INDEX

FOREWARD

INTRODUCTION TO MUTUAL FUNDS

INDUSTRY PROFILE

COMPANY PROFILE

NEED OF THE STUDY

SCOPE

OBJECTIVES

METHDOLOGY

HYPOTHESIS

DATA ANALYSIS

OBSERVATIONS

INVESTORS PROFILE

CONCLUSIONS

LIMITATIONS OF THE STUDY

SUGGESTIONS

ANNEXURE 1

ANNEXURE 2

BIBLIOGRAPHY
 ACKNOWLEDGEMENT

The presentation of this project has given me an opportunity to express my

profound gratitude to all concern in guiding me. Foremost I would like to thank

madam Shashi Kala (Manager of Kotak AMC) for giving me an opportunity to

undertake this projectwork.

I would like to thank the HDFC Bank staff for giving me support and the

required material on time.

I would also thank Mr.Sanjay Dara the principal of our college, Velangini

Institute of Management, Bogaram (V), Keesara (M), for providing an

opportunity to undergo a project study program. I would like to thank Madam

Srilakshmi for assisting and guiding me to complete the project work.

PRAVEEN KUMAR .G
 FOREWORD

Investments goals vary from person to person. While somebody wants security,
others might give more weightage to returns alone. Somebody else might want
to plan for his child's education while somebody might be saving for the
proverbial rainy day or even life after retirement. With objectives defying any
range , it is obvious that the products required will vary as well.

Indian Mutual Funds industry offers a plethora of schemes and serves broadly
all tupe of investors. The range of products includes equity funds, debt, liquid,
gilt and balanced funds. There are also funds meant exclusively for young and
old, small and large investors. Moreover, the setup of a legal structure, which
has enough teeth to safeguard investors intersts, ensures that the investors are
not cheated out of their hard earned money. All in all, benefits provided by
them cut across the boundaries of investor category and thus create for them,
a universal appeal.

Investors of all categories could choose to invest on their own in multiple

options but opt for Mutual Funds for the sole reason that all benefits come in a
package.The Mutual Fund industry is having its hands full to cater to various
needs of the investors by coming up with new plans, schemes and options with
respect to rate of returns, dividend frequency and liquidity.
`
In view of the growing competition in the Mutual Funds industry, it was felt
necessary to study the investors orientation towards Mutual Funds i.e. their
pattern of risk apetite and preferences in various schemes, plans and options in
order to provide a better service,

The study is an attempt in that direction.

Introduction to Mutual Funds:

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
realised 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
investors and 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 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 proprotion to their investments share the profits of 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.

ORGANISATION OF A MUTUAL FUND:

There are many entities involved and the diagram below illustrates the
organizational set up of a Mutual 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.

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. When the market is in doldrums, most of the
equity funds will also experience a downturn. However, the company specific
risks are largely eliminated due to professional fund management.

MUTUAL FUND SCHEME TYPES:

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.

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.

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.
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.

Equity Tax Saving Schemes

These work on similar lines as diversified equity funds and seek to achieve
long-term capital 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.

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.

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.

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.
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.

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.

Medium-Term Gilt Schemes

These schemes invest in government securities. The average maturity of the
securities in the scheme is over three years.

Short-Term Gilt Schemes

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

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.

Monthly Income Plans (MIPs)

These are basically debt schemes, which make marginal investments in the
range of 10-25% in equity to boost the scheme’s returns. MIP schemes are ideal
for investors who seek slightly higher return that pure long-term debt schemes
at marginally higher risk.
NET ASSET VALUE (NAV) – AN EXPLANATION

When a Mutual Fund scheme is first offered to the public, the offer price is
usually Rs.10 per unit. After the amount raised is invested, the total funds
under the control of the Mutual Fund increases or decreases depending upon
the fluctuation in the market value of the investments. As a result, this Rs.10
per unit becomes higher or lower. This is the NAV or the market value of each
unit of the scheme. This is explained with an example:

Initial amount collected by the Mutual Fund Rs.100 crores

Number of initial units issued, taking Rs.10 per unit as Rs.10 crores
the initial value per unit
This initial amount is now invested and the market Rs.110 crores
value goes up to
Taking the initial number of units (i.e. 10crore units), Rs.11 (Rs.110 crores
the value per unit (the NAV) will now be divided by 10 crore units.)
Rs.11 is the NAV of each unit.

This is a simplistic example in reality there are a number of factors affecting

the NAV such as expenses charged to the scheme, fresh unit sales and
repurchases, bonuses issued, dividends declared, etc.

DIFFERENT MODES OF RECEIVING THE INCOME EARNED FROM MUTUAL

FUND INVESTMENTS
Mutual Funds offer three methods of receiving income:
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.
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
underlying portfolio.

Dividend Re-investment Plan

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.

MUTUAL FUND INVESTING STRATEGIES:

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.

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

Systematic Transfer Plans (STPs)

They allow the investor to transfer on a periodic basis a specified amount from
one scheme 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.
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:

ASSET ALLOCATION
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.1lakh spread over a number of investment options as demonstrated below:

Investment Type Percentage of Total portfolio Investors portfolio

Allocation (% of of the Mutual allocation (Rs.)
total portfolio) Fund scheme
(Rs. In crores)
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 10% 10 10,000
Debentures
Institutuion Bonds 9% 9 9,000
Money Market 4% 4 4,000
Total 100% 100 1,00,000

Thus ‘Asset Allocation’ is allocating your investments into different investment

options depending on your risk profile and return expectations.

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 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.

PROFESSIONALS 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, this professionalism is built in when you invest in the Mutual Fund.

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.

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.

TRANSPARENCY
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 manager’s investment strategy
and outlook.

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 investor’s total income.

INVESTING IN STOCK MARKET INDEX

Index schemes of mutual funds give you the opportunity of investing in scrips
that make 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.

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)

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.
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
don’t offer.

RISKS ASSOCIATED WITH MUTUAL FUNDS

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:

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.

POLITICAL RISK
Changes in the tax laws, trade regulations, administered prices, etc are some
of the many political factors that create market risk. Although collectively, as
citizens, we have indirect control through the power of our vote individually,
as investors, we have virtually no control.

INFLATION RISK
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.

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 company’s equity resulting
in proportionate fall in the NAV of the Mutual Fund scheme, which has invested
in the equity of such a company.

ECONOMIC RISK
Economic risk involves uncertainty in the economy, which, in turn, can have an
adverse effect on a company’s 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.

INDUSTRY PROFILE
The Mutual Fund industry in India started in 1963 with the formation of Unit
Trust of India, at the initiative of the Government of India and Reserve Bank of
India. The history of Mutual Funds in India can be broadly divided into four
distinct phases.

First Phase - 1964-87

Unit Trust of India (UTI) was established on 1963 by an act of parliament. It

was set up by 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, 700crores of assets under management.

Second Phase- 1987-1993(Entry of Public Sector Funds)

1987 marked the entry of non-UTI, public sector Mutual Funds set up by public
sector banks and Life Insurance Corporation of India (LIC) and General
Insurance Corporation of India (GIC). SBI Mutual Fund was the first non -UTI
Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec
87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov
89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC
established its Mutual Fund in June 1989 while GIC had set up its Mutual Fund
in June 1989 while GIC had set up its Mutual Fund in December 1990.
At the end of 1993, the Mutual Fund industry had assets under management of
Rs.47, 004crores.

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. 1,21,805crores. The Unit Trust of India
with Rs.44, 541crores 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 January 2003, representing broadly, the assets of US 64 scheme,
assured return and certain other schemes. The specified Undertaking of Unit
Trust of India, functioning under an administrator and under the rules framed
by Government of India and does not come under the purview of the Mutual
Fund Regulations.
The second is the UTI Mutual Fund 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.

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 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-à-vis market. The more
responsive the NAV of a Mutual Fund is to the changes in the market; higher
will be its beta. Beta is calculated by relating the returns on a Mutual Fund
with the returns in the market. While unsystematic risk can be diversified
through investments in a number of instruments, systematic risk cannot. By
using the risk return relationship, we try to assess the competitive strength of
the Mutual Funds vis-à-vis one another in a better way.

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

several eminent authors have worked since 1960s to develop composite
performance indices to evaluate a portfolio by comparing alternative portfolios
within a particular risk class. The most important and widely used measures of
performance are:

 The Treynor Measure

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

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.

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.

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.

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, Rm is average market return during the given period. After calculating
it, alpha can be obtained by subtracting required return from the actual return
of the fund.

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

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 the excess 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. 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 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 appetite.

PROFILE OF KOTAK MAHINDRA

 Kotak Mahindra Mutual Fund (KMMF) is managed by Kotak Mahindra Asset
Management Company Ltd., a wholly owned subsidiary of Kotak Mahindra
Bank Ltd. Kotak Mahindra Mutual Fund launched its Schemes in December 1998
and today manages assets over and above Rs. 7353.82 cr. contributed by more
than 1,99,818 investors in various schemes. KMMF has to its credit the
launching of innovative schemes and plans like Kotak Gilt and Free Life
Insurance with Kotak Bond Deposit Plan.

Kotak Mahindra is one of India's leading financial institutions, offering complete

financial solutions that encompass every sphere of life. From commercial
banking, to stock broking, to mutual funds, to life insurance, to investment
banking, the group caters to the financial needs of individuals and corporates.

The group has a net worth of around Rs.1,700 crore and employs over 4,000
employees in its various businesses. With a presence in 74 cities in India and
offices in New York, London, Dubai and Mauritius, it services a customer base
of over 5,00,000
Kotak Mahindra has international partnerships with Goldman Sachs (one of the
world's largest investment banks and brokerage firms), Ford Credit (one of the
world's largest dedicated automobile financiers) and Old Mutual (a large
insurance, banking and asset management conglomerate).

Kotak Mahindra Asset Management Company Limited (KMAMC), a wholly owned

subsidiary of KMBL, is the asset manager for Kotak Mahindra Mutual Fund
(KMMF). KMAMC started operations in December 1998 and has over 1,99,818
investors in various schemes. KMMF offers schemes catering to investors with
varying risk - return profiles and was the first fund house in the country to
launch a dedicated gilt scheme investing only in government securities.

The Kotak Mahindra Group was born in 1985 as Kotak Capital Management
Finance Limited. This company was promoted by Uday Kotak, Sidney A. A.
Pinto and Kotak & Company. Industrialists Harish Mahindra and Anand Mahindra
took a stake in 1986, and that's when the company changed its name to Kotak
Mahindra Finance Limited.

Since then it's been a steady and confident journey to growth and
success.
Kotak Mahindra Finance Limited starts the activity of Bill Discounting
Kotak Mahindra Finance Limited enters the Lease and Hire Purchase market.
The Auto Finance division is started the Investment Banking Division is started.
Takes over FICOM, one of India’s largest financial retail marketing networks

Enters the Funds Syndication sector

1995 Brokerage and Distribution businesses incorporated into a separate

company - Kotak Securities. Investment Banking division incorporated into a
separate company - Kotak Mahindra Capital Company.

1996 The Auto Finance Business is hived off into a separate company - Kotak
Mahindra Primus Limited. Kotak Mahindra takes a significant stake in Ford
Credit Kotak Mahindra Limited, for financing Ford vehicles. The launch of
Matrix Information Services Limited marks the Group’s entry into information
distribution.

1998 Enters the mutual fund market with the launch of Kotak Mahindra Asset
Management Company.
Kotak Mahindra ties up with Old Mutual plc. For the Life Insurance business.
Kotak Securities launches kotakstreet.com - its on-line broking site. Formal
commencement of private equity activity through setting up of Kotak Mahindra
Venture Capital Fund.

2001Matrix sold to Friday Corporation

Launches Insurance Services

2003 Kotak Mahindra Finance Ltd. converts to bank Kotak Mahindra is one of
India's leading financial institutions, offering complete financial solutions cities
in India and offices in New York, London, Dubai and Mauritius, it services a
customer base of over 5,00,000.
has international partnerships with Goldman Sachs (one of the world's largest
investment banks and brokerage firms), Ford Credit (one of the world's largest
dedicated automobile financiers) and Old Mutual (a large insurance, banking
and asset management conglomerate that encompass every sphere of life.
From commercial banking, to stock broking, to mutual funds, to life insurance,
to investment banking, the group caters to the financial needs of individuals
and corporates.
The group has a net worth of around Rs.1,700 crore and employs over 4,000 employees
in its various businesses. With a presence in 74 cities in India and offices in New
York, London, Dubai and Mauritius, it services a customer base of over
5,00,000.

Kotak Mahindra has international partnerships with Goldman Sachs (one of the
world's largest investment banks and brokerage firms), Ford Credit (one of the
world's largest dedicated automobile financiers) and Old Mutual (a large
insurance, banking and asset management conglomerate).
Kotak Mahindra Asset Management Company Limited (KMAMC), a wholly owned
subsidiary of KMBL, is the asset manager for Kotak Mahindra Mutual Fund
(KMMF). KMAMC started operations in December 1998 and has over 1,99,818
investors in various schemes. KMMF offers schemes catering to investors with
varying risk - return profiles and was the first fund house in the country to
launch a dedicated gilt scheme investing only in government securities.
Kotak Investment Banking* (KIB), India's premier Investment Bank is a strategic
joint venture between Kotak Mahindra Bank Limited (KMBL) and the Goldman
Sachs Group, LLP.
KMBL has come into existence in March 2003 through the conversion of Kotak
Mahindra Bank Ltd. into a Commercial Bank. Kotak Mahindra is one of India's
leading financial institutions, offering complete financial solutions that
encompass every sphere of life. From commercial banking, to stock broking, to
mutual funds, to life insurance, to investment banking, the group caters to the
financial needs of individuals and corporates.
The group has a net worth of over Rs.1,550 crore and employs over 3,000
employees in its various businesses. With a presence in 60 cities in India and
offices in New York, London, Dubai and Mauritius, it services a customer base
of over 5,00,000.
Kotak Mahindra has international partnerships with Goldman Sachs (one of the
world's largest investment banks and brokerage firms), Ford Credit (one of the
world's largest dedicated automobile financiers) and Old Mutual (a large
insurance, banking and asset management conglomerate).
Kotak Investment Banking (KIB) and Kotak Institutional Equities represent the
securities business of the Kotak Mahindra Group **(KI), both, joint ventures
with Goldman Sachs involved in brokerage, distribution and research.
We are a full service Investment Bank bringing to our clients the global reach
and expertise of Goldman Sachs and the local knowledge and skills of Kotak
Mahindra. As a full service Investment Bank, Kotak Investment Baking’s core
business areas include Equity Issuances, Mergers & Acquisitions, Advisory
Services and Fixed Income Securities and Principal Business.
Our strength lies in understanding our clients' businesses backed by a strong
research team and an extensive distribution network, which spans a wide
variety of investors across the country. We are also the first Indian Investment
Bank to be registered with the Securities & Futures Authority in the UK
(through our wholly owned subsidiary) and the National Association of
Securities and Dealers in the USA.
We are also the first Indian Investment Bank to be appointed by the
Government of India as a Co-lead Manager in their international divestment of
Gas Authority of India Ltd through a GDR offering.
We are today well positioned in an increasing globalised environment to
provide full service to its clients based either in India or overseas.

NEED OF THE STUDY

The project’s 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 to invest 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 today’s complex and modern financial
scenario.

The study is basically made to analyse the various open-ended equity schemes
of different 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.

SCOPE

The study here has been limited to analyse open-ended equity schemes of
different Asset Management Companies namely Reliance Capital, Franklin
Templeton, HDFC Mutual Funds each scheme is analysed according to its
performance against the other, based on factors like Sharpe’s Ratio, Treynor’s
Ratio, β (Beta) co-efficient, Returns.
OBJECTIVES

1. To project Mutual Fund as the ‘productive avenue’ for investing

activities.
2. To show the wide range of investment options available in Mutual Funds
by explaining its various schemes.
3. To compare the schemes based on Sharpe’s ratio, Treynor’s ratio, β Co-
efficient, Returns and show which scheme is best for the investor based
on his risk profile.
4. To help an investor make a right choice of investment, while considering
the inherent risk factors.
5. To understand the recent trends in Mutual Funds world.

RESEARCH METHODOLOGY

The methodology involves randomly selecting open-ended equity schemes of

different fund houses of the country. The data collected for this project is
basically from two sources, they are

1. Primary sources: The monthly fact sheets of different fund houses and
research reports from banks.
2. Secondary sources: Collection of data from Internet and books.

HYPOTHESIS
The hypothesis of the study involves comparison between
Kotak 30
Reliance capital Growth Fund,
HDFC Capital Builder Fund.
The comparison between these schemes is made based on the following factors

A) Sharpe’s Ratio
B) Treynor’s Ratio
C) β (Beta) co-efficient.
D) Returns

A) The Sharpe’s 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.

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

C) β (Beta) Co-efficient:

Systematic risk is measured in terms of Beta, which represents fluctuations in

the NAV of the fund vis-à-vis market. The more responsive the NAV of a Mutual
Fund is to the changes in the market; higher will be its beta. Beta is calculated
by relating the returns on a Mutual Fund with the returns in the market. While
unsystematic risk can be diversified through investments in a number of
instruments, systematic risk cannot. By using the risk return relationship, we
try to assess the competitive strength of the Mutual Funds vis-à-vis one another
in a better way.
β (Beta) is calculated as N (Σ XY) – Σ XΣ Y
N (Σ X2) – (Σ X) 2

D) Returns: Returns for the last one-year of different schemes are taken for
the comparison and analysis part.
DATA ANALYSIS:

Note : All the data used for analysis is taken upto the period 31-
march-2005

KOTAK 30 (FUND MANAGER ANAND SHAH)

 Kotak 30 is an aggressive diversified equity scheme.

 Kotak 30 follows a bottom up stock specific aproach and invests in a mix

of large cap stocks.

 The fund has portfolio turnover ratio.

 The fund manager is bullish on the matrkets 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 fundmanagers sees
high oil prices a big concern in the global markets.
 The fund has invested into equities to the tune of 93% of the total
portfolio .the fund manager woukd continue to hold 7-10% of the
portfolio in cash .
 During the month the fund has exited out of the stocks like BPCL,Tata
Chemiicals and Glaxo pharma.However the fund has entered into stocks
wockhardt and HCL Technologies.
 The fund is recommended for investors willing to take above average
risk.
 KOTAK 30 PERFORMANCE :

YEAR Rp Rm Rf (Rm- (Rp- X2 XY (X D2

Rf) Rf) -Xba
X Y r)
D
LAST 1 13.84 8.57% 5.5% 3.07 8.34 9.425 25.6 .78 0.608
YEAR % 03
LAST 3 38.67 22.62 6% 16.62 32. 276.2 542. 14.3 205.3
YEARS % % 67 2 97 3 4
LAST 5 12.56 5.73% 10% -4.27 2.56 18.23 - -6.56 43.03
YEARS % 3 10.9
3
SINCE 25.20 11.74 18% -6.26 7.2 39.18 - -8.55 73.1
INCEPTION % % 45.0
7
TOTAL 9.16 50.7 343. 512. 322.
7 06 57 07

Xbar = Σ X / N = 9.16/ 4

= 2.29

Std.Deviation (σ ) = √ Σ (X-Xbar)2 / N

= √322.078/4

= 8.973

Co-efficient = N (Σ XY) – Σ XΣ Y
N (Σ X2) – (Σ X) 2

= 4(512.57) – (9.16)(50.77)
4(343.058) – (9.16) 2

= 1.23

Sharpe’s Ratio = Rp-Rf / σ

= 50.77/8.973

= 5.658
Treynor’s Ratio = Rm-Rf / β

= 9.16/1.23

= 7.447

RELIANCE GROWTH FUND (FUND MANAGER :Mr Sunil Singhania)

 Relaiance Growth fund is an aggressive diversified equity scheme

 Reliance Growth fund follows a bottom up stock specific aproach and
invests in a mix of large and mid cap stocks.
 The fund has a high portfolio turnover ratio.
 The fund manager is bullish on the matrkets 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 fundmanagers sees
high oil prices a big concern in the global markets.
 The fund has invested into equities to the tune of 93% of the total
portfolio .the fund manager woukd continue to hold 7-10% of the
portfolio in cash .
 During the month the fund has exited out of the stocks like BPCL,Tata
Chemiicals and Glaxo pharma.However the fund has entered into stocks
wockhardt and HCL Technologies.
 The fund is recommended for investors willing to take above average
risk.
 RELIANCE GROWTH FUND PERFORMANCE:
YEAR Rp Rm Rf (Rm- (Rp- X2 XY (X D2
Rf) Rf) -Xba
X Y r)
D
LAST 1 58.45 17.38 5.5% 11.88 52.95 141.1 629. -0.11 0.01
YEAR % % 3 04
LAST 3 69.62 26.08 6% 20.08 63.62 403.2 1277 8.09 65.44
YEARS % % 0 .48
LAST 5 24.85 3.71% 10% 6.29 14.85 39.56 93.4 -5.7 32.49
YEARS % 0
SINCE 29.89 8.27% 18% 9.73 11.89 94.67 115. -2.26 5.10
INCEPTION % 68
TOTAL 47.98 143. 678. 211 103.
31 56 5.6 04

Xbar = Σ X / N = 47.98 / 4

= 11.99

Std.Deviation (σ ) = √ Σ (X-Xbar)2 / N

= √103.42/4

= 5.86

Co-efficient = N (Σ XY) – Σ XΣ Y
N (Σ X2) – (Σ X) 2

= 4(2115.6) – (47.98)(143.31)
4(678.56) – (47.98) 2

= 3.84

Sharpe’s Ratio = Rp-Rf / σ

 = 143.31/5.86

= 24.45

Treynor’s Ratio = Rm-Rf / β

= 143.31/3.84

= 37.32

HDFC CAPITAL BUILDER FUND(Fund Manager: Mr.Tushar Pradhan)

 HDFC Capital Builder is a focused mid cap fund which looks at a mix of
value and growth investing.
 The fund manager feels that the recent rally in the market was driven by
liquidity.
 The fund manager is of the view that the equity markets can give
returns of around 15-20% over a time frame of 1-2yrs. The fund manager
also believes that equity would be a preferred asset class as other
avenues offer lower returns.
 The fund manager has reduced its exposure to cash at 9% of the total
portfolio.
 The fund manager is bullish on the Transport,Capital Goods,Auto
Ancilliaries sectors.
 The fund has a fairly diversified portfolio with the top 5 stocks
accounting for only 21% of the total portfolio.
 During the month the fund has added on to stocks like Punjab National
Bank and Megasoft while it has increased its holdings in Cranes software.
However, it has exited from TVS motor company from its portfolio.
 The fund is recommended to investors willing to take average risk.
 HDFC CAPITAL BUILDER FUND PERFORMANCE:

YEAR Rp Rm Rf (Rm-Rf) (Rp- X2 XY (X D2

X Rf) -Xbar)
Y D
LAST 1 45.60 11.2 5.5% 5.75 40.1 33.06 230.5 0.8 0.64
YEAR 5 7
LAST 3 46.18 30.3 6% 24.36 40.18 593.4 978.7 19.41 376.7
YEARS 6 8 4
LAST 5 24.14 9.59 10% -0.41 14.14 0.16 -5.79 -5.36 28.72
YEARS
LAST 10 13.71 8.12 18% -9.88 -4.29 97.61 42.38 -14.83 219.9
YEARS 2
TOTAL 19.82 90.13 724.2 1245. 626.
3 94 02

Xbar = Σ X / N = 19.82 / 4

= 4.95

Std.Deviation (σ ) = √ Σ (X-Xbar)2 / N

= √626.02/4

= 12.51

co-efficient = N (Σ XY) – Σ XΣ Y
N (Σ X2) – (Σ X) 2

= 4(1245.94) – (19.82)(90.13)
4(724.23) – (19.82) 2

= 1.27
Sharpe’s Ratio = Rp-Rf / σ

= 90.13/12.51

= 7.2

Treynor’s Ratio = Rm-Rf / β

= 19.82/1.27

= 15.6
OBSERVATIONS

Observations are made from the data analysis.

The following observations are drawn from the analysis of schemes:

Reliance KOTAK HDFC capital

Growth 30 Builder Fund
Fund
Returns for 1 yr 54.85% 50.50% 45.60%
Sharpe’s Ratio 24.45 10.48 7.20
Treynor’s Ratio 37.32 13.00 15.6
β Co-efficient 3.84 1.40 1.27
Std.Deviation(σ 5.86 12.90 12.51
)

INVESTORS PROFILE

An investor normally prioritizes his investment needs before undertaking an

investment. So different goals will be allocated to different proportions of the
total disposable amount. Investments for specific goals normally find their way
into the debt market as risk reduction is of prime importance, this is the area
for the risk-averse investors and here, Mutual Funds are generally the best
option. One can avail of the benefits of better returns with added benefits of
anytime liquidity by investing in open-ended debt funds at lower risk, this risk
of default by any company that one has chosen to invest in, can be minimized
by investing in Mutual Funds as the fund managers analyse the companies
financials more minutely than an individual can do as they have the expertise
to do so.

Moving up the risk spectrum, there are people who would like to take some risk
and invest in equity funds/capital market. However, since their appetite for
risk is also limited, they would rather have some exposure to debt as well. For
these investors, balanced funds provide an easy route of investment, armed
with expertise of investment techniques, they can invest in equity as well as
good quality debt thereby reducing risks and providing the investor with better
returns than he could otherwise manage. Since they can reshuffle their
portfolio as per market conditions, they are likely to generate moderate
returns even in pessimistic market conditions.

Next comes the risk takers, risk takers by their nature, would not be averse to
investing in high-risk avenues. Capital markets find their fancy more often than
not, because they have historically generated better returns than any other
avenue, provided, the money was judiciously invested. Though the risk
associated is generally on the higher side of the spectrum, the return-potential
compensates for the risk attached.
CONCLUSIONS

After interpreting the above data the following conclusions have been made
Reliance Growth fund:
 Since the β ratio is high it implies the risk is high
 It is a very aggressive fund
 It yields high returns
 It is suitable for a customer who wishes take high risk and at the same
time gain higher returns with in a time period of 1year.

Kotak 30:
 This fund involves medium risk
 Franklin prima investments are made in Mid caps and Small caps
 It yields lower returns compared to RGF
 It is suitable for investors looking for medium risk and moderate returns
with in a time period of 1-2 years.

HDFC Capital Builder Fund:

 It is a value based fund
 It is a low risky fund
 It yields lesser returns
 It is suitable for investors with low risk and need to make a long term
investment ranging from 2-3 years.
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 Three

AMCs.

SUGGESTIONS

 The Asset Management Company must design the portfolio in such a way,
to lessen the risk that is prevalent in the market.

 The Asset Management Company must design the portfolio in such a way,
to increase the returns.

 The Asset Management Company must make sure to pay regular

dividends to the investor

 The Asset Management Company must dedicate itself to a more

professional management of the Fund because it motivates the investors
and potential investors to invest in Mutual Funds.
  The Asset Management Company must make the most advantageous use
of print and electronic media in order to motivate the investors and
potential investors to invest in Mutual Funds.

 The Asset Management Company must make sure that the Net Asset
Value (NAV) of the fund remains considerably high because it is the most
important factor that would be checked by the investors before
investing in Mutual Funds.

 The Asset Management Company must organize itself professionally and

manage the Fund efficiently and with dedication to earn the goodwill of
the public.

ANNEXURE 1

Sponsor

Sponsor is the person who acting alone or in combination with another body
corporate establishes a Mutual Fund. Sponsor must contribute at least 40% of
the net worth of the Investment Managed and meet the eligibility criteria
prescribed under the securities and Exchange Board of India (Mutual Fund)
Regulations, 1996. The Sponsor is not responsible or liable for any loss or short
fall resulting from the operation of the schemes beyond the initial contribution
made by it towards setting up the Mutual Fund.

Trust

The Mutual Fund is constituted as a trust in accordance with the provisions of

the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under
the Indian Registration Act, 1908.

Trustee
Trustee is usually a company (Corporate body) or a Board of Trustees (body of
individuals). The main responsibility of the trustee is to safeguard the interest
of the unit holders and inter alia ensure that the AMC functions in the interest
of investors and in accordance with the securities and Exchange Board of India
(Mutual Funds) Regulations, 1996, the provisions of the Trust Deed and the
Offer Documents of the respective Schemes. Atleast 2/3rd directors of the
Trustee are independent directors who are not associated with the Sponsor in
any manner.

Asset Management Company (AMC)

The AMC if so authorised by the Trust Deed appoints the Registrar and Transfer
Agent to the Mutual Fund. The Registrar processes the application form,
redemption requests and dispatches account statements to the unit holders.
The Registrar and Transfer agent also handles communications with investors
and updates investor records.

Unit Holders

Unit Holders are those investing in Mutual Fund.

Custodian

Custodian is the agency, which will have the legal possession of all the
securities purchased by the Mutual Fund.
SEBI

The Stock Exchange Board of India (SEBI) is regulatory authority of the Mutual
Funds.

ANNEXURE 2

Equity Fund is the one in which much of the portfolio is invested in corporate
securities and Debt Fund is the one in which much of the portfolio is invested
in Gilt and money market securities.
In an Open-ended Mutual Fund, there are no limits on the total size of the
corpus. Investors are permitted to enter and exit the open-ended Mutual Fund
at any point of time at a price that is linked to the net asset value (NAV).
In case of Closed-ended funds, the total size of the corpus is limited by the
size of the initial offer.

A dividend plan entails a regular payment of dividend to the investors.

A reinvestment plan is a plan where these dividends are reinvested in the
scheme itself.
A growth plan is one where no dividends are declared and investor only gains
through capital appreciation in the NAV of the fund.

NAV is the net asset value of the fund. Simply put it reflects what the unit held
by an investor is worth at current market prices.

The broad guidelines issued for a Mutual Fund:

SEBI is the regulatory authority of Mutual Funds. SEBI has the following broad
guidelines pertaining to Mutual Funds:

 Mutual Funds should be formed as a trust under Indian Trust Act and
should be operated by Asset Management Companies.

 Mutual Funds need to set up a Board of Trustee Companies. They should

also have their Board of Directories.

 The net worth of the Asset Management Company should be at least Rs.5
crore.

 Asset Management Companies and Trustees of a MF should be two

separate and distinct legal entities.

 The Asset Management Companies or any of its companies cannot act AS

managers for any other fund.

 Asset Management Company has to get the approval of SEBI for its
articles and Memorandum of Association.

 All Mutual Fund Schemes should be registered with SEBI.

  Mutual Funds should distribute minimum of 90% of their profits among
the investors.

BIBLIOGRAPHY

Layman’s Guide to Mutual Funds By “OUTLOOK”

Mutual Funds Primer By “ECONOMIC TIMES”

www.amfiindia.com
www.kotakmutual.com
www.reliancemutual.com
www.franklintempletonindia.com