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ANALYSIS OF MUTUAL FUND
(UNIT TRUST OF INDIA)
SUBMITTED FOR THE PARTICAL FULFILLMENT OF
MBA (FT)
BARKATULLAH UNIVERSITY, BHOPAL
BY
VASUDHA PARADKAR
(MBA IV SEMESTER)
UNDER THE SUPERVISION OF
TIT-MBA BHOPAL
CHAPTER 1 – INTRODUCTION
o STANDARD DEVIATION
o SHARPE RATIO
hereby declare that the project report entitled analysis of mutual fund is my own
original work based on survey undertaken by me. I also declare that this report has
not been submitted to any university/Institute for the award of any degree or any
professional diploma.
Date:………………..
Vasudha paradkar
MBA IV Sem
CERTIFICATE
Date:
INTRODUCTION
Mutual fund is an investment company that pools money from shareholders and
instruments. Most open-end Mutual funds stand ready to buy back (redeem) its
shares at their current net asset value, which depends on the total market value of
the fund's investment portfolio at the time of redemption. Most open-end Mutual
Mutual funds invest pooled cash of many investors to meet the fund's stated
investment objective. Mutual funds stand ready to sell and redeem their shares at
across a wide cross-section of industries and sectors and thus the risk is reduced.
Diversification reduces the risk because all stocks may not move in the same
• Professional Management.
The major advantage of investing in a mutual fund is that you get a
You can leave the investment decisions to him and only have to monitor the
• Diversification.
Considered the essential tool in risk management, mutual funds make it
possible for even small investors to diversify their portfolio. A mutual fund
can effectively diversify its portfolio because of the large corpus. However,
• Convenient Administration.
they do not have to deal with brokerage or depository, etc. for buying or
with asset allocation of their corpus. It also saves a lot of paper work.
• Costs Effectiveness
A small investor will find that the mutual fund route is a cost-effective
method (the AMC fee is normally 2.5%) and it also saves a lot of transaction
cost as mutual funds get concession from brokerages. Also, the investor gets
the service of a financial professional for a very small fee. If he were to seek
for investment advice. Also, he will need to have a sizeable corpus to offer
for investment management to be eligible for an investment adviser’s
services.
• Liquidity.
funds dispatch redemption cheques speedily and also offer direct credit
• Transparency.
Mutual funds offer daily NAVs of schemes, which help you to monitor your
benchmarks, etc. They are also well regulated and Sebi monitors their
actions closely.
• Tax benefits.
You do not have to pay any taxes on dividends issued by mutual funds. You
also have the advantage of capital gains taxation. Tax-saving schemes and
pension schemes give you the added advantage of benefits under section 88.
• Affordability
Mutual funds allow you to invest small sums. For instance, if you want to
buy a portfolio of blue chips of modest size, you should at least have a few
lakhs of rupees. A mutual fund gives you the same portfolio for meager
debate over whether or not the so-called professionals are any better than
if the fund loses money, the manager still takes his/her cut. We'll talk about
• Costs - Mutual funds don't exist solely to make your life easier--all funds are
under layers of jargon. These costs are so complicated that in this tutorial we
our article entitled "Are You Over-Diversified?"). Because funds have small
investments often don't make much difference on the overall return. Dilution
is also the result of a successful fund getting too big. When money pours
into funds that have had strong success, the manager often has trouble
• Taxes - When making decisions about your money, fund managers don't
consider your personal tax situation. For example, when a fund manager
the individual is from the sale. It might have been more advantageous for the
Equity funds, if selected in the right manner and in the right proportion, have the
investors in different segments. While the selection process becomes much easier
if you get advice from professionals, it is equally important to know certain aspects
B a s e d o n S t r u c t u r e B a s e d o n I n v e s t m e n t O b j e c t iv
C lo s e E n d e O d p F e un n Ed ns d e d L Fo au dn dF s u n d Ns o L o a d F u n d s
I n t e r v a l F u n d s G r o w t h F u n I nd c s o m e F u n d s
B a l a n c e d FM u o n n d e s y M a r k e t F u n d s
O t h e r S c h e m e s
T a x S a v i n g S S p c e h c e i a m l eS s c h e m e s
I n d u s t r y s p e Ic n i f d i c e xS cS h c e h mSe me e c s e t os r a l S c h e m e s
Open-ended Funds
An open-end fund is one that is available for subscription all through the year.
These do not have a fixed maturity. Investors can conveniently buy and sell units at
Net Asset Value ("NAV") related prices. The key feature of open-end schemes is
liquidity.
Closed-ended Funds
A closed-end fund has a stipulated maturity period which generally ranging from 3
to 15 years. The fund is open for subscription only during a specified period.
Investors can invest in the scheme at the time of the initial public issue and
thereafter they can buy or sell the units of the scheme on the stock exchanges
where they are listed. In order to provide an exit route to the investors, some close-
ended funds give an option of selling back the units to the Mutual Fund through
periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least
Interval Funds
Interval funds combine the features of open-ended and close-ended schemes. They
are open for sale or redemption during pre-determined intervals at NAV related
prices.
Growth Funds
The aim of growth funds is to provide capital appreciation over the medium to
long- term. Such schemes normally invest a majority of their corpus in equities. It
has been proven that returns from stocks, have outperformed most other kind of
investments held over the long term. Growth schemes are ideal for investors
Income Funds
The aim of income funds is to provide regular and steady income to investors.
Such schemes generally invest in fixed income securities such as bonds, corporate
debentures and Government securities. Income Funds are ideal for capital stability
Balanced Funds
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. In
a rising stock market, the NAV of these schemes may not normally keep pace, or
fall equally when the market falls. These are ideal for investors looking for a
The aim of money market funds is to provide easy liquidity, preservation of capital
inter-bank call money. Returns on these schemes may fluctuate depending upon
the interest rates prevailing in the market. These are ideal for Corporate and
individual investors as a means to park their surplus funds for short periods.
Load Funds
A Load Fund is one that charges a commission for entry or exit. That is, each time
you buy or sell units in the fund, a commission will be payable. Typically entry
and exit loads range from 1% to 2%. It could be worth paying the load, if the fund
A No-Load Fund is one that does not charge a commission for entry or exit. That
These schemes offer tax rebates to the investors under specific provisions of the
Indian Income Tax laws as the Government offers tax incentives for investment in
and Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act,
1961. The Act also provides opportunities to investors to save capital gains u/s
54EA and 54EB by investing in Mutual Funds, provided the capital asset has been
sold prior to April 1, 2000 and the amount is invested before September 30, 2000.
Industry Specific Schemes invest only in the industries specified in the offer
Index Funds attempt to replicate the performance of a particular index such as the
Sectoral Schemes
group of industries or various segments such as 'A' Group shares or initial public
offerings.
Every year, millions of Indians entrust their savings to Unit Trust of India to build
up a financially secure future. This faith and confidence of investors stem from
UTI's commitment, as reflected in its long track record to ensure its investors,
Set up in 1964, by an Act of Parliament, UTI Act 1963, UTI has grown into one of
the biggest players and carved out a special position in the Indian capital
gross cost of less than 1.01 percent of invisible funds and does not charge any
Management:
Mr. S. Ravi
UTI is a symbol of trust and confidence among Indian investors. In the last seven
years, the number of schemes managed by UTI increased from 35 to 92, while
the number of unit holding accounts recorded a sevenfold increase from 65 lakhs
to over 450 lakhs. The mutual fund industry in India started in 1963 with the
formation of Unit Trust of India, at the initiative of the Government of India and
Reserve Bank the. The history of mutual funds in India can be broadly divided
It was set up by the Reserve Bank of India and functioned under the
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
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
1987 followed by Can bank Mutual Fund (Dec 87), Punjab National Bank
Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India
LIC established its mutual fund in June 1989 while GIC had set up its
At the end of 1993, the mutual fund industry had assets under
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.
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
industry now functions under the SEBI (Mutual Fund) Regulations 1996.
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.
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
One is the Specified Undertaking of the Unit Trust of India with assets
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 assets under management and with
the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund
Regulations
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
UTI's expanding product range cover a broad spectrum of investment goals and
includes open end and closed-end income and capital accumulation funds.
Among the most popular are Unit Scheme 1964 and Master series equity
and trusts.
for children.
investor's varying needs under a common umbrella, UTI has set up a number of
♦ UTI Bank Ltd (1994)--the first private sector bank to be set up under
RBI guidelines.
Consistent with financial sector deregulation, UTI has plans to enter insurance,
used. The former, though limited, has helped us give first hand
o Strategic importance has been given to both current and past trends
insight.
first, which is also the main objective of the project, is to reflect our
RESEARCH METHODOLOGY
following:
various primary and secondary sources. The choice of sample scheme will
be guided by the fact that a reasonable amount of information will available
• The methodology adopted for the completion of this project will be divided
• The first stage included understanding the Concept, Structure and policy
(related to Mutual funds) in the Indian mutual fund industry and Secondary
data for this purpose will be collected through various books on mutual
• The second stage included the input stage in which various types of
representatives of the companies. The financial and other relevant data will
• In the third stage all the gathered data will be arranged and tabulated to
arrive at the necessary conclusion. All the information was correlated into
determine the perception of the Indian investor towards the mutual funds.
• The last stage, i.e. the output stage included analyzing of the processed
information in to final findings and comparing the information with the data
of mutual fund companies and then arriving of final conclusions and policy
recommendations to UTI.
DATA
PRESENTATION,
ANALYSIS AND
INTERPRETATION
Standard Deviation
Beta
Alpha
Sharp ratio
Arithmetic mean
∑ Y/N
N- Number of observation
Standard deviation
S.D= √(y-Y) ²
S.D is used to measure the variability of return i.e. the variation between
BETA
Beta describes the relationship between the stock’s return and index
returns. There can be direct or indirect relation between stock’s return and
causes exactly one percent change in the stock return. It indicates that stock
2) Beta= + 0.5
compared to market.
3) Beta=2.0
percent change in the stock return. The stock return is more volatile. The
stocks with more than 1 beta value are considered to be very risky.
4) Negative beta value indicates that the stocks return move in opposite
Where
N- No of observation
ALPHA
Alpha = Y- beta(X)
Where
Alpha indicates that the stock return is independent of the market return.
A positive value of alpha is a healthy sign. Positive alpha values would yield
profitable return.
SHARPE RATIO
St= Ri --Rf
S.D
WHERE
risk premium of the portfolio relative to the total amount of risk in the
portfolio. The risk premium is the difference between the portfolio’s average
rate of return and the risk less rate of return. The standard deviation of the
Higher the value of sharpe ratio better the fund has performed. Sharpe
ratio can be used to rank the desirability of funds or portfolios. The fund that
has performed well comapred to other will be ranked first then the others.
BETA
A Beta is a measure of risk that, when applied to investment portfolios, provides
useful statistical information. It compares a mutual fund's volatility with that of a
benchmark. If the beta of the stock is 1, it means that the returns in the stock are
highly correlated to the benchmark index.
A fund with a beta greater than 1 is considered more volatile than the market; and a
fund with a beta less than 1 means less volatile.
COMPARATIVE ANALYSIS
0.9
0.85
BETA
0.8 BETA
0.75
0.7
UTI HDFC CAPITAL RELIANCE
BUILDER GROWTH
Funds
Most mainstream equity funds have Betas in the range of .85 to 1.05 (fairly
close to the 1.00 Beta represented by the market in the aggregate).
Especially conservative stock funds may register Betas as low as .75,
meaning that in a -10% market decline, their values might be expected to fall
-7.5%. Aggressive funds with Betas of 1.25 might see their values fall by
-12.5%.
We can see that the betas of nearly all the funds are similar apart from the
beta of Pru-ICICI Growth, which has a very high beta, which implies that
mid-cap and large cap betas also different. Large cap betas are more towards
market beta which implies that these funds have been more stable unlike mid
the skills of the investment manager, as distinct from the return of the market as a
whole.
know how much of the return was attributable to the market as a whole, and how
much due to the manager's ability to select stocks. Value Added by Fund Manager
(or alpha) indicates the return that is not attributable to the market, or in other
words the added value the manager achieved over and above the result of the
market.
COMPARATIVE ANALYSIS:
A fund manager who reduces risks by booking profits has also to be careful in
reinvesting. If the reinvesting is badly managed, the returns may not be superior.
Then, despite a lower beta, the performance may be flat. The measure `Alpha'
indicates the value added by a fund manager.
Comparison Chart
3
2.5
2
ALPHA
1.5 ALPHA
1
0.5
0
UTI HDFC CAPITAL RELIANCE
BUILDER GROWTH
Funds
SECTOR ALLOCATION
the risk.
Equity
the allocation in top few sectors. Depending on the objective of the mutual
fund
the different mutual funds can be compared. Most funds have adequate
STANDARD DEVIATION
The total risk of a given fund is measured in terms of standard deviation of returns
of the fund. Standard Deviation is a measure of scattering of the values about the
average (mean) value. It tells us how much the values have deviated from the mean
of the values. It is calculated by using returns of the scheme i.e. the Net Asset
Value (NAV), and is a measure of the dispersion of the scheme's return around its
average return.
Comparison Chart
8
7.8
7.6
7.4
7.2
S>D.
7 STANDARD DEVIATION
6.8
6.6
6.4
6.2
6
UTI HDFC RELIANCE
CAPITAL GROWTH
BUILDER
Funds
COMPARATIVE ANALYSIS
When used in relation to mutual funds, it tells about the volatility of the scheme.
The higher is the value, the more volatile are the returns and vice versa.
In the large cap funds the highest standard deviation is of reliance vision,
reliance vision falls in the category of high risk and high return.
Meanwhile the standard deviation of the Franklin India Blue chip is the
lowest, this fund is considered as one of the most stable returns giving fund.
However in the mid cap fund the highest standard deviation is of Franklin
India Prima. This is because Franklin India prima has lately changed its
SHARPE RATIO
Sharpe ratio, worked by Nobel Laureate Bill Sharpe, tries to quantify how a fund
performs relative to the risk it takes. It is a ratio of returns generated by the fund
over and above risk free rate of return and the total risk associated with it (standard
SI =
( Ri − Rf )
σ
INTERPRETATION
As FII’s have entered Indian markets Sensex have crossed 10000 mark and
investors have earned a lot in last financial year. Indians are becoming aware of
various investment options. People have started taking risk as they want to book
profits. Investors prefer more equity schemes than debt schemes, around 60% of
the investors invest in equity schemes and balanced schemes. Investors want to
take risk as they want to yield better returns. Investors want high returns, liquidity,
safety and tax benefit. Among all investors gives want to have safety for their
money. Around 91% of the investors prefer open ended schemes rather than close
the availability of funds that the investor wants to invest in SIP or as lump sum.
Some of the investors invest in both ways i.e. through SIP as well as lump sum.
Basically it depends upon the availability of fund. When questions were asked
about the performance of mutual funds in future 50% of investors said strong
future, 35% of the investors said very strong future and 15% of the investors said
moderate future.
Recommendations:
funds.
3) It is seen from the analysis that most of the people in India specifically Delhi
have no idea of Mutual Funds. This showed the low awareness level among
the people of Delhi about the Mutual Funds therefore I recommend that there
is need for better marketing of Mutual Funds and specifically target investors
who invest in stock markets and small investors who prefer banks for their
Funds.
4) It is recommended that the Asset Management Companies (AMC) more
specifically UTI should come up with new Mutual Fund schemes which focus
from the analysis that most of the investors are not confident of the safety and
security of their investments in Mutual Funds especially after the UTI Scam in
India.
Companies) specifically UTI provide reliable and more true and transparent
only if they are given more reliable information. It is also recommended that
(AMC) more specifically UTI are able to provide that return they can attract
more investors.
7) In the near future, a large number of new companies and schemes are soon
going to be launched which will increase the variety for investor and will lead
performance.
8) The capital market has been growing by leaps and bounds. Thus the stock
market in India is on the right track and there will be major improvements in
the near future This expansion will act as an impediment to the small
investors who either has the option to play the market or to have the
companies. Their mutual funds will form a favorable alternative provided there
periods and are looking for steady returns. On the contrary, when they invest
for long periods, they prefer to go for equity based funds as it is seen that in
the long period, equity funds out-perform debt funds. This money is either
from their capital gains or for some specific purpose in the future like their
• Business Investors invest a lot in the end of June when Mutual Funds are
close to declaring dividends. This is because this gets them the benefit of
purchase.
2. The business buys the Mutual Fund units at this price and dividends
3. Then after the cool off period when the Mutual Fund opens, the NAV
per unit is Rs. 16.00 per unit (Rs. 20.00 – Rs. 4.00 dividend declared).
4. The business then sells off the units at Rs. 16.00 per unit and claims
capital looses to the tune of Rs. 4.00 per unit, which can be used by
5. This actually is not a capital loss as that amount has already been
• In India, the trend is that investors invest when there is a boom in the stock
contrary to how the system works abroad as there investments take place
in the slump period when greater units can be purchased with same
expect the market to go up by Diwali (Indian festival) and New Years and
also expect consumer awareness and interest to improve. Efforts are being
this would result in major increase in their collections and of the industry as
a whole. Also a large number of new companies and schemes are soon
going to be launched which will increase the variety for consumers and
competition.
BIBLIOGRAPHY:
• www.utimutualfund.com
• www.amfiindia.com
• www.bseindia.com
• www.nseindia.com
Reference books:
• Security analysis & portfolio management
- Punithavathy Pandian
- Donald E. Fischer
- Ronald J. Jordan
• Business Statistics
- G.C. Beri
- S P Gupta.