CERTIFICATION FROM INTERNAL GUIDE This is to certify that the dissertation titled “a study on different schemes with comparison & evaluation among the mutual funds with reference to the KOTAK AMC COMPANY.” By Is a record of research work done during the year 2010-11, under my directions and that the dissertation has not previously formed the basis for the award of any degree or Diploma orAssociate ship , wit h the similar title, by any other university/Instit ute. Signature of Internal Guide Date : (Name of the internal Guide)
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This is to certify that the dissertation titled “a study on different schemes with comparison &
evaluation among the mutual funds with reference to the KOTAK AMC COMPANY.”
By
Is a record of research work done during the year 2010-11, under my directions and that thedissertation has not previously formed the basis for the award of any degree or Diploma or
Associate ship , with the similar title, by any other university/Institute.
KOTAK AMC COMPANY is one of the profitable leading stock broking companies and
succeeds over the competition in the market.
The study covers two major schemes, equity linked saving scheme and balanced schemes with
both dividend and growth option. The period of the study is January 2010 to April 2010. The
comparative study extends to two public sector companies LIC and SBI and two private sector
companies RELIANCE and KOTAK.
The main objective is to study the performance of equity linked saving scheme of mutual fund
companies for the period of January 2010 to April 2010. And study the performance of balancedschemes of mutual fund companies for the period of January 2010 to April 2010.
The study is mainly carried out in order to appraise the performance of equity linked saving
scheme and balanced schemes of LIC, SBI, RELIANCE AND KOTAK. As there is a lot of
competition bidding in this industry and many foreign companies are launching their funds in
India, it has become important that companies differentiate their products in order to capture the
domestic market, hence a study of equity linked saving scheme and balanced schemes enable the
organization to choose the sectors give maximum returns.
Methodology is a systematic and objective process of identifying and formulating the problem by
setting objectives and methods for collecting, editing, calculating, evaluating and analyzing and
interpreting and presenting data in order to find justified solutions. The current position is
analyzed and new ideas are suggested to improve the current condition.
A Mutual Fund is a trust that pools the savings of a number of investors who share a common
financial goal. The money thus collected is then invested in capital market instruments such as
shares, debentures and other securities. The income earned through these investments and the
capital appreciations realized are shared by its unit holders in proportion to the number of units
owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it
offers an opportunity to invest in a diversified, professionally managed basket of securities at a
relatively low cost. The flow chart below describes broadly the working of a Mutual Fund.
A Mutual Fund is a body corporate registered with the Securities and Exchange Board of India
(SEBI) that pools up the money from individual/corporate investors and invests the same on
behalf of the investors/unit holders, in Equity shares, Government securities, Bonds, Call Money
Markets etc, and distributes the profits. In the other words, a Mutual Fund allows investors to
indirectly take a position in a basket of assets. 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 among a widecross-section of industries and sectors thus the risk is reduced. Diversification reduces the risk
because all stocks may not move in the same direction in the same proportion at same time.
Investors of mutual funds are known as unit holders.
The investors in proportion to their investments share the profits or losses. The mutual funds
normally come out with a number of schemes with different investment objectives which are
launched from time to time. A Mutual Fund is required to be registered with Securities Exchange
Board of India (SEBI) which regulates securities markets before it can collect funds from the public.
The project’s idea is to project Mutual Fund as a better avenue for investment on a long-term or
short-term basis. Mutual Fund is a productive package for a lay-investor with limited finances,
this project creates an awareness that the Mutual Fund is a worthy investment practice. Mutual
Fund is a globally proven instrument. Mutual Funds are ”Unit Trust” as it is called in some parts
of the world has a long and successful history, of late Mutual Funds have become a hot favorite
of millions of people all over the world.
The driving force of Mutual Funds is the ‘safety of the principal’ guaranteed, plus the added
advantage of capital appreciation together with the income earned in the form of interest or
dividend. The various schemes of Mutual Funds provide the investor with a wide range of
investment options according to his risk bearing capacities and interest besides; they also give
handy return to the investor. Mutual Funds offers an investor to invest even a small amount of
money, each Mutual Fund has a defined investment objective and strategy. Mutual Fundsschemes are managed by respective asset managed companies sponsored by financial institutions,
banks, private companies or international firms. A Mutual Fund is the ideal investment vehicle
for today’s complex and modern financial scenario.
The study is basically made to analyze the various open-ended equity schemes of different Asset
Management Companies to highlight the diversity of investment that Mutual Fund offer. Thus,
through the study one would understand how a common man could fruitfully convert a pittance
into great penny by wisely investing into the right scheme according to his risk taking abilities.
