Professional Documents
Culture Documents
1
TABLE OF CONTENTS
Company Profile 32
Research Methodology 36
Observations 59
Suggestions 61
Conclusion 63
References 64
Annexure 65
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ACKNOWLEDGMENT
I would like to thanks to all for give their valuable inputs and time.
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Introduction to Mutual Funds:
A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities. The income earned through
these investments and the capital 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.
The flow chart below describes broadly the working of a Mutual Fund.
A Mutual Fund is a body corporate registered with the Securities and Exchange Board
of India (SEBI) that pools up the money from individual/corporate investors and invests
the same on behalf of the investors/unit holders, in Equity shares, Government
securities, Bonds, Call Money Markets etc, and distributes the profits. In the other
words, a Mutual Fund allows investors to indirectly take a position in a basket of assets.
Mutual Fund is a mechanism for pooling the resources by issuing units to the investors
and investing funds in securities in accordance with objectives as disclosed in offer
document. Investments in securities are spread among a wide cross-section of industries
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and sectors thus the risk is reduced. Diversification reduces the risk because all stocks
may not move in the same direction in the same proportion at same time. Investors of
mutual funds are known as unit holders.
The investors in proportion to their investments share the profits or losses. The mutual
funds normally come out with a number of schemes with different investment
objectives which are launched from time to time. A Mutual Fund is required to be
registered with Securities Exchange Board of India (SEBI) which regulates securities
markets before it can collect funds from the public.
There are many entities involved and the diagram below illustrates the organizational
set up of a Mutual Fund:
Mutual Funds diversify their risk by holding a portfolio of instead of only one asset.
This is because by holding all your money in just one asset, the entire fortunes of your
portfolio depend on this one asset. By creating a portfolio of a variety of assets, this risk
is substantially reduced.
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Mutual Fund investments are not totally risk free. In fact, investing in Mutual Funds
contains the same risk as investing in the markets, the only difference being that due to
professional management of funds the controllable risks are substantially reduced. A
very important risk involved in Mutual Fund investments is the market risk. However,
the company specific risks are largely eliminated due to professional fund management.
Funds. The ownership of the mutual fund is in the hands of the Investors.
Service providers, who earns a fee for their services, from the funds.
of the units changes with change in the portfolio value, every day. The
• The investment portfolio of the mutual fund is created according to The stated
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ADVANTAGES OF MUTUAL FUNDS:
• Reduced Risk.
• Diversified investment.
• Botheration free investment.
• Revolving type of investment (Reinvestment).
• Selection and timings of investment.
• Wide investment opportunities.
• Investments care.
• Tax benefits.
Sponsor
Trustee Mutual
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INVESTORS PROFILE:
An investor normally prioritizes his investment needs before undertaking an
investment. So different goals will be allocated to different proportions of the total
disposable amount. Investments for specific goals normally find their way into the debt
market as risk reduction is of prime importance, this is the area for the risk-averse
investors and here, Mutual Funds are generally the best option. One can avail of the
benefits of better returns with added benefits of anytime liquidity by investing in open-
ended debt funds at lower risk, this risk of default by any company that one has chosen
to invest in, can be minimized by investing in Mutual Funds as the fund managers
analyze the companies financials more minutely than an individual can do as they have
the expertise to do so.
Moving up the risk spectrum, there are people who would like to take some risk and
invest in equity funds/capital market. However, since their appetite for risk is also
limited, they would rather have some exposure to debt as well. For these investors,
balanced funds provide an easy route of investment, armed with expertise of investment
techniques, they can invest in equity as well as good quality debt thereby reducing risks
and providing the investor with better returns than he could otherwise manage. Since
they can reshuffle their portfolio as per market conditions, they are likely to generate
moderate returns even in pessimistic market conditions.
Next comes the risk takers, risk takers by their nature, would not be averse to investing
in high-risk avenues. Capital markets find their fancy more often than not, because they
have historically generated better returns than any other avenue, provided, the money
was judiciously invested. Though the risk associated is generally on the higher side of
the spectrum, the return-potential compensates for the risk attached.
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TYPES OF MUTUAL FUNDS:
1. OPEN-ENDED MUTUAL FUNDS:-
The holders of the shares in the Fund can resell them to the issuing Mutual Fund
company at the time. They receive in turn the net assets value (NAV) of the shares at
the time of re-sale. Such Mutual Fund Companies place their funds in the secondary
securities market. They do not participate in new issue market as do pension funds or
life insurance companies. Thus they influence market price of corporate securities.
Open-end investment companies can sell an unlimited number of Shares and thus keep
going larger. The open-end Mutual Fund Company Buys or sells their shares. These
companies sell new shares NAV plus a Loading or management fees and redeem shares
at NAV.In other words, the target amount and the period both are indefinite in such
funds
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• The trust formed under the Indian trust act, 1982 or the trust company
registered under the Indian companies act, 1956
• Fund mangers or The merchant-banking unit
• Custodians.
II. Realize fund position by taking account of all receivables and realizations,
moving corporate actions involving declaration of dividends,etc to compensate
investors for their investments in units; and
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III. Maintaining proper accounting and information for pricing the units and arriving
at net asset value (NAV), the information about the listed schemes and the
transactions of units in the secondary market. AMC has to feed back the trustees
about its fund management operations and has to maintain a perfect information
system.
CUSTODIANS OF MUTUAL FUNDS:-
Mutual funds run by the subsidiaries of the nationalized banks had their respective
sponsor banks as custodians like canara bank, SBI, PNB, etc. Foreign banks with
higher degree of automation in handling the securities have assumed the role of
custodians for mutual funds. With the establishment of stock Holding Corporation
of India the work of custodian for mutual funds is now being handled by it for
various mutual funds. Besides, industrial investment trust company acts as sub-
custodian for stock Holding Corporation of India for domestic schemes of UTI,
BOI MF, LIC MF, etc
Fee structure:-
Custodian charges range between 0.15% to 0.20% on the net value of the
customer’s holding for custodian services space is one important factor which has
fixed cost element.
