PROJECT REPORT ON

PERFORMANCE AND RISK ANALYSIS OF MUTUAL FUND AND ITS COMPARISON WITH THE STOCK MARKET

SUBMITTED IN PARTIAL FULFILLMENT OF PGDM COURSE.

JRE SCHOOL OF MANAGEMENT Date: March 13th , 2013 St !e"t : A"#$t C%a"!&a P&a#a'% PGDM ()*(+*, R-.. NO: /

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A0#"-1.e!2e3e"t

I wish to place on record m deep sense o! "ratit#de to JRE $chool O! Mana"ement !or pro%idin" me an opport#nit to ta&e #p this pro'ect and "i%in" me a plat!orm which is the !irst step o! m pro!essional career(( ) s#ccess!#l pro'ect can ne%er *e prepared * the sin"le e!!orts o! the person to whom pro'ect is assi"ned, *#t it also demand the help and "#ardianship o! some con%ersant person who helped the #ndersi"ned acti%el or passi%el in the completion o! s#ccess!#l pro'ect(

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TABLE OF CONTENTS E+EC,TI-E $,MM)R. C0)PTER 11 INTRO2,CTION 1(1 4iterat#re re%iew 1(2 Pro*lem o! the $t#d 1(3 O*'ecti%e 1(7 2e!inition o! &e term 1(/ 8rie! O#tline o! the Chapters C0)PTER 21 MET0O2O4O9. 2(1 ,ni%erse o! the st#d 2(2 4ocale o! the $t#d 2(3 2ata Collection 2(7 2ata )nal sis C0)PTER 31 IN2I)N M,T,)4 :,N2 IN2,$TR. 3(1 Classi!ication o! M#t#al :#nd 3(2 Ris& In%ol%ed with M#t#al :#nd C0)PTER 71 E;,IT. M)R<ET )N2 IT$ COMP)RI$ON =IT0 M,T,)4 :,N2$ 7(1 E>#it Mar&et in India 7(2 E>#it $toc& $election )pproaches 3/ 7(3 Comparison o! $toc& Mar&et with M#t#al :#nd C0)PTER /1 CONC4,$ION )N2 $,99E$TION$ 7/ /(1 :indin"s /(2 $#""estions /(3 4imitations o! the $t#d /(7 :#rther $cope o! the $t#d RE:ERENCE 8I84IO9R)P0. )NNE+,RE / 3 5 6 6 10 10 11 11 12 12 13 13 13 33 37 36 7/ 73 73 7? 7? 75 75

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E4ECUTI5E SUMMARY The si"ni!icant o#tcome o! the "o%ernment polic o! li*erali@ation in ind#strial and !inancial sector has *een the de%elopment o! new !inancial instr#ments( These new instr#ments are eApected to impart "reater competiti%eness !leAi*ilit and e!!icienc to the !inancial sector( 9rowth and de%elopment o! %ario#s m#t#al !#nd prod#cts in Indian capital mar&et has pro%ed to *e one o! the most catal tic instr#ments in "eneratin" momento#s in%estment "rowth in the capital mar&et(

There is a s#*stantial "rowth in the m#t#al !#nd mar&et d#e to a hi"h le%el o! precision in the desi"n and mar&etin" o! %ariet o! m#t#al !#nd prod#cts * *an&s and other !inancial instit#tion pro%idin" "rowth, li>#idit and ret#rn( In this conteAt, in this pro'ect has *een done with an

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o*'ecti%e to ha%e an o%erall #nderstandin" o! the di!!erent t pes m#t#al !#nd in %ario#s )MCs( To cond#ct a detailed anal sis o! the stoc& mar&et, and its relationship with m#t#al !#nds( M#t#al :#nd is de!initel "rowin" at a hi"h rate *#t the awareness o! the *ene!its o! in%estments in m#t#al !#nds amon" indi%id#al in%estors in India is still low( )mon" them those who are well aware o! m#t#al !#nd in%estments are scared o! the ris& in%ol%ed in it as the associate m#t#al !#nds with the stoc& mar&et( )!ter "ettin" thoro#"h with the parameters re>#ired to meas#re the per!ormance o! M#t#al !#nd a comparati%e anal sis o! the stoc& mar&et and m#t#al !#nds ha%e *een done( This anal sis re%ealed that the M#t#al :#nds ha%e *een a*le to per!orm *etter than the stoc& mar&et and ha%e "i%en "ood ret#rn considerin" the !act that it carries ris& e>#i%alent to the stoc& mar&et( 2e*t :#nds and *ond !#nds are pre!erred in low ris&, low ret#rn scenario( :or those willin" to ta&e hi"h ris&s, e>#it and sector !#nds are the pic&s1 8alance :#nds are a "ood alternati%e !or those who see& somethin" *etween hi"h ris& sector !#nds and low ris& *ond !#nds(

CHAPTER *: I"t&-! 0t$-" The M#t#al :#nds ori"inated in ,< and therea!ter the crossed the *order to reach other destinations( The concept o! M: was Indiani@ed onl in the later part o! the twentieth cent#r in the ear 1637 with its roots em*edded into ,nit Tr#st o! India B,TIC( Now a!ter /0 ears, *oomin" stoc& mar&ets D inno%ati%e mar&etin" strate"ies o! m#t#al !#nd companies in India are in!l#encin" the retail in%estors to in%est their s#rpl#s !#nds with di!!erent schemes o! m#t#al !#nd companies with or witho#t complete #nderstandin" o! M#t#al :#nds BM:C( There is a "eneral notion that an in%estment in m#t#al !#nd is alwa s ris& ( In%estors sho#ld alwa s *e conscio#s o! the !act that M#t#al :#nds in%est their !#nds in capital mar&et instr#ments s#ch as shares, de*ent#res, *onds etc and that all the capital mar&et instr#ments ha%e ris&( Ris&s can *e In%estor Ps cholo" Ris&s, Prediction Ris&s, Choice Ris&s, and Cost Ris&s etc(

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)ltho#"h there is no one m#t#al !#nd that will *e s#ita*le to all &inds o! in%estors( 0ence, m#t#al !#nd in%estors need to identi! a s#ita*le !#nd !or them( It will *e the !irst step towards ma&in" s#ccess!#l in%estments in m#t#al !#nds to ma&e M#t#al :#nds their EC,P O: TE)E( Identi! in" a s#ita*le !#nd can *e done in a twoFstep manner as !ollows1

6 $electin" a !#nd with in%estment o*'ecti%es and pre!erences, ret#rn o*'ecti%es, time hori@on and ris& tolerances that meet the re>#irements o! the in%estor(

6 $electin" a !#nd that has a detailed asset allocation strate" * !#nd t pe cate"or to re!lect the in%estment o*'ecti%es o! the !#nd( M#t#al !#nds can *e winFwin option a%aila*le to the in%estors who are not willin" to ta&e an eApos#re directl to the sec#rit mar&ets as well as it helps the in%estors to *#ild their wealth o%er a period o! time( 8#t the thin" which m#st *e remem*ered * the in%estors is

7IN5ESTMENT IN MUTUAL FUND IS SUBJECT TO MARKET RISK7. The Indian E>#it Mar&et has "rown si"ni!icantl d#rin" the last three earsG M#t#al :#nds are not le!t !ar *ehind( 8oth the a%en#es ha%e created wealth !or the in%estors( 8#t !or the creation o! wealth thro#"h this a%en#e a proper #nderstandin" o! the M#t#al :#nds is m#st( U"!e&'ta"!$"2 M t a. F "!' ) M#t#al :#nd is a tr#st that pools the sa%in"s o! a n#m*er o! in%estors who share a common !inancial "oal( The mone th#s collected is then in%ested in capital mar&et instr#ments s#ch as shares, de*ent#res and other sec#rities( The income earned thro#"h these in%estments and capital appreciation reali@ed is shared * its #nit holders in proportion to the n#m*er o! #nits owned * them(

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BM#t#al :#nd and Mar&et Ris&s1 )rticle 8 1 2e%indar <a#r 4ect#rer B:inanceC 4#dhiana Colle"e o! En"ineerin" D Technolo" C

Th#s a M#t#al :#nd is the most s#ita*le in%estment !or the common man as it o!!ers an opport#nit to in%est in a di%ersi!ied, pro!essionall mana"ed *as&et o! sec#rities at a relati%el low cost( =hen we tal& a*o#t all these, one hard !act is a*o#t ris&s that are !aced * the M#t#al :#nd in%estors( =hene%er we see an M#t#al :#nd o!!er, there are !ew statements ine%ita*l !o#nd alon" with that, which is commonl &nown as E2isclaimer Cla#se o! the M#t#al :#ndE(

