LIST OF TABLES

Tables Title of the Tables Page No

1 Data from Financial Websites 67,71,75,79,83
2 Data from Factsheets 67,71,75,79,83
3 Riskometer 57

1
 INTRODUCTION

Securities Exchange Board of India (Mutual Fund) Regulations, 1996 as amended till date define
“mutual fund” as “a fund established in the form of a trust to raise monies through the sale of
units to the public or a section of the public under one or more schemes for investing in securities
including money market instruments or gold or gold-related instruments or real estate assets.” In
a mutual fund, the fund manager, who is also well-known as the portfolio manager, trades the
fund‟s underlying securities, realizing capital gains or losses and collects the dividend or interest
income. The returns are in return shared to the investors (unit holders). The price of a share of
the mutual fund is known as the net asset value (NAV). NAV is calculated as the total value of
the mutual fund divided by the number of outstanding units currently issued this is calculated on
daily basis. SEBI has stipulated the legal structure under which mutual funds in India need to be
constituted. The structure, which has inherent checks and balances to protect the interests of the
investors, can be briefly described as follows:

1. Mutual funds are constituted as Trusts. Therefore, they are governed by the Indian Trusts
Act, 1882.
2. The mutual fund trust is created by one or more Sponsors, who are the main persons behind
the mutual fund business.
3. Every trust has beneficiaries. The beneficiaries, in the case of a mutual fund trust, are the
investors who invest in various schemes of the mutual fund.
4. The operations of the mutual fund trust are governed by a Trust Deed, which is executed
between the sponsors and the trustees. SEBI has laid down various clauses that need to be
part of the Trust Deed.
5. The Trust acts through its trustees. Therefore, the role of protecting the interests of the
beneficiaries (investors) is that of the Trustees. The first trustees are named in the Trust
Deed, which also prescribes the procedure for change in Trustees.
6. In order to perform the trusteeship role, either individuals may be appointed as trustees or a
Trustee company may be appointed. When individuals are appointed trustees, they are jointly
referred to as „Board of Trustees‟. A trustee company functions through its Board of
Directors.

2
7. Day to day management of the schemes is handled by an Asset Management Company
(AMC). The AMC is appointed by the sponsor or the Trustees.
8. The trustees execute an investment management agreement with the AMC, setting out its
responsibilities.
9. Although the AMC manages the schemes, custody of the assets of the scheme (securities,
gold, gold-related instruments & real estate assets) is with a Custodian, who is appointed by
the Trustees.
10. Investors invest in various schemes of the mutual fund. The record of investors and their
unit-holding may be maintained by the AMC itself, or it can appoint a Registrar & Transfer
Agent (RTA).
From the last few years Mutual Fund industry has emerged as a tool for ensuring one„s
financial interests. Mutual Funds have not only contributed to the Indian economy but have
also helped to the retail investors to accumulate wealth.
As Investors are becoming more information oriented and are well aware about their
investment options they prefer the benefits of investment in mutual funds. Due to increase in
household savings and improvement in deployment of investment through various markets,
the scope for mutual fund industry has increased tremendously. In this perspective, it
becomes significant to study the performance of the selected mutual funds.

3
ORGANISATIONAL STRUCTURE OF MUTUAL FUNDS

SEBI SPONSORS

TRUSTEES

Asset
CUSTODIAN
Management
Company

Registrar & Transfer

Agent (RTA).

4
 SCOPE OF THE STUDY

The main purpose of doing this project was to know about mutual funds and its functioning. This
helps to know the details about mutual fund industry right from its inception stage, growth and
future prospects. It also helps in understanding different schemes of mutual funds. Because my
study depends upon prominent funds in India and their schemes like Equity Funds (Large cap,
Mid cap, Small cap, Multi cap, Value Fund).

The present study has undertaken to observe the risk and ranking analysis associated with mutual
fund schemes associated with EQUITY FUNDS. The scope of study consists 9 mutual funds
companies‟ schemes involved in investing diversified sectors like financial, energy, automobile,
infrastructure, textile, etc.

5
 OBJECTIVE OF THE STUDY

This study focuses on the performance evaluation of selected equity mutual fund schemes of
various mutual funds functioning in the India. The specific objectives of the study are as follows:
1. To know about concept & types of Mutual funds in detail.
2. To evaluate the performance of selected open-ended Equity Mutual fund schemes.
3. To carry out the risk analysis & ranking of the Mutual funds selected.
4. To identify the best performed Mutual fund in Large cap, Mid cap, Small cap, Multi cap,
Value Fund.

6
METHODOLOGY:

A Methodology is a systematic procedure of collecting information in order to analyses and

verifies a phenomenon. The collection of information has been through two principle sources.
They are:
a) Primary data
b) Secondary data

PRIMARY DATA:
Primary Data is that which has not been previously published and is collected by the investigator
Conducting the research. It is information that is obtained directly from first-hand sources by
means of surveys, observation or experimentation.

SECONDARY DATA:
The data that has been collected by some other source and is readily available is termed as
Secondary data. Common sources of secondary data for social science include censuses,
organizational records and data collected through qualitative methodologies or qualitative
research.

METHOD OF COLLECTION OF DATA:

The source of data has been collected through by various websites and Factsheets of respected
companies & websites like www.valueresearchonline.com,www.moneycontrol.com,
www.amfiindia.com, www.ibef.org, www.nism.ac.im.

7
 LIMITATIONS OF THE STUDY

1. Selection of the schemes for the study is also a very difficult task because of the wide variety
of schemes.

2. The present study is limited to selected mutual funds.

3. Past performance may not guarantee the future return.

4. The data collection here in this project is strictly confined to the secondary sources.

8
ABOUT THE INDUSTRY:

 The mutual fund industry has been in India for a long time. This came into existence in 1963
with the establishment of Unit Trust of India, a joint effort by the Government of India and
the Reserve Bank of India. The next two decades from 1986 to 1993 can be termed as the
period of public sector funds with entry of new public-sector players into the mutual fund
industry namely, Life Insurance Corporation of India and General Insurance corporation of
India.
 The year of 1993 marked the beginning of a new era in the Indian mutual fund industry with
the entry of private players like Morgan Stanley, J.P Morgan, and Capital International. This
was the first time when the mutual fund regulations came into existence. SEBI (Security
Exchange Board of India) was established under which all the mutual funds in India were
required to be registered. SEBI was set up as a governing body to protect the interest of
investor. By the end of 2008, the number of players in the industry grew enormously with 46
fund houses functioning in the country.
 The mutual fund industry is considered as one of the most dominant players in the world
economy and is an important constituent of the financial sector and India being no exception.
 The industry has witnessed startling growth in terms of the products and services offered,
returns churned, volumes generated and the international players who have contributed to
this growth.
 Today the industry offers different schemes ranging from equity and debt to fixed income
and money market.
 The market has graduated from offering plain vanilla and equity debt products to an array of
diverse products such as gold funds, exchange traded funds (ETF‟s), and capital protection-
oriented funds and even thematic funds. In addition, investments in overseas markets have
also, been a significant step.
 Due credit for this evolution can be given to the regulators for building an appropriate
framework and to the fund houses for launching such different products. All these reasons
have encouraged the traditional conservative investor, from parking fund in fixed deposits
and government schemes to investing in other products giving higher returns.

9
 It is interesting to note that the major benefits of investing in mutual funds are to capitalize
on the opportunity of a professionally managed fund by a set of fund managers who apply
their expertise in investment. This is beneficial to the investors who may not have the
relevant knowledge and skill in investing. Besides investors have an opportunity to invest in
a diversified basket of stocks at a relatively low price. Each investor owns a portion of the
fund and hence shares the rise and fall in the value of the fund. A mutual fund may invest in
stocks, cash, bonds or a combination of these.
 Mutual funds are considered as one of the best available investment options as compare to
others alternatives. They are very cost efficient and also easy to invest in. The biggest
advantage of mutual funds is they provide diversification, by reducing risk; maximizing
returns.
 Further tapping rural markets in India will benefit mutual fund companies from the growth in
Agriculture and allied sectors. With subsequent easing of regulations, it is estimated that the
mutual fund industry will grow at a rate of 30% - 35% in the next 3 to 5 years and reach US
300 billion by 2015.

10
 GROWTH OF MUTUAL FUND

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 of India. The history of mutual funds in
India can be broadly divided into four distinct phases.
FIRST PHASE - 1964-1987
The Mutual Fund industry in India started in 1963 with formation of UTI in 1963 by an Act of
Parliament and functioned under the Regulatory and administrative control of the Reserve Bank
of India (RBI). 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. Unit Scheme
1964 (US ‟64) was the first scheme launched by UTI. At the end of 1988, UTI had ₹ 6,700 crores
of Assets Under Management (AUM).
SECOND PHASE - 1987-1993 (Entry of Public Sector Funds)
The year 1987 marked the entry of 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 Can
bank Mutual Fund (Dec. 1987), Punjab National Bank Mutual Fund (Aug. 1989), Indian Bank
Mutual Fund (Nov 1989), Bank of India (Jun 1990), Bank of Baroda Mutual Fund (Oct. 1992).
LIC established its mutual fund in June 1989, while GIC had set up its mutual fund in December
1990. At the end of 1993, the MF industry had assets under management of ₹47,004 crores.
THIRD PHASE - 1993-2003 (Entry of Private Sector Funds)
The Indian securities market gained greater importance with the establishment of SEBI in April
1992 to protect the interests of the investors in securities market and to promote the development
of, and to regulate, the securities market.
In the year 1993, the first set of SEBI Mutual Fund Regulations came into being for all mutual
funds, except UTI. The erstwhile Kothari Pioneer (now merged with Franklin Templeton MF)
was the first private sector MF registered in July 1993. With the entry of private sector funds in
1993, a new era began in the Indian MF industry, giving the Indian investors a wider choice of
MF products. The initial SEBI MF Regulations were revised and replaced in 1996 with a
comprehensive set of regulations, viz., SEBI (Mutual Fund) Regulations, 1996 which is currently
applicable.

11
The number of MFs increased over the years, with many foreign sponsors setting up mutual
funds in India. Also, the MF industry witnessed several mergers and acquisitions during this
phase. As at the end of January 2003, there were 33 MFs with total AUM of ₹1,21,805 crores,
out of which UTI alone had AUM of ₹44,541 crores.

FOURTH PHASE - Since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963, UTI was bifurcated
into two separate entities, viz., the Specified Undertaking of the Unit Trust of India (SUUTI) and
UTI Mutual Fund which functions under the SEBI MF Regulations. With the bifurcation of the
erstwhile UTI and several mergers taking place among different private sector funds, the MF
industry entered its fourth phase of consolidation.
Following the global melt-down in the year 2009, securities markets all over the world had
tanked and so was the case in India. Most investors, who had entered the capital market during
the peak, had lost money and their faith in MF products was shaken greatly. The abolition of
Entry Load by SEBI, coupled with the after-effects of the global financial crisis, deepened the
adverse impact on the Indian MF Industry, which struggled to recover and remodel itself for over
two years, in an attempt to maintain its economic viability which is evident from the sluggish
growth in MF Industry AUM between 2010 to 2013.

FIFTH (CURRENT) PHASE- Since May 2014

Taking cognizance of the lack of penetration of MFs, especially in tier II and tier III cities, and
the need for greater alignment of the interest of various stakeholders, SEBI introduced several
progressive measures in September 2012 to "re-energize" the Indian Mutual Fund industry and
increase MFs‟ penetration. In due course, the measures did succeed in reversing the negative
trend that had set in after the global melt-down and improved significantly after the new
Government was formed at the Center. Since May 2014, the Industry has witnessed steady
inflows and increase in the AUM as well as the number of investor folios (accounts).
The Industry‟s AUM crossed the milestone of 10 Trillion (10 Lakh Crore) for the first time as on
31st May 2014 and in a short span of two years the AUM size has crossed 15 lakh crore in July
2016.The overall size of the Indian MF Industry has grown from ₹3.26 trillion as on 31st March
2007 to 15.63 trillion as on 31st August 2016, the highest AUM ever and a five-fold increase in a
12
span of less than 10 years!!In fact, the MF Industry has more doubled its AUM in the last 4 years
from 5.87 trillion as on 31st March, 2012 to 12.33 trillion as on 31st March, 2016 and further
grown to 15.63 trillion as on 31stAugust 2016.The no. of investor folios has gone up from 3.95
crore folios as on 31-03-2014 to 4.98 crore as on 31-08-2016.On an average 3.38 lakh new folios
are added every month in the last 2 years since Jun 2014.
The growth in the size of the Industry has been possible due to the twin effects of the regulatory
measures taken by SEBI in re-energizing the MF Industry in September 2012 and the support
from mutual fund distributors in expanding the retail base.
MF Distributors have been providing the much-needed last mile connect with investors,
particularly in smaller towns and this is not limited to just enabling investors to invest in
appropriate schemes, but also in helping investors stay on course through bouts of market
volatility and thus experience the benefit of investing in mutual funds.
In fact, even though FY 2015-16 was not a very good year for the Indian securities market, the
MF Industry witnessed steady positive net inflows month after month, even when the FIIs were
pulling out in a big way. This was largely because of the „hand-holding‟ of the investors by the
MF distributors and convincing them to stay invested and/or invests at lower NAVs when the
market had fallen.
MF distributors have also had a major role in popularizing Systematic Investment Plans (SIP)
over the years. In April 2016, the no. of SIP accounts has crossed 1 crore mark and currently
each month retail investors contribute around 3,500 crore via SIPs.

