Comparative analysis of Equity Mutual funds and ETFs

CONTENTSChapter No.ParticularsPage No.

EXECUTIVE SUMMARY

1

1.1

1.2

1.3INTRODUCTION

Topic Chosen for the study

Need for the study

Objective of the study11-1

2-2

2-2

2

2.1

2.2

2.32.42.5REVIEW OF LITERATURE AND RESEARCH DESIGNScope of the study

Theoretical Background of the study

Methodology adopted

Literature Review

Limitations of the study33-33-1414-1415-1919-19

3

3.1

3.2

3.2.1

3.2.2

3.2.3

3.2.4

3.2.5

3.2.6

3.2.7

3.2.8

3.2.9

3.2.10INDUSTRY AND COMPANY PROFILE

INDUSTRY PROFILE

COMPANY PROFILE

Overview and Company Background and Management

Milestone, Top Management and Nature of Business

Promoters, Features, Benefits, Mission, Vision, Quality Policy

Awards and Recognition, Products/Services, Area of Operation

Ownership Pattern, Infrastructural Facilities

Competitors Information

Mc Kinseys model

Organization chart and SWOT analysis

Growth and Future prospects

Financial Statement2020-2323-34

23-2425-2929-3030-3535-3535-3637-4243-4545-4546-49

4RESULTS,ANALYSIS AND DISCUSSIONS50-74

5FINDINGS, CONCLUSIONS AND RECOMMENDATIONS75-76

Bibliography

Annexure

List of TablesTable No.ParticularsPage No.

Table 4.1Table showing analysis of Return of Birla Sunlife equity fund (G) in India 50

Table 4.2Table showing analysis of Return of CanaraRobeco equity diversified (G) in India 51

Table 4.3Table showing analysis of Return of Franklin India Bluechip fund (G)in India 52

Table 4.4Table showing analysis of Return of Tata ethical fund (G)in India 53

Table 4.5Table showing analysis of Return of HSBC Unique Opportunities fund(G) in India54

Table 4.6Tableshowing analysis of return and variability in return of selected equity mutual funds55

Table 4.7Tableshowing analysis of beta of selected equity mutual funds56

Table 4.8Tableshowing performance evaluation of Top 5 equity mutual funds on the basis of Sharpes Performance Index57

Table 4.9Tableshowing performance evaluation of Top 5 equity mutual funds on the basis of Treynors Performance Index58

Table 4.10Tableshowing performance evaluation of Top 5 equity mutual funds on the basis of Jensens Performance Index59

Table 4.11Table showing average return, risk and beta60

Table 4.12Table showing analysis of Return of SBI Gold ETF in India 61

Table 4.13Table showing analysis of Return of UTI Gold ETF in India 62

Table 4.14Table showing analysis of Return of Kotak Sensex ETF in India 63

Table 4.15Table showing analysis of Return of R* Shares Banking ETF in India 64

Table 4.16Table showing analysis of Return of GS Nifty ETF in India in 65

Table 4.17Table showing analysis of return and variability in return of selected ETFs66

Table 4.18Table showing analysis of beta of selected ETFs67

Table 4.19Table showing performance evaluation of Top 5 ETFs on the basis of Sharpes Performance Index68

Table 4.20Table showing performance evaluation of Top 5 ETFs on the basis of Treynors Performance Index69

Table 4.21Table showing performance evaluation of Top 5 ETFs on the basis of Jensens Performance Index70

Table 4.22Table showing average return, risk and beta71

Table 4.23Table showing Spearmans rank correlation72

Table 4.24Table showing comparison of selected equity diversified mutual funds and ETFs in respect to return73

Table 4.25Table showing comparison of selected equity diversified mutual funds and ETFs in respect to variability in return74

List of Graphs and ChartsGraph No.ParticularsPage No.

Graph 4.1Graph showing analysis of Return of Birla sunlife equity fund (G) in India 50

Graph 4.2Graph showing analysis of Return Canara Robeco equity diversified (G) in India 51

Graph 4.3Graph showing analysis of Return of Franklin India Bluechip fund (G) in India 52

Graph 4.4Graph showing analysis of Return of Tata ethical fund (G) in India 53

Graph 4.5Graph showing analysis of Return of HSBC Unique Opportunities fund (G) in India54

Graph 4.6Graph showing average return, variability in return and beta60

Graph 4.7Graph showing analysis of Return of SBI Gold ETF in India61

Graph 4.8Graph showing analysis of Return of UTI Gold ETF in India 62

Graph 4.9Graph showing analysis of Return of Kotak Sensex ETF in India63

Graph 4.10Graph showing analysis of Return of R* Shares Banking ETF in India 64

Graph 4.11Graph showing analysis of Return of GS Nifty ETF in India 65

Graph 4.12Graph showing average return, variability in return and beta71

Graph 4.13Graph showing comparison of selected equity diversified mutual funds and ETFs in respect to return73

Graph 4.14Graph showing comparison of selected equity diversified mutual funds and ETFs in respect to variability in return74

EXECUTIVE SUMMARY

In the current economic scenario interest rates are falling and fluctuation in the share market has put investors in confusion. One finds it difficult to take decision on investment. This is primarily, because of investments that are risky in nature and investors have to consider various factors before investing in investment avenues.

These factors include risk, return, volatility of shares and liquidity. The main objective of investment in Equity mutual fund schemes and ETFs is to analyze the performance evaluation of these funds with their benchmark by using risk, return, beta and alpha as a parameter.

Historical data were taken for calculating risk, return and beta. Performance of these funds is also been evaluated using different performance indexes which is used to rank the different funds used in the study.It also uses Spearmans rank correlation.Compare to ETF, Equity mutual funds have high risk with high returns as they give the investor a diversified portfolio. Those who have well knowledge in ETFs, they can go for ETF investments rather than investing in Equity mutual funds as it has less risk.

ETFs have certain advantages over mutual funds. The units can be purchased easily. It can be traded in real-time basis. ETF and equity mutual funds offer diversification in the portfolio.

The study will guide the new investor who wants to invest in Equity mutual fund schemes and ETFs by providing knowledge about how to measure the risk and return of particular scrip or mutual fund scheme. The study recommends new investors to go for equity mutual funds rather than ETFs, as it involves high return.

It was found that ETFs as an investment avenue is less popular and investment through SIP is gaining popularity in the volatile market.CHAPTER1

INTRODUCTION1.1TOPIC: COMPARATIVE ANALYSIS OF EQUITY MUTUAL FUNDS AND ETFSLike most developed and developing countries the mutual fund cult has been catching on in India. There are various reasons for this. Mutual funds make it easy and less costly for investors to satisfy their need for capital growth, income and/or income preservation.

And in addition to this a mutual fund brings the benefits of diversification and money management to the individual investor, providing an opportunity for financial success that was once available only to a select few.

It's important to understand that each mutual fund has different risks and rewards. In general, the higher the potential return, the higher the risk of loss. Although some funds are less risky than others, all funds have some level of risk. Its never possible todiversifyaway all risk.Equity mutual funds invest in shares of companies that are listed on the stock exchanges.ETF is defined as a security that tracks an index, a commodity or a basket of assets like an index fund but trades like a stock on an exchange and experiences price changes throughout the day as it is bought and sold. ETF were first launched in 1993 in United States. Their popularity as a structured product has grown immensely because of the benefits it provides to investors and traders. The issuance of ETF is just like a primary market IPO or a mutual fund NFO. Shares are issued by the fund manager and listed on the exchanges. Investors can buy and sell these shares from the secondary market through their brokers. ETF are often called as index shares, are a hybrid of index mutual funds and stocks.

ETFs by nature track a certain index (e.g. Nifty). Hence, the returns one can expect from ETFs will be equal to the rise in the index.The ETFs trading value is based on the net asset value of the underlying stocks in the target index. Think of it as a Mutual Fund that you can buy and sell in real time at a price which changes throughout the day.1.2 Need for the Study:The study is conducted to understand the concept of ETF and to evaluate the performance of it, and also to evaluate the performance of equity mutual funds. The study also involves thecomparison of investment performance of different ETFs and equity mutual funds. It is to analyse the different types of investment opportunities available these days.1.3 Objectives of the Study: To evaluate the performance of Equity mutual funds traded in India To analyze the risk and return involved in selected ETFs To study the return of Equity mutual funds and ETFs with their respective Benchmark indexes To study the best performing funds using Sharpe, Treynor and Jensen measures. To compare the performance of Equity mutual funds and ETFs in India.CHAPTER2REVIEW OF LITERATURE AND RESEARCH DESIGN2.1 Scope of the Study: The present study includes 5 years average returns of the Equity mutual funds and ETFs, based on which future of the risks and returns are analyzed to help potential investors.

The study involves 5 different schemes of equity mutual funds and 5 different schemes of ETFs.

