Performance Evaluation of Elss Schemes of Mutual Funds-Project by Shivani

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CHAPTER I- ABOUT MUTUAL FUNDS
AN INTRODUCTION TO MUTUAL FUNDS

Over the past decade, American investors increasingly have turned to mutual funds to
save for retirement and other financial goals. Mutual funds can offer the advantages of
diversification and professional management. But, as with other investment choices,
investing in mutual funds involves risk. And fees and taxes will diminish a fund's
returns. It pays to understand both the upsides and the downsides of mutual fund
investing and how to choose products that match your goals and tolerance for risk. It is
an ideal investment vehicle for a common man in complex and modern financial
scenario.
DEFINITION OF MUTUAL FUNDS

Mutual Funds Definition refers to the meaning of Mutual Fund, which is a fund,
managed by an investment company with the financial objective of generating high
Rate of Returns. These asset management or investment management companies
collects money from the investors and invests those money in different Stocks, Bonds
and other financial securities in a diversified manner. Before investing they carry out
thorough research and detailed analysis on the market conditions and market trends of
stock and bond prices. These things help the fund mangers to speculate properly in the
right direction.
TEEN ANALYST ADVICE:

Mutual funds are great because they offer regular investors a chance to diversify their
portfolios, which is something they may not be able to do on their own. Consider this,
if you want to build a diversified portfolio of 30 stocks, you would probably need
$30,000 to get started ($1000 per stock...which is usually the norm). Or you could
open up an account with a mutual fund for just $1000.
A mutual fund is a professionally managed type of collective investment
scheme that pools money from many investors and invests it in stocks, bonds, short-
term money market instruments, and/or other securities. The mutual fund will have a
fund manager that trades the pooled money on a regular basis. The net proceeds or
losses are then typically distributed to the investors annually.
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CONCEPT OF MUTUAL FUNDS

A mutual fund, by its very nature, is diversified -- its assets are invested in many
different securities. The investments by the Mutual Funds are made in equities, bonds,
debentures, call money etc., depending on the terms of each scheme floated by the
Fund. The current value of such investments is now a day is calculated almost on daily
basis and the same is reflected in the Net Asset Value (NAV) declared by the funds
from time to time. This NAV keeps on changing with the changes in the equity and
bond market. Any change in the value of the investments made into capital market
instruments (such as shares, debentures etc) is reflected in the Net Asset Value (NAV)
of the scheme.
FOR EXAMPLE:
If the market value of the assets of a fund is Rs. 100,000
The total number of units issued to the investors is equal to 10,000.
Then the NAV of this scheme = (A)/(B), i.e. 100,000/10,000 or 10.00
Now if an investor 'X' owns 5 units of this scheme
Then his total contribution to the fund is Rs. 50 (i.e. Number of units held multiplied by
the NAV of the scheme).
Therefore, the investments in Mutual Funds is not risk free, but a good managed Fund
can give you regular and higher returns than when you can get from fixed deposits of a
bank etc.
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SOME OF THE DISTINGUISHING CHARACTERISTICS OF MUTUAL FUNDS

INCLUDE THE FOLLOWING:
 Investors purchase mutual fund shares from the fund itself (or through a broker
for the fund) instead of from other investors on a secondary market, such as the
New York Stock Exchange or NASDAQ Stock Market.
 The price that investors pay for mutual fund shares is the fund's per share net
asset value (NAV) plus any shareholder fees that the fund imposes at the time of
purchase (such as sales loads).
 Mutual fund shares are "redeemable," meaning investors can sell their shares
back to the fund (or to a broker acting for the fund).
 Mutual funds generally create and sell new shares to accommodate new
investors. In other words, they sell their shares on a continuous basis, although
some funds stop selling when, for example, they become too large.
 The investment portfolios of mutual funds typically are managed by separate
entities known as "investment advisers" that are registered with the SEC.
HISTORY OF MUTUAL FUNDS

The origin of mutual fund industry in India is with the introduction of the concept of
mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated
from the year 1987 when non-UTI players entered the industry. The mutual fund
industry can be broadly put into four phases according to the development of the sector.
Each phase is briefly described as under.
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)
Entry of non-UTI mutual funds. SBI Mutual Fund was the first 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).
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LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47,004 as assets under
management.
THIRD PHASE - 1993-2003 (ENTRY OF PRIVATE SECTOR

FUNDS)
1993 was the year in which the first Mutual Fund Regulations came into being, under
which all mutual funds, except UTI were to be registered and governed. The erstwhile
Kothari Pioneer (now merged with Franklin Templeton) was the first private sector
mutual fund registered in July 1993.The 1993 SEBI (Mutual Fund) Regulations were
substituted by a more comprehensive and revised Mutual Fund Regulations in 1996.
The industry now functions under the SEBI (Mutual Fund) Regulations 1996.As at the
end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805
crores. The Unit Trust of India with Rs.44,541 crores of assets under management was
way ahead of other mutual funds.
FOURTH PHASE - SINCE FEBRUARY 2003

This phase had bitter experience for UTI. It was bifurcated into two separate entities.
One is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29,835
crores (as on January 2003).The second is the UTI Mutual Fund Ltd, sponsored by SBI,
PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund
Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more
than Rs.76,000 crores of AUM 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. As at the end of September, 2004, there
were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.
STRUCTURE OF MUTUAL FUND

Every MF will comprise a sponsor, trustee, AMC, custodian and registrar, and is
regulated by SEBI .The structure of mutual fund is discussed in detail.
• SPONSOR
The company that sets up the MF is called the sponsor. It is typically a financial
institution, bank, investment house or even an individual that contributes at least 40 per
cent to the net worth of the asset management company (AMC) .The sponsor initiates
the fund's activities by appointing the trustees, the AMC and custodians.
• TRUSTEE
The trustee monitors the operations of the various schemes and safeguards investor
interests. The trustees can also review the AMC’s operations and transactions,
including contracts with various agencies such as custodians and registrars.
• ASSET MANAGEMENT COMPANY.
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The AMC seeks to multiply the invested money in the fund in line with the scheme's
investment objective. It should have a networth of at least Rs 10 crore. The AMC is a
key player in the MF game and does everything to make the most of your investment. It
launches new schemes, manages them, and employs the fund management team,
including the fund manager. The sponsor appoints the AMC and the trustees review its
operations.
• CUSTODIAN.
An MF needs to store and record transactions, for which it relies on banks or financial
institutions that are designated custodians. The custodian maintains custody of the
securities in which the scheme invests (as distinct from the registrar who tracks the
investment by investors in the scheme).The custodian also follows up on various
corporate actions, such as rights, bonus and dividends declared by investor companies.
• R&T AGENTS
Registrars and transfer agents (R&T agents) handle all paperwork involving investor
servicing. Their services include processing initial public offerings, dispatch of
certificates, account statements, annual reports and dividend warrants.
GROWTH OF MUTUAL FUNDS IN INDIA

Over the years not only the new types of mutual funds emerged, the way, in which
mutual funds were sold also changed. But, the Growth of Mutual Funds has not
stopped. It is continuing to evolve to a better future, where investors will get newer
opportunities. In March 2006, mutual funds were net buyers worth Rs.4,041.88 crores,
gross purchases being Rs.14889.15 crore and gross sales Rs.10847.27 crore making
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March the most active month for the mutual fund industry in India. May of year 2005
was considered the most active month when mutual funds were net buyers of worth
Rs.3,334.99 crores.
THE GRAPH INDICATES THE GROWTH OF ASSETS OVER THE YEARS:
SOME FACTS FOR THE GROWTH OF MUTUAL FUNDS IN INDIA
 100% growth in the last 6 years.

 Number of foreign AMC's are in the que 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 29 mutual funds which is 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.
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 Trying to curb the late trading practices.

 Introduction of Financial Planners who can provide need based advice.
SCOPE OF MUTUAL FUNDS IN INDIA .
In today’s world, Scope of Mutual Funds has become so wide, that people sometimes
take long time to decide the mutual fund type; they are going to invest in. Several
Investment Management Companies have emerged over the years who offer various
types of Mutual Funds, each type carrying unique characteristics and different
beneficial features. In March 2006, mutual funds were net buyers worth Rs.4,041.88
crores, gross purchases being Rs.14889.15 crore and gross sales Rs.10847.27 crore
making March the most active month for the mutual fund industry in India. May of year
2005 was considered the most active month when mutual funds were net buyers of
worth Rs.3,334.99 crores The mutual fund industry is expected to grow at a rate of
13.4% over the next 10 years. It is estimated that by 2010 March-end, the total assets of
all scheduled commercial banks should be Rs 40,90,000 crore. The annual composite
rate of growth is expected 13.4% during the rest of the decade. In the last 5 years we
have seen annual growth rate of 9%. According to the current growth rate, by year
2010, mutual fund assets will be double.
With this growth rate, the mutual fund investments have become
one of the most popular modes of investments. Many foreign players entered the Indian
Mutual Fund Industry eying the opportunities. Among them the US Mutual Funds
companies played an important role in the development of the sector.
US COMPANIES INVESTING IN MUTUAL FUNDS
• FRANKLIN TEMPLETON INDIA MUTUAL FUND

• MORGAN STANLEY MUTUAL FUND
• ALLIANCE CAPITAL MUTUAL FUND
• PRUDENTIAL ICICI MUTUAL FUND
STEPS TO CHOOSE RIGHT MUTUAL FUND

FOR YOURSELF
If you decide to invest in mutual funds, be sure to obtain as much information about the
fund before you invest. And don't make assumptions about the soundness of the fund
based solely on its past performance or its name. Here, some steps are made out which
help in selecting right mutual fund for you. Follow these steps:
 SET LONG-TERM GOALS.

