Chapter -1

INTRODUCTION

Problem Definition

The Indian capital market has been increasing tremendously during last few years.

With the reforms of economy, reforms of industrial policy, reforms of public sector and

reforms of financial sector, the economy has been opened up and many developments

have been taking place in the Indian money market and capital market. In order to help

the small investors, mutual fund industry has come to occupy an important place. The

objective of this is to examine the importance and growth of mutual funds and evaluate

the operations of mutual funds and suggest some measures to make it a successful

scheme in India.

The essential purpose behind mutual funds is to secure two important benefits for

small investors:-

(a) Diversification of risk and

(b) Professional management of investments

As regards diversification mutual funds can spread their investments over dozens or

even hundreds of companies but this is not possible for a small investor. Diversification

reduces risk. As regards diversification of risk may be noted that success in the

investment game requires that one must be prepared to spend the time required for

selecting investments and one must also have the necessary skills.

A majority of ordinary investors can’t devote the time required or don’t have the skills.

This is not to say that all mutual funds are good. There are wide differences in their

performance. Such differences become noticeable only over a long period of 5-10

years. Over short periods of 1-2 years, a particular fund may, at one time, be among the

best, and at another time among the worst. Hence, you should choose from among the

mutual funds those which have a record of consistently good performance and possess

characteristics (e.g. the industry composition of investments) which will help to achieve

good long term performance.

In the case of equity funds, the ups and downs in the equity market have direct effect on

the performance of the equity funds. This is an inherent source of risk over both short-

term and long-term in the case of equity funds. An investor inequity funds should have

some understanding of the equity market’s behaviour. How do we ensure that the mutual

fund will be managed in the best interest of the unit holders? This problem is taken care

of partly by the regulatory system and partly by fairly fierce competition among the

mutual funds for the investor’s money.

Deposits have some similarities with structured investment products, which offer 100%

capital protection. In both cases, returns might be linked to the performance of one or more

indices, securities or commodities. However, the mechanisms for delivering protection of

capital are quite different. In the case of a deposit, the deposit-taking firm has an obligation

to repay the depositor, while in the case of a structured investment product, the protection

is usually provided by a third party issuer of debt securities.

Firms communicating with customers in relation to accepting deposits must, from 1

November 2009, comply with the rules in the Banking Conduct of Business Sourcebook

(BCOBS).1. In relation to deposit promotions, standards have not altered, as the new

rules in BCOBS 2 are equivalent to the COBS 4 rules that applied previously.

Key issues identified

Issues we identified from our sample included:

¸ Explanations about the nature of deposit protection or ‘guarantees’ were either

omitted or potentially misleading,

¸ Lack of clarity about the roles and relationship of the promoter and deposit taker;

¸ Headline rates that do not clarify that it is possible to receive no return;

¸ Complex restrictions and rates of return; and

¸ Uncertainty and inconsistency about how to describe and categorise structured

deposits.

Firms must ensure that descriptions of structured deposits in financial promotions are fair,

accurate and sufficiently clear for the average member of the promotion’s target audience to

understand. This may pose particular challenges where the basis for the return on the deposit

is more complex, but inexperienced customers may view structured deposits as

simple savings products. Although some structured deposits are indeed very simple, we

saw others that were either inherently complicated or described in a way that made

them appear so.

The main purpose is to examine the performance of the mutual fund industry in India and

Fixed Deposits in INDIA and compare their performance to know whether Fixed

deposits are better to invest in than Mutual Funds. The study should definitely safe-guard

the interest of Investors. Hence the research is carried to suggest the Schemes based on

their Risk Profile.ang some progress, the progress has been set with

1.1. Mutual fund

A mutual fund is a scheme in which several people invest their money for a

common financial cause. The collected money invests in the capital market and the

money, which they earned, is divided based on the number of units, which they hold.

The mutual fund industry started in India in a small way with the UTI Act creating what

was effectively a small savings division within the RBI. Over a period of 25 years this

grew fairly successfully and gave investors a good return, and therefore in 1989, as the

next logical step, public sector banks and financial institutions were allowed to float

mutual funds and their success emboldened the government to allow the private sector to

foray into this area.

There are many types of mutual funds. We can classify funds based on:-

1. Structure

Open-

endedClose-

ended

2. Nature

Equity

Debt

Balanced

3. Investment objective

Growth

Income

Money market etc.

CONCEPT OF MUTUAL FUND:-

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 or her bears to the total amount of the fund Mutual Funds are trusts, which accept

savings from investors and invest the same in diversified financial instruments in terms of

objectives set out in the trusts deed with the view to reduce the risk and maximize the

income and capital appreciation for distribution for the members. A Mutual Fund is a

corporation and the fund manager’s interest is to professionally manage the funds

provided by the investors and provide a return on them after deducting reasonable

management fees.

Working of Mutual Funds:

The following figure explains the working of Mutual funds

Figure-1

Common Terms Used

¸ Net Asset Value (NAV) : Net Asset Value is the market value of the assets of

the scheme minus its liabilities. Per unit NAV is the net asset value of the

scheme divided by the number of units outstanding on the Valuation Date

¸ Beta : A measure of the volatility, or systematic risk, of a security or a

portfolio in comparison to the market as a whole. Beta is calculated using

regression analysis, and indicates the tendency of a security's returns to

respond to swings in the market. A beta of 1 indicates that the security's price

will move with the market. A beta indicates that the security's price will be

more volatile than the market.

History of Mutual Funds

The mutual fund industry in India started in 1963 with the formation of Unit

Trust of India, at the initiative of the Government of India and Reserve Bank of India.

The history of mutual funds in India can be broadly divided into four distinct phases.

First Phase – 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of

Parliament. It was set up by the Reserve Bank of India and functioned under the

Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI

was de-linked from the RBI and the Industrial Development Bank of India (IDBI)

took over the regulatory and administrative control in place of RBI. The first

scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had

Rs.6,700 crores of assets under management.

