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A
PROJECT REPORT
ON
COMPARATIVE ANALYSIS OFSECTORAL MUTUAL FUND
AT KARVY STOCK BROKINGLTD.
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ACKNOWLEDGEMENT
The project on COMPARATIVE ANALYSIS OF SECTORAL MUTUAL
FUNDS would not have seen the light of the day without the following people
and their priceless support and cooperation. Hence I extend my gratitude to all of
them.
I would like to thank KARVY STOCK BROKING LTD for giving me an
opportunity of learning and contributing through this project.
As a student of SIMMC, Pune I would first of all like to express my gratitude to
Mrs. P.S. Mangudkar for assigning me such a worthwhile topicCOMPARATIVE ANALYSIS OF MUTUAL FUNDS to work upon in
KARVY STOCK BROKING LTD.
During the actual project work, Mr.Vikrant Joshi (Project Guide) who set the
ball rolling for my project. He has been a source of inspiration through his
constant guidance; personal interest; encouragement and help. I convey my
sincere thanks to him. In spite of his busy schedule he always found time to guide
me through the project. I am also grateful to him for reposing confidence in my
abilities and giving me the freedom to work on my project. Without his invaluable
help I would not have been able to do justice to the project.
The project couldnt have been completed without timely and vital help of other
office staff. Special thanks to Mr. Ravi Gaikwad and Mr.Kuldeep Bhorkar
for his invaluable guidance, keen interest, cooperation, inspiration, and of course
moral support through my project session.
Kalpesh Tiwari
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INDEX Content Pg.no.
1. Executive Summary 5
2. Company Profile 8
3. Introduction 15
4. The Study 36
5. Data Analysis 66
6. Observations and Inferences 68
7. Limitation of Study 69
8. Conclusion 70
9. Recommendations 71
10. Bibliography 72
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Table Page No.
1. Assets under management 25
2. Snapshot of Mutual funds scheme 31
3. Fund ranking on the basis of Total Risk 65
4. Fund Ranking on the basis of Sharp Ratio 66
5. Fund ranking on the basis of beta and 2R
67
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EXECUTIVE SUMMARY:-
The project titled Comparative Analysis Of Sectoral Mutual Fundsbeing
carried out for KARVY STOCK BROKING LTD. Today an investor isinterested in tracking the value of his investments, whether he invests directly in
the market or indirectly through Mutual Funds. This dynamic change has taken
place because of a number of reasons. With globalization and the growing
competition in the investments opportunity available he would have to make
guided and rational decisions on whether he gets an acceptable return on his
investments in the funds selected by him, or if he needs to switch to another fund.
In order to achieve such an end the investor has to understand the basis of
appropriate preference measurement for the fund, and acquire the basic
knowledge of the different measures of evaluating the performance of the fund.
Only then would he be in a position to judge correctly whether his fund is
performing well or not, and make the right decision.
This project t is undertaken to help the investors in tracking the performance of
their investments in Sectoral Mutual Funds and has been carried out with the
objective of giving performance analysis of Sectoral Mutual Fund.
The methodology for carrying out the project was very simple that is through
secondary data obtained through various mediums like fact sheet of the funds,
the Internet, Business magazines, Newspaper, etc. the analysis of Sectoral Funds
has been done with respect to its various parameters. Technology Sectors have
performed well over the years. FMCG and PHARMA sectors are catching up.
Though not much representation was there for banking sector, Reliance Banking
Fund Did not perform well. I hope KARVY, Pune will recognize this as well as
take more references from this project report.
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CHAPTR 1 :- OBJECTIVE
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1.1 PURPOSE :-
To study and analyse the performance of open ended, sectoral
mutual funds (growth).
1.2 OBJECTIVES:-
1. Finding out the values of various performance measures for
some sectoral mutual funds.
2. To know various funds involved in various Sectoral Mutual
Funds.
3. To know the future of Sectoral Mutual Funds in India.
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CHAPTR 2 :- COMPANY PROFILE
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KARVY is founded by a group of Hyderabad based CHARTED ACCOUNTANTS
in 1982 as a professional service firm. In the span of20 years KARVY has entered
into capital market activity too.
KARVY is spread over 252 cities having about 550 offices. Over 450 NSE and BSE
terminals spread across the country. Around 6000 active business associates are
being attached with KARVY across the country. It also comprises of3000
employees and professionals.
PRINCIPAL ACTIVITIES:-
KARVY CONSULTANTS LTD. Deals with depository participant services and IT
enabled services.
KARVY COMPUTERSHARE PRIVATE LIMITED performs transfer agency
services for corporate and mutual fund and also registrar for IPOs.
KARVY INVESTOR SERVICE LIMITED includes Merchant Banking and
Corporate Finance.
KARVY SECURITIES LTD. is a big distributor of equity and other financial
product.
In spite of all this KARVY has its RESERCH CENTER in Hyderabad and also a
member of Hyderabad Stock exchange. It is also a member of National Stock
Exchange.
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CORNERSTONES OF STRAREGY:-
1. Focus on retail segment.
2. Build a strong pan-India network managed by experienced professionals, build
presence across both metros and class A/B town.
3. Build full-service capabilities leveraging the network-offer the entire gamut of
financial services, backed by strong transaction processing and high volume
handling capability.
4. Established a high degree of customer ownership and top-of-mind recall in the
local markets- ensures steady customer traffic and repeat business.
5. Build a trusted brand; ensure high visibility
ACHIVEMENTS:-
Largest independent distributor for financial products
Amongst the top 3 stock brokers
Largest network of branches and business associates
Amongst top 10 investment Bankers.
Ranking 1st in retail procurement in equity IPOs.
Ranking 8thin Merchant Banking services.
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MISSION OF KARVY:-
To be a leading, preferred service provider to our customer, and to achieve this
leadership position by building an innovative, enterprising, and technology
driven organization which will set the highest standards of service and business
ethics.
STOCK BROKING SERVICES:-
It is an undisputed fact that the stock market is unpredictable and yet enjoys a
high success rate as a wealth management and wealth accumulation option. The
difference between unpredictability and a safety anchor in the market is provided
by in-depth knowledge of market functioning and changing trends, planning with
foresight and choosing one & risqu; s options with care. This is what Karvy
provide in their Stock Broking services.
Karvy offer services that are beyond just a medium for buying and selling stocks
and shares. Instead Karvy provide services which are multi dimensional and
multi-focused in their scope. There are several advantages in utilizing their Stock
Broking services, which are the reasons why it is one of the best in the country.
Karvy offers trading on a vast platform; National Stock Exchange, Bombay Stock
Exchange and Hyderabad Stock Exchange. More importantly, Karvy makes
trading safe to the maximum possible extent, by accounting for several risk
factors and planning accordingly. Karvy is assisted in this task by their in-depth
research, constant feedback and sound advisory facilities.
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DISTRIBUTION OF FINANCIAL PRODUCTS:-
The paradigm shift from pure selling to knowledge based selling drives thebusiness today. With their wide portfolio offerings, they occupy all segments in
the retail financial services industry.
A1600 team of highly qualified and dedicated professionals drawn from the best
of academic and professional backgrounds are committed to maintaining high
levels of client service delivery. This has propelled their to a position among the
top distributors for equity and debt issues with an estimated market share of 15%
in terms of applications mobilized, besides being established as the leading
procurer in all public issues.
To further tap the immense growth potential in the capital markets they
enhanced the scope of their retail brand, Karvy the Finapolis, thereby
providing planning and advisory services to the mass affluent. Here they
understand the customer needs and lifestyle in the context of present earnings
and provide adequate advisory services that will necessarily help in creatingwealth. Judicious planning that is customized to meet the future needs of the
customer deliver a service that is exemplary. The market-savvy and the ignorant
investors, both find this service very satisfactory.
The edge that they have over competition is their portfolio of offerings and their
professional expertise. The investment planning for each customer is done with
an unbiased attitude so that the service is truly customized.
Their monthly magazine, Finapolis, provides up-dated market information on
market trends, investment options, opinions etc. Thus empowering the investor
to base every financial move on rational thought and prudent analysis and
embark on the path to wealth creation.
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ADVISORY SERVICES:-
Under their retail brand Karvy the Finapolis', they deliver advisory services to a
cross-section of customers. The service is backed by a team of dedicated and
expert professionals with varied experience and background in handling
investment portfolios. They are continually engaged in designing the right
investment portfolio for each customer according to individual needs and budget
considerations with a comprehensive support system that focuses on trading
customers' portfolios and providing valuable inputs, monitoring and managing
the portfolio through varied technological initiatives. This is made possible by the
expertise they have gained in the business over the years. Another venturetowards being investor-friendly is the circulation of a monthly magazine called
Karvy - the Finapolis'. Covering the latest of market news, trends, investment
schemes and research-based opinions from experts in various financial fields.
