123mutual Fund

PROJECT REPORT

0N

ANALYSIS OF MUTUAL FUND

(UNIT TRUST OF INDIA)

SUBMITTED FOR THE PARTICAL FULFILLMENT OF MBA (FT)

BARKATULLAH UNIVERSITY, BHOPAL

BY

VASUDHA PARADKAR

(MBA IV SEMESTER)

UNDER THE SUPERVISION OF

TIT-MBA BHOPAL

TECHNOCRATS INSTITUTE OF TECHNOLOGY-MBA

BHOPAL

2008-2010

CONTENTS

CHAPTER 1 – INTRODUCTION

CHAPTER 2 - COMPANY PROFILE

CHAPTER 3 - OBJECTIVES OF THE STUDY

CHAPTER 4 - RESEARCH METHEDOLOGY

CHAPTER 5 - COMPARATIVE ANALYSIS OF MUTUAL FUND

o STANDARD DEVIATION

o SHARPE RATIO

CHAPTER 6 - FINDINGS, SUGGESTIONS AND RECOMMENDATIONS

CHAPTER 7 - SUMMARY AND CONCLUSION

DECLARATION

I VASUDHA PARADKAR student of MBA IV sem of TIT MBA BHOPAL

hereby declare that the project report entitled analysis of mutual fund is my own

original work based on survey undertaken by me. I also declare that this report has

not been submitted to any university/Institute for the award of any degree or any

professional diploma.

Date:………………..

Vasudha paradkar

MBA IV Sem

CERTIFICATE

This is to certify that miss VASUDHA PARADKAR has completed her

project work on subject entitled analysis of mutual fund which based on

the survey and research study undertaken by her.

The project report is completed by the candidate under my supervision.

It is an original research study completed under my supervision to meet

the partial requirement of MBA( FT )degree of the Barkatullah

University Bhopal.

Date:

INTRODUCTION

What is a Mutual fund?

Mutual fund is an investment company that pools money from shareholders and

invests in a variety of securities, such as stocks, bonds and money market

instruments. Most open-end Mutual funds stand ready to buy back (redeem) its

shares at their current net asset value, which depends on the total market value of

the fund's investment portfolio at the time of redemption. Most open-end Mutual

funds continuously offer new shares to investors. Also known as an open-end

investment company, to differentiate it from a closed-end investment company.

Mutual funds invest pooled cash of many investors to meet the fund's stated

investment objective. Mutual funds stand ready to sell and redeem their shares at

any time at the fund's current net

asset value: total fund assets divided by shares outstanding.

In Simple Words, Mutual fund is a mechanism for pooling the resources by issuing

units to the investors and investing funds in securities in accordance with

objectives as disclosed in offer document. Investments in securities are spread

across a wide cross-section of industries and sectors and thus the risk is reduced.

Diversification reduces the risk because all stocks may not move in the same

direction in the same proportion at the same time.

ADVANTAGES OF MUTUAL FUNDS

Professional Management.

The major advantage of investing in a mutual fund is that you get a

professional money manager to manage your investments for a small fee.

You can leave the investment decisions to him and only have to monitor the

performance of the fund at regular intervals.

Diversification.

Considered the essential tool in risk management, mutual funds make it

possible for even small investors to diversify their portfolio. A mutual fund

can effectively diversify its portfolio because of the large corpus. However,

a small investor cannot have a well-diversified portfolio because it calls for

large investment. For example, a modest portfolio of 10 bluechip stocks

calls for a few a few thousands.

Convenient Administration.

Mutual funds offer tailor-made solutions like systematic investment plans

and systematic withdrawal plans to investors, which is very convenient to

investors. Investors also do not have to worry about investment decisions,

they do not have to deal with brokerage or depository, etc. for buying or

selling of securities. Mutual funds also offer specialized schemes like

retirement plans, children’s plans, industry specific schemes, etc. to suit

personal preference of investors. These schemes also help small investors

with asset allocation of their corpus. It also saves a lot of paper work.

