Thesis On Mutual Fund

Analysis of various Balanced and Liquid Funds

SUMMER TRAINING PROJECT REPORT ON ANALYSIS OF THE VARIOUS BALANCED AND LIQUID FUNDS

SUBMITTED TO: INDIAN INSTITUTE OF FINANCE

SUBMITTED BY:

Analysis of various Balanced and Liquid Funds

PREFACE

Analysis of various Balanced and Liquid Funds

ACKNOWLEDGEMENT

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Analysis of various Balanced and Liquid Funds

CONTENT

CHAPTER-1 INTRODUCTION Introduction of Mutual Fund Mutual Fund Structure

CHAPTER-2 Company profile

About Anand Rathi Strength Fact Sheet Philosophy Products

CHAPTER-3 Introduction of Balanced and Liquid Funds Balanced Funds Liquid Funds

CHAPTER-4 Introduction of SBI Mutual Fund

CHAPTER-5 Analytical Part of the Project

Analysis of various Balanced and Liquid Funds

Sharp Ratio Treynor Ratio Standard Deviation Comparison of various Balanced and Liquid Funds

CHAPTER-6 Survey and Questionnaire

Survey Limitations of Survey Future Of Mutual Fund Industry

CHAPTER-7 Conclusion and Suggestion

Conclusions Suggestions

BIBLIOGRAPHY

Analysis of various Balanced and Liquid Funds

OBJECTIVE

The objective of the project is to do comparative analysis of various balanced & liquid funds of different AMCs. There are variours mutual funds in the market an investor are often confused in which fund to invest, balanced & liquid funds were in vogue in recent time so I have tried to analyze the performance of these funds in order to identify the best among these. To fulfill the objective of my study I have used various statistical & analytical tools like Standard deviation Beta Sharpe ratio Treynor ration

Analysis of various Balanced and Liquid Funds

CHAPTER 1

INTRODUCTION 1.1 Introduction about Mutual Funds 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 invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciations realized by the scheme are shared by its unit holders in proportion to the number of units owned by them (pro rata). 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 portfolio at a relatively low cost. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and strategy. A mutual fund is the ideal investment vehicle for today‘s complex and modern financial scenario. Markets for equity shares, bonds and other fixed income instruments, real estate, derivatives and other assets have become mature and information driven. Price changes in these assets are driven by global events occurring in faraway places. A typical individual is unlikely to have the knowledge, skills, inclination and time to keep track of events, understand their implications and act speedily. An individual also finds it difficult to keep track of ownership of his assets, investments, brokerage dues and bank transactions etc. A mutual fund is the answer to all these situations. It appoints professionally qualified and experienced staff that manages each of these functions on a full time basis. The large pool of money collected in the fund allows it to hire such staff at a very low cost to each investor. In effect, the mutual fund vehicle exploits economies of scale in all three areas research, investments and transaction processing. While the concept of individuals coming together to invest money collectively is not new, the mutual fund in its present form is a 20th century phenomenon. In fact, mutual funds gained popularity only after the Second World War. Globally, there are thousands of firms offering tens of thousands of

Analysis of various Balanced and Liquid Funds

mutual funds with different investment objectives. Today, mutual funds collectively manage almost as much as or more money as compared to banks. A draft offer document is to be prepared at the time of launching the fund. Typically, it pre specifies the investment objectives of the fund, the risk associated, the costs involved in the process and the broad rules for entry into and exit from the fund and other areas of operation. In India, as in most countries, these sponsors need approval from a regulator, SEBI (Securities exchange Board of India) in our case. SEBI looks at track records of the sponsor and its financial strength in granting approval to the fund for commencing operations. A sponsor then hires an asset management company to invest the funds according to the investment objective. It also hires another entity to be the custodian of the assets of the fund and perhaps a third one to handle registry work for the unit holders (subscribers) of the fund. In the Indian context, the sponsors promote the Asset Management Company also, in which it holds a majority stake. In many cases a sponsor can hold a 100% stake in the Asset Management Company (AMC). E.g. Birla Global Finance is the sponsor of the Birla Sun Life Asset Management Company Ltd., which has floated different mutual funds schemes and also acts as an asset manager for the funds collected under the schemes.

Analysis of various Balanced and Liquid Funds

Future Scenario The asset base will continue to grow at an annual rate of about 30 to 35 % over the next few years as investor‘s shift their assets from banks and other traditional avenues. Some of the older public and private sector players will either close shop or be taken over. Out of ten public sector players five will sell out, close down or merge with stronger players in three to four years. In the private sector this trend has already started with two mergers and one takeover. Here too some of them will down their shutters in the near future to come. But this does not mean there is no room for other players. The market will witness a flurry of new players entering the arena. There will be a large number of offers from various asset management companies in the time to come. Some big names like Fidelity, Principal, and Old Mutual etc. are looking at Indian market seriously. One important reason for it is that most major players already have presence here and hence these big names would hardly like to get left behind. The mutual fund industry is awaiting the introduction of derivatives in India as this would enable it to hedge its risk and this in turn would be reflected in it‘s Net Asset Value (NAV). SEBI is working out the norms for enabling the existing mutual fund schemes to trade in derivatives. Importantly, many market players have called on the Regulator to initiate the process immediately, so that the mutual funds can implement the changes that are required to trade in Derivatives.

Market Trends A lone UTI with just one scheme in 1964 now competes with as many as 400 odd products and 34 players in the market. In spite of the stiff competition and losing market share, UTI still remains a formidable force to reckon with. Last six years have been the most turbulent as well as exiting ones for the industry. New players have come in, while others have decided to close shop by either selling off or

Analysis of various Balanced and Liquid Funds

merging with others. Product innovation is now passé with the game shifting to performance delivery in fund management as well as service. Those directly associated with the fund management industry like distributors, registrars and transfer agents, and even the regulators have become more mature and responsible. The industry is also having a profound impact on financial markets. While UTI has always been a dominant player on the bourses as well as the debt markets, the new generations of private funds which have gained substantial mass are now seen flexing their muscles. Fund managers, by their selection criteria for stocks have forced corporate governance on the industry. By rewarding honest and transparent management with higher valuations, a system of risk-reward has been created where the corporate sector is more transparent then before. Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCG and technology sector. Funds performances are improving. Funds collection, which averaged at less than Rs100bn per annum over five-year period spanning 1993-98 doubled to Rs210bn in 1998-99. In the current year mobilization till now have exceeded Rs300bn. Total collection for the current financial year ending March 2000 is expected to reach Rs450bn. What is particularly noteworthy is that bulk of the mobilization has been by the private sector mutual funds rather than public sector mutual funds. Indeed private MFs saw a net inflow of Rs. 7819.34 crore during the first nine months of the year as against a net inflow of Rs.604.40 crore in the case of public sector funds. Mutual funds are now also competing with commercial banks in the race for retail investor‘s savings and corporate float money. The power shift towards mutual funds has become obvious. The coming few years will show that the traditional saving avenues are losing out in the current scenario. Many investors are realizing that investments in savings accounts are as good as locking up their deposits in a closet. The fund mobilization trend by mutual funds in the current year indicates that money is going to mutual funds in a big way. The collection in the first half of the financial year 1999-2000 matches the whole of 1998-99.

Analysis of various Balanced and Liquid Funds

India is at the first stage of a revolution that has already peaked in the U.S. The U.S. boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund assets are not even 10% of the bank deposits, but this trend is beginning to change. Recent figures indicate that in the first quarter of the current fiscal year mutual fund assets went up by 115% whereas bank deposits rose by only 17%. (Source: Think-tank, the Financial Express September, 99) This is forcing a large number of banks to adopt the concept of narrow banking wherein the deposits are kept in Gilts and some other assets which improves liquidity and reduces risk. The basic fact lies that banks cannot be ignored and they will not close down completely. Their role as intermediaries cannot be ignored. It is just that Mutual Funds are going to change the way banks do business in the future.

Analysis of various Balanced and Liquid Funds

What is a Mutual Fund?

A mutual fund is a common pool of money in to which investors with common investment objective place their contributions that are to be invested in accordance with the stated investment objective of the scheme. The investment manager would invest the money collected from the investor in to assets that are defined/ permitted by the stated objective of the scheme. For example, an equity fund would invest equity and equity related instruments and a debt fund would invest in bonds, debentures, gilts etc.

Analysis of various Balanced and Liquid Funds

1.2 Mutual Fund Structure:

The structure consists Sponsor:

Sponsor is the person who acting alone or in combination with another body

corporate establishes a mutual fund. Sponsor must contribute at least 40% of the net worth of the Investment Managed and meet the eligibility criteria prescribed under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.The Sponsor is not responsible or liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial contribution made by it towards setting up of the Mutual Fund.

Trust: The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908

Trustee:

Analysis of various Balanced and Liquid Funds Trustee is usually a company (corporate body) or a Board of Trustees (body of

individuals). The main responsibility of the Trustee is to safeguard the interest of the unit holders and inter alia ensure that the AMC functions in the interest of investors and in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of the Trust Deed and the Offer Documents of the respective Schemes. At least 2/3rd directors of the Trustee are independent directors who are not associated with the Sponsor in any manner.

Asset Management Company (AMC): The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. The AMC is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an asset management company of the Mutual Fund. At least 50% of the directors of the AMC are independent directors who are not associated with the Sponsor in any manner. The AMC must have a net worth of at least 10 crores at all times.

Registrar and Transfer Agent: The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual Fund. The Registrar processes the application form, redemption requests and dispatches account statements to the unit holders. The Registrar and Transfer agent also handles communications with investors and updates investor records.

Analysis of various Balanced and Liquid Funds

1.3 Types of Schemes:

Investment Objective :

Schemes can be classified by way of their stated investment

objective such as Growth Fund, Balanced Fund, Income Fund etc

Equity Oriented Schemes:

These schemes, also commonly called Growth Schemes,

seek to invest a majority of their funds in equities and a small portion in money market instruments. Such schemes have the potential to deliver superior returns over the long term. However, because they invest in equities, these schemes are exposed to fluctuations in value especially in the short term. Equity schemes are hence not suitable for investors seeking regular income or needing to use their investments in the short-term. They are ideal for investors who have a long-term investment horizon. The NAV prices of equity fund fluctuates with market value of the underlying stock

Analysis of various Balanced and Liquid Funds which are influenced by external factors such as social, political as well as economic. HDFC Growth Fund, HDFC Tax Plan 2000 and HDFC Index Fund are examples of equity schemes.

General Purpose:

The investment objectives of general-purpose equity schemes do not

restrict them to invest in specific industries or sectors. They thus have a diversified portfolio of companies across a large spectrum of industries. While they are exposed to equity price risks, diversified general-purpose equity funds seek to reduce the sector or stock specific risks through diversification. They mainly have market risk exposure. HDFC Growth Fund is a general-purpose equity scheme.

Sector Specific: These schemes restrict their investing to one or

more pre-defined sectors,

e.g. technology sector. Since they depend upon the performance of select sectors only, these

Analysis of various Balanced and Liquid Funds schemes are inherently more risky than general-purpose schemes. They are suited for informed investors who wish to take a view and risk on the concerned sector.

Special Schemes: Index Schemes The primary purpose of an Index is to serve as a measure of the performance of the market as a whole, or a specific sector of the market. An Index also serves as a relevant benchmark to evaluate the performance of mutual funds. Some investors are interested in investing in the market in general rather than investing in any specific fund. Such investors are happy to receive the returns posted by the markets. As it is not practical to invest in each and every stock in the market in proportion to its size, these investors are comfortable investing in a fund that they believe is a good representative of the entire market. Index Funds are launched and managed for such investors. An example to such a fund is the HDFC Index Fund.

Tax saving schemes Investors (individuals and Hindu Undivided Families (―HUFs‖)) are being encouraged to invest in equity markets through Equity Linked Savings Scheme (―ELSS‖) by offering them a tax rebate. Units purchased cannot be assigned / transferred/ pledged / redeemed / switched– out until completion of 3 years from the date of allotment of the respective Units.The Scheme is subject to Securities & Exchange Board of India (Mutual Funds) Regulations, 1996 and the notifications issued by the Ministry of Finance (Department of Economic Affairs), Government of India regarding ELSS. Subject to such conditions and limitations, as prescribed under Section 88 of the Income-tax Act, 1961, subscriptions to the Units not exceeding Rs.10, 000 would be eligible to a deduction, from income tax, of an amount equal to 20% of the amount subscribed. HDFC Tax Plan 2000 is such a fund.

Real Estate Funds:

Analysis of various Balanced and Liquid Funds Specialized real estate funds would invest in real estates directly, or may fund real estate developers or lend to them directly or buy shares of housing finance companies or may even buy their securitized assets.

Debt Based Schemes:

These schemes, also commonly called Income Schemes, invest in debt securities such as corporate bonds, debentures and government securities. The prices of these schemes tend to be

Analysis of various Balanced and Liquid Funds more stable compared with equity schemes and most of the returns to the investors are generated through dividends or steady capital appreciation. These schemes are ideal for conservative investors or those not in a position to take higher equity risks, such as retired individuals. However, as compared to the money market schemes they do have a higher price fluctuation risk and compared to a Gilt fund they have a higher credit risk.

Income Schemes These schemes invest in money markets, bonds and debentures of corporate with medium and long-term maturities. These schemes primarily target current income instead of capital appreciation. They therefore distribute a substantial part of their distributable surplus to the investor by way of dividend distribution. Such schemes usually declare quarterly dividends and are suitable for conservative investors who have medium to long term investment horizon and are looking for regular income through dividend or steady capital appreciation. HDFC Income Fund, HDFC Short Term Plan and HDFC Fixed Investment Plans are examples of bond schemes.

Money Market Schemes These schemes invest in short term instruments such as commercial paper (―CP‖), certificates of deposit (―CD‖), treasury bills (―T-Bill‖) and overnight money (―Call‖). The schemes are the least volatile of all the types of schemes because of their investments in money market instrument with short-term maturities. These schemes have become popular with institutional investors and high net worth individuals having short-term surplus funds.

Gilt Funds This scheme primarily invests in Government Debt. Hence the investor usually does not have to worry about credit risk since Government Debt is generally credit risk free. HDFC Gilt Fund is an example of such a scheme.

Hybrid Schemes:

Analysis of various Balanced and Liquid Funds These schemes are commonly known as balanced schemes. These

schemes invest in both equities as well as debt. By investing in a mix of this nature, balanced schemes seek to attain the objective of income and moderate capital appreciation and are ideal for investors with a conservative, long-term orientation. HDFC Balanced Fund and HDFC Children‘s Gift Fund are examples of hybrid schemes.

Constitution:

Schemes can be classified as Closed-ended or Open-ended depending upon

whether they give the investor the option to redeem at any time (open-ended) or whether the investor has to wait till maturity of the scheme.

Open ended Schemes:

The units offered by these schemes are available for sale and

repurchase on any business day at NAV based prices. Hence, the unit capital of the schemes keeps changing each day. Such schemes thus offer very high liquidity to investors and are becoming increasingly popular in India. Please note that an open-ended fund is NOT obliged to keep selling/issuing new units at all times, and may stop issuing further subscription to new investors. On the other hand, an open-ended fund rarely denies to its investor the facility to redeem existing units.

Closed ended Schemes:

The unit capital of a close-ended product is fixed as it makes a

one-time sale of fixed number of units. These schemes are launched with an initial public offer (IPO) with a stated maturity period after which the units are fully redeemed at NAV linked prices. In the interim, investors can buy or sell units on the stock exchanges where they are listed. Unlike open-ended schemes, the unit capital in closed-ended schemes usually remains unchanged. After an initial closed period, the scheme may offer direct repurchase facility to the investors. Closedended schemes are usually more illiquid as compared to open-ended schemes and hence trade at a discount to the NAV. This discount tends towards the NAV closer to the maturity date of the scheme.

Interval Schemes:

Analysis of various Balanced and Liquid Funds These schemes combine the features of open-ended and closed-ended

schemes. They may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV based prices.

Risk:

The Risk-Return Trade-off:

The most important relationship to understand is the

risk-return trade-off. Higher the risk greater the returns/loss and lower the risk lesser the returns/loss. Hence it is up to you, the investor to decide how much risk you are willing to take. In order to do this you must first be aware of the different types of risks involved with your investment decision.

Market Risk:

Sometimes prices and yields of all securities rise and fall. Broad outside

influences affecting the market in general lead to this. This is true, may it be big corporations or smaller mid-sized companies. This is known as Market Risk. A Systematic Investment Plan

Analysis of various Balanced and Liquid Funds (―SIP‖) that works on the concept of Rupee Cost Averaging (―RCA‖) might help mitigate this risk.

Credit Risk:

The debt servicing ability (may it be interest payments or repayment of

principal) of a company through its cash flows determines the Credit Risk faced by you. This credit risk is measured by independent rating agencies like CRISIL who rate companies and their paper. A ‗AAA‘ rating is considered the safest whereas a ‗D‘ rating is considered poor credit quality. A well-diversified portfolio might help mitigate this risk.

Inflation Risk: Things you hear people talk about: ―Rs. 100 today is worth more than Rs. 100 tomorrow.‖ ―Remember the time when a bus ride costed 50 paise?‖ ―Mehangai Ka Jamana Hai.‖ The root cause, Inflation is the loss of purchasing power over time. A lot of times people make conservative investment decisions to protect their capital but end up with a sum of money that can buy less than what the principal could at the time of the investment. This happens when inflation grows faster than the return on your investment. A well-diversified portfolio with some investment in equities might help mitigate this risk.

Interest Rate Risk:

In a free market economy interest rates are difficult if not

impossible to predict. Changes in interest rates affect the prices of bonds as well as equities. If interest rates rise the prices of bonds fall and vice versa. Equity might be negatively affected as well in a rising interest rate environment. A well-diversified portfolio might help mitigate this risk.

Political/Government Policy Risk:

Changes in government policy and political

decision can change the investment environment. They can create a favorable environment for investment or vice versa.

Analysis of various Balanced and Liquid Funds

Liquidity Risk:

Liquidity risk arises when it becomes difficult to sell the securities that

one has purchased. Liquidity Risk can be partly mitigated by diversification, staggering of maturities as well as internal risk controls that lean towards purchase of liquid securities.

Diversification: The nuclear weapon in your arsenal for

your fight against Risk. It simply

means that you must spread your investment across different securities (stocks, bonds, money market instruments, real estate, fixed deposits etc.) and different sectors (auto, textile, information technology etc.). This kind of a diversification may add to the stability of your returns, for example during one period of time equities might underperforms but bonds and money market instruments might do well enough to offset the effect of a slump in the equity markets. Similarly the information technology sector might be faring poorly but the auto and textile sectors might do well and may protect you principal investment as well as help you meet your return objectives.

Risk vs. Reward Before you can begin to build a successful investment portfolio, you should understand the basic elements of mutual fund investing and how they can affect the potential value of your investments over the years.

When you invest in mutual funds, there is no guarantee that you will end up with more money when you withdraw your investment than you put in to begin with -- and that's a scary prospect. Loss of value in your investment is what is considered risk in investing. Even so, the opportunity for investment growth that is possible through investments in mutual funds far exceeds that concern for most investors. Consider why.

Analysis of various Balanced and Liquid Funds At the cornerstone of investing is the basic principal that the greater the risk you take, the greater the potential reward. Or stated another way, you get what you pay for and you get paid a higher return only when you're willing to accept more volatility.

Risk then, refers to the volatility -- the up and down activity in the markets and individual issues that occurs constantly over time. This volatility can be caused by a number of factors -- interest rate changes, inflation or general economic conditions. It is this variability, uncertainty and potential for loss, that causes investors to worry. We all fear the possibility that a stock or bond we invest in will fall substantially. But it is this very volatility in stocks, bonds and their markets that is the exact reason that you can expect to earn a higher long-term return from these investments than you can from CDs and passbook savings accounts.

Different types of mutual funds have different levels of volatility or potential price change, and those with the greater chance of losing value are also the funds that can produce the greater returns for you over time. So risk has two sides: it causes the value of your investments to fluctuate, but it is precisely the reason you can expect to earn higher returns.

You might find it helpful to remember that all financial investments will fluctuate. There are very few perfectly safe havens and those simply don't pay enough to beat inflation over the long run.

Analysis of various Balanced and Liquid Funds

Banks v/s Mutual Funds

BANKS Returns

Low

MUTUAL FUNDS

Better

Administrative exp. High Risk Low

Low Moderate

Investment options Less Network High penetration Liquidity At a cost

More Low but improving Better

Quality of assets Not transparent Transparent Interest calculation Minimum balance between 10th. & 30th. Of every month Everyday Guarantee

Maximum Rs.1 lakh on deposits

1.4 Benefits of Mutual Fund investment

None

Analysis of various Balanced and Liquid Funds

There are numerous benefits of investing in mutual funds and one of the key reasons for its phenomenal success in the developed markets like US and UK is the range of benefits they offer, which are unmatched by most other investment avenues. We have explained the key benefits in this section. The benefits have been broadly split into universal benefits, applicable to all schemes and benefits applicable specifically to open-ended schemes.

Professional Management Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. 1. Professional Investment Management. By pooling the funds of thousands of investors, mutual funds provide full-time, highlevel professional management that few individual investors can afford to obtain independently. Such management is vital to achieving results in today's complex markets. Your fund managers' interests are tied to yours, because their compensation is based not on sales commissions, but on how well the fund performs. These managers have instantaneous access to crucial market information and are able to execute trades on the largest and most cost-effective scale. In short, managing investments is a full-time job for professionals. Diversification Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This 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.

Mutual funds invest in a broad range of securities. This limits investment risk by reducing the effect of a possible decline in the value of any one security. Mutual fund

Analysis of various Balanced and Liquid Funds

shareowners can benefit from diversification techniques usually available only to investors wealthy enough to buy significant positions in a wide variety of securities. ‗The nuclear weapon in your arsenal for fight against Risk‘ It simply means that you must spread your investment across different securities (stocks, bonds, money market instruments, real estate, fixed deposits etc.) and different sectors (auto, textile, information technology etc.). This kind of a diversification may add to the stability of your returns, for example during one period of time equities might underperforms but bonds and money market instruments might do well enough to offset the effect of a slump in the equity markets. Similarly the information technology sector might be faring poorly but the auto and textile sectors might do well and may protect your principal investment as well as help you meet your return objectives.

Convenient Administration Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and 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

Analysis of various Balanced and Liquid Funds

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-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund.

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.

Affordability A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending upon the investment objective of the scheme. An investor can buy in to a portfolio of equities, which would otherwise be extremely expensive. Each unit holder thus gets an exposure to such portfolios with an investment as modest as Rs.500/-. This amount today would get you less than quarter of an Infosys share! Thus it would be affordable for an investor to build a portfolio of investments through a mutual fund rather than investing directly in the stock market.

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

Analysis of various Balanced and Liquid Funds

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. Life Cycle Planning With no-load mutual funds, you can link your investment plans to future individual and family needs -- and make changes as your life cycles change. You can invest in growth funds for future college tuition needs, then move to income funds for retirement, and adjust your investments as your needs change throughout your life. With no-load funds, there are no commissions to pay when you change your investments.

Market Cycle Planning For investors who understand how to actively manage their portfolio, mutual fund investments can be moved as market conditions change. You can place your funds in equities when the market is on the upswing and move into money market funds on the downswing or take any number of steps to ensure that your investments are meeting your needs in changing market climates. A word of caution: since it is impossible to predict what the market will do at any point in time, staying on course with a long-term, diversified investment view is recommended for most investors.

Periodic Withdrawals If you want steady monthly income, many funds allow you to arrange for monthly fixed checks to be sent to you, first by distributing some or all of the income and then, if necessary, by dipping into your principal.

Analysis of various Balanced and Liquid Funds

Dividend Options You can receive all dividend payments in cash. Or you can have them reinvested in the fund free of charge, in which case the dividends are automatically compounded. This can make a significant contribution to your long-term investment results. With some funds you can elect to have your dividends from income paid in cash and your capital gains distributions reinvested. Automatic Direct Deposit You can usually arrange to have regular, third-party payments -- such as Social Security or pension checks -- deposited directly into your fund account. This puts your money to work immediately, without waiting to clear your checking account, and it saves you from worrying about checks being lost in the mail.

