“statistical analysis of mutual funds” project report
TRANSCRIPT
“STATISTICAL ANALYSIS OF MUTUAL FUNDS”
PROJECT REPORT
2009
Submitted for the partial fulfillment of the requirement for the award
Of
MASTER OF BUSINESS ADMINISTRATION
SUBMITTED BY
KULDEEP KUMAR
ROLL NO. 0823170017
UNDER THE SUPERVISION OF
External: Mr. Vishal Thakur (S.R.M.)
Internal: Mrs. Poonam Singh (Lecturer)
Department Of Management
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R.D.ENGINEERING COLLEGE, DUHAI, GHAZIABAD
DECLARATION
I hereby declare that this project report prepared in lieu of a compulsory
paper for the partial fulfilment of Management of Business Administration
(Marketing and Human Resourse) is my original work which I have submitted
in Gulf Bulls Securities Pvt. Ltd. to my guide Mr. Mandip Kumar
No part of it has been submitted to any other university or organisation.
All the information and data in my project are authentic to the best of my knowledge and taken from reliable sources.
KULDEEP KUMAR
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ACKNOWLEDGEMENT
Project work is never the work of an individual. It is more a combination of views, ideas, suggestions, contribution and work involving many individuals.
I wish to express my deepest gratitude to Gulf Bulls Securities’ management for giving me an opportunity to be a part of their esteem organization and enhance my knowledge by granting permission to do my summer training project under their guidance.
I am grateful to Mr. Sachin Gupta, my guide, for his invaluable guidance and cooperation during the course of the project. He provided me with his assistance and support whenever needed that has been instrumental in completion of this project.
The project could not have completed without the guidance of Mr. Shailendra, Mr. Vishal, Ms. Neha Goel, Ms. Anuja Shukla and last but not the least Mr. Mandip Kumar.
Their continuous guidance helped me immensely during the project work
KULDEEP KUMAR
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PREFACE
The stock market in India has been a kind of mysterious place for many people who think that the persons investing their money in the market are sort of gambling on their money. There is usual misconception in the minds of the common man that because of the volatility of the market, their hard earned money is not safe in the stock market.
However, this fear can be checked by proper research on a share someone is interested to invest on. The market doesn’t behave in an arbitrate manner but certain trends are repeated over the time again and again. It is quite responsive towards the economic activities taking place in India as well as around the whole world.
The broad objective of the project is to understand the behavioural pattern of
Mutual Funds over the past one year and a half so that one can
understand the movement of the share on a particular trading session as well as the impact of news coming from different quarters of the market.
The project will provide a tool in the hands of the investors to take the decisions regarding their investment in Mutual Funds It will also give them the answer that whether it is right time to invest in this share or not, and what could be the best time to invest in this share.
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CONTENT
NALYSIS
CONTENTS2. ACKNOWLEDGWMENT 23. CONTENT 34. ABSTRACT 45. CONCEPT OF MUTUAL FUND 5a. ORIGIN OF MUTUAL FUND 6b. ABOUT MUTUAL FUNDS 7c. ADVANTAGES OF MUTUAL FUNDS 8d. TYPES OF MUTUAL FUND SCHEMES 10
6. COMPANY OVERVIEW 127. MUTUAL FUNDS INDUSTRY IN INDIA 158. STATISTICAL TOOLS 189. INFRASTRUCTURE MUTUAL FUND 23a. MARKET CAPITALISATION 27b. MEAN & STANDARD DEVIATION 28c. ANALYSIS WITH STATISTICAL TOOLS 29d. PORTFOLIO ANALYSIS 30e. COMPARISION WITH THE BENCHMARK INDEX 3310. EQUITY MUTUAL FUNDS 35a. MARKET CAPITALISATION 40b. MEAN & STANDARD DEVIATION 41c. ANALYSIS WITH STATISTICAL TOOLS 42d. PORTFOLIO ANALYSIS 44e. COMPARISION WITH THE BENCHMARK INDEX 4611. DEBT MUTUAL FUND 47a. TOTAL FUND SIZE 51b. MEAN & STANDARD DEVIATION 52c. ANALYSIS WITH STATISTICAL TOOLS 53d. PORTFOLIO ANALYSIS 55e. COMPARISION WITH THE BENCHMARK INDEX 5612. RECOMONDATION 5913. APPENDIX 60CONTENTSSTATISTICAL ANALYSIS
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ABSTRACT STRACT
This project offers a valuable opportunity to take a glimpse of the mutual
fund in India. In today’s increasingly competitive and complex world there
are large numbers of mutual funds claiming to provide maximum return with
minimum risk.
It is become very difficult to select the best mutual fund. There are more
than 1000 schemes available for the investors in India. It is very difficult to
select a particular scheme on the basis of their past records.
This project will try to analyze few popular mutual funds statistically on the
basis of the risk involved in each fund and the return of the same. Also an in-
depth analysis of their portfolio will be done which will give a better view for
a fund’s resultant performance.
This project identifies the key factors that is making a fund perform better
then is competitor. The factors identified in this study will help fund manager
design their fund’s portfolio and provide optimum return to its investors. Also
the said project will be used by Tata Asset Management Company in the
Eastern Zone to train its Relationship Managers in helping them giving an in-
depth view about their fund
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INTRODUCTION
CEPTA Mutual Fund is a trust that pools the savings of a number of investors who
share a common financial goal. The money thus collected is then invested in
capital market instruments such as shares, debentures and other securities.
The income earned through these investments and the capital appreciations
realized are shared by its unit holders in proportion to the Mutual Fund is the
most suitable investment for the common man as it offers an opportunity to
invest in a diversified, professionally managed basket of securities at a
relatively low cost. The flow chart below describe mutual fund:
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Mutual Fund gets their earnings in two ways:
1. First is the most organic way, which is the dividend they get on the
securities they hold.
2. If the fund sells securities that have increased in capital gain. This is
reflected in NAV of each unit.
3. Third is by the redemption of their units by investors will be at discount to
the current NAV[net asset value].
STATISTICAL ANALYSISCONCEPT
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COMPANY’S PROFILE
About company
Gulf Bulls Securities Pvt. Ltd. is a company registered under the Companies Act,
1956 .It is a professionally managed group headed by the directors, having vast
experience in the stock market.
The company is serving a diverse customer base of institutional and retail investors The
Company has a balanced mix of revenues from emerging markets and is well
positioned to leverage the growth potential offered by these markets.
GBS provides investors a robust platform to trade in Equities in NSE and BSE, and
derivatives in NSE. The company has a worldwide vision and it along with its associates
is currently providing state of the art stock broking services through all the major stock
exchanges, trading through NSE & BSE, depository services through CDSL and all the
services are available under the one roof. With its ability to evolve with the changing
environment the Company has been able to put itself to the forefront of stock broking
activities. With its network spreading across various parts of India, it has made a distinct
mark among the stock broking houses and high net worth corporate as well as
individuals.
The company offers financial information, analysis, investment guidance, news & views,
which are designed to meet the requirements of everyone from a beginner to a savvy
and well-informed trader.
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“Our vision is to grow our business and make our presence across the world.”
“Our mission is to create and introduce the new definition of investments around the
globe.”
Management Team:
Name Designation
Mr. Vivek Rana Chairman / Managing Director
Mr Rajiv Balhara Director
Mr. Kuldeep Sharma Director
Mr. Yajur Chaudhary Director
Mr. Rajneesh Aggarwal Director
Mr. Vipin Kumar Director
Mr. Gajraj Singh Director
Mr. Anil Kaushik Director
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Prominent feature of Gulf Bulls Securities
Strong research department located at Faridabad office.
Well structured infrastructure for trading.
Highly skilled and experience staff.
Dedicated user friendly website for its customers, named
www.monepore.com and www.moneyporeexpress.com.
Money pore express, software developed by Gulf Bulls Securities provides
retail investors better opportunity to trade at home and that to at greater
speed and convenience.
Areas of Expertise
Gulf Bulls offers real time trading opportunities on the NSE. It also offers depository
and online services to clients for account accessing and information through its online
portal catering to the needs of mobile trader as well as the net savvy investor. Gulf Bulls
offers state-of –the–art online trading through its website (www.gulfbullsecurity.co.in).
Regular updates during trading hours, and access to information, analysis and
research, and a range of monitoring tools is available. The company has steadily
building up a comprehensive portfolio of products and services apart from conventional
broking. High speed anywhere trading through the net, online depository services,
commodities trading and retail debt products are increasingly areas of special emphasis
for the company.
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ABOUT MUTUAL FUNDSAAABOUTBOUT MUTUAL FUNDSWhat Is a Mutual Fund?
A mutual fund is a company that invests in a diversified portfolio of
securities. People who buy shares of a mutual fund are its owners or
shareholders. Their investments provide the money for a mutual fund to buy
securities such as stocks and bonds. A mutual fund can make money from its
securities in two ways: a security can pay dividends or interest to the fund or
a security can rise in value. A fund can also lose money and drop in value.
Different Funds, Different Features
There are three basic types of mutual funds—stock (also called equity),
bond, and money market. Stock mutual funds invest primarily in shares of
stock issued by Indian or foreign companies. Bond mutual funds invest
primarily in bonds. Money market mutual funds invest mainly in short-
term securities issued.
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AB
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ADVANTAGES OF MUTUAL FUNDS 4OUT MUTUAL FUNDSSTATISTICAL ANALYSIS
ADVANTAGES OF MUTUAL FUNDSWhy Invest in a Mutual Fund?
Mutual funds make saving and investing simple, accessible, and affordable.
The advantages of mutual funds include professional management,
diversification, variety, liquidity, affordability, convenience, and ease of
recordkeeping—as well as strict government regulation and full disclosure.
