Executive summary

1. Project Title

“RISK & RETURN ANALYSIS OF INFRASTRUCTURE MUTUAL FUND

SCHEMES IN GEOJIT FINANCIAL SERVICES”

2. Company where the project is undertaken Geojit Financial Services Ltd,

Egmore.
3. Brief Back ground of the project

Back ground of the project

Mutual Fund is a very hot concept in two tier cities because these cities are
growing at a faster rate. And at the equal rate the standard of living also increasing,
people getting higher exposures in their jobs means they are getting higher salaries that’s
why they are now looking new investment opportunities. Therefore this project report is
written in such a way that the concept, types of mutual funds in India, explains the pros
and cons of the concept and the four phases of mutual fund industry in India.
Variables
In the project the risk and return measurements are calculated for making one
sector funds the calculations are done in excel sheet then it is turned to word document
the followings are the measures for the risk and return calculations.

Risk Measurements

1. STAndard Deviation
2. Beta
3. R-Square
4. Alpha
Importance of the project
I. In this report I have analyze the mutual fund companies and types of
different types of mutual fund schemes and also stated the advantages and
disadvantages of investing in the mutual fund.
II. This project helps the company i.e., “Geojit” to recommend the good sector
fund as I selected i.e., Realty (Real Estate) its valued customers.
III. In this project I have calculated the returns of one sector funds i.e., Realty
sector of the three AMC’s. So reader can also understand the way of
calculating returns.

Objective of the Study

To study in detail about the Mutual Funds and analyze the risk and return associated
with the mutual funds.
Sub Objective of the Study:
To Find out risk & return level of three different funds:
1. RELIANCE INFRASTRUCTURE FUND
2. SBI INFRASTRUCTURE FUND
3. UTI INFRASTRUCTURE FUND
 Risk & Return analysis of mutual fund concept
 Applying the various parameters to measure and evaluate the risk and
respective returns of selected funds
 Recommending good AMC Schemes
 And giving ranks by compare between the three different funds

Methodology
The study is generally exploratory in nature, as it studies the performances of three
mutual funds and rakns them accordingly based on the parameters of risk and returns.
Sources of DATA
The data (i.e., NAV) for the study has been downloaded from the internet
(i.e., websites of the mutual funds) and is converted to returns and used for the study
which formed the primary data for the study.
Tools
The research has been done by using the following statistical and financial techniques

Statistical tools used are:

• Average
• Standard Deviation
• Variance
• Co- Variance
• Correlation

Financial tools are used

• Compounded return
• Beta
• Measure of Alpha

General Introduction

A Mutual fund concept

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 appreciation realized is
shared by ts 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 of a
mutual fund.

In this report I have analyze the mutual fund companies and types of
different mutual fund schemes and also stated the advantages and disadvantages of
investing in the mutual fund.

This project helps the company i.e., “Geojit” to recommend the good sector
fund as I selected i.e., Realty (Real Estate) its valued customers. In this project I
have calculated the returns of one sector funds i.e., Realty sector of the three
AMC’s. So that reader can also understand the way of calculating returns. In this
project report I have calculated the risk measures that is BETA., Standard
Deviation, Alpha & R-Square, by this an investor come to know the concepts, and
even they can also calculate using the spread sheet.

b. Schemes according to Maturity period :

A mutual fund scheme can be classified into open-ended scheme of

close ended scheme depending on its maturity period.

Open-Ended Fund/Scheme
An open-ended fund or scheme is one that is available for subscription and
repurchase on a continuous basis. These Schemes do not have a fixed maturity
period. Investors can conveniently buy and sell units at Net Asset Value-NAV
related prices which are declared on a daily basis. The key feature of open-end
scheme is liquidity.

A close ended fund or scheme has a stipulated maturity period e.g. 5-7
years. The fund is open for subscription only during a specified period at the time
of launch of the scheme. Investors can invest in the scheme at the time of the
initial public issue and there after they can buy or sell the units of the scheme on
the stock exchanges where the units are listed. In order to provide an exit route to
the investors, some close-ended funds give an option of selling back the units to
the mutual fund through periodic repurchase at NAV related prices. SEBI
Regulations stipulate that at least one of the two exit routes is provided to the
investor i.e., either repurchase facility of through listing on stock exchanges.
These mutual funds schemes disclose NAV generally on weekly basis.

Interval Fund
A fund that combines the features of open-ended and closed-ended schemes,
making the fund open for sale or redemption during pre-determined intervals. This fund
is to be opened at every half yearly for the period of 15 days, during that period represent
as open-ended, in the mean time representing as close ended funds

REVIEW OF LITERATURE

Literature on mutual fund performance evaluation is enormous. A few

research studies that have influenced the preparation of this paper substantially are
discussed in this section. Sharpe, William F (1966) suggested a measure for the
evaluation of portfolio performance. Drawing on results obtained in the field of
portfolio analysis, economist Jack L. Treynor he suggested a new predictor of
mutual fund performance, one that differs from virtually all thoseused previously
by incorporating the volatility of a fund’s return in a simple yet meaningful
manner.

