123mutual fund
TRANSCRIPT
PROJECT REPORT
0N
ANALYSIS OF MUTUAL FUND
(UNIT TRUST OF INDIA)
SUBMITTED FOR THE PARTICAL FULFILLMENT OF MBA (FT)
BARKATULLAH UNIVERSITY, BHOPAL
BY
VASUDHA PARADKAR
(MBA IV SEMESTER)
UNDER THE SUPERVISION OF
TIT-MBA BHOPAL
TECHNOCRATS INSTITUTE OF TECHNOLOGY-MBA
BHOPAL
2008-2010
CONTENTS
CHAPTER 1 – INTRODUCTION
CHAPTER 2 - COMPANY PROFILE
CHAPTER 3 - OBJECTIVES OF THE STUDY
CHAPTER 4 - RESEARCH METHEDOLOGY
CHAPTER 5 - COMPARATIVE ANALYSIS OF MUTUAL FUND
o STANDARD DEVIATION
o SHARPE RATIO
CHAPTER 6 - FINDINGS, SUGGESTIONS AND RECOMMENDATIONS
CHAPTER 7 - SUMMARY AND CONCLUSION
DECLARATION
I VASUDHA PARADKAR student of MBA IV sem of TIT MBA BHOPAL
hereby declare that the project report entitled analysis of mutual fund is my own
original work based on survey undertaken by me. I also declare that this report has
not been submitted to any university/Institute for the award of any degree or any
professional diploma.
Date:………………..
Vasudha paradkar
MBA IV Sem
CERTIFICATE
This is to certify that miss VASUDHA PARADKAR has completed her
project work on subject entitled analysis of mutual fund which based on
the survey and research study undertaken by her.
The project report is completed by the candidate under my supervision.
It is an original research study completed under my supervision to meet
the partial requirement of MBA( FT )degree of the Barkatullah
University Bhopal.
Date:
INTRODUCTION
What is a Mutual fund?
Mutual fund is an investment company that pools money from shareholders and
invests in a variety of securities, such as stocks, bonds and money market
instruments. Most open-end Mutual funds stand ready to buy back (redeem) its
shares at their current net asset value, which depends on the total market value of
the fund's investment portfolio at the time of redemption. Most open-end Mutual
funds continuously offer new shares to investors. Also known as an open-end
investment company, to differentiate it from a closed-end investment company.
Mutual funds invest pooled cash of many investors to meet the fund's stated
investment objective. Mutual funds stand ready to sell and redeem their shares at
any time at the fund's current net
asset value: total fund assets divided by shares outstanding.
In Simple Words, Mutual fund is a mechanism for pooling the resources by issuing
units to the investors and investing funds in securities in accordance with
objectives as disclosed in offer document. Investments in securities are spread
across a wide cross-section of industries and sectors and thus the risk is reduced.
Diversification reduces the risk because all stocks may not move in the same
direction in the same proportion at the same time.
ADVANTAGES OF MUTUAL FUNDS
Professional Management.
The major advantage of investing in a mutual fund is that you get a
professional money manager to manage your investments for a small fee.
You can leave the investment decisions to him and only have to monitor the
performance of the fund at regular intervals.
Diversification.
Considered the essential tool in risk management, mutual funds make it
possible for even small investors to diversify their portfolio. A mutual fund
can effectively diversify its portfolio because of the large corpus. However,
a small investor cannot have a well-diversified portfolio because it calls for
large investment. For example, a modest portfolio of 10 bluechip stocks
calls for a few a few thousands.
Convenient Administration.
Mutual funds offer tailor-made solutions like systematic investment plans
and systematic withdrawal plans to investors, which is very convenient to
investors. Investors also do not have to worry about investment decisions,
they do not have to deal with brokerage or depository, etc. for buying or
selling of securities. Mutual funds also offer specialized schemes like
retirement plans, children’s plans, industry specific schemes, etc. to suit
personal preference of investors. These schemes also help small investors
with asset allocation of their corpus. It also saves a lot of paper work.
