (ELSS): In order to encourage investors to invest in equity
market, the government has given tax-concessions through special schemes. Investment in
these schemes entitles the investor to claim an income tax rebate, but these schemes carry a
lock-in period before the end of which funds cannot be withdrawn.
4. Special Schemes: Mutual funds have launched special schemes to cater to the special
needs of investors. UTI has launched such as Children’s Gift Growth Fund, 1986, Housing
Unit Scheme 1992, and Venture Capital Funds.
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5. Gift Funds: Mutual funds which deal exclusively in gilts are called gilt funds. With a
view to creating a wider investor base for government securities, the Reserve Bank of India
encouraged setting up of gilt funds. These funds are provided liquidity support by the
Reserve Bank.
6. Load Funds: Mutual funds incur certain expenses such as brokerage, marketing expenses,
and communication expenses. These expenses are known as ‘load’ and are recovered by
the fund when it sells the units to investors or repurchases the units from withholders. In
other words, load is a sales charge, or commission, assessed by certain mutual funds to
cover their selling costs.
7. Index Funds: An index fund is a mutual fund which invests in securities in the index on
which it is based BSE Sensex or S&P Nifty. It invests only in those shares which comprise
the market index and in exactly the same proportion as the companies/weight age in the
index so that the value of such index funds varies with the market index. An index fund
follows a passive investment strategy as no effort is made by the fund manager to identify
stocks for investment/disinvestment. The fund manager has to merely track the index on
which it is based. His portfolio will need an adjustment in case there is a revision in the
underlying index. In other words, the fund manager has to buy stocks which are added to
the index and sell stocks which are deleted from the index.
P/E Ratio Fund: P/E Ratio fund is another mutual fund variant that is offered by Pioneed
ITI Mutual Fund. The P/E (Price-Earning) ratio is the ratio of the price of the stock of a
24
company to its earnings per share (EPS). The P/E ratio of the index is the weighted
average price-earnings ratio of all its constituent stocks.
8. Exchange traded Funds: Exchange Traded Funds (ETFs) are a hybrid of open-ended
mutual funds and listed individual stocks. They are listed on stock exchanges and trade
like individual stocks on the stock exchange. However, trading at the stock exchanges does
not affect their portfolio. ETFs do not sell their shares directly to investors for cash. The
shares are offered to investors over the stock exchange. ETFs are basically passively
managed funds that track a particular index such as S&P CNX Nifty.
Since they are listed on stock exchanges, it is possible to by and sells them throughout the
day and their price is determined by the demand-supply forces in the market. In practice,
they trade in a small range around the value of the assets (NAV) held by them.
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NET ASSET VALUE (NAV)
The net asset value of the fund is the cumulative market value of the assets fund net of its
liabilities. In other words, if the fund is dissolved or liquidated, by selling off all the assets in
the fund, this is the amount that the shareholders would collectively own. This gives rise to the
concept of net asset value per unit, which is the value, represented by the ownership of one unit
in the fund. It is calculated simply by dividing the net asset value of the fund by the number of
units. However, most people refer loosely to the NAV per unit as NAV, ignoring the “per
unit”. We also abide by the same convention.
Calculation of NAV
The most important part of the calculation is the valuation of the assets owned by the fund.
Once it is calculated, the NAV is simply the net value of assets divided by the number of units
outstanding. The detailed methodology for the calculation of the asset value is given below.
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Market or Fair Value of Sachem’s / Plan(s) investments (+) Current Assets.
(-) current Liabilities and ProvisionsNAV = --------------------------------------------------------------------------------
No. of Units outstanding under Scheme / Plan(s)
For liquid shares/debentures, valuation is done on the basis of the last or closing market price
on the principal exchange where the security is traded
For illiquid and unlisted and/or thinly traded shares/debentures, the value has to be estimated.
For shares, this could be the book value per share or an estimated market price if suitable
benchmarks are available. For debentures and bonds, value is estimated on the basis of yields
of comparable liquid securities after adjusting for illiquidity. The value of fixed interest
bearing securities moves in a direction opposite to interest rate changes Valuation of
debentures and bonds is a big problem since most of them are unlisted and thinly traded. This
gives considerable leeway to the AMCs on valuation and some of the AMCs are believed to
take advantage of this and adopt flexible valuation policies depending on the situation.
Interest is payable on debentures/bonds on a periodic basis say every 6 months. But, with every
passing day, interest is said to be accrued, at the daily interest rate, which is calculated by
dividing the periodic interest payment with the number of days in each period. Thus, accrued
interest on a particular day is equal to the daily interest rate multiplied by the number of days
since the last interest payment date.
Usually, dividends are proposed at the time of the Annual General meeting and become due on
the record date. There is a gap between the dates on which it becomes due and the actual
payment date. In the intermediate period, it is deemed to be “accrued”.
Expenses including management fees, custody charges etc. are calculated on a daily basis.
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COSTS INVOLVED IN MUTUAL FUNDS
An investor must know that there are certain costs involved while investing in mutual funds.
Mutual funds costs can be classified into 2 broad categories.
Operating expenses – which are paid out of the funds earnings and Sales charges – that are
directly deducted from your investment. It is not compulsory that every Mutual funds levy
sales charges but they certainly have operating expenses. No doubt they influence returns on
investment in a fund.
Operating Expenses:
These referred to cost incurred to operate a Mutual fund. Advisory fees paid to investment
managers, Audit fees to chartered accountant, custodial fees, register and transfer agent fees,
trustee fee, agent commission. Operating expenses also known as expenses ratio, which is
annual expenses, expressed as a percentage of the funds average daily net assets mutual funds.
The break up of these expenses is required to be reported in the schemes offer document or
prospectus.
