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INTRODUCTION

INTRODUCTION TO MUTUAL FUNDS


Mutual Funds are investment institutions set up to manage money pooled in from the public. The advantages of investing in Mutual Funds are the professional expertise they employ coupled with the variations offered on the basis of asset classification and the diversification of the chosen portfolio aimed at optimizing the risk for the required return.

The benefits that can be accrued from Mutual Funds are

The schemes could be added to the portfolio with online updates for monitoring the performance of your investments in Mutual Funds.

The comprehensive search, which gets you the fund matching your criteria. The comparison of various schemes of different Mutual Funds based on the critical and most sought after investment criteria.

The analysis of different schemes and the outlook for the same. List of new launches in the market provided continuously.

Basically, Mutual funds are trusts that are formed to mobilize the savings from the people and pool them together to invest within the securities markets. The main advantage of mutual funds is that it is professionally managed. And the general idea is for
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investors to contribute small amounts into units in the various schemes, which in turn is deployed in the various markets. This way, any investor who is not in a position to directly invest in the markets can take advantage of this route.

UTI is the oldest of Indian mutual funds, having entered the arena with the launch of the Unit Scheme - 64 in 1964, hence the alphanumeric name. It was only in 1998 that other public sector banks were allowed to enter into the segment which was followed by a whole range of Asset Management companies including almost all the leading international portfolio managers including Merrill Lynch, Templeton, and Prudential among others.

There are several different ways one can diversify a portfolio, such as the different categories of the Morningstar style box, which contain several different asset classes. But another common way to diversify is between the various sectors of the economy. This is usually accomplished with mutual funds that concentrate in one of the major sectors, such as natural resources or utilities. This article will examine the nature and composition of sector funds and the advantages and disadvantages that they present to investors.

NEED OF THE STUDY:


The main purpose of doing this project was to know about performance of mutual funds. This helps to investors to make investments in good AMCs. When one wants to invest in mutual funds the study is mandatory because every investor wants to maximize the returns and minimize the risk for that this study is helpful for the investors through analysis of performance of mutual funds and risk analysis in mutual funds. The study helps to have knowledge of growth funds and working of mutual funds and the study enables the readers to assess t he NET ASSET VALUE (NAV) by seeing the charts.

OBJECTIVES OF THE STUDY:


Statement of the problem:

The study totally attempts to know the performance of growth funds with reference to RELIANCE MUTUAL FUND &UTI MUTUAL FUND.

Objectives of the Project: Primary objectives To measure the performance of Growth Funds using Sharpes Model, Treynors Model. To study the volatility in growth funds. To know which company fund is performing well. Secondary objective To give better suggestions to the investor to invest in good Asset Management Company (AMC) between these two companies.

RESEARCH & METHODOLOGY


Research design or research methodology is the procedure of collecting, analyzing and interpreting the data to diagnose the problem and react to the opportunity in such a way where the costs can be minimized and the desired level of accuracy can be achieved to arrive at a particular conclusion. The methodology used in the study for the completion of the project and the fulfillment of the project objectives, is as follows: Collection of Data: 1. Secondary data. Secondary data: In this method I collected the performance reports of the funds, company profile, Industry profile, fund fact sheets, journals, and some information through internet.

METHODOLOGY:
The following methodology is used for analyzing the data: Step1: calculation of returns using the following formula:

HIGH NAV-LOW NAV RETURNS = -----------------------------------------------LOW NAV Step2: calculation of risk or standard deviation: (R-r)2
-------------N-1

x100

Step3: calculation of Beta : NXY-X. Y Beta Value : NX2-(X) 2 Step3: calculation of Sharpe index: Rm - Rf Sharpe Model = Step4: calculation of treynors index: Rm - Rf Treynors Model =

SCOPE OF THE STUDY:


The project report covers the study of net asset values of growth funds of RELIANCE&UTI MUTUAL FUND COMPANIES. The analysis part includes net asset value charts (NAV) which gives the clear pictures of present value of the company. The study also includes returns & risk of mutual funds and the performance of mutual funds. The theory part also includes following information related to mutual fund: History of mutual funds Concept of mutual funds Net asset value types and benefits of mutual funds

LIMITATIONS OF THE STUDY:


The study is restricted to growth funds of RELIANCE&UTI MUTUALFUND companies by taking 3 years data on monthly basis. Different people may interpret the same analysis in different ways.

REVIEW OF LITERATURE:
INTRODUCTION TO MUTUAL FUND
Mutual fund is a trust that pools money from a group of investors (sharing common financial goals) and invest the money thus collected into asset classes that match the stated investment objectives of the scheme. Since the stated investment objective of a mutual fund scheme generally forms the basis for an investor's decision to contribute money to the pool, a mutual fund can not deviate from its stated objectives at any point of time. Every Mutual Fund is managed by a fund manager, who using his investment management skills and necessary research works ensures much better return than what an investor can manage on his own. The capital appreciation and other incomes earned from these investments are passed on to the investors (also known as unit holders) in proportion of the number of units they own.

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. B. C. D. E. If the market value of the assets of a fund is Rs. 100,000 The total number of units issued to the investors is equal to 10,000. Then the NAV of this scheme = (A)/(B), i.e. 100,000/10,000 or 10.00 Now if an investor 'X' owns 5 units of this scheme Then his total contribution to the fund is Rs. 50 (i.e. Number of units held multiplied by the NAV of the scheme)

ADVANTAGES OF MUTUAL FUND:


1. Portfolio Diversification: Mutual Funds invest in a well-diversified portfolio of securities which enables investor to hold a diversified investment portfolio (whether the amount of investment is big or small). 2. Professional Management: Fund manager undergoes through various research works and has better investment management skills which ensure higher returns to the investor than what he can manage on his own.
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3. Less Risk: Investors acquire a diversified portfolio of securities even with a small investment in a Mutual Fund. The risk in a diversified portfolio is lesser than investing in merely 2 or 3 securities. 4. Low Transaction Costs: Due to the economies of scale (benefits of larger volumes), mutual funds pay lesser transaction costs. These benefits are passed on to the investors. 5. Liquidity: An investor may not be able to sell some of the shares held by him very easily and quickly, whereas units of a mutual fund are far more liquid. 6. Choice of Schemes: Mutual funds provide investors with various schemes with different investment objectives. Investors have the option of investing in a scheme having a correlation between its investment objectives and their own financial goals. These schemes further have different plans/options 7. Transparency: Funds provide investors with updated information pertaining to the markets and the schemes. All material facts are disclosed to investors as required by the regulator. 8. Flexibility: Investors also benefit from the convenience and flexibility offered by Mutual Funds. Investors can switch their holdings from a debt scheme to an equity scheme and vice-versa. Option of systematic (at regular intervals) investment and withdrawal is also offered to the investors in most open-end schemes. 9. Safety: Mutual Fund industry is part of a well-regulated investment environment where the interests of the investors are protected by the regulator. All funds are registered with SEBI and complete transparency is forced.

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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 (as long as he holds the units), 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. For this, they may have to take advice from financial planners in order to invest in the right fund to achieve their objectives.

TYPES OF MUTUAL FUNDS


General Classification of Mutual Funds Open-end Funds / Closed-end Funds

Open-end Funds:
Funds that can sell and purchase units at any point in time are classified as Openend Funds. The fund size (corpus) of an open-end fund is variable (keeps changing) because of continuous selling (to investors) and repurchases (from the investors) by the fund. An open-end fund is not required to keep selling new units to the investors at all times but is required to always repurchase, when an investor wants to sell his units. The NAV of an open-end fund is calculated every day.
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Closed-end Funds:
Funds that can sell a fixed number of units only during the New Fund Offer (NFO) period are known as Closed-end Funds. The corpus of a Closed-end Fund remains unchanged at all times. After the closure of the offer, buying and redemption of units by the investors directly from the Funds is not allowed. However, to protect the interests of the investors, SEBI provides investors with two avenues to liquidate their positions: 1. Closed-end Funds are listed on the stock exchanges where investors can buy/sell

units from/to each other. The trading is generally done at a discount to the NAV of the scheme. The NAV of a closed-end fund is computed on a weekly basis (updated every Thursday). 2. Closed-end Funds may also offer "buy-back of units" to the unit holders. In this

case, the corpus of the Fund and its outstanding units do get changed.

Load Funds/no-load funds


Load Funds: Mutual Funds incur various expenses on marketing, distribution, advertising, portfolio churning, fund managers salary etc. Many funds recover these expenses from the investors in the form of load. These funds are known as Load Funds. A load fund may impose following types of loads on the investors:

Entry Load Also known as Front-end load, it refers to the load charged to an

investor at the time of his entry into a scheme. Entry load is deducted from the investors contribution amount to the fund.

