INTRODUCTION TO THE TOPIC

MUTUAL FUND
The Securities and Exchange Board of India (Mutual Funds) Regulations ,1993
defines a Mutual Fund as “a fund established in the form of a trust by a sponsor ,to raise
monies by the trustees through the sale of units to the public ,under one or more schemes ,for
investing in securities in accordance with these regulations”.

A Mutual Fund is a trust that pools the savings of a number of investors who share a common
financial goal. The money thus collected is then invested in capital market instruments such
as shares, debentures and other securities. The income earned through these investments and
the capital appreciation realized are shared by its unit holders in proportion to the number of
units owned by them. 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. Thus ,mutual funds are corporations which pool funds by selling their
own shares and reduce risk by diversification.

FINANCIAL SERVICES

The Indian Financial services industry has undergone a metamorphosis since

1990. During the late seventies and eighties, the Indian financial services industry was
dominated by commercial banks and other financial institutions which cater to the
requirements of the Indian industry. Infact the capital market played a secondary role only.
The economic liberalisation has brought in a complete transformation in the Indian financial
services industry. Prior to the economic liberalisation, the Indian financial service sector was
characterised by so many factors which retarded the growth of this sector.

ORIGIN OF THE FUND

The origin of the concept of mutual fund dates back to the dawn of commercial
history. It is said that Egyptians and Phoenicians sold their shares in vessels and caravans
with a view to spreading the risk attached with these risky ventures. However, the real credit
of introducing the modern concept of mutual fund goes to the Foreign and Colonial
Government Trust of London established in 1868. Thereafter, a large number of close-ended
mutual funds were formed in the U.S.A. in 1930’s followed by many countries in Europe ,the
Far East and Latin America. In most of the countries ,both open and close-ended types were

1
popular .In India ,it gained momentum only in 1980 ,though it began in the year 1964 with
the Unit Trust of India launching its first fund ,the Unit Scheme 1964.

HISTORY OF MUTUAL FUNDS

History of Mutual Funds has evolved over the years and it is sure to appear as
something very interesting for all the investors of the world. In present world, mutual funds
have become a main form of investment because of its diversified and liquid features. Not
only in the developed world, but in the developing countries also different types of mutual
funds are gaining popularity very fast in a tremendous way. But, there was a time when the
concept of Mutual Funds was not present in the economy.

There is an ambiguity about the fact that when and where the Mutual Fund
Concept was introduced for the first time. According to some historians, the mutual funds
were first introduced in Netherlands in 1822. But according to some other belief, the idea of
Mutual Fund first came from a Dutch Merchant ling back in 1774. In 1822, that idea was
further developed. In 1822, the concept of Investment Diversification was properly
incorporated in the mutual funds. In fact, the Investment Diversification is the main attraction
of mutual funds as the small investors are also able to allocate their little Funds in a
diversified way to lower Risks.

After 1822 in Netherlands, the Mutual Funds Concept came in Switzerland in

1849 and thereafter in Scotland in the 1880s. After being popular in Great Britain and France,
Mutual fund concept traveled to U.S.A in the 1890s. In 1920s and 1930s, the Mutual Fund
popularity reached a new high. There was record investment done in mutual funds. But,
before 1920s, the mutual funds were not like the modern day mutual funds.

The modern day mutual funds came into existence in 1924, in Boston.
Massachusetts Investors Trust introduced the Modern Mutual Funds and the funds were
available from 1928. At present this Massachusetts Investors Trust is known as MFS
Investment Management Company. After the glorious year of 1928, Mutual fund ideas
expanded to different levels and different regulations came for well functioning of the funds.

Still today, the funds are evolving and improving in order to offer people
much wider choices and better advantages for fulfillment of their various investment needs
and financial objectives.

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TYPES OF MUTUAL FUND SCHEMES

Wide variety of Mutual Fund Schemes exist to cater to the needs such as
financial position, risk tolerance and return expectations etc. For instance ,a young
businessman would like to get more capital appreciation for his funds and he would be
prepared to take greater risks than a person who is just on the verge of his retiring age .So ,it
is very difficult to offer one fund to satisfy all the requirements of investors. Therefore ,many
types of funds are available to the investor.

Mutual Fund schemes can broadly be classified into many types as given below :

On the basis of execution and operation

A. Close – ended Funds

In a closed-ended fund, the total size of the corpus is limited by the size of the initial offer. It
has a stipulated maturity period for a fixed period of time. The fund is open for subscription
only during the initial public issue. Once the subscription reaches the predetermined level ,the
entry of investors is closed .After the expiry of the fixed period ,the entire corpus is
disinvested and the proceeds are distributed to the various unit holders in proportion to their
holding .Thus , the fund ceases to be a fund ,after the final distribution .Thereafter, one can
buy or sell the units of the fund during its tenure on the stock exchanges where the fund is
listed. In order to provide an alternative exit 46 route before maturity to the investors, some
close-ended funds permit units to be sold back to the fund during pre-determined intervals at
NAV related prices.

B. Open – ended Funds

Investors are permitted to subscribe to new units of the fund at any point of time at a
price that is linked to the NAV. Similarly, investors can also sell the units back to the fund at
the NAV related price, making it a highly liquid investment. In an open-ended mutual fund
there are no limits on the total size of the corpus and there is no fixed maturity of the fund.
The main objective of this fund is income generation .The investors get dividend ,rights or
bonuses as rewards for their investment. Since the units are not listed on the stock market
,their prices are linked to the Net Asset Value (NAV) of the units .The NAV is determined by
the fund and it varies from time to time.

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On the basis of yield and investment pattern

A. Income Funds

The aim of these funds is to provide regular and steady income to investors. It
concentrates more on the distribution of regular income and it also sees that the average
return is higher than that of the income from bank deposits. These funds generally invest in
fixed income securities such as bonds and corporate debentures. Capital appreciation in such
funds may be limited. These funds are also known as debt funds.

B. Pure Growth Funds (Growth Oriented Funds)

The aim of these funds is to provide capital appreciation over the medium to long
term. These funds normally invest a major part of their assets in equities and are willing to
bear a short-term decline in the value of their assets in favour of possible future appreciation.
They do not offer regular income and they aim at capital appreciation in the long run. Hence,
they have been described as “Nest Eggs” investments .These funds are also known as equity
funds.

C. Balanced/Hybrid Funds

Balanced and hybrid funds aim to provide both growth and income by periodically
distributing a part of the income and capital gains they earn to their investors. These funds
invest in both equity and fixed income securities, in the proportion indicated in their offer
documents. In general, balanced funds invest at least 65% of their corpus in equity securities,
while hybrid funds invest less than 65% of their corpus in equity securities. Balanced funds
are treated the same as equity funds for purposes of Indian income taxes, and hence dividend
income from balanced funds is exempt from income tax . This is otherwise known as
“Income-cum-Growth” Fund.

D. Specialised Funds

Besides the above, a large number of specialised funds are in existence abroad .They

offer special schemes so as to meet the specific needs of specific categories of people like
pensioners, widow etc. There are also Funds for investments in securities of specified areas.

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For instance , Japan Fund ,South Korea Fund etc ,In fact ,these funds open the door for
foreign investors to invest on the domestic securities of these countries.

Again ,certain Funds may be confined to one particular sector or industry like
fertilizer ,automobiles ,petroleum etc .These funds carry heavy risks since the entire
investment is in one industry. But ,there are high risks taking investors who prefer this type of
Fund. Of course ,in such cases ,the rewards may commensurate with the risk taken .At
times ,it may be erratic .The best example of this type is the Petroleum Industry Funds in the
U.S.A.

E. Money Market Mutual Funds (MMMFs)

These funds are basically open ended mutual funds and as such they have all the
features of the open ended fund. But ,they invest in highly liquid and safe securities like
commercial paper ,banker’s acceptances ,certificates of deposits ,Treasury Bills etc .These
instruments are called money market instruments .They take the place of shares ,debentures
and bonds in a capital market .They pay money market rate of interests.