Operating expenses
Expenses Ratio = ------------------------
Average Net Assets
For instant, if funds Rs. 100 crores and expenses 20 Lakhs. Then the expenses ratio is 2%,
expenses ratio is available in the offer document and from historical per unit statistics included
in the financial results of the fund, which are published by annually. Un-audited for the half
year ending September 30 and audited for the physically year end I march 30.
28
Depending upon scheme and net asset, operating expense are determined by limits mandated
by SEBI Mutual funds regulation Act. Any excess over specified limits as to be born by Asset
Management Company, the trustees or sponsors.
Sale Charges:
There are known commonly sales loads, these are charged directly to investor. Sales loads are
used by mutual fund for the payment of agent’s commission, distribution and marketing
expenses. These charges have no effect on the performance of the scheme. Sales loads are
usually expression percentage and or of two types front-end and back-end.
Front-End Load:
It is a one time fixed fee paid by an investor when buying a Mutual funds scheme. It
determines public offer price which intern decides how much of your initial investment
actually get invested the standard practice of arriving a public offer price is as follows.
Net Asset Value
Public offer price = ------------------------
(1 – Front-end load)
Let us assume, An investor invests Rs. 10,000 in a scheme that charges a 2% front end load at
a NAV per unit Rs. 10 using the formula public offer price = 10/(1-0.02) is Rs. 10.20. So only
980 units are allotted to the investor
Amount invested
Number of units allotted = -------------------------
Public Offer Price
10,000/10.20 = 980 units at a NAV of Rs. 10
29
This means units worth 980 are allotted to him an initial investment of Rs. 10,000. Front-end
loads tend to decrease as initial investment amount increase.
Back-End Load:
May be a fixed fee redemption or a contingent deferred sales charges – A redemption load
continues so long as the redeeming or selling of the units of the units of a fund does not take
place in the event of a back end load is applied. The redemption price is arrive are using
following formula.
Net Asset Value
Redemption price = --------------------------
(1 + back end load)
Let us assume an investor redeems units valued at Rs. 10,000 in a scheme that charges a 2%
back end load at a NAV per units of Rs. 10 using the formula redemption price 10/(1 + 0.02) =
Rs. 9.80. So, what the investor gets in hand is 9800 (9.8 x 1000).
Contingent Deferred Sales Charges (CDSC):
Contingent deferred sales charges are a structured back end load. It is paid when the units are
redeemed during the initial years of ownership. It is for a pre-determined period only and
reduced over the time you invested for a fund. The longer the investor remains in a fund the
lower the CDSC.
The SEBI (Mutual fund regulation 1996) stipulate that a CDSC may be charge only for first 4
years after purchase of units and also stipulate the maximum CDSC that can we charge every
year. The SEBI mutual funds regulation 1996 do not allow either the front end load or back
end load to any combination is higher than 7%.
Transaction Cost:
Some funds may also impose a switch over fee which is a charge on transfer of investment
from one scheme to another with in a same mutual funds family and also to switch from one
plan (short term) to another (long term) within same scheme.
30
MEASURES OF RETURNS IN MUTUAL FUNDS
Returns on the mutual funds are measured using the following parameters.
1. Beta
2. Sharpe Ratio
3. Trey nor Ratio
4. Tracking Error
Beta:
This is a popular measure of the extent to which the fund returns are impacted by the market
factors. Returns from the fund and expected to be linearly related to the returns from the
underlying market. A fund with a higher Beta is more risky then one with lower beta.
Sharpe Ratio:
Sharpe ratio is sued in ranking the funds based on the comparison of the excess return per unit
of risk, risk being measured by the standard deviation. Excess return is defined as the actual
return of the fund less the risk free rate. The return on the 90-day Treasury bill is taken as the
risk free rate.
Trey nor Ratio:
The neither Trey nor ratio is similar to the Sharpe ratio. Instead of comp arising the fund’s
risk-adjusted performance to the risk-free return, it compares the fund’s risk-adjusted
performance to the relative index.
Tracking Error:Tracking error is a performance measurement term, which quantifies the extent to which a
mutual fund portfolio’s returns at variance with the underlying benchmark in the case of index
funds this measure is very important. Index funds are supposed to replicate the index and
hence have a minimal tracking error. Index funds are compared and ranked based on their
tracking error.
31
BENEFITS OF MUTUAL FUNDS
Diversification:
Using mutual funds can help investor diversity their portfolio with a minimum investment.
When investing in a single fund, investors are actually investing in numerous securities.
Spreading your investment across a range of securities can help to reduce risk. A stock mutual
fund, for example, invest in many stocks – hundreds or even thousands. This minimizes the
risk attributed to a concentrated position. If a few securities in mutual fund lose value or
become worthless, the loss may be offset by other securities that appreciate in value. Further
diversification can be achieved by investing in multiple funds, which invest in different sectors
or categories. This helps to reduce the risk associated with a specific industry or category.
Diversification may help to reduce risk but will never completely eliminate it. It is possible to
lose all or part of our investment.
32
Professional Management:
Mutual funds are managed and supervised by investment professionals. As per the stated
objectives set forth in the prospectus, along with prevailing market conditions and other
factors, the mutual fund manager will decide to buy or sell securities. This eliminates the
investor of the difficult task of trying to time the market. Furthermore, mutual funds can
eliminate the cost an investor would incur when proper due diligence is given to researching
securities. This cost of managing numerous securities is dispersed among all the investors
according to the amount of shares they own with a fraction of each dollar invested used to
cover the expenses of the fund. What does this mean? Fund managers have more money to
research more securities more in depth than the average investor.
