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DISSERTATION REPORT ON
“A STUDY THE PERFORMANCE OF MUTUAL FUND SCHEMES IN
THE FRAMEWORK OF RISK AND RETURN”. (ELSS)
TO Share khan LIMITED
SUBMITTED BY:
Under the Guidance of
Mr.VAGGANA VAR
BASAVARAJ.Y
ACKNOWLEDGEMENT
BIBLIOGRAPHY 77
LIST OF TABLES
TABLE PAGE
NO CONTENTS NO
1 Table showing the monthly return of Birla Sunlife tax relife96 45
2 Table showing the calculation rsk,beta, trenyor,share and 46
jenson
3 Table showing the monthly return of Franklin India Taxshield 50
4 Table showing the calculation rsk,beta, trenyor,share and 51
jenson
5 Table showing the monthly returns of hdfc tax saver 55
6 Table showing the calculation rsk,beta, trenyor,share and 56
jenson
7 Table showing the SBI magnum Taxgain 60
EXECUTIVE SUMMARY
Financial market’s main function is to facilitate transfer of funds from surplus
sectors to deficit sectors. A financial market consists of investor or buyers, sellers, dealers
and does not refer to physical location. Indian financial system consists of two markets,
viz. money and capital market. The core of money market is the inter-bank call money
market. It has two components - organised and unorganised.
Capital market provides the framework in which savings and investments take
place. On one hand it enables companies to raise resources from the investing community
and on the other, it facilitate households to invest their savings in industrial or
commercial activities. The capital market consists of primary and secondary segments. In
primary market it deals with the issue of new instruments by the corporate sector such as
equity shares, preference shares, and debentures. The secondary market or stock
exchanges where existing Securities are traded. Capital market plays a major role in
Indian financial system.
So, Equities & mutual fund is the part of capital market. Mutual fund industry in
India began with setting up of Unit Trust of India (UTI) in 1964 by the government of
India. Now a day mutual fund is playing very important role in the industry. Investors
will get the benefit of return, capital appreciation, tax benefits and safety to there
investment and companies will get the capital for there growth. Recently they have also
started Systematic Investment Plan(SIP) with the help of this even small investors
(minimum of Rs. 100)can start investing, by this even students can also invest in this
fund. So, we came to know how this mutual fund works. .
The saving of an individual are spread through different means of investment one
of them is mutual fund which is a growing investment now a days because of diversified
risk and lack of time to look after their money.
CHAPTER-1
INTRODUCTION
1.1 ABOUT THE INDUSTRY
Indian capital market is one of the oldest and largest capital markets of the world.
It history can be traced back to 19th century. The first instance of organized trading
corporate securities in India is related to the trading in securities of East India Company.
The concept of limited liability introduced with enactment of companies act, 1850 helped
in commencing an era of joint-stock companies, which in turn paved the way for the
development of capital market. In due course, broker used to assemble at some common
places to conduct trade. By 1874, Dalal Street in Mumbai became a prominent place of
meeting of the broker. Bombay Stock Exchange (BSE) the first organized stock
exchange in the country was started functioning in 1875. However, it was in 1887 the
BSE formally established as a society named Native Share and Stock Brokers
Association.
In the Secondary market the securities which are floated and subscribed in the
primary market are traded. The primary function of stock exchange or secondary market
is to provide liquidity of capital and continuous market for outstanding securities. The
stock exchange brings about a correct evaluation of securities and set prices of securities
close to their investment worth.
The only stock exchanges operating in the 19th century were those of Mumbai set
up in 1875 and Ahmadabad set up in 1894. These were organized as voluntary non-profit
making associations of brokers to regulate and protect their interest. Before the control on
securities trading became a central subject under the Constitution in 1950, it was a state
subject and the Bombay Security Contracts (Control) Act of 1925 used to regulate trading
in securities. Under this act, the Bombay Stock Exchange was recognized in 1927 and
Ahmadabad in 1937. During the war boom, a number of stock exchanges were organized
even in Mumbai, Ahmadabad and other centers, but they were not recognized. Soon after
it became a central subject. Central legislation was proposed and a committee headed by
A.D. Gorwala went into the Bill for securities regulation. On the basis of the committee’s
recommendations and public discussion, the Securities Contracts (Regulation) Act
SC(R) Act became law in 1956.
Stock exchange
At present, there are 21 stock exchanges recognized under the securities contracts
(regulation) Act, 1956. They are located at Bombay, Calcutta, Madras, Delhi,
Ahmedabad, Hyderabad, Indore, Bhuwandeshwar, Mangalore, Patna, Bangalore, Rajkot,
Guwahati, Jaipur, Kanpur, Ludhiana, Baroda, Cochin and Pune. The recently recognized
stock exchanges are at Coimbatore and Meerut. Visakhanatnam stock exchange was
recognized in 1996 for electronic trading. A stock exchange has also been sought for this
body as the jurisdiction of the Securities Contracts (Regulation) Act, 1956 has not so far
been extended to the areas covered by the state. A decade ago, there were hardly 8 stock
exchanges in the country. There is no trading, how ever, in Meerut and Vishakhapatnam
stock exchanges.
The Bombay Stock Exchange (BSE) and the National Stock Exchange of India
Ltd (NSE) are the two primary exchanges in India. In addition, there are 22 Regional
Stock Exchanges in India. However, the BSE and NSE have established themselves as
the two leading exchanges and account for about 80% of the equity volume traded in
India.
The NSE and BSE are equal in size in terms of daily traded volume. The average
daily turnover at the exchanges has increased from 851 crore in 1997-98 to 1,284 crore in
1998-99 and further to Rs 2,273 crore in 1999-2000 (April –August 1999).
NSE has around 1500 shares listed with a total market capitalization of around 9,21,500
crores.The BSE has over 6000 stocks listed and has a market capitalization of around
9,68,000 cores.
