Comparitive Analysis of MF With Equity Shares--Karvy1

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PROJECT REPORT

ON

COMPARATIVE ANALYSIS OF MUTUAL FUNDS WITH EQUITY

SHARES

At

INDIA INFOLINE ,

VIJAYAWADA, A P

Submitted by

Mr. P.PHANIKUMAR

Regd no: 091FC01041

Under the guidance of

Mr. Sivanageswarao sir

In partial fulfillment of the requirement for the

Award of the Degree of

MASTER OF BUSINESS ADMINISTRATION

VIGNAN UNIVERSITY

Affiliated To

VIGNAN UNIVERSITY, Vadlamudi, 2009-2011.

1



C E R T I F I C A T E

This is to certify that project entitled “A

COMPARATIVE ANALYSIS OF MUTUALFUNDS WITH

EQUITIES” is bonofide work done by Mr.

P.PHANIKUMAR of M.B.A of this college under the

supervision of Mr. Sivanageswarao. He has completed

his project work as per the rules prescribed for the

fulfillment of Master of Business Administration.

PROJECT GUIDE HOD

2



D E C L A R A T I O N

I, the undersigned hereby declare that the project

report entitled “A COMPARATIVE ANALYSIS OF MUTUAL

FUNDS WITH EQUITY SHARES WITH REFERENCE TO

IIFL -THE IIFL” is the outcome of the work done by me

under able guidance of MR.Sivanageswarao. The findings

and suggestions hereby enclosed in this report are based on

the primary and secondary market data collected by me

from the organization – IIFL STOCK BROKING LIMITED,

and no portion of it is copied from the previous submitted

reports.

A.SRINIVAS RAO

3



A C K N O W L E D G E M E N T

My first and foremost duty is to thank all those who

influenced and motivated me to make a fine effort for this

project work.

I am highly obliged to my project guide

MR.SIVANAGESWARAO, whose expert guidance and

valuable suggestions have helped me in completing this task

much ease.

I am very thankful to Mr.SHASTRY, Principal , for their

valuable guidance in completion of this project.

I record my deep sense of gratitude to MR.SUNIL,

Branch manager of IIFL – STOCK BROKING LIMITED,

Vijayawada who spent valuable time for providing all the

facilities and guidance and help in procreating this project

report.

Mr. A.SRINIVAS RAO

4



CONTENTS

CHAPTER – I INTRODUCTION

1. Introduction on mutual funds2. Objectives of the study3. Scope of the study4. Application of the study5. Methodology of the study6. Tools used for analysis

7. Limitations of the study

CHAPTER – II INTRADUCTION TO MUTUAL FUNDS

1. Introduction on Mutual fund

2. Introduction on Equity shares

3. Introduction on Index

4. Introduction on Derivatives

CHAPTER – III COMPANY PROFILE

1. SMC – Overview2. SMC – Early days3. SMC – Alliances4. Milestone5. Achievements

6. Quality policy & objectives7. SMC – stock broking limited

CHAPTER – IV ANALYSIS & INTERPRETATION

CHAPTER – V CONCLUSIONS & SUGGESTIONS

1. Conclusions2. Suggestions

5



CHAPTER – VI BIBILOGRAPHY

CHAPTER –1

INTRODUCTION

6



INTRODUCTION ON MUTUAL FUNDS

Last two decades have witnessed a phenomenal growth in tradeand industry the world over. The days are passed when capital used to

remain within the boundaries of nations. In this era of globalization and

liberalization, technology, capital and other resources are not only

crossing the borders of nation but also increasing the volume of

international trade. The rapidity with which the concept of corporate

finance, bank finance and investment finance have changed in recent

years have given birth to new financial products known as Mutual

funds.

As the name suggests, this is financial instrument that pools the

savings of number of investors who share a common financial goal. The

money thus collected is invested by the funds manager in different

types of securities depending on the objective of the scheme.

Mutual funds have become increasingly importance in the world

of finance. Mutual funds legally known as “open-ended companies” are

subject to regulations set forth by the Investment Company Act 1940,

when deciding how to invest. Mutual funds are attractive because they

require less of investors, as they offer diversification, experts talk and

bond selection, low cost and preferential tax treatment. Additionally

Mutual funds do not have a predetermined number of stocks to sell;

rather stocks are added to the fund as required by the demand.

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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 invested by the fund manager in different types of

securities depending upon the objective of the scheme. This couldrange from shares to debentures to money market instruments. The

income earned through these investments and the capital

appreciations realized by the scheme are shared by its unit holders in

proportion to the number of units owned by them.

Thus mutual fund is the most suitable investment for the

common man as it offers the opportunity to invest in a diversifiedprofessionally managed portfolio at a relatively low cost. Any body with

an investible surplus of as little as a few thousand rupees can invest in

mutual funds.

A mutual fund is the ideal investment vehicle for today’s complex

and modern financial scenario. Markets for equity shares, bonds and

other fixed income instruments, real estate derivatives and other

assets have become mature and information driven. A typical

individual is unlikely to have the knowledge, skills, inclination and time

to keep track of events, understand their implications and act speedily.

Thus a mutual fund is the sum total of many parts, each of which is

designated to perform a specific function. SEBI, the market regulator

has outlined clearly the role and responsibilities of each entity. How

well they function determines, in part, the quality of your experience

with the mutual fund.

As investment vehicles go, mutual funds are unique being the

only ones to operate on the principle of pooling resources. The element

of novelty extends to their working also in the kind of investment

exposures they offer, the terms they use, the norms for pricing they

follow, and lots more. These character traits will unravel through the

course of this book.

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Life makes many demands of us. There’s so much to indulge in

and deal with. At work or at home. With family, friends or self. Woveninto these threats is the inescapable truth that money is a means to

many an end. A house in the sub-urbs, good education for the kids, a

set of four wheels to zip around and early retirement. The ends might

differ but the means – at least one of them – to reach them remain the

same: money. Earned wisely, saved regularly, and invested smartly.

People say that they don’t have the discipline, they don’tunderstand investing, especially the stock market. They don’t have

time and don’t really care. Well they should, even if just a little. After

all it’s their money and their life and it helps to have their saving

working for you. They don’t need to get neck – deep in to their personal

finances, but the least they can do, and should do, is get a fix on the

big picture. Explore and understand what they want from their

investments, and leave the rest to the money managers: mutual funds.

These investment vehicles don’t demand them to have a deep

understanding of financial matters; they don’t even demand oodles of

your time.

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OBJECTIVES OF THE STUDY

1) The main purpose is to study whether mutual fund is investor’s

best choice or not.

2) The objective of doing this project is to make a study of various

investment schemes in the secondary market.

3) To ascertain the various fluctuation in different sectoral schemes

of mutual funds

4) To examine mutual funds investment with equity shares and also

relative to Nifty and Sensex.

5) To assist the community at large in deciding which investment

provides best return considering various points at a time.

6) To know how various schemes effect mutual fund investment and

its performance taking past records.

7) To study the performance of selected mutual fund companies

and equity companies and their performance in 1 year.

8) To reveal the current situation of mutual funds and equities as

well as index in last one year in India .

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SCOPE OF THE STUDY

1) The study covers the concept and details of mutual funds and

introduction on equity, derivatives and index.

2) The study also includes returns of equity, mutual funds and

relative index of different sectors.

3) Equities year high and low is also included in the study.

4) The project report covers the study of Net Asset Value (NAV)

of mutual funds in different sectors.

5) The analysis part includes the Net Asset Value (NAV) charts

which gives the clear picture of the present value of the mutual fund

company.

6) The study includes the information regarding the selection of

portfolio for different funds in theory part.

7) The theory part also includes following information related to

mutual fund :

History of mutual funds

Concept of mutual funds

Why mutual funds

Net Asset Value (NAV)

Types and benefits of mutual funds

Trends in mutual funds

Future scenario

Problem of mutual fund industry in India.

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APPLICATION OF THE STUDY

1) The study helps the investor to compare various investment

schemes and the returns from those investments.

2) The reader can have thorough knowledge on concepts and

trends of mutual funds.

3) The study helps to have the knowledge of various schemes

and working of mutual funds.

4) User can make proper analysis of returns in different schemes

comparing the performance of the study period.

5) The study enables the readers to assess the Net Asset Value

(NAV) by seeing the charts.

6) Researchers can think of further study by including the data of

large period.

7) The study also enables us to understand the fluctuations

related to Sensex and Nifty

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METHODOLOGY OF THE STUDY

All information related to the topic needs to be carefully

scrutinized to avoid the risk of biased analysis. Having once identifiedwhich information is relevant and need to be collected, we will have to

define how this will be done.

The method employed in the investigation depends on the

purpose and scope of the study. Let us try to understand methodology.

1) RESEARCH DESIGN: Research design is some statement orspecification of procedures for collecting and analyzing the

information required for the solution of some specific problem.

Here the exploratory research is used as investigation is mainly

concerned with determining the trends and positive and negative

returns in different sectors of mutual funds and equities. Exploratory

research is generally carried out by three sources of information

A) Study of secondary sources

B) Discussion with individuals

C) Analyzing some specific areas

2) DATA COLLECTION METHODS: The key for creating useful system

are selectivity in collection of data and linking that selectivity to theanalysis and decision issue of the action to be taken. The accuracy of

collected data is of great significance for drawing correct and valid

conclusions from the investigation.

The following are the main steps in data collection process

a) Type of information required in the investigation

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b) Establishing the facts that are available at present and

additional facts required.

c) Identification of sources from where the information can be

available.

d) Selection of appropriate information i.e. collection method.

3) SOURCES OF INFORMATION: Data available in marketing

research are either primary or secondary.

Primary data: primary data are generated in an investigation

according to the needs of problem in head. Primary data is collected

using case study methods. There are some set of Qualitative

techniques used for collection of some socio economic information

about some phenomenon.

Secondary data: Secondary data can be defined as data collected by

some one else for purpose other than solving the problem being

investigated. Secondary data is collected from external sources which

include information from published material of SEBI and some of the

information is collected online. The data sources also include various

books, journals, magazines, news papers, etc. The organization profile

is collected from Branch Manager.

