CHAPTER-I INTRODUCTION

INTRODUCTION

A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the gathered money into specific securities (stocks or bonds). When you invest in a mutual fund, you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund.

Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns

NEED OF THE STUDY

1. Mutual funds are dynamic financial intuitions which play crucial role in an economy by mobilizing savings and investing them in the capital market. 2. The activities of mutual funds have both short and long term impact on the savings in the capital market and the national economy. 3. Mutual funds, trust, assist the process of financial deepening & intermediation. 4. To banking at the same time they also compete with banks and other financial intuitions. 5. India is one of the few countries to day maintain a study growth rate is domestic savings.

OBJECTIVES
1. To show the wide range of investment options available in MFs by explaining various schemes offered by different AMCs. 2. To help an investor to make a right choice of investment, while considering the inherent risk factors. 3. To understand the recent trends in the MF world. 4. To understand the risk and return of the various schemes.

5. To find out the various problems faced by Indian mutual funds and possible solutions. SCOPE THE STUDY
1. 2. The study is limited to the analysis made for a Growth scheme offered by four AMCs. Each scheme is calculated their risk and return using different performance measurement

theories. 3. 4. Because of the reason for such performance is immediately analyzed in the issue. Graphs are used to reflect the portfolio risk and return.

RESEARCH METHODOLOGY & TOOLS

This study is basically depends on

1. Primary Data 2. Secondary Data

Primary data: The primary data collected from the different companies through enquiry. Secondary data:
The secondary data collected from the different sites, broachers, news papers, company offer documents, different books and through suggestions from the project guide and from the faculty members of our college.

TOOLS USED IN THIS PROJECT

The following parameters were considered for analysis: Beta Alpha Correlation coefficient Treynors Ratio

Sharpes Ratio ADVANTAGES OF THE MUTUAL FUNDS

1. 2. 3. The investors risk is reduced to the minimum. The funds managers maximize the income of the funds. To achieve a similar degree of diversification, an individual investor as to spend

considerable and money. 4. 5. In a mutual fund, it is possible to reinvest the dividend and capital gains. Selection of shares debentures etc and timing is made available to investors. . 4

LIMITATIONS OF THE STUDY:

1. The study is conducted in short period, due to which the study may not be detailed in all aspects. 2. The study is limited only to the analysis of different schemes and its suitability to different investors according to their risk-taking ability. 3. The study is based on secondary data available from monthly fact sheets, web sites; offer documents, magazines and newspapers etc., as primary data was not accessible. 4. The study is limited by the detailed study of various schemes. 5. The NAVS are not uniform. 6. The data collected for this study is not proper because some mutual funds are not disclosing the correct information. 7. The study is not exempt from limitations of Sharpe Treynor and Jenson measure. 8. Unique risk is completely ignored in all the measure.

CHAPTER-II INDUSTRY PROFILE & COMPANY PROFILE

INDUSTRY PROFILE
A bank is a financial institution that accepts deposits and channels those deposits into lending activities. Banks primarily provide financial services to customers while enriching investors. Government restrictions on financial activities by banks vary over time and location. Banks are important players in financial markets and offer services such as investment funds and loans. In some countries such as Germany, banks have historically owned major stakes in industrial corporations while in other countries such as the United States banks are prohibited from owning non-financial companies. In Japan, banks are usually the nexus of a cross-share holding entity known as the keiretsu. In France, bancassurance is prevalent, as most banks offer insurance services (and now real estate services) to their clients. The level of government regulation of the banking industry varies widely, with countries such as Iceland, having relatively light regulation of the banking sector, and countries such as China having a wide variety of regulations but no systematic process that can be followed typical of a communist system. The oldest bank still in existence is Monte dei Paschi di Siena, headquartered in Siena, Italy, which has been operating continuously since 1472. History Origin of the word The name bank derives from the Italian word banco "desk/bench", used during the Renaissance by Jewish Florentine bankers, who used to make their transactions above a desk covered by a green tablecloth. However, there are traces of banking activity even in ancient times, which indicates that the word 'bank' might not necessarily come from the word 'banco'. In fact, the word traces its origins back to the Ancient Roman Empire, where moneylenders would set up their stalls in the middle of enclosed courtyards called macella on a long bench called a bancu, from which the words banco and bank are derived. As a moneychanger, the

merchant at the bancu did not so much invest money as merely convert the foreign currency into the only legal tender in Romethat of the Imperial Mint. The earliest evidence of money-changing activity is depicted on a silver drachm coin from ancient Hellenic colony Trapezus on the Black Sea, modern Trabzon, c. 350325 BC, presented in the British Museum in London. The coin shows a banker's table (trapeza) laden with coins, a pun on the name of the city. In fact, even today in Modern Greek the word Trapeza () means both a table and a bank. Traditional banking activities Banks act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customers on the bank, and collecting cheques deposited to customers' current accounts. Banks also enable customer payments via other payment methods such as telegraphic transfer, EFTPOS, and ATM. Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to customers on current accounts, by making installment loans, and by investing in marketable debt securities and other forms of money lending. Banks provide almost all payment services, and a bank account is considered indispensable by most businesses, individuals and governments. Non-banks that provide payment services such as remittance companies are not normally considered an adequate substitute for having a bank account. Banks borrow most funds from households and non-financial businesses, and lend most funds to households and non-financial businesses, but non-bank lenders provide a significant and in many cases adequate substitute for bank loans, and money market funds, cash management trusts and other non-bank financial institutions in many cases provide an adequate substitute to banks for lending savings to.

Entry regulation Currently in most jurisdictions commercial banks are regulated by government entities and require a special bank licence to operate. Usually the definition of the business of banking for the purposes of regulation is extended to include acceptance of deposits, even if they are not repayable to the customer's orderalthough money lending, by itself, is generally not included in the definition. Unlike most other regulated industries, the regulator is typically also a participant in the market, i.e. a government-owned (central) bank. Central banks also typically have a monopoly on the business of issuing banknotes. However, in some countries this is not the case. In the UK, for example, the Financial Services Authority licences banks, and some commercial banks (such as the Bank of Scotland) issue their own banknotes in addition to those issued by the Bank of England, the UK government's central bank. Definition The definition of a bank varies from country to country. Under English common law, a banker is defined as a person who carries on the business of banking, which is specified as:

conducting current accounts for his customers paying cheques drawn on him, and collecting cheques for his customers.

In most English common law jurisdictions there is a Bills of Exchange Act that codifies the law in relation to negotiable instruments, including cheques, and this Act contains a statutory definition of the term banker: banker includes a body of persons, whether incorporated or not, who carry on the business of banking' (Section 2, Interpretation). Although this definition seems circular, it is actually functional, because it ensures that the legal basis for bank transactions such as cheques do not depend on how the bank is organised or regulated.

The business of banking is in many English common law countries not defined by statute but by common law, the definition above. In other English common law jurisdictions there are statutory definitions of the business of banking or banking business. When looking at these definitions it is important to keep in mind that they are defining the business of banking for the purposes of the legislation, and not necessarily in general. In particular, most of the definitions are from legislation that has the purposes of entry regulating and supervising banks rather than regulating the actual business of banking. However, in many cases the statutory definition closely mirrors the common law one. Examples of statutory definitions:

"banking business" means the business of receiving money on current or deposit account, paying and collecting cheques drawn by or paid in by customers, the making of advances to customers, and includes such other business as the Authority may prescribe for the purposes of this Act; (Banking Act (Singapore), Section 2, Interpretation).

"banking business" means the business of either or both of the following:

1. receiving from the general public money on current, deposit, savings or other similar account repayable on demand or within less than [3 months] ... or with a period of call or notice of less than that period; 2. paying or collecting cheques drawn by or paid in by customers[6] Since the advent of EFTPOS (Electronic Funds Transfer at Point Of Sale), direct credit, direct debit and internet banking, the cheque has lost its primacy in most banking systems as a payment instrument. This has led legal theorists to suggest that the cheque based definition should be broadened to include financial institutions that conduct current accounts for customers and enable customers to pay and be paid by third parties, even if they do not pay and collect cheques. Accounting for bank accounts Bank statements are accounting records produced by banks under the various accounting standards of the world. Under GAAP and IFRS there are two kinds of accounts: debit and credit. Credit accounts are Revenue, Equity and Liabilities. Debit Accounts are Assets and Expenses.

