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1 INTRODUCTION TO THE TOPIC There are a lot of investment avenues available today in the financial market for an investor with an invisible surplus. She/he can invest in Bank Deposits, Corporate Debentures, and Bonds where there is low risk but low return. He may invest in Stock of companies where the risk is high and the returns are also proportionately high. The recent trends in the Stock Market have shown that an average retail investor always lost with periodic bearish tends. People began opting for portfolio managers with expertise in stock markets who would invest on their behalf. Thus we had wealth management services provided by many institutions. However they proved too costly for a small investor. These investors have found a good shelter with the mutual funds. Mutual fund industry has seen a lot of changes in past few years with multinational companies coming into the country, bringing in their professional expertise in managing funds worldwide. In the past few months there has been a consolidation phase going on in the mutual fund industry in India. Now investors have a wide range of Schemes to choose from depending on their individual profiles. My study gives an overview of mutual funds definition, types, benefits, risks, limitations, history of mutual funds in India, latest trends, global scenarios. Meaning: A mutual fund is not an alternative investment option to stocks and bonds; rather it pools the money of several investors and invests this in stocks, bonds, money market instruments and other types of securities. Example: Buying a mutual fund is like buying a small slice of a big pizza. The owner of a mutual fund unit gets a proportional share of the funds gains, losses, income and expenses. Concept:

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. 1

The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

Each mutual fund has a specific stated objective The funds objective is laid out in the fund's prospectus, which is the legal document that contains information about the fund, its history, its officers and its performance. Some popular objectives of a mutual fund are Fund Objective Equity (Growth) What the fund will invest in Only in stocks

Debt (Income) Only in fixed-income securities Money Market (including In short-term money market instruments (including Gilt) Balanced government securities) Partly in stocks and partly in fixed-income securities, in order to maintain a 'balance' in returns and risk Mutual funds are investment vehicles, and you can use them to invest in asset classes such as equities or fixed income. Money control recommends that you use the mutual fund investment route rather than invest yourself, unless you have the required temperament, aptitude and technical knowledge. In this article we discuss why and how you should choose mutual funds. If you would like to familiarize yourself with the basic concepts and workings of a mutual fund, Understanding Mutual Funds would be a good place to start.

We go to a doctor when we need medical advice or a lawyer for legal guidance. Similarly, mutual funds are investment vehicles managed by professional fund managers. And unless you have a high Investment IQ, we recommend you use this option for investing. Mutual funds are like professional money managers, however a key factor in their favor is that they are more regulated and hence offer investors the ability to analyze and evaluate their track record. Investing is becoming more complex: There was a time when things were quite simple - the market went up with the arrival of the first monsoon showers and every year around Diwali. Since India started integrating with the world (with the start of the liberalization process), complex factors such as an increase in short-term US interest rates, the collapse of the Brazilian currency or default on its debt by the Russian government, have started having an impact on the Indian stock market. Although it is possible for an individual investor to understand Indian companies (and investing) in such an environment, the process can become fairly time consuming. Mutual funds (whose fund managers are paid to understand these issues and whose Asset Management Company invests in research) provide an option of investing without getting lost in the complexities. Mutual funds provide risk diversification: Diversification of a portfolio is amongst the primary tenets of portfolio structuring (see The Need to Diversify). And a necessary one to reduce the level of risk assumed by the portfolio holder. Most of us are not necessarily well qualified to apply the theories of portfolio structuring to our holdings and hence would be better off leaving that to a professional. Mutual funds represent one such option. Selecting a mutual fund: What's strategy got to do with selecting a mutual fund? Shouldn't you just go and invest in the best performing fund? The answer is no. Mutual fund investing requires as much strategic input as any other investment option. But the advantage is that the strategy here is a natural extension of your asset allocation plan (use our Asset Allocator to 3

understand what your optimum asset allocation plan should be, based on your personal risk profile). Money control recommends the following process: Identify funds whose investment objectives match your asset allocation needs: Just as you would buy a computer that fits your needs and budget, you should choose a mutual fund that meets your risk tolerance (need) and your risk capacity (budget) levels ( i.e. has similar investment objectives as your own). Typical investment objectives of mutual funds include fixed income or equity, general equity or sectorfocused, high risk or low risk, blue-chips or turnarounds, long-term or short-term liquidity focus. You can use money controls Find-A-Fund query module to find funds whose investment objectives match yours. Evaluate past performance, look for consistency: Although past performance is no guarantee for the future, it is a useful way of assessing how well or badly a fund has performed in comparison to its stated objectives and peer group. A good way to do this would be to identify the five best performing funds (within your selected investment objectives) over various periods, say 3 months, 6 months, one year, two years and three years. Shortlist funds that appear in the top 5 in each of these time horizons as they would have thus demonstrated their ability to be not only good but also, consistent performers. You can engage in such research through money control's Find-A-Fund query module. Diversify: Don't just zero in on one mutual fund (to avoid the risk of being overly dependent on any one fund). Pick two, preferably three mutual funds that would match your investment objective in each asset allocation category and spread your investment. We recommend a 60:40 split if you have short listed 2 funds and a 50:30:20 split if you have short listed 3 funds for investment.

Consider Fund Costs: The cost of investing through a mutual fund is not insignificant and deserves due consideration, especially when it comes to fixed income funds. Management fees, annual expenses of the fund and sales loads can take away a significant portion of your returns. As a general rule, 1% towards management fees and 0.6% towards other annual expenses should be acceptable. Carefully examine load the fee a fund charges for getting in and out of the fund. Invest, monitor and Review: Having made an investment in a mutual fund, you should monitor it to see whether its management and performance is in line with stated objectives and also whether its performance exceeds or lags your expectations. Unlike individual stocks and bonds, mutual fund reviews are required less frequently, once in a quarter should be sufficient. A review of the funds performance should be carried out with the objective of holding or selling your investment in the mutual fund. You might need to sell your investment in a mutual fund if any of the events below apply. You change your investment plan: For example, as you grow older you might adopt a more conservative investment approach, pruning some of your riskier (equity-oriented) funds. A fund changes its strategy: A fund that alters its investment objective or approach might no longer fit your strategy. The fund's poor results persist: If a fund regularly trails other funds that invest in similar securities, consider replacing it. The poor performance is more often than not a reflection on the relative expertise of the asset management company. By now you would have realized that investing in mutual funds is not just a decision but is more a process. Money control's Mutual Fund Investing Checklist can help make this process easier and more efficient.

Mutual fund operation flow chart:

Organisation of mutual fund:

Mutual Fund Custodian: A trust company, bank or similar financial institution responsible for holding and safeguarding the securities owned within a mutual fund. A mutual funds custodian may also act as the mutual funds transfer agent, maintaining records of shareholder transactions and balances. Also refers to as a "mutual fund corporation". Since a mutual fund is essentially a large pool of funds from many different investors, it requires a third-party custodian to hold and safeguard the securities that are mutually owned by all the fund's investors. This structure mitigates the risk of dishonest activity by separating the fund managers from the physical securities and investor records. 6

Sponsor: Sponsor is the person who acting alone or in combination with another body corporate establishes a mutual fund. Sponsor must contribute at least 40% of the net worth of the Investment Managed and meet the eligibility criteria prescribed under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.The Sponsor is not responsible or liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial contribution made by it towards setting up of the Mutual Fund. Trust: The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908. Trustee: Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The main responsibility of the Trustee is to safeguard the interest of the unit holders and inter alias ensure that the AMC functions in the interest of investors and in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of the Trust Deed and the Offer Documents of the respective Schemes. At least 2/3rd directors of the Trustee are independent directors who are not associated with the Sponsor in any manner. Asset Management Company (AMC): The Trustee as the Investment Manager of the Mutual Fund appoints the AMC. The AMC is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an asset management company of the Mutual Fund. Atlas 50% of the directors of the AMC is an independent director who is not associated with the Sponsor in any manner. The AMC must have a net worth of at least 10 crores at all times.

Registrar and Transfer Agent: The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual Fund. The Registrar processes the application form; redemption requests and dispatches account statements to the unit holders. The Registrar and Transfer agent also handles communications with investors and updates investor records. Basics Of Mutual Fund: Net Asset Value (NAV) NAV is the total asset value (net of expenses) per unit of the fund and is calculated by the AMC at the end of every business day. The value of all the securities in the portfolio in calculated daily. From this, all expenses are deducted and the resultant value divided by the number of units in the fund is the funds NAV. Expense Ratio: AMCs charge an annual fee, or expense ratio that covers administrative expenses, salaries, advertising expenses, brokerage fee, etc. A 1.5% expense ratio means the AMC charges Rs1.50 for every Rs100 in assets under management. A fund's expense ratio is typically to the size of the funds under management and not to the returns earned. Normally, the costs of running a fund grow slower than the growth in the fund size - so, the more assets in the fund, the lower should be its expense ratio. Some AMCs have sales charges, or loads, on their funds (entry load and/or exit load) to compensate for distribution costs. Funds that can be purchased without a sales charge are called no-load funds. Open- and Close-Ended Funds 1) Open-Ended Funds: At any time during the scheme period, investors can enter and exit the fund scheme (by buying/ selling fund units) at its NAV (net of any load charge). Increasingly, AMCs are issuing mostly open-ended funds. 2) Close-Ended Funds: Redemption can take place only after the period of the scheme is over. However, close-ended funds are listed on the stock exchanges and investors can buy/ sell units in the secondary market (there is no load).

Important documents: quarterly).

