Mutual Funds Complete Project Report

A Summer Training Project Report On

“PERFORMANCE COMPARISON OF DIFFERENT MUTUAL FUNDS”

An Internship Report submitted in the partial fulfillment of the requirement for the degree of

MASTER OF BUSINESS ADMINISTRATION (2009-2011)

UNDER THE GUIDANCE OF: SUBMITTED BY: Rohit Pal Singh Kavita Singh (Co-ordinator) 097609

DAYALBAGH EDUCATIONAL INSTITUTE, FACULTY OF SOCIAL SCIENCE, AGRA. ACKNOWLEDGEMENT With limitless humility, I would like to praise and thank God, the Supreme and the merciful, who blessed me with all the favorable circumstances to go through this project. I am highly grateful to my project coordinator, Mr. Rohit Pal Singh for all his guidance and support during the course of this training. I am indebted to all the staff members of ICICI Prudential who were always ready to help me. I wish to express my profound gratitude to Dr. K.Santi Swarup, Deptt. Of Management, Faculty of Social Sciences for his learned guidance, constant encouragement and valuable suggestions. I am highly obliged to my parents, brother and sister. I am also indebted to my venerable relatives and friends whose love and affection has played a vital role during the course of this training.

-Kavita Singh

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CONTENTS ACKNOWLEDGEMENT............................................................................................2 OBJECTIVES OF THE STUDY....................................................................................4 COMPANY’S PROFILE..............................................................................................5 INTRODUCTION......................................................................................................8 MUTUAL FUND INDUSTRY......................................................................................8 HISTORY OF MUTUAL FUND INDUSTRY................................................................10 WHAT IS A MUTUAL FUND?..................................................................................14 MUTUAL FUNDS STRUCTURE...............................................................................16 TYPES OF MUTUAL FUNDS...................................................................................26 BENEFITS OF INVESTING THROUGH A MUTUAL FUND..........................................34 DISADVANTAGES OF MUTUAL FUND....................................................................35 PERFORMANCE MEASURES OF MUTUAL FUNDS...................................................36 PERFORMANCE COMPARISON OF MUTUAL FUNDS OF FIVE COMPANIES..............40 CALCULATION OF RISK FREE RATE OF RETURN...................................................42 Birla Sun Life Mutual Fund...................................................................................43 Kotak Mahindra Mutual Fund...............................................................................48 Escorts Mutual Fund............................................................................................53 ICICI Prudential Mutual Fund................................................................................58 Reliance Mutual Fund..........................................................................................63 DATA ANALYSIS AND INTERPRETATION...............................................................74 CROSS TABULATION............................................................................................86 RESULTS AND FINDINGS......................................................................................91 SUGGESTIONS......................................................................................................92 CONCLUSIONS.....................................................................................................93 REFERENCES........................................................................................................94 APPENDIX.............................................................................................................95 APPENDIX

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OBJECTIVES OF THE STUDY The objectives of the study is to analyses, in detail the growth pattern of mutual fund industry in India and to evaluate performance of different schemes floated by most preferred mutual funds in public fund in public and private sector. The main objectives of this project are: To study about the Mutual Funds in India  To study the various Mutual Funds schemes in India.  To study about the risk factors involved in the Mutual Funds and How to analyze it? 

To study the performance indices that can be used for mutual fund comparison.

 To compare mutual funds of selected five companies on the basis of their return and Sharpe Index.  To study the people in which age and income group prefer mutual funds over other investment options.

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COMPANY’S PROFILE ICICI Prudential Asset Management Company enjoys the strong parentage of Prudential plc, one of UK's largest players in the insurance & fund management sectors and ICICI Bank, a well-known and trusted name in financial services in India. ICICI Prudential Asset Management Company, in a span of just over eight years, has forged a position of pre-eminence in the Indian Mutual Fund industry as one of the largest asset management companies in the country with average assets under management of Rs. 83,069.89 Crore (as of April 30, 2010). The Company manages a comprehensive range of schemes to meet the varying investment needs of its investors spread across 230 cities in the country. At inception – May 1998 Average Assets Under Management Number of Funds Managed

As on April 30, 2010

Rs. 160 Crores

Rs. 83069.89 Crores

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40

Sponsors

Securities and Exchange Board of India, vide its letter no. MFD/PM/567/02 dated June 4, 2002, has accorded its approval in recognizing ICICI Bank Ltd. as a co-sponsor consequent to the merger of ICICI Ltd. with ICICI Bank Ltd. ICICI Bank is India's second-largest bank with total assets of Rs. 3,997.95 billion (US$ 100 billion) at March 31, 2008 and profit after tax of Rs. 41.58 billion for the year ended March 31, 2008. ICICI Bank is second amongst all the companies listed on the Indian stock exchanges in terms of free float market capitalization Free float holding excludes all promoter holdings, strategic investments and cross holdings among public sector entities. The Bank has a network of about 1,308 branches and 3,950 ATMs in India and presence in 18 countries. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its

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specialised subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset management. The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in Unites States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium and Germany. ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE). (Source: Overview at www.icicibank.com).

Headquartered in London, Prudential plc and its affiliated companies together constitute one of the world's leading financial services groups. Prudential provides insurance and financial services in a number of markets around the world, including in Asia, the US, the UK, Europe and the Middle East. Founded in 1848, the company has £249 billion in funds under management (as of 31 December 2008) and more than 21 million customers worldwide. Prudential has been writing life insurance in the United Kingdom for 160 years and has had the largest long-term fund in the United Kingdom, for over a century. In the United Kingdom, Prudential is a leading retirement savings and income solutions and life assurance provider. M&G is Prudential's fund management business in the United Kingdom and Europe, with almost £140 billion in funds under management (as of 31 December 2008). In the United States, Jackson National Life, which we acquired in 1986, is one of the largest life insurance companies providing retirement savings and income solutions. In Asia, Prudential is the leading Europe-based life insurer in terms of market coverage and number of top three ranking positions. It is also one of the largest and most successful fund managers in Asia with more top five market rankings than any other regional player. Today, Prudential has life insurance and fund management operations spanning 13 diverse markets in Asia. Prudential plc is incorporated and with its principal place of business in the United Kingdom. It is not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States. VALUES AT ICICI PRUDENTIAL Every member of the ICICI Prudential team is committed to 5 core values: • • • • •

Integrity Customer First Boundaryless Ownership Passion.

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MANAGEMENT TEAM • • • • • • • • •

Mr. Nimesh Shah Managing Director and Chief Executive Officer Mr. Kalyan Prasath Head - Information Technology Mr. Hemant Agarwal Head – Operations Mr. Nimesh Shah Managing Director and Chief Executive Officer Mr. Nilesh Shah Deputy Managing Director Ms. Shashi Singh Head- Channel Strategy Mr. Ashish Kakkar Head - Human Resources Mr. B. Ramakrishna Chief Financial Officer Mr. Krishna Prasad Tumuluri Head – International Business

FUND MANAGERS • •

Mr. S. Naren Mr. Chaitanya Pandey

BOARD OF DIRECTORS Asset Management Company • • • • • • • • •

Ms. Chanda Kocchar – Chairperson Mr. Dileep Choksi Mr. Barry Stowe Mr. N S Kannan Dr. ( Mrs.) Swati A. Piramal Mr. Nimesh Shah Mr. Vikram B. Trivedi Mr. Nilesh Shah Mr. Vijay Thacker

INTRODUCTION 7

MUTUAL FUND INDUSTRY The mutual fund industry in India is one of the emerging industries in India. Today, the Indian mutual fund industry has 40 players. The number of public sector players has reduced from 11 to 5. The public sector has gradually receded into the background, passing on a large chunk of market share to private sector players. The Association of Mutual Funds in India (AMFI) is the industry body set up to facilitate the growth of the Indian mutual fund industry. It plays a pro-active role in identifying steps that need to be taken to protect investors and promote the mutual fund sector. It is noteworthy that AMFI is not a Self-Regulatory Organisation (SRO) and its recommendations are not binding on the industry participants. By its very nature, AMFI has an advisor’s or a counsellor’s role in the mutual fund industry. Its recommendations become mandatory if and only if the Securities and Exchange Board of India (SEBI) incorporates them into the regulatory framework it stipulates for mutual funds. The Indian mutual fund industry follows a 3-tier structure as shown below:

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1. Sponsors They are the individuals who think of starting a mutual fund. The Sponsor approaches SEBI, the market regulator and also the regulator for mutual funds. Not everyone can start a mutual fund. SEBI will grant a permission to start a mutual fund only to a person of integrity, with significant experience in the financial sector and a certain minimum net worth. These are just some of the factors that come into play.

2. Trust Once SEBI is satisfied with the credentials and eligibility of the proposed Sponsors, the Sponsors then establish a Trust under the Indian Trust Act 1882. Trusts have no legal identity in India and thus cannot enter into contracts. Hence the Trustees are the individuals authorized to act on behalf of the Trust. Contracts are entered into in the name of the Trustees. Once the Trust is created, it is registered with SEBI, after which point, this Trust is known as the mutual fund.

3. Asset Management Company (AMC) The Trustees appoint the AMC, which is established as a legal entity, to manage

the

investor’s (unit holder’s) money. In return for this money management on behalf of the mutual fund, the AMC is paid a fee for the services provided. This fee is to be borne by the investors and is deducted from the money collected from them. The AMC has to be approved by SEBI and it functions under the supervision of its Board of Directors, and also under the direction of the Trustees and the regulatory framework established by SEBI. It is the AMC, which in the name of the Trust, that floats new schemes and manages these schemes by buying and selling securities.