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

1987 marked the entry of non- UTI, public sector mutual funds set up by

public sector banks and Life Insurance Corporation of India (LIC) and General

Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI

Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87),

Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89),

Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). At the end of 1993,

the mutual fund industry had assets under management of Rs.47, 004 crores.

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

With the entry of private sector funds in 1993, a new era started in the Indian

mutual fund industry, giving the Indian investors a wider choice of fund families.

Also, 1993 was the year in which the first Mutual Fund Regulations came into being,

under which all mutual funds, except UTI were to be registered and governed. The

erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private

sector mutual fund registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more

comprehensive and revised Mutual Fund Regulations in 1996. The industry now

functions under the SEBI (Mutual Fund) Regulations 1996.

Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963

UTI was bifurcated into two separate entities. One is the Specified Undertaking of the

Unit Trust of India with assets under management of Rs.29,835 crores as at the end of

January 2003, representing broadly, the assets of US 64 scheme, assured return and

certain other schemes. The Specified Undertaking of Unit Trust of India, functioning

under an administrator and under the rules framed by Government of India and does

not come under the purview of the Mutual Fund Regulations.

COMPANY PROFILE

1.1 (A) SBI Mutual Funds

In November 1987, SBI Mutual Fund from the State Bank of India became the

first non UTI mutual fund in India. SBI Mutual Funds (SBI MF) is a partnership between

India’s largest bank State Bank of India and France’s Society General Asset

Management. State bank of India owns 63% in SBI MF and the rest 37% is owned by

France’s Society General Asset Management. As on April 30 2009, the company had

assets of Rs 37213.06 Crs.

It is currently operating a total of 46 schemes which includes Equity schemes, Debt

schemes, Short term debt schemes, Equity and debt, Gilt fund.

A total of over 6 million people have invested in the funds of SBI. The fund reaches out

to investors through a network of over 150 points of acceptance, 28 investor service

centres, 46 investor service desks and 56 district organisers.

On the 17th of May, 2010 the company launched a PSU fund with the aim of investing in

public sector companies which offer significant growth prospects for the investors and

also take advantage of the unlocking of value of some of these companies due to

disinvestment by the government.

Products currently being offered by the company are as follows:

Equity / Growth based products -

The equity based funds offered by SBI Mutual Fund, are as follows:

v Magnum COMMA Fund

v Magnum Equity Fund

v Magnum Global Fund

v Magnum Index Fund

Debt / Income based products -

The debt based funds that are in operation now, are as follows:

v Magnum Children's Benefit Plan

v Magnum Gilt Fund

v Magnum Gilt Fund (Long Term)

v Magnum Gilt Fund (Short Term)

v Magnum Income Fund many more.

Balanced funds -

The balanced funds that are in operation now, are as follows:

v Magnum Balanced Fund.

v Magnum NRI Investment Fund - FlexiAsset Plan.

Key Personnel:

Mr. Achal Gupta – Managing Director and Chief Executive Officer.

Mr. Didier Turpin – Dy. Chief Executive Officer.

Mr. Navneet Munoot – Chief Investment Officer.

Mr. R. S. Srinivas Jain – Chief Marketing Officer.

Mr. Vinaya Datar - Company secretary and Compliance officer.

1.1(B) 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.RMF is one of India’s leading Mutual Funds, with

Average Assets Under Management (AAUM) of Rs. 88,388 crores (AAUM for 30th Apr

09) and an investor base of over 71.53 Lakhs. Reliance Mutual Fund, a part of the

Reliance – Anil Dhirubhai Ambani Group, is one of the fastest growing mutual funds in

the country

Sponsor:- Reliance Capital Limited.

Trustee:- Reliance Capital Trustee Co. Limited.

Investment Manager:- Reliance Capital Asset Management Limited. The Sponsor, the

Trustee and the Investment Manager are incorporated under the Companies Act 1956.

Vision Statement:- “To be a globally respected wealth creator with an emphasis on

customer care and a culture of good corporate governance.”

Mission Statement:-To create and nurture a world-class, high performance environment

aimed at delighting our customers.

SCHEMES

A). EQUITY/GROWTH SCHEMES:

v Reliance Infrastructure Fund (Open-Ended Equity)

v Reliance Natural Resources Fund (Open-Ended Equity)

v Reliance Equity Linked Saving Fund (A 10 Year Close-Ended Equity)

B). DEBT/INCOME SCHEMES

v Reliance Monthly Income Plan

v Reliance Income Fund etc.

C). SECTOR SPECIFIC SCHEMES

v Reliance Banking Fund

v Reliance Pharma Fund

1.1(C) UNIT TRUST OF INDIA MUTUAL FUND:-

'Unit Trust of India was created by the UTI Act passed by the Parliament in 1963.

For more than two decades it remained the sole vehicle for investment in the capital

market by the Indian citizens. In mid- 1980s public sector banks were allowed to open

mutual funds. The real vibrancy and competition in the MF industry came with the setting

up of the Regulator SEBI and its laying down the MF Regulations in 1993.UTI

maintained its pre-eminent place till 2001, when a massive decline in the market indices

and negative investor sentiments after Ketan Parekh scam created doubts about the

capacity of UTI to meet its obligations to the investors. This was further compounded by

two factors; namely, its flagship and largest scheme US 64 was sold and re-purchased not

at intrinsic NAV but at artificial price and its Assured Return Schemes had promised

returns as high as 18% over a period going up to two decades.

Vision:-To be the most Preferred Mutual Fund.

Mission:-

¸ The most trusted brand, admired by all stakeholders.

