CONTENTS

 ACKNOWLEDGEMENT
 EXECUTIVE SUMMARY
 CONCEPT OF MUTUAL FUND
 FREQUENTLY USED TERM
 WHY MUTUAL FUND
 DISADVANTAGES OF INVESTING IN MUTUAL FUND
 TYPES OF MUTUAL FUND SCHEME
 RISK ASSOCIATED WITH MUTUAL FUND
 HISTORY OF MUTUAL FUND
 STRUCTURE OF MUTUAL FUND IN INDIA
 MUTUAL FUND INVESTMENT PLANS AND SERVICES
 PERFORMANCE MEASURE OF MUTUAL FUNDS
 FUND DISTRIBUTION AND SALES PRACTICE
 COMPARATIVE ANALYSIS OF MUTUAL FUND
 HYPOTHESIS
 NEED OF THE STUDY
 RESEARCH METHODOLOGY
 OBSERVATION
 LIMITATION OF THE STUDY
 CONCLUSION
 BIBLIOGRAPHY
 ANNEXURE
 ACKNOWLEDGEMENT

My debt for assistance in making this project report are numerous than can be identified
here. This whole effort is a result of the guidance, assistance and inspiration of several
people who have helped me throughout this study and preparation of the report. I feel
greatly honored to express my indebtedness and profound gratitude to Mr. Abhinav
Tyagi (centre manager), under whose guidance his project was undertaken. His
assistance , encouragement , inspiration and various suggestion right from the very
beginning of this project to its accomplishment has helped me to prepare a more realistic
report in a limited period , which otherwise would have been difficult. I am also indebted
to Mr.Gaurav Gupta (cluster head) who has provided me all the help and motivation in
the successful completion of this project study.

I shall be failing in duty if I don’t express my sincere gratitude to all respondents of my

survey who lent me their valuable time and provided me with all the necessary
information. Last but not the least, my thanks to all those loving hearts that directly or
indirectly helped me in my project study.

GIRISH SHARMA
 EXECUTIVE SUMMARY

I underwent my summer training in Reliance Money which is the part of the Reliance
capital Pvt. Ltd. During the course of my summer training, I was assigned to work on a
project titled “Mutual Funds Industry in India and its comparative analysis.” This
project study dealt with the servicing standards of various fund houses and the
performance put in them over the period since their inspection. The idea was to evaluate
the performance of Reliance Mutual Fund relative to other established players.

Reliance Money is a comprehensive financial services and solutions provider. Its

endeavor is to change the way India transacts in financial markets and avails financial
services.

Reliance Money is a group company of Reliance Capital - one of India's leading and
fastest growing private sector financial services companies, ranking among the top 3
private sector financial services and banking companies in terms of net worth.

There are so many financial products in Reliance Money like Demat A/C, Mutual Funds,
Life insurance, FII’s etc. but out of these I have chosen Mutual funds. The idea as I have
already said was to find out how Reliance Mutual Fund fared relative to other established
players without even having a proper set-up for a good 10 month since its inception.
 PREFACE

Every great work always involves a source of inspiration and a dedicated efforts and this
project is my level best efforts to attain the objective.

Any education is incomplete without including the practical aspects of education as you
can never serve the purpose of education without having the practical knowledge about it
and management education is not an exception to it. Summer training is an integral part
of management education. This practical exposure helps develops the much needed skills
and aptitude of which students can easily take advantage in main course of work.

I had the privilege of receiving my practical training in Reliance Money which is a part of
Reliance Capital Pvt. Ltd. a leader in Mutual Fund, Life and General insurance, Stock
Broking, distribution of financial product, consumer finance and other activities in
financial services.

During the training I was allotted the project on the “Mutual Funds Industry and its
Comparative Analysis”. I have done my level efforts to attain the objective of the project.
 CONCEPT OF MUTUAL FUND

A mutual fund is a trust or a pool that can manage by a fund manager. The money thus
collected is then invested in capital market instrument such as shares, debenture and other
securities. The income earned through these investments and the capital appreciation
realized is shared by its unit holder in proportion to the number of unit owned by them.
Thus a mutual fund is the most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed basket of securities at a
relatively low cost. The flow chart broadly describes the working of Mutual Fund.

Fund
Investor
Manager

Return Securities

A mutual fund is the ideal investment vehicle for today’s complex and modern scenario.
Markets for equity shares, bonds and other fixed income instruments, real estate,
derivatives and other assets have become mature and information driven. A mutual fund
is the answer of 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. Today’s mutual funds collectively manage
almost as much as or more as compared to banks.
A draft offer document is to prepared at the time of launching the fund. Typically, it pre
specifies the investment objectives of the fund, the risk associated, the cost involved in
the process and the broad rules for entry in to and exit from the fund and other areas of
operation. In India, as in most countries, these sponsors need approval from a regulator,
SEBI in our case. SEBI looks at track records of the sponsor and its financial strength in
granting approval to the fund for commencing operation.
 FREQUENTLY USED TERM

Net asset value (NAV)

Net asset value is the market value of the assets of the scheme minus its liabilities. The
per unit NAV is the net assets value of the schemes divided by the number of units
outstanding on the valuation date.

Sales price

Is the price you pay when you invest in a scheme. Also called offer price.

Redemption price

Is the price at which the open ended scheme repurchase their units and close ended
scheme redeem their units on maturity

WHY MUTUAL FUND

Mutual funds are becoming a very popular form of investment characterized by many
advantages that they share with other forms of investment. Mutual fund route offer
several important advantages:

1. Diversification: A proven principle of sound investment is that of diversification

which is the idea of not putting all your legs in one basket. By investing in many
companies the mutual fund protect themselves from unexpected drop in value of
some shares.
2. Expertise Supervision: Making investment is not a full time assignment of investors.
So they have a professional attitude towards their investment. When investor buy
mutual fund scheme, an essential benefit one acquire is expert management. The
money invested by the investor is managed by the fund manager and take important
decision like what investment are to be sold , and the most appropriate decision as the
timing of buy & sell.