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This means you credit a credit account to increase its balance, and you debit a debit account to decrease its balance. This also means you debit your savings account every time you deposit money into it (and the account is normally in deficit), while you credit your credit card account every time you spend money from it (and the account is normally in credit). However, if you read your bank statement, it will say the oppositethat you credit your account when you deposit money, and you debit it when you withdraw funds. If you have cash in your account, you have a positive (or credit) balance; if you are overdrawn, you have a negative (or deficit) balance. The reason for this is that the bank, and not you, has produced the bank statement. Your savings might be your assets, but the bank's liability, so they are credit accounts (which should have a positive balance). Conversely, your loans are your liabilities but the bank's assets, so they are debit accounts (which should also have a positive balance). Where bank transactions, balances, credits and debits are discussed below, they are done so from the viewpoint of the account holderwhich is traditionally what most people are used to seeing. Economic functions 1. issue of money, in the form of banknotes and current accounts subject to cheque or payment at the customer's order. These claims on banks can act as money because they are negotiable and/or repayable on demand, and hence valued at par. They are effectively transferable by mere delivery, in the case of banknotes, or by drawing a cheque that the payee may bank or cash. 2. netting and settlement of payments banks act as both collection and paying agents for customers, participating in interbank clearing and settlement systems to collect, present, be presented with, and pay payment instruments. This enables banks to economise on reserves held for settlement of payments, since inward and outward payments offset each other. It also enables the offsetting of payment flows between geographical areas, reducing the cost of settlement between them. 11

3. credit intermediation banks borrow and lend back-to-back on their own account as middle men. 4. credit quality improvement banks lend money to ordinary commercial and personal borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes from diversification of the bank's assets and capital which provides a buffer to absorb losses without defaulting on its obligations. However, banknotes and deposits are generally unsecured; if the bank gets into difficulty and pledges assets as security, to raise the funding it needs to continue to operate, this puts the note holders and depositors in an economically subordinated position. 5. maturity transformation banks borrow more on demand debt and short term debt, but provide more long term loans. In other words, they borrow short and lend long. With a stronger credit quality than most other borrowers, banks can do this by aggregating issues (e.g. accepting deposits and issuing banknotes) and redemptions (e.g. withdrawals and redemptions of banknotes), maintaining reserves of cash, investing in marketable securities that can be readily converted to cash if needed, and raising replacement funding as needed from various sources (e.g. wholesale cash markets and securities markets). Law of banking Banking law is based on a contractual analysis of the relationship between the bank (defined above) and the customerdefined as any entity for which the bank agrees to conduct an account. The law implies rights and obligations into this relationship as follows: 1. The bank account balance is the financial position between the bank and the customer: when the account is in credit, the bank owes the balance to the customer; when the account is overdrawn, the customer owes the balance to the bank. 2. The bank agrees to pay the customer's cheques up to the amount standing to the credit of the customer's account, plus any agreed overdraft limit. 3. The bank may not pay from the customer's account without a mandate from the customer, e.g. a cheque drawn by the customer.

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4. The bank agrees to promptly collect the cheques deposited to the customer's account as the customer's agent, and to credit the proceeds to the customer's account. 5. The bank has a right to combine the customer's accounts, since each account is just an aspect of the same credit relationship. 6. The bank has a lien on cheques deposited to the customer's account, to the extent that the customer is indebted to the bank. 7. The bank must not disclose details of transactions through the customer's account unless the customer consents, there is a public duty to disclose, the bank's interests require it, or the law demands it. 8. The bank must not close a customer's account without reasonable notice, since cheques are outstanding in the ordinary course of business for several days. These implied contractual terms may be modified by express agreement between the customer and the bank. The statutes and regulations in force within a particular jurisdiction may also modify the above terms and/or create new rights, obligations or limitations relevant to the bankcustomer relationship. Some types of financial institution, such as building societies and credit unions, may be partly or wholly exempt from bank licence requirements, and therefore regulated under separate rules. The requirements for the issue of a bank licence vary between jurisdictions but typically include: 1. Minimum capital 2. Minimum capital ratio 3. 'Fit and Proper' requirements for the bank's controllers, owners, directors, and/or senior officers 4. Approval of the bank's business plan as being sufficiently prudent and plausible. Types of banks Banks' activities can be divided into retail banking, dealing directly with individuals and small businesses; business banking, providing services to mid-market business; corporate banking, directed at large business entities; private banking, providing wealth management services to 13

high net worth individuals and families; and investment banking, relating to activities on the financial markets. Most banks are profit-making, private enterprises. However, some are owned by government, or are non-profit organizations. Central banks are normally government-owned and charged with quasi-regulatory responsibilities, such as supervising commercial banks, or controlling the cash interest rate. They generally provide liquidity to the banking system and act as the lender of last resort in event of a crisis. Types of retail banks

Commercial bank: the term used for a normal bank to distinguish it from an investment bank. After the Great Depression, the U.S. Congress required that banks only engage in banking activities, whereas investment banks were limited to capital market activities. Since the two no longer have to be under separate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses.

Community Banks: locally operated financial institutions that empower employees to make local decisions to serve their customers and the partners.

Community development banks: regulated banks that provide financial services and credit to under-served markets or populations.

Postal savings banks: savings banks associated with national postal systems. Private banks: banks that manage the assets of high net worth individuals. Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks.

Savings bank: in Europe, savings banks take their roots in the 19th or sometimes even 18th century. Their original objective was to provide easily accessible savings products to all strata of the population. In some countries, savings banks were created on public initiative; in others, socially committed individuals created foundations to put in place the necessary infrastructure. Nowadays, European savings banks have kept their focus on retail banking: payments, savings products, credits and insurances for individuals or small and medium-sized enterprises. Apart from this retail focus, they also differ from 14

commercial banks by their broadly decentralised distribution network, providing local and regional outreachand by their socially responsible approach to business and society.

Building societies and Landesbanks: institutions that conduct retail banking. Ethical banks: banks that prioritize the transparency of all operations and make only what they consider to be socially-responsible investments.

Islamic banks: Banks that transact according to Islamic principles.

Types of investment banks

Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for their own accounts, make markets, and advise corporations on capital market activities such as mergers and acquisitions.

Merchant banks were traditionally banks which engaged in trade finance. The modern definition, however, refers to banks which provide capital to firms in the form of shares rather than loans. Unlike venture capital firms, they tend not to invest in new companies.

Both combined

Universal banks, more commonly known as financial services companies, engage in several of these activities. These big banks are very diversified groups that, among other services, also distribute insurance hence the term bancassurance, a portmanteau word combining "banque or bank" and "assurance", signifying that both banking and insurance are provided by the same corporate entity.

Other types of banks

Islamic banks adhere to the concepts of Islamic law. This form of banking revolves around several well-established principles based on Islamic canons. All banking activities must avoid interest, a concept that is forbidden in Islam. Instead, the bank earns profit (markup) and fees on the financing facilities that it extends to customers.

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COMPANY PROFILE

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Since the inception of the erstwhile Kotak Mahindra Finance Limited in 1985, it has been a steady and confident journey leading to growth and success. The milestones of the group growth story are listed below year wise.

Ahmedabad Derivatives and Commodities Exchange, a Kotak anchored enterprise, became operational as a national commodity exchange.

2010 2009

Kotak Mahindra Bank Ltd. opened a representative office in Dubai Entered Ahmedabad Commodity Exchange as anchor investor.

2008 2006

Launched a Pension Fund under the New Pension System.

Bought the 25% stake held by Goldman Sachs in Kotak Mahindra Capital Company and Kotak Securities.

2005

Kotak Group realigned joint venture in Ford Credit; their stake in Kotak Mahindra Prime was bought out (formerly known as Kotak Mahindra Primus Ltd) and Kotak groups stake in Ford credit Kotak Mahindra was sold.

Launched a real estate fund.

Launched India Growth Fund, a private equity fund.

2004 2003

Kotak Mahindra Finance Ltd. converted into a commercial bank - the first Indian company to do so.

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2001

Matrix sold to Friday Corporation. Launched Insurance Services. Kotak Securities Ltd. was incorporated

2000

Kotak Mahindra tied up with Old Mutual plc. for the Life Insurance business. Kotak Securities launched its on-line broking site. Commencement of private equity activity through setting up of Kotak Mahindra Venture Capital Fund.

Entered the mutual fund market with the launch of Kotak Mahindra Asset Management Company.

1998 1996

The Auto Finance Business is hived off into a separate company - Kotak Mahindra Prime Limited (formerly known as Kotak Mahindra Primus Limited). Kotak Mahindra takes a significant stake in Ford Credit Kotak

Mahindra Limited, for financing Ford vehicles. The launch of Matrix Information Services Limited marks the Group's entry into information distribution.

1995

Brokerage and Distribution businesses incorporated into a separate company Securities. Investment banking division incorporated into a separate company Kotak Mahindra Capital Company

Entered the Funds Syndication sector

1992 1991

The Investment Banking Division was started. Took over FICOM, one of India's largest financial retail marketing networks

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1990

The Auto Finance division was started Kotak Mahindra Finance Ltd entered the Lease and Hire Purchase market

1986

Kotak Mahindra Finance Ltd started the activity of Bill Discounting

Our Businesses
Multiple businesses. One brand. Kotak Mahindra is one of India's leading banking and financial services groups, offering a wide range of financial services that encompass every sphere of life.