Costs Effectiveness

A small investor will find that the mutual fund route is a cost-effective

method (the AMC fee is normally 2.5%) and it also saves a lot of transaction

cost as mutual funds get concession from brokerages. Also, the investor gets

the service of a financial professional for a very small fee. If he were to seek

a financial advisor's help directly, he will end up paying significantly more

for investment advice. Also, he will need to have a sizeable corpus to offer

for investment management to be eligible for an investment adviser’s

services.

Liquidity.

You can liquidate your investments within 3 to 5 working days (mutual

funds dispatch redemption cheques speedily and also offer direct credit

facility into your bank account i.e. Electronic Clearing Services).

Transparency.

Mutual funds offer daily NAVs of schemes, which help you to monitor your

investments on a regular basis. They also send quarterly newsletters, which

give details of the portfolio, performance of schemes against various

benchmarks, etc. They are also well regulated and Sebi monitors their

actions closely.

Tax benefits.

You do not have to pay any taxes on dividends issued by mutual funds. You

also have the advantage of capital gains taxation. Tax-saving schemes and

pension schemes give you the added advantage of benefits under section 88.

Affordability

Mutual funds allow you to invest small sums. For instance, if you want to

buy a portfolio of blue chips of modest size, you should at least have a few

lakhs of rupees. A mutual fund gives you the same portfolio for meager

investment of Rs.1,000-5,000. A mutual fund can do that because it collects

money from many people and it has a large corpus.

DISADVANTAGES OF MUTUAL FUNDS:

Professional Management- Did you notice how we qualified the advantage

of professional management with the word "theoretically"? Many investors

debate over 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.

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. These costs are so complicated that in this tutorial we

have devoted an entire section to the subject.

Dilution - It's possible to have too much diversification (this is explained in

our article entitled "Are You Over-Diversified?"). 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. Dilution

is also the result of a successful fund getting too big. When money pours

into funds that have had strong success, the manager often has trouble

finding a good investment for all the new money.

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-gain 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.

Equity funds, if selected in the right manner and in the right proportion, have the

ability to play an important role in achieving most long-term objectives of

investors in different segments. While the selection process becomes much easier

if you get advice from professionals, it is equally important to know certain aspects

of equity investing yourself to do justice to your hard earned money.

TYPES OF MUTUAL FUND SCHEMES

Types Of Mutual Funds

Open-ended Funds

An open-end fund is one that is available for subscription all through the year.

These do not have a fixed maturity. Investors can conveniently buy and sell units at

Net Asset Value ("NAV") related prices. The key feature of open-end schemes is

liquidity.

Closed-ended Funds

A closed-end fund has a stipulated maturity period which generally ranging from 3

to 15 years. The fund is open for subscription only during a specified period.

Investors can invest in the scheme at the time of the initial public issue and

thereafter they can buy or sell the units of the scheme on the stock exchanges

where they are listed. In order to provide an exit route to the investors, some close-

ended funds give an option of selling back the units to the Mutual Fund through

periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least

one of the two exit routes is provided to the investor.

Interval Funds

Interval funds combine the features of open-ended and close-ended schemes. They

are open for sale or redemption during pre-determined intervals at NAV related

prices.

Growth Funds

The aim of growth funds is to provide capital appreciation over the medium to

long- term. Such schemes normally invest a majority of their corpus in equities. It

has been proven that returns from stocks, have outperformed most other kind of

investments held over the long term. Growth schemes are ideal for investors

having a long-term outlook seeking growth over a period of time.

Income Funds

The aim of income funds is to provide regular and steady income to investors.

Such schemes generally invest in fixed income securities such as bonds, corporate

debentures and Government securities. Income Funds are ideal for capital stability

and regular income.

Balanced Funds

The aim of balanced funds is to provide both growth and regular income. Such

schemes periodically distribute a part of their earning and invest both in equities

and fixed income securities in the proportion indicated in their offer documents. In

a rising stock market, the NAV of these schemes may not normally keep pace, or

fall equally when the market falls. These are ideal for investors looking for a

combination of income and moderate growth.

