1 Final Project Mayur

8/13/2019 1 Final Project Mayur

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1. INTRODUCTION1.1 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 buyback (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 froma 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. Mutual fund issues units to the investors in


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accordancewith quantum of money invested by them. Investors of Mutual funds are

known as unit holders. The profits or losses are shared by the investors in proportion

to their investments.

The Mutual funds normally come out with a number of schemes with different

investment objectives which are launched from time to time. In India, A Mutual fund

is required to be registered with Securities and Exchange Board of India (SEBI)

which regulates securities markets before it can collect funds from the public. In

Short, a Mutual fund is common pools 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,

giltsetc. Mutual fund is a suitable investment for the common man as it offers an

opportunity to invest in a diversified, professionally managed basket of securities at a

relatively low cost.


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1.2 Objectives of the Study

The objective of the research is to study and detail analyzes of the IDFCSterling Equity Fund &IDFC Tax Advantage (ELSS) Fund.

To measure the satisfaction level of investors regarding mutual funds. An attempt has been made to measure various variables playing in the minds

of investors in terms of safety, liquidity, service, returns, and tax saving.

To get insight knowledge about mutual funds. Understanding the different ratios & portfolios so as to tell the distributors

about these terms, by this, managing the relationship with the distributors.

To know the mutual funds performance levels in the present market. Detail analysis of comparison of two fund i.e. Sterling Equity & Tax

Advantages.


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1.3History of Mutual Fund in India

The Evolution

The formation of Unit Trust of India marked the evolution of the Indian mutual fund

industry in the year 1963. The primary objective at that time was to attract the small

investors and it was made possible through the collective efforts of the Government of

India and the Reserve Bank of India. The history of mutual fund industry in India can

be better understood divided into following phases:

Phase 1. Establishment and Growth of Unit Trust of India - 1964-87

Unit Trust of India enjoyed complete monopoly when it was established in the year

1963 by an act of Parliament. UTI was set up by the Reserve Bank of India and it

continued to operate under the regulatory control of the RBI until the two were de-

linked in 1978 and the entire control was transferred in the hands of Industrial

Development Bank of India (IDBI). UTI launched its first scheme in 1964, named as

Unit Scheme 1964 (US-64), which attracted the largest number of investors in any

single investment scheme over the years.

UTI launched more innovative schemes in 1970s and 80s to suit the needs of different

investors. It launched ULIP in 1971, six more schemes between 1981-84, Children's

Gift Growth Fund and India Fund (India's first offshore fund) in 1986, Master share

(Indias first equity diversified scheme) in 1987 and Monthly Income Schemes

(offering assured returns) during 1990s. By the end of 1987, UTI's assets under

management grew ten times to Rs 6700 cores.

Phase II. Entry of Public Sector Funds - 1987-1993

The Indian mutual fund industry witnessed a number of public sector players entering

the market in the year 1987. In November 1987, SBI Mutual Fund from the State

Bank of India became the first non-UTI mutual fund in India. SBI Mutual Fund was

later followed by Canbank Mutual Fund, LIC Mutual Fund, Indian Bank Mutual

Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. By

1993, the assets under management of the industry increased seven times to Rs.

47,004 cores. However, UTI remained to be the leader with about 80% market share.


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1992-93 Amount

Mobilised

Assets Under

Management

Mobilisation as % of gross

Domestic Savings

UTI 11,057 38,247 5.2%

Public Sector 1,964 8,757 0.9%Total 13,021 47,004 6.1%

Phase III. Emergence of Private Sector Funds - 1993-96

The permission given to private sector funds including foreign fund management

companies (most of them entering through joint ventures with Indian promoters) to

enter the mutual fund industry in 1993, provided a wide range of choice to investors

and more competition in the industry. Private funds introduced innovative products,

investment techniques and investor-servicing technology. By 1994-95, about 11

private sector funds had launched their schemes.

Phase IV. Growth and SEBI Regulation - 1996-2004

The mutual fund industry witnessed robust growth and stricter regulation from the

SEBI after the year 1996. The mobilization of funds and the number of players

operating in the industry reached new heights as investors started showing more

interest in mutual funds.

Inventors interests were safeguarded by SEBI and the Government offered tax

benefits to the investors in order to encourage them. SEBI (Mutual Funds)

Regulations, 1996 was introduced by SEBI that set uniform standards for all mutual

funds in India. The Union Budget in 1999 exempted all dividend incomes in the hands

of investors from income tax. Various Investor Awareness Programmes were

launched during this phase, both by SEBI and AMFI, with an objective to educate

investors and make them informed about the mutual fund industry.

In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal

status as a trust formed by an Act of Parliament. The primary objective behind this

was to bring all mutual fund players on the same level. UTI was re-organized into two

parts: 1. The Specified Undertaking, 2. The UTI Mutual Fund


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Phase V. Growth and Consolidation - 2004 Onwards

The industry has also witnessed several mergers and acquisitions recently, examples

of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun

F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously,

more international mutual fund players have entered India like Fidelity, Franklin

Templeton Mutual Fund etc. There were 29 funds as at the end of March 2006. This is

a continuing phase of growth of the industry through consolidation and entry of new

international and private sector players.


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1.4 Types of mutual funds

1. Schemes according to Maturity Period:-A mutual fund scheme can be classified into open-ended scheme or close-ended

scheme depending on its maturity period.

Open-ended Fund/ Scheme:-An open-ended fund or scheme is one that is available for subscription and

repurchase on a continuous basis. These schemes do not have a fixed maturity

period. Investors can conveniently buy and sell units at Net Asset Value

(NAV) related prices which are declared on a daily basis. The key feature of

open-end schemes is liquidity.

Close-ended Fund/ Scheme:-

A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years.

The fund is open for subscription only during a specified period at the time of

launch of the scheme. Investors can invest in the scheme at the time of the

initial public issue and thereafter they can buy or sell the units of the scheme

on the stock exchanges where the units are listed. In order to provide an exit

route to the investors, some close-ended funds give an option of selling back

the units to the mutual fund through periodic repurchase at NAV related

prices. SEBI Regulations stipulate that at least one of the two exit routes is


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provided to the investor i.e. either repurchase facility or through listing on

stock exchanges. These mutual funds schemes disclose NAV generally on

weekly basis.

2. Schemes according to Investment Objective:-A scheme can also be classified as growth scheme, income scheme, or balanced

scheme considering its investment objective. Such schemes may be open-ended or

close-ended schemes as described earlier. Such schemes may be classified mainly as

follows:

Growth / Equity Oriented Scheme:-The aim of growth funds is to provide capital appreciation over the medium to

long- term. Such schemes normally invest a major part of their corpus in

equities. Such funds have comparatively high risks. These schemes provide

different options to the investors like dividend option, capital appreciation, etc.

and the investors may choose an option depending on their preferences. The

investors must indicate the option in the application form. The mutual funds also

allow the investors to change the options at a later date. Growth schemes are

good for investors having a long-term outlook seeking appreciation over a

period of time.

Income / Debt Oriented Scheme:-The aim of income funds is to provide regular and steady income to investors.

Such schemes generally invest in fixed income securities such as bonds,

corporate debentures, Government securities and money market instruments.

Such funds are less risky compared to equity schemes. These funds are not

affected because of fluctuations in equity markets. However, opportunities of

capital appreciation are also limited in such funds. The NAVs of such funds are

affected because of change in interest rates in the country. If the interest rates

fall, NAVs of such funds are likely to increase in the short run and vice versa.

However, long term investors may not bother about these fluctuations.


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Balanced Fund:-The aim of balanced funds is to provide both growth and regular income as such

schemes invest both in equities and fixed income securities in the proportion

indicated in their offer documents. These are appropriate for investors lookingfor 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.

Money Market or Liquid Fund:-These funds are also income funds and their aim is to provide easy liquidity,

preservation of capital and moderate income. These schemes invest exclusively

in safer short-term instruments such as treasury bills, certificates of deposit,

commercial paper and inter-bank call money, government securities, etc.