*.* LITERATURE RE5IEW M#t#al !#nds ind#str is a "rowin" at a %er !ast rate India( -ario#s st#dies and research has *een on this ind#str * eAperts( 0ere are the list o! !ew *oo&s that ha%e *een re!erred to !or the p#rpose o! the st#d ( Mr M( Jaide% in his *oo& has HIn%estment polic and per!ormance o! M#t#al :#ndI has st#died the Indian P#*lic $ector M#t#al :#nds( In this *oo& he has co%ered ris& , rate o! ret#rn( In%estment polic and pricin" o! m#t#al !#nds( In this *oo& he has done an empirical st#d co%erin" all aspects o! m#t#al !#nd in%estment alon" with the re"#lator !ramewor&(
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 Nalini Pra%a Tripath in her *oo& HM#t#al :#nds in India( Emer"in" Iss#esI pro%ides a detailed e%al#ation o! in%estment mana"ement which is not onl help!#l !or

in!l#encin" mar&etin" operations *#t also !or sec#rities selection, in%estment research and timin" and reso#rce allocation( 2r 0( $ada& in his *oo& HM#t#al :#nds in IndiaI has hi"hli"hted the importance o! !inancials instit#tions in India( The *asicall !oc#ses on the "rowth and de%elopment o! m#t#al !#nds in India( The entire "am#t o! the theoretical aspects o! the !#nd mana"ement has *een criticall eAamined in the conteAt o! the per!ormance o! m#t#al !#nds and it pro%ides an insi"ht into !#nd mana"ement and the areas o! wea&ness( Mr( $harad Panwar and 2r( R( Madh#mathi in their 'o#rnal HCharacteristics and Per!ormance o! selected m#t#al !#nds in India(I, ha%e st#died a sample o! P#*lic and Pri%ate sector m#t#al !#nds o! %aried net assets to in%esti"ate the di!!erences in characteristics o! assets held, port!olio di%ersi!ication, and %aria*le e!!ects o! di%ersi!ication on in%estment per!ormance( The eAtent o! di%ersi!ication in the port!olio o! sec#rities o! p#*licFsector sponsored and pri%ateFsector sponsored m#t#al !#nds ha%e *een hi"hli"hted(

*.( PROBLEM OF THE STUDY M#t#al :#nd is de!initel "rowin" at a hi"h rate *#t the awareness o! the *ene!its o! in%estments in m#t#al !#nds amon" indi%id#al in%estors in India is still low( )mon" them those who are well aware o! m#t#al !#nd in%estments are scared o! the ris& in%ol%ed in it as the associate m#t#al !#nds with the stoc& mar&et ( Thro#"h this pro'ect an attempt is made to increase the le%el o! awareness o! m#t#al !#nds, and to #nderstand the ris& in%ol%ed in m#t#al !#nd in%estment, its per!ormance and comparison with the stoc& mar&et( *.8 OBJECTI5ES The present st#d has the !ollowin" o*'ecti%es1 To ha%e an o%erall #nderstandin" o! the di!!erent t pes m#t#al !#nd in %ario#s )MCs( To cond#ct a detailed anal sis o! the stoc& mar&et and its relationship with m#t#al !#nds(
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To come #p with %ia*le s#""estions !or in%estors and m#t#al !#nd companies in India *ased on the a*o%e st#d (

*., DEFINITION OF KEY TERMS1 1( AMC 1 )n J)sset Mana"ement Compan J is a !irm that in%ests the pooled !#nds o! retail in%estors in sec#rities in line with the stated in%estment 2( A''et A..-0at$-": W%e" o# di%ide o#r mone amon" %ario#s t pes o! in%estments, s#ch as stoc&s, *onds, and shortFterm in%estments Balso &nown as Einstr#mentsEC, o# are allocatin" o#r assets( 3( NA51 The perFshare %al#e o! a m#t#al !#nd, !o#nd * s#*tractin" the !#ndKs

lia*ilities !rom its assets and di%idin" * the n#m*er o! shares o#tstandin"( 7( E"t&9:E;$t .-a!1 The :#nd char"es some amo#nt *e!ore *# in" the scheme( This is #s#all some percenta"e o! the amo#nt in%ested and "oes as the amo#nt char"ed * the :#nd ho#se to mana"e their mone ( It is calc#lated as1 $ales P#rchase L )pplica*le N)- A B 1 M $ales Char"e C EAit load is the char"es o# ha%e to pa to the :#nd ho#se, i! o# wish to eAit the scheme( :or most schemes the EAit load is nil( It is #s#all calc#lated as1 Rep#rchase Price L )pplication N)- A B 1 F eAit loadC /( F "! Fa0t'%eet1 ) newsletter sent * a m#t#al !#nd to its #nit holders, either >#arterl or hal! earl ( The newsletter re%iews per!ormance o! all its schemes d#rin" the re!erence period, "i%es important schemes in!ormation s#ch as port!olio details, and o!!ers pointers on what lies ahead(

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CHAPTER (: Met%-!-.-29 In this chapter we aim to disc#ss the methodolo" that is *ein" !ollowed to achie%e the stated o*'ecti%es( ) lot o! secondar research has *een #nderta&en in order to ens#re that

comprehensi%e #nderstandin" can *e de%eloped( The eAistent scenario in the m#t#al !#nds ind#str and present statistical !i"#res ha%e *een esta*lished on the *asis o! data collected thro#"h secondar research( )s !ar as the data collection !rom primar reso#rces is concerned, not m#ch was re%ealed * the compan so we had to rel on the data p#*lished * relia*le we*sites( (.* UNI5ERSE OF THE STUDY The entire Indian m#t#al !#nd ind#str and the Indian :inancial Mar&et is the #ni%erse o! the st#d ( The scope o! o#r #ni%erse !#rther eAtends to all the in%estors who are an important part o! the !inancial mar&ets( (.( LOCALE OF THE STUDY 4ocale o! the st#d are !ew o! the M#t#al :#nd 0o#ses in India namel Reliance Capital )MC 4td, 28$ Cholamandalam )MC 4td, <ota& Mahindra )MC 4td, $8I :#nd Mana"ement P%t 4td, 8irla $#n 4i!e )MC 4td 02:C )MC 4td, Ta#r#s )MC 4td ha%e *een *ein" anal @ed !or the p#rpose o! achie%in" the de!ined o*'ecti%es(

(.8 DATA COLLECTION Most o! the data has *een mainl collected !rom the secondar so#rces Primar so#rces !or data collection co#ld not *e #sed *eca#se o! limited so#rces( $econdar 2ata has *een collected !rom
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Capitaline 2ata*ase N$E =e*site 8$E =e*site M#t#al!#ndsindia(com )M:I Mod#le

(.< DATA ANALYSIS 2atas that ha%e *een collected !rom secondar so#rces ha%e *een anal @ed #sin" statistical tools( $tatistical ratios li&e Tre nor ratio, $harpe ratio, standard de%iation, *eta, co %ariance etc( o! di!!erent schemes has *een o*tained !rom relia*le so#rces on which the in%estors rel ( :or statistical anal sis, calc#lations where%er possi*le ha%e *een done to ens#re that !acts and !i"#res presented do not ha%e an discrepancies(

CHAPTER 8: I"!$a" M t a. F "! I"! 't&9 The Indian m#t#al !#nd ind#str is dominated * the ,nit Tr#st o! India, which has a total corp#s o! Rs?00*n collected !rom more than 20 million in%estors( The ,TI has man !#ndsNschemes in all cate"ories i(e( e>#it , *alanced, income etc with some *ein" openFended and some *ein" closedFended( The ,nit $cheme 1637 commonl re!erred to as ,$ 37, which is a *alanced !#nd, is the *i""est scheme with a corp#s o! a*o#t Rs200*n( Most o! its in%estors *elie%e that the ,TI is "o%ernment owned and controlled, which, while le"all incorrect, is tr#e !or all practical p#rposes( The second lar"est cate"or o! m#t#al !#nds is the ones !loated * nationali@ed *an&s( Can *an& )sset Mana"ement !loated * Canara 8an& and $8I :#nds Mana"ement !loated * the $tate

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8an& o! India are the lar"est o! these( 9IC )MC !loated * 9eneral Ins#rance Corporation and Jee%an 8ima $aha o" )MC !loated * the 4IC are some o! the other prominent ones( 8.* MUTUAL FUND The )ssets #nder Mana"ement o! ,TI was Rs( 3?*n( * the end o! 165?( 4et me concentrate a*o#t the per!ormance o! m#t#al !#nds in India thro#"h !i"#res( :rom Rs( 3?*n( the )ssets #nder Mana"ement rose to Rs( 7?0 *n( in March 1663 and the !i"#re had a three times hi"her per!ormance * )pril 2007( It rose as hi"h as Rs( 1,/70*n( The net asset %al#e BN)-C o! m#t#al !#nds in India declined when stoc& prices started !allin" in the ear 1662( Those da s, the mar&et re"#lations did not allow port!olio shi!ts into alternati%e in%estments( There was rather no choice apart !rom holdin" the cash or to !#rther contin#e in%estin" in shares( One more thin" to *e noted, since onl closed end !#nds were !loated in the mar&et the in%estors disin%ested * sellin" at loss in the secondar mar&et( 8.( CLASSIFICATION OF MUTUAL FUND M#t#al !#nd schemes ma *e classi!ied on the *asis o! their str#ct#re and their in%estment o*'ecti%e B9 St& 0t &e 1C O=e"+e"!e! F "!': )n OpenFended :#nd is one that is a%aila*le !or s#*scription all thro#"h the ear( These do not ha%e a !iAed mat#rit ( In%estors can con%enientl *# and sell #nits at Net )sset -al#e BN)-C related prices( 2C C.-'e+e"!e! F "!': ) CloseFended :#nd has a stip#lated mat#rit period, which

