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Submitted To:
Ms.Meha Shah Mehta Faculty Guide Guide Ms.Hiral Company

Submitted By:
Ms. Mamata Sharma Enroll No. 6ND01205

It is my great pleasure that I had given an opportunity to convey thanks to all them who have helped us at any place directly or indirectly. There are many people who play vital role in our achievement. So, especially i would like to thanks those people who have helped me in whole pro ect. !irstly, I would like to take this opportunity o" e#pressing my pro"ound and inevitable gratitude to my pro ect guide pro"essors "or their boundless knowledge, guidance and constant encouragement. I am thank"ul to

I%!&I '&TI('&) %())*+* gives me this opportunity to prepare pro ect work on the sub ect o" %(,-&.&TI/* &'&)0SIS (' 1)I- (. ,1T1&)!1'2.3 I would like to take this opportunity to e#press my thanks to the "aculty guide ,iss.,eha shah or %ompany guide ,iss.4iral ,ehta. I would also like to ask my sincere thanks to our "aculty and other members "or their suggestion and guidance I their respective sub ect. 2ate: 5 -lace: 5 0ours "aith"ully, ,amataSharma

Knowledge is of no use, unless you know to implement it! !"us # "$%e tried "$rd to implement my knowledge in t"is pro&e't.

This is to certi"y that ,s.,amta Sharma student o" -+2B&7,B& !irst 0ear 8II semester9, I'% +andhinagar, have satis"actorily completed her Summer Internship -ro ect at :Tata mutual "und3 as a partial !ul"illment o" her -+ -.(+.&, 8%lass 2;;<5;=9 and this is a genuine piece o" work to the best o" the Institute>s ?nowledge.

8,iss.4iral ,ehta9 %ompany +uide 2ate: 5

8,iss.,eha Shah9 !aculty +uide

( utual "unds play a vital role in resource mobiliAation and its e""icient allocation to the productive sectors o" the economic system. Throughout the world, these "unds have worked a reliable instrument o" change in the "inancial intermediation, development o" capital market sand growth o" the corporate sector. The process o" liberaliAation, deregulation and restructuring o" the Indian economy has created necessity "or e""icient allocation o" scarce "inancial resources. In this process o" development, mutual "unds have emerged strong "inancial intermediaries and are playing an important role I n

bringing stability to the "inancial system and e""iciency to the resource allocation process. .ecent capital market re"orms has "urther increased reliance o" the corporate sector on eBuity "inancing , thus entailing even greater scope "or the mutual "unds to e#pand and grow. ,utual "und is an institutional arrangement wherein savings o", millions o" investors are pooled together "or investment in a diversi"ied port"olio o" securities to spread risk and to ensure steady returns. It is a "inancial service organiAation that receives money "rom the shareholders, invests it, earns on it, attempts to make it grow and agrees to share prosperity with the shareholders. These "unds bring a wide variety o" securities within the reach o" the most modest o" the investors. It is essentially a mechanism o" pooling together savings o" large number o" investors "or collective investments with an approved ob ective o" attractive yields and appreciation in value. In this way it can be said that mutual "unds are collective investment scheme designed to provide bene"its o" diversi"ied investment port"olio and e#pert investment management. Investments are always made under various

conditions o" uncertainty. These uncertainties can be tackled through diversi"ication o" investments and "orecasting changes in the crucial economic variables and their impact on investment returns. 'o e""icient investment can be made without recurring costs relating to identi"ication o" investment opportunities, veri"ication and monitoring progress. & mutual "und can o""er economies o" search and veri"ication o" such investments due to its siAe and scale o" operations. It gathers and processes in"ormation, identi"ies strategies, invest "unds and monitors progress at a very low cost. To add value to the investments, mutual "und does undertake research "or "ormulation o" investment strategies. ,utual !unds have always attracted researchers "rom varied "ields. Their main ob ective remains to analyAe the per"ormance o" these "unds5 some do it at macro level i.e. the entire industry where as some do it at micro level i.e. inter scheme comparison to "ind out the best per"ormer. ,acro level, again, may be taking international market or ust a particular country. There have been studies right "rom 1D2;>s which resulted in to

the Sharpe>s ratio and there a"ter several other parameters to measure mutual "unds. The studies cover researches like economic measures, statistical measures, /a. comparisons, etc. Studies have been commissioned and conducted to investigate those phenomenons. Signi"icance o" the studies have proved evidence to support the contention that mutual "unds returns have been in"erior to that o" the broader benchmark market port"olio. 2espite this, it is curious to note that these "unds are still "looded with hard earned money o" investors. This is precisely what prompted and tempted several to undertake a study on the returns and per"ormance as a whole. &nd thus the Epresent study dwells on the risk5return e#amination o" mutual "unds with a view to e#amine it in terms o" theoretical models developed by Sharpe, Trenor and Fensen. +oing deeper into the study, it also makes the overall analysis o" the entire mutual "und industry with its respective benchmarks.




S. '(. 1. 2. $. 6. @. <. C. =. D. 2*T&I)S (rganiAation chart o" mutual "und &dvantage o" mutual "und Types o" schemes Investment pyramid %omparison ,kt share o" 1)ITable o" Investment proportion in Tata -&+* '(. $; $1 61 62 @; @=

in"rastructure Illustration: Sharp Inde#, '&/, &vg. <C,<=,<D,=$ .eturn, )ITable 1)I- v7s In"rastructure %omparision ,! v7s (ther investment =6 =@

1;. 11.

%ustomer pre"erence chart Sector &nalysis

D6 D@

'&/: 'et asset value 1)I-: 1nit link insurance plan &,%: &sset ,anagement %ompany &1,: &sset under management !,-: !i#ed maturity plan *)SS: *Buity link saving scheme


The fortunate do not make a fortune but he who makes a fortune is called fortunate.
,utual !und is the "und that pools the savings, which are then invested in capital market instruments such as shares, debentures and other securities. It works in a di""erent manner as compared to other savings organiAations such $s )$nks, n$tion$l s$%ing, post offi'e, non )$nking fin$n'i$l 'omp$nies et'. &s most i" not all capital market instruments have an element o" risk, it is very essential that the investors have a clear understanding o" how a mutual "und operates and what are its advantages as well as limitations. The understanding

has to be created in the investors by t"e distri)utors engaged in the market o" mutual "und products. The distributors should also be knowledgeable enough to answer "undamental and basic Buestions that will be raised by the investors. It is thus essential that those engage in marketing o" mutual "unds such $s indi%idu$l $gents, distri)utors 'omp$nies, )$nk e*e'uti%es $nd ot"ers have a comprehensive, clear and correct understanding o" the concept and working o" mutual "unds as well as essential operational and technical details. o Emergen'e of (utu$l +unds, ,utual "und now represents perhaps the most appropriate investment opportunity "or most investors. &s "inancial markets become more sophisticated and comple#, investors need a "inancial intermediary who provides the reBuired knowledge and pro"essional e#pertise on success"ul investing. It is no wonder then that in the birthplace o" mutual "unds5the "und industry has already overtaken the banking industry, more "unds being mutual "und management than deposited with banks.


The Indian mutual "und industry has started opening up many e#citing investment opportunities to Indian investors. 2espite the e#pected continuing growth in the industry, mutual "unds are still a new "inancial intermediary in India. 4ence, it is important that the investors, the mutual "und agents7distributors, the investment advisors and even the "und employees acBuire better knowledge o" what mutual "unds are, what they can do "or investors and what they can not, and how they "unction di""erently "rom other intermediaries such as the banks. o Emergen'e of -.#/, In this era o" globaliAation, we are witnessing innovations in "inancial engineering which results in the evolution o" a new set o" products in the insurance, banking and "inancial sector due to eBuities, ,utual !unds and 1nit )ink Insurance -lans. The growth o" these products, in the last 1; years has been one o" the most e#tra5ordinary and important "eatures o" the "inancial market plan. The advantage o" 1)I- is that since the investments are made "or long periods, the chances o" earning a decent return are high. Fust as in the case o" mutual "unds, buyers who are risk averse can buy into debt schemes while those who have an appetite "or risk can opt "or balanced or eBuity schemes.

4owever, the charges paid in these schemes in terms o" the entry load, administrative "ees, underwriting "ees, buying and selling charges and asset management charges are "airly high and vary "rom insurer to insurer in the Buantum as also in the manner in which they are charged. I have taken the survey about my ,T title and analyAed the Buestionnaire "or prepared to my report. &ccording to that I took the decision about customer>s pre"erence or my knowledge about the topic.

-urpose "or Taking This Title:
The core ob ective is to do a comparative study on 1)I/7ST&T& I'!.&ST.1%T1.* !1'2 with respect to 42!% B&'? G %ustomers opinion o" the both the product o" that knowledge.

S*%('2&.0 -1.-(S*:5
This title was "or me to understand the success"ul In"rastructure sector or Insurance sector and Banking (perations.


To know the reason behind the customers mind be"ore selecting a particular -roduct in particular scheme o" company. To understand the :Brand recall3 value o" the particular company. To understand the ,a or di""erent between the 1lip and ,utual "und. To under stand the current market situation is how to a""ect in the mutual "und and 1)I-.

&bout ,utual "und sector:

2i""erent investment avenues are available to investors. ,utual "unds also o""er good investment opportunities to the investors. )ike all investments, they carry certain risks. The investors should compare the risks and e#pected yields a"ter ad ustment o" ta# on various instruments while taking investment decisions. The investors may seek advice "rom e#perts and consultants including agents and distributors o" mutual "unds schemes while making investment decisions.

