RAVI FINAL2

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ACKNOWLEDGEMENT

I am indebted to the all powerful Almighty God for all the blessings he showered

on me and for being with me throughout the study.

I place on record my sincere gratitude and appreciation to my project guide Dr,

Reader, Department of Banking Technology, for her kind co-operation and

guidance which enabled me to complete this project.

I express my sincere thanks to Dr.K.CHANDRASEKHAR RAO, HOD,

Department of Banking technology, School of Management, PondicherryUniversity, who provided me an opportunity to do this project.

I am deeply obliged to Mr.SATISH CHOWDARY, Cluster Head, Reliance

Money, Visakhapatnam (A.P.) for taking the role as my external guide and

guiding and supporting continuously in shaping my project, correcting errors,

clearing doubts throughout the project.

I would also like to extend my thanks to other members for their support

especially Mr.PRATAP POTAN, Centre Manager, Reliance Money,

Visakhapatnam (A.P.) and entire Reliance Mutual Fund Sales Team and Other

Private Banks Sales Team for their constant guidance and support.

Lastly, I would like to express my gratefulness to the parents for seeing methrough it all.

RAVI KUMA DOGGA(Signature of the Candidate)

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EXECUTIVE SUMMARY ABOUT MY SUMMER

INTERNSHIP TRAINING

I underwent my summer internship training at RELIANCE MONEY in

Visakhapatnam. The duration of my training program is for 45 days i.e from

14th may,2010 to 30th june,2010. This company is situated in the following

address

Reliance Money Ltd

47-15-14/2

VRC COMPLEX

DWARKANAGAR

VISAKHAPATNAM

KNOWLEDGE GAINED:

This internship training in RELIANCE MONEY helped me to gain more

pratical knowledge in the field of capital market and its related activities. It

gave me the complete understanding of mutual funds and how the

performance measures such as sharpes ratio, treynors ratio, beta, standarddeviation are calculated practically.

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This internship gave me a great learning experience and at the same time it gave

me enough exposure to implement my ideas that I learned during my first year of

MBA.

The analysis and advice provided by me in this internship is based on market

research and also from various offer documents.

In this internship I learned how the mutual funds are compared based on various

performance measures like Sharpes ratio, Treynors ratio,Beta and Returns for a

period of one year. I also learned that which scheme is better for the investor

based on risk profile.

I also found that, of all the investment avenues we are having in present day

scenario such as LIC, STOCK MARKETS, BANKS, REAL ESTATE etc, mutual

funds are better because of the returns that mutual funds have given to their

investors in the past. Compared to all the above said investment avenues, mutual

funds have better edge of returns with less risk.

Finally my observation after completing this summer internship is that, more

awareness should be created by AMFI or SEBI among the MUTUAL FUNDS

because most of the people were not aware of the advantages of investing in

mutual funds. Even now, most of the people for saving their money for future use,

they are depositing money in banks, investing in lics, etc,.

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TABLE OF CONTENTS

Introduction

Industry profile

Performance Measures of Mutual Funds

Company Profile

Research Methodology

Data Analysis and Interpretation

Observations

Limitations of the study

Suggestion

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Conclusion

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CHAPTER-1

INTRODUCTION & DESIGN

1.1INTRODUCTION

In the last decade we have seen enormous growth in the size of mutual fund

industry in India. Especially the private sector has shown tremendous growth.

With unmatched advances on the information technology, increased role of the

institutional investors in the stock market and the SEBI still in its infancy, the

mutual fund industry players gained unparalleled and unchecked power. Toensure the safety of investment of small investors against whims and fancies of

professional fund managers have become the need of the hour.

1.1.1WHAT IS INVESTMENT?

Trade off between risk and reward while aiming for incremental gain andpreservation of the invested amount (principal). In contrast, speculation aims at

'high gain or heavy loss,' and gambling at 'out of proportion gain or total loss.'Two main classes of investment are

Fixed income investment such asbonds,fixed deposits, preference shares

Variable income investment such as business ownership (equities),property ownership.

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In economics, investment means creation of capital or goods capable of producingother goods or services. Expenditure on education and health is recognized as aninvestment inhuman capital, and research and development in intellectualcapital. Return on investment (ROI) is a key measure of firms performance.

1.1.2 MUTUAL FUND SNAPSHOTS

100% growth in the last 6 years.

Numbers of foreign AMCs are in the queue to enter the Indian markets like

Fidelity Investments, US based, with over US$1trillion assets under management

worldwide.

Our saving rate is over 23%, highest in the world. Only channelizing these

savings in mutual funds sector is required.

We have approximately 37 mutual funds which are much less than US having

more than 800. There is a big scope for expansion.

'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are

concentrating on the 'A' class cities. Soon they will find scope in the growing

cities.

Mutual fund can penetrate rural like the Indian insurance industry with simple and

limited products.

SEBI allowing the MF's to launch commodity mutual funds.

Emphasis on better corporate governance.

Trying to curb the late trading practices.

Introduction of Financial Planners who can provide need based advice.

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The Indian mutual funds business is expected to grow significantly in the coming

years due to a high degree of transparency and disclosure standards comparable to

anywhere in the world, though there are many challenges that need to be

addressed to increase net mobilization of funds in this sector

Indian Mutual fund industry exhibited 200% growth in the last 10 yrs from

Rs.470 billion to Rs1400 billion in terms of assets under management (AUM).

The Mutual Funds industry is expected to jump sharply from its present share of

6% of GDP to 40% in the next 10yrs provided the countrys growth rate is

consistently above 6%. The growing investor preference for mutual funds has

resulted in the assets under management of mutual funds growing 8-folds in last 5

yrs. Number of foreign AMC's are in the queue to enter the Indian markets likeUS based Fidelity Investments, with over US$1trillion assets under management

worldwide. Our saving rate is over 23%, highest in the world. Only channeling

these savings in mutual funds sector is required. There is a big scope for

expansion as we have 37 mutual funds which are much less than US having more

than 800.

1.2 STATEMENT OF PROBLEM

Nowadays different types of mutual funds are available and these schemes are

offered by various AMCs across the country. In mutual fund investment is one of the

safest investment avenue for the investor because it reduces the risk involved in the

ivestment. Inorder to increase the return of mutual fund investment, different mutual fund

schemes like growth scheme, income scheme, dividend scheme etc., are available now

offered by various financial institution. The return and the benefits from the schemes

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differ from one another. One scheme yield highest return, another yield moderate return

and the other scheme yield less return. Hence inorder to compare the performance of

different schemes of mutual fund by different AMCs, this study has been undertaken

1.3 OBJECTIVES

1. To study the concept and the various types of mutual funds.

2. To assess the performance of selected mutual fund schemes offered by selected

AMCs.

3. To compare the performance of selected

4. To offer suitable suggestions

1.4 HYPOTHESIS

There are no differences between the incomes of different schemes of mutual fund

offered by selected asset management companies in india. So, the hypothesis of the

study involves comparison between

1. Kotak Emerging equity fund.

2. Reliance Equity Opportunities fund.

3. Franklin India Flexi fund.

4. HDFC Core & satellite fund.5. HSBC India Opportunities fund.

1.5 RESEARCH METHODOLOGY

The following methodology has been adopted to assess the performance of selected

mutual fund scheme

1.5.1 The Methodology involves randomly selecting Open-Ended equity schemes of

different fund houses of the country. The data collected for this project is basically fromthe following source, they are:-

1. Secondary sources: Collection of data from Internet and Books.

1.5.2 PERIOD OF STUDY:

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Three years of data were collected to compare the performance of various mutual fund

schemes offered by selected asset management companies in india.

1.5.3 SAMPLING:Among the various asset management companies(AMCs) or institutions, only five

companies were selected for the study

Among the various schemes offered by selected asset management companies, only

five schemes were selected for comparison.

The convenient sampling method has been used to select the company and the schemes

1.5.4 FRAMEWORK OF ANALYSIS:

The following tools were used to compare the performance of different mutual fund

schemes offered by selected AMCs in India. The tools are as follows:

A) Sharpes Ratio

B) Treynors Ratio

C) (Beta) co-efficient.