¸ The largest and most efficient money manager with global presence

¸ The best in class customer service provider

¸ The most preferred employer

¸ The most innovative and best wealth creator

Sponsor:-

v State Bank of India

v Punjab National Bank

v Life Insurance Corporation of India

Trustee: - UTI Trustee Co. Limited

SCHEMES:-

v UTI Energy Fund (Open Ended Fund)

v UTI Equity Tax Savings Plan (Open Ended Fund)

v UTI Master Index Fund

v UTI Short Term Income Fund -Retail Plan etc.

1.2 Bank Fixed Deposits

Bank Fixed Deposits are also known as Term Deposits. In a Fixed Deposit

Account, a certain sum of money is deposited in the bank for a specified time period

with a fixed rate of interest.

The rate of interest for Bank Fixed Deposits depends on the maturity period. It is higher

in case of longer maturity period. There is great flexibility in maturity period and it

ranges from 7days to 10 years. The interest is compounded annually and is added to the

principal amount. Minimum deposit amount is Rs 1000/- and there is no upper limit.

Loan / overdraft facility is available against bank fixed deposits. Premature withdrawal is

permissible but some penalty is levied. Tax Deductible at Source, if the interest paid/

payable on deposit exceeds Rs.5000/- per customer, per year, per branch.

1.2(A) State Bank of India Fixed Deposits

State Bank of India fixed deposit is a good option to earn higher income on

surplus funds. Bank offers flexibility in period from 15 days to 10 years and can be

opened with a nominal amount of Rs. 1000/- only. Against your fixed deposit you can

take loan/overdraft during your urgent financial requirement. There is premature

withdrawal facility, transfer of term deposit within bank network with out any charge,

interest is accumulated in your account timely and gets compounded quarterly, automatic

renewal of your deposits on maturity. You can convert your special term deposit and vice

versa.

1.2(B) Federal Bank Fixed Deposits

Federal Bank fixed deposit gives you option to give instructions while placing

deposits with regard to closure or renewal of deposit. There is nomination facility. You

can withdraw your money at premature or can get premature renewal of the deposit. You

can take advance also against deposit.

Federal Fixed Deposit Benefits

v Minimum amount Rs.1000.

v Quarterly /Monthly interest payments.

v Advance upto 90% of deposit.

1.2( C) ICICI Bank Fixed Deposit

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial

institution, and was its wholly-owned subsidiary. In October 2001, the Boards of Directors

of ICICI and ICICI Bank approved the merger of ICICI and two of its wholly-owned retail

finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services

Limited, with ICICI Bank.

ICICI bank has a set of choice of investment plans attached to fixed deposit. You get a wide

range of tenures along with auto renewal facility on maturity of deposits. You can open

term deposit with nominal amount of Rs 1000/- only. Bank has a loan facility against

deposit. The re-investment plans on fixed deposits are lucrative as re-investment fixed

deposit rates do not change in fact works like a recurring debit account transaction.

Fixed Deposit Account

v Flexibility of tenure - 7 days to 10 years

v Liquidity

v Premature / Partial withdrawal permitted (subject to applicable charges)

v Loan / Overdraft upto 90% of FD amount

v Option of monthly / quarterly payout available

v Competitive interest rate - Know interest rates for various tenures

v Convenient ways to open a FD

v Internet Banking

v Phone banking

v ICICI Bank Branch

1.3 Difference Between Bank Fixed deposit and Mutual funds

FEATURES FIXED DEPOSITS MUTUAL FUNDS

Return on Investment Banks offer an assured fixed The rate of return of a debt

rate of return on maturity. fund is not assured and is

Currently the rate of return governed by movement in

varies from 3.5% to 8.5% interest rates and money

depending on the maturity market conditions. Any

period. Interest is compounded fluctuations in prices or

quarterly and the proceeds are interest rate impact the NAV

paid on maturity. of the fund.

Liquidity Most banks allow premature Liquidity is similar to

withdrawal of the amount individual stocks or equity

invested, before the actual mutual funds which allow

maturity date. The interest investors to liquidate their

would be calculated on the units in the market as and

basis of the number of days the when they require. On

amount stayed invested with redemption, one can expect to

the bank. For larger amounts, receive the amount in a day

banks have surrender charges or two from the fund house.

or penalties. In such cases, The amount received would

money would not be made be based on the Net Asset

available without penalties or Value (NAV) of the fund as

until the fixed deposit matures. on the date of redemption.

Tax Implications The interest earned on fixed The short term capital gain of

deposits is added to the total a debt fund is added to the

income, and then taxed at income and then taxed at

applicable slabs. Also, if the applicable slabs. For long

total interest earned on all term capital gain tax, it is

fixed deposits in a bank is calculated as 10% without

greater than Rs 10,000 in a indexation or 20% with

financial year, a tax of 10.3% indexation.

will be deducted at source by

the banks.

Capital Appreciation Not too good. Better

Risk Factor Assures capital protection. Not applicable to a larger

extent.

Impact of Inflation No protection Mutual funds have managed

to generate returns that have

surpassed this inflation rate

thus providing positive ”real

returns”.

Investment Costs Banks do not generally charge Funds cost the investor

any management costs for a investment management fees

fixed deposit investment. and fund distribution costs,

charged as a percentage of

the investment value. This is

borne by the investor

irrespective of the fund

performance. Fund houses

also charge an entry or exit

load from investors during

entry or exit from a scheme.

1.4 RESEARCH OBJECTIVES

The Research Objectives are formulated using KSA model as follows.

1.4 (A) KSA model

Definition of KSA

KSA model is a competency model of individual. KSA is the same KSAO.

KSA include Knowledge, Skills and Abilities (also called KSAs model) that an

applicant must have to perform successfully in the position. KSA are listed in the

“Qualifications and Evaluation” section of the job announcement.

Components of KSA:

1. Knowledge

A body of information needed to perform a task.

• For example, Human Resources Knowledge includes knowledge of

personnel recruitment, selection, training, compensation and benefits,

labour relations and negotiation, and personnel information systems.

