Fundamental and Technical Analysis of Mutual Funds

Chapter- 1

EXECUTIVE SUMMARY

A mutual fund is a scheme in which several people in their money for common financial cause.

The collected money invests in the capital market and the money which they earned is divided

based on the number of units which they hold. The mutual fund industry started in India,

In a small way with the UTI Act creating what was effectively a small savings division

within the RBI. Over a period of 25 years this grew fairly successfully and gave investors a good

return and therefore in 1989 as the next logical step public sector banks and financial institutions

were allowed to float mutual funds and their success emboldened the government to allow the

private sector to foray into this area. The advantages of mutual fund are professional

management, diversification, economies of scale, simplicity, and liquidity. The disadvantages of

mutual fund are high costs, over-diversification, possible tax consequences, and the inability of

management to guarantee a superior return. The biggest problems with mutual funds are their

costs and fees include Purchase fee, Redemption fee, Exchange fee, Management fee, Account

fee & transaction Costs. There are some loads which add to the cost of mutual fund. Load is a

type of commission depending on the type of funds. Mutual funds are easy to buy and sell. You

can either buy them directly from the fund company or through a third party. Before investing in

any funds one should consider some factor like objective, risk, Fund Manager’s and scheme

track record, Cost factor etc. There are many types of mutual funds.You can classify funds based

Structure (open-ended & close-ended), Nature (equity, debt, balanced), Investment objective

(growth, income, money market) etc. A code of conduct and registration structure for mutual

fund intermediaries, which were subsequently mandated by SEBI.

In addition, this year AMFI was involved in a number of developments and enhancements to

the regulatory framework. 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 banks.

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. Reliance Mutual Fund, UTI Mutual Fund, ICICI

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Prudential Mutual Fund, HDFC Mutual Fund and Birla Sun Life Mutual Fund are the top five

mutual fund company in India. Reliance mutual funding is considered to be most reliable mutual

funds in India. People want to invest in this institution because they know that this institution

will never dis satisfy any cost. You should always keep this into your mind that if particular

mutual funding scheme is on larger scale then next time, you might not get the same results so

being a careful investor you should take your major step diligently otherwise you will be unable

to obtain the high returns.

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Chapter- 2

Company Profile

Recognized as a leading merchant banker in the country, KARVY is registered with

SEBI as a Category I merchant banker. This reputation was built by capitalizing opportunities in

corporate consolidations, mergers and acquisitions and corporate restructuring, which have

earned us the reputation of a merchant banker.

Company Overview :

Karvy Stock Broking Limited provides stock broking and research advisory services in

India. The company offers portfolio analysis, depository participant, and financial planning and

management services for individuals and institutional clients. It also provides a monthly

magazine, Finapolis, which provides up-dated market information on market trends, investment

options, and opinions. The company was founded in 1990 and is based in Hyderabad, India.

Karvy Stock Broking Limited is a subsidiary of Karvy Consultants Limited.

Karvy Stock Broking Limited, one of the cornerstones of the Karvy edifice, flows freely

towards attaining diverse goals of the customer through varied services. Helping the customer

create waves in his portfolio and empowering the investor completely is the ultimate goal.

It is an undisputed fact that the stock market is unpredictable and yet enjoys a high success rate

as 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 .

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Members: - National Stock Exchange (NSE), The Bombay Stock Exchange (BSE), and The

Hyderabad Stock Exchange (HSE).

1) National Stock Exchange(NSE):-

Nifty is a stock market index of national Stock of Exchange. It is having the stocks of 50 of the

largest and the most liquid companies from about 25 sectors in India. It was introduced in

1995.NSE is one of the first de-metalized stock exchanges in the country, where the ownership

and management of the exchange is completely divorced from the right to trade on it.

2) Bombay Stock Exchange(BSE):-

The Bombay stock exchange is the oldest stock market of India. ’’Sensex” stands for

sensitive index. It was created in 1978-79 with a base value of 100.It was having of thirty

stocks of leading Indians companies and it well diversified with representation of almost all

the sectors of the economy like Banking, IT, Cement, Autos, Manufacturing, Capital goods,

etc.

3) Hyderabad Stock Exchange(HSE) :-

The Hyderabad Stock Exchange (HSE) in Hyderabad had started its operations in the year

1941. Initially, the operations were carried out on a very small scale in a building taken on

rent in the area of Koti. Later, in 1987, the office was shifted to Aiyangar Plaza, Bank Street.

Hyderabad Stock Exchange was the 6th stock exchange to get recognition under

Securities Contract Act. The Government of India recognized HSE on 29 September, 1958.

With registering significant growth in the domain of trading and for its yeoman services, the

HSE was rendered the permanent recognition, which became effective from 29 September,

1983.

4) Demat Account:-

(dematerialized account)

Though the company is under obligation to offer the securities in both physical and demat

mode, you have the choice to receive the securities in either mode. If you wish to have securities

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in demat mode, you need to indicate the name of the depositor and also of the depositary

participant with whom you have depository account in your application. It is however desirable

that you hold securities in demat from as physical securities carry the risk of being fake, forged

or stolen.

If you want to buy or sell stocks, you need to open a demat account. So it is just like a bank

account where actual money is replaced by shares. You have to approach the DPs (remember

they are like bank branches) to open your demat account. Let’s say your portfolio of shares looks

like this :-100 of Infosys,150 of Wipro,200 of HCL. All these will show in your demat account,

so you don’t have process any physical certificates showing that you own these shares. They are

all held electronically in your account. Just like bank passbook or statement, the DP will provide

you with periodic statement of holdings and transactions.

5) Mutual Funds :-

Mutual fund are a kind of investment that are based on the gains and losses of a shareholder.

Basically one person manages the money of several investors and invests in a list of various

stocks to lessen the effect of any losses that may occur.

A mutual fund is a professionally managed type of collective investment that pools money

from many investors to buy stocks, bonds, short-term money market instruments, and other

securities.

MISSION Statement of karvy

An organization exists to accomplish something or achieve something. The mission

statement indicates what an organization wants to achieve. The mission statement may be

changed periodically to take advantage of new opportunities or respond to new market

conditions. Karvy mission statement is “To bring industry ,finance & people together.”

Karvy is work as intermediary between industry & people. Karvy works as investment

advisor & helps people to invest their money same was karvy helps industry in achieving

finance from people by issuing shares, debentures, bonds, mutual funds, fixed deposits,etc. .

Company’s mission statement is clear & thoughtful which guide geographically dispersed

employees to work independently yet collectively towards achieving organization goals.

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Vision of Karvy

Company’s vision is crystal, clear & mind frame very directed. “To be pioneering financial

services company and continue to grow at a healthy pace, year after year, decade after decade.

Company’s foray into-IT enabled services & internet business has provided an opportunity to

explore new frontiers & business solutions.

PRODUCT AND SERVICES OF KARVY GROUP:

1. Karvy comtrade.

2. Karvy consultant ltd.

3. Karvy merchant banking.

4. Karvy global services ltd.

5. Karvy database management services.

6. Karvy realty (india) pvt.ltd

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Major Competitors in market place

ICICI DIRECT

ICICI Web Trade Limited (IWTL) maintains www.icicidirect.com (herein after referred to as

the "Website") whereas IWTL is an affiliate of ICICI Bank Limited and the Website is owned

by ICICI Bank Limited. IWTL has launched and established an online trading service on the

Website.

PRODUCTS AND SERVICES OF ICICI DIRECT

1. Investing in Mutual funds

2. Personal Finance

3. Customer Service Features

4. IPO’s

5. Margin Trading

6. Margin PLUS Trading

7. Call Trade

8. Trading on NSE/BSE

9. Trade in derivative

INDIAINFOLINE SECURITY PRIVATE LTD.

India Infoline.com Securities Pvt. Ltd. is a wholly owned subsidiary of India Infoline.com Ltd

and is the stock broking arm of India Infoline.com. The subsidiary was formed to comply with

regulatory guidelines. www.5paisa.com is a focused website for online stock market trading.

