Chapter- 1 EXECUTIVE SUMMARY A mutual fund is a scheme in which several people in their money for common financial cause. The collected money invests in the capital market and the money which they earned is divided based on the number of units which they hold. The mutual fund industry started in India, In a small way with the UTI Act creating what was effectively a small savings division within the RBI. Over a period of 25 years this grew fairly successfully and gave investors a good return and therefore in 1989 as the next logical step public sector banks and financial institutions were allowed to float mutual funds and their success emboldened the government to allow the pri priva vate te sect sector or to fora foray y into into this this area area.. Th Thee advan advanta tages ges of mutu mutual al fund fund are are prof profes essi siona onall management, diversification, economies of scale, simplicity, and liquidity. The disadvantages of mutual fund are high costs, over-diversification, possible tax consequences, and the inability of management to guarantee a superior return. The biggest problems with mutual funds are their costs and fees include include Purchase Purchase fee, Redemption Redemption fee, Exchange Exchange fee, Management fee, Account fee & transaction Costs. There are some loads which add to the cost of mutual fund. Load is a type of commission depending on the type of funds. Mutual funds are easy to buy and sell. You can either buy them directly from the fund company or through a third party. Before investing in any funds one should consider some factor like objective, risk, Fund Manager’s and scheme track record, Cost factor etc. There are many types of mutual funds.You can classify funds based Structure Structure (open-ended (open-ended & close-ended) close-ended),, Nature Nature (equity, (equity, debt, balanced), balanced), Investment Investment objective objective (growth, (growth, income, money money market) etc. A code of conduct and registrat registration ion structure structure for mutual fund intermediaries, which were subsequently mandated by SEBI. In addition, this year AMFI was involved involved in a number of developments and enhancements to the regulatory framework. The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks and smaller private banks. The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks banks and smalle smallerr privat privatee sector sector player players. s. Relian Reliance ce Mutual Mutual Fund, Fund, UTI Mutual Mutual Fund, Fund, ICICI ICICI Prudential Mutual Fund, HDFC Mutual Fund and Birla Sun Life Mutual Fund are the top five mutual fund company in India. Reliance mutual funding is considered to be most reliable mutual 1
funds in India. People want to invest in this institution because they know that this institution will never dis satisfy satisfy any cost. You should always always keep this into your mind that if particular particular mutual funding scheme is on larger scale then next time, you might not get the same results so being a careful investor you should take your major step diligently otherwise you will be unable to obtain the high returns.
Chapter- 2
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funds in India. People want to invest in this institution because they know that this institution will never dis satisfy satisfy any cost. You should always always keep this into your mind that if particular particular mutual funding scheme is on larger scale then next time, you might not get the same results so being a careful investor you should take your major step diligently otherwise you will be unable to obtain the high returns.
Chapter- 2
2
Company Profile
Recognized as a leading merchant banker in the country, KARVY is registered with SEBI as a Category I merchant banker. This reputation was built by capitalizing opportunities in corporate corporate consolidati consolidations, ons, mergers mergers and acquisitio acquisitions ns and corporate corporate restructur restructuring, ing, which have earned us the reputation of a merchant banker.
Company Overview : Karvy Stock Broking Limited provides stock broking and research advisory services in India. The company offers portfolio analysis, depository participant, and financial planning and manage management ment servic services es for indivi individua duals ls and instit instituti utional onal client clients. s. It also also provid provides es a monthl monthly y magazine, Finapolis, which provides up-dated market information on market trends, investment options, and opinions. The company was founded in 1990 and is based in Hyderabad, India. Karvy Stock Broking Limited is a subsidiary of Karvy Consultants Limited. Karvy Stock Broking Limited, Limited, one of the cornerstones cornerstones of the Karvy edifice, edifice, flows freely towards attaining diverse goals of the customer through varied services. Helping the customer create waves in his portfolio and empowering the investor completely is the ultimate goal. It is an undisputed fact that the stock market is unpredictable and yet enjoys a high success rate as wealth management and wealth accumulation option. The difference between unpredictability and a safety anchor in the market is provided by in-depth knowledge of market functioning and changing trends, planning with foresight and choosing one . Members: - National Stock Exchange (NSE), The Bombay Stock Exchange (BSE), and The
Hyderabad Stock Exchange (HSE).
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1) National Stock Exchange(NSE):Exchange(NS E): Nifty is a stock market index of national Stock of Exchange. It is having the stocks of 50 of the largest and the most liquid companies from about 25 sectors in India. It was introduced in 1995.NSE is one of the first de-metalized de-metalized stock exchanges in the country, country, where the ownership and management of the exchange is completely divorced from the right to trade on it.
2) Bombay Stock Exchange(BSE):Exchange(BS E):The Bombay stock exchange is the oldest stock market of India. ’’Sensex” stands for sensitive index. It was created in 1978-79 with a base value of 100.It was having of thirty stocks of leading Indians companies and it well diversified with representation of almost all the sectors of the economy like Banking, IT, Cement, Autos, Manufacturing, Capital goods, etc.
3) Hyderabad Stock Exchange(HSE) Exchange(HS E) :The Hyderabad Stock Exchange (HSE) in Hyderabad had started its operations in the year 1941. Initially, the operations were carried out on a very small scale in a building taken on rent in the area of Koti. Later, in 1987, the office was shifted to Aiyangar Plaza, Bank Street. Hyderabad Stock Exchange was the 6th stock exchange to get recognition under Securities Securities Contract Contract Act. The Government Government of India recognized recognized HSE on 29 September, September, 1958. With registering significant growth in the domain of trading and for its yeoman services, the HSE was rendered the permanent recognition, which became effective from 29 September, 1983. 4)
Demat Dem at Accou Ac count: nt:--
(dematerialized account) Though the company is under obligation to offer the securities in both physical and demat mode, you have the choice to receive the securities in either mode. If you wish to have securities in demat mode, mode, you need to indica indicate te the name name of the deposito depositorr and also also of the deposit depositary ary participant with whom you have depository account in your application. It is however desirable
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that you hold securities in demat from as physical securities carry the risk of being fake, forged or stolen. If you want to to buy or sell stocks, stocks, you you need to open a demat account. account. So it is just like like a bank account where actual money is replaced by shares. You have to approach the DPs (remember they are like bank branches) to open your demat account. Let’s say your portfolio of shares looks like this :-100 of Infosys,150 Infosys,150 of Wipro,200 of HCL. All these will show in your demat account, so you don’t have process any physical certificates showing that you own these shares. They are all held electronically in your account. Just like bank passbook or statement, the DP will provide you with periodic statement of holdings and transactions.
5) Mutual Mutu al Funds Fund s :Mutual fund are a kind of investment that are based on the gains and losses of a shareholder. Basically one person manages the money of several investors and invests in a list of various stocks to lessen the effect of any losses that may occu r. A mutual fund is a professionally managed type of collective investment that pools money from many investors to buy stocks, bonds, short-term money market instruments, and other securities.
MISSION Statement of karvy An organization exists to accomplish something or achieve something. The mission statem statement ent indica indicates tes what what an organi organizat zation ion wants wants to achieve. achieve. The missio mission n statem statement ent may be chan changed ged perio periodi dica call lly y to take take advan advanta tage ge of new new oppo opport rtuni uniti ties es or resp respond ond to new mark market et conditions. Karvy mission statement statement is “To bring industry ,finance & people together.” Karvy is work as intermediary intermediary between between industry & people. people. Karvy works as investment investment adviso advisorr & helps helps people to invest their their money same was karvy helps helps industry industry in achievin achieving g finance from people by issuing shares, debentures, bonds, mutual funds, fixed deposits,etc.
