CONTENTS Chapter I Page No Introduction of the study 3 Need and importance of the study Objectives of the study 6 Methodology

logy Limitations 8 Chapter II Industry Profile - 33 Company Profile Chapter III Theoretical framework of the study Chapter IV Tabulation and Analysis - 134 Chapter V Summary - 137 Findings -139 Suggestions 141 BIBLIOGRAPHY 42

4 - 5 7

10 34 - 46 48 - 91 93

136 138 1401

Chapter I

INTRODUCTION The study regarding the COMPARISON OF FUND PERFORMANCE WITH BENCHMARK INDEX gives an overview of the fund performance state of the Mutual Fund industry in India. The study reveals the present trends pertaining in the Mutual Fund Industry and the ups and downs in the recent past. As the industry is rapidly growing from t he last decade, which is sign for the enlistment of the financial services, whic h are available in our country. The evolving economic scenario offers promising opportunities to all the investors. The emerging view of present trends will offer handsome returns fro m stock market either directly or through Mutual Fund products. However, in recent times Mutual Funds are doing well with the entry of p rivate asset management companies. The Asset Management Companies are coming up with various new schemes that suit the requirements of the small investors. One of the alternatives available for the investors to minimize risk is mutual fund.

So the investors should select the best suitable funds from the available schem es which suit their risk tolerance level.

NEED AND IMPORTANCE OF THE STUDY The need for investment arises when there is income over expenditure of an individual. Savings will enable an investor to think twice and thrice, where to invest what are the investment opportunities available what type of alternati ve will yield good returns to his investment. Mutual Funds will be one of the alternatives available to the retail inv estor in now a day, which are offering fruitful returns with some extent of safe ty. The Indian Mutual Fund Industry with more than 500 funds offers a veritable choice for investing. But the large number and variety of funds also poses a cha llenge in selection of right fund that meets ones investment needs. Mutual Funds are the products which are slowly gaining importance from t he part of the investors. Due to fall of interest rates, the investors are going for those options of investment, which has safety. In that way Mutual Funds are gaining importance because of their portfolio of investment and professional in vestment objectives. It is very essential for an investor to know about the present trend of the Mutual Fund industry to invest in the Mutual Funds. The traditional view is not to keep all eggs in one basket. mutual funds invest in a diverse range of securities and over many industries. Hence, all th e eggs are not placed in one basket. Normally an investor has to have large sum of money to achieve this objective, if he invests directly in the stock market. Through mutual funds, he can achieve diversification of portfolio at a fraction of the cost. So, diversification reduces the portfolio reduces the portfolio ris k and helps to maximize the returns of small investors.

OBJECTIVES OF THE STUDY The major objectives of the study regarding the COMPARISON OF FUND PERFORMANCE WI TH BENCHMARK INDEX are: To study the Growth of Mutual Fund Industry in India To study the tax benefits available to the investors of mutual funds. To study the growth of prudential asset management company. To understand the techniques for calculation of risk and return associated with mutual funds. To compare the performance of schemes of PRUICICI with benchmark index.

METHODOLOGY OF THE STUDY The study is based on the secondary data. The net asset values of the va rious funds and the market index for the year 2003-2005 is collected for the pur pose of analysis. The required data is collected from new letters regarding the mutual fund operations, investor guidance program, bulletins, fact sheets and va rious web sites related to the mutual fund companies.

LIMITATIONS OF THE STUDY The risk free rate of return assumed as 5% per annum. The study is limited only to five funds of PRUICICI due to time constraint. The past performance of mutual funds is not an indicator of future performance o f the schemes as they depend on the market performance. .

Chapter II

Profile of mutual fund industry in India Mutual funds in India The end of millennium marks 36 years of existence of mutual funds in this countr y. This ride through these 36 years is not been smooth. Investor is still divi ded. While some are for mutual funds others are against it. UTI commenced its operations from July 1964. The impetus for establishing a for mal institution came from the desire to increase the prosperity of the middle an d lower groups to save and to invest. UTI came into existence during a period m arked by great political and economic uncertainty in India. With war on the bor ders and economic turmoil that depressed the financial market, entrepreneurs wer e hesitant to enter capital market. The already existing companies found it difficult to raise fresh capital, as inv estors did not respond adequately to new issues. Earnest efforts were required to canalize savings of the community into productive uses in order to speed up t he process of industrial growth. The then Finance Minister, T.T.Krishnamachari set up the idea of a unit trust th at would be open to any person or institution as we see it is intended to cater t

o the needs of individual investors, and even among them as far as possible, to those whose means are small. Future Scenario The asset base will continue to grow at an annual rate of about 30 to 35 % over the next few years as investors shift their assets from banks and other tr aditional avenues. Some of the older public and private sector players will eith er close shop or be taken over. Out of ten public sector players five will sell out, close down or merge with stronger players in three to four years. In the private sector this trend has already started with two mergers and one takeover. Here too some of them w ill down their shutters in the near future to come. But this does not mean there is no room for other players. The market wi ll witness a flurry of new players entering the arena. There will be a large num ber of offers from various asset management companies in the time to come. Some big names like Fidelity, Principal, Old Mutual, etc. are looking at Indian mark et seriously. One important reason for it is that most major players already ha ve presence here and hence these big names would hardly like to get left behind. The mutual fund industry is awaiting the introduction of derivatives in India as this would enable it to hedge its risk and this in turn would be reflec ted in its Net Asset Value (NAV). SEBI is working out the norms for enabling th e existing mutual fund schemes to trade in derivatives. Importantly, many marke t players have called on the Regulator to initiate the process immediately, so t hat the mutual funds can implement the changes that are required to trade in Der ivatives.

HISTORY OF MUTUAL FUNDS: The mutual fund industry in India started in 1963 with the formation of Unit Tru st of India, at the initiative of the Government of India and Reserve Bank the. The history of mutual funds in India can be broadly divided into four distinct p hases. First Phase 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It wa s set up by the Reserve Bank of India and functioned under the Regulatory and ad ministrative control of the Reserve Bank of India. In 1978 UTI was de-linked fro m the RBI and the Industrial Development Bank of India (IDBI) took over the regu latory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under management. Second Phase 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public s ector 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 e stablished in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab Nationa l Bank Mutual Fund (Aug 89), Indian Bank Mutual /Fund (Nov 89), Bank of India (J un 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990.

At the end of 1993, the mutual fund industry had assets under management of Rs.4 7, 004 crores. Third Phase 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund familie s. 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 govern ed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the f irst 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 t he SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual fu nds setting up funds in India and also the industry has witnessed several merger s and acquisitions. As at the end of January 2003, there were 33 mutual funds wi th total assets of Rs. 1, 21,805 crores. The Unit Trust of India with Rs.44, 541 crores of assets under management was way ahead of other mutual funds. Fourth Phase since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI w as bifurcated into two separate entities. One is the Specified Undertaking of th e 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 Ind ia, 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.76,000cror es of assets under management and with the setting up of a UTI Mutual Fund, conf orming 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, the re were 29 funds, which manage assets of Rs.153108crores under 421 schemes. The graph indicates the growth of assets over the years

GROWTH IN ASSETS UNDER MANAGEMENT INVESTMENT PHILOSOPHY Equity: Our Investment philosophy revolves around the concept of growth at a rea sonable price whereby we invest in growth oriented stocks which are available at attractive relative valuations. We use a combination of the Top down and Bottom up approaches to investment. Top down approach for sector allocation Bottom up approach for stock selection We identify and invest in businesses that have a sustainable competitive advanta ge. We invest with a medium term view, with an investment horizon of at least 18 months. Risk control is an important element of our strategy. We believe in pro-active fund management to out-perform benchmark indices. In de termining our investment universe, we employ a multi-stage filtering process. A t the first level filter, we look at liquidity. At the second level filter, we look at management quality. The third level is the competitive position of the company and the final level is the share price valuation. Debt: There are three main types of debt funds and the investment philosophy for each differs due to different investment objectives and type of investors. Liquid Fund: The investment philosophy of this scheme is to invest in short term money market debt instruments like T-bills, commercial paper, debentures, certi ficate of deposits, etc to provide a higher than average rate of return. In doin

g so three main types of risks are actively managed.Liquidity risk, Credit risk and Interest rate Risk. Income Fund: The income fund invests in all types of debt instruments. The inve stment philosophy can be broadly defined as consisting of active duration and in terest rate management to give optimal returns. The fund is divided mainly betw een Government Securities and Corporate Bonds with some residual investments in money market instruments. Management of this fund involves taking interest rate views based on various mac ro and micro factors like state of the economy, monetary policies of RBI, Liquid ity in the banking system, credit growth, global interest rates, etc. Micro management consists of sectoral allocation, maturity profile, credit revie ws, yield curve analysis and trading based on spread movements etc. Investments in corporate bonds are done after extensive credit appraisal since the investme nts are in long-term debentures. Investments are done only up to AA rated catego ry. Unrated instruments/companies are not considered. Gilt Fund: Gilt Fund invests in the gilt-edged government securities, which is p redominantly a wholesale market. It allows retail investors to participate in th is market. The Gilt Fund aims to maximize returns by active interest rate manag ement, with zero credit risk. Active interest rate management involves studying the domestic and international politico-economic scenario as well as in-depth a nalysis of the liquidity in the system, the shape of the yield curve and spreads between various sectors on the curve. To maximize the risk adjusted returns for the investors, based on their risk toler ance. Manage the schemes on Portfolio basis. Active management of interest rate risk. Credit risk management by following the conservative approach. Continuous monitoring.

Types of risks: All investments involve some form of risk. Even an insured bank account is subje ct to the possibility that inflation will rise faster than your earnings, leavin g you with less real purchasing power than when you started (Rs. 1000 gets you l ess than it got your father when he was your age). Consider these common types o f risk and evaluate them against potential rewards when you select an investment . Market Risk: At times the prices or yields of all the securities in a particula r market rise or fall due to broad outside influences. When this happens, the st ock prices of both an outstanding, highly profitable company and a fledgling cor poration may be affected. This change in price is due to "market risk". Inflation Risk: Sometimes referred to as "loss of purchasing power." Whenever in flation sprints forward faster than the earnings on your investment, you run the risk that you ll actually be able to buy less, not more. Inflation risk also oc curs when prices rise faster than your returns. Credit Risk: In short, how stable is the company or entity to which you lend you r money when you invest? How certain are you that it will be able to pay the int erest you are promised, or repay your principal when the investment matures? Interest rate risk: Changing interest rates affect both equities and bonds in ma ny ways. Investors are reminded that "predicting" which way rates will go is rar ely successful. A diversified portfolio can help in offsetting these changes. Exchange Risk: A number of companies generate revenues in foreign currencies and may have investments or expenses also denominated in foreign currencies. Change s in exchange rates may, therefore, have a positive or negative impact on compan ies which in turn would have an effect on the investment of the fund. Investment Risk: The sectoral fund schemes, investments will be predominantly in equities of select companies in the particular sectors. Accordingly, the NAV of the schemes are linked to the equity performance of such companies and may be m

