Mutual Fund

AMIWESH KUMAR – 27, [email protected]

PoRTFOLIO MANAGEMENT through mutual funds

RIZVI ACADEMY OF MANAGEMENT

Acknowledgement Intellectual alertness, creativity and innovation go side by side in making of a Manager. In this context, the role of successful execution of the project work can not be denied. My heartfelt Veneration in due to Prof. Kalim Khan , Director at Rizvi Academy Of Management, Mumbai, for his guidance on various facets of the project work and for his timely advice to improve upon shortcomings and I am thankful to him for his approval to perform this dissertation. On this note, I feel inexpedient to express my profound indebtedness and sincere thanks to our venerable Mr. Amit Samant, guide from the institute respectively, for his indefatigable cooperation, analytical guidance and boundless endeavors, which gave me great help and revitalization at every step in completing my project. I would also like to take this opportunity to convey my respect and special gratitude towards Mr. Amarnath (All India Head, Mahindra) who considered me worthy of doing project in their esteemed establishment and never failed to satisfy my over-zealous thirst to obtain information. I also want to thank Miss Ujjwala (State Head, Mahindra Financial Services Limited) and Miss Deepali Parkar(Relationship Manager, Mahindra financial Services Limited) for their kind support for successful completion of this project. Working on this project has been a great experience. I am thankful to all concerned people who have played active role in the successful completion of this project.

2

INDEX 1)

INTRODUCTION

7

2)

PROJECT TITLE

8

3)

OBJECTIVES

9

4)

PURPOSE

10

5)

SCOPE

10

6)

LIMITATION

11

7)

METHODOLOGY

11

OVERVIEW OF MUTUAL FUNDS

12

CURRENT SCENARIO

15

10)

ORGANIZATION OF MUTUAL FUNDS

17

11)

TYPES OF MUTUAL FUNDS SCEMES

20

12)

PERFORMANCE MEASURES OF

8) 9)

MUTUAL FUNDS 13)

RISK FACTORS

14)

DIFFERENT AMC’S IN INDIA

15) REFERNECES

25 29 50 57

3

ABSTRACT The rise in the level of capital market has manifested the importance Mutual Funds as investment medium. Mutual Funds are now are becoming a preferred investment destination for the investors as fund houses offer not only the expertise in managing funds but also a host of other services. Over the last five year period from Mar’03 to Mar’08, the money invested by FIIs was Rs.2,09,213cr into the stock market as compared to Rs.38,964cr by mutual funds, yet MFs collectively made an annualized return of 34% while it was 30% in case of FIIs. Total Assets Under Management(AUM) in India as of today is $92b. Volatile markets and year end accounting considerations have shaved 6% off in March, but much of that money should flow back in April. The next five years will see the Indian Asset Management business grow at least 33% annually says a study by McKinsey. Funds in the diversified equity category which has the largest number of funds(194) as well as the highest investor interest lost an average of 28.3% in Q4,2007-08 but gained an average of 21.4% over the four quarters. Equity funds are estimated to have had net inflows of Rs.7000cr for March 2008.More than 80% of equity funds managed to outperform Sensex in terms of returns over the last five years. Investor’s money inflow to mutual funds has sidelined for the time being but the overall long term fundamental outlook on the economy remains intact. To lower the impact of volatility one can stay invested in diversified equity funds over a longer period of time through the route of Systematic Investment Plan.

4

ABOUT THE COMPANY

A subsidiary of Mahindra & Mahindra Limited, we are one of India’s leading non-banking finance companies. Focused on the rural and semi-urban sector, we provide finance for utility vehicles, tractors and cars and have the largest network of branches covering these areas. Our goal is to be the preferred provider of retail financing services in the rural and semi-urban areas of India, while our strategy is to provide a range of financial products and services to our customers through our nationwide distribution network. Vision of company “Is to be the leading rural finance company and continue to retain the leadership position for Mahindra product.” INVESTMENT ADVISIORY SERVICES We at Mahindra Finance are all-encompassing of clients’ needs. So while we believe in making assets easily available, we also believe in catering to those who want to create wealth from these assets. Our Investment Advisory Services act as an avenue to help create and multiply wealth. Mutual Fund Distribution Recently we have received the necessary permission from Reserve Bank of India (RBI) to start the distribution of Mutual Fund products through our network. Hitherto we were only participating in the liability

5

requirements of our customers but with a mutual fund distribution business, we can also participate in their asset allocation. When it comes to investing, everyone has unique needs based on their own objectives and risk profile. While many investment avenues such as fixed deposits, bonds etc. exist, it is usually seen that equities typically outperform these investments, over a longer period of time. Hence we are of the opinion that, systematic investment in equity allows one to create substantial wealth. However, investing in equity is not as simple as investing in bonds or bank deposits, because only proper allocation of portfolio gives maximum returns with moderate risk, and this requires expertise and time. Our Investment Advisory Services help you invest your money in equity through different Mutual Fund Schemes. We ensure the best for our clients by identifying products best suited to individual needs.

6

INTRODUCTION: Mutual funds have been a significant source of investment in both government and corporate securities. It has been for decades the monopoly of the state with UTI being the key player, with invested funds exceeding Rs.300 bn. (US$ 10 bn.). The state-owned insurance companies also hold a portfolio of stocks. Presently, numerous mutual funds exist, including private and foreign companies. Banks - mainly state-owned too have established Mutual Funds (MFs). Foreign participation in mutual funds and asset management companies is permitted on a case by case basis. 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. The flow chart below describes broadly the working of a mutual fund:

7

PROJECT TITLE “PORTFOLIO MANAGEMENT THROUGH MUTUAL FUNDS”

8

OBJECTIVE OF THE PROJECT The objectives of the study on this topic are as follows:

Primary objective: •

To study the influence and role of mutual funds in managing a portfolio.

•

To analyze the various risk-return characteristics of Mutual funds and attempt to establish a link between the demographics (age, income, employment status etc), risk tolerance of investors.

•

To analyze the performance of Top Mutual Funds in India.

Secondary objectives: •

Understanding the various characteristics of different Mutual funds.