Money Market Funds

The aim of money market funds is to provide easy liquidity, preservation of capital

and moderate income. These schemes generally invest in safer short-term

instruments such as treasury bills, certificates of deposit, commercial paper and

inter-bank call money. Returns on these schemes may fluctuate depending upon

the interest rates prevailing in the market. These are ideal for Corporate and

individual investors as a means to park their surplus funds for short periods.

Load Funds

A Load Fund is one that charges a commission for entry or exit. That is, each time

you buy or sell units in the fund, a commission will be payable. Typically entry

and exit loads range from 1% to 2%. It could be worth paying the load, if the fund

has a good performance history.

No-Load Funds

A No-Load Fund is one that does not charge a commission for entry or exit. That

is, no commission is payable on purchase or sale of units in the fund. The

advantage of a no load fund is that the entire corpus is put to work.

Tax Saving Schemes

These schemes offer tax rebates to the investors under specific provisions of the

Indian Income Tax laws as the Government offers tax incentives for investment in

specified avenues. Investments made in Equity Linked Savings Schemes (ELSS)

and Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act,

1961. The Act also provides opportunities to investors to save capital gains u/s

54EA and 54EB by investing in Mutual Funds, provided the capital asset has been

sold prior to April 1, 2000 and the amount is invested before September 30, 2000.

Industry Specific Schemes

Industry Specific Schemes invest only in the industries specified in the offer

document. The investment of these funds is limited to specific industries like

InfoTech, FMCG, and Pharmaceuticals etc.

Index Schemes

Index Funds attempt to replicate the performance of a particular index such as the

BSE Sensex or the NSE 50

Sectoral Schemes

Sectoral Funds are those, which invest exclusively in a specified industry or a

group of industries or various segments such as 'A' Group shares or initial public

offerings.

Every year, millions of Indians entrust their savings to Unit Trust of India to build

up a financially secure future. This faith and confidence of investors stem from

UTI's commitment, as reflected in its long track record to ensure its investors,

safety, liquidity and attractive yield on their investments.

Set up in 1964, by an Act of Parliament, UTI Act 1963, UTI has grown into one of

the biggest players and carved out a special position in the Indian capital

market.Today, UTI manages an aggregate portfolio of Rs. 72,698 Crore as on

31/12/1999 and services 45 million investor accounts under 90 saving schemes

catering to varying needs of different classes of investors.UTI has a servicing and

distribution network of 53 branch offices, 320 District Representatives and about

87,000 agents. It provides a complete range of services to its investors, at a low

gross cost of less than 1.01 percent of invisible funds and does not charge any

asset management fee.

Management:

Chairman Shri Janki Ballabh

Executive Directors Prof. P.G. Apte

Mr. S.P. Oswal

Mr. Babasaheb N. kalyani

Shri Ashok K Kini

Prof. P.V.Ramana

Mr. S. Ravi

Mr. Pradeep Gupta

UTI is a symbol of trust and confidence among Indian investors. In the last seven

years, the number of schemes managed by UTI increased from 35 to 92, while

the number of unit holding accounts recorded a sevenfold increase from 65 lakhs

to over 450 lakhs. The mutual fund industry in India started in 1963 with the

formation of Unit Trust of India, at the initiative of the Government of India and

Reserve Bank the. The history of mutual funds in India can be broadly divided

into four distinct phases

 First Phase – 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament.

It was set up by the Reserve Bank of India and functioned under the

Regulatory and administrative control of the Reserve Bank of India.

In 1978 UTI was de-linked from the RBI and the Industrial Development

Bank of India (IDBI) took over the regulatory and administrative control in

place of RBI.

The first scheme launched by UTI was Unit Scheme 1964. At the end of

1988 UTI had Rs.6, 700 crores of assets under management.

Second Phase – 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by

public sector banks and Life Insurance Corporation of India (LIC) and

General Insurance Corporation of India (GIC).

