MS-100 SYNOPSIS ON

RISK ANALYSIS OF SBI MUTUAL FUND

SUBMITTED BY: MS. RUPALI ROLL NO:- 091237813 MBA (FINANCE) PROJECT GUIDE : MS. HEENA PANT

SCHOOL OF MANAGEMENT STUDIES INDIRA GANDHI NATIONAL OPEN UNIVERSITY, MAIDAN GARHI, NEW DELHI - 110068

CONTENTS

INDUSTRY PROFILE COMPANY PROFILE OBJECTIVE OF THE STUDY RESEARCH METHODOLOGY FINDINGS LIMITATIONS CONCLUSION BIBLIOGRAPHY

INDUSTRY PROFILE

INTRODUCTION ABOUT MUTUAL FUND Investment in share markets are influenced by the analysis & reasoning which help in predicting the market to some extent. Over the past years a number of technical & theories for analysis have evolved, these combined with modern technology guides the investor. The big players in the market, like Foreign Institutional Investors, Mutual Funds, etc. have the expertise for various analytical tools & make use of them. The small investors are not in a position to benefit from the market the way Mutual Funds can do. Generally a small investors investments are based on market sentiments, inside information, through grapevine, tips & intuition. The small investors depend on brokers and brokerage house for his investments. They can invest through the Mutual Funds who are more experienced and expert in this field than a small investor himself. In recent years a large number of players have entered into his market. The project has been carried out to have an overview of Mutual Fund Industry and to understand investors perception about Mutual Funds in the context of their trading preference, explore investors risk perception & find out their preference over Top Mutual Funds. ABOUT MUTUAL FUNDS A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund

Structure of the Indian Mutual Fund industry The largest categories of Mutual Funds are the ones floated by the private sector and by Foreign Asset Management Companies. The largest of these are Prudential ICICI AMC and Birla Sun

Life AMC. The aggregate corpus of assets managed by this category of AMCs is in excess of Rs.350 bn. Earlier the Indian Mutual Fund industry was dominated by the Unit Trust of India which has a total corpus of Rs.700 bn collected from more than 20 million investors. The UTI has many funds/schemes in all categories i.e. equity, balanced, income etc. with some being open-ended and some being closed-ended. The Unit Scheme 1964 commonly referred to as US 64, which is a balanced fund, is the biggest scheme with a corpus of about Rs.200 bn. UTI was floated by financial institutions and is governed by a special Act of Parliament. Most of its investors believe that the UTI is government owned and controlled, which, while legally incorrect, is true for all practical purposes.

WHY MUTUAL FUNDS An investor normally prioritizes his investment needs before undertaking investment. So different goals will be allocated different proportions of the total disposable amount Investments for specific goals normally find their way into the debt market as risk reduction is of prime importance. This is the area for the risk-averse investors and here, mutual funds are generally the best option. The reasons are not difficult to see. How are the Mutual Funds Structured?

The Mutual Funds are structured in two forms: Company form and Trust form. Company Form: These forms of mutual funds are more popular in US. Trust Form: In India, mutual funds are organized as Trusts. The Trust is either managed by a Board of Trustees or by a Trustee Company. There must be at least 4 members in the Board of Trustees and at least 2/3 of the members of the board must be independent. Trustee of one mutual fund cannot be a trustee of another mutual fund.

BENEFITS OF MUTUAL FUND INVESTMENT

Professional Management Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. Diversification Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion Convenient Administration Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Return Potential Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.

Low Costs Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors. Liquidity In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. Transparency You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook.

Flexibility Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience. Affordability Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy. Choice of Schemes Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.

Well Regulated All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI.

Disadvantages of Mutual Funds:

1. Professional Management - Did you notice how we qualified the advantage of professional management with the word "theoretically"? Many investors debate whether or not the so-called professionals are any better than you or I at picking stocks. Management is by no means infallible, and, even if the fund loses money, the manager still takes his/her cut. We'll talk about this in detail in a later section.

2. Costs - Mutual funds don't exist solely to make your life easier - all funds are in it for a profit. The mutual fund industry is masterful at burying costs under layers of jargon. 3. Dilution - It's possible to have too much diversification. Because funds have small holdings in so many different companies, high returns from a few investments often don't make much difference on the overall return.

4.Taxes - When making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gains tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability. RISKS ASSOCIATED WITH MUTUAL FUNDS The most important relationship to understand is the risk-return trade-off. Higher the risk greater the returns/loss and lower the risk lesser the returns/loss. Hence it is up to you, the investor to decide how much risk you are willing to take. In order to do this you must first be aware of the different types of risks involved with your investment decision.