•

Understanding the Investment pattern of AMC’s

•

To get additional clients for the company and making them aware about the benefits of mutual funds.

•

To come up with recommendations for investors and mutual fund companies in India based on the above study.

9

PURPOSE OF THE PROJECT Investment in mutual funds gives you exposure to equity and debt markets. These funds are marketed as a safe haven or as smart investment vehicles for novice investors. The middle-class Indian investor who plays hot tips for a quick buck at the bourses is the stuff of legends. The middle-class Indian investor who runs out of luck and loses not only his money but his peace of mind too is somewhat less famous by choice. Mutual funds, on the other hand, sell us middling miracles. Consequently proof enough for a research on Mutual Funds, which has exacting returns. Every investor requires a healthy return on his/her investments. But since the market is very volatile and due to lack of expertise they may fail to do so. So a study of these mutual funds will help one to equip with unwarranted knowledge about the elements that help trade between risk and return thereby improving effectiveness. A meticulous study on the scalability at which the mutual funds operate along with diagnosis of the market conditions would endure managing the investment portfolio efficiently. The study would also immunize on risks and foresee healthy returns; incidentally in worst of conditions it has given a return of 18 per cent.

SCOPE OF THE PROJECT The project covers the financial instruments mobilizing in the Indian Capital market in particular the Mutual Funds. The mutual funds analysed for their performance are determined over a period of 5 years fluctuations and returns. The elements taken into

10

consideration for choosing some of the top funds is on the basis of their respective sharpe , beta, ratio, . The project shelves some of the top asset management companies operating in India , segregated on the basis of their performance over a period of time. Scooping further the project inundates the success ratio of the funds administered by top AMC’s.

LIMITATIONS A well managed portfolio of various individual scripts which is rare, would not help to draw a line of difference between portfolio managed through mutual funds and the former. The median used to choose the top AMC’s and the mutual funds to be analysed is relative and personalized and need not be accepted industry wide. Inaccessibility to certain information and data relating to the project on account of it being confidential. Market volatility would affect individuals perception which would rather not be likely the way it is expressed, thus resulting in a very relative data.

METHODOLOGY A thorough study of literature on the mutual fund industry both in India and abroad will be done. Different measures will be adopted to understand and evaluate the risks and returns of funds efficiently and effectively. An extensive study of various articles and publications of SEBI, AMFI and government of India and other agencies with respect to the demographics of the population of the country and their investing 11

pattern will be a part of the methodology adopted. The project will be carried out mainly through two researches: Primary research: •

Field visits

•

Meeting with the clients

Secondary research: •

Internet.

•

AMFI book.

•

Fact sheets of various mutual fund houses.

Overview of Indian Mutual Fund Industry Assets under management As of the end on 31 January 2008, the mutual fund industry had a debt and equity assets of Rs 5,50,157 crore. Its equity corpus of Rs 2,20,263 lakh crore accounts for over 3 per cent of the total market capitalization of BSE, at Rs 58 lakh crore. Its holding in Indian companies ranges between 1 per cent and almost 29 per cent, making them an influential shareholder. Together with banks, insurance companies and FIIs- collectively called institutional investors- they have the ability to ask company managements some tough questions. India’s market for mutual funds has generated substantial growth in assets under management over the past 10 years. Ownership of mutual fund shares One notable characteristic of India’s mutual fund market is the high percentage of shares owned by corporations. According to the Association of Mutual Funds in India ( AMFI ) , Individual investors held slightly under 50% of mutual fund assets, and corporations held over 50% as of the end of march 2007. This high percentage of corporate 12

ownership can be tracked back to tax reforms instituted in 1999 that lowered the tax rate on dividend and interest income from mutual funds, and made that rate lower than the corporate tax levied on income from securities held directly by corporations. Although there is no official data regarding the type investor in each class, the typical pattern seems to be that individual investors primarily invest in equity funds, while corporate investors favor bond funds, particularly short-term money market products that provide a way for corp[orations to invest surplus cash.

HISTORY OF MUTUAL FUNDS: 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. The history of mutual funds in India can be broadly divided into four distinct phases. First Phase – 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI 13

was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management. Second Phase – 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores. Third Phase – 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs.

14

1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds. Fourth Phase – since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations.

CURRENT SCENARIO: The fund industry has grown phenomenally over the past couple of years, and as on 31 January 2008, it had a debt and equity assets of Rs 5,50,157 crore. Its equity corpus of Rs 2,20,263 lakh crore accounts for over 3 per cent of the total market capitalization of BSE, at Rs 58 lakh crore. Its holding in Indian companies ranges between 1 per cent and almost 29 per cent, making them an influential shareholder. Together with banks, insurance companies and FIIscollectively called institutional investors- they have the ability to ask company managements some tough questions. More significant than this stupendous growth has been the regulatory changes that the capital market watchdog, Securities and Exchange Board of India, introduced in the past two years. Outgoing Sebi Chairman M.Damodaran’s two year stint as chairman of Unit Trust of 15

India helped him reform the industry by making it much more transparent than before. In the process, mutual funds have become a tad cheaper. Until 2007, for instance, initial issue expenses on close-ended funds, which could be as high as 6 per cent of the amount raised, could be amortized over the tenure of the fund. This basically meant that even if an investor put in Rs 1 lakh, effectively only Rs 94,000 got invested by the fund. The initial expenses of the fund include commissions paid to distributors and money spent on billboards for advertising the new offer. In 2006, the regulator had scrapped the amortization benefit for open-ended schemes. Not surprisingly, asset management companies started launching closed-ended funds. Of the 34 new fund offers in 2007, 24 were closed-ended. In January this year, SEBI said all closedended mutual fund schemes too will meet sales and marketing expenses from the entry load. This made it more transport for investors, because funds had to either hike their expense ratio (management fee and operating charges as a percentage of assets under management) or change higher entry load.