Costs Effectiveness
A small investor will find that the mutual fund route is a cost-effective
method (the AMC fee is normally 2.5%) and it also saves a lot of transaction
cost as mutual funds get concession from brokerages. Also, the investor gets
the service of a financial professional for a very small fee. If he were to seek
a financial advisor's help directly, he will end up paying significantly more
for investment advice. Also, he will need to have a sizeable corpus to offer
for investment management to be eligible for an investment adviser’s
services.
Liquidity.
You can liquidate your investments within 3 to 5 working days (mutual
funds dispatch redemption cheques speedily and also offer direct credit
facility into your bank account i.e. Electronic Clearing Services).
Transparency.
Mutual funds offer daily NAVs of schemes, which help you to monitor your
investments on a regular basis. They also send quarterly newsletters, which
give details of the portfolio, performance of schemes against various
benchmarks, etc. They are also well regulated and Sebi monitors their
actions closely.
Tax benefits.
You do not have to pay any taxes on dividends issued by mutual funds. You
also have the advantage of capital gains taxation. Tax-saving schemes and
pension schemes give you the added advantage of benefits under section 88.
Affordability
Mutual funds allow you to invest small sums. For instance, if you want to
buy a portfolio of blue chips of modest size, you should at least have a few
lakhs of rupees. A mutual fund gives you the same portfolio for meager
investment of Rs.1,000-5,000. A mutual fund can do that because it collects
money from many people and it has a large corpus.
DISADVANTAGES OF MUTUAL FUNDS:
Professional Management- Did you notice how we qualified the advantage
of professional management with the word "theoretically"? Many investors
debate over whether or not the so-called professionals are any better than
you or I at picking stocks. Management is by no means infallible, and, even
if the fund loses money, the manager still takes his/her cut. We'll talk about
this in detail in a later section.
Costs - Mutual funds don't exist solely to make your life easier--all funds are
in it for a profit. The Mutual fund industry is masterful at burying costs
under layers of jargon. These costs are so complicated that in this tutorial we
have devoted an entire section to the subject.
Dilution - It's possible to have too much diversification (this is explained in
our article entitled "Are You Over-Diversified?"). Because funds have small
holdings in so many different companies, high returns from a few
investments often don't make much difference on the overall return. Dilution
is also the result of a successful fund getting too big. When money pours
into funds that have had strong success, the manager often has trouble
finding a good investment for all the new money.
Taxes - When making decisions about your money, fund managers don't
consider your personal tax situation. For example, when a fund manager
sells a security, a capital-gain tax is triggered, which affects how profitable
the individual is from the sale. It might have been more advantageous for the
individual to defer the capital gains liability.
Equity funds, if selected in the right manner and in the right proportion, have the
ability to play an important role in achieving most long-term objectives of
investors in different segments. While the selection process becomes much easier
if you get advice from professionals, it is equally important to know certain aspects
of equity investing yourself to do justice to your hard earned money.
TYPES OF MUTUAL FUND SCHEMES
Types Of Mutual Funds
Open-ended Funds
An open-end fund is one that is available for subscription all through the year.
These do not have a fixed maturity. Investors can conveniently buy and sell units at
Net Asset Value ("NAV") related prices. The key feature of open-end schemes is
liquidity.
Closed-ended Funds
A closed-end fund has a stipulated maturity period which generally ranging from 3
to 15 years. The fund is open for subscription only during a specified period.
Investors can invest in the scheme at the time of the initial public issue and
thereafter they can buy or sell the units of the scheme on the stock exchanges
where they are listed. In order to provide an exit route to the investors, some close-
ended funds give an option of selling back the units to the Mutual Fund through
periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least
one of the two exit routes is provided to the investor.
Interval Funds
Interval funds combine the features of open-ended and close-ended schemes. They
are open for sale or redemption during pre-determined intervals at NAV related
prices.
Growth Funds
The aim of growth funds is to provide capital appreciation over the medium to
long- term. Such schemes normally invest a majority of their corpus in equities. It
has been proven that returns from stocks, have outperformed most other kind of
investments held over the long term. Growth schemes are ideal for investors
having a long-term outlook seeking growth over a period of time.