ore volatile than a more diversified portfolio of equities. Changes in the Government Policy: Changes in Government policy especially in reg ard to the tax benefits may impact the business prospects of the companies leadi ng to an impact on the investments made by the fund. ROLE OF SEBI IN MUTUAL FUNDS In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The objectives of SEBI are - to protect the interest of investors in securities and to promote the development of and to regulate the securities market. As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. SEBI notified regulatio ns for the mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital market. The regulations were f ully revised in 1996 and have been amended there after from time to time. SEBI h as also issued guidelines to the mutual funds from time to time to protect the i nterests of investors. All mutual funds whether promoted by public sector or private sector entities in cluding those promoted by foreign entities are governed by the same set of Regul ations. There is no distinction in regulatory requirements for these mutual fun ds and all are subject to monitoring and inspections by SEBI. The risks associa ted with the schemes launched by the mutual funds sponsored by these entities ar e of similar type. It may be mentioned here that Unit Trust of India (UTI) is no t registered with SEBI as-a mutual fund (as on January 15, 2002). How is a mutual fund set up? A mutual fund is set up in the form of a trust, which has sponsor, trustees, ass et Management Company (AMC) and custodian. The trust is established by a sponso r/s that is like promoter of a company. The trustees of the mutual fund hold it s property for the benefit of the unit holders. Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of sec urities. Custodian, who is also registered with SEBI, holds the securities of v arious schemes of the fund in its custody. The trustees are vested with the gen eral power of superintendence and direction over AMC. They monitor the performa nce and compliance of SEBI Regulations by the mutual fund. SEBI Regulations require that at least two thirds of the directors of trustee co mpany or board of trustees must be independent i.e. they should not be associate d with the sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any sch eme. However, Unit Trust of India (UTI) is not registered with SEBI (as on Janua ry 15, 2002). PERFORMANCE OF MUTUAL FUNDS IN INDIA Let us start the discussion of the performance of mutual funds in India from the day the concept of mutual fund took birth in India. The year was 1963. Unit Tru st of India invited investors or rather to those who believed in savings, to par k their money in UTI Mutual Fund. For 30 years it goaled without a single second player. Though the 1988 year saw some new mutual fund companies, but UTI remain ed in a monopoly position. The performance of mutual funds in India in the initial phase was not even close r to satisfactory level. People rarely understood, and of course investing was o ut of question. But yes, some 24 million shareholders was accustomed with guaran teed high returns by the beginning of liberalization of the industry in 1992. Th is good record of UTI became marketing tool for new entrants. The expectations o f investors touched the sky in profitability factor. However, people were miles away from the preparedness of risks factor after the liberalization. The Assets under Management of UTI was Rs. 67bn. by the end of 1987. Let me conc entrate about the performance of mutual funds in India through figures. From Rs. 67bn. the Assets under Management rose to Rs. 470 bn. in March 1993 and the fig ure had a three times higher performance by April 2004. It rose as high as Rs. 1 ,540bn. The net asset value (NAV) of mutual funds in India declined when stock prices st arted falling in the year 1992. Those days, the market regulations did not allow portfolio shifts into alternative investments. There was rather no choice apart

from holding the cash or to further continue investing in shares. One more thin g to be noted, since only closed-end funds were floated in the market, the inves tors disinvested by selling at a loss in the secondary market. The performance of mutual funds in India suffered qualitatively. The 1992 stock market scandal, the losses by disinvestments and of courses the lack of transpar ent rules in the where about rocked confidence among the investors. Partly owing to a relatively weak stock market performance, mutual funds have not yet recove red, with funds trading at an average discount of 1020 percent of their net asset value. The supervisory authority adopted a set of measures to create a transparent and competitive environment in mutual funds. Some of them were like relaxing investm ent restrictions into the market, introduction of open-ended funds, and paving t he gateway for mutual funds to launch pension schemes. The measure was taken to make mutual funds the key instrument for long-term savi ng. The more the variety offered, the quantitative will be investors. At last to mention, as long as mutual fund companies are performing with lower r isks and higher profitability within a short span of time, more and more people will be inclined to invest until and unless they are fully educated with the dos and donts of mutual funds Mutual Funds: Mutual Funds are the best with expertise and professional manageme nt when it comes to money management and investing in securities. There are vari ous options available to choose from a combination of diversified schemes, secto r specific schemes, mid cap schemes, fund of funds etc to choose from depending upon the risk appetite, investment horizon etc. Just to cite a case in point the good diversified schemes have given returns in the range of 30-60%. Thus in cas e if you are comfortable with some risk associated with the equity mutual funds it is one of the best ways for wealth generation over a period of time. New provision Section 80C introduced in lieu of the discontinued benefits. The key features of the new provision are : This will be in the nature of exemption leading to lower total income, earlier S ection 88 benefits, were in the nature of rebate. Total exemption available is R s100,000 - no limit or cap on any specific saving mode or option Exemption available to all taxpayers irrespective of income bracket -earlier Sec tion 88 did not provide benefit to those having income exceeding Rs 500,000. No exemption/adjustment for interest income All saving modes/options under Section 88 covered and also 80CCC and 80CCD cover ed. Tax Benefits on equity-oriented and debt-oriented funds Since, April 1, 2003, all dividends, declared by debt-oriented mutual funds (i.e . mutual funds with less than 50% of assets in equities), are tax-free in the ha nds of the investor. A dividend distribution tax of 12.5% (including surcharge) is to be paid by the mutual fund on the dividends declared by the fund. Long-term debt funds, governm ent securities funds (G-sec/gilt funds), monthly income plans (MIPs) are example s of debt-oriented funds. Dividends declared by equity-oriented funds (i.e. mutual funds with more than 50 % of assets in equities) are tax-free in the hands of investor. There is also no dividend distribution tax applicable on these funds under section 115R. Diversi fied equity funds, sector funds, balanced funds are examples of equity-oriented funds. Amount invested in tax-saving funds (ELSS) would be eligible for deduction under Section 80C, however the aggregate amount deductible under the said section can not exceed Rs 100,000. Capital gains Section 2(42A): Under Section 2(42A) of the Act, a unit of a mutual fund is trea ted as short-term capital asset if the same is held for less than 12 months. The units held for more than twelve months are treated as long-term capital asset.

Section 10(38): Under Section 10(38) of the Act, long term capital gains arising from transfer of a unit of mutual fund is exempt from tax if the said transacti on is undertaken after October 1, 2004 and the securities transaction tax is pai d to the appropriate authority. This makes long-term capital gains on equity-ori ented funds exempt from tax from assessment year 2005-06. Short-term capital gains on equity-oriented funds are chargeable to tax @10% (pl us education cess, applicable surcharge). However, such securities transaction t ax will be allowed as rebate under Section 88E of the Act, if the transaction co nstitutes business income. Long-term capital gains on debt-oriented funds are subject to tax @20% of capita l gain after allowing indexation benefit or at 10% flat without indexation benef it, whichever is less. Short-term capital gains on debt-oriented funds are subject to tax at the tax br acket applicable (marginal tax rate) to the investor. Section 112: Under Section 112 of the Act, capital gains, not covered by the exe mption under Section 10(38), chargeable on transfer of long-term capital assets are subject to following rates of tax: Resident Individual & HUF -- 20% plus surcharge, education cess. Partnership firms & Indian companies -- 20% plus surcharge. Foreign companies -- 20% (no surcharge). Capital gains will be computed after taking into account the cost of acquisition as adjusted by Cost Inflation Index, notified by the central government. Units are included in the proviso to the sub-section (1) to Section 112 of the Act and hence, unit holders can opt for being taxed at 10% (plus applicable sur charge, education cess) without the cost inflation index benefit or 20% (plus ap plicable surcharge) with the cost inflation index benefit, whichever is benefici al. Under Section 115AB of the Income Tax Act, 1961, long term capital gains in resp ect of units, purchased in foreign currency by an overseas financial, held for a period of more than 12 months, will be chargeable at the rate of 10%. Such gain s will be calculated without indexation of cost of acquisition. No surcharge is applicable for taxes under section 115AB, in respect of corporate bodies.

Profile of prudential ICICI Prudential ICICI Asset Management Company, (55%:45%) a joint venture between Pru dential Plc, UK s leading insurance company and ICICI Bank L td, India s premier financial institution. The joint venture was formed with the key objective of providing the Indian inve stor mutual fund products to suit a variety of investment needs. The AMC has alr eady launched a range of products to suit different risk and maturity profiles. Click here to learn more about the products. Prudential ICICI Asset Management Company Limited has a net worth of about Rs.80 .14crore (1crore = 10 million) as of March 31, 2004. Both Prudential and ICICI B ank Ltd have a strategic long-term commitment to the rapidly expanding financial services sector in India.

PRUDENTIAL PUBLIC LIMITED COMPANY Prudential Public Limited Company was founded in 1848. Since then it has grown to become the largest provider in the UK providing a wide range of savings produ cts for the individual including life insurance, pensions, annuities, unit trust s and personal banking. It has a presence in over 15 countries, and caters to 1 0 million customers. It manages assets of over US $ 256 billion (Rs.12, 55,100c rores approx). (Dec 31, 2001) Prudential is one of the largest UK based insurers with operations in 15 countries in Asia. Asia has always been an important reg ion for prudential first overseas operation was in India, way back in 1923 to es tablish Life and General Branch agencies. In the US, prudential owns Jackson Na tional Life, one of the leading life insurance companies. Prudential is focused on the Internet generation and is one of the first financi al services organizations to use the internet on a fully integrated basis. In Oc tober 1998, prudential launched a branchless bank based on the Internet. The Bank has in a short span of its existence become a leading banking service provider in the UK. In fact, in the first six months of its existence, it garnered over 5 billion pounds (US $ 8 billion) in deposits from over 5, 00,000 customers. De velopment of superior products and services that offer value for money and secur ity while producing superior financial returns enables prudential to maximize th e value of its shareholders investment and to establish lasting relationship with customers and policyholders. ICICI BANK: ICICI Bank is India s second-largest bank with total assets of about Rs.1, 67,65 9crore at March 31, 2005 and profit after tax of Rs.2, 005crore for the year end ed March 31, 2005 (Rs.1, 637crore in fiscal 2004). ICICI Bank has a network of a bout 560 branches and extension counters and over 1,900 ATMs. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized sub sidiaries and affiliates in the areas of investment banking, life and non-life i nsurance, venture capital and asset management. ICICI Bank set up its internatio nal banking group in fiscal 2002 to cater to the cross border needs of clients a nd leverage on its domestic banking strengths to offer products internationally. ICICI Bank currently has subsidiaries in the United Kingdom, Canada and Russia, branches in Singapore and Bahrain and representative offices in the United Stat es, China, United Arab Emirates, Bangladesh and South Africa. ICICI Bank s equity shares are listed in India on the Stock Exchange, Mumbai and the National Stock Exchange of India Limited and its American Depositary Receip ts (ADR)s are listed on the New York Stock Exchange (NYSE). At April 4, 2005, ICICI Bank, with free float market capitalization of about Rs. 308.00 billion (US$ 7.00 billion) ranked third amongst all the companies listed on the Indian stock exchanges. ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its wholly-owned subsidiary. ICICI s shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank s acquisition of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional investors i n fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry. The principal objective was to create a development financial institution for provi ding medium-term and long-term project financing to Indian businesses. In the 19 90s, ICICI transformed its business from a development financial institution off ering only project finance to a diversified financial services group offering a wide variety of products and services, both directly and through a number of sub sidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first Indian company and the first bank or financial institution from non-Japan Asia to be l isted on the NYSE. After consideration of various corporate structuring alternatives in the context of the emerging competitive scenario in the Indian banking industry, and the mo

ve towards universal banking, the managements of ICICI and ICICI Bank formed the view that the merger of ICICI with ICICI Bank would be the optimal strategic al ternative for both entities, and would create the optimal legal structure for th e ICICI group s universal banking strategy. The merger would enhance value for I CICI shareholders through the merged entity s access to low-cost deposits, great er opportunities for earning fee-based income and the ability to participate in the payments system and provide transaction-banking services. The merger would e nhance value for ICICI Bank shareholders through a large capital base and scale of operations, seamless access to ICICI s strong corporate relationships built u p over five decades, entry into new business segments, higher market share in va rious business segments, particularly fee-based services, and access to the vast talent pool of ICICI and its subsidiaries. In October 2001, the Boards of Direc tors of ICICI and ICICI Bank approved the merger of ICICI and two of its whollyowned retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was approved by sha reholders of ICICI and ICICI Bank in January 2002, by the High Court of Gujarat at Ahmedabad in March 2002, and by the High Court of Judicature at Mumbai and th e Reserve Bank of India in April 2002. Consequent to the merger, the ICICI group s financing and banking operations, both wholesale and retail, have been integr ated in a single entity.

Pru ICICI Funds: PruICICI GROWTH PLAN: It is an Open-ended Equity fund. The investment pattern i s equity and equity related instruments up to 95% and Debt, Money market and cas h up to 5%. which is Suitable for investors who seek to invest in equity securit ies. Fund Objective: Long term investment of funds for capital appreciation. PruICICI POWER PLAN: It is an Open-ended growth fund. The investment pattern is equity and equity related securities including non convertible portion of conve rtible debentures up to 95% and at least 5% in debt and money market securities. Which is Suitable for investors are seeking long term capital appreciation thro ugh investing in equity and equity related securities. Fund Objective: Long term investment of funds for capital appreciation in a co ncentrated multi sector portfolio. PruICICI DISCOVERY FUND: Its an open-ended equity fund. The investment pattern i s Equity and equity related services 80%to 100% and cash and money market instru ments 0% to 20%. Which is Suitable for investors are seeking long term capital a ppreciation through investing in equity and equity related securities. Fund Objective: Long term investment of funds for capital appreciation. PruICICI Dynamic Plan: It is an Open-ended Equity fund. The investment pattern i s equity and equity related instruments 0 to 100% and Debt, Money market and cas h 0 to 100%. Which is Suitable for investors with an investment horizon of 2 - 3 years. Fund Objective: Medium term investment of funds for capital appreciation by man aging cash and equity portfolio.

