SUBMITTED TO:

Dr. Akshay Damani (Faculty, ASMSOC, NMIMS University)

Course: Bachelor of Business Administration
Subject: Investment Analysis and Portfolio Management

A Report by:
C001 Aboli Dhawankar – 74102150175
C002 Adarsh Bubna – 74102150
C003 Aditya Mitra – 74102130191
C004 Advait Shirali – 74102150550
C005 Akaar Chakravorty - 74102150

15 September 2017
 A Report on:

RICO MUTUAL FUND

We value your future….

2
1. INTRODUCTION
Mutual funds have emerged as an attractive avenue for investments over the last decade in
India. It is a common pool of money in which investors put in their contribution which is then
invested by the fund manager into various assets like stocks, bonds, money market
instruments, gold and other similar assets according to the specified investment objective of
the fund.
One of the key advantages of investing in a mutual fund is that any investor (even with a small
investment) can get access to professional money management and expertise. Otherwise, it
would be very difficult for an investor to create a diversified portfolio of investments on his own
with a small amount of money. Thus, with mutual funds, each investor can enjoy the benefits of
portfolio diversification and participate proportionally in the return that the scheme generates.

OBJECTIVE OF THE REPORT

The underlying task was to assume the role of a fund manager and design a multi-million
mutual fund product for a HNI investor by understanding capital markets and various
instruments involved in financial planning. An important idea behind this report is to learn the
process of constructing and managing portfolios through Modern Portfolio Theory thereby
enhancing decision making skills and learning how to evaluate investment data through various
methodologies. This report contains details of the mutual fund product designed by us and a
description of the various methods adopted in the portfolio building and evaluation process.

2. FUND DETAILS
NAME OF THE FUND: Rico Mutual Fund

RICO MUTUAL FUND

Vision Statement: To be a consistent player in the Indian mutual funds
space with an emphasis on customer care and a culture of good corporate
governance.
Mission Statement: To help our customers make informed choices about
achieving financial prosperity.

3
INVESTMENT POLICY
It is the policy of Rico Mutual Funds to invest public funds to ensure preservation of capital by
allowing the highest investment return. Investments shall be made with proper judgment,
considering prevailing circumstances and by weighing the safety of capital under all
circumstances.
(i) TYPE OF FUND: Open Ended Equity-Growth Fund. A growth fund is a diversified portfolio of
stocks that offers higher potential for capital appreciation but usually at above-average risk
with little or no dividend payout. The portfolio of such funds mainly consists of companies with
above-average growth that reinvest their earnings into expansion, acquisition and research and
development.
(ii) OBJECTIVE OF THE FUND: The investment objective of Rico Equity-Growth Fund is to
generate capital appreciation from a portfolio of equity and equity related securities. The fund
also aims to provide a broad market exposure by investing in global indices. There will be 4
stocks in each portfolio representing equity stocks and 4 indices in each portfolio representing
global indices.
(iii) TARGET CUSTOMERS: High Net Worth Individuals
The mutual fund product designed by us is suitable for HNI investors who have a moderately
higher risk appetite than regular investors and who are seeking investment predominantly in
equity and equity related instruments with an aim to benefit from capital appreciation in the
long term. A High Net Worth individual is defined as person or entity with a net worth over $1
million. HNI’s would be the target customers for our fund because they can provide us a large
pool of funds which would help us undertake suitable investments.

4
(iv) INVESTMENT STRATEGY: Various investment strategies have been adopted over different
time periods to ensure that the fund not only performs better in terms of the risk-return
tradeoff but also outperforms the market. All investment strategies adopted would be in line
with the sole objective of capital appreciation. The fund manager will invest in sectors which
have potential to grow and investment will not be restricted to one sector. The selection of
investment avenues will be done based on growth prospects and industry performance.
Returns from the investment will be evaluated on a regular basis against a benchmark.

Short Term:
In the short term, the plan would be to generate more returns with a minimum possible level of
risk by constantly monitoring the performance of the industry and the stocks itself. Possibility
of any unfavorable impact on the overall portfolio performance would be managed by churning
the portfolio.

Intermediate Term:
Based on the short term results, strategies would be adopted to modify or maintain the
portfolio in the intermediate term. The fund manager would seek to amplify returns and follow
a growth driven approach by entering more promising industries and stocks. Risks associated
with the investments would be minimized to ensure that there are more rewards against
volatility.

Investment Diversification:
Diversification is a useful strategy that aims at minimizing the overall portfolio risk by changing
the asset classes into which funds would be allocated. Poorly performing stocks/indices with a
negative growth potential and a high Coefficient of Variation (CoV) will be removed and
another stock/index which is expected to perform better will be added to the portfolio.
Decision to churn the portfolio will be made after every 6 months to maintain consistency in
portfolio evaluation and management.

5
Finance and Audit Committee Approval
The Financial and Audit committee is responsible for overseeing the accounting and financial
reporting processes of the fund. It also monitors the internal control systems for the funds. The
committee has 6 independent directors and is headed by Dr. Akshay Damani. The audit
committee ensures that quality of financial reports is well maintained. Meetings are held every
quarter in executive sessions and in separate sessions with management to discuss important
matters. No approval from the committee is currently pending.