Michael C. Jensen (1967) derived a risk adjusted measure of portfolio

performance (Jensen’s Alpha) that estimates how much a manager’s forecasting
ability contributes to fund’s returns. As indicated by Statman (200), The e-SDAR
of a fund portfolio is the excess return of the portfolio over the return of the
benchmark index, where the portfolio is leveraged to have the benchmark index’s
Standard Deviation.

S. Narayan Rao, et.al evaluated performance of Indian Mutual fund in a

bear market through relative performance index, risk-return analysis, Treynor’s
Ratio, Sharpe’s Ratio, Sharpe’s Measure, Jensen’s measure and Fama’s
measure. The study used 269 open-ended schemes (out of total schemes of 433)
for computing relative performance index. Then after excluding funds whose
returns are less than risk-free rate of returns, 58 Schemes are finally used for
further analysis. The results of performance measure suggest that most of mutual
fund schemes in the sample of 58 were able to satisfy investor’s expectations by
giving excess returns over expected returns based on both premium for systematic
risk and total risk.

Bijan Roy, et,al., conducted an empirical study on conditional performance

of Indian mutual funds. This paper used a technique called conditional
performance evaluation on a sample of eighty-nine Indian mutual fund schemes.
This paper measures the performance of various mutual funds with both
unconditional and conditional form of CAPM, Treynor-Mazuy model and
Henrikssson-erton model. The effect of incorporating lagged information
variables into the evaluation of mutual fund managers performance is examined in
the Indian context. The results suggest that the use of conditioning lagged
information variables improves the performance of mutual fund schemes, causing
alphas to shift towards right and reducing the number of negative timing
coefficients. Mishra, et.al (2012) measured mutual fund performance using lower
partial moment. In this paper, measures of evaluating portfolio performance based
on lower partial moment are developed. Risk from the lower partial moment is
measured by taking into account only those in which return is below a pre-
specified “TARGET RATE” like risk free rate. Kshaa Fernanda’s (2003)
evaluated index fund implementation in India. In this paper, tracking error of
index funds in India is measured. The consistency and level of tracing errors
obtained by some well run index fund suggests that it is possible to attain low
levels of tracking error under Indian conditions. At the same time there do see to
be periods where certain index funds appear to depart from the discipline of
indexation. K. Pendaraki et al., studied construction of mutual fund portfolios,
developed a multi criteria methodology and applied it to the Greek Market of
Equity mutual funds. The methodology is based on the combination of discrete
and continuous multi-criteria decision aid methods for mutual fund selection and
composition. UTADIS multi-Criteria decision aid methods employed in order to
develop mutual fund’s performance models. Goal programming model is
employed to determine proportion of selected mutual funds in the final portfolios.

Zakri Y.Bello (2005) matched a sample of socially responsible stock

mutual funds matched to randomly selected conventional funds of similar net
assets to investigate differences in characteristics of assets held, degree of
portfolio diversification and variable effects of diversification on investment
performance. The study found that socially responsible funds do not differ
significantly from conventional funds in terms of any of these attributes.
Moreover, the effect of diversification on investment performance is not different
between the two groups. Both groups underperformed the DOMINI 400 social
Index and S&P 500 during the study period.
Industry Analysis

Mutual fund industry today is a booming investment sector with more than
40 players. And these players bring plenty of schemes to their investors. Some of
them gained the trust of there investors, and still some gained the mutual fund
awards from the Industry. Between these healthy competitions the investors are
getting some good investment schemes. However with a plethora of schemes to
choose from, the investor faces many problems that is he will get struck in
thinking that Should I take more risk or Should I invest in some other investment
sector for an example IN BANKING.

Worldwide good mutual companies over are known by their AMC’s and
this fame is directly linked to their superior stocks selection sill. For Mutual fund
to grow, AMC’s must be held accountable for their selection of stocks. In other
words there must be some performance indicator that will reveal the equality of
stock selection of various AMC’s.

We have seen that many of the mutual fund schemes are giving good
returns to its investors, here we should not assume that the good return giving
schemes are better to invest, because return alone should not be consider as the
basis of measuring of the performance of a mutual fund scheme. It should also
include the risk taken by the fund manager, because as we know that the fund
manager invest the pooled fund into securities in this securities there are many
companies like large cap companies small cap companies and mid cap companies
while investing into these share market the fund manager has to study the
companies and invest, if he invest in high risk yielding companies then there will
be very risk in investing into such type of fund.

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

fluctuations in the returns generated by it. The higher the fluctuation 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 result 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 measure 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
visa-versa market. 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, by using risk return relationship, we try to
assess the competitive strength of the mutual funds vice versa one another in a
better way.