PROJECT SYNOPSIS

ON

A STUDY ON PERFORMANCE OF TAX SAVING SCHEMES IN
MUTUAL FUND
Dissertation submitted in partial fulfillment of the requirements for the award
of the Degree of
MASTER OF BUSINESS ADMINISTRATION





























MUTUAL FUNDS :
A mutual fund is a type of professionally managed collective investment scheme that pools
money from many investors to purchase securities.While there is no legal definition of the term
"mutual fund", it is most commonly applied only to those collective investment vehicles that are
regulated and sold to the general public. They are sometimes referred to as "investment
companies" or "registered investment companies. Most mutual funds are "open-ended," meaning
stockholders can buy or sell shares of the fund at any time. Hedge funds are not considered a
type of mutual fund.
In the United States, mutual funds must be registered with the Securities and Exchange
Commission, overseen by a board of directors (or board of trustees if organized as a trust rather
than a corporation or partnership) and managed by a registered investment adviser. Mutual
funds, like other registered investment companies, are also subject to an extensive and detailed
regulatory regime set forth in the Investment Company Act of 1940. Mutual funds are not taxed
on their income and profits if they comply with certain requirements under the U.S. Internal
Revenue Code.
Mutual funds have both advantages and disadvantages compared to direct investing in individual
securities. They have a long history in the United States. Today they play an important role in
household finances, most notably in retirement planning.
There are 3 types of U.S. mutual funds: open-end, unit investment trust, and closed-end. The
most common type, the open-end fund, must be willing to buy back shares from investors every
business day. Exchange-traded funds (or "ETFs" for short) are open-end funds or unit investment
trusts that trade on an exchange. Open-end funds are most common, but exchange-traded funds
have been gaining in popularity.
Mutual funds are generally classified by their principal investments. The four main categories of
funds are money market funds, bond or fixed income funds, stock or equity funds and hybrid
funds. Funds may also be categorized as index or actively managed.
Investors in a mutual fund pay the funds expenses, which reduce the fund's returns/performance.
There is controversy about the level of these expenses. A single mutual fund may give investors
a choice of different combinations of expenses (which may include sales commissions or loads)
by offering several different types of share classes.
RISK FACTORS IN MUTUAL FUND
Just like in any other investment, Mutual Fund investment also carry certain risks, the risks in
particular scheme of a mutual fund is a basically a function of five factor.
Market Risk :- In generally, there are certain risks associated with every kind of
investments of shares. They are called market risks. The market risks can be reduced. But
cannot be completely eliminated even by good investment management. The prices of
shares are subjected to wide price fluctuations depending upon market conditions. Eg,
cycle boom & slump and recovery.
Credit Risk :- The debt servicing ability 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.
Scheme Risks :- There are certain risks inherent in the scheme itself. T all depends upon
the nature of the scheme. For instance, in a pure growth scheme, risks are greater. It is
obvious because if one expects more returns an in the case of a growth scheme, one has
to take more risks.
Investment Risks :- Whether the Mutual Fund makes money in shares or loses depends
upon the investment expertise of the Asset management Company (AMC). If the
investment advice goes wrong, the fund has to suffer a lot. The investment expertises of
various funds are different and it is reflected on the returns which they offer to investors.
Business Risk :- The corpus of a Mutual Fund might have been invested in companys
shares. If the business of that company suffers any set back, it cannot declare any
dividend.
Political Risk :- Successive Governments bring with them fancy new economy
ideologies and policies. It is often said that many economy decisions are politically
motivated. Changed in Government bring in the risk of uncertainty which every player in
the financial service industry has to face. So Mutual Funds are no exception to it.
Liquidity Risk :- Liquidity risk arises when it becomes difficult to sell the securities that
one has purchased. It can be partly mitigated by diversification, staggering of maturities
as well as internal risk controls that lean towards purchase of liquid securities. It simply
means that you must spread your investment across different securities (stocks, bonds,
money market instruments, real estate, fixed deposits etc.). This kind of a diversification
may add to the stability of your returns, for example, during one period of time equities
might under perform but bonds and money market instruments might do well enough to
offset the effect of a slump in the equity Markets.
Inflation Risk :- Inflation is the loss of purchasing power over a 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 investment.
A welldiversified portfolio with some investment in equities might help mitigate this
risk.