Investment Responsibilities

 Implementing consistent investment strategies that are in line with the objectives of the
fund.
 Making informed investment decisions by carefully monitoring the market and critically
analyzing the economic trends and investment options.
 Disclosure of all relevant information about the fund performance and keeping unit
holders informed about the investments on a regular basis.
 Any change in the investment strategies to take place with the underlying intention of
protecting the interests of the unit holders.
 Maintaining high standards of diligence and commitment and complying with the rules
and regulations laid down by SEBI and not engaging in illegal practices.

6
3. ASSET ALLOCATION
Rico Equity Growth Fund is a growth scheme that aims at capital appreciation in medium to
long term. Therefore, the corpus of the scheme will be invested primarily in equity and equity
related instruments including global equity indices. However, the scheme may, in future, invest
a part of its corpus in debt and money market instruments to manage its liquidity requirements
and to protect the interests of the unit holders.
Asset Allocation (as a % of net assets) is as under:

Instruments Allocation (% of net Risk Profile

assets)
Equity and equity Equity Securities 50
related Medium to High
instruments Equity Indices 50

The scheme will invest in equity stocks in India for which companies will be identified based on
several criteria such as good financial track record, potential for future growth, industry
scenario among others. Besides, a portion of the funds will also be invested in domestic and
global equity indices. Risks arising out of investments will be regularly managed through
suitable diversification.
Change in Asset Allocation Pattern
The asset allocation pattern indicated above may change from time to time, taking into account
changing market conditions, market opportunities, applicable regulations and political and
economic factors. It must be clearly understood that the percentages stated above are only
indicative and not absolute and that they can vary substantially depending upon the perception
of the Fund Manager. However, the intention at all times will be to seek to protect the interests
of the Unit holders. Such changes, if any, in the investment pattern will be for short term and
for defensive consideration only and will be subject to SEBI (MF) Regulations.
If there is any modification in the asset allocation, justification for the same shall be placed
before the investment committee and reasons for the same shall be recorded in writing. The
investment committee shall then decide on the course of action.

7
PROCESS
Rico Equity Fund
1. Initially, the choice of stocks in the portfolio was limited to the cement sector in India. We
selected equity stocks of 4 Indian cement companies: Ultratech Cement Ltd, Shree Cement Ltd,
Ambuja Cement Ltd and Dalmia Bharat Cement Ltd. Data was collected from the BSE India
website for the monthly closing prices of the selected stocks for a time frame of 5 years (March
2011-March 2016). Dividend per share was determined for each stock. The holding period
returns on these stocks were calculated followed by annualized return and risk associated with
each stock (using AVERAGE and STDEV function).
HPR = (Current Price – Base Price + Dividend Paid)/ Base Price

Summary of annualized return and risk

2. A correlation matrix was prepared which summarized the correlation among the HPRs of the
selected 4 stocks. Correlation was determined using CORREL function.

8
3. The next step involved calculation of covariance. Covariance is a measure of the extent to
which two variables are linearly associated. Covariance was calculated by multiplying the
correlation between two stocks with the annualized SD of both the stocks.

4. Assuming the initial investment to be equal in all 4 stocks, a 25% weight was assigned to each
stock and a bordered covariance matrix was prepared by multiplying the weights assigned to
two stocks with the covariance between them.

5. Using the MS Excel Solver option, we set an objective to minimize the risk for a given level of
return by changing the weights allocated to each stock. Simulation was performed to find the
optimum combination of weights that would give the lowest risk for a given level of expected
return. With the optimum risk-return, an efficiency frontier was plotted.

9
 Efficiency Frontier
0.44

0.42 0.42

0.4
0.39
0.38

0.36 0.36
0.3507
0.34

0.32

0.3
0.28 0.285 0.29 0.295 0.3 0.305 0.31 0.315
(Initial Portfolio)
6. We then churned the initial portfolio and modified it by removing 3 stocks and adding 3 new
stocks. The time frame changed to September 2011-September 2016. The same process was
followed as above to arrive at the optimum combination of weights that would give the lowest
return for a given level of expected return.

Efficiency Frontier
0.58
0.57
0.56
0.55
0.54

0.52

0.5 0.5
0.4929
0.48

0.46

0.44
0.21 0.215 0.22 0.225 0.23 0.235 0.24 0.245 0.25 0.255

Modified Portfolio (After Churning)

7. The final portfolio was constructed with 4 indices considering a time frame of 5 years from
March 2012-March 2017. Optimum portfolio return and risk combinations were arrived at by
following the same process as in the previous two cases.

10
 Efficiency Frontier
0.55
0.52
0.5
0.5

0.45
0.45

0.42 0.414
0.4

0.35

0.3
0.2 0.21 0.22 0.23 0.24 0.25 0.26 0.27

Rico Global Fund

1. The initial portfolio comprised of 4 global indices: Canada S&P TSX Composite, Turkey BIST
100, Sri Lanka ASPI and Shanghai Composite Index. Data was collected for the monthly prices of
the selected indices for a time frame of 5 years (March 2011-March 2016). The holding period
returns from the indices were calculated followed by the annualized return and risk associated
with each index.