The primary index of BSE is BSE Sensex comprising 30 stocks. NSE has the
S&P NSE 50 Index (NIFTY) which consists of fifty stocks. The BSE Sensex is the older
and more widely followed index. Both the exchanges have switched over from the open
outcry trading system to a fully automated computerized mode of trading known as (BSE
Online Trading) BOLT and (National Exchange Automated Trading) NEAT system. It
facilitates more efficient processing, automatic order matching, faster execution of trades
and transparency.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive
and revised Mutual Fund Regulations in 1996. The number of mutual fund houses went
on increasing, with many foreign mutual funds setting up funds in India and also the
industry has witnessed several mergers and acquisitions.
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. One is the Specified Undertaking of the Unit
Trust of India with assets under management of Rs.29, 835 corers as at the end of January
2003, representing broadly, the assets of US 64 scheme, assured return and certain other
schemes. The Specified Undertaking of Unit Trust of India, functioning under an
administrator and under the rules framed by Government of India and does not come
under the purview of the Mutual Fund Regulations.
The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC.
It is registered with SEBI and functions under the Mutual Fund Regulations. With the
bifurcation of the erstwhile UTI which had more than Rs.76, 000 crores of assets under
management and with the setting up of a UTI Mutual Fund, conforming to the SEBI
Mutual Fund Regulations, and with recent mergers taking place among different private
sector funds, the mutual fund industry has entered its current phase of consolidation and
growth.
Any change in the value of the investments made into capital market instruments
(such as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme.
NAV is defined as the market value of the Mutual Fund scheme's assets net of its
liabilities. NAV of a scheme is calculated by dividing the market value of scheme's assets
by the total number of units issued to the investors.
To protect the interest of the investors, SEBI formulates policies and regulates the mutual
funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from
time to time. MF either promoted by public or by private sector entities including one
promoted by foreign entities is governed by these Regulations.
SEBI approved Asset Management Company (AMC) manages the funds by making
investments in various types of securities. Custodian, registered with SEBI, holds the
securities of various schemes of the fund in its custody.
According to SEBI Regulations, two thirds of the directors of Trustee Company or board
of trustees must be independent.
The Association of Mutual Funds in India (AMFI) reassures the investors in units of
mutual funds that the mutual funds function within the strict regulatory framework. Its
objective is to increase public awareness of the mutual fund industry.
AMFI also is engaged in upgrading professional standards and in promoting best industry
practices in diverse areas such as valuation, disclosure, transparency etc.
1 Equity Funds-
Equity funds are considered to be the more risky funds as compared to other
fund types, but they also provide higher returns than other funds. It is advisable that an
investor looking to invest in an equity fund should invest for long term i.e. for 3 years or
more. There are different types of equity funds each falling into different risk bracket. In
the order of decreasing risk level, there are following types of equity funds:
Growth Funds - Growth Funds also invest for capital appreciation (with time
horizon of 3 to 5 years) but they are different from Aggressive Growth Funds in
the sense that they invest in companies that are expected to outperform the market
in the future. Without entirely adopting speculative strategies, Growth Funds
invest in those companies that are expected to post above average earnings in the
future.
Sector Funds: Equity funds that invest in a particular sector/industry of the
market are known as Sector Funds. The exposure of these funds is limited to a
particular sector (say Information Technology, Auto, Banking, Pharmaceuticals or
Fast Moving Consumer Goods) which is why they are more risky than equity
funds that invest in multiple sectors.
Mid-Cap or Small-Cap Funds: Funds that invest in companies having lower
market capitalization than large capitalization companies are called Mid-Cap or
Small-Cap Funds. Market capitalization of Mid-Cap companies is less than that of
big, blue chip companies (less than Rs. 2500 crores but more than Rs. 500 crores)
and Small-Cap companies have market capitalization of less than Rs. 500 crores.
Market Capitalization of a company can be calculated by multiplying the market
price of the company's share by the total number of its outstanding shares in the
market. The shares of Mid-Cap or Small-Cap Companies are not as liquid as of
Large-Cap Companies which gives rise to volatility in share prices of these
companies and consequently, investment gets risky.
Equity Linked Saving Scheme- These funds are well diversified and reduce
sector-specific or company-specific risk. However, like all other funds diversified
equity funds too are exposed to equity market risk. One prominent type of
diversified equity fund in India is Equity Linked Savings Schemes (ELSS). As per
the mandate, a minimum of 90% of investments by ELSS should be in equities at
all times. ELSS investors are eligible to claim deduction from taxable income (up
to Rs 1 lakh) at the time of filing the income tax return. ELSS usually has a lock-
in period and in case of any redemption by the investor before the expiry of the
lock-in period makes him liable to pay income tax on such income(s) for which he
may have received any tax exemption(s) in the past.
Dividend Yield Funds -The objective of Equity Income or Dividend Yield
Equity Funds is to generate high recurring income and steady capital appreciation
for investors by investing in those companies, which issue high dividends. Equity
Income or Dividend Yield Equity Funds are generally exposed to the lowest risk
level as compared to other equity funds.
Gold Fund- The objective of this fund is accumulating the money at the gold rate
according to the units held by the investors. This is one of the new fund
introduced. Here all the investors will invest for the pool account of mutual fund
and that amount is invested in the gold. And according to the fluctuation of the
rates of gold in the market, fund manager invest when rates are in good rates like
this profit earned from this gold fund is distributed according to the units held by
the investors
2. Debt funds-
Diversified Debt Funds - Debt funds that invest in all securities issued by entities
belonging to all sectors of the market are known as diversified debt funds. The best
feature of diversified debt funds is that investments are properly diversified into all
sectors which results in risk reduction. Any loss incurred, on account of default by a
debt issuer, is shared by all investors which further reduces risk for an individual
investor.
High Yield Debt funds - As we now understand that risk of default is present in all
debt funds, and therefore, debt funds generally try to minimize the risk of default by
investing in securities issued by only those borrowers who are considered to be of
"investment grade". But, High Yield Debt Funds adopt a different strategy and prefer
securities issued by those issuers who are considered to be of "below investment
grade". The motive behind adopting this sort of risky strategy is to earn higher
interest returns from these issuers. These funds are more volatile and bear higher
default risk, although they may earn at times higher returns for investors.
