A REPORT ON
“MUTUAL FUND INDUSTRYANALYSIS & RECENT TRENDS”
By: Priyanka Agrawal PICT-SITM Pune Kotak Mahindra Asset Management Company Limited
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REPORT ON “MUTUAL FUND INDUSTRYANALYSIS & RECENT TRENDS” By: Priyanka Agrawal PICT-SITM A report submitted in partial fulfillment of the requirement of MBA Program Submitted to: Mr.Balaramchandran Faculty Member PICT-SITM, Pune & Mr. Rohit Kaushal Relationship Manager Kotak Mahindra Asset Management Company Limited
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ACKNOWLEDGEMENT The success behind the completion of any good job is the support and the joint team effort of a number of people. There are many persons, whose help & cooperation, made this project successful. My deepest sense of gratitude, profound respect and sincere thanks to Mr. Balaramchandran (faculty member PICT-SITM Pune ) my project guide, for his valuable assistance, keen interest and constant motivation at each step of the project. It would not have been possible for me to reach this stage without his support & guidance. My special thanks to Mr. Rohit Kaushal (Relationship Manager- Kotak Mahindra Asset Management Co. Ltd.), my company guide who has been there with me throughout the entire project. He always had the answers to my queries, be it regarding any concept related to mutual funds. His warmth support, practical guidance and easy explanations not only regarding the project matters but others too add to the success of my project. His continuous interaction and support made it possible for the successful completion of the project. I would also like to thank my parents and my friends for all their time-totime assistance. Last but not the least I would like to thank God because without his divine grace nothing would have been possible.
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TABLE OF CONTENTS Page No. Acknowledgements……………………………………………………... 3 List of Illustrations……………………………………………………... 6 Abstract………………………………………………………………… 7 1. Introduction a. Purpose…………………………………………………… 8 b. Objective………………………………………………...... 8 c. Proposed Methodology………………………………....... 9 d. Limitations of the Project………………………………… 9
2. About Mutual Funds a. Concept of Mutual Funds………………………………... 10 b. Advantages of Mutual Funds…………………………..... 13 c. Disadvantages of Mutual Funds…………………………. 15
3. Mutual Fund Industry a. Phases of Growth………………………………………… 16 b. Major Mutual Fund Companies………………………......18 c. Players in the Industry…………………………………… 23 d. Types of Mutual Fund…………………………………… 24 e. Advertisement of Mutual Funds……………………….... 29
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4. Distribution Model a. Multi-Channel Distribution Model……………………… 31 b. Distribution Channels………………………………….... 32 c. Challenges in Distribution……………………………….. 33 d. Curbing Unethical Practices……………………………... 34 e. Spreading Mutual Fund Culture………………………… 35
5. Terms associated with Mutual Funds a. Offer Document………………………………………….. 36 b. Net Asset Value………………………………………….. 39 c. Pricing Of Units………………………………………….. 40 d. Investment Plans…………………………………………. 42 e. Tax Provisions…………………………………………… 44 f. Restriction on Investment……………………………….. 46 g. Asset Allocation Principles……………………………… 48
6. Measuring & Evaluating Mutual Fund Performance a. Measurement of Mutual Fund Performance……………... 56 b. Recent Trends in Mutual Fund Industry…………………..63 i) Impact on Mutual Funds of the Union Budget………… 67 c. Fund Analysis i) Equity Based Fund………………………………. .73 5|Page
ii) Debt Based Fund………………………………… 76 iii) ELSS Tax Saver………………………………… 79 iv) Monthly Income Plans………………………….. 82 v) Cash Funds………………………………………. 85
7. Conclusion……………………………………………………….. 88
8. Recommendations……………………………………………….. 89
9. Appendices……………………………………………………….. 91
10. Reference….……………………………………………………... 116
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TABLE OF ILLUSTRATIONS 1. Working of Mutual Funds……………………………………… 12 2. Structure of Mutual Funds……………………………………... 24 3. Mutual Fund Classification…………………………………….. 24 4. Multi-Channel Distribution Model……………………………… 31 5. Investor Earning Opportunities…..…………………………….. 37 6. Expenses charged by AMC………………………………………. 41 7. Investor in Different Phases…………………………………….. 49 8. Portfolio Model (By Jacobs)…………………………………….. 50 9. Wealth Cycle Classification……………………………………… 51 10.Comparison of Investment Products a. By Nature of Investment………………………………….. 52 b. By Performance……………………………………………. 53 11.Risk-Return Grid………………………………………………… 54 12. Bank v/s Mutual Fund…………………………………………… 55 13. Diagrams showing a. Beta……………………………………………………….. 57 b. R Squared…………………………………………………. 58 c. Treynor Ratio…………………………………………….. 59 7|Page
d. Sharpe Ratio……………………………………………… 60 14. Fund Analysis (On the basis of NAV)…………………………. 70 15. Different Funds which are compared…………………………. 71 16. Calculation showing Mutual Fund Performance a. Equity Fund Scheme……………………………………… 73 b. Debt Fund Scheme……………………………………….. 76 c. ELSS Tax Saver Scheme………………………………… 79 d. Monthly Income Plans…………………………………… 82 e. Cash Funds……………………………………………….. 85
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ABSTRACT If size is the measure of dominance, then the Indian mutual fund industry can now boast on that. With the total Asset Under Management (AUM) increasing from Rs.1,01,565 Crores in Jan 2000 to Rs.5,67,601.98 Crores by April 2008, according to the Association of Mutual Funds in India (AMFI), the industry’s growth has been nothing but exceptional. It has indeed come a long way from being a single player, single scheme (US-64) industry to having 34 players and more than 480 schemes. What has driven the growth? Numbers of factors have contributed to the surge in the industry’s growth. First and foremost, a buoyant domestic economy coupled with a booming stock market has been one of the major drivers of the growth in recent times particularly in the last five-year. Another significant factor facilitating this growth has been a conducive regulatory regime, thanks to increased effort by SEBI to improve market surveillance and protect investor’s interests. Further, incentives, such as making dividend tax free in the hands of investors have also provided strong impetus to the growth. This research covers various aspect of mutual funds industry in India. Starting with basic concept of mutual fund and its advantages it would give detail about the growth of mutual fund industry in India, its present scenario. It also throws some light on major mutual fund companies in India, the different types of mutual funds on the basis of structure, investment, load and schemes and also it covers the different phases of growth of mutual fund industry. Then it covers the calculation of NAV, the various investment plans, factor’s that help in calculating the mutual fund performance. In the end mutual fund analysis have been done on the basis of Standard Deviation, Beta, Alpha, R Squared, Treynor Ratio & Sharpe Ratio on various schemes like Equity based Funds, Debt based Funds, Monthly Income Plans, Cash Funds & ELSS Tax Saver Schemes. 9|Page
INTRODUCTION Purpose of the project This project provides better understanding to the reader by giving insights on Indian Mutual Fund Industry through comparative analysis of different Asset Management Companies and their schemes in India. To do a comparative analysis of five major Mutual Funds of India namely Kotak Mutual Fund HDFC Mutual Fund UTI Mutual Fund Reliance Mutual Fund Prudential ICICI Mutual Fund
Objective of the Project For every problem there is a research. As all the researches are based on some and my study is also based upon some objective and these are as follows: To give a holistic and a comprehensive view of mutual fund industry in India Comparative study of returns given by various AMC Mutual funds on the basis of 6 parameters like Standard Deviation, Beta, Alpha, R Squared, Treynor Ratio & Sharpe Ratio. To understand the risk profile of the customer To know the awareness of investors about schemes provided by various AMCs
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Proposed Methodology In broader perspective the whole project can be divided into three sections. Under SECTION I, on the basis of past and present the industry has been analyzed and based on which future outlook has been projected. This section covers following things: i. Concept of Mutual Funds and its Advantages. ii. Types of Mutual Funds. iii. Size of Industry iv. Growth trends SECTION II focuses on the distribution Channel used by different AMC in order to sell their schemes. This section also tries to cover i. Distribution models. ii. Challenges in distribution. iii. Curbing Unethical Practices iv. Spreading Mutual Fund Culture Section III focuses on the different tools used to measure & evaluate the performance of different Mutual Funds. This section covers the following things: i. The performance of the Mutual Funds is evaluated on the basis of Standard Deviation, Beta, Alpha, R Squared, Treynor Ratio & Sharpe Ratio. ii. Recent Trends in the Mutual Fund industry iii. Impact on Mutual Funds of the Union Budget. Finally on the basis of findings and observation suitable recommendations will be given.
Limitations The analysis is completely based on the past performance and not confirms the future performance. The research is based on secondary data collected from other sources like magazines, newspapers and websites etc. Reliability of the sources could also be limitation for the project.
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ABOUT MUTUAL FUNDS CONCEPT Individuals or institutions when have surplus money, i.e. savings, would like to invest with the common and logical motive of growing money by getting returns on the investments. There are various avenues to park money towards fulfillment of your objective of return on investment. One can invest money either where you can get assured returns & hence the risk is low but returns also are low compared to the high risk investments. The other way is through investing in shares i.e. equity market. Generally the returns on equity investments are higher than debt investment but risk also is higher. To get good returns one really needs to understand the economy and performance of companies where you are investing money. For a common man it may be cumbersome while managing own profession, job or business. Hence the concept of mutual fund has evolved to manage the funds i.e. on behalf of the investor; fund managers will be taking decisions to maximize the investor’s returns. The concept of mutual funds in India dates back to the year 1963. The era between 1963 and 1987 marked the existence of only one mutual fund company in India with Rs. 67bn assets under management (AUM), by the end of its monopoly era, the Unit Trust of India (UTI). By the end of the 80s decade, few other mutual fund companies in India took their position in mutual fund market. The new entries of mutual fund companies in India were SBI Mutual Fund, Canbank Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund. The succeeding decade showed a new horizon in Indian mutual fund industry. By the end of 1993, the total AUM of the industry was Rs. 470.04 bn. The private sector funds started penetrating the fund families. In the 12 | P a g e
same year the first Mutual Fund Regulations came into existence with reregistering all mutual funds except UTI. The regulations were further given a revised shape in 1996. Kothari Pioneer was the first private sector mutual fund company in India which has now merged with Franklin Templeton. Just after ten years with private sector player penetration, the total assets rose up to Rs. 1218.05 bn. Today there are 34 mutual fund companies in India. A Mutual fund is a common pool of money into which investors place their contributions that are to be invested in accordance with a stated objective. The ownership of the fund is thus joint or “mutual”; the fund belongs to all investors. A single investor’s ownership of the fund is in the same proportion as the amount of the contribution made by him bears to the total amount of the fund. A mutual fund uses the money collected from investors to buy those assets, which are specifically permitted by its stated investment objective. Thus, an equity fund would buy mainly equity assets-ordinary shares, preference shares, warrants, etc. a bond fund would mainly buy debt instruments, such as debentures, bonds, or government securities. It is these assets, which are owned by the investors in the proportion of their investments. When an investor subscribes to a mutual fund, he or she buys a part of the assets or the pool of funds that are outstanding at that time. It is no different from buying “shares” of a joint stock company, in which case the purchase makes the investor a part owner of the company and its assets. In fact, in the USA, a mutual fund is constituted as an investment company and an investor “buys in to the fund” meaning he buys the shares of the fund. In India, a mutual fund id constituted as a trust an investor subscribes to the “units” issued by the fund, which is where the term Unit Trust comes from. . Mutual funds issues units to the investors in accordance with quantum of money invested by them. Investors of Mutual funds are known as Unit Holders. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. The profits and losses are shared by the investors in proportion to their investments. Mutual funds normally come out with a number of schemes with different investments objectives which are launched from time to time. A mutual fund is required to be registered 13 | P a g e
with Securities and Exchange Board of India which regulates securities markets before it can collect funds from public. However, whether the investor gets funds shares or units is only a matter of legal distinction. In any case, a mutual fund shareholder or unit holder is a part owner of the fund’s assets. The term unit-holder includes the mutual fund account-holder or closed-end fund shareholder. A unit holder in Unit Trust of India US-64 scheme is the same as a UTI Master shareholder or an investor in an alliance Each share or unit that an investor holds needs to be assigned a value. Since the units held by investor evidence the ownership of the assets, the value of the total assets of the fund when divided by the total number of units issued by the mutual fund gives us the value of one unit. This is generally called the Net Asset Value (NAV) of one unit or one share. The value of an investor’s part ownership is the determined by the NAV of the number of units held. Example: If the value of a fund’s assets stands at Rs 1000 and it has 10 investors who have bought 10 units each, the total numbers of units issued are 100, and the value of one unit is Rs 10 (1000/100). If a single investor in fact owns 3 units, the value of his ownership of the fund will be Rs 30 (1000/100*3). Note that the value of the fund’s investments will keep fluctuating with the market price movements, causing the NAV also fluctuate. For example, if the value of our funds assets increased from Rs 1000 to Rs 1200, the value of our investors holding of 3 units (1200/100*3) Rs 36. The investment value can go up and down, depending on the market value of the fund’s assets. The flow chart below describes broadly the working of a mutual fund:
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SOURCE: AMFI Advantages of Mutual Funds If mutual funds are emerging as the favorite investment vehicle, it is because of the many advantages they have over other forma and avenues of investing, particularly for the investor who has limited resources available in terms of capital and ability to carry out detailed research and market monitoring. The following are the major benefits offered by mutual funds to all investors: i) Portfolio Diversification Mutual Funds spread the investment across different securities (stocks, bonds, money market instruments, real estate, fixed deposits etc.) by investing in a number of companies across a broad cross-section of industries and sectors (auto, textile, information technology etc.). This kind of a diversification may add to the stability of your returns and reduces the risk with far less money than you can do on your own. For example during one period of time equities might underperform but bonds and money market instruments might do well enough to offset the effect of a slump in the equity markets. ii) Convenient Administration
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Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. iii) Professional Management Qualified investment professionals who seek to maximize returns and minimize risk monitor investor's money. The investment professional has experience in making investment decisions. It is the Fund Manager's job to (a) find the best securities for the fund, given the fund's stated investment objectives; and (b) keep track of investments and changes in market conditions and adjust the mix of the portfolio, as and when required.
iv) Liquidity In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. v) 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. vi) Variety Mutual funds offer a tremendous variety of schemes. This variety is beneficial in two ways: first, it offers different types of schemes to investors with different needs and risk appetites; secondly, it offers an opportunity to an investor to invest sums across a variety of schemes, both debt and equity. vii) Tax Benefits In case of Individuals and Hindu Undivided Families a deduction up to Rs. 9,000 from the Total Income will be admissible in respect of income from 16 | P a g e
investments specified in Section 80L, including income from Units of the Mutual Fund. Units of the schemes are not subject to Wealth-Tax and GiftTax. viii) Transparency Open-ended mutual funds disclose their Net Asset Value (NAV) daily and the entire portfolio monthly. This level of transparency, where the investor himself sees the underlying assets bought with his money, is unmatched by any other financial instrument.