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HISTORY OF MUTUAL FUND INDUSTRY The mutual fund industry started in 1963 with the formation of the Unit Trust of India which was the initiative of the Government of India and the Reserve Bank of India. The history of mutual funds in India can be broadly classified into four distinct phases : First Phase : 1964 – 1987 An Act of Parliament established Unit Trust of India(UTI) on 1963. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the RBI. In 1978, UTI was delinked from RBI and the IDBI took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme, 1964. At the end of 1988 UTI had Rs. 6700 crores of AUM. Second Phase : 1987 – 1993 (Entry of Public Sector Funds) In 1987, it was the entry of non-UTI, public sector mutual funds setup by public sector banks and the Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non-UTI Mutual Fund established in June,1987.

1992-93

Amount Mobilized

Assets Under Management

Mobilization as % of gross Domestic Savings

UTI

11,057

38,247

5.2%

Public Sector

1,964

8,757

0.9%

Total

13,021

47,004

6.1%

Third Phase : 1993 – 2003 (Entry of Private Sector Funds) With the entry of the private sector funds in 1993, a new era started in the Indian Mutual Fund Industry, giving the investors a wider choice of fund families. Also, 1993 was the year 10

in which first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer ( now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The industry now functions under SEBI Regulations, 1996. At the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The UTI with Rs. 44,541 crores of AUM was way ahead of other mutual funds. Fourth Phase – Since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29, 835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. Growth in Assets under Management

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. The Assets under Management(AUM) have grown at a rapid pace over the past few years at a CAGR of 35% for the past few years at a CAGR of 35 percent for the fiveyear period from

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31 March, 2005 to 31 March, 2009. Over the 10-year period from 1999 to 2009 encompassing varied economic cycles, the industry grew at 22% CAGR. This growth was despite two falls in the AUM the first being after year 2001 due to dotcom bubble burst and the second in 2008, consequent to the global economic crisis. AUM Base and Growth Relative To the Global Industry India has been amongst the fastest growing markets for mutual funds since 2004 in the fiveyear period from 2004 to 2008 (as of December) the Indian mutual fund industry grew at 29 percent CAGR as against the global average of 4 percent . Over this period, the mutual fund industry in mature markets like the US and France grew at 4 percent, while some of the emerging markets viz. China and Brazil exceeded the growth witnessed in the Indian market.

AUM to GDP Ratio The ratio of AUM to India’s GDP , gradually increased from 6 percentin 2005 to 11 percent in 2009. Despite this however, this continues to be significantly lower than the ratio in developed countries, where the AUM accounts for 20-70 percent of the GDP.

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WHAT IS AN INVESTMENT? In finance, the purchase of a financial product or other item of value with an expectation of favorable future returns. In general terms, investment means the use money in the hope of making more money. There are three fundamentals of investment : •

Safety

Post Investment Secondary Primary Small Insuranc PP RBI Equit Deb Office sSavings Market Bonds Market F y e t

•

Liquidity

•

Return

INVESTMENT AVENUES

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Fixed Return Options

1. 2. 3. 4. 5. 6. 7. 8. 9.

Post Office Public Provident Fund Bank Fixed Deposits Government Securities or Gilts RBI Taxable Bonds Insurance Company Debentures Company Fixed Deposits Infrastructure Bonds

Variable Return Options

1. 2. 3. 4. 5.

Mutual Funds Shares and Stock Markets Gold & Silver Property Foreign Exchange

WHAT IS A MUTUAL FUND? A mutual fund is a legal vehicle that enables a collective group of individuals to: i.

Pool their surplus funds and collectively invest in instruments / assets for a common investment objective.

ii.

Optimize the knowledge and experience of a fund manager, a capacity that individually they may not have.

iii.

Benefit from the economies of scale which size enables and is not available on an individual basis. Investing in a mutual fund is like an investment made by a collective.

losses estors, ollected The from on fund from aMany such proportionate manager investors Investors investment realize is invested with basis, are gains common passed get into or mutual losses, shares, on financial tofund the and debentures objectives units investors collects for the dividend and in pool proportion sum the their contribut other or intere of sec t Concept of Mutual money manager income them pool Funds

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An individual as a single investor is likely to have lesser amount of money at disposal than say, a group of friends put together. Now, let’s assume that this group of individuals is a novice in investing and so the group turns over the pooled funds to an expert to make their money work for them. This is what a professional Asset Management Company does for mutual funds. The AMC invests the investors’ money on their behalf into various assets towards a common investment objective. Hence, technically speaking, a mutual fund is an investment vehicle which pools investors’ money and invests the same for and on behalf of investors, into stocks, bonds, money market instruments and other assets. The money is received by the AMC with a promise that it will be invested in a particular manner by a professional manager (commonly known as fund 15

managers). The fund managers are expected to honor this promise. The SEBI and the Board of Trustees ensure that this actually happens. When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets of the fund in the same proportion as his contribution amount put up with the corpus (the total amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit holder. Any change in the value of the investments made into capital market instruments (such as shares, debentures etc.) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is calculated by dividing the market value of scheme's assets by the total number of units issued to the investors. For example: A. If the market value of the assets of a fund is Rs. 100,000 B. The total number of units issued to the investors is equal to 10,000. C. Then the NAV of this scheme = (A)/(B), i.e. 100,000/10,000 or 10.00 D. Now if an investor 'X' owns 5 units of this scheme E. Then his total contribution to the fund is Rs. 50 (i.e. Number of units held multiplied by the NAV of the scheme).

MUTUAL FUNDS STRUCTURE The SEBI (Mutual Funds) Regulations 1993 define a mutual fund (MF) as a fund established in the form of a trust by a sponsor to raise monies by the Trustees through the sale of units to the public under one or more schemes for investing in securities in accordance with these regulations.

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These regulations have since been replaced by the SEBI (Mutual Funds) Regulations, 1996. The structure indicated by the new regulations is indicated as under. A mutual fund comprises four separate entities, namely sponsor, mutual fund trust, AMC and custodian. The sponsor establishes the mutual fund and gets it registered with SEBI. The mutual fund needs to be constituted in the form of a trust and the instrument of the trust should be in the form of a deed registered under the provisions of the Indian Registration Act, 1908. The Custodian maintains the custody of the securities in which the scheme invests. It also keeps a tab on corporate actions such as rights, bonus and dividends declared by the companies in which the fund has invested. The Custodian is appointed by the Board of Trustees. The Custodian also participates in a clearing and settlement system through approved depository companies on behalf of mutual funds, in case of dematerialized securities. The sponsor is required to contribute at least 40% of the minimum net worth (Rs. 10 crore) of the asset management company. The board of trustees manages the MF and the sponsor 17

executes the trust deeds in favour of the trustees. It is the job of the MF trustees to see that schemes floated and managed by the AMC appointed by the trustees are in accordance with the trust deed and SEBI guidelines TYPES OF RETURN There are three ways, where the total returns provided by mutual funds can be enjoyed by investors: 1. Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution. 2. If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution. 3. If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.

INDICATORS OF INVESTMENT RISK

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There are five main indicators of investment risk that apply to the analysis of stocks, bonds and mutual fund portfolios. They are alpha, beta, r-squared, standard deviation and the Sharpe ratio. These statistical measures are historical predictors of investment risk/volatility and are all major components of modern portfolio theory (MPT).

The MPT is a standard financial and academic methodology used for assessing the performance of equity, fixed-income and mutual fund investments by comparing them to market benchmarks. All of these risk measurements are intended to help investors determine the risk-reward parameters of their investments. In this article, we'll give a brief explanation of each of these commonly used indicators.

UNDERSTANDING AND MANAGING RISK

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All investments whether in shares, debentures or deposits involve risk: share value may go down depending upon the performance of the company, the industry, state of capital markets and the economy; generally, however, longer the term, lesser the risk; companies may default in payment of interest/principal on their debentures/bonds/deposits; the rate of interest on an investment may fall short of the rate of inflation reducing the purchasing power. While risk cannot be eliminated, skillful management can minimize risk. Mutual Funds help to reduce risk through diversification and professional management. The experience and expertise of Mutual Fund managers in selecting fundamentally sound securities and timing their purchases and sales help them to build a diversified portfolio that minimize risk and maximizes returns. The risk return trade-off indicates that if investor is willing to take higher risk then correspondingly he can expect higher returns and vice versa if he pertains to lower risk instruments, which would be satisfied by lower returns. For example, if an investors opt for bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest in capital protected funds and the profit-bonds that give out more return which is slightly higher as compared to the bank deposits but the risk involved also increases in the same proportion. Thus investors choose mutual funds as their primary means of investing, as Mutual funds provide professional management, diversification, convenience and liquidity. That doesn’t mean mutual fund investments risk free. This is because the money that is pooled in are not invested only in debts funds which are less riskier but are also invested in the stock markets which involves a higher risk but can expect higher returns.

RISKS ASSOCIATED WITH MUTUAL FUNDS 20

At the cornerstone of investing is the basic principle that the greater the risk you take, the greater the potential reward. Remember that the value of all financial investments will fluctuate. Individual tolerance for risk varies, creating a distinct "investment personality" for each investor. Some investors can accept short-term volatility with ease, others with near panic. So whether you consider your investment temperament to be conservative, moderate or aggressive, you need to focus on how comfortable or uncomfortable you will be as the value of your investment moves up or down. •

Managing Risks

Mutual funds offer incredible flexibility in managing investment risk. Diversification and Automatic Investing (SIP) are two key techniques you can use to reduce your investment risk considerably and reach your long-term financial goals. •

Diversification

When you invest in one mutual fund, you instantly spread your risk over a number of different companies. You can also diversify over several different kinds of securities by investing in different mutual funds, further reducing your potential risk. Diversification is a basic risk management tool that you will want to use throughout your lifetime as you rebalance your portfolio to meet your changing needs and goals. Investors, who are willing to maintain a mix of equity shares, bonds and money market securities have a greater chance of earning significantly higher returns over time than those who invest in only the most conservative investments. Additionally, a diversified approach to investing -- combining the growth potential of equities with the higher income of bonds and the stability of money markets -- helps moderate your risk and enhance your potential return. •

Systematic Investment Plan (SIP)

The Unitholders of the Scheme can benefit by investing specific Rupee amounts periodically, for a continuous period. Mutual fund 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.