Assured Return Funds - Although it is not necessary that a fund will meet its
objectives or provide assured returns to investors, but there can be funds that come
with a lock-in period and offer assurance of annual returns to investors during the
lock-in period. Any shortfall in returns is suffered by the sponsors or the Asset
Management Companies (AMCs). These funds are generally debt funds and provide
investors with a low-risk investment opportunity. To safeguard the interests of
investors, SEBI permits only those funds to offer assured return schemes whose
sponsors have adequate net-worth to guarantee returns in the future. In the past, UTI
had offered assured return schemes (i.e. Monthly Income Plans of UTI) that assured
specified returns to investors in the future. UTI was not able to fulfill its promises and
faced large shortfalls in returns. Eventually, government had to intervene and took
over UTI's payment obligations on itself. Currently, no AMC in India offers assured
return schemes to investors, though possible.
Fixed Term Plan Series - Fixed Term Plan Series usually are closed-end schemes
having short-term maturity period (of less than one year) that offer a series of plans
and issue units to investors at regular intervals. Unlike closed-end funds, fixed term
plans are not listed on the exchanges. Fixed term plan series usually invest in debt /
income schemes and target short-term investors. The objective of fixed term plan
schemes is to gratify investors by generating some expected returns in a short period.
3. Balanced Fund-
A balanced fund is one that has a portfolio comprising debt instruments,
convertible securities, and Preference equity shares. Their assets are generally held in
more or less equal proportions between debt/money market securities and equities. By
investing in a mix of this nature, balanced funds seek to attain the objectives of
income, moderate capital appreciation and preservation of capital, and are ideal for
investors with a conservative and long-term orientation.
SAMPLE DESIGN
The population consists of 5 old funds of risk and return of last three year the entire
population has been taken in to consideration for the study.
Need for the Study
Business concerns, corporate investors worldwide are using these new financial
instruments; “Mutual Funds” effectively to reduce substantial loss, countries have proved
that these instruments can effectively reduce risk.
There has always been high volatility in India, which leads to very high-risk levels. So
there is an absolute need to develop. This concept makes all the investors aware of its
advantages and makes them use these instruments according to their needs.
To study the concept of Mutual funds such as how mutual funds have come into
existence, the different types of mutual funds schemes such as open ended schemes
closed ended schemes, to compare the performance of different mutual funds to
understand the concept of NAV and mutual funds, to identify the different players in
mutual fund industry, to compare equity funds with sensex and nifty
♦ This study covers Equity Linked Savings Schemes (ELSS) of six AMC’s, of
which Share khan is a distributor.
♦ The study covers the period of past three years i.e. from Jan 2006 to Dec
2008.
♦ The study covers only open ended type.
♦ The study applies only three approaches to evaluate performance, namely
Treynor’s Index, Sharpe’s Index and Jensen’s Index.
Primary Data
Secondary Data
Primary Data
The data collected first hand by the researcher concerned with the research
problem refers to the Primary data.
Personal discussion was made with Unit manager and interaction with other
personnel in the organization for this purpose. There is no formal design of questionnaire
used in this study.
Secondary Data
The information available at various sources made for some other purpose but
facilitating the study undertaken is called as Secondary Data.
The various sources that were used for the collection of secondary data are
The concept of required rate of return plays an important role in the valuation of assets
and in both financial and real investment decisions.
The required rate of return for a security is defined as the minimum expected rate of
return needed to induce or persuade an investor to purchase the security, given its risk.
The required rate of return has two components:
Risk-Free rate of Return, which is the basic temporal exchange rate in the economy. It
can be defined as that reward or price which is expected by an investor to induce him to
forgo his present consumption in favor of future consumption plus a premium for
expected inflation.
The second component is the Risk Premium. The rational risk hover investor, purchasing
an asset, expects to be compensated for the risk. The premium for risk must reflect all
the uncertainty involved in investing in the security. Thus
Required Rate of Return = Risk Free Rate of Return + Risk Premium
It should be noted that there are many financial assets, and therefore, many required rates
of return. They are also different within a particular asset class or category. The RRR
may change over a period also. The RRR and market interest rate are positively related.
The objective of maximizing return can be pursued only at the cost of incurring higher
risk. The financial markets offer a wide range of assets from very safe to very risk, with
corresponding low to high returns. The investor has to consider both its return potential
and risk involved while selecting the asset for investment. The empirical evidence shows
that generally there is a high correlation between risk and return over a long period. The
securities are generally priced such that high risk is rewarded with high return, and low
risk is accompanied by a corresponding low return. This relationship is known as risk –
return trade off.
Total Returns = cash payment received during the year+ Price change over the period
The most commonly used measure of risk in finance is variance or the standard deviation.
The variance and the standard deviation of a historical return series are defined as
follows:
σ² = ∑ (x-x')²
N-1
Where
σ ² : Variance of Return
σ : Standard Deviation of Return
X : Return for the stock in period
x' : Arithmetic Return
N : Number of periods
BETA
The sensitivity of a security to market movements is called beta (β). A measure of risk
commonly advocated is beta. It represents the most widely accepted measure of the
extent to which the return on a security fluctuates with the return on the market portfolio.
It describes the relationship between the securities return and the index returns. To
calculate the beta of a portfolio, regress the rate of return of the portfolio on the rate of
return of a market index. The slope of this regression line is the portfolio beta. By
definition, the beta for the market portfolio is 1. Beta of a portfolio can be calculated as
follows
Beta (βA) = COV ( RA,RM)
σ ²M
Where
(N-1)
σ ²M = ∑ (RM-R'M)²
(N-1)
σ A
Where,
R’A : Average rate of return of Portfolio A
RF : Average rate of return on a risk-free investment
σ A : Standard deviation of return of portfolio A.