Professional Management: Even under the best of market conditions, it
takes an astute, experienced investor to choose investments correctly, and a
further commitment of time to continually monitor those investments. With
mutual funds, experienced professionals manage a portfolio of securities for
you full-time, and decide which securities to buy and sell based on extensive
research. A fund is usually managed by an individual or a team choosing
investments that best match the fund’s objectives. As economic conditions
change, the managers often adjust the mix of the fund’s investments to
ensure it continues to meet the fund’s objectives.
Diversification: Successful investors know that diversifying their
investments can help reduce the adverse impact of a single investment.
Mutual funds introduce diversification to your investment portfolio
automatically by holding a wide variety of securities. Moreover, since you
pool your assets with those of other investors, a mutual fund allows you to
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obtain a more diversified portfolio than you would probably be able to
comfortably manage on your own—and at a fraction of the cost. In short,
funds allow you the opportunity to invest in many markets and sectors.
That’s the key benefit of diversification.
Variety: Within the broad categories of stock, bond, and money market
funds, you can choose among a variety of investment approaches. Today
there are more then 1000 types of mutual fund available for the Indian
investors.
Low Costs: Mutual funds usually hold dozens or even hundreds of securities
like stocks and bonds. The primary way you pay for this service is through a
fee that is based on the total value of your account. Because the fund
industry consists of hundreds of competing firms and thousands of funds, the
actual level of fees can vary. But for most investors, mutual funds provide
professional management and diversification at a fraction of the cost of
making such investments independentlyTUAL FUNDS
STATISTICAL ANALYSISLiquidity: Liquidity is the ability to readily access your money in an
investment. Mutual fund shares are liquid investments that can be sold on
any business day. Mutual funds are required by law to buy, or redeem,
shares each business day. The price per share at which you can redeem
shares is known as the fund’s net asset value (NAV). NAV is the current
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market value of all the fund’s assets, minus liabilities, divided by the total
number of outstanding shares.
Convenience: You can purchase or sell fund shares directly from a fund or
through a broker, financial planner, bank or insurance agent, by mail, over
the telephone, and increasingly by personal computer. You can also arrange
for automatic reinvestment or periodic distribution of the dividends and
capital gains paid by the fund. Funds may offer a wide variety of other
services, including monthly or quarterly account statements, tax information,
and 24-hour phone and computer access to fund and account information.
Protecting Investors: Not only are mutual funds subject to compliance
with their self-imposed restrictions and limitations, they are also highly
regulated by the federal government through the U.S. Securities and
Exchange Commission (SEC). As part of this government regulation, all funds
must meet certain operating standards, observe strict antifraud rules, and
disclose complete information to current and potential investors. These laws
are strictly enforced and designed to protect investors from fraud and abuse.
But these laws obviously cannot help you pick the fund that is right for you
or prevent a fund from losing money. You can still lose money by investing in
a mutual fund. A mutual fund is not guaranteed or insured by the FDIC or
SIPC, even if fund shares are purchased through a bank.
ADVANAL FUNDS SCHEMES
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Types of Mutual Fund Scheme
BY STRUCTURE:
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Open Ended Schemes: These do not have a fixed maturity. You deal
directly with the Mutual Fund for your investments and redemptions. The key
feature is liquidity. You can conveniently buy and sell your units at Net Asset
Value related prices.
Close Ended Schemes: Schemes that have a stipulated maturity period
(ranging from 2 to 15 years) are called closed ended schemes. You can
invest directly in the scheme at time of the initial issue and thereafter you
can buy and sell the units of the scheme on the stock exchanges where they
are listed. The market price of the stock exchange could from the scheme’s
NAV on account of demand and supply situation, unit holders expectation
and other market factors.
Interval Schemes: These combine the features of open ended and closed
ended schemes. They may be traded at stock exchange or may be open for
sale or redemption during pre determined intervals at NAV related prices.
BY INVESTMENT OBJECTIVE:
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Growth Schemes: Aim to provide capital appreciation over the medium to
long term. These schemes normally invest a majority of their funds n equities
and are willing to bear short term decline in value for possible future
appreciation. These schemes are not for investors seeking regular income or
needing their money back in the short term.
Income Schemes: aim to provide regular and steady income to investors.
hese schemes generally invest in fixed income securities such as bonds and
corporate debentures. Capital appreciation in such schemes may be limited.
Balanced Schemes: Aim to provide both growth and income by periodically
distributing a part of the income and capital gains they earn. They invest
both in shares and fixed income securities in the proportion indicated in their
offer documents.
Money market Schemes: Aim to provide easy liquidity, preservation of
capital
gains and moderate income. These schemes generally invest in safer, short
term instruments such as treasury bills, certificate of deposits, commercial
papers etc. Return on these schemes may fluctuate, depending upon the
interest rates prevailing in the market.
OTHER SCHEMES
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Tax Saving Schemes: These schemes offer tax rebates to the investor
under tax law as prescribed from time to time. This is made possible because
the government offers tax incentives for investment in specified avenues.
For example Equity Linked Saving Schemes, and Pension Schemes.
Special Schemes: This category includes index schemes that attempt to
replicate the performance of a particular index such as BSE Sensex or the
NSE or industry specific schemes or sectoral schemes.
Index Fund Schemes: They are ideal for investors who are satisfied with a
return approximately equal to that of an index.
Sectoral Fund: These schemes are ideal for investors who have already
decided to invest in a particular sector or segment
ES
STATISTICA
L ANALYSIS
COMPANY OVERVIEW
COMPANY OVERVIEW
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Backed by one of the most trusted and valued brands in India, Tata Mutual
Fund has earned the trust of lakhs of investors with its consistent
performance and world-class service.
Tata Mutual Fund manages around Rs. 22,980.76 crores (as on March 31,
2008) worth of assets across its varied offerings. Tata Mutual Fund offers an
investment option for everyone, whether you are a businessman or salaried
professional, a retired person or housewife, an aggressive investor or a
conservative capital builder.
The Tata Asset Management (TAM) philosophy is centered on seeking
consistent, long-term results. Tata Asset Management aims at overall
excellence, within the framework of transparent and rigorous risk controls.
Areas of Business
A leading player in the mutual fund arena, TAM offers a wide array of product
for institutional and individual investors at various life stages across the risk-
reward spectrum. The company offers investment products under three main
categories for every financial need and under varied market conditions:
Equity funds
Balanced funds
Debt funds
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The core strength of TAM stems not only from its sound systems and
processes but also from the quality of its intellectual capital, which is made
up of the best and brightest minds. At the same time, the company provides
a robust risk management framework with inbuilt controls and balances.
The title of the project is “Investors Perception About Mutual Fund” This will
through light on how investors view our funds as a potential investment with
detailed perception. Quantify the results of our fund marketing strategy and
improve the quality of our investor communications with valuable investor
feedback.MUTUAL FUNDS SCHEMES
Core Values
The Tata Group has always sought to be a value-driven organization. These
values continue to direct the Group's growth and businesses. The five core
Tata values that underpin the way we do business are:
Integrity: We must conduct our business fairly, with honesty and
transparency. Everything we do must stand the test of public scrutiny.
Understanding: We must be caring, show respect, compassion and
humanity for our colleagues and customers around the world, and always
work for the benefit of the communities we serve.
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Excellence: We must constantly strive to achieve the highest possible
standards in our day-to-day work and in the quality of the goods and services
we provide.
Unity: We must work cohesively with our colleagues across the Group and
with our customers and partners around the world, building strong
relationships based on tolerance, understanding and mutual cooperation.
Responsibility: We must continue to be responsible, sensitive to the
countries, communities and environments in which we work, always ensuring
that what comesfrom the people goes back to the people many times over.
Statistical Tools
Mean
An average of the sub-period returns, calculated by summing the sub eturns
and dividing by the number of sub This shows the average return earned by
a good comparative tool to assess different types of fund.
Standard Deviation
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Standard deviation is a representation of the risk associated with a given
security stocks, bonds, property, etc.), or the risk of a portfolio of securities.
Risk is an important factor in determining how to efficiently manage a
portfolio of investments because it determines the variation in returns on the
asset and/or portfolio and ives investors a mathematical basis for
investment decisions. The overall concept of risk is that as it increases, the
expected return on the asset will increase as a result of the risk premium
earned higher return on an investment when said investment carries a
higher level of risk
where,
σ2 denoted standard deviation
N is number of period,
X2 is average return of a security,
x is number actual return,
The larger the Standard Deviation in a period, the greater risk the security
carries.
STATISTICAL ANALYSIS
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Beta
A measure of the volatility, or systematic risk, of a security or a portfolio in
comparison to the market as a whole. Also known as "beta coefficient".
Where,
ra measures the rate of return of the asset,
rp measures the rate of return of the portfolio of which the asset is a part,
Cov(ra, rp,) is the covariance between the rates of return.
Beta is calculated using regression analysis, and you can think of beta as the
tendency of a security's returns to respond to swings in the market. A beta of
1 indicates that the security's price will move with the market. A Beta less
than 1 means, the security will be less volatile than the market. A beta of
greater than 1 indicates that the security's price will be more volatile than
the market. For example, if a stock's beta is 1.2, it's theoretically 20% more
volatile than the market.
Many utilities stocks have a beta of less than 1. Conversely, most high-tech
Sensex-based stocks have a beta of greater than 1, offering the possibility of
a higher rate of return, but also posing more risk.
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Sharpe Ratio
A ratio developed by Nobel laureate William F. Sharpe to measure risk-
adjusted performance. The Sharpe ratio is calculated by subtracting the risk-
free rate – such as that of the 10-year U.S. Treasury bond - from the rate of
return for a portfolio and dividing the result by the standard deviation of the
portfolio returns.
R is return from the security
Rf is the Risk free return
σ= standard deviation
The Sharpe ratio tells us whether a portfolio's returns are due to smart
investment decisions or a result of excess risk. This measurement is very
useful because although one portfolio or fund can reap higher returns than
its peers, it is only a good investment if those higher returns do not come
with too much additional risk. The greater a portfolio's Sharpe ratio, the
better its risk performance has been.