2. Skills

Skills are the proficiency to perform a certain task.

• For example, skill in operating computer peripherals such as printers.

3. Abilities

Abilities are an underlying, enduring trait useful for performing tasks.

• For example, oral comprehension – the ability to listen to and understand

information and ideas presented through spoken words and sentences.

Classification of KSAs

KSAs include technical elements and behavioural elements.

Technical KSAs measure acquired knowledge and “hard” technical skills.

Behavioural KSAs measure “soft” skills, include the attitudes and approaches

applicants take to their work, such as the ability to collaborate on team projects.

Figure - 2

1.4 (B) Objective

1. To briefly study the Mutual Fund industry in India in the last eight years.

2. To give an idea of the types of schemes available.

3. To study 3 major income schemes from the mutual fund industry.( SBI

Mutual Fund,

Reliance Mutual Fund, ICICI Mutual Fund.

4. To study the Fixed Deposit scheme of 3 banks of India in last 8 years (SBI, ICICI

& Federal Bank )

5. To compares the Fixed Deposit schemes with Mutual Fund schemes.

1.5 RESEARCH

METHODOLOG

Y

Research as a care full investigation or enquiry especially through search

for new facts in any branch of knowledge” Research is an academic activity and

such as the term should be used in technical sense. The manipulation of things ,

concepts or symbols for the purpose of generalizing to extend ,correct or verify

knowledge ,whether that knowledge through objective.

METHODS OF DATA COLLECTION

Secondary data:

Secondary data means already available through books, journals, magazines,

newspaper, and internet. . The major sources of secondary data are given below.

∑ Textbooks

∑ Websites

∑ News papers

∑ The required data has been collected from websites like

www.moneycontrol.co m , www.bseindia.com.

ANALYSIS:

For the proper analysis of data statistical (mean, standard deviation and

co-variance) and financial (Beta and CAPM) method was used.

DATA ANALYSIS AND INTERPRETATION

Data analysis and interpretation is the process of assigning meaning to the

collected information and determining the conclusions, significance, and

implications of the findings. The steps involved in data analysis are a function of

the type of information collected, however, returning to the purpose of the

assessment and the assessment questions will provide a structure for the

organization of the data and a focus for the analysis.

Quantitative Data is presented in a numerical format collected in a standardized

manner e.g. surveys, closed-ended interviews, tests analyzed using statistical

techniques

The analysis of NUMERICAL (QUANTITATIVE) DATA is represented in

mathematical

terms. The most common statistical terms include:

∑ Mean – The mean score represents a numerical average for a set of responses.

∑ Standard deviation – The standard deviation represents the distribution

of the responses around the mean. It indicates the degree of consistency

among the responses. The standard deviation, in conjunction with the

mean, provides a better understanding of the data. For example, if the

mean is 3.3 with a standard deviation (StD) of 0.4, then two-thirds of the

responses lie between 2.9 (3.3 – 0.4) and 3.7 (3.3 + 0.4).

∑ Variance-A measure of the dispersion of a set of data points around their

mean value. Variance is a mathematical expectation of the average

squared deviations from the mean. Variance measures the variability

(volatility) from an average. Volatility is a measure of risk, so this statistic

can help determine the risk an investor might take on when purchasing a

specific security.

∑ Co-variance- A measure of the degree to which returns on two risky

assets move in tandem. A positive covariance means that asset returns

move together. A negative covariance means returns move inversely.

One method of calculating covariance is by looking at return surprises

(deviations from expected return) in each scenario. Another method is to

multiply the correlation between the two variables by the standard deviation of

each variable.

Possessing financial assets that provide returns and have a high covariance

with each other will not provide very much diversification.

For example, if stock A's return is high whenever stock B's return is high

and the same can be said for low returns, then these stocks are said to have a

positive covariance. If an investor wants a portfolio whose assets have diversified

earnings, he or she should pick financial assets that have low covariance to each

other.

In the project work, NAV and Nifty values are considered from 1st January 2005

to 31st December 2012. These values were then considered quarterly to calculate

mean, standard deviation, co variance. This was followed by calculation of

CAPM. During the project 3

mutual funds i.e SBI mutual fund, Reliance Mutual fund and UTI mutual funds

was considered. On the other hand 3 fixed deposits were also considered i.e SBI

Fixed Deposit, ICICI Fixed Deposit and Federal Bank Fixed Deposit.

The rate of return associated with the level of risk and the performance of mutual

funds is compared and analysed with respect to the performance of fixed deposits

in India.

The entire aim of the project work is to analyse the fact that Fixed Deposits are

better investing option than Mutual Funds.

∑ Sharpe Ratio: A ratio to measure risk-adjusted performance. The Sharpe

ratio is calculated by subtracting the risk-free rate from the rate of return

for a portfolio and dividing the result by the standard deviation of the

portfolio returns. The Sharpe ratio formula is:

Calculation of Sharpe Ratio:-

S(x) = ( Rx - Rf ) / StdDev(x)

Where,

x is some investment

Rx is the average annual rate of return of x

Rf is the best available rate of return of a "risk-free"

security StdDev(x) is the standard deviation of Rx

The Sharpe ratio tells us whether a portfolio's returns are due to smart investment

decisions or a result of excess risk. The greater a portfolio's Sharpe ratio, the

better its risk-adjusted performance has been. A negative Sharpe ratio indicates

that a risk-less asset would perform better than the security being analyzed.

The research design followed in the study is as follows:

∑ Title of the Study : “COMPARATIVE STUDY OF THE

PERFORMANCE OF THREE INCOME FUNDS

(MUTUAL FUNDS) WITH THE TOP THREE

FIXED DEPOSIT’S SCHEMES OF BANKS (SBI,

ICICI & FEDERAL BANK) IN INDIA”

∑ Period : 01-Jan-2013 to 31-mar-2013

∑ Sample size : 3 schemes of Mutual Funds

: 3 schemes of Fixed Deposits

∑ Representative sample : 3 Mutual Funds:- SBI MAGNUM FUND, RELIANCE

MUTUAL FUND and UTI MUTUAL FUND.