Returns on these schemes fluctuate much less compared to other funds. These

funds are appropriate for corporate and individual investors as a means to park

their surplus funds for short periods.

3. Others:- Sector specific funds/schemes:-

These are the funds/schemes which invest in the securities of only those

sectors or industries as specified in the offer documents. e.g. Pharmaceuticals,

Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The

returns in these funds are dependent on the performance of the respective

sectors/industries. While these funds may give higher returns, they are more

risky compared to diversified funds. Investors need to keep a watch on the

performance of those sectors/industries and must exit at an appropriate time.

They may also seek advice of an expert.

Tax Saving Schemes:-These schemes offer tax rebates to the investors under specific provisions of

the Income Tax Act, 1961 as the Government offers tax incentives for

investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS).

Pension schemes launched by the mutual funds also offer tax benefits. These


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schemes are growth oriented and invest pre-dominantly in equities. Their

growth opportunities and risks associated are like any equity-oriented scheme.

Gilt Fund:-These funds invest exclusively in government securities. Governmentsecurities have no default risk. NAVs of these schemes also fluctuate due to

change in interest rates and other economic factors as is the case with income

or debt oriented schemes.

Index Funds :-Index Funds replicate the portfolio of a particular index such as the BSE

Sensitive index, S&P NSE 50 index (Nifty), etc these schemes invest in the

securities in the same weightage comprising of an index. NAVs of suchschemes would rise or fall in accordance with the rise or fall in the index,

though not exactly by the same percentage due to some factors known as

"tracking error" in technical terms. Necessary disclosures in this regard are

made in the offer document of the mutual fund scheme.

Fund of Funds (FoF) scheme:-A scheme that invests primarily in other schemes of the same mutual fund or

other mutual funds is known as a FoF scheme. AnFoF scheme enables theinvestors to achieve greater diversification through one scheme. It spreads

risks across a greater universe.

Load or no-load Fund:-A Load Fund is one that charges a percentage of NAV for entry or exit. That

is, each time one buys or sells units in the fund, a charge will be payable. This

charge is used by the mutual fund for marketing and distribution expenses.

Suppose the NAV per unit is Rs.10. If the entry as well as exit load charged is1%, then the investors who buy would be required to pay Rs.10.10 and those

who offer their units for repurchase to the mutual fund will get only Rs.9.90

per unit. The investors should take the loads into consideration while making

investment as these affect their yields/returns. However, the investors should

also consider the performance track record and service standards of the mutual

fund which are more important. Efficient funds may give higher returns in

spite of loads. A no-load fund is one that does not charge for entry or exit.


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Disadvantage of Mutual Funds

1. Costs Control

Not in the Hands

of an Investor

Investor has to pay investment management fees and

fund distribution costs as a percentage of the value of

his investments (as long as he holds the units),

irrespective of the performance of the fund.

2. No Customized

Portfolios

The portfolio of securities in which a fund invests is a

decision taken by the fund manager. Investors have

no right to interfere in the decision making process of

a fund manager, which some investors find as aconstraint in achieving their financial objectives.

3. Difficulty in

Selecting a

Suitable Fund

Scheme

Many investors find it difficult to select one option

from the plethora of funds/schemes/plans available.

For this, they may have to take advice from financial

planners in order to invest in the right fund to achieve

their objectives.


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1.6Risks Associated With Mutual FundsInvesting in mutual funds as with any security, does not come without risk. One of the

most basic economic principles is that risk and reward are directly correlated. In other

words, the greater the potential risk, the greater the potential return. The types of risk

commonly associated with mutual funds are:

Market Risk:Market risk relate to the market value of a security in the future. Market

prices fluctuate and are susceptible to economic and financial trends, supply

and demand, and many other factors that cannot be precisely predicted or

controlled.

Political Risk:Changes in the tax laws, trade regulations, administered prices etc. is some of

the many political factors that create market risk. Although collectively, as

citizens, we have indirect control through the power of our vote, individually

as investors, we have virtually no control.

Inflation Risk:Inflation or purchasing power risk, relates to the uncertainty of the future

purchasing power of the invested rupees. The risk is the increase in cost of the

goods and services, as measured by the Consumer Price Index.

Interest Rate Risk:Interest Rate risk relates to the future changes in interest rates. For instance, if

an investor invests in a long term debt mutual fund scheme and interest rate

increase, the NAV of the scheme will fall because the scheme will be end up

holding debt offering lowest interest rates.

Business Risk:Business Risk is the uncertainty concerning the future existence, stability and

profitability of the issuer of the security. Business Risk is inherent in all

business ventures. The future financial stability of a company cannot be


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predicted or guaranteed, nor can the price of its securities. Adverse changes in

business circumstances will reduce the market price of the companys equity

resulting in proportionate fall in the NAV of mutual fund scheme, which has

invested in the equity of such a company.

Economic Risk :Economic Risk involves uncertainty in the economy, which, in turn can have

an adverse effect on a companys business. For instance, if monsoons fall in a

year, equity stocks of agriculture bases companies will fall and NAVs of

mutual funds, which have invested in such stocks, will fall proportionately.


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1.7 How is a mutual fund set up?

A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset

Management Company (AMC) and custodian. The trust is established by a sponsor or

more than one sponsor who is like promoter of a company. The trustees of the mutual

fund hold its property for the benefit of the unit holders.

Asset Management Company (AMC) approved by SEBI manages the funds by

making investments in various types of securities. Custodian, who is registered with

SEBI, holds the securities of various schemes of the fund in its custody. The trustees

are vested with the general power of superintendence and direction over AMC. They

monitor the performance and compliance of SEBI Regulations by the mutual fund.

SEBI Regulations require that at least two thirds of the directors of trustee company

or board of trustees must be independent i.e. they should not be associated with the

sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds

are required to be registered with SEBI before they launch any scheme.

Association of Mutual Funds in India (AMFI)With the increase in mutual fund players in India, a need for mutual fund associationin India was generated to function as a non-profit organization. Association of Mutual

Funds in India (AMFI) was incorporated on 22nd August, 1995.AMFI is an apex

body of all Asset Management Companies (AMC) which has been registered with

SEBI. Till date all the AMCs are that have launched mutual fund schemes are its

members. It functions under the supervision and guidelines of its Board of Directors.

Association of Mutual Funds India has brought down the Indian Mutual Fund

Industry to a professional and healthy market with ethical lines enhancing and

maintaining standards. It follows the principle of both protecting and promoting the

interests of mutual funds as well as their unit holders.


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The objectives of Association of Mutual Funds in India:-The Association of Mutual Funds of India works with 30 registered AMCs of the

country. It has certain defined objectives which juxtaposes the guidelines of its Board

of Directors. The objectives are as follows:-

This mutual fund association of India maintains high professional and ethicalstandards in all areas of operation of the industry.

AMFI interacts with SEBI and works according to SEBIs guidelines in themutual fund industry.

Association of Mutual Fund of India does represent the Government of India,the Reserve Bank of India and other related bodies on matters relating to theMutual Fund Industry.

It develops a team of well qualified and trained Agent distributors. Itimplements a programme of training and certification for all intermediaries and

other engaged in the mutual fund industry.

AMFI undertakes all India awareness programme for investors in order topromote proper understanding of the concept and working of mutual funds.

At last but not the least association of mutual fund of India also disseminateinformation on Mutual Fund Industry and undertakes studies and research either

directly or in association with other bodies.


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2. COMPANY PROFILE (IDFC)IDFC is a leading private sector diversified financial institution established by a

consortium of strong global & local institutions with the support & sponsorship of the

government of India. A majority of IDFCs shareholding (67% as of march 31st,

2008) is held by reputed global stalwarts that include respectable names like

government of India, International Finance Corporation (IFC) a member of the

world bank group, Government of Singapore, AIG, Morgan Stanley, Goldman Sachs,

City Group, JP Morgan among others. The best Indian Financial Institutions such as

HDFC, LIC, SBI& IDBI are owners in IDFC, making it an institution of high repute

& standing.