PRIVATE CLIENT GROUP:-
This specialized division was set up to cater to the HIGH NET WORTH
INDIVIDUAL and institutional clients keeping in mind that they require a
different kind of financial planning and management that will augment not just
existing finances but there lifestyle as well. Here they follow a hard-nosed
business approach with the soft touch of dedicated customer care and
personalized attention.
For this purpose they offer a comprehensive and personalized service that
encompasses planning and protection of finances, planning of business needs and
retirement needs and the host of other services, all provided on a one-to-one
basis.
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14
TRANSACTION
PROCESSING
GROUP
CORPORATE
FINANCE
GROUP
IT ENABLED
SERVICE
GROUP
TECHNOLOGY RESOURCE
GROUP
SUPPORT
HR & Admn.STRATEGIC PLANNING,
CORPORATE AFFAIRS,
TRAINING & DEVELOPMENT
CORPORATE QUALITY
SA&FC
COMPLIANCE, LEGAL &
SECRETARIAL
FINANCE & ACCOUNTS
FINANCIAL
PRODUCTSDISTRIBUTION
GROUP
E BUSINESS
Karvy at a Glance
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CHAPTR 3 :- INTRODUCTION
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Introduction
Mutual Funds: An overview
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. These could range 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 (pro rata). 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 portfolio at a relatively low cost. Anybodywith an investible surplus of as little as a few thousand rupees can invest in
Mutual Funds. Each Mutual Fund scheme has a defined investment objective and
strategy.
A mutual fund is the ideal investment vehicle for todays 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. Price changes in these assets are driven by global events
occurring in faraway places. A typical individual is unlikely to have the
knowledge, skills, inclination and time to keep track of events, understand their
implications and act speedily. An individual also finds it difficult to keep track of
ownership of his assets, investments, brokerage dues and bank transactions etc.
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A mutual fund is the answer to all these situations. It appoints professionally
qualified and experienced staff that manages each of these functions on a full
time basis. The large pool of money collected in the fund allows it to hire such
staff at a very low cost to each investor. In effect, the mutual fund vehicle exploits
economies of scale in all three areas - research, investments and transaction
processing. While the concept of individuals coming together to invest money
collectively is not new, the mutual fund in its present form is a 20th century
phenomenon. In fact, mutual funds gained popularity only after the Second
World War. Globally, there are thousands of firms offering tens of thousands of
mutual funds with different investment objectives. Today, mutual funds
collectively manage almost as much as or more money as compared to banks.A draft offer document is to be prepared at the time of launching the fund.
Typically, it pre specifies the investment objectives of the fund, the risk
associated, the costs involved in the process and the broad rules for entry into
and exit from the fund and other areas of operation. In India, as in most
countries, these sponsors need approval from a regulator, SEBI (Securities
exchange Board of India) in our case. SEBI looks at track records of the sponsor
and its financial strength in granting approval to the fund for commencing
operations.
A sponsor then hires an asset management company to invest the funds
according to the investment objective. It also hires another entity to be the
custodian of the assets of the fund and perhaps a third one to handle registry
work for the unit holders (subscribers) of the fund.
In the Indian context, the sponsors promote the Asset Management Company
also, in which it holds a majority stake. In many cases a sponsor can hold a 100%
stake in the Asset Management Company (AMC). E.g. Birla Global Finance is thesponsor of the Birla Sun Life Asset Management Company Ltd., which has floated
different mutual funds schemes and also acts as an asset manager for the funds
collected under the schemes
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History of Mutual Fund in India:
The mutual fund industry in India started in 1963 with the formation of Unit
Trust of India, at the initiative of the Government of India and Reserve Bank the.
The history of mutual funds in India can be broadly divided into four distinct
phases
First Phase 1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was
set up by the Reserve Bank of India and functioned under the Regulatory and
administrative control of the Reserve Bank of India. In 1978 UTI was de-linked
from the RBI and the Industrial Development Bank of India (IDBI) took over the
regulatory and administrative control in place of RBI. The first scheme launched
by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of
assets under management
Second Phase 1987-1993 (Entry of Public Sector Funds)
1987 marked the entry of non- UTI, public sector mutual funds set up by public
sector banks and Life Insurance Corporation of India (LIC) and General
Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI
Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec
87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund
(Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC
established its mutual fund in June 1989 while GIC had set up its mutual fund in
December 1990.
At the end of 1993, the mutual fund industry had assets under management of
Rs.47,004 crores.
Third Phase 1993-2003 (Entry of Private Sector Funds)
With the entry of private sector funds in 1993, a new era started in the Indian
mutual fund industry, giving the Indian investors a wider choice of fund families.
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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 substituted by 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 aheadof other mutual funds.
Fourth Phase since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI
was bifurcated into two separate entities. One is the Specified Undertaking of the
Unit Trust of India with assets under management of Rs.29,835 crores as at the
end of January 2003, representing broadly, the assets of US 64 scheme, assured
return and certain other schemes. The Specified Undertaking of Unit Trust of
India, functioning under an administrator and under the rules framed by
Government of India and does not come under the purview of the Mutual Fund
Regulations.
The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It
is registered with SEBI and functions under the Mutual Fund Regulations. With
the bifurcation of the erstwhile UTI which had in March 2000 more than
Rs.76,000 crores of assets under management and with the setting up of a UTI
Mutual Fund, conforming to the SEBI Mutual Fund Regulations, 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 March, 2006, there were 29 funds.
The graph indicates the growth of assets over the years.
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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.
GROWTH IN ASSETS UNDER MANAGEMENT
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Future Scenario
The asset base will continue to grow at an annual rate of about 30 to 35 % over
the next few years as investors 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 will be a large number of
offers from various asset management companies in the time to come. Some bignames like Fidelity, Principal, 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 left behind.
The mutual fund industry is awaiting the introduction of derivatives in India as
this would enable it to hedge its risk and this in turn 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.
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
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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 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 in the last few years in
response to the competition provided by these.
List of Members:
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A) Bank Sponsored
1. Joint Ventures - Predominantly Indiana. SBI Funds Management Private Ltd.
2. Others
a. BOB Asset Management Co. Ltd.
b. Canbank Investment Management Services Ltd.
c. UTI Asset Management Co. Private Ltd.
B) Institutions
a. Jeevan Bima Sahayog Asset Management Co. Ltd.
C) Private Sector
1. Indiana. Benchmark Asset Management Co. Private Ltd.
b. Cholamandalam Asset Management Co. Ltd.
c. Credit Capital Asset Management Co. Ltd.
d. Escorts Asset Management Ltd.
e. J. M. Financial Asset Management Private Ltd.
f. Kotak Mahindra Asset Management Co. Ltd.
g. Quantum Asset Management Co. Private Ltd.
h. Reliance Capital Asset Management Ltd.
i. Sahara Asset Management Co. Private Ltd
j. Sundaram Asset Management Co. Ltd.
k. Tata Asset Management Ltd.
2. Joint Ventures - Predominantly Indian
a. Birla Sun Life Asset Management Co. Ltd.
b. DSP Merrill Lynch Fund Managers Ltd.
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c. HDFC Asset Management Co. Ltd.
d. Prudential ICICI Asset Management Co. Ltd.
3. Joint Ventures - Predominantly Foreign
a. ABN AMRO Asset Management (India) Ltd.
b. Deutsche Asset Management (India) Private Ltd.
c. Fidelity Fund Management Private Ltd.
d. Franklin Templeton Asset Management (India) Private Ltd.
e. HSBC Asset Management (India) Private Ltd.
f. ING Investment Management (India) Private Ltd.
g. Morgan Stanley Investment Management Private Ltd.
h. Principal Pnb Asset Management Co. Private Ltd.i. Standard Chartered Asset Management Co. Private Ltd.