5paisa.com is a trade name owned by the India Infoline.com group. IILSPL has applied for

trading membership of the BSE under Securities and Exchange Board of India (Stock Brokers

and Sub-Brokers) Rules 1992. IILSPL is in the business of providing broking services online via

the Internet ("E-broking Services") and has been permitted by the NSE by way of registration

permission no: NSEIL/CMO/INET/1103/2000 dated 03/July/2000, and will be applying for

permission to the BSE, to provide E-broking Services to its clients.

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IILSPL is a TRADING MEMBER of the National Stock Exchange of India.

PRODUCT OFFERED BY IILSPL

Stock market:-IILSPL deals in stock market by trading in equity, mutual fund and derivatives.

Personal finance:- It Deals In Mutual Fund And Insurance.

Online Trading :- It provides services in stock and commodity trading (through Internet).

HDFC SECURITY

HDFC security is the subsidiary of HDFC (Housing Development Financial Corporation).

www.hdfcsec.com would have an exclusive discretion to decide the customers who would be

entitled to its online investing services. www.hdfcsec.com also reserves the right to decide on

the criteria based on which customers would be chosen to participate in these services .The

present web site (www.hdfcsec.com) contains features of services that they offer/propose to

offer in due course. The launch of new services is subject to the clearance of the regulators.

i.e. SEBI, NSE and BSE.

PRODUCT OFFERED BY HDFC SECURITY

• Online trading for Resident & Non Resident Indians.

• Cash-n-Carry on both NSE and BSE.

• Day trading on both NSE and BSE.

• Trade on Futures & Options on the NSE.

• Online IPO's.

• Telephone-based Broking (Equity & Derivatives).

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INDIABULLS SECURITIES LIMITED:

Indiabulls Securities Limited was incorporated as GPF Securities Private Limited on June 9,

1995. The name of the company was changed to Orbis Securities Private Limited on December

15, 1995 to change the profile of the company and subsequently due to the conversion of the

company into a public limited company; the name was further changed to Orbis Securities

Limited on January 5, 2004. The name of the company was again changed to Indiabulls

Securities Limited on February 16, 2004 so as to capitalize on the brand image of the term

“Indiabulls” in the company name. ISL is a corporate member of capital market & derivative

segment of The National Stock Exchange of India Ltd. At present, ISL accounts for

approximately 3% of the total daily turnover of the Exchange with 32,359 client relationships

and 70 branches spread across the country as of April 30, 2004.

PRODUCT OFFERED BY INDIA BULLS

Equity & Debt Stock Broking

Insurance

Commodity trading

Depository Services

Derivatives Broking Services

Equity Research Services

Mutual Fund Distribution

IPO Distribution.

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Turnover of Karvy Stock broking Ltd.

Karvy Stock Broking Ltd. (KSBL) is a member of the National Stock Exchange and Bombay

Stock Exchange. It has over 580 offices covering over 350 cities/towns, including offices at

Dubai and New York. KSBL, besides offering broking services to over 350,000 retail investors,

also has a Private Client desk to cater to HNIs and Corporates and an Institutional desk to service

various financial institutions both domestic and foreign. It offers trading both on the cash and

derivatives segment and does an average daily turnover of approx. Rs. 1500 crores, positioning

the company amongst the top brokers in the country. KSBL also has a well-qualified research

team based out of Mumbai and Hyderabad. It is a key player in the Wholesale Debt Market

Segment of the NSE.

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Chapter-3

Project Details

“This study suggest that people are reluctant while investing in mutual funds

due to lack of knowledge”

This is the project on the analyzing of mutual funds to invest the money to future for get higher

return on investment. This project report to all investor who want to invest their money in mutual

funds. But they should analysis the securities before to invest because the money has very much

value in our life. I chose this project to do because I want to analysis the fundamentals of mutual

funds for investor point of view so they can get good return in future, want to do fundamental

and technical analysis of mutual funds through the various theories, try to understand the

movement and performance of funds and also try to know the factors that affect the movement of

fund prices in the Indian Stock Markets.

Through this project we were also able to understand, what are our Company’s (Karvy Stock

broking Ltd) positive and strong points, on the basis of which we come to know what can be the

basis of pitching to a potential client. We also gave suggestions to the company, what

improvement can be done to our product. Fundamental analysis and technical analysis can co-

exist in peace and complement each other. Since all the investors in the mutual fund market

want to make the maximum profits possible, they just cannot afford to ignore either fundamental

or technical analysis.

Team:

This my solo project assign by project guide and whole staff of that branch. I did my analysis

with manager of the company.

Duration:

The time was very crucial factor in project report the training was for eight weeks so I spent as

much as time to learn from the internship and prepare this report to share my golden time

with you.

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Key Deliverables:

The company was expecting to me to dedication for project, queries about project to fill the

tank as much as I can and discipline in branch office as they follow.

PROJECT- MY ROLE

I did my project on the basis of topic given by the project guide in this project I contribute my

best that I can do. I decide to choose some stock listed in NSE for fundamental and technical

analysis. I approach my project guide and whole staff person to get knowledge. I sought out

my queries with discussion with all staff members and my project guide. I note all important

figures and facts about financial market and update my project report Step by step.

Achievements:

The main achievement during the entire project was the knowledge about the financial market

which was unseen for me. Successfully finishing project analysis by myself and the compliment

by project guide was best achievement for me in that entire project.

Key Learning's:

A proper interaction with staff members and project guide to gain knowledge is require for a

good internship. I learn how to analysis the mutual funds for investing money.

Challenges Faced:

• Busy schedule of project guide. I had to wait whole day to talk to him about project.

• There was no operational work in branch for me.

Reasons for Success:

Success story of this project is my dedication, passion, good relationship with all staff

members and assistance of my project guide.

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CHAPTER 4

EMPIRICAL ANALYSIS

BODY OF THESIS

PREFERRED FUND STRUCTURE

Table-1

Structure of the fund No of investors preferred

Open – ended fund 64

Close – ended fund 24

Interval funds 12

Total 100

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Chart-1

Open – ended fund

Close – ended fund

Interval funds Total

No of investors preferred

64 24 12 100

5152535455565758595

No of investors preferred

Axis Title

Inference: It is observed that 64 out of 100 that are 64% of investors are interested to invest their

money in open ended funds the reason can be attributed to its convenience to enter and exit at

any time. 24% investors preferred to invest in close ended funds because they are long term

investors as well as they want some tax benefits. And the remaining 12% investors replied that

they don’t mind to invest in any funds including interval funds.

INVESTORS SCHEME PREFERENCE

Table-2

Preferred fund scheme No of investors preferred

Growth scheme 52

Income scheme 16

Balanced scheme 32

Total 100

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CHART - 2

Inference: In the above given graph it is showed that 52 out of 100 that are 52% of customers

are interested to invest in growth schemes. 8 out of 25 that are 32% of customers are interested

to invest in Balanced schemes and the remaining 16% customers are preferred to invest in

Income schemes.

INVESTORS FUND PREFERENCE

Table-3

Type of fund No of investors preferred

Tax saver funds 15

Index funds 40

Sectorial funds 45

Total 100

CHART - 3

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Tax saver funds Index funds Sectorial funds Total

No of investors preferred

15 40 45 100

5152535455565758595

No of investors preferred

Axis Title

Inference: Out of 100 investors 15 that is 15% of customers are preferred to invest in Tax saver

funds. 40 that is 40% of investors are preferred to invest in index funds which give returns based

upon respective indexes.. 45 that is 45% of investors are interested to invest in sectorial funds

that means they are ready to take high risk but want high returns.

TABLE SHOWING REPETATION OF INVESTMENTS MADE BY THE

RESPONDENTS.

