A PROJECT REPORT ON “VICTORY PORTFOLIO LIMITED” {Investor Behavior on Stock Market} A Project Report Submitted in the partial fulfillment of the requirement for the award of the Degree of Bachelor of Business Administration Submitted By: Under the Guidance Rahul garg Rupali mam ___________________BBA-5th Semester BHARATI VIDYAPEETH UNIVERSITY 1
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A brief cursory look of any economy will definitely and easily point out the significantrole played by the financial system. As a matter of fact, the financial works as it were or
something sort of nucleus. It is a trust that pools the savings, which are then invested in
capital market instruments such as share, debentures and other securities. It works in a
distinctively different matter as compared to other saving organization such as banks,
national savings, post offices, non-banking financial companies etc.
Market is full of uncertainty and on the top of that new event is adding up to the fuel.
Take the output trend in infrastructure and industry.
The stock market have bid farewell to badla system and have introduced sophisticated
finance products and other options of investments that are giving right to the holder to
buy or sell units at a predetermined rates.
I have made an attempt to evaluate the performance of mutual funds among various
categories of investors in different plans and schemes, which are distributed by
I would like to take this opportunity to thank ______________, my project guide,Director Dr. S.S.Verenekar, for their continuous guidance and support and
for making me comfortable without which this project would not have
materialized.
I would also like to thank Mr. Nitin Goel, Asst. sales manager, VICTORIA PORTFOLIO
LIMITED Mutual Fund for extending valuable support and providing me vital
information on investment market.
Finally, I would express my gratitude to distributor Mr, A.K.Jain for helping me
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. 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 ahead of other mutual funds.
Fourth Phase (since February 2003)- In February 2003, following the repeal of theUnit 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
Victory portfolio limited is one of India’s leading Mutual Funds agency with Average AssetsUnder Management (AAUM) of Rs. 10,451 thousand and an investor count of over 720.
Victory portfolio is one of the fastest growing mutual funds in the country. Victory portfoliooffers investors a well-rounded portfolio of products to meet varying investor requirements.Victory portfolio limited constantly endeavors to launch innovative products and customer service initiatives to increase value to investors.Victory portfolio limited is owned by Promod goel who is the director of the company. it is listedin NSE in 1980. Its SEBI REGISTRATION NO.= INB230781930
Vision of the group is that to makemoney for all the clients and to reduce
risk.Mission is to make victory port foliothe largest mutual fund in the world
cost. Anybody with 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 today’s complex and modern financial
scenario. Markets for equity shares, bonds and other fixed income instruments, real
estate, derivatives and other assets have become mature and information driven. 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.
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 theSecond 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
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. E.g. VICTORIA PORTFOLIO LIMITED Sons Ltd. and
VICTORIA PORTFOLIO LIMITED Investment Corporation Ltd. are the sponsors of
the VICTORIA PORTFOLIO LIMITED 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.
Recent trends in mutual fund industry
The most important trend in the mutual fund industry is the aggressive expansion of the
foreign owned mutual fund companies and the decline of the companies floated by
nationalized banks and smaller private sector players.
Many nationalized banks got into the mutual fund business in the early nineties and got
off to a good start due to the stock market boom prevailing then. These banks did not
really understand the mutual fund business and they just viewed it as another kind of banking activity. Few hired specialized staff and generally chose to transfer staff from the
parent organizations. The performance of most of the schemes floated by these funds was
not good. Some schemes had offered guaranteed returns and their parent organizations
had to bail out these AMCs by paying large amounts of money as the difference between
the guaranteed and actual returns. The service levels were also very bad. Most of these
AMCs have not been able to retain staff, float new schemes etc. and it is doubtful
whether, barring a few exceptions, they have serious plans of continuing the activity in a
major way.
The experience of some of the AMCs floated by private sector Indian companies was also
very similar. They quickly realized that the AMC business is a business, which makes
money in the long term and requires deep-pocketed support in the intermediate years.
and, preferably, be profitable. Financial muscle, so long as it is complemented by good
fund management, helps, as money is then not an impediment for the mutual fund-it can
hire the best talent, invest in technology, and continuously offer high service standards to
investors.
In the days of assured return schemes, sponsors also had to fulfill return promises made
to unit holders. This sometimes meant meeting shortfalls from their own pockets, as the
government did for UTI. Now that assured return schemes are passé, such bailouts wont
be required. All things considered, choose sponsors who are good money managers, who
have a reputation for fair business practices, and who have deep pockets.
ASSET MANAGEMENT COMPANY (AMC)
An AMC is the legal entity formed by the sponsor to run a mutual fund. It’s the AMC
that employs fund managers and analysts, and other personnel. It’s the AMC that handles
all operational matters of a mutual fund-from launching schemes to managing them to
interacting with investors.