Recordkeeping Service With your own portfolio of stocks and bonds, you would have to do your own recordkeeping of purchases, sales, dividends, interest, short-term and long-term gains and losses. Mutual funds provide confirmation of your transactions and necessary tax forms to help you keep track of your investments and tax reporting.

Safekeeping When you own shares in a mutual fund, you own securities in many companies without having to worry about keeping stock certificates in safe deposit boxes or sending them by registered mail. You don't even have to worry about handling the mutual fund stock certificates; the fund maintains your account on its books and sends you periodic statements keeping track of all your transactions.

Analysis of various Balanced and Liquid Funds

Retirement and College Plans Mutual funds are well suited to Individual Retirement Accounts and most funds offer IRA-approved prototype and master plans for individual retirement accounts (IRAs) and Keogh, 403(b), SEP-IRA and 401(k) retirement plans. Funds also make it easy to invest - for college, children or other long-term goals. Many offer special investment products or programs tailored specifically for investments for children and college.

Online Services The internet provides a fast, convenient way for investors to access financial information. A host of services are available to the online investor including direct access to no-load companies. Visit Company Links to access these Companies. Sweep Accounts With many funds, if you choose not to reinvest your stock or bond fund dividends, you can arrange to have them swept into your money market fund automatically. You get all the advantages of both accounts with no extra effort.

Asset Management Accounts These master accounts, available from many of the larger fund groups, enable you to manage all your financial service needs under a single umbrella from unlimited check writing and automatic bill paying to discount brokerage and credit card accounts.

Margin Some mutual fund shares are marginable. You may buy them on margin or use them as collateral to borrow money from your bank or broker. Call your fund company for details.

Analysis of various Balanced and Liquid Funds

Structure of the Indian mutual fund industry The Indian mutual fund industry is dominated by the Unit Trust of India which has a total corpus of Rs700bn collected from more than 20 million investors. The UTI has many funds/schemes in all categories ie equity, balanced, income etc with some being openended and some being closed-ended. The Unit Scheme 1964 commonly referred to as US 64, which is a balanced fund, is the biggest scheme with a corpus of about Rs200bn. UTI was floated by financial institutions and is governed by a special act of Parliament. Most of its investors believe that the UTI is government owned and controlled, which, while legally incorrect, is true for all practical purposes. The second largest category of mutual funds is the ones floated by nationalized banks. Canbank Asset Management floated by Canara Bank and SBI Funds Management floated by the State Bank of India are the largest of these. GIC AMC floated by General Insurance Corporation and Jeevan Bima Sahayog AMC floated by the LIC are some of the other prominent ones. The aggregate corpus of funds managed by this category of AMCs is about Rs150bn. The third largest category of mutual funds is the ones floated by the private sector and by foreign asset management companies. The largest of these are Prudential ICICI AMC and Birla Sun Life AMC. The aggregate corpus of assets managed by this category of AMCs is in excess of Rs250bn.

Some of the AMCs operating currently are: Name of the AMC Alliance Capital Asset Management (I) Private Limited Birla Sun Life Asset Management Company Limited Bank of Baroda Asset Management Company Limited Bank of India Asset Management Company Limited Canbank Investment Management Services Limited Cholamandalam Cazenove Asset Management Company Limited

Nature of ownership Private foreign Private Indian Banks Banks Banks Private foreign

Analysis of various Balanced and Liquid Funds

Dundee Asset Management Company Limited DSP Merrill Lynch Asset Management Company Limited Escorts Asset Management Limited First India Asset Management Limited GIC Asset Management Company Limited IDBI Investment Management Company Limited Indfund Management Limited ING Investment Asset Management Company Private Limited J M Capital Management Limited Jardine Fleming (I) Asset Management Limited Kotak Mahindra Asset Management Company Limited Kothari Pioneer Asset Management Company Limited Jeevan Bima Sahayog Asset Management Company Limited Morgan Stanley Asset Management Company Private Limited Punjab National Bank Asset Management Company Limited Reliance Capital Asset Management Company Limited State Bank of India Funds Management Limited Shriram Asset Management Company Limited Sun F and C Asset Management (I) Private Limited Sundaram Newton Asset Management Company Limited Tata Asset Management Company Limited Credit Capital Asset Management Company Limited Templeton Asset Management (India) Private Limited Unit Trust of India Zurich Asset Management Company (I) Limited

Private foreign Private foreign Private Indian Private Indian Institutions Institutions Banks Private foreign Private Indian Private foreign Private Indian Private Indian Institutions Private foreign Banks Private Indian Banks Private Indian Private foreign Private foreign Private Indian Private Indian Private foreign Institutions Private foreign

1.5 Recent trends in mutual fund industry The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks and smaller private sector players. Many nationalized banks got into the mutual fund business in the early nineties and got off to a good start due to the stock market boom prevailing then. These banks did not really understand the mutual fund business and they just viewed it as another kind of banking activity. Few hired specialized staff and generally chose to transfer staff from the parent organizations. The performance of most of the schemes floated by these funds was not good. Some schemes had offered guaranteed returns and their parent organizations

Analysis of various Balanced and Liquid Funds

had to bail out these AMCs by paying large amounts of money as the difference between the guaranteed and actual returns. The service levels were also very bad. Most of these AMCs have not been able to retain staff, float new schemes etc. and it is doubtful whether, barring a few exceptions, they have serious plans of continuing the activity in a major way. The experience of some of the AMCs floated by private sector Indian companies was also very similar. They quickly realized that the AMC business is a business, which makes money in the long term and requires deep-pocketed support in the intermediate years. Some have sold out to foreign owned companies, some have merged with others and there is general restructuring going on. The foreign owned companies have deep pockets and have come in here with the expectation of a long haul. They can be credited with introducing many new practices such as new product innovation, sharp improvement in service standards and disclosure, usage of technology, broker education and support etc.

1.6 FREQUENTLY USED TERMS/QUESTIONS

Net Asset Value (NAV) Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.

Sale Price Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load.

Repurchase Price

Analysis of various Balanced and Liquid Funds Is the price at which a close-ended scheme repurchases its units and it may include a back-end load. This is also called Bid Price.

Redemption Price Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related.

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

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

1.7 Rules and Regulations Mutual Funds in India are governed by the SEBI (Mutual Fund) Regulations 1996 as amended from time to time. Also, SEBI keeps on issuing various guidelines and circulars on varied topics relating to mutual fund industry.Latest issuances related to MF’s

Circulars 30 June, 2006 Undertaking from trustees for new scheme offer document

16 June, 2006 Gazette notification no. S.O. 783(E) dated May 22, 2006 pertaining to SEBI Mutual Funds) (Second Amendment) Regulations 2006

21 April, 2006 Dividend Distribution Procedures for Mutual Funds Introduction of Gold Exchange Traded Funds in India

04 April, 2006 Rationalisation of Initial Issue Expenses and Dividend distribution procedure for Mutual Funds

Analysis of various Balanced and Liquid Funds

Amendments

22 May, 2006 Securities And Exchange Board Of India (Mutual Funds) (Second Amendment) Regulations, 2006 In addition, mutual funds of India have formed their association i.e. Association of Mutual Funds of India ( AMFI ) which acts as a self regulatory body for its members.

Association of Mutual Funds of India (AMFI) AMFI, the apex body of all the registered Asset Management Companies was incorporated on August 22, 1995 as a non-profit organization. As of now, all the 30 Asset Management companies that have launched mutual fund schemes are its members.

Objectives To define and maintain high professional and ethical standards in all areas of operation of mutual

fund

industry

To recommend and promote best business practices and code of conduct to be followed by members and others engaged in the activities of mutual fund and asset management including agencies connected or involved in the field of capital markets and financial services.

To interact with the Securities and Exchange Board of India (SEBI) and to represent to SEBI on all matters concerning the mutual fund industry. To represent to the Government, Reserve Bank of India and other bodies on all matters relating to the Mutual Fund Industry.

Analysis of various Balanced and Liquid Funds To develop a cadre of well-trained Agent distributors and to implement a programme of training and certification for all intermediaries and other engaged in the industry.

To undertake nation wide investor awareness programme so as to promote proper understanding

of

the

concept

and

working

of

mutual

funds.

To disseminate information on Mutual Fund Industry and to undertake studies and research directly and/or in association with other bodies. How these mutual funds scored 100% It is one thing to ride a bull wave and quite another to keep pace in turbulent waters. As

the relentless bull-run on the bourses carried the Sensex past several "Ks" during the last financial year, making money must have been rather easy. With stocks of almost all shapes and sizes right from consumer, infrastructure and engineering riding the wave, fund managers could have just dozed off doing nothing and yet made mega bucks. The fund managers' report card for the past fiscal does look impeccable. Out of a total of 261 pure equity funds, nine equity schemes earned more than 100 per cent returns; about 96 beat the widely accepted benchmark Sensex which itself gained a phenomenal 73 per cent; 175 gave returns in excess of 50 per cent; and none, just none, slipped into red. With 36 per cent of fund managers beating the benchmarks, not all the gains can be attributed to buoyant markets though. "We have been facing a situation where the market breadth is increasing and people are looking beyond a particular sector for outperformance," says Chetan Sehgal, fund manager at Franklin Templeton Mutual Fund. "It was difficult to choose the sectors as almost all sectors have been a part of the rally. Except for capital goods there is no other sector that has outperformed significantly," says Viraj Ghatlia, head of financial planning, IL&FS Investsmart. Cent per cent true. A look at the top ranking equity funds over the past one year should demonstrate this point better. The top ranking funds constitute a variety of schemes

Analysis of various Balanced and Liquid Funds

ranging from sectoral funds to diversified funds, from large-caps to mid-caps and even funds that usually promise to tread the path the stocks markets have abandoned. The top-ranking fund, for instance, was Prudential ICICI FMCG Fund, which delivered 118 per cent return. Another sectoral fund Reliance Power delivered 110 per cent during the period with a 65 per cent allocation to power related stocks. Apart from the three diversified equity funds from SBI Mutual, which have held on to their top slot through this bull run, Kotak Opportunities (thematic fund that takes concentrated bet in few sectors), Sundaram Leadership (invests in leaders in various businesses) were some thematic funds which had a spectacular run. Besides, mid-cap oriented funds from Sundaram and Prudential were the other two in the toppers' list. In short, whatever the mandate of the fund, there was enough opportunity in the market to beat the averages provided you chose the right stocks. The toppers were generally overweight on sectors such as capital goods, construction and sugar to name a few. They steered clear of or cut exposure to pharma and technology. While big names like Hindustan Lever, BHEL and Siemens, Bajaj Auto, Maruti and Tata Motors, Reliance Industries helped beat the Street, some smaller companies like Kalpataru Power, Havells India and Alps Industries, and even metal stock Hindustan Zinc worked as kickers to the winning portfolios. For instance Kalpataru Power, where Prudential ICICI Emerging Star allocated 3.32 per cent of its assets and Sundaram Select Mid-cap placed 4.09 per cent of its assets, gained a whopping 302 per cent in the past one year. Deccan Holdings, another winner picked by Prudential ICICI Emerging Star Fund, gained 203 per cent during the year. The fund had invested 5.22 per cent of its assets in the stock. Where winners kept the faith...

Analysis of various Balanced and Liquid Funds

Considering that capital goods has had a spectacular run over the past couple of years, most funds managers have been consistently overweight on the sector. Last year, the BSE Capital Goods Index was the best performing index delivering 155 per cent returns. With returns bettering every quarter - in Q1, the index posted a return of 16 per cent and in Q4, it nearly doubled that much at 34 per cent - fund-men allocated most of their assets to this sector. Capital goods accounted for about 10.50 per cent of the total allocation in Q4 (See Top Sector Holdings).

TOPPERS Scheme Name (all equity schemes)

1 Year

Prudential ICICI FMCG – Growth

118.49

SBI Magnum Multiplier Plus 93 - Growth

111.50

Reliance Diversified Power Fund - Growth

110.18

Prudential ICICI Emerging STAR Fund – Growth

109.48

SBI Magnum Tax Gain Scheme 93

103.67

SBI Magnum Global Fund 94 – Growth

103.23

Kotak Opportunities Fund – Growth

102.84

SBI Magnum Sector Umbrella - Contra – Growth

101.88

Sundaram India Leadership Fund - Growth

101.64

Sundaram Select Midcap – Growth

99.45

Analysis of various Balanced and Liquid Funds Returns in %

The average holding of the top 10 schemes over the last four quarters in this sector was around 15-16 per cent. For instance, SBI Magnum Multiplier Plus had an allocation of over 8 per cent each in Crompton Greaves and Thermax, which delivered 138 per cent and 151 per cent returns respectively in the past year. Taking together all equity diversified funds, the allocation to the sector has gone up from 6.10 per cent to 10.20 per cent. Housing and construction sectors have been the most under-researched sectors according to A K Sridhar, chief investment officer, UTI Mutual Fund. Still, the top 10 performing funds hiked their exposure to the construction sectors from 4.23 to 5.09 per cent over the past year. "We stayed invested in housing and construction segment because of the sheer volume of construction activities happening in the country," says Sanjay Sinha, fund manager, SBI Mutual fund. SBI Magnum Global Fund 94, again a top performing fund, has increased its allocation to the housing and construction sector from 4.94 per cent to 10.44 per cent over the last four quarters. One stock that the fund has bought into is Ansal Properties, which accounted for 4.58 per cent of net assets in March 2006. Some other construction bets include Nagarjuna Construction (3.07 per cent) and IVRCL Infrastructure (3.37 per cent) both of which were stunning performers last year. SBI Magnum Multiplier Plus 93, another front-runner, has however maintained an average allocation of around five per cent through all four quarters. On an average top 10 schemes held around 4-5 per cent of assets in Housing and construction over the financial year. While all diversified equity schemes almost doubled their allocation to this sector from 1.03 per cent to 2.04 per cent in the four quarters.

Analysis of various Balanced and Liquid Funds

Another sector where winning funds hiked exposure was auto and auto ancilliaries. Last year, the BSE Auto index gave 110 per cent return, second best after capital goods. The allocations to this segment went up from 4.84 per cent in Q1 from 6.37 per cent in Q4 for all diversified equity funds. "We still fancy two wheelers a lot and are positive on stocks like Hero Honda and Maruti," says Sri Vidhya, fund manager, Sundaram Leadership fund, which managed to deliver 101 per cent return. Last year though FMCG stocks were truly fast moving with the BSE FMCG index gaining 109 per cent. Even the consumer durables did well with the BSE Consumer Durable index posted a return of 115 per cent on the back of outstanding performance by watch and jewellery market Titan Industries and Videocon. Prudential ICICI FMCG, the topper last year, however, played it safe by maintaining an average exposure of 15 per cent in textiles and consumer durables over the past year. The fund did well taking exposure to lesser known companies like Alps Industries which returned 95 per cent and emerging consumer major Dabur (124 per cent) where the fund had placed 6.59 per cent of its net assets. For Sundaram India Leadership Fund, the favourite was sugar. The fund almost doubled its allocation to around 6 per cent from 3 per cent in March 2005. "We are holding sugar since the inception of the fund. The fact that crude oil prices have risen sharply, and the demand for ethanol has gone up, has pushed up sugar prices," says Sundaram's Sri Vidhya. ...where they wavered The BSE Metal was the worst performing index over the last four quarters, giving negative returns in three of the last four quarters and just about 40 per cent over the past year. Ironically, the top 10 performing funds constantly raised their stakes in metal stocks (including steel) from 2.6 per cent to 4.37 per cent over the last four quarters.

Analysis of various Balanced and Liquid Funds

Defending the move, says Nilesh Shah, CIO, Prudential ICICI Mutual Fund, "We are looking for companies which produce value-added products, since they can escape the vagaries of price movements." Notably, true to its label, SBI Contra Fund, which primarily seeks to beat the market by betting against the market, has about 10 per cent allocation to metals including steel. Its top holding at the end of March 2006 was Hindustan Zinc constituting 5.78 per cent of net assets. Last year, the stock zoomed 195 per cent and the party continues on the bourses. Over the last quarter, Prudential ICICI Emerging Star Fund, the fourth top performing fund also increased its metal exposure to around 5.7 per cent from 1.8 per cent over the last four quarters. On an average the top 10 schemes held around 4-5 per cent of assets in metal stocks. The holding of all diversified equity schemes in this sector is up from 3.26 per cent to 4.47 per cent. Textiles stocks have however been treaded with cautious optimism by fund managers with allocations by top 10 funds averaging around 3 per cent. Prudential ICICI FMCG fund had been more bullish than others with weightage around 6-7 per cent for the sector. That is also partly because of the nature of businesses the fund is supposed to invest in. SBI Magnum Multiplier Plus 93 also had a weightage of 5-6 per cent to textiles during the period. ...and what they skipped Similarly, another laggard was pharma stocks. Over the last 12 months, the BSE Healthcare lagged behind the Sensex posting a return of 51 per cent returns. Predictably, those that did well did so by being underweight on the sector. The top 10 funds pruned their exposure to pharmaceuticals from 6.07 per cent to 4.37 per cent over the last four quarters. Sankaran Naren, fund manager, Prudential ICICI AMC. "We are bullish on select pharma stocks with focus on exports," he adds.

Analysis of various Balanced and Liquid Funds

In a market that has been sizzling on the glory of a resurging domestic economy, the export-oriented technology sector seem to have been relegated to the background. One fund manager regrets having bough mid-cap IT stocks over the last year, which have been laggards. The average allocation to the sector by all diversified equity schemes is up from 6.8 per cent to 7.93 per cent during the past year. With greater earnings visibility in the sector, especially after the fourth quarter results and bullish guidance by the top-tier companies, fund managers are back on a buying spree. "I am bullish on the visibility in top-line growth for the IT sector. Another disappointment has been banking stocks, which remained volatile during the year due to uncertainties on interest rates. On an average top 10 schemes held around 3-4 per cent of assets in banks over the past financial year.

Analysis of various Balanced and Liquid Funds

CHAPTER 2 PROFILE OF THE COMPANY 2.1 About Anand Rathi Anand Rathi (AR) is a leading full service securities firm providing the entire gamut of financial services. The firm, founded in 1994 by Mr. Anand Rathi, today has a pan India presence as well as an international presence through offices in Dubai and Bangkok. AR provides a breadth of financial and advisory services including wealth management, investment banking, corporate advisory, brokerage & distribution of equities, commodities, mutual funds and insurance - all of which are supported by powerful research teams. The firm's philosophy is entirely client centric, with a clear focus on providing long term value addition to clients, while maintaining the highest standards of excellence, ethics and professionalism. The entire firm activities are divided across distinct client groups: Individuals, Private Clients, Corporate and Institutions. Milestones

Analysis of various Balanced and Liquid Funds

1994: Started activities in consulting and Institutional equity sales with staff of 15 1995: Set up a research desk and empanelled with major institutional investors 1997: Introduced investment banking businesses 1999: Lead managed first IPO and executed first M & A deal 2001: Initiated Wealth Management Services 2002: Retail business expansion recommences with ownership model 2003: Wealth Management assets cross Rs1500 crores Retail Branch network exceeds 50 Insurance broking launched Launch of Wealth Management services in Dubai 2004: Retail Branch network expands across 100 locations within India Commodities brokerage and real estate services introduced Wealth Management assets cross Rs3000crores Institutional equities business re launched and senior research team put in place 2005: Retail Branch network expands across 180 locations within India Real Estate Private Equity Fund Launched

2.2 Strengths Breadth of Services In line with its client-centric philosophy, the firm offers to its clients the entire spectrum off financial services ranging from brokerage services in equities and commodities, distribution of mutual funds, IPO‘s and insurance products, real estate, investment banking, merger and acquisitions, corporate finance and corporate advisory.

Analysis of various Balanced and Liquid Funds

Clients deal with a relationship manager who leverages and brings together the product specialists from across the firm to create an optimum solution to the client needs. Management Team AR brings together a highly professional core management team that comprises of individuals with extensive business as well as industry experience. In-Depth Research Our research expertise is at the core of the value proposition that we offer to our clients. Research teams across the firm continuously track various markets and products. The aim is however common - to go far deeper than others, to deliver incisive insights and ideas and be accountable for results. Management Team

Senior Management comprises a diverse talent pool that brings together rich experience from across industry as well as financial services. Mr. Anand Rathi - Group Chairman Chartered Accountant Past President, BSE Held several Senior Management positions with one of India's largest industrial groups Mr. Pradeep Gupta - Managing Director Plus 15 years of experience in Financial Services Mr. Amit Rathi - Managing Director Chartered Accountant & MBA Plus 9 years of experience in Financial Services

Analysis of various Balanced and Liquid Funds

2.3 Fact Sheet 1994: Started activities in consulting and Institutional equity sales with staff of 15 1995: Set up a research desk and empanelled with major institutional investors 1997: Introduced investment banking businesses Retail brokerage services launched 1999: Lead managed first IPO and executed first M & A deal 2000: Group becomes India's largest retail broker - presence across 100 cities in India Also ranked among top 5 institutional broking & investment banking groups 2001: Initiated Wealth Management Services 2002: Retail business expansion recommences with ownership model 2003: Wealth Management assets cross Rs1500 crores Retail Branch network exceeds 50 Insurance broking launched Launch of Wealth Management services in Dubai

Analysis of various Balanced and Liquid Funds

2004: Retail Branch network expands across 100 locations within India Commodities brokerage and real estate services introduced Wealth Management assets cross Rs3000crores Institutional equities business relaunched and senior research team put in place 2005: Retail Branch network expands across 170+ locations within India Real Estate Private Equity Fund Launched

2.4 Philosophy We at Anand Rathi try and understand your financial needs; to offer you personal advice and expert analysis that you need to make your assets go the extra mile. Our ability to think far ahead and formulate a long-term strategy, coupled with long hours of practice and research are the key drivers, which make your wealth work harder for you. We believe that the key to build wealth lies in allocating assets across various markets, financial instruments and industry sectors. Keeping this in mind we leverage our expertise in scientific asset allocation, to help you maximize returns and minimize risks.

Process We realize the need to simplify the complexities of the investment strategies and we achieve this by offering highly customized wealth management product. Our Personalized Relationship Managers along with the expert team of analysts and advisors will assist you in analyzing all your investment needs and advice you on specialized solutions created exclusively for you.

Analysis of various Balanced and Liquid Funds

We have a dedicated research team who constantly screens the market for investment prospects. The team provides support in fine-tuning the investment strategy & suggests how to capitalize on these opportunities.

2.5 Products Equity & Derivatives: AnandRathi provides end-to-end equity solutions to institutional and individual investors. Consistent delivery of high quality advice on individual stocks, sector trends and investment strategy has established us a competent and reliable research unit across the country. Clients can trade through us online on BSE and NSE for both equities and derivatives. They are supported by dedicated sales & trading teams in our trading desks across the country. Research and investment ideas can be accessed by clients either through their designated dealers, email, web or SMS. Mutual Funds: AR is one of India's top mutual fund distribution houses. Our success lies in our philosophy of providing consistently superior, independent and unbiased advice to our clients backed by in-depth research. We firmly believe in the importance of selecting appropriate asset allocations based on the client's risk profile. We have a dedicated mutual fund research cell for mutual funds that consistently churns out superior investment ideas, picking best performing funds across asset classes and providing insights into performances of select funds. Depository Services: AR Depository Services provides you with a secure and convenient way for holding your securities on both CDSL and NSDL.

Analysis of various Balanced and Liquid Funds

Our depository services include settlement, clearing and custody of securities, registration of shares and dematerialization. We offer you daily updated internet access to your holding statement and transaction summary. Commodities: Commodities broking - a whole new opportunity to hedge business risk and an attractive investment opportunity to deliver superior returns for investors. Our commodities broking services include online futures trading through NCDEX and MCX and depository services through CDSL. Commodities broking is supported by a dedicated research cell that provides both technical as well as fundamental research. Our research covers a broad range of traded commodities including precious and base metals, Oils and Oilseeds, agri-commodities such as wheat, chana, guar, guar gum and spices such as sugar, jeera and cotton. In addition to transaction execution, we provide our clients customized advice on hedging strategies, investment ideas and arbitrage opportunities. Insurance: As an insurance broker, we provide to our clients comprehensive risk management techniques, both within the business as well as on the personal front. Risk management includes identification, measurement and assessment of the risk and handling of the risk, of which insurance is an integral part. The firm deals with both life insurance and general insurance products across all insurance companies. Our guiding philosophy is to manage the clients' entire risk set by providing the optimal level of cover at the least possible cost. The entire sales process and product selection is research oriented and customized to the client's needs. We lay strong emphasis on timely claim settlement and post sales services.