Two key documents that highlight the fund's strategy and

performance are 1) the prospectus (legal document) and the shareholder reports (normally Risk factors of mutual fund: The Risk-Return Trade-off: The most important relationship to understand is the riskreturn trade-off. Higher the risk greater the returns/loss and lower the risk lesser the returns/loss. Hence it is up to you, the investor to decide how much risk you are willing to take. In order to do this you must first be aware of the different types of risks involved with your investment decision. Market Risk: Sometimes prices and yields of all securities rise and fall. Broad outside influences affecting the market in general lead to this. This is true, may it be big corporations or smaller mid-sized companies. This is known as Market Risk. A Systematic Investment Plan (SIP) that works on the concept of Rupee Cost Averaging (RCA) might help mitigate this risk. Credit Risk: The debt servicing ability (may it be interest payments or repayment of principal) of a company through its cash flows determines the Credit Risk faced by you. This credit risk is measured by independent rating agencies like CRISIL who rate companies and their paper. A AAA rating is considered the safest whereas a D rating is considered poor credit quality. A well-diversified portfolio might help mitigate this risk. Inflation Risk: Things you hear people talk about:"Rs. 100 today is worth more than Rs. 100 tomorrow, Remember the time when a bus ride costed 50 paisa?" The root cause, Inflation. Inflation is the loss of purchasing power over time. A lot of times people make conservative investment decisions to protect their capital but end up with a sum of money that can buy less than what the principal could at the time of the investment. This happens when inflation grows faster than the return on your investment. A welldiversified portfolio with some investment in equities might help mitigate this risk. Interest Rate Risk: In a free market economy interest rates are difficult if not impossible to predict. Changes in interest rates affect the prices of bonds as well as equities. If interest rates rise the prices of bonds fall and vice versa. Equity might be negatively

affected as well in a rising interest rate environment. A well-diversified portfolio might help mitigate this risk. Political/Government Policy Risk: Changes in government policy and political decision can change the investment environment. They can create a favorable environment for investment or vice versa. Liquidity Risk: Liquidity risk arises when it becomes difficult to sell the securities that one has purchased. Liquidity Risk can be partly mitigated by diversification, staggering of maturities as well as internal risk controls that lean towards purchase of liquid securities. Various Investment option in mutual fund: To cater to different investment needs, Mutual Funds offer various investment options. Some of the important investment options include: Growth Option: Dividend is not paid-out under a Growth Option and the investor realizes only the capital appreciation on the investment (by an increase in NAV). Dividend Payout Option: Dividends are paid-out to investors under the Dividend Payout Option. However, the NAV of the mutual fund scheme falls to the extent of the dividend payout. Dividend Re-investment Option: Here the dividend accrued on mutual funds is automatically re-invested in purchasing additional units in open-ended funds. In most cases mutual funds offer the investor an option of collecting dividends or re-investing the same. Retirement Pension Option: Some schemes are linked with retirement pension. Individuals participate in these options for themselves, and corporate participate for their employees. Insurance Option: Certain Mutual Funds offer schemes that provide insurance cover to investors as an added benefit. Systematic Investment Plan (SIP): Here the investor is given the option of preparing a pre-determined number of post-dated cheques in favor of the fund. The investor is allotted units on a predetermined date specified in the offer document at the applicable NAV. 10

Systematic Withdrawal Plan (SWP): As opposed to the Systematic Investment Plan, the Systematic Withdrawal Plan allows the investor the facility to withdraw a predetermined amount / units from his fund at a pre-determined interval. The investor's units will be redeemed at the applicable NAV as on that day. Analysis Of Mutual Fund Schemes To study the currently available schemes I have taken the fact sheets available with the AMCs. The fact sheet provides the historical data about the various schemes offered by the AMC, investment pattern, dividend history, ratings given, Fund Managers Credentials, etc. Types Of Mutual Fund Schemes: By structure: Open - ended schemes: These do not have a fixed maturity. You deal with the Mutual Fund for your investments and redemptions. The key feature is liquidity. You can conveniently buy and sell your units at Net Asset Value (NAV) related prices, at any point of time. Close - ended schemes: Schemes that have a stipulated maturity period (ranging from 2 to 15 years) are called close ended schemes. You can invest in the scheme at the time of the initial issue and thereafter you can buy or sell the units of the scheme on the stock exchanges where they are listed. The market price at the stock exchange could vary from the schemes NAV on account of demand and supply situation, unit holders expectations and other market factors. One of the characteristics of the close-ended schemes is that they are generally traded at a discount to NAV; but closer to maturity, the discount narrows. Some close-ended schemes give you an additional option of selling your units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations ensure that at least one of the two exit routes are provided to the investor under the close ended schemes Interval schemes: These combine the features of open-ended and close-ended schemes. They may be traded on the stock exchange or may be open for sale or redemption during predetermined intervals at NAV related prices.

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By Investment objective: Growth schemes: Aim to provide capital appreciation over the medium to long term. These schemes normally invest a majority of their funds in equities and are willing to bear short term decline in value for possible future appreciation. These schemes are not for investors seeking regular income or needing their money back in the short term. Income schemes: Income Schemes Aim to provide regular and steady income to investors. appreciation income. a) Investors who need some income to supplement their earnings.

These in

schemes such schemes

generally may

invest be

in limited.

fixed income securities such as bonds and corporate debentures. Capital Ideal for: Retired people and others with a need for capital stability and regular

Balanced schemes: Aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. They invest in both shares and fixed income securities in the proportion indicated in their offer documents. In arising stock market, the NAV of these schemes may not normally keep pace or fall equally when the market falls.

Ideal for: Investors looking for a combination of income and moderate growth. Money market schemes: Aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short term instruments such as treasury bills, certificates of deposit, commercial paper and inter bank call money. Returns on these schemes may fluctuate, depending upon the interest rates prevailing in the market. Ideal for: Corporate and individual investors as a means to park their surplus funds for short periods or awaiting a more favorable investment alternative. Other schemes: Tax saving schemes: These schemes offer tax incentives to the investors under tax laws as prescribed from time to time and promote long term investments in equities through

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Mutual Funds. Eligible for deduction under section 80C .Lock in period three years Ideal for: a). Investors seeking tax incentives. Special schemes: This category includes index schemes that attempt to replicate the performance of a particular index such as the BSE Sensex, the NSE 50 (NIFTY) or sector specific schemes which invest in specific sectors such as Technology, Infrastructure, Banking, Pharmacy etc. Besides, there are also schemes which invest exclusively in certain segments of the capital market, such as Large Caps, Mid Caps, Small Caps, Micro Caps, 'A' group shares, shares issued through Initial Public Offerings (IPOs), etc. Index schemes: Index fund schemes are ideal for investors who are satisfied with a return approximately equal to that of an index. Sector specific schemes: Sectoral fund schemes are ideal for investors who have already decided to invest in a particular sector or segment. Balanced fund: It has three objectives moderate long term growth of capital, moderate income, and moderate stability A. Fixed Maturity Plan: Fixed Maturity Plans (FMPs) are investment schemes floated by mutual funds and are close ended with a fixed tenure, the maturity period ranging from one month to three/five years. These plans are predominantly debt-oriented, while some of them may have a small equity component. The objective of such a scheme is to generate steady returns over a fixed-maturity period and protect the investor against market fluctuations. FMPs are typically passively managed fixed income schemes with the fund manager locking into investments with maturities corresponding with the maturity of the plan. FMPs are not guaranteed products. B. Exchange Traded Funds: Exchange Traded Funds are essentially index funds that are listed and traded on exchanges like Index fund schemes are ideal for investors who are satisfied with a return approximately equal to that of an index. Globally, ETFs have opened a whole new panorama of investment opportunities to retail as well as institutional investors. ETFs enable investors to gain broad exposure to entire stock markets as well as in specific sectors with relative ease, on a real-time basis and at a lower cost than many other forms of investing. An 13

ETF is a basket of stocks that reflects the composition of an index, like S&P CNX Nifty, BSE Sensex, CNX Bank Index, CNX PSU Bank Index, etc. The ETF's trading value is based on the net asset value of the underlying stocks that it represents. It can be compared to a stock that can be bought or sold on real time basis during the market hours. The first ETF in India, Benchmark Nifty Bees, opened for subscription on December 12, 2001 and listed on the NSE on January 8, 2002. C. Capital Protection Oriented Schemes: Capital Protection Oriented Schemes are schemes that endeavor to protect the capital as the primary objective by investing in high quality fixed income securities and generate capital appreciation by investing in equity / equity related instruments as a secondary objective. The first Capital Protection Oriented Fund in India, Franklin Templeton Capital Protection Oriented Fund opened for subscription on October 31, 2006. Gold Exchange Traded Funds offer investors an innovative, cost-efficient and secure way to access the gold market. Gold ETFs are intended to offer investors a means of participating in the gold bullion market by buying and selling units on the Stock Exchanges, without taking physical delivery of gold. The first Gold ETF in India, Benchmark GETF, opened for subscription on February 15, 2007 and listed on the NSE on April 17, 2007. D. Quantitative Funds: A quantitative fund is an investment fund that selects securities based on quantitative analysis. The managers of such funds build computer based models to determine whether or not an investment is attractive. In a pure "quant shop" the final decision to buy or sell is made by the model. However, there is a middle ground where the fund manager will use human judgment in addition to a quantitative model. The first Quant based Mutual Fund Scheme in India, Lotus Agile Fund opened for subscription on October 25, 2007. E. Funds Investing Abroad: With the opening up of the Indian economy, Mutual Funds have been permitted to invest in foreign securities/ American Depository Receipts (ADRs) / Global Depository Receipts (GDRs). Some of such schemes are dedicated funds for investment abroad while others invest partly in foreign securities and partly in domestic securities. While most such schemes invest in 14

securities across the world there are also schemes which are country specific in their investment approach. F. Fund of Funds (FOFs): Fund of Funds are schemes that invest in other mutual fund schemes. The portfolio of these schemes comprise only of units of other mutual fund schemes and cash / money market securities/ short term deposits pending deployment. The first FOF was launched by Franklin Templeton Mutual Fund on October 17, 2003. Fund of Funds can be Sector specific e.g. Real Estate FOFs, Theme specific e.g. Equity FOFs, Objective specific e.g. Life Stages FOFs or Style specific e.g. Aggressive/ Cautious FOFs etc. Valuation Of Mutual Fund: The net asset value of the Fund is the cumulative market value of the assets Fund net of its liabilities. In other words, if the Fund is dissolved or liquidated, by selling off all the assets in the Fund, this is the amount that the shareholders would collectively own. This gives rise to the concept of net asset value per unit, which is the value, represented by the ownership of one unit in the Fund. It is calculated simply by dividing the net asset value of the Fund by the number of units. However, most people refer loosely to the NAV per unit as NAV, ignoring the per unit. We also abide by the same convention. Calculation of NAV: The most important part of the calculation is the valuation of the assets owned by the Fund. Once it is calculated, the NAV is simply the net value of assets divided by the number of units outstanding. The detailed methodology for the calculation of the net asset value is given below. The net asset value is the actual value of a unit on any business day. NAV is the barometer of the performance of the scheme. The net asset value is the market value of the assets of the scheme minus its liabilities and expenses. The price per unit NAV is the net asset value of the scheme divided by the number of the units outstanding on the valuation date. Equity or Growth Scheme: These schemes, also commonly called Growth Schemes, seek to invest a majority of their funds in equities and a small portion in money market instruments. Such schemes have the potential to deliver superior returns over the long

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term. However, because they invest in equities, these schemes are exposed to fluctuations in value especially in the short term. Balanced Scheme: The aim of Balanced Funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. This proportion affects the risks and the returns associated with the balanced fund - in case equities are allocated a higher proportion, investors would be exposed to risks similar to that of the equity market. Balanced funds with equal allocation to equities and fixed income securities are ideal for investors looking for a combination of income and moderate growth. Advantages Of Mutual Fund: The advantages of investing in a Mutual Fund are: Diversification: The best mutual funds design their portfolios so individual investments will react differently to the same economic conditions. For example, economic conditions like a rise in interest rates may cause certain securities in a diversified portfolio to decrease in value. Other securities in the portfolio will respond to the same economic conditions by increasing in value. When a portfolio is balanced in this way, the value of the overall portfolio should gradually increase over time, even if some securities lose value. Professional Management: Most mutual funds pay topflight professionals to manage their investments. These managers decide what securities the fund will buy and sell. Regulatory oversight: Mutual funds are subject to many government regulations that protect investors from fraud. Liquidity: It's easy to get your money out of a mutual fund. Write a check, make a call, and you've got the cash. Convenience: You can usually buy mutual fund shares by mail, phone, or over the Internet. Affordability: The minimum initial investment for a mutual fund is fairly low for most funds (as low as Rs500 for some schemes). 16