βA
Where
R’A : Average rate of return of Portfolio A
RF : Average rate of return on a risk-free investment
βA : Beta of portfolio A
JENSEN’S INDEX
The absolute risk adjusted return measure was developed by Michael Jensen and
commonly known as Jensen’s measure. It is mentioned as measure of absolute
performance because a definite standard is set and against that the performance is
measured. The standard is based on the manager’s predictive ability. Successful
prediction of the security price would enable the manager to earn higher returns than the
ordinary investor expects to earn in a given level of risk. The basic model of Jensen is
Performance measure
♦ Trenor’s Index
♦ Sharpe’s Index
♦ Jensen’s Index
Statistical techniques
♦ Mean
♦ Standard Deviation
Chapter 5.
Provides a summary of the findings and includes the conclusion and
recommendations of the researcher.
CHAPTER-3
COMPANY PROFILE
3.1COMPANY PROFILE
Share khan is a retail broking arm of S.S Kantilla Ishwarlal Investors Services Pvt Ltd, an
organization with more than 8 decades of trust and credibility in the stock market. Share
khan Ltd (Formally SSKI Investors Services Pvt Ltd) was promoted by Mr.Shripal.S
Morakhia and Mr.Shreyas.S Morakhia. It is currently India’s largest broking house. It is a
member of the stock exchange, Mumbai. It is a depository participant of the NSDL and
CDSL. Its business includes stock broking, depository services, portfolio management
and derivatives.
The company’s core specialty lies in its retail distribution with a large network of
branches i.e. 510 share shops (retail shops) in 170 cities in India and sub-
brokers/authorized persons. Its strengths lies in its investment research capabilities. Its
research division has several analysts continuously monitoring global, national and
regional political, economic and social situations so as to assess their impact on the
economy in general, the sectors and companies they research which helps them if
offering quality research and advice to clients.
Share khan is a stock broking company. The company offers a complete range of pre
trade, trade and post trade service on the BSE (Bombay stock exchange) and the NSE
(National stock exchange).
Whether the client come in to the companies conventionally located offices and trade in
a dedicated environment or issue instructions over the phone, our highly trained team and
sophisticated equipment ensure smooth transactions and prompt service.
Share khan Branches are conceptualized to be place where investors can come in contact
with investment opportunities in an atmosphere of convenience and comfort. Our services
are available through our network of 510 Share shops spanning 170 major towns and
cities in the country.
Professional seeks to educate clients & end their confusion by custom an Investment Plan
according to the needs of clients and are also today a part of companies induction
The McKinney’s 7’s framework model was developed by the consultants of the
McKinney Company, a very well known management consultancy firm in U.S.A,
towards the end of 1970s to diagnose the cause of organizational problems and to
formulate programs for improvements.
STRATEGY
5) Plans.
VISION
Vision refers to the category of intentions that are broad all inclusive and forward
thinking. A vision describes aspirations for the future without specifying the means that
will be used to achieve those desired ends.
Share khan practices customer centric approach to be the leading broking firm. Our
company Vision is
To be the top most company for providing investment advisory & financial
planning services in India.
MISSION
3) Relationship management
Superior service
1. Integrity
2. Transparency
3. Professionalism
4. Information – product ,news, operations
5. Hassle free trading
6. Enjoyable experience
MILESTONES OF SSKI
• 2002: The next generation technology product “Speed trade” was launched on
April 17th
• 2002: The advanced technology in the online business “ Speed trade plus” was
launched on October 28th for derivative trading
• Rated among the top 20 wired companies along with Reliance, HLL, Infosys, etc
by ‘Business Today’, January 2006 edition
• Awarded ‘Top Domestic Brokerage House’ four times by Euro money and Asia
money.
• Pioneers of online trading in India amongst the top 3 online trading websites from
India. Most preferred financial destination amongst online broking customers
• India’s most preferred brokers within 5 years. “ Awaaz Consumers Award 2005”
FUTURE PLANS:
• 2,00,000 plus retail customers being serviced through centralized call centers/web
solutions
• Branches/semi branches servicing affluent/ aggressive traders through high skill
financial advisor
OWNERSHIP PATTERN:
The shareholder of SSKI investor Pvt. Ltd are Mr. Shripal Morkhia, Mr. Shreyas
Morkhia, foreign private equity funds and key employees of the company. The key
promoter of the company is Mr. Shirpal Morkhia who as on march 31, 2005 along with
his family owns 55.47% of the paid up capital of the company and the remaining balance
i.e.54.53% is HSBC, CARLYE, and INTEL PACIFIC.
INFRASTRUCTURE FACILITIES:
Sharekhan outlets are designed to be places where retail investors can come in
touch with Investment opportunities in an atmosphere of convenience and comfort. The
look and feel of the offices across India projects a consistent branch image for the
company. The features that enable a unique facility for retailing financial service include
among others.
Equity share is a product which represents ownership capital. Those shares of the
company which are listed in NSE and BSE can be purchased and sold through brokers.
COMMODITY TRADING
Oil and Oil seed: Castor, Soya, Rapeseed/Mustard Oil, Crude Palm
Oil, RBD Palmolein.
DERIVATIVE TRADING
Derivative is product which derives their values from the underlying asset or
securities in a contractual manner. The underlying asset can be Equity, commodity or
any other asset.
SERVICE
Depository service
A depository can be define as an institution where the investors can keep their
financial asset such as Equities Etc., in the dematerialized form and transaction could be
effected on it.
Online trading
With a Share khan Online trading account, an investor can buy and sell shares
through the web site www.sharekhan.com in an instant. Sharekhan offers three types of
online trading account that suits investors trading habits and preferences.
Online products
1. Classic Account
2. Speed trade
3. Speed tradeplus
1. Classic Account:
This account allows the client to the trade through out website and is suitable for the
retail investors. Our online trading website also comes with the Daily Trade service that
enables you to buy and sell shares by calling their dedicated toll free number. This
account for retail investor who is risk averse and hence prefer to invest in stock
selectively or who does not trade frequently.
The account opening charge for classic account is 750/- in which client will get the
DEMAT account free for one year, after one year client should pay an annual
maintenance of rupees 300/- for demat account..