2. A correlation matrix was prepared which summarized the correlation among the HPRs of the
selected 4 indices. Correlation was determined using CORREL function.

11
3. The next step involved calculation of covariance. Covariance is a measure of the extent to
which two variables are linearly associated. Covariance was calculated by multiplying the
correlation between two indices with the annualized SD of both the indices.

4. Assuming the initial investment to be equal in all 4 indices, a 25% weight was assigned to
each index and a bordered covariance matrix was prepared by multiplying the weights assigned
to two indices with the covariance between them.

5. Using the MS Excel Solver option, we set an objective to minimize the risk for a given level of
return by changing the weights allocated to each index. Simulation was performed to find the
optimum combination of weights that would give the lowest risk for a given level of expected
return. With the optimum risk-return, an efficiency frontier was plotted. [Annexure 4]

6. We then churned the initial portfolio and modified it by removing 3 indices and adding 3 new
indices. The time frame changed to September 2011-September 2016. The final portfolio was
constructed with 4 indices considering a time frame of 5 years from March 2012-March 2017.
Optimum portfolio return and risk combinations were arrived at by following the same
processes above. [Annexure 5, 6]

12
4. LIST OF ASSETS/ASSET CLASS AND JUSTIFICATION FOR SELECTION
(a) Equity Stocks Portfolio
Cement Industry
India is the second largest producer of cement in the world. Over the years, the industry has
attracted huge investments both from Indian as well as foreign investors. Government
initiatives such as development of 98 smart cities and “Housing for all” are expected to provide
a major boost to the sector in the coming years. With the Indian government’s focus on
infrastructure development, the cement industry is expected to grow at 6-7% by the end of
2017. Higher growth prospects for the cement industry made us choose this sector. Choice of
stocks was limited to only one sector initially in order to understand the correlation between
same sector stocks and its impact on the overall portfolio performance. Using market
capitalization as the criteria, top 4 companies in the Indian cement sector were selected:
1. Ultratech Cement Ltd.
2. Shree Cement Ltd.
3. Ambuja Cement Ltd.
4. Dalmia Bharat Cement Ltd.
The portfolio was designed for an HNI investor assuming lesser risk aversion. The annualized
return and risk associated with each stock over a period of 5 years from March 2011 to March
2016 are as under:

Stocks Portfolio Allocation Annualized Annualized Annualized Return

(Based on Excel Return Risk Annualized Risk
simulation) % %

13
 Ultratech Cement Ltd 14.6% 25.37 28.38 0.894

Shree Cement Ltd. 68.3% 41.84 32.26 1.297

Ambuja Cement Ltd. 0.8% 14.07 24.84 0.566

Dalmia Bharat Cement 16.3% 58.98 55.15 1.069

Ltd

A moderate to high correlation was found between the stocks. [Annexure A1]. The overall
portfolio return was 42% with a standard deviation of 31%. Not only were the returns attractive
but the portfolio also outperformed its benchmark BSE Sensex returns. But, one of the
disadvantages of having a sector specific portfolio is that there is always more volatility.
Besides, lack of diversification makes the investment more risky. Therefore, a decision was
taken to churn and diversify the initial portfolio and build a new portfolio in September 2016.
Since the return earned for every unit of risk taken was maximum for Shree Cement stocks
(1.297), these stocks retained their place in the new portfolio. Shree Cement is expected to
grow at around 10-12% in the next 5 years. The other 3 stocks including Ultratech Cement Ltd,
Ambuja Cement Ltd and Dalmia Bharat Cement Ltd were replaced with new stocks from sectors
other than cement. The new portfolio was designed in September 2016 with 4 stocks from
different sectors: Paint, Pharma, Automobile and Cement.
1. Berger Paints Ltd
2. Ajanta Pharma Ltd
3. Eicher Motors Ltd
4. Shree Cement Ltd
Berger Paints, Ajanta Pharma and Eicher Motors had been some of the best performing stocks
in the last 5 years. Berger paints is the second largest paint company in India. Both Ajanta
Pharma and Eicher Motors have outperformed the market in past 5 years. Between 2010 and
2015, Ajanta Pharma zoomed 4626% and Eicher Motors 1267%. For Ajanta Pharma, there has
been consistent growth in the net profit year after year. Its market value appreciated 47 times
from Rs 28 in December 2010 to Rs 1,337 in December 2015. For Eicher Motors, there was a
change in strategy ̶ the company had repositioned its bullet motorcycle. A right strategy thus
translated into stock performance. In a span of just 4 years, the stock price touched Rs 20,032
in April 2016 from Rs 2,903 in December 2012.
The annualized return and risk associated with each stock over a period of 5 years from
September 2011 to September 2016 are as under:

Stocks Portfolio Allocation Annualized Return Annualized Risk

(Based on Excel % %

14
 simulation)
Berger Paints Ltd 1.3% 26.72% 34%

Ajanta Pharma Ltd. 5.5% 57.8% 58.91%

Eicher Motors Ltd. 55.5% 61.96% 32.28%

Shree Cement Ltd. 37.8% 50.6% 31.28%

The return generated by the new portfolio (57%) was higher than the initial portfolio (42%) with
standard deviation lower than that of the previous one. Also, this portfolio outperformed the
benchmark BSE Sensex returns. Since, the overall performance of the new diversified portfolio
was better, we decided to keep the same stocks when designing our final portfolio in March
2017 because it was expected that these stocks would continue to perform better. The final
portfolio comprised of Berger Paints Ltd, Ajanta Pharma Ltd, Eicher Motors Ltd and Shree
Cement Ltd. Return and risk associated with this portfolio were calculated taking into account a
period of 5 years from March 2012 and March 2017. It was decided that this portfolio would be
offered as the final mutual fund product to the investors with portfolio return over the past 5
years being 52% which is well above the Sensex returns of 11.59%. This portfolio has an
associated risk of 26% against the 52% return that it offers. This makes it attractive for HNI
investors who are our target customers.
Equity Fund: Allocation of funds

Berger Paints Ltd Ajanta Pharma Ltd Eicher Motors Ltd Shree Cement Ltd
2% 2% 71% 25%

(b) Global Indices Portfolio

For the global indices portfolio, equity indices of 4 different countries were selected to build the
initial portfolio in March 2016. The purpose was to gain an understanding of equity markets
globally. In order to have a holistic view, indices were selected in a way which could represent
equity markets of countries in different economic stages. So, to represent a developed
economy, we chose Canada S&P TSX Composite. Turkey BIST 100 and Sri Lanka ASPI were
selected as indices from the developing countries Turkey and Sri Lanka respectively whereas
Shanghai Composite Index was selected to represent one of the fastest emerging economies in
the world. Also, it was assumed that these indices could give us a better understanding of
economies in different geographic locations including Europe, South and South East Asia and
North America.

15
The annualized return and risk associated with each index over a period of 5 years from March
2011 to March 2016 are as under:

Index Portfolio Allocation Annualized Return Annualized Risk

(Based on Excel % %
simulation)
Canada S&P TSX 46.6% -0.4% 9.7%
Composite
Turkey BIST 100 42.1% 7.6% 22.5%

Sri Lanka ASPI 0.2% -2.3% 15.5%

Shanghai Composite 11.2% 4% 26.5%

Index

As seen in the table above, the risks associated with each index was very high as compared to
the returns. The overall portfolio return and standard deviation stood at 3.45% and 12.5%
respectively indicating poor performance. The MSCI World Equity Index gave a return of 3.88%
during the same period which was higher than the portfolio return. This meant that the initial
portfolio underperformed its benchmark. This portfolio was not suitable for being offered to
our clients. Therefore, we decided to churn and modify this portfolio and a new portfolio was
designed in September 2016 by replacing three of the old indices with three new indices. The
new modified portfolio consisted of the following indices:
1. Singapore STI
2. Sri Lanka ASPI
3. Canada TSX 60
4. New Zealand NZX 50
Singapore is a developed and a successful free market economy. The unemployment levels in
the country are very low. Singapore’s economy is heavily dependent on exports including
electronics, medical and optical devices and information technology products. The fact that
Singapore has been ranked as the most open economy in the world builds up optimism about
the future potential of its economy. This justifies the fund manager’s selection of Singapore STI
(Straits Time Index) for rebalancing the initial portfolio.

Sri Lanka ASPI (All Share Price Index) had retained its place in the new portfolio. The Colombo
Stock Exchange is the principal stock exchange in Sri Lanka which provides completely

16
computerized exchanging platform. Sri Lanka being a developing economy has an underlying
potential to grow in the coming years. With an annual growth of 6.4%, it is well ahead of other
countries in the South Asian region.

Canada TSX 60 is an index of 60 large companies listed on the Toronto Stock Exchange. It
provides the investor, an exposure to 10 different sectors. The Canadian economy is the leading
economy in the group of G7 nations in terms of growth. By the end of 2017, Canada’s GDP
growth is expected to reach an 18 times high. The fund manager rightly capitalized on this
opportunity by including the index in the portfolio.

New Zealand is the world’s second easiest country to do business with economic growth that
has been faster than most other developed countries. The country has a relatively strong fiscal
position which ensures stability and makes New Zealand a reliable country for investment. The
NZX 50 was selected by the fund manager because it is the main stock market index in New
Zealand
After diversification, the portfolio return and standard deviation were noted to be 9.9% and
6.35% respectively, indicating improved overall performance. The portfolio also outperformed
the MSCI World Equity Index which had generated returns of 8.75%. In order to magnify the
returns and ensure that there is financial prosperity for investors in the long run, we further
churned the portfolio and designed a new portfolio in March 2017 which comprised of the
following indices:
1. India S&P BSE Sensex
2. New Zealand NZX 50
3. Oslo All Share Index (Norway)
4. S&P 500

S&P BSE Sensex is expected to be in a bull market phase over the next three to five years. The
Indian market is experiencing a robust economic growth of over 7% which definitely makes
India a bright spot. Since sentiments are bullish on the equity markets in India, it is expected
that Sensex will give above average returns over the medium to long term.