Finance Limited starts the activity of Bill Discounting Kotak Mahindra Finance Limited enters
the Lease and Hire Purchase market.
The Auto Finance division is started the Investment Banking Division is started.
Enters the Funds Syndication sector
1995 Brokerage and Distribution businesses incorporated into a separate company - Kotak Securities. Investment Banking division incorporated into a separate company - Kotak MahindraCapital Company.
1996 The Auto Finance Business is hived off into a separate company - Kotak Mahindra PrimusLimited. Kotak Mahindra takes a significant stake in Ford Credit Kotak Mahindra Limited, for financing Ford vehicles. The launch of Matrix Information Services Limited marks the Group’sentry into information distribution.
1998 Enters the mutual fund market with the launch of Kotak Mahindra Asset ManagementCompany.
Kotak Mahindra ties up with Old Mutual plc. For the Life Insurance business. Kotak Securities
launches kotakstreet.com - its on-line broking site. Formal commencement of private equity
activity through setting up of Kotak Mahindra Venture Capital Fund.
2001 Matrix sold to Friday Corporation Launches Insurance Services
2003 Kotak Mahindra Finance Ltd. converts to bank Kotak Mahindra is one of India's leading
financial institutions, offering complete financial solutions cities in India and offices in New
York, London, Dubai and Mauritius, it services a customer base of over 5,00,000 has
international partnerships with Goldman Sachs (one of the world's largest investment banks and
brokerage firms), Ford Credit (one of the world's largest dedicated automobile financiers) and
Old Mutual (a large insurance, banking and asset management conglomerate that encompass
every sphere of life. From commercial banking, to stock broking, to mutual funds, to life
insurance, to investment banking, the group caters to the financial needs of individuals and
corporates.The group has a net worth of around Rs.1,700 crore and employs over 4,000 employees in its
various businesses. With a presence in 74 cities in India and offices in New York, London, Dubai
and Mauritius, it services a customer base of over 5,00,000.
Kotak Mahindra has international partnerships with Goldman Sachs (one of the world's largest
investment banks and brokerage firms), Ford Credit (one of the world's largest dedicated
automobile financiers) and Old Mutual (a large insurance, banking and asset management
conglomerate).
Kotak Mahindra Asset Management Company Limited (KMAMC), a wholly owned subsidiary
of KMBL, is the asset manager for Kotak Mahindra Mutual Fund (KMMF). KMAMC started
operations in December 1998 and has over 1,99,818 investors in various schemes. KMMF offers
schemes catering to investors with varying risk - return profiles and was the first fund house in
the country to launch a dedicated gilt scheme investing only in government securities.
Kotak Investment Banking* (KIB), India's premier Investment Bank is a strategic joint venture
between Kotak Mahindra Bank Limited (KMBL) and the Goldman Sachs Group , LLP.
KMBL has come into existence in March 2003 through the conversion of Kotak Mahindra Bank
Ltd. into a Commercial Bank. Kotak Mahindra is one of India's leading financial institutions,offering complete financial solutions that encompass every sphere of life. From commercial
banking, to stock broking, to mutual funds, to life insurance, to investment banking, the group
caters to the v needs of individuals and corporates.
The group has a net worth of over Rs.1,550 crore and employs over 3,000 employees in its
various businesses. With a presence in 60 cities in India and offices in New York, London, Dubai
and Mauritius, it services a customer base of over 5,00,000. Kotak Mahindra has international
partnerships with Goldman Sachs (one of the world's largest investment banks and brokerage
firms), Ford Credit (one of the world's largest dedicated automobile financiers) and Old Mutual
(a large insurance, banking and asset management conglomerate).
Kotak Investment Banking (KIB) and Kotak Institutional Equities represent the securities
business of the Kotak Mahindra Group (KI), both, joint ventures with Goldman Sachs involved in
brokerage, distribution and research.
We are a full service Investment Bank bringing to our clients the global reach and expertise of
Goldman Sachs and the local knowledge and skills of Kotak Mahindra. As a full service
Investment Bank, Kotak Investment Banking core business areas include Equity Issuances,
Mergers & Acquisitions, Advisory Services and Fixed Income Securities and Principal Business.
Our strength lies in understanding our clients' businesses backed by a strong research team and an
extensive distribution network, which spans a wide variety of investors across the country. We
are also the first Indian Investment Bank to be registered with the Securities & Futures Authority
in the UK (through our wholly owned subsidiary) and the National Association of Securities and
Dealers in the USA.