D) Returns

A)The Sharpes Measure:-

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

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

total risk associated with it.

According to Sharpe, it is the total risk of the fund that the investors are concerned

about. So, the model evaluates funds on the basis of reward per unit of total risk.

Symbolically, it can be written as:

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

Where,

Si is Standard Deviation of the fund.

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While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a

fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.

B)The Treynor Measure:-

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

Treynor's Index.

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

return (generally taken to be the return on securities backed by the government, as there

is no credit risk associated), during a given period and systematic risk associated with it

(beta). Symbolically, it can be represented as:

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

Where,

Ri represents return on fund,

Rf is risk free rate of return,

and Bi is beta of the fund.

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

Treynor's Index shows a superior risk-adjusted performance of a fund, a low andnegative Treynor's Index is an indication of unfavorable performance.

C) (Beta) Co-efficient:-Systematic risk 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 bediversified 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.

(Beta) is calculated as N ( XY) X YN ( X2) ( X) 2

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D) Returns:- Returns for the last one-year of different schemes are taken for the

comparison and analysis part.

1.6 NEED OF THE STUDY:

The projects idea is to project Mutual Fund as a better avenue for investment on a

long-term or short-term basis. Mutual Fund is a productive package for a lay-investor

with limited finances, this project creates an awareness that the Mutual Fund is a

worthy investment practice. Mutual Fund is a globally proven instrument. Mutual

Funds are Unit Trust as it is called in some parts of the world has a long and

successful history, of late Mutual Funds have become a hot favorite of millions of

people all over the world.

The driving force of Mutual Funds is the safety of the principal guaranteed, plus the

added advantage of capital appreciation together with the income earned in the form of

interest or dividend. The various schemes of Mutual Funds provide the investor with a

wide range of investment options according to his risk bearing capacities and interest

besides; they also give handy return to the investor. Mutual Funds offers an investor toinvest even a small amount of money, each Mutual Fund has a defined investment

objective and strategy. Mutual Funds schemes are managed by respective asset

managed companies sponsored by financial institutions, banks, private companies or

international firms. A Mutual Fund is the ideal investment vehicle for todays complex

and modern financial scenario.

The study is basically made to analyze the various open-ended equity schemes ofdifferent Asset Management Companies to highlight the diversity of investment that

Mutual Fund offer. Thus, through the study one would understand how a common man

could fruitfully convert a pittance into great penny by wisely investing into the right

scheme according to his risk taking abilities.

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1.7 SCOPE OF THE STUDY

The study here has been limited to analyse open-ended equity Growth schemes of

different Asset Management Companies namely Kotak Mahindra Mutual Fund,

Reliance Mutual Fund, HDFC Mutual Fund, Franklin Templeton Mutual Fund,

HSBC Mutual Fundseach scheme is analysed according to its performance against the

other, based on factors like Sharpes Ratio, Treynors Ratio, (Beta) Co-efficient,Returns.

1.8 LIMITATIONS OF THE STUDY

1. The study is limited only to the analysis of different schemes and its suitability

to different investors according to their risk-taking ability.

2. The study is based on secondary data available from monthly fact sheets,

websites and other books, as primary data was not accessible.

3. The study is limited by the detailed study of various schemes of Five Asset

Management Company.

1.9 SCHEME OF REPORT:

This project consists of five chapters. The first chapter is the introduction and design of

the study.

The second chapter explains the meaning of mutual fund, types of mutual fund and

other related concepts.

The third chapter highlighted the profile of Reliance Money.

Fourth chapter presents the analysis of various mutual fund schemes and the

comparison of schemes.

The last chapter summarizes the findings and suggestions.

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CHAPTER-2

AN OVERVIEW ABOUT

MUTUAL FUND

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2.1 WHAT IS A MUTUAL FUND?

A Mutual Fund is a trust that pools the savings of a number of investors who share a

common financial goal. The money thus collected is then invested in capital market

instruments such as shares, debentures and other securities. The income earned through

these investments and the capital appreciations realized are shared by its unit holders in

proportion to the number of units owned by them. Thus a Mutual Fund is the most

suitable investment for the common man as it offers an opportunity to invest in a

diversified, professionally managed basket of securities at a relatively low cost.

The flow chart below describes broadly the working of a Mutual Fund.

A Mutual Fund is a body corporate registered with the Securities and Exchange Board

of India (SEBI) that pools up the money from individual/corporate investors and invests

the same on behalf of the investors/unit holders, in Equity shares, Government

securities, Bonds, Call Money Markets etc, and distributes the profits. In the other

words, a Mutual Fund allows investors to indirectly take a position in a basket of assets.

Mutual Fund is a mechanism for pooling the resources by issuing units to the investorsand investing funds in securities in accordance with objectives as disclosed in offer

document. Investments in securities are spread among a wide cross-section of industries

and sectors thus the risk is reduced. Diversification reduces the risk because all stocks

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may not move in the same direction in the same proportion at same time. Investors of

mutual funds are known as unit holders.

The investors in proportion to their investments share the profits or losses. The mutual

funds normally come out with a number of schemes with different investment

objectives which are launched from time to time. A Mutual Fund is required to be

registered with Securities Exchange Board of India (SEBI) which regulates securities

markets before it can collect funds from the public.

2.2 ORGANISATION OF A MUTUAL FUND:

There are many entities involved and the diagram below illustrates the organizational

set up of a utual Fund:

(For detailed definitions in the above chart refer to annexure 1)

Mutual Funds diversify their risk by holding a portfolio of instead of only one asset.

This is because by holding all your money in just one asset, the entire fortunes of your

portfolio depend on this one asset. By creating a portfolio of a variety of assets, this risk

is substantially reduced.

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Mutual Fund investments are not totally risk free. In fact, investing in Mutual Funds

contains the same risk as investing in the markets, the only difference being that due to

professional management of funds the controllable risks are substantially reduced. A

very important risk involved in Mutual Fund investments is the market risk. However,

the company specific risks are largely eliminated due to professional fund management.

2.3 IMPORTANT CHARACTERISTICS OF A MUTUAL FUND

A Mutual Fund actually belongs to the investors who have pooled their

Funds. The ownership of the mutual fund is in the hands of the Investors.

A Mutual Fund is managed by investment professional and other

Service providers, who earns a fee for their services, from the funds.

The pool of Funds is invested in a portfolio of marketable investments.

The value of the portfolio is updated every day.

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

of the units changes with change in the portfolio value, every day. The

value of one unit of investment is called net asset value (NAV).

The investment portfolio of the mutual fund is created according to The stated

Investment objectives of the Fund.

2.4 OBJECTIVES OF A MUTUAL FUND:

To Provide an opportunity for lower income groups to acquire without

Much difficulty, property in the form of shares.

To Cater mainly of the need of individual investors, whose means are small?

To Manage investors portfolio that provides regular income, growth,

Safety, liquidity, tax advantage, professional management and diversification.

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2.5 ADVANTAGES OF MUTUAL FUNDS:

Reduced Risk.

Diversified investment. Botheration free investment.

Revolving type of investment (Reinvestment).

Selection and timings of investment.

Wide investment opportunities.

Investments care.

Tax benefits.

2.6 STRUCTURE OF A MUTUAL FUND

Sponsor

Mutualfund

Trustees

ASSETMANAGEMENTCOMPANY

Custodian

Registrar

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2.7 TYPES OF MUTUAL FUNDS:

1. OPEN-ENDED MUTUAL FUNDS:-

The holders of the shares in the Fund can resell them to the issuing Mutual Fund

company at the time. They receive in turn the net assets value (NAV) of the shares at

the time of re-sale. Such Mutual Fund Companies place their funds in the secondary

securities market. They do not participate in new issue market as do pension funds or

life insurance companies. Thus they influence market price of corporate securities.