3. Liquidity of investment: Often, investors hold shares or bond they can not sell
directly, easily and quickly sell. Investment in a mutual fund, on the other hand, is
more liquid. An investor can liquidate the investment, by selling the units of the fund
if open-end, or by selling them in the market if the fund is close-end, and collect fund
at the of the period specified by the mutual fund or the stock market.

4. Convenience and flexibility: Mutual fund management companies offer many

investor services that a direct market investor cannot get. Investors can easily transfer
their holding from one scheme to the other; get updated market information, and so
on.

5. Tax Benefits: Some mutual fund scheme offer you tax benefit under section 80c. In
addition your returns from mutual funds (dividend and capital appreciation) are also
eligible for favourable tax treatment.

6. Low costs: Mutual funds are relatively less expensive way to invest compared
directly investing in the capital markets because the benefits of scale in brokerage,
custodial and other fees translate in to lower costs for investors.

7. Well regulated: All mutual fund are registered with SEBI and they function within
the provisions of strict regulations designed to protect the interest of investors. The
operation of mutual funds is regularly monitored by SEBI.
 DISADVANTAGE OF INVESTING THROUGH MUTUAL FUNDS

While the benefits of investing through mutual funds far outweigh the disadvantage, an
investor and his advisor will do to be aware of shortcomings of using the mutual funds as
investment vehicles.
 No control over costs: An investor in a mutual fund has no control over the
overall cost of investing. He pays investment management fees as long as he
remains with the fund. Fees are usually payable as a percentage of the value of
investment, whether the fund value is rising or declining. A mutual fund also
pays fund distribution costs, which he would not incur in direct investing.
 Managing a portfolio of funds: Availability of a large number of funds can
actually mean too much choice for the investor. He may again need advice on
how to select a fund to achieve his objective, quite similar to the situation
when he has to select individual shares or bonds to invest in.
Mutual funds Vs Banks

BANKS MUTUAL FUNDS

Returns Low Better

Administrative exp. High Low
Risk Low Moderate
Investment option Less More
Network High penetration Moderate
Liquidity At a cost Better
Quality of assets Not transparent Transparent
Guarantee Maximum Rs. 1 lakh on None
deposits

TYPE OF MUTUAL FUNDS SCHEME

BY INVESTMENT OBJECTIVE

 Equity /Growth Scheme

 Debt /Income Scheme
 Sector Specific Scheme
 Balanced funds
 Money market funds
 Real state funds
 Equity linked saving scheme(ELSS)

BY STRUCTURE

 Open-ended scheme
 Close-ended scheme
Equity / Growth Scheme
 The aim of growth funds is to provide capital appreciation over the medium to long-
term. Such schemes normally invest a major part of their corpus in equities. Such
funds have comparatively high risks. These schemes provide different options to the
investors like dividend option, capital appreciation, etc. and the investors may choose
an option depending on their preferences. The investors must indicate the option in
the application form. The mutual funds also allow the investors to change the options
at a later date. Growth schemes are good for investors having a long-term outlook
seeking appreciation over a period of time

Debt / Income scheme

The aim of income funds is to provide regular and steady income to investors. Debt
funds invest in debt instrument issued not only by governments, but also by private
companies, banks and financial institutions and other entities such as infrastructure
companies. Such funds are less risky compared to equity schemes. These funds are not
affected because of fluctuations in equity markets. However, opportunities of capital
appreciation are also limited in such funds. The NAVs of such funds are affected
because of change in interest rates in the country. If the interest rates fall, NAVs of
such funds are likely to increase in the short run and vice versa. However, long term
investors may not bother about these fluctuations. 

Sector Specific Scheme

These are the funds/schemes which invest in the securities of only those sectors or
industries as specified in the offer documents. E.g. Pharmaceuticals, Software, Fast
Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds
are dependent on the performance of the respective sectors/industries. While these
funds may give higher returns, they are more risky compared to diversified funds.
Investors need to keep a watch on the performance of those sectors/industries and must
exit at an appropriate time. They may also seek advice of an expert.
Real state funds
Specialized Real Estate Funds would invest in Real Estate directly, or may fund real
estate developers, or lend to them, or buy share of housing finance companies or may
even buy their securitized assets.
Balanced funds
A balanced fund is one that has a portfolio comprising debt instruments, convertible
securities, and preference and equity shares. Their assets are generally held more or
less equal proportions between debt/money market securities and equities. By
investing in a mix of nature, balanced funds seek to attain the objectives of income,
moderate capital appreciation and preservation of capital, and are ideal for the
investors with a conservative and long- term orientation.

 Money Market funds

These schemes invest in debt securities of a short-term nature, which generally means
securities of less than one-year maturity. The typical short-term interest-bearing
instruments these funds invest in Treasury Bills, Certificates of Deposit, Commercial
Paper and Inter-Bank Call Money Market.
Equity linked saving schemes
In India, the investors have been given tax concessions to encourage them to invest in
equity markets through these special schemes. Investment in this scheme entitles the
investor to claim an income tax rebate, but usually has a lock in period before the end
of which funds can not be withdrawn. These funds are subject to the general SEBI
investment guidelines for all equity funds and would be in the diversified equity fund
category.
Open-ended scheme
As the name implies the size of the scheme is open-i.e., not specified or pre-
determined. Entry to this fund is always open to the investors who can subscribe at any
time. An investor can buy or redeem units from the funds itself at a price based on the
net asset value.
Close-ended scheme
Unlike an open-end fund, the unit capital of a closed-end fund is fixed, as it makes a one
time sale of a number of units. Closed-end funds do not allow investors to buy or redeem
units directly from the funds. However, to provide the much- needed liquidity to
investors, many closed-end funds get themselves listed on a stock exchange. Trading
through a stock exchange enables investors to buy or sell units of a closed-end mutual
fund from each other, through a stockbroker, in the same fashion as buying or selling
shares of a company.

