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RISK ANALYSIS OF MUTUAL FUNDS
1.1 Introduction to Mutual Fund

Mutual Funds are essentially investment vehicles where people with similar investment objective come together to pool their money and then invest accordingly. Each unit of any scheme represents the proportion of pool owned by the unit holder (investor). Appreciation or reduction in value of investments is reflected in Net Asset Value (NAV) of the concerned scheme, which is declared by the fund from time to time. Mutual fund schemes are managed by respective Asset Management Companies (AMC). Different business groups/ financial institutions/ banks have sponsored these AMCs, either alone or in collaboration with reputed international firms. Several international funds like Alliance and Templeton are also operating independently in India. Mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. This pool of money is invested in accordance with a stated objective. 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 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. A Mutual Fund is an investment tool that allows small investors access to a well diversified portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Units are issued and can be redeemed as needed. A mutual fund is a group of investors operating through a fund manager to purchase a diverse portfolio of stocks or bonds. For the individual investor, mutual funds provide the benefit of having someone else manage the investments, take care of recordkeeping for the account, and diversify rupees over many different securities that may not be available or affordable to an investor otherwise. Today, minimum investment requirements on many funds are low enough that even the smallest investor can get started in mutual funds. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Mutual fund issues units to the
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RISK ANALYSIS OF MUTUAL FUNDS investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit holders. 1.2 Concept of Mutual Fund: Mutual funds, as the name indicates is the fund where in numerous investors come together to invest in various schemes of mutual fund. Mutual funds are dynamic institution, which plays a crucial role in an economy by mobilizing savings and investing them in the capital market, thus establishing a link between savings and the capital market. Mutual fund as an investment company combines or collects money of its shareholders and invests those funds in variety of stocks, bonds, and money market instruments. The latter include securities, commercial papers, certificates of deposits, etc. Mutual funds provide the investor with professional management of funds and diversification of investment. Investors who invest in mutual funds are provided with units to participate in stock markets. These units are investment vehicle that provide a means of participation in the stock market for people who have neither the time, nor the money, nor perhaps the expertise to undertake the direct investment in equities. On the other hand they also provide a route into specialist markets where direct investment often demands both more time and more knowledge than an investor may possess. The price of units in any mutual fund is governed by the value of underlying securities. The value of an investors holding in a unit can therefore, like an investment in share, can go down as well as up. Hence it is said that mutual funds are subjected to market risk. Mutual fund cant guarantee a fixed rate of return. It depends on the market condition and also depends on the fund managers expertise knowledge. Mutual Funds employ the services of skilled professionals who have years of experience to back them up. They use intensive research techniques to analyze each investment option for the potential of returns along with their risk levels to come up with the figures for performance that determine the suitability of any potential investment.
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RISK ANALYSIS OF MUTUAL FUNDS 1.3 The Process of Mutual Fund
Many investors with common financial objectives pool their money
Investors, on a proportionate basis , get mutual fund units for the sum contributed to the pool
The money collected from investors is invested into shares, debentures and other securities by the fund manager
The fund manager realizes gains or losses, and collects dividend or interest income
Any capital gain or losses from such investments are passed on to the investors in proportion of the number of units held by them
Figure 1.1 When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets of the fund in the same proportion as his contribution amount put up with the corpus (the total amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit holder. Any change in the value of the investments made into capital market instruments (such as shares, debentures etc) is reflected in the NAV of the scheme. NAV is defined as the market value of the Mutual Fund scheme's assets net of its
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RISK ANALYSIS OF MUTUAL FUNDS liabilities. NAV of a scheme is calculated by dividing the market value of scheme's assets by the total number of units issued to the investors. The above flow chart signifies the importance of Mutual Fund. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciations realized by the schemes 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 person as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. Since small investors generally do not have adequate time, knowledge, experience & resources for directly accessing the capital market, they have to rely on an intermediary, which undertakes informed investment decisions & provides consequential benefits of professional expertise. The advantage of Mutual Funds to the investors is professional managed, low transaction cost, liquidity, transparency, well regulated, diversified portfolios & tax benefits. By pooling their assets through mutual funds, investors achieve economies of scale. A collected corpus can be used to procure a diversified portfolio indicating greater returns has also create economies of scale through cost reduction. This principle has been effective worldwide as more & more investors are going the mutual fund way. This portfolio diversification ensures risk minimization. The criticality such a measure comes when the factor in the fluctuations that characterize stock markets. The interest of the investors is protected by the SEBI, which acts as a watchdog. Mutual funds are governed by SEBI (Mutual Funds) regulations, 1996.
1.4 Advantages & Disadvantages of Mutual Funds

1.4.1 The advantages of investing in a Mutual Fund are: Professional Management The primary advantage of funds is the professional management of the money. Investors purchase funds because they do not have the time or the expertise to manage
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RISK ANALYSIS OF MUTUAL FUNDS their own portfolio. A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments. Diversification By owning shares in a mutual fund instead of owning individual stocks or bonds, your risk is spread out. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. In other words, the more stocks and bonds a person own, the less any one of them can hurt that person. Large mutual funds typically own hundreds of different stocks in many different industries. It wouldn't be possible for an investor to build this kind of a portfolio with a small amount of money. Investments are spread across a wide cross-section of industries and sectors and so the risk is reduced. Diversification reduces the risk because all stocks dont move in the same direction at the same time. One can achieve this diversification through a Mutual Fund with far less money than one can on his own. Economies of Scale Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than an individual would pay. Convenient Administration: Investing in a Mutual Fund reduces paperwork and helps to avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save time and make investments in an easy and convenient way. Potential of Return Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities. Returns in the mutual funds are generally better than any other option in any other avenue over a reasonable period of time. People can pick their investment horizon and stay put in the chosen fund for the duration. Equity funds can outperform most other investments over long periods by
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RISK ANALYSIS OF MUTUAL FUNDS placing long-term calls on fundamentally good stocks. The debt funds too will outperform other options such as banks. Though they are affected by the interest rate risk in general, the returns generated are more as they pick securities with different duration that have different yields and so are able to increase the overall returns from the portfolio. Low Cost Mutual Funds offer a relatively less expensive way to invest when compared to other avenues such as capital market operations. The fee in terms of brokerages, custodial fees and other management fees are substantially lower than other options and are directly linked to the performance of the scheme. Investment in mutual funds also offers a lot of flexibility with features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans enabling systematic investment or withdrawal of funds. Even the investors, who could otherwise not enter stock markets with low investible funds, can benefit from a portfolio comprising of high-priced stocks because they are purchased from pooled funds. Liquidity Fixed deposits with companies or in banks are usually not withdrawn premature because there is a penal clause attached to it. The investors can withdraw or redeem money at the NAV related prices in the open-end schemes. In closed-end schemes, the units can be transacted at the prevailing market price on a stock exchange. Mutual funds also provide the facility of direct repurchase at NAV related prices. The market prices of these schemes are dependent on the NAVs of funds and may trade at more than NAV (known as Premium) or less than NAV (known as Discount) depending on the expected future trend of NAV which in turn is linked to general market conditions. Bullish market may result in schemes trading at Premium while in bearish markets the funds usually trade at Discount. This means that the money can be withdrawn anytime, without much reduction in yield. Some mutual funds however, charge exit loads for withdrawal within a period.
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RISK ANALYSIS OF MUTUAL FUNDS Transparency Customers will get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook. Flexibility Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans. So that people can systematically invest or withdraw funds
according to their needs and convenience. Affordability Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy. Choice of Schemes: Mutual Funds offer a family of schemes to suit an investors varying needs over a lifetime. Well-Regulated All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI. Simplicity Buying a mutual fund is easy. Pretty well any bank has its own line of mutual funds, and the minimum investment is small. Most companies also have automatic purchase plans whereby as little as Rs.5000 can be invested on a monthly basis.
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RISK ANALYSIS OF MUTUAL FUNDS 1.4.2 Disadvantages of Mutual Funds: The disadvantages of investing in Mutual Funds are: No Guarantees No investment is risk free. If the entire stock market declines in value, the value of mutual fund shares will go down as well, no matter how balanced the portfolio. Investors encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on their own. However, anyone who invests through a mutual fund runs the risk of losing money. Fees and commissions All funds charge administrative fees to cover their day-to-day expenses. Some funds also charge sales commissions or "loads" to compensate brokers, financial consultants, or financial planners. Even if a customer doesnt use a broker or other financial adviser, he needs to pay a sales commission if he buys shares in a Load Fund. Taxes During a typical year, most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If a fund makes a profit on its sales, customer has to pay taxes on the income he received, even if he reinvests the money he earned. Management risk
When we invest in a mutual fund, we depend on the fund's manager to make the right decisions regarding the fund's portfolio. If the manager does not perform according to our expectation, we might not make much money on our investment as we expected. Of course, if we invest in Index Funds, we forego management risk, because these funds do not employ managers.
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1.5 Types of Mutual Fund Schemes:

By Structure Open-ended schemes Close-ended schemes Interval schemes By Investment Objective Growth schemes Income schemes Balance schemes Money Market schemes Other types of schemes Tax Saving schemes Gilt Fund Index schemes Sector specific schemes
1.5.1 Schemes Based on their Structure: A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period. Open-ended Fund / Scheme An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at NAV related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity. In other words we can say these are the funds which an Investor can buy and sell the units from the fund, at any point of time.
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RISK ANALYSIS OF MUTUAL FUNDS Close-ended Fund / Scheme A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis. Interval scheme Interval funds combine the features of open-ended & closed ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices. 1.5.2 Schemes According to Investment Objective: A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows: Growth / Equity Oriented Schemes The aim of growth funds is to provide capital appreciation over the medium to longterm. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for
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RISK ANALYSIS OF MUTUAL FUNDS investors having a long-term outlook seeking appreciation over a period of time.
Figure 1.2 Equity schemes are hence not suitable for investors seeking regular income or needing to use their investments in the short-term. They are ideal for investors who have a long-term investment horizon. The NAV prices of equity fund fluctuates with market value of the underlying stock which are influenced by external factors such as social, political as well as economic. Income / Debt Oriented Scheme The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations. These schemes invest in money markets, bonds and debentures of corporate companies with medium and long-term maturities
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Figure 1.3 These schemes primarily target current income instead of capital appreciation. Hence, a substantial part of the distributable surplus is given back to the investor by way of dividend distribution. These schemes usually declare quarterly dividends and are suitable for conservative investors who have medium to long-term investment horizon and are looking for regular income through dividend or steady capital appreciation Balanced Fund The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds. Money Market or Liquid Fund These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and interbank call money, government securities, etc. Returns on these schemes fluctuate much
RISK ANALYSIS OF MUTUAL FUNDS less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods. 1.5.3 Other Schemes: Tax Saving Schemes These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. E.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest predominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme. Gilt Fund These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes. Gilt funds, as they are conveniently called, are mutual fund schemes floated by asset management companies with exclusive investments in government securities. The schemes are also referred to as mutual funds dedicated exclusively to investments in government securities. Government securities mean and include central government dated securities, state government securities and treasury bills. The gilt funds provide to the investors the safety of investments made in government securities and better returns than direct investments in these securities through investing in a variety of government securities yielding varying rate of returns gilt funds, however, do run the risk. The first gilt fund in India was set up in December 1998. All gilt funds - public and private sector, open-ended or close- ended - are eligible to avail liquidity support and other facilities from the Reserve Bank of India. The gilt funds schemes should, however, have the approval of the Securities and Exchange Board of India. It would be prudent for the gilt funds to submit an advance copy of the draft offer document to the Reserve Bank of India for preliminary scrutiny at the time of submitting the draft offer document to the Securities and Exchange
RISK ANALYSIS OF MUTUAL FUNDS Board of India. This is to enable the Reserve Bank to satisfy itself that the scheme proposed to be floated by the gilt funds is in conformity with the Reserve Bank's guidelines for availing liquidity support from the Reserve Bank of India. Index Funds Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc these schemes invest in the securities in the same weight age comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges. Sector Specific Funds / Schemes These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. E.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. 1.6 Why to Invest in Mutual Funds: A proven principle of sound investment is do not put all eggs in one basket. Investment in mutual funds is beneficial due to following reasons. They help in pooling of funds and investing in large basket of shares of different companies. Thus by investing in diverse companies, mutual funds can protect against unexpected fall in value of investment.
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RISK ANALYSIS OF MUTUAL FUNDS An average investor does not have enough time and resources to develop professional attitude towards their investment. Here professional fund managers engaged by mutual funds take desirable investment decision on behalf of investors so as to make better utilization of resources. Investment in mutual funds is comparatively more liquid because investor can sell the units in open market or can approach mutual fund to repurchase the units at net asset value depending upon the type of scheme. Investors can avail tax rebates by investing in different tax saving schemes floated by these funds, approved by the government. Operating cost is minimized per head because of large size of investible funds, there by realizing more net income of investors. 1.7 Organization Structure of Mutual Funds: There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund. Mutual funds have a unique structure not shared with other entities such as companies of firms. It is important for employees & agents to be aware of the special nature of this structure, because it determines the rights & responsibilities of the funds constituents viz., sponsors, trustees, custodians, transfer agents & of course the fund & the AMC legal structure also drives the inter-relationships between these constituents. The structure of the mutual fund India is governed by the SEBI (Mutual Funds) regulations, 1996. These regulations make it mandatory for mutual funds to have a structure of sponsor, trustee, AMC, custodian. The sponsor is the promoter of the mutual fund& appoints the trustees. The trustees are responsible to the investors in the mutual fund, & appoint the AMC for managing the investment portfolio. The AMC is the business face of the mutual fund, as it manages all affairs of the mutual fund. The mutual fund & the AMC have to be registered with SEBI. Custodian, who is also registered with SEBI, holds the securities of various schemes of the fund in its custody.
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Figure 1.4 1.7.1 Sponsor: The sponsor is the promoter of the mutual fund. The sponsor establishes the Mutual
fund & registers the same with SEBI. He appoints the trustees, Custodians & the AMC with prior approval of SEBI, & in accordance with SEBI regulations. He must have at least five year track record of business interest in the financial markets. Sponsor must have been profit making in at least three of the above five years. He must contribute at least 40% of the capital of the AMC. 1.7.2 Trust: The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908. 1.7.3 Trustee: The Mutual Fund may be managed by a Board of trustees of individuals, or a trust company a corporate body. Most of the funds in India are managed by board of trustees. While the board of trustees is governed by the provisions of the Indian trust act, where the trustee is the corporate body, it would also be required to comply with the
RISK ANALYSIS OF MUTUAL FUNDS provisions of the companies act, 1956. The board of trustee company, as an independent body, act as protector of the unit-holders interest. The trustees dont directly manage the portfolio of securities. For this specialist function, they appoint an AMC. They ensure that the fund is managed by AMC as per the defined objectives & in accordance with the trust deed & SEBI regulations. The trust is created through a document called the trust deed i.e., executed by the fund sponsor in favor of the trustees. The trust deed is required to be stamped as registered under the provision of the Indian registration act & registered with SEBI. The trustees begin the primary guardians of the unit-holders funds & assets; a trustee has to be a person of high repute & integrity. 1.7.4 Asset Management Company The role of an Asset management companies is to act as the investment manager of the trust. They are the ones who manage money of investors. An AMC takes decisions, compensates investors through dividends, maintains proper accounting & information for pricing of units, calculates the NAV, & provides information on listed schemes. It also exercises due diligence on investments & submits quarterly reports to the trustees. AMCs have been set up in various countries internationally as an answer to the global problem of bad loans. Bad loans are essentially of two types: bad loans generated out of the usual banking operations or bad lending, and bad loans which emanate out of a systematic banking crisis. It is in the latter case that banking regulators or governments try to bail out the banking system of a systematic accumulation of bad loans which acts as a drag on their liquidity, balance sheets and generally the health of banking. So, the idea of AMCs or ARCs is not to bail out banks, but to bail out the banking system itself. 1.7.4.1 Types of AMCs in Indian Context:
The following are the various types of AMCs we have in India: INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES Page 17
RISK ANALYSIS OF MUTUAL FUNDS AMCs owned by banks. AMCs owned by financial institutions. AMCs owned by Indian private sector companies. AMCs owned by foreign institutional investors. AMCs owned by Indian & foreign sponsors.
1.7.5 Registrar and Transfer Agent: The Registrars & Transfer Agents(R & T Agents) are responsible for the investor servicing function, as they maintain the records of investors in mutual funds. They process investor applications; record details provide by the investors on application forms; send out to investors details regarding their investment in the mutual fund; send out periodical information on the performance of the mutual fund; process dividend payout to investor; incorporate changes in information as communicated by investors; & keep the investor record up-to-date, by recording new investors & removing investors who have withdrawn their funds. 1.7.6 Custodian: Often an independent organization, it takes custody of all securities & other assets of mutual fund. Its responsibilities include receipt & delivery of securities collecting income-distributing dividends, safekeeping of the unit, segregating assets & settlements between schemes. Mutual fund is managed either trust company or board of trustees. Board of trustees & trust are governed by provisions of Indian trust act. If trustee is a company, it is also subject Indian Company Act. Trustees appoint AMC in consultation with the sponsors & according to SEBI regulation. All mutual fund schemes floated by AMC have to be approved by trustees. Trustees review & ensure that net worth of the company is according to stipulated norms, every quarter. Though the trust is the mutual fund, the AMC is its operational face. The AMC is the first functionary to be appointed, & is involved in appointment of all other functionaries. The
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RISK ANALYSIS OF MUTUAL FUNDS AMC structures the mutual fund products, markets them & mobilizes fund, manages the funds & services to the investors. A draft offer document is to be prepared at the time of launching the fund. Typically, it pre-specifies investment objectives of the fund, the risk associated, the cost involved in the process, the broad rules to enter, to exit from the fund & other areas of operation. In India as in most countries, these sponsors need approval from a regulator, SEBI in our case. SEBI looks at track records of the sponsor & its financial strength granting approval to the fund for commencing operations. A sponsor then hires an asset management company to invest the funds according to the investment objective. It also hires another entity to be the custodian of the assets of the fund & perhaps the third one to handle registry work for the unit holder of the fund. 1.7.7 SEBI Securities and Exchange Board of India:
Securities and Exchange Board of India (SEBI) is a board (autonomous body) created by the
Government of India in 1988 and given statutory form in 1992 with the SEBI Act 1992 with its head office at Mumbai. The Securities and Exchange Board of India is perhaps the most important regulatory body. Similar to the Securities Exchange Commission in the US, it is the authority that has to always be on its toes. More so, when the markets are doing well and there are a spate of IPOs (Initial Public Offerings) or FPOs (Follow-On Public Offerings) like now. Its main mandate is to protect the interest of investors in the securities markets and to promote the development and to regulate the securities markets so as to establish a dynamic and efficient securities market. When investors have complaints against listed companies or registered intermediaries, SEBI acts as the nodal agency for addressing these complaints, if they are not solved directly between the parties concerned, or if the investor is not happy with the response. SEBI has listed certain categories of grievances for which investors can file complaints with it these include:
Non-receipt of refund order or allotment advice in case of investment in IPO's, FPO's and right issues
Non-receipt of dividend from listed companies Non-receipt of share certificates after transfer from listed companies Non-receipt of debentures after transfer or non-receipt of interest or principal on redemption and non-receipt of interest on delayed repayment
Non-receipt of rights offer letter
Collective investment schemes like plantation companies. Investors can send complaints to SEBI regarding non-receipt of invested principal and returns there from. Mutual funds/venture capital funds/foreign venture capital investors/foreign institutional investors/portfolio managers/custodians - Complaints mutual funds like non-receipt or delay in receipt of dividends/redemptions, non-availability of portfolio disclosures, nonreceipt of transaction statement, etc. Brokers - This is the most common area of complaints for the average investor. Complaints against brokers stem from disputes over brokerage rates, non-receipt of purchased shares or payments for sold shares, auction of shares sold and delivered timely, but delay at broker's end, etc. Complaints against securities lending intermediaries may arise due to non-receipt of shares lent by the investor or interest thereupon, or non-receipt of funds upon return of borrowed shares or excessive interest charged upon borrowing. Complaints against merchant bankers, registrar and transfer agents, bankers to issues and underwriters generally stem from problems in primary market issues, like nondisclosures, service issues etc. Derivative trading - Many investors sign legal papers empowering the broker to trade on their behalf, without proper knowledge and wake up on seeing their margin money eroded due to sustained losses. In other instances, major complaints are against brokers squaring off outstanding derivatives positions due to lack of margins or not giving the client adequate time or notice, leading to huge losses for investors/traders. These happen especially when markets turn volatile of see sustained and large one- way movements.
RISK ANALYSIS OF MUTUAL FUNDS There are other areas such as corporate governance, corporate restructuring, acquisitions, buybacks, delisting and other compliance related issues for which one could approach SEBI. For all this one can