Disadvantages of Mutual Funds While the benefits of investing through mutual funds far outweigh the disadvantages, an investor and his advisor will do well to be aware of few shortcomings of using the mutual fund as an investment vehicle. i) No Tailor-made-Portfolios Investing through funds means, the investor delegates the decision of investing through which securities to fund manager. The very high-networth individuals or large corporates may find this as a constraint in achieving their objectives. However this constraint can be overcome to some extent by offering families of schemes to investor, within the same fund. ii) No control over costs Investor pays the investment management fees as long as he remains within the fund. Fees are usually payable as a percentage of the value of his investments, whether the fund value is rising or declining. The investor also pays the fund distribution cost, which he would not incur in direct investment. iii) Managing a Portfolio of Funds 17 | P a g e
Availability of a large number of options from mutual funds can actually mean too much choice for the investor. He may again need advice on how to select a fund to achieve his objectives.
MUTUAL FUND INDUSTRY The Phases of Growth The Indian mutual industry has come a long way since the inception of UTI in 1963.According to AMFI, the evolution of the industry can be classified broadly into four phases, which mark its transition from a period when UTI ruled the roost to a period of competition and increased awareness among investors. i) First Phase (1964-87) – UTI all the way This phase begin with the inception of the Unit Trust of India (UTI). It remained the only mutual fund player in the country till 1987. UTI started its operation in July 1964 “with a view to encouraging savings and investments and participation in income, profits and gains accruing to the corporation from acquisition, holding, management and disposal of securities.” In short, it was set up by Indian government with a view to augment small savings in the country and to channelize these savings to the capital markets. UTI witnessed a slow and steady growth over the 1970s and the 1980s and by the end of 1988 it had an AUM of Rs.67bn. It still continues to be the largest player in the domestic mutual fund industry with an AUM of Rs. 23,500 cr as on March 31, 2008. ii) Second Phase (1987-1993) – Enter Public sector Mutual Funds Public sector mutual funds set up by public sector banks, Life insurance Corporation of India (LIC) and the General insurance Corporation of India (GIC) entered in the market in 1987. The first non mutual fund was the SBI Mutual Fund established in June 1987, followed by Canbank Mutual Fund in December 1987, Punjab National Bank Mutual Fund in August 1989, India 18 | P a g e
Bank Mutual Fund in Nov 1989, Bank of India Mutual Fund in June 1990 and Bank of Baroda Mutual Fund in Oct 1992. LIC set up its mutual Fund in Jun e 1989 while GIC established its Mutual Fund in Dec 1990. During this period, the total asset of the industry grew to about Rs. 610bn with the total number of schemes increasing to about 167 by the end of 1994. iii) Third Phase of (1993-2003) – Private players enter the scene This phase marked the entry of private sector funds. The phase also signaled the intensification of competition. Both domestic and foreign players entered the market, offering a wide variety of schemes to investors. Kothari Pioneer Mutual Fund was the first private sector fund to establish in association with the foreign fund. Private players like Morgan Stanley, Jardine Fleming, JP Morgan, George Soros and Capital International entering the market. The total AUM by the end of Jan 31, 2003 increased to $ 34,927mn from $23,260mn in March 1995 with a CAGR of 6.92%. iv) Fourth Phase (since Feb 2003)– UTI’s restructuring and beyond In Feb 2003 UTI ACT 1963 was replaced and UTI was bifurcated into two separate entities: Specified undertaking of Unit Trust of India, which is still under the Govt. of India and the UTI Mutual Fund Ltd. This was done in the wake of the sever payment crisis that UTI suffered on account of its assured return schemes of US-64 that finally resulted in an adverse impact on the India capital markets. US-64 was the first scheme launched by UTI with a significant equity exposure and the returns of which were not linked to the market. However, the industry has overcome that shock and is hoped to have learnt its lesson.
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Major Mutual Fund Companies in India: i) Kotak Mahindra Mutual Fund Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of Kotak Mahindra Bank Limited (KMBL). It is presently having more than 1,99,800 investors in its various schemes. KMAMC started its operations in December 1998. Kotak Mahindra Mutual Fund offers schemes catering to investors with varying risk - return profiles. It was the first company to launch dedicated gilt scheme investing only in government securities. ii) HDFC Mutual Fund 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 Company for the HDFC Mutual Fund by SEBI vide its letter dated June 30, 2000. HDFC Mutual Fund was setup with two sponsors namely Housing Development Finance Corporation Limited and Standard Life Investments Limited. iii) Unit Trust of India Mutual Fund UTI Asset Management Company Private Limited, established in Jan 14, 2003, manages the UTI Mutual Fund with the support of UTI Trustee Company Private Limited. UTI Asset Management Company presently manages a corpus of over Rs.20000 Crores. The sponsors of UTI Mutual Fund are Bank of Baroda (BOB), Punjab National Bank (PNB), State Bank of India (SBI), and Life Insurance Corporation of India (LIC). The schemes of UTI Mutual Fund are Liquid Funds, Income Funds, Asset Management Funds, Index Funds, Equity Funds and Balance Funds. iv) Prudential ICICI Mutual Fund The mutual fund of ICICI is a joint venture with Prudential Plc. of America, one of the largest life insurance companies in the US of A. Prudential ICICI Mutual Fund was setup on 13th of October, 1993 with two sponsors, Prudential Plc. and ICICI Ltd. The Trustee Company formed is Prudential ICICI Trust Ltd. and the AMC is Prudential ICICI Asset Management Company Limited incorporated on 22nd of June, 1993. 20 | P a g e
v) 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. vi) ABN AMRO Mutual Fund ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee (India) Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset Management (India) Ltd. was incorporated on November 4, 2003. Deutsche Bank AG is the custodian of ABN AMRO Mutual Fund. vii) Birla Sun Life Mutual Fund Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life Financial. Sun Life Financial is a global organization evolved in 1871 and is being represented in Canada, the US, the Philippines, Japan, Indonesia and Bermuda apart from India. Birla Sun Life Mutual Fund follows a conservative long-term approach to investment. Recently it crossed AUM of Rs. 10,000 crores. viii) Bank of Baroda Mutual Fund (BOB Mutual Fund) Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992 under the sponsorship of Bank of Baroda. BOB Asset Management Company Limited is the AMC of BOB Mutual Fund and was incorporated on November 5, 1992. Deutsche Bank AG is the custodian. ix) HSBC Mutual Fund HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital Markets (India) Private Limited as the sponsor.
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x) ING Vysya Mutual Fund ING Vysya Mutual Fund was setup on February 11, 1999 with the same named Trustee Company. It is a joint venture of Vysya & ING. The AMC, ING Investment Management Pvt. Ltd. was incorporated on April 6, 1998. xi) Sahara Mutual Fund Sahara Mutual Fund was set up on July 18, 1996 with Sahara India Financial Corporation Ltd. as the sponsor. Sahara Asset Management Company Private Limited incorporated on August 31, 1995 works as the AMC of Sahara Mutual Fund. The paid-up capital of the AMC stands at Rs 25.8 crore. xii) State Bank of India Mutual Fund State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch offshore fund, the India Magnum Fund with a corpus of Rs. 225 cr. approximately. Today it is the largest Bank sponsored Mutual Fund in India. They have already launched 35 Schemes out of which 15 have already yielded handsome returns to investors. State Bank of India Mutual Fund has more than Rs. 5,500 Crores as AUM. Now it has an investor base of over 8 Lakhs spread over 18 schemes. xiii) Tata Mutual Fund Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsors for Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The investment manager is Tata Asset Management Limited and Tata Trustee Company Pvt. Ltd. Tata Asset Management Limited's is one of the fastest in the country with more than Rs. 7,703 Crores (on April 30, 2005). xiv) Standard Chartered Mutual Fund Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by Standard Chartered Bank. The Trustee is Standard Chartered Trustee Company Pvt. Ltd. Standard Chartered Asset Management Company Pvt. Ltd. is the AMC which was incorporated with SEBI on December 20, 1999. 22 | P a g e
xv) Franklin Templeton India Mutual Fund The group, Franklin Templeton Investments is a California (USA) based company with a global AUM of US$ 409.2 bn. (as of April 30, 2005). It is one of the largest financial services groups in the world. Investors can buy or sell the Mutual Fund through their financial advisor or through mail or through their website. They have Open end Diversified Equity schemes, Open end Sector Equity schemes, Open end Hybrid schemes, Open end Tax Saving schemes, Open end Income and Liquid schemes, Closed end Income schemes and Open end Fund of Funds schemes to offer. xvi) Morgan Stanley Mutual Fund India Morgan Stanley is a worldwide financial services company and its leading in the market in securities, investment management and credit services. Morgan Stanley Investment Management (MISM) was established in the year 1975. It provides customized asset management services and products to governments, corporations, pension funds and non-profit organizations. Its services are also extended to high net worth individuals and retail investors. In India it is known as Morgan Stanley Investment Management Private Limited (MSIM India) and its AMC is Morgan Stanley Mutual Fund (MSMF). xvii) Escorts Mutual Fund Escorts Mutual Fund was setup on April 15, 1996 with Escorts Finance Limited as its sponsor. The Trustee Company is Escorts Investment Trust Limited. Its AMC was incorporated on December 1, 1995 with the name Escorts Asset Management Limited. xviii) Alliance Capital Mutual Fund Alliance Capital Mutual Fund was setup on December 30, 1994 with Alliance Capital Management Corp. of Delaware (USA) as sponsor. The Trustee is ACAM Trust Company Pvt. Ltd. and AMC, the Alliance Capital Asset Management India Private Ltd. with the corporate office in Mumbai.
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xix) Chola Mutual Fund Chola Mutual Fund under the sponsorship of Cholamandalam Investment & Finance Company Ltd. was setup on January 3, 1997. Cholamandalam Trustee Co. Ltd. is the Trustee Company and AMC is Cholamandalam AMC Limited. xx) LIC Mutual Fund Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. It contributed Rs. 2 Crores towards the corpus of the Fund. LIC Mutual Fund was constituted as a Trust in accordance with the provisions of the Indian Trust Act, 1882. . The Company started its business on 29th April 1994. The Trustees of LIC Mutual Fund have appointed Jeevan Bima Sahayog Asset Management Company Ltd as the Investment Managers for LIC Mutual Fund. xxi) GIC Mutual Fund GIC Mutual Fund, sponsored by General Insurance Corporation of India (GIC), a Government of India undertaking and the four Public Sector General Insurance Companies, viz. National Insurance Co. Ltd (NIC), The New India Assurance Co. Ltd. (NIA), The Oriental Insurance Co. Ltd (OIC) and United India Insurance Co. Ltd. (UII) and is constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882.
The Players in the Mutual Fund Industry The players in the Indian Mutual Funds Industry are similar to some extent to the players in other financial services industry. The players are as follows: 24 | P a g e
SEBI The Securities Exchange Board of India (SEBI) is the regulatory authority for all the mutual funds sponsored by the public/private sector banks, financial institutions, private sector companies, non- banking finance companies and foreign institutional investors. SEBI has laid down the rules and regulations regarding the obligations of the entities involves in a mutual fund, its establishment and launch of different schemes, investments and valuation, financial reporting, conduct and operations of mutual funds. Asset Management Company (AMC) Its role is highly significant in the mutual funds operation. They are the fund managers i.e. they invest the investors money in various securities after proper research and analysis. They also look after the administrative functions of a mutual fund for which they charge management fee. Intermediaries They act as a link between the mutual fund companies and the investors. The intermediaries include brokers, sub- brokers, and investment houses. The other intermediary- registrar and transfer agents perform activities, which are associated with maintaining records concerning units already issued or to be issued by the company. The registrar also performs other activities such as dividend payment, investor grievance, etc. Investors Investors subscribe to the units issued by the mutual funds in the hope of getting a return commensurate with the risk involved. SEBI protects the interest of the investors through the guidelines laid down under SEBI (Disclosure and Investor Protection) Guidelines, 2000. The mutual fund investor mainly includes individual, HUF, corporate and trusts.
Types of Mutual Funds
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There are many types of mutual funds available to the investor. However, these different types of funds can be grouped into certain classifications for better understanding.