13
MUTUAL FUND INDUSTRY IN INDIAN MARKET:

The Indian mutual fund (MF) industry witnessed an addition of around 2.2 million new investors
during 2014-15. The total number of investors stood at 4.17 crore at the end of the 12-month
period in March 2015 as compared to 3.95 crore at the end of March 2014 registering a growth
of 5.54 per cent. The growth in the number of investors in the Rs 12 trillion (US$ 187.17 billion)
sector is largely concentrated around the top five asset management companies (AMCs) – HDFC
Mutual Fund, ICICI Prudential, Birla Sun Life, Reliance MF and UTI MF.
With close to a total of 44 fund houses in the country, the top five companies account for close to
80 per cent of the sector's assets under management (AUM). ICICI Prudential registered the
fastest growth of 25 per cent with the total investor base at 33.59 lakh followed by Birla Sun Life
with growth of 20 per cent to 24.26 lakh from 20.19 lakh investors. HDFC MF, the country's
largest fund house with an AUM of Rs 1.61 trillion (US$ 2.5 billion), saw growth of 15 per cent
in its customer base to 52.1 lakh, adding a little more than 7 lakh new investors.
According to another recent report, Reliance MF led the growth of retail equity AUM at 119 per
cent during the previous fiscal, followed by ICICI Prudential at 76 per cent and Birla Sun Life at
72 per cent. HDFC MF grew its retail equity AUM by 45 per cent and UTI by 39 per cent during
the period.
The large growth witnessed during the previous fiscal signal towards the upbeat domestic
investor sentiment in the country. On the other hand, with the large investor base concentrating
with the top five companies, it is evident that Indian consumers are only willing to take market
risks with companies that have a strong brand equity and a positive past track record.
The asset base of the mutual fund industry in the country is expected to grow faster at 18.6
percent per annum to cross Rs 20 trillion (US$ 325 billion) by 2018 with an investor base of 10
crore accounts. With the total investor base still at a low level of 2 per cent out of the total
domestic population, there are ample growth opportunities available in the domestic mutual fund
industry.

14
MAJOR MUTUAL FUND COMPANIESIN INDIA

The below funds are arranged based on the percentage of AUM

1. ICICI Prudential Mutual Fund

2. HDFC Mutual Fund

3. Aditya Birla Sun Life Mutual Fund

4. Reliance Mutual Fund

5. SBI Mutual Fund

6. UTI Mutual Fund

7. Kotak Mahindra Mutual Fund

8. Franklin Templeton Mutual Fund

9. DSP BlackRock Mutual Fund

10. Axis Mutual Fund

11. IDFC Mutual Fund

12. L&T Mutual Fund

13. Tata Mutual Fund

14. Sundaram Mutual Fund

15. Invesco Mutual Fund

16. DHFL Pramerica Mutual Fund

17. LIC Mutual Fund

18. Motilal Oswal Mutual Fund

19. JM Financial Mutual Fund

20. Mirae Asset Mutual Fund

15
21. Baroda Pioneer Mutual Fund

22. Canara Robeco Mutual Fund

23. Edelweiss Mutual Fund

24. IDBI Mutual Fund

25. Indiabulls Mutual Fund

26. HSBC Mutual Fund

27. BNP Paribas Mutual Fund

28. PRINCIPAL Mutual Fund

29. BOI AXA Mutual Fund

30. Union Mutual Fund

16
LATEST DEVELOPMENTS: (SEBI CIRCULAR ON MUTUAL FUNDS)

Categorization and Rationalization of Mutual Fund Schemes

1. It is desirable that different schemes launched by a Mutual Fund are clearly distinct in terms of
asset allocation, investment strategy etc. Further, there is a need to bring in uniformity in the
characteristics of similar type of schemes launched by different Mutual Funds. This would
ensure that an investor of Mutual Funds is able to evaluate the different options available, before
taking an informed decision to invest in a scheme.
2. In order to bring the desired uniformity in the practice, across Mutual Funds and to standardize
the scheme categories and characteristics of each category, the issue was discussed in Mutual
Fund Advisory Committee (MFAC). Accordingly, it has been decided to categorize the MF
schemes as given below:
Categories of Schemes, Scheme Characteristics and Type of Scheme (Uniform Description
of Schemes):
3. The Schemes would be broadly classified in the following groups: a. Equity Schemes b. Debt
Schemes c. Hybrid Schemes d. Solution Oriented Schemes e. Other Schemes
The details of the scheme categories under each of the aforesaid groups along with their
characteristics and uniform description are given in the Annexure.
4. As per the annexure, the existing „type of scheme‟ (presently mentioned below the scheme
name in the offer documents/ advertisements/ marketing material/etc.) would be replaced with
the type of scheme (given in the third column of the tables in the Annexure) as applicable to each
category of scheme. This will enhance the existing disclosure. Hence, for the purpose of
alignment of the existing schemes with
the provisions of this circular, change in “type of scheme” alone, would not be considered as a
change in fundamental attribute.
5. In case of Solution oriented schemes, there will be specified period of lock in as stated in the
Annexure. However, the said lock- in period would not be applicable to any existing investment
by an investor, registered SIPs and incoming STPs in the existing solution-oriented schemes as
on the date on which such scheme is getting realigned with the provisions of this circular.
6. The investment objective, investment strategy and benchmark of each scheme shall be suitably
modified (wherever applicable) to bring it in line with the categories of schemes listed above

17
7. Mutual Funds would be required to adopt the list of stocks prepared by AMFI in this regard
and AMFI would adhere to the following points while preparing the list: a. If a stock is listed on
more than one recognized stock exchange, an average of full market capitalization of the stock
on all such stock exchanges, will be computed; b. In case a stock is listed on only one of the
recognized stock exchanges, the full market capitalization of that stock on such an exchange will
be considered. c. This list would be uploaded on the AMFI website and the same would be
updated every six months based on the data as on the end of June and December of each year.
The data shall be available on the AMFI website within 5 calendar days from the end of the 6
months period
8. Subsequent to any updation in the list, Mutual Funds would have to rebalance their portfolios
(if required) in line with updated list, within a period of one month.
Process to be followed for categorization and rationalization of schemes:
a. Only one scheme per category would be permitted, except: I. Index Funds/ ETFs replicating/
tracking different indices; ii. Fund of Funds having different underlying schemes; and iii.
Sectoral/ thematic funds investing in different sectors/ themes
b. Mutual Funds would be required to analyze each of their existing schemes in light of the list of
categories stated herein and submit their proposals to SEBI after obtaining due approvals from
their Trustees as early as possible but not later than 2 months from the date of this circular.
c. The aforesaid proposals of the Mutual Funds would also include the proposed course of action
(viz., winding up, merger, fundamental attribute change etc.) in respect of the existing similar
schemes as well as those that are not in alignment to the categories stated herein.
d. Subsequent to the observations issued by SEBI on the proposals, Mutual Funds would have to
carry out the necessary changes in all respects within a maximum period of 3 months from the
date of such observation.
e. Where there is a merger of schemes/change of fundamental attribute(s) of a scheme (as laid
down under SEBI Circular No. IIMARP/MF/CIR/01/294/98 dated February 4, 1998), the AMCs
would be required to comply with Regulation 18 (15A) of SEBI (Mutual Funds Regulation,
1996).
f. Mutual Funds are advised to strictly adhere to the scheme characteristics stated herein as well
as to the spirit of this circular. Mutual Funds must ensure that the schemes so devised should not

18
result in duplication/minor modifications of other schemes offered by them. The decision of
SEBI in this regard shall be binding on all the mutual funds.
Applicability
a. All existing open-ended schemes of all Mutual Funds.
b. All such open-ended schemes where SEBI has issued final observations but have not yet been
launched.
c. All open-ended schemes in respect of which draft scheme documents have been filed with
SEBI as on date.
d. All open-ended schemes for which a mutual fund would file draft scheme document.
This circular is issued in exercise of the powers conferred under Section 11 (1) of the Securities
and Exchange Board of India Act, 1992, read with the provision of Regulation 77 of SEBI
(Mutual Funds) Regulations, 1996 to protect the interests of investors in securities and to
promote the development of, and to regulate the securities market.

19
 GLOBALBULL

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ABOUT THE DIRECTORS

GlobalBull Financial Services LLP was formed in year 2017 by two passionate professional‟s
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20
What They Do:
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21
Their Commitment:

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22
Distribution
 Mutual Funds
Their Mutual Funds coverage universe represents more than 80% of Industry's Asset under
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Execution Services
They offer multiple online platforms as well as offline mode in selected cities.
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23
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Home loan can be availed for purchasing new & resale homes, plots and commercial property
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24
 MUTUAL FUNDS

DEFINITION OF MUTUAL FUNDS:

A mutual fund is a pool of money managed by a professional Fund Manager.
It is a trust that collects money from a number of investors who share a common investment
objective and invests the same in equities, bonds, money market instruments and/or other
securities. And the income / gains generated from this collective investment is distributed
proportionately amongst the investors after deducting applicable expenses and levies, by
calculating a scheme‟s “Net Asset Value” or NAV. Simply put, the money pooled in by a large
number of investors is what makes up a Mutual Fund.

Here‟s a simple way to understand the concept of a Mutual Fund Unit.

Let‟s say that there is a box of 12 chocolates costing 40. Four friends decide to buy the same, but
they have only 10 each and the shopkeeper only sells by the box. So, the friends then decide to
pool in 10 each and buy the box of 12 chocolates. Now based on their contribution, they each
receive 3 chocolates or 3 units, if equated with Mutual Funds.
And how do you calculate the cost of one unit? Simply divide the total amount with the total
number of chocolates: 40/12 = 3.33.
So, if you were to multiply the number of units (3) with the cost per unit (3.33), you get the
initial investment of 10.
This results in each friend being a unit holder in the box of chocolates that is collectively owned
by all of them, with each person being a part owner of the box.
Next, let us understand what is “Net Asset Value” or NAV. Just like an equity share has a traded
price, a mutual fund unit has Net Asset Value per Unit. The NAV is the combined market value
of the shares, bonds and securities held by a fund on any particular day (as reduced by permitted
expenses and charges). NAV per Unit represents the market value of all the Units in a mutual
fund scheme on a given day, net of all expenses and liabilities plus income accrued, divided by
the outstanding number of Units in the scheme.
Mutual funds are ideal for investors who either lack large sums for investment, or for those who
neither have the inclination nor the time to research the market yet want to grow their wealth.
The money collected in mutual funds is invested by professional fund managers in line with the
25
scheme‟s stated objective. In return, the fund house charges a small fee which is deducted from
the investment. The fees charged by mutual funds are regulated and are subject to certain limits
specified by the Securities and Exchange Board of India (SEBI).

India has one of the highest savings rates globally. This penchant for wealth creation
makes it necessary for Indian investors to look beyond the traditionally favored bank FDs and
gold towards mutual funds.
However, lack of awareness has made mutual funds a less preferred investment avenue.
Mutual funds offer multiple product choices for investment across the financial spectrum. As
investment goals vary – post-retirement expenses, money for children‟s education or marriage,
house purchase, etc.
– the products required to achieve these goals vary too. The Indian mutual fund industry offers a
plethora of schemes and caters to all types of investor needs.
Mutual funds offer an excellent avenue for retail investors to participate and benefit from the
uptrend in capital markets. While investing in mutual funds can be beneficial, selecting the right
fund can be challenging. Hence, investors should do proper due diligence of the fund and take
into consideration the risk-return trade-off and time horizon or consult a professional investment
adviser. Further, in order to reap maximum benefit from mutual fund investments, it is important
for investors to diversify across different categories of funds such as equity, debt and gold.
While investors of all categories can invest in securities market on their own, a mutual fund is a
better choice for the only reason that all benefits come in a package.

26
BELOW CYCLE SHOWS THE PROCESS OF INVESTING IN MUTUAL
FUND

INVESTORS

POOL THEIR
PASS BACK TO MONEY WITH

RETURNS FUND MANAGER

INVEST IN
GENERATE

SECURITIES

27
ROLE OF MUTUAL FUNDS

Mutual funds perform different roles for the different constituents that participate in it. Their
primary role is to assist investors in earning an income or building their wealth, by participating
in the opportunities available in various securities and markets. It is possible for mutual funds to
structure a scheme for different kinds of investment objectives. Therefore, mutual funds offer
different kinds of schemes to cater to the need of diverse investors. In the industry, the words
„fund‟ and „scheme‟ are used inter-changeably. Various categories of schemes are called “funds”.
The money that is raised from investors, ultimately benefits governments, companies and other
entities, directly or indirectly, to raise money for investing in various projects or paying for
various expenses.

The projects that are facilitated through such financing, offer employment to people; the income
they earn helps the employees buy goods and services offered by other companies, thus
supporting projects of these goods and services companies. Thus, overall economic development
is promoted .As a large investor; the mutual funds can keep a check on the operations of the
investee company, and their corporate governance and ethical standards.
The mutual fund industry itself, offers livelihood to a large number of employees of mutual
funds, distributors, registrars and various other service providers.
Higher employment, income and output in the economy boosts the revenue collection of the
Government through taxes and other means. When these are spent prudently, it promotes further
economic development and nation building.
Mutual funds can also act as a market stabilizer, in countering large inflows or outflows from
foreign investors. Mutual funds are therefore viewed as a key participant in the capital market of
any economy.

28
 KEY CONSTITUENTS OF A MUTUAL FUND

SPONSORS:

The application to SEBI for registration of a mutual fund is made by the sponsor/s. Thereafter,
the sponsor invests in the capital of the AMC.
Since sponsors are the main people behind the mutual fund operation, eligibility criteria have
been specified as follows:
 The sponsor should have a sound track record and reputation of fairness and integrity in all
business transactions. The requirements are
1. Sponsor should be carrying on business in financial services for not less than 5 years
2. Sponsor should have positive net worth (share capital plus reserves minus accumulated
losses) in all the immediately preceding 5 years
3. Net worth in the immediately preceding year should be more than the amount that the
sponsor contributes to the capital of the AMC
4. The sponsor should have earned profits, after providing for depreciation and interest and
tax, in three of the previous five years, including the latest year.
 The sponsor should be a fit and proper person for this kind of operation.
 The sponsor needs to contribute a minimum 40 percent of the net worth of the AMC. Further,
anyone who holds 40 percent or more of the net worth of share-holding in the AMC is
considered to be a sponsor and should therefore fulfill the eligibility criteria mentioned
above.
 Sponsors have to contribute a minimum of Rs.1,00,000 as initial contribution to the corpus of
the mutual fund.

