1.

What is mutual fund, Mutual fund scenario in India, Different types of Mutual Fund,
KYC requirement?

MUTUAL FUND

A mutual fund is formed when capital collected from different investors is invested in company
shares, stocks or bonds. Shared by thousands of investors (including you), a mutual fund is
managed collectively to earn the highest possible returns. The person driving this investment
vehicle is a professional fund manager.

MUTUAL FUND SCENARIO IN INDIA

TYPES OF MUTUAL FUND

1. Equity Funds

Equity funds invest money collected from individual investors into shares of different companies.
When the price of the share rises, the investors make a profit and vice versa.
Equity funds are suitable for those who stay invested for a long time and who have a higher risk
appetite.

2. Debt Funds

Debt funds invest in fixed income government securities like treasury bills and bonds or reputed
corporate deposits. It is less risky than equities.
Debt funds are suitable for people who are risk-averse and looking at a short investment
horizon.
 3. Balanced or hybrid funds

As the name suggests, balanced funds invest in both equity and fixed income funds to balance
the risks and maintain a certain return rate.
The fund manager decides the ratio to reap the best of both.

4. Money market fund

Money market mutual funds (MMMF) are short-run liquid investments which invest in high
quality money market instruments. It provides investors with reasonable returns along with good
liquidity over a period of up to 1 year.

KYC MUTUAL FUND

Complying with the Know Your Customer or KYC norms is mandatory for every mutual fund's
investor. It is important for an investor to submit their identity details to the mutual fund houses.
AMC's are required to formulate rules and implement a customer identification program in
accordance with the Prevention of Money laundering Act, 2002 (PMLA). These rules and
regulation gets updated and is issued by SEBI from time to time. The KYC process is free for
the investors.

What are all documents required?

Firstly, you need to get a KYC form which you can download from the various website. You can
also ask for the form from a broker or an agent if you are dealing with any of them. After filling
up the form, you need to provide self-attested copies of the following documents along with it
you need to carry originals for In-person verification.

 Proof of identity
 Proof of Address
 PAN Card
 Photograph
 Aadhaar Card, if required
1. Please summarize the return of the top 5 mutual fund in your category with time
horizon of 1 year, 3 year and 5 years.

Return of top 5 mutual fund

YEAR 1

FUND RANKING RETURN

Mirae Assets Emerging Blue-chip Fund 1/22 11.34

Sundaram Large and Mid Cap Fund 2/22 7.37

Invesco India Growth Opportunities Fund 3/22 7.35

Kotak Equity Opportunities Fund - Regular Plan 4/22 6.66

Essel Large & Midcap Fund 5/22 6.48

YEAR 3

FUND RANKING RETURN

Mirae Assets Emerging Blue-chip Fund 1/20 20.88

Canara Robeco Emerging Equities Fund 2/20 18.34

Principal Emerging Bluechip Fund 3/20 17.02

LIC MF Large & Mid Cap Fund 4/20 16.7

Sundaram Large and Mid Cap Fund 5/20 16.19

 YEAR 5

FUND RANKING RETURN

Mirae Assets Emerging Blue-chip Fund 1/18 26.03

Canara Robeco Emerging Equities Fund 2.18 25.39

Principal Emerging Bluechip Fund 3/18 21.72

Sundaram Large and Mid Cap Fund 4/18 18.12

DSP Equity Opportunities Fund 5/18 17.39

2. Explain each ratio in detail

SHARPE RATIO

The Sharpe ratio was developed by Nobel laureate William F. Sharpe and is used to help
investors understand the return of an investment compared to its risk. The ratio is the average
return earned in excess of the risk-free rate per unit of volatility or total risk.
Subtracting the risk-free rate from the mean return allows an investor to better isolate the profits
associated with risk-taking activities. Generally, the greater the value of the Sharpe ratio, the
more attractive the risk-adjusted return.

SORTINO RATIO

The Sortino ratio is a variation of the Sharpe ratio that differentiates harmful volatility from total
overall volatility by using the asset's standard deviation of negative portfolio returns, called
downside deviation, instead of the total standard deviation of portfolio returns.

The Sortino ratio takes an asset or portfolio's return and subtracts the risk-free rate, and then
divides that amount by the asset's downside deviation. The ratio was named after Frank A.
Sortino.

ALPHA

Alpha measures the difference between a fund's actual returns and its expected performance,
given its level of risk (as measured by beta). A positive alpha figure indicates the fund has
performed better than its beta would predict. In contrast, a negative alpha indicates a fund has
underperformed, given the expectations established by the fund's beta. Some investors see
alpha as a measurement of the value added or subtracted by a fund's manager. There are
limitations to alpha's ability to accurately depict a manager's added or subtracted value.

BETA

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.
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 is theoretically 20
percent more volatile than the market.