The people in the AMC who should matter the most to you are those who take investment
decisions. There is the head of the fund house, generally referred to as the chief executive
officer (CEO). Under him comes the chief investment officer (CIO),who shapes the
fund’s investment philosophy, and fund managers, who manages its schemes. They areassisted by a team of analysts, who track markets, sectors and companies.
Although, these people are employed by the AMC, its you, the unit holder, who pays
their salaries, partly or wholly. Each scheme pays the AMC an annual ‘fund management
fee’, which is linked to the scheme size and results in a corresponding drop in your
return. If a scheme’s corpus is up to Rs.100 crore it pays 1.25% of its corpus a year; on
over Rs.100 crore, the fee is 1% of corpus. So, if a fund house has two schemes, with a
corpus of Rs.100 crore and Rs.200 crore respectively, the AMC will earn Rs.3.25
crore(1.25+2) as fund management fee that year.
If an AMC’s expenses for the year exceed what it earns as fund management fee from its
schemes, the balance has to be met by the sponsor. Again, financial strength comes into
play: a cash-rich sponsor can easily pump in money to meet short falls, while a sponsor
The aim of money market funds is to provide easy liquidity, preservation of capital and
moderate income. These schemes generally invest in safer short-term instruments such as
treasury bills, certificates of deposit, commercial paper and inter-bank call money.
Returns on these schemes may fluctuate depending upon the interest rates prevailing in
the market. These are ideal for Corporate and individual investors as a means to park
their surplus funds for short periods.
Load Funds
A Load Fund is one that charges a commission for entry or exit. That is, each time you
buy or sell units in the fund, a commission will be payable. Typically entry and exit loadsrange from 1% to 2%. It could be worth paying the load, if the fund has a good
performance history.
No-Load Funds
A No-Load Fund is one that does not charge a commission for entry or exit. That is, no
commission is payable on purchase or sale of units in the fund. The advantage of a no
load fund is that the entire corpus is put to work.
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
number of units outstanding. The detailed methodology for the calculation of the asset
value is given below.
Asset value is equal to
Sum of market value of shares/debentures
+ Liquid assets/cash held, if any
+ Dividends/interest accrued
Amount due on unpaid assets
Expenses accrued but not paid
Details on the above items
For liquid shares/debentures, valuation is done on the basis of the last or closing market
price on the principal exchange where the security is traded
For illiquid and unlisted and/or thinly traded shares/debentures, the value has to be
estimated. For shares, this could be the book value per share or an estimated market priceif suitable benchmarks are available. For debentures and bonds, value is estimated on the
basis of yields of comparable liquid securities after adjusting for illiquidity. The value of
fixed interest bearing securities moves in a direction opposite to interest rate changes
Valuation of debentures and bonds is a big problem since most of them are unlisted and
thinly traded. This gives considerable leeway to the AMCs on valuation and some of the
AMCs are believed to take advantage of this and adopt flexible valuation policies
depending on the situation.
Interest is payable on debentures/bonds on a periodic basis say every 6 months. But, with
every passing day, interest is said to be accrued, at the daily interest rate, which is
calculated by dividing the periodic interest payment with the number of days in each
period. Thus, accrued interest on a particular day is equal to the daily interest rate
multiplied by the number of days since the last interest payment date.
Usually, dividends are proposed at the time of the Annual General meeting and become
due on the record date. There is a gap between the dates on which it becomes due and the
actual payment date. In the intermediate period, it is deemed to be "accrued".
Expenses including management fees, custody charges etc. are calculated on a daily
basis.
Mutual Funds in India (1964-2000)
The end of millennium marks 36 years of existence of mutual funds in this country. The
ride through these 36 years is not been smooth. Investor opinion is still divided. While
some are for mutual funds others are against it.
UTI commenced its operations from July 1964 .The impetus for establishing a formal
institution came from the desire to increase the propensity of the middle and lower groups
to save and to invest. UTI came into existence during a period marked by great political
and economic uncertainty in India. With war on the borders and economic turmoil that
depressed the financial market, entrepreneurs were hesitant to enter capital market.
The already existing companies found it difficult to raise fresh capital, as investors did
not respond adequately to new issues. Earnest efforts were required to canalize savings of
the community into productive uses in order to speed up the process of industrial growth.The then Finance Minister, T.T. Krishnamachari set up the idea of a unit trust that would
be "open to any person or institution to purchase the units offered by the trust. However,
this institution as we see it, is intended to cater to the needs of individual investors, and
even among them as far as possible, to those whose means are small."
