Risk and Return Analysis of Equity Mutual Fund

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Dissertation on

“A Study of Risk and Return Analysis of Equity Mutual   Funds” 

PREPARED BY

Mohammad Majid BATCH - 2009-2011

AS A PARTIAL FULFILLMENT OF MBA PROGRAMME OF JAMIA HAMDARD, NEW DELHI

UNDER THE GUIDANCE OF MR. P.S RAYCHAUDHARI

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Acknowledgement I would like to express my gratitude to all those who gave me the opportunity and subsequently guidance to complete this project. A mission of this magnitude could not have been be under taken without the guiding light of inspiration, cooperation, critical supervision, encouragement and above all the blessings of  Almighty ALLAH. It is with such a multitude of emotions that I shall ever remember the inspiring encouragement of my supervisor MR. P.S RAYCHAUDHARI at every step during the period of the present study. I am thankful to my institute and the faculty for their constant support and guidance throughout my project work. I am bound to thank other staff members for their stimulating support. I would like to give my special thanks to my PARENTS , their constant support enabled me to complete this project work 

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CERTIFICATE

This is to certify that this dissertation project named “A Study of    Risk and Return Analysis of Equity Mutual Funds”  has been

made by   Mohammad Majid of  MBA-Gen under the guidance of    Mr. P.S. Raychaudhari and has

 Mohammad Majid 

(signature)

completed it sucessfully.

 Mr. P.S. Raychaudhari

(signature)

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ABSTRACT

Mutual Funds (MF) have become one of the most attractive ways for the average person to invest their money. It is said that bank  investment is the first priority of people to invest their savings and the second place is for investment is held by mutual funds and th ere afte r other avenues. A Mutual Fund pools resources from thousands of investors and then diversifies its investment into many different holdings such as stocks, bonds, or Government securities in order to provide high relative safety and returns as per the scheme principles. The Project is a “FINANCE PROJECT” which tries to explain in layman’s language about the history, growth, & pros and cons of  investing in Mutual Funds and the second part of it deals with the analysis of risk and returns of equity schemes of different Mutual Fund Companies. The main objective of the project was to get an overview of  Mutual Fund Industry, its set up, its working and to find out the risks and returns of equity schemes of different Mutual Fund Companies. The project includes a brief idea about the growth of MF industry (History), the broad idea about the organization and concept of MF and SEBI Guidelines on Mutual Funds. There are many improvements pending in the field and it has to happen as soon as possible so as to call the MF industry as an Organized and welldeveloped sector.

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The past performance of MF is not necessarily indicative of future performance of the scheme and no AMC guarantees Returns and or safety of Principal.

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INTRODUCTION TO MUTUAL FUNDS MUTUAL FUNDS - THE 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 appreciations 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.

A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short- term money market instruments, and/or other securities. The mutual fund will have a fund manager that trades the pooled money on a regular basis. As of early 2008, the worldwide value of all mutual funds totals more than $26 trillion. In the rest of the world, mutual fund is used as a generic term for various types of collective investment vehicles, such as unit trusts, open-ended investment companies (OEICs), unitized insurance funds, and undertakings for collective investments in transferable securities. Mutual funds can invest in many kinds of securities. The most common are cash instruments, stock, and bonds, but there are hundreds of sub-categories. Stock funds, for instance, can invest primarily in the shares of a particular industry, such as technology or utilities. These are known as sector funds. Bond funds can vary according to risk (e.g., high-yield junk bonds or investment-grade corporate bonds), type of issuers (e.g., government agencies,

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corporations, or municipalities), or maturity of the bonds (short- or long-term). Both stock and bond funds can invest in primarily U.S. securities (domestic funds), both U.S. and foreign securities (global funds), or primarily foreign securities (international funds). Most mutual funds' investment portfolios are continually adjusted under the supervision of a professional manager, who forecasts cash flows into and out of the fund by investors, as well as the future performance of investments appropriate for the fund and chooses those which he or she believes will most closely match the fund's stated investment objective. A mutual fund is administered under an advisory contract with a management company, which may hire or fire fund managers. Mutual funds are subject to a special set of regulatory, accounting, and tax rules. In the U.S., unlike most other types of business entities, they are not taxed on their income as long as they distribute 90% of it to their shareholders and the funds meet certain diversification requirements in the Internal Revenue Code. Also, the type of income they earn is often unchanged as it passes through to the shareholders. Mutual fund distributions of tax- free municipal bond income are tax-free to the shareholder. Taxable distributions can be either ordinary income or capital gains, depending on how the fund earned those distributions. Net losses are not distributed or passed through to fund investors. 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. In the last few years Indian Mutual Fund industry has grown at a rapid pace. Some of  the top performing and best mutual funds in India are: SBI Mutual Funds, UTI Mutual Funds, Prudential ICICI Mutual Funds and HDFC Mutual Funds.

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

The following simple diagram clearly shows the working of a mutual fund:-

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ADVANTAGES ADVANTAGE S OF MUTUAL FUNDS: 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.

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 amoun ts of securities at a time, its transaction costs are lower than what an individual would pay for securities.

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

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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 DISADVANTAG ES 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

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been more advantageous for the individual to defer the capital gains liability.

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STATEMENT OF THE PROBLEM: “The project deals with the Overview of Mutual Industry in India and evaluation study of Risk and Returns Equity Schemes of  different mutual fund companies”.

OBJECTIVES OBJECTIVE S OF THE STUDY: • To study Mutual Fund Industry in India. • To study the performance of equity schemes of different company. • To study the th e Risk involved in different Schemes. • To compare the returns of different mutual funds.

HYPOTHESIS: H0 : There is no significant difference between the returns of  Mutual Fund Companies. H1 : There is a significant difference in the returns of Mutual Fund Companies.

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LITERATURE SURVEY Investors shy away from equity mutual funds Source: The Economic Times/ Nishant Kumar / Reuters

Mumbai: Investors are shying away from Indian equity funds as a sustained slump in the stock market wipes out a major chunk of  their stunning gains in 2007, but the industry is not yet facing pressure from redemptions. Diversified stock funds delivered returns of nearly 60% in 2007, as the benchmark stock index rose 47%. But with the market down about a quarter so far in 2008, investors have seen the value of their holdings h oldings cut by almost a third and have started cutting back on new n ew investments. “There has been a slowdown in the flows of equity funds in the last two months,” Sanjay Prakash, chief executive of the Indian fund unit of HSBC, told Reuters. “We are seeing net inflows every day, but very small amounts,” said Prakash, whose firm saw its average monthly assets drop 0.95% to Rs184.7 billion ($4.3 billion) in the six months ending May. Mesmerised by a six-times rise in the stock market in the five years to the end of 2007, investors saw a 23% drop in the March quarter as a buying opportunity, pouring in Rs449 billion into the funds, 67% more than a year earlier. But as the market slump persists, euphoria has given way to caution. Flows into equity funds slumped to Rs45.9 billion in April, the lowest since August 2006, and about Rs48 billion in

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May, data from the Association of Mutual Funds in India (AMFI) showed. The money is mainly coming from preset investment plans where a fixed sum is deposited regularly into the funds. The industry body estimates there are about 3 million such accounts. “Slowdown is in the high net-worth and institutional segment,” said Vikrant Gugnani, the chief executive of India’s number one fund firm, Reliance Capital Asset Management. He said big-ticket investors were no longer looking at stocks, shifting instead to real estate, gold and fixed-maturity plans, which essentially close-end bond funds are investing in securities in line with their maturity profile. Investors may not be topping up their funds, but they are also not in a hurry to pull out of them. Outflows of Rs36 billion in May were lowest since July 2006, AMFI data showed. Outflows from equity funds in January, when the stock market hit a record high and before dropping sharply, were more than two times those of  May, but inflows were even higher at a record Rs212.5 billion. Equity funds are not likely to see any major redemption pressure if  the stock market held above 14,000 as investors would like to wait for a recovery, HSBC’s Prakash said, adding there might be higher redemptions if the market dropped below 13,000. Indian shares fell to a 2008 low of 14,645 on June 10. While the market was trading above 15,000 on Thursday, Credit Suisse saw it falling to 13,000 by b y end-2008.

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HISTORY OF MUTUAL FUNDS (WORLDWIDE): When three Boston securities executives pooled their money together in 1924 to create the first mutual fund, they had no idea how popular mutual funds would become. b ecome. The idea of pooling money together for investing purposes started in Europe in the mid-1800s. The first pooled fund in the U.S. was created in 1893 for the faculty and staff of Harvard University. On March 21st, 1924 the first official mutual fund was born. It was called the Massachusetts Investors Trust. After one year, the Massachusetts Investors Trust grew from $50,000 in assets in 1924 to $392,000 in assets (with around 200 shareholders). In contrast, there are over 10,000 mutual funds in the U.S. today totalling around $7 trillion (with approximately 83 million individual investors) according to the Investment Company Institute. The stock market crash of 1929 slowed the growth of mutual funds. In response to the stock market crash, Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934. These laws require that a fund be registered with the SEC and provide prospective investors with a prospectus. The SEC (U.S. Securities and Exchange Commission) helped create the Investment Company Act of 1940, which provides the guidelines that all funds must comply with today. With renewed confidence in the stock market, mutual funds began to blossom. By the end of the 1960s there were around 270 funds with $48 billion in assets.

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In 1976, John C. Bogle opened the first retail index fund called the First Index Investment Trust. It is now called the Vanguard 500 Index fund. In November of 2000 it became the largest mutual fund ever with $100 billion in assets.

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HISTORY OF INDIAN MUTUAL FUND INDUSTRY The history of Mutual Funds in India can be broadly divided into 4 Phases:

1. First phase (1964-1987) The Unit Trust of India (UTI) was established in the year 1963 by passing an Act in the th e Parliament. The UTI was setup by the Reserve Bank of India (RBI) and functioned under the Regulatory and Administrative control of  the RBI. The First scheme in the history of mutual funds was UNIT SCHEME-64, which is popularly known as US-64. In 1978, UTI was de-linked from RBI. The Industrial Development Bank of India (IDBI) took over the Regulatory and Administrative control. At the end of the year 1988, UTI had Rs.6,700/- Crores of  Assets Under Management.

2. Second phase (1987-1993) Entry of Public Sector Funds. In the year 1987, public sector Mutual Funds setup by public sector banks.

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Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) came in to t o existence. State Bank of India Mutual Fund was the first non-UTI Mutual Fund. The following are the non-UTI Mutual Mut ual Funds at initial stages• SBI Mutual Fund in June 1987. • Can Bank Mutual Fund in Decembe Decemberr 1987. • LIC Mutual Fund in June 1989. • Punjab National Bank Mutual Fund in August 1989. • Indian Bank Mutual Fund in November 1989. • Bank of India Mutual Fund in June 1990 . • GIC Mutual Fund in December 1990. • Bank of Baroda Mutual Fund in October 1992. At the end of 1993, the entire Mutual Fund Industry had Assets under Management (AUM) of Rs. 47, 004/00 4/- Crores.

3. Third phase (1993-2003) Entry of Private Sector Funds - a wide choice to Indian Mutual Fund investors. In 1993, the first Mutual Fund Regulations came into existence, 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.