We are also the first Indian Investment Bank to be appointed by the Government of India as a
Co-lead Manager in their international divestment of Gas Authority of India Ltd through a GDR
offering. We are today well positioned in an increasing globalised environment to provide full
service to its clients based either in India or overseas.
INDUSTRY PROFILE
The Indian Brokerage Industry consists of companies that primarily act as agents for the buying
and selling of securities (e.g. stocks, shares, and similar financial instruments) on a commission
or transaction fee basis. Hence, to understand this industry we have to study
Security Market:
Security market has two main interdependent segments: Primary market and the Secondary
market.
PRIMARY MARKET:
The primary is that part of the capital markets that deals with the issuance of new securities.
Companies, governments or public sector institutions can obtain funding through the sale of anew stock or bond issue. This is typically done through a syndicate of securities dealers. The
process of selling new issues to investors is called underwriting. In the case of a new stock issue,
this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price
of the security offering, though it can be found in the prospectus. In primary market certain
companies issue their shares directly to the public, collect applications and after sorting out the
good issues, they put in their applications. The share brokers get their brokerage on the
transactions made.
SECONDARY MARKET:
The secondary market is that market in which trading is done of securities that have already been
issued in an initial private or public offering. The secondary market comprises of brokerage that a
broker earns in the buying and selling of companies that are listed in the stock exchange. These
stock broker are in charge of the conformation and carrying out of transactions. Orders are taken
and executed on behalf of the clients. The fluctuation of rates in the share market makes the
activity in a trade market a dynamic process. It is necessary for a broker to have adequate
knowledge about the economic and political factors as they affect the share market.
DEVELOPMENT IN BROKERAGE INDUSTRY
In actuality the brokerage industry continues to develop rapidly. Many of the traditional
restrictions against banking activities within the brokerage industry are being eliminated and the
barriers are disappearing. Due to this, some commercial banks have as subsidiaries, brokerage
houses that offer discounts and some of them have available accounts that offer all of the services
that are offered by a checking account. The basic function of a brokerage firm is to execute buy
and sell orders for clients. Traditionally these firms have offered the investigation of the quality
and the possibilities of investing in a variety of investment products. It is still accustomed for
brokerage firms to offer information about possible investments free of charge. This activity of
bringing free of charge stock investment reports is one of the main tools that are utilized by
brokerage houses to compete against other firms and to investors it continues to be an important
service. Despite the previously, not all investors consider that investment reports is an important
service. Some investors prefer other types of services since many investors don t believe that‟
these investment reports are useful. In order to capture this vast diverse clientele, the brokerageindustry has segmented itself.
After the restrictions in commissions were eliminated, several brokerages began to open up their
doors as discount brokerage firms. In actuality, brokerage firms may be classified into full service
brokers and discount brokers. Full service brokerage firms continue to offer informative stock
reports and a level of service much higher than other brokerage houses. Discount brokerage
houses only dedicate themselves to execute orders for clients. Full service brokers are sellers
looking for purchasing and selling for clients and offering more customer service than isavailable from discount brokers. It is many times possible that a client will not even know who is
taking care of the buy or sell order that they placed. These differences in services and
philosophies may lead to great differences in commission costs. It is evident that these
differences may be an important factor in the return of an investment. This is particularly true
when we see that these commissions are added to the purchase as well as to the sale of a stock or
Background:The BSE Sensitive Index (1978-79=100) has, to a considerable extent, been serving the purpose
of quantifying the price movements as also reflecting the sensitivity of the market in an effective
manner. The number of companies listed on the Bombay Stock Exchange has registered a
phenomenal increase from 992 in the year 1980 to about 4800 companies by the end of July 2005
and their combined market capitalization rose from Rs. 5,421 crores to around Rs. 18,
00,000crores at end of July 2005. These factors necessitated compilation of a new broad-based
index series reflecting the present market trends in a more effective manner and providing a
better representation of the increased equity stocks, market capitalization as also the newly
emerged industry groups.
Towards this end, the Exchange constructed and launched on 27th May 1994, two index series
viz. the BSE-200 and the DOLLEX.
Coverage: The equity shares of 200 selected companies from the specified and non-specifiedlists of this Exchange have been considered for inclusion in the sample for `BSE-200'. The
selection of companies has primarily been done on the basis of current market capitalization of
the listed scripts on the exchange. Besides market capitalization, the market activity of the
companies as reflected by the volumes of turnover and certain fundamental factors were
considered for the final selection of the 200 companies.