SBI Mutual Fund was the first non- UTI Mutual Fund established in June

1987 followed by Can bank Mutual Fund (Dec 87), Punjab National Bank

Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India

(Jun 90), Bank of Baroda Mutual Fund (Oct 92).

LIC established its mutual fund in June 1989 while GIC had set up its

mutual fund in December 1990.

At the end of 1993, the mutual fund industry had assets under

management of Rs.47, 004 crores.

Third Phase – 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian

mutual fund industry, giving the Indian investors a wider choice of fund

families.

1993 was the year in which the first Mutual Fund Regulations came into

being, under which all mutual funds, except UTI were to be registered and

governed.

The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the

first private sector mutual fund registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more

comprehensive and revised Mutual Fund Regulations in 1996. The

industry now functions under the SEBI (Mutual Fund) Regulations 1996.

As at the end of January 2003, there were 33 mutual funds with total

assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44, 541

crores of assets under management was way ahead of other mutual funds.

Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was

bifurcated into two separate entities.

One is the Specified Undertaking of the Unit Trust of India with assets

under management of Rs.29, 835 crores as at the end of January 2003,

representing broadly, the assets of US 64 scheme, assured return and

certain other schemes. The Specified Undertaking of Unit Trust of India,

functioning under an administrator and under the rules framed by

Government of India and does not come under the purview of the Mutual

Fund Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and

LIC. It is registered with SEBI and functions under the Mutual Fund

Regulations. With the bifurcation of the erstwhile UTI which had in March

2000 more than Rs.76,000 crores of assets under management and with

the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund

Regulations

With recent mergers taking place among different private sector funds, the

mutual fund industry has entered its current phase of consolidation and

growth.

As at the end of September 2004, there were 29 funds, which manage

assets of Rs.153108 crores under 421 schemes.

UTI's expanding product range cover a broad spectrum of investment goals and

includes open end and closed-end income and capital accumulation funds.

Among the most popular are Unit Scheme 1964 and Master series equity

schemes such as Mastershare, Masterplus, Master Equity Plans, etc.

UTI also manages schemes aimed at meeting specific needs like

Low cost insurance cover (ULIP)

Monthly income needs of retired persons and women.

Income and liquidity needs of religious and charitable institutions and

trusts.

Building up funds to meet cost of higher education and career plans for

children.

Future wealth and income needs of girl child and women.

Building savings to cover medical insurance at old age.

Wealth accumulation to meet income needs after retirement.

A Conglomerate with a vision:

As a distinctive financial institution, UTI manages funds raised through common

investible vehicles and at the same time provides companies financial services,

including underwriting. To create a diversified financial conglomerate and to meet

investor's varying needs under a common umbrella, UTI has set up a number of

associate companies in the field of banking, securities trading, investor servicing,

investment advice and training.

UTI Bank Ltd (1994)--the first private sector bank to be set up under

RBI guidelines.

UTI Securities Exchange Ltd (1994)--the first institutionally sponsored

corporate stock-broking firm.

UTI Investor Services Ltd (1993)--the first institutionally sponsored

Registrar and Transfer agency.

UTI Institute of Capital Markets (1989)--the first such institute in Asia,

excluding Japan.

UTI Investment Advisory Services Ltd (1988)--the first Indian

Investment Advisor registered with SEC, US.

Consistent with financial sector deregulation, UTI has plans to enter insurance,

pension fund and credit rating businesses.

OBJECTIVE AND SCOPE OF THE STUDY

o The Mutual Fund Industry is fast gaining popularity in today’s

unpredictable financial scenario. It is emerging as one of the most

lucrative investment options. The primary objective of the project is

to gain detailed insight into this Industry.

o I have tried to systematically and objectively look into all-important

aspects. A combination of primary and secondary data has been

used. The former, though limited, has helped us give first hand

information on company and investor sentiments. The latter has

been used to understand the theoretical aspects.

o Strategic importance has been given to both current and past trends

and we have tried to correlate both in a manner to gain maximum

insight.

o This document has been designed to serve a two-fold purpose. The

first, which is also the main objective of the project, is to reflect our

understanding of this industry. The second is to provide the reader

similar detailed knowledge

o The prime objective of the research was to determine the perception

of the Indian investor towards Mutual funds and this is demonstrated

in the later part of this report.