Open-end investment companies can sell an unlimited number of Shares and thus keep

going larger. The open-end Mutual Fund Company Buys or sells their shares. These

companies sell new shares NAV plus a Loading or management fees and redeem shares

at NAV.In other words, the target amount and the period both are indefinite in such

funds

2. CLOSED-ENDED MUTUAL FUNDS:-

A closedend Fund is open for sale to investors for a specific period, after which

further sales are closed. Any further transaction for buying the units or repurchasing

them, Happen in the secondary markets, where closed end Funds are listed. Therefore

new investors buy from the existing investors, and existing investors can liquidate their

units by selling them to other willing buyers. In a closed end Funds, thus the pool ofFunds can technically be kept constant. The asset management company (AMC)

however, can buy out the units from the investors, in the secondary markets, thus

reducing the amount of funds held by outside investors. The price at which units can be

sold or redeemed Depends on the market prices, which are fundamentally linked to the

NAV. Investors in closed end Funds receive either certificates or Depository receipts,

for their holdings in a closed end mutual Fund.

2.8 ORGANISATION AND MANAGEMENT OF MUTUAL FUNDS:-

In India Mutual Fund usually formed as trusts, three parties are generally involved viz.

Settler of the trust or the sponsoring organization.

The trust formed under the Indian trust act, 1982 or the trust company

registered under the Indian companies act, 1956

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Fund mangers or The merchant-banking unit

Custodians.

2.9 MUTUAL FUNDS TRUST:Mutual fund trust is created by the sponsors under the Indian trust act, 1982

Which is the main body in the creation of Mutual Fund trust

The main functions of Mutual Fund trust are as follows:

Planning and formulating Mutual Funds schemes.

Seeking SEBIs approval and authorization to these schemes.

Marketing the schemes for public subscription.

Seeking RBI approval in case NRIs subscription to Mutual Fund is Invited Attending to trusteeship function. This function as per guidelines can be

assigned to separately established trust companies too. Trustees are required to

submit a consolidated report six monthly to SEBI to ensure that the guidelines

are fully being complied with trusted are also required to submit an annual

report to the investors in the fund.

2.10 COMPANY (AMC) FUND MANAGERS (OR) THE ASSES

MANAGEMENT

AMC has to discharge mainly three functions as under:

I. Taking investment decisions and making investments of the funds through

market dealer/brokers in the secondary market securities or directly in the

primary capital market or money market instruments

II. Realize fund position by taking account of all receivables and realizations,

moving corporate actions involving declaration of dividends,etc to compensate

investors for their investments in units; and

III. Maintaining proper accounting and information for pricing the units and arriving

at net asset value (NAV), the information about the listed schemes and the

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transactions of units in the secondary market. AMC has to feed back the trustees

about its fund management operations and has to maintain a perfect information

system.

2.11 CUSTODIANS OF MUTUAL FUNDS:

Mutual funds run by the subsidiaries of the nationalized banks had their respective

sponsor banks as custodians like canara bank, SBI, PNB, etc. Foreign banks with

higher degree of automation in handling the securities have assumed the role of

custodians for mutual funds. With the establishment of stock Holding Corporation

of India the work of custodian for mutual funds is now being handled by it for

various mutual funds. Besides, industrial investment trust company acts as sub-

custodian for stock Holding Corporation of India for domestic schemes of UTI,

BOI MF, LIC MF, etc

2.12 Fee structure:-

Custodian charges range between 0.15% to 0.20% on the net value of the

customers holding for custodian services space is one important factor which has

fixed cost element.

2.13 RESPONSIBILITY OF CUSTODIANS:-

Receipt and delivery of securities

Holding of securities.

Collecting income

Holding and processing cost

Corporate actions etc

2.14 FUNCTIONS OF CUSTOMERS

Safe custody

Trade settlement

Corporate action

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Transfer agents

2.15 RATE OF RETURN ON MUTUAL FUNDS:-

An investor in mutual fund earns return from two sources: Income from dividend paid by the mutual fund.

Capital gains arising out of selling the units at a price higher than the

acquisition price

2.16 FORMATION AND REGULATION

1. Mutual funds are to be established in the form of trusts under the Indian trusts

act and are to be operated by separate asset management companies (AMC s)

2. AMCs shall have a minimum Net worth of Rs. 5 crores;

3. AMCs and Trustees of Mutual Funds are to be two separate legal entities and

that an AMC or its affiliate cannot act as a manager in any other fund;

4. Mutual funds dealing exclusively with money market instruments are to be

regulated by the Reserve Bank Of India

5. Mutual fund dealing primarily in the capital market and also partly money

market instruments are to be regulated by the Securities Exchange Board Of

India (SEBI)

6. All schemes floated by Mutual funds are to be registered with SEBI

2.17 SCHEMES

1. Mutual funds are allowed to start and operate both closed-end and open-end

schemes;

2. Each closed-end schemes must have a Minimum corpus (pooling up) of Rs 20

crore;

3. Each open-end scheme must have a Minimum corpus of Rs 50 crore

4. In the case of a Closed End scheme if the Minimum amount of Rs 20 crore

or 60% of the target amount, which ever is higher is not raised then the entire

subscription has to be refunded to the investors;

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5. In the case of an Open-Ended schemes, if the Minimum amount ofRs 50 crore

or 60 percent of the targeted amount, which ever is higher, is no raised then

the entire subscription has to be refunded to the investors.

2.18 INVESTMENT NORMS

1. No mutual fund, under all its schemes can own more than five percent of any

companys paid up capital carrying voting rights;

2. No mutual fund, under all its schemes taken together can invest more than 10

percent of its funds in shares or debentures or other instruments of any single

company;

3. No mutual fund, under all its schemes taken together can invest more than 15

percent of its fund in the shares and debentures of any specific industry, except

those schemes which are specifically floated for investment in one or more

specified industries in respect to which a declaration has been made in the offer

letter.

4. No individual scheme of mutual funds can invest more than five percent of its

corpus in any one companys share;

5. Mutual funds can invest only in transferable securities either in the money or in

the capital market. Privately placed debentures, securitized debt, and otherunquoted debt, and other unquoted debt instruments holding cannot exceed 10

percent in the case of growth funds and 40 percent in the case of income funds.

2.19 DISTRIBUTION:

Mutual funds are required to distribute at least 90 percent of their profits annually in

any given year. Besides these, there are guidelines governing the operations of mutual

funds in dealing with shares and also seeking to ensure greater investor protectionthrough detailed disclosure and reporting by the mutual funds. SEBI has also been

granted with powers to over see the constitution as well as the operations of mutual

funds, including a common advertising code. Besides, SEBI can impose penalties on

Mutual funds after due investigation for their failure to comply with the guidelines.

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2.20 MUTUAL FUND SCHEME TYPES:

2.20.1 Equity Diversified Schemes

These schemes mainly invest in equity. They seek to achieve long-term capital

appreciation by responding to the dynamically changing Indian economy by moving

across sectors such as Lifestyle, Pharma, Cyclical, Technology, etc.

2.20.2 Sector Schemes

These schemes focus on particular sector as IT, Banking, etc. They seek to generate

long-term capital appreciation by investing in equity and related securities of

companies in that particular sector.

2.20.3 Index Schemes

These schemes aim to provide returns that closely correspond to the return of a

particular stock market index such as BSE Sensex, NSE Nifty, etc. Such schemes invest

in all the stocks comprising the index in approximately the same weightage as they are

given in that index.

2.20.4 Exchange Traded Funds (ETFs)

ETFs invest in stocks underlying a particular stock index like NSE Nifty or BSE

Sensex. They are similar to an index fund with one crucial difference. ETFs are listed

and traded on a stock exchange. In contrast, an index fund is bought and sold by the

fund and its distributors.

2.20.5 Equity Tax Saving Schemes

These work on similar lines as diversified equity funds and seek to achieve long-termcapital appreciation by investing in the entire universe of stocks. The only difference

between these funds and equity-diversified funds is that they demand a lock-in of 3

years to gain tax benefits.

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2.20.6 Dynamic Funds

These schemes alter their exposure to different asset classes based on the market

scenario. Such funds typically try to book profits when the markets are overvalued and

remain fully invested in equities when the markets are undervalued. This is suitable for

investors who find it difficult to decide when to quit from equity.

2.20.7 Balanced Schemes

These schemes seek to achieve long-term capital appreciation with stability of

investment and current income from a balanced portfolio of high quality equity and

fixed-income securities.