Since MMMFs are a new concept in India ,the RBI has laid down certain stringent
regulations. For instance, the entry to MMMFs is restricted only to scheduled commercial
banks and their subsidiaries. MMMFs can invest only in specified short term money market
instruments like CODs ,Commercial Papers and 182 days Treasury Bills. They can also lend
to call market. These funds go for safe and liquid investment. Frequent realisation of interest
and redemption of Fund at short notice are the special features of this Fund. The funds will
not be subject to reserve requirements. The re-purchase could be subject to a minimum lock
in period of 3 months.

A. Taxation Funds

A taxation fund is basically a growth oriented fund. But ,it offers tax rebates to the

Investors either in the domestic or foriegn capital market .It is suitable to salaried people who
want to enjoy tax rebates particularly during the month of February and March. In India, at
present the law relating to tax rebates is recovered under Sec.88 of the IT Act, 1961. An
investor is entitled to get 20% rebate in Income Tax for investments made under this fund
subject to a maximum investment of Rs.10000/- per annum.

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Other Classification

A. Leveraged Funds

These funds are also called borrowed funds since they are used primarily to increase

the size of the value of portfolio of a mutual fund. When the value increases ,the earning
capacity of the fund also increases. The gains are distributed to the unit holders. This is
resorted to only when the gains from the borrowed funds are more than the cost of borrowed
funds.

B. Dual funds

This is a special kind of closed end fund. It provides single investment opportunity for

two different types of investors. For this purpose, it sells two types of investment stocks viz.,
income shares and capital shares. Those investors who seek current investment income can
purchase income shares. They receive all the interest and dividends earned from the entire
investment portfolio. However, they are guaranteed a minimum annual dividend payment.
The holders of capital shares receive all the capital gains earned on those shares and they are
not entitled to receive any dividend of any type. In this respect, the dual fund is different from
a balanced fund.

C. Index Funds

Index funs refer to those funds where the portfolios are designed in such a way that

they reflect the composition of some broad based market index. This is done by holding
securities in the same proportion as the index itself. The value of these index linked funds
will automatically go up whenever the market index goes up and vice versa. Since the
construction of portfolio is entirely based upon maintaining proper proportions of the index
being followed, it involves less administrative expenses, lower transaction costs, less number
of portfolio managers etc. It is so because only fewer purchases and sales of securities would
take place.

D. Bond Funds

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 These funds have porfolios consisting mainly of fixed income securities like bonds.

The main thrust of these funds is mostly on income rather than capital gains. They differ from
income funds in the sense income funds offer an average returns higher than that from bank
deposits and also capital gains lesser than that in equity shares.

E. Aggressive Growth Funds

These funds are just the opposite of bond funds. These funds are capital gains oriented

and thus the thrust area of these funds is ‘capital gains’. Hence ,these funds are generally
invested in speculative stocks. They may also use specialised investment techniques like
short term trading ,option writing etc. Naturally, these funds tend to be volatile in nature.

F. Off-Shore Mutual Funds

Off-shore mutual funds are those funds which are meant for non-residential investors.

In other words, the sources of investments for these funds are from abroad. So, they are
regulated by the provisions of the foreign countries where those funds are registered. These
funds facilitate flow of funds across different countries, with free and efficient movement of
capital for investment and repatriation. Off-shore funds are preferred to direct foreign
investment, since ,it does not allow foreign domination over host country’s corporate sector.
However, these funds involve much currency and country risk and hence they generally yield
higher return.

G. Property Fund

It is a real estate mutual fund. It is an investment vehicle which buys, develops

,manages and sells real estate assets. Its investment also includes shares/bonds of companies
involved in real estate and mortgage backed companies.

H. Fund-of-Funds

Funds of funds (FoF) are mutual funds which invest in other mutual funds (i.e., they
are funds composed of other funds). The funds at the underlying level are often funds which
an investor can invest in individually, though they may be 'institutional' class shares that may

7
not be within reach of an individual shareholder). A fund of funds will typically charge a
much lower management fee than that of a fund investing in direct securities because it is
considered a fee charged for asset allocation services which is presumably less demanding
than active direct securities research and management. The fees charged at the underlying
fund level are a real cost or drag on performance but do not pass through the FoF's income
statement (statement of operations), but are usually disclosed in the fund's annual report,
prospectus, or statement of additional information. FoF's will often have a higher
overall/combined expense ratio than that of a regular fund. The FoF should be evaluated on
the combination of the fund-level expenses and underlying fund expenses, as these both
reduce the return to the investor.
Most FoFs invest in affiliated funds (i.e., mutual funds managed by the same advisor),
although some invest in unaffilated funds (those managed by other advisors) or both. The
cost associated with investing in an unaffiliated underlying fund may be higher than investing
in an affiliated underlying because of the investment management research involved in
investing in fund advised by a different advisor. Recently, FoFs have been classified into
those that are actively managed (in which the investment advisor reallocates frequently
among the underlying funds in order to adjust to changing market conditions) and those that
are passively managed (the investment advisor allocates assets on the basis of on an
allocation model which is rebalanced on a regular basis).
The design of FoFs is structured in such a way as to provide a ready mix of mutual
funds for investors who are unable to or unwilling to determine their own asset allocation
model. Fund companies such as TIAA-CREF, American Century Investments, Vanguard, and
Fidelity have also entered this market to provide investors with these options and take the
"guess work" out of selecting funds.

I. Hedge Funds
Hedge funds in the United States are pooled investment funds with loose, if any, SEC
regulation, unlike mutual funds. Some hedge fund managers are required to register with SEC
as investment advisers under the Investment Advisers Act of 1940. The Act does not require
an adviser to follow or avoid any particular investment strategies, nor does it require or
prohibit specific investments. Hedge funds typically charge a management fee of 1% or
more, plus a “performance fee” of 20% of the hedge fund's profit. There may be a "lock-up"

8
period, during which an investor cannot cash in shares. A variation of the hedge strategy is
the 130-30 fund for individual investors.

9
INTRODUCTION TO THE INDUSTRY

ORIGIN OF THE FUND

The origin of the concept of mutual fund dates back to the dawn of commercial
history. It is said that Egyptians and Phoenicians sold their shares in vessels and caravans
with a view to spreading the risk attached with these risky ventures. However, the real credit
of introducing the modern concept of mutual fund goes to the Foreign and Colonial
Government Trust of London established in 1868. Thereafter, a large number of close-ended
mutual funds were formed in the U.S.A. in 1930’s followed by many countries in Europe ,the
Far East and Latin America. In most of the countries ,both open and close-ended types were
popular .In India ,it gained momentum only in 1980 ,though it began in the year 1964 with
the Unit Trust of India launching its first fund ,the Unit Scheme 1964.

Equity Linked Savings Scheme (“ELSS”):

These funds offer tax rebates to the investors under tax laws prescribed from time to
time. Under Section 80C of the Income Tax Act, 1961, contributions made to any “ELSS” are
eligible for tax deduction.

The flow chart below describes broadly the working of a mutual fund:

10
 Mutual Fund Operation Flow Chart

ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the organizational set up
of a mutual fund:

Organization of a Mutual Fund

ADVANTAGES OF MUTUAL FUNDS

The advantages of investing in a Mutual Fund are:

 Professional Management

 Diversification

 Convenient Administration

 Return Potential

 Low Costs

 Liquidity

 Transparency

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 Flexibility

 Choice of schemes

 Tax benefits

 well regulated

• Exchange Traded Funds (“ETF”):

Typically, ETFs try to replicate a stock market index, in particular

a market sector, for example, energy or technology, or a commodity, such as gold or

petroleum. ETFs are open-ended and can be traded on the stock exchanges.

• Gilt:

These funds invest their corpus in securities issued by Government, popularly known
as Government of India debt papers. These funds carry zero default risk but are associated
with interest rate risk.

• Liquid/Money Market:

These funds aim to provide easy liquidity, preservation of capital and moderate
income. These funds generally invest in safer, short-term instruments, such as treasury bills,
certificates of deposit, commercial paper and inter-bank call money.