TABLE-1
Assets Under Management (AUM) as at the end of Jun-2006 (Rs in
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Lakhs)
Mutual Fund Name
AUMAverage AUM ForThe Month
ExcludingFund Of
Funds
Fund Of
Funds
ExcludingFund Of
Funds
Fund Of
Funds1. ABN AMRO Mutual Fund 362896.22 11839.62 402399.53 11792.14
2. Benchmark Mutual Fund 104407.77 0 0 0
3. Birla Sun Life Mutual Fund 1460946.02 2072.44 1734914.79 2051.1
4. BOB Mutual Fund 16184.32 0 0 0
5. Canbank Mutual Fund 284147.27 0 350592.38 0
6. DBS Chola Mutual Fund 247516.44 0 0 0
7. Deutsche Mutual Fund 505248.34 0 566548.8 0
8. DSP Merrill Lynch MutualFund
1107408.01 0 0 0
9. Escorts Mutual Fund 10760.06 0 0 0
10. Fidelity Mutual Fund 470409.9 10732.08 460857.8 8302.2
11. Franklin Templeton MutualFund
2164985.13 35661.26 2121472.48 35749.74
12. HDFC Mutual Fund 2439111.46 0 2472159.05 0
13. HSBC Mutual Fund 1045085.93 0 1071051.1 0
14. ING Vysya Mutual Fund 364524.15 11788.98 0 0
15. JM Financial Mutual Fund 310496.57 0 0 0
16. Kotak Mahindra Mutual Fund 1032562.74 67677.37 1112345.59 69948.17
17. LIC Mutual Fund 755647.55 0 0 018. Morgan Stanley Mutual Fund 240711.5 0 229917.2 0
19. PRINCIPAL Mutual Fund 1003815.7 0 0 0
20. Prudential ICICI Mutual Fund 3014261.75 3800.11 0 0
21. Quantum Mutual Fund 2529.69 0 0 0
22. Reliance Mutual Fund 2631444.23 0 0 0
23. Sahara Mutual Fund 18753.11 0 18261.66 0
24. SBI Mutual Fund 1363424.34 0 1305504.46 0
25. Standard Chartered MutualFund
955098.38 2036.64 0 0
26. Sundaram BNP Paribas MutualFund
493751.48 0 488223.06 0
27. Tata Mutual Fund 1115870.85 0 0 0
28. Taurus Mutual Fund 19978.4 0 18970.8 0
29. UTI Mutual Fund 3011531.54 0 2920166.54 0
Grand Total 26553508.85 145608.5 15273385.24 127843.35
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Types of Mutual Funds
Mutual fund schemes may be classified on the basis of its structure and its
investment objective.
By Structure:
Open-ended Funds
An open-end fund is one that is available for subscription all through the year.
These do not have a fixed maturity. Investors can conveniently buy and sell units
at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is
liquidity.
Closed-ended Funds
A closed-end fund has a stipulated maturity period which generally ranging from
3 to 15 years. The fund is open for subscription only during a specified period.
Investors can invest in the scheme at the time of the initial public issue and
thereafter they can buy or sell the units of the scheme on the stock exchanges
where they are listed. In order to provide an exit route to the investors, some
close-ended funds give an option of selling back the units to the Mutual Fund
through periodic repurchase at NAV related prices. SEBI Regulations stipulate
that at least one of the two exit routes is provided to the investor.
Interval Funds
Interval funds combine the features of open-ended and close-ended schemes.
They are open for sale or redemption during pre-determined intervals at NAV
related prices.
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By Investment Objective:-
Growth Funds
The aim of growth funds is to provide capital appreciation over the medium to
long- term. Such schemes normally invest a majority of their corpus in equities. It
has been proven that returns from stocks, have outperformed most other kind of
investments held over the long term. Growth schemes are ideal for investors
having a long-term outlook seeking growth over a period of time.
Income Funds
The aim of income funds is to provide regular and steady income to investors.
Such schemes generally invest in fixed income securities such as bonds, corporate
debentures and Government securities. Income Funds are ideal for capital
stability and regular income.
Balanced Funds
The aim of balanced funds is to provide both growth and regular income. Such
schemes periodically distribute a part of their earning and invest both in equities
and fixed income securities in the proportion indicated in their offer documents.
In a rising stock market, the NAV of these schemes may not normally keep pace,
or fall equally when the market falls. These are ideal for investors looking for a
combination of income and moderate growth.
Money Market Funds
The aim of money market funds is to provide easy liquidity, preservation of
capital and moderate income. These schemes generally invest in safer short-term
instruments such as treasury bills, certificates of deposit, commercial paper and
inter-bank call money. Returns on these schemes may fluctuate depending upon
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the interest rates prevailing in the market. These are ideal for Corporate and
individual investors as a means to park their surplus funds for short periods.
Load Funds
A Load Fund is one that charges a commission for entry or exit. That is, each time
you buy or sell units in the fund, a commission will be payable. Typically entry
and exit loads range from 1% to 2%. It could be worth paying the load, if the fund
has a good performance history.
No-Load Funds
A No-Load Fund is one that does not charge a commission for entry or exit. That
is, no commission is payable on purchase or sale of units in the fund. Theadvantage of a no load fund is that the entire corpus is put to work.
Other Schemes:-
Tax Saving Schemes
These schemes offer tax rebates to the investors under specific provisions of the Indian
Income Tax laws as the Government offers tax incentives for investment in specified
avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension
Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also
provides opportunities to investors to save capital gains u/s 54EA and 54EB by investing
in Mutual Funds, provided the capital asset has been sold prior to April 1, 2000 and the
amount is invested before September 30, 2000.
Special Schemes
Industry Specific Schemes
Industry Specific Schemes invest only in the industries specified in the offer
document. The investment of these funds is limited to specific industries like
InfoTech, FMCG, and Pharmaceuticals etc.
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Index Schemes
Index Funds attempt to replicate the performance of a particular index such as
the BSE Sensex or the NSE 50
Sectoral Schemes
Sectoral Funds are those, which invest exclusively in a specified industry or a
group of industries or various segments such as 'A' Group shares or initial public
offerings.
Commodities Funds
Commodities funds specialize in investing in different commodities directly or
through commodities future contracts. Specialized funds may invest in a single
commodity or a commodity group such as edible oil or rains, while diversified
commodity funds will spread their assets over many commodities
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RISK HIERARCHY OF MUTUAL FUNDS
30
MoneyMarketFunds
GiltFunds
BalancedFunds
Equity IncomeFunds
Growth andIncomefunds
FocusedDebt Funds
Value Funds
Index Funds
DiversifiedEquity Funds
AggressiveGrowthFunds
High YieldDebt Funds
Flexible AssetallocationFunds
Growth Funds
DebtFunds Hybrid
Funds
EquityFunds
RiskLevel
MoneyMarket Funds
Gilt Funds
DiversifiedDebt Funds
Type of Fund
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TABLE 2
Snapshot of Mutual Fund Schemes
MutualFund
Type
Objective Risk Investment
PortfolioWho should
investInvestment horizon
MoneyMarket
Liquidity +ModerateIncome +
Reservation ofCapital
Negligible
Treasury Bills,Certificate of
Deposits,CommercialPapers, Call
Money
Those whopark theirfunds incurrent
accounts orshort-term
bank deposits
2 days - 3 weeks
Short-term
Funds(Floating- short-
term)
Liquidity +Moderate
Income
LittleInterest Rate
Call Money,Commercial
Papers,Treasury Bills,
CDs, Short-
termGovernment
securities.
Those withsurplus
short-term
funds
3 weeks -3 months
BondFunds
(Floating- Long-term)
RegularIncome
Credit Risk& InterestRate Risk
PredominantlyDebentures,Government
securities,Corporate
Bonds
Salaried &conservative
investorsMore than 9 - 12 months
GiltFunds
Security &Income
Interest RateRisk
Governmentsecurities
Salaried &conservative
investors12 months & more
EquityFunds
Long-termCapital
AppreciationHigh Risk Stocks
Aggressiveinvestors withlong term out
look.
3 years plus
IndexFunds
To generatereturns that
arecommensuratewith returns of
respectiveindices
NAV varieswith index
performance
Portfolioindices likeBSE, NIFTY
etc
Aggressiveinvestors.
3 years plus
BalancedFunds
Growth &RegularIncome
CapitalMarket Riskand Interest
Rate Risk
Balanced ratioof equity anddebt funds toensure higher
returns atlower risk
Moderate &Aggressive
2 years plus
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Benefits of Mutual Fund investment
1. Professional Management:
Mutual Funds provide the services of experienced and skilled
professionals, backed by a dedicated investment research team that analyses
the performance and prospects of companies and selects suitable investments
to achieve the objectives of the scheme.
2. Diversification:
Mutual Funds invest in a number of companies across a broad cross-
section of industries and sectors. This diversification reduces the risk because
seldom do all stocks decline at the same time and in the same proportion. Youachieve this diversification through a Mutual Fund with far less money than
you can do on your own.