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Exit Load Also known as Back-end load, these charges are imposed on an

investor when he redeems his units (exits from the scheme). Exit load is deducted from the redemption proceeds to an outgoing investor.

Deferred Load Deferred load is charged to the scheme over a period of time. Contingent Deferred Sales Charge (CDSS) In some schemes, the percentage

of exit load reduces as the investor stays longer with the fund. This type of load is known as Contingent Deferred Sales Charge.

No-Load Fund:
All those funds that do not charge any of the above mentioned loads are known as Noload Funds.

Tax-exempt Funds/ Non-Tax-exempt Funds


Tax-exempt Funds: Funds that invest in securities free from tax are known as Tax-exempt Funds. All open-end equity oriented funds are exempt from distribution tax (tax for distributing income to investors). Long term capital gains and dividend income in the hands of investors are tax-free. Non-Tax-exempt Funds: Funds that invest in taxable securities are known as Non-Tax-exempt Funds. In India, all funds, except open-end equity oriented funds are liable to pay tax on distribution income. Profits arising out of sale of units by an investor within 12 months of purchase are categorized as short-term capital gains, which are taxable. Sale of units of an equity oriented fund is subject to Securities Transaction Tax (STT). STT is deducted from the redemption proceeds to an investor
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BROAD MUTUAL FUND TYPES

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1. Equity Funds:

Equity funds are considered to be the more risky funds as compared to other fund types, but they also provide higher returns than other funds. It is advisable that an investor looking to invest in an equity fund should invest for long term i.e. for 3 years or more. There are different types of equity funds each falling into different risk bracket. In the order of decreasing risk level, there are following types of equity funds: (1)Aggressive Growth Funds: In Aggressive Growth Funds, fund managers aspire for maximum capital appreciation and invest in less researched shares of speculative nature. Because of these speculative investments Aggressive Growth Funds become more volatile and thus, are prone to higher risk than other equity funds. a. Growth Funds: Growth Funds also invest for capital appreciation (with time

horizon of 3 to 5 years) but they are different from Aggressive Growth Funds in the sense that they invest in companies that are expected to outperform the market in the future. Without entirely adopting speculative strategies, Growth Funds invest in those companies that are expected to post above average earnings in the future. b. Specialty Funds: Specialty Funds have stated criteria for investments and their

portfolio comprises of only those companies that meet their criteria. Criteria for some specialty funds could be to invest/not to invest in particular regions/companies. Specialty funds are concentrated and thus, are comparatively riskier than diversified funds. There are following types of specialty funds:

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1. Sector Funds: Equity funds that invest in a particular sector/industry of the market are known as Sector Funds. The exposure of these funds is limited to a particular sector (say Information Technology, Auto, Banking, Pharmaceuticals or Fast Moving Consumer Goods) which is why they are more risky than equity funds that invest in multiple sectors. 2. Foreign Securities Funds: Foreign Securities Equity Funds have the option to invest in one or more foreign companies. Foreign securities funds achieve international diversification and hence they are less risky than sector funds. However, foreign securities funds are exposed to foreign exchange rate risk and country risk. 3. Mid-Cap or Small-Cap Funds: Funds that invest in companies having lower

market capitalization than large capitalization companies are called Mid-Cap or SmallCap Funds. Market capitalization of Mid-Cap companies is less than that of big, blue chip companies (less than Rs. 2500 crores but more than Rs. 500 crores) and Small-Cap companies have market capitalization of less than Rs. 500 crores. Market Capitalization of a company can be calculated by multiplying the market price of the company's share by the total number of its outstanding shares in the market. The shares of Mid-Cap or Small-Cap Companies are not as liquid as of Large-Cap Companies which gives rise to volatility in share prices of these companies and consequently, investment gets risky. 4. Diversified Equity Funds: Except for a small portion of investment in liquid money market, diversified equity funds invest mainly in equities without any concentration on a particular sector(s). These funds are well diversified and reduce sector-specific or company-specific risk. However, like all other funds diversified equity funds too are exposed to equity market risk. One prominent type of diversified equity fund in India is
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Equity Linked Savings Schemes (ELSS). As per the mandate, a minimum of 90% of investments by ELSS should be in equities at all times. ELSS investors are eligible to claim deduction from taxable income (up to Rs 1 lakh) at the time of filing the income tax return. ELSS usually has a lock-in period and in case of any redemption by the investor before the expiry of the lock-in period makes him liable to pay income tax on such income(s) for which he may have received any tax exemption(s) in the past. c. Equity Index Funds: Equity Index Funds have the objective to match the

performance of a specific stock market index. The portfolio of these funds comprises of the same companies that form the index and is constituted in the same proportion as the index. Equity index funds that follow broad indices (like S&P CNX Nifty, Sensex) are d. Less risky than equity index funds that follow narrow sectoral indices (like

BSEBANKEX or CNX Bank Index etc). Narrow indices are less diversified and therefore, are more risky.

2. Debt/Income Funds:
Funds that invest in medium to long-term debt instruments issued by private companies, banks, financial institutions, governments and other entities belonging to various sectors (like infrastructure companies etc.) are known as Debt / Income Funds. Debt funds are low risk profile funds that seek to generate fixed current income (and not capital appreciation) to investors. In order to ensure regular income to investors, debt (or income) funds distribute large fraction of their surplus to investors. Although debt securities are generally less risky than equities, they are subject to credit risk (risk of default) by the issuer at the time of interest or principal payment. To minimize the
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risk of default, debt funds usually invest in securities from issuers who are rated by credit rating agencies and are considered to be of "Investment Grade". Debt funds that target high returns are more risky. Based on different investment objectives, there can be following types of debt funds: a. Diversified Debt Funds: Debt funds that invest in all securities issued by entities belonging to all sectors of the market are known as diversified debt funds. The best feature of diversified debt funds is that investments are properly diversified into all sectors which results in risk reduction. Any loss incurred, on account of default by a debt issuer, is shared by all investors which further reduces risk for an individual investor. b. Focused Debt Funds: Unlike diversified debt funds, focused debt funds are

narrow focus funds that are confined to investments in selective debt securities, issued by companies of a specific sector or industry or origin. Some examples of focused debt funds are sector, specialized and offshore debt funds, funds that invest only in Tax Free Infrastructure or Municipal Bonds. Because of their narrow orientation, focused debt funds are more risky as compared to diversified debt funds. Although not yet available in India, these funds are conceivable and may be offered to investors very soon. c. Assured Return Funds: Although it is not necessary that a fund will meet its objectives or provide assured returns to investors, but there can be funds that come with a lock-in period and offer assurance of annual returns to investors during the lock-in period. Any shortfall in returns is suffered by the sponsors or the Asset Management Companies (AMCs). These funds are generally debt funds and provide investors with a low-risk investment opportunity. However, the security of investments depends upon
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the net worth of the guarantor (whose name is specified in advance on the offer document). To safeguard the interests of investors, SEBI permits only those funds to offer assured return schemes whose sponsors have adequate net-worth to guarantee returns in the future. In the past, UTI had offered assured return schemes (i.e. Monthly Income Plans of UTI) that assured specified returns to investors in the future. UTI was not able to fulfill its promises and faced large shortfalls in returns. Eventually, government had to intervene and took over UTI's payment obligations on itself. Currently, no AMC in India offers assured return schemes to investors, though possible. d. Fixed Term Plan Series: Fixed Term Plan Series usually are closed-end schemes having short term maturity period (of less than one year) that offer a series of plans and issue units to investors at regular intervals. Unlike closed-end funds, fixed term plans are not listed on the exchanges. Fixed term plan series usually invest in debt / income schemes and target short-term investors. The objective of fixed term plan schemes is to e. Gratify investors by generating some expected returns in a short period. f. 1.Open-end 2.Closed-end 3.GiltFunds g. Also known as Government Securities in India, Gilt Funds invest in government papers (named dated securities) having medium to long term maturity period. Issued by the Government of India, these investments have little credit risk (risk of default) and provide safety of principal to the investors. However, like all debt funds, gilt funds too are exposed to interest rate risk. Interest rates and prices of debt securities are inversely related and any change in the interest rates results in a change in the NAV of debt/gilt funds in an opposite direction.

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4. Money Market/Liquid Funds:


Money market / liquid funds invest in short-term (maturing within one year) interest bearing debt instruments. These securities are highly liquid and provide safety of investment, thus making money market / liquid funds the safest investment option when compared with other mutual fund types. However, even money market / liquid funds are exposed to the interest rate risk. The typical investment options for liquid funds include Treasury Bills (issued by governments), Commercial papers (issued by companies) and Certificates of Deposit (issued by banks).