2 .Speed trade
Speed trade is a next-generation online trading product that brings the power of your
broker’s terminal to your PC. It is ideal for active traders who transact frequently during
day’s trading session capitalize on intra-day price movements. Speed trade is an internet-
based application available on a CD, which provides every-thing a trader needs on one
screen, thereby, reducing the required to execute a trade.
Speed trade has all the above-mentioned features with the power to trade in cash and
derivatives from a single screen. For this account opening charge is 1000/-
The brokerage charged for both a/c is 0.1% each sides for intra day [i.e., buys & sell the
same day and 0.5% for delivery [i.e., investment].the minimum brokerage in trading
account is 33% margin and 100% delivery.
A speed trade plus has all the above mention future with an additional
functionality of trading in derivatives from the same single-screen inter-face.
Basis of Trading
The NEAT F&O system supports an order driven market, where in orders match
automatically. Order matching is essentially on the basis of security, its price, time and
quantity. All quantity fields are in units and price in rupees. The lot size in the Futures
market is for 200 Nifties the exchanging notifies the regular Lot size an ticks sizes for
each of the contracts traded in the segment from time to time. When any order enters the
trading system, it is an active order. It tries to find a match on the other side of the book if
it finds a match, a trade is generated. If it does not find a match, the order becomes
passive and goes and sits in the respective outstanding order book in the system.
The system allows the trading member to enter orders with various conditions
attached to them as per their requirements. This condition is broadly divided into the
following categories.
Time conditions
• Day order: A day order which is valid for the day on which it is entered. If the
order is not executed during the day, the system cancels the order automatically at
the end of the day.
• Good till canceled: It is the order remains in the system until the user cancels
it. The maximum number of days an order can remaining the system is notified by
the exchange from time to time after which the order is automatically cancelled by
the system.
• Good till days: An order allows the user to specify the number of days till
which the order should stay in the system is not executed. The maximum days
allowed by the system are the same as in good till cancelled order.
Price Condition
• Stop-Loss: This facility allows the user to release an order in to the system, after
the market price of the security reaches or crosses a threshold price.
Other Condition
• Market price: Market orders are orders for which no price is specified at the
time the orders are entered. For such orders, the system determines the price.
• At opening price: It is the price arrived at by the system after the pre-open phase
is over.
• Trigger price: Price at which an order gets triggered from stop-loss book.
• Limit Price: Price of the order after triggering from stop- loss book.
• This means that if the share price you trade in is Rs 50/- or less, a minimum
brokerage of 5 paisa per share will be charged.
** Minimum brokerage of 10 paisa per share is applicable when the share price is Rs 20/-
or less and minimum brokerage of Rs 16/- per scrip on selling side will be applicable
when the traded volume is Rs 3200/- or less
*** All the brokerages are charged in derivatives on the value of contract.
(II.B)DERIVATIVE SEGMENT
Seller to pay 0.017% (Applicable for both intraday and next day selling)
Speed Trade Plus
A speed trade plus has all the above mention future with an additional
functionality of trading in derivatives from the same single-screen inter-face.
Basis of Trading
The NEAT F&O system supports an order driven market, where in orders match
automatically. Order matching is essentially on the basis of security, its price, time and
quantity. All quantity fields are in units and price in rupees. The lot size in the Futures
market is for 200 Niftiest the exchanging notifies the regular Lot size a ticks sizes for
each of the contracts traded in the segment from time to time.
When any order enters the trading system, it is an active order. It tries to find a
match on the other side of the book if it finds a match, a trade is generated. If it does not
find a match, the order becomes passive and goes and sits in the respective outstanding
order book in the system.
1. Trading Facilities:
Sharekhan as a member of NSE& BSE provides both offline and online trading
facilities nationwide for trading the securities in secondary market to its clients.
The company’s wide network of outlets spread across the country facilities to
executive the orders in secondary market.
The company also facilitates the trading system for trading in secondary market under
future and options segment of NSE and BSE. The equity dealers in the company will
be eager to give insights into the new sets introduction in the Indian Capital Market
futures and options.
3. Depository services:
Sharekhan will open De-mat accounts, which will investors to convert physical
certificates of shares into electronic balances in an account maintained.
4. Margin Financing:
In the present rolling settlement scenario, Sharekhan understand investor need for
additional capital availability for daily purchaser shares. It offers unique facility avail
finance, for purchasing shares at very competitive interest rates.
Sharekhan offers the change of investing in the potentially lucrative IPO market.
Sharekhan is a distribution house for all mutual funds. This is the news scheme
introduced by the company and it also offers schemes catering to investors with varying
risk return profiles.
One can place an order of shares with Sharekhan. It is approved intermediary of the
security or lending scheme. These would be sent out the borrowers, these earnings fees
for all investors’ idle shares. Thus Sharekhan fulfill the investor need for borrowing and
lending of shares.
7. Equity Research:
Share khan has a highly rated research using involved in macro economic studies,
industry and company specific equity research. The research team’s inputs will be
available as daily trading calls, quarterly investment picks and long term investment
picks, based on the fundamentals of particular company and the industry as a whole.
8. Trading:
Investors can also trade their securities through this facility by logging into
company’s website. The virtual world that Sharekhan offers online trading services
through.
Online BSE & NSE executions through BOLT & NEAT terminals)
The operations Share khan can be broadly classified in to Online and offline
media. The Online channel is followed through to modes that is
Direct
2. Alternative
a. FINANCE
It is the department which handles all the necessary financial operations which are
needed for any organization. The accounts department is responsible for handling all the
financial requirements of the company.
This department handles all the details regarding the safeguard of the individual
investor’s money. The software keeps track of the account s of all the investors and any
slip will immediately known and it is rectified to meet the guidelines of the SEBI.
d. REGULATION
The regulation department handles the legality requirement of all the operations
involved in this business. The transaction costs, brokerage, turnover tax, stamp duty and
service tax norms are to be met by every organization and this department handles all
these operations.
e. MARKETING
The Offline operations are handled by the marketing department and the
acquisition of the customers is mainly based on the contacts and periodical reviews of
these employees are done to keep tab of the growth.