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Review of literature

TABULATION

A Table is a systematic arrangement of statistical data in rows

and columns. Rows are horizontal arrangements whereas columns are

vertical. Tabulation is a systematic presentation of data in a form

suitable for analysis and interpretation. The tables used are as follows:

1) One way table: It presents only one characteristic and hence in

answering one or more independent questions with regard to

those characteristics.

2) Two-way table: It contains sub divisions of a total and is able to

answer two mutually dependent questions.

3) Three-way table: It sub-divides the total in to three distinct

categories It is capable of answering three mutually dependent

questions

GRAPHICAL REPRESENTATION OF DATA

A picture is worth a thousand words. The impression created by a

picture has much greater impact than any amount of detailed

explanation. Statistical data can be effectively presented in the form of

diagrams and graphs. Graphs and Diagrams make complex data simple

and easily understandable. They help to compare related data and

bring out subtle data with amazing clarity. The Diagram used is as

follows:

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1) Bar diagrams: Bar diagrams are used specifically for categoricaldata or series. They consist of the group of equidistant rectangles,

one for each group or category of data in which the values of

magnitudes are represented by length or height of rectangles.

2) Sample Bar diagram: It is used of comparative study of two or

more aspects of a single variable or single category of data.

3) Percentage bar diagram: If sub-divided bar diagrams are

presented on a percentage basis i.e. each component as a

percentage of whole, it is said to be a percentage bar diagram.

COMPARATIVE STUDY

Comparative study is made by comparing the different investment

schemes including mutual funds, equity and relative indexes. The

returns of mutual funds and equity are compared for different sectors.

The Net Asset Value of different mutual fund companies is also shown

in the study. Overall the study is done by comparing different

investment schemes and what returns they give in the period of 1 year.

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LIMITATIONS

1) Equity return is not taken from NSE stock exchange.

2) The data of mutual fund companies and equity companies is

taken only for 3& 6 months and 1 year due to non availability of

data.

3) Due to limitation of time all sectors are not studied, only

selected sectors have been studied.

4) Data for mutual funds available on website is day to day basis

data. Data is updated daily. Hence the data is available as on 31

march 2006.

5) only growth funds are taken.

6) Due to non availability of data NSE scrip Tata consultancyinformation has not taken.

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CHAPTER – 2COMPARATIVE STUDY ON MUTUAL FUNDS

AND OTHER INVESTMENT SCHEMES

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INTRODUCTION ON MUTUAL FUND

The concept of “Mutual fund” is a new feature in the cap of

Indian capital market but not to international market. The concept of

mutual fund spread to USA in the beginning of 20th century and three

mutual fund companies were started in 1924. Mutual funds have been

successfully working in the USA and some western countries. These

funds have been useful in filling the gap between the demand and

supply of capital in the market. A mutual fund motivates small and biginvestors to entrust their savings to it so that these are professionally

employed in sharing good return. A large number of investors have

small savings with them. They can at the most buy shares of one or

two companies. When small savings are pooled and entrusted to

mutual fund then these can be used to buy blue chips where regular

returns and capital appreciation are ensured.

Fund is an American concept. The terms like investment

company, money fund investment trust and mutual funds are used

interchangeably and used to describe the same thing in American

literature. In British literature mutual funds has not been explained but

is considered as a synonym of investment trust of USA.

DEFINITION & MEANING

A mutual fund is an investment vehicle for investors, who pool

their savings for investing in diversified portfolio of securities with the

aim of attractive yields and appreciation in their value.

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As per mutual fund book published by investment company institute of

US,“Mutual fund is a financial service organization that receives money

from shareholders, invest it, earns return on it, attempt to make it grow and agree to pay the shareholder cash on demand for the current

value of investment”

SEBI (mutual fund) regulations, 1996 defines mutual funds as

“A fund established in the form of a trust to raise monies through

the sale of units to the public or a section of public under one or moreschemes for investing in securities including money market

instruments”

A mutual fund is a special type of institution a trust or an

investment company which acts as an investment – intermediary and

channelises the savings of large number of people to the corporate

securities in such a way that investors get a steady return, capital

appreciation and low risk

A mutual fund is a trust that pools the savings of a number of

investors who wish to start investing but do not have a large amount of

capital to work with or who want to take hands of approach and let the

professional take all decisions. Mutual funds are basically large funds

operated by investment companies and pull money from many

different people and then invest according to a certain goal for the

fund. This allows for greater diversification than would be possible for a

single person with less-than-generous assets and also removes the

burden of researching market conditions and constantly adjusting

investments accordingly from the individual.

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HISTORY OF MUTUAL FUND INDUSTRY

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 controlof 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 Canara

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 June1989 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.

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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 choiceof fund families. Also, 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 substitutedby a more comprehensive and revised Mutual Fund Regulations in

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

Regulations 1996. The number of mutual fund houses went on

increasing, with many foreign mutual funds setting up funds in India

and also the industry has witnessed several mergers and acquisitions.

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.

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

Mutual Fund Regulations, and 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. The graph indicates the growth of assets over the

years.

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GROWTH IN ASSETS UNDER MANAGEMENT

ZZZ

Note:

Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified

Undertaking of the Unit Trust of India effective from February 2003.

The Assets under management of the Specified Undertaking of the Unit

Trust of India has therefore been excluded from the total assets of the

industry as a whole from February 2003 onwards.

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CONCEPT OF MUTUAL FUND

A Mutual Fund is a trust that pools the savings of a number of

investors who share a common financial goal. The money thus

collected is then invested in capital market instruments such as shares,

debentures and other securities. The income earned through these

investments and the capital appreciation realized 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:

Mutual Fund Operation Flow Chart

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ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram belowillustrates the organisational set up of a mutual fund:

WHY MUTUAL FUNDS

Let's suppose you're just getting started as an investor and have

$5,000 to invest and you have three important goals you want to

achieve. First, you don't want to lose your money in a risky venture so

you want security, like that found in a certificate of deposit or other

fixed income investment. But you also want to make the most money

you can, so you want the prospect for growth potential, too. Finally,

since you don't have the time or knowledge to actively manage your

money, you want professional money management -- occasionally

diversifying your investments into promising new opportunities. That

sounds like a very good plan, but where can you invest your money

and have a chance to meet all three criteria? Certificates of deposit

and other fixed income investments offer security, but often with low

rates of interest and a fixed potential for growth.

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Individual stocks may carry greater potential for growth, but

$5,000 isn't a lot to invest and if you put it all in one stock, you risk

everything if it performs poorly. And, brokers and investment advisors

can offer you advice and money management, but at a price -- you pay

for their services, which reduces further the amount you have availableto invest.

More than 80 million people, or one out of every two households

in America, invest in mutual funds. Currently, over $6 trillion is

invested in mutual funds. While funds have been around since the

1920's, their popularity over the past 25 years has soared. The

reasons:

Mutual funds make it easy and less costly forinvestors to satisfy their need for capital growth,income and/or income preservation

Mutual funds bring diversification andprofessional money management to theindividual investor

A mutual fund is a company that pools the money of many

investors -- its shareholders -- to invest in a variety of differentsecurities. Investments may be in stocks, bonds, money market

securities or some combination of these. Those securities are

professionally managed on behalf of the shareholders, and each

investor holds a pro rata share of the portfolio -- entitled to any profits

when the securities are sold, but subject to any losses in value as well.

For the individual investor, mutual funds provide the benefit of

having someone else manage your investments, take care of record

keeping for your account, and diversify your dollars over many

different securities that may not be available or affordable to you

otherwise. Today, minimum investment requirements on many funds

are low enough that even the smallest investor can get started in

mutual funds.

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A mutual fund, by its very nature, is diversified -- its assets are

invested in many different securities. Beyond that, there are many

different types of mutual funds with different objectives and levels of

growth potential, furthering your chances to diversify.

NET ASSET VALUE

The net asset value of the fund is the cumulative market value of

the assets fund net of its liabilities. In other words, if the fund is

dissolved or liquidated, by selling off all the assets in the fund, this is

the amount that the shareholders would collectively own. This gives

rise to the concept of net asset value per unit, which is the value,

represented by the ownership of one unit in the fund. It is calculatedsimply by dividing the net asset value of the fund by the number of

units. However, most people refer loosely to the NAV per unit as NAV,

ignoring the "per unit". We also abide by the same convention.

The price measured per unit is called the Net asset value NAV of

the unit. Just as a share or a bond is brought at a price, a mutual fund

is bought and sold at its NAV. If for example u were to invest Rs.10000

in a scheme when its NAV is Rs.10 you will be

allotted 1000 units (10000/10) roughly –the fund charges a nominal

processing fee. The NAV of any scheme tells how much each unit of it

is worth at any point in time, and is therefore the simplest measure of

how it is performing. A scheme’s NAV is its Net assets (market value of

the securities is owns minus whatever it owes) divided by the number

of units it has issued.

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A scheme’s NAV is a dynamic figure. The market value of the

scheme’s portfolio changes from day to day as prices of shares and

bonds move up or down. The number of units outstanding also

changes, as new investors come into the scheme and old ones leave. If

the NAV of your schemes rises from Rs.10 to Rs.11 over a period of time, your scheme is said to have generated a return of 10 percent.

Similarly if its Net NAV falls form Rs.10 to Rs. 9, it is said to have lost

10 percent. Fund houses have to calculate and disclose, the NAVs of

their schemes daily. Fund NAVs can be easily looked up. While the

general dailies give a random listing of schemes, the financial papers

are more exhaustive in their coverage. When invested in a scheme, its

NAV is the figure to track, as it quantifies your returns, and yourpurchase price will be based on it. Random listing of schemes, the

financial papers random listing

TYPES OF MUTUAL FUNDS

This section provides descriptions of the characteristics -- such as

investment objective and potential for volatility of your investment -- of

various categories of funds. These descriptions are organized by thetype of securities purchased by each fund: equities, fixed-income,

money market instruments, or some combination of these.

This table organizes these fund types by how aggressive or

conservative they are and by investment objective. Because mutual

funds have specific investment objectives such as growth of capital,

safety of principal, current income or tax-exempt income, you canselect one fund or any number of different funds to help you meet your

specific goals.