RESEARCH METHODOLOGY

Research in this project will be conducted with the help of the

following:

This research is exploratory in nature .I shall be collected data from

various primary and secondary sources. The choice of sample scheme will

be guided by the fact that a reasonable amount of information will available

and representing true picture of Indian mutual fund industry.

The methodology adopted for the completion of this project will be divided

into four stages.

The first stage included understanding the Concept, Structure and policy

(related to Mutual funds) in the Indian mutual fund industry and Secondary

data for this purpose will be collected through various books on mutual

funds, business newspapers, business magazines, trade journals, annual

& quarterly performance reports of the concerned mutual funds company.

The second stage included the input stage in which various types of

information data would be collected related to various mutual funds. The

data was collected through discussions & interviews with the

representatives of the companies. The financial and other relevant data will

be extracted from the performance and annual reports of the Asset

management companies (AMC) concerned

In the third stage all the gathered data will be arranged and tabulated to

arrive at the necessary conclusion. All the information was correlated into

tabulation charts and in figures to make the information easy to

understand. Primary collection of data included preparation of tools like

Questionnaires to evaluate various schemes mutual funds and to

determine the perception of the Indian investor towards the mutual funds.

The results and findings of primary data will be collected (Sample

Questionnaire) is given in the Annexure*.

The last stage, i.e. the output stage included analyzing of the processed

information in to final findings and comparing the information with the data

of mutual fund companies and then arriving of final conclusions and policy

recommendations to UTI.

DATA PRESENTATION,

ANALYSIS AND INTERPRETATION

THE TOOLS USED FOR CALCULATION

Standard Deviation

Beta

Alpha

Sharp ratio

Arithmetic mean

∑ Y/N

Where Y- return of Nav values

N- Number of observation

average return that can be expected from investment. The arithmetic

average return is appropriate as a measure of the central tendency of a number

of returns calculated for a particular time i.e. for five years. It shows the

Standard deviation

S.D= √(y-Y) ²

N

The standard deviation is a measure of the variables around its mean or it is

the square root of the sum of the squared deviations from the mean divided by

the number of observations.

S.D is used to measure the variability of return i.e. the variation between

the actual and expected return.

BETA

Beta describes the relationship between the stock’s return and index

returns. There can be direct or indirect relation between stock’s return and

index return. Indirect relations are vary rare.

1) Beta =+1.0

It indicates that one percent change in market index return

causes exactly one percent change in the stock return. It indicates that stock

moves along with the market.

2) Beta= + 0.5

One percent changes in the market index return causes 0.5

percent change in the stock return. It indicates that it is less volatile

compared to market.

3) Beta=2.0

One percent change in the market index return causes 2

percent change in the stock return. The stock return is more volatile. The

stocks with more than 1 beta value are considered to be very risky.

4) Negative beta value indicates that the stocks return move in opposite

direction to the market return.

Beta= N*∑XY- (∑X) (∑Y/ N(X*X) * (∑x)

Where

N- No of observation

X- Total of market index value

Y- Total of return to Nav

ALPHA

Alpha = Y- beta(X)

Where

Y- avrage return to nav return

X- average return to market index .

Alpha indicates that the stock return is independent of the market return.

A positive value of alpha is a healthy sign. Positive alpha values would yield

profitable return.

SHARPE RATIO

St= Ri --Rf

S.D

WHERE

Ri – Avereage return to portfolio

Rf—Risk free rate of interest

S.D- Standard Deviation

Sharpe’s performce index gives a single value to be used for the

performance ranking of various funds or portfolios. Sharpe index measures the

risk premium of the portfolio relative to the total amount of risk in the

portfolio. The risk premium is the difference between the portfolio’s average

rate of return and the risk less rate of return. The standard deviation of the

portfolio indicates the risk.