PruICICI Emerging S.T.A.R. Fund: Its an open-ended equity fund investment patter n is equity and equity linked instrument- 90% to 100% and debt securities, cash and money market instruments- 0% to 10% .which is Suitable for investors who se ek to invest in equity securities.

Fund Objective: Long term investment of funds for capital appreciation in mid-c ap portfolio. PruICICI Index fund: It is an Open-ended index linked growth scheme. The invest ment pattern is equity stocks drawn from the components of the S&P CNX Nifty and the exchange traded derivatives on the S&P CNX Nifty up to 100%. Money Market in struments-up to 10%.Suitable for investors who seek to invest in equity securiti es. Fund Objective: Long term investment of funds for capital appreciation by replic ating S&P CNX Nifty index. PruICICI Tax Plan: Its an open-ended equity linked saving schemes investment patt ern is equity and equity linked instrument- 90% to 100% and debt securities, cas h and money market instruments- 0% to 10%. Suitable for investors seeking to ben efit from Medium term investment of funds with tax benefits for capital apprecia tion. Fund Objective: Medium term investment of funds with tax benefits for capital ap preciation. PruICICI FMCG Fund: It is an Open-ended FMCG Sectoral Fund. Investment pattern i s equity and equity related instruments in FMCG Companies up to 90% in & Debt, M oney market and Cash up to 10%. Sect oral fund, which is suitable for investors seeking an exposure to the FMCG Sector. Fund Objective: Long term investment of funds for capital appreciation in FMCG S ector. PruICICI Technology Fund: It is an Open-ended Equity fund. The investment patter n is equity and equity related instruments up to 95% and Debt, Money market and cash up to 5%. Suitable for investors who seek an exposure to IT, Telecom, Life Sciences and Media sectors. Fund Objective: Long term investment of funds for capital appreciation in Techno logy Sector. PruICICI Balanced Plan: Its is a Open-ended Balanced fund. The investment patter n is under normal circumstances Equity and equity related instruments up to 60% & Debt, Money market and cash up to 40%.which is Suitable for investors seeking long term capital appreciation and current income. Fund Objective: Medium term investment of funds in a portfolio of equity (minim um 51%) and debt for capital appreciation.

PruICICI Child Care Plan Study: It is a Open ended fund (study). Investment patt ern is equity and equity related securities 0-15%, Debt securities, Money market instruments, Securitized Debt and Cash (including money at call) 85-100%.Ideal for investors seeking current income and long term capital appreciation over low to medium term horizon. Fund Objective: For your child between 13-17 years and on the threshold of highe r studies. PruICICI Child Care Plan Gift : It is a Open ended fund (Gift). Investment patte rn is equity and equity related securities 51%-60%, Debt securities, Money marke t instruments, Securitized Debt and Cash (including money at call)40% to 49%. Wh ich is suitable for investors who seeking current income and long term capital a ppreciation over low to medium term horizon. Fund Objective: For your child between 1 to 13 years and seeking to save over a long term horizon. PruICICI Monthly Income Plan: It is an open-ended fund; monthly income is not a ssured and is subject to the availability of distributable surplus. Investment p

attern is Debt Securities, money market Instruments securitized debt &Cash up to 85%, equity &equity related securities up to 15%. Suitable for investors seek r egular returns and for the medium to long term investor Fund Objective: Medium term investment in a portfolio of debt and equity up to (15%) for capital appreciation. PruICICI Liquid Plan: It is an open-ended liquid income fund. Investment patter n is money market up to 80% & Debt Instrument up to 20%. Which Suitable for inv estors who looking for short-term investment at relatively low risk. Fund Objective: Temporary parking of funds with high liquidity. PruICICI Floating Rate Plan: n is 65-100% = Floating Rate ts with maturity less than 1 Fund Objective: Short term It is an open-ended Income fund. Investment patter Debt Instruments. 0-35% = Fixed rate debt instrumen year. deployment of funds.

PruICICI Infrastructure Fund: It is an open-ended equity fund. Investment patte rn is Equity and Equity related 70 - 100% & Debt, Money Market Instruments and C all money (Including securitized debt of up to 20% of the assets) 0 - 30%. Suita ble for investors seeking long-term capital appreciation through investments in equity and equity related securities. Fund Objective: To generate capital appreciation and income distribution to unit holders by investing predominantly in equity/equity related securities of the c ompanies belonging to the infrastructure industries and balance in debt securiti es and money market instruments including call money.

Chapter III

Theoretical framework of the study CONCEPT A Mutual Fund is a trust that pools the savings of a number of investors who sha re 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 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 o pportunity to invest in a diversified, professionally managed basket of securiti es at a relatively low cost. The flow chart below describes broadly the working of a mutual fund: Mutual Fund Operation Flow Chart ORGANISATION OF A MUTUAL FUND There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund: Organization of a Mutual Fund

The organization of Mutual Fund is four tier systems which consists of MUTUAL FUND STRUCTURE The SEBI (Mutual Funds) Regulations 1993 define a mutual fund (MF) as a fund est ablished in the form of a trust by a sponsor to raise monies by the Trustees thr ough the sale of units to the public under one or more schemes for investing in securities in accordance with these regulations. These regulations have since been replaced by the SEBI (Mutual Funds) Regulation s, 1996. The structure indicated by the new regulations is indicated as under. A mutual fund comprises four separate entities, namely sponsor, mutual fund trus t, AMC and custodian. The sponsor establishes the mutual fund and gets it regist ered with SEBI. The mutual fund needs to be constituted in the form of a trust and the instrumen t of the trust should be in the form of a deed registered under the provisions o f the Indian Registration Act, 1908. The sponsor is required to contribute at least 40% of the minimum net worth (Rs. 10crore) of the asset management company. The board of trustees manages the MF a nd the sponsor executes the trust deeds in favor of the trustees. It is the job of the MF trustees to see that schemes floated and managed by the AMC appointed by the trustees are in accordance with the trust deed and SEBI guidelines.

Sponsor The four tier system has been provided to ensure arms length distance bet ween the sponsor and the fund. SEBIs guidelines have made it clear that sponsors wil l not be able to use the corpus of the funds for their own benefit. Trustee A Mutual Fund shall be constituted in the form of a trust and the instru ment of trust shall be in the form of a deed, duly registered under the provisio ns of Indian Registration Act, 1908 executed by the sponsor in favor of the trus tees named in such an instrument. Prudential ICICI Trust Limited (the Trustee), a company incorporated und er the companies Act, 1956 is the Trustee to the Fund Vide Trust Deed dated Augu st 25, 1993 as amended from time to time. Prudential plc., through its wholly ow ned subsidiary, Prudential Corporation Holdings Limited, UK. Holds 550/0 of the equity share capital of the Trustee and ICICI holds the balance of 45% Asset Management Company The sponsor, if so authorized by the trust deed, the trustees shall, app oint an AMC, which has been approved by the board. The directors of the AMC are persons having professional experience in finance and financial services related field and not found guilty or moral turpitude or convicted of any economic offe nce or violation of any securities laws. The AMC shall take all responsible steps and exercise due diligence to e nsure that the investment of funds pertaining to any scheme is not contrary to t he provision of the regulations and the trust deed. The AMC shall be responsible for the acts of commission or omissions by its employees or the persons whose s ervices have been procured. ICICI Asset Management Company(AMC), a company registered under the Comp anies Act, 1956 was established by ICICI as its wholly owned subsidiary, to act as the investment manager of the ICICI Mutual Fund vide the investment Managemen t Agreement dated September 3, 1993. Consequent to review of long term business

strategy of the AMC, it was decided to further strengthen its commitment to the individual investor segment. As a part of this plank Prudential Corporation plc (formerly known as Prudential Corporation Holdings Limited, has been issued and allotted share aggregating 55% stock in the share capital of AMC. ICICI holds th e balance 45% shareholding in the AMC was approved by SEBI to act as the investm ent managers of ICICI Mutual Fund vide its letter no. II MARP/ MF/22356 dated Oc tober 12, 1993. Consequent to the restructuring of share holding pattern as stat ed above, SEB1631/98 dated March 11, 1998 accorded its approval for the inductio n of Prudential Corporation plc (through its wholly subsidiary, Prudential Corpo ration Holdings Limited). CUSTODIAN (Role): HDFC Bank Limited, provides the following services to Pru ICICI Post-trading and custodial services to the Mutual Fund. Ensure that the benefits due on the holdings are received on time. Detailed management information and other reports as required by the AMC. Maintain confidentiality of the transactions. Be responsible for the loss or damage to the assets belonging to the Scheme due to negligence on its part or on the part of its approved agents and segregate as sets of each Scheme. Registrar(Role ): As Registrar to the Scheme, CAMS handles communications with investors, performs data entry services, maintains investor data and dispatches Account Statements reflecting the holding and transactions of the investors. Benefits of Mutual Funds The advantages of investing in a Mutual Fund are: Professional Management Diversification Convenient Administration Return Potential Low Costs Liquidity Transparency Flexibility Choice of schemes Tax benefits Well regulated Personal Service

TYPES OF MUTUAL FUNDS SCHEMES Wide variety of Mutual Fund Schemes exists to cater to the needs such as financi al position, risk tolerance and return expectations etc. The table below gives a n overview into the existing types of schemes in the Industry. By Structure: Open Ended Schemes Closed Ended Schemes Interval Schemes By Investment Objective: Growth Schemes Income Schemes Balanced Schemes Money Market Schemes Other Schemes: Tax Saving Schemes Special Schemes: Index Schemes Sector Specific Schemes Open-ended schemes: These funds are sold at the NAV based prices, generally calc

ulated on every business day. These schemes have unlimited capitalization, openended schemes do not have a fixed maturity - i.e. there is no cap on the amount you can buy from the fund and the unit capital can keep growing. These funds are not generally listed on any exchange. Open-ended funds are bringing in a revival of the mutual fund industry owing to increased liquidity, transparency and performance in the new open-ended funds pr omoted by the private sector and foreign players. Open-ended funds score over cl ose-ended ones on several counts. Some of these are listed below: Any time exit option : The issuing company directly takes the responsibility of providing an entry and an exit. This provides ready liquidity to the investors a nd avoids reliance on transfer deeds, signature verifications and bad deliveries . Any time entry option: An open-ended fund allows one to enter the fund at any ti me and even to invest at regular intervals (a systematic investment plan). The open ended funds offered by PRUICICI are Liquid Plan, Income Plan, Gilt-Trea sury, Gilt-Investment, Balanced Fund, Growth Fund, Tax Plan , FMCG Fund, Technol ogy Fund, Monthly Income Plan , Fixed Maturity Plan, Child Care Plan, Power and Short Term Plan. Close ended schemes: Schemes that have a stipulated maturity period, limited cap italization and the units are listed on the stock exchange are called close-ende d schemes. These schemes have historically seen a lot of subscription. This popularity is e stimated to be on account of firstly, public sector MFs having floated a lot of close-ended income schemes with guaranteed returns and secondly easy liquidity o n account of listing on the stock exchanges. The closed-ended fund managed by Pru ICICI is ICICI Premier. Interval funds Interval funds combine the features of open ended and close ended scheme s. They are open for sale or redemption during pre-determined intervals at NAV r elated prices Classification according to investment objectives: Mutual funds have specific investment objectives such as growth of capital, safe ty of principal, current income or tax-exempt income. In general mutual funds fa ll into three general categories: Equity Funds invest in shares or equity of companies. Fixed-Income funds invest in government or corporate securities that offer fixed rates of return. Balanced Funds invest in a combination of both stocks and bonds. i) Growth Funds :The aim of growth funds is to provide capital appreciation over the medium to long term. Such schemes normally invest a majority of their corpu s in equities. It has been proven that returns form stocks, have outperformed mo st other kind of investments held over the long term. Growth schemes are ideal f or investors having a long-term outlook seeking growth over a period of time. ii) Income Funds : The aim of income funds is to provide regular and steady inco me to investors. Such schemes generally invest in fixed income securities such a s bonds, corporate debentures and Government securities. Income funds are ideal for capital stability and regular income. iii) Fixed-Income Funds : The goal of fixed income funds is to provide current i ncome consistent with the preservation of capital. These funds invest in corporate bonds or government-backed mortgage securities t hat have a fixed rate of return. Within the fixed-income category, funds vary gr eatly in their stability of principal and in their dividend yields. High-yield f unds, which seek to maximize yield by investing in lower-rated bonds of longer m aturities, entail less stability of principal than fixed-income funds that inves t in higher-rated but lower-yielding securities. Some fixed-income funds seek to minimize risk by investing exclusively in securi ties whose timely payment of interest and principal is backed by the full faith and credit of the Indian Government. Fixed-income funds are suitable for investo rs who want to maximize current income and who can assume a degree of capital ri