It's important to know what your timeline is. If you don't need the money for 20 years,
you can afford to be more aggressive in your fund choice. You could potentially invest
in a more risky sector like emerging markets. A shorter time horizon means you'll want
to stick with a more conservative fund.
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 IDENTIFY THE TYPES OF FUNDS YOU NEED (E.G.,

GROWTH) TO REACH YOUR GOALS.
Getting started will be easier if you first focus your search on a specific type of fund
with a specific investing objective. Eventually, your goal should be to build a portfolio
that includes both stock and bond funds with various investment objectives and
investment styles for maximum diversity.
 DO MORE READING.
Visit the library or buy some specialized books on mutual fund investing that will build
on what you have learned from this unit. Some useful references are: Mutual Funds for
Dummies by Eric Tyson, (For Dummies, 2007), Morningstar Guide to Mutual Funds:
Five-Star Strategies for Success (Wiley, 2007) and Common Sense on Mutual Funds:
New Imperatives for the Investor by John C. Bogle (Wiley, 2000).
 LOOK FOR A WELL-MANAGED FUND.

There will be plenty of information available on the fund you plan on investing in. You
can order a prospectus and read the Web site. Cut through the marketing lingo and
focus on three important factors: performance, management and consistency. Also
check with independent research companies that cover mutual funds. Morningstar,
www.morningstar.com, a mutual fund rating and data firm, is a great resource.
 GET SOURCES OF INFORMATION :PROSPECTUS:

The prospectus is the fund's selling document and contains valuable information, such
as the fund's investment objectives or goals, principal strategies for achieving those
goals, principal risks of investing in the fund, fees and expenses, and past performance.
The prospectus also identifies the fund's managers and advisers and describes how to
purchase and redeem fund shares. While they may seem daunting at first, mutual fund
prospectuses contain a treasure trove of valuable information.
 STATEMENT OF ADDITIONAL INFORMATION ("SAI")

Also known as "Part B" of the registration statement, the SAI explains a fund's
operations in greater detail about the history of the fund, fund policies on borrowing
and concentration, the identity of officers, directors, and persons who control the fund,
investment advisory and other services, brokerage commissions, tax matters, and
performance such as yield and average annual total return information.
 SHAREHOLDER REPORTS
A mutual fund also must provide shareholders with annual and semi-annual reports
within 60 days after the end of the fund's fiscal year and 60 days after the fund's fiscal
mid-year. These reports contain a variety of updated financial information, a list of the
fund's portfolio securities, and other information.
 PAST PERFORMANCE
A fund's past performance is not as important as you might think. Advertisements,
rankings, and ratings often emphasize how well a fund has performed in the past. But
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studies show that the future is often different. This year's "number one" fund can easily
become next year's below average fund.
 LOOKING BEYOND A FUND'S NAME

Don't assume that a fund called the "XYZ Stock Fund" invests only in stocks or that the
"Martian High-Yield Fund" invests only in the securities of companies headquartered
on the planet Mars. The SEC requires that any mutual fund with a name suggesting that
it focuses on a particular type of investment must invest at least 80% of its assets in the
type of investment suggested by its name. But funds can still invest up to one-fifth of
their holdings in other types of securities — including securities that you might
consider too risky or perhaps not aggressive enough.
 DETERMINE YOUR SELECTION CRITERIA AND

ELIMINATE FUNDS.
You can whittle down the over 8,000 fund universe to a manageable list in short order
by using a few criteria to help with the elimination process. For example, suppose you
are looking for a stock fund to invest for retirement. Right there, you have cut the
number to a little over 5,000 funds by eliminating all the bond and money market
funds. Perhaps you will toss out all funds that have a sales commission, all stock funds
with an expense ratio over 1.4%, funds that have an investment minimum over $3,000,
any fund where the manager’s tenure is less than 5 years, and all funds that have not
outperformed 60% of comparable funds over the last 3 and 5 five years, etc. Applying
these criteria as you research your favorites, pay most attention to performance, cost to
invest, and risk.
 CHECK FOR CONSISTENCY

Pick a mutual fund that has yielded good returns year after year. That indicates the fund
can be successful under a variety of conditions.
 KNOW THE RISKS

Mutual funds are not thought of as extremely risky investments, mainly because they
invest in hundreds of stocks. But this is no reason to go into a fund blind. Make sure to
read the part of the prospectus that talk about risk. Some sectors of the market can
perform badly even when the majority of stocks are going up. Be aware of what sector
or sectors the fund invests in, and what can go wrong with these areas.
 AVOID SALES CHARGES

Also known as loads or commissions, these charges may be incurred for buying (front-
end load) or selling the fund (back-end load, deferred sales or redemption fees). Stay
away from them.
 LOOK FOR LOW EXPENSE RATIOS

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These ratios represent the annual fees that mutual funds charge and include
management fees, administrative costs, distribution fees and some operating expenses.
If possible, these fees should be under one percent annually.
 CONSIDER THE MANAGER

Managers determine when a fund's stock or bond should be bought or sold. Look for
one who has longevity with the fund and company.
 ASK THE EXPERTS

Search the Internet for financial planners, investment advisors and mutual fund
companies. You also can access information on all varieties of mutual funds and what
experts consider being the top picks.
 CALL OR WRITE FOR A PROSPECTUS

A prospectus for a mutual fund is the selling document legally required to be
distributed to mutual fund investors. It describes the fund’s investment strategy as well
as the risks and costs of an investment.
 MAKE YOUR PURCHASE

While you can always do business by mail, and in some cases, at a local investment
center, most mutual fund groups offer a toll-free number for telephone assistance. Of
course, if you are buying a fund with a sales commission, the broker or financial
planner executes your order.
 CONTINUALLY BUY MORE SHARES

One of the best ways to grow your investments is to use a dollar-cost averaging strategy
—investing a fixed number of dollars (e.g., $50) in a mutual fund(s) at periodic
intervals, usually monthly or quarterly. When the price of the fund is low, your dollars
buy more shares. When the fund’s NAV moves higher, you will buy fewer shares.
 REVIEW PERIODICALLY
After you have selected your mutual fund, set up a regular review schedule—generally
at the end of the year—to ensure its performance remains consistent with your
investment objectives and level of investment risk. Look at a fund's track record and
portfolio. Don't obsess over a mutual fund's double-digit return. Review the fund
company's prospectus before investing. You'll learn the goals and its strategy for
achieving them. Seek the advice of an accountant and/or a tax expert regarding the
implications of your investment before you buy. Who Can Help
HOW TO FILL UP THE APPLICATION FORM OF A MUTUAL

FUND SCHEME?
An investor must mention clearly his name, address, number of units applied for and
such other information as required in the application form. He must give his bank
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account number so as to avoid any fraudulent encashment of any cheque/draft issued by

the mutual fund at a later date for the purpose of dividend or repurchase. Any changes
in the address, bank account number, etc at a later date should be informed to the
mutual fund immediately.
TYPES OF MUTUAL FUNDS

A mutual fund has several schemes in which investor can invest. There are structure
based schemes distinguished by their maturity periods. Then there are objective based
schemes that offer different risk reward options. It has also some special schemes that
invest in specific sectors.
MUTUAL FUNDS CAN CLASSIFY ON THE FOLLOWING BASES:-

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MUTUAL FUND RISK
Mutual funds face risks based on the investments they hold. The risk return trade-off
indicates that if investor is willing to take higher risk then correspondingly he can
expect higher returns and vise versa if he pertains to lower risk instruments, which
would be satisfied by lower returns. For example, if an investors opt for bank FD,
which provide moderate return with minimal risk. But as he moves ahead to invest in
capital protected funds and the profit-bonds that give out more return which is slightly
higher as compared to the bank deposits but the risk involved also increases in the same
proportion.
RISKS ASSOCIATED WITH MUTUAL FUNDS