.
Company’s mission statement is clear & thoughtful which guide geographically dispersed employees to work independently yet collectively towards achieving organization goals.
Vision of Karvy
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Company’s vision is crystal, clear & mind frame very directed. “To be pioneering financial services company and continue to grow at a healthy pace, year after year, decade after decade. Company’s foray into-IT enabled services & internet business has provided an opportunity to explore new frontiers & business solutions.
PRODUCT AND SERVICES OF KARVY GROUP: 1. Karvy comtrade. 2. Karvy consultant ltd. 3. Karvy merchant banking. 4. Karvy global services ltd. 5. Karvy database management services. 6. Karvy realty (india) pvt.ltd
Major Competitors in market place
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ICICI DIRECT
ICICI Web Trade Limited (IWTL) maintains www.icicidirect.com (herein after referred to as the "Website") whereas IWTL is an affiliate of ICICI Bank Limited and the Website is owned by ICICI Bank Limited. IWTL has launched and established an online trading service on the Website. PRODUCTS AND SERVICES OF ICICI DIRECT
1. Investing in Mutual funds 2. Personal Finance 3. Customer Service Features 4. IPO’s 5. Margin Trading 6. Margin PLUS Trading 7. Call Trade 8. Trading on NSE/BSE 9. Trade in derivative
INDIAINFOLINE SECURITY PRIVATE LTD.
India Infoline.com Securities Pvt. Ltd. is a wholly owned subsidiary of India Infoline.com Ltd and is the stock broking arm of India Infoline.com. The subsidiary was formed to comply with regulatory guidelines. www.5paisa.com is a focused website for online stock market trading. 5paisa.com is a trade name owned by the India Infoline.com group. IILSPL has applied for trading membership of the BSE under Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Rules 1992. IILSPL is in the business of providing broking services online via the Internet ("E-broking Services") and has been permitted by the NSE by way of registration permission no: NSEIL/CMO/INET/1103/2000 dated 03/July/2000, and will be applying for permission to the BSE, to provide E-broking Services to its clients. IILSPL is a TRADING MEMBER of the National Stock Exchange of India. PRODUCT OFFERED BY IILSPL
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Stock market:-IILSPL deals in stock market by trading in equity, mutual fund and derivatives. Personal finance:- It Deals In Mutual Fund And Insurance. Online Trading :- It provides services in stock and commodity trading (through Internet).
HDFC SECURITY HDFC security is the subsidiary of HDFC (Housing Development Financial Corporation).
www.hdfcsec.com would have an exclusive discretion to decide the customers who would be entitled to its online investing services. www.hdfcsec.com also reserves the right to decide on the criteria based on which customers would be chosen to participate in these services .The present web site (www.hdfcsec.com) contains features of services that they offer/propose to offer in due course. The launch of new services is subject to the clearance of the regulators. i.e. SEBI, NSE and BSE.
PRODUCT OFFERED BY HDFC SECURITY
• Online trading for Resident & Non Resident Indians. • Cash-n-Carry on both NSE and BSE. • Day trading on both NSE and BSE. • Trade on Futures & Options on the NSE. • Online IPO's. • Telephone-based Broking (Equity & Derivatives).
INDIABULLS SECURITIES LIMITED: Indiabulls Securities Limited was incorporated as GPF Securities Private Limited on June 9,
1995. The name of the company was changed to Orbis Securities Private Limited on December 8
15, 1995 to change the profile of the company and subsequently due to the conversion of the company into a public limited company; the name was further changed to Orbis Securities Limited on January 5, 2004. The name of the company was again changed to Indiabulls Securities Limited on February 16, 2004 so as to capitalize on the brand image of the term “Indiabulls” in the company name. ISL is a corporate member of capital market & derivative segment of The National Stock Exchange of India Ltd. At present, ISL accounts for approximately 3% of the total daily turnover of the Exchange with 32,359 client relationships and 70 branches spread across the country as of April 30, 2004.
PRODUCT OFFERED BY INDIA BULLS
Equity & Debt Stock Broking Insurance Commodity trading Depository Services Derivatives Broking Services Equity Research Services Mutual Fund Distribution IPO Distribution.
Turnover of Karvy Stock broking Ltd.
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Karvy Stock Broking Ltd. (KSBL) is a member of the National Stock Exchange and Bombay Stock Exchange. It has over 580 offices covering over 350 cities/towns, including offices at Dubai and New York. KSBL, besides offering broking services to over 350,000 retail investors, also has a Private Client desk to cater to HNIs and Corporates and an Institutional desk to service various financial institutions both domestic and foreign. It offers trading both on the cash and derivatives segment and does an average daily turnover of approx. Rs. 1500 crores , positioning the company amongst the top brokers in the country. KSBL also has a well-qualified research team based out of Mumbai and Hyderabad. It is a key player in the Wholesale Debt Market Segment of the NSE.
Chapter-3 Project Details “This study suggest that people are reluctant while investing in mutual funds 10
due to lack of knowledge”
This is the project on the analyzing of mutual funds to invest the money to future for get higher return on investment. This project report to all investor who want to invest their money in mutual funds. But they should analysis the securities before to invest because the money has very much value in our life. I chose this project to do because I want to analysis the fundamentals of mutual funds for investor point of view so they can get good return in future, want to do fundamental and technical analysis of mutual funds through the various theories, try to understand the movement and performance of funds and also try to know the factors that affect the movement of fund prices in the Indian Stock Markets. Through this project we were also able to understand, what are our Company’s (Karvy Stock broking Ltd) positive and strong points, on the basis of which we come to know what can be the basis of pitching to a potential client. We also gave suggestions to the company, what improvement can be done to our product. Fundamental analysis and technical analysis can coexist in peace and complement each other. Since all the investors in the mutual fund market want to make the maximum profits possible, they just cannot afford to ignore either fundamental or technical analysis. Team:
This my solo project assign by project guide and whole staff of that branch. I did my analysis with manager of the company. Duration:
The time was very crucial factor in project report the training was for eight weeks so I spent as much as time to learn from the internship and prepare this report to share my golden time with you.
Key Deliverables:
The company was expecting to me to dedication for project, queries about project to fill the tank as much as I can and discipline in branch office as they follow.
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PROJECT- MY ROLE I did my project on the basis of topic given by the project guide in this project I contribute my best that I can do. I decide to choose some stock listed in NSE for fundamental and technical analysis. I approach my project guide and whole staff person to get knowledge. I sought out my queries with discussion with all staff members and my project guide. I note all important figures and facts about financial market and update my project report Step by step.
Achievements:
The main achievement during the entire project was the knowledge about the financial market which was unseen for me. Successfully finishing project analysis by myself and the compliment by project guide was best achievement for me in that entire project. Key Learning's:
A proper interaction with staff members and project guide to gain knowledge is require for a good internship. I learn how to analysis the mutual funds for investing money. Challenges Faced:
• Busy schedule of project guide. I had to wait whole day to talk to him about project. • There was no operational work in branch for me. Reasons for Success:
Success story of this project is my dedication, passion, good relationship with all staff members and assistance of my project guide.
