IDFC Project

8/6/2019 IDFC Project

1/83

Performance Evaluation of Mutual Funds 2010

INDUSTRY PROFILE

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 of India.

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 Canbank Mutual Fund (Dec 87), Punjab

National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun

90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while

GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry

had assets under management of Rs.47,004 crores.

Third Phase 1993-2003 (Entry of Private Sector Funds) With the entry of private sector

funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a

wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund

Regulations came into being, under which all mutual funds, except UTI were to be registered and

governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first

private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations

were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The

industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual

fund houses went on increasing, with many foreign mutual funds setting up funds in India and

also the industry has witnessed several mergers and acquisitions. As at the end of January 2003,

1 MS RAMMAIAH INSTITUTE OF MANAGEMENT- Bangalore


2/83


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 SpecifiedUndertaking 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, 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, and with recent mergers taking place among

different private sector funds, the mutual fund industry has entered its current phase of

consolidation and growth. The graph indicates the growth of assets over the years.



3/83


Concept of a mutual fund

A mutual fund is a common pool of money into which investors place their contributions

that are to be invested with a stated objective. The ownership of the fund is thus joint or mutual

and the fund belongs to all investors. A single investors ownership of the fund is in the same

ratio as the amount of contribution made by him or bears to the total amount of the fund.

Meaning of Mutual Fund

Mutual Funds are investment products that operate on the principles of Strength in

Numbers. They collect money from a large group of investors, pool it together, and invest it in

various securities in line with their objective. They are an alternative to investing directly. A

more convenient alternative yet no less rewarding. Take stocks, trading into the market by

yourself would mean knowing at the very least, how to analyze and track companies, the way of

the market and the intermediaries who will help you buy and sell shares. A mutual fund that

invests in stocks relieves you of all such hassles, while giving you the same investment option

for individuals handicapped by a lack of investing acumen or time, or generally disciplined to

take charge of their personal finances.



4/83


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

Mutual funds are not magic investment vehicles that do it all youll have to come to terms with

the fact that they assure neither returns nor the value of yours original investment. Youll have to

accept the reality that even they, who are supposedly experts in investments matter, can go

wrong. These are inherent risks, but these can be managed. Mutual funds offer several

advantages that make them a powerful and convenient wealth creation vehicle worthy of yoursconsideration

Characteristics of a Mutual Fund

A Mutual fund actually belongs to the investors who have pooled their funds. The

ownership of the mutual funds is in the hands of the investors.

In case of mutual fund the contributors and the beneficiaries of the funds are the same

class of people namely the investors.

Investment professionals manage a mutual fund and other service providers, who earn a

fee for their services provided, from the fund.

The pool of funds is invested in a portfolio of marketable investments. The value of the

portfolio is updated every day.



5/83


The investors share in the fund is denominated by UNITS. The value of the units changes

with the change in the portfolios value, everyday. The value of one unit of investment is called

as the net asset value or NAV

HOW ARE THE MUTUAL FUNDS STRUCTURED?

Mutual funds can be structured in the following ways:

Company form, in which investors hold shares of the mutual fund. In this structure, management

of the fund is in the hands of an elected board, which in turn appoints investment managers to

manage the fund.

Trust form, in which the funds of the investors are held by a trust, on behalf of the

investors. The trust appoints investment managers and monitors their functioning in the

interest of investors.

The company form of organization is very popular in the United States. In India,

mutual funds are organized as trusts. The trust is created by sponsor, who is the actually the

entity interested in creating the mutual fund business. The trust is either managed by a Board

of trustees, or by a trustee company, formed for this purpose. The investors funds are held

by the trust.

ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the organisational set

up of a mutual fund:



6/83


Mutual funds have a unique structure not shared with other entities such as companies of firms.

It is important for employees & agents to be aware of the special nature of this structure, because

it determines the rights & responsibilities of the funds constituents viz., sponsors, trustees,

custodians, transfer agents & of course, the fund & the Asset Management Company(AMC) the

legal structure also drives the inter-relationships between these constituents.

The structure of the mutual fund India is governed by the SEBI (Mutual Funds) regulations,

1996. These regulations make it mandatory for mutual funds to have a structure of sponsor,

trustee, AMC, custodian. The sponsor is the promoter of the mutual fund,& appoints the trustees.

The trustees are responsible to the investors in the mutual fund, & appoint the AMC for

managing the investment portfolio. The AMC is the business face of the mutual fund, as it

manages all affairs of the mutual fund. The mutual fund & the AMC have to be registered withSEBI. Custodian, who is also registered with SEBI, holds the securities of various schemes of the

fund in its custody.

Sponsor:

The sponsor is the promoter of the mutual fund. The sponsor establishes the Mutual fund &

registers the same with SEBI. He appoints the trustees, Custodians & the AMC with prior

approval of SEBI, & in accordance with SEBI regulations. He must have at least five year track

record of business interest in the financial markets. Sponsor must have been profit making in atleastthree of the above five years. He must contribute at least 40% of the capital of the AMC.

Trustees:

The Mutual Fund may be managed by a Board of trustees a of individuals, or a trust company a

corporate body. Most of the funds in India are managed by board of trustees. While the board of

trustees is governed by the provisions of the Indian trust act, where the trustee is the corporate

body, it would also be required to comply with the provisions of the companies act, 1956. the

board of trustee company, as an independent body, act as protector of the unit-holders interest.

The trustees dont directly manage the portfolio of securities. For this specialist function, they

appoint an AMC. They ensure that the fund is managed by AMC as per the defined objectives &

in accordance with the trust deed & SEBI regulations.



7/83


The trust is created through a document called the trust deed i.e., executed by the fund sponsor in

favor of the trustees. The trust deed is required to be stamped as registered under the provision of

the Indian registration act & registered with SEBI. The trustees begin the primary guardians of

the unit-holders funds & assets, a trustee has to be a person of high repute & integrity.

Asset Management Company(AMC):

The role of an Asset management companies is to act as the investment manager of the trust.

They are the ones who manage money of investors. An AMC takes decisions, compensates

investors through dividends, maintains proper accounting & information for pricing of units,

calculates the NAV, & provides information on listed schemes. It also exercises due diligence on

investments & submits quarterly reports to the trustees. AMCs have been set up in various

countries internationally as an answer to the global problem of bad loans.

Bad loans are essentially of two types: bad loans generated out of the usual banking operations or

bad lending, and bad loans which emanate out of a systematic banking crisis.

It is in the latter case that banking regulators or governments try to bail out the banking system of

a systematic accumulation of bad loans which acts as a drag on their liquidity, balance sheets and

generally the health of banking. So, the idea of AMCs or ARCs is not to bail out banks, but to

bail out the banking system itself.



8/83


Open-End Funds

An open-ended fund is one that has units available foe sale and repurchase at all times. An

investor can buy or redeem units from the fund itself at a price based on the Net Asset Value

(NAV) per unit. NAV per unit is obtained by dividing the amount of the market value of the

funds assets by the number of units outstanding. The number of outstanding goes up or down

every time the fund issues new units or repurchase existing units.

Closed-End Funds

Unlike an open-end fund, the unit capital of a closed-ended fund is fixed, as it makes a

one-time sale of a fixed number of units. Closed-ended funds do not allow investors but or

redeem units directly from the funds. However, to provide the much-needed liquidity to

investors, any closed-end funds get themselves listed on stock exchanges. Trading through a

stock exchange enables investors to buy or sell units of a closed-end mutual fund from each

other.

