A Project Report
On
COMPARATIVE ANALYSIS OF THREE ASSET MANAGEMENT COMPANIES
for KARVY STOCK BROKING LIMITED
Submitted By, Vinayak S. Bhoite (PGPBA) 2005-2007
Submitted to,
Vishwakarma School of Business Management & Research, PUNE
ACKNOWLEDGEMENT
I wish to express my deep sense of gratitude and profound thanks to Mr. Anand Jaju for giving me the opportunity to work with him in his reputed firm. He made me aware about trends, condition and opportunities in the mutual fund, which helped me immensely in my project.
I would like to express my heartily gratitude to Mr. Hemant Thorat for allowing me to work with him. It s a great honors to work work under his guidance. guidance. His guidance was was very
valuable for me.
I wish to thank Prof. Sovani Madam my faculty guide for all the encouragement and aspiring support in completing my project.
I am thankful to all the staff members of KARVY Stock Broking Limited to support me in the project. Specially Rohit Sodani, Gaurav Bhansali, Ketan Jaju, Purvi Shaha, Kiran Jagtap, Abhijeet & Sandeep.
Vinayak S. Bhoite.
INDEX
Chapter
Title
No.
Page
No.
1
Executive summery
1
2
Introduction
4
3
Company Profile
7
4
Objective of the study
15
5
Scope
16
6
Research Methodology
19
7
Project Work Undertaken
22
8
Analysis and interpretation of data
61
9 10
Suggestions and Conclusion
Bibliography
93 100
CHAPTER-I: EXECUTIVE SUMMARY
-1-
EXECUTIVE SUMMARY
Comparative Study of Different Mutual Fund
Preparation of project report is an inseparable part of management studies. It gives a thorough insight and proper understanding to the students of the intricacies of the business situation. I have completed my project under Mr. Hemant Thorat Distribution head without
whose guidance and help I could not complete my project successfully in time. The project study was carried out for a period of two months form 15
th
June to 14
th
August 2006 at KARVY Stock Broking Ltd. Pune under the supervision of Mr. Hemant
Thorat. This project study can be divided into two major part. The first part dealt with what mutual fund is & thorough information of it. And the second part dealt with information of all mutual fund industry such as corpus of all existing companies, new fund offers and repurchase & redemption information. As well as it contents the comparative study of three asset management companies. Comparisons are made on the basis of products and service parameters among the leading asset management companies like Unit Trust of India, SBI asset Management Company,
TATA Asset Management Company. Objective of this project is to get the thorough knowledge about Mutual funds and how mutual funds beneficial for retail investor. It also gives strategic guideline for choosing right mutual according with requirement of investment. It also speared light on the part of Risk Management in the mutual fund investment regime of the individual investor. The project work will try to look into the various benefit of investing that an individual can obtain by Mutual Funds. As per the analysis, suggesting for investment opportunities in the mutual fund are
provided. Apart from these, various option were also recommended.
-2-
The project also facilitates the investment advisors in making decision that reduce the inherent risk present in stock market. This project also provides practical knowledge regarding mutual funds. This may become a base for taking decision in investing money in various mutual funds and to earn a fair rate of return on invested money. The final chapter covers the Suggestion, Conclusion, Recommendations & Limitations
that could be taken into consideration by investor.
-3-
CHAPTER-II: INTRODUCTION
-4-
INTRODUCTION
Mutual funds have been in existence in India for last 42 years now. The area of mutual fund is highly volatile and sensitive area. Investors are still biased about investments in mutual funds. Mutual fund companies primarily invest in share market, debt market, money market o r combination of all these. Mutual funds provide an option to investors to invest according to his requirement. A person who wants to invest in capital market but is unaware about the capital market for those mutual funds is the best option for investment.The investors in proportion to their investments share profits or losses. The mutual funds normally come out with a number of schemes with different investment objectives, which are launched from time to time. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI), which regulates securities markets before it can collect funds from the public. Investing in mutual fund is like sitting on passenger s seat of someone else s car . A mutual fund company involves a group of fund managers and investment advisors who look after the funds of investors. The performance of mutual fund companies can be
analyzed on the basis of past performance, NAV, Portfolio and Risk profile of the fund. From 1993 to 2003, 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. The corpus of the Indian mutual fund industry reached Rs 3,29,382 crore in March 2006, it still had a long way to go as it is still behind the bank deposit figure of
Rs16,22,579 crore. The American mutual fund industry s corpus stood at three times that
of bank deposits and therefore the Indian mutual fund industry had a long way to go. Banks assets are expected to grow at an annual composite rate of growth of 13.4% during the rest of the decade. In short term, mutual fund assets could fluctuate but over the period we could see big jump in industry assets. The asset base will continue to grow at an annual rate of about 30 to 35 % over the next few years as investor s shift their assets from banks and other traditional avenues. Some of the older public and private sector players will either close shop or be taken over.
-5-
The total assets of all scheduled commercial banks by end-March 2010 is estimated at Rs40, 90,000 crore. Going by current annual growth rate, mutual fund assets would be doubled by year 2010 but considering the growing appetite of retail investors for investments & booming Indian
Economy, we could see bigger jump in mutual fund assets. Out of ten public sector players five will sell out, close down or merge with stronger players in three to four years. In the private sector this trend has already started with two mergers and one takeover. Here too some of them will down their shutters in the near future to come.But this does not mean there is no room for other players. The market will witness a flurry of new players entering the arena. There will be a large number of offers from various asset management companies in the time to come. Some big names like Fidelity, Principal, Old Mutual etc. are looking at Indian market seriously. One important reason for it is that most major players already have presence here and hence these big names would hardly like to get left behind. The mutual fund industry is awaiting the introduction of derivatives in India as this would enable it to hedge its risk and this in turn would be reflected in it s Net Asset Value (NAV).SEBI is working out the norms for enabling the existing mutual fund schemes to trade in derivatives. Importantly, many market players have called on the Regulator to initiate the process immediately, so that the mutual funds can implement the changes that are required to trade in Derivative s.
-6-
CHAPTER- II COMPANY PROFILE
-7-
COMPANY PROFILE
KARVY Stock Broking Limited Limited is India s premier integrated integrated financial services services company with a wide network of 525 offices & 7300 professionals operating from 352 towns/cities and also established presence in UAE, UK & USA.
KARVY, ranked among the top five in the country in all its business segments, services over 16 million individual investors in various capacities, and provides investor services to over 300 corporates, comprising the Corporate India.
KARVY covers the entire spectrum of financial services such as Stock Broking, Demat Services, Insurance, Wholesale/Retail Debt, Primary Market, Mutual Funds, Fixed Deposits, Loan Products Distribution, Investment Banking, Registrars & Share Transfer
Agents, and Medical Transcription & BPO.
Board of Director Chairman
Mr. C. Parthasarathy
Director
Mr. M. Yugandhar Mr. M. S. Ramakrishna
-8-
KARVY - IN EARLY DAYS
The birth of Karvy was on a modest scale in 1981. It began with the vision and enterprise of a small group of practicing Chartered Accountants who founded the flagship company Karvy Consultants Limited. We started with consulting and financial accounting
automation, and carved inroads into the field of registry and share accounting by 1985. Since then, we have utilized our experience and superlative expertise to go from strength to strength strength
to better better our our services, services, to to provide provide new new ones, ones, to innovate innovate,, diversify diversify and and in the
process, evolved evolved Karvy as as one of India s premier inte inte grated financial service enterprise.
Thus over the last 20 years Karvy has traveled the success route, towards building a reputation as an integrated financial services provider, offering a wide spectrum of services. And we have made this journey by taking the route of quality service, path breaking breaking innova innovation tionss in service, service, versati versatility lity in servic servicee and finally finally
totality totality in servic service. e.
Our highly qualified manpower, cutting-edge technology, comprehensive infrastructure and total customer-focus has secured for us the position of an emerging financial services giant enjoying the confidence and support of an enviable clientele across diverse fields in the financial world..Our values and vision of attaining total competence in our servicing
has served as the building block for creating a great financial enterprise, which stands solid on our fortresses of financial strength - our various companies.
With
the experience of years of holistic financial servicing behind us and years of complete expertise in the industry to look forward to, we have now emerged as a premier integrated financial services provider. And today, we can look with pride at the fruits of our mastery and experience
comprehensive financial services that are competently segregated to
service and manage a diverse range of customer requirements.
-9-
MILESTONE
KARVY STOCK BROKING LIMITED
Trading in NSE, BSE and F&O segment. Sound research that gives excellent tips and recommendations on market opportunities for short term, medium term and long term basis investment. Personalized services to impart convenience and reach to our clients. Competitive brokerage rates.
Member-National Stock Exchange (NSE), The Bombay Stock Exchange (BSE), and The Hyderabad Stock Exchange (HSE).
- 10 -
Karvy Stock Broking Limited, one of the cornerstones of the Karvy edifice, flows freely towards attaining diverse goals of the customer through varied services. Creating a plethora of opportunities for the customer by opening up investment vistas backed by research-based advisory services. Here, growth knows no limits and success recognizes
no boundaries. Helping the customer create waves in his portfolio and empowering the investor completely is the ultimate goal.
STOCK BROKING SERVICES
It is an undisputed fact that the stock market is unpredictable and yet enjoys a high success rate as a wealth management and wealth accumulation option. The difference
between unpredictability and a safety anchor in the market is provided by in-depth knowledge of market functioning and changing trends, planning with foresight and choosing one & rescue s options with care. This is what we provide in our Stock Broking services.
We offer services that are beyond just a medium for buying and selling stocks and shares. Instead we provide services, which are multi dimensional and multi-focused in their scope. There are several advantages in utilizing our Stock Broking services, which are the reasons why it is one of the best in the country.
We offer trading on a vast platform; National Stock Exchange, Bombay Stock Exchange and Hyderabad Stock Exchange. More importantly, we make trading safe to the maximum possible extent, by accounting for several risk factors and planning
accordingly. We are assisted in this task by our in-depth research, constant feedback and sound advisory facilities. Our highly skilled research team, comprising of technical analysts as well as fundamental specialists, secure result-oriented information on market
trends, market analysis and market predictions. This crucial information is given as a constant feedback to our customer s, through daily reports delivered thrice daily ; The Pre-
session Report, where market scenario for the day is predicted, The Mid-session Report, timed to arrive during lunch break , where the market forecast for the rest of the day is given and The Post-session Report, the final report for the day, where the market and the report itself is reviewed.