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http://www.mfea.com/GettingStarted/LearningTopics/Basics/SelectingFunds.asp

http://www.mfea.com/GettingStarted/LearningTopics/Basics/SelectingFunds.asp



In general mutual funds fall into these general categories:

Equity Funds invest in shares of common stocks.

Fixed-Income Funds invest in government or corporate securities

which offer fixed rates of return.

Balanced Funds invest in a combination of both stocks and

bonds.

Money Market Funds for high stability of principal, liquidity and

income.

Bond Funds, both tax-exempt and taxable funds to generate

income.

Specialty/Sector Funds to diversify holdings within an industry.

Equity Funds

Aggressive Growth FundsWhat they invest in: These funds seek maximum growth of

capital with secondary emphasis on

dividend or interest income. They invest

in common stocks with a high potential

for rapid growth and capital appreciation.

Because they invest in stocks which can

experience wide swings up or down, these

funds have a relatively low stability of

principal. They often invest in the stocksof small emerging growth companies and

generally provide low current income

because these companies usually reinvest

their profits in their businesses and pay

small dividends, if any. Aggressive growth

funds generally incur higher risks than

growth funds in an effort to secure morepronounced growth. These funds may

30



invest in a broad range of industries or

concentrate on one or more industry

sectors. Some use borrowing, short-

selling, options and other speculative

strategies to leverage their results.

Suitable for: Investors who can assume the risk of

potential loss in value of their investment

in the hope of achieving substantial and

rapid gains. They are not suitable for

investors who must conserve their

principal or who must maximize current

income.

Growth Funds

What theyinvest in:

Generally invest in stocks for growth rather than

current income.

Growth funds are more likely to invest in well-

established companies where the company itself

and the industry in which it operates are thought to

have good long-term growth potential.

Growth funds provide low current income, but the

investor's principal is more stable than it would be

in an aggressive growth fund. While the growth

potential may be less over the short term, manygrowth funds have superior long-term performance

records. They are less likely than aggressive growth

funds to invest in smaller companies which may

provide short-term substantial gains at the risk of

substantial declines.

Suitable for: Although growth funds are more conservative than

aggressive growth funds, they are still relatively

volatile. They are suitable for growth-oriented

31



investors but not investors who are unable to

assume risk or who are dependent on maximizing

current income from their investments.

International/Global FundsWhat theyinvest in:

International funds seek growth through

investments in companies outside the United States.

Global funds seek growth by investing in securities

around the world, including the United States. Both

provide investors with another opportunity to

diversify their mutual fund portfolio, since foreign

markets do not always move in the same direction

as the U.S.

The best way to invest abroad is through mutual

funds, rather than direct investment in a foreign

security. Most investors are unfamiliar with foreign

investment practices and currencies and may not

have a clear understanding of how economic or

political events can affect foreign securities. An

investor in an international mutual fund doesn't

have to worry about trading practices,

recordkeeping, time zones or other laws and

customs of a foreign country -- that is all handled by

the fund's money manager.

International and global funds can invest in common

stocks or bonds of foreign firms and governments.

Many international funds invest in a particular

country or region of the world.

Suitable for: While international and global funds offer

opportunities for growth and diversification, these

types of funds do carry some additional risks over

32



domestic funds and should be carefully evaluated

and selected according to the investor's objectives,

timeframe and risk profile. Because most

international and global funds are considered to be

aggressive growth funds or growth funds, investorsmust be willing to assume the risk of potential loss

in value in the hope of achieving substantial gains.

They are not suitable for investors who must

conserve their principal or maximize current

income.

Growth and Income Funds

What they invest in: Growth and income funds seek long-term

growth of capital as well as current income.

The investment strategies used to reach

these goals vary among funds

Some invest in a dual portfolio consisting of

growth stocks and income stocks, or a

combination of growth stocks, stocks

paying high dividends, preferred stocks,

convertible securities or fixed-income

securities such as corporate bonds and

money market instruments. Others may

invest in growth stocks and earn current

income by selling covered call options on

their portfolio stocks.

Suitable for: Growth and income funds have low to

moderate stability of principal and

moderate potential for current income and

growth. They are suitable for investors who

can assume some risk to achieve growth of

capital but who also want to maintain a

moderate level of current income.

Fixed-Income Funds

33



What theyinvest in:

The goal of fixed income funds is to provide high

current income consistent with the preservation of

capital. Growth of capital is of secondary importance

Income funds that invest primarily in common

stocks are classified as equity income funds (seenext listing). Those that invest primarily in bonds

and preferred stocks are classified as fixed-income

funds. These funds invest in corporate bonds or

government-backed mortgage securities that have a

fixed rate of return.

Since bond prices fluctuate with changing interest

rates, there is some risk involved despite the fund'sconservative nature. When interest rates rise, the

market price of fixed-income securities declines and

so will the value of the income funds' investments.

Conversely, in periods of declining interest rates,

the value of fixed-income funds will rise and

investors will enjoy capital appreciation as well as

incomeFixed-income funds offer a higher level of current

income than money market funds, but a lower

stability of principal. They are generally more stable

in price than funds that invest in stocks. Within the

fixed-income category, funds vary greatly in their

stability of principal and in their dividend yields.

High-yield funds, which seek to maximize yield by

investing in lower-rated bonds of longer maturities,

entail less stability of principal than fixed-income

funds that invest in higher-rated but lower-yielding

securities.

Some fixed-income funds seek to minimize risk by

investing exclusively in securities whose timely

payment of interest and principal is backed by the

full faith and credit of the U.S. Government. These

34



include securities issued by the U.S. Treasury, the

Government National Mortgage Association ("Ginnie

Mae" securities), the Federal National Mortgage

Association ("Fannie Maes") and Federal Home Loan

Mortgage Corporation ("Freddie Macs"). All arebacked by pools of mortgages.

Suitable for: Fixed-income funds are suitable for investors who

want to maximize current income and who can

assume a degree of capital risk in order to do so.

Again, carefully read the prospectus to learn if a

fund's investment policy with respect to yield and

risk coincides with your own objectives.

Balanced/Equity Income funds

What theyinvest in:

Equity income funds seek high current yield by

investing primarily in equity securities of companies

which pay high dividends. Unlike interest payments

on bonds, dividends on equity securities can change

as companies raise or lower their dividends. Since

yield-oriented stocks are more volatile than

comparably rated fixed-income securities, equity

income funds offer less stability of principal than

fixed-income funds. Balanced funds are more evenly

invested in equities and income securities.

Suitable for: Balanced and equity income funds are suitable for

conservative investors who want high current yield

with some growth.

Money Market Funds

What they

invest in:

For the cautious investor, these funds provide a very

high stability of principal while seeking a moderate

35



to high current income. They invest in highly-liquid,

virtually risk-free, short-term debt securities of

agencies of the U.S. Government, banks and

corporations and U.S. Treasury Bills. They have no

potential for capital appreciation.

Tax-exempt money market funds invest in securities

that provide safety of principal, liquidity and income

exempt from federal income taxes by investing in

short-term, high-rated municipal obligations.

Because of their short-term investments, money

market mutual funds are able to keep a constant

share price; only the yield fluctuates. Therefore,

they are an attractive alternative to bank accounts.

With yields that are generally competitive with --

and usually somewhat higher than -- yields on bank

certificates of deposit (CDs), they offer several

advantages:

• Money can be withdrawn any time without

penalty. Money market funds also offer check

writing privileges.

• Although not insured by the FDIC or FSLIC,

money market funds invest only in highly-

liquid, short-term, top-rated money market

instruments.

• Money market funds are suitable for

conservative investors who want high stability

of principal and moderate current income with

immediate liquidity.

Suitable for: Money market funds are suitable for conservative

investors who want high stability of principal and

36



moderate current income with immediate liquidity.

Municipal Bond Funds

What they

invest in:

"Muni" bond funds provide higher tax-exempt

income than tax-exempt money market funds by

investing in longer-maturity (and often lower-rated)

securities, which generally offer higher yields than

the short-term, high-rated securities in which tax-

exempt money market funds invest

Municipal bond funds vary greatly in the quality and

maturity of the municipal bonds they invest in. The

longer the maturity, the higher the yield. Also, the

lower the credit rating of the issuer, the greater the

risk and the higher the yield

While municipal bond funds generally provide lower

yields than income funds with debt obligations of

similar maturities and ratings, for an investor in a

high marginal tax bracket the after-tax yields of

municipal bond funds will be higher. The price and

yield of municipal bond funds will fluctuate

moderately with interest rates. As interest rates

decline, the value of principal increases while yield

decreases; as rates increase, bond prices decline

but yields increase.

Suitable for: Suitable for investors in medium to higher tax

brackets who want current income free from federal

income tax.

Double & Triple Tax-Exempt Bond Funds

37



What they

invest in:

These bond funds provide the investor with an even

greater tax advantage by investing in municipal

bonds of a single state. Triple tax-exempt funds are

exempt from income tax in a specific city. Thus theygenerate income exempt from not only federal

income tax but also from state and/or city income

tax for residents of those jurisdictions. Like all bond

funds, the value of the shares will fluctuate with

interest rates, as will the current yield. Also, the

stability of principal and yield levels vary with the

quality and maturity length of the bonds in which

the funds invest. Lack of geographic diversification

increases credit risk of these funds compared with

national funds.

Suitable for: These funds are suitable for investors in medium to

high tax brackets in high tax states who want

income with maximum exemption from taxes.

Specialty/Sector Funds

What they

invest in:

These funds invest in securities of a specific industry

or sector of the economy such as health care, high

technology, leisure, utilities or precious metals

Because such funds invest primarily in one sector,

they do not offer the element of downside risk

protection found in mutual funds that invest in a

broad range of industries. However, the funds do

enable investors to diversify holdings among many

companies within an industry, a more conservative

38



approach than investing directly in one particular

company

Sector funds offer the opportunity for sharp capital

gains in cases where the fund's industry is "in favor"but also entail the risk of capital losses when the

industry is out of favor

While sector funds restrict holdings to a particular

industry, other specialty funds such as index funds

give investors a broadly-diversified portfolio and

attempt to mirror the performance of various

market averages. Index funds generally buy sharesin all the companies composing the S&P 500 Stock

Index or other broad stock market indices

Asset allocation funds move funds among a variety

of markets and instruments in response to the fund

manager's view of relative market prospects. They

are broadly diversified and sometimes have higher

management fees since there may be a variety of securities in the portfolio. These funds are suitable

for investors who can tolerate a moderate to high

degree of risk, are seeking capital appreciation and

to whom dividend income is secondary in

importance. And whatever the instruments, social

responsibility funds apply moral and ethical as well

as economic principles in the selection of securities.