Kotak Mahindra Bank Ltd

Kotak Mahindra Bank Ltd is a one stop shop for all banking needs. The bank offers personal finance solutions of every kind from savings accounts to credit cards, distribution of mutual funds to life insurance products. Kotak Mahindra Bank offers transaction banking, operates lending verticals, manages IPOs and provides working capital loans. Kotak has one of the largest and most respected Wealth Management teams in India, providing the widest range of solutions to high net worth individuals, entrepreneurs, business families and employed professionals. For more information, please visit the Kotak Mahindra Bank website www.kotak.com/bank/personal-banking/

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Kotak Mahindra Old Mutual Life Insurance Ltd

Kotak Mahindra Old Mutual Life Insurance Ltd is a 74:26 joint venture between Kotak Mahindra Bank Ltd., its affiliates and Old Mutual plc. A Company that combines its international strengths and local advantages to offer its customers a wide range of innovative life insurance products, helping them take important financial decisions at every stage in life and stay financially independent. The company covers over 3 million lives and is one of the fastest growing insurance companies in India. www.kotaklifeinsurance.com

Kotak Securities Ltd

Kotak Securities is one of the largest broking houses in India with a wide geographical reach. Kotak Securities operations include stock broking and distribution of various financial products including private and secondary placement of debt, equity and mutual funds. Kotak Securities operate in five main areas of business:
o o o o o

Stock Broking (retail and institutional) Depository Services Portfolio Management Services Distribution of Mutual Funds Distribution of Kotak Mahindra Old Mutual Life Insurance Ltd products

For more information, please visit the Kotak Securities website www.kotaksecurities.com

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Kotak Mahindra Capital Company (KMCC)

Kotak Investment Banking (KMCC) is a full-service investment bank in India offering a wide suite of capital market and advisory solutions to leading domestic and multinational corporations, banks, financial institutions and government companies. Our services encompass Equity & Debt Capital Markets, M&A Advisory, Private Equity Advisory, Restructuring and Recapitalization services, Structured Finance services and Infrastructure Advisory & Fund Mobilization. For more information, please visit the Kotak Investment Banking website www.kmcc.co.in

Kotak Mahindra Prime Ltd (KMPL)

Kotak Mahindra Prime Ltd is among India's largest dedicated passenger vehicle finance companies. KMPL offers loans for the entire range of passenger cars, multi-utility vehicles and pre-owned cars. Also on offer are inventory funding and infrastructure funding to car dealers with strategic arrangements via various car manufacturers in India as their preferred financier. For more information, please visit the KMPL website http://carloan.kotak.com

Kotak International Business

Kotak International Business specialises in providing a range of services to overseas customers seeking to invest in India. For institutions and high net worth individuals outside India, Kotak International Business offers asset management

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through a range of offshore funds with specific advisory and discretionary investment management services. For more information, please visit the Kotak Mahindra International Business website www.investindia.kotak.com Kotak Mahindra Asset Management Company Ltd (KMAMC)

Kotak Mahindra Asset Management Company offers a complete bouquet of asset management products and services that are designed to suit the diverse risk return profiles of each and every type of investor. KMAMC and Kotak Mahindra Bank are the sponsors of Kotak Mahindra Pension Fund Ltd, which has been appointed as one of six fund managers to manage pension funds under the New Pension Scheme (NPS). For more information, please visit the KMAMC website www.kotakmutual.com/kmw/main.htm

Kotak Private Equity Group (KPEG)

Kotak Private Equity Group helps nurture emerging businesses and mid-size enterprises to evolve into tomorrow's industry leaders. With a proven track record of helping build companies, KPEG also offers expertise with a combination of equity capital, strategic support and value added services. What differentiates KPEG is not merely funding companies, but also having a close involvement in their growth as board members, advisors, strategists and fund-raisers. For more information, please visit the KPEG website www.privateequityfund.kotak.com

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Kotak Realty Fund

Kotak Realty Fund deals with equity investments covering sectors such as hotels, IT parks, residential townships, shopping centres, industrial real estate, health care, retail, education and property management. The investment focus here is on development projects and enterprise level investments, both in real estate intensive businesses. For more information, please visit the Kotak Realty Fund website www.realtyfund.kotak.com

Senior Management
Mr. Uday S. Kotak

Executive Vice Chairman and Managing Director Mr. Uday Kotak, is the Executive Vice-Chairman and Managing Director of the Bank, and its principal founder and promoter. Mr. Kotak is an alumnus of Jamnalal Bajaj Institute of Management Studies. In 1985, when he was still in his early twenties, Mr Kotak thought of setting up a bank when private Indian banks were not even seen in the game. First Kotak Capital Management Finance Ltd (which later became Kotak Mahindra Finance Ltd), and then with Kotak Mahindra Finance Ltd, Kotak became the first non-banking finance company in India's corporate history to be converted into a bank. Over the years, Kotak Mahindra Group grew into several areas like stock broking and investment banking to car finance, life insurance and mutual funds. Among the many awards to Mr Kotak's credit are the CNBC TV18 Innovator of the Year Award in 2006 and the Ernst & Young Entrepreneur of the Year Award in 2003. He was featured as one of the Global Leaders for Tomorrow at the World Economic Forum's annual meet at Davos in 1996. He was also featured among the Top Financial Leaders for the 21st Century by Euromoney 23

magazine. He was named as CNBC TV18 India Business Leader of the Year 2008 and as the most valued CEO by businessworld in 2010.

Mr. C Jayaram

Joint Managing Director Mr. C. Jayaram, is a Joint Managing Director of the Bank and is currently in charge of the Wealth Management Business of the Kotak Group. An alumnus of IIM Kolkata, he has been with the Kotak Group since 1990 and member of the Kotak board in October 1999. He also oversees the international subsidiaries and the alternate asset management business of the group. He is the Director of the Financial Planning Standards Board, India. He has varied experience of over 25 years in many areas of finance and business, has built numerous businesses for the Group and was CEO of Kotak Securities Ltd. An avid player and follower of tennis, he also has a keen interest in psephology.

Mr. Dipak Gupta Joint Managing Director

An electronics engineer and an alumnus of IIM Ahmedabad, Mr. Gupta has been with the Kotak Group since 1992 and joined the board in October 1999. He heads commercial banking, retail asset businesses and looks after group HR function. Early on, he headed the finance function and was instrumental in the joint venture between Kotak Mahindra and Ford Credit International. He was the first CEO of the resulting entity, Kotak Mahindra Primus Ltd.

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Awards
Recent achievements At Kotak Mahindra Group we take a client-centric view and constantly innovate to provide you with the best of services and infrastructure. We have regularly received accolades that stand testimony to our success in this endeavour. Some of our recent achievements are: Banking

ICAI Award Excellence in Financial Reporting under Category 1 - Banking Sector for the year ending 31st March, 2010 Asiamoney Best Local Cash Management Bank 2010

IDG India Kotak won the CIO 100 'The Agile 100' award 2010

IDRBT Banking Technology Excellence Awards Best Bank Award in IT Framework and Governance Among Other Banks' - 2009 Banking Technology Award for IT Governance and Value Delivery, 2008

IR Global Rankings Best Corporate Governance Practices - Ranked among the top 5 companies in Asia Pacific, 2009

FinanceAsia Best Private Bank in India, for Wealth Management business, 2009

Kotak Royal Signature Credit Card Was chosen "Product of the Year" in a survey conducted by Nielsen in 2009

IBA Banking Technology Awards Best Customer Relationship Achievement - Winner 2008 & 2009 Best overall winner, 2007 Best IT Team of the Year, 4 years in a row from 2006 to 2009 Best IT Security Policies & Practices, 2007

Euromoney Best Private Banking Services (overall), 2009 25

Emerson Uptime Champion Awards Technology Senate Emerson Uptime Championship Award in the BFSI category, 2008

Corporate Responsibility
Community investment and development Kotak Mahindra views Corporate Social Responsibility as an investment in society and in its own future. Kotak uses the power of its human and financial capital to help in transforming communities into vibrant, desirable places for people to live. The group leverages its core competencies in three areas:

Sustainability An integral part of all Kotak Mahindra Group activities is to be consistently responsible to shareholders, clients, employees, society and the environment.

Economic Development By helping people achieve their financial goals, Kotak strengthens the fabric of communities and helps them overcome unemployment and poverty to help them shape their future.

Doing My Bit A growing number of employees are committed to civic leadership and responsibility with the support and encouragement of the Kotak Group. A number of employees have been involved in strengthening communities through voluntary work, payroll giving and management inputs.

For any CSR related queries, please contact: Group CSR Kotak Mahindra Bank Ltd Tel. Board +91 22 6720 6720 Email: cr@kotak.com

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CHAPTER-III REVIEW OF LITERATURE

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CONCEPT OF MUTUAL FUNDS

Like most developed and developing countries the mutual fund culture has been catching on in India. There are various reasons for this. Mutual funds make it easy and less costly for investors to satisfy their need for capital growth, income and/or income preservation. And in addition to this a mutual fund brings the benefits of diversification and money management to the individual investor, providing an opportunity for financial success that was once available only to a select few. A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, -professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund:

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Mutual Fund Operation Flow Chart

Organization of a Mutual

BENEFITS OF MUTUAL FUNDS

Investing in mutual has various benefits which makes it an ideal investment avenue. Following are some of the primary benefits.

Professional investment management

One of the primary benefits of mutual funds is that an investor has access to professional management. A good investment manager is certainly worth the fees you will pay. Good mutual fund managers with an excellent research team can do a better job of monitoring the companies they have chosen to invest in than you can, unless you have time to spend on researching the companies you select for your portfolio. That is because Mutual funds hire full-time, high-level investment professionals. Funds can afford to do so as they manage large pools of money. The managers have real-time access to crucial market information and are able to execute trades on the largest and most cost-effective scale. When you buy a mutual fund, the primary asset you are buying is the manager, who will be controlling which assets are chosen to meet the funds' stated investment objectives.

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Diversification
A crucial element in investing is asset allocation. It plays a very big part in the success of any portfolio. However, small investors do not have enough money to properly allocate their assets. By pooling your funds with others, you can quickly benefit from greater diversification. Mutual funds invest in a broad range of securities. This limits investment risk by reducing the effect of a possible decline in the value of any one security. Mutual fund unit-holders can benefit from diversification techniques usually available only to investors wealthy enough to buy significant positions in a wide variety of securities.

Low Cost
A mutual fund let's you participate in a diversified portfolio for as little as Rs.5,000, and sometimes less. And with a no-load fund, you pay little or no sales charges to own them.