File complaints electronically on the SEBI website Get a complaint registration number Track the status of the complaint online SEBI looks into the merit of the complaint and takes up the matter with the concerned company or intermediary
It can also direct intermediaries to redress the investor complaints satisfactorily if the case merits such an order one can also send grievances by post or fax. In other words, there is a wide range of issues that come under the jurisdiction of SEBI. And the responsibility is entirely on it to keep the stocks markets healthy.
1.8 Association of Mutual Funds in India (AMFI)
With the increase in mutual fund players in India, a need for mutual fund association in India was generated to function as a non-profit organization. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August, 1995. AMFI is an apex body of all Asset Management Companies which has been registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its Board of Directors. Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders. 1.8.1 Objectives of AMFI To define and maintain high professional and ethical standards in all areas of operation of mutual fund industry
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RISK ANALYSIS OF MUTUAL FUNDS To recommend and promote best business practices and code of conduct to be followed by members and others engaged in the activities of mutual fund and asset management including agencies connected or involved in the field of capital markets and financial services. To interact with the Securities and Exchange Board of India and to represent to SEBI on all matters concerning the mutual fund industry. To represent to the Government, Reserve Bank of India and other bodies on all matters relating to the Mutual Fund Industry. To develop a cadre of well trained Agent distributors and to implement a program of training and certification for all intermediaries and other engaged in the industry. To undertake nationwide investor awareness program so as to promote proper understanding of the concept and working of mutual funds. To disseminate information on Mutual Fund Industry and to undertake studies and research directly and/or in association with other bodies. 1.9 Investment Process In India Seven Steps to Investing Wisely in Mutual Funds Step 1: Identify the investment needs Our financial goals will vary, based on factors such as age, lifestyle, financial independence, family commitments and levels of income and expenses. The first step involves the assessment of the needs. What are the investment objectives and needs? How much risk an investor willing to take? What are cash flow requirements?
Step 2: Choose the right mutual fund Having identified the investment needs, we have to choose the mutual fund and scheme to invest in. The offer document details the schemes objectives, and the track record of other schemes under the same fund manager. Here are some factors may wish to evaluate before finalising a mutual fund:
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RISK ANALYSIS OF MUTUAL FUNDS The schemes performance track record of the last few years in relation to that of similar schemes in the category The funds organisation structure and its ability to provide efficient, prompt and personalised service The funds degree of transparency as reflected in the frequency and quality of its communications.
Step 3: Select the ideal mix of schemes No single mutual fund scheme may meet all our investment needs; therefore, we wish to invest in a combination of schemes to achieve our specific goals. Step 4: Invest regularly For most investors, the approach that works best is to invest a fixed amount at regular intervals, say every month. By investing a fixed sum each month, we buy fewer units when the price is high and more units when the price is low, thus it bringing down our average cost per unit. This sort of disciplined strategy of investing in an SIP is called rupee cost averaging, and is a disciplined investment strategy followed by investors the world over. Step 5: Keep taxes in mind Dividends/income distributions made by mutual funds to investors are currently exempt from income tax (I-T) in the hands of the investors. This is in addition to other benefits available for investments in mutual funds under the prevailing tax laws. Step 6: Begin early It is desirable to begin investing early, and to stick to a regular investment plan. By starting early, investor stands to earn more than from investing later: this is because the power of compounding lets an investor earn income on income, and the money multiplies at a compounded rate of return.
Step 7: The final step Get in touch with a mutual fund, agent or broker, and begin investing right away. Begin now, so we can reap the rewards in years to come. Mutual funds are suitable for every
RISK ANALYSIS OF MUTUAL FUNDS kind of investor, for those who are starting out on a career, or those about to retire, for those with high risk appetite, or those who are risk averse, for those who are growth oriented, or those seeking income.
1.10 Comparison of Mutual Funds with Other Products/ Investment Opportunities: The mutual fund sector operates under stricter regulations as compared to most other investment avenues. Apart from the tax efficiency and legal comfort we can compare mutual funds with other products. Here the investment in Mutual Funds is compared with: 1. 2. 3. 4.
5.
Company Fixed Deposits. Bank Fixed Deposits. Bonds and Debentures. Equity. Life Insurance
1.10.1 Company Fixed Deposits versus Mutual Funds Fixed deposits are unsecured borrowings by the company accepting the deposits. Credit rating of the fixed deposit program is an indication of the inherent default risk in the investment. The moneys of investors in a mutual fund scheme are invested by the AMC in specific investments under that scheme. These investments are held and managed in-trust for the benefit of schemes investors. On the other hand, there is no such direct correlation between a companys fixed deposit mobilization, and the avenues where these resources are deployed. A corollary of such linkage between mobilization and investment is that the gains and losses from the mutual fund scheme entirely flow through to the investors. Therefore, there can be no certainty of yield, unless a named guarantor assures a return or, to a lesser extent, if the investment is in a serial gilt scheme. On the other hand, the return under a fixed deposit is certain, subject only to the default risk of the borrower. Both fixed deposits and mutual funds offer liquidity, but subject to some differences:
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RISK ANALYSIS OF MUTUAL FUNDS The provider of liquidity in the case of fixed deposits is the borrowing company. In mutual funds, the liquidity provider is the scheme itself (for open-end schemes) or the market (in the case of closed-end schemes). The basic value at which fixed deposits are encashed is not subject to market risk. However, the value at which units of a scheme are redeemed entirely depends on the market. If securities have gained in value during the period, then the investor can even earn a return that is higher than what she anticipated when she invested. Conversely, she could also end up with a loss. Early encashment of fixed deposits is always subject to a penalty charged by the company that accepted the fixed deposit. Mutual fund schemes also have the option of charging a penalty on early redemption of units (by way of an exit load). If the NAV has appreciated adequately, then despite the exit load, the investor could earn a capital gain on the investment.
1.10.2 Bank Fixed Deposits versus Mutual Funds Bank fixed deposits are similar to company fixed deposits. The major difference is that banks are more stringently regulated than are companies. They even operate under stricter requirements regarding Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR).While the above are causes for comfort, bank deposits too are subject to default risk. However, given the political and economic impact of bank defaults, the Government as well as Reserve Bank of India (RBI) tries to ensure that banks do not fail. Further, bank deposits up to Rs 1, 00, 000 are protected by the Deposit Insurance and Credit Guarantee Corporation (DICGC), so long as the bank has paid the required insurance premium of 5 paisa per annum for every Rs 100 of deposits. The monetary ceiling of Rs 100,000 is for all the deposits in all the branches of a bank, held by the depositor in the same capacity and right.
1.10.3 Bonds and Debentures versus Mutual Funds As in the case of fixed deposits, credit rating of the bond / debenture is an indication of the inherent default risk in the investment. However, unlike fixed deposits,
RISK ANALYSIS OF MUTUAL FUNDS bonds and debentures are transferable securities. While an investor may have an early encashment option from the issuer (for instance through a put option), generally liquidity is through a listing in the market. Implications of this are: If the security does not get traded in the market, then the liquidity remains on paper. In this respect, an open-end scheme offering continuous sale / re-purchase option is superior. The value that the investor would realize in an early exit is subject to market risk. The investor could have a capital gain or a capital loss. This aspect is similar to a MF scheme. It is possible for an astute investor to earn attractive returns by directly investing in the debt market, and actively managing the positions. Given the market realities in India, it is difficult for most investors to actively manage their debt portfolio. Further, at times, it is difficult to execute trades in the debt market even when the transaction size is as high as Rs 1 crore. In this respect, investment in a debt scheme would be beneficial. Debt securities could be backed by a hypothecation or mortgage of identified fixed and / or current assets (secured bonds / debentures). In such a case, if there is a default, the identified assets become available for meeting redemption requirements. An unsecured bond / debenture are for all practical purposes like a fixed deposit, as far as access to assets is concerned. The investment in mutual fund scheme is held by a Custodian for the benefit of all investors in that scheme. Thus, the securities that relate to a scheme are ring-fenced for the benefit of its investors.
1.10.4 Equity versus Mutual Funds Investment in both equity and mutual funds are subject to market risk. An investor holding an equity security that is not traded in the market place has a problem in realizing value from it. But investment in an open-end mutual fund eliminates this direct risk of not being able to sell the investment in the market. An indirect risk remains, because the scheme has to realize its investments to pay investors. The AMC is however in a better position to handle the situation. Another benefit of equity mutual fund schemes is that they give investors the benefit of portfolio diversification through a small investment.
RISK ANALYSIS OF MUTUAL FUNDS For instance, an investor can take an exposure to the index by investing a mere Rs 5,000 in an index fund.
1.10.5 Life Insurance versus Mutual Funds Life insurance is a hedge against risk and not really an investment option. So, it would be wrong to compare life insurance against any other financial product. Occasionally on account of market inefficiencies or miss-pricing of products in India, life insurance products have offered a return that is higher than a comparable safe fixed return security thus, we are effectively paid for getting insured. Such opportunities are not sustainable in the long run. 1.11 Frequently Used Terms Net Asset Value (NAV) Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the valuation date. The NAV is the market value of the fund's underlying securities. It is calculated at the end of the trading day. Any open-end funds buy or sell order received on that day is traded based on the net asset value calculated at the end of the day. The NAV per units is such Net Asset Value divided by the number of outstanding units Market Value of Assets - Liabilities NAV = ------------------------Units Outstanding For e.g., if the market value of the securities of a mutual fund scheme is Rs. 200 lakhs & the mutual fund has issued 10 lakhs units at Rs. 10 to the investors, then the NAV per unit of the fund is Rs.20. NAV is required to be disclosed by the mutual funds on a regular basis- daily or weekly- depending
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RISK ANALYSIS OF MUTUAL FUNDS Sale Price Is the price an investor pays when he invests in a scheme or NAV a unit holder is charged while investing in an open-ended scheme is sale price. Also called Offer Price. It may include a sales load if applicable. Repurchase Price Is the price at which a close-ended scheme repurchases its units and it may include a back-end load, it is also called Bid Price. Redemption Price Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related. Sales Load Is a charge collected by a scheme when it sells the units. Also called, Front-end load. A load is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing & distribution expenses. Suppose the NAV per unit is Rs.10. if the entry as well as exit load charged were 1%, then the investors who buy would be required to pay Rs.10.10 & those who offer their units for repurchase to the mutual fund will get only Rs.9.9 per unit. The investors should take the loads into consideration while making investment as these affect their yields/returns. No Load Schemes that do not charge a load are called No Load schemes. A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units.
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CHAPTER 2 REVIEW OF LITERATURE& RESEARCH DESIGN
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2.1 Introduction
A research is an art of scientific information. This research design constitutes the blue print for the collection, measurement and analysis of data. It aids the researcher in the allocation of his limited resources by posing crucial choices. Considering the importance of mutual funds, several academicians have tried to study the performance of various funds. Initially, their studies have tried to study the various factors and their impact on fund performance.
2.2 Review of Literature

Literature on mutual fund performance evaluation is enormous. A few research studies that have influenced the preparation of this paper substantially are discussed in this section. Sharpe, William F. (1966) suggested a measure for the evaluation of portfolio performance. Drawing on result obtained in the field of portfolio analysis, economist Jack L Treynor has suggested a new incorporating the volatility of a funds return in a simple yet meaningful manner. Micheal C Jenson (1967) derived a risk adjusted measure of portfolio performance (Jensons alpha) that estimates how much a managers forecasting ability contributes to funds returns. As indicated by Statman(2000), the e SDAR of a fund portfolio is the excess return of the portfolio over the bench mark index, where the portfolio over the return of the benchmark index, where the portfolio is leveraged to have benchmark indexs standard deviation. S.Narayan Rao, et. Al., evaluated performance of Indian mutual funds in a bear market thorough relative performance index, risk-return analysis, Treynors ratio, Sharpes ratio, Sharpes measure , Jensens measure, and famas measure. The study used 269 openended schemes (out of total schemes of 4430)for computing relative performance index. Then after excluding funds whose returns are less than risk-free returns, 27 schemes are finally used for further analysis. The results of performance measures suggest that most of mutual fund schemes in the sample of 27 were able to satisfy investors expectation by giving excess return over expected return based on both premium for systematic risk and total risk.
RISK ANALYSIS OF MUTUAL FUNDS Bijan Roy, et., conducted an empirical study on performance of Indian mutual funds. This paper uses a technique called conditional performance evaluation on a sample of eighty nine Indian mutual funds with both unconditional and conditional form of CAPM, Treynor-Mazuy model and Henrikson Merton model. The effect of incorporating lagged information variable into the evaluation of mutual funds managers performance is examined in the Indian context. The results suggest that the use of conditioning lagged information variables improves the performance mutual funds schemes, causing alphas to shift towards right and reducing the number of negative timing coefficients. Mirsha, et al., (2002)measured mutual fund performance using lower partial moment. In this paper, measures of evaluating portfolio performance based on lower partial moment are developed. Risk from the lower partial moment is measured by taking into account only those states in which return is below a pre specified target rate like risk free rate. Kshama Fernandas(2003) evaluated index funds implementation in india is measured. The consistency and level of tracking errors obtained by some well-run index fund suggests that it is possible to attain low levels of tracking error under Indian conditions. At the same time, there do seem to be periods where certain index funds appear to depart from the discipline of indexation. K . Pendaraki et al. studied construction of mutual fund portfolios, developed a multi-criteria decision aid method is employed in order to develop mutual funds performance models. Goal programming model is employed to determine proportion of selected mutual funds in the final portfolios. Zakri Y.Bello(2005) matched a sample of socially responsible stock mutual funds matched to randomly selected conventional funds of net asset to investigate differences in characteristics of asset held, degrees of portfolio diversification and variable effects of diversification on investment performance is not difference between two groups. Both groups underperformed the domini 400 social index and s&p 500 during the study period.
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2.3 Statement of the Problem