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In 1996, the 1993 Securities Exchange Board of India (SEBI) Mutual Funds Regulations were substituted by a more comprehensive and revised Mutual Fund regulator. The number of Mutual Fund houses went on increasing, with many foreign mutual funds setting up funds fund s in India. In this time, the Mutual Fund industry has witnessed several Mergers & Acquisitions.

4. Fourth phase (since 2003 February) Following the repeal of the UTI Act in February 2003, it was (UTI) bifurcated into 2 separate entities. One is the specified undertaking of the UTI with asset under management of Rs.29,835/- Crores as at the end of January 2003. The second is the UTI Mutual Funds Limited, sponsored by State Bank of India, Punjab National Bank, Bank of Baroda and Life Insurance Corporation of India. UTI is functioning under an Administrator and under the Rules framed by the Government of India and does not come under the purview of the Mutual Fund Regulations. The UTI Mutual Funds Limited is registered with SEBI and functions under the Mutual Funds Regulations.

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Association of Mutual Funds in India (AMFI) With the increase in Mutual Fund players in India, a need for Mutual Fund Association in India was generated to function as a non-profit organization. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August, 1995. AMFI is an apex body of all Asset Management Companies (AMC) which has been registered with Securities Exchange Board of India (SEBI). Till date all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its Board of Directors. Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders. h olders. The Association of Mutual Funds of India works with 30 registered AMCs of the country. It has certain defined objectives which  juxtaposes the guidelines of its Board of Directors.

The objectives are as follows:

• This Mutual Fund Association of India maintains high professional and ethical standards in all areas of operation of the industry. • It also recommends and promotes the top class business practices and code of conduct which is followed by members and related

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people engaged in the activities of Mutual Fund and Asset Management. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the t he association.

The sponsors of Association of Mutual Funds in India:  A. Bank Sponsored  1. Joint Ventures - Predominantly Indian - Canara Robeco Asset Management Company Limited - SBI Funds Management Private Limited 2. Others – -UTI Asset Manageme M anagement nt Company Ltd

 B. Institutions - LIC Mutual Fund Asset Management Management Company Limited

C. Private Sector 1. Indian - Benchmark Asset Management Company Pvt. Ltd. - DBS Cholamandalam Asset Management Management Ltd. - Deutsche Asset Management (India) Pvt. Ltd. - Edelweiss Asset Management Limited - Escorts Asset Management Limited - IDFC Asset Management Company Private Limited - JM Financial Asset Asset Management Private Limited - Kotak Mahindra Asset Management Company (KMAMCL) - Quantum Asset Management Co. Private Ltd.

Limited

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- Reliance Capital Asset Management Ltd. - Religare Asset Management Company Pvt. Ltd. - Sahara Asset Manageme M anagement nt Company Private Limited - Tata Asset Management Limited - Taurus Asset Management Company Limited 2. Foreign - AIG Global Asset Management M anagement Company (India) (India) Pvt. Ltd. - FIL Fund Management Private Limited - Fortis Investment Management (India) Pvt. Ltd. - Franklin Templeton Asset Management (India) Private Limited - Goldman Sachs Asset Management (India) Private Limited - Mirae Asset Global Investments (India) Pvt. Ltd. 3. Joint Ventures - Predominantly Indian - Birla Sun Life Asset Management Company Limited - DSP BlackRock Investme Investment nt Managers Limited - HDFC Asset Management Company Limited - ICICI Prudential Asset Mgmt.Company Limited - Religare AEGON Asset Management Company Pvt. Ltd. - Sundaram BNP Paribas Asset Management Company Limited 4. Joint Ventures - Predominantly Foreign - Baroda Pioneer Asset Management M anagement Company Limited - Bharti AXA Investment Managers Private Limited - HSBC Asset Management (India) Private Ltd. - ING Investment Management (India) Pvt. Ltd. - JPMorgan Asset Management India Pvt. Ltd. - Morgan Stanley Investment Management Pvt.Ltd. - Principal Pnb Asset Management Co. Pvt. Ltd. - Shinsei Asset Management (India) Pvt. Ltd.

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TYPES OF MUTUAL FUNDS

Open-end fund The term mutual fund is the common name for what is classified as an open-end investment company by the SEC. 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 by the SEC as an investment company if it issues securities and primarily invests in non-government securities. An investment company will be classified by the SEC 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 funds (as that term t erm is used in the US).

Exchange-traded Exchange-trad ed funds A relatively recent innovation, the exchange-traded fund or ETF, is often structured as an open-end investment company. ETFs combine characteristics of both mutual funds and closed-end funds. ETFs are traded throughout the day on a stock exchange,   just like closed- end funds, but at prices generally approximating the ETF's net asset value. Most ETFs are index funds and track  stock market indexes. Shares are issued or redeemed by

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institutional investors in large blocks (typically of 50,000). Most investors purchase and sell shares through brokers in market transactions. Because the institutional investors normally purchase and redeem in in kind transactions, ETFs are more efficient than traditional mutual funds (which are continuously issuing and redeeming securities and, to effect such transactions, continually buying and selling securities and maintaining liquidity positions) and therefore tend to have lower expenses. Exchange-traded funds are also valuable for foreign investors who are often able to buy and sell securities traded on a stock market, but who, for regulatory reasons, are limited in their ability to participate in traditional U.S. mutual funds.

Equity funds Equity funds, which consist mainly of stock investments, are the most common type of mutual fund. Equity funds hold 50 percent of all amounts invested in mutual funds in the United States. Often equity funds focus investments on particular strategies and certain types of issuers.

Bond funds Bond funds account for 18% of mutual fund assets.Types of bond funds include term funds, which have a fixed set of time (short-, medium-, or long-term) before they mature. Municipal bond funds generally have lower returns, but have tax advantages and lower risk. High-yield bond funds invest in corporate bonds, including high-yield or junk bonds. With the potential for high yield, these bonds also come with greater risk.

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Money market funds Money market funds hold 26% of mutual fund assets in the United States. 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.

Funds of funds Funds of funds (FoF) are mutual funds which invest in other underlying mutual funds (i.e., they are funds comprised of other funds). The funds at the underlying level are typically funds which an investor can invest in individually. A fund of funds will typically charge a management fee which is smaller than that of a normal fund because it is considered a fee charged for asset allocation services. The fees charged at the underlying fund level do not pass through the statement of operations, but are usually disclosed in the fund's annual report, prospectus, or statement of  additional information. The fund should be evaluated on the combination of the fund-level expenses and underlying fund expenses, as these both reduce the return to the investor. Most FoFs invest in affiliated funds (i.e., mutual funds managed by the same advisor), although some invest in funds managed by other (unaffiliated) advisors. The cost associated with investing in an unaffiliated underlying fund is most often higher than investing in an affiliated underlying because of the investment management research involved in investing in fund advised by a different advisor. Recently, FoFs have been classified into those that are actively managed (in which the investment advisor reallocates frequently among the underlying funds in order to adjust to changing market conditions) and those that are passively managed

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(the investment advisor allocates assets on the basis of on an allocation model which is rebalanced on a regular basis). The design of FoFs is structured in such a way as to provide a ready mix of mutual funds for investors who are unable to or unwilling to determine their own asset allocation model. Fund companies such as TIAA-CREF, American Century Investments, Vanguard, and Fidelity have also entered this market to provide investors with these options and take the "guess work" out of  selecting funds. The allocation mixes usually vary by the time the investor would like to retire: 2020, 2030, 2050, etc. The more distant the target retirement date, the more aggressive the asset mix.

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

Equity funds A stock fund or equity fund is a fund that invests in Equities more commonly known as stocks. Such funds are typically held either in

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stock or cash, as opposed to Bonds, notes, or other securities. This may be a mutual fund or exchange-traded fund. The objective of an equity fund is long-term growth through capital appreciation, although dividends and interest are also sources of revenue. Specific equity funds may focus on a certain sector of the market or may be geared toward a certain level of risk. Stock funds can be distinguished by several properties. Funds may have a specific style, for example, value or growth. Funds may invest in solely the securities from one country, or from many countries. Funds may focus on some size of company, that is, small-cap, large-cap, et cetera. Funds which are managed by professionals are said to be actively managed where as Index funds fun ds try as best as possible to mirror specific market indices.

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FUND TYPES Index Fund Index funds invest in securities to mirror a market index, such as the S&P 500. An index fund buys and sells securities in a manner that mirrors the composition of the selected index. The fund's performance tracks the underlying index's performance. Turnover of securities in an index fund's portfolio is minimal. As a result, an index fund generally has lower management costs than other types of funds.

Growth Fund A growth fund invests in the stocks of companies that are growing rapidly. Growth companies tend to reinvest all or most of their profits for research and development rather than pay dividends. Growth funds are focused on generating capital gains rather than income.

Value Fund This is a fund that invests in "value" stocks. Companies rated as value stocks usually are older, established businesses that pay dividends.

Sector (Specialized) Fund A Fund that tracks one area of industry, is called a Sector Fund. Most sector funds have a minimum of 25% of their assets

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invested in its specialty. These funds offer high appreciation potential, but may also pose higher risks to the investor. Examples include gold funds (gold mining stock), technology funds, and utility funds.

Income Fund An income fund stresses current income over growth. The funds objective may be accomplished by investing in the stocks of  companies with long histories of dividend payments, such as utility stocks, blue-chip stocks, and preferred p referred stocks. Option income funds invest in securities on which options may by written and earn premium income from writing options. They may also earn capital gains from trading options at a profit. These funds seek to increase total return by adding income generated by the options to appreciation on the securities held in the portfolio.

Balanced Fund Balanced Funds invest in stocks for appreciation and bonds for income. The goal is to provide a regular income payment to the fund holder, while increasing in creasing its principal.

Asset Allocation Fund These funds split investments between growth stocks, income stocks/bonds, and money market instruments or cash for stability. Fund advisers switch the percentage of holdings in each asset category according to the performance of that group. Example: A fund may have 60% invested in stocks, 20% in bonds, and 20% in

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cash or money market. If the stock market is expected to do well, that could switch to 80% stocks, and 10% each in both bond and cash investments. Conversely, if the stock market is expected to perform poorly, the fund would decrease its stock holdings.

Dynamic Fund of Funds Portfolio disclosure will be limited to details of underlying schemes and will not include investments made by these Schemes. Dynamic asset allocation may result in higher transaction costs. Since Scheme may invest predominantly in diversified Large Cap Equity or Liquid Schemes of Mutual Funds registered with SEBI, its performance may depend on that of these underlying schemes. Dynamic asset allocation may result in higher transaction costs. The Scheme is closed-ended; investors can redeem units only during the last three business days of every third month from the date of allotment of units, at NAV- related prices. p rices. Portfolio disclosure will be limited to details of underlying schemes and will not include investments made by these Schemes. Dynamic asset allocation may result in higher transaction costs. Since Scheme may invest predominantly in Diversified Equity schemes and Liquid/ Short Term / Floating Rate Schemes of  Mutual Funds registered with SEBI, its performance may depend on that of these underlying schemes.