New Zealand NZX 50 has given attractive returns over the last five years and is expected to
continue to do so in the coming years. It has a relatively strong fiscal position which makes it a
reliable country for investments. Therefore, we decided not to replace this index.

17
Norway has one of the biggest sovereign wealth funds in the world with nearly $900 billion in
assets out of which 60% is currently allocated to equities, 35% bonds and 5% real estate. It can
be said that Norway owns about 0.8% of all the equity wealth in the world. Thus, Norway has a
very strong growth potential in terms of growth from equities.

The S&P 500 is an American stock market index of 500 large companies listed on the New York
Stock Exchange. It has been predicted that the S&P 500 would deliver 6% to 7% annual returns
in the next 5-6 years.

Rico Global Fund: Allocation of Funds

S&P BSE Sensex New Zealand NZX 50 Oslo All Share Index S&P 500
14% 60% 2% 24%

5. PORTFOLIO EVALUATION
Considering the investment in the fund made in equity /equity related securities with the
objective of achieving long term growth of capital, we propose to have S&P BSE Sensex as a
benchmark for evaluating the fund’s performance against the market. MSCI World Equity Index
has been used as a benchmark to evaluate the performance of the global indices portfolio.
Performance of equity portfolio as on 31 March 2017

Time Period Portfolio Benchmark Returns (%)

Returns (%) BSE Sensex

March 2011-March 2016 42 6.54

September 2011-September 2016 57 11.72

March 2012-March 2017 52 11.59

From the table above, it is clear that the equity portfolio has consistently outperformed the
market in the last five years.

Performance of global indices portfolio as on 31 March 2017

Time Period Portfolio Benchmark Returns (%)

Returns (%) MSCI World Equity Index

18
 March 2011-March 2016 3.45 3.88
September 2011-September 2016 9.9 8.75
March 2012-March 2017 13.5 6.75

Portfolio return over a five year period between March 2011 and March 2016 was 3.45%
whereas the World Equity Index captured a return of 3.88%. This implies that the global indices
portfolio underperformed its benchmark during that period. However, after September 2011,
the portfolio has consistently outperformed its benchmark as observed in the table above. This
turnaround was a result of the effective investment strategies that have been continuously
adopted and revised to ensure positive performance of the fund. The objective to achieve
financial prosperity of its customers has always motivated Rico Mutual Fund to improve its fund
management activities.

Portfolio Evaluation using Risk Parameters

Risk Parameters
The last step in the evaluation process involved performance monitoring using Sharpe ratio,
Treynor Ratio and Jensen’s Alpha measure.
Sharpe ratio is a measure of the portfolio’s performance in relation to the risk of the portfolio’s
investments.
Rp  R f
Sharpe ratio 
σp

Rp = expected portfolio return

Rrf = risk free rate of return
σp = portfolio standard deviation
Treynor Ratio is a measure of the portfolio returns per unit of market risk. It takes into account
the systematic risk of the portfolio.
Rp  R f
Treynor ratio 
βp

Rp = expected portfolio return

Rf = risk free rate of return

19
βp = portfolio’s beta

Portfolio Type Portfolio Portfolio Sharpe Ratio* Treynor Ratio

(Equity Stocks) Standard Beta
Deviation
Initial 31% 1.275 1.13 0.27
(March 11-March 16)
Modified 25% 0.926 2 0.54
(Sep 11-Sep 16)
Final 26% 0.967 1.73 0.47
(March 12-March 17)
*Calculation of Sharpe Ratio assumes risk free rate as Fixed Deposit rate of State Bank of India
i.e.7% [Refer to Annexure B1, B2]

Portfolio Type Portfolio Portfolio Sharpe Ratio** Treynor Ratio

(Global Indices) Standard Beta
Deviation
Initial 12.55% 0.613 0.12 0.024
(March 11-March 16)
Modified 6.35% 0.236 1.24 0.335
(Sep 11-Sep 16)
Final 6.64% 0.331 1.73 0.347
(March 12-March 17)
**Calculation of Sharpe Ratio assumes risk free rate as average annual rate of return on US
Treasury bill i.e. 2% [Refer to Annexure B1, B2]
The Sharpe Ratio has increased with every churning indicating that higher returns have been
generated for each additional unit of risk taken.
Jensen’s Alpha is used to measure the risk-adjusted performance of a portfolio in relation to
the expected market return which is based on the capital asset pricing model (CAPM).

α p  R p  R f  β p  ER M  R f  

Rp = expected portfolio return

Rf = risk free rate of return
βp = portfolio’s beta
Rm = expected market return

20
Jensen’s Alpha Measure

Time Period Portfolio (Equity Stocks) Portfolio(Global Indices)

Initial 0.358 0.0029

(March 11-March 16)
Modified 0.4563 0.063
(Sep 11-Sep 16)
Final 0.4056 0.099
(March 12-March 17)
[Refer to Annexure B3]

6. COSTS
1. Expense Ratio: Expense ratio is a percentage of net assets that a mutual fund charges the
investors for managing their money. This includes costs such as fund management fees, audit
fees, trustee fees, registrar fees and selling and distribution expenses. Rico Equity Growth Fund
has an expense ratio of 1.85%. This indicates that every year, 1.85% of the fund’s corpus will be
used to cover expenses.
2. Loads: Entry and exit loads are integral expenses linked with mutual fund investments. Entry
load has been banned in India whereas exit load is levied as a percentage of NAV when the
investor wishes to exit or redeem his/her mutual fund investments.