33
Convenience:
With most mutual funds, buying and selling shares, changing distribution options, and
obtaining information can be accomplished conveniently by telephone, by mail, or online.
Although a fund’s shareholder is relieved of the day-to-day tasks involved in researching,
buying and selling securities, an investor will still need to evaluate a mutual fund based on
investment goals and risk tolerance before making a purchase decision. Investors should
always read the prospectus carefully before investing in any mutual fund.
Liquidity:
Mutual fund shares are liquid and orders to buy or sell are placed during market hours.
However, orders are not executed until the close of business when the NAV of the fund can be
determined. Fees or commissions may or may not be applicable. Fees and commissions are
determined by the specific fund and the institution that executes the order.
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.
Transparency:
One gets regular information on the value of their investment in addition to the disclosure on
the specific investments made by ones scheme, the proportion invested in each class of assets
and the fund manager’s investment strategy and outlook.
34
Flexibility:
Through features such as regular investment plans, regular withdrawal plans and dividend
reinvestment plans, one can systematically invest or withdraw funds according to ones needs
and convenience.
Regulations:
All the mutual funds are registered with SEBI and they function under within the provisions of
strict regulation designed to protect the interests of the investor.
Tax Benifts:
Mutual funds investors now enjoy income -tax benefits. Dividends received from mutual fund
debt schemes are tax exempt to the over all limit of Rs9,000 allowed under section 80L of the
Income tax Act.
Equity Research:
Mutual Funds can afford information and data required for investments as they have large
amount of funds and equity research teams available with them.
35
DISADVANTAGES OF MUTUAL FUNDS
Professional Management - Did you notice how we qualified the advantage of
professional management with the word "theoretically"? Many investors debate over
whether or not the so-called professionals are any better than you or I at picking stocks.
Management is by no means infallible, and, even if the fund loses money, the manager still
takes his/her cut. We'll talk about this in detail in a later section.
Costs - Mutual funds don't exist solely to make your life easier--all funds are in it for a
profit. The mutual fund industry is masterful at burying costs under layers of jargon. These
costs are so complicated that in this tutorial we have devoted an entire section to the
subject.
Dilution - It's possible to have too much diversification (this is explained in our article
entitled "Are You Over-Diversified?"). Because funds have small holdings in so many
different companies, high returns from a few investments often don't make much difference
on the overall return. Dilution is also the result of a successful fund getting too big. When
money pours into funds that have had strong success, the manager often has trouble finding
a good investment for all the new money.
Taxes - When making decisions about your money, fund managers don't consider your
personal tax situation. For example, when a fund manager sells a security, a capital-gain
tax is triggered, which affects how profitable the individual is from the sale. It might have
been more advantageous for the individual to defer the capital gains liability.
36
Regulatory Aspects of Mutual Funds
Schemes of a Mutual Fund
T such scheme and a copy of the offer document has been filed with the Boa he asset
management company shall launch no scheme unless the trustees approve rd.
Every mutual fund shall along with the offer document of each scheme pay filing fees.
The offer document shall contain disclosures which are adequate in order to enable the
investors to make informed investment decision including the disclosure on maximum
investments proposed to be made by the scheme in the listed securities of the group
companies of the sponsor
The mutual fund and asset management company shall be liable to refund the application
money to the applicants,-
(i) If the mutual fund fails to receive the minimum subscription amount referred to in
clause (a) of sub-regulation (1);
(ii) If the moneys received from the applicants for units are in excess of subscription as
referred to in clause (b) of sub-regulation (1).
The asset management company shall issue to the applicant whose application has been
accepted, unit certificates or a statement of accounts specifying the number of units allotted
to the applicant as soon as possible but not later than six weeks from the date of closure of
the initial subscription list and or from the date of receipt of the request from the unit
holders in any open ended scheme.
Rules Regarding Advertisement:
The offer document and advertisement materials shall not be misleading or contain any
statement or opinion, which are incorrect or false.
37
Investment Objectives and Valuation Policies:
The price at which the units may be subscribed or sold and the price at which such units
may at any time be repurchased by the mutual fund shall be made available to the
investors.
General Obligations:
Every asset management company for each scheme shall keep and maintain proper books
of accounts, records and documents, for each scheme so as to explain its transactions and to
disclose at any point of time the financial position of each scheme and in particular give a
true and fair view of the state of affairs of the fund and intimate to the Board the place
where such books of accounts, records and documents are maintained.
The financial year for all the schemes shall end as of March 31 of each year.
Every mutual fund shall have the annual statement of accounts audited by an auditor who is
not in any way associated with the auditor of the asset management company.
Procedure for Action In Case Of Default:
On and from the date of the suspension of the certificate or the approval, as the case may
be, the mutual fund, trustees or asset management company, shall cease to carry on any
activity as a mutual fund, trustee or asset management company, during the period of
suspension, and shall be subject to the directions of the Board with regard to any records,
documents, or securities that may be in its custody or control, relating to its activities as
mutual fund, trustees or asset management company.
38
Restrictions on Investments:
A mutual fund scheme shall not invest more than 15% of its NAV in debt instruments
issued by a single issuer, which are rated not below investment grade by a credit rating
agency authorized to carry out such activity under the Act. Such investment limit may be
extended to 20% of the NAV of the scheme with the prior approval of the Board of
Trustees and the Board of asset Management Company.
A mutual fund scheme shall not invest more than 10% of its NAV in unrated debt
instruments issued by a single issuer and the total investment in such instruments shall not
exceed 25% of the NAV of the scheme. All such investments shall be made with the prior
approval of the Board of Trustees and the Board of asset Management Company.
No mutual fund under all its schemes should own more than ten per cent of any company's
paid up capital carrying voting rights.