To evaluate the performance of these schemes. Three performance indexes are used that is Sharpes, Treynors and Jensens measure.

2.2 THEORETICAL BACKGROUND OF THE STUDY:Mutual FundsA mutual fund, by its very nature, is diversified that is, its assets are invested in many different securities.

A mutual fund is a company that pools the money of many investors and its shareholders to invest in a variety of different securities. Investments may be in stocks, bonds, money market securities or some combination of those securities are professionally managed on behalf of the shareholders, and each investor holds a share of the portfolio entitled to any profits when the securities are sold, but subject to any losses in value as well.

For the individual investor, mutual funds provide the benefit of having someone else manage your investments and diversify your money over many different securities that may not be available or affordable to you otherwise. Today, minimum investment requirements on many funds are low enough that even the smallest investor can get started in mutual funds. Mutual funds make it easy and less costly for investors to satisfy their need for capital growth, income and/or income preservation.

Benefits of Mutual Funds:Professional Investment Management

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

Diversification

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

Low Cost

A mutual fund lets you participate in a diversified portfolio for as little as Rs.5000, and sometimes less. And with a no-load fund, you pay little or no sales charges to own them.

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

Liquidity

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

Transparency

Regulations for mutual funds have made the industry very transparent. You can track the investments that have been made on your behalf and the specific investments made by the mutual fund scheme to see where your money is going. In addition to this, you get regular information on the value of your investment.

Variety

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

Types of Mutual Funds:All mutual funds are variations of these three asset classes. For example, while equity funds that invest in fast-growing companies are known as growth funds, equity funds that invest only in companies of the same sector or region are known as specialty funds.Money Market Funds:Money market consists of short-term debt instruments, mostlyTreasury bills. This is a safe place to park your money. You won't get great returns, but you won't have to worry about losing yourprincipal.The typical return is twice the amount you would earn in a regular checking/savings account and a little less than the averagecertificate of deposit(CD).

Bond/Income Funds:

Income funds are named appropriately: their purpose is to provide current income on a steady basis. When referring to mutual funds, the terms "fixed-income," "bond," and "income" are synonymous. These terms denote funds that invest primarily in government and corporate debt. While fund holdings may appreciate in value, the primary objective of these funds is to provide a steady cash flow to investors. As such, the audience for these funds consists of conservative investors and retirees.Bond funds are likely to pay higher returns than certificates of deposit and money market investments, but bond funds aren't without risk. Because there are many different types of bonds, bond funds can vary dramatically depending on where they invest. For example, a fund specializing in high yieldjunk bondsis much more risky than a fund that invests in government securities. Furthermore, nearly all bond funds are subject to interest rate risk, which means that if rates go up the value of the fund goes down.

Balanced Funds:The objective is to provide a balanced mixture of safety, income andcapital appreciation.The strategy of balanced funds is to invest in a combination of fixed income and equities. A typical balanced fund might have a weighting of 60% equity and 40% fixed income. The weighting might also be restricted to a specified maximum or minimum for each asset class.

Equity Funds:Funds that invest in stocks represent the largest category of mutual funds. Generally, the investment objective of this class of funds is long-term capital growth with some income. There are, however, many different types of equity funds because there are many different types of equities. A great way to understand the universe of equity funds is to use astyle box, an example of which is below.Open ended FundAn open ended mutual fund is one that is available for subscription and repurchase on a continuous basis. These funds do not have a fixed maturity period.Close ended Fund

A close ended mutual fund has a stipulated maturity period ex: 3-5 yrs. The fund is open for subscription only during a specific period at the time of launch of scheme.

Equity linked Mutual FundsThese funds invest in shares of companies that are listed on the stock exchanges. Depending upon the sub-category of equity class, we may define them as:

Large-cap Funds: Large-cap funds are, typically, the least risky funds. These companies are among the least volatile companies as they are mostly in mature businesses. You must allocate highest to this category of investment.

Mid- and small-cap funds: These funds are riskier than large-cap funds. They invest in small-sized companies that are in their growing stages. Since these companies are in their growing stages, they can get volatile in an uncertain market. These are high-risk companies; they typically rise more than large-cap funds in rising markets, but fall more than large-cap companies in falling markets.

Sector/thematic funds: While sector funds invest in one or two sectors, thematic funds invest in a bunch of sectors that are woven by a common theme, such as infrastructure, consumer spending, fast-moving consumer goods and so on. These are the riskiest of all types of funds as their portfolios are typically very concentrated.

ETF (Exchange Traded Fund):An ETF is a basket of stocks that reflects the composition of an index, like S&P CNX Nifty or CNX Bank index. The ETFs trading value is based on the net asset value of the underlying stocks in the target index. Think of it as a Mutual Fund that you can buy and sell in real time at a price which changes throughout the day.

ETFs have not enjoyed the kind of popularity that the conventional mutual funds enjoy.

Reasons being,

The lack of understanding of the concept of ETF amongst the general investor.

ETFs by nature track a certain index (e.g. Nifty or the Bankex). Hence, the returns one can expect from ETFs will be equal to the rise in the index. Whereas, India is a growing market and hence offers huge opportunities in the non-index shares too. Therefore, it is not difficult for an active fund manager to beat the index and offer better returns. As such ETFs (and index-funds too, by that logic) have comparatively negligible AUMs.

However, two things make ETFs popular in India

One, is that as market valuations become fairly or over-valued, it will become more & more difficult to beat the index. Then index-based funds (both conventional MFs & ETFs) may become a better option than actively-managed funds

Gold ETFs or Real-Estate ETFs have no comparable product in the conventional MF sector, and hence become the only MF route to invest in such markets

How Does An ETF Work?

In a normal fund we buy/sell units directly from/to the AMC. First the money is collected from the investors to form the corpus. The fund manager then uses this corpus to build and manage the appropriate portfolio. When you want to redeem your units, a part of the portfolio is sold and you get paid for your units. The units in a conventional MF are, therefore, called in-cash units.

But in ETF, we have something called the authorized participants (appointed by the AMC). They will first deposit all the shares that comprise the index (or the gold in case of Gold ETF) with the AMC and receive what is called the creation units from the AMC. Since these units are created by depositing underlying shares/gold, they are called in-kind units.

These creation units are a large block, which are then split into small units and accordingly bought/sold in the open market on the stock exchange by these authorized participants.Therefore, technically every buy and sell need not change the corpus of an ETF unlike a conventional MF.

However, as and when there is more demand, these authorized participants deposit more shares with the AMC and get more creation units to satisfy the demand. Or if there is more redemption, then they give back these creation units to the AMC, take back their shares, sell them in the market and pay the investor.

All this may seem to be a bit complicated and time-consuming. But, in effect, it is all system driven and hence happens on real-time basis with minimal effort & cost.

ETF CreationThe creation and redemption process for ETF shares is almost the exact opposite of that of mutual fund shares. When investing in mutual funds, investors send cash to the fund company, which then uses that cash to purchase securities and in turn issue additional shares of the fund. When investors wish to redeem their mutual fund shares, the shares are returned to the mutual fund company in exchange for cash. The creation of an ETF, however, does not involve cash.

The process begins when a prospective ETF manager (known as a sponsor) files a plan with the SEC to create an ETF. Once the plan is approved, the sponsor forms an agreement with an authorized participant, generally a market maker, specialist or large institutional investor, who is empowered to create or redeem ETF shares. (In some cases, the authorized participant and the sponsor are the same).

The authorized participant borrows shares of stock, often from a pension fund, and places those shares in a trust, and uses them to form creation units of the ETF. Creation units are bundles of stock varying from 10,000 to 600,000 shares, but 50,000 shares is what's commonly designated as one creation unit of a given ETF. Then, the trust provides shares of the ETF - which are legal claims on the shares held in the trust (the ETFs represent tiny slivers of the creation units) - to the authorized participant. Because this transaction is an in-kind trade - that is, securities are traded for securities (the authorized participant provides shares of stock to the trust and the trust in turn provides ETF shares to the authorized participant) and no cash changes hands - there are no tax implications. Once the authorizedparticipant receives the ETF shares, the shares are then sold to the public on the open market just like shares of stock.

When ETF shares are bought and sold on the open market, the underlying securities that were borrowed to form the creation units remain in the trust account. The trust generally has little activity beyond paying dividends from the stock held in the trust to the ETF owners and providing administrative oversight because the creation units are not impacted by the transactions that take place on the market when ETF shares are bought and sold.

RedemptionsWhen investors want to sell their ETF holdings, they can do so by one of two methods. The first is to sell the shares on the open market. This is generally the option chosen by most individual investors. The second option is to gather enough shares of the ETF to form a creation unit and then exchange the creation unit for the underlying securities. This option is generally only available to institutional investors due to the large number of shares required to form a creation unit. When these investors redeem, the creation unit is destroyed and the securities are turned over to the redeemer. The beauty of this option is in its tax implications for the portfolio.