sk in order to do so. iv) Balanced: The Balanced fund aims to provide both growth and income. These fu nds invest in both shares and fixed income securities in the proportion indicate d in their offer documents. Ideal for investors who are looking for a combinatio n of income and moderate growth. v) Money Market Funds/Liquid Funds: The aim of money market funds is to provide easy liquidity, preservation of capital and moderate income. These schemes gener ally invest in safer short term instruments such as treasury bills, certificates of deposit, commercial paper and inter bank call money. Returns on these scheme s may fluctuate depending upon the interest rates prevailing in the market. Thes e are ideal for Corporate and individual investors as a means to park their surp lus funds for short periods. Money market funds are suitable for investors who want high stability of princip al and current income with immediate liquidity. Other schemes Tax saving schemes: These schemes offer tax rebates to the investors under speci fic provisions of the Indian income tax laws as the Government offers tax incent ives for investment in specified avenues. Investment made in Equity Linked Savin gs Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 88 of the inc ome tax act 1961. The act also provides opportunities to investors to save capit al gains u/s 54EA and 54EB by investing in Mutual Funds. vi) Specialty/Sector Funds: These funds invest in securities of a specific indus try or sector of the economy such as health care, technology, leisure, utilities or precious metals. The funds enable investors to diversify holdings among many companies within an industry, a more conservative approach than investing direc tly in one particular company. Sector funds offer the opportunity for sharp capital gains in cases where the fu nd s industry is "in favor" but also entail the risk of capital losses when the industry is out of favor. While sector funds restrict holdings to a particular i ndustry, other specialty funds such as index funds give investors a broadly dive rsified portfolio and attempt to mirror the performance of various market averag es. Index funds generally buy shares in all the companies composing the BSE Sensex o r NSE Nifty or other broad stock market indices. They are not suitable for inves tors who must conserve their principal or maximize current income. Net Asset Value Also known as NAV, this is the unit price (or rupee value) of one unit of a mutu al fund. NAV is calculated at the end of every business day. It is calculated by adding up the value of all the securities and cash in the mutual fund s portfol io (its assets), subtracting the fund s liabilities, and dividing that number by the number of units that the fund has issued. It does not include a sales charg e. The NAV increases (or decreases) when the value of the mutual fund s holdings increase (or decrease). NAV = MARKET VALUE OF ASSETS LIABILITIES UNIT OUT STANDING

Redemption Price: The price at which a mutual fund s units are redeemed (bought back) by the fund. The redemption price is usually equal to the current NAV per unit. Sale Price: Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load. Repurchase price: Is the price at which a close-ended scheme repurchases its uni ts and its may include a back-end load. This is also called Bid Price. Sales Load: Is a charge collected by a scheme hence it sells the units. Also cal led, Front-end load Schemes that do not charge a load are called No Load schemes. Repurchase or Back-end Load: Is a charge collected by a scheme when it buys back t he units from the unit holders.

Performance Measures of Mutual Funds Mutual Fund industry today, with about 34 players and more than five hundred sch emes, 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 select ing funds. Factors such as investment strategy and management style are qualitat ive, but the funds record is an important indicator too. Though past performance alone can not be indicative of future performance, it is, frankly, the only qua ntitative 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 t o grow, AMCs must be held accountable for their selection of stocks. In other wo rds, there must be some performance indicator that will reveal the quality of st ock selection of various AMCs. Return alone should not be considered as the basis of measurement of the perform ance 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 t hem. 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 wit h it. These fluctuations in the returns generated by a fund are resultant of two guiding forces. First, general market fluctuations, which affect all the securi ties present in the market, called market risk or systematic risk and second, fl uctuations due to specific securities present in the portfolio of the fund, call ed unsystematic risk. The Total Risk of a given fund is sum of these two and is measured in terms of standard deviation of returns of the fund. Systematic risk, on the other hand, is measured in terms of Beta, which represents fluctuations in the NAV of the fund vis--vis market. The more responsive the NAV of a mutual f und 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 instrume nts, systematic risk can not. By using the risk return relationship, we try to a ssess the competitive strength of the mutual funds vis--vis one another in a bett er way.

In order to determine the risk-adjusted returns of investment portfolios, severa l eminent authors have worked since 1960s to develop composite performance indic es to evaluate a portfolio by comparing alternative portfolios within a particul ar 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 evaluat es funds on the basis of Treynor s Index. This Index is a ratio of return genera ted by the on securities backed by the government, as there is no credit risk as sociated), 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 be ta of the fund. Bi = N XY - XY NX - (X) Where N = number of observations X = Market index return Y = Fund return All risk-averse investors would like to maximize this value. While a high and p ositive 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 ba sis 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 abo ut. 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 performanc e of a fund, a low and negative Sharpe Ratio is an indication of unfavorable per formance. Comparison of Sharpe and Treynor Sharpe and Treynor measures are similar in a way, since they both divide the ris k 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 eva luating less than fully diversified portfolios or individual stocks. For a welldiversified 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 syst ematic risk. Therefore, a poorly diversified fund that ranks higher on Treynor m easure, compared with another fund that is highly diversified, will rank lower o n 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 ha s generated vs. the returns actually expected out of the fund 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 pe riod. 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. = Average of fund return - * average market return Higher alpha represents superior performance of the fund and vice versa. Limitat ion of this model is that it considers only systematic risk not the entire risk associated with the fund and an ordinary investor can not 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 p erformance, measured in terms of returns, of a fund with the required return com mensurate with the total risk associated with it. The difference between these t wo is taken as a measure of the performance of the fund and is called net select ivity. The net selectivity represents the stock selection skill of the fund manager, as it is the excess return over and above the return required to compensate for th e total risk taken by the fund manager. Higher value of which indicates that fun d manager has earned returns well above the return commensurate with the level o f 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 c alculated by subtracting this required return from the actual return of the fund . Among the above performance measures, two models namely, Treynor measure and Jen son model use systematic risk 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 portfol io 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 f or small investors, as the ordinary investor lacks the necessary skill and resou rces 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 m oney 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. National Stock Exchange (NSE) Introduction The National Stock Exchange (NSE), located in Bombay, is Indias first debt market . It was set up in 1993 to encourage stock exchange reform through system modern ization and competition. It opened for trading in mid-1994. It was recently acco rded recognition as a stock exchange by the Department of Company Affairs. On its recognition as a stock exchange under the Securities Contracts (Regulatio n) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Marke t (WDM) segment in June 1994. The Capital Market (Equities) segment commenced op erations in November 1994 and operations in Derivatives segment commenced in Jun e 2000. National Stock Exchange was set up in 1993 to encourage stock exchange reform th rough system modernization and competition. The National Stock Exchange (NSE) is India s leading stock exchange covering 361 cities and towns across the country . NSE was set up by leading institutions to provide a modern, fully automated sc reen-based trading system with national reach. The Exchange has brought about unparalleled transparency, speed & efficiency, sa fety and market integrity. It has set up facilities that serve as a model for the securities industry in te rms of systems, practices and procedures. NSE has played a catalytic role in reforming the Indian securities market in ter ms of microstructure, market practices and trading volumes. The market today use s state-of-art information technology to provide an efficient and transparent tr ading, clearing and settlement mechanism, and has witnessed several innovations in products & services viz. demutualization of stock exchange governance, screen based trading, compression of settlement cycles, dematerialization and electron ic transfer of securities, securities lending and borrowing, professionalisation of trading members, fine-tuned risk management systems, emergence of clearing c orporations to assume counterparty risks, market of debt and derivative instrume nts and intensive use of information technology. NSE is a complete capital market prime mover. Its wholly-owned subsidiaries, Nat ional Securities Clearing Corporation Ltd. (NSCCL) provides clearing and settlem ent of securities, India Index Services and Products Ltd. (IISL) provides indice s and index services with a consulting and licensing agreement with Standard & P oor s (S&P), and NSE.IT Ltd. forms the technology strength that NSE works on. Today, we are one of the largest exchanges in the world and still forging ahead. At NSE, we are constantly working towards creating a more transparent, vibrant & innovative capital market. This invariably implies that our need for competent people is continuous. As the leading stock exchange and fiscal entity in the co untry, we believe in recruiting the finest of talent in the industry.

The S&P CNX Nifty In India, the S&P CNX Nifty is the most scientific Index that was constructed ke eping in mind Index funds and Index derivatives. The S&P CNX Nifty is a market c apitalization-weighted Index with base year as November 03, 1995. The base value has been set at 1000. The S&P CNX Nifty is an event-driven Index i.e., price ch ange in any of the Index securities will lead to a change in the Index. It also takes into account substitutions in the Index set and importantly, corporate act ions such as stock splits, rights, etc without affecting the Index value. For th e purpose of Indexation, market cap weighted Index offers the advantage of simpl ifying the day to day management of the fund. As market prices rise or fall, the value of the Index fund rises and falls in tandem with the target Index. Since market price change does not require any rebalancing, there are savings in the number of transactions, thus reducing transaction cost. The construction of the S&P CNX Nifty was motivated by the need to create a meth odology to intelligently address the following four major issues in Index creati on:-

Evolution of an Index set Indias corporate sector is dynamic: old companies go defunct, and IPOs (including newly disinvested public sector companies) frequently turn into some of the lar gest companies in the country. The problem of stale prices The market Index should reflect market conditions at a point in time when some c omponents trade infrequently, they detract from this objective. Stringent liquid ity conditions should be applied so as to minimise the difficulties caused by no n-synchronous trading, and its more extreme version, non-trading. The size of the Index set Should an Index set comprise 30, or 50, or 100, or 3000 stocks ? We should have a clear quantitative foundation for implementing the choice of the set size.

Modern applications The Index should have liquidity of a form which is well-suited for modern applic ations such as Index funds and Index derivatives, both of which require the enti re Index set to be treated and traded as a portfolio. An Index Committee consist ing of eminent personalities in the field of finance such as mutual fund managers, trading members, academicians and persons who have experience tra ding in futures and options markets abroad, designed the S&P CNX Nifty so as to make it more representative of the entire market, provide high hedging effective ness for any portfolio and minimizes impact cost of transactions. Among the biggest findings of the committee was that the number 50 was found to be the ideal size of the Index and that liquidity should be judged by impact cos t. It is indeed the case that putting more stocks into the Index yields more div ersification. However, two things go wrong when we do this too much: Firstly, th ere are diminishing returns to diversification. Going from 10 stocks to 20 gives a sharp reduction in risk. Going from 50 stocks to 100 stocks gives very little Reduction in risk. Going beyond 100 stocks to gives almost zero reduction in ri sk. Hence, there is little gain by diversifying, beyond a point. The more seriou s problem is the inclusion of illiquid stocks due to diversification. Liquidity of the asset is one of the most important criteria for an investor. In the deriv atives market, investors are more concerned with the liquidity of the underlying . All the securities constituting the S&P CNX Nifty are highly liquid. Liquidity of the S&P CNX Nifty is important in reducing the reflection of stale prices an d in enabling spot-to-futures arbitrage. A variety of measures such as trading v