Flexibility and variety: You can pick from conservative, blue-chip stock funds, sectoral funds, funds that aim to provide income with modest growth or those that take big risks in the search for returns. You can even buy balanced funds, or those that combine stocks and bonds in the same fund. Low cost: Mutual fund expenses are often no more than 1.5 percent of your investment. Expenses for Index Funds are less than that, because index funds are not actively managed. Instead, they automatically buy stock in companies that are listed on a specific index. Tax benefits on Investment in Mutual Funds 100% Income Tax exemption on all Mutual Fund dividends Equity Funds - Short term capital gains is taxed at 15%. Long term capital gains are not applicable. Debt Funds - Short term capital gains is taxed as per the slab rates applicable to you. Long term capital gains tax to be lower of - 10% on the capital gains without factoring indexation benefit and 20% on the capital gains after factoring indexation benefit. Open-end funds with equity exposure of more than 65% (Revised from 50% to 65% in Budget 2006) are exempt from the payment of dividend tax for a period of 3 years from 1999-2000. Note: Equity Funds are those where the investible funds are invested in equity shares in domestic companies to the extent of more than 65% of the total proceeds of such funds. Disadvantages Of Mutual Fund: No Guarantees. The value of your mutual fund investment, unlike a bank deposit, could fall and be worth less than the principle initially invested. And, while a money market fund seeks a stable share price, its yield fluctuates, unlike a certificate of deposit. In addition, mutual funds are not insured or guaranteed by an agency of the U.S. government. Bond funds, unlike purchasing a bond directly, will not re-pay the principle at a set point in time. The Diversification "Penalty." Diversification can help to reduce your risk of loss from holding a single security, but it limits your potential for a "home run" if 17

a single security increases dramatically in value. Remember, too, that diversification does not protect you from an overall decline in the market. Costs. In some cases, the efficiencies of fund ownership are offset by a combination of sales commissions, 12b-1 fees, redemption fees, and operating expenses. If the fund is purchased in a taxable account, taxes may have to be paid on capital gains. Keep track of the cost basis of your initial purchase and new shares that are acquired by reinvesting distributions. It's important to compare the costs of funds you are considering. Always look at "net" returns when comparing fund performances. Net return is the bottom line; an investment's true returns after all costs are deducted. 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 Trust of India invited investors or rather to those who believed in savings, to park 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 remained in a monopoly position. The performance of mutual funds in India in the initial phase was not even closer to satisfactory level. People rarely understood, and of course investing was out of question. But yes, some 24 million shareholders were accustomed with guaranteed high returns by the beginning of liberalization of the industry in 1992. This good record of UTI became marketing tool for new entrants. The expectations of 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 concentrate 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 figure 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 started 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 thing to be noted, since only closed-end 18

funds were floated in the market, the investors 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 transparent rules in the where about rocked confidence among the investors. Partly owing to a relatively weak stock market performance, mutual funds have not yet recovered, 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 investment restrictions into the market, introduction of open-ended funds, and paving the gateway for mutual funds to launch pension schemes. The measure was taken to make mutual funds the key instrument for long-term saving. The more the variety offered, the quantitative will be investors. At last to mention, as long as mutual fund companies are performing with lower risks 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. Distribution of natural resources and the secondary objective is to generate consistent returns by investing in debt and money market securities.

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1.2 INDUSTRY PROFILE

Mutual Funds Industry in India:The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the industry. In the past decade, Indian mutual fund industry had seen dramatic improvements, both quality wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase; the Assets under Management (AUM) were Rs. 67bn. The private sector entry to the fund family raised the AUM to Rs. 470bn in March 1993 and till April 2004; it reached the height of 1,540 bn. Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than the deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian banking industry. The main reason of its poor growth is that the mutual fund industry in India is new in the country. Large sections of Indian investors are yet to be intellectuated with the concept. Hence, it is the prime responsibility of all mutual fund companies, to market the product correctly abreast of selling. The mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under.

Phases of mutual funds:

First Phase 1964-87 (Monopoly Of UTI) Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 corers of assets under management. 20

Second Phase 1987-93 (Entry Of Public Sector Funds): Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47, 004 as assets under management. Third Phase 1993-2003 (Entry Of Private Sector Funds): With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 crores. The Unit Trust of India with Rs.44, 541 crores of assets under management was way ahead of other mutual funds. Fourth Phase Since February 2003: This phase had bitter experience for UTI. It was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29, 835 crores (as on January 2003). The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76, 000 crores of AUM and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual 21

Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

1.3 COMPANY PROFILE

The IIFL (India Infoline) group, comprising the holding company incorporated in 1995, India Infoline Ltd (NSE: INDIAINFO, BSE: 532636) and its subsidiaries, is one of the leading players in the Indian financial services space. IIFL offers advice and execution platform for the entire range of financial services covering products ranging from Equities and derivatives, Commodities, Wealth management, Asset management, Insurance, Fixed deposits, Loans, Investment Banking, GoI bonds and other small savings instruments. IIFL recently received an in-principle approval for Securities Trading and Clearing memberships from Singapore Exchange (SGX) paving the way for IIFL to become the first Indian brokerage to get a membership of the SGX. IIFL also received membership of the Colombo Stock Exchange becoming the first foreign broker to enter Sri Lanka. IIFL owns and manages the website, www.indiainfoline.com, which is one of Indias leading online destinations for personal finance, stock markets, economy and business. India Infoline Limited (IIFL) is a financial services company. The Company has four segments: equities brokerage and related; financing and investment; marketing and distribution, and others. IIFL offers online and offline broking and advisory services in the cash, derivatives and currency segments to retail and institutional clients. The Company offers home loans, loan against property and loan against shares/debentures. IIFL is a pan India distributor of many financial products, including life insurance, mutual funds, bonds and debentures. India Infoline is a leading pan-India mutual fund distribution house associated with leading asset management companies. It operates primarily in the retail segment leveraging its existing distribution network to reach prospective clients. It has received the in-principle approval to set up a mutual fund. The group recently commenced its offshore asset management business under the IIFL 22

Capital brand. Also, IIFL Securities Pte Ltd received approval from the Monetary Authority of Singapore to carry out global asset management operations. The Singapore arm can now offer broking, asset management and investment banking services. IIFL offers private wealth advisory services to high-net-worth individuals and corporate under the IIFL Private Wealth brand through its subsidiary, IIFL Wealth Management Ltd. The subsidiary manages Family Offices along with investment advisory for equity, mutual funds, real estate, fixed income, structured products and also offers portfolio management services across asset classes. IIFL has been awarded the Best Broker, India by Finance Asia and the Most improved brokerage, India in the Asia Money polls. India Infoline was also adjudged as Fastest Growing Equity Broking House - Large firms by Dun & Bradstreet. A forerunner in the field of equity research, IIFLs research is acknowledged by none other than Forbes as Best of the Web and a must read for investors in Asia. Our research is available not just over the Internet but also on international wire services like Bloomberg, Thomson First Call and Internet Securities where it is amongst one of the most read Indian brokers. A network of over 2,500 business locations spread over more than 500 cities and towns across India facilitates the smooth acquisition and servicing of a large customer base. All our offices are connected with the corporate office in Mumbai with cutting edge networking technology. The group caters to a customer base of about a million customers, over a variety of mediums viz. online, over the phone and at our branches. Vision Statement: Our vision is to be the most respected company in the financial services space. India Infoline Group subsidiaries: India Infoline Media and Research Services Limited India Infoline Commodities Limited India Infoline Marketing & Services India Infoline Investment Services Limited 23

IIFL (Asia) Pte Limited

Global Presence: China, Brazil, Dubai, Russia, Singapore, UK, USA Specialties One-stop financial services shop, most respected for quality of its advice, personalized service and cutting-edge technology. History & Milestones 1995

Commenced operations as an Equity Research firm Launched research products of leading Indian companies, key sectors and the economy Client included leading FIIs, banks and companies

1997

1999

Launched www.indiainfoline.com Launched online trading through www.5paisa.com Started distribution of life insurance and mutual fund

2000

2003

Launched proprietary trading platform Trader Terminal for retail customers Acquired commodities broking license, Launched Portfolio Management Service Maiden IPO and listed on NSE, BSE Acquired membership of DGCX Commenced the lending business

2004

2005

2006

2007

24

Commenced institutional equities business under IIFL, Formed Singapore subsidiary, IIFL (Asia) Pte Ltd

2008

Launched IIFL Wealth Transitioned to insurance broking model

2009

Acquired registration for Housing Finance SEBI in-principle approval for Mutual Fund Obtained Venture Capital license

2010

Received in-principle approval for membership of the Singapore Stock Exchange Received membership of the Colombo Stock Exchange

Management Team
Chairman Managing Director Independent Director Independent Director Independent Director Institutional Equities Investment Banking Wealth Management International Operations Offshore Asset Management Insurance Distribution Nirmal Jain R Venkataraman Mr.Kranti Sinha Arun K. Purvar Nilesh Vikamsey H.Nemkumar Ajay Srivastava Karan Bhagat Bharat Parajia Deepesh Pandey Mukesh Kumar Singh

25

IIFL (India Infoline Ltd) - Corporate Structure:

26

Product and Services: Equity: IIFL is a member of BSE and NSE registered with NSDL and CDSL as a depository participant and provides broking services in the cash, derivatives and currency segments, online and offline. IIFL is a dominant player in the retail as well as institutional segments of the market. It recently became the first Indian broker to get a membership of the Colombo Stock Exchange and is also the first Indian broker to have received an in-principle approval for membership of the Singapore Stock Exchange. IIFLs Trader Terminal, its proprietary trading platform, is widely acknowledged as one of the best available for retail investors. Investors opt for IIFL given its unique combination of superior Service, cutting-edge proprietary Technology, Advice powered by world-acclaimed research and its unparalleled Reach owing to its over 2500 business locations across over 500 cities in India IIFL received the BQ1 broker grading (highest grading) from CRISIL. The assigned grading reflects an effective external interface, robust systems framework and strong risk management. The grading also reflects IIFLs healthy regulatory compliance track record and adequate credit risk profile IIFLs analyst team won Zee Business Indias best market analysts awards 2009 for being the best in the Oil and Gas and Commodities sectors and a finalist in the Banking and IT sectors IIFL has rapidly emerged as one of the premier institutional equities houses in India with a team of over 25 research analysts, a full-fledged sales and trading team coupled with an experienced investment banking team. The Institutional equities business conducted a very successful Enterprising India global investors conference in Mumbai in March 2010, which was attended by funds with aggregate AUM over US$5 trillion and CEOs and other executives representing corporate with a combined market capitalization of over US$500 billion. The Discover Sri Lanka global investors conference, held in 27