"enerall ran"es !rom 3 to 1/ ears( The !#nd is open !or s#*scription onl d#rin" a speci!ied period( In%estors can in%est in the scheme at the time o! the initial p#*lic iss#e and therea!ter the can *# or sell the #nits o! the scheme on the $toc& EAchan"es, i! the

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are listed( The mar&et price at the stoc& eAchan"e co#ld %ar !rom the schemeJs N)- on acco#nt o! demand and s#ppl sit#ation, #nit holdersJ eApectations and other mar&et !actors( B9 I">e't3e"t O?@e0t$>e 1C G&-1t% F "!': The aim o! "rowth !#nds is to pro%ide capital appreciation o%er the medi#m to lon" term( $#ch schemes normall in%est a ma'orit o! their corp#s in

e>#ities( 9rowth schemes are ideal !or in%estors who ha%e a lon"Fterm o#tloo& and are see&in" "rowth o%er a period o! time( 2C I"0-3e F "!': The aim o! Income :#nds is to pro%ide re"#lar and stead income to in%estors( $#ch schemes "enerall in%est in !iAed income sec#rities s#ch as *onds,

corporate de*ent#res and 9o%ernment sec#rities( Income :#nds are ideal !or capital sta*ilit and re"#lar income( Capital appreciation in s#ch !#nds ma *e limited, tho#"h ris&s are t picall lower than that in a "rowth !#nd( 3C Ba.a"0e! F "!': The aim o! 8alanced :#nds is to pro%ide *oth "rowth and re"#lar income( $#ch schemes periodicall distri*#te a part o! their earnin" and in%est *oth in e>#ities and !iAed income sec#rities in the proportion indicated in their o!!er doc#ments( This proportion a!!ects the ris&s and the ret#rns associated with the *alanced !#nd F in case e>#ities are allocated a hi"her proportion, in%estors wo#ld *e eAposed to ris&s similar to that o! the e>#it mar&et( 8alanced !#nds with e>#al allocation to e>#ities and !iAed income sec#rities are ideal !or in%estors loo&in" !or a com*ination o! income and moderate "rowth( 7C M-"e9 Ma&#et F "!': The aim o! Mone Mar&et :#nds is to pro%ide eas li>#idit , preser%ation o! capital and moderate income( These schemes "enerall in%est in sa!er shortFterm instr#ments s#ch as Treas#r 8ills, Certi!icates o! 2eposit, Commercial Paper
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and InterF8an& Call Mone ( Ret#rns on these schemes ma !l#ct#ate dependin" #pon the interest rates pre%ailin" in the mar&et( These are ideal !or corporate and indi%id#al in%estors as a means to par& their s#rpl#s !#nds !or short periods( Ot%e& EA $t9 Re.ate! S0%e3e' 1C TaA $a%in" $chemes1 These schemes o!!er taA re*ates to the in%estors #nder speci!ic pro%isions o! the Indian Income TaA laws, as the 9o%ernment o!!ers taA incenti%es !or in%estment in speci!ied a%en#es( In%estments made in E>#it 4in&ed $a%in"s $chemes BE4$$C and Pension $chemes are allowed as ded#ction #nder $ection 55 o! the Indian Income TaA )ct, 1631( 2C IndeA $chemes1 IndeA :#nds attempt to replicate the per!ormance o! a partic#lar indeA s#ch as the 8$E $enseA or the N$E $DP CN+ /0( 3C $ectoral $chemes1 $ectoral :#nds are those which in%est eAcl#si%el in speci!ied

sectorBsC s#ch as :MC9, In!ormation Technolo" , Pharmace#ticals, etc( These schemes carr hi"her ris& as compared to "eneral e>#it schemes as the port!olio is less

di%ersi!ied, i(e( restricted to speci!ic sectorBsC N ind#str BiesC( D$BBe&e"t M t a. F "! =.a"' To cater to di!!erent in%estment needs, M#t#al :#nds o!!er %ario#s in%estment options( $ome o! the important in%estment options incl#de1 1C G&-1t% O=t$-": 2i%idend is not paidFo#t #nder a 9rowth Option and the in%estor reali@es onl the capital appreciation on the in%estment B* an increase in N)-C( 2C D$>$!e"! Pa9- t O=t$-": 2i%idends are paidFo#t to in%estors #nder the 2i%idend Pa o#t Option( 0owe%er, the N)- o! the m#t#al !#nd scheme !alls to the eAtent o! the di%idend pa o#t(

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3C D$>$!e"! Re+$">e't3e"t O=t$-": 0ere the di%idend accr#ed on m#t#al !#nds is a#tomaticall reFin%ested in p#rchasin" additional #nits in openFended !#nds( In most cases m#t#al !#nds o!!er the in%estor an option o! collectin" di%idends or reFin%estin" the same( 7C Ret$&e3e"t Pe"'$-" O=t$-": $ome schemes are lin&ed with retirement pension( Indi%id#als participate in these options !or themsel%es, and corporate participate !or their emplo ees( /C I"' &a"0e O=t$-": Certain M#t#al :#nds o!!er schemes that pro%ide ins#rance co%er to in%estors as an added *ene!it( 3C S9'te3at$0 I">e't3e"t P.a" CSIPD : 0ere the in%estor is "i%en the option o! preparin" a preFdetermined n#m*er o! postFdated che>#es in !a%o#r o! the !#nd( The in%estor is allotted #nits on a predetermined date speci!ied in the o!!er doc#ment at the applica*le N)-( ?C S9'te3at$0 E"0a'%3e"t P.a" CSEPD : )s opposed to the $ stematic In%estment Plan, the $ stematic Encashment Plan allows the in%estor the !acilit to withdraw a preF

determined amo#nt N #nits !rom his !#nd at a preFdetermined inter%al( The in%estorJs #nits will *e redeemed at the applica*le N)- as on that da (

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M t a. F "! A!>a"ta2e' The *ene!its on o!!er are man with "ood postFtaA ret#rns and reasona*le sa!et *ein" the hallmar& that we normall associate with them( $ome o! the other ma'or *ene!its o! in%estin" in them are1 aD N 3?e& -B a>a$.a?.e -=t$-"': M#t#al !#nds in%est accordin" to the #nderl in"

in%estment o*'ecti%e as speci!ied at the time o! la#nchin" a scheme( $o, we ha%e e>#it !#nds, de*t !#nds, "ilt !#nds and man others that cater to the di!!erent needs o! the in%estor( The a%aila*ilit o! these options ma&es them a "ood option( =hile e>#it !#nds can *e as ris& as the stoc& mar&ets themsel%es, de*t !#nds o!!er the &ind o! sec#rit that

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aimed at the time o! ma&in" in%estments( Mone mar&et !#nds o!!er the li>#idit that desired * *i" in%estors who wish to par& s#rpl#s !#nds !or %er shortFterm periods( ?D D$>e&'$B$0at$-": In%estments spread across a wide crossFsection o! ind#stries and

sectors and so the ris& is red#ced( 2i%ersi!ication red#ces the ris& *eca#se not all stoc&s mo%e in the same direction at the same time( One can achie%e this di%ersi!ication thro#"h a M#t#al :#nd with !ar less mone than one can on his own( 0D P&-Be''$-"a. Ma"a2e3e"t: M#t#al :#nds emplo the ser%ices o! s&illed

pro!essionals who ha%e ears o! eAperience to *ac& them #p( The #se intensi%e research techni>#es to anal @e each in%estment option !or the potential o! ret#rns alon" with their ris& le%els to come #p with the !i"#res !or per!ormance that determine the s#ita*ilit o! an potential in%estment( !D P-te"t$a. -B Ret &"': Ret#rns in the m#t#al !#nds are "enerall *etter than an other a%en#e o%er a reasona*le period( People can pic& their

other option in an

in%estment hori@on and sta p#t in the chosen !#nd !or the d#ration( eD Get F-0 'e!: In%estin" in indi%id#al stoc&s can *e !#n *eca#se each compan has

a #ni>#e stor ( 0owe%er, it is important !or people to !oc#s on ma&in" mone ( In%estin" is not a "ame( .o#r !inancial !#t#re depends on where o# p#t o# hardFearned dollars and it sho#ld not ta&e li"htl ( BD EBB$0$e"09: 8 poolin" in%estorsJ monies to"ether, m#t#al !#nd companies can

ta&e ad%anta"e o! economies o! scale( =ith lar"e s#ms o! mone to in%est, the o!ten trade commissionF!ree and ha%e personal contacts at the *ro&era"e !irms( 2D Ea'e -B U'e: Can o# ima"ine &eepin" trac& o! a port!olio consistin" o! h#ndreds

o! stoc&sO The *oo&&eepin" d#ties in%ol%ed with stoc&s are m#ch more complicated than ownin" a m#t#al !#nd( I! o# are doin" o#r own taAes, or are short on time, this can *e a
Page 1?