Suitable for: Specialty funds are suitable for investors seeking to

invest in a particular industry who can monitor

industry performance regularly and alter investment

strategies accordingly. Investors must be willing to

assume the risk of potential loss in value of their

investment in the hope of achieving substantial

gains. They are not suitable for investors who must

conserve their principal or maximize current

39



income.

BENEFITS OF MUTUAL FUNDS

1) Professional Investment Management: By pooling the funds of

thousands of investors, mutual funds provide full-time, high-level

professional management that few individual investors can afford to

obtain independently. Such management is vital to achieving results

in today's complex markets. Your fund managers' interests are tied

to yours, because their compensation is based not on sales

commissions, but on how well the fund performs. These managers

have instantaneous access to crucial market information and are

able to execute trades on the largest and most cost-effective scale.

In short, managing investments is a full-time job for professionals.

2) Diversification: Mutual funds invest in a broad range of securities.

This limits investment risk by reducing the effect of a possible

decline in the value of any one security. Mutual fund shareowners

can benefit from diversification techniques usually available only toinvestors wealthy enough to buy significant positions in a wide

variety of securities.

3) Low Cost: If you tried to create your own diversified portfolio of 50

stocks, you'd need at least $100,000 and you'd pay thousands of

dollars in commissions to assemble your portfolio. A mutual fund

lets you participate in a diversified portfolio for as little as $1,000,

and sometimes less. And if you buy a no-load fund, you pay or no

sale charges to own them.

4) Convenience and Flexibility: You own just one security rather

than many, yet enjoy the benefits of a diversified portfolio and a

wide range of services. Fund managers decide what securities to

trade, clip the bond coupons, collect the interest payments and see

that your dividends on portfolio securities are received and your

40



rights exercised. It's easy to purchase and redeem mutual fund

shares, either directly online or with a phone call.

5) Quick, Personalized Service: Most funds now offer extensive

websites with a host of shareholder services for immediate access

to information about your fund account. Or a phone call puts you in

touch with a trained investment specialist at a mutual fund

company who can provide information you can use to make your

own investment choices, assist you with buying and selling your

fund shares, and answer questions about your account status.

6) Ease of Investing: You may open or add to your account and

conduct transactions or business with the fund by mail, telephone or

bank wire. You can even arrange for automatic monthly investments

by authorizing electronic fund transfers from your checking account

in any amount and on a date you choose. Also, many of the

companies featured at this site allow account transactions online.

7) Total Liquidity, Easy Withdrawal: You can easily redeem your

shares anytime you need cash by letter, telephone, bank wire or

check, depending on the fund. Your proceeds are usually available

within a day or two.

8) Life Cycle Planning: With no-load mutual funds, you can link your

investment plans to future individual and family needs -- and make

changes as your life cycles change. You can invest in growth funds

for future college tuition needs, then move to income funds for

retirement, and adjust your investments as your needs change

throughout your life. With no-load funds, there are no commissions

to pay when you change your investments.

9) Market Cycle Planning: For investors who understand how to

actively manage their portfolio, mutual fund investments can be

moved as market conditions change. You can place your funds in

equities when the market is on the upswing and move into moneymarket funds on the downswing or take any number of steps to

41



ensure that your investments are meeting your needs in changing

market climates. A word of caution: since it is impossible to predict

what the market will do at any point in time, staying on course with

a long-term, diversified investment view is recommended for most

investors.

10) Investor Information: Shareholders receive regular reports from

the funds, including details of transactions on a year-to-date basis.

The current net asset value of your shares (the price at which you

may purchase or redeem them) appears in the mutual fund price

listings of daily newspapers. You can also obtain pricing and

performance results for the all mutual funds at this site, or it can be

obtained by phone from the fund.

11) Periodic Withdrawals: If you want steady monthly income, many

funds allow you to arrange for monthly fixed checks to be sent to

you, first by distributing some or all of the income and then, if

necessary, by dipping into your principal.

12) Dividend Options: You can receive all dividend payments in

cash. Or you can have them reinvested in the fund free of charge, in

which case the dividends are automatically compounded. This can

make a significant contribution to your long-term investment

results. With some funds you can elect to have your dividends from

income paid in cash and your capital gains distributions reinvested.

13) Automatic Direct Deposit: You can usually arrange to have

regular, third-party payments -- such as Social Security or pension

checks -- deposited directly into your fund account. This puts your

money to work immediately, without waiting to clear your checking

account, and it saves you from worrying about checks being lost in

the mail.

14) Recordkeeping Service: With your own portfolio of stocks and

bonds, you would have to do your own recordkeeping of purchases,

42



sales, dividends, interest, short-term and long-term gains and

losses.

15) Safekeeping: When you own shares in a mutual fund, you own

securities in many companies without having to worry about

keeping stock certificates in safe deposit boxes or sending them by

registered mail. You don't even have to worry about handling the

mutual fund stock certificates; the fund maintains your account on

its books and sends you periodic statements keeping track of all

your transactions.

16) Retirement and College Plans: Mutual funds are well suited to

Individual Retirement Accounts and most funds offer IRA-approved

prototype and master plans for individual retirement accounts (IRAs)

and Keogh, 403(b), SEP-IRA and 401(k) retirement plans. Funds also

make it easy to invest -- for college, children or other long-term

goals. Many offer special investment products or programs tailored

specifically for investments for children and college.

17) Online Services: The internet provides a fast, convenient way for

investors to access financial information. A host of services are

available to the online investor including direct access to no-load

companies.

18) Sweep Accounts: With many funds, if you choose not to reinvest

your stock or bond fund dividends, you can arrange to have them

swept into your money market fund automatically. You get all the

advantages of both accounts with no extra effort.

19) Asset Management Accounts: These master accounts, available

from many of the larger fund groups, enable you to manage all your

financial service needs under a single umbrella from unlimited

check writing and automatic bill paying to discount brokerage and

credit card accounts.

43



20) Margin: Some mutual fund shares are marginable. You may buy

them on margin or use them as collateral to borrow money from

your bank or broker. Call your fund company for details.

MARKET TRENDS

Alone UTI with just one scheme in 1964, now competes with as

many as 400 odd products and 34 players in the market. In spite of the

stiff competition and losing market share, UTI still remains a formidable

force to reckon with.

Last six years have been the most turbulent as well as exiting

ones for the industry. New players have come in, while others have

decided to close shop by either selling off or merging with others.

Product innovation is now passé with the game shifting to performance

delivery in fund management as well as service. Those directly

associated with the fund management industry like distributors,

registrars and transfer agents, and even the regulators have become

more mature and responsible.

The industry is also having a profound impact on financial

markets. While UTI has always been a dominant player on the bourses

as well as the debt markets, the new generation of private funds which

have gained substantial mass are now seen flexing their muscles. Fund

managers, by their selection criteria for stocks have forced corporate

governance on the industry. By rewarding honest and transparentmanagement with higher valuations, a system of risk-reward has been

created where the corporate sector is more transparent then before.

Funds have shifted their focus to the recession free sectors like

pharmaceuticals, FMCG and technology sector. Funds performances

are improving. Funds collection, which averaged at less than Rs100bn

per annum over five-year period spanning 1993-98 doubled to Rs210bn

in 1998-99. In the current year mobilization till now have exceeded

44



Rs300bn. Total collection for the current financial year ending March

2000 is expected to reach Rs450bn.

What is particularly noteworthy is that bulk of the mobilization

has been by the private sector mutual funds rather than public sector

mutual funds. Indeed private MFs saw a net inflow of Rs. 7819.34 crore

during the first nine months of the year as against a net inflow of

Rs.604.40 crore in the case of public sector funds.

Mutual funds are now also competing with commercial banks in

the race for retail investor’s savings and corporate float money. The

power shift towards mutual funds has become obvious. The coming few

years will show that the traditional saving avenues are losing out in the

current scenario. Many investors are realizing that investments in

savings accounts are as good as locking up their deposits in a closet.

The fund mobilization trend by mutual funds in the current

year indicates that money is going to mutual funds in a big way. The

collection in the first half of the financial year 1999-2000 matches the

whole of 1998-99.

India is at the first stage of a revolution that has already peaked

in the U.S. The U.S. boasts of an Asset base that is much higher than its

bank deposits. In India, mutual fund assets are not even 10% of the

bank deposits, but this trend is beginning to change. Recent figures

indicate that in the first quarter of the current fiscal year mutual fund

assets went up by 115% whereas bank deposits rose by only 17%.

(Source: Thinktank, The Financial Express September, 99) This is

forcing a large number of banks to adopt the concept of narrow

banking wherein the deposits are kept in Gilts and some other assets

45



which improves liquidity and reduces risk. The basic fact lies that banks

cannot be ignored and they will not close down completely. Their role

as intermediaries cannot be ignored. It is just that Mutual Funds are

going to change the way banks do business in the future.

COMPARISON OF BANKS, MUTUAL FUNDS, EQUITY &DERIVATIVES

BANKS MUTUALFUNDS

EQUITY DERIVATIVES

Returns Low Better Better Better

Administr

ative exp.

High Low Low Low

Risk Low Moderate High High

Investment options

Less More More Less

Network High penetration Low butimproving

Highpenetration

Highpenetration

Liquidity At a cost Better Better Better

Quality of assets

Not transparent Transparent Transparent -

Interest

calculation

Minimum balance

between 10th. &30th. Of every

month

Everyday NA NA

Guarantee Maximum Rs.1lakh on deposits

None NA NA

46



RECENT TRENDS IN MUTUAL FUND INDUSTRY

The most important trend in the mutual fund industry is the

aggressive expansion of the foreign owned mutual fund companies and

the decline of the companies floated by nationalized banks and smaller

private sector players.