3. Convenient Administration:
Investing in a Mutual Fund reduces paperwork and helps you avoid many
problems such as bad deliveries, delayed payments and follow up with brokers
and companies. Mutual Funds save your time and make investing easy and
convenient.
4. Return Potential:
Over a medium to long-term, Mutual Funds have the potential to provide a
higher return as they invest in a diversified basket of selected securities.
5. Low Costs:
Mutual Funds are a relatively less expensive way to invest compared to
directly investing in the capital markets because the benefits of scale in
brokerage, custodial and other fees translate into lower costs for investors.
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6. Liquidity:
In open-end schemes, the investor gets the money back promptly at net
asset value related prices from the Mutual Fund. In closed-end schemes, the
units can be sold on a stock exchange at the prevailing market price or the
investor can avail of the facility of direct repurchase at NAV related prices by
the Mutual Fund.
7. Transparency:
Investors get regular information on the value of your investment in
addition to disclosure on the specific investments made by the scheme, the
proportion invested in each class of assets and the fund manager's investment
strategy and outlook.
8. Flexibility:
Through features such as regular investment plans, regular withdrawal
plans and dividend reinvestment plans, one can systematically invest or
withdraw funds according to your needs and convenience.
9. Affordability:
Investors individually may lack sufficient funds to invest in high-grade
stocks. A mutual fund because of its large corpus allows even a small investor
to take the benefit of its investment strategy.
10. Choice of Schemes:
Mutual Fund offers a family of schemes to suit your varying needs over a
lifetime. This offers investors to further diversify their investments.
11. Well Regulated:
All Mutual Funds are registered with SEBI and they function within the provisions
of strict regulations designed to protect the interests of investors. The operations of
Mutual Funds are regularly monitored by SEBI.
Limi tation of Mutual Fund Investment
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1. No Control Over Cost:
An Investor in mutual fund has no control over the overall costs of investing.
He pays an investment management fee (which is a percentage of his
investments) as long as he remains invested in fund, whether the fund value is
rising or declining. He also has to pay fund distribution costs, which he would
not incur in direct investing.
However this only means that there is a cost to obtain the benefits of mutual
fund services. This cost is often less than the cost of direct investing.
2. No Tailor-Made Portfolios:
Investing through mutual funds means delegation of the decision of portfolio
composition to the fund managers. The very high net worth individuals or
large corporate investors may find this to be a constraint in achieving their
objectives.
However, most mutual fund help investors overcome this constraint by
offering large no. of schemes within the same fund.
3. Managing A Portfolio Of Funds:
Availability of large no. of funds can actually mean too much choice for the
investors. He may again need advice on how to select a fund to achieve his
objectives.
AMFI has taken initiative in this regard by starting a training and certification
program for prospective Mutual Fund Advisors. SEBI has made thiscertification compulsory for every mutual fund advisor interested in selling
mutual fund.
4. Taxes:
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During a typical year, most actively managed mutual funds sell anywhere
from 20 to 70 percent of the securities in their portfolios. If your fund makes a
profit on its sales, you will pay taxes on the income you receive, even if you
reinvest the money you made.
5. Cost of Churn:
The portfolio of fund does not remain constant. The extent to which the
portfolio changes is a function of the style of the individual fund manager i.e.
whether he is a buy and hold type of manager or one who aggressively churns
the fund. It is also dependent on the volatility of the fund size i.e. whether the
fund constantly receives fresh subscriptions and redemptions. Such portfolio
changes have associated costs of brokerage, custody fees etc. which lowers the
portfolio return commensurately.
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CHAPTR 4 :- THE STUDY
Sectoral Mutual Fuds Considered:-
1. Sectoral-Auto
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2. Sectoral-Bank
3. Sectoral-Basic
4. Sectoral-FMCG
5. Sectoral-Healthcare
6. Sectoral-Infrastructure
7. Sectoral-Media and Entertainment
8. Sectoral-Pharma
9. Sectoral-Power
10. Sectoral-Service
11. Sectoral- Technology
1. Sectoral-Auto:-
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a) JM Auto Sector Fund:-
Scheme SnapshotFund Manager Sandeep NeemaScheme Objective Equity
Scheme Sub-Objective Sectoral-Auto
Scheme Type OpenMin. Investment(Rs) 5000Total Assets(Rs./Mn) 98.92Registrars Karvy
ComputersharePvt Ltd
Launch Date 01-JUN-04
Asset Allocation as on 31-May-06Particulars PercentageEquity Shares 92.22
Call And OtherAssets 7.78
Sector Allocation
as on 31-May-06Sector % Of Asset
Auto 52.30
Auto And Ancillaries 31.18
Industrial Products 8.74
Call And OtherAssets
7.78
Asset Allocation as on 31-May-06
Particulars PercentageEquity Shares 92.22Call And OtherAssets
7.78
b) UTI Thematic Auto Sector Fund
Scheme Snapshot
Fund ManagerChandraprakashPadiyar
Scheme Objective EquityScheme Sub-Objective Sectoral-AutoScheme Type OpenMin. Investment(Rs) 5000Total Assets(Rs./Mn) 875.69Registrars UTI ISL Ltd.
Launch Date 09-MAR-04
Asset Allocation as on 31-May-06Particulars PercentageEquity Shares 97.60Net Current Assets 2.40
Sector Allocation as on 31-May-06
Sector % Of Asset
Auto 68.45
Auto And Ancillaries 19.56
Asset Allocation as on 31-May-06Particulars PercentageEquity Shares 97.60Net Current Assets 2.40
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Industrial Products 6.52
Unclassified 3.07
Net Current Assets 2.40
2. Sectoral- Bank:-
a)UTI Banking Sector Fund
Scheme SnapshotFund Manager Gautami DesaiScheme Objective EquityScheme Sub-Objective
Sectoral-Bank
Scheme Type OpenMin. Investment(Rs) 5000
Total Assets(Rs./Mn) 742.18Registrars UTI ISL Ltd.Launch Date 09-MAR-04
Asset Allocation as on 31-May-06Particulars PercentageEquity Shares 93.59Net Current Assets 6.41
Sector Allocation as on 31-May-06
Sector % Of Asset
Banks 81.43
Finance 12.16
Net Current Assets 6.41
Asset Allocation as on 31-May-06Particulars PercentageEquity Shares 93.59Net Current Assets 6.41
b)Reliance Banking Fund
Scheme SnapshotFund Manager Sunil SinghaniaScheme Objective EquityScheme Sub-Objective Sectoral-BankScheme Type Open
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 92.39Cash And Other
Assets7.61
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Min. Investment(Rs) 25000Total Assets(Rs./Mn) 1126.4Registrars Karvy
ConsultantsLimited
Launch Date 08-MAY-03
Sector Allocationas on 30-Jun-04
Sector % Of Asset
Banks 72.40
Call And Other Assets 27.60
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 92.39Cash And OtherAssets
7.61
3. Sectoral-Basic:-
UTI Petrol Fund
Scheme SnapshotFund Manager Gautami DesaiScheme Objective EquityScheme Sub-Objective Sectoral-BasicScheme Type OpenMin. Investment(Rs) 5000Total Assets(Rs./Mn) 1931.21Registrars UTI Investor
Services Ltd.Launch Date 27-MAY-99
Asset Allocation as on 31-May-06Particulars PercentageEquity Shares 98.59Net Current Assets 1.41
Sector Allocation as on 31-May-06
Sector % Of Asset
Petroleum Products 51.39
Oil 21.89
Gas 21.58
Chemicals 3.74
Net Current Assets 1.41
Asset Allocation as on 31-May-06Particulars PercentageEquity Shares 98.59Net Current Assets 1.41
4. Sectoral-FMCG:-
a) Franklin FMCG Fund
Scheme Snapshot
Fund ManagerK N SivaSubramanian,AnilPrabhudas
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 96.65Other Current Assets 3.35
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Scheme Objective EquityScheme Sub-Objective Sectoral-FMCGScheme Type OpenMin. Investment(Rs) 5000Total Assets(Rs./Mn) 364.76Registrars Franklin
Templeton AssetManagement(India) Pvt. Ltd.
Launch Date 15-MAR-99
Sector Allocation
as on 31-Mar-00
Sector % Of Asset
FMCG 97.62
Cash & Other Assets 2.38
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 96.65Other Current Assets 3.35
b) Magnum Sector Funds Umbrella - FMCG Fund
Scheme Snapshot
Fund ManagerSanjay Sinha andNimesh Chandan
Scheme Objective EquityScheme Sub-Objective Sectoral-FMCGScheme Type OpenMin. Investment(Rs) 2000Total Assets(Rs./Mn) 122.5Registrars Computer Age
ManagementServices Pvt.Ltd.