His ideas took the form of the Unit Trust of India, an intermediary that would help fulfill
the twin objectives of mobilizing retail savings and investing those savings in the capital
market and passing on the benefits so accrued to the small investors.
UTI commenced its operations from July 1964 "with a view to encouraging savings and
investment and participation in the income, profits and gains accruing to the
Corporation from the acquisition, holding, management and disposal of securities."
Different provisions of the UTI Act laid down the structure of management, scope of
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.
Banks Vs Mutual Funds
Mutual funds are now also competing with commercial banks in the race for retail
investor’s savings and corporate float money. The power shift towards mutual funds has
become obvious. The coming few years will show that the traditional saving avenues are
losing out in the current scenario. Many investors are realizing that investments insavings accounts are as good as locking up their deposits in a closet. The fund
mobilization trend by mutual funds indicates that money is going to mutual funds in a big
way.
India is at the first stage of a revolution that has already peaked in the U.S. The U.S.
boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund
assets are not even 10% of the bank deposits, but this trend is beginning to change.
This is forcing a large number of banks to adopt the concept of narrow banking wherein
the deposits are kept in Gilts and some other assets which improves liquidity and reduces
risk. The basic fact lies that banks cannot be ignored and they will not close down
completely. Their role as intermediaries cannot be ignored. It is just that Mutual Funds
are going to change the way banks do business in the future.
1) Facts – A piece of information which has already occurred in the past. It
tells the investor that what will happen in the future by foreseeing the
past events.
2) Theories – A well substantial explanation of some aspect of natural
world.
Example – Recession which occurs after a period of time which gives
opptunity to some and gives threat to others.
3) Mental status – A mental status which guide a person to take risk and
earn profit in the stock market.
4) Profit and loss – it is the main aspect which bring a person to stock
market for taking chances and earn profit but if luck don’t help investor
lands making loss.
5) Over confidence – it is the major enemy of an investor which leads him
ending into trouble and leads to losses.
Conclusion - Behavioral finance certainly reflects some of the attitudesembedded in the investment system. Behaviorists will argue that investorsoften behave irrationally, producing inefficient markets and mispricedsecurities - not to mention opportunities to make money. That may be truefor an instant, but consistently uncovering these inefficiencies is a challenge.Questions remain over whether these behavioral finance theories can be usedto manage your money effectively and economically. (To continue readingon behavioral finance, see taking A Chance On Behavioral Finance .)
That said, investors can be their own worst enemies. Trying to out-guess themarket doesn't pay off over the long term. In fact, it often results in quirky,irrational behavior, not to mention a dent in your wealth. Implementing astrategy that is well thought out and sticking to it may help you avoid manyof these common investing mistakes .
existing and new investors from different places like industrial as well as
residential sectors.
4 Details on the precise nature of investors objective was limited. For example the
measures used only captured certain information on standards that individuals hadin mind as acceptable outcomes of their goal directed objective.
5 Also the research does not alicit subtle goals such as mood repair motives. So the
possibility of personal biases of the respondents may not be precluded.
6 The situation in which a investor is questioned about routine actions is an
artificial one at best. Due to the influence of questioning process, respondents
may furnish quite different information from facts.
7 Thus, though the study is not conclusive in nature, it tends to explore the investors
perception and ideas about the investment services of the VICTORIA
PORTFOLIO LIMITED Mutual Fund as a distributor of Mutual Fund.
3.5 Methodology
The project is divided into four stages. The included gathering information about the
VICTORIA PORTFOLIO LIMITED Mutual Fund profile, the various investment
schemes available and other which launched by the AMC and getting acquainted
with the system of distribution work of the VICTORIA PORTFOLIO LIMITED .
The second stage involved determining the objective of the study, knowing the
target investors and drafting a questionnaire. The questionnaire was designed
keeping in mind the target investors and their objectives of the investment in any
plan. It was non-disguised in nature and included a few open-ended questions.Visits to residential areas of Delhi were made. Around 50% of the respondents
surveyed were from patpargang area…etc.
The 3 rd stage covers the conceptual study of the topic and 4 th stage covers the data
analysis, which leads to some findings and recommendations.
Among various categories of investors, 66% are Aggressive which are ready to take the
high risk. 17% of the investors are found to be slightly conservative in respect of MutualFund investments they don’t want to take any sort of risk they generally prefer to invest
in gilt funds, 13% are moderate investors i.e. they want good return but without much
risk so they prefer this kind of investments. Rest of them usually shifts to others
After analyzing this question, we come to conclusion that main factor which is behind
any investment is portfolio of any Mutual Fund, well there are other factors also behindany investment like corpus of that fund, service rendered by distributor and past
performance of that fund through past performance is not the criteria for selecting any
fund. So about 46% of investors look for the portfolio diversification and rest are least
important accordingly.