Structure of a Mutual Fund
SOURCE: http://amfiindia.com Mutual Fund Classification
SOURCE: http://amfiindia.com By Structure 26 | P a g e
i) Open-ended Funds An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices. Hence, the unit capital of the schemes keeps changing each day. Such schemes thus offer very high liquidity to investors and are becoming increasingly popular in India. Please note that an open-ended fund is NOT obliged to keep selling/issuing new units at all times, and may stop issuing further subscription to new investors. On the other hand, an open-ended fund rarely denies to its investor the facility to redeem existing units. ii) Closed-ended Funds A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. 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 they 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. Closed-ended schemes are usually more illiquid as compared to open-ended schemes and hence trade at a discount to the NAV. This discount tends towards the NAV closer to the maturity date of the scheme. iii) Interval Funds Interval funds combine the features of open-ended and close-ended schemes. They may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV based prices.
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i) Growth Funds The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a majority of their corpus in equities. It has been proven that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long-term outlook seeking growth over a period of time. ii) Income Funds 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 and Government securities. Income Funds are ideal for capital stability and regular income. iii) Balanced Funds The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls. These are ideal for investors looking for a combination of income and moderate growth. iv) Money Market Funds The aim of money market funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer shortterm instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods. v) Gilt Fund 28 | P a g e
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 economic factors as is the case with income or debt oriented schemes. vi) Index Funds Index Funds replicate the portfolio of a particular index such as the BSE sensitive index, S&P NSE 50 index(Nifty).These schemes invest in the securities in the same weight age comprising of an index. NAV’s 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 disclosure in this regard is 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.
On the basis of Load i) Load Funds A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%. It could be worth paying the load, if the fund has a good performance history. ii) No-Load Funds A No-Load Fund is one that does not charge a commission for entry or exit. That is, no commission is payable on purchase or sale of units in the fund. The advantage of a no load fund is that the entire corpus is put to work. Other Schemes i) Tax Saving Schemes These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked 29 | P a g e
Savings Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities to investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds, provided the capital asset has been sold prior to April 1, 2000 and the amount is invested before September 30, 2000. ii) Industry Specific Schemes Industry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like InfoTech, FMCG, and Pharmaceuticals etc. iii) Sectoral Schemes Sectoral Funds are those, which invest exclusively in a specified industry or a group of industries or various segments such as 'A' Group shares or initial public offerings. In these funds or schemes the investor invests in the securities of only those sectors or industries which are specified in the offer documents. E.g. Pharmaceuticals, software, Fast Moving Consumers goods (FMCG), petroleum stocks, etc. the return on these funds is dependent on the performance of the respective sector/industries. While these funds may give higher returns, they are more risky compared to the diversified funds. Investors need to keep a watch on the performance of these sectors and must exit at an appropriate time. They may seek an advice of an expert.
Advertisements of Mutual Funds 30 | P a g e
Advertisements through Hoardings/Posters It is essential for the investors to read the Offer Documents & Risk Factors before investing in the mutual funds scheme to take well informed investment decisions. Considering that the investors get very little time to read the advertisements through hoardings/posters, etc. while passing by, it is clarified that such advertisements may carry only the following statement apart from copy of advertisement: “Mutual Fund investments are subject to market risks, read the offer document carefully before investing” The above statement shall be displayed in black letters of at least 8 inches height or covering 10% of the display area on white blackboard. The compliance officers shall ensure that he statement appearing in such advertisements are in legible font.
Advertisements through Audio-Visual Media Advertisements through audio-visual media like television, a statement “Mutual Fund investments are subject to market risks, read the offer document carefully before investing” shall be displayed on the screen for at least 2 seconds, in a clearly legible fontsize covering at least 80% of the total screen space and accompanied by a voice-over reiteration. The remaining 20% space can be used for the name of the mutual fund or logo or name of scheme, etc.
Performance Advertisements • Disclosure of Benchmarks in Advertisements: All performance advertisements disclosing return statistics shall mention the returns on the benchmark indices, during the same time periods. • Performance of Money Market Schemes: The investors in cash/liquid/money market schemes have short investment 31 | P a g e
horizon therefore the mutual funds while advertising simple annualized returns of such schemes based on a period of 30 days can also advertise simple annualize returns based on 15 days period. • Impact of Distribution Taxes: While advertising returns by assuming reinvestment of dividends, if distribution taxes are excluded while calculating the returns, this should also be disclosed. • Pay-out of Dividends: While advertising pay-out dividends, it shall be disclosed that after the payment of dividend, the NAV will fall to the extent of the payout and distribution taxes (if applicable), in the main body of the advertisement.
Fund of Fund’s Advertisement In case of Fund of Fund’s scheme, the mutual funds shall disclose in the offer document as well as in the advertisements that the investors are bearing the recurring expenses of the scheme in addition to the expenses of other schemes in which Fund of Fund’s scheme makes investment.
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Distribution Model
AMC
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Direct Sales
Brokers
Institutional Brokers
Large Corporate
Corporate
Banks
Tied Agency
Internet
IFAs
HNW Customer
Retail Customer
Customer Segments
Multi - Channel Distribution
Distribution Channels In highly competitive environment, product innovation or development has become a necessity for mutual fund players to stay ahead. Increasing commoditization and growing needs of the customers are forcing players to shift to solution based models from production based ones. In either model, the role of distribution channel remains critical as it helps stave off 34 | P a g e
competition by maintaining relationships, providing advisory services and customizing need-based solution Relationship plays a vital role while selling mutual fund products. An agent is essential channel between investors and mutual fund products. However it is difficult for AMCs to manage and monitor large agent force. So they take shelter in third-party distribution AMCs like KARVY, BAJAJ Capital, and Integrated Enterprises etc. These AMCs in turn, appoint their agents to sell the MF to AMCs products. Agents advise the customer on the kind of product that caters to the needs of the client. To unload their work, the companies bear a huge market expense in the form of higher commission to lure investors. To control increasing operational costs, AMCs are opting for the service s of large distributors to sell their products by leveraging their value chain, which comprises of a brokers, sub brokers and agents. However mutual fund players have to bear splurging marketing expenses to push their product against others. In addition mutual fund AMCs are also using banks and Non –Banking Financial AMCs (NBFC) as distribution channels to leverage their reach and huge client base. UTI is distributing its offerings through selected branches of Indian Bank, Corporation Bank, Bank of India an Allahabad Bank, besides, they are also appointing sales personnel to meet investors, educate them and sell their products. The contribution of direct marketing to the total sales is miniscule, but the cost burden is huge. The post office is also used as a channel of Distribution by mutual funds AMCs, given the fact that the post office has the largest network then many other institution or bank in the country. As far as retail penetration is concerned, the post office plays a vital role because its offices are distributed through the country. Mutual fund industry is also using the internet to distribute their products because of the cost advantages and increased communication. However, the fact is that internet has its limits in providing customized advice to individuals; restrict its use on large scale.
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Challenges in Distribution Lack of awareness Risk aversion Extensive availability of the central govt. assured return Delay (in Liquidity) Tardy inter-city payment system Transaction cost of establishing contact centers It has been a big challenge for the Mutual Fund Industry. As most of the investors are still not aware how it functions. They sometime feel that it is a costly affair. Educating investors about the advantages of investing in mutual funds compared to risk-free savings instrument is a big task for the industry. According to the Securities Market Infrastructure- Leveraging Expert (SMILE), the transaction cost of establishing contact centers, delay in fund transfer and tardy inter-city payment system are the major impediments. So enhancing the reach through the existing distribution model will require more investments. As of now, mutual fund investments are confined to the metros, tier 1 and 2 cities (about 50 cities). A major reason for this is high cost of developing retail infrastructure. So, scaling up the operation by increasing investment in other cities doesn’t seem feasible. There is also a regulatory entanglement in fund realization. Allotment of units Net Asset Value (NAVs) is done before realization of funds, except in liquid and money market schemes. Such delay is quite pervasive in smaller towns, where it can be 3-5 days or more. Such hassle could prevent investors from investing in mutual funds. However, these problems are being resolved with appointment of registrars to meet the time-lines of recording the transactions. In addition, technological advancements of remittance 36 | P a g e
instruments such as Electronic clearing Services (ECS), Electronic Funds Transfer (FT) and Real- Time Gross settlement System (RTGS), is a making the process fast and reducing delay in fund transfer across cities. The extensive availability of the central govt. assured return on small products are restricting the competition as well as penetration of wide variety of mutual fund products, particularly in the smaller towns where investors are not willing to take risk. This poses a great challenge for the industry to realize its potential.
Curbing unethical practices The industry faces challenge to control certain practices. AMCs are wooing the distributors by offering more commission to push their products. In the hope of getting more incentives, distributors may opt for unfair practices like false projections to sell unsuitable products, motivate the investors to shift from one fund to another, namely high net worth investors and persuade them to over invest. However, the client’s concern and his needs should be of prime importance while selling. To curb such unethical practices, the Association of Mutual Funds in India (AMFI) has prescribed that agents/distributors must have AMFI certification. And to control the huge market expenses the authority has prescribed that the commission rates also shouldn’t be more than mutual fund’s expense limit of 2.5% for equity and 2.25 % for debt. Such regulations are required to be more effective to stop such unethical practices.
Spreading the Mutual Fund Culture Though the Indian Mutual Fund industry has a huge potential, it is yet to be realized. To realize its growth potential, industry will have to focus on its reach in the retail segment. According to Chairman of AMFI there are about 180 million households in India, of which just 11.8 millions invest in mutual funds, making it penetration of 6.7% in the urban areas 13.7% of the 37 | P a g e
households invest in mutual funds; in rural areas this percentage is just 3.8%. So there is a need to focus on rural penetration for future growth. To achieve its growth, educating the customer about the mutual funds as a saving vehicle will be critical. More efforts are required from the regulators and the industry to manage the wealth of individuals to further propel the growth of the industry by popularizing the use of mutual funds. The govt. should properly regulate and monitor the regulation so that a favorable climate can be created. Regulations should be tightened to curb unethical practices. They should also develop a comprehensive risk management system so that it can induce more investment. The industry should focus on product innovation and maintain transparency, flexibility, service and innovation to realize its potential.
Offer Document When an AMC or a Fund Sponsor wishes to launch a new mutual fund scheme, they are required to formulate the details of the schemes and register it with SEBI before announcing the scheme and inviting the investors to subscribe to the fund. Launch of a new mutual fund scheme is called a New Fund Offer (NFO). The document containing the details of the new fund offer that the AMC or the Sponsor prepares and circulates to the prospective investors is called the Offer Document. Offer Document issued by mutual funds serve the same purpose of inviting investors and giving them the information about the new fund offer. The offer document of the closed-end fund is issued only once at the time of issue, as the units are normally not re-purchasable for investors. But, the open-end fund could issue and repurchase units on an ongoing basis. This means that the offer document of the open-end funds is valid for all the time, until amended, though it will be first issued at the time of launch of the scheme. SEBI requires the offer document of the open-end fund to be revised every two years.
Options Offered to Investors: 38 | P a g e
Dividend Option: The investor can choose to receive a part of the profits of the mutual fund at some intervals before their redemption. This option is Dividend Option. Investors who choose dividend option can again have 2 sub options: • Dividend Payout Option: Investors who choose the dividend payout option on their investments will receive dividends as and when such dividends are declared by the scheme. Dividends are paid out to the investors in the form of warrants or are directly credited to the investor’s bank account.
• Dividend Re-investment Option: Investors who opt for the dividend reinvestment option do not take the amount of dividend out of the scheme. They re-invest the dividends that are declared by the mutual funds back into the mutual funds itself, at a NAV that is prevalent immediately after the declaration of dividend or the NAV at the time of re-investment. This NAV is known as ex-div NAV. Growth Option: The investors who do not want to receive any part of profits of the mutual fund before its redemption. Rather they want to retain the profits made in the pool and want their returns to grow by being compounded. Whenever they need to get some money or profits back, they would sell a part of their units. This is Growth Option.
Investor Earning Opportunities: Dividend Payout Dividend Change in NAV
Yes Yes
Dividend Reinvestment
Growth Option
Yes Yes
No Yes
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Lock-in Period Options: Mutual funds usually do not have lock-in periods, during which investors cannot exit the fund. Mutual funds may create products with lock-in periods. Repurchase information can be found in the offer document. There are 2 normal situations when investors are restricted from exiting the fund: An open-ended fund may announce an initial offer period, during which time it will only sell units. There may be no repurchase during that period. The fund will announce a date from which further sales and repurchases will take place. Some specific funds scheme can be designed to have a minimum period of investment. Example: Investments in special “Equity Linked Savings Scheme” are eligible for tax rebates. In order to enjoy the tax rebate, the investor is required to stay invested for a period of 3 years.
In extra-ordinary situations, mutual funds can, with notice to the investors through a national daily, impose temporary lock-in periods. Investors have to check the offer document to see if the mutual fund has sought such a right for itself. Regulations regarding Cutoff Timings: All funds except liquid funds • Purchases: In respect of valid applications received upto 3 p.m. by the Mutual Fund, same day’s closing NAV shall be applicable. In respect of valid applications received after 3 p.m. by the Mutual Fund, the closing NAV of the next business day shall be applicable.
• Redemption: 40 | P a g e
In respect of valid applications received upto 3 p.m. by the Mutual Fund, same day’s closing NAV shall be applicable. In respect of valid applications received after 3 p.m. by the Mutual Fund, the closing NAV of the next business day shall be applicable.
Liquid funds • Purchases: In respect of valid applications, closing NAV of the day immediately before the day on which funds are available for utilization by the fund shall be applicable. However, in respect of any application received after 1 p.m. by the Mutual Fund and the funds are available for utilization by the fund on the same day, closing NAV of the same day shall be applied.
• Redemption In respect of valid applications received upto 10:00 a.m. by the Mutual Fund, previous day’s closing NAV shall be applicable. In respect of valid applications received after 10:00 a.m.by the Mutual Fund, same day’s NAV shall be applicable.