3 Medium-Term Debt Schemes

These schemes have a portfolio of debt and money market instruments where the

average maturity of the underlying portfolio is in the range of five to seven years.

4 Short-Term Debt Schemes

These schemes have a portfolio of debt and money market instruments where the

average maturity of the underlying portfolio is in the range of one to two years.

5 Money Market Debt Schemes

These schemes invest in debt 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 Treasury Bills, Certificates of Deposit, Commercial

Paper and Inter-Bank Call Money Market.

6 Medium-Term Gilt Schemes

These schemes invest in government securities. The average maturity of the securities

in the scheme is over three years.

7 Short-Term Gilt Schemes

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These schemes invest in government securities. The securities invested in are of short to

medium term maturities.

8 Floating Rate Funds

They invest in debt securities with floating interest rates, which are generally linked to

some benchmark rate like MIBOR. Floating rate funds have a high relevance when

interest rates are on the rise helping investors to ride the interest rate rise.

9 Monthly Income Plans (MIPS)

These are basically debt schemes, which make marginal investments in the range of 10-

25% in equity to boost the schemes returns. MIP schemes are ideal for investors who

seek slightly higher return that pure long-term debt schemes at marginally higher risk.

2.21 DIFFERENT MODES OF RECEIVING THE INCOME

EARNED FROM MUTUAL FUND INVESTMENTS

Mutual Funds offer three methods of receiving income:

10 Growth Plan

In this plan, dividend is neither declared nor paid out to the investor but is built into the

value of the NAV. In other words, the NAV increases over time due to such incomes

and the investor realizes only the capital appreciation on redemption of his investment.

11 Income Plan

In this plan, dividends are paid-out to the investor. In other words, the NAV only

reflects the capital appreciation or depreciation in market price of the underlyingportfolio.

12 Dividend Re-investment Plan

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In this case, dividend is declared but not paid out to the investor, instead, it is

reinvested back into the scheme at the then prevailing NAV. In other words, the

investor is given additional units and not cash as dividend.

2.22 MUTUAL FUND INVESTING STRATEGIES:

1. Systematic Investment Plans (SIPs)

These are best suited for young people who have started their careers and need to build

their wealth. SIPs entail an investor to invest a fixed sum of money at regular intervals

in the Mutual fund scheme the investor has chosen, an investor opting for SIP in xyz

Mutual Fund scheme will need to invest a certain sum on money every

month/quarter/half-year in the scheme.

2. Systematic Withdrawal Plans (SWPs)

These plans are best suited for people nearing retirement. In these plans, an investor

invests in a mutual fund scheme and is allowed to withdraw a fixed sum of money at

regular intervals to take care of his expenses

3. Systematic Transfer Plans (STPs)

They allow the investor to transfer on a periodic basis a specified amount from onescheme to another within the same fund family meaning two schemes belonging to

the same mutual fund. A transfer will be treated as redemption of units from the scheme

from which the transfer is made. Such redemption or investment will be at the

applicable NAV. This service allows the investor to manage his investments actively to

achieve his objectives. Many funds do not even charge any transaction fees for his

service an added advantage for the active investor.

2.23 ADVANTAGES OF INVESTING TRHOURGH MUTUAL

FUNDS:

There are several reasons that can be attributed to the growing popularity and suitability

of Mutual Funds as an investment vehicle especially for retail investors:

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2.23.1 ASSET ALLOCATION

13 Mutual Funds offer the investors a valuable tool Asset Allocation. This is

explained by an example.

An investor investing Rs.1 lakh in a mutual fund scheme, which has collected Rs.100

crores and invested the money in various investment options, will have Rs.1 lakh

spread over a number of investment options as demonstrated below:

Investment Type Percentage of

Allocation (% of

total portfolio)

Total portfolio of

the Mutual Fund

scheme (Rs. In

crores)

Investors portfolio

allocation (Rs.)

EQUITY: 57% 57 57,000

State Bank of India 15% 15 15,000

Infosys Technologies 12% 12 12,000

ABB 10% 10 10,000

Reliance Industries 9% 9 9,000

MICO 7% 7 7,000

Tata Power 4% 4 4,000

DEBT: 43% 43 43,000

Govt. Securities 20% 20 20,000

Company Debentures 10% 10 10,000

Institution Bonds 9% 9 9,000

Money Market 4% 4 4,000

Total 100% 100 1,00,000

Thus Asset Allocation is allocating your investments in to different investment

options depending on your risk profile and return expectations.

2.23.2 DIVERSIFICATION

Diversification is spreading your investment amount over a larger number of

investments in order to reduce risk. For instance, if you have Rs.10,000 to invest in

Information Technology (IT) stocks, this amount will only buy you a handful of

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stocks of perhaps one or two companies. A fall in the market price of any of these

company stocks will significantly erode your investment amount instead it makes

sense to invest in an IT sector mutual fund scheme so that your Rs.10,000 is spread

across a larger number of stocks thereby reducing your risk.

2.23.3PROFESSIONALS AT WORK

Few investors have the time or expertise to manage their personal investments every

day, to efficiently reinvest interest or dividend income, or to investigate the

thousands of securities available in the financial markets. Fund managers are

professionals and experienced in tracking the finance markets, having access to

extensive research and market information, which enables them to decide which

securities to buy and sell for the fund. For an individual investor like you, thisprofessionalism is built in when you invest in the Mutual Fund.

2.23.3 REDUCTION OF TRANSACTION COSTS

While investing directly in securities, all the costs of investing such as brokerage,

custodial services etc. Borne by you are at the highest rates due to small transaction

sizes. However, when going through a fund, you have the benefit of economies of

scale; the fund pays lesser costs because of larger volumes, a benefit passed on to its

investors like you.

2.23.5 EASY ACCESS TO YOUR MONEY

This is one of the most important benefits of a Mutual Fund. Often you hold shares

or bonds that you cannot directly, easily and quickly sell. In such situations, it could

take several days or even longer before you are able to liquidate his Mutual Fund

investment by selling the units to the fund itself and receive his money within 3

working days.

2.23.6 TRANSPARENCY

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The investor gets regular information on the value of his investment in addition to

disclosure on the specific investments made by the fund, the proportion invested in

each class of assets and the fund managers investment strategy and outlook.

2.23.7 SAVING TAXES

Tax saving schemes of Mutual Funds offer investor a tax rebate under section 88 of

the Income Tax Act. Under this section, an investor can invest up to Rs.10,000 per

Financial year in a tax saving scheme. The rate of rebate under this section depends

on the investors total income.

2.23.8 INVESTING IN STOCK MARKET INDEX

Index schemes of mutual funds give you the opportunity of investing in scrips thatmake up a particular index in the same proportion of weightage that these scrips

have in the index. Thus, the return on your investment mirrors the movement of the

index.

2.23.9 INVESTING IN GOVERNMENT SECURITIES

Gilt and Money Market Schemes of Mutual Funds also give you the opportunity to

invest in Government Securities and Money Markets (including the inter banking

call money market)

2.23.10 WELL-REGULATED INDUSTRY

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.

2.23.11 CONVENIENCE AND FLEXIBILITY

Mutual Funds offer their investors a number of facilities such as inter-fund transfers,

online checking of holding status etc, which direct investments dont offer.

2.24 RISKS ASSOCIATED WITH MUTUAL FUNDS:-

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Investing 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:

1) MARKET RISK

Market risk relates 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.

2) POLITICAL RISK

Changes in the tax laws, trade regulations, administered prices, etc are some of themany 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.

3) INFLATION RISK

Interest rate risk relates to future changes in interest rates. For instance, if an investor

invests in a long-term debt Mutual Fund scheme and interest rates increase, the NAV of

the scheme will fall because the scheme will be end up holding debt offering lower

interest rates.

4) 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 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 the Mutual Fund scheme, which has invested in the equity of such a company.

5) ECONOMIC RISK

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Economic risk involves uncertainty in the economy, which, in turn, can have an adverse

effect on a companys business. For instance, if monsoons fail in a year, equity stocks

of agriculture-based companies will fall and NAVs of Mutual Funds, which have

invested in such stocks, will fall proportionately.