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Here is an illustration using hypothetical figures indicating how the SIP can work for investors: Suppose an investor would like to invest Rs.1,000 under the Systematic Investment Plan on a quarterly basis. Amount Invested (Rs.)

Purchase Price (Rs.)

No. of Units Purchased

Initial Investment

1000

10

100

1

1000

8.20

121.95

2

1000

7.40

135.14

3

1000

6.10

163.93

4

1000

5.40

185.19

5

1000

6.00

166.67

6

1000

8.20

121.95

7

1000

9.25

108.11

8

1000

10.00

100.00

9

1000

11.25

88.89

10

1000

13.40

74.63

11

1000

14.40

69.44

TOTAL

12,000

-

1,435.90

Average unit cost Rs 12,000/1,435.9 = Rs 8.36 Average unit price 109.6/12 = Rs 9.13 Unit price at beginning of next quarter Rs 14.90 Market value of investment 1435.9 * 14.90= Rs 21,395/The investor liquidates his units and gets back Rs 21,395/Using the SIP strategy the investor can reduce his average cost per unit. The investor gets the advantage of getting more units when the market is turned down.

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TYPES OF RISKS All investments involve some form of risk. Even an insured bank account is subject to the possibility that inflation will rise faster than your earnings, leaving you with less real purchasing power than when you started (Rs. 1000 gets you less than it got your father when he was your age). Consider these common types of risk and evaluate them against potential rewards when you select an investment.

•

Market Risk

At times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences. When this happens, the stock prices of both an outstanding, highly profitable company and a fledgling corporation may be affected. This change in price is due to "market risk". •

Inflation Risk

Sometimes referred to as "loss of purchasing power." Whenever inflation sprints forward faster than the earnings on your investment, you run the risk that you'll actually be able to buy less, not more. Inflation risk also occurs when prices rise faster than your returns. •

Credit Risk

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In short, how stable is the company or entity to which you lend your money when you invest? How certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment matures? •

Interest Rate Risk

Changing interest rates affect both equities and bonds in many ways. Investors are reminded that "predicting" which way rates will go is rarely successful. A diversified portfolio can help in offseting these changes. •

Exchange Risk

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

Investment Risk

The sectoral fund schemes, investments will be predominantly in equities of select companies in the particular sectors. Accordingly, the NAV of the schemes are linked to the equity performance of such companies and may be more volatile than a more diversified portfolio of equities. •

Changes in Government Policy

Changes in Government policy especially in regard to the tax benefits may impact the business prospects of the companies leading to an impact on the investments made by the fund.

REGULATORY AUTHORITIES To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time 24

to time. MF either promoted by public or by private sector entities including one promoted by foreign entities is governed by these Regulations. SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody. According to SEBI Regulations, two thirds of the directors of Trustee Company or board of trustees must be independent. The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual funds that the mutual funds function within the strict regulatory framework. Its objective is to increase public awareness of the mutual fund industry. AMFI also is engaged in upgrading professional standards and in promoting best industry practices in diverse areas such as valuation, disclosure, transparency etc.

MUTUAL FUNDS IN INDIA 25

1) ABN AMRO Mutual Fund 2) Benchmark Mutual Fund 3) Birla Sun Life Mutual Fund 4) Bharti AXA Mutual Fund 5) BOB Mutual Fund 6) Canara Robero Mutual Fund 7) DBS Chola Mutual Fund 8) Deutsche Mutual Fund 9) DSP BlackRock Mutual Fund 10)Escorts Mutual Fund 11)Fidelity Mutual Fund 12)Fortis ( ABN ) Mutual Fund 13)Franklin Templeton Mutual Fund 14)HDFC Mutual Fund 15)HSBC Mutual Fund 16)ING Vysya Mutual Fund 17)JM Financial Mutual Fund 18)Kotak Mahindra Mutual Fund 19)LIC Mutual Fund 20)Principal Mutual Fund 21)ICICI Prudential Mutual Fund 22)Reliance Mutual Fund 23)Sahara Mutual Fund 24)SBI Mutual Fund 25)Standard Chartered Mutual Fund 26)Sundaram Mutual Fund 26

27)Tata Mutual Fund 28)Taurus Mutual Fund 29)UTI Mutual Fund

TYPES OF MUTUAL FUNDS There are wide variety of Mutual Fund schemes that cater to investor needs, whatever the age, financial position, risk tolerance and return expectations. The mutual fund schemes can be classified according to both their investment objective (like income, growth, tax saving) as well as the number of units (if these are unlimited then the fund is an open-ended one while if there are limited units then the fund is close-ended).

Open-ended schemes These funds are sold at the NAV based prices, generally calculated on every business day. These schemes have unlimited capitalization, open-ended schemes do not have a fixed

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maturity - i.e. there is no cap on the amount you can buy from the fund and the unit capital can keep growing. These funds are not generally listed on any exchange. Open-ended funds are bringing in a revival of the mutual fund industry owing to increased liquidity, transparency and performance in the new open-ended funds promoted by the private sector and foreign players. Open-ended funds score over close-ended ones on several counts. Some of these are listed below: a) Any time exit option : The issuing company directly takes the responsibility of providing an entry and an exit. This provides ready liquidity to the investors and avoids reliance on transfer deeds, signature verifications and bad deliveries. b) Tax advantage : Though Budget 2004 proposals envisage a tax rate of 20.91%(Corporate investors) and 13.06875% (Non-Corporate investors) on dividend distribution made by the Debt funds, the funds continue to remain attractive investment vehicles. In equity plans there is no distribution tax. c) Any time entry option : An open-ended fund allows one to enter the fund at any time and even to invest at regular intervals (a systematic investment plan). The open ended funds offered by ICICI Prudential Mutual Fund are •

Liquid Plan Income Plan

•

Gilt-Treasury

•

Gilt-Investment

•

Balanced Fund

•

Growth Fund

•

Tax Plan

•

FMCG Fund

•

Technology Fund

•

Monthly Income Plan

•

Child Care Plan

•

Power and Short Term Plan

Close ended schemes 28

Schemes that have a stipulated maturity period, limited capitalization and the units are listed on the stock exchange are called close-ended schemes. These schemes have historically seen a lot of subscription. This popularity is estimated to be on account of firstly, public sector MFs having floated a lot of close-ended income schemes with guaranteed returns and secondly easy liquidity on account of listing on the stock exchanges. The closed-ended fund managed by ICICI Prudential Mutual Fund is ICICI Premier. Classification according to investment objectives Objectives Mutual funds have specific investment objectives such as growth of capital, safety of principal, current income or tax-exempt income. In general mutual funds fall into three general categories: •

Equity Funds invest in shares or equity of companies.

•

Fixed-Income funds invest in government or corporate securities that offer fixed rates of return.

•

Balanced Funds invest in a combination of both stocks and bonds.

i) Growth Funds These funds seek to provide growth of capital with secondary emphasis on dividend. They invest in shares with a potential for growth and capital appreciation. Because they invest in well-established companies where the company itself and the industry in which it operates are thought to have good long-term growth potential, growth funds provide low current income. Growth funds generally incur higher risks than income funds in an effort to secure more pronounced growth. These funds may invest in a broad range of industries or concentrate on one or more industry sectors. Growth funds are suitable for investors who can afford to assume the risk of potential loss in value of their investment in the hope of achieving substantial and rapid gains. They are not suitable for investors who must conserve their principal or who must maximize current income. ii) Growth and Income Funds 29

Growth and income funds seek long-term growth of capital as well as current income. The investment strategies used to reach these goals vary among funds. Some invest in a dual portfolio consisting of growth stocks and income stocks, or a combination of growth stocks, stocks paying high dividends, preferred stocks, convertible securities or fixed-income securities such as corporate bonds and money market instruments. Others may invest in growth stocks and earn current income by selling covered call options on their portfolio stocks. Growth and income funds have low to moderate stability of principal and moderate potential for current income and growth. They are suitable for investors who can assume some risk to achieve growth of capital but who also want to maintain a moderate level of current income. iii) Fixed-Income Funds The goal of fixed income funds is to provide current income consistent with the preservation of capital. These funds invest in corporate bonds or government-backed mortgage securities that have a fixed rate of return. Within the fixed-income category, funds vary greatly in their stability of principal and in their dividend yields. High-yield funds, which seek to maximize yield by investing in lower-rated bonds of longer maturities, entail less stability of principal than fixed-income funds that invest in higher-rated but lower-yielding securities.

30

Hig Low

Risk

h

Some fixed-income funds seek to minimize risk by investing exclusively in securities whose timely payment of interest and principal is backed by the full faith and credit of the Indian Government. Fixed-income funds are suitable for investors who want to maximize current income and who can assume a degree of capital risk in order to do so. iv) Balanced Fund The Balanced fund aims to provide both growth and income. These funds invest in both shares and fixed income securities in the proportion indicated in their offer documents. Ideal for investors who are looking for a combination of income and moderate growth. v) Money Market Funds/Liquid Funds For the cautious investor, these funds provide a very high stability of principal while seeking a moderate to high current income. They invest in highly liquid, virtually risk-free, short-term debt securities of agencies of the Indian Government, banks and corporations and Treasury Bills. Because of their short-term investments, money market mutual funds are able to keep a virtually constant unit price; only the yield fluctuates. Therefore, they are an attractive alternative to bank accounts. With yields that are generally competitive with - and usually higher than -- yields on bank savings account, they offer several advantages. Money can be withdrawn any time without penalty. Although not insured, money market funds invest only in highly liquid, short-term, top-rated money market instruments. Money market funds are suitable for investors who want high stability of principal and current income with immediate liquidity. vi) Specialty/Sector Funds These funds invest in securities of a specific industry or sector of the economy such as health care, technology, leisure, utilities or precious metals. The funds enable investors to diversify

31

holdings among many companies within an industry, a more conservative approach than investing directly in one particular company. Sector funds offer the opportunity for sharp capital gains in cases where the fund's industry is "in favor" but also entail the risk of capital losses when the industry is out of favor. While sector funds restrict holdings to a particular industry, other specialty funds such as index funds give investors a broadly diversified portfolio and attempt to mirror the performance of various market averages. Index funds generally buy shares in all the companies composing the BSE Sensex or NSE Nifty or other broad stock market indices. They are not suitable for investors who must conserve their principal or maximize current income.