RISKS ASSOCIATED WITH MUTUAL FUNDS

Investing in Mutual Funds, as with any security, does not come without risk. One of the
most basic economic principles is that risk and reward are directly correlated. In other
words, the greater the potential risk the greater the potential return. The types of risk
commonly associated with Mutual Funds are:

1) Market risk: Market risk relates to the market value of a security in the future. Market
prices fluctuate and are susceptible to economic and financial trends, supply and demand,
and many other factors that cannot be precisely predicted or controlled.

2) Political risk: Changes in the tax laws, trade regulations, administered prices, etc are
some of the many political factors that create market risk. Although collectively, as
citizens, we have indirect control through the power of our vote individually, as investors,
we have virtually no control.

3) Inflation risk: Interest rate risk relates to future changes in interest rates. For instance,
if an investor invests in a long-term debt Mutual Fund scheme and interest rates increase,
the NAV of the scheme will fall because the scheme will be end up holding debt offering
lower interest rates.
4) Business risk: Business risk is the uncertainty concerning the future existence,
stability, and profitability of the issuer of the security. Business risk is inherent in all
business ventures. The future financial stability of a company cannot be predicted or
guaranteed, nor can the price of its securities. Adverse changes in business circumstances
will reduce the market price of the company’s equity resulting in proportionate fall in the
NAV of the Mutual Fund scheme, which has invested in the equity of such a company.

5) Economic risk: Economic risk involves uncertainty in the economy, which, in turn,
can have an adverse effect on a company’s business. For instance, if monsoons fail in a
year, equity stocks of agriculture-based companies will fall and NAVs of Mutual Funds,
which have invested in such stocks, will fall proportionately.
 HISTORY OF MUTUAL FUND

The mutual fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the Reserve bank and the Government of India. The objective
then was to attract the small investors and introduce them to market investment. Since
then the history of mutual funds in India can be broadly divided in to three distinct
phases

Phase 1-1964-87 (unit trust of India)

In 1963, UTI was established by an act of parliament and given a monopoly.

Operationally, the UTI was set by the reserve bank of India, but was later de-linked from
the RBI. The first and still one of the largest schemes, launched by UTI was unit scheme
1964. Over the years, US-64 attracted, and probably still has, the largest number of
investors in a single investment scheme. It was also at least partially the first open-end
scheme in the country, now moving towards becoming fully open-end.

Later in 1970s and 80s, UTI started innovating and offering different scheme to suit the
need of different classes of investors. Unit linked insurance plan was launched in 1971.
Six new schemes were introduced between 1981 and 1984. During 1984-87 new scheme
like children’s gilt growth fund (1986) and mastershare (1987) were launched.
Mastershare could be termed as the first diversified equity investment scheme in India.

1987-88
Amount mobilized Assets under management
(Rs. Crores) (Rs. Crores)

UTI 2,157 6,700

Total 2,157 6,700
Phase 2- 1987-1993(Entry of Public Sector Fund)

1987 marked the entry of non-UTI, public sector mutual funds, bringing in competition.
With the opening up of the economy, many public sector banks and financial institutions
were allowed to establish mutual funds. The state bank of India established the first non-
UTI mutual fund-SBI mutual fund-in November 1987. This was followed by Canbank
mutual fund,(launched in December, 1987), LIC mutual fund(1989),and Indian bank
mutual fund(1990) followed by bank of India mutual fund,GIC mutual fund and PNB
mutual fund. From 1987 to 1992-93, the fund industry expanded nearly seven times in
terms of Assets under Management, as seen in the following figure:

1992-93
Amount Mobilized Assets Under Management
(Rs. Crores) (Rs. Crores)

UTI 11,057 38,247

Public sector 1,964 8,757

Total 13,021 47,004

During this period, investors were shifting away from bank deposit to mutual funds, as
they started allocating larger part of their financial assets and saving to fund
investments. UTI was still the largest segment of the industry, although with nearly 20%
market share ceded to the public sector funds.

Phase 3-1993-1996 (Emergence of Private Funds)

A new era in the mutual fund industry began with the permission granted for the entry of
private sector funds in 1963, giving the Indian investors a broader choice of fund
families and increasing competition for the existing public sector funds. During the year
1993-94, five private sector mutual funds launched their scheme followed by six others
in 1994-95. Initially, the mobilization of funds by the private mutual funds was slow.
But, this segment of the fund industry now has been witnessing much greater investor
confidence in them.

Phase 4-1996 (SEBI Regulation for Mutual Funds)

The entire mutual fund industry in India, despite initial hiccups, has since scaled new
heights in terms of mobilization of funds and number of players. Deregulation and
liberalization of the Indian economy has introduced competition and provided impetus
to the growth of the industry. Finally, the most investors- small or large – have started
shifting towards mutual fund as opposed to banks or direct market investments.

1999 marks the beginning of a new phase in the history of the mutual fund industry in
India, a phase of significant growth in terms of amount mobilized from investors and
assets under management.