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IMPORTANT TERMINOLOGIES Capitalization Fund managers and other investment professionals have varying definitions of mid-cap, and large-cap ranges.

Growth vs. Value Another distinction is made between growth funds, which invest in stocks of companies that have the potential for large capital gains, and value funds, which concentrate on stocks that are undervalued. Value stocks have historically produced higher returns; however, financial theory states this is compensation for their greater risk. Growth funds tend not to pay regular dividends. Income funds tend to be more conservative investments, with a focus on stocks that pay dividends. A balanced fund may use a combination of  strategies, typically including some level of investment in bonds, to stay more conservative when it comes to risk, yet aim for some growth.

Index funds Vs Active Management An index fund maintains investments in companies that are part of major stock (or bond) indices, such as the S&P 500, while an actively managed fund attempts to outperform a relevant index through superior stock-picking techniques. The assets of an index fund are managed to closely approximate the performance of  a particular published index. Since the composition of an index changes infrequently, an index fund manager makes fewer trades, on average, than does an active fund manager. For this reason,

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index funds generally have lower trading expenses than actively managed funds, and typically incur fewer short-term capital gains which must be passed on to shareholders. Additionally, index funds do not incur expenses to pay for selection of individual stocks (proprietary selection techniques, research, etc.) and deciding when to buy, hold or sell individual holdings. Instead, a fairly simple computer model can identify whatever changes are needed to bring the fund back into agreement with its target index. Certain empirical evidence seems to illustrate that mutual funds do not beat the market and actively managed mutual funds underperform other broad-based portfolios with similar characteristics. One study found that nearly 1,500 U.S. mutual funds underperformed the market in approximately half of the years between 1962 and 1992. Moreover, funds that performed well in the past are not able to beat the market again in the future (shown by Jensen, 1968; Grimblatt and Sheridan Titman, 1989).

Risk Factors Mutual funds, like securities investments, are subject to market risks and there is no guarantee against loss in the Scheme or that the Scheme's objectives 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 various factors and forces affecting capital markets. Past performance of the Sponsor or the AMC or the mutual funds managed by the Sponsor does not indicate the future performance of the Scheme. Investments in the Scheme will be affected by trading volumes, settlement periods, volatility, price fluctuations, inability to sell

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securities, disinvestment of holdings of any unlisted stocks prior to target date of disinvestment, credit risk and interest rate risk and the risks associated with investments in derivatives.

Specific Risk Factor The investors of the Scheme shall bear the recurring expenses of  the Scheme in addition to the expenses of the underlying schemes. Hence the investor under the Scheme may receive lower pre-tax returns than what they may receive if they had invested directly in the underlying schemes in the same proportions. The portfolio disclosure of the Scheme will be limited to providing the particulars of the underlying schemes where the Scheme has invested and will not include the investments made by the underlying schemes. Since the Scheme proposes to invest at least in 5 underlying schemes, the significant underperformance in even one of the underlying schemes may adversely affect the performance of the Scheme. Investments in underlying equity/debt schemes will have all the risks associated with such schemes.

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

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Management fees The management fee for the fund is usually synonymous with the contractual investment advisory fee charged for the management of  a fund's investments. However, as many fund companies include administrative fees in the advisory fee component, when attempting to compare the total management expenses of different funds, it is helpful to define management fee as equal to the contractual advisory fee + the contractual administrator fee. This "levels the playing field" when comparing management fee components across multiple funds. Contractual advisory fees may be structured as "flat-rate" fees, i.e., a single fee charged to the fund, regardless of the asset size of the fund. However, many funds have contractual fees which include breakpoints, so that as the value of a fund's assets increases, the advisory fee paid decreases. Another way in which the advisory fees remain competitive is by structuring the fee so that it is based on the value of all of the assets of a group or a complex of funds rather than those of a single fund.

Non-management Non-mana gement expenses Apart from the management fee, there are certain non-management expenses which most funds must pay. Some of the more significant (in terms of amount) non- management expenses are: transfer agent expenses (this is usually the person you get on the other end of the phone line when you want to purchase/sell shares of a fund), custodian expense (the fund's assets are kept in custody by a bank  which charges a custody fee), legal/audit expense, fund accounting expense, registration expense (the SEC charges a registration fee when funds file registration statements with it), board of  directors/trustees expense (the disinterested members of the board

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who oversee the fund are usually paid a fee for their time spent at meetings), and printing and postage expense (incurred when printing and delivering shareholder reports).

Investor fees and expenses Fees and expenses borne by the investor vary based on the arrangement made with the investor's broker. Sales loads (or contingent deferred sales loads (CDSL)) are not included in the fund's total expense ratio (TER) because they do not pass through the statement of operations for the fund. Additionally, funds may charge early redemption fees to discourage investors from swapping money into and out of the fund quickly, which may force the fund to make bad trades to obtain the necessary liquidity. For example, Fidelity Diversified International Fund (FDIVX) charges a 1 percent fee on money removed from the fund in less than 30 days.

Brokerage commissions An additional expense which does not pass through the statement of operations and cannot be controlled by the investor is brokerage commissions. Brokerage commissions are incorporated into the price of the fund and are reported usually 3 months after the fund's annual report in the statement of additional information. Brokerage commissions are directly related to portfolio turnover (portfolio turnover refers to the number of times the fund's assets are bought and sold over the course of a year). Usually the higher the rate of  the portfolio turnover, the higher the brokerage commissions. The advisors of mutual fund companies are required to achieve "best execution" through brokerage arrangements so that the commissions charged to the fund will not be excessive excessive..

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SEBI REGULATIONS ON MUTUAL FUNDS: The Government brought Mutual Funds in the Securities market under the regulatory framework of the Securities and Exchange board of India (SEBI) in the year 1993. SEBI issued guidelines in the year 1991 and comprehensive set of regulations relating to the organization and management of Mutual Funds in 1993.

SEBI REGULATIONS 1993 (20.1.1993) The regulations bar Mutual Funds from options trading, short selling and carrying forward transactions in securities. The Mutual Funds have been permitted to invest only in transferable securities in the money and capital markets or any privately placed debentures or securities debt. Restrictions have also been placed p laced on them to ensure that investments under an individual scheme, do not exceed five per cent and investment in all the schemes put together does not exceed 10 per cent of the corpus. Investments under all the schemes cannot exceed 15 per cent of the funds in the shares and debentures of a single company. SEBI grants registration to only those mutual funds that can prove an efficient and orderly conduct of business. The track record of  sponsors, a minimum experience of five years in the relevant field of Investment, financial services, integrity in business transactions and financial soundness are taken into account. The regulations also prescribe the advertisement code for the marketing schemes of  Mutual Funds, the contents of the trust deed, the investment management agreement and the scheme-wise balance sheet. Mutual Funds are required to be formed as trusts and managed by separately formed as trusts and managed by separately formed

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Asset Management Companies (AMC). The minimum net worth of  such AMC is stipulated at Rs.5 crores of which, the Mutual Fund should have a custodian who is not associated in any way with the AMC and registered with the SEBI. The minimum amount raised in closed-ended scheme should be Rs.20 Crores and for the open- ended scheme, Rs.50 Crores. In case, the amount collected falls short of the minimum prescribed, the entire amount should be refunded not later than six weeks from the date of closure of the scheme. If this is not done, the fund is required to pay an interest at the rate of15 per cent per annum from the date of expiry of six weeks. In addition to these, the Mutual Funds are obliged to maintain books of accounts and provision for depreciation and bad debts. Further, the Mutual Funds are now under the obligation to publish scheme-wise annual reports, furnish six month un-audited accounts, quarterly statements of the movements of the net asset value and quarterly portfolio statements to the SEBI. There is also a stipulation that the Mutual Funds should ensure adequate disclosures to the investors. SEBI has agreed to let the Mutual Funds buy back the units of their schemes. However, the funds cannot advertise this facility in their prospectus. SEBI is also empowered to appoint an auditor to investigate into the books of accounts or the affairs of the Mutual Funds. SEBI can suspend the registration of Mutual Funds in the case of deliberate manipulation, price rigging or deterioration of  the financial position of Mutual Funds.

SEBI REGULATIONS, 1996 SEBI announced the amended Mutual Fund Regulations on December 9, 1996 covering Registration of Mutual Funds, Constitution and Management of Mutual funds and Operation of 

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Trustees, Constitution and Management of Asset Management Companies (AMCs) and custodian schemes of MFs, investment objectives and valuation policies, general obligations, inspection and audit. The revision has been carried out with the objective of  improving investor protection, imparting a greater degree of  flexibility and promoting innovation. The increase in the number of MFs and the types of schemes offered by them necessitated uniform norms for valuation of  investments and accounting practices in order to enable the investors to judge their performance on a comparable basis. The Mutual Fund regulations issued in December 1996 provide for a scheme-wise report and justification of performance, disclosure of  large investments which constitute a significant portion of the portfolio and disclosure of the movements in the unit capital. The existing Asset Management Companies are required to increase their net worth from Rs.10 crores within one year from the date of  notification of the amended guidelines. AMCs are also allowed to do other fund-based businesses such as providing investment management services to offshore funds, other Mutual Funds, Venture Capital Funds and Insurance Companies. The amended guidelines retained the former fee structure of the AMCs of 1.25% of weekly average Net Asset Value (NAV) up to Rs.100 crores and 1% of NAV for net assets in excess of Rs.100 crores. The consent of the investors has to be obtained for bringing about any change in the fundamental attributes of the scheme on the basis of which the unit holders had made initial investments. The regulation empowers the investor. The amended guidelines require portfolio disclosure, standardization of accounting policies, valuation norms for NAV and pricing. The regulations also sought to address the areas of misuse of funds by introducing prohibitions and restrictions on affiliate transactions and investment exposures to companies belonging to the group of sponsors of mutual funds. The payment of early bird incentive for various schemes has been

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allowed provided they are viewed as interest payment of early bird incentive for early investment with full disclosure. The various Mutual Funds are allowed to mention an indicative return for schemes for fixed income securities. In 1998-99 the Mutual Funds Regulation were amended to permit Mutual Funds to trade in derivatives for the purpose of hedging and portfolio balancing. SEBI registered Mutual Funds and Fund managers are permitted to invest in overseas markets, initially within an overall limit of US $500 million and a ceiling for an individual fund at US$ 50 million. SEBI made (October 8, 1999) investment guidelines for MFs more stringent. The new guidelines restrict MFs to invest no more than 10% of NAV of a scheme in share or share related instruments of a single company. MFs in rated debt instruments of a single issue is restricted to 15% of NAV of the scheme (up to 20% with prior approval of Board of Trustees or AMC), restrictions in un- rated debt instruments and in shares of unlisted un listed companies. The new norms also specify a maximum limit of 25% of NAV for any scheme for investment in listed group companies as against an umbrella limit of 25% of NAV of all schemes taken together earlier. SEBI increased (June 7, 2000) the maximum investment limit for MFs in listed companies from 5% to 10% of NAV in respect of open-ended funds. Changes in fundamental attributes of  a scheme was also allowed without the consent of three fourths of  unit holders provided the unit holders are given the exit option at NAV without any exit load. MFs are also not to make assurance or claim that is likely to mislead investors. They are also banned from making claims in advertisement based on past performance. p erformance.