Such transfers are done at the prevailing market price for quoted instruments on spot basis.
The securities so transferred shall be in conformity with the investment objective of the
scheme to which such transfer has been made.
A scheme may invest in another scheme under the same asset management company or any
other mutual fund without charging any fees, provided that aggregate inter scheme
investment made by all schemes under the same management or in schemes under the
management of any other asset management company shall not exceed 5% of the net asset
value of the mutual fund.
The initial issue expenses in respect of any scheme may not exceed six per cent of the
funds raised under that scheme.
Every mutual fund shall buy and sell securities on the basis of deliveries and shall in all
cases of purchases, take delivery of relative securities and in all cases of sale, deliver the
securities and shall in no case put itself in a position whereby it
has to make short sale or carry forward transaction or engage in badla finance.
Every mutual fund shall, get the securities purchased or transferred in the name of the
mutual fund on account of the concerned scheme, wherever investments are intended to be
of long-term nature.
39
Pending deployment of funds of a scheme in securities in terms of investment objectives of
the scheme a mutual fund can invest the funds of the scheme in short term deposits of
scheduled commercial banks.
No mutual fund scheme shall make any investment in;
Any unlisted security of an associate or group company of the sponsor; or
i. Any security issued by way of private placement by an associate or group company of the
sponsor; or
The listed securities of group companies of the sponsor which is in excess of 30% of the
net assets [of all the schemes of a mutual fund]
No mutual fund scheme shall invest more than 10 per cent of its NAV in the equity shares
or equity related instruments of any company. Provided that, the limit of 10 per cent shall
not be applicable for investments in index fund or sector or industry specific scheme.
A mutual fund scheme shall not invest more than 5% of its NAV in the equity shares or
equity related investments in case of open-ended scheme and 10% of its NAV in case of
close-ended scheme.
ASSOCIATION OF MUTUALFUNDS IN INDIA (AMFI) :
The Association of Mutual Funds in India was established in 1993 when all the mutual
funds, except the UTI, came together realizing the need for a common forum for addressing the
issues that affect the mutual fund industry as a whole. The AMFI is dedicated to developing
the Indian mutual fund industry on professional, health and ethical lines and to enhance and
maintain standards in all areas with a view to protecting and promoting the interests of mutual
funds and their unit – holders.
40
Objectives of AMFI:
To define and maintain high professional and ethical standards in all areas of operation of mutual fund industry
To recommend and promote best business practices and code of conduct to be followed by members and others engaged in the activities of mutual fund and asset management including agencies connected or involved in the field of capital markets and financial services.
To interact with the Securities and Exchange Board of India (SEBI) and to represent to SEBI on all matters concerning the mutual fund industry.
To represent to the Government, Reserve Bank of India and other bodies on all matters relating to the Mutual Fund Industry.
To develop a cadre of well trained Agent distributors and to implement programmes of training and certification for all intermediaries and other engaged in the industry.
To undertake nation wide investor awareness programmes so as to promote proper understanding of the concept and working of mutual funds.
To disseminate information on Mutual Fund Industry and to undertake studies and research directly and/or in association with other bodies.
41
COMPANY PROFILE
ABOUT BIRLA SUNLIFE
Birla Sun Life Financial Services
Birla Sun Life Financial Services offers a range of financial services for resident Indians and
Non Resident Indians. Brought together by two large, powerful and reputed business houses,
the Aditya Birla Group and Sun Life Financial, it is our aim to offer diverse and top quality
financial services to customers. The Mutual Fund and Insurance companies provide wealth
management and protection products to customers while the Distribution and Securities
companies provide brokerage and trading services for investment in equities, debt securities,
fixed deposits, etc.
Birla Sun Life Asset Management Company Limited
Birla Sun Life Insurance Company Limited
Birla Sun Life Distribution Company Limited
Birla Sun Life Asset Management Company Limited
A joint venture between Sun Life Assurance Company, the Canada-based financial service
organization and the Indian industrial house of Aditya Birla, this AMC was launched in the
mid-90 s.
Both the partners are well known in all areas that they operate in. While Aditya Birla is a
household name in India and has renowned brands in businesses spread across industries as
wide ranging as Aluminium (Hindalco), Textiles (Grasim), Fertilizers (Indo-Gulf), Finance
(Birla Global Finance Ltd.) and Rayon (India Rayon), Sun Life is a leading financial service
organization in North America. Sun Life provides services related to risk management, money
management and wealth management across globe.
42
Having established itself at Toronto in 1871, it has now spread its wings across Asia Pacific,
U.S.A. and U.K. It also has a significant presence through MFS Investment Management in
U.S. and Spectrum United Mutual Funds in Canada. The major strengths of the group are its
expertise drawn from managing assets over the globe, a big agent network and an ability to
cater to the need of people. Drawing on the expertise of a worldwide staff of over 10,000
people and a network of more than 65,000 agents and distributors, Sun Life is committed to
providing not just products and services, but solutions for clients financial and risk
management needs.
Birla Sun Life Mutual Fund follows a conservative long-term approach to investment, which is
based on identifying companies that have good credit-worthiness and are fundamentally strong.
It places a lot of emphasis on quality of management and risk control. This is done through
extensive analysis that includes factory visits and field research. It has one of the largest team
of research analysts in the industry. The company is one of India's leading, private mutual
funds with a large customer base. It has been recognized nationally with coveted awards.