More About Mutual funds According to SEBI "Mutual Fund" means a fund established in the form of a trust to raise monies through the sale of units to the public or a section of the public under one or more schemes for investing in securities, including money market instruments;" To the ordinary individual investor lacking expertise and specialized skill in dealing proficiently with the securities market a Mutual Fund is the most suitable investment forum as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a

16

relatively low cost. India has a burgeoning population of middle class now estimated around 300 million. A typical Indian middle class family can pool liquid savings ranging from Rs.2 to Rs.10 Lacs. Investment of this money in Banks keeps the fund liquid and safe, but with the falling rate of interest offered by Banks on Deposits, it is no longer attractive. At best a small part can be parked in bank deposits, but what are the other sources of remunerative investment possibilities open to the common man? Mutual Fund is the ready answer, as direct PMS investment is out of the scope of these individuals. Viewed in this sense India is globally one of the best markets for Mutual Fund Business, so also for Insurance business. This is the reason that foreign companies compete with one another in setting up insurance and mutual fund business shops in India. The sheer magnitude of the population of educated white-collar employees with raising incomes and a well-organized stock market at par with global standards, provide unlimited scope for development of financial services based on PMS like mutual fund and insurance. The alternative to mutual fund is direct investment by the investor in equities and bonds or corporate deposits. All investments whether in shares, debentures or deposits involve risk: share value may go down depending upon the performance of the company, the industry, state of capital markets and the economy. Generally, however, longer the term, lesser is the risk. Companies may default in payment of interest/ principal on their debentures/bonds/deposits; the rate of interest on an investment may fall short of the rate of inflation reducing the purchasing

power.

While

risk

cannot

be

eliminated,

skillful

management can minimise risk. Mutual Funds help to reduce risk through diversification and professional management. The experience and expertise of Mutual Fund managers in selecting fundamentally sound securities and timing their purchases and sales help them to build a diversified portfolio that minimises risk and maximises returns. 17

ORGANISATION OF A MUTUAL FUND: There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund:

The Advantages of Investing in a Mutual Fund The advantages of investing in a Mutual Fund extending PMS to the small investors are as under:

•

Professional Management- The investor avails of the services of experienced and skilled professionals who are backed by a dedicated

investment

research

team,

which

analyses

the

performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. •

Diversification- Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This

18

diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own. •

Convenient Administration - Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and unnecessary follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient.

•

Return Potential Over a medium to long-term - Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.

•

Low Costs - Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.

•

Liquidity- In open-ended schemes, you can get your money back promptly at net asset value related prices from the Mutual Fund itself. With close-ended schemes, you can sell your units on a stock exchange at the prevailing market price or avail of the facility of direct repurchase at NAV related prices which some close-ended and interval schemes offer you periodically.

•

Transparency- You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook.

•

Flexibility- Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.

19

•

Choice of Schemes- Mutual Funds offers a family of schemes to suit your varying needs over a lifetime.

•

Well Regulated- All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI.

Other Special Features of MFs in terms of Portfolio Functions These are special safeguards for the investor prescribed by SEBI. •

Portfolio Investment operations are entrusted to a professional company, i.e. The Asset Management Company. (AMC). Thus while MFs offer PMS functions on behalf of its unit holders, the actual PMS services are rendered by the AMCs.

•

Physical custody of the securities is not with the AMC but with a custodian, an independent organisation, appointed for the purpose. For instance, the Stock Holding Corporation of India Ltd. (SCHIL) is the custodian for most fund houses in the country.

Disadvantages: 1. No Control over Costs 2. No Tailor-made Portfolios 3. Managing a Portfolio of Funds

20

Types of mutual fund schemes The expertise and professional skill developed by different Mutual Funds in Portfolio Management can be better expressed by listing the different financial products they have developed to be offered to the investors:

1. Schemes according to Maturity Period: A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period. o

An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period

o

Close-ended Fund/Scheme: A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through

21

periodic repurchase at NAV related prices. These mutual funds schemes disclose NAV generally on weekly basis 2.

Schemes according to Investment Objective: A scheme can also be classified as growth scheme, income scheme,

or

balanced

scheme

considering

its

investment

objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows: o

Growth / Equity Oriented Scheme: The aim of growth funds is to provide capital appreciation over the medium to longterm. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

o

Income / Debt Oriented Scheme: The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the

22

short run and vice versa. However, long term investors may not bother about these fluctuations. o

Balanced Fund: The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They

generally

invest

40-60%

in

equity

and

debt

instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds. 3.

Money Market or Liquid Fund: These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.

4.

Gilt Fund: These

funds

invest

exclusively

in

government

securities.

Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes. 5.

Index Funds: Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc. These 23

schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges. 6.

Sector specific funds/schemes: These are the funds/schemes, which invest in the securities of only those sectors, or industries as specified in the offer documents.

e.g.

Pharmaceuticals,

Software,

Fast

Moving

Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need

to

keep

a

watch

on

the

performance

of

those

sectors/industries and must exit at an appropriate time. They may also seek advice of an expert. 7.

Tax Saving Schemes: These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equityoriented scheme

8.

Load or no-load Fund:

24

A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. However, the investors should also consider the performance track record and service standards of the mutual fund, which are more important. Efficient funds may give higher returns in spite of loads. 9.

No-load fund: is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units.

10.Monthly Income Plan: •

To generate regular income through investments in debt and money market instruments and also to generate longterm capital appreciation by investing a portion in equity related instruments.

•

Fund Objective :-Investors seeking regular income through investments in fixed income securities so as to get monthly/quarterly/half

yearly

dividend. The

secondary

objective of the scheme is to generate long term capital appreciation by investing a portion of scheme’s assets in equity and equity related instruments. Suitable for investor with medium risk profile and seeking regular income. 11. FMP’s ( Fixed Maturity Plans ):

These are close-ended income

schemes with a fixed maturity date. The period could range from fifteen days to as long as two years or more. When the period comes to an end, the scheme matures and money is paid back. Like an income scheme, FMPs invest in fixed income instruments i.e. bonds, government securities, money market instruments 25

etc. The tenure of these instruments depends on the tenure of the scheme. •

FMPs effectively eliminate interest rate risk. This is done by employing a specific investment strategy. FMPs invest in instruments that mature at the same time their schemes come to an end. So a 90-day FMP will invest in instruments that mature within 90 days.