2.25 MUTUAL FUND INDUSTRY PHASES

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 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 NationalBank 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 June 1989 while GIC had set up its

Mutual Fund in December 1990.

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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 UTI were to be registered and governed. The

erstwhile Kothari pioneer (now merged with Franklin Templeton) was the first Private

Sector Mutual Fund registered in July 1993.

The 1993 SEBI (Mutual Fund) regulations were substituted by a more comprehensive

and revised Mutual Fund Regulations in 1996. The industry now functions under the

SEBI (Mutual Fund) regulations 1996.

The number of Mutual Fund houses went on increasing, with many foreign Mutual

Funds setting up funds in India and also the industry has witnessed several mergers and

acquisitions. As at the end of January 2003, there were 33 Mutual Funds with total

assets of Rs.1,21,805 Crores. The Unit Trust of India with Rs.44,541 crores of assets

under management was way ahead of other Mutual Funds.

Fourth Phase (since February 2003)

In February 2003, following the repeal of the Unit Trust of India Act 1963. UTI was

bifurcated into two separate entities. One is the specified Undertaking of the Unit Trust

of India with assets under management of Rs.29,835 crores As at the end of January2003, 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.

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The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is

registered with SEBI and functions under the Mutual Fund Regulations. With the

bifurcation of the erstwhile.

UTI which had in March 2000 more than Rs. 76,000crores of assets under management

and with the setting up of a UTI Mutual Fund, confirming 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. As

at the end of October 31, 2003, there were 31 funds, which manage assets of Rs.1,

26,726crores under 386 schemes.

2.26 PERFORMANCE MEASURES OF MUTUAL FUNDS:

Mutual Fund industry today, with about 30 players and more than six hundred schemes,

is one of the most preferred investment avenues in India. However, with a plethora of

schemes to choose from, the retail investor faces problems in selecting funds. Factors

such as investment strategy and management style are qualitative, but the funds record

is an important indicator too.

Though past performance alone cannot be indicative of future performance, it is,frankly, the only quantitative way to judge how good a fund is at present. Therefore,

there is a need to correctly assess the past performance of different Mutual Funds.

Worldwide, good Mutual Fund companies over are known by their AMCs and this

fame is directly linked to their superior stock selection skills.

For Mutual Funds to grow, AMCs must be held accountable for their selection of

stocks. In other words, there must be some performance indicator that will reveal the

quality of stock selection of various AMCs.

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

of a Mutual Fund scheme, it should also include the risk taken by the fund manager

because different funds will have different levels of risk attached to them. Risk

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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 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:

The TreynorMeasure

The Sharpe Measure

Jenson Model

Fama Model

) The Treynor Measure:-

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

Treynor's Index.

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

return (generally taken to be the return on securities backed by the government, as there

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is no credit risk associated), during a given period and systematic risk associated with it

(beta). Symbolically, it can be represented as:

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

Where,


Rf is risk free rate of return, and

Bi is beta of the fund.

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

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

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

2) The Sharpe Measure :-

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

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

total risk associated with it.

According to Sharpe, it is the total risk of the fund that the investors are concerned

about. So, the model evaluates funds on the basis of reward per unit of total risk.

Symbolically, it can be written as:

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

Where,

Si is standard deviation of the fund,

Ri represents return on fund, and

Rf is risk free rate of return.

While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a

fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.

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Comparison of Sharpe and Treynor

Sharpe and Treynor measures are similar in a way, since they both divide the risk

premium by a numerical risk measure. The total risk is appropriate when we are

evaluating the risk return relationship for well-diversified portfolios. On the other hand,

the systematic risk is the relevant measure of risk when we are evaluating less than

fully diversified portfolios or individual stocks. For a well-diversified portfolio the total

risk is equal to systematic risk. Rankings based on total risk (Sharpe measure) and

systematic risk (Treynor measure) should be identical for a well-diversified portfolio,

as the total risk is reduced to systematic risk. Therefore, a poorly diversified fund that

ranks higher on Treynor measure, compared with another fund that is highly

diversified, will rank lower on Sharpe Measure.

3) Jenson Model:-

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

developed by Michael Jenson and is sometimes referred to as the differential Return

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

the returns actually expected out of the fund1 given the level of its systematic risk. The

surplus between the two returns is called Alpha, which measures the performance of a

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

given level of risk (Bi) can be calculated as:

Ri = Rf + Bi (Rm - Rf)

Where,

Ri represents return on fund, and

Rm is average market return during the given period,

Rf is risk free rate of return, and

Bi is Beta deviation of the fund.

After calculating it, Alpha can be obtained by subtracting required return from

the actual return of the fund.

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Higher alpha represents superior performance of the fund and vice versa. Limitation of

this model is that it considers only systematic risk not the entire risk associated with the

fund and an ordinary investor cannot mitigate unsystematic risk, as his knowledge of

market is primitive.

4) Fama Model:-

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

performance, measured in terms of returns, of a fund with the required return

commensurate with the total risk associated with it. The difference between these two is

taken as a measure of the performance of the fund and is called Net Selectivity.

The Net Selectivity represents the stock selection skill of the fund manager, as it is theexcess returns over and above the return required to compensate for the total risk taken

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

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

Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf)

Where,


Sm is standard deviation of market returns,

Rm is average market return during the given period, and

Rf is risk free rate of return.

The Net Selectivity is then calculated by subtracting this required return from

the actual return of the fund.

Among the above performance measures, two models namely, Treynor measure and

Jenson model use Systematic risk is based on the premise that the Unsystematic risk is

diversifiable. These models are suitable for large investors like institutional investors

with high risk taking capacities as they do not face paucity of funds and can invest in a

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number of options to dilute some risks. For them, a portfolio can be spread across a

number of stocks and sectors. However, Sharpe measure and Fama model that consider

the entire risk associated with fund are suitable for small investors, as the ordinary

investor lacks the necessary skill and resources to diversify. Moreover, the selection of

the fund on the basis of superior stock selection ability of the fund manager will also

help in safeguarding the money invested to a great extent. The investment in funds that

have generated big returns at higher levels of risks leaves the money all the more prone

to risks of all kinds that may exceed the individual investors' risk appetit

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CHAPTER-3

COMPANY PROFILE OF

RELIANCE MONEY

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3.1 INTRODUCTION:

The Reliance group - one of India's largest business houses with revenues of Rs.

990 billion ($22.6 billion) that is equal to 3.5 percent of the country's gross

domestic product was split into two.

The group - which claims to contribute nearly 10 per cent of the country's

indirect tax revenues and over six percent of India's exports - was divided

between Mukesh Ambani and his younger brother Anil on June 18, 2005.

Reliance Mutual Fund (RMF) is one of Indias leading Mutual Funds, with

Average Assets under Management (AAUM) of Rs. 1, 18,973 Crores and an

investor count of over 74 Lakh folios. (AAUM and investor count as of May

2010).

Reliance Mutual Fund, a part of the Reliance - Anil Dhirubhai Ambani

Group, is one of the fastest growing mutual funds in the country. RMF offers

investors a well-rounded portfolio of products to meet varying investor

requirements and has presence in 159 cities across the country. Reliance Mutual

Fund constantly endeavors to launch innovative products and customer service

initiatives to increase value to investors. "Reliance Mutual Fund schemes aremanaged by Reliance Capital Asset Management Limited., a subsidiary of

Reliance Capital Limited, which holds 93.37% of the paid-up capital of RCAM,

the balance paid up capital being held by minority shareholders."

3.2 SPONSOR

Reliance Capital Limited

Reliance Mutual Fund schemes are managed by Reliance Capital AssetManagement Limited., a subsidiary of Reliance Capital Limited, which holds

93.37% of the paid-up capital of RCAM, the balance paid up capital being held by

minority shareholders. Reliance Mutual Fund (RMF) has been sponsored by

Reliance Capital Ltd (RCL). The promoter of RCL is AAA Enterprises Private

Limited. Reliance Capital Limited is a Non Banking Finance Company. Reliance

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Capital Limited is one of the Indias leading and fastest growing financial services

companies, and ranks among the top three private sector financial services and

banking companies, in terms of net worth.