CHAPTER-4
In this study five funds have been considered. Their relative benchmark indices are
Fund Market
Period NAV* Index* (BSE 200)
Return Return
N=36
∑ RA=52.0478 R'A=1.4458
∑ RM=85.0816 R'M=2.363
∑ (RA-R'A)(RM-R'M)= 1377.3100
∑ (RM-R'M)²= 1481.6275
∑ (RA-R'A)²= 2443.2127
RF= 8.5%
Rate of Return = (Terminal value – Initial value)+ Dividend
Initial Value
σ ²M
βA = 0.9296
σ A= ∑ (RA-R'A)²
√ (N-1)
σ A = 8.3550
βA
σ A
♦ The Average Returns of the Mutual Fund as depicted by Arithmetic Mean (R' A)
for the period from 1 Jan 2006 to 31st Dec 2008 is 1.4458.
♦ The Average Returns of the Market Index – BSE 200 as depicted by Arithmetic
Mean (R'M) for the period from 1 Jan 2006 to 31st Dec 2008 is 2.3634.
♦ The Systematic Risk of the Mutual Fund as given by the β coefficient for the
period from 1 Jan 2006 to 31st Dec 2008 is 0.9296.
♦ Treynor’s Measure for the fund for the period from 1 Jan 2006 to 31st Dec 2008 is
1.4638 which indicates that for every one unit change in the beta there will be
1.4638 unit change in the returns
♦ Sharpe’s Measure for the fund for the period from 1 Jan 2006 to 31st Dec 2008 is
0.1629 which indicates that for every one unit change in the standard deviation
there will be 0.1629 unit change in the returns.
♦ Jensen’s Measure for the fund for the period from 1 Jan 2006 to 31st Dec 2008 is
-0.7572
Graph 1.3: Birla Sunlife Tax Relief 96 NAV movement from 2006 to 2008
BIRLA SUN LIFE TAX RELIF 96 NAV MOVEMENT
FROM 2006-2008
250
200
150
NAV
NAV*
100
50
0
ar
ar
ar
p
n
n
c
c
De
De
De
Ju
Ju
Ju
Se
Se
Se
M
M
6-
8-
7-
7-
8-
6-
6-
6-
7-
8-
8-
7-
DATE
INTERPRETATIONS
1. The NAV of Birla Sun life Tax Relief 96 has increased steadily over the 3 year
period.
2. Over the period it has a steady increase in the NAV and has reached its peak in
March 2008 of Rs. 219.71.
3. After its high in March 2008 it has started decreasing and had closed at Rs.171.23
at the end of December 2008.
Table 2.1: Monthly returns of Franklin India Taxshield and S&P CNX 500 Index
Table 2.2: Calculation of Risk, Beta, Trenor, Sharpe and Jensen Measure for
Franklin India Taxshield
Return
Fund Return from (RA-R'A)
RA-R'A RM-R'M (RM-R'M)² (RA-R'A)²
(RA) Market (RM-R'M)
(RM)
N=36
∑ RA=195.8815 R'A=5.4412
∑ RM=85.4725 R'M=2.3742
∑ (RA-R'A)(RM-R'M)= 1353.6618
∑ (RM-R'M)²= 1542.0990
∑ (RA-R'A)²= 30060.1787
RF= 8.5%
Rate of Return = (Terminal value – Initial value)+ Dividend
Initial Value
σ ²M
βA = 0.8778
σ A= ∑ (RA-R'A)²
√ (N-1)
σ A = 29.3064
βA
σ A
INFERENCE
♦ The overall risk of the mutual fund as measured by the Standard Deviation (σ A)
of the total returns of the fund returns for the period from 1 Jan 2006 to 31 st Dec
2008 is 29.3064.
♦ The Average Returns of the Mutual Fund as depicted by Arithmetic Mean (R' A)
for the period from 1 Jan 2006 to 31st Dec 2008 is 5.4412.
♦ The Average Returns of the Market Index – S&P CNX 500 as depicted by
Arithmetic Mean (R'M) for the period from 1 Jan 2006 to 31st Dec 2008 is 2.3742.
♦ The Systematic Risk of the Mutual Fund as given by the β coefficient for the
period from 1 Jan 2006 to 31st Dec 2008 is 0.8778.
♦ Treynor’s Measure for the fund for the period from 1 Jan 2006 to 31st Dec 2008 is
6.1018.
♦ Sharpe’s Measure for the fund for the period from 1 Jan 2006 to 31st Dec 2008 is
0.1828.
♦ Jensen’s Measure for the fund for the period from 1 Jan 2006 to 31st Dec 2008 is
3.3466.
Graph 2.3: Franklin India Taxshield NAV movement from 2006 to 2008
FRAKLIN INDIA TAX SHIELD NAV MOVEMENT
FROM 2006-08
140
120
100
80
NAV
60 NAV*
40
20
0
1/6/2009
3/6/2009
4/6/2009
5/6/2009
7/6/2009
8/6/2009
9/6/2009
10/6/2009
11/6/2009
12/6/2009
2/6/2009
6/6/2009
DATE
INTERPRETATIONS
1. The NAV of Franklin India Tax shield has increased steadily over the 3 year
period.
2. During Feb 04 its NAV declined sharply and reached it’s lowest ever of Rs.19.75.
3. After decline the NAV has steadily increased over the period and has reached its
peak of Rs.123.2 during April 2008.
Table3.1 : Monthly returns of HDFC Tax Saver and S&P CNX 500 Index
N=36
∑ RA=135.5280 R'A=3.7647
∑ RM=85.4725 R'M=2.3742
∑ (RA-R'A)(RM-R'M)= 1435.3090
∑ (RM-R'M)²= 1542.0990
∑ (RA-R'A)²= 1587.7779
RF= 8.5%
Rate of Return = (Terminal value – Initial value)+ Dividend
Initial Value
σ ²M
βA = 0.9308
σ A= ∑ (RA-R'A)²
√ (N-1)
σ A = 6.7354
βA
σ A
♦ The overall risk of the mutual fund as measured by the Standard Deviation (σ A)
of the total returns of the fund returns for the period from 1 Jan 2006 to 31 st Dec
2008 is 6.7354.