Net Asset Value Net Asset Value (NAV) represents a fund's per share market value. This is the price at which investors buy (bid price) fund shares from a fund company and sell them (redemption price) to a fund company. Dividing the total value of all the cash and securities in a fund’s portfolio, less any liabilities, by the number of shares outstanding, derives it. The 41 | P a g e
NAV computation is undertaken once at the end of each trading day based on the closing market prices of the portfolio's securities. NAV: Net Assets of the Scheme/ Number of Units Outstanding Or (Market Value of Investment + Receivables + Other Accrued Income + Other Assets – Accrued Expenses – Other Payables – Other Liabilities)/Number of Units Outstanding on the Valuation Date For the purpose of NAV calculation, the day on which NAV is calculated by a fund is known as the Valuation Date. NAV of all schemes must be calculated and published at least every Wednesday for Closed-end schemes and daily for Open-end schemes. The day’s NAV must be posted on AMFI website by 8:00 p.m. that day. This applies to both Open-end & Closed-end schemes. The fund’s NAV is affected by these 4 factors: • Purchase & Sale of investment securities • Valuation of all investment securities held • Other assets & liabilities • Units sold or redeemed
Pricing Of Units Although NAV per unit defines the fair value of the investor’s holding in the fund, the fund may not repurchase the investor’s units at the same price as NAV. There can be entry or exit loads. The Sale price is NAV + Entry Load and the Repurchase price is NAV – Exit Load. SEBI requires that fund must ensure that repurchase price is not lower than 93% of NAV (95% in the case of a closed-end fund). On the other side, the fund may sell new units at a price that is different from the NAV, but the sale price cannot be higher than 107% of NAV. Also, the difference between the repurchase price and the sale price of the unit is not permitted to exceed 7% of the sale price. Sale Price: Applicable NAV * (1 + Entry Load) 42 | P a g e
Repurchase Price: Applicable NAV * (1 – Exit Load) Fees & Expenses: An AMC may charge the scheme with Investment Management & Advisory Fees that are fully disclosed in the offer document subject to the following limits: 1.25% of the first Rs.100 Crores of weekly average net assets outstanding in the accounting year, and @ 1% of weekly average net assets in excess of Rs.100 Crores. For no load schemes, the AMC may charge an additional management fee up to 1% of weekly average net assets outstanding in the accounting year.
Initial Issue Expenses Initial Issue Expenses will be permitted for Closed Ended Scheme only and such scheme will not charge entry load. Initial Issue Expenses of launching schemes (not to exceed 6% of initial resources raised under the scheme)
Total Expenses: Total Expenses charged by the AMC to a scheme, excluding issue or redemption expenses but including investment management & advisory fees, are subject to the following limits: On the first Rs.100 Crores of daily or average weekly net assets On the next Rs.300 Crores of daily or average weekly net assets On the next Rs.300 Crores of daily or average weekly net assets On the balance of daily or average weekly net assets
2.5% 2.25% 2.0% 1.75%
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For Bond Funds: On the first Rs.100 Crores of daily or average weekly net assets On the next Rs.300 Crores of daily or average weekly net assets On the next Rs.300 Crores of daily or average weekly net assets On the balance of daily or average weekly net assets
2.25% 2.0% 1.75% 1.5%
Investment Plans The term “investment plans” generally refers to the portfolio flexibility that the funds to investors offering different ways to invest or reinvest. The different investment plans are an important consideration in the investment decision, because they determine the level of flexibility available to the investor. Also, the investment plan offered by a fund allows the investors freedom with respect to investing one time or at regular intervals, making transfers to different schemes within the same fund family, or receiving income at specified intervals or accumulating distributions. These are some of the investment plans offered by mutual funds in India: 44 | P a g e
• Automatic Reinvestment Plans (ARP): Many funds offer 2 options under the same scheme- the Dividend Option & the Growth Option. The ARP allows the investor to reinvest the amount of dividends or other distributions made by the fund in the same fund & receive additional units, instead of receiving them in cash. • Systematic Investment Plan (SIP): These require the investor to invest a fixed sum periodically, thereby letting the investor save in a disciplined and phased manner. The mode of investment could be though direct debit to the investor’s salary or bank account. A modified version of SIP is the Voluntary Accumulation Plan (VAP) that allows the investor flexibility with respect to the amount and frequency of investment. • Systematic Withdrawal Plan (SWP): Such plans allows the investor to make systematic withdrawals from his fund investment account on a periodic basis, thereby providing the same benefit as regular income. The investor must withdraw a specific minimum amount with the facility to have withdrawal amounts sent to his residence by a cheque or credited directly into the bank account. The amount withdrawn is treated as redemption of units at the applicable NAV as specified in the offer document. The investor is usually required to maintain a minimum balance in his fund account under this plan. • Systematic Transfer Plan (STP): These plans allow the investor to transfer on a periodic basis a specified amount from one scheme to another with the same fund family- meaning two schemes managed by the same AMC and belonging to the same mutual fund. A transfer will be treated as redemption of units from the scheme from which the transfer is made, and as investment in units of the scheme into which the transfer is made. Such redemption or investment will be at the 45 | P a g e
applicable NAV for the respective schemes as specified in the offer document. The investor is usually required to maintain a minimum balance in his fund account under this plan for which the transfer is made.
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Tax Provisions Income earned by any mutual fund registered with SEBI (Mutual Fund) Regulation, 1996 is fully exempt from tax under section 10 (23D) of the IT act. However, income distributed to unit-holders by a closed-end or debt fund is liable to a dividend distribution tax at a rate stipulated by the Government. This tax is not applicable to distributions made by open-end-equity-oriented funds (funds with more than 50% of their portfolio in Equity). Dividend Distribution Tax is payable by the fund on its distributions and out of its income, the investor pays indirectly since the fund’s NAV and the value his investment will come down by the amount of tax paid by the fund. Example: If a closed-end or a debt fund declares a dividend distribution of Rs.100, Rs.10.20 (Tax Rate 10.2%) will be the tax in the hands of the fund. While the investor will get Rs.100, the fund will have Rs.10.20 less to invest. The fund’s current cash flow diminish by Rs.10.20 paid as tax, and its impact will be reflected in the lower value of the fund’s NAV and hence investor’s investment on a compound basis in future periods. Since the tax is on distributions, it makes income schemes less attractive in comparison to growth schemes, as the objective of income schemes is to pay regular dividends. The fund cannot avoid the tax even if the investor chooses to reinvest the distribution back into the fund. Example: The fund will still pay Rs.10.20 tax on the announced distribution, even if the investor chooses to reinvest his dividends in the concerned scheme.
Tax Benefits to the Investor Dividends Received from Mutual Funds: • Income distributed by a fund is exempted in the hands of investors 47 | P a g e
What is risk? Risk can be defined as the potential for harm. But when anyone analyzing mutual funds uses this term, what is actually being talked about is volatility. Volatility is nothing but the fluctuation of the Net Asset Value (price of a unit of a fund). If there is high volatility, then there will be greater fluctuations in NAV. Generally, past volatility is taken as an indicator of future risk and for the task of evaluating a mutual fund, this is an adequate approximation. How risk is measured? There are 2 ways in which you can determine how risky a fund is. Standard Deviation Standard Deviation is a measure of how much the actual performance of a fund over a period of time deviates from the average performance. Since Standard Deviation is a measure of risk, a low Standard Deviation is good. Sharpe Ratio The Sharpe Ratio of a fund measures whether the returns that a fund delivered were commensurate with the kind of volatility it exhibited. This ratio looks at both, returns and risk, and delivers a single measure that is proportional to the risk adjusted returns. Since Sharpe Ratio is a measure of risk-adjusted returns, a high Sharpe Ratio is good.
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Important Points: Don't just look at the NAV, also look at the risks-returns
Kotak 30 has 3 stars & Kotak Opportunities has 4 stars. That does not mean that their NAV is approximately the same. In fact, the NAV of Kotak 30 is 90.22 & NAV of Kotak Opportunities is 40.48 However, Kotak 30 took a below average risk and delivered an above average return, while Kotak Opportunities took an average risk to get the high returns. So, don’t just look at the NAV also consider the risks-returns of the fund. Higher rating does not mean better returns A fund with more stars does not indicate a higher return when compared with the rest. All it means is that you will get a good return without putting your money at too much risk. ICICI Prudential Liquid Fund has a 4-star rating while ICICI Prudential Growth Fund has a 3-star rating. However, the fund with the 3-star rating has a higher NAV (109.08) than the one with the 4star rating (11.73). Higher rating does not mean more risk
HDFC Top 200 has an NAV of 140.47 while UTI Infrastructure has an NAV of 36.60 This does not necessarily mean that HDFC Top 200 is offering a higher risk since the return is higher. In fact, according to the ratings, HDFC Top 200, a 5-star fund has a low risk while UTI Infrastructure, a 5-star fund has an average risk.
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Recent Trends in the Mutual Fund Industry Funds betting on Natural Resources • Since Indian regulations do not permit mutual funds to invest directly in commodities, fund houses go for schemes that invest in stocks of mining companies. • At least five funds, keen on investing in natural resources, are set to hit the market, as per documents filed with the stock market regulator SEBI. There are two funds from ING and one each from Mirae Asset Management, Tata AMC and HSBC MF.
Systematic Transfer Plans lower Volatility Risk •
Systematic Transfer Plan (STP) helps in reaching the financial goals by investing a fixed sum in the chosen fund for a pre-determined number of installments. STP offers an investor the security of a liquid fund while trying to enhance returns by investing a part of the funds in equity. This helps mitigate any risk arising from volatility or improve the fund’s returns in a boom. Thus, an investor can match his risk appetite with that of the equity scheme.
• Most fund houses are already offering this STP facility to investors. In the first week of May, JP Morgan AMC launched Optimiser Systematic transfer plan, wherein investors can invest a lump sum in JP Morgan India Liquid Fund or JP Morgan India Liquid Plus Fund through STP. An amount predetermined by the investor would be transferred periodically (daily, weekly, monthly or quarterly) from this fund to any of the existing equity schemes managed by JP Morgan Mutual Fund. • STP is definitely going to gain ground as aspirations, possibilities and opportunities increase among the youth. However, fund managers 50 | P a g e
feel, STP is yet to be promoted in India to its full extent. Investors need to be adequately informed about it.
Mutual Fund industry to tap Entertainment space • To cash the bullish growth of the entertainment & media industry in the country financial institutions are rolling out a slew of mutual funds focusing on these spaces. • Many of the funds will cover a wide range of areas within the entertainment arena such as retail, shopping malls, mobile content providers, lifestyle beyond the conventional media like television, film, print advertising and multiplex. • Global media giants like Viacom, Walt Disney, BBC, J C Decaux and Astro are already in the country or looking at it. The industry has already witnessed deals such as Walt Disney-UTV, BlackstoneEenadu and Adlabs-ADAG (Anil Dhirubhai Ambani Group).
Brand name works for Mutual Funds •
A brand image is very important for mutual funds and investors base their decisions on known and dependable brands. Brand-building exercises are mostly taken up by foreign players and big industrial houses which have deep pockets, while fund houses with lower corpus can only attract investors by showing good performance.
• Fund mobilisation trend in mutual funds space suggests that brand play an important role in helping fund houses attract investors initially although in the long term it boils down to the performance of the schemes. 51 | P a g e
• Country's MF industry holds immense potential for the existing as well as the new players entering or those envisaging an entry into the space, but firms with a strong brand presence definitely has a competitive advantage.
Mutual Fund Industry’s AUM advances by 7.33% in April
• The asset base of the industry has grown by 7.33% to Rs. 567601.98 Crores. • Compared to the last month, April has been great for the mutual fund industry as 28 AMCs out of 34 posted positive growth in their AAUM. Reliance Mutual Fund has topped the chart with an AAUM of Rs 96,386.40 Crores. ICICI Prudential MF and UTI MF continue to be at the second and third position respectively.
Reliance MF offers life insurance cover through SIP investment
• Reliance MF has introduced a scheme to encourage investors to save and invest regularly through Systematic Investment Plan (SIP), to ensure that investors achieve their financial objective even in the unfortunate event of death before completing the SIP tenure as the balance amount towards the SIP installments remaining unpaid shall be made good from the life insurance cover. • The nominee would be able to continue investing in the scheme without having to make any further contribution. The cost of life insurance premium will be borne by the AMC.
Kotak Mahindra Mutual Fund launches Sensex ETF
• Kotak Mahindra Asset Management Company has announced the launch of an exchange traded fund which will focus on the stocks that comprise the BSE SENSEX. 52 | P a g e
• Kotak Mahindra Asset Management Company has announced the launch of an exchange traded fund which will focus on the stocks that comprise the BSE SENSEX. • The fund is open for subscription from May 07, 2008 till May 16, 2008. The units will be listed on BSE to provide liquidity through secondary market. Each unit of the Kotak Sensex ETF will be approximately equal to 1/100th of the value of BSE SENSEX. The minimum investment amount during the New Fund Offer is Rs 10,000 and in multiples of Rs 1,000.
Reliance Mutual Fund achieves a milestone Reliance Mutual Fund, owned by Anil Ambani controlled Reliance Capital, has achieved the coveted milestone by notching up Rs 1 trillion of assets under its management this April.
•
• Reliance Mutual Fund is the first mutual fund in India to cross this mark. On April 30, the total Assets Under Management (AUM) of the fund was Rs 100812 Crores, including Rs 34000 Crores in equity schemes and Rs 66800 Crores in debt funds.