- 11 -
To add to this repository of information, we publish a monthly magazine & ldquo; Karvy; The Finapolis & rdquo;, which analyzes the latest stock market trends and takes a close look at the various investment options, and products available in the market, while a
weekly report, called & ldquo; Karvy Bazaar Baatein & rdquo;, keeps you more informed on the immediate trends in the stock market. In addition, our specific industry reports give comprehensive information on various industries. Besides this, we also offer special portfolio analysis packages that provide daily technical advice on scrip s for successful portfolio management and provide customized advisory services to help you make the
right financial moves that are specifically suited to your portfolio. Our Stock Broking services are widely networked across India, with the number of our
trading terminals providing retail stock broking facilities. Our services have increasingly offered customer oriented convenience, which we provide to a spectrum of investors, high-net worth or otherwise, with equal dedication and competence.
But true to our spirit, this success is not our final destination, but just a platf orm to launch further enhanced quality services to provide you the latest in convenient, customerfriendly stock management. Over the years we have ensured that the trust of our customers is our biggest returns. Factors such as our success in the Electronic custody business has helped build on our
tradition of trust even more. Consequentially our retail client base expanded very fast. To empower the investor further we have made serious efforts to ensure that our research calls are disseminated systematically to all our stock broking clients through various delivery channels like email, chat, SMS, phone calls etc.
Our foray into commodities broking has been path breaking and we are in the process of converting existing traders in commodities into the more organized mainstream of trading in commodity futures, both as a trading and risk hedging mechanism. In the future, our focus will be on the emerging businesses and to meet this objective, we have enhanced our manpower and revitalized our knowledge base with enhances focus on Futures and Options as well as the commodities business.
- 12 -
Services provided at Karvy Stock broking Limited:
STOCK BROKING MUTUAL FUNDS DEPOSITORY PARTICIPANT SERVICES
FINANCIAL PRODUCTS DISTRBUTION CORPORATE DIPOSITORY SERVICES INSURANCE I.T ENABLED SERVICES PERSONAL ADVISORY SERVICES REGISTRAR AND TRANSFER AGENT
Achievements:-
Among the top 5 stock brokers in India (4% of NSE volumes) India's No. 1 Registrar & Securities Transfer Agents Among the to top 3 Depository Participants
Largest Network of Branches & Business Associates ISO 9002 certified operations by DNV Among top 10 Investment bankers Largest Distributor of Financial Products
Adjudged as one of the top 50 IT uses in India by MIS Asia Full Fledged IT driven operations
- 13 -
CHAPTER-III: OBJECTIVES OF THE STUDY
- 14 -
OBJECTIVES OF THE STUDY Objective of the project is to look into the use of Mutual fund regime for the individual investor. This project work will try to look at the comparative analysis various Asset Management Companies and their product that an individual must look before making an
investment in mutual fund.
To study the Indian Mutual Fund industry (Structure, Scenario of industry,
working, types, advantages of mutual funds) To study the comparative analysis various Asset Management Companies and their product. To study all type of mutual fund schemes (Equity, Balanced, Guilt, Debt,
Diversified, Offshore, Spectral & Commodity Fund.) To analyze these schemes on the basis of Portfolio, Size, market share, Returns of these funds.
- 15 -
SCOPE The project
Comparative Analysis of Three Asset Management Companies
makes
comparison between various funds of these companies. The scope of this project work is limited to the mutual funds, especially the mutual fund of UTI, SBI and TATA. Basically this project studies risk-return profile of all the schemes that are offering by these three companies. Mutual Fund in general means any instrument, which can be used to secure one s investment / money. In mutual funds t he money collected from retail investors is then invested in capital market instruments such as shares, debentures and other securities. The study to some extent can be used to make the decision regarding the purchase and
sale of mutual funds at the right time to make fair rate of return
The Mutual Funds companies I have selected for this comparison are
UTI Asset Management Company. SBI Asset Management Company. TATA Asset Management Company.
Companies are compared on basis of their Returns per year, Credit Rating, Portfolio, Performance, Entry loads, Exit loads, Minimum investment, Lock -in period, etc.
- 16 -
First half of project consists of Introduction to Co., Product profiles, Concepts of mutual
funds, types of mutual funds, advantages, disadvantages etc, NAV and Portfolio management basics.
In later half of project, data analysis, findings and recommendations are recorded. The final part of my project is Findings and Interpretation.
LIMITATIONS OF THE STUDY: -
The data used for analysis is as on 31 July 2006. The comparison has been limited to three companies.
- 17 -
CHAPTER-IV: RESEARCH METHODOLOGY
- 18 -
RESEARCH METHODOLOGY The data taken into consideration is basically the information collected from various Internet sites and various books pertaining to the subject. To begin with, a detailed explanation is given regarding the investment & portfolio management. This helps in getting a better understanding of the main element of the project.
The various figures are collected for the time period taken into consideration. They were then represented in a graphic from to get a better understanding of figures. A comparison of these figures and graphs was done to find out whether there was very big or negligible
difference between the two time periods and then see the trend in the mutual fund market. The comparison helps to conclude keeping in mind the various limitations. The data sources for collecting the required data, which is relevant to study the subject of project.
PRIMARY SOURCES
Information provided by project guide of KARVY Stock Broking Ltd.
through personal discussion. Information gathered by meeting an individual investors and corporate through personal interviews. Information gathered by attending various seminars organized by various mutual fund companies.
SECONDARY SOURCES
Online information available on websites of KARVY, NSE, BSE, AMFI, MUTUAL FUNDS, and much more.
- 19 -
Information & data published in the newspaper and magazines. Information collected from the various book pertaining to the subject matter.
Information collected from the magazine of KARVY named Finapolis.
The sources that are mentioned above as a secondary sources are insufficient to provide the data that required to complete the research so there is a need to collect information from the primary sources.
- 20 -
CHAPTER-V: PROJECT WORK UNDERTAKEN
- 21 -
PROJECT WORK UNDERTAKEN
Mutual Fund - Basics 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. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund:
Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer
document.
- 22 -
Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit holders.
The investors in proportion to their investments share the profits or losses. The mutual funds normally come out with a number of schemes with different investment objectives, which are launched from time to time. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI), which regulates securities markets before it can collect funds from the public.
Mutual Funds: Universal appeal Savings form an important part of the economy of any nation. With savings invested in various options available to the people, the money acts as the driver for growth of the country. Indian financial scene too presents multiple avenues to the investors. Though
- 23 -
certainly not the best or deepest of markets in the world, it has ignited the growth rate in mutual fund industry to provide reasonable options for an ordinary man to invest his savings. Investment goals vary from person to person. While somebody wants security, others might give more weightage to returns alone. Somebody else might want to plan for his child s education while somebody might be saving for the proverbial rainy day or even life after retirement. With objectives defying any range, it is obvious that the products required will vary as well. Though still at a nascent stage, Indian MF industry offers a plethora of schemes and serves broadly all type of investors. The range of products includes equity funds, debt, liquid, gilt and balanced funds. There are also funds meant exclusively for young and old, small and large investors. Moreover, the setup of a legal structure, which has enough teeth to safeguard investors interest, ensures that the investors are not cheated out of their hard-earned money. All in all, benefits provided by them cut across the boundaries
of investor category and thus create for them, a universal appeal. Investors of all categories could choose to invest on their own in multiple options but opt
for mutual funds for the sole reason that all benefits come in a package. Let us see how. An investor normally prioritizes his investment needs before undertaking an investment. So different goals will be allocated different proportions of the total disposable amount. Investments for specific goals normally find their way into the debt market as risk reduction is of prime importance. This is the area for the risk-averse investors and here,
mutual funds are generally the best option. The reasons are not difficult to see.
- 24 -
One can avail of the benefits of better returns with added benefits of anytime liquidity by investing in open-ended debt funds at lower risk. Many people have burnt their fingers by investing in fixed deposits of companies who were assuring high returns but have gone bust in course of time leading to distraught investors as well as pending cases in the Company Law Board. This risk of default by any company that one has chosen to invest in, can be minimized by investing in mutual funds as the fund managers analyze the companies financials more minutely than an individual can do as they have the expertise to do so. They can manage the maturity of their portfolio by investing in instruments of varied maturity profiles. Since there is no penalty on pre-mature withdrawal, as in the cases of fixed deposits, debt funds provide enough liquidity. Moreover, mutual funds are better placed to absorb the fluctuations in the prices of the securities as a result of interest rate variation and one can ben efits from any such price movement. Apart from liquidity, these funds have also provided very good post-tax returns on year to year basis. Even historically, we find that some of the debt funds have generated superior returns at relatively low level of risks. On an average debt funds have posted returns over 10 percent over one-year horizon. The best performing funds have given returns of around 14 percent in the last one-year period. In nutshell we can say that these funds have delivered more than what one expects of debt avenues such as post office schemes or bank fixed deposits. Though they are charged with a dividend distribution tax on dividend payout at 10 percent (plus a surcharge of 10 percent), the net income received is still tax free in the hands of investor and is generally much more than all other avenues, on a post tax basis.
- 25 -
Moving up in the risk spectrum, we have people who would like to take some risk and invest in equity funds/capital market. However, since their appetite for risk is also limited, they would rather have some exposure to debt as well. For these investors, balanced funds provide an easy route of investment. Armed with the expertise of investment techniques, they can invest in equity as well as good quality debt thereby reducing risks and providing the investor with better returns than he could otherwise manage. Since they can reshuffle their portfolio as per market conditions, they are likely to generate moderate returns even in pessimistic market conditions. Next come the risk takers. Risk takers by their very nature, would not be averse to investing in high-risk avenues. Capital markets find their fancy more often than not, because they have historically generated better returns than any other avenue, provided, the money was judiciously invested. Though the risk associated is generally on the higher side of the spectrum, the return-potential compensates for the risk attached. Capital markets interest people, albeit not all for there are several problems associated. First issue is that of expertise. While investing directly into capital market one has to be analytical enough to judge the valuation of the stock and understand the complex undertones of the stock. One needs to judge the right valuation for exiting the stock too. It is very difficult for a small investor to keep track of the movements of the market. Entrusting the job to experts, who watch the trends of the market and analyze the valuations of the stocks will solve this problem for an investor. Mutual funds specialize in identification of stocks through dedicated experts in the field and this enables them to pick stocks at the right moment. Sector funds provide an edge and generate good returns if the particular sector is doing well.
