Performance Comparison of Different Mutual Funds Schemes in India Through Sharpe Index Model

Project Report On Performance Comparison of Different Mutual Funds Schemes in India Through Sharpe Index Model

In the partial fulfillment of the Master of Business Administration Program 2007-2009

Department of Management Studies Shrinathji Institute of Technology and Engineering Upali Oden, Nathdwara.

SUPERVISED BY: Mr. mohit sharma

SUBMITTED BY:

Project Report

On Performance Comparison of Different Mutual Funds Schemes in India Through Sharpe Index Model

Project Done At:

IDBI Capital Market Services Ltd, Rajsamand

Project Submitted By Shrinathji Institute of Technology & engg, Nathdwara (RAJASTHAN)

CONTENTS UNIT 1 ACKNOWLEDGEMENT

UNIT 2 PROFILE OF IDBI MUTUAL FUND THROUGH IDBI MUTUAL FUND INDUSTRY RESEARCH METHODILOGY:- a) Objective b) Design c ) Data source MUTUAL FUND TYEPS, ADVANTAGES, DISADVANTAGES HISTORY OF MUTUAL FUND INDUSTRY SHARPE PERFORMANCE INDEX MODEL DATA ANALYSIS AND INTERPRETATION CONCLUSION OF STUDY. SUGGESTIONS RECOMMENDATION BIBLIOGRAPHY

Preface A mutual fund is nothing more than a collection of stocks and/or bonds. Mutual fund as a company that brings together a group of people and invests their money in stocks, bonds, and other securities. Each investor owns shares, which represent a portion of the holdings of the fund.

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank of India.

It is registered with SEBI and functions under the Mutual Fund Regulations. Conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth.

Acknowledgement

I express my sincere thanks to my project guide, Mr. Mr. Devendra Shrimali, DesignationAssociate Professor, Deptt_- Finance, for guiding me right form the inception till the successful completion of the project. I sincerely acknowledge him/her/them for extending their valuable guidance, support for literature, critical reviews of project and the report and above all the moral support he/she/they had provided to me with all stages of this project. I would also like to thank the supporting staff ___________________________ Department, for their help and cooperation throughout our project. Ankita Mantri

Executive summary 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 is 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.

Portfolio managers evaluate their portfolio performance and identify the sources of strength and weakness. The evaluation of the portfolio provides a feed back about the performance to evolve a better management strategy. Even through evaluation of portfolio performance is considered to be the last stage of investment process, the managed portfolios are commonly known as mutual funds. Various managed portfolios are prevalent in the capital market. Their relative merits of return and risk criteria have to be evaluated.

Sharpe’s performance index gives a single value to be used for the performance ranking of various funds or portfolios. Sharpe index measures the risk premium of the portfolio relative to the total amount of risk in the portfolio. This risk premium is the difference between the portfolio’s average rate of return and risk less rate of return. The standard deviation of the portfolio indicates the risk. The index assigns the highest values to assets that have best riskadjusted average rate of return. The Sharpe ratio provides me with a return for unit of the risk measure.

Organization Introduction

About Us IDBI Capital Market Services Ltd., (IDBI Capital) is a wholly owned subsidiary of IDBI Bank Ltd and is a leading Investment Banking & Securities Company. IDBI Capital offers a full suite of products and services to Corporate, Institutional and Individual clients. The range of services include:

Investment Banking

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Capital Market Products

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Private Equity

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Corporate Advisory Services

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Mergers & Acquisitions

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Project Appraisals & Debt Syndication

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Stock Broking - Institutional & Retail

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Distribution of Financial Products

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Debt Placement and Underwriting

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Fund Management (Managing Clients' Assets-Pension/PF Fund Managers)

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Research Group

IDBI Capital is highly regarded for safety and trust and enjoys a credit rating of “AAA” by CARE for its medium-term borrowings and P1+ by ICRA for its short-term borrowings.

IDBI Capital Market Services Limited

IDBI Capital Market Services Ltd. (head quartered in Mumbai), is a leading provider of financial services and is a 100% subsidiary of IDBI Bank Ltd. The company was set up in 1993 with the objective of catering to specific financial requirements of financial institutions, banks, mutual funds and corporate houses. The company provides a complete range of financial products and services that includes:

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Stock Broking-Institutional and Retail

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Derivatives Trading

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Distribution of Mutual Funds

Financial Advisory Financial Advisory has been considered as a strategic function requiring innovative and distinct financial solutions both long and short term focused on delivering greater shareholder value. IDBI Capital Market Services Limited occupies a leading position being a wholly owned subsidiary of IDBI Bank in the Corporate Finance Market place. We support our clients by offering those creative ideas and solutions that facilitates in enhancing the value. We broadly advise on the following on the Financial Advisory space: 

Business Valuation

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Financial & Commercial Due Diligence

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Merchant Financial Appraisal

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Joint Venture & Contract

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Bid Process Management

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Disinvestments

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Infrastructure Advisory

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Financial / Debt Restructuring

Structured Finance & Securitization

Capital Markets IDBI Capital as an institutional player provides the entire gamut of Capital Market services encompassing: 1. Public Offerings 2. Qualified Institutional Placements 3. Buyback 4. Takeover 5. Preferential Allotments 6. External Commercial Borrowings, FCCBs, etc. The above activities entails lassoing with institutional investors such as treasury departments of Domestic Institutions, Banks and corporate, fund managers of mutual funds, private equity firms, FIIs, HNIs.

IPO / FPO / Right Issues IDBI Capital Market Services Ltd. (ICMS), as a Securities and Exchange Board of India (SEBI) registered Merchant Banker, provides the following services: 

Public issue of Equity and Debt Instruments in Indian markets through Initial Public Offering (IPO), Follow on Public Offering (FPO) and Rights Issue

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Acts as a Book Running Lead Manager, a Lead Manager, a Co-Manager or an Advisor to the Issue.

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Underwrites Issues of Equity and Debt Instruments.

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Markets various instruments with Qualified Institutional Buyers (QIBs), High Networth Individuals (HNIs), Corporate and Retail investors.

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Prepares all documents like Prospectus / Letter of Offer and assists the Issuer in complying with legal and statutory requirements of SEBI, Stock Exchanges, Registrar of Companies (ROC) and authorities under various corporate laws and economic laws for issue of securities.

Advisory services on structuring of capital and debt, timing for raising the same, choice of agencies to assist in the process of raising funds, etc.

Takeover IDBI Capital helps corporate and institutional clients to carry out successful takeovers on the Exchange listed companies. IDBI Capital helps carry out the Due Diligence exercise in accordance with relevant SEBI Rules / Regulations / Guidelines followed by the preparation of legal documentation connected with Buybacks and Take-over. Buyback of Securities IDBI Capital is active in assisting its clients in buy-back programs. With the presence of a strong Broking services, the Company is in a position to offer comprehensive solutions to accomplish buy-back programs.

Qualified Institutional Placement IDBI Capital adds value to QIP issues which can be done only by listed Companies to raise additional equity from Qualified Institutional Buyers (QIBs). The strong relationship of IDBI Capital with the different categories of QIB, FIIs, Fis, Mutual Funds, Banks etc., makes a difference to the QIP placement programs of the Companies. This is backed by a strong research support.

Private Equity We have developed strong expertise across different industries, which enable us to structure the transaction in that context. In Private Equity (PE), we focus on sectors ranging from Infrastructure, Power, Telecom, Healthcare & Life Sciences, Pharmaceuticals, Hospitality, Banking, Logistics, Media, Auto Ancillaries / Components, Cement, Steel, etc to name a few. Our strength in Private Equity advisory is on account of: 

Strong relationships with PE funds and their key decision makers

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Strong execution team gives an edge on optimal structuring and efficient closure of transactions

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Value addition on entire structure of activities

Our PE transaction doesn’t come to an end with the transfer of funds but also cater to entire gamut of Investment Banking needs. IDBI Capital enables strong growth oriented companies raise capital through; •

Preparation of Business and Financial Plans

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Preparation of the Information Memorandum

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Discussions and Negotiations with prospective investors

Deal closure and Execution

Investment Banking Our Clients We represent Government organizations, Public Sector Enterprises and Indian Corporates covering sectors such as Steel and other metals, Mines, Minerals, Chemicals, Healthcare, Hospitality, Financial Services and other Core Sectors. Our Team We have a combination of professionals with varied background who shares our values of

truthfulness, objectivity, innovation and analytical accuracy. The professional qualification of our team provide a rock solid foundation for giving consulting services and our depth of experience ranges from young management graduates from premier business schools to experienced finance professional and qualified chartered accountants as well.