CHAPTER 4 EMPIRICAL ANALYSIS
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BODY OF THESIS
PREFERRED FUND STRUCTURE Table-1
Structure of the fund
No of investors preferred
Open – ended fund
64
Close – ended fund
24
Interval funds
12
Total
100
Chart-1
Inference: It is observed that 64 out of 100 that are 64% of investors are interested to invest their
money in open ended funds the reason can be attributed to its convenience to enter and exit at any time. 24% investors preferred to invest in close ended funds because they are long term
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investors as well as they want some tax benefits. And the remaining 12% investors replied that they don’t mind to invest in any funds including interval funds. INVESTORS SCHEME PREFERENCE Table-2
Preferred fund scheme
No of investors preferred
Growth scheme
52
Income scheme
16
Balanced scheme
32
Total
100 CHART - 2
Inference: In the above given graph it is showed that 52 out of 100 that are 52% of customers
are interested to invest in growth schemes. 8 out of 25 that are 32% of customers are interested to invest in Balanced schemes and the remaining 16% customers are preferred to invest in Income schemes. INVESTORS FUND PREFERENCE Table-3 14
Type of fund
No of investors preferred
Tax saver funds
15
Index funds
40
Sectorial funds
45
Total
100
CHART - 3
Inference: Out of 100 investors 15 that is 15% of customers are preferred to invest in Tax saver
funds. 40 that is 40% of investors are preferred to invest in index funds which give returns based upon respective indexes.. 45 that is 45% of investors are interested to invest in sectorial funds that means they are ready to take high risk but want high returns. TABLE SHOWING REPETATION OF INVESTMENTS MADE BY THE RESPONDENTS. RESPONSE
NO OF RESPONDENTS
YES
64
NO
36
TOTAL
100
GETTING MONTHLY / QUARTERLY STATEMENTS FROM TIME TO TIME TABLE-4
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Getting Monthly / Quarterly statements No of Investors from time to time Yes
70
No
30
Total
100
Chart-4
Inference :70 out of 100 people getting monthly/quarterly statements from time to
time 30 out of 100 people not getting monthly/quarterly statements from time to time .
Chapter- 5 INTRODUCTION FUNDAMENTAL ANALYSIS Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity. It is a method of study that attempts to predict price action and market trends by analyzing economic indicators, government policy and societal factors (to name just a few elements) within a business cycle framework. Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply demand chain of whatever underlies the financial instrument. No industry or company can exist in isolation and so there are external factors which determine to an extent growth of a company and so fundamental analysis is a method of forecasting the future price movements based on economic, political, environmental and other factors and statistics that effects the basic supply demand chain. 16
Some of the factors which can effect Analysis are: External factors
1. Political condition 2. Foreign Exchange 3. Government Policies in general 4. Government Policies pertaining to the sector 5. Inflation 6. Interest Rates 7. Taxation Internal Factors
8. The Management 9. How a company is perceived by its competitors? 10. Is market leader in its products or in its segment 11. Company Policies 12.Employee / Labour Relations
13. Where the company is located and where its factories are? 14.Financial Statements like Cash Flow / Balance sheets.
The formation of Unit Trust of India marked the evolution of the Indian mutual fund industry in the year 1963. The primary objective at that time was to attract the small investors and it was made possible through the collective efforts of the Government of India and the Reserve Bank of India.
What is Mutual Funds? A Mutual fund are a kind of investment that are based on the gains and losses of a shareholder. Basically one person manages the money of several investors and invests in a list of various stocks to lessen the effect of any losses that may occur. A mutual fund is a professionally managed type of collective investment that pools money from many investors to buy stocks, bonds, short-term money market instruments, and other securities.
Mutual Fund Operation Flow Chart :
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ORGANISATION OF A MUTUAL FUND: There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund: Mutual funds in INDIA have a 3-tier structure of Sponsor – Trustee – AMC. Sponsor is the promoter of the fund. Sponsor creates the AMC and the trustee company appoints the Boards of both these companies, with SEBI approval. A mutual fund is constituted as a Trust. A trust deed is signed by trustees and registered under the Indian Trust Act. The mutual fund is formed as trust in INDIA, and supervised by the Board of the trustees appoint the asset management company (AMC) to actually manage investor’s money. 18
The AMC’s capital is contributed by the sponsor. The AMC is the business face of the Investor’s money is held in the Trust (the mutual fund). The AMC gets a fee for managing the funds, according to the mandate of the investors. Sponsor should have at-least 5-year track record in the financial services business and should have made profit in at-least 3 out of the 5 years. Sponsor should contribute at-least 40% of the capital of the AMC. Trustees are appointed by the sponsor with SEBI approval. At-least 2/3 of trustees should be independent. At-least ½ of the AMC’s Board should be independent members. An AMC of one fund cannot be Trustee of another fund. AMC should have a net worth of at least Rs. 10 crore at all times. AMC should be registered with SEBI. AMC signs an investment management agreement with the trustees. Trustee Company and AMC are usually private limited companies. Trustees oversee the AMC and seek regular reports and information from them. Trustees are required to meet at least 4 times a year to review the AMC. The investor’s funds and the investments are held by the custodian. Sponsor and the custodian cannot be the same entity R&T agents manage the sale and repurchase of units and keep the unit holder. If the schemes of one fund are taken over by another fund, it is called as scheme take over. This requires SEBI and trustee approval.
Advantages of mutual funds: •
Increased diversification
•
Daily liquidity
•
Professional investment management
•
Ability to participate in investments that may be available only to larger investors 19
•
Service and convenience
•
Government oversight
•
Ease of comparison
Mutual fund are good for investment, but there are some disadvantages of it:
Disadvantages of mutual funds: •
Fees
•
Less control over timing of recognition of gains
•
Less predictable income
•
No opportunity to customize
•
Management fee
•
Distribution charges
Types Of Mutual Funds: Open-end funds :
open-end mutual funds must be willing to buy back their shares from their investors at the end of every business day at the net asset value computed that day. Most open-end funds also sell shares to the public every business day; these shares are also priced at net asset value. A professional investment manager oversees the portfolio, buying and selling securities as appropriate. The total investment in the fund will vary based on share purchases, redemptions and fluctuation in market valuation. Closed-end funds:
Closed-end funds generally issue shares to the public only once, when they are created through an initial public offering. Their shares are then listed for trading on a stock exchange. Investors who no longer wish to invest in the fund cannot sell their shares back to the fund (as they can with an open-end fund). Instead, they must sell their shares to another investor in the market; the price they receive may be significantly different from net asset value. It may be at a "premium" to net asset value (meaning that it is higher than net asset value) or, more commonly, at a
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"discount" to net asset value (meaning that it is lower than net asset value). A professional investment manager oversees the portfolio, buying and selling securities as appropriate.
Debt Funds:
Debt funds invest in debt instruments issued by government, private companies, banks & financial institutions. By investing in debts these funds target low risk & stable income investors. These funds are low risk low returns fund. Money Market Funds:
Money market funds invest in securities of a short term nature ,which generally means security of less than one year maturity such as treasury bills issued by governments, ce rtificates of deposit issued by banks & commercial paper issued by companies.
INDUSTRY ANALYSIS: The importance of industry analysis is now dawning on the Indian investor as never before.
BUSINESS CYCLE
The first step in industry is to determine the cycle it is in, o r the stage of maturity of the industry. All industries evolve through the following stages: 21
1. Entrepreneurial, sunrise or nascent stage 2. Expansion or growth stage 3. Stabilization, stagnation or maturity stage, and 4. Decline or sunset stage to properly establish itself. In the e arly days, it may actually make loss.
COMPANY ANALYSIS: At the final stage of fundamental analysis, the investor ana lyzes the company. This analysis has two thrusts: How has the company performed vis-à-vis other similar companies and How has the Company performed in comparison to earlier years. It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the company's performance at a period of time is to an extent a reflection of the economy, the political situation and the industry. What does one look at when analyzing a company? The different issues regarding a company that should be examined are:
THE MANAGEMENT: The single most important factor one should consider when investing in a company and one often never considered is its management. In India management can be broadly divided in two types: • Family Management • Professional Management
THE COMPANY: An aspect not necessarily examined during an analysis of fundamentals is the company. A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into. There are several factors one should look at. 1. How a company is perceived by its competitors?