2.1History of IDFCThe Fund was established on March 13th 2000. Now the management of the fund has

been taken over by Standard Chartered Bank, the UK based banking conglomerate.

The name of the AMC too has been changed from ANZ AMC. Previously sponsored

by ANZ Banking Group, Australia, this fund has just set up its operations in the year

2000. Australia & New Zealand Banking Group Limited, the previous sponsor of the

fund, is leading International Bank & is also one of the Big Four Australian

commercial Banks providing a full range of Banking & financial services with total

assets of US $ 97.35 billion as on 30th September, 1999. ANZ funds management is a

core business unit of the group &its one of Australias largest fund managers. It has a

full range of investment product & services managing more than AUD $ 13267.7

million in customer funds on 30th September 1999. ANZ Banking group as

significant presence in 35 nations from the Middle East to through South Asia & East

Asia to Pacific


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2.2 Asset Management

IDFC is determined to construct a comprehensive asset management business that

consists of:

Private Equity investments through IDFC Private Equity Co. Ltd. Project Equity through IDFC Project Equity Co. Ltd, Public Market Investment Advisory Services through IDFC investment

Advisors Limited.

IDFC Private Equity manages a corpus of US $ 630 million & is Indias largest &

most active private equity focused on Infrastructure. The two funds under

management are India Development Fund (IDF) & IDFC Private equity fund.

IDFC, along with citigroup& India Infrastructure finance company limited (IIFCL)

launched a landmark US $ 5 billion initiative for financing infrastructure projects in

India. The Equity fund will be solely managed by IDFC. IDFC plans to raise

approximately $ 1.7 billion in private & project funds focused on Infrastructure. The

objective is to build a large asset management platform focused on private

investments & public markets through a variety of domestic & offshore products.


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IDFC Product Range

The categories of funds offered by IDFC are Equity funds, Liquid funds

& Debt funds which is further categorized in to different types as shown

in the chart below:

Liquid Funds Ideal Investment

Horizon

Date Of Inception

Cash Funds 1 Day or More 2ndJuly 2001

Equity Fund Ideal Investment

Horizon

Date of Inception

Classic Equity Fund3 yrs or more 9th Aug 2005

Imperial Equity Fund3 yrs or more 16thMarch 2006

Premier Equity 3 yrs or more 28thsep 2005

Enterprise Equity Fund3 yrs or more 9thJune 2006

Sterling Equity Fund3 yrs or more 7thMarch 2008

Strategic Sector(50-50) 3 yrs or more 3rd

Oct 2008

Tax Advantage (ELSS)FundLock in period of 3yrs 26thDec 2008

Nifty Fund 3 yrs or more 30thApril 2010

INDIA GDP growth fund3 yrs or more 11thMarch 2009


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Debt Fund Ideal Investment

Horizon

Dividend Frequency Date Of Inception

Super Saver Income

Fund- Investment

1 Year or more Quarterly, Half

Yearly, Annually

14thJuly 2000

Dynamic Bond

Fund

1 Year or more Quarterly & Annually 25thJune 2002

Super Saver Income

Fund- Medium

Term

6 months or more Bi-monthly, Monthly,

Fortnightly & daily

8thJuly 2003

Super saver Income

Fund-Short Term

3 months or more Monthly, Fortnightly 14thDecember 2000

Money Manager

Fund-Treasury plan

1 day or more Monthly &

Daily/Weekly with

compulsory

reinvestment

18thFebruary 2003

Money Manager

FundInvestment

Plan

1 day or more Daily

&WeeklyMonthly,

Quarterly and Annual.

9thAugust 2004

Government

Securities Fund-

Investment Plan

1 year or more Quarterly/Half

yearly/Yearly

9thMarch 2002

All Seasons Bond

Fund

1 year or more Quarterly/Half yearly

& Annual

13thSeptember 2004


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2.4 SWOT Analysis of IDFC Mutual Fund

Strengths

Good brand name of the company in all over India. Flexible products. Expertise in the field of Mutual Fund. Sound Financial Resources of the company as well as sponsors. Strong communication network all over the country.

Weakness

Less awareness regarding mutual funds among the investors. Yet to build strong distribution network. Has not yet tapped the potential of rural market.

Opportunities

Tap the untapped rural market Increasing income of the people provide an opportunity to come up with

products to fulfill their need.

Threats

The numbers of players are increasing which further increases thecompetition.

Product innovation done by other asset management companies & is able tocollect large amounts.

Customer mindsets are still rigid & they mostly prefer traditional pattern ofinvestments.


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3. TOOLS USED FOR ANALYSISWorldwide, good mutual fund companies over are known by their AMCs and this

fame is directly linked to their superior stock selection skills. For mutual funds to

grow, AMCs must be held accountable for their selection of stocks. In other words,

there must be some performance indicator that will reveal the quality of stock

selection of various AMCs.

Return alone should not be considered as the basis of measurement of the

performance of a mutual fund scheme, it should also include the risk taken by the

fund manager because different funds will have different levels of risk attached to

them. Risk associated with a fund, in a general, can be defined as variability or

fluctuations in the returns generated by it. The higher the fluctuations in the returns of

a fund during a given period, higher will be the risk associated with it. These

fluctuations in the returns generated by a fund are resultant of two guiding forces.

First, general market fluctuations, which affect all the securities, present in the

market, called market risk or systematic risk and second, fluctuations due to specific

securities present in the portfolio of the fund, called unsystematic risk. The Total Risk

of a given fund is sum of these two and is measured in terms of standard deviation of

returns of the fund. Systematic risk, on the other hand, is measured in terms of Beta,

which represents fluctuations in the NAV of the fund vis--vis market. The more

responsive the NAV of a mutual fund is to the changes in the market; higher will be

its beta. Beta is calculated by relating the returns on a mutual fund with the returns in

the market. While unsystematic risk can be diversified through investments in a

number of instruments, systematic risk cannot. By using the risk return relationship,

we try to assess the competitive strength of the mutual funds vis--vis one another in a

better way.

In order to determine the risk-adjusted returns of investment portfolios, several

eminent authors have worked since 1960s to develop composite performance indices

to evaluate a portfolio by comparing alternative portfolios within a particular risk

class. The most important and widely used measures of performance are:


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The Treynor MeasureDeveloped by Jack Treynor, this performance measure evaluates funds on the basis of

Treynor's Index. This Index is a ratio of return generated by the fund over and above

risk free rate of return (generally taken to be the return on securities backed by the

government, as there is no credit risk associated), during a given period and

systematic risk associated with it (beta). Symbolically, it can be represented as:

Where, Ri represents return on fund, Rf is risk free rate of return and Biis beta of the

fund.

All risk-averse investors would like to maximize this value. While a high and positive

Treynor's Index shows a superior risk-adjusted performance of a fund, a low and

negative Treynor's Index is an indication of unfavorable performance.

The Sharpe MeasureIn this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which

is a ratio of returns generated by the fund over and above risk free rate of return and

the total risk associated with it. According to Sharpe, it is the total risk of the fund that

the investors are concerned about. So, the model evaluates funds on the basis of

reward per unit of total risk. Symbolically, it can be written as:

Where, Si is standard deviation of the fund.

While a high and positive Sharpe Ratio shows a superior risk-adjusted performance ofa fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.

Jenson ModelJenson's model proposes another risk adjusted performance measure. This measure

was developed by Michael Jenson and is sometimes referred to as the Differential

Return Method. This measure involves evaluation of the returns that the fund has

generated vs. the returns actually expected out of the fund given the level of its

systematic risk. The surplus between the two returns is called Alpha, which measures

Treynor's Index (Ti) = (Ri - Rf)/Bi.

Sharpe Index (Si) = (Ri - Rf)/Si


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the performance of a fund compared with the actual returns over the period. Required

return of a fund at a given level of risk (Bi) can be calculated as:

Where, Rm is average market return during the given period. After calculating it,

alpha can be obtained by subtracting required return from the actual return of the

fund.