- 26 -
Next problem is that of funds/money. A single person can t invest in multiple high-priced stocks for the sole reason that his pockets are not likely to be deep enough. This limits him from diversifying his portfolio as well as benefiting from multiple investments. Here again, investing through MF route enables an investor to invest in many good stocks and reap benefits even through a small investment. This not only diversifies the portfolio and helps in generating returns from a number of sectors but reduces the risk as well. Though identification of the right fund might not be an easy task, availability of good investment
consultants and counselors will help investors take informed decision.
How is a mutual fund set up?
A mutual fund is set up in the form of a trust, which has Sponsor, Trustees, Asset management company (AMC) Custodian.
- 27 -
and
Mechanism o
The trust is established by a sponsor or more than one sponsor who is like
promoter of a company. o
The trustees of the mutual fund hold its property for the benefit of the unit holders.
o
Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of securities.
o
Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody.
o
The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of
SEBI Regulations by the mutual fund.
- 28 -
o
SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be
associated with the sponsors. Also, 50% of the directors of AMC must be independent. o
All mutual funds are required to be registered with SEBI before they
launch any scheme.
Mutual Funds - A Globally Proven Investment All investments whether in shares, debentures or deposits involve risk. Share value may go down depending upon the performance of the company, the industry, state of capital markets and the economy. Generally however, longer the term, lesser the risk. Companies may default in payment of interest and principal on their debentures/bonds/deposits. While risk cannot be eliminated, skillful management can minimize risk. Mutual Funds help to reduce risk through diversification and professional management. The experience and expertise of Mutual Fund managers in selecting fundamentally sound securities and timing their purchases and sales help them to build a diversified portfolio that minimizes risk and maximizes returns.
Worldwide, the Mutual Fund, or Unit Trust as it is called in some parts of the world, has almost overtaken bank deposits and total assets of insurance funds. As of date, in the US alone there are over 5,000 Mutual Funds with total assets of over US $ 3 trillion (Rs.l00
lakh crores). In India there are 34 Mutual Funds and over 300 schemes with total assets of approximately Rs. 100,000 crores. The Securities and Exchange Board of India (SEBI) regulate all mutual funds in India
- 29 -
Everyone who follows the financial news has heard of mutual funds and knows the stock market has generally risen (with various ups- and-downs) for over 200 years. In fact, by most measures, the stock market has made more money for more people, and done it more reliably, than any other investment over the past 100 years! If you want to accumulate substantial wealth, you must include stocks in your investments! But, most people who "invest" don't study the market. They don't understand it, and they don't have time to manage their portfolio wisely. That's where mutual funds come in. I respect that other people have other opinions, and certainly not all mutual funds are well
managed - you MUST choose wisely and use appropriate caution! But, for most folks, a good, solid, boring mutual fund is the golden path to riches.
Here are my Top 10 reasons to us mutual funds: 1. Selection. You can select from thousands of funds (you'll find one to suit your
needs) and you can get information on them easily. Magazines like "Money" are easy to find. Most credit unions have information, and your local library is a goldmine - and there's the Internet.
2. You Can Start Small. Most mutual funds will let you start with less than
$1000, and if you set it up for automatic deposits, some will let you start with only $50. I've spent more than that in a restaurant! There is NO reason not to consider this!
- 30 -
3.
Simplicity. You deposit 10% of your income every month. Just pay yourself
first, then pay the mortgage, t hen pay everyone else.
4.
Professional management. I don't always have time to research, select, and
monitor individual stocks. So, I pay a professional a small fee to do it for me. A
good fund manager will make you rich!
5. Compound interest. Depending on what index you pick, the U.S. stock market has gone up an average of over 12% per year for the past 10 years, and it's been almost that high for the past 20 years. The market fluctuates, but the beauty of this is, you don't care! Over 10, 20, or 30 y ears, the system works every time!
6.
Dollar-cost-averaging. The details are complicated, but by investing every
single month, whether the market is up or down, you get a tremendous boost from the mathematics. Your "average cost" will always be less than the "average price" you paid! And that is money in your pocket!
7.
Diversification. A broad-based growth fund typically invests in dozens of
companies in different industries, sometimes even in different countries around the world. If one stock goes down, hopefully dozens of others will go up. There is excellent protection and sound risk management built-in to these funds.
- 31 -
8.
Specialization. If you prefer, and if you do the research, there are funds that
invest in only a very small number of companies. If you can accept the additional risk, you can invest in one particular industry, or one country, or in companies of a certain size or that are environmentally responsible. This specialization offers the potential for even greater profits, but it can also bring greater potential risk.
Study before you invest!
9. Fund "Families". Management companies that sponsor several different funds, with different objectives, offer most mutual funds. They make it easy to move your money between funds, so as your goals change, you can adjust your
investments with a quick phone call, or on the Internet.
10.
Momentum. Once you get started, your enthusiasm builds. Once you have
money "in the market", you'll track it, manage it, and in all probability, your desire to save will increase. If you've had difficulty saving in the past? START! Those monthly statements will be positive reminders to do even more. Yes, you should invest in tax-sheltered retirement plans first, and yes, there are other investment possibilities. And yes, there is some risk, because the market can go down. But to retire wealthy, pick a great, long-term growth fund, invest regularly,
and let the system work for you! The key, as always is: GET STARTED!
- 32 -
STRUCTURE OF THE INDIAN MUTUAL FUND INDUSTRY
LARGEST CATEGORY
DOMINATED BY : THE UNIT TRUST OF INDIA Total corpus of Rs700bn More than 20 million investors.
The biggest scheme : Unit Scheme 1964 (US 64) with a corpus of about Rs200bn. Governed by a special act of Parliament.
SECOND LARGEST CATEGORY
Floated by nationalized banks. Canbank asset management floated by Canara bank and SBI funds
management floated by the State Bank of India are the largest of these. GIC AMC floated by General Insurance Corporation and Jeevan Bima Sahayog AMC floated by the LIC are some of the other prominent ones. The aggregate corpus: Rs 150bn.
THIRD LARGEST CATEGORY
Floated by the private sector and by foreign asset management companies. Largest are Prudential ICICI AMC and Birla Sun Life AMC. The aggregate corpus: In excess of Rs 250 bn.
- 33 -
Some of the AMCs operating currently Name of the AMC
Nature of ownership
Alliance Capital Asset Management (I) Private Limited Birla Sun Life Asset Management Company Limited Bank of Baroda Asset Management Company Limited Bank of India Asset Management Company Limited Canbank Investment Management Services Limited Cholamandalam Cazenove Asset Management Company Limited Dundee Asset Management Company Limited DSP Merrill Lynch Asset Management Company Limited Escorts Asset Management Limited First India Asset Management Limited GIC Asset Management Company Limited IDBI Investment Management Company Limited Indfund Management Limited ING Investment Asset Management Company Private Limited J M Capital Management Limited Jardine Fleming (I) Asset Management Limited Kotak Mahindra Asset Management Company Limited Kothari Pioneer Asset Management Company Limited Jeevan Bima Sahayog Asset Management Company Limited Morgan Stanley Asset Management Company Private Limited Punjab National Bank Asset Management Company Limited Reliance Capital Asset Management Company Limited State Bank of India Funds Management Limited Shriram Asset Management Company Limited Sun F and C Asset Management (I) Private Limited Sundaram Newton Asset Management Company Limited Tata Asset Management Company Limited Credit Capital Asset Management Company Limited Templeton Asset Management (India) Private Limited Unit Trust of India Zurich Asset Management Company (I) Limited
Private foreign Private Indian Banks Banks Banks Private foreign Private foreign Private foreign Private Indian Private Indian Institutions Institutions Banks Private foreign Private Indian Private f oreign Private Indian Private Indian Institutions Private foreign Banks Private Indian Banks Private Indian Private foreign Private foreign Private Indian Private Indian Private foreign Institutions Private foreign
- 34 -
The graph given below gives the brief picture of history of mutual fund industry in India:-
(Total Asset under Management)
Banks
Returns Administrative exp. Risk Investment options Network Liquidity Quality of assets Interest calculation Guarantee
v/s
Mutual Funds
BANKS
MUTUAL FUNDS
Low High Low Less High penetration At a cost Not transparent
Better
Low Moderate More Low but improving Better Transparent
Minimum balance between th th 10 & 30 Of every month
Everyday
Maximum Rs.1 lakh on deposits
None
- 35 -
ADVANTAGES OF MUTUAL FUNDS 1. Professional Management Mutual funds bring about professional management of funds. Good mutual fund managers with excellent research team can lead do better job of monitoring the companies they have chosen to invest than you can. In a mutual fund, you are handing your money to an investment professionals who have experience in making investment decisions. Qualified investment professionals seek to maximize returns and minimize risk monitor investor's money.
It is then the Fund Manager's job to (a) Find the best securities for the fund, given the fund's stated investment objectives; and
(b) Keep track of investments and changes in market conditions and adjust the mix of the portfolio, as and when required.
2. Diversification Mutual funds invest in broad range of securities- a number of companies across a broad cross-section of industries and sectors. This limits the investment risk by reducing the effect of possible decline of value of any one security. Because seldom do all stocks decline at the same time and in the same proportion. One of the main reason people choose mutual fund investments is that the risk is spread over number of stocks. You achieve this diversification through a Mutual Fund with far less money than you can do on your own.
- 36 -
3. Liquidity In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. Most open-ended funds mail your redemption proceeds, which are linked to the fund's prevailing NAV (net asset value), within three to five working days of your putting in your request. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund.
4. Transparency Regulations made by SEBI and AMFI are transparent enough. We can see and keep track of investments that have been made on our behalf and specific investments made by the mutual fund scheme to see where your money is going. There may be changes from time to time in a mutual fund. The mutual funds are required to inform any material changes to their unit holders. Apart from it, many mutual funds send quarterly newsletters to their investors. The performance of a scheme is reflected in its net asset value (NAV), which is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes. The NAVs of mutual funds are required to be published in newspapers. The NAVs are also available on the web sites of mutual funds. All mutual funds are also required to put their NAVs on the web site of Association of Mutual Funds in India (AMFI) www.amfiindia.com and thus the investors can access NAVs of all
mutual funds at one place
- 37 -
SEBI Regulations relate to the formation, administration and management of mutual funds and also prescribe disclosure and accounting requirements. Such a high level of
regulation seeks to protect the interest of investors.
5. Variety There are various schemes available in the market in which we can invest. There are technology funds, FMCG funds, blue chip stocks bonds or mix of stocks and bonds. We can choose fund on basis of safety, stability, or returns.