29
TRUSTEE:

The trustees have a critical role in ensuring that the mutual fund complies with all the regulations
and protects the interests of the unit-holders.
The SEBI Regulations stipulate that:
 Every trustee has to be a person of ability, integrity and standing
 A person who is guilty of moral turpitude cannot be appointed trustee
 A person convicted of any economic offence or violation of any securities laws cannot be
appointed as trustee
 No AMC and no director (including independent director), officer, employee of an AMC
shall be eligible to be appointed as a trustee of a mutual fund
 No person who is appointed as a trustee of a mutual fund shall be eligible to be appointed as
trustee of any other mutual fund.
Prior approval of SEBI needs to be taken before a person is appointed as Trustee.
The sponsor will have to appoint at least 4 trustees. If a trustee company has been appointed,
then that company would need to have at least 4 directors on the Board. Further, at least two-
thirds of the trustees / directors on the Board of the trustee company would need to be
independent trustees i.e. not associated with the sponsor in any way.
SEBI expects Trustees to perform a key role in ensuring legal compliances and protecting the
interest of investors.

30
ASSET MANAGEMENT COMPANY (AMC):

Day to day operations of asset management is handled by the AMC. The sponsor or, the trustees
if so authorized by the trust deed, shall appoint the AMC with the approval of SEBI.
As per SEBI regulations:
 The directors of the asset management company need to be persons having adequate
professional experience in finance and financial services related field.
 The directors as well as key personnel of the AMC should not have been found guilty of
moral turpitude or convicted of any economic offence or violation of any securities laws.
 Key personnel of the AMC should not have worked for any asset management company or
mutual fund or any intermediary during the period when its registration was suspended or
cancelled at any time by SEBI.
Prior approval of the trustees is required before a person is appointed as director on the board of
the AMC.
Further, at least 50 percent of the directors should be independent directors i.e. not associate of
or associated with the sponsor or any of its subsidiaries or the trustees.
The AMC needs to have a minimum net worth of Rs. 50 crores.
A change in the controlling interest of the AMC can be made only with the prior approval of the
trustees and SEBI. A written communication about the change in the controlling interest of the
AMC is sent to each unit holder and an advertisement are given in one English daily newspaper
having nationwide circulation and, in a newspaper, published in the language of the region where
the Head Office of the mutual fund is situated. The unit holders are given the option to exit at
NAV without paying an exit load.
The AMC is responsible for conducting the activities of the mutual fund. It therefore arranges for
the requisite offices and infrastructure, engages employees, provides for the requisite software,
handles advertising and sales promotion and interacts with regulators and various service
providers.

31
OTHER SERVICE PROVIDERS

CUSTODIAN:
The custodian has custody of the assets of the fund. As part of this role, the custodian needs to
accept and give delivery of securities for the purchase and sale transactions of the various
schemes of the fund. Thus, the custodian settles all the transactions on behalf of the mutual fund
schemes. All custodians need to register with SEBI. The Custodian is appointed by the trustees.
A custodial agreement is entered into between the trustees and the custodian.
The SEBI regulations provide that if the sponsor or its associates control 50 percent or more of
the shares of a custodian, or if 50 percent or more of the directors of a custodian represent the
interest of the sponsor or its associates, then, unless certain specific conditions are fulfilled, that
custodian cannot be appointed for the mutual fund operation of the sponsor or its associate or
subsidiary company. An independent custodian ensures that the securities are indeed held in the
scheme for the benefit of investors – an important control aspect. The custodian also tracks
corporate actions such as dividends, bonus and rights in companies where the fund has invested.

RTA:

The RTA maintains investor records. Their offices in various Centre‟s serve as Investor Service
Centre‟s (ISCs), which perform a useful role in handling the documentation of investors. The
functions of the RTA include processing of purchase and redemption transactions of the investor
and dealing with the financial transactions of receiving funds for purchases and making
payments for redemptions, updating the unit capital of the scheme to reflect these transactions,
updating the information in the individual records of the investor, called folios, keeping the
investor updated about the status of their investment account and information related to the
investment. The appointment of RTA is done by the AMC. It is not compulsory to appoint a
RTA. The AMC can choose to handle this activity in-house. All RTAs need to register with
SEBI.

AUDITORS:
Auditors are responsible for the audit of accounts. Accounts of the schemes need to be
maintained independent of the accounts of the AMC. The auditor appointed to audit the scheme

32
accounts needs to be different from the auditor of the AMC. While the scheme auditor is
appointed by the Trustees, the AMC auditor is appointed by the AMC.

FUND ACCOUNTANTS:
The fund accountant performs the role of calculating the NAV, by collecting information about
the assets and liabilities of each scheme. The AMC can either handle this activity in-house or
engage a service provider. There is no need for a registration with SEBI to perform this function.

DISTRIBUTORS:
Distributors have a key role in selling suitable types of units to their clients i.e. the investors in
the schemes of mutual funds with whom they are empanelled. A distributor can be empanelled
with more than one mutual fund. Distributors can be individuals or institutions such as
distribution companies, broking companies and banks. Distributors need to pass the prescribed
certification test and register with AMFI.

COLLECTING BANKERS:
The investors‟ money go into the bank account of the scheme they have invested in. These bank
accounts are maintained with collection bankers who are appointed by the AMC.
Leading collection bankers make it convenient to invest in the schemes by accepting applications
of investors in most of their branches. Payment instruments against applications handed over to
branches of the AMC or the RTA need to be banked with the collecting bankers, so that the
money is available for investment by the scheme. Thus, the banks enable collection and payment
of funds for the schemes. Through this kind of a mix of constituents and specialized service
providers, most mutual funds maintain high standards of service and safety for investors.

KYC REGISTRATION AGENCIES:

To do away with multiple KYC formalities with various intermediaries, SEBI has mandated a
unified KYC for the securities market through KYC Registration Agencies registered with SEBI.
Any new investor, Joint holders, Power of Attorney holders, Donors and Guardian (in case of
minors) have to comply with the KYC formalities. In-Person Verification (IPV) by a SEBI-
registered intermediary is compulsory for all investors. However, the investor needs to get IPV

33
done by only one SEBI-registered intermediary (broker, depository, mutual fund distributor etc.).
This IPV will be valid for transactions with other SEBI-registered intermediaries too.

PAYMENT AGGREGATORS:

Payment Aggregators such as Tech Process, Bill Desk are payment providers in the online
market place. Payment aggregators enable the users to make the payments online through their
existing bank account in a secured and a convenient manner. Aggregators allow mutual fund
houses to accept credit card and bank transfers without having to setup a merchant account with
the banks. The aggregator provides the means for facilitating payment from the consumer via
credit cards or bank transfer to the mutual fund. The mutual fund is paid by the aggregator.

34
ADVANTAGES OF MUTUAL FUNDS FOR INVESTORS

PROFESSIONAL MANAGEMENT:

Mutual funds offer investors the opportunity to earn an income or build their wealth through
professional management of their investible funds. There are several aspects to such professional
management viz. investing in line with the investment objective, investing based on adequate
research, and ensuring that prudent investment processes are followed. Investing in the securities
markets will require the investor to open and manage multiple accounts and relationships such as
broking account, demat account and others. Mutual fund investment simplifies the process of
investing and holding securities.

AFFORDABLE PORTFOLIO DIVERSIFICATION:

Investing in the units of a scheme provide investors the exposure to a range of securities held in
the investment portfolio of the scheme in proportion to their holding in the scheme. Thus, even a
small investment of Rs. 500 in a mutual fund scheme can give investors proportionate ownership
in a diversified investment portfolio.
With diversification, an investor ensures that “all the eggs are not in the same basket”.
Consequently, the investor is less likely to lose money on all the investments at the same time.
Thus, diversification helps reduce the risk in investment. In order to achieve the same level of
diversification as a mutual fund scheme, investors will need to set apart several lakhs of rupees.
Instead, they can achieve the diversification through an investment of less than thousand rupees
in a mutual fund scheme.

ECONOMIES OF SCALE:
Pooling of large sum of money from many investors makes it possible for the mutual fund to
engage professional managers for managing investments. Individual investors with small
amounts to invest cannot, by themselves, afford to engage such professional management. Large
investment corpus leads to various other economies of scale. For instance, costs related to
volume makes it possible to negotiate better terms with brokers, bankers and other service
providers. Mutual funds give the flexibility to an investor to organize their investments according
to their convenience. Direct investments may require a much higher investment amount than

35
what many investors may be able to invest. For example, investment in gold and real estate
require a large outlay.

Similarly, an effectively diversified equity portfolio may require a large outlay. Mutual
funds offer the same benefits at a much lower investment value since it pools small investments
by multiple investors to create a large fund. Similarly, the dividend and growth options of mutual
funds allow investors to structure the returns from the fund in the way that suits their
requirements.
Thus, investing through a mutual fund offers a distinct economic advantage to an investor as
compared to direct investing in terms of cost saving.

LIQUIDITY:
At times, investors in financial markets are stuck with a security for which they can‟t find a
buyer –worse, at times they can‟t find the company they invested in! Such investments, whose
value the investor cannot easily realize in the market, are technically called illiquid investments
and may result in losses for the investor.
Investors in a mutual fund scheme can recover the current value of the money invested, from the
mutual fund itself. Depending on the structure of the mutual fund scheme, this would be
possible, either at any time, or during specific intervals, or only on closure of the scheme.
Schemes, where the money can be recovered from the mutual fund only on closure of the
scheme, are compulsorily listed on a stock exchange. In such schemes, the investor can sell the
units through the stock exchange platform to recover the prevailing value of the investment.

TAX DEFERRAL:
Mutual funds are not liable to pay tax on the income they earn. If the same income was to be
earned by the investor directly, then tax may have to be paid in the same financial year.
Mutual funds offer options, whereby the investor can let the money grow in the scheme for
several years. By selecting such options, it is possible for the investor to defer the tax liability.
This helps investors to legally build their wealth faster than would have been the case if they
were to pay tax on the income each year.

36
TAX BENEFITS:
Specific schemes of mutual funds (Equity Linked Savings Schemes) give investors the benefit of
deduction of the amount subscribed (up to Rs. 150,000 in a financial year), from their income
that is liable to tax. This reduces their taxable income, and therefore the tax liability.
The Rajiv Gandhi Equity Savings Scheme (RGESS) offers a rebate to first time retail investors
(in direct equity) with annual income up to Rs. 12 lakhs. Mutual funds announce specific equity-
oriented schemes that are eligible for the RGESS benefit. The RGESS benefit is linked to the
amount invested (excluding brokerage, securities transaction tax, service tax, stamp duty and all
taxes appearing in the contract note).
Rebate of 50 percent of the amount invested up to Rs. 50,000, can be claimed as a deduction
from taxable income. The investment limit of Rs. 50,000 is applicable for a block of three
financial years, starting with the year of first investment.
Thus, if an investor invests Rs. 30,000 in RGESS schemes in a financial year, then he can reduce
his taxable income for that previous year by 50 percent of Rs. 30,000 i.e. Rs. 15,000. In the
following year, he still has an investment limit of Rs. 20,000 available. The maximum deduction
that can be made from the taxable income over the period of three financial years is 50 percent of
Rs. 50,000 i.e. Rs. 25,000.
Dividends received from mutual fund schemes are tax-free in the hands of the investors.
However, dividends from certain categories of schemes are subject to dividend distribution tax,
which is paid by the scheme before the dividend is distributed to the investor. Long term capital
gains arising out of sale of some categories of schemes are subject to long term capital gains tax,
which may be taxed at a different (and often lower) rate of tax or even entirely tax exempt.

CONVENIENT OPTIONS:
The options offered under a scheme allow investors to structure their investments in line with
their liquidity preference and tax position. There are also great transaction conveniences like the
ability to withdraw only part of the money from the investment account, ability to invest
additional amount to the account, setting up systematic transactions, etc.

37
INVESTMENT COMFORT:
Once an investment is made with a mutual fund, they make it convenient for the investor to make
further purchases with very little documentation. This simplifies subsequent investment activity.

REGULATORY COMFORT:
The regulator, Securities and Exchange Board of India (SEBI), has mandated strict checks and
balances in the structure of mutual funds and their activities. These are detailed in the subsequent
chapters. Mutual fund investors benefit from such protection.

SYSTEMATIC APPROACH INVESTMENTS:

Mutual funds also offer facilities that help investor invest amounts regularly through a
Systematic Investment Plan (SIP); or withdraw amounts regularly through a Systematic
Withdrawal Plan (SWP); or move money between different kinds of schemes through a
Systematic Transfer Plan (STP). Such systematic approaches promote investment discipline,
which is useful in long-term wealth creation and protection. SWPs allow the investor to structure
a regular cash flow from the investment account.

38
LIMITATIONS OF A MUTUAL FUND

LACK OF PORTFOLIO CUSTOMIZATION:

Some brokerages offer Portfolio Management Schemes (PMS) to large investors. In a PMS, the
investor has better control over what securities are bought and sold on his behalf. The investor
can get a customized portfolio in case of PMS. On the other hand, a unit-holder in a mutual fund
is just one of several thousand investors in a scheme. Once a unit-holder has bought into the
scheme, investment management is left to the fund manager (within the broad parameters of the
investment objective). Thus, the unit-holder cannot influence what securities or investments the
scheme would invest into.

CHOICE OVERLOAD:

Over 2000 mutual fund schemes offered by 47 mutual funds – and multiple options within those
Schemes – make it difficult for investors to choose between them. Greater dissemination of
scheme information through various media channels and availability of professional advisors in
the market helps investors to handle this overload.

NO CONTROL OVER COSTS:

All the investor's money is pooled together in a scheme. Costs incurred for managing the scheme
are shared by all the Unit-holders in proportion to their holding of Units in the scheme.
Therefore, an individual investor has no control over the costs in a scheme. SEBI has however
imposed certain limits on the expenses that can be charged to any scheme. These limits, which
vary with the size of assets and the nature of the scheme.

39
 TYPES OF FUNDS

Mutual Funds

Investment Others
Structure Objective

 Growth Funds  Tax Saving Funds

 Open Ended  Dividend Funds  Special Funds
 Close Ended  Balanced Funds  ETFs
 Interval Funds  Hybrid Funds  Fund of Funds
 Value Funds  Thematic Funds
 Debt Funds
 Index Funds
 Gilt Funds

40
OPEN-ENDED FUNDS:

Open-ended funds are open for investors to enter or exit at any time, even after the NFO.
When existing investors acquire additional units or new investors acquire units from the open-
ended scheme, it is called a sale transaction. It happens at a sale price, which is linked to the
NAV. When investors choose to return any of their units to the scheme and get back their
equivalent value (in terms of units), it is called a re-purchase transaction. This happens at a re-
purchase price that is linked to the NAV. Although some unit-holders may exit from the scheme,
wholly or partly, the scheme continues operations with the remaining investors. The scheme does
not have any kind of time frame in which it is to be closed. The on-going entry and exit of
investors implies that the unit capital in an open-ended fund would keep changing on a regular
basis.