•

For all practical purposes, an FMP is an income scheme of a mutual fund. Hence, the tax incidence would be similar to that on traditional income schemes. The dividend from an FMP will be tax free in the hands of an individual investor. However, it would be subject to the dividend distribution tax.

•

Redemptions from investments held for less than a year will be short-term gains and added to the investor's income to be taxed at slab rates applicable. If such an investment were held for more than a year, the long-term gains would get taxed at 20 per cent with indexation or at 10 per cent without. These rates are subject to the surcharge and education cess as normally applicable. One can avail the benefit of double indexation and save tax on FMPs held for more than one year.

PERFORMANCE

MEASURES

OF

MUTUAL

FUNDS Mutual Fund industry today, with about 34 players and more than five hundred schemes, is one of the most preferred investment avenues in India. However, with a plethora of schemes to choose from, the retail investor faces problems in selecting funds. Factors such as investment

26

strategy and management style are qualitative, but the funds record is an important indicator too. Though past performance alone cannot be indicative of future performance, it is, frankly, the only quantitative way to judge how good a fund is at present. Therefore, there is a need to correctly assess the past performance of different mutual funds. Worldwide, good mutual fund companies over are known by their AMCs and this fame is directly linked to their superior stock selection skills. For mutual funds to grow, AMCs must be held accountable for their selection of stocks. In other words, there must be some performance indicator that will reveal the quality of stock selection of various AMCs. Return alone should not be considered as the basis of measurement of the performance of a mutual fund scheme, it should also include the risk taken by the fund manager because different funds will have different levels of risk attached to them. Risk associated with a fund, in a general, can be defined as variability or fluctuations in the returns generated by it. The higher the fluctuations in the returns of a fund during a given period, higher will be the risk associated with it. These fluctuations in the returns generated by a fund are resultant of two guiding forces. First, general market fluctuations, which affect all the securities present in the market, called market risk or systematic risk and second, fluctuations due to specific securities present in the portfolio of the fund, called unsystematic risk. The Total Risk of a given fund is sum of these two and is measured in terms of standard deviation of returns of the fund. Systematic risk, on the other hand, is measured in terms of Beta, which represents fluctuations in the NAV of the fund vis-à-vis market. The more responsive the NAV of a mutual fund is to the changes in the market; higher will be its beta. Beta is calculated by relating the returns on a mutual fund with the returns in the market. While unsystematic risk can be diversified through investments in a number of instruments, systematic risk can not. By 27

using the risk return relationship, we try to assess the competitive strength of the mutual funds vis-à-vis one another in a better way. In order to determine the risk-adjusted returns of investment portfolios, several eminent authors have worked since 1960s to develop composite performance indices to evaluate a portfolio by comparing alternative portfolios within a particular risk class. The most important and widely used measures of performance are: Ø The Treynor Measure Ø The Sharpe Measure Ø Jenson Model Ø Fama Model The Treynor Measure Developed by Jack Treynor, this performance measure evaluates funds on the basis of Treynor's Index. This Index is a ratio of return generated by the fund over and above risk free rate of return (generally taken to be the return on securities backed by the government, as there is no credit risk associated), during a given period and systematic risk associated with it (beta). Symbolically, it can be represented as: Treynor's Index (Ti) = (Ri - Rf)/Bi. Where, Ri represents return on fund, Rf is risk free rate of return and Bi is beta of the fund. All risk-averse investors would like to maximize this value. While a high and positive Treynor's Index shows a superior risk-adjusted performance of a fund, a low and negative Treynor's Index is an indication of unfavorable performance. The Sharpe Measure In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is a ratio of returns generated by the fund over 28

and above risk free rate of return and the total risk associated with it. According to Sharpe, it is the total risk of the fund that the investors are concerned about. So, the model evaluates funds on the basis of reward per unit of total risk. Symbolically, it can be written as: Sharpe Index (Si) = (Ri - Rf)/Si Where, Si is standard deviation of the fund. While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund, a low and negative Sharpe Ratio is an indication of unfavorable performance. Comparison of Sharpe and Treynor Sharpe and Treynor measures are similar in a way, since they both divide the risk premium by a numerical risk measure. The total risk is appropriate when we are evaluating the risk return relationship for well-diversified portfolios. On the other hand, the systematic risk is the relevant measure of risk when we are evaluating less than fully diversified portfolios or individual stocks. For a well-diversified portfolio the total risk is equal to systematic risk. Rankings based on total risk (Sharpe measure) and systematic risk (Treynor measure) should be identical for a well-diversified portfolio, as the total risk is reduced to systematic risk. Therefore, a poorly diversified fund that ranks higher on Treynor measure, compared with another fund that is highly diversified, will rank lower on Sharpe Measure. Jenson Model Jenson's model proposes another risk adjusted performance measure. This measure was developed by Michael Jenson and is sometimes referred to as the Differential Return Method. This measure involves evaluation of the returns that the fund has generated vs. the returns actually expected out of the fund given the level of its systematic risk. The surplus between the two returns is called Alpha, which measures the performance of a fund compared with the actual returns over the

29

period. Required return of a fund at a given level of risk (Bi) can be calculated as: Ri = Rf + Bi (Rm - Rf) Where, Rm is average market return during the given period. After calculating it, alpha can be obtained by subtracting required return from the actual return of the fund. Higher alpha represents superior performance of the fund and vice versa. Limitation of this model is that it considers only systematic risk not the entire risk associated with the fund and an ordinary investor cannot mitigate unsystematic risk, as his knowledge of market is primitive. Fama Model The Eugene Fama model is an extension of Jenson model. This model compares the performance, measured in terms of returns, of a fund with the required return commensurate with the total risk associated with it. The difference between these two is taken as a measure of the performance of the fund and is called net selectivity. The net selectivity represents the stock selection skill of the fund manager, as it is the excess return over and above the return required to compensate for the total risk taken by the fund manager. Higher value of which indicates that fund manager has earned returns well above the return commensurate with the level of risk taken by him. Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf) Where, Sm is standard deviation of market returns. The net selectivity is then calculated by subtracting this required return from the actual return of the fund. Among the above performance measures, two models namely, Treynor measure and Jenson model use systematic risk based on the premise that the unsystematic risk is diversifiable. These models are suitable for large investors like institutional investors with high risk taking 30

capacities as they do not face paucity of funds and can invest in a number of options to dilute some risks. For them, a portfolio can be spread across a number of stocks and sectors. However, Sharpe measure and Fama model that consider the entire risk associated with fund are suitable for small investors, as the ordinary investor lacks the necessary skill and resources to diversified. Moreover, the selection of the fund on the basis of superior stock selection ability of the fund manager will also help in safeguarding the money invested to a great extent. The investment in funds that have generated big returns at higher levels of risks leaves the money all the more prone to risks of all kinds that may exceed the individual investors' risk appetite.