Services Risk Management Due diligence and research on policies available Recommendation on a comprehensive insurance cover based on clients needs

Analysis of various Balanced and Liquid Funds

Maintain proper records of client policies Assist client in paying premiums Continuous monitoring of client account Assist client in claim negotiation and settlement IPO’s: We are a leading primary market distributor across the country. Our strong performance in IPO‘s has been a result of our vast experience in the Primary Market, a wide network of branches across India, strong distribution capabilities and a dedicated research team. We have been consistently ranked among the top 10 distributors of IPO‘s on all major offerings. Our IPO research team provides clients with in-depth overviews of forthcoming IPO‘s as well as investment recommendations. Online filling of forms is also available. Other IPO‘s handled – Name of Company

Date of Issue

Bombay Rayon Fashions Limited

Nov 17, 2005

Prithvi Information Solutions Ltd

Oct 28, 2005

Shri Ramrupai Balaji Steels Limited

Jul 14, 2005

Provogue (India) Limited

Jun 16, 2005

Emami Limited

Mar 10, 2005

NRIs: AR is the perfect gateway to the wealth of investment opportunities in India for Non-Resident Indians. With our dedicated NRI desk in India and Relationship Managers in your own country, you get the best of both worlds - real understanding of your investment needs as well on-the-ground expertise.

Analysis of various Balanced and Liquid Funds

CHAPTER 3 Introduction to Balanced fund’s Liquid Funds 3.1Balanced funds Definition

A mutual fund that buys a combination of common stock, preferred stock, bonds, and short-term bonds, to provide both income and capital appreciation while avoiding excessive risk. The purpose of balanced funds (also sometimes called hybrid funds) is to provide investors with a single mutual fund that combines both growth and income objectives, by investing in both stocks (for growth) and bonds (for income). Such diversified holdings ensure that these funds will manage downturns in the stock market without too much of a loss; the flip side, of course, is that balanced funds will usually increase less than an all-stock fund during a bull market. An explanation of mutual funds, with specific emphasis on advantages and disadvantages of this type of investment. If you were thinking of investing in a mutual fund, read this article! Describes some of the terminology necessary to understand mutual fund investments, including open-end, closed-end, net asset value, public offering price, dividends and capital

gains

distributions,

family,

share

classes,

and

dual-purpose

fund.

In order to evaluate a mutual fund, you should read its prospectus and annual report, which describe the fund's investment objective, strategy, fees and expenses, past performance, risks, and largest holdings. Click here to learn more about each of these topics.

Analysis of various Balanced and Liquid Funds

Balanced funds may lock into higher equity pie

Come June, balanced funds may have to alter their structure to step up their equity exposures and maintain it at 65 per cent, if they are to avail themselves of the tax benefits extended to equity oriented funds. The recent Budget proposes to tweak the official definition of "equity oriented funds" to include only those funds which have 65 per cent or more of their investments in stocks. Currently, all funds that have a 50 per cent equity exposure are "equity oriented funds". These enjoy exemption from dividend distribution tax and lower rates of tax on shortterm capital gains. Balanced funds currently allocate between 60-65 per cent of their assets to stocks. But they have considerable leeway in their objectives to swing between a 40 per cent and a 60 per cent equity exposure. Now, fund houses may have to tweak this structure to "fix" the equity exposure at 65 per cent, if they want their balanced funds to enjoy tax benefits. "The tax benefits are substantial. We will be changing the structure of the scheme and increasing the equity exposure, but after we take a formal decision," said Mr N. Sethuram, Chief Investment Officer of SBI Mutual Fund. SBI's Magnum Balanced Fund had a 65 per cent exposure to equities by end-January. Mr Sethuram also feels that the changes will blur the boundary between pure equity funds and balanced funds. "Equity funds can hold up to 30 per cent of their portfolio in cash; balanced funds will now have to hold 65 per cent in stocks. There is not much of a difference between the two," he pointed out.

Analysis of various Balanced and Liquid Funds

Franklin Templeton, which manages Franklin Templeton India Balanced Fund and FT Dynamic P/E ratio Fund, said it is discussing the proposals with tax consultants before finalising a decision. But the fund already has an equity allocation of 65 per cent on FT India Balanced Fund. "Our exposure to equity has been on the higher side, on account of our conviction about the long-term potential of equities. Having said that, these proposals may impact the asset allocation of balanced funds that wish to offer tax-free dividends to investors," said Mr Sukumar Rajah, CIO of the fund house. With the stocks markets on a dream run, most fund houses have tended to take a bullish view of equities. While most balanced funds had 60-65 per cent in stocks, HDFC Prudence was the only outlier with a 59 per cent equity allocation by end-January. A higher equity allocation may become a permanent feature if fund houses decide to take advantage of the new proposals. But as one fund manager pointed out, "You can have a lower allocation to equities over a month or two, because the 65 per cent limit is reckoned on the average of monthly balances through the year." Funds also have a comfortable three-month window until June 1, to make these changes. That is when these proposals, if passed into law, will take effect 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

These schemes generally have a three-fold objective : i)

to conserve the initial principal,

ii)

to pay current income and

iii) to promote long-term growth of both principal and income.

Analysis of various Balanced and Liquid Funds

Fund managers achieve these objectives through a diversified portfolio of equities and debt instruments. While equities provide growth, debt instruments provide current income and stability. For the small investor, a balanced fund is the best way to practice asset allocation, which means dividing your portfolio among different investments such as equity and bonds. Fund managers apportion your investment into debt and equity investments within the limits prescribed in the offer document. Current tax laws have accorded a tax-free status to open-ended schemes investing more than 50 per cent in equities. Therefore, if you are looking for tax benefits, take a look at the asset allocation table in the offer document to ensure that the fund invests more than 50 per cent in equities.

The balanced fund is ideal : i) for those seeking a balance between stability and growth with some protection against inflation ii) Those unable to choose between equities and fixed income securities. iii) Those who have never invested in equities, and are eager to take their first step.

3.2 WORKING OF BALANCED FUNDS

Balanced mutual funds make it possible by investing in an assortment of investment instruments such as stocks, money markets and bonds etc. Balanced mutual funds are one of the types of various mutual funds available in the market. This article discusses: What is the principle behind balanced mutual fund? What is the objective of the balanced fund? Differentiate between balanced funds and other types of funds

Analysis of various Balanced and Liquid Funds

Balanced mutual funds are one of the types of various mutual funds available in the market. If you are wondering if there is any fund that can combine benefits of income and capital appreciation, look no further, this is it. Balanced mutual funds make it possible by investing in an assortment of investment instruments such as stocks, money markets and bonds

etc.

Alternately

these

are

also

called

as

asset

allocation

funds.

The proportion in which the balanced mutual funds allocate their assets is usually 60 % to 65 % in stocks and the balance in bonds. The proportion is not disturbed while managing the fund as it is to remain within the pre set minimum and maximum limits. Agreed that mutual funds provide better and safer investment domains for ordinary public, but they are not completely devoid of risks and violent market fluctuation. Balanced mutual funds try to address these concerns in a way unique to mutual funds alone.

Investment in Stocks : One can draw some similarity of balanced funds with well diversified funds. Asset allocated for stocks are diversified into different sectors which are performing with high returns. Fund allocation weightage is determined by the stocks' return potentials. The top stock, for example may get an allocation of say 10% and the lesser the potential the lesser is the percentage allocation of funds. The same pattern is then repeated for another sector of stocks. Sectors are chosen subject to various parameters.

Investment in Bonds : The allocation to bonds is distributed among bonds issued by governments and banks. Municipal bonds, called as munis, some times find their way into this. This investment provides guaranteed returns at a steady rate over a period. This gives the stability to the entire fund cushioning the violent fluctuations of aggressive stock investment. Balanced Fund v/s Other Types of Funds The objective of the fund is to generate income while being able to grow capital.

Blend of Growth and Safety : The unique proposition of spreading the investment into

Analysis of various Balanced and Liquid Funds

two broad divisions of mutual fund investing is hard to find in other class of funds.

Freedom to decide allocation : freedom to switch over from one proportion to the other, which is from 60:40 to 40:60 patterns. You can switch over when you perceive a growth opportunity or a threat into the other from the existing. This you can reverse when you perceive the situation leading to it has changed. No other type of fund has this freedom, having chosen the fund, you have to go through the mandate of the fund.

Best balanced mutual funds keep allocation flexible and open to changes as per demands of market conditions but subject to regulations by laws of government and SEC (Securities & Exchange Commission).

Risky Proposition : Consider a situation when the stock market is having a bull run (long rally). Then you can expect a great appreciation in its principal. Naturally any manager would be tempted to divert as much cash at his command to stocks as possible. It could go as high as 80% with just 20% for debt instruments. Other types of funds differ here because of SEC regulations and funds' own mandate.

3.3ADVANTAGES OF BALANCED FUNDS For balanced mutual funds, this is one Budget where the devil is truly in the detail. By tweaking the definition of equity-oriented funds to include only those funds that have invested at least 65 per cent of their assets in equities, the Budget proposals put balanced funds in a quandary. Until now, funds with an equity exposure of 50 per cent or more were defined as "equityoriented funds". Investors in these funds are exempted from paying long-term capital gains tax; and short-term gains are taxed at a concessional 10 per cent. Equity funds are also exempt from paying dividend distribution tax, at 12.5 per cent for individuals, when they pay out dividends.

Analysis of various Balanced and Liquid Funds

Balanced funds that would like their investors to enjoy lower rates of tax will now be forced to retain their equity exposure at 65 per cent, or a higher proportion, of their assets. Funds that prefer a conservative equity exposure will have no choice but to forego the tax benefits. Rather than lose the tax benefits, most balanced fund managers may opt for a permanent higher allocation to equities. The proposals, if passed into law, take effect on June 1.

More equity exposure Given the substantial tax benefits associated with being classified as an `equity-oriented fund', most fund-houses are likely to tweak their balanced funds to fit in with the new objectives. The immediate impact on the asset allocation pattern of balanced funds may not be too significant. With corporate earnings growing at a healthy clip and the stock market on a dream run, most fund-houses have taken a bullish view on equities and maintain a high equity allocation in their respective balanced funds. Tilted towards equities Of the various long-running balanced funds, Franklin Templeton India Balanced Fund, Magnum Balanced Fund and Kotak Balance already had equity exposures of 65 per cent or more by end-January 2006. Others such as Sundaram Balanced and PruICICI Balanced, were at a 64 per cent equity exposure and need only to peg it up a whisker to make it over the threshold. Only HDFC Prudence had an equity allocation substantially lower than the threshold, at 59.9 per cent, by end-January. Of course, the equity allocation for this purpose is reckoned on the average monthly balances through the year. Therefore, a fund need not necessarily retain a 65 per cent equity exposure at all times to be eligible for the tax benefits. There could be temporary spikes or a shortfall in the equity allocation over a month or two that could be made up in the rest of the year.

Analysis of various Balanced and Liquid Funds

Since these proposals take effect only in June, funds have a fairly long, three-month window to think through and rejig their asset allocation pattern. Less flexibility But it is the loss of flexibility that this rule entails that is a greater worry for investors in balanced funds. With the proportion of equity investments in a balanced fund straitjacketed at 65 per cent, managers of such funds will have less flexibility to move to debt investments if the equity market appears overheated. Individual investors, on their own, are seldom savvy enough to book profits on their equity portfolio at the right time, given the difficulty of taking a view about stock valuations or the direction of interest rates. Managers of balanced funds are better placed to make this call. Most balanced funds at present have considerable leeway in their asset allocation. Their objectives usually allow equity investments to swing between 40 per cent and 60 per cent of their assets. In practice, though, equity investments account for 60-65 per cent of the assets. This flexibility has stood some funds in good stead. Successful balanced funds such as HDFC Prudence have turned in an impressive performance by making this kind of "tactical" asset allocation call. If the equity exposure in this fund is "fixed" at 65 per cent, the fund may have to load up on stocks, irrespective of whether the fund manager is really comfortable with such an allocation. Investors could lose out on the value addition that comes from fluid asset allocation. Balanced funds still attractive Do these proposals make investing in balanced funds an unattractive proposition? Could an investor substitute a balanced fund by investing 65 per cent of his money in equity funds and 35 per cent in debt funds? No, because balanced funds will continue to offer three distinct advantages over this strategy. One, balanced funds periodically re-balance

Analysis of various Balanced and Liquid Funds

assets between equity and debt — difficult for an individual investor to manage on his own. Second, the tax advantages over direct investing. When a fund manager books profits on stocks or bonds to re-balance his portfolio, the fund pays no capital gains tax on these transactions. As an investor, you will have to pay short-term capital gains tax, if you rejig your portfolio at short intervals. Third, balanced fund managers will still be able to add some value on asset allocation. They could choose to have a much higher equity exposure than 65 per cent and juggle between the debt and cash components.

Details regarding SBI Magnum‘s Balanced Fund Magnum Balanced Fund Magnum Balanced Fund invest in a mix of equity and debt investments. Hence they are less risky than equity funds, but at the same time provide commensurately lower returns. They provide a good investment opportunity to investors who do not wish to be completely exposed to equity markets, but is looking for higher returns than those provided by debt funds. The main features of the scheme are: In operation since October 1995 Minimum investment of Rs. 1000 Ideal for investors who wish to benefit from equity growth without excessive volatility Entry Load : Investments below Rs. 5 crores – 2.25% Investments of Rs.5 crores and above – NIL" SIP/STP - 2.25% Exit Load: Investments below Rs.5 crores < 6 months - 1.00% 6 months and 12 months - 0.50% Investments of Rs.5 crores and above - NIL SIP /STP-< 6 months from the date of investment of each instalment - 1.00% SIP : Minimum amount Rs.500/month - 12 months Rs.1000/month - 6months, Rs.1500/quarter - 12 months

Analysis of various Balanced and Liquid Funds

STP : Minimum amount Rs.1000/- month - minimum period of 6 months Rs.3000/ Quarter - minimum period of 6 months Inter scheme switches to other equity schemes will not carry an Entry Load. However exit load will be applicable. In respect of STP transactions, an investor would now be permitted to transfer any amount from the switch-out scheme, subject to a minimum transfer of Rs.1000 pm or Rs.3000 per quarter, without any restriction on maintaining the minimum balance requirement as stipulated for the switch out scheme. The minimum period for STP will be atleast 6 months.

SBI Magnum Balanced Fund INVESTORS in SBI Magnum Balanced Fund may retain their holdings, as there has been a substantial improvement in the fund's performance over the past three years. The equity portfolio has a neat mix of mid-cap stocks and large-cap stocks. Despite a sizeable allocation to large-cap stocks, the fund has performed impressively. The mid-cap stocks in the portfolio have delivered attractive returns as they have enjoyed several bouts of re-rating over the past couple of years. It has outperformed the CRISIL Balanced Fund Index and the BSE-100 by a comfortable margin. Over a five-year period, the NAV has, however, remained largely flat. In the 10 years since launch, the fund has turned in annual returns of 16 per cent; a large part of this owing to the sharp improvement in fund performance since early 2003. The recovery of SBI Magnum Balanced and the move to the top of the ranks along with HDFC Prudence in the balanced funds category is in line with the trend evident in all the SBI-managed funds.

Analysis of various Balanced and Liquid Funds

The fund has consistently maintained 60-65 per cent of assets in equities. This has helped perk up returns, aided in no small measure by the largely bullish equity market of the past two years. The fund has been aggressively managed and appears to have picked the right themes and stocks to ride the momentum in the market. Even in the large-cap space, the fund has shuffled its portfolio over the past few months. Reliance, SBI and Jet Airways have replaced the likes of ACC, Gujarat Ambuja and NTPC. Among mid-cap stocks, the fund has replaced Pantaloon Retail and Uttam Galva Steels with IVRCL Infrastructure and Adlabs Films. So far, such changes have yielded attractive returns. Suitability: The fund is appropriate for investors who seek a mix of equity and debt and prefer to go through the balanced funds route. This is especially true for investors who do not have the time and inclination to construct a balanced portfolio and ensure that the asset allocation remains in line with their investment objective and risk preferences. Unlike HDFC Prudence, SBI Magnum Balanced Fund still has a small asset base of a tad less than Rs 100 crore. This provides for a high degree of flexibility in asset management, coupled with the quality of stock selection, and holds promise of the fund sustaining the momentum in NAV. Investors may opt for the dividend option as payments are exempt from tax. Fund facts: The fund was launched in October 1995. The minimum investment is Rs 5,000.

Analysis of various Balanced and Liquid Funds

The entry load is 2.25 per cent. There is no exit load. Mr Sachin S. Sawarikar is the manager. Unitholders can retain their exposure in Magnum Balanced Fund. A high exposure to equity during the three-year bull rally has helped SBI Magnum Balanced Fund deliver an impressive performance through most of this period. Over a one-year period, the fund has generated a return of 57 per cent, which makes it one of the top performers in the category. Its returns beat the benchmark Crisil Balanced Index by about 20 percentage points. Over a longer time-frame, however, HDFC Prudence still enjoys a better track record. Suitability: The latter may also be better suited for those who have a conservative risk profile. Prudence has maintained a 60 per cent equity allocation, compared to 65 per cent and more in most other balanced funds. Magnum Balanced, however, had about 75 per cent invested in equity as of April 30. It also frequently makes "tactical" asset allocation calls, with its holdings in equity swinging widely from 62 per cent in November 2005to 86 per cent in March 2006. These calls have, no doubt, paid off for the fund over the past year. The fund may, however, not be suitable for investors who want a stable mix of debt and equity in their portfolios. Notably, most balanced funds may no longer have the flexibility to substantially cut their exposure to equity in volatile times. Already, most have at least 65 per cent of their assets in equity. Recent changes in the definition of "equity-oriented" funds, to determine the tax payable at the hands of the investor, are also likely to ensure that this bias towards equity remains in most cases. According to the new rules, a fund should have at least 65 per cent invested in equity, as against 50 per cent earlier, for investors to enjoy the capital gains and dividend distribution tax benefits of equity.

Analysis of various Balanced and Liquid Funds

Most balanced funds may, therefore, be forced to fix their equity allocation at 65 per cent for a greater part of the year, if they want their investors to enjoy tax benefits. The distinction between these funds and equity is, therefore, likely to blur somewhat. In this context, Magnum Balanced may not have a much higher risk profile than others in its category. Balanced funds may, in general, be better suited for those who want at least a 65 per cent exposure to equity at any given time. Portfolio overview: The fund invests in a good mix of large-cap and mid-cap stocks. About 30 per cent is invested in stocks with a market capitalisation of more than Rs 10,000 crore. The top ten stocks account for about 35 per cent of its assets. Its top three sectors — consumer goods, IT and engineering — account for about a third of the portfolio. The fund invests mainly in corporate debt. It had about 10 per cent in cash as of April 30. Fund Facts: SBI Magnum Balanced was launched in 1995. It has an asset base of Rs 215 crore. It offers dividend and growth options. The minimum investment is Rs 1,000

DETAILS OF TWO IMPORTANT BALANCED FUNDS FLOATED BY SBI MAGNUM

MAGNUM NRI INVESTMENT FUND FLEXI ASSET PLAN :

Analysis of various Balanced and Liquid Funds

Investment Objective The investment objective of the scheme will be to provide attractive returns to the Magnum holders either through periodic dividends or through capital appreciation through an actively managed portfolio of debt, equity and money market instruments. Income may be generated through the receipt of coupon payments, the amortization of the discount on the debt instruments, receipt of dividends or purchase and sale of securities in the underlying portfolio. Asset Allocation

Instrument

% of Portfolio of Plan A & B

Risk Profile

Corporate Debenture and Bonds/PSU, FI, Up to 90% of the Government guaranteed Bonds including investments in debt Medium to High Securitized Debt and In

instruments Not more than 30%

Of which Securitized Debt

of the investments

Medium to High

in debt instr Up to 100% of the Government Securities

investments in debt Low instruments Atleast 10% and not

Equity and equity related instruments

exceeding 80% at

High

any time

Derivative Instruments

Cash and Call and Money Market

Within approved limits Up to 25%

Low

Low

Analysis of various Balanced and Liquid Funds

Instruments Scheme Highlights 1.All Plans have Growth and Dividend Options. 2.The returns under the Growth option to be through capital appreciation only, The FlexiAsset Plan to follow an Asset Allocation Model wherein depending on market conditions/based on certain triggers, the Fund Manager can take a view on the p ercentage of investments that can be allocated to equity. 3.This Plan would have a minimum of 10% investment in equity related instruments which can be increased up to 80% depending on market fundamentals. 4.The investment universe for equity stocks will be limited to such equity stocks that form a part of BSE-100. 5.The scheme will declare NAV, Sale and Repurchase prices on all business days. 6.All Plans will have separate asset classes and will declare separate NAVs for different options. 7.Dividends distributed under the scheme will be subject to a dividend distribution tax of 12.5% and will be tax free in the hands of the investor. Investments in Mutual Funds by NRIs are fully repatriable in case the funds are remitted through NRE/FCNR accounts. Short -term/Long-term Capital Gains would be subject to a withholding tax of 30%/20%. Launch Date

Minimum Application

January 2, 2004

Rs. Rs. 50,000 and multiples of Rs. 1,000. No maximum limit.

Entry Load

Exit Load

Entry Load : Investments below Rs. 5

Investments below Rs.5 crores < = 6

crores - 2.25%Investments of Rs.5

months - 1.00% and NIL thereafter.

crores and above - NIL

Investments of Rs.5 crores and above -

Analysis of various Balanced and Liquid Funds

NIL SIP

SWP

Minimum amount Rs.500/month - 12

A minimum of Rs. 1000 can be

months Rs.1000/month - 6months,

withdrawn every month or quarter by

Rs.1500/quarter - 12 months Minimum indicating in the application form or by amount

issuing advance instructions to the Registrars at any time.

Nav's Plan

Latest Nav

Date

FlexiAsset Plan - Growth

22.378

30/03/2007

FlexiAsset Plan - Dividend

22.3756

30/03/2007

MAGNUM BALANCED FUND:: Investment Objective To provide investors long term capital appreciation along with the liquidity of an open-ended scheme by investing in a mix of debt and equity. The scheme will invest in a diversified portfolio of equities of high growth companies and balance the risk through investing the rest in a relatively safe portfolio of debt. Asset Allocation

Instrument

% of Portfolio of Plan A & B

Risk Profile

Analysis of various Balanced and Liquid Funds

Equities

At least 50%

Debt Instruments like debentures,

Medium to High

Up to 40%

bonds,khokhas, etc.

Not more than 10% Securitized Debt

of investments in

Medium to High

debt Money Market Instruments

Balance

Low

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

Minimum Application

May 1, 1996

Rs. subscription: 100 Magnums or Rs.1,000/- whichever is lower, and in multiples of Rs.500/-

Entry Load

Exit Load

Analysis of various Balanced and Liquid Funds

Investments below Rs. 5 crores -

Investments below Rs.5 crores < = 6

2.25% Investments of Rs.5 crores and months - 1.00%, > 6 months but < 12 above - NIL

months - 0.50% Investments of Rs.5 crores and above - NIL

SIP

SWP

Rs.500/month - 12 months

Systematic Withdrawal Plan (SWP): A

Rs.1000/month - 6months

minimum of Rs. 500 can be withdrawn

Rs.1500/quarter - 12 months

every month or quarter by issuing advance instructions to the Registrars at any time. There is also a facility of a Monthly Pension Plan, whereby investors can withdraw a minimum amount of Rs. 500/- every month.

Nav's Plan

Latest Nav

Date

Growth

33.84

30/03/2007

Dividend

24.7

30/03/2007

3.4 LIQUID FUNDS Liquid funds are used primarily as an alternative to short-term fix deposits. Liquid funds invest with minimal risk (like money market funds). Most funds have a lock-in period of a maximum of three days to protect against procedural (primarily banking) glitches, and offer redemption proceeds within 24 hours.