Funds of funds
Funds of funds (FoF) are mutual funds which invest in other mutual funds (i.e., they
are funds composed of other funds). The funds at the underlying level are often funds which
an investor can invest in individually, though they may be 'institutional' class shares that may
not be within reach of an individual shareholder). A fund of funds will typically charge a
much lower management fee than that of a fund investing in direct securities because it is
considered a fee charged for asset allocation services which is presumably less demanding
than active direct securities research and management. The fees charged at the underlying
fund level are a real cost or drag on performance but do not pass through the FoF's income

12
statement (statement of operations), but are usually disclosed in the fund's annual report,
prospectus, or statement of additional information. FoF's will often have a higher
overall/combined expense ratio than that of a regular fund. The FoF should be evaluated on
the combination of the fund-level expenses and underlying fund expenses, as these both
reduce the return to the investor.
Most FoFs invest in affiliated funds (i.e., mutual funds managed by the same advisor),
although some invest in unaffilated funds (those managed by other advisors) or both. The
cost associated with investing in an unaffiliated underlying fund may be higher than investing
in an affiliated underlying because of the investment management research involved in
investing in fund advised by a different advisor. Recently, FoFs have been classified into
those that are actively managed (in which the investment advisor reallocates frequently
among the underlying funds in order to adjust to changing market conditions) and those that
are passively managed (the investment advisor allocates assets on the basis of on an
allocation model which is rebalanced on a regular basis).
The design of FoFs is structured in such a way as to provide a ready mix of mutual
funds for investors who are unable to or unwilling to determine their own asset allocation
model. Fund companies such as TIAA-CREF, American Century Investments, Vanguard, and
Fidelity have also entered this market to provide investors with these options and take the
"guess work" out of selecting funds. The allocation mixes usually vary by the time the
investor would like to retire: 2020, 2030, 2050, etc. The more distant the target retirement
date, the more aggressive the asset mix.

Hedge funds
Hedge funds in the United States are pooled investment funds with loose, if any, SEC
regulation, unlike mutual funds. Some hedge fund managers are required to register with SEC
as investment advisers under the Investment Advisers Act of 1940. The Act does not require
an adviser to follow or avoid any particular investment strategies, nor does it require or
prohibit specific investments. Hedge funds typically charge a management fee of 1% or
more, plus a “performance fee” of 20% of the hedge fund's profit. There may be a "lock-up"
period, during which an investor cannot cash in shares. A variation of the hedge strategy is
the 130-30 fund for individual investors.

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HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at
the initiative of the Government of India and Reserve Bank of India. The history of mutual
funds in India can be broadly divided into four distinct phases

First Phase – 1964-87

An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set up by
the Reserve Bank of India and functioned under the Regulatory and administrative control of
the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial
Development Bank of India (IDBI) took over the regulatory and administrative control in
place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988
UTI had Rs.6, 700 crores of assets under management.

Second Phase – 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector
banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of
India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987
followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89),
Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund
(Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund
in December 1990.

At the end of 1993, the mutual fund industry had assets under management of Rs.47, 004
crores.

Third Phase – 1993-2003 (Entry of Private Sector Funds)

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more

comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions
under the SEBI (Mutual Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual funds
setting up funds in India and also the industry has witnessed several mergers and acquisitions.
As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805

14
crores. The Unit Trust of India with Rs.44, 541 crores of assets under management was way
ahead of other mutual funds.

Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of
India with assets under management of Rs.29, 835 crores as at the end of January 2003,
representing broadly, the assets of US 64 scheme, assured return and certain other schemes.
The Specified Undertaking of Unit Trust of India, functioning under an administrator and
under the rules framed by Government of India and does not come under the purview of the
Mutual Fund Regulations.

The graph indicates the growth of assets over the years.

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FREQUENTLY USED TERMS

Net Asset Value (NAV)

Net Asset Value (NAV) Net Asset Value is the market value of the assets of the
scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by
the number of units outstanding on the Valuation Date.
Sale Price

Sale Price Is the price you pay when you invest in a scheme. Also called Offer Price.
It may include a sales load.
Repurchase Price 

Repurchase Price Is the price at which units under open-ended schemes are
repurchased by the Mutual Fund. Such prices are NAV related.

Redemption Price

Redemption Price is the price at which close-ended schemes redeem their units on
maturity. Such prices are NAV related.
Sales Load 

Sales Load Is a charge collected by a scheme when it sells the units. Also called,
‘Front-end’ load. Schemes that do not charge a load are called ‘No Load’ schemes.

Repurchase or ‘Back-end’ Load

Repurchase or ‘Back-end’ Load Is a charge collected by a scheme when it buys back
the units from the unit holders.
Usage, investment objectives
Since the Investment Company Act of 1940, a mutual fund is one of three basic types
of investment companies available in the United States.
Mutual funds may invest in many kinds of securities (subject to its investment objective as
set forth in the fund's prospectus, which is the legal document under SEC laws which offers
the funds for sale and contains a wealth of information about the fund). The most common
securities purchased are "cash" or money market instruments, stocks, bonds, other mutual
fund shares and more exotic instruments such as derivatives like forwards, futures, options

16
and swaps. Some funds' investment objectives (and or its name) define the type of
investments in which the fund invests. For example, the fund's objective might state "...the
fund will seek capital appreciation by investing primarily in listed equity securities (stocks)
of U.S. companies with any market capitalization range." This would be "stock" fund or a
"domestic/US stock" fund since it stated U.S. companies. A fund may invest primarily in the
shares of a particular industry or market sector, such as technology, utilities or financial
services. These are known as specialty or sector funds. Bond funds can vary according to risk
(e.g., high-yield junk bonds or investment-grade corporate bonds), type of issuers (e.g.,
government agencies, corporations, or municipalities), or maturity of the bonds (short- or
long-term). Both stock and bond funds can invest in primarily U.S. securities (domestic
funds), both U.S. and foreign securities (global funds), or primarily foreign securities
(international funds). Since fund names in the past may not have provided a prospective
investor a good indication of the type of fund it was, the SEC issued a rule under the '40 Act
which aims to better align fund names with the primary types of investments in which the
fund invests, commonly called the "name rule". Thus, under this rule, a fund must invest
under normal circumstances in at least 80% of the securities referenced in its name. for
example, the "ABC New Jersey Tax Free Bond Fund" would generally have to invest, under
normal circumstances, at least 80% of its assets in tax-exempt bonds issued by the state of
New Jersey and its political subdivisions. Some fund names are not associated with specific
securities so the name rule has less relevance in those situations. For example, the "ABC
Freedom Fund" is such that its name does not imply a specific investment style or objective.
Lastly, an index fund strives to match the performance of a particular market index, such as
the S&P 500 Index. In such a fund, the fund would invest in securities and likely specific
derivates such as S&P 500 stock index futures in order to most closely match the
performance of that index.
Most mutual funds' investment portfolios are continually monitored by one or more
employees within the sponsoring investment adviser or management company, typically
called a portfolio manager and their assistants, who invest the funds assets in accordance with
its investment objective and trade securities in relation to any net inflows or outflows of
investor capital (if applicable), as well as the ongoing performance of investments
appropriate for the fund. A mutual fund is advised by the investment adviser under an
advisory contract which generally is subject to renewal annually.
Mutual funds are subject to a special set of regulatory, accounting, and tax rules. In the U.S.,
unlike most other types of business entities, they are not taxed on their income as long as they

17
distribute 90% of it to their shareholders and the funds meet certain diversification
requirements in the Internal Revenue Code. Also, the type of income they earn is often
unchanged as it passes through to the shareholders. Mutual fund distributions of tax-free
municipal bond income are tax-free to the shareholder. Taxable distributions can be either
ordinary income or capital gains, depending on how the fund earned those distributions. Net
losses are not distributed or passed through to fund investors.
Net asset value
The net asset value, or NAV, is the current market value of a fund's holdings, minus
the fund's liabilities, that is usually expressed as a per-share amount. For most funds, the
NAV is determined daily, after the close of trading on some specified financial exchange, but
some funds update their NAV multiple times during the trading day. The public offering
price, or POP, is the NAV plus a sales charge. Open-end funds sell shares at the POP and
redeem shares at the NAV, and so process orders only after the NAV is determined. Closed-
end funds (the shares of which are traded by investors) may trade at a higher or lower price
than their NAV; this is known as a premium or discount, respectively. If a fund is divided
into multiple classes of shares, each class will typically have its own NAV, reflecting
differences in fees and expenses paid by the different classes.
Some mutual funds own securities which are not regularly traded on any formal exchange.
These may be shares in very small or bankrupt companies; they may be derivatives; or they
may be private investments in unregistered financial instruments (such as stock in a non-
public company). In the absence of a public market for these securities, it is the responsibility
of the fund manager to form an estimate of their value when computing the NAV. How much
of a fund's assets may be invested in such securities is stated in the fund's prospectus.
The price per share, or NAV (net asset value), is calculated by dividing the fund's
assets minus liabilities by the number of shares outstanding. This is usually calculated at the
end of every trading day.