ICICI Prudential AMC Step towards Transparency
• ICICI Prudential AMC has taken a pioneering step towards transparency and investors right to information. The company has disclosed the complete details on the securitizations and pass through certificates across all its fixed income funds on a consolidated basis in its April’ 08 Fact sheet. • The fact sheet will provide details of obligators, underlying asset class, rating etc on a consolidated basis across the entire fixed income portfolio which will play a key role in aiding investors gain complete insight of their investment and evaluate the credit quality of their portfolio. 53 | P a g e
Impact on Mutual Fund Industry of the Union Budget Easing in Income Tax slabs • Threshold limit of Income Tax exemption for individuals rose as follows Up to Rs.150,000 - NIL Rs.150,001 to Rs.300,000 - 10% Rs.300,001 to Rs.500,000 - 20% Rs.500,001 and above - 30% Impact • This is expected to increase the disposable income in the hands of the individuals to some extent which could translate into increased retail investments in mutual funds. 54 | P a g e
Increase in Short Term Capital Gain Tax • Short Term Capital Gains Tax rose from 10% to 15% Impact • Since long term capital gains tax has been left unchanged, this hike in short term capital gains tax could encourage long-term investments which augur well to the development of the concept of “long term” in the Indian Mutual Fund industry, which is conspicuous by its absence but which is coveted by the fund industry given the greater flexibility that this provides in fund’s management. • At the same time since the short term capital gains tax is still lower than the income tax slabs of typical capital market investors, it is not expected to cause too many investors to turn away from mutual funds.
Incentives for equities should be continued and the status quo on longterm capital gain tax and STT should be maintained.
Section 80 C deduction for tax saving should be raised from the current limit of Rs 1 lakh and Equity Linked Saving Schemes from mutual funds should be given the benefit of the same.
Know your Customer (KYC) Compliance for Mutual Funds • KYC is an acronym for “Know your Client”, a term commonly used for Client Identification Process. SEBI has prescribed certain requirements relating to KYC norms for Financial Institutions and Financial Intermediaries including Mutual Funds to ‘know’ their clients. This would be in the form of verification of identity and 55 | P a g e
address, financial status, occupation and such other personal information. Applicant must be KYC compliant while investing with any SEBI registered Mutual Fund. • The provisions of The Prevention of Money Laundering Act, 2002 (PMLA), has made it mandatory for all Mutual Funds to comply with the ‘Know Your Client’ (KYC) norms of the applicants desirous of subscribing to their ‘units’. In this regard, it has been mandated to create the necessary infrastructure in order to handle the KYC on behalf of the Mutual Fund Industry. • As a result, all applicants will now have to submit their PAN card copy (which serves as Proof of Identity (PoI)) and Proof of Address (PoA) only once to the designated Point of Service (PoS) centers spread across the country. After confirming the credentials of the investor, the PoS issues KYC acknowledgement letter that needs to be submitted along with the mutual fund investments.
Norms for dedicated infrastructure funds should be finalized regarding which announcement was made in last Union Budget.
Existing open-ended equity schemes of mutual fund industry should be included for the purpose of tax savings wherein a lock-in period of three years can be introduced in separate plan of same schemes. Dividend distribution taxes on Money Market Mutual Funds which was increased last year should be brought back to earlier levels.
Service Taxes realigned for ULIP’s • Asset management services provided under Unit Linked Insurance Plans (ULIPs) would be brought on par with asset management 56 | P a g e
services provided under mutual funds as regards chargeability to service tax. • Services provided by stock/commodity exchanges and clearing houses would also be brought under the service tax net. Impact • The competitiveness of mutual funds vis-à-vis ULIPs in the investment basket of investors is expected to increase somewhat. • Transactional expense levels of mutual funds are expected to go up marginally on account of their exposure to stock and commodity exchange which are expected to pass on the service tax. But clarity on what would define services here and on what amount the service tax would be levied is awaited.
FUND ANALYSIS (On the basis of NAV) Fund
Category
Rating
3 Year
DSPML T.I.G.E.R. Reg
Equity: Diversified
Return 45.64
Tata Infrastructure
Equity: Diversified
45.31
57 | P a g e
Magnum Contra
Equity: Diversified
44.80
Kotak Opportunities
Equity: Diversified
43.72
UTI Infrastructure
Equity: Diversified
43.18
Magnum Multiplier Plus
Equity: Diversified
43.05
Reliance Growth
Equity: Diversified
42.00
Sundaram BNP Paribas Select Midcap Reg HDFC Top 200
Equity: Diversified
41.06
Equity: Diversified
39.65
BoB Growth
Equity: Diversified
38.55
Principal Child Benefit
Hybrid: Equity-oriented
36.93
Magnum Balanced
Hybrid: Equity-oriented
31.37
HDFC Prudence
Hybrid: Equity-oriented
29.27
Birla Sun Life Income
Debt: Medium-term
8.37
ICICI Prudential Long-...
Debt: Medium-term
7.54
Kotak Flexi Debt
Debt: Medium-term
7.47
Sundaram BNP Paribas S...
Equity: Diversified
44.86
DWS Investment Opportunity
Equity: Diversified
44.10
DSPML Equity Fund
Equity: Diversified
43.39
ICICI Prudential Dynamic
Equity: Diversified
42.69
Kotak 30
Equity: Diversified
42.68
DSPML Top 100 Equity Reg
Equity: Diversified
42.55
Magnum Equity
Equity: Diversified
42.23
Source: http://amfiindia.com (on 8th May, 2008) Funds which have been compared are: Kotak Category Equity Fund Scheme Debt Fund Scheme ELSS Tax Saver
Fund Kotak 30 – Growth Kotak Bond Short Term Kotak Tax Saver Scheme – Growth 58 | P a g e
Monthly Income Plan Cash Fund
Kotak Income Plus Kotak Liquid Instrument
HDFC Category Equity Fund Scheme Debt Fund Scheme ELSS Tax Saver Monthly Income Plan Cash Fund
Fund HDFC Equity Fund- Growth HDFC HI Short Term HDFC Tax Saver Scheme- Growth HDFC MIP- Short Term HDFC Liquid
UTI Category Equity Fund Scheme Debt Fund Scheme ELSS Tax Saver Monthly Income Plan Cash Fund
Fund UTI Equity Fund- Growth UTI Short Term Income Regular UTI ETSP- Growth UTI- MIS UTI Liquid Cash Instrument
ICICI Category Equity Fund Scheme Debt Fund Scheme ELSS Tax Saver
Fund ICICI Prudential Dynamic Plan- Growth ICICI Prudential Short Term ICICI Prudential Tax Plan 59 | P a g e
Monthly Income Plan Cash Fund
ICICI Prudential MIP ICICI Prudential Liquid
Reliance Category Equity Fund Scheme Debt Fund Scheme ELSS Tax Saver Monthly Income Plan Cash Fund
Fund Reliance Growth Reliance Short Term Reliance Tax Saver Reliance MIP Reliance Liquid Cash
60 | P a g e
Equity Fund Scheme 1. Kotak 30- Growth 2. HDFC Equity Fund- Growth 3. UTI Equity Fund- Growth 4. ICICI Prudential Dynamic Plan- Growth 5. Reliance Growth Standard Sharpe Deviation Ratio
Treynor Ratio
Beta
R Square Alpha
Kotak
25.48
1.39
3.09
.96
.88
4.98
HDFC
23.61
1.34
2.65
.91
.92
2.75
UTI
23.06
1.06
2.13
.88
.89
-3.28
ICICI
25.10
1.43
1.95
.87
.77
7.78
Reliance
27.93
1.29
2.97
.98
.76
4.74
Note: The data is collected on 8th May, 2008
Findings Standard Deviation Kotak 4 HDFC 2 UTI 1 ICICI 3 Reliance 5
Sharpe Ratio 2 3 5 1 4
Treynor Ratio 1 3 4 5 2
Beta 4 3 2 1 5
R Square 3 1 2 4 5
Alpha
Total
2 4 5 1 3
16 16 19 15 24
Analysis
61 | P a g e
The analysis suggests that in case of standard deviation which is desired to be low so that the fund can perform better, UTI stands out with rank 1 (23.06) & following UTI is HDFC (23.61) which suggest that these funds are stable in their returns . As the desired level of Beta is low so that the fund return is stable but this is contradiction statement because beta shows the volatility of the stock or fund lower beta means that funds returns are stable but in today’s competitive world there is a quote “Higher the risk higher the return” if we go by this we need to have a high value of beta. this also depends upon the risk appetitive of the investor if he is aggressive investor he would want his fund beta to be high but the case is entirely different in case of risk averse investor but as these funds are managed by professionals so we would be giving 1st rank to that fund which has lowest beta value . In this case also ICICI Prudential Dynamic Plan has lowest beta (.87) among these funds which is followed by UTI Equity Fund- Growth (.88). But beta of 1 is preferable because of the returns it is considered safe for the value of 1 in this analysis almost most of the funds have beta of less than 1 which means that these funds are managed in keeping the people risk at a manageable level, which help investors to earn safe returns. As we have to do the analysis we have to take one stand so in this case, according to me 1 st rank should be given to that beta value which is lowest. If two funds have same beta value then R-square value is used with the beta which show how reliable the beta number is higher R-square value is preferred. Also, one of the important advantages of the mutual fund is that the investor can enjoy the benefits of diversification of portfolio. Further, well diversified portfolio diversifies the risk of the portfolio. Diversification can be measured with the help of coefficient of diversification (R Square). So, higher R Square means a well diversified portfolio. So, HDFC Equity Growth fund has the maximum R Square (.92) followed by UTI Equity Growth fund (.89).
62 | P a g e
But the analysis can’t be done on these three parameters. Standard deviation measures total risk and this is the case with a single portfolio so we have also considered ratios which are quite important for mutual funds analysis like Sharpe ratio & Treynor ratio. Sharpe ratio represents this trade-off between risk and returns. A higher Sharpe ratio is therefore better as it represents a higher return generated per unit of risk. Sharpe ratio provides an unbiased look into fund's performance. This is because they are based solely on quantitative measures. Both the Treynor Ratio and the Sharpe Ratio provide measures for ranking the relative performance of various portfolios, on a risk-adjusted basis. So, in these two ratios higher value is preferred for the fund selection. In the case of Sharpe ratio ICICI Prudential Growth fund (1.43) stands out clear with 1st rank, followed by Kotak 30 Growth fund (1.39). In case of Treynor ratio, Kotak 30 Growth fund (3.09) value is higher so it has been given the 1st rank among the others which is followed by Reliance Equity fund (2.97). Alpha indicates the superior performance of the fund. If the alpha is positive the fund has performed better and if the alpha is negative the fund has not performed upto the benchmark. When Alpha is considered, ICICI Prudential Dynamic Growth Plan (7.78) is the best followed by Kotak-30 Growth fund (4.98). Thus, ICICI Prudential Dynamic Growth Plan is the best Equity fund for the investor for investment purpose. It is the best fund as far as Alpha, Beta & Sharpe ratio is concerned. Though R Square is not so convincing which means that the fund is not so diversified. It stands at 3 rd position in Standard Deviation after UTI Equity Growth fund & HDFC Equity Growth fund and last when Treynor ratio is considered. But when we combine all the 6 parameters which are considered to measure the performance of a Mutual Fund, ICICI Prudential Dynamic Growth Plan is the best Equity Fund when compared with rest of the Equity funds. 63 | P a g e
Debt Fund Scheme 1. Kotak Bond Short Term 2. HDFC HI Short Term 3. UTI Short Term Income Regular 4. ICICI Prudential Short Term 5. Reliance Short Term Standard Sharpe Treynor Deviation Ratio Ratio Kotak .59 5.30 3.42 HDFC .52 7.10 3.11 UTI .66 2.53 2.87 ICICI .85 3.01 2.56 Reliance .54 6.55 2.98 th Note: The data is collected on 8 May, 2008
Beta .48 .42 .51 .62 .46
R Square .55 .54 .49 .44 .59
Alpha 2.27 2.95 .77 1.45 2.72
Findings Standard Deviation Kotak 3 HDFC 1 UTI 4 ICICI 5 Reliance 2
Sharpe Ratio 3 1 5 4 2
Treynor Ratio 1 2 4 5 3
Beta 3 1 4 5 2
R Square 2 3 4 5 1
Alpha
Total
3 1 5 4 2
15 9 26 28 12
Analysis The analysis suggests that in case of standard deviation which is desired to be low so that the fund can perform better, HDFC HI Short Term stands out with rank 1 (.52) & following HDFC HI is Reliance Short Term fund (.54) 64 | P a g e
which suggest that these funds are stable in their returns & also are less risky. As the desired level of Beta is low so that the fund return is stable but this is contradiction statement because beta shows the volatility of the stock or fund lower beta means that funds returns are stable but in today’s competitive world there is a quote “Higher the risk higher the return” if we go by this we need to have a high value of beta. this also depends upon the risk appetitive of the investor if he is aggressive investor he would want his fund beta to be high but the case is entirely different in case of risk averse investor but as these funds are managed by professionals so we would be giving 1st rank to that fund which has lowest beta value . In this case also HDFC HI Short Term has lowest beta (.42) among these funds which is followed by Reliance Short Term fund (.46). But beta of 1 is preferable because of the returns it is considered safe for the value of 1 in this analysis almost most of the funds have beta of less than 1 which means that these funds are managed in keeping the people risk at a manageable level, which help investors to earn safe returns. As we have to do the analysis we have to take one stand so in this case, according to me 1 st rank should be given to that beta value which is lowest. If two funds have same beta value then R-square value is used with the beta which show how reliable the beta number is higher R-square value is preferred. Also, one of the important advantages of the mutual fund is that the investor can enjoy the benefits of diversification of portfolio. Further, well diversified portfolio diversifies the risk of the portfolio. Diversification can be measured with the help of coefficient of diversification (R Square). So, higher R Square means a well diversified portfolio. So, Reliance Short Term fund has the maximum R Square (.59) followed by Kotak Bond Short Term (.55). HDFC HI Short term fund is on the 3rd place (.54). But the analysis can’t be done on these three parameters. Standard deviation measures total risk and this is the case with a single portfolio so we have 65 | P a g e
also considered ratios which are quite important for mutual funds analysis like Sharpe ratio & Treynor ratio. Sharpe ratio represents this trade-off between risk and returns. A higher Sharpe ratio is therefore better as it represents a higher return generated per unit of risk. Sharpe ratio provides an unbiased look into fund's performance. This is because they are based solely on quantitative measures. Both the Treynor Ratio and the Sharpe Ratio provide measures for ranking the relative performance of various portfolios, on a risk-adjusted basis. So, in these two ratios higher value is preferred for the fund selection. In the case of Sharpe ratio HDFC HI Short Term fund (7.10) stands out clear with 1st rank, followed by Reliance Short Term fund (6.55). In case of Treynor ratio, Kotak Bond Short Term fund (3.42) value is higher so it has been given the 1st rank among the others which is followed by HDFC HI Short Term fund (3.11). Alpha indicates the superior performance of the fund. If the alpha is positive the fund has performed better and if the alpha is negative the fund has not performed upto the benchmark. When Alpha is considered, HDFC HI Short Term fund (2.95) is the best followed by Reliance Short Term fund (2.72). Thus, HDFC HI Short Term fund is the best Debt fund when compared with the other funds of Kotak, ICICI, UTI & Reliance. It has the smallest Standard Deviation & also the smallest Beta when compared with all the funds. This shows the fund is less risky and will give good returns to its investors. When taken R Square into consideration, this fund stands at the 3 rd position after Kotak Bond Short Term & Reliance Short Term. This shows that the fund is less diversified. The fund is the best performer as far as Sharpe ratio is concerned and is the 2nd best when Treynor ratio is considered. The fund is a good performer as it has the highest Alpha. So, if a 66 | P a g e
person wants to invest in Debt for a short term then he can go in for HDFC HI Short Term fund.