RISK FACTOR All investments involve some form of risk. Even an insured bank account is subject to the possibility that inflation will rise faster than your earnings, leaving you with less real purchasing power than when you started (Rs. 1000 gets you less than it got your father when he was your age). The discussion on investment objectives would not be complete without a discussion on the risks that investing in a mutual fund entails. At the cornerstone of investing is the basic principle that the greater the risk you take, the greater the potential reward. Remember that the value of all financial investments will fluctuate. Typically, risk is defined as short-term price variability. But on a long-term basis, risk is the possibility that your accumulated real capital will be insufficient to meet your financial goals. And if you want to reach your financial goals, you must start with an honest appraisal of your own personal comfort zone with regard to risk. Individual tolerance for risk varies, creating a distinct "investment personality" for each investor. Some investors can accept short-term volatility with ease, others with near

31

panic. So whether you consider your investment temperament to be conservative, moderate or aggressive, you need to focus on how comfortable or uncomfortable you will be as the value of your investment moves up or down. Managing risks Mutual funds offer incredible flexibility in managing investment risk. Diversification and Systematic Investing Plan (SIP) are two key techniques you can use to reduce your investment risk considerably and reach your long-term financial goals. Diversification When you invest in one mutual fund, you instantly spread your risk over a number of different companies. You can also diversify over several different kinds of securities by investing in different mutual funds, further reducing your potential risk. Diversification is a basic risk management tool that you will want to use throughout your lifetime as you rebalance your portfolio to meet your changing needs and goals. Investors, who are willing to maintain a mix of equity shares, bonds and money market securities have a greater chance of earning significantly higher returns over time than those who invest in only the most conservative investments. Additionally, a diversified approach to investing -- combining the growth potential of equities with the higher income of bonds and the stability of money markets -- helps moderate your risk and enhance your potential return.

Types of risks: Consider these common types of risk and evaluate them against potential rewards when you select an investment.

32

Market Risk At times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences. When this happens, the stock prices of both, an outstanding, highly profitable company and a fledgling corporation may be affected. This change in price is due to "market risk.” Inflation Risk Sometimes referred to as "loss of purchasing power." Whenever inflation sprints forward faster than the earnings on your investment, you run the risk that you'll actually be able to buy less, not more. Inflation risk also occurs when prices rise faster than your returns. Credit Risk In short, how stable is the company or entity to which you lend your money when you invest? How certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment matures? Interest Rate Risk Changing interest rates affect both equities and bonds in many ways. Investors are reminded that "predicting" which way rates will go is rarely successful. A diversified portfolio can help in offsetting these changes. Effect of loss of key professionals and inability to adapt business to the rapid technological change An industries' key asset is often the personnel who run the business i.e. intellectual properties of the key employees of the respective companies. Given the ever-changing complexion of few industries and the high obsolescence levels, availability of qualified, trained and motivated personnel is very critical for the success of industries in few 33

sectors. It is, therefore, necessary to attract key personnel and also to retain them to meet the changing environment and challenges the sector offers. Failure or inability to attract/retain such qualified key personnel may impact the prospects of the companies in the particular sector in which the fund invests. Exchange Risks A number of companies generate revenues in foreign currencies and may have investments or expenses also denominated in foreign currencies. Changes in exchange rates may, therefore, have a positive or negative impact on companies which in turn would have an effect on the investment of the fund. Investment Risks The sectoral fund schemes, investments will be predominantly in equities of select companies in the particular sectors. Accordingly, the NAV of the schemes are linked to the equity performance of such companies and may be more volatile than a more diversified portfolio of equities. Changes in the Government Policy Changes in Government policy especially in regard to the tax benefits may impact the business prospects of the companies leading to an impact on the investments made by the fund. Measuring Risks:

34

Risk Measure Implication High average More sensitive maturity

and interest rate changes

modified duration Low average Less maturity

Impact On Investor to Higher volatility in

sensitive

returns

to Lower

and interest rate changes

volatility

in

returns

modified duration Greater allocation Low risk default

Lower yield with lower

to high credit rated

risk

instruments Greater allocation Higher risk of default

Higher yield but with

to

greater risk

low

rated

instruments

Wealth Management Wealth Management is a type of financial planning that provides high net worth individuals and families with private banking, estate planning, legal resources, and investment management, with the goal of sustaining and growing long-term wealth. Whereas financial planning can be helpful for individuals who have accumulated wealth or are just starting to accumulate wealth, you must already have 35

accumulated

a

significant

amount

of

wealth

for

the

wealth

management process to be effective. Services typically include: •

Portfolio Management and Portfolio Rebalancing

•

Investment Management and Strategies

•

Trust and Estate Management

•

Private Banking and Financing

•

Tax Advice

•

Family Office Structures

Portfolio Management PORTFOLIO: A Portfolio is a diversified professionally managed basket of securities. A healthy investment portfolio has the following features: •

The right mix of assets and liabilities

•

Regular monitoring

•

Rebalancing portfolio when the asset mix gets skewed

•

Optimum returns in a reasonable time period

As per definition of SEBI Portfolio means "a collection of securities owned by an investor”. It represents the total holdings of securities belonging to any person". Obviously Portfolio Management refers to the management or administration of a portfolio of securities to protect and enhance the value of the underlying investment. SEBI has directed that portfolio management as a service by a financial intermediary is to be carried out only by corporate entities. Portfolio management by a corporate body can be either for management of its own pool of securities created out funds collected from diverse sources or it can be offered as a financial service to other investors, who choose to avail the expertise and skill of this company to carry out portfolio investment/management on their behalf. Insurance companies, mutual 36

funds, pension and provident funds etc. carry out operations of portfolio management for investing their own funds in remunerative channels. These companies are also referred as investment companies or institutional investors. In fact they are portfolio managers in respect of the back-end of their business activities. After initially pooling these funds from smaller investors, they choose to invest them in a portfolio of securities intended as a lucrative deployment option.