Hith an ob ective to make the investors aware o" "unctioning, o" mutual "unds, an attempt has been made to provide in"ormation in Buestion5answer "ormat which may help the investors in taking investment decisions. ,utual "und is a ,echanism "or pooling the resources by issuing units to the investors and investing "unds in securities in accordance with ob ectives as disclosed in o""er document. Investments in securities are spread across a wide cross5section and sectors thus the risk is reduced. 2iversi"ication reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. ,utual "und issues units to the investors in accordance with Buantum o" money invested by them Investors o" mutual "unds are known as unit holders. The pro"its or losses are shared by the investors in proportion to their investments. The mutual

"unds normally come out with a number o" schemes with di""erent investment ob ectives, which are launched "rom time to time. & mutual "und is reBuired to be registered with Securities and *#change Board o" India 8S*BI9 which regulates securities markets be"ore it can collect "unds "rom the public.

0istory of (utu$l +unds in #ndi$,


'istor! o% (utual %unds in )ndia


First to launc" #$en-ended %unds

3pril 22 -eak driven bull market

Mor an Stanle!

Private Sector Birla / Alliance

4ep 25 !II driven peak

Bear 4ug

1992-93 First
Private Sector

Public Sector Mutual Funds

($y 22 ,arket crashes a"ter the Scam and 1@ days broker>s Strike. 1uly 21 2r. ,anmohan Singh liberaliAes capital market by abolishing %ontroller o" %apital Issues )P# Mar*et +,uit!

/a- Brea*s

&urin t"e Bear P"ase First o$en-ended &ebt %und launc"ed

P"ases in t"e (ar*et

Fi-ed &e$osits

Mutual Funds .

/"$se 1.

61265789 -nit !rust of #ndi$.:

In 1D<$, 1TI was established by an &ct o" parliament and given a monopoly. (perationally, 1TI was set up by the .BI. But was later de linked "rom .BI the "irst, and still one o" the largest schemes launched by 1TI was 1nit Scheme <6. (ver the years, 1S <6 attracted and probably still have the largest number o" investors in any single

investment scheme. It was also at least partially the "irst open Iend scheme in the country. 'ow moving towards becoming "ully open5end. )ater in 1DC;s and =;s, 1TI started innovating and o""ering di""erent schemes to suit the needs o" di""erent classes o" di""erent investors. 1nit )inked Insurance -lan 81)I-9 was launched in 1DC1. Si# new schemes were introduced between 1D=1 and 1D=6. 2uring 1D=65=C, new schemes like children>s gi"t growth "und 81D=<9 and ,aster share 81D=C9 were launched. 1TI created to the demand "or income Ioriented schemes by launching ,onthly Income Schemes a some what unusual mutual "und o""ering :assured returns.3 The ,utual !und Industry in India not only started with 1TI, but still counts 1TI as its largest player with the largest corpus o" instable "unds among all mutual "unds currently operating in India. 1nit 1D=;>s 1TI>s operations in the stock market o"ten determined the directions o"


market movements. 'ow many Indian investors have taken to direct investing on stock markets. /"$se 2 612897122; Entry of pu)li' se'tor funds.: 1D=C ,arked the entry o" non I1TI, public sector mutual "unds, bringing in competition. Hith the opening up o" the economy, many public sector banks and "inancial institutions were allowed to establish mutual "unds. The SBI established the "irst non51TI ,utual "unds in 'ov, 1D=C. This was "ollowed by %an Bank ,utual "und in 2ec, 1D=C. )I% ,utual "und 81D=D9 and +I% ,! and Indian Bank ,!. The "und industry e#panded nearly C times in terms o" &sset under ,anagement. /"$se ; 6122;71226 Emergen'e of /ri%$te funds: & new era o" ,utual !und industry began with the permission granted "or the entry o" private sector "unds in 1DD$, giving the Indian investors a broader choice o" J"und "amilies> and increasing competition "or the e#isting public sector "unds. 2uring the year 1DD$5D6 "ive private sector mutual "und launched their schemes "ollowed by other si#. In 1DD6

5D@. Initially, the mobiliAation o" "unds by the private mutual "und was slow. But , this segment o" "und industry now has been witnessing much greater investor con"idence in them. (ne in"luencing "actor has been development o" a S*BI driven regulatory "ramework "or mutual "unds. Investors in India now clearly see the bene"its o" investing through mutual "unds and have started becoming selective. /"$se 5 61226 4E<# regul$tion for mutu$l funds: The entire mutual "und industry in India, despite initial hiccups, has since scaled new heights in terms o" mobiliAation o" "unds and number o" players. 2eregulations and liberaliAation o" the Indian economy has introduced competition and impetus to the growth o" the industry. !inally most investors Ismall or large Ihave started shi"ting towards mutual "unds as opposed to banks or direct market investments. ,ore investor>s "riendly regulatory measures have been taken both by S*BI to protect the investors and by the government to enhance investors> returns through ta# bene"its. & comprehensive set o" regulations "or all mutual "unds operating in India was

introduced with S*BI 8m"9 .egulations, 1DD<. These regulation set uni"orm standards "or all "unds and will eventually be applied in "ull to 1TI as well, even though 1TI is govern by its own 1TI &ct. In "act, 1TI has been voluntarily adopting S*BI guidelines "or most o" its schemes. Similarly the 1DDD 1nion +overnment Budget took a big step in e#empting all mutual "und dividends "rom income ta# in the hands o" investors. Both the 1DD< regulation and the 1DDD budget must be considered o" historic importance, given their "ar reaching impact on the "und industry and investors. 1DDD makes the beginning o" a new phase in the history o" the mutual "und industry in India, a phase o" signi"icant growth in terms o" both amounts mobiliAed "rom investors and assets under management. In !ebruary 2;;$, "ollowing the repeal o" the 1nit Trust o" India &ct 1D<$ 1TI was bi"urcated into two separate entities. (ne is the Speci"ied 1ndertaking o" the 1nit Trust o" India with assets under management o" .s.2D,=$@ crores as at the end o" Fanuary 2;;$,

representing broadly, the assets o" 1S <6 scheme, assured return and certain other schemes. The Speci"ied 1ndertaking o" 1nit Trust o" India, "unctioning under an administrator and under the rules "ramed by +overnment o" India and does not come under the purview o" the ,utual !und .egulations. The second is the 1TI ,utual !und )td, sponsored by SBI, -'B, B(B and )I%. It is registered with S*BI and "unctions under the ,utual !und .egulations. Hith the bi"urcation o" the erstwhile 1TI which had in ,arch 2;;; more than .s.C<,;;; crores o" assets under management and with the setting up o" a 1TI ,utual !und, con"orming to the S*BI ,utual !und .egulations, and with recent mergers taking place among di""erent private sector "unds, the mutual "und industry has entered its current phase o" consolidation and growth. &s at the end o" September, 2;;6, there were 2D "unds, which manage assets o" .s.1@$1;= crores under 621 schemes. Today in 2;;C there are $2 mutual "und assets under management companies are working under S*BI


regulatory act or many multinational invest ment companies are trying to come in to enter in Indian market. 10.;=rowt" in 3sset under ($n$gement +und

4tru'ture $nd 'onstituents.

4pe'i$l leg$l stru'tures of (utu$l +unds. ,utual !und has a uniBue structure not shared with other entities such as companies or "irms. It is important "or


employees and agents to be aware o" the special nature o" this structure, because it determines the rights and responsibilities o" the "und>s constituents like sponsors, trustees, custodians, trans"er agents and o" course the "und and the asset management company.8&,%9. The legal structure also drives the inter relationship between these constituents. 4tru'ture of (utu$l +und in #ndi$. )ike other countries, India has a legal "ramework within which mutual "unds must be constituted. 1nlike in the 1?, where two distinct Jtrust> and Jcorporate> structures are "ollowed with separate regulations, in India, open and closed "unds operate under the same regulatory structure, and are constituted along one uniBue structure Ias unit trusts. & mutual "und in India is allowed to issue open end and close end schemes under a common legal structure. There"ore, a mutual "und may have several di""erent schemes u under it.


The structure which is reBuired to be "ollowed by mutual "unds in India is laid down under S*BI 8,utual !und9 regulations, 1DD<. !"e +und 4ponsor. Sponsor is de"ined under S*BI regulations as any person who, acting alone or in combination with another body corporate, establishes a mutual "und. The sponsor o" a "und is akin to the promoter o" a company as he gets the "und registered with S*BI. The sponsor will "orm a trust and appoint a Board o" Trustees. The sponsor will also generally appoint an &sset ,anagement %ompany as "und managers. The sponsor, either directly acting through the Trustees, will also appoint a %ustodian to hold the "und assets. &ll these appointments are made accordance with S*BI regulations. &s per the e#isting S*BI regulations, "or a person to Buali"y as a sponsor, he must contribute at least 6;K o" the net worth o" the &,% and possess a sound "inancial track record over @ years prior to registration


(utu$l +und $s !rusts. & mutual "und in India is constituted in the "orm o" a public. Trust created under the Indian Trusts &ct, 1==2. The !und sponsor acts as the settler o" the Trust, contributing to its initial capital and appoints a Trustee to hold the assets o" the Trust "or the bene"it o" the unit holders, who are the bene"iciaries o" the Trust. The "und then invites to contribute their money in the common pool, by subscribing to :units3 issued by various schemes established by the trust, being the evidence o" their bene"icial interest in the "und. It should be understood that a mutual "und is ust :a pass5 through3 vehicle. 1nder the Indian Trusts &ct, the trust or the "und has no independent legal capacity itsel", rather it


is the trustees or who have the legal capacity and there"ore all acts in relation to the trust are taken on its behal" by the trustees. The Trustees hold the unit holder money in a "iduciary capacity.