RESPONSIBILITY OF CUSTODIANS:-
♦ Receipt and delivery of securities
♦ Holding of securities.
♦ Collecting income
♦ Holding and processing cost
♦ Corporate actions etc
FUNCTIONS OF CUSTOMERS
♦ Safe custody
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♦ Trade settlement
♦ Corporate action
♦ Transfer agents
Schemes:-
1. Mutual funds are allowed to start and operate both closed-end and open-end
schemes;
2. Each closed-end schemes must have a Minimum corpus (pooling up) of Rs 20
crore;
3. Each open-end scheme must have a Minimum corpus of Rs 50 crore
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4. In the case of a Closed –End scheme if the Minimum amount of Rs 20 crore
or 60% of the target amount, which ever is higher is not raised then the entire
subscription has to be refunded to the investors;
5. In the case of an Open-Ended schemes, if the Minimum amount of Rs 50 crore
or 60 percent of the targeted amount, which ever is higher, is no raised then the
entire subscription has to be refunded to the investors.
Investment norms:-
1. No mutual fund, under all its schemes can own more than five percent of any
company’s paid up capital carrying voting rights;
2. No mutual fund, under all its schemes taken together can invest more than 10
percent of its funds in shares or debentures or other instruments of any single
company;
3. No mutual fund, under all its schemes taken together can invest more than 15
percent of its fund in the shares and debentures of any specific industry, except
those schemes which are specifically floated for investment in one or more
specified industries in respect to which a declaration has been made in the offer
letter.
4. No individual scheme of mutual funds can invest more than five percent of its
corpus in any one company’s share;
5. Mutual funds can invest only in transferable securities either in the money or in
the capital market. Privately placed debentures, securitized debt, and other
unquoted debt, and other unquoted debt instruments holding cannot exceed 10
percent in the case of growth funds and 40 percent in the case of income funds.
Distribution:
Mutual funds are required to distribute at least 90 percent of their profits annually in
any given year. Besides these, there are guidelines governing the operations of mutual
funds in dealing with shares and also seeking to ensure greater investor protection
through detailed disclosure and reporting by the mutual funds. SEBI has also been
granted with powers to over see the constitution as well as the operations of mutual
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funds, including a common advertising code. Besides, SEBI can impose penalties on
Mutual funds after due investigation for their failure to comply with the guidelines.
♦ Sector Schemes
These schemes focus on particular sector as IT, Banking, etc. They seek to generate
long-term capital appreciation by investing in equity and related securities of
companies in that particular sector.
♦ Index Schemes
These schemes aim to provide returns that closely correspond to the return of a
particular stock market index such as BSE Sensex, NSE Nifty, etc. Such schemes invest
in all the stocks comprising the index in approximately the same weightage as they are
given in that index.
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between these funds and equity-diversified funds is that they demand a lock-in of 3
years to gain tax benefits.
♦ Dynamic Funds
These schemes alter their exposure to different asset classes based on the market
scenario. Such funds typically try to book profits when the markets are overvalued and
remain fully invested in equities when the markets are undervalued. This is suitable for
investors who find it difficult to decide when to quit from equity.
♦ Balanced Schemes
These schemes seek to achieve long-term capital appreciation with stability of
investment and current income from a balanced portfolio of high quality equity and
fixed-income securities.
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These schemes invest in government securities. The average maturity of the securities
in the scheme is over three years.
♦ Growth Plan
In this plan, dividend is neither declared nor paid out to the investor but is built into the
value of the NAV. In other words, the NAV increases over time due to such incomes and
the investor realizes only the capital appreciation on redemption of his investment.
♦ Income Plan
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In this plan, dividends are paid-out to the investor. In other words, the NAV only
reflects the capital appreciation or depreciation in market price of the underlying
portfolio.
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ADVANTAGES OF INVESTING TRHOURGH MUTUAL FUNDS:
There are several reasons that can be attributed to the growing popularity and suitability
of Mutual Funds as an investment vehicle especially for retail investors:
ASSET ALLOCATION
♦ Mutual Funds offer the investors a valuable tool – Asset Allocation. This is
explained by an example.
An investor investing Rs.1 lakh in a mutual fund scheme, which has collected Rs.100
crores and invested the money in various investment options, will have Rs.1 lakh
spread over a number of investment options as demonstrated below:
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Thus ‘Asset Allocation’ is allocating your investments in to different investment options
depending on your risk profile and return expectations.
• DIVERSIFICATION
Diversification is spreading your investment amount over a larger number of
investments in order to reduce risk. For instance, if you have Rs.10,000 to invest in
Information Technology (IT) stocks, this amount will only buy you a handful of
stocks of perhaps one or two companies. A fall in the market price of any of these
company stocks will significantly erode your investment amount instead it makes
sense to invest in an IT sector mutual fund scheme so that your Rs.10,000 is spread
across a larger number of stocks thereby reducing your risk.
• PROFESSIONALS AT WORK
Few investors have the time or expertise to manage their personal investments every
day, to efficiently reinvest interest or dividend income, or to investigate the
thousands of securities available in the financial markets. Fund managers are
professionals and experienced in tracking the finance markets, having access to
extensive research and market information, which enables them to decide which
securities to buy and sell for the fund. For an individual investor like you, this
professionalism is built in when you invest in the Mutual Fund.