Launch Date 04-JUN-99
Asset Allocation as on 31-May-06Particulars PercentageEquity Shares 92.74Cash And Other
Assets7.26
Sector Allocation as on31-May-06
Sector % Of Asset
Consumer Non Durables 65.52
Consumer Durables 17.14
Cash And Other Assets 7.26
Textile Products 5.22
Asset Allocation as on31-May-06
ParticularsPercen
tageEquity Shares 92.74Cash And Other
Assets7.26
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Retailing 4.86
c) Prudential ICICI FMCG Fund
Scheme Snapshot
Fund Manager Prashant KothariScheme Objective EquityScheme Sub-Objective Sectoral-FMCGScheme Type OpenMin. Investment(Rs) 5000Total Assets(Rs./Mn) 1001.45Registrars Computer Age
ManagementServices Pvt.Ltd.
Launch Date 16-FEB-99
Asset Allocation as on 30-Jun-06
Particulars PercentageEquity Shares 97.61Call Money / ReverseRepos / Cblo
3.61
Other Current Assets -1.22
Sector Allocation
as on 30-Jun-
06Sector % Of Asset
Consumer Non Durables 75.65
Retailing 20.92
Other Current Assets -1.22
Call Money / ReverseRepos / Cblo
3.61
Industrial Products 1.04
Asset Allocation as on 30-Jun-06
Particulars PercentageEquity Shares 97.61
Call Money / Reverse
Repos / Cblo3.61
Other Current Assets -1.22
5. Sectoral- Healthcare:-
a) J M Healthcare Sector Fund
Scheme SnapshotFund Manager Sandeep NeemaScheme Objective Equity
Scheme Sub-ObjectiveSectoral-Healthcare
Asset Allocation as on 31-May-06Particulars PercentageEquity Shares 97.02Call And Other Assets 2.98
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Scheme Type OpenMin. Investment(Rs) 5000Total Assets(Rs./Mn) 95.9Registrars Karvy
ComputersharePvt Ltd
Launch Date 01-JUN-04
Sector Allocation as on 31-May-06
Sector % Of Asset
Pharmaceuticals 97.02
Call And Other Assets 2.98
Asset Allocation as on 31-May-06Particulars PercentageEquity Shares 97.02Call And Other Assets2.98
6. Sectoral-Infrastructure
a)Tata Infrastructure Fund
Scheme SnapshotFund Manager M VenugopalScheme Objective Equity
Scheme Sub-ObjectiveSectoral-Infrastructure
Scheme Type OpenMin. Investment(Rs) 5000Total Assets(Rs./Mn) 7886.28Registrars Computer Age
ManagementServices Pvt.Ltd.
Launch Date 25-NOV-04
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 94.35Cash And Other
Assets5.65
Sector Allocationas on 30-Jun-
06
Sector % Of Asset
Industrial Capital Goods 27.29
Cement 16.78
Construction 16.49
Power 7.00
Cash And Other Assets 5.65
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 94.35Cash And Other
Assets5.65
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Industrial Products 4.81
Non-ferrous Metals 4.55
Ferrous Metals 3.96
Petroleum Products 3.83
Telecommunications
-service
3.30
Consumer Durables 2.75
Transportation 1.12
Dredging 1.11
Oil 0.97
Construction Materials 0.40
b)Birla Infrastructure Fund
Scheme SnapshotFund Manager Mahesh Patil
Scheme Objective EquityScheme Sub-Objective
Sectoral-Infrastructure
Scheme Type OpenMin. Investment(Rs) 5000Total Assets(Rs./Mn) 5495.77Registrars Computer Age
ManagementServices Pvt.Ltd.
Launch Date 31-JAN-06
Asset Allocation as on 30-Jun-06Particulars Percentage
Equity Shares 90.96Cash And OtherAssets
9.04
Sector Allocation as on 30-Jun-06
Sector % Of Asset
Industrial Capital Goods 27.33Cash And Other Assets 9.04
Banks 8.11
Industrial Products 7.67
Auto
Cement 6.97
Other Equities 6.63
Construction 5.55
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Telecommunications -service 4.85
Transportation 3.85
Non-ferrous Metals 3.69
Hotels 3.44
Ferrous Metals 3.41
Power 2.07
c) Can Infrastructure Fund
Scheme SnapshotFund Manager Umesh KamathScheme Objective EquityScheme Sub-Objective
Sectoral-Infrastructure
Scheme Type OpenMin.Investment(Rs)
5000
TotalAssets(Rs./Mn)
884.65
Registrars Computer AgeManagementServices Limited
Launch Date 11-OCT-05
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 76.63T - Bill 16.69Current Net Assets5.80G O I Securities 0.89
Sector Allocationas on 30-Jun-
06
Sector % Of Asset
Industrial Capital Goods 19.63
T - Bill 16.69
Construction 11.90
Cement 10.83
Industrial Products 6.64
Current Net Assets 5.80
Power 5.43
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 76.63
T - Bill 16.69Current Net Assets 5.80G O I Securities 0.89
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Petroleum Products 4.79
Gas 3.25
Oil 2.73
Telecom Equipment 2.45
Transportation 2.10
Finance 1.49Engineering 1.46
Telecommunications-service
1.41
Banks 1.31
Chemicals 0.90
G O I Securities 0.89
Consumer Durables 0.32
7. Sectoral Media and Entertainment:-
Reliance Media and Entertainment Fund
Scheme SnapshotFund Manager Sailesh Raj BhanScheme Objective Equity
Scheme Sub-Objective
Sectoral-MediaandEntertainment
Scheme Type OpenMin. Investment(Rs) 10000Total Assets(Rs./Mn) 336.8
Registrars KarvyConsultantsLimited
Launch Date 16-SEP-04
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 94.76Cash And OtherAssets
5.24
8.Sectoral-Pharma:-
a)Magnum Sector Funds Umbrella - Pharma Fund und
Scheme Snapshot
Fund ManagerSanjay Sinha andNimesh Chandan
Scheme Objective EquityScheme Sub-Objective Sectoral-PharmaScheme Type OpenMin. Investment(Rs) 2000Total Assets(Rs./Mn) 673.8Registrars Computer Age
ManagementServices Pvt.Ltd.
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 98.18Net Current Assets 1.82
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Launch Date 04-JUN-99
Sector Allocation as on 30-Jun-06
Sector % Of Asset
Pharmaceuticals 83.20
Healthcare Services 12.00
Fertilisers And Pesticides 2.98Cash And Other Assets 1.82
Asset Allocation as on 30-Jun-06Particulars Percentage
Equity Shares 98.18
Net Current Assets 1.82
b) Franklin Pharma Fund
Scheme SnapshotFund Manager Satish RamanathanScheme Objective EquityScheme Sub-Objective Sectoral-PharmaScheme Type OpenMin. Investment(Rs) 5000Total Assets(Rs./Mn) 636.72
Registrars FranklinTempleton AssetManagement(India) Pvt. Ltd.
Launch Date 15-MAR-99
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 94.12Other Current Assets 5.88
Sector Allocation as on 31-Dec-04
Sector % Of Asset
Pharmaceuticals 93.14
Other Current Assets 6.86
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 94.12Other CurrentAssets
5.88
c) UTI Pharma and Healthcare Fund
Scheme SnapshotFund Manager Sanjay DongreScheme Objective EquityScheme Sub-Objective Sectoral-PharmaScheme Type OpenMin. Investment(Rs) 5000Total Assets(Rs./Mn) 854.8Registrars UTI Investor
Services Ltd.Launch Date 27-MAY-99
Asset Allocation as on 31-May-06Particulars PercentageEquity Shares 99.00Net Current Assets 1.00
Sector Allocation as on 31-May-06
Sector % Of Asset
Pharmaceuticals 99.00
Net Current Assets 1.00
Asset Allocation as on 31-May-06Particulars PercentageEquity Shares 99.00Net Current Assets 1.00
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d) Reliance Pharma Fund
Scheme SnapshotFund Manager Sailesh Raj BhanScheme Objective EquityScheme Sub-Objective Sectoral-PharmaScheme Type OpenMin. Investment(Rs) 10000Total Assets(Rs./Mn) 1077.1Registrars Karvy
ConsultantsLimited
Launch Date 10-MAY-04
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 94.87Cash And Other
Assets 5.13
9. Sectoral-Power:-
Reliance Diversified Power Sector Fund
Scheme SnapshotFund Manager Sunil B SinghaniaScheme Objective EquityScheme Sub-Objective Sectoral-PowerScheme Type OpenMin. Investment(Rs) 10000Total Assets(Rs./Mn) 5534.2Registrars Karvy Consultants
LimitedLaunch Date 29-MAR-04
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 92.21Debt And Cash AndOther Assets
7.79
Sector Allocationas on 30-Jun-04
Sector % Of Asset
Treasury Bills 40.77
Engineering 22.68
Call And Other Assets 12.14
Bonds 10.40
Public Sector UnitsBonds
7.02
Steel 4.04
Cement 1.75
Diversified 0.40Power Equipments 0.19
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 92.21Debt And Cash
And Other Assets7.79
10.Sectoral-Service:-
a) Prudential ICICI Services Industries Fund
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Scheme SnapshotFund Manager Deven SangoiScheme Objective EquityScheme Sub-Objective
Sectoral-Services
Scheme Type OpenMin. Investment(Rs) 5000Total Assets(Rs./Mn) 3518.08Registrars Computer Age
ManagementServicesPvt.Ltd.