!"e 3sset m$n$gement >omp$ny. 63(>:. The role o" an &,% is to act as the Investment ,anager o" the Trust. The sponsors o" the Trustees, i" so authoriAed by the Trust 2eed, appoint the &,%. The &,% so appointed is reBuired to be approved by S*BI. (nce approved , the &,% "unctions under the supervision o" its own Board (" 2irectors, &nd &lso under the direction o" the Trustees &nd S*BI. The Trustees are empowered to terminate the appointments o" the &,% by ma ority and a new &,% with the prior approval o" S*BI and unit holders. The &,% would, in the name o" the Trust, "loat and then manage the di""erent investment :schemes3 as per S*BI regulations and as per the investment management


agreement it signs with the Trustees.The &,% o" a mutual "und must have a net worth o" at least 1; crores at all times.

?rg$ni@$tion of $ (utu$l +und.

3d%$nt$ges of (utu$l +unds


!"e $d%$nt$ges of in%esting in $ (utu$l +und Di%ersifi'$tion: The best mutual "unds design their port"olios so individual investments will react di""erently to the same economic conditions. !or e#ample, economic conditions like a rise in interest rates may cause certain securities in a diversi"ied port"olio to decrease in value. (ther securities in the port"olio will respond to the same economic conditions by increasing in value. Hhen a port"olio is balanced in this way, the value o" the overall port"olio should gradually increase over time, even i" some securities lose value. /rofession$l ($n$gement:


,ost mutual "unds pay top"light pro"essionals to manage their investments. These managers decide what securities the "und will buy and sell. Aegul$tory o%ersig"t: ,utual "unds are sub ect to many government regulations that protect investors "rom "raud. .iBuidity: ItLs easy to get your money out o" a mutual "und. Hrite a check, make a call, and youLve got the cash. >on%enien'e: 0ou can usually buy mutual "und shares by mail, phone, or over the Internet =ood Aeturn +le*i)ility 10.5Dr$w)$'ks of (utu$l +unds, ,utual "unds have their drawbacks and may not be "or everyone: No =u$r$ntees:


'o investment is risk "ree. I" the entire stock market declines in value, the value o" mutual "und shares will go down as well, no matter how balanced the port"olio. Investors encounter "ewer risks when they invest in mutual "unds than when they buy and sell stocks on their own. 4owever, anyone who invests through a mutual "und runs the risk o" losing money.

+ees $nd 'ommissions: &ll "unds charge administrative "ees to cover their day5to5 day e#penses. Some "unds also charge sales commissions or MloadsM to compensate brokers, "inancial consultants, or "inancial planners. *ven i" you donLt use a broker or other "inancial adviser, you will pay a sales commission i" you buy shares in a )oad !und. !$*es:


2uring a typical year, most actively managed mutual "unds sell anywhere "rom 2; to C; percent o" the securities in their port"olios. I" your "und makes a pro"it on its sales, you will pay ta#es on the income you receive, even i" you reinvest the money you made. ($n$gement risk: Hhen you invest in a mutual "und, you depend on the "undLs manager to make the right decisions regarding the "undLs port"olio. I" the manager does not per"orm as well as you had hoped, you might not make as much money on your investment as you e#pected. (" course, i" you invest in Inde# !unds, you "orego management risk, because these "unds do not employ managers.

!3C !AE3!(EN! ?+ (-!-3. +-ND4, & mutual "und is in essence a way "or investors to pool their money together "or investment purposes. &lthough you can make deposits as well as withdrawals "rom a mutual "und, it is a mistake to look at it as a glori"ied bank

account. That is because when you deposit money into a mutual "und account, you are actually purchasing stock in the mutual "und, not simply dropping your money into a bank account to accumulate some interest. By investing in a mutual "und, you own shares o" stock in a company that in turn owns the investments. Income "rom this "und will produce dividends, not interest. This di""erence changes the way you report income when it comes to your ta#es. ?eep in mind that when you withdraw money "rom a mutual "und that you are essentially selling mutual "und stock. This is important because when you take money out o" a mutual "und, it is considered a sale o" stock and there"ore you are reBuired to report a sale on your ta# return. Hhen you withdraw money "rom a bank account, the interest incurred is ta#ed be"ore it goes into your account and you do not have to report anything on your ta# return. ThatLs a big di""erence "rom a mutual "und withdrawal. I" your mutual "und is part o" a "amily o" mutual "unds that are under related management and you

can move money "rom one account to another, do not be misled in believing that you are simply trans"erring money "rom one account to another within a single company. This is not the case. These trans"ers are actually ta#able sales because when you trans"er money "rom one account to another, you are selling one "und and buying one "und. This means that i" the value o" your shares in the "irst "und had increased while you were in possession o" them, you will be reBuired to report a capital gain on the sale on your ta# return. (n a more upbeat note, some types o" dividend on mutual "unds are not ta#able as ordinary income as dividend on regular stocks is. Special rules "or mutual "unds permit the ta# treatment o" certain types o" income to "low through to the shareholders. I" your mutual "und has a long5term capital gain, you get to report this as capital gain on your ta# return. 4owever, i" your mutual "und has a short5term gain, the dividend is treated as ordinary income.


&ny distribution o" money you receive "rom a mutual "und is usually a capital gain distribution, an e#empt interest dividend, nonta#able return o" capital, or an ordinary dividend. 1. &n ordinary dividend is paid out to you "rom its earnings and pro"its. It is reported as dividend income on your ta# return. 2. %apital gain distributions are long term net realiAed capital gains "rom the "und. The money is based on pro ections o" how well the "und would do. 0ou report them as long term capital gain on your ta# return regardless o" the amount o" time you have had ownership o" the "unds. & small part o" this is undistributed capital gains. These are like a ghost income, you never have it in your hands but you have to pay ta#es on it anyway. 0ou can claim these as a ta# credit on your return because you are considered to have paid them. $. *#empt interest dividend is paid "rom ta# e#empt interest earned by the mutual "und. 4ence, you do not have


to pay ta#es on this dividend, but you must report it nevertheless. 6. Hhen you receive money out o" your mutual "und that is not part o" the earnings or pro"its but is part o" your investment, it is called a nonta#able return o" capital. The money is ta# "ree because that was part o" your principal in the "und. This reduces your basis in the mutual "und. *ven when the basis becomes Aero, you must report it on your ta# return as capital gain.

!D/E4 ?+ A#4K, .isk is an inherent aspect o" every "orm o" investment. !or mutual "und investments, risks would include variability, or period5by5period "luctuations in total return. The value o" the schemeLs investments may be a""ected by "actors a""ecting capital markets such as price and volume volatility in the stock markets, interest rates, currency e#change rates, "oreign investment, changes in government policy, political, economic or other developments.


($rket Aisk, &t times the prices or yields o" all the securities in a particular market rise or "all due to broad outside in"luences. Hhen this happens, the stock prices o" both an outstanding, highly pro"itable company and a "ledgling corporation may be a""ected. This change in price is due to Mmarket risk.3 #nfl$tion Aisk, Sometimes re"erred to as Mloss o" purchasing power.M Hhenever the rate o" in"lation e#ceeds the earnings on your investment, you run the risk that youLll actually be able to buy less, not more.

>redit Aisk, In short, how stable is the company or entity to which you lend your money when you investN 4ow certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment maturesN


#nterest A$te Aisk, %hanging interest rates a""ect both eBuities and bonds in many ways. Bond prices are in"luenced by movements in the interest rates in the "inancial system. +enerally, when interest rates rise, prices o" the securities "all and when interest rates drop, the prices increase. Interest rate movements in the Indian debt markets can be volatile leading to the possibility o" large price movements up or down in debt and money market securities and thereby to possibly large movements in the '&/. #n%estment Aisks, In the sectoral "und schemes, investments will be predominantly in eBuities o" select companies in the particular sectors. &ccordingly, the '&/ o" the schemes are linked to the eBuity per"ormance o" such companies and may be more volatile than a more diversi"ied port"olio o" eBuities. .iBuidity Aisk,


Thinly traded securities carry the danger o" not being easily saleable at or near their real values. The "und manager may there"ore be unable to Buickly sell an illiBuid bond and this might a""ect the price o" the "und un"avorably. )iBuidity risk is characteristic o" the Indian "i#ed income market.


#nform$tion of $ (utu$l +und s'"emes, .o$d or no7lo$d +und, & )oad !und is one that charges a percentage o" '&/ "or entry or e#it. That is, each time one buys or sells units in the "und, a charge will be payable. This

charge is used by the mutual "und "or marketing and distribution e#penses. Suppose the '&/ per unit is ..s. 1;. I" the entry as well as e#it load charged is 1K, then the investors who buy would be reBuired to pay ..s. 1;.1; and those who o""er their units "or repurchase to the mutual "und will get only .s.D.D; per unit. The investors should take the loads into consideration while making investment as these a""ect their yields7returns. 4owever, the investors should also consider the per"ormance track record and service standards o" the mutual "und which are more important. *""icient "unds may give higher returns in spite o" loads.