Load and No-Load Funds

Marketing of a new mutual fund scheme involves initial expenses. These expenses may be

recovered from the investors in different ways at different times. Three usual ways in which a

fund's sales expenses may recover from the investors are:

1. At the time of investor's entry into the fund/scheme, by deducting a specific amount from



9/83


his Initial contribution, or

2. By charging the fund/scheme with a fixed amount each year, during the stated number of

years, or

3. At the time of the investor's exit from the fund/scheme, by deducting a specified

amount from the redemption proceeds payable to the investor.

These charges made by the fund managers to the investors to cover distribution/sales/marketing

expenses often called "loads". The load charged to the investor at the time of his entry into a

scheme is called front-end or entry load". The load amount charged to the scheme over period

of time is called a deferred load. The load that the investor pays at the time his exit is called a

"back-end or exit load".

Some funds may also charge different amounts of loads to the investors, depending upon how

many years the investor is stayed with the fund; the longer the investor stays with the fund, less

the amount of exit load" he charged. This is called contingent deferred sales charge".

Funds that charge front-end, back-end or deferred loads are called load funds. Funds that make

no such charges or loads for sales expenses are called no-load funds.

A load fund's declared NAV does not include the loads. Hence, a new investor must add any

front-end load amount per unit the NAV per unit to calculate his purchase price. An outgoing

investor needs to deduct the amount of any back-end load per unit from his sale price per unit to

get to know the net sale proceeds he would receive.

Tax Exempt and Non-Tax Exempt Funds

Generally, when a fund invests in tax-exempt securities, it is called a tax-exempt fund. In the

U.S.A, For example, municipal bonds pay interest that is tax-free, while interest on corporate

and other bonds is taxable. In India, after the 1999 Union Government Budget, all of the

dividend income received from many of the Mutual funds is tax-free in the hands of the investor.

However, funds other than Equity Funds have to pay a distribution tax, before distributing

income to investors. In other words, equity mutual fund schemes are tax-exempt investment

avenues, while other funds are taxable for distributable income.



10/83


While Indian Mutual funds currently offer tax-free income, any capital gains arising out of sale

of fund nits are taxable. All these tax considerations are important in the decision on where to

invest as the tax exemptions or concessions alter returns obtained from these investments.

Hence, classification Of Mutual funds from the taxability perspective has great significance for

investors.

Broad Fund types by Nature of Investments

Mutual funds may invest in equities, bonds or other fixed income securities, or short-

term money market securities. So we have Equity, Bond and Money Market Funds. All of them

invest in financial assets. But there are funds that invest in physical assets. For example, we may

have Gold or other Precious Metals Funds, or Real Estate Funds.

Broad Fund Types by Investment Objective

Investors and hence the mutual funds pursue different objectives while investing. Thus,

Growth Funds invest for medium to long-term capital appreciation. Income Funds invest to

generate regular income, and less for capital appreciation. Value Funds invest in equities that are

considered under-valued today, whose value will be unlocked in the future.

Broad Fund Types by Risk Profile

The nature of a fund's portfolio and its investment objective imply different levels of risk

undertaken. Funds are therefore often grouped in order of risk. Thus, Equity funds have a greater

risk of capital loss than a Debt Fund that seeks to protect the capital while looking for income.

Money Market Funds are exposed to less risk than even the Bond Funds,' since they invest in

short-term fixed income securities, as compared to longer-term portfolios of Bond Funds.

Money Market Funds

Often considered the lowest rung order of risk level, Money Market Funds invest in

securities of a short-term nature, which generally means securities of less than one-year

maturity. The typical, short-term interest-bearing instruments these funds invest in include

Treasury Bills issued by governments. Certificates of Deposit issued by banks and Commercial

Paper issued by companies. In India Money market Mutual funds also invest in the inter-bank



11/83


call money market. The major strengths of money market funds are the liquidity and safety or

principal that investors can normally expect from short-term investments.

Gilt Funds

Gilts are government securities with medium to long-term maturities, typically of over

one year (under one-year instruments being money market securities). In India we have now

seen the emergence of Government Securities or Gilt Funds that invest in government paper

called dated securities (unlike Treasury Bills that mature less These funds have little risk of

default and hence offer better protection of principal.

However, investors have to recognize the potential changes in values of debt securities held by

the funds that are caused 'by changes in the market price of debt securities quoted on the stock

exchanges (Just like the equities).Debt securities' prices fall when interest rate levels increase

(and vice versa).

Debt Funds (or Income Funds)

Next in the order of risk level, we have the general category Debt Funds. Debt funds

invest in debt instruments issued not only by governments, but also by private companies,

banks and financial institutions and other entities such as infrastructure companies/utilities.

By investing in debt, these funds target low risk and stable income for the investor as their key

objectives. However, as compared to the money market funds, they do have a higher price

fluctuation risk, since they invest longer-term securities. Similarly compared to Gilt Funds,

general debt funds do have a higher risk of default by their borrowers.

Debt Funds are largely considered as Income Funds as they do not target capital appreciation,

look for high current income, and therefore distribute a substantial part of their surplus to

investors. Income funds that target returns substantially above market levels can face more

risks. The Income Funds fall largely in the category of Debt Funds as they invest primarily in

fixed income generating debt instruments. Again, different investment objectives set by the

fund managers would result in different risk profiles.



12/83


Diversified Debt Funds

A debt fund that invests in all available types of debt securities, issued by entities across

all industries and sectors is a properly diversified debt fund.

While debt funds offer high income and less risk than equity funds, investors need to recognize

that debt securities are subject to risk of default by the issuer on payment of interest or principal.

A diversified debt fund has the benefit of risk reduction through diversification and sharing of

any default-related losses by a large number of investors. Hence a diversified debt fund is less

risky than a narrow-focus fund that invests in debt securities of a particular sector or industry.

Focused Debt Funds

Some debt funds have a narrower focus, with less diversification in its investments. Examples

include sector, specialized and offshore debt funds.

These funds are similar to the funds described later in the equity category except that debt

funds have a substantial part of their portfolio invested in debt instruments and are therefore

more income oriented and inherently less risky than equity funds. However 'the Indian

financial markets have demonstrated that debt funds should not be automatically considered to

be less risky than equity funds, as there have been relatively large default by issuers of debtand many funds have non-performing assets in their debt portfolios. It should also be

recognized that market values of debt securities will also fluctuate more as Indian debt markets

witness more trading and interest rate volatility in the future.

High Yield Debt Funds

Usually, Debt Funds control the borrower default risk by investing in securities issued by

borrowers who are rated by credit rating agencies and are considered to be of "investment

grade". There are High Yield Debt Fund that seek to obtain higher returns by investing in debt

instruments that are considered "below investment grade. Clearly, these funds are exposed to

higher risk.

In U.S.A., funds that invest in debt instruments that are not backed by tangible assets and rated



13/83


below investment grade (popularly known as junk bonds) are called Junk Bond Funds. These

funds tend to be more volatile than other debt funds, although they may earn higher returns as a

result of the higher risks taken.

Assured Return Funds

Fundamentally, mutual funds hold assets in trust for investors. All returns and risks are for

account of the investor. The role of the fund Manager is to provide the professional management

service and to ensure the highest possible return consistent with the investment objective of the

fund. Assured return debt fund certainly reduce the risk level.