Portfolio Management The goal of Portfolio Management is to assemble various securities and other assets into portfolios that address investor needs and then to manage these portfolios so as to achieve investment objectives. The investor’s needs are defined in terms of risk, and the portfolio manager maximizes return for investment risk undertaken. Portfolio Management consists of three major activities: 1) Asset Allocation, 2) Shifts in weighting across major assets classes, and 3) Security selection within asset classes. Asset allocation can best be characterized as the blending together of major asset classes to obtain the highest long-run return at the lowest risk. Managers can make opportunistic shifts in asset class weightings in order to improve return prospects over the longest-term objective. RISK RETURN TRADE OFF In selecting asset classes for portfolio allocation, investors need to consider both the return potential and the riskiness of the asset class. It is clear from empirical estimates that there is a high correlation between risk and return measured over longer periods of time. Furthermore capital market theory, posits that there should be a systematic relationship between risk and return. This theory indicates that securities are priced in the market so that high risk can be rewarded with high return, and conversely, low risk should be accompanied by correspondingly lower

return.

37

Expected Return

International Equities Venture Capital

Capital Market Line

Corporate Bonds

Real Estate

Domestic Equities

Government Bonds

Rf

Slope indicates the required Return per unit of risk

Treasury Bills

Low Risk

Moderate Risk

Average risk

Above Average Risk

High Risk

Risk Relationship between Risk and Return

In the above figure a capital market line showing an expected relationship between risk and return for representative asset classes arrayed over a range of risk. Note that the line is upward-sloping, indicating that higher risk should be accompanied by higher return. Conversely, the capital market relationship can be considered as showing that higher return can be generated only at the “expense” of higher risk. When measured over longer periods of time, the realized return and risk of the asset classes conform to this sort of relationship. Note that treasury bills are positioned at the low end of the risk range, consistent with these securities’ generally being considered as representative of risk-free investing, at least for short holding periods. Correspondingly, the return offered by T-bills is usually considered as a basic risk-return. On the other hand, equities as a class show the highest risk and return, with venture capital at the very highest position on the line, as would be expected. International equities, in turn, are shown as higher risk than domestic equities. Bonds and real estate are at an intermediate position on the capital market line, with

38

real estate showing higher risk relative to both corporate and government bonds. Types of portfolio based on Risk and Return Whenever the money is invested a risk of not getting the money back is borne by the investor. An investor wants a compensation for bearing such a risk also known as returns. In theory “the higher is the risk the greater are the returns” and vice versa. The chart below can explain the different types of securities and their associated risk.

Located towards the right of the diagram are investments that offer investors a higher potential for above-average returns, but this potential comes with a higher risk. Towards the left are much safer investments, but these investments having a lower potential for high returns. Conservative Portfolio This model is ideal for those who wish to take least amount of risk and want a steady income over a period of time from his investments. Conservative portfolio is designed by investing greater proportion in the lower risk securities. Such a portfolio always tends to generate income for the investor. Such a model aims at protecting the principal value of the portfolio. Hence the investment is generally done in fixed income and money market securities. Very less amount of the capital is

39

invested in the equities. The model is often known as the ‘capital preservation portfolio’.

Moderately Conservative Portfolio A moderately conservative portfolio is ideal for those who want a fixed and steady income as well as capital appreciation. This model not only offers a fixed income but also grows the money of the investor. Although maximum amount of allocation is done in lower risk securities, investment is also made in equities to some extent so that the capital grow Source: Investopedia.com

Source: Investopedia.com

40

Moderately Aggressive Portfolio A moderately aggressive portfolio is ideal for those who want a balance of growth and income. The asset composition is divided among equity and fixed income securities. Maximum amount of investment is made in the equities. Assets allocated to the fixed income securities is also no less. Such a model is often referred to as “balance portfolio”

Source: Investopedia.com

Aggressive portfolios mainly consist of equities. So the value tends to fluctuate. Such a portfolio provides long term appreciation to the capital. But to have some liquidity fixed income securities are also added to the portfolio. It is always better to invest in such a portfolio for a longer period of time so that the money gets sufficient time to grow. Such a portfolio is risky.

41

Source: Investopedia.com

42

Very Aggressive Portfolio A very aggressive portfolio is one which consist mostly of equities. The portfolio is suitable for those who have risk taking ability. Since the investment is done in equities hence it provides a growth to the capital. The portfolio is designed for those who can invest for a longer time period.

Source: Investopedia.com

Investment Risk Pyramid Once the risk acceptable in the portfolio has been decided by acknowledging the time horizon and bankroll one can use the risk pyramid approach for balancing the assets.

43

Source: Investopedia.com

This pyramid can be thought of as an asset allocation tool that investors can use to diversify their portfolio investments according to the risk profile of each security. The pyramid, representing the investor's portfolio, has three distinct tiers: •

Base of the pyramid: this area is comprised of investments that are low in risk and have good returns.

•

Middle portion: this area is made of medium risk investments that not only offers stable returns but also allows capital appreciation.

•

Summit (top): the summit is for high risk investments. This is the area of the pyramid and should be made up of money one can afford to lose.