Many investors do not know risk associated with various mutual fund schemes due to lack of knowledge and lack of certified investment advisor in India. The mutual fund schemes has numerous schemes, like equity scheme, debt scheme, debt plus equity scheme, hence a careful analysis must be done based on risk and other factors to choose portfolio scheme. They do not associate risk with large positive returns, return above their expectations, or upside swings in general, for this reason a common investors perception of risk is quite at odds with the conventional dispersion measures of risk like standard deviation. The importance of accurately gauging a portfolios exposure to downside risk has been long recognized by the practitioners and investors.
2.4 Scope of the Study

To study on risk measurement of equity mutual funds. To identify the difference between in past performance and effectiveness. To study the risk involved in the some of the equity mutual funds. Investors knowledge regarding risk involved on his investments.
2.5 Objectives of the Study

Position right mutual fund portfolio to investors. To evaluate investment performance of mutual funds in terms of risk and return. To analyse the risk involved in various equity mutual funds. To find out the financial performance of mutual fund schemes.
2.6 Methodology Type of Study: Descriptive Analytical Study

Under this type of study the researcher has to use the facts and information already available and analyse these to make the critical evaluation data of the material.And the objective of descriptive research is describing the state of affairs as it exists at present.
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2.7 Sources of Data

Secondary data has been taken for the collection of information. Sources of secondary data: Internet Investment magazines News paper Journals Book volumes
2.8 Equity Mutual Funds Analysed

UTI Equity ICICI Prudential Growth HDFC Equity Fund Birla Sun Life Equity Fund Reliance Regular Savings Equity Fund
2.9 Tools for Analysis

Standard deviation, Alpha, beta, R-squired and Sharpe Ratio With the help of these tools we can measure the performance of equity scheme mutual fund and with the use of tables, graphs, charts we can analyse the fund performance.
2.10 Limitations of the Study

The fund manager works we do not have visibility on the portfolio. Study is done only for some selected companies. The sample that was collected is only from the schemes listed on the BSE sensex & s&p CNX nifty as bench mark. Past performance is to check the style of functioning, not the exact number.
2.11 Chapter Schemes

Introduction: The mutual fund has numerous schemes, hence a careful analysis must be done based on risk and other factors to choose portfolio schemes. Research Design This chapter contains what the project is all about, what is the problem & how analysis is carried out. Company Profile: It covers the brief information about the equity mutual fund companies. Analysis and Interpretation: This chapter contains all the calculation part, table and charts of the analysed data. Summary of Findings, Conclusions And Suggestions. This chapter discloses the conclusion drawn from the findings, hear suggestions are given and further scope for the study is included. Bibliography and annexure
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CHAPTER 3
PROFILE OF THE INDUSTRY
3.1 Origin of the Mutual Fund

RISK ANALYSIS OF MUTUAL FUNDS Mutual funds really captured the public's attention in the 1980s and '90s when mutual fund investment hit record highs and investors saw incredible returns. However, the idea of pooling assets for investment purposes has been around for a long time. Here we look at the evolution of this investment vehicle, from its beginnings in the Netherlands in the 18th century to its present status as a growing, international industry with fund holdings accounting for trillions of dollars in the United States alone. In the beginning Historians are uncertain of the origins of investment funds; some cite the closedend investment companies launched in the Netherlands in 1822 by King William I as the first mutual funds, while others point to a Dutch merchant named Adriaan van Ketwich whose investment trust created in 1774 may have given the king the idea. Ketwich probably theorized that diversification would increase the appeal of investments to smaller investors with minimal capital. The name of Ketwich's fund, Eendragt Maakt Magt, translates to "unity creates strength". The next wave of near-mutual funds included an investment trust launched in Switzerland in 1849, followed by similar vehicles created in Scotland in the 1880s. The idea of pooling resources and spreading risk using closed-end investments soon took root in Great Britain and France, making its way to the United States in the 1890s. The Boston Personal Property Trust, formed in 1893, was the first closed-end fund in the U.S. The creation of the Alexander Fund in Philadelphia in 1907 was an important step in the evolution toward what we know as the modern mutual fund. The Alexander Fund featured semi-annual issues and allowed investors to make withdrawals on demand. The Arrival of Modern Fund The creation of the Massachusetts Investors' Trust in Boston, Massachusetts, heralded the arrival of the modern mutual fund in 1924. The fund went public in 1928, eventually spawning the mutual fund firm known today as MFS Investment Management. State Street Investors' Trust was the custodian of the Massachusetts Investors' Trust. Later, State Street Investors started its own fund in 1924 with Richard Paine, Richard Saltonstall and Paul Cabot at the helm. Saltonstall was also affiliated with Scudder, Stevens and Clark, an outfit that would launch the first no-load fund in 1928. A momentous year in the history
RISK ANALYSIS OF MUTUAL FUNDS of the mutual fund, 1928 also saw the launch of the Wellington Fund, which was the first mutual fund to include stocks and bonds, as opposed to direct merchant bank style of investments in business and trade.
3.2 History of Mutual Fund