One of the key factors to ascertain is how a company is perceived by its competitors. It is 22
held in high regard. Its management may be known for its maturity, vision, competence and aggressiveness. The investor must ascertain the reason and then determine whether the reason will continue into the foreseeable future. 2. Whether the company is the market leader in its products or in its segment
Another aspect that should be ascertained is whether the company is the market leader in its products or in its segment. When you invest in market leaders, the risk is less. The Shares of market leaders do not fall as quickly as those of other companies. There is a magic to their name that would make individuals prefer to buy their products as opposed to others. 3. Company Policies
The policy a company follows is also important. What are its plans for growth? What is its vision? Every company has a life. If it is allowed to live a normal life it will grow up to a point and then begin to level out and eventually die. It is at the point of leveling out that it must be given new life. This can give it renewed vigor and a new lease of life. 4. Labour Relations
Labour relations are extremely important. A company that has motivated, industrious work force has high productivity and practically no disruption of work. On the other hand, a company that has bad industrial relations will lose several hundred man-day’s as a consequence of strikes and go slows. 5. Where the company is located and where its factories are?
One must also consider where the companies Plants and Factories are located.
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TECHNICAL ANALYSIS Technical analysis is concerned with predicting future price trends from historical price and volume data. The underlying axiom of technical analysis is that all fundamentals (including expectations) are factored into the market and are reflected in exchange rates. It is also a method of predicting price movements and future market trends by studying charts of past market action which take into account price of instruments, volume of trading and, where applicable, open interest in the instruments. Stock Charts:
Stock charts gained popularity in the late 19th Century from the writings of Charles H. Dow in the Wall Street Journal. His comments, later known as "Dow Theory", alleged that markets move in all kinds of measurable trends and that these trends could be deciphered and predicted in the price movement seen on all charts. A stock chart is a simple two-axis (x-y) plotted graph of price and time.Each individual equity market and index listed on a public exchange has a chart that illustrates this movement of price over time. Individual data plots for charts can be made using the CLOSING price for each day. The plots are connected together in a single line, creating the graph. Also, a combination of the OPENING, CLOSING, HIGH and/or LOW prices for that market session can be used for the data plots. This second type of data is called a PRICE BAR. Individual price bars are then overlaid onto the graph, creating a dense visual display of stock movement. Stock charts can be created in many different time frames. Mutual fund holders use monthly charts in which each individual data plot consists of a single month of activity. Day traders use 1 minute and 5 minute stock charts to make quick buy and sell decisions. The most common type of stock chart is the daily plot, showing a single complete market session for each unit. Stock charts can be drawn in two different ways. An ARITHMETIC chart has equal vertical 24
distances between each unit of price. A LOGARITHMIC chart is a percentage growth chart. It has equal vertical distances between the same percentages of price growth. For example, a price movement from 10 to 20 is a 100% move. A move from 20 to 40 is also a 100% move. For this reason, the vertical distance from 10 to 20 and the vertical distance from 20 to 40 will be identical on a logarithmic chart.Stock chart analysis can be applied equally to individual stocks and major indices. Analyst use their technical research on index charts to decide whether the current market is a BULL MARKET or a BEAR MARKET. On individual charts, investors and traders can learn the MARKET or a BEAR MARKET. On individual charts, investors and traders can learn the same thing about their favourate companies. It gives the shareholder tools that will help him or h er identify realistic buying opportunities that show detailed movement and averages. Using technical information helps the buyer to avoid emotional decisions and saves time on trying to decide where to make investments. Mutual fund rankings include a collection of stock, bonds, and other securities while ranking the best choices for the buyer. Some of the choices usually include a variety of mutual fund categories such as global stock, equity income, large-cap, mid-cap, and small-cap. Diversity in investments is the way to be smart about investing. Not putting everything into one type of fund increases the shareholders chances for profit. These include large, medium, and small sized companies as International investments.
Hist ory of Mutual Funds in India The first mutual funds were established in Europe. One researcher credits a dutch merchant with creating the first mutual fund in 1774.He first mutual fund outside the Netherlands was the Foreign & Colonial Government Trust, which was established in London in 1868. It is now the Foreign & Colonial Investment Trust and trades on the London stock exchange. Mutual funds were introduced into the United States in the 1890s. They became popular during the 1920s. These early funds were generally of the closed-end type with a fixed number of shares which often traded at prices above the value of the portfolio. The first open-end mutual fund with redeemable shares, was established on March 21, 1924. This fund, the Massachusetts Investors Trust, is now part of the MFS family of funds. However, 25
closed-end funds remained more popular than open-end funds throughout the 1920s. By 1929, open-end funds accounted for only 5% of the industry's $27 billion in total assets After the stock market crash of 1929, Congress passed a series of acts regulating the securities markets in general and mutual funds in particular. The Securities Act of 1933 requires that all investments sold to the public, including mutual funds, be registered with the Securities and Exchange Commission (SEC) and that they provide prospective investors with a prospectus that discloses essential facts about the investment. The Securities and Exchange Act of 1934 requires that issuers of securities, including mutual funds, report regularly to their investors; this act also created the Securities and Exchange Commission, which is the principal regulator of mutual funds. The Revenue Act of 1936 established guidelines for the taxation of mutual funds, while the Investment Company Act of 1940 governs their structure. When confidence in the stock market returned in the 1950s, the mutual fund industry began to grow again. By 1970, there were approximately 360 funds with $48 billion in assets. The introduction of money market funds in the high interest rate environment of the late 1970s boosted industry growth dramatically. The first retail index fund, First Index Investment Trust, was formed in 1976 by The Vanguard Group, headed by John Bogle, it is now called the Vanguard 500 Index Fund and is one of the world's largest mutual funds, with more than $100 billion in assets as of January 31, 2011. Fund industry growth continued into the 1980s and 1990s, as a result of three factors: a bull market for both stocks and bonds, new product introductions (including tax-exempt bond, sector, international and target date funds) and wider distribution of fund shares. Among the new distribution channels were retirement plans. Mutual funds are now the preferred investment option in certain types of fast-growing retirement plans, specifically in 401(k) and other defined contribution plans and in individual retirement accounts (IRAs), all of which surged in popularity in the 1980s. Total mutual fund assets fell in 2008 as a result of the credit crisis of 2008. At the end of 2010, there were 7,581 mutual funds in the United States with combined assets of $11.8 trillion, according to the Investment Company Institute (ICI), a national trade association of investment companies in the United States. The ICI reports that worldwide mutual fund assets were $4.7 trillion on the same date.
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PHASES OF MUTUAL FUNDS : Phase 1: Establishment and Growth of Unit Trust of India . Unit Trust of India enjoyed complete monopoly when it was established in the year 1963 by an act of Parliament. UTI was set up by the Reserve Bank of India and it continued to operate under the regulatory control of the RBI until the two were de-linked in 1978 and the entire control was tranferred in the hands of Industrial Development Bank of India (IDBI). UTI launched its first scheme in 1964, named as Unit Scheme 1964 (US-64), which attracted the largest number of investors in any single investment scheme over the years. UTI launched more innovative schemes in 1970s and 80s to suit the needs of different investors. It launched ULIP in 1971, six more schemes between 1981-84, Children's Gift Growth Fund and India Fund (India's first offshore fund) in 1986, Mastershare (Inida's first equity diversified scheme) in 1987 and Monthly Income Schemes (offering assured returns) during 1990s. By the end of 1987, UTI's assets under management grew ten times to Rs 6700 crores.