Project Advisory IDBI Capital has considerable expertise in Project Advisory / Finance. We advise our clients right from the project conception stage followed by preparation of the Project Report and its Techno-Commercial Appraisal with the support of accredited institutions with optimal financial structuring. These reports pave the way for contracting project loans for green-field as well as expansion

projects.

Our Project Advisory would also include turnkey advisory services on financial structuring, implementation and documentation aspects of Green-field Projects, Brown Field Projects and Public Private Partnership Projects. The scope of work ranges from negotiations with Banks, Financial Institutions and Multilateral agencies for obtaining the final loan sanctions. Our Project Advisory Services broadly include: 

Overview of the promoting company / SPV

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Review of the Project Structure and Project Costs including various assumptions.

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Capital Structuring

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Real Estate Advisory

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Identification and evaluation of various sources of finance

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Financial modeling

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Risk Analysis and Allocation

Development of a Security Package

Corporate Advisory IDBI Capital Market Services Limited support Promoters and Senior Management professionals of Corporate to acquire new perspectives and dimensions on Competitive Strategy that will give Competitive Advantage. Our deliverables and advice focuses on delivering timely and researched information for the ultimate decision-making. Our financial and strategic advisory and analysis will provide necessary inputs to key stake holder (s) for taking decisions for enhancing shareholder value. Our key advisory areas are: a. Mergers and Acquisitions b. Strategic Advisory

Mergers & Acquisitions There are several means a Corporate adopt to improve shareholder value e.g. increased revenue, market share, geographical expansion, diversification, economies of scale; or to integrate through Merger & Acquisition. Broadly speaking, M&A drivers could be customer acquisition and top line growth, new market entry or competence building. IDBI Capital’s M&A Advisory services covers right from the initial negotiation stage to the final deal conclusion. We address the following while taking up Mergers and Acquisitions; 

Business valuations and managing the entire merger process

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Assisting companies in acquisitions as sell off as joint ventures

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Assisting the Company in financing the deal

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Managing Open Offers

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Evaluating bids on the basis of the evaluation criteria set out

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Assisting in closing the deal

Post Merger Integration

Strategic Advisory Strategic Planning provides the framework for all the major business decisions of an enterprises-decision on businesses, products & markets, manufacturing facilities, investments & organizational structure. It is indeed act as a pathfinder to various business opportunities. IDBI Capital assists clients in formulating strategy, developing solutions and successfully managing results. We work with clients to define their business strategy and implement interactive solutions that redefine relationships with customers, suppliers and employees. We help clients improve business performance by delivering a complete, business-focused menu of end-to-end business solutions. We broadly cover: 

Business and Strategic Planning

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Business Restructuring

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Entry Strategy

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Policy Advisory

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Organization Restructuring

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Bid Process Management

Process Consulting

Institutional Broking & Distribution Institutions and Corporate have surplus funds to manage on daily basis as well as investible surplus for a defined period. The risk differs for Institution and Corporate subject to their preferences. The reward by way of return is always in proportion to the risk taken. IDBI Capital defines advice and manages the same by blending caution with aggression in the desired proportion to teach client. The range of services include from Equity Broking with customized research, advisory and distribution services for investment in Mutual Funds, Debt/Bonds, Equity IPO’s to placement of Equities etc Equity Sales & Dealing

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The Institutional Broking Desk offers the Clients with a dealing platform for trading in NSE and BSE. The parameters on market conditions with an astute technical analysis from the Dealing Desk enable the clients to take an apt decision. The intra day analysis and reports are also available to clients on customized basis.

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Further the Institutional Clients are provided with the Derivatives Trading desk for Futures and Option. The Institutional Clients are updated with fresh research Ideas on the happening Scrip and Sectors.

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Being well connected with the global market Via Bloomberg, the updates are shared from time to time.

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The interpreted brief report on the Futures and Option positions before the Expiry is published for Client’s Circulation.

Daily market information is disseminated to the clients under ‘Heard on Street’ News heads.

Equity Research We have research desks covering all aspects of the equities. Our equities research desk publishes high quality research on all major sectors of the industry and covers a wide spectrum of companies listed on the Indian stock exchanges. Our derivatives research team publishes daily/monthly reports on the trends in the equity derivatives markets. Our objective, uncomplicated and reliable research reports on global markets and equity empower institutional investors and make it possible for them to make informed investment decisions. Our research teams have made a name for themselves in a very short time. Mutual Fund Sales & Dealing Several factors need to be taken into account when choosing an instrument for investment – among these being safety, liquidity & return related to the risk undertaken. Coming to the choice of instruments, we have equity, debt, money market, commodity based or even global equities. Mutual funds provide all this and more.

Mutual funds offer an investment portfolio which can be either diversified in nature or specific in category with risk skewed towards debt to equity in varying proportions, all in one under one umbrella. Mutual Funds cater to the specific requirement of the Investor be it Institutional or Individual. IDBI Capital Market Services Ltd. is into Mutual Fund Distribution, Advisory and Fund Management. We address the needs of any type of investor from corporate, banks, trusts, firms, and societies to NRIs, HNIs and individual retail clients We have been recognized as among the best financial advisers in the country, and have been conferred with the CNBC TV 18 Financial Advisor Awards as the Best Performing National Financial Advisor –Institutional segment in India for the past two consecutive years. As a distributor registered with almost all the SEBI Registered Mutual Funds in India, we have also started offering Mutual funds to our retail customers, both off-line and on-line.

Mutual Fund Research The degree of risk in a Mutual Fund varies with the diversity in portfolio and the combination of assets. Add to this the different classes of instruments. Judging the best investments avenues calls for astute incisive knowledge on markets and individual companies. The research desk of IDBI Capital Market Ltd. publishes a number of detailed research Reports on the Mutual Fund Industry viz. (i) Daily Report – detailing the NAV and growth of the schemes on various periods (ii) MF Monthly – with coverage on the Equity, Debt and Mutual Fund market (iii) Customized Sector Reports and (iv) Scheme Reports for Special Clients. Customized Reports are provided to specific institutional / corporate clients. The universe for every category is selected from the entire industry and rigorous analysis undertaken including

peer comparison. Various tools and techniques are used, from studying the Alpha of every scheme with Standard Deviation to Beta Analysis to Tryenor and Sortino.

Retail Broking & Distribution In addition to offering corporate, institutional clients, IDBI Capital also offers a gamut of financial products and services that cater to a varied cross section of investors. IDBI Capital also offers to financial planners, retail intermediaries and consumers to deliver lasting, innovative solutions. Looking at the opportunities in our market and the growth of our country, we believe it is high time investors are educated about the nuances of investments. The knowledge and awareness gained will empower investors and help them create wealth. We firmly believe brokers, media and regulators have a pivotal role in assisting the individuals to become wealthy. We will go extra mile to empower the investors in managing their wealth to ensure a more rewarding future. IDBI Capital aims to provide a single-point source for retail investors in their requirements for trading and investment products.

Online Investing Online investing provides investors with a convenient method to take part in today’s financial markets. With our commitment to enhancing investor education and awareness as a foundation stone, we have created an online investing website www.idbipaisabuilder.in for trading and depository services. This platform enables easy and informed investing in Equity shares, Futures & Options (F&O), IPO’s and Mutual Funds, for the retail investors with a wealth of information, news, analysis and tools sourced from the best in the industry. It also brings a large database of information about companies which will assist them in making an informed investment decision.

We strive to empower you with information that helps you make informed decisions and bank upon the right opportunity. We bring you lots of useful information by way of our varied market research reports on equity, derivatives, and mutual funds We offer an integrated three-in-one account linking savings account, trading account and the demat account. Now investing in Equity, Mutual funds and IPO’s is just a click away.

IPO Distribution Investment Banking Activities We have in the last financial year successfully lead managed public/rights issues mobilizing more than Rs.900 crores. Some of the notable examples were the Central Bank of India‘s IPO and Varun Industries Ltd fixed price issue. The responses to our issues have been heartening. Initial Public Offerings (IPO) We are reaching out to the investors thru 

10,000 sub-brokers/agents spread across the country.

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Our 40 thousands online investors.

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And our own 25 branches.