Mutual funds made an opening in India in 1963 under the enactment f Unit Trust of India (UTI), which came out with is debut scheme named US-64, an open ended scheme n, which is operating till date. Up to 1986-87 it had launched 20 schemes; mobilizing net resources amounting to Rs. 4564 crores for these 23 long years up to 1987 UTI enjoyed complete monopoly of the unit trust business in India. It remained one and the only mutual fund in India. It was in 1986 that the government of India amended banking regulation act and allowed commercial banks in public sector to set up mutual funds. This lead to promotion of SBI-MUTUAL FUND by State Bank Of India (SBI) in July 1987 followed by Canara Bank Indian bank Bank of India Bank of Baroda Punjab National bank The government of India further granted permission to Insurance Corporation to public sector to float mutual funds. The following were the corporations, Life Insurance Corporation General Insurance of Corporation This was the picture till 1991, but when in 1991 the government of India followed a policy of liberalization, privatization, and globalization it opened the gates to private sector to launch mutual funds. Phase 1: Monopoly of UTI
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RISK ANALYSIS OF MUTUAL FUNDS This period was marked by the operations of a single institution, UTI, which prepared ground for the future mutual fund industry. The first decade of UTIs operations was the formative period. The first and still more popular product launched by UTI was US-64. Due to immense popularity of unit 64, UTI launched a reinvestment plan in 196667. Another popular scheme, Unit Linked Insurance Plan (ULIP), was launched in 1971. By the end of June 1974 there were six lakhs unit holders with UTI. The unit capital totaled Rs.152 crore and investible funds Rs.172 crore. The second phase of operations (1974-84) was one of the consolidation and expansion. In this period UTI was delinked from RBI .The period was marked by the introduction of open ended growth funds. Six new schemes were introduced during 1981-84. by the end of June 84 the investible funds crossed Rs. 1000 crore and unit holders numbered to 17 lakhs. During 1984-87, innovative and widely accepted schemes such as Childrens Gift Growth Fund, Master share were launched. The first Indian off shore fund, India Fund was launched in august 1986. Towards the end of 1980s, winds of change had started blowing in the Indian economy. UTI was one of the few organizations to prepare fully to face the emerging challenges. In the following years it launched all round diversification programs through backward and forward integration in order to retain its position as the undisputed market leader. Phase 2 -Public Sector Competition This period was marked by the entry of non-UTI public sector mutual funds in the market, bringing in competition. With the opening up of the economy many public sector financial institution established mutual funds in India. However, the mutual fund industry remained the exclusive domain of the public sector in this period. The first non-UTI mutual fund ---- SBI mutual fund was launched by the State Bank of India in 1987.this was followed by Canbank mutual fund scheme (launched in
December 1987),LIC mutual fund scheme (launched in June 1989) and Indian bank mutual fund scheme (launched in January 1990). The entry of the public sector mutual funds created waves in the market and attracted small investors. The cumulative mobilization of resources went up from Rs.4500 crores in 1987 (mobilized by UTI alone.) to Rs.19000 crore in 1990 (mobilized collectively by UTI, SBI mutual fund,
RISK ANALYSIS OF MUTUAL FUNDS CANBANK mutual fund, LIC mutual fund, and Ind Bank mutual fund). With the entry of three more mutual funds in the market namely, Bank of India mutual fund, GIC mutual fund , PNB mutual fund ,collection increased to Rs.37,480 crore (1991-92) indicating a 96% increase in between 1989-90 and 91-92. However UTI continued to be the
dominant player in the market, though its share declined marginally from 87.9 % in 198889 to 84% in 1991-92. The years 1992-93 and 93-94 saw a decline in collections by the public sector mutual funds. The total collection declined from the 2500 crore to 1960 crore in 92-93. There were two reasons for the fall in the collection. First, SEBI had prohibited mutual funds from any scheme with an assured return. Second according to mutual fund regulations, 1993, Indian mutual funds were to form AMC pending which they could not launch any scheme. Before 1989 there were no regulatory guidelines for the mutual fund industry in India. The first such guidelines for setting up and regulating mutual funds were issued by Reserve Bank of India but they were applicable to mutual funds floated by banks. Then the guidelines were issued by the government of India in 1990 covering all mutual funds and making them mandatory for all the mutual funds to be registered with SEBI. These guidelines also set the norms for registration, management, investment objectives, disclosure, pricing and valuation of securities, and so on. These guidelines were revised and Security and Exchange Board of India (SEBI) regulations 1993 came in to effect on the 20th Jan 1993, rules for formulation, administration, and management of mutual funds in India were clearly laid down. The regulation made the formulation of AMC and listing of the closed ended schemes compulsory. With view to protect the investors right disclosure, norm was also tightened. Another significant development during this period was the opening up of the mutual funds market to the private sector. Phase 3-Emeregence of Competitive Market A new era in mutual fund industry began with the entry of private sector funds in 1993, posing a serious competition to the existing public sector funds. The new private sector funds have distinctive operational advantages. They are:
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RISK ANALYSIS OF MUTUAL FUNDS Most of them are jointly floated by Indian organization along with experienced foreign asset management companies, facilitating access the latest technology and foreign fund management strategies. Private sector funds are able to attract the best managerial talents from the public sector. Starting of the mutual funds has been easier for them because infrastructural inputs created by the public sector mutual funds were already available. The first private sector mutual fund to launch a scheme was the Madras based Kothari Pioneer Mutual fund. It launched the open ended prima fund in November 1993. During the year 93-94, five private sector mutual funds namely Kothari Pioneer Mutual Fund ICICI Mutual fund 20th century mutual fund Morgan Stanley Mutual Fund Taurus Mutual fund
During 1994-95 six more private sector funds were launched they are Apple mutual fund JM mutual fund Shriram mutual fund CRB mutual fund Alliance mutual fund Birla mutual fund
Between 1993 and 1995, further regulatory measures were introduced: The government of India has allowed NRIs and Overseas Corporate Bodies (OCB) to invest in UTI and other mutual funds (in both primary and secondary market). The practice of obtaining prior approval for advertising by mutual funds has been dispensed with. Mutual funds are allowed to invest in money market instruments up to 25% of resources mobilized.
RISK ANALYSIS OF MUTUAL FUNDS The practice of reissuing of units of closed ended schemes has been dispensed with. Mutual funds are allowed to buy back their own units from the secondary marketing case they are traded at a substantial discount to NAV. With effect from 1 December 1993 new issuers have been allowed to reserve 20% of the public issue for mutual funds. Mutual funds have been allowed to launch income schemes with assured returns one at a time. Mutual funds have been allowed to enter in to underwriting activities to augment their resources. Phase-4 - (Since 2003 February) On Feb 2003, UTI was bifurcated in to 2 separate entities. One is specified undertaking of the UTI with asset under management of Rs.29, 835 crores as at the end of Jan 2003. The second is the UTI mutual funds Limited, sponsored by the State Bank of India, Bank of Baroda and Life Insurance Corporation of India. UTI is functioning under an administrator and rules framed by the government of India do not come under the purview of the Mutual fund Regulations. The Mutual Funds Limited is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI, with the setting up of a UTI mutual fund, confirming to the SEBI Mutual Fund Regulations and recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phases of consolidation and growth. At the end of September 2004, there are 29 funds, which manage assets of Rs. 153108 crores under 421 different schemes.
3.3 Equity Mutual Fund Companies:3.3.1 HDFC Asset Management Company Limited
HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset Management
RISK ANALYSIS OF MUTUAL FUNDS Company for the HDFC Mutual Fund by SEBI vide its letter dated July 3, 2000. The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T. Parekh Marg, 169, Backbay Reclamation, Churchgate, Mumbai - 400 020. In terms of the Investment Management Agreement, the Trustee has appointed the HDFC Asset Management Company Limited to manage the Mutual Fund. The paid up capital of the AMC is Rs. 25.169 crore. HDFC Mutual Fund has been one of the best performing mutual funds in the last few years. HDFC Asset Management Company Limited (AMC) functions as an Asset Management Company for the HDFC Mutual Fund. AMC is a joint venture between housing finance giant HDFC and British investment firm Standard Life Investments Limited. It conducts the operations of the Mutual Fund and manages assets of the schemes, including the schemes launched from time to time. As of Aug 2006, the fund has assets of Rs.25,892 crores under management. IN 2003, following a decision by the Zurich Insurance Company (ZIC), the Sponsor of Zurich India Mutual Fund, to divest its asset management business in India, AMC had entered into an agreement with ZIC to acquire the asset management business. Consequently, all the schemes of Zurich Mutual Fund in India had been transferred to HDFC Mutual Fund and renamed as HDFC schemes. On obtaining the regulatory approvals, the following Schemes of Zurich India Mutual Fund have migrated to HDFC Mutual Fund on June 19, 2003. These Schemes have been renamed as follows:
Former Name Zurich India Equity Fund Zurich India Prudence Fund Zurich India Capital Builder Fund Zurich India TaxSaver Fund Zurich India Top 200 Fund New Name HDFC Equity Fund HDFC Prudence Fund HDFC Capital Builder Fund HDFC TaxSaver HDFC Top 200 Fund
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Zurich India High Interest Fund Zurich India Liquidity Fund Zurich India Sovereign Gilt Fund HDFC High Interest Fund HDFC Cash Management Fund HDFC Sovereign Gilt Fund*
Table 3.1 3.3.2 Birla sun life mutual fund
Birla Sun Life Asset Management Company Ltd. (BSLAMC), the investment managers of Birla Sun Life Mutual Fund, is a joint venture between the Aditya Birla Group and the Sun Life Financial Services Inc. of Canada. The joint venture brings together the Aditya Birla Group's experience in the Indian market and Sun Life's global experience. Established in 1994, Birla Sun Life Mutual fund has emerged as one of India's leading flagships of Mutual Funds business managing assets of a large investor base. Our solutions offer a range of investment options, including diversified and sector specific equity schemes, fund of fund schemes, hybrid and monthly income funds, a wide range of debt and treasury products and offshore funds. Birla Sun Life Asset Management Company has one of the largest team of research analysts in the industry, dedicated to tracking down the best companies to invest in. BSLAMC strives to provide transparent, ethical and research-based investments and wealth management services. 3.3.3 icici prudential mutual fund
ICICI Prudential Asset Management Company Ltd. is a joint venture between ICICI Bank, Indias second largest commercial bank & a well-known and trusted name in the financial services in India, & Prudential Plc, one of the United Kingdoms largest
RISK ANALYSIS OF MUTUAL FUNDS players in the financial services sectors. In a span of over 18 years since inception and just over 13 years of the Joint Venture, the company has forged a position of preeminence as one of the largest Asset Management Companys in the country, contributing significantly towards the growth of the Indian mutual fund industry. The company manages significant Mutual Fund Assets under Management (AUM), in addition to our Portfolio Management Services (PMS) and International Advisory Mandates for clients across international markets in asset classes like Debt, Equity and Real Estate with primary focus on risk adjusted returns. As an Asset Management Company, we have over 18 years of experience and are currently managing a comprehensive range of schemes of more than 46 Mutual fund schemes and a wide range of PMS Products for our investors spread across the country. We service this investor base with our own branch network of around 168 branches and a distribution reach of over 42,000 channel partners. 3.3.4 Reliance Mutual Fund
Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was changed on March 11, 2004. Reliance Mutual Fund was formed for launching of various schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities. 3.3.5 Unit trust of India
UTI Mutual Fund is managed by UTI Asset Management Company Private Limited (Est. Jan 14, 2003) who has been appointed by the UTI Trustee Company Private Limited for
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RISK ANALYSIS OF MUTUAL FUNDS managing the schemes of UTI Mutual Fund and the schemes transferred / migrated from UTI Mutual Fund. The most experienced player in the Indian mutual fund industry, UTI was almost a generic term for mutual fund schemes till the sector opened up. However, the fund house disappointed most of its investors for a long period starting mid-nineties. From the verge of a collapse, the government bailed out the fund before restructuring it. After the restructuring, the fund has recovered some of its stature helped equally by professional management and a booming market. The fund's sponsors are public sector financial giants like Life Insurance Corporation, SBI, Bank of Baroda and Punjab National Bank. The sponsors hold equal stakes in the asset management company, UTI Asset Management Company Private Limited. The asset management company has R H Patil, the former managing director of the National Stock Exchange, as its chairman. The current SEBI chairman M Damodaran was his predecessor. The fund management team is headed by A K Sridhar, chief investment officer. The company employs four different registrars for its various schemes. Associate company UTI Technology Consultants and Karvy Computershare act as registrars and transfer agents for majority of the schemes. Citibank, HDFC Bank and Stock Holding Corporation are the fund's custodians
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CHAPTER FOUR ANALYSIS AND INTREPRITATION
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4.1 Risk Return Analysis of The Schemes

A rational investor before investing money in any stock analyses the risk associated with the particular stock. The actual return he receives from a stock may vary from the expected one and thus an investor is always cautious about the rate of risk associated with the particular stock. Hence it becomes very essential on the part of investors to know the risk as the hard earned money is being invested with the view to earn good return on the investment. Risk mainly consists of two components Systematic risk Unsystematic risk 4.1.1 Systematic risk Systematic risk is non diversifiable and associated with the securities as well as economic, sociological, political and legal considerations of prices of all securities in the economy. The effect of all securities in such a way that the prices of all stocks will move in the same direction. The systematic risk affects the entire market. The economic conditional, political situations, sociological changes affect the entire market in turn affecting the company and even the stock market. These situations are uncontrollable by the corporate and investor. Following are the components of systematic risk: Market risk Interest rate risk Purchasing power risk
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RISK ANALYSIS OF MUTUAL FUNDS 4.1.2 Unsystematic risk The unsystematic risk is unique to industries. It differs from industry to industry. Unsystematic risk stems from managerial inefficiency, technological change in the production process, availability of raw materials, changes in the consumer preference, and labour problems. The nature and magnitude of above mentioned factors differ from industry to industry and company to company. In a general view, the risk for any investor would be the probable loss for investing money in any mutual fund. But when we look at the technical side of it, we cant just say that these schemes/fund carry risk without any proof. They have to be analysed separately for each mutual funds and its various schemes. Following are various components of unsystematic risk: Business risk Financial risk
4.2 The Tools Used For Calculation