Phase 2: Entry of Public Sector Funds - 1987-1993 The Indian mutual fund industry witnessed a number of public sector players entering the market in the year 1987. In November 1987, SBI Mutual Fund from the State Bank of India became the first non-UTI mutual fund in India. SBI Mutual Fund was later followed by Canbank Mutual Fund, LIC Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. By 1993, the assets under management of the industry increased seven times to Rs. 47,004 crores. However, UTI remained to be the leader with about 80% of market share. Amount
AssetsUnder
Mobilisation as % of gross
Mobilised
Management
Domestic Savings
UTI
11,057
38,247
5.2%
Public Sector
1,964
8,757
0.9%
tal
13,021
47,004
6.1%
1992-93
Phase3:Emergence of private sector funds-1993-96 The permission given to private sector funds including foreign fund management companies (most of them entering through joint ventures with Indian promoters) to en ter the mutal fund 27
industry in 1993, provided a wide range of choice to investors and more competition in the industry. Private funds introduced innovative products, investment techniques and investorservicing technology. By 1994-95, about 11 private sector funds had launched their schemes.
Phase4: Growth and SEBI Regulation- 1996-2004 The mutual fund industry witnessed robust growth and stricter regulation from the SEBI after the year 1996. The mobilisation of funds and the number of players operating in the industry reached new heights as investors started investing in mutual funds. Invetors' interests were safeguarded by SEBI and the Go vernment offered tax benefits to the investors in order to encourage them. SEBI (Mutual Funds) Regulations, 1996 was introduced bySEBI that set uniform standards for all mutual funds in India. The Union Budget in 1999 exempted all dividend incomes in the hands of investors from income tax. Various Investor awareness Programmes were launched during this phase, both by SEBI and AMFI, with an objective to educate investors and make them informed about the mutual fund industry. In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal status as a trust formed by an Act of Parliament. The primary objective behind this was to bring all mutal fund players on the same level.UTI was re-organised into two parts:
1. The Specified Mutual fund. 2. The UTI Mutual Fund. Presently Unit Trust of India operates under the name of UTI Mutual Fund and its past schemes (like US-64, Assured Return Schemes) are being gradually wound up. However, UTI Mutual Fund is still the largest player in the industry. In 199 9, there was a significant growth in mobilisation of funds from investors and assets under management which is supported by the following data: GROSS FUND MOBILISATION (RS. CRORES) PUBLIC
PRIVATE
SECTOR
SECTOR
11,679
1,732
7,966
21,377
13,536
4,039
42,173
59,748
FROM
TO
UTI
01-April-98
31-March-99
01-April-99
31-March-00
TOTAL
28
01-April-00
31-March-01
12,413
6,192
74,352
92,957
01-April-01
31-March-02
4,643
13,613
1,46,267
1,64,523
01-April-02
31-Jan-03
5,505
22,923
2,20,551
2,48,979
01-Feb.-03
31-March-03
*
7,259*
58,435
65,694
01-April-03
31-March-04
-
68,558
5,21,632
5,90,190
01-April-04
31-March-05
-
1,03,246
7,36,416
8,39,662
01-April-05
31-March-06
-
1,83,446
9,14,712
10,98,158
ASSETS UNDER MANAGEMENT (RS. CRORES) AS ON 31-March-99
UTI 53,320
PUBLIC
PRIVATE
SECTOR
SECTOR
8,292
6,860
TOTAL 68,472
Phase5: Growth and Consolidation- 2004 Onwards The industry has also witnessed several mergers and acquisitions recently, examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international mutal fund players have entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were 29 funds as at the end of March 2006. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players.
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The modern mutual fund was first introduced in Belgium in 1822. This form of investment soon spread to Great Britain and France. Mutual funds became popular in the United States in the 1920s and continue to be popular since the 1930s, especially open-end mutual funds.
Market Share of the mutual fund industry.
Assets Under Management (AUM) as at the end of Jan-2008
Sl.no. 1 2 3 4 5 6 7 8
Mutual Fund Name ABN AMRO Mutual Fund AIG Global Investment Group Mutual Fund Benchmark Mutual Fund Birla Sun Life Mutual Fund BOB Mutual Fund Can bank Mutual Fund DBS Chola Mutual Fund Deutsche Mutual Fund
% Market share 1.66 0.00 1.55 5.73 0.02 0.70 0.60 1.76 30
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
DSP Merrill Lynch Mutual Fund Escorts Mutual Fund Fidelity Mutual Fund Franklin Templeton Mutual Fund HDFC Mutual Fund HSBC Mutual Fund ICICI Prudential Mutual Fund ING Vysya Mutual Fund JM Financial Mutual Fund JPMorgan Mutual Fund Kotak Mahindra Mutual Fund LIC Mutual Fund Lotus India Mutual Fund Morgan Stanley Mutual Fund PRINCIPAL Mutual Fund Quantum Mutual Fund
2.86 0.03 2.13 6.34 8.73 3.52 12.24 1.38 0.91 0.00 4.04 2.39 0.87 0.77 3.17 0.01
25 26 27 28 29 30 31 32
Reliance Mutual Fund Sahara Mutual Fund SBI Mutual Fund Standard Chartered Mutual Fund Sundaram BNP Paribas Mutual Fund Tata Mutual Fund Taurus Mutual Fund UTI Mutual Fund Grand Total
14.28 0.04 4.75 3.90 2.45 3.40 0.07 9.67 100.00
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Chapter-6 MUTUAL FUND JARGON Net Asset Value (NAV) Net Asset Value is the market value of the assets of the scheme
minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date. Sale Price Sale price is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load .Re purchase Price Is the price at which a close-ended scheme repurchases its units and it may include abackend load. This is also called Bid Price. Redemption Price It is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related. Sales Load It is a charge collected by a scheme when it sells the units. Also called as ‘Front-end’ load. Schemes that do not charge a load are called ‘No Load’ schemes. Re purchase or ‘Back-end’ Load It is a charge collected by a scheme when it buys back the units from the unit holders.
FUTURE PROSPECT OF MUTUAL FUNDS IN INDIA
Financial experts believe that the future of Mutual Funds in India will be very bright. It has been estimated that by March-end of 2010, the mutual fund industry of India will reach Rs. 40,90,000 crore, taking into account the total assets of the Indian commercial banks. In the coming 10 years the annual composite growth rate is expected to go up by 13.4%.100% growth in the last 6 years. Number foreign AMCs are in the queue to enter the Indian markets like Fidelity Investments, US based, with over US$1trillion assets under management worldwide. Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual funds sector is required. We have approximately 29 mutual funds which is much less than US having more than 800. There is a big scope for expansion. B and C class cities are growing rapidly. Today most of the mutual funds are concentrating on the A class cities. Soon they will find scope in the growing cities. Mutual fund can penetrate rurals like the Indian insurance
32
industry with simple and limited products. SEBI allowing the MFs to launch commodity mutual funds. Emphasis is on the better corporate governance. Trying to curb the late trading practices. Introduction of Financial Planners who can provide need based advice. Looking at the past developments and combining it with the current trends it can be concluded that the future of Mutual Funds in India has lot of positive things to offer to its investors.