We market and distribute IPO’s of all lead investment bankers, including our owned lead managed issues. In IPO distribution, the marketing effort is the key, which enables us to carry out the vigorous exercise of 

Putting the banners of the IPO on our portal and all across our branches.

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Sending the emails to all our investors about the impending IPOs and the product note.

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Sending SMS to all of them.

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Making available the IPO application forms, in all our branches.

All our branches are in marketing & distribution of IPO application forms, where we accept and bid the application forms to the exchange. Our Credentials We are a leading full service securities house, offering a complete suite of financial products and services to individual, institutional and corporate clients: 

Wholly owned subsidiary of IDBI Bank Ltd.

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A well-capitalized financial position - net worth of over Rs.350 crores as on 31st March 2008.

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A private equity fund of Rs.100 crores for investment in Mid Cap and SME Growth Companies

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A leading player in Private Placement of Tier II bonds and debentures for institutions, banks and corporate.

We manage Provident and Pension Funds of more than Rs.8,250 crores

Mutual Fund Distribution Several factors need to be taken into account when choosing an instrument for investment – among these being safety, liquidity & return related to the risk undertaken. Coming to the choice of instruments, we have equity, debt, money market, commodity based or even global equities. Mutual funds provide all this and more. Mutual funds offer an investment portfolio which can be either diversified in nature or specific in category with risk skewed towards debt to equity in varying proportions, all in one under one umbrella. Mutual Funds cater to the specific requirement of the Investor be it Institutional or Individual. IDBI Capital Market Services Ltd. is into Mutual Fund Distribution, Advisory and Fund Management. We address the needs of any type of investor from corporate, banks, trusts, firms, and societies to NRIs, HNIs and individual retail clients

We have been recognized as among the best financial advisers in the country, and have been conferred with the CNBC TV 18 Financial Advisor Awards as the Best Performing National Financial Advisor –Institutional segment in India for the past two consecutive years. As a distributor registered with almost all the SEBI Registered Mutual Funds in India, we have also started offering Mutual funds to our retail customers, both off-line and on-line. We distribute and advise on the schemes of all the Mutual Fund Houses registered with SEBI.

Fund Management IDBI Capital Market Services Ltd. (ICMS) is a leading Fund Manager in the country for Provident, Pension and Retirement Benefit Funds. The Company is a SEBI registered Portfolio Manager and manage its Client’s assets under both discretionary and non-discretionary mandates. These services are provided to various public and private sector undertakings and their provident, pension, retirement benefit and surplus funds. The Company’s client base includes leading pension and provident funds in the country. IDBI capital has been advising institutions, banks and corporates for their investment in Debt, Mutual Funds and Equities over several years. Its services include managing Client Assets-Pension & Provident Funds, Surplus fund Management, Equity Portfolio Management and Mutual Fund Advisory. The funds have continuously yielded superior returns, which are significantly higher than the benchmark. ISO Certification 9001:2000 Keeping in view the importance of standardized processes and service levels, the Company Has gone in for ISO Certification for Fund Management, and is the only company to have done so in this sector. Being a public sector, the Company is also audited by Comptroller and Auditor General (CAG) office and follows transparent practices.

Regulatory Approval IDBI Capital is a registered Portfolio Manager with Securities and Exchange Board of India (SEBI) since 1998 and is authorized to undertake Funds Management activities (Debt & Equity) for clients. These activities would be governed by Securities and Exchange Board of India (Portfolio Managers) Rules and Regulations, 1993. SEBI Registration No. of IDBI Capital is INP000000209, valid till the year 2010. The Key strengths of IDBI capital Market Services in the areas of Debt Fund Management are: 1. Fund Management experience of 10 years 2. Expertise in managing large corpus 3. Expertise in both Debt & Equity Market 4. IDBI Capital is the only Portfolio Manager in the Country to achieve ISO 9001: 2000 Standard for Quality Management Systems in Fund Management operations, with certification from TUV NORD an accredited German standards firm 5. Substantial Returns Over Benchmark 6. IDBI Capital is a SEBI registered Portfolio Manager 7. Minimum Idle Days 8. Our fund management skill covers Portfolio Analysis that includes ALM, Asset Allocation, Risk Analysis, Maturity Analysis and Yield Analysis 9. Transparency of Operations 10. Strict adherence to Compliance Procedures 11. Highly Rated Debt Research 12. Presence in All Segment/ Asset of the Financial Services: IDBI Capital deals in Equity and Equity related products and is one of the highly rated Mutual Fund Distributor (won two consecutive CNBC TV18 Institutional Financial Advisor Award). In Investment Banking and Debt Capital Market- Rated in Top 15 by Prime Database 13. Group Strength in Debt Market: IDBI Capital is one of the leading players in debt market with presence in primary dealership since July 2007. The current operations of primary dealership is conducted by a group company, IDBI Gilts Infrastructure

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Experienced Fund Management Team: The Fund Management team comprises of experienced professionals (experience ranges between 2 years to 15 years) in Portfolio Management with requisite exposure in the fixed income and equity segment and qualifications

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Experienced Back-Office: The Clearing and Settlement Operations are manned by experienced personnel with requisite exposure to capital market and particularly debt market. The process is standardized as per the regulatory and other specific norms and mainly technology driven in most areas Accounting: Real time accounting of Remittances, Investments, Interest and Redemption proceeds ensures accurate reconciliation

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Professional Custodian: Member of NSDL for demats services and offers Constituent SGL Account facility for Government securities through IDBI Gilts Ltd.

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Functional Separation of Front and Back Office: Separate personnel handle the front and back office functions to ensure transparency and complete regulatory compliance

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Internal Controls: Adequate Risk Management systems in place to ensure complete regulatory compliance

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Audit Systems: Audit of all transactions and reports by an independent firm of chartered accountants. The accounts and transactions are also subject to CAG audit and other regulators

Belongs to IDBI Group: IDBI is a leading bank, classified under ‘Other Public Sector Bank’. Established in 1964 by Government of India under an Act of Parliament, IDBI has essayed a significant role in the country’s industrial and economic progress for over 40 years – first as apex Development Financial Institution (DFI) and now as a full service commercial bank.

Disclaimer The information contained in this Internet site and other IDBI Capital Internet sites (hereinafter referred to as "IDBI Capital sites") has been carefully obtained and analysed by IDBI Capital Market Service Ltd. All information is subject to change without notice. The IDBI Capital sites are intended for general information purposes and should not be used

as a substitute for any form of advice or otherwise be relied upon. The information on hyperlinked or referred to Internet sites is neither investigated nor analysed by IDBI Capital Market Service Ltd. No warranty or representation, express or implied, is given as to the accuracy or completeness of the information and all information provided is subject to change and shall be governed by the Statutory and Regulatory amendments. Content provided under the website is only informative in nature and should not be construed as an offer to sell. In no event will IDBI Capital Market Service Ltd., nor any of their directors, employees, or advisors accept any liability with regard to the information contained in the IDBI Capital sites or any other hyperlinked or referred to Internet sites. Readers are requested to verify all the facts, law and contents with the text of the prevailing statutes and seek appropriate professional advice before acting on the basis of any information contained herein as taxation implications may vary depending upon the facts in each case and the tax laws are subject to change from time to time. IDBI Capital Market Service Ltd. reserves all copyright, trademark, patent, intellectual and other property rights in the information contained in the IDBI Capital sites, and no express or implied license is granted in respect thereof. Any unauthorized use or reproduction of the information or proprietary rights contained in the IDBI Capital sites is strictly prohibited.

Introduction

As you probably know, mutual funds have become extremely popular over the last 20 years. What was once just another obscure financial instrument is now a part of our daily lives.

In fact, to many people, investing means buying mutual funds. After all, it's common knowledge that investing in mutual funds is (or at least should be) better than simply letting your cash waste away in a savings account, but, for most people, that's where the understanding of funds ends. It doesn't help that mutual fund salespeople speak a strange language that is interspersed with jargon that many investors don't understand.

Originally, mutual funds were heralded as a way for the little guy to get a piece of the market. Instead of spending all your free time buried in the financial pages of the Wall Street Journal, all you had to do was buy a mutual fund and you'd be set on your way to financial freedom. As you might have guessed, it's not that easy. Mutual funds are an excellent idea in theory, but, in reality, they haven't always delivered. Not all mutual funds are created equal, and investing in

mutual isn't as easy as throwing your money at the first salesperson who solicits your business.