Many nationalized banks got into the mutual fund business in the

early nineties and got off to a good start due to the stock market boom

prevailing then. These banks did not really understand the mutual fund

business and they just viewed it as another kind of banking activity.

Few hired specialized staff and generally chose to transfer staff from

the parent organizations. The performance of most of the schemes

floated by these funds was not good. Some schemes had offered

guaranteed returns and their parent organizations had to bail out these

AMCs by paying large amounts of money as the difference between the

guaranteed and actual returns. The service levels were also very bad.

Most of these AMCs have not been able to retain staff, float new

schemes etc. and it is doubtful whether, barring a few exceptions, they

have serious plans of continuing the activity in a major way.

The experience of some of the AMCs floated by private sector

Indian companies was also very similar. They quickly realized that the

AMC business is a business, which makes money in the long term and

requires deep-pocketed support in the intermediate years. Some have

47



sold out to foreign owned companies, some have merged with others

and there is general restructuring going on.

The foreign owned companies have deep pockets and have come

in here with the expectation of a long haul. They can be credited with

introducing many new practices such as new product innovation, sharp

improvement in service standards and disclosure, usage of technology,

broker education and support etc.

In fact, they have forced the industry to upgrade itself and

service levels of organizations like UTI have improved dramatically inthe last few years in response to the competition provided by these.

SELECTING FUNDS FOR YOUR PORTFOLIO

The chart below can be used to identify the types of funds best suited

to your particular investment objectives. Refer to it as you begin to

formulate your portfolio.

If YourBasicObjectiveIs

You Want TheFollowingFund Type

These FundsInvestPrimarily In

PotentialCapitalAppreciation

PotentialCurrentIncome

PotentialRisk

MaximumCapital

Growth

AggressiveGrowth

International

Commonstocks withpotential forvery rapidgrowth. May

employcertainaggressivestrategies

Very High Very LowHigh toVery

High

HighCapitalGrowth

Growth

Specialty/Sector

International

Commonstocks withlong-termgrowthpotential

High to VeryHigh

Very Low High

CurrentIncome & Growth &Income Commonstocks with Moderate Moderate Moderateto High

48



CapitalGrowth

potential forhighdividendsand capitalappreciation

HighCurrentIncome

Fixed

Income

EquityIncome

Both high-dividend-paying stocksand bonds

Very LowHigh toVeryHigh

Low toModerate

CurrentIncome &Protectionof Principal

GeneralMoneyMarketFunds

Moneymarketinstruments

NoneModerateto High

Very Low

Tax-Free

Income &Protectionof Principal

Tax-ExemptMoneyMarket

Short-termmunicipalnotes andbonds

NoneModerateto High

Low

CurrentIncome &MaximumSafety of Principal

U.S.GovernmentMoneyMarket

U.S.Treasuryand agencyissuesguaranteedby the U.S.Government

NoneModerateto High

Low

FUTURE SCENARIO

The asset base will continue to grow at an annual rate of about

30 to 35 % over the next few years as investor’s shift their assets from

banks and other traditional avenues. Some of the older public and

private sector players will either close shop or be taken over.

Out of ten public sector players five will sell out, close down or

merge with stronger players in three to four years. In the private sector

this trend has already started with two mergers and one takeover.

Here too some of them will down their shutters in the near future to

come.

But this does not mean there is no room for other players. The

market will witness a flurry of new players entering the arena. There

49



will be a large number of offers from various asset management

companies in the time to come. Some big names like Fidelity, Principal,

and Old Mutual etc. are looking at Indian market seriously. One

important reason for it is that most major players already have

presence here and hence these big names would hardly like to get leftbehind.

The mutual fund industry is awaiting the introduction of

derivatives in India as this would enable it to hedge its risk and this inturn would be reflected in its Net Asset Value (NAV).

SEBI is working out the norms for enabling the existing mutual

fund schemes to trade in derivatives. Importantly, many market

players have called on the Regulator to initiate the process

immediately, so that the mutual funds can implement the changes that

are required to trade in Derivatives.

PROBLEMS & PROSPECTS OF MUTUAL FUNDS

1) Wrong positioning : The mutual funds in India have been quite

wrongly promoted as an alternative to equity industry. Thus

creating very high expectations in the minds of the investors. In a

falling market, these expectations have been belied. Only the pure

equity schemes can be compared with the stock market index.

However pure equity schemes are few in India, further, investment

is not purely linked to a particular index. Therefore returns form

mutual funds cannot really be compared with stock market index.

2) Limited product range: Indian mutual funds have remained

centered around a limited product range basically income, income-

cum-growth and tax saving schemes. Efforts to develop and expand

the market through innovative new products have been negligible.

50



These have happened due to the tendency to avoid risk, inability to

understand future market developments, and change in investor

preference. Therefore the extent of mutual funds market has

remained limited.

3) Confused market situation: probably the introduction and

implementation of new regulatory norms has contributed in some

measure to market sluggishness, as the emerging market was,

initially, not able to respond to the regulatory objectives.

4) Absence of Innovative Marketing Network: The absence of

product diversification and a confused market situation has been

made worse by the absence of an innovative marketing network for

mutual funds. The agent oriented network has largely been failure

because most of the agents have not been specifically trained to sell

mutual funds products,

5) Lack of adequate research infrastructure: the passive

approach of some mutual funds in managing investor’s funds is

compounded by the lack of adequate research infrastructure.

Consequently, returns commensurate with the market movement

could not be realized by many schemes, which has tended to show

up Indian mutual funds in a bad light.

6) Inefficient management: Management is considered to be a key

factor for the operational efficiency of any business venture. This

factor becomes even more crucial for service ventures such as

mutual funds. What mutual funds require are managers who have a

clear understanding of prevailing and emerging market potential,

investor preference and macro economic fundamentals.

51



7) Lack of investor’s education: The market success of any new

product particularly a financial product depends largely on its

acceptance by consumers, in this case investors. Mutual funds must

undertake a well design and comprehensive program of investor

education especially aimed at investors in rural and semi-urbanareas. However this has been mostly neglected in India.

8) Lack of media support: investors understanding about mutual

funds product and it feature must be increased as it was found to be

very low so far. This problem requires quick and structured

attention. This can be solved with effective use of media. A positive

media support is also required and mutual funds need to be media

friendly. A very closer coordination between AMFI, mutual funds and

the media to promote investor education in India.

9) Ignorance of liquidity management: over emphasis on asset

management has often ignored the crucial importance of liability

management in mutual funds, leading many Indian funds into a

liquidity trap at the time of redemption. A more scientific approach

needs to be adopted by the funds.

10) Risk management ignored: Derivatives have been widely used

by the mutual funds as a measure of risk management as a complex

and competitive market place. Further the practice of stock lending,

used widely in the western market has induced efficiency in funds

management a regulatory environment for mutual funds need to

encouraged this practices in India.

52



INTRODUCTION ON EQUITY SHARES

Equity is a term commonly used to describe the ordinary share

capital of the business. Ordinary share in the equity capital of the

business entitle the holders to all distributed profits after the holders of

debentures and preference shares have been paid. Ordinary shares are

issued to the owners of the company. It is important to understand the

market values of company’s shares have little relationship to their

nominal or face value. The market value of the company share is

determined by the price another investor is prepared to pay for them.

In the case of publicly quoted companied, this is reflected in the

market value of the ordinary shares traded on the stock exchange. In

case of privately owned companies, where there is unlikely to be much

trading in shares, market value is often determined when the business

is sold or when the minority share holding is valued for taxation

purpose.

Differed ordinary shares are a form of ordinary shares which areentitled to a dividend only after a certain date or only if profits rise

above a certain amount. Voting rights might also differ from those

attach to other ordinary shares. Financing a company through the sale

of stock in accompany is known as equity financing. Alternatively debt

financing can be done to avoid giving up shares of ownership of the

company. Equity financing are usually used for longer term investment

projects such as investment in a new factory or a new foreign market.

53





measure the levels of the market. Most stock indexes attempt to be

proxies for the market they exist in. returns on the index are thus

supposed to represent the returns on the market i.e the returns that u

could get if u had the entire market in your portfolio.

CHAPTER – 3COMPANY PROFILE

55



COMPANY PROFILE

OVERVIEW

INDIAINFOLINE LTD.

India Infoline is a one-stop financial services shop (Equity, Commodity, Mutual Funds,

General Insurance, Life Insurance), most respected for quality of its advice, personalized

service and cutting-edge technology. Keeping with its tradition of personalized service, India Infoline provides customized and integrated equity solutions to Investors like you.

o IndiaInfoline is one of the best brands amongst Indian domestic broking

houses enjoying an unmatched & unparalleled brand recall. Financially

sound with an excellent track record of consistent market growth in all

key buisness segments.

o The India Infoline group, comprising the holding company, India Infoline Ltd and

its wholly owned subsidiaries offers the entire gamut of investment products. The

India Infoline group has a significant presence across the country with over 596

branches in over 345 cities across India.

It also undertakes equity Research which is acknowledged by none other than

Forbes as “ Best of the Web “ & “ must read for investors in Asia “.

The group has memberships on BSE and NSE for equity trading, depository

participant with NSDL and CDSL and commodities trading with MCX and

NCDX

Infoline group, comprising the holding company, India Infoline Ltd and its

56





FINANCIAL SERVICES SPACE.

58



India Infoline Group :

59



The India Infoline group, comprising the holding company, India Infoline

Limited and its wholly-owned subsidiaries, straddle the entire financial

services space with offerings ranging from Equity research, Equities and

derivatives trading, Commodities trading, Portfolio Management Services,

Mutual Funds, Life Insurance, Fixed deposits, GoI bonds and other small

savings instruments to loan products and Investment banking.

India Infoline also owns and manages the websites www.indiainfoline.com

and www.5paisa.com

The company has a network of 596 branches spread across 345 cities and

towns. It has more than 500,000 customers.

India Infoline Media and Research Services Limited :

The content services represent a strong support that drives the broking,

commodities, mutual fund and portfolio management services businesses.

Revenue generation is through the sale of content to financial and media

houses, Indian as well as global.