♦ The Average Returns of the Mutual Fund as depicted by Arithmetic Mean (R' A)
for the period from 1 Jan 2006 to 31st Dec 2008 is 3.7647.
♦ The Average Returns of the Market Index – CNX 500 as depicted by Arithmetic
Mean (R'M) for the period from 1 Jan 2006 to 31st Dec 2008 is 2.3742.
♦ The Systematic Risk of the Mutual Fund as given by the β coefficient for the
period from 1 Jan 2006 to 31st Dec 2008 is 0.9308.
♦ Treynor’s Measure for the fund for the period from 1 Jan 2006 to 31st Dec 2008 is
3.9534
♦ Sharpe’s Measure for the fund for the period from 1 Jan 2006 to 31st Dec 2008 is
0.5463.
♦ Jensen’s Measure for the fund for the period from 1 Jan 2006 to 31st Dec 2008 is
1.5490.
Graph 3.3: HDFC Tax Saver NAV movement from 2006 to 2008
160
140
120
100
NAV
80 NAV*
60
40
20
0
ar
ar
ar
p
p
n
n
c
c
c
De
De
Ju
De
Ju
Ju
Se
Se
Se
M
M
M
6-
7-
8-
6-
7-
8-
6-
6-
7-
7-
8-
8-
DATE
INTERPRETATIONS
1. The NAV of the fund has almost remained constant at around Rs. 40 for about
one year i.e. 2006.
2. Then the increasing rally started, since then expect for small falls for short periods
it has increased continuously.
N=36
∑ RA=87.6966 R'A=2.4360
∑ RM=89.8318 R'M=2.4953
∑ (RA-R'A)(RM-R'M)= 947.5711
∑ (RM-R'M)²= 1385.0438
∑ (RA-R'A)²= 2815.4693
RF= 8.5%
Rate of Return = (Terminal value – Initial value)+ Dividend
Initial Value
σ ²M
βA = 0.6841
σ A= ∑ (RA-R'A)²
√ (N-1)
σ A = 8.9689
βA
σ A
♦ The overall risk of the mutual fund as measured by the Standard Deviation (σ A)
of the total returns of the fund returns for the period from 1 Jan 2006 to 31 st Dec
2008 is 8.9689
♦ The Average Returns of the Mutual Fund as depicted by Arithmetic Mean (R' A)
for the period from 1 Jan 2006 to 31st Dec 2008 is 2.4360.
♦ The Average Returns of the Market Index – BSE 100 as depicted by Arithmetic
Mean (R'M) for the period from 1 Jan 2006 to 31st Dec 2008 is 2.4953
♦ The Systematic Risk of the Mutual Fund as given by the β coefficient for the
period from 1 Jan 2006 to 31st Dec 2008 is 0.6841
♦ Treynor’s Measure for the fund for the period from 1 Jan 2006 to 31st Dec 2008 is
3.4364.
♦ Sharpe’s Measure for the fund for the period from 1 Jan 2006 to 31st Dec 2008 is
0.2621.
♦ Jensen’s Measure for the fund for the period from 1 Jan 2006 to 31st Dec 2008 is
0.7020.
Graph 4.3: SBI Magnum Taxgain 93 NAV movement from 2006 to 2008
60
50
40
NAV
30 NAV*
20
10
0
ar
ar
ar
n
p
n
c
c
De
De
De
Ju
Ju
Ju
Se
Se
Se
M
M
6-
7-
8-
6-
7-
8-
6-
6-
7-
7-
8-
8-
DATE
INTERPRETATIONS
1. The NAV of the fund has almost remained constant at around Rs. 25 for about
one year i.e. 2006.
2. Then the increasing rally started, since then expect for small falls for short periods
it has increased continuously.
3. During Feb 2008, the NAV reached high of Rs.55.93 during the period.
Table 5.1: Monthly returns of Sundaram Tax Saver 98 and BSE 200 Index
SUNDARAM TAX SAVER 98
Index* (BSE
Period NAV* Fund Return 200) Market Return
∑ (RA-R'A)²= 1505.2586
RF= 8.5%
Rate of Return = (Terminal value – Initial value)+ Dividend
Initial Value
σ ²M
βA = 0.9713
σ A= ∑ (RA-R'A)²
√ (N-1)
σ A = 6.5580
βA
σ A
♦ The overall risk of the mutual fund as measured by the Standard Deviation (σ A)
of the total returns of the fund returns for the period from 1 Jan 2006 to 31 st Dec
2008 is 6.5580.
♦ The Average Returns of the Mutual Fund as depicted by Arithmetic Mean (R' A)
for the period from 1 Jan 2006 to 31st Dec 2008 is 2.1704.
♦ The Average Returns of the Market Index – BSE 200 as depicted by Arithmetic
Mean (R'M) for the period from 1 Jan 2006 to 31st Dec 2008 is 2.3634
♦ The Systematic Risk of the Mutual Fund as given by the β coefficient for the
period from 1 Jan 2006 to 31st Dec 2008 is 0.9713
♦ Treynor’s Measure for the fund for the period from 1 Jan 2006 to 31st Dec 2008 is
2.1470.