CLOSE-ENDED FUNDS

Close-ended funds have a fixed maturity. Investors can buy units of a close-ended
scheme, from the fund, only during its NFO. The fund makes arrangements for the units to be
traded, post- NFO in a stock exchange. This is done through listing of the scheme in a stock
exchange. Such listing is compulsory for close-ended schemes. Therefore, after the NFO,
investors who want to buy units will have to find a seller for those units in the stock exchange.
Similarly, investors who want to sell units will have to find a buyer for those units in the stock
exchange. Since post-NFO, sale and purchase of units happen to or from counter-party in the
stock exchange – and not to or from the scheme – the unit capital of the scheme remains stable or
fixed. Since the post-NFO sale and purchase transactions happen on the stock exchange between
two different investors, and that the fund is not involved in the transaction, the transaction price
is likely to be different from the NAV. Depending on the demand-supply situation for the units
of the scheme on the stock exchange, the transaction price could be higher or lower than the
prevailing NAV.

INTERVAL FUNDS

Interval funds combine features of both open-ended and close-ended schemes. They are
largely close-ended but become open-ended at pre-specified intervals. For instance, an interval
scheme might become open-ended between January 1 to 15, and July 1 to 15, each year. The
benefit for investors is that, unlike in a purely close-ended scheme, they are not completely
41
dependent on the stock exchange to be able to buy or sell units of the interval fund. However,
between these intervals, the units have to be compulsorily listed on stock exchanges to allow
investors an exit route. The periods when an interval scheme becomes open-ended, are called
„transaction periods‟; the period between the close of a transaction period, and the opening of the
next transaction period is called „interval period‟. Minimum duration of transaction period is 2
days, and minimum duration of interval period is 15 days. No redemption/repurchase of units is
allowed except during the specified transaction period (during which both subscription and
redemption may be made to and from the scheme).

DEBT, EQUITY, HYBRID FUNDS:

The portfolio of a mutual fund scheme will be driven by the stated investment objective
of the scheme. A scheme might have an investment portfolio invested largely in equity shares
and equity-related investments such as convertible debentures. The investment objective of such
funds is to seek capital appreciation through investment in these growth assets. Such schemes are
called equity schemes.
Schemes with an investment objective that limits them to investments in debt securities such as
Treasury Bills, Government Securities, Bonds and Debentures are called debt funds.
Hybrid funds have an investment charter that provides for investment in both debt and equity.
Some of them invest in gold along with either debt or equity or both. Other funds, such as Gold
funds, Real estate funds, Commodity funds and International funds, create portfolios that reflect
their investment objectives.

EQUITY:

Equity represents ownership in the company that has issued the shares to the extent of
shares held. Shareholders participate in the management of the company by exercising the voting
rights associated with the shares held. They also participate in the residual profits of the company
i.e. the profits remaining after all the dues and claims against the company have been met in the
form of dividends. In periods of high revenues and profits, the shareholders benefit from high
dividends that may be paid to them.
However, there is no assurance given to equity holders either that a dividend will be paid or the
amount of dividend. A company may not pay a dividend to its shareholders even if there are

42
distributable profits if the management decides to use the profits for expansion plans, paying off
debt and other financial activities that is expected to increase the value of the shares of the
company. Apart from dividends, equity investors benefit from the appreciation in the value of the
shares. Investment in equity is investment in a growth-oriented asset. The primary source of
return to the investor is from the appreciation in the value of the investment. Dividends are
declared by the company when there are adequate profits and provide periodic income to the
shareholders.

43
TYPES OF EQUITY FUNDS
Equity funds invest in equity instruments issued by companies. The funds target long-
term appreciation in the value of the portfolio from the gains in the value of the securities held
and the dividends earned on it. The securities in the portfolio are typically listed on the stock
exchange, and the change in the price of the securities is reflected in the volatile returns from the
portfolio. These funds can be categorized based on the type of equity shares that are included in
the portfolio and the strategy or style adopted by the fund manager to pick the securities and
manage the portfolio.

DIVERSIFIED EQUITY FUND is a category of funds that invest in a diverse mix of securities
that cut across sectors and market capitalization. The risk of the fund‟s performance being
significantly affected by the poor performance of one sector or segment is low.
MARKET SEGMENTBASED FUNDS invest in companies of a particular market size. Equity
stocks may be segmented based on market capitalization as large- cap, mid-cap and small-cap
stocks.
•LARGE-CAP FUNDS invest in stocks of large, liquid blue-chip companies with stable
performance and returns.
•MID-CAP FUNDS invest in mid-cap companies that have the potential for faster growth
and higher returns. These companies are more susceptible to economic downturns.
Therefore, evaluating and selecting the right companies becomes important. Funds that
invest in such companies have a higher risk, since the selected e companies may not be
able to withstand the slowdown in revenues and profits. Similarly, the price of the stocks
also falls more when markets fall.

•SMALL-CAP FUNDS invest in companies with small market capitalization with intent
of benefitting from the higher gains in the price of stocks. The risks are also higher.

SECTOR FUNDS invest in only a specific sector. For example, a banking sector fund will
invest in only shares of banking companies. Gold sector fund will invest in only shares of gold-
related companies. The performance of such funds can see periods of under-performance and
out-performance as it is linked to the performance of the sector, which tends to be cyclical. Entry
and exit into these funds need to be timed well so that the investor does not invest when the
sector has peaked and exit when the sector performance falls. This makes the scheme riskier than
a diversified equity scheme.
44
THEMATIC FUNDS invest in line with an investment theme. For example, an infrastructure
thematic fund might invest in shares of companies that are into infrastructure construction,
infrastructure toll-collection, cement, steel, telecom, power etc. The investment is thus more
broad-based than a sector fund; but narrower than a diversified equity fund and still has the risk
of concentration.

VALUE FUND invests in shares of fundamentally strong companies that are currently under-
valued in the market with the expectation of benefiting from an increase in price as the market
recognizes the true value. Such funds have lower risk.

GROWTH FUNDS portfolios feature companies whose earnings are expected to grow at a rate
higher than the average rate. These funds aim at providing capital appreciation to the investors
and provide above average returns in bullish markets. The volatility in returns is higher in such
funds.

FOCUSED FUNDS hold portfolios concentrated in a limited number of stocks. Selection risks
are high in such funds. If the fund manager selects the right stocks then the strategy pays off. If
even a few of the stocks do not perform as expected the impact on the scheme‟s returns can be
significant as they constitute a large part of the portfolio.

EQUITY LINKED SAVINGS SCHEMES(ELSS)are diversified equity funds that offer tax
benefits to investors under section 80 C of the Income Tax Act up to an investment limit of Rs.
150,000 a year. ELSS are required to hold at least 80 percent of its portfolio in equity
instruments. The investment is subject to lock-in for a period of 3 years during which it cannot
be redeemed, transferred or pledged. However, this is subject to change in case there are any
amendments in the ELSS Guidelines with respect to the lock-in period.

RAJIVGANDHI EQUITY SAVINGS SCHEMES (RGESS) too, as seen earlier, offer tax
benefits to first-Time investors (direct equity). Investments are subject to a fixed lock-in period
of 1 year and flexible lock-in period of 2 years.

45
HYBRID
Hybrid funds invest in a combination of asset classes such as equity, debt and gold. The
combination of asset classes used will depend upon the investment objective of the fund. The
risk and return in the scheme will depend upon the allocation to each asset class and the type of
securities in each asset class that are included in the portfolio. The risk is higher if the equity
component is higher. Similarly, the risk is higher if the debt component is invested in longer-
term debt securities or lower rated instruments.

TYPES OF HYBRID FUNDS

Debt-oriented Hybrid funds invest primarily in debt with a small allocation to equity. The
equity allocation can range from 5 percent to 30 percent and is stated in the offer document. The
debt component is conservatively managed to earn coupon income, while the equity component
provides the booster to the returns.

Monthly Income Plan is a type of debt-oriented hybrid fund that seeks to declare a dividend
every month. There is no guarantee that a dividend will be paid each month.
As the term „Monthly Income‟ is a bit of a misnomer and investor needs to study the scheme
properly, before presuming that an income will be received every month.

Multiple Yield Funds generate returns over the medium term with exposure to multiple asset
classes, such as equity and debt.

Equity-oriented Hybrid funds invest primarily in equity, with a portion of the portfolio
invested in debt to bring stability to the returns. A very popular category among the equity-
oriented hybrid funds is the Balanced Fund. These schemes provide investors simultaneous
exposure to both equity and debt in one portfolio. The objective of these schemes is to provide
growth and stability (or regular income), where investments in equity instruments are made to
meet the objective of growth while debt investments are made to achieve the objective of
stability. The balanced funds can have fixed or flexible allocation between equity and debt. One
can get the information about the allocation and investment style from the Scheme Information
Document.

46
Capital Protected Schemes are close-ended schemes, which are structured to ensure that
investors get their principal back, irrespective of what happens to the market. This is ideally done
by investing in Zero Coupon Government Securities whose maturity is aligned to the scheme‟s
maturity. (Zero coupon securities are securities that do not pay a regular interest, but accumulate
the interest, and pay it along with the principal when the security matures).
The investment is structured, such that the principal amount invested in the zero-coupon
security, together with the interest that accumulates during the period of the scheme would grow
to the amount that the investor invested at the start.
Suppose an investor invested Rs. 10,000 in a capital protected scheme of 5 years. If 5-
year government securities yield 7 percent at that time, then an amount of Rs. 7,129.86 invested
in 5- year zero-coupon government securities would mature to Rs. 10,000 in 5 years. Thus, by
investing Rs. 7,129.86 in the 5-year zero-coupon government security, the scheme ensures that it
will have Rs 10,000 to repay to the investor in 5 years.
After investing in the government security, Rs 2,870.14 is left over (Rs. 10,000 invested
by the investor, less Rs. 7129.86 invested in government securities). This amount is invested in
riskier securities like equities. Even if the risky investment becomes completely worthless (a rare
possibility), the investor is assured of getting back the principal invested, out of the maturity
money received on the government security.
Some of these schemes are structured with a minor difference – the investment is made in
good quality debt securities issued by companies, rather than Central Government Securities.
Since any borrower other than the government can default, it would be appropriate to view these
alternate structures as Capital Protection Oriented Schemes rather than Capital Protected
Schemes.
It may be noted that capital protection can also be offered through a guarantee from a
guarantor, who has the financial strength to offer the guarantee. Such schemes are however not
prevalent in the market. Some of the hybrid funds are also launched as Asset Allocation Funds.
These funds do not specify a minimum or maximum limit for each of the asset classes. The fund
manager allocates resources based on the expected performance of each asset class.

47
Arbitrage funds take opposite positions in different markets / securities, such that the risk is
neutralized, but a return is earned. For instance, by buying a share in BSE, and simultaneously
selling the same share in the NSE at a higher price. Most arbitrage funds take contrary positions
between the equity market and the futures and options market. („Futures‟ and „Options‟ are
commonly referred to as derivatives. These are designed to help investors to take positions or
protect their risk in some other security, such as an equity share. They are traded in exchanges
like the NSE and the BSE. Although these schemes invest in equity markets, the expected returns
are in line with liquid funds.

DEBT
Debt represents the borrowings of the issuer. Debt as an asset class represents an income-
oriented asset. The major source of return from a debt instrument is regular income in the form
of interest. The interest is typically known at the time of issue and may be guaranteed either by
an undertaking of the government or by security created on the physical assets of the issuer. The
terms of the issue will determine the conditions such as the coupon or interest payable on the
debt, the tenor of the borrowing after which the borrower/issuer has to return the principal to the
lenders/investors, the security against the assets of the borrower offered as collateral, if any, and
other terms. Investment in a debt security, entails a return in the form of interest (at a pre-
specified frequency for a pre-specified period), and refund of a pre-specified amount at the end
of the pre-specified period.

The pre-specified period is called tenor. At the end of the tenor, the securities are said to mature.
The process of repaying the amounts due on maturity is called redemption. Debt securities that
are to mature within a year are called money market securities.

The return that an investor earns or is likely to earn on a debt security is called its yield. The
yield would be a combination of interest paid by the issuer and capital gain (if the proceeds on
redemption are higher than the amount invested) or capital loss (if the proceeds on redemption
are lower than the amount invested) relative to the price paid to buy the security.

48
Debt securities may be issued by Central Government, State Governments, Banks, Financial
Institutions, Public Sector Undertakings (PSU), Private Companies, Municipalities, etc.
 Securities issued by the Government are called Government Securities or G-Sec or Gilt.
 Treasury Bills are short term debt instruments issued by the Reserve Bank of India on behalf
of the Government of India.
 Certificates of Deposit are issued by Banks (for 7 days to 1 year) or Financial Institutions
(for 1 to 3 years)
 Commercial Papers are short term securities (up to 1 year) issued by companies.
 Bonds / Debentures are generally issued for tenors beyond a year. Governments and public-
sector companies tend to issue bonds, while private sector companies issue debentures.

The possibility of a non-government issuer defaulting on a debt security i.e. its credit risk is
measured by Credit Rating companies like CRISIL, ICRA, CARE and Fitch. They assign
different symbols to indicate the credit risk in a debt security. For instance, „AAA‟ is CRISIL‟s
indicator of highest safety in a debenture. Higher the credit risk, higher is likely to be the yield
on the debt security. Most of us are familiar with this concept with respect to the company fixed
deposits. The interest rate offered by these deposits depends on the credit rating assigned.