& no5load "und is one that does not charge "or entry or e#it. It means the investors can enter the "und7scheme at '&/ and no additional charges are payable on purchase or sale o" units.


3ssured return s'"eme, &ssured return schemes are those schemes that assure a speci"ic return to the unit holders irrespective o" per"ormance o" the scheme. & scheme cannot promise returns unless such returns are "ully guaranteed by the sponsor or &,% and this is reBuired to be disclosed in the o""er document. Investors should care"ully read the o""er document whether return is assured "or the entire period o" the scheme or only "or a certain period. Some schemes assure returns one year at a time and they review and change it at the beginning o" the ne#t year. ?ffer do'ument, &n abridged o""er document, which contains very use"ul in"ormation, is reBuired to be given to the prospective investor by the mutual "und. The application "orm "or subscription to a scheme is an integral part o" the

o""er document.

S*BI. 4as prescribed minimum &n investor, be"ore

disclosures in the o""er document

investing in a scheme, should care"ully read the o""er document. 2ue care must be given to portions relating to main "eatures o" the scheme, risk "actors, initial issue e#penses and recurring e#penses to be charged to the scheme, entry or e#it loads, sponsorLs track record, educational Buali"ication and work e#perience o" key personnel including "und managers, per"ormance o" other schemes launched by the mutual "und in the past, pending litigations and penalties imposed, etc Net 3sset E$lue 6N3E: , The per"ormance o" a particular scheme o" a mutual "und is denoted by 'et &sset /alue 8'&/9.,utual "unds invest the money collected "rom the investors, in securities markets. In simple words, 'et &sset /alue is the market value o" the securities held under the scheme. Since market value o" securities changes every day, '&/ o" a scheme also varies on day to day basis. The '&/ per unit, is the market value o" securities o" scheme divided by the

total number o" units o" the scheme on any particular date. !or e#ample, i" the market value o" securities o" a mutual "und scheme is .s.2;; lakhs and the mutual "und has issued 1; lakhs units at .s.1; each to the investors, then the '&/ per unit o" the "und is .s. 2;. '&/ is reBuired to be disclosed by the mutual "unds on a regular basis 5 daily or weekly 5 depending on the type o" scheme

0istory $)out #nsur$n'e 4e'tor,

The Indian insurance industry is segmented into two distinct markets: the li"e insurance market and the non5li"e, or general, insurance market. The history o" li"e insurance in India can be traced "rom 1=1=. Some o" the important milestones in the li"e insurance business in India are: 1@=$: 5 The "irst insurance policy was issued in *ngland. 1=C;: Bombay ,utual )i"e &ssurance Society, the "irst Indian li"e insurance company stated its business. 1=C6: (riental )i"e Insurance %ompany, the "irst li"e insurance company on Indian soil started "unctioning. 1D12: The Indian )i"e &ssurance %ompany &ct enacted as the "irst statute to regulate the li"e insurance business. 1D2=: The Indian Insurance %ompanies &ct enacted to enable the government to collect statistical

in"ormation about both li"e and non5li"e insurance businesses. 1D$=: 5 *arlier legislation consolidated and amended to by the Insurance &ct with the ob ective o" protecting the interests o" the insuring public. 1D@<: 5 26@ Indian and "oreign insurers and provident societies are taken over by the central government and nationaliAed. )I% "ormed by an &ct o" parliament, viA. )I% &ct 1D@<, with a capital contribution o" .s. @; million "rom the +overnment o" India.

F"en is t"e )est time to )uy unit7linked pl$nsG The ideal time to buy a unit5linked plan is when one can e#pect long5term growth ahead. This is especially so i" one also believes that current market values 8stock valuations9 are relatively low. BS)I has given superior returns on all its investment "unds. 3d%$nt$ges of unit7linked pl$ns, 1nit5linked plans en oy several advantages. They are: Simple, clear and easy to understand Transparent and visible "or customers to take decisions !le#ible and adaptable -uts the policyholder in control -olicyholder gets the entire upside on the per"ormance o" his "und

4igh growth 2iversi"ication is there so there is a less chances "or a low interest. .isk coverage is there so we can say that there is a very insurance coverage bene"it is given to us. Insurance is also comes under the eBuity or govt.bonds so good returns are also there. Besides all the advantages they o""er to the customers, unit5linked plans also lead to an e""icient utiliAation o" capital.

>03A=E4 3AE #N -.#/, +irst7ye$r '"$rges: 1sually, a minimum o" 1@ per cent. 4owever, high premiums attract lower charges and vice versa. %harges can be as high as @; per cent i" the scheme a""ords a lot o" "le#ibility. 4u)seBuent '"$rges: 1sually lower than "irst5year charges. 4owever, some insurers charge higher "ees in the initial years and lower them signi"icantly in the subseBuent years. 3dministr$tion '"$rges, This ranges between .s 1@ per month to .s <; per month and is levied by cancellation o" units.


Aisk '"$rges, The charges are broadly comparable across insurers. 3sset m$n$gement fees, !und management charges vary "rom ;.< per cent to ;.C@ per cent "or a money market "und, and around 1.@ per cent "or an eBuity5oriented scheme. !und management e#penses and the brokerage are built into the daily net asset value. 4wit'"ing '"$rges, Some insurers allow "our "ree switches in every year but link it to a minimum amount. (thers allow ust one "ree switch in each year and charge .s 1;; "or every subseBuent switch. Some insurers donLt charge anything. !op7ups, 1sually attracts 1 per cent o" the top5up amount. Top5up normally goes directly into your investment account 8units9 unless you speci"ically ask "or an increase in the risk cover. 4urrender %$lue of units, Insurers levy certain charges i" the policy is surrendered prematurely. This levy varies between insurers and could be around C@ per cent in the "irst year, <; per cent in the second year, 6; per cent in the third year and nil a"ter the "ourth year. *very year, in the year 2;;@5;< private insurers had a total market share o" 2DK v7s C1K o" )I%. ,arket share 2;;@52;;< )I% C1K -rivate 2DK

M ar*e t S"are

Private, 29% LIC Private LIC, 71%

!3C !AE3!(EN! ?+ #NEE4!(EN!4 #N -.#/ !$* !re$tment, Ta#ation o" income, i" any, and capital appreciation, i" realiAed, under the plan will be sub ect to prevalent ta# laws. & ta# rebate o" 2;K on the contribution amount is available under section == o" the Income Ta# &ct, 1D<1 sub ect to a ma#imum investment o" .s.<;,;;;75 and a ma#imum ta# rebate o" .s.12,;;;75 p.a. In case o" withdrawal "rom the plan without contributing "or a minimum period o" @ years, the aggregate amount o" the deductions o" income5ta# so allowed in respect o" the previous year or years preceding such previous year, shall be deemed to be ta# payable by the assessee in the assessment year relevant to such previous year and shall

be added to the ta# on the total income o" the assesses with which he is chargeable "or such assessment year. The ta# rebate "or contribution is available to sel", one>s spouse and7or children. 4owever, in the case o" an individual, whose income is derived "rom the e#ercise o" his pro"ession as an author, playwright, artist, musician, actor or sportsman 8including an athlete9, such investor can invest up to .s.C;,;;;75 in the speci"ied investments such as units o" 1)I-,.B-, etc. Such individuals will be entitled to get a ta# rebate eBual to 2@K o" their investment in such approved schemes7plans. Thus, the ma#imum rebate allowed under section == o" the Income Ta# &ct, 1D<1 to such individuals is .s.1C,@;;75 per year. Investments by '.Is will Buali"y o" rebate under section == o" the Income ta# &ct 1D<1, i" the investment is made "orm income chargeable to ta# in India. %urrently income, i" any, received by all the categories o" investors under all schemes7plans o" the Trust is totally "ree "rom ta# under Section 1; 8$$9 o" the Income Ta# &ct, 1D<1.

1nder the current ta# laws, there is no deduction o" ta# at source by the Trust, "or all the investors, irrespective o" the amount7income received by the investor "rom the scheme. &s per !inance Bill 2;;;, the plan is reBuired to pay an income distribution ta# at the rate o" 2;K and surcharge o" 1;K thereon under Section 11@. o" the Income Ta# &ct, 1D<1 on the


amount o" income distributed, i" any, by it.


Tata ,utual !und manages around .s. 2;, @1C.<< crores 8as on September $;, 2;;C9 worth o" assets across its varied o""erings. Tata ,utual !und o""ers an investment option "or everyone, whether you are a businessman or salaried pro"essional, a retired person or housewi"e, an aggressive investor or a conservative capital builder. The Tata &sset ,anagement philosophy is centered on seeking consistent, long5term results. Tata &sset ,anagement aims at overall e#cellence, within the "ramework o" transparent and rigorous risk controls. Their purpose at the Tata +roup is to improve the Buality o" li"e o" the communities they serve. They do this by attaining leadership positions in sectors o" national economic signi"icance, to which the +roup brings a uniBue set o" capabilities. This reBuires us to grow aggressively in "ocused areas o" business. Their heritage o" returning to society what we earn evokes trust among consumers, employees, shareholders and the community. It is an ongoing process, continuously


enriched by the "ormaliAation o" the high standards o" behavior that they e#pect "rom employees and companies. Identi"ying and de"ining customer>s "inancial goals, they now need to plan "or each o" them in an organiAed and a pro"essional way. Investment e#perts around the world advise instruments like eBuity "unds and stocks "or long5 term 8more than @ years9, income "unds "or medium5term and liBuid "unds "or short5term needs.