Launch Date 13-OCT-05
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 89.10Call Money /Reverse Repos /
Cblo
8.90
Other CurrentAssets
0.97
Term Deposits 0.56Futures 0.47
Sector Allocationas on 30-Jun-06
Sector % Of AssetI T - Software 16.12
Banks 12.44
Auto And Ancillaries 9.35
Call Money / ReverseRepos / Cblo
8.90
Transportation 5.41
Industrial Capital Goods 5.38
Construction 4.91
Finance 4.74
Hotels 4.53
Pesticides 4.49Pharmaceuticals 4.37
Textiles Products 4.29
Retailing 3.64
Power 2.34
Media And Entertainment 1.99
Industrial Products 1.86
Consumer Durables 1.65
Telecommunications -service 1.59
Other Current Assets 0.97
Term Deposits 0.56
Futures 0.47Gas 0.00
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 89.10Call Money / ReverseRepos / Cblo
8.90
Other Current Assets 0.97Term Deposits 0.56Futures 0.47
b) Tata Service Industries Fund
Scheme SnapshotFund Manager M VenugopalScheme Objective Equity
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 97.08
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Scheme Sub-Objective
Sectoral-Services
Scheme Type OpenMin. Investment(Rs) 5000Total Assets(Rs./Mn) 1716.22
Registrars KarvyComputersharePrivate Limited
Launch Date 09-FEB-05
Cash And OtherAssets
2.82
Debt 0.10
Sector Allocation as on 30-Jun-06
Sector % Of Asset
I T - Software 33.67
Hotels 24.68
Media And Entertainment 11.78
Construction 10.10Retailing 6.35
Telecommunications -service 5.99
Cash And Other Assets 2.82
Banks 1.40
Dredging 1.24
Textile Products 1.10
Finance 0.75
Debt 0.10
11.Sectoral- Technology:-
a) Franklin Infotech Fund
Scheme SnapshotFund Manager S.ChellappaScheme Objective EquityScheme Sub-Objective
Sectoral-TMT
Scheme Type OpenMin. Investment(Rs) 5000Total Assets(Rs./Mn) 1452.29Registrars Franklin
TempletonAssetManagement(India) Pvt.Ltd.
Launch Date 22-JUL-98
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 99.26Other CurrentAssets
0.74
Unlisted Equities 0.00
Sector Allocation as on 31-Mar- Asset Allocation as on 30-Jun-06
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00
Sector % Of Asset
I T 83.85
Cash And OtherAssets
16.11
Particulars PercentageEquity Shares 99.26Other CurrentAssets
0.74
Unlisted Equities 0.00
b) Birla Sun Life New Millennium
Scheme Snapshot
Fund ManagerMahesh Patil,Nimesh Chandan
Scheme Objective EquityScheme Sub-Objective Sectoral-TMTScheme Type OpenMin. Investment(Rs) 5000Total Assets(Rs./Mn) 850.34Registrars Computer Age
ManagementServices Pvt.Ltd.
Launch Date 15-DEC-99
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 90.48Cash And Other
Assets9.52
Sector Allocationas on 30-Jun-06
Sector % Of Asset
I T - Software 71.31
Telecommunications-service
12.86
Cash And Other Assets 9.52
Media And Entertainment 6.32
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 90.48Cash And Other
Assets9.52
c)Kotak Technology Plan
Scheme SnapshotFund Manager Sajit PisharodiScheme Objective EquityScheme Sub-Objective Sectoral-TMTScheme Type OpenMin. Investment(Rs) 5000Total Assets(Rs./Mn) 436.03Registrars Computer Age
ManagementServices Pvt.Ltd.
Launch Date 21-MAR-00
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 95.73Collateral Borrowing
And LendingObligation
4.59
Term Deposits 1.15Unlisted Equities 0.00Net Current Assets /Liabilities -1.46
Sector Allocationas on 30-Jun-06
Sector % Of Asset
I T - Software 93.91
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 95.73Collateral Borrowing
And Lending4.59
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Net Current Assets / Liabilities -1.46
Collateral Borrowing AndLending Obligation
4.59
Telecommunications -service 1.82
Term Deposits 1.15
ObligationTerm Deposits 1.15Unlisted Equities 0.00Net Current Assets /Liabilities
-1.46
d) Magnum Sector Funds Umbrella - IT Fund
Scheme Snapshot
Fund ManagerSanjay Sinha andNimesh Chandan
Scheme Objective EquityScheme Sub-Objective Sectoral-TMTScheme Type OpenMin. Investment(Rs) 2000Total Assets(Rs./Mn) 564.5Registrars Computer Age
Management
Services Pvt.Ltd.Launch Date 04-JUN-99
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 95.19Net Current Assets 4.81
Sector Allocationas on 30-Jun-06
Sector % Of Asset
I T 75.22
Service 6.69
Net Current Assets 4.81
Telecom 3.08
Media And
Entertainment
3.05
Consumer Goods 2.31
Pharmaceuticals 1.17
Others 3.67
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 95.19Net Current Assets 4.81
e) UTI Software Fund
Scheme SnapshotFund Manager Sanjay DongreScheme Objective EquityScheme Sub-Objective Sectoral-TMTScheme Type OpenMin. Investment(Rs) 5000Total Assets(Rs./Mn) 1149.73Registrars UTI Investor
Services Ltd.Launch Date 27-MAY-99
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 98.93Net Current Assets 1.07
Sector Allocationas on 30-Jun-06
Asset Allocation as on 30-Jun-06Particulars Percentage
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Sector % Of Asset
I T - Software 94.43
Media AndEntertainment
4.50
Net Current Assets 1.07
Equity Shares 98.93Net Current Assets 1.07
f) UTI Services Sector FundScheme SnapshotFund Manager Gautami DesaiScheme Objective EquityScheme Sub-Objective Sectoral-TMTScheme Type OpenMin. Investment(Rs) 5000Total Assets(Rs./Mn) 1933Registrars UTI Investor
Services Ltd.Launch Date 27-MAY-99
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 98.37Net Current Assets 1.63Unlisted Equities 0.00
Sector Allocation as on 30-Jun-06
Sector % Of Asset
I T - Software 28.35
Banks 14.26
Textile Products 9.94
Hotels 7.35
Telecommunications-service
6.92
Construction 6.71
Power 4.61
Industrial Capital Goods 4.12Finance 4.05
Transportation 3.86
Media And Entertainment 3.22
Gas 2.97
Courier 2.02
Net Current Assets 1.63
Unclassified 0.00
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 98.37Net Current Assets 1.63Unlisted Equities 0.00
g) Prudential ICICI Technology Fund
Scheme SnapshotFund Manager Deven SangoiScheme Objective EquityScheme Sub-Objective Sectoral-TMTScheme Type OpenMin. Investment(Rs) 5000Total Assets(Rs./Mn) 1046.92
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 91.89Call Money / ReverseRepos / Cblo
7.22
Other Current Assets 0.88
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Registrars Computer AgeManagementServices Pvt.Ltd.