Average annual return

US mutual funds use SEC form N-1A to report the average annual compounded rates of
return for 1-year, 5-year and 10-year periods as the "average annual total return" for each
fund. The following formula is used:[6]
P(1+T)n = ERV

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Where:
P = a hypothetical initial payment of $1,000.
T = average annual total return.

n = number of years.

ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of
the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year periods (or fractional
portion).

Turnover
Turnover is a measure of the fund's securities transactions, usually calculated over a
year's time, and usually expressed as a percentage of net asset value.
This value is usually calculated as the value of all transactions (buying, selling)
divided by 2 divided by the fund's total holdings; i.e., the fund counts one security sold and
another one bought as one "turnover". Thus turnover measures the replacement of holdings.
In Canada, under NI 81-106 (required disclosure for investment funds) turnover ratio is
calculated based on the lesser of purchases or sales divided by the average size of the
portfolio (including cash).

Expenses and expense ratios

Mutual funds bear expenses similar to other companies. The fee structure of a mutual
fund can be divided into two or three main components: management fee, non-management
expense, and 12b-1/non-12b-1 fees. All expenses are expressed as a percentage of the
average daily net assets of the fund.

Management fees
The management fee for the fund is usually synonymous with the contractual
investment advisory fee charged for the management of a fund's investments. However, as
many fund companies include administrative fees in the advisory fee component, when
attempting to compare the total management expenses of different funds, it is helpful to
define management fee as equal to the contractual advisory fee plus the contractual
administrator fee. This "levels the playing field" when comparing management fee
components across multiple funds.

19
Contractual advisory fees may be structured as "flat-rate" fees, i.e., a single fee charged to the
fund, regardless of the asset size of the fund. However, many funds have contractual fees
which include breakpoints so that as the value of a fund's assets increases, the advisory fee
paid decreases. Another way in which the advisory fees remain competitive is by structuring
the fee so that it is based on the value of all of the assets of a group or a complex of funds
rather than those of a single fund.

Non-management expenses
Apart from the management fee, there are certain non-management expenses which
most funds must pay. Some of the more significant (in terms of amount) non-management
expenses are: transfer agent expenses (this is usually the person you get on the other end of
the phone line when you want to buy/sell shares of a fund), custodian expense (the fund's
assets are kept in custody by a bank which charges a custody fee), legal/audit expense, fund
accounting expense, registration expense (the SEC charges a registration fee when funds file
registration statements with it), board of directors/trustees expense (the members of the board
who oversee the fund are usually paid a fee for their time spent at meetings), and printing and
postage expense (incurred when printing and delivering shareholder reports).

Investor fees and expenses

Fees and expenses borne by the investor vary based on the arrangement made with the
investor's broker. Sales loads (or contingent deferred sales loads (CDSL)) are included in the
fund's total expense ratio (TER) because they pass through the statement of operations for the
fund. Additionally, funds may charge early redemption fees to discourage investors from
swapping money into and out of the fund quickly, which may force the fund to make bad
trades to obtain the necessary liquidity. For example, Fidelity Diversified International Fund
(FDIVX) charges a 10 percent fee on money removed from the fund in less than 30 days.

Brokerage commissions
An additional expense which does not pass through the fund's income statement
(statement of operations) and cannot be controlled by the investor is brokerage commissions.
Brokerage commissions are incorporated into the price of securities bought and sold and,
thus, are a component of the gain or loss on investments. They are a true, real cost of
investing though. The amount of commissions incurred by the fund and are reported usually 4
months after the fund's fiscal year end in the "statement of additional information" which is
legally part of the prospectus, but is usually available only upon request or by going to the

20
 SEC's or fund's website. Brokerage commissions, usually charged when securities are bought
and again when sold, are directly related to portfolio turnover which is a measure of trading
volume/velocity (portfolio turnover refers to the number of times the fund's assets are bought
and sold over the course of a year). Usually, higher rate of portfolio turnover (trading)
generates higher brokerage commissions. The advisors of mutual fund companies are
required to achieve "best execution" through brokerage arrangements so that the commissions
charged to the fund will not be excessive as well as also attaining the best possible price upon
buying or selling.

ASSET MANAGEMENT COMPANY (AMC)

The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. The
AMC is required t o be approved by the Securities and Exchange Board of India (SEBI) to
act as an asset management company of the Mutual Fund. At least 50% of the directors of the
AMC are independent directors who are not associated with the Sponsor in any manner. The
AMC must have a net worth of at least 10 crore at all times.

ASSET MANAGEMENT COMPANIES IN INDIA

The management of a client's investments by a financial services company, usually an

investment bank. The company will invest on behalf of its clients and give them access to a
wide range of traditional and alternative product offerings that would not be to the average
investor.

TABLE 1:

LIST OF AMC IN INDIA

 AIG GLOBAL ASSET MANAGEMENT CO. PVT. LTD.

21
 AXIS ASSET MANAGEMENT CO. LTD.
 BARODA PIONEER ASSET MANAGEMENT COMPANY LIMITED
 BENCHMARK ASSET MANAGEMENT COMPANY PVT. LTD
 BHARTI AXA INVESTMENT MANAGER PRIVATE LTD.
 BIRLA SUN LIFE ASSET MANAGEMENT COMPANY LIMITED
 CANARA ROBECO ASSET MANAGEMENT COMPANY LTD.
 DEUTSCHE ASSET MANAGEMENT (INDIA) PVT. LTD.
 DIAWA ASSET MANAGEMENT (INDIA) PRIVATE LIMITED
 DSP BLACKROCK INVESTMENT MANAGERS PRIVATE LIMITED
 EDELWEISS ASSET MANAGEMENT LIMITED
 ESCORTS ASSET MANAGEMENT LIMITED
 FIDELITY FUND MANAGEMENT PRIVATE LIMITED
 FRANKLIN TEMPLETON ASSET MANAGEMENT (INDIA) PRIVATE LIMITED
 FORTIS INVESTMENT MANAGEMENT (INDIA) PVT. LTD.
 GOLDMAN SACHS
 HDFC ASSET MANAGEMENT COMPANY LIMITED
 HSBC ASSET MANAGEMENT (INDIA) PRIVATE LTD.
 ICICI PRUDENTIAL ASSET MANAGEMENT COMPANY LTD.
 IDBI ASSET MANAGEMENT LIMITED.
 IDFC ASSET MANAGEMENT COMPANY LTD.
 ING INVESTMENT MANAGEMENT (INDIA) PVT. LTD.
 JM FINANCIAL ASSET MANAGEMENT PRIVATE LIMITED
 J P MORGAN MUTUAL FUND
 KOTAK MAHINDRA ASSET MANAGEMENT COMPANY LIMITED
 L&T INVESTMENT MANAGEMENT LIMITED
 LIC MUTUAL FUND ASSET MANAGEMENT COMPANY LIMITED
 MIRAE ASSET GLOBAL INVESTMENT MANAGEMENT (INDIA) PVT.LTD.
 MORGAN STANLEY INVESTMENT MANAGEMENT PVT LTD
 MOTILAL OSWAL ASSET MANAGEMENT COMPANY LIMITED
 PEERLESS FUNDS MANAGEMENT CO.LTD.
 PRAMERICA ASSET MANAGERS PRIVATE LIMITED