49
DIFFERENT TYPES OF SCHEMES IN THE DEBT FUND CATEGORY
There are various types of schemes in the debt fund category, which are classified on the basis of
the type of instruments they invest in and the tenure of the instruments in the portfolio, as
explained below:

Liquid & Money Market Funds:

Savings bank deposits have been the retail investors‟ preferred investment option to park surplus
cash. Most investors regard these as the only avenue while some believe parking surplus cash
elsewhere can erode their capital and does not provide liquidity. CRISIL‟s recent study draws
attention to a more attractive option – Liquid Fund / Money Market Mutual Funds. The analysis
underlines that surplus cash invested in money market mutual funds earns high post-tax returns
with a reasonable degree of safety of the principal invested and liquidity.
Liquid Funds, as the name suggests, invest predominantly in highly liquid money market
instruments and debt securities very short tenure and hence provide high liquidity. They invest in
very short-term instruments such as Treasury Bills (T-bills), Commercial Paper (CP),
Certificates of Deposit (CD) and Collateralized Lending & Borrowing Obligations (CBLO)
that have residual maturities of up to 91 days to generate optimal returns while maintaining
safety and high liquidity. Redemption requests in these funds are processed within one working
(T+1) day.

Income Funds:
They invest primarily in debt instruments of various maturities in line with the objective of the
funds and any remaining funds in short-term instruments such as Money Market instruments.
These funds generally invest in instruments with medium- to long-term maturities.

Short-Term Funds:
Short-term debt funds primarily invest in debt instruments with shorter maturity or duration.
These primarily consist of debt and money market instruments and government securities. The
investment horizon of these funds is longer than those of liquid funds, but shorter than those of
medium-term income funds.

Floating Rate funds (FRF):

While income funds invest in fixed income debt instruments such as bonds, debentures and
50
government securities, FRFs are a variant of income funds with the primary aim of minimizing
the volatility of investment returns that is usually associated with an income fund. FRFs invest
primarily in instruments that offer floating interest rates. Floating rate securities are generally
linked to the Mumbai Inter-Bank Offer Rate (MIBOR), i.e., the benchmark rate for debt
instruments. The interest rate is reset periodically based on the interest rate movement. The
objective of FRFs is to offer steady returns to investors in line with the prevailing market interest
rates.

Gilt Funds:
The word „Gilt‟ implies Government securities. A gilt fund invests in government securities of
various tenures issued by central and state governments. These funds generally do not have the
risk of default since the issuer of the instruments is the government. Gilt funds invest in Gilts
which have both short-term and/or long-term maturities. Gilt funds have a high degree of interest
rate risk, depending on their maturity profile. The longer the maturity profiles of the
instruments, the higher the interest rate risk. (Interest rate risk implies that there is an effect
on the market price of debt instruments when interest rates increase and decrease. Market prices
of debt instruments rise when interest rates fall and vice-versa.)

Multiple Yield Funds

Multiple yield funds (MYFs) are hybrid debt-oriented funds that invest predominantly in debt
instruments and to some extent in dividend-yielding equities.
The debt instruments assist in generating returns with minimum risk and equities assist in long-
term capital appreciation. MYFs invest predominantly in debt and money market instruments of
short-to-medium-term residual maturities.

Dynamic Bond Funds

DBFs invest in debt securities of different maturity profiles. These funds are actively managed
and the portfolio varies dynamically according to the interest rate view of the fund managers.
Such funds give the fund manager the flexibility to invest in short- or longer-term instruments
based on his view on the interest rate movement. DBFs follow an active portfolio duration
management strategy by keeping a close watch on various domestic and global macro-economic
variables and interest rate outlook.

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Fixed Maturity Plans (FMPs)

FMPs, as the name indicates, have a pre-determined maturity date (like a term deposit) and are
close-ended debt mutual fund schemes. FMPs invest in debt instruments with a specific date of
maturity, lesser than or equal to the maturity date of the scheme, also enjoy the status of debt
funds. After the date of maturity, the investment is redeemed at current NAV and the maturity
proceeds are paid back to the investors.
The tenure of an FMP may range from as low as 30 days to 60 months. Since the maturity date
and the amount are known beforehand, the fund manager can invest with reasonable confidence,
in securities that have a similar maturity as that of the scheme. Thus, if the tenure of the scheme
is one year then the fund manager would invest in debt securities that mature just before a year.
Unlike in other open-ended funds, where one can buy and sell units from the mutual funds on an
ongoing basis), no pre-mature redemptions are permitted in FMPs. Hence, the units of FMPs
(being close ended schemes) are compulsorily listed on a stock exchange/s so that the investors
may sell the units through stock exchange route in case of urgent liquidity needs.

Monthly Income Plans (MIPs)

MIPs are hybrid schemes that invest in a combination of debt and equity securities, but are
typically debt oriented mutual fund schemes, as they invest pre-dominantly in debt securities and
a small portion (15-25 per cent) in equities.
MIPs offer regular income in the form of periodic (monthly, quarterly, half-yearly) dividend pay-
outs. Hence MIPs are preferred option for investors seeking steady income flows. Under MIPs,
monthly income or regular dividend is neither assured nor is it mandatory for mutual funds to
pay at stated intervals, because in a mutual fund scheme, the dividend is paid at the discretion of
the mutual fund and is subject to availability of distributable surplus from realized gains.
Due to the equity exposure, MIP returns can be volatile and may suffer losses, making dividend
pay-outs irregular - both in quantum and frequency or even skip dividend payment. In spite of
this, MIPs have a history of providing higher returns after adjusting for tax and hence can be a
better option.
Investors wary of fluctuating income from MIPs' dividend option can opt for Growth Option and
a systematic withdrawal plan, or SWP, which allows regular redemption of a pre-determined

52
amount. An SWP under an MIP can work as a regular source of income for investors. SWP
works better when a person invests a large sum.
Capital Protection-Oriented Funds:

As the name suggests, Capital Protection-Oriented Funds (CaPrOF) are mutual fund schemes
that aim to protect at least the capital, i.e., the initial investment, providing an opportunity to
make additional gains, as per the investment objectives of the fund. In short, a CaPrOF aims to
safeguard the principal amount while offering a potential equity-linked capital appreciation.
However, it is important to note that there is no guarantee of returns or guaranteed capital
protection.
CaPrOF are closed-ended debt funds that typically invest a major portion (say 80%) of the
corpus in AAA-rated bonds, and the remaining amount in riskier securities like equity. Some
funds may even take exposure to equity derivatives to protect against the downside risk.

It is this very structure that is oriented towards protecting the principal. By the end of the
stipulated term, the debt portion of the fund grows to give you back the principal, while the
equity portion brings the potential upside. Thus, even if the equity market crashes, the principal
amount is protected. Hence, CaPrOF are preferred over regular FMPs. CaPrOF are ideal for
investors who wish to protect their capital against the downside risk and also participate in the
equity market.

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REGULATORY AUTHORITY OF SECURITIES MARKET
Securities and Exchange Board of India

Securities and Exchange Board of India (SEBI) is the regulatory authority for securities markets
in India. It regulates, among other entities, mutual funds, depositories, custodians and registrars
and transfer agents in the country. The applicable guidelines for mutual funds are set out in SEBI
(Mutual Funds) Regulations, 1996, as amended till date. Some aspects of these regulations are
discussed in various sections of this Workbook. An updated and comprehensive list of circulars
issued by SEBI can be found in the Mutual Funds section of SEBI‟s website www.sebi.gov.in.
Master Circulars, which captures the essence of various circulars issued up to a specified date,
may be downloaded from www.sebi.gov.in. Some segments of the financial markets have their
own independent regulatory bodies. Wherever applicable, mutual funds need to comply with
these other regulators also. For instance, RBI regulates the money market and foreign exchange
market in the country. Therefore, mutual funds need to comply with RBI‟s regulations regarding
investment in the money market, investments outside the country, investments from people other
than Indians resident in India, remittances (inward and outward) of foreign currency etc. Stock
Exchanges are regulated by SEBI. Every stock exchange has its own listing, trading and
margining rules. Mutual Funds need to comply with the rules of the exchanges with which they
choose to have a business relationship.

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Association of Mutual Funds in India
Asset Management Companies (AMCs) in India are members of Association of Mutual Funds in
India(AMFI), an industry body that has been created to promote the interests of the mutual funds
industry [such as the Confederation of Indian Industry (CII) for overall industry and NASSCOM
for the IT/BPO industry]. AMFI is not an SRO.
The objectives of AMFI are as follows:
To define and maintain high professional and ethical standards in all areas of operation of mutual
fund industry.
1. To recommend and promote best business practices and code of conduct to be followed by
member and others engaged in the activities of mutual fund and asset management including
agencies connected or involved in the field of capital markets and financial services.
2. To interact with the Securities and Exchange Board of India (SEBI) and to represent to SEBI
on all matters concerning the mutual fund industry.
3. To represent to the Government, Reserve Bank of India and other bodies on all matters
relating to the mutual fund industry.
4. To develop a cadre of well-trained agent-distributors and to implement a programme of
training and certification for all intermediaries and others engaged in the industry.
5. To undertake nationwide investor awareness programme so as to promote proper
understanding of the concept and working of mutual funds.
6. To disseminate information on mutual fund Industry and to undertake studies and research
directly and/or in association with other bodies.

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OFFER DOCUMENT

New Fund Offer (NFO)

Units in a mutual fund scheme are offered to public investors for the first time through a NFO.
The offer is made through a legal document called the Offer Document. The following are a few
key steps leading to the NFO:
1. The AMC decides on a scheme to be taken to the market. This is decided on the basis of inputs
from the Chief Investment Officer (CIO) on investment objectives that would benefit investors,
and inputs from the Chief Marketing Officer (CMO) on the interest in the market for the
investment objectives.
2. The AMC prepares the draft Offer Document for the NFO. This needs to be approved by the
Trustees and the Board of Directors of the AMC.
a) The trustees have to give an undertaking that the scheme is a new product and not a
minor modification of an existing scheme.
3. The documents are then filed with SEBI. The observations that SEBI makes on the draft Offer
Document need to be incorporated. In case no modifications are suggested by SEBI within 21
working days of filing the same, the AMC can issue the offer document in the market.
4. The AMC decides on a suitable time-table for the issue, keeping in mind the market situation.
5. The AMC launches its advertising and public relations campaigns to make investors aware of
the NFO. These need to comply with SEBI‟s advertising code.
6. The AMC holds events for intermediaries and the press to make them familiar with the
scheme, its unique features, benefits for investors, etc.
7. The Offer Documents and Application Forms are distributed to market intermediaries, and
circulated in the market, so that investors can apply in the NFO.

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Labeling of Mutual Fund Products:

SEBI has also instituted a system of labeling mutual fund products to enable investors to easily
assess its suitability to their investment objective and preferences for risk. The label will cover
the following parameters:
1. Nature of scheme such as to create wealth or provide regular income in an indicative time
horizon (short/ medium/ long term). For example, “The product is suitable for investors who are
seeking long term capital appreciation”, will be the statement for an equity fund.
2. A brief about the investment objective (in a single line sentence) followed by kind of
product in which investor is investing (Equity/Debt)? For example, “A Balanced fund aiming for
long term Capital appreciation and current income by investing in equity as well as fixed income
securities”, will be the description of investment objective for a balanced fund.
3. Riskometer: A pictoral representation of the risk to the principal invested in a mutual fund
product will be depicted using a „Riskometer‟. The pictometer will categorize the risk in the
scheme at one of five levels of risk, as shown in the table below. There will also be a written
statement of the risk toothed principal below the „Riskometer‟.

Level of Risk Definition Example of the Type of Mutual Fund

Low Principal at low risk Liquid or Money Market Fund

Moderately Principal at moderately low Fixed Maturity Plans/Capital Protection
Low risk Oriented Scheme
Moderate Principal at Moderate risk Short Term Income Fund/Conservative
Monthly Income Plans
Moderately Principal at Moderately high IndexFund/BalancedFund/Equity
Dividend Yield Fund
High Risk
High Principal of High Risk Sector Fund/Equity Focused Fund

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MEASURES OF RISK

Fluctuation in returns is used as a measure of risk. Therefore, to measure risk, generally the
periodic returns (daily / weekly / fortnightly / monthly) are first worked out, and then their
fluctuation is measured against the average return. The fluctuation or variation may be to the
higher or lower side.
Both are taken as risky. The fluctuation in returns can be assessed in relation to itself, or in
relation to some other index. Accordingly, the following risk measures are commonly used.

TYPES OF RISK

Risk

Systematic Risk Unsystematic Risk

SYSTEMATIC RISK
Systematic risk influences a large number of assets. A Significant political event, for example,
could affect several of the assets in your portfolio. It is virtually impossible to protect yourself
against this type of risk.

UNSYSTEMATIC RISK
Unsystematic risk is sometimes referred to as “specific risk”. This kind of risk affects a very
small number of assets. An example is news that affects a specific stock such as a sudden strike
by employees. Diversification is the only way to protect yourself from unsystematic risk.

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MEASURES FOR CALCULATING RISK

STANDARD DEVIATION

Like Variance, Standard Deviation too measures the fluctuation in periodic returns of a scheme
in relation to its own average return. Mathematically, standard deviation is equal to the square
root of variance.
This can be easily calculated in MS Excel using the following function:
=stdev (range of cells where the periodic returns are calculated)
Standard deviation is a measure of total risk in an investment. As a measure of risk, it is relevant
for both debt and equity schemes. A high standard deviation indicates greater volatility in the
returns and greater risk. Comparing the standard deviation of a scheme with that of the
benchmark and peer group funds give the investor a perspective of the risk in the scheme.
Standard deviation along with the average return can be used to estimate the range of returns that
the investment will take. Since standard deviation is calculated using historic numbers it has
limited use in predicting future performance.

BETA
Beta is based on the Capital Asset Pricing Model (CAPM), which states that there are two kinds
of risk in investing in equities – systematic risk and non-systematic risk.
Systematic risk is integral to investing in the market; it cannot be avoided. For example, risks
arising out of inflation, interest rates, political risks etc. This arises primarily from macro-
economic and political factors. This risk cannot be diversified away.
Non-systematic risk is unique to a company; the non-systematic risk in an equity portfolio can be
minimized by diversification across companies. For example, risk arising out of change in
management, product obsolescence etc.
Since non-systematic risk can be diversified away, investors need to be compensated only for
systematic risk, according to CAPM. This systematic risk is measured by its Beta.
Beta measures the fluctuation in periodic returns in a scheme, as compared to fluctuation in
periodic returns of a diversified stock index over the same period.