MUTUAL FUNDS VS. OTHER INVESTMENTS
From investors’ view point mutual funds have several advantages such as: Professional management and research to select quality securities. Spreading risk over a larger quantity of stock whereas the investor has limited to buy only a hand full of stocks. The investor is not putting all his eggs in one basket. Ability to add funds at set amounts and smaller quantities such as $100 per month .Ability to take advantage of the stock market which has generally outperformed other investment in the long run. Fund manager are able to buy securities in large quantities thus reducing
brokerage fees. However there are some disadvantages with mutual
funds such as: The investor must rely on the integrity of the professional fund manager. Fund management fees may be unreasonable for the services rendered. The fund manager may not pass transaction savings to the investor. The fund manager is not liable for poor judgment when the investors fund loses value. There may be too many transactions in the fund resulting in higher fee/cost to the investor - This is sometimes call "Churn and Earn". Prospectus and Annual report are hard to understand. Investor may feel a lost of control of his investment dollars. There may be restrictions on when and how an investor sells/redeems his mutual fund shares.
RELIANCE MUTUAL FUND Vs UTI MUTUAL FUND
“RELIANCE MUTUAL FUND” Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was change don March 11, 2004. Reliance Mutual Fund was formed for launching of various schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities. RMF is one of India’s leading Mutual Funds, with Average Assets Under 33
Management(AAUM) of Rs. 88,388 crs (AAUM for 30th Apr 09) and an investor base of over 71.53 Lacs. Reliance Mutual Fund, a part of the Reliance - Anil Dhiru bhai Ambani Group, is one of the fastest growing mutual funds in the country. RMF offers investors a well-rounded portfolio of products to meet varying investor requirements and has presence in 118 cities across the country. Reliance Mutual Fund constantly endeavors to launch innovative products and customer service initiatives to increase value to investors. "Reliance Mutual Fund schemes are managed by Reliance Capital Asset Management Limited., a subsidiary of Reliance Capital Limited, which holds 93.37% of the paid-up capital of RCAM, the balance paid up capital being held by minority shareholders."Sponsor : Reliance Capital Limited. Trustee : Reliance Capital Trustee Co. Limited.
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Chapter-7 Research Methodology
Every project is started with the objective of getting results either positive or ne gative. And each and every project reaches to the stage of completion through the way of some research either with the help of primary data or secondary data. And getting of any project and getting genuine results from that depends on the research method used by researcher.
“Research is a common parlance refers to a search for knowledge. According to REDMEN “Research is a systematized effort to gain knowledge.”
TYPE OF RESEARCH STUDY
The research has been based on secondary data analysis. The study has been exploratory as it aims at examining the secondary data for analyzing the previous researches that have been done in the area of technical and fundamental analysis of mutual funds. The knowledge thus gained from this preliminary study forms the basis for the further detailed descriptive research. In the exploratory study, the various technical indicators that are important for analyzing stock were actually identified and important ones short listed.
OBJECTIVES OF THE STUDY Primary Objective:
1.) To do technical and fundamental analysis of chosen securities Sub-Objectives:
1.) To study the various theories of technical analysis and fundamental analysis for various Mutual funds that chosen. 2.) To understand the movement and performance of mutual funds to take decision to invest. 35
3.) To understanding and analyzing the factors that affect the movement of mutual fund prices in the indian Stock Markets.
SAMPLE DESIGN
Data collection methods include the various methods used by the researcher in his project. The application of method for collecting the data mainly depends upon the type of project researcher is going to undertake. In case the survey project questionnaire is the best tool for collecting data. But in case of projects other than surveys like this project all the data is collected already prepared or published in the form of annual reports.
SAMPLE SIZE
The sample size for the number of mutual funds is taken as 8 for technical analysis and 3 for fundamental analysis of mutual fund as fundamental analysis is very exhaustive and requires detailed study.
DATA COLLECTION METHOD
The sample of the mutual funds for the purpose of collecting secondary data has been selected on the basis of Random Sampling. The mutual fund are chosen in an unbiased manner and each mutual fund is chosen independent of the other stocks chosen.
SOURCES OF DATA
Data can be classified into – Primary source
Through conversation with the Relationship, Head and the staff of the branch of
KARVY
STOCK BROKING LTD. Secondary source
- Annual Reports of selected stocks - Financial Statements 36
- Internet Steps for Analysis
Selection - It involves selection of information relevant to the purpose of analysis. Classification – It involves methodological classification of the data. Interpretation – It includes drawing of inferences and conclusion. PROCEDURE
1. Acquaint with the Principles and postulates of analyzing. 2. Determining the extent of analysis so that the sphere of working may be decided. 3. Re-arranging the data. 4. Reducing data to a standardized form. 5. Establishing relationship with the help of tools of analyzing. 6 Interpreting information in a simple and understandable form. 7. Drawing the conclusion.
Chapter-8
37
Literature review
“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years” Warren Buffet Investment Guru
“Prevailing wisdom is that markets are always right, I assume they are always wrong” George Soros, Chairman, Soros Fund Management According to Michal Parness, Founder & CEO
Investors don’t Make Money in the Stock Market. One reason the institutions make so much money is that they are trading. They make money every time you buy or sell. They make money whether you win or lose. That means that when you’re investing, you’re basically just sitting there. You’re not going anywhere. You’re not making money as an investor. Trading the Trend: The Only Way to Make Money in the Market
If you don’t know this already, “Trend Trading” means trading trends based on human emotions. Not lagging indicators. Not complex statistical analysis and not Ph.D. level mathematical equations. With trend trading, you look for market movement. That could mean stocks that are going to move up or down during the course of a day (intraday). You’ll play the gaps up and down, often several days a week. The “Trend trading” means being aware and taking advantage of trends like the run-ups that happen around earning sessions. These are trends that have worked time and time again in the market. They consistently yield results.
Fundamental and Technical Analysis: Substitutes or Compliments? March 28, 2008 38
While the fundamental and technical analysis literatures invest considerable effort in assessing their respective ability to explain share prices, they invariably do so without reference to each other. In this context, we propose an equity valuation model integrating both fundamental and technical analysis and, in doing so, recognize their potential as complements rather than as substitutes. Testing confirms the complementary nature of fundamental and technical analysis by showing that, while each performs well in isolation, models integrating both have superior explanatory power. While our findings relate to the valuation of shares, they also have implications for other valuation exercises. Keywords: Fund valuation models, Fundamental information, Technical information JEL Classifications: G12, G14, M41 Although the fundamental and technical analysis literatures invest considerable effort in assessing their respective ability to explain share prices, they invariably do so without reference to each other. In this context, we propose an equity valuation model integrating both fundamental and technical analysis and, in doing so, recognize their potential as complements rather than as substitutes. Testing confirms the complementary nature of fundamental and technical analysis by showing that, although each performs well in isolation, models integrating both have superior explanatory power. While our findings relate to the valuation of mutual funds, they also have implications for other valuation exercises. Accepted Paper Series RELEVANCE OF FUNDAMENTAL ANALYSIS ON THE BALTIC MUTUAL FUND MARKET.
The main target of the present research was to discover the importance of fundamental analysis on the Baltic mutual fund markets. The hypothesis that fundamental analysis is not able to generate substantial additional value to the performance of the portfolio comprised of Baltic enterprises stocks was proved. The relevance and need of fundamental analysis was checked by analyzing the performances of portfolios, which were created on the basis of key fundamental ratios: ROE, equity ratio, ROIC, net debt to assets as well as PE and PB. Naturally, the companies with better than average ratios were selected to form stock portfolios. The findings of the conducted study demonstrate that neither of the mentioned ratios helped in the creating portfolio, performanceof which would beat
39
market’s performance. The only exception was price to earnings ratio, which proved that cheap companies seem to be attractive to the investors. It was decided to look closer at the major performers and to find out whether there are any common patterns among the winners and the losers of the Baltic equity markets. Basically, mutual fund investors ignored financial situation of the companies (profitability, stability of balance sheets) and focused mainly on assessing their growth opportunities and attractiveness of business model. So, investors were mainly forward-looking when making company selection. As a result, major sufferers performance-wise were the companies with limited growth potential or total business model erosion. The authors of the research have also checked whether the trading volumes of the stock have any impact on the performance. The study results show that in the phase of the major capital inflows (2001-2008), indeed, most liquid companies tended to reward investors with higher performances. However, the shareholders of these companies suffered the most in financial years 2009 and 2010, when there was a major selling across stock market all over the world. Should you use Technical or Fundamental analysis to make your decisions?