*i" deal( =ealth stoc& in%estors "et special treatment !rom *ro&ers and wealth *an& acco#nt holders "et special treatment !rom the *an&s, *#t m#t#al !#nds are nonF discriminator ( It doesnJt matter whether o# ha%e Rs 1000 or Rs 10,00,000, o# are "ettin" the eAact same mana"er, the same acco#nt access and the same in%estment( %D R$'#: In "eneral, m#t#al !#nds carr m#ch lower ris& than stoc&s( This is

primaril d#e to di%ersi!ication Bas mentioned a*o%eC( Certain m#t#al !#nds can *e ris&ier than indi%id#al stoc&s, *#t o# ha%e to "o o#t o! o#r wa to !ind them( $D T&a"'=a&e"t E 1e.. &e2 .ate!: The M#t#al :#nd ind#str is well re"#lated *oth

* $E8I and )M:I( The ha%e, o%er the ears, introd#ced re"#lations, which ens#re smooth and transparent !#nctionin" o! the m#t#al !#nds ind#str ( This ma&es it sa!er and con%enient !or in%estors to in%est thro#"h the m#t#al !#nds( @D Ma&#et t$3$"2 ?e0-3e' $&&e.e>a"t: One o! the *i""est di!!ic#lties in e>#it

in%estin" is =0EN to in%est, apart !rom the other *i" >#estion =0ERE to in%est( =hile, in%estin" in a m#t#al !#nd sol%es the iss#e o! PwhereK to in%est, $IP helps #s to o%ercome the pro*lem o! PwhenK( $IP is a disciplined in%estin" irrespecti%e o! the state o! the mar&et( It th#s ma&es the mar&et timin" totall irrele%ant( #D D-e' "-t 't&a$" - & !a9+t-+!a9 B$"a"0e': M#t#al :#nds allow #s to in%est %er

small amo#nts BRs /00 Q Rs 1000C in $IP, as a"ainst lar"er oneFtime in%estment re>#ired, i! we were to *# directl !rom the mar&et( This ma&es in%estin" easier as it does not strain o#r monthl !inances( It, there!ore, *ecomes an ideal in%estment option !or a smallF time in%estor, who wo#ld otherwise not *e a*le to en'o the *ene!its o! in%estin" in the e>#it mar&et( .D Re! 0e' t%e a>e&a2e 0-'t: In $IP !iAed amo#nt re"#larl is in%ested( There!ore,

o# end #p *# in" more n#m*er o! #nits when the mar&ets are down and N)- is low

Page 15

and less n#m*er o! #nits when the mar&ets are #p and the N)- is hi"h( This is called r#peeFcost a%era"in"( 9enerall , we wo#ld sta awa !rom *# in" when the mar&ets are down( =e "enerall tend to in%est when the mar&ets are risin"( $IP wor&s as a "ood discipline as it !orces #s to *# e%en when the mar&ets are low, which act#all is the *est time to *# ( =ith stoc&s, one worr is that the compan o# are in%estin" in "oes *an&r#pt( =ith m#t#al

!#nds, that chance is neAt to nil( $ince m#t#al !#nds, t picall hold an where !rom 2/F/000 companies, all o! the companies that it holds wo#ld ha%e to "o *an&r#pt( It cannot *e ar"#ed on in%estin" in indi%id#al stoc&s, *#t the ad%anta"es o! #sin" m#t#al !#nds can help an in%estor earn "ood ret#rn with moderate ris&( D&a1?a0#' -B M t a. F "!' M#t#al !#nds ha%e their draw*ac&s and ma not *e !or e%er one1 aD N- G a&a"tee': No in%estment is ris& !ree( I! the entire stoc& mar&et declines in %al#e, the %al#e o! m#t#al !#nd shares will "o down as well, no matter how *alanced the port!olio( ?D Fee' a"! 0-33$''$-"': )ll !#nds char"e administrati%e !ees to co%er their da FtoFda eApenses( $ome !#nds also char"e sales commissions or EloadsE to compensate *ro&ers, !inancial cons#ltants, or !inancial planners( 0D Ta;e': 2#rin" a t pical ear, most acti%el mana"ed m#t#al !#nds sell an where !rom 20 to ?0 percent o! the sec#rities in their port!olios( !D Ma"a2e3e"t &$'#: =hen o# in%est in a m#t#al !#nd, o# depend on the !#ndJs mana"er to ma&e the ri"ht decisions re"ardin" the !#ndJs port!olio(

Page 16

8.8 TYPES OF RISK IN5OL5ED WITH MUTUAL FUNDS Ris& is an inherent aspect o! e%er !orm o! in%estment( :or m#t#al !#nd in%estments, ris&s wo#ld incl#de %aria*ilit , or periodF* Fperiod !l#ct#ations in total ret#rn( Ma&#et R$'#: )t times, the prices or ields o! all the sec#rities in a partic#lar mar&et rises or !alls d#e to *road o#tside in!l#ences( =hen this happens, the stoc& prices o! *oth an o#tstandin", hi"hl pro!ita*le compan and a !led"lin" corporation ma *e a!!ected( This chan"e in price is d#e to Emar&et ris&E( I"B.at$-" R$'#: $ometimes re!erred to as Eloss o! p#rchasin" power(E =hene%er the rate o! in!lation eAceeds the earnin"s on o#r in%estment, o# r#n the ris& that o#Jll act#all *e a*le to *# less, not more( C&e!$t R$'#: In short, how sta*le is the compan or entit to which o# lend o#r mone when o# in%estO 0ow certain are o# that it will *e a*le to pa the interest o# are promised, or repa o#r principal when the in%estment mat#resO I"te&e't Rate R$'#: Chan"in" interest rates a!!ect *oth e>#ities and *onds in man wa s( 8ond prices are in!l#enced * mo%ements in the interest rates in the !inancial s stem( 9enerall , when interest rates rise, prices o! the sec#rities !all and when interest rates drop, the prices increase( I">e't3e"t R$'#': In the sectoral !#nd schemes, in%estments will *e predominantl in e>#ities o! select companies in the partic#lar sectors( )ccordin"l , the N)- o! the schemes are lin&ed to the e>#it per!ormance o! s#ch companies and ma *e more %olatile than a more di%ersi!ied port!olio o! e>#ities( L$A $!$t9 R$'#: Thinl traded sec#rities carr the dan"er o! not *ein" easil salea*le at or near their real %al#es( The !#nd mana"er ma there!ore *e #na*le to >#ic&l sell an illi>#id *ond and

Page 20

this mi"ht a!!ect the price o! the !#nd #n!a%ora*l ( 4i>#idit ris& is characteristic o! the Indian !iAed income mar&et( C%a"2e' $" t%e G->e&"3e"t P-.$09: Chan"es in 9o%ernment polic especiall in re"ard to the taA *ene!its ma impact the *#siness prospects o! the companies leadin" to an impact on the in%estments made * the !#nd( 5a&$- ' Pa&a3ete&' t- Mea' &e R$'# *D BETA ) 8eta is a meas#re o! ris& that when applied to in%estment port!olios, pro%ides #se!#l statistical in!ormation( It indicates a !#ndKs past price %olatilit partic#lar stoc& mar&et indeA( 0i"h *eta stoc&s react stron"l to %ariations in the mar&et, and low *eta stoc&s are less a!!ected * mar&et %ariations( I! 8eta is 1, then an iss#e has the 'a3e >-.at$.$t9 as the "eneral mar&et( It is either "rowin" at the same rate or declinin" at the same rate( I! 8eta is "reater than 1, then an iss#e is 3-&e >-.at$.e( )t 1(2/ it will pro*a*l mo%e 2/R more than the mar&et( I! the mar&et is in an #p trend, then the sec#rit will "ain 2/R more than the "eneral mar&et( I! 8eta is less than 1, then an iss#e is .e'' >-.at$.e( )t 0(/ it pro*a*l will mo%e onl /0R or a hal! o! the mar&et( I! the mar&et is In a downtrend, it will onl lose /0R o! what the "eneral mar&et loses( I! *eta is less than 0, then the stoc& is mo%in" in a re%erse pattern to the indeA( =hen the indeA mo%es #p the stoc& declines and %ice %ersa( relati%e to a

The !orm#la !or the 8eta o! an asset within a port!olio is

Page 21

=here ra meas#res the rate o! ret#rn o! an asset, rp meas#res the rate o! ret#rn o! the port!olio o! which the asset is a part C->CraFrpD is the co%ariance *etween the rate o! ret#rn(

(D STANDARD DE5IATION It meas#res the ris& o! an asset !rom the meanNeApected %al#e o! ret#rn( It represents the s>#are root o! the a%era"e s>#ared de%iations o! the indi%id#al ret#rns !rom the eApected ret#rns( 8D CORRELATION It is a statistical meas#re o! the de"ree to which sec#rit ret#rns mo%e to"ether( In order to di%ersi! ris& to ha%e an e!!icient port!olio, i(e( maAim#m ret#rn !or a "i%en le%el o! ris& or to minimi@e ris& !or a "i%en le%el o! ret#rn, the correlation *etween ret#rns on di!!erent sec#rities is si"ni!icant( Positi%e correlation means that the mo%e to"ether, Ne"ati%e correlation s#""ests that the mo%e in opposite direction Sero correlation shows that the show no tendenc to %ar to"ether in either positi%e or ne"ati%e(