We can see these tax implications best by comparing the ETF redemption to that of mutual fund redemption. When mutual fund investors redeem shares from a fund, all shareholders in the fund are affected by tax burden because to redeem the shares, the mutual fund may have to sell the securities it holds, realizing the capital gain, which is subject to tax. Also, all mutual funds are required to pay out all dividends and capital gains on a yearly basis. So even if the portfolio has lost value that is unrealized, there is still a tax liability on the capital gains that had to be realized because of the requirement to pay out dividends and capital gains.

ETFs minimize this scenario by paying large redemptions with shares of stock. When such redemptions are made, the shares with the lowest cost basis in the trust are given to the redeemer. This increases the cost basis of the ETF's overall holdings, minimizing capital gains for the ETF. It doesn't matter to the redeemer that the shares it receives have the lowest cost basis because the redeemer's tax liability is based on the purchase price it paid for the ETF shares, not the fund's cost basis. When the redeemer sells the shares of stock on the open market, any gain or loss incurred has no impact on the ETF. In this manner, investors with smaller portfolios are protected from the tax implications of trades made by investors with large portfolios.

Advantages of ETF

Buy and sell just like a share

Buy and sell at real time prices

One can put limit orders

Delivery in your DEMAT account

Minimum trading lot just one unit

Exposure with small sum of money

Lower expense ratio

Statistical tools used for Research:

Calculation of NAV: The most important part of the calculation is the valuation of the assets owned by the Fund. Once it is calculated, the NAV is simply the net value of assets divided by the number of units outstanding. The detailed methodology for the calculation of the net asset value is given below. The net asset value is the actual value of a unit on any business day NAV is the barometer of the performance of the scheme. The net asset value is the market value of the assets of the scheme minus its liabilities and expenses. Per unit NAV is the net asset value of the scheme divided by the number of the units outstanding on the valuation date.

Return:Return on a typical investment consists of two components. The basic is the periodic cash receipts (or income) on the investment, either in the form of interest or dividends. The second component is the change in the price of the assets-commonly called the capital gain or loss. This element of return is the difference between the purchase price and the price at which the assets can be or is sold; therefore, it can be a gain or a loss.The return has been calculated as under:Portfolio return:

Where,Rit is the difference between Net Asset Values for two consecutive days dividend by the NAV of the preceding day.Market return:

Where,Rmt is the difference between market indices of two consecutive days dividend by the market index for the preceding dayBeta

The extent to which the fund returns are impacted by the market returns is measured by the beta co-efficient. A fund with higher beta is more risky than one with lower beta. It measures the systematic risk and shows how prices of securities respond to the market forces. It is calculated by relating the return on a security with return for the market. The beta relates the volatility of a single security to the volatility of the market as a whole.

If that is greater than 1 means that the fund is more volatile than the benchmark index, while a of less than 1 means that the fund is less volatile than the market index. A fund with a very close to 1 means the funds performance closely matches the index. If is zero then the risk is almost nil. A fund with a negative moves in the direction opposite to that of the market. = Covar / m2Where, Covariance (covar) is the average of the products of deviations for each data point pair. And, covar is calculated as:

m2 = Market VarianceStandard DeviationStandard deviation is one of the commonly used statistical parameter to measure total risk. It is used to measure the variability of return i.e. the variation between the actual and expected return. Since the markets are volatile, the returns fluctuate every day. High S.D implies high volatility and a low S.D implies low volatility for a fund. It is calculated using the formula.

Sharpes Index

Sharpe index is a measure of the risk premium of the portfolio relative to the total amount of risk in the portfolio. Higher Sharpe ratio of a fund means that these returns have been generated taking lesser risk. In other words, the fund is less volatile and yet generating good returns.

Where,

= The Sharpe ratio

= The total risk (S.D.)

= The average portfolio return

= The average risk free rateTreynors Index

The Treynor ratio also called reward-to-volatility ratio relates the excess return over the risk-free rate to the additional risk taken.However the systematic risk is usedinstead of the total risk. Positive and high Treynor's Index shows a superior risk-adjusted performance of a fund, a Negative and low Treynor's Index indicates an unfavorable performance.

Where, = Treynor ratio

= the average portfolio return

= the average risk free rate

= the slope of the characteristic line during the time periodJensens Performance Index

Where, = average portfolio return

= average risk free rate

= the slope of the characteristic line during the time period

= average market return

2.3Methodology Adopted:

Descriptive research also known as statistical research, describes data and characteristics about the population or phenomenon being studied. It is a fact finding investigation. In descriptive research, definite conclusions can be arrived at, but it does not establish a cause effect relationship. This research is used for this project as the study is based on past data taken from NSE website.Sources of data

For the purpose of project, the data required is collected purely from secondary data sources. Secondary data sources are found to be most suitable as they are more reliable and accurate and would also provide all the information necessary for the analysis.All the data has been collected through secondary sources only

1. Web site = moneycontrol.com, nseindia.com, googlefinance.com2. Various books and papers.2.4 Literature Review

K.P. Sivakumar, Dr. S. Rajamohan (2010) examined the performance of mutual fund players based on Private and Public sector participants. The study revealed that there is a significant contribution by all the participants for the growth of the mutual fund industry in India. The performance of mutual funds was analyzed from 1998-99 to 2008-09 by taking into consideration of resource mobilization, the study also found that the private participants play a greater role in resource mobilization compared to those of public sector. This study indicated that there is a significant difference between the quantum funds mobilized by Public sector with or without UTI. Hence it proved that the UTI has a greater role in performance of mobilization of funds.

Ravi Shukla and Sandeep Singh (1997) evaluated the Investment Performance of the U.S. based global equity mutual funds. The study found that the global equity funds are superior performers when compared to the global benchmark. By considering the data for the period of January 1988 to March 1995, the study revealed that the U.S. domestic equity funds outperformed the global funds in terms of total as well as risk adjusted returns. Based on the traditional performance evaluation methods, the study indicated that the global funds provide superior returns during the months when the U.S. domestic market performs poorly. Therefore if the U.S. investors have the ability to forecast the market, they can switch to the global funds during the downturn in the domestic market.

Martin Eling, Roger Faust (2009) examined the performance of hedge funds and traditional mutual funds. The study analyzed the data from 2001-2009 and found that the value provided by hedge funds, especially compared to traditional mutual fund active in emerging markets. By using existing performance measurement models plus a new asset style factor model to identify the return sources and the alpha, revealed that some hedge funds generate significant positive alpha, whereas most traditional mutual funds do not outperform benchmarks. The study also found those hedges funds are more active in shifting their asset allocation and has high degree of freedom in their investment style are the difference in performance.

M. Jayadev (1996) carried out a research on Mutual fund performance with respect to growth oriented funds for the period of 21 months from June 1992 to March 1994 in terms of diversification, market timing and selectivity, it is found to be highly diversified fund with high diversification, reduced total risk of the portfolio. The study showed that the growth oriented fund does not outperform the benchmark index. Jayadev indicated that the fund managers of growth funds are found to be poor in terms of their ability of market timing and selectivity and suggested fund managers can earn better returns by adopting market timing strategy and selecting the underpriced securities. The study concluded that, the growth oriented funds have not performed better in terms of total risk and the funds are not offering advantages of diversification and professionalism to the investors.

SharadPanwar and Dr. R. Madhumathi (2006) carried out a study on public sector and private sector sponsored mutual funds to investigate the difference in characteristics of assets held, and portfolio diversification for the period of May, 2002 to May, 2005. The study found that public-sector sponsored funds do not differ significantly from private sector sponsored funds in terms of average returns. However, the study showed that there is a statistical difference between three classes of public sector sponsored; private sector Indian sponsored and private sector foreign sponsored mutual funds in terms of average standard deviation, average variance and average co-efficient of variation. The result of this study revealed that private sector Indian sponsored mutual funds outperformed both public-sector sponsored and private sector foreign sponsored mutual funds.

Dr. Zakri Y. Bello (2009) investigated the performance of U.S. domestic equity mutual funds during recessions of 1990 and 2001 and during the 12 months following each recession. He found that common stocks with small capitalization in the ensuing 12 months from the end of a recession of 1990, but produced disappointment results after the recession of 2001. The study pointed out that the rate of return on common stocks, and hence on stock mutual funds, during the two recessions was completely different. With regard to the recession of 1990, stock mutual fund performance was higher in the post-recession period. The result of this study showed the funds that held small capitalization stocks earned higher returns than the other categories during the 12 months after the recession period.