The 13-year-old National Stock Exchange (NSE) has outshined the 130 years old Bombay Stock
Exchange (BSE) in terms of turnover and volumes. The BSE has lost its market share in thesesegments from 36 per cent to 31 percent in last three years. The turnover in BSE stood at around
Rs 2,950 crore as on August 17, 2005 while the turnover in NSE was Rs 3,926 crore. The
volumes (numbers of shares traded) of NSE at 2.94 crore was also much higher than the volumes
of BSE. The NSE has rewritten a number of rules and upset many traditions. As the derivatives
segment has immense effect on the cash market, the movement in this segment mostly determines
the trend in the market. Against nearly 1,400 companies listed on the NSE, the BSE has nearly
4,800 listed companies. Despite such a huge number of listed companies, the total market
capitalization of BSE is around Rs 20 lakh crore while on the other hand NSE has a total market
capitalization of Rs 19.7 lakh crore. The most tracked index on NSE, CNX Nifty also has more
number of stocks than the BSE Sensex. Nifty represents 50 stocks while the Sensex represents
only 30 stocks. The presence of more stocks on Nifty gives a better valuation than Sensex.
LITERATURE REVIEW
The Indian mutual fund industry is dominated by the Unit Trust of India (UTI) which has a total
corpus fund of Rs 700 billion collected from more than 20 million investors. The UTI has many
fund schemes in all categories like equity, balanced income etc with some being open ended and
some being closed ended. The unit scheme with 1964 commonly referred to as US 64, which is
balance fund, is the biggest scheme with a corpus of about Rs 200 billion. UTI was floated by
financial institutions and is governed by a special Act of parliament. Most of the investors believe
that the UTI is government owned and controlled which while legally incorrect and true for all
practical purposes. The second largest category of mutual fund is the one floated by nationalized banks. Canbank asset management floated by Canara bank and SBI funds management floated by
State Bank of India is the largest of these. GIC AMC, the LIC are some of the prominent of
AMCs is about Rs 150 billion. The third largest category of mutual funds are the ones floated by
the private sector and by foreign asset management companies, the largest of these are prudential.
As we know that mutual fund is an instrument of investing money. Nowadays bank rates fallen
GIC Mutual Fund GIC Mutual Fund, sponsored by General Insurance Corporation of India
(GIC), a government of India undertaking and the four public sector insurance companies, viz,
National Insurance Company Limited(NIC), The New India Assurance Company(NIA), Oriental
Insurance Company(OIC) and United India Insurance Company Limited(UII). These are
constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882. On the
basis of their structure and objective mutual funds can be classified into following major types:
viz based on the structure, and based on the investment objective
BASED ON THE STRUCTURE:
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 period. Investor can conveniently buy and sell units at net asset value (NAV)
related prices. The key feature of open end schemes is their liquidity.
Closed ended funds:
A close ended fund has a stipulated maturity period which generally ranging from 3-15 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 there 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 exit routes is provided to the investors.
Interval funds:
Interval funds combine the features of open ended and close ended schemes. They are open for sale or redemption during the pre determined intervals at NAV related prices.
Data are the facts and numerical figures of certain information expressed in the tabular form. On
the other hand interpretations explanations about the facts and figures expressed in terms of
words and sentences.
TOOLS AND TECHNIQUES
THE SHARPE MEASURE
In this model, performance of a fund is evaluated on the basis of Sharpe ratio, which is a measure
developed to calculate risk adjusted returns. The Sharpe ratio is the difference between the
annualized return ( Rp ) and the risk free return ( Rf ) divided by the Standard Deviation ( SD ),
during the specified period.
SHARPE RATIO = (Rp – Rf )σ
While a high and positive Sharpe ratio shows a superior risk adjusted performance of a fund, a
low and negative Sharpe ratio is an indicator of unfavorable performance.
TREYNOR MEASURE
Developed by Jack Treynor, this performance measure evaluates funds on the basis of Treynorsindex. This index is a ratio of returns generated by the fund over and above risk free rate of return
government, as there is no credit risk, during a given period and systematic risk associated with it
, symbolically, it can be represented by as
Treynor s index =‟ Rp – Rf
βWhere Rp represents return on fund, Rf is risk free rate of return and B is beta of the fund. All
risk – adverse investors would like to maximize the value. While a high and positive Treynorsindex shows a superior risk adjusted performance of a fund, a low and negative Treynor s index‟
is an indication of unfavorable performance.
TABLE: NO: 1
CALCULATION OF AVERAGE RETURN FOR THE MONTH JANUARY, 2010
CAPITAL APPRECIATION FUND : A mutual fund that seeks maximum appreciation through
the use of investment technique involving greater than ordinary risk, such as borrowing money in
order to provide leverage, short selling and high portfolio turnover.