Income Funds
The aim of income funds is to provide regular and steady income to investors.
Such schemes generally invest in fixed income securities such as bonds, corporate
debentures and Government securities. Income Funds are ideal for capital stability
and regular income.
Balanced Funds
The aim of balanced funds is to provide both growth and regular income. Such
schemes periodically distribute a part of their earning and invest both in equities
and fixed income securities in the proportion indicated in their offer documents. In
a rising stock market, the NAV of these schemes may not normally keep pace, or
fall equally when the market falls. These are ideal for investors looking for a
combination of income and moderate growth.
Money Market Funds
The aim of money market funds is to provide easy liquidity, preservation of capital
and moderate income. These schemes generally invest in safer short-term
instruments such as treasury bills, certificates of deposit, commercial paper and
inter-bank call money. Returns on these schemes may fluctuate depending upon
the interest rates prevailing in the market. These are ideal for Corporate and
individual investors as a means to park their surplus funds for short periods.
Load Funds
A Load Fund is one that charges a commission for entry or exit. That is, each time
you buy or sell units in the fund, a commission will be payable. Typically entry
and exit loads range from 1% to 2%. It could be worth paying the load, if the fund
has a good performance history.
No-Load Funds
A No-Load Fund is one that does not charge a commission for entry or exit. That
is, no commission is payable on purchase or sale of units in the fund. The
advantage of a no load fund is that the entire corpus is put to work.
Tax Saving Schemes
These schemes offer tax rebates to the investors under specific provisions of the
Indian Income Tax laws as the Government offers tax incentives for investment in
specified avenues. Investments made in Equity Linked Savings Schemes (ELSS)
and Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act,
1961. The Act also provides opportunities to investors to save capital gains u/s
54EA and 54EB by investing in Mutual Funds, provided the capital asset has been
sold prior to April 1, 2000 and the amount is invested before September 30, 2000.
Industry Specific Schemes
Industry Specific Schemes invest only in the industries specified in the offer
document. The investment of these funds is limited to specific industries like
InfoTech, FMCG, and Pharmaceuticals etc.
Index Schemes
Index Funds attempt to replicate the performance of a particular index such as the
BSE Sensex or the NSE 50
Sectoral Schemes
Sectoral Funds are those, which invest exclusively in a specified industry or a
group of industries or various segments such as 'A' Group shares or initial public
offerings.
Every year, millions of Indians entrust their savings to Unit Trust of India to build
up a financially secure future. This faith and confidence of investors stem from
UTI's commitment, as reflected in its long track record to ensure its investors,
safety, liquidity and attractive yield on their investments.
Set up in 1964, by an Act of Parliament, UTI Act 1963, UTI has grown into one of
the biggest players and carved out a special position in the Indian capital
market.Today, UTI manages an aggregate portfolio of Rs. 72,698 Crore as on
31/12/1999 and services 45 million investor accounts under 90 saving schemes
catering to varying needs of different classes of investors.UTI has a servicing and
distribution network of 53 branch offices, 320 District Representatives and about
87,000 agents. It provides a complete range of services to its investors, at a low
gross cost of less than 1.01 percent of invisible funds and does not charge any
asset management fee.
Management:
Chairman Shri Janki Ballabh
Executive Directors Prof. P.G. Apte
Mr. S.P. Oswal
Mr. Babasaheb N. kalyani
Shri Ashok K Kini
Prof. P.V.Ramana
Mr. S. Ravi
Mr. Pradeep Gupta
UTI is a symbol of trust and confidence among Indian investors. In the last seven
years, the number of schemes managed by UTI increased from 35 to 92, while
the number of unit holding accounts recorded a sevenfold increase from 65 lakhs
to over 450 lakhs. The mutual fund industry in India started in 1963 with the
formation of Unit Trust of India, at the initiative of the Government of India and
Reserve Bank the. The history of mutual funds in India can be broadly divided
into four distinct phases
First Phase – 1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament.