Launch Date 05-FEB-00
Sector Allocationas on 30-Jun-06
Sector % Of Asset
I T - Software 64.73Media And Entertainment 11.80
Pharmaceuticals 10.57
Call Money / ReverseRepos / Cblo
7.22
Industrial Capital Goods 2.31
Telecommunications-service
2.24
Other Current Assets 0.88
Consultancy Services 0.25
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 91.89
Call Money /Reverse Repos /Cblo
7.22
Other CurrentAssets
0.88
i) DSP Merrill Lynch Technology.com Fund
Scheme SnapshotFund Manager Apoorva ShahScheme Objective EquityScheme Sub-Objective Sectoral-TMTScheme Type OpenMin. Investment(Rs) 1000Total Assets(Rs./Mn) 256.65Registrars Computer Age
Management
Services Pvt.Ltd.Launch Date 18-MAY-00
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 98.76Net Receivables /Payables
0.85
Cblo / Reverse RepoInvestments
0.39
Sector Allocationas on 30-Jun-06
Sector % Of Asset
I T - Software 69.56
Media And Entertainment 10.59
Asset Allocation as on 30-Jun-06Particulars PercentageEquity Shares 98.76Net Receivables /Payables
0.85
Cblo / Reverse Repo 0.39
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Telecommunications-service
10.45
Industrial Capital Goods 4.53
Computer Hardware 3.19
Net Receivables / Payables 0.85
Internet Service Provider 0.43Cblo / Reverse RepoInvestments
0.39
Investments
Conceptual background of the study:-
With a plethora of schemes to choose from, the retail investor faces problems inselecting funds. Factors such as investment strategy and management style arequalitative, but the funds record is an important indicator too. Though pastperformance alone can not be indicative of future performance, it is, frankly, theonly quantitative way to judge how good a fund is at present. Therefore, there is aneed to correctly assess the past performance of different mutual funds.Worldwide, good mutual fund companies over are known by their AMCs and thisfame is directly linked to their superior stock selection skills. For mutual funds togrow, AMCs must be held accountable for their selection of stocks. In otherwords, there must be some performance indicator that will reveal the quality ofstock selection of various AMCs.Return alone should not be considered as the basis of measurement of theperformance of a mutual fund scheme, it should also include the risk taken by thefund manager because different funds will have different levels of risk attached tothem. For evaluating the performance of selected Sectoral Mutual Fund schemesrisk-return relation models have been used like:
The Treynor Measure
The Sharpe Measure
Jenson Model
Fama Model
The Treynor Measure
Developed by Jack Treynor, this performance measure evaluates funds on thebasis of Treynor's Index. This Index is a ratio of return generated by the fund overand above risk free rate of return (generally taken to be the return on securitiesbacked by the government, as there is no credit risk associated), during a givenperiod and systematic risk associated with it (beta). Symbolically, it can berepresented as:Treynor's Index (Ti) = (Ri - Rf)/Bi.
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Where, Ri represents return on fund, Rf is risk free rate of return andBiis beta of the fund.All risk-averse investors would like to maximize this value. While a high andpositive Treynor's Index shows a superior risk-adjusted performance of a fund, alow and negative Treynor's Index is an indication of unfavorable performance.
The Sharpe MeasureIn this model, performance of a fund is evaluated on the basis of Sharpe Ratio,which is a ratio of returns generated by the fund over and above risk free rate ofreturn and the total risk associated with it. According to Sharpe, it is the total riskof the fund that the investors are concerned about. So, the model evaluates fundson the basis of reward per unit of total risk. Symbolically, it can be written as:Sharpe Index (Si) = (Ri - Rf)/SiWhere, Si is standard deviation of the fund.While a high and positive Sharpe Ratio shows a superior risk-adjustedperformance of a fund, a low and negative Sharpe Ratio is an indication ofunfavorable performance.
Comparison of Sharpe and TreynorSharpe and Treynor measures are similar in a way, since they both divide the riskpremium by a numerical risk measure. The total risk is appropriate when we areevaluating the risk return relationship for well-diversified portfolios. On the otherhand, the systematic risk is the relevant measure of risk when we are evaluatingless than fully diversified portfolios or individual stocks. For a well-diversifiedportfolio the total risk is equal to systematic risk. Rankings based on total risk(Sharpe measure) and systematic risk (Treynor measure) should be identical for awell-diversified portfolio, as the total risk is reduced to systematic risk. Therefore,a poorly diversified fund that ranks higher on Treynor measure, compared with
another fund that is highly diversified, will rank lower on Sharpe Measure.
Jenson ModelJenson's model proposes another risk adjusted performance measure. Thismeasure was developed by Michael Jenson and is sometimes referred to as theDifferential Return Method. This measure involves evaluation of the returns thatthe fund has generated vs. the returns actually expected out of the fund given thelevel of its systematic risk. The surplus between the two returns is called Alpha,which measures the performance of a fund compared with the actual returns overthe period. Required return of a fund at a given level of risk (Ri) can be calculatedas:-
Ri = Rf + Bi (Rm - Rf)Where, Rm is average market return during the given period. Aftercalculating it, alpha can be obtained by subtracting required returnfrom the actual return of the fund.Higher alpha represents superior performance of the fund and vice versa.Limitation of this model is that it considers only systematic risk not the entirerisk associated with the fund and an ordinary investor can not mitigateunsystematic risk, as his knowledge of market is primitive.
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Fama ModelThe Eugene Fama model is an extension of Jenson model. This model comparesthe performance, measured in terms of returns, of a fund with the required returncommensurate with the total risk associated with it. The difference between these
two is taken as a measure of the performance of the fund and is called netselectivity.
The net selectivityrepresents the stock selection skill of the fund manager, as itis the excess return over and above the return required to compensate for thetotal risk taken by the fund manager. Higher value of which indicates that fundmanager has earned returns well above the return commensurate with the level ofrisk taken by him.Required return can be calculated as:-Ri = Rf + Si/Sm*(Rm - Rf)Where, Sm is standard deviation of market returns. The net selectivity isthen calculated by subtracting this required return from the actual return of thefund.Among the above performance measures, two models namely, Treynormeasure and Jenson model use systematic risk based on the premisethat the unsystematic risk is diversifiable. These models are suitablefor large investors like institutional investors with high risk taking capacitiesas they do not face paucity of funds and can invest in a number of options todilute some risks. For them, a portfolio can be spread across a number of stocksand sectors. However, Sharpe measureandFama modelthat considerthe entire risk associated with fund are suitable for small investors, as
the ordinary investor lacks the necessary skill and resources to diversified.Moreover, the selection of the fund on the basis of superior stock selection abilityof the fund manager will also help in safeguarding the money invested to a greatextent. The investment in funds that have generated big returns at higher levels ofrisks leaves the money all the more prone to risks of all kinds that may exceed theindividual investors' risk appetite.
BETA
Beta measures a stock's volatility, the degree to which its price fluctuates in
relation to the overall market. In other words, it gives a sense of thestock's market risk compared to the greater market. Beta is used also to comparea stock's market risk to that of other stocks. Investment analysts use the Greekletter '' to represent beta.
This measure is calculated usingregression analysis. A beta of1 indicates thatthe security's price tends to move with the market. A beta greater than 1 indicates
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that the security's price tends to be more volatile than the market, and a beta lessthan 1 means it tends to be less volatile than the market.
= imr i m________________________
2
m
imr is correlation coefficient between market returns and fund returns.
i is standard deviation of fund returns.(Si)
m is standard deviation of market returns.(Sm)
2
m is market variance.
Coefficient of Determination )( 2R --- a measure of reliability of Beta
Beta depends on the index used to calculate it. It can happen that the index bearsno correlation with the movements in the fund. Due to this reason, it is essentialto take a look at statistical value called Coefficient of Determination along withBeta. It shows how reliable the beta number is. It varies between zero and one.Value of 1 indicates perfect correlation with the indx. Thus, an If )( 2R =0.64 itimplies that 64% of the variation in the portfolio returns is due to variations in themarket returns. Mathematically it is the square of correlation coefficient(R).
)(){ (m e am e a n
yyxxn R= -----------------------------------------------
22 )()( meanmean yyxx
Where X and Y are returns on the portfolio and returns on the marketrespectively.Beta and )( 2R should thus be used together when examining a funds risk
profile.
NET ASSET VALUE (NAV)
NAV per unit of a scheme on a day is the net market value of the securities heldby the total no. of the units of the scheme on the particular day. It is actually thevalue of of net asset per unit. Since the market value of securities changes
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everyday, NAV of a fund also varies on a day to day basis. NAVs for open endedschemes are required to be disclosed a daily basis(business day).
Net Assets of the schemeNAV = ___________________
No. of units outstanding
Where,Numerator= Market value of investment+receivables+other Accrued Income+Other Assets- Accrued Expenses-Other Payables-Other Liabilities.