GETTING MONTHLY / QUARTERLY STATEMENTS FROM TIME TO TIME

TABLE-4

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RESPONSE NO OF RESPONDENTS

YES 64

NO 36

TOTAL 100

Getting Monthly / Quarterly statements

from time to time

No of Investors

Yes 70

No 30

Total 100

Chart-4

Yes No

No of Investors 70 30

5

15

25

35

45

55

65

No of Investors

Axis Title

Inference :70 out of 100 people getting monthly/quarterly statements from time to time

30 out of 100 people not getting monthly/quarterly statements from time to time .

Chapter- 5

INTRODUCTION

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FUNDAMENTAL ANALYSIS

Fundamental analysis refers to the study of the core underlying elements that influence the

economy of a particular entity. It is a method of study that attempts to predict price action and

market trends by analyzing economic indicators, government policy and societal factors (to name

just a few elements) within a business cycle framework.

Fundamental analysis is a method of forecasting the future price movements of a financial

instrument based on economic, political, environmental and other relevant factors and statistics

that will affect the basic supply demand chain of whatever underlies the financial instrument.

No industry or company can exist in isolation and so there are external factors which determine

to an extent growth of a company and so fundamental analysis is a method of forecasting the

future price movements based on economic, political, environmental and other factors and

statistics that effects the basic supply demand chain.

Some of the factors which can effect Analysis are:

External factors

1. Political condition2. Foreign Exchange3. Government Policies in general4. Government Policies pertaining to the sector5. Inflation6. Interest Rates7. Taxation

Internal Factors

8. The Management9. How a company is perceived by its competitors?10. Is market leader in its products or in its segment11. Company Policies12. Employee / Labour Relations13. Where the company is located and where its factories are?14. Financial Statements like Cash Flow / Balance sheets.

The formation of Unit Trust of India marked the evolution of the Indian mutual fund industry

in the year 1963. The primary objective at that time was to attract the small investors and it was

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made possible through the collective efforts of the Government of India and the Reserve Bank of

India.

What is Mutual Funds?

A Mutual fund are a kind of investment that are based on the gains and losses of a

shareholder. Basically one person manages the money of several investors and invests in

a list of various stocks to lessen the effect of any losses that may occur.

A mutual fund is a professionally managed type of collective investment that pools

money from many investors to buy stocks, bonds, short-term money market instruments,

and other securities.

Mutual Fund Operation Flow Chart :

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ORGANISATION OF A MUTUAL FUND:

There are many entities involved and the diagram below illustrates the organizational

set up of a mutual fund:

Mutual funds in INDIA have a 3-tier structure of Sponsor – Trustee – AMC.

Sponsor is the promoter of the fund. Sponsor creates the AMC and the trustee company

appoints the Boards of both these companies, with SEBI approval.

A mutual fund is constituted as a Trust.

A trust deed is signed by trustees and registered under the Indian Trust Act.

The mutual fund is formed as trust in INDIA, and supervised by the Board of

the trustees appoint the asset management company (AMC) to actually manage

investor’s money.

The AMC’s capital is contributed by the sponsor. The AMC is the business face of the

Investor’s money is held in the Trust (the mutual fund). The AMC gets a fee for

managing the funds, according to the mandate of the investors.

Sponsor should have at-least 5-year track record in the financial services business and

should have made profit in at-least 3 out of the 5 years.

Sponsor should contribute at-least 40% of the capital of the AMC.

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Trustees are appointed by the sponsor with SEBI approval.

At-least 2/3 of trustees should be independent.

At-least ½ of the AMC’s Board should be independent members.

An AMC of one fund cannot be Trustee of another fund.

AMC should have a net worth of at least Rs. 10 crore at all times.

AMC should be registered with SEBI.

AMC signs an investment management agreement with the trustees.

Trustee Company and AMC are usually private limited companies.

Trustees oversee the AMC and seek regular reports and information from them.

Trustees are required to meet at least 4 times a year to review the AMC.

The investor’s funds and the investments are held by the custodian.

Sponsor and the custodian cannot be the same entity

R&T agents manage the sale and repurchase of units and keep the unit holder.

If the schemes of one fund are taken over by another fund, it is called as scheme take

over. This requires SEBI and trustee approval.

Advantages of mutual funds:

Increased diversification

Daily liquidity

Professional investment management

Ability to participate in investments that may be available only to larger investors

Service and convenience

Government oversight

Ease of comparison

Mutual fund are good for investment, but there are some disadvantages of it:

Disadvantages of mutual funds:

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Fees

Less control over timing of recognition of gains

Less predictable income

No opportunity to customize

Management fee

Distribution charges

Types Of Mutual Funds:

Open-end funds :

open-end mutual funds must be willing to buy back their shares from their investors at the end of

every business day at the net asset value computed that day. Most open-end funds also sell shares

to the public every business day; these shares are also priced at net asset value. A professional

investment manager oversees the portfolio, buying and selling securities as appropriate. The total

investment in the fund will vary based on share purchases, redemptions and fluctuation in market

valuation.

Closed-end funds:

Closed-end funds generally issue shares to the public only once, when they are created through

an initial public offering. Their shares are then listed for trading on a stock exchange. Investors

who no longer wish to invest in the fund cannot sell their shares back to the fund (as they can

with an open-end fund). Instead, they must sell their shares to another investor in the market; the

price they receive may be significantly different from net asset value. It may be at a "premium"

to net asset value (meaning that it is higher than net asset value) or, more commonly, at a

"discount" to net asset value (meaning that it is lower than net asset value). A professional

investment manager oversees the portfolio, buying and selling securities as appropriate.

Debt Funds:

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Debt funds invest in debt instruments issued by government, private companies, banks &

financial institutions. By investing in debts these funds target low risk & stable income investors.

These funds are low risk low returns fund.

Money Market Funds:

Money market funds invest in securities of a short term nature ,which generally means security

of less than one year maturity such as treasury bills issued by governments, certificates of deposit

issued by banks & commercial paper issued by companies.

INDUSTRY ANALYSIS:

The importance of industry analysis is now dawning on the Indian investor as never before.

BUSINESS CYCLE

The first step in industry is to determine the cycle it is in, or the stage of maturity of the

industry. All industries evolve through the following stages:

1. Entrepreneurial, sunrise or nascent stage

2. Expansion or growth stage

3. Stabilization, stagnation or maturity stage, and

4. Decline or sunset stage to properly establish itself. In the early days, it may actually make loss.

COMPANY ANALYSIS:

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At the final stage of fundamental analysis, the investor analyzes the company. This analysis

has two thrusts:

How has the company performed vis-à-vis other similar companies and How has the

Company performed in comparison to earlier years.

It is imperative that one completes the politico economic analysis and the industry analysis

before a company is analyzed because the company's performance at a period of time is to an

extent a reflection of the economy, the political situation and the industry. What does one

look at when analyzing a company? The different issues regarding a company that should be

examined are:

THE MANAGEMENT:

The single most important factor one should consider when investing in a company and one

often never considered is its management. In India management can be broadly divided in

two types:

• Family Management

• Professional Management

THE COMPANY:

An aspect not necessarily examined during an analysis of fundamentals is the company. A

company may have made losses consecutively for two years or more and one may not wish to

touch its shares - yet it may be a good company and worth purchasing into. There are several

factors one should look at.

1. How a company is perceived by its competitors?

One of the key factors to ascertain is how a company is perceived by its competitors. It is

held in high regard. Its management may be known for its maturity, vision, competence and

aggressiveness. The investor must ascertain the reason and then determine whether the reason

will continue into the foreseeable future.

2. Whether the company is the market leader in its products or in its segment

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Another aspect that should be ascertained is whether the company is the market leader in its

products or in its segment. When you invest in market leaders, the risk is less. The Shares of

market leaders do not fall as quickly as those of other companies. There is a magic to their name

that would make individuals prefer to buy their products as opposed to others.