C. Edward Chang, H. Doug Witte (2010) examined the performance of socially responsible funds in the U.S. mutual fund industry for the fifteen years. This paper empirically compared operating characteristics and performance measures of SRFs relative to category averages in the U.S. mutual fund industry. The operating characteristics were examined by expense ratio, annual turnover rates and tax cost ratio. The performance measures include conventional risk, return and risk adjusted return measures such as Multi factor model and CAPM model. The result of this study revealed that SRFs have had a relative advantage in terms of lower expense ratios, lower annual turnover rates, lower tax cost ratios and lower risk, SRFs also exhibited lower return and two risk- adjusted return measures indicate SRFs have inferior reward to risk performance. This study also proved that domestic stock SRFs has not generated competitive returns relative to conventional funds in the same categories over the past 10-15 years. SRFs in balanced fund and fixed income categories especially during 2007-2010, have performed better than the category averages with lower risk, higher returns and high risk adjusted returns. Hence this study suggested that the costs of socially responsible investing are not homogenous.

Manish Saboo (2008) studied the performance of 22 mutual funds based on data pertaining to the period 2000-2007. Funds were evaluated by using measures like Sharpe ratio, Treynor ratio, Jensen Alpha, information ratio, expense ratio etc. The results revealed that out of 22 funds only 7 portfolios performed worse and the remaining are performing better than the market portfolio. Systematic risk for each of the funds (beta) was found to be very low. A positive alpha for most of the funds indicated that the manager generated a return more than what was expected given the portfolios risk level. Based on the risk-adjusted measure most of the funds outperformed the market portfolio. These measures used in this study lead to similar results with high rank correlation between the measures.

SoumyaGuha Deb, Ashok Banejee(2008) evaluated the relative performance of equity mutual funds in India over the period from January 2000 to June 2005 with respect to three performance indicators, namely, raw returns, the tracking error they generate over their benchmarks and the information ratios. The study also tested the persistence in their performance with respect to the indicators across time. Sample of 62 equity mutual fund schemes were considered for this study. The result of this study showed that the funds have generated positive average weekly returns during the sample period. The average weekly information ratio was also positive and the funds have done well with respect to all three performance measures. The evidence of persistence was most prominent over an evaluation horizon of one year and less when the time horizon is three months or six months and it disappears completely when the horizon is extended to a period of more than thirty months.

Adjei Frederick (2009) found no significant difference between the performances of the ETFs and the S&P 500 index. He found weak evidence of performance persistence on both the half-yearly and the yearly horizons. Johnson (2009) reported the existence of tracking errors between foreign ETFs and the underlying home index returns. Blitz David et al. (2010) investigated the performance of index mutual funds and the ETFs that are listed in Europe. They found that European index funds and ETFs underperform their benchmarks by 50 to 150 basis points per annum. William (2009) found the existence of tracking errors between foreign ETFs and the underlying home index in US.

Blitz David and Huij (2011) evaluated the performance of ETFs that provide passive exposure to global emerging markets (GEM) equities and found that GEM ETFs exhibit higher tracking error. Houweling (2011) found that treasury ETFs were able to track their benchmark but investment grade corporate bond ETFs and high yield corporate bond ETFs underperform their benchmarks. Charupat&Miu (2011) analyzed the performance of leverage ETFs, and concluded that price deviations are small among leverage ETFs and that price volatility is more, as a result of rebalancing, at the end of the day.

Patrick (2011) found that in Hong Kong the magnitude of tracking errors is negatively related to the size but positively related to the expense ratio of the ETFs. He further commented that replicating the performance of underlying securities involves more risk, since they have a higher tracking error than in the US and Australia.

2.4 Limitations of the Study: Time was one of the limiting factors for study. Collecting historical NAV is very difficult. Selection of the schemes for the study is also a very difficult task because of the wide variety of schemes. Various schemes of the funds being used in the project are limited.Chapter 3

INDUSTRY and Company Profile

3.1INDUSTRY PROFILE

Stock market is a place where trading of company stocks, other securities and derivatives takes place. Stock exchanges are corporations or mutual organizations, which are specialized in trading stocks and securities.A stock market is a public market for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately. The stock market is one of the most important sources for companies to raise money. This allows businesses to be publicly traded, or raise additional capital for expansion by selling shares of ownership of the company in a public market.

First stock exchange Mumbai (Bombay) stock exchange is India. Found in 1875 with more than 6,000 stocks being listed. In India there are total 23 stock exchanges operating across the country. The national stock exchange (NSE) situated in Mumbai the small and medium sized companies can list their stocks in over the counter exchange of India (OCTEI).

The securities and exchange board of India (SEBI) regulates the functioning of capital market and protects the interests of investor. It is located in Mumbai some functions of SEBI are as follows:- Regulations of working in stock exchanges and other securities markets

Registration and regulation of the operation of collective investment plans, including mutual funds

Inhibition of fallacious and unfair business practices in the securities markets.

Controlling accomplishment of shares and takeover of companies

Stock exchange means anybody of individuals, whether incorporated or not, constitutes for the purpose of regulating or controlling the business of buying selling or dealing in securities. These securities include:

Shares, scrip, stocks, bonds, debentures stock or other marketable securities of a like nature in or of any incorporated company of other body corporate

Government securities and

Rights or interest in securities

The Indian retail brokerage industry consists of companies that primarily act as agents for the buying and selling of securities (e.g. stocks, shares, and similar financial instruments) on a commission or transaction fee or Brokerage basis.

An agent that charges a fee or commission for executing buys and sells orders submitted by an investor. The firm that acts as an agent for a customer, charge the customer the commission for its service. Roles similar to that of a stockbroker include investment advisor, financial advisor and probably many others. A stockbroker may or may not be also an investment advisor.A stockbroker is a regulated professional broker who buys and sells shares and other securities through market makers or Agency Only Firms on behalf of investors.

Typically, a broker who receives an order from a customer will communicate with a company employee located at a particular exchange, who will execute the order at the exchange and report details of the transaction to the broker. Customers typically keep their securities in an account with the broker. Brokers charge customers commissions for conducting transactions and fees for maintaining their accounts.

Some of the main characteristics of the brokerage industry include growth in e-broking, decline in brokerage fees and growing derivative market and many more. There are several national as well as local players in stock trading services which are providing various services to their customers like online trading, portfolio management system, stock broking etc.

New forms of trading including T+2 settlement system, dematerialization etc. are strengthening the retail brokerage market and attracting foreign companies to enter the Indian industry various alternative forms of investment including fixed deposits with banks and post offices etc. act as substitutes to retail broking products and services.History of stock market in India

There are 23 recognized stock exchanges in India Bombay Stock Exchange, National Stock Exchange, Ahmadabad Stock Exchange, Bangalore Stock Exchange, Bhubaneswar Stock Exchange, Calcutta Stock Exchange, Delhi Stock Exchange, Guwahati Stock Exchange, Hyderabad Stock Exchange, Jaipur Stock Exchange, Ludhiana Stock Exchange, Cochin Stock Exchange, Coimbatore Stock Exchange, Madhya Pradesh Stock Exchange, Magadh Stock Exchange, Madras Stock Exchange, Mangalore Stock Exchange Meerut Stock Exchange OTC Exchange Of India, Pure Stock Exchange, Saurashtra Kutch Stock Exchange, Uttar Pradesh Stock Exchange, Vodadara Stock Exchange.BSE and NSE represent themselves as synonyms of Indian stock market. Bombay Stock Exchange:

The Bombay Stock Exchange Limited is the oldest stock exchange not only in the country, But also in Asia with a rich heritage of over 133 years of existence. It traces its history to the 1850s, when stockbrokers would gather under banyan trees in front of Mumbai's Town Hall. The location of these meetings changed many times, as the number of brokers constantly increased. The group eventually moved to Dalal Street in 1874 and in 1875 became an official organization known as 'The Native Share & Stock Brokers Association'.It was established in the year 1875 and became the first stock exchange in the country to be recognised by the government. In 1956, BSE obtained a permanent recognition from the Government of India under the Securities Contracts (Regulation) Act, 1956.The history of Indian stock trading starts with 318 persons taking membership in native share and stock brokers association, know called as Bombay stock exchange or BSE in short.BSE stands first to National stock exchange in terms of popularity. National Stock Exchange:

The National Stock Exchange of India was promoted by leading financial institutions at the behest of the Government of India, and was incorporated in November 1992 as a tax-paying company. In April 1993, it was recognized as a stock exchange under the Securities Contracts (Regulation) Act, 1956.NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment of the NSE commenced operations in November 1994, while operations in the Derivatives segment commenced in June 2000.Capital market reforms in India and the launch of the Securities and Exchange Board of India (SEBI) accelerated the incorporation of the second Indian stock exchange called the National Stock Exchange (NSE) in 1992. After a few years of operations, the NSE has become the largest stock exchange in India.3.2 COMPANY PROFILE

3.2.1 OVERVIEW AND COMPANY BACKGROUND AND MANAGEMENTAnandRathi is a leading full service investment bank founded in 1994 offering a wide range of financial services and wealth management solutions to institutions, corporations, high-net worth individuals and retail. The firm has rapidly expanded its footprint to over 700 locations across India with international presence in Dubai, Hong Kong & New York, founded by Mr. AnandRathi and Mr. Pradeep Gupta, the group today employs over 3,500 professionals throughout India and its international offices.