Colombo in July 2010, was attended by more than 50 leading global and major local investors and 25 Sri Lankan corporate, along with senior Government officials

Commodities: IIFL offers commodities trading to its customers vide its membership of the MCX and the NCDEX. Our domain knowledge and data based on in depth research of complex paradigms of commodity kinetics, offers our customers a unique insight into behavioral patterns of these markets. Our customers are ideally positioned to make informed investment decisions with a high probability of success. Credit And Finance: IIFL offers a wide array of secured loan products. Currently, secured loans (mortgage loans, margin funding, and loans against shares) comprise 94% of the loan book. The Company has discontinued its unsecured products. It has robust credit processes and collections mechanism resulting in overall NPAs of less than 1%. The Company has deployed proprietary loan-processing software to enable stringent credit checks while ensuring fast application processing. Recently the company has also launched Loans against Gold. Insurance: IIFL entered the insurance distribution business in 2000 as ICICI Prudential Life Insurance Co. Ltds corporate agent. Later, it became an Insurance broker in October 2008 in line with its strategy to have an open architecture model. The Company now distributes products of major insurance companies through its subsidiary India Infoline Insurance Brokers Ltd. Customers can choose from a wide bouquet of products from several insurance companies including Max New York Life Insurance, MetLife, Reliance Life Insurance, Bajaj Allianz Life, Birla Sunlife, Life Insurance Corporation, Kotak Life Insurance and others Wealth Management Services: IIFL offers private wealth advisory services to high-net-worth individuals (HNI) and corporate clients under the IIFL Private Wealth brand. IIFL Private Wealth is 28

managed by a qualified team of MBAs from IIMs and premier institutes with relevant industry experience. The team advises clients across asset classes like sovereign and quasi-sovereign debt, corporate and collateralized debt, direct equity, ETFs and mutual funds, third party PMS, derivative strategies, real estate and private equity. It has developed innovative products structured on the fixed income side It also has tied up with Interactive Brokers LLC to strengthen its execution platform and provide investors with a global investment platform Investment Banking: IIFLs investment banking division was launched in 2006. The business leverages upon its strength of research and placement capabilities of the institutional and retail sales teams. Our experienced investment banking team possesses the skill-set to manage all kinds of investment banking transactions. Our close interactions with investors as well as corporate helps us understand and offer tailor-made solutions to fulfill requirements The Company possesses strong placement capabilities across institutional, HNI and retail investors. This makes it possible for the team to place large issues with marquee investors In FY10, the team advised and managed more than 10 transactions including four IPOs and four Qualified Institutions Placements ICICI Prudential Asset Management Company Profile: ICICI Prudential Asset Management Company Ltd. is a joint venture between ICICI Bank, Indias second largest commercial bank & a well-known and trusted name in the financial services in India, & Prudential Plc, one of the United Kingdoms largest players in the financial services sectors. In a span of over 18 years since inception and just over 13 years of the Joint Venture, the company has forged a position of preeminence as one of the largest Asset Management Companys in the country, contributing significantly towards the growth of the Indian mutual fund industry. The company manages significant Mutual Fund Assets under Management (AUM), in addition to our Portfolio Management Services (PMS) and International Advisory Mandates for clients across international markets in asset classes like Debt, Equity and Real Estate with primary focus on risk adjusted returns. As an Asset Management Company, The 29

Company have over 18 years of experience and are currently managing a comprehensive range of schemes of more than 46 Mutual fund schemes and a wide range of PMS Products for our investors spread across the country. The companies service this investor base with their own branch network of around 168 branches and a distribution reach of over 42,000 channel partners. ICICI Bank: ICICI Bank is India's second-largest bank with total assets of Rs. 4,062.34 billion (US$ 91 billion) at March 31, 2011 and profit after tax Rs. 51.51 billion (US$ 1,155 million) for the year ended March 31, 2011. The Bank has a network of 2,538 branches and about 6,810 ATMs in India, and has a presence in 19 countries, including India. 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 subsidiaries in the areas of investment banking, life and non-life insurance, venture capital and asset management. The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Center and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium and Germany. ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE). Prudential Plc (formerly known as Prudential Corporation plc): Prudential plc is an international financial services group with significant operations in Asia, the US and the UK. They serve approximately, 25 million customers and have 290 billion in assets under management. They are among the leading capitalized insurers in the world with an Insurance Groups Directive (IGD) capital surplus estimated at 3.4 billion (as at 31 December 2009). The Group is structured around four main business units: Prudential Corporation Asia (PCA): PCA is a leading life insurer in Asia with presence in 12 markets and a top three position in seven key locations: Hong Kong, India, Indonesia, Malaysia, Philippines, 30

Singapore, and Vietnam. PCA provides a comprehensive range of savings, protection and investment products that are specifically designed to meet the needs of customers in each of its local markets. PCAs asset management business in Asia has retail operations in 10 markets and it independently manages assets on behalf of a wide range of retail and institutional investors across the region. Jackson National Life Insurance Company: Jackson is one of the largest life insurance companies in the US, providing retirement savings and income solutions to more than 2.8 million customers. It is also one of the top five providers of variable and fixed index annuities in the US. Founded nearly 50 years ago, Jackson has a long and successful record of providing effective retirement solutions for their clients. Prudential UK & Europe (PUE): PUE is a leading life and pensions provider to approximately 7 million customers in the UK. It has a number of major competitive advantages including significant longevity experience, multi-asset investment capabilities, a strong investment track record, a highly respected brand and financial strength. PUE continues to focus on its core strengths including its annuities, pensions and investment products where it can maximize the advantage it has in offering with-profits and other multi-asset investment funds. M&G: M&G is Prudentials UK and European fund management business with total assets under management of 174 billion (as at December 31, 2009).M&G has been investing money for individual and institutional clients for nearly 80 years. Today it is among the largest investors in the UK stock market, as well as being a powerhouse in fixed-income investments. Bloomberg UTV Financial Leadership Awards 2011: ICICI Prudential AMC received the coveted UTV Bloomberg Financial Leadership Award 2011 for Best Contribution in Investor Education & Category Enhancement of the Year in the mutual fund category. Morning Star Mutual Fund Awards 2011: India Debt Fund House Award 2011 31

Management: Mr.Nimesh Shah- Managing Director and Chief Executive Officer Mr. B Ramakrishna - Executive Vice President Mr. Raghav Iyengar - National Head Sales and distribution Mr. Kalyan Prasath - Head - Information Technology Mr. Hemant Agarwal - Head - Operations Mr. Ashish Kakkar - Head - Human Resources Mr. Aashish Somaiyaa - Head Retail Business Fund Management: Mr. S. Naren - Chief Investment Officer - Equity Mr. Chaitanya Pande - Head Fixed Income Board of Directors: Asset Management Company Ms. Chanda Kochhar - Chairperson Mr. Barry Stowe Mr. Suresh Kumar Mr. Vijay Thacker Mr. Dileep C. Choksi Mr. N.S. Kannan Mr. Nimesh Shah Mr. C. R. Muralidharan Directors of the Trustee Company Mr. M. S. Parthasarthy Mr. M. N. Gopinath Mr. Keki Bomi Dadiseth Mr. Vinod Dhall Mr. Sandeep Batra

32

1.4 NEED FOR THE STUDY

To know the income and market risk of the mutual fund. To know the various schemes involved in mutual fund investment. To know the risk and returns associated with mutual fund. To know the investors preference regarding risk factor involved in mutual fund.

33

1.5 OBJECTIVES OF THE STUDY

PRIMARY OBJECTIVE:

A study on risk measurability in mutual fund investment (ICICI AMC) conducted in IIFL.

SECONDARY OBJECTIVE:

To study the performance of mutual fund industry. To study the investors expectation from brokers. To study the valuation procedure of mutual fund. To measure the risk prevailing in the mutual fund investment.

34

1.6 SCOPE OF THE STUDY

This study is limited to the risk on different categories of the mutual fund as equity, debt schemes only. This study brings out the risk awareness of investor which involved in mutual fund. This study is determining the market risk of mutual fund industry. The data is collected from India Infoline Limited; this result cannot correlate to the entire India Infoline which is all over the country. It is only for the Chennai, Perungudi, Head office, so further researcher may concentrate on other regions.

35

1.7 LIMITATIONS OF THE STUDY

The study is limited to selected schemes available under mutual funds as equity, debt, schemes only in ICICI AMC. Detailed explanations relating to legal aspects and provisions of basic concepts, types, schemes, future etc are not dealt elaborately. The time horizon selected for the study is from Jan to April. Few schemes have been analyzed with the consideration of this time frame. The data is limited to collect from India Infoline Limited. It is only for the Chennai- Perungudi Head office.

36

2. REVIEW OF LITERATURE
A large number of studies on the growth and financial performance of mutual funds have been carried out during the past, in the developed and developing countries. Brief reviews of the following research works reveal the wealth of contributions towards the performance evaluation of mutual fund, market timing and stock selection abilities of fund managers. The pioneering work on the mutual funds in U.S.A. was done by Friend, et al., (1962) in Wharton School of Finance and Commerce for the period 1953 to 1958. Friend, et al., (1962) made an extensive and systematic study of152 mutual funds found that mutual fund schemes earned an average annual return of 12.4 percent, while their composite benchmark earned are turn of 12.6 percent. Their alpha was negative with 20 basis points. Overall results did not suggest widespread inefficiency in the industry. Comparison of fund returns with turnover and expense categories did not reveal a strong relationship Irwin, Brown, FE (1965) analyzed issues relating to investment policy, portfolio turnover rate, performance of mutual funds and its impact on the stock markets. The schoolwork identified that mutual funds had a significant impact on the price movement in the stock market. The cram concludes that, on an average, funds did not perform better than the composite markets and there was no persistent relationship between portfolio turnover and fund performance. Treynor (1965) used characteristic line for relating expected rate of return of a fund to the rate of return of a suitable market average. He coined a fund performance measure taking investment risk into account. Further, to deal with a portfolio, portfolio-possibility line was used to relate expected return to the portfolio owners risk preference. Anagol (1992) identified the urgent need for a comprehensive self regulatory regime for mutual funds in India, in the context of divergence in its size, constitution, regulation among funds and sweeping deregulation and liberalization in the financial sector. The study by Shome (1994) based on growth schemes examined the performance of the mutual fund industry between April 1993 to March 1994 with BSE SENSEX as market 37

surrogate. The study revealed that, in the case of 10 schemes, the average rate of return on mutual funds were marginally lower than the market return while the standard deviation was higher than the market. The analysis also provided that, performance of a fund was not closely associated with its size. The financial markets, especially the stock markets, for developing and developed markets have now become more closely interlinked despite the uniqueness of the specific markets or the country profile. Literature has shown strong interest on the linkages among international stock markets and the interest has increased considerably after the loose of financial regulations in both mature and emerging markets, the technological developments in communications and trading systems, and the introduction of innovative financial products, creating more opportunities for international portfolio investments. The interest can also be attributed to the globalization which gives another impetus to the higher intertwinement of international economies and financial markets. In recent years, the new remunerative emerging equity markets have attracted the attention of international fund managers as an opportunity for portfolio diversification. This intensifies the curiosity of academics in exploring international market linkages. Sharma and Kennedy (1977) examine the price behavior of Indian market with the US and UK markets and conclude that the behavior of the Indian market is statistically indistinguishable from that of the US and UK markets and find no evidence of systematic cyclical component or periodicity for these markets. Rao and Naik (1990) apply the Cross-Spectral analysis and find that for the Indian stock index, the gains estimates from either the US or the Japan indices are independent and hence they conclude that the relationship of Indian market with international markets is poor reflecting the institutional fact that the Indian economy has been characterized by heavy controls throughout the entire seventies with liberalization measures initiated only in the late eighties. Above studies were carried out over decade ago. As the Indian stock market becomes more open to the rest of the world since early 1990s, the relationship between the Indian market and the developed stock markets may change and hence our paper reexamine the nature of co-movement between Indian market and the others main stock indices.