Analysis of various Balanced and Liquid Funds

Liquid funds score over short term fix deposits. Banks give a fixed rate in the range 5%5.5% p.a. for a term of 15-30 days. Returns from deposits are taxable depending on the tax bracket of the investor, which considerably pulls down the actual return. Dividends from liquid funds are tax-free in the hands of investor, which is why they are more attractive than deposits.

Liquidity: Deposits marginally score over liquid funds as far as liquidity is concerned. In bank deposits the investor's bank account is credited as soon as his FDR (fixed deposit receipt) is surrendered to the bank. However, in case of liquid funds the investor has to give a redemption request to the fund within the cut off time to receive that days NAV and the cheque is issued to him on the next working day. However, some funds give the facility of crediting the investor's bank account e.g. Franklin Templeton gives this facility to the HDFC bank account holders. Factoring in all these factors, liquid funds do emerge as a better option as compared to fixed deposits. However, while investing money in these funds investors need to carefully evaluate the fund's performance. There is a possibility that liquid funds may not deliver in terms of expected returns owing to market factors. Therefore, if you have Rs 100 to invest, you should probably split the money between a liquid fund and a fixed deposit. Corporates park surpluses in short-term liquid funds TURBULENT markets and expectations of hardening interest rates are forcing corporates to move funds into short-term liquid funds. Liquid and floating rate funds have been receiving higher inflows with the trend strengthening over the last two weeks. The mutual fund industry expects this to maintain momentum till the post-budget trends are visible. According to Mr Deepak Mundra, Deputy General Manager, Finance, Grasim Industries Ltd, all incremental cash flow in the last month has gone into liquid funds. About Rs

Analysis of various Balanced and Liquid Funds

1,000 crore to Rs 1,500 crore from the top 100 corporates would have gone into liquid funds over the last month with the impending rise in interest rates. Liquid funds are typically most shielded from hardening interest rate than others. Liquid funds have been posting average returns of 4.5 per cent for the last 12 months. Returns from floating rate funds are 0.20 per cent to 0.25 per cent over this. Income funds, from where a lot of corporate funds are moving out, have posted nearly zero per cent return during the corresponding period. Income funds have also dropped to 42 per cent of the assets under management of the mutual fund industry in May 2004. The risk of return erosion is low in liquid and cash funds. Corporates who entered the market earlier are booking profits on income funds and parking this money in liquid and floating funds. "The average maturity of liquid funds is currently 51 days," said Mr K. Ramnathan, Fund Manager, Birla Sun Life Asset Management Company. Oil companies such as BPCL are also looking at Mumbai Inter Bank Offered Rate (MIBOR)-linked deposits, which banks offer with returns of around 4.5 per cent. Mr S.K. Joshi, Executive Director, Corporate Treasury, BPCL said, "With all the markets-equity, debt and forex turning turbulent corporates like us are putting money in MIBOR-linked deposits and liquid funds." BPCL like most oil companies, which have a surplus of Rs 50 crore on one day and a borrowing requirement of Rs 150 crore on another day, are planning to test the waters with the comparatively new money market lending and borrowing platform, Collateralised Borrowing and Lending Obligation (CBLO). Mr Naval Bir Kumar, Managing Director, Standard Chartered Mutual Fund, said that actively managed liquid funds have posted high returns and corporates are using this vehicle to maximise their returns at minimal risk exposures. The concerns in the market are the rising domestic inflation figures towards the 6 per cent mark. The high global oil prices, violence in West Asia and impending rise of the US

Analysis of various Balanced and Liquid Funds

interest rates are not helping. Corporate treasurers are waiting for the budget to assess market triggers and are especially interested in how the Finance Minister is planning to raise resources for his ambitious social initiatives. RETURN ON LIQUID FUNDS: Investors who have money for short-term say 15-30 days generally invest in short-term fixed deposits with the banks. Banks give a fixed rate in the range 5%-5.5% p.a. for a term of 15-30 days. But how do these returns compare with those offered by liquid funds, a comparable investment products? Here we have made a brief study for our investors as to which is the right investment option for short-term investment. Most of the banks considered in the above table give a fixed rate of return of over 5% p.a. for tenure of 15-30 days. However, when tax is considered the actual returns on these deposits falls to 3.5% p.a. These returns are surely unattractive!

Other factors that you need to consider: Fixed returns: Deposits give fixed returns to the investor. However, liquid funds don't give a fixed return to the investor but it is clear from the above study that liquid funds give higher returns as compared to the deposits. Tax efficiency: Dividends from liquid funds are tax-free in the hands of investor, which is why they are more attractive than deposits. Returns from deposits are taxable depending on the tax bracket of the investor, which considerably pulls down the actual return (unless of course the interest earned does not exceed the 80 L limit). Let's take an example of two investors `A' and `B' who invest in fixed deposit and Liquid fund respectively. Both are in the highest tax bracket and invest for a tenure of 30 days. `A' makes a deposit of Rs 500,000 in HDFC Bank at the rate of 5% p.a. for a tenure of 30 days and `B' invests in `Templeton (I) Liquid fund' for the same period and amount.

Analysis of various Balanced and Liquid Funds

Liquidity: Deposits marginally score over liquid funds as far as liquidity is concerned. In bank deposits the investor's bank account is credited as soon as his FDR (fixed deposit receipt) is surrendered to the bank. However, in case of liquid funds the investor has to give a redemption request to the fund within the cut off time to receive that days NAV and the cheque is issued to him on the next working day. However, some funds give the facility of crediting the investor's bank account e.g. Franklin Templeton gives this facility to the HDFC bank account holders. Factoring in all these factors, liquid funds do emerge as a better option as compared to fixed deposits. However, while investing money in these funds investors need to carefully evaluate the fund's performance. There is a possibility that liquid funds may not deliver in terms of expected returns owing to market factors. Therefore, if you have Rs 100 to invest, you should probably split the money between a liquid fund and a fixed deposit.

DETAILS OF LIQUID FUND FLOATED BY SBI MAGNUM

SBI PREMIER LIQUID FUND: Investment Objective

The investment objective of the scheme will be to provide attractive returns to the Magnum holders either through periodic dividends or through capital appreciation through an actively managed portfolio of debt and money market instruments. Inc ome may be generated through the receipt of coupon payments, the amortization of the

Analysis of various Balanced and Liquid Funds discount on the debt instruments, receipt of dividends or purchase and sale of securities in the underlying portfolio. Asset Allocation

Instrument

Of which International Bonds

Derivative instruments

Cash & call money Market Instruments

% of Portfolio of

% of Portfolio of

Plan A & B

Plan C

Within SEBI

Within SEBI

stipulated limits

stipulated limits High

Within approved limits

Risk Profile

Medium to

Within approved Medium

Upto 100%

Upto 25%

Low

Upto 25%*

Up to 100%

Not more than

Not more than

10% of the

10% of the

Medium to

investments in

investments in

High

debt inst

debt inst

Corporate Debenture and Bonds/PSU, FI, Government guaranteed Bonds Government

Low to Medium

Securities

Of which Securitized Debt

Scheme Highlights

1. There are 2 options - Institutional Plan and Super Institutional Plan. Both plans have Growth and Dividend Options. 2. Under Dividend option of both plans, the frequency of dividen d payment will be daily, weekly and fortnightly. Daily Dividend under Super Institutional plan will be declared from March 24, 2007 subject to availability of distributable surplus and in compliance with SEBI Regulations from time to time. 3. Daily Dividend will be subject to compulsory reinvestment at applicable NAV irrespective of the amount of investment.

Analysis of various Balanced and Liquid Funds 4. Payout and reinvestment facility will be available only under weekly and fortnightly dividend options. The payout facility under weekly and fortnig htly dividend options in the Institutional Plan will be offered only to such investors who have a minimum investment of Rs 1 crore in these options. 5. The Fund as a whole will be managed as a single portfolio. Both plans will not charge any entry or exit load and will declare NAV on all calendar days with effect from March 23, 2007. 6. Investors who wish to exit from the scheme, can do it at applicable NAV, without exit load, on or before March 22, 2007. Launch Date

Minimum Application

March 23, 2007

Rs. For Institutional Plan - Rs 50 lacs and multiples of Rs 1 lac. For Super Institutional Plan - Rs 5 crores and multiples of Rs 1 lac

Entry Load

Exit Load

Nil

Nil

SIP

SWP

Nil

Nil

Nav's

Plan

Latest Nav

Date

SBI Premier Liquid Fund -

10.1069

30/03/2007

10.5785

30/03/2007

10.0325

30/03/2007

Institutional - Fortnigtly Dividend SBI Premier Liquid Fund Institutional - Weekly Dividend SBI Premier Liquid Fund -

Analysis of various Balanced and Liquid Funds Institutional - Daily Dividend SBI Premier Liquid Fund -

12.0422

30/03/2007

1111

30/03/2007

1111

30/03/2007

12.0422

30/03/2007

10.0325

30/03/2007

Institutional - Growth SBI Premier Liquid Fund Super Institutional Fortnightly Dividend SBI Premier Liquid Fund Super Institutional - Weekly Dividend SBI Premier Liquid Fund Super Institutional - Growth

Chapter 4

INTRODUCTION OF SBI MUTUAL FUND SBI Mutual Fund, India's largest bank sponsored mutual fund, is a joint venture between the State Bank of India and Societe Generale Asset Management, one of the world's top-notch fund management companies. Over the years, SBI Mutual Fund has carved a niche for itself through

prudent

investment

decisions

and

consistent

wealth

creation.

Since its inception, SBI Funds Management Private Ltd. has launched thirty-two schemes and successfully redeemed fifteen of them. Throughout this journey, SBI Mutual Fund has profusely rewarded the 20,00,000 investors who have reposed their faith in it.

Analysis of various Balanced and Liquid Funds Today, the SBI fund boasts of an expertise of managing assets over Rs. 13,000 crores and has a diverse profile of investors actively parking their investments across 28 active schemes. A vast network of 82 collection branches, 26 investor service centres, 21 investor service desks and 21 district organizers helps the SBI Mutual Fund to reach out to their investors. Here is a list of Mutual Funds of SBI:

Equity

Funds

Magnum

COMMA

Fund

Magnum

Equity

Fund

Magnum

Global

Fund

Magnum

Index

Fund

Magnum

MidCap

Fund

Magnum

Multicap

Fund

Magnum

Multiplier

Plus

Magnum Sector Funds Umbrella FMCG Fund Emerging Businesses Fund IT Fund Pharmaceuticals Fund Contra Fund

Magnum TaxGain Scheme SBI Arbitrage Opportunities Fund SBI Bluechip Fund

Debt Funds Magnum Children‘s Benefit Plan Magnum Gilt Fund

Analysis of various Balanced and Liquid Funds Magnum Gilt Fund (Long Term) Mgnum Gilt Fund (Short Term)

Magnum Income Fund Magnum Income Plus Fund Magnum Income Plus Fund (Saving Plan) Magnum Income Plus Fund (Investment Plan)

Magnum Insta Cash Fund Magnum InstaCash Fund - Liquid Floater Plan Magnum Institutional Income Fund Magnum Monthly Income Plan Magnum Monthly Income Plan Floater Magnum NRI Investment Fund

SBI Debt Fund Series 15 Months Fund SDFS 90 Days Fund SDFS 60 Days Fund SDFS 180 Days Fund

Balanced Funds Magnum Balanced Fund Magnum NRI Investment Fund FlexiAsset Plan

Analysis of various Balanced and Liquid Funds

The investments of these schemes will predominantly be in the stock markets and endeavor will be to provide investors the opportunity to benefit from the higher returns which stock markets can provide. However they are also exposed to the volatility and attendant risks of stock markets and hence should be chosen only by such investors who have high risk taking capacities and are willing to think long term. Equity Funds include diversified Equity Funds, Sectoral Funds and Index Funds. Diversified Equity Funds invest in various stocks across different sectors while sectoral funds which are specialized Equity Funds restrict their investments only to shares of a particular sector and hence, are riskier than Diversified Equity Funds. Index Funds invest passively only in the stocks of a particular index and the performance of such funds move with the movements of the index. Magnum Equity Fund This actively managed fund offers growth through investment in a portfolio of select blue chip stocks. The main features of the scheme are: A diversified equity fund, focusing on aggressive growth Minimum application of Rs. 1000

EntryLoad: – Investments below Rs. 5 crores – 2.25% Investments of Rs.5 crores and above – NIL" SIP/ST 2.25% Exit Load – Investments below Rs.5 crores < 6 months - 1.00% 6 months and < 12 months 0.50% Investments of Rs.5 crores and above - NIL SIP /STP-< 6 months from the date of investment of each instalment - 1.00% Ideal for investors who wish to benefit from the growth of the equity markets and are comfortable with the attendant volatility SIP Minimum amount Rs.500/month - 12 months Rs.1000/month - 6months, Rs.1500/quarter 12 months STP Minimum amount Rs.1000/- month - minimum period of 6 months Rs.3000/ Quarter minimum period of 6 months

Inter scheme switches to other equity schemes will not carry an Entry Load. However exit load will be applicable.

Analysis of various Balanced and Liquid Funds

In respect of STP transactions, an investor would now be permitted to transfer any amount from the switch-out scheme, subject to a minimum transfer of Rs.1000 pm or Rs.3000 per quarter, without any restriction on maintaining the minimum balance requirement as stipulated for the switch out scheme. The minimum period for STP will be atleast 6 months. Please read the Offer Document before investing.

Magnum TaxGain What is Magnum TaxGain Scheme about?

Magnum TaxGain Scheme is an Equity Linked Savings Scheme (ELSS) from SBI Mutual Fund which offers investors tax benefits on an investment upto Rs 1 Lakh under Section 80C of Indian Income Tax Act 1961. The fund was launched in the year 1993 and is one of the top performers in the ELSS category. Scheme Highlights:

Entry Load – Investments below Rs. 5 crores – 2.25%,Investments of Rs.5 crores and above – NIL" SIP/STP Entry Load - 2.25% Exit Load : NIL SIP : Minimum amount Rs.500/month - 12 months Rs.1000/month - 6months, Rs.1500/quarter 12 months STP : Minimum amount Rs.1000/- month - 6 months, Rs.3000/ Quarter - 6 months Asset Allocation – 80-100% in Equity, partly convertible debentures and fully convertible debentures and bonds & 0 – 20% in Money market instruments. Minimum Application Amount – Rs 500 for purchase & Multiples of Rs 500 for additional

Analysis of various Balanced and Liquid Funds

purchase. Plans & Options – Dividend option with payout and reinvestment facility. In respect of STP transactions, an investor would now be permitted to transfer any amount from the switch-out scheme, subject to a minimum transfer of Rs.1000 pm or Rs.3000 per quarter, without any restriction on maintaining the minimum balance requirement as stipulated for the switch out scheme. The minimum period for STP will be atleast 6 months. Enter Section 8OC

Section 88 was scrapped in Finance Bill 2005. Instead, Section 80C has been introduced. All avenues that were eligible for tax benefits under Section 88 were brought under the Section 80C fold. However, instead of offering tax rebates, investments (up to Rs 100,000) under Section 80C qualify for deduction from gross total income. Hence a new system of claiming tax benefits is now in place.

ConceptMagnum Index Fund

Magnum Index Fund invests only in the 50 stocks that constitute S&P CNX Nifty index in proportion to each stock's weightage in the index. Hence, who the portfolio Manager is or what his style is does not really matter in such funds. Volatility of such schemes will be in synchronization with the index. This investment is ideal for: Corporate, Institutions, Banks HNIs and Retail Investors desirous of investing in a basket of Nifty Index stocks for an investment as low as Rs. 5000/- with liquidity of Open-ended Mutual Fund Entry load: Investments below Rs. 50 Lakhs – 1.25% Investments of Rs.50 Lakhs and above – NIL SIP/STP - 1.00% Exit Load: Nil SIP /STP- < 12 months from the date of investment of each instalment - 1.00% SIP : Minimum amount Rs.500/month - 12 months Rs.1000/month - 6months, Rs.1500/quarter 12 months STP : Minimum amount Rs.1000/- month - 6 months ,Rs.3000/ Quarter - 6 months

Analysis of various Balanced and Liquid Funds Dividend Option Available

In respect of STP transactions, an investor would now be permitted to transfer any amount from the switch-out scheme, subject to a minimum transfer of Rs.1000 pm or Rs.3000 per quarter, without any restriction on maintaining the minimum balance requirement as stipulated for the switch out scheme. The minimum period for STP will be atleast 6 months

Magnum Sector Funds Umbrella Launched in August 1999 Minimum investment of Rs. 2000 per sector Entry Load : Investments below Rs. 5 crores – 2.25% Investments of Rs.5 crores and above – NIL" SIP/STP - 2.25% Exit Load: Investments below Rs.5 crores < 6 months - 1.00% 6 months and < 12 months 0.50% Investments of Rs.5 crores and above - NIL SIP /STP-< 6 months from the date of investment of each instalment - 1.00% SIP : Minimum amount Rs.500/month - 12 months Rs.1000/month - 6months, Rs.1500/quarter - 12 months STP : Minimum amount Rs.1000/- month - minimum period of 6 months Rs.3000/ Quarter minimum period of 6 months

Inter scheme switches to other equity schemes will not carry an Entry Load. However exit load will be applicable. In respect of STP transactions, an investor would now be permitted to transfer any amount from the switch-out scheme, subject to a minimum transfer of Rs.1000 pm or Rs.3000 per quarter, without any restriction on maintaining the minimum balance requirement as stipulated for the switch out scheme. The minimum period for STP will be atleast 6 months. Choice of 5 high-growth sectors: I.T Fund FMCG Fund Pharma Fund

Analysis of various Balanced and Liquid Funds Contra Fund Emerging Businesses Fund

Information Technology Sector: With the threat of global economic slowdown looming large over the IT industry, software stocks have been under pressure for quite some time now. Inspite of this, the Indian IT industry continues to march ahead as seen by the latest results, making it one of the highest value-addition and net foreign exchange earning industry. The Indian IT industry has zoomed from Rs.98.92 bn, five years ago to Rs.554 bn in FY2000-01, a phenomenal CAGR of over 40%, which is almost double the growth rate of IT industries in many of the developed countries. The Indian IT industry can be classified into four sectors viz. Software, Hardware, Peripherals, Networking & Internet service provider.

Fast Moving Consumer Goods: Fast Moving Consumer Goods (FMCG) are products that are typically purchased and consumed on a regular basis. Some examples of FMCG products include personal products (soaps, shampoos, hair oils, toothpastes, shaving razors etc.), fabric care, processed foods (dairy products, atta, edible oils, chocolates, ice creams etc.), beverages, cigarettes etc. to name a few. The companies in this sector are sprucing up their brands and distribution networks to realize this huge potential. Pharmaceuticals: Pharmaceutical industry is a continuous growth industry, largely immune to economic recession and commodity cycles. The growth is spurred by a rising population, new disease incidence, and resurgence of certain diseases. The pharmaceutical industry grew at a compounded rate of 17% during the last 10 years. The

Analysis of various Balanced and Liquid Funds

companies renewed focus on streamlining their production facilities and increased marketing has seen these companies show a rise in their profits. In reflection of this, the stock prices have also rallied in the past year. Contra Fund: The objective of the Fund is to invest in undervalued scrips, which may be currently out of favour but are likely to show attractive growth in the long term. Thus, this fund provides an alternative to investors for investing in the growth scrips of the future. The funds collected under this scheme will be invested in the equities of :Companies that are fundamentally sound, but generally are undervalued at the time of investment due to lack of investor interest. Companies that have embarked on the path of turnaround by restructuring of operations, hiving off unrelated business, etc. And where the results of the turnaround are likely to accrue in the long term. Companies with strong management, but operating in commodities where there are signs of bottoming out of the business cycle.

Emerging Businesses Fund is an open-ended growth fund launched as the fifth sector fund in Magnum Sector Funds Umbrella (MSFU). The Emerging Businesses Fund will primarily focus its investments in emerging business themes, primarily based on the export/outsourcing opportunities and/or global competitiveness of such themes. It will also focus on emerging domestic investment themes. Entry Load : Investments below Rs. 5 crores – 2.25% Investments of Rs.5 crores and above – NIL" SIP/STP - 2.25% Exit Load: Investments below Rs.5 crores < 6 months - 1.00% 6 months and < 12 months - 0.50% Investments of Rs.5 crores and above - NIL SIP /STP-< 6 months from the date of investment of each instalment - 1.00% SIP : Minimum amount Rs.500/month - 12 months Rs.1000/month - 6months, Rs.1500/quarter 12 months STP : Minimum amount Rs.1000/- month - minimum period of 6 months Rs.3000/ Quarter minimum period of 6 months

Analysis of various Balanced and Liquid Funds

Inter scheme switches to other equity schemes will not carry an Entry Load. However exit load will be applicable. In respect of STP transactions, an investor would now be permitted to transfer any amount from the switch-out scheme, subject to a minimum transfer of Rs.1000 pm or Rs.3000 per quarter, without any restriction on maintaining the minimum balance requirement as stipulated for the switch out scheme. The minimum period for STP will be atleast 6 months. Magnum Multiplier Plus Scheme A diversified equity fund, focussing on steady growth Open-ended from April 1998 Minimum application of Rs. 1000 Entry Load : Investments below Rs. 5 crores – 2.25% Investments of Rs.5 crores and above – NIL" SIP/STP - 2.25% Exit Load: Investments below Rs.5 crores < 6 months - 1.00% 6 months and < 12 months - 0.50% Investments of Rs.5 crores and above - NIL SIP /STP-< 6 months from the date of investment of each instalment - 1.00% SIP : Minimum amount Rs.500/month - 12 months Rs.1000/month - 6months, Rs.1500/quarter 12 months STP : Minimum amount Rs.1000/- month - minimum period of 6 months Rs.3000/ Quarter minimum period of 6 months

Inter scheme switches to other equity schemes will not carry an Entry Load. However exit load will be applicable. In respect of STP transactions, an investor would now be permitted to transfer any amount from the switch-out scheme, subject to a minimum transfer of Rs.1000 pm or Rs.3000 per quarter, without any restriction on maintaining the minimum balance requirement as stipulated for the switch out scheme. The minimum period for STP will be atleast 6 months. . Magnum Global Fund

Analysis of various Balanced and Liquid Funds

The Magnum Global Fund Scheme 1994 commenced from 24th August 1994. This scheme was launched as a close-ended scheme redeeming on 30th September 1999. the scheme was converted into an Open-Ended Fund from 1st October 1999. Main features of the scheme are: Entry Load : Investments below Rs. 5 crores – 2.25% Investments of Rs.5 crores and above – NIL" SIP/STP - 2.25% Exit Load: Investments below Rs.5 crores < 6 months - 1.00% 6 months and < 12 months 0.50% Investments of Rs.5 crores and above - NIL SIP /STP-< 6 months from the date of investment of each instalment - 1.00% SIP : Minimum amount Rs.500/month - 12 months Rs.1000/month - 6months, Rs.1500/quarter - 12 months STP : Minimum amount Rs.1000/- month - minimum period of 6 months Rs.3000/ Quarter minimum period of 6 months

Inter scheme switches to other equity schemes will not carry an Entry Load. However exit load will be applicable. In respect of STP transactions, an investor would now be permitted to transfer any amount from the switch-out scheme, subject to a minimum transfer of Rs.1000 pm or Rs.3000 per quarter, without any restriction on maintaining the minimum balance requirement as stipulated for the switch out scheme. The minimum period for STP will be atleast 6 months. . Magnum MidCap Fund The latest investment option from SBI Mutual Fund enables you to benefit from our expertise in the intricacies of MidCap stocks. So you can leave the hard part of choosing the right stock to grow with and concentrate on enjoying your returns, now and in the long run: Open-ended growth shceme Entry Load : Investments below Rs. 5 crores – 2.25% Investments of Rs.5 crores and above – NIL" SIP/STP - 2.25% Exit Load: Investments below Rs.5 crores < 6 months - 1.00% 6 months and < 12 months -

Analysis of various Balanced and Liquid Funds 0.50% Investments of Rs.5 crores and above - NIL SIP /STP-< 6 months from the date of investment of each instalment - 1.00% SIP : Minimum amount Rs.500/month - 12 months Rs.1000/month - 6months, Rs.1500/quarter 12 months STP : Minimum amount Rs.1000/- month - minimum period of 6 months Rs.3000/ Quarter minimum period of 6 months

Inter scheme switches to other equity schemes will not carry an Entry Load. However exit load will be applicable. In respect of STP transactions, an investor would now be permitted to transfer anyamount from the switch-out scheme, subject to a minimum transfer of Rs.1000 pm or Rs.3000 per quarter, without any restriction on maintaining the minimum balance requirement as stipulated for the switch out scheme.