The investment matri# here depicts the entire available variety o" investment options. Those at the top provide "or a greater opportunity "or long5term capital growth while those at the bottom take care o" current income and reasonable return G liBuidity. Tata ,utual !und o""ers a wide range o" "unds "or di""erent investment instruments designed to cater to your individual pro"ile and li"e5stage.


&s this is presently the mid way o" my management thesis I would like to divide it in two parts namely -art & "or past and -art B "or !uture. PART A I started my work on this topic nearly one month a"ter my summer internship pro ect started. I would do the break5up "or the ne#t three months. 2nd ,onth o" SI-: 5 2uring this period I thoroughly understood the topic allotted to me. !or this I re"erred to some o" the pro ects made by my seniors. Started collecting secondary data. $rd ,onth o" SI-: 5 2uring this period I started collecting some secondary data "rom web5sites. I got to understand the working o" ,utual

"und channel. I also re"erred to the newsletters and the books relating to ,utual "und or Insurance. 6th ,onth o" SI-: 5 2uring this period I will met the %ustomers and also met the insurances people o" di""erent companies.

!3!3 #N+A3 4!A->!-AE +-ND,

Investors are investments in Tata In"rastructure !und, it is a theme "und. It has generated a return o" 11 per cent "or the past year. It is well per"orming "und as compared other diversi"ied eBuity "und. Tata in"rastructure is the "und who "irstly come with in"rastructure concept. Thematic "unds carry a higher risk pro"ile than diversi"ied "unds as they take concentrated bets in speci"ic sectors and stocks. Tata In"rastructure, however, has a higher e#posure to large5cap stocks, with close to <; per cent o" the assets

invested in stocks with a market capitaliAation above ..s @,;;; crore. This may help reduce volatility in returns compared to port"olios with a higher mid5cap e#posure. The in"rastructure sector plays an important role in +2growth and private as well as public spending on in"rastructure is set to grow at a rapid pace. This may create attractive investment options "or the "und in the in"rastructure space. 4owever, given the nature o" in"rastructure stocks, this "und is suitable "or investors ready to wait a considerable time to reap the bene"its. Those investing in thematic "unds should "irst understand the theme and the risk pro"ile o" such "unds. &ny change in +overnment regulations could a""ect returns in the short term. +.(HT4 ST(.0 (! I'!.&ST.1%T1.* !1'2: &s populations grow across the world and countries begin to adopt a "ree market economy, natural growth "orces start driving economic prosperity. This economic prosperity then drives people to aspire "or better Buality o" li"e, which in turn leads companies to aspire "or higher business growth to service these aspirations. To support higher growth and better Buality o" li"e, the need "or Buality in"rastructure comes to the "ore. The wheel o" any economy move on its in"rastructure.India is a growing economy and there is huge demand "or in"rastructure. So, these companies are likely to see e#emplar growth. Indeed, this is right. The investor, are e#posing yoursel" to a high risk by investing in the sector.


/erform$n'e: Tata In"rastructure !und has returned 61 per cent since inception on a compounded annualiAed basis and outpaced the benchmark Sense# by $ percentage points the last year. >ompetiti%e fund, 1TI In"rastructure 2S-,) T.I.+.*.. -ruI%I%I In"rastructure SBI In"rastructure.

T4* I'/*ST,*'T -.*-(.TI(' I' T&T& I'!.&ST.1%T1.* !1'2 :

-roportionOO 8K o" !unds &vailable 7 'et &ssets9 K o" !unds .isk Instrument &vailable -ro"ile ,inimum,a#imum *Buity G eBuity related instruments o" companies in C; 1;; 4igh In"rastructure sector 2ebt and ,oney ,arket )ow to ; $; instrumentsO ,edium


!I.ST -.I'%I-)*S:
&s investment vehicle go, ,utual !unds are uniBue, being the only to operate on the principle o" pooling resources. The element o" novelty e#tends to their working also, in the kind o" investment e#posures they o""er, the terms they use, the norms "or pricing they "ollow, and lots mort. These character trails will unravel through the course o" this book. !or starters, here are some basic principles on which a "und operates. S%4*,*S: (-*'5*'2*27%)(S*25*'2

Based on the accessibility they provide investors, ,utual !und schemes can be classi"ied into Jopen5ended> and Jclosed5end. (pen5ended schemes, as their name suggests, don>t have "i#ed tenure and are always open "or investment. 0ou can invest in them anytime. Same "or


withdrawals. This ease o" entry and e#it makes them the popular choice among both ,utual !unds and investors. %losed5end schemes, on the other hand, are o" a "i#ed tenure, which is stated at the time o" this birth itsel". Such schemes invites subscription only once during their li"etime, at the time o" launch. !urther, you can sell your units in the market 8most closed5end schemes are listed on stock e#changes9 but it>s unlikely you will realiAe a "air price, as most closed5end schemes trade at prices below their true value and have low liBuidity. That>s why closed5 end schemes are now a dying breed and open5ended ones the standard. The "ew closed5end schemes still around o""er to redeem units at prices close to their underlying value. 1'IT: ,utual !und issues Junits> against investment. & unit is the currency o" a "und. Hhat a share is to a company, a unit is to "und.

'*T &SS*T /&)1* 8'&/9 : 0ou are allotted units on the basis o" a scienti"ic pricing mechanism. This price, measured per unit, is called the net asset value o" the unit. Fust as a share or bond is bought and sold at a price, a ,utual !und is bought and sold at its

'&/. The '&/ o" any schemes tells how much each unit o" it is worth at any point in time, and is there"ore the simplest measure o" how it is per"orming. & scheme>s '&/ is its net asset 8market value o" the securities it owns minus whatever it owes9 divided by the number o" units it has issued. & scheme>s '&/ is a dynamic "igure. The market value o" a schemes port"olio changes "rom day to day, as rice o" shares and bonds move up or down. The number o" units outstanding also changes, as new investors come into the scheme and old one leave. !und houses have to calculate, and disclose, the '&/ o" their schemes daily. !und '&/ can be easily looked5up. Hhile the general dailies give a random listing o" schemes, the "inancial papers are more e#haustive in their coverage. '&/ in"ormation is also available on websites, o" the ,utual !und concerned and o" independent data providers. Hhen invested in a scheme, its '&/ is the "igure to track. &s it Buanti"ies your returns, and your purchase price and sale price will based on it. LOAD: &lthough the '&/ represents a scheme>s current market value, it is not nor the e#act price at which an investor enters or e#it the scheme. !und houses levy a nominal charge, on most o" their schemes, to meet their processing costs and to discourage investors "orm leaving. This chare is re"erred to as Jload> and it is the

price you pay over and above the "und>s '&/ when you but or sell units. 0ou pay an entry load at the time o" buying units and an e#it load while selling. )oads an always e#pressed as a percentage o" the '&/.. EXPENSES: &nother entry hat eats into your returns is Je#penses>. This is what your "und charges you "or managing your money. !und managers have to be paid a "ee as do then other constituents involved in managing your money. &ll this entails costs, which your scheme recovers "rom you, within limits. *very year, a "und charges some amount to your scheme>s '&/ reducing your returns by that amount. S*BI rules allow eBuity schemes to charge a ma#imum o" 2.@K o" corpus as e#penses every yearP the corresponding "igure "or debt schemes is 2.2@K. S*BI also decides what kind o" e#penses a "und can charge its unit holders and what it cannot. (r to bare the e#penses o" e#it load 1K i" redeemed within < months "rom date o" allotment. Investment pattern: !or "resh investment ..S.@,;;; and in multiples o" ..S 1 therea"ter. REDEMPTION: Hhenever you want, you can sell your units, partly or "ully, back to your "und. &lthough it>s a sale "rom your point o" view, in ,utual "und parlance, it is called Jrepurchase> or Jredemption>. 0ou will have to "ill u

another short and simple "orm. 0our ,utual !und will pay you the scheme>s '&/ prevailing on that date minus the e#it load, and mail you a cheBue within one to "ive days. .eturn alone should not be considered as the basis o" measurement o" the per"ormance o" a mutual "und scheme, it should also include the risk taken by the "und manager because di""erent "unds will have di""erent levels o" risk attached to them. .isk associated with a "und, in a general, can be de"ined as variability or "luctuations in the returns generated by it. !"e "ig"er t"e flu'tu$tions in t"e returns of $ fund during $ gi%en period, "ig"er will )e t"e risk $sso'i$ted wit" it. !"ese flu'tu$tions in t"e returns gener$ted )y $ fund $re result$nt of two guiding for'es. +irst, general market "luctuations, which a""ect all the securities, present in the market, called m$rket risk or system$ti' risk and se'ond, "luctuations due to speci"ic securities present in the port"olio o" the "und, called unsystem$ti' risk. The Total Risk o" a given "und is sum o" these two and is measured in terms o" standard deviation o" returns o" the "und. Systematic risk,

on the other hand, is measured in terms o" Beta, which represents "luctuations in the '&/ o" the "und vis5Q5vis market. The more responsive the '&/ o" a mutual "und is to the changes in the marketP higher will be its beta. Beta is calculated by relating the returns on a mutual "und with the returns in the market. Hhile unsystematic risk can be diversi"ied through investments in a number o" instruments, systematic risk can not. By using the risk return relationship, we try to assess the competitive strength o" the mutual "unds vis5Q5vis one another in a better way. The sub ect received serious attention "rom 4arry ,arkovitA with his innovative contribution which completely revolutioniAed the thinking on the issue. It is also credited with genius o" !ama, Sharpe, Treynor and Fensen whose contribution has still been considered path breaking. These contributions have widely received acknowledgement both by academicians as well as practioners a. SubseBuent studies crystalliAed discussions on the sub ect with added re"inement, up gradation and

e#tension o" dimensions in these earlier contributions owing to mechanical advances in computing. Since then, it has undergone improvements and innovations in methodology which substantially reduced Buantum o" data input reBuired "or the per"ormance appraisal o" managed port"olios. It is commonly believed that empirical evidence on the mutual "und per"ormance con"irms original version o" the so5called e""icient market theory, and that e#penditure on research and analysis is wasted in such market where prevailing security prices contain all the in"ormation. This impression is attributable to two 1D<;>s studies by Sharpe and Fensen, which showed that mutual "unds underper"ormed common market indices. Taken as a whole, the results based on these studies are contradictory in the sense that some supported e""icient market theory while others were "ound inconsistent with the hypothesis that "und>s "ees and e#penses are wasted. This part o" the pro ect attempts to review most prominent studies on investment per"ormance in the mutual "und industry till date.