6. Convenience Investing in mutual funds has large amount of convenience. We but only one instrument actually but enjoy the Benefits of diversified portfolios Wide range of services like SIP, SWP, Dividend Reinvestment plan. Funds managers look after the portfolios make payments and collects interests
from all companies in diversified portfolios. Reduces paperwork and helps you Avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies.
Save your time and make investing easy and convenient.
7. Return Potential Over a medium to long-term, Mutual Funds have the potential to provide a higher return
as they invest in a diversified basket of selected securities.
- 38 -
8. Affordability Individuals may lack sufficient amount of funds to invest in high valued stocks, but a mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy. A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending upon the investment objective of the scheme. An investor can buy in to a portfolio of equit ies, which would otherwise be extremely expensive. Each unit holder thus gets an exposure to such portfolios with an investment as modest as Rs.500/ -. Thus it would be affordable for an investor to build a portfolio of investments through a mutual fund rather than investing directly in the stock market. Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.
9. Choice of Schemes Mutual funds offer a whole variety of schemes. This variety is beneficial in two ways: (a) It offers different types of schemes to investors with different needs and risk appetites; (b) It offers an opportunity to an investor to invest sums across a variety of schemes, both debt and equity. For example, an investor can invest his money in a debt scheme and a equity scheme depending on his risk appetite to create a balanced portfolio easily or simply just buy a
Balanced Scheme.
- 39 -
Limitations 1. Entry and exit load Mutual funds are victims of their own success. When a large body like mutual fund invests in shares. The concentrated buying or selling often results in adverse price movements i.e. at the time of buying the funds end up paying higher price and while selling it realizes lower prices. This problem is severe in emerging markets like India; where excluding few stocks, in Sensex, are not liquid, let alone the stocks in NSE 50 or CRISIL 500. So, there is simply no way that a fund can the Sensex or any other index, if it blindly invests in the same stocks those are in proportion. For obvious reasons, this problem is even more severe for funds investing in small capitalization stocks. However given the large size of debt
market, excluding UTI, most of the funds do not face this problem.
2.
Wait time before investments
It takes time for a mutual fund to invest money. Unfortunately, most of the mutual funds receive money when markets are in boom phase and investors are willing to try out
investment avenues like mutual funds. All funds cannot be invested in one day. There is always some money waiting to be
invested. There may arise time lag before investment opportunities are identified.
3.
Fund management costs
The costs of the fund management are deducted from the fund. This includes marketing
and initial costs deducted at the time of entry itself, called loads.
- 40 -
Then there is annual asset management fee and expenses together concern with Expenses ratio.
4. Cost of churn The portfolio of fund doesn t remain constant. The extent to which portfolio changes are a function of the style of the individual fund manager. i.e. if he is buy and hold type manager or one who aggressively churns the funds. It is also dependant on volatility of fund size i.e. whether fund constantly receives fresh subscriptions and redemptions. Such portfolio changes have associated costs of brokerage, custody fees, registration fees etc.
that lowers the portfolio return commensurately.
5. Change of index composition World over, the indices keep changing to reflect changing market conditions. There is an inherent survivorship bias in this process, with the bad stocks weeded out and replaced by emerging blue chips. This is a severe problem in India with Sensex having been changed twice in last 5 years, with each change being quiet substantial. Another reason for change in index composition is mergers and acquisitions. The weightage of shares of a particular company in the index changes if it acquires a large company, which is not a part of index.
- 41 -
Different Types Of Mutual Fund Schemes Schemes according to Maturity Period A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.
1. Open-ended Fund/ Scheme An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices, which are declared on a daily basis. The key feature of open-end schemes is liquidity. Such funds
can be issued and redeemed during the lifetime of the scheme.
2. Close-ended Fund/ Scheme A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.
- 42 -
Schemes according to Investment Objective A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close- ended
schemes as described earlier. Such schemes may be classified mainly as follows:
1. Growth / Equity Oriented Scheme The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking
appreciation over a period of time.
2. Income / Debt Oriented Scheme The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations i n equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short
- 43 -
run and vice versa. However, long-term investors may not bother about these fluctuations.
3. Balanced Fund The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such
funds are likely to be less volatile compared to pure equity funds.
4. Money Market or Liquid Fund These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short- term instruments such as treasury bills, certificates of deposit, commercial paper and interbank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual
investors as a means to park their surplus funds for short periods.
5. Gilt Fund These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and
other economic factors as the case is with income or debt oriented schemes.
- 44 -
6. Leveraged Funds Investment Objective is to increase the value of the portfolio and benefit the shareholders by gains exceeding the cost of borrowed funds Investment avenue: Speculative and risky
investments, like short sales to take advantage of declining market. Not common in India
7. Hedge Funds Investment Objective is To hedge risks in order to increase the value of the portfolio Investment Avenue: Employ speculative trading principles - buy rising shares and sell shares whose prices are likely to fall. Not common in India
8. Index Funds Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same pe rcentage due to some factors known as "tracking error" in technical terms. Necessary disclosures
in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds, which are traded on the stock exchanges.
9. Diversified Debt/Equity Funds A debt that invests in all available types of debt security, issued by entities across all industrial sector is properly diversified debt fund. A diversified debt fund is less risky
than a narrow-f ocus fund that investment in debt security of a particular sector or equity.
- 45 -
A fund that seeks to invest in equities, except for a very small portion in liquid money market securities, but it not focused on any one or few sectors or share, may be termed a s diversified equity fund. While expose to all equity price risk, diversified equity funds
seek to reduce the sector or stock specific risks through diversification.
10. Equity Linked Saving Scheme (ELSS) This type of fund is totally invest in Equities, and this type of fund has lock-in period before the end of which funds can not be withdrawn. Investment in these schemes
entitled the investor to claim an income tax rebate. There are more funds such as
11. Small-Cap Equity Fund 12. Offshore Fund 13. Hybrid Funds 14. Commodity Funds 15. Real Estate Fund 16. Fund of Funds 17. Exchange Traded Funds 18. Focused Debt/Equity Fund 19. Fixed Term Plan Fund 20. Assured Return Fund
- 46 -
Equity Funds
Balanced Funds
Diversified Debt Funds
Risk Level Guilt Funds
Money Market Funds
Types of Funds
- 47 -
INVESTOR TYPES AND OPTIONS AVAILABLE An investor desiring high liquidity in short term can opt for money market funds. The fund invests mostly in commercial papers, Govt. securities, call money or corporate deposits An Investor having an investment objective of regular income for a minimum term with low risk can go for income funds. The investment is mostly in nonconvertible debentures, corporate bonds, commercial papers etc. An investor who is capable of taking high risks for long time for the purpose of capital appreciation can go for growth / equity funds. These invest mainly in
equities or equity related instruments. An investor desiring current income and capital appreciation which involves investments in equities as well as fixed income securities can go for balanced
funds. Investor who is keen to save tax for long term by investing in mostly equities can opt for Tax saver funds. An investor having objective of minimum risk and maximum liquidity for long
period can opt for GILT Funds. An investor who can take high risk for long time with investment in equities of
specific industry can opt for Sector Funds.
- 48 -
RIGHTS OF INVESTORS OF MUTUAL FUND A unit holder in a Mutual Fund scheme governed by the SEBI (Mutual Funds) Regulations, is entitled to:
1. Receive unit certificates or statements of accounts confirming the title within 6 weeks from the date of closure of the subscription or within 6 weeks from the date
of request for a unit certificate is received by the Mutual Fund. 2. Receive information about the investment policies, investment objectives,
financial position and general affairs of the scheme. 3. Receive dividend within 42 days of their declaration and receive the redemption or repurchase proceeds within 10 days from the date of redemption or repurchase. 4. Vote in accordance with the Regulations to:-
a. Approve or disapprove any change in the fundamental investment policies of
the scheme, which are likely to modify the scheme or affect the interest of the unit holder. The dissenting unit holder has a right to redeem the investment. b. Change the Asset Management Company. c. Wind up the schemes.
5. Inspect the documents of the Mutual Funds specified in the scheme's offer
document.
- 49 -
RISK INVOLVED IN MUTUAL FUND After understanding the basics of mutual funds an investor can build a portfolio. But before building a portfolio it is necessary to understand various other elements that effect the potential value of the investment over the years. The basic thing to be kept in mind is that, when you invest in mutual funds there is no guarantee that you will end-up more money when you withdraw your investment then what you started out with. That is the potential of loss is always there. The loss in the value of your investment is what
considered as risk in investment.
Risk also refers to volatility i.e., the up and down activity in the market and individual issues that constantly occur over the period of time. The volatility can be caused by number of factors like interest rate charges, inflation or general economic conditions. It is the variability, uncertainty and potential loss of investment that causes the investor to worry. People fear that the shock that they hold may fail substantially. But it because of this volatility that a person can expect long term returns that the saving account. The basic principal here is that the greater the risk you take, the grater potential reward you earn. Different types of mutual funds have different level of volatility or potential price change and those with grater change of price change are also the funds that can produce the grater returns over time. So risk basically has two side: it causes the value of investment
to fluctuate, but it is the precisely the reason you can expect to earn higher returns.
- 50 -
Risk Return Grid Risk Tolerance/Return Focus Expected
Low
Debt
Medium
Partially Debt, Partially Equity
High
Equity
Suitable Products
Benefits MFs
offered
by
Bank/ Company FD, Debt Liquidity, Better Postbased Funds Tax returns Balanced Funds, Some Liquidity, Better PostDiversified Equity Funds Tax returns, Better and some debt Funds, Mix Management, of shares and Fixed Diversification Deposits Diversification, Capital Market, Equity Expertise in stock Funds (Diversified as well picking, Liquidity, Tax as Sector) free dividends
TYPES OF RISKS 1. Market Risk Sometimes the prices or the yield of the securities rise or fall due to broad outs ide influences. When this happens, the stock prices of both, an outstanding, highly profitable company and the fledgling corporation may be affected. This change in price is due to Market Risk also called as Systematic Risk . 2. Inflation Risk Inflation risk is also called as a loss of purchasing power. Whenever rises forward faster than the earning on your investment, you run the risk of that you will be able to buy less, not more. Inflation risk occurs when prices rise more faster than the returns. The impact of change in inflation rate is similar to that of change in
interest rate. This means that inflation risk is grater for longer-term bonds.