22
 PRINCIPAL PNB ASSET MANAGEMENT CO. PVT. LTD.
 QUANTUM ASSET MANAGEMENT CO. PRIVATE LTD.
 RELIANCE CAPITAL ASSET MANAGEMENT LTD.
 RELIGARE ASSET MANAGEMENT CO. PRIVATE LTD.
 SAHARA ASSET MANAGEMENT COMPANY PRIVATE LIMITED
 SBI FUNDS MANAGEMENT PRIVATE LIMITED
 SUNDARAM BNP PARIBAS ASSET MANAGEMENT COMPANY LIMITED
 TATA ASSET MANAGEMENT LIMITED
 TAURUS ASSET MANAGEMENT COMPANY LIMITED
 UTI ASSET MANAGEMENT COMPANY LIMITED


23
 INTRODUCTION TO THE COMPANY

History and Corporate Structure

Our predecessor, Unit Trust of India, was established in 1964 by an Act of the Parliament and
over time grew into one of the largest financial intermediary institutions in India catering to a
diverse group of

investors through a wide variety of funds. As the first mutual fund provider in India, Unit
Trust of India played a pioneering role in the development and growth of India's capital
markets, with initiatives such as launching the first unit linked insurance plan in 1971 and the
first retirement benefit plan in 1994. In July 2001, amidst the global recession and equity
markets downturn, Unit Trust of India suspended

dealings in its flagship fund, Unit Scheme 1964 ("US-64"), because there was a material gap
between the underlying net asset value of the fund and the repurchase price of the units. The
Government of India

intervened to protect the interests of the unitholders, and in October 2002, the Unit Trust of
India Act, 1963, was repealed by Parliament pursuant to The Unit Trust of India (Transfer of
Undertaking and Repeal) Act, 2002 (the "2002 Act"). As a result, Unit Trust of India was
bifurcated into two separate entities: the Specified Undertaking of Unit Trust of India
("SUUTI"), which was vested with the assets of Unit Trust of India's US-64 and assured
return funds, and UTI Mutual Fund, which was established as a SEBI registered mutual fund
with State Bank of India, Life Insurance Corporation of India, Punjab National Bank and
Bank of Baroda as its sponsors (collectively, the "Sponsors").

Pursuant to the 2002 Act and a transfer agreement dated January 15, 2003, among the
President of India and the Sponsors, 37 SEBI-compliant funds, five overseas funds and the

24
Senior Citizens Unit Plan, 1993, of Unit Trust of India were transferred to UTI Mutual Fund.
UTI Asset Management Company Private Limited ("UTI AMC") was incorporated on
November 14, 2002 and appointed by UTI Trustee Company Private Limited, as the trustee
of UTI Mutual Fund ("UTI Trustee"), to manage the funds of UTI Mutual Fund. UTI AMC
commenced operations with effect from February 1, 2003. In 2004, UTI AMC acquired 14
funds, with AUM at the time of Rs. 18,645 million, from another mutual fund provider,
Infrastructure Leasing & Financial Services Mutual Fund ("IL&FS Mutual Fund"). UTI
AMC was converted into a public limited company on November 14, 2007.

Below is a chart outlining our corporate structure (all three subsidiaries are 100% owned by
UTI AMC):

25
26
HISTORY
HDFC Bank was incorporated in 1994 by Housing Development Finance Corporation
Limited (HDFC), India's largest housing finance company. It was among the first companies to

receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in
the private sector. The Bank started operations as a scheduled commercial bank in January
1995 under the RBI's liberalization policies.
Times Bank Limited (owned by Bennett, Coleman & Co. / Times Group) was merged with
HDFC Bank Ltd., in 2000. This was the first merger of two private banks in India.
Shareholders of Times Bank received 1 share of HDFC Bank for every 5.75 shares of Times
Bank.
In 2008 HDFC Bank acquired Centurion Bank of Punjab taking its total branches
to more than 1,000. The amalgamated bank emerged with a base of about Rs. 1,22,000 crore
and net advances of about Rs.89,000 crore. The balance sheet size of the combined entity is
more than Rs. 1,63,000 crore.
Business focus
HDFC Bank deals with three key business segments. - Wholesale Banking Services,
Retail Banking Services, Treasury. It has entered the banking consortia of over 50 corporates
for providing working capital finance, trade services, corporate finance and merchant banking.
It is also providing sophisticated product structures in areas of foreign exchange and
derivatives, money markets and debt trading and equity research.
Wholesale banking services
blue-chip manufacturing companies in the Indian corp to small & mid-sized corporates and
agri-based businesses. For these customers, the Bank provides a wide range of commercial and
transactional banking services, including working capital finance, trade services, transactional
services, cash management, etc. The bank is also a leading provider of for its to corporate
customers, mutual funds, stock exchange members and banks.
Retail banking services

27
 The objective of the Retail Bank is to provide its target market customers a full range
of financial products and banking services, giving the customer a one-stop window for all
his/her banking requirements. The products are backed by world-class service and delivered to
customers through the growing branch network, as well as through alternative delivery
channels like ATMs, Phone Banking, NetBanking and Mobile Banking. HDFC Bank was the
first bank in India to launch an International Debit Card in association with VISA (VISA
Electron) and issues the Mastercard Maestro debit card as well. The Bank launched its credit
card business in late 2001. By March 2009, the bank had a total card base (debit and credit
cards) of over 13 million. The Bank is also one of the leading players in the “merchant
acquiring” business with over 70,000 Point-of-sale (POS) terminals for debit / credit cards
acceptance at merchant establishments. The Bank is well positioned as a leader in various net
based B2C opportunities including a wide range of internet banking services for Fixed
Deposits, Loans, Bill Payments, etc.
Treasury
Within this business, the bank has three main product areas - Foreign Exchange and
Derivatives, Local Currency Money Market & Debt Securities, and Equities. These services are
provided through the bank's Treasury team. To comply with statutory reserve requirements, the
bank is required to hold 25% of its deposits in government securities. The Treasury business is
responsible for managing the returns and market risk on this investment portfolio.

Distribution network
An HDFC Bank Branch
HDFC Bank is headquartered in Mumbai. The Bank has an network of 1725 branches
spread in 780 cities across India. All branches are linked on an online real-time basis.
Customers in over 500 locations are also serviced through Telephone Banking. The Bank has a
presence in all major industrial and commercial centres across the country. Being a
clearing/settlement bank to various leading stock exchanges, the Bank has branches in the
centres where the NSE/BSE have a strong and active member base.
The Bank also has 5,016 networked ATMs across these cities. Moreover, HDFC
Bank's ATM network can be accessed by all domestic and international Visa/MasterCard,
Visa Electron/Maestro, Plus/Cirrus and American Express Credit/Charge cardholders.

28
History

Reliance group was founded by Dhirubhai Ambani in 1966 as a polyester firm.

Dhirubhai started the equity cult in India. Reliance later entered into financial services,
petroleum refining, power sector. By 2002 Reliance had grown into a 15bn$ conglomerate.
After the death of Dhirubhai Ambani on July 6, 2002, Reliance was headed by his sons. The
group was formed after the two feuding brothers Mukesh Ambani and Anil Ambani, split
Reliance Industries.[3][4] Anil Ambani got the responsibility of Reliance Infocomm, Reliance
Energy, Reliance Capital and RNRL. This led to a new beginning called RELIANCE. Later
this group entered the power sector through Reliance Power, and the entertainment sector by
acquiring Adlabs.