The firms philosophy is entirely client centric, with a clear focus on providing long term value addition to clients, while maintaining the highest standards of excellence, ethics and professionalism. The entire firm activities are divided across distinct client groups: Individuals, Private Clients, Corporate and Institutions. AnandRathi has been named The Best Domestic Private Bank in India by Asiamoney in their Fifth Annual Private Banking Poll 2009. The firm has emerged a winner across all key segments in Asiamoneys largest survey of high net worth individuals in India.In year 2007 Citigroup Venture Capital International joined the group as a financial partner.

AnandRathi has been voted #1 by money polls for 2 consecutive years:

2009 - No.1 Domestic private bank

2010 - No.1 Domestic Private Bank

Our client base is a strong testimony to our experience in managing wealth large families and institutions.

Easy and quick access to capital through our existing client relationships which includes promoters of family owned business, top management of leading companies, Professionals, Corporate treasuries and trusts.

Credited with developing and selling some of the most innovative products in the market.

Strong retail distribution network: Nationwide reach

AnandRathis retail footprint extends across over 700 locations across India.

Manage more than 3.5 lakhs client accounts across the country, with a daily turnover of around INR 20 billion.

Strong product portfolio which induces equities. Derivatives, commodities, IPOs mutual funds, life and non-life insurance depository services and bonds.

Leading distributor of IPO, insurance, mutual funds and third party products.

We have been ranked 8th amongst all brokers for amount procured in IPOs in India during January to June 2010 by prime data base. The firms philosophy is entirely client centric, with a clear focus on providing long term value addition to clients, while marinating the highest standards of excellence, ethics and professionalism.

COMPANY BACKGROUND AND MANAGEMENT

On corporation in 2005, FCH focused on three business lines: investment advisory, asset management and wholesale financing. In 2010, it decided to focus on the financing business. As a result, mile stone capital. Its advisory arm was carved out. That year V. Vaidyanathan stepped in as managing director to implement the change in strategy towards emerging as a diversified retail NBFC. With its network of 173 branches and well established in the south and the north, FCH is creating a niche in Indias urban regions.

3.2.2 MILESTONE, TOP MANAGEMENT AND NATURE OF BUSINESS

Top Management

Board of Directors

Mr.AnandRathi

Mr. Pradeep Gupta

Mr. Amit Rathi

Vice Chairman

Group Chairman

Managing DirectorManaging director V. Vaidyanathan was previously MD & CEO of ICICI prudential life insurance and executive director on the ICICI bank board. He was part of the core team that set up ICICI banks retail business between 2000 and 2009. Also chairman of ICICI home Finance and served on the board of ICICI Lombard General Insurance and CIBIL, Indias first credit bureau. Heading the consumer business, ApulNayyar has been with FCH since October 10. Prior to this, he was ED & CEO of India info line investment services and India info line housing finance. Overall, he has 14 years experience in financial services head of wholesale credit, ShaileshShirali joined FCH in Jul08. Prior to this, he was MD global structured finance and investments at DSPML capital, India. Overall, Shailesh has post-qualification experience of over 17 years in financial services. Chief financial officer AshokShinkar was earlier on the board of Wanbury, a Pharma company. He was also associated with SSKI corporate finance as vice-president and handled corporate finance advisory. Chief risk officer Pankaj Sanklecha has 15 years experience in retail and SME banking, having held leadership positions across risk and business. Prior to FCH, he was with standard Chartered bank for seven years where he was head of credit for retail lending, managing a portfolio of $2.5bn.

Nature of Business AnandRathi share and stock brokers LTD (AnandRathi) is a Mumbai-based stock broking firm which was established in 1994. The company was earlier known asnavratan capital & securities Pvt. Ltd. AnandRathi is a member of BSE and NSE and pirates in the cash as well as derivative segment in both of these exchanges. It also provides depository services and is registered member of NSDL and CDSL. The various other products and services offered by the company include investment banking, margin funding distribution of mutual funds, WMS and research, the company catered largely to retail clients. Who contributed approximately 81% to the companys trading volume during CY09. AnandRathi is also a member of DGCX and affiliated with London metal exchange (LME) and securities and futures commission (SFC).

3.2.3 PROMOTERS, FEATURES, BENEFITS, Mission, Vision, Quality Policy:Promoters:Promoter is offered to promoters of the companies against their shareholding in their respective company. With the help of this facility the promoter can increase the shareholding or use in expansion and diversification of the business.

Features: Loan available against existing promoter holding

Margin 50% - 75% (depending on the risk profile of the business and the stock)

Tenor 1 to 3 years

Loan Amount INR 1 Cr to INR 5 Cr

Attractive Interest Rates

Simple Documentation

Benefits: Increase promoters holding in the business with the use of existing stake

Liquidity requirement for expansion and diversification of business

Easier and faster processing

Promoters do not have to liquidate their holdings to meet short-term cash requirements

Promoter can increase their stake through buying at lower priceMission:To be Indias first domestic company providing complete financial services solution across globe

Vision:To be a shining example as a leader in innovation and the first choice for clients and employees

Quality policy: Improving asset quality is the key behind decent performance of bank stocks in a falling interest rate environment.

Credit to improve; soft inflation to spur deposits.

A likely accommodative monetary policy by RBI (100bps monetary easing in CY13), expected recovery in infra credit demand and sustained improvement in household leveraging could push bank credit growth to 16% in FY14 and 15% in FY15.

Moreover, falling inflation would improve real interest rates, which in turn, could channel both household and corporate savings to bank term deposits.

Estimated deposit growth at 17% in FY14 and 16% in FY15.

NIM gains restricted by stretched credit-to-deposit. In a low real interest rate environment, banks would have limited flexibility to lower deposit rates.

2.2.4 Awards and Recognition, PRODUCTS/SERVICES, AREA OF OPERATIONAwards and recognition:Best Branch Overall Brokerage - Pan India - First PlaceBellary BranchRest Of Karnataka

Best Branch Overall Brokerage - Pan India - Second PlaceWarangal BranchAndhra Pradesh

Best Branch Overall Brokerage - Pan India - Third PlaceJammu Bahu Plaza BranchPunjab & Jammu Kashmir

Best Branch Equity - Pan India - First PlaceJaipur Retail 1 BranchRajasthan

Best Branch Equity - Pan India - Second PlaceVijaynagar BranchBangalore

Best Branch Equity - Pan India - Third PlaceJammu Bahu Plaza BranchPunjab & Jammu Kashmir

Best Branch Commodity - Pan India - First PlaceWarangal BranchAndhra Pradesh

Best Branch Commodity - Pan India - Second PlaceBellary BranchRest Of Karnataka

Best Branch Commodity - Pan India - Third PlaceNizamabad BranchAndhra Pradesh

Best Branch Currency - Pan India - First PlaceChandigarh BranchPunjab & Jammu Kashmir

Best Branch Currency - Pan India - Second PlaceNasik MG Road BranchRest of Maharashtra

Best Branch Currency - Pan India - Third PlaceHowrah BranchEast India

Best Branch Cross Sell - Pan India - First PlaceGoa BranchRest Of Karnataka

Best Branch Cross Sell - Pan India - Second PlaceTumkur BranchRest Of Karnataka

Best Branch Cross Sell - Pan India - Third PlaceAllahabad BranchUP &Uttranchal

Best Branch Franchisee Revenue - Pan India - First PlaceNoida BranchDelhi & NCR

Best Branch Franchisee Revenue - Pan India - Second PlaceNasik MG Road BranchRest of Maharashtra

Best Branch Franchisee Revenue - Pan India - Third PlaceJammu Bahu Plaza BranchPunjab & Jammu Kashmir

Best Branch Revenue Rest of Maharashtra New Client acquisition - Pan India - First PlaceUdaipur BranchRajasthan

Best Branch Revenue Rest of Maharashtra New Client acquisition - Pan India - Second PlaceDadarW BranchMumbai

Best Branch Revenue Rest of Maharashtra New Client acquisition - Pan India - Third PlaceWardha BranchCentral India

Best Branch Revenue from New Client acquisition - Pan India - First PlaceAjani New BranchCentral India

Best Branch Revenue from New Client acquisition - Second PlaceGulbarga BranchRest Of Karnataka

Best Branch Revenue from New Client acquisition - Pan India - Third PlaceGandhibazar BranchBangalore

Best Branch Franchisee Revenue - Pan India - First PlaceNoida BranchDelhi

Best Branch Franchisee Revenue - Pan India - Second PlaceCG Road BranchGujarat

Best Branch Franchisee Revenue - Pan India - Third PlaceSurat Own BranchGujarat

Best Branch Cross Sell - Pan India

- First PlaceMarket Yard BranchROM

Best Branch Cross Sell - Pan India - Second PlaceTumkur BranchRest Of Karnataka

Best Branch Cross Sell - Pan India - Third PlaceBegum Bazar BranchHyderabad

PRODUCTS/SERVICES PROFILE

DEMAT Account, Trading Account

Mutual Funds

Equities

Derivatives

Commodities, Bonds

Insurance

Gold E Lock

SERVICE PROVIDED:1. Equity & Derivatives Brokerage:

AnandRathi provides end-to-end equity solutions to institutional and individual investors. Consistent delivery of high quality advice on individual stocks, sector trends and investment strategy has established a competent and reliable research unit across the country.