India Infoline Commodities Limited :

India Infoline Commodities Pvt Limited is engaged in the business of

commodities broking. Our experience in securities broking empowered us

with

the requisite skills and technologies to allow us offer commodities broking

as a

contra-cyclical alternative to equities broking. We enjoy memberships with

the

India Infoline Group :

The India Infoline group, comprising the holding company, India InfolineLimited and its wholly-owned subsidiaries, straddle the entire financial services spacewith offerings ranging from Equity research, Equities and derivatives trading,Commodities trading, Portfolio Management Services, Mutual Funds, Life Insurance,Fixed deposits, GoI bonds and other small savings instruments to loan products andInvestment banking.

60



India Infoline also owns and manages the websites www.indiainfoline.com andwww.5paisa.comThe company has a network of 596 branches spread across 345 cities andtowns. It has more than 500,000 customers.

India Infoline Media and Research Services Limited :

The content services represent a strong support that drives the broking,commodities, mutual fund and portfolio management services businesses.Revenue generation is through the sale of content to financial and mediahouses, Indian as well as global.

India Infoline Commodities Limited :

India Infoline Commodities Pvt Limited is engaged in the business of commodities broking. Our experience in securities broking empowered us withthe requisite skills and technologies to allow us offer commodities broking as acontra-cyclical alternative to equities broking. We enjoy memberships with theMCX and NCDEX, two leading Indian commodities exchanges, and recently

acquired membership of DGCX.

India Infoline Marketing & Services :

India Infoline Marketing and Services Limited is the holding company of India

Infoline Insurance Services Limited and India Infoline Insurance Brokers

Limited.

(a) India Infoline Insurance Services Limited is a registered Corporate Agent

with the Insurance Regulatory and Development Authority (IRDA). It is the

largest Corporate Agent for ICICI Prudential Life Insurance Co Limited, which

is India's largest private Life Insurance Company. India Infoline was the first

corporate agent to get licensed by IRDA in early 2001.

(b) India Infoline Insurance Brokers Limited India Infoline Insurance Brokers

Limited is a newly formed subsidiary which will carry out the business of

Insurance broking. We have applied to IRDA for the insurance broking licence

and the clearance for the same is awaited. Post the grant of license, we propose to also

commence the general insurance distribution business.

India Infoline Investment Services Limited :

Consolidated shareholdings of all the subsidiary companies engaged in loans

and financing activities under one subsidiary. Recently, Orient Global, a

Singapore-based investment institution invested USD 76.7 million for a 22.5%

stake in India Infoline Investment Services. India Infoline

Investment Services Private Limited consists of the following step-down

61



subsidiaries.

(a) India Infoline Distribution Company Limited (distribution of retail loan

products)

(b) Moneyline Credit Limited (consumer finance)

(c) India Infoline Housing Finance Limited (housing finance)

IIFL (Asia) Private Limited :

IIFL (Asia) Private Limited is wholly owned subsidiary which has been

incorporated in Singapore to pursue financial sector activities in other Asian

markets. Further to obtaining the necessary regulatory approvals, the company has been

initially capitalized at 1 million Singapore dollars.

India Infoline Organization Flowchart:

62

Territorial

Manager



RESEARCH

World class research reports, sector reports and update, corporate news, announcements,

Technical stocks Ideas on trader terminal, SMS (paid service), fundamental investment

ideas in Large Cap, Mid Cap, Small Cap, result updates, Daily market strategies (DMS),

Weekly wrap, Daily Derivatives Strategy, Daily Market watch (DMV) and Online

recommendations.

BACK OFFICE

Web and application based online back office, centralized data

processing. Contract notes through e-mails and courier.

Online ledger accounts, DP accounts, trade information.

Trade with the Best Stay Ahead of the Rest.

• Trade online, over the phone or at our branches.

• Dedicated, expert Relationship Managers.

• Internationally acclaimed research.

63

HR Sales

Manager

Sales

Manager

Sales

Manager

Team

Leader

Team

Leader

Team

Leader

Relationshi

p ManagerRelationship

Manager

Relationship

Manager



• Trade in shares, derivatives and commodities.

• Apply for Online IPO’s & Mutual Funds on our home page www.5paisa.com or

www.indiainfoline.com

TT ADVANCE LOOKS ( TRADING SOFTWARE) OF IIFL

64

http://www.5paisa.com/

http://www.indiainfoline.com/



INDUSTRY PROFILE

Industry Overview

The securities market achieves one of the most important functions of

channeling idle resources to productive resources or from less productive

resources to more productive resources. Hence in the broader context the

people who save and investors who invest focus more towards the

65



economy’s abilities to invest and save respectively. This enhances savings

and investments in the economy, the two pillars for economic growth. The

Indian Capital Market has come a long way in this process and with a

strong regulator it has been able to usher an era of a modern capital

market regime. The past decade in many ways has been remarkable for

securities market in India. It has grown exponentially as measured in terms

of amount raised from the market, the number of listed stocks, market

capitalization, trading volumes and turnover on stock exchanges, and

investor population. The market has witnessed fundamental institutional

changes resulting in drastic reduction in transaction costs and significant

improvements in efficiency, transparency and safety.

DEPENDENCE OF SECURITIES MARKET

Three main sets of entities depend on securities market- the

corporate, the government & households. While the corporate and

governments raise resources from the securities market to meet their

obligations, the households invest their savings in securities.

PRIMARY MARKET & SECONDARY MARKET

The securities market comprises two segments- primary market (new

issues, offer for sale) & secondary market (trading of stocks). There are

two major types of issuers who issue securities. The corporate entities

issue mainly debt and equity instruments (shares, debentures, etc.), while

the governments (central and state governments) issue debt securities

(dated Securities, treasury bills). The two major exchanges, namely the

NSE and the BSE provide trading of securities.

STOCK MARKET

66



When investors think of the stock market, they may imagine a specific place - such

as a stock exchange. In fact, the stock market is the abstract idea of stock trading

and stock exchange. All selling of stocks - at stock exchanges and in other ways -

affects the market overall. Following stock market information in the news can

help you make the right decisions about stock market investing.

NEED OF STOCK MARKET

The stock market is simply a term for the overall market or industry that is

concerned with buying and selling company stock, both private and publicly traded

securities. The stock market does many things. It helps to set prices of stocks. The

more a stock is traded on the market and the more in demand the stock, the higher

is its value. Having a stock market that is interconnected with stock markets

around the world helps traders and investors to see how Specific stocks are doing.

Of course, the stock market is mainly present to create money. Through the

market, investors - both companies and individuals - can buy stocks, which

effectively make them own a small part of a company. If the company prospers,

investors are rewarded with dividends and profits. Companies, by becoming public

and offering stocks to the public, can raise money and improve their profile

through business expansions which can help them make great profit.

Introduction to the BSE

Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a richheritage. Popularly known as "BSE", it was established as "The Native Share &

Stock Brokers Association" in 1875. It is the first stock exchange in the country to

obtain permanent recognition in 1956 from the Government of India under the

Securities Contracts (Regulation) Act, 1956.The Exchange's pivotal and pre-

eminent role in the development of the Indian capital market is widely recognized

and its index, SENSEX , is tracked worldwide. Earlier an Association of Persons

(AOP), the Exchange is now a demutualised and corporative entity incorporated

67



under the provisions of the Companies Act, 1956, pursuant to the BSE

(Corporatizations and Demutualization) Scheme, 2005 notified by the Securities

and Exchange Board of India (SEBI).

Bombay Stock Exchange Limited received its Certificate of Incorporation on 8th

August, 2005 and Certificate of Commencement of Business on 12th August.

BSE as a brand is synonymous with capital markets in India. The BSE SENSEX is

the benchmark equity index that reflects the robustness of the economy and

finance. At par with international standards, BSE has been a pioneer in several

areas. It has several firsts to its credit even in an intensely competitive

environment.

• First in India to introduce Equity Derivatives

• First in India to launch a Free Float Index

• First in India to launch US$ version of BSE Senses

• First in India to launch Exchange Enabled Internet Trading Platform

• First in India to obtain ISO certification for Surveillance, Clearing &

Settlement• 'BSE On-Line Trading System’ (BOLT) has been awarded the globally

recognized the Information Security Management System standard

BS7799-2: 2002.

• First to have an exclusive facility for financial training Moved from Open

Outcry to Electronic Trading within just 50 days

An equally important accomplishment of BSE is the launch of a nationwideinvestor awareness campaign - Safe Investing in the Stock Market - under which

nationwide awareness campaigns and dissemination of information through print

and electronic medium was undertaken. BSE also actively promoted the securities

market awareness campaign of the Securities and Exchange Board of India.

In 2002, the name The Stock Exchange, Mumbai, was changed to BSE. BSE,

which had introduced securities trading in India, replaced its open outcry system of trading in 1995, when the totally automated trading through the BSE Online

68



trading (BOLT) system was put into practice. The BOLT network was expanded,

nationwide, in 1997. It was at the BSE's International Convention Hall that India’s

1st Bell ringing ceremony in the history Capital Markets was held on February

18th, 2002. It was the listing ceremony of Bharti Tele ventures Ltd.

BSE with its long history of capital market development is fully geared to continue

its contributions to further the growth of the securities markets of the country, thus

helping India increase its sphere of influence in international financial markets.

VISION:

"Emerge as the premier Indian stock exchange by establishing globalbenchmarks"

Listing means admission of the securities to dealings on a recognized stock

exchange. The securities may be of any public limited company, Central or State

Government, quasi governmental and other financial institutions/corporations,

municipalities, etc.

The objectives of listing are mainly to:

• provide liquidity to securities;

• mobilize savings for economic development;

• Protect interest of investors by ensuring full disclosures.

A company intending to have its securities listed on the Exchange has to comply

with the listing requirements prescribed by the Exchange.

Some of the requirements are as under

1. Minimum Listing Requirements for new companies

2. Minimum Listing Requirements for companies listed on other stock

exchanges

3. Permission to use the name of the Exchange in an Issuer Company's

prospectus

4. Submission of Letter of Application

69





• Providing a fair, efficient and transparent securities market to investors

using electronic trading systems,

• Enabling shorter settlement cycles and book entry settlements systems, and

• Meeting the current international standards of securities markets.

The standards set by NSE in terms of market practices and technology has become

industry benchmarks and is being emulated by other market participants. NSE is

more than a mere market facilitator. It's that force which is guiding the industry

towards new horizons and greater opportunities.