INTRODUCTION TO TOPIC:
TAX PLANNING AND MUTUAL FUND
Investors in India have option for the tax-saving mutual fund schemes for the simple reason that
it helps them to save money. The tax-saving mutual funds or the equity-linked savings schemes
(ELSS) receive certain tax exemptions under Section 88 of the Income Tax Act. That is one of
the reasons why the investors in India add the tax-saving mutual fund schemes to their portfolio.
The tax-saving mutual fund schemes are one of the important types of mutual funds in India that
investors can option for. There are several companies in India that offer tax saving mutual fund
schemes in the country.
While planning our investments we spend a considerable amount of time evaluating various
options and determining which suits us the best. But when it comes to planning out investments
from a tax saving perspective, more often than not, we simply go the traditional way and do the
exact same thing that we did in the earlier years. Well, in case you were not aware the guidelines
governing such investments are a lot different this year and lethargy on your part to rework your
investment plan could cost you dear.
TAX SAVING SCHEME
Equity Linked Saving Schemes (ELSS): Equity Linked Saving Scheme (ELSS) is also a type
of mutual fund and falls under the Equity Mutual Fund category. As the name indicates, ELSS
mutual fund invests major portion of its corpus into equity and equity related instruments. But
there are some distinct features which makes ELSS plans different from other equity mutual
funds.
Investments made in ELSS plans are eligible for deduction from the taxable income under
Section 80C of the Income Tax Act. There is no limit for investments in ELSS plans, but
investments of upto Rs 1,00,000 qualify for income tax benefits. Investments made in normal
mutual funds (other than ELSS plans) do not qualify for income tax deduction.
Features of an ELSS Plan
ELSS is an equity linked tax saving investment instrument.
Money collected under ELSS plan is mainly invested in equity and equity related
instruments.
This financial product is more suited to those investors who are willing to take high risk
and looking for high returns.
There is no upper limit on investments that can be made in ELSS. However investments
upto INR 1,00,000 made in ELSS in a financial year qualify for deduction from taxable
income under Section 80C of the Income Tax Act.
ELSS comes with a 3 year lock in period.
Long term capital gains earned on investments from ELSS are tax free.
Also dividends earned from ELSS plan are tax free in the hands of the investor.
ADVANTAGES OF INVESTING IN MUTUAL FUNDS
There are several that can be attributed to the growing popularities and suitability of mutual
funds as an investment vehicle especially for retail investors.
a) Professional management: Mutual funds provide the services of experienced and skilled
professionals, backed by a dedicated investment research team that analysis the
performance and prospects of companies and selects suitable investments to achieve the
objectives of the scheme.
b) Diversification: Mutual funds invest in a number of companies across a broad cross-
section of industries and sectors. This diversification reduces the risk because seldom do
all stocks decline at the sane time and in the same proportion. You achieve this
diversification through a mutual fund with far less money than you can do on your own.
c) Convenient administration: Investing in a mutual fund reduces paperwork and helps
you avoid many problems such as bad deliveries, delayed payment and follow up with
brokers and companies. Mutual funds save your time and make investing easy and
convenient.
d) Return potential: Over a medium to long term, mutual funds have the potential to
provide a higher retuDrn as they invest in a diversified basket of selected securities.
e) Low costs: Mutual funds are a relatively less expensive way to invest compared to
directly investing in the capital markets because the benefits of scale in brokerage,
custodial and other fees translate into lower costs for investors.
f) Liquidity: In open ended schemes, the investors get the money back promptly at net
asset value related prices from the mutual fund. In closed end schemes, the units can be
sold on a stock exchange at the prevailing market price or the investor can avail of the
facility of direct repurchase at NAV related prices by mutual fund.
g) Transparency: You get regular information on the value of your investment in addition
to disclosure on the specific investments made by your scheme, the proportion invested in
each class of assets and the fund managers investment strategy and outlook.
h) Flexibility: Through features such as regular investment plans, regular withdrawal plans
and dividend reinvestment plans, you can systematically invest or withdraw funds
according to your needs and convenience.
i) Affordability: Investors individually may lack sufficient funds to invest in high-grade
stocks. A mutual fund because of its large corpus allows even a small investor to take the
benefit of its investment strategy.
j) Choice of schemes: Mutual funds offer a family of schemes to suit your varying needs
over a lifetime.
k) Safety: Mutual Fund industry is part of a well-regulated investment environment where
the interests of the investors are protected by the regulator. All funds are registered with
SEBI and complete transparency is forced.
STATEMENT OF THE PROBLIEM
l) A The Indian capital market has been growing tremendously with the reforms in industry
policy, reforms in public and financial sector and new economic policies of liberalization,
deregulation and restructuring. The Indian economy has opened up and many developments
have been taking place in the Indian capital market and money market with the help of the
financial system and financial institution or intermediaries which faster saving and channel
them to their most efficient use.
The measurement of fund performance has been a topic of increased interest in both the
academic and practitioner communities for the last four decades. It is more so because of
growing scale of mutual theory. The investment environment is becoming increasingly
complex.
NEED FOR THE STUDY
Generally, most of the investors investing in mutual funds in order to avail tax benefits and also
to earn returns, in this connection they would park their funds in the tax saving schemes. A study
required to analyze the performance of selected tax saving schemes to fulfill the objectives of the
investors. Hence the study has been undertaken.
SCOPE OF THE STUDY
The study is all about understanding the customers perception to the tax benefit in mutual fund.
The purpose of this study of performance evaluation of tax saving mutual funds by taking five
selected companies which are ICICI, HDFC, SBI, Relince and Franklin is to employ the
resources in such a manner as to afford for the investors combine benefits of low risk, steady
returns, high liquidity and capital appreciation through diversification and expert management.
OBJECTIVES OF THE STUDY
The main objective of the study is to make investors aware of performance and provide
information on the comparison of tax saving funds of selected asset management companies. The
specific objectives are:
To understand the organisation of mutual fund industry.
To employ performance evaluation measure using risk return models.
To compare the performance of selected tax saving schemes in comparison with market
portfolio.
To measure the comparative beta analysis of selected AMC.
To offer suggestion based on the finding arrived from the study.
RESEARCH METHODOLOGY
The following research methodology has been adopted for assessing the performance of tax
saving funds of selected Asset Management Companies in the market.
Sources of data
The present study is purely based on secondary data. Top five ELSS schemes were as per their
AUM as on 30th June 2012. The sample ELSS schemes are HDFC Tax Saver, ICICI Prudential
Tax Plan, Reliance Tax Saver, SBI Magnum Tax Gain and Franklin India Tax shield. The data is
collected from the fact sheets, reports, websites, magazines, books and journals etc. are
considered. The deviations are properly analyzed. For each of the scheme, the risk ratios
(Average return, Beta, Standard Deviation, Correlation, Coefficient of Determination, Sharpe
Ratio, Treynors Ratio and Jensen Model) were also observed carefully and correlated with the
returns. Accordingly, proper findings were found out and conclusions were drawn about the best
performance scheme among all.
TOOLS FOR PERFORMANCE MEASURES
In this study, the tools used for the analysis are Standard Deviation, Beta, Correlation,
Coefficient of Determination, Treynors Ratio, Sharp Ratio and Jensen Measure for a period of
5 years from 2008 to 2012.






BIBLIOGRAPHY
Books:
Gordon E. Financial Markets and Services, Mumbai; Himalaya Publising House.
Sadhak H. Mutual Funds in India (Marketing Strategies and Investment Practices), New
Delhi; Sage Publication.
Chandra P. Investment Analysis and Portfolio Management, Noida; Tata Mcgraw Hill
Education.
Gupta C.S. Fundamental of Statistics, Mumbai; Himalaya Publication House.
Kothari C.R. Research Methodology (Methods of Techniques), New Delhi; New Age
International (P) Ltd.
Mehrotra C.H. Direct Taxes Law & Practice, Agra; Sahitya Bhawan Publication.
Jornals:
Vasu S. Performance of Tax saving Funds of Selected Asset Management Companies: A
Comparative Analysis, International Jornal of Research in Commerce & Management.
Arora H. Are Mutual fund Outperforming Market?, Zenith International Jornal of
Business Economics & Management Research.
Websites:
http://www.amfiindia.com
http://www.valueresearchonline.com
http://www.moneycontrol.com
http://www.mutualfundsindia.com