In this tutorial, we'll explain the basics of mutual funds and hopefully clear up some of the myths around them. You can then decide whether or not they are right for you.

Mutual Funds are investment institutions set up to manage money pooled in from the public. The advantages of investing in Mutual Funds are the professional expertise they employ coupled with the variations offered on the basis of asset classification and the diversification of the chosen portfolio aimed at optimizing the risk for the required return. The benefits that can be accrued from Mutual Funds are •

The schemes could be added to the portfolio with online updates for monitoring the performance of your investments in Mutual Funds.

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The comprehensive search, which gets you the fund matching your criteria.

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The comparison of various schemes of different Mutual Funds based on the critical and most sought after investment criteria.

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The analysis of different schemes and the outlook for the same.

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List of new launches in the market provided continuously.

Basically, Mutual funds are trusts that are formed to mobilize the savings from the people and pool them together to invest within the securities markets. The main advantage of mutual funds is that it is professionally managed. And the general idea is for investors to contribute small amounts into units in the various schemes, which in turn is deployed in the various markets. This way, any investor who is not in a position to directly invest in the markets can take advantage of this route.

UTI is the oldest of Indian mutual funds, having entered the arena with the launch of the Unit Scheme - 64 in 1964, hence the alphanumeric name. It was only in 1998 that other public sector banks were allowed to enter into the segment which was followed by a whole range of Asset Management companies including almost all the leading international portfolio managers including Merrill Lynch, Templeton, and Prudential among others.

Objectives

The objectives of the study is to analyses, in detail the growth pattern of mutual fund industry in India and to evaluate performance of different schemes floated by most preferred mutual funds in public fund in public and private sector. The main objectives of this project are

1.

To study the various private and public sector mutual funds schemes in India.

2. To study the performance of overall mutual funds schemes by analyzing the NAV and their respective returns.

RESEARCH METHODOLOGY

Research is an organized enquiry designed and carried out to provide information for solving a problem.

Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done scientifically.

DATA COLLECTION The task of data collection begins after a research problem has been defined. While deciding about the method of data collection to be used for the study, the researcher should keep in mind two types of data viz ,primary and secondary. Primary data may be described as those data that have been observed and recorded by the researchers for the first time to their knowledge. Primary data can be classified into two types: •

Data classified by their nature.

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Data classified according to function.

Primary data can be collected through several methods. Some of the important ones are: 1. Observation method 2. Interview method 3. Questionnaires 4. Schedules 5. Other methods

Secondary data are statistics not gathered for the immediate study at hand but for some other purposes.

Secondary data can be classified into two types: •

Internal data which include sales analysis.

External data which include libraries, literature etc.

TECHNIQUES USED IN THIS STUDY In this study, we have used various statistics tools like descriptive statistics, percentage, ratio analysis, annual growth rate etc. for analyzing, interpreting and comparison of different mutual fund schemes. The Sharpe Index Model is also used to analyze the performance evaluation and ranking for the difference mutual funds schemes in India.

SCOPE OF THE STUDY: The 8 most preferred public and private sector mutual funds schemes have been taken for the study. These public and private mutual funds schemes were studies during the period of 1 April, 2008 to 1 April, 2009.

LIMITATIONS OF THE STUDY: Due to shortage of time and money, we selected only 8 mutual funds schemes which include public and private mutual funds. The data was collected for analysis from 1 April, 2008 to 1 April, 2009 instead of 1992. My study is based on the limited 8 mutual funds schemes only which affect the results of the study.

MUTUAL FUND:

CONCEPT 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 is 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:

The Definition: A mutual fund is nothing more than a collection of stocks and/or bonds. Mutual fund as a company that brings together a group of people and invests their money in stocks, bonds, and other securities. Each investor owns shares, which represent a portion of the holdings of the fund. We can make money from a mutual fund in three ways: 1) Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all of the income it receives over the year to fund owners in the form of a distribution. 2) If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution. 3) If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.

ORGANISATION OF A MUTUAL FUND

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

ADVANTAGES OF MUTUAL FUNDS:

The advantages of investing in a Mutual Fund are:  Professional Management

 Diversification  Convenient Administration  Return Potential  Low Costs  Liquidity  Transparency  Flexibility  Choice of schemes  Tax benefits  Well regulated

• Professional Management - The primary advantage of funds (at least theoretically) is the professional management of your money. Investors purchase funds because they do not have the time or the expertise to manage their own portfolios. A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments.

• Diversification - By owning shares in a mutual fund instead of owning individual stocks or bonds, your risk is spread out. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. In other words, the more stocks and bonds you own, the less any one of them can hurt you (think about Enron). Large mutual funds typically own hundreds of different stocks in many different industries. It wouldn't be possible for an investor to build this kind of a portfolio with a small amount of money.

• Economies of Scale - Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than what an individual would pay for securities

transactions.

• Liquidity - Just like an individual stock, a mutual fund allows you to request that your shares be converted into cash at any time.

• Simplicity - Buying a mutual fund is easy! Pretty well any bank has its own line of mutual funds, and the minimum investment is small. Most companies also have automatic purchase plans whereby as little as $100 can be invested on a monthly basis.

Disadvantages of Mutual Funds:

• Costs - Mutual funds don't exist solely to make your life easier - all funds are in it for a profit. The mutual fund industry is masterful at burying costs under layers of jargon. These costs are so complicated that in this tutorial we have devoted an entire section to the subject.

• Dilution - It's possible to have too much diversification. Because funds have small holdings in so many different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money. • Taxes - When making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gains tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

TYPES OF MUTUAL FUND SCHEMES: Wide varieties of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry.

Open – Ended Schemes and Close – Ended Schemes:

The term mutual fund is the common name for what is classified as an open-end investment company. Being open-ended means that, at the end of every day, the fund issues new shares to investors and buys back shares from investors wishing to leave the fund. Mutual funds must be structured as corporations or trusts, such as business trusts, and any corporation or trust will be classified as an investment company if it issues securities and primarily invests in non-government securities. An investment company will be classified as an open-end investment company if they do not issue undivided interests in specified securities (the defining characteristic of unit investment trusts or UITs) and if they issue redeemable securities. Registered investment companies that are not UITs or open-end investment companies are closed-end funds. Neither UITs nor closed-end funds are mutual.

Balanced Schemes and Money Market Schemes: The money market consists of short-term debt instruments, mostly Treasury bills. This is a safe place to park your money. You won't get great returns, but you won't have to worry about losing your principal. A typical return is twice the amount you would earn in a regular checking/savings account and a little less than the average certificate of deposit (CD). Money market funds entail the least risk, as well as lower rates of return. Unlike certificates of deposit (CDs), money market shares are liquid and redeemable at any time. The objective of these funds is to provide a balanced mixture of safety, income and capital appreciation. The strategy of balanced funds is to invest in a combination of fixed income and equities. A typical balanced fund might have a weighting of 60% equity and 40% fixed income. The weighting might also be restricted to a specified maximum or minimum for each asset class. A similar type of fund is known as an asset allocation fund. Objectives are similar to those of a balanced fund, but these kinds of funds typically do not have to hold a specified percentage of any asset class. The portfolio manager is therefore given freedom to switch the ratio of asset classes as the economy moves through the business cycle.

Income Schemes, Index Schemes and Special Schemes: Income funds are named appropriately: their purpose is to provide current income on a steady basis. When referring to mutual funds, the terms "fixed-income," "bond," and "income" are synonymous. These terms denote funds that invest primarily in government and corporate debt. While fund holdings may appreciate in value, the primary objective of these funds is to provide a steady cashflow to investors. As such, the audience for these funds consists of conservative investors and retirees. Bond funds are likely to pay higher returns than certificates of deposit and money market investments, but bond funds aren't without risk. Because there are many different types of bonds, bond funds can vary dramatically depending on where they invest. For example, a fund specializing in high-yield junk bonds is much more risky than a fund that invests in government securities. Furthermore, nearly all bond funds are subject to interest rate risk, which means that if rates go up the value of the fund goes down. The last but certainly not the least important are index funds. This type of mutual fund replicates the performance of a broad market index such as the S&P 500 or Dow Jones Industrial Average (DJIA). An investor in an index fund figures that most managers can't beat the market. An index fund merely replicates the market return and benefits investors in the form of low fees. This classification of mutual funds is more of an all-encompassing category that consists of funds that have proved to be popular but don't necessarily belong to the categories we've described so far. This type of mutual fund forgoes broad diversification to concentrate on a certain segment of the economy. Sector funds are targeted at specific sectors of the economy such as financial, technology, health, etc. Sector funds are extremely volatile. There is a greater possibility of big gains, but you have to accept that your sector may tank. Regional funds make it easier to focus on a specific area of the world. This may mean focusing

on a region (say Latin America) or an individual country (for example, only Brazil). An advantage of these funds is that they make it easier to buy stock in foreign countries, which is otherwise difficult and expensive. Just like for sector funds, you have to accept the high risk of loss, which occurs if the region goes into a bad recession. Socially-responsible funds (or ethical funds) invest only in companies that meet the criteria of certain guidelines or beliefs. Most socially responsible funds don't invest in industries such as tobacco, alcoholic beverages, weapons or nuclear power. The idea is to get a competitive performance while still maintaining a healthy conscience.