MARKET RISK Sometimes prices and yields of all securities rise and fall. Broad outside influences affecting the market in general lead to this. This is true, may it be big corporations or smaller mid-sized companies. This is known as Market Risk

CREDIT RISK The debt servicing ability (may it be interest payments or repayment of principal) of a company through its cash flows determines the Credit Risk faced by you. This credit risk is measured by independent rating agencies like CRISIL who rate companies and their paper. An AAA ratin g is considered the safest whereas a D rating is considered poor credit quality. A well -diversified portfolio might help mitigate this risk. INFLATION RISK Things you hear people talk about: Rs. 100 today is worth more than Rs. 100 tomorrow. Remember the time when a bus ride costed 50 paisa? Mehangai Ka Jamana Hai. The root cause , Inflation. Inflation is the loss of purchasing power over time. A lot of times people make conservative investment decisions to protect their capital but end up with a sum of money that can buy less than what the principal could at the time of the investment. This happens when inflation grows faster than the return on your investment.

INTEREST RATE RISK

In a free market economy interest rates are difficult if not impossible to predict. Changes in interest rates affect the prices of bonds as well as equities. If interest rates rise the prices of bonds fall and vice versa. POLITICAL RISK Changes in government policy and political decision can change the investment environment. They can create a favorable environment for investment or vice versa.

LIQUIDITY RISK Liquidity risk arises when it becomes difficult to sell the securities that one has purchased. Liquidity Risk can be partly mitigated by diversification, staggering of maturities as well as internal risk controls that lean towards purchase of liquid securities. You have been reading about diversification above, but what is it? Diversification The nuclear weapon in your arsenal for your fight against Risk your returns,

COMPANY PROFILE
State Bank of India State Bank of India (SBI) (NSE: SBIN, BSE: 500112, LSE: SBID) is the largest state-owned banking and financial services company with its headquartered in Mumbai, India. The bank is largest in India by turnover and total assets. The bank traces its ancestry to British India, through the Imperial Bank of India, to the founding in 1806 of the Bank of Calcutta, making it the oldest commercial bank in the Indian Subcontinent. Bank of Madras merged into the other two presidency banks, Bank of Calcutta and Bank of Bombay to form Imperial Bank of India, which in turn became State Bank of India. The government of India nationalized the Imperial Bank of India in 1955, with the Reserve Bank of India taking a 60% stake, and renamed it the State Bank of India. In 2008, the government took over the stake held by the Reserve Bank of India. SBI provides a range of banking products through its vast network of branches in India and overseas, including products aimed at non-resident Indians (NRIs). The State Bank Group, with over 16,000 branches, has the largest banking branch network in India. It also has around 130 branches overseas. With an asset base of $352 billion and $285 billion in deposits, it is a regional banking behemoth and is one of the largest financial institution in the world. It has a market share among Indian commercial banks of about 20% in deposits and loans.[2] The State Bank of India is the 29th most reputed company in the world according to Forbes.[3] Also SBI is the only bank featured in the coveted "top 10 brands of India" list in an annual survey conducted by Brand Finance and The Economic Times in 2010.[4] The State Bank of India is the largest of the Big Four banks of India, along with ICICI Bank, Punjab National Bank and HDFC Bankits main competitors.[5] and" GUINNESS BOOK OF WORLD RECORD " that 56 million transactions happening per day all over the world is definitely an achievement

History

The roots of the State Bank of India rest in the first decade of 19th century, when the Bank of Calcutta, later renamed the Bank of Bengal, was established on 2 June 1806. The Bank of Bengal was one of three Presidency banks, the other two being the Bank of Bombay (incorporated on 15 April 1840) and the Bank of Madras (incorporated on 1 July 1843). All three Presidency banks were incorporated as joint stock companies and were the result of the royal charters. These three banks received the exclusive right to issue paper currency in 1861 with the Paper Currency Act, a right they retained until the formation of the Reserve Bank of India. The Presidency banks amalgamated on 27 January 1921, and the reorganized banking entity took as its name: Imperial Bank of India. The Imperial Bank of India remained a joint stock company Pursuant to the provisions of the State Bank of India Act (1955), the Reserve Bank of India, which is India's central bank, acquired a controlling interest in the Imperial Bank of India. On 30 April 1955, the Imperial Bank of India became the State Bank of India. The government of India recently acquired the Reserve Bank of India's stake in SBI so as to remove any conflict of interest because the RBI is the country's banking regulatory authority. In 1959, the government passed the State Bank of India (Subsidiary Banks) Act, enabling the State Bank of India to take over eight former state-associated banks as its subsidiaries. On 13 September 2008, the State Bank of Saurashtra, one of its associate banks, merged with the State Bank of India. SBI has acquired local banks in rescues. For instance, in 1985, it acquired the Bank of Cochin in Kerala, which had 120 branches. SBI was the acquirer as its affiliate, the State Bank of Travancore, already had an extensive network in Kerala.