RISK RETURN TRADE OFF
MARKET RISK
CREDIT RISK
INFLATION RISK
INTEREST RATE RISK
POLITICAL RISK
LIQUIDITY RISK
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TAXATION OF MUTUAL FUNDS
The dividend distributed by both debt funds and equity funds is tax-free in investor’s
hands. In case of EQUITY FUNDS, no dividend distribution tax is payable by the
mutual fund. However, in the case of DEBT FUNDS, the mutual fund has to pay a
Dividend Distribution Tax (12.5 % Surcharge @10% + education cess ( @2% on
Income Tax and surcharge) + secondary and higher education cess ( @1% on Income
Tax and surcharge i.e 14.1625% ) on the amount of dividend distributed to individuals
and HUFs and for other than Equity Oriented Funds ( except Money Market & Liquid
funds ) it is ( 20% + Surcharge @10% + education cess ( @2% on Income Tax and
surcharge) + secondary and higher education cess ( @1% on Income Tax and surcharge
i.e 22.66%.
In the case of short term capital gains (profits that accrue from the sale of
units within one year from the date of purchase) earned on the sale of EQUITY
FUNDS, tax is applicable as 15%+ applicable Surcharge + education cess ( @2% on
Income tax and surcharge) + secondary and higher education cess ( @1% on income
tax & surcharge) , subject to STT. Short term capital gains on DEBT FUNDS attract tax
at the personal income tax rate applicable to assessee and for FIIs it is 30%+ applicable
Surcharge + education cess ( @2% on Income tax and surcharge) + secondary and
higher education cess ( @1% on income tax & surcharge)
Long term capital gains (profits that accrue from the sale of units after one
year from the date of purchase) earned on the sale of EQUITY FUNDS are tax free in
hands of Investor. In case of DEBT FUNDS, long term capital gains computed as
( 10% without cost Inflation index benefit or 20% with cost inflation index benefit
whichever is lower + applicable Surcharge + education cess ( @ 2% on Income tax
and surcharge) + secondary and higher education cess ( @ 1% on Income Tax and
surcharge) to Investor and for Foreign Institutional Investors it is. (10 % + applicable
Surcharge + education cess ( @2% on Income Tax and surcharge) + secondary and
higher education cess ( @1% on Income Tax and surcharge).
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ADVANTAGES OF MUTUAL FUNDS

Investing in mutual has various benefits, which makes it an ideal investment avenue.
Following are some of the primary benefits:
 INVESTORS HAVE ACCESS TO PROFESSIONAL

INVESTMENT MANAGEMENT
 GREATER DIVERSIFICATION
 LOW COST
 CONVENIENCE AND FLEXIBILITY
 LIQUIDITY
 TRANSPARENCY
 VARIETY
 ECONOMIES OF SCALE
 SIMPLICITY
 LESS RISK
 CHOICE OF SCHEMES
 SAFETY
DISADVANTAGES OF MUTUAL FUNDS

But mutual funds also have features that some investors might view as disadvantages,
such as:
 PROFESSIONAL MANAGEMENT
 COSTFUL
 DILUTION
 TAXES
 LACK OF CONTROL
 PRICE UNCERTAINTY
 COSTS DESPITE NEGATIVE RETURNS
 COSTS CONTROL NOT IN THE HANDS OF AN INVESTOR-
 NO CUSTOMIZED PORTFOLIOS
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 DIFFICULTY IN SELECTING A SUITABLE FUND SCHEME -
CHAPTER II- REGULATORY BODIES
Mutual funds in India are regulated by two following regulatory bodies. These
governing make rules and to make it‘s functioning smooth so that care can be taken of
all the parties involve in the industry. To protect the interest of the investors, SEBI
formulates policies and regulates the mutual funds. It notified regulations in 1993 (fully
revised in 1996) and issues guidelines from time to time.SEBI approved Asset
Management Company (AMC) manages the funds by making investments in various
types of securities. Custodian, registered with SEBI, holds the securities of various
schemes of the fund in its custody
• SECURITIES AND EXCHANGE BOARD OF INDIA
• ASSOCIATION OF MUTUAL FUNDS IN INDIA
SECURITIES AND EXCHANGE BOARD OF
INDIA
 ESTABLISHMENT
In 1988 the Securities and Exchange Board of India (SEBI) was established by the
Government of India through an executive resolution, and was subsequently upgraded
as a fully autonomous body (a statutory Board) in the year 1992 with the passing of the
Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992. The
basic objectives of the Board were identified as:
 To protect the interests of investors in securities;

 To promote the development of Securities Market;
 To regulate the securities market and
 For matters connected therewith or incidental thereto.
PREAMBLE
[ACT NO. 15 OF 1992]
The Preamble of the Securities and Exchange Board of India describes the basic
functions of the Securities and Exchange Board of India as:
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“…..to protect the interests of investors in securities and to promote the development
of, and to regulate the securities market and for matters connected therewith or
incidental thereto”
ROLE OF SEBI IN MUTUAL FUND INDUSTRY

To protect the interest of the investors, SEBI formulates policies and regulates the
mutual funds. It notified regulations in 1993 (fully revised in 1996) and issues
guidelines from time to time
THE SEBI (MUTUAL FUNDS) REGULATIONS, 1996:
The revised regulations embodied far reaching changes in the regulation and
functioning of mutual funds. The revised regulations provide for:
 enhanced level of investor protection

 empowerment of investors
 stringent disclosure norms in the offer documents, so that investors are better
informed, better advised, better aware of risks and rewards
 standardization of norms for valuation of assets, computation of Net Asset
Values (NAVs) of schemes of mutual funds and accounting standards and
policies
 complete freedom to asset management companies to structure schemes in
accordance with investor preferences
 removal of quantitative restrictions on investment by mutual funds and
replacement by prudential supervision
 replacement of vetting of offer documents by filing
 guaranteed return schemes by mutual funds permitted provided returns
including capital were guaranteed
 indication of expected returns based on hypothetical portfolio permitted
 better governance of mutual funds through higher responsibilities and
empowerment of trustees as front-line regulators of mutual funds
 closer scrutiny through off site and on site inspections
 code of ethics for asset management companies
ASSOCIATION OF MUTUAL FUNDS IN INDIA
(AMFI)
With the increase in mutual fund players in India, a need for mutual fund association in
India was generated to function as a non-profit organization. Association of Mutual
Funds in India (AMFI) was incorporated on 22nd August, 1995.AMFI is an apex body
of all Asset Management Companies (AMC) which has been registered with SEBI. Till
date all the AMCs are that have launched mutual fund schemes are its members
ASSOCIATION OF MUTUAL FUNDS IN INDIA
706-708, Balarama
17
Bandra-Kurla Complex
Bandra (East)
Mumbai - 400 051.
Tel No. : 26590382 / 26590206 / 26590243 / 26590246
FAX No. : 26590235 / 26590209
AMFI Website: http://www.amfiindia.com/
CHAPTER III- CORPORATE PROFILE

STATE BANK OF PATIALA
State Bank of Patiala is an associate bank of State Bank of India. State Bank of Patiala
(SBP), originally named Patiala State Bank, and currently an associate bank of the State
Bank of India, was founded on 17 November 1917. SBP was founded by Bhupinder
Singh, Maharaja of the princely state of Patiala of Undivided India. The first branch of
Patiala State Bank was in Chowk Fort, Patiala. Patiala State Bank was set up with a
view to catalyze the growth of trade, agriculture, and industry. The bank was bought
under the Reserve Bank of India (RBI) in 1948. Our bank has now added a golden
chapter to its history by fully computerizing all its branches on 24th January 2003 and
became the first fully computerized Public Sector Bank in the country. There are 766
branches of the bank distributed all over India. Total income disclosed by the bank in
the Financial Year 2006 to 2007 is Rs. 3507.35 crores. Net profit was computed to be
Rs.366.53 crores.
BRANCHES AND ATM SERVICES
The business of State Bank of Patiala has grown manifold since its establishment.
Recent records say that State Bank of Patiala is networked by its 830 service outlets.
There are as many as 750 branches of SBP, spread across the major cities of India, out
of which, the majority of branches are located in its home State, Haryana, Himachal
Pradesh, Rajasthan, Jammu & Kashmir, Delhi and Chandigarh. The Bank provides
easy access to money to its customers through its ATMs spread over 16 states of India.
PRODUCTS AND SERVICES
 E-Products (ATM card and International Card)

 Personal Banking and Internet Banking
 Agriculture and Rural Banking
 NRI Services
 SME & Corporate Banking
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 Govt. Business
CONTACT
State Bank of Patiala,

Head office the mall,
Patiala-147001
Punjab
India
Website:www.sbp.co.in
Phone-0175-2304943, 2215078
SBI MUTUAL FUND

SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an enviable
track record in judicious investments and consistent wealth creation. The fund traces its
lineage to SBI - India’s largest banking enterprise. The institution has grown
immensely since its inception and today it is India's largest bank, patronized by over
80% of the top corporate houses of the country.
SBI MUTUAL FUND IS A JOINT VENTURE BETWEEN THE STATE BANK