Convenience and Flexibility

Investing in mutual funds has its own convenience. While you own just one security rather than many, you still enjoy the benefits of a diversified portfolio and a wide range of services. Fund managers decide what securities to trade, collect the interest payments and see that your dividends on portfolio securities are received and your rights exercised. It also uses the services of a high quality custodian and registrar. Another big advantage is that you can move your funds easily from one fund to another within a mutual fund family. This allows you to easily rebalance your portfolio to respond to significant fund management or economic changes.

Liquidity
In open-ended schemes, you can get your money back promptly at net asset value related prices from the mutual fund itself.

Transparency
Regulations for mutual funds have made the industry very transparent. You can track the investments that have been made on you behalf and the specific investments made by the mutual

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fund scheme to see where your money is going. In addition to this, you get regular information on the value of your investment.

Variety
There is no shortage of variety when investing in mutual funds. You can find a mutual fund that matches just about any investing strategy you select. There are funds that focus on blue-chip stocks, technology stocks, bonds or a mix of stocks and bonds. The greatest challenge can be sorting through the variety and picking the best for you.

TYPES OF MUTUAL FUNDS

Getting a handle on what's under the hood helps you become a better investor and put together a more successful portfolio. To do this one must know the different types of funds that cater to investor needs, whatever the age, financial position, risk tolerance and return expectations. The mutual fund schemes can be classified according to both their investment objective (like income, growth, tax saving) as well as the number of units (if these are unlimited then the fund is an open-ended one while if there are limited units then the fund is close-ended). This section provides descriptions of the characteristics -- such as investment objective and potential for volatility of your investment -- of various categories of funds. The type of securities purchased by each fund organizes these descriptions: equities, fixed-income, money market instruments, or some combination of these.

Open-Ended Schemes
Open-ended schemes do not have a fixed maturity period. Investors can buy or sell units at NAV-related prices from and to the mutual fund on any business day. These schemes have unlimited capitalization, open-ended schemes do not have a fixed maturity, there is no cap on the amount you can buy from the fund and the unit capital can keep growing. These funds are not generally listed on any exchange.

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Open-ended schemes are preferred for their liquidity. Such funds can issue and redeem units any time during the life of a scheme. Hence, unit capital of open-ended funds can fluctuate on a daily basis. The advantages of open-ended funds over close-ended are as follows: Any time exit option. The issuing company directly takes the responsibility of providing an entry and an exit. This provides ready liquidity to the investors and avoids reliance on transfer deeds, signature verifications and bad deliveries. Any time entry option, an open-ended fund allows one to enter the fund at any time and even to invest at regular intervals.

Close-Ended Schemes
Close-ended schemes have fixed maturity periods. Investors can buy into these funds during the period when these funds are open in the initial issue. After that such schemes can not issue new units except in case of bonus or rights issue. However, after the initial issue, you can buy or sell units of the scheme on the stock exchanges where they are listed. The market price of the units could vary from the NAV of the scheme due to demand and supply factors, investors expectations and other market factors

Classification According To Investment Objectives

Mutual funds can be further classified based on their specific investment objective such as growth of capital, safety of principal, current income or tax-exempt income. In general mutual funds fall into three general categories: 1] Equity Funds are those that invest in shares or equity of companies. 2] Fixed-Income Funds invest in government or corporate securities that offer fixed rates of return are 3] While funds that invest in a combination of both stocks and bonds are called Balanced Funds.

Growth Funds
Growth funds primarily look for growth of capital with secondary emphasis on dividend. Such funds invest in shares with a potential for growth and capital appreciation. They invest in wellestablished companies where the company itself and the industry in which it operates are thought

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to have good long-term growth potential, and hence growth funds provide low current income. Growth funds generally incur higher risks than income funds in an effort to secure more pronounced growth. Some growth funds concentrate on one or more industry sectors and also invest in a broad range of industries. Growth funds are suitable for investors who can afford to assume the risk of potential loss in value of their investment in the hope of achieving substantial and rapid gains. They are not suitable for investors who must conserve their principal or who must maximize current income.

Growth and Income Funds

Growth and income funds seek long-term growth of capital as well as current income. The investment strategies used to reach these goals vary among funds. Some invest in a dual portfolio consisting of growth stocks and income stocks, or a combination of growth stocks, stocks paying high dividends, preferred stocks, convertible securities or fixed-income securities such as corporate bonds and money market instruments. Others may invest in growth stocks and earn current income by selling covered call options on their portfolio stocks. Growth and income funds have low to moderate stability of principal and moderate potential for current income and growth. They are suitable for investors who can assume some risk to achieve growth of capital but who also want to maintain a moderate level of current income.

Fixed-Income Funds
Fixed income funds primarily look to provide current income consistent with the preservation of capital. These funds invest in corporate bonds or government-backed mortgage securities that have a fixed rate of return. Within the fixed-income category, funds vary greatly in their stability of principal and in their dividend yields. High-yield funds, which seek to maximize yield by investing in lower-rated bonds of longer maturities, entail less stability of principal than fixedincome funds that invest in higher-rated but lower-yielding securities. Some fixed-income funds seek to minimize risk by investing exclusively in securities whose timely payment of interest and principal is backed by the full faith and credit of the Indian Government. Fixed-income funds are suitable for investors who want to maximize current income and who can assume a degree of capital risk in order to do so. 33

Balanced
The Balanced fund aims to provide both growth and income. These funds invest in both shares and fixed income securities in the proportion indicated in their offer documents. Ideal for investors who are looking for a combination of income and moderate growth.

Money Market Funds/Liquid Funds

For the cautious investor, these funds provide a very high stability of principal while seeking a moderate to high current income. They invest in highly liquid, virtually risk-free, short-term debt securities of agencies of the Indian Government, banks and corporations and Treasury Bills. Because of their short-term investments, money market mutual funds are able to keep a virtually constant unit price; only the yield fluctuates. Therefore, they are an attractive alternative to bank accounts. With yields that are generally competitive with - and usually higher than -- yields on bank savings account, they offer several advantages. Money can be withdrawn any time without penalty. Although not insured, money market funds invest only in highly liquid, short-term, top-rated money market instruments. Money market funds are suitable for investors who want high stability of principal and current income with immediate liquidity.

Specialty/Sector Funds
These funds invest in securities of a specific industry or sector of the economy such as health care, technology, leisure, utilities or precious metals. The funds enable investors to diversify holdings among many companies within an industry, a more conservative approach than investing directly in one particular company. Sector funds offer the opportunity for sharp capital gains in cases where the fund's industry is "in favor" but also entail the risk of capital losses when the industry is out of favor. While sector funds restrict holdings to a particular industry, other specialty funds such as index funds give investors a broadly diversified portfolio and attempt to mirror the performance of various market averages.

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Index funds generally buy shares in all the companies composing the BSE Sensex or NSE Nifty or other broad stock market indices. They are not suitable for investors who must conserve their principal or maximize current income.

RISK Vs. REWARD

Having understood the basics of mutual funds the next step is to build a successful investment portfolio. Before you can begin to build a portfolio, one should understand some other elements of mutual fund investing and how they can affect the potential value of your investments over the years. The first thing that has to be kept in mind is that when you invest in mutual funds, there is no guarantee that you will end up with more money when you withdraw your investment than what you started out with. That is the potential of loss is always there. The loss of value in your investment is what is considered risk in investing. Even so, the opportunity for investment growth that is possible through investments in mutual funds far exceeds that concern for most investors. Heres why At the cornerstone of investing is the basic principal that the greater the risk you take, the greater the potential reward. Or stated in another way, you get what you pay for and you get paid a higher return only when you're willing to accept more volatility. Risk then, refers to the volatility -- the up and down activity in the markets and individual issues that occurs constantly over time. This volatility can be caused by a number of factors -- interest rate changes, inflation or general economic conditions. It is this variability, uncertainty and potential for loss, that causes investors to worry. We all fear the possibility that a stock we invest in will fall substantially. But it is this very volatility that is the exact reason that you can expect to earn a higher long-term return from these investments than from a savings account. Different types of mutual funds have different levels of volatility or potential price change, and those with the greater chance of losing value are also the funds that can produce the greater returns for you over time. So risk has two sides: it causes the value of your investments to fluctuate, but it is precisely the reason you can expect to earn higher returns. You might find it helpful to remember that all financial investments will fluctuate. There are very few perfectly safe havens and those simply don't pay enough to beat inflation over the long run.

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TYPES OF RISKS
All investments involve some form of risk. Consider these common types of risk and evaluate them against potential rewards when you select an investment.

Market Risk
At times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences. When this happens, the stock prices of both an outstanding, highly profitable company and a fledgling corporation may be affected. This change in price is due to "market risk". Also known as systematic risk.

Inflation Risk
Sometimes referred to as "loss of purchasing power." Whenever inflation rises forward faster than the earnings on your investment, you run the risk that you'll actually be able to buy less, not more. Inflation risk also occurs when prices rise faster than your returns. 36

Credit Risk
In short, how stable is the company or entity to which you lend your money when you invest? How certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment matures?

Interest Rate Risk

Changing interest rates affect both equities and bonds in many ways. Investors are reminded that "predicting" which way rates will go is rarely successful. A diversified portfolio can help in offsetting these changes.

Exchange risk
A number of companies generate revenues in foreign currencies and may have investments or expenses also denominated in foreign currencies. Changes in exchange rates may, therefore, have a positive or negative impact on companies which in turn would have an effect on the investment of the fund.

Investment Risks
The sectoral fund schemes, investments will be predominantly in equities of select companies in the particular sectors. Accordingly, the NAV of the schemes are linked to the equity performance of such companies and may be more volatile than a more diversified portfolio of equities.