FREQUENTLY USED TERMS:

Net Asset Value (NAV) Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date. So if a fund had assets of Rs. 50 lakh and there are one lakh shares of the fund, then the price per share (or NAV) is Rs. 50.00. The net asset value, or NAV, is the current market value of a fund's holdings, less the fund's liabilities, usually expressed as a per-share amount. For most funds, the NAV is determined daily, after the close of trading on some specified financial exchange, but some funds update their NAV multiple times during the trading day. The public offering price, or POP, is the NAV plus a sales charge. Open-end funds sell shares at the POP and redeem shares at the NAV, and so process orders only after the NAV are determined. Closed-end funds (the shares of which are traded by investors) may trade at a higher or lower price than their NAV; this is known as a premium or discount, respectively. If a fund is divided into multiple classes of shares, each class will typically have its own NAV, reflecting differences in fees and expenses paid by the different classes. Some mutual funds own securities which are not regularly traded on any formal exchange. These may be shares in very small or bankrupt companies; they may be derivatives; or they may be private investments in unregistered financial instruments (such as stock in a non-public company). In the absence of a public market for these securities, it is the responsibility of the fund manager to form an estimate of their value when computing the NAV. How much of a fund's assets may be invested in such securities is stated in the fund's prospectus.

Sale Price: The price you pay when you invest in a scheme? Also called Offer Price. It may include a sales load that call sale price.

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

Redemption Price: The price at which close-ended schemes redeem their units on maturity. Such prices are NAV related.

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

Repurchase or ‘Back-end’ Load: A charge collected by a scheme when it buys back the units from the unit holders.

History of the Indian Mutual Fund Industry

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

First Phase – 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management.

Second Phase – 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores.

Third Phase – 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds.

Fourth Phase – since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the

rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. The graph indicates the growth of assets over the years.

GROWTH IN ASSETS UNDER MANAGEMENT

Note: Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit Trust of India effective from February 2003. The Assets under management of the Specified Undertaking of the Unit Trust of India has therefore been excluded from the total assets of the industry as a whole from February 2003 onwards.

Rules and Regulation

Mutual Funds in India are governed by the Securities and Exchange Board of India (SEBI) (Mutual Fund) Regulations 1996 as amended from time to time.

PERFORMANCE EVALUTION OF MUTUAL FUNDS SCHEMES:

Portfolio managers evaluate their portfolio performance and identify the sources of strength and weakness. The evaluation of the portfolio provides a feed back about the performance to evolve a better management strategy. Even through evaluation of portfolio performance is considered to be the last stage of investment process, the managed portfolios are commonly known as mutual funds. Various managed portfolios are prevalent in the capital market. Their relative merits of return and risk criteria have to be evaluated.

The evaluation part is very important and needs a lot of concentration. The statistical tools help us in reaching suitable results. In the study, we have taken help of statistical tools like mean, standard deviation and the most important tool which evaluates the performance is the Sharpe index model.

Sharpe’s Performance index model The Sharpe ratio or Sharpe index or Sharpe measure or Performance index model is a measure of the excess return (or Risk Premium) per unit of risk in an investment asset or a trading strategy, named after William Forsyth Sharpe. Since its revision made by the original author in 1994, it is defined as:

where R is the asset return, Rf is the return on a benchmark asset, such as the risk free rate of return, E[R − Rf] is the expected value of the excess of the asset return over the benchmark return, and σ is the standard deviation of the asset excess return. Note, if Rf is a constant risk free return throughout the period,

The Sharpe ratio is used to characterize how well the return of an asset compensates the investor for the risk taken. When comparing two assets each with the expected return E[R] against the same benchmark with return Rf, the asset with the higher Sharpe ratio gives more return for the same risk. Investors are often advised to pick investments with high Sharpe ratios. However like any mathematical model it relies on the data being correct. Pyramid schemes with a long duration of operation would typically provide a high Sharpe ratio when derived from reported returns but the inputs are false. When examining the investment performance of assets with smoothing of returns (such as with profits funds) the Sharpe ratio should be derived from the performance of the underlying assets rather than the fund returns. Sharpe ratios, along with Tenor ratios and Jensen's alphas, are often used to rank the performance of portfolio or mutual fund managers.

This ratio was developed by William Forsyth Sharpe in 1966. Sharpe originally called it the "reward-to-variability" ratio in before it began being called the Sharpe Ratio by later academics and financial professionals. Sharpe's 1994 revision acknowledged that the risk free rate changes with time. Prior to this revision the definition was

assuming a constant Rf . Recently, the (original) Sharpe ratio has often been challenged with regard to its appropriateness as a fund performance measure during evaluation periods of declining markets

The Sharpe ratio has as its principal advantage that it is directly computable from any observed series of returns without need for additional information surrounding the source of profitability. Unfortunately, some authors are carelessly drawn to refer to the ratio as giving the level of 'risk adjusted returns' when the ratio gives only the volatility of adjusted returns when interpreted properly. Other ratios such as the Bias ratio (finance) have recently been introduced into the literature to handle cases where the observed volatility may be an especially poor proxy for the risk inherent in a time-series of observed returns.

SHARPE’S PERFORMANCE INDEXES MODEL:

Sharpe’s performance index gives a single value to be used for the performance ranking of various funds or portfolios. Sharpe index measures the risk premium of the portfolio relative to the total amount of risk in the portfolio. This risk premium is the difference between the portfolio’s average rate of return and risk less rate of return. The standard deviation of the portfolio indicates the risk. The index assigns the highest values to assets that have best riskadjusted average rate of return. The Sharpe ratio provides me with a return for unit of the risk measure.

For example: assume equity fund one returned 20% over the last 5 year, with a standard deviation of 2%. The risk free rate is generally the interest rate on a government security. Assume that the average return of a risk free government bond fund over this period was 7.5%. The Sharpe ratio would be (the return of the portfolio-the risk free rate)/ the standard deviation of the portfolio. In the case of equity fund one, the Sharpe ratio is (20%-7.5%)/ 2% or 6.5%. therefore, for each unit of risk, the fund returned 6.5% over the risk free rate.

Generally, investors evaluating the performance of the fund would compare its Sharpe ratio to a benchmark. This could include, but is not limited to, the average performance of similar funds and an equity index. For example, assume the S&P 500 was used as a benchmark. Further, assume that the return of S&P 500 index fund over the last 5 year was 10% with a standard deviation of 2%. The Sharpe ratio for index fund is (10%-7.5%)/2% or 1.5%. An investor doing

a side by side comparison between equity fund 1 and the S&P 500 index fund would clearly prefer equity fund 1. this fund provided a higher level of excess return for each unit of risk.

Some Statistics of Sharpe Index Model: Sharpe Index =

Portfolio average return-Risk free rate of return. Standard Deviation of the portfolio

St = Rp-Rf σp St = Sharpe Index Rp = Portfolio average return Rf = Risk free rate of return (currently it is considered as 7.5%) Standard deviation: σ p = √(X-Y)2 √N Where, X = monthly return Y = average monthly return N = total number of periods

NAV and corresponding returns of 8 mutual funds schemes: In this study, we have selected the 8 mutual fund companies’ i.e. 4 public sector and 4 privet sector which common balance growth plan. Following tables given the NAV and corresponding return of last 1 year starting from 1 April, 2008 to 1 April, 2009. The funds are chosen randomly from the available means.