Higher alpha represents superior performance of the fund and vice versa. Limitationof this model is that it considers only systematic risk not the entire risk associated

with the fund and an ordinary investor cannot mitigate unsystematic risk, as his

knowledge of market is primitive.

Fama ModelThe Eugene Fama model is an extension of Jenson model. This model compares the

performance, measured in terms of returns, of a fund with the required returncommensurate with the total risk associated with it. The difference between these two

is taken as a measure of the performance of the fund and is called net selectivity.

The net selectivity represents the stock selection skill of the fund manager, as it is the

excess return over and above the return required to compensate for the total risk taken

by the fund manager. Higher value of which indicates that fund manager has earned

returns well above the return commensurate with the level of risk taken by him.

Required return can be calculated as:

Where, Sm is standard deviation of market returns. The net selectivity is then

calculated by subtracting this required return from the actual return of the fund.

Ra# = Rf + Si/Sm*(Rm - Rf)

Ra# = Rf + Bi (Rm - Rf)

= Ri [ rf + i( Rm Rf)]


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3.1 Statistical Tools

The various statistical used in this research are -:

MeanThe mean is the mathematical average of a set of numbers. The average iscalculated

by adding up two or more scores an giving the total by the number of scores.

Where:

X= Values in the set

N= Number of values in the set

Here the need to calculate the mean arises because the returns are considered over 12

quarters. So it is necessary to get a average return, that can be used for the calculation.

The various mean calculated here are as follows-:

Mean of the returns of the portfolio -: Ra Mean of the returns from market or risk free return -: Ra*

Standard DeviationIt measures how widely values are dispersed from the average. Dispersion is the

difference between the actual value and the average value. The larger the difference

between the closing prices and the average price, the higher the standard deviation

will be and the higher the volatility and vice versa.

(R Ra) 2

Standard Deviation of return = N-1

Mean= X/N


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Here it is necessary to calculate the standard deviation of the returns of the portfolio

to get to know the total risk associated with the portfolio.

The various standard deviations calculated here are-:

Standard deviation of the return of portfolio -: i Standard deviation of the return of market -: m

CovarianceIt is a measure of the degree to which returns on two risky assets move in tandem. A

positive covariance means that asset returns move together. A negative covariance

means returns move inversely.One method of calculating covariance is by looking at

return surprises (deviations from expected return) in each scenario. Another method is

to multiply the correlation between the two variables by the standard deviation of

each variable.

COV (RA,RM) =

R-SquaredIt is a statistical measure that represents the percentage of a fund or security's

movements that can be explained by movements in a benchmark index.R-squared

values range from 0 to 100. An R-squared of 100 means that all movements of asecurity are completely explained by movements in the index. A high R-squared

(between 85 and 100) indicates the fund's performance patterns have been in line with

the index. A fund with a low R-squared (70 or less) doesn't act much like the index.

A higher R-squared value will indicate a more useful beta figure. For example, if a

fund has an R-squared value of close to 100 but has a beta below 1, it is most likely

offering higher risk-adjusted returns. A low R-squared means you should ignore the

beta.

(RARA*) (RMRM*)

(N-1)


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28

BetaIt is a measure of the volatility, or systematic risk, of a security or a portfolio in

comparison to the market as a whole. Beta is used in the capital asset pricing model

(CAPM), a model that calculates the expected return of an asset based on its beta and

expected market returns.

Beta is calculated using regression analysis, and you can think of beta as the tendency

of a security's returns to respond to swings in the market. A beta of 1 indicates that the

security's price will move with the market. A beta of less than 1 means that the

security will be less volatile than the market. A beta of greater than 1 indicates that

the security's price will be more volatile than the market. For example, if a stock's

beta is 1.2, it's theoretically 20% more volatile than the market.

Beta =

OR

Beta (A) =

Beta value of the benchmark is considered to be 1.

SPSS has been used for analyzing the data and for generating various tables.

COV (RA,RM)

2

M

(RARA*) (RMRM*)

(RMRM*)2


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3.2 Terms Used

Net Asset Value (NAV)-:NAV is the term used for the value of a mutual fund share. The calculation to

determine NAV is

NAV = (AssetsLiabilities) / Outstanding Shares

Or

NAV = Net Assets / Outstanding Shares

Here the NAV of different funds have been taken from the AMC itself.

[NOTE:

Opening NAV indicates the value at the beginning of the quarter. Closing NAV indicates the value at the end of the quarter. ]

Return -:Return is defined as income earned for amount invested over a given period of

time. It is standardized as % per annum. It can be calculated as follows

Returns =

Return can also be defined as the amount or rate of proceeds, gain, profit which

accrues to an economic agent from an undertaking or enterprise or real/ financial

investment. It is a motivating force behind investment, the objective of an investor is

usually to maximize return.

Ending NAVBeginning NAV

Be innin NAV


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3.3 Measurement of risk

Beta Coefficient Measure ofRisk:Beta relates a funds return with a market index. It basically measures the sensitivityof funds return to changes in market index.

If Beta = 1 Fund moves with the market i.e. Passive fund

If Beta < 1 Fund is less volatile than the market i. e Defensive Fund

If Beta > 1 Funds will give higher returns when market rises & higher losses when

market falls i.e. Aggressive Fund

ExMarks or R-squared Measure of Risk:Ex Marks represents co relation with markets. Higher the Ex-marks lower the risk

of the fund because a fund with higher Ex-marks is better diversified than a fund with

lower Ex-marks.

Standard Deviation Measure of Risk:It is a statistical concept, which measures volatility. It measures the fluctuations of

funds returns around a mean level. Basically it gives you an idea of how volatile your

earnings are. It is broader concept than BETA. It also helps in measuring total risk

and not just the market risk of the portfolio.


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3.4 How to Calculate the Value of a Mutual Fund:

The investors funds are deployed in a portfolio of securities by the fund manager.

The value of these investments keeps changing as the market price of the securities

change. Since investors are free to enter and exit the fund at any time, it is essential

that the market value of their investments is used to determine the price at which such

entry and exit will take place. The net assets represent the market value of assets,

which belong to the investors, on a given date.

Net Asset ValueNAV of a mutual fund is the value of one unit of investment in the fund, in net asset

terms.

NAV = Net Assets of the scheme / Number of Units Outstanding

Where Net Assets are calculated as:-

(Market value of investments + current assets and other assets + Accrued income

current liabilities and other liabilities less accrued expenses) / No. of Units

Outstanding as at the NAV date

NAV of all schemes must be calculated and published at least weekly for closed-end

schemes and daily for open-end schemes.

The major factors affecting the NAV of a fund are:

Sale and purchase of securities Sale and repurchase of units Valuation of assets Accrual of income and expenses

SEBI requires that the fund must ensure that repurchase price is not lower than 93%

of NAV (95% in the case of a closed-fund). On the other side, a fund may sell new

units at a price that is different from the NAV, but the sale price cannot be higher than

107 % of NAV. Also the difference between the repurchase price and the sale price

of the unit is not permitted to exceed 7% of the sale price.


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3.5Measuring Mutual Fund Performance:We can measure mutual funds performance by different method:

Absolute Return Method:Percentage change in NAV is an absolute measure of return, which finds the NAV

appreciation between two points of time, as a percentage.

e .g: If NAV of one fund changes from Rs.20 to Rs.22 in 12 months then

Absolute return = (2220)/20 X 100 =10%

Simple Annual Return Method:Converting a return value for a period other than one year, into a value for one year, is

called as annualisation. In order to annualize a rate, we find out what the return would

be for a year, if the return behaved for a year, in the same manner it did, for any other

fractional period.

E .g: If NAV of one fund changes from Rs.20 to Rs.22 in 6 months then

Annual Return = (2220) /20 X 12/6 X 100 = 20%

Total Return Method:The total return method takes into account the dividends distributed by the mutual

fund, and adds it to the NAV appreciation, to arrive at returns.