5. Hybrid Funds:
As the name suggests, hybrid funds are those funds whose portfolio includes a blend of equities, debts and money market securities. Hybrid funds have an equal proportion of debt and equity in their portfolio. There are following types of hybrid funds in India: a. Balanced Funds The portfolio of balanced funds include assets like debt

securities, convertible securities, and equity and preference shares held in a relatively equal proportion. The objectives of balanced funds are to reward investors with a regular income, moderate capital appreciation and at the same time minimizing the risk of capital erosion. Balanced funds are appropriate for conservative investors having a long term investment horizon. b. Growth-and-Income Funds Funds that combine features of growth funds and

income funds are known as Growth-and-Income Funds. These funds invest in companies having potential for capital appreciation and those known for issuing high
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dividends. The level of risks involved in these funds is lower than growth funds and higher than income funds.

6. Commodity Funds:
Those funds that focus on investing in different commodities (like metals, food grains, crude oil etc.) or commodity companies or commodity futures contracts are termed as Commodity Funds. A commodity fund that invests in a single commodity or a group of commodities is a specialized commodity fund and a commodity fund that invests in all available commodities is a diversified commodity fund and bears less risk than a specialized commodity fund. Precious Metals Fund and Gold Funds (that invest in gold, gold futures or shares of gold mines) are common examples of commodity funds.

7. Real Estate Funds:


Funds that invest directly in real estate or lend to real estate developers or invest in shares/securitized assets of housing finance companies, are known as Specialized Real Estate Funds. The objective of these funds may be to generate regular income for investors or capital appreciation.

8. Exchange Traded Funds (ETF):


Exchange Traded Funds provide investors with combined benefits of a closed-end and an open-end mutual fund. Exchange Traded Funds follow stock market indices and are traded on stock exchanges like a single stock at index linked prices. The biggest advantage offered by these funds is that they offer diversification, flexibility of holding a single share (tradable at index linked prices) at the same time. Recently introduced in India, these funds are quite popular abroad.
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9. Fund of Funds:
Mutual funds that do not invest in financial or physical assets, but do invest in other mutual fund schemes offered by different AMCs, are known as Fund of Funds. Fund of Funds maintain a portfolio comprising of units of other mutual fund schemes, just like conventional mutual funds maintain a portfolio comprising of equity/debt/money market instruments or non financial assets. Fund of Funds provide investors with an added advantage of diversifying into different mutual fund schemes with even a small amount of investment, which further helps in diversification of risks. However, the expenses of Fund of Funds are quite high on account of compounding expenses of investments into different mutual fund schemes.

Risk Hierarchy of Different Mutual Funds:

Thus, different mutual fund schemes

are exposed to different levels of risk and investors should know the level of risks associated with these schemes before investing. The graphical representation hereunder provides a clearer picture of the relationship between mutual funds and levels of risk associated with these funds:

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MUTUAL FUND 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 in vesting in securities in accordance with these regulations. 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 entitles, namely sponsor, mutual fund trust, AMC and custodian. The sponsor establishes the mutual fund and gets its registered with SEBI.

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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 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 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 guide.

Sponsor Company (E.g. Prudential, ICICI) Managed by a Board of Trustees Mutual Fund (E.g. Prudential, ICICI, Mutual Fund) AMC (e.g. prudential ICICI Asset Management Company) Custodian Registrar Distributors

Establishes the MF as a trust Registers the MF with SEBI

Hold unit-holders funds in MF enter into an agreement with SEBI and ensure compliance Float MF funds Manages the fund as per SEBI guidelines and AMC agreement Provide custodial services Provides registrar and transfer services Provides the network for distribution of the scheme to the investors

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CHOOSING A FUND
The first step to investing in Mutual Fund is to define the objective of investing. You should clearly lay down the purpose for which you desire to invest. There are several schemes tailor made to meet certain personal financial goals (children's education, marriage, retirement etc.) which can be availed of. You should define the tenure of investment and the risk appetite you have. Thereafter, you can select a fund type that best meets your need i.e. income schemes, liquid schemes, tax saving schemes, equity schemes etc. Given the plethora of fund options available to you, you can then choose the particular fund that you are comfortable with. You can choose the fund on various criteria but primarily these can be the following: The track record of performance of schemes over the last few years managed by the fund Quality of management and administration Parentage of the Mutual Fund Quality and adequacy of disclosures Service levels The price at which you can enter/exit (i.e. entry load / exit load) the scheme and its impact on overall return The market price of the units of the scheme (where available) to see the discount/premium that the market .assigns to the stated NA V of the scheme Independent rating of the schemes, if available

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You could be investing in a mutual fund either at the initial stage when the mutual fund approaches the market through an offer document route or at a subsequent stage. If you choose to invest at the initial stage, the offer document would detail the schemes being offered and the manner of investing. The manner is usually similar to that of investing any public issue of any security (equity/debt). If you are planning to purchase the units subsequently. Then the following choices exist:

A close ended scheme. If the desired, units are of a close-ended scheme, then the investor would be able to purchase them at the stock exchange where the MF has listed them. This purchase would resemble the purchase of an equity share wherein the investor would pay the quoted price of the unit as well as a brokerage for the purchase transaction. In the case of a close ended scheme, the sale also is affected through the stock exchange mechanism and resembles the sale of equity share. The pricing for the transaction, as was mentioned earlier, is driven by the price the units quote. This is driven by the NA V (Net Asset Value) of the scheme. The price, however, may be either at a discount or premium to the NA V.

Purchasing a unit in a open-ended scheme is different as there is no exchange where these units are traded. Their price ret1ects the NA V of the scheme. The mutual fund in an open-ended scheme sells these units to the investor at the NA V (plus a sale / entry load).

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Selling units in an open-ended scheme is similar to the way they are purchased. It is the mutual fund that buys back the units and at a price based on the NA V. The actual price is the NA V less the exit load. The exit load is similar in concept to the entry load. The Ground rules of Mutual Fund Investing: Moses gave to his followers 10 commandments that were to be followed till eternity. The world of investments too has several ground rules meant for investors who are novices in their own right and wish to enter the myriad world of investments. These come in handy for there is every possibility of losing what one has if due care is not taken. 1.Assess yourself: Self-assessment of one's needs; expectations and risk profile is of prime importance failing which; one will make more mistakes in putting money in right places than otherwise. One should identify the degree of risk bearing capacity one has and also clearly state the expectations from the investments. Irrational expectations will only bring pain.

2.Try to understand where the money is going: It is important to identify the nature of investment and to know if one is compatible with the investment. One can lose substantially if one picks the wrong kind of mutual fund. In order to avoid any confusion it is better to go through the literature such as offer document and fact sheets that mutual fund companies provide on their funds.

3.Don't rush in picking funds, think first: one first has to decide what he wants the money for and it is this investment goal that should be the guiding light for all investments done. It is thus important to know the risks associated with the fund and
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align it with the quantum of risk one is willing to take. One should take a look at the portfolio of the funds for the purpose. Excessive exposure to any specific sector should be avoided, as it will only add to the risk of the entire portfolio. Mutual funds invest with a certain ideology such as the "Value Principle" or "Growth Philosophy". Both have their share of critics but both philosophies work for investors of different kinds. Identifying the proposed investment philosophy of the fund will give an insight into the kind of risks that it shall be taking in future.

4.Invest. Don't speculate: A common investor is limited in the degree of risk that he is willing to take. It is thus of key importance that there is thought given to the process of investment and to the time horizon of the intended investment. One should abstain from speculating which in' other words would mean getting out of one fund and investing in another with the intention of making quick money. One would do well to remember that nobody can perfectly time the market so staying invested is the best option unless there are compelling reasons to exit.

5.Don't put all the eggs in one basket: This old age adage is of utmost importance. No matter what the risk profile of a person is, it is always advisable to diversify the risks associated. So putting one's money in different asset classes is generally the best option as it averages the risks in each category. Thus, even investors of equity should be judicious and invest some portion of the investment in debt. Diversification even in money in the hands of several fund managers. This might reduce the maximum return possible, but will also reduce the risks.
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6. Be regular: Investing should be a habit and not an exercise undertaken at one's wishes, if one has to really benefit from them. As we said earlier, since it is extremely difficult to know when to enter or exit the market. It is important to beat the market by being systematic. The basic philosophy of Rupee cost averaging would suggest that if one invests regularly through the ups and downs of the market, he would stand a better chance of generating more returns than the market for the entire duration. The SIPs (Systematic Investment Plans) offered by all funds helps in being systematic.