,D SHARPES MEASURE

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$harpeKs meas#re e%al#ates the per!ormance o! the port!olio *ased on the total ris& o! the port!olio, that is, standard de%iation as a meas#re o! ris&( The $harpeKs meas#re o! per!ormance e%al#ation is "i%en * 1 SC;D G C &; + RB D : St!De>C;D =here, x L some in%estment rx L a%era"e ann#al rate o! ret#rn o! A Rf L *est a%aila*le rate o! ret#rn o! a Eris&F!reeE sec#rit Bi(e( cashC StdDev(x) L standard de%iation o! rA

<D TREYNORS MEASURE Tre norKs meas#re relates the rate o! ret#rn earned o%er and a*o%e the ris&F!ree rate to the port!olio *eta d#rin" the time period #nder consideration(

=here T L Tre nor Ratio , HD SORTINOS MEASURE The S-&t$"- &at$- meas#res the ris&Fad'#sted ret#rn o! an in%estment asset, port!olio or strate" ( The $ortino ratio is a !inancial ratio, similar to the $harpe ratio that meas#res the ris&Fad'#sted ret#rn o! in%estments or port!olios( ,nli&e the $harpe ratio, the $ortino #ses downsideF%olatilit Bsometimes re!erred to as semiF%olatilit C as the denominator instead o! standard de%iation( The #se o! downsideF%olatilit allows the $ortino ratio to meas#re the ret#rn o! Ene"ati%eE %olatilit ( The ratio is calc#lated as
Page 23

L Port!olio Ret#rn ,

L Ris& !ree ret#rn,

L Port!olio 8eta

=here, R L asset or port!olio reali@ed ret#rnG T L tar"et or re>#ired rate o! ret#rn !or the in%estment strate" #nder consideration 2R L downside ris&

ID P:E RATIO The PNE ratio BpriceFtoFearnin"s ratioC o! a stoc& is a meas#re o! the price paid !or a share relati%e to the ann#al income or pro!it earned * the !irm per share(

The price per share Bn#meratorC is the mar&et price o! a sin"le share o! the stoc&( The earnin"s per shareBdenominatorC is the net income o! the compan !or the most recent 12 month period, di%ided * n#m*er o! shares o#tstandin"( /D PORTFOLIO TURNO5ER RATIO The Port!olio T#rno%er ratio shows how acti%el a scheme has *een mana"ed in a partic#lar ear( It is the a""re"ate %al#e o! p#rchases or sales o! in%estments d#rin" the ear, eApressed as a percenta"e o! a%era"e wee&l net assets( JD E4PENSE RATIO The EApense ratio helps to shed li"ht on a !#ndKs e!!icienc and cost e!!ecti%eness( It is the ratio o! total rec#rrin" eApenses to the a%era"e net assets( *)D DI5IDEND YIELD The "ross ield is a si"ni!icant indicator o! m#t#al !#nd in%estment characteristics( **D TOTAL REURNS
Page 27

The most common wa to tell how well a !#nd per!ormed is to chec& its total ret#rn, which incl#des the impact o! appreciation o! its %al#e and di%idends, i! an ( TRL 2istri*#tions M Chan"e in N)N)- at the *e"innin" o! the period

B9raph ta&en !rom m#t#al!#ndsindia(comC The ris& ret#rn tradeFo!! indicates that i! in%estor is willin" to ta&e hi"her ris& then correspondin"l he can eApect hi"her ret#rns and %ise %ersa i! he pertains to lower ris&

instr#ments, which wo#ld *e satis!ied * lower ret#rns( ( Th#s in%estors choose m#t#al !#nds as their primar means o! in%estin", as M#t#al !#nds

pro%ide pro!essional mana"ement, di%ersi!ication, con%enience and li>#idit ( That doesnKt mean m#t#al !#nd in%estments ris& !ree( This is *eca#se the mone that is pooled in are not in%ested onl in de*ts !#nds which are less ris&ier *#t are also in%ested in the stoc& mar&ets which in%ol%es a hi"her ris& *#t can eApect hi"her ret#rns( 0ed"e !#nd in%ol%es a %er hi"h ris& since it is mostl traded in the deri%ati%es mar&et which is considered %er %olatile(
Page 2/

Re.at$-"'%$= ?et1ee" Ret &" a"! R$'#:

B:i"#re ta&en !rom the we*site m#t#al!#ndsindia(comC In the a*o%e "raph it shows that as the standard de%iation increases, the ret#rns !rom the partic#lar t pe o! !#nd increases(

8., MUTUAL FUND ANALYSIS

Page 23

:rom the learnin" "ot !rom the !#nd ho#ses as well as M#t#al :#nd distri*#tors the selection o! !#nds is mainl *ased on the !ollowin" criteria1 F "!' O?@e0t$>e Net A''et 5a. e CNA5D A''et U"!e& Ma"a2e3e"t CAUMD Rat$-' o S%a&=e Rat$o Sta"!a&! De>$at$-" o Beta o A.=%a o T&e9"-& Rat$o R+SA a&e! Ret &"' o * Yea& o 8 Yea& o < Yea& o S$"0e I"0e=t$-" o F "! Ma"a2e&' Pe&B-&3a"0e.

Details of Mutual Funds and their constitution.

Page 2?

A' -" 8*'t 3a&0% ()*8

O1"e&'%$= F-&e$2"+ D-3e't$0 + S=-"'-&

)8N )MRO M#t#al :#nd

Pri%ate

?/R,

2/R

)8N

)MRO

)sset

Mana"ement B)siaC 4td( 8enchmar& M#t#al :#nd Pri%ate 0R, 100R Niche :inancial $er%ices

Pri%ate 4td 8irla M#t#al :#nd :orei"n J- /0R, /0R $#n 4i!e BIndiaC Inc(, )MC 8irla

In%estments

9lo*al :inance 4td 8O8 M#t#al :#nd P#*lic 0R, 100R 8an& o! 8aroda

Can*an& M#t#al :#nd 28$ Chola M#t#al :#nd 2e#tsche M#t#al :#nd

P#*lic Pri%ate Pri%ate

0R,

100R

Canara 8an& Cholamandalam :inance 4td( 2e#tsche 28$ )sset

3?(75R, 32(/2R 100R, 0R 30R

2$P Merrill 4 nch M#t#al :#nd :orei"n J- 70R,

Mana"ement B)siaC 4imited 2$P Merrill 4 nch 4td, 0M< In%estment P%t( 4td(, )2I<O In%estment P%t(

Escorts M#t#al :#nd :idelit M#t#al :#nd :ran&lin 02:C M#t#al :#nd 0$8C M#t#al :#nd

Pri%ate Pri%ate

0R,

100R

4td( Escorts :inance 4td :idelit Internal In%estment )d%isors :ran&lin Reso#rces, Inc( 02: Corporation 4td 0$8C $ec#rities and

100R, 0R 2/R 100R 100R

:orei"n J- ?/R, Pri%ate Pri%ate 0R, FF

Page 25

Capital IN9 M#t#al :#nd :orei"n J- 5/(35R, 17(32R

Mar&ets

BIndiaC

Pri%ate 4imited National Nederlanden Inter!inance 9ro#pC,IN9 8(- s a BIN9 8an&

4td(, <irti E>#ities P%t( 4td( JM :inancial M#t#al :#nd Pri%ate 0R, 100R BMehta J(M :inancial Cons#ltanc $er%ices Pri%ate 4td, J(M <ota& M#t#al :#nd 4IC M#t#al :#nd Pri%ate P#*lic 0R, 0R, 100R 100R $hare D $toc& 8ro&ers 4td( <ota& Mahindra :inance 4td 4i!e Ins#rance Corporation o! India Mor"an $tanle M#t#al :#nd Principal M#t#al :#nd Pr#dential ICICI M#t#al :#nd ;#ant#m M#t#al :#nd Reliance M#t#al :#nd $ahara M#t#al :#nd $8I M#t#al :#nd $tan Chartered M: $#ndaram M#t#al :#nd Tata M#t#al :#nd Ta#r#s M#t#al :#nd :orei"n J- ?/R, Pri%ate 3/R, 2/R 3/R 7/R 100R 100R 100R 33R 2/R 100R 100R 100R Mor"an $tanle 2ean =itter D Compan Principal :inancial $er%ices Inc( Pr#dential plc, ICICI 8an& ;#ant#m )d%isors Pri%ate 4imited Reliance Capital 4td $ahara Ind :in( Corporation 4td $8I, $ociete 9enerale )M $tandard Chartered 8an& $#ndaram :inance 4td Tata In%estCorp 4td, Tata $ons 4td 08 Port!olio 4td

:orei"n J- //R, Pri%ate Pri%ate Pri%ate P#*lic Pri%ate 0R, 0R, 0R 3?R, 0R,

:orei"n J- ?/R, :orei"n J- 0R, Pri%ate 0R,

Page 26

,TI ,TI M#t#al :#nd

P#*lic P#*lic

100R 0R,

0R 100R

,TI $8I, 4IC, PN8, 8an& o!