Fixed Term Plans

Fixed Term Plans are closed-end, but usually for shorter term-less than a year. Being of short

duration, they are not listed on a stock exchange.

As investors move from Debt Fund category to Equity Funds they face increased risk level.

However, there is a large variety of Equity Funds and all of them are not equally risk-prone.

Investors and their advisors need to sort out and select the right equity fund that suits their risk

appetite

Equity funds invest a major portion of their corpus in equity shares issued by companies,

acquired directly in initial public offerings or through the secondary market. Equity funds would

be exposed to the equity price fluctuation risk at the market level at the industry or sector level

and at the company-specific level. Equity Funds Net Asset Values fluctuate with all these price

movements. These prices are caused by all kinds of external factors, political and social as well

as economic. Hence, Equity Funds are generally considered at the higher end of the risk

spectrum among all funds available in the market. Equity funds adopt different investment

strategic resulting in different levels of risk. Hence, they are generally separated into differenttypes in terms of their investment styles. Some of the major types of equity funds, arranged in

order of higher to lower risk level.

Aggressive Growth Funds



14/83


There are many types of stocks/shares available in the market; Blue Chips that are recognized

market leaders, less researched stocks that are considered to have future growth potential, and

even some speculative stocks of somewhat unknown or unproven issuers. Fund managers seek

out and invest in different types of stocks in line with their own perception of potential returns

and appetite for risk.

Aggressive growth funds target maximum capital appreciation, invest in less researched or

speculative shares and may adopt speculative investment strategies to attain their objective of

high returns for the investor. Consequently, they tend to be more volatile and riskier than other

funds.

Growth Funds

These funds invest in companies whose earnings are expected to rise at an above average rate.

These companies may be operating in sectors like technology considered having a growth

potential, but not entirely unproven and speculative. The primary objective of Growth Funds is

capital appreciation over a three to five year span. Growth funds are therefore less volatile than

funds that target aggressive growth.

Specialty Funds

These funds have a narrow portfolio orientation and invest in only companies that meet pre-

defined criteria. For example, at the height of the South African apartheid regime, many funds in

the U.S. offered plans that promised not to invest in South African companies. Some funds may

build portfolios that will exclude Tobacco companies. Funds that invest in particular regions

such as the Middle East or the ASEAN countries are also an example of specialty funds. Within

the Specialty Funds category, some funds may be broad-based in terms of the types of

investments in the portfolio. However, most specialty funds tend to be concentrated funds, since

diversification is limited to one type of investment. Clearly, concentrated specialty funds tend to

be more volatile than diversified funds.

Sector Funds

Sector funds' portfolios consist of investments in only one industry or sector of the market such

as Information on Technology, Pharmaceuticals or Fast Moving Consumer Goods that have



15/83


recently been launched in India. Since sector funds do not diversify into multiple se Offshore

Funds.

Offshore Funds

These funds invest in equities in one or more foreign countries thereby achieving diversification

across the country's borders. However they also have additional risks - such as the foreign

exchange rate risk - and their performance depends on the economic conditions of the countries

they invest in. Offshore Equity Funds may invest in a single country (hence riskier) or many

countries (hence more diversified).

Small Cap Equity Funds

These funds invest in shares of companies with relatively lower market capitalization than that of

big, blue chip companies. They may thus be more volatile than other funds, as smaller

companies' shares are not very liquid in the markets. In terms of risk characteristics, small

company funds may be aggressive-growth or just growth type.

Option Income Funds

Option Income Funds write options on a significant part of their portfolio. While options are

viewed as risky instruments, they may actually help to control volatility, if properly used.Conservative option funds invest in large, dividend paying companies, and then sell options

against their stock positions. This ensures a stable Income stream in the form of premium income

through selling options and dividends.

Diversified Equity Funds

A fund that seeks to invest only in equities except for a very small portion in liquid money

market securities, but is not focused on any one or few sectors or shares, may be termed a

diversified equity funds seek to reduce the sector or stock specific risks through diversification.

They have mainly market risk exposure. Diversified funds arc clearly at the lower risk level than

growth funds

Equity Linked Saving Schemes: An Indian Variant



16/83


In India, the investors have been given tax concessions to encourage them to invest in equity

markets through these special schemes. Investment in these schemes entitles the investor to claim

an income tax rebate, but usually has a lock-in period before the end of which funds cannot be

withdrawn. These funds are subject to the general SEBI investment guidelines for all equity

funds, and would be in the Diversified Equity Fund category. However, as there are no specific

restrictions on which sectors these funds ought to invest in, investors should clearly look for

where the Fund Management Company proposes to invest and accordingly judge the level of risk

involved.

Equity Index Funds

An index fund tracks the performance of a specific stock market index. The objective is to match

the performance of the stock market by tracking an index that represents the overall market. Thefund invests in shares that constitute the index and in the same proportion as the index. Since

they generally invest in a diversified market index portfolio, these funds take only the overall

market risk, while reducing the sector and stock specific risks through diversification.

Value Funds

Value Funds try to seek out fundamentally sound companies whose shares arc currently under-

priced in the market. Value Funds will add only those shares to their portfolios that are selling at

low price-earnings ratios, low market to book value ratios and are undervalued by other

yardsticks.

Value funds have the equity market price fluctuation risks, but stand often at a lower end of the

risk spectrum in comparison with the Growth Funds. Value Stocks may be from a large number

of sectors and therefore diversified.

Equity Income funds

Usually income funds are in the Debt Funds category, as they target fixed income investments.

However, there are equity funds that can be designed to give the investor a high level of current

income along with some steady capital appreciation, investing mainly in shares of companies'

with high dividend yields.

Hybrid Funds Quasi Equity/Quasi Debt



17/83


Money market holdings will constitute a lower proportion in the overall portfolios of debt or

equity funds. There are funds that, however, seek to hold a relatively balanced holding of debt

and equity securities in their portfolio. Such funds are termed "hybrid funds" as they have a dual

equity/bond focus.

Balanced Fund

A balanced fund is one that has a portfolio comprising debt instruments, convertible securities,

and Preference equity shares. Their assets are generally held in more or less equal proportions

between debt/money market securities and equities. By investing in a mix of this nature,

balanced funds seek to attain the objectives of income, moderate capital appreciation and

preservation of capital, and are ideal for investors with a conservative and long-term orientation.

Growth-and-Income Funds

Unlike income-focused or growth-focused funds, these funds seek to strike a balance between

capital appreciation and income for the investor. Their portfolios are a mix between companies

with good dividend paying records and those with potential for capital appreciation. These funds

would be less risky than pure growth funds, though more risky than income fund.

Commodity Funds

Commodity funds specialize in investing in different commodities directly or through shares of

commodity companies or through commodity future contracts. Specialized funds may invest in a

single commodity or a commodity group such as edible oils or grains, while diversified

commodity funds will spread their assets over many commodities.

Real Estate Funds

Specialized Real Estate Funds would invest in Real Estate directly, or may fund real estate

developers, or lend to them, or buy shares of housing finance companies or may even buy their

securities assets.

The funds may have a growth orientation or seek to give investors regular income. There has

recently been an initiative to offer such an income fund by the HDFC.