Drivers ScoreServices rendered
by floaters 20PortfolioDiversification 55Corpus of the fund 30Past performance 5Agents network 10
Q-Is it true that globally mutual funds under perform benchmark indices? Why are
smart money managers unable to do as well as the market? Or is it that they are not
smart at all? What are the limitations of mutual funds?
It is 100% true that globally, most mutual fund managers under perform the asset class
that they are investing in, over the very long-term. It is not true that the fund managers
are dumb; this under performance is largely the result of limitations inherent in the
concept of mutual funds. These limitations are as follows:
Entry and exit costs: Mutual funds are a victim of their own success. When a large body
like a fund invests in shares, the concentrated buying or selling often results in adverse
price movements i.e. at the time of buying, the fund ends up paying a higher price and
while selling it realizes a lower price. This problem is especially severe in emerging
markets like India, where, excluding a few stocks, even the stocks in the Sensex are not
liquid, let alone stocks in the NSE 50 or the CRISIL 500. So, there is simply no way that
a fund can beat the Sensex or any other index, if it blindly invests in the same stocks as
those in the Sensex and in the same proportion. For obvious reasons, this problem is evenmore severe for funds investing in small capitalization stocks. However, given the large
size of the debt market, excluding UTI, most debt funds do not face this problem
Wait time before investment : It takes time for a mutual fund to invest money.
Unfortunately, most mutual funds receive money when markets are in a boom phase and
investors are willing to try out mutual funds. Since it is difficult to invest all funds in one
day, there is some money waiting to be invested. Further, there may be a time lag before
investment opportunities are identified. This ensures that the fund under performs theindex. For open-ended funds, there is the added problem of perpetually keeping some
money in liquid assets to meet redemptions. The problem of impracticability of quick
investments is likely to be reduced to some extent with the introduction of index futures.
Fund management costs: The costs of the fund management process are deducted from
the fund. This includes marketing and initial costs deducted at the time of entry itself,
called "load". Then there is the annual asset management fee and expenses, together
called the expense ratio. Usually, the former is not counted while measuring
performance, while the latter is. A standard 2% expense ratio means that, everything else
being equal, the fund manager under performs the benchmark index by an equal amount.
Cost of churn: The portfolio of a 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, registration fees etc. that lowers the portfolio return
commensurately.
Change of index composition: World over, the indices keep changing to reflect
changing market conditions. There is an inherent survivorship bias in this process, with
the bad stocks weeded out and replaced by emerging blue chips. This is a severe problem
in India with the Sensex having been changed twice in the last 5 years, with each change
being quite substantial. Another reason for change index composition is Mergers &Acquisitions. The weight age of the shares of a particular company in the index changes
if it acquires a large company not a part of the index .
Tendency to take conformist decisions: From the above points, it is quite clear that the
only way a fund can beat the index is through investment of some part of its portfolio in
some shares where it gets excellent returns, much more than the index. This will pull up
the overall average return. In order to obtain such exceptional returns, the fund manager
has to take a strong view and invest in some uncommon or unfancied investment options.Most people are unwilling to do that. They follow the principle "No fund manager ever
got fired for investing in Hindustan Lever" i.e. if something goes wrong with an unusual
investment, the fund manager will be questioned but if anything goes wrong with the blue
chip, then you can always blame it on the "environment" or "uncontrollable factors"
better decisions than fund managers do, but the vast majority does not. Those who
can are advised to invest some part of their money into funds, especially debt
funds, to diversify their risk. They may also note that one of the objectives of this
site is to help them improve the odds in their favor.
Q-Are mutual funds safe? Are returns on mutual funds guaranteed by Government
of India, or Reserve Bank or any other government body?
Any mutual fund is as safe or unsafe as the assets that it invests in. There are two basic
categories of mutual funds with others being variations or mixtures of these. Firstly, there
are those that invest purely in equity shares (called equity funds or " growth funds") and
secondly, there are those that invest purely in bonds, debentures and other interest
bearing instruments called "income" or "debt" funds. The NAV of growth funds
fluctuates in line with the fluctuation of the shares held by them. They can also witness
face substantial erosion in value, which could be permanent in some cases. On the other
hand, prices of debt instruments fluctuate to a much lesser degree and an income fund is
extremely unlikely to face erosion in value – especially of the permanent kind.