olume, trading frequency, bid-ask spread etc are used for quantifying liquidity. For measuring liquidity of Nifty securities, their impact costs have been calcu lated. Impact cost of a security as the term suggests, is the cost of executing a transaction in the given security in proportion of its weight age in the portf olio under consideration, on immediate basis at any point of time in the market. Selection Criteria All companies to be included in the Index should have a market capitalization of Rs. 5 billion or more Company entering the Index should have double the market capitalization of the company leaving the Index Liquidity (Impact Cost) All securities should fully satisfy the required execution on 90% of the trading days at an impact cost of less than 0.75% in the last six months. Total Returns Index A Total Returns (TR) Index is calculated on S&P CNX Nifty. This Index shows the returns on the Index portfolio, inclusive of dividend. The difference between th e two Indexes Nifty and TR Index at any given time is the return obtained on rei nvestment of dividends through the intervening period. Thus it is the ideal benc hmark for Index Funds which earns dividend and reinvests promptly. Calculation Methodology of the S&P CNX Nifty The S&P CNX Nifty is computed using market capitalization weighted method wherei n the level of the Index reflects the total market value of all the stocks in th e Index relative to the base period November 3,1995. The total market cap of a c ompany or the market capitalization is the product of market price and the total number of outstanding shares of the company. Market Capitalization = Outstanding Equity Capital * Price In this method the weight ages are not fixed, they change with the stock price m ovements and changes in the number of shares outstanding. All selected securitie s in the Nifty bear a weight in the proportion of their market capitalization. General Index formula calculation Base Capitalization Method Index value = Current market capital * Base index value (1000) Base market capital Base market capital of the Index is the aggregate market capitalisation of each scrip in the Index during the base period. The market cap during the base period is equated to an Index value of 1000 known as the base Index value. Current market capital of the Index is the aggregate market capitalization of ea ch scrip in the Index during the current period. The current price of each stock is multiplied by the number of shares outstanding to give the aggregate current market cap of the Index At any given time , the Index level is equal to the tot al current market value of the portfolio, divided by the base period market valu e , multiplied by base Index value. A Nifty Index level of 1500 will indicate th at the aggregate price of the portfolio has risen by 50% over the base period. BENCHNMARKING What is benchmarking? It is an evaluation of an individual funds performance in comparison to its peer group of similar funds or to an appropriate market index. Just be sure that the funds indicated comparisons are valid and appropriate. Yo u want to compare apples with apples. You want to compare total returns for the sa me period for both funds. Use long-term performance data. Try to use two types of benchmarks---market indexes and peer group averages. The S&P 500 Index is the most widely used benchmark for measuring mutual fund pe rformance but it is not the appropriate benchmark for the majority of funds. Ho wever, as a starting point, try benchmarking your fund funds against a broad ind ex like the S&P 500. Then, benchmark your fund against an appropriate benchmark . Check your funds prospectuseach fund cites an index as a benchmark. You can ask your fund provider (Vanguard, Fidelity, TIAA-CREF, etc.), or the broker you pur chased the fund from to provide you with the proper benchmark. Its essential to

compare your returns to an appropriate benchmark to examine whether your investm ent strategy is working for a large-cap fund; a common benchmark to use is the S &P 500 Index. Check www.spglobal.com for index data. For large-cap growth or v alue funds, use the S&P 500 Barra/Growth or the S&P 500 Barra Value. Check S&P 500 Barra Growth or S&P 500 Barra Value indexes found at www.barra.com, it is es sential for you, as an investor, to compare your individual funds return or your portfolio return to an appropriate benchmark to examine how well you are doing. If your strategy or a suggested strategy --- fails over a period or years to ou tperform a broad market index --- you might simply consider matching that indexs return by buying a low-expense mutual fund that reproduces the index. In that m anner, you not only ensure that you will not fall under the market averages, but you will save the time and energy that goes into the selection and keeping trac k of the business that you invest in. A good number of experts say that you should check your funds versus their bench marks quarterly. They add that any fund that consistently under performs its be nchmark by more than one or two percentage points, annualized, should be put on a watch list or sold. Some suggest that you should not dump a fund until you are dissatisfied with its relative performance for a year. Below, you will find a Benchmarks listing which details the Market Index, the Desc ription of that index and its usefulness as a Benchmark. Importance of Benchmarking - A funds performance can be judged in relation to investors expectations. - These guidelines or indicators of performance can be thought of as benchmarks against which a funds performance ought to be measured. - For instance, BSE-30 will be a benchmark for diversified equity fund and BSE I T index for tech funds. While an advisor needs to look at the absolute measures of performance, he needs to select the right benchmark to evaluate a funds performance, so that he can co mpare the measured performance figures against the selected benchmark. The appropriate benchmark has to be selected by reference to : The asset Class it invests in. Thus, an equity fund has to be judged by from an appropriate benchmark from the equity market and so on. The funds stated Investment Objective. There are three types of benchmarks that can be used to evaluate a funds Performance: Relative to the market as a whole Relative to other mutual funds. Relative to other comparable financial products or investments options open to t he investor. Benchmarking relative to market Equity Funds Index Funds - a base index: If an investor were to choose an equity index fund, he can expect to get the same return as on the Index called the Base Index. For index funds, the bench mark is clear and pre-specified by the fund m anager in advance. Tracking Error: -An Index Fund invests in all of the stocks included in the index calculation, in the same proportion as the stocks weight in the index. - An index fund actual return may be better or worse by what is called the trac king error. - The tracking error arises from the practical difficulties faced by the fund manger in trying to remain in line with the weight that the stocks enjoy in the index . Active Equity Funds: Using appropriate market index. The appropriate index to be used to evaluate a broad-based equity funds should be decided on the basis of the size and the composition of the funds port

folio. If the fund has a large portfolio, a boarder market index like BSE 100 or200or NSE 100 may be used to benchmark rather than S&PNIFTY or BSE 30. An actively managed fund expects to beat the index. Sector Funds: Benchmark will be the relative Sectoral index. An investor in InfoTech or pharmacy sector funds a can expect the same return as the relative sectoral indices. In other words, the choice of a correct equity index as a benchmark als o depends upon the investment objective of the fund. For example, a small cap fu nd has to be compared with a small cap index. Debt Funds: Using appropriate debt market index. A broad based bond fund or debt fund should be benchmarked with broad ba sed debt index whereas a narrower government securities fund, only the governmen t sector sub-segment of the broad based index has to be used. Closed-end funds with clear maturity can be compared with bank deposits. I-SECs I-BEX is most commonly used by some analysts. Money Market Funds: Money market funds due to their short-term nature are benchmarked agains t the government funds of appropriate maturities. J.P.Morgans T-Bill index is used by analysts. NSEs mibid/mibor rates that reflect interbank call money market interest ra te can also be used as a benchmark. Benchmarking relative to other MFs While comparing two funds, it is extremely important to ensure that comparisons are meaningful and meet the following criteria: The Investment Objectives and Risk Profiles. Of two funds being compared must be same. For example and equity fund cannot be compared with a debt fund. Portfolio Compositions Of the funds compared must be similar. High returns fund investing in high risk-prone securities cannot be comp ared with a scheme that invest in low risk securities. Credit Quality and Average Maturity The credit ratings of the investments have to comparable, for example a security with investments in AAA is not same as AA-. A fund with maturity of 3 yrs is not same the fund with 6yrs Fund Size Funds of equal size should be compared. Expense Ratio Expense ratios affect funds performance. Even when two funds of similar characteristics are compared, their returns must be calculated on the following comparable basis: Compare the returns over the same period only. Only annualized compound returns are comparable, i.e. data must be available for long enough periods. Only after-tax returns of two different schemes should be compared. Tracking MF Performance To track fund performance, the first step is to find the relevant information on NAV, expenses, cash flow, appropriate indices etc. the common sources of inform ation are: Mutual Funds Annual and periodic Reports include data on the funds financial perfo rmance which are indicators for expense ratios and total return. It also include s a listing of the funds portfolio holdings at market value, statement of revenue and expenses, unrealized appreciation/depreciation at year end and changes in ne t assets. Financial Press: Daily newspapers like Economic times provide daily NAV figures

for open-end schemes. There are also weekly supplements like smart Investor of Business standard and Investors guide of economic Times also give enough informa tion for evaluation. Fund Tracking agencies like credence and value research are sources for MF perfo rmance data and evaluation. Newsletters: Many MFs, banks and non-banking firms catering to retail investors publish their own newsletters. Prospectus: SEBI regulations require sponsors to disclose performance data relat ing to schemes being managed by them.

CHAPTER IV

In this study collected the NET ASSET VALUES of five funds of PRUDENTIAL ICICI a nd compared the returns with the Benchmark index i.e., S&P CNX Nifty. The perfor mance evaluation can be done by comparing the returns with the return of S&P CNX Nifty according to the SHARPES PERFORMANCE INDEX MODEL, TREYNOR INDEX MODEL, JEN SEN MODEL and FAMA MODEL. The Net Asset Values calculated for the past two years and rankings are given to the funds based on the above models. The funds had been selected for performanc e evaluation is open ended equity funds those are 1. Pru ICICI Dynamic plan 2. Pru ICICI Growth plan 3. Pru ICICI Power 4. Pru ICICI Tax plan 5. Pru ICICI Index fund Pru ICICI Dynamic Plan Fund Suitability: Medium term investment of funds for capital appreciation by ma naging cash and equity portfolio. Which suitable for investors with an investmen t horizon of 2 to 3 years. THE FOLLOWING TABLE SHOWS MONTHLY RETURNS OF INDEX FUND AND S & P CNX NIFTY. NAV DATE DYNAMIC PLAN (NAV PRICE) RETURN % S & P CNX NIFTY(VALUE) RETURN % 6/2/03 8.6615 11.99446 1015.15 11.38255 7/1/03 9.7004 6.185312 1130.7 5.753073 8/1/03 10.3004 15.30717 1195.75 15.07004 9/1/03 11.8771 3.374561 1375.95 3.2632 10/1/03 12.2779 12.74648 1420.85 12.72478 11/1/03 13.8429 3.385129 1601.65 3.496394 12/1/03 14.3115 15.20316 1657.65 15.35909 1/1/04 16.4873 -7.50942 1912.25 -7.49118 2/3/04 15.2492 4.182514 1769 4.731487

3/1/04 4/1/04 5/3/04 6/1/04 7/1/04 8/2/04 9/1/04 10/1/04 11/1/04 12/1/04 1/3/05 2/1/05 3/1/05 4/1/05 5/2/05 6/1/05

15.887 15.587 15.0827 12.6272 12.9287 13.8239 13.8261 15.0471 15.2476 16.6638 17.9983 17.4879 17.6439 17.5063 16.2804 17.7575

-1.88834 -3.23539 -16.2802 2.387703 6.92413 1537.2 0.015914 8.831124 1.332483 9.288019 8.008377 -2.83582 0.892045 -0.77987 -7.00262 9.072873 2087.55

1852.7 -1.78388 1819.65 -2.9099 1766.7 -14.6488 1507.9 1.9431 6.625683 1639.05 -0.21964 1635.45 8.541992 1775.15 1.273132 1797.75 9.139202 1962.05 7.795418 2115 -2.60757 2059.85 1.191834 2084.4 -0.80359 2067.65 -7.29814 1916.75 8.910917

Dynamic Plan Vs. S & P CNX Nifty

INDEX Amt. in Lakhs AUTO 8.78 BANKS 16.03 CEMENT 3.98 CHEMICAL 0.65 CONSUMER NON DURABLE 10.89 FERROUS METALS 7.77 FERTILIZERS 0.52 FINANCE 2.91 GAS 2.88 INDUSTRIAL CAPITALGOODS 5.89 MEDIA & ENTERTAINMENT 0.92 NON-FERROUS METALS 3.73 OIL 20.27 PETROLEUM PR4ODUCTS 15.58 PHARMACEUTICAL 8.06 POWER 2.72 SOFTWARE 32.41 TELECOM SERVICES 8.16 TRANSPORTATION 0.68 CASH,CALL,CBLO & REV ERSE REPO 47 OTHER CURRENT ASSETS 47.06

The above pie chart represents the sector allocation of portfolio. CALCULATION OF BETA VALUES AND ALPHA VALUES NAV DATE x*x 6/2/03 8.6615 136.5276 7/1/03 9.7004 35.58455 8/1/03 10.3004 230.6797 9/1/03 11.8771 11.01187 10/1/03 12.2779 162.1961 11/1/03 13.8429 11.83575 12/1/03 14.3115 233.5067 1/1/04 16.4873 56.25435 2/3/04 15.2492 19.78951 3/1/04 15.887 3.368571 4/1/04 15.587 9.414658 5/3/04 15.0827 238.4857 6/1/04 12.6272 4.639544 7/1/04 12.9287 45.87709 8/2/04 13.8239 -0.0035 9/1/04 13.8261 75.43538 10/1/04 15.0471 1.696426 11/1/04 15.2476 84.88508 12/1/04 16.6638 62.42865 1/3/05 17.9983 7.394594 2/1/05 17.4879 1.06317 3/1/05 17.6439 0.626697 4/1/05 17.5063 51.10612 5/2/05 16.2804 80.84762 6/1/05 17.7575 FUND Y(RETURN) S & P CNX NIFTY x*y 11.99446 1015.15 11.38255 6.185312 15.30717 3.374561 12.74648 3.385129 15.20316 -7.50942 4.182514 -1.88834 -3.23539 -16.2802 2.387703 1130.7 5.753073 1195.75 15.07004 1375.95 3.2632 1420.85 12.72478 1601.65 3.496394 1657.65 15.35909 1912.25 -7.49118 1769 4.731487 10.64847 161.92 12.22477 235.9017 56.11771 22.38697 3.182238 8.467519 214.5868 3.775636 43.89968 0.048241 72.96562 1.620865 83.52501 60.76854 6.799395 1.420469 0.645755 53.26285 79.40444 X(RETURN) 129.5625 33.09785 227.1061