C-3

COMPANY PROFILE

India Infoline

71



We are a one-stop financial services shop, most respected for quality of its advice,

personalized service and cutting-edge technology.

Vision

Our vision is to be the most respected company in the financial services space.

India Infoline Group

The India Infoline group, comprising the holding company, India Infoline Limited

and its holly-owned subsidiaries, straddle the entire financial services space with

offerings ranging from quity research, Equities and derivatives trading,

Commodities trading, Portfolio Management Services, Mutual Funds, Life

Insurance, Fixed deposits, GoI bonds and other small savings instruments to loan

products and Investment banking. India Infoline also owns and manages the

websites www.indiainfoline.com and www.5paisa.com The company has a

network of 976 business locations (branches and sub-brokers) spread across 365

cities and towns. It has more than 800,000 customers.

India Infoline Ltd

India Infoline Limited is listed on both the leading stock exchanges in India, viz.

the Stock exchange, Mumbai (BSE) and the National Stock Exchange (NSE) and

is also a member of both the exchanges. It is engaged in the businesses of Equities

broking, Wealth Advisory Services and Portfolio Management Services. It offers

broking services in the Cash and Derivatives segments of the NSE as well as the

Cash segment of the BSE. It is registered with NSDL as well as CDSL as adepository participant, providing a one-stop solution for clients trading in the

equities market. It has recently launched its Investment banking and Institutional

Broking business.

72





A SEBI authorized Portfolio Manager; it offers Portfolio Management Services to

clients. These services are offered to clients as different schemes, which are based

on differing investment strategies made to reflect the varied risk-return preferences

of clients.

India Infoline Media and Research Services Limited

The content services represent a strong support that drives the broking,

commodities, mutual fund and portfolio management services businesses. Revenue

generation is through the sale of content to financial and media houses, Indian as

well as global. It undertakes equities research which is acknowledged by none

other than Forbes as 'Best of the Web' and '…a must read for investors in Asia'.

India Infoline's research is available not just over the internet but also on

international wire services like Bloomberg (Code: IILL), Thomson First Call and

Internet Securities where India Infoline is amongst the most read Indian brokers.

India Infoline Commodities Limited

India Infoline Commodities Pvt Limited is engaged in the business of commodities

broking. Our experience in securities broking empowered us with the requisiteskills and technologies to allow us offer commodities broking as a contra-cyclical

73



alternative to equities broking. We enjoy memberships with the MCX and

NCDEX, two leading Indian commodities exchanges, and recently acquired

membership of DGCX. We have a multi-channel delivery model, making it among

the select few to offer online as well as offline trading facilities.

India Infoline Marketing & Services

India Infoline Marketing and Services Limited is the holding company of India

Infoline Insurance Services Limited and India Infoline Insurance Brokers Limited.

India Infoline Insurance Services Limited is a registered Corporate Agent with the

Insurance Regulatory and Development Authority (IRDA). It is the largest

Corporate Agent for ICICI Prudential Life Insurance Co Limited, which is India's

largest private Life Insurance Company. India Infoline was the first corporate

agent to get licensed by IRDA in early 2001.

India Infoline Insurance Brokers Limited India Infoline Insurance Brokers Limited

is a newly formed subsidiary which will carry out the business of Insurance

broking. We have applied to IRDA for the insurance broking licence and the

clearance for the same is awaited. Post the grant of license, we propose to also

commence the general insurance distribution business.

India Infoline Investment Services Limited

Consolidated shareholdings of all the subsidiary companies engaged in loans and

financing activities under one subsidiary. Recently, Orient Global, a Singapore-

based investment institution invested USD 76.7 million for a 22.5% stake in India

Infoline Investment Services. This will help focused expansion and capital raising

in the said subsidiaries for various lending businesses like loans against securities,

SME financing, distribution of retail loan products, consumer finance business and

housing finance business. India Infoline Investment Services Private Limited

consists of the following step-down subsidiaries.

74



a) India Infoline Distribution Company Limited (distribution of retail loan

products)

Money line Credit Limited (consumer finance)

b) India Infoline Housing Finance Limited (housing finance)

IIFL (Asia) Pte Limited

IIFL (Asia) Pte Limited is wholly owned subsidiary which has been incorporated

in Singapore to pursue financial sector activities in other Asian markets. Further to

obtaining the necessary regulatory approvals, the company has been initially

capitalized at 1 million Singapore dollars

Nirmal Jain, MBA (IIM, Ahmedabad) and a Chartered and Cost Accountant,

founded India’s leading financial services company India Infoline Ltd. in 1995,

providing globally acclaimed financial services in equities and commodities

broking, life insurance and mutual funds distribution, among others. Mr. Jain

began his career in 1989 with Hindustan Lever’s commodity export business,

contributing tremendously to its growth. He was also associated with Inquire-

Indian Equity Research, which he co-founded in 1994 to set new standards in

equity research in India.Mr. R Venkataraman Executive Director India InfolineLtd.R Venkataraman, co-promoter and Executive Director of India Infoline Ltd., is

a B.Tech (Electronics and Electrical Communications Engineering, IIT Kharagpur)

and an MBA (IIM Bangalore). He joined the India Infoline board in July 1999. He

previously held senior managerial positions in ICICI Limited, including ICICI

Securities Limited, their investment banking joint venture with J P Morgan of

USA and with BZW and Taib Capital Corporation Limited. He was also Assistant

Vice President with G E Capital Services India Limited in their private equity

division, possessing a varied experience of more than 16 years in the financial

services sector.

Name of the Board of Directors

Nirmal Jain and R Venkataraman Board of Directors of India Infoline Ltd.

Mr. Nilesh Vikamsey Independent Director of India Infoline Ltd.

75



Privacy Policy

This privacy statement is applicable to Indiainfoline.com. Indiainfoline.com does

not collect personal information about individuals except when such individuals

specifically provide such information on a voluntary basis. For example, such

personal information may be gathered for contest registration, the registration

process for subscription sites or services and in connection with content

submissions, community postings (e.g., message boards), suggestions, and

voting/polling activities. Personal information on individual users will not be sold

or otherwise transferred to unaffiliated third parties without the approval of the

user at the time of collection. At such points of collection, the user will have the

opportunity to indicate whether he or she would like to "opt out" of receiving

promotional and/or marketing information about other products, services and

offerings from Indiainfoline.com and/or any third parties.

Indiainfoline.com reserves the right to perform statistical analyses of user behavior

and characteristics in order to measure interest in and use of the various areas of

the site and to inform advertisers of such information as well as the number of

users that have been exposed to or clicked on their advertising banners.

Indiainfoline.com will provide only aggregated data from these analyses to third

parties. Also, users should be aware that Indiainfoline.com may sometimes permit

third parties to offer subscription and/or registration-based services through a

Indiainfoline.com site. Indiainfoline.com is not responsible for any actions or

policies of such third parties and users should check the applicable privacy policy

of such party when providing personally identifiable information

Users are also being aware that non-personal information and data may be

automatically collected through the standard operation of Indiainfoline.com's

internet servers or through the use of "cookies." "Cookies" are small text files a

web site can use to recognize repeat users, facilitate the user's ongoing access to

and use of the site and allow a site to track usage behavior and compile aggregate

data that will allow content improvements and targeted advertising.

76



Cookies are not programs that come onto a user's system and damage files.

Generally, cookies work by assigning a unique number to the user that has no

meaning outside the assigning site. Users are also being made aware that

Indiainfoline.com cannot control the use of cookies or the resulting information by

advertisers or third parties hosting data for Indiainfoline.com. If a user does not

want information collected through the use of cookies, there is a simple procedure

in most browsers that allows the user to deny or accept the cookie feature;

however, users should note that cookies may be necessary to provide the user with

certain features (e.g., customized delivery of information) available from

Indiainfoline.com.

Indiainfoline.com reserves the right to change this policy at any time by notifying

users of the existence of a new privacy statement. This statement and the policies

outlined herein are not intended to and do not create any contractual or other legal

rights in or on behalf of any party.

CHAPTER – 4ANALYSIS & INTERPRETATION

77



ANALYSIS & INTERPRETATION

PREFACE

The analysis is done to know whether, Mutual fund, is it

investor’s best choice. The information is collected of different sectors

which include FMCG Sector, , Pharma Sector and Index sector.

The returns of selected Mutual funds and selected Equities are

calculated for 3&6 months and 1year period. Equities closing price are

also given for half year and annually. The information collected is

shown in graphical form to make it more simple and easy to

understand by the Reader. The information regarding all Mutual Funds

and Equities is given in the Table.

The Analysis is done by comparing the Particular Sector Mutual

Funds with Equities and also with Relative Sensex and Nifty, index of

BSE and NSE. The average of Particular Sector Mutual Funds and

78



Equities is taken and returns are calculated. Let us take for example, In

FMCG Sector the Returns of ICICI Prudential FMCG Fund, Franklin FMCG

fund and Magnum FMCG Fund are added and then divided by 3 hence

the average is taken as returns of FMCG Mutual Funds in the same way

Returns of HLL Equity, Dabur Equity, Colgate Equity, Tata tea Equityand Britannia Equity are also added and divided by 5 and the average

is taken as the returns of FMCG sector Equities. The Returns of Relative

Sensex and Nifty is Calculated and then the Analysis is done to know

the position of Mutual Funds in the market in long term and short term

period. The period of 3 months and 6 months is taken as short term

and period of 1 year is taken as long term period. The comparison of

aggregate Mutual Funds and Equities is shown in Table.