Total Return =

(Dividend distributed + Change in NAV)/ NAV at the start X 100

e .g: If NAV of one fund changes from Rs.20 to Rs.22 in 6 months if in

between dividend of Rs. 4 has been distributed then

Total Return = {4 + (2220)}/20 X 100 = 30%


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Total Return when dividend is reinvested:This method is also called the return on investment (ROI) method. In this method, the

dividends are reinvested into the scheme as soon as they are received at the then

prevailing NAV (ex-dividend NAV).

= ((Value of holdings at the end of the period/ value of the holdings at the beginning)

1)*100

E.g. An investor buys 100 units of a fund at Rs. 10.5 on January 1, 2007. On June 30,

2007 he receives dividends at the rate of 10%. The ex-dividend NAV was Rs. 10.25.

On December 31, 2007, the funds NAV was Rs. 12.25.

Value of holdings at the beginning period= 10.5*100= 1050

Number of units re-invested = 100/10.25 = 9.756

End period value of investment = 109.756*12.25 = 1344.51 Rs.

Return on Investment = ((1344.51/1050)-1)*100

= 28.05%

Compounded Average Annual Return Method:This method is basically used for calculating the return for more than 1 year. In this

method return is calculated with the following formula:

A = P X (1 + R / 100) N

Where P = Principal invested

A = maturity value

N = period of investment in years

R = Annualized compounded interest rate in %

R = {(Nth root of A / P)1} X 100

E. g: If amount invested is Rs. 100 & in the end we get return of Rs. 200 & period of

investment is 10 years then annualized compounded return is

200 = 100 (1 + R / 100) 10

Rate = 7.2 %


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3.6 Returns:

Returns have to be studied along with the risk. A fund could have earned higher return

than the benchmark. But such higher return may be accompanied by high risk.

Therefore, we have to compare funds with the benchmarks, on a risk adjusted basis.

William Sharpe created a metric for fund performance, which enables the ranking of

funds on a risk adjusted basis.

Sharpe Ratio = Risk Premium

Funds Standard Deviation

Treynor Ratio = Risk Premium

Funds Beta

Risk Premium = Difference between the Funds Average return and Risk freereturn on government security or treasury bill over a given period .


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3.7 Liquidity:

Most of the funds being sold today are open-ended. That is, investors can sell their

existing units, or buy new units, at any point of time, at prices that are related to the

NAV of the fund on the date of the transaction. Since investors continuously enter and

exit funds, funds are actually able to provide liquidity to investors, even if the

underlying markets, in which the portfolio is invested, may not have the liquidity that

the investor seeks.

Expense Ratio:Expense ratio is defined as the ratio of total expenses of the fund to the average net

assets of the fund. Expense ratio can actually understate the total expenses, because

brokerage paid on transactions of a fund are not included in the expenses. According

to the current SEBI norms, brokerage commissions are capitalized and included in the

cost of the transactions.

Expense ratio = Total Expenses

Average Net Assets


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Composition of the Portfolio:Credit quality of the portfolio is measured by looking at the credit ratings of the

investments in the portfolio. Mutual Fund fact sheets show the composition of the

portfolio and the investments in various asset classes over time.

Portfolio turnover rate is the ratio of lesser of asset purchased or sold by funds in the

market to the net assets of the fund.If Portfolio ratio is 100% means portfolio has been

changed fully. When Portfolio ratio is high means expense ratio is high.

Portfolio Ratio = Total Sales & Purchase

Net Assets of fund

In order to meaningfully compare funds some level of similarity in the following

factors has to be ensured:

Size of the funds Investment objective Risk profile Portfolio composition Expense ratios


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3.8 Fund evaluation against benchmark:

Funds can be evaluated against some performance indicators which are known as

benchmarks.

There are 3 types of benchmarks:

1. Relative to market as whole:There are different ways to measure the performance of fund w.r.t market as

Equity Funds

Index FundAn Index fund invests in the stock comprising of the index in the

same ratio. This is a passive management style.

For example,

Market Index Fund - BSE Sensex

Nifty Index Fund - NIFTY

The difference between the return of this fund and its index benchmark can be

explained by TRACKING ERROR.

2. Active Equity Funds:The fund manager actively manages this fund. To evaluate performance in

such case we have to select an appropriate benchmark.

Large diversified equity fund - BSE 100

Sector fund - Sectoral Indices

3. Debt Funds:Debt fund can also be judged against a debt market index e.g. I-BEX


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4. STERLING EQUITY FUND

Nature: Equity

Average AUM (Jan-Mar):1,387.38 Crores

Inception Date: 7 March 2008

Fund Manager: Mr. Kenneth Andrade (Since Inception)

4.1 About this fund

Sterling Equity Fund is benchmarked to CNX Midcap sectors and within that there is

active stock selection. The portfolio bias is towards companies that are financiallysound, have proven business models, tend to lead markets and are consolidating.

4.2 Investment objective

The investment objective of the Scheme is to seek to generate capital appreciation

from a diversified portfolio of equity and equity related instruments. The Scheme will

predominantly invest in sterling equity and equity related instruments. Sterling equity

and equity related instruments will be the stocks included in the CNX Midcap index

or equity and equity related instruments of such companies which have a market

capitalization lower than the highest components of CNX Midcap Index. The Scheme

may also invest in stock other than mid cap stocks (i.e. in stocks, which have a market

capitalisation of above the market capitalisation range of the defined small midcap

stocks) and derivatives. On defensive consideration, the Scheme may also invest in

debt and money market instruments. However there is no assurance that the

investment objective of the scheme will be realized.


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4.3Current Strategy

Currently the portfolio stands diversified amongst companies with secular growth

levels otherwise called defensives, businesses with large outsourcing capabilities or

companies who are internationally competitive and de-risked from the domestic

economic environment and companies which tend to move with the economic

environment called cyclical. Despite the argument of environment growing slower we

are moderately inching up into the cyclical part of the economy given the favorable

valuations, as we believe that companies with a dominant market share and growing

cash flows would consolidate this space going forward. Our portfolio will go through

a change from the present 42 stock diversified portfolio and we would highlight the

same as we get into the next cycle.

4.4 Other Parameter:

Particulars Sterling Equity

Beta 0.73

R-Square 0.86

Standard deviation 4.81%

Sharpe Ratio 0.37

Asset Allocation

Particulars Sterling Equity

Equity 81.94

Debt 18.06


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4.5 Portfolio


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Asset Class Range of allocation (%

of

Net Assets)

Risk Profile

Equities & Equity relatedinstruments included in theCNX Midcap Index orEquity and Equity relatedinstruments ofcompanies which have amarketcapitalization lower than thehighest components of CNXMidcap Index, of which

Small Cap Stocks shall be:Midcap Stocks shall be:

65100

155050100

High

Equity & Equity relatedinstruments of companieswhich have a marketcapitalization higher than thehighest component of CNXMidcap Index (i.e. in Equityand Equity relatedinstruments of companieswith market capitalization

above the defined Small-Mid cap stocks)

035 High

Debt and Money Marketinstruments(includingSecuritised Debtinstruments)

035 Low to Medium


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5. TAX ADVANTAGE (ELSS) FUND

5.1 Investment objective -:

The scheme shall seek to generate long-term capital growth from an actively managed

portfolio of predominately equity and equity related instruments.

5.2 Investment style-:

The scheme will invest in well managed growth companies that are available at

reasonable value. Companies would be identified through a systematic process of

forecasting earnings based on a deep understanding of industry growth potential and

interaction with company management.

5.3 Benchmark-:

BSE200 is the benchmark for this fund. It consists of 200 scripts and it is easy to track

because they are not very concentrated and stocks are more liquid.

Particulars Tax Advantage Fund (ELSS) BSE 200

Average Return 12.6891 15.0941

Beta 0.5001 1

R-Square 0.910

Standard deviation 12.2311 23.3288

Treynor 10.016 7.4141

Sharpe 0.4095 0.3178

Jensons alpha 1.3013 0

Fama 1.122 0


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The average return of the fund is 12.6891 where as that of the benchmark is15.0941.