1852.7 -1.78388 1819.65 -2.9099 1766.7 -14.6488 1507.9 1.9431

6.92413 1537.2 6.625683 0.015914 8.831124 1.332483 9.288019 8.008377 -2.83582 0.892045 -0.77987 -7.00262 9.072873 2087.55 1639.05 -0.21964 1635.45 8.541992 1775.15 1.273132 1797.75 9.139202 1962.05 7.795418 2115 -2.60757

2059.85 1.191834 2084.4 -0.80359 2067.65 -7.29814 1916.75 8.910917

*y

Y 79.59975 1564.652

79.43922

x*x

1523.339

Bi = N XY - XY NX - (X)2 Bi = 37551.648 6323.264 36560.136 6310.554 = 0.93182 Interpretation: One percent change in market index return causes .93% change in the fund return . Alpha : = Y - i * X = 4.154395 0.931821 * 3.309968 = 1.070098 Interpretation: The forecasting ability of the fund manager indicated by alpha value. Positive alpha value helps the fund manager to earn more than risk free r eturn. Standard deviation: Standard deviation indicates the volatility of the fund. The standard deviation of the Dynamic Plan is (7.44) greater than standard devia tion S & P CNX Nifty (7.30). so the Dynamic plan is riskier than S & P CNX Nifty . Sharpe Ratio: St = Portfolio average return risk free rate of interest Standard deviation of portfolio St= 4.154395 5 / 7.442381 => -0.11362 Interpretation: Sharpe ratio indicates the risk premium (-0.11362) per unit of t otal risk(S.D) Treynor Ratio: Tn = Portfolio average return risk free rate of interest Beta co-efficient of portfolio Tn = 4.154395 5 / 0.931821 => -0.90748 Interpretation: The Treynor ratio indicates the risk premium (-0.90748) per unit of systematic risk. Jenson Ratio: Ji = i / i Ji = 1.070098 / 0.931821 => 1.148394 Interpretation: Positive value indicates that predictive ability of fund manager helps to earn more than risk free return. Fama Model: Ri = Rf + Si / Sm * (Rm Rf) Ri = 5 + 7.4423 / 7.30 * (3.309 5) => 3.2643 Interpretation: Higher value of Fama Ratio indicates that fund manager has earne d returns well above the return commensurate with the level of risk taken by him .

Pru ICICI Growth Plan Fund Suitability: Long term investment of funds for capital appreciation. Which suitable for investors who seek to invest in equity securities. THE FOLLOWING TABLE SHOWS MONTHLY RETURNS OF INDEX FUND AND S & P CNX NIFTY. NAV DATE (NAV PRICE) 6/2/03 20.38 7/1/03 22.33 8/1/03 23.92 9/1/03 27.11 10/1/03 28.41 11/1/03 32.51 12/1/03 34.04 1/1/04 39.15 2/3/04 36.62 3/1/04 38.81 4/1/04 37.24 5/3/04 36.32 6/1/04 30.59 7/1/04 30.98 8/2/04 32.82 9/1/04 33.54 10/1/04 35.95 11/1/04 36.65 12/1/04 39.69 1/3/05 44.08 2/1/05 42.61 3/1/05 44.64 4/1/05 44.92 5/2/05 41.69 6/1/05 45.91 GROWTH PLAN RETURN % 9.568204 7.120466 13.33612 4.795278 14.43154 4.706244 15.01175 -6.46232 5.980339 -4.04535 -2.47046 -15.7764 1.274926 5.939316 2.193784 7.18545 1635.45 1.947149 8.294679 11.06072 -3.33485 4.76414 2059.85 0.62724 2084.4 -7.19056 10.12233 2087.55

S & P CNX NIFTY(VALUE) RETURN % 1015.15 11.38255 1130.7 5.753073 1195.75 15.07004 1375.95 3.2632 1420.85 12.72478 1601.65 3.496394 1657.65 15.35909 1912.25 -7.49118 1769 4.731487 1852.7 -1.78388 1819.65 -2.9099 1766.7 -14.6488 1507.9 1.9431 1537.2 6.625683 1639.05 -0.21964 8.541992 1775.15 1.273132 1797.75 9.139202 1962.05 7.795418 2115 -2.60757 1.191834 -0.80359 2067.65 -7.29814 1916.75 8.910917

Growth plan Vs. S & P CNX Nifty

GROWTH AUTO 1018.65 AUTO ANCILLARIES 511.91 BANKS 4086.04 CEMENT 1089.22 CONSTRUCTION 656.12 COSUMER NON-DURABLE 958.81 DREDGING 306.82 FERROUS METALS 2381.22 FERTILIZERS 183.75 INDUSTRIAL CAPITALGOODS 695.86 INDUSTRIAL PRODUCTS 182.72 MEDIA & ENTERTAINMENT 926 OIL 2213.25 PESTICIDES 857.49 PETROLEUM PRODUCTS 982.89 PHARMACEUTICALS 2823.62 SOFTWARE 3778.36 CASH,CALL,CBLO & REV ERSE REPO 978.78 OTHER CURRENT ASSETS 359.37

The above pie chart represents the sector allocation of portfolio.

Calculation of Beta values and Alpha values NAV DATE x*x 6/2/03 20.38 108.9106 7/1/03 22.33 40.96456 8/1/03 23.92 200.9759 9/1/03 27.11 15.64795 10/1/03 28.41 183.6381 11/1/03 32.51 16.45489 12/1/03 34.04 FUND Y(RETURN) S & P CNX NIFTY X(RETURN) x*y 9.568204 1015.15 11.38255 129.5625 7.120466 13.33612 4.795278 14.43154 4.706244 15.01175 1130.7 5.753073 1195.75 15.07004 1375.95 3.2632 1420.85 12.72478 1601.65 3.496394 1657.65 15.35909 10.64847 161.92 12.22477 235.9017 33.09785 227.1061

230.5669 1/1/04 39.15 48.4104 2/3/04 36.62 28.29589 3/1/04 38.81 7.216429 4/1/04 37.24 7.188798 5/3/04 36.32 231.1055 6/1/04 30.59 2.477309 7/1/04 30.98 39.35202 8/2/04 32.82 -0.48184 9/1/04 33.54 61.37805 10/1/04 35.95 2.478977 11/1/04 36.65 75.80675 12/1/04 39.69 86.22294 1/3/05 44.08 8.695827 2/1/05 42.61 5.678066 3/1/05 44.64 -0.50404 4/1/05 44.92 52.47772 5/2/05 41.69 90.19925 6/1/05 45.91 Y 1543.157

-6.46232 5.980339 -4.04535 -2.47046 -15.7764 1.274926 5.939316 2.193784

1912.25 -7.49118 1769 4.731487

56.11771 22.38697 3.182238 8.467519 214.5868 3.775636 43.89968 0.048241 72.96562 1.620865 83.52501 60.76854 6.799395 1.420469 0.645755 53.26285 79.40444

1852.7 -1.78388 1819.65 -2.9099 1766.7 -14.6488 1507.9 1.9431 1537.2 6.625683 1639.05 -0.21964

7.18545 1635.45 8.541992 1.947149 8.294679 11.06072 -3.33485 1775.15 1.273132 1797.75 9.139202 1962.05 7.795418 2115 -2.60757

4.76414 2059.85 1.191834 0.62724 2084.4 -0.80359 -7.19056 10.12233 2087.55 89.0797 X 79.43922 x*x 2067.65 -7.29814 1916.75 8.910917

1523.339

x*y

Bi = N XY - XY NX - (X)2 Bi = 37035.768 7076.421 = 0.990406 36560.136 6310.554 Interpretation: One percent change in market index return causes (0.99%) change in the fund return . Alpha : = Y - i * X = 3.711654 0.990406 * 3.309968 = 0.433442 Interpretation: The forecasting ability of the fund manager indicated by alpha value. Positive alpha value helps the fund manager to earn more than risk free r eturn. Standard deviation: Standard deviation indicates the volatility of the fund. The standard deviation of the Growth Plan is (7.35551) greater than standard dev iation S & P CNX Nifty (7.30). so the Growth plan is riskier than S & P CNX Nift y. Sharpe Ratio:

St = Portfolio average return risk free rate of interest Standard deviation of portfolio St= 3.711654 5 /7.35551 =>-0.17515 Interpretation: Sharpe ratio indicates the risk premium (-0.17515) per unit of t otal risk(S.D) Treynor Ratio: Tn = Portfolio average return risk free rate of interest Beta co-efficient of portfolio Tn = 3.711654 5 / 0.990406 => -1.30083 Interpretation: The Treynor ratio indicates the risk premium (-1.30083) per unit of systematic risk. Jenson Ratio: Ji = i / i Ji = 0.433442 / 0.990406 => 0.437641 Interpretation: Positive value indicates that predictive ability of fund manager helps to earn more than risk free return. Fama Model: Ri = Rf + Si / Sm * (Rm Rf) Ri = 5 + 7.35551 / 7.30 * (3.309 5) => 3.284623 Interpretation: Higher value of Fama Ratio indicates that fund manager has earne d returns well above the return commensurate with the level of risk taken by him .

Pru ICICI Power Fund Suitability: Long term investment of funds for capital appreciation in a co ncentrated multi sector portfolio. Which suitable for investors who seek in long term capital appreciation through investing in equity and equity related securi ties. THE FOLLOWING TABLE SHOWS MONTHLY RETURNS OF INDEX FUND AND S & P CNX NIFTY. NAV DATE POWER PLAN (NAV PRICE) RETURN% S & P CNX NIFTY(VALUE) RETURN % 6/2/03 14.97 12.69205 1015.15 11.38255 7/1/03 16.87 9.602845 1130.7 5.753073 8/1/03 18.49 13.35857 1195.75 15.07004 9/1/03 20.96 7.299618 1375.95 3.2632 10/1/03 22.49 12.09426 1420.85 12.72478 11/1/03 25.21 6.902023 1601.65 3.496394 12/1/03 26.95 14.10019 1657.65 15.35909 1/1/04 30.75 -8.94309 1912.25 -7.49118 2/3/04 28 6.5 1769 4.731487 3/1/04 29.82 -2.98457 1852.7 -1.78388

4/1/04 5/3/04 6/1/04 7/1/04 8/2/04 9/1/04 10/1/04 11/1/04 12/1/04 1/3/05 2/1/05 3/1/05 4/1/05 5/2/05 6/1/05

28.93 28.71 24.98 25.67 27.06 28.23 30.26 30.75 33.47 37.37 36.27 37.43 37.11 35.44 38.45

-0.76046 -12.992 1766.7 2.76221 1507.9 5.414881 4.323725 7.190932 1.619299 8.845528 11.65223 -2.94354 3.198235 -0.85493 -4.50013 8.493228 2087.55

1819.65 -2.9099 -14.6488 1.9431 1537.2 6.625683 1639.05 -0.21964 1635.45 8.541992 1775.15 1.273132 1797.75 9.139202 1962.05 7.795418 2115 -2.60757 2059.85 1.191834 2084.4 -0.80359 2067.65 -7.29814 1916.75 8.910917

Power Plan Vs. S & P CNX Nifty

POWER AUTO 2027.22 BANKS 8793.6 CEMENT 2712.62 CHEMICAL 236.87 CONSTRUCTION 1164.22 CONSUMER DURABLE 656.11 CONSUMER NON DURABLE 3700.13 FERROUS METALS 1496.27 FERTILIZERS 873.6 INDUSTRIAL CAPITAL GOODS 6470.94 NON-FERROUS METALS 1094.53 PESTICIDES 2813.16 PETROLEUM PRODUCTS 5786.13 PHARMACEUTICALS 4967.92 SOFTWARE 8525.85 CASH,CALL,CBLO & REV ERSE REPO 3102.49 OTHER CURRENT ASSETS 1833.38

The above pie chart represents the sector allocation of portfolio.