Call Risks
Call risk is associated with bonds have and embedded call option in them. This option gives the issuer the right to call back the bonds prior to maturity. Then investor how ever is exposed to some risks here. The price of the callable bond many not rise much above the price at which the issuer may call the bond.

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Changes in the Government Policy

Changes in Government policy especially in regard to the tax benefits may impact the business prospects of the companies leading to an impact on the investments made by the fund. Effect of loss of key professionals and inability to adapt business to the rapid technological change. An industries' key asset is often the personnel who run the business i.e. intellectual properties of the key employees of the respective companies. Given the ever-changing complexion of few industries and the high obsolescence levels, availability of qualified, trained and motivated personnel is very critical for the success of industries in few sectors. It is, therefore, necessary to attract key personnel and also to retain them to meet the changing environment and challenges the sector offers. Failure or inability to attract/retain such qualified key personnel may impact the prospects of the companies in the particular sec

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Investment cycle in Mutual Funds

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Types of mutual funds

History of the Indian Mutual Fund Industry:

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank the. The history of mutual funds in India can be broadly divided into four distinct phases

First Phase 1964-87(UTI MONOPOLY)

An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under management.

Second Phase 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). 40

SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). 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 mutual fund industry had assets under management of Rs.47, 004 cores.

Third Phase 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign I am dearmutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 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. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29, 835 crores 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.

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The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of June 30, 2003, there were 31 funds, which manage assets of Rs.104762 crores under 376 schemes. The graph indicates the growth of assets over the years.

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GROWTH IN ASSETS UNDER MANAGEMENT

India is at the first stage of a revolution that has already peaked in the U.S. The U.S. boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund assets are not even 10% of the bank deposits, but this trend is beginning to change. Recent figures indicate that in the first quarter of the current fiscal year.

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The formation and operations of mutual funds in India is solely guided by SEBI (Mutual Fund) Regulations, 1993, which came into force on 20 January 1993. The regulations have since been replaced by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, through a notification on 9 December 1996. A mutual fund comprises four separate entities, namely sponsor, mutual fund trust, AMC and custodian. They are of course assisted by other independent administrative entities like banks, registrars and transfer agents. We may discuss in brief the formation of different entities, their functions and obligations.

The sponsor for a mutual fund can by any person who, acting alone or in combination with another body corporate establishes the mutual fund and gets it registered with SEBI. The sponsor is required to contribute at least 40 per cent of the minimum net worth (Rs 10 crore) of the asset management company. The sponsor must have a sound track record and general reputation of fairness and integrity in all his business transactions.

As per SEBI Regulation, 1996, a mutual fund is to be formed by the sponsor and registered with SEBI. A mutual fund shall be constituted in the form of a trust and the instrument of trust shall be in the form of a deed, duly registered under the provisions of the Indian Registration Act, 1908, executed by the sponsor in favor of trustees named in such an instrument.

The board of trustees manages the mutual fund and the sponsor executes the trust deeds in favor of the trustees. The mutual fund raises money through sale of units under one or more schemes for investing in securities in accordance with SEBI guidelines. It is the job of the mutual fund trustees to see that the schemes floated and managed by the AMC appointed by the trustees, are in accordance with the trust deeds and SEBI guidelines. It is also the responsibilities of the trustees to control the capital property of mutual funds schemes. The trustees have the right to obtain relevant information from the AMC, as well as a quarterly report on its activities. They can also dismiss the AMC under specific condition as per SEBI regulations.

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At least half the trustees should be independent persons. The AMC or its employees cannot act as a trustee. No person who is appointed as a trustee of a mutual fund can be appointed as a trustee of any other mutual fund unless he is an independent trustee and prior permission is obtained from the mutual fund in which he is a trustee. The trustees are required to submit half-yearly reports to SEBI on the activities of the mutual fund. The trustees appoint a custodian and supervise their activities. The trustees can be removed only with prior approval of SEBI.

As per SEBI guidelines, an asset management company is appointed by the trustees to float the schemes for the mutual fund and manage the funds raised by selling units under a scheme. The AMC must act as per SEBI guidelines, trust deeds and management agreement between trustee & the AMC.

The Importance of Accounting Knowledge

Mutual funds in India are required to follow the accounting policies laid down in SEBI (Mutual Fund) Regulations, 1996 and the amendments in 1998. This section of the workbook summarizes the important Regulations, and periodical budgets.

Net Asset Value (NAV)

A mutual fund is a common investment vehicle where the assets of the fund belong directly to the investors. The fund does not account for investors' subscriptions as liabilities or deposits but as Unit Capital. On the other hand, the investments made on behalf of the investors are reflected on the assets side and are the main constituents of the balance sheet. There are, however, liabilities of a strictly short-term nature that may be part of the balance sheet. The fund's Net Assets are therefore defined as the assets minus the liabilities. As there are many investors in a fund, it is common practice for mutual funds to compute the share of each investor on the basis of the value of Net Assets Per Share/Unit, commonly known as the Net Asset Value (NAV). The following are the regulatory requirements and accounting definitions lay down by SEBI. NAV = Net Assets of the scheme / Number of Units Outstanding, i.e. investments + Receivables + Other Accrued Income + Other Assets 45 Market value of

Accrued Expenses-Other Payables-Other Liabilities = No. Of Units Outstanding as at the NAV date

A fund's NAV is affected by four sets of factors: -- Purchase and sale of investment securities -- Valuation of all investment securities held -- Other assets and liabilities, and -- Units sold or redeemed

Pricing of Units:
Although NAV per share defines the value of the investor's holding in the fund, the fund may not repurchase the investor's units at the same price as NAV. However, SEBI requires that the fund must ensure that repurchase price is not lower than 93% of NAV (95% in the case of a closed end fund). On the other side, a fund may sell new units at a price that is different from the NAV, but the sale price cannot be higher than 107% of NAV. Also, the difference the repurchase price and the sale price of the unit is not permitted to exceed 7% of the sale price.

Fees and Expenses:

An AMC may incur many expenses specifically for given schemes, and other common expenses. In any case, all expenses should be clearly Unidentified and allocated to the individual schemes. The AMC may charge the scheme with investment management and advisory fees that are fully disclosed in the offer document subject to the following limits: @ 1.25% of the first Rs. 100 crore of weekly average net assets outstanding in the accounting year, and @ 1% of weekly average net assets in excess of Rs. 100 crore. For no load schemes, the AMC may charge an additional management fee up to 1% of weekly average net assets outstanding in the accounting year. 46

Investment management and advisory fees are subject to the overall ceiling for expenses. A. Initial expenses of launching schemes (not to exceed 6% of initial resources raised under the scheme); and

B. Recurring expenses including: i. Marketing and selling expenses including agents' commission ii. Brokerage and transaction costs iii. Registrar services for transfer of units sold or redeemed v. Fees and expenses of trustees v. Audit fees vi. Custodian fees vii. Costs related to investor communication viii. Costs of fund transfers from location to location ix. Costs of providing account statements and dividend / redemption cheques and warrants x. Insurance premium paid by the fund xi. Winding up costs for terminating a fund or a scheme xii. Other costs as approved by SEBI

The total expenses charged by the AMC to a scheme, excluding issue or redemption expenses but including investment management and advisory fees are subject to the following limits:

On the first Rs. 100 Crores of average weekly net assets-2.5% On the next Rs. 300 Crores of average weekly net assets -2.0% On the balance of average weekly net assets-1.75% For bond funds, the above percentages are required to be lower by 0.25%

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Initial Issue Expenses:

When a scheme is first launched, the AMC will incur significant expenses, whose benefit will accrue over many years. All expenses cannot, therefore, be charged to a scheme in the first year itself. SEBI permits "amortization" of initial expenses as follows: For a closed-end scheme floated on a 'load' basis, the initial issue expenses shall be amortized on a weekly basis over the period of scheme. For example, a 5-year (i.e. 260 week) closed-end scheme with initial issue expenses of Rs. 5 lakhs must charge Rs.1923 (5 lakhs / 260 weeks) every week to the fund. It cannot charge the entire amount of Rs. 5 lakhs at the time of issue. For an open-end scheme floated on a 'load' basis, initial issue expenses may be amortized over a period not exceeding five years. For example, if an open-end scheme has initial issue expenses of Rs. 10 lakhs, it need not charge this entire amount to the fund in the year of issue. Instead, it may charge Rs. 2 lakhs (10 lakhs / 5 years) per year to the fund, thereby spreading the charge of initial issue expenses over a maximum of 5 years. Issue expenses incurred during the life of an open-end scheme cannot be amortized. Un amortized portion of initial issue expenses shall be included for NAV calculation, considered as "other asset". The investment advisory fee cannot be claimed on this asset. Hence, they have to be excluded while determining the chargeable investment management / advisory fees. While calculating the maximum amount of chargeable expenses, the un amortized portion of the initial issue expenses will not be included as part of the average weekly net assets figure.