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A variation of the Sharpe ratio is the Sortino ratio, which removes the upward
price movements on standard deviation to measure only return against
downward price volatility.
Sortino Ratio
A ratio developed by Frank A. Sortino to differentiate between good and bad
volatility in the Sharpe ratio. This volatility allows the calculation to provide a
risk fund's performance without penalizing it for upward price changes. It it is
calculated as follows:
The Sortino ratio is similar to the Sharpe ratio, except it uses downside
deviation for the denominator instead of standard deviation, the use of which
doesn't discriminate between up and down volatility.
P/E ratio
The P/E ratio (price-to-earnings ratio) of a stock (also called its "earnings
multiple", or simply "multiple", "P/E", or "PE") is a measure of the price paid
for a share relative to the annual income or profit earned by the firm per
share. A higher P/E ratio means that investors are paying more for each unit
of income. It is a valuation ratio included in other financial ratios. The
reciprocal of the P/E ratio is known as the earnings yield.
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AL ANALYSIS
Treynor Ratio
A ratio developed by Jack Treynor that measures returns earned in excess of
that which could have been earned on a riskless investment per each unit of
market risk. The Treynor ratio is calculated as:
(Average Return of the Portfolio - Average Return of the Risk-Free Rate) /
Beta of the Portfolio
In other words, the Treynor ratio is a risk-adjusted measure of return based
on systematic risk. It is similar to the Sharpe ratio, with the difference being
that the Treynor ratio uses beta as the measurement of volatility.
Also known as the "reward-to-volatility ratio".
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STATISTICAL TOOLS
Fama
A factor model that expands on the capital asset pricing model (CAPM) by
adding size and value factors in addition to the market risk factor in CAPM.
This model considers the fact that value and small cap stocks outperform
markets on a regular basis. By including these two additional factors, the
model adjusts for the outperformance tendency, which is thought to make it
a better tool for evaluating manager performance.
Here r is the portfolio's return rate, Rf is the risk-free return rate, and Km is
the return of the whole stock market. The "three factor" β is analogous to the
classical β but not equal to it, since there are now two additional factors to
do some of the work. SMB and HML stand for "small [Market Capitalization]
minus big" and "high [book-to-price ratio] minus low"; they measure the
historic excess returns of small caps over big caps and "value stocks" over
"growth stocks".
Fama and French attempted to better measure market returns and, through
research, found that value stocks outperform growth stocks; similarly, small
cap stocks tend to outperform large cap stocks. As an evaluation tool, the
performance of portfolios with a large number of small cap or value stocks
would be lower than the CAPM result, as the three factor model adjusts
downward for small cap and value outperformance.
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STATISTICAL TOOLS
STATISTICAL ANALYSIS
INFRASTRUCTURE MUTUAL FUND
INFRASTRUCTURE MUTUAL FUNDS
An Infrastructure fund is a managed vehicle through which investors gain
exposure to the underlying characteristics of infrastructure assets.
Infrastructure is emerging strongly as an asset class which can be
particularly well suited to pension funds and other investors with a long-term
outlook. Infrastructure assets tend to display comparatively stable, long-term
real return and provide a good match for longdated liabilities.
They invest in private infrastructure companies, but the fnds themselves can
be listed or unlisted. For example, Macquarie has been investing in
infrastructure for more than a decade and now manages over 20
infrastructure funds around the world. Half of these are listed on the stock
exchange, with investors from pension funds and other institutions to retail
investors. The rest are unlisted funds in which the investors are largely
pension funds and other institutions.
The fund tens to either specialize in one class of infrastructure - for example
invest only in airport or only in toll-roads – or they invest across various
infrastructure sectors which meet specified investment criteria. For example
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The infrastructure assets can include telecommunications and broadcast
infrastructure, utilities, toll road, airport and other transport infrastructure.
Fundamentally, infrastructure assets are distinguished by displaying the
following key characteristics:
Provide essential community services
Have strategic competitive advantage
Have predictable long-term cash flow
These characteristics lead to the investment benefits outlined below.
Infrastructure assets display unique characteristic. Their essential and long-
term nature, combined with strong competitive position, lead to stable and
predictable consumer demand and cash generation. These assets tend to
have a high fixed capital base with comparatively low operating costs – on
average of between 10% and 30% of revenue. Along with the long-term
operating license and predictable demand, often in a regulated environment,
this allows the manager to forecast cash flows with accuracy.
Infrastructure assets have a low correlation to equity markets and other
asset classes. For the reason, it can provide valuable diversification in an
investment.
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INF
RASTRUCTURE MUTUAL FUNDS
OBJECTIVE OF THE STUDY
This project has been taken for GULF BULL stock broking limited. The
objective of the study is to know the role and performance of mutual funds &
also help in determining the preference of investors while investing in
various types of mutual fund schemes. The company has established a
strong investor’s base in FARIDABAD so the key findings of the project will
help the company to understand their investors better, their needs, and
expectations of the investors from a broker and the potential of mutual funds
scheme in Faridabad.
Many individuals find investments to be fascinating because they can
participate in the decision making process and see the results of their
choices. Not all investments will be profitable, as investor wills not always
make the correct investment decisions over the period of years; however,
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one should earn a positive return on a diversified portfolio. In addition, there
is a delight from the major success.
Investing is not a game but a serious subject that can have a major impact
on investor's future well being. Virtually everyone makes investments. Even
if the individual does not select specific assets such as stock, mutual funds,
investments are still made through participation in pension plan, and
employee saving programmed or through purchase of life insurance or a
home. Each of this investment has common characteristics such as potential
return and the risk you must bear. The future is uncertain, and one must
determine how much risk you are willing to bear since higher return is
associated with accepting more risk.
The individual should start by specifying investment goals and would like to
have true value of his wealth. Once these goals are established, the
individual should be aware of the mechanics of investing and the
environment in which investment decisions are made. These include the
process by which securities are issued and subsequently bought and sold,
the regulations and tax laws that have been enacted by various levels of
government, and the sources of information concerning investment that are
available to the individual.
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MUTUAL
FUNDS
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MUTUAL FUNDS – A CONCEPT
A mutual fund is simply a financial intermediary that allows a group of
investors to pool their money together with a predetermined investment
objective. Each unit of any scheme represents the proportion of pool owned
by the unit holder (investor). The value of each unit of mutual fund is termed
as Net Asset Value. Appreciation or reduction in value of investments is
reflected in net asset value (NAV) of the concerned scheme, which is
declared by the fund from time to time. Mutual Funds schemes are managed
by respective Asset Management Companies sponsored by financial
institutions, banks, private companies or international firms. An investor can
invest his money in one or more schemes of Mutual Fund according to his
choice and becomes the unit holder of the scheme. The income earned
through these investments and the capital appreciations realized are shared
by its unit holders in proportion to the number of units owned by them.
Mutual Fund offers an investor the opportunity to invest even a small amount
of money. The mutual fund will have a fund manager who is responsible for
investing the pooled money into specific securities. Each Mutual Fund
scheme is managed by qualified professionals, who use this money to create
a portfolio that includes stock and shares, bonds, gilt, money-market
instruments or combination of all. Thus, Mutual Fund will diversify one’s
portfolio over a variety of investment vehicles thereby reducing the risk.
Mutual funds are one of the best investments ever created because they are
very cost efficient and very easy to invest in (one doesn't have to figure out
which stocks or bonds to buy).
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By pooling money together in a mutual fund, investors can purchase stocks
or bonds with much lower trading costs than if they tried to do it on their
own. But the biggest advantage to mutual funds is diversification.
Mutual Funds offer several benefits to an investor such as potential return,
liquidity, transparency, income growth, good post tax return and reasonable
safety. But before investing in a Mutual Fund an investor must identify his
needs and preferences. He must also take in to consideration the risks
associated with such investments.
MUTUAL FUND FRAMEWORK:
MUTUAL FUND CONSTITUENTS
The FIGURE below illustrates the organizational set up of a mutual fund:
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Indian mutual funds are governed by two different structures. The Unit Trust
of India follows one defined by the UTI Act, 1963, and its subsequent
amendments. All other mutual funds follow the Securities and Exchange
Board of India's (Mutual Funds) Regulations, 1996, which are more rigorous
from the viewpoint of disclosure and accountability. Despite the differences,
all mutual funds comprise four constituents -- sponsors, trustees, asset
management companies (AMC’s) and custodians.
THE MUTUAL FUND
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A mutual fund in India is constituted in the form of a Public Trust created
under the Indian Trusts Act, 1882. The Fund Sponsor acts as the Settler of
the Trust, contributing to its initial capital and appoints a 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, units being the evidence of their beneficial
interest in the fund.
SPONSOR
The sponsor initiates the idea to set up a mutual fund. It could be a
registered company, scheduled bank or financial institution. For Example: For
Birla Mutual Fund, the sponsor is Birla Growth Funds. In a joint venture like
Sun F&C Mutual Fund, Foreign & Colonial Emerging Markets is the sponsor
and SUN Securities (India) Ltd, the co-sponsor
A sponsor has to satisfy certain conditions, such as on capital, track record
(at least five years' operation in financial services), default-free dealings and
a general reputation of fairness. The sponsor appoints the trustees, AMC and
custodian. Once the AMC is formed, the sponsor is just a stakeholder.
However, sponsors do play a key role in bailing out an AMC during a crisis
(Canara Bank's rescue of Canbank Mutual Fund).
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TRUST / BOARD OF TRUSTEES
Trustees hold a fiduciary responsibility towards unit holders by protecting
their interests. Sometimes, as with Canara Bank, the trustee and the sponsor
are the same. For others, like SBI Funds Management, State Bank of India is
the sponsor and SBI Capital Markets the trustee.
Trustees float and market fund schemes, and secure necessary approvals.
They check if the AMC's investments are within defined limits, whether the
fund's assets are protected, and also ensure that unit holders get their due
returns.