8aroda B $o#rce1 we*site m#t#al!#ndsindia(comC

B$o#rce1 we*site m#t#al!#ndsindia(comC

Recommendations re"ardin" the !#nd selection dependin" #pon the ris& o! the in%estor1 De?t F "!' a"! ?-"! B "!' a&e =&eBe&&e! $" .-1 &$'#F .-1 &et &" '0e"a&$-: 0owe%er, the *ond !#nds !aces interest rate ris& (Income ris& is the possi*ilit that a !iAed Income !#ndKs di%idends will decline as a res#lt o! !allin" o%erall interest rates( There ha%e *een instances o! in%estors loc&in" in de*t or income !#nd( The on seein" how ret#rns pa #p h#"e eAit loads and "et o#t o! s#ch schemes( 0ence, it is %er important that in%estors !irst meas#re their ris& appetite( Once the #nderstand their ris& tolerance le%el the can choose the appropriate in%estment %ehicle( F-& t%-'e 1$..$"2 t- ta#e %$2% &$'#'F eA $t9 a"! 'e0t-& B "!' a&e t%e =$0#': $ector !#nds limit their stoc& selection to the speci!ic sectors and are not ampl di%ersi!ied( $ince all the stoc&s are restricted to a partic#lar sector li&e :MC9, pharma, or ci%il, i! the sector ta&es a *eatin", the ret#rns will *e directl impacted( E>#it :#nds in%est wholl in the stoc& mar&ets( The ha%e the same %olatilit as the in%estments in the stoc& mar&et( Ba.a"0e F "!' a&e a 2--! a.te&"at$>e B-& t%-'e 1%- 'ee# '-3et%$"2 ?et1ee" %$2% &$'# 'e0t-& B "!' a"! .-1 &$'# ?-"! B "!': *alanced !#nds in%est 50 to 60 percent o! their mone in e>#it instr#ments and "enerate decent ret#rns( The remainin" mone is loc&ed in sa!e de*t instr#ments( In%estors sho#ld *#ild a well di%ersi!ied port!olio( CHAPTER ,: EA $t9 Ma&#et $" C-3=a&$'-" 1$t% M t a. B "!

Capital mar&ets are the mar&ets !or the lon" term !#nds( It enhances capital !ormation, which has a %er si"ni!icant role to pla in the de%elopment o! an econom ( P&$3a&9 Ma&#et is a place where new o!!erin"s * Companies are made either as an Initial P#*lic O!!erin" BIPOC or Ri"hts Iss#e(

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 Se0-"!a&9 Ma&#et is a mar&et where sec#rities are traded a!ter *ein" initiall o!!ered to the p#*lic in the Primar Mar&et andNor listed on the $toc& EAchan"e( Ma'orit o! tradin" is done in this mar&et which comprises o! e>#it mar&et and de*t mar&et( )s the

secondar mar&et is created !or the sec#rities raised in the primar mar&ets, the depth o! the secondar mar&et depends #pon the primar mar&ets( IndiaKs !inancial mar&et *e"an its trans!ormation path in the earl 1660s( The *an&in" sector witnessed sweepin" chan"es, incl#din" the elimination o! interest rate controls, red#ctions in reser%e and li>#idit re>#irements and an o%erha#l in priorit sector lendin"( Persistent e!!orts * the Reser%e 8an& o! India BR8IC to p#t in place e!!ecti%e s#per%ision and pr#dential norms since then ha%e li!ted the co#ntr closer to "lo*al standards( )ro#nd the same time, IndiaKs capital mar&ets also *e"an to sta"e eAtensi%e chan"es( The Se0 &$t$e' a"! E;0%a"2e B-a&! -B I"!$a CSEBID was esta*lished in 1662 with a mandate to protect in%estors and #sher impro%ements into the microstr#ct#re o! capital mar&ets, while the repeal o! the Controller o! Capital Iss#es BCCIC in the same ear remo%ed the administrati%e controls o%er the pricin" o! new e>#it iss#es( :or o%er a cent#r , IndiaKs capital mar&ets, which consist primaril o! de*t and e>#it mar&ets, ha%e increasin"l pla ed a si"ni!icant role in mo*ili@in" !#nds to meet p#*lic and pri%ate entitiesK !inancin" re>#irements( The ad%ent o! eAchan"eFtraded deri%ati%e instr#ments in 2000, s#ch as options and !#t#res, has ena*led in%estors to *etter hed"e their positions and red#ce ris&s( In total, IndiaKs de*t and e>#it mar&ets were e>#i%alent to 130R o! 92P at the end o! 200/( This is an impressi%e stride, comin" !rom '#st ?/R in 166/, s#""estin" iss#ersK "rowin" con!idence in mar&et *ased !inancin"( 0owe%er, the si@e o! the co#ntr Ks capital mar&ets relati%e to the ,nited $tatesK, Mala siaKs and $o#th <oreaKs remains low, impl in" a stron" catchF#p process !or India( IndiaKs capital mar&ets ha%e eAperienced sweepin" chan"es since the *e"innin" o! the last decade( Its mar&et in!rastr#ct#re has ad%anced while corporate "o%ernance
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has pro"ressed !aster than in man other emer"in" mar&et economies( 8#t still we can sa there is plent o! room !or impro%ement and !#rther re!orms are needed to ma&e India a worldFclass !inancial centre( ,.* EKUITY STOCK SELECTION APPROACHES =hen the o*'ecti%e o! the anal sis is to determine what stoc& to *# and at what price, there are two *asic methodolo"ies1 1. Fundamental Analysis :#ndamental )nal sis is a techni>#e that attempts to determine a sec#rit Ks %al#e * !oc#sin" on #nderl in" !actors that a!!ect a compan Js actual *#siness and its !#t#re prospects( )s with most anal sis, the "oal is to deri%e a !orecast and pro!it !rom !#t#re price mo%ements( To !orecast !#t#re stoc& prices, !#ndamental anal sis com*ines economic, ind#str , and compan anal sis to deri%e a stoc&Js c#rrent !air %al#e and !orecast !#t#re %al#e( I! !air %al#e is not e>#al to the c#rrent stoc& price, !#ndamental anal sts *elie%e that the stoc& is either o%er or #nder %al#ed and the mar&et price will #ltimatel "ra%itate towards !air %al#e(
2( Te0%"$0a. A"a.9'$'

Technical )nal sis maintains that all in!ormation is re!lected alread in the stoc& price, so !#ndamental anal sis is a waste o! time( Trends Jare o#r !riendJ and sentiment chan"es predate and predict trend chan"es( In%estorsJ emotional responses to price mo%ements lead to reco"ni@a*le price chart patterns( Technical anal sis does not care what the J%al#eJ o! a stoc& is( Their price predictions are onl eAtrapolations !rom historical price patterns( In short, :#ndamental )nal sis tells #s which stoc&s to *# , whereas the other Technical )nal sis "i%es #s an indication as to when to *# the stoc&s( In%estors #se *oth these di!!erent *#t somewhat complementar methods !or stoc& pic&in"( Man !#ndamental in%estors #se

technicalKs !or decidin" entr and eAit points( Man technical in%estors #se !#ndamentals to limit
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their #ni%erse o! possi*le stoc& to J"oodJ companies( In m pro'ect I ha%e decided to limit m st#d to onl :#ndamental )nal sis(

Fa0t-&' t- ?e 0-"'$!e&e! 1%$.e 'e.e0t$"2 a St-0# The $election o! a stoc& is "enerall done !rom a threeFdimensional perspecti%e namel 1 A. Qualitative Factors The principal o*'ecti%e o! >#alitati%e anal sis is to identi! ad%anta"es o! each compan s#staina*le competiti%e

and to determine the le%el o! con!idence and con%iction in

corporate mana"ement( The anal sis incl#des e%al#atin" *oth internal and eAternal !actors that ma ha%e an impact on a compan Js a*ilit to sell its prod#ct( It also in%ol%es ha%in" re"#lar open dialo"#e with mana"ement and re"#lar con!erence calls to disc#ss recent de%elopments( The intent is to *e lon"Fterm holders o! the compan one p#rchases( $tron" *elie! in

mana"ement is re>#ired in order to maintain con%iction d#rin" the shortFterm ad%ersities that %irt#all all companies eAperience( The %ario#s >#alitati%e !actors to *e considered are1 I"! 't&9 Ind#str is a "ro#pin" #sed to descri*e a compan Js main *#siness acti%it ( It is "enerall determined * the ma'or so#rce o! a compan Js income( ) hot sector is a sector o! the econom eAperiencin" a hi"her than re"#lar "rowth rate( I! companies across an ind#str show solid earnin"s and re%en#e !i"#res, that ind#str ma *e showin" si"ns that it is in its "rowth phase( O#r "oal is to select sec#rities that area in a hot ind#str (