Reliance Capital has interests in asset management and mutual funds, life

and non-life insurance, private equity and proprietary investments, stock broking

and other activities in the financial services sector. The net worth of RCL is Rs.

6086 crores as on March 31, 2008. Given below is a summary of RCLs

financials:

Table 3.1

Particulars

(Rs. in crores)

2007-08 2006-07 2005-06

Total Income 2079.79 883.86 652.02Profit Before Tax 1171.45 733.18 550.61Profit After Tax 1025.45 646.18 537.61Reserves &Surplus

5779.06 4915.07 3849.58

Net Worth 5927.50 5161.23 4122.46Earnings per

Share (Rs.)

41.75(Basic +Diluted)



Dividend (%) 55% 35% 30%

Paid up EquityCapital 246.16 246.16 223.40

Reliance Capital Ltd. has contributed Rupees One Lac as the initial contribution

to the corpus for the setting up of the Mutual Fund. Reliance Capital Ltd. is

responsible for discharging its functions and responsibilities towards the Fund in

accordance with the Securities and Exchange Board of India (SEBI) Regulations.

3.3 The ASSET MANAGEMENT COMPANY

Reliance Capital Asset Management Ltd.

Reliance Capital Asset Management Ltd. (RCAM) is an unlisted Public Limited

Company incorporated under the Companies Act, 1956 on February 24, 1995.

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Vision Statement:

To be a globally respected wealth creator, with an emphasis on customer care

and a culture of good corporate governance.

Mission Statement:

To create and nurture a world-class, high performance environment aimed at

delighting their customers.

Pursuant to this IMA, RCAM is authorized to act as Investment Manager of the

Mutual Fund. The net worth of the Asset Management Company based on audited

accounts as on March 31, 2009 is Rs. 841.32 Crore. Table 2.6

No. of schemes 57

No. of schemes including

options

185

Equity Schemes 60

Debt Schemes 100

Short term debt Schemes 15

Equity & Debt 2

Money Market 0

Gilt Fund 6

Corpus under management Rs. 109485.69 crores as on May 31, 2010

3.4 MANAGEMENT TEAM

1. Sundeep Sikka (CEO),

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2. Madhusudan Kela (Hd-Equity),

3. Rajesh Derhgawen (Hd-HRD),

4. Himanshu Vyapak (Sales & Dist),

5. Milind Nesarikar (IRO),

6. Suresh T Viswanathan (Compliance),

7. Muneesh Sud (Legal)

3.5 FUND MANAGERS

1. Amit Tripathy,

2. Hiren Chandaria ,

3. Krishan Daga ,

4. Omprakash Kuckien ,

5. Sailesh Raj Bhan ,

6. Sunil Singhania

3.6 INVESTMENT OBJECTIVES OF THE SCHEMES

Reliance Monthly Income Plan aims to generate regular income in order

to make regular dividend payments to unit holders and the secondary objective is

growth of capital.

Reliance Income Fund aims to generate optimal returns consistent with

moderate levels of risk. This income may be complemented by capital

appreciation of the portfolio. Accordingly, investments shall predominantly be

made in Debt and Money Market Instruments.

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Reliance Medium Term Fund aims to generate regular income in order

to make regular dividend payments to unit holders and the secondary objective is

growth of capital.

Reliance Liquid Fund aims to generate optimal returns consistent with

moderate levels of risk and high liquidity. Accordingly, investments shall

predominantly be made in Debt and Money Market Instruments.

Reliance Liquidity Fund aims to generate optimal returns consistent with

moderate levels of risk and high liquidity. Accordingly, investments shall

predominantly be made in Debt and Money Market Instruments

Reliance Short Term Fund aims to generate stable returns for investors

with a short term investment horizon by investing in fixed income securities of a

short term maturity.

Reliance Gilt Securities Fund aims to generate optimal credit risk free

returns by investing in a portfolio of securities issued and guaranteed by the

Central Government and State Governments

Reliance Floating Rate Fund aims to generate regular income through

investment in a portfolio comprising substantially of Floating Rate Debt

Securities (including floating rate securitized debt and Money Market Instruments

and Fixed Rate Debt Instruments swapped for floating rate returns). Reliance Regular Savings Fund Debt Option: The primary investment

objective of this plan is to generate optimal returns consistent with moderate level

of risk. This income may be complemented by capital appreciation of the

portfolio. Accordingly investments shall predominantly be made in Debt &

Money Market Instruments.

Reliance Regular Savings Fund Equity Option: The primary investment

objective is to seek capital appreciation and or consistent returns by activelyinvesting in equity / equity related securities.

Reliance Regular Savings Fund Hybrid Option: The primary

investment objective is to generate consistent return by investing a major portion

in debt & money market securities and a small portion in equity & equity related

instruments.

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Reliance Growth Fund aims to achieve long term growth of capital by

investment in equity and equity related securities through a research based

investment approach.

Reliance Vision Fund aims to achieve long term growth of capital by

investment in equity and equity related securities through a research based

investment approach.

Reliance Equity Opportunities Fund aims to generate capital

appreciation & provide long term growth opportunities by investing in a portfolio

constituted of equity securities & equity related securities

Reliance Banking Fund aims to generate continuous returns by actively

investing in equity / equity related or fixed income securities of banks.

Reliance Diversified Power Sector Fund seek to generate consistent

returns by investing in equity / equity related or fixed income securities of Power

and other associated companies

Reliance Pharma Fund aims generate consistent returns by investing in

equity / equity related or fixed income securities of Pharma and other associated

companies.

Reliance Media & Entertainment Fund to generate consistent returns by

investing in equity / equity related or fixed income securities of media &entertainment and other associated companies.

Reliance Index Fund-Sensex Plan aims to replicate the composition of

the Sensex, with a view to endeavor to generate returns, which could

approximately be the same as that of Sensex.

Reliance Index Fund-Nifty Plan aims to replicate the composition of the

Nifty, with a view to endeavor to generate returns, which could approximately be

the same as that of Nifty. Reliance NRI Equity Fund aims to generate optimal returns by investing

in equity and equity related instruments primarily drawn from the Companies in

the BSE 200 Index.

Reliance Equity Fund: The primary investment objective of the scheme

is to seek to generate capital appreciation & provide long-term growth

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opportunities by investing in a portfolio constituted of equity & equity related

securities of top 100 companies by market capitalization & of companies which

are available in the derivatives segment from time to time and the secondary

objective is to generate consistent returns by investing in debt and money market

securities.

3.7 CUSTODIAN

Deutsche Bank, AG

Deutsche Bank AG, the Custodian shall, inter alia:

Provide post-trading and custodial services to the Mutual Fund.

Keep Securities and other instruments belonging to the Scheme in safe

custody.

Ensure smooth inflow/outflow of securities and such other instruments as

and when necessary, in the best interests of the unit holders.

Ensure that the benefits due to the holdings of the Mutual Fund are

recovered and

Be responsible for loss of or damage to the securities due to negligence on

its part on the part of its approved agents.

3.8 REGISTRAR

M/s. Karvy Computershare Pvt. Limited

The Registrar is responsible for carrying out diligently the functions of a Registrar

and Transfer Agent and will be paid fees as set out in the agreement entered into

with it and as per any modification made thereof from time to time.

3.9 TRUSTEE

Reliance Capital Trustee Co. Limited

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Reliance Capital Trustee Co. Limited (RCTC), a company incorporated under

the Companies Act, 1956, has been appointed as the Trustee to the Fund vide the

Trust Deed dated April 25, 1995 executed between the Sponsor and the Trustee.

3.10 BANKERS TO THE SCHEMES OF RELIANCE CAPITAL

ASSET MANAGEMENT

ABN AMRO Bank Axis Bank

Citibank N. A.

Deutsche Bank AG

Development Bank of Singapore - only for online investors

HDFC Bank Limited

HSBC Bank

ICICI Bank Limited IDBI Bank

ING Vysya Bank

Kotak Mahindra Bank

State Bank of India

Standard Chartered Bank

Yes Bank

AWARDS AND ACHIEVEMENTS:

Reliance Capital Asset Management Limited has won the prestigious US

based, 2010 CIO 100 award. The 2010 CIO 100 Awards is presented by the

CIO magazine & honors 100 companies worldwide that are creating new

business value by innovating with technology.