It was set up by the Reserve Bank of India and functioned under the
Regulatory and administrative control of the Reserve Bank of India.
In 1978 UTI was de-linked from the RBI and the Industrial Development
Bank of India (IDBI) took over the regulatory and administrative control in
place of RBI.
The first scheme launched by UTI was Unit Scheme 1964. At the end of
1988 UTI had Rs.6, 700 crores of assets under management.
Second Phase – 1987-1993 (Entry of Public Sector Funds)
1987 marked the entry of non- UTI, public sector mutual funds set up by
public sector banks and Life Insurance Corporation of India (LIC) and
General Insurance Corporation of India (GIC).
SBI Mutual Fund was the first non- UTI Mutual Fund established in June
1987 followed by Can bank Mutual Fund (Dec 87), Punjab National Bank
Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India
(Jun 90), Bank of Baroda Mutual Fund (Oct 92).
LIC established its mutual fund in June 1989 while GIC had set up its
mutual fund in December 1990.
At the end of 1993, the mutual fund industry had assets under
management of Rs.47, 004 crores.
Third Phase – 1993-2003 (Entry of Private Sector Funds)
With the entry of private sector funds in 1993, a new era started in the Indian
mutual fund industry, giving the Indian investors a wider choice of fund
families.
1993 was the year in which the first Mutual Fund Regulations came into
being, under which all mutual funds, except UTI were to be registered and
governed.
The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the
first private sector mutual fund registered in July 1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more
comprehensive and revised Mutual Fund Regulations in 1996. The
industry now functions under the SEBI (Mutual Fund) Regulations 1996.
As at the end of January 2003, there were 33 mutual funds with total
assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44, 541
crores of assets under management was way ahead of other mutual funds.
Fourth Phase – since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities.
One is the Specified Undertaking of the Unit Trust of India with assets
under management of Rs.29, 835 crores as at the end of January 2003,
representing broadly, the assets of US 64 scheme, assured return and
certain other schemes. The Specified Undertaking of Unit Trust of India,
functioning under an administrator and under the rules framed by
Government of India and does not come under the purview of the Mutual
Fund Regulations.
The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and
LIC. It is registered with SEBI and functions under the Mutual Fund
Regulations. With the bifurcation of the erstwhile UTI which had in March
2000 more than Rs.76,000 crores of assets under management and with
the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund
Regulations
With recent mergers taking place among different private sector funds, the
mutual fund industry has entered its current phase of consolidation and
growth.
As at the end of September 2004, there were 29 funds, which manage
assets of Rs.153108 crores under 421 schemes.
UTI's expanding product range cover a broad spectrum of investment goals and
includes open end and closed-end income and capital accumulation funds.
Among the most popular are Unit Scheme 1964 and Master series equity
schemes such as Mastershare, Masterplus, Master Equity Plans, etc.
UTI also manages schemes aimed at meeting specific needs like
Low cost insurance cover (ULIP)
Monthly income needs of retired persons and women.
Income and liquidity needs of religious and charitable institutions and
trusts.
Building up funds to meet cost of higher education and career plans for
children.
Future wealth and income needs of girl child and women.
Building savings to cover medical insurance at old age.
Wealth accumulation to meet income needs after retirement.
A Conglomerate with a vision:
As a distinctive financial institution, UTI manages funds raised through common
investible vehicles and at the same time provides companies financial services,
including underwriting. To create a diversified financial conglomerate and to meet
investor's varying needs under a common umbrella, UTI has set up a number of
associate companies in the field of banking, securities trading, investor servicing,
investment advice and training.
UTI Bank Ltd (1994)--the first private sector bank to be set up under
RBI guidelines.
UTI Securities Exchange Ltd (1994)--the first institutionally sponsored
corporate stock-broking firm.
UTI Investor Services Ltd (1993)--the first institutionally sponsored
Registrar and Transfer agency.
UTI Institute of Capital Markets (1989)--the first such institute in Asia,
excluding Japan.
UTI Investment Advisory Services Ltd (1988)--the first Indian
Investment Advisor registered with SEC, US.