Capital

 Reliance Capital

 Reliance Life Insurance

 Reliance General Insurance

 Reliance Venture

 Reliance Mutual Fund

 Reliance Money
 Reliance Securities
 Reliance Consumer Finance
 Reliance Venture Capitalist
 Reliance Asset Reconstruction
 Reliance PMS
 ICEX -Stock exchange

Reliance Capital (Rel Cap) has interests in asset management and mutual funds, life and
general insurance, private equity and proprietary investments, stock broking, depository

29
 services, distribution of financial products, consumer finance and other activities in financial
services. Reliance Mutual Fund is India's largest Mutual Fund. Reliance General
Insurance is a general insurance company and among the top 3 private sector insurers.
Reliance Money is brokerage and distributor of financial products in India with over 2.7
million customers and has the largest distribution network. Its brokerage, arm Reliance
Securities is planning to invest Rs 300 crore (Rs 3 billion) for upgrading infrastructure, hiring
staff and enhancing the capability of its online trading platform.

Global Presence

Reliance is having big presence in USA, Europe, Middle East and the Asia Pacific region
through Reliance Globalcom. BIG Cinemas is having large presence USA, Malaysia and
Netherlands through more than 260 screens and caters to over 25 million consumers. BIG FM
radio station is operating in Singapore. Reliance Power is having coal mines in Indonesia.
Reliance has also made major acquisitions in UK, USA .

30
LITERATURE REVIEW:

 HDFC Fixed Maturity Plan-370D

This growth was Launched by HDFC Mutual Fund and the NFO Period are from 9 th
November, 2010 to 22nd November, 2010 with a Minimum Investment is Rs. 5000.This is a
close ended debt scheme.The investment objective of the plan is to generate regular income
through investments in debt / money market instruments and government securities maturing
on or before the maturity date of the plan.The Scheme is also in Dividend Option and
Quarterly Dividend Option named HDFC Fixed Maturity Plan-370D-November 2010(17)-2-
Dividend and HDFC Fixed Maturity Plan-370D-November 2010(17)-2- Qtly Dividend

 SBI Debt Fund Series-90 Day–37

SBI Mutual Fund has launched SBI Debt Fund Series- 90 Days-37 close ended scheme. The
new fund offer will open on 28th December, 2010 and will close the same day. The
investment objective of the scheme is to provide regular income, liquidity and returns to the
investors through investments in a portfolio comprising of debt instruments such as
government securities, PSU and Corporate Bonds and money market instruments maturing on
or before the maturity of the scheme. The minimum application amount will be Rs 5,000 and
the scheme will not charge any entry or exit load. The scheme will be benchmarked against
CRISIL Liquid Fund Index.

 Religare Medium Term Bond Fund

Religare Mutual Fund has launched a new fund named as Religare Medium Term Bond
Fund, an open ended income scheme. The New Fund Offer (NFO) price for the scheme is Rs.

31
10 per unit. The new issue will be open for subscription from 13 December and close on 24
December 2010.

 ICICI Prudential FMP - Series 53 -18 Months Plan A

It is a close ended debt schemes. The New Fund Offer (NFO) price for the schemes is Rs. 10
per unit. The investment objective of the schemes is to generate regular returns by investing
in a portfolio of fixed income securities/ debt instruments which mature on or before the date
of maturity of the schemes. It is available under the schemes viz. cumulative and dividend
option. Dividend Payout is the only facility available under dividend option. The cumulative
option shall be default option under the scheme. The schemes will allocate upto 100% of
assets in Central and State Government securities. It would further invest in money market
instruments, short term and medium term debt securities / debt instruments and securitized
debt with low to medium risk profile. Entry load and exit load charge are not applicable for
the schemes. The schemes are proposed to be listed on NSE. The fund seeks to collect a
minimum subscription amount of Rs. 5 crore under each scheme during the NFO period. The
schemes performance will be benchmarked against Crisil Composite Bond Fund Index and
the minimum application amount is Rs. 5000 and in multiples of Rs. 10 thereafter.

32
TITLE OF THE STUDY:

A Study on Performance evaluation of Identified Mutual Fund Scheme in India.

STATEMENT OF THE PROBLEM

Nowadays mutual funds have become a very popular mode of investments for the normal
layman who is greatly concerned with the safety of his investment & the stability of returns.
Hence this report is a comparative study about the performance of some prominent mutual
funds in India namely UTI, HDFC & Reliance. Therefore in this study we have considered
three companies namely in terms of investors perception about the performance of the
various companies mentioned above.

OBJECTIVE OF THE STUDY

 To evaluate the performance of mutual fund companies

 To compare the performance of different equity tax planning mutual funds of different
companies

 To study about the customer preferences between the various mutual funds

SCOPE OF THE STUDY

The scope of the study includes acquiring knowledge about the mutual funds & the mutual
fund industry in India. As a whole this project includes a detailed study of mutual funds, their
types, its evolution in India, benefits & returns. And also the performance of various mutual
fund schemes are studied.

33
METHODOLOGY

 Primary Data:

The data that is directly collected is known as primary data. Primary data is
also called as first hand data.

 Secondary Data:

The data that is collected from previous records is known as secondary data.

TOOLS FOR DATA ANALYSIS

 NAV

 Sharpe Index

 Jensen Index

 Treynor Index

LIMITATIONS OF THE STUDY

 Only 3 equity funds of different companies were compared and analysed.

 The study was limited to the extent of just evaluation of Mutual Fund equity tax
planning schemes.
 The study covers only the open ended fund
 The study does not cover the other schemes.
 As many statistical and financial tools are used, the limitations of these subjects
cannot be denied
 Each evaluation measure or variable has its own drawbacks
 Study is based only on the growth & dividend objective of a scheme and cannot be
extrapolated to other objectives as each objective has its own evaluation techniques

34
OPERATIONAL DEFINITIONS OF THE CONCEPTS
Alpha coefficient: It is the excess return of the fund above risk adjusted market return, given
its level of risk as measured by beta. An investment with a positive alpha indicates that the
fund has performed better than expected, given its beta. And a negative alpha indicates that
the fund has underperformed.

Alpha = Excess Return - ((Beta x (Benchmark - RFR)

Benchmark = Total Return of Benchmark Index

RFR = Risk free return or Treasury bill

Annual Return: The percentage of change in net asset value over a year's time, assuming
reinvestment of distribution such as dividend payment and bonuses.

Annualized Return: This is the hypothetical rate of return, if the fund achieved it over a
year's time, would produce the same cumulative total return if the fund performed
consistently over the entire period. A total return is expressed in a percentage and tells you
how much money you have earned or lost on an investment over time, assuming that all
dividends and capital gains are reinvested.

Asset Management Company: It is a company set up primarily for managing the investment
of mutual funds and makes investment decisions in accordance with the scheme objectives,
deed of Trust and other provisions of the Investment Management Agreement. For Tata
Mutual Fund, Tata Asset Management Limited is the Asset Management Company.

Benchmark: A parameter against which a scheme can be compared. For example, the
performance of a scheme can be benchmarked against an appropriate index.

Beta: A measure of the relative sensitivity of a stock or mutual fund to the market. The
higher the beta, the more volatile (or more sensitive) the stock or fund is considered to be
relative to the market as a whole. The NSE Nifty is assigned a beta of 1.

35
Capital Appreciation: As the value of the securities in a portfolio increases, a fund's Net
Asset Value (NAV) increases, meaning that the value of your investment rises. If you sell
units at a higher price than you paid for them, you make a profit, or capital gain. If you sell
units at a lower price than you paid for them, you'll have a capital loss.

Compounding: When you deposit money in a bank, it earns interest. When that interest also
begins to earn interest, the result is compound interest. Compounding occurs if bond income
or dividends from stocks or mutual funds are reinvested. Because of compounding, money
has the potential to grow much faster.

Entry Load: Load on purchases/ switch-out of units.

Equity Schemes: Schemes where more than 50% of the investments are made in the equity
shares of various companies. The objective is to provide capital appreciation over a period of
time.

Expense Ratio: It is the percentage of fund's value that is paid as expenses. Expenses include
management fees and all the other fees associated with the fund's daily operations.

Exit Load: Load that is charged on redemptions i.e. during the exit of the fund

Fund Category: It is a type of scheme which the mutual fund company invests its corpus in
a particular category. It could be a growth, debt, balanced, gilt or liquid scheme

Fund Family: It is the AMC which manages the various types of funds.