Accounting Policies:
Investments are required to be marked to market using market prices. Any unrealized appreciation cannot be distributed, and provision must be made for the same. Dividend received by the fund on a share should be recognized, not on the date of declaration, but on the date the share is quoted on ex-dividend basis. For example, if a fund owns shares on

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which dividend is declared on April 5, and the shares are quoted on ex-dividend basis on April 20, the dividend income will be included by the fund for distribution/NAV computation only April 20. In determining gain or loss on sale of investments, the average cost method must be followed to determine the cost of purchase. This will be applied by security. Purchase / sale of investments should be recognized on the trade date and not settlement date Bonus / rights shares should be recognized only when the original shares are traded on the stock exchange on an ex-bonus /ex-rights basis Income receivable on investments, which is accrued, but not received for 12 months beyond due date, should be provided for, and no further accrual should be made for such investment An investment shall be regarded as non-performing if it has provided no returns through dividend/interest for more than 2years at the end of the accounting year Investments owned by mutual funds are marked to market. Therefore, the value of investments appreciates or depreciates based on market fluctuations, which is reflected in the balance sheet. However, this change in value constitutes unrealized gain/loss. When any investments are actually sold, the proportion of the unrealized gain / loss that pertains to such investments becomes realized gain/loss. Therefore, at any given time, the NAV includes realized and unrealized gain/loss on investments. While SEBI prohibits the distribution of unrealized appreciation on investments, realized gain in available for distribution.

An open-end scheme sells and repurchases units on the basis of NAV. SEBI therefore prescribes the use of an equalization account, to ensure that creation / redemption of units does not change the percentage of income distributed. This involves the following steps: Computation of distributable reserves: Income + Realized Gain on Investments- Expenses-Unrealized Losses (unrealized gains are

excluded)

- If distributable reserves are positive, the following percentage is computed: Distributable Reserve / Units Outstanding

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The above percentage is multiplied with the number of new units sold, and the equalization

account is credited by this amount, if units are sold above par; if the units are sold below par, the equalization account is debited by this amount. The same percentage is multiplies with the number of units repurchased, and the equalization account is debited by this amount if the units are repurchased above par; if the units are repurchased below par, the equalization account is credited.

- The net balance in the equalization account is transferred to the profit and loss account. It is
only an adjustment to the distributable surplus and does not affect the net income for the period.

VALUATION
Mutual funds value their investments on a 'mark-to-market' basis with reference to the date on which they are valued i.e., the valuation date.

Valuation of Traded Securities:

Where a security is traded on a stock exchange, it is valued at the last quoted closing price on the stock exchange where it is "principally traded". If a security is not traded on any stock exchange on a particular valuation day, the value at which it was traded on the selected/other stock exchange on the Earliest previous day may be used, provided such date is not more than 60 days prior to the valuation date. Valuation of traded securities, once the market price is obtained as above, is quite simple. The fund will multiply its current holding in number of shares or bonds by the applicable market price to get the "mark to market" value.

valuation of Non-traded Securities:

When a security is not traded on any stock exchange for 60 days prior to the valuation date, it must be treated as non-traded' scrip. Non-traded securities shall be valued 'in good faith' by the AMC on the basis of appropriate valuation methods, which shall be periodically reviewed by the trustees and reported by the

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auditors as fair and reasonable. The following principles are to be applied for the valuation of non-traded securities: Equity instruments: are to be valued on the basis of capitalization of earnings solely or in combination with its balance sheet Net Asset Value. For this purpose, capitalization rate will be determined by reference to the price or earning rations of comparable traded securities with an appropriate discount for lower liquidity to be used.

Debit instruments: are to be valued on a yield to maturity basis, the capitalization factor
being determined for comparable traded securities with an appropriate discount for lower liquidity. Call money, bills purchased: under rediscounting and short term deposits with banks are to be valued at cost + accrual: other money market instruments at yield at which they are currently traded; non-traded instruments (not traded for 7 days) will be valued at cost plus interest accrued till the beginning of the valuation day plus the difference between redemption value and cost, spread uniformly over the remaining maturity of the instruments

Government Securities: are to be valued at yield to maturity based on prevailing market rate

Convertible debentures and bonds: non-convertible component is to be valued as a debt instrument, and convertible as any equity instrument. If after Conversion, the resultant equity instrument would be traded pari passu with an existing instrument, which is traded, the value of the latter instrument can be adopted after an appropriate discount for the non-tradability of the instrument.

RISK INVOLVED IN MUTUAL FUNDS INDUSTRY:

Mutual funds are not free from risk. It is so because basically the mutual funds also invest their funds in stock markets on shares, which are volatile in nature and are not risk free, the following risk are inherent in their dealing. 51

INHERENT RISK FACTORS: 1) Market Risks:

In general there are certain risks associated with the every kind of investment on shares. They are called market risks. These market risks can be reduced, but cannot be completely eliminated even by a good investment.

2) Scheme Risks
There are certain risks inherent in the scheme itself. It all depends upon the nature of the scheme. For instance, in a pure growth scheme, risks are greater.

3) Investment Risks
Whether the mutual fund makes money in shares or loses depends upon the investment expertise of the Asset Management Company. If the investment advice goes wrong, the fund has to suffer a lot.

4) Business Risks
The corpus of a mutual fund might have been invested in a companys shares. If the business of that company suffers any set back, it cannot declare any dividend. It may even go to the extent of winding up its business.

5) Political Risks
Successive Governments bring with them fancy new economic ideologies and policies. It is often said that many economic decisions are politically motivated.

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PARAMETERS DESCRIPTION
The following parameters were considered for analysis: Beta Alpha Correlation coefficient Treynors Ratio Sharpes Ratio Jensens Ratio

Beta
Beta is a measure of volatility, or systematic risk, of a security or portfolio in comparison to the market as a whole. Beta measures a stock's volatility, the degree to which a stock price fluctuates in relation to the overall market. Investment analysts use the Greek letter beta, . It is calculated using regression analysis. A beta of 1 indicates that the security's price will move with the market. A beta greater than 1 indicates that the security's price will be more volatile than the market, and a beta less than 1 means that it will be less volatile than the market.

While standard deviation determines the volatility of a fund according to the disparity of its returns over a period of time, beta, another useful statistical measure, determines the volatility, or risk, of a fund in comparison to that of its index. Investors expecting the market to be bullish may choose funds exhibiting high betas, which increase investors' chances of beating the market. If an investor expects the market to be bearish in the near future, the funds that have betas less than 1 are a good choice because they would be expected to decline less in value than the index. For example, if a fund had a beta of 0.5 and the S&P 500 declined 6%, the fund would be expected to decline only 3%. Be aware of the fact that beta by itself is limited and can be skewed due to factors of other than the market risk affecting the fund's volatility.

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Here is a basic guide to various betas: Negative beta - A beta less than 0 is possible but highly unlikely. People used to think

that gold and gold stocks should have negative betas because they tended to do better when the stock market declined, but this hasn't been true overall. range

Beta = 0 - Basically this is cash (assuming no inflation).

Beta between 0 and 1 - Low-volatility investments, such as utilities, are usually in this

Beta = 1 - This is the same as an index, such as the S&P 500 or some other index fund.

Beta greater than 1 - This denotes anything more volatile than the broad-based index,

like a sector fund.

Beta greater than 100 - This is impossible because the stock would be expected go to

zero on any decline in the stock market. The beta never gets higher than two to three.

The beta value for an index itself is taken as one. Equity funds can have beta values, which can be above one, less than one or equal to one. By multiplying the beta value of a fund with the expected percentage movement of an index, the expected movement in the fund can be determined. Thus if a fund has a beta of 1.2 and the market is expected to move up by ten per cent, the fund should move by 12 per cent Similarly if the market loses ten per cent, the fund should lose 12 per cent.

This shows that a fund with a beta of more than one will rise more than the market and also fall more than market. Clearly, if you'd like to beat the market on the upside, it is best to invest in a high-beta fund. But you must keep in mind that such a fund will also fall more than the market on the way down. So, over an entire cycle, returns may not be much higher than the market. Similarly, a low-beta fund will rise less than the market on the way up and lose less on the way down. When safety of investment is important, a fund with a beta of less than one is a better 54

option. Such a fund may not gain much more than the market on the upside; it will protect returns better when market falls.

Alpha
A measure of risk, used for mutual funds with regards to their relation and the market. A positive alpha is the extra return awarded to the investor for taking a risk, instead of accepting the market return The formula for alpha is: Alpha = [ (sum of y) - ((b)(sum of x)) ] / n

n =number of observations (36 mos.) b = beta of the fund x = rate of return for the market y = rate of return for the fund

Alpha measures how much if any of this extra risk helped the fund outperform its corresponding benchmark. Using beta, alpha's computation compares the fund's performance to that of the benchmark's risk-adjusted returns and establishes if the fund's returns outperformed the market's, given the same amount of risk. For example, if a fund has an alpha of 1, it means that the fund outperformed the benchmark by 1%. Negative alphas are bad in that they indicate that the fund under performed for the amount of extra, fund-specific risk that the fund's investors undertook.

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Standard Deviation
Standard deviation is probably used more than any other measure to describe the risk of a security (or portfolio of securities). If you read an academic study on investment performance, chances are that standard deviation will be used to gauge risk. It's not just a financial tool, though. Standard deviation is one of the most commonly used statistical tools in the sciences and social sciences. It provides a precise measure of the amount of variation in any group of numbers--the returns of a mutual fund.

Measure of the dispersion of a set of data from its mean. The more spread apart the data is, the higher the deviation. Standard deviation is applied to the annual rate of return of an investment to measure the investment's volatility (risk).

A volatile stock would have a high standard deviation. In mutual funds, the standard deviation tells us how much the return on the fund is deviating from the expected normal returns. Standard deviation is a statistical measure of the range of a fund's performance. When a fund has a high standard deviation, its range of performance has been very wide, indicating that there is a greater potential for volatility.

Technically speaking, standard deviation provides a quantification of the variance of the returns of the security, not its risk. After all, a fund with a high standard deviation of returns is not necessarily "riskier" than one with a low-standard deviation of returns.