A summary is presented in the table below of the various funds and their investment objectives.

32

33

Comparison with Other Investment Avenues

Investment Avenues Fixed Deposits

Equity shares

Co.Debenture

Liquidity

Safety

Low

Low

Moderate to high Low

Low 34

Moder

Investment Avenues Fixed Deposits

Equity shares

Liquidity

Safety

Low

Low

Moderate to high

Low

Co.Debenture

Low

Moder

Co. Deposit

Low

Moder

Life Insurance

Low

High

Mutual Funds High (Open ended)

35

Moder

Comparison between FD, Bonds and Mutual Fund – Features

Characteristics

FD's

Bonds

Mutual Funds

Accessibility

Low

Low

High

Tenor

Fixed(medium)

Fixed(Long)

No Lock-in

Min. Investment

Rs.1000

Rs.5000

Rs.5000

Tax Benefits

None

80L, 88

Dividend Tax-Free

Liquidity

Low

Very Low

Very High

Convenience

Medium

Tedious

Very High

Transparency

None

None

Very High

Funds differ in terms of their risk profile Equity Funds

High Level of Return, but has a high level of risk too

Debt Funds

Returns comparatively less risky than equity funds

Liquid and Money Market Funds

Provide stable but low level of return

36

BENEFITS OF INVESTING THROUGH A MUTUAL FUND A mutual fund is an entity that pools the money of many investors -- its unit-holders -- to invest in different securities. Investments may be in shares, debt securities, money market securities or a combination of these. Those securities are professionally managed on behalf of the unit-holders, and each investor holds a pro-rata share of the portfolio i.e. entitled to any profits when the securities are sold, but subject to any losses in value as well. i) Professional investment management Mutual funds hire full-time, high-level investment professionals. Funds can afford to do so as they manage large pools of money. The managers have real-time access to crucial market information and are able to execute trades on the largest and most cost-effective scale. ii) Diversification Mutual funds invest in a broad range of securities. This limits investment risk by reducing the effect of a possible decline in the value of any one security. Mutual fund unit-holders can benefit from diversification techniques usually available only to investors wealthy enough to buy significant positions in a wide variety of securities. iii) Low Cost A mutual fund let's you participate in a diversified portfolio for as little as Rs.5,000/-, and sometimes less. And with a no-load fund, you pay little or no sales charges to own them. iv) Convenience and Flexibility You own just one security rather than many, yet enjoy the benefits of a diversified portfolio and a wide range of services. Fund managers decide what securities to trade, collect the interest payments and see that your dividends on portfolio securities are received and your rights exercised. It also uses the services of a high quality custodian and registrar in order to make sure that your convenience remains at the top of our mind. v) Personal Service One call puts you in touch with a specialist who can provide you with information you can use to make your own investment choices. They will provide you personal assistance in buying and selling your fund units, provide fund information and answer questions about your account status. 37

vi)Liquidity In open-ended schemes, you can get your money back promptly at net asset value related prices from the mutual fund itself. vii) Transparency You get regular information on the value of your investment in addition to disclosure on the specific investments made by the mutual fund scheme.

DISADVANTAGES OF MUTUAL FUND 1. Costs Control Not in the Hands of an Investor: Investor has to pay investment

management fees and fund distribution costs as a percentage of the value of his investments, irrespective of the performance of the fund. 2. No Customized Portfolios: The portfolio of securities in which a fund invests is a

decision taken by the fund manager. Investors have no right to interfere in the decision making process of a fund manager, which some investors find as a constraint in achieving their financial objectives. 3. Difficulty in Selecting a Suitable Fund Scheme: Many investors find it difficult to

select one option from the plethora of funds/schemes/plans available.

PERFORMANCE MEASURES OF MUTUAL FUNDS Return alone should not be considered as the basis of measurement of the performance of a mutual fund scheme, it should also include the risk taken by the fund manager because 38

different funds will have different levels of risk attached to them. Risk associated with a fund, in a general, can be defined as variability or fluctuations in the returns generated by it. The higher the fluctuations in the returns of a fund during a given period, higher will be the risk associated with it. These fluctuations in the returns generated by a fund are resultant of two guiding forces. First, general market fluctuations, which affect all the securities present in the market, called market risk or systematic risk and second, fluctuations due to specific securities present in the portfolio of the fund, called unsystematic risk. The Total Risk of a given fund is sum of these two and is measured in terms of standard deviation of returns of the fund. Systematic risk, on the other hand, is measured in terms of Beta, which represents fluctuations in the NAV of the fund vis-à-vis market. The more responsive the NAV of a mutual fund is to the changes in the market; higher will be its beta. Beta is calculated by relating the returns on a mutual fund with the returns in the market. While unsystematic risk can be diversified through investments in a number of instruments, systematic risk cannot. By using the risk return relationship, we try to assess the competitive strength of the mutual funds vis-à-vis one another in a better way. In order to determine the risk-adjusted returns of investment portfolios, several eminent authors have worked since 1960s to develop composite performance indices to evaluate a portfolio by comparing alternative portfolios within a particular risk class. The most important and widely used measures of performance are: Ø The Treynor Measure Ø The Sharpe Measure Ø Jenson Model Ø Fama Model

The Treynor Measure Developed by Jack Treynor, this performance measure evaluates funds on the basis of Treynor's Index. This Index is a ratio of return generated by the fund over and above risk free rate of return (generally taken to be the return on securities backed by the government, as

39

there is no credit risk associated), during a given period and systematic risk associated with it (beta). Symbolically, it can be represented as: Treynor's Index (Ti) = (Ri - Rf)/Bi. Where, Ri represents return on fund, Rf is risk free rate of return and Bi is beta of the fund. All risk-averse investors would like to maximize this value. While a high and positive Treynor's Index shows a superior risk-adjusted performance of a fund, a low and negative Treynor's Index is an indication of unfavorable performance. The Sharpe Measure In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is a ratio of returns generated by the fund over and above risk free rate of return and the total risk associated with it. According to Sharpe, it is the total risk of the fund that the investors are concerned about. So, the model evaluates funds on the basis of reward per unit of total risk. Symbolically, it can be written as: Sharpe Index (Si) = (Ri - Rf)/Si Where, Si is standard deviation of the fund. While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund, a low and negative Sharpe Ratio is an indication of unfavorable performance. Comparison of Sharpe and Treynor Sharpe and Treynor measures are similar in a way, since they both divide the risk premium by a numerical risk measure. The total risk is appropriate when we are evaluating the risk return relationship for well-diversified portfolios. On the other hand, the systematic risk is the relevant measure of risk when we are evaluating less than fully diversified portfolios or individual stocks. For a well-diversified portfolio the total risk is equal to systematic risk. Rankings based on total risk (Sharpe measure) and systematic risk (Treynor measure) should be identical for a well-diversified portfolio, as the total risk is reduced to systematic risk. Therefore, a poorly diversified fund that ranks higher on Treynor measure, compared with another fund that is highly diversified, will rank lower on Sharpe Measure. Jenson Model

40

Jenson's model proposes another risk adjusted performance measure. This measure was developed by Michael Jenson and is sometimes referred to as the Differential Return Method. This measure involves evaluation of the returns that the fund has generated vs. the returns actually expected out of the fund given the level of its systematic risk. The surplus between the two returns is called Alpha, which measures the performance of a fund compared with the actual returns over the period. Required return of a fund at a given level of risk (Bi) can be calculated as: Ri = Rf + Bi (Rm - Rf) Where, Rm is average market return during the given period. After calculating it, alpha can be obtained by subtracting required return from the actual return of the fund. Higher alpha represents superior performance of the fund and vice versa. Limitation of this model is that it considers only systematic risk not the entire risk associated with the fund and an ordinary investor can not mitigate unsystematic risk, as his knowledge of market is primitive. Fama Model The Eugene Fama model is an extension of Jenson model. This model compares the performance, measured in terms of returns, of a fund with the required return commensurate with the total risk associated with it. The difference between these two is taken as a measure of the performance of the fund and is called net selectivity. The net selectivity represents the stock selection skill of the fund manager, as it is the excess return over and above the return required to compensate for the total risk taken by the fund manager. Higher value of which indicates that fund manager has earned returns well above the return commensurate with the level of risk taken by him. Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf) Where, Sm is standard deviation of market returns. The net selectivity is then calculated by subtracting this required return from the actual return of the fund. Among the above performance measures, two models namely, Treynor measure and Jenson model use systematic risk based on the premise that the unsystematic risk is diversifiable. These models are suitable for large investors like institutional investors with high risk taking capacities as they do not face paucity of funds and can invest in a number of options to dilute some risks. For them, a portfolio can be spread across a number of stocks and sectors. 41

However, Sharpe measure and Fama model that consider the entire risk associated with fund are suitable for small investors, as the ordinary investor lacks the necessary skill and resources to diversified. Moreover, the selection of the fund on the basis of superior stock selection ability of the fund manager will also help in safeguarding the money invested to a great extent.