Fund Management Costs: It is the charge levied by an AMC on the investors for managing
their funds.

Fund Manager: The person who makes all the final decisions regarding investments of a
scheme, i.e. the person who makes all the investment decisions.

Investment Objective: The identification of attributes associated with an investment or

investment strategy, designed to isolate and compare risks, define acceptable levels of risk,
and match investments with personal goals.

Load: A charge that is levied as a percentage of NAV at the time of entry into the
Scheme/Plans or at the time of exiting from the Scheme/Plans.

36
No-Load Scheme: A Scheme where there is no initial Entry or Exit Load.

Mutual Funds: Investments company/trust that pools money from unit holders and invests
that money into a variety of securities, including stocks, bonds, and money-market
instruments in line with the funds objective.

NAV: Net Asset Value (NAV) is the value of the fund which is obtained by the following
formula:

Market/Fair Value of Scheme's investments (+) Receivables (+)

Accrued Income (+) Other Assets (-) Accrued Expenses

(-) Payables (-) Other Liabilities

NAV =
Number of Units outstanding

NAV Change: The difference between today's closing net asset value (NAV) and the
previous day's closing net asset value (NAV).

NAV %Change: The percentage change between today's closing net asset value (NAV) and
the previous day's closing net asset value (NAV)

Net Worth: A person's net worth is equal to the total value of all possessions, such as a
house, stocks, bonds, and other securities, minus all outstanding debts, such as mortgage and
revolving credit lines.

Net Yield: Rate of return on a security net of out-of-pocket costs associated with its
purchase, such as commissions or markups.

Offer Document Or Prospectus: The official document issued by mutual funds prior to the
launch of a fund describing the characteristics of the proposed fund to all its prospective
investors. It contains all the information required as per the Securities and Exchange Board of
India, such as investment objective and policies, services, and fees. Individual investors are
encouraged to read and understand the fund's prospectus.

37
Risk Adjusted Returns%: Generally, the expected returns from an investment are
dependent on the risk involved in the investment. For the purpose of comparing returns from
investments involving varying levels of risk, the returns are adjusted for the level of risk
before comparison. Such returns (reduced for the level of risk involved) are called risk-
adjusted returns.

Sale Price: The price at which a fund offers to sell one unit of its scheme to investors. This
NAV is grossed up with the entry load applicable, if any.

Sales Charge: Fee on the purchase of new shares of a mutual fund. A sales charge is similar
to paying a premium for a security in that the customer must pay a higher offering price.
Sometimes, it is called a load.

Scheme: It is a fund or plan where the money contributed by the unit holders are maintained
and managed and the profit/loss from the scheme accrue only to the unit holders. A mutual
fund can launch more than one scheme.

SEBI: The Securities and Exchange Board of India.

SEBI Regulations: Securities and Exchange Board of India (Mutual Funds) Regulations,
1996 or such other SEBI (MF) Regulations as may be in force from time to time and would
include Circulars, Guidelines etc., unless specifically mentioned to the contrary.

Sharpe Ratio: The Sharpe ratio measures the risk-adjusted return of a fund. Simply put, the
ratio measures the variability of ' excess returns' (defined by returns of the fund over the 'risk
free return). Mathematically, the formula takes a fund's return in excess of a risk-free
investment and divides this by the standard deviation of the returns. Higher the Sharpe ratio
better is the fund.

Spread: The difference between the rates at which money is deposited in a financial
institution and the higher rates at which the money is lent out. Also, the difference between
the bid and ask price for a security.

Standard Deviation: It is a statistical measurement of the dispersion of a fund's return over a

specified time period. Investors may examine historical standard deviation in conjunction
with historical returns to decide whether a fund's volatility would have been acceptable given
the returns it would have produced. A higher standard deviation indicates a wider dispersion

38
of past returns and thus greater historical volatility. Standard deviation does not indicate the
absolute performance, but merely indicates the volatility of its returns over time.

Total Return%: Return on an investment, taking into account capital appreciation,

dividends or interest, and individual tax considerations adjusted for present value and
expressed on an annual basis.

Unit: Unit representing a share in the assets of the corresponding plan of the Scheme.

Unit Holder: A person who holds Unit(s) under any plan of the Scheme.

Valuation: Calculating the market value of the assets of a mutual fund scheme at any point
of time.

Volatility: In investing, volatility refers to the ups and downs of the price of an investment.
Greater the ups and downs, more volatile the investment is.

Yield: The percentage of return an investor receives based on the amount invested or on the
current market value of holdings.

39
DATA ANALYSIS & INTERPRETATION

DIFFERENT FUNDS RETURN (NAV)

COMPANY NAME 2006 2007 2008 2009 2010

FORTIS EQUITY FUND (DIV) 16.25 19.74 27.52 36.92 20.18
BIRLA EQUTIY FUND (GTH) 9.89 10.21 11.10 14.18 11.1
HDFC EQUITY FUND (DIV) 98.85 107.19 147.29 189.91 190
RELLANCE EQUITY FUND (BONUS) 8.94 10.15 11.77 15.53 8.3
SAHARA MIDCAP FUND (GTH) 14.50 15.22 18.18 26.57 10.4
SBI BLUE CHIP FUND (DIV) 18.69 25.54 36.63 45.67 5.83
TATA EQUITY MGT FUND (GROWTH) 7.23 10.51 11.34 12.55 6.84
UTI GROWTH AND VALUE FUND 19.00 17.55 20.23 16.14 21.98
FRANKLIN FMCG FUND – GROWTH 25.8 30 34.2 30 29.6
ICICI PRUDENTIAL – GROWTH 10 10.8 11.7 12.5 13.5
UTI SPREAD GROWTH - - 10 11.56 12.68
ICICI PRUDENTIAL EQTY-DERI - 10 10.7 11.33 12.14
IDFC CLASSIC EQUITY - GROWTH - 12.15 15.83 26.14 12.02
HDFC ARBITRAGE FUND - - 10 10.35 11.9
JM ARBITRAGE FUND - 10 10.8 11.52 12.4

Identified Mutual Fund Scheme Details

Company Name 2010 2009 2008 2007

UTI Equity Tax Savings Plan 12.99 12.92 15.45 17.23

HDFC Tax Saver Fund 151.70 123.71 140.22 134.10

40
 Reliance Tax Saver Fund 14.23 11.85 13.46 13.46

HDFC EQUITY FUND-DIVIDEND

Objective: To achieve capital appreciation in the long term by investing primarily in equity
oriented securities.
Structure: Open-ended Growth Scheme
Inception Date: February 01, 1994
Plans and Options under the Plan: Growth & Dividend Option.
Face Value (Rs/Unit): Rs. 10
Minimum Investment: For new investors: Rs.5000 and in multiples of Rs.100 thereafter. For
existing investors: Rs. 1000 and in multiples of Rs. 100 thereafter.
Entry Load : For investments below Rs. 5 crores, Entry load is 2.25%. For Investments of Rs.
5 crores and above, Entry Load is Nil.
Exit Load : Nil.

HDFC EQUITY Fund Scheme

Scheme Code Scheme Name Date NAV Performance % as on Jan 30, 2011
(Rs.)
91 Days 182 Days 1 Year
ZI001 HDFC Equity Jan 30 189.91 _8.75 -42.29 -47.97
Fund - Dividend 2011

Year Fund Return Sensex Nifty

2006 66.3 6680 2115
2007 108.5 9390 2836
2008 148 14015 4007
2009 226 20300 6144
2010 190 9952 3033

41
HDFC Tax Saver Fund

Scheme Name Date NAV(Rs) Performance percentage as on Feb 4, 2011

91 Days 182 Days 1 Year
HDFC Tax Saver fund Feb 04 216.33 -13.6 -1.5 18.5

Graph:

Interpretation: The table shows that the fund has performed well in 2008 & 2009 &
relatively better in 2007 & 2010 when compared to 2006.