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SHARPE RATIO
An investor can invest with the government and earn a risk-free rate of return (Rf). T-Bill index
is a good measure of this risk-free return.
Through investment in a scheme, a risk is taken, and a return earned (Rs).
The difference between the two returns i.e. Rs– Rf is called risk premium. It is like a premium
that the investor has earned for the risk taken, as compared to government‟s risk-free return.
This risk premium is to be compared with the risk taken. Sharpe Ratio uses Standard Deviation
as a measure of risk. It is calculated as
(Rs-Rf) ÷ Standard Deviation
Thus, if risk free return is 5 percent, and a scheme with standard deviation of 0.5 earned a return
of 7percent, its Sharpe Ratio would be (7 percent - 5 percent) ÷ 0.5 i.e. 4 percent.
Sharpe Ratio is effectively the risk premium per unit of risk. Higher the Sharpe Ratio, better the
scheme is considered to be. Care should be taken to do Sharpe Ratio comparisons between
comparable schemes. For example, Sharpe Ratio of an equity scheme is not to be compared with
the Sharpe Ratio of a debt scheme.
Sharpe ratio is very commonly used measure of risk-adjusted returns.
Net Asset Value (NAV)
In the market, when people talk of NAV, they refer to the value of each unit of the scheme. This
is equivalent to:
Unit-holders‟ Funds in the Scheme (Net Assets) ÷ No. of Units
An alternate formula for calculating NAV is:
(Total Assets minus Liabilities other than to Unit holders) ÷ No. of Units
From the above, it follows that:
 Higher the interest, dividend and capital gains earned by the scheme, higher would be the
NAV.
 Higher the appreciation in the investment portfolio, higher would be the NAV.
 Lower the expenses, higher would be the NAV.
Issuing fresh units at a price lower than the NAV will result in the post issue NAV coming down
for all investors. Redeeming units at price lower than the NAV will increase the NAV for the
remaining investors.

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As my Project titled “Performance Analysis and Ranking of Mutual Funds” I did my analysis on
Mutual Funds and ranked them based on their performance. I selected 9 Mutual funds which has
major portion of percentage under Assets under Management. Ranking and rating is taken from
the Financial Websites namely Value research online, Money control (CRISIL).
FINANCIAL WEBSITES USED IN THIS PROJECT:
1. Value research online
2. Money control (CRISIL)

Value Research Fund Rating:

Value Research Fund Rating (Risk-adjusted Rating) is a convenient composite measure of both
returns and risk. It is purely quantitative and there is no subjective component to the Fund
Rating. The assessment does not reflect Value Research's opinion of the future potential of any
fund. It only gives a quick summary of how a fund has performed historically relative to its
peers.

How Funds are rated?

For equity and hybrid funds, the Fund Ratings for the two time periods (3 and 5 years) are
combined to give a single assessment of each fund‟s risk rating vis-à-vis other funds in each fund
category. For debt funds, the Fund Ratings are based on 18-month weekly risk-adjusted
performance, relative to the other funds in category. Value Research does not rate an equity or
hybrid fund with less than 3-year performance and a debt fund with less than 18-month
performance track record. Each category must have a minimum of 10 funds for it to be rated.
Effective, July 2008, we have put an additional qualifying criterion, whereby a fund with less
than Rs 5 crore of average AUM in the past six months will not be eligible for rating.

Value Research Fund Risk Grade

The risk score of a fund is then assigned according to the following distribution:
High-Top 10%
Above Average- Next 22.5%
Average Middle- 35%
Below Average Next- 22.5%
Low Bottom- 10%

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Value Research Fund Rating
The Value Research Fund Rating (Risk-adjusted Rating) is determined by subtracting the fund‟s
Risk Score from its Return Score. The resulting number is then assigned according to the
following distribution:
Top 10% - 5*
Next 22.5% - 4*
Middle 35% - 3*
Next 22.5% - 2*
Bottom 10% - 1*

CRISIL Mutual Fund Ranking Methodology

Methodology
CRISIL Mutual Fund Ranking is the relative ranking of mutual fund schemes within a peer
group. The basic criteria for inclusion in the ranking universe are three-year NAV history (one-
year for liquid, ultra-short-term debt, short term income, credit-oriented fund's and five years for
consistent performers), assets under management in excess of cut-off limits and complete
portfolio disclosure. Only open-ended schemes are considered. Ranking is based on the
following parameters:

Superior Return Score (SRS)

Mean Return and Volatility
Portfolio Concentration Analysis
Exposure to Sensitive Sector
Liquidity Analysis
Asset Quality
Modified Duration
Tracking Error
Historic CRISIL Mutual Fund Ranking Performance

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Eligibility Criteria

•Only open-ended funds are considered

•NAV History
- Three years for equity, hybrid and long-term debt schemes.
- One year for liquid, ultra-short-term debt, short term income and index funds.
- Five years for consistent performers.
•Schemes falling under 98 percentile of the category AUM are shortlisted
- Quarterly average AUM is considered.
- Schemes meeting inception criteria are eligible schemes.
•Complete portfolio disclosure for all three months in the last quarter.
•Minimum five schemes in each category.
• In case of long term gilt funds, only those funds that have an exposure in excess of 98% over
the past three years to the following are considered for ranking:
- Central and state government securities.
- Cash and cash equivalents such as collateralized borrowing and lending obligations CBLOs),
reverse repo, net receivables, etc.

Large cap funds are those funds which invest a larger proportion of their corpus in companies
with large market capitalization. Trustworthy, reputable and strong are three adjectives that are
often used to describe a large-cap company. These are the old and well-established players with a
track record. Such companies typically have strong corporate-governance practices and have
generated wealth for their investors slowly and steadily over a long term. These corporate houses
are usually among the most highly followed and well-researched on the market. Mutual funds
that invest a majority of their investible corpus in these companies are labeled as large-cap funds.

Scheme Characteristics:
Minimum investment in equity & equity related instruments of large cap companies- 80% of
total assets.

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Type of scheme:
Large Cap Fund- An open-ended equity scheme predominantly investing in large cap stocks.
Large Cap: 1 to 100 companies in terms of full market capitalization.

1. SBI Blue Chip Fund

Benchmark: S&P BSE 100 Index
AUM-19,106.24 Crores
Investment Objective: To provide investors with opportunities for long-term growth in capital
through an active management of investments in a diversified basket of equity stocks of
companies whose market capitalization is at least equal to or more than the least market
capitalized stock of S&P BSE 100 Index.

2. SBI Magnum Equity Fund

Benchmark: Nifty 50 Index
AUM: 2,172.83 Crores
Investment Objective: To provide the investor long-term capital appreciation by investing in
high growth companies along with the liquidity of an open-ended scheme through investments
primarily in equities and the balance in debt and money market instruments.

3. Reliance Large Cap Fund

Benchmark: S&P BSE 100
AUM: 10053.92Crores
Investment Objective: Reliance Large Cap Fund is a large cap fund predominantly investing in
stocks of top 100 companies by full market capitalization. Large cap stocks endeavor to provide
stability & liquidity to the portfolio. It endeavors to generate alpha while owning best of the
index companies. It endeavors to invest in leaders or potential leaders with established business
models & sustainable free cash flows. It endeavors to invest in growth companies at a
reasonable valuation & with high return on equity. It invests in emerging large cap companies
which have an established business model with a proven management track record and a
potential to generate high cash flows.

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4. ICICI Prudential Focused Blue-chip Equity Fund
Benchmark: Nifty 50 Index
AUM: 17,141.91Crores
Investment Objective: To generate long-term capital appreciation and income distribution to
unit holders from a portfolio that is invested in equity and equity related securities of about 20
companies belonging to the large cap domain and the balance in debt securities and money
market instruments.
The Fund Manager will always select stocks for investment from among Top 200 stocks in
terms of market capitalization on the National Stock Exchange of India Ltd. If the total assets
under management under this scheme goes above Rs. 1,000 crores the Fund Manager reserves
the right to increase the number of companies to more than 20.

5. ICICI Prudential Select Large Cap Fund

Benchmark: S&P BSE 100 Index
AUM: 553.69Crores
Investment Objective: To generate capital appreciation by investing in a concentrated portfolio
of equity and equity related securities of up to 30 companies across market capitalization i.e.
focus on Multi-Cap. However, there can be no assurance or guarantee that the investment
objective of the Scheme would be achieved.

6. L&T Equity Fund

Benchmark: S&P BSE 200 TRI
AUM: 2,767.72Crores
Investment Objective: To generate long-term capital growth from a diversified portfolio of
predominantly equity and equity-related securities.

7. Aditya Birla Sun Life Frontline Equity Fund

Benchmark: S&P BSE 200
AUM: 20451.39 Crores
Investment Objective: An Open-ended growth scheme with the objective of long term growth
of capital, through a portfolio with a target allocation of 100% equity by aiming at being as
diversified across various industries and or sectors as its chosen benchmark index, S&P BSE
200.
65
8. HDFC Equity Fund
Benchmark: NIFTY 500
AUM: 21,553.37 Crores
Investment Objective: To achieve capital appreciation.

66
 Table:1 (Data from Financial Websites)

ValueResearchonline Money Control

Large Cap Rating Risk Rating Risk
SBI Blue Chip Fund 5* Low 4* Moderately high
Reliance Large Cap Fund 4* Above Average 5* Moderately high
Aditya Birla Sun Life Frontline Equity Fund 4* Below Average 3* Moderately high
SBI Magnum Equity Fund 3* Below Average 1* Moderately high
ICICI Prudential Focused Blue-chip Equity Fund 2* Average 4* Moderately high
ICICI Prudential Select Large Cap Fund 2* Average 2* Moderately high
L&T Equity Fund 3* Average 3* Moderately high
HDFC Equity Fund 3* High 2* Moderately high

Table:2 (Data from Factsheets)

Standard Scheme Returns %(CAGR)

Large Cap Sharpe Beta
Deviation 1 year 3 years 5years
SBI Blue Chip Fund 0.54 0.86 12.46% 14.22 12.62 18.67
ICICI Prudential Focused Blue-chip Equity Fund 0.5 0.93 13.15% 15.56 12.33 17.13
L&T Equity Fund 0.42 1 14.04% 15.66 16.33 16.89
Reliance Large Cap Fund 0.12 1.01 4.26% 10.73 16.2 17.16
SBI Magnum Equity Fund 0.36 0.93 13.42% 12.52 10.46 15.34
ICICI Prudential Select Large Cap Fund 0.24 0.94 13.50% 9.79 8.73 14.47
Aditya Birla Sun Life Frontline Equity Fund 0.43 0.94 13.04% 8.22 13.86 15.4
HDFC Equity Fund 0.09 1.18 5.12% 10.74 10.65 17.18

67
INTERPRETATION:
1. To identify better performing fund in the list of Large Cap funds offered by Asset
management companies.

List of AMCs taken into consideration are SBI Blue Chip Fund, SBI Magnum Equity Fund,
Reliance Large Cap Fund, ICICI Prudential Focused Blue-chip Equity Fund, ICICI Prudential
Select Large Cap Fund, L&T Equity Fund, Aditya Birla Sun Life Frontline Equity Fund, HDFC
Equity Fund.

2. To analyze the above funds I considered Qualitative data from Value Research online &
Money control and both Qualitative data & Quantitative data from the Factsheets.

3. By using risk and rating parameters given Value Research online & Money control
(Qualitative data) the ranking was given accordingly: (Table-1)

 1stRank-SBI Blue Chip Fund (as it rating is 5* & Low Risk) in Value Research online
and (rating is 4* & moderately high Risk) in Money control.
 2ndRank- Reliance Large Cap Fund (as it rating is 4*& Above Average) in Value
Research online and (rating is 5* & moderately high Risk) in Money control.
 3rdRank-Aditya Birla Sun Life Frontline Equity Fund (as it rating is 4*& Below
Average) in Value Research online and (rating is 3* & moderately high Risk) in Money
control.

4. By using Sharpe Ratio, Beta, Standard Deviation, Scheme Returns the ranking was given in
Factsheets (Qualitative data & Quantitative data) accordingly: (Table-2)
 1stRank-SBI Blue Chip Fund (Sharpe Ratio -0.54, Beta-0.86, Standard Deviation -
12.46%)
 2ndRank- ICICI Prudential Focused Blue- chip Equity Fund (Sharpe Ratio -0.5, Beta-
0.93, Standard Deviation -13.15%)
 3rdRank-L&T Equity Fund (Sharpe Ratio -0.42, Beta-1, Standard Deviation -14.04%)
5. When both the measurements are compared SBI Blue Chip Fund stood 1st in Value Research
online, Money control& also data taken from the Factsheets because it is best fund when
compared to others Asset management companies.

68
6. Atlast by comparing both the tables (1&2) we can conclude that SBI Blue Chip Fund is the
best performed Asset management companies.

Mid Cap Fund

Mid-caps are those that they lie between large-caps and small-caps in terms of company size.
During a bull phase, mid-cap stocks may outperform their large-cap counterparts, as these
companies seek to expand by looking out for suitable growth opportunities. Investors should,
however, note that the underlying stocks are more volatile than their large-cap counterparts.
Mutual funds that mainly invest in mid-cap entities are labeled mid-cap funds. Through prudent
stock selection, diversification across sectors, and market timing, fund managers aim for better
returns. Mid-cap equity funds are advised for investors with a higher risk tolerance than large-
cap investors. So, invest in these schemes if you seek higher capital appreciation, albeit with
reasonably higher risk.
Scheme Characteristics:
Minimum investment in equity & equity related instruments of mid cap companies- 65% of
total assets.
Type of scheme:
Mid Cap Fund- An open-ended equity scheme predominantly investing in mid cap stocks.
Mid Cap: 101 -250 companies in terms of full market capitalization.

1. L&T Midcap Fund

Benchmark- S&P BSE 200 TRI
AUM: 2,767.72Crores
Investment objective: To generate long-term capital growth from a diversified portfolio of

predominantly equity and equity-related securities.

2. ICICI Prudential Midcap Fund

Benchmark- Nifty Midcap 100
AUM: 1,561.73Crores
Investment objective: The primary objective of the Scheme is to seek to generate capital
appreciation by actively investing in diversified mid cap stocks.