OF INDIA AND SOCIÉTÉ GÉNÉRALE ASSET MANAGEMENT,
One of the world’s leading fund management companies that manages over US$
500 Billion worldwide. In twenty years of operation, the fund has launched 38 schemes
and successfully redeemed fifteen of them. In the process it has rewarded its investors
handsomely with consistent returns. Schemes of the Mutual fund have consistently
outperformed benchmark indices and have emerged as the preferred investment for
over 5.4 millions of investors and HNI’s. Today, the fund manages over Rs. 34,441
crores of assets and has a diverse profile of investors actively parking their investments
across 38 active schemes State Bank of India Mutual Funds is headed by Mr. Syed
Shahabuddin, Managing Director. State Bank of India Mutual Funds Corporate Office
is located at:
SBI Funds Management Private Limited
191, Maker Tower 'E', Cuffe Parade,
Mumbai - 400 005,
India.
KEY PERSONNEL OF SBI MUTUAL FUND

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Mr. Achal K. Gupta MD & CEO
Mr. Ashwini K Jain Chief Operating Officer
Mr. Didier Turpin Dy. Chief Executive Officer
Mr. C A Santosh Chief Manager - Customer Service
Mr. Navneet Munot Chief Investment Officer
Ms. Aparna Nirgude Chief Risk Officer
Mr. R. S. Srinivas Jain Chief Marketing Officer
Mr. Parijat Agrawal Head – Fixed Income
Ms. Vinaya Datar Company Secretary & Compliance

Officer
SCHEMES IN SBI MUTUAL FUND
EQUITY SCHEMES
The investments of these schemes will predominantly be in the stock markets and
endeavor will be to provide investors the opportunity to benefit from the higher returns
which stock markets can provide. However they are also exposed to the volatility and
attendant risks of stock markets and hence should be chosen only by such investors
who have high risk taking capacities and are willing to think long term.
• Magnum COMMA Fund
• Magnum Equity Fund
• Magnum Global Fund
• Magnum Index Fund
• Magnum MidCap Fund
• Magnum Multicap Fund
• Magnum Multiplier Plus 1993
• Magnum NRI Investment Fund - FlexiAsset Plan
• Magnum Sector Funds Umbrella
 MSFU - Emerging Businesses Fund
 MSFU - IT Fund
 MSFU - Pharma Fund
 MSFU - Contra Fund
 MSFU - FMCG Fund
• SBI Arbitrage Opportunities Fund
• SBI Blue chip Fund
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• SBI Infrastructure Fund - Series I

• SBI Magnum Taxgain Scheme 1993
• SBI ONE India Fund
• SBI TAX ADVANTAGE FUND - SERIES I
DEBT SCHEMES
Debt Funds invest only in debt instruments such as Corporate Bonds, Government
Securities and Money Market instruments. The expected returns from debt funds would
be lower. Such investments are advisable for the risk-averse investor and as a part of
the investment portfolio for other investors.
• Magnum Children’s Benefit Plan

• Magnum Gilt Fund
 Magnum Gilt Fund (Long Term)
 Magnum Gilt Fund (Short Term)
• Magnum Income Fund
• Magnum Income Plus Fund
 Magnum Income Plus Fund (Saving Plan)
 Magnum Income Plus Fund (Investment Plan)
• Magnum Insta Cash Fund
• Magnum InstaCash Fund -Liquid Floater Plan
• Magnum Institutional Income Fund
• Magnum Monthly Income Plan
• Magnum Monthly Income Plan Floater
• Magnum NRI Investment Fund
• SBI Capital Protection Oriented Fund - Series I
• SBI Debt Fund Series
 SDFS 15 Months Fund
 SDFS 90 Days Fund
 SDFS 30 DAYS
 SDFS 30 DAYS
 SDFS 370 days
 SDFS 370 days
 SDFS 30 DAYS
• SBI Premier Liquid Fund
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• SBI Short Horizon Fund

 SBI Short Horizon Fund - Ultra Short Term Fund
 SBI Short Horizon Fund - Short Term Fund
BALANCED SCHEMES
Magnum Balanced Fund invests in a mix of equity and debt investments. Hence they
are less risky than equity funds, but at the same time provide commensurately lower
returns. They provide a good investment opportunity to investors who do not wish to be
completely exposed to equity markets, but is looking for higher returns than those
provided by debt funds.
• Magnum Balanced Fund
EXCHANGE TRADED SCHEME

• SBI Gold Exchange Traded Scheme
AWARDS
SBI Mutual Fund (SBIMF) has been the proud recipient of the following awards
ICRA Online Award - 8 times,
CNBC TV 18 Crisil Award 2006 - 4 Awards,
The Lipper Award (Year 2005-2006)
CNBC TV 18 Crisil Mutual Fund of the Year Award 2007 and 5 Awards for our
schemes.
2009
22
2008
2007
23
2006
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CHAPTER IV - PERFORMANCE
EVALUATION OF ELSS FUNDS IN
INDIA
OBJECTIVE OF THE STUDY

The objective of the study is to help the investors to find out the best ELSS schemes in
India on the basis of various risk adjusted measures and returns so that each and every
aspect is studied about ELSS schemes and the investor should invest in the best one.
SCOPE OF THE STUDY
Scope of the study is limited only to ELSS schemes. And moreover only those ELSS
schemes of various AMC’ s are taken in this study which are among top 7 in The
AUM as on 30 June 2009 and which are having a track record of 5 years.
IMPORTANCE OF THE STUDY
The investor would naturally be interested in knowing that which scheme is better for
him. He would have to make intelligent decision that which funds to choose so that he
25
can get a good return on his investment. So to help the investor in choosing the right
fund by evaluating all the criteria is the motto of this study.
RESEARCH METHODOLOGY:
DATA COLLECTION
As because of the lack of time, only secondary data is taken for this study and on the
basis of this data all evaluation work has been done.
TOOLS FOR EVALUATING PERFORMANCE

The tools which are taken for evaluating the performance are risk adjusted measures
and returns of the ELSS schemes.
RISK ADJUSTED MEASURES ARE:
 BETA
Beta is a fairly commonly used measure of risk. It basically indicates the level of
volatility associated with the fund as compared to the benchmark. A beta that is greater
than one means that the fund is more volatile than the benchmark, while a beta of less
than one means that the fund is less volatile than the index.
 STANDARD DEVIATION
Standard Deviation allows you to evaluate the volatility of the funds. The Standard
Deviation of a fund measures this risk by measuring the degree to which the fund
fluctuates in relation to its mean return, the average return of a fund over a period of
time.
 SHARPE RATIO
Sharpe ratio indicates the quality of returns. It shows the return given by fund per unit
of risk it takes. It measures fund performance in terms of total risk. The Sharpe ratio
measures the return of a mutual fund compared to the risk free rate of return. The risk
free rate of return is the 91-day t-bill rate.
26
 R- SQUARED
R squared that measures the correlation. The R-squared of a fund advises investor if the
beta of a mutual fund is measured against an appropriate benchmark. R-squared values
range between 0 and 1, where 0 represents no correlation and 1 represents full
correlation. If a fund’s beta has an R-squared value that is close to 1, the beta of the
fund should be trusted. On the other hand, an R-squared value that is less than 0.5
indicates that the beta is not particularly useful because the fund is being compared
against an inappropriate benchmark.
 ALPHA
Alpha is the difference between the returns one would expect from a fund, given its
beta, and the return it actually produces. An alpha of 1.0 means the fund produces a
return 1% higher than its beta would predict. An alpha of -1.0 means the fund produces
a return 1% lower.
 RETURNS & AUM

ELSS Schemes are also been evaluated on the basis of returns given by the schemes
over the years. Returns of 1 year are in absolute returns produced by the fund in the last
one year whereas the returns for the 2, 3, and 5 year are on the CAGR basis.
LIMITATIONS OF THE STUDY
As because of lack of time I have not calculated the various risk adjusted measures
and returns of the various ELSS schemes. Rather I have taken the secondary data so
this study relies on the accuracy of data. Secondly only those schemes of various
AMC’S are taken which are among top 7 in the AUM as on 30 June 2009. Because of
it, many other ELSS funds are not evaluated.
EQUITY LINKED SAVING SCHEME