FMCG – SECTOR MUTUAL FUNDS & EQUITIES

(TABLE :4.1)

RETURNS OF FMCG SECTOR EQUITIES & MUTUAL FUNDS

NAMEAbsolute returns %

3MONTHS

6 MONTHS 1 YEAR

Franklin FMCG Fund 15.12 -9.9 55.20Pru ICICI FMCG Fund 0.57 0.30 0.12Magnum FMCG Fund 0.21 0.04 0.10Hind Lever ltd Equity 0.84 0.95 0.84

Dabur equity -0.82 0.38 0.01

Colgate Equity 0.72 0.48 0.79Britannia Equity 0.0019 0.08 0.0013 Tata tea Equity 0.014 0.05 0.06

RETURNS OF EQUITIES

(BAR DIAGRAM – 4.1)

RETURNS OF MUTUAL FUNDS & EQUITIES

79



RETURNS OF FMCG SECTOR

EQUITIES & MUTUAL FUNDS

-20

0

20

40

60

1 2 3

Franklin FMCG

Fund

Pru ICICI

FMCG Fund

Magnum

FMCG Fund

80

-20

-10

0

10

20

3040

50

60

1 2 3

FranklinFMCG Fund

Pru ICICI

FMCG Fund

Magnum

FMCG Fund



-1

-0.8

-0.6

-0.4

-0.2

00.2

0.4

0.6

0.8

1

1.2

Hind

Lever ltd

Equity

Dabur

equity

Colgate

Equity

Britannia

Equity

Tata tea

Equity

Series1

Series2

Series3

-20

-10

0

10

20

30

40

50

60

F r a n k l i n

F M C G

M a g n u m

F M C G

D a b u r

e q u i t y

B r i t a n n i a

E q u i t y

Series1

Series2

Series3

81



60

(TABLE :4.1A)

FMCG MUTUAL FUNDS VS EQUITIES & RELATIVE INDEX

NAMEABSOLUTE RETURNS IN %

3MONTHS

6MONTHS

1 YEAR

FMCG SECTORMUTUAL FUNDS

0.15 0.10 0.55

FMCG SECTOREQUITIES

0.023 0.019 0.017

RELATIVE TOSENSEX

594.13 1476.18 1725.89

RELATIVE TONIFTY

6561.00 9965.46 9830.72

82



FMCG Mutual Funds includes Franklin FMCG Fund, Prudential ICICI

FMCG Fund and Magnum FMCG fund.

FMCG Equities includes Hindustan lever ltd, Dabur, Colgate, Tata

Tea and Britannia

ABSOLUTE RETURNS OF MUTUAL FUNDS AND EQUITIES

(LINE DIAGRAM 4.1)

ABSOLUTE RETURNS OF INDEX

0

2000

4000

6000

8000

10000

12000

1 2 3

RELATIVE TO

SENSEX

RELATIVE TO

NIFTY

83

0

0.1

0.2

0.3

0.4

0.5

0.6

1 2 3

FMCG SECTOR

MUTUAL FUNDS

FMCG SECTOR

EQUITIES



ABSOLUTE RETURNS OF INDEX

0

2000

4000

6000

8000

10000

12000

1 2 3

RELATIVE TO

SENSEX

RELATIVE TO

NIFTY

(ANALYSIS)

As observed from the Table, we can say that ICICI Prudential

FMCG Fund, Franklin FMCG Fund and Magnum FMCG Fund Gives

good Return. The Bar diagram representation makes it very

clear.

In FMCG Equities from Table and Bar Diagram we can see that

Hindlever gives maximum Returns then any other Equities. Thenext comes Colgate and TataTea which gives almost the same

84



Returns. Tata tea Equities shows good Returns only in long term

period Whereas Dabur gives Negative Returns in short term

period..

The Returns of individual Mutual Fund of FMCG Sector inparticular period is summed up and then average is taken as the

Returns of FMCG Mutual Funds. In the same manner individual

Equity is summed up and the average is taken as FMCG Equities.

These aggregated Mutual funds and Equities are now compared

in Table with the Nifty and Sensex, the Index of NSE and BSE.

FMCG Mutual funds, as observed from the Table and LineDiagram grows rapidly. FMCG Equities show very good Returns in

long term and short term period i.e. in 3 & 6 months and 1 years

period . But Dabur shows negative returns in 3 months from the

Table .

When comparison is made between Mutual Funds and Equities,

Returns are not similar in both short term and long term periodas we can see clearly from the Line Diagram .

As Sensex and Nifty grows in the Market, FMCG Mutual Funds

shows upward trend where as equities shows down ward. Both

Sensex and Nifty is going at different level having differentExchanges. We can see Mutual Funds , Equities , Nifty and

Sensex all together in the line Diagram .

Overall Performance of Equities and Mutual Funds is not

satisfactory, mutual funds shows better yieldings compare to

equities. Equities shows negative returns. If investor don’t want

to take risk then he must go for Mutual funds as we can observeform the Table that in individual Equity sometimes returns are

85



negative for example in Dabur Equity, but in Mutual Funds we

can see negative Returns but compare to equities mutual funds

are risk minimising.

PHARMA-SECTOR MUTUAL FUNDS & EQUITIES

(TABLE :4.4)HIGH/LOW & RETURNS OF PHARMA SECTOR EQUITIES & MFS

NAMEABSOLUTE RETURS %

3MONTHS 6MONTHS 1 YEAR

Franklin Pharma Fund 0.07 0.05 0.46

Magnum Pharma Fund 0.29 -0.74 -0.02UTI Pharma & health fund 0.08 0.01 0.27Dr Reddy’s Equity 0.083 0.072 0.062Ranbaxy Equity 0.027 0.027 0.042Orchid equity 0.013 -0.012 0.010Cipla equity 0.025 0.029 0.26Sun Pharma Equity 0.022 0.024 0.030

(BAR DIAGRAM)RETURNS OF MUTUAL FUNDS

-0.8

-0.6

-0.4

-0.20

0.2

0.4

0.6

1 2 3

Franklin Pharma

Fund

Magnum PharmaFund

UTI Pharma &

health fund

86



(BAR DIAGRAM)RETURNS OF MUTUAL FUNDS

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

1 2 3

Franklin

Pharma Fund

Magnum

Pharma Fund

UTI Pharma &

health fund

(BAR DIAGRAM 4.8)RETURNS OF EQUITIES

0.3

87



60

0.6

(TABLE :4.4A)

88



PHARMA – SECTOR MUTUAL FUNDS VS EQUITIES & RELATIVE INDEX

NAMEABSOLUTE RETURNS IN %

3MONTHS

6MONTHS

1 YEAR

PHARMAMUTUAL FUNDS 0.44 0.80 0.75

PHARMAEQUITIES

0.17 0.16 0.40

RELATIVE TOSENSEX

594.13 1476.18 1725.89

RELATIVE TONIFTY

6561.00 9965.46 9830.72

Pharma Sector Mutual Funds include UTI Pharma & HealthcareFund, Franklin Pharma Fund, Magnum Pharma Fund.

Pharma Sector Equities includes Dr Reddy Labs, Ranbaxy, orchid

and cipla Sun Pharma.

0

0.1

0.2

0.3

0.4

0.50.6

0.7

0.8

0.9

1 2 3

PHARMAMUTUAL FUNDS

PHARMA

EQUITIES

(LINE DIAGRAM 4.4)

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1 2 3

PHARMA

MUTUAL

FUNDS

PHARMA

EQUITIES

89



0

2000

4000

6000

8000

10000

12000

1 2 3

RELATIVE TO

SENSEX

RELATIVE TO

NIFTY

0

2000

4000

6000

8000

10000

12000

1 2 3

RELATIVE TO

SENSEX

RELATIVE TO

NIFTY

ABSOLUTE RETURNS OF MUTUAL FUNDS, EQUITIES & INDEX

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The Returns of individual Mutual Fund of Pharma-sector in

particular period is summed up and then average is taken as the

Returns of Pharma Sector Mutual Funds. In the same way

individual Equity are summed up and average is taken as Pharma

Sector Equities. These aggregated Mutual funds and Equities arenow compared in Table with the Nifty and Sensex . Pharma

Sector Mutual Funds performs well in both short term and long

term period as noticed form the Table. But sbi pharma sector

shows negetive returns in 6months and 1 year. equities gives

good Returns in short term but in short term Orchid Equity shows

negative returns in 6 months.

When Both Pharma Sector Mutual Funds and Equities are

compared, Mutual Funds perform better than Equities in long

term period. In short term Equities gives good result but in lone

term the performance shows downward trend as we can observe

from the Line Diagram .

As relative Sensex and Nifty grows in the Market, Pharma Sector

Mutual Funds also shows upward trend but Equities does not

show any upward trend in long term period as we can clearly

observe in the Line Diagram showing Comparison between

Mutual Funds, Equities, Sensex and Nifty.

In long and short Pharma Sector Mutual Funds performs better

than Pharma Sector Equities. It is advisable to invest in Pharma

Sector Mutual Fund rather than Equity, because we can notice

from the Line Diagram that Equities does not show any upward

trend with the growth in Mutual Funds, Sensex, and Nifty as we

have seen from Table that Individual Pharma Equity gives

negative Returns whereas the case is never done with MutualFunds.

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CHAPTER - 5FINDINGS & SUGGESTIONS

FINDINGS:

• The Mutual funds shows better yields compare to equities.

• in fmcg sector franklin fmcg fund shows negative returns in 6

months.

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• In pharma sector sbi mutual fund shows negative returns both in

short & long term.

• In fmcg sector in short term dabur gives negative returns in 3

months.

• In pharma sector orchid shows negative returns in 6 months.

suggestions

• It is better to invest in mutual funds rather than

equities by considering risk factor.

• Even though mutual funds shows in short term negative returns

but it is better to invest in mutual funds.

• While investing in equities better to invest in

blue chip companies by comparing mid cap

securites.

• While investing in mutual funds, schemes must

be selected by the investor based on his risk

taking ability & past performance.

• The investor can be invested with the long term

perception in equity market.

CHAPTER - 6

BIBILIOGRAPHY

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I. TEXT BOOK

1. Security Analysis Portfolio Management

Donald Fisher

Ronald A Jordan

2. Mutual Fund In India

H.Sadhak

II . WEB SITES

www.mutualfundsindia.com

www.amfiindia.com

www.utimf.com

www.bseindia.com

III. MAGAINES

Business India

Business World

IV. NEWS PAPERS

Economic Times

Business Standard.

http://www.mutualfundsindia.com/

http://www.amfiindia.com/

http://www.utimf.com/

http://www.bseindia.com/

http://www.mutualfundsindia.com/

http://www.amfiindia.com/

http://www.utimf.com/

http://www.bseindia.com/

Comparitive Analysis of MF With Equity Shares--Karvy1

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