State Bank of India Mutual Fund:

Mutual Fund SBI Mutual Fund Scheme Name SBI Magnum Balanced Fund - Growth Scheme Type Open Ended Scheme Category Balanced Launch Date 20-Dec-2004 Minimum Subscription Amount 1000 SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an enviable track record in judicious investments and consistent wealth creation. The fund traces its lineage to SBI - India’s largest banking enterprise. The institution has grown immensely since its inception and today it is India's largest bank, patronized by over 80% of the top corporate houses of the country. SBI Mutual Fund is a joint venture between the State Bank of India and Society General Asset Management, one of the world’s leading fund management companies that manages over US$ 500 Billion worldwide. Investment Objective To provide investors long term capital appreciation along with the liquidity of an open-ended scheme by investing in a mix of debt and equity. The scheme will invest in a diversified portfolio of equities of high growth companies and balance the risk through investing the rest in a relatively safe portfolio of debt.

Asset Allocation Instrument Equities Debt Instruments like debentures, bonds, khokhas, etc. Securitized Debt Money Market Instruments

% of Portfolio of Plan A&B At least 50%

Risk Profile Medium to High

Up to 40% Not more than 10% of investments in debt Balance

Medium to High Low

Scheme Highlights 1. An open-ended scheme investing in a mix of debt and equity instruments. Investors get the benefit of high expected-returns of equity investments with the safety of debt investments in one scheme. 2. On an ongoing basis, magnums will be allotted at an entry load of 2.25% to the NAV. 3. Scheme opens for Resident Indians, Trusts, Indian Corporate, on a fully reparable basis for NRIs and, Overseas Corporate Bodies. 4. Facility to reinvest dividend proceeds into the scheme at NAV available. 5. Switchover facility to any other open-ended schemes of SBI Mutual Fund at NAV related prices. 6. The scheme will declare NAV, Sale and repurchase price on a daily basis. 7. Nomination facility available for individuals applying on their behalf either singly or jointly up to three.

Table 1: State Bank of India Mutual Fund month name 1 2 3 4 5 6 7 8 9 10 11 12

period 1.4.08 to 1.5.08 1.5.08 to 1.6.08 1.6.08 to 1.7.08 1.7.08 to 1.8.08 1.8.08 to 1.9.08 1.9.08 to 1.10.08 1.10.08 to 1.11.08 1.11.08 to 1.12.08 1.12.08 to 1.1.09 1.1.09 to 1.2.09 1.2.09 to 1.3.09 1.3.09 to 1.4.09

NAV 40.36 to 43.23 43.23 to 40.27 40.27 to 34.53 34.53 to 37.42 37.42 to 37.47 37.47 to 34.59 34.59 to 29.33 29.33 to 26.56 26.56 to 29.59 29.59 to 27.46 27.46 to 26.49 26.49 to 29.05

Return% 6.63 -7.35 -16.62 7.72 0.13 -8.33 -17.93 -10.43 10.24 -7.76 3.66 2.56

Average monthly return= -3.73% Std. Deviation= 8.90 The State Bank of India mutual fund performed average in last one year. In this period, it gives the highest return in 1.12.08 to 1.1.09 which is 10.24 and average return given by this fund is -3.73% per month.

Bank of Baroda Mutual Fund:

Baroda Pioneer Balance Fund Baroda Pioneer Balance Fund is a Open Ended Balance Scheme of Baroda Pioneer Mutual fund. The scheme is targeted for long term capital appreciation along with stability through a well balanced portfolio comprising of equity, equity related instruments, highly rated debt portfolio and money market instruments. Highlights of the scheme Baroda Pioneer Balance Fund is an open-ended balanced Scheme from Baroda

Pioneer

Mutual Fund. Baroda Pioneer Mutual Fund is sponsored by Bank of Baroda, one of the largest sector banks of the country. Baroda Pioneer Asset Management Company

public

Limited is the

Investment Manager to the Scheme. The scheme is targeted for long term capital appreciation along with stability through a well balanced portfolio comprising of equity, equity related instruments, highly rated debt portfolio and money market instruments. Transparency of operations i.e. daily determination of NAV, sale price, redemption price and full disclosure of investment portfolio periodically. Personal Accident Insurance up to the amount of initial investment, subject to the maximum amount of Rs. 5 Lac till the time investment is not redeemed. This facility will be available to investors only during the initial public issue. Choice of Growth Plan, Dividend Plan and Dividend Re-investment Plan.

Facility of Systematic investment and withdrawal available. Assured allotment to all applicants. Table 2: Bank of Baroda Mutual Fund: month name 1 2 3 4 5 6 7 8 9 10 11 12


NAV 26.47 to 27.12 27.12 to 26.34 26.34 to 22.37 22.37 to 25.54 25.54 to 25.03 25.03 to 21.96 21.96 to 18.81

Return% 2.4 -2.96 -17.75 12.41 -2.04 -13.98 -16.75

Average monthly return= -5.52% Std. Deviation= 10.35

The Bank of Baroda mutual fund performed average in last one year. In this period, it gives the highest return in 1.7.08 to 1.8.08 which is 12.41 and average return given by this fund is -5.52% per month.

United Trust of India Mutual Fund:

January 14, 2003 is when UTI Mutual Fund started to pave its path following the vision of UTI Asset Management Co. Ltd. (UTIAMC), which was appointed by UTI Trustee Co, Pvt. Ltd. for managing the schemes of UTI Mutual Fund and the schemes transferred/migrated from the erstwhile Unit Trust of India. UTIAMC provides professionally managed back office support for all business services of UTI Mutual Fund in accordance with the provisions of the Investment Management Agreement, the Trust Deed, the SEBI (Mutual Funds) Regulations and the objectives of the schemes. State-of-the-art systems and communications are in place to ensure a seamless flow across the various activities undertaken by UTIMF. Since February 3, 2004, UTIAMC is also a registered portfolio manager under the SEBI (Portfolio Managers) Regulations, 1993 for undertaking portfolio management services. UTIAMC also acts as the manager and marketer to offshore funds through its 100 % subsidiary, UTI International Limited, registered in Guernsey, Channel Islands. UTIAMC presently manages a corpus of over Rs. 48,754 Cores* as on 31st March 2009 (source: UTI Mutual Fund has a track record of managing a variety of schemes catering to the needs of every class of citizens. It has a nationwide network consisting 114 UTI Financial Centers (UFCs) and UTI International offices in London, Dubai and Bahrain. With a view to reach to common investors at district level, 1 satellite office have also been opened. UTIAMC has a well-qualified, professional fund management team, which has been fully empowered to manage funds with greater efficiency and accountability in the sole interest of the unit holders. The fund managers are ably supported by a strong in-house securities

research department. To ensure investors’ interests, a risk management department is also in operation.

Table 3: United Trust of India Mutual Fund: month name 1 2 3 4 5 6 7 8 9 10 11 12



Return% 5.08 -2.95 -6.75 5.12 -0.52 -4.11 -11.34 -3.93 3.4 -2.35 -1.66 5.5


The United Trust of India mutual fund performed average in last one year. In this period, it gives the highest return in 1.3.09 to 1.4.09 which is 5.5 and average return given by this fund is -1.21% per month.

LIC Mutual Fund:

Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989 and contributed Rs. 2 Crores towards the corpus of the Fund. LIC Mutual Fund was constituted as a Trust in accordance with the provisions of the Indian Trust Act, 1882. The settlor is not responsible for the management of the Trust. The settlor is also not responsible or liable for any loss or shortfall resulting in any of the schemes of LIC Mutual Fund. The Trustees of the LIC Mutual Fund have exclusive ownership of Trust Fund and are vested with general power of superintendence, discretion and management of the affairs of the Trust. LIC Mutal Fund Asset Management Company Ltd. was formed on 20th April 1994 in compliance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1993. The Company commenced business on 29th April 1994. The Trustees of LIC Mutual Fund have appointed LIC Mutual Fund Asset Management Company Ltd. as the Investment Managers for LIC Mutual Fund. The Trustees are responsible for appointing a Custodian. The Trustees should also ensure that the activities of the Trust and the Asset Management Company are in accordance with the Trust Deed and the SEBI Mutual Fund Regulations as amended from time to time. The Trustees have also to report periodically to SEBI on the functioning of the Fund. The investors under the schemes can obtain a copy of the Trust Deed, the text of the concerned Scheme as also a copy of the Annual Report, on a written request made to the LIC Mutual Fund Asset Management Company Ltd. at a nominal price of Rs. 10/-.