PROFILE OF SBI MF SBI Mutual Fund is Indias largest bank sponsored mutual fund and has an enviable track record in judicious investments and consistent wealth creation.

The fund traces its lineage to SBI - Indias largest banking enterprise. The institution has grown immensely since its inception and today it is India's largest bank, patronized by over 80% of the top corporate houses of the country.

SBI Mutual Fund is a joint venture between the State Bank of India and Socit Gnrale Asset Management, one of the worlds leading fund management companies that manages over US$ 330 Billion worldwide.

EXPLOITING EXPERTISE, COMPOUNDING GROWTH:

In eighteen years of operation, the fund has launched thirty-two schemes and successfully redeemed fifteen of them. In the process it has rewarded its investors handsomely with consistently high returns. A total of over 20, 00,000 investors have reposed their faith in the wealth generation expertise of the Mutual Fund. Schemes of the Mutual fund have consistently outperformed benchmark indices and have emerged as the preferred investment for millions of investors and HNIs. Today, the fund manages over Rs. 35,000 crores of assets and has a diverse profile of investors actively parking their investments across 28 active schemes. The fund serves this vast family of investors by reaching out to them through network of 82 collection branches, 26 investor service centers, 21 investor service desks and 21 district organizers. SBI Mutual is the first bank-sponsored fund to launch an offshore fund Resurgent India Opportunities Fund. Growth through innovation and stable investment policies is the SBI MF credo. SBI Mutual Fund, one of the leading mutual funds has been awarded the Most Preferred Mutual Fund by CNBC Awaaz Consumer Awards 2006, an exhaustive consumer preference survey conducted by AC Nielson-Org Marg on behalf of CNBC Awaaz, a popular business channel. Moreover Economic Times has also given SBI MF, the title of being Indias Second Brand equity, mutual funds AMC

The consumer survey spread over 21 cities had 10,000 respondents who chose most preferred brands from 41 product and services categories. The survey was conducted in 14 states through a structured questionnaire. Among the financial services, banks, mutual funds, life insurance companies, credit cards, housing loans, auto loans and financial advisory services were selected for the brand study. Fast Moving Consumer Goods, Consumer durables, telecom, auto, retail and hospitality and travel were some of the other sectors, which were considered for this exercise. Accepting the award, Mr. Deepak Chawla, Managing Director (before), SBI MF said, SBI MF is proud to receive this prestigious recognition as it reaffirms its commitment to investors. SBI Mutual Fund has been consistently spreading the awareness about mutual funds by investor education campaigns through the media and this has successfully raised awareness about Mutual funds.

OBJECTIVE
To study the Mutual funds industry in detail To study the Investment procedure in Mutual funds To study the Accounting and Valuation methods of Mutual Funds To study in brief various Mutual funds promoted by S.B.I. To study the investors Preference regarding Investment in Mutual Funds To analysis the risk of mutual fund investment

RESEARCH METHODOLOGY
The procedure adopted for conducting the research requires a lot of attention as it has direct bearing on accuracy, reliability and adequacy of results obtained. It is due to this reason that research methodology, which we used at the time of conducting the research, needs to be elaborated upon. Research Methodology is a way to systematically study & solve the research problems. If a researcher wants to claim his study as a good study, he must clearly state the methodology adopted in conducting the research so that it may be judged by the reader whether the methodology of work done is sound or not. The Research Methodology here includes:1. 2. 3. 4. 5. 6. Meaning of research Research problem Research design Sampling design Data collection method Analysis and interpretation of Data

Meaning of Research
Research is defined as a scientific & systematic search for pertinent information on a specific topic. Research is an art of scientific investigation. Research is a systematized effort to gain new knowledge. It is a careful investigation or inquiry especially through search for new facts in any branch of knowledge. Research is an academic activity and this term should be used in a technical sense. Research com prices defining and redefining problems, formulating hypothesis or suggested solutions; making deductions and reaching conclusions to determine whether they fit the formulating hypo thesis. Research is thus, an original contribution to the existing stock of knowledge making for its advancement. The search for knowledge through objective and systematic method of finding solution to a problem is research.