18/83


Benefits of Mutual Fund

Portfolio Diversification

Return on investment from just one industry or sector are subject to how well or poorly the

industry fares. But with mutual fund ones money is invested across different sector. This

reduces the risk of low returns on investments, because rarely do different sectors decline at the

same time.

Professional Management

A mutual fund draws on the professional expertise of a team of research analysts and fund

managers in investing ones saving in a number of securities.

Reduction of Transaction Costs

The purchase or sale of financial assets through the exchanges entails a certain proportion of

changes known as transaction made. Investments through mutual fund reduce these costs

considerably as they enjoy the benefits of economies of scale.

Liquidity

If one invests in an open-ended mutual fund, one can claim the money at net asset value related

prices from the mutual fund itself.

Convenience and Flexibility

One has access to up-to-date information on the value of the investment in addition to the

investments that have been made by the scheme, the proportion allocated to different assets and

the fund managers investment strategy.

Return Potential



19/83


Investing in a Mutual Fund reduces paperwork and helps to avoid many problems such as bad

deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save

time and make investing easy and convenient.

Transparency

Through features such as regular investment plans, regular withdrawal plans and dividend

reinvestment plans, one can systematically invest or withdraw funds according to once needs and

convenience.

Affordability

Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund

because of its large corpus allows even a small investor to take the benefit of its investment

strategy.

Well Regulated

All Mutual Funds are registered with SEBI and they function within the provisions of strict

regulations designed to protect the interests of investors. The operations of Mutual Funds are

regularly monitored by SEBI.

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 talkabout this in detail in a later section.

Costs



20/83


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.



21/83


COMPANY PROFILE

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.

HISTORY OF IDFC

The Fund was established on march 13th

2000. Now the management of the fund has been takenover 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 30 th 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



22/83


Schemes offered by IDFC.

IDFC Schemes No. of Schemes

No. of Schemes 84

No. of Schemes including options 269

Equity Schemes 24

Debt Schemes 209

Short term Debt Schemes 19

Equity & Debt 0

Money Market 0

Gilt fund 13

Source:www.idfcmf.net

The table infers the no. of schemes offered by IDFC, there are 84 schemes and including the

options there are 269 schemes the schemes are divided into plans as Growth option etc.The

debt schemes available are 209 out of which there are 7 major schemes which are dealt with.

http://www.idfcmf.net/http://www.idfcmf.net/http://www.idfcmf.net/


23/83


Financial Performance of the Sponsor in last three years

PARTICULARS 31.03.08

(Rs in crores)

31.03.07

(Rs in crores)

31.03.06

(Rs in crores)

Net Worth 5454.38 2882.03 2544.19

Total Income 2532.42 1505.74 1002.36

Profit after tax 669.17 462.87 375.64

Assets Under Management

(under its private equity business)

2545 2671 2551

Source:www.idfcmf.net

The table infers the financial position for the past three years. Their net worth, total income,

profit after tax asset under management are mentioned. There is a consistent increase in the

financial performance. Year after year there is an increase in the profit than the previous year

showing that the organization is financially strong.

ASSET MANAGEMENT

IDFC is determined to construct a comprehensive asset management business that consists of :



24/83


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.

IDFC PRODUCT RANGE

The categories of funds offered by IDFC are Equity funds, Debt funds & Liquid funds which is

further categorized in to different types as shown in the chart below:

\IDFC PRODUCT RANGE


IDFC PRODUCT RANGE

Debt FundsEquity Funds

Balanced


25/83


und

IDFC money

manager fund-

investment plan


EQUITY FUND IDEAL

INVESTMENT

HORIZON

DATE OF

INCEPTION

Classic Equity Fund 3 yrs or more 9th Aug 2005

Imperial Equity Fund 3 yrs or more 16th March 2006

Premier Equity 3 yrs or more 28th sep 2005

Arbitrage Fund 1 yrs or more 21st Dec 2006

Arbitrage Plus Fund 1 yrs or more 9th June 2008

Enterprise Equity

Fund3 yrs or more 9th June 2006

Small & Midcap

Equity (SME)fund1 yrs or more 7th March 2008

Strategic Sector(50-

50)3 yrs or more 3rd Oct 2008

Tax Advantage

(ELSS)FundLock in period

of 3yrs

26th Dec 2008

Nifty Fund 3 yrs or more 30 th April 2010

INDIA GDP

growthfund3 yrs or more 11th March 2009

Liquid Fund

Imperial Equity

Fund

Classic Equity

Fund

Premier Equity

FundArbitrage Fund

Arbitrage Plus

Fund

Enterprise Equity

Fund

Small & Midcap

Equity (SME)fund

Strategic

Sector(50-50)

Tax Advantage

(ELSS)Fund

Super SaverIncome Fund-

Dynamic Bond Fu

Super Saver

Income Fund,

Money manag

Fund- Treasury

Government

Securities Fun

Super Saver

Income Fund-

All Season BonFund

Cash Fu

Nifty Fund

INDIA GDP

growthfund


26/83




27/83


Source: Fund review of IDFC for the month of march 2010

Liquid Funds IDEAL INVESTMENT

HORIZON

DATE OF INCEPTION

Cash Funds 1 Day or More 2nd July 2001


DEBT FUND IDEAL

INVESTMENT

HORIZON

DIVIDEND FREQUENCY DATE OF

INCEPTION

Super Saver

Income Fund-

Investment

1 Year or more Quarterly, Half Yearly, Annually 14th July 2000

Dynamic Bond

Fund

1 Year or more Quarterly & Annually 25th June 2002

Super Saver

Income Fund-

Medium Term

6 months or more Bi-monthly, Monthly, Fortnightly

& daily

8th July 2003

Super saver

Income Fund-Short

Term

3 months or more Monthly, Fortnightly 14th December

2000

Money Manager

Fund-Treasury

plan

1 day or more Monthly & Daily/Weekly with

compulsory reinvestment

18th February

2003

Money Manager

Fund Investment

Plan

1 day or more Daily & Weekly(with

reinvestment facility in both Plan

A &plan B), Monthly, Quarterly

and Annual.

9th August

2004

Government

Securities Fund-

Investment Plan

1 year or more Quarterly/Half yearly/Yearly 9th March 2002

All Seasons BondFund

1 year or more Quarterly/Half yearly & Annual 13

th

September2004


28/83




29/83


Source: Fund Review of IDFC for the month of May 2009 and www.idfcmf.net.

Table shows various debt funds of IDFC Mutual Funds, their ideal investment horizon, dividend

frequency and the date of inception. There are 7 types of debt funds super saver income fund-

medium term is good for investing for more than 6 months, super saver income fund-short term

is suitable for more than 3 months & all other funds for more than one year.

SWOT ANALYSIS

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.

Cannot tap rural market.

Opportunities



30/83


Untapped rural market

Lack of competitive products to suit clients investment objectives.

Threats

The numbers of players are increasing which further increases the competition.

Product innovation done by other asset management companies & is able to collect large

amounts.

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

Statement of the Problem

With a plethora of schemes to choose from, the retail investor faces problems in selecting

funds. Factors such as investments strategy & management style are qualitative, but the funds

record is an important indicator too. Though past performance alone cannot be indicative of

future performance, it is the only quantitative way to judge how good a fund is at present.

Therefore, there is a need to correctly assess the past performance of different mutual funds.