Volumes have been written about the different ways to forecast or predict market movement. Traditionally, there are two distinct schools of thought that an individual may choose from, and that being Fundamental analysis or Technical analysis. By choosing fundamental analysis, your decisions are based upon underlying economic factors, cash flows, and price earnings. This information will aim to tell you why a stock will move. Technical analysis aims to show you how and when a stock will move. This method discounts all news and information regarding the value of the stock. In other words, you only pay attention to a chart. The saying “a picture is worth a thousand words” truly summarizes this concept nicely. You can of course choose to use a combination of both if you prefer. This would imply that when the stock you are looking at becomes undervalued fundamentally, you would wait for a technical setup to get you in to the market. Deciding on which method is appropriate and gives bigger returns is truly a matter of 40
opinion. Respectively, both methods have the same goal; to determine market direction. I know of a number of individuals who only use one or the other and is equally successful with phenomenal returns. It becomes interesting when one speaks to traders from each school. The fundamental traders believe that charts are a waste of time and provide no real sense as to why one would make trading decisions based on indicators and repetitive patterns. This group are essentially bargain hunters. They want to buy mutual fund which they feel are under priced and will return to a normal value at a later stage. Fundamental traders often hold mutual fund for longer periods of time compared to technical traders. On the other hand, the technical traders believe that numbers do not lie and that information based on value, supply and demand are already factored into the price. They also argue that people can be predictable and that these behaviors’ occur in the form of price patterns. These patterns repeat with a degree of predictability and therefore can be used to forecast future price movements. Technical traders generally hold positions for shorter periods of time compared to fundamental traders. Clearly both avenues are important, and one must make careful decisions before jumping into trading without having an objective. I have always said that finding a method, style or strategy depends on ones personality. If you are thinking of long term investing then the fundamental approach may suit your needs whereas if you are looking for short term market moves, then technical analysis can provide a myriad of systems to accommodate your personal style. Some of which we shall take a look at further into the course.
Trading at the Standard Online mutual fund trading is operated by Standard Financial Markets (Pty) Ltd
IT’S CLEAR THAT analysis – whether fundamental or technical – requires a suite of tools. And though those tools are specialized, the good news is that most are readily available to the novice 41
investor. Richard Seddon, head of Online mutual fund Trading at the Standard, says that the discount broking website www.securities.co.za provides many of those tools to its broking customers as part of its product offering. On the fundamental analysis side the website carries top-down insights from Standard Bank’s economic research division, plus notes on individual companies from its rated research team. For bottom-up fundamental analysis the website contains the financial statements for the past 10 years of every single company listed on the JSE. Over and above that raw data it also provides key ratios, such as price: earnings (p:e) multiples, beta, return on equity (ROE) and many others. We’ll deal with those more fully in two weeks’ time when we work with bottom-up fundamental analysis. But the website isn’t the only place where investors can find some of those key ratios: the share price pages of the daily and weekly press (including Fin week) publish information in addition to share prices, including p:e ratios, ividend yields, market capitalization and share price changes over specific time periods. The website can also provide more complex bottom-up analysis tools by filtering shares that meet certain criteria. Those could include searching for shares that fall within a prescribed ratio or dividend yield range. In addition, it provides a database of share movements for specified time periods, such as the past month, past three months, past year and past 10 years. The website also provides forecast data. That’s provided by I-Net Bridge, a company that collates analysts’ forecasts and recommendations to determine the average (or consensus) projected earnings per share and market view of the share: whether analysts recommend it as a buy, sell or hold. On the technical analysis side, the Online mutual fund Trading website provides full interactive charting tools with 10 years’ worth of data. In addition, customers receive a discount when downloading third-party technical analysis data, paying as little as R90/month. Over and above all that, the website provides other interesting information, such as directors’ dealings, 52-week highs and lows, exchange rates, international indices, news from both Reuters and the JSE, key shareholders of each company, dividends that are payable, as well as the biggest gainers and losers and the most active shares on the JSE in any one trading day. It’s everything that a fullservice broker.
Chapter-9 CONCLUSION & RECOMMENDATIONS
42
Mutual Funds now represent perhaps most appropriate investment opportunity for most investors. As financial markets become more sophisticated and complex, investors need a financial intermediary who provides the required knowledge and professional expertise one successful investing. As the investor always try to maximize the returns and minimize the risk. Mutual fund satisfies these requirements by providing attractive returns with affordable risks. The fund industry has already overtaken the banking industry, more funds being under mutual fund management than deposited with banks. With the emergence of tough competition in this sector mutual funds are launching a variety of schemes which caters to the requirement of the particular class of investors. Risk takers for getting capital appreciation should invest in growth, equity schemes. Investors who are in need of regular income should invest in income plans. The stock market has been rising for over three years now. This in turn has not only protected the money invested in funds but has also to helped grow these investments. This has also instilled greater confidence among fund investors who are investing more into the market through the MF route than ever before. Reliance India mutual funds provide major benefits to a common man who wants to make his life better than previous. India’s largest mutual fund, UTI, still controls nearly 80 per cent of the market. Also, the mutual fund industry as a whole gets less than 2 per cent of household savings against the 46 percent that go into bank deposits. Some fund managers say this only indicates the sectors potential."If mutual funds succeed in chipping away at bank deposits, even a triple digit growth is possible over the next few years.
RECOMMENDATIONS Fundamental analysis of mutual fund: 1.HDFC Bank Ltd. Recommend BUY
HDFC Bank delivered a Net Profit growth of 45% yoy to Rs464cr (Rs321cr). However, the numbers are not comparable as 1QFY2009 numbers are after accounting for the merger with Centurion Bank of Punjab (CBoP). EPS growth was 13% yoy. While a reak up of line items into HDFC Bank standalone and CBoP was not available, including CBoP 1QFY2010 Net Profits, profits grew 31% yoy. The Bank absorbed the additional Provisioning Expenses to bring CBoP’s accounting policies for NPAs in line with its own stricter policies, by adjusting the same against Reserves, with an estimated impact of roughly Rs15-20 per share. Management indicated Core 43
NIMs of the merged entity stood at about 4.1%, while the CASA ratio declined to 45%. At the same time, Operating Expenses, excluding Staff Costs were down 1% sequentially, indicating substantial cost cutting measures implemented during the quarter, in line with peers.Asset quality Remained stable, with the Net NPA ratio remaining at 0.5%. MTM losses on Bond and Equity books were manageable at around Rs78cr. 2. TATA MOTORS. Recommend SELL or HOLD.