Portfolio Management Process of Portfolio Management Following is the process of portfolio management: 1. Understanding the present market conditions 2. Framing of an Investment Policy This involves mainly the following two parts: 44

a. Investment Objectives of an investor b. Investment Constraints of an investor 3. Portfolio Policies and Strategies 4. Asset Allocation Process 5. Security Selection 6. Portfolio Construction 7. Portfolio Implementation and Execution 8. Portfolio Analysis 9. Portfolio Rebalancing and Revision After you've built your portfolio of mutual funds, you need to know how to maintain it. Four common strategies can be followed for the same: o The "Wing-It" Strategy This is the most common mutual-fund strategy. Basically, if your portfolio does not have a plan or a structure, then it is likely that you are employing a wing-it strategy. If you are adding money to your portfolio today, how do you decide what to invest in? Are you one that searches for a new investment because you do not like the ones you already have? A little of this and a little of that? If you already have a plan or structure, then adding money to the portfolio should be really easy. Most experts would agree that this strategy will have the least success because there is little to no consistency. o Market-Timing Strategy The market timing strategy implies the ability to get into and out of sectors or assets or markets at the right time. The ability to market time means that you will forever buy low and sell high. Unfortunately few investors buy low and sell high because investor behavior is usually driven by emotions instead of logic. The reality is most investors tend to do exactly the opposite – buy high and sell low. This

45

leads many to believe that market timing does not work in practice. No one can accurately predict the future with any consistency. o Buy-and-Hold

Strategy

This is by far the most commonly preached investment strategy. The reason for this is that statistical probabilities are on your side. Markets generally go up 75% of the time and down 25% of the time. If you employ a buy-and-hold strategy and weather through the ups and downs of the market, you will make money 75% of the time. If you are to be more successful with other strategies to manage your portfolio, you must be right more than 75% of the time to be ahead. The other issue that makes this strategy most popular is it is easy to employ. This does not make it better or worse. It is just easy to buy and hold. o Performance-Weighting Strategy This is somewhat of a middle ground between market timing and buy and hold. With this strategy, you will revisit your portfolio mix from time to time and make some adjustments. Let's walk through an oversimplified example using real performance figures. Let's say that at the end of 2007, you started with an equity portfolio of four mutual funds and split the portfolio into equal weightings of 25% each.

Fund

Allocation(Rs)

Allocation (%)

Fund A

25000

25

Fund B

25000

25

Fund C

25000

25

Fund D

25000

25

100000

100 46

After the first year of investing, the portfolio is no longer an equal 25% weighting because some funds performed better than others. •

Fund

•

1-yr return

•

End balance(Rs)

•

Allocation (%)

•

Fund A

•

13.60%

•

28000

•

26.28

•

Fund B

•

6.80%

•

26700

•

24.71

•

Fund C

•

8.50%

•

27125

•

25.10

•

Fund D

•

3.40%

•

25850

•

23.92

•

108075

•

100

•

•

The reality is that after the first year, most investors are inclined to dump the loser (Fund D) for more of the winner (Fund A). However, the right strategy is to do the opposite to practice sell high, buy low. Performance weighting simply means that you sell some of the funds that did the best to buy some of the funds that did the worst. Your heart will go against this logic but it is the right thing to do because the one constant in investing is that everything goes in cycles. In year four, Fund A has become the loser and Fund D has become the winner. •

Fund

•

1-yr return

•

Fund A

•

-16.00%

•

Fund B

•

22.30%

•

Fund C

•

9.60%

•

Fund D

•

15.20%

47

Performance weighting this portfolio year after year means that you would have taken the profit when Fund A was doing well to buy Fund D when it was down. In fact, if you had re-balanced this portfolio at the end of every year for five years, you would be further ahead as a result of performance weighting. The key to portfolio management is to have a discipline that you adhere to. The most successful money managers in the world are successful because they have a discipline to manage money and they have a plan. Warren Buffet said it best: "To invest successfully over a lifetime does not require a stratospheric I.Q., unusual business insight or inside information. What is needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework."

What drives portfolio performance? According to Mahindra Finance team of wealth management, the most important step in wealth management is asset allocation. But the least time is spent on this investment decision. This step affects almost 92% of the returns expected from any portfolio.

48

49

Complex Copounds The crisil complexity classification denotes how easy it is for an investor to understand the risks associated with different products.

PRODUCT Debt

SIMPLE

Funds

funds,Fixed Maturity

Gilt,

COMPLEX

Liquid,

Plans, Funds,

HIGHLY COMPLEX

Debt Interval

Monthly

Income Funds

Mutual

Capital

Funds-

funds-static

Structure

arbitrage funds

protected Capital

protected

hedge, funds- Leveraged, constant,proportion portfolio

d

insurance,dynamic

Mutual

Plain

Funds-

based

portfolio insurance equity,sector Derivative funds,fund Art funds of

Eqity and balanced,gold,etf’s,in funds,international,sp Others Equity

dex linked funds

Shares Equity

equity shares

ecial situation funds

Exchange-traded Buying

index/stock Selling

options

Derivativ

index/stock

options(short (long positions)

es

options),index/stock futures(buying

and

selling) Commodity futures

Commodit y Derivativ es Others

PPF,NSC/Kisan Vikas

Unit-linked

Patra,Recuring plans

insurance Real

estate

investment trusts

deposit Source: CRISIL 50

Dummy portfolio Here I have taken two portfolios- 1) only scripts

2) scripts and

mutual funds This dummy portfolio will enable us to understand how the portfolio is managed through mutual funds. In the first portfolio I have taken a total amount of approx Rs 100000 invested in 5 securities covering 5 different sectors so as to taste the flavor of diversification. The portfolio has taken the exposure of 100% equity with a blend of growth and large as its style. The companies taken into the portfolio contains topost companies in its sector like ITC, Bharti Airtel, ONGC,Parsvnath and ICICI bank. The time duration of 1 year has been taken so as to taste the long term results. But the overall results as of 1st juiy, 2008 stands negative. The portfolio gives a loss of Rs 1643.70.The detailed analysis of the portfolio can be well understood with the tables mentioned below.