ELSS Tax Saver Fund 1. Kotak Tax Saver Scheme- Growth 2. HDFC Tax Saver Scheme- Growth 3. UTI ETSP- Growth 4. ICICI Prudential Tax Plan 5. Reliance Tax Saver Standard Sharpe Deviation Ratio
Treynor Ratio
Beta
R Square
Alpha
Kotak
25.65
.76
1.41
.96
.78
-4.55
HDFC
25.22
1.05
1.93
.92
.84
-3.11
UTI
24.49
.91
1.94
.96
.86
-7.11
ICICI
29.02
.90
1.80
.94
.66
-4.04
Reliance
27.54
.86
1.62
1.03
.61
-5.32
Note: The data is collected on 8th May, 2008
Findings
Kotak HDFC UTI ICICI
Standard Deviation 3 2 1 5
Sharpe Ratio 5 1 2 3
Treynor Ratio 5 2 1 3
Beta
R Square Alpha
Total
3.5 1 3.5 2
3 2 1 4
22.5 9 13.5 19
3 1 5 2
67 | P a g e
Reliance
4
4
4
5
5
4
26
Analysis The analysis suggests that in case of standard deviation which is desired to be low so that the fund can perform better, UTI ETSP- Growth fund stands out with rank 1 (24.49) followed by HDFC Tax Saver Scheme- Growth fund (25.22) which suggest that these funds are stable in their returns & also are less risky. As the desired level of Beta is low so that the fund return is stable but this is contradiction statement because beta shows the volatility of the stock or fund lower beta means that funds returns are stable but in today’s competitive world there is a quote “Higher the risk higher the return” if we go by this we need to have a high value of beta. this also depends upon the risk appetitive of the investor if he is aggressive investor he would want his fund beta to be high but the case is entirely different in case of risk averse investor but as these funds are managed by professionals so we would be giving 1st rank to that fund which has lowest beta value . In this case also HDFC Tax Saver Scheme Fund has lowest beta (.92) among these funds which is followed by ICICI Prudential Tax Plan (.94). But beta of 1 is preferable because of the returns it is considered safe for the value of 1 in this analysis almost most of the funds have beta of less than 1 which means that these funds are managed in keeping the people risk at a manageable level, which help investors to earn safe returns and in this case beta is approximately equal to 1. As we have to do the analysis we have to take one stand so in this case, according to me 1 st rank should be given to that beta value which is lowest. If two funds have same beta value then R-square value is used with the beta which show how reliable the beta number is higher R-square value is preferred. Also, one of the important advantages of the mutual fund is that the investor can enjoy the benefits of diversification of portfolio. Further, well
68 | P a g e
diversified portfolio diversifies the risk of the portfolio. Diversification can be measured with the help of coefficient of diversification (R Square). So, higher R Square means a well diversified portfolio. So, UTI ETSPGrowth fund has the maximum R Square (.86) followed by HDFC Tax Saver Scheme- Growth Fund (.84) But the analysis can’t be done on these three parameters. Standard deviation measures total risk and this is the case with a single portfolio so we have also considered ratios which are quite important for mutual funds analysis like Sharpe ratio & Treynor ratio. Sharpe ratio represents this trade-off between risk and returns. A higher Sharpe ratio is therefore better as it represents a higher return generated per unit of risk. Sharpe ratio provides an unbiased look into fund's performance. This is because they are based solely on quantitative measures. Both the Treynor Ratio and the Sharpe Ratio provide measures for ranking the relative performance of various portfolios, on a risk-adjusted basis. So, in these two ratios higher value is preferred for the fund selection. In case of Sharpe Ratio, an HDFC Tax Saver Scheme- Growth fund (1.05) stand out clear with 1st rank, followed by UTI ETSP Growth fund (.91) & just next is ICICI Prudential Tax Plan (.90). In case of Treynor ratio, it is the just the opposite of Sharpe Ratio, UTI ETSP Growth fund (1.94) value is higher so it has been given the 1 st rank among the others which is followed by HDFC Tax Saver Scheme fund (1.93). Alpha indicates the superior performance of the fund. If the alpha is positive the fund has performed better and if the alpha is negative the fund has not performed upto the benchmark. When Alpha is considered, all the funds have a negative figure which means that all the funds are not performing good. But, when compared among these 5 funds HDFC Tax Saver Scheme (-3.11) is the best followed by ICICI Prudential Tax Plan (-4.04). 69 | P a g e
Thus, HDFC Tax Saver Scheme is the best Tax Saver Fund. It stands 2 nd in case of Standard Deviation after UTI ETSP Growth Fund and is the best fund when Beta is compared followed by ICICI Prudential Tax Plan. As far as R Square is considered it stands at 2 nd position after UTI ETSP Growth Fund. It is again the best when we consider the Sharpe Ratio. Though all the funds are showing a negative figure when alpha is compared but again it is the best as far as these 5 funds are compared. So, if we keep all the 6 parameters in mind the investor should be advised to invest in HDFC Tax Saver Scheme.
Monthly Income Plans (MIP) 1. Kotak Income Plus 2. HDFC MIP- Short Term 3. UTI- MIS 4. ICICI Prudential MIP 5. Reliance MIP
Kotak HDFC UTI ICICI
Standard Sharpe Deviation Ratio
Treynor Ratio
Beta
R Square Alpha
5.63 4.24 4.18 4.48 5.50
4.04 2.97 3.65 4.71 3.03
.20 .17 .22 .18 .15
.69 .81 .55 .71 .63
.28 -.07 .76 .47 -.25
Reliance Note: The data is collected on 8th May, 2008
2.70 1.67 2.34 3.13 2.02
Findings
Kotak
Standard Sharpe Treynor Beta Deviation Ratio Ratio
R Square
Alpha Total
5
3
2
3
2
4
19 70 | P a g e
HDFC UTI ICICI Reliance
2 1 3 4
4 1 2 5
5 3 1 4
2 5 3 1
1 5 2 4
5 3 1 4
19 18 12 22
Analysis The analysis suggests that in case of standard deviation which is desired to be low so that the fund can perform better, UTI stands out with rank 1 (4.18) & following UTI is HDFC (4.24) which suggest that these funds are stable in their returns. As the desired level of Beta is low so that the fund return is stable but this is contradiction statement because beta shows the volatility of the stock or fund lower beta means that funds returns are stable but in today’s competitive world there is a quote “Higher the risk higher the return” if we go by this we need to have a high value of beta. this also depends upon the risk appetitive of the investor if he is aggressive investor he would want his fund beta to be high but the case is entirely different in case of risk averse investor but as these funds are managed by professionals so we would be giving 1st rank to that fund which has lowest beta value . In this case also Reliance MIP has lowest beta (.87) among these funds which is followed by HDFC MIP- Short term (.88). But beta of 1 is preferable because of the returns it is considered safe for the value of 1 in this analysis almost most of the funds have beta of less than 1 which means that these funds are managed in keeping the people risk at a manageable level, which help investors to earn safe returns. As we have to do the analysis we have to take one stand so in this case, according to me 1st rank should be given to that beta value which is lowest. If two funds have same beta value then R-square value is used with the beta which show how reliable the beta number is higher R-square value is preferred.
71 | P a g e
Also, one of the important advantages of the mutual fund is that the investor can enjoy the benefits of diversification of portfolio. Further, well diversified portfolio diversifies the risk of the portfolio. Diversification can be measured with the help of coefficient of diversification (R Square). So, higher R Square means a well diversified portfolio. So, HDFC MIPshort Term fund has the maximum R Square (.81) followed by ICICI Prudential MIP fund (.71). But the analysis can’t be done on these two parameters. Standard deviation measures total risk and this is the case with a single portfolio so we have also considered ratios which are quite important for mutual funds analysis like Sharpe ratio & Treynor ratio. Sharpe ratio represents this trade-off between risk and returns. A higher Sharpe ratio is therefore better as it represents a higher return generated per unit of risk. Sharpe ratio provides an unbiased look into fund's performance. This is because they are based solely on quantitative measures. Both the Treynor Ratio and the Sharpe Ratio provide measures for ranking the relative performance of various portfolios, on a risk-adjusted basis. So, in these two ratios higher value is preferred for the fund selection. In the case of Sharpe ratio UTI MIP fund (.76) stands out clear with 1 st rank, followed by ICICI Prudential MIP fund (.47). HDFC MIP & Reliance MIP have negative Sharpe ratio. In case of Treynor ratio, ICICI Prudential MIP (4.71) value is higher so it has been given the 1st rank among the others which is followed by Kotak Income Plus fund (4.04). Alpha indicates the superior performance of the fund. If the alpha is positive the fund has performed better and if the alpha is negative the fund has not performed upto the benchmark. In case of Alpha ICICI MIP (3.13) is the best fund followed by Kotak Income Plus (2.70) & UTI MIS (2.34) in the third place. 72 | P a g e
ICICI Prudential MIP is recommended to the investors. ICICI is the 3 rd highest in standard deviation after UTI MIS fund and HDFC MIP fund. It is also 3rd as far as beta of the fund is considered after Reliance MIP & HDFC MIP- Short Term. It is 2nd best in Sharpe ratio after UTI MIS and it is the best in Treynor ratio followed by Kotak Income plus. ICICI Prudential MIP should be considered by the investors. Also ICICI Prudential MIP is the best fund when Alpha is considered. But, if the investor wants to take less risk then he can go in for HDFC MIP- Short Term fund as this fund is 2md best in both Standard Deviation & Beta. But, after considering all the 6 parameters ICICI Prudential MIP is the best fund.
Cash Funds 1. Kotak Liquid Instrument 2. HDFC Liquid 3. UTI Liquid Cash Instrument 4. ICICI Prudential Liquid 5. Reliance Liquid Cash
Kotak HDFC UTI ICICI
Standard Sharpe Deviation Ratio
Treynor Ratio
Beta
R Square Alpha
.12 .15 .15 .14 .38
169.89 154.23 152.66 157.78 121.79
.10 .13 .09 .15 .30
.20 .23 .10 .33 .17
17.20 16.91 16.40 15.91 1.44
Reliance Note: The data is collected on 8th May, 2008
1.84 2.24 1.98 1.98 .03
Findings Kotak
Standard Sharpe Treynor Beta Deviation Ratio Ratio
R Alpha Total Square
1
3
1
1
2
4
12 73 | P a g e
HDFC UTI ICICI Reliance
3.5 3.5 2 5
2 3 4 5
3 4 2 5
3 1 4 5
2 5 1 4
1 2.5 2.5 5
14.5 19 15.5 29
Analysis The analysis suggests that in case of standard deviation which is desired to be low so that the fund can perform better, Kotak Liquid Instrument stands out with rank 1 (.12) & ICICI Prudential Liquid (.14) which suggest that these funds are stable in their returns. HDFC Liquid & UTI Liquid Cash Instrument shares the 3rd position as they both have the same standard deviation. As the desired level of Beta is low so that the fund return is stable but this is contradiction statement because beta shows the volatility of the stock or fund lower beta means that funds returns are stable but in today’s competitive world there is a quote “Higher the risk higher the return” if we go by this we need to have a high value of beta. this also depends upon the risk appetitive of the investor if he is aggressive investor he would want his fund beta to be high but the case is entirely different in case of risk averse investor but as these funds are managed by professionals so we would be giving 1st rank to that fund which has lowest beta value . In this case also UTI Liquid Cash Instrument has lowest beta (.09) among these funds which is followed by Kotak Liquid Instrument (.10). But beta of 1 is preferable because of the returns it is considered safe for the value of 1 in this analysis almost most of the funds have beta of less than 1 which means that these funds are managed in keeping the people risk at a manageable level, which help investors to earn safe returns. But in this case, beta of all the funds is much below than 1. As we have to do the analysis we have to take one stand so in this case, according to me 1st rank should be given to that beta value which is lowest.