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Comparison of Mutual Funds with other products/investment products/inve stment opportunities: The mutual fund sector operates under stricter regulations as compared to most other investment avenues. Apart from the tax efficiency and legal comfort how do mutual funds compare with other products? Here the investment in Mutual Funds is compared with: 1. Company Fixed Deposits. 2. Bank Fixed Deposits. 3. Bonds and Debentures. 4. Equity. 5. Life Insurance

1. Company Fixed Deposits versus Mutual M utual Funds Fixed deposits are unsecured borrowings by the company accepting the deposits. Credit rating of the fixed deposit program is an indication of the inherent default risk in the investment. The moneys of investors in a mutual fund scheme are invested by the AMC in specific investments under that scheme. These investments are held and managed in- trust for the benefit of  scheme’s investors. On the other hand, there is no such direct correlation between a company’s fixed deposit mobilization, and the avenues where these resources are deployed. A corollary of such linkage between mobilization and investment is that the gains and losses from the mutual fund scheme entirely flow through to the investors. Therefore, there can be no certainty of yield, unless a named guarantor assures a return

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or, to a lesser extent, if the investment is in a serial gilt scheme. On the other hand, the return under a fixed deposit is certain, subject only to the default risk of the borrower. Both fixed deposits and mutual funds offer liquidity, but subject to some differences: • The provider of liquidity in the case of fixed deposits is the borrowing company. In mutual funds, the liquidity provider is the scheme itself (for open-end schemes) or the market (in the case of closed-end schemes). • The basic value at which fixed deposits are en-cashed is not subject to market risk. However, the value at which units of a scheme are redeemed entirely depends on the market. If  securities have gained in value during the period, then the investor can even earn a return that is higher than what she anticipated when she invested. Conversely, she could also end up with a loss. • Early encashment of fixed deposits is always subject to a penalty charged by the company that accepted the fixed deposit. Mutual fund schemes also have the option of charging a penalty on “early” redemption of units (by way of an ‘exit load’). If the NAV has appreciated adequately, then despite the exit load, the investor could earn a capital gain on her investment.

2. Bank Fixed Deposits versus Mutual Funds Bank fixed deposits are similar to company fixed deposits. The major difference is that banks are more stringently regulated than are companies. They even operate under stricter requirements regarding Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR). While the above are causes for

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comfort, bank deposits too are subject to default risk. However, given the political and economic impact of bank defaults, the Government as well as Reserve Bank of India (RBI) tries to ensure that banks do not fail. Further, bank deposits up to Rs 1, 00, 000 are protected by the Deposit Insurance and Credit Guarantee Corporation (DICGC), so long as the bank has paid the required insurance premium of  Rs 0.05 per annum for every Rs 100 of deposits. The monetary ceiling of Rs 100,000 is for all the deposits in all the branches of  a bank, held by the depositor in the same capacity and right.

3. Bonds and Debentures versus Mutual Funds As in the case of fixed deposits, credit rating of the bond /  debenture is an indication of the inherent default risk in the investment. However, unlike fixed deposits, bonds and debentures are transferable securities. While an investor may have an early encashment option from the issuer (for instance through a “put” option), generally liquidity is through a listing in the market.

Implications of this are: • If the security does not get traded in the market, then the liquidity remains on paper. In this respect, an open-end scheme offering continuous sale / re-purchase option is superior. • The value that the investor would realize in an early exit is subject to market risk. The investor could have a capital gain or a capital loss. This aspect is similar to a MF M F scheme.

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It is possible for an astute investor to earn attractive returns by directly investing in the debt market, and actively managing the positions. Given the market realities in India, it is difficult for most investors to actively manage their debt portfolio. Further, at times, it is difficult to execute trades in the debt market even when the transaction size is as high as Rs 1 crore. In this respect, investment in a debt scheme would be beneficial. Debt securities could be backed by a hypothecation or mortgage of identified fixed and or current assets (secured bonds /  debentures). In such a case, if there is a default, the identified assets become available for meeting redemption requirements. An unsecured bond/ debenture is for all practical purposes like a fixed deposit, as far as access to assets is concerned. The investment in mutual fund scheme is held by a Custodian for the benefit of all investors in that scheme. Thus, the securities that relate to a scheme are ring-fenced for the benefit of its investors.

4. Equity versus Mutual Funds Investment in both equity and mutual funds are subject to market risk. An investor holding an equity security that is not traded in the market place has a problem in realizing value from it. But investment in an open-end mutual fund eliminates this direct risk of not being able to sell the investment in the market. An indirect risk remains, because the scheme has to realize its investments to pay investors. The AMC is however in a better position to handle the situation. Another benefit of equity mutual fund schemes is that they give investors the benefit of portfolio diversification through a small

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investment. For instance, an investor can take an exposure to the index by investing a mere Rs 5,000 in an index fund.

5. Life Insurance versus Mutual Funds Life insurance is a hedge against risk – and not really an investment option. So, it would be wrong to compare life insurance against any other financial product. Occasionally on account of market inefficiencies or mis-pricing of products in India, life insurance products have offered a return that is higher than a comparable “safe” fixed return security – thus, you are effectively paid for getting insured! Such opportunities are not sustainable in the long run.

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FUTURE OF MUTUAL FUNDS IN INDIA At the end of 2006 March, Indian mutual fund industry reached Rs. 2, 57, 499 crores. It is estimated that by 2010 March-end, the total assets of all scheduled commercial banks should be Rs. 40, 90, 000 crores. The annual composite rate of growth is expected 13.4% during the rest of the decade. In the last 5 years we have seen annual growth rate of 9%. According to the current growth rate, by year 2010, mutual fund assets will be double. Going by the above facts and generally, mutual funds have often been considered a good route to invest and earn returns with reasonable safety. Small and big investors have both invested in instruments that have suited their needs. And so equity and debt funds have attracted investments alike. The performance of the investments, equity in particular, for the th e last one-year, has however been disappointing for the investors. The fall in NAVs of equity funds, and it is really steep in some, even to the extent of 60-70 percent, has left investors disgusted. Such backlash was only to be expected when funds, in a hurry to post good returns invested in volatile tech stocks. The move, though good under conducive market conditions, is the point of  rebuttal now. Owing to volatility in market and profit warnings by some IT majors, tech stocks have been on the downhill journey and the result is fall in NAVs of most equity funds. This hurts the investor but then investments in equity are never safe. Mutual funds are not just guilty of mismanaging their risks as the recent survey by Pricewaterhouse Coopers indicates but also

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not educating their investors enough on the risks facing them. It is for the mutual benefit of the investors as well as mutual funds that investor is educated enough or else an agitated investor might route his investments to other avenues that are considered safe. Debt funds are safe investments and generate returns far in excess of  what other so-called safe avenues such as banks generate. Despite this, the inflow of funds in debt funds and banks is by no means comparable. The factor contributing to this is the lack of  understanding caused by improper guidance gu idance by the intermediaries. Till now, Investor education has been one of the issues, less cared for, by the industry. The industry focused upon the amounts and not why a person wanted to invest or whether a particular product suited him or not. While educating the customer might not have been on the cards earlier, the things are beginning to change now. With SEBI passing on the guidelines, the funds will engage in investor education. The guidelines state that funds will utilize the income earned on unclaimed money lying with them for a period exceeding three years to educate the investors. AMFI has started a certification program for intermediaries. This will be made mandatory for the intermediaries and is aimed at educating the investors about the risks attached to the schemes and to inculcate adequate skills into the intermediaries to help the investors choose the right kind of fund. Steps such as these are aimed at obliterating various flaws in the system by standardizing the knowledge base of  intermediaries, as they are the interface between the investor and the funds. Although the investors themselves are also guilty of picking funds that were not suited for them, the blame can’t lie square on their shoulders alone. The industry has also got to bear some of it. With such programs becoming mandatory, it can be ensured to some extent that ignorance ceases to be an aspect associated with the industry.

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Till now, investors have been ignorant about the kind of fund to be picked or how to select a fund. Teaching an investor how to select a fund is thus an important aspect. Educated investors can, on their part, ask pertinent questions to find funds that qualify to be in their portfolio as per their risk bearing capacity. It would not be improper to say that investor education is still the key to managing the funds handed over by investors. The investors are important to the industry and likewise, mutual funds form an important avenue for an investor. It would thus be of critical importance to educate people for an informed investor is in the best position to pick up Schemes as per his need. This would also infuse some confidence in the minds of the investors who under the current scenario seem to be losing faith on account of the falls suffered in recent times. An educated and informed intermediary stands the best chance of  understanding the needs of the client and also of winning his confidence through proper guidance. As it is, investor education will remain a key issue for mutual funds in the longer run and educating the intermediaries will be the first step towards it.

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NEED AND SCOPE OF THE STUDY NEED FOR THE STUDY: The evaluation study of risk and returns of Equity Schemes of  different Mutual Funds is useful to know the performance of  schemes and it helps the investors to invest in Mutual Fund schemes Equity. The performance of different schemes however helps the prospective investors to choose the best scheme that suits his objective.

SCOPE OF THE STUDY: • The study was limited to just finding the risk and returns associated with the schemes. • The study covers the schemes provided by six different companies. • The study covers the period of past two years from January 2007 to January 2009. • The study covers only the open-ended funds.

LIMITATIONS OF THE STUDY: •The study was limited only to six companies. •Time duration for the study was very short as it was restricted to  just two years. •The study was limited to the extent of just finding the risks and returns of each Scheme.

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PRODUCT PROFILE Tata Equity Management Fund Objective: Tata Equity Management Fund seeks to generate capital

appreciation & provide long term growth opportunities opp ortunities by investing in a portfolio constituted of equity & equity related instruments and to generate consistent returns by investing in debt and money market securities. Structure: Open-ended Equity Fund  Inception Date: May 15, 2006 Plans and Options under the Plan: Growth, Dividend Face Value (Rs/Unit): Rs. 10  Minimum Investment: Rs. 5000  Entry Load: Nil.

Exit Load: In case of redemption before expiry of close ended end ed period, proportionate unamortized NFO expenses will be recovered from the redemption proceeds of the investors.

Birla SunLife Equity Plan Objective: To provide growth along with tax benefits b enefits to investors. Structure: Open Ended Inception Date : February 16, 1999

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Plans and Options under the Plan : Dividend and Growth Option. Face Value (Rs/Unit): Rs. 10  Minimum Investment: Rs.5000  Entry Load: 2.25% for amount < 5 crores. Nil, Ni l, for amount > 5

crore.  Exit Load: Nil.