: 3 Fixed Deposits:- SBI, ICICI, FEDERAL BANK.

∑ Project Design : The project design selected for this project is

Descriptive project design. Descriptive design is one

that is concern with describing the characteristics of

consumers/ dealers who use/ sell the product/ services.

Hence here the characteristics and performance of

Mutual funds and Fixed deposits are studied through

secondary information.

Sampling technique : Systematic sampling technique used keeping in mind with

the following, funds and fixed deposits which are in to the market for more than 5

years, different investment styles are chosen to know the importance of risk and return

involved.

1.6 LIMITATIONS OF THE PROJECT

The limitations of the project are as follows:-

v The time constraint was one of the major problems.

v The study is limited to the different schemes available under the

mutual funds and fixed deposits selected.

v The study is limited to selected mutual fund and fixed deposit schemes.

v The lack of information sources for the analysis part.

v Sample limitation

v Reliability: - The data collected by me is not much reliable

v Parameters: - All the parameters have not been taken.

v Lack of Awareness

v Past performance may or may not sustain in the future

v Unpredictable change in the market condition will prove difficulty

in analysis of preferred sector for investing

v Investor preference is analyzed based only on observation

v Market risk is not taken in to consideration due to non possibility

of information

v Micro level data have been taken in analysis; Macro level data may

affect the returns.

Chapter -2

LITERATURE REVIEW

Review of the literature plays an important role in any research, it is

considering the importance of mutual funds and several academicians have tried

to study the performance of various mutual funds. Literature on mutual fund

performance evaluation is enormous.

Standard deviation, average variance and average coefficient of variation (COV)

are techniques used for measuring the performance of Mutual Funds and Fixed

Deposits.

1. Nidhi Walia-

Faculty –

PURCITM,

Thapar University, Patiala

2. Dr. (Mrs.) Ravi

Kiran, Assosiate

Professor,SOMSS,

Thapar University

Abstract

Financial innovations have become the central driving force taking any

financial system towards economic efficiency. Indian Capital market has shown a

spurt growth with financial innovations becoming a regular feature leading to

change in investor's preferences for newly fangled financial innovations. Mutual

fund has become an obvious choice for most of the investors because of its

performance in terms of providing higher returns at high risk.

At the same time there are bank that offers Fixed Deposit schemes that look

attractive enough. And even some of the top Mutual Funds that offer income

schemes often find it challenge to compute with this FD schemes.

1. Prof. Kalpesh P Prajapati,

Assistant Professor,

S.V Institute of Management,

Gujarat Technological University,

Ahmedabd, Gujarat, India

2. Prof. Mahesh K Patel,

Assistant Professor,

N.P College of Computer Studies & Management

Hemchandracharya North Gujarat University,

Patan, Gujarat, India.

Abstract

In this paper the performance evaluation of Indian mutual funds and fixed

deposits is carried out through risk-return analysis. The data used is daily closing

NAVs.

"Security Market Line" (SML) uses the systematic risk termed beta. Beta is

defined as the covariance between a security (or portfolio of securities) and the

market as a whole, divided by the variance of the market. The market as a whole

is considered the point

of tangency between the SML and the efficient frontier This is the

foundation for the Capital Asset Pricing Model (CAPM).

The CAPM is,

= RF+(RM-RF)(Beta) Dr. Shakti Kumar

Assistant Professor, Department of Economics and Rural Development,

Dr. R.M.L. Avadh University, Faizabad

Abstract

Equity mutual fund is risk adjusted return in which individual fund does

not earn higher returns from following the momentum strategy in stock (Carhart,

1997) because of investment constraints (Almazan, 2004). Restriction on

competing products is the reason of the development of money market and short

term bond funds (Klapper, 2000). Therefore, an investor should invest in small

equity fund whose trading activity is high (Dahlquist, 2000) or whose expense

ratio is low ( Malkiel, 1995) . Funds that heavily underperform have very high

expense ratio, while funds that are successful do not increase revenues by raising

their fees but benefit from increased size of their funds (Elton 1996, Carhat 1997).

Actively managed equity funds charge higher fees than index tracking funds or

bond and money market funds, reflecting the higher costs of employing

investment management staff to achieve diversification and strategy (James et al.

1999). Funds charge lower fees when they have smaller boards and a large

proportion of independent directors (Tufano and Sevick, 1997). Larger and more

mature funds as well as no load funds have lower expense ratio (Malhotra and

Mcleod, 1997). Aggressive growth funds charge higher entry and exit fees to

discourage redemption because they hold more of the smaller, less liquid stocks

(Chordia, 1996). However, despite the basic academic advice offered to investors

to prefer low expense index funds, actively managed funds continue to be popular

(Gruber, 1996). To decrease the risk it is advised to use derivative. Bond mutual

fund uses derivatives more than equity mutual funds. Use of derivative is

negatively correlated with fund age and positively correlated with fund size

(Johnson and Yu 2004) and it is positively correlated with asset turnover (Koski

and Pontiff, 1999). Derivatives are used for trading rather than hedging (Minton et

al. 2009).

Methodology

Index formula of (P1 /P0 *100) has been followed to get the value of the invested

money. It has been adjusted with inflation by depreciation the inflated value.

Harry Markowitz (1952)

Abstract

It provides a theory about how investors should select securities for their

investment portfolio given beliefs about future performance. He claims that

rational investors consider higher expected return as good and high variability of

those returns as bad. From this simple construct, he says that the decision rule

should be to diversify among all securities, securities which give the maximum

expected returns. His rule recommends the portfolio with the highest return is not

the one with the lowest variance of returns and that there is a rate at which an

investor can increase return by increasing variance. This is the cornerstone of

portfolio theory as we know it.