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Vinay Nigudkar, CTO, Reliance Caital Asset Management Limited has been

awarded this honor for implementation of the CRMnext System that integrates

sales force automation, lead management, customer service and other sales and

analysis applications.

What makes this award more special is that Reliance Capital Asset

Management Limited is the only Indian Company to receive 2010 CIO 100

award.

CRISIL Fund House Level 1

CRISIL Fund House Level 1 rating denotes that RCAM has been judged by

CRISIL Limited (Rating Agency) to sess HIGHEST LEVEL CNBC TV18 -

CRISIL Mutual Fund of the Year Award for 2009:

Reliance Mutual Fund has won the CNBC TV18 - CRISIL Mutual Fund of the

Year Award in the Category Mutual Fund House of the Year (Awarded by

CRISIL FundServices, CRISIL Limited). In total 37 fund houses were

considered as the award universe

OF PROCESS QUALITY AND RISK MANAGEMENT CAPABILITY INFUND MANAGEMENT PRACTICES

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CHAPTER-4

DATA ANALYSIS &INTERPRETATION

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This chapter performs the analysis of selected mutual fund scheme offered by selected

AMCs. Five companies and five schemes were selected for assessing the performance.

The performance is analysed and compared with the help of sharpes ratio, treynor ratio,beta and returns. The results of the analyse are given below:

4.1 The Asset Management Companies selected for analysis are

4.1.1 KOTAK MUTUAL FUND

Kotak mutual fund sponsored by kotak Mahindra bank ltd.

It is wholly owned subsidiary of the bank, is our investment manager. It launched its first scheme in December,1998 and it has over 10 lac investors in

various schemes.

The awards won by Kotak Mutual Fund are Crisil best fund award 2003,

Outlook money best wealth creater debt 2003, lipper fund award 2006, NDTV

award 2009.

4.1.2 RELIANCE MUTUAL FUND

It is one of the Indias leading mutual fund with average Assets Under

Management(AAUM) of 1,01,320 crores.

It has an investor count of 74 lac folios.

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It is a part of Reliance-Anil Dhirubhai Ambani Group.

The awards won by Reliance Mutual Fund are Crisil Mutual Fund of the year

2006, Asia manager for the year 2009

4.1.3 HDFC MUTUAL FUND

This AMC is managing a total of 36 schemes.

HDFC AMC was awarded NDTV profit business leadership award 2009

It is the subsidiary of HDFC bank.

4.1.4 FRANKLIN INDIA TEMPLETON MUTUAL FUND

Franklin templeton investments is one of the largest financial groups in the

world which is based at San Mateo, California, USA.

It manages average asset under management(AAUM) of Rs.34563.92 crores.

Its having an investor base of around 22 lac.

4.1.5. HSBC MUTUAL FUND.

It is a part of the core global investment management of the HSBC group.

It is managing a total of 16 schemes which includes both equity funds and debt

funds.

It manages average asset under management(AAUM) of Rs 5812.13 crores.

4.2 The schemes selected for analysis are as follows

4.2.1 KOTAK EMERGING EQUTIY FUND

Kotak Emerging equity fund is a open-ended equity Growth scheme.

Kotak Emerging equity fund is a diversified aggressive equity scheme

The fund has portfolio turnover ratio.

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The fund manager is optimistic on the markets in the long term and expects good

returns from the same.

The fund manager is of the opinion that the market may not fall due to the abundent

liquidity in the system.However the fund managers sees high oil prices a big concern

in the global markets.

The fund has invested into equities to the tune of 94.45% of the total portfolio.

4.2.2 RELIANCE EQUITY OPPORTUNITIES FUND:

Reliance Equity Opportunities Fund is an Open-Ended Equity Scheme.

Reliance Equity Opportunities Fund is an aggressive diversified equity scheme

Reliance Equity Opportunities is to seek to generate capital appreciation and provide

long term growth opportunities by investing in a portfolio constituted of equity

securities and equity related securities.

The fund has a high portfolio turnover ratio.

It has Instrument type such as Equity & Equity related Instruments and Debt &

Money Market Instruments.

4.2.3 HDFC Core and Satellite Fund

HDFC Core and Satellite Fund is an Open-Ended Equity Scheme.

HDFC Core and Satellite Fund is an diversified equity scheme

The Scheme may seek investment opportunity in the ADR / GDR / Foreign Equity

and Debt Securities, in accordance with guidelines stipulated in this regard by SEBI

and RBI from time to time.

The net assets of the Scheme will be invested primarily in equity and equity related

instruments in a portfolio comprising of 'Core' group of companies and 'Satellite'

group of companies.

The 'Satellite' group will comprise of predominantly small-mid cap companies that

offer higher potential returns but at the same time carry higher risk

4.2.4 FRANKLIN INDIA FLEXI CAP EQUITY FUND

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Franklin india flexi cap Fund is an Open-Ended Equity Scheme.

Franklin india flexi cap Fund is an aggressive diversified equity scheme

It is an investment avenue that has the potential to provide steady returns and capital

appreciation over a five-year period through a mix of fixed income and equity

instruments.

It has a investment team has a rich experience of investing in both equity and fixed

income instrument that has translated in to a good investment performance from its

hybrid scheme

4.2.5 HSBC India opportunities Fund

HSBC India Opportunities Fund is an Open-Ended Equity Scheme.

It is a scheme seeking long term capital growth through investments across all

market capitalizations, including small, mid and large cap stocks.

The investment is to seek aggressive growth by focussing on mid cap companies in

addition to investments in large cap stocks.

The fund aims to be predominantly invested in equity and equity related securities

4.3KOTAK EMERGING EQUITY FUND

Fund Manager: (Mr. Anand Shah)

To generate capital appreciation from a diversified portfolio of equity and equity

related securities Kotak Emerging equity fund is a diversified equity scheme, with a

flexible investing style. It will invest in sectors, which our Fund Manager believes would

outperform others in the short to medium-term.This fund speciality lies in giving the

Fund Manager flexibility to act based on his views on the market; and in allowing him to

invest higher concentrations in sectors he believes will outperform others.As markets evolve and grow, new opportunities for growth keep emerging. Kotak

Emerging equity fund would endeavour to capture these opportunities to generate wealth

for its investors.

KOTAK EMERGING EQUITY FUND PERFORMANCE:-

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YEAR Rp Rm Rf

(Rm-

Rf)

(Rp-

Rf) X2 XY

(X

-Xbar) D2

X Y D LAST 1

MONTH 5.92 2.84 4.25 -1.41 1.67 1.98 -2.35 -20.11 404.71

LAST 3

MONTHS 24.6113.1

1 4.25 8.86 20.36 78.49 180.38 -9.847 96.97

LAST 6

MONTHS 34.4230.1

4 4.25 25.89 30.17 670.29 781.10 25.89 670.29

Since

Inception 78.1745.9

9 4.5 41.49 73.67 1721.42 3056.56 22.78 519.04

TOTAL 74.83125.8

7 2472.19 4015.70 18.70 1691.02

Where,

Rp - Portfolio Return- Kotak emerging equity fund

Rm - Market Return-Funds bench mark- S& P CNX 500

Rf - Risk free rate of return.