Trustees also review any due diligence done by the AMC. For major decisions
concerning the fund, they have to take unit holders' consent. They submit
reports every six months to SEBI; investors get an annual report. Trustees
are paid annually out of the fund's assets -- 0.05 per cent of the weekly
average net asset value.
FUND MANAGERS / AMC’S
They are the ones who manage funds money. An AMC takes investment
decisions, compensates investors through dividends, maintains proper
accounting and information for pricing of units, calculates the NAV, and
provides information on listed schemes and secondary market unit
transactions.
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It also exercises due diligence on investments, and submits quarterly reports
to the trustees. A fund's AMC can neither act for any other fund nor
undertake any business other than asset management. Its net worth should
not fall below Rs. 10 crore. And, its fee should not exceed 1.25 per cent if
collections are below Rs.100 crore and 1 per cent if collections are above
Rs.100 crore. Sebi can pull up an AMC if it deviates from its prescribed role.
TRANSFER AGENTS
Transfer agents are responsible for issuing and redeeming units of the
mutual fund and provide other related services such as preparation of
transfer documents and updating investor records. A fund may choose to
carry out this activity in-house and charge the scheme for the service at a
competitive market rate. Where an outside Transfer Agent is used, the fund
investor will find the agent to be an important interface to deal with, since all
of the investor services that a fund provides (besides the investment
management) are going to be dependent on the transfer agent.
In India, besides brokers, independent, individuals are appointed as ‘agents”
for the purpose of selling the fund schemes to investors. These agents are
not brokers in a formal sense and do not belong to any stock exchange or
organized self-regulatory body of brokers. While individuals constitute the
largest segment in the category of mutual fund “distributors”, other
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distributors include Banks, Non Banking Finance Companies and Distribution
Companies.
CUSTODIAN
Often an independent organization, it takes custody of securities and other
assets of a mutual fund. Among public sector mutual funds, the sponsor or
trustee generally also acts as the custodian.
A custodian's responsibilities include receipt and delivery of securities,
collecting income, distributing dividends, safekeeping of units and
segregating assets and settlements between schemes. Their charges range
between 0.15-0.2 percent of the net value of the holding. Custodians can
service more than one fund.SEBI's regulations specify each constituent's role
clearly. How well they act in concert determines the quality of the investor's
experience with the mutual fund.
NET ASSET VALUE (NAV)
A mutual fund is a common investment vehicle where the assets of the fund
belong directly to the investors. Investors’ subscriptions are accounted for by
the fund not as liabilities or deposits but as Unit Capital. On the other hand,
the investments made on behalf of the investors are reflected on the assets
42
side and are the main constituent of the balance sheet. There are, however,
liabilities of a strictly short-term nature that may be part of the balance
sheet. The fund’s Net Assets are therefore defined as the assets minus the
liabilities. As there are many investors in a fund, it is common practice for
mutual funds to compute the share of each investor on the basis of the value
of Net Assets Per Share/Unit, commonly known as the Net Asset Value (NAV).
The following are the regulatory requirements and accounting definitions laid
down by SEBI.
NAV = Net Assets of the scheme/Number of Units outstanding i.e. Market
value of investments + Receivables + Other Accrued Income + other assets.
Accrued Expenses – Other payables – Other liabilities
No. Of units outstanding as at the NAV date For the purpose of the NAV
calculation, the day on which NAV is calculated by a fund is known as the
valuation date.
A fund’s NAV is affected by four sets of factors:
Purchase and sale of investment securities
Valuation of all investment securities held
Other assets and liabilities, and
Units sold or redeemed
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ADVANTAGES OF MUTUAL FUNDS
Professional expertise: Fund managers are responsible for implementing
a consistent investment strategy that reflects the goals of the fund. Fund
managers monitor market and economic trends and analyze securities in
order to make informed investment decisions.
Diversification: In order to reduce this risk, one needs to invest in different
types of securities such that they do not move in a similar fashion. Typically,
when equity markets perform, debt markets do not yield good returns. Note
the scenario of low yields on debt securities over the last three years while
equities yielded handsome returns
Low cost of asset management: Since mutual funds collect money from
millions of investors, they achieve economies of scale. The cost of running a
mutual fund is divided between larger pools of money and hence mutual
funds are able to offer you a lower cost alternative of managing your funds.
Equity funds in India typically charge you around 2.25% of your initial money
and around 1.5% to 2% of your money invested every year as charges.
Investing in debt funds costs even less. If you had to invest smaller sums of
44
money on your own, you would have to invest significantly more for the
professional benefits and diversification.
Liquidity: Mutual funds are typically very liquid investments. Unless they
have a pre-specified lock-in, your money will be available to you anytime you
want. Typically funds take a couple of days for returning your money to you.
Since they are very well integrated with the banking system, most funds can
send money directly to your banking account.
Well regulated: India mutual funds are regulated by the Securities and
Exchange Board of India, which helps provide comfort to the investors. SEBI
forces transparency on the mutual funds, which helps the investor make an
informed choice. SEBI requires the mutual funds to disclose their portfolios at
least six monthly, which helps one keep track whether the fund is investing
in line with its objectives or not.
DRAWBACKS OF MUTUAL FUNDS
No Guarantees-There is no guarantee that the mutual fund will always do
well and provide good returns to its unit holders, as no investment is risk
free. However, risk is minimized to some extent by investing in mutual funds.
45
Fees and Commissions- All funds charge administrative fees to cover their
operational expenses. Some funds also charge sales commissions or “loads”
to compensate financial consultants or planners, brokers etc.
Taxes- Most actively managed funds sell anywhere from 20% to 70% of the
securities in their portfolio during a typical year. If the fund makes a profit on
its sales, the investor has to pay tax on the income he receives even if he
reinvests the money he made.
Management risk- the risk that an investor is taking here is that someone
else is managing his money. He depends on the fund manager to make the
right decision regarding the portfolio. If the manager does not perform as
one had hoped then the investor may not make as much money as he had
expected.
HISTORY OF MUTUAL FUNDS
MUTUAL FUNDS IN INDIA (1964 - 2005)
PHASE ONE (1964-1987):
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The first stage of Mutual funds in India started with the setup of giant public
sector mutual fund UTI in 1964. This stage continued till 1987. In this stage
UTI was the only player in the mutual fund market. At the beginning of 1988
the total assets under management of UTI were 6700 crores.
PHASE TWO (1987-1993):
In 1987 govt. allowed six PSU banks, LIC and GIC to set up mutual funds.
This increased the number of players in the mutual fund to nine. At the end
of 1994 there were 107 Mutual fund schemes with 61028 Crores worth of
assets under management.
PHASE THREE (1994 ONWARDS):
This stage saw the real boom of mutual fund industry. The GOI allowed
private mutual fund to operate. Kothari Pioneer is the first private sector
Mutual Fund of India. As on 31st March 2000 there were 32 mutual funds with
1,13,005 crores worth of assets under management out of which 70,547
crores were in UTI alone. And on august 2000 there were a total of 33 mutual
fund schemes with 391 schemes and asset base of 1,02,844 crores. Today,
we have 34 mutual funds with numerous schemes for the investor’s to invest
in.
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PHASE FOUR 1996 (SEBI REGULATION FOR MUTUAL
FUNDS):
Deregulation and liberalization of the Indian economy introduced
competition and provided impetus to the growth of the industry. Finally,
most investors – small or large –started shifting towards mutual funds as
opposed to banks or direct market investments.
More investor friendly regulatory measures were taken both by SEBI to
protect the investor, and by the Government to enhance investors’ return
through tax benefits. A comprehensive set of regulations for all mutual funds
operating in India was introduced with SEBI (Mutual Fund) Regulations, 1996.
1999 marked the beginning of a new phase in the history of the mutual fund
industry in India, a phase of significant growth in terms of both amounts
mobilized from investors and assets under management. Consider the
growth in assets as seen in the figures below:
The size of the industry grew rapidly, as seen in the figure of assets under
management which shot up from over Rs. 68000 crores to Rs. 113005
crores, a growth of nearly 60% in just one year. Within the growing industry,
by March 2000, the relative market shares of different players in terms of
amount mobilized and assets under management underwent a change.
1999—YEAR OF THE FUNDS
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Mutual funds had been around for a long period of time to be precise for 36
yrs but the year 1999 saw immense future potential and developments in
this sector. This year signaled the year of resurgence of mutual funds and
the regaining of investor confidence in these MF’s. This time around all the
participants were involved in the revival of the funds - the AMC’s, the unit
holders, the other related parties. However, the sole factor that gave lift to
the revival of the funds was the Union Budget. The budget brought about a
large number of changes in one stroke.
It provided centre stage to the mutual funds, made them more attractive and
provided acceptability among the investors. The Union Budget exempted
mutual fund dividend given out by equity-oriented schemes from tax, both at
the hands of the investor as well as the mutual fund. No longer were the
mutual funds interested in selling the concept of mutual funds they wanted
to talk business which would mean to increase asset base, and to get asset
base and investor base they had to be fully armed with a whole lot of
schemes for every investor .So new schemes for new IPO’s were inevitable.
The quest to attract investors extended beyond just new schemes. The funds
started to regulate themselves and were all out on winning the trust and
confidence of the investors under the aegis of the Association of Mutual
Funds of India (AMFI)
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One can say that today, the industry has moved from infancy to
adolescence, it is now maturing and the investors and funds are frankly and
openly discussing difficulties, opportunities and compulsions.
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TYPES OF MUTUAL FUNDS
A Mutual Fund may float several schemes, which may be classified on the
basis of its structure, its investment objectives and constitution.