Performance Measures of Mutual Funds


Mutual Fund industry today, with about 34 players and more than five hundred schemes, is one of the most preferred investment avenues in India. However with a plethora of schemes to choose from the retail investor faces problems in selecting funds. Factors such as investment strategy and management style are qualitative, but the funds record is an important indicator too. Though past performance alone cannot be indicative of future performance, it is, frankly, the only quantitative way to judge how good a fund is at present. Therefore, there is a need to correctly assess the past performance of different mutual funds. Worldwide, good Mutual fund companies over are known by their AMCs and this fame is directly linked to their superior stock selection skills. For mutual funds to grow, AMCs must be held accountable for their selection of stocks. In other words, there must be some performance indicator that will reveal the quality of stock selection of various AMCs. Return alone should not be considered as the basis of measurement of the performance of a mutual fund scheme. It should also include the risk taken by the fund manager because different funds will have different levels of risk attached to them. Risk
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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 t1uctuations in the NA V of the fund vis--vis market. The more responsive the NA V 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.

INTRODUCTION ABOUT GROWTH FUNDS: MEANING OF GROWTH FUNDS:


A diversified portfolio of stocks that has capital appreciation as its primary goal, with little or no dividend payouts. portfolio companies would mainly consist of companies with above average growth in earnings that reinvest their earnings into expansion, acquisitions, and/or research and development.

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INVESTOPEDIA EXPLAINS GROWTH FUNDS:

Most growth funds offer higher potential capital appreciation but usually at aboveaverage risk. Growth funds are more volatile than funds in the value and blend categories. The companies in a growth fund portfolio are in an expansion phase and they are not expected to pay dividends. Investing in growth funds requires a tolerance for risk and a holding period with a time horizon of five to 10 years.

GROWTH FUNDS:
Growth funds are those mutual funds that aim to achieve capital appreciation by investing in growth stocks. They focus on those companies, which are experiencing significant earnings or revenue growth, rather than companies that pay out dividends. Growth funds tend to look for the fastest-growing companies in the market. Growth managers are willing to take more risk and pay a premium for their stocks in an effort to build a portfolio of companies with above-average earnings momentum or price appreciation. In India, growth funds became popular after the tremendous growth of the Indian companies during the post economic reforms period. The rapid growth of Indian industry attracted investors money to sectors of high growth and as a result growth funds came into being.

32

OBJECTIVES OF GROWTH FUNDS:


The objective of growth funds is to achieve capital appreciation by in stocks of those companies, which are registering significant earnings or revenue growth. Growth funds offer tremendous opportunities for growth, when the financial market is bullish. In general, growth funds are more volatile than other types of funds, rising more than other funds in bull markets and falling more in bear markets. Only aggressive investors, or those with enough time to make up for short-term market losses, should buy these funds.

NET ASSET VALUE:


The net asset value, or NAV, is the current market value of a fund's holdings, minus the fund's liabilities, that is usually expressed as a per-share amount. For most funds, the NAV is determined daily, after the close of trading on some specified financial exchange, but some funds update their NAV multiple times during the trading day. The public offering price, or POP, is the NAV plus a sales charge. Open-end funds sell shares at the POP and redeem shares at the NAV, and so process orders only after the NAV are determined. Closed-end funds (the shares of which are traded by investors) may trade at a higher or lower price than their NAV; this is known as a premium or discount, respectively. If a fund is divided into multiple classes of shares, each class will typically have its own NAV, reflecting differences in fees and expenses paid by the different classes. Some mutual funds own securities which are not regularly traded on any formal exchange. These may be shares in very small or bankrupt companies; they may be derivatives; or they may be private investments in unregistered financial instruments
33

(such as stock in a non-public company). In the absence of a public market for these securities, it is the responsibility of the fund manager to form an estimate of their value when computing the NAV. How much of a fund's assets may be invested in such securities is stated in the fund's prospectus.

The price per share, or NAV (net asset value), is calculated by dividing the fund's assets minus liabilities by the number of shares outstanding. This is usually calculated at the end of every trading day.

34

COMPANY PROFILE
KARVY STOCK BROKING LTD 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 management services for individuals and institutional clients. It also provides a monthly 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 operates as a subsidiary of Karvy Consultants Limited.

KARVY, is a premier integrated financial services provider, and ranked among the top five in the country in all its business segments, services over 16 million individual investors in various capacities, and provides investor services to over 300 corporate, comprising the who is who of Corporate India. KARVY covers the entire spectrum of Financial services such as Stock broking, Depository Participants, Distribution of Financial products - mutual funds, bonds, fixed deposit, equities, Insurance Broking, Commodities Broking, Personal Finance Advisory Services, Merchant Banking & Corporate Finance, placement of equity, IPOs, among others. Karvy has a professional management team and ranks among the best in technology, operations and research of various industrial segments.

EARLY DAYS

The birth of Karvy was on a modest scale in 1981. It began with the vision and enterprise of a small group of practicing Chartered Accountants who founded the flagship
35

company Karvy Consultants Limited. Company started with consulting and financial accounting automation, and carved inroads into the field of registry and share accounting by 1985. Since then, they have utilized their experience and superlative expertise to go from strength to strengthto better their services, to provide new ones, to innovate, diversify and in the process, evolved Karvy as one of Indias premier integrated financial service enterprise.

Thus over the last 20 years Karvy has traveled the success route, towards building a reputation as an integrated financial services provider, offering a wide spectrum of services. And we have made this journey by taking the route of quality service, path breaking innovations in service, versatility in service and finallytotality in service.

Mile Stones:

36

PRINCIPAL ACTIVITY OF KARVY ARE(1) KARVY CONSULTANTS LIMITED As the flagship company of the Karvy Group, Karvy Consultants Limited has always remained at the helm of organizational affairs, pioneering business policies, work ethic and channels of progress. Having emerged as a leader in the registry business, the first of the businesses that Karvy ventured into, company have now transferred this business into a joint venture with Computer share Limited of Australia, the worlds largest registrar. With the advent of depositories in the Indian capital market and the relationships that Company have created in the registry business, Karvy believe that they were best positioned to venture into this activity as a Depository Participant. Karvy were one of the early entrants registered as Depository Participant with NSDL (National Securities Depository Limited), the first Depository in the country and then with CDSL (Central Depository Services Limited).

(2) KARVY STOCK BROKING LIMITED Karvy Stock Broking Limited, one of the cornerstones of the Karvy edifice, flows freely towards attaining diverse goals of the customer through varied services. Creating a plethora of opportunities for the customer by opening up investment vistas backed by research-based advisory services. Here, growth knows no limits and success recognizes no boundaries. Helping the customer create waves in his portfolio and empowering the investor completely is the ultimate goal. Karvy is a Member of National Stock Exchange (NSE), The Bombay Stock Exchange (BSE), and The Hyderabad Stock Exchange (HSE).

37

(3) KARVY INVESTORS SERVICES LIMITED Merchant Banking- Recognized as a leading merchant banker in the country, Karvy are registered with SEBI as a Category I merchant banker. This reputation was built by capitalizing on opportunities in corporate consolidations, mergers and acquisitions and corporate restructuring, which have earned us the reputation of a merchant banker. Raising resources for corporate or Government Undertaking successfully over the past two decades have given us the confidence to renew company focus in this sector.

(4) KARVY COMPUTERSHARE PVT. LIMITED Karvy have traversed wide spaces to tie up with the worlds largest transfer agent, the leading Australian company, Computershare Limited. The company that services more than 75 million shareholders across 7000 corporate clients and makes its presence felt in over 12 countries across 5 continents has entered into a 50-50 joint venture with KARVY.

(5) KARVY GLOBAL SERVICES LIMITED The specialist Business Process Outsourcing unit of the Karvy Group. The legacy of expertise and experience in financial services of the Karvy Group serves us well as company enter the global arena with the confidence of being able to deliver and deliver well. KARVY operate in the core market segments that have emerging requirements for specialized services. Their wide vertical market coverage includes Banking, Financial and Insurance Services (BFIS), Retail and Merchandising, Leisure and Entertainment,

38

Energy

and

Utility

and

Healthcare.

(6) KARVY COMMODITIES BROKING LIMITED

At Karvy Commodities, they are focused on taking commodities trading to new dimensions of reliability and profitability. They have made commodities trading, an essentially age-old practice, into a sophisticated and scientific investment option. Company enables trade in all goods and products of agricultural and mineral origin that include lucrative commodities like gold and silver and popular items like oil, pulses and cotton through a well-systematized trading platform.