Most mutual funds have qualified and experienced personnel, who understand the risks of
investing. But, nobody is immune from making mistakes. However, funds diversify the
investment portfolio substantially so that default in any single investment (in the case of
an income fund) will not affect the overall performance of a fund in a significant manner.
In the event of default of a part of the portfolio, an income fund is extremely unlikely to
face erosion in face value.
Generally, mutual funds are not guaranteed by anybody. However, in the Indian context,
some of the mutual funds have floated "guaranteed" or "assured" return schemes which
guarantee a certain annual return or guarantee a buyback at a specified price after some
time. Examples of these include funds floated by the UTI, Can bank Mutual Fund, SBI
Mutual Fund, LIC Mutual Fund etc. Many of these funds have not earned returns thatthey promised and the asset management companies of the respective mutual funds or
their sponsors have made good their promises. The biggest case pertains to the US 64,
which never guaranteed any returns but is being bailed out by the Government due to the
investors. This is exactly what has happened with some AMCs promoted by Indian
business houses.
This is also a problem that has afflicted some of the AMCs floated by nationalized banks.
In these organizations, the traditional thinking is prevalent which can be summarized, as
"money is power". Since mutual fund business did not have access to too much money, a
posting in the AMC became punishment postings for some personnel who were not doing
well in the parent organization or who lost out in the organizational politics. The
management of the banks also did not allow these AMCs to become independent viable
businesses. The CEO’s of the AMCs did not have any clue of the mutual fund business
and neither were they interested in it – the entire effort was spent in getting a posting
back in the parent. The fund managers had no experience in the activity making a
mockery of "professional management". The sad results are there to see. Some of the
parents had to provide funds to bridge the gap in "assured return schemes". It looks
extremely likely that some of these AMCs will no longer exist in a few years.
Q-How and against what should you benchmark the performance of a mutual fund?
All mutual funds have different objectives and therefore their performance would vary. A
mutual funds performance should be benchmarked against mutual funds of similar type
or India info line mutual fund index for a particular type. e.g. equity fund index, incomefund index or balanced fund index or liquid fund index. One can also benchmark the fund
against the Sensex or any other broad based index for the particular asset class.
One has to be very careful about choosing the comparison period. Ideally, one should
compare the performance of equity or an index fund over a 1-2 year horizon. Any
comparison over a shorter period would be distorted by short term, volatile price
movements. Comparisons over a longer period need to be interpreted carefully by
looking at other factors such as change in individuals managing the fund, one time
investment successes etc. Similarly, the ideal comparison period for a debt fund would be
6-12 months while that for a liquid/money market fund would be 1-3 months. Apart from
the entire period, one should also compare the performance in smaller intervals within the
To make comparison meaningful, one has to compare the average annual compounded
rate of return. This adjusts for comparisons of differing period and also facilitates
comparison across different classes. The return also incorporates dividend payouts. Thus,
for example, one can say that ABC income fund has given a compounded annual growth
rate (CAGR) of 13% p.a. including dividends in the last 2 years while XYZ income fund
has given a CAGR of 13.2% p.a. over the last 3 years.
Q-Apart from NAV, what other parameters can be compared across different funds
of the same category?
Apart from plain numerical comparison of NAV’s, several other things can be checked,
eg correlation of changes in NAV with changes in portfolio composition and
appreciation/depreciation in valuation of individual items, increase in the size of the
corpus etc. In debt funds, it is useful to compare the extent to which the growth in NAV
comes from interest income and from changes in valuation of illiquid assets like bonds
and debentures. It is also useful to compare expense ratios of funds e.g. Birla Income Plus
has an expense ratio of 1.7% which is one of the lowest expense ratios of all income
funds in the industry – this means that, everything else being equal, the performance of
that fund will be higher by 0.55% than other funds, which have an expense ratio of
2.25%. Last, but not the least, one has to compare the risk profile of two funds. For income funds, this could mean credit quality of the portfolio and the fluctuations in the
NAV with periodic changes in the interest rate environment. For equity funds, it could
mean the volatility of the NAV with the ups and downs in the market or the percentage
exposure to smaller company shares etc.
Q-How different is styles of different mutual funds?
Different mutual funds have very different investing styles. These styles are a function of
the individuals managing the fund with the overall investment objectives and policies of
the organization acting as a constraint. These are manifest in things like
Portfolio turnover – Buy and hold strategy versus frequent investment changes
Kind of investments made – small versus large companies, multi baggers
(investments which yield high gains) versus percentage players (investing in shares
large part of his holdings and convert them into cash so as to avoid loss in the value of his
holdings. If this view is wrong, he may end up having a low return on a large part of his
portfolio, since cash is invested in low yielding money market avenues. On the other
hand, if the view is right, the cash can be deployed in higher yielding instruments after
interest rates rise, thus improving the overall return and more important avoiding the loss.