CALCULATION OF ARTHMETIC MEAN :-

= X / N

= 74.83/ 4

= 18.70 CALCULATION OF STANDARD DEVIATION ( ) :-

= (X-Xbar) 2 / N

= 1691.02/4

=422.75

=20.56

CALCULATION OF BETA CO-EFFICIENT:-

= N ( XY) X YN ( X2) ( X) 2

= 4(5208.85) (90.35)(126.21)

4(4117.22) (90.35) 2

= 4(4015.70)-(74.83)-(125.87)

4(2472.19)-(74.83) 2

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= 16062.8-9418.85

9888.76-5599

= 6643.95

4289.76

=1.54

CALCULATION OF SHARPES RATIO:-

= Rp-Rf / =125.87 /20.56

= 6.12

CALCULATION OF TREYNORS RATIO :-

= Rp-Rf / = 125.87/1.54

= 87.73/100

=0.8173

GRAPH SHOWING KOTAK OPPORTUNITIES FUND PERFORMANCE:-

Interpretation:-

KOTAK EMERGING EQUITY

5.92

24.61

34.42

78.17

2.84

13.11

30.14

45.99

4.25 4.25 4.25 4.5

LAST 1 MONTH LAST 3 MONTHS LAST 6 MONTHS SINCE INCEPTION

KOTAK EMERGING EQUITY S&P 500 Rf

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Last I Month : It reveals that Kotak emerging equity Returns are 5.92

As compare to Funds Benchmark Returns are 2.84, and

The Risk Free Rate is common for next 9 months. (i.e., 4.25%)

Last III Months : It reveals that Kotak emerging equity Returns are 24.61



Last VI Months : It reveals that Kotak emerging equity Returns are 34.42



Since Inception : It reveals that Kotak emerging equity Returns are 78.17,


There is a slight Increase in Risk Free Rate by 0.25% (i.e., 4.5%)

compare to last 9 Months.

4.4HDFC CORE& SATELLITE FUND:

The objective of the scheme is to generate capital appreciation through equity

investment in companies whose shares are quoting at prices below their true value.

HDFC CORE& SATELLITE FUND PERFORMANCE:-

YEAR Rp Rm Rf

(Rm-

Rf)

(Rp-

Rf) X2 XY

(X

-Xbar) D2

X Y D

LAST1MONTH 1.15 3.72 4.25 -0.53 -3.1 0.2809 1.643

-20.7925 432.3280563

LAST 3

MONTHS 16.4613.82 4.25 9.57

12.21 91.5849 116.8497

-10.6925 114.3295563

LAST

6MONTHS 35.6 31.1 4.25 26.8531.35 720.9225 841.7475 26.85 720.9225

Since

Inception 69.6449.66 4.5 45.16

65.14 2039.4256 2941.7224 24.8975 619.8855063

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TOTAL 81.05105.6 2852.2139 3901.9626 20.2625 1887.465619

Where,

Rp- Portfolio Return-HDFC core & Satellite Fund

Rm - Market Return-Funds benchmark-BSE-200

Rf- Risk free rate of return.

CALCULATION OF ARTHMETIC MEAN:-

= X / N

= 81.05/4

= 20.26

CALCULATION OF STANDARD DEVIATION () :-

= (X-Xbar)2 / N

= 1887.4/4

= 471.75

=21.71

CALCULATION OF BETA CO-EFFICIENT:-

= N ( XY) X Y

N ( X2) ( X) 2

= 4(3901.9) (81.05)(105.6)

4(4026) (89.75) 2

= 15607.5-8558.8

11408.8-6569.1

=7048.7

4839

=1.45


=Rp-Rf-/

=105.6/21.71

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=4.86


= Rp-Rf/

= 105.6/1.45

= 72.82/100

=0.72

GRAPH SHOWING HDFC CORE& SATELLITE FUND PERFORMANCE:-

Interpretation:

Last I Month : It reveals that HDFC Core & Satellite Fund Returns are 1.15as compare to Funds Benchmark Returns are 3.72, and The Risk

Free Rate is common for next 9 months. (i.e., 4.25%)

Last III Months : It reveals that HDFC Core & Satellite Fund Returns are 16.46

HDFC Core & Satellite Fund Performance

1.15

16.46

35.6

69.64

3.72

13.82

31.1

49.66

4.25 4.25 4.25 4.5

0

10

20

30

40

50

60

70

80

LAST 1 MONTH LAST 3 MONTHS LAST 6 MONTHS SINCE INCEPTION-

RETURNS

Rp Rm Rf

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as compare to Funds Benchmark Returns are 13.82, and The

Risk Free Rate is common for next 6 months. (i.e., 4.25%)

Last VI Months : It reveals that HDFC Core & Satellite Fund Returns are 35.6,

as compare to Funds Benchmark Returns are 31.1 and The Risk

Free Rate is common for next 3 months. (i.e., 4.25%)

Since Inception : It reveals that HDFC Core & Satellite Fund Returns are 69.64,

as compare to Funds Benchmark Returns are 49.66, and There is

a slight increase in Risk Free Rate by 0.25%(4.5%) compare to

last 9 Months.

4.5RELIANCE EQUITY OPPORTUNITIES FUND:

The primary investment objective of the scheme is to seek to generate capital

appreciation & provide long-term growth opportunities by investing in a portfolio

constituted of equity securities & equity related securities and the secondary

objective is to generate consistent returns by investing in debt and money market

securities.

RELIANCE EQUITY OPPORTUNITIES FUND PERFORMANCE:-

YEAR Rp Rm Rf

(Rm-

Rf)

(Rp-

Rf) X2 XY

(X

-Xbar) D2

X Y D

LAST 1

MONTH 2.4 3.72 4.25 -0.53 -1.85 0.2809 0.9805 -20.935 438.274225

LAST 3

MONTHS 16.22 13.82 4.25 9.57 11.97 91.5849 114.5529 9.57 91.5849

LAST 6MONTHS 29.46 31.1 4.25 26.85 25.21 720.9225 676.8885 6.445 41.538025

Since

Inception 54.99 50.23 4.5 45.73 50.49 2091.2329 2308.9077 45.73 2091.2329

TOTAL 81.62 85.82 2904.0212 3101.3296 40.81 2662.63005

Where,

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Rp - Portfolio Return-Reliance equity opportunities fund

Rm - Market Return-Funds Benchmark BSE-500

Rf - Risk free rate of return.

CALCULATION OF ARTHMETIC MEAN:-

= X / N

= 81.62/ 4

= 20.40

CALCULATION OF STANDARD DEVIATION () :-

= (X-Xbar)2 / N

= 2662.63/4

= 665.65

=25.80

CALCULATION OF BETA CO-EFFICIENT;-

= N ( XY) X Y

N ( X2) ( X) 2

= 4(3101.32) (81.62)(85.82)

4(2904.02) (81.62) 2

= 12405-7002.91

11616-6661.82

=5402.09

4954.18

=1.09


= Rp-Rf/

=85.8225.23

=7.29


= Rp-Rf/

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= 85.82/1.47

= 37.32/100

=0.37

GRAPH SHOWING RELIANCE EQUITY OPPORTUNITIES FUND

PERFORMANCE:-

Interpretation:-

Last I Month : It reveals that Reliance Equity Opportunities Fund

Returns are 2.4 as compare to Funds Benchmark Returns Are

3.72, and The Risk Free Rate is common for next 9 months. (i.e.,

4.25%)

Last III Months : It reveals that Reliance Equity Opportunities

Fund Returns are 16.22 as compare to Funds Benchmark Returns

are 13.82, and The Risk Free Rate is common for next 6 months.

(i.e., 4.25%)

Last VI Months : It reveals that Reliance Equity Opportunities

Fund Returns are 29.46 as compare to Funds Benchmark Returns

are 31.1 and The Risk Free Rate is common for next 3 months.

(i.e., 4.25%)

RELIANCE EQUITY OPPORTUNITIES FUND

2.4

16.22

29.46

54.99

3.72

13.82

31.1

50.23

4.25 4.25 4.25 4.5

LAST 1MONTH LAST 3 MONTHS LAST 6 MONTHS SINCE INCEPTION

RETURNS

RELIANCE BSE-100 Rf

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Since Inception : It reveals that Reliance Equity Opportunities Fund Returns

are 54.99, as compare to Funds Benchmark returns are 50.23, and

There is a slight increase in Risk Free Rate by 0.25%(4.5%)

compare to last 9 months.

4.6 FRANKLIN INDIA FLEXI CAP EQUITY FUND

Fund Managers: (Mr. K N Siva Subramanian & R Sukumar Rajah)

Stocks of companies are usually categorized as large-cap, midcap, and small-cap

depending on their market capitalization. History has demonstrated that these categories

tend to perform differently through economic and market cycles. For example, mid or

small cap stocks could move up sharply during a certain time period while large cap

stocks remain range bound and vice versa. On the other hand, large-cap stocks tend to be

less volatile than mid

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