38

Flannery and James (1984) examined the effect of interest rate changes on stock returns for a sample of 67 banks in the United States that were involved in positive maturity transformation. They found empirical support that a significant relationship exists between the sensitivity of the stock returns and interest rate changes and the maturity structure of the banks. Pari and Chen (1984) carried out a study using Arbitrage Pricing Theory Model on 2090 firms for the period 1975 to 1980 and the results of the study suggested that price volatility of energy, interest rate risk and market index had an impacton stock returns. John and Donald (1974) examined the relationship between the stated fund objectives and their risks-return attributes and concluded that on an average, the fund managers appeared to keep their portfolios within the stated risk. Ippolito (1989) concludes that mutual funds on aggregate offer superior returns but they are offset by expenses and load charges. Gupta (2000) has examined the investment performance of Indian mutual funds using weekly NAV data and found that the schemes showed mixed performance during 19941999. Mishra and Mahmud (2002) measured mutual fund performance using lower partial moment. In this paper, measures of evaluating portfolio performance based on lower partial moment are developed. Risk from the lower partial moment is measured by taking into account only those states in which return is below a pre-specified target rate like risk-free rate. Gupta and Aggarwal (2007) sought to check the performance of mutual funds operation in India. In this regard, quarterly returns performance of all the equity-diversified mutual funds during the period from January 2002 to December 2006 was tested. A study by Agarwal (2007) provides an overview of mutual fund activity in emerging markets. It describes their size and asset allocation. This paper analyzes the Indian Mutual Fund Industry pricing mechanism with empirical studies on its valuation. It also analyzes data at both the fund-manager and fund-investor levels. Coolidge (1946) argues that diversification is needed in order to be influenced by risk concept. In addition, risk is diffused by using small-sized and great number of trust. According to Brown & Vickers (1963), there are two types of comparisons in mutual 39

fund industry: Among types of funds and among individual funds within type. The data includes information between 1953 and 1958. In terms of types of funds, there is an increase from 47.8% to 75.6% in share of common-stock fund net inflow. On the other side, share of net inflow in balanced funds declined from 46.2% to 21.5%. In addition, in an individual fund within type, if a mutual fund has purpose of growth, there would be fabulous performance and has the highest increase in absolute inflows and in share of flow Treynor (1965) argues that the performance of mutual funds can be analyzed and compared in different risk policies of open-end funds and market instability. His study creates a unique path to evaluate the impact of investment management on the performance of mutual funds. He compared the rate of return of a fund with rate of return of the market (characteristic line). As a result, Treynor (1965) says that although there are some fluctuations in short-term period rate of returns, characteristic line tends to be stationary (stagnant). Portfolio-possibility lines are drawn with help of characteristic line in order to rank the mutual funds and the significance of the differences in those rankings is high for individual investors2. Sharpe (1966) claims that the forecasting of the performance of a mutual fund is done by taking account to both average return and risk. However, still there are some discrepancies among funds because of the differences in expense ratios (efficient capital market) and diversification with a reason of influential managerial skills which relies on risk analysis. Sharpe (1966) finds an inverse relationship between expense ratio of a fund and its results obtained by the investors. Mao (1970) says that before making the investment in a mutual fund, number of securities should be decided. In order to do that, simple selection criteria method and expended selection criteria method are used. The latter one gives better results with a conclusion of finding an optimal portfolio which means changing a security and its amount in the portfolio will not be profitable. In an imperfect market that includes different optimal portfolios, the risk is dependent on the allocation of securities in the portfolio and the weight of the index used in the portfolio. There are mainly two investment decisions in mutual fund industry. First, an investor should buy a fund that includes shares with relatively high earnings growth. It means that earnings of the shares 40

should grow faster than the profits of those companies. Second, shares with lower priceearnings ratio relative to the market should be chosen (Posen, 2009, p.242-243).

3. RESEARCH METHODOLOGY
This chapter describes the research methodology adopted by the researchers for the purpose of the study Research means a scientific and systematic search for pertinent information on a specific suggested solution, collecting, organizing and evaluating data; making deductions and reaching conclusion to determine whether they fit the formulating hypothesis. Methodology is defined as The study of methods by which we gain knowledge, it deals with cognitive process imposed on research the problems arising from the nature of its subject matter. Research Methodology is a way to systematically solve the research problems. It is as science of studying hoe research is done scientifically. In it we study the various steps that are generally adopted by a researcher in studying his\her research problem along with the logic behind them. It includes: Research Design Data Collection Data Analysis Research Design: A research design is a type of blueprint prepared on various types of blueprints available for the collection, measurement and analysis of data. A research design calls for 41

developing the most efficient plan of gathering the needed information. The design of a research study is based on the purpose of the study. As such the design includes an outline of what the researcher will do form writing the hypothesis and its operational implication to the final analysis of data. The Research Design undertaken for the study is Analytical one. Sampling Design: An integral component of a research design is the sampling design. Specifically, it addresses three questions: Whom to survey (The Sample Unit) How many to Survey (The Sample Size) & How to select them (The Sampling Procedure) Making a census study of the whole universe will be impossible on the account of limitations of time. Hence sampling becomes inevitable. A sample is only a portion of the total employee strength. According to Yule, a famous statistician, the object of sampling is to get maximum information about the parent population with minimum effort. Methods Of Sampling: Probability Sampling is also known as random sampling. Under this sampling design every individual in the organization has an equal chance or probability, of being chosen as a sample. This implies that the section of sample items is independent of the persons making the study that is, the sampling operation is controlled objectively so that the items will be chosen strictly at random. Non Probability Sampling is also known as deliberate sampling. Under this design every individual in the organization has an unequal chance of being chosen as a sample.

42

In this study Convenient Sampling technique was adopted. In this method the researcher select those units of the population in the sample, which appear convenient to him or the management of the organization where he is conducting research. Defining The Population: The Population or Universe can be Finite or infinite. The population is said to be finite if it consist of a fixed number of elements so that it is possible to enumerate it in its totality. So In this projects consist of finite population. Nearly 5000 investors are investing the investment in mutual funds in the India Infoline Limited. Sample Size: There are 60 samples are taken in India Infoline Ltd.., Data Collection Method Collection of data is the first step in statistics. The data collection process follows the formulation for research design including the sample plan. The data can be secondary or primary. Collection of Primary Data During the course of the study or research can be through observations or through direct communication with respondents on one form or another or through personal interviews. I have collected primary data by the means of a Questionnaire. The Questionnaire was formulated keeping in mind the objectives of the research study. Most of the questions are consist of multiple choices. Generally 15 questions are prepared and asked to the employees of the India Infoline limited Collection of Secondary data

43

It means the data is already available i.e., they refer to data, which has already been collected and analyzed by someone else. When a secondary data is used, the researcher has to look into various sources from where he can obtain data. This includes information from various books, periodicals, magazines etc. Research Methodology Adopted Research Design Research Instrument Sampling Plan i) Sample Method : Non-Probability Sampling (Convenience Sampling) ii) Sample Size iii) Sample Unit : 50 : Investors who are investing their investment in India Infoline Ltd. Source Of Data a) Primary Data b) Secondary Data Questionnaire Construction Questionnaires were constructed based on the following types Positively worded question Recall depended question Dichotomous question 44 : Structured Questionnaire : Journals, Booklets, Company Data, etc. : Analytical research : Structured Questionnaire

Field Work The field works is done at India Infoline Ltd perungudi Chennai Period Of Survey The period is from January, 2012 to April 30, 2012.

Financial Tools Used

Sharpe Ratio: Developed by Nobel laureate economist William Sharpe, this ratio measures risk-adjusted performance. It is calculated by subtracting the risk-free rate of return (U.S. Treasury Bond) from the rate of return for an investment and dividing the result by the investment's standard deviation of its return. The Sharpe ratio tells investors whether an investment's returns are due to smart investment decisions or the result of excess risk. This measurement is very useful because although one portfolio or security can reap higher returns than its peers, it is only a good investment if those higher returns do not come with too much additional risk. The greater an investment's Sharpe ratio, the better its risk-adjusted performance.
Sharpe measure = ARp ARf
_____________

p
Where ARP = average return on mutual fund portfolio over the sample period, ARf = average risk free return over the sample period, and p = standard deviation of excess returns over the sample period.

Treynor Ratio: Developed by Jack Treynor, this performance measure evaluates funds on the basis of Treynor's Index. This Index is a ratio of return generated by the fund over and above risk free rate of return (generally taken to be the return on securities backed by the government, as there is no credit risk associated), during a given period and systematic risk associated with it (beta). Symbolically, it can be represented as: 45

Treynor's Index (Ti) = (Ri - Rf)/Bi. Where, Ri represents return on fund, Rf is risk free rate of return and Bi is beta of the fund. All risk-averse investors would like to maximize this value. While a high and positive Treynor's Index shows a superior risk-adjusted performance of a fund, a low and negative Treynor's Index is an indication of unfavorable performance. Jensen Alpha: Alpha is a measure of an investment's performance on a risk-adjusted basis. It takes the volatility (price risk) of a security or fund portfolio and compares its risk-adjusted performance to a benchmark index. The excess return of the investment relative to the return of the benchmark index is its "alpha". Simply stated, alpha is often considered to represent the value that a portfolio manager adds or subtracts from a fund portfolio's return. A positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%. Correspondingly, a similar negative alpha would indicate an underperformance of 1%. For investors, the more positive an alpha is, the better it is.