In order to determine the risk5ad usted returns o" investment port"olios, several eminent authors have worked since 1D<;s to develop composite per"ormance indices to evaluate a port"olio by comparing alternative port"olios within a particular risk class. The most important and widely used measures o" per"ormance are: 403A/E (?DE., !"e 4"$rpe (e$sure,The most prominent study was conducted by Sharpe 81D<<9 to develop a composite measure that considers return and risk and evaluated per"ormance o" $6 open ended mutual "unds during the period 1D665<$ by the measure so developed. 4e "ound the per"ormance o" 11 "unds superior to that o" the 2FI& inde#. 4is reward variability ratio "or each "und was signi"icantly less than the same measure applied to the 2FI& over the period 1D@65<$. Based on this evidence Sharpe concluded that average mutual "und per"ormance was distinctly in"erior to an investment in the 2FI&. &n analysis o" the relationship between "und per"ormance and

its e#pense ratio indicated that good per"ormance was associated with low e#pense ratio. (n the other hand, only a low relationship was discovered between siAe and per"ormance. 'otably there was some consistency in the risk measure over time "or alternativeRe "unds. In this model, per"ormance o" a "und is evaluated on the basis o" Sharpe .atio, which is a ratio o" returns generated by the "und over and above risk "ree rate o" return and the total risk associated with it. &ccording to Sharpe, it is the total risk o" the "und that the investors are concerned about. So, the model evaluates "unds on the basis o" reward per unit o" total risk. Symbolically, it can be written as:

4"$rpe #nde* 64i: H 6Ai 7 Af:I4i Hhile a high and positive Sharpe .atio shows a superior risk5ad usted per"ormance o" a "und, a low and negative Sharpe .atio is an indication o" un"avorable per"ormance.


.#(#!3!#?N4 , Such a single "actor model however assumes that a "und>s investment behavior can be appro#imated using only a single market inde#, "or instance the SG- @;; "or the 1nited States. It does however not account "or non5SG- @;; holdings, like "or instance small cap stocks.

+-$ected 3eturns 24 24

St0"i "er1 S"ar$e2s 3atio St0lo5er1 S"ar$e2s 3atio

3is* Free 3eturn


Standard &eviation


N3E, (ne o" the most popular ways o" measuring managements per"ormance is by comparing the yields o" the managed port"olio with that o" the market or with a random port"olio.
N3Et J Dt N3Et71 771

Hhere: '&/t : per share net asset value at the end o" year t 2t : the total o" all distributions5both income and capital gains5per share during year t '&/t51: per share net asset value at eh end o" the previous year.


3EEA3=E AE!-AN &verage return is obtained by taking the simple mean o" the monthly stream o" returns generated which is then multiplied by 12 to e#press it on annual basis and is e#pressed in percentage which re"lects rate and direction o" change in the investment during the given period
3- 7 3-183-28999:83-n n ; 12/no: o% (ont"s

-nderst$nding Eol$tility (e$surements of (utu$l +unds Hhen considering a "undLs volatility, an investor may "ind it di""icult to decide which "und will provide the optimal risk5reward combination. ,any websites provide various volatility measures "or mutual "unds "ree o" chargeP however, it can be hard to know not only what the "igures mean but also how to read them. !urthermore, the relationship between these "igures is not always obvious. These are the "our most common volatility

measures applied in the type o" risk analysis based on modern port"oliotheory.

?ptim$l /ortfolio !"eory $nd (utu$l +unds, (ne e#amination o" the relationship between port"olio returns and risk is the effi'ient frontier, a curve that is a part o" the modern port"olio theory. The curve "orms "rom a graph plotting return and risk indicated by volatility, which is represented by standard deviation. &ccording to the modern port"olio theory, "unds lying on the curve are yielding the ma#imum return possible given the amount o" volatility.


'otice that as standard deviation increases, so does the return. In the above chart, once e#pected returns o" a port"olio reach a certain level, an investor must take on a large amount o" volatility "or a small increase in return. (bviously port"olios that have a risk7return relationship plotted "ar below the curve are not optimal as the investor is taking on a large amount o" instability "or a small return. To determine i" the proposed "und has an optimal return "or the amount o" volatility acBuired, an investor needs to do an analysis o" the "undLs standard deviation. 'ote that the modern port"olio theory and volatility are not the only


means investors use to determine and analyAe risk, which may be caused by many di""erent "actors in the market. 'ot all investors there"ore evaluate the chance o" losses the same way55things like risk tolerance and investment strategy will a""ect how an investor views his or her e#posure to risk.

4t$nd$rd De%i$tion,

& "und that has a consistent "our5year return o" $K, "or e#ample, would have a mean, or average, o" $K. The standard deviation "or this "und would then be ; because the "undLs return in any given year does not di""er "rom its "our5year mean o" $K. (n the other hand, a "und that in each o" the last "our years returned @K, 1CK, 2K, and $;K will have a mean return o" 11K. The "und will also e#hibit a high standard deviation because each year the return o" the "und di""ers "rom the mean return. This "und is there"ore more risky because it "luctuates widely between negative and positive returns within a short period. & note to remember is that, because volatility is only one indicator o" the risk a""ecting a security, a stable past per"ormance o"

a "und is not necessarily a guarantee o" "uture stability. Since un"oreseen market "actors can in"luence volatility, a "und that this year has a standard deviation close or eBual to Aero may behave di""erently in the "ollowing year. To determine how well a "und is ma#imiAing the return received "or its volatility, you can compare the "und to another with a similar investment strategy and similar returns. The "und with the lower standard deviation would be more optimal because it is ma#imiAing the return received "or the amount o" risk acBuired. %onsider the graph given on the previous page. Hith the SG- @;; !und B, the investor would be acBuiring a larger amount o" volatility risk than necessary to achieve the same returns as !und &. !und & would provide the investor with the optimal risk7return relationship.


Hhile standard deviation determines the volatility o" a "und according to the disparity o" its returns over a period o" time, beta, another use"ul statistical measure, determines the volatility, or risk, o" a "und in comparison to that o" its

inde# or benchmark. & "und with a beta very close to 1 means the "undLs per"ormance closely matches the inde# or benchmark55a beta greater than 1 indicates greater volatility than the overall market, and a beta less than 1 indicates less volatility than the benchmark. I", "or e#ample, a "und has a beta o" 1.;@ in relation to the SG@;;, the "und has been moving @K more than the inde#. There"ore, i" the SG- @;; increased 1@K, the "und would be e#pected to increase 1@.C@K. (n the other hand, a "und with a beta o" 2.6 would be e#pected to move 2.6 times more than its corresponding inde#. I" the SG- @;; moved 1;K, the "und would be e#pected to rise 26K, and, i" the SG- @;; declined 1;K, the "und would be e#pected to lose 26K.Investors e#pecting the market to be bullish may choose "unds e#hibiting high betas, which increase investorsL chances o" beating the market. I" an investor e#pects the market to be bearish in the near "uture, the "unds that have betas less than 1 are a good choice because they would be e#pected to decline less in value than the inde#. !or e#ample, i" a "und had a beta o" ;.@ and the SG- @;; declined <K, the "und would be e#pected to

decline only $K. Be aware o" the "act that beta by itsel" is limited and can be skewed due to "actors o" other than the market risk a""ecting the "undLs volatility.



A74Bu$red 6A2:,

The .5sBuared o" a "und advises investors i" the beta o" a mutual "und is measured against an appropriate benchmark. ,easuring the correlation o" a "undLs movements to that o" an inde#, .5sBuared describes the level o" association between the "undLs volatility and market risk, or more speci"ically, the degree to which a "undLs volatility is a result o" the day5to5day "luctuations e#perienced by the overall market. .5sBuared values range between ; and 1;;, where ; represents the least correlation and 1;; represents "ull correlation. I" a "undLs beta has an .5sBuared value that is close to 1;;, the beta o" the "und should be trusted. (n the other hand, an .5sBuared value that is close to ; indicates that the beta is not particularly use"ul because the "und is being compared against an inappropriate benchmark. I", "or e#ample, a bond "und was udged against the SG%'S 'i"ty, the .5sBuared value would be very low. & bond inde# such as the %risil %omposite Bond Inde#


would be a much more appropriate benchmark "or a bond "und, so the resulting .5sBuared value would be higher. (bviously the risks apparent in the stock market are di""erent than the risks associated with the bond market. There"ore, i" the beta "or a bond were calculated using a stock inde#, the beta would not be trustworthy. &n inappropriate benchmark will skew more than ust beta. &lpha is calculated using beta, so i" the .5sBuared value o" a "und is low, it is also wise not to trust the "igure given "or alpha. HeLll go through an e#ample in the ne#t section.