DWS Alpha Equity Fund t o achieve capital appreciation through Objective: The fund seeks to investment in Asian companies (excluding Japan), which have high growth potential. Structure: Open ended scheme.  Inception Date: January 16, 2008 Plans and Options under the Plan: Growth and Dividend options. Face Value (Rs/Unit): Rs 10  Minimum Investment: Rs 5000/ Entry Load: 2.25% for less than 5 crores.  Exit Load  : For less than 5 crores- 1% if redeemed within 6

months, 0.5% if redeemed after 6 months but within 1 year. For greater than 5 crores but less than 25 crores-1% if redeemed within 6 months. Greater than 25 crores- Nil

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HSBC Equity Fund Objective: HSBC Equity Fund (HEF) aims to generate long term

capital growth from an actively managed portfolio of equity and equity related securities. Structure: Open-ended Equity Scheme  Inception Date: December 03, 2002 Plans and Options under the Plan: Open-ended Equity Scheme Face Value (Rs/Unit): Rs. 10  Minimum Investment: Rs.5000  Entry Load: For investments below Rs. 5 crores, Entry load is

2.25%. For Investments of Rs. 5 crores and above, Entry Load is Nil.  Exit Load: If redeemed before 6 Months; and Amount less than 5

crores, Exit load is 0.5%. For Amount greater than 5 crore, Exit load is Nil.

LIC MF Equity Fund Objective: LIC MF Equity Fund seeks to obtain maximum possible

capital growth consistent with reasonable levels of safety and security by investing the funds mainly in equities and also in debts and other permitted instruments of capital and money market. Structure: Open-ended Equity Scheme Inception Date: January 11,

1993

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Plans and Options under the Plan : Growth, Dividend. Face Value (Rs/Unit): Rs. 10 Minimum Investment: Rs. 2000

Entry Load: For investments below Rs.1 crore, Entry load is 2.25%. For Investments of Rs. 1 crore and above, Entry Load is Nil.  Exit Load: Nil.

UTI Equity Fund Objective: Capital appreciation through investments in Equities

and Equity related instruments, convertible debentures, d ebentures, derivatives in India and also in overseas markets. Structure: Open Ended Equity Fund  Inception Date: April 20, 1992 Plans and Options under the Plan: Plans and Options under the Plan : Growth Option, Income

Option Face Value (Rs/Unit): Rs. 10  Minimum Investment: Rs. 5,000/ Entry Load: 2.25% for < Rs.2 crores; Nil for >= Rs.2 crores.  Exit Load: Nil.

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DESIGN OF THE STUDY INTRODUCTION: A detail study is done on Equity Schemes provided by six Mutual Fund Companies. Analysis is done on the Risk and Returns of  Equity Scheme provided by the organization, where it is useful to the investors to mobilize the savings in the respective schemes provided by the Company.

RESEARCH DESIGN: A Research design is a method and procedure for acquiring information needed to solve the problem. A research design is the basic plan that helps in the data collection or analysis. It specifies the type of information to be collected the sources and data collection procedure.

METHOD OF RESEARCH DESIGN USED UNDER STUDY IS:  DESCRIPTIVE RESEARCH  Descriptive research is study of existing facts to come to a conclusion. In this research an attempt has been made to analyze the past performance of the equity schemes and to know the benefits to the investors. The study is done on equity schemes provided by six companies to know the company’s performance for the past two years and to know the risk and returns of the funds.

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OPERATIONAL DEFINITIONS OF THE CONCEPT RISK: The dictionary meaning of risk is the possibility of loss or injury. Any rational investor, before investing his/her investible wealth in the security, analyzes the risk associated with a particular security. The actual return he receives from a security may vary from his expected return and the risk is expressed in term of variability of  return. The down side of risk may be caused by several factors, either common to all securities or specific to a particular security. Investor in general would like to analyze the risk factors and a through knowledge of a risk helps him to plan his portfolio in such a manner so as to minimize risk associated with the investment. Risk consists of two components: • The systematic risk. • The unsystematic risk. The systematic risk is caused by the factors external to a particular company and uncontrollable by the company. The systematic risk  affects the market as a whole. In case of unsystematic risk the factors are specific, unique and related to a particular industry or company.

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Systematic Risk: The systematic risk affects the entire market. The economic conditions, political situations and the sociological changes affect the security market. These factors are beyond the control of the corporate and the investor. The investor cannot avoid them. This is subdivided into:

i. Market Risk  ii. Interest Rate Risk  iii. Purchasing Power Risk.

Unsystematic Risk: The unsystematic risk is unique and peculiar to a firm or an industry. Unsystematic Risk stems from managerial inefficiency, technological change in the production process, availability of raw material changes in the customer preference, and labor problems. The nature and magnitude of the above-mentioned factors differ from industry to industry, and company to company. They have to be analyzed separately for each industry and firm. Broadly, unsystematic risk can be classified into: i. Business Risk  ii. Financial Risk 

Risk Measurement: Understanding the nature of risk is not adequate unless the investor or analyst is capable of expressing it in some quantitative terms. Measurements cannot be assured of cent percent accuracy because

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risk is caused by numerous factors such as social, political, economic and managerial efficiency. The statistical tools used to quantify risk are: i. Standard Deviation:

a. A measure of the dispersion of a set of data from its mean. The more spread apart the data is, the higher the deviation. b. In finance, standard deviation is applied to the annual rate of  return of an investment to measure the investment's volatility (risk). A volatile stock would have a high standard deviation. In mutual funds, the standard deviation tells us how much the return on the fund is deviating from the expected normal returns. Standard deviation can also be calculated as the square root of the variance.

ii. Beta:

Beta describes the relationship between the securities return and the index returns. Beta = + 1.0 One percent change in market index returns causes exactly one percent change in the security return. It indicates that the security moves in tandem with the market. Beta = + 0.5 One percent change in the market index return causes 0.5 percent change in the security return. The security is less volatile compared to the market.

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Beta = + 2.0 One percent change in the market index return causes 2 percent change in the security return. The security return is more volatile. When there is a decline of 10% in the market return, the security with beta of 2 would give a negative return of 20%. The security with more than 1 beta b eta value is considered considered to be b e risky. Negative Beta Negative beta value indicates that the security return moves in the opposite direction to the market return. A security with a negative beta of -1 would provide a return of 10%, if the market return declines by 10% and vice-versa.

RATE OF RETURN: The compounded annual return on a mutual fund scheme represents the return to investors from a scheme since the date of  issue. It is calculated on NAV basis or price basis. On NAV basis it reflects the return generated by the fund manager on NAV. On price basis it reflects the return to investors by way of market or repurchase price

Net Asset Value (NAV): The net asset value of the fund is the cumulative market value of  the assets fund of its liabilities. In other words, if the fund is dissolved or liquidated, by selling off all the assets in the fund, this is the amount that the shareholders would collectively own. This gives rise to the concept of net asset value per unit, which is the value, represented by the ownership of one unit in the fund. It is calculated simply by dividing the net asset value of the fund by thenumber of units. However, most people refer loosely to the

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NAV per unit as NAV, ignoring the “per unit”. We also abide by the same convention. Computation of Net Asset Value

The Net Asset Value (NAV) of the units will be determined as of  every working day and for such other days as may be required for the purpose of transaction of units. The NAV shall be calculated in accordance with the following formula, or such other formula as may be prescribed by SEBI from time to time. NAV = Market Fair value of scheme’s investments + Receivables + Accrued Income + Other Assets – Accrued Expenses – Payables  – Other Liabilities / Number of Units Outstanding

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METHODOLOGY OF DATA COLLECTION: SOURCES OF DATA SECONDARY DATA used for the study:

• Internet sources. • Newspapers. • Announcements and publishing’s by the th e company.

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TOOLS & TECHNIQUES USED FOR THE STUDY To analyze the data in the project various statistical tools are used. They are:

i. Beta:

 β = N∑ XY - (∑X)( ∑Y) / N∑(Y*Y) - ( ∑Y)^2 β = Beta of the fund; N = Number of Observations; X = Weekly return of NAV; Y = Weekly return of the Index.

ii. Standard Deviation:

σ = (∑(d^2)/N - (∑d/N)^2)^1/2 d = (X - (∑ X/N)) Where σ = Standard Deviation; N = Number of observations; d = Deviations from actual mean;

iii. Rate of Return for a period:

X = B-A+D/B Where, A = NAV at the end of the period of the period;

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B = NAV at the beginning of the period; D = Dividend paid during the period;

iv. Analysis of Variance (ANOVA): (ANOVA):

ANOVA has been conducted using inbuilt function of Microsoft Excel. Single factor ANOVA has been used for this purpose. If Fvalue is less than tabulated, then we accept the null hypothesis. We are using 5% Level of Significance. Annova is used to see if there is a significant difference between the returns of the schemes.

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EVALUATION OF PORTFOLIO PERFORMANCE: Composite Equity Portfolio Performance Measures M easures As late as the mid 1960s investors evaluated PM performance based solely on the rate of return. They were aware of risk, but didn't know how to measure it or adjust for it. Some investigators divided portfolios into similar risk classes (based upon a measure of risk such as the variance of return) and then compared the returns for alternative portfolios within the same risk class. We shall look at some measures of composite performance that combine risk and return levels into a single value.

Treynor Portfolio Performance Measure This measure was developed by Jack Treynor in 1965. Treynor (helped developed CAPM) argues that, using the characteristic line, one can determine the relationship between a security and the market. Deviations from the characteristic line (unique returns) should cancel out if you have a fully diversified portfolio. Treynor's Composite Performance Measure : He was interested in a

performance measure that would apply to ALL investors regardless of their risk preferences. He argued that investors would prefer a CML with a higher slope (as it would place them on a higher utility curve). The slope of this portfolio p ortfolio possibility line is: Treynor Ratio = (ARp-ARf)/B

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A larger Ti value indicates a larger slope and a better portfolio for all investors regardless of their risk preferences. The numerator represents the risk premium and the denominator represents the risk of the portfolio; thus the value, T, represents the portfolio's return per unit of systematic risk. All risk averse investors would want to maximize this value. The Treynor measure only measures systematic risk--it automatically assumes an adequately diversified portfolio. p ortfolio. We can compare the T measures for different portfolios. The higher the T value, the better the portfolio performance. For instance, the T value for the market is: Ti = (ARp-ARf)/B In

this

expression,

<

m

=

1.

  Demonstration of Comparative Treynor Measures: Assume that

we are an administrator of a large pension fund (i.e. Terry Teague of Boeing) and we are trying to decide whether to renew contracts with our three money managers. We must measure how they have performed. Assuming we have the following results for each individual's performance: Investment manager

Avg. annual rate of  return

Beta

Z B Y

0.12 0.16 0.18

0.9 1.05 1.2

We can calculate the T values for each investment manager: Tm = (0.14 – 0.08)/1.00 = 0.06

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TZ = (0.12 – 0.08)/0.09 = 0.044 TB = (0.16 – 0.08)/1.05 = 0.076 TY = (0.18 – 0.08)/1.20 = 0.083 These results show that Z did not even "beat-the-market." Y had the best performance, and both B and Y beat the market. [To find required return, the line is: .08 + .06(Beta) ] One can achieve a negative T value if you achieve very poor performance or very good performance with low risk. risk . For instance, if you had a positive beta portfolio but your return was less than that of the risk-free rate (which implies you weren't adequately diversified or that the market performed poorly) then you would have a (-) T value. If you have a negative beta portfolio and you earn a return higher than the risk-free rate, then you would have a high T-value. Negative T values can be confusing, thus you may be better off plotting the values on the SML or using the CAPM (in this case, .08+.06(Beta)) to calculate the required return and compare it with the actual return.