Consistent with financial sector deregulation, UTI has plans to enter insurance,
pension fund and credit rating businesses.
OBJECTIVE AND SCOPE OF THE STUDY
o The Mutual Fund Industry is fast gaining popularity in today’s
unpredictable financial scenario. It is emerging as one of the most
lucrative investment options. The primary objective of the project is
to gain detailed insight into this Industry.
o I have tried to systematically and objectively look into all-important
aspects. A combination of primary and secondary data has been
used. The former, though limited, has helped us give first hand
information on company and investor sentiments. The latter has
been used to understand the theoretical aspects.
o Strategic importance has been given to both current and past trends
and we have tried to correlate both in a manner to gain maximum
insight.
o This document has been designed to serve a two-fold purpose. The
first, which is also the main objective of the project, is to reflect our
understanding of this industry. The second is to provide the reader
similar detailed knowledge
o The prime objective of the research was to determine the perception
of the Indian investor towards Mutual funds and this is demonstrated
in the later part of this report.
RESEARCH METHODOLOGY
Research in this project will be conducted with the help of the
following:
This research is exploratory in nature .I shall be collected data from
various primary and secondary sources. The choice of sample scheme will
be guided by the fact that a reasonable amount of information will available
and representing true picture of Indian mutual fund industry.
The methodology adopted for the completion of this project will be divided
into four stages.
The first stage included understanding the Concept, Structure and policy
(related to Mutual funds) in the Indian mutual fund industry and Secondary
data for this purpose will be collected through various books on mutual
funds, business newspapers, business magazines, trade journals, annual
& quarterly performance reports of the concerned mutual funds company.
The second stage included the input stage in which various types of
information data would be collected related to various mutual funds. The
data was collected through discussions & interviews with the
representatives of the companies. The financial and other relevant data will
be extracted from the performance and annual reports of the Asset
management companies (AMC) concerned
In the third stage all the gathered data will be arranged and tabulated to
arrive at the necessary conclusion. All the information was correlated into
tabulation charts and in figures to make the information easy to
understand. Primary collection of data included preparation of tools like
Questionnaires to evaluate various schemes mutual funds and to
determine the perception of the Indian investor towards the mutual funds.
The results and findings of primary data will be collected (Sample
Questionnaire) is given in the Annexure*.
The last stage, i.e. the output stage included analyzing of the processed
information in to final findings and comparing the information with the data
of mutual fund companies and then arriving of final conclusions and policy
recommendations to UTI.
DATA PRESENTATION,
ANALYSIS AND INTERPRETATION
THE TOOLS USED FOR CALCULATION
Standard Deviation
Beta
Alpha
Sharp ratio
Arithmetic mean
∑ Y/N
Where Y- return of Nav values
N- Number of observation
average return that can be expected from investment. The arithmetic
average return is appropriate as a measure of the central tendency of a number
of returns calculated for a particular time i.e. for five years. It shows the
Standard deviation
S.D= √(y-Y) ²
N
The standard deviation is a measure of the variables around its mean or it is
the square root of the sum of the squared deviations from the mean divided by
the number of observations.
S.D is used to measure the variability of return i.e. the variation between
the actual and expected return.
BETA
Beta describes the relationship between the stock’s return and index
returns. There can be direct or indirect relation between stock’s return and
index return. Indirect relations are vary rare.
1) Beta =+1.0
It indicates that one percent change in market index return
causes exactly one percent change in the stock return. It indicates that stock
moves along with the market.
2) Beta= + 0.5
One percent changes in the market index return causes 0.5
percent change in the stock return. It indicates that it is less volatile
compared to market.
3) Beta=2.0
One percent change in the market index return causes 2
percent change in the stock return. The stock return is more volatile. The
stocks with more than 1 beta value are considered to be very risky.
4) Negative beta value indicates that the stocks return move in opposite
direction to the market return.
Beta= N*∑XY- (∑X) (∑Y/ N(X*X) * (∑x)
Where
N- No of observation
X- Total of market index value
Y- Total of return to Nav
ALPHA
Alpha = Y- beta(X)
Where
Y- avrage return to nav return
X- average return to market index .