- 51 -
Hence, during the period of volatile inflation rates borrowers will be disinclined to issue long term fixed interest bond and the investor s too will be reluctant to buy such share. 3. Interest Rate Risk Changing interest rates affects both equities and investments. The increase in interest rates may depress the market prices, while decrease in interest rates will push the market price up. Usually the greater the maturity the greater the degree of price volatility. 4. Credit Risk Credit risk refers to that kind of risk that arises from the fact that borrower may or may not pay the interest and /or principal on time. It is normally judge from the rating given by rating agency like CRISIL, CARE, ICRA. It basically judges how stable the company is? How certain are you that it will be able to pay the interest you are promised or you re principal when matured. 5. Liquidity risk
Another often overlooked, but equally dangerous threat to all investors is liquidity risk. This refers to the possibility that you may need your money before your investment s maturity date. Much so-called risk free
investment
such as
certificates of deposit and annuities with surrender charges must be held for a specified period of time in order for you to receive the stand return. If you need your money for an emergency, you ll probably be subjected to penalties, and the interest you actually earn is calculated using a much lower rate.
- 52 -
6. Exchange Risk
A number of companies generate revenues in foreign currencies and may have investments or expenses denominated in foreign currencies. Changes in exchange rate may therefore may have positive or negative impact on companies and which
in turn will have effect on the investment of the fund. 7. Investment Risk
The sectoral fund scheme, investment will be predominantly in equities of select companies in particular sector. Accordingly the NAV of the scheme is linked to the equity performance of such companies and may be more volatile than more
diversified portfolio of equities. 8. Changes in the Government Policy
Changes in Government policy especially in regard to the tax benefits may impact the business prospects of the companies lending to impact on investments made by the fund.
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Investors Perspective Mutual Funds Vs. Other Products Investment Objective
Risk Tolerance
Investment Horizon
Capital Appreciation
High
Long
FI Bonds
Income
Low
Medium
Long
Corporate Debentures
Income
High / Moderate / Low
Medium
Long
Co. Fixed Deposits
Income Medium
High / Moderate / Low
Medium
Bank Deposits
Income Flexible
Generally Low
Flexible All Terms
PPF
Income
Low
Long
Risk Cover
Low
Long
Gold
Inflation Hedge
Low
Long
Real Estate
Inflation Hedge
Low
Long
Equity
Life Insurance
- 54 -
What is NAV? How it is calculated? The most important part of the calculation is the valuation of the assets owned by the fund. Once it is calculated, the NAV is simply the net value of assets divided by number of units outstanding. Asset value is equal to:
Sum of market value of shares/debenture + Liquid assets/cash held, if any + Dividends/interest accrued
current liabilities
Expenses accrued but not paid.
NAV = Asset value of the fund No. of units outstanding
For example, consider that a fund collects Rs. 10 Crores by issuing units of Rs. 10 each. Therefore when the mutual fund begins operations, it would have 1 crore units of Rs. 10
each. Lets assume that Portfolio is as follows: Equity Shares:
Rs. 4,50,00,000
Govt. Bonds:
Rs. 3,00,00,000
Corporate Bonds:
Rs. 1,50,00,000
Money Market Instruments
Rs. 1,00,00,000
Total
Rs. 10,00,00,000
After 30 Days, Fund was scheduled to open for fresh sales as well as repurchases. The investors, who come into the fund, will by new units at the price that represents the value of underlying portfolio. Similarly, investors who redeem their units will do so at a price
that reflects current value of the portfolio in which they originally invested.
- 55 -
Therefore, the investment portfolio will have to be valued again, to ascertain what its current value is. In the interim, the mutual fund would have incurred expenses, earned incomes, which also will have to be reflected in the price per unit. We call them accrued income and expenses. Mutual funds have internal accounting policies that enable the computation of the accruals.
Equity Shares:
Rs. 6,50,00,000
Govt. Bonds:
Rs. 2,80,00,000
Corporate Bonds:
Rs. 1,20,00,000
Money Market Instruments
Rs. 1,00,00,000
Total
Rs. 11,50,00,000
The value of investments is changed with the changes in market prices. The process of valuing assets by using market prices is called as Marking to prices . Lets assume that level of current assets and current liabilities were 4,00,000 and 3,00,000 respectively. The net Assets of the fund can be computed as follows:
Total assets
11,50,00,000
Plus
Current assets
4,00,000
Plus
Accrued Income
1,00,000 11,55,00,000
Less
Current Liabilities
3,00,000
Less
Accrued Expenses
1,35,000
Net Asset Value of Fund Divided by
No. of Units
Therefore NAV Per Unit
11,50,65,000 (1,00,00,000) 11.5065
- 56 -
Factors Affecting NAV of Fund Sale and purchase of securities Sale and Repurchase of units Valuation of assets Accrual of Income and Expenses
Market value of investment portfolio No. of units outstanding
- 57 -
Portfolio Management A portfolio is collection of Assets. In portfolio management, these assets are of financial nature. The portfolio manager invests money in diverse assets with the aim of maximizing returns and minimizing risks. According to SEBI Portfolio is Total holdings of securities belonging to one person Portfolio manager is a person who is pursuant to a contract with the client undertakes the management of portfolio of securities of funds of a client.
Functions Of Portfolio Manager 1. To frame the investment strategy and select an investment mix. 2. To provide a balanced portfolio, which hedge against inflation and also optimize returns. 3. To make timely decisions regarding sales and purchases of securities. 4. To maximize after tax return by investing part of portfolios in tax saving schemes. Portfolio management can be institutional in nature. The mutual Funds are a kind
of portfolio schemes.
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Steps In Portfolio Management Portfolio management is an ongoing process and following steps are taken 1. Specification and quantification of investor s objectives, constraints and
preferences in the form of portfolio ma nagement. 2. Determination and quantification of capital market expectations from the
economy, market sector, industries and individual securities. 3. Allocation of assets into selected securities. 4. Performance measurement and evaluation of portfolio to ensure that investors objectives are attained. 5. Monitoring the performance of securities and responding to changes in investors objectives, constraints and market expectations. 6. Rebalancing the portfolio whenever necessary.
- 59 -
CHAPTER-VI: ANALYSIS AND INTERPRETATION OF THE DATA
- 60 -
Analysis & Interpretation of the data
Actual Comparison
Comparison of Asset Under Management (AUM) with Sensex. The new millennium brought with itself what had rarely been seen in the market. Burgeoning growth. Riding on the ICE boom, the market touched great heights. Also touching new heights were the returns generated by equity funds. But as the saying goes, what goes up has to come down and the higher one goes the steeper is the fall. This is exactly what the equity funds have experienced over the last one year as they have
been robbed of their valuables by the volatile markets. The fall out of the volatile market conditions is reflected in significant erosion of the total assets under management of the equity funds.
As can be seen, in the last one-year, equity funds have lost almost 18 percent of the
wealth they had started the year with. Yet, surprisingly, they have managed to stay above the market that lost almost 26 percent in the same duration. So despite the fact that people have lost money in this year at a rate greater than the rate of depreciation of market capitalization of the index, the funds have received some fresh inflows. The industry on
- 61 -
the whole saw a cumulative inflow of Rs. 5962 crores through new issues and Rs. 81210 crores through existing schemes in the year but also saw redemption of Rs. 68514 crores in the same period.
The same trends can be observed if we dissect the industry across different categories of fund houses. Assets under management of different categories of fund houses have moved diversely. The industry finished with lower assets under management as it lost almost 2 percent in the year while the industry giant UTI lost about 4.5 percent followed by Indian Joint Ventures at 4.1 percent. However, the category to have lost maximum in the year was that of Bank sponsored mutual funds that lost almost 56 percent. The poor performance in this category was not just due to the ICE bust as many would like to believe but also due to redemption of many schemes in the sector. However, the industry saw shifting patterns in the investor s preferences. The private sector mutual funds and foreign joint ventures struck big time this year and have emerged as the biggest gainers despite the market crash. Both the categories gained in excess of 30 percent and defied
- 62 -
the general trend in the industry. This stresses the point that returns as well as quality of services matter to the investor. This had hitherto been not too significant till now but has become apparent now. This is indeed reflective of maturing investors, though only just. Investors have been known to follow the herd mentality and sell off when the principal amount is under pressure. Although people have redeemed money from their investments in equity, by and large, more money has also flown in to the industry. With the markets looking to revive, the industry can still hope for better days, as investors seem to be gradually understanding that despite the correlation between the market and mutual funds, they are
better placed with their risks reduced in mutual funds.
- 63 -
MUTUAL FUND DATA FOR THE QUARTER JANUARY- MARCH 2006 SALES DURING THE QUARTER JANUARY - MARCH 2006 TYPE AND CATEGORY WISE
Rs. In crore Open-end Scheme no.
1. Income
Close-end
Amount
Scheme no.
Total
Amount
Scheme no.
Amount
2
69
76
20541
78
20610
14
16740
2
2761
16
19501
3. Balanced
-
-
-
-
-
-
4. Money
3
578
-
-
3
578
5. Guilt
-
-
-
-
-
-
6. ELSS.
3
539
1
138
4
677
22
17926
79
23440
101
41336
2. Growth
market
Total
101 new Schemes were launched in the quarter and a sum of Rs.41,366 crores was mobilsed - Rs. 20,610 crores under income schemes, Rs.19,501 crores under equity schemes, Rs.578 crores under liquid schemes and Rs.677 crores under the Equity Linked
Schemes. Total Funds mobilized for quarter stood at Rs. 3,29,382 crores as against Rs.2,20,907
crores for the corresponding quarter last year, representing an increase of 49 %. Redemptions at Rs.3,06,130 crores were 37 % higher than the redemptions of Rs.
2,23,037 crores in the corresponding quarter last year.
On a net basis, there was an inflow of Rs. 23,252 crores during the quarter.
- 64 -
The Assets Under Management as on March 31, 2006 stood at Rs.2, 31,862 crores as against Rs.1, 49,554 crores as at the end of the previous year, registering an increase of 55%over the year.