RPt - Rf t =Rf t + Betap (RMt- Rft)+e

Where Rpt is the mutual fund portfolio return in time period t, Rft is the risk free return in time period t, RMt is the return on the market portfolio in time period t and e is the error term or residual value. Standard Deviation: Standard deviation measures the dispersion of data from its mean. In plain English, the more that data is spread apart, the higher the difference is from the norm. In finance, standard deviation is applied to the annual rate of return of an investment to measure its volatility (risk). A volatile stock would have a high standard deviation. With mutual funds, the standard deviation tells us how much the return on a fund is deviating from the expected returns based on its historical performance. S.D = x X2
N N= Number of series

x X2 = Returns from portfolio 46

Beta: Beta, also known as the "beta coefficient," is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is calculated using regression analysis, and you can think of it as the tendency of an investment's return to respond to swings in the market. By definition, the market has a beta of 1.0. Individual security and portfolio values are measured according to how they deviate from the market. A beta of 1.0 indicates that the investment's price will move in lock-step with the market. A beta of less than 1.0 indicates that the investment will be less volatile than the market, and, correspondingly, a beta of more than 1.0 indicates that the investment's price will be more volatile than the market. For example, if a fund portfolio's beta is 1.2, it's theoretically 20% more volatile than the market. Conservative investors looking to preserve capital should focus on securities and fund portfolios with low betas, whereas those investors willing to take on more risk in search of higher returns should look for high beta investments. R-Square: R-Squared is a statistical measure that represents the percentage of a fund portfolio's or security's movements that can be explained by movements in a benchmark index. For fixed-income securities and their corresponding mutual funds, the benchmark is the U.S. Treasury Bill and, likewise with equities and equity funds, the benchmark is the S&P 500 Index. R-squared values range from 0 to 100. According to Morningstar, a mutual fund with an R-squared value between 85 and 100 has a performance record that is closely correlated to the index. A fund rated 70 or less would not perform like the index. Mutual fund investors should avoid actively managed funds with high R-squared ratios, which are generally criticized by analysts as being "closet" index funds. In these cases, why pay the higher fees for so-called professional management when you can get the same or better results from an index fund?

Statistical Tools Used

Description Of Statistical Tools Used 47

Percentage method Chi-square test Correlation

Percentage Method In this project Percentage method test was used. The percentage method is used to know the accurate percentages of the data we took, it is easy to graph out through the percentages. The following are the formula No of Respondent Percentage of Respondent = Total no. of Respondents From the above formula, we can get percentages of the data given by the respondents. Chi-Square Analysis In this project chi-square test was used. This is an analysis of technique which analyzed the stated data in the project. It analysis the assumed data and calculated in the study. The Chi-square test is an important test amongst the several tests of significant developed by statistical. Chi-square, symbolically written as x2 (Pronounce as Ki-Spare), is a statistical measure used in the context of sampling analysis for comparing a variance to a theoretical variance. Formula (O-E) 2 X 100

2 =
E

48

O E

= =

Observed frequency Expected frequency

Correlation Correlation analysis deals with the association between two or more variables. It does not tell anything about cause and effect relationship. Correlation is described or classified in several different ways. Three of the most important ways of classifying correlation are: Positive and Negative Simple, Multiple and Partial Linear and Non-Linear

Karl Pearsons method is popularly known as Pearsons coefficient of correlation. It is denoted by the symbol r. xy Formula for Karl Pearsons coefficient r = __________ x2 * y2 The value of the coefficient of correlation as obtained by the above formula shall always lie between +1 and -1. When r = 1, it means there is perfect positive correlation between variables. When r = -1, it means there is perfect negative correlation between variables. When r = 0, it means no relationship between variables.

49

DATA ANALYSIS AND INTERPRETATION 4.1. FINANCIAL TOOLS ICICI PRUDENTIAL BANKING AND FINANCIAL SECTOR - GROWTH TABLE 4.1.1 BETA, R-SQUARE, S.D, TYRENOR, SHARPE AND ALPHA. No. Of. Week RBETA SQUARE S.D 1 -0.2878 0.0244 2 0.2291 0.5105 3 -1.0557 0.1561 4 0.3497 0.3355 5 -0.1973 0.0135 6 0.8626 2.09 7 0.6352 1.2614 8 -1.813 1.529 9 -2.619 1.2964 10 0.8228 1.4005 11 0.708 1.2667 12 4.3038 1.3906 13 1.476 1.2352 14 0.4131 0.4667 15 0.7761 0.9689 16 1.0475 1.0646 17 1.7772 1.3786 18 -1.1067 0.3216 19 1.2371 1.4472 20 1.2297 0.6688 21 2.9601 1.0124 22 0.8852 3.7571 23 1.4643 0.3386 SHARPE ALPHA TYRENOR 5.0835 -0.4659 2.2219 2.3505 5.7688 -0.3326 -3.981 -1.9466 0.546 -1.2209 7.7281 1.1464 1.5664 -0.4677 -1.5677 -0.7928 0.5423 0.2475 1.4709 0.7678 0.8582 -1.3421 -2.7817 -1.4624 0.6923 -0.8871 -1.8702 -0.7487 1.8609 -2.1344 2.7689 1.9281 1.6357 -2.9718 6.8711 4.4898 0.9936 -1.5612 -1.676 -1.2098 1.2609 1.1219 -2.4898 -1.2091 0.8701 5.2413 -12.7681 -6.8592 1.6439 2.5231 -2.7568 -1.849 0.7431 1.4288 -1.4859 -1.8947 0.9013 1.4315 -2.4687 -1.5782 0.961 -1.9971 -5.682 -2.8589 0.6294 2.4161 -21.6528 -3.0191 2.2794 -1.9812 3.688 1.2837 1.4362 -1.9891 -6.7698 -1.8921 0.9081 -1.891 -9.6381 -1.4679 2.5596 -4.1648 -11.6738 -3.7348 0.8355 -1.5243 -3.857 -1.4809 3.3182 1.989 -9.8781 -1.9723 50

24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52

0.5404 2.9391 0.1069 -0.63434 0.3373 0.7837 -1.8343 1.2732 1.9238 0.4576 0.873 0.1501 0.6858 -2.8995 2.1924 0.7346 1.2377 2.4874 -1.3881 -1.607 0.8437 2.395 1.2551 2.296 1.7319 2.495 2.5977 1.4504 0.8616

0.7614 5.7879 0.0068 0.7263 1.7388 0.9821 0.0909 0.9873 0.3728 0.6376 0.9873 0.0077 0.5642 1.4093 0.36 1.7482 0.3329 1.4673 0.8437 0.3598 0.7135 2.3726 1.1348 5.6583 1.0951 0.6658 0.8759 0.6242 0.3372

0.7347 1.3488 0.5567 0.3783 0.8323 0.5376 5.3722 4.843 2.6441 1.8373 2.4893 1.4816 0.0077 1.8161 1.9393 5.7381 1.7483 3.7583 2.4732 1.7775 0.7013 1.3638 0.6834 1.4462 1.8508 1.1571 1.2842 2.7088 0.9246

1.0017 -3.619 0.5425 -1.2141 -0.7561 -1.4137 -2.1428 -1.9762 -2.4511 -0.8776 -1.3211 0.9898 -1.4187 3.5871 -3.3521 -1.5445 -1.9878 -2.57791 -1.9781 -2.2339 -1.2132 -2.9887 -1.9773 -2.9834 -2.5468 -2.9877 -3.791 2.2154 1.4562

-2.7989 -17.679 -2.3901 3.8791 -5.6712 -0.2613 12.7899 -25.7699 -13.4879 -3.5891 -2.7401 -4.8909 -31.7899 4.7879 -7.5818 -2.827 -6.8289 -5.179 23.7998 13.8789 -1.1889 -3.6781 -8.6879 -15.7687 -11.6879 -4.7688 -9.1817 -3.7897 -3.898

-0.9886 -1.9219 -1.9128 1.2732 -0.6446 -0.9887 2.1348 -1.9878 -2.5334 -0.9878 -1.7161 -0.7287 -1.2344 3.8749 -2.9898 -1.3475 -1.9883 -2.9989 1.9831 2.0218 1.271 -3.9781 -2.0989 -3.9871 -2.6171 -4.1238 -4.3898 -2.7651 -1.8347

51

CHART 4.1.1 BETA

Inference: Its been observed that in the 1st week , the beta value starts at -0.29 ranges up to 0.86 in the 52nd week. Also it was observed that in the 12th week the beta value is 4.30 wherein the prices are highly volatile during that period. Inversely in the 38 th week the beta value is -2.90 where the prices are less volatile during this week. Conclusively, the fund is more volatile to the index value.

52

CHART 4.1.2 R-SQUARE

Inference: Its been observed that in the 1st week , the R-square value starts at 0.02 ranges up to 0.34 in the 52nd week. Also it was observed that in the 24th week the R-square value is 5.79 wherein the performance of the fund is low during that period. Conclusively, the fund is more risky in measuring its performance.

53

CHART 4.1.3 STANDARD DEVIATION

Inference: It is inferred that the above S.D values represent higher returns as the risk on fund is more.

54

CHART 4.1.4 SHAPRE

Inference: It is inferred that the Sharpe values are comparatively better in the 12th week wherein the risk adjusted performance is better during the week.

55

CHART 4.1.5 ALPHA

Inference: It is inferred from the alpha values are highly positive in 42nd week which brings out the outperformance of fund.

56

CHART 4.1.6 TYRENOR

Inference: It is inferred from the above tyrenor values during the 9th week highly positive which represents superior risk adjusted performance of the fund and the least value of -1.83 represents unfavorable performance of the fund.

57

ICICI PRUDENTIAL PSU DEBT FUND- GROWTH: TABLE 4.1.2 BETA, R-SQUARE, S.D, SHARPE, TYRENOR, ALPHA.
No. Of. Week BETA RSQUARE S.D SHARPE TYRENOR ALPHA

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

0.0485 -0.9881 0.0428 -0.7831 -0.7311 -0.4619 -1.6761 0.73891 0.6712 -0.7819 -0.6931 0.7101 -0.6453 1.6347 -0.5309 -0.871 -0.8748 -0.2809 -0.0803 -0.0719 -0.638 -0.7891 -0.989

1.6372 2.4235 1.5216 2.1345 2.3571 1.9873 3.5982 2.3561 1.5671 2.3431 1.8391 2.1573 1.9713 3.5618 1.5372 2.6351 2.6157 1.1233 2.9031 1.6532 2.731 2.7891 2.4379

0.0477 0.0456 0.0467 0.0379 0.0478 0.0379 0.0375 0.0476 0.0474 0.0376 0.0472 0.047 0.0417 0.0374 0.0372 0.037 0.0368 0.0468 0.0466 0.0464 0.0462 0.0366 0.0364 58

-13.8735 13.687 4.6437 13.4783 -11.3757 13.3431 5.3751 9.7871 3.6561 11.1819 -9.5361 -14.1849 1.6381 4.7271 2.5361 8.7178 -7.5346 -6.491 -4.4365 10.9189 -3.637 4.4771 5.6327 -3.823 3.6487 4.7289 -1.0813 9.6189 -9.6781 -9.781 8.6768 -3.6726 -3.6471 4.6716 9.7621 5.7678 -11.6783 9.7827 12.5436 -4.5187 4.839 9.6187 6.4691 13.134 2.277 13.6176