INVESTMENT OBJECTIVE
Schemes can be classified by way of their stated investment objective such
as Growth Fund, Balanced Fund, and Income Fund etc
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EQUITY ORIENTED SCHEMES
These schemes, also commonly called Growth Schemes, seek to invest a
majority of their funds in equities and a small portion in money market
instruments. Such schemes have the potential to deliver superior returns
over the long term because the market boom and depression phases get
evened out over a longer time span. However, because they invest in
equities, these schemes are exposed to fluctuations in value especially in the
short-term.Equity schemes are hence not suitable for investors seeking
regular income or needing to use their investments in the short-term. They
are ideal for investors who have a long-term investment horizon. The NAV
prices of equity fund fluctuates with market value of the underlying stock
which are influenced by external factors such as social, political as well as
economic.
HDFC Growth Fund, HDFC Tax Plan 2000 and HDFC Index Fund are examples
of equity schemes.
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SECTOR SPECIFIC
These schemes restrict their investing to one or more pre-defined sectors,
e.g. technology sector, pharmaceutical, information technology etc. Since
they depend upon the performance of select sectors only, these schemes are
inherently more risky than general-purpose schemes. They are suited for
informed investors who wish to take a view and risk on the concerned sector.
SPECIAL SCHEMES:
INDEX SCHEMES
The primary purpose of an Index is to serve as a measure of the performance
of the market as a whole, or a specific sector of the market. An Index also
serves as a relevant benchmark to evaluate the performance of mutual
funds. Some investors are interested in investing in the market in general
rather than investing in any specific fund. Such investors are happy to
receive the returns posted by the markets. As it is not practical to invest in
each and every stock in the market in proportion to its size, these investors
are comfortable investing in a fund that they believe is a good representative
of the entire market. Index Funds are launched and managed for such
investors.
An example to such a fund is the HDFC Index Fund.
TAX SAVING SCHEMES
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Investors (individuals and Hindu Undivided Families (“HUF’s”)) are being
encouraged to invest in equity markets through Equity Linked Savings
Scheme (“ELSS”) by offering them a tax rebate. Units purchased cannot be
assigned / transferred/ pledged / redeemed / switched – out until completion
of 3 years from the date of allotment of the respective Units.
The Scheme is subject to Securities & Exchange Board of India (Mutual
Funds) Regulations, 1996 and the notifications issued by the Ministry of
Finance (Department of Economic Affairs), Government of India regarding
ELSS.
Subject to such conditions and limitations, as prescribed under Section 88 of
the Income-tax Act, 1961, subscriptions to the Units not exceeding Rs.10,
000 would be eligible to a deduction, from income tax, of an amount equal to
20% of the amount subscribed.
HDFC Tax Plan 2000 is such a fund.
REAL ESTATE FUNDS
Specialized real estate funds would invest in real estates directly, or may
fund real estate developers or lend to them directly or buy shares of housing
finance companies or may even buy their securitized assets.
DEBT BASED SCHEMES
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These schemes, also commonly called Income Schemes, invest in debt
securities such as corporate bonds, debentures and government securities.
The prices of these schemes tend to be more stable compared with equity
schemes and most of the returns to the investors are generated through
dividends or steady capital appreciation. These schemes are ideal for
conservative investors or those not in a position to take higher equity risks,
such as retired individuals. However, as compared to the money market
schemes they do have a higher price fluctuation risk and compared to a Gilt
fund they have a higher credit risk.
INCOME SCHEMES
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These schemes invest in money markets, bonds and debentures of corporate
with medium and long-term maturities. These schemes primarily target
current income instead of capital appreciation. They therefore distribute a
substantial part of their distributable surplus to the investor by way of
dividend distribution. Such schemes usually declare quarterly dividends and
are suitable for conservative investors who have medium to long-term
investment horizon and are looking for regular income through dividend or
steady capital appreciation.
HDFC Income Fund, HDFC Short Term Plan and HDFC Fixed Investment Plans
are examples of bond schemes.
LIQUID INCOMES SCHEMES
Similar to the Income scheme but with a shorter maturity than Income
schemes.
An example of this scheme is the HDFC Liquid Fund
MONEY MARKET SCHEMES
These schemes invest in short-term instruments such as commercial paper
(“CP”), certificates of deposit (“CD”), treasury bills (“T-Bill”) and overnight
money (“Call”). The schemes are the least volatile of all the types of
schemes because of their investments in money market instrument with
short-term maturities. These schemes have become popular with
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institutional investors and high net worth individuals having short-term
surplus investible funds.
GILT FUNDS
This scheme primarily invests in Government Debt. Hence, the investor
usually does not have to worry about credit risk since Government Debt is
generally credit risk free.
HDFC Gilt Fund is an example of such a scheme.
HYBRID SCHEMES
These schemes are commonly known as balanced schemes. These schemes
invest in both equities as well as debt. By investing in a mix of this nature,
balanced schemes seek to attain the objective of income and moderate
capital appreciation and are ideal for investors with a conservative, long-
term orientation.
HDFC Balanced Fund and HDFC Children’s Gift Fund are examples of hybrid
schemes.
REGULATORY ASPECTS OF MUTUAL FUNDS
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SEBI MUTUAL FUNDS REGULATIONS, 1996
The regulatory framework for Mutual Fund Schemes as given by the SEBI
Regulations is as follows:
PROCEDURE FOR LAUNCHING OF SCHEMES
The asset management company shall launch no scheme unless the trustees
approve such scheme and a copy of the offer document has been filed with
the Board.
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.
No one shall issue any form of application for units of a mutual fund unless
the form is accompanied by the memorandum containing such information,
as may be specified by the Board.
DISCLOSURES IN THE OFFER DOCUMENT
The offer document shall contain disclosures, which are adequate in order to
enable the investors to make informed investment decision (including the
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disclosure on maximum investments proposed to be made by the scheme in
the listed securities of the group companies of the sponsor).
The Board may in the interest of investors require the asset management
company to carry out such modifications in the offer document as it deems
fit.
In case no modifications are suggested by the Board in the offer document
within 21 [working] days from the date of filing, the asset management
company may issue the offer document.
No one shall issue any form of application for units of a mutual fund unless
the form is accompanied by the memorandum containing such information
as may be specified by the Board.
INVESTMENT OBJECTIVES AND VALUATION POLICIES
The moneys collected under any scheme of a mutual fund shall be invested
only in transferable securities in the money market or in the capital market
or in privately placed debentures or securitized debts.
Provided that moneys collected under any money market scheme of a
mutual fund shall be invested only in money market instruments in
accordance with directions issued by the Reserve Bank of India.
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The mutual fund shall not borrow except to meet temporary liquidity needs
of the mutual funds for the purpose of repurchase, redemption of units or
payment of interest or dividend to the unit holders.
The mutual fund shall not advance any loans for any purpose.
Every mutual fund shall compute and carry out valuation of its investments
in its portfolio and publish the same in accordance with the valuation norms
specified in Eighth Schedule
Every mutual fund shall compute the Net Asset Value of each scheme by
dividing the net assets of the scheme by the number of units outstanding on
the valuation date.
The Net Asset Value of the scheme shall be calculated and published at least
in two daily newspapers at intervals of not exceeding one week:
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.
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
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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 10% of any
company's paid up capital carrying voting rights.
Transfers of investments from one scheme to another scheme in the same
mutual fund shall be allowed only if, -
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
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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 6% 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.
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
Any security issued by way of private placement by an associate or group
company of the sponsor; or
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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% of its NAV in the equity
shares or equity related instruments of any company. Provided that, the limit
of 10% 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.
PRICING OF UNITS
Although NAV per unit defines the value of the investor’s holding in the fund,
the fund may not repurchase the investor’s units at the same price as NAV.
However, SEBI requires that the fund must ensure that repurchase price is
not lower than 93% of NAV (95% in the case of a closed-end fund). On the
other side, a fund may sell new units at a price that is different from the
NAV, but the sale price cannot be higher than 107% of NAV. Also, the
difference between the repurchase price and the sale price of the unit is not
permitted to exceed 7% of the sale price.
ADVERTISEMENT MATERIAL
The advertisement for each scheme shall disclose investment objective for
each scheme.
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An advertisement shall be truthful, fair and clear and shall not contain a
statement, promise or forecast which is untrue or misleading.
Advertisements shall not be so framed as to exploit the lack of experience or
knowledge of the investors.
All advertisements issued by a mutual fund or its sponsor or Asset
Management Company shall state, "all investments in mutual funds and
securities are subject to market risks and the NAV of the schemes may go up
or down depending upon the factors and forces affecting the securities
market".
The advertisement shall not compare one fund with another, implicitly or
explicitly, unless the comparison is fair and all information relevant to the
comparison is included in the advertisement.
MISLEADING STATEMENTS
The offer document and advertisement materials shall not be misleading or
contain any statement or opinion, which are incorrect or false.
LISTING OF CLOSE-ENDED SCHEMES
Every close-ended scheme shall be listed in a recognized stock exchange
within six months from the closure of the subscription.
Provided that listing of close-ended scheme shall not be mandatory –
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if the said scheme provides for periodic repurchase facility to all the unit
holders with restriction, if any, on the extent of such repurchase; or
if the said scheme provides for monthly income or caters to special classes
of persons like senior citizens, women, children, widows or physically
handicapped or any special class of persons providing for repurchase of units
at regular intervals; or if the details of such repurchase facility are clearly
disclosed in the offer document; or if the said scheme opens for repurchase
within a period of six months from the closure of subscription.
REPURCHASE OF CLOSE-ENDED SCHEMES
The asset management company may at its option repurchase or reissue the
repurchased units of a close-ended scheme.
The units of close-ended schemes referred to in the provision to regulation
32 may be open for sale or redemption at fixed pre-determined intervals if
the maximum and minimum amount of sale or redemption of the units and
the periodicity of such sale or redemption have been disclosed in the offer
document.
INFRASTRUCTURE MUTUAL FUND 0000000000000000000
INFRASTRUCTURE MUTUAL FUNDSAn Infrastructure fund is a managed vehicle through which investors gain
exposure to the underlying characteristics of infrastructure assets.