NAME OF NEW SCHEMES WERE LOUANCH IN BETWEEN JAN- MAR2006 OPENEND INCOME:
Deutsche Money Plus Fund and Escorts Floating Rate Fund. OPENEND GROWTH:
Baroda Global Fund, Birla Infrastructure Fund, Chola Contra Fund, HSBC Advantage
India Fund, ING Vysya A.T.M. Fund, Kotak Lifestyle, Principal Infrastructure & Services Industries Fund, Prudential ICICI Fusion Fund, Quantum Long Term Equity Fund, Reliance Equity Fund, SBI Blue Chip Fund, Standard Chartered Imperial Equity Fund, UTI Contra Fund and UTI Leadership Equity Fund. OPENEND LIQUID:
Standard Chartered Liquidity Manager, Standard Chartered Liquidity Manager Plus and TATA Liquidity Management Fund. OPENEND ELSS:
ABN AMRO Tax Advantage Plan (ELSS), Deutsche Tax Saving Fund and Fidelity Tax Advantage Fund. CLOSEEND INCOME:
ABN AMRO Fixed Term Plan - Series 1,ABNAMRO Fixed Term Plan - Series 2
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Quarterly Plan A, ABN AMRO Fixed Term Plan Series 2 Thirteen Month Plan, Birla Fixed Term Plan Quarterly Series I, Birla Fixed Term Plan Quarterly Series 2, Birla Fixed Term Plan Series E, Birla Fixed Term Plan Series F, Birla Fixed Term Plan Series G, Birla Fixed Term Plan - Series H, Chola FMP Series -2 (Quarterly Plan - II), Chola FMP Series 2 (Quarterly Plan B I), Chola FMP Series - 3 (Quarterly Plan - I ), Deutsche Fixed Term Fund Series 5, Deutsche Fixed Term Fund - Series 6, Deutsche Fixed Term Fund Series 7, Deutsche Fixed Term Fund Series 8, Deutsche Fixed Term Fund Series 9, DSP Merrill Lynch Fixed Term Plan - Series 1B, DSP Merrill Lynch Fixed Term Plan - Series 1C, DSP Merrill Lynch Fixed Term Plan Series 2, DSP Merrill Lynch Fixed Term Plan - Series 3A, Franklin Templeton Fixed Tenure Fund Series IV- 60 Months Plan, Franklin Templeton Fixed Tenure Fund Series V- 13 Months Plan, Grind lays Fixed Maturity Plus 19 Plan, Grind lays Fixed Maturity 20th. Plan, Grind lays
Fixed Maturity 21st. Plan, Grind lays Fixed Maturity 22nd. Plan, Grind lays Fixed Maturity Plus Plan I, Grind lays Fixed Maturity Plus Plan II, HDFC Fixed Maturity Plans March 2006 (1), HSBC Fixed Term Series II, HSBC Fixed Term Series III, HSBC Fixed Term Series IV, HSBC Fixed Term Series V, HSBC Fixed Term Series VI, HSBC Fixed Term
Series VII, HSBC Fixed Term Series VIII, HSBC Fixed Term Series XIII, ING Vysya Fixed Maturity Fund Series VI, ING Vysya Fixed Maturity Fund Series VIII, ING Vysya Fixed Maturity Fund Series IX, JMFixed Maturity Quarterly Plan - QSG7 Series, Kotak FMP Series XIII, Kotak FMP Series XIV, Kotak FMP Series XV, Kotak FMPSeries XVI, Kotak FMPSeries XVII, Kotak FMP Series XVIII, Kotak FMP Series XIX, Kotak FMP Series XX, Kotak FMP Series XXI, Kotak FMP Series XXII, Kotak FMP Series XXIII, Kotak FMP Series XXV, LIC MF FMP Series IV, LIC MF FMP Series V, LIC MF FMP
- 66 -
Series VI, Principal Pnb Fixed Maturity Plan - 91 Days Series I, Prudential ICICI Fixed Maturity Plan Series 27 Monthly Plan, Prudential ICICI Fixed Maturity Plan - Series 28, Prudential ICICI Fixed Maturity Plan - Series 28 - 4 Months Plan, Prudential ICICI Fixed
Maturity Plan - Series 28 - 16 Months Plan, Prudential ICICI Fixed Maturity Plan - Series31 4Months Plan, Reliance Fixed Maturity Fund - Series II Monthly Plan IX, Reliance Fixed Maturity Fund - Series II Quarterly Plan III, Reliance Fixed Maturity Fund Series II Monthly Plan XI, Standard Chartered Fixed Maturity 1st. Plan, Standard Chartered Fixed Maturity 2nd. Plan, Standard Chartered Fixed Maturity - 3rd. Plan, Standard Chartered Fixed Maturity 4th. Plan, St andard Chartered Tri-Star Series I, Sundaram Fixed Term Plan Series I, Sundaram Fixed Term Plan Series III, Tata Fixed Horizon Fund,
TATA Fixed Horizon Fund Series 5 and UTI Fixed Term Income Fund Series I Plan 18. CLOSE END GROWTH:
Franklin India Smaller Companies Fund and HDFC Long Term Equity. CLOSE END ELSS:
TATA Tax Advantage Fund 1.
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All Schemes Including New Schemes Of Mutual Funds With Their Aum Rs. In crore
Schemes Name
Open-end Scheme no.
Close-end
Amt.
Scheme no.
Total
Amt.
Scheme no.
Amt.
1. Income
139
14724
112
23751
251
38295
2. Growth
190
29742
4
3349
194
33091
3. Balanced
34
1101
2
-
36
1101
4. Money
45
253986
-
-
45
253986
5. Guilt
29
651
-
-
29
651
6. ELSS.
26
2119
11
139
37
2258
463
302323
129
27059
592
329382
market
Total
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Redemption of Mutual Funds During The Quarter Of Jan-Mar 2006
Open-end
Schemes
Close-end
Total
Names
Rs. In crore Net Inflow/
Outflow
1. Income
25,647
3,919
29,566
8,729
2. Growth
17,404
-
17,404
15,687
3. Balanced
1,000
-
1,000
101
4. Money
256,786
-
256,786
(2800)
5. Guilt
1,241
-
1,241
(590)
6. ELSS.
33
100
133
2,125
302,111
4,011
306,130
23,252
market
Total
DATA ON FUND OF FUNDS JANUARY - MARCH 2006
No. of schemes
Sales
Redemptions
AUM as on 31/03/2006
Fund of funds
13
218
355
Notes:1. Fund of Funds is a scheme wherein the assets are invested in the existing schemes of mutual funds.
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1012
ASSET UNDER MANAGEMENT AS ON MARCH 31, 2006
Sr.No.
Name of Asset Management Company
Rs. In crore Asset under Management
A
Bank Sponsored
(a)
Joint venture
1.
1 SBI Funds Management Pvt. Ltd.
13,186
Total A (a)
13,186
Predominantly Indian
(b)
OTHERS
1.
BOB Asset Management Co. Ltd.
2.
Canbank Investment Management Services Ltd
3.
UTI Asset Management Co. Pvt. Ltd.
29,519
Total A (b)
31933
Total A (a+b)
45119
191 2,223
B
Institution
1.
Jeevan Bima Sahayog Asset Management Co.
5,229
Total B
5,229
C
Private Sector
(a)
INDIAN
1.
Benchmark Asset Management Co. Pvt. Ltd.
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982
2.
Cholamandalam Asset Management Co. Ltd.
3.
Credit capital Asset Management Co. Ltd.
232
4.
Escorts Asset Management Ltd.
164
5.
J.M. Financial Asset Management Pvt. Ltd.
2,596
6.
Kotak Mahindra Asset Management Co. Ltd.
9,941
7.
Quantum Asset Management Co. Pvt. Ltd.
8.
Reliance Capital Asset Management Ltd.
9.
Sahara Asset Management Co. Pvt. Ltd.
10.
Tata Asset Management Ltd. 9,717 Total C (a)
(b)
JOINT VENTURE
2,007
11 24,670 282 9,717 50,602
PREDOMINANTLY
INDIAN 1.
Birla Sun Life Asset Management Co. Ltd.
15,019
2.
DSP Merrill Lynch Fund Managers Ltd.
10,795
3.
HDFC Asset Management Co. Ltd.
21,550
4.
Prudential ICICI Asset Management Co. Ltd.
23,502
5.
Sundaram Asset Management Co. Ltd. Total C (b)
(c)
3,278 74,114
JOINT VENTURES - PREDOMINANTLY FOREIGN
1.
ABN AMRO Asset Management (India) Ltd.
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2,769
2.
Deutsche Asset Management (India) Pvt. Ltd.
2,535
3.
Fidelity Fund Management Pvt. Ltd.
3,663
4.
Franklin Templeton Asset Management (India)
17,827
Pvt Ltd. 5.
HSBC Asset Management (India) Pvt. Ltd.
9,221
6.
ING Investment Management (India) Pvt. Ltd.
1,961
7.
Morgan Stanley Investment Management Pvt.
2,892
Ltd. 8.
Principal Pnb Asset Management Co.Pvt. Ltd.
6,489
9.
Standard Chartered Asset Management Co. Pvt.
9,411
Ltd. Total C (c)
56,768
Total C (a+b+c)
181,514
Total (A+B+C)
231,862
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ANALYSIS OF THREE ASSET MANAGEMENT COMPANIES I have taken three mutual fund companies for the comparison purpose. These are as
follows 1. UTI Mutual Fund 2. SBI Mutual Fund 3. TATA Mutual Fund
In this part of report I have taken various product of these three companies and made analysis on the basis of their returns, investment pattern, their expenditure, dividend
history, Total Corpus, benchmark index, and comparison in the funds return & benchmark growth.
UTI Asset Mgmt Company Pvt. Ltd.
Sponsors 1. State Bank of India. 2. Punjab National Bank. 3. Bank of Baroda. 4. Life Insurance Corporation of India.
Trustee 1. UTI Trustee co. (P) Ltd.
Investment Manager 1. UTI Asset Management co. (P) Ltd.
Custodians
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1. Stock Holding Corporation of India Limited.
Chairman 1. Mr. U. K. Sinha
Chief Investment Officer 1. Mr. A K Sridhar
Compliance Officer 1. Mr. Rajesh Verma
Address UTI Towers, Gn Block, Bandra Kurla Complex, Bandra East, Mumbai 400051 Telephone No. 022-5678 6666 E-mail E-mail--
[email protected]
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SBI Asset Mgmt Company Pvt. Ltd.
Sponsors 1. State Bank of India.
Trustee 1. SBI Mutual Fund Trustee Company Private Limited
Name of Trustee
1. Dr. Arvind Virmani 2. Dr. Malati Anagol 3. Mr. S K Hariharan 4. Prof. S K Barua 5. Mr. Raj Nair
Name of Fund Manager
1. Mr. Chetan Savla 2. Mr. Ganti N. Murthy 3. Mr. Gopal Agrawal 4. Mr. Jayesh Shroff 5. Mr. K. Ramkumar 6. Mr. Nimesh Chandan 7. Mr. Pankaj Gupta 8. Mr. Sanjay Sinha 9. Mr. Sanjay Vaid
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Custodians 1. Stock Holding Corporation of India Limited. 2. City Bank. 3. HDFC Bank Ltd.