Sharpe Portfolio Performance Measure M easure This measure was developed in 1966. It is as follows: Si=(ARp-ARf)/std dev It is VERY similar to Treynor's measure, except it uses the total risk of the portfolio rather than just the systematic risk. The Sharpe measure calculates the risk premium earned per unit of total risk. In theory, the S measure compares portfolios on the t he CML, whereas the T measure compares portfolios on the SML Demonstration of Comparative Sharpe Measures:

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Sample returns an SDs for four nd portfolios (and the calculated Sharpe Index) are given below: Portfolio

Avg. annual rate SD of  of return Return

Sharpe Measure

B O P MARKET

0.13 0.17 0.16 0.14

0.278 0.409 0.348 0.3

0.18 0.22 0.23 0.2

Thus, portfolio O did the best, and B failed to beat the market. We could draw the CML given this information: CML=.08 + (0.30) ation: (0.30)SD Treynor Measure vs. Sharpe Measure. The Sharpe measure

evaluates the portfolio manager on the basis of both rate of return and diversification (as it considers total portfolio risk in the denominator). If we had a fully diversified portfolio, then both the inator). Sharpe and Treynor measures should given us the same ranking. A poorly diversified asures portfolio could have a higher ranking under the Treynor measure than for the Sharpe measure.

Jenson Portfolio Performance Measure This measure (as are all the previous measures) is based on the CAPM: We can express the expectations formula (the above formula) in terms of realized rates of return by adding an error term to reflect the difference between E(Rj) vs actual Rj: Rp – RFR + beta(Rm-RFR) b eta(Rm-RFR) , By subtracting the risk free rate from both sides,

66

p rp – [rf p (rM – rf )]

we get: Using this format, one would not expect an intercept in the regression. However, if we had superior portfolio managers who were actively seeking o undervalued out securities, they could earn a higher risk-adjusted return than those implied in the model. So, if  we examined returns of superior portfolios, they would have a significant positi intercept. positive An inferior manager would have a significant negative intercept. A manager that was not anager clearly superior or inferior woul have a statistically insignificant intercept. We would test ld the constant, or intercept, in the following regression: p rp – [rf p (rM – rf )]

This constant term would tell us how much of the return is attributable to the manager's ability to derive above-average returns adjusted for risk.   Applying the Jenson Measure. This requires that you use a

different risk risk-free rate for each time interval during the sa sample period. You must subtract the risk-free rate from the free returns during each observation period rather than calculating the average return and average risk-free rate as in the Sharpe and Treynor measures. Also, the Jensen measure does not evaluate the ability of the portfolio manager to diversify, as it calc calculates risk premiums in terms of systematic risk (beta). For evaluating diversified portfolios (such a atic most mutual funds) this is probably adequate. Jensen finds that mutual fund returns are typically correlated with the market at rates above 0.90.

67

ANALYSIS AND INTEPRETATIONS

68

NAV-Net Asset Value (Closing month end values: Equity Funds)

TIME

DEUTSCHE

HSBC

UTI

LIC

TATA

BIRLA SUNLIFE

January

11.8178

73.0236

32.86 32. 86

21.5973

11.339

183.53

February

12.3544

73.9072

33.62

22.5309

11.3209

188.79

March

10.6932

67.5688

31.06

19.6142

10.3624

172.01

April

10.9721

64.9581

29.64

18.4244

10.6306

167.37

May

12.1329

72.6258

33.21

21.0207

10.8756

187.76

June

12.2531

75.3107

34.94

21.2184

10.9052

203.87

July

12.3014

76.9942

34.98

21.5221

11.2891

209.45

August

12.6771

77.9247

35.06

21.9315

11.1341

212.68

September

13.0877

80.017

35.96

22.8593

11.5812

219.63

October

15.1709

89.453

40.16

25.6692

12.4419

242.73

November

16.7393

105.7896

44.57

30.8318

13.3582

269.86

December

17.1336

109.2251

45.11

32.8405

13.8287

283.85

January

17.6996

115.0424

48.33

34.8438

14.5373

308.33

February

15.4311

101.7038

42.13

28.6223

12.5876

254.44

March

14.3606

93.8314

39.98

26.4151

11.9001

234

April

13.8577

87.9695

37.94 37. 94

22.313

11.0109

211.51

May

14.84

97.1612

41.24

26.21

12.0565

232.89

June

13.3027

91.8995

38.75 38. 75

22.859

11.4104

215.16

July

11.9187

77.6541

32.34 32. 34

19.2678

9.6343

172.22

August

13.1324

83.9529

35.32

21.7883

10.4812

188.61

September

12.8837

82.4644

35.87

21.2754

10.3467

189.22

October

11.4472

75.343

33.24

19.3474

9.2684

170.79

November

8.6122

60.6914

27.16

15.0982

7.8354

137.68

December

7.6261

55.5332

24.3

12.8871

7.1906

120.52

January

8.3681

60.5767

26.62

15.1599

7.9427

136.66

69

BSE SENSEX

AVERAGE MARKET RETURNS (ARM)

RM-ARM

(RMARM)^2

TIME

INDEX

MARKET RETURNS (RM)

JANUARY

14,090.92

-0.08

-0.04676

-0.0332

0.0011

FEBRUARY

12,938.09

0.0104

-0.04676

0.0571

0.0033

MARCH

13,072.10

0.0612

-0.04676

0.108

0.0117

APRIL

13,872.37

0.048

-0.04676

0.0948

0.009

MAY JUNE

14,544.46 14,650.51

0.0073 0.0615

-0.04676 -0.04676

0.0541 0.1083

0.0029 0.0117

JULY

15,550.99

-0.0149

-0.04676

0.0319

0.001

AUGUST

15,318.60

0.1288

-0.04676

0.1755

0.0308

SEPTEMBER

17291.1

0.1473

-0.04676

0.1941

0.0377

OCTOBER

19837.99

-0.0239

-0.04676

0.0228

0.0005

NOVEMBER

19363.19

0.0477

-0.04676

0.0945

0.0089

DECEMBER

20286.99

-0.13

-0.04676

-0.0833

0.0069

JANUARY

17648.71

-0.004

-0.04676

0.0428

0.0018

FEBRUARY

17578.72

-0.11

-0.04676

-0.0633

0.004

MARCH

15644.44

0.105

-0.04676

0.1518

0.023

APRIL

17287.31

-0.0504

-0.04676

-0.0036

0

MAY JUNE

16,415.57 13,461.60

0.01799 0.0664

-0.04676 -0.04676

0.0288 0.1132

0.0008 0.0128

JULY

14,355.75

0.0145

-0.04676

0.0613

0.0038

AUGUST

14,564.53

-0.117

-0.04676

-0.0702

0.0049

SEPTEMBER

12,860.43

-0.2389

-0.04676

-0.1921

0.0369

OCTOBER

9,788.06

-0.071

-0.04676

-0.0243

0.0006

NOVEMBER

9,092.72

0.061

-0.04676

0.1078

0.0116

DECEMBER

9,647.31

-0.0231

-0.04676

0.0237

0.0006

JANUARY

9,424.24

-1

-0.04676

-0.9532

0.9087

SUM(RMARM)^2

1.135

70

RISK FREE RATE

TIME

RISK FREE RETURN (RF)

JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER JANUARY

4.25 4.25 4.25 4.25 4.25 4.25 4.25 4.25 4.25 4.25 4.25 4 4 4 4 3.75 3.75 3.75 3.75 3.75 3.75 3.75 4.25 4.25 4.25

SUM RF

101.75

ARF

0.0424

71

4.3 4.2 4.1        N        R        U        T        E        R

4 3.9

Series1

3.8 3.7 3.6 3.5

   Y    H    Y    L    Y    H    Y    L    Y    Y    R    R    R    Y    R    R    R    R    C    A    U    C    A    U    E    B    E    B    E    A    R    E    A    A    R    B    B    M   J    M    M    U    A    M   J    M    M    U    U    A    N    N    N    M    E    M    E    V    E    A    E    A    A    T    V   J    T   J   J    P    O    P    O    E    E    N    N    S    S TIME

ABBREVITIONS

RM

MARKET RETURNS

ARM

AVERAGE MARKET RETURNS

RF

RISK FREE RETURN

ARF

AVERAGE RISK FREE RETURN

RP

ASSET RETURN

ARP

AVERAGE ASSET RETURN

SML

SECURITIES MARKET LINE

72

DEUTSCHE

TIME

NAV

RP

ARP

RPARP

0.0964 0.03324

JANUARY

11.8178 0.045406

-0.051

FEBRUARY

12.3544

-0.051 -0.0835

MARCH

10.6932 0.026082

-0.051

APRIL

10.9721 0.105796

MAY

RMARM

(RPARP)*(RM(RPARM) ARP)^2

-0.0032

0.0093

0.0571

-0.0048

0.007

0.0771

0.108

0.0083

0.0059

-0.051

0.1568

0.0948

0.0149

0.0246

12.1329 0.009907

-0.051

0.0609

0.0541

0.0033

0.0037

JUNE

12.2531 0.003942

-0.051

0.0549

0.1083

0.0059

0.003

JULY

12.3014 0.030541

-0.051

0.0815

0.0319

0.0026

0.0066

AUGUST

12.6771 0.032389

-0.051

0.0834

0.1755

0.0146

0.007

SEPTEMBER

13.0877 0.159172

-0.051

0.2102

0.1941

0.0408

0.0442

OCTOBER

15.1709 0.103382

-0.051

0.1544

0.0228

0.0035

0.0238

NOVEMBER

16.7393 0.023555

-0.051

0.0746

0.0945

0.007

0.0056

DECEMBER

17.1336 0.033035

-0.051

0.084

-0.0833

-0.007

0.0071

JANUARY

17.6996

-0.12817

-0.051 -0.0772

0.0428

-0.0033

0.006

FEBRUARY

15.4311

-0.06937

-0.051 -0.0184

-0.0633

0.0012

0.0003

MARCH

14.3606

-0.03502

-0.051

0.016

0.1518

0.0024

0.0003

APRIL

13.8577 0.070885

-0.051

0.1219

-0.0036

-0.0004

0.0149

-0.13446

MAY

14.84

-0.10359

-0.051 -0.0526

0.0288

-0.0015

0.0028

JUNE

13.3027

-0.10404

-0.051

-0.053

0.1132

-0.006

0.0028

JULY

11.9187 0.101832

-0.051

0.1528

0.0613

0.0094

0.0234

AUGUST

13.1324

-0.01894

-0.051

0.0321

-0.0702

-0.0023

0.001

SEPTEMBER

12.8837

-0.1115

-0.051 -0.0605

-0.1921

0.0116

0.0037

OCTOBER

11.4472

-0.24766

-0.051 -0.1967

-0.0243

0.0048

0.0387

NOVEMBER

8.6122

-0.1145

-0.051 -0.0635

0.1078

-0.0068

0.004

DECEMBER

7.6261 0.097297

-0.051

0.1483

0.0237

0.0035

0.022

JANUARY

8.3681

-0.051

-0.949

-0.9532

0.9046

0.9006

Sum

1.0032

1.1681

-1

73

Arp = -0.0510 (Rm – Arm)^2 = 1.1351 B = 0.8838 Std Dev = 0.2206 Arm = -0.0468 ARf = 0.0424 SML = -0.0364