Entry Load Not Applicable

According to SEBI circular no. SEBI/IMD/ CIR No.4/ 168230/09 dated June 30,
2009, no entry load will be charged by the Scheme to the investor.

Exit Load
An Exit Load of 2.00% is payable if Units are redeemed or switched-out
within 1 year from the date of allotment.

No Exit Load is payable if Units are redeemed or switched-out after 1 year

from the date of allotment.

No Entry / Exit Load shall be levied on bonus units and units allotted on
dividend reinvestment.

21
7. PORTFOLIO MANAGERS BACKGROUND
Miss. Aboli Dhawankar Qualifications:
Chief Fund Manager 1. Bachelors Of Business
64 years Administration, NMIMS
University
Experience : 16 years
2. CFA Level 3 – 2015
3. MSc. Finance – London
School Of Business
Mr Adarsh Bubna Qualifications:
Deputy Chief Fund Manager 1. Bachelors Of Business
36 years Administration, NMIMS
University
Experience : 4 years
2. Chartered Accountant (10
years)
3. Indian Institute of
Management, Ahmedabad –
Core Finance
Past Experience:
Open Ended Equity Schemes:
HDFC Infrastructure Fund
Close Ended Equity Scheme
investing in Eligible Securities
as per Rajiv Gandhi Equity
Savings Scheme, 2012:
HDFC Focused Equity Fund
Past Experience:
Wealth Manager – ICICI
Nov 2013 – Jan 2015
Sr. Mutual Fund Data Analyst-
CRISIL Ltd.
Jan 2012 – Nov 2013
HDFC Top 200 Fund
Jan 2015 - Present
22
Mr Advait Shirali Qualifications:
Executive Fund Manager 1. Bachelors Of Business
44 years Administration, Symbiosis
Institute of Management, Pune
Experience : 6 years
2. PGDM – Indian Institute Of
Management, Kozhikode
3. MBA Finance – Jamnalal Bajaj
Institute of Management Studies
Mr Aditya Mitra Qualifications:
Senior Fund Manager 1. Bachelors Of Business
53 years Administration, NMIMS
University
Experience : 12 years
2. Chartered Accountant – 20
years
3. Msc. Finance, NYU
Mr Akaar Chakravorty Qualifications:
Senior Fund Manager 1. Bachelors Of Business
45 years Administration, NMIMS
University
Experience : 12 years
2. Chartered Accountant (10
years)
3. Indian Institute of
Management, Banglore – Core
Finance
Past Experience:
Sundaram Mutual Fund
5 year weighted average return-
25.57%
Average 5 year AUM- 670 cr.
Sr. Fund Manager, Head
Equities– Motilal Oswal
June 2010 – December 2015
Past Experience:
L&T Emerging Businesses Fund
Reliance Diversified Power
Sector Fund
Country Head at Vistarico
Financial Advisors Limited
Past Experience:
Sr. Mutual Fund Data Analyst-
CRISIL Ltd.
Jan 2012 – Nov 2013
Open Ended Equity Schemes:
HDFC Infrastructure Fund
Reliance Diversified Power
Sector Fund
23
8. CONCLUSION
Rico Mutual Fund was successfully designed by us to cater to the investment needs of a HNI
investor. Both the Equity Fund and the Global Fund were able to achieve the investment
objective as envisioned by us.
The Equity Fund portfolio gave increasing returns every time it was rebalanced (Churned).
Besides, the fund consistently outperformed the benchmark. The global fund on the other hand
did not perform well initially but through suitable diversification strategies and churning, the
fund was successful in generating satisfactory returns. To sum up, Rico Mutual Fund can be
successfully launched as a mutual fund product for those investors who want to benefit from
capital appreciation of equities in the long run. The fund will continue to “value your future…..”

24
ANNEXURES
A
1. Initial Portfolio (Equity Stocks): March 2011-March 2016
Covariance Matrix
Company Ultratech Shree Cement Ambuja Dalmia
Ultratech 0.0805 0.0682 0.0430 0.0758
Shree Cement 0.0682 0.1041 0.0535 0.0892
Ambuja 0.0430 0.0535 0.0617 0.0652
Dalmia 0.0758 0.0892 0.0652 0.3041
Summary of return and risk
Company Correlation MatrixReturn Risk
Ultratech 0.2537 0.2838
Company Ultratech Shree Cement Ambuja Dalmia
Shree Cement 0.4184 0.3226
Ultratech
Ambuja 1 0.7454
0.1407 0.6097 0.4840
0.2484
Shree Cement
Dalmia Bharat 0.7454 1
0.5898 0.6672 0.5014
0.5515
Ambuja 0.6097 0.6672 1 0.4761
Dalmia 0.4840 0.5014 0.4761 1