RELIANCE Equity Fund scheme

Scheme Code Scheme Name Date NAV Performance % as on Jan 30, 2010
(Rs.)
91 Days 182 Days 1 Year
RC213 Reliance Equity Jan 8.3 -10.14 -34.86 -40.97
Fund - Bonus 30,2010

Fund Return Sensex Nifty

2006 10.15 6680 2115
2007 10 9390 2836

42
 2008 11.7 14015 4007
2009 15.3 20300 6144
2010 8.3 9952 3033
Reliance Tax Saver fund

Scheme Name Date NAV(Rs) Performance percentage as on Feb 4, 2011

91 Days 182 Days 1 Year
Reliance TaxSaver Fund Feb 04 19.33 -18.1 -4.6 14.2

Graph:

Interpretation:

The fund has performed well in 2008 & 2009 & relatively better in 2007 &
2010 when compared to 2006.

UTI Equity Tax Savings Plan

Scheme Name Date NAV(Rs) Performance percentage as on Feb 4, 2011

91 Days 182 Days 1 Year
UTI Equity Tax Saving Feb 04 16.16 -15.4 -2.6 11.5

43
UTI GROWTH AND VALUE FUND

Objective: To seek capital appreciation through opportunities arising out of listed growth and
undervalued stocks.

Structure: Open Ended Equity Fund

Inception Date: October 28, 1999
Plans and Options under the Plan: Bonus Plan, Annual Dividend Plan, Growth Plan, Semi-
Annual Dividend Plan.
Face Value (Rs/Unit): Rs. 10
Minimum Investment: Rs. 5,000/-

Entry Load: Nil for investments made after 10.10.2004 and amount >=Rs 2 crore. Entry load
0.5% for investments made after 10.10.2004 and amount >= Rs 25 lakhs and amount < 2
crore. Entry load 2.25% for investments made after 10.10.2004 and amount < Rs 25 lakhs.
Exit Load: Nil.

UTI GROWTH AND VALUE Fund scheme

Scheme Code Scheme Name Date NAV Performance % as on Jan 30, 2010
(Rs.)
91 Days 182 Days 1 Year
UT193 UTI Equity Fund Jan 30 21.98 -2.74 -32.91 -39.80

Fund Return Sensex Nifty

2006 19 6680 2115
2007 17.55 9390 2836
2008 20.23 14015 4007
2009 16.14 20300 6144

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 2010 21.98 9952 3033
Graph:

Interpretation:

The fund has performed well in 2008 & 2009 & relatively better in 2007 & 2010 when
compared to 2006.
REVIW OF ANALYSIS OF DATA

DATA ANALYSIS PLAN

Using the following formula, the NAV data thus congregated to find out the average daily
returns of the various schemes under consideration:
Daily return of the portfolio = (Closing price – Opening price) / Opening price
The returns of the BSE Sensex have been computed by applying the following formula:

Returns of the BSE Sensex = (Closing price – Opening price) / Opening price

The Variation of the daily return has been established in order to figure out the Standard
Deviation of the schemes under consideration. The Beta has been computed on the basis of
Covariance of the Fund and BSE Sensex, which is divided by the Variance of BSE Sensex.
Generally, higher the Beta, higher the risk and lower the Beta, lower the risk.

Portfolio Performance Measures

45
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. The Total Risk of a given
fund is sum of systematic risk and unsystematic risk 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 vis-à-vis 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. The most
important and widely used measures of performance are:

 The Treynor Measure Of Performance

Ti = (Return from the Portfolio - Risk free rate of return)/ Beta of the Portfolio

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.

 The Sharpe Measure of Performance

Si = (Return from the Portfolio - Risk free rate of return)/ Std.dev of the Portfolio

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.

 The Jenson Model Of Performance

Alpha () = Return from the Portfolio – [Risk free rate of return + Beta of the Portfolio *
(Average market return - Risk free rate of return)]

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SHARPE INDEX

Si = (Return from the Portfolio - Risk free rate of return)/ Std.dev of the Portfolio
Si=(Rp-Rf)/sd

Schems Rp SD BETA Rf Si

Reliance equity fund-growth -0.94 4.39 0.74 0.04 -0.22323

UTI growth and value fund -0.97 4.56 0.72 0.04 -0.22149

HDFC equity fund - dividend -1.15 5.1 0.85 0.04 -0.23333

TRENERS INDEX

Tn=Rp-Rf/B

47
Ranking of the Portfolio of the various Companies

The ranks of funds based on the SHARPE’S INDEX

Name of the company Rank

UTI Equity Tax Savings Plan 1

HDFC Tax Saver Fund 2B(Rm- [B(Rm-Rf)/Rp-

Schems Rp BETA Rf Rm Rf)/Rp-Rf Rf]/B
Reliance Tax Saver Fund 9
Reliance equity fund- -
growth 0.94 0.74 0.04 0.5 -0.347 -0.469

UTI Growth and Value -

Fund 0.97 0.72 0.04 0.5 -0.327 -0.455

HDFC equity fund - -

dividend 1.15 0.85 0.04 0.5 -0.328 -0.386 The
ranks
of the funds based on the Treynor Ratio

Name of the company Rank

UTI Equity Tax Savings Plan 1

HDFC Tax Saver Fund 2

Reliance Tax Saver Fund 5

48
The ranks of the funds based on the Jensen Ratio

Name of the company Rank

UTI Equity Tax Savings Plan 3

HDFC Tax Saver Fund 5

Reliance Tax Saver Fund 13

Summary of Findings
The following inferences can be drawn from the observation of the above research

 The performance of the Index funds has been bearish during the period.
 The average market return (Sensex) during the reference period is negative.
 One thing is obvious that there is no similarity or unanimity in the ranking of various
funds by the performance measurement ratios.
 The statistical point of view asserts is that whatever differences have been observed
could have arisen "purely by chance", i.e. due to sampling (i.e. choice of period).
Besides, the performance measures consider different statistics, not simply the mean
returns.

49
Suggestions

 Mutual Fund Asset Management Company’s is required to take more awareness in

not only metros and cities but also in remote areas to induce the investor who invest in
capital market.
 Mutual Fund Companies should target upon the insurance agents to sell their product
which helps them to grow easily.
 Investors should evaluate past performance, look for stability and also past data, is no
guarantee of future predictions. It is a useful way to assess how well or badly a fund
has performed in comparison to its stated objectives.
 The mutual fund Asset Management Companies should educate and give awareness
about the concept of Mutual Funds to the investors.
 As majority of the investors in India are not aware of Mutual Funds is benefits over
other investments. Therefore it leads to minimum investment in Mutual Funds.

50
Conclusion

It brings together a group of people and invests their money in stocks, bonds, and other
securities. According to the analysis all Selected Mutual Funds are the well performed funds,
so the investor can think about the investment in these funds. Mutual funds are easy to buy
and sell. Investor may either buy them directly from the fund company or through a third
party. The awareness about the Mutual Fund is increasing day by day & more number of
investing is happening in the Mutual Funds in India, today it is one of the safest investment
in the country. The main reason for its poor growth is that the mutual fund industry in India
is new in the country. Large sections of Indian investors are yet to be intellectuated with the
concept. Hence, it is the prime responsibility of all mutual fund companies, to market the
product.

51
Bibliography:

Books:
 C.R. KOTHARI “Research Methodology Methods and Techniques” 2ND Edition,
2001, New Age International Publishers.
 Meir kohn, “Financial Institution and Markets”, published by Tata Mc Graw Hill
publishing company limited.
 Reilly,Frank.K and Brown, Keith C, Investment analysis and Portfolio management ,

6thedition,south western publication,1999

 Fischer, Donald. E and Jordan, Ronald J, Security Analysis and Portfolio

Management, 6th edition, Prentice Hall of India, 2000.

 Chandra, Prasanna, Investment Analysis and Portfolio Management, Tata McGraw

Hill.

www.amfiindia.com
www.mutualfundsindia.com
www.mutualfundanalysis.com
www.investsmartindia.com
www.bseindia.com
www.nseindia.com
www.rbi.org

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