1p to this point, we have e#amined "igures that measure risk posed by volatility, but how do we measure the e#tra return rewarded to you "or taking on risk posed by "actors other than market volatilityN *nter alpha, which measures how much i" any o" this e#tra risk helped the "und outper"orm its corresponding benchmark. 1sing beta, alphaLs computation compares the "undLs per"ormance to that o" the benchmarkLs risk5ad usted returns and


establishes i" the "undLs returns outper"ormed the marketLs, given the same amount o" risk. !or e#ample, i" a "und has an alpha o" 1, it means that
"und the

outper"ormed the benchmark by 1K. 'egative alphas

are bad in that they indicate that the "und underper"ormed "or the amount o" e#tra, "und5speci"ic risk that the "undLs investors undertook. !EA( 3ND >?ND#!#?N #N -.#/, )ike mutual "und in 1lip some concepts which are described as "ollow.


3dministr$tion e*penses,

The "und e#pense is the highest in the "irst year. I%I%I -ru )i"e charges administration e#penses o" 2; percent o" the premium "or amounts below ..s @;,;;; and 1= percent "or amounts over ..s @;,;;; in the "irst year while it is C percent "or amounts up to ..s 2;,;;; in case o" ?otak Sa"e Investment plan. &gain there are annual administrative charges that are as high as 1.2@ percent per annum o" net assets on )i"e )ink o" I%I%I -ru )i"e and on 1nit +ain S- -lus o" &llianA Ba a )i"e Insurance.


(ort$lity '"$rges:

Hhile the annual administrative charges stand at 1.2@ percent o" net assets "or I%I%I -ru )i"e and &llianA Ba a )i"e Insurance the di""erences in mortality charges is Buite a bit. I%I%I -ru )i"e charges 1.6= per thousand o" sum assured at age $; while &llianA Ba a charges 1.2D at age $1. 4wit'"ing, 'ow what i" you plan to switch "rom one "und to the other. I%I%I -ru )i"e o""ers only one "ree switch every year and charges a switching "ee o" 1 percent "or e#tra switches. In contrast &llianA Ba a o""ers three switches "ree with subseBuent switches charged at the rate o" 1K o" switch amount or ..s 1;; which ever is higher while with (, ?otak>s Sa"e Investment plan you can switch any number o" times at no e#tra cost. Besides there are "und management charges that varies depending on the type o" "und you choose to park your "unds. (, ?otak charges ;.< percent i" you choose to invest in money market "unds, on gilt "unds it is 1 percent, on balanced "unds it is 1.$ percent and on growth "unds it is 1.@ percent.




!r$ns$'tion 'osts, &lso &llianA Ba a charges transaction costs at ;.@ percent but not e#ceeding ;.C percent o" the eBuity investment while it is ;.1 percent not e#ceeding ;.2 percent o" the debt investments. ,oreover, there e#ists underwriting charges on the basis o" the age the individual.

10.15#NEE4!(EN! ?<1E>!#EE4, /?.#>#E4 #N -.#/, 1. #n%estment ?)&e'ti%e , 8i9 Investment ob ectives o" the scheme is to primarily to provide return through growth in the '&/. !unds collected under the scheme a"ter meeting e#penses shall generally be invested as "ollows: 8a9 'ot less than <;K o" the "unds in debt instruments with low to medium risk pro"ile. 8b9 'ot more than 6;K o" the "unds in eBuities and eBuity related instruments. 8ii9 ,inimum and ma#imum asset allocation: 2ebt 5 ,inimum <;K ,a#imum 1;;K *Buity 5 ,a#imum 6;K 8iii9 -rovided that the eBuity component in the port"olio

may be brought down to $;K over a period o" $ years 8i.e. Fune, 2;;$9 or such period as may be decided by the Trust. %onseBuently the debt component may be increased to C;K. 8iv9 'o "i#ed allocation will normally be made "or money market instruments. Investment in money market instruments will be kept to the minimum so as to be able to meet the liBuidity needs o" the scheme. 4owever, pending deployment o" "unds o" the scheme in securities in accordance with its investment ob ective, as stated above, the Trust may invest in money market instruments. 8v9 The Trust retains the option to alter the asset allocation "or a short term period on de"ensive consideration. I))1ST.&TI(':

.ahul is a thirty5year old who wants a product that will give him market5linked returns as well as a li"e cover. 4e wants to invest ..s @;,;;; a year "or 1; years in an eBuity5 based scheme. Based on this premium, the sum assured works out to ..s @$2,;;;, the e#act amount o" premium being ..s @;,;$2. Based on the current '&/ o" the plan that .ahul chooses to invest in, he is allotted units in the scheme. Then, units eBuivalent to the charges are deducted "rom his port"olio.


The charges in the "irst year include a 16 per cent sales charge, an administration charge 8C per cent "or the "irst .s 2;,;;; and $ per cent "or the remaining .s $;,;;;9 and underwriting charges, which are deducted monthly. Besides, mortality charges or the charges "or the li"e cover are also deducted. !or the remaining nine years a $.@ per cent sales charge and an administrative charge o" 6 per cent 8"or the "irst ..s 2;,;;; and 2 per cent "or the remaining ..s $;,;;;9 are levied in addition to mortality charges. !und management "ee o" 1.@ per cent 8eBuity9 and brokerage are also charged. This cost is built into the calculation o" net asset value. (n maturity 5 that is, a"ter 1; years 5 .ahul would receive the sum assured o" ..s @$2,;;; or the market value o" the units whichever is higher. &ssuming the growth rate in the market value o" the units to be < per cent per annum .ahul would receive ..s @=1,@;;P assuming the growth rate in the market value o" the units to be 1; per cent, .ahul would receive ..s C26,6;;. In case o" .ahulLs untimely death at the end o" the ninth year, his bene"iciaries would receive the sum assured o" ..s @$2,;;; or the market value o" the units whichever is higher. &ssuming the growth rate in the market value o" units is < per cent per annum, the value o" investment


would be ..s @1;,2;;. 4owever, his "amily will get ..s @,$2,;;; as it is the sum assured. &ssuming a growth rate o" 1; per cent per annum, the value o" units at the end o" the ninth year would be ..s <21,D;;. 4ence, the bene"iciaries would get ..s <21,D;;


3 <34#> D#++EAEN>E <E!FEEN -.#/ ?A #N+A34!A->A-AE+-ND , -.#/ !3!3 #N+A34!A->!-AE It is given a risk coverage ,ortality and other charges are very high. ,inimum investment 2etermined by the investor amounts are determined by and can be modi"ied as well the "und house. Section =;% bene"its are Section =;% bene"its are available on all 1)Iavailable only on investments investments in ta#5saving "unds. ,inimum amount is more. ,inimum amount is less. !unds are limited. %ustomer has choice to select the "und. +-ND. It is not risk coverage (ther charges are very low.

>?(/3A#4?N ?+ (-!-3. +-ND E4. ?!0EA #NEE4!(EN! ?/!#?N,


Bank deposit I Saving Bank !2 5 'B!% !2 5 m"g "irms &&& bondsI

.e%el Aisk
/ery low 4igh ,edium )ow



.iBuidity >on%enien'e

!$* effi'ien'y
&verage )ow

6 to CK 1; to 1$K D to 11K 11 to 12K 12 to 1$K D to 1;K

4igh )ow


.anges "rom poor )ow -oor -oor -oor to high &verage )ow -oor &verage &verage &verage &verage /ery high

-S1s %orporate &verage Ta# "ree ,utual !unds 5 8open ended9 )ow ,edium 4igh /ery high )iBuid 7 %ash 2ebt *Buity Stocks /ery low

C to DK D to 12K 1@ to 2@K 2; to $;K

/ery high 4igh 4igh ,edium

4igh 4igh 4igh 4igh

)ow 4igh 4igh &verage

?<1E>!#EE ?+ 4!-DD, ,y main ob ective o" study is to analyAe the in"ormation which partially completed a"ter


my SI- and to "ul"ill all reBuirements which are needed in this report. E#4#?N 4!3!E(EN!,
!? <E !0E .E3DEA #N ?-A 4E>!?A ?+ <-4#NE44 !0A?-=0, !?!3. >-4!?(EA 43!#4+3>!#?N, >?((#!(EN! !? EC>E..EN>E, DE!EA(#N3!#?N !? 4->>EED K +#N3..D !? /A?E#DE /E3>E ?+ (#ND?N #NEE4!(EN! +A?N! !? 4?>#E!D.