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take several days or even longer before you are able to liquidate his Mutual Fund
investment by selling the units to the fund itself and receive his money within 3
working days.
• TRANSPARENCY
The investor gets regular information on the value of his investment in addition to
disclosure on the specific investments made by the fund, the proportion invested in
each class of assets and the fund manager’s investment strategy and outlook.
• SAVING TAXES
Tax saving schemes of Mutual Funds offer investor a tax rebate under section 88 of
the Income Tax Act. Under this section, an investor can invest up to Rs.10,000 per
Financial year in a tax saving scheme. The rate of rebate under this section depends
on the investor’s total income.
• WELL-REGULATED INDUSTRY
All Mutual Funds are registered with SEBI and they function within the provisions
of strict regulations designed to protect the interests of investors. The operations of
Mutual Funds are regularly monitored by SEBI.
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• CONVENIENCE AND FLEXIBILITY
Mutual Funds offer their investors a number of facilities such as inter-fund transfers,
online checking of holding status etc, which direct investments don’t offer.
1) MARKET RISK
Market risk relates to the market value of a security in the future. Market prices
fluctuate and are susceptible to economic and financial trends, supply and demand, and
many other factors that cannot be precisely predicted or controlled.
2) POLITICAL RISK
Changes in the tax laws, trade regulations, administered prices, etc are some of the
many political factors that create market risk. Although collectively, as citizens, we
have indirect control through the power of our vote individually, as investors, we have
virtually no control.
3) INFLATION RISK
Interest rate risk relates to future changes in interest rates. For instance, if an investor
invests in a long-term debt Mutual Fund scheme and interest rates increase, the NAV of
the scheme will fall because the scheme will be end up holding debt offering lower
interest rates.
4) BUSINESS RISK
Business risk is the uncertainty concerning the future existence, stability, and
profitability of the issuer of the security. Business risk is inherent in all business
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ventures. The future financial stability of a company cannot be predicted or guaranteed,
nor can the price of its securities. Adverse changes in business circumstances will
reduce the market price of the company’s equity resulting in proportionate fall in the
NAV of the Mutual Fund scheme, which has invested in the equity of such a company.
5) ECONOMIC RISK
Economic risk involves uncertainty in the economy, which, in turn, can have an adverse
effect on a company’s business. For instance, if monsoons fail in a year, equity stocks
of agriculture-based companies will fall and NAVs of Mutual Funds, which have
invested in such stocks, will fall proportionately.
1987 marked the entry of non-UTI, Public Sector Mutual Funds set up by Public Sector
Banks and Life Insurance Corporation of India (LIC) and General Insurance
Corporation of India (GIC). SBI Mutual Fund was the first non -UTI Mutual Fund
established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National
Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun
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90), Bank of Baroda Mutual Fund (Oct 92). LIC established its Mutual Fund in June
1989 while GIC had set up its Mutual Fund in June 1989 while GIC had set up its
Mutual Fund in December 1990.
At the end of 1993, the Mutual Fund industry had assets under management of
Rs.47,004 crores.
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.
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schemes. The specified Undertaking of Unit Trust of India, functioning under an
administrator and under the rules framed by Government of India and does not come
under the purview of the Mutual Fund Regulations.
The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is
registered with SEBI and functions under the Mutual Fund Regulations. With the
bifurcation of the erstwhile.
UTI which had in March 2000 more than Rs. 76,000crores of assets under management
and with the setting up of a UTI Mutual Fund, confirming to the SEBI Mutual Fund
Regulations, and with recent mergers taking place among different private sector funds,
the Mutual Fund industry has entered its current phase of consolidation and growth. As
at the end of October 31, 2003, there were 31 funds, which manage assets of Rs.1,
26,726crores under 386 schemes.
For Mutual Funds to grow, AMC’s must be held accountable for their selection of
stocks. In other words, there must be some performance indicator that will reveal the
quality of stock selection of various AMC’s.
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Return alone should not be considered as the basis of measurement of the performance
of a Mutual Fund scheme, it should also include the risk taken by the fund manager
because different funds will have different levels of risk attached to them. Risk
associated with a fund, in a general, can be defined as Variability or fluctuations in the
returns generated by it. The higher the fluctuations in the returns of a fund during a
given period, higher will be the risk associated with it. These fluctuations in the returns
generated by a fund are resultant of two guiding forces. First, general market
fluctuations, which affect all the securities, present in the market, called Market risk or
Systematic risk and second, fluctuations due to specific securities present in the
portfolio of the fund, called Unsystematic risk. The Total Risk of a given fund is sum of
these two and is measured in terms of standard deviation of returns of the fund.
Systematic risk, on the other hand, is measured in terms of Beta, which represents
fluctuations in the NAV of the fund vis-à-vis market. The more responsive the NAV of a
Mutual Fund is to the changes in the market; higher will be its beta. Beta is calculated
by relating the returns on a Mutual Fund with the returns in the market. While
Unsystematic risk can be diversified through investments in a number of instruments,
systematic risk cannot. By using the risk return relationship, we try to assess the
competitive strength of the Mutual Funds one another in a better way. In order to
determine the risk-adjusted returns of investment portfolios, several eminent authors
have worked since 1960s to develop composite performance indices to evaluate a
portfolio by comparing alternative portfolios within a particular risk class.
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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:
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.
Where,
Si is standard deviation of the fund,
Ri represents return on fund, and
Rf is risk free rate of return.
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While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a
fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.