Clients can trade through online on BSE and NSE for both equities and derivatives. They are supported by dedicated sales and trading teams in trading desks across the country. Research and investment ideas can be accessed by clients either through their designated dealers, email, web or SMS.2. Mutual Funds:

AnandRathi is one of Indias top mutual fund distribution houses. Their success lies in their philosophy of providing consistently superior, independent and unbiased advice to their clients backed by in-depth research. They firmly believe in the importance of selecting appropriate asset allocations based on the clients risk profile.

AR have a dedicated mutual fund research cell for mutual funds that consistently churns out superior investment ideas, picking best performing funds across asset classes and providing insights into performances of select funds.

3. Depository Services:

AR depository services provides with a secure and convenient way for holding your securities on both CDSL and NSDL.AR depository services include settlement, clearing and custody of securities, registration of shares and dematerialization. Also offer daily updated internet access to holding statement and transaction summary.

4. Commodities:

AR commodities broking services include online futures trading through NCDEX and MCX and depository services through CDSL. Commodities broking is supported by a dedicated research cell that provides both technical as well as fundamental research. Our research covers a broad range of traded commodities including precious and base metals, oils and oilseeds, agriculture commodities such as wheat, chana, guar and sugar, jeera and cotton.In addition to transaction execution, we provide our clients customized advice on hedging strategies, investment ideas and arbitrage opportunities.

5. Insurance Broking:

As an insurance broker, AR provide to his clients comprehensive risk management techniques, both within the business as well as on the personal front.Risk management includes identification, measurement and assessment of the risk and handling of the risk of which insurance is an integral part. The firm deals with both life insurance and general insurance products across all insurance companies. Their guiding philosophy is to manage the clients entire risk set by providing the optimal level of cover at the least possible cost. The entire sales process and products selection is research oriented and customized to the clients needs. They lay strong emphasis on timely claim settlement and post sales services.

OTHER SERVICES:

Risk Management

Due diligence and research on policies available

Recommendation on a comprehensive i8nsurance cover based on clients needs

Maintain proper records of clients policies

Assist client in paying premiums

Continuous monitoring of client account

Assist client in claim negotiation and settlementAREAS OF OPERATION

AnandRathi financial services offers and provides services not only to regional, national but also to international countries it has a strong and wide distribution network. We can find offices of AnandRathi in 197 cities and 28 states and has several branches in Dubai, Bangkok etc.

3.2.5 OWNERSHIP PATTERN, INFRASTRUCTURAL FACILITIESOwnership pattern:AnandRathi has an autocratic management system all strategic decisions and actions are taken by owner of organization. New plans, services, branch opening decisions taken by top management in entire AnandRathi service firm.

But in branch level they have democratic management system. It means all vital decisions taken by branch management.

Infrastructural facilities: Dealing desk

Land line phones

Research team, equity team

Sales talent

Intellectual capital, specialized transactions

3.2.6 COMPETITORS INFORMATION

The Following are the Competitors information in detail to AnandRathi, it consider the sub brokers, number of employees, number of branches, city and total terminals.Company NameTotal TerminalsSub BrokersNo. of EmployeesNo. of BranchCity

A S Stock Broking & Management Private Limited15NA252Mumbai

Action Financial Services (India) Limited18253110Mumbai

Alankit Assignments Limited6506070020New Delhi

Anagram Securities Limited9999641183139Mumbai

Angel Broking Limited50812408180066Mumbai

Anush Shares & Securities Private Limited37104030Chennai

Arcadia Share & Stock Brokers Private Limited19112115060Mumbai

Arch Finance Limited16NA4510New Delhi

Zuari Investments Limited31NA5015New Delhi

Skyes& Ray Equities (India) Limited1830050250Mumbai

SKI Capital Services Limited88NA6018New Delhi

Bonanza Portfolio Limited21775361200380Delhi

UTI Securities Limited27015057535Mumbai

India Info line Limited970NA3858540Mumbai

India bulls Securities Limited2700NA8922475New Delhi

Bonanza Portfolio Limited21775361200380Delhi

IL&FS Investment Securities Limited661NA1600288Mumbai

ICICI Securities Limited10515871833270Mumbai

3.2.7 THE McKINSEYS 7S MODEL WITH REFERENCE TO ANANDRATHI:

STRATEGY:

Set out the vision, mission, objective and major action plans and policies of the organization. These set out the picture of the organization in the future typically spelling out the overall corporate strategy, the Strategic business unit strategy and functional Strategies. It can also be defined as the choice of direction and action that the company adopts to achieve its objective in a competitive situation. It is the first step that the company has to take in leading its organization to ladder of success. The major areas of Strategic Goals of ANANDRATHI are:

MajorDescription

1) Market StandingDesired share of present and new markets, including areas in which new products are needed and service goals aimed at building customer loyalty.

2) InnovationInnovation in products/ services as well as innovation in skill and activities required to supply them.

3) Human ResourcesSupply, development and performance of managers employee attitudes.

4) Financial ResourcesSources of capital supply and how it will be utilized.

5) Physical ResourcesPhysical facilities and how they will be utilized in providing services.

6) ProductivityEfficient use of resources relatives to outcomes.

7) Social ResponsibilityResponsibilities in such area as concern for community and ethical behavior.

STRUCTURE:

Include policies and procedures that govern the way in which the organization acts within the organization. It provides the frame work for relationship among different parts of the organization. It sets out formal reporting relationships, mode of communication, their respective roles and rules and regulation for carrying out different tasks. If it is not properly defined it has a detrimental effect on the effective and efficient working because motivation and morale is low, decision are delayed and are of poor quality the expenses rises, orders are lost due to competition, lack of confidence etc.

Structure of any organization has to answer the following questions-

What is basic structural form?

How centralized versus decentralized is the organization?

What is the relative status and power of the organization?

2.2.8 ORGANISATION CHART AND SWOT ANALYSIS:Chart showing the Organization Structure of AnandRathi Financial Service Limited

SYSTEMS:Systems in their frame work stands for the rules and regulations, procedures and practices that must be allowed to carry out the tasks in the organization. A good system adds to the efficient and effective working of the entrepreneur. At AnandRathi in Vijaynagar the procedure followed is clear, transparent and not complicated.

The information systems at the various branches of AnandRathi are followed by submission of MIS reports at end of their day to day activities. The activities of the front end operation include: Client Advisory Services

Processing of DEMAT account transactions.

New issue promotions.

Portfolio Management of NRI clients.

Promotions activities for promotions of various funds (New Recommended ones).

Finally MIS reporting of day to day transactions.

At the back office day to day operations include-

Processing of various application forms of DEMAT account IPOs and forwarding the same to the Head office.

Providing statement of account to the investors on request.

Addressing requests for non-payment of sub brokers commission.

MIS reporting of day to day transactions.

The Total Quality Control System of AnandRathi has created principles about its quality philosophy-

Create constancy of purpose and improve services for long range needs rather than short term profitability.

Search continually problems in the system and improve processes.

Encourage effective two way communication and other means to drive fear throughout the organization and help people to work more productively.

The Electronic Data Processing (EDP) department of AnandRathi takes care of both offline and online transactions. In the online transactions, online trading takes place using NEAT software. It is connected to NSDL, CDSL, NSE and BSE and helps stock brokers to trade online. The offline is mainly connected for the purpose of conversion of physical form of shares to electronic form.

STYLE:Style includes Leadership style of top management and overall operating style of the organization. Style impacts the norms people follow and they work and interact with each other and with customers.

How does the top management make decisions Participatory Vs Top Down?

How do managers spend their time in informal meetings, informal conversations, etc.?At AnandRathi, they follow a very in effable style of functioning.

Managers, staff etc. are approachable (a perfect blend of formal and informal approaches)

Personal attention to the project trainees helps in creating a good image in the eyes of the public.