Measures: Treynor -0.1057 Sharpe -0.4234 Jensen -0.0146

74

HSBC

RMARM

(RPARP)*(RM- (RPARM) ARP)^2

TIME

NAV

RP

ARP

RPARP

JANUARY

73.0236

0.0121

-0.0451

0.05718

-0.0332

-0.0019

0.0033

FEBRUARY

73.9072

-0.08576

-0.0451

-0.04068

0.0571

-0.00232

0.0017

MARCH

67.5688

-0.03864

-0.0451 -0.0451

0.00644

0.108

0.000696

0

APRIL

64.9581

0.118041

-0.0451

0.16312

0.0948

0.015457

0.0266

MAY

72.6258

0.036969

-0.0451

0.08205

0.0541

0.004436

0.0067

JUNE

75.3107

0.022354

-0.0451

0.06743

0.1083

0.0073

0.0045

JULY

76.9942

0.012085

-0.0451

0.05717

0.0319

0.001821

0.0033

AUGUST

77.9247

0.02685

-0.0451

0.07193

0.1755

0.012625

0.0052

SEPTEMBER

80.017

0.117925

-0.0451

0.16301

0.1941

0.031632

0.0266

OCTOBER

89.453

0.182628

-0.0451

0.22771

0.0228

0.005198

0.0519

NOVEMBER

105.79

0.032475

-0.0451

0.07756

0.0945

0.007327

0.006

DECEMBER

109.225

0.05326

-0.0451

0.09834

-0.0833

-0.00819

0.0097

JANUARY

115.042

-0.11595

-0.0451

-0.07087

0.0428

-0.00303

0.005

FEBRUARY

101.704

-0.07741

-0.0451

-0.03233

-0.0633

0.002045

0.001

MARCH

93.8314

-0.06247

-0.0451

-0.01739

0.1518

-0.00264

0.0003

APRIL

87.9695

0.104487

-0.0451

0.14957

-0.00364

-0.00054

0.0224

MAY

97.1612

-0.05415

-0.0451

-0.00907

0.02877

-0.00026

0.0001

JUNE

91.8995

-0.15501

-0.0451

-0.10993

0.11316

-0.01244

0.0121

JULY

77.6541

0.081114

-0.0451

0.12619

0.06126

0.007731

0.0159

AUGUST

83.9529

-0.01773

-0.0451

0.02735

-0.0702

-0.00192

0.0007

SEPTEMBER

82.4644

-0.08636

-0.0451

-0.04128

-0.1921

0.007931

0.0017

OCTOBER

75.343

-0.19447

-0.0451

-0.14939

-0.0243

0.003627

0.0223

NOVEMBER

60.6914

-0.08499

-0.0451

-0.03991

0.1078

-0.0043

0.0016

DECEMBER

55.5332

0.09082

-0.0451

0.1359

0.02366

0.003215

0.0185

JANUARY

60.5767

-1

-0.0451

-0.95492

-0.9532 Sum

0.910268 0.983755

0.9119 1.1589

75

Arp -0.0451 -0.0451 (Rm – Arm)^2 1.1351 B 0.8667 Std Dev 0.2197 Arm -0.0468 ARf 0.0424 SML -0.0349

Measures: Treynor -0.1009 Sharpe -0.3981 Jensen -0.0102

76

UTI

(RPARP)*(RMARM)

(RP-ARP)^2

TIME

NAV

RP

ARP

RP-ARP

RMARM

JANUARY

32.86

0.023128

-0.04644

0.069568

-0.0332

-0.00231

0.0048398

FEBRUARY

33.62

-0.07615

-0.04644

-0.02971

0.0571

-0.0017

0.0008824

MARCH

31.06

-0.04572

-0.04644

0.000722

0.108

7.80E-05

5.21E-07

APRIL

29.64

0.120445

-0.04644

0.166885

0.0948

0.015814

0.0278507

MAY

33.21

0.052093

-0.04644

0.098533

0.0541

0.005327

0.0097087

JUNE

34.94

0.001145

-0.04644

0.047585

0.1083

0.005152

0.0022643

JULY

34.98

0.002287

-0.04644

0.048727

0.0319

0.001552

0.0023743

AUGUST

35.06

0.02567

-0.04644

0.07211

0.1755

0.012657

0.0051999

SEPTEMBER

35.96

0.116796

-0.04644

0.163236

0.1941

0.031677

0.0266461

OCTOBER

40.16

0.109811

-0.04644

0.156251

0.0228

0.003567

0.0244143

NOVEMBER

44.57

0.012116

-0.04644

0.058556

0.0945

0.005532

0.0034288

DECEMBER

45.11

0.071381

-0.04644

0.117821

-0.0833

-0.00981

0.0138818

JANUARY

48.33

-0.12828

-0.04644

-0.08184

0.0428

-0.0035

0.0066986

FEBRUARY

42.13

-0.05103

-0.04644

-0.00459

-0.0633

0.000291

2.11E-05

MARCH

39.98

-0.05103

-0.04644

-0.00459

0.1518

-0.0007

2.10E-05

APRIL

37.94

0.086979

-0.04644

0.133419

-0.0036

-0.00049

0.0178007

MAY

41.24

-0.06038

-0.04644

-0.01394

0.0288

-0.0004

0.0001943

JUNE

38.75

-0.16542

-0.04644

-0.11898

0.1132

-0.01346

0.0141561

JULY

32.34

0.092146

-0.04644

0.138586

0.0613

0.00849

0.0192061

AUGUST

35.32

0.015572

-0.04644

0.062012

-0.0702

-0.00436

0.0038455

SEPTEMBER

35.87

-0.07332

-0.04644

-0.02688

-0.1921

0.005165

0.0007226

OCTOBER

33.24

-0.18291

-0.04644

-0.13647

-0.0243

0.003313

0.0186246

NOVEMBER

27.16

-0.1053

-0.04644

-0.05886

0.1078

-0.00634

0.0034647

DECEMBER

24.3

0.095473

-0.04644

0.141913

0.0237

0.003358

0.0201394

JANUARY

26.62

-1

-0.04644

-0.95356

-0.9532 Sum

0.908972 0.967873

0.9092767 1.1356629

77

Arp -0.04644 (Rm – Arm)^2 1.1351 B 0.8527 Std Dev 0.2175 Arm -0.0468 ARf 0.0424 SML -0.0336

Measures: Treynor -0.1042 Sharpe -0.4084 Jensen -0.0128

78

LIC

TIME

NAV

RP

ARP

RP-ARP

RM-ARM

(RPARP)*(RMARM)

JANUARY

21.5973

0.043228

-0.04854

0.091768

-0.0332

-0.00305

0.008421

FEBRUARY

22.5309

-0.12945

-0.04854

-0.08091

0.0571

-0.00462

0.006547

MARCH

19.6142

-0.06066

-0.04854

-0.01212

0.108

-0.00131

0.000147

APRIL

18.4244

0.140916

-0.04854

0.189456

0.0948

0.017953

0.035894

MAY

21.0207

0.009405

-0.04854

0.057945

0.0541

0.003133

0.003358

JUNE

21.2184

0.014313

-0.04854

0.062853

0.1083

0.006804

0.003951

JULY

21.5221

0.019022

-0.04854

0.067562

0.0319

0.002153

0.004565

AUGUST

21.9315

0.042304

-0.04854

0.090844

0.1755

0.015945

0.008253

SEPTEMBER

22.8593

0.122922

-0.04854

0.171462

0.1941

0.033273

0.029399

OCTOBER

25.6692

0.20112

-0.04854

0.24966

0.0228 0.0 228

0.005699

0.06233

NOVEMBER

30.8318

0.06515

-0.04854

0.11369

0.0945

0.01074

0.012926

DECEMBER

32.8405

0.061001

-0.04854

0.109541

-0.0833

-0.00912

0.011999

JANUARY

34.8438

-0.17855

-0.04854

-0.13001

0.0428

-0.00556

0.016904

FEBRUARY

28.6223

-0.07711

-0.04854

-0.02857

-0.0633

0.001808

0.000817

MARCH

26.4151

-0.15529

-0.04854

-0.10675

0.1518

-0.0162

0.011396

APRIL

22.313

0.174652

-0.04854

0.223192

0.00364

-0.00081

0.049815

MAY

26.21

-0.12785

-0.04854

-0.07931

0.02877

-0.00228

0.00629

JUNE

22.859

-0.1571

-0.04854

-0.10856

0.11316

-0.01228

0.011786

JULY

19.2678

0.130814

-0.04854

0.179354

0.06126

0.010987

0.032168

AUGUST

21.7883

-0.02354

-0.04854

0.025

-0.0702

-0.00176

0.000625

SEPTEMBER

21.2754

-0.09062

-0.04854

-0.04208

-0.1921

0.008086

0.001771

OCTOBER

19.3474

-0.21963

-0.04854

-0.17109

-0.0243

0.004154

0.029271

NOVEMBER

15.0982

-0.14645

-0.04854

-0.09791

0.1078

-0.01055

0.009586

DECEMBER

12.8871

0.176362

-0.04854

0.224902

0.02366

0.005321

0.050581

JANUARY

15.1599

-1

-0.04854

-0.95146

-0.9532

0.90697

0.905276

Sum

0.96547

1.314073

(RPARP)^2

79

Arp -0.0464 (Rm – Arm)^2 1.1351 B 0.8527 Std Dev 0.2175 Arm -0.0468 ARf 0.0424 SML -0.0336 Measures: Treynor -0.1042 Sharpe -0.4084 Jensen -0.0128

80

TATA

(RPARP)*(RMARM)