(#44#?N 4!3!E(EN!,
EN4-AE >AE3!#?N ?+ E3.-E <D /A?E#D#N= 3 D#++EAEN!#3!#N= ED=E !? !0E 3>!#E#!#E4 ?+ ?-A >-4!?(EA4, #NEE4!?A4, 3ND D#4!A#<-!?A4 !0A?-=0 !E>0NN?E3!#EE 4?.-!#?N4 F0#.E +-.+#..#N= ?-A 4?>#3. ?<.#=3!#?N4 3ND (3#N!3#N#N= 0#=0 /A?+E44#?N3. 3ND E!0#>3. 4!3ND3AD4 3.?N= F#!0 !0E 4EAE#>E 4!3ND3AD4.


1. &ll the schemes in Tata in"ra "und or 1)I-o""er basically two options broadly5+rowth where the main ob ective is capital appreciation and dividend where dividend are paid o"" on monthly, Buarterly or yearly basis. &gain there are inter5options amongst each o" these "unds5dividend payout or dividend re5investment option. !or this study only the growth optioned "unds have been taken with a re5investment option. 2. .eturns o" only those schemes are taken "or the purpose o" the study, which have a track as well as e#istence record o" at least 2 years. +rind lays cash "und is an e#ception as liBuid "unds need not reBuire more than a months returns. '&/>s are those data that are published by the "und company and are not been calculated "orm the company>s balance sheets keeping in mind the duration o" the pro ect. $. There are several other parameters upon which the "und per"ormance analysis can be done like 2own ward .isk, -ercentage %ash 4oldings, -ort"olio Shu""ling .atio, etc

which are not the part o" these study due lack o" resources in the "orm o" data availability and time.


This research methodology is used "or doing the comparative study on

2ata Type


Secondar y

4e'ond$ry D$t$, 5 !rom Hebsite and Books related to Insurance. /rim$ry D$t$, .esearch Type: 5 *#ploratory .esearch Tool: 5 -ersonal Study Sampling Tools: 5 %ompany ,aterial Sampling SiAe: 5 @; Buestionnaire Sampling -lace: 5 &hmedabad %ontact ,ethod: 5 -ersonal %ontact



,utual "und is the wast industry in this industry every thing is depend on the stock market, so, I can say that now a days our Indian market is passing on a golden time so, in this industry we also get e#pected more returns "rom &,%>s.In this report I take the help o" many magaAines, news papers some research done by some e#ports is given on internet data or take a help o" my company guide.


The company would be able to understand the varying reBuirements o" the customers. The company would be able to make changes to their policies as per the reBuirements o" the customer or launch a new policy to cater their clients. 2uring my thesis I would be able to understand the mentality o" customer and their needs which would help me give company some good suggestion on meeting the customer>s e#pectations. The bene"its that I will derive "rom the study are as "ollows: I will get an in depth knowledge o" how a Schemes are issued. I will be able to gain knowledge regarding the other aspects while studying the needs o" mutual "und. Hhile collecting the data "or the thesis, I will be able to develop my convincing skills as well as analytical skills. I will be even well versed with the trends prevailing in ,utual "und industryG1)I- industry.


I would also be able to understand the di""erent strategies used by 1nit5link Insurance plan.



EN!#AE #ND-4!AD 3N3.D4#4 +#ND#N=4,

The primary "inding o" the pro ect is that part wherein the overall industry comparison is done with their respective indices. The "indings are as "ollows:5 MONTHLY INCOME PLANS: ?EEA3.. /EA+?A(3N>E o" the ,I-s has been superior on a risk Ireturn ad usted basis with lower volatility and consistent returns. INFRASTRUCTURE FUNDS: ?EEA3.. /EA+?A(3N>E o" the In"rastructure "unds has been better on a risk Ireturn ad usted basis with a higher beta but still above inde# returns.


IT FUNDS: ?EEA3.. /EA+?A(3N>E o" the IT "unds has been poor on a risk Ireturn ad usted basis, mainly due to poor beta, poor returns and at the most, poor reward as compared to the variability. PHARMA FUNDS: ?EEA3.. /EA+?A(3N>E o" the /03A(3 "unds has been Buite good on a risk Ireturn ad usted basis with about more than double returns and at the same time lower risk. TAX SAVING FUND: ?EEA3.. /EA+?A(3N>E o" this "und is good because in this "und ta# bene"it is considered under sec=;, return is good and risk is low.


ULIP SCHEMES: ?EEA3.. /EA+?A(3N>E o" 1lip is little bit better than mutual "und because in that schemes insurance coverage is there and it>s all schemes are ta# bene"ited. .eturns are also giving well. !())(HI'+ %4&.T IS S4(H' T4* %1ST(,*.S -.*!.*'%* .*+&.2I'+ ,1T1&) !1'2 &'2 1)I-.


>#/ Slice 4 )>@+S/ 4? 4? <=)P 25?

M</<A= F<>& <=)P >#/ )>@+S/ Slice 4

M</<A = F<>& 71?

!ollowing chart shown which sector is most selected by customers.


144? 84? 64? 44? 24? 4?

)>F3AA A 38? P'A3MAA A 6? )/A A 56?

)>F3A P'A3MA )/


Thus, it is clear that the mutual "unds have beaten and out per"ormed the respective benchmarks. The study was limited to 6 months, but contradicts the earlier studies done by others which said that mutual "unds, on a longer term, tend to give lower than benchmark returns to their investors. Thus, this study , which in"act says that in a period o" 6 months, mutual "unds truly outper"orm the market indices, should give a boost to the industry as well as investors to accept mutual "unds as a serious and the best alternative "or investment. In"act, in the coming years, when the environment will be o" "loating rates and all "i#ed rates ust vanishing, mutual "unds will be the only good alternative to obtain above market returns. This is the trend which has occurred in other matured economies like the 1.S. and the 1.?. where currently there are several "unds and nearly 1;; times more investor base than that o" India>s. The "unds have a very bright "uture. &lso the inde# "unds, which have had a very success"ul era in the developed markets, can achieve the same in the Indian markets as the industry has "unds that have a very low tracking error.

The conclusions o" the study are very well in tandem with the ob ective o" the study, which is to "ind out which are the best o" the in"rastructure "und and 1lip which have really served their investors with superior risk5return ad usted per"ormances. The per"ormance analysis done by the various schemes as well that shown by the respective Tata &,% G Insurance co.>s in their "act5sheets are distorted and do not serve the investors purpose. There are several drawbacks in their researchP some o" them are as "ollows: 1.9 They do not account in their research those "unds that do not pay them higher commissions and this is seen "rom their publications which do not include like )I%, SBI, and several others. 2.9 There have been several studies, both at the macro as well as micro levelP on mutual "unds per"ormance and 1)I- the study still gains more and more importance. Several other parameters can also be taken to udge the per"ormance o" the "unds "rom di""erent criteria>s but then


they reBuire state5o" Ithe5art in"rastructure "acilities, lot o" time as well as all the reBuired data.

N3(E, >?N3> N?, 3=E,

1: 3re you $w$re $)out mutu$l fund or -.#/G $.:Des ).: No 2: F"$t do you preferred moreG $.:-.#/ ).:(utu$l fund ;: #n w"i'" funds $re sele'ted $s )est fundG $.:EBuity fund ).:De)t fund '.:<$l$n'ed fund 5: 3re you in%ested in lumsm or 4#/G 6#f 4#/ t"$n $ttempt ne*t Buestion: 5: 3re you preferred to your 4#/ inG $.:(utu$l fund ).:-.#/ 6: Do you t"ink -.#/ "$s $ )roder networkG $.:Des ).:No 9: 3 p$rt from in%esting in mutu$l fund w"$t $re your ot"er in%estment $%enuesG $.:Dire't eBuities '.:Ae$l est$tes $.:/"$rm$'euti'$l ).:#.! #ndustries '.:#nfr$stru'ture #ndustries 2: F"ere do you t"ink more e*penses $re 'ut during in%estmentG $.:(utu$l fund

).: #nsur$n'e d.:<$nk +DL4

8: 3''ording to you w"i'" industries $re performing well in futureG

).:-.#/ 10: ).:-.#/ '.:+(/4 11: F"$t is differen'e $''ording to you )etween to in%est in -.#/ or mutu$l fundsG F"$t do you t"ink w"i'" is most t$* <enefitsG $.:!$* s$%ing s'"emes

12: $.:<$nks

!o w"om you $re in%esting your (oneyG

).:#ndi%idu$l 3d%isors '.:N$tion$l distri)utors d.:Aegion$l distri)utors

1;1 www.Tatamutual" www.relianceli" www.icicipruli" www.hd"cstandardli"

,agaAines Business Today (utlook ,oney Investor India The +ame Is %hanging5 Insurance .eloaded. ,arketing )i"e and 4ealth Insurance. ,arketing ,anagement by -hilip ?otler.

&lpha T *#cess .eturn 5 88Beta # 8Benchmark 5 Treasury99


Benchmark T Total .eturn o" the respective Benchmark Inde# Treasury T .eturn on Three5month Treasury Bill 64i: T Sharpe Inde# Ai T &verage .eturn on -ort"olio i 6)est portfolio: Af T .isk less .ate o" .eturn 4i T Standard 2eviation 8risk9 o" returns o" port"olio i !ot$l Aeturns: &s an absolute measure, the "und with the highest total returns is ranked 1 and the one with least is ranked the lowest. 3%er$ge Aeturns : Same as Total .eturn calculations 4t$nd$rd De%i$tion , 4igher the standard deviation connotes higher risk and thus lower rank, the one with the least risk has the 1st rank. A2 , The one with a value near to 1 is ranked the highest and then in ascending order o" ranks are given.