74 | P a g e
If two funds have same beta value then R-square value is used with the beta which show how reliable the beta number is higher R-square value is preferred. Also, one of the important advantages of the mutual fund is that the investor can enjoy the benefits of diversification of portfolio. Further, well diversified portfolio diversifies the risk of the portfolio. Diversification can be measured with the help of coefficient of diversification (R Square). So, higher R Square means a well diversified portfolio. So, ICICI Liquid Cash Instrument fund has the maximum R Square (.33) followed by HDFC Liquid fund (.23). But the analysis can’t be done on these two parameters. Standard deviation measures total risk and this is the case with a single portfolio so we have also considered ratios which are quite important for mutual funds analysis like Sharpe ratio & Treynor ratio. Sharpe ratio represents this trade-off between risk and returns. A higher Sharpe ratio is therefore better as it represents a higher return generated per unit of risk. Sharpe ratio provides an unbiased look into fund's performance. This is because they are based solely on quantitative measures. Both the Treynor Ratio and the Sharpe Ratio provide measures for ranking the relative performance of various portfolios, on a risk-adjusted basis. So, in these two ratios higher value is preferred for the fund selection. In the case of Sharpe ratio Kotak Liquid Instrument fund (17.20) stands out clear with 1st rank, followed by HDFC Liquid fund (16.91). In case of Treynor ratio, Kotak Liquid Instrument fund (169.89) value is higher so it has been given the 1st rank among the others which is followed by ICICI Prudential Liquid fund (157.78). Alpha indicates the superior performance of the fund. If the alpha is positive the fund has performed better and if the alpha is negative the fund has not performed upto the benchmark. 75 | P a g e
When Alpha is considered, HDFC Liquid fund (2.24) followed by UTI Liquid Cash Instrument (1.98) & ICICI Prudential Liquid fund (1.98) each. Kotak Liquid Instrument fund is recommended to all the investors as it has the least standard deviation i.e. the risk is least as compared to all other mutual funds. Beta is also 2nd lowest just after UTI Liquid Cash Instrument and is also very close as it has the beta of (.10) and UTI Liquid Cash instrument has of (.09). When compared the Sharpe ratio & the Treynor ratio, Kotak Liquid Instrument has the highest ratio. Though it is the 3 rd best in R Square i.e. it is less diversified as compared to ICICI Prudential Liquid & HDFC Liquid. Keeping in mind all the 6 parameters, Kotak Liquid instrument fund is the best Cash Fund when compared with rest of the cash funds.
CONCLUSION After analyzing the mutual funds under 5 categories like Equity based, Debt based, ELSS Tax Saving, Monthly Income Plans & Cash funds under 6 76 | P a g e
parameters like Standard deviation, Beta, Alpha, R Squared, Treynor Ratio & Sharpe Ratio, I have come to a conclusion that there are different funds which are performing best under different categories. No fund is the best in all the categories. Category Equity Fund Scheme Debt Fund Scheme ELSS Tax Saver Monthly Income Plan Cash Fund
Fund ICICI Prudential Dynamic Plan- Growth HDFC HI- Short Term HDFC Tax Saver Scheme ICICI Prudential MIP Kotak Liquid Instrument
So, it can be seen that ICICI Prudential is the best in Equity Fund Scheme & Monthly Income Plan but HDFC is the best in Debt Fund Scheme & ELSS Tax Saver Scheme. Kotak is the best in Cash Fund & when the NAV of past 3 years is compared T.I.G.E.R. fund is the best fund with a NAV of 45.64 and among these 5 funds Kotak Opportunities is the best fund with an NAV of 43.72 of the past 3 years. Investors have added to their portfolios well-managed diversified equity funds with proven track records over longer time frames. On the basis of the performance of diversified equity funds and how domestic markets are placed, risk-taking investors would do well, who hold a larger portion of their portfolio in actively managed diversified equity funds.
RECOMMENDATIONS Diversify • One should diversify the investments between a few funds (the actual number depends entirely on the amount of investment). This 77 | P a g e
strategy ensures that the portfolio is not dependent on the performance of one single fund. However, one needs to avoid over-diversification as that would achieve nothing. • Investor can also plan like one mutual fund of diversified equity plan, second mutual fund of balanced type and third one you can plan of debt type etc. In this manner the money will get diversified, risk is reduced and the investor will get excellent profit. • For Example: Rs 20,000 per month, it would be wise to opt for a maximum of three funds. Consider well rated large-cap funds, mid-cap funds and a balanced fund. The latter would provide the debt component and reduce the portfolio's downside risk. Don’t just judge a fund by its NAV • Never judge a fund on the basis of its NAV. Also have a look at the Standard Deviation, Beta, Alpha, R Squared, Treynor & Sharpe Ratios & also its performance in the bear and the bull phase, and then invest in it. Only judging a fund by its NAV, is irrelevant while selecting the fund as it is the percentage gain or loss that matters. • Also look for past returns, dividend etc. the mutual fund has declared. If the investor has chosen equity or stock market related mutual fund, then he may go for SIP (Systematic Investment Plan) method. A risk adverse investor should avoid investing in the Sectoral funds.
New Fund Offer (NFO), a marketing device
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• AMC’s use NFOs to create excitement and push their funds. These schemes are launched because they are easy avenues to capture management fees and increase the fund house's asset base. These schemes are usually just clones of existing schemes, but with new peppy names flaunted to attract investors. • It is important for investors to understand that NFOs are merely marketing devices. There are a number of existing funds that have proved their mettle and investors should opt for them because they have a track record.
APPENDICES 79 | P a g e
Kotak Kotak 30- Growth Objective The investment objective of the scheme is to generate capital appreciation from a portfolio of predominantly equity and equity related securities. The portfolio will generally comprise of equity and equity related instruments of around 30companies which may go up to 39 companies, and that these companies may or may not be the same which constitute the BSE Sensitive Index or NSE Fifty (S&P CNX Nifty) Index. Review and rebalancing will be conducted if the investment in companies exceed above 39.
Type of Scheme
Open Ended
Nature
Equity
Option
Growth
Inception Date
Dec 22, 1998
Face Value (Rs/Unit)
Dividend
Krishna Sanghvi, Sanjib Guha .
SIP STP SWP
10
Fund Size in Rs. 684.07 as on Apr Cr. 30, 2008
Last Declared
Fund Manager
Expense ratio(%)
2.24
Portfolio Turnover Ratio(%)
131.26
10 % as on Dec 31, 2001
Minimum Investment (Rs)
5000
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Amount Bet. 0 to 49999999 then Entry load is 2.25%. and Amount greater than 50000000 then Entry load is 0%. 80 | P a g e
Exit Load
If redeemed bet. 0 Months to 6 Months; Exit load is 1%.
Kotak Bond Short Term Objective The objective of the Plan is to provide reasonable returns and high level of liquidity by investing in debt instruments and money market instruments so as to spread the risk across different kinds of issuers in the debt markets.
Type of Scheme
Open Ended
Fund Manager
Nature
Debt
SIP
Option
Growth
STP
Inception Date
Apr 25, 2002
SWP
Face Value (Rs/Unit)
10
Fund Size in Rs. 257.73 as on Apr Cr. 30, 2008
Last Declared
Dividend
Deepak Agrawal
Expense ratio(%)
0.60
Portfolio Turnover Ratio(%)
NA
NA
Minimum Investment (Rs)
5000
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Entry Load is 0%.
Exit Load
Exit Load is 0%.
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Kotak Tax Saver Scheme- Growth Objective The investment objective of the scheme is to generate long term capital appreciation from a diversified portfolio of equity and equity related securities and enable investors to avail the income tax rebate, as permitted from time to time.
Type of Scheme
Open Ended
Fund Manager
Nature
Equity
SIP
Option
Growth
STP
Inception Date
Oct 25, 2005
SWP
Face Value (Rs/Unit)
10
Fund Size in Rs. 463.48 as on Apr Cr. 30, 2008
Krishna Sanghvi
Expense ratio(%)
2.31
Portfolio Turnover Ratio(%)
84.31
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Last Declared
Dividend
NA
Minimum Investment (Rs)
500
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Amount Bet. 0 to 49999999 then Entry load is 2.25%. & Amount greater than 50000000 then Entry load is 0%.
Exit Load
If redeemed after 0 Year; Exit load is 0%. Exit Load is 0%.
Kotak Income Plus Objective To enhance returns over a portfolio of debt instruments with a moderate exposure in equity and equity related instruments.
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Type of Scheme
Open Ended
Nature
Debt
Option
Growth
Inception Date
Nov 14, 2003
Face Value (Rs/Unit)
10
Fund Size in Rs. 28.95 as on Apr Cr. 30, 2008
Last Declared
Dividend
Fund Manager
Ritesh Jain, Krishna Sanghvi, Sanjib Guha
SIP STP SWP Expense ratio(%)
2.22
Portfolio Turnover Ratio(%)
NA
NA
Minimum Investment (Rs)
5000
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Entry Load is 0%.
Exit Load
If redeemed bet. 0 Year to 1 Year; and Amount Bet. 0 to 2500000 then Exit load is 1%.
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Kotak Liquid Instrument Objective Aims to provide reasonable returns and high level of liquidity by investing in debt instruments such as bonds, debentures, Government Securities, money market instruments such as treasury bills, commercial paper, certificate of deposit, including repos in permitted securities of different maturities so as to spread the risk across different kinds of issuers in the debt markets.
Type of Scheme
Open Ended
Nature
Short Term Debt
Option
Growth
Inception Date
Mar 12, 2003
Face Value (Rs/Unit)
Dividend
Ritesh Jain, Deepak Agrawal.
SIP STP SWP
10
Fund Size in Rs. 4475.02 as Cr. Apr 30, 2008
Last Declared
Fund Manager
Expense Ratio(%) 0.72 on
Portfolio Turnover Ratio(%)
NA
NA
Minimum Investment (Rs)
10000000
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Entry Load is 0%.
Exit Load
Exit Load is 0%.
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HDFC HDFC Income Fund- Growth Objective Aims at providing capital appreciation through investments predominantly in equity oriented securities
Type of Scheme
Open Ended
Fund Manager
Nature
Equity
SIP
Option
Growth
STP
Inception Date
Dec 24, 1994
SWP
Face Value (Rs/Unit)
10
Fund Size in Rs. 4243.96 as Cr. Apr 30, 2008
Last Declared
Dividend
on
Prashant Jain
Expense ratio(%)
1.82
Portfolio Turnover Ratio(%)
56.62
NA
Minimum Investment (Rs)
5000
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Amount Bet. 0 to 49999999 then Entry load is 2.25%. & Amount greater than 50000000 then Entry load is 0%.
Exit Load
Exit Load is 0%. 86 | P a g e
HDFC HI Short Term Objective Seeks to generate income with a view to maximize income while maintaining the optimum balance of Yield , Safety and Liquidity.
Type of Scheme
Open Ended
Fund Manager
Nature
Debt
SIP
Option
Growth
STP
Inception Date
Feb 6, 2002
SWP
Face Value (Rs/Unit)
10
Fund Size in Rs. 199.35 as on Apr Cr. 30, 2008
Last Declared
Dividend
Shabbir Kapasi
Expense ratio(%)
0.40
Portfolio Turnover Ratio(%)
NA
NA
Minimum Investment (Rs)
1000
Purchase
Daily 87 | P a g e
Redemptions NAV Calculation
Daily
Entry Load
Entry Load is 0%.
Exit Load
Exit Load is 0%.
HDFC Tax Saver Scheme Objective The fund plans to provide tax benefits along with capital appreciation
Type of Scheme
Open Ended
Fund Manager
Nature
Equity
SIP
Option
Growth
STP
Inception Date
Mar 31, 1996
SWP
Face Value (Rs/Unit)
10
Fund Size in Rs. 1416.85 as Cr. Apr 30, 2008
on
Vinay R Kulkarni
Expense ratio(%)
2.02
Portfolio Turnover Ratio(%)
50.91 88 | P a g e
Last Declared
Dividend
210 % as on Apr 4, 2000
Minimum Investment (Rs)
500
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Amount Bet. 0 to 49999999 then Entry load is 2.25%. & Amount greater than 50000000 then Entry load is 0%.
Exit Load
Exit Load is 0%.
HDFC Monthly Income Plan - Short Term Objective
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The primary objective of the Scheme is to generate regular returns through investment primarily in Debt and Money Market Instruments. The Secondary objective of the scheme is to generate long term capital appreciation by investing a portion of the Scheme’s assets in equity and equity related instruments.
Type of Scheme
Open Ended
Nature
Debt
Option
Growth
Inception Date
Dec 8, 2003
Face Value (Rs/Unit)
Fund Manager
Shobhit Mehrotra Vinay R Kulkarni
SIP STP SWP
10
Fund Size in Rs. 117.1 as on Apr Cr. 30, 2008
Expense ratio(%) 2.13 Portfolio Turnover Ratio(%)
NA
Last Dividend NA Declared Minimum Investment (Rs)
5000
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Entry Load is 0%.
Exit Load
If redeemed bet. 0 Months to 6 Months; and Amount Bet. 0 to 1000000 then Exit load is 0.5%. If redeemed bet. 0 Months to 3 Months; and Amount greater than 1000001 then Exit load is 0.25%.
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HDFC Liquid Objective The primary objective of the Scheme is to enhance income consistent with a high level of liquidity, through a judicious portfolio mix comprising of money market and debt instruments.