Gross amount mobilized Assets Under Management

(Rs crores) (Rs. Crores)
1989-99 1999-2000 1989-99 1999-2000
UTI 11,679 13,536 53,320 76,547
(77.87%) (67.75%)
Public Sector 1,732 4,039 8,292 11,412
(12.11%) (10.09%)

Private Sector 7,966 42,173 6,860 25,046

(10.02%) (22.16%)

Total 21,377 59,748 68,472 113,005

The size of industry is growing rapidly, as seen by the figure of assets under
management which have gone from Rs. 68,000 crores to Rs. 113,005 crores, a growth of
nearly 60% in just one year.

STRUCTURE OF MUTUAL FUNDS IN INDIA

Like other countries, India has a legal framework with in which mutual funds must be
constituted. Unlike in the UK, where two distinct ‘trust’ and ‘corporate’ structure are
followed with separate regulations, in India, open and closed-end funds operate under
the same regulatory structure, and are constituted along one unique structure- as unit
trusts. A mutual fund in India is allowed to issue open-end or closed-end scheme under a
common legal structure.

Mutual funds as a trust

A mutual fund in India is constituted in the form of a public trust created under the
Indian trusts act, 1882. The fund sponsor acts as the settler of the trust, contributing to
its initial capital and appoints a Trustee to hold the assets of the trust for the benefit of
the unit-holder.
The main functions of Mutual Fund trust are as follows:
 Planning and formulating Mutual Funds schemes.
 Seeking SEBI’s approval and authorization to these schemes.
 Marketing the schemes for public subscription.
 Seeking RBI approval in case NRI’s subscription to Mutual Fund is invited
 Attending to trusteeship function. This function as per guidelines can be
assigned to separately established trust companies too. Trustees are required to
submit a consolidated report six monthly to SEBI to ensure that the guidelines are
fully being complied with trusted are also required to submit an annual report to
the investors in the fund.
Trustees

The trust – the mutual fund – may be manages by a board of trustees – a body of
individual, or a trust company – a corporate body. Most of the fund in India are
manages by board of trustees. While the board of trustees is governed by the provision
of the Indian trusts act, where the trustee is a corporate body, it would also be required
to comply with the provision of the companies act, 1956. The board or the Trustee
Company, as an independent body, act as protector of the units holder interest. The
trustees do not directly manage the portfolio of securities. For this specialist function,
they appoint an AMC.
 Rights of Trustees
 The trustees appoint the AMC with the prior approval of SEBI.
 They also approve each of the floated by the AMC.
 The trustee may take remedial action if they believe that the conduct of the
fund’s business is not in accordance with SEBI Regulation. In certain specific
events, the Trustee has the right to dismiss the AMC, with approval of SEBI and
in accordance with the regulation.

The Asset Management Company

The role of an AMC is to act as the investment manager of the trust.

The sponsors, or the Trustees, if so authorized by the Trust Deed, appoint the AMC. The
AMC so appointed is required to be approved by SEBI. Once approved, the AMC
functions under the supervision of its own Board of Directors, and also under the
direction of the Trustees and SEBI.
The AMC of a mutual fund must have a net worth of at least Rs.10 crores at all times.

Obligation of the AMC and its Director

The AMC and its Director ensure that must

 Investment of funds is in accordance with SEBI regulation and the Trust Deed.
 They take responsibility for the acts of its employees and other whose services it
has procured.
 They are answerable to the trustee and must submit quarterly reports to them on
AMC activities and compliance with SEBI regulation.
 They do not undertake any activity conflicting with managing the fund
 Each day’s NAV is updated on AMFI’s website by 8:00 pm of the relevant day.

Custodian of mutual funds

Mutual funds are in the business of buying and selling of securities in large volumes.
Handling these securities in terms of physical delivery and eventual safekeeping is
therefore a specialized activity. The custodian is appointed by the board of trustees for
safekeeping of physical securities or participating in any clearing system through
approved depository companies on behalf of the mutual fund in case of dematerialized
securities. The custodian should be an entity independent of the sponsors and is required
to be registered with SEBI.

Distributors

Mutual fund operate as collective investment vehicles, on the principle of accumulating

funds from a large number of investors and then investing on a big scale. For a fund to
sell units across a wide retail base of individual investors, an established network of
distribution agents is essential. AMCs usually appoint distributors or agents or brokers,
who sell units on behalf of the fund.
 DIFFERENT MODES OF RECEIVING THE INCOME EARNED
FROM MUTUAL FUND INVESTMENTS

Mutual Funds offer three methods of receiving income:

 Growth Plan
In this plan, dividend is neither declared nor paid out to the investor but is built
into the value of the NAV. In other words, the NAV increases over time due to
such incomes and the investor realizes only the capital appreciation on
redemption of his investment.
 Income Plan
In this plan, dividends are paid-out to the investor. In other words, the NAV only
reflects the capital appreciation or depreciation in market price of the underlying
portfolio.
 Dividend Re-investment Plan
In this case, dividend is declared but not paid out to the investor, instead, it is
reinvested back into the scheme at the then prevailing NAV. In other words, the
investor is given additional units and not cash as dividend.

MUTUAL FUND INVESTMENT PLANS AND SERVICES

The investment plans refer to the services that the funds provide to investors offering
different ways to invest or reinvest. The different investment plans are an important
consideration in the investment decision, because they determine the level of flexibility
available to the investor. Below, we look at some of the investment plans offered by
mutual funds in India.

1. Systematic Investment Plans (SIPs)

These are best suited for young people who have started their careers and need to
build their wealth. SIPs entail an investor to invest a fixed sum of money at
regular interval in the Mutual fund scheme the investor has chosen, an investor
 opting for SIP in xyz Mutual Fund scheme will need to invest a certain sum on
money every month/quarter/half-year in the scheme.