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S0a.e -B O==-&t "$t9: The tric& lies in identi! in" $ectors which present h#"e scope o! opport#nities( This in%ol%es !indin" sectors whose mar&et cap are wa *e ond that o! the total ind#str ( :or eAample when Mo*ile Telephon was in "rowin" sta"e in India in 2007, 8harti )irtel was tradin" at a mar&et cap o! T ,$ 1(/ *illion a"ainst a total mar&et si@e o! ,$ T 100 *illion( Three ears down the line and we can see the remar&a*le ret#rns "i%en * the stoc&( 9oin" !orward we can estimate the case o! the Indian Retail sector( The Indian Retail mar&et is presentl worth ,$ T 300 *illion and the collecti%e mar&et cap o! the leaders in the listed space was less than 1R in 2003 and is at a similar le%el c#rrentl ( The total share o! or"ani@ed retail has "one #p !rom 2R in 2003 to 3R in 2003 and is estimated to hit 10R * 2010( Compan Pantaloon Retail Titan $hopper $top Trent Total mar&et cap o! listed Retail pla ers T-ta. '$Le -B t%e Reta$. 3a&#et Pe&0e"ta2e t- t%e t-ta. Reta$. Ma&#et Mar&et Capitali@ation ,$ T 1 *illion ,$ T ?/3 million ,$ T 3/5 million ,$ T 233 million ,$ T 2(3? *illion US M 8)) ?$..$-" ).IJN

I"! 't&9 Lea!e&: The top two or three stoc&s in a 't&-"2 $"! 't&9 "ro#p can ha%e incredi*le "rowth, while others in the "ro#p ma *arel mo%e( One sho#ld *# the *est

companies, the ones that lead their sectors and are n#m*er one in their partic#lar !ield( The n#m*er one 3a&#et .ea!e& is not the *i""est one( It is the one with the hi"hest ann#al "rowth,

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earnin" per share, and price relati%e stren"th( ItKs a compan that has competiti%e ad%anta"e o%er its competitors( ) compan that is o!!erin" the *est prod#ct Ma"a2e3e"t: 9reat mana"ement can ma&e a di!!erence *etween an a%era"e *#siness and an eAtraordinar one( O#r "oal as an in%estor is to !ind mana"ement teams that thin& li&e

shareholdersG eAec#ti%es who treat the compan as i! the own a piece o! it( One wa to !ind o#t a*o#t the mana"ement and how m#ch the reall care a*o#t share holders is to chec& the top eAec#ti%eKs compensation plans( C-3=et$t$>e A!>a"ta2e: 9enerall , there are di!!erent wa s that a compan can create s#staina*le competiti%e ad%anta"e1 1( Creatin" a real di!!erent prod#ct 2( Creatin" a stron" *rand 3( <eepin" costs down 7( 4oc&in" in c#stomers * creatin" hi"h switchin" cost /( 4oc&in" o#t competitors

Re'ea&0% a"! De>e.-=3e"t1 One sho#ld consider the !ollowin" >#estions in this respect 2oes the Compan ha%e an thin" in the pipelineO =hat are the Compan Ks technolo"ical capa*ilitiesO Can the Compan *rin" to mar&et new prod#cts in a timel mannerO anal @e the $hareholdin" Pattern o! the

S%a&e%-.!$"2 Patte&"1 One sho#ld care!#ll

Companies( I! the instit#tional holdin" is %er hi"h on can sa that the stoc& is !#ll researched *#t at the same time its #pside is also limited( One sho#ld also trac& Promoter holdin" to see whether promoters in%ol%e in Insider Tradin" or not(

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A"a.9't C->e&a2e1 )nal sts iss#e their recommendations on indi%id#al companies( )nal st co%era"e is #se!#l to "a#"e mar&et consens#s on a stoc& price mo%ement( ) stoc& with no anal st co%era"e co#ld *e a hidden %al#e stoc&( B. K a"t$tat$>e Fa0t-&' These !actors incl#de anal @in" the !inancial statements o! a compan thro#"h Ratio

)nal sis( Ratio anal sis incl#des calc#latin" the %ario#s ratios and interpretin" them in the conteAt o! the compan ( The ratios help as to eAamine the critical parameters o! a compan li&e Pro!ita*ilit , 4i>#idit , -al#ation, 4e%era"e and Price o! the shares( The important ratios #sed !or the p#rpose o! stoc& selection are1 P&$0e+B--# 5a. e CP:B5D E"te&=&$'e 5a. e CE5D E5:EBITDA O=e&at$"2 P&-B$t Ma&2$" COPMD P&$0e: Ea&"$"2' Rat$- CP:ED Beta Ma&#et Ca=$ta.$Lat$-" CMCD PEG Rat$D$>$!e"! =a9- t &at$D$>$!e"! Y$e.! ROCE ROE DEBT EKUITY

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,.8 COMPARISON OF THE STOCK MARKET WITH MUTUAL FUND It is a &nown !act that that m#t#al !#nd in%estments act#all enter into the stoc& mar&et( The ret#rns so partic#larl depend on the per!ormance o! the stoc& mar&et( 8#t then the >#estion arises whether m#t#al !#nds are act#all capa*le o! per!ormin" *etter than the stoc& mar&et( Comparison o! stoc& mar&et with m#t#al !#nd *ecomes an important iss#e and so here in this section I ha%e tried to compare !ew o! the *est m#t#al !#nd schemes with the stoc& mar&et(

1) Comparison of S&p Bse 1

and !"# e$uity 0(0? 0(007/33 0(00/37/ 0(53 0(1/32 0(102/ 0(13/3 0(1203 0(27

%is& free return'assumed) Covariance (ariance Beta Standard deviation Mar&et %eturn Fund %eturn )*pected %eturn usin+ CA,M model Sharp ratio

0ere, !rom the co%ariance and *eta o! 8$E 100 and ,TI E>#it itKs prett clear that "old normall will pro%ide ret#rn e%en i! other mar&et *ased assets do not( ANALYSIS: )!ter Co%ariance o! this m#t#al !#nd with respect to the mar&et is positi%e ( This tells that the mo%ement o! the N)- o! this scheme depends on the mo%ement o! the mar&et( The co%ariance clears the point that the mo%es in the same direction and in parallel with the stoc& mar&et either #pwards or downwards( 8eta o! this partic#lar scheme is %er close to 1 which sa s that this !#nd has a a%era"e well di%ersi!ied port!olio( This means that the port!olio o! this scheme is moderatel a""ressi%e( This !#ndKs ret#rn mo%es in the same direction with respect to the mar&et and with the same intensit as the mar&et(
Page 3?

I! we loo& at the ret#rn o! this !#nd it is clearl o#tper!ormed the mar&et( The ret#rn o! 8$E 100 has !or the period o! 1st :e*r#ar 2013 to ?th March 2017 has *een 10(2/ R( The eApected ret#rn o! this !#nd as per C)PM sho#ld ha%e *een 12(03R( 8#t the !#nds per!ormed and ha%e "i%en an ret#rn o! 13(/3R( The $harpe ratio o! the !#nd is 0(27 which is "ood( This means that !or e%er sin"le #nit o! ris& there is a pro*a*ilit o! earnin" an eAtra ret#rn o! 0(27 #nits(

-) .#F"/ (0S #C#C# ,rudential Dynamic Fund %is& free return'assumed) Covariance (ariance Beta Standard deviation Mar&et %eturn Fund %eturn )*pected %eturn usin+ CA,M model Sharp ratio 0(0? 0(000361 0(00071? 0(53 0(1306 0(1113 0(2003 0(1022 0(22

ANALYSIS : Co%ariance o! this m#t#al !#nd with respect to the mar&et is positi%e ( This tells that the mo%ement o! the N)- o! this scheme depends on the mo%ement o! the mar&et( The co%ariance clears the point that the mo%es in the same direction and in parallel with the stoc& mar&et either #pwards or downwards( 8eta o! this partic#lar scheme is %er close to 1 which sa s that this !#nd has a a%era"e well di%ersi!ied port!olio( This means that the port!olio o! this scheme is moderatel a""ressi%e( This !#ndKs ret#rn mo%es in the same direction with respect to the mar&et and with the same intensit as the mar&et(

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I! we loo& at the ret#rn o! this !#nd it is clearl o#tper!ormed the mar&et( The ret#rn o! NI:T. has !or the period o! 1st :e*r#ar 2013 to ?th March 2017 has *een 11 R( The eApected ret#rn o! this !#nd as per C)PM sho#ld ha%e *een 10(02R( 8#t the !#nds o#tper!ormed and ha%e "i%en an eAcellent ret#rn o! 20(03R( The $harpe ratio o! the !#nd is 0(22 which is "ood( This means that !or e%er sin"le #nit o! ris& there is a pro*a*ilit o! earnin" an eAtra ret#rn o! 0(22 #nits(

1) S&, BS) Sense* (s Fran&lin #ndia Bluechip Covariance Mar&et (ariance Beta S". dev %is& free return'Assumed) Mar&et return Fund return )*pected return usin+ Capm Model Sharp ratio 0(00033? 0(000/23 0(53 0(1/35 0(0? 0(1273 0(223? 0(155/73 2

ANALYSIS : Co%ariance o! this m#t#al !#nd with respect to the mar&et is positi%e ( This tells that the mo%ement o! the N)- o! this scheme depends on the mo%ement o! the mar&et( The co%ariance clears the point that the mo%es in the same direction and in parallel with the stoc& mar&et either #pwards or downwards( 8eta o! this partic#lar scheme is less than 1 which sa s that this !#nd has a *elow a%era"e %olatilit ( This means that the port!olio o! this scheme is less a""ressi%e( This !#ndKs ret#rn mo%es in the same direction with respect to the mar&et *#t not with the same intensit as the mar&et( I! we loo& at the ret#rn o! this !#nd it is clearl o#tper!ormed the mar&et( The ret#rn o! 8$E $enseA has !or the period o! 1st :e*r#ar 2013 to ?th March 2017 has *een 12(73 R( The