Higher the value of sharpe ratio better the fund has performed. Sharpe

ratio can be used to rank the desirability of funds or portfolios. The fund that

has performed well comapred to other will be ranked first then the others.

COMPARATIVE ANALYSIS OF MUTUAL FUNDS

BETA

A Beta is a measure of risk that, when applied to investment portfolios, provides

useful statistical information. It compares a mutual fund's volatility with that of a

benchmark. If the beta of the stock is 1, it means that the returns in the stock are

highly correlated to the benchmark index.

A fund with a beta greater than 1 is considered more volatile than the market; and a

fund with a beta less than 1 means less volatile.

COMPARATIVE ANALYSIS

UTIHDFC TOP

200PRU ICICI GROWTH

RELIANCE VISION

BETA 0.91 0.91 0.98 0.89

Comparison Chart

0.7

0.75

0.8

0.85

0.9

UTI HDFC CAPITALBUILDER

RELIANCEGROWTH

Funds

BE

TA

BETA

Most mainstream equity funds have Betas in the range of .85 to 1.05 (fairly

close to the 1.00 Beta represented by the market in the aggregate).

Especially conservative stock funds may register Betas as low as .75,

meaning that in a -10% market decline, their values might be expected to fall

-7.5%. Aggressive funds with Betas of 1.25 might see their values fall by -

12.5%.

We can see that the betas of nearly all the funds are similar apart from the

beta of Pru-ICICI Growth, which has a very high beta, which implies that

the fund is very volatile.

An important point to be considered is that with different objectives, the

mid-cap and large cap betas also different. Large cap betas are more towards

market beta which implies that these funds have been more stable unlike mid

cap betas which are more volatile

ALPHA

Alpha is a financial term describing that part of an investor's return that is due to

the skills of the investment manager, as distinct from the return of the market as a

whole.

Alpha can provide a deeper perspective on the performance of equity

schemes to a mutual fund investor. While analyzing performance, we would like to

know how much of the return was attributable to the market as a whole, and how

much due to the manager's ability to select stocks. Value Added by Fund Manager

(or alpha) indicates the return that is not attributable to the market, or in other

words the added value the manager achieved over and above the result of the

market.

COMPARATIVE ANALYSIS:

A fund manager who reduces risks by booking profits has also to be careful in

reinvesting. If the reinvesting is badly managed, the returns may not be superior.

Then, despite a lower beta, the performance may be flat. The measure `Alpha'

indicates the value added by a fund manager.

UTIHDFC TOP

200PRU ICICI GROWTH

RELIANCE VISION

ALPHA 1.28 1.73 0.65 2.27

Comparison Chart

0

0.5

1

1.5

2

2.5

3

UTI HDFC CAPITALBUILDER

RELIANCEGROWTH

Funds

AL

PH

A

ALPHA

Alpha can be seen as a measure of a fund manager's performance. This is

what the fund has earned over and above (or under) what it was expected to

earn. Thus, this is the value added (or subtracted) by the fund manager's

investment decisions.

In the large cap funds, it can be see that the alpha of the Reliance Vision is

highest i.e 2.27. This can be attributed to the high churning of funds done by

the fund manager.

The lowest alpha is of Pru-ICICI Growth being 0.65; meanwhile the beta of

this fund is the maximum.

Again, in the mid cap funds also the alpha of reliance growth is the

maximum which can be attributed to the above reasons.

Another trend is that overall the alpha of mid-cap funds is higher as

compared to large cap funds. One reason could also be that in this time

period when the study was done, the mid cap funds were performing quite

well as compared to large cap funds.

SECTOR ALLOCATION

The division of an investment portfolio among major sectors usually to diversify

the risk.