3. Company Policies

The policy a company follows is also important. What are its plans for growth? What is its

vision? Every company has a life. If it is allowed to live a normal life it will grow up to a

point and then begin to level out and eventually die. It is at the point of leveling out that it

must be given new life. This can give it renewed vigor and a new lease of life.

4. Labour Relations

Labour relations are extremely important. A company that has motivated, industrious work

force has high productivity and practically no disruption of work. On the other hand, a

company that has bad industrial relations will lose several hundred man-day’s as a

consequence of strikes and go slows.

5. Where the company is located and where its factories are?

One must also consider where the companies Plants and Factories are located.

TECHNICAL ANALYSIS

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Technical analysis is concerned with predicting future price trends from historical price and

volume data. The underlying axiom of technical analysis is that all fundamentals (including

expectations) are factored into the market and are reflected in exchange rates.

It is also a method of predicting price movements and future market trends by studying charts

of past market action which take into account price of instruments, volume of trading and,

where applicable, open interest in the instruments.

Stock Charts:

Stock charts gained popularity in the late 19th Century from the writings of Charles H. Dow

in the Wall Street Journal. His comments, later known as "Dow Theory", alleged that markets

move in all kinds of measurable trends and that these trends could be deciphered and

predicted in the price movement seen on all charts.

A stock chart is a simple two-axis (x-y) plotted graph of price and time.Each individual equity

market and index listed on a public exchange has a chart that illustrates this movement of price

over time. Individual data plots for charts can be made using the CLOSING price for each day.

The plots are connected together in a single line, creating the graph. Also, a combination of the

OPENING, CLOSING, HIGH and/or LOW prices for that market session can be used for

the data plots. This second type of data is called a PRICE BAR. Individual price bars are then

overlaid onto the graph, creating a dense visual display of stock movement.

Stock charts can be created in many different time frames. Mutual fund holders use monthly

charts in which each individual data plot consists of a single month of activity. Day traders

use 1 minute and 5 minute stock charts to make quick buy and sell decisions. The most

common type of stock chart is the daily plot, showing a single complete market session for

each unit.

Stock charts can be drawn in two different ways. An ARITHMETIC chart has equal vertical

distances between each unit of price. A LOGARITHMIC chart is a percentage growth chart.

It has equal vertical distances between the same percentages of price growth. For example, a

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price movement from 10 to 20 is a 100% move. A move from 20 to 40 is also a 100% move. For

this reason, the vertical distance from 10 to 20 and the vertical distance from 20 to 40 will be

identical on a logarithmic chart.Stock chart analysis can be applied equally to individual stocks

and major indices.

Analyst use their technical research on index charts to decide whether the current market is

a BULL MARKET or a BEAR MARKET. On individual charts, investors and traders can learn

the MARKET or a BEAR MARKET. On individual charts, investors and traders can learn the

same thing about their favourate companies.

It gives the shareholder tools that will help him or her identify realistic buying opportunities

that show detailed movement and averages. Using technical information helps the buyer to avoid

emotional decisions and saves time on trying to decide where to make investments. Mutual fund

rankings include a collection of stock, bonds, and other securities while ranking the best choices

for the buyer. Some of the choices usually include a variety of mutual fund categories such as

global stock, equity income, large-cap, mid-cap, and small-cap. Diversity in investments is the

way to be smart about investing. Not putting everything into one type of fund increases the

shareholders chances for profit. These include large, medium, and small sized companies as

International investments.

History of Mutual Funds in India

The first mutual funds were established in Europe. One researcher credits a dutch merchant

with creating the first mutual fund in 1774.He first mutual fund outside the Netherlands was the

Foreign & Colonial Government Trust, which was established in London in 1868. It is now the

Foreign & Colonial Investment Trust and trades on the London stock exchange.

Mutual funds were introduced into the United States in the 1890s . They became popular during

the 1920s. These early funds were generally of the closed-end type with a fixed number of shares

which often traded at prices above the value of the portfolio.

The first open-end mutual fund with redeemable shares, was established on March 21, 1924.

This fund, the Massachusetts Investors Trust, is now part of the MFS family of funds. However,

27

closed-end funds remained more popular than open-end funds throughout the 1920s. By 1929,

open-end funds accounted for only 5% of the industry's $27 billion in total assets

After the stock market crash of 1929, Congress passed a series of acts regulating the

securities markets in general and mutual funds in particular. The Securities Act of 1933 requires

that all investments sold to the public, including mutual funds, be registered with the Securities

and Exchange Commission (SEC) and that they provide prospective investors with a prospectus

that discloses essential facts about the investment. The Securities and Exchange Act of 1934

requires that issuers of securities, including mutual funds, report regularly to their investors; this

act also created the Securities and Exchange Commission, which is the principal regulator of

mutual funds. The Revenue Act of 1936 established guidelines for the taxation of mutual funds,

while the Investment Company Act of 1940 governs their structure.

When confidence in the stock market returned in the 1950s, the mutual fund industry began to

grow again. By 1970, there were approximately 360 funds with $48 billion in assets. The

introduction of money market funds in the high interest rate environment of the late 1970s

boosted industry growth dramatically. The first retail index fund, First Index Investment Trust,

was formed in 1976 by The Vanguard Group, headed by John Bogle, it is now called the

Vanguard 500 Index Fund and is one of the world's largest mutual funds, with more than $100

billion in assets as of January 31, 2011.

Fund industry growth continued into the 1980s and 1990s, as a result of three factors: a bull

market for both stocks and bonds, new product introductions (including tax-exempt bond, sector,

international and target date funds) and wider distribution of fund shares. Among the new

distribution channels were retirement plans. Mutual funds are now the preferred investment

option in certain types of fast-growing retirement plans, specifically in 401(k) and other defined

contribution plans and in individual retirement accounts (IRAs), all of which surged in popularity

in the 1980s. Total mutual fund assets fell in 2008 as a result of the credit crisis of 2008.

At the end of 2010, there were 7,581 mutual funds in the United States with combined assets

of $11.8 trillion, according to the Investment Company Institute (ICI), a national trade

28

association of investment companies in the United States. The ICI reports that worldwide mutual

fund assets were $4.7 trillion on the same date.

PHASES OF MUTUAL FUNDS :

Phase 1: Establishment and Growth of Unit Trust of India.

Unit Trust of India enjoyed complete monopoly when it was established in the year 1963 by

an act of Parliament. UTI was set up by the Reserve Bank of India and it continued to operate

under the regulatory control of the RBI until the two were de-linked in 1978 and the entire

control was tranferred in the hands of Industrial Development Bank of India (IDBI). UTI

launched its first scheme in 1964, named as Unit Scheme 1964 (US-64), which attracted the

largest number of investors in any single investment scheme over the years.

UTI launched more innovative schemes in 1970s and 80s to suit the needs of different

investors. It launched ULIP in 1971, six more schemes between 1981-84, Children's Gift Growth

Fund and India Fund (India's first offshore fund) in 1986, Mastershare (Inida's first equity

diversified scheme) in 1987 and Monthly Income Schemes (offering assured returns) during

1990s. By the end of 1987, UTI's assets under management grew ten times to Rs 6700 crores.

Phase 2: Entry of Public Sector Funds - 1987-1993

The Indian mutual fund industry witnessed a number of public sector players entering the market

in the year 1987. In November 1987, SBI Mutual Fund from the State Bank of India became the

first non-UTI mutual fund in India. SBI Mutual Fund was later followed by Canbank Mutual

Fund, LIC Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual

Fund and PNB Mutual Fund. By 1993, the assets under management of the industry increased

seven times to Rs. 47,004 crores. However, UTI remained to be the leader with about 80% of

market share.

1992-93Amount

Mobilised

AssetsUnder

Management

Mobilisation as % of gross

Domestic Savings

UTI 11,057 38,247 5.2%

29

Public Sector 1,964 8,757 0.9%

tal 13,021 47,004 6.1%

Phase3:Emergence of private sector funds-1993-96

The permission given to private sector funds including foreign fund management companies

(most of them entering through joint ventures with Indian promoters) to enter the mutal fund

industry in 1993, provided a wide range of choice to investors and more competition in the

industry. Private funds introduced innovative products, investment techniques and investor-

servicing technology. By 1994-95, about 11 private sector funds had launched their schemes.