3.9183 4.4818 3.7489 4.1093 4.1399 3.9963 2.8309 -4.6279 -3.8991 -3.8809 -2.2931 -3.3129 -1.3903 4.3093 3.8292 -3.3091 -4.3891 2.8209 5.8982 3.8938 4.2308 -3.7489 -3.8391

24 -0.8292 25 -0.0938 26 -1.4872 27 0.0902 28 0.8391 29 -0.819 30 0.9313 31 0.71902 32 0.6097 33 0.7301 34 -0.71801 35 -0.8791 36 0.2358 37 0.3272 38 0.5393 39 -0.5719 40 -0.3619 41 -0.7202 42 -0.8974 43 -0.3701 44 0.0938 45 0.7389 46 0.3583 47 0.839 48 0.6288 49 -0.8309 50 -0.6287 51 -0.639 52 -0.3892

2.6489 2.9877 3.874 1.4678 2.8783 2.8676 2.9876 2.4677 2.1342 2.6546 2.5873 2.8676 1.1466 1.6736 1.8738 1.3709 1.3567 2.889 2.4565 1.5457 1.2345 2.3457 1.3567 2.767 2.2455 2.7688 2.1344 2.1221 1.3863

0.046 4.6712 -11.7187 0.0458 18.6183 5.7161 0.0456 -3.5678 -4.6187 0.0454 -11.6546 8.1767 0.0452 -8.1656 -14.2879 0.0362 9.7187 11.6589 0.036 4.2778 9.6279 0.0358 -1.652 -6.1677 0.045 3.6283 -3.8718 0.0448 -3.8191 -10.6187 0.0446 2.7837 12.711 0.0444 5.6728 9.6171 0.0356 8.7268 -13.5168 0.0352 4.1681 11.4874 0.0348 3.7672 12.4871 0.0438 -4.1681 6.2687 0.0436 9.6781 4.6176 0.0434 2.6478 -3.2691 0.0346 1.6176 -3.6278 0.0344 -12.371 -5.7264 0.0342 -11.7161 4.6751 0.0432 2.7387 6.7114 0.0428 4.1813 12.718 0.0426 2.8178 7.7188 0.0336 -4.1789 4.1787 0.0334 6.5615 1.4989 0.0422 2.6176 4.4891 0.0418 2.747 -6.7136 0.0328 5.6176 -3.3711

-2.9489 -4.2392 2.7423 2.1638 2.8789 5.4882 3.7181 2.2187 -3.1819 -4.7389 1.7328 4.4279 2.8491 2.3891 3.1933 4.8891 7.7389 3.3189 2.3814 5.8719 7.7382 2.4728 -3.3091 -2.4984 -2.8244 3.3892 4.8498 4.7489 3.2849

59

CHART 4.1.7 BETA

Inference: Its been observed that in the 1st week, the beta value starts at 0.05 ranges up to -0.39 in the 52nd week. Also it was observed that in the 14th week the beta value is 1.63 wherein the prices are highly volatile during that period. Inversely in the 7th week the beta value is -1.68 where the prices are less volatile during this week. Conclusively, the fund is more volatile to the index value.

60

CHART 4.1.8 R-SQUARE

Inference: Its been observed that in the 1st week , the R-square value starts at 1.64 ranges up to 1.39 in the 52nd week. Also it was observed that in the 26th week the R-square value is 3.87 wherein the performance of the fund is low during that period. Conclusively, the fund is more risky in measuring its performance.

61

CHART 4.1.9 STANDARD DEVIATION

Inference: It is inferred that the above S.D values represent higher returns as the risk on fund is more.

62

CHART 4.1.10 SHARPE

Inference: It is inferred that the Sharpe values are comparatively better in the 25th week wherein the risk adjusted performance is better during the week.

63

CHART 4.1.11 TYRENOR

Inference: It is inferred from the above tyrenor values during the 1st week highly positive which represents superior risk adjusted performance of the fund and during 28th week there exists least value represents unfavorable performance of the fund.

64

CHART 4.1.12 ALPHA

Inference: It is inferred from the alpha values are highly positive in 44th week which brings out the outperformance of fund.

65

STATISTICAL ANALYTICAL PART -I TABLE 4.2.1 Table Showing Gender of Respondents Particular Male Female TOTAL No. Of. Respondent 32 18 50 Percentage 64 36 100

CHART 4.2.1 Chart Showing Respondents Gender

66

Inference: It is inferred that 64 per cent of respondents are male and 32 per cent of respondents are female.

TABLE 4.2.2 Table Showing Respondents Age level

Particular 21- 25 25-30 30- 35 35 and above Total

No. Of. Respondents 2 13 16 19 50

Percentage 4 26 32 38 100

CHART 4.2.2 Chart Showing Respondents Age level

67

Inference: It is inferred that 4 per cent respondents are between the age group 21-25, 26 per cent respondents are between the age group 25-30, 32 per cent respondents are between the age group 30-35 and 38 per cent respondents are 35 and above

TABLE 4.2.3 Table Showing Educational Qualification of Respondents

Particular Non Graduate Graduate Post Graduate Professional Total

No. Of. Respondents 0 17 18 15 50

Percentage 0 34 36 30 100

CHART 4.2.3 Chart Showing Educational Qualification of Respondents

68

Inference: It is inferred that 0 per cent respondent are non graduate, 34 per cent respondents are under graduate, 36 per cent respondents are post graduate and 30 per cent respondents are professional.

TABLE 4.2.4 Table Showing Respondents Annual Income

Particular Up to 2 lakhs 2-4 lakhs 4-5 lakhs 5 lakhs above Total

No. Of. Respondents 12 11 18 9 50

percentage 24 22 36 18 100

CHART 4.2.4 Chart Showing Respondents Annual Income

69

Inference: It is inferred that 24 per cent respondents are earning up to 2 lakhs, 24 per cent respondents are earning 2-4 lakhs, 36 per cent respondents are earning 4-5 lakhs and 18 per cent respondents are earning above 5 lakhs.

TABLE 4.2.5 Table Showing Respondents regular or new Investment in mutual Fund

Particular

No. Of. Respondents

Percentage

Regular New Total

28 22 50

56 44 100

CHART 4.2.5 Chart Showing Respondents regular or new Investment in mutual Fund

70

Inference: It is inferred that 54 per cent respondents are investing their investment in regular and 44 per cent respondents are investing their investment as new.

TABLE 4.2.6 Table Showing Respondent's investment Level in Mutual Fund

Particular 1 lakhs 1-2.50 lakhs 2.50-5 lakhs 5 lakhs above Total

No. Of. Respondent 11 6 26 7 50

Percentage 22 12 52 14 100

CHART 4.2.6 Chart Showing Respondent's investment Level in Mutual Fund

71

Inference: It is inferred that 38 per cent respondents are having investment level at 1 lakhs, 12 per cent respondents are having investment level at 1- 2.50 lakhs, 56 per cent respondents are having investment level at 2.50-5 lakhs and 14 percent respondents are having investment level at above 5 lakhs in Mutual Fund investment.

TABLE 4.2.7 Table Showing Respondent's Investment Horizon in Mutual Fund

Particular 0-1 year 1-3 year 3-5 year 5 year above Total

No. Of. Respondent 13 9 16 12 50

Percentage 26 18 32 24 100

CHART 4.2.7 Chart Showing Respondent's Investment Horizon in Mutual Fund

72

Inference: It is inferred that 26 per cent respondents are having 0-1 year investment horizon, 18 per cent respondents are having 1-3 years investment horizon, 26 per cent respondents are having 3-5 years investment horizon and 24 per cent respondents are having above 5 years investment horizon in Mutual fund investment.

TABLE 4.2.8 Table Showing How Respondent come to know about Mutual Fund

Particular Advertisement Friends Brokers Financial Advisor Total

No. Of. Respondent 9 20 18 3 50

Percentage 19 40 36 6 100

CHART 4.2.8 Chart Showing How Respondent come to know about Mutual Fund

73

Inference: It is inferred that 18 per cent respondents are known the Mutual Fund Investment by advertisement,40 per cent respondents are known the mutual Fund Investment by their friends, 36 per cent respondents are known the Mutual Fund Investment by brokers and 6 per cent respondents are known the mutual fund Investment by financial advisors. TABLE 4.2.9 Table Showing Types of mutual Fund Scheme Preferred by Respondent

Particular Open Ended Scheme Close Ended Scheme Total

No. Of. Respondent 31 19 50

Percentage 62 38 100

CHART 4.2.9 Chart Showing Types of mutual Fund Scheme Preferred by Respondent

74

Inference: It is inferred that 62 per cent respondents are preferred open ended scheme and 38 per cent respondents are preferred close ended scheme.

TABLE 4.2.10 Table Showing Mode of Investment which Respondent Preferred

Particular One Time Investment Systematic Investment Plan Total

No. Of. Respondent 23 27 50

Percentage 46 54 100

CHART 4.2.10 Chart Showing Mode of Investment which Respondent Preferred

75

Inference: It is inferred that 46 per cent respondents are preferred as one time investment and 54 per cent respondents are preferred as systematic investment plan.

TABLE 4.2.11 Table showing Feature Attracted the Respondent While Choosing a Specific Mutual Fund

Particular NAV Fund History Fund Manager AMC Total

No. Of. Respondent 5 26 12 7 50

Percentage 10 52 24 14 100

76

CHART 4.2.11 Chart showing Feature Attracted the Respondent While Choosing a Specific Mutual Fund

Inference: It is inferred that 10 per cent respondents are choose NAV, 52 per cent respondents are choose Fund History, 24 per cent respondents are choose Fund Manager and 14 per cent respondents are choose AMC.

TABLE 4.2.12 Table Showing Respondent's Expectation in Returns Per Annum in Mutual Fund Investment

Particular 0-10% 10-15% 15-20% 20% above Total

No. Of. Respondent 9 16 12 13 50

Percentage 18 32 24 26 100

CHART 4.2.12 Chart Showing Respondent's Expectation in Returns Per Annum in Mutual Fund Investment 77

Inference: It is inferred that 18 per cent respondents are expected 0-10% returns per annum, 32 per cent respondents are expected 10-15% returns per annum, 24 per cent respondents are expected returns per annum and 26 per cent respondents are expected above 20% returns per annum.

TABLE 4.2.13 Table Showing Risk level in Mutual Fund Investment Which Preferred by Respondents Particular 0-5% 5-10% 10-15% 15-20% Total No. Of. Respondent 7 14 13 16 50 Percentage 14 28 26 32 100

CHART 4.2.13 Chart Showing Risk level in Mutual Fund Investment Which Preferred by Respondents

78

Inference: It is inferred that 14 per cent respondents are preferred 0-5% risk, 28 per cent respondents are preferred 5-10% risk, 26 per cent respondents are preferred 10-15% risk and 32 per cent respondents are preferred 15-20% risk.