Magnum Comma Fund

A first of its kind scheme. COMMA is an acronym for Commodities in Oil, Metals, Materials and Agriculture. The objective of the scheme would be to generate opportunities for growth along with possibility of consistent returns by investing predominantly in a portfolio of stocks of companies engaged in the commodity business within the following sectors - Oil& Gas, Metals, Materials & Agriculture and in debt & money market instruments Key Features An open-ended equity scheme investing in stocks of commodity based companies Entry Load : Investments below Rs. 5 crores – 2.25% Investments of Rs.5 crores and above – NIL" SIP/STP - 2.25% Exit Load: Investments below Rs.5 crores < 6 months - 1.00% 6 months and < 12 months -

Analysis of various Balanced and Liquid Funds 0.50% Investments of Rs.5 crores and above - NIL SIP /STP-< 6 months from the date of investment of each instalment - 1.00% SIP : Minimum amount Rs.500/month - 12 months Rs.1000/month - 6months, Rs.1500/quarter - 12 months STP : Minimum amount Rs.1000/- month - minimum period of 6 months Rs.3000/ Quarter minimum period of 6 months

Inter scheme switches to other equity schemes will not carry an Entry Load. However exit load will be applicable. In respect of STP transactions, an investor would now be permitted to transfer any amount from the switch-out scheme, subject to a minimum transfer of Rs.1000 pm or Rs.3000 per quarter, without any restriction on maintaining the minimum balance requirement as stipulated for the switch out scheme. The minimum period for STP will be atleast 6 months.

Magnum Multicap SBI Mutual Fund launches Magnum Mutlicap Fund (An open ended Growth Scheme) Objective

Scheme objective - To provide investors with opportunities for long-term growth in capital along with the liquidity of an open-ended scheme through an active management of investments in a diversified basket of equity stocks spanning the entire market capitalization spectrum, debt and money market instruments. Fund to invest in large, medium and small cap segments in equity instruments. The fund would invest a minimum of 50 per cent of its equity/equity related instruments in large cap stocks and the balance 50 per cent would be dividend between mid cap and small caps with a provision to invest at least 10 per cent in mid cap stocks.

Market

Cap

Minimum

Maximum

Analysis of various Balanced and Liquid Funds

Segment

Allocation

Allocation

Large Cap

50%

90%

Mid Cap

10%

40%

Small Cap

0%

10%

Key Features

Launch date –22nd August 2005 Scheme opened for continuous sale and repurchase. Entry Load : Investments below Rs. 5 crores – 2.25% Investments of Rs.5 crores and above – NIL" SIP/STP - 2.25% Exit Load: Investments below Rs.5 crores < 6 months - 1.00% 6 months and < 12 months 0.50%Investments of Rs.5 crores and above - NIL SIP /STP-< 6 months from the date of investment of each instalment - 1.00% SIP : Minimum amount Rs.500/month - 12 months Rs.1000/month - 6months, Rs.1500/quarter - 12 months STP : Minimum amount Rs.1000/- month - minimum period of 6 months Rs.3000/ Quarter minimum period of 6 months

Inter scheme switches to other equity schemes will not carry an Entry Load. However exit load will be applicable. In respect of STP transactions, an investor would now be permitted to transfer any amount from the switch-out scheme, subject to a minimum transfer of Rs.1000 pm or Rs.3000 per quarter, without any restriction on maintaining the minimum balance requirement as stipulated for the switch out scheme.

BLUE CHIP Fund Launch date - 23rd December 2005 NFO open from 23rd December 2005 to 20th January 2006

Analysis of various Balanced and Liquid Funds Scheme reopens for continuous sale and repurchase from 17th February 2006 Minimum investment - Rs. 5000 and in multiples of Rs. 1000 Dividend and Growth options available. Reinvestment and payout facility available Dividends will be completely tax-free. Long term capital gains to be completely tax-free. Short -term capital gains to be taxed at 10% (plus applicable surcharge and cess) Scheme objective: To provide investors with opportunities for long-term growth in capital through an active management of investments in a diversified basket of equity stocks of companies whose market capitalization is atleast equal to or more than the least market capitalized stock of BSE 100 Index. Systematic Investment Plan available during the NFO. Asset allocation pattern

Normal Type of Instrument

Allocation (% of Net Assets)

Equities related

and

Risk Profile

equity

instruments

70% - 100%

High

including derivatives

Debt and Money Market instruments

0% - 30%

Medium to Low

Entry Load : Investments below Rs. 5 crores – 2.25% Investments of Rs.5 crores and above – NIL" SIP/STP - 2.25% Exit Load: Investments below Rs.5 crores < 6 months - 1.00% 6 months and < 12 months 0.50% Investments of Rs.5 crores and above - NIL SIP /STP-< 6 months from the date of investment of each instalment - 1.00% SIP : Minimum amount Rs.500/month - 12 months Rs.1000/month - 6months, Rs.1500/quarter - 12 months STP : Minimum amount Rs.1000/- month - minimum period of 6 months Rs.3000/ Quarter minimum period of 6 months

Analysis of various Balanced and Liquid Funds

Inter scheme switches to other equity schemes will not carry an Entry Load. However exit load will be applicable. In respect of STP transactions, an investor would now be permitted to transfer any amount from the switch-out scheme, subject to a minimum transfer of Rs.1000 pm or Rs.3000 per quarter, without any restriction on maintaining the minimum balance requirement as stipulated for the switch out scheme. The minimum period for STP will be atleast 6 months.

What would qualify as a blue chip stock? Large companies with an established business presence, Good reputation Possible market leaders in their industry/sector Less uncertainty in topline/ bottom line growth Normally have a history of successful growth, high visibility and reach, good credit ratings Excellent brand equity amongst the general public Widespread interest amongst investing public.

Risk Factors: Mutual Funds and Securities Investments are subject to market risks and there is no assurance or guarantee that the scheme's objectives will be achieved. As with any other investment in securities, the NAV of the Magnums issued under the schemes may go up or down depending upon the factors and forces affecting the securities market. Past performance of the Sponsors/AMC/Mutual Fund/Scheme(s) and their affiliates do not indicate the future performance of the Scheme of the Mutual Fund. Please read the offer document before investing. Statutory details: SBI Mutual Fund has been set up as a trust under the Indian Trusts Act, 1882. State Bank of India ('SBI'), the sponsor is not responsible or liable for any loss resulting from the operation of the schemes beyond the initial contribution made by it of an amount of Rs. 5 lakhs towards setting up of the mutual fund

Analysis of various Balanced and Liquid Funds

ANALYTICAL PART OF THE PROJECT

Analysis of various Balanced and Liquid Funds

MEHTODOLOGY

In this project ―comparative analysis of various balanced & liquid funds of different AMC‘s I have collected data on the NAV values of the funds including the study from may to june 2007 Basd on these data I have calculated the

Annualized return Standard deviation Beta Coefficient of variation Sharpe ratio Treynor ratio

Based on these parameters I have tried to analyse the superiority of one fund over the another

Analysis of various Balanced and Liquid Funds

CHAPTER 5 Details of Various Analytical tools used for Analyzing and evaluating Mutual Funds 5.1The Sharpe Ratio The previous page showed that the efficient frontier is where the most risk-efficient portfolios are, for a given collection of securities. The Sharpe Ratio goes further: it actually helps you find the best possible proportion of these securities to use, in a portfolio that can also contain cash. The definition of the Sharpe Ratio is: S(x) = ( rx - Rf ) / StdDev(x) where x is some investment rx is the average annual rate of return of x Rf is the best available rate of return of a "risk-free" security (i.e. cash) StdDev(x) is the standard deviation of rx The Sharpe Ratio is a direct measure of reward-to-risk. To see how it helps you in creating a portfolio, consider the diagram of the efficient frontier again, this time with cash drawn in.

Analysis of various Balanced and Liquid Funds

There are three important things to notice in this diagram: 1. If you take some investment like "x" and combine it with cash, the resulting portfolio will lie somewhere along the straight line joining cash with x. (This time it's a straight line, not a curve; cash is riskless, so there's no "damping out" effect between cash and x.) 2. Since you want the rate of return to be as great as possible, you want to select the x that gives you the line with the greatest possible slope (like we have done in the diagram). 3. The slope of this line is equal to the Sharpe Ratio of x. Putting this all together gives you the method for finding the best possible portfolio from this collection of securities: First, find the investment with the highest possible Sharpe Ratio (this part requires a computer); Next, take whatever linear combination of this investment and cash will give you your desired value for standard deviation. The result will be the portfolio with the greatest possible rate of return. The Sharpe ratio is a measure of risk-adjusted performance of an investment asset, or a trading strategy. Since its revision by the original author made in 1994, it is defined as:

,

Analysis of various Balanced and Liquid Funds

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

if

Rf

is

a

constant

risk

free

return

throughout

the

period,

. Sharpe´s 1994 revision acknowledged that the risk free rate changes with time, prior to this revision the definition was

assuming a constant Rf. The Sharpe ratio is used to characterize how well the return of an asset compensates the investor for the risk taken. When comparing two assets each with the expected return E[R] against the same benchmark with return Rf, the asset with the higher Sharpe ratio gives more return for the same risk. Investors are often advised to pick investments with high Sharpe ratios. Sharpe ratios, along with Treynor ratios and Jensen's alphas, are often used to rank the performance of portfolio or mutual fund managers. This ratio was developed by William Forsyth Sharpe. Sharpe originally called it the "reward-to-variability" ratio before it began being called the Sharpe Ratio by later academics and financial professionals. Recently, the (original) Sharpe ratio has often been challenged with regard to its appropriateness as a fund performance measure during evaluation periods of declining markets. [Examples Suppose the asset has an expected return of 15%. We typically do not know the asset will have this return; suppose we assess the risk of the asset, defined as standard deviation of the asset's excess return, as 10%. Finally, suppose the risk-free rate of return, Rf, is 4%. Then the Sharpe ratio will be 1.10 (R = 0.15, Rf = 0.04, and σ = 0.10).

Analysis of various Balanced and Liquid Funds

Jensen's alpha In finance, Jensen's alpha (or Jensen's Performance Index) is used to determine the excess return of a stock, other security, or portfolio over the security's required rate of return as determined by the Capital Asset Pricing Model. This model is used to adjust for the level of beta risk, so that riskier securities are expected to have higher returns. The measure was first used in the evaluation of mutual fund managers by Michael Jensen in the 1970's. To calculate alpha, the following inputs are needed: the realized return (on the portfolio), the market return, the risk-free rate of return, and the beta of the portfolio. Jensen's alpha = Portfolio Return - (Risk free return + (Market Return - Risk free Return) * Beta) Alpha is still widely used to evaluate mutual fund and portfolio manager performance, often in conjunction with the Sharpe ratio and the Treynor ratio. Sortino ratio

The Sortino ratio is a measure of a risk-adjusted return of an investment asset. It is an extension of the Sharpe ratio. While the Sharpe ratio takes into account any volatility in return of an asset, Sortino ratio differentiates volatility due to up and down movements. The up movements are considered desirable and not accounted in the volatility. That is, the Sortino ratio does not penalize a fund for its upside volatility. The ratio is calculated as

,

Analysis of various Balanced and Liquid Funds

where R is the asset return, Rf is the return on a benchmark asset, such as the risk free rate of return, E[R − Rf] is the expected excess return, and σd is the downside volatility. The downside volatility is computed using the standard deviation formula, keeping only the contribution of negative excess returns. Other variations use the semivariance as the denominator

Modern portfolio theory

Capital Market Line Modern portfolio theory (MPT) proposes how rational investors will use diversification to optimize their portfolios, and how a risky asset should be priced. The basic concepts of the theory are Markowitz diversification, the efficient frontier, capital asset pricing model, the alpha and beta coefficients, the Capital Market Line and the Securities Market Line. MPT models an asset's return as a random variable, and models a portfolio as a weighted combination of assets; the return of a portfolio is thus the weighted combination of the assets' returns. Moreover, a portfolio's return is a random variable, and consequently has an expected value and a variance. Risk, in this model, is the standard deviation of the portfolio's return.

Analysis of various Balanced and Liquid Funds

Risk and reward The model assumes that investors are risk averse. This means that given two assets that offer the same expected return, investors will prefer the less risky one. Thus, an investor will take on increased risk only if compensated by higher expected returns. Conversely, an investor who wants higher returns must accept more risk. The exact trade-off will differ by investor based on individual risk aversion characteristics. The implication is that a rational investor will not invest in a portfolio if a second portfolio exists with a more favourable risk-return profile - i.e. if for that level of risk an alternative portfolio exists which has better expected returns. Mean and variance It is further assumed that investor's risk / reward preference can be described via a quadratic utility function. The effect of this assumption is that only the expected return and the volatility (i.e. mean return and standard deviation) matter to the investor. The investor is indifferent to other characteristics of the distribution of returns, such as its skew. Note that the theory uses a historical parameter, volatility, as a proxy for risk, while return is an expectation on the future. Under the model: Portfolio return is the proportion-weighted combination of the constituent assets' returns. Portfolio volatility is a function of the correlation of the component assets. The change in volatility is non-linear as the weighting of the component assets changes. Mathematically In general: Expected return:

Where R is return.

Analysis of various Balanced and Liquid Funds

Portfolio variance:

Portfolio volatility:

For a two asset portfolio: Portfolio

return:

Portfolio variance: For a three asset portfolio, the variance is:

As can be seen, as the number of assets (n) in the portfolio increases, the calculation becomes ―computationally intensive‖ - the number of covariance terms = n (n-1) /2. For this reason, portfolio computations usually require specialized software. These values can also be modeled using matrices; for a manageable number of assets, these statistics can be calculated using a spreadsheet. Diversification An investor can reduce portfolio risk simply by holding instruments which are not perfectly correlated. In other words, investors can reduce their exposure to individual asset risk by holding a diversified portfolio of assets. Diversification will allow for the same portfolio return with reduced risk. For diversification to work the component assets must not be perfectly correlated, i.e. correlation coefficient not equal to 1. Mathematically:

Analysis of various Balanced and Liquid Funds

From the formulae above: if any two assets in the portfolio have a correlation of less than 1 the portfolio variance and hence volatility will be less than the weighted average of the individual instruments' volatilities. Capital allocation line The Capital Allocation Line (CAL) is the line of expected return plotted against risk (standard deviation) that connects all portfolios that can be formed using a risky asset and a riskless asset. It can be proven that it is a straight line and that it has the following equation.

In this formula P is the risky portfolio, F is the riskless portfolio and C is a combination of portfolios P and F. The efficient frontier

Efficient Frontier Every possible asset combination can be plotted in risk-return space, and the collection of all such possible portfolios defines a region in this space. The line along the upper edge of this region is known as the efficient frontier (sometimes ―the Markowitz frontier‖). Combinations along this line represent portfolios for which there is lowest risk for a given level of return. Conversely, for a given amount of risk, the portfolio

Analysis of various Balanced and Liquid Funds

lying on the efficient frontier represents the combination offering the best possible return. Mathematically the Efficient Frontier is the intersection of the Set of Portfolios with Minimum Variance and the Set of Portfolios with Maximum Return. The efficient frontier is illustrated above, with return μp on the y axis, and risk σp on the x axis; an alternative illustration from the diagram in the CAPM article is at right. The efficient frontier will be convex – this is because the risk-return characteristics of a portfolio change in a non-linear fashion as its component weightings are changed. (As described above, portfolio risk is a function of the correlation of the component assets, and thus changes in a non-linear fashion as the weighting of component assets changes.) The region above the frontier is unachievable by holding risky assets alone. No portfolios can be constructed corresponding to the points in this region. Points below the frontier are suboptimal. A rational investor will hold a portfolio only on the frontier. [edit] The risk-free asset The risk-free asset is the (hypothetical) asset which pays a risk-free rate - it is usually proxied by an investment in short-dated Government securities. The risk-free asset has zero variance in returns (hence is risk-free); it is also uncorrelated with any other asset (by definition: since its variance is zero). As a result, when it is combined with any other asset, or portfolio of assets, the change in return and also in risk is linear. Because both risk and return change linearly as the risk-free asset is introduced into a portfolio, this combination will plot a straight line in risk-return space. The line starts at 100% in cash and weight of the risky portfolio = 0 (i.e. intercepting the return axis at the risk-free rate) and goes through the portfolio in question where cash holding = 0 and portfolio weight = 1. Mathematically: Using the formulae for a two asset portfolio as above:

Analysis of various Balanced and Liquid Funds

Return is the weighted average of the risk free asset, f, and the risky portfolio, p, and is therefore linear: Return = Since the asset is risk free, portfolio standard deviation is simply a function of the weight of the risky portfolio in the position. This relationship is linear. Standard deviation = = = =

Portfolio leverage An investor can add leverage to the portfolio by borrowing the risk-free asset. The addition of the risk-free asset allows for a position in the region above the efficient frontier. Thus, by combining a risk-free asset with risky assets, it is possible to construct portfolios whose risk-return profiles are superior to those on the efficient frontier. An investor holding a portfolio of risky assets, with a holding in cash, has a positive risk-free weighting (a de-leveraged portfolio). The return and standard deviation will be lower than the portfolio alone, but since the efficient frontier is convex, this combination will sit above the efficient frontier – i.e. offering a higher return for the same risk as the point below it on the frontier. The investor who borrows money to fund his/her purchase of the risky assets has a negative risk-free weighting -i.e a leveraged portfolio. Here the return is geared to the risky portfolio. This combination will again offer a return superior to those on the frontier.

The market portfolio

Analysis of various Balanced and Liquid Funds

The efficient frontier is a collection of portfolios, each one optimal for a given amount of risk. A quantity known as the Sharpe ratio represents a measure of the amount of additional return (above the risk-free rate) a portfolio provides compared to the risk it carries. The portfolio on the efficient frontier with the highest Sharpe Ratio is known as the market portfolio, or sometimes the super-efficient portfolio; it is the tangencyportfolio in the above diagram. This portfolio has the property that any combination of it and the risk-free asset will produce a return that is above the efficient frontier - offering a larger return for a given amount of risk than a portfolio of risky assets on the frontier would. Capital market line When the market portfolio is combined with the risk-free asset, the result is the Capital Market Line. All points along the CML have superior risk-return profiles to any portfolio on the efficient frontier. (The market portfolio with zero cash weighting is on the efficient frontier; additions of cash or leverage with the risk-free asset in combination with the market portfolio are on the Capital Market Line. All of these portfolio represent the highest Sharpe ratios possible.) The CML is illustrated above, with return μp on the y axis, and risk σp on the x axis. One can prove that the CML is the optimal CAL and that its equation is:

Asset pricing A rational investor would not invest in an asset which does not improve the risk-return characteristics of his existing portfolio. Since a rational investor would hold the market portfolio, the asset in question will be added to the market portfolio. MPT derives the required return for a correctly priced asset in this context. Systematic risk and specific risk

Analysis of various Balanced and Liquid Funds

Specific risk is the risk associated with individual assets - within a portfolio these risks can be reduced through diversification (specific risks "cancel out"). Systematic risk, or market risk, refers to the risk common to all securities - except for selling short as noted below, systematic risk cannot be diversified away (within one market). Within the market portfolio, asset specific risk will be diversified away to the extent possible. Systematic risk is therefore equated with the risk (standard deviation) of the market portfolio. Since a security will be purchased only if it improves the risk / return characteristics of the market portfolio, the risk of a security will be the risk it adds to the market portfolio. In this context, the volatility of the asset, and its correlation with the market portfolio, is historically observed and is therefore a given (there are several approaches to asset pricing that attempt to price assets by modelling the stochastic properties of the moments of assets' returns - these are broadly referred to as conditional asset pricing models). The (maximum) price paid for any particular asset (and hence the return it will generate) should also be determined based on its relationship with the market portfolio. Systematic risks within one market can be managed through a strategy of using both long and short positions within one portfolio, creating a "market neutral" portfolio. Security characteristic line The Security Characteristic Line (SCL) represents the relationship between the market return (rM) and the return of a given asset i (r i) at a given time t. In general, it is reasonable to assume that the SCL is a straight line and can be illustrated as a statistical equation:

where αi is called the asset's alpha coefficient and βi the asset's beta coefficient. Capital asset pricing model The asset return depends on the amount paid for the asset today. The price paid must ensure that the market portfolio's risk / return characteristics improve when the asset is added to it. The CAPM is a model which derives the theoretical required return

Analysis of various Balanced and Liquid Funds

(i.e. discount rate) for an asset in a market, given the risk-free rate available to investors and the risk of the market as a whole. The CAPM is usually expressed:

β, Beta, is the measure of asset sensitivity to a movement in the overall market; Beta is usually found via regression on historical data. Betas exceeding one signify more than average "riskiness"; betas below one indicate lower than average.

is the market premium, the historically observed excess return of the market over the risk-free rate. Once the expected return, E(ri), is calculated using CAPM, the future cash flows of the asset can be discounted to their present value using this rate to establish the correct price for the asset. (Here again, the theory accepts in its assumptions that a parameter based on past data can be combined with a future expectation.) A more risky stock will have a higher beta and will be discounted at a higher rate; less sensitive stocks will have lower betas and be discounted at a lower rate. In theory, an asset is correctly priced when its observed price is the same as its value calculated using the CAPM derived discount rate. If the observed price is higher than the valuation, then the asset is overvalued; it is undervalued for a too low price Mathematically: (1) The incremental impact on risk and return when an additional risky asset, a, is added to the market portfolio, m, follows from the formulae for a two asset portfolio. These results are used to derive the asset appropriate discount rate.

Analysis of various Balanced and Liquid Funds

Risk = Hence, risk added to portfolio = but since the weight of the asset will be relatively low, i.e. additional risk = Return = Hence additional return = (2) If an asset, a, is correctly priced, the improvement in risk to return achieved by adding it to the market portfolio, m, will at least match the gains of spending that money on an increased stake in the market portfolio. The assumption is that the investor will purchase the asset with funds borrowed at the risk-free rate, Rf; this is rational if

.

Thus:

i.e. : i.e. : is the ―beta‖, β -- the covariance between the asset and the market compared to the variance of the market, i.e. the sensitivity of the asset price to movement in the market portfolio. The relationship between Beta & required return is plotted on the securities market line (SML) which shows expected return as a function of β. The intercept is the risk-free rate available for the market, while the slope is

. The Securities market line

can be regarded as representing a single-factor model of the asset price, where Beta is exposure to changes in value of the Market. The equation of the SML is thus:

Comparison with arbitrage pricing theory

Analysis of various Balanced and Liquid Funds

The SML and CAPM are often contrasted with the Arbitrage pricing theory (APT), which holds that the expected return of a financial asset can be modeled as a linear function of various macro-economic factors, where sensitivity to changes in each factor is represented by a factor specific beta coefficient. The APT is less restrictive in its assumptions: it allows for an explanatory (as opposed to statistical) model of asset returns, and assumes that each investor will hold a unique portfolio with its own particular array of betas, as opposed to the identical "market portfolio". Unlike the CAPM, the APT, however, does not itself reveal the identity of its priced factors - the number and nature of these factors is likely to change over time and between economies. Upside potential ratio The upside potential ratio is a measure of a return of an investment asset relative to the minimal acceptable return. The measurement allows to choose strategies with growth that is as stable as possible for a given minimum return.

where R - return, Pr - probability of such return, Rmin, min - minimal acceptable return. The upside potential ratio may also be expressed as a ratio of partial moments. The measure was developed by Frank A. Sortino. 5.2 Treynor ratio The Treynor ratio is a measurement of the returns earned in excess of that which could have been earned on a riskless investment (i.e. Treasury Bill) (per each unit of market risk assumed).