Phase4: Growth and SEBI Regulation- 1996-2004

The mutual fund industry witnessed robust growth and stricter regulation from the SEBI after the

year 1996. The mobilisation of funds and the number of players operating in the industry reached

new heights as investors started investing in mutual funds.

Invetors' interests were safeguarded by SEBI and the Government offered tax benefits to the

investors in order to encourage them. SEBI (Mutual Funds) Regulations, 1996 was introduced

bySEBI that set uniform standards for all mutual funds in India. The Union Budget in 1999

exempted all dividend incomes in the hands of investors from income tax. Various Investor

awareness Programmes were launched during this phase, both by SEBI and AMFI, with an

objective to educate investors and make them informed about the mutual fund industry.

In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal status as

a trust formed by an Act of Parliament. The primary objective behind this was to bring all mutal

fund players on the same level.UTI was re-organised into two parts:

1. The Specified Mutual fund.

2. The UTI Mutual Fund.

Presently Unit Trust of India operates under the name of UTI Mutual Fund and its past

schemes (like US-64, Assured Return Schemes) are being gradually wound up. However,

UTI Mutual Fund is still the largest player in the industry. In 1999, there was a significant

30

growth in mobilisation of funds from investors and assets under management which is

supported by the following data:

GROSS FUND MOBILISATION (RS. CRORES)

FROM TO UTIPUBLIC

SECTOR

PRIVATE

SECTORTOTAL

01-April-98 31-March-99 11,679 1,732 7,966 21,377

01-April-99 31-March-00 13,536 4,039 42,173 59,748

01-April-00 31-March-01 12,413 6,192 74,352 92,957

01-April-01 31-March-02 4,643 13,613 1,46,267 1,64,523

01-April-02 31-Jan-03 5,505 22,923 2,20,551 2,48,979

01-Feb.-03 31-March-03 * 7,259* 58,435 65,694

01-April-03 31-March-04 - 68,558 5,21,632 5,90,190

01-April-04 31-March-05 - 1,03,246 7,36,416 8,39,662

01-April-05 31-March-06 - 1,83,446 9,14,712 10,98,158

ASSETS UNDER MANAGEMENT (RS. CRORES)

31

AS ON UTIPUBLIC

SECTOR

PRIVATE

SECTORTOTAL

31-March-99 53,320 8,292 6,860 68,472

Phase5: Growth and Consolidation- 2004 Onwards

The industry has also witnessed several mergers and acquisitions recently, examples of which are

acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and

PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international mutal fund

players have entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were 29

funds as at the end of March 2006. This is a continuing phase of growth of the industry through

consolidation and entry of new international and private sector players.

32

The modern mutual fund was first introduced in Belgium in 1822. This form of investment

soon spread to Great Britain and France. Mutual funds became popular in the United States in

the 1920s and continue to be popular since the 1930s, especially open-end mutual funds.

Market Share of the mutual fund industry.

Assets Under Management (AUM) as at the end of Jan-2008

Sl.no. Mutual Fund Name % Market share

1 ABN AMRO Mutual Fund 1.66

2 AIG Global Investment Group Mutual Fund 0.00

3 Benchmark Mutual Fund 1.55

4 Birla Sun Life Mutual Fund 5.73

5 BOB Mutual Fund 0.02

6 Can bank Mutual Fund 0.70

7 DBS Chola Mutual Fund 0.60

8 Deutsche Mutual Fund 1.76

9 DSP Merrill Lynch Mutual Fund 2.86

10 Escorts Mutual Fund 0.03

11 Fidelity Mutual Fund 2.13

12 Franklin Templeton Mutual Fund 6.34

13 HDFC Mutual Fund 8.73

14 HSBC Mutual Fund 3.52

15 ICICI Prudential Mutual Fund 12.24

16 ING Vysya Mutual Fund 1.38

17 JM Financial Mutual Fund 0.91

18 JPMorgan Mutual Fund 0.00

19 Kotak Mahindra Mutual Fund 4.04

20 LIC Mutual Fund 2.39

21 Lotus India Mutual Fund 0.87

33

22 Morgan Stanley Mutual Fund 0.77

23 PRINCIPAL Mutual Fund 3.17

24 Quantum Mutual Fund 0.01

25 Reliance Mutual Fund 14.28

26 Sahara Mutual Fund 0.04

27 SBI Mutual Fund 4.75

28 Standard Chartered Mutual Fund 3.90

29 Sundaram BNP Paribas Mutual Fund 2.45

30 Tata Mutual Fund 3.40

31 Taurus Mutual Fund 0.07

32 UTI Mutual Fund 9.67

Grand Total 100.00

34

Chapter-6

MUTUAL FUND JARGON

Net Asset Value (NAV) Net Asset Value is the market value of the assets of the scheme

minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the

number of units outstanding on the Valuation Date. Sale Price Sale price is the price you pay

when you invest in a scheme. Also called Offer Price. It may include a sales load .Re purchase

Price Is the price at which a close-ended scheme repurchases its units and it may include aback-

end load. This is also called Bid Price. Redemption Price It is the price at which open-ended

schemes repurchase their units and close-ended schemes redeem their units on maturity. Such

prices are NAV related. Sales Load It is a charge collected by a scheme when it sells the units.

Also called as ‘Front-end’ load. Schemes that do not charge a load are called ‘No Load’

schemes. Re purchase or ‘Back-end’ Load It is a charge collected by a scheme when it buys back

the units from the unit holders.

FUTURE PROSPECT OF MUTUAL FUNDS IN INDIA

Financial experts believe that the future of Mutual Funds in India will be very bright. It has

been estimated that by March-end of 2010, the mutual fund industry of India will reach Rs.

40,90,000 crore, taking into account the total assets of the Indian commercial banks. In the

coming 10 years the annual composite growth rate is expected to go up by 13.4%.100% growth

in the last 6 years. Number foreign AMCs are in the queue to enter the Indian markets like

Fidelity Investments, US based, with over US$1trillion assets under management worldwide.

Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual

funds sector is required. We have approximately 29 mutual funds which is much less than US

having more than 800. There is a big scope for expansion. B and C class cities are growing

rapidly. Today most of the mutual funds are concentrating on the A class cities. Soon they will

find scope in the growing cities. Mutual fund can penetrate rurals like the Indian insurance

industry with simple and limited products. SEBI allowing the MFs to launch commodity mutual

funds. Emphasis is on the better corporate governance. Trying to curb the late trading practices.

Introduction of Financial Planners who can provide need based advice. Looking at the past

35

developments and combining it with the current trends it can be concluded that the future of

Mutual Funds in India has lot of positive things to offer to its investors.

MUTUAL FUNDS VS. OTHER INVESTMENTS

From investors’ view point mutual funds have several advantages such as: Professional

management and research to select quality securities. Spreading risk over a larger quantity of

stock whereas the investor has limited to buy only a hand full of stocks. The investor is not

putting all his eggs in one basket. Ability to add funds at set amounts and smaller quantities such

as $100 per month .Ability to take advantage of the stock market which has generally

outperformed other investment in the long run. Fund manager are able to buy securities in large

quantities thus reducing brokerage fees. However there are some disadvantages with mutual

funds such as: The investor must rely on the integrity of the professional fund manager. Fund

management fees may be unreasonable for the services rendered. The fund manager may not

pass transaction savings to the investor. The fund manager is not liable for poor judgment when

the investors fund loses value. There may be too many transactions in the fund resulting in

higher fee/cost to the investor - This is sometimes call "Churn and Earn". Prospectus and

Annual report are hard to understand. Investor may feel a lost of control of his investment

dollars. There may be restrictions on when and how an investor sells/redeems his mutual fund

shares.