There is a fourth reason, which is relevant only for open-ended income funds. Such funds
have a fluctuating level of idle cash (depending on the level of fresh collections) which is
typically invested in low yielding money market instruments. This causes change in the
rate of return.
Lastly, there is always the possibility of a credit loss for any income mutual fund ie losses
arising out of default in any of the instruments in which the fund has invested. The fund
will declare a low return in the period in which such losses show up.
Q-What are the risks associated in investing in income mutual funds and how
should one find out about these?
Income funds invest in a diversified portfolio of debt instruments, which provide interest
income. There is a possibility that some of these instruments are of low credit quality and
the issuers of these instruments default in the payment of interest or principal. Such
losses, called "credit losses", constitute an area of risk for income funds. The process of diversification mitigates this risk i.e. by the fund investing in a number of debt
instruments. However, it should be noted that the funds returns could be eroded
considerably if even 10% of the investments have credit quality problems. Also, the
problem can be accentuated for investors who are investing for a short period if the losses
show up in a particular period resulting in a short term decline in NAV. Investors can
check the credit quality of the investment portfolio, which is published by most funds on
a quarterly basis.
The second area of risks comes from the fluctuations in the prices of the underlying
instruments in which the fund invests. Any rise in interest rates will result in a fall in the
value of the investments causing a dip in the NAV. The fall in value is maximum for
longer dated instruments and negligible for short dated instruments. Hence, the risk is
higher in a fund that has an investment portfolio with a higher average maturity. This can
again be checked from the investment portfolio, which is published by the funds.
Even if interest rates rise by 2-3%, the fall in NAV for most mutual funds is unlikely to
exceed 5%. Similarly, a portfolio with as high as 10% of poor quality instruments will
result in a fall in NAV by 10%. Regular interest income will take care of the losses in a
few months. Thus, there is unlikely to be permanent erosion of capital in most reasonable
circumstances. Hence, debt or income funds have a much lower risk than equity funds,
which can have permanent erosion in value.
Today’s environment is characterized by a deep industrial recession and consequent high
level of defaults on loans provided by banking sector to industry. In such a scenario, it
may be prudent to look at the credit quality aspect very carefully before investing in an
income mutual fund.
Q-Why don’t people see MF as lucrative investment products?
Mutual Funds are still not the first choice of most Indians when it comes to investing.
The foremost reason for this is the availability of government backed savings instruments
that offer a high rate of assured returns.
Not only do instruments like NSC and PPF guarantee a high rate of interest but they also
come with the backing of central government, thus assuring capital safety of the highestorder. Add to this, such instruments come with powerful tax saving incentives.
High returns, coupled with the risk-averse mentality of the average middle-class that
constitutes majority of our population, have kept the bulk of savings away from mutual
funds.
Long -term savings find their way into instruments like NSC and PPF, while Bank FD’s
are preferred for short-term Investments. On the other hand, when it comes to
investments in instruments having no assured returns, people prefer to invest directly into
stock markets. One of the reasoning is that ‘Why should I pay for a fund manager when I
can invest in the stock market on my own?’ Secondly, the lack of penetration of the
mutual funds across the country also keeps them from tapping the savings potential of
However, certain developments in recent years have been encouraging for the Mutual
Fund industry. First, the rates of return offered by the assured return instruments have
come down significantly, inducing people to look beyond them.
Second, the Mutual Fund industry has become more transparent in terms of disclosures.
Third, the ELSS category of funds has come at par with other instruments in terms of tax
saving incentives.
These developments are likely to attract more people towards Mutual Fund, SEBI’s
initiatives to widen distribution of Mutual Fund across the length and breadth of the
country might just provide them the well-needed kick start.
Q-Over the long term which asset gives superior returns-real estate or mutual
funds?
Real estate means different things to different people. Having one house or flat you live
in is a very different thing from investing is real estate, by which one could mean buying
and selling real estate purely as an investment, without having any intention of using it
personally. Many parts of the country are experiencing a huge real estate boom and land
prices have more than doubled over very short periods of time. Naturally, real estate
appears to be a good investment to more and more people.
However, the two cannot be compared on returns alone. The characteristics of the twoinvestments are so different that returns are a very small part of the picture. Lets make a
comparison:
INDIVISIBILITY:
Real estate ticket size tends to be measured in lakhs. Mutual fund investments can be
made of any quantum, starting with a few hundred rupees. You can also sell parts of your
investment whereas Real Estate has to be sold as a large unit.