2. Systematic Withdrawal Plans (SWPs)

These plans are best suited for people nearing retirement. In these plans, an
investor invests in a mutual fund scheme and is allowed to withdraw a fixed sum
of money at regular intervals to take care of his expenses.

3. Systematic Transfer Plans (STPs)

They allow the investor to transfer on a periodic basis a specified amount from
one scheme to another within the same fund family – meaning two schemes
belonging to the same mutual fund. A transfer will be treated as redemption of
units from the scheme from which the transfer is made. Such redemption or
investment will be at the applicable NAV. This service allows the investor to
manage his investments actively to achieve his objectives. Many funds do not
even charge any transaction fees for his service – an added advantage for the
active investor.

4. Automatic Reinvestment Plans (ARP)

In India, many funds offer two options under the same scheme- the dividend
option and the growth option. The dividend option or the automatic reinvestment
plan allows the investor to reinvest in additional units the amount of dividend
made by the fund, instead of receiving them in cash. Reinvestment takes place at
the ex-dividend NAV.
.
 PERFORMANCE MEASURES OF MUTUAL FUNDS

Mutual Fund industry today, with about 30 players and more than six hundred schemes,
is one of the most preferred investment avenues in India. However, with a plethora of
schemes to choose from, the retail investor faces problems in selecting funds. Factors
such as investment strategy and management style are qualitative, but the funds record is
an important indicator too.

Though past performance alone cannot be indicative of future performance, it is, frankly,
the only quantitative way to judge how good a fund is at present. Therefore, there is a
need to correctly assess the past performance of different Mutual Funds. Worldwide,
good Mutual Fund companies over are known by their AMC’s and this fame is directly
linked to their superior stock selection skills.

For Mutual Funds to grow, AMC’s must be held accountable for their selection of
stocks. In other words, there must be some performance indicator that will reveal the
quality of stock selection of various AMC’s.

Return alone should not be considered as the basis of measurement of the performance
of a Mutual Fund scheme, it should also include the risk taken by the fund manager
because different funds will have different levels of risk attached to them. Risk associated
with a fund, in a general, can be defined as Variability or fluctuations in the returns
generated by it. The higher the fluctuations in the returns of a fund during a given period,
higher will be the risk associated with it. These fluctuations in the returns generated by a
fund are resultant of two guiding forces. First, general market fluctuations, which affect
all the securities, present in the market, called Market risk or Systematic risk and second,
fluctuations due to specific securities present in the portfolio of the fund, called
Unsystematic risk. The Total Risk of a given fund is sum of these two and is measured in
terms of standard deviation of returns of the fund.
Systematic risk, on the other hand, is measured in terms of Beta, which represents
fluctuations in the NAV of the fund vis-à-vis market. The more responsive the NAV of a
Mutual Fund is to the changes in the market; higher will be its beta. Beta is calculated by
relating the returns on a Mutual Fund with the returns in the market. While Unsystematic
risk can be diversified through investments in a number of instruments, systematic risk
cannot. By using the risk return relationship, we try to assess the competitive strength of
the Mutual Funds one another in a better way. In order to determine the risk-adjusted
returns of investment portfolios, several eminent authors have worked since 1960s to
develop composite performance indices to evaluate a portfolio by comparing alternative
portfolios within a particular risk class.
 FUND DISTRIBUTION AND SALES PRACTICES

Mutual funds have only recently emerging as a big financial intermediary in India. In a
vast country like India, taking the message of investing through mutual funds is a big
marketing challenge. Investor need to be educated in to the benefits of mutual fund
investing. This challenge can only be taken up a large number of intermediaries or
agents working throughout the country.

Who can Invest in Mutual Fund in India

First of all, distributor needs to be aware of who can buy mutual fund units or shares.
Mutual funds in India are open to investment by
 Resident including
1. Resident Indian individual
2. Indian companies
3. Indian trusts/ charitable institution
4. Banks
5. Non-banking finance companies
6. Insurance companies
7. Provident funds
 Non resident including
8. Non-resident Indians
9. Overseas corporate bodies
 Foreign entities
10. Foreign institutional investors registered with SEBI

Types of distribution channel

1. Banks and NBCs
2. Direct marketing
3. Advertisement
Banks and NBCs
In developed countries, banks are an important marketing vehicle for mutual funds, given
that banks themselves have a large depositor base of their own. Several banks,
particularly private and foreign banks are involved in fund distribution by providing
services similar to those distribution companies, on a commission basis.
Direct marketing
Direct marketing means that the mutual funds sell their own products without the use of
any intermediaries. Usually, this takes the form of the sales officers and employees of the
AMC who approach the investors and accept their contribution directly

Advertisement
The AMC regularly advertise the New Fund Offer (NFO) in the business newspaper and
magazine. The main purpose is to keep investors aware about the scheme offered by the
fund and their performance in recent past.

COMPARATIVE ANALYSIS OF MUTUAL FUNDS

We can compare the same fund of four different Assets Management Company (AMC’s)
named as under:
1. Kotak Mahindra Mutual Fund
2. Franklin Templeton Mutual Fund
3. Reliance Mutual Fund
4. LIC Mutual Fund

KOTAK MAHINDRA MUTUAL FUND

Kotak Mahindra Mutual Fund (KMMF) is managed by Kotak Mahindra Asset

Management Company Ltd., a wholly owned subsidiary of Kotak Mahindra Bank Ltd.
Kotak Mahindra Mutual Fund launched its Schemes in December 1998 and today
manages assets over and above Rs. 7353.82 cr. contributed by more than 1,99,818
investors in various schemes. KMMF has to its credit the launching of innovative
schemes and plans like Kotak Gilt and Free Life Insurance with Kotak Bond Deposit
Plan.
Kotak Mahindra is one of India's leading financial institutions, offering complete
financial solutions that encompass every sphere of life. From commercial banking, to
stock broking, to mutual funds, to life insurance, to investment banking, the group caters
to the financial needs of individuals and corporate.