51

52

The second portfolio contains a blend of securities and mutual funds so as to manage the portfolio in an efficient manner. Here to get a feel of diversification I have taken 5 scripts which are common as in the first portfolio but this time with a little changes in the amount. This time I have taken a total amount of Rs 100000 with Rs 50000 in scripts and Rs 50000 in mutual funds which are again not concentrated. In the mutual funds I have taken gold ETFs , balanced fund, index fund and opportunities fund. The reason being as the portfolio has already taken the exposure of 100% equity in the scripts. Therefore to bang upon the diversification I have taken different mutual fund schemes. The result has been astonishing with approx 1 year as the time duration and a net profit on the whole portfolio standing at Rs 14513. The analysis can be observed with the charts provided below. This portfolio explores the experience of portfolio

53

diversification with an asset allocation in equity and a little in debts and others. It also gets an exposure of mid cap and small cap.

54

Finally to summarise and come to a conclusion we can for sure observe and deduce that portfilo can really be managed through mutual funds. A number of permutation and combination can be applied to design a model portfolio containing mutual funds. I have just arrived at one portfolio which if present has really done wonders.

55

Different AMC’s in India The Mutual Fund Industry in India has grown steadily over the last couple of years and is today managing assets in excess of Rs 5,50,000 crore meeting different investment needs of millions of retail and institutional clients across debt, equity and hybrid asset class.

56

Incorpo Owners Foreig Domest As on 31st march rated 2008 ABN

hip

n-

ic -

Sponsor

On AMRO

Mutual Fund

ABN 27/5/20 04

AMRO

Asset

Management Private

75%,

25%

(Asia)

Ltd.

Benchmark Mutual Fund

Niche _

Private

23/12/1

Foreign

994

JV

50%,

50%

Global Finance Ltd

992 Canbank Mutual 15/12/1

Public

0%,

100%

Bank of Baroda

Fund DBS

Public

0%, 100% 37.48

Birla

100%

Mutual

Fund BOB

0%,

Financial

Investments Inc., Birla

Mutual

Fund

30/10/1

987 Chola 3/1/199

Mutual Fund

7

Private

%,

Deutsche Mutual 28/10/2 Fund

002

62.52%

100% Private

,

0%

DSP

Merrill

Lynch

Mutual 16/12/1

Foreign

Fund Escorts

996 Mutual 15/4/19

JV

40%,

Fund Fidelity

96 Mutual 17/2/20

Private

0%, 100% 100%

Fund Franklin HDFC

96 Mutual 30/6/20 00

2

DBS

Finance Ltd. Deutsche

Asset

Management

(Asia)

Limited DSP Merrill Lynch Ltd, Investment

Pvt.

Ltd., ADIKO Investment 60%

Pvt. Ltd. Escorts Finance Ltd Fidelity Internal

Private , Foreign

0%

Investment Advisors Franklin Resources,

JV

75%,

25%

Inc.

Private

0%,

100%

HDF Corporation Ltd HSBC Securities and

Mutual 7/2/200

Fund

Canara Bank Cholamandalam

HMK

05 19/2/19

Fund HSBC

Services Private Ltd Sun Life (India) AMC

Capital Markets (India) Private

--

100%

Private Limited National Nederlanden Interfinance

B.V

(ING

Group),ING Vysya Bank ING Mutual Fund

11/2/19

Foreign

99

JV

57

85.68 %,

Ltd., Kirti Equities Pvt. 14.32%

Ltd.(Mehta

Fund House

Top 5 Fund Houses No. of top Total rated

Reliance

rated funds 10

funds 17

Mutual Fund ICICI

21

38

Mutual Fund Tata Mutual

14

30

Fund Birla Sunlife

18

39

Mutual Fund HSBC Mutual

6

13

Prudential

fund Source: Value Research

58

Fund Analysis Parameters

59

Top Quartile (Amongtop 25%in the category) Second quartile (Amongtop 50-75%in the category) Third Quartile (Amongbottom 25-50%in the category) BottomQuartile (Amongbottom 25%in the category) The left-most bar in a series represents the fund’s performance in the first quarter of a calendar year. Similarly, subsequent bars represent thefund’s performance in thesecond, third and last quarter of the calendar year. All data as on March 31, 2008. Returns up to 1 year areabsoluteand above1 year areannualized.

Valuation Growth Blend value

l m S id M e rg a L

00 00 00

n o itlz p a C

00 00 00 00 00 00 A nine-box matrix that displays both the fund’s investment approach and size of the companies in which it invests. Vertically, the three squares indicate size orientation of fund – from the bottom, small-cap, mid-cap and large cap. Horizontally, the three squares indicate, from left to right, three stages on the value-to-growth spectrum. Figures in the boxed represent percentage of investments in the respective matrix.

60

REFERENCES:

61

I.

http://en.wikipedia.org/wiki/Mutual_fund

II.

http://finance.indiamart.com/markets/mutual_funds/

III.

http://www.moneycontrol.com/mutualfundindia

IV.

http://www.mutualfundsindia.com/icra_m_power_institutional.asp #q3

V.

http://www.amfiindi.com/navhistoryreport.asp

VI.

www.nseindia.com

VII.

www.bseindia.com

VIII.

http://www56.homepage.villanova.edu/david.nawrocki/briefhisto ryofdownsiderisknawrocki.pdf

IX.

www.businessweek.com/investing/insights/blog/archives/2007/10 /new_research_co.html

X.

www.unf.edu/~oschnuse/draft7.pdf

XI.

www.sebigov.in

XII.

www.kotaksecurities.com

XIII.

http://www.moneycontrol.com/indiamutualfunds/mfinfo/14/51/sn apshot/imdesc/UTI%20Leadership%20Equity%20Fund%20(G)/fde c/UTI%20Asset%20Mgmt%20Company%20Pvt.%20Ltd./imid/MUT 096/imffid/UT

XIV.

www.valueresearchonline.com

XV.

www.waytowealth.com

XVI.

www.eurekasecurities.comm

XVII.

www.myrisis.com

XVIII.

www.geojit.com

XIX.

www.capitalmarket.com

XX.

Investors Guide to Mutual Funds- January 2008

XXI.

Business Today(July2,2006 edition)

62

XXII.

Business World( March3, 2008 edition)

XXIII.

Value research

XXIV.

Economic times

XXV.

& Factsheet of Different AMC’s.

63