3) Jenson Model:-
Jenson's model proposes another risk adjusted performance measure. This measure was
developed by Michael Jenson and is sometimes referred to as the differential Return
Method. This measure involves evaluation of the returns that the fund has generated vs.
the returns actually expected out of the fund1 given the level of its systematic risk. The
surplus between the two returns is called Alpha, which measures the performance of a
fund compared with the actual returns over the period. Required return of a fund at a
given level of risk (Bi) can be calculated as:
Ri = Rf + Bi (Rm - Rf)
Where,
Ri represents return on fund, and
Rm is average market return during the given period,
Rf is risk free rate of return, and
Bi is Beta deviation of the fund.
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After calculating it, Alpha can be obtained by subtracting required return from
the actual return of the fund.
Higher alpha represents superior performance of the fund and vice versa. Limitation of
this model is that it considers only systematic risk not the entire risk associated with the
fund and an ordinary investor cannot mitigate unsystematic risk, as his knowledge of
market is primitive.
4) Fama Model:-
The Eugene Fama model is an extension of Jenson model. This model compares the
performance, measured in terms of returns, of a fund with the required return
commensurate with the total risk associated with it. The difference between these two is
taken as a measure of the performance of the fund and is called Net Selectivity.
The Net Selectivity represents the stock selection skill of the fund manager, as it is the
excess returns over and above the return required to compensate for the total risk taken
by the fund manager. Higher value of which indicates that fund manager has earned
returns well above the return commensurate with the level of risk taken by him.
Where,
Ri represents return on fund,
Sm is standard deviation of market returns,
Rm is average market return during the given period, and
Rf is risk free rate of return.
The Net Selectivity is then calculated by subtracting this required return from
the actual return of the fund.
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Among the above performance measures, two models namely, Treynor measure and
Jenson model use Systematic risk is based on the premise that the Unsystematic risk is
diversifiable. These models are suitable for large investors like institutional investors
with high risk taking capacities as they do not face paucity of funds and can invest in a
number of options to dilute some risks. For them, a portfolio can be spread across a
number of stocks and sectors. However, Sharpe measure and Fama model that consider
the entire risk associated with fund are suitable for small investors, as the ordinary
investor lacks the necessary skill and resources to diversify. Moreover, the selection of
the fund on the basis of superior stock selection ability of the fund manager will also
help in safeguarding the money invested to a great extent. The investment in funds that
have generated big returns at higher levels of risks leaves the money all the more prone
to risks of all kinds that may exceed the individual investors' risk appetite.
COMPANY PROFILE
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(KOTAK MAHINDRA)
The group has a net worth of around Rs.1,700 crore and employs over 4,000 employees
in its various businesses. With a presence in 74 cities in India and offices in New York,
London, Dubai and Mauritius, it services a customer base of over 5,00,000
Kotak Mahindra has international partnerships with Goldman Sachs (one of the world's
largest investment banks and brokerage firms), Ford Credit (one of the world's largest
dedicated automobile financiers) and Old Mutual (a large insurance, banking and asset
management conglomerate).
The Kotak Mahindra Group was born in 1985 as Kotak Capital Management Finance
Limited. This company was promoted by Uday Kotak, Sidney A. A. Pinto and Kotak &
Company. Industrialists Harish Mahindra and Anand Mahindra took a stake in 1986, and
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that's when the company changed its name to Kotak Mahindra Finance Limited.
Since then it's been a steady and confident journey to growth and success.
Kotak Mahindra Finance Limited starts the activity of Bill Discounting
Kotak Mahindra Finance Limited enters the Lease and Hire Purchase market.
The Auto Finance division is started the Investment Banking Division is started.
1996 The Auto Finance Business is hived off into a separate company - Kotak Mahindra
Primus Limited. Kotak Mahindra takes a significant stake in Ford Credit Kotak Mahindra
Limited, for financing Ford vehicles. The launch of Matrix Information Services Limited
marks the Group’s entry into information distribution.
1998 Enters the mutual fund market with the launch of Kotak Mahindra Asset
Management Company.
Kotak Mahindra ties up with Old Mutual plc. For the Life Insurance business.
Kotak Securities launches kotakstreet.com - its on-line broking site. Formal
commencement of private equity activity through setting up of Kotak Mahindra Venture
Capital Fund.
2003 Kotak Mahindra Finance Ltd. converts to bank Kotak Mahindra is one of India's
leading financial institutions, offering complete financial solutions cities in India and
offices in New York, London, Dubai and Mauritius, it services a customer base of over
5,00,000.
has international partnerships with Goldman Sachs (one of the world's largest investment
banks and brokerage firms), Ford Credit (one of the world's largest dedicated automobile
financiers) and Old Mutual (a large insurance, banking and asset management
conglomerate that encompass every sphere of life. From commercial banking, to stock
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broking, to mutual funds, to life insurance, to investment banking, the group caters to the
financial needs of individuals and corporates.
The group has a net worth of around Rs.1,700 crore and employs over 4,000 employees
in its various businesses. With a presence in 74 cities in India and offices in New York,
London, Dubai and Mauritius, it services a customer base of over 5,00,000.
Kotak Mahindra has international partnerships with Goldman Sachs (one of the world's
largest investment banks and brokerage firms), Ford Credit (one of the world's largest
dedicated automobile financiers) and Old Mutual (a large insurance, banking and asset
management conglomerate).
Kotak Mahindra Asset Management Company Limited (KMAMC), a wholly owned
subsidiary of KMBL, is the asset manager for Kotak Mahindra Mutual Fund (KMMF).
KMAMC started operations in December 1998 and has over 1,99,818 investors in various
schemes. KMMF offers schemes catering to investors with varying risk - return profiles
and was the first fund house in the country to launch a dedicated gilt scheme investing
only in government securities.
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Kotak Investment Banking* (KIB), India's premier Investment Bank is a strategic joint
venture between Kotak Mahindra Bank Limited (KMBL) and the Goldman Sachs Group,
LLP.