Analysis of various Balanced and Liquid Funds

The Treynor ratio (sometimes called reward-to-volatility ratio) relates excess return over the risk-free rate to the additional risk taken; however systematic risk instead of total risk is used. The higher the Treynor ratio, the better the performance under analysis.

where Treynor ratio, portfolio return, risk free rate portfolio beta Like the Sharpe ratio, the Treynor ratio (T) does not quantify the value added, if any, of active portfolio management. It is a ranking criterion only. A ranking of portfolios based on the Treynor Ratio is only useful if the portfolios under consideration are subportfolios of a broader, fully diversified portfolio. If this is not the case, portfolios with identical systematic risk, but different total risk, will be rated the same. But the portfolio with a higher total risk is less diversified and therefore has a higher unsystematic risk which is not priced in the market. An alternative method of ranking portfolio management is Jensen's alpha, which quantifies the added return as the excess return above the security market line in the capital asset pricing model

Information ratio The Information Ratio concept is one measure of volatility-adjusted return and is used in the analysis of performance of mutual funds, hedge funds, etc. Specifically, the information ratio is defined as excess return divided by tracking error. Excess return is

Analysis of various Balanced and Liquid Funds

the amount of performance over or under a given benchmark index. Thus, excess return can be positive or negative. Tracking error is the standard deviation of the excess return. The ratio compares the annualized returns of the Fund in question with those of a selected benchmark (e.g, 3 month Treasuries). Since this ratio considers the annualized standard deviation of both series (as measures of risks inherent in owning either the fund or the benchmark), the ratio shows the risk-adjusted excess return of the Fund over the benchmark. The higher the Information Ratio, the higher the excess return of the Fund, given the amount of risk involved, and the better a Fund manager. This ratio is calculated as: Information Ratio = (AnnRtn(r1, ..., rn) - AnnRtn(s1, ..., sn)) / AnnStdDev(e1, ..., en) where: r1, ..., rn = manager return series

s1, ..., sn = benchmark return series e1, ..., en = r1 - s1, ..., rn - sn The Information ratio is similar to the Sharpe Ratio, but there is a major difference. The Sharpe Ratio compares the return of an asset against the return of Treasury bills, but the Information Ratio compares excess return to the most relevant equity (or debt) benchmark index. 5.3 Standard deviation In probability and statistics, the standard deviation of a probability distribution, random variable, or population or multiset of values is a measure of the spread of its values. It is usually denoted with the letter σ (lower case sigma). It is defined as the square root of the variance. In other words, the standard deviation is the root mean square (RMS) deviation of values from their arithmetic mean.

Analysis of various Balanced and Liquid Funds

For example, in the population {4, 8}, the mean is 6 and the standard deviation is 2. This may be written: {4, 8} ≈ 6±2. In this case 100% of the values in the population are at one standard deviation of the mean. The standard deviation is the most common measure of statistical dispersion, measuring how widely spread the values in a data set are. If the data points are close to the mean, then the standard deviation is small. Conversely, if many data points are far from the mean, then the standard deviation is large. If all the data values are equal, then the standard deviation is zeroDefinition and calculation Standard deviation of a random variable The standard deviation of a random variable X is defined as:

where E(X) is the expected value of X. Not all random variables have a standard deviation, since these expected values need not exist. For example, the standard deviation of a random variable which follows a Cauchy distribution is undefined. If the random variable X takes on the values x1,...,xN (which are real numbers) with equal probability, then its standard deviation can be computed as follows. First, the mean of X,

, is defined as a summation:

where N is the number of samples taken. Next, the standard deviation simplifies to:

Analysis of various Balanced and Liquid Funds

In other words, the standard deviation of a discrete uniform random variable X can be calculated as follows: 1.

For each value xi calculate the difference value

between xi and the average

.

2.

Calculate the squares of these differences.

3.

Find the average of the squared differences. This quantity is the variance σ2.

4.

Take the square root of the variance.

Estimating population standard deviation from sample standard deviation In the real world, finding the standard deviation of an entire population is unrealistic except in certain cases, such as standardized testing, where every member of a population is sampled. In most cases, the standard deviation is estimated by examining a random sample taken from the population. The most common measure used is the sample standard deviation, which is defined by

where

is the sample and

is the mean of the sample.

The reason for this definition is that s2 is an unbiased estimator for the variance σ2 of the underlying population, if that variance exists and the sample values are drawn independently with replacement. However, s is not an unbiased estimator for the standard deviation σ; it tends to underestimate the population standard deviation. Although an unbiased estimator for σ is known when the random variable is normally distributed, the formula is complicated and amounts to a minor correction. Moreover, unbiasedness, in this sense of the word, is not always desirable; see bias of an estimator. Another estimator sometimes used is the similar expression

Analysis of various Balanced and Liquid Funds

This form has a uniformly smaller mean squared error than does the unbiased estimator, and is the maximum-likelihood estimate when the population is normally distributed. Example We will show how to calculate the standard deviation of a population. Our example will use the ages of four young children: { 5, 6, 8, 9 }. Step 1. Calculate the mean average,

:

We have N = 4 because there are four data points:

Replacing N with 4

This is the mean. Step 2. Calculate the standard deviation

:

Analysis of various Balanced and Liquid Funds

Replacing N with 4

Replacing

with 7

So, tInterpretation and application A large standard deviation indicates that the data points are far from the mean and a small standard deviation indicates that they are clustered closely around the mean. For example, each of the three data sets (0, 0, 14, 14), (0, 6, 8, 14) and (6, 6, 8, 8) has a mean of 7. Their standard deviations are 7, 5, and 1, respectively. The third set has a much smaller standard deviation than the other two because its values are all close to 7. In a loose sense, the standard deviation tells us how far from the mean the data points tend to be. It will have the same units as the data points themselves. If, for instance, the data set (0, 6, 8, 14) represents the ages of four siblings, the standard deviation is 5 years.

Analysis of various Balanced and Liquid Funds

As another example, the data set (1000, 1006, 1008, 1014) may represent the distances traveled by four athletes in 3 minutes, measured in meters. It has a mean of 1007 meters, and a standard deviation of 5 meters. Standard deviation may serve as a measure of uncertainty. In physical science for example, the reported standard deviation of a group of repeated measurements should give the precision of those measurements. When deciding whether measurements agree with a theoretical prediction, the standard deviation of those measurements is of crucial importance: if the mean of the measurements is too far away from the prediction (with the distance measured in standard deviations), then we consider the measurements as contradicting the prediction. This makes sense since they fall outside the range of values that could reasonably be expected to occur if the prediction were correct and the standard deviation appropriately quantified. he stGeometric interpretation To gain some geometric insights, we will start with a population of three values, x1, x2, x3. This defines a point P = (x1, x2, x3) in R3. Consider the line L = {(r, r, r) : r in R}. This is the "main diagonal" going through the origin. If our three given values were all equal, then the standard deviation would be zero and P would lie on L. So it is not unreasonable to assume that the standard deviation is related to the distance of P to L. And that is indeed the case. Moving orthogonally from P to the line L, one hits the point:

whose coordinates are the mean of the values we started out with. A little algebra shows that the distance between P and R (which is the same as the distance between P and the line L) is given by σ√3. An analogous formula (with 3 replaced by N) is also valid for a population of N values; we then have to work in RN. Rules for normally distributed data

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Dark blue is less than one standard deviation from the mean. For the normal distribution, this accounts for 68.27% of the set; while two standard deviations from the mean (medium and dark blue) account for 95.45%; and three standard deviations (light, medium, and dark blue) account for 99.73%. In practice, one often assumes that the data are from an approximately normally distributed population. If that assumption is justified, then about 68% of the values are within 1 standard deviation of the mean, about 95% of the values are within two standard deviations and about 99.7% lie within 3 standard deviations. This is known as the "68-95-99.7 rule", or "the empirical rule" The confidence intervals are as follows:

σ

68.26894921371%

2σ 95.44997361036%

3σ 99.73002039367%

4σ 99.99366575163%

5σ 99.99994266969%

Analysis of various Balanced and Liquid Funds

6σ 99.99999980268%

7σ 99.99999999974% Relationship between standard deviation and mean The mean and the standard deviation of a set of data are usually reported together. In a certain sense, the standard deviation is a "natural" measure of statistical dispersion if the center of the data is measured about the mean. This is because the standard deviation from the mean is smaller than from any other point. The precise statement is the following: suppose x1, ..., xn are real numbers and define the function:

Using calculus, it is possible to show that σ(r) has a unique minimum at the mean:

(this can also be done with fairly simple algebra alone, since, as a function of r, it is a quadratic polynomial). The coefficient of variation of a sample is the ratio of the standard deviation to the mean. It is a dimensionless number that can be used to compare the amount of variance between populations with different means. Chebyshev's inequality proves that in any data set, nearly all of the values will be nearer to the mean value, where the meaning of "close to" is specified by the standard deviation. Rapid calculation methods A slightly faster (significantly for running standard deviation) way to compute the sample standard deviation is given by the following formula (though considerations

Analysis of various Balanced and Liquid Funds

must be made for round-off error, arithmetic overflow, and arithmetic underflow conditions):

or

where the power sums s0, s1, s2 are defined by

Similarly for population standard deviation:

Or from running sums:

See also algorithms for calculating variance. An axiomatic approach It is a nice fact that the mean value μ and the standard deviation σ is completely characterized by the simple algebraic properties

and

Analysis of various Balanced and Liquid Funds

, together with a symmetry condition and the initial condition The set of two numbers,

so that

and

Consider the power sums:

The power sums sj are symmetric functions of the vector X, and the symmetric functions μ and σ2 are written in terms of these like this:

(because by polynomial expansion and rearrangement)

Analysis of various Balanced and Liquid Funds

or

This formula for the special case n = 2 generalizes to

preserving

the rules. The power sums are

5.4 Beta coefficient Beta coefficient, in terms of finance and investing, is a measure of a stock (or portfolio)‘s volatility in relation to the rest of the market. Beta is calculated for individual companies using regression analysis. (See Investing below) The beta coefficient is a key parameter in the capital asset pricing model (CAPM). It measures the part of the asset's statistical variance that cannot be mitigated by the diversification provided by the portfolio of many risky assets, because it is correlated with the return of the other assets that are in the portfolio. For example, if every stock in the New York Stock Exchange was uncorrelated with every other stock, then every stock would have a Beta of zero, and it would be possible to create a portfolio that was nearly risk free, simply by diversifying it sufficiently so that the variations in the individual stocks' prices averaged out. This would be like

Analysis of various Balanced and Liquid Funds

owning a casino royale: essentially none of the business risk of owning a casino comes from the uncertain outcomes of the games of chance played by the customers, because those are uncorrelated, and average out over any significant period of time. In reality, investments tend to be correlated, more so within an industry, or when considering a single asset class (such as equities), as was demonstrated in the Wall Street crash of 1929. This correlated risk, measured by Beta, is what actually creates almost all of the risk in a diversified portfolio.

The formula for the Beta of an asset within a portfolio is

,

where ra measures the rate of return of the asset and rp measures the rate of return of the portfolio of which the asset is a part. In the CAPM formulation, the portfolio is the market portfolio that contains all risky assets, and so the rp terms in the formula are replaced by rm, the rate of return of the market. Beta is also referred to as financial elasticity or correlated relative volatility, and can be referred to as a measure of the asset's sensitivity of the asset's returns to market returns, its non-diversifiable risk, its systematic risk or market risk. On an individual asset level, measuring beta can give clues to volatility and liquidity in the marketplace. On a portfolio level, measuring beta is thought to separate a manager's skill from his or her willingness to take risk. The beta movement should be distinguished from the actual returns of the stocks. For example, a sector may be performing well and may have good prospects, but the fact that its movement does not correlate well with the broader market index may decrease its beta. However, it should not be taken as a reflection on the overall attractiveness or the loss of it for the sector, or stock as the case may be. Beta is a measure of risk and not to be confused with the attractiveness of the investment. The beta coefficient was born out of linear regression analysis. It is linked to a regression analysis of the returns of a portfolio (such as a stock index) (x-axis) in a specific period versus the returns an individual asset (y-axis) in a specific year. The regression line is then called the Security Characteristic Line (SCL).

Analysis of various Balanced and Liquid Funds

αa is called the asset's alpha coefficient and βa is called the asset's beta coefficient. Both coefficients have an important role in Modern portfolio theory. For example, in a year where the broad market or benchmark index returns 25% above the risk free rate, suppose two managers gain 50% above the risk free rate. Since this higher return is theoretically possible merely by taking a leveraged position in the broad market to double the beta so it is exactly 2.0, we would expect a skilled portfolio manager to have built the outperforming portfolio with a beta somewhat less than 2, such that the excess return not explained by the beta is positive. If one of the managers' portfolios has an average beta of 3.0, and the other's has a beta of only 1.5, then the CAPM simply states that the extra return of the first manager is not sufficient to compensate us for that manager's risk, whereas the second manager has done more than expected given the risk. Whether investors can expect the second manager to duplicate that performance in future periods is of course a different question.

Analysis of various Balanced and Liquid Funds

5.5 COMPARISON OF VARIOUS BALANCED & LIQUID FUNDS Comparision of Balanced and Liquid Funds of SBI Magnum with Balanced and Liquid Funds Of other AMC’s

Main Sheet

Scheme Name

NAV

Launch date

Corpus (in Crs)

Birla Balance Fund Growth

27.96

4-Oct-99

125.70 (30-Nov-06)

Birla SunLife 95 Growth

174.02

11-Feb-95

128.72 (30-Nov-06)

BOB Balance Fund Growth

22.10

3-Sep-03

0.99 (30-Nov-06)

BALANCE FUND

Analysis of various Balanced and Liquid Funds Can Balanced Growth Plan

28.01

20-Mar-98

61.81 (30-Nov-06)

Can Balanced II

37.41

1-Feb-93

81.45 (30-Nov-06)

DSP ML Balanced Fund - Growth

38.48

14-May-99

402.46 (30-Nov-06)

Escorts Balanced Fund - Growth

46.27

20-Mar-01

4.35 (30-Nov-06)

Escorts Opportunities Fund - Growth

25.20

26-Feb-01

71.51 (30-Nov-06)

Franklin India Balanced Fund – Growth

35.25

13-Jul-00

44.05 (29-Jun-04)

FT India Balanced Fund - Growth

32.64

10-Dec-99

249.49 (30-Nov-06)

HDFC Balanced Fund - Growth

31.99

10-Aug-00

123.74 (30-Nov-06)

HDFC Prudence Fund - Growth

113.76

31-Jan-94

2119.30 (30-Nov-06)

ING Vysya Balanced Fund - Growth

18.18

17-Apr-00

8.21 (30-Nov-06)

JM Balanced Growth

23.30

22-Dec-94

15.92 (30-Nov-06)

Kotak Balance Growth

23.59

29-Nov-99

104.59 (30-Nov-06)

LIC Balanced - Plan C (Growth)

45.46

1-Jan-91

30.04 (30-Nov-06)

PRINCIPAL Balanced Fund Growth

21.89

14-Jan-00

31.12 (30-Nov-06)

Prudential ICICI Balanced - Growth

34.63

7-Oct-99

482.62 (30-Nov-06)

Reliance RSF Hybrid - Growth

11.51

10-May-05

2.18 (30-Nov-06)

SBI Magnum Balanced Fund – Growth

35.37

31-Oct-95

252.91 (30-Nov-06)

Sundaram BNP Balanced Fund – Growth

32.25

25-May-00

47.79 (30-Nov-06)

Tata Balanced Fund Growth

49.33

7-Oct-95

155.39 (30-Nov-06)

Analysis of various Balanced and Liquid Funds Unit Scheme 2002 Growth

13.8100 (21-Nov-06)

15-Nov-02

608.14 (31-Oct-06)

UTI Balanced Fund Growth

55.85

12-Feb-95

1198.32 (30-Nov-06)

3 Years

Rank

Since Inception

Rank

Beta

Std. Dev.

Months

Annualis ed Returns

Sharpe Rastio

Teynors ratio

83.34

17

179.60

17

1.04

1.02

75.00

28.74

22.29

21.86

109.81

8

1640.20

1

0.96

1.02

155.00

126.98

118.61

126.02

75.40

20

121.00

20

1.41

1.53

40.00

36.30

19.80

21.49

46.04

23

299.96

9

1.03

1.07

105.00

34.28

26.43

27.46

136.03

3

288.07

10

1.14

1.17

167.00

20.70

12.56

12.89

110.63

5

284.83

11

1.13

1.08

79.00

43.27

34.50

32.98

108.87

9

361.71

7

1.15

1.15

69.00

62.91

49.48

49.48

47.39

22

151.79

18

0.99

1.00

70.00

26.02

20.02

20.22

99.49

12

252.50

12

1.16

1.13

78.00

38.85

29.07

28.32

99.85

11

226.36

14

1.16

1.13

84.00

32.34

23.31

22.70

84.30

15

219.91

15

1.14

1.13

77.00

34.27

25.02

24.80

145.73

2

1378.34

2

1.00

1.06

155.00

106.71

95.01

100.71

85.51

14

81.80

23

1.11

1.13

80.00

12.27

5.55

5.65

101.73

10

593.48

5

1.20

1.23

144.00

49.46

35.33

36.21

Analysis of various Balanced and Liquid Funds 131.28

4

319.87

8

1.17

1.18

85.00

45.16

33.18

33.47

81.08

18

112.01

22

1.29

1.27

192.00

7.00

0.79

0.78

87.09

13

118.90

21

1.15

1.18

84.00

16.99

9.31

9.55

110.13

6

246.30

13

1.24

1.21

87.00

33.97

23.12

22.56

--

--

14.78

24

0.20

0.28

20.00

8.87

10.24

14.34

166.10

1

704.47

4

1.11

1.13

134.00

63.09

50.52

51.43

83.76

16

217.71

16

0.94

0.97

79.00

33.07

27.91

28.80

109.92

7

572.14

6

1.19

1.20

135.00

50.86

37.38

37.69

63.82

21

148.83

19

1.01

1.00

49.00

36.45

30.45

30.15

78.72

19

925.81

3

0.94

1.00

143.00

77.69

71.69

76.27

COMPARISON ON THE BASIS OF STANDARD DEVIATION & BETA

NAV

LAUNCH DATE

BETA

ST. DEV

Can Balanced Growth Plan

28.01

20-Mar-98

1.03

1.07

Can Balanced II

37.41

1-Feb-93

1.14

1.17

DSP ML Balanced Fund - Growth

38.48

14-May-99

1.13

1.08

Escorts Balanced Fund - Growth

46.27

20-Mar-01

1.15

1.15

Escorts Opportunities Fund Growth

25.20

26-Feb-01

0.99

1.00

FUND NAME

Analysis of various Balanced and Liquid Funds Franklin India Balanced Fund Growth

35.25

13-Jul-00

1.16

1.13

FT India Balanced Fund - Growth

32.64

10-Dec-99

1.16

1.13

HDFC Balanced Fund - Growth

31.99

10-Aug-00

1.14

1.13

HDFC Prudence Fund - Growth

113.76

31-Jan-94

1.00

1.06

ING Vysya Balanced Fund Growth

18.18

17-Apr-00

1.11

1.13

JM Balanced Growth

23.30

22-Dec-94

1.20

1.23

Kotak Balance Growth

23.59

29-Nov-99

1.17

1.18

LIC Balanced - Plan C (Growth)

45.46

1-Jan-91

1.29

1.27

PRINCIPAL Balanced Fund Growth

21.89

14-Jan-00

1.15

1.18

Prudential ICICI Balanced - Growth

34.63

7-Oct-99

1.24

1.21

Reliance RSF Hybrid - Growth

11.51

10-May-05

0.20

0.28

SBI Magnum Balanced Fund Growth

35.37

31-Oct-95

1.11

1.13

Sundaram BNP Balanced Fund Growth

32.25

25-May-00

0.94

0.97

Tata Balanced Fund - Growth

49.33

7-Oct-95

1.19

1.20

Unit Scheme 2002 Growth

13.81

15-Nov-02

1.01

1.00

UTI Balanced Fund - Growth

55.85

12-Feb-95

0.94

1.00

Analysis of various Balanced and Liquid Funds

BETA-ST.DEV ANALYSIS 1.4

1.2

1

0.8 BETA ST. DEV 0.6

0.4

0.2

0 1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

The above fig. shows the relation between std deviation &beta pf the funds under consideration we know that std deviation signifies total risk of the fund & beta signifies systematic risk component only. The above fig clearly signifies that for BALANCED funds the systematic risk component is pretty higher showing that investment in these funds is bit more higher than liquid equity funds

Analysis of various Balanced and Liquid Funds

COMPARIOSN ON THE BASIS OF ANNUALISED RETURN OF THE FUNDS

NAV

LAUNCH DATE

SINCE INCEPTION

RANK

Can Balanced - Growth Plan

28.01

20-Mar-98

299.96

9

Can Balanced II

37.41

1-Feb-93

288.07

10

DSP ML Balanced Fund Growth

38.48

14-May-99

284.83

11

Escorts Balanced Fund Growth

46.27

20-Mar-01

361.71

7

Escorts Opportunities Fund - Growth

25.20

26-Feb-01

151.79

18

Franklin India Balanced Fund - Growth

35.25

13-Jul-00

252.50

12

FT India Balanced Fund Growth

32.64

10-Dec-99

226.36

14

HDFC Balanced Fund Growth

31.99

10-Aug-00

219.91

15

HDFC Prudence Fund Growth

113.76

31-Jan-94

1378.34

2

ING Vysya Balanced Fund - Growth

18.18

17-Apr-00

81.80

23

JM Balanced - Growth

23.30

22-Dec-94

593.48

5

Kotak Balance - Growth

23.59

29-Nov-99

319.87

8

FUND NAME

Analysis of various Balanced and Liquid Funds LIC Balanced - Plan C (Growth)

45.46

1-Jan-91

112.01

22

PRINCIPAL Balanced Fund - Growth

21.89

14-Jan-00

118.90

21

Prudential ICICI Balanced - Growth

34.63

7-Oct-99

246.30

13

Reliance RSF - Hybrid Growth

11.51

10-May-05

14.78

24

SBI Magnum Balanced Fund - Growth

35.37

31-Oct-95

704.47

4

Sundaram BNP Paribas Balanced Fund - Growth

32.25

25-May-00

217.71

16

Tata Balanced Fund Growth

49.33

7-Oct-95

572.14

6

Unit Scheme 2002 Growth

13.8100 (21-Nov-06)

15-Nov-02

148.83

19

UTI Balanced Fund Growth

55.85

12-Feb-95

925.81

3

on the basis of annualized return i have tried to analyze various funds in the category of BALANCED FUNDS the results are that on this basis this the HDFC BALANCED FUND & SBI BALANCED FUND SECURED the position of 1 &4 respectively highest return where as the lowest return is provided by RELIANCE ,LIC &PRINCIPAL BALANCED FUNDS but knowing the fact that comparing simply on the basis of annualized return is not a good practice so i have also included other parameters also like sharpe ratio treynor ratio etc.