An equity-linked saving scheme (ELSS) is a great investment option that offers the
twin benefits of tax saving and capital gains. According to the new Income Tax Act,
Sec 80C investments in ELSS are allowed as deduction from the total income, up to
maximum Rs100, 000 in a financial year.
ELSS schemes have a three-year lock-in period, which works to the
investors’ benefit as the fund manager can have a portfolio of stocks that can out-
perform over a period of time. Equity Linked Saving Scheme is an open-ended equity
growth scheme that is offered by mutual funds in line with existing ELSS guidelines
.The investor also has the option to choose between growth and dividend options, and
27
systematic investment plans (SIP). The dividends earned in this scheme ELSS are tax
free. The returns at the maturity period are also tax free.
ELSS is the best option for investors who are looking with a time frame
of 3-5 years. The short term weakness in the market will glide down and will earn the
investor with better returns in the long run. The performance and the ability of the
stocks in the long run can never be beaten with any other financial instruments. The
ELSS beats mostly all the equity based mutual fund schemes. The minimum investment
that can be made on ELSS is Rs.500 and multiples of it. The fund should be allotted to
the investors to those who have applied with the prescribed form before March 31
every year. From the date of allotment the fund should be hold for three years. On the
completion of the three years the investor gets the option to tender the units for
repurchase.
In the case with the death of the investor the nominee will be able to
withdraw the investment only after a period of one year from the allotment date. ELSS
units are transferable, pledged, or assigned after the lock in period of three years. A
statement of accounts or certificate of investment will be acknowledged by the fund to
the investor. The fund will be terminated at the close of the tenth year from the year of
allotment of units.
The funds will also ensure that the funds of the plan are invested to the
extent of 80% in the specified securities. The funds should make sure that the
investments should be made within a period of six months from the date of closure of
the plan every year. The pending investments would be utilized in short term money
markets or other liquid instruments. After the completion of three years with a fund
they should make sure that they hold 20% of net assets of the plan in short term money
instruments and others which would enable them to redeem the investments for those
unit holders who wish to tender the units for repurchase. ELSS is one of the best
options and an excellent mode of investments.
In short we can say Equity Linked Saving Scheme is an open-ended
equity growth scheme that is offered by mutual funds in line with existing ELSS
guidelines. The investments under this type of scheme are subject to a lock-in period of
3 years and, as per the Finance Act 2005, are allowed the benefit of income deduction
up to Rs. 1,00,000. ELSS offers the benefits of tax saving and capital gains.
WHY SHOULD ONE INVEST ELSS?

• Lock-in for three years helps in staying invested over a long period
• Investments in equity over a long-term delivers better returns
• Tax savings and high returns
• Through SIPs, one can invest small amount of Rs 500 in ELSS every month.
FEATURES
 Individuals, Hindu Undivided Families (HUFs) and companies.
 The units can be easily transferred by filling out a transfer form.
 Nomination facility is available with ELSS.
 A maximum investment of Rs 10,000 to claim an income tax rebate of 20 %
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 Open-ended mutual funds have no maturity period. However, to claim tax

rebate under Section 88, the minimum lock-in period is three years.
 In the case of open-ended schemes, the units can be sold anytime after the initial
lock-in period of three years. In the case of closed-end schemes, the units can be
sold only on the due date specified.
ADVANTAGES OF ELSS
• Lock-in for three years prevents unnecessary withdrawals and allows your
money to grow over a period of time
• Investments in equity over a long-term delivers better returns than that of other
savings instruments and similar to other equity schemes
• Tax savings and high returns
• Long term investment in equities gives better returns than any other
investment instrument.
• It gives tax benefits
• Gives the flexibility to invest small amounts through a Systematic Investment
Plan (SIP)
TAX BENEFITS:
Dividends from mutual funds are fully exempt from income tax under Section 10(33).
Equity funds (schemes that invest 50 per cent of their funds in equity) are also exempt
from dividend tax. ELSSs offer under section 88 tax rebate on investments up to Rs
10,000 in a financial year. The difference between the selling price and the cost price is
taxable as capital gains in the year of sale, at 10 per cent or 20 per cent, depending on
whether or not you claim indexation benefits.
PLUSES
• Possibility of high returns
• Lock-in period of only three years
• Easy transfer
• Low tax incidence (10 per cent) on redemption
• Efficient service, especially in the case of private mutual funds
MINUSES
• High risk
• Difficult to choose the right fund (But not if you use the services of the
Matchmaker!
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COMPARATIVE ANALYSIS OF ELSS AND OTHER

TAX SAVING INSTRUMENTS
*
PARTICULARS PPF NSC ELSS ULIP
Lock-in Period 15 6 3 3
Min Investment Rs.500 Rs.100 Rs.500
May differ
from plan
to plan
Max Investment Rs.70000 Rs.100000 Rs.100000 Rs.100000
qualifying u/s 80C
Risk Level Low Low Medium- Medium-
High high
Returns 8%* 8%** Market Market
linked linked
Taxability of Tax free Taxable # Tax free N.A
Interest/Dividend
Compounded annually
** Compounded half yearly.
# Taxable but accrued interest available for 80C benefits until 5 years
Compared to all other tax planning schemes available today, ELSS has the shortest
lock-in period. It also has the potential to give you superior returns over other tax
saving instruments.
ELSS IS BETTER OPTION THAN OTHER TAX SAVING

INSTRUMENTS THIS CAN BE EXPLAINED WITH THE
FOLLOWING ILLUSTRATION
Lets assume you invest Rs. 1 lakh this year in an ELSS scheme and you are in the
highest taxbracket.
Invested Amount = Rs. 1,00,000/-
Income Tax saved = Rs. 30,000 (30% tax slab)
Net amount Invested = Rs. 70,000/- (I have deducted the 30,000 because you get it
back up front after your investment as income tax benefit and you effectively
invested only Rs. 70,000)
Let us assume your equity investment grows at the rate of 15% per annum.
Investment value at the end of the First year = 1,15,000/-
Investment value at the end of the Second year = 1,32,250/-
Investment value at the end of the Third year = 1,52,087/-
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Assuming you encashed your investment at the end of the 3rd year you will get Rs.
1,52,087/-
Profit you realized = Rs. 82,087/- (You invested only Rs. 70000 effectively remember
the tax saved)
Profit percentage = 117% (For 3 years together)
RETURNS % PER YEAR = 39%
A Returns of 39% per annum is something we cannot expect in any other form of
investment. Thus ELSS schemes make one of the best investment options.
SIP – SYSTEMATIC INVESTMENT PLAN ROUTE FOR ELSS
One of the best ways to invest in ELSS is to save and invest on a regular basis. A
Systematic Investment Plan (SIP) in ELSS gives the best combination of investments
available to investors. The minimum investment in an ELSS through the SIP route can
be as small as Rs 500.
SIP helps an investor take advantage of the fluctuations in the stock
markets by rupee cost averaging. Rupee cost averaging can be explained with the help
of the following example. If Rs 1,000 is invested a month at a price of Rs 20 a unit, the
investor will have bought 50 units (1,000/20). But at a price of Rs 10 per unit, he will
have bought 100 units (1000/10). Investing a fixed sum regularly means averaging out
the cost, as the investor gets fewer units when the price goes up and more when the
price goes down. An SIP ensures that an investor buys more when the markets are
falling and less when it's peaking. But if an investor backs out when the markets are
falling, he won't be buying and this will not get him to average his price, the primary
reason behind the success of investing through the SIP route.
When markets are falling, it's psychologically difficult for an investor to
enter. On the other hand, when the market is at a peak, a lot of investors enter the
market. Due to this, the investor ends up buying high and selling low. So, it's very
important to continue with the SIP even when the markets are falling.
In the current volatile market, starting an SIP would be beneficial to an investor as he
can take the benefit of highs as well as the lows and can average out his purchases.
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WHY SIP?
 Mutual Fund investments are managed by qualified and experienced

professionals who have the expertise of investment techniques, backed by
dedicated investment research team
 You can purchase scheme units at a lesser cost as most of the Asset
Management Companies (AMCs) charge less “entry load” (for some scheme
even NIL) for SIP investments, as compared to normal purchases in the scheme.
 SIPs make the volatility in the market work in your favour. Since a fixed
amount is invested more units are purchased when a scheme NAV is low and
fewer units when the NAV is high. As a result, over a period of time these
market fluctuations are generally averaged. Thus the average cost of your
investment is often reduced.
 Since you invest regularly, it makes you disciplined in your savings, which
leads to wealth accumulation.
PERFORMANCE EVALUATION OF ELSS FUNDS

ON THE BASIS OF RISK ADJUSTED MEASURES:-
A. BETA
B. STANDARD DEVIATION
C. SHARPE RATIO
D. R-SQUARED
E. ALPHAS
A.PERFORMANCE EVALUATION OF ELSS FUNDS

ON THE BASIS OF STANDARD DEVIATION
Beta is a fairly commonly used measure of risk. It basically indicates the level of
volatility associated with the fund as compared to the benchmark. So quite naturally the
success of beta is heavily dependent on correlation between a fund and its benchmark.
Thus if the fund’s portfolio doesn’t have a relation with the benchmark index then a
32
beta would be grossly inadequate. A beta that is greater than one means that the fund is
more volatile than the benchmark, while a beta of less than one means that the fund is
less volatile than the index. A fund with a beta very close to 1 means the fund’s
performance closely matches the index or benchmark. If, for example, a fund has a beta
of 1.03 in relation to the BSE Sensex, the fund has been moving 3% more than the
index. Therefore, if the BSE Sensex increased 10% the fund would be expected to
increase 10.30%.
Investors expecting the market to be bullish may choose funds exhibiting high
betas, which increase investors’ chances of beating the market. If the investor expects
the market to be bearish in the near future, the funds that have betas less than 1 are a
good choice because they would be expected to decline less in value than the index.
NAME OF ELSS SCHEME BETA RANKING