Chairman 1. Mr. P.G.R. Prasad
Chief Investment Officer 1. Mr. N. Sethuram Iyer
Compliance Officer 1. Mr. Ashutosh Vaidya
Address 191, Maker Tower E, Cuffe Parade, Mumbai,Maharashtra, India,
PIN-400021
Phone-
22180221-25/27
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TATA Asset Mgmt Company Pvt. Ltd.
Sponsors TATA Sons Ltd., TATA Investment Corporation Ltd.
Trustee TATA Trustee Company Pvt. Limited.
Investment Manager TATA Asset Management co. (P) Ltd.
Custodians Stock Holding Corporation of India Limited.
Chairman Mr. S. M. Datta
Address TATA Asset Management Ltd., Mulla House, Ground Floor, 51, M.G. Road, Near Flora Fountain, Mumbai 400001 Telephone No. 022-56315191/92/93 E-mail-
[email protected]
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Investment Objectives Scheme Name
UTI Mutual Fund
SBI Mutual Fund
TATA Mutual Fund
1. Equity Fund
The investment objective of the scheme is to generate capital appreciation by primarily investing in equity/equity related instruments. As a defensive strategy arising out of market condition, the scheme may also invest in debt/money market instruments.
The investment objective of the scheme is to provide income distribution and / or medium to long term capital gains while at all times emphasizing the importance of capital appreciation.
2. Mid-Cap Fund
The investment objective of the scheme is Capital Appreciation by investing primarily in Mid Cap stocks. The fund would invest, at least 65% of its Net Assets in equity and equity related instruments issued by companies of CNX Midcap 200 index or S&P CNX 500 but not a part of BSE Sensex (30) or Nifty (50), at the time of investment. In this fund company will not invest more than 20% in money market.
To provide investors long term capital appreciation along with the liquidity of an open-ended scheme. The scheme will invest in the diversified portfolio of equities of high growth companies primarily in equities & the balance in debt and money market instruments. To provide investors with opportunities for long term growth in capital along with the liquidity of an openended scheme by investing predominantly in a well diversified basket of equity stocks of companies whose market capitalization is between Rs. 200 crore to Rs. 2000 croreand debt and money market instruments.
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The investment objective of the scheme is to provide income distribution and / or medium to long term capital gains by investing predominantly in equity / equity related instrument of Mid-Cap companies. These companies are either included in the CNX Mid-Cap 200 index or one that fall within market capital requirement of CNX mid-cap 200 index. Investment by the scheme in securitised debts, will not normally exceed 20% of the net assets.
3. Equity Link Saving Scheme (ELSS).
An open-ended equity fund investing a minimum of 80% in equity and equity related instruments. It aims at enabling members to avail tax rebate under section 80c of the IT Act and provide them with benefit of growth. Investment in this scheme would be subject to a statutory lock -in of 3 years from the date of investment to avail Section 80c benefits.
The prime objective of the scheme is to deliver the benefit of investment in a portfolio of equity share, while offering tax rebate on such investment made in the scheme U/S 80c of IT Act, 1961. It also seeks to distribute income periodically depending on distributable surplus. Investment in this scheme would be subject to a statutory lock -in of 3 years from the date of investment to avail Section 80c benefits.
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The investment objective of the scheme is to provide medium to longterm capital gains along with income tax relief to its unit holders, while at all the times emphasizing the importance of capital appreciation. Investment in this scheme would be subject to a statutory lock -in of 3 years from the date of investment to avail Section 80c benefits.
Comparison Entry and Exit Load Comparison
Scheme Name
UTI Mutual Fund Entry Exit Load Load
SBI Mutual Fund Entry Exit Load Load
TATA Mutual Fund Entry Exit Load Load
1. (Select) Equity Fund
Below 25 lac 2.25%,
NIL
Below 5 Crores 2.25%
Below 1 Crores 2.25%
NIL
Above 25 lacs but less than 2 crores0.5%,
NIL
Above 5 Crores NIL
Above 1 Crores NIL
NIL
Above 2 crores NIL Below 25 lacs 2.25%,
NIL
NIL
Below 5 Crores 2.25%
Below 2 Crores 2.25%
NIL
Above 25 lacs but less than 2 crores0.5%,
NIL
Above 5 Crores NIL
Above 2 Crores NIL
NIL
Above 2 crores NIL Below 2 crores 2.25%,
NIL
NIL
Below 5 Crores 2.25%
NIL
Below 2 Crores 2.25%
NIL
Above 2 croresNIL
NIL
Above 5 Crores NIL
NIL
Above 2 Crores NIL
NIL
2. Mid-Cap Fund
3. Equity Link Saving Scheme (ELSS).
Below 5 Crores (6 months)1%, (12 months)0.50%, Above 5 Crores NIL
Below 5 Crores (6 months)1%, (12 months)0.50%, Above 5 Crores NIL
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Conclusion: UTI has lot of variety in charging of entry load. As far as Equity fund is concern UTI is more relax able for small investor because as it is 2.25% for below 25 lakhs and above that it will charge 0.50% up to 2 crore others are quite higher than this. Again for Mid Cap fund UTI is cheaper in comparison of other two mutual funds. But for ELSS all three mutual funds have similar criteria for entry load. In all UTI is very rigid in
entry load is concern. It has same criteria for all the schemes.
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ANALYSIS OF RETURN Compounded Annualized Return of equity schemes of various companies YEAR
st
1 Year rd 3 Year Since Inception Inception date
UTI Mutual Fund
0.78% NA 37.80%
SBI Mutual Fund 46.17% 46.74% 11.97%
TATA Mutual Fund 54.51% 69.28% 34.57%
Sep 10,2003
Jan 1, 1991
Mar 23, 1998
BSE Sensex
BSE 100
50.01% 30.36% NA
69.57% 57.80% 14.44%
Compounded Annualized Return of Mid-Cap schemes of various companies YEAR
st
1 Year rd 3 Year Since Inception Inception date
UTI Mutual Fund
13.01% NA 34.97% Sep 10, 2003
SBI Mutual Fund 32.05%
TATA Mutual Fund 16.82%
NA 52.64% Mar 17, 2005
NA 18.91% June 15, 2005
CNX Mid Cap 200 Index 28,91%
28.82%
BSE 100
69.57% 57.80% 14.44%
Compounded Annualized Return of Equity Linked Saving schemes of various companies YEAR
st
1 Year rd 3 Year Since Inception Inception date
UTI Mutual Fund
20.92% 40.13% 19.74% Sep 10,2003
SBI Mutual Fund 106.99% 121.77% 19.63% Mar 31,1993
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TATA Mutual Fund 63.85% 48.33% 26.55% Jan 16, 2005
BSE Sensex
BSE 100
50.01% 30.36% NA
69.57% 57.80% 14.44%
ASSET ALLOCATION OF ABOVE SCHEME UTI Dynamic Equity Fund Top 10 Holdings as on Jul 31, 2006 Company
Nature
IVRCL Infrastructure & Projects Ltd. Jyoti Structures Ltd Gammon India Ltd Ispat Industries Ltd Amtek Auto Ltd AllSec Technology Limited. Patel Engineering Ltd. Lupin Ltd. Force Moters Ltd. HCL Technologies Ltd.
EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ
Top Industry Allocation as on
Industry Allocation
%
7.7 7.42 5.99 5.84 5.6 4.94 4.78 4.77 4.47 4.11
Jun 30, 2006 Housing & Construction Pharmaceuticals
3.79% 4.78%
Value (Cr.) 9.62 9.27 7.48 7.29 7 6.17 5.96 5.95 5.59 5.13
Auto & Auto ancilliaries
14.68%
5.12%
Steel Power Generation, Transmission & Equip
6.74%
10.92%
Computers - Software & Education Diversified
9.04%
Entertainment
9.65%
10.07% 9.79%
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Engineering & Industrial Machinery Chemicals
SBI MAGNUM EQUITY FUND Top 10 Holdings as on Jul 31, 2006
EQ EQ EQ EQ EQ EQ EQ EQ
Value (Cr.) 15.37 14.81 14.75 14.13 10.92 10.34 10.05 9.89
7.43 7.16 7.13 6.83 5.28 5 4.86 4.78
EQ
8.89
4.3
Company
Nature
Bharat Heavy Electricals Ltd Kotak Mahindra Bank Ltd. Infosys Technologies Ltd Gujarat Ambuja Cements Ltd Bharati Tele - Ventures Mahindra & Mahindra Ltd ITC Ltd Bajaj Auto Ltd United Phosphorus Limited (New)
Top Industry Allocation as on
%
Jun 30, 2006
Top Industry Allocation Auto & Auto ancilliaries Computers - Software & Education Cement
4.30% 4.86%
13.33%
5.85% 8.14%
6.72% 7.37% 7.43%
Banks Electricals & Electrical Equipments Pharmaceuticals Telecom
8.09%
Diversified Tobacco & Pan Masala
7.53%
- 84 -
Chemicals
TATA PURE EQUITY FUND Top 10 Holdings as on Jun 30, 2006
Company
ITC Ltd Mahindra & Mahindra Ltd Reliance Industries Ltd Larsen & Toubro Limited Gujarat Ambuja Cements Ltd Infosys Technologies Ltd Siemens Ltd Hindustan Lever Ltd Grasim Industries Ltd Associated Cement Companies Ltd
Value Nature (Cr.) % EQ 12.03 5.01 EQ 11.31 4.71 EQ 10.32 4.3 EQ 10.14 4.22 EQ 9.13 3.81 EQ 8.74 3.64 EQ 8.57 3.57 EQ 8.02 3.34 EQ 7.78 3.24 EQ 7.76 3.23
Top Industry Allocation as on
3.01%
Diversified
3.73% 3.87%
Auto & Auto ancilliaries
19.23%
4.62%
7.77%
Computers - Software & Education Cement Electricals & Electrical Equipments Tobacco & Pan Masala
5.01% 7.69%
Jun 30, 2006
10.00% 8.79%
Electronics Pharmaceuticals Steel Hotels & Resorts
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UTI Mid-Cap Fund Top 10 Holdings as on Jul 31, 2006
Company
Nature
IVRCL Infrastructure & Projects Ltd. Thermax Limited Bharat Earth Movers Ltd Rallis India Ltd Gammon India Ltd AllSec Technology Limited. Ispat Industries Ltd Karur Vysya Bank Ltd Kalyani Steels Ltd Thomas Cook (India) Ltd
EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ
Top Industry Allocation as on
3.04% 3.82% 4.33% 4.63%
22.91%
Value (Cr.) 5.58 5.26 3.34 3.15 3.07 2.85 2.77 2.65 2.59 2.52
% 8.47 7.99 5.07 4.78 4.65 4.33 4.21 4.02 3.93 3.82
Jun 30, 2006
Engineering & Industrial Machinery Housing & Construction Diversified Steel
4.98%
Miscellaneous Chemicals
7.62%
Banks
16.68%
8.14% 8.56%
Computers - Software & Education Transport & Travel Sugar
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SBI Magnum Mid-Cap Fund Top 10 Holdings as on Jul 31, 2006
Company
Nature
Maharashtra Seamless Ltd Amtek Auto Ltd Opto Circuit Ltd. InfoTech Enterprises Limited Nagarjuna Construction Company Ltd Hotel Leela Venture Ltd India Cements Ltd Thermax Limited Crompton Greaves Ltd SKF Bearings India Ltd
EQ EQ EQ EQ
Value (Cr.) 13.73 12.25 12.11 11.39
EQ
10.71
3.98
EQ EQ EQ EQ EQ
9.93 9.37 9.12 8.34 7.54
3.69 3.48 3.39 3.1 2.8
Top Industry Allocation as on
3.69%
% 5.1 4.55 4.5 4.23
Jun 30, 2006
Steel
7.69%
5.21%
Auto & Auto ancilliaries Computers - Software & Education
7.35%
5.30%
Housing & Construction Textiles Pharmaceuticals
5.49%
6.71%
Cement Engineering & Industrial Machinery
5.64% 5.85%
6.02%
- 87 -
Electricals & Electrical Equipments Hotels & Resorts
TATA MIDCAP FUND
Top 10 Holdings as on Jun 30, 2006
Company Dishman Pharmaceuticals & Chemicals Lakshmi Machine Works Ltd Indian Hotels Co Ltd Greaves Ltd Tamil Nadu Newsprint & Papers Ltd CCL Product ltd KEC International Ltd. Voltas Ltd EIH Ltd Gokal Das Export Limited.