43
No. of schemes 69No. of schemes including options 155Equity Schemes 35 Debt Schemes 80
Short term debt Schemes 17 Equity & Debt 4Gilt Fund 13 Corpus under managementRs.15018.6181 Crs. as on Mar 31, 2006
Birla Sun Life Insurance Company Limited
Insurance is not about something going wrong. It's often about things going right. One of the
wonders of human nature is that we never believe anything can actually go wrong. Surely, life
has its share of ifs. At Birla Sun Life however, we believe it has its equally pleasant share of
buts as well. We at Birla Sun Life stand committed to helping you realize those happy
moments which make a life. Be it living the same lifestyle in your post retirement days or
providing a secure future for your loved ones, in case something happens to you.
Birla Sun Life Distribution Company Limited
At Birla Sun Life Distribution, we put knowledge, expertise and experience to good use to
preserve, nurture and nourish your wealth. For your today and your tomorrow.
We are a part of the Joint Venture between The Aditya Birla Group and Sun Life Financial of
Canada. The synergy of these two accomplished conglomerates brings you global financial
know-how and local market insight.
It is said that: "To acquire wealth is difficult, to preserve it more difficult, but to nourish it
wisely, the most difficult of all."
Our commitment to excellence along with a roots up approach to research and analysis,
coupled with technology driven processes has enabled us to excel at this challenging task and
in a span of four years emerge as one of the leading distribution houses of the country.
44
REVIEW OF LITERATURE
Need of the study
While selecting the investment avenues, we have to consider the investor needs like available
funds and risk willing to take and expected return from the securities. But he cannot select his
own portfolio and manage on his own. So he needs a portfolio manager to manage his invest
able funds. The mutual funds provide the services of portfolio manager, so we can select the
mutual funds for investments. To know which fund is best for his needs, I have chosen the
comparative performance of selected mutual fund schemes with special reference to Birla
Sunlife Mutual Fund schemes.
45
OBJECTIVES OF THE STUDY
To study the performance of the selected mutual funds and comparing with the Birla
Sunlife Mutual Funds.
To offer the suggestions for investors how to choose best schemes.
To study about the returns pay by the different selected mutual funds.
To offer the suggestions for investors as well as mutual fund companies.
SCOPE OF THE STUDY
The scope of the study is to give clear picture about the comparing and selecting
best mutual fund schemes and to suggest measures to over come the problems.
LIMITATIONS
46
The main limitation of mutual fund is that it takes to invest money. Unfortunately,
most mutual funds receive money when markets are in boom phase and investors are
willing to try out mutual funds. Since it is difficult to invest all funds in one day, there
is some money waiting to be invested. Further, there may be a time lag before
investment opportunities are identified.
Mutual funds, although regulated by the Government, are not insured against losses.
The Federal Deposit Insurance Corporation (FDIC) only insures against certain losses
at banks, credit unions, savings and loans but not mutual funds.
The other limitation of mutual is the trading limitation, where the funds are highly
liquid in general; most mutual funds (called open-ended funds) cannot be bought or
sold in the middle of the trading day. Investor can also buy and sell them at the end of
the day, after they have calculated the current value of their holdings. Absence of
investment focus for an individual investor, gain from a single security is very less
comparatively direct investment by the investor
Absence of investment focus for an individual investor, gain from a single security is very less
comparatively direct investment by the investor
Research Methodology
47
Primary Data:-
It has been collected from industrial guides and other executive form different
Functional areas.
Secondary Data:-
It has been collected from the websites, Company records & Economic Times
news papers.
Tools of Analysis:-
Expected return or mean return and standard deviation are used to analyze the data.
Period of the study:-
The study covers a period of the five years from 2001 to 2005.
48
DATA ANALYSIS & INTERPRETATION COMPARITIVE ANALYSIS STATEMENT
Scheme NameAUM
(Cr)
1 Month
6 Mont
hs
1 Year 2 Year 3 Year Avg
ABN AMRO Cash Fund 1120.7 5.41 % 5.23 % 5.14 % -- -- 5.14
Birla Cash Plus –Growth 7159.2 6.20 % 6.15% 5.81 % 5.32 % 5.03 % 5.38
Chola Liquid Plus 1817.8 6.40 % 6.25% 5.99 % 5.51 % 5.22 % 5.57
HDFC Liquid Fund 2217.9 6.25 % 5.99 % 5.75 % 5.31 % 4.99 % 5.35
HSBC Cash Fund 3796.6 6.03 % 5.87 % 5.60 % 5.23 % 5.06 % 5.29
Kotak Liquid Fund 5994.3 5.78 % 5.69 % 5.39 % 4.97 % 4.78 % 5.04
LIC Liquid Fund 3944.8 6.60 % 6.61 % 6.32 % 5.74% 5.60 % 5.88
Pru ICICI Liquid Plan 14254.8 6.10 % 5.95 % 5.64 % 5.24% 4.97 % 5.28
TATA Liquid Fund 3484.1 6.13 % 5.97 % 5.68 % 5.20 % 5.00 % 5.29
UTI liquid – Cash Plan 4470.1 6.11% 5.90 % 5.79 % 5.42 % 5.15 % 5.45
3.1Table of Income Funds
49
ANALYSIS:
In income funds LIC Liquid Fund performed well as its annualized average
return is 5.88 %. Chola Liquid plus Fund was performing well, It is Second place after LIC
liquid fund, third place is UTI liquid cash plan, and fourth place is Birla Cash Plus Growth.