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eApected ret#rn o! this !#nd as per C)PM sho#ld ha%e *een 15(5/R( 8#t the !#nd o#tper!ormed and has "i%en an eAcellent ret#rn o! 22(3?R( The $harpe ratio o! the !#nd is hi"h i(e( 2 which is eAcellent( This means that !or e%er sin"le #nit o! ris& there is a pro*a*ilit o! earnin" an eAtra ret#rn o! 2 #nits( Th#s the ris& ret#rn trade o!! with this stoc& is satis!actor ( 2) BS) (0S SB# Ma+num Comma 3ro4th Fund 0(000313 0(000/23 0(60 0(1562 0(0? 0(1005 0(2012 0(130/ F0(?2

Covariance (ariance Beta Stdev %is& free %eturn' Assumed) Mar&et return Fund return )*pected return usin+ CA,M Model Sharpe ratio

ANALYSIS : Co%ariance o! this m#t#al !#nd with respect to the mar&et is positi%e ( This tells that the mo%ement o! the N)- o! this scheme depends on the mo%ement o! the mar&et( The co%ariance clears the point that the mo%es in the same direction and in parallel with the stoc& mar&et either #pwards or downwards( 8eta o! this partic#lar scheme is less than 1 which sa s that this !#nd has a *elow a%era"e %olatilit ( This means that the port!olio o! this scheme is less a""ressi%e( This !#ndKs ret#rn mo%es in the same direction with respect to the mar&et *#t not with the same intensit as the mar&et( I! we loo& at the ret#rn o! this !#nd it is clearl o#tper!ormed the mar&et( The ret#rn o! $EN$E+ has !or the period o! 1st :e*r#ar 2013 to ?th March 2017 has *een 11 R( The eApected ret#rn o! this !#nd as per C)PM sho#ld ha%e *een 13(0/R( 8#t the !#nds o#tper!ormed and ha%e "i%en an eAcellent ret#rn o! 20(12R(

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The $harpe ratio o! the !#nd is hi"h i(e( F0(?2which is to *e considered o&( This means that !or e%er sin"le #nit o! ris& there is a pro*a*ilit o! earnin" an eAtra ret#rn o! 0(?2 #nits( Th#s the ris& ret#rn trade o!! with this stoc& is satis!actor (

CHAPTER <: C-"0. '$-" a"! S 22e't$-"' :rom the a*o%e st#d it can *e !inall concl#ded that the m#t#al !#nd ind#str in India is "rowin" in India *eca#se to the *ris& "rowth o! the capital mar&et( Most o! the !#nds mo*ili@ed * %ario#s )MCs are act#all p#mped into the capital mar&et( The per!ormance o! m#t#al !#nds act#all depends in the per!ormance o! the stoc& mar&et( =e ha%e seen in the recent past that the the per!ormance o! the m#t#al !#nd ha%e *een impressi%e *#t the !#t#re "rowth will still depend on the capital mar&et *eha%es( Ris& element alwa s eAists in m#t#al !#nd in%estment as the do not "#arantee an s#re shot ret#rns( 8#t an in%estor can consider his ris& *ein" minimi@ed as he "ets the eApertise o! !#nd mana"ers and since the in%estments made * !#nd ho#ses are in lar"e amo#nts the cost o! in%estments also "ets red#ced( The top 10 R o! the schemes that ha%e per!ormed the *est are mostl the e>#it di%ersi!ied schemes( This eAplains the dependencies o! ret#rns are on e>#ities( There is no den in" the !act that the ret#rns ha%e also "one down as and when the stoc& mar&ets ha%e !ell( 2i%ersi!ication o! in%estments * )MCs has *een the &e o! their s#ccess in India( <.( FINDINGS The &e !indin"s o! the !ollowin" st#d ha%e *een hi"hli"hted *elow1 1C In%estments in e>#it di%ersi!ied m#t#al !#nds are hea%il depended on m#t#al and th#s the ris& in%ol%ed is %er hi"h(

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2C The ris& ret#rn trades o!! in m#t#al !#nds ha%e *een %er satis!actor ( E>#it "rowth schemes ha%in" hi"h ris& ha%e "enerated a ret#rn in a ran"e o! 30R to 70R, whereas the de*t !#nds those ha%e relati%el low ris& ha%e "i%en a moderate ret#rn o! 3R to 5R( 3C M#t#al :#nd in%estments do not "#rantee an !iAed ret#rns which mi"ht create !ear in the minds o! ris& !ree in%estors( <.8 SUGGESTIONS :rom the a*o%e st#d the !ollowin" recommendations can *e "i%en to an in%estor( 1C :or in%estors willin" to ta&e hi"h ris&s, e>#it and sector !#nds are the pic&s1 2C 8alance :#nds are a "ood alternati%e !or those who see& somethin" *etween hi"h ris& sector !#nds and low ris& *ond !#nds( 3C 2e*t :#nds and *ond !#nds are pre!erred in low ris&, low ret#rn scenario( 7C $alaried persons earnin" a !iAed salar can "o !or $ stematic In%estment Plan B$IPC( <., LIMITATIONS OF THE STUDY 1C 2C The time hori@on is %er short, so in depth anal sis co#ld *e done onl o! !ew schemes( The pro'ect is dependent on the rele%ance o! the secondar data Be", !actsheets o! %ario#s schemes and in%estments %ehicles o! di!!erent companiesC collected !rom the internet which mi"ht not *e correct( 3C The st#d has *een done on onl a hand!#l o! schemes so it cannot *e "enerali@ed to the entire ind#str ( 7C The internal in!ormation a*o#t the creation o! %ario#s asset classes and !ormation was not re%ealed to the internees( <.< FURTHER SCOPE OF THE STUDY

There is lot o! scope !or impro%ement in the research !or e%al#atin" m#t#al !#nd per!ormances(

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1C -ario#s other m#ltiFcriteria decision models co#ld *e tested !or e%al#atin" m#t#al !#nd per!ormances( 2C Testin" o! !#nd per!ormances in the lon" r#n can *e done( 3C EAtended sample o! p#*licFsector sponsored, pri%ateFsector Indian sponsored and pri%ateFsector !orei"n sponsored m#t#al !#nds can *e ta&en !or "eneratin" res#lts( Port!olio ris& thro#"h the meas#re o! %al#e at ris& B-aRC can also *e tested !or di!!erences in m#t#al !#nd classes( 7C M#t#al !#nd schemes #sed can *e o! %aried class s#ch as *alanced !#nd , mone mar&et !#nd , sectoral !#nds etc( /C 0 pothesis testin" can also *e done to predict the !#t#re per!ormance o! an scheme( REFERENCES 1) Tripathy Nalini Prava Mutual Funds in India !"er#in# Issues$ %&l ' 1 ( ())*) + 1(,-1./ () Riter+0ay+R111/+ The 2uyin# and sellin# 2ehavi&r &f individual invest&rs at the turn &f the year+ 3&urnal &f finance 4,+ *)1-*1* ,) Fra55ini 6ndrea+ Du"2 M&ney7 Mutual Fund fl&8s as the cr&ss-secti&n &f st&c9 returns$+ N:FM;s 6MFI Material &n "utual funds(8&r92&&9) 4) Nalini Pra2ha Tripathy + Mar9et Ti"in# 62ilities and Mutual Fund Perf&r"ance6n !"pirical Investi#ati&n int& !<uity =in9ed Savin# Sche"es$ (())>) ?IM@ 0&urnal &f "ana#e"ent +%ila9shan+ 6pril ()) +pp >-/ .) Fact Sheets Af different 6M:s BIBLIOGRAPHY 1) 0aidev M + Invest"ent p&licy and perf&r"ance &f Mutual Fund$
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() ,) 4) .) >)

Sada9 B Mutual Funds in India$ Pandey I M + Financial Mana#e"ent$ Da"&daran 6s8anth :&rp&rate Finance$ Tripathy Nalini Prava Mutual Funds in India !"er#in# Issues$ Pan8ar Sharad and Madhu"athi R :haracterstics and Perf&r"ance &f selected

"utual funds in India $ *) Fra55ini 6ndrea+ Du"2 M&ney7 Mutual Fund fl&8s as the cr&ss-secti&n &f st&c9

returns$+ N:FM;s 6MFI Material &n "utual funds(8&r92&&9) /) San9aran Sundar+ Mutual fund Band2&&9 +6 #uide f&r distri2ut&rs and

intelli#ent invest&rs$ 1) 1)) 11) a 2 c d e f # h i 3 6MFI M&dule Fund factsheet Af vari&us Sche"es C!@SIT!S7 888 valueresearch&nline c&" 888 "&neyc&ntr&l c&" 888 a"fiindia c&" 888 2seindia c&" 888 indiainf&line c&" 888 "yiris c&" 888 "utualfundindia c&" 888 nseindia c&" 888 capitaline c&" 888 capital"ar9et c&"

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