25
 Efficiency Frontier
0.44

0.42 0.42

0.4
0.39
0.38

0.36 0.36
0.3507
0.34

0.32

0.3
0.28 0.285 0.29 0.295 0.3 0.305 0.31 0.315

2. Modified Portfolio (Equity Stocks): September 2011-September 2016

Summary of return and risk
Company Return Risk
Berger Cements 0.26719 0.34059
Ajanta Pharma 0.57883 0.58916
Eicher Motors 0.61959 0.32285
Shree Cement 0.50605 0.31280

Correlation Matrix
Company Berger Ajanta Eicher Shree
Berger 1 0.2389 0.1526 -0.0271
Ajanta 0.2389 1 0.3421 0.1230
Eicher 0.1526 0.3421 1 0.2508
Shree -0.0271 0.1230 0.2508 1

Covariance Matrix
Company Berger Ajanta Eicher Shree
Berger 0.1160 0.0479 0.0168 -0.0029
Ajanta 0.0479 0.3471 0.0651 0.0227
Eicher 0.0168 0.0651 0.1042 0.0253
Shree -0.0029 0.0227 0.0253 0.0978

26
 Efficiency Frontier
0.58
0.57
0.56
0.55
0.54

0.52

0.5 0.5
0.4929
0.48

0.46

0.44
0.21 0.215 0.22 0.225 0.23 0.235 0.24 0.245 0.25 0.255

3. Final Portfolio (Equity Stocks): March 2012-March 2017

Summary of return and risk
Company Return Risk
Berger 0.23447 0.33720
Ajanta 0.45592 0.57970
Eicher 0.57730 0.31886
Shree 0.38826 0.30218

Correlation Matrix
Company Berger Ajanta Eicher Shree
Berger 1 0.2193 0.1455 0.0063
Ajanta 0.2193 1 0.3380 0.1104
Eicher 0.1455 0.3380 1 0.3122
Shree 0.0063 0.1104 0.3122 1

Covariance Matrix
Company Berger Ajanta Eicher Shree
Berger 0.1137 0.0429 0.0156 0.0006
Ajanta 0.0429 0.3361 0.0625 0.0193
Eicher 0.0156 0.0625 0.1017 0.0301
Shree 0.0006 0.0193 0.0301 0.0913

27
 Efficiency Frontier
0.55
0.52
0.5
0.5

0.45
0.45

0.42 0.414
0.4

0.35

0.3
0.2 0.21 0.22 0.23 0.24 0.25 0.26 0.27

4. Initial Portfolio (Indices): March 2011-March 2016

Summary of return and risk
Index Return Risk
Canada TSX Composite -0.00431 0.09717
Turkey BIST 100 0.07625 0.22511
Sri Lanka ASPI -0.02272 0.15536
Shanghai Composite Index 0.03980 0.26490

Correlation Matrix
Index Canada Turkey Sri Lanka Shanghai
Canada 1 0.2127 0.2587 0.3683
Turkey 0.2127 1 0.0558 0.1830
Sri Lanka 0.2587 0.0558 1 0.1723
Shanghai 0.3683 0.1830 0.1723 1

Covariance Matrix
Index Canada Turkey Sri Lanka Shanghai
Canada 0.0094 0.0047 0.0039 0.0095
Turkey 0.0047 0.0507 0.0020 0.0109
Sri Lanka 0.0039 0.0020 0.0241 0.0071
Shanghai 0.0095 0.0109 0.0071 0.0702

28
 Efficiency Frontier
0.04

0.035 0.0345

0.03 0.03
0.028
0.025 0.025
0.0235
0.02 0.022255

0.015

0.01

0.005

0
0.105 0.11 0.115 0.12 0.125 0.13

5. Modified Portfolio (Indices): September 2011-September 2016

Summary of return and risk
Index Return Risk
Singapore STI 0.02209 0.12777
Sri Lanka ASPI 0.00438 0.15590
Canada TSX 60 0.05418 0.08573
New Zealand NZX 50 0.15274 0.09658

Correlation Matrix
Index Singapore Sri Lanka Canada New Zealand
Singapore 1 0.1134 0.5506 0.0670
Sri Lanka 0.1134 1 0.2954 -0.0629
Canada 0.5506 0.2954 1 0.0204
New Zealand 0.0670 -0.0629 0.0204 1

Covariance Matrix
Index Singapore Sri Lanka Canada New Zealand
Singapore 0.0163 0.0023 0.0060 0.0008
Sri Lanka 0.0023 0.0243 0.0039 -0.0009
Canada 0.0060 0.0039 0.0073 0.0002
New Zealand 0.0008 -0.0009 0.0002 0.0093

29
6. Final Portfolio (Indices): March 2012-March 2017
Summary of return and risk
Index Return Risk
India BSE Sensex 0.11591 0.13654
New Zealand NZX 50 0.15123 0.09447
Norway Oslo All Share Index 0.09682 0.11006
S&P 500 0.10899 0.10182

Correlation Matrix
Index Sensex NZX Oslo S&P 500
Sensex 1 -0.1180 0.3418 0.5527
NZX -0.1180 1 0.0482 -0.0481
Oslo 0.3418 0.0482 1 0.6446
S&P 500 0.5527 -0.0481 0.6446 1