In this context, two approaches can be followed:

- Top-down approach- Herein firstly the sectors are chosen, and

thereafter-strong companies are chosen in these sectors. E.g. HSBC

Equity

- Bottom-up approach- Herein the investments are done in

fundamentally sound companies. E.g. Franklin India Bluechip.

PORTFOLIO CONCENTRATION: This refers to the concentration of

the allocation in top few sectors. Depending on the objective of the mutual

fund, the fund could be concentrated or diversified. HDFC Equity Fund is a

very concentrated fund. Meanwhile Reliance Growth is a very diversified

fund

Funds exposure to different kinds of sectors is another parameter on which

the different mutual funds can be compared. Most funds have adequate

exposure to technology stocks. Lately most funds have increased their

exposure to banking sector stocks. However reliance has a very different

stock allocation investing in automobile and heavy engineering sectors.

STANDARD DEVIATION

The total risk of a given fund is measured in terms of standard deviation of returns

of the fund. Standard Deviation is a measure of scattering of the values about the

average (mean) value. It tells us how much the values have deviated from the mean

of the values. It is calculated by using returns of the scheme i.e. the Net Asset

Value (NAV), and is a measure of the dispersion of the scheme's return around its

average return.

Comparison Chart

66.26.46.66.8

77.27.47.67.8

8

UTI HDFCCAPITALBUILDER

RELIANCEGROWTH

Funds

S>D

.

STANDARD DEVIATION

COMPARATIVE ANALYSIS

When used in relation to mutual funds, it tells about the volatility of the scheme.

The higher is the value, the more volatile are the returns and vice versa.

UTIHDFC TOP

200PRU ICICI GROWTH

RELIANCE VISION

STANDARD 6.91 7.27 7.35 7.44

DEVIATION

Mid Cap Funds

The standard deviation is more in mid cap funds. This shows that mid cap

funds are more volatile as compared to large cap funds.

In the large cap funds the highest standard deviation is of reliance vision,

reliance vision falls in the category of high risk and high return.

Meanwhile the standard deviation of the Franklin India Blue chip is the

lowest, this fund is considered as one of the most stable returns giving fund.

However in the mid cap fund the highest standard deviation is of Franklin

India Prima. This is because Franklin India prima has lately changed its

sectoral composition, trying to make it as an aggressive fund.

SHARPE RATIO

Sharpe ratio, worked by Nobel Laureate Bill Sharpe, tries to quantify how a fund

performs relative to the risk it takes. It is a ratio of returns generated by the fund

over and above risk free rate of return and the total risk associated with it (standard

deviation). Symbolically it is written as:

Where, SI= Sharpe Index

Ri = Return on the fund

Rf = risk free rate of return (e.g. a 90 day T-Bill)

= Standard Deviation

INTERPRETATION

As FII’s have entered Indian markets Sensex have crossed 10000 mark and

investors have earned a lot in last financial year. Indians are becoming aware of

various investment options. People have started taking risk as they want to book

profits. Investors prefer more equity schemes than debt schemes, around 60% of

the investors invest in equity schemes and balanced schemes. Investors want to

take risk as they want to yield better returns. Investors want high returns, liquidity,

safety and tax benefit. Among all investors gives want to have safety for their

money. Around 91% of the investors prefer open ended schemes rather than close

ended schemes as there is flexibility in open ended schemes.

Investors prefer both systematic investment plan and lump sum. It depends upon

the availability of funds that the investor wants to invest in SIP or as lump sum.

Some of the investors invest in both ways i.e. through SIP as well as lump sum.

Basically it depends upon the availability of fund. When questions were asked

about the performance of mutual funds in future 50% of investors said strong

future, 35% of the investors said very strong future and 15% of the investors said

moderate future.

Recommendations:

1) A few respondents due to confidentiality constraints did not disclose the

average investment made.

2) The future investment in mutual funds depends heavily on the availability of

funds.