Analysis of various Balanced and Liquid Funds

COMPARISION ON THE BASIS OF COEFFICEINT OF VARIATION

FUND NAME

BETA

ST. DEV

Annualised Returns

Can Balanced Growth Plan

1.03

1.07

28.74

Can Balanced II

1.14

COEF OF VARIATION

27.9 1.17

126.98

111.4 DSP ML Balanced Fund Growth

1.13

Escorts Balanced Fund - Growth

1.15

Escorts Opportunities Fund - Growth

0.99

Franklin India Balanced Fund Growth

1.16

FT India Balanced Fund Growth

1.16

HDFC Balanced Fund - Growth

1.14

HDFC Prudence Fund - Growth

1

ING Vysya Balanced Fund Growth

1.11

1.08

36.3

32.12 1.15

34.28

29.81 1

20.7

20.91 1.13

43.27

37.3 1.13

62.91

54.23 1.13

26.02

22.82 1.06

38.85

38.85 1.13

32.34

29.14

Analysis of various Balanced and Liquid Funds JM Balanced Growth

1.2

Kotak Balance Growth

1.17

LIC Balanced Plan C (Growth)

1.29

PRINCIPAL Balanced Fund Growth

1.15

Prudential ICICI Balanced Growth

1.24

Reliance RSF Hybrid - Growth

0.2

SBI Magnum Balanced Fund Growth

1.11

Sundaram BNP Balanced Fund Growth

0.94

Tata Balanced Fund - Growth

1.19

Unit Scheme 2002 - Growth

1.01

UTI Balanced Fund - Growth

0.94

1.23

34.27

28.56 1.18

106.71

91.21 1.27

12.27

9.512 1.18

49.46

43.01 1.21

45.16

36.42 0.28

7

35 1.13

16.99

15.31 0.97

33.97

36.14 1.2

8.87

7.454 1

63.09

62.47 1

33.07

35.18

As per the coefficient of UNIT SCHEME 220& PRINCIPAL BALANCED FUNDS are the most superior fund with cov of 62.5& 43.6 TATA BALANCED FUND is the most inferior with cov of only 7.454

Analysis of various Balanced and Liquid Funds COMPARISION ON THE BASIS OF SHARPE RATIO

ST.DEV

SINCE INCEPTI ON

ANNUAL IZED RETURN

Birla Balance Fund – Growth

1.02

179.60

28.74

0.22

Birla SunLife 95 – Growth

1.02

1640.20

126.98

1.19

BOB Balance Fund – Growth

1.53

121.00

36.30

0.20

Can Balanced – Growth Plan

1.07

299.96

34.28

0.26

Can Balanced II

1.17

288.07

20.70

0.13

DSP ML Balanced Fund – Growth

1.08

284.83

43.27

0.35

Escorts Balanced Fund – Growth

1.15

361.71

62.91

0.49

Escorts Opportunities Fund - Growth

1.00

151.79

26.02

0.20

Franklin India Balanced Fund – Growth

1.13

252.50

38.85

0.29

FT India Balanced Fund – Growth

1.13

226.36

32.34

0.23

HDFC Balanced Fund – Growth

1.13

219.91

34.27

0.25

HDFC Prudence Fund – Growth

1.06

1378.34

106.71

0.95

ING Vysya Balanced Fund - Growth

1.13

81.80

12.27

0.06

JM Balanced – Growth

1.23

593.48

49.46

0.35

Kotak Balance – Growth

1.18

319.87

45.16

0.33

LIC Balanced - Plan C (Growth)

1.27

112.01

7.00

0.01

PRINCIPAL Balanced Fund – Growth

1.18

118.90

16.99

0.09

Prudential ICICI Balanced - Growth

1.21

246.30

33.97

0.23

Reliance RSF – Hybrid – Growth

0.28

14.78

8.87

0.10

SBI Magnum Balanced Fund – Growth

1.13

704.47

63.09

0.51

Sundaram BNP Paribas Balanced Fund – Growth

0.97

217.71

33.07

0.28

Tata Balanced Fund – Growth

1.20

572.14

50.86

0.37

NAME

SHARP E RATIO

FUND

Analysis of various Balanced and Liquid Funds Unit Scheme 2002 – Growth

1.00

148.83

36.45

0.30

UTI Balanced Fund – Growth

1.00

925.81

77.69

0.72

SHARPE RATIO 1.4

1.2

1

0.8 SHARPE RATIO 0.6

0.4

0.2

0 1

2

3

4

5

6

7

8

9

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

As per the SHARPE RATIO SBI MAGNUM BALANCED & RELIANCE BALANCE FUNDS are the most superior fund & BIRLA SUNLIFE 95 FUND IS the most inferior

.

COMPARISON ON THE BASIS OF TREYNOR RATIO BALANCED FUNDS

Analysis of various Balanced and Liquid Funds

FUND NAME

Birla Balance Fund Growth

Birla SunLife 95 Growth

BOB Balance Fund Growth

Can Balanced Growth Plan

Can Balanced II

DSP ML Balanced Fund - Growth

Escorts Balanced Fund - Growth

Escorts Opportunities Fund - Growth

BETA

SINCE INCEPTION

MONTHS

1.04

179.60

75.00

0.96

1.41

1.03

1.14

1.13

1.15

0.99

Franklin India Balanced Fund Growth

1.16

FT India Balanced Fund - Growth

1.16

1640.20

121.00

299.96

288.07

284.83

361.71

151.79

252.50

226.36

ANNUALIZED RETURN

TREYNOR RATIO

28.74

0.22

126.98

1.26

36.30

0.21

34.28

0.27

20.70

0.13

43.27

0.33

62.91

0.49

26.02

0.20

38.85

0.28

32.34

0.23

155.00

40.00

105.00

167.00

79.00

69.00

70.00

78.00

84.00

Analysis of various Balanced and Liquid Funds HDFC Balanced Fund - Growth

HDFC Prudence Fund - Growth

ING Vysya Balanced Fund - Growth

JM Balanced Growth

Kotak Balance Growth

LIC Balanced - Plan C (Growth)

1.14

1.00

1.11

1.20

1.17

1.29

PRINCIPAL Balanced Fund Growth

1.15

Prudential ICICI Balanced - Growth

1.24

Reliance RSF Hybrid - Growth

0.20

SBI Magnum Balanced Fund Growth

1.11

Sundaram BNP Paribas Balanced Fund - Growth

0.94

Tata Balanced Fund Growth

1.19

Unit Scheme 2002 Growth

1.01

219.91

1378.34

81.80

593.48

319.87

112.01

118.90

246.30

14.78

704.47

217.71

572.14

148.83

77.00

34.27

0.25

106.71

1.01

12.27

0.06

49.46

0.36

45.16

0.33

7.00

0.01

16.99

0.10

33.97

0.23

8.87

0.14

63.09

0.51

33.07

0.29

50.86

0.38

36.45

0.30

155.00

80.00

144.00

85.00

192.00

84.00

87.00

20.00

134.00

79.00

135.00

49.00

Analysis of various Balanced and Liquid Funds UTI Balanced Fund Growth

0.94

925.81

143.00

77.69

The above table shows the inverse relation between treynor ratio and the beta of a portfolio. The higher the beta the lower the treynor ratio. And in the above table the SBI MAGNUM BALANCED & BIRLA SUN LIFE have performed better than the other funds.

0.76

Analysis of various Balanced and Liquid Funds TREYNOR RATIO 1.4

1.2

1

0.8 TREYNOR RATIO 0.6

0.4

0.2

0 1

2

3

4

5

6

7

8

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Analysis of various Balanced and Liquid Funds

COPMARISON ON THE BASIS OF INCEPTION OF THE FUND

FUND NAME

NAV

LAUNCH DATE

SINCE INCEPTION

ABN AMRO Cash Fund Growth

11.26

1-Sep-04

5.45

73

ABN AMRO Cash Fund IP - Growth

11.38

1-Sep-04

5.98

52

Birla Cash Plus Institutional Premium Plan - Growth

11.69

29-Mar-04

6.12

43

Birla SunLife Cash Manager Growth

18.05

14-May-98

9.32

7

DBS Chola Liquid Fund Reg - Growth

14.87

9-Oct-00

7.81

15

DSP ML Liquid Plus Fund Growth

1028.44

31-Jul-06

24.61

1

DSP ML Liquid Plus Fund - IP Daily Div

1000.20

31-Jul-06

6.29

40

Escorts Liquid Plan Growth

10.71

29-Sep-05

5.70

68

HDFC Cash Mgmt Fund Call Plan Growth

12.67

6-Feb-02

5.46

72

RANK

Analysis of various Balanced and Liquid Funds HDFC Liquid Fund Premium Plus Plan - Growth

14.70

24-Feb-03

5.94

55

HSBC Cash Fund - I P Growth

12.40

15-Sep-03

5.73

67

HSBC Cash Fund - Reg Growth

12.37

3-Dec-02

5.84

64

ING Vysya Liquid Fund Growth

15.57

6-Jan-00

7.94

14

JM High Liquidity - I P - Growth

12.18

4-Apr-03

5.82

65

JM Money Manager Fund Growth

10.17

27-Sep-06

6.84

28

Kotak Liquid - IP - Growth

14.75

12-Mar-03

5.88

60

LIC MF Liquid Fund Growth

13.34

13-Mar-02

6.95

24

Prudential ICICI Liquid - I P - Growth

18.19

23-Feb-03

5.97

53

Prudential ICICI Liquid Plan - FII Growth

10.53

27-Mar-06

6.94

25

Prudential ICICI Sweep Plan - Cash Option Growth

10.56

8-Mar-06

6.90

27

Reliance Liquid Fund Cash Plan Growth

12.85

4-Dec-01

5.62

70

Reliance Liquidity Fund Growth

11.00

16-Jun-05

6.52

33

SBI Magnum Insta Cash Cash Plan

16.48

19-May-99

8.46

10

Analysis of various Balanced and Liquid Funds SBI Magnum Insta Cash Fund - Liquid Floater Plan Growth

12.71

24-Sep-02

6.33

39

Sundaram BNP Paribas Money Fund Growth

15.42

6-Mar-00

7.95

13

Tata Liquid Fund - HIP Growth

1225.94

24-Feb-03

5.88

60

UTI Liquid Fund - Cash Plan - Growth

1203.15

24-Jun-03

5.77

66

SINCE INCEPTION 30

25

20

15

SINCE INCEPTION

10

5

0 1

2

3

4

5

6

7

8

9

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Analysis of various Balanced and Liquid Funds

COMPARISON ON THE BASIS OF STD DEVIATION & BETA of liquid funds

NAV

LAUNCH DATE

ABN AMRO Cash Fund - Growth

11.26

1-Sep-04

ABN AMRO Cash Fund - IP - Growth

11.38

1-Sep-04

0.16

0.02

Birla Cash Plus - Institutional Premium Plan - Growth

11.69

29-Mar-04

0.16

0.01

Birla SunLife Cash Manager - Growth

18.05

14-May-98

0.16

0.02

DBS Chola Liquid Fund - Reg - Growth

14.87

9-Oct-00

0.14

0.02

DSP ML Liquid Plus Fund - Growth

1028.44

31-Jul-06

0.14

0.02

DSP ML Liquid Plus Fund - IP - Daily Div

1000.20

31-Jul-06

0.16

0.01

Escorts Liquid Plan - Growth

10.71

29-Sep-05

0.22

0.03

HDFC Cash Mgmt Fund - Call Plan - Growth

12.67

6-Feb-02

0.22

0.02

HDFC Liquid Fund - Premium Plus Plan - Growth

14.70

24-Feb-03

0.13

0.02

HSBC Cash Fund - I P - Growth

12.40

15-Sep-03

0.16

0.02

HSBC Cash Fund - Reg - Growth

12.37

3-Dec-02

0.15

0.01

ING Vysya Liquid Fund - Growth

15.57

6-Jan-00

0.12

0.02

JM High Liquidity - I P - Growth

12.18

4-Apr-03

0.13

0.01

JM Money Manager Fund - Growth

10.17

27-Sep-06

0.12

0.02

Kotak Liquid - IP - Growth

14.75

12-Mar-03

0.16

0.01

LIC MF Liquid Fund - Growth

13.34

13-Mar-02

0.12

0.01

Prudential ICICI Liquid - I P - Growth

18.19

23-Feb-03

0.14

0.02

Prudential ICICI Liquid Plan - FII - Growth

10.53

27-Mar-06

0.14

0.02

Prudential ICICI Sweep Plan - Cash Option - Growth

10.56

8-Mar-06

0.11

0.01

Reliance Liquid Fund - Cash Plan - Growth

12.85

4-Dec-01

0.13

0.02

Reliance Liquidity Fund - Growth

11.00

16-Jun-05

0.12

0.03

SBI Magnum Insta Cash - Cash Plan

16.48

19-May-99

0.08

0.01

SBI Magnum Insta Cash Fund - Liquid Floater Plan - Growth

12.71

24-Sep-02

0.08

0.01

Sundaram BNP Paribas Money Fund - Growth

15.42

6-Mar-00

0.09

0.01

FUND NAME

BETA

0.15

ST. DEV

0.01

Analysis of various Balanced and Liquid Funds Tata Liquid Fund - HIP - Growth

1225.94

24-Feb-03

0.12

0.01

UTI Liquid Fund - Cash Plan - Growth

1203.15

24-Jun-03

0.01

0.09

The above fig. shows the relation between std deviation &beta pf the funds under consideration we know that std deviation signifies total risk of the fund & beta signifies systematic risk component only. The above fig clearly signifies that for liquid funds the systematic risk component is pretty higher showing that investment in these funds is bit

COMPARISON ON THE BASIS OF COEFFICENT OF VARIATIONOF VARIOUS LIQUID FUNDS ANNUALIZED RETURN

BETA

28.74

1.04

27.63462

126.98

0.96

132.2708

BOB Balance Fund - Growth

36.3

1.41

25.74468

Can Balanced - Growth Plan

34.28

1.03

33.28155

FUND NAME

Birla Balance Fund - Growth Birla SunLife 95 - Growth

COFF OF VARIATION

Analysis of various Balanced and Liquid Funds Can Balanced II

20.7

1.14

18.15789

DSP ML Balanced Fund - Growth

43.27

1.13

38.29204

Escorts Balanced Fund - Growth

62.91

1.15

54.70435

Escorts Opportunities Fund - Growth

26.02

0.99

26.28283

Franklin India Balanced Fund - Growth

38.85

1.16

33.49138

FT India Balanced Fund - Growth

32.34

1.16

27.87931

HDFC Balanced Fund - Growth

34.27

1.14

30.0614

HDFC Prudence Fund - Growth

106.71

1

ING Vysya Balanced Fund - Growth

12.27

1.11

11.05405

JM Balanced - Growth

49.46

1.2

41.21667

Kotak Balance - Growth

45.16

1.17

38.59829

7

1.29

5.426357

PRINCIPAL Balanced Fund - Growth

16.99

1.15

14.77391

Prudential ICICI Balanced - Growth

33.97

1.24

27.39516

8.87

0.2

44.35

SBI Magnum Balanced Fund - Growth

63.09

1.11

56.83784

Sundaram BNP Paribas Balanced Fund - Growth

33.07

0.94

35.18085

Tata Balanced Fund - Growth

50.86

1.19

42.7395

Unit Scheme 2002 - Growth

36.45

1.01

36.08911

UTI Balanced Fund - Growth

77.69

0.94

82.64894

LIC Balanced - Plan C (Growth)

Reliance RSF - Hybrid - Growth

106.71

Analysis of various Balanced and Liquid Funds

COFFICIENT OF VARIATION

COEFFICENT OF VARIATION

140 120 100 80

Series1

60 40 20 0 1

3

5

7

9

11

13

15

17

19

21

23

BETA

As per the coefficient of variation birla sun life 95 LIQUID & SBI MAGNUM LIQUID FUNDS are the most superior fund with cov of132 & 56.56 respectively & LIC liquid fund the most inferior with cov of only 5.88

COMAPRIOSN ON THE BASIS OF TREYNOR RATIO

FUND NAME

BETA

ANN.RETURN

TREYNOR RATIO

2.34

-0.24

2.56

-0.21

5.45

ABN AMRO Cash Fund – Growth ABN AMRO Cash Fund - IP – Growth

SINCE INCEP.

0.15 0.16

5.98

Analysis of various Balanced and Liquid Funds Birla Cash Plus Institutional Premium Plan - Growth

0.16

Birla SunLife Cash Manager - Growth

0.16

DBS Chola Liquid Fund - Reg - Growth

0.14

DSP ML Liquid Plus Fund - Growth

0.14

DSP ML Liquid Plus Fund - IP - Daily Div

0.16

Escorts Liquid Plan Growth

0.22

HDFC Cash Mgmt Fund - Call Plan - Growth

0.22

HDFC Liquid Fund Premium Plus Plan Growth

0.13

HSBC Cash Fund - I P Growth

0.16

HSBC Cash Fund - Reg - Growth

0.15

ING Vysya Liquid Fund - Growth

0.12

JM High Liquidity - I P Growth

0.13

JM Money Manager Fund - Growth

0.12

Kotak Liquid - IP Growth

0.16

LIC MF Liquid Fund Growth

0.12

Prudential ICICI Liquid - I P - Growth

0.14

Prudential ICICI Liquid Plan - FII - Growth

0.14

6.12

2.23

-0.24

1.09

-0.31

1.25

-0.34

59.06

3.79

15.10

0.57

4.56

-0.07

1.11

-0.22

1.55

-0.34

1.76

-0.26

1.46

-0.30

1.13

-0.41

1.49

-0.35

27.36

1.78

1.50

-0.28

1.41

-0.38

1.52

-0.32

9.25

0.23

9.32

7.81

24.61

6.29

5.70

5.46

5.94

5.73

5.84

7.94

5.82

6.84

5.88

6.95

5.97

6.94

Analysis of various Balanced and Liquid Funds Prudential ICICI Sweep Plan - Cash Option Growth

0.11

Reliance Liquid Fund Cash Plan - Growth

0.13

Reliance Liquidity Fund - Growth

0.12

SBI Magnum Insta Cash - Cash Plan

0.08

SBI Magnum Insta Cash Fund - Liquid Floater Plan - Growth

0.08

Sundaram BNP Paribas Money Fund - Growth

0.09

Tata Liquid Fund - HIP Growth

0.12

UTI Liquid Fund - Cash Plan - Growth

0.01

6.90

8.28

0.21

1.12

-0.38

4.35

-0.14

1.12

-0.61

1.49

-0.56

1.16

-0.54

1.53

-0.37

1.65

-4.35

5.62

6.52

8.46

6.33

7.95

5.88

5.77

COMPARISON ON THE BASIS OF SHARPE RATIO

FUND NAME

ST.DEV

ABN AMRO Cash Fund - Growth

S.INCAPTION

MONTH

5.45

28

0.01

ABN AMRO Cash Fund - IP - Growth

0.02

Birla Cash Plus Institutional Premium Plan Growth

0.01

Birla SunLife Cash Manager - Growth

0.02

5.98

6.12

9.32

AN.RET

SHARPE RATIO

2.34

-3.66

2.56

-1.72

2.23

-3.77

1.09

-2.46

28

33

103

Analysis of various Balanced and Liquid Funds DBS Chola Liquid Fund - Reg - Growth

0.02

DSP ML Liquid Plus Fund - Growth

0.02

DSP ML Liquid Plus Fund - IP Daily Div

0.01

Escorts Liquid Plan - Growth

0.03

HDFC Cash Mgmt Fund - Call Plan Growth

0.02

HDFC Liquid Fund - Premium Plus Plan - Growth

0.02

HSBC Cash Fund - I P - Growth

0.02

HSBC Cash Fund Reg - Growth

0.01

ING Vysya Liquid Fund - Growth

0.02

JM High Liquidity I P - Growth

0.01

JM Money Manager Fund - Growth

0.02

Kotak Liquid - IP Growth

0.01

LIC MF Liquid Fund - Growth

0.01

Prudential ICICI Liquid - I P Growth

0.02

Prudential ICICI Liquid Plan - FII Growth

0.02

Prudential ICICI Sweep Plan - Cash Option - Growth

0.01

Reliance Liquid Fund - Cash Plan Growth

0.02

Reliance Liquidity Fund - Growth

0.03

SBI Magnum Insta

0.01

7.81

24.61

6.29

5.70

5.46

5.94

5.73

5.84

7.94

5.82

6.84

5.88

6.95

5.97

6.94

6.90

5.62

6.52

8.46

75

1.25

-2.38

59.06

26.53

15.10

9.10

4.56

-0.48

1.11

-2.44

1.55

-2.23

1.76

-2.12

1.46

-4.54

1.13

-2.43

1.49

-4.51

27.36

10.68

1.50

-4.50

1.41

-4.59

1.52

-2.24

9.25

1.63

8.28

2.28

1.12

-2.44

4.35

-0.55

1.12

-4.88

5

5

15

59

46

39

48

84

47

3

47

59

47

9

10

60

18

91

Analysis of various Balanced and Liquid Funds Cash - Cash Plan SBI Magnum Insta Cash Fund - Liquid Floater Plan Growth

0.01

Sundaram BNP Paribas Money Fund - Growth

0.01

Tata Liquid Fund HIP - Growth

0.01

UTI Liquid Fund Cash Plan - Growth

0.09

6.33

7.95

5.88

5.77

51

1.49

-4.51

1.16

-4.84

1.53

-4.47

1.65

-0.48

82

46

42

SHARPE RATIO 30

25

20

15

10

SHARPE RATIO

5

0 1

2

3

4

5

6

7

8

9

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

-5

-10

As per the SHARPE RATIO DSP MERRIL LYNCH & JP MORGAN STANLEY LIQUID FUNDS

are the most superior fund & SBI MAGNUM CASH PLAN & SBI

MAGNUM LIQUID PALN the most inferior

Analysis of various Balanced and Liquid Funds

Comparison on the basis of coefficient of variation

Scheme Name

Annualised Returns

NAV

BALANCE FUND Birla Balance Fund Growth

27.96

Birla SunLife 95 Growth

174.02

Beta

Std. Dev.

1.04

1.02

COEFFICENT OF VARIATION 28.74 28.17647059

0.96

1.02

126.98 124.4901961

BOB Balance Fund Growth

22.1

1.41

1.53

36.3

Can Balanced - Growth Plan

28.01

Can Balanced II

37.41

1.14

1.17

20.7

DSP ML Balanced Fund - Growth

38.48

1.13

1.08

43.27

Escorts Balanced Fund Growth

46.27

Escorts Opportunities Fund - Growth

25.2

Franklin India Balanced

35.25

23.7254902

1.03

1.07

34.28 32.03738318 17.69230769

40.06481481

1.15

1.15

62.91 54.70434783

0.99

1

26.02 26.02

1.16

1.13

38.85

34.38053097

Analysis of various Balanced and Liquid Funds

Fund – Growth FT India Balanced Fund - Growth

32.64

HDFC Balanced Fund Growth

31.99

HDFC Prudence Fund Growth

113.76

ING Vysya Balanced Fund - Growth

18.18

JM Balanced - Growth

23.3

1.2

1.23

49.46

40.21138211

Kotak Balance - Growth

23.59

1.17

1.18

45.16

38.27118644

LIC Balanced - Plan C (Growth)

45.46

1.29

1.27

7

PRINCIPAL Balanced Fund - Growth

21.89

Prudential ICICI Balanced - Growth

34.63

Reliance RSF - Hybrid Growth

11.51

SBI Magnum Balanced Fund – Growth

35.37

Sundaram BNP Balanced Fund – Growth

32.25

Tata Balanced Fund Growth

49.33

Unit Scheme 2002 Growth

1.16

1.13

32.34 28.61946903

1.14

1.13

34.27 30.32743363

1

1.06

106.71 100.6698113

1.11

1.13

12.27 10.85840708

5.511811024

1.15

1.18

16.99 14.39830508

1.24

1.21

33.97 28.07438017

0.2

0.28

8.87 31.67857143

1.11

1.13

63.09 55.83185841

0.94

0.97

33.07 34.09278351

1.19

1.2

50.86 42.38333333

13.8100 1.01 (21-Nov-06)

1

36.45 36.45

Analysis of various Balanced and Liquid Funds

55.85

UTI Balanced Fund Growth

0.94

1

77.69 77.69

COEFFICIENT OF VARIATION 140 120 100 80 60 40 20

23

21

19

17

15

13

11

9

7

5

3

1

0 COEFFICIENT OF VARIATION

As per the coefficient of variation SBI MAGNUM LIQUID PLAN &TATA LIQUID FUNDS are the most superior fund

&LIC PLAN & ESSCORTS OPPORTUNITY

PLAN are the most inferior plans . on the ground of coefficient of variation calculation

Analysis of various Balanced and Liquid Funds

SURVEY & QUESTTIONAIRE

Analysis of various Balanced and Liquid Funds

CHAPTER 6 6.1SURVEY OBJECTIVE OF THE SURVEY 1. To study and analyze the perception of people when they invest in Mutual Funds with special emphasis on Balance and Liquid Mutual Funds. 2. To study and analyze other investment preferences of people. 3. To use the information so collected to identify opportunities and challenges faced by SBI Mutual Fund 4. To make recommendations, using the above analysis to help SBI Mutual Fund to acquire and retain customers

SAMPLE AND SAMPLE SIZE

The sample consisted of 120 residents of Jaipur region. Most of the sample consisted of walk-in customers at Anand Rathi Securities Ltd ( Jaipur).

Analysis of various Balanced and Liquid Funds

PRIMARY DATA COLLECTION

Two methods were adopted:

1) Questionnaire: A questionnaire consisting of 10 questions aiming to study the perceptions and preferences etc. of the respondents was designed and was required to be filled by them.

2) Verbal Interaction: The respondents were verbally asked about their investment preferences and awareness about Mutual Funds and also about their responses to the questionnaires.