CONVENIENCE:
Real estate investments are quite effort-intensive in terms of choosing and going through
the legalities of registration. Funds need just one simple form and a cheque.
In most parts of the country, stamp duty inflates purchase price by up to 10%,while funds
have a load of at most 2.25%.Some forms of real estate also have various maintenance
charges that have to be paid but then these are similar to the expenses that a fund charges.
LIQUIDITY AND PRICE DISCOVERY:
A fund investment is always liquid, whereas selling a piece of real estate usually takes
time.
Also, when the real estate market is depressed, there are often no buyers except at deep
discount to the so called market rate. Mutual fund holdings can always be sold at a
transparently fixed price. The current worth of a piece of real estate is just an indicator
and not a value that can be realized with certainty.
VOLATILITY:
Real estate is generally far less volatile than at least equity mutual funds; although there
are boom-bust cycles where price swings can be sharp.
THE INCOME STREAM:
Constructed real estate can yield rental income over and above capital appreciation whilemutual funds offer dividend from the same stream of income as capital appreciation.
However, rented property definitely needs expenditure on maintenance.
Lastly, after all your patience to hold on to your investment for a long duration, comes
the time to harvest. But there is one last hurdle to clear capital gain tax. A one year
holding is sufficient in case of equity oriented mutual funds to save you from capital gain
tax on the profits that you book upon the sale of the units. However, in case of real estate,
it takes a minimum of three years holding period for the asset to be termed as long term.
And even then, your gains upon the transfer of the asset will be taxed at 10% without
In practice, a vast proportion of real estate transactions in our country are done in black
money and for those who have unaccounted cash, real estate is the one feasible
investment.
However, if you have really decided to go ahead with your real estate investment plans,
then we would end this discussion on an encouraging note. The first qualifier that Peter
Lynch, one of the most successful fund managers of all time, puts in front of you before
you invest in equity markets is “Do you own a house?”
Q- How to choose a good Mutual Fund?
Choosing a mutual fund seems to have become a very complex affair lately. There are a
huge number of new funds being launched and they all seem to be based on specialized
idea. There are funds that invest in companies of specific sizes, there are those that are
based on ideas like ‘opportunity’ that are not easy to pin done and there are more and
more sector funds. This overload of funds with specialized features has increased the
apparent complexity of choosing a fund.
Cutting through the complexity, there is a core set of five measures that you should
evaluate and choose funds and here is a basic guide to each of them.
⇒ WHAT ARE FUNDS RETURNS?
The most crucial factor in most normal conditions is the returns. Returns are also the
easiest to measure and the easiest to compare across funds.
At the most trivial level, the returns that a fund gives over a given period is just the
percentage difference between the starting NAV and the ending NAV and that’s that.
However, things are slightly (though not much) complicated. The first complexity is that
of measuring returns of dividend paying funds. The standard method of measuringreturns of dividend paying funds is to assume that all dividends are being reinvested.
Returns by themselves don’t serve much purpose. The purpose of calculating returns is,
obviously, to enable you to make comparisons. These comparisons can be between
returns of different funds, between different time periods of the same fund or between a
fund and its benchmark. Studying returns answers many questions that, as an investor
trying to evaluate a fund, you need to know the answer of. Major questions are:
Absolute returns: Absolute returns are just returns, i.e. they are a measure of how much
a fund has gained over a certain period. They are given the qualifier of ‘absolute’ just to
distinguish them from benchmark returns. Returns are usually calculated and published
for standard periods like six months, a year or five years. The key to using returns data
meaningfully is to facilitate comparisons between similar entities. It is meaningless to
compare the returns of, say, a diversified equity fund with a balanced fund. The two are
trying to be something completely different and are not comparable for the purpose of
making choices between funds.
The most important thing while measuring or comparing returns is to choose an
appropriate time period. The time period over which returns should be compared and
evaluated has to be invested in. This means that while its alright to compare short term
funds on the basis of their six month returns, if you are comparing equity funds then you
must use three or five returns.
Besides the time period, it is also important to see whether a funds returns history is long
enough for it to have seen all kinds of market conditions. For example, at this point of
time, there are equity funds that were launched one to two years ago and have done very
well. However, such funds have never seen a sustained declining market so it is a littlemisleading to look at their rate of return since launch and comparing that to other funds
that have had to face bad markets.
Benchmark Returns: Benchmark returns exist to provide a standard comparison point
between what a fund has earned and what it should have earned. A fund manager cannot
do magic. It is obvious that if the markets in which a fund is supposed to invest are
falling drastically, then a fund cannot earn superlative returns. Similarly, if the markets
are doing fabulously well, then anything less than fabulous returns would actually be a
disappointment.