Calculation of Beta values and Alpha values NAV DATE x*x 6/2/03 14.97 144.468 7/1/03 16.87 55.24587 8/1/03 18.49 201.3142 9/1/03 20.96 23.82011 10/1/03 22.49 153.8968 11/1/03 25.21 24.13219 12/1/03 26.95 216.5661 1/1/04 30.75 66.99425 2/3/04 28 30.75466 3/1/04 29.82 5.324131 4/1/04 28.93 2.212852 5/3/04 28.71 190.3168 6/1/04 24.98 7/1/04 25.67 35.87729 8/2/04 27.06 -0.94966 9/1/04 28.23 61.42488 10/1/04 30.26 2.061582 11/1/04 30.75 80.84107 12/1/04 33.47 90.83397 1/3/05 37.37 7.675466 2/1/05 36.27 3.811767 3/1/05 37.43 0.687011 4/1/05 37.11 32.84262 5/2/05 35.44 75.68245 FUND Y(RETURN) S & P CNX NIFTY x*y 12.69205 1015.15 11.38255 9.602845 13.35857 7.299618 12.09426 6.902023 14.10019 -8.94309 6.5 -2.98457 -0.76046 1769 1130.7 5.753073 1195.75 15.07004 1375.95 3.2632 1420.85 12.72478 1601.65 3.496394 1657.65 15.35909 1912.25 -7.49118 4.731487 1852.7 -1.78388 1819.65 -2.9099 8.467519 214.5868 5.367249 43.89968 0.048241 72.96562 1.620865 83.52501 60.76854 6.799395 1.420469 0.645755 53.26285 79.40444 10.64847 161.92 12.22477 235.9017 56.11771 22.38697 3.182238 X(RETURN) 129.5625 33.09785 227.1061

-12.992 1766.7 -14.6488 2.76221 1507.9 1.9431 3.775636 5.414881 1537.2 6.625683 4.323725 7.190932 1.619299 8.845528 11.65223 -2.94354 3.198235 -0.85493 -4.50013 8.493228 1639.05 -0.21964 1635.45 8.541992 1775.15 1.273132 1797.75 9.139202 1962.05 7.795418 2115 -2.60757

2059.85 1.191834 2084.4 -0.80359 2067.65 -7.29814 1916.75 8.910917

6/1/05 38.45 *y Y 102.0711 1511.202

2087.55 X 79.43922 x*x 1523.339 x

Bi = N XY - XY NX - (X)2 Bi = 36268.848 8108.4485 = 0.930936 36560.136 6310.554 Interpretation: One percent change in market index return causes (0.93%) change in the fund return . Alpha : = Y - i * X = 4.252963 0.930936 * 3.309968 = 1.171595 Interpretation: The forecasting ability of the fund manager indicated by alpha value. Positive alpha value helps the fund manager to earn more than risk free r eturn. Standard deviation: Standard deviation indicates the volatility of the fund. The standard deviation of the Power Plan is (7.013092) lesser than standard devi ation S & P CNX Nifty (7.30). so the Power plan is less riskier than S & P CNX N ifty. Sharpe Ratio: St = Portfolio average return risk free rate of interest Standard deviation of portfolio St= 4.252963 5 /7.013092 =>-0.10652 Interpretation: Sharpe ratio indicates the risk premium (-0.10652) per unit of t otal risk(S.D) Treynor Ratio: Tn = Portfolio average return risk free rate of interest Beta co-efficient of portfolio Tn = 3.711654 5 / 0.930936 => -0.802458 Interpretation: The Treynor ratio indicates the risk premium (-0.802458) per uni t of systematic risk. Jenson Ratio: Ji = i / i Ji = 1.171595 / 0.930936 => 1.258513 Interpretation: Positive value indicates that predictive ability of fund manager helps to earn more than risk free return. Fama Model: Ri = Rf + Si / Sm * (Rm Rf) Ri = 5 + 7.013092 / 7.30 * (3.309 5) => 3.3644782 Interpretation: Higher value of Fama Ratio indicates that fund manager has earne d returns well above the return commensurate with the level of risk taken by him .

Pru ICICI Tax Plan Fund Suitability: Medium term investment of funds with tax benefits for capital appreciation. Which suitable for investors seeking to benefit from medium term i nvestment of funds with tax benefits for capital appreciation. THE FOLLOWING TABLE SHOWS MONTHLY RETURNS OF INDEX FUND AND S & P CNX NIFTY. NAV DATE (NAVPRICE) 6/2/03 14.35 7/1/03 16.59 8/1/03 18.01 9/1/03 21.48 10/1/03 23.19 11/1/03 24.71 12/1/03 27.27 1/1/04 32.01 2/3/04 26.57 3/1/04 26.77 4/1/04 27.01 5/3/04 27.95 6/1/04 24.6 7/1/04 25.44 8/2/04 28.36 9/1/04 31.95 10/1/04 33.62 11/1/04 34.22 12/1/04 39.55 1/3/05 43.78 2/1/05 44.33 3/1/05 47.28 4/1/05 48.68 5/2/05 46.93 6/1/05 52.81 TAX PLAN RETURN % 15.60976 8.559373 19.26707 7.960894 6.554549 10.36018 17.38174 -16.9947 0.752729 0.896526 3.480193 -11.9857 3.414634 11.47799 12.65867 5.226917 1.784652 15.57569 10.69532 1.256281 6.654636 2.961083 -3.59491 12.5293 1916.75 2087.55 S & P CNX NIFTY(VALUE) RETURN % 1015.15 11.38255 1130.7 5.753073 1195.75 15.07004 1375.95 3.2632 1420.85 12.72478 1601.65 3.496394 1657.65 15.35909 1912.25 -7.49118 1769 4.731487 1852.7 -1.78388 1819.65 -2.9099 1766.7 -14.6488 1507.9 1.9431 1537.2 6.625683 1639.05 -0.21964 1635.45 8.541992 1775.15 1.273132 1797.75 9.139202 1962.05 7.795418 2115 -2.60757 2059.85 1.191834 2084.4 -0.80359 2067.65 -7.29814 8.910917

Tax Plan Vs. S & P CNX Nifty

TAX AUTO ANCILLARIES 675.76 BANKS 294.57 CEMENT 146.11 CHEMICAL 520.11 CONSTRUCTION 16.37 COSUMER NON-DURABLE 110.08 FERROUS METALS 223.81 FERTILIZERS 45.06 FINANCE 129.38 HOTELS 261.6 INDUSTRIAL CAPITAL GOODS 711.45 INDUSTRIAL PRODUCTS 550.99 NON-FERROUS METALS 167.97 PESTICIDES 358.38 PETROLEUM PRODUCTS 172.09 PHARMACEUTICALS 474.73 SOFTWARE 430.1 TELECOM 99.73 TEXTILES - COTTON 26.67 TEXTILES - PRODUCTS 58.38 CASH,CALL,CBLO & REV ERSE REPO 48 OTHER CURRENT ASSETS 144.44 The above pie chart represents the sector allocation of portfolio.

Calculation of Beta values and Alpha values NAV DATE (NAVPRICE) x*x 6/2/03 14.35 177.6789 7/1/03 16.59 49.2427 8/1/03 18.01 290.3556 9/1/03 21.48 25.97799 10/1/03 23.19 83.40518 11/1/03 24.71 36.22327 12/1/03 27.27 266.9677 1/1/04 32.01 127.3102 FUND Y(RETURN) x*y 15.60976 8.559373 19.26707 7.960894 6.554549 10.36018 17.38174 -16.9947 S & P CNX NIFTY 1015.15 11.38255 1130.7 5.753073 1195.75 15.07004 1375.95 3.2632 1420.85 12.72478 1601.65 3.496394 1657.65 15.35909 1912.25 -7.49118 10.64847 161.92 12.22477 235.9017 56.11771 X(RETURN) 129.5625 33.09785 227.1061

2/3/04 26.57 3.561526 3/1/04 26.77 -1.5993 4/1/04 27.01 -10.127 5/3/04 27.95 175.5757 6/1/04 24.6 6.634975 7/1/04 25.44 76.04951 8/2/04 28.36 -2.78034 9/1/04 31.95 44.64828 10/1/04 33.62 2.272097 11/1/04 34.22 142.3493 12/1/04 39.55 83.37451 1/3/05 43.78 -3.27584 2/1/05 44.33 7.931223 3/1/05 47.28 -2.37949 4/1/05 48.68 26.23613 5/2/05 46.93 111.6475 6/1/05 52.81 *y

0.752729 0.896526 3.480193 -11.9857 3.414634 11.47799 12.65867 5.226917 1.784652 15.57569 10.69532 1.256281 6.654636 2.961083 -3.59491

1769

4.731487

22.38697 3.182238 8.467519 214.5868 3.775636 43.89968 0.048241 72.96562 1.620865 83.52501 60.76854 6.799395 1.420469 0.645755 53.26285 79.40444

1852.7 -1.78388 1819.65 -2.9099 1766.7 -14.6488 1507.9 1.9431 1537.2 6.625683 1639.05 -0.21964 1635.45 8.541992 1775.15 1.273132 1797.75 9.139202 1962.05 7.795418 2115 -2.60757

2059.85 1.191834 2084.4 -0.80359 2067.65 -7.29814

12.5293 1916.75 8.910917 2087.55 X 79.43922

Y 142.4829 1717.28

x*x

1523.339

Bi = N XY - XY NX - (X)2 Bi = 41214.78 11318.73 = 0.988312 36560.136 6310.554 Interpretation: One percent change in market index return causes (0.98%) change in the fund return . Alpha : = Y - i * X = 5.93678 0.988312 * 3.309968 = 2.665507 Interpretation: The forecasting ability of the fund manager indicated by alpha value. Positive alpha value helps the fund manager to earn more than risk free r eturn. Standard deviation: Standard deviation indicates the volatility of the fund. The standard deviation of the Tax Plan is (8.650477) greater than standard devia tion S & P CNX Nifty (7.30). so the Tax plan is riskier than S & P CNX Nifty. Sharpe Ratio: St = Portfolio average return risk free rate of interest Standard deviation of portfolio St= 5.93678 5 / 8.650477 => 0.108293 Interpretation: Sharpe ratio indicates the risk premium (0.108293) per unit of t otal risk(S.D) Treynor Ratio:

Tn = Portfolio average return risk free rate of interest Beta co-efficient of portfolio Tn = 5.93678 5 / 0.988312 => 0.947866 Interpretation: The Treynor ratio indicates the risk premium (0.947866) per unit of systematic risk. Jenson Ratio: Ji = i / i Ji = 2.665507 / 0.988312 => 2.69703 Interpretation: Positive value indicates that predictive ability of fund manager helps to earn more than risk free return. Fama Model: Ri = Rf + Si / Sm * (Rm Rf) Ri = 5 + 8.650477 / 7.30 * (3.309 5) => 2.982624 Interpretation: Higher value of Fama Ratio indicates that fund manager has earne d returns well above the return commensurate with the level of risk taken by him .

Pru ICICI Index fund Fund Suitability: Long term investment of funds for capital appreciation by repl icating S&P CNX Nifty index. Which suitable for investors who seek to invest in equity securities. THE FOLLOWING TABLE SHOWS MONTHLY RETURNS OF INDEX FUND AND S & P CNX NIFTY. NAV DATE (NAV PRICE) 6/2/03 8.6615 7/1/03 9.7004 8/1/03 10.3004 9/1/03 11.8771 10/1/03 12.2779 11/1/03 13.8429 12/1/03 14.3115 1/1/04 16.4873 2/3/04 15.2492 3/1/04 15.887 4/1/04 15.587 5/3/04 15.0827 6/1/04 12.6272 7/1/04 12.9287 8/2/04 13.8239 9/1/04 13.8261 10/1/04 15.0471 11/1/04 15.2476 FUND RETURN % 11.99446 6.185312 15.30717 3.374561 12.74648 3.385129 15.20316 -7.50942 4.182514 -1.88834 -3.23539 -16.2802 2.387703 6.92413 1537.2 0.015914 8.831124 1.332483 9.288019 S & P CNX NIFTY(VALUE) RETURN % 1015.15 11.38255 1130.7 5.753073 1195.75 15.07004 1375.95 3.2632 1420.85 12.72478 1601.65 3.496394 1657.65 15.35909 1912.25 -7.49118 1769 4.731487 1852.7 -1.78388 1819.65 -2.9099 1766.7 -14.6488 1507.9 1.9431 6.625683 1639.05 -0.21964 1635.45 8.541992 1775.15 1.273132 1797.75 9.139202

12/1/04 1/3/05 2/1/05 3/1/05 4/1/05 5/2/05 6/1/05

16.6638 17.9983 17.4879 17.6439 17.5063 16.2804 17.7575

8.008377 -2.83582 0.892045 -0.77987 -7.00262 9.072873 2087.55

1962.05 2115 2059.85 2084.4 2067.65 1916.75

7.795418 -2.60757 1.191834 -0.80359 -7.29814 8.910917

Index Fund Vs. S & P CNX Nifty

INDEX AUTO 8.78 BANKS 16.03 CEMENT 3.98 CHEMICAL 0.65 CONSUMER NON DURABLE 10.89 FERROUS METALS 7.77 FERTILIZERS 0.52 FINANCE 2.91 GAS 2.88 INDUSTRIAL CAPITALGOODS 5.89 MEDIA & ENTERTAINMENT 0.92 NON-FERROUS METALS 3.73 OIL 20.27 PETROLEUM PR4ODUCTS 15.58 PHARMACEUTICAL 8.06 POWER 2.72 SOFTWARE 32.41 TELECOM SERVICES 8.16 TRANSPORTATION 0.68 CASH,CALL,CBLO & REV ERSE REPO 47 OTHER CURRENT ASSETS 47.06

The above pie chart represents the sector allocation of portfolio.