The beta value of the fund is 0.5001 which means that the fund is less volatilethan the benchmark.

R-square value is 0.910. The standard deviation of the fund is 12.2311 whereas that of the bench mark

is 23.3288 which show that the fund is less volatile than the benchmark, as the

total risk associated with it less than that of the benchmark.

A higher Treynor ratio of 10.016 shows that the fund has a superior-riskadjusted performance as compared to the benchmark which has Treynor ratio

of 7.4141

A higher Sharpe ratio (0.4095) of the fund as compared to lower Sharpe ratioif the benchmark (0.3178) means that the total risk adjusted performance of

the fund is more than that of the benchmark.

A positive Jensens alpha value (1.3031) shows us that the fund returns aremore than what the investors expect with a given value of 0.5001

A positive Famas net selectivity value (1.122) shows us that the fund returnsare more than what investors expect with respect to the total risk (standard

deviation) of the fund as well as the market.

ELSS FUND (TAX ADVANTAGE)

-10

0

10

20

30

40

50

60

1 2 3 4 5

TIME HORIZON

RETURNS

Fund returns Market returns


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5.4 Portfolio


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5.5 Tax Treatment For The Investors (Unit Holders):-

Tax benefits of investing in the Mutual Fund

As per the taxation laws in force as at the date of the Offer Document, somebroad income tax implications of investing in the units of the Scheme are

stated below. The information so stated is based on the Mutual Fund's

understanding of the tax laws in force as of the date of the Offer Document,

which have been confirmed by its auditors. As the tax consequences are

specific to each investor and in view of the changing tax laws, each investor is

advised to consult his or her or its own tax consultant with respect to the

specific tax implications arising out of his or her or its participation in the

Scheme. Implications of the Income-tax Act, 1961 as amended by the Finance

Act, 2006

To the Unit holders

(a.) Tax on Income

In accordance with the provisions of section 10(35)(a) of the Act, income

received by all categories of unit holders in respect of units of the Fund will be

exempt from income-tax in their hands.

Exemption from income tax under section 10(35) of the Act would, however,

not apply to any income arising from the transfer of these units.

(b.) Tax on capital gains

As per the provisions of section 2(42A) of the Act, a unit of a Mutual Fund,

held by the investor as a capital asset, is considered to be a short-term capital

asset, if it is held for 12 months or less from the date of its acquisition by the

unit holder. Accordingly, if the unit is held for a period of more than 12

months, it is treated as a long-term capital asset.


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Computation of capital gain

Capital gains on transfer of units will be computed after taking into accountthe cost of their acquisition. While calculating long-term capital gains, such

cost will be indexed by using the cost inflation index notified by the

Government of India.

Individuals and HUFs, are granted a deduction from total income, undersection 80C of the Act uptoRs. 100,000, in respect of specified investments

made during the year (please also refer paragraph d).

Long-term capital gains

As per Section 10(38) of the Act, long-term capital gains arising from the sale of

unit of an equity oriented fund entered into in a recognized stock exchange or sale

of such unit of an equity oriented fund to the mutual fund would be exempt from

income-tax, provided such transaction of sale is chargeable to securities

transaction tax.Pursuant to an amendment made in the Finance Act, 2006,

effective 1 April 2006, companies would be required to include such long term

capital gains in computing the book profits and minimum alternated tax liability

under section 115JB of the Act.

Short -term capital gains

As per Section 111A of the Act, short-term capital gains from the sale of unit of an

equity oriented fund entered into in a recognized stock exchange or sale of such unit

of an equity oriented fund to the mutual fund would be taxed at 10 per cent, provided

such transaction of sale is chargeable to securities transaction tax.

The said tax rate would be increased by a surcharge of:

10 per cent in case of non-corporate Unit holders, where the total incomeexceeds Rs.1,000,000,

10 per cent in case of resident corporate Unit holders, and 2.5 per cent in case of non-resident corporate unit holders irrespective of the

amount of taxable income.

Further, an additional surcharge of 2 per cent by way of education cess wouldbe charged on amount of tax inclusive of surcharge.


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In case of resident individual, if the income from short term capital gains isless than the maximum amount not chargeable to tax, then there will be no tax

payable.

Non-residents

In case of non-resident unit holder who is a resident of a country with which India

has signed a Double Taxation Avoidance Agreement (which is in force) income tax is

payable at the rates provided in the Act, as discussed above, or the rates provided in

the such agreement, if any, whichever is more beneficial to such non-resident unit

holder.

Investment by Minors

Where sale / repurchase is made during the minority of the child, tax will be levied on

either of the parents, whose income is greater, where the said income is not covered

by the exception in the proviso to section 64(1A) of the Act. When the child attains

majority, such tax liability will be on the child.

Losses arising from sale of units

- As per the provisions of section 94(7) of the Act, loss arising on transfer of units,

which are acquired within a period of three months prior to the record date (date fixed

by the Fund for the purposes of entitlement of the unit holder to receive the income

from units) and sold within a period of nine months after the record date, shall not be

allowed to the extent of income distributed by the Fund in respect of such units.

- As per the provisions of section 94(8) of the Act, where any units ("original units")

are acquired within a period of three months prior to the record date (date fixed by the

Fund for the purposes of entitlement of the unit holder to receive bonus units) and any

bonus units are allotted (free of cost) based on the holding of the original units, the

loss, if any, on sale of the original units within a period of nine months after the

record date, shall be ignored in the computation of the unit holder's taxable income.

Such loss will however, be deemed to be the cost of acquisition of the bonus units.

-Each Unit holder is advised to consult his / her or its own professional tax advisor

before claiming set off of long-term capital loss arising on sale / repurchase of units of


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an equity oriented fund referred to above, against long-term capital gains arising on

sale of other assets.

Short-term capital loss suffered on sale / repurchase of units shall be availablefor set off against both long-term and short-term capital gains arising on sale

of other assets and balance short-term capital loss shall be carried forward for

set off against capital gains in subsequent years.

Carry forward of losses is admissible maximum upto eight assessment years.(c.) Tax withholding on capital gains

Capital gains arising to a unit holder on repurchase of units by the Fund should attract

tax withholding as under:

No tax needs to be withheld from capital gains arising to a FII on the basis ofthe provisions of section 196D of the Act.

In case of non-resident unit holder who is a resident of a country with whichIndia has signed a double taxation avoidance agreement (which is in force) the

tax should be deducted at source under section 195 of the Act at the rate

provided in the Finance Act of the relevant year or the rate provided in the

said agreement, whichever is beneficial to such non-resident unit holder.

However, such a nonresident unit holder will be required to provide

appropriate documents to the Fund, to be entitled to the beneficial rate

provided under such agreement.

No tax needs to be withheld from capital gains arising to a resident unit holderon the basis of the Circular no. 715 dated 8 August 1995 issued by the CBDT.

Subject to the above, the provisions relating to tax withholding in respect of gains

arising from the sale of units of the various schemes of the fund are as under:

No tax is required is to be withheld from long term capital gains arising fromsale of units in equity oriented fund schemes, that are subject to securities

transaction tax.

In respect of short-term capital gains arising to foreign companies (includingOverseas Corporate Bodies), the Fund is required to deduct tax at source at the

rate of 10.46 per cent (10 per cent tax plus 2.5 per cent surcharge thereon plusadditional surcharge of 2 per cent by way of education cess on the tax plus


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surcharge). In respect of short-term capital gains arising to non-resident

individual unit holders, the Fund is required to deduct tax at source at the rate

of 11.22 per cent (10 per cent tax plus 10 per cent surcharge thereon2 plus

additional surcharge of 2 per cent by way of education cess on the tax plus

surcharge).

(d.) Wealth Tax

Units held under the Schemes of the Fund are not treated as assets within the meaning

of section 2(ea) of the Wealth Tax Act, 1957 and therefore, not liable to wealth-tax.