BIRLA SUN LIFE TAX RELIEF 96 1.15 7
BIRLA TAX PLAN 0.96 4
HDFC TAX SAVER 0.94 3
HDFC LT ADVANTAGE FUND 0.88 1
ICICI PRUDENTIAL TAX PLAN 1.00 5
LIC MF TAX PLAN 1.02 6
SBI MAGNUM TAXGAIN 0.96 4
UTI EQUITY TAX SAVINGS 0.89 2
(SOURCE: WWW.VALUERESEARCHONLINE.COM)
INTERPRETATION:-
According to beta the best ELSS fund is HDFC LT ADVANTAGE FUND
SBI MAGNUM TAX GAIN is at 4th place and at last is BIRLA SUN LIFE TAX
RELIEF 96
B.PERFORMANCE EVALUATION OF ELSS FUNDS

ON THE BASIS OF STANDARD DEVIATION
Standard Deviation allows you to evaluate the volatility of the funds. Put differently it
allows you to measure the consistency of he returns. Volatility is often a direct indicator
of the risk taken by the fund. The Standard Deviation of a fund measures this risk by
measuring the degree to which the fund fluctuates in relation to its mean return, the
average return of a fund over a period of time. A security that is volatile is also
considered higher risk because its performance may change quickly in either direction
at any moment. A fund that has a consistent four-year return of 3%, for example, would
have a mean, or average, of 3%. The Standard Deviations for this fund would then be
zero because the fund’s return in any given year does not differ formats four-tear mean
of 3%. On the other hand, a fund that in each of the last four years returned- 5%,
17%,2% and 30% will have mean return of 11%.The fund Will also exhibit a high
standard deviation because each year the return of the fund differs from the mean
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return This fund is therefore more risky because it fluctuates widely between negative
and positive returns within a short period.
NAME OF ELSS SCHEME STANDAR RANKING

D
DEVIATIO
N
INTERPRETATION:-
According to Standard Deviation the best ELSS fund is UTI EQUITY TAX SAVINGS,
SBI MAGNUM TAX GAIN is at 4th place and at last is BIRLA SUN LIFE TAX
RELIEF 96
C.PERFORMANCE EVALUATION OF ELSS FUNDS

ON THE BASIS OF SHARPE RATIO
William Sharpe created a metric for fund performance, which enables the ranking of
funds on risk-adjusted return basis. This measure is based on the comparison of “excess
return” per unit of risk, risk being measured by standard deviation. Excess return is
defined as the actual return of the fund less risk free rate. Higher the Sharpe ratio, better
the fund. Sharpe ratio indicates the quality of returns. It shows the return given by fund
per unit of risk it takes. It measures fund performance in terms of total risk. The Sharpe
ratio measures the return of a mutual fund compared to the risk free rate of return. The
risk free rate of return is the 91-day t-bill rate. This should be similar to money market
returns. Often this ratio is used to determine if a mutual fund is able to beat the money
market. The Trimark Select Growth Fund has a Sharpe ratio over the last 5 years of
0.57. The recent range of Sharpe Ratios for global equity funds went from as low a –
1.11 to a high of 0.94. A positive Sharpe ratio means the fund did better on a risk
adjusted basis than the 91-day t-bill rate. In other words, the higher the Sharpe ratio, the
better. The Sharpe ratio tells you about history but it does not tell you anything about
the future. Just because a fund has a positive Sharpe ratio for the last 5 years does not
mean it will outperform money market instruments for the next 5 years.
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NAME OF ELSS SCHEME SHARPE RANKING

RATIO
INTERPRETATION: -
According to Sharpe Ratio the best ELSS fund is SBI MAGNUM TAX GAIN and at
last place is LIC MF TAX PLAN
D.PERFORMANCE EVALUATION OF ELSS FUNDS

ON THE BASIS OF R-SQUARED
The success of Beta is dependent on the correlation of a fund to its benchmark or its
index. Thus whilst considering the beta of any security, you should also consider
another statistic-R squared that measures the correlation. The R-squared of a fund
advises investor if the beta of a mutual fund is measured against an appropriate
benchmark. Measuring the correlation of a fund’s movements to that of an index, R-
squared describes the level of association between the fund’s volatility and market risk,
more specifically, the degree to which a fund’s volatility is a result of the day-to-day
fluctuations experienced by the overall market.
R-squared values range between 0 and 1, where 0 represents no correlation and 1
represents full correlation. If a fund’s beta has an R-squared value that is close to 1, the
beta of the fund should be trusted. On the other hand, an R-squared value that is less
than 0.5 indicates that the beta is not particularly useful because the fund is being
compared against an inappropriate benchmark
NAME OF ELSS SCHEME R- SQUARED RANKING

35

INTERPRETATION:-
According to R- Squared the best ELSS fund are three funds i.e. SBI MAGNUM TAX
GAIN, LIC MF TAX PLAN, UTI EQUITY TAX SAVINGS and at last is ICICI
PRUDENTIAL TAX PLAN.
E. PERFORMANCE EVALUATION OF ELSS FUNDS

ON THE BASIS OF ALPHAS
Alpha is the difference between the returns one would expect from a fund, given its
beta, and the return it actually produces. An alpha of 1.0 means the fund produces a
return 1% higher than its beta would predict. An alpha of -1.0 means the fund produces
a return 1% lower. If a fund returns more than its beta then it has a positive alpha and if
it return less, then it has a negative alpha. Once the beta of a fund is known, alpha
compares the fund’s performance to that of the benchmark’s risk-adjusted returns. It
allows you to ascertain if the fund’s return outperformed the market, given the same
amount of risk.
The higher a fund’s risk level, the greater the returns it must generate in order to
produce a high alpha. Normally one would like to see a positive alpha for all of the
funds you own. But a high alpha does not means a fund is doing a bad job nor is the
vice versa true. Because alpha measures the out-performance relative to beta. So the
limitations that apply to beta would also apply to alpha. Alpha can be used to directly
measure the value added or subtracted by a fund’s manager.
The accuracy of an alpha rating depends on two factors:

36
• The assumption that market risk, as measured by beta, is the only risk measure
necessary;
• The strength of the fund’s correlation to a chosen benchmark such as the BSE
Sensex or the Nifty
NAME OF ELSS SCHEME ALPHA RANKING

BIRLA TAX PLAN -2.95 4
HDFC TAX SAVER -2.26 3
HDFC LT ADVANTAGE FUND -3.54 5
ICICI PRUDENTIAL TAX PLAN -4.40 6
LIC MF TAX PLAN -6.66 8
UTI EQUITY TAX SAVINGS -4.82 7
INTERPRETATION: -
According to ALPHAS the best ELSS fund is SBI MAGNUM TAX GAIN and at last
place is LIC MF TAX PLAN
PERFORMANCE EVALUATION OF ELSS FUNDS

ON THE BASIS OF RETURNS & AUM
A. 1 YEAR RETURN
B. 2 YEAR RETURN
C. 3 YEAR RETURN
D. 5 YEAR RETURN
E. AUM
A. PERFORMANCE EVALUATION OF ELSS FUNDS

ON THE BASIS OF 1 YEAR RETURN
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NAME OF ELSS SCHEME RETURNS RANKING

(%)
*THE RETURNS WHICH ARE SHOWN IN THE TABLE IS ABSOLUTE IN TERMS OF LAST ONE
YEAR
INTERPRETATION:-
According to 1 YEAR RETURNS the best ELSS fund is HDFC TAX SAVER, SBI
MAGNUM TAX GAIN is at 4th place and at last is UTI EQUITY TAX SAVINGS
B.PERFORMANCE EVALUATION OF ELSS FUNDS

ON THE BASIS OF 2 YEAR RETURN
NAME OF ELSS SCHEME RETURNS RANKING

(%)
BIRLA SUN LIFE TAX RELIEF 96 -4.13 6
BIRLA TAX PLAN -7.68 8
HDFC LT ADVANTAGE FUND -1.71 4
ICICI PRUDENTIAL TAX PLAN -0.24 2
LIC MF TAX PLAN -4.51 7
SBI MAGNUM TAXGAIN -0.78 3
UTI EQUITY TAX SAVINGS -2.86 5
*THE RETURNS WHICH ARE SHOWN IN THE TABLE ARE NOT ABSOLUTE THEY ARE
GIVEN ACCORDING TO CAGR
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INTERPRETATION:-
According to 2 year returns basis the best ELSS fund is HDFC TAX SAVER, SBI
MAGNUM TAX GAIN is at 3rd place at last is BIRLA TAX PLAN.
C.PERFORMANCE EVALUATION OF ELSS FUNDS