PERFORMANCE COMPARISON OF MUTUAL FUNDS OF FIVE COMPANIES RESEARCH METHODOLOGY Research is an organized enquiry designed and carried out to provide information for solving a problem. Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done scientifically. 42

DATA COLLECTION The task of data collection begins after a research problem has been defined. While deciding about the method of data collection to be used for the study, the researcher should keep in mind two types of data viz, primary and secondary. NAV and corresponding returns of 5 Mutual Funds Schemes: In this study, we have selected the 5 mutual fund companies. Following is the NAV and corresponding return of last 1 year starting from 1st April, 2009 to 31st March, 2010. The funds are chosen randomly from the available means. Primary data may be described as those data that have been observed and recorded by the researchers for the first time to their knowledge. Primary data can be classified into two types:

Primary

data

•

Data classified by their nature.

•

Data classified according to function.

can

be

collected

through

several

methods.

Some

of

the

important ones are: i. Observation method ii. Interview method

Secondary data are collected from various websites as well as books, newspapers, research papers.

TECHNIQUES USED IN THIS STUDY In this study, we have used various statistics tools like descriptive statistics, percentage, indices available, etc. for analyzing, interpreting and comparison of different mutual fund schemes. The Sharpe Index Model is also used to analyze the performance evaluation and ranking for the difference mutual funds schemes in India. 43

SCOPE OF THE STUDY: The 5 most preferred public and private sector mutual funds schemes have been taken for the study. These public and private mutual funds schemes were studies during the period of 1st April, 2009 to 31st March, 2010.

LIMITATIONS OF THE STUDY: Due to shortage of time and money, we selected only 5 mutual funds schemes which include public and private mutual funds. The data was collected for analysis from 1 April, 2009 to 1 April, 2010. My study is based on the limited 5 mutual funds schemes only which affect the results of the study.

CALCULATION OF RISK FREE RATE OF RETURN For Calculating Risk free rate of returns the average monthly yields on 91-day government of India treasury bills. •

Here, 91-DAY GOVERNMENT OF INDIA TREASURY BILLS are used as a riskfree asset, and they pay a fixed rate of interest and have exceptionally low default risk.

•

The risk-free asset has zero variance in returns (hence is risk-free); it is also uncorrelated with any other asset (by definition: since its variance is zero).

44

•

As a result, when it is combined with any other asset, or portfolio of assets, the change in return and also in risk is linear. Source:- www.rbi.com Month

Yield

Apr-09

3.81

May09

3.25

Jun-09

3.34

Jul-09

3.22

Aug09

3.34

Sep09

3.33

Oct-09

3.23

Nov09

3.27

Dec09

3.54

Jan-10

3.85

Feb10

4.11

Mar10

4.33

Yields on 91-Day Government of India Treasury Therefore, the average yield = 3.55% is the risk free rate of return

45

Birla Sun Life Mutual Fund Birla Sun Life Asset Management Company Limited, the investment manager of Birla Sunlife Mutual Fund, is a joint venture between the Aditya Birla Group and Sun Life Financial Services, leading international financial services organization. Established in 1994, Birla Sunlife AMC provides investors a range of 18 investment options, which include diversified and sector specific equity schemes, a wide range of debt and treasury products, and two offshore funds. Both the sponsors have equal stakes in the AMC. In recognition to its high quality investment products, Birla Sun Life Asset Management Company became India's first asset management company to be awarded the coveted ISO 9001:2000 certification by DNV Netherlands.

No. of schemes No. of schemes including

71 219

options Gilt Fund

16

Equity Schemes

64

Debt Schemes

106

Short term debt Schemes

17

Equity & Debt

10

Money Market

0

Corpus Under Management: Rs.49983.17 Crs. as on Feb 28, 2009 Key Personnel:

Mr. Donald Stewart (Chairman),

A Balasubramanian (CEO), Ashok

Suvarna (COO), Abhay Palnitkar (CFO), Sanjay Singal (CMO), Bhavdeep Bhatt (Head Products).

46

For Performance Comparison we take three Mutual Fund Schemes of Company:  Birla Sun Life Equity Fund (Growth)  Birla Sun Life Income Fund (Growth)  Birla Sun Life Tax Plan (Growth) The Monthly NAV & Returns of above three Mutual Fund Schemes as Follows:1. Birla Sun Life Equity Fund (Growth) Month

Net Assets Value

Monthly Return

Apr-09 123.90 - 183.76

48.3132

May- 183.76 - 195.43 09

6.3507

Jun-09 195.43 - 194.66

-0.394

Jul-09 194.66 - 216.34

11.1374

Aug- 216.34 - 216.34 09

0

Sep- 216.34 - 231.95 09

7.2155

Oct-09 231.95 - 223.08

-3.8241

Nov- 223.08 - 239.77 09

7.4816

Dec- 239.77 - 252.08 09

5.1341

Jan-10 252.08 - 241.77

-4.09

Feb- 241.77 - 237.14 10

-1.915

Mar- 237.14 - 252.91 10 AVERAGE RETURN

6.6501 6.84%

47

Calculation of Sharpe Index: Sharpe Index =

Portfolio average return - Risk free rate of return Standard Deviation

S t=

Rp −R f

σp

6.84 % − 3.55 % 13 .39 S t = 0.235 St =

2. Birla Sun Life Income Fund (Growth) Month

Net Assets Value

Monthly Return

Apr-09

32.0807 - 31.9038

-0.5514

May-09

31.9038 - 32.3045

1.2560

Jun-09

32.3045 - 33.0633

2.3489

Jul-09

33.0633 - 32.8129

-0.7573

Aug-09

32.8129 - 33.0589

0.7497

Sep-09

33.0589 - 33.3736

0.9519

Oct-09

33.3736 - 33.9135

1.6177

Nov-09

33.9135 - 33.7813

-0.3898

Dec-09

33.7813 - 33.8415

0.1782

Jan-10

33.8415 - 33.7849

-0.1673

Feb-10

33.7849 - 33.7849

0.0000

Mar-10

33.7849 - 33.9643

0.5310

AVERAGE RETURN 0.4806 %

48



S t=

Rp −R f

σp

0.48 % − 3.55 % 0.942 S t = −3.259 St =

3. Birla Sun Life Tax Plan (Growth) Month

Net Assets Value

Monthly Return

Apr-09

7.13 - 8.65

21.3184

May-09

8.65 - 10.66

23.2370

Jun-09

10.66 - 10.28

-3.5647

Jul-09

10.28 - 11.44

11.2840

Aug-09

11.44 - 11.44

0.0000

Sep-09

11.44 - 12.19

6.5559

Oct-09

12.19 - 11.42

-6.3167

Nov-09

11.42 - 12.24

7.1804

Dec-09

12.24 - 12.87

5.1471 49

Jan-10

12.87 - 12.15

-5.5944

Feb-10

12.15 - 12.09

-0.4938

Mar-10

12.09 - 12.85

6.2862

AVERAGE RETURN

5.4199 %



S t=

Rp −R f

σp

5.4199 % − 3.55 % 9.60 S t = 0.1947 St =

Interpretation of the Funds Performance Particular

Average

Sharpe

Return

Index

Birla Sun Life Equity Fund-

6.8383

Ratio 0.235

Growth

%

Rank

I

50

Birla Sun Life Income Fund

0.4806

-3.259

III

-Growth Birla Sun Life Tax Plan (Growth)

% 5.4199

0.1947

II

%

Average Return 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% BirlaSun Life Equity Fund-Growth

Birla Sun Life Income Fund -Growth

BirlaSun Life Tax Plan (Growth)

Kotak Mahindra Mutual Fund

The fund is promoted by Kotak Mahindra Bank, one of India's leading financial institutions that offer financial solutions ranging from commercial banking, stock broking, life insurance and investment banking. Kotak Mahindra Asset Management Company Limited, a wholly owned subsidiary of Kotak Mahindra Bank, is the asset manager for Kotak Mahindra mutual fund. The company is headed by Uday Kotak of Kotak Bank as chairman and the fund management function is headed by Sandesh Kirkire, chief executive officer.

Kotak

Mahindra mutual fund launched its schemes in December 1998 and today manages assets of 51

4, 34,504 investors in various schemes. Kotak Mahindra mutual fund was the first fund house in the country to launch a dedicated gilt scheme investing only in government securities. No. of schemes No. of schemes including options

50 119

Equity Schemes Debt Schemes Short term debt Schemes Equity & Debt Money Market Gilt Fund

22 74 8 1 0 7

Corpus Under Management: Rs.36776.2375 Crs. as on May 31, 2010 Key Personnel: Uday S Kotak (Chairman), Sandesh Kirkire (CEO), Alroy Lobo (Chief Strategist & Global Head Equities Asset Mgmt), V R Narasimhan (CCO), R. Krishnan (COO, Sandeep Kamath (Compliance), R. Chandrasekaran (IRO)

For Performance Comparison we take three Mutual Fund Schemes of Company:  Kotak Equity-FOF-Growth 52

 Kotak Income Plus-(Growth)  Kotak Tax Saver-Scheme-Growth 1. Kotak Equity-FOF-Growth Month