(7) KARVY INSURANCE BROKING PRIVATE LIMITED At Karvy Insurance Broking Pvt. Ltd., they provide both life and non-life insurance products to retail individuals, high net-worth clients and corporate. With the opening up of the insurance sector and with a large number of private players in the business, they are in a position to provide tailor made policies for different segments of customers. In their journey to emerge as a personal finance advisor, they will be better positioned to leverage their relationships with the product providers and place the requirements of their customers appropriately with the product providers.

KARVY Alliances
Karvy Computershare Private Limited is a 50:50 joint venture of Karvy Consultants Limited and Computershare Limited, Australia. Computershare Limited is world's largest -- and only global -- share registry, and a leading financial market services provider to the global securities industry.

39

Quality Policy: To achieve and retain leadership, Karvy shall aim for complete customer satisfaction, by combining its human and technological resources, to provide superior quality financial services. In the process, Karvy will strive to exceed Customer's expectations.

ACHIVEMENTS: Largest independent distributor for financial products Amongst the top 5 stock brokers Amongst the top 3 Depository participants Largest network of branches and business associates Amongst top 10 investment Bankers. Ranking 1st in retail procurement in equity IPOs. Ranking 8th in Merchant Banking services.

MISSION OF KARVY:Their mission is to be a leading, preferred service provider to our customer, and they aim to achieve this leadership position by building an innovative, enterprising, and technology driven organization which will set the highest standards of service and business ethics
40

DATA ANALYSIS & INTERPRETATION RELIANCE MUTUAL FUND RELIANCE BANKING SECTOR GROWTH FUND OBJECTIVE:
The primary investment objective of the Scheme is to seek to generate continuous returns by actively investing in equity and equity related or fixed income securities of companies in the banking sector.

Reliance Banking Fund was launched in May 28, 2003, is an open-ended banking sector scheme with an aim to generate continuous returns by actively investing in equity and equity related or fixed-income securities of banks.

As the name suggests, the fund has a portfolio comprising of stocks from banking and financial service sectors. The fund`s top ten stocks account for 60% of the fund`s AUM. Heavyweights like State Bank of India and ICICI bank account for 25% of fund`s AUM.

FUND FACTS: Structure Inception Date Corpus (in cores) Minimum Investment Fund Manager : : : : : Open-ended Banking Sector Scheme May 26, 2003 Rs 1126.98 as on Apr 30, 2010 Rs 5,000 Sunil Singhania
41

TOP 10 HOLDINGS
Stock Sector

State Bank of India

Banks

ICICI BANK LTD.

Banks

Bank of Baroda

Banks

Canara Bank Ltd.

Banks

Oriental Bank of Commerce Ltd

Banks

Corporation Bank

Banks

Bajaj Auto Finance Ltd

NBFC

Andhra Bank

Banks

HDFC Bank Ltd

Banks

ING Vysya Bank Ltd

Banks

42

SECTOR ALLOCATION

Banks

81.48

Current Assets

5.24

Miscellaneous

2.24

NBFC

11.04

SECTOR ALLOCATION
2% 5% 11% Banks Current Assets Miscellaneous NBFC 82%

43

Calculations of Returns for the Year Apr-08-Mar-09


Month HIGH NAV LOW NAV RELIANCE RETURNS (Y) 16.39 15.37 9.51 7.34 9.30 11.95 13.16 10.73 7.26 19.59 9.45 17.90

Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09

39.20 43.90 45.83 49.71 49.72 55.47 57.28 63.79 66.64 70.62 65.93 58.41

33.68 38.05 41.85 46.31 45.49 49.55 50.62 57.61 62.13 59.05 60.24 49.54

RETURNS =

HIGH NAV-LOW NAV -----------------------------------------------LOW NAV

x100

44

Total Returns No of Trading months Average Returns Risk (or) Stdev () Variance Minimum Returns

= 147.95 = 12 = 12.33 = 4.15 = 17.19 = 7.26 Maximum Returns = 19.59

Graphical Representation:

Reliance banking sector Growth


20.00 18.00 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 May-08 Apr-08 Reliance banking sector Growth

Oct-08

Dec-08

INTERPRETATION:
The above table and graph shows the calculations of Returns and Risk of Reliance banking sector Growth fund. The average Return is 12.33 and the Risk is 4.15. The highest NAV in this month is 19.59 and lowest NAV is 7.26.
45

Mar-09

Aug-08

Jun-08

Nov-08

Sep-08

Jan-09

Feb-09

Jul-08

BETA VALUE CALCULATIONS FOR THE YEAR 2008-09:


MONTH S&P CNX NIFTY(X) Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 7.04 5.04 0.59 4.91 Reliance.MF(Y) XY 16.39 115.34 15.37 77.48 9.51 5.64 7.34 36.01 (1.00) 9.30 -9.29 11.91 16.83 11.95 142.28 13.16 221.49 (2.05) 10.73 -22.01 6.58 7.26 47.76 (16.55) 19.59 -324.36 274.05 2.27 9.45 21.40 (9.01) 17.90 -161.34 81.19 5.13 43.30 4.21 283.41 141.81 1.00 24.06 0.35 25.40 49.52 X2

NXY-X. Y Beta Value : NX2-(X) 2

46

X Y XY (X)2 N NXY XY X2 NX2

APR O8-MAR 09 26.55 147.95 150.42 704.85 12.00 1,805.05 3,927.92 933.44 11,201.26 -2,122.86 10,496.41 -0.20

Beta value

Graphical Representation:
40.00 30.00 20.00 10.00 Apr-08 May-08 Dec-08 (10.00) (20.00) (30.00) Mar-09 Aug-08 Oct-08 Jun-08 Nov-08 Sep-08 Jan-09 Feb-09 Jul-08 S&P CNX NIFTY(X) Reliance.MF(Y)

INTERPRETATION:
During this period the Beta value was around -0.20. According to the definition of Beta, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. If a stock moves less than the market, the stock's beta is less than 1.0. High-beta stocks are supposed to be riskier but provide a potential for higher returns; low-beta stocks pose less risk but also lower returns. Here in this case, the funds beta was lesser than 1.0, which means these are at low risk and also at lesser return
47

MUTUAL FUND MODELS CALCULATIONS:

Rm - Rf Sharpe Model = = 0.35

Rm - Rf Treynors Model = = -7.22

Rm (Expected rate of return) Rf (Risk free rate of return)

= 1.479 = 0.0175

Company

Fund

St.Dev

- value

Sharpe Ratio

Trenyor's Ratio

Reliance

Banking sector growth fund

4.14

-0.20

0.35

-7.22

48

INTERPRETATION:
The Sharpe ratio is a risk-adjusted measure of return that is often used to
evaluate the performance of a portfolio. The ratio helps to make the performance of one portfolio comparable to that of another portfolio by making an adjustment for risk. Generally speaking, a ratio of 1.00 represents good compensation for risk, while a ratio of 2.00 earns a very good rating, and 3.00 or better is outstanding. A low and negative Sharpe ratio shows unfavorable performance. Here in the above case, the Sharpe Ratio shows Low Shape Ratio That is 0.35(<1) which shows the Low performance.

The Treynors ratio is a risk-adjusted measure of return based on systematic risk. It is similar to the Sharpe ratio, with the difference being that the Treynors ratio uses beta as the measurement of volatility. 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. In the above case funds shown low and negative Treynors ratio. This shows the unfavorable performance of the Banking sector growth funds.

49

Calculations of Returns for the Year Apr-09-Mar-10


MONTH Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 HIGH NAV 57.68 58.27 51.03 50.81 54.05 52.77 47.66 42.57 41.48 44.03 38.31 37.55 LOW NAV 50.63 51.40 42.05 40.24 47.72 45.31 34.82 35.42 35.63 35.75 32.98 30.07 RETURNS 13.92 13.37 21.36 26.26 13.27 16.48 36.88 20.20 16.40 23.17 16.14 24.87

RETURNS =

HIGH NAV-LOW NAV -----------------------------------------------LOW NAV

x100

50

Total Returns No of Trading months Average Returns Risk (or) Stdev () Variance Minimum Returns

= 242.33 = 12 = 20.19 = 6.91 = 47.81 = 13.27 Maximum Returns = 36.88

Graphical Representation:

Reliance banking sector Growth


40 35 30 25 20 15 10 5 0 Reliance banking sector Growth

May-09

Apr-09

Oct-09

Dec-09

INTERPRETATION:
The above table and graph shows the calculations of Returns and Risk of Reliance banking sector Growth fund. The average Return is 20.19 and the Risk is 6.91. The highest NAV in this month is 36.88 and lowest NAV is 13.27.