Top Industry Allocation as on
4.73% 4.73%
Nature EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ
Value (Cr.) 9.4 9.4 9.15 7.94 6.42 6.32 6.17 6.14 6.07 5.64
Jun 30, 2006
Computers - Software & Education
9.30%
Diversified Pharmaceuticals
4.82%
8.59%
5.64%
Hotels & Resorts
Auto & Auto ancilliaries Engineering & Industrial Machinery Textiles
5.93%
8.27%
Metals
Consumer Durables
6.54%
% 4.37 4.37 4.25 3.69 2.98 2.94 2.87 2.85 2.82 2.62
8.26%
- 88 -
Housing & Construction
UTI Tax Saving Fund Top 10 Holdings as on Jul 31, 2006
Company
Nature
Infosys Technologies Ltd State Bank of India Bharat Heavy Electricals Ltd Bharati Tele - Ventures Satyam Computer Services Ltd Grasim Industries Ltd ITC Ltd India Cements Ltd Reliance Industries Ltd Reliance Energy Ltd
EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ
Top Industry Allocation as on
Value (Cr.) 16.11 11.34 10.43 9.6 9.28 8.32 7.87 7.36 6.85 6.79
%
8.08 5.69 5.23 4.81 4.65 4.17 3.95 3.69 3.44 3.4
Jun 30, 2006
Computers - Software & Education
3.95% 4.32%
Diversified
12.73%
4.81%
Pharmaceuticals Power Generation, Transmission & Equip
5.00% 5.23%
12.23%
Electricals & Electrical Equipments Housing & Construction
5.42% 6.09%
Banks
Telecom
8.93%
Steel Tobacco & Pan Masala
- 89 -
SBI MAGNUM TAX GAIN SCHEME 93 Top 10 Holdings as on Jul 31, 2006
Company
Nature
Infosys Technologies Ltd India Cements Ltd Crompton Greaves Ltd Satyam Computer Services Ltd Havells India Ltd Reliance Communication Ventures Ltd. United Phosphorus Limited (New) Associated Cement Companies Ltd Shree Cement Ltd Hindustan Lever Ltd
EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ
Top Industry Allocation as on
Value (Cr.) 36.72 34.7 30.52 30.22 23.81 23.51 23.13 22.76 21.86 21.64
% 4.92 4.65 4.09 4.05 3.19 3.15 3.1 3.05 2.93 2.9
Jun 30, 2006
3.25% 3.27% 4.30%
14.94%
4.41% 4.86% 14.68%
5.39% 7.28%
Computers - Software & Education Cement Diversified Electricals & Electrical Equipments Engineering & Industrial Machinery Entertainment Telecom Housing & Construction
8.16%
Oil & Gas, Petroleum & Refinery
- 90 -
TATA TAX SAVING FUND
Top 10 Holdings as on Jun 30, 2006
Company
Nature
Reliance Industries Ltd Larsen & Toubro Limited Grasim Industries Ltd ITC Ltd Wipro Ltd Mahindra & Mahindra Ltd Siemens Ltd Bharat Electronics Ltd Crompton Greaves Ltd Maruti Udyog Ltd
EQ EQ EQ EQ EQ EQ EQ EQ EQ EQ
Top Industry Allocation as on
Value (Cr.) 4.41 4.31 4.01 3.85 3.78 3.57 3.5 3.36 3.36 3.3
Jun 30, 2006
3.30% Diversified
3.79% 4.79%
Computers - Software & Education
19.43%
5.29%
Steel Engineering & Industrial Machinery Auto & Auto ancilliaries
6.75% 6.76% 7.11%
Electronics
12.09%
Pharmaceuticals Housing & Construction
8.54%
Tobacco & Pan Masala Electricals & Electrical Equipments
- 91 -
% 4.33 4.24 3.94 3.79 3.72 3.51 3.44 3.3 3.3 3.25
CHAPTER-VII: SUGGESTIONS & CONCLUSIONS
- 92 -
FINDINGS 1. There is tremendous growth in Mutual Fund Industry as a result of growing awareness in the middle class investors about Mutual funds.
2. People tend to invest in Equity linked Savings schemes as they can avail Tax
Rebate as well as capital appreciation.
3. One of the most important drawbacks of ELS Schemes is that there is no assurance of even any base level of returns. This is because these funds invest in
the equity markets, which, as we all know, can fluctuate wildly.
4. Past performance of mutual fund is not an indicator of future performance though we can judge efficiency of fund management, which is major factor in
profitability of fund.
5. If we consider the Size of assets held by each fund, we find that
magnum
Taxgain fund is Market leader in this category of ELSS Funds.
6. Market trend shows that, in equity sector there is a lot of portfolio turnover, which is because of Its Dynamic and Liquid nature. High Volumes of Debt Purchases show the tendency of Indian people to choose security of funds more than Returns by taking Risks.
- 93 -
7. Though Magnum Taxgain Fund has not fetched the Best returns since inception, for last three years It is constantly performing better than other funds. Magnum Taxgain is Indian Market s Top Performer since last 1 year in its category i.e.
ELSS.
- 94 -
SUGGESTIONS Now day s mutual funds are emerging as one of the widely accepted option of investment. The reason behind this is low performance of traditional investment options and role played by government in this sector, which is totally oriented towards the investor. Government has formed SEBI (Security Exchange Board of India) for the same reason, which regulates Mutual Funds companies and guides to the Investor. But before investing in mutual fund investor should take reasonable care, which will help him to acquire good returns with proper safety of his funds. He should consider following
guidelines before investing in mutual fund
Understand your investment requirement and objectives. Check out offer documents.
Check out the past performance of the fund. Never invest all the savings in any single fund, diversify your investment for risk
minimization Invest for the long period to earn good results. Consider your liquidity profile and risk bearing capacity and function within these boundaries only.
Track your portfolio regularly. Regularly make your financial planning. Before taking decision you should study properly Key Information Memorandum
and offer documents.
- 95 -
Remember, not a single fund assures guaranteed returns at a particular rate. Do not consider that fund will beh ave according to its past performance. Frequently keep watch over changing rules and regulations laid down by
government and SEBI. Experience hold by the company for dealing in mutual fund also matters more. Do not go for earning high returns always; consider the safety of the fund also.
Select the proper schemes, which match your investment requirements. Check out whether there is any lock -in period for the fund. You can check your fund s nav form web site of that particular fund or from amfiindia s website on daily base
Remember, "Mutual Fund investments are subject to market risk .
- 96 -
RECOMMENDATIONS Investment in Money Market /Guilt funds would be desirable for those who don t want to take risk and want earn income on regular basis. This fund would be best option for retired person, because it will give higher return than provident fund.
The person who already has investment in Equities he can look towards debt fund as Investment Avenue because it has comparatively less risk than Equity or Balanced funds. Investment in debt would give wider portfolio to the investor. The person who wants to take the benefits of both the market i.e. Equity & Debt, he can go for diversified fund. ELS Schemes would enable to give tax rebate up to 100000 to the customer. Hence the person who needs tax benefits he can go for it, but one should keep in mind that the all ELSS have lock-in period for investment. i.e. once the person invest in this type of funds he can not withdraw his money up to 3 years. The person who needs regular income from funds they should go income type of fund, and The person who needs capital appreciation he has to go for growth plan. Service man can go for Systematic Investment Plan (SIP). It enables them to invest small amount in every month. If the person seems that the fund in which he has invested his money is not doing well he can switch over his money from one fund to another fund by the way of Systematic Transfer plan (STP). He can switch over partial amount also to another fund, but the fund must be from that company. If the person wants to withdraw partial amount from the fund he can do this by way of Systematic Withdraw Plan (SWP).
- 97 -
LIMITATIONS Mutual fund industry is a very huge industry, which has more tha n 31 Mutual Funds with more than 500 Schemes. For the analysis, only 3 Mutual Funds were
selected. Fund Was Focused on four Schemes only. ELSS Schemes Regulations and Benefits are subject to change with government policies. It was very Difficult to cover all aspects in study of mutual fund such as benchmark indices, Performance measures. etc.
- 98 -
BIBLIOGRAPHY 1. Merchant Banking and Financial Services- Prof. P. G. Apte 2. www.amfiindia.com 3. www.mutualfundsindia.com 4. Source for all comparisons: www.personalfn.com 5. Websites of various Mutual Funds. 6. Mutual Funds: AMFI Course material by INVEST INDIA
- 99 -