His portfolio theory shows that an investor has a choice of combinations of return

and variance depending on the percentage of wealth invested in various

combinations of risky assets.

William Sharpe (1964) and John Lintner (1965)

Abstract

They show that the theory implies that the rates of return from efficient

combinations of risky assets move together perfectly (will be perfectly

correlated). This gave birth to the "Security Market Line" (SML). The difference

between the Capital Market Line (CML) and SML is the measure of risk used for

the horizontal axis. The CML uses the variance of returns, whereas the SML uses

the systematic risk termed beta. Beta 1s defined as the covariance between a

security (or portfolio of securities) and the market as a whole, divided by the

variance of the market. The market as a whole is considered the point of tangency

between the SML and the efficient frontier This is the foundation for the Capital

Asset Pricing Model (CAPM).

SUKHWINDER KAUR DHANDA

Asst. Prof. cum (Research Scholar) Department of Management Studies,

Baba Banda Singh Bahdaur Engineering College,

Fatehgarh Sahib (Punjab)

DR. G.S.BATRA

Professor,

School of Management studies,

Punjabi University Patiala (Punjab)

DR BIMAL ANJUM

Prof and HOD,

Management Studies Department, RIMT-IET,

Mandi Gobindgarh (Punjab)

Abstract

Mutual fund companies collect the savings of the investors and make a big

corpus of these savings and invested in a well diversified portfolio of different

companies. It is generally believed that mutual funds are able to diversify the risk.

Mutual fund industry has just four decades old in India. During this short span of

time it has made tremendous growth. So considering these points this paper is an

attempt to study the performance evaluation of selected mutual funds in terms of

risk and return relationship. For this rate of return method, Beta, Standard

Deviation has been used. Nifty has been used as a benchmark to study the

performance of mutual funds in India. The study period has been taken from 1st

January2005 to 31st December 2012.

Sharad Panwar and Dr. R. Madhumathi

Indian Institute of Technology, Madras

Abstract

The study found that public-sector sponsored funds do not differ significantly

from private-sector sponsored funds in terms of mean returns%. However, there is

a significant difference between public-sector sponsored mutual funds and

private-sector sponsored mutual funds in terms of average standard deviation,

average variance and average coefficient of variation (COV).

Fama and McBeth (1973)

Abstract

They examine the return of securities, using OLS techniques and find that

the CAPM, or market model, explains returns well. They examined three testable

implications of the market model, (1) the relationship between risk and return is

linear,

(2) beta is a complete measure of risk, and (3) higher risk should be associated

with higher returns. They conclude that none of the three testable implications can

be rejected. The results are consistent with efficient markets and a sound asset

pricing model, however, the estimated intercept was somewhat higher than Rf.

Roll (1978)

Abstract

He shows there is ambiguity when performance is measured by the SML.

The difficulty is that different market indices provide different rankings.

While previous work was mathematically, theoretically, and intellectually

rigorous, the author not only defined this market portfolio but made an attempt to

estimate a covariance matrix with it. Theoretically, the market portfolio IS the

composition of all investible assets. In practice, since this is not measurable, some

proxy must be used for the true market portfolio The trouble is that even an

equally weighted and value weighted Index of the same securities can produce

conflicting performance results when used as the proxy for the market portfolio.

The ambiguity of the SML arises because a different beta can be generated for

assets and portfolios by using different indices. Therefore, beta is not an attribute

of the individual asset. Beta is a measure of the risk of an asset if included in a

portfolio of risky assets consisting of the market portfolio and a risk-less asset.

Therefore, differences in portfolio selection ability cannot be measured by the

SML criterion. If the index is ex-ante mean variance efficient, it is impossible to

discriminate between winners and losers. If the index is not ex-ante mean-

variance efficient, designating winners and losers is possible, but another index

can designate different winners and losers and there is no way to determine which

one is correct.

Prof. Kalpesh P Prajapati,

Assistant Professor,

S.V Institute of Management,

Gujarat Technological University,

Ahmedabd, Gujarat, India.

Prof. Mahesh K Patel,

Assistant Professor,

N.P College of Computer Studies & Management

Hemchandracharya North Gujarat University,

Patan, Gujarat, India.

Abstract

In this paper the performance evaluation of Indian mutual funds is carried

out through risk-return analysis. The data used is daily closing NAVs. The source

of data is website of Association of Mutual Funds in India (AMFI). The study

period is 1st January 2005 to 31st

December, 2012. The results of performance measures suggest that most of the

mutual fund have given positive return during 2005 to 2012.

Sarish and Ajay Jain

Abstract

A Mutual Fund is a trust that pools the savings of a number of investors who

share a common financial goal.

The money thus collected is then invested in capital market instruments

such as shares, debentures and other securities. The income earned through these

investments and capital appreciation realized is shared by its unit holders in

proportion to the number of units owned by them. The term risk has a variety of

meanings in business and everyday life. At its most general level, risk is used to

describe any situation where there is

uncertainty about what outcome will occur. Life is obviously very risky. Even the

short term future is often highly uncertain. In probability and statistics, financial

management and investment management, risk is often used in more specific

sense to indicate possible variability of outcomes around some expected.