Net Assets Value

Monthly Return

Apr-09

18.755 - 20.77

10.7438

May-09

20.77 - 27.76

33.6543

Jun-09

27.76 - 27.516

-0.8790

Jul-09

27.516 - 30.134

9.5145

Aug-09

30.134 - 30.134

0.0000

Sep-09

30.134 - 32.362

7.3936

Oct-09

32.362 - 31.2190

-3.5319

Nov-09

31.2190 - 33.2560

6.5249

Dec-09

33.2560 - 34.354

3.3017

Jan-10

34.354 - 33.1050

-3.6357

Feb-10

33.1050 - 32.9910

-0.3444

Mar-10

32.9910 - 34.8960

5.7743

AVERAGE RETURN 5.7097%



S t=

Rp −R f

σp

5.709 % − 3.55 % 53 10 .06 S t = 0.2144 St =

2. Kotak Income Plus-Growth Month

Net Assets Value

Monthly Return

Apr-09

12.8357 - 13.1026

2.0794

May-09

13.1026 - 13.736

4.8342

Jun-09

13.736 - 13.6629

-0.5249

Jul-09

13.736 - 14.0937

3.1455

Aug-09

14.0937 - 14.0937

0.0000

Sep-09

14.0937 - 14.1651

0.5066

Oct-09

14.1651 - 14.2771

0.7907

Nov-09

14.2771 - 14.5153

1.6684

Dec-09

14.5153 - 14.6471

0.9080

Jan-10

14.6471 - 14.5702

-0.5250

Feb-10

14.5702 - 14.5597

-0.0721

Mar-10

14.5597 - 14.8148

1.7521

AVERAGE RETURN

1.2136%



S t=

Rp −R f

σp

1.2136 % − 3.55 % 1.59 54 S t = −1.4634 St =

3. Kotak Tax Saver Scheme-Growth Month

Net Assets Value

Monthly Return

Apr-09

9.122 - 9.98

9.4058

May-09

9.98 - 13.789

38.1663

Jun-09

13.789 - 13.447

-2.4802

Jul-09

13.447 - 14.894

10.7608

Aug-09

14.894 - 14.894

0.0000

Sep-09

14.894 - 15.918

6.8753

Oct-09

15.918 - 14.9270

-6.2257

Nov-09

14.9270 - 16.06

7.5903

Dec-09

16.06 - 16.675

3.8294

Jan-10

16.675 - 15.85

-4.9475

Feb-10

15.85 - 15.8110

-0.2461

Mar-10

15.8110 - 17.1080

8.2031

AVERAGE RETURN (in %age)

5.9110%

55



S t=

Rp −R f

σp

5.911 % − 3.55 % 11 .66 S t = 0.1637 St =


Average

Sharp Index

Rank

Kotak Equity-FOF-

Return 5.7097 %

Ratio 0.2144

I

Growth Kotak Income Plus-

1.2136 %

- 1.4634

III

(Growth) Kotak Tax Saver-

5.9110 %

0.1637

II

Scheme-Growth

56

Escorts Mutual Fund Escorts Mutual Fund is promoted by the business conglomerate Escorts group. Escorts Asset Management Limited acts as the AMC to the mutual fund. Escorts Mutual Fund usually offers open ended schemes and the fund category is Equity- balanced fund. The fund is a member of the Escort Group of Companies, which deals with a number of high growth industries like construction and material handling equipment, farm machinery, two wheelers, auto ancillary products and financial Services.

No. of schemes

13

No. of schemes including options

30

Equity Schemes

13

Debt Schemes

7


4

Equity & Debt

4

Money Market

0

Gilt Fund

2

57

Corpus Under Management: Rs.195.75 Crs. as on May 31, 2010 Key Personnel: Rajan Nanda (Chairman & MD), Lalit K Khanna (CEO & Compliance), Sanjay Arora (CIO), Mohini Sharma (IRO). Fund Managers: Mr. Jagveer Singh Fauzdar ,

Mr. Sanjeev Sharma.

For Performance Comparison we take three Mutual Fund Schemes of Company  Escorts Growth Plan (Growth)  Escorts Income Plan (Growth)  Escorts Tax Plan (Growth)

1. Escorts Growth Plan (Growth) Month

Net Assets Value

Monthly Return

Apr-09

34.8155 - 36.6330

5.2204

May-09

36.6330 - 56.9001

55.3247

Jun-09

56.9001 - 55.5782

-2.3232

Jul-09

55.5782 - 60.7149

9.2423

Aug-09

60.7149 - 60.7149

0.0000

Sep-09

60.7149 - 63.0134

3.7857

Oct-09

63.0134 - 60.7351

-3.6156

Nov-09

60.7351 - 64.4480

6.1133

Dec-09

64.4480 - 68.3673

6.0813

58

Jan-10

68.3673 - 65.7441

-3.8369

Feb-10

65.7441 - 64.8682

-1.3323

Mar-10

64.8682 - 70.1250

8.1038

AVERAGE RETURN

6.8970%



S t=

Rp −R f

σp

6.897 % − 3.55 % 15 .252 S t = 0.210 St =

2. Escorts Income Plan (Growth) Month Net Assets Value

Monthly Return

Apr-09

27.1535 - 28.2081

3.8838

May-09

28.2081 - 27.8613

-1.2294

Jun-09

27.8613 - 28.1730

1.1188

Jul-09

28.1730 - 28.1160

-0.2023

Aug-09

28.1160 - 28.1160

0.0000

Sep-09

28.1160 - 28.3370

0.7860

Oct-09

28.3370 - 28.4620

0.4411

Nov-09

28.4620 - 28.9679

1.7775

Dec-09

28.9679 - 28.9170

-0.1757

Jan-10

28.9170 - 29.0567

0.4831

Feb-10

29.0567 - 29.0088

-0.1649 59

Mar-10

29.0088 - 29.2065

0.6815

AVERAGE RETURN

0.6167 %



S t=

Rp −R f

σp

0.6167 − 3.55 % 1.28 S t = −2.289 St =

3. Escorts Income Plan (Growth) Month Net Assets Value

Monthly Return

Apr-09

25.9839 - 27.2905

5.0285

May-09

27.2905 - 37.1072

35.9711

Jun-09

37.1072 - 38.6629

4.1924

Jul-09

38.6629 - 40.8944

5.7717 60

Aug-09

40.8944 - 40.8944

0.0000

Sep-09

40.8944 - 42.8570

4.7992

Oct-09

42.8570 - 41.6245

-2.8758

Nov-09

41.6245 - 44.1556

6.0808

Dec-09

44.1556 - 45.8891

3.9259

Jan-10

45.8891 - 44.3687

-3.3132

Feb-10

44.3687 - 42.6067

-3.9713

Mar-10

42.6067 - 45.3606

6.4635

AVERAGE RETURN

5.1727 %



S t=

Rp −R f

σp

5.1727 − 3.55 % 10 .449 S t = 0.155 St =

61


Average

Sharp Index

Rank

Escorts Growth Plan

Return 6.8970 %

Ratio 0.210

I

(Growth) Escorts Income Plan

0.6167 %

-2.289

III

(Growth) Escorts Tax Plan

5.1727 %

0.155

II

(Growth)

ICICI Prudential Mutual Fund Prudential ICICI Mutual Fund is the largest private sector mutual fund in India with assets of over Rs.34,119 crore under management as of Aug 2006. The asset management company, Prudential ICICI Asset Management Company Limited, is a joint venture between Prudential Plc, Europe's leading insurance company and ICICI Bank, India's premier financial institution. Prudential Plc holds 55 per cent of the asset management company and the balance by ICICI Bank.

62

No. of schemes No. of schemes including options Equity Schemes Debt Schemes Short term debt Schemes Equity & Debt Money Market Gilt Fund

98 317 59 213 23 4 0 7

Corpus Under Management: Rs.68324.057017781 Crs. as on May 29, 2009 Key Personnel: Ms. Chanda Kochhar (Chairman), Nimesh Shah (CEO & CIO), Supriya Sapre (Compliance), Kamaljeet Saini (IRO)

For Performance Comparison we take three Mutual Fund Schemes of Company  ICICI Prudential Growth Plan-(Growth Option)  ICICI Prudential Income Plan- (Growth Option)  ICICI Prudential Tax Plan-(Growth Option)

63

1. ICICI Prudential Growth Plan-(Growth Option) Month

Net Assets Value

Monthly Return

Apr-09

72.94 - 79.73

9.3090

May-09

79.73 - 99.72

25.0721

Jun-09

99.72 - 98.41

-1.3137

Jul-09

98.41 - 107.67

9.4096

Aug-09

107.67 - 107.67

0.0000

Sep-09

107.67 - 116.39

8.0988

Oct-09

116.39- 111.17

-4.4849

Nov-09

111.17 - 118.36

6.4676

Dec-09

118.36 - 123.01

3.9287

Jan-10

123.01 - 116.67

-5.1541

Feb-10

116.67 - 116.96

0.2486

Mar-10

116.96 - 125.02

6.8912

AVERAGE RETURN

4.8727%



S t=

Rp −R f

σp

4.8727 % − 3.55 % 8.189 S t = 0.1615 St =

2. ICICI Prudential Income Plan- (Growth

Option) 64

Month

Net Assets Value

Monthly Return

Apr-09

27.7341 - 29.4577

6.2147

May-09

29.4577 - 29.0718

-1.3100

Jun-09

29.0718 - 29.4018

1.1351

Jul-09

29.4018 - 29.2732

-0.4374

Aug-09

29.2732 - 29.2732

0.0000

Sep-09

29.2732 - 29.3743

0.3454

Oct-09

29.3743 - 29.5396

0.5627

Nov-09

29.5396 - 30.0600

1.7617

Dec-09

30.0600 - 29.8737

-0.6198

Jan-10

29.8737 - 29.9950

0.4060

Feb-10

29.9950 - 29.7610

-0.7801

Mar-10

29.7610 - 29.9240

0.5477

AVERAGE RETURN

0.6522 %



S t=

Rp −R f

σp

0.6522 % − 3.55 % 1.9472 S t = −1.488 St =

65

3. ICICI Prudential Tax Plan- (Growth Option)

Month

Net Assets Value

Monthly Return

Apr-09

56.88 - 63.84

12.2363

May-09

63.84 - 85.02

33.1767

Jun-09

85.02 - 85.95

1.0939

Jul-09

85.95 - 100.63

17.0797

Aug-09

100.63 - 100.63

0.0000

Sep-09

100.63 - 107.97

7.2940

Oct-09

107.97 - 106.29

-1.5560

Nov-09

106.29 - 113.55

6.8304

Dec-09

113.55 - 121.69

7.1686

Jan-10

121.69 - 118.88

-2.3091

Feb-10

118.88 - 120.47

1.3375

Mar-10

120.47 - 127.34

5.7027

AVERAGE RETURN

7.3379 %

Calculation of Sharpe Index:

66

Sharpe Index =


S t=

Rp −R f

σp

7.3379 % − 3.55 % 9.9567 S t = 0.3804 St =


Average

Sharpe

Rank

ICICI Prudential Growth Plan-

Return 4.8724 %

Index Ratio 0.1615

II

(Growth Option) ICICI Prudential Income Plan-

0.6522 %

-1.488

III

(Growth Option) ICICI Prudential Tax Plan-

7.3379 %

0.3804

I

(Growth Option)

67

Reliance Mutual Fund

Reliance mutual fund, promoted by the Anil Dhirubhai Ambani (ADAG) group, is one of the fastest growing mutual funds in India having doubled its assets over the last one year. In March, 2006, the Reliance mutual fund emerged as the largest private sector fund house in the country, overtaking Prudential ICICI which has been holding that position for many years. The sponsor of the fund is Reliance Capital Limited, the financial services arm of ADAG. Reliance Capital Asset Management Limited, a wholly owned subsidiary of Reliance Capital Limited, acts as the AMC to the fund. Directors of the company include Amitabh Jhunjhunwala, a senior executive of ADAG.