Questionnaire

Q1. On whose advise do you invest in MF? Broker/ Friend Own expertise

Business newspaper/ news channel Any other, please specify_____________

Q2. Would you continue investing in MF‘s after such a crash? Continue as usual

Stop investing

Continue but slow down

Q3. Do you hold MF‘s of different AMC‘s at one time? Yes

No

Sometimes

Analysis of various Balanced and Liquid Funds

Q4. What‘s your normal time horizon in MF‘s? Up to 3months

3-12months

More than 1year

Q5. What are the factors you consider before investing in a particular MF? Market situation

Past performance of particular fund house/scheme

Brand name

Recommendation of any friend/broker/expert/banker

Q6. What are the benefits do you think MFs offer? Better risk diversification

Tax benefits

Well regulated

Better professional expertise

Convenient investing e.g. SIP, STP,etc.

None of the above

Q7. When do you sell your MF units? On completion of time horizon

Negative market sentiment

Transfer to another investment avenue

Q8. Would you continue investing in MFs? Yes

No

Q9. What‘s your normal time horizon in MF?

Analysis of various Balanced and Liquid Funds

Up to 1 year

1-3years

More than 3years

Q10. What are your areas of preferred investment? Bank deposits

G-Securities

Real Estate

Direct Equity

Mutual Funds

Insurance

Others

_______________________________________________________________________ Personal details Age

Income

Occupation

THE DEMOGRAPHICS OF THE RESPONDENTS

Fig 1. Age-wise distibution of respondents

8% 22% 13%

28%

29%

<25

25-35

36-45

46-60

Above 60

Analysis of various Balanced and Liquid Funds

8% of the respondents lie in the age group of less than 25 years. This is the stage when most of them would have just started to earn and are mostly single.

13% of the respondents lie in the age group of 25-35 years. This is the stage when people are ambitious and are willing to take big risks with little money.

People lying between age groups 36-45 and 46-60 are 28% and 29% respectively. Such people have been earning for quite some time now and would have accumulated wealth and savings over the years.

People lying above the age of 60 years are mostly those who have retired from their work and do not have a regular occupational income. Their income is derived usually from retirement plans or returns from their investments. This age group is usually skeptical of entering into new areas of investments esp. into capital market as they cannot risk to lose all that they have as there is no way of earning it back again. 19% of respondents were self-employed. The awareness level is generally low in this class about different investment avenues. 25% of respondents were professionals and mostly have good knowledge about investment avenues available in the market. About 43% of the respondents were doing service. It had characteristics of both selfemployed and professionals. Nearly 13% of the respondents were retired. They had good knowledge about safe and regular stream of income related investment avenues.

Analysis of various Balanced and Liquid Funds

OBSERVATIONS

Fig 4. mutual fund invesments among respondents 12%

88% Invests in mutual funds

Never invested in equity

As per my survey, 12% of the respondents invest in Mutual Funds. Thus, there is a vast potential of investors lying untapped.

Analysis of various Balanced and Liquid Funds

Around 35% of the respondents were investing directly in SBI mutual funds. And, rest 65% were investing with other AMCs

Fig 6. Continuation with MFs investments

25%

75%

Continue invesments in MFs

Will not be investing

Almost 2/3 of respondents who have ever invested in MFs will continue with their investments, thereby indicating high satisfaction.

Analysis of various Balanced and Liquid Funds

Around 55% of respondents would either stop investing or slow down investments. This can be good for the mutual fund industry provided they are able to convince the person about the risk diversification concept.

Bank Deposits and real estate are the most preferred choice.

Fig. 8 Prefered Areas of Investment 45% 40% 35% 30% 25% 20% 15% 10% 5%

th er s O

In su ra nc e

ea le st at e M ut ua lF un ds

R

eq ui ty ire ct

G

-S ec D

Ba nk

D

ep os its

0%

Analysis of various Balanced and Liquid Funds

The respondents have shown a preference for conventional investment options led by Savings bank Account (42%) and followed by Real Estate (24%).

This shows that most people prefer secured and safe investment options and show a moderate to low endurance to risky or uncertain investment options.

Even though, not all invest in Mutual Funds, but people have ranked them above Insurance and others. PEOPLE ARE NOT AWARE OF MUTUAL FUNDS AND THEIR WORKING.

PEOPLE BELIEVE THAT MUTUAL FUNDS ARE VERY RISKY

Fig. 9 Perception about MFs 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Insufficient know ledge

Very risky

Offers risk Diversification

Better than equity

Analysis of various Balanced and Liquid Funds As much as 44% of the respondents agree that they do not have complete knowledge of what the Mutual Funds are and how do they operate. Even, amongst those who invest, respondents have accepted that they have little knowledge as they may be investing on someone else‘s call.

23% of the respondents feel that Mutual Funds are too risky and they would never invest in them.

This makes more than 60% of the entire sample population that is ignorant about the nature and operations of Mutual funds.

Only 20% know about the risk diversification, which MFs offer.

People have given prime importance to the Recommendation of banker/friend and Market Situation in deciding on the funds to invest in.

Fig. 10 Factors considered while investing in a fund 80% 70% 60% 50% 40% 30% 20%

Recommendation of banker/friend

Past performance of fund

Brand name

0%

Market situation

10%

Analysis of various Balanced and Liquid Funds Also, while interaction it was felt brand name is also an important consideration. Though only 32% marked it as an important factor.

Analysis of various Balanced and Liquid Funds

Analysis of various Balanced and Liquid Funds OPPORTUNITIES IDENTIFIED

CHALLENGES FACED

Analysis of various Balanced and Liquid Funds

THE INVESTORS’ MIND

Analysis of various Balanced and Liquid Funds

6.2 LIMITATIONS OF THE SURVEY • The size of the sample is only 120.

• The respondents are restricted to Jaipur territory only.

• Most of the respondents are walk-in customers of SBI MUTUAL FUND .

• During the time of the survey market was highly volatile with a downward trend, thereby changing respondents perception drastically.

• Many respondents were not willing to disclose their financial details.

Analysis of various Balanced and Liquid Funds

6.3 FUTURE OF MUTUAL FUND INDUSTRY:

The

financial year comes to a close and the tax payments have been done. The dues have been

settled and it‘s time to step into the next fiscal, also a good time to review how investments have performed.

The year saw the continuation of the bull-run, in fact the fourth year of the climb. The Bombay Stock Exchange Sensitive Index or the Sensex closed the fiscal with a 15% gain. Feelers from the market place suggest that while the economy may grow this year too, the equity markets might not depict the same buoyancy. The current year has already been witnessing crests and troughs worth 300 points on a regular basis. In such volatile times, mutual funds become the obvious choice for investors - both individual and corporate. The assets under management for the mutual fund industry have nearly doubled in the past two years. At Rs 3,53,300 crore the size of the industry is set to grow further. Industry experts reckon the size would easily treble in the next five years and there would be significant additions to the 32 players currently operating in the market place. While that sounds fabulous for the mutual funds industry, should it really excite the investor? FE Investor carried out a simple study to look into this. Mutual funds, by virtue of being handled by expert fund managers who charge a fee for their expertise, should be out-performing the market in good times and perform better than the market, when it slides. This is the large expectation created in the market place by mutual fund sales professionals. There are multiple ways to look at mutual fund performance; some are erudite enough to create total confusion while others involve pointless number crunching. Each technique could throw up different views. FE Investor took a rather simple approach to this. A universe of 99 growth-based equity schemes was created for the study. The performance was then divided over two phases. Phase I includes the period from March 2005 to February 2006. And Phase II from March 2006 to March 2007. The reason for

Analysis of various Balanced and Liquid Funds

creating two phases was to trap a year that had a clear bull-run market and also a year that witnessed mayhem. Although a longer period of more than five years would present a fairer picture, experts reckon that a typical holding period for Indian investors ranges from two to three years. Hence, the two-year time frame was selected. Here again the change in net asset values was tracked and compared against the Sensex. Now, there could be several views on choosing the right benchmark for comparison; however, to keep matters simple, the 30 share readily available portfolio was chosen. And the reading is quite clear. Over the last two years, the average returns (change in net asset value) of the 99 schemes was around 35.4%, whereas the Sensex grew by 48.66% in the same time frame. Not a very impressive performance. However, when the markets saw a secular bull-run, the equity funds matched the enthusiasm. In the period from March 2005 to February 2006, the first phase of the study saw the mutual fund schemes match the Sensex performance. Nearly 48 schemes actually outperformed the Sensex and a similar number under-performed, albeit the returns were largely positive. Mayhem victims But when the markets tumbled in the May-mayhem, many fund managers were caught unawares. Most of the fund managers had taken positions in mid-cap funds and had to take the plundering. Many, it seems, have not yet recovered from that exposure. The market fell by around 21% in the May crash and the average fall for funds was more pronounced at 23%, largely because of mid-cap exposure. Fund managers, however, are still bullish on mid-cap stocks. ―Where have all these companies come from? Obviously, most of these have been mid-cap companies which have ‗migrated‘ and have become large caps. With continued growth of India, we believe this will continue to happen. But this takes time‖, says Tridib Pathak, CIO-equities, Lotus India Mutual Fund.

Analysis of various Balanced and Liquid Funds

Nikunj Doshi, fund manager, Kotak Mutual Fund, reckons, ―We believe mid-cap stocks will perform well in future. As we enter FY08 and look at the valuation gap mid-caps look very attractive. Also, if one considers a longer time frame, mid-caps have delivered better returns as compared to large cap.‖ While the aggregate numbers have been mixed, there have been individual funds that have managed to beat trends. Sundaram Select Midcap has been a relative exception to this observation and has turned out to be one of the best performers in the two-year period. However, going forward, there could be more bumps for the mid-cap funds. TP Raman, MD and CEO, Sundaram BNP Paribas, avers, ―If the ongoing bout of risk aversion does not shift quickly, we may witness a renewed period of investor apathy towards mid- and small-cap stocks.‖ Specialised conundrum While the mid-caps looked shaky over a two-year time frame, and are expected to deliver over a longer time frame, some sector-specific specialised funds were able to provide smart returns. Needless to say, the funds that did well were the ones where the underlying industry was also performing well. Infrastructure, though there is an obscurity as to what constitutes an infrastructure fund, was one such area. Infrastructure funds have been exemplary performers with a consistent average returns percentage hovering around 40-50 %. This indicates that the volatility of the market has hardly impacted the returns flow of these funds. Also, the varied options within an infrastructure fund result in offsetting of risks. DSP Merrill Lynch India TIGER Fund has been consistent and has been the best performer, withstanding the bearish trend. Similar was the trend with media stocks and funds. The Reliance Media and Entertainment fund recorded a return of around 60% in Phase-I and around 42% in Phase-II. Going ahead, analysts believe the growth opportunities in the media industry will offer more choices for fund managers and investors.

Analysis of various Balanced and Liquid Funds

No such luck was witnessed by the pharma sector funds that saw a tremendous surge in the phase I and then a dismal performance. SBI Pharma Growth fund, which was a best performer in phase-I emerged as the worst performer in phase-II. Sanjay Sinha, headequities, SBI Fund Management, justifies a changed stance in pharma sector funds, ―Since large pharma stocks were reporting lacklustre performance, we have employed a bottom-up approach.‖ Sinha adds, ―We believe that after consistently meeting and surpassing market expectations in terms of earnings growth and sustainability, the market valuations for the stocks in our portfolio will reflect their underlying strengths - a process which we expect to happen over the course of the next year. We shall also be actively looking at various modifications in the portfolio at opportune times to enhance returns to the maximum degree possible.‖ Passively active While fund managers have been churning their portfolios, index funds, or a passive way of investing by simply replicating the index portfolio, have been providing sound returns. Like the Sensex and the Nifty, the index funds have been closely tracking index gains. ―As such they are lower risk/lower return products within the equity space. So it is just a strategy in terms of the risk levels the investor wants to take. We feel that actively managed diversified funds will continue to beat the market indices for some time to come,‖ says Pathak. A point to note for investors is that index investing is a long-term game and index funds typically provide strong returns over a ten-year time frame. ―Index funds can be a strong avenue when the markets are bullish. In a bear phase investors are hurt,‖ says a fund manager. Lucrative avenues

Analysis of various Balanced and Liquid Funds

It is perceived that 2007 may be a bit more volatile considering the returns the markets have generated. Investors must be on the look out for funds that hedge their risks and which give, if not stable, decent returns. Systematic Investment Plan (SIP) investments would be the best bet to ride the volatility in this period as it uses the averaging principle to keep acquisition costs fair in both rising and falling markets. Also, Sebi has banned mutual funds to allocate 6% fund expenses in the open-ended schemes and not in closed ended ones. This has given importance to closed ended schemes and saw a plethora of schemes launched after the rule was passed. It is a very good move as redemption pressures will be reduced in case of a volatile market and longterm money will be parked in these schemes, and in the end will benefit investors. ―This year could see the emergence of commodity funds (this will see investments from many small and medium investors) along with real estate funds (it has received a nod from Sebi) and exchange traded gold fund (considering India is a gold-loving country). These funds will also serve as good investing options for investors,‖ says Satish Kamdar, country head-mutual funds, Mata Securities. Notwithstanding such good avenues and the growing economy, one thought, which should be heeded with strong consideration, is: Mutual funds are not short-term investment vehicles but a long-term means that facilitate a good and steady flow of income. ―Our study of the markets for the last 27 years very clearly indicates that the longer your investment horizons, surer are the returns. In fact, holding equities for longer than 10 years virtually abolishes the probability of loss to zero,‖ concludes Pathak. Lastly, the analysis carried out simply points out the fact that investors should not invest arbitrarily with any fund, just because they claim to have experts managing the funds. An astute fund manager must be sifted through the chaff. There is enough information available for investors to get by with this. At the same time, selecting an appropriate fund can truly enhance returns. There are funds that have exceeded expectations at all levels as well.

Analysis of various Balanced and Liquid Funds

The coming year will definitely see more action in this field with a wider array of structured products being on the offer. After all, the mutual fund industry in India is still in its teens and is beginning to mature.

CHAPTER 7

Analysis of various Balanced and Liquid Funds

CONCLUSION & SUGGESTIONS: 7.1 CONCLUSION VAST POTENTIAL: Currently, the investments in Mutual Funds are very low. As per my survey, only 12% of the people surveyed invest in Mutual Funds. When applied to all of India, this figure is expected to be lesser. Thus, it presents a vast potential for the growth and development of Mutual Fund industry in India.

The Indian Consumer market represents a large market with a middle class of nearly 300million. The economy boasts of a young population, coupled with rising salaries, tremendous potential with an ever-increasing demand for lifestyle products. According to A.C. Nielson‘s global online consumer confidence survey-

Indian

consumers are The Most optimistic The World Over, and are ranked among the top 5 countries who are ready to purchase what they desire and invest in Mutual Funds and Shares, way ahead of their Asian counterparts.

India has the third largest investor base in the world and one of the world‘s lowest transaction costs based on screen-based transactions, paperless trading and a T+2 settlements cycle.

HIGH SATISFACTION RATE: The survey shows that 75% of those who invest in Mutual Funds shall continue to do so. This is a positive sign depicting that people are satisfied with their investments in Mutual Funds. Thus, it shows that the retention of customers is not that difficult a task than their acquisition.

7.2 SUGGESTION

Analysis of various Balanced and Liquid Funds The first and foremost necessity to be successful in acquiring more customers to invest in Mutual Funds is to overcome the various barriers and challenges posed by the customers and the environment.

CREATE AWARENESS: The biggest challenge faced by all the sellers and distributors of Mutual Funds is that Most of the people are not aware of mutual funds and how they work Many consider Mutual Funds to be very risky and prefer to invest directly in share market while the truth is that Mutual Funds are lesser risky than a direct individual investment in equity as they present the benefits of calculated diversification which is no possible for an individual retail investor.

Thus, any step towards creating awareness about Mutual Funds and its working will be in favor of the SBI MUTUAL FUND as well as the entire Mutual Fund industry. Whoever adopts a proactive approach in this direction and pioneers the initiative shall get the initiator’s advantage, which will help acquire that player, a major chunk of the market.

Some of the steps that can be taken to create awareness and attract interest and participation can be: 1. ADVERTISING – both electronic and print Any awareness building advertisement should not be aimed at selling any of the products of the Bank. An ad that is issued in public interest and public awareness and that just mentions the issuer‘s/sponsor‘s name is held in great respect by people and helps acquire a favorable social image as a better corporate citizen. Such an image is very essential as people are more willing to hand their money to organizations with such a public rapport and trust.

A very widespread and less expensive way of such an advertisement is the use of popular Radio Channels like Radio Mirchi, Red FM and Radio City etc. They have a high popularity rate and a mass reach to all classes of population.

Analysis of various Balanced and Liquid Funds Such an advertising strategy is used by Sharekhan, where it sponsors informative fillers about various financial and economic concepts like inflation, investments etc. in simple layman language to make it more interesting to know and learn. This has lead to a widespread recognition recollection of the brand Sharekhan.

The advertisements should reach the people through more popular channels, which are viewed, largely by people and not only business channels and magazines like CNBC or Business World.

2. BROCHURES AND PAMPHLETS: An easy to understand, well designed, brief and crisply presented pamphlet or a Brochure can act as a silent guide to make customers aware of the Mutual Funds and it‘s working. Such Brochures should be placed at the customer dealing counters at the Bank to attract interest and lead to action.

3. COLLECT DATABASE FROM sources like database of members of various elite clubs and societies that shall give SBI MUTUAL FUND a vast pool of data on potential customers. TELE CALLING can be done to these potential customers.

4. TARGET THE YOUTH: they are the future. Tying up with professional institutions like IITs, B-Schools etc. and conducting workshops and seminars on Mutual Funds and Capital markets will help build a strong customer base for the future as these are the people who shall have enough disposable income in years to come, thanks to the high pay packages they shall be offered.

5. DSAs: Hire Direct Selling Agents and form alliances with more brokerage houses.

6. CREATE TRUST AND CONFIDENCE: Consistent and Serious efforts should be made to create a feeling of trust among the customers. They should not feel that the Relationship Manager or the Financial Planning Manager is trying to pitch them the

Analysis of various Balanced and Liquid Funds service to mint his own commission. The SBI‘s MUTUAL FUND representative should be able to carry the spirit and ideology of the SBI MUTUAL FUND with him. They should be able to make the customers understand and accept that their money is going in safe hands and shall be managed by experienced and well-qualified professionals.

7. EFFICIENT FUND MANAGEMENT:

A study conducted by Price Waterhouse Cooper (PWC) on risk management by mutual funds has posted interesting as well as worrying results. According to the survey, as many as 50 percent of the respondent mutual funds are not managing risk properly. Also, about 50 percent of the respondents did not have documented risk procedures or dedicated risk managers. It is unfortunate that the fund managers are not taking due care for minimizing the risk and are in a race to post higher and higher returns during the phase of bull-run. They should understand that the investors forget the high returns posted in any specific period very soon but they take hell lot of time to forget the burns The fund managers should disclose what they are doing at the hedging front. They should come up and tell their investors as to what they do at times of high fluctuations. Normally it has been seen that they outperform the broad market indices during the bull runs and under perform the indices during the bear phases. Poor performance, poor servicing to clients and failure of third party service providers, are the three major risk factors identified in the survey by PWC. (Source: www.mutualfundindia.com)

Thus SBI MUTUAL FUND should make sure that the funds it is investing in are efficiently managed and justify their claims. The in-house research center of SBI MUTUAL FUND MF can conduct a thorough risk and return analysis of various funds to arrive at the real situation.

8.

INCREASE THE POOL OF FUNDS OFFERED:

Analysis of various Balanced and Liquid Funds There are only a handful of funds that SBI recommends and invests into, thus limiting the choice while its competitors offer a wide choice. It should seek to increase the basket after a clear evaluation of performance and scope of various funds.

9. TIE UP WITH MODERN RETAIL FORMATS

With large number of modern retail formats coming up in the country within a span of 23years. (E.g. Reliance Retail expects to open around 3500 stores in Ist phase of incorporation). There lies a huge opportunity to tap the middle and affluent class of the society visiting these stores.

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Analysis of various Balanced and Liquid Funds Black, Richard; Douglas Laxton, David Rose, and Robert Tetlow, (1994) "The Bank of Canada‘s New Quarterly Projection Model; Part 1, the Steady-State Model" SSQPM Technical report no. 72, Bank of Canada, Ottawa. Black, Richard; Tiff Macklem, and David Rose, (1997) "On Policy Rules for Price Stability," forthcoming in Price Stability, Inflation Targets and Monetary Policy, Proceeding of a conference held at the Bank of Canada, 3-4 May 1997. Black Richard, Vincenzo Cassino, Aaron Drew, Eric Hansen, Benjamin Hunt, David Rose and Alasdair Scott, (1997), "The Forecasting and Policy System: the core model," Reserve Bank of New Zealand Research Paper 43. (http://www.rbnz.govt.nz/research/econresearch/rp43.pdf) Blanchard, Olivier Jean, and C. Kahn (1980). "The Solution of Linear Difference Models Under Rational Expectations," Econometrica 48, pp 1305-1311. Bowitz, Einar and Torbjørn Eika, (1989), "KVARTS-86, A Quarterly Macroeconomic Model: Formal Structure and Empirical Characteristics," Rapporter 89/2, Statistisk sentralbyrå, Oslo. Boutillier, Michel, and Pascal Jacquinot, (1995), "Causality and dynamic analysis of MEFISTO: the monetary and financial model of the Banque de France," in Methods and Applications of Economic Dynamics, Eds. L. Shoonbeek, E. Sterken and S.K. Kuipers, Elsevier Science B.V. Brendemoen, Anne and Haakon Vennemo, (1994), "A climate treaty and the Norwegian economy: A CGE assessment," Energy Journal 15(1), 79–95. Brendemoen, Anne and Haakon Vennemo, (1996), "The marginal cost of funds in the presence of environmental externalities," Scandinavian Journal of Economics 98(3), 405–422. Brodin, P. Anders and Ragnar Nymoen, (1989), "The Consumption Function in Norway: Breakdown and Reconstruction," Arbeidsnotat, 1989/7, Research Department, Norges Bank, Oslo. Brodin, P. Anders and Ragnar Nymoen, (1991), "Wealth Effects and Exogeneity: The Norwegian Consumption Function, 1966 (1)–1989 (4)" Arbeidsnotat, 1991/1, Research Department, Norges Bank, Oslo. Brodin, P. Anders and Ragnar Nymoen, (1992), "Wealth Effects and Exogeneity: The Norwegian Consumption Function," Oxford Bulletin of Economics and Statistics, 54, 431–454. Bruaset, Are Magnus, (1996), "Efficient Solution of Linear Equations Arising in a Nonlinear Economic Model," in Computational Economic Systems: Models, Methods and Econometrics, Ed. Manfred Gilli, Kluwer Academic Publishers, Boston. Bryant, Ralph C. and Long Zhang, (1996), "Intertemporal Fiscal Policy in Macroeconomic Models: Introduction and Major Alternatives," Brookings Discussion Papers In International Economics No. 123, Brookings Institution, Washington DC

Analysis of various Balanced and Liquid Funds Bryant, Ralph C. and Long Zhang, (1996), "Alternative Specifications of Intertemporal Fiscal Policy in a Small Theoretical Model," Brookings Discussion Papers In International Economics No. 124, Brookings Institution, Washington DC Bureau of Economic and Business Research, (Third Quarter, 1989), The Florida Outlook, University of Florida, Gainesville, Fl. Published quarterly. Bye, Brita (2000), "Environmental Tax Reform and Producer Foresight: An Intertemporal Computable General Equilibrium Analysis," Journal of Policy Modeling 22(6):719–752. Bye, Brita and Turid Åvitsland, (2003), "The welfare effects of housing taxation in a distorted economy: a general equilibrium analysis," Economic Modelling, 20-5, pp 895– 921. Bye, T.; R. Choudhury; M. Hardarson and P. Hardarson (2001): "The ISM Model – A CGE model for the Icelandic Economy", Documents 2001/1, Statistics Norway. (http://www.ssb.no/emner/01/90/doc_200101/doc_200101.pdf) Cadiou, Loïc; Stéphane Dées; and Jean-Pierre Laffargue, (2003), "A computional general equilibrium model with vintage capital", Journal of Economic Dynamics and Control 27 (11-12), pp 1961-1991.

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