0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
ABNAMROCashFund
BirlaCash
Plus –Growth
CholaLiquidPlus
HDFCLiquidFund
HSBCCashFund
KotakLiquidFund
LICLiquidFund
PruICICI
LiquidPlan
TATALiquidFund
UTIliquid –CashPlan
1 Month
6 Months
1 Year
2 Year
3 Year
3.1(a) Chart of Income Funds
50
3.2 Table of Growth Funds – Equity Diversified
Scheme NameAUM
(Cr)
1
Month
6 Months
1 Year 2 Year 3 Year 5 Year Avg
Birla Advantage Fund
466.3 0.7%2.14% 41.88% 49.76% 46.71%
34.92% 43.31
Franklin India Growth Fund
-- 3.0% 8.28% 46.03% 48.32% 48.71% 36.61%
44.9
HDFC Equity Fund
2887.4 3.4% 7.15% 56.3% 59.63% 56.42% 48.23%
55.15
HSBC Equity Fund
1063.3 2.9% 4.36% 49.36% 47.96% 60.22% -- 52.51
Principal Growth Fund
74.0 -0.1% 5.42% 40.99% 41.56% 38.58% 30.56%
37.92
Reliance Vision 1719.4 3.4% 9.54% 50.90% 58.02% 57.60% 58.77%
56.32
SBI Magnum Equity Fund
197.7 2.0% 14.24% 53.3% 51.89% 52.88% 32.16% 47.56
Tata Pure Equity Fund
257.0 3.5% 12.85% 49.33% 55.57% 57.81% 38.68% 50.34
UTI Growth 163.9 -0.3% -5.30% 28.87% 36.69% 43.73% 37.94% 36.80
ANALYSIS:
In growth funds, Reliance vision fund is performing well, it occupies first position, next second
place is HDFC equity fund, third position is TATA pure equity fund, fourth position is SBIn
Magnum equity fund, Fifth position is Franklin India Growth fund and Sixth position is Birla
Advantage Fund.
51
-0.1
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
3.2(a) Chart of Growth Funds – Equity Diversified
52
3.3 Table of Balanced funds
Scheme NameAUM
(Cr)
1
Month
6 Months
1 Year 2 Year 3 Year 5 Year Avg
Birla Sunlife’95 Fund
120.18 4.45% 3.97% 29.23% 36.60% 36.77% 28.70% 32.82
DSP ML Balanced Fund
327.72 1.95% 6.96% 36.68% 34.84% 36.54% 28.74% 34.20
Franklin India Balanced fund
206.78-
0.05%
4.23% 29.17% 30.52% 34.22% 27.82% 30.43
HDFC Balanced fund
107.19 1.34% 3.59% 28.33% 31.17% 30.77% 23.63% 28.47
Principal Balanced Fund
34.83-
3.34%
0.59% 26.33% 33.84% 34.95% 24.80% 29.98
Pru ICICI Balanced Fund
408.14 0.87% 5.49% 37.00% 40.24% 37.67% 27.82% 35.68
SBI Magnum Balanced Fund
21.66-
1.13%
8.58% 40.27% 50.74% 38.79% 24.23% 38.51
Tata Balanced Fund
14.23-
0.11%
8.97% 35.54% 41.09% 36.01% 26.81% 33.86
UTI Balanced Fund
524.92 0.64% 3.65% 26.94% 29.30% 29.46% -- 28.56
ANALYSIS:
In Balanced funds SBI Magnum balanced funds is performed well and occupies first position and
second place is Prudential ICICI Balanced funds and third place is DSPML balanced and fourth
place is TATA balanced and fifth place is Birla Sunlife 95 fund.
53
3.3(a) Chart of Balanced funds
-0.1
0
0.1
0.2
0.3
0.4
0.5
0.6
Birla S
unlife
’95
Fund
DSP ML
Balanc
ed F
und
Frank
lin In
dia B
alanc
ed fu
nd
HDFC Bala
nced
fund
Princip
al Bal
ance
d Fun
d
Pru IC
ICI B
alanc
ed F
und
SBI Mag
num
Bala
nced
Fun
d
Tata
Balan
ced
Fund
UTI B
alanc
ed F
und
1 Month
6 Months
1 Year
2 Year
3 Year
5 Year
54
3.4 Tables of Sectoral Specific Funds
Scheme NameAUM
(Cr)
1
Month
6 Months
1 Year 2 Year 3 Year 5 Year Avg
BSL New Millennium Fund
90.13 1.16% 0.8% 36.45% 45.64% 52.66% 29.58% 41.05
DSP ML Technology.com
27.79-
0.25%
-2.8% 36.11% 44.40% 52.69% 34.20% 41.85
Franklin InfoTech
144.61 8.99% 2.4% 36.73% 43.08% 52.37% 25.26% 39.36
Kotak Tech. Fund
46.29 1.57% -2.6% 27.87% 35.75% 44.08% 21.80% 32.37
PruICICI Technology Fund
120.15-
2.23%
-4.9% 27.78% 42.06% 50.41% 26.68% 36.80
SBI Magnum Sector Umbrella
60.89-
0.55%
0.4% 50.12% 50.65% 55.83% 25.35% 45.48
BSE IT 8.93% 1.0% 34.79% 43.53% 51.62% 22.99% 38.73
BSE Teck 7.65% 3.2% 36.50% 43.65% 53.58% 24.30% 39.50
3.4.1 Table of IT Sector Funds
ANALYSIS:
In IT sector funds SBI magnum sector umbrella is performed well against the BSEIT and
also BSE Teck funds. Third place occupies fund is BSL new millennium fund.