Alpha indicates that the stock return is independent of the market return.
A positive value of alpha is a healthy sign. Positive alpha values would yield
profitable return.
SHARPE RATIO
St= Ri --Rf
S.D
WHERE
Ri – Avereage return to portfolio
Rf—Risk free rate of interest
S.D- Standard Deviation
Sharpe’s performce index gives a single value to be used for the
performance ranking of various funds or portfolios. Sharpe index measures the
risk premium of the portfolio relative to the total amount of risk in the
portfolio. The risk premium is the difference between the portfolio’s average
rate of return and the risk less rate of return. The standard deviation of the
portfolio indicates the risk.
Higher the value of sharpe ratio better the fund has performed. Sharpe
ratio can be used to rank the desirability of funds or portfolios. The fund that
has performed well comapred to other will be ranked first then the others.
COMPARATIVE ANALYSIS OF MUTUAL FUNDS
BETA
A Beta is a measure of risk that, when applied to investment portfolios, provides
useful statistical information. It compares a mutual fund's volatility with that of a
benchmark. If the beta of the stock is 1, it means that the returns in the stock are
highly correlated to the benchmark index.
A fund with a beta greater than 1 is considered more volatile than the market; and a
fund with a beta less than 1 means less volatile.
COMPARATIVE ANALYSIS
UTIHDFC TOP
200PRU ICICI GROWTH
RELIANCE VISION
BETA 0.91 0.91 0.98 0.89
Comparison Chart
0.7
0.75
0.8
0.85
0.9
UTI HDFC CAPITALBUILDER
RELIANCEGROWTH
Funds
BE
TA
BETA
Most mainstream equity funds have Betas in the range of .85 to 1.05 (fairly
close to the 1.00 Beta represented by the market in the aggregate).
Especially conservative stock funds may register Betas as low as .75,
meaning that in a -10% market decline, their values might be expected to fall
-7.5%. Aggressive funds with Betas of 1.25 might see their values fall by -
12.5%.
We can see that the betas of nearly all the funds are similar apart from the
beta of Pru-ICICI Growth, which has a very high beta, which implies that
the fund is very volatile.
An important point to be considered is that with different objectives, the
mid-cap and large cap betas also different. Large cap betas are more towards
market beta which implies that these funds have been more stable unlike mid
cap betas which are more volatile
ALPHA
Alpha is a financial term describing that part of an investor's return that is due to
the skills of the investment manager, as distinct from the return of the market as a
whole.
Alpha can provide a deeper perspective on the performance of equity
schemes to a mutual fund investor. While analyzing performance, we would like to
know how much of the return was attributable to the market as a whole, and how
much due to the manager's ability to select stocks. Value Added by Fund Manager
(or alpha) indicates the return that is not attributable to the market, or in other
words the added value the manager achieved over and above the result of the
market.
COMPARATIVE ANALYSIS:
A fund manager who reduces risks by booking profits has also to be careful in
reinvesting. If the reinvesting is badly managed, the returns may not be superior.
Then, despite a lower beta, the performance may be flat. The measure `Alpha'
indicates the value added by a fund manager.
UTIHDFC TOP
200PRU ICICI GROWTH
RELIANCE VISION
ALPHA 1.28 1.73 0.65 2.27
Comparison Chart
0
0.5
1
1.5
2
2.5
3
UTI HDFC CAPITALBUILDER
RELIANCEGROWTH
Funds
AL
PH
A
ALPHA
Alpha can be seen as a measure of a fund manager's performance. This is
what the fund has earned over and above (or under) what it was expected to
earn. Thus, this is the value added (or subtracted) by the fund manager's
investment decisions.
In the large cap funds, it can be see that the alpha of the Reliance Vision is
highest i.e 2.27. This can be attributed to the high churning of funds done by
the fund manager.
The lowest alpha is of Pru-ICICI Growth being 0.65; meanwhile the beta of
this fund is the maximum.