(RPARP)^2

TIME

NAV

RP

ARP

RP-ARP

RMARM

JANUARY

11.339

-0.0016

-0.05324

0.051644

-0.0332

-0.00172

0.002667

FEBRUARY

11.3209

-0.08467

-0.05324

-0.03143

0.0571

-0.0018

0.000988

MARCH

10.3624

0.025882

-0.05324

0.079122

0.108

0.008544

0.00626

APRIL

10.6306

0.023047

-0.05324

0.076287

0.0948

0.007229

0.00582

MAY

10.8756

0.002722

-0.05324

0.055962

0.0541

0.003025

0.003132

JUNE

10.9052

0.035203

-0.05324

0.088443

0.1083

0.009575

0.007822

JULY

11.2891

-0.01373

-0.05324

0.03951

0.0319 0.03 19

0.001259

0.001561

AUGUST

11.1341

0.040156

-0.05324

0.093396

0.1755

0.016393

0.008723

SEPTEMBER

11.5812

0.074319

-0.05324

0.127559

0.1941

0.024753

0.016271

OCTOBER

12.4419

0.073646

-0.05324

0.126886

0.0228

0.002896

0.0161

NOVEMBER

13.3582

0.035222

-0.05324

0.088462

0.0945

0.008357

0.007826

DECEMBER

13.8287

0.051241

-0.05324

0.104481

-0.0833

-0.0087

0.010916

JANUARY

14.5373

-0.13412

-0.05324

-0.08088

0.0428

-0.00346

0.006541

FEBRUARY

12.5876

-0.05462

-0.05324

-0.00138

-0.0633

8.71E-05

1.90E-06

MARCH

11.9001

-0.07472

-0.05324

-0.02148

0.1518

-0.00326

0.000462

APRIL

11.0109

0.09496

-0.05324

0.1482

-0.00364

-0.00054

0.021963

MAY

12.0565

-0.05359

-0.05324

-0.00035

0.02877

-1.00E-05

1.22E-07

JUNE

11.4104

-0.15566

-0.05324

-0.10242

0.11316

-0.01159

0.010489

JULY

9.6343

0.087905

-0.05324

0.141145

0.06126

0.008647

0.019922

AUGUST

10.4812

-0.01283

-0.05324

0.040407

-0.0702

-0.00284

0.001633

SEPTEMBER

10.3467

-0.10422

-0.05324

-0.05098

-0.1921

0.009795

0.002599

OCTOBER

9.2684

-0.15461

-0.05324

-0.10137

-0.0243

0.002461

0.010276

NOVEMBER

7.8354

-0.08229

-0.05324

-0.02905

0.1078

-0.00313

0.000844

DECEMBER

7.1906

0.104595

-0.05324

0.157835

0.02366

0.003734

0.024912

JANUARY

7.9427

-1

-0.05324

-0.94676

-0.9532

0.90249

0.896355

Sum

0.972201

1.084083

81

Arp -0.05324 -0.05324 (Rm – Arm)^2 1.1351 B 0.8527 Std Dev 0.2175 Arm -0.0468 ARf 0.0424 SML -0.0336

Measures: Treynor -0.1042 Sharpe -0.4084 Jensen -0.0128

82

BIRLA SUNLIFE

TIME

NAV

RP

ARP

RP-ARP

RM-ARM

(RPARP)*(RMARM)

JANUARY

183.53

0.02866

-0.04827

0.07693

-0.0332

-0.00256

0.005918

FEBRUARY

188.79

-0.08888

-0.04827

-0.04061

0.0571

-0.00232

0.001649

MARCH

172.01

-0.02698

-0.04827

0.021295

0.108

0.002299

0.000454

APRIL

167.37

0.121826

-0.04827

0.170096

0.0948

0.016118

0.028933

MAY

187.76

0.085801

-0.04827

0.134071

0.0541

0.007248

0.017975

JUNE

203.87

0.02737

-0.04827

0.07564

0.1083

0.008189

0.005722

JULY

209.45

0.015421

-0.04827

0.063691

0.0319

0.002029

0.004057

AUGUST

212.68

0.032678

-0.04827

0.080948

0.1755

0.014208

0.006553

SEPTEMBER

219.63

0.105177

-0.04827

0.153447

0.1941

0.029777

0.023546

OCTOBER

242.73

0.11177

-0.04827

0.16004

0.0228

0.003653

0.025613

NOVEMBER

269.86

0.051842

-0.04827

0.100112

0.0945

0.009457

0.010022

DECEMBER

283.85

0.086243

-0.04827

0.134513

-0.0833

-0.0112

0.018094

JANUARY

308.33

-0.17478

-0.04827

-0.12651

0.0428

-0.00541

0.016005

FEBRUARY

254.44

-0.08033

-0.04827

-0.03206

-0.0633

0.002029

0.001028

MARCH

234

-0.09611

-0.04827

-0.04784

0.1518

-0.00726

0.002289

APRIL

211.51

0.101083

-0.04827

0.149353

-0.00364

-0.00054

0.022306

MAY

232.89

-0.07613

-0.04827

-0.02786

0.02877

-0.0008

0.000776

JUNE

215.16

-0.19957

-0.04827

-0.1513

0.11316

-0.01712

0.022892

JULY

172.22

0.095169

-0.04827

0.143439

0.06126

0.008787

0.020575

AUGUST

188.61

0.003234

-0.04827

0.051504

-0.0702

-0.00362

0.002653

SEPTEMBER

189.22

-0.0974

-0.04827

-0.04913

-0.1921

0.00944

0.002414

OCTOBER

170.79

-0.19386

-0.04827

-0.14559

-0.0243

0.003535

0.021198

NOVEMBER

137.68

-0.12464

-0.04827

-0.07637

0.1078

-0.00823

0.005832

DECEMBER

120.52

0.13392

-0.04827

0.18219

0.02366

0.004311

0.033193

JANUARY

136.66

-1

-0.04827

-0.95173

-0.9532

0.907227

0.90579

Sum

0.96924

1.205484

(RPARP)^2

83

Arp -0.04827 (Rm – Arm)^2 1.1351 B 0.8527 Std Dev 0.2175 Arm -0.0468 ARf 0.0424 SML -0.0336

Measures: Treynor -0.1042 Sharpe -0.4084 Jensen -0.0145

84 Measure

DEUTSCHE HSBC

UTI

LIC

TATA

Sunlife Sunlife

Treynor Rank

-0.1057 III

-0.1042 II

-0.1069 V

-0.1117 VI

-0.1062 IV

Sharpe Rank

-0.4234 V

Jensen Rank

-0.1009 I -0.3981 II

-0.0146 IV

-0.4084 IV

-0.0102 I

-0.3886 I

-0.0128 II

-0.45 VI

-0.0151 V

-0.4045 III

-0.0193 VI

-0.0145 III

RETURNS OF MUTUAL FUNDS

JANUARY

0.045406

HSBC 0.0121

FEBRUARY

-0.13446 0.026082 0.105796 0.009907 0.003942 0.030541 0.032389 0.159172 0.103382 0.023555 0.033035 -0.12817

-0.08576 -0.03864 0.118041 0.036969 0.022354 0.012085 0.02685 0.117925 0.182628 0.032475 0.05326 -0.11595

-0.07615 -0.04572 -0.04572 0.120445 0.052093 0.001145 0.002287 0.02567 0.116796 0.109811 0.012116 0.071381 -0.12828

-0.12945 -0.06066 0.140916 0.009405 0.014313 0.019022 0.042304 0.122922 0.20112 0.06515 0.061001 -0.17855

-0.08467 0.025882 0.023047 0.002722 0.035203 -0.01373 0.040156 0.074319 0.073646 0.035222 0.051241 -0.13412

-0.08888 -0.02698 0.121826 0.085801 0.02737 0.015421 0.032678 0.105177 0.11177 0.051842 0.086243 -0.17478

-0.06937 -0.03502 0.070885 -0.10359 -0.10404 0.101832 -0.01894 -0.1115 -0.24766 -0.1145 0.097297 -1

-0.07741 -0.06247 0.104487 -0.05415 -0.15501 0.081114 -0.01773 -0.08636 -0.19447 -0.08499 0.09082 -1

-0.05103 -0.05103 0.086979 -0.06038 -0.16542 0.092146 0.015572 -0.07332 -0.18291 -0.1053 0.095473 -1

-0.07711 -0.15529 0.174652 -0.12785 -0.1571 0.130814 -0.02354 -0.09062 -0.21963 -0.14645 0.176362 -1

-0.05462 -0.07472 0.09496 -0.05359 -0.15566 0.087905 -0.01283 -0.10422 -0.15461 -0.08229 0.104595 -1

-0.08033 -0.09611 0.101083 -0.07613 -0.19957 0.095169 0.003234 -0.0974 -0.19386 -0.12464 0.13392 -1

DEUTSCHE

MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER JANUARY

UTI 0.023128

LIC 0.043228

TATA -0.0016

BirlaSunlif e 0.02866

85

GRAPHICAL PRESENTATION OF RETURNS OF MUTUAL FUNDS

86

Annova Single Factor

Groups

Count

Sum

Average

Variance

Column

1

25

1.22403

-0.04896

0.048665

Column

2

25

1.08182

-0.04327

0.048286

Column

3

25

1.11449

-0.04458

0.047316

Column

4

25

1.16506

-0.0466

0.054749

Column

5

25

1.27775

-0.05111

0.045165

Column

6

25

1.15849

-0.04634

0.050225

Source of  Variation Variatio n

SS

df

MS

F

P-value

F crit

Between groups

0.001022

5

0.000204

0.004164

0.999997

2.277044

within group

7.065738

144

0.049068

Total

7.06676

149

LOS

5%

F-tab

2.62

87

FINDINGS The Treynor, Sharpe and Jensen methods of analysis was carried out on the sample taken. From the analysis done we can rank the portfolio according to Treynor measure in the th e following order: HSBC, UTI, StanChart, Birlasun Life, LIC and Tata Mutual Fund Companies. When the Sharpe measure was used the mutual funds can be ranked in the order: LIC, HSBC, Birlasun Life, UTI, StanChart and Tata mutual funds as per the decreasing values of the measure. According to Jensen measure, the order of the funds is: i s: HSBC, UTI, Birlasun Life, StanChart, LIC and Tata mutual funds as per the decreasing values of the th e measure. From carrying out the ANOVA test on the returns of the mutual funds, we see that the F calculated value is less than the tabulated value, we hence conclusively accept the null hypothesis h ypothesis i.e. There is no significant difference in the returns of the mutual fund companies analysed.

88

CONCLUSION From the market indices it is very clear that the markets have been b een falling over the two years from which the data has been taken. As a result, equity mutual funds that are dependent on the market have also witnessed falling returns. From the analysis it is very clear that the measures used to evaluate the equity mutual funds i.e. Treynor, Jenson and Sharpe have all got negative values. The negative values of these funds suggests that the investor stands to lose money as long as the markets keep falling. The farther the measure is from zero, the more they lose money. Since the measures used here use different parameters for valuation, the ranks assigned by each measure are different from each other. From our analysis using Treynor Measure, we see that all the values are negative and that HSBC Mutual Fund has the highest value. Hence, this fund stands to lose the least as long as the prevailing market conditions exist. In our analysis using Sharpe’s Measure, LIC mutual Fund has the highest value among samples used and hence stands to lose the least amount of money. Jensen Measure of Equity analysis tells us that HSBC Mutual Fund performed the best in the prevailing market conditions. It is very clear from the ANOVA ANOV A test that has been carried out, We have been able to accept the NULL Hypothesis, that there is no significant difference between the returns of the different mutual funds that have been analysed. Hence investing in equity mutual funds at a time when the markets are falling is not the best available option and also the difference in returns is minimal. Even though mutual funds tend to hedge h edge risks of the investor but an

89

entirely equity based fund does not perform any better than the Sensex itself in a drastically falling market. None of the Mutual Fund House were able to perform contrary to to the falling BSE SENSEX index, hence providing no hedging of risk as such.

90

BIBLIOGRAPHY BOOKS REFERRED • Investment and Portfolio Management by Chandra Prasanna, Tata McGraw Hill Publication, New Delhi, 2007 Edition. • Invest India Economic Foundation’s Mutual Fund Industry Guide, Himalayan Publications, Mumbai, 2007.

JOURNALS • Outlook Money. • Business World.

WEB SITES • www.sebi.gov.in • www.mutualfundsindia.com • www.amfi.com • www.nseindia.com • www.value-research.com