RELIANCE MUTUAL FUND Vs UTI MUTUAL FUND

“RELIANCE MUTUAL FUND” Reliance Mutual Fund (RMF) was established as trust under

Indian Trusts Act, 1882. The sponsor of RMF is Reliance Capital Limited and Reliance Capital

Trustee Co. Limited is the Trustee. It was registered on June 30, 1995 as Reliance Capital

Mutual Fund which was change don March 11, 2004. Reliance Mutual Fund was formed for

launching of various schemes under which units are issued to the Public with a view to

contribute to the capital market and to provide investors the opportunities to make investments in

diversified securities. RMF is one of India’s leading Mutual Funds, with Average Assets Under

Management(AAUM) of Rs. 88,388 crs (AAUM for 30th Apr 09) and an investor base of over

71.53 Lacs. Reliance Mutual Fund, a part of the Reliance - Anil Dhiru bhai Ambani Group, is

36

one of the fastest growing mutual funds in the country. RMF offers investors a well-rounded

portfolio of products to meet varying investor requirements and has presence in 118 cities across

the country. Reliance Mutual Fund constantly endeavors to launch innovative products and

customer service initiatives to increase value to investors. "Reliance Mutual Fund schemes are

managed by Reliance Capital Asset Management Limited., a subsidiary of Reliance Capital

Limited, which holds 93.37% of the paid-up capital of RCAM, the balance paid up capital being

held by minority shareholders."Sponsor : Reliance Capital Limited. Trustee : Reliance Capital

Trustee Co. Limited.

37

Chapter-7

Research Methodology

Every project is started with the objective of getting results either positive or negative. And

each and every project reaches to the stage of completion through the way of some research

either with the help of primary data or secondary data. And getting of any project and getting

genuine results from that depends on the research method used by researcher.

“Research is a common parlance refers to a search for knowledge. According to

REDMEN “Research is a systematized effort to gain knowledge.”

TYPE OF RESEARCH STUDY

The research has been based on secondary data analysis. The study has been exploratory as it

aims at examining the secondary data for analyzing the previous researches that have been

done in the area of technical and fundamental analysis of mutual funds. The knowledge thus

gained from this preliminary study forms the basis for the further detailed descriptive research.

In the exploratory study, the various technical indicators that are important for analyzing stock

were actually identified and important ones short listed.

OBJECTIVES OF THE STUDY

Primary Objective:

1.) To do technical and fundamental analysis of chosen securities

Sub-Objectives:

1.) To study the various theories of technical analysis and fundamental analysis for various

Mutual funds that chosen.

2.) To understand the movement and performance of mutual funds to take decision to invest.

38

3.) To understanding and analyzing the factors that affect the movement of mutual fund prices in

the indian Stock Markets.

SAMPLE DESIGN

Data collection methods include the various methods used by the researcher in his project. The

application of method for collecting the data mainly depends upon the type of project researcher

is going to undertake.

In case the survey project questionnaire is the best tool for collecting data. But in case of projects

other than surveys like this project all the data is collected already prepared or published in the

form of annual reports.

SAMPLE SIZE

The sample size for the number of mutual funds is taken as 8 for technical analysis and 3 for

fundamental analysis of mutual fund as fundamental analysis is very exhaustive and requires

detailed study.

DATA COLLECTION METHOD

The sample of the mutual funds for the purpose of collecting secondary data has been selected on

the basis of Random Sampling. The mutual fund are chosen in an unbiased manner and each

mutual fund is chosen independent of the other stocks chosen.

SOURCES OF DATA

Data can be classified into –

Primary source

Through conversation with the Relationship, Head and the staff of the branch of KARVY

STOCK BROKING LTD.

Secondary source

- Annual Reports of selected stocks

39

- Financial Statements

- Internet

Steps for Analysis

Selection - It involves selection of information relevant to the purpose of analysis.

Classification – It involves methodological classification of the data.

Interpretation – It includes drawing of inferences and conclusion.

PROCEDURE

1. Acquaint with the Principles and postulates of analyzing.

2. Determining the extent of analysis so that the sphere of working may be decided.

3. Re-arranging the data.

4. Reducing data to a standardized form.

5. Establishing relationship with the help of tools of analyzing.

6 Interpreting information in a simple and understandable form.

7. Drawing the conclusion.

40

Chapter-8

Literature review

“Only buy something that you’d be perfectly happy to hold if the market shut down for

10 years”

Warren Buffet

Investment Guru

“Prevailing wisdom is that markets are always right, I assume they are always wrong”

George Soros,

Chairman, Soros Fund Management

According to Michal Parness, Founder & CEO

Investors don’t Make Money in the Stock Market. One reason the institutions make so much

money is that they are trading. They make money every time you buy or sell. They make money

whether you win or lose. That means that when you’re investing, you’re basically just sitting

there. You’re not going anywhere. You’re not making money as an investor.

Trading the Trend: The Only Way to Make Money in the Market

If you don’t know this already, “Trend Trading” means trading trends based on human emotions.

Not lagging indicators. Not complex statistical analysis and not Ph.D. level mathematical

equations. With trend trading, you look for market movement. That could mean stocks that are

going to move up or down during the course of a day (intraday). You’ll play the gaps up and

down, often several days a week.

The “Trend trading” means being aware and taking advantage of trends like the run-ups that

happen around earning sessions. These are trends that have worked time and time again in the

market. They consistently yield results.

41

Fundamental and Technical Analysis: Substitutes or Compliments?

March 28, 2008

While the fundamental and technical analysis literatures invest considerable effort in assessing

their respective ability to explain share prices, they invariably do so without reference to each

other. In this context, we propose an equity valuation model integrating both fundamental and

technical analysis and, in doing so, recognize their potential as complements rather than as

substitutes. Testing confirms the complementary nature of fundamental and technical analysis by

showing that, while each performs well in isolation, models integrating both have superior

explanatory power. While our findings relate to the valuation of shares, they also have

implications for other valuation exercises.

Keywords: Fund valuation models, Fundamental information, Technical information

JEL Classifications: G12, G14, M41

Although the fundamental and technical analysis literatures invest considerable effort in

assessing their respective ability to explain share prices, they invariably do so without reference

to each other. In this context, we propose an equity valuation model integrating both fundamental

and technical analysis and, in doing so, recognize their potential as complements rather than as

substitutes. Testing confirms the complementary nature of fundamental and technical analysis by

showing that, although each performs well in isolation, models integrating both have superior

explanatory power. While our findings relate to the valuation of mutual funds, they also have

implications for other valuation exercises.

Accepted Paper Series

RELEVANCE OF FUNDAMENTAL ANALYSIS ON THE BALTIC MUTUAL FUND

MARKET.

The main target of the present research was to discover the importance of fundamental analysis

on the Baltic mutual fund markets. The hypothesis that fundamental analysis is not able to

generate substantial additional value to the performance of the portfolio comprised of Baltic

enterprises stocks was proved.

The relevance and need of fundamental analysis was checked by analyzing the performances of

portfolios, which were created on the basis of key fundamental ratios: ROE, equity ratio, ROIC,

42

net debt to assets as well as PE and PB. Naturally, the companies with better than average ratios

were selected to form stock portfolios. The findings of the conducted study demonstrate that

neither of the mentioned ratios helped in the creating portfolio, performanceof which would beat

market’s performance. The only exception was price to earnings ratio, which proved that cheap

companies seem to be attractive to the investors.

It was decided to look closer at the major performers and to find out whether there are any

common patterns among the winners and the losers of the Baltic equity markets. Basically,

mutual fund investors ignored financial situation of the companies (profitability, stability of

balance sheets) and focused mainly on assessing their growth opportunities and attractiveness of

business model. So, investors were mainly forward-looking when making company selection. As

a result, major sufferers performance-wise were the companies with limited growth potential or

total business model erosion. The authors of the research have also checked whether the trading

volumes of the stock have any impact on the performance. The study results show that in the

phase of the major capital inflows (2001-2008), indeed, most liquid companies tended to reward

investors with higher performances. However, the shareholders of these companies suffered the

most in financial years 2009 and 2010, when there was a major selling across stock market all

over the world.