The evaluation would help the investors to choose the appropriate schemes while portfolio, in

order to ensure better returns for their investments.

In this study an attempt is made to evaluate the performance of equity diversified growth

oriented mutual fund schemes of different AMCs on the basis of quarterly returns compared

to benchmark returns. For this purpose, risk adjusted performance measures suggested by

Jenson, Treynor and Sharp are employed.



31/83


Objectives of the study

To understand the various mutual fund schemes offered by the different AMCs

To compare the performance of various AMCs offering equity diversified growth

oriented schemes.

To measure & analyze the return of the sampled mutual fund equity diversified growth

oriented schemes and compares them with the market returns.

To suggest the investors of the performance of various AMCs by ranking them based

on the performance measures.

Scope of the Study

The study considers only equity diversified growth oriented mutual fund schemes.

The performance of the mutual fund scheme is evaluated, based on the quarterly returns

for the past three i.e. from 2007 to 2009.

The returns of the schemes are compared with the benchmark which is nifty.

The sample of ten equity diversified growth oriented schemes selected for the study

represents the population of equity diversified growth schemes offered by different

AMCs.

METHODOLOGY

Research Design

The research design is descriptive in nature, the study attempts to analyze & evaluate the existing

data system, through the financial data. For this purpose, risk adjusted performance measures

suggested by Jenson, Treynor & Sharpe are employed. Here the comparison is done on the

various well performed schemes selected from different fund houses or AMCs. The analysis is

done on the percentage of returns from the last three consecutive years (2007-09)

Sampling Design



32/83


The sampling design used is convenience Sampling. Ten equity diversified growth oriented

mutual fund schemes each from different AMCs are selected.

In this study ten equity diversified growth oriented schemes have been considered. They are :

ABN Amro Equity Fund (growth)

DSP-ML India T.I.G.E.R. Fund (growth)

HSBC Equity Fund (growth)

HDFC Equity Fund (growth)

JM Basic Fund (growth)

Kotak Opportunities Fund (growth)

ICICI Pru Growth (growth)

SBI Magnum Equity Fund (growth)

Tata Infrastructure Fund (growth)

Sundaram BNP Paribas Growth Fund (growth)

The Research method is descriptive in nature. The whole study is based on both primary

& secondary data. They are:

1. Information collected from the company.

2. Information from the internet.

3. Data collected from newspaper, books an journals.

4. Data collected from National stock Exchange websites & brochures.

Tools use for the Analysis

A. Performance measures

Treynors measure

Sharpe measure



33/83


Jenson measure

B. Statistical tools

Mean

Standard deviation

Treynors performance index:

According to him systematic risk or beta is the appropriate measure of risk

. He relates the excess of return on a portfolio to the beta i.e., systematic risk.

Treynors measure =

Sharpes performance index:

The sharpers measure is similar to the Treynors measure except that it employs standard

deviation and not beta value as the measure of risk.

Sharpe Measure =


Average rate of return


on portfolio p on risk

free investment

Beta of Portfolio p



on portfolio p on risk

free investment

Standard deviation of return of Portfolio p


34/83


Jensons performance index:

It reflects the difference between the return actually earned on a portfolio and the return

the portfolio was supposed to earn.

Jenson Measure =

Mean

The mean is the mathematical average of a set of numbers. The average is calculated by

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

Mean= X

N

Where:

X= Values in the set

N= Number of values in the set

Standard Deviation

It 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 verse.

(RA RA*) 2

Standard Deviation of return = N-1


Risk free + portfolio Beta

Return

Average returns

Risk on market portfolio

free return


35/83


Operational Definitions:

Return can 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.

a) Returns =

b) Standard Deviation of return =

c) Beta =

OR

Beta (A) =

d) COV (RA, RM) =

e) 2M(variance) =


Ending NAV Beginning NAV + Dividend paid

during the period

Beginning NAV

(RA

RA*) 2

N-1

(RA

RA*) (R

M

RM*)

(RM

RM*)2

COV (RA,

RM)

2M

(RA

RA*) (R

M

RM

*)

(N-1)

(RM

RM*)

(N-1)


36/83


RA : Return of the portfolio A

RM : Return of the market M

N : Number of periods

2M : variance of market return

RM* : Average return of market

RA* : Average return of portfolio A

f) Net Asset Value (NAV):

In simple words, Net Asset Value is the market value of the securities held by the

scheme. Since market value of securities changes every day, NAV of a scheme also varies on

day-to-day basis. It is the current price of every unit of a fund.

Formula of the calculation of Net Asset Value (NAV)

Net Asset Value =

LIMITATIONS OF THE STUDY:

The study is limited to equity diversified growth schemes.

Only ten growth orient mutual funds are compared and analyzed.

Since only one scheme is selected from one company, the companys overall

performance cannot be judged by the performance of that particular scheme.

Sundaram BNP Paribas Growth Fund (Growth)

Objective of the Fund


Market Value of Investments

No. of units Outstanding


37/83


The primary aim of the scheme is to achieve Capital Appreciation by investing in equity

and equity related securities of different companies. The fund size is 182.43 crores as on 29 th

2008.

Table showing the schemes return

Date Opening

NAV

Closing

NAV

Quaterly Returns

(RA )

Mean

(RA* )

(RA-RA* ) (RA-RA* )2 (RA-RA* )

(RM-RM* )

Jan 05-Mar 05 34.29 33.02 -3.7 10.85 -14.55 211.70 174.16

Apr 05-June 05 34.186 35.752 4.6 10.85 -6.25 39.06 4.81

Jul 05- Sept 05 36.028 43.222 20 10.85 9.15 83.72 66.88

Oct 05-Dec 05 43.683 48.126 10.2 10.85 -0.65 0.42 0.51

Jan 06-Mar 06 48.171 61.302 27.3 10.85 16.45 270.60 166.14

Apr 06-June 06 63.195 54.078 -14.4 10.85 -25.25 637.56 -63.58

Jul 06- Sept 06 54.539 61.359 12.5 10.85 1.65 2.72 8

Oct 06-Dec 06 61.359 68.631 11.9 10.85 1.05 1.10 0.714

Jan 07-Mar 07 69.392 62.759 -9.6 10.85 -20.45 418.20 275.87

Apr 07-June 07 60.1 72.512 20.7 10.85 9.85 97.02 31.03

Jul 07- Sept 07 72.585 87.065 19.6 10.85 8.75 76.56 58.28

Oct 07-Dec 07 88.647 116.197 31.1 10.85 20.25 410.06 251.1

TOTAL 130.2 1629.11 973.9161

Table showing market return

Date Opening

NAV

Closing

NAV

Quaterly Returns

(RA )

Mean

(RA* )

(RA-RA* ) (RA-RA* )2

Jan 05-Mar 05 2080 2035.65 -2.1322 9.84 -11.97 143.2809

Apr 05-June 05 2035.9 2220.6 9.072 9.84 -0.768 0.589824

Jul 05- Sept 05 2220.6 2601.4 17.15 9.84 7.31 53.4361



38/83


Oct 05-Dec 05 2601 2836.55 9.056 9.84 -0.784 0.614656

Jan 06-Mar 06 2836.8 3402.55 19.94 9.84 10.1 102.01

Apr 06-June 06 3403.15 3128.2 -8.07 9.84 -17.91 320.7681

Jul 06- Sept 06 3128.75 3588.4 14.69 9.84 4.85 23.5225

Oct 06-Dec 06 3588.95 3966.4 10.52 9.84 0.68 0.4624

Jan 07-Mar 07 3966.25 3821.55 -3.65 9.84 -13.49 181.9801

Apr 07-June 07 3821.55 4318.3 12.99 9.84 3.15 9.9225

Jul 07- Sept 07 4318.3 5021.35 16.28 9.84 6.44 41.4736

Oct 07-Dec 07 5021.6 6138.6 22.24 9.84 12.4 153.76

TOTAL 118.0858 1031.82068

Calculation:

Average Nifty Return (RM*) = R

N

= 118.086

12

= 9.84

Average Return of the scheme (RA*) = R

N

= 130.2

12

= 10.85

Standard deviation (Nifty) = (RA RA*) 2



39/83


(N 1)

= 1031.82

11

= 9.6850

Standard Deviation (Scheme Risk) = (X X*) 2

(N 1)

= 1629.11

11

= 12.1696

Beta of Scheme () = COV (R, X)

SD2R

= (R R*) (X X*) / (n-1)

(R R*) 2 / (n-1)

= 88.5378

93.8018



40/83


= 0.9439

Treynor Ratio (Scheme) =

= (10.85 7.35)

0.9439

= 3.7080

Treynor Ratio (Nifty) =

= (9.84 7.35)

1

= 2.49

Sharpe Ratio (Scheme) =

= (10.61 7.35)

13.0524

= 0.2498


Average rate of return Averagerate of return

On portfolio p on risk free

investment

Beta of portfolio

Average rate of return Average

rate of return


investment

Beta of portfolio p

Average rate of return Average rate

of return


investment

Standard Deviation of return of portfolio p


41/83


Sharpe Ratio (Nifty) =

= (9.84 7.35)

9.6851

= 0.2571

Jenson Measure (Scheme) =

= 10.61{7.35+0.8043(9.84-7.35)}

= 1.2573

Performance Measure Calculation:

Particulars Sundaram BNP Paribas S & P CNX NIFTY

Average Return 10.85 9.84

Beta 0.9439 1

Risk 12.1696 9.685

Treynor 3.708 2.49

Sharpe 0.2876 0.2571



rate of return


investment

Standard Deviation of return of portfolio p

Risk free + portfolio beta

Return


rate of return


investment


42/83


Jenson 1.1496 0

INTERPRETATION

From the table, Sundaram BNP Paribas Growth

Earned an average return of 10.85% as against the market return of 9.84%

The beta value indicates that 1% increase in market portfolio return results in 0.9439%

increased in the fund returns and 1% decrease in the market portfolio results in 0.9439%

decrease.

The high standard deviation (Risk) of 12.169% indicates the volatility of the fund returns.

The positive alpha value (Jenson ratio) indicates that the superior performance of the fund in

comparison to the market.

The high variability ratio (Sharpe ratio) indicates that the investors can earn superior returns

by taking greater risk than the market.

The reward to variability ratio (Treynor ratio) is higher than the benchmark which indicates

its superior performance.

From these three measures it can be concluded that the Sundaram BNP Paribas fund

(Growth) has a performed over its benchmark.

Chart showing the scheme return and market return of Sundaram BNP Paribas Growth

fund.



43/83




44/83


ICICI PUR Growth (Growth)

Objective of the fund

To generate long-term capital appreciation to your from a portfolio made up predominantly of

equity related securities.

Table showing the scheme returns

Date Opening

NAV

Closing

NAV

Quarterly Returns

(RA )

Mean

(RA* )

(RA-

RA* )

(RA-RA* )2 (RA-RA* )

(RM-RM* )

Jan 05-Mar 05 44.08 44.27 0.4 9.82 -9.42 88.74 112.75

Apr 05-June

05

44.92 47.03 4.7 9.82 -5.12 26.21 3.94

Jul 05- Sept 05 48.08 58.84 22.4 9.82 12.58 158.26 91.96

Oct 05-Dec 05 59.62 65.39 9.7 9.82 -0.12 0.01 0.09

Jan 06-Mar 06 65.58 80.76 23.1 9.82 13.28 176.36 134.13

Apr 06-June

06

82.66 73.04 -11.6 9.82 -21.42 458.82 383.63

Jul 06- Sept 06 73.42 84.52 15.1 9.82 5.28 27.88 25.61

Oct 06-Dec 06 84.12 93.36 11 9.82 1.18 1.39 0.80

Jan 07-Mar 07 94.48 89.18 -5.6 9.82 -15.42 237.78 -208.01

Apr 07-June

07

85.15 99.94 17.4 9.82 7.58 57.46 23.87

Jul 07- Sept 07 99.71 116.07 16.4 9.82 6.58 43.29 42.37



45/83


Oct 07-Dec 07 116.39 133.6 14.8 9.82 4.98 24.80 61.75

TOTAL 1300.99 672.89

Performance Measures Calculation



Beta 0.9439 1

Risk 12.1696 9.685

Treynor 3.708 2.49

Sharpe 0.2876 0.2571

Jenson 1.1496 0

INTERPRETATION

From the table ICICI Pru Fund Growth

Earned an average return of 9.82% as against the market return of 9.84%.

The beta value indicates that 1% increase in market portfolio returns result in 0.6521%

increase in the fund returns and 1% decrease in the market portfolio results in 0.6521%

decrease in the fund.

The high standard deviation (Risk) of 10.8753% indicates the high volatility of the fund

returns.

The positive alpha value (Jenson ratio) indicates the superior performance of the fund in




46/83


The high variability ratio (Treynor ratio) is higher than the benchmark which indicates its

superior performance.

It can be concluded that according to Jenson and Treynor ICICI Pru Fund (Growth) has

performed over its benchmark.

Chart showing the Scheme and Market returns of ICICI Pru Growth Fund



47/83


Kotak Opportunities Fund (Growth)

Objective of fund

The scheme aims to generate capital appreciation from a diversified portfolio of equity and

equity related securities. Kotak opportunities have a flexible investing style and it invests in

sectors, which the fund managers believe would outperform others in the short to medium-term.

Table showing the scheme return

Date Opening

NAV

Closing

NAV

Quaterly returns

(RA )

Mean

(RA* )

(RA-RA* ) (RA-RA* )2 (RA-RA* )

(RM-RM* )

Jan 05-Mar 05 13.205 12.764 -3.3 9.22 -15.73 247.43 188.288

Apr 05-June 05 13.043 14.471 9.22 9.22 0.17 0.03 -0.1309

Jul 05- Sept 05 14.743 17.648 21.8 9.22 9.37 87.80 68.49

Oct 05-Dec 05 18.188 20.45 12.4 9.22 -0.03 0.00 0.0234

Jan 06-Mar 06 20.574 25.89 23.8 9.22 11.37 129.28 114.837

Apr 06-June 06 26.498 23.252 -14.7 9.22 -27.13 736.04 485.89

Jul 06- Sept 06 22.768 24.327 12 9.22 -0.43 0.18 2.085

Oct 06-Dec 06 25.45 28.067 11.5 9.22 -0.93 0.86 0.6324

Jan 07-Mar 07 28.725 27.944 -2.7 9.22 -15.13 228.92 -204.103

Apr 07-June 07 26.836 31.515 20 9.22 7.57 57.30 23.84

Jul 07- Sept 07 32.38 33.011 16.7 9.22 4.27 18.23 27.49



48/83


Oct 07-Dec 07 38.545 47.629 39.1 9.22 26.67 711.29 330.708

TOTAL 2217.37 1038.0499

Performance Measure Calculation



Beta 0.9794 1

Risk 14.1975 9.685

Treynor 5.1868 2.49

Sharpe 0.3578 0.2571

Jenson 2.6413 0

INTERPRETATION

From the table, Kotak Opportunities fund-Growth


The beta value indicates that 1% increase in marked portfolio results in 0.9794% increase

in the returns and 1% decrease in the market portfolio results in 0.9794% decrease in the

fund.


returns.