Again, in the mid cap funds also the alpha of reliance growth is the
maximum which can be attributed to the above reasons.
Another trend is that overall the alpha of mid-cap funds is higher as
compared to large cap funds. One reason could also be that in this time
period when the study was done, the mid cap funds were performing quite
well as compared to large cap funds.
SECTOR ALLOCATION
The division of an investment portfolio among major sectors usually to diversify
the risk.
In this context, two approaches can be followed:
- Top-down approach- Herein firstly the sectors are chosen, and
thereafter-strong companies are chosen in these sectors. E.g. HSBC
Equity
- Bottom-up approach- Herein the investments are done in
fundamentally sound companies. E.g. Franklin India Bluechip.
PORTFOLIO CONCENTRATION: This refers to the concentration of
the allocation in top few sectors. Depending on the objective of the mutual
fund, the fund could be concentrated or diversified. HDFC Equity Fund is a
very concentrated fund. Meanwhile Reliance Growth is a very diversified
fund
Funds exposure to different kinds of sectors is another parameter on which
the different mutual funds can be compared. Most funds have adequate
exposure to technology stocks. Lately most funds have increased their
exposure to banking sector stocks. However reliance has a very different
stock allocation investing in automobile and heavy engineering sectors.
STANDARD DEVIATION
The total risk of a given fund is measured in terms of standard deviation of returns
of the fund. Standard Deviation is a measure of scattering of the values about the
average (mean) value. It tells us how much the values have deviated from the mean
of the values. It is calculated by using returns of the scheme i.e. the Net Asset
Value (NAV), and is a measure of the dispersion of the scheme's return around its
average return.
Comparison Chart
66.26.46.66.8
77.27.47.67.8
8
UTI HDFCCAPITALBUILDER
RELIANCEGROWTH
Funds
S>D
.
STANDARD DEVIATION
COMPARATIVE ANALYSIS
When used in relation to mutual funds, it tells about the volatility of the scheme.
The higher is the value, the more volatile are the returns and vice versa.
UTIHDFC TOP
200PRU ICICI GROWTH
RELIANCE VISION
STANDARD 6.91 7.27 7.35 7.44
DEVIATION
Mid Cap Funds
The standard deviation is more in mid cap funds. This shows that mid cap
funds are more volatile as compared to large cap funds.
In the large cap funds the highest standard deviation is of reliance vision,
reliance vision falls in the category of high risk and high return.
Meanwhile the standard deviation of the Franklin India Blue chip is the
lowest, this fund is considered as one of the most stable returns giving fund.
However in the mid cap fund the highest standard deviation is of Franklin
India Prima. This is because Franklin India prima has lately changed its
sectoral composition, trying to make it as an aggressive fund.
SHARPE RATIO
Sharpe ratio, worked by Nobel Laureate Bill Sharpe, tries to quantify how a fund
performs relative to the risk it takes. It is a ratio of returns generated by the fund
over and above risk free rate of return and the total risk associated with it (standard
deviation). Symbolically it is written as:
Where, SI= Sharpe Index
Ri = Return on the fund
Rf = risk free rate of return (e.g. a 90 day T-Bill)
= Standard Deviation
INTERPRETATION
As FII’s have entered Indian markets Sensex have crossed 10000 mark and
investors have earned a lot in last financial year. Indians are becoming aware of
various investment options. People have started taking risk as they want to book
profits. Investors prefer more equity schemes than debt schemes, around 60% of
the investors invest in equity schemes and balanced schemes. Investors want to
take risk as they want to yield better returns. Investors want high returns, liquidity,
safety and tax benefit. Among all investors gives want to have safety for their
money. Around 91% of the investors prefer open ended schemes rather than close
ended schemes as there is flexibility in open ended schemes.
Investors prefer both systematic investment plan and lump sum. It depends upon
the availability of funds that the investor wants to invest in SIP or as lump sum.
Some of the investors invest in both ways i.e. through SIP as well as lump sum.
Basically it depends upon the availability of fund. When questions were asked
about the performance of mutual funds in future 50% of investors said strong
future, 35% of the investors said very strong future and 15% of the investors said
moderate future.