55
3.4 (a) Charts of Sectoral Specific Funds
-0.1
0
0.1
0.2
0.3
0.4
0.5
0.6
BSL New
Mille
nnium
Fun
d
DSP ML
Techn
olog
y.com
Frank
lin In
fote
ch
Kotak
Tec
h. F
und
PruIC
ICI T
echn
olog
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d
SBI Mag
num
Sec
tor U
mbr
ella
BSE IT
BSE Tec
k
1 Month
6 Months
1 Year
2 Year
3 Year
5 Year
3.4.1(a) Chart of IT Sector Funds
56
3.4.2 Table of Pharma Sector Funds
Scheme Name
AUM
(Cr)
1
Month
6 Months
1 Year 2 Year 3 Year 5 Year Avg
Franklin Pharma Fund
70.71 -5.95%-10.7% 11.12% 23.17% 29.20% 23.76% 21.81
JM Health Sector Fund
9.59 -4.41% -9.4% 9.76% 20.04% - - 14.9
Reliance Pharma Fund
127.33 -4.87%-12.9% 15.48% 25.80% - - 20.64
UTI GSF – Pharma & Healthcare
85.48 -5.68%-12.4% 6.29% 22.05% 26.29% - 18.21
BSE Health Care
-4.03%-1.45% 10.50% 21.03% -- 18.76% 16.76
ANALYSIS:
In Pharma Sector Funds Franklin Pharma Fund perform well against BSE Health Care and
occupies first position.
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-0.2
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0
0.05
0.1
0.15
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0.25
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0.35
Sch
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care
BS
EH
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3.4.2(a) Chart of Pharma Sector Funds
58
3.4.3 Table of FMCG Sector Funds
Scheme NameAUM
(Cr)
1
Month
6 Months
1 Year 2 Year 3 Year 5 Year Avg
Franklin FMCG Fund
37.74 3.03% 8.89% 47.33% 56.00% 41.46% 26.60% 42.84
Pru ICICI FMCG Fund
113.72-
4.25%
3.15% 54.66% 74.81% 54.74% 31.78% 53.99
BSE FMCG 8.69% 20.03% 55.28% 55.04% - 17.34% 42.55
ANALYSIS:
In FMCG Sector Funds Pru ICICI FMCG Fund perform well against Franklin FMCG Fund
and occupies first position.
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-0.1
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
1 Month 6 Months 1 Year 2 Year 3 Year 5 Year
Franklin FMCG Fund
Pru ICICI FMCG Fund
BSE FMCG
3.5(a) Chart of FMCG Sector
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3.5 Table of ELSS Schemes
Scheme NameAUM
(Cr)
1
Month
6 Months
1 Year 2 Year 3 Year 5 Year Avg
BSL Tax Relief 96 Plan
16.03 6.81% 28.39% 60.41% 34.28% 57.29% 31.99% 45.99
Franklin India Tax shield
265.34 0.16% 3.51% 39.88% 48.78% 51.73% 38.22% 44.65
HDFC Long Term Adv. Fund
424.53-
1.41%
-2.01% 38.19% 55.87% 59.29% 52.14% 51.37
Pru ICICI Tax Plan 421.75-
5.90%
-2.88% 35.55% 70.44% 62.0% 48.85% 54.21
Reliance Tax Saver 1114.8-
4.57%
-3.64 - - - - -
Tata Tax Saving Fund 111.22-
1.98%
-3.81% 26.03% 45.29% 50.44% 37.78% 39.88
UTI Equity Tax Saving Plan
204.81-
0.63%
-5.29% 28.09% 39.77% 45.50% - 37.78
S & P Nifty 5.98% 10.25% 44.62% 44.70% 41.04% 24.46% 38.70
BSE Sensex 6.91% 13.54% 51.24% 50.15% 44.64% 26.89% 43.23
BSE 100 4.88% 8.60% 44.06% 46.29% 44.13% 28.70% 40.79
BSE 200 3.53% 6.80% 40.22% 43.59% - 30.41% 38.07
BSE 500 2.13% 5.61% 39.66% 45.64% 43.14% 32.29% 40.18
ANALYSIS:
In EISS Prudential ICICI tax plan fund is performing by against the SNP, NIFFTY,
BSE Sensex , and BSE 100. and second place is HDFC long term advantage fund,
Third place is Birla Sunlife Tax Relief 96 plan
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3.5(a) Chart of ELSS Schemes
-4
-3.5
-3
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
BSL Ta
x Rel
ief 9
6 Plan
Frank
lin In
dia T
axsh
ield
HDFC Lon
g Ter
m A
dv. F
und
Pru IC
ICI T
ax P
lan
Relian
ce T
ax S
aver
Tata
Tax S
aving
Fun
d
UTI E
quity
Tax
Sav
ing P
lan
S & P
Nifty
BSE Sen
sex
BSE 100
BSE 200
BSE 500 1 Month
6 Months
1 Year
2 Year
3 Year
5 Year
62
3.6 Table of Midcap Funds
Scheme NameAUM
(Cr)1 Month
6 Months
1 Year 2 Year 3 Year 5 Year Avg
Birla Mid Cap Fund 153.3 -4.9% -2.82% 40.47% 51.32% 52.99% - 45.44
Chola Mid Cap Fund 54.8 -5.7% -7.34% 25.81% - - - 18.47
HSBC Midcap Equity Fund
441.2 -8.4% -5.3% 38.65% - - - 33.35
ING Mid Cap fund 59.7 -6.4% -3.5% 35.85% - - - 32.35
Kotak Midcap Fund 344.1 -9.3% -2.56% 36.8% - - - 34.24
Pru ICICI Emer. Star Fund
955.1 -5.3% 0.38% 52.0% - - - 52.38
SBI Magnum Midcap fund
343.6 -7.4% 4.07% 49.4% - - - 53.47
Tata Midcap Fund 249.4 -5.0% -3.93% - - - - -
BSE Midcap -7.6% -3.60% 29.73% - - - 26.13
ANALYSIS :
In Midcap funds, SBI Magnum Midcap fund performed well against the BSE madcap index,
Second place is ICICI emerstar fund and third place is Birla Midcap fund.