Should you use Technical or Fundamental analysis to make your decisions?

Volumes have been written about the different ways to forecast or predict market movement.

Traditionally, there are two distinct schools of thought that an individual may choose from,

and that being Fundamental analysis or Technical analysis.

By choosing fundamental analysis, your decisions are based upon underlying economic

factors, cash flows, and price earnings. This information will aim to tell you why a stock will

move.

Technical analysis aims to show you how and when a stock will move. This method

discounts all news and information regarding the value of the stock. In other words, you only

pay attention to a chart. The saying “a picture is worth a thousand words” truly summarizes

this concept nicely.

You can of course choose to use a combination of both if you prefer. This would imply that

43

when the stock you are looking at becomes undervalued fundamentally, you would wait for a

technical setup to get you in to the market.

Deciding on which method is appropriate and gives bigger returns is truly a matter of

opinion. Respectively, both methods have the same goal; to determine market direction. I

know of a number of individuals who only use one or the other and is equally successful with

phenomenal returns.

It becomes interesting when one speaks to traders from each school. The fundamental traders

believe that charts are a waste of time and provide no real sense as to why one would make

trading decisions based on indicators and repetitive patterns. This group are essentially bargain

hunters. They want to buy mutual fund which they feel are under priced and will return to a

normal value at a later stage. Fundamental traders often hold mutual fund for longer periods of

time compared to technical traders.

On the other hand, the technical traders believe that numbers do not lie and that information

based on value, supply and demand are already factored into the price. They also argue that

people can be predictable and that these behaviors’ occur in the form of price patterns. These

patterns repeat with a degree of predictability and therefore can be used to forecast future price

movements. Technical traders generally hold positions for shorter periods of time compared to

fundamental traders.

Clearly both avenues are important, and one must make careful decisions before jumping into

trading without having an objective. I have always said that finding a method, style or strategy

depends on ones personality. If you are thinking of long term investing then the fundamental

approach may suit your needs whereas if you are looking for short term market moves, then

technical analysis can provide a myriad of systems to accommodate your personal style. Some of

which we shall take a look at further into the course.

44

Trading at the Standard

Online mutual fund trading is operated by Standard Financial Markets (Pty) Ltd

IT’S CLEAR THAT analysis – whether fundamental or technical – requires a suite of tools. And

though those tools are specialized, the good news is that most are readily available to the novice

investor. Richard Seddon, head of Online mutual fund Trading at the Standard, says that the

discount broking website www.securities.co.za provides many of those tools to its broking

customers as part of its product offering. On the fundamental analysis side the website carries

top-down insights from Standard Bank’s economic research division, plus notes on individual

companies from its rated research team. For bottom-up fundamental analysis the website

contains the financial statements for the past 10 years of every single company listed on the JSE.

Over and above that raw data it also provides key ratios, such as price: earnings (p:e) multiples,

beta, return on equity (ROE) and many others. We’ll deal with those more fully in two weeks’

time when we work with bottom-up fundamental analysis. But the website isn’t the only place

where investors can find some of those key ratios: the share price pages of the daily and weekly

press (including Fin week) publish information in addition to share prices, including p:e ratios,

ividend yields, market capitalization and share price changes over specific time periods. The

website can also provide more complex bottom-up analysis tools by filtering shares that meet

certain criteria. Those could include searching for shares that fall within a prescribed ratio or

dividend yield range. In addition, it provides a database of share movements for specified time

periods, such as the past month, past three months, past year and past 10 years. The website also

provides forecast data. That’s provided by I-Net Bridge, a company that collates analysts’

forecasts and recommendations to determine the average (or consensus) projected earnings per

share and market view of the share: whether analysts recommend it as a buy, sell or hold. On the

technical analysis side, the Online mutual fund Trading website provides full interactive charting

tools with 10 years’ worth of data. In addition, customers receive a discount when downloading

third-party technical analysis data, paying as little as R90/month. Over and above all that, the

website provides other interesting information, such as directors’ dealings, 52-week highs and

lows, exchange rates, international indices, news from both Reuters and the JSE, key

shareholders of each company, dividends that are payable, as well as the biggest gainers and

losers and the most active shares on the JSE in any one trading day. It’s everything that a full-

service broker.

45

Chapter-9

CONCLUSION & RECOMMENDATIONS

Mutual Funds now represent perhaps most appropriate investment opportunity for most

investors. As financial markets become more sophisticated and complex, investors need a

financial intermediary who provides the required knowledge and professional expertise one

successful investing. As the investor always try to maximize the returns and minimize the risk.

Mutual fund satisfies these requirements by providing attractive returns with affordable risks.

The fund industry has already overtaken the banking industry, more funds being under mutual

fund management than deposited with banks. With the emergence of tough competition in this

sector mutual funds are launching a variety of schemes which caters to the requirement of the

particular class of investors. Risk takers for getting capital appreciation should invest in growth,

equity schemes. Investors who are in need of regular income should invest in income plans. The

stock market has been rising for over three years now. This in turn has not only protected the

money invested in funds but has also to helped grow these investments. This has also instilled

greater confidence among fund investors who are investing more into the market through the MF

route than ever before. Reliance India mutual funds provide major benefits to a common man

who wants to make his life better than previous. India’s largest mutual fund, UTI, still controls

nearly 80 per cent of the market. Also, the mutual fund industry as a whole gets less than 2 per

cent of household savings against the 46 percent that go into bank deposits. Some fund managers

say this only indicates the sectors potential."If mutual funds succeed in chipping away at bank

deposits, even a triple digit growth is possible over the next few years.

RECOMMENDATIONS

Fundamental analysis of mutual fund:

1.HDFC Bank Ltd.

Recommend BUY

HDFC Bank delivered a Net Profit growth of 45% yoy to Rs464cr (Rs321cr). However, the

numbers are not comparable as 1QFY2009 numbers are after accounting for the merger with

46

Centurion Bank of Punjab (CBoP). EPS growth was 13% yoy. While a reak up of line items into

HDFC Bank standalone and CBoP was not available, including CBoP 1QFY2010 Net Profits,

profits grew 31% yoy. The Bank absorbed the additional Provisioning Expenses to bring CBoP’s

accounting policies for NPAs in line with its own stricter policies, by adjusting the same against

Reserves, with an estimated impact of roughly Rs15-20 per share. Management indicated Core

NIMs of the merged entity stood at about 4.1%, while the CASA ratio declined to 45%. At the

same time, Operating Expenses, excluding Staff Costs were down 1% sequentially, indicating

substantial cost cutting measures implemented during the quarter, in line with peers.Asset quality

Remained stable, with the Net NPA ratio remaining at 0.5%. MTM losses on Bond and Equity

books were manageable at around Rs78cr.

2. TATA MOTORS.

Recommend SELL or HOLD.

TAMO’s long term debt on a consolidated basis went up to Rs.163bn in FY09. In addition to it

the company has raised NCDs for Rs.42bn and it also raised ~$1bn for JL for working capital

requirements. TAMO has charged actuarial loss for JLR pension plan of Rs.14.57bn to Reserves

which along with losses incurred during FY09, impacted consolidated net worth and book value

at consolidated stood a Rs.113 per share compared to current estimated debt levels of ~Rs.240bn.

We believe the debt equity ratio for FY10E to become >2x and apart from this the company is

also likely to raise debt on JLR books which would increase leverage risk going ahead. We

believe CV industry would continue to face pressures in FY10E mainly due to slowdown in

overall economy, lower industrial production and stringent financing norms. We also don’t

expect any immediate revival in JLR sales volume in FY10E. We estimate TAMO to report EPS

of Rs.14 and Rs.19 for FY10E and FY11E respectively. At current market price of Rs.314, the

stock trades at a PE multiple of 23x and 16x for FY10E and FY11E respectively. We value

TAMO at Rs.194 (10x FY11E) and other subsidiaries at Rs40 (including JLR). We recommend a

SELL on the stock with a target price of Rs.235.