Type of Scheme
Open Ended
Fund Manager
Nature
Short Term Debt
SIP
Option
Growth
STP
Inception Date
Oct 17, 2000
SWP
Face Value (Rs/Unit)
10
Fund Size in Rs. 5078.26 as Cr. Apr 30, 2008
Last Declared
Dividend
on
Shobhit Mehrotra
Expense ratio(%)
0.55
Portfolio Turnover Ratio(%)
NA
NA
Minimum Investment (Rs)
10000
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Entry Load is 0%.
Exit Load
Exit Load is 0%.
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UTI UTI Equity Fund Objective The principal investment objective is to provide long term capital appreciation through investment in the securities market in India.
Type of Scheme
Open Ended
Fund Manager
Nature
Equity
SIP
Option
Growth
STP
Inception Date
Apr 20, 1992
SWP
Face Value (Rs/Unit)
10
Fund Size in Rs. 1762.51 as Cr. Apr 30, 2008
Anoop Bhaskar
Expense Ratio(%) 1.54 on
Portfolio Turnover Ratio(%)
51.31
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Last Declared
Dividend
20 % as on Jun 10, 2005
Minimum Investment (Rs)
2000
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Amount Bet. 0 to 19999999 then Entry load is 2.25%. and Amount greater than 20000000 then Entry load is 0%.
Exit Load
If redeemed bet. 0 Days to 180 Days; and Amount Bet. 0 to 19999999 then Exit load is 1%. If redeemed bet. 0 Days to 180 Days; and Amount greater than 20000000 then Exit load is 0.5%.
UTI Short Term- Income Regular Objective The scheme aims to generate steady and reasonable income, with low risk and high Typeofofliquidity SchemefromOpen Endedof money market securities and high quality debt. level a portfolio Nature
Debt
Option
Growth
Inception Date
Aug 27, 2007
Face Value (Rs/Unit)
10
Fund Size in Rs. 618.57 as on Apr Cr. 30, 2008
Fund Manager
Amit Jain
SIP STP SWP Expense ratio(%) 0.67 Portfolio Turnover Ratio(%)
NA
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Last Dividend NA Declared Minimum Investment (Rs)
10000000
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Entry Load is 0%.
Exit Load
If redeemed bet. 0 Days to 15 Days; Exit load is 0.75%.
UTI ETSP- Growth Objective Aims at providing investors the opportunity to participate in the reasonable growth in the value of investments in equities and equity - linked securities, over a period of time, in addition to tax benefits
Type of Scheme
Open Ended
Fund Manager
Nature
Equity
SIP
Option
Growth
STP
Inception Date
Dec 15, 1999
SWP
Face Value (Rs/Unit)
10
Fund Size in Rs. 352.89 as on Apr Cr. 30, 2008
Swati Kulkarni
Expense ratio(%)
2.33
Portfolio Turnover Ratio(%)
38.39
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Last Declared
Dividend
20 % as on Nov 30, 2004
Minimum Investment (Rs)
500
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Amount Bet. 0 to 19999999 then Entry load is 2.25%. and Amount greater than 20000000 then Entry load is 0%.
Exit Load
Exit Load is 0%.
UTI Monthly Income Scheme Objective The scheme aims at distributing income periodically.
Type of Scheme
Open Ended
Nature
Debt
Fund Manager
Option
Growth
SIP
Inception Date
Oct 11, 2002
STP
Face Value (Rs/Unit)
10
Amandeep Chopra
SWP
Fund Size in Rs. 144.08 as on Apr Cr. 30, 2008
Expense ratio(%) Portfolio Turnover Ratio(%)
1.40 95 | P a g e 32.31
Last Declared
Dividend
NA
Minimum Investment (Rs)
1000
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Entry Load is 0%.
Exit Load
If redeemed bet. 0 Days to 180 Days; and Amount Bet. 0 to 999999 then Exit load is 0.5%. and Amount greater than 1000000 then Exit load is 0%.
UTI Liquid Cash Instrument Objective The scheme aims to generate steady and reasonable income, with low risk and high level of liquidity from a portfolio of money market securities and high quality debt.
Type of Scheme
Open Ended
Nature
Short Term Debt
Option
Growth
SIP
Inception Date
Jun 24, 2003
STP
Fund Manager
Face Value 1000 (Rs/Unit)
SWP
Fund Size in Rs. 10929.77 as on Apr
Portfolio
Expense ratio(%)
Amandeep Chopra
96 | P a g e 0.24
Ratio(%)
Last Declared
Dividend
NA
Minimum Investment (Rs)
100000
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Entry Load is 0%.
Exit Load
Exit Load is 0%.
ICICI Prudential ICICI Prudential Dynamic Plan- Growth Objective Seeks to generate capital appreciation by actively investing in equity and equity related securities. For defensive considerations, the Scheme may invest in debt, money market instruments and derivatives.
Type of Scheme
Open Ended
Nature
Equity
Fund Manager
Option
Growth
SIP
Inception Date
Oct 18, 2002
STP
Face Value (Rs/Unit)
S Naren, Mehta .
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SWP 10
Expense ratio(%)
Amit
1.90
Cr.
Last Declared
Apr 30, 2008
Dividend
Turnover Ratio(%)
225
NA
Minimum Investment (Rs)
5000
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Amount Bet. 0 to 49999999 then Entry load is 2.25%. and Amount greater than 50000000 then Entry load is 0%.
Exit Load
If redeemed bet. 0 Months to 6 Months; and Amount Bet. 0 to 49999999 then Exit load is 1%. If redeemed bet. 6 Months to 12 Months; and Amount Bet. 0 to 49999999 then Exit load is 0.5%. and Amount greater than 50000000 then Exit load is 0%.
ICICI Prudential Short Term Objective Aims to generate income through investments in a basket of debt and money market instruments with a view to provide reasonable returns with low interest risks.
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Type of Scheme
Open Ended
Nature
Debt
Fund Manager
Option
Growth
SIP
Inception Date
Feb 23, 2003
STP
Face Value (Rs/Unit)
SWP 10
Fund Size in Rs. 403.12 as on Apr Cr. 30, 2008
Last Declared
Dividend
Chaitanya Pande, Amit Mehta .
Expense Ratio(%) 0.80 Portfolio Turnover Ratio(%)
NA
NA
Minimum Investment (Rs)
25000
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Entry Load is 0%.
Exit Load
Exit Load is 0%.
ICICI Prudential Tax Plan Objective The scheme seeks to generate long term capital appreciation from a portfolio that is Invested predominantly in equity and equity related securities 99 | P a g e
Type of Scheme
Open Ended
Nature
Equity
Option
Growth
Inception Date
Aug 9, 1999
Face Value (Rs/Unit)
10
Fund Size in Rs. 891.95 as on Apr Cr. 30, 2008
Last Declared
Fund Manager
S Naren, Mehta
Amit
SIP STP SWP Expense ratio(%)
2.11
Portfolio Turnover Ratio(%)
187
Dividend NA
Minimum Investment (Rs)
500
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Amount Bet. 0 to 49999999 then Entry load is 2.25%. and Amount greater than 50000000 then Entry load is 0%.
Exit Load
Exit Load is 0%.
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ICICI Prudential Monthly Income Plan Objective The primary investment objective of the scheme is to generate regular income and secondary objective is to generate capital appreciation.
Type of Scheme
Open Ended
Nature
Debt
Option
Growth
Inception Date
Oct 14, 2000
Face Value (Rs/Unit)
10
Fund Size in Rs. 356.01 as on Apr Cr. 30, 2008
Last Declared
Dividend
Fund Manager
Prashant Kothari, Rahul Goswami, Amit Mehta
SIP STP SWP Expense ratio(%)
1.95
Portfolio Turnover Ratio(%)
42
NA
Minimum Investment (Rs)
5000
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Entry Load is 0%.
Exit Load
If redeemed bet. 0 Months to 6 Months; and Amount Bet. 0 to 1000000 then Exit load is 0.5%. and Amount greater than 1000001 then Exit load is 0%.
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ICICI Prudential Liquid Objective Aims to generate steady and consistent returns from a basket of high quality liquid debt instruments.
Type of Scheme
Open Ended
Nature
Short Term Debt
Fund Manager
Option
Growth
SIP
Inception Date
Feb 23, 2003
STP
Face Value (Rs/Unit)
10
SWP
Fund Size in Rs. 18912.28 as on Cr. Apr 30, 2008
Last Declared
Dividend
Chaitanya Pande, Amit Mehta
Expense ratio(%)
0.25
Portfolio Turnover Ratio(%)
NA
NA
Minimum Investment (Rs)
10000000
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Entry Load is 0%.
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Exit Load
Exit Load is 0%.
Reliance Reliance Growth Objective Seeks to provide Long Term Capital Appreciation
Type of Scheme
Open Ended
Fund Manager
Nature
Equity
SIP
Option
Growth
STP
Inception Date
Oct 7, 1995
SWP
Face Value (Rs/Unit)
10
Fund Size in Rs. 5369.89 as Cr. Apr 30, 2008
on
Sunil Singhania
Expense ratio(%)
1.81
Portfolio Turnover Ratio(%)
50
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Last Declared
Dividend
NA
Minimum Investment (Rs)
5000
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Amount Bet. 0 to 19999999 then Entry load is 2.25%. and Amount Bet. 20000000 to 49999999 then Entry load is 1.25%. and Amount greater than 50000000 then Entry load is 0%.
Exit Load
If redeemed bet. 0 Year to 1 Year; and Amount Bet. 0 to 49999999 then Exit load is 1%. and Amount greater than 50000000 then Exit load is 0%.
Reliance Short Term Objective It aims to generate stable returns for investors with a short-term investment horizon by investing in fixed income securities of a short-term maturity.
Type of Scheme
Open Ended
Fund Manager
Nature
Debt
SIP
Option
Growth
STP
Inception Date
Dec 17, 2002
SWP
Face Value (Rs/Unit)
10
Fund Size in Rs. 602.7 as on Apr Cr. 30, 2008
Prashant Pimple
Expense ratio(%)
0.65
Portfolio Turnover Ratio(%)
NA
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Last Declared
Dividend
NA
Minimum Investment (Rs)
50000
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Entry Load is 0%.
Exit Load
Exit Load is 0%.
Reliance Tax Saver Objective The primary objective of the scheme is to generate long-term capital appreciation from a portfolio that is invested predominantly in equity and equity related instruments.
Type of Scheme
Open Ended
Fund Manager
Nature
Equity
SIP
Option
Growth
STP
Inception Date
Aug 23, 2005
SWP
Face Value (Rs/Unit)
10
Expense ratio(%) Portfolio
Ashwani Kumar
105 | P a g e 1.89
Cr.
Last Declared
Apr 30, 2008
Dividend
Ratio(%)
NA
Minimum Investment (Rs)
500
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Amount Bet. 0 to 19999999 then Entry load is 2.25%. and Amount Bet. 20000000 to 49999999 then Entry load is 1.25%. and Amount greater than 50000000 then Entry load is 0%.
Exit Load
Exit Load is 0%.
Reliance Monthly Income Plan Objective The primary objective of the scheme is to generate regular income in order to make regular dividend payments to unit holders with the secondary objective of growth in capital
Type of Scheme
Open Ended
Nature
Debt
Fund Manager
Option
Growth
SIP
Inception Date
Dec 29, 2003
STP
Face Value (Rs/Unit)
10
Ashwani Kumar Prashant Pimple
SWP
Fund Size in Rs. 250.56 as on Apr Cr. 30, 2008
Expense ratio(%) Portfolio Turnover Ratio(%)
1.99 106 | P a g e NA
Last Declared
Dividend
NA
Minimum Investment (Rs)
10000
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Entry Load is 0%.
Exit Load
0 Months to 3 Months; and Amount Bet. 0 to 2500000 then Exit load is 0.75%. If redeemed bet. 3 Months to 6 Months; and Amount Bet. 0 to 2500000 then Exit load is 0.6%. If redeemed bet. 6 Months to 9 Months; and Amount Bet. 0 to 2500000 then Exit load is 0.5%. If redeemed bet. 9 Months to 12 Months; and Amount Bet. 0 to 2500000 then Exit load is 0.25%. If redeemed bet. 0 Days to 7 Days; and Amount greater than 2500001 then Exit load is 0.1%.
Reliance Liquid Cash Objective To generate optimal returns consistent with moderate levels of risk and high liquidity.
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Type of Scheme
Open Ended
Fund Manager
Nature
Short Term Debt
SIP
Option
Growth
STP
Inception Date
Dec 4, 2001
SWP
Face Value (Rs/Unit)
10
Fund Size in Rs. 66.11 as on Apr Cr. 30, 2008
Last Declared
Dividend
Amit Tripathy
Expense ratio(%)
0.40
Portfolio Turnover Ratio(%)
NA
NA
Minimum Investment (Rs)
25000
Purchase Redemptions
Daily
NAV Calculation
Daily
Entry Load
Entry Load is 0%.
Exit Load
Exit Load is 0%.
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References: • • • •
• •
http://amfiindia.com http://mutualfundindia.com http://valueresearchonline.com http://investopedia.com AMFI Workbook TREYNOR J.: How to Rate Management of Investment Funds, Harvard Business Review, 1965/1
• SHARPE W.: Asset Allocation: Management style and Performance Measurement. The Journal of Portfolio Management, Winter 1992 • Newspapers ( Economic Times , Business Line) • Magazines ( Business World) • Lynch, A. and D. Musto, (2002), “How Investors Interpret Past Fund Returns” • Brown, Stephen J. and William N. Goetzmann, 1995, \Performance Persistence," Journal of Finance, Volume 50 (2), pp. 679-698. • Elton, Edwin J., Martin J. Gruber, and Christopher R. Blake, 1996, The persistence of risk adjusted mutual fund performance, Journal of Business 69, 133–157.
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