63
3.6(a) Chart of Midcap Funds
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0
0.1
0.2
0.3
0.4
0.5
0.6
Birla M
id Cap
Fun
d
Chola
Mid
Cap F
und
HSBC Mid
cap
Equity
Fun
d
ING M
id C
ap fu
nd
Kotak
Midc
ap F
und
Pru IC
ICI E
mer
. Sta
r Fun
d
SBI Mag
num
Mid
cap
fund
Tata
Midc
ap F
und
BSE Midc
ap
1 Month
6 Months
1 Year
2 Year
3 Year
5 Year
64
HOW TO CHOOSE THE BEST SCHEME?
The first step to investing in Mutual Fund is to define the objective of investing. You should
clearly lay down the purpose for which you desire to invest. There are several schemes tailor
made to meet certain personal financial goals (children's education, !marriage, retirement etc.)
which can be availed of. You should define the tenure of investment and the risk appetite you
have. Thereafter, you can select a fund type that best meets your need i.e. income schemes,
liquid schemes, tax saving schemes, equity schemes etc. Given the plethora of fund options
available to you, you can then choose the particular fund that you are comfortable with.
You can choose the fund on various criteria but primarily these can be the following:
The track record of performance of schemes over the last few years managed by the
fund
Quality of management and administration
Parentage of the Mutual Fund
Quality and adequacy of disclosures
Service levels
65
The price at which you can enter/exit (i.e. entry load / exit load) the scheme and its
impact on overall return
The market price of the units of the scheme (where available) to see the
discount/premium that the market assigns to the stated NAV of the scheme
Independent rating of the schemes, if available
You could be investing in a mutual fund either at the initial stage when the mutual fund
approaches the market through an offer document route or at a subsequent stage.
If you choose to invest at the initial stage, the offer document would detail the schemes being
offered and the manner of investing. The manner is usually similar to that of investing any
public issue of any security (equity/debt).
If you are planning to purchase the units subsequently, then the following choices exist:
1. A close ended scheme. If the desired units are of a close-ended scheme, then the
investor would be able to purchase them at the stock exchange where the MF has listed
them. This purchase would resemble the purchase of an equity share wherein the
investor would pay the quoted price of the unit as well as a brokerage for the purchase
transaction. In the case of a close ended scheme, the sale also is affected through the
stock exchange mechanism and resembles the sale of equity share. The pricing for the
transaction, as was mentioned earlier, is driven by the price the units quote. This is
driven by the NAV ( Net Asset Value) of the scheme. The price, however, may be
either at a discount or premium to the NAV.
2. Purchasing a unit in a open-ended scheme is different as there is no exchange where
these units are traded. Their price reflects the NAV of the scheme. The mutual fund in
an open-ended scheme sells these units to the investor at the NAV (plus a sale / entry
load).
Selling units in an open-ended scheme is similar to the way they are purchased. It is the mutual
fund that buys back the units and at a price based on the NAV. The actual price is the NAV
less the exit load. The exit load is similar in concept to the entry load.
66
Findings
In income funds LIC Liquid Fund performed well as its annualized average return is
5.88 %. Chola Liquid plus Fund was performing well ,It is Second place after LIC
liquid fund, third place is UTI liquid cash plan, and fourth place is Birla Cash Plus
Growth.
In growth funds, Reliance vision fund is performing well, it occupies first position, next
second place is HDFC equity fund, third position is TATA pure equity fund, fourth
position is SBIn Magnum equity fund, Fifth position is Franklin India Growth fund and
Sixth position is Birla Advantage Fund.
In Balanced funds SBI Magnum balanced funds is performed well and occupies first
position and second place is Prudential ICICI Balanced funds and third place is
DSPML balanced and fourth place is TATA balanced and fifth place is Birla Sunlife 95
fund.
In IT sector funds SBI magnum sector umbrella is performed well against the BSEIT
and also BSE Teck funds. Third place occupies fund is BSL new millennium fund.
In EISS Prudential ICICI tax plan fund is performing by against the SNP, NIFFTY,
BSE Sensex , and BSE 100. and second place is HDFC long term advantage fund,
Third place is Birla Sunlife Tax Relief 96 plan.
zIn Midcap funds, SBI Magnum Midcap fund performed well against the BSE madcap
index, Second place is ICICI emerstar fund and third place is Birla Midcap fund.
67
SUGGESTIONS
The Asset Management Company must design the portfolio in such a way, to lessen the
risk that is prevalent in the market.
The Asset Management Company must design the portfolio in such a way, to increase
the returns.
The Asset Management Company must make sure to pay regular dividends to the
investor
The Asset Management Company must dedicate itself to a more professional
management of the Fund because it motivates the investors and potential investors to
invest in Mutual Funds.
The Asset Management Company must make the most advantageous use of print and
electronic media in order to motivate the investors and potential investors to invest in
Mutual Funds.
The Asset Management Company must make sure that the Net Asset Value (NAV) of
the fund remains considerably high because it is the most important factor that would
be checked by the investors before investing in Mutual Funds.
The Asset Management Company must organize itself professionally and manage the
Fund efficiently and with dedication to earn the goodwill of the public.
68
CONCLUSION
In today’s world of investments a common investor cannot create his own portfolio and
manage its risk. So he needs a portfolio manager who invest the fund in selected securities
among the different industries, So that to minimize the risk (systematic risk and unsystematic
risk) and maximizing the return. These portfolio management services are provided by the
mutual fund companies and also we can invest small funds in the funds. So the mutual funds
are best investment avenue for the common investors.
69
BIBILIOGRAPHY
www.birlasunlife.com
www.mutualfundsindia.com
www.mutualfund.com
www.amfiindia.com
www.valueresearch.com
Websites of other Mutual fund companies
Books on Mutual funds, etc..
70