BETA VALUE CALCULATIONS FOR THE YEAR 2009-10:


51

Mar-10

Aug-09

Jun-09

Nov-09

Sep-09

Jan-10

Jul-09

Feb-10

MONTH S&P CNX NIFTY(X) Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10

Reliance.MF(Y) XY 8.90 13.92 123.88 -76.85 -389.29 209.42 11.54 -165.47

X2 79.15 33.06 332.30 63.58 0.76 100.81

(5.75) 13.37 (18.23) 21.36 7.97 26.26 0.87 13.27 (10.04) 16.48 (28.06) 36.88 (3.38) 20.20 7.77 16.40 (16.55) 23.17 (3.65) 16.14 9.44 24.87

-1,035.14 787.62 -68.18 127.42 -383.59 -58.87 234.85 11.39 60.33 274.05 13.30 89.18

NXY-X. Y Beta Value : NX2-(X) 2

April-09-mar-10
52

X Y XY (X)2 N NXY XY X2 NX2

-50.71 242.33 -1,470.28 2,571.53 12.00 -17,643.36 -12,288.62 1,845.53 22,146.33 -5,354.73 19,574.80 -0.27

Beta value

Graphical Representation:
50 40 30 20 10 0 -10 -20 -30 -40 S&P CNX NIFTY(X) Reliance.MF(Y)

INTERPRETATION:
During this period the Beta value was around -0.27. According to the definition of Beta, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. If a stock moves less than the market, the stock's beta is less than 1.0. High-beta stocks are supposed to be riskier but provide a potential for higher returns; low-beta stocks pose less risk but also lower returns. Here in this case, the funds beta was lesser than 1.0, which means these are at low risk and also at lesser returns.

53

MUTUAL FUNDS MODEL CALCULATIONS:

Rm - Rf Sharpex Model = = 0.34

Rm - Rf Treynors Model = = -8.79

Rm (Expected rate of return) Rf (Risk free rate of return)

= 2.4233 = 0.0175

Company

Fund

St.Dev

- value

Sharpe Ratio

Trenyor's Ratio

Reliance

Banking sector growth fund

6.91

-0.27

0.34

-8.79

INTERPRETATION:
54

The Sharpe ratio is a risk-adjusted measure of return that is often used to


evaluate the performance of a portfolio. The ratio helps to make the performance of one portfolio comparable to that of another portfolio by making an adjustment for risk. Generally speaking, a ratio of 1.00 represents good compensation for risk, while a ratio of 2.00 earns a very good rating, and 3.00 or better is outstanding. A low and negative Sharpe ratio shows unfavorable performance. Here in the above case, the Sharpe Ratio shows Low Shape Ratio That is 0.34(<1) which shows the Low performance.

The Treynors ratio is a risk-adjusted measure of return based on systematic risk. It is similar to the Sharpe ratio, with the difference being that the Treynors ratio uses beta as the measurement of volatility. 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. In the above case funds shown low and negative Treynors ratio. This shows the unfavorable performance of the Banking sector growth funds.

Calculations of Returns for the Year Apr-10-Mar-2011


55

MONTH Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11

HIGH NAV 44.16 61.56 61.58 62.93 63.87 72.99 79.65 77.88 78.55 77.80 74.20 79.50

LOW NAV 36.48 45.56 58.29 54.28 60.09 62.86 71.56 70.01 72.98 70.76 70.65 75.40

RETURNS 21.05 35.12 5.64 15.92 6.29 16.12 11.30 11.24 7.64 9.95 5.02 5.43

RETURNS =

HIGH NAV-LOW NAV -----------------------------------------------LOW NAV

x100

Total Returns

= 150.71
56

No of Trading months Average Returns Risk (or) Stdev () Variance Minimum Returns

= 12 = 12.55 = 8.71 = 75.82 = 5.02 Maximum Returns = 35.12

Graphical Representation:

Reliance banking sector Growth


40 35 30 25 20 15 10 5 0 May-10 Reliance banking sector Growth

Nov-10

Dec-10

INTERPRETATION:
The above table and graph shows the calculations of Returns and Risk of Reliance banking sector Growth fund. The average Return is 12.55 and the Risk is 8.71 the highest NAV in this month is 35.12 and lowest NAV is 5.02

BETA VALUE CALCULATIONS FOR THE YEAR 2010-11:


57

Mar-11

Apr-10

Aug-10

Oct-10

Jun-10

Sep-10

Jan-11

Feb-11

Jul-10

MONTH S&P CNX NIFTY(X) Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11

Reliance.MF(Y) XY 303.38 934.22

X2 207.72 707.69

14.41 21.05 26.60 35.12 (18.23) 5.64 8.29 15.92 (0.75) 6.29 8.76 16.12 (7.48) 11.30 6.84 11.24 3.40 7.64 (6.22) 9.95 0.95 5.02 6.49 5.43

-102.86 332.30 132.00 -4.70 141.23 -84.49 76.85 25.99 -61.91 4.78 35.23 68.76 0.56 76.77 55.92 46.77 11.58 38.74 0.91 42.08

NXY-X. Y Beta Value : NX2-(X) 2

APRIL-10-MAR-11 43.07
58

Y XY (X)2 N NXY XY X2 NX2

150.71 1,399.72 1,855.19 12.00 16,796.64 6,491.39 1,589.80 19,077.65 10,305.25 17,222.45 0.60

Beta value

Graphical Representation:
40 30 20 10 0 -10 -20 -30 S&P CNX NIFTY(X) Reliance.MF(Y)

INTERPRETATION:
During this period the Beta value was around 0.60. According to the definition of Beta, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. If a stock moves less than the market, the stock's beta is less than 1.0. High-beta stocks are supposed to be riskier but provide a potential for higher returns; low-beta stocks pose less risk but also lower returns. Here in this case, the funds beta was lesser than 1.0, which means these are at low risk and also at lesser returns.

MUTUAL FUNDS MODEL CALCULATIONS:


59

Rm - Rf Sharpe Model = = 0.17

Rm - Rf Treynors Model = = 2.48

Rm (Expected rate of return) Rf (Risk free rate of return)

= 1.507 = 0.0175

Company

Fund

Std.Dev

- value

Sharpe Ratio Trenyor's Ratio

Reliance

Banking sector growth fund

8.7

0.6

0.17

2.48

INTERPRETATION:

60

The Sharpe ratio is a risk-adjusted measure of return that is often used to


evaluate the performance of a portfolio. The ratio helps to make the performance of one portfolio comparable to that of another portfolio by making an adjustment for risk. Generally speaking, a ratio of 1.00 represents good compensation for risk, while a ratio of 2.00 earns a very good rating, and 3.00 or better is outstanding. A low and negative Sharpe ratio shows unfavorable performance. Here in the above case, the Sharpe Ratio shows Low Shape Ratio That is 0.17(<1) which shows the Low performance.

The Treynors ratio is a risk-adjusted measure of return based on systematic risk. It is similar to the Sharpe ratio, with the difference being that the Treynors ratio uses beta as the measurement of volatility. 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. In the above case funds shown high and positive Treynors ratio. This shows superior risk adjusted performance of the Banking sector growth Funds.

UTI MUTUAL FUND


61

UTI THEMATIC BANKING SECTOR GROWTH FUND OBJECTIVE:


Investment objective is "capital appreciation" through investments in the stocks of the companies/institutions engaged in the banking and financial services activities

UTI Mutual Fund has announced the launch of UTI Thematic Fund to capitalize on diverse investment opportunities across various sectors.

The fund would be an open-ended growth-oriented equity scheme.

The scheme would comprise of six funds. This includes large cap fund, mid-cap fund, basic industries fund, auto sector fund, banking sector fund and PSU fund.

The face value of units is Rs 10 and the minimum investment would be Rs 1,000, The scheme is open to resident individuals, institutions as well as NRIs and FIIs.

FUND FACTS
Structure Inception Date Corpus : : : Open-ended Banking Sector Scheme 9th March, 2004 146.28 as on Apr 30, 2010 Rs 5,000 Anoop Bhaskar , Arun Khurana .

Minimum Investment : Fund Manager :

UTI Financial sector fund was launched in the year 2004 on 9th march. It is an open ended fund with an aim to an open-ended equity fund with the objective to provide capital appreciation through investments in the stocks of the companies/institutions engaged in the banking and financial services activities.

TOP 10 HOLDINGS:
62

Stock

Sector

ICICI BANK LTD.