ON THE BASIS OF 3 YEAR RETURNS
NAME OF ELSS SCHEME RETURNS( RANKING

%)
INTERPRETATION:-
According to 3 YEAR RETURNS the best ELSS fund is SBI MAGNUM TAX GAIN
and at last place is LIC MF TAX PLAN
D.PERFORMANCE EVALUATION OF ELSS FUNDS

ON THE BASIS OF 5 YEAR RETURNS
NAME OF ELSS SCHEME RETURNS( RANKING

%)
39
(SOURCE: VALUERESEARCHONLINE.COM)
INTERPRETATION:-
According to 5 year returns the best ELSS Fund is SBI MAGNUM TAX GAIN and at
last place is LIC MF TAX PLAN
E.PERFORMANCE EVALUATION OF ELSS FUNDS

ON THE BASIS OF AUM
NAME OF ELSS SCHEME AUM ( RS IN RANKING

CRORES)
INTERPRETATION:-
According to AUM the best ELSS fund is SBI MAGNUM TAX GAIN and at last place
is LIC MF TAX PLAN.
CHAPTER V- ANALYSIS AND
FINDINGS
• BIRLA SUN LIFE TAX RELIEF 96
AMC BIRLA SUN LIFE ASSET MANAGEMENT

COMPANY LTD
AN OPEN-ENDED EQUITY LINKED SAVINGS
OBJECTIVE SCHEME (ELSS) WITH THE OBJECTIVE OF LONG
TERM GROWTH OF CAPITAL THROUGH A
PORTFOLIO WITH A TARGET ALLOCATION OF 80%
EQUITY, 20% DEBT AND MONEY MARKET
SECURITIES
LAUNCH DATE MARCH 1996
FUND MANAGER AJAY GARG

40
MIN INVESTMENT AMOUNT 500
ENTRY LOAD 2.25% FOR INVESTMENTS BELOW RS 5 CRORE
NIL
EXIT LOAD
NAME OF HOLDING % NET ASSETS
TOP 5 HODINGS
RELIANCE INDUSTRIES 6.84
LARSEN & TOUBRO 6.43
RELIANCE INFRASTRUCTURE 4.91
INFOSYS TECHNOLOGIES 4.73
JINDAL STEEL & POWER 4.34
TOP 5 SECTORS SECTORS % NET ASSET
FINANCIAL 24.23
ENERGY 17.46
METALS 10.38
ENGINEERING 10.18
TECHNOLOGY 7.30
BENCHMARK BSE 200
NET ASSETS AS ON 30 JUNE 2009 RS. 888.9 CRORE
RISK ADJUSTED MEASURES

(As on 30 JUNE 2009)
BETA STANDARD SHARPE R- ALPHAS

DEVIATION RATIO SQUARED
1.15 41.73 0.35 0.94 1.18
RETURNS
(AS ON 30 JUNE 2009)
1 YEAR 2 YEAR 3 YEAR 5 YEAR

10.18 % -4.13 % 14.30 % 21.58 %
41
• BIRLA TAX PLAN
AMC BIRLA SUN LIFE ASSET MANAGEMENT

COMPANY LTD
AN OPEN-ENDED EQUITY LINKED SAVINGS
OBJECTIVE SCHEME (ELSS) WITH THE OBJECTIVE TO
ACHIEVE LONG-TERM GROWTH OF CAPITAL
ALONG WITH INCOME TAX RELIEF FOR
INVESTMENT
LAUNCH DATE FEBRUARY 1999
FUND MANAGER SANJAY CHAWLA
MIN INVESTMENT AMOUNT 500
NIL
EXIT LOAD

TOP 5 HODINGS
RELIANCE PETROLEUM 3.96
INDIAN OIL CORP. 3.94
JAI PRAKASH ASSOCIATES 3.74
ENERGY 20.51
SERVICES 10.56
METALS 9.95
CONSTRUCTION 8.80
ENGINEERING 8.67
BENCHMARK SENSEX

42

0.96 34.86 0.23 0.93 -2.95
RETURNS

3.07 % -7.68 % 9.70 % 23.23 %
• HDFC LT ADVANTAGE FUND
AMC HDFC ASSET MANAGEMENT COMPANY

LTD
TO GENERATE LONG TERM CAPITAL
OBJECTIVE APPRECIATION FROM A PORTFOLIO
THAT IS INVESTED PREDOMINANTLY IN
EQUITY AND EQUITY-RELATED
INSTRUMENTS.
LAUNCH DATE DECEMBER 2000
FUND MANAGER CHIRAG SETALVAD
MIN INVESTMENT AMOUNT RS 500
EXIT LOAD NIL

TOP 5 HOLDINGS NAME OF HOLDING % NET ASSETS
ICICI BANK 6.19

STATE BANK OF INDIA 4.60
BLUE STAR 3.67
43
FINANCIAL 16.55
FMCG 12.95
ENGINEERING 11.71
AUTOMOBILE 6.21
TECHNOLOGY 6.18
BENCHMARK SENSEX


0.88 32.53 0.20 0.90 -3.54
RETURNS

11.02 % -1.71 % 10.51 % 23.66 %
• HDFC TAX SAVER
AMC HDFC ASSET MANAGEMENT COMPANY LTD
TO ACHIEVE LONG TERM GROWTH OF CAPITAL.

OBJECTIVE
FUND MANAGER VINAY R. KULKARNI
EXIT LOAD NIL

44

TOP 5 HODINGS
ICICI BANK 6.38
CROMPTON GREAVES 4.35
DR. REDDY'S LAB 4.18
BHARTI AIRTEL 3.83
FINANCIAL 19.79
HEALTH CARE 11.04
ENERGY 9.42
TECHNOLOGY 9.31
FMCG 8.52
BENCHMARK S&P CNX 500


0.94 33.89 0.25 0.95 -2.26
RETURNS

18.42 % 0.08 % 12.15 % 30.36 %
45
• ICICI PRU TAX PLAN
AMC ICICI PRUDENTIAL ASSET MANGEMENT

COMPANY LTD
THE FUND IS A BLEND OF LARGE AND
OBJECTIVE MID/SMALL CAP FUND, WITH THE OBJECTIVE
OF BEING ABLE TO PROVIDE STEADY
RETURNS AND MAINTAINED EQUITY
EXPOSURE OF 93%.
LAUNCH DATE AUGUST 1999
FUND MANAGER SANKARAN NAREN
EXIT LOAD NIL

TOP 5 HODINGS
WIPRO 6.17
CADILA HEALTHCARE 5.03
NTPC 4.93
TOP 5 SECTORS SECTORS % NET ASSETS
ENERGY 16.56
TECHNOLOGY 12.42
ENGINEERING 11.44
HEALTH CARE 10.34
FINANCIAL 9.79
BENCHMARK S&P CNX NIFTY

46

1.00 37.47 0.19 0.87 -4.40
RETURNS
7.08 % -0.24 % 8.09 % 27.01 %
• LICMF TAX PLAN
AMC LIC MUTUAL FUND ASSET MANAGEMENT

COMPANY LTD
OBJECTIVE EARLIER KNOWN AS DHANTAXSAVER '97,

THE SCHEME
SEEKS MAXIMUM CAPITAL GROWTH WITH
EQUITY ALLOCATION UP TO 85 PER CENT OF
THE CORPUS. ALLOCATION TO DEBENTURES
AND MONEY MARKET INSTRUMENTS CAN BE
UP TO 15 PER CENT EACH.
FUND MANAGER S RAMASAMY

47
MIN INVESTMENT AMOUNT RS. 500

ENTRY LOAD 2.25%
EXIT LOAD NIL

TOP 5 HODINGS
SAIL 8.11
RELIANCE COMMUNICATIONS 5.25
TOP 5 SECTORS SECTORS % NET ASSETS
FINANCIAL 24.42
ENERGY 19.91
COMMUNICATION 13.94
DIVERSIFIED 13.31
METALS 12.11
BENCHMARK SENSEX

Beta Standard Sharpe ratio R-Squared Alphas

Deviation
1.02 36.55 0.14 0.96 -6.66
RETURNS

6.95 % -4.51 % 6.81 % 12.27 %
48
• SBI MAGNUM TAX GAIN SCHEME
AMC SBI FUNDS MANAGEMENT LTD
OBJECTIVE THE PRIME OBJECTIVE OF THIS SCHEME IS TO

DELIVER THE BENEFIT OF INVESTMENT IN A
PORTFOLIO OF EQUITY SHARES, WHILE
OFFERING DEDUCTION ON SUCH INVESTMENTS
MADE IN THE SCHEME UNDER SECTION 80COF
THE INCOME-TAXACT, 1961. IT ALSO SEEKS TO
DISTRIBUTE INCOME PERIODICALLY
DEPENDING ON
DISTRIBUTABLE SURPLUS.
LAUNCH DATE
MARCH 1993
FUND MANAGER
JAYESH SHROFF
MIN INVESTMENT AMOUNT
RS 500
EXIT LOAD
NIL
TOP 5 HODINGS NAME OF HOLDING % NET ASSETS