No. of schemes

57

No. of schemes including options

185

Equity Schemes

60

Debt Schemes

100


15

Equity & Debt

2

Money Market

0

Gilt Fund

6

68

Corpus Under Management: Rs.109485.69 Crs. as on May 31, 2010 Key Personnel: Sundeep Sikka (CEO), Madhusudan Kela (Hd-Equity), Rajesh Derhgawen (Head HRD), Himanshu Vyapak (Sales & Dist), Milind Nesarikar (IRO).

For Performance Comparison we take three Mutual Fund Schemes of Company:  Reliance Equity Fund-Growth Plan-(Growth Option)  Reliance Income Fund-Retail Plan - Growth Plan (Growth Option)  Reliance Tax Saver (ELSS) Fund-Growth Plan- (Growth Option)

1. Reliance Equity Fund-Growth Plan-(Growth Option) Month

Net Assets Value

Monthly Return

Apr-09

9.2882 - 10.0227

7.9079

May-09

10.0227 - 13.0391

30.0957

Jun-09

13.0391 - 12.9842

-0.4210

Jul-09

12.9842 - 14.0367

8.1060

Aug-09

14.0367 - 14.0367

0.0000

Sep-09

14.0367 - 14.9553

6.5443

Oct-09

14.9553 - 14.0006

-6.3837

Nov-09

14.0006- 14.7205

5.1419

69

Dec-09

14.7205 - 15.1637

3.0108

Jan-10

15.1637 - 14.5187

-4.2536

Feb-10

14.5187 - 14.4188

-0.6881

Mar-10

14.4188 - 14.8268

2.8296

AVERAGE RETURN

4.3241



S t=

Rp −R f

σp

4.3241 % − 3.55 % 9.3198 S t = 0.0831 St =

2. Reliance Income Fund (Growth Option)

Month

Net Assets Value

Monthly Return

Apr-09

29.0575 - 30.4693

4.8586

May-09

30.4693 - 29.9680

-1.6453

Jun-09

29.9680 - 30.0525

0.2820

Jul-09

30.0525 - 29.9510

-0.3377

Aug-09

29.9510 - 29.9510

0.0000

Sep-09

29.9510 - 30.0241

0.2434

Oct-09

30.0241 - 30.2366

0.7084

70

Nov-09

30.2366 - 30.6048

1.2177

Dec-09

30.6048 - 30.5788

-0.0850

Jan-10

30.5788 - 30.7195

0.4601

Feb-10

30.7195 - 30.6491

-0.2292

Mar-10

30.7195 - 30.8515

0.6604

AVERAGE RETURN

0.5111



S t=

Rp −R f

σp

0.5111 % − 3.55 % 1.54 S t = −1.9719 St =

3. Reliance Tax Saver (ELSS) Fund (Growth Option)

Month

Net Assets Value

Monthly Return 71

Apr-09

9.714 - 10.7404

10.5662

May-09

10.7404 - 14.0519

30.8322

Jun-09

14.0519 - 14.1409

0.6334

Jul-09

14.1409 - 15.4560

9.3000

Aug-09

15.4560 - 15.4560

0.0000

Sep-09

15.4560 - 16.5706

7.2114

Oct-09

16.5706 - 15.9138

-3.9636

Nov-09

15.9138 - 16.9834

6.7212

Dec-09

16.9834 - 18.2047

7.1911

Jan-10

18.2047 - 17.6641

-2.9696

Feb-10

17.6641 - 17.6091

-0.3114

Mar-10

17.6091 - 18.7234

6.3280

AVERAGE RETURN (in %age)

5.9616

Calculation of Sharpe Index: Sharpe Index=


S t=

Rp −R f

σp

5.9616 % − 3.55 % 9.22 S t = 0.2613 St =

72


Average

Sharp Index

Rank

Reliance Equity Fund-

Return 4.3241 %

Ratio 0.0831

II

0.5111 %

-1.9719

III

5.9666 %

0.2613

I

Growth Plan-(Growth Option) Reliance Income FundRetail Plan - Growth Plan Growth Reliance Tax Saver (ELSS) Fund-Growth Plan(Growth Option)

Analysis of Equity Funds of 5 Companies 1. On the basis of Sharpe’s Index Fund

Sharp e Index

Birla Sun Equity Fund

0.235

Kotak Growth Plan

0.214 4

73

Escorts Growth Plan

0.21

Reliance Growth Plan

0.083 1

ICICI Pru Growth Plan

0.161 5

On the basis of Sharpe’s index it is seen that Birla Sunlife Mutual Fund’s risk adjusted performance is best than the rest.

2. On the basis of Return Fund

Return


6.84 %

Kotak Growth Plan

5.71 %

74

Escorts Growth Plan

6.90 %


4.87 %


4.32 %

Where as on the basis of return, it is seen that Birla Sunlife Mutual Fund and Escorts both are doing almost equally good.

Analysis of Income Funds of 5 Companies 1. On the basis of Sharpe’s Index Fund

Sharp e Index

Birla Sun Income Fund

-3.259

Kotak Income Plan

1.463 75

4

Escorts Income Plan

-2.289

Reliance Income Plan

1.971 9

ICICI Pru Income Plan

-1.488

The income funds of Kotak are doing better than others by the riskadjusted performance measure.


Return

Birla Sun Income Fund

0.48%

Kotak Income Plan

1.21%

76

Escorts Income Plan

0.62%

Reliance Income Plan

0.65%

ICICI Pru Income Plan

0.51%

On the basis of return it is seen that Kotak Income Plan’s risk adjusted performance is best than the rest.

Analysis of Tax Saver Plans of 5 Companies 1. On the basis of Sharpe’s Index Fund

Birla Sun Life Tax Plan

Sharp e Index

0.194 7

77

Kotak Tax Saver Scheme

0.163 7

Escorts Tax Plan

0.155

Reliance Tax Saver Plan

0.261 3

ICICI Pru Tax Plan

0.380 4

On the basis of Sharpe’s index it is seen that ICICI Prudentail’s risk adjusted performance is best than the rest.


Return


6.84 %

Kotak Growth Plan

5.71 %

78

Escorts Growth Plan

6.90 %


4.87 %


4.32 %

On the basis of return it is seen that Reliance Mutual Fund’s risk adjusted performance is best than the rest. But, ICICI Prudential is also doing good.

79

DATA ANALYSIS AND INTERPRETATION

80

Research Methodology a)

Research Design: Descriptive Design

b)

Data Collection Method: Survey Method

c)

Universe: Agra

d)

Sampling Method: Non probability convenience sampling method

e)

Sample Size: 100 respondents

f)

Sampling Unit: Businessmen, Government Servant, Retired Individuals

g)

Data Source: Primary data

h)

Data Collection Instrument: Structured Questionnaire

81

1) Do you invest your saving in mutual fund? Investment

Number Of Respondents

Yes

68

No

32

Total

100

Investment Willingness

We observe that 68% of all the respondents invest in mutual fund. We have got 32% of our total respondents who do not invest in any mutual fund at all.

82

Information


Yes

56

No

24

Not Much

20

Total

100

2) Do you have complete information about mutual fund?

Awareness Level

We observe that 56% of all the respondents have complete information of mutual funds. We have got 24% of our total respondents who do not have complete information of mutual fund at all and 20% of our total respondents have some information of mutual fund.

3) Are you an investor, who is interested in getting good deduction from tax? 83

Information


Yes

89

No

11

Total

100

Interested in Tax Deduction

We observe that 89% of all the respondents are interested in getting good deduction from tax. We have got 11% of our total respondents who are not interested in getting good deduction from tax at all.

4) Do you know mutual fund is a good instrument of tax saving?

84

Awareness for Tax saving Investment


Yes

76

No

24

Total

100

We observe that 76% of all the respondents knows mutual fund is a good instrument of tax saving. We have got 24% of our total respondents who are mutual fund is a good instrument of tax saving.

85

5) Among which of the following income group you fall?

Income Group

Income group


Upto 1,00,000

25

1,00,001-2,00,000

60

2,00,001-3,00,000

10

3,00,001 & more

5

TOTAL

100

We observe that 25% of all the respondents fall under income group of less than 1,00,000. We have got 60% of our total respondents fall under income group of 1,00,0012,00,000 and 10% of our respondents fall under income group of 2,00,001-3,00,000 while 5% of our respondents fall under income group of 3,00,000 & more.

6) Which are the investments you hold at present? 86

Investment


Equity market

20

Mutual fund

54

Govt. bond

0

Real estate

9

Bank FD

48

Post office

26

Insurance

45

Investment Holding

We observed that many respondents invest in more than one instrument of saving. The people are not channelizing all of their savings in just one Investment Avenue.

87

7) What is the Basic purpose of your investments?