KMBL has come into existence in March 2003 through the conversion of Kotak
Mahindra Bank Ltd. into a Commercial Bank. Kotak Mahindra is one of India's leading
financial institutions, offering complete financial solutions that encompass every sphere
of life. From commercial banking, to stock broking, to mutual funds, to life insurance, to
investment banking, the group caters to the v needs of individuals and corporates.
The group has a net worth of over Rs.1,550 crore and employs over 3,000 employees in
its various businesses. With a presence in 60 cities in India and offices in New York,
London, Dubai and Mauritius, it services a customer base of over 5,00,000.
Kotak Mahindra has international partnerships with Goldman Sachs (one of the world's
largest investment banks and brokerage firms), Ford Credit (one of the world's largest
dedicated automobile financiers) and Old Mutual (a large insurance, banking and asset
management conglomerate).
Kotak Investment Banking (KIB) and Kotak Institutional Equities represent the securities
business of the Kotak Mahindra Group **(KI), both, joint ventures with Goldman Sachs
involved in brokerage, distribution and research.
We are a full service Investment Bank bringing to our clients the global reach and
expertise of Goldman Sachs and the local knowledge and skills of Kotak Mahindra. As a
full service Investment Bank, Kotak Investment Banking core business areas include
Equity Issuances, Mergers & Acquisitions, Advisory Services and Fixed Income
Securities and Principal Business.
Our strength lies in understanding our clients' businesses backed by a strong research
team and an extensive distribution network, which spans a wide variety of investors
across the country. We are also the first Indian Investment Bank to be registered with the
Securities & Futures Authority in the UK (through our wholly owned subsidiary) and the
National Association of Securities and Dealers in the USA.
We are also the first Indian Investment Bank to be appointed by the Government of India
as a Co-lead Manager in their international divestment of Gas Authority of India Ltd
through a GDR offering.
We are today well positioned in an increasing globalised environment to provide full
service to its clients based either in India or overseas.
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RESEARCH METHODOLOGY
The Methodology involves randomly selecting Open-Ended equity schemes of different
fund houses of the country. The data collected for this project is basically from two
sources, they are:-
1. Primary sources: The monthly fact sheets of different fund houses and research
reports from banks.
2. Secondary sources: Collection of data from Internet and Books.
HYPOTHESIS
The Hypothesis of the study involves Comparison between:
1. Kotak Opportunities fund.
2. Reliance Equity Opportunities fund.
3. Franklin India Flexi fund.
4. HDFC Core & satellite fund.
5. HSBC India Opportunities fund.
The driving force of Mutual Funds is the ‘safety of the principal’ guaranteed, plus the
added advantage of capital appreciation together with the income earned in the form of
interest or dividend. The various schemes of Mutual Funds provide the investor with a
wide range of investment options according to his risk bearing capacities and interest
besides; they also give handy return to the investor. Mutual Funds offers an investor to
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invest even a small amount of money, each Mutual Fund has a defined investment
objective and strategy. Mutual Funds schemes are managed by respective asset
managed companies sponsored by financial institutions, banks, private companies or
international firms. A Mutual Fund is the ideal investment vehicle for today’s complex
and modern financial scenario.
The study is basically made to analyze the various open-ended equity schemes of
different Asset Management Companies to highlight the diversity of investment that
Mutual Fund offer. Thus, through the study one would understand how a common man
could fruitfully convert a pittance into great penny by wisely investing into the right
scheme according to his risk taking abilities.
SCOPE:
The study here has been limited to analyse open-ended equity Growth schemes of
different Asset Management Companies namely Kotak Mahindra Mutual Fund,
Reliance Mutual Fund, HDFC Mutual Fund, Franklin Templeton Mutual Fund,
HSBC Mutual Fundseach scheme is analysed according to its performance against the
other, based on factors like Sharpe’s Ratio, Treynor’s Ratio, β(Beta) Co-efficient,
Returns.
OBJECTIVES:
1. To project Mutual Fund as the ‘productive avenue’ for investing activities.
2. To show the wide range of investment options available in Mutual Funds by
explaining its various schemes.
3. To compare the schemes based on Sharpe’s ratio, Treynor’s ratio, β Co-
efficient, Returns and show which scheme is best for the investor based on his
risk profile.
4. To help an investor make a right choice of investment, while considering the
inherent risk factors.
To understand the recent trends in Mutual Funds world.
35
The comparison between these schemes is made based on the following factors
A) Sharpe’s Ratio
B) Treynor’s Ratio
C) β(Beta) co-efficient.
D) Returns
While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a
fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.
36
Where,
Ri represents return on fund,
Rf is risk free rate of return,
and Bi is beta of the fund.
All risk-averse investors would like to maximize this value. While a high and positive
Treynor's Index shows a superior risk-adjusted performance of a fund, a low and
negative Treynor's Index is an indication of unfavorable performance.
C) β (Beta) Co-efficient:-
Systematic risk is measured in terms of Beta, which represents fluctuations in the NAV
of the fund vis-à-vis market. The more responsive the NAV of a Mutual Fund is to the
changes in the market; higher will be its beta. Beta is calculated by relating the returns
on a Mutual Fund with the returns in the market. While unsystematic risk can be
diversified through investments in a number of instruments, systematic risk cannot. By
using the risk return relationship, we try to assess the competitive strength of the
Mutual Funds vis-à-vis one another in a better way.
β(Beta) is calculated as N (ΣXY) – ΣXΣY
N (ΣX2) – (ΣX) 2
D) Returns:- Returns for the last one-year of different schemes are taken for the
comparison and analysis part.