CAPITAL GAINS DISTRIBUTIONS: Payments to mutual fund share holders of gains realized
on the sale of portfolio securities.
CAPITAL GROWTH: A rise in market value of mutual funds securities, reflected in its NAV
per share. This is a specific long term objective of many mutual funds.
CLOSED END INVESTMENT COMPANY: An investment company that offers a limited
number of shares. They are traded in the securities market through brokers. Price is determined by supply and demand. Unlike open end Investments Company closed end funds do not redeem
their shares.
COMMERCIAL PAPER: Short term unsecured promissory notes with maturities no longer
than 270 days. They are issued by corporations to fund short term credit needs.
COMMON STOCK FUND: An open and investment company whose holdings consists mainly
of common stocks and usually emphasizes growth.
CONFIRM DATE: The date the fund processed your transaction, typically the same day or the
day after you trade.
CONTINGENT DEFERRED SALES CHARGE (CDSC): A fee imposed by certain funds on
shares redeem with in a specific period following their purchase. These charges are usually
assessed on a sliding scale, such as 4% to 1% of the amounts redeemed.
CUSTODIAN: The bank or trust company that maintains mutual funds assets including its
portfolio of securities or some record of them provide safe keeping of securities but has no role in
DAILY DIVIDEND FUND: This term applies to funds that declare their income dividends on
a daily basis and reinvest or distribute monthly.
DEFERRED COMPENSATION PLAN: A tax-sheltered investment plan to which employees
of state and local governments can defer a percentage of their salary.
DISTRIBUTOR: An individual or a corporation serving as principal underwriter of a mutual
fund’s shares, buying shares directly from the fund, and reselling them to other investors.
DIVERSIFICATION: The policy of spreading investments among a range of differentsecurities to reduce the risks inherent in investing.
RUPEE-COST AVERAGING: The technique of investing a fixed sum at regular intervals
regardless of stock market movements. This reduces average share costs to the investor, who
acquires more shares on periods of lower securities prices and fewer shares in periods of high
prices. In this way, investing risk is spread over time.
EXCHANGE PRIVILEGE (OR SWITCHING PRIVILEGE): The right to transfer investments from one fund into another, generally within the same fund group, at nominal cost.
EX-DIVIDEND DATE: The date on which a fund’s Net Asset value (NAV) will fall by an
amount equal to the dividend and/or capital gains distribution. Most publications which list
closing NAV’s place an “X” after a fund name on its ex-dividend date.
EXPENSE RATIO: The ratio of total expenses to net assets of the fund. Expenses includemanagement’s fees, the cost of shareholder mailings and other administrative expenses. The ratio
is listed in a fund’s prospectus. Expense ratios may be a function of a fund’s size rather than of its
success in controlling expenses.
FISCAL YEAR: In accounting period consisting of 12 consecutive months
GLOBAL FUND: A fund that invests in both India and foreign securities.
GROWTH FUND: A mutual fund whose primary investment objective is long term growth of
capital. It invests principally in common stocks with significant growth potential.
INCOME DIVIDEND: Payment of interest and dividends earned on funds portfolio securities
after operating expenses are deducted.
INCOME FUND: A mutual fund that primarily seek current income rather than growth of
capitals. It will tend to incest in stocks and bonds that normally pay high dividends and interest.
INDEX FUND: A mutual fund that seeks to mirror general sock market performance bymatching its portfolio to a broad based index, most often S&P CNX nifty index.
INTERNATIONAL FUND: A fund that invests in securities traded in markets outside India.
INVESTMENT COMPANY: A corporation, partnership, or trust that invest with pooled money
of many investments. It provides greater professional management and diversification of
investment than most investors can obtain independently.
INVESTMENT OBJECTIVE: The financial goal that a investor or a mutual fund pursues.
JUNK BOND: A speculative bond rated BB or below, “Junk Bonds” are generally issued by
corporations of questionable financial strength or with out proven track records.
LOAD: A sales charge or commission assessed by various Mutual Funds to cover their selling
costs.
LOAD FUND: A Mutual fund that levies a sales charge up to 6% which is included in the
offering price of its shares, and is sold by broker or salesmen.
UNDERWRITER : The org. that acts as the distributor of a mutual funds shares to dealers and
public.
SYSTEMATIC INVESTMENT PLANS: In SIP, instead of large amount, investor invest a prespecified amount in a scheme at pre specified intervals at the then prevailing NAV.