Infrastructure is emerging strongly as an asset class which can be
particularly well suited to pension funds and other investors with a long-term
65
outlook. Infrastructure assets tend to display comparatively stable, long-
term real return and provide a good match for longdated liabilities.
They invest in private infrastructure companies, but the fnds themselves can
be isted or unlisted. For example, Macquarie has been investing in
infrastructure for more than a decade and now manages over 20
infrastructure funds around the world. Half of these are listed on the stock
exchange, with investors from pension funds and other institutions to retail
investors. The rest are unlisted funds in which the investors are largely
pension funds and other institutions.
The fund tens to either specialize in one class of infrastructure - for example
invest only in airport or only in toll-roads – or they invest across various
infrastructure ectors which meet specified investment criteria. For example
The infrastructure assets can include telecommunications and broadcast
nfrastructure, utilities, toll road, airport and other transport infrastructure.
Fundamentally, infrastructure assets are distinguished by displaying the
following ey characteristics:
Provide essential community services
Have strategic competitive advantage
Have predictable long-term cash flow
These characteristics lead to the investment benefits outlined below.
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Infrastructure assets display unique characteristic. Their essential and long-
term nature, combined with strong competitive position, lead to stable and
predictable consumer demand and cash generation. These assets tend to
have a high fixed capital base with comparatively low operating costs – on
average of between 10% and 30% of revenue. Along with the long-term
operating license and predictable demand, often in a regulated environment,
this allows the manager to forecast cashflows with accuracy.
Infrastructure assets have a low correlation to equity markets and other
asset classes. For the reason, it can provide valuable diversification in an
investment portfolio. It also provides a good match for the long-dated liabilities of
ension funds due its long-life and inflation protected returns. This stability in
operating cashflows can reduce the overall volatility of returns for investors
and, in our experience; investors are finding this combination of sustainable
yields, lower volatility and inflation-linked return increasingly appealing.
But there are only five that have a sizeable money under management; and
these four were launched before 2006:
These funds include:
1.DSP ML TIGER Fund
2. Prudential ICICI Infrastructure Fund
3. Tata Infrastructure Fund
4. UTI Thematic Infrastructure Fund
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These are are open-ended funds; this means you can invest in them
whenever you like. We expect some more infrastructure funds to hit the
market but most of them would be close-ended (in open-ended funds,
investors are free to sell their units anytime; in close-ended funds, investors
cannot sell their units for a minimum period of time -- this minimum period is
decided by the fund).
INFRASTRUCTURE MUTUAL FUNDS
Infrastructure, as a theme, covers several sectors like power utilities, power
equipment and construction companies best, technology sector funds could
software stocks it traditionally invests in), infrastructure funds are a few
sectors.
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DSP Merllynch Tiger Fund
Here's a fund suitable for all types of investors. The aggressive ones will like
the returns it offers while the conservative ones will find peace in its
diversification.
DSP T.I.G.E.R. Fund was launched at a very opportune time when the Sensex
was around begun to witness high grow launched in April 2004. In the past
four years DSP India has performed excellent and has become one of the
best funds for the investor. open ended fund which can Its Market
capitalization as at 31/03/08 was 19,005.59 cr. Its
The broad investment mandate, large alleviate all their fears. An acron
Reforms, the fund focuses on sectors that are likely to prosper from growth
related to economic reforms and infrastructure development. With this as a
starting point, the fund manager follows a top resorting to bottom-up stock
picking. Unlike other infrastructure offerings, its broader mandate has
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enabled it to tap into sectors that core infrastructure funds do not -
healthcare, FMCG, textiles, consumer non-durables.
ICICI Prudential Infrastructure Fund
ICICI Prudential Infrastructure has protected the downside well while growing
at a fast pace. In fact the fund emerged as the fourth best diversified in
2006.
ICICI Prudential Infrastructure fund was
launched in August 2005. It is an open ended
fund having market capitalization last 52 weeks
highest NAV was 36.61.
UTUAL FUNDS
As infrastructure funds go, the fund is structured to exclude technology,
FMCG and pharmaceutical companies. But beyond this similarity, there exist
discernible characteristics in the fund's portfolio that set based funds.
Tata Infrastructure Fund
Tata Infrastructure Fund is one of the best fund and highly rated fund. It has
2004.
It is an open ended fund having market capitalization of
Rs. at 31/03/08. Its last 52 weeks highest NAV was
45.515 and lowest was 23.1237.
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The fund achieved this essentially on the back of a large with some help
from the mid caps. To some extent one can attribute this stellar performance
to the sector exposure that most infrastructure funds maintain. But the real
clincher had been the f has truly augmented the fund's returns.
UTI Thematic Infrastructure Fund
India’s infrastructure sector is expected to witness huge investments in the
coming years. To enable you to take advantage of this Infrastructure
Advantage Fund.
As a 3 year close ended fund it focuses on investing in high growth
infrastructure sectors such as Airports, Banking, Construction, Engineering,
Energy, Mining, Ports and Power among others. The category pioneer, UTI
Infrastructure has been going great guns. A runaway hit in 2005 and an
exemplary success in 2006 & 2007, the fund is on a roll with the future looks
just as promising. he first infrastructure fund to be launched, it was a classic
example of the early bird getting the worm. It found a spot in the top quartile
of the category in 2005, generating 57 per cent returns and outdoing the
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average peer by a marginL apart from other infrastructure recently received
as a best equity fund award by CRISIL. It is considered as one of the best
infrastructure fund. TATA Infrastructure's astute ability to spot sector trends
has handsomely. Tata Infrastructure Fund was launched in December .
24,081.68 cr. As s large-cap growthwith fund manager's ability to spot sector
trends which boom, UTI now launches the UTI delivered oriented focus, fund
of more than 10 per cent. In 2006, it leapt to the topmost slot with returns of
61.48 per cent .
UTI Infrastructure fund was launch having market capitalization of Rs.
24,247.71 cr. as at 31/03/08. thematic fund, it has a reasonably diversified
portfolio of 40 capital goods, construction and energy dominate the portfolio,
but this infrastructure fund also has a significant exposure to metals and
technology. This ne makes for a worthy and dive expenditure wave
sweeping across the country. MA
DATA ANALYSIS
MARKET CAPITALISATION
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KET CAPITALIZATIONThe above graph shows that ICICI Prudential Infrastructure Fund has
maximum fund under management as compared to other fund houses. It is
followed by UTI Infrastructure fund, Tata Mutual Fund and DSP Merllynch
Tiger Fund respectively.
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MEAN & STANDARD DEVIATIONMEAN & STANDARD DEVIATION OF THE FUNDSCalculated value of Mean andfund is shown in the chart below:
Mean Calculated above is for the period of past one year. We can see that
there is not much difference between the returns of these mutual funds.
T.I.G.E.R fund has provided maximum return of 4 been most successful fund
for the past DSP Merllynch T.I.G.E.R fund it is the least volatile fund of th
earner and comparatively low risk earner highest return with least volatility.
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If Beta less than 1 means, the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. As seen from the above table UTI Infrastructure Fund is most volatile followed by Tata, DSP and ICICI Prudential respectively. Now if market rise, UTI Infrastructure Fund will rise at faster rate than other fund, but if market falls, UTI Infrastructure Fund will fall at faster rate too.
Treynor ratio is a risk-adjusted measure of return based on systematic risk. Greater the value of Treynor Ratio, better is the fund. Here again ICICI Prudential Infrastructure fund scores higher than other funds.
Expense Ratio allowed by SEBI is 2.5% of the total asset under management. All the above funds mentioned are below the mentioned ratio. But UTI Infrastructure fund is having maximum expense ratio of 2.03%. Here again ICICI Infrastructure fund has least expense ratio. The reason might be that it is well established fund house and hence requires comparatively less expense in marketing expenditure.
PORTFOLIO ANALYSIS
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Portfolio of the fund describes compositions of various industries equity
shares. Mutual funds have much diversified portfolio as per the requirement
of the fund. Infrastructure fund has majority of its portfolio in industries like
Energy, Engineering, Metal, Construction, and Technology Industries.
IS
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There has been quite rational move by all the fund houses in including and
excluding right firm in their portfolio. ICICI Prudential made a huge change in
its portfolio by introducing 4 new companies and withdrawing from 4 existing
companies. It invested into companies like ONGC, Gujarat Ambuja Cement
ltd, India Cement Ltd and Mahindra & Mahindra Ltd, all having huge market
potential. It let away with HDFC, GAIL which are at the moment hit by the
market factors.
Both UTI & DSP Merllynch had similar changes this month with both buying
the share of Reliance Industries Infrastructure Ltd shares and selling Reliance
Energy. DSP Merllynch T.I.G.E.R Fund also purchased some shares in Idea
Cellular Ltd. It is expected that Idea Cellular is expected to do well in the
recent future; hence it might be a good move.
Tata Infrastructure also did a positive move by Reliance Petroleum which is
expected to do well. Bharti Airtel is expected to merge with MTN of South
Africa. This merger is expected to benefit Bharti Airtel by giving global
markets. Hence it’ll help its shareholder.
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COMPARISION W
78
I
The above shown graph describes the movement of the selected
infrastructure funds with the benchmark. Here the benchmark chosen in BSE
Sensex. The data selected for the above graph is for the past1 year.
investing into Bharti Airtel and ARHMARK INDEX
STATISTICAL ANALYSIS
It can be seen that when the BSE Sensex was on the rise, all the funds were
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performing extremely well. The return is well above 100%. It can be seen
that Tata Infrastructure Fund was performing extremely well till Dec 07. It
had provided maximum return as compared to other fund houses and was
rated best fund of the year by CRISIL and ICRA.
But when Sensex crashed in the January ’08 we saw a steep fall in all the
funds.
The fall was more the 100% to the Sensex. Thereafter, there was change in
the high performer with ICICI Infrastructure fund out performing other
infrastructure funds. It can be seen in the graph that ICICi Infrastructure
performing best followed by Tata Mutual Fund, UTI Infrastructure Fund and
DSP Merllynch Fund.