49/83


The high variability ratio (Sharpe ratio) indicates that the investors can superior fund earn

returns by taking greater risk than the market.

The reward to variability ratio (Treynor ratio) is higher than the benchmark which

indicates its superior performance.

From these measures it can be concluded that performance of Kotak opportunities fund

(Growth) is doing better than the benchmark.

Chart showing the Scheme and Market returns Kotak Opportunities Fund (Growth)



50/83


DSP-ML INDIA T.I.G.E.R. FUND (Growth)


DSP ML T.I.G.E.R. fund (The infrastructure growth and Economic Reforms Fund). The scheme

aims to generate capital appreciation, from a portfolio that is substantially constituted of equity

and related securities of corporate.


Date Opening

Closing

Quaterlyreturns

Mean(RA* )

(RA-RA* )

(RA-RA*)2

(RA-RA*)

NAV NAV (RA ) (RM-RM* )

Jan 05-Mar05

14.17 13.79 -2.7 12.91 -15.61 243.6721

186.85

Apr 05-June 05

14.06 14.58 3.7 12.91 -9.21 84.8241 7.09

Jul 05- Sept05

14.78 19.45 31.6 12.91 18.69 349.3161

136.62

Oct 05-Dec05

19.54 21.5 10 12.91 -2.91 8.4681 2.29

Jan 06-Mar06

21.63 27.15 25.5 12.91 12.59 158.5081

127.15

Apr 06-June 06

27.96 23.69 -15.3 12.91 -28.21 795.8041

505.24



51/83


Jul 06- Sept06

23.86 28.26 18.4 12.91 5.49 30.1401 26.62

Oct 06-Dec06

28.29 32.773

15.8 12.91 2.89 8.3521 1.9652

Jan 07-Mar07

33.109 31.54 -4.7 12.91 -17.61 310.1121

-237.55

Apr 07-June 07

30.297 38.231

26.2 12.91 13.29 176.6241

41.86

Jul 07- Sept07

38.427 45.857

19.3 12.91 6.39 40.8321 41.15

Oct 07-Dec07

46.44 59.036

27.1 12.91 14.19 201.3561

175.95

TOTAL 2408.0092

1015.235

Performance Measure Calculations



Beta 0.9831 1

Risk 14.7955 9.685

Treynor 5.6538 2.49

Sharpe 0.3756 0.2571

Jenson 3.1064 0

INTERPRETATION



52/83


From the tables, DSP-ML INDIA T.I.G.E.R. FUND (Growth)

Earned an average return of 12.9083% as against the market return of 9.84%

The beta value indicates that 1% increase in market portfolio returns results and 1%

decrease in the market portfolio results in 0.9831% decrease in the fund.


returns.



The high variability ratio (Sharpe ratio) indicates that the investors can earn superior

returns by taking greater risk than the market.)



It can be concluded that the DSP-ML INDIA T.I.G.E.R. FUND (Growth) has performed

over its benchmark.

Chart showing the scheme and market returns of DSP-ML INDIA T.I.G.E.R. FUND



53/83


SBI Magnum Equity Fund (Growth)




54/83


The scheme invests in companies having sustainable competitive advantage owing to their

leadership in technology, brands, distribution network and adopts bottom-up approach in

choosing companies.

Table showing the scheme returns

Date Openi

ng

Closi

ng

Quaterly

returns

Mean

(RA* )

(RA-

RA* )

(RA-RA*

)2

(RA-RA*

)

NAV NAV (RA ) (RM-

RM* )

Jan 05-Mar

05

12.846 12.34

1

-3.9 11.42 -15.32 234.702

4

183.38

Apr 05-

June 05

12.631 13.79

8

9.2 11.42 -2.22 4.9284 1.7094

Jul 05- Sept

05

13.889 16.98

6

22.2 11.42 10.78 116.208

4

78.8

Oct 05-Dec

05

17.191 18.23

4

6.1 11.42 -5.32 28.3024 4.17

Jan 06-Mar

06

18.193 22.77

8

25.2 11.42 13.78 189.888

4

139.178

Apr 06-

June 06

23.672 21.11

5

-10.8 11.42 -22.22 493.728

4

397.96

Jul 06- Sept

06

21.106 24.02 13.8 11.42 2.38 5.6644 11.543

Oct 06-Dec

06

24.02 27.58 14.8 11.42 3.38 11.4244 2.2984

Jan 07-Mar

07

27.87 26.61 -4.5 11.42 -15.92 253.446

4

-214.76

Apr 07-

June 07

25.6 30.61 19.6 11.42 8.18 66.9124 25.767

Jul 07- Sept 30.67 36.1 17.7 11.42 6.28 39.4384 40.44



55/83


07

Oct 07-Dec

07

36.52 46.65 27.7 11.42 16.28 265.038

4

201.87

TOTAL 1709.68

2

872.35

58




Beta 0.8454 1

Risk 12.4669 9.685

Treynor 4.8143 2.49

Sharpe 0.3265 0.2571

Jenson 1.9649 0

INTERPRETATION

From the tables, SBI Magnum Equity Fund (Growth)


The beta value indicates that 1% increase in market portfolio returns results in 0.8454%

increase in the fund returns and 1% decrease in the market portfolio results in 0.8454%

decrease in the fund.


returns.





56/83






It can be concluded that the SBI Magnum Equity Fund (Growth) has performed over its

benchmark.

Chart showing the scheme and market returns of SBI Magnum Equity Fund



57/83


ABN Amro Equity Fund (Growth)


To generate long-term capital growth from a diversified and actively managed portfolio of equity

related securities.


Date Openi

ng

Closi

ng

Quaterly

returns

Mean

(RA* )

(RA-

RA* )

(RA-RA*

)2

(RA-RA*

)

NAV NAV (RA ) (RM-

RM* )

Jan 05-Mar

05

12.93 13.21 2.2 11.07 -8.87 78.6769 106.17

Apr 05-

June 05

13.54 13.97 3.2 11.07 -7.87 61.9369 6.05

Jul 05- Sept

05

14.1 17.73 25.7 11.07 14.63 214.036

9

106.94

Oct 05-Dec

05

17.93 19.73 10 11.07 -1.07 1.1449 0.8388

Jan 06-Mar

06

19.74 23.74 20.3 11.07 9.23 85.1929 93.22

Apr 06-

June 06

24.58 20.3 -17.4 11.07 -28.47 810.540

9

509.89

Jul 06- Sept 20.44 23.72 16 11.07 4.93 24.3049 23.91



58/83


06

Oct 06-Dec

06

23.82 27.19 14.1 11.07 3.03 9.1809 2.06

Jan 07-Mar

07

27.52 25.18 -8.5 11.07 -19.57 382.984

9

263.99

Apr 07-

June 07

24.07 30.77 27.7 11.07 16.63 276.556

9

52.69

Jul 07- Sept

07

30.97 35.37 14.2 11.07 3.13 9.7969 20.15

Oct 07-Dec

07

35.84 44.9 25.28 11.07 14.21 201.924

1

176.08

TOTAL 2156.27

8

1361.9

8




Beta 1.3199 1

Risk 14.0107 9.685

Treynor 2.8144 2.49

Sharpe 0.2655 0.2571

Jenson 0.4334 0

INTERPRETATION

From the table ABN Amro Equity Fund-Growth




59/83


The beta value indicates that 1% increase in market portfolio returns in 1.3199% increase

in the fund returns and 1% decrease in the market portfolio results in 1.3199% decrease

in the fund.


returns.