37
DATA ANALYSIS& INTERPRETATIONS:
Note: All the data used for analysis is taken up to the period 28-febuary-2006
38
• The Scheme may seek investment opportunity in the ADR / GDR / Foreign Equity
and Debt Securities, in accordance with guidelines stipulated in this regard by SEBI
and RBI from time to time.
• The net assets of the Scheme will be invested primarily in equity and equity related
instruments in a portfolio comprising of 'Core' group of companies and 'Satellite'
group of companies.
• The 'Satellite' group will comprise of predominantly small-mid cap companies that
offer higher potential returns but at the same time carry higher risk
39
OBJECTIVE:-
To generate capital appreciation from a diversified portfolio of equity and equity related
securities Kotak Opportunities is a diversified equity scheme, with a flexible investing
style. It will invest in sectors, which our Fund Manager believes would outperform others
in the short to medium-term. Kotak Opportunities’ speciality lies in giving the Fund
Manager flexibility to act based on his views on the market; and in allowing him to invest
higher concentrations in sectors he believes will outperform others.
As markets evolve and grow, new opportunities for growth keep emerging. Kotak
Opportunities would endeavour to capture these opportunities to generate wealth for its
investors.
(Rm- (Rp- (X
YEAR Rp Rm Rf Rf) Rf) X2 XY -Xbar) D2
X Y D
LAST 1
MONTH 5.92 2.84 4.25 -1.41 1.67 1.98 -2.35 -20.11 404.71
LAST 3
MONTHS 24.61 13.11 4.25 8.86 20.36 78.49 180.38 -9.847 96.97
LAST 6 30.1
MONTHS 34.42 4 4.25 25.89 30.17 670.29 781.10 25.89 670.29
Since 45.9
Inception 78.17 9 4.5 41.49 73.67 1721.42 3056.56 22.78 519.04
125.8
TOTAL 74.83 7 2472.19 4015.70 18.70 1691.02
Where,
Rp - Portfolio Return- Kotak opportunities
Rm - Market Return-Fund’s bench mark- S& P CNX 500
Rf - Risk free rate of return.
40
• CALCULATION OF STANDARD DEVIATION (σ ):-
= √ Σ(X-Xbar) 2 / N
= √1691.02/4
=√422.75
=20.56
• CALCULATION OF BETA CO-EFFICIENT:-
= N (ΣXY) – ΣXΣY
N (ΣX2) – (ΣX) 2
= 4(5208.85) – (90.35)(126.21)
4(4117.22) – (90.35) 2
= 4(4015.70)-(74.83)-(125.87)
4(2472.19)-(74.83) 2
= 16062.8-9418.85
9888.76-5599
= 6643.95
4289.76
=1.54
• CALCULATION OF SHARPE’S RATIO:-
= Rp-Rf / σ
=125.87 /20.56
= 6.12
=0.8173
41
KOTAK OPPORTUNITIES
78.17
45.99
RETURNS
34.42
30.14
24.61
13.11
5.92 4.25 4.25 4.25 4.5
2.84
Interpretation:-
42
Objective:-
The objective of the scheme is to generate capital appreciation through equity
investment in companies whose shares are quoting at prices below their true value.
X Y D
LAST -20.792
1MONTH 1.15 3.72 4.25 -0.53 -3.1 0.2809 1.643 5 432.3280563
LAST 3 13.8 12.2 -10.692
MONTHS 16.46 2 4.25 9.57 1 91.5849 116.8497 5 114.3295563
LAST 31.3
6MONTHS 35.6 31.1 4.25 26.85 5 720.9225 841.7475 26.85 720.9225
Since 49.6 65.1
Inception 69.64 6 4.5 45.16 4 2039.4256 2941.7224 24.8975 619.8855063
105.
TOTAL 81.05 6 2852.2139 3901.9626 20.2625 1887.465619
Where,
Rp - Portfolio Return-HDFC core & Satellite Fund
Rm - Market Return-Fund’s benchmark-BSE-200
Rf - Risk free rate of return.
43
= N (ΣXY) – ΣXΣY
N (ΣX2) – (ΣX) 2
= 4(3901.9) –(81.05)(105.6)
4(4026) – (89.75) 2
= 15607.5-8558.8
11408.8-6569.1
=7048.7
4839
=1.45
44
HDFC Core & Satellite Fund Performance
80
69.64
70
60
49.66
50
RETURNS
40 35.6
31.1
30
20 16.46
13.82
10
3.72 4.25 4.25 4.25 4.5
1.15
0
LAST 1 MONTH LAST 3 MONTHS LAST 6 MONTHS SINCE INCEPTION 17 SEPTEMBER-
2004
Rp Rm Rf
Interpretation:
• Last I Month : It reveals that HDFC Core & Satellite Fund Returns are 1.15
as compare to Funds Benchmark Returns are 3.72, and The Risk
Free Rate is common for next 9 months. (i.e., 4.25%)
• Last III Months: It reveals that HDFC Core & Satellite Fund Returns are 16.46
as compare to Funds Benchmark Returns are 13.82, and The
Risk Free Rate is common for next 6 months. (i.e., 4.25%)
• Last VI Months: It reveals that HDFC Core & Satellite Fund Returns are 35.6,
as compare to Funds Benchmark Returns are 31.1 and The Risk
Free Rate is common for next 3 months. (i.e., 4.25%)
• Since Inception: It reveals that HDFC Core & Satellite Fund Returns are 69.64,
as compare to Funds Benchmark Returns are 49.66, and There is
a slight increase in Risk Free Rate by 0.25%(4.5%) compare to
last 9 Months.