COMPARSION WITH THE BENCHMARK INDEX
EQUITY MUTUAL FUNDSEQUITY FUNDSThe term Equity Investment refers to the buying and holding of stocks in the
stock market by individuals & companies, then expecting income from
dividends and capital gains when there is a rise in the stock value. It also
refers to the acquirement of ownership / equity participation in a start-up
company or a private company. When you invest in a start-up company, the
investment is termed as Venture Capital and is likely to be at a higher risk
than the on-going concerns.
The Equity Funds, also known as Stock Fund, is a fund that invests in
equities / stocks. These funds are generally held in stock or cash unlike
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securities or bonds. This may be done by means of a mutual fund or
exchange traded fund. The main objective of investing in an equity fund is to
have long-term growth via capital appreciation apart from dividends and
interest as sources of revenue. Explicit equity funds may have their focus on
specific market sector and also include certain amount of risk.
The Equity Funds are either via the mutual funds or by any other pooled
investment vehicle. These vehicles have their prices quoted, listed and
publicized. The mutual funds are generally under the management of
renowned fund management firms. Under these types of holdings, the
investors can have diversified funds with the help and services of skilled
professionals known as fund managers. These fund managers are in charge
of these funds.
Each equity fund can be distinguished from the other. For example, a fund
can be growth specific or and another can value specific. These funds can be
invested only in securities from one or more countries. Fund managed by the
fund managers are actively managed and the Index Fund reflects the specific
market indices.
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HDFC Top 200 fund has the highest market capitalization as compared to
other funds. Reliance being the oldest fund has not been able to attract large
number of investors. Tata P/E Equity fund has the lowest market
capitalization. The reason may be, it is the youngest fund of the lot launched
in December 2004.
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t
hrough Mean & Standard In the above show chart, we can see SBI Magnum Contra Fund out
performing other funds. It has given a average return of 42.24 in the past 1
year followed by Reliance Growth Fund, HDFC Top lowest average mean of
37.71.
While calculating their standard deviation, we see HDFC Top 200 having
least SD of all. It means that HDFC is least volatile fund of the lot. The most
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volatile fund is Reliance Growth Fund. Tata is also on the higher side with SD
of 27.14.
So looking at the above chart, we can say that SBI Magnum is better fund as
its average return is highest and SD is low, though not lowest.
0
10
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Looking at the above given data, we have quite mixed reactions about these
funds.
Beta of three funds is less than 1. It means that if market falls, there will
comparatively small fall in these funds, while if the market rises, there rise
will also be comparatively less. So we can say that these funds are less risky
but will also give less return. Tata P/E equity fund is having beta of more
than 1 i.e. 1.01, which means 100% change in market will bring 101%
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change in the fund. So this is comparatively more risky fund but is expected
to give higher return. In the present market scenario where it is very difficult
to say if market would rise or fall, it is very hard to say whether a fund
should have Beta more than 1 or less than 1.
Sharpe Ratio shows smart portfolio’s composition. HDFC Top 200 is having
the highest Sharpe Ratio of 1.44, followed by SBI Magnum Contra Fund,
Reliance Growth Fund and Tata P/E Equity Fund. Tata P/E is having the least
at 1.19 which refers this fund as high returns but with high risk.
Treynor Ratio measures returns earned in excess of that which could have
been earned on a riskless investment per each unit of market risk. Reliance
Growth fund out scores other funds in this ratio with Treynor Ratio equal to
1.41, followed by Tata P/E Equity Fund at 1.28, SBI Magnum Contra Fund at
1.18 and HDFC Top 200 at 0.97.
The Sortino ratio measures the risk-adjusted return of an investment asset,
portfolio or strategy. The ratio is the actual rate of return in excess of the
investor's target rate of return, per unit of downside risk. Here again Reliance
Growth is the best performer with Sortiino Rotio of 0.58 followed by Tata P/E
Equity Fund at 0.52, SBI Magnum at 0.48 and again the last is HDFC Top 200
fund at 0.42.
The P/E ratio (price-to-earnings ratio) of a fund is a measure of the price
paid for a fund relative to the annual income or profit earned by the fund per
unit. Investor who opts to purchase a fund would prefer low P/E, while a
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seller would like to sell a fund whose P/E is high. Among the above funds,
investor would prefer to invest into SBI Magnum and Tata P/E Fund as it has
low P/E, i.e. it is not listed at a high price. Reliance Growth and HDFC Top200
is listed at a high price and hence expensive to purchase for an investor.
Expense incurred by Tata is very high at 2.36% of the fund. The reason
might be that it is comparatively new fund house and needs to incur some
advertisement expenses. Also the market capitalization of the fund is
comparatively low, hence the ratio might seem to be quite big as compared
to other. Reliance Growth fund has lowest expense ratio.
Analysis through statistical
Portfolio Analysis
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The above graph shows the portfolio of the selected fund. From the graph it
can be seen that Reliance Growth and SBI different sector.
Here HDFC Top 200 Fund is having around 20% exposure in the financial
market. Financial market is on the back side, with the sub months Indian
financial market is on the back foot. Also are not very impressive. So the
retur Equity Fund is comparatively lower.
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Also the exposure of Tata P/E Equity fund is more than 27% in Metal and
metal product. The return from this fund largely depends upon this sector. If
any uncertainty hits this sector, the loss to this fund will be enormous.
We can also see that it is only HDFC Top 200 have invested in consumer
durables. While Reliance Growth Fund have invested in Textile sector.
It should also be noted that Reliance Growth Fund is having around 20% of
the fund in cash which is very large amount on which the fund is not earning
any return. It might be that the fund manager would be waiting for the right
time to invest in this volatile market. SBI Magnum is having very small
portion of the fund in cash so the return will be received on the entire fund,
but at the time of bulk return the fund manager might find problem.
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We can see that from the previous portfolio there is not much difference in
the present portfolio.
Reliance Growth bought Kotak Mahendra Bank Ltd to its portfolio which is
very smart move. Though there are number of bank’s equity shares loosing
grip in the market but Kotak Mahendra has performed well in the last few
months and the results were also quite satisfying. It also took a rational step
by selling off JSW Steel Ltd, as steel industry is in huge pressure from the
government on keeping the price of the product low and also international
rise in raw metal.
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Portfolio Analysis
Tata P/E Equity fund kept itself away from investing in the high volatile
market but it sold couple of its shares. One of which was ONGC, the stock
which expert suggest is not going to do well. So the move seems to be a
rational one from the Tata Fund House.
th the Benchmark Index
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The above given diagram shows the movement of the each fund’s NAV with
the Benchmark. Here benchmark is BSE Sensex. The NAV of past 1 year is
taken into study. We see very less gap between the NAV of these funds
during the first 5 months. For the next two months when the Sensex was at
its peak, two funds namely Tata P/E Equity Fund and Reliance Growth Fund
outperformed other funds. When the Sensex fall in the mid Jan, highest fall
was in Reliance and Tata Equity Fund, but still the remained above other
funds. It can be seen that Tata P/E Equity Fund outperforms the other fund
thro Tata P/E was highest followed by Reliance Growth, HDFC Top 200 and
SBI Magnum Contra Fund.
DEBT MUTUAL FUND
An investment pool, such as a mutual fund or exchange-traded fund, in
which core holdings are fixed income investments. A debt fund may invest in
short-term or long-term bonds, securitized products, money market
instruments or floating rate debt. The fee ratios on debt funds are lower, on
average, than equity fundsbecause the overall management costs are lower.
The main investing objectives of a debt fund will usually be preservation of
capital and generation of income. Performance against a benchmark is
considered to be a secondary consideration to absolute return when
investing in a debt fund.
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A debt fund has lots going for it as an investment. For most, it's the only way
to invest in income-generating instruments without having to commit huge
sums of money, or stressing out about assorted worries such as transaction
costs, stamp duty or lack of liquidity. In fact, many of the most attractive
debt instruments are unavailable directly to the retail investor.
Debt itself has the advantage of being much less risky than equities. Equities
may return more, but their volatility can be distressing. If steady, predictable
returns are what you expect, a debt fund will deliver precisely that. That's
why it's an essential portfolio component for people who take a keen interest
in money management, like 54-year-old housewife "Open-ended debt funds
provide regular income, liquidity and tax advantages minus the sleepless
nights of equity." There's also the tax-saving angle. Budget 99 made
dividends tax-free in the hands of the investor. Further, investors can claim
indexation benefits, which have the effect of reducing the tax liability on
their capital gains arising from the sale or redemption of units of debt funds.
Debt Fund in consideration.
Birla Sun Life Income Fund
HSBC Income Investment Fund
Kotal Income Plus Fund
Tata Income FundALYSIS
Birla Sun Life Income Fund
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This fund was launched on March 1997. It is the oldest fund of the selected
lot. This fund house is considered as the best fund house for the debt based
fund. It has been rated as Five Star Fund from the Value Research. The
fund’s investment has been largely diversified with investment in all highly
rated funds. Its Asset Under Management is more than Rs. 275 Cr.
It can be seen that the fund has always outperformed the benchmark when
the Debt Medium-term index is on the rise. Also when it falls, Birla Sun Life
Income Fund falls at greater pace.
HSBC Income Investment Fund
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HSBC Income Investment Fund (HIF) seeks to generate regular returns by
investing in bonds, debentures, government securities and short term
instruments like commercial papers, repos etc. For a time horizon greater
than a year and if one seek regular returns, then one can invest in the
Investment Plan of HSBC Income Investment Fund.bout Debt Fu
Kotak Income Plus Fund
Kotak Income Plus invests 80% - 100% in debt and money market
instruments and 0 - 20% in equity related instruments. The scheme
endeavors to provide safety of a debt fund with superior returns of equity
product. To ensure safety of a debt fund the scheme invests in top rated
debt instruments thereby ensuring good credit quality and liquidity. It was
launched in the year 2003.