Staff has very good informal conversations that develop a sense of loyalist, motivation, dedication within the employees.

Emergency meetings are held where top management and employees collectively participate- targets for the week is set, responsibilities are delegated, suggestions are invited.

There is a good cordial relation between the management and the employees which shows a participatory leadership style is observed.

STAFF:The staffing procedure mainly includes how the organization has to look into its people, their backgrounds, and competencies. Staff also includes the organization approaches to recruitment, selection and specialization. How people developed, how recruits are trained, socialized and integrated and how their careers are managed?

At AnandRathi, there are around 2500 employees working across India.

At AnandRathi, in Vijaynagar branch there are about 10 employees.

The candidates are recruited from diverse fields of commerce like B.COMs, MBAs, ICWAs, CAs and CFAs, great opportunity for freshers and post graduates. They are involved in all the required meetings and activities.

The Staff are given freedom to use their innovation and creative skills.

Get together are held for staff members to socialize.

Staff grievances are given a listening in a year.SKILLS:Include distinctive competencies that reside in the organization. These can be distinctive competencies people, management practices, systems and technology. What new capabilities the organization needs to develop, which one does it need to unlearn to compete in future. This can be learnt through a SWOT Analysis.The competent skills of the people include good communication and presentation skills, strong academic record, consistent in the performance levels etc.SHARED VALUES:It refers to core or fundamental values that are widely shared in the organization and serve as guiding principles that are important. These values have great meaning because they focus attention and provide a broader sense and purpose. They also give a strong basis for stabilities to the organization, in a rapidly changing environment by providing a basic meaning to people working in the organization.

Do people have a shared understanding of why a company exits?

Do people have a shared understanding of the vision of the company?

How do people describe the ways in which the company is distinctive?

At AnandRathi, which is primarily a client or investor oriented organization has embedded this quality among all its member employees. The members work today towards the growth and success of the unit. The employees share responsibility and protect the companys name and integrity. There is no sharing of confidential/important information with the outsiders. There is collective responsibility and accountability on the part of its members. This can be said as the shared values of the employees of the organization.

SWOT ANALYSISA SWOT analysis is a tool, used in management and strategy formulation. It can help to identify the Strengths, Weaknesses, Opportunities and Threats of a particular company.Strengths and weaknesses areinternal factorsthat create value or destroy value. They can include assets, skills, or resources that a company has at its disposal, compared to its competitors. They can be measured using internal assessments or externalbenchmarking.Opportunities and threats areexternal factorsthat create value or destroy value. A company cannot control them. But they emerge from either thecompetitive dynamics of the industry/marketor from demographic, economic, political, technical, social, legal or cultural factors.

Breadth of Services

In line with its client-centric philosophy, the firm offers to its clients the entire spectrum of financial services ranging from brokerage services in equities and commodities, distribution of mutual funds, IPOs and insurance products, real estate, investment banking, merger and acquisitions, corporate finance and corporate advisory.

Clients deal with a relationship manager who leverages and brings together the product specialists from across the firm to create an optimum solution to the client needs.

In-Depth Research

Our research expertise is at the core of the value proposition that we offer to our clients. Research teams across the firm continuously track various markets and products. The aim is however common to go far deeper than others, to deliver incisive insights and ideas and be accountable for results.STRENGTHS Global parentage and expertise.

Experience senior management.

World class technology and infrastructure.

Strict risk control systems.

Fundamental and technical research.

Multiple products under one roof.

Company with well diversified portfolio.

WEAKNESSES Many competitors.

No direct marketing strategy.

Payment services are not good.

No global reach.

Weak brand name.

OPPORTUNITIES To grab the growing Indian market.

Scope for taking its business overseas and going global. Scope for increasing its branch network especially in the important financial centers as well as extending its physical presence in other parts of the country. Up gradation of the latest technology to give better and faster service to its clientsTHREATS Global economic slowdown.

The Indian capital market is fluctuating.

The ever increasing and challenging neck-to-neck competition especially with those established and existing reputed stock broking companies. Uncertainty of the market and volatility and fluctuations in the stock prices. Change in customer needs, preferences and taste. Threat from new entrants into the field of stock broking.3.2.9 Growth and Future ProspectusGrowth is an every successful organization positive sign in the competitive world. In India financial market is booming drastically and number of new investors is increasing. At present Indias progress and growth measured on investment related option like equality shares, mutual funds, commodities etc. and stock market is a barometer of the economy.AnandRathi is providing competitive service to clients and day by day their clients spreading across India. For growth they are conducting education meeting and conference for investors. As investors Increases Companys profit also increases.

AnandRathi growth aspect is increases of clients, motivating new investors providing new DEMAT A/c, providing multi investment option in one floor. Increasing in days total transaction and also AnandRathi company has bright prospective and is very dynamic because financial market is so young and energetic. It helps to companys growth and creates mark in the financial market.3.2.10 Financial Statement Analysis

Figure showing Income Statement

(Rs. in Millions)

Year end MarchFY 12FY 13FY 14

Net interest income181529154078

NII growth (%)108.360.639.9

Non-interest inc156218122224

Total income337747276302

Total inc growth (%)52.640.033.3

Op. Expenses161121512741

Operating profit176625763561

Op. profit growth (%)49.045.938.2

Provisions268523703

PBT149820532858

Tax464664924

PAT103413891934

PAT growth (%)110.434.439.2

FDEPS (Rs./share)16.021.429.8

DPS(Rs./share)1.82.32.7

Figure showing the Balance Sheet

(Rs. in Millions)Year end MarchFY 12FY 13FY 14

Share capital648648648

Reserves and Surplus8125934411076

Borrowings399975807177595

Current liabilities and provisions322638714645

Deferred tax liabilities---

Total liabilities519957193393964

Advances474256639586313

Investments112012191397

Cash and bank bal293036095404

Fixed and other assets521710851

Total assets519957193393964

No. of shares (m)656565

Borrowings growth (%)52.445.233.6

Loans growth (%)66.040.030.0

Analysis:Based on the above income statement and Balance sheet of last five years, the company financial statement analysis can be evaluated by using key ratio.Key RatiosYear end: MarchFY 12FY 13FY 14

NIM (%)4.85.15.3

Other Income /total income (%)46.238.335.3

Cost-income(Rs.)47.745.543.5

Provision coverage (%)94.485.385.4

Dividend payout (%)11.310.79.0

Borrowings-loans (%)84.387.589.9

Investment-deposit (%)---

Gross NPA (%)0.10.40.5

Net NPA (%)0.00.10.1

Balance Value(Rs.)135.4154.2181.0

Adjustable BV(Rs.)135.4153.6179.9

Current Asset Ratio (%)17.814.212.7

ROE (%)12.714.817.8

ROA (%)2.32.22.3

Dividend Yield (%)1.41.92.1

InterpretationThe total income are decreasing year over year from FY 12 to FY 14 at the same time cost-income also decreasing year over year.

Dividend payout has been increasing in FY 12 later it has got decreasing drastically, borrowings loans are increased in FY 12 later it has got decreasing due to managing the risk and adjusting the profits. Gross Net Present Assent (NPA) has got decreasing;

Net NPA has maintaining consistency every year and adjustable balance value has got increasing, Due to decrease in the NPA the Current Asset Ratio has got decreasing from 17.8% to 12.7% from FY 10 to FY 14.

Finally, Return on Equity (ROE) has increasing year over year; the investor is getting better return on their investment. It will intend to invest in Stock Market, but the AnandRathi Company Return on Asset (ROA) has got decreasing due to lack of maintenance.The dividend Yield has been increasing year over year and the investors are getting good dividend on the company profit.

5 Equity Mutual Funds Included In the Study:1. Birla sunlife equity fund (G)2. Canara Robeco equity diversified (G)3. Franklin India Bluechip fund (G)4. Tata ethical fund (G)5. HSBC Unique Opportunities fund(G)5 ETFs Included in the study:

1. SBI Gold ETF2. UTI Gold ETF3. Kotak Sensex ETF4. R* Shares Banking ETF5. GS Nifty ETFCHAPTER 4

RESULTS, ANALYSIS AND DISCUSSIONSTable 4.1: showing analysis of Return of BirlaSunlife equity fund (G) in India in 2009

Year Fund returnIndex return

200988.0290.13

201013.7313.67

2011-28.73-26.14

201235.8930.39

20137.764.20

Average return23.3322.45

Graph 4.1: showing analysis of return of Birla Sunlife equity fund (G) in India in 2009

Interpretation 4.1:

The above table showing the analysis of return of Birla Sunlife equity (G) in India has outperformed than its index value in the year 2010, 2011 and 2013. The fund has the highest return of 88.02 in the year 2009 and it also has the lowest and negative return of -28.73 in the year 2011.Table 4.2: showing analysis of Return of CanaraRobeco equity diversified (G) in India

Year Fund returnIndex return

200992.3590.13

201020.6713.67

2011-15.86-26.14

201231.3230.39

20134.34.20

Average return26.5622.45

Graph 4.2: showing analysis of Return of CanaraRobeco equity diversified (G) in India

Interpretation:The above table showing the analysis of return of CanaraRobeco equity diversified (G) in India has outperformed than the index value in all the year. The fund has the highest return of 92.35 in the year 2009 and it also has lowest and negative return of -15.86 in the year 2011.