45
Investment Objective:
(Rm- (Rp- (X
YEAR Rp Rm Rf Rf) Rf) X2 XY -Xbar) D2
X Y D
LAST 1
MONTH 2.4 3.72 4.25 -0.53 -1.85 0.2809 0.9805 -20.935 438.274225
LAST 3
MONTHS 16.22 13.82 4.25 9.57 11.97 91.5849 114.5529 9.57 91.5849
LAST 6
MONTHS 29.46 31.1 4.25 26.85 25.21 720.9225 676.8885 6.445 41.538025
Since
Inception 54.99 50.23 4.5 45.73 50.49 2091.2329 2308.9077 45.73 2091.2329
Where,
Rp - Portfolio Return-Reliance equity opportunities fund
Rm - Market Return-Fund’s Benchmark BSE-500
Rf - Risk free rate of return.
46
• CALCULATION OF STANDARD DEVIATION (σ):-
= √ Σ(X-Xbar)2 / N
= √2662.63/4
= √665.65
=25.80
• CALCULATION OF BETA CO-EFFICIENT;-
= N (ΣXY) – ΣXΣY
N (ΣX2) – (ΣX) 2
= 4(3101.32) – (81.62)(85.82)
4(2904.02) – (81.62) 2
= 12405-7002.91
11616-6661.82
=5402.09
4954.18
=1.09
• CALCULATION OF SHARPE’S RATIO:-
= Rp-Rf/ σ
=85.82
25.23
=7.29
• CALCULATION OF TREYNOR’S RATIO:-
= Rp-Rf/β
= 85.82/1.47
= 37.32/100
=0.37
GRAPH SHOWING RELIANCE EQUITY OPPORTUNITIES FUND
PERFORMANCE:-
47
RELIANCE EQUITY OPPORTUNITIES FUND
54.99
50.23
31.1
29.46
RETURNS
16.22
13.82
RELIANCE BSE-100 Rf
Interpretation:-
• Last I Month: It reveals that Reliance Equity Opportunities Fund Returns are
2.4 as compare to Funds Benchmark Returns Are 3.72, and The Risk Free Rate
is common for next 9 months. (i.e., 4.25%)
• Last III Months: It reveals that Reliance Equity Opportunities Fund Returns
are 16.22 as compare to Funds Benchmark Returns are 13.82, and The Risk Free
Rate is common for next 6 months. (i.e., 4.25%)
• Last VI Months: It reveals that Reliance Equity Opportunities Fund Returns are
29.46 as compare to Funds Benchmark Returns are 31.1 and The Risk Free Rate
is common for next 3 months. (i.e., 4.25%)
• Since Inception: It reveals that Reliance Equity Opportunities Fund Returns
are 54.99, as compare to Funds Benchmark returns are 50.23, and
There is a slight increase in Risk Free Rate by 0.25%(4.5%)
compare to last 9 months.
48
FRANKLIN INDIA FLEXI CAP EQUITY FUND
Fund Managers: (Mr. K N Siva Subramanian & R Sukumar Rajah)
Investment objective:
Stocks of companies are usually categorized as large-cap, midcap, and small-cap
depending on their market capitalization. History has demonstrated that these categories
tend to perform differently through economic and market cycles. For example, mid or
small cap stocks could move up sharply during a certain time period while large cap
stocks remain range bound and vice versa. On the other hand, large-cap stocks tend to be
less volatile than mid & small-cap stocks on account of factors such as size, market
leadership..etc. Moreover, such periods of out performance are typically followed by a
consolidation phase and a possible reversal of the situation. In order to derive optimal
returns from the stock markets, investments need to be diversified and have flexibility to
shift allocations across market caps.
Designed to help you achieve this with a single investment is Franklin India Flexi Cap
Fund (FIFCF). An open-end diversified equity fund, FIFCF seeks to provide medium to
long-term capital appreciation by investing in stocks across the entire market
capitalization range.
(Rm- (Rp- (X
YEAR Rp Rm Rf Rf) Rf) X2 XY -Xbar) D2
X Y D
-0.7 -20.93
LAST 1MONTH 3.47 3.72 4.25 -0.53 8 0.281 0.4134 5 438.274225
LAST 3 MONTHS 16.49 13.82 4.25 9.57 12.2 91.58 117.1368 10.1 102.01
LAST 6 MONTHS 36.58 31.1 4.25 26.9 32.3 720.9 868.0605 17.28 298.5984
SINCE INCEPTION
March 2, 2005 61.8 50.23 4.5 45.7 57.3 2091 2620.329 18.88 356.4544
49
Where,
Rp - Portfolio Return-Franklin flexi cap fund
Rm - Market Return-Fund’s Benchmarks S&P CNX-500
Rf - Risk free rate of return.
50
=5.84
CALCULATION OF TREYNOR’S RATIO:-
= Rp-Rf/β
=101/1.94
= 52.06/100 or 0.52
70
61.8
60
50.23
50
40 36.58
RETURNS
31.1
30
20 16.49
13.82
10
3.47 3.72 4.25 4.25 4.25 4.5
0
LAST 1MONTH LAST 3 MONTHS LAST 6 MONTHS SINCE INCEPTION March 2, 2005
Rp Rm Rf
Interpretation:
• Last I Month : It reveals that Franklin India flexi Cap Fund Returns are 3.47 as
compare to Funds Benchmark Returns are 2.8, and The Risk Free Rate is
common for next 9 months. (i.e., 4.25%)
• Last III Months: It reveals that Franklin India flexi Cap Fund Returns are
14.49 as compare to Funds Benchmark Returns are 13.11, and The Risk Free
Rate is common for next 6 months. (i.e., 4.25%)
• Last VI Months: It reveals that Birla Sun-life Equity Opportunities Fund
51
Returns are 36.58 as compare to Funds Benchmark Returns are
30.14 and The Risk Free Rate is common for next 3 months. (i.e.,
4.25%)
• Since Inception: It reveals that Birla Sun-life Equity Opportunities Fund
Returns are 61.8, as compare to Funds Benchmark Returns are 47.75 and There
is a slight Increase in Risk Free Rate by 0.25%(4.5%) compare to last 9 months.