Standard Deviation- a measure of Total Risk
Standard Deviation is the most common statistical measure of judging a fundsvolatility and risk. It measures a funds total risk i.e. sum of systematic risk andunsystematic risk. Mathematically it gives a quality rating of an avg. The SD ofan avg. is the amt. By which the no. that go in to an avg. deviate from that avg. Ittells us how closely an avg. represents the underlying avg. But one thing thing tobe kept in mind is that a high Standard Deviation may be a measure of volatility,but it does not necessarily mean that such a fund is worse than one with a lowStandard Deviation. If the first fund is a much higher performer than the secondone, the deviation will not matter much.
SD= 2)(
1meani
xxn
2)(
meanixx gives the square of the sum of differences of each value in the
sample from the mean of the sample of n element.
Note: - For this project following tools have been used:-
Standard Deviation
Beta
Sharp Ratio
R-Square
Methodology
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Sapling Design
Sampling method use is non probabilistic judgmental sampling. The MutualFund Scheme for the study have been selected based on following3 criteria
1 Type of the scheme Open-ended SectoralFunds(growth)
2 Minimum Assets Under Mgmt. Rs. 100 Crore3 Inception Date Prior to 1st April, 2003
Growth option for all the selected sheme has been considered.
Sample Size
The sample size of this study is 4 sectors. There were 11 sectors but following 7could not qualify:-1. Auto Sector
2. Basic
3. Infrastructure.4. Health Care
5. Media
6. Power 7. Service
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Research Design
1.Benchmark Index
For this study the 50 shares market index S&P CNX NIFTY has been used
as the market index.
2. Period of study
Period of studyhas been taken as 3 years starting from 1st April,2003 to21st July 2006.
3.Risk Free Rate Of Return
Risk free rate of return refers to that minimum return on an investmentthat has no risk of loosing the investment over which it is earned. For thispurpose of this study risk free rate of return is represented by 91 daysTreasury bill of 5.32%.
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CHAPTR 5 :- DATA ANALYSIS
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Data Collection
Following is a description of the sources & methodology followed to
collect the data required.
1. NAV
For the study NAVs of the funds have been taken at every weekend
i.e. the NAVs on Friday during the period of the study have been
considered.
NAV data have been taken from the websitewww.myris.com and in
some cases the websites of the respective funds.
2.Benchmark Index
The data is sourced from the website of National Stock Exchange.
www.nse-india.com
3. Selection of the Schemes
Details pertaining to the type of the scheme, Assets under
management and Launch date were sourced from the websites
www.valueresearchonline.com.
TABLE 3: Fund ranking on the basis of Total Risk(Standard Deviation of weeklyreturns)
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Sr. No. Scheme Name Sector Standard Deviation
1 FranklinFMCG FMCG 6.19
2 UTI software TECH. 6.41
3 Magnum FMCG FMCG 6.54
4 Franklin InfoTech. TECH. 6.58
5 Birla Sunlife new millennium TECH. 6.75
6 DSPML Technology TECH. 6.75
7 Kotak Tech TECH 6.89
8 Franklin Pharma PHARMA 6.96
9 UTI Pharma & Healthcare PHARMA 7.12
10 Magnum IT TECH. 7.30
11 Prudential ICICI FMCG FMCG 7.31
12 Prudential ICICI Technology TECH. 7.59
13 Magnum Pharma PHARMA 7.87
14 Reliance Banking BANKING 7.90
TABLE 4: Fund ranking on the basis of Sharp Ratio
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Sr. No. Scheme Name Sector Sharp Ratio
S&P CNX NIFTY 5.8077
1 Birla Sunlife new millennium TECH .50
2 DSPML Technology TECH. .49
3 Franklin InfoTech. TECH. .49
4 Prudential ICICI FMCG FMCG. .49
5 Magnum IT TECH. .48
6 UTI Software TECH. .48
7 Magnum Pharma PHARMA .47
8 Franklin FMCG FMCG .44
9 Prudential ICICI Technology TECH. .43
10 Magnum FMCG FMCG .42
11 Kotak TECH. .40
12 Franklin Pharma PHARMA .32
13 Reliance Banking BANKING .31
14 UTI Pharma & Healthcare PHARMA .29
Table 5:- Fund ranking on the basis of Beta and R-square
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Sr. No. Scheme Name Sector Beta 2R
S&P CNX NIFTY - 1.0000 1.0000
1 Franklin InfoTech TECH .92 .96
2 Kotak Tech TECH .92 .89
3 Magnum IT TECH .90 .75
4 Magnum Pharma PHARMA .89 .78
5 UTI Pharma &
Healthcare
PHARMA .89 .95
6 UTI Software TECH .87 .91
7 Franklin Pharma PHARMA .86 .94
8 Prudential ICICI
Tech
TECH .84 .60
9 DSPML
Technology
TECH .84 .76
10 Birla Sunlife New
Millennium
TECH .81 .72
11 Reliance Banking BANKING .73 .76
12 Prudential ICICIFMCG
FMCG .72 .57
13 Franklin FMCG FMCG .71 .77
14 Magnum FMCG FMCG .61 .52
OBSERVATIONS AND INFERENCES
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Total Risk (Standard Deviation)
All 14 funds are having high standard deviation as compared tomarket. It is between 6 to 8 for all sectoral funds qualified. FranklinFMCG and UTI Software are the best among all with standarddeviation of6.19 and 6.41Reliance banking and Magnum Pharma are bad performers among
all with standard deviation of7.90 and 7.87.
Systematic Risk(Beta) and Coefficient of Determination( 2R )
None of the schemes have beta greater than 1(i.e. market beta)
suggesting that all these funds were holding a portfolio which was lessrisky as compared with the market portfolio. Still they have generatedreturns greater than the benchmark indexs rate of return. This showsa good performance.
Avg. beta for the group works out to .82214 and 9 schemes have betavalue greater than this.3 schemes have beta greater than 0.9 making them riskier in thegroup but still lesser risky than market portfolio.Franklin Infotech and Kotak tech have performed well on thisparameter. They both were having beta as .92. But Franklin Infotech is
having greater ( 2R ) Kotak tech i.e. Franklin is having .96 where asKotaks ( 2R ) is .89FMCG sector has performed worst in this parameter. MagnumFMCG, Franklin FMCG, Prudential ICICI FMCG have performed
badly. Their ( 2R ) is .52,.77,.57 respectively.This shows that apart from these schemes having higher risk asinferred previously by the high values of standard deviation of theirreturns, they show a low value of data implying that the variations intheir returns are largely not explainable by the variations in the
market returns.
Limitation of study
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1. The analysis is based on historical data and thus indicates thepast performance which may not always be indicative of thefuture performance.
2. Different schemes consider different market indices as theirbenchmarks, but for the purpose of uniformity in the study allschemes have to be compared against same benchmark index.
3. Weekly NAVs have been considered for the study. Daily NAVswould have given more precise result fop the study.
4. Sharpe ratio (in its simplest forms) that the relationshipbetween risk and return is linear and remain linear throughout
its entire range. Various research works conducted in thisregard show that the relationship is not as simple as CapitalMarket theory would suggest. This is an inherent weakness ofcapital Asset Pricing Model.
5. The time period considered by the study is only three years; alarger period could have ensured coverage of a full market cycle,thus giving a more real picture of the performance of theschemes.
Conclusion
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Good Performers.
Following 6 schemes have scored well on all parameters.
1. Franklin Infotech2. UTI Software3. Birla Sunlife4. Franklin FMCG5. DSPML Technology6. Kotak Tech
Technology sector is the best performer among all the comparedsectors.
Non Performers
Our schemes which can be identified as non performing on thebasis of the parameters considered in the study are :-
1. Prudential ICICI Tech.2. Reliance Banking3. Magnum FMCG4. Prudential ICICI-FMCG5. Franklin Pharma\
6. UTI Pharma.
RECOMMENDATIONS
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1. Technology sectoral funds have performed well on allparameters, hence it is good bet for investments.
2. FMCG and Pharma are avg. performers. Still they can begood for long run.
3. In Banking Sector Reliance was only fund which qualifiedbut it was worst performer in all parameters.
4. Karvy should keep Mutual Fund Awareness Programmeson regular basis for investors and clients as future belongsto mutual fund in India specially Sectoral Mutual Funds.
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BIBLIOGRAPHY
www.njindiainvest.com
www.moneycontrol.com www.amfiindia.com
www.karvy.com
MUTUAL FUNDPRODUCT AND SERVICES---- TAXMAN
AMFI COURSE BOOK
www.valueresearch.com
http://www.njindiainvest.com/http://www.amfiindia.com/http://www.njindiainvest.com/http://www.amfiindia.com/