Zacharias Thomas (1997)Ph D

Thesis, ‘Performance effectiveness of Nationalised Bank- A Case Study of

Syndicate Bank’, submitted to Kochin University (1997),

Abstract

Thesis studied the performance effectiveness of Nationalized Bank by

taking Syndicate Bank as case study in his Ph.D thesis. Thomas has examined

various aspects like growth and development of banking industry, achievements

of Syndicate Bank in relation to capital adequacy, quality of assets, Profitability,

Social Banking, Growth, Productivity, Customer Service and also made a

comparative analysis of 'the performance 34 effectiveness of Syndicate Bank in

relation to Nationalized bank. A period of ten years from 1984 to 1993-94 is taken

for the study. This study is undertaken to review and analyze the performance

effectiveness of Syndicate Bank and other Nationalized banks in India using an

Economic ManagerialEfficiency Evaluation Model (EMEE Model) developed by

researcher. Thomas in this study found that Syndicate Bank got 5th Position in

Capital adequacy and quality of assets, 15th in Profitability, 14th Position in

Social Banking, 8th in Growth, 7th in Productivity and 15th position in Customer

Service among the nationalized banks. Further, he found that five nationalized

banks showed low health performance, seven low priority performance and eleven

low efficiency performance in comparison with Syndicate Bank

Singla HK

Abstract

In his paper,’ financial performance of banks in India,’ in ICFAI Journal

of Bank Management No 7, he has examined that how financial management

plays a crucial role in the growth of banking. It is concerned with examining the

profitability position of the selected sixteen banks of banker index for a period of

six years (2001-06). The study reveals that the profitability position was

reasonable during the period of study when compared with the previous years.

Strong capital position and balance sheet place, Banks in better position to deal

with and absorb the economic constant over a period of time.

Subramanian and Swami

Abstract

In their paper, Comparative performance of publc sector banks in india”

Prjanan, Vol. XXII, have analyzed and compared the efficiency in six public

sector banks, four private sector and three foreign banks for the year 1996-97.

Operational efficiency is calculated in terms of total business and salary

expenditure per employee. The analysis revealed that higher per employee salary

level need not result in poor efficiency and business per employee efficiency co-

efficient was also calculated. Among the PSBs, Bank of Baroda registered the

high efficiency and operating profit per employee. Among the private sector

banks Indus Bank followed by Citibank Registered highest and second highest

operating profit per employee respectively. However, among the Nationalized

Banks there existed wide variations in efficiency.Frequent changes are order of

the day for the topics of this nature. Therefore, one should rely on latest

information. Some organizations like, RBI, IBA, SBI and ICRA have carried out

several research studies on various issues relating to banking and exclusive

banking journals/periodicals like Bank Quest, The Bankers, RBI occasional

papers, RBI bulletins and general magazines like Business Today, Business India,

Finance India, have been publishing papers on various aspects like NPAs, capital

adequacy, branch expansion, credit dispensation, deposit mobilization, service

quality, technology, performance evaluation, etc. Same studies and papers suitable

to this study are being reviewed here.

Chapter - 3

FINDINGS

3.1 Tabulation of Nifty Returns :-

DATE Nifty Return (%) D D^2

31-12-2012 5905.1 5.08 0.76 0.58

28-09-2012 5619.7 7.47 3.16 9.96

29-06-2012 5229 -0.37 -4.69 21.98

30-03-2012 5248.51 0.95 -3.37 11.35

30-12-2011 5199.25 -2.39 -6.71 44.98

30-09-2011 5326.6 -2.83 -7.15 51.13

30-06-2011 5482 -4.65 -8.97 80.44

31-03-2011 5749.5 4.42 0.11 0.01

31-12-2010 5505.9 -8.50 -12.82 164.38

30-09-2010 6017.7 12.11 7.80 60.77

30-06-2010 5367.6 1.70 -2.62 6.86

31-03-2010 5278 8.11 3.79 14.40

31-12-2009 4882.05 3.62 -0.70 0.49

30-09-2009 4711.7 1.62 -2.69 7.25

30-06-2009 4636.45 33.46 29.15 849.56

31-03-2009 3473.95 20.84 16.53 273.09

31-12-2008 2874.8 -0.37 -4.69 22.00

30-09-2008 2885.6 -33.40 -37.72 1422.75

30-06-2008 4332.95 -16.12 -20.44 417.80

31-03-2008 5165.9 0.55 -3.76 14.15

31-12-2007 5137.45 -12.93 -17.25 297.57

28-09-2007 5900.65 36.64 32.33 1045.02

29-06-2007 4318.3 5.64 1.32 1.74

30-03-2007 4087.9 0.13 -4.19 17.55

29-12-2006 4082.7 9.04 4.73 22.35

29-09-2006 3744.1 19.12 14.80 219.08

29-06-2006 3143.2 -10.41 -14.72 216.80

31-03-2006 3508.35 16.90 12.59 158.41

30-12-2005 3001.1 26.58 22.26 495.59

30-09-2005 2370.95 2.54 -1.78 3.17

30-06-2005 2312.3 13.59 9.27 86.01

31-03-2005 2035.65 0.00 -4.32 18.63

Sum= 138.11 Sum=6055.85

Table – 1

Where,

D= Deviation

The Nifty data is represented below:-

Here ,

The X-axis represents the years and

The Y-axis represents Nifty basic points.

Nifty7000

6000

5000

4000

3000

2000

1000

0

01/0

3/20

05

01/0

7/20

05

01/1

1/20

05

01/0

3/20

06

01/0

7/20

06

01/1

1/20

06

01/0

3/20

07

01/0

7/20

07

01/1

1/20

07

01/0

3/20

08

01/0

7/20

08

01/1

1/20

08

01/0

3/20

09

01/0

7/20

09

01/1

1/20

09

01/0

3/20

10

01/0

7/20

10

01/1

1/20

10

01/0

3/20

11

01/0

7/20

11

01/1

1/20

11

01/0

3/20

12

01/0

7/20

1201

/11/

2012

Graph-3

Formula used:-

Calculation of return: -

Return= (P1- P0) / P0

Where,

P1= Current Month

P0= Base Month

Calculation of mean:-

Mean= Total Return / N

Where,

N = Number of Month.

Calculation of Variance:-

Variance = ∑ (D)^2 / 32

Where,

D= Deviation

Calculation of Standard Deviation:-

SD= √Variance.