Standard Deviation
The standard deviation is a measure of the variables around its mean or it is the square root of the sum of the squared deviations from the mean divided by the number of observations. S.D is used to measure the variability of return i.e. the variation between the actual and expected return. The standard deviation is a statistical measure of the range of a fund's performance, and is reported as an annual number. 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. Approximately 68.3% of the time (2 of 3 occurrences), the total returns of any given fund are expected to differ from its mean total return by no more than plus or minus the standard deviation figure. About 95.4% of the time (19 of 20 occurrences), a fund's total returns should be within a range of plus or minus two times the standard deviation from its mean. Standard deviation alone cannot be used to gauge risk. By only looking at the standard deviation one could conclude that a fund Y is more
RISK ANALYSIS OF MUTUAL FUNDS risky when compared to a fund X because Y has a higher standard deviation. But standard deviations by themselves are not necessarily a meaningful measure. To interpret risk could divide the standard deviation by the average return and this could show fund X as more risky than fund Y depending on the average return. Alpha The simplest definition of alpha would be the excess return of a fund compared to its benchmark index. If a fund has outperformed its benchmark by 10% during a specific period. Alpha is a risk-adjusted measure of the so-called active return on an investment. It is the return in excess of the compensation for the risk borne, and thus commonly used to assess active managers' performances. It can be shown that in an efficient market, the expected value of the alpha coefficient is zero. Beta Beta of a stock or portfolio is a number describing the relation of its returns with those of the financial market as a whole. An asset has a Beta of zero if its returns change independently of changes in the market's returns. A positive beta means that the asset's returns generally follow the market's returns, in the sense that they both tend to be above their respective averages together, or both tend to be below their respective averages together. A negative beta means that the asset's returns generally move opposite the market's returns: one will tend to be above its average when the other is below its average. Published betas typically use a stock market index such as S&P 500 as a benchmark. By definition, the market itself has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the macro market. A stock whose returns vary more than the market's returns over time can have a beta whose absolute value is greater than 1.0. A stock whose returns vary less than the market's returns has a beta with an absolute value less than 1.0.
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RISK ANALYSIS OF MUTUAL FUNDS A stock with a beta of 2 has returns that change, on average, by twice the magnitude of the overall market's returns (i.e. when the market's return falls or rises by 3%, the stock's return will fall or rise by 6% on average). Beta can al so be negative, meaning the stock's returns tend to move in the opposite direction of the market's returns. A stock with a beta of -3 would see its return decline 9% when the market's return goes up 3%, and would see its return climb 9% if the market's return falls by 3%. Higher-beta stocks tend to be more volatile and therefore riskier, but provide the potential for higher returns. Lower-beta stocks pose less risk but generally offer lower returns. Sharpe Ratio Sharpes performce index gives a single value to be used for the performance ranking of various funds or portfolios. Sharpe index measures the risk premium of the portfolio relative to the total amount of risk in the portfolio. The risk premium is the difference between the portfolios average rate of return and the risk less rate of return. The standard deviation of the portfolio indicates the risk. Higher the value of sharpe ratio better the fund has performed. Sharpe ratio can be used to rank the desirability of funds or portfolios. The fund that has performed well comapred to other will be ranked first then the others. The Sharpe Ratio is a measure of the risk-adjusted return of an investment. It was derived by Prof. William Sharpe, now at of Stanford University who was one of three economists who received the Nobel Prize in Economics in 1990 for their contributions to what is now called "Modern Portfolio Theory.
R-Squared A statistical measure that represents the percentage of a fund or
security's movements that can be explained by movements in a benchmark index. For fixed-income securities, the benchmark is the T-bill. For equities, the benchmark is the S&P 500. R-squared values range from 0 to 100. An R-squared of 100 means that all movements of a security are completely explained by
RISK ANALYSIS OF MUTUAL FUNDS movements in the index. A high R-squared (between 85 and 100) indicates the fund's performance patterns have been in line with the index. A fund with a low Rsquared (70 or less) doesn't act much like the index. A higher R -squared value will indicate a more useful beta figure. For example, if a fund has an R -squared value of close to 100 but has a beta below 1, it is most likely offering higher risk-adjusted returns. A low R-squared means we should ignore the beta. Net Asset Value A mutual fund's price per share or exchange-traded fund's (ETF) per-share value. In both cases, the per-share dollar amount of the fund is calculated by dividing the total value of all the securities in its portfolio, less any liabilities, by the number of fund shares outstanding. In the context of mutual funds, NAV per share is computed once a day based on the closing market prices of the securities in the fund's portfolio. All mutual funds' buy and sell orders are processed at the NAV of the trade date. However, investors must wait until the following day to get the trade price. Mutual funds pay out virtually all of their income and capital gains. As a result, changes in NAV are not the best measure of mutual fund performance, which is best measured by annual total return. Because ETFs and closed -end funds trade like stocks, their shares trade at market value, which can be a dolla r value above (trading at a premium) or below (trading at a discount) NAV. NAV = (Market Value of All Securities Held by Fund + Cash and Equivalent Holdings - Fund Liabilities) / Total Fund Shares Outstanding
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HDFC Equity Mutual Fund Performance:Table 4.1 Current Stats & Profile Latest NAV 52-Week High 52-Week Low Fund Category Type Launch Date Risk Grade Return Grade Net Assets (Cr) Benchmark Table 4.2 Returns and Risk Aggregates Rating & Risk Fund Rating Fund Risk Grade Fund Return Grade Modern Portfolio Stat R-Squared Below Average Alpha High Beta 0.91 10.46 0.99 Volatility Measures Mean Standard Deviation Sharpe Ratio 27.13 26.47 0.84 237.734 (16/05/12) 285.928 (07/07/11) 215.059 (20/12/11) Equity: Multi Cap Open End December 1994 Below Average High 9,916.37 (31/03/12) S&P CNX 500
Table 4.3 Best and Worst Performance Best (Period) Month Quarter Year 35.86 (28/04/2009 - 28/05/2009) 95.14 (09/03/2009 - 10/06/2009) 179.39 (20/10/1998 - 20/10/1999) Worst (Period) -31.58 (26/09/2008 - 27/10/2008) -40.02 (02/09/2008 - 02/12/2008) -52.70 (03/12/2007 - 02/12/2008)
(Source of table- value research online) Analysis and interpretation: From modern portfolio statistics and volatile measurement, it is analysed that the risk grade is below average, return grade is high and fund return is five stars, where as best and worst performance of fund analysed from the table shows
RISK ANALYSIS OF MUTUAL FUNDS that year 2008 is only have negative return due to recession and after that the fund is shining well.
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RISK ANALYSIS OF MUTUAL FUNDS Trailing Return:

Table 4.4 Trailing Returns As of 16 May 2012 Year-to-Date 1-Week 1-Month 3-Month 1-Year 2-Year 3-Year 5-Year Fund Return 8.68 -2.36 -8.55 -11.42 -14.89 -0.49 20.36 9.02 Category Return 7.59 -2.03 -7.02 -9.95 -10.33 -2.44 16.08 5.58 Sensex 3.72 -2.73 -6.54 -11.70 -12.62 -2.87 9.59 2.56 S&P CNX Nifty 5.06 -2.34 -7.04 -12.02 -11.65 -2.33 9.77 3.09
Performance of HDFC Equity fund return and S&P CNX Nifty

40 30 20 10 0 1 -10 -20 -30 2 3 4 5 6 7 8 S&P CNX Nifty Fund Return
Figure 4.1 Analysis and interpretation: On the basis of five years return from the above table, graph has been drawn which shows that, as per the market fluctuation i.e. .Change in S&P CNX Nifty, the fund return changes. The return of the fund is fluctuates correspond to the standard and poor index. From the above table also analysed that short term investment does not provide better return as compared to long term investment. So mutual fund is long term investment.
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Relative performance (fund Vs Category Average)
Figure 4.2 Analysis and interpretation: Graph shows that, both fund and category average is moving in same way. Positive and negative lines occurred almost equal months. It shows that HDFC Equity and Multi cap has equal risk and Equal Return.
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Table 4.5 Annual Returns Years Fund Return Rank In Category Category Average Sensex S&P CNX Nifty 2011 -26.72 32/44 -24.43 -24.64 -24.62 2010 29.22 3/59 18.77 17.43 17.95 2009 105.57 4/46 90.44 81.03 75.76 2008 -49.68 16/59 -54.94 -52.45 -51.79 2007 53.61 27/48 60.20 47.15 54.77
Table 4.6 Quarterly Returns Q1 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 19.63 -5.10 2.28 -3.14 -25.76 -1.91 18.82 1.63 0.05 -2.33 21.58 -12.92 5.47 36.88 11.98 Q2 --0.73 7.20 58.81 -13.64 15.93 -10.48 10.37 -11.57 34.59 -1.26 2.55 -12.49 3.72 -1.60 Q3 --12.73 17.12 22.53 1.78 10.60 17.56 26.15 19.88 29.75 -9.62 -11.86 -13.41 42.93 8.02 Q4 --10.87 0.62 9.06 -22.88 22.14 8.65 15.00 20.24 32.67 14.47 23.49 0.11 26.14 15.97
Analysis and Interpretation: Only the year 2008, 2011 have negative annual returns where as all the other years have positive returns and performing well. With respect to the performance in sensex and S&P Nifty, the performance of fund return are analyse for different years. The fund return has analysed quarterly of that particular year. The return is different in every quarter. Some quarters have negative returns but rest of the returns are showing positive.
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RISK ANALYSIS OF MUTUAL FUNDS HDFC Mutual Fund (Equity fund) (Total return % till 20 April 2012) SL. NO FUNDS NAV 1-Year 2-Year 3-Year 5-Year S.D Sharpe Ratio
EQUITY :DIVERSIED 1 2 3 HDFC Capital builder fund HDFC long term equity fund HDFC top 200fund 113.65 16.99 217.73 15.94 19.03 18.23 47.44 41.84 44.03 13.86 11.72 16.6 12.35 9.96 17 30.63 30.63 31.16 0.43 0.37 0.54
EQUITY :INDEX 4 5 HDFC index sensex plan HDFC idex nifty plan 161.29 50.63 11.24 11.38 31.35 29.37 4.04 4.53 7.64 7.65 32.87 32.12 0.2 0.2
EQUITY:TAX 6 HDFC tax saver S&P CNX Nifty 217.49 591.55 14.28 12.74 46.44 31.61 15.25 6.1 10.88 11.06 31.56 37.76 0.47 0.25
Table 4.7 Analysis and interpretation: From the above its clear that almost all the HDFC equity funds have standard deviation between 30.63(minimum) to 32.87(maximum) and Sharpe ratio is maximum 0.54, average 0.43 and minimum .20 (few funds), that shows the risk is average and returns are high for most of the HDFC funds. From the above HDFC funds HDFC top 200is performing best.
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ICICI Prudential Indo Asia Equity Mutual Fund Performance:

Table 4.8 Current Stats & Profile Latest NAV 52-Week High 52-Week Low Fund Category Type Launch Date Risk Grade Return Grade Net Assets (Cr) Benchmark 10.16 (16/05/12) 11.08 (21/02/12) 9.18 (05/10/11) Equity: Large Cap Open End September 2007 Low Above Average 183.78 (31/03/12) --
Table 4.9 Returns and Risk Aggregates Rating & Risk Fund Rating Fund Risk Grade Fund Return Grade Modern Portfolio Stat R-Squared Low Alpha Above Average Beta 0.91 7.39 0.76 Volatility Measures Mean Standard Deviation Sharpe Ratio 21.34 20.40 0.80
Analysis and Interpretation: From modern portfolio statistics and volatile measurement, it is analysed that the risk grade is low, return grade is above average and the fund return is four stars.The best and worst performance of fund is analysed from the table shows that the year 2008 is only have negative returns due to recession and after that fund shining well.
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Table 4.11 Trailing Returns As of 16 May 2012 Year-to-Date 1-Week 1-Month 3-Month 1-Year 2-Year 3-Year 5-Year Fund Return 5.28 -1.55 -5.05 -7.38 -4.87 3.84 16.26 -Category Return 4.84 -2.12 -6.65 -11.21 -10.79 -1.57 10.75 3.15 Sensex 3.72 -2.73 -6.54 -11.70 -12.62 -2.87 9.59 2.56 S&P CNX Nifty 5.06 -2.34 -7.04 -12.02 -11.65 -2.33 9.77 3.09
Performance of ICICI Prudential Fund Return and S&P Nifty