Recommendations:
1) A few respondents due to confidentiality constraints did not disclose the
average investment made.
2) The future investment in mutual funds depends heavily on the availability of
funds.
3) It is seen from the analysis that most of the people in India specifically Delhi
have no idea of Mutual Funds. This showed the low awareness level among
the people of Delhi about the Mutual Funds therefore I recommend that there
is need for better marketing of Mutual Funds and specifically target investors
who invest in stock markets and small investors who prefer banks for their
investments and create awareness amongst them about investing in Mutual
Funds.
4) It is recommended that the Asset Management Companies (AMC) more
specifically UTI should come up with new Mutual Fund schemes which focus
on security of money, better rate of return, liquidity, profitability. They
should concentrate more on building up investor’s confidence, as it is seen
from the analysis that most of the investors are not confident of the safety and
security of their investments in Mutual Funds especially after the UTI Scam in
India.
5) It is strongly recommended that Asset Management Companies (MF
Companies) specifically UTI provide reliable and more true and transparent
information to the investors as the investor is ready to invest in Mutual Funds
only if they are given more reliable information. It is also recommended that
Asset Management Companies (MF Companies) focus on building a
relationship of trust and commitment with the investors.
6) All the people interviewed expected a rate of return of 17-18% on their
investments in Mutual Funds therefore if the Asset Management Companies
(AMC) more specifically UTI are able to provide that return they can attract
more investors.
7) In the near future, a large number of new companies and schemes are soon
going to be launched which will increase the variety for investor and will lead
to increase in competition. in the industry and This stresses the need to
improve the quality of services offered and improve individual fund
performance.
8) The capital market has been growing by leaps and bounds. Thus the stock
market in India is on the right track and there will be major improvements in
the near future This expansion will act as an impediment to the small
investors who either has the option to play the market or to have the
knowledge to keep pace with the corporate information of thousands of
companies. Their mutual funds will form a favorable alternative provided there
is transparency, reliability and authenticity in their functioning.
CONCLUSION
Retail Investors prefer to invest in debt-based funds when they invest for short
periods and are looking for steady returns. On the contrary, when they invest
for long periods, they prefer to go for equity based funds as it is seen that in
the long period, equity funds out-perform debt funds. This money is either
from their capital gains or for some specific purpose in the future like their
child’s education, marriage, purchase of house etc.
Business Investors invest a lot in the end of June when Mutual Funds are
close to declaring dividends. This is because this gets them the benefit of
writing off their capital gains as follows –
1. Say the NAV per unit of the Mutual Fund is Rs. 20.00 at time of
purchase.
2. The business buys the Mutual Fund units at this price and dividends
are declared say Rs. 4.00 per unit.
3. Then after the cool off period when the Mutual Fund opens, the NAV
per unit is Rs. 16.00 per unit (Rs. 20.00 – Rs. 4.00 dividend declared).
4. The business then sells off the units at Rs. 16.00 per unit and claims
capital looses to the tune of Rs. 4.00 per unit, which can be used by
them to write off their capital profits.
5. This actually is not a capital loss as that amount has already been
reimbursed to the unit holder in terms of dividends.
In India, the trend is that investors invest when there is a boom in the stock
market and withdraw their holdings in times of slump. This is absolutely
contrary to how the system works abroad as there investments take place
in the slump period when greater units can be purchased with same
amount of money. Withdrawals are correspondingly done in boom times as
maximum return is achieved. This is the right strategy and Mutual Fund
companies are trying to create this awareness among consumers.
The outlook for the Mutual Fund Industry as predicted by the
representatives of the companies that I visited is very bright. They all
expect the market to go up by Diwali (Indian festival) and New Years and
also expect consumer awareness and interest to improve. Efforts are being
made by them to increase awareness and services offered by them. All
this would result in major increase in their collections and of the industry as
a whole. Also a large number of new companies and schemes are soon
going to be launched which will increase the variety for consumers and
also improve the quality of services offered due to the increase in
competition.