The reward to variability ratio (Treynor ratio) higher than the benchmark which indicates


It can be concluded that the ABN Amro Equity Fund-(Growth) has performed over its

benchmark.

Chart showing the scheme and market returns of ABN Amro Equity Fund-Growth



60/83


61/83


HSBC Equity Fund aims to generate long term capital growth from an actively managed

portfolio of equity and equity related securities. It seeks to predominantly invest in large and

midsized companies with little bit of exposure to smaller companies, which ensures that the

portfolio is spread across a variety of stocks and sectors so that risk is minimized.


Date Opening

Closing

Quaterlyreturns

Mean(RA* )

(RA-RA* )

(RA-RA*)2

(RA-RA*)

NAV NAV (RA ) (RM-RM* )

Jan 05-Mar05

37.439 36.183

-3.4 9.79 -13.19 173.9761

157.88

Apr 05-June 05

36.991 36.698

-0.8 9.79 -10.59 112.1481

8.15

Jul 05- Sept05

37.216 47.161

26.7 9.79 16.91 285.9481

123.61

Oct 05-Dec05

47.857 52.488

9.7 9.79 -0.09 0.0081 0.071

Jan 06-Mar06

52.393 60.221

14.9 9.79 5.11 26.1121 51.6

Apr 06-June 06

62.297 54.694

-12.2 9.79 -21.99 483.5601

393.84

Jul 06- Sept06

55.006 63.014

14.6 9.79 4.81 23.1361 23.32

Oct 06-Dec06

62.663 72.04 15 9.79 5.21 27.1441 3.45

Jan 07-Mar07

73.024 67.859

-7.1 9.79 -16.89 285.2721

-227.85

Apr 07-

June 07

64.958 76.60

8

17.9 9.79 8.11 65.7721 25.55

Jul 07- Sept07

76.994 88.954

15.5 9.79 5.71 32.6041 36.77

Oct 07-Dec07

89.453 113.37

26.7 9.79 16.91 285.9481

209.68



62/83


TOTAL 117.5 1801.6292

806.071




Beta 0.7818 1

Risk 12.7978 9.685

Treynor 3.121 2.49

Sharpe 0.1906 0.2571

Jenson 0.4933 0

INTERPRETATION

From the table HSBC Equity Fund (Growth)



in the fund returns and 1% decrease in the market portfolio results in0.7818% decrease in

the fund.

The high standard deviation (Risk) of12.7978% indicates the high volatility of the fund

returns.





63/83






It can be concluded that the HSBC Equity Fund (Growth) has performed over its

benchmark.

Chart showing the scheme and market returns of HSBC Equity Fund (Growth)



64/83


HDFC Equity Fund (Growth)


Birla infrastructure Fund seeks to provide medium to long term capital appreciation, by investing

predominantly in a diversified of equity related securities of companies that are participating in

the growth and development of infrastructure in India.

Table showing the return

Date Openi

ng

Closi

ng

Quaterly

returns

Mean

(RA* )

(RA-

RA* )

(RA-RA*

)2

(RA-RA*

)

NAV NAV (RA ) (RM-

RM* )

Jan 05-Mar

05

24.319 24.17 -0.6 10.61 -11.21 125.664

1

134.18

Apr 05-

June 05

24.491 25.49

9

4.1 10.61 -6.51 42.3801 5.0127

Jul 05- Sept

05

25.694 31.38

2

22.1 10.61 11.49 132.020

1

83.99

Oct 05-Dec05

31.592 33.589

6.3 10.61 -4.31 18.5761 3.339

Jan 06-Mar

06

33.589 41.02 21.4 10.61 10.79 116.424

1

108.97

Apr 06- 42.329 36.03 -14.9 10.61 -25.51 650.760 456.88



65/83


June 06 4 1

Jul 06- Sept

06

36.316 43.44

6

19.6 10.61 8.99 80.8201 43.6

Oct 06-Dec

06

43.16 48.41

4

12.2 10.61 1.59 2.5281 1.0812

Jan 07-Mar

07

48.828 45.46

1

-6.9 10.61 -17.51 306.600

1

-236.21

Apr 07-

June 07

43.815 54.69

5

24.8 10.61 14.19 201.356

1

44.69

Jul 07- Sept

07

55.289 63.81

8

15.4 10.61 4.79 22.9441 30.8476

Oct 07-Dec

07

64.356 79.35

6

23.8 10.61 13.19 173.976

1

163.55

TOTAL 127.3 1874.04

92

839.93

05




Beta 0.8043 1

Risk 13.0524 9.685

Treynor 4.0532 2.49

Sharpe 0.2498 0.2571

Jenson 1.2573 0

INTERPRETATION



66/83


From the table HDFC Equity Fund-Growth



in the fund returns and 1% decrease in the market portfolio results in0.8043% decrease in

the fund.


returns.



The high variability ratio (Sharpe ratio) indicates that the investors can earn superiorreturns by taking greater risk than the market.



It can be concluded that the HDFC Equity Fund (Growth) has performed over its

benchmark according to Treynor and Jenson.

Chart showing the scheme and market returns of HDFC Equity Fund (Growth)



67/83


JM Basic Fund (Growth)




68/83


The scheme aims to provide long term capital appreciation by investing in equity and equity

related securities.


Date Openi

ng

Closi

ng

Quaterly

returns

Mean

(RA* )

(RA-

RA* )

(RA-RA*

)2

(RA-RA*

)

NAV NAV (RA ) (RM-

RM* )

Jan 05-Mar

05

11.6 10.3 -11.2 11.44 -22.64 512.569

6

271

Apr 05-

June 05

10.58 10.61 0.3 11.44 -11.14 124.099

6

8.57

Jul 05- Sept

05

10.59 12.51 14.7 11.44 3.26 10.6276 23.44

Oct 05-Dec

05

12.23 13.16 7.6 11.44 -3.84 14.7456 3.01

Jan 06-Mar

06

13.26 17.26 30.2 11.44 18.76 351.937

6

189.47

Apr 06-June 06

17.54 14.09 -19.7 11.44 -31.14 969.6996

557.7

Jul 06- Sept

06

14.11 16.67 18.1 11.44 6.66 44.3556 32.3

Oct 06-Dec

06

16.61 18.83 13.4 11.44 1.96 3.8416 1.33

Jan 07-Mar

07

18.91 18.74 -0.9 11.44 -12.34 152.275

6

-166.46

Apr 07-

June 0

IDFC Project

Documents

Transcript of IDFC Project