Calculation of BETA:-

Beta= Co Variance / Variance of Nifty.

Where,

Co Variance= Deviation of Investment * Deviation of Nifty.

Calculation of CAPM:-

CAPM= Rf+(Rm-Rf)*β

Where,

Rf= Risk Free Rate Rm= Return

from Market

β= Beta.

Calculation of Sharpe Ratio:-

S(x) = ( Rx - Rf ) / StdDev(x)

Where,

x is some investment

Rx is the average annual rate of return of x

Rf is the best available rate of return of a "risk-free" security

StdDev(x) is the standard deviation of Rx

Table – 2

Note:-

The following table represents the set of formulas widely used and applied to the entire

project for the purpose of computation and analysis of data.

Calculation of Mean and Standard Deviation of Nifty:-

Property Calculation Value (%)

Mean 138.11 / 32 4.31

Variance 6055.85 / 32 189.24

Standard Deviation Root of Variance 13.76

Table- 1.1

From the above table, we have found the following:-

¸ Mean

¸ Standard Deviation

Note:

The above calculated data of Nifty will help us to calculate co-variance with respect to

particular mutual funds and fixed deposits.

3.2 Calculation of Risk Free Rate (R.F):-

DATE RF Quarterly RF

31-12-2012 8 2.00

28-09-2012 2.00

29-06-2012 2.00

30-03-2012 2.00

30-12-2011 7.8 1.95

30-09-2011 1.95

30-06-2011 1.95

31-03-2011 1.95

31-12-2010 7.5 1.88

30-09-2010 1.88

30-06-2010 1.88

31-03-2010 1.88

31-12-2009 7.2 1.8

30-09-2009 1.8

30-06-2009 1.8

31-03-2009 1.8

31-12-2008 7.4 1.85

30-09-2008 1.85

30-06-2008 1.85

31-03-2008 1.85

31-12-2007 6.8 1.7

28-09-2007 1.7

29-06-2007 1.7

30-03-2007 1.7

29-12-2006 5.5 1.38

29-09-2006 1.38

29-06-2006 1.38

31-03-2006 1.38

30-12-2005 5.3 1.33

30-09-2005 1.33

30-06-2005 1.33

31 -03-2005 1.33

Sum= 55.50

Table- 3

Calculation of mean risk free rate.

Property Calculation Value (%)

Mean 55.50/32 1.73

Table- 3.1

Quarterly Risk Free Rate is calculated to be 1.73(%).

Note:-

The above Risk Free Rate would help us to calculate Beta for mutual funds as well as for fixed

deposits.

The above interest rates have been collected from Government Deposits (Treasury bills)

yearly. Later the interest rate has been converted to quarterly data.

3.3 SBI MAGNUM INCOME FUND

Calculation of Return, Standard Deviation, Co-variance, Beta and CAPM from the given

NAV (Net Asset Value):-

DATE SBI MAGNUM RETURN DEVIATION (D)^2 D D*D

INCOME (%) (From

FUND ( NAV) Table

1)

31 -12-2012 28.12 2.40 1.03 1.05 0.76 0.78

28-09-2012 27.46 3.51 2.13 4.53 3.16 6.71

29-06-2012 26.53 3.07 1.69 2.86 -4.69 -7.93

30-03-2012 25.74 2.55 1.17 1.37 -3.37 -3.95

30-12-2011 25.1 2.83 1.45 2.10 -6.71 -9.72

30-09-2011 24.41 1.96 0.59 0.34 -7.15 -4.18

30-06-2011 23.94 2.09 0.71 0.51 -8.97 -6.38

31 -03-2011 23.45 1.47 0.09 0.01 0.11 0.01

31 -12-2010 23.11 0.92 -0.46 0.21 -12.82 5.91

30-09-2010 22.9 0.66 -0.72 0.52 7.80 -5.60

30-06-2010 22.75 1.52 0.14 0.02 -2.62 -0.36

31 -03-2010 22.41 1.68 0.30 0.09 3.79 1.14

31 -12-2009 22.04 0.92 -0.46 0.21 -0.70 0.32

30-09-2009 21.84 0.69 -0.69 0.47 -2.69 1.85

30-06-2009 21.69 3.09 1.71 2.93 29.15 49.88

31 -03-2009 21.04 -6.82 -8.20 67.21 16.53 -135.48

31 -12-2008 22.58 10.52 9.15 83.64 -4.69 -42.90

30-09-2008 20.43 -0.20 -1.57 2.48 -37.72 59.35

30-06-2008 20.47 -1.30 -2.68 7.18 -20.44 54.78

31 -03-2008 20.74 -0.96 -2.33 5.44 -3.76 8.78

31 -12-2007 20.94 2.35 0.97 0.94 -17.25 -16.70

28 -09-2007 20.46 2.92 1.54 2.37 32.33 49.77

29-06-2007 19.88 0.76 -0.62 0.38 1.32 -0.82

30-03-2007 19.73 0.05 -1.33 1.76 -4.19 5.5629-12-2006 19.72 1.28 -0.09 0.01 4.73 -0.44

29-09-2006 19.47 2.04 0.67 0.44 14.80 9.86

29-06-2006 19.08 1.27 -0.10 0.01 -14.72 1.53

31-03-2006 18.84 -0.42 -1.80 3.24 12.59 -22.67

30-12-2005 18.92 0.42 -0.95 0.91 22.26 -21.22

30-09-2005 18.84 1.18 -0.20 0.04 -1.78 0.35

30-06-2005 18.62 1.64 0.26 0.07 9.27 2.41

31-03-2005 18.32 0.00 -1.38 1.90 -4.32 5.95

44.10 195.25 -13.41

Table - 4

Calculation.

Property Calculation Value (%)

Mean 44.10/32 1.38

Variance 195.25/32 6.10

Standard