The group has a net worth of around Rs.1,700 crore and employs over 4,000 employees
in its various businesses. With a presence in 74 cities in India and offices in New York,
London, Dubai and Mauritius, it services a customer base of over 5,00,000.

Kotak Mahindra has international partnerships with Goldman Sachs (one of the world's
largest investment banks and brokerage firms), Ford Credit (one of the world's largest
dedicated automobile financiers) and Old Mutual (a large insurance, banking and asset
management conglomerate).

Kotak Mahindra Asset Management Company Limited (KMAMC), a wholly owned

subsidiary of KMBL, is the asset manager for Kotak Mahindra Mutual Fund (KMMF).
KMAMC started operations in December 1998 and has over 1,99,818 investors in various
schemes. KMMF offers schemes catering to investors with varying risk - return profiles
and was the first fund house in the country to launch a dedicated gilt scheme investing
only in government securities.

The Kotak Mahindra Group was born in 1985 as Kotak Capital Management Finance
Limited. This company was promoted by Uday Kotak, Sidney A. A. Pinto and Kotak &
Company. Industrialists Harish Mahindra and Anand Mahindra took a stake in 1986, and
that’s when the company changed its name to Kotak Mahindra Finance Limited.
RESEARCH METHODOLOGY

The Methodology involves randomly selecting Open-Ended equity schemes of different

fund houses of the country. The data collected for this project is basically from two
sources, they are:-
1. Primary sources: The monthly fact sheets of different fund houses and
research reports from banks.
2. Secondary sources: Collection of data from Internet and Books.

HYPOTHESIS
The hypothesis of the study involves comparison between:
 Kotak opportunities fund
 Reliance equity opportunities fund
 Franklin India opportunities fund
 HDFC core & satellite fund
 HSBC India opportunities fund

NEED OF THE STUDY:

The project’s idea is to project Mutual Fund as a better avenue for investment on a long-
term or short-term basis. Mutual Fund is a productive package for a lay-investor with
limited finances, this project creates an awareness that the Mutual Fund is a
Worthy investment practice. Mutual Fund is a globally proven instrument. Mutual Funds
are ”Unit Trust” as it is called in some parts of the world has a long and successful
history, of late Mutual Funds have become a hot favorite of millions of people all over
the world.

The driving force of Mutual Funds is the ‘safety of the principal’ guaranteed, plus the
added advantage of capital appreciation together with the income earned in the form of
interest or dividend. The various schemes of Mutual Funds provide the investor with a
wide range of investment options according to his risk bearing capacities and interest
besides; they also give handy return to the investor. Mutual Funds offers an investor to
invest even a small amount of money, each Mutual Fund has a defined investment
objective and strategy. Mutual Funds schemes are managed by respective Asset Managed
Companies sponsored by financial institutions, banks, private companies or international
firms. A Mutual Fund is the ideal investment vehicle for today’s complex and modern
financial scenario.

The study is basically made to analyze the various open-ended equity schemes of
different Asset Management Companies to highlight the diversity of investment that
Mutual Fund offer. Thus, through the study one would understand how a common man
Could fruitfully convert a pittance into great penny by wisely investing into the right
scheme according to his risk taking abilities.

SCOPE:
The study here has been limited to analyze open-ended equity Growth schemes of
different Asset Management Companies namely Kotak Mahindra Mutual Fund,
Reliance Mutual Fund, HDFC Mutual Fund, Franklin Templeton Mutual Fund,
HSBC Mutual Fund such scheme is analyzed according to its performance against the
Other, based on factors like Sharpe’s Ratio, Treynor’s Ratio, B (Beta) Co-efficient,
Returns.
OBJECTIVES:

 To project Mutual Fund as the ‘productive avenue’ for investing activities.

 To show the wide range of investment options available in Mutual Funds by
explaining its various schemes.
 To compare the schemes based on Sharpe’s ratio, Treynor’s ratio,
Coefficient, Returns and show which scheme is best for the investor based
on his risk profile.
 To help an investor make a right choice of investment, while considering the
inherent risk factors.

To understand the recent trends in Mutual Funds world.

The comparison between these schemes is made based on the following factors
A) Sharpe’s Ratio
B) Treynor’s Ratio
C)  (Beta) co-efficient.
D) Returns

A) The Sharpe’s Measure :-

In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is a
ratio of returns generated by the fund over and above risk free rate of return and the
total risk associated with it.
According to Sharpe, it is the total risk of the fund that the investors are concerned about.
So, the model evaluates funds on the basis of reward per unit of total risk.
Symbolically, it can be written as:
Sharpe Index (Si) = (Ri - Rf)/Si
Where,
Si is Standard Deviation of the fund.
While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a
fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.

B) The Treynor Measure:-

Developed by Jack Treynor, this performance measure evaluates funds on the basis of
Treynor's Index.
This Index is a ratio of return generated by the fund over and above risk free rate of
return (generally taken to be the return on securities backed by the government, as there
is no credit risk associated), during a given period and systematic risk associated with it
(beta). Symbolically, it can be represented as:
Treynor's Index (Ti) = (Ri - Rf)/Bi.

Where,
Ri represents return on fund,
Rf is risk free rate of return,
And Bi is beta of the fund.

All risk-averse investors would like to maximize this value. While a high and positive
Treynor's Index shows a superior risk-adjusted performance of a fund, a low and negative
Treynor's Index is an indication of unfavorable performance.