Fund Name : Scheme Name : AMC : Type : Category : Launch Date : Fund Manager : Net Assets:(Rs. cr)

LIC Mutual Fund LICMF Equity Fund - (G) LIC Mutual Fund Asset Management Company Ltd Open Equity - Diversified 11-Jan-93 Nagendra Singh 63.87 (31-Mar-2009)

Table 4: LIC Mutual Fund: month name 1 2 3 4 5 6 7 8 9 10 11 12



Return% 9.45 -11.75 -18.68 14.15 7.64 -8.52 -27.91 -16.22 14.08 -9.37 -6.96 12.09


The LIC mutual fund performed average in last one year. In this period, it gives the highest return in 1.7.08 to 1.8.08 which is 14.15 and average return given by this fund is -3.5% per month.

Kotak Mahindra Mutual Fund:

Kotak 30 is an open-ended equity growth scheme that invests predominantly in large cap stocks that are diversified across sectors and form a significant proportion of total market capitalization. The investment objective of the scheme is to generate capital appreciation from a portfolio of predominantly equity and equity related securities. The scheme generally invests in 30 stocks but has flexibility to go up to 39 companies. These companies may or may not be the same that constitute the BSE Sensitive Index or the NSE Fifty (S&P CNX Nifty) index. The scheme does offer some flavour of mid-caps (maximum exposure up to 20%) to potentially enhance returns. Massive de-leveraging and credit crunch driven by the US and spreading to Europe has led to widespread selling across asset classes including equities with bigger selling in commodities & real estate. The selling has been aggravated by redemption pressures driven by the fear about economic slowdown and collateral damages seen elsewhere. Globally we have witnessed an increased policy response by various central banks and governments with aim of providing stability to financial markets; notably the credit market and improve the business environment and sustain economic momentum. Closer home, we believe that Indian economy is largely driven by domestic consumption (67% of GDP) and infrastructure creation and is expected to be more resilient than other emerging economies. The economy is expected to do well over medium to long-term as Government & RBI has stepped in with policy response on fiscal and monetary front respectively. In the last quarter we have seen possibly biggest monetary easing in Indian history. The macro economic environment & the growth would be supported by declining commodity prices and peaking out

of interest rates would further help on demand. We maintain that it is reasonable to expect India's growth to sustain over a longer period. Equity market valuations have compressed significantly and present a very attractive investment opportunity and equity as an asset class will continue to give better returns than any other asset class in the medium to longer term. Large caps tend to better fare in an uncertain economic environment and also tend to bounce back faster and provide better risk adjusted return profile. We maintain that to benefit from short-term volatility of markets, SIP/STP is the preferred way of investing. On the other hand with horizon of 18-24 months even lump sum investment looks attractive option at current levels.

Table 5: Kotak Mahindra Mutual Fund: month name 1 2 3 4 5 6 7 8 9 10 11 12



Return% 8.13 -3.91 -23.56 9.67 0.62 -8.85 -32.08 -5.72 3.4 -5.67 -3.47 5.4


The Kotak Mahindra mutual fund performed average in last one year. In this period, it gives the highest return in 1.7.08 to 1.8.08 which is 9.67 and average return given by this fund is -4.67% per month.

Reliance Mutual Fund:

Reliance Mutual Fund (RMF) is one of India’s leading Mutual Funds, with Average Assets Under Management (AAUM) of Rs. 88,388 Crs (AAUM for 30th Apr 09 ) and an investor base of over 71.53 Lacs. Reliance Mutual Fund, a part of the Reliance - Anil Dhirubhai Ambani Group, is one of the fastest growing mutual funds in the country. RMF offers investors a wellrounded portfolio of products to meet varying investor requirements and has presence in 118 cities across the country. Reliance Mutual Fund constantly endeavors to launch innovative products and customer service initiatives to increase value to investors. "Reliance Mutual Fund schemes are managed by Reliance Capital Asset Management Limited., a subsidiary of Reliance Capital Limited, which holds 93.37% of the paid-up capital of RCAM, the balance paid up capital being held by minority shareholders. “Reliance Capital Ltd. is one of India’s leading and fastest growing private sector financial services companies, and ranks among the top 3 private sector financial services and banking companies, in terms of net worth. Reliance Capital Ltd. has interests in asset management, life and general insurance, private equity and proprietary investments, stock broking and other financial services. Sponsor: Reliance Capital Limited. Trustee: Reliance Capital Trustee Co. Limited. Investment Manager: Reliance Capital Asset Management Limited. The Sponsor, the Trustee and the Investment Manager are incorporated under the Companies Act 1956. General Risk Factors: Mutual Funds and securities investments are subject to market risks and there is no assurance or guarantee that the objectives of the Scheme will be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme

can go up or down depending on the factors and forces affecting the capital markets. Past performance of the Sponsor/AMC/Mutual Fund is not indicative of the future performance of the Scheme. The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme beyond their initial contribution of Rs.1 lakh towards the setting up of the Mutual Fund and such other accretions and additions to the corpus. The Mutual Fund is not guaranteeing or assuring any dividend/ bonus. The Mutual Fund is also not assuring that it will make periodical dividend/bonus distributions, though it has every intention of doing so. All dividend/bonus distributions are subject to the availability of the distributable surplus in the Scheme. Reliance Mutual Fund (RMF) has been established as a trust under the Indian Trusts Act, 1882 with Reliance Capital Limited (RCL), as the Settlor/Sponsor and Reliance Capital Trustee Co. Limited (RCTCL), as the Trustee. RMF has been registered with the Securities & Exchange Board of India (SEBI) vide registration number MF/022/95/1 dated June 30, 1995. The name of Reliance Capital Mutual Fund has been changed to Reliance Mutual Fund effective 11th. March 2004 vide SEBI's letter no. IMD/PSP/4958/2004 date 11th. March 2004. Reliance Mutual Fund was formed to launch various schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities. The main objectives of the Trust are: •

To carry on the activity of a Mutual Fund as may be permitted at law and formulate and devise various collective Schemes of savings and investments for people in India and abroad and also ensure liquidity of investments for the Unit holders;

•

To deploy Funds thus raised so as to help the Unit holders earn reasonable returns on their savings and

•

To take such steps as may be necessary from time to time to realize the effects without any limitation.

Table 6: Reliance Mutual Fund: month name 1 2 3 4 5 6 7 8 9 10 11 12



Return% 24.39 0.7 -12.93 9.04 1.34 -6.74 11.02 -47.24 9.4 26.69 0.58 -46.42


The Reliance mutual fund performed average in last one year. In this period, it gives the highest return in 1.1.09 to 1.2.09 which is 26.69 and average return given by this fund is -2.59% per month.

Tata Mutual Fund:

Backed by one of the most trusted and valued brands in India, Tata Mutual Fund has earned the trust of lakhs of investors with its consistent performance and world-class service. Tata Mutual Fund manages around Rs. 19,438.00 crores (average AUM for the month) as on April 30, 2009 worth of assets across its varied offerings. Tata Mutual Fund offers an investment option for everyone, whether you are a businessman or salaried professional, a retired person or housewife, an aggressive investor or a conservative capital builder. The Tata Asset Management philosophy is centred on seeking consistent, long-term results. Tata Asset Management aims at overall excellence, within the framework of transparent and rigorous risk controls. We constantly benchmark our efforts against these tenets of performance: Consistency: We strive to deliver consistent results through our value-based investing methodology, keeping alive the credo of the late doyen of the Tata Group, Mr. J.R.D. Tata, that money received from the people should go back to them several times over. Flexibility: Tata Mutual Fund offers investors a broad range of managed investment products in various asset classes and risk parameters, with operational flexibility to suit their varied investment needs. Stability: Our commitment to the highest quality of service and integrity is the foundation upon which we build trust with our clients.

Service: We offer a wide range of services to assist investors have a fulfilling and rewarding financial planning experience with us. We have designed our services keeping in mind the needs of our investors, giving them a smooth and hassle-free financial planning process. At Tata Asset Management Company, we believe that your investment needs depend on personal and financial goals. Identifying your financial goals is the key to achieving the big things in your life, be it your child's education or a carefree and comfortable retired life. After identifying and defining your financial goals, you now need to plan for each of them in an organized and a professional way. Investment experts around the world advise instruments like equity funds and stocks for long-term (more than 5 years), income funds for medium-term and liquid funds for short-term needs.