Investment purpose


High return

20

Tax benefit

18

Saving

45

Wealth creation

10

Risk diversification

7

Total

100

Purpose for Investment

We observe that 20% of all the respondents Invest for the purpose of high return, 18% Invest for the purpose of tax benefit, 45% Invest for the purpose of saving, 10% Invest for the purpose of wealth creation , 7% Invest for the purpose of risk diversification.

88

Investment Returns


Less than 5%

3

5%-10%

65

10-15%

20

15%-20%

7

Greater than 20%

5

Total

100

8) What returns do you receive at present from all your investments?

Returns from Investment

We observe that 3% of all the respondents get less than 5%, 65% of all the respondents get between 5%-10%, 20% of all the respondents get between 10%-15%, 7% of all the respondents get between 15%-20% and 5% of all the respondents get more than 20%.

89

9) Which types of funds would you like to prefer for your investment in mutual fund?

Fund Preference

Investment preference


Equity fund

65

Debt fund

11

Balanced fund

24

Total

100

We observe that 65% of all the respondents prefer investment in equity fund, 11% of all the respondents prefer investment in Debt fund, and remaining 24% of all the respondents prefer investment in balanced fund.

90

10) Give your preference for tax saving plan of ICICI PRUDENTIAL ? ICICI Tax saving Plan

Investment Preference for ICICI


Most preferred

12

Favorably preferred

16

Preferred

44

Least preferred

11

Not preferred

17

Total

100

We have observed that a large number of investors prefer ICICI tax plan. 91

CROSS TABULATION

92

NOTE: - The cross tabulation is done to analyze that how many investors in various classes and age groups prefer Mutual Funds over other investment options.

Age Wise Break up of “Service-Pvt” Class Respondents Service Class

20-30

30-40

40-50

50-60

Equity Market

5

6

1

0

0

12

Mutual Funds

12

8

2

0

0

22

Govt. Bonds

0

0

0

0

0

0

Real Estate

0

1

0

0

0

1

Bank Fixed Deposits

3

1

0

0

0

4

Post Office

0

1

0

0

0

1

Life Insurance

4

1

1

0

0

6

25

20

5

0

0

50

Total

14 12 10 8 6 4 2 0

>60

Total

20-30 30-40 40-50 50-60 >60

It is observed that people in the age group of 20-30 years are more open to mutual funds holding and equity market. The share of mutual fund holding decreases as the age increases. 93

It is observed that people above the age of 40 prefer Life Insurance policies and Government Securities over Equity and Mutual Funds.

Age wise break up of “Service - Govt” Class respondents

Professional

20-30

30-40

40-50

50-60

>60

Total

Equity Market

0

2

2

0

0

4

Mutual Funds

3

4

0

0

0

7

Govt. Bonds

0

0

0

0

0

0

Real Estate

0

0

5

0

0

5

Bank Fixed Deposits

0

0

1

1

0

2

Post Office

0

0

0

0

0

0

Life Insurance

0

1

0

0

0

1

Total

3

8

8

1

0

20

94

6 5 4 3

20-30

2

30-40

1

40-50

0

50-60 >60

We observe that people in the age category of 30-40 and 40-50 years have a certain preference for Equity holdings, Mutual Fund, Real Estate. However these people are very conscious for the assured return and security.

Age Wise Break up of “Business” Class Respondents Business Class

20-30

30-40

40-50

50-60

>60

Total

Equity Market

1

3

0

0

0

5

Mutual Funds

0

6

0

0

0

6

Govt. Bonds

0

0

0

0

0

0

Real Estate

1

4

0

0

0

5

Bank Fixed Deposits

1

2

1

0

0

4

Post Office

0

2

0

0

0

2

Life Insurance

0

0

0

0

0

0

Total

3

17

1

1

0

22 95

7 6 5 4 3 2 1 0

20-30 30-40 40-50 50-60 >60

We observe that maximum classification of investment is made in 30-40 age group investors. Also they are holding a diversified portfolio which includes PPF, Postal Schemes, Fixed Deposit, as well as Equity Schemes (Mutual fund, Stock Market). Age group 20-30 holds investments in Equity Market, Bank FD, and some also hold their Money in Real Estate. Business class people focuses more on high return with moderate security of return so majority of their investment is made in Mutual Investment.

Age wise break up of “Retired” Class respondents

Retired Class

20-30

30-40

40-50

50-60

>60

Total

96

Equity Market

0

0

0

0

0

0

Mutual Funds

0

0

0

0

0

0

Govt. Bonds

0

0

0

0

0

0

Real Estate

0

0

0

1

0

1

Bank Fixed Deposits

0

0

0

1

0

1

Post Office

0

0

0

2

1

3

Life Insurance

0

0

0

0

3

3

Total

0

0

0

4

4

8

3.5 3 2.5 2 1.5 1 0.5 0

20-30 30-40 40-50 50-60 >60

It is observed in this category mostly consisting of retired people the preference for mutual fund holding is low. However, Bank Fixed Deposits, Post Schemes, Life Insurance have the greatest preference amongst people in this category.

97

RESULTS AND FINDINGS We observe that 68% of all the respondents invest in mutual fund. We have got 32% of our total respondents who do not invest in any mutual fund at all. We observe that 56% of all the respondents have complete information of mutual fund. We have got 24% of our total respondents who do not have complete information of mutual fund at all and 20% of our total respondents have some information of mutual fund. We observe that 89% of all the respondents are interested in getting good deduction from tax. We have got 11% of our total respondents who are not interested in getting good deduction from tax at all. We observe that 76% of all the respondents knows mutual fund is a good instrument of tax saving. We have got 24% of our total respondents who are mutual fund is a good instrument of tax saving. We observe that our respondents invest in more than one instrument of saving. We observe that 20% of all the respondents Invest for the purpose of high return, 18% Invest for the purpose of tax benefit, 45% Invest for the purpose of saving, 10% Invest for the purpose of wealth creation ,7% Invest for the purpose of risk diversification. We observe that 3% of all the respondents get less than 5%, 65% of all the respondents get between 5%-10%, 20% of all the respondents get between 10%-15%, 7% of all the respondents get between 15%-20% and 5% of all the respondents get more than 20%. We observe that 65% of all the respondents prefer investment in equity fund, 11% of all the respondents prefer investment in Debt fund, and remaining 24% of all the respondents prefer investment in Balanced fund. We have observed that most of the investors prefer to save in ICICI tax plan.

98

SUGGESTIONS There is need to build awareness of the new funds among the investors with constantly being in contact with them. Some of investors have asked for periodical market report about stock market so that they can get the knowledge properly. AMC’s should go for increasing more awareness about different facilities of investment such as SIP& STP among investors. ICICI must try to locate hard working distributors who are providing good business in their respective geographical area. Investors are never going to accept the entry load during NFO. So such type of activity should be avoided as much as possible. The company should advertise their tax saving plan more so that they can gain more customers.

99

CONCLUSIONS The mutual fund investors prefer more of the equity fund as they want more return on their money. They avoid going in the debt fund because they can get same amount of return on their banks that is also without taking any risk. Usually people preferred to invest in mutual fund during NFO rather than seeing the performance of mutual fund scheme. Sometimes due to lack of detailed awareness about mutual fund schemes the investors seek advice of distributors. Investors feel that the AMC should go for more promotional activities & should try to come up with new innovative schemes which can easily be understood by the investors. Even after seeing the market crash in May 2006 people still thinks that mutual fund is much reliable way to invest in stock market. So investors are not going for redemption during crash & were ready to wait. In fact during the crash time many people were ready to invest in mutual fund. People will not accept the entry load if the company would any such type loads during NFO because during NFO the investors were not sure whether the given scheme can really give them better return or not.

100

REFERENCES I. Value research II. Economic times Newspaper III. www.icicipruamc.com IV. www.reliancemutual.com V. Indian Mutual Fund Industry –The Future in a Dynamic Environment – A report by KPMG.

VI. www.nseindia.com VII.www.bseindia.com VIII.www.rbi.org.in IX. www.kotakmutual.com X. www.escortsmutual.com XI. www.mutualfund.birlasunlife.com

XII.www.sebigov.in XIII.Gupta,Gitanjali and Panwar, Sudha, Investment Performance of Mutual Funds, April 2009.

101

APPENDIX

QUESTIONNAIRE

PART A

1. Name: Mrs/Ms/Mr _______________________________________ 2. Age (a) Between 20 – 30 years (b) Between 30 – 40 years 102

(c) Between 40 – 50 Years (d) Between 50 – 60 Years (e) More than 60 Years 3. Contact Nos. / e-mail: _______________________________ 4. Profession: _______________________________________

PART - B 1) Do you invest your saving in mutual fund? a) Yes b) No

2) Do you have complete information about mutual fund? a) Yes b) No c) Not Much 3) Are you an investor, who is interested in getting good deduction from tax? a) Yes b) No 4) Do you know mutual fund is a good instrument of tax saving? a) Yes b) No 5) Among which of the following income group you fall? 103

a) Upto 1,00,000 b) 1,00,001-2,00,000 c) 2,00,001-3,00,000 d) 3,00,001 & more 6) Which are the investments you hold at present? a) Equity market b) Mutual fund c) Govt. bond d) Real estate e) Bank FD f) Post office g) Insurance 7) What is the Basic purpose of your investments? a) High return b) Tax benefit c) Saving d) Wealth creation e) Risk diversification 8) What returns do you receive at present from all your investments? a) Less than 5% b) 5%-10% c) 10-15% d) 15%-20% e) Greater than 20% 9) Which types of funds would you like to prefer for your investment in mutual fund? a) Equity fund 104

b) Debt fund c) Balanced fund 10) Give your preference for tax saving plan of ICICI PRUDENTIAL? a) Most preferred b) Favorably preferred c) Preferred d) Least preferred e) Not preferred 11) Rank the following investment options according to your preference. a) Equity market b) Mutual fund c) Govt. bond d) Real estate e) Bank FD f) Post office g) Insurance

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Mutual Funds Complete Project Report

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