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Tata Income Fund
Tata launched the fund way back in 1997. The objective of the scheme is to
provide income distribution and/ or medium to long term capital gains while
at all times emphasising the importance of safety and capital appreciation.
It is having its investment spread through only 14 debt funds.
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97
Size
The above given figure shows the net asset of each fund as on 30 April 08.
It can be clearly seen that in type of fund that we have selected, Birla Sun
Life Income Fund leads others with its fund size of more than 250 crs.
launched 10 years ago and has been able to attract huge amount of their
fund.
The oldest fund of all, HSBC Income Investment Fund has not been able to
attract and keep large number of investment. This might be the reason for
its fulowest of the lot.
Tata Mutual fund has also been launched very small as to Birla Sun Life
Income fund it is doing better than other two funds.
98
St
99
We can see here that Birla Sun Life Income Fund has out the form of average
return. It has provided return more than 10% while less than 8% of return. So
we can say that Birla Fund house has performed exceptionally well.
HSBC Income Investment Fund is giving second highest return at 7.3% while
Kotak and Tata fund houses follow them respectively.
While looking at the deviation from their mean, we find HSBC Income
Investment Plan is having lowest volatility at 1.77% followed by Tata Income
Fund Birla Sun Life Income Fund at 2.98 and Kotak Income Plus Fund at
5.63%. Kotak Income Plus Fund is most volatile fund as its Standard
Deviation is very high as compared to other such schemes.
A rational investor will always prefer a fund giving high return with least
standard deviation. Also in debt fund, the investors are low risk takers and
avoid I the funds having Standard Deviation high. So for them Birla Sun Life
Income Fund will be considered as the optimal plan.
0
100
2
Beta of all the fund is more than 1 which means if its benchmark quotes
increase by 100% all the fund’s NAV will increase by more than 100%. The
biggest change will be in Tata Income Fund as its Beta is highest at 1.09. So
if the benchmark will be on the rise, Tata will rise at fastest rate of all other
fund followed by HSBC and Kotak fund with Birla being the last of the lot.
Analysis through Statistical Tools
101
Sharpe ratio concentrates on the composition of the fund. It calculates how
smart the fund is structured. Without a doubt, Birla Fund House tops the
ratio followed by Kotak Income Plus fund. Both HSBC Income Investment
fund and Tata Income fund are having lowest Sharpe Ratio.
Sortino Ratio calculated only downward movement of the fund with its
benchmark. Higher the ratio better the fund is. Here again Birla Sun Life
Income Fund Tops the list with ratio of 0.76. Second place is taken by Kotak
Income Fund followed by HSBC and Tata Income Fund respectively.
Here again we see that Tata Income Fund is having highest expense ratio of
2.25 of the total asset. It is having very high expense throughout its entire
funds. Even Kotak Income Plus Fund is also having very high expense. Both
HSBC Income Investment Fund and Birla Sun Life Income Fund is having
lowest expense ratio of the lot.
So reviewing the above table we can say Birla Sun Life Income Fund is the
best of the lot in almost all the ratios and hence most attractive fund.
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A good mutual fund is that fund which is optimally Income Investment Fund
having more than 85% of the fund invested in the AAA Rated Funds which
may not be that much rational. Also its cash in hand is in negative. It implies
that it has taken money on credit to invest in the m this case, if there is any
large redemption from the investors, in that case the fund manager might
not be able to provide timely money to the investors.
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Birla Sun Life Income Fund is having properly diversified portfolio with its
investment in all high credit rated funds. We can see that its investment is
less in the GOL securities as in these securities risk is very less or we can
say, there is no risk but return is very less which does not help in earning
more of a return. Its high investment in money market helps the fund in
receiving more return from the investment. So it is well balanced fund
Looking at the above graph we can see that Kotak Income Plus Fund is
slightly more risky as compared to other funds as it is having its investment
in th companies with not the top level of Rating. It is also having investment
in the companies with credit rating AA+ which makes it slightly more risky
than other funds. Also it is only Kotak which has invested in AA+ rated
companies.
Tata Income fund is also well diversified fund with its investment in all top
credit rated companies. It is having highest investment in GOI securities
which makes this fund least risky but also reduces the opportunity of earning
more from other companies.
Mov
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the Ben
Source: www.mutualfundsindia.com
The above NAV graph has been drawn taken the NAV of period of past 1
year. The benchmark selected for the formulation for this graph is CRISIL
Composite Bond Fund Index.
It can be seen in the graph that Kotak Income Plus Fund has been most
volatile fund and has fluctuated a lot f growth was similar to other funds but
in the month of September we saw a big fall in the NAV of Kotak Income
fund. This fall led to its NAV even below Benchmark. Tata Income Fund
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But thereafter for the next 4 months there was a big gain in its NAV. Its NAV
was highest for that period outperforming all other funds. But it again
noticed a major fall, ending the year with lowest NAV for the year. The
reason for such volatility can be its portfolio composition having AA+ rated
bond funds.
As far as Birla Sun Life Income Fund is concerned, it has constantly provided
high return. It can be seen from the graph that when there is an increase in
the benchmark index, Birla Fund saw a greater rise, but there was not
greater fall when there was a fall in the Benchmark Index. This really makes
fund most attractive and desirable for the investors. It ended the year with
staying on the top of the selected fund. This is the reason it was accredited
with five star rated fund from CRISIL.
HSBC Income Investment fund performed fairly well with always staying
above the benchmark Index. It has never fallen below the benchmark and
this makes this fund second most preferred fund as there is least volatility
and steady growth. It ended the year with second highest NAV of the
selected funds.
Tata Income Fund has not performed well. For the most of the period its NAV
stayed below the benchmark index. Though we don’t see much of the
volatility in the fund, which makes it less risky but investor do demand
returns at least as that of its benchmark if not more. But for 9 months its
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NAV was below CRISIL Composite Bond Fund Index. At the end of the year,
we saw some upward movement in the NAV ending third of the selected
funds.
NAV Graph
RECOMMENDATION
Companys are comparatively a young company. It is having best of the
personals who can take Tata Mutual Funds to great heights. I have following
suggestion which I feel might help them in achieving their desire goals.
107
Companys should diversify their investment throughout the different
sector and avoid keeping majority funds only in a particular sector.
It should reduce its Expense Ratio which is very high as compared to
other fund houses
Its changes in portfolio compared to previous are very rational but it
should also try to reduce its share in the financial sector which is at the
downside.
Companys are not doing very good in the Debt Fund category. It
should try to reduce its share from the GOI securities and participate
more in the money market.
DSP Merllynch Tiger Fund
Here's a fund suitable for all types of investors. The aggressive ones
will like the returns it offers while the conservative ones will find peace
in its diversification.
DSP T.I.G.E.R. Fund was launched at a very opportune time when the Sensex
was around begun to witness high grow .
ICICI Prudential Infrastructure Fund
ICICI Prudential Infrastructure has protected the downside well while
growing at a fast pace.
In fact the fund emerged as the fourth best diversified in 2006.
UTI Thematic Infrastructure Fund
108
India’s infrastructure sector is expected to witness huge investments in the
coming years. To enable you to take advantage of this Infrastructure
Advantage Fund. As a 3 year close ended fund it focuses on investing in high
growth infrastructure sectors such as Airports, Banking, Construction,
Engineering, Energy, Mining, Ports and Power among others.
Tata Infrastructure Fund
Tata Infrastructure Fund is one of the best fund and highly rated fund. It has
2004. It is an open ended fund having market capitalization of Rs. at
31/03/08. Its last 52 weeks highest NAV was 45.515 and lowest was
23.1237The fund achieved this essentially on the back of a large with some
help from the mid caps. To some extent one can attribute this stellar
performance to the sector exposure that most infrastructure funds maintain.
But the real clincher had been truly augmented the fund's returns.
APPENDIX I
CRISIL Rating Symbols For Long Term Ratings
Investment Grade Ratings
AAA (Triple A) Highest Safety
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Instruments rated 'AAA' are judged to offer the highest degree of safety with
regard to timely payment of financial obligations. Any adverse changes in
circumstances are most unlikely to affect the payments on the instrument
AA (Double A) High Safety
Instruments rated 'AA' are judged to offer a high degree of safety with regard
to timely payment of financial obligations. They differ only marginally in
safety from `AAA' issues.
A(Adequate Safety)
Instruments rated 'A' are judged to offer an adequate degree of safety with
regard to timely payment of financial obligations. However, changes in
circumstances can adversely affect such issues more than those in the
higher rating categories.
Appendix II
Few of the Funds Provided By Tata Mutual Funds
Equity fund
Tata Pure equity fund
Equity opportunity fund
Equity P/E fund
Select equity fund
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Growth fund
Index fund
Life science & Tech fund
Div Yield fund
Infrastructure Fund
Mid Cap Fund
Contra Fund
Debt Fund
Tata Short Term Bond Fund
Income Fund
Gilt Securities Fund
Gilt Short Maturity Fund
Income plus Fund
Liquid Fund
Floating rate Fund- short run
Floating rate fund- long run
Floater Fund
Liquidity Management fund
Dynamic Bond Fund
Balance Scheme
Tata Balanced Fund
Young Citizens’ Fund
Monthly Income Scheme
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Tata Monthly Income Fund Scheme (Debt Fund)
Tata MIP Plus Fund (Debt Fund)
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113
ANALYSIS
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REFERENCES
Khan & Jain
www.mutualfundindia.com
www.amfiindia.com
www.tatamutualfund.com
www.pruiciciamc.com
www.principleindia.com
www.bobmf.com
www.jpmorganmf.com
www.hdfcfund.com
www.taurusmutualfund.com
www.reliancemutual.com
www.moneycontrol.com
www.valueresearchonline.com
www.investopedia.com
www.wikipedia.com
AMFI study material
Mutual Fund Insight magazine
Capital market magazine
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