A funds benchmark is an index that is chosen by a fund company to serve as a standard
for its returns. By SEBI’s mandate, each fund id obliged to declare a benchmark index. In
effect, a fund company is saying that the benchmark’s returns are its target and a fund
should be deemed to have done well if it manages to beat its benchmark. A fund’s returns
compared to its benchmark are called its benchmark returns.
While the logic is impeccable, benchmark returns are a difficult idea for investors to
swallow when a fund does better than a declining benchmark. By the logic, of benchmark
returns, if a fund which has the Nifty as its benchmark declines 10% during a period that
the Nifty crashed by 20%, then the fund’s benchmark returns are 10%, something that the
fund manager can congratulate himself over.
However, straight comparisons of a fund’s returns with its benchmark remains a vary
useful tool. For example, at the current high point of the stock markets, almost every
equity fund has wonderful returns but many of them have negative benchmark returns,
indicating that their performance is just a side-effect of the market’s rise rather than some
brilliant work by the fund manager.
⇒ HOW MUCH RISK DOES IT TAKE?
When we (or anyone who is analyzing any financial market) use the word “Risk”, what is
actually being talked about is volatility. ’Risk’ can be defined as the potential for harm.
Generally, past volatility is taken as an indicator of future risk and for the task of
evaluating a mutual fund; this is an adequate (even if not ideal) approximation.
There are a number of ways of measuring volatility but unfortunately, all need morecomfort with mathematical concepts than return calculations do. One way of measuring
risk is to measure the standard deviation of a fund’s returns over some period in the past.
Standard deviation is a measure of how much the actual performance of a fund over a
time period deviates from the average performance. There are other measures of volatility
like Alpha and Beta. There are also measures like Sharpe Ratio which look at returns and
risk together and delivers a single measure that is proportional to the risk adjusted returns
of an investment. To put it simply, the Sharpe Ratio of a fund (of any investment
actually) measures whether the returns that a fund delivered were commensurate with the
kind of volatility it exhibited.
While there is need for most investors to go into the calculation of these measures, it is
enough to remember that Standard Deviation is a measure of risk and Sharpe Ratio is a
measure of risk-adjusted performance. Therefore, a low Standard Deviation is good ans a
high Sharpe ratio is good.
⇒
WHO MANAGES IT?When you invest money in a fund, what you are doing is to hire a fund manager. There is
a person who runs the fund, who is finally responsible for its performance, whether good
or bad.
When you evaluate a fund’s returns or risks, then what you are evaluating are the returns
that the fund manager earned and the risks that he took. This means that the continuity of
fund management is important to a fund. When a fund manager changes, then there is a
risk of a fund’s investment style changing and becoming less successful.
That said, the fact is that the frequency of fund manager shuffles is pretty high in India.
The fund industry is in a state of continuous flux and people do move around. In practice,
fund managers changes haven’t really harmed investors, as AMCs manage to replace
departing fund managers competently.
One other way that information about who manages a fund is useful is by evaluating
other funds that are run by the same fund manager. Even if you are not invested in them,
you should keep an eye on other funds managed by your fund manager. Ad you gain
experience as an investor you eill find it useful to observe what kind of investments andmarket conditions your fund manager does well in and what kind of situations trip him
up.
⇒ WHAT DOES IT INVEST IN?
One of the main reasons for investing in a mutual fund is that it allows you to have
diversified portfolio in a convenient manner, and diversifications is central to lowering
risk.
As investors scarred by the tech crash (when some supposedly diversified funds were
more than 50% into tech stocks) will testify, funds can easily ignore the basic tenets of
diversification. A careful investor must keep an eye on how concentrated his funds are
1. The company should try to choose unconventional programs to create awareness.
In this direction, social banking can be used, as it not only shows that thecompany is concerned about society in general, but in the process generates
confidence among the investors that the company is generating surplus profits that
are being used for the welfare of the society.
a. Secondly, it also provides the company all type of media coverage without
any investment on this part.
2. Leadership can be achieved by setting good example. VICTORIA PORTFOLIO
LIMITED mutual fund should try to provide best customer services than other
mutual fund companies are providing to their customers.
3. A person with high integrity can be selected as brand Ambassador in 0rder to
infuse confidence and sense of security amongst the prospective investors.
4. As transparency is one of the key features of VICTORIA PORTFOLIO LIMITED
MF, this fact should be illustrated more assiduously.
5. Scheme such as VICTORIA PORTFOLIO LIMITED Income plus, which
ensures liquidity at demand, should be promoted with renewed vigor.
6. Common platforms of different Mutual funds companies in private sectors should