Covariance Matrix
Index Sensex NZX Oslo S&P 500
Sensex 0.0186 -0.0015 0.0051 0.0077
NZX -0.0015 0.0089 0.0005 -0.0005
Oslo 0.0051 0.0005 0.0121 0.0072
S&P 500 0.0077 -0.0005 0.0072 0.0104

30
 B
1. Calculation of Sharpe Ratio

Rp  R f
Sharpe ratio 
σp

Portfolio Type Portfolio Portfolio Risk free rate Sharpe Ratio

(Equity Stocks) Return Standard of return 7%
Deviation
Initial 42% 31% 0.07 (0.42-0.07) = 1.13
(March 11-March 16) 0.31
Modified 57% 25% 0.07 (0.57-0.07) = 2
(Sep 11-Sep 16) 0.25
Final 52% 26% 0.07 (0.52-0.07) = 1.73
(March 12-March 17) 0.26

Portfolio Type Portfolio Portfolio Risk free Sharpe Ratio

(Global Indices) Return Standard rate of
Deviation return 2%
Initial 3.45% 12.55% 0.02 (0.035-0.02) = 0.12
(March 11-March 16) 0.1255
Modified 9.9% 6.35% 0.02 (0.099-0.02) = 1.24
(Sep 11-Sep 16) 0.0635

31
 Final 13.5% 6.64% 0.02 (0.135-0.02) = 1.73
(March 12-March 17) 0.0664

2. Calculation of Treynor Ratio

Rp  R f
Treynor ratio 
βp

Portfolio Type Portfolio Risk free Portfolio Beta Treynor Ratio

(Equity Stocks) Return rate 7%
Initial 42% 31% 1.275 (0.42-0.07) = 0.27
(March 11-March 16) 1.275
Modified 57% 25% 0.926 (0.57-0.07) = 0.54
(Sep 11-Sep 16) 0.926
Final 52% 26% 0.967 (0.52-0.07) = 0.47
(March 12-March 17) 0.967

Portfolio Type Portfolio Risk free Portfolio Beta Treynor Ratio

(Global Indices) Return rate 2%
Initial 3.45% 0.02 0.613 (0.0345-0.02) = 0.024
(March 11-March 16) 0.613
Modified 9.9% 0.02 0.236 (0.099-0.02) = 0.335
(Sep 11-Sep 16) 0.236
Final 13.5% 0.02 0.331 (0.135-0.02) = 0.347
(March 12-March 17) 0.331

32
 3. Calbulation of Jensen’s Alpha Measure

α p  R p  R f  β p  ER M  R f  
Portfolio Type Portfolio Risk Portfolio Market
(Equity Stocks) Return free Beta Return Jensen’s Alpha Measure
rate (Sensex)
7%
Initial 42% 0.07 1.275 0.65 0.42-[0.07+1.275(0.65-0.07)]
(March 11-March 16) = 0.3558
Modified 57% 0.07 0.926 0.117 0.57-[0.07+0.926(0.117-0.07)]
(Sep 11-Sep 16) = 0.4563
Final 52% 0.07 0.967 0.116 0.52-[0.07+0.967(0.116-0.07)]
(March 12-March 17) = 0.4056
Portfolio Type Portfolio Risk Portfolio Market
(Global Indices) Return free Beta Return Jensen’s Alpha Measure
rate (World
2% Equity
Index)
Initial 3.45% 0.02 0.613 0.038 0.034-[0.02+0.613(0.038-
(March 11-March 16) 0.02)]
= 0.0029
Modified 9.9% 0.02 0.236 0.087 0.099-[0.02+0.236(0.087-
(Sep 11-Sep 16) 0.02)]
= 0.063
Final 13.5% 0.02 0.331 0.065 0.135-[0.02+0.331(0.065-

33
 (March 12-March 17) 0.02)]
= 0.099

RICO MUTUAL FUND

We value your future….

EQUITY STOCKS PORTFOLIO

GLOBAL INDICES PORTFOLIO
Type of fund: Open ended Equity Growth Fund
Type of fund: Open ended Equity Growth Fund
Investment Objective: To achieve long term capital
Investment Objective: To achieve long term
appreciation by investing in a portfolio
capital appreciation by investing in a portfolio
predominantly consisting of equity and equity
predominantly consisting of global equity indices.
related securities
Benchmark Index: World Equity Index
Benchmark Index: S&P BSE Sensex

Risk Parameters (5 years) Risk Parameters (5 years)

Standard Deviation 26% Standard Deviation 6.64%
Sharpe Ratio 1.73 Sharpe Ratio 1.58

Berger Paints 2% BSE SENSEX 14%

Ajanta Pharma 2% New Zealand NZX 50 60% 34

Eicher Motors 71% Oslo All Share Index 2%

Entry Load: NIL

Exit Load: 2% if redeemed or switched out on or before completion of 1 year from the date of allotment of units.

Nil if redeemed or switched out after the completion of 1 year from the date of allotment of units.

35
REFERENCES

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