Banks

HDFC Bank Ltd

Banks

State Bank of India

Banks

Bank of Baroda

Banks

Axis Bank Ltd

Banks

IndusInd Bank Ltd

Banks

Oriental Bank of Commerce Ltd

Banks

Central Bank of India

Banks

Punjab National Bank

Banks

Infrastructure Development Finance Co. Ltd

FI

SECTOR ALLOCATION

63

Banks Current Assets Custodial, Depository, Exchanges and rating agencies

86.35 9.96 0.34

FI

3.35

SECTOR ALLOCATION
0% 4% 10% Current Assets Banks

Custodial, Depository, Exchanges and rating agencies 86% FI

Calculations of Returns for the Year Apr-08-Mar-09


64

MONTH Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09

HIGH NAV 21.47 22.71 24.06 25.34 24.83 28.49 31.81 33.69 35.12 37.47 34.32 29.29

LOW NAV 18.52 20.36 22.06 24.01 22.19 24.41 26.76 31.01 32.6 30.62 30.31 23.18

RETURNS 15.93 11.54 9.07 5.54 11.90 16.71 18.87 8.64 7.73 22.37 13.23 26.36

RETURNS =

HIGH NAV-LOW NAV -----------------------------------------------LOW NAV

x100

Total Returns

= 167.89
65

No of Trading months Average Returns Risk (or) Stdev () Variance Minimum Returns

= 12 = 13.99 = 6.27 = 39.33 = 5.54 Maximum Returns = 26.36

Graphical Representation:

Uti banking sector Growth


30 25 20 15 Utibanking sector Growth 10 5 0 Apr-08 May-08 Dec-08 Mar-09 Aug-08 Jun-08 Oct-08 Nov-08 Sep-08 Jan-09

Jul-08

INTERPRETATION:
The above table and graph shows the calculations of Returns and Risk of Uti banking sector Growth fund. The average Return is 13.99 and the Risk is 6.27 The highest NAV in this month is 26.36 and lowest NAV is 5.54.

BETA VALUE CALCULATIONS FOR THE YEAR 2008-09:

66

Feb-09

MONTH S&P CNX NIFTY(X) UTI MF (Y) Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 7.04 5.04 0.59 4.91 (1.00) 11.91 16.83 (2.05) 6.58 (16.55) 2.27 (9.01) 15.93 11.54 9.07 5.54 11.90 16.71 18.87 8.64 7.73 22.37 13.23 26.36

(XY) 112.10 58.17 5.38 27.17 -11.88 199.04 317.70 -17.73 50.86 -370.34 29.98 -237.51

(X2) 49.52 25.40 0.35 24.06 1.00 141.81 283.41 4.21 43.30 274.05 5.13 81.19

NXY-X. Y Beta Value : NX2-(X) 2

X Y XY

26.55 167.89 162.93


67

(X)2 N NXY XY X2 NX2

704.85 12.00 1,955.19 4,457.38 933.44 11,201.26 -2,502.19 10,496.41 -0.24

BETA VALUE

Graphical Representation:
30 20 10 0 -10 -20 S&P CNX NIFTY(X) UTI.MF(Y)

INTERPRETATION:
During this period the Beta value was around -0.24. According to the definition of Beta, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. If a stock moves less than the market, the stock's beta is less than 1.0. High-beta stocks are supposed to be riskier but provide a potential for higher returns; low-beta stocks pose less risk but also lower returns. Here in this case, the funds beta was lesser than 1.0, which means these are at low risk and also at lesser returns.

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MUTUAL FUNDS MODEL CALCULATIONS:


Rm - Rf Sharpex Model = = 0.26

Rm - Rf Treynors Model = = -6.96

Rm (Expected rate of return) Rf (Risk free rate of return)

= 1.678 = 0.0175

Company

Fund

St.Dev

- value

Sharpe Ratio

Trenyor's Ratio

UTI

Banking sector growth fund

6.27

-0.24

0.26

-6.96

INTERPRETATION:
69

The Sharpe ratio is a risk-adjusted measure of return that is often used to


evaluate the performance of a portfolio. The ratio helps to make the performance of one portfolio comparable to that of another portfolio by making an adjustment for risk. Generally speaking, a ratio of 1.00 represents good compensation for risk, while a ratio of 2.00 earns a very good rating, and 3.00 or better is outstanding. A low and negative Sharpe ratio shows unfavorable performance. Here in the above case, the Sharpe Ratio shows Low Shape Ratio That is 0.26(<1) which shows the Low performance.

The Treynors ratio is a risk-adjusted measure of return based on systematic risk. It is similar to the Sharpe ratio, with the difference being that the Treynors ratio uses beta as the measurement of volatility. 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. In the above case funds shown low and negative Treynors ratio. This shows the unfavorable performance of the Banking sector growth funds.

Calculations of Returns for the Year Apr-09-Mar-10

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MONTH Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10

HIGH NAV 27.45 27.74 23.28 22.65 23.82 23.15 21.51 19.53 19.06 19.91 17.48 17.39

LOW NAV 23.58 23.83 18.89 17.98 20.89 20.19 15.47 15.53 15.84 16.23 15.19 13.74

RETURNS 16.41 16.41 23.24 25.97 14.03 14.66 39.04 25.76 20.33 22.67 15.08 26.56

RETURNS =

HLGH NAV-LOW NAV -----------------------------------------------LOW NAV

x100

Total Returns No of Trading months

= 260.16 = 12
71

Average Returns Risk (or) Stdev () Variance Minimum Returns

= 21.68 = 7.22 = 52.06 = 14.03 Maximum Returns = 39.04

Graphical Representation:

Uti banking sector Growth


40 35 30 25 20 15 10 5 0 May-09 Uti banking sector Growth

Dec-09

Apr-09

Jun-09

Oct-09

INTERPRETATION:
The above table and graph shows the calculations of Returns and Risk of Uti banking sector Growth fund. The average Return is 21.68 and the Risk is 6.27 The highest NAV in this month is 39.04 and lowest NAV is 14.03.

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Mar-10

Aug-09

Nov-09

Sep-09

Jan-10

Feb-10

Jul-09

BETA VALUE CALCULATIONS FOR THE YEAR 2008-09:


MONTH S&P CNX NIFTY(X) UTI MF (Y) Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 8.90 (5.75) (18.23) 7.97 0.87 (10.04) (28.06) (3.38) 7.77 (16.55) (3.65) 9.44 16.41 16.41 23.24 25.97 14.03 14.66 39.04 25.76 20.33 22.67 15.08 26.56 (XY) 146.01 -94.34 -423.64 207.10 12.19 -147.20 (X2) 79.15 33.06 332.30 63.58 0.76 100.81

-1,095.73 787.62 -86.93 157.90 -375.36 -54.98 250.87 11.39 60.33 274.05 13.30 89.18

NXY-X. Y Beta Value X Y XY -60.15 260.16 -1,504.12


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: NX2-(X) 2

(X)2 N NXY XY X2 NX2

3,618.49 12.00 -18,049.43 -15,649.79 1,845.53 22,146.33 -2,399.64 18,527.84 -0.13

BEETA VALUE

Graphical Representation:
50 40 30 20 10 0 -10 -20 -30 -40

S&P CNX NIFTY(X) UTI.MF(Y)

INTERPRETATION:
During this period the Beta value was around -013. According to the definition of Beta, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. If a stock moves less than the market, the stock's beta is less than 1.0. High-beta stocks are supposed to be riskier but provide a potential for higher returns; low-beta stocks pose less risk but also lower returns. Here in this case, the funds beta was lesser than 1.0, which means these are at low risk and also at lesser returns.

MUTUAL FUNDS MODEL CALCULATIONS:


74

Rm - Rf Sharpex Model = = 0.35

Rm - Rf Treynors Model = = -19.95

Rm (Expected rate of return) Rf (Risk free rate of return)

= 2.60 = 0.017

Company

Fund

St.Dev

- value

Sharpe Ratio

Trenyor's Ratio

UTI

Banking sector growth fund

7.22

-0.13

0.35

-19.95

INTERPRETATION:

75

The Sharpe ratio is a risk-adjusted measure of return that is often used to


evaluate the performance of a portfolio. The ratio helps to make the performance of one portfolio comparable to that of another portfolio by making an adjustment for risk. Generally speaking, a ratio of 1.00 represents good compensation for risk, while a ratio of 2.00 earns a very good rating, and 3.00 or better is outstanding. A low and negative Sharpe ratio shows unfavorable performance. Here in the above case, the Sharpe Ratio shows Low Shape Ratio That is 0.35(<1) which shows the Low performance.