3) It is seen from the analysis that most of the people in India specifically Delhi

have no idea of Mutual Funds. This showed the low awareness level among

the people of Delhi about the Mutual Funds therefore I recommend that there

is need for better marketing of Mutual Funds and specifically target investors

who invest in stock markets and small investors who prefer banks for their

investments and create awareness amongst them about investing in Mutual

Funds.

4) It is recommended that the Asset Management Companies (AMC) more

specifically UTI should come up with new Mutual Fund schemes which focus

on security of money, better rate of return, liquidity, profitability. They

should concentrate more on building up investor’s confidence, as it is seen

from the analysis that most of the investors are not confident of the safety and

security of their investments in Mutual Funds especially after the UTI Scam in

India.

5) It is strongly recommended that Asset Management Companies (MF

Companies) specifically UTI provide reliable and more true and transparent

information to the investors as the investor is ready to invest in Mutual Funds

only if they are given more reliable information. It is also recommended that

Asset Management Companies (MF Companies) focus on building a

relationship of trust and commitment with the investors.

6) All the people interviewed expected a rate of return of 17-18% on their

investments in Mutual Funds therefore if the Asset Management Companies

(AMC) more specifically UTI are able to provide that return they can attract

more investors.

7) In the near future, a large number of new companies and schemes are soon

going to be launched which will increase the variety for investor and will lead

to increase in competition. in the industry and This stresses the need to

improve the quality of services offered and improve individual fund

performance.

8) The capital market has been growing by leaps and bounds. Thus the stock

market in India is on the right track and there will be major improvements in

the near future This expansion will act as an impediment to the small

investors who either has the option to play the market or to have the

knowledge to keep pace with the corporate information of thousands of

companies. Their mutual funds will form a favorable alternative provided there

is transparency, reliability and authenticity in their functioning.

CONCLUSION

Retail Investors prefer to invest in debt-based funds when they invest for short

periods and are looking for steady returns. On the contrary, when they invest

for long periods, they prefer to go for equity based funds as it is seen that in

the long period, equity funds out-perform debt funds. This money is either

from their capital gains or for some specific purpose in the future like their

child’s education, marriage, purchase of house etc.

Business Investors invest a lot in the end of June when Mutual Funds are

close to declaring dividends. This is because this gets them the benefit of

writing off their capital gains as follows –

1. Say the NAV per unit of the Mutual Fund is Rs. 20.00 at time of

purchase.

2. The business buys the Mutual Fund units at this price and dividends

are declared say Rs. 4.00 per unit.

3. Then after the cool off period when the Mutual Fund opens, the NAV

per unit is Rs. 16.00 per unit (Rs. 20.00 – Rs. 4.00 dividend declared).

4. The business then sells off the units at Rs. 16.00 per unit and claims

capital looses to the tune of Rs. 4.00 per unit, which can be used by

them to write off their capital profits.

5. This actually is not a capital loss as that amount has already been

reimbursed to the unit holder in terms of dividends.

In India, the trend is that investors invest when there is a boom in the stock

market and withdraw their holdings in times of slump. This is absolutely

contrary to how the system works abroad as there investments take place

in the slump period when greater units can be purchased with same

amount of money. Withdrawals are correspondingly done in boom times as

maximum return is achieved. This is the right strategy and Mutual Fund

companies are trying to create this awareness among consumers.

The outlook for the Mutual Fund Industry as predicted by the

representatives of the companies that I visited is very bright. They all

expect the market to go up by Diwali (Indian festival) and New Years and

also expect consumer awareness and interest to improve. Efforts are being

made by them to increase awareness and services offered by them. All

this would result in major increase in their collections and of the industry as

a whole. Also a large number of new companies and schemes are soon

going to be launched which will increase the variety for consumers and

also improve the quality of services offered due to the increase in

competition.

BIBLIOGRAPHY:

www.utimutualfund.com

www.amfiindia.com

www.bseindia.com

www.nseindia.com

Reference books:

Security analysis & portfolio management

- Punithavathy Pandian

- Donald E. Fischer

- Ronald J. Jordan

Business Statistics

- G.C. Beri

- S P Gupta.