Table 4.3: showing analysis of Return of franklin India Bluechip fund (G) in India

Year Fund returnIndex return

200984.5079.10

201022.1717.86

2011-17.72-24.64

201226.5725.70

20134.268.98

Average return23.9621.4

Graph 4.3: showing analysis of return of Franklin India Bluechip fund (G) in India

Interpretation:The above table showing the analysis of return of Franklin India Bluechip fund (G) in India has outperformed than the index value in all the yearexcept in the year 2013. The fund has highest return of 84.5 in the year 2009 and it has the lowest and negative return of -17.72 in the year 2011.

Table 4.4: showing analysis of Return of Tata ethical fund (G) in India

Year Fund returnIndex return

2009111.3486.49

201019.3414.05

2011-16.33-26.45

201225.6731.34

201316.373.41

Average return31.2821.77

Table 4.4: showing analysis of Return of Tata ethical fund (G) in India

Interpretation:The above table showing the analysis of return of Tata ethical fund (G)in India has outperformed than the index value in all the yearexcept in the year 2012. The fund has the highest return of 111.34 in the year 2009 and it has the lowest and negative return of -16.33 in the year 2011.

Table 4.5: showing analysis of Return of HSBC Unique Opportunities fund (G) in India

Year Fund returnIndex return

200971.5690.13

201021.9513.67

2011-27.69-26.14

201231.6430.39

2013-1.284.20

Average return19.2422.45

Graph4.5: showing analysis of Return of HSBC Unique Opportunities fund (G) in India

Interpretation:The above table showing the analysis of return of HSBC Unique Opportunities fund (G)in India has outperformed than the index value in the year2010 and 2012.

The fund has the highest return of 71.56 in the year 2009 and it also has the lowest and negative return of -27.69 in the year 2011.Table 4.6: showing analysis of return and variability in return of selected equity mutual fundsFund nameReturnSD

Birla sunlife equity fund (G)23.3342.97

Canara Robeco equity diversified (G)26.5640.87

Franklin India Bluechip fund (G)23.9638.08

Tata ethical fund (G)31.2847.63

HSBC Unique Opportunities fund(G)19.2437.16

Interpretation:Standard deviation is used to measure the variation in individual returns from the average expected returns over a certain period.Tata ethical fund (G) has the highest return compared to other equity mutual funds selected, this fund also have highest SD i.e. variability in return. Higher standard deviation means a greater fluctuation in expected return. HSBC Unique Opportunities fund(G)has the lowest risk factor with less return compared to other equity mutual funds selected which means has a less fluctuation in expected return.

Table 4.7: showing analysis of beta of selected equity mutual funds

Fund nameBeta

Birla sunlife equity fund (G)0.99

Canara Robeco equity diversified (G)0.95

Franklin India Bluechip fund (G)1.00

Tata ethical fund (G)1.11

HSBC Unique Opportunities fund(G)0.85

Interpretation:Tata ethical fund (G) has beta value more than one which says that the stock is more volatile compared to the market. The stock value with more than 1 beta value is considered to be risky.

Franklin India Bluechip fund (G) has beta value equal to one which indicates that the stock moves in tandem with the market.

And the other 3 remaining funds have beta value less than one which says that the stock is less volatile compared to market.Table 4.8: showing performance evaluation of Top 5 equity mutual funds on the basis of Sharpes Performance Index

Scheme nameAverage return(Rp)RfSD()Sharpes indexRank

Birla sunlife equity fund (G)23.332.7642.970.484

Canara Robeco equity diversified (G)26.562.7640.870.582

Franklin India Bluechip fund (G)23.962.7638.080.563

Tata ethical fund (G)31.282.7647.630.601

HSBC Unique Opportunities fund(G)19.242.7637.160.445

Interpretation:The above table showing the performance evaluation of the selected equity mutual funds using sharpes index according to this index Tata ethical fund (G) is the best Equity Diversified Scheme because this scheme has ranked first and is also having the best risk-adjusted rate of return followed by Canara Robeco equity diversified (G).

Table 4.9: showing performance evaluation of Top 5 equity mutual funds on the basis of Treynors Performance Index

Scheme nameAverage return(Rp)RfbetaTreynors

indexRank

Birla sunlife equity fund (G)23.332.760.9920.784

Canara Robeco equity diversified (G)26.562.760.9525.052

Franklin India Bluechip fund (G)23.962.761.0021.203

Tata ethical fund (G)31.282.761.1125.701

HSBC Unique Opportunities fund(G)19.242.760.8519.395

Interpretation:The above table showing the performance evaluation of the selected equity mutual funds using Treynors index. According to this index Tata ethical fund (G) is the best Equity Diversified Scheme because this scheme has ranked first and is also having the best risk-adjusted rate of return followed by Canara Robeco equity diversified (G).Table 4.10: showing performance evaluation of Top 5 equity mutual funds on the basis of Jensen Performance Index

Scheme nameBeta

Alfa

Jensens index(/)Rank

Birla sunlife equity fund (G)0.991.081.094

Canara Robeco equity diversified (G)0.955.095.632

Franklin India Bluechip fund (G)1.002.562.563

Tata ethical fund (G)1.117.426.681

HSBC Unique Opportunities fund(G)0.85-0.26-0.315

Interpretation:The above table showing the performance evaluation of the selected equity mutual funds using Jensens index. According to this index, Tata ethical Fund (G)ranked as first best Equity Diversified Scheme followed by Canara Robeco equity diversified (G).Table 4.11: showing average return, risk and beta

Average return24.87

Average risk41.34

Average Beta0.98

Graph 4.6: showing average return, variability in return and beta

Interpretation:The above table showing the average return, variability in return and beta of the selected equity mutual funds having average return is 24.87 and beta is 0.98 and the risk involved is 41.34.Return is a major factor influencing factor to all types of investors.

ETFs

Table 4.12: showing analysis of Return of SBI Gold ETF in India

Year Fund returnIndex return

2009-6.4014.13

201023.1521.85

201127.7930.39

201213.2911.55

2013-11.67-6.64

Average return9.2314.26

Graph4.7: showing analysis of Return of SBI Gold ETF in India

Interpretation:The above table showing the analysis of return of SBI Gold ETF in India has outperformed than its index value in the year 2010 and 2012. The fund has the highest return of 27.79 in the year 2011 and it also has the lowest and negative return -11.67 in the year 2013.

Table 4.13: showing analysis of Return of UTI Gold ETF in India

Year Fund returnIndex return

200922.3624.39

201021.7222.95

201130.9228.93

201210.7512.96

2013-12.41-13.91

Average return14.6715.06

Graph 4.8: showing analysis of Return of UTI Gold ETF in India

Interpretation:The above table showing the analysis of return of UTI Gold ETF in India has outperformed than its index value in the year 2011 and 2013. The fund has the highest return of 30.92 in the year 2011 and it also has the lowest and negative return of -12.41 in the year 2013.

Table 4.14: showing analysis of Return of Kotak Sensex ETF in India

Year Fund returnIndex return

200982.0979.10

201016.8717.86

2011-22.99-24.64

201227.3725.70

201310.588.98

Average return22.7821.4

Graph 4.9: showing analysis of Return of Kotak Sensex ETF in India

Interpretation:The above table showing the analysis of return of Kotak Sensex ETF in India has outperformed than its index value in all the year except in the year 2010. The fund has the highest return of 82.09 in the year 2009 and it also has the lowest and negative return -22.99 in the year 2011.Table 4.15: showing analysis of Return of R* Shares banking ETF in India

Year Fund returnIndex return

200982.8677.63

201029.3431.13

2011-30.25-32.42

201257.4756.54

2013-5.59-8.73

Average return26.7724.83

Graph 4.10: showing analysis of Return of R* Shares banking ETF in India

Interpretation:The above table showing the analysis of return of R* Shares banking ETFin India has outperformed than its index value in the all year except in the year 2010.

The fund has the highest return of 82.86 in the year 2009 and it also has the lowest and negative return of -30.25 in the year 2011.Table4.16: showing analysis of Return of GS Nifty ETF in India

Year Fund returnIndex return

200973.3874.12

201018.1518.25

2011-23.10-24.62

201226.3827.70

20135.546.76