Summarize the performance of top 5 mutual fund in your category on the basis of
Sharpe, Sortino, Beta and Alpha,
 FUND RANKING SHARPE SORTINO BETA ALPHA

Mirae Assets Emerging Blue-chip Fund 1/21 1 1.46 0.96 3.85

Invesco India Growth Opportunities Fund 2/21 0.93 1.41 0.91 2.69

Canara Robeco Emerging Equities Fund 3/21 0.91 1.32 1.08 2.85

Sundaram Large and Mid Cap Fund 4/21 0.86 1.13 0.85 1.6

Kotak Equity Opportunities Fund 5/21 0.85 1.47 0.88 1.5

3. Explain Benchmark, its importance, rational for choosing the used benchmark

BENCHMARK
An unmanaged group of securities whose performance is used as a standard to
measure investment performance, commonly known as a market index. Some well-
known benchmarks are the BSE Sensex and NSE Nifty.

Importance of Benchmarking

The funds are impacted by the rise and fall of the market. If a diversified equity fund, xyz,
is benchmarked against the Sensex then the returns of the xyz funds will be compared
to the performance of the Sensex. When the market is faring well and the movement of
the Sensex is headed upwards, then it is imperative that a well-managed fund deliver
good returns.
Example:

Assume that the Sensex rises by 14 percent and your xyz fund’s Net Asset Value (NAV)
also grows by 12 percent in the same year, it means that your fund has outperformed
the benchmark. But if the NAV of your funds had risen only 8 percent while the Sensex
grew by 14 percent, it would mean that your fund underperformed its benchmark.

In short, if your fund performs better than the Sensex then it means that it has
outperformed the benchmark, and vice-versa. If one the other hand the Sensex fell 10
percent and during the same period your fund’s NAV declined by 4 percent, it means
that your fund outperformed the benchmark.

Rational for choosing the used benchmark

The performance measurement process begins with the selection of an appropriate

benchmark (ex ante) that will be subsequently used (ex post) to assess the performance
of a portfolio. The benchmark must be investable, accessible, independent, and relevant.
Benchmarks can be based on indexes (e.g., FTSE 100, the S&P 500, the Barclays
Capital Aggregate Bond Index), peer groups (a portfolio that contains the same types of
securities as the designated portfolio), or based on target returns (e.g., the risk-free rate,
inflation plus, funding requirements).

Comparison of each fund with benchmark with suitable charts and diagram

Mirae Assets Emerging Blue-chip Fund

h
YTD 1-Month 3-Month 1-Year 3-Year 5-Year
u
i
i Fund 4.24 7.76 4.83 10.47 20.88 26.03
k
iS&P BSE
k Large
250
i Midcaps 4.48 7.75 3.77 10.34 16.54 15.20
k TRI

INVESCO India Growth Opportunities Fund

YTD 1-Month 3-Month 1-Year 3-Year 5-Year

Fund 6.20
2.80 4.27 7.35 15.86 16.26

S&P BSE
250 Large
Midcaps 1.92 4.94 3.75 6.37 15.04 15.70
65:35 TRI

Canara Robeco Emerging Equities Fund

YTD 1-Month 3-Month 1-Year 3-Year 5-Year

Fund 3.83 6.06 4.85 3.20 18.34 25.39

S&P
BSE 250
Large 4.48 7.75 3.77 10.34 16.54 15.20
Midcaps
TRI

Sundaram Large and Mid Cap Fund

YTD 1-Month 3-Month 1-Year 3-Year 5-Year

Fund 0.43 4.35 2.51 7.33 15.66 17.65

S&P
BSE 3.08 4.57 4.97 10.78 15.26 14.32
200 TRI

Kotak Equity Opportunities Fund

YTD 1-Month 3-Month 1-Year 3-Year 5-Year

Fund 3.82 5.52 5.60 6.89 14.63 16.59

S&P BSE
200 TRI 3.08 4.57 4.97 10.78 15.26 14.32

4. Choose the 2 suitable mutual funds from top 5 funds on the basis of at least two
Suitable ratio. Also define those ratios and their importance in choosing the
suitable fund.

Two mutual funds selected out of 5 mutual fund on bases of Sharpe and Sortino ratio

FUND SHARPE SORTINO

Mirae Assets Emerging Blue-chip 1.00 1.46

Fund

FUND SHARPE SORTINO

Invesco India Growth Opportunities 0.93 1.41

Fund

Sharpe ratio
The Sharpe ratio was developed by Nobel laureate William F. Sharpe and is used to help
investors understand the return of an investment compared to its risk. The ratio is the average
return earned in excess of the risk-free rate per unit of volatility or total risk.

Subtracting the risk-free rate from the mean return allows an investor to better isolate the profits
associated with risk-taking activities. Generally, the greater the value of the Sharpe ratio, the
more attractive the risk-adjusted return.

Reason for choosing sharpe ratio

1. Sharpe ratio is one of the most important tools to measure the performance of any fund
or investment.
2. The investors get the real benefit using this ratio. Based on the Sharpe ratio, the
investor can determine whether the fund meets his requirements or not.
3. The ratio is used all over the globe and investors should use it for their benefit.
4. Sharpe ratio helps in getting the right analysis of the funds and enhancing the returns on
investment.