The investment matrix here depicts the entire available variety of investment options. Those at the top provide for a greater opportunity for long-term capital growth while those at the bottom take care of current income and reasonable return & liquidity. Tata Mutual Fund offers a wide range of funds for different investment instruments designed to cater to your individual profile and life-stage. An open-ended balanced fund Launch Date August 30, 1995 Fund Objective 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. Fund Investment Strategy The scheme will invest in equity and equity related instruments as well as in debt and money market instruments.

Table 7: Tata Mutual Fund: month name 1 2 3 4 5 6 7 8 9 10 11 12



Return% 6.66 -6.03 -16.95 0.18 7.19 -8.43 -18.76 -8.8 9.68 -6.89 -1.1 7.12


The Tata mutual fund performed average in last one year. In this period, it gives the highest return in 1.12.08 to 1.1.09 which is 9.68 and average return given by this fund is -3.01% per month.

HDFC Mutual Fund:

HDFC Mutual Fund is one of the largest mutual funds and well-established fund house in the country with consistent and above average fund performance across categories since its incorporation on December 10, 1999. HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset Management Company for the HDFC Mutual Fund by SEBI vide its letter dated July 3, 2000. The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T. Parekh Marg, 169, Backbay Reclamation, Churchgate, Mumbai - 400 020. In terms of the Investment Management Agreement, the Trustee has appointed the HDFC Asset Management Company Limited to manage the Mutual Fund. The paid up capital of the AMC is Rs. 25.161 crore. The AMC is also managing 11 closed ended Schemes of the HDFC Mutual Fund viz. HDFC Long Term Equity Fund, HDFC Mid-Cap Opportunities Fund, HDFC Infrastructure Fund, HDFC Fixed Maturity Plans, HDFC Fixed Maturity Plans - Series II, HDFC Fixed Maturity Plans - Series III, HDFC Fixed Maturity Plans - Series IV, HDFC Fixed Maturity Plans - Series V, HDFC Fixed Maturity Plans - Series VI, HFDC Fixed Maturity Plans - Series VII and HFDC Fixed Maturity Plans - Series VIII. The AMC is also providing portfolio management / advisory services and such activities are not in conflict with the activities of the Mutual Fund. The AMC has renewed its registration from SEBI vide Registration No. - PM / INP000000506 dated December 8, 2006 to act as a Portfolio Manager under the SEBI (Portfolio Managers) Regulations, 1993. The Certificate of Registration is valid from January 1, 2007 to December 31, 2009. HDFC Asset Management Company (AMC) is the first AMC in India to have been assigned the ‘CRISIL Fund House Level – 1’ rating. This is its highest Fund Governance and Process Quality Rating which reflects the highest governance levels and fund management practices at

HDFC AMC It are the only fund house to have been assigned this rating for two years in succession. Over the past, we have won a number of awards and accolades for our performance. The balanced product is positioned as a lower risk alternative to a pure equities scheme, while retaining some of the upside potential from equities exposure. The Scheme provides the Investment Manager with the flexibility to shift allocations in the event of a change in view regarding an asset class. Asset allocation between equities and debt is a critical function in a balanced fund. It is proposed to continuously monitor the potential for both debt and equities to arrive at a dynamic allocation between the asset classes. The equity and debt portfolios of the Scheme would be managed as per the respective investment strategies detailed herein. The overall portfolio structure would aim to maintain risk at a moderate level. The Fund Manager would avoid adopting either a very defensive or aggressive posture at any point in time. Risk will also be controlled through portfolio diversification and a conscious focus on maintaining adequate levels of liquidity at all points in time. Macro economic risk will be addressed through a constant review of the business and economic environment. The AMC may from time to time, review and modify the Schemes? investment strategy if such changes are considered to be in the best interest of Unit holders and appropriate to the existing market situation. Investments in securities and instruments not specifically mentioned earlier may also be made, provided they are permitted by SEBI Regulations.

Table 8: HDFC Mutual Fund: month name 1 2 3 4 5 6 7 8 9 10 11 12



Return% 7.18 -5.48 -13.37 8.51 2.07 -6.99 -21.72 -9.75 8.43 -4.88 -3.65 7.8


The HDFC mutual fund performed average in last one year. In this period, it gives the highest return in 1.7.08 to 1.8.08 which is 8.51 and average return given by this fund is -2.65% per month.

‘St’ of all mutual funds of companies

Table 9: Company wise Sharpe Index Model:

Sr_No 1 2 3 4 5 6 7 8

Name of the mutual fund

Avg. Return %

company SBI Bank of Baroda United Trust of India LIC Kotak Mahindra Reliance Tata HDFC

(Annually)

S.D -3.73 -5.52 -1.21 -3.5 -4.67 -2.51 -3.01 -2.65

8.9 10.35 5.1 13.79 11.88 22.59 9.15 9.3

St -1.26 -1.26 -1.7 -0.8 -1.02 -0.44 -1.15 -1.09

The above table indicates that the value of ‘St’ of all the mutual funds is negative. This time market is down so all mutual funds show negative ‘St’. According to the Sharpe index, the negative value was considered for the worst performance. It gives the least performance among the sample funds. In this table the lowest value of St is better then others. Reliance Mutual Fund has the lowest negative ‘St’ value that is -0.44 among the selected 8 mutual fund in India. So according to the Sharpe Index, it is the most preferred mutual fund among these. So an investor is advised to go for this fund to select it in his portfolio. After this second choice, may be LIC Mutual Fund and then Kotak Mahindra Mutual Fund and so on. The rest of the ranking is given below.

Ranking of the all mutual companies on the basis of ‘St’

Table 10: Ranking of the Mutual Funds from Best to Worst: Name of the mutual fund company Reliance LIC Kotak Mahindra HDFC Tata SBI BOB UTI

Rank 1 2 3 4 5 6 6 7

The above table indicates that the ranking of the mutual funds from best to worst. One can choose the better mutual fund scheme for investment. So an investor is advised to choose the best performing mutual funds schemes in his portfolio for better profits and less risk.

FINDING, SUGGESTION AND CONCLUSION

Findings:

By the above study, one can have a lot of findings regarding the performance of the funds in his portfolio. The comparison in performance of these mutual funds can be done easily. The following finding can be: 1. The mutual funds performance is evaluated easily with the help of Sharpe Index Model. The fund having low’St’value performs weakly and form high ‘St’ performs comparatively well. It also shows effectiveness of Sharpe Index Method. 2. With a number of mutual funds scheme existing in the market, it is very difficult by an investor to choose the best among them. This paper provides a necessary and sufficient result to help to choose the best portfolio to get maximum return with minimum risk. 3. Standard deviation and mean proves to be very useful statistical tool in order to reach to some valuable result. Without help of average and standard deviation one cannot apply Sharpe Index Method. 4. The best performing and worst-performing funds can be easily identified. The last two tables 9 & 10 are in a good support of this study. By studying these tables one can easily interpret it. Like the Reliance mutual fund is a best-performing fund where as UTI mutual fund is worstperforming.

Suggestions:

This study can be easily understand and help an investor in many ways. Some of the suggestions are below 1. It is not only fund or company’s goodwill which can be taken into consideration while choosing a portfolio, the market factors like government policies, economic of sales and the trend in a particular sector should also be considered. 2. Today investor is having enough funds to invest in a number of schemes. He is always in search of such statistical tools which can provide him maximum return with lower risk. In this regard, mutual fund is the best choice.

Conclusion:

It is well known that now-a-day, mutual funds are most popular and safe parameter for an investor to invest. Keeping the present and future aspects regarding the mutual funds in the India, it is easily concluded that this market will give enough to an investor for long period. The Sharpe Index model is easily understood and helps investors to decide which mutual funds are performing well and which funds are not.

Bibliography:

1. Punithavathy Pandiann (2004), “Securities Analysis and Portfolio management”, New Delhi, Vikash Public House Pvt. Ltd. 2. Sharpe, W.F.(1966), “Mutual Fund Performance”, Journal of Business, pp.119 138 3. www.amfindia.com 4. www.sebi.gov.in 5. www.rbi.org.in 6. www.bseindia.com 7. www.nseindia.com 8. www.indobase.com/markets/index.htm 9. www.idbipaisabuilder.in

Performance Comparison of Different Mutual Funds Schemes in India Through Sharpe Index Model

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