TABLE 4.2.14 Table Showing Respondent have Invested in Mutual Fund Scheme Particular Liquid Fund Growth Fund Balanced Fund Small Cap Mid Cap Large Cap Regular Income Fund ELSS Total No. Of. Respondent 7 12 9 4 1 8 5 4 50 Percentage 14 24 18 8 2 16 10 8 100

79

CHART 4.2.14 Chart Showing Respondent have Invested in Mutual Fund Scheme

Inference: It is inferred that 14 per cent respondents are having liquid fund, 24 per cent respondents are having growth fund, 18 per cent respondents are having balanced fund, 8 per cent respondents are having small cap, 2 per cent respondents are having mid cap, 16 per cent respondents are having large fund, 10 per cent respondents are having regular income fund and 8 per cent respondents are having ELSS. TABLE 4.2.15 Table Showing Whether Respondent Invested in Sectorial Fund

Particular Yes No Total

No. Of. Respondent 13 37 50

Percentage 26 74 100

CHART 4.2.15 Chart Showing Whether Respondent Invested in Sectorial Fund

80

Inference: It is inferred that 26 per cent respondents are regular investors and 74 per cent respondents are not regular investors.

TABLE 4.2.16 Table Showing the Purchase of Mutual Fund by Respondent

Particular AMC'S Brokers Investment Ad visors Other Sources Total

No. Of. Respondent 19 21 4 6 50

Percentage 38 42 8 12 100

81

CHART 4.2.16 Chart Showing the Purchase of Mutual Fund by Respondent

Inference: It is inferred that 38 per cent respondents are purchase their mutual fund from AMC'S, 42 per cent respondents are purchase from brokers, 8 per cent respondents are purchase from investment Advisor and 12 per cent respondents are purchase from other sources

TABLE 4.2.17 Table Showing Option Preferred by Respondent in Mutual Fund investment

Particular Dividend Payout Dividend Re-investment Growth Total

No. Of. Respondent 18 8 24 50

Percentage 36 16 48 100

CHART 4.2.17 Chart Showing Option Preferred by Respondent in Mutual Fund investment 82

Inference: It is inferred that 36 per cent respondents are preferred dividend payout, 16 per cent respondents are preferred dividend re-investment, 24 per cent respondents are preferred growth.

TABLE 4.2.18 Table Showing the Respondent's Opinion that Mutual Fund Investment Give better Risk than Other Investment

Particular Strongly Agree Agree Neutral Disagree Strongly Disagree Total

No. Of. Respondent 8 13 15 5 9 50

Percentage 16 26 30 10 18 100

CHART 4.2.18 Chart Showing the Respondent's Opinion that Mutual Fund Investment Give better Risk than Other Investment 83

Inference: It is inferred that 16 respondents are strongly agree, 26 per cent respondents are agree, 30 per cent respondents are neutral, 10 per cent respondents are disagree and 18 per cent respondents are strongly disagree.

4.3 Analysis Using Chi-Square Test A sample of 32 respondents of male and 18 respondents of female were taken to know their investment level in mutual fund investment. Present this fact in the form of a table. GENDER Male Female Total Solution: Null Hypothesis (Ho): There is no significant relation between gender and their investment level in the mutual fund investment. 1 Lakhs 6 5 11 1-2.50 Lakhs 4 2 6 2.50-5 lakhs 18 8 26 5 lakhs above 4 3 7 Total 32 18 60

84

Alternative Hypothesis (H1): There is significant relation between gender and their investment in the mutual fund investment. Significant level (): 0.05. O 6 4 18 4 5 2 8 3 Total E 7.04 3.84 16.64 4.48 3.96 2.16 9.36 2.52 50 O-E -1.04 0.16 1.36 -0.48 1.04 -0.16 -1.36 0.48 (O-E)2 1.08 0.03 1.84 0.23 1.08 0.02 1.84 0.23 (O-E)2/E 5.92 3.81 14.8 4.25 2.88 2.14 7.52 2.29 43.61

(O-E) 2 2 = ___________ E 2= 43.61

Calculated Value= 43.61 Degree of freedom= (r-1) (c-1) = (2-1) (5-1) = 4. Level of significant= 0.05 20.05= 9.488 Table value= 9.488

85

Conclusion: 2 table < 2 calculated The calculated value of 2 is greater than table value. Thus null hypothesis is rejected and alternative hypothesis is accepted. Therefore there is significant relation between gender and investment level of respondents.

4.4 Analysis Using Correlation: To know whether there is correlation between gender and the risk taken by the respondents in mutual fund investment. Let X be risk taken by the respondents in mutual fund investment. Let Y be gender. Gender Hidden potential of the respondents 0-5% 5-10% 10-15% 15-20% 5 9 7 11 86 2 5 6 5 7 14 13 16 Male Female Total

Total

32

18

50

Value of correlation x2 30.24 xy r = ______________ (x2 * y2) Substituting the values of x2, y2, xy in the above equation we get. r = 0.70 Conclusion: Since the value of r is lies between+1 to -1 the variables are positively correlated. A variation in one variable will cause variation in another. y2 12.22 xy 13.76

CHAPTER-5 5.1 FINDINGS

For Equity fund scheme: Its been observed that in the 1st week, the beta value starts at -0.29 ranges up to 0.86 in the 52nd week. Also it was observed that in the 12th week the beta value is 4.30 wherein the prices are highly volatile during that period. Inversely in the 38th week the beta value is -2.90 where the prices are less volatile during this week. Conclusively, the fund is more volatile to the index value. Its been observed that in the 1st week, the R-square value starts at 0.02 ranges up to 0.34 in the 52nd week. Also it was observed that in the 24th week the R-square value is 5.79 wherein the performance of the fund is low during that period. Conclusively, the fund is more risky in measuring its performance. S.D values represent higher returns as the risk on fund is more. 87

Sharpe values are comparatively better in the 12th week wherein the risk adjusted performance is Better during the week. The alpha values are highly positive in 42nd week which brings out the outperformance of fund.

Tyrenor values during the 9th week highly positive which represents superior risk adjusted performance of the fund and the least value of -1.83 represents unfavorable performance of the fund. For Debt Fund scheme:

In the 1st week, the beta value starts at 0.05 ranges up to -0.39 in the 52 nd week. Also it was observed that in the 14th week the beta value is 1.63 wherein the prices are highly volatile during that period. Inversely in the 7th week the beta value is -1.68 where the prices are less volatile during this week. Conclusively, the fund is more volatile to the index value.

In the 1st week , the R-square value starts at 1.64 ranges up to 1.39 in the 52 nd week. Also it was observed that in the 26th week the R-square value is 3.87 wherein the performance of the fund is low during that period. Conclusively, the fund is more risky in measuring its performance.

S.D values represent higher returns as the risk on fund is more. The Sharpe values are comparatively better in the 25th week wherein the risk adjusted performance is better during the week.

Tyrenor values during the 1st week highly positive which represents superior risk adjusted performance of the fund and during 28th week there exists least value represents unfavorable performance of the fund.

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The alpha values are highly positive in 44th week which brings out the outperformance of fund.

64 per cent of respondents are male and 32 per cent of respondents are female. 4 per cent respondents are between the age group 21-25, 26 per cent respondents are between the age group 25-30, 32 per cent respondents are between the age group 30-35 and 38 per cent respondents are 35 and above

0 per cent respondent are non graduate, 34 per cent respondents are under graduate, 36 per cent respondents are post graduate and 30 per cent respondents are professional.

24 per cent respondents are earning up to 2 lakhs, 24 per cent respondents are earning 2-4 lakhs, 36 per cent respondents are earning 4-5 lakhs and 18 per cent respondents are earning above 5 lakhs.

54 per cent respondents are investing their investment in regular and 44 per cent respondents are investing their investment as new. 38 per cent respondents are having investment level at 1 lakhs, 12 per cent respondents are having investment level at 1- 2.50 lakhs, 56 per cent respondents are having investment level at 2.50-5 lakhs and 14 per cent respondents are having investment level at above 5 lakhs in Mutual Fund investment.

26 per cent respondents are having 0-1 year investment horizon, 18 per cent respondents are having 1-3 years investment horizon, 26 per cent respondents are having 3-5 years investment horizon and 24 per cent respondents are having above 5 years investment horizon in Mutual fund investment.

18 per cent respondents are known the Mutual Fund Investment by advertisement, 40 per cent respondents are known the mutual Fund Investment by their friends, 36 per cent respondents are known the Mutual Fund Investment by

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brokers and 6 per cent respondents are known the mutual fund Investment by financial advisors. 62 per cent respondents are preferred open ended scheme and 38 per cent respondents are preferred close ended scheme. 46 per cent respondents are preferred as one time investment and 54 per cent respondents are preferred as systematic investment plan. 10 per cent respondents are chosen NAV, 52 per cent respondents are choose Fund History, 24 per cent respondents are choose Fund Manager and 14 per cent respondents are choose AMC. 18 per cent respondents are expected 0-10% returns per annum, 32 per cent respondents are expected 10-15% returns per annum, 24 per cent respondents are expected returns per annum and 26 per cent respondents are expected above 20% returns per annum 14 per cent respondents are preferred 0-5% risk, 28 per cent respondents are preferred 5-10% risk, 26 per cent respondents are preferred 10-15% risk and 32 per cent respondents are preferred 15-20% risk. 14 per cent respondents are having liquid fund, 24 per cent respondents are having growth fund, 18 per cent respondents are having balanced fund, 8 per cent respondents are having small cap, 2 per cent respondents are having mid cap, 16 per cent respondents are having large fund, 10 per cent respondents are having regular income fund and 8 per cent respondents are having ELSS. 26 per cent respondents are Sectorial investors and 74 per cent respondents are not sectorial investors. 38 per cent respondents are purchase their mutual fund from AMC'S, 42 per cent respondents are purchase from brokers, 8 per cent respondents are purchase from investment Advisor and 12 per cent respondents are purchase from other sources 36 per cent respondents are preferred dividend payout, 16 per cent respondents are preferred dividend re-investment, 24 per cent respondents are preferred growth.

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16 respondents are strongly agree, 26 per cent respondents are agree, 30 per cent respondents are neutral, 10 per cent respondents are disagree and 18 per cent respondents are strongly disagree.

5.2 SUGGESTIONS
Mutual Fund is subject to market risk, analyzing particular fund before investing. Its been suggested for the investor to study the historical return of funds, risk measurement ratio to evaluate before investing fund. ROI in debt and growth fund is suggested for tax saving investment in ELSS equity fund scheme. The investor can diversify his investment portfolio of 30% into mutual fund schemes to get constant returns.

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5.3 CONCLUSION
Mutual Funds are one of the most highly growing products in financial services market. Mutual Fund is suitable for all types of investors from risk adverse to risk bearer. In today's world, investors are showing more trust in mutual fund than any other financial products. There is no need of financial consultant, if you have good knowledge of mutual fund and their types to invest. Mutual Fund is subject to market risk, despite of that it have low risk than stock market. Investors always try to maximize the returns and minimize the risk; Mutual Fund satisfies these requirements by providing attractive return with affordable risks.

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