47

CHAPTER-10

FINDINGS & SUGGESTIONS

The findings for the above research are as follows:-

It was found that majority of the investors i.e.46% are from the age group of 36-54.

This is the group of middle age people who deserve to invest for their future financial

needs.

It was found that Out of 100 respondents 64 customers have already re- invested in

the company, while the rest are waiting for a correct time to enter in the market for

the second time.

It was observed that Out of 100 respondents 62 investors have reinvested due to better

returns and performance of funds. While the rest of the investors have voted for

performance of funds and services provided by the company.

It was observed that Out of 100 investors 15 that is 15% of customers are preferred to

invest in Tax saver funds. 40 that is 40% of investors are preferred to invest in index

funds which give returns based upon respective indexes.. 45 that is 45% of investors

are interested to invest in sectorial funds that means they are ready to take high risk

but want high returns.

It was found that Out of 100 respondents 34 ranked as AMC one for customer service

function.

It was found that Out of 100 respondents 38 respondents want to improve at their

fund monitoring function.

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CHAPTER-11

GLOSSARY

Advisor

Your financial consultant who gives professional advice on the fund's investments and to

supervise the management of its assets.

Amortization

A method of equated monthly payments over the life of a loan. Payments usually are paid

monthly but can be paid annually, quarterly, or on any other schedule. In the early part of a loan,

repayment of interest is higher than that of principal. This relationship is reversed at the end of

the loan.

Appreciation

When an investment increases in value, it appreciates. For example, a equity share whose price

goes from Rs. 20/- to Rs. 25/- has appreciated by Rs. 5/-.

Arbitrage

The practice of buying and selling an interlaced stock on different exchanges in order to profit

from minute differences in price between the two markets.

Asset

Property and resources, such as cash and investments, comprise a person's assets; i.e., anything

that has value and can be traded. Examples include stocks, bonds, real estate, bank accounts, and

jeweler.

Asset Allocation

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When you divide your money among various types of investments, such as stocks, bonds, and

short-term investments (also known as "instruments"), you are allocating your assets. The way in

which your money is divided is called your asset allocation.

Annualized Return

This is the hypothetical rate of return that, if the fund achieved it over a year's time, would

produce the same cumulative total return if the fund performed consistently over the entire

period. A total return is expressed in a percentage and tells you how much money you have

earned or lost on an investment over time, assuming that all dividends and capital gains are

reinvested.

Balanced Fund

A mutual fund that maintains a balanced portfolio, generally 40% bonds and 60% equity.

Barter

The exchange of goods and services for other goods and services without the use of money.

Bid or Sell Price

The price at which a mutual fund's shares are redeemed (bought back) by the fund. The bid or

redemption price means the current net asset value per share, less any redemption fee or back-

end load.

Blue Chip

A share in a large, safe, prestigious company, of the highest class among stock market

investments. A blue-chip company would be called thus by being well-known, having a large

paid-up capital, a good track record of dividend payments and skilled management.

Capital

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This is the amount of money you have invested. When your investing objective is capital

preservation, your priority is trying not to lose any money. When your investing objective is

capital growth, your priority is trying to make your initial investment grow in value.

Capital Gain

Profit from a sale of an investment constitutes a capital gain. For example, if you bought a share

of stock for Rs. 5/- and later sold it for Rs. 7/-, you would have a capital gain of Rs. 2/-.

Capital Gains Distributions

Payments (usually annually) to mutual fund shareholders of gains realized on the sale of

portfolio securities.

Capital Growth

A rise in market value of a mutual fund's securities, reflected in its NAV per share. This is a

specific long-term objective of many mutual funds.

Closed-ended Mutual Fund

A mutual fund that offers a limited number of shares. They are traded in the securities markets.

Price is determined by supply and demand. Unlike open-ended mutual funds, closed-ended funds

do not redeem their shares.

Derivative

An investment contract based on an underlying investment called an "instrument." The most

common type of derivative is an option contract, which involves the right to buy or sell the

underlying instrument at an agreed price. Futures contracts are also derivatives.

Diversification

The policy of spreading investments among a range of different securities to reduce the risks

inherent in investing.

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Dividend

When companies pay part of their profits to shareholders, those profits are called dividends. A

mutual fund's dividend is money paid to shareholders from investment income the fund has

earned. The amount of each share's dividend depends on how well the company does.

Endorsement

Assigning or transferring a lien to another person is accomplished through the use of an

endorsement. The words "PAY TO THE ORDER OF" and then the name of the person to whom

the lien is being assigned to, is written. If there is not enough space on the original note to write

an endorsement, it is written on a separate piece of paper that is permanently affixed to the

original note. This is called an along.

Face Value

The face value is the term used to describe the value of a bond in terms of what the company

which issued the bond will actually repay when the loan matures. It's sometimes described as

nominal or par value.

Growth Fund

A mutual fund whose primary investment objective is long-term growth of capital. It invests

principally in common stocks with significant growth potential.

Income Fund

A mutual fund that primarily seeks current income rather than growth of capital. It will tend to

invest in stocks and bonds that normally pay high dividends and interest.

Index Fund

A mutual fund that seeks to mirror general stock-market performance by matching its portfolio to

a broad-based index (e.g. BSE Sensex).

Load

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A sales charge or commission assessed by certain mutual funds ("load funds") to cover their

selling costs.

Redeemable

Preferred shares or bonds that give the issuing corporation an option to repurchase securities at a

stated price. These are also known as callable securities.

Redemption Fee

A fee charged by a limited number of funds for redeeming, or buying back, fund units.

Redemption Price

The price at which a mutual fund's units are redeemed (bought back) by the fund. The

redemption price is usually equal to the current NAV per unit.

Re-investment Date

The date on which a share's dividend and/or capital gains will be reinvested (if requested) in

additional fund shares.

Rupee Cost Averaging (SIP)

The technique of investing a fixed sum at regular intervals regardless of stock market

movements. This reduces average share costs to the investor, who acquires more shares in

periods of lower securities prices and fewer shares in periods of high prices. In this way,

investment risk is spread over time.

Sector Fund

A fund that operates several specialized industries sectors portfolios under one umbrella. These

sectors could be FMCG or Technology.

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Systematic Investment Plan

Many mutual funds offer investment programs whereby unit holders can invest. The Unit holders

of the scheme can benefit by investing specific Rupee amounts periodically, for a continuous

period. The SIP allows the investors to invest a fixed amount of Rupees every month or quarter

for purchasing additional units of the scheme at NAV based prices.

Systematic Withdrawal Plans

Many mutual funds offer withdrawal programs whereby unit holders receive payments from their

investments. These payments are usually drawn from the fund's dividend income and capital gain

distributions, if any, and from principal only when necessary.

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Chapter 12

Bibliography

BOOKS:

Erich A. Helfert, D.B.A., “Financial Analysis: Tools and

Techniques” (2000)

John L. Person, “A Complete Guide to Technical Trading Tactics”,

Ninth Edition (March 26, 2004)

Research methodology - C. R. Kothari, VIKASH PUBLICATION.

“Financial management” Khan & Jain NEW DELHI, TATA

Mc GROW- HIL PUBLICATION.

WEB-SITES:

www.nseindia.com

www.Karvyonline .com

www.moneycontrol.com

www.indiainfoline.com

economictimes.indiatimes.com

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www.mutualfundsindia.com

www.amfiindia.com

TV- CHANNELS:

NDTV-PROFIT

CNBC-AWAZ

“Mutual Funds Investments Are Market to Subject Risks, read

all documents Carefully before Investing.”

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