(e.) Securities Transaction Tax

Nature of Transaction Current tax rate Tax rate effective (%) 1 June 2006 (%)

Delivery based purchase transaction in equity shares or units of equity oriented fund

entered in a recognized stock exchange 0.1 0.125 Delivery based sale transaction in

equity shares or units of equity oriented fund entered in a recognized stock exchange

0.1 0.125 Non-delivery based sale transaction in equity shares or units of equity

oriented fund entered in a recognized stock exchange. 0.02 0.025 Sale of units of an

equity oriented fund to the mutual fund 0.2 0.25 Value of taxable securities

transaction in case of units shall be the price at which such units are purchased or

sold.

A deduction in respect of securities transaction tax paid is not permitted for the

purpose of computation of business income or capital gain. However, if the total

income of an assessee includes any business income arising from taxable securities

transactions, he shall be entitled to a rebate3 from income-tax of an amount equal to

the securities transaction tax paid by him in respect of the taxable securities

transactions entered during the course of his business.

The maximum amounts of total income, not chargeable to tax are as under:

Type of person Maximum amount of income not chargeable to tax

Women Rs. 135,000

Senior citizens Rs. 185,000

Other individuals and HUFs Rs. 100,000


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5.6 Tax Rules for Mutual Fund Investors

Equity schemes Other schemes Dividend

income

Dividend distribution tax

Short

Term

Capital

Gains

Long

Term

Capital

Gain

Short

Term

Capital

Gains

Long

Term

Capital

Gain

TDS All Schemes Equity

Schemes

Liquid

Schemes

Other

Schemes

Resident

Individua

l

/ HUF

10% NIL AS

PER

SLAB

10%

(20%

with

indexatio

n)

NIL TAX FREE NIL 28.32%

(25%+10%

surcharge+

education

cess)

14.16%

(12.5%+10

%surcharge

+3%educat

ion cess)

Partnersh

ip Firms

10% NIL 30% 10%

(20%

with

indexatio

n)


(25%+10%

surcharge+

education

cess)

22.66%

(20%+10%

surcharge+

3%

education

cess)

AOP/BO

I

10% NIL AS

PER

SLAB

10%

(20%

withindexatio

n)


(25%+10%

surcharge+education

cess)

22.66%

(20%+10%

surcharge+3%

education

cess)

Domestic

Compani

es

10% NIL 30% 10%

(20%

with

indexatio

n)


(25%+10%

surcharge+

education

cess)

22.66%

(20%+10%

surcharge+

3%

education

cess)

NRIs 10% NIL AS

PER

SLAB

10%

(20%

with

indexatio

n)

STC

G-

30%

LTC

G-

20%

TAX FREE NIL 28.32%

(25%+10%

surcharge+

education

cess)

14.16%

(12.5%+10

%surcharge

+3%educat

ion cess)


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6. COMPARISON BETWEEN BOTH FUNDS WITH THE HELP

OF GRAPH


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Kenneth Andrade Star Fund Manager of IDFC

Head Investment

IDFC Mutual Fund (BCom)

Kenneth Andrade is working at IDFC Mutual Fund as Head Investment. He has

around 15 years experience in Equity Research and fund management. In his last

assignment has was designated as Fund Manager (Equity) with Kotak Mahindra Asset

Management Company Limited (July 2002- Sept.2005), managed equity portfolios.

SSKI Investor Services (March 1999- July 2001)& (Jan 2002 ?..July 2002) wasinvolved in Portfolio advisory- Retail Broking Services, Nimbus Communications-

(July 2001-Jan 2002) was involved in Broadcasting ?.. Content Development, LKP

Shares Brokers Pvt. Ltd (January 1998- March 1999) was a Analyst -Equity Research,

Meghraj Financial Services (July 1996-July 1998) was a Portfolio Manager.


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E very morning around 8:30, Kenneth Andrade is usually among the first

employees to walk into the plush IDFC Mutual Fund office at Indiabulls

Centre in Mumbais Lower Parel. The 42-year-old chief investment

officer tends to be a loner, who keeps to himself and prefers not to

interfere with other peoples work.

Golden Rules For Winning Portfolio:Andrades principles to stay ahead in the rat race:

Pick financially sound companies, preferably debt-free. Choose companies that respect capital. Always stay with the leaders in the industry. Dont buy underlying businesses, buy profitability. Dont ignore absolute value like earnings yield. Monopolistic entities make all the money but be prepared to pay the

price for it.

Consolidating businesses are better than fragmenting businesses.Never ignore return on capital employed and return on Net worth. If there are many competitors, dont bother to pay even be market

valuation.

Always stick to what you know best.


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7. DATA ANALYSIS

Statistical Tool

Kind of investments People prefer most

Particular No.of People

Mutual Fund 2

Fixed Deposit 3

Insurance 3

Saving 3

Other 3

Mean = X/n

So here,

= 2+3+3+3+3

5

= 14/5

= 2.8

Mean =2.8

Kind of investments

Mutual Fund

Fixed Deposit

Insurance

Saving

Other


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Reason behind the investmentTax Benefits 40%

Higher Return 60%

Regular Income 20%Other (Please Specify) 10%

Mean =3.25

Investments which People are familiar and have knowledgeA.Equities

Reason behind the investment

Tax Benefits

Higher Return

Regular Income

Other

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Fair Good Very good

No. of people in %

No. of people in %


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B.Currencies

C.Commodities

D.Mutual Fund

0%

20%

40%

60%

Poor Fair Good

No. of people in %

No. of people in %

0%

10%

20%

30%

40%

50%

Poor Fair Good Very

good

No. of people in %

No. of people in

%

0%

10%

20%

30%

40%

50%

60%

70%

No. of people in %

No. of people in

%


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E.Bonds

F. Annuities (Eg. Fixed Deposits)

G.Property/ Real Estate

0%

20%

40%

60%

80%

Poor Fair Good

No. of people in %

No. of people in %

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Fair Good Very

good

Excellent

No. of people in %

No. of people in %

0%

10%

20%

30%

40%

50%

Fair Good Very good

No. of people in %

No. of people in %


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People invested money in mutual fund:

People like to invest mutual?

Mostly invested sector in mutual fund?

YES 40%

NO 60%

Public (20%)

Private (30%)

Gold fund

(20%)

Diversified

equity fund (10%)

Power sector

Debt fund

Banking fund

(0%)


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Most preferable fund option/scheme

1. Mode of payment prefer most

2. Option prefers most for getting return

Sterling Equity (10%) Tax Advantage (ELSS)(60%) Other (30%)

One time investment

(20%)

Systematic Investment

Plans (SIPs)(80%)

Dividend (40%)

Growth (60%)


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3. Return expectation on investment

4. Planning to stay invested

Up to 8%

Between 8% to 18%

(80%)

Above 18% (20%)

Long term > 12

months (80%)

Medium term 612

months (20%)

Short term < 6

months


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8. FINDINGS

I had observed and analyzed the data and based upon my data interpretation 4 out of

10 people preferred to invest in mutual fund. Hence the company has many

opportunities for capturing the market.

Sterling Equity Fund

Its a high risk and high return fund. The fund yields a higher return because the investment is made in major

growing sectors of the economy.

The high risk associated with the fund can be justified by its investment in thegrowing sectors.

The fund manager selects growing companies who choose new technologiesor methods for their growth and bring about new cultural trends.

Tax advantage (ELSS)

It offers twin benefit of tax saving and potential to earn higher return with aminimal lock in period of three years.

Fund is highly volatile over a short term which gets smoothened over a longertime frame.


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9. CONCLUSION & RECOMMENDATIONS:

After going through a two months summer training and survey, I have come to know

about different aspects of mutual funds and mutual funds industry. India is an

emerging market. Consumption level is rising with rising earning level. Economic

indicators micro and macro both show a sky facing arrows. Data shows that there will

be more number of billionaires from India than any of other country.

The study has shown the performance of the mutual schemes selected in the

sample by using different performance measures. From the above analysis, it can be

concluded that most of the equity diversified mutual fund growth oriented schemes

have performed better in comparison with the market. But return alone should not be

considered as the basis of measurement of the performance of a mutual fund scheme,

it should also included risk attached to them. Risk associated with a fund, in general,

can be defined as variability or fluctuation in the returns generated by it. The higher

the fluctuation in the returns, higher will be the risk associated with it.