♦ Sharpe’s Measure for the fund for the period from 1 Jan 2006 to 31st Dec 2008 is
0.3180
♦ Jensen’s Measure for the fund for the period from 1 Jan 2006 to 31st Dec 2008 is
-0.1276
Graph 5.3: Sundaram Tax Saver NAV movement from 2006 to 2008
SUNDARAM TAX SAVER NAV MOVEMENT FROM
2006-08
80
70
60
50
NAV
40 NAV*
30
20
10
0 ar
ar
ar
p
n
n
c
c
De
Ju
Ju
De
Ju
De
Se
Se
Se
M
M
M
6-
7-
8-
8-
6-
7-
6-
6-
8-
7-
7-
8-
DATE
INTERPRETATIONS
1. The NAV of the fund has steadily increased over the period
2. On 31st Dec 2008 it closed at its high of Rs. 69.38 during the period.
FINDINGS AND SUGGESTION
SUMMARY OF FINDING’S
BIRLA SUNLIFE TAX RELIEF 96;
1. The average return of the fund (R’A) is lower than that of the average market
return (R'M) which indicates that the fund is not performing well as compared to
the market.
3. The fund’s beta of 0.9296 is relatively lower than that of the market index (1, by
definition), which gives the idea that the proportionate change in the fund
resulting from the change in the market index is relatively low.
4. The average return of the fund (R’A) is higher than that of the average market
return (R'M) which indicates that the fund is performing well as compared to the
market.
7. The average return of the fund (R’A) is higher than that of the average market
return (R'M) which indicates that the fund is performing well as compared to the
market.
9. The fund’s beta of 0.9308 is relatively lower than that of the market index (1, by
definition), which gives the idea that the proportionate change in the fund
resulting from the change in the market index is relatively low.
10. The average return of the fund (R’A) is almost equal to the average market return
(R'M).
11. The Standard Deviation of 8.9689 indicates the amount of risk involved in
investing in the fund.
12. The fund’s beta of 0.6841 is lower than that of the market index (1, by
definition), which gives the idea that the proportionate change in the fund
resulting from the change in the market index is low and the fund is less volatile
compared to the market.
13. The average return of the fund (R’A) is less than that of the average market return
(R'M).
14. The Standard Deviation of 6.5580 indicates the amount of risk involved in
investing in the fund.
15. The fund’s beta of 0.9713 is almost equal to that of the market index (1, by
definition), which gives the idea that the proportionate change in the fund
resulting from the change in the market index is almost equal and the fund moves
almost in tandem with the market.
TREYNOR'S INDEX
RANKINGS REFRENCE
BIRLA SUNLIFE TAX RELIEF 96 1.4638 V Page no.47
FRANKLIN INDIA TAXSHIELD 6.1018 I Page no.52
HDFC TAX SAVER 3.9534 II Page no.57
SBI MAGNUM TAXGAIN 93 3.4364 III Page no.62
SUNDARAM TAX SAVER 98 2.1470 IV Page no.67
16. Franklin India Taxshield ranks top among the funds because of the high risk
premium i.e. 5.3562 and low market related risk i.e. 0.8778.
17. Though SBI Magnum Tax gain 93 has low market related risk it has been ranked
third because of low risk premium
SHARPE'S INDEX
RANKNGS REFRENCE
BIRLA SUNLIFE TAX RELIEF 96 0.1629 V Page no.47
FRANKLIN INDIA TAXSHIELD 0.1828 IV Page no.52
HDFC TAX SAVER 0.5463 I Page no.57
SBI MAGNUM TAXGAIN 93 0.2621 III Page no.62
SUNDARAM TAX SAVER 98 0.3180 II Page no.67
18. HDFC Tax Saver fund ranks top among the funds because of the higher return
and less risky.
19. Though Franklin India Taxshield has a high return compared to other funds it is
ranked fifth because of high amount of risk involved in investing in the fund.
JENSEN'S INDEX
RANKINGS REFRENCE
BIRLA SUNLIFE TAX RELIEF 96 -0.7572 V Page no.48
FRANKLIN INDIA TAXSHIELD 3.3466 I Page no.53
HDFC TAX SAVER 1.5490 II Page no.57
SBI MAGNUM TAXGAIN 93 0.7020 III Page no.63
SUNDARAM TAX SAVER 98 -0.1276 IV Page no.68
20. Among the risk adjusted performance of the portfolios Franklin India Tax shield
is the best.
SUGGESTION’S
♦ The investors who are ready to take risk can invest in Franklin India Taxshield
has the risk associated with it is too high and the return is also high. The
predictive ability represented by Jensen’s Index is also quite good and gives an
idea that the fund manager has a good ability of predicting the market and then
investing. So you can have faith in the fund manager.
♦ The investors who are not much interested in taking risk can invest in HDFC Tax
Saver as the risk associated with this fund is less and the returns are also good but
not as high as that of Franklin India Taxshield. As the fund is able to earn high
returns with low risk, we can say that the fund as been managed very well.
♦ The investors can also invest in SBI Magnum Taxgain 93 has it has been ranked
third among all the measures but the returns will be moderate compared to
Franklin and HDFC.
♦ As the Tata Tax Savings Fund is highly volatile, investors are not recommended
invest in this fund.
CONCLUSION
The asset base rose by Rs 58,013 crore in April. March had seen a marginal decline in the
assets under management of the industry.
The mutual fund industry as we have seen has been through testing phase in its evolution.
It has seen a sudden mushrooming of several asset management companies soon after the
opening up of the industry for private players, the debacle of UTI, and its low recovery
and the optimism of the new generation fund mangers who believe that they can indeed
beat the market and diversify away the risk very efficiently. Investors today have to bear
outrageous plans of various AMC’s that they have magic portfolio, which can give tailor
made returns than risks.
In this study an attempt was made to look into the logic behind the claims that these
AMC’s boldly make theoretically with a broad prospective. Broadly various concepts
like the risk-return relationship and various performance evaluation methods were floated
with an intention to facilitate even an ordinary investor with elementary knowledge of
statistics to understand them.
Based on the inferences from the analytical study of the performance of the fund some
suggestions were made to the investor.
The future of the mutual fund industry in India is very bright and is going to be very
preferred investment options for an investor in the coming future. It looks to take over
the other avenues of investment available to the investor due to its high returns and
professional management, which is lowering the risk.
BIBILOGRAPHY
1. Referred by following books
2. Website
www.equitymaster.com
www.nseindia.com
www.bseindia.com
www.icicidirect.com
www.Sharekhan.co