The Treynors ratio is a risk-adjusted measure of return based on systematic risk. It is similar to the Sharpe ratio, with the difference being that the Treynors ratio uses beta as the measurement of volatility. 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. In the above case funds shown low and negative Treynors ratio. This shows the unfavorable performance of the Banking sector growth funds.

Calculations of Returns for the Year Apr-10-Mar-2011


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MONTH Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11

HIGH NAV 20.13 26.72 27.95 28.23 28.39 32.53 34.6 34.22 34.22 33.99 33.05 35.73

LOW NAV 16.78 20.41 25.54 24.69 26.49 27.44 30.85 30.25 31.61 31.17 31.29 33.8

RETURNS 19.96 30.92 9.44 14.34 7.17 18.55 12.16 13.12 8.26 9.05 5.62 5.71

RETURNS =

HIGHNAV-LOW NAV -----------------------------------------------LOW

x100

Total Returns No of Trading months

= 154.29 = 12
77

Average Returns Risk (or) Stdev () Variance Minimum Returns

= 12.85 = 7.35 = 54.08 = 5.62 Maximum Returns = 30.92

Graphical Representation:

Uti banking sector Growth


35 30 25 20 15 10 5 0 May-10 Uti banking sector Growth

INTERPRETATION:
The above table and graph shows the calculations of Returns and Risk of Uti banking sector Growth fund. The average Return is 12.85 and the Risk is 7.35The highest NAV in this month is 30.92 and lowest NAV is 5.62.

BETA VALUE CALCULATIONS FOR THE YEAR 2010-11:


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Mar-11

Aug-10

Dec-10

Apr-10

Jun-10

Sep-10

Oct-10

Nov-10

Jan-11

Feb-11

Jul-10

MONTH S&P CNX NIFTY(X) UTI MF (Y) Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 14.41 26.60 (18.23) 8.29 (0.75) 8.76 (7.48) 6.84 3.40 (6.22) 0.95 6.49 19.96 30.92 9.44 14.34 7.17 18.55 12.16 13.12 8.26 9.05 5.62 5.71

(XY) 287.73 822.45 -172.01 118.89 -5.36 162.53 -90.90 89.75 28.10 -56.31 5.36 37.04

(X2) 207.72 707.69 332.30 68.76 0.56 76.77 55.92 46.77 11.58 38.74 0.91 42.08

NXY-X. Y Beta Value : NX2-(X) 2

X Y XY

43.07 154.29 1,227.27


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(X)2 N NXY XY X2 NX2

1,855.19 12.00 14,727.27 6,645.79 1,589.80 19,077.65 8,081.48 17,222.45 0.47

BEETA VALUE

Graphical Representation:
40 30 20 10 0 -10 -20 -30 S&P CNX NIFTY(X) UTI.MF(Y)

INTERPRETATION:
During this period the Beta value was around 0.47. According to the definition of Beta, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. If a stock moves less than the market, the stock's beta is less than 1.0. High-beta stocks are supposed to be riskier but provide a potential for higher returns; low-beta stocks pose less risk but also lower returns. Here in this case, the funds beta was lesser than 1.0, which means these are at low risk and also at lesser returns.

MUTUAL FUNDS MODEL CALCULATIONS:


80

Rm - Rf Sharpe Model = = 0.20

Rm - Rf Treynors Model = = 3.25

Rm (Expected rate of return) Rf (Risk free rate of return)

= 1.5492 = 0.0175

Company

Fund

Std.Dev

- value

Sharpe Ratio

Trenyor's Ratio

UTI

Banking sector growth fund

7.35

0.47

0.20

3.25

INTERPRETATION:

81

The Sharpe ratio is a risk-adjusted measure of return that is often used to


evaluate the performance of a portfolio. The ratio helps to make the performance of one portfolio comparable to that of another portfolio by making an adjustment for risk. Generally speaking, a ratio of 1.00 represents good compensation for risk, while a ratio of 2.00 earns a very good rating, and 3.00 or better is outstanding. A low and negative Sharpe ratio shows unfavorable performance. Here in the above case , the Sharpe Ratio shows Low Shape Ratio That is 0.20(<1) which shows the Low performance.

The Treynors ratio is a risk-adjusted measure of return based on systematic risk. It is similar to the Sharpe ratio, with the difference being that the Treynors ratio uses beta as the measurement of volatility. 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. In the above case funds shown high and positive Treynors ratio. This shows the superior risk adjusted performance of the Banking sector growth funds.

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PERFORMANCE OF THE FUNDS FOR THE YEAR 2008-2011 (RELIANCE)


Std.Dev 2008-2009 Banking sector growth fund 4.15 Reliance Banking sector growth fund 6.91 Reliance Banking sector growth fund 8.71 Reliance - value -0.20 Sharpe Ratio 0.35 Treynors Ratio -7.22

2009-2010

-0.27

0.34

-8.79

2010-2011

0.60

0.17

2.48

PERFORMANCE OF THE FUNDS FOR THE YEAR 2008-2011 (U.T.I)


Std.Dev 2008-2009 Banking sector growth fund 6.27 U .T.I Banking sector growth fund 7.22 U .T.I Banking sector growth fund 7.35 U .T.I - value -0.24 Sharpe Ratio 0.26 Treynors Ratio -6.96

2009-2010

-0.13

0.35

-19.95

2010-2011

0.47

0.20

3.25

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FINDINGS:
The Present project work has been undertaken to study the performance of banking sector mutual funds in growth option. During the study and analysis, the following facts have been identified. 1) Reliance growth fund in banking sector in the year 2008-2009, the average return is 12.33 and risk is 4.15.The fund performance index for Sharpe is 0.35 and Treynors is 7.22.

2) Reliance growth fund in banking sector in the year 2009-2010, the average return is 20.19 and risk is 6.91.The fund performance index for Sharpe is 0.84 and Treynors is 8.79.

3) Reliance growth fund in banking sector in the year 2010-2011, the average return is 12.55 and risk is 8.71.The fund performance index for Sharpe is 0.17 and Treynors is 2.48. 4) U.T.I growth fund in banking sector in the year 2008-2009, the average return is 13.99 and risk is 6.27.The fund performance index for Sharpe is 0.26 and Treynors is -6.96.

5) U.T.I growth fund in banking sector in the year 2009-2010, the average return is 21.68 and risk is 7.22.The fund performance index for Sharpe is 0.35 and Treynors is -19.95.

6) U.T.I growth fund in banking sector in the year 2010-2011, the average return is 12.85 and risk is 7.35.The fund performance index for Sharpe is 0.20 and Treynors is 3.25. 7) U.T.I company growth fund is performing well than the Reliance company growth fund.

84

SUGGESTIONS:
After the study and analysis on performance of two AMCs the funds have been categorized into one according to rank wise Sharpe performance index, the other according to Treynors performance index.

1) Rank wise Sharpe performance index:


YEAR

Mutual fund

2008-2009 2009-2010 2010-2011

Reliance U.T.I Reliance U.T.I Reliance U.T.I

Sharpes performance index 0.35 0.26 0.34 0.35 0.17 0.20

Rank

1 2 2 1 2 1

On the basis of Sharpes performance index, we can suggest investors to invest in the following funds. 1. U.T.I 2. Reliance

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2) Rank wise Treynors performance index:


YEAR

Mutual fund

2008-2009 2009-2010 2010-2011

Reliance U.T.I Reliance U.T.I Reliance U.T.I

Treynors performance index -7.22 -6.96 -8.79 -19.95 2.48 3.25

Rank

2 1 1 2 2 1

On the basis of Treynors performance index, we can suggest investors to invest in the following funds. 1. U.T.I 2. RELIANCE

3) The Risk or standard deviation in Reliance Company is more volatile than the U.T.I
Company so that we can suggest investors to invest in U.T.I Company

86

CONCLUSIONS:
Investment these days is very dangerous game. If we are careless we will loose all our wealth. Therefore it is very important to analyze the financial instruments available in the market very scrupulously in terms of their returns and risks. We have a good number of investment options which minimize the risk of the investment. One of them is mutual funds. If an investor wants to invest in low risk instruments for medium returns, he can invest in mutual funds. Mutual funds promise the investor good returns not high but moderate. They will not be exposed to high risks as well. Therefore investment in mutual funds is a wise way to invest. The present project work is an attempt to study the performance of mutual funds where one can decide on what basis they can invest in mutual funds. Overall the project shows satisfactory results.

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BIBILOGRAPHY:-

Books
Security Analysis & Portfolio Management - Fishers & Jordon

News Papers
Business Line Times of India India Today

Magazines
Week Business Daily

Websites
www.amfiindia.com www.utimutualfund.com www.nseindia.com www.mutualfundsindia.com

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