Investments in mutual fund enable the investors to reap the benefits of

diversification, specialized service, low cost etc. by investing in mutual funds an

investor can optimized his risk and return.

An investor is advised to keep revising his portfolio. Some funds give a very

high rate of returns and at the same time they involve high risk. So an investor must

evaluate both, risk and returns associated with the fund. An investor can switch from a

none or a bad performing scheme to a better performing scheme to increase his

returns. Sometimes the low returns may be due to wrong choice of the stocks in the

portfolio. Thus an investor needs to make an analysis of both risk and return before

investing to maximize his earnings.


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Recommendations

Indian market potential is high, investors are willing to pour money in mutualfunds, despite some temporary restraints, and other economic factors are in

favourable mode. Thus IDFC need proper management of advisory services,

more schemes, financial advisors and institutions to cater untouched markets.

IDFC need to revise its business strategy. Investors perception is notprioritized yet. Instead of completing targets, advisors working under

institutions should consider the requirement of investors. We need to change

pattern of selling mutual funds schemes.

IDFC should provide better after sales service, so it helps to the investorsbecome loyal to the company.

As the competitors provide the better incentives to the banks employs, so theywere attract to do more investments. So IDFC should try to give better

incentive to them.

IDFC is not doing advertisement of its products. So IDFC should focus moreon advertisement, so as to increase the sales and create awareness in the public.

IDFC only focus on metro cities it should be focusing on urban and as well asrural areas


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10.ANNEXURE

Name of Respondent

Designation / Title :

Phone Number :

Email address :

Date :

Personal Information

Occupation:

Govt. Service Business Private Service Others

Monthly Income (in Rs.):

30000


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Your Investment decisions

1. What kind of investments you prefer most? Please tick (). Saving A/c Fixed deposits Insurance Mutual Fund Other (Please Specify)

2. Reason behind the investment (chose any one of them)? Capital appreciation Tax Benefits Higher Return Regular Income Other (Please Specify)

3. Select those investments with which you are familiar and haveknowledge?

Investment Products Level of Familiarity/ knowledge

Poor Fair Good Very

Good

Excellent

Equities

Currencies

Commodities

Mutual Funds

Bonds

Annuities (Eg. Fixed Deposits)

Property/ Real Estate


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4. Your biggest fear about investing is :( Please Give Rank)

Particular Rank

Unpredictable returns

Loss of capital

Poor diversification

Low risk control

Unpredictable of market

Complexity of market

5. Which statement best describes your understanding of Mutualfund and investments?

Particular Yes No

I understand why markets fluctuates

I know the different market sectors

I know that different sectors have different

growth rates

I understand risk characteristics are

different for different sectors

I know that risk management tools are

available to control risk


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About Mutual Fund

6. Have you ever invested your money in mutual fund? Yes No

If yes,

a. In which kind of mutual you would like to invest? Public Private

b. Which sector you invest in mutual fund?

Gold fund Diversified equity fund Power sector Debt fund Banking fund Real estate fund Other (Please Specify)

c. How do you come to know about Mutual Fund? Advertisement Peer Group Banks Financial Advisors

d. Where do you find yourself as a mutual fund investor? Totally ignorant Partial knowledge of mutual funds Aware only of any specific scheme in which you invested Fully aware

If No,

If not invested in Mutual Fund then why?

Not aware of MF

Higher risk Not any specific reason


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Comparative study

7. In the following which is the most preferable fundoption/scheme for your investment?

Sterling Equity Tax Advantage (ELSS) Other

8. Which mode of payment do you prefer most for yourinvestment?

One time investment Systematic Investment Plans (SIPs)

9. Which option do you prefer most for getting return? Dividend Growth

10.What is your return expectation on your investment? Up to 8% Between 8% to 18% Above 18%

11.How long are you planning to stay invested? Long term > 12 months Medium term 612 months Short term < 6 months


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11.GLOSSARY:-

Back-end Load - Charge imposed by a mutual fund when an investor redeemsshares. Redemption fees and contingent deferred sales charges are examples.

Contingent Deferred Sales Charges - Back-end load imposed on an investorwho redeems shares. It is usually expressed as a percentage of the original

purchase price or of the value of shares redeemed. In most cases, the longer the

investor holds his shares, the smaller the deferred sales charge.

Distribution - Payments made to shareholders by the mutual fund. Interest andstock dividends earned by the funds portfolio are passed to shareholders as

dividends, while capital gains are passed as capital gains distributions.

Dividend Reinvestment Fee- Fee charged when an investor uses dividends paidby a mutual fund to purchase additional shares of the mutual fund.

Exchange Fee- Fee charged when an investor switches from one mutual fund toanother in the same family of funds.

Front-end Load- Sales charge applied at the time the investor purchases shares. Investment Companies - The companies that pool investor monies to purchase

securities. The Investment Company Act of 1940 created three types of

investment companies: face-amount certificate companies, unit investment trusts

and management companies.

Management Companies- There are two types: open-end and closed-end. Open-end funds, which sell and buy shares back on demand, are called mutual funds.

Closed-end funds have a fixed number of shares. After the initial public offering,

shares in closed-end funds trade only on exchanges. The price is determined by

the market and does not necessarily reflect the net asset value of the shares.

Management Fee - A fee paid by the mutual fund to its investment adviser andcharged against fund assets, generally 1% or less per year.

Net Asset Value - In effect, the share price of a fund computed daily by addingthe value of the funds securities and other assets, subtracting liabilities, and

dividing by the number of shares outstanding. For a mutual fund with a front-end

load, net asset value is identical to the "asked price" or "offering price."

Prospectus - A disclosure document which should provide the investor with fulland complete disclosure of all material information needed by the investor to


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make a decision whether or not to invest. The prospectus generally incorporates

the SAI by "reference." (See SAI definition.)

Redemption Fee - A fee charged to an investor who redeems shares. It isgenerally expressed as a percentage of the value of shares redeemed.

Rule 12b-1 Fee - An asset-based sales load, permitted by SEC Rule 12b-1,representing annual charges of up to 1-1/4% for specific sales or promotional

activities of the mutual fund. Over time, the amount paid in Rule 12b-1 fees can

surpass the amount paid in sales fees charged by load funds.

SAI - A disclosure document called a Statement of Additional Information. TheSAI is not required to be furnished by mutual funds to investors unless investors

specifically request it. Investors are responsible for information in the SAI, even if

they dont request it

Total Return - A computation of mutual fund performance which measureschanges in total value over a specified time period. Included in the computation

are distributions paid to investors, capital gains distributions and unrealized

capital gains and losses. Since all fund activity which has an effect on net asset

value is represented, this measure provides a picture of performance which is

more complete than yie

Yield- A measure of mutual fund performance, which is figured by dividing theincome generated (dividends, capital gains distribution, etc.) per share for a

specific time period by the funds current price per share.


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12.BIBLIOGRAPHY

www.IDFCMF.com www.moneycontrolindia.com http://www.nse-india.com http://www.amfiindia.com http://www.mutualfundsindia.com http://www.sebi.gov.in www.businessmapsofindia.com www.ceicdata.com www.economictimes.com www.valueresearchonline.com
http://www.idfcmf.com/http://www.idfcmf.com/http://www.moneycontrolindia.com/http://www.nse-india.com/http://www.amfiindia.com/http://www.mutualfundsindia.com/http://www.sebi.gov.in/http://www.businessmapsofindia.com/http://www.ceicdata.com/http://www.economictimes.com/http://www.valueresearchonline.com/http://www.valueresearchonline.com/http://www.economictimes.com/http://www.ceicdata.com/http://www.businessmapsofindia.com/http://www.sebi.gov.in/http://www.mutualfundsindia.com/http://www.amfiindia.com/http://www.nse-india.com/http://www.moneycontrolindia.com/http://www.idfcmf.com/


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