TAMO’s long term debt on a consolidated basis went up to Rs.163bn in FY09. In addition to it the company has raised NCDs for Rs.42bn and it also raised ~$1bn for JL for working capital requirements. TAMO has charged actuarial loss for JLR pension plan of Rs.14.57bn to Reserves which along with losses incurred during FY09, impacted consolidated net worth and book value at consolidated stood a Rs.113 per share compared to current estimated debt levels of ~Rs.240bn. We believe the debt equity ratio for FY10E to become >2x and apart from this the company is also likely to raise debt on JLR books which would increase leverage risk going ahead. We believe CV industry would continue to face pressures in FY10E mainly due to slowdown in overall economy, lower industrial production and stringent financing norms. We also don’t expect any immediate revival in JLR sales volume in FY10E. We estimate TAMO to report EPS of Rs.14 and Rs.19 for FY10E and FY11E respectively. At current market price of Rs.314, the stock trades at a PE multiple of 23x and 16x for FY10E and FY11E respectively. We value TAMO at Rs.194 (10x FY11E) and other subsidiaries at Rs40 (including JLR). We recommend a SELL on the stock with a target price of Rs.235.
CHAPTER-10 FINDINGS & SUGGESTIONS The findings for the above research are as follows:-
44
➢
It was found that majority of the investors i.e.46% are from the age group of 36-54. This is the group of middle age people who deserve to invest for their future financial needs.
➢
It was found that Out of 100 respondents 64 customers have already re- invested in the company, while the rest are waiting for a correct time to enter in the market for the second time.
➢
It was observed that Out of 100 respondents 62 investors have reinvested due to better returns and performance of funds. While the rest of the investors have voted for performance of funds and services provided by the company.
➢
It was observed that Out of 100 investors 15 that is 15% of customers are preferred to invest in Tax saver funds. 40 that is 40% of investors are preferred to invest in index funds which give returns based upon respective indexes.. 45 that is 45% of investors are interested to invest in sectorial funds that means they are ready to take high risk but want high returns.
➢
It was found that Out of 100 respondents 34 ranked as AMC one for customer service function.
➢
It was found that Out of 100 respondents 38 respondents want to improve at their fund monitoring function.
CHAPTER-11 GLOSSARY Advisor
Your financial consultant who gives professional advice on the fund's investments and to supervise the management of its assets. 45
Amortization
A method of equated monthly payments over the life of a loan. Payments usually are paid monthly but can be paid annually, quarterly, or on any other schedule. In the early part of a loan, repayment of interest is higher than that of principal. This relationship is reversed at the end of the loan. Appreciation
When an investment increases in value, it appreciates. For example, a equity share whose price goes from Rs. 20/- to Rs. 25/- has appreciated by Rs. 5/-. Arbitrage
The practice of buying and selling an interlaced stock on different exchanges in order to profit from minute differences in price between the two markets. Asset
Property and resources, such as cash and investments, comprise a person's assets; i.e., anything that has value and can be traded. Examples include stocks, bonds, real estate, bank accounts, and jeweler. Asset Allocation
When you divide your money among various types of investments, such as stocks, bonds, and short-term investments (also known as "instruments"), you are allocating your assets. The way in which your money is divided is called your asset allocation. Annualized Return
This is the hypothetical rate of return that, if the fund achieved it over a year's time, would produce the same cumulative total return if the fund performed consistently over the entire period. A total return is expressed in a percentage and tells you how much money you have earned or lost on an investment over time, assuming that all dividends and capital gains are reinvested. Balanced Fund
A mutual fund that maintains a balanced portfolio, generally 40% bonds and 60% equity. Barter
46
The exchange of goods and services for other goods and services without the use of money. Bid or Sell Price
The price at which a mutual fund's shares are redeemed (bought back) by the fund. The bid or redemption price means the current net asset value per share, less any redemption fee or backend load. Blue Chip
A share in a large, safe, prestigious company, of the highest class among stock market investments. A blue-chip company would be called thus by being well-known, having a large paid-up capital, a good track record of dividend payments and skilled management. Capital
This is the amount of money you have invested. When your investing objective is capital preservation, your priority is trying not to lose any money. When your investing objective is capital growth, your priority is trying to make your initial investment grow in value.
Capital Gain
Profit from a sale of an investment constitutes a capital gain. For example, if you bought a share of stock for Rs. 5/- and later sold it for Rs. 7/-, you would have a capital gain of Rs. 2/-. Capital Gains Distributions
Payments (usually annually) to mutual fund shareholders of gains realized on the sale of portfolio securities. Capital Growth
A rise in market value of a mutual fund's securities, reflected in its NAV per share. This is a specific long-term objective of many mutual funds. Closed-ended Mutual Fund
A mutual fund that offers a limited number of shares. They are traded in the securities markets. Price is determined by supply and demand. Unlike open-ended mutual funds, closed-ended funds do not redeem their shares. Derivative
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An investment contract based on an underlying investment called an "instrument." The most common type of derivative is an option contract, which involves the right to buy or sell the underlying instrument at an agreed price. Futures contracts are also derivatives. Diversification
The policy of spreading investments among a range of different securities to reduce the risks inherent in investing. Dividend
When companies pay part of their profits to shareholders, those profits are called dividends. A mutual fund's dividend is money paid to shareholders from investment income the fund has earned. The amount of each share's dividend depends on how well the company does. Endorsement
Assigning or transferring a lien to another person is accomplished through the use of an endorsement. The words "PAY TO THE ORDER OF" and then the name of the person to whom the lien is being assigned to, is written. If there is not enough space on the original note to write an endorsement, it is written on a separate piece of paper that is permanently affixed to the original note. This is called an along. Face Value
The face value is the term used to describe the value of a bond in terms of what the company which issued the bond will actually repay when the loan matures. It's sometimes described as nominal or par value. Growth Fund
A mutual fund whose primary investment objective is long-term growth of capital. It invests principally in common stocks with significant growth potential. Income Fund
A mutual fund that primarily seeks current income rather than growth of capital. It will tend to invest in stocks and bonds that normally pay high dividends and interest. Index Fund
A mutual fund that seeks to mirror general stock-market performance by matching its portfolio to a broad-based index (e.g. BSE Sensex). 48
Load
A sales charge or commission assessed by certain mutual funds ("load funds") to cover their selling costs.
Redeemable
Preferred shares or bonds that give the issuing corporation an option to repurchase securities at a stated price. These are also known as callable securities. Redemption Fee
A fee charged by a limited number of funds for redeeming, or buying back, fund units. Redemption Price
The price at which a mutual fund's units are redeemed (bought back) by the fund. The redemption price is usually equal to the current NAV per unit. Re-investment Date
The date on which a share's dividend and/or capital gains will be reinvested (if requested) in additional fund shares. Rupee Cost Averaging (SIP)
The technique of investing a fixed sum at regular intervals regardless of stock market movements. This reduces average share costs to the investor, who acquires more shares in periods of lower securities prices and fewer shares in periods of high prices. In this way, investment risk is spread over time. Sector Fund
A fund that operates several specialized industries sectors portfolios under one umbrella. These sectors could be FMCG or Technology. Systematic Investment Plan
Many mutual funds offer investment programs whereby unit holders can invest. The Unit holders of the scheme can benefit by investing specific Rupee amounts periodically, for a continuous period. The SIP allows the investors to invest a fixed amount of Rupees every month or quarter for purchasing additional units of the scheme at NAV based prices. 49
Systematic Withdrawal Plans
Many mutual funds offer withdrawal programs whereby unit holders receive payments from their investments. These payments are usually drawn from the fund's dividend income and capital gain distributions, if any, and from principal only when necessary.
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Bibliography BOOKS: Erich A. Helfert, D.B.A., “Financial Analysis: Tools and Techniques” (2000) John L. Person, “A Complete Guide to Technical Trading Tactics”, Ninth Edition (March 26, 2004) Research methodology - C. R. Kothari, VIKASH PUBLICATION. “Financial management” Khan & Jain NEW DELHI, TATA Mc GROW- HIL PUBLICATION.
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