69
3. Aditya Birla Sun Life Midcap Fund
Benchmark- Nifty Midcap 100
AUM- 2379.16 Crores
Investment objective: An Open-ended Growth Scheme with the objective to achieve long term
growth of capital at controlled level of risk by investing primarily in „Mid-Cap‟ Stocks. The level
of risk is somewhat higher than a fund focused on large and liquid stocks. Concomitantly, the
aim is to generate higher returns than a fund focused on large and liquid stocks.
4. SBI Magnum Midcap Fund
Benchmark: Nifty MidSmallcap 400 Index
AUM-4,038.84 Crores
Investment objective: To provide investors with opportunities for long-term growth in capital
along with the liquidity of an open-ended scheme by investing predominantly in a well-
diversified basket of equity stocks of Mid cap companies.
5. Reliance Growth Fund
Benchmark:S&P BSE Midcap
AUM- 7,177.40 Crores
Investment objective: The Fund endeavors to invest in mid cap companies that have the
potential to substantially increase their profitability and have consistent track record. The fund
focuses on identifying potential market leaders at an early stage with a view to create long term
alpha. The fund attempts to identify growth stocks that are available at reasonable valuation, thus
adopting a Growth at Reasonable Price (GARP) style for investing.

70
 Table:1 (Data from Financial Websites)

ValueResearchonline Money Control

Mid Cap
Rating Risk Rating Risk
L&T Midcap Fund 5* Below Average 4* High
Aditya Birla Sun Life Midcap Fund 3* Above Average 3* Moderately high
ICICI Prudential Midcap Fund 3* Above Average 3* Moderately high
SBI Magnum Midcap Fund 3* Average 2* Moderate
Reliance Growth Fund 1* Above Average 4* Moderately high

Table:2 (Data from Factsheets)

Standard Scheme Returns %(CAGR)

Mid Cap Sharpe Beta
Deviation 1 year 3 years 5years
L&T Midcap Fund 0.95 0.91 16.00% 14.47 24.38 28.09
Aditya Birla Sun Life Midcap Fund 0.62 0.97 16.53% 10.8 16.18 24
ICICI Prudential Midcap Fund 0.6 0.9 15.82% 15.45 15.22 27.28
SBI Magnum Midcap Fund 0.58 0.75 14.49% 9.04 14.15 26.99
Reliance Growth Fund 0.15 0.98 4.76% 11.82 17.97 19.44

71
INTERPRETATION:
1. To identify better performing fund in the list of Midcap Fund offered by Asset management
companies.

List of AMCs taken into consideration are L&T Midcap Fund, ICICI Prudential Midcap Fund,
Aditya Birla Sun Life Midcap Fund, SBI Magnum Midcap Fund and Reliance Growth Fund.

2. To analyze the above funds I considered Qualitative data from Value Research online &
Money control and both Qualitative data & Quantitative data from the Factsheets.
3. By using risk and rating parameters given Value Research online & Money control (Qualitative
data) the
ranking was given accordingly: (Table-1)
 1stRank-L&T Midcap Fund (as it rating is 5* & Below Average) in
Value Research online and (rating is 4* & High Risk) in Money control
 2ndRank- ICICI Prudential Midcap Fund (as it rating is 3*& Above Average) in Value
Research online and (rating is 3* & Moderately high Risk) in Money control.
 3rdRank-Aditya Birla Sun Life Midcap Fund (as it rating is 3*& Above Average) in
Value Research online and (rating is 3* & Moderately High Risk) in Money control.
4. By using Sharpe Ratio, Beta, Standard Deviation, Scheme Returns the ranking was given in
Factsheets (Qualitative data & Quantitative data) accordingly: (Table-2)
 1stRank- L&T Midcap Fund (Sharpe Ratio-0.95, Beta-0.91, Standard Deviation -
16.00%)
 2ndRank- Aditya Birla Sun Life Midcap Fund (Sharpe Ratio -0.62, Beta-0.97, Standard
Deviation -16.53%) &
 3rdRank- ICICI Prudential Midcap Fund (Sharpe Ratio -0.6, Beta-0.9, Standard
Deviation -15.82%).
5. When Both the measurements are compared L&T Midcap Fund stood 1st in Value Research
online, Money control& also data taken from Factsheets because it is best when compared to
others Asset management companies.

6. Atlast by comparing both the tables (1&2) we can conclude that L&T Midcap Fund is the best
performed Asset management companies.

72
Small Cap Fund

Small-cap stocks typically have the highest growth potential, since the underlying companies are
young, and seek to expand aggressively. They are more vulnerable to a business or economic
downturn, making them more volatile than large and mid-caps. Investors who are keen to invest
in the small-cap space and may not have the time to research but possess the high risk-taking
capacity can look to invest in small cap funds.

Small- and mid-cap funds typically outperform large-caps during a bull market (Chart 2) but
decline more when the sentiment turns bearish. The choice of a right fund should be in line with
the risk appetite, return expectations and investment horizon of the investor.
Scheme Characteristics:
Minimum investment in equity & equity related instruments of small cap companies- 65% of
total assets.

Type of scheme:

Small Cap Fund- An open-ended equity scheme predominantly investing in Small Cap stocks.
Small Cap: 251 company onwards in terms of full market capitalization.

1. HDFC Small Cap Fund

Benchmark: NIFTY Small cap 100
AUM- 3,646.65 crores
Investment objective: To provide long-term capital appreciation by investing predominantly
in Small-cap and Mid-cap companies.
2. Reliance Small Cap Fund
Benchmark:S&P BSE Small Cap
AUM-6,986.04 Crores
Investment objective: The fund attempts to generate relatively better risk adjusted returns by
focusing on the smaller capitalization companies. Small cap stocks, for the purpose of the
fund are defined as stocks whose market capitalization is below top 250 companies in terms
of full market capitalization. Small cap companies are potential mid-caps of tomorrow and
offer twin advantage of high growth prospects & relatively lower valuation. The fund focuses
on identifying good growth businesses with reasonable size, quality management and rational

73
 valuation. The investment approach adopts prudent risk management measures like margin of
safety and diversification across sectors & stocks with a view to generate relatively better
risk adjusted performance over a period of time.
3. Kotak Small Cap Fund
Benchmark: Nifty Small cap 50
AUM- 852.93 Crores.
Investment objective: The investment objective of the scheme is to generate capital
appreciation from a diversified portfolio of equity and equity related securities by investing
predominantly in small cap companies.
4. L&T Emerging Businesses Fund
Benchmark: S&P BSE Small Cap TRI
AUM- 5,001.23 crores
Investment objective: To generate long-term capital appreciation from a diversified
portfolio of predominantly equity and equity related securities, including equity derivatives,
in the Indian markets with key theme focus being emerging companies (small cap stocks).
The Scheme could also additionally, invest in Foreign Securities.

74
 Table:1 (Data from Financial Websites)

ValueResearchonline Money Control

Small Cap
Rating Risk Rating Risk
Reliance Small Cap Fund 4* Average 5* Moderately high
HDFC Small Cap Fund 3* Below Average 5* Moderately high
L&T Emerging Businesses Fund 4* Average 4* High
Kotak Small Cap Fund 3* Average 3* Moderately high

Table:2 (Data from Factsheets)

Standard Scheme Returns %(CAGR)

Small Cap Sharpe Beta
Deviation 1 year 3 years 5years
L&T Emerging Businesses Fund 1.19 0.94 18.17% 22.18 31.63 Not Available
Kotak Small Cap Fund 0.57 0.63 16.38% 13.58 18.13 24.99
HDFC Small Cap Fund 0.29 0.66 4.83% 33.37 23.94 25.8
Reliance Small Cap Fund 0.29 0.99 5.53% 24.99 29.98 33.67

75
INTERPRETATION:

1. To identify better performing fund in the list of Small Cap Fund offered by Asset management
companies.

List of AMCs taken into consideration (SBI Small Cap Fund, Reliance Small Cap Fund, HDFC
Small Cap Fund, Kotak Small Cap Fund and L&T Emerging Business Fund).

2. To analyze the above funds I considered Qualitative data from Value Research online &
Money control and both Qualitative data & Quantitative data from the Factsheets.

3. By using risk and rating parameters given Value Research online & Money Control
(Qualitative data) the ranking was given accordingly: (Table-1)

 1stRank-Reliance Small Cap Fund (as it rating is 4* &Average Risk) in

Value Research online and (rating is 5* & Moderately high Risk) in Money control.
 2ndRank-HDFC Small Cap Fund and (as it rating is 3* & Below Average) in Value
Research online and (rating is 5* & Moderately high Risk) in Money control.
 3rdRank-L&T Emerging Businesses Fund (as it rating is 4* &Average) in
Value Research online and (rating is 4* &High Risk) in Money control.

4. By using Sharpe Ratio, Beta, Standard Deviation, Scheme Returns the ranking was given in
Factsheets (Qualitative data & Quantitative data) accordingly: (Table-2)
 1stRank-L&T Emerging Businesses Fund (Sharpe Ratio -1.19, Beta-0.94, Standard
Deviation -18.17%)
 2ndRank-Kotak Small Cap Fund (Sharpe Ratio -0.57, Beta-0.63, Standard Deviation -
16.38%) &
 3rdRank-HDFC Small Cap Fund (Sharpe Ratio -0.294, Beta-0.662, Standard Deviation -
4.83%).

5. When Both the measurements are compared Reliance Small Cap Fund stood 1st in Value
Research online, Money control &L&T Emerging Businesses Fund stood 1st from data taken
from Factsheets.

6. Atlast by comparing both the tables (1&2) we can conclude that L&T Emerging Businesses is
the best performed Asset management companies.

76
Multi Cap Fund

Multi-cap mutual funds are part of a financial approach that allows investors to diversify the
types of caps in growth potential that are associated with different mutual funds. The multi-cap
approach is an excellent way to create several layers of investments within the portfolio, so that
the components of the portfolio contain various levels of risk. Many investors consider the
practice of carrying a mix of mutual funds a prudent way to maintain the overall integrity of an
investment strategy.

Sometimes referred to as all-cap mutual funds, there are mutual fund offerings that are available
with small, midrange, and large caps on the potential return. Essentially, the higher the cap on
the investment opportunity, the greater the risk involved with the venture. Part of the genius of
the multi-cap package is that the investor is assured of having some options that will perform
well in just about any market condition.

Scheme Characteristics:
Minimum investment in equity & equity related instruments- 65% of total assets .

Type of scheme:
Multi Cap Fund- An open-ended equity scheme investing across Large cap, Mid cap, Small cap
stocks.

1. SBI Magnum Multi Cap Fund

Benchmark: S&P BSE 500 Index
AUM-5,173.92 Crores
Investment objective: To provide investors with opportunities for long-term growth in capital
along with the liquidity of an open-ended scheme through an active management of investments
in a diversified basket of equity stocks spanning the entire market capitalization spectrum and in
debt and money market instruments.
2. ICICI Prudential Multi Cap Fund
Benchmark:S&P BSE 200 Index
AUM- 2,856.06 crores
Investment objective: To generate capital appreciation through investments in equity and equity
related securities in core sectors and associated feeder industries.

77
3. Reliance Multi Cap Fund
Benchmark: S&P BSE 500
AUM- 10,053.46 Crores
Investment objective: It is a multi-cap, trend-based fund with the flexibility to be overweight in
a particular sector or market caps depending on the potential & opportunities as they arise.
Investment in large caps may help to capture market movements & ensures liquidity in volatile
times while exposure to niche themes (primarily mid/small cap companies) having scalable
business models offers alpha creation possibilities.
4. Edelweiss Multi Cap Fund
Benchmark: (Nifty 500 TR Index)
AUM- 69.44 Crores
Investment objective: The investment objective of the Scheme is to generate long-term capital
appreciation from a diversified portfolio that predominantly invests in equity and equity-related
securities of companies across various market capitalization. However, there can be no assurance
that the investment objective of the Scheme will be realized.
5. HSBC Multi Cap Equity Fund
Benchmark: S&P BSE 200
AUM- 62,503.65(Monthly Average in Lakhs)
Investment objective: Seeks long term capital growth through investments across all market
capitalizations, including small, mid and large cap stocks. It aims to be predominantly invested
in equity & equity related securities. However, it could move a significant portion of its assets
towards fixed income securities if the fund manager becomes negative on equity markets.
However, there can be no assurance or guarantee that the investment objective of the scheme
would be achieved.

78
 Table:1 (Data from Financial Websites)

ValueResearchonline Money Control

Multi Cap
Rating Risk Rating Risk
SBI Magnum Multi Cap Fund 5* Below average 4* Moderately high
HSBC Multi Cap Equity Fund 3* Average 3* Moderately high
ICICI Prudential Multi Cap Fund 3* Below average Not Rated Moderately high
Edelweiss Multi Cap Fund 3* Average Not Rated High
Reliance Multi Cap Fund 1* High 1* Moderately high

Table:2 (Data from Factsheets)

Standard Scheme Returns %(CAGR)

Multi Cap Sharpe Beta
Deviation 1 year 3 years 5years
SBI Magnum Multi cap Fund 0.63 0.95 14.27% 15.64 14.99 21.48
Edelweiss Multi Cap Fund 0.60 1.11 16.06% 20.74 15.41 Not Applicable
ICICI Prudential Multi cap Fund 0.49 0.85 12.94% 8.17 12.22 18.81
Reliance Multi Cap Fund 0.08 1.03 4.5% 14.45 9.26 17.45
HSBC Multi Cap Equity Fund 0.43 1.08 15.80% 14.9 12.26 20.3

79
INTERPRETATION:

1. To identify better performing fund in the list of Multi Cap Fund offered by Asset management

companies.

List of AMCs taken into consideration (SBI Magnum Multi cap Fund, ICICI Prudential Multi
cap Fund, Reliance Multi Cap Fund, Edelweiss Multi Cap Fund, HSBC Multi Cap Equity Fund.

2. To analyze the above funds I considered Qualitative data from Value Research online &
Money control and both Qualitative data & Quantitative data from the Factsheets.

3. By using risk and rating parameters given Value Research online & Money control
(Qualitative data) the ranking was given accordingly: (Table-1)

 1stRank-SBI Magnum Multi cap Fund (as it rating is 5* & Below Average Risk) in
 Value Research online and (rating is 4* & Moderately high Risk) in Money Control.
 2ndRank-HSBC Multi Cap Equity Fund (as it rating is 3*&Average) in
Value Research online and (rating is 3* & Moderately high Risk) in Money control.
 3rdRank-ICICI Prudential Multi cap Fund (as it rating is 3*& Below Average) in Value
Research online and (NR & Moderately high Risk) in Money control.