20 15 10 5 0 1 -5 -10 -15 2 3 4 5 6 7 8 FUND RETURN S&P CNX Nifty
Figure 4.3 Analysis and Interpretation: On the basis of five years returns from the above table, graph has been drawn which shows that, as per the market situation i.e. change in S&P CNX Nifty, the above fund return changes. The return of the fund showing, more than the market return. From the above table its analysed that short term investment does not provide better return as compared to long term return. So mutual fund is a long term investment.
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RISK ANALYSIS OF MUTUAL FUNDS Relative Performance (Funds Vs Category Averages)
Figure 4.4
Analysis and Interpretation: Graph shows that, both fund and category average is moving in same way. Positive and negative lines occurred almost equal months. It shows that ICICI Prudential Equity and Multi cap has equal risk and Equal Return.
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Table 4.12 Annual Returns
Years
2011
2010
2009
2008
2007
Fund Return
-15.05
17.36
80.93
-50.60
--
Rank In Category
4/69
33/65
30/61
21/59
--
Category Average
-23.10
17.56
71.95
-50.79
51.98
Sensex
-24.64
17.43
81.03
-52.45
47.15
S&P CNX Nifty
-24.62
17.95
75.76
-51.79
54.77
Table 4.13 Quarterly Returns Q1 2012 2011 2010 2009 2008 2007 11.30 -4.23 0.52 -1.87 -19.02 -Q2 --1.75 -0.21 44.38 -9.35 -Q3 --9.92 12.46 21.24 -10.06 -Q4 -0.21 4.03 5.33 -25.17 --
Analysis and Interpretation: Only the year 2008, 2011 have negative annual returns where as all the other years have positive returns and performing well. With respect to the performance in sensex and S&P Nifty, the performance of fund return are analyse for different years. The fund return has analysed quarterly of that particular year. The return is different in every quarter. Some quarters have negative returns but almost other returns are showing positive.
ICICI Prudential Mutual Funds(Equity Funds)
Total Return % till 20 april 2012 SL. NO FUNDS NAV 1-Yr 2-Yr 3-Yr 5-Yr S.D Sharpe Ratio
EQUITY:DIVERSIFIED 1 2 3 4 5 ICICI pru discovery fund ICICI pru Top100 ICICI pru dynamic plan ICICI pru equity opportunity inst ICICI pru infrastrucure 49.69 139.58 110.11 13.11 30.34 13.19 12.33 15.22 0.54 3.73 57.62 32.41 40.61 39.05 24.67 20.53 9.11 12.88 3.84 3.13 13.02 35.38 10.26 27.28 14.13 27.71 34.8 13.62 31.72 0.62 0.34 0.48 0.18 0.13
EQUITY:INDEX 6 EQUITY:TAX 7 ICICI pru tax plan S&P CNX Nifty 143.49 591.55 11.48 12.74 49.63 31.61 12.81 6.1 8.41 34.27 0.45 0.25 ICICI pru index retail fund 54.18 12.67 31.61 6.49 11.53 32.96 0.26
11.06 37.76
Table 4.14 Analysis and Interpretation: From the above table its clear that the ICICI Prudential Equity funds have (Max 35.38 & Min 27.28) standard deviation. And most of them have Sharpe Ratios more than .30 but few got less than .20 it shows that the risk is high for few funds. Among the above funds ICICI Pru. Discovery is performing well.
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RISK ANALYSIS OF MUTUAL FUNDS Reliance Equity Opportunities Mutual Fund Performance:
Table 4.15 Current Stats & Profile Latest NAV 52-Week High 52-Week Low Fund Category Type Launch Date Risk Grade Return Grade Net Assets (Cr) Benchmark 34.9891 (17/05/12) 37.7399 (19/04/12) 29.334 (20/12/11) Equity: Mid & Small Cap Open End March 2005 Below Average Above Average 3,340.12 (31/03/12) BSE 100
Table 4.16 Returns and Risk Aggregates Rating & Risk Fund Rating Fund Risk Grade Fund Return Grade Modern Portfolio Stat R-Squared Below Average Alpha Above Average Beta Volatility Measures 0.93 Mean 16.50 Standard Deviation 1.02 Sharpe Ratio 33.59 27.19 1.05
Analysis and Interpretation: Through modern portfolio statistics and volatile measurement, it is analysed that the risk grade is below average, return grade is above average and the fund return is four stars. The best and worst performance of fund is analysed from the table is shows that the year 2008 is only have negative returns due to recession and after that fund performed well.
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Table 4.18 Trailing Returns As of 17 May 2012 Year-to-Date 1-Week 1-Month 3-Month 1-Year 2-Year 3-Year 5-Year Fund Return 16.27 -1.46 -5.57 -6.07 -0.44 5.20 28.55 9.41 Category Return 13.16 -1.97 -7.35 -7.64 -6.86 -1.33 21.30 4.63 Sensex 3.98 -2.13 -7.42 -12.13 -11.40 -2.30 9.67 2.36 S&P CNX Nifty 5.32 -1.92 -7.93 -12.47 -10.46 -1.89 9.85 2.91
Performance of Reliance Equity Opportunities return and S&P CNX Nifty

35 30 25 20 15 10 5 0 -5 -10 -15 1 2 3 4 5 6 7 8 Fund Return S&P CNX Nifty
Figure 4.5 Analysis and Interpretation: On the basis of five years returns from the above table, graph has been drawn which shows that, as per the market fluctuation i.e. change in S&P CNX Nifty, the fund return changes. The return of the fund is showing much higher than the market return. From the above table its analysed that short term investment does not provide better return as compared to long term return.
RISK ANALYSIS OF MUTUAL FUNDS Relative Performance (Funds Vs Category Average)
Figure 4.6
Analysis and Interpretation: Graphs show that, both fund and category average is moving in same way. Most of the months have positive lines where as only few months have negative lines. But it shows that the Reliance Equity Opportunity have more risk and return as compare to the Equity multi cap.
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Table 4.20 Quarterly Returns Q1 2012 2011 2010 2009 2008 2007 2006 2005 21.01 -6.98 5.62 -4.07 -31.59 -6.20 28.88 -Q2 -2.73 5.95 49.03 -14.81 15.06 -11.66 7.59 Q3 --9.02 17.71 28.78 -5.14 7.67 14.82 21.38 Q4 --9.86 -0.96 13.39 -20.18 26.77 15.74 10.51
Analysis and Interpretation: Quarterly returns are negative for some years but year wise returns are mostly positive, since the returns changes every quarter as per the performance of the returns. And also we can see that 2012 quarterly return is the second high after 2006.
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RISK ANALYSIS OF MUTUAL FUNDS Reliance Mutual Fund (Equity funds)

EQUITY:DIVERSIFIED 1 2 3 4 5 Reliance Equity opportunity Reeliance Equity Relaince NRI Equity Reliance growth fund Reliance vision 36.51 14.24 40.62 472.14 272.18 15.78 -3.61 15.23 5.02 7.72 54.57 18.39 41.73 40.94 34.86 16.63 13.69 34.58 1.21 6.56 27.20 0.52 0.04 0.41 0.35 0.3
12.75 15.98 33.4 10.21 14.15 33.49 8.16 10.56 31.94
EQUITY:INDEX 6 EQUITY:TAX 7 Reliance Tax saver S&P CNX Nifty 21.58 591.55 13.23 12.74 40.77 31.61 13.03 9.35 6.1 29.48 0.46 0.25 Reliance banking retail 110.13 36.51 59.98 26.32 28.63 39.16 0.71
11.06 37.76
Table 4.21 Analysis and Interpretation: From the above table it is clear that the RELIANCE EQUITY FUNDS have (Max-39.16 & Min 27.20) standard deviation. Where most of the funds have more than .40 Sharpe ratio. And most of the funds are performing well only Reliance Equity is average return and low return.
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RISK ANALYSIS OF MUTUAL FUNDS Birla Sun Life Equity Mutual fund performance:
Table 4.22 Current Stats & Profile Latest NAV 52-Week High 52-Week Low Fund Category Type Launch Date Risk Grade Return Grade Net Assets (Cr) Benchmark 77.12 (17/05/12) 89.78 (07/07/11) 71.96 (20/12/11) Equity: Large & Mid Cap Open End August 2002 Average Above Average 2,900.75 (31/03/12) BSE 200
Table 4.23 Returns and Risk Aggregates Rating & Risk Fund Rating Fund Risk Grade Fund Return Grade Modern Portfolio Stat R-Squared Average Alpha Above Average Beta Volatility Measures 0.96 Mean 5.06 Standard Deviation 0.95 Sharpe Ratio 21.27 24.76 0.66
Table 4.24 Best and Worst Performance

Best (Period) Month Quarter Year 33.57 (11/05/2009 - 10/06/2009) 80.16 (09/03/2009 - 10/06/2009) 117.37 (09/03/2009 - 11/03/2010) Worst (Period) -30.85 (24/09/2008 - 24/10/2008) -35.11 (02/09/2008 - 02/12/2008) -50.51 (04/12/2007 - 03/12/2008)
Analysis and Interpretation: Through modern portfolio statistics and volatile measurement, it is analysed that the risk grade is average, return grade is above average and the fund return is four stars. The best and worst performance of fund is analysed from the table is shows that the year 2008 is only have negative returns due to recession and after that fund performed well
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Table 4.25 Trailing Returns As of 17 May 2012 Year-to-Date 1-Week 1-Month 3-Month 1-Year 2-Year 3-Year 5-Year Fund Return 5.66 -2.03 -7.80 -10.55 -9.67 -1.35 14.77 7.23 Category Return 7.17 -1.62 -6.94 -9.84 -9.13 -1.82 13.17 4.05 Sensex 3.98 -2.13 -7.42 -12.13 -11.40 -2.30 9.67 2.36 S&P CNX Nifty 5.32 -1.92 -7.93 -12.47 -10.46 -1.89 9.85 2.91
Performance of Birla Sun Life Equity return and S&P CNX Nifty
20 15 10 5 0 1 -5 -10 -15 2 3 4 5 6 7 8 Fund Return S&P CNX Nifty
Figure 4.7 Analysis and Interpretation: On the basis of five years returns from the above table, graph has been drawn which shows that, as per the market situation i.e. change in S&P CNX Nifty, the fund return changes. The return of the fund showing, more than the markets return. From the above table its analyzed that short term investment does not provide better return as compared to long term return. So mutual fund is a long term investment.
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RISK ANALYSIS OF MUTUAL FUNDS Relative Performance (Funds Vs Category Average)
Figure 4.8
Analysis and Interpretation: Graphs show that, both fund and category average is moving in same way. Most of the months have negative lines where as only few months have positive lines. But it shows that the Equity multi cap has more risk and return as compare to the Birla Sun Life Frontline Equity.
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Table 4.27 Quarterly Returns Q1 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 13.81 -5.07 1.23 -1.17 -24.24 -1.42 19.42 -0.04 0.71 -3.48 -Q2 --1.62 2.58 50.82 -14.18 14.53 -7.25 6.52 -13.50 22.77 -Q3 --11.19 12.88 19.55 -2.23 16.01 19.39 23.26 15.08 24.75 -Q4 --7.07 1.27 6.87 -18.97 23.88 11.70 8.02 21.15 29.08 12.90
Analysis and Interpretation: Only the year 2008 and 2011 have negative annual returns where as all other years have relatively good return and performed well. With respect to the performance in sensex and S&P Nifty, the fund returns are analysed for different years. Return in the 2011 and 2008 are completely negative but the other years returns are positive. And it is analysed that the quarterly return of a particular year is negative but for a whole year it is positive. So we can say that return of the fund changes every quarter.
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RISK ANALYSIS OF MUTUAL FUNDS Birla Sun Life Mutual Fund (Equity funds)
EQUITY:DIVERSIFIED 1 2 3 4 Birla SL divident yield Birla SL Top 100 Birla SL Midcap fund 87.03 23.55 109.85 160.54 17.45 14.52 1.58 5.29 47.51 36.12 46.88 34.53 21.44 10.12 10.19 5.93 15.03 9.8 13.03 6.54 28.84 27.78 39.22 35.66 0.69 0.36 0.31 0.23
Birla SL Advantage fund EQUITY:INDEX 5 Birla SL index Fund
57.79
11.35
30.68
4.92
9.6
33.16
0.22
EQUITY:TAX 6 7 Birla SL tax relief96 Birla SL Tax plan 80.44 47.81 2.4 8.96 37.72 32.37 4.69 5.03 9.53 7.05 38.8 31.43 0.19 0.19
EQUITY: TECHNOLOGY 8 Birla SL new millenium S&P CNX Nifty
20.17 591.55
4.67 12.74
38.27 31.61
2.25 6.1
5.1 11.06
32.18 37.76
0.15 0.25
Table 4.28 Analysis and Interpretation: From the above table it is clear that the Birla Sun Life Equity Funds have a higher standard deviation of 39.22 and a lower standard deviation of 27.78. And also it has a very low Sharpe ratio, it means that risk is high and the return is very low, but for sum schemes, it is risky but returns are very high, among above funds Birla Sun Life dividend yield is performing best.
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RISK ANALYSIS OF MUTUAL FUNDS UTI Equity Mutual Funds performance:

Table 4.29 Current Stats & Profile Latest NAV 52-Week High 52-Week Low Fund Category Type Launch Date Risk Grade Return Grade Net Assets (Cr) Benchmark 51.24 (17/05/12) 56.27 (25/07/11) 46.66 (20/12/11) Equity: Large & Mid Cap Open End May 1992 Below Average Above Average 1,942.34 (31/03/12) BSE 100
Table 4.30 Returns and Risk Aggregates Rating & Risk Fund Rating Fund Risk Grade Fund Return Grade Below Average Above Average Modern Portfolio Stat R-Squared Alpha Beta 0.94 8.38 0.80 Volatility Measures Mean Standard Deviation Sharpe Ratio 22.88 21.20 0.85
Analysis and Interpretation: Through modern portfolio statistics and volatile measurement, it is analysed that the risk grade is below average, return grade is above average and the fund return is four stars. The best and worst performance of fund is analysed from the table is shows that the year 2008 is have negative returns due to recession and some months of the 2000 and 2006 but the fund performed well in the rest of the years.

Table 4.32 Trailing Returns As of 17 May 2012 Year-to-Date 1-Week 1-Month 3-Month 1-Year 2-Year 3-Year 5-Year Fund Return 7.96 -1.40 -6.60 -8.27 -3.76 3.78 18.63 8.49 Category Return 7.17 -1.62 -6.94 -9.84 -9.13 -1.82 13.17 4.05 Sensex 3.98 -2.13 -7.42 -12.13 -11.40 -2.30 9.67 2.36 S&P CNX Nifty 5.32 -1.92 -7.93 -12.47 -10.46 -1.89 9.85 2.91
Performance of UTI Equity Mutual Fund return and S&P CNX Nifty
25 20 15 10 5 0 1 -5 -10 -15 2 3 4 5 6 7 8 Fund Return S&P CNX Nifty
Figure 4.9 Analysis and Interpretation: On the basis of five years returns from the above table, graph has been drawn which shows that, as per the market fluctuation i.e. change in S&P CNX Nifty, the fund return changes. The return of the fund is more than the market return. From the above table its analysed that short term investment does not provide better return as compared to long term return.
Relative Performance (Funds Vs Category Average)
Figure 4.10 Analysis and Interpretation: Graphs show that, both fund and category average is moving in the same way. Most of the months have gone down. whereas only few months have positive lines. But it shows that the UTI Equity has more risk and less return as compare to the Equity multi cap.
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Table 4.33Annual Returns Years Fund Return Rank In Category Category Average Sensex S&P CNX Nifty 2011 -19.09 13/69 -23.42 -24.64 -24.62 2010 20.50 15/65 16.83 17.43 17.95 2009 85.17 23/61 78.64 81.03 75.76 2008 -45.25 4/59 -52.11 -52.45 -51.79 2007 47.48 36/48 53.74 47.15 54.77
Table 4.34 Quarterly Returns Q1 2012 2011 2010 2009 2008 2007 15.04 -5.32 -0.68 0.68 -20.41 -5.71 Q2 --0.67 4.28 35.70 -12.04 13.75 Q3 --8.28 13.09 25.42 -1.96 14.15 Q4 --6.21 2.88 8.06 -20.24 20.47
Analysis and Interpretation: Only in the year 2011 and 2008 have negative annual return, where as all other years have got positive returns and performed well. Which respect to the performance in sensex and S&P CNX Nifty, the fund returns are analysed for different years. And we can see that fund is started earning after the 2011s utter loss.
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RISK ANALYSIS OF MUTUAL FUNDS UTI Equity Mutual Funds (Equity funds) Total Return % till 20 april 2012 SL. NO FUNDS NAV 1-Yr 2-Yr 3-Yr 5-Yr S.D Sharpe Ratio
EQUITY:DIVERSIFIED 1 2 3 UTI Mid Cap UTI dividend yield fund UTI opportunities 32.16 33.33 28.8 8.06 50.28 11.2 4.81 35.61 0.36
17.15 41.87 17.49 16.97 25.53 0.64 15.45 39.52 16.04 12.75 28.7 0.49
EQUITY:INDEX 4 UTI nifty index fund 36.3 11.49 30.71 5.11 9.86 32.77 0.22
EQUITY:TAX 5 UTI long term advantage S&P CNX Nifty 13 6.04 33.72 5.22 0 31.4 0.19
591.55 12.74 31.61 6.1
11.06 37.76 0.25
Table 4.35 Analysis and Interpretation: From the above table it is clear that almost all the UTI equity funds have less(Max 35.61 and Min 25.33) standard deviation. And Sharpe ratio also shows that the risk is below average for most of the funds and returns are average. This equity funds are almost average in risk and return. Among the entire above funds UTI dividend yield is performing well.
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Chapter 5 SUMMARY OF FINDINGS, CONCLUSION & SUGGESTIONS.
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Summary of Findings, Conclusion & Suggestions:
5.1 Summary of Findings It was found that mutual funds have relationship with the stock market, the mutual fund shuffle as per market performance. Annual return of the fund shows that 2008 and 2011 completely have negative returns due to recession after that funds performed well. Volatility measurement of each fund is done by Beta factor, Standard deviation, Sharpe ratio& R-Squired. The equity mutual funds have average risk and moderate return. Investment for longer period in mutual give higher return as comparing with short period of investment. Long term investment shows positive return whereas the return is negative for monthly or short term investment. The second year return is always higher for both fund and nifty where as for other years it is average for both. Among all the five equity mutual funds, HDFC has average risk and fund return is very high. Only few funds of BIRLA SUNLIFE equity is performing well and overall fund performance is not good whereas other funds are highly risky with low return. ICICI, UTI and Reliance funds performance is overall average.
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5.2 Conclusion:
This study tries to find out the performance of equity mutual fund industry before investing in any product. One need to understand what return one can expect from it over a period of time, and whether the same will add to its portfolio and portfolio and create any value. The investment approach/ style should meet the objectives of investment. Equities are risky, but right time will surely help one to gain from markets. It also analysed the nature of competition among the holding companies. Among the available investment avenues, equity mutual funds stand in a better position. Mutual has got different schemes of categories. So that it is correctly suits investors needs. The chosen mutual fund schemes have good track record. Just investing is not great but constantly reviewing the financial position is very important.
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RISK ANALYSIS OF MUTUAL FUNDS 5.3 Suggestions Mutual fund units should introduce the learning centre for buyers which make buyers understanding of the mutual fund units. Offer documents should be understandable to the buyers. Buying process should be very easy as customer can easily understand the process. Investing in the growing sector like infrastructure, banking and financial services as they can offer well return to the buyers. The influence of macroeconomic, industry and company specific factors on the volatility of securities has to be analysed. The mutual fund company should make necessary step to canvas the people with reasonable information. Personalized attentions to the customer are necessary. Investors education is more important. They have to understand in which company, the investment will be profitable. The bankers should take efforts canvas their customers to hold mutual fund units. Thereby, mutual fund units will be mobilized more. This will result in industrial prosperity.
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References
Books: Investment Management V.K Bhalla, S.CHAND & Co. Ltd Investment Analysis and Portfolio Management. By Prasanna Chandra The Indian financial system, 3rd edition, Himalaya Publishing house
Websites: (Data accessed on 8th -13th May) http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=219 http://www.sebi.gov.in/Index.jsp?contentDisp=Department&dep_id=4 http://www.moneycontrol.com/india/mutualfunds/mfinfo/00/55/latestnav http://www.hdfcfund.com/ http://www.utimf.com http://www.reliancemutual.com/
Magazines Mutual fund The analyst April 2012 Business and Economy Dec 2011
News Paper Mint may 15th 2012
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RISK ANALYSIS OF MUTUAL FUNDS

1.1 Introduction to Mutual Fund

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

RISK ANALYSIS OF MUTUAL FUNDS 1.3 The Process of Mutual Fund

Many investors with common financial objectives pool their money

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

1.4 Advantages & Disadvantages of Mutual Funds

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

RISK ANALYSIS OF MUTUAL FUNDS

1.5 Types of Mutual Fund Schemes:

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

RISK ANALYSIS OF MUTUAL FUNDS

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

RISK ANALYSIS OF MUTUAL FUNDS

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

RISK ANALYSIS OF MUTUAL FUNDS

Non-receipt of rights offer letter

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

RISK ANALYSIS OF MUTUAL FUNDS

CHAPTER 2 REVIEW OF LITERATURE& RESEARCH DESIGN

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

RISK ANALYSIS OF MUTUAL FUNDS

2.2 Review of Literature

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

RISK ANALYSIS OF MUTUAL FUNDS

2.3 Statement of the Problem

2.4 Scope of the Study

2.5 Objectives of the Study

2.6 Methodology Type of Study: Descriptive Analytical Study

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

RISK ANALYSIS OF MUTUAL FUNDS

2.7 Sources of Data

2.8 Equity Mutual Funds Analysed

2.9 Tools for Analysis

2.10 Limitations of the Study

RISK ANALYSIS OF MUTUAL FUNDS

2.11 Chapter Schemes

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

RISK ANALYSIS OF MUTUAL FUNDS

PROFILE OF THE INDUSTRY

3.1 Origin of the Mutual Fund

3.2 History of Mutual Fund

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

RISK ANALYSIS OF MUTUAL FUNDS

Table 3.1 3.3.2 Birla sun life mutual fund

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES

RISK ANALYSIS OF MUTUAL FUNDS

CHAPTER FOUR ANALYSIS AND INTREPRITATION

INDIAN ACADEMY SCHOOL OF MANGEMENT STUDIES