 Research Design
A research design is the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure. Research design is the conceptual structure within which research is conducted. It constitutes the blueprint for the collection measurement and analysis of data. Research design operational implication to the final analysis of data. A research design is a framework for the study and is used as a guide in collecting and analyzing the data. It is a strategy specifying which approach will be used for gathering and analyzing the data. It also includes the time and cost budget since most studies are done under these two constraints. Research design can be categorized as:

Research Design

Exploratory Research Descriptive Research

Diagnostic Research Experimental Research

The present study is descriptive in nature, as it seeks to describe ideas and insight and to bring out new relationships. Research design is flexible enough to provide opportunity for considering different aspects of problems under study. It helps in bringing into focus some inherent weakness in enterprise regarding which in depth study can be conducted by management.

In this study I will apply Descriptive Research Design. As Descriptive Research Design is the description of state of affairs, as it exists at present. In this type of research the researcher has no control over the variables, he can only report what has happened or what is happening.

SAMPLING METHOD ADOPTED:

Random Sampling

Sample size:

The sample size of my project is limited to 100 only.

Sample Design: A sample design is a definite plan for obtaining a sample from a given population. It refers to the technique or the procedure the researcher would adopt in selecting items for the sample. The corporate sea being very fast, it becomes impossible to contact each and every individual of the universe due to the time and money constraints. Therefore, the study has been narrowed down to a representative sample to make the study more manageable.

SOURCES OF DATA COLLECTION:

For the completion of this project both Primary and Secondary data are required.

Primary Data Collection:

Primary Data is the first hand information collected directly from the respondents .In dealing with real life problem it is often found that data at hand are inadequate, and hence, it becomes necessary to collect data that is appropriate. There are several ways

of collecting the appropriate data which differ considerably in context of money costs, time and other resources at the disposal of the researcher. Primary data can be collected either through observation or through survey. The data collection for this study was done in the following manner:

Through personal interviews:

A rigid procedure was followed and we were seeking answers to many pre-conceived questions through personal interviews.

Through questionnaire:
I had prepared a questionnaire for collecting information about second part of the project. Information to find out the investment potential and goal was found out through Questionnaires.

Secondary Data Collection:

Secondary data is the second handed data. Secondary Data is collected through internet, books, journals, and axis mutual fund navigators.

FINDINGS The study done was a tool to analyze the present setup and to know the investors perception regarding investment in Mutual Funds. The study proved fruitful and many facts came to the light. The following were the findings of the study: People with less experience were inclined towards investment in the Mutual Funds. It attracted as a safer avenue as compared to share market. 49 % respondents reflected confidence and optimism in the context of their investments. Mutual Funds are more of an investment option than the speculative avenue. People tend to gain through long investments rather than through short term. Income funds and ELSS are among the few top funds People are not willing to take much risk and bear loss. Brokers advice matters to as much as 32% of the people. Major part of people preferred self-evaluation as best. Most of the people looks at the returns that are given by a Funds56% are in this favour and only 23% people are there who consider Fund name and current NAV of the fund before investing into a Mutual Fund Experience was the main factor that made a person invest in mutual funds

LIMITATIONS
There were certain limitations faced during the study. Some people were not willing to disclose the investment profile .The biased ness was being taken care of. The area of sample was decided after taking into consideration the major factors like Availability of investors Approachability, Time available with investor for interaction, etc. Lack of awareness about MUTUAL FUNDS

CONCLUSION
The comparative of various tax-planning funds done on the basis of various factors such as the performance of the fund over the period of time, their portfolio characteristics and the risk associated with the scheme. By comparing various funds I analysis that: SBI magnum Tax-gain scheme has the wider portfolio than other schemes. It has a mix of 83 stocks of various sectors, while all other scheme has the portfolio of stocks between 40-60 stocks. Thus SBI Magnum Tax gain scheme has the larger portfolio and it diversify the risk accurately. Among the above schemes, the performance of SBI magnum Tax-gain is highest for the period of 3 year and 5 year while, for the period of 1 year or less than 1 year Principal tax savings scheme is better alternative. The risk grade of maximum schemes is average but the HDFC tax saver has the lowest risk to invest in this scheme. The risk analysis done on the basis of Sharpe ratio, Alpha, Beta and R-Squared. I find that 1 The Sharpe ratio of SBI Magnum tax- gain is highest which shows that a higher return is generated per unit of risk in this scheme, when compared to other schemes. 2 Positive alpha of a scheme implies that a fund has performed better than expected, given its level of risk. So higher the alpha better are returns. Based on this proposition SBI Magnum Taxgain has the better returns when compared it with its peers.

BIBLIOGRAPHY

wwwmutualfundindia.com www.sbimf.com www.indiainfoline.com www.amfiindia.com www.sebi.gov.in www.google.com

BOOK REFERRED Kothari, C.R. Research Methodology: Methods and Techniques. New Delhi: New Age International Ltd, 1985.