X Y D
LAST 1
MONTH -0.57 2.81 4.25 -1.44 -4.82 2.0736 6.9408 -19.695 387.893025
LAST 3
MONTHS 12.45 13.45 4.25 9.2 8.2 84.64 75.44 9.15 83.7225
LAST 6
MONTHS 27.67 28.13 4.25 23.88 23.42 570.2544 559.2696 13.67 186.8689
Since
Inception 48.62 45.88 4.5 41.38 44.12 1712.3044 1825.6856 11.58 134.0964
52
Where,
Rp - Portfolio Return-
Rm - Market Return,
Rf - Risk free rate of return.
53
• CALCULATION OF TREYNOR’S RATIO: -
= Rp-Rf/β
=70.92/1.13
= 62.76/100
=0.62
GRAPH SHOWING HSBC INDIA OPPORTUNITIES FUND
PEFORMANCE:-
60
48.62
50 45.88
40
30 27.67 28.13
RETURNS
20
12.45 13.45
10
4.25 4.25 4.25 4.5
2.81
0
1/1/1900 -0.57
1/2/1900 1/3/1900 1/4/1900 1/5/1900 1/6/1900
-10
HSBC BSE-500 Rf
Interpretation
• Last I Month : It reveals that HSBC India Opportunities Fund Returns are
-0.57 as compare to Funds Benchmark Returns are 2.81, and The
Risk Free Rate is common for next 9 months. (i.e., 4.25%).
• Last III Months: It reveals that HSBC India Opportunities Fund Returns are
12.45as compare to Funds Benchmark Returns are 13.45, and
The Risk Free Rate is common for next 6 months. (i.e., 4.25%).
• Last VI Months: It reveals that that HSBC India Opportunities Fund Returns
54
are 27.87 as compare to Funds Benchmark Returns are 28.13
and The Risk Free Rate is common for next 3 months. (i.e.,
4.25%)
• Since Inception: It reveals that HSBC India Opportunities Fund Returns
are 48.82, as compare to Funds Benchmark returns are 45.82, and
There is a slight Increase in Risk Free Rate by 0.25 % (4.5%)
compare to last 9 months
55
OBSERVATIONS;
Observations are made from the data analysis.
The following observations are drawn from the analysis of schemes:
56
LIMITATIONS OF THE STUDY
1. The study is limited only to the analysis of different schemes and its suitability
to different investors according to their risk-taking ability.
2. The study is based on secondary data available from monthly fact sheets,
websites and other books, as primary data was not accessible.
3. The study is limited by the detailed study of various schemes of Five Asset
Management Company.
57
SUGGESTIONS:-
• The Asset Management Company must design the portfolio in such a way, to
increase the returns.
• The Asset Management Company must design the portfolio in such a way, to lessen
the risk that is common in the market.
• The Asset Management Company must dedicate itself, because it motivates the
investors and potential investors to invest in Mutual Funds.
• The Asset Management Company must manage the Fund efficiently and with
dedication to earn the goodwill of the public.
• The Asset Management Company must make the most advantageous use of print
and electronic media in order to motivate the investors and potential investors to
invest in Mutual Funds.
58
CONCLUSIONS
After interpreting the above data the following conclusions have been made
59
• It is a value based fund
• It is a low risky fund
60
BIBLIOGRAPHY
www.amfiindia.com
www.kotakmutual.com
www.reliancemutual.com
61
ANNEXURE’S
ANNEXURE-I
Sponsor
Sponsor is the person who acting alone or in combination with another body corporate
establishes a Mutual Fund. Sponsor must contribute at least 40% of the net worth of the
Investment Managed and meet the eligibility criteria prescribed under the securities and
Exchange Board of India (Mutual Fund) Regulations, 1996. The Sponsor is not
responsible or liable for any loss or short fall resulting from the operation of the
schemes beyond the initial contribution made by it towards setting up the Mutual Fund.
Trust
The Mutual Fund is constituted as a trust in accordance with the provisions of the
Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian
Registration Act, 1908.
Trustee
62
Asset Management Company (AMC)
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.
Unit Holders
Custodian
Custodian is the agency, which will have the legal possession of all the securities
purchased by the Mutual Fund.
SEBI
The Stock Exchange Board of India (SEBI) is regulatory authority of the Mutual Funds.
ANNEXURE II
Equity Fund is the one in which much of the portfolio is invested in corporate
securities and Debt Fund is the one in which much of the portfolio is invested in Gilt
and money market securities.
63
In an Open-ended Mutual Fund, there are no limits on the total size of the corpus.
Investors are permitted to enter and exit the open-ended Mutual Fund at any point of
time at a price that is linked to the net asset value (NAV).
In case of Closed-ended funds, the total size of the corpus is limited by the size of the
initial offer.
NAV is the net asset value of the fund. Simply put it reflects what the unit held by an
investor is worth at current market prices.
• Mutual Funds should be formed as a trust under Indian Trust Act and should be
operated by Asset Management Companies.
• Mutual Funds need to set up a Board of Trustee Companies. They should also
have their Board of Directories.
• The net worth of the Asset Management Company should be at least Rs.10
crore.
• Asset Management Company has to get the approval of SEBI for its articles and
Memorandum of Association.
64
• All Mutual Fund Schemes should be registered with SEBI.
• Mutual Funds should distribute minimum of 90% of their profits among the
investors.
65