Correlation
Correlation is a useful tool for determining if relationships exist between securities. A correlation coefficient is the result of a mathematical comparison of how closely related two variables are. The relationship between two variables is said to be highly correlated if a movement in one variable results or takes place at the same time as a similar movement in another variable. A useful feature of correlation analysis is the potential to predict the movement in one security when another security moves. Sometimes, there are securities that lead other securities. In other words a change in price in one results in a later change in price of the other. A high 56

negative correlation means that when a securities price changes, the other security or indicator or otherwise financial vehicle, will often move in the opposite direction.

Correlation analysis is a measure of the degree to which a change in the independent variable will result in a change in the dependent variable. A low correlation coefficient (e.g., 0.1) suggests that the relationship between the two variables is weak or non-existent. A high correlation coefficient (e.g., 0.80) indicates that the dependent variable will most likely change when the Independent variable changes. Correlation can also be used for a study between an indicator and a stock or index to help determine the predictive abilities of changes in the indicator. Correlation is not static. In other words, the correlation between two things in the markets does change over time and so a careful understanding that what has happened in the past may not predict what will happen in the future should be part of any basis in trading financial instruments in the market.

PORTFOLIO MEASUREMENT METHODS:

We are interested in discovering if the management of a mutual fund is performing well; that is, has management done better through its selective buying and selling of securities than would have been achieved through merely buying the market picking a large number of securities randomly and holding them throughout the period? The most popular ways of measuring managements performance are 1. Sharpes Performance Measure 2. Treynors Performance Measure 3. Jensens Performance Measure

SHARPES RATIO
Sharpes is the summary measure of portfolio performance which properly adjusts performance for risk. It measures the risk premiums of the portfolio relative to the total amount of risk in the portfolio.

The Sharpes index is given by: Sharpes Index =

(Average return on portfolio Risk less rate of interest)

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(Deviation of returns on portfolio)

Graphifically the index measures the slope of the line emanating from the risk less rate outward to the portfolio in question. Thus, the Sharpe Index summarizes the risk and return of a portfolio in a single measure that categorizes the performance of the fund on a risk-adjusted basis. The larger the value of Sharpe Index the better the portfolio has performed.

TREYNORS RATIO
Treynors ratio measures the risk premium of the portfolio, where risk premium equals the difference between the return of the portfolio and the risk less rate. The risk premium is related to the amount of systematic risk assumed in the portfolio. Graphically; the index measures the slope of the line emanating outward from risk less rate to the portfolio under consideration. Treynors ratio is given as
(Average return of portfolio Risk less rate of interest)

Treynor Index = ------------------------------------------------------Beta coefficient of portfolio

Jensens Performance Measure (Michael)

It refers the actual return earned in portfolio and return expected out of portfolio given its level of risk. CAPM is used to calculate the expected return. The difference between the expected return and act retain can be said the return earned out of the mandatory of systematic risk. This excess return refers the managers predictive ability and managerial skills. CAPM rp = rf = rp - rp =positive > Superior returns > Unskilled management (worse portfolio) 0 > Neutral performance
m

rf)

Differential return is calculated as follows:

p p

p = Negative p=

Higher alpha represents superior performance of a fund and vice versa. 58

CHAPTER-IV DATA ANALYSIS & INTERPRETATION

59

Data Analysis & Interpretation

For the purpose of data analysis and interpretation the following mutual funds have been chosen;

a) b) c) d)

SBI Magnum Equity Fund Growth Birla Sun life 95 Growth Kotak 30 Growth TATA Equity Management Fund Growth

Each product has been analyzed using the following tools and the results tabulated, presented graphically and the evaluation of the same has been given under the caption 'Interpretation' below the graph.

The fund NAVs are compared with the bench mark of nifty for the analysis.

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For analysis Net Asset Value ( NAV) of the Four AMCS have been taken for the month of January 2012

SBI Market Date Level NIFTY) ( Magnum Equity fund Growth 1/1/12 1/2/12 1/5/12 1/6/12 1/7/12 1/9/12 1/12/12 1/13/12 1/14/12 1/15/12 1/16/12 1/19/12 1/20/12 1/21/12 1/22/12 3033.45 3046.75 3121.45 3112.8 2920.4 2873 2773.1 2744.95 2835.3 2736.7 2828.45 2846.2 2796.6 2706.15 2713.8
21.08 21.22 21.69 21.86 20.7 20.18 19.75 19.64 20 19.56 19.87 19.98 19.63 19.18 19.11

Birla Sun life 95 Growth

TATA Equity Kotak 30 Growth Management Fund Growth

159.95 162.21 163.7 163.84 154.38 154.48 152.69 152.59 155.28 152.9 154.27 156.12 155.72 153.08 151.88

57.62 57.94 59.18 59.22 56.44 55.55 53.99 53.55 54.64 53.31 54.56 54.73 53.92 52.47 52.5

7.94 7.98 8.1 8.12 7.7 7.57 7.42 7.39 7.53 7.33 7.46 7.49 7.38 7.25 7.24

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1/23/12 1/27/12 1/28/12 1/29/12 1/30/12

2678.55 2771.35 2849.5 2823.95 2874.8

18.71 19.24 19.62 19.47 19.71

150.67 151.51 152.33 151.76 152.91

51.76 53.03 54.04 53.86 54.54

7.14 7.24 7.35 7.34 7.42

Average

2854.36

20.01

155.11

54.84

7.52

Calculations of Risk of SBI Magnum Equity fund Growth for the period of 1st January to 31st January 2012 Market Level ( NIFTY) Market Return

Date

SBI Magnum Equity fund Growth

Return

1/1/12 1/2/12 1/5/12 1/6/12 1/7/12 1/9/12 1/12/12 1/13/12 1/14/12 1/15/12

3033.45 3046.75 3121.45 3112.8 2920.4 2873 2773.1 2744.95 2835.3 2736.7 0.44 2.45 -0.28 -6.18 -1.62 -3.48 -1.02 3.29 -3.48

21.08 21.22 21.69 21.86 20.7 20.18 19.75 19.64 20 19.56

0.66 2.21 0.78 -5.31 -2.51 -2.13 -0.56 1.83 -2.20

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1/16/12 1/19/12 1/20/12 1/21/12 1/22/12 1/23/12 1/27/12 1/28/12 1/29/12 1/30/12

2828.45 2846.2 2796.6 2706.15 2713.8 2678.55 2771.35 2849.5 2823.95 2874.8

3.35 0.63 -1.74 -3.23 0.28 -1.30 3.46 2.82 -0.90 1.80 -0.36 2.75

19.87 19.98 19.63 19.18 19.11 18.71 19.24 19.62 19.47 19.71

1.58 0.55 -1.75 -2.29 -0.36 -2.09 2.83 1.98 -0.76 1.23 -0.42 2.15

Average Return Standard deviation (Risk) Beta

0.75

63

Graphical Presentation of SBI Magnum Equity Fund-Growth For the month of January 12

8 6 4 2 0 -2 -4 -6 -8 -10 -12 -14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Series2 Series1

Interpretation:

SBI Magnum Equity Fund-Growth has been analyzed and it is found that there is a negative growth. How ever on the basis of the avg returns of SBI there is a negative growth 0.42 as against the index avg of negative 0.36 the beta being less than 1 the stock is not highly volatile.

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Calculations of Risk of Birla Sun life 95 Growth for the period of 1st January to 31st January 2012

Date

Market Level ( NIFTY)

Market Return

Birla Sun life 95 Growth

Return

1/1/12 1/2/12 1/5/12 1/6/12 1/7/12 1/9/12 1/12/12 1/13/12 1/14/12 1/15/12 1/16/12 1/19/12 1/20/12 1/21/12 1/22/12 1/23/12

3033.45 3046.75 3121.45 3112.8 2920.4 2873 2773.1 2744.95 2835.3 2736.7 2828.45 2846.2 2796.6 2706.15 2713.8 2678.55 0.44 2.45 -0.28 -6.18 -1.62 -3.48 -1.02 3.29 -3.48 3.35 0.63 -1.74 -3.23 0.28 -1.30

159.95 162.21 163.7 163.84 154.38 154.48 152.69 152.59 155.28 152.9 154.27 156.12 155.72 153.08 151.88 150.67 1.41 0.92 0.09 -5.77 0.06 -1.16 -0.07 1.76 -1.53 0.90 1.20 -0.26 -1.70 -0.78 -0.80

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1/27/12 1/28/12 1/29/12 1/30/12

2771.35 2849.5 2823.95 2874.8

3.46 2.82 -0.90 1.80 -0.36 2.75

151.51 152.33 151.76 152.91

0.56 0.54 -0.37 0.76 -0.28 1.69

Average Return Standard deviation Beta

0.51

66

Graphical Presentation of Birla Sun life 95 Growth For the month of January 12
6 4 2 0 -2 -4 -6 -8 -10 -12 -14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Series2 Series1

Interpretation:
Birla Sun life 95 Growth have been analysed and it is found that there is a negative growth. How ever on the basis of the avg returns of Birla Sun life there is a negative growth 0.28as against the index avg of negative 0.36 the beta being less than 1 the stock is not highly volatile.