ICICI BANK 3.68
JINDAL STEEL & POWER 3.44
TOP 5 SECTORS SECTORS %NET ASSETS

ENERGY 20.47
FINANCIAL 17.60
ENGINEERING 10.47
DIVERSIFIED 9.35
METALS 8.97
BENCHMARK BSE 100

49


0.96 34.38 0.36 0.96 1.20
RETURNS

9.63 % -0.78 % 14.48 % 37.95 %
CHAPTER VI- FINDINGS OF THE

STUDY
FINDINGS OF THE STUDY
 ON THE BASIS OF BETA THE BEST ELSS FUND IS:-

 HDFC LT ADVANTAGE FUND
 ON THE BASIS OF STANDARD DEVIATION THE BEST FUND IS :-

 UTI EQUITY TAX SAVINGS PLAN
 ON THE BASIS OF SHARPE RATIO THE BEST ELSS FUND IS:-

 SBI MAGNUM TAX GAIN
 ON THE BASIS OF R-SQUARED THE BEST ELSS FUND ARE:-

50

 LIC MF TAX PLAN
 UTI EQUITY TAX SAVINGS PLAN
 ON THE BASIS OF ALPHAS THE BEST ELSS FUND IS:-

 ON THE BASIS OF 1 YEAR RETURN THE BEST ELSS FUND IS:-

 HDFC TAX SAVER
 ON THE BASIS OF 2 YEAR RETURN THE BEST ELSS FUND IS :-

 HDFC TAX SAVER
 ON THE BASIS OF 3 YEAR RETURN BEST ELSS FUND IS :-

 ON THE BASIS OF 5 YEAR RETURN BEST ELSS FUND IS:-

 ON THE BASIS OF AUM THE BEST ELSS FUND IS :-

So the above are the different schemes which are coming out as best ELSS schemes in
the different criteria. But SBI MAGNUM TAX GAIN SCHEME 1993 is the best ELSS
scheme as it has topped in the six criteria’s which are chosen for the purpose of
evaluation.
CHAPTER VII - ABOUT THE STUDY
INTRODUCTION
There are a lot of investment avenues available today in the financial market for an
investor with an invest able surplus. He can invest in Bank Deposits, Corporate
Debentures, and Bonds where there is low risk but low return. He may invest in Stock
of companies where the risk is high and the returns are also proportionately high. The
recent trends in the Stock Market have shown that an average retail investor always lost
with periodic bearish tends. People began opting for portfolio managers with expertise
51
in stock markets who would invest on their behalf. Thus we had wealth management
services provided by many institutions. However they proved too costly for a small
investor. These investors have found a good shelter with the mutual funds. Mutual fund
industry has seen a lot of changes in past few years with multinational companies
coming into the country, bringing in their professional expertise in managing funds
worldwide. In the past few months there has been a consolidation phase going on in the
mutual fund industry in India. Now investors have a wide range of Schemes to choose
from depending on their individual profiles.
My study gives an overview of mutual funds – definition, types, benefits,
risks, limitations, history of mutual funds in India, latest trends, global scenarios. I have
analyzed a few prominent mutual funds schemes and have given my findings.
NEED FOR THE STUDY
The main purpose of doing this project was to know about mutual fund and its
functioning. This helps to know in details about mutual fund industry right from its
inception stage, growth and future prospects.
It also helps in understanding different schemes of mutual funds like equity, income,
balance as well as the returns associated with those schemes.. Because my study
depends upon equity linked saving schemes and the performance evaluation of ELSS.
The project study was done to ascertain the asset allocation, entry load, exit load,
associated with the mutual funds. Ultimately this would help in understanding the
benefits of mutual funds to investors.
SCOPE OF THE STUDY
In my project the scope is limited to some prominent mutual funds in the mutual fund
industry. I analyzed the funds depending on their schemes like equity, income, balance.
But there is so many other schemes in mutual fund industry like specialized (banking,
infrastructure, pharmacy) funds, index funds etc.
My study is mainly concentrated on equity schemes, the returns, in income
schemes the rating of CRISIL, ICRA and other credit rating agencies.
OBJECTIVE
 To give a brief idea about the benefits available from Mutual Fund investment
 To give an idea of the types of schemes available.
 To discuss about the market trends of Mutual Fund investment.
 To study some of the mutual fund schemes and analyze them
 Observe the fund management process of mutual funds
 Explore the recent developments in the mutual funds in India
 To give an idea about the regulations of mutual funds
52
METHODOLOGY
To achieve the objective of studying the stock market data has been collected.
Research methodology carried for this study is from secondary data. The secondary
information is mostly taken from websites, books, journals, etc.
LIMITATIONS
 The time constraint was one of the major problems.

 The study is limited to the different schemes available under the mutual funds
selected.
 The study is limited to selected mutual fund schemes.
 The lack of information sources for the analysis part.
REFERENCE BOOKS:
•FINANCIAL INSTITUTIONS AND MARKETS - L.M.BHOLE

•INVESTMENT MANAGEMENT - V.K.BHALLA
BIBLIOGRAPHY
www.amfiindia.com
www.sebi.gov.in
www.sbimf.com
www.mutualfundsindia.com
53
www.valueresearchonline.com
www.utimf.com
www.hdfcmf.com
www.birlamf.com
www.licmf.com
www.icicimf.com

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1

CHAPTER I- ABOUT MUTUAL FUNDS

AN INTRODUCTION TO MUTUAL FUNDS

DEFINITION OF MUTUAL FUNDS

TEEN ANALYST ADVICE:

CONCEPT OF MUTUAL FUNDS

SOME OF THE DISTINGUISHING CHARACTERISTICS OF MUTUAL FUNDS

HISTORY OF MUTUAL FUNDS

FIRST PHASE - 1964-87

SECOND PHASE - 1987-1993 (ENTRY OF PUBLIC SECTOR

THIRD PHASE - 1993-2003 (ENTRY OF PRIVATE SECTOR

FOURTH PHASE - SINCE FEBRUARY 2003

STRUCTURE OF MUTUAL FUND

GROWTH OF MUTUAL FUNDS IN INDIA

THE GRAPH INDICATES THE GROWTH OF ASSETS OVER THE YEARS:

SOME FACTS FOR THE GROWTH OF MUTUAL FUNDS IN INDIA

 100% growth in the last 6 years.

 Trying to curb the late trading practices.

• FRANKLIN TEMPLETON INDIA MUTUAL FUND

STEPS TO CHOOSE RIGHT MUTUAL FUND

 SET LONG-TERM GOALS.

 IDENTIFY THE TYPES OF FUNDS YOU NEED (E.G.,

 LOOK FOR A WELL-MANAGED FUND.

 GET SOURCES OF INFORMATION :PROSPECTUS:

 STATEMENT OF ADDITIONAL INFORMATION ("SAI")

 LOOKING BEYOND A FUND'S NAME

 DETERMINE YOUR SELECTION CRITERIA AND

 CHECK FOR CONSISTENCY

 KNOW THE RISKS

 AVOID SALES CHARGES

 LOOK FOR LOW EXPENSE RATIOS

 CONSIDER THE MANAGER

 ASK THE EXPERTS

 CALL OR WRITE FOR A PROSPECTUS

 MAKE YOUR PURCHASE

 CONTINUALLY BUY MORE SHARES

HOW TO FILL UP THE APPLICATION FORM OF A MUTUAL

account number so as to avoid any fraudulent encashment of any cheque/draft issued by

TYPES OF MUTUAL FUNDS

MUTUAL FUNDS CAN CLASSIFY ON THE FOLLOWING BASES:-

MUTUAL FUND RISK

RISKS ASSOCIATED WITH MUTUAL FUNDS

TAXATION OF MUTUAL FUNDS

ADVANTAGES OF MUTUAL FUNDS

 INVESTORS HAVE ACCESS TO PROFESSIONAL

DISADVANTAGES OF MUTUAL FUNDS

 DIFFICULTY IN SELECTING A SUITABLE FUND SCHEME -

CHAPTER II- REGULATORY BODIES

• SECURITIES AND EXCHANGE BOARD OF INDIA

• ASSOCIATION OF MUTUAL FUNDS IN INDIA

SECURITIES AND EXCHANGE BOARD OF

 To protect the interests of investors in securities;

ROLE OF SEBI IN MUTUAL FUND INDUSTRY

THE SEBI (MUTUAL FUNDS) REGULATIONS, 1996:

 enhanced level of investor protection

ASSOCIATION OF MUTUAL FUNDS IN INDIA

CHAPTER III- CORPORATE PROFILE

BRANCHES AND ATM SERVICES

PRODUCTS AND SERVICES

 E-Products (ATM card and International Card)

State Bank of Patiala,

SBI MUTUAL FUND

SBI MUTUAL FUND IS A JOINT VENTURE BETWEEN THE STATE BANK