4. By using Sharpe Ratio, Beta, Standard Deviation, Scheme Returns the ranking was given in
Factsheets (Qualitative data & Quantitative data) accordingly: (Table-2)
 1stRank-SBI Magnum Multi cap Fund (Sharpe Ratio -0.63, Beta-0.95, Standard
Deviation -14.27%)
 2ndRank-Edelweiss Multi Cap Fund (Sharpe Ratio -0.6, Beta-1.11, Standard Deviation -
16.06%) &
 3rdRank-ICICI Prudential Multi cap Fund (Sharpe Ratio -0.49, Beta-0.85, Standard
Deviation -12.94%).

5. When Both the measurements are compared SBI Magnum Multi cap Fund stood 1st in

Value Research online, Money control & also data taken from the Factsheets because it is
considerable when compared to others Asset management companies.

80
6. Atlast by comparing both the Tables (1&2) we can conclude that SBI Magnum Multi cap
Fund is the best performed Asset management companies.

Value Fund

A mutual fund that invests in companies which it determines to be underpriced by fundamental

measures. Assuming that a company's share price will not remain undervalued indefinitely, the
fund looks to make money by buying before the expected upturn. Value funds tend to focus on
safety rather than growth, and often choose investments providing dividends as well as capital
appreciation. They invest in companies that have low P/E ratios, and stocks that have fallen out
of favor with mainstream investors, either due to changing investor preferences, a poor quarterly
earnings report, or hard times in a particular industry. Value stocks are often mature companies
that have stopped growing and that use their earnings to pay dividends. Thus, value funds
produce current income (from the dividends) as well as long-term growth (from capital
appreciation once the stocks become popular again). They tend to have more conservative and
less volatile returns than growth funds

Scheme Characteristics:
Scheme should follow a value investment strategy. Minimum investment in equity & equity
related instruments - 65% of total assets.
Type of scheme:
An open-ended equity scheme following a value investment strategy.

1. L&T India Value Fund

Benchmark: S&P BSE 200 TRI
AUM- 8,073.48 crores
Investment objective: To generate long-term capital appreciation from diversified portfolio of
Predominantly equity and equity related securities, in the Indian markets with higher focus on
undervalued securities. The Scheme could also additionally invest in Foreign Securities in
international markets.

81
2. Aditya Birla Sun Life Pure Value Fund
Benchmark: S&P BSE 200
AUM-3865.53 Crores
Investment objective: An Open ended Diversified Equity Scheme with the objective to generate
consistent long-term capital appreciation by investing predominantly in equity and equity related
securities by following value investing strategy.
3. Reliance Value Fund
Benchmark: S&P BSE Enhanced Value Index
AUM- 3,374.75 Crores
Investment objective: Value investment strategy with an aim to participate in investment
opportunities across all sectors and market capitalization. Fund endeavors to invest in
undervalued stocks having the potential to deliver long term relatively better risk-adjusted
returns. Undervalued stocks will be identified based on the evaluation of various factors
including but not limited to stock valuation, financial strength, cash flows, company‟s
competitive advantage, business prospects and earnings potential.
4. ICICI Prudential Dividend Yield Equity Fund
Benchmark: Nifty Dividend Opportunities 50 Index
AUM: 217.33 Crores
Investment objective: The investment objective of ICICI Prudential Dividend Yield Equity
Fund is to provide medium to long term capital gains and/or dividend distribution by investing in
a well-diversified portfolio of predominantly equity and equity related instruments, which offer
attractive dividend yield.
However, there can be no assurance that the investment objective of the Scheme will be realized.
5. ICICI Prudential Value Discovery Fund
Benchmark: S&P BSE 500 Index
AUM: 16,651.89 Crores
Investment objective: To generate returns through a combination of dividend income and
capital appreciation by investing primarily in a well-diversified portfolio of value stocks. Value
stocks are those, which have attractive valuations in relation to earnings or book value or current
and/or future dividends.

82
 Table:1 (Data from Financial Websites)

ValueResearchonline Money Control

Value Fund
Rating Risk Rating Risk
Aditya Birla Sun Life Pure Value Fund 4* Above average 3* Moderately high
L&T India Value Fund 4* Below average Not Rated Moderately high
ICICI Prudential Value Discovery Fund 4* Below average 1* Moderately high
ICICI Prudential Dividend Yield Equity Fund 3* Average 1* Moderately high
Reliance Value Fund 1* High 3* Moderately high

Table:2 (Data from Factsheets)

Scheme Returns %(CAGR)

Standard
Value Fund Sharpe Beta 1 3
Deviation 5years
year years
Aditya Birla Sun Life Pure Value Fund 0.81 1.19 18.40% 14.53 23.08 26.89
L&T India Value Fund 0.75 1.06 15.84% 10.79 19.42 23.93
Not
ICICI Prudential Dividend Yield Equity Fund 0.64 0.91 14.52% 13.76 15.21 Applicable
Reliance Value Fund 0.15 0.6 5.09% 15.91 14.22 19.6
ICICI Prudential Value Discovery Fund 0.28 0.89 13.04% 8.68 9.15 21.46

83
INTERPRETATION:

1. To identify better performing fund in the list of Value Fund offered by Asset management
companies.

List of AMCs taken into consideration are L&T India Value Fund, Aditya Birla Sun Life Pure
Value Fund, Reliance Value Fund, ICICI Prudential Dividend Yield Equity Fund and ICICI
Prudential Value Discovery Fund.

2. To analyze the above funds I considered Qualitative data from Value Research online &
Money control and both Qualitative data & Quantitative data from the Factsheets.

3. By using risk and rating parameters given Value Research online & Money control (Qualitative
data) the ranking was given accordingly: (Table-1)

 1stRank-Aditya Birla Sun Life Pure Value Fund (as it rating is 4* & Above Average
Risk) in Value Research online and (as it rating is 3* & Moderately high Risk) in Money
control.
 2ndRank-L&T India Value Fund and (as it rating is 4* & Below Average Risk) in Value
Research online and (NR & Moderately high Risk) in Money control.
 3rdRank-ICICI Prudential Value Discovery Fund (as it rating is 4* & Below Average
Risk) in Value Research online and (as it rating is 1* & Moderately high Risk) in Money
control.

4. By using Sharpe Ratio, Beta, Standard Deviation, Scheme Returns the ranking was given in
Factsheets (Qualitative data & Quantitative data) accordingly: (Table-2)
 1stRank-Aditya Birla Sun Life Pure Value Fund (Sharpe Ratio -0.81, Beta-1.19, Standard
Deviation -18.40%)
 2ndRank-L&T India Value Fund (Sharpe Ratio -0.75, Beta-1.06, Standard Deviation -
15.84%) &
 3rdRank-ICICI Prudential Dividend Yield Equity Fund (Sharpe Ratio -0.64, Beta-0.91,
Standard Deviation -14.52%).

84
5. When Both the measurements are compared Aditya Birla Sun Life Pure Value Fundstood 1st
in Value Research online, Money control &data taken from Factsheets because it is considerable
when compared to others Asset management companies.

6. At last by comparing both the Tables (1&2) we can conclude that Aditya Birla Sun Life Pure
Value Fund is the best performed Asset management companies.

85
 SUMMARY

A mutual fund is just connecting bridge or a financial intermediary that allows a group of
investors to pool their money who is responsible for investing the gathered money into specific
securities (stock or bonds) when you invest in mutual funds & thus, on investing becomes a
shareholder or unit holder of the fund. Mutual funds are considered one of the best available
investments as compare to others they are very cost efficient & also, to invest in thus pooling
money together in a mutual fund, investors can purchase stocks or bonds with much lower
trading costs or bonds with much trading costs than if they tried to do it on their own. But the
biggest advantage by mutual funds in diversification by minimizing risk and maximizing return.
As per the financial rule of “Do not put all the eggs in one basket” investor‟s portfolio has to be
most diversified. So that the risk can be minimized. If the person does not have knowledge of
how to get maximum return with minimum risk then they may prefer to invest in mutual fund.
As there are many funds and schemes available in mutual fund market the investors are in a
dilemma which scheme is suitable to diversify the risk in investment in this connection there is a
need to make study in relation to the RISK & RANKING ANALYSIS of MUTUAL FUNDS
with reference to GLOBALBULL Financial services. 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 of India. The history of mutual funds in India can be broadly divided into five
distinct phases:
1. First Phase - 1964-1987
2. Second Phase - 1987-1993 (Entry of Public Sector Funds)
3. Third Phase – 1993-96(Entry of Private Sector Funds)
4. Fourth Phase - 1996-04(Growth and SEBI Regulation)
5. Fifth (Current) Phase- Since May 2014
Risk can be a great ally when trying to estimate the reward potential of a stock investment. The
greater the stock volatility, or risk, the greater also is the reward. There are several new risks
measurements that give guidance for selecting mutual stocks that provide higher returns for
lower risk.

86
Funds taken for data interpretations are
1. SBI Blue Chip Fund
2. SBI Magnum Equity Fund
3. Reliance Large Cap Fund (formerly known as Top 200 Fund)
4. ICICI Prudential Focused Blue-chip Equity Fund
5. ICICI Prudential Select Large Cap Fund
6. L&T Equity Fund
7. Aditya Birla Sun Life Frontline Equity Fund
8. HDFC Equity Fund
9. L&T Midcap Fund
10. ICICI Prudential Midcap Fund
11. Aditya Birla Sun Life Midcap Fund
12. SBI Magnum Midcap Fund
13. Reliance Growth Fund
14. HDFC Small Cap Fund
15. Reliance Small Cap Fund
16. Kotak Small Cap Fund
17. L&T Emerging Businesses Fund
18. SBI Magnum Multicap Fund
19. ICICI Prudential Multicap Fund
20. Reliance Multi Cap Fund
21. Edelweiss Multi Cap Fund
22. HSBC Multi Cap Equity Fund
23. L&T India Value Fund
24. Aditya Birla Sun Life Pure Value Fund
25. Reliance Value Fund
26. ICICI Prudential Dividend Yield Equity Fund
27. ICICI Prudential Value Discovery Fund

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A mutual fund is just connecting bridge or a financial intermediary that allows a group of
investors to pool their money who is responsible for investing the gathered money into specific
securities (stock or bonds) when you invest in mutual funds; thus, on investing becomes a
shareholder or unit holder of the fund.

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 FINDINGS

 From the study it is observed that the funds with high risk are HDFC Equity Fund, L&T
Midcap Fund, Reliance Value Fund, Reliance Multi Cap Fund, L&T Emerging
Businesses Fund.
 The funds with high returns are L&T Equity Fund, L&T Midcap Fund, Reliance Small
Cap Fund, SBI Magnum Multi cap Fund, Aditya Birla Sun Life Pure Value Fund.
 The funds with medium risk and medium returns are SBI Magnum Midcap Fund,
Reliance Small Cap Fund, HSBC Multi Cap Equity Fund, ICICI Prudential Dividend
Yield Equity Fund.
 The fund with low risk is SBI Blue Chip Fund.
 To know the volatility of the scheme returns, industry allocation, investment objectives
from their respective factsheets.
 Among the selected mutual fund schemes, more than70% of schemes are giving positive
returns.

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 SUGGESTIONS

 The schemes with high risk and high return such HDFC Equity Fund, Axis mid cap fund,
Aditya Birla Sun Life Pure Value Fund, Reliance Multi Cap Fund, L&T Emerging
Businesses Fund may be preferred by an optimistic investor who takes good amount of
risk appetite.

 The schemes with medium risk and medium return such as L&T Equity Fund, SBI
Magnum Midcap Fund, Reliance Small Cap Fund, HSBC Multi Cap Equity Fund, ICICI
Prudential Dividend Yield Equity Fund may be preferred by moderate investor.

 The schemes with low risk such as SBI Blue Chip Fund may be prepared by pessimistic
investor.

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 CONCLUSION

A normal practice as the investor wants to earn better returns, he/she is suggested to make long
term investment in mutual fund schemes relating, banking; insurance apart from the other
industries such as consumer goods, information technology and infrastructure etc. From above
mentioned performance analysis of the nine selected equity funds, it‟s understandable that all the
funds have performed well during the study period.
As Investors are becoming more information oriented and are well aware about their investment
options they prefer the benefits of investment in mutual funds. Due to increase in household
savings, increase in young population and improvement in deployment of investment through
various markets, the scope for mutual fund industry has increased tremendously. In this
perspective, it becomes significant to study the performance of the selected mutual funds.

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 BIBLIOGRAPHY:

BOOK REFERRED:

 Prasanna Chandra (Financial Management)- Dr. Prasanna Chandra was a Professor of

Finance at the Indian Institute of Management, Bangalore for nearly 2 decades and a
visiting professor of Finance at Southern Illinois University, USA.

WEBSITES REFERRED:

www.amfiindia.com
www.moneycontrol.com
www.nseindia.com
www.amfi.com
www.investopedia.com

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Quantitative Analysis, 5, 1, 1-32.
 Arditti (1971), Another look at Mutual Fund performance, Journal of Financial and
Quantitative Analysis, 6, 909-912.
 McDonald (1973), Mutual Fund Performance: Evaluation of Internationally-Diversified
Portfolios, The Journal of Finance, 28, 5, 1161-1180.
 Miller and Nicholas (1980), Nonstationarity and Evaluation of Mutual Fund
Performance, The Journal of Financial and Quantitative Analysis, 15, 3, 639-654.
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Performance, 1965-1984, The Quarterly Journal of Economics, 104, 1, 1-23.
 Grinblatt and Sheridan (1992), the Persistence of Mutual fund Performance, The Journal
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 Martin et al. (1993), „Efficiency with costly information: A reinterpretation of evidence
from managed portfolios‟, Review of Financial Studies, 6, 1, 1-22.
 Dietz, Oliver and Macro (2009), The Performance of Investment Grade Corporate Bond
Funds: Evidence from the European Market, The European Journal of Finance, 15, 2,
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Industry, Managerial Finance, 28, 1, 14-34.
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