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Calculations of Risk of Kotak 30 Growth for the period of 1st January to 31st January 2012

Date

Market Level ( NIFTY)

Market Return (x)

Kotak 30 Growth

Return(y)

1/1/12 1/2/12 1/5/12 1/6/12 1/7/12 1/9/12 1/12/12 1/13/12 1/14/12 1/15/12 1/16/12 1/19/12 1/20/12 1/21/12 1/22/12

3033.45 3046.75 3121.45 3112.8 2920.4 2873 2773.1 2744.95 2835.3 2736.7 2828.45 2846.2 2796.6 2706.15 2713.8 0.44 2.45 -0.28 -6.18 -1.62 -3.48 -1.02 3.29 -3.48 3.35 0.63 -1.74 -3.23 0.28

57.62 57.94 59.18 59.22 56.44 55.55 53.99 53.55 54.64 53.31 54.56 54.73 53.92 52.47 52.5 0.56 2.14 0.07 -4.69 -1.58 -2.81 -0.81 2.04 -2.43 2.34 0.31 -1.48 -2.69 0.06

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1/23/12 1/27/12 1/28/12 1/29/12 1/30/12

2678.55 2771.35 2849.5 2823.95 2874.8

-1.30 3.46 2.82 -0.90 1.80

51.76 53.03 54.04 53.86 54.54

-1.41 2.45 1.90 -0.33 1.26

x Average Return -0.36

y -0.35

Standard deviation

2.75

2.07

Beta

0.75

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Graphical Presentation of KOTAK 30 Growth Fund For the month of January 12

8 6 4 2 0 -2 -4 -6 -8 -10 -12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Series2 Series1

Interpretation:
KOTAK 30 Growth Fund have been analysed and it is found that there is a negative growth. How ever on the basis of the avg returns of KOTAK there is a negative growth 0.35 as against the index avg of negative 0.36 the beta being less than 1 the stock is not highly volatile.

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Calculations of Risk of TATA Equity Management Fund Growth

for the period of 1st January to 31st January 2012

Date

Market Level ( NIFTY)

Market Return (x)

TATA Equity Management Fund Growth 7.94 Return(y)

1/1/12 1/2/12 1/5/12 1/6/12 1/7/12 1/9/12 1/12/12 1/13/12 1/14/12 1/15/12 1/16/12 1/19/12 1/20/12 1/21/12 1/22/12

3033.45 3046.75 3121.45 3112.8 2920.4 2873 2773.1 2744.95 2835.3 2736.7 2828.45 2846.2 2796.6 2706.15 2713.8 0.44 2.45 -0.28 -6.18 -1.62 -3.48 -1.02 3.29 -3.48 3.35 0.63 -1.74 -3.23 0.28

7.98 8.1 8.12 7.7 7.57 7.42 7.39 7.53 7.33 7.46 7.49 7.38 7.25 7.24

0.50 1.50 0.25 -5.17 -1.69 -1.98 -0.40 1.89 -2.66 1.77 0.40 -1.47 -1.76 -0.14

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1/23/12 1/27/12 1/28/12 1/29/12 1/30/12

2678.55 2771.35 2849.5 2823.95 2874.8

-1.30 3.46 2.82 -0.90 1.80

7.14 7.24 7.35 7.34 7.42

-1.38 1.40 1.52 -0.14 1.09

x Average Return -0.36

y -0.42

Standard deviation

2.75

1.86

Beta

0.65

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Graphical presentation of TATA Equity Management Fund Growth For the month of January 12

4 2 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 -2 -4 -6 -8 Series1 Series2

Interpretation:
TATA Equity Management Fund Growth has been analyzed and it is found that there is a negative growth. How ever on the basis of the avg returns of TATA Equity there is a negative growth 0.42 as against the index avg of negative 0.36 the beta being less than 1 the stock is not highly volatile.

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Comparative Study of the performance of the Selected AMCs Sharp index and Treynor index are calculated For the month of January 12
Sharp's Name of the Fund Return (Rm) Risk(std dev) Beta () Rf (RmRf)/
SBI Magnum Equity Fund Growth

Treynor (RmRf)/ -0.64

-0.42

2.15

0.75

0.06 -0.22

Birla Sun life 95 Growth Kotak 30 Growth

-0.28

1.69

0.51

0.06 -0.20

-0.67 -0.55

-0.35

2.07

0.75

0.06 -0.20

TATA Equity Management Fund Growth

-0.42

1.86

0.65

0.06 -0.26

-0.73

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The graphical representation of Sharp Index:

Sharpe's Index
0.00 -0.05 -0.10 -0.15 -0.20 -0.25 -0.30

SBI Magnum Birla Sunlife 95 Equity Fund Growth Growth

Kotak 30 Growth

TATA Equity Management Fund Growth

Name of the Fund

Interpretation:

From the above table and graph we can know that Birla sunlife and kotak are giving good returns and they are in first position,

And the second position is SBI

75

The graphical representation of TREYNER Index:

Trenyor's Ratio
0.00 -0.10 -0.20 -0.30 -0.40 -0.50 -0.60 -0.70 -0.80
SBI Magnum Birla Sunlife 95 Equity Fund Growth Growth Kotak 30 Growth TATA Equity Management Fund Growth

Name of the Fund

Interpretation:

From the above table and graph we can know Kotak is performing well and it is in first position And the second position is SBI The general trend in the reduction of the market price for various mutual funds studied is not encouraging the stock market index has also been falling continuously because of general economic slow down how ever the funds are ranked considering sharp and trenyors in the order of performances

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CHAPTER-V

FINDINGS CONCLUSIONS SUGGESTIONS BIBILIOGRAPHY

77

FINDINGS

SHARPES: As per Sharpe performance measure, a high Sharpe ratio is preferable as it

indicates a superior risk adjusted performance of a fund. From the above table Birla sunlife and kotak show a better risk-adjusted performance out of top4 AMCS.

TREYNORs: As per TREYNORS ratio the Treynors reward to volatility - having high positive index is favorable. Therefore, as per this ratio also Kotak MUTUAL FUND is preferable.

78

CONCLUSIONS

From the study analysis conducted it is clear that in EQUITY FUNDS-BIRLA SUNLIFE MUTUAL FUND is performing very well.

Investing in the KOTAK MUTUAL FUND (GROWTH) will leads to profits. By seeing the overall performance KOTAK MUTUAL FUND is performing very well. The prospective investors are needed to be made aware of the investment in mutual funds. The Industry should keep consistency and transparency in its management and investors objectives.

There is 100% growth of mutual fund as foreign AMCS are in queue to enter the Indian markets. Mutual funds can also perctrate in to rural areas.

79

SUGGESTIONS TO INVESTORS:

Investing Checklist

Financial goals & Time frame (Are you investing for retirement? A childs education? Or for current income? ) Risk Taking Capacity Identify funds that fall into your Buy List Obtain and read the offer Documents match your objectives

In terms of equity share and bond weightings, downside risk protection, tax benefits offered, dividend payout policy, sector focus Performance of various funds with similar objectives for at least 3-5 years Think hard about investing in sector funds For relatively aggressive investors Close touch with developments in sector, review portfolio regularly Look for `load' costs Management fees, annual expenses of the fund and sales loads Look for size and credentials Asset size less than Rs. 25 Crores Diversify, but not too much Invest regularly, choose the S-I-P MF- an integral part of your savings and wealth building plans. 80

Portfolio Decision
The right asset allocation i. Age = % in debt instruments ii. Reality= different financial position, different allocation iii. Younger= Riskier 2. Selecting the right fund/s i. Based on schemes investment philosophy ii. Long-term, appetite for risk, beat inflation equity funds best 3. TRAPS TO AVOID 4. IPO Blur 5. Begin with existing schemes (proven track record) and then new 6. schemes i. Avoid Market Timing 7. MF Comparison 8. Absolute returns 9. % Difference of NAV i. Diversified Equity with Sector Funds NO 10. Benchmark returns i. SEBI directs ii. Fund's returns compared to its benchmark

81

11. Time period Equal to time for which you plan to invest i. Equity- compare for 5 years, Debt- for 6 months 12. Market conditions i. Proved its mettle in bear market

82

Recommendations and Suggestions to AMCS:

1) Brand building: Brand building is an exercise, which every business enterprise will have. Brand is the soul of an institution; it survives on it, lives with it and cherishes it. Example: BIRLA SUNLIFE MUTUAL FUND has a brand, every bank, insurance companies; mutual fund companies have got their own brands.

2) Strength full Strategies: Every AMC should try to turn into a more modern, a more vibrant, a more transparent and regulatory compliance institution. It is with this in mind, every institution should try to come up with verity of different type of products to fill different investment objectives

3) Marketing tools for total quality achievement:

a) Large Network. b) Effective Man power c) Distribution across the Market d) Customer relations(Building better relationships) e) Value added service f) Better transparency level g) Building brand name as a disciplined player.

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4) Innovation:

MF industry can be classified morely into three categories like equity, debt and balanced. And there is also complexive in nature. Fund managers are not able to reach niche market. The products are should be innovative that can meet niche market. Here MF should follow the FMCG industry innovative strategy.

The Ground rules of Mutual Fund Investing

Assess yourself

1) Try to understand where the money is going 2) Don't rush in picking funds, think first 3) Invest. Dont speculate 4) Dont put all the eggs in one basket 5) Be regular 6) Do your homework 7) Find the right funds 8) Keep track of your investments 9) Know when to sell your mutual funds

84

BIBILIOGRAPHY
I. TEXT BOOKS Donald E Fischer Ronald J Jordan H.Sadhak II. WEB SITES www.amfiindia.com www.kokak.com www.bseindia.com www.nseinda.com www.bluechipinda.co.in III. MAGAZINES Business India Business World IV. NEWS PAPERS Economic Times Business Standard. Mutual Fund in India Security Analysis Portfolio Management

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