C)  (Beta) Co-efficient: - 

Systematic risk is measured in terms of Beta, which represents fluctuations in the NAV
of the fund vis-à-vis market. The more responsive the NAV of a Mutual Fund is to the
changes in the market; higher will be its beta. Beta is calculated by relating the returns on
a Mutual Fund with the returns in the market. While unsystematic risk can be
diversified through investments in a number of instruments, systematic risk cannot. By
using the risk return relationship, we try to assess the competitive strength of the
Mutual Funds vis-à-vis one another in a better way.
 (Beta) is calculated as N (EXY) – EXEY
N (EX2) – (EX) 2
D) Returns: - Returns for the last one-year of different schemes are taken for the
comparison and analysis part.
 DATA ANALYSIS AND INTERPRATATION

Note: all the data used for analysis is taken to the period 28 February, 2006

Kotak Opportunities Fund

Nature of scheme : An open-ended Equity Growth Scheme

Investment objective : To generate capital appreciation from a diversified portfolio
of equity and equity related securities.
Assets Allocation Equity and Equity Related Debt and Money Market
Pattern Securities Securities

65% to 95% 5% to 35%

Option : Growth, Dividend

The Franklin Templeton Group

The Franklin Templeton group is one of the world’s largest investment management
companies with over US$ 511.3 billion in assets under management as of September 30,
2006 including more than 240 open end mutual fund scheme, separately managed
accounts and other investment vehicles. The Franklin Templeton Group has over 50 years
of experience in investment management. The group has over 29 offices world-wide.

In India, Franklin Templeton started its operation in 1996, with the constitution of
Franklin Templeton Mutual Fund as a trust and Franklin Templeton Assets Management
Pvt. Ltd. as a Assets Management Company.
Franklin India flexi cap Fund

An open-end diversified equity fund that seeks to provide medium to long term capital
appreciation by investing in stocks across the entire market capitalization range.

Assets Allocation Equity and Equity Linked Money Market Instruments

pattern Instruments
75% -100% out of which
Large cap:20-100% 0% to 25%
Mid cap :0%-70%
Small cap:0%-40%

Option : Growth, Dividend

Fund manager : K.N.Sivasubramanian

Performance of the scheme as on February 28, 2006

Compounded Annualized Scheme Return (%) Benchmark Return (%)
Returns
Last 1 month 5.93% 6.42%
Last 3 month 18.47% 16.67%
Last 5 month 4.43% 2.68%

Reliance Mutual Fund

Reliance Mutual Fund (RMF) is one of India’s leading Mutual Funds, with Average
Assets Under Management (AAUM) of Rs. 1,02,730 Crores (AAUM for 31st May 09 )
and an investor base of over 71.30 Lacs.

Reliance Mutual Fund, a part of the Reliance - Anil Dhirubhai Ambani Group, is one of
the fastest growing mutual funds in the country. RMF offers investors a well-rounded
portfolio of products to meet varying investor requirements and has presence in 118 cities
across the country. Reliance Mutual Fund constantly endeavors to launch innovative
products and customer service initiatives to increase value to investors. "Reliance Mutual
Fund schemes are managed by Reliance Capital Asset Management Limited., a
subsidiary of Reliance Capital Limited, which holds 93.37% of the paid-up capital of
RCAM, the balance paid up capital being held by minority shareholders."

Reliance Capital Ltd. is one of India’s leading and fastest growing private sector financial
services companies, and ranks among the top 3 private sector financial services and
banking companies, in terms of net worth. Reliance Capital Ltd. has interests in asset
management, life and general insurance, private equity and proprietary investments, stock
broking and other financial services.

Reliance Equity Opportunities Fund

An open-end diversified equity scheme with an objective to generate capital appreciation

and provide long-term growth opportunities by investing in a portfolio constituted of
equity securities and equity related related securities and the secondary objective is to
generate consistent returns by investing in debt and money market securities.

Assets allocation Equity and Equity Related Money Market Instrument

pattern Instrument

75% to 100% Up to 25%

Option : Growth, Dividend

Fund Manager : Mr. Sailesh Raj Bhan

HDFC Core and Satellite Fund

  HDFC Core and Satellite Fund is an Open-Ended Equity Scheme.
 HDFC Core and Satellite Fund is an diversified equity scheme

 The Scheme may seek investment opportunity in the ADR / GDR / Foreign
Equity and Debt Securities, in accordance with guidelines stipulated in this regard
by SEBI and RBI from time to time.
 The net assets of the Scheme will be invested primarily in equity and equity
related instruments in a portfolio comprising of 'Core' group of companies and
'Satellite' group of companies.
 The 'Satellite' group will comprise of predominantly small-mid cap companies
that offer higher potential returns but at the same time carry higher risk.

HSBC India opportunities Fund

 HSBC India Opportunities Fund is an Open-Ended Equity Scheme.

 It is a scheme seeking long term capital growth through investments across all
market capitalizations, including small, mid and large cap stocks.
 The investment is to seek aggressive growth by focusing on mid cap companies in
addition to investments in large cap stocks.
 The fund aims to be predominantly invested in equity and equity related
securities.
OBSERVATION
Kotak Franklin Reliance equity HDFC core HSBC Ind
opportunities India flexi- opportunities & satellite opportunities
fund cap fund fund fund fund

Monthly 5.92 3.47 2.4 1.15 -0.57

Return
Sharpe’s 6.12 5.84 7.29 4.86 5.04
Ratio
Treynor’s 0.81 0.52 0.37 0.72 0.62
Ratio
Co-efficient 1.54 1.94 1.09 1.45 1.13

Std. deviation 20.56 17.28 25.80 21.71 14.07

Observation are made from the data analysis

The following observations are drawn from the analysis of scheme
LIMITATIONS OF THE STUDY

 The study is limited only to the analysis of different schemes and its suitability to
different investors according to their risk-taking ability.
 The study is based on secondary data available from monthly fact sheets, websites
and other books, as primary data was not accessible.
 The study is limited by the detailed study of various schemes of Five Asset
Management Company.

SUGGESTIONS:-

 The Asset Management Company must design the portfolio in such a way, to
increase the returns.
 The Asset Management Company must design the portfolio in such a way, to
lessen the risk that is common in the market.
 The Asset Management Company must dedicate itself, because it motivates the
investors and potential investors to invest in Mutual Funds.
 The Asset Management Company must manage the Fund efficiently and with
dedication to earn the goodwill of the public.
 The Asset Management Company must make the most advantageous use of print
and electronic media in order to motivate the investors and potential investors to
invest in Mutual Funds.
CONCLUSIONS

After interpreting the above data the following conclusions have been made
Kotak Opportunities Fund:

 It is a diversified aggressive equity fund.

 It is a open-ended equity scheme
 Since the  ratio is high it implies the risk is high
 As the returns are more in Kotak Opportunities compare to other Four AMC’s
 It is suitable for investors looking for medium risk and moderate returns with in a
time period of 1-3 years.

Franklin India Flexi Cap Fund:

 It is a diversified equity fund.

 It is a open-ended equity scheme
 Since the ratio is high it implies the risk is high.
 In Franklin the returns are more compare to other Three AMC’s (HDFC,
RELIANCE, HSBC)

Reliance Equity Opportunities Growth Fund:

 It is a diversified equity fund.

 It is a open-ended equity scheme
 Since the  ratio is high it implies the risk is high.
 In Reliance Equity Opportunities the returns are medium compare to other
AMC’s

HDFC Core & Satellite Fund:

  It is a diversified equity fund.
 It is a open-ended equity scheme
 In HDFC the returns are low compare to other AMC’s
 It is a value based fund
 It is a low risky fund

HSBC India Opportunities Fund:-

 It is a diversified equity fund.

 It is a open-ended equity scheme
 In HSBC the returns are lesser than other AMC’s
 It is a low risky fund
BIBLIOGRAPHY

Layman’s Guide to Mutual Funds By “OUTLOOK”

Mutual Funds Primer by “ECONOMIC TIMES”

www.amfiindia.com
www.kotakmutual.com
www.reliancemutual.com
 ANNEXURE’S

ANNEXURE-I

Sponsor

Sponsor is the person who acting alone or in combination with another body corporate
establishes a Mutual Fund. Sponsor must contribute at least 40% of the net worth of the
Investment Managed and meet the eligibility criteria prescribed under the securities and
Exchange Board of India (Mutual Fund) Regulations, 1996. The Sponsor is not
Responsible or liable for any loss or short fall resulting from the operation of the schemes
beyond the initial contribution made by it towards setting up the Mutual Fund.

Trust

The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian
Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian
Registration Act, 1908.

Trustee

Trustee is usually a company (Corporate body) or a Board of Trustees (body of

individuals). The main responsibility of the trustee is to safeguard the interest of the unit
holders and inter alia ensure that the AMC functions in the interest of investors and in
accordance with the securities and Exchange Board of India (Mutual Funds) Regulations,
1996, the provisions of the Trust Deed and the Offer Documents of the respective
Schemes. At least 2/3rd directors of the Trustee are independent directors who
are not associated with the Sponsor in any manner.

Asset Management Company (AMC)

The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent
to the Mutual Fund. The Registrar processes the application form, redemption requests
and dispatches account statements to the unit holders. The Registrar and Transfer agent
also handles communications with investors and updates investor records.

Unit Holders

Unit Holders are those investing in Mutual Fund.

Custodian

Custodian is the agency, which will have the legal possession of all the securities
purchased by the Mutual Fund
.
SEBI

The Stock Exchange Board of India (SEBI) is regulatory authority of the Mutual Funds.

ANNEXURE II

Equity Fund is the one in which much of the portfolio is invested in corporate securities
and Debt Fund is the one in which much of the portfolio is invested in Gilt and money
market securities.

In an Open-ended Mutual Fund, there are no limits on the total size of the corpus.
Investors are permitted to enter and exit the open-ended Mutual Fund at any point of time
at a price that is linked to the net asset value (NAV).
In case of Closed-ended funds, the total size of the corpus is limited by the size of the
initial offer.

 A Dividend plan entails a regular payment of dividend to the investors.

  A Re-investment plan is a plan where these dividends are reinvested in the
scheme itself.
 A Growth plan is one where no dividends are declared and investor only gains
through capital appreciation in the NAV of the fund.

NAV is the net asset value of the fund. Simply put it reflects what the unit held by an
investor is worth at current market prices.

The broad guidelines issued for a Mutual Fund:

SEBI is the regulatory authority of Mutual Funds. SEBI has the following broad
guidelines pertaining to Mutual Funds:

 Mutual Funds should be formed as a trust under Indian Trust Act and should be
operated by Asset Management Companies.
 Mutual Funds need to set up a Board of Trustee Companies. They should also
have their Board of Directories.
 The net worth of the Asset Management Company should be at least Rs.10
crore.
 Asset Management Companies and Trustees of a MF should be two separate
and distinct legal entities.
 The Asset Management Companies or any of its companies cannot act AS
managers for any other fund.
 Asset Management Company has to get the approval of SEBI for its articles and
Memorandum of Association.

 All Mutual Fund Schemes should be registered with SEBI.

 Mutual Funds should distribute minimum of 90% of their profits among the
investors.