SORTINO RATIO

The Sortino ratio is a variation of the Sharpe ratio that differentiates harmful volatility from total
overall volatility by using the asset's standard deviation of negative portfolio returns, called
downside deviation, instead of the total standard deviation of portfolio returns.

The Sortino ratio takes an asset or portfolio's return and subtracts the risk-free rate, and then
divides that amount by the asset's downside deviation. The ratio was named after Frank A.
Sortino.

Reason for choosing Sortino ratio

1. The Sortino ratio is used to score a portfolio's risk-adjusted returns relative to an

investment target using downside risk.
2. This is analogous to the Sharpe ratio, which scores risk-adjusted returns relative to the
risk-free rate using standard deviation.
3. When return distributions are near symmetrical and the target return is close to the
distribution median, these two measure will produce similar results. As skewness
increases and targets vary from the median, results can be expected to show

5. Define portfolio concentration, its importance.

 Portfolio concentration looks at the share of the top holdings of a portfolio as a
proportion to the total. A higher share indicates higher concentration. A lower share of
the top few instruments indicates that a portfolio’s holding is diffused. There isn’t a strict
definition of what level is high and low. Generally, if a fund’s top five or top ten securities
make up about 45-50% (or more) of its portfolio, then it is concentrated. It’s a diffused
portfolio when the top ten securities account for less than 40%.

Funds cannot go to any concentration extent they like. By SEBI regulations, an equity
and debt fund cannot invest more than 10% of its portfolio in a single stock/ debt
instrument. It can go up to 12% after trustee approval Further, a debt fund cannot have
more than 25% of its portfolio exposed to a single sector. A leeway of up to 15% above
this limit is allowed for housing finance companies.

It’s not just in individual securities that portfolios can be concentrated. Funds that hold
high weights to a particular sector are also concentrated. In equity funds, for example,
individual sectors can make up over 30% of portfolios. Such funds generally hold several
stocks within a concentrated sector.

Importance of concentrated portfolio

Concentration risk holds for both equity-oriented and debt-oriented funds. Concentration
of a portfolio in a few stocks or instruments means that a fund is very dependent on
those few instruments to deliver returns. While the fund would hold other securities,
these would not help push returns much. Because of this dependency, if even a couple
of those calls go sour, the hit on the fund’s returns can be severe. Why then would a
fund hold a concentrated portfolio? Because the opposite can also happen. Those
outsized bets can deliver outsized returns. Therefore, a concentrated strategy usually
indicates a higher risk strategy.

5. Analyze the portfolio of chosen fund on the basis of following parameters

a. Portfolio Concentration in terms of Market Cap

Mirae Assets Emerging Blue-chip Fund

Fund Benchmark* Category

Average Mkt Cap (Rs Cr) 45,724.37 - 55,185.80

Giant (%) 36.28 - 41.04

Large (%) 18.8 - 14.31

Mid (%) 39.35 - 42.38

Small (%) 5.57 - 4.72

Tiny (%) - - 0.31

b. Portfolio Concentration in terms of Sector Allocation

Mirae Assets Emerging Blue-chip Fund

a. Portfolio Concentration in terms of Market Cap

INVESCO India Growth Opportunities Fund

Fund Benchmark* Category

Average Mkt Cap (Rs Cr) 69,342.77 - 55,185.80

Giant (%) 47.6 - 41.04
Large (%) 11.3 - 14.31
Mid (%) 40.74 - 42.38
Small (%) 0.37 - 4.72
Tiny (%) - - 0.31

b. Portfolio Concentration in terms of Sector Allocation

INVESCO India Growth Opportunities Fund

a. Portfolio Concentration in terms of Market Cap

Canara Robeco Emerging Equities Fund

Fund Benchmark* Category

Average Mkt Cap (Rs Cr) 58,288.84 - 59,151.86

Giant (%) 39.39 - 42.62

Large (%) 12.1 - 10.26

Mid (%) 42.24 - 41.5

Small (%) 6.27 - 5.23

Tiny (%) - - 0.77

b. Portfolio Concentration in terms of Sector Allocation

Canara Robeco Emerging Equities Fund

a. Portfolio Concentration in terms of Market Cap

 Sundaram Large and Mid Cap Fund

Fund Benchmark Category

Average Mkt Cap (Rs Cr) 55,925.98 268,917.66 55,185.80

Giant (%) 34.29 66.1 41.04

Large (%) 24.95 20.52 14.31

Mid (%) 40.75 13.1 42.38

Small (%) - 0.28 4.72

Tiny (%) - - 0.31

b. Portfolio Concentration in terms of Sector Allocation

a. Portfolio Concentration in terms of Market Cap

 Kotak Equity Opportunities Fund

Fund Benchmark Category

Average Mkt Cap (Rs Cr) 51,717.44 268,917.66 55,185.80

Giant (%) 37.44 66.1 41.04

Large (%) 12.54 20.52 14.31

Mid (%) 45.1 13.1 42.38

Small (%) 4.92 0.28 4.72

Tiny (%) - - 0.31

b. Portfolio Concentration in terms of Sector Allocation

6.