Calculation of Beta values and Alpha values NAV DATE x*x 6/2/03 8.6615 136.5276 7/1/03 9.7004 35.58455 8/1/03 10.3004 230.6797 9/1/03 11.8771 11.01187 10/1/03 12.2779 162.1961 11/1/03 13.8429 11.83575 12/1/03 14.3115 233.5067 1/1/04 16.4873 56.25435 2/3/04 15.2492 19.78951 3/1/04 15.887 3.368571 4/1/04 15.587 9.414658 5/3/04 15.0827 238.4857 6/1/04 12.6272 4.639544 7/1/04 12.9287 45.87709 8/2/04 13.8239 -0.0035 9/1/04 13.8261 75.43538 10/1/04 15.0471 1.696426 11/1/04 15.2476 84.88508 12/1/04 16.6638 62.42865 1/3/05 17.9983 7.394594 2/1/05 17.4879 1.06317 3/1/05 17.6439 0.626697 4/1/05 17.5063 51.10612 FUND Y(RETURN) S & P CNX NIFTY x*y 11.99446 1015.15 11.38255 6.185312 15.30717 3.374561 12.74648 3.385129 15.20316 -7.50942 4.182514 -1.88834 -3.23539 -16.2802 2.387703 1130.7 5.753073 1195.75 15.07004 1375.95 3.2632 1420.85 12.72478 1601.65 3.496394 1657.65 15.35909 1912.25 -7.49118 1769 4.731487 10.64847 161.92 12.22477 235.9017 56.11771 22.38697 3.182238 8.467519 214.5868 3.775636 43.89968 0.048241 72.96562 1.620865 83.52501 60.76854 6.799395 1.420469 0.645755 53.26285 X(RETURN) 129.5625 33.09785 227.1061

1852.7 -1.78388 1819.65 -2.9099 1766.7 -14.6488 1507.9 1.9431

6.92413 1537.2 6.625683 0.015914 8.831124 1.332483 9.288019 8.008377 -2.83582 0.892045 -0.77987 -7.00262 1639.05 -0.21964 1635.45 8.541992 1775.15 1.273132 1797.75 9.139202 1962.05 7.795418 2115 -2.60757

2059.85 1.191834 2084.4 -0.80359 2067.65 -7.29814

5/2/05 16.2804 9.072873 1916.75 8.910917 80.84762 6/1/05 17.7575 2087.55 *y Y 79.59975 1564.652 X 79.43922 x*x

79.40444

1523.339

Bi = N XY - XY NX - (X)2 Bi = 37651.648 6323.342 = 1.032356 36560.136 6310.554 Interpretation: One percent change in market index return causes (1.03%) change in the fund return . Alpha : = Y - i * X = 3.316656 1.032356 * 3.309968 = -0.1004 Interpretation: Negative alpha value would not help the fund manager to earn mor e than risk free return. Standard deviation: Standard deviation indicates the volatility of the fund. The standard deviation of the Index Fund is (7.536863) greater than standard dev iation S & P CNX Nifty (7.30). so the Index fund is riskier than S & P CNX Nifty . Sharpe Ratio: St = Portfolio average return risk free rate of interest Standard deviation of portfolio St= 3.316656 5 / 7.536863 => -0.22335 Interpretation: Sharpe ratio indicates the risk premium (-0.22335) per unit of t otal risk(S.D) Treynor Ratio: Tn = Portfolio average return risk free rate of interest Beta co-efficient of portfolio Tn = 3.316656 5 / 1.032356 => -1.63058 Interpretation: The Treynor ratio indicates the risk premium (-1.63058) per unit of systematic risk. Jenson Ratio: Ji = i / i Ji = -0.1004 / 1.032356 => -0.09726 Interpretation: Positive value indicates that predictive ability of fund manager helps to earn more than risk free return. Fama Model: Ri = Rf + Si / Sm * (Rm Rf) Ri = 5 + 7.536863 / 7.30 * (3.309 5) => 3.24233 Interpretation: Higher value of Fama Ratio indicates that fund manager has earne d returns well above the return commensurate with the level of risk taken by him .

The following table shows the alpha ,beta, standard deviation and ratio values.

Dynamic plan Growth plan Power plan Tax plan Index fu nd Standard deviation 7.44238 7.35551 7.013092 8.65048 7.536863 Beta 0.931821 0.990406 0.930936 0.98831 1.032356 Alpha 1.070098 0.433442 1.171595 2.66551 -0.1004 Sharpe ratio -0.11362 -0.17515 -0.10652 0.10829 -0.22335 Treynor ratio -0.90748 -1.30083 -0.802458 0.94787 -1.63058 Jenson ratio 1.148394 0.437641 1.258513 2.69703 -0.09726 Fama ratio 3.264362 3.284622 3.364478 2.98262 3.24233

Dynamic Growth Power Tax Plan Index SHARPE -0.11362 -0.17547 -0.106531

0.108293

-0.22335

Interpretation: The tax plan generated excess return (0.108293) on the portfoli o per unit of total risk (S.D) among five funds because the average return on p ortfolio(5.93%) is greater than risk free rate(5%). From the above graph first rank could be given to Tax plan and least ran k could be given to Index plan.

Dynamic Growth Power Tax Plan Index TREYNOR -0.90748 -1.30083 -0.80245

0.947866

-1.63058

Interpretation: The tax plan generated excess return (0.947866) on the portfolio per unit of Systematic risk among five funds because the average return on port folio (5.93%) is greater than risk free rate (5%). From the above graph first rank could be given to Tax plan and least rank could

be given to Index plan. Dynamic Growth Power JENSEN S 1.148394

Tax Plan 0.437641

Index 1.258513

2.69703 -0.09726

Interpretation: The tax plan generated excess return (2.69703) on the portfolio per unit of Systematic risk among five funds because the average return on portf olio (5.93%) is greater than risk free rate (5%). In the Jensen model the alpha value represents the forecasting ability o f the fund manager. The alpha value of the tax plan (2.6655) is greater among ot her funds So the first rank could be given to Tax plan and least rank coul d be given to Index plan. Dynamic Growth Power Tax Plan Index 3.264362 3.287733 3.3644782

FEMA

Interpretation: The net selectivity represents the stock selection skill of the fund manager, as it is the excess return over and above the return required to c ompensate for the total risk taken by the fund manager. Higher value of which in dicates that fund manager has earned returns well above the return commensurate with the level of risk taken by him. The Power plan generated excess return (3.3644782) on the portfolio per unit of total risk (S.D) among five funds. Even though the average return on portfolio (4.25%) is less than risk free rate(5%) the standard deviation (7.53686) of pow er plan is comparatively less than other funds So the first rank could be given to Power plan and least rank co uld be given to Tax plan.

Chapter - V

SUMMARY A Mutual Fund is a trust that pools the savings of a number of investors who sha re a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income

2.982624

3.24233

earned through these investments and the capital appreciation realized are share d 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 securit ies at a relatively low cost. The end of millennium marks 36 years of existence of mutual funds in this countr y. This ride through these 36 years is not been smooth. Investor is still divi ded. While some are for mutual funds others are against it. UTI commenced its operations from July 1964. The impetus for establishing a for mal institution came from the desire to increase the prosperity of the middle an d lower groups to save and to invest. UTI came into existence during a period m arked by great political and economic uncertainty in India. With war on the bor ders and economic turmoil that depressed the financial market, entrepreneurs wer e hesitant to enter capital market. The already existing companies found it difficult to raise fresh capital, as inv estors did not respond adequately to new issues. Earnest efforts were required to canalize savings of the community into productive uses in order to speed up t he process of industrial growth. The then Finance Minister, T.T.Krishnamachari set up the idea of a unit trust th at would be open to any person or institution as we see it is intended to cater t o the needs of individual investors, and even among them as far as possible, to those whose means are small. As in every walk of life, we have to manage things in some or the other way. So management has become a part of life. Hence, I look myself to pursue career in management field. I opted Marketing and Finance as my specializations as it is t he management of funds of financial services is increasing tremendously in such a way that the organizations which deal with the funds are showing interest in a pproaching the public to provide the services. The title COMPARISON OF FUND WITH BENCHMARK INDEX was chosen as the investors show ing interest in investing securities. This study inculcates investors to opt for better fund. There are many funds prevailing in the market but many investors a re unaware about the process of selection of funds. Investors can identify bette r fund based on its performance .performance evaluation can be done through givin g rankings according Sharp ratio, Treynor ratio, Jensen ratio and fama ratio. Th is study helps common investor to get good returns by investing in fund having h ighest rank. Treynor measure and Jensen model use systematic risk based on the p remise that the unsystematic risk is diversifiable. These models are suitable fo r 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 di lute some risks. For them, a portfolio can be spread across a number of stocks a nd 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 o f 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 investm ent in funds that have generated big returns at higher levels of risks leaves th e money all the more prone to risks of all kinds that may exceed the individual investors risk appetite.

SUGGESTIONS Mutual Funds are subjected to market risk, so variability in returns may occur w hich urges investors to evaluate fund performance before investing in mutual fun d. Investor should identify his investment objective before investing into the fund . So he has to know whether the fund objective matches his investment objective. Investor should consider the past performance of the fund before investing but t he past performance may not be continued in the future. Investors who are risk averse can diversify their risk by investing in a portfol io which consists different stocks. This simple diversification can reduce their risk. The dynamic plan generated negative return because the average return on portfol io (4.25%) is less than the risk free return (5%) but alpha value is positive (1 .070098) which indicates that predictive ability of fund manager helps to earn m ore than the risk free return.

The growth plan generated negative return because the average return on portfoli o (3.71%) is less than the risk free return 5%. but alpha value is positive (0 .433443) which indicates that predictive ability of fund manager helps to earn m ore than the risk free return. The power plan generated negative return because the average return on portfolio (4.25%) is less than the risk free rate of return (5%). but alpha value is posi tive (1.17595) which indicates that predictive ability of fund manager helps to earn more than the risk free return. The Tax plan generated positive return because the average return on portfolio (5.93%) is less than the risk free rate of return (5%). but alpha value is posit ive (2.55667) which indicates that predictive ability of fund manager helps to e arn more than the risk free return. The Index fund generated negative return because the average return on portfolio (3.31%) is less than the risk free rate of return (5%). but alpha value is nega tive (-0.10041) which indicates that predictive ability of fund manager does not help to earn more than the risk free return. BIBLIOGRAPHY

1.sharpe & Alexander

Investments published by Prentice Hall in 1990. 2.V.K.Bhalla - Investment Management published by S.Chand & Company Ltd in 1997. 3.Punivarthy Pandian - Security Analysis & Portfolio Management published by Vikas Publishing house pvt. ltd 2003. 4. Prasanna Chandra - Security Analysis & Portfolio Management published by Tata Mc-Graw-Hill in 1997. 5. Jack Clark Francis & Richard W.Taylor Investements published by Tata Mc-Graw-Hill in 2004. 6. PRU ICICI Fact Sheets. WEBSITES: 1. 2. 3. 4. 5. www.amfiindia.com www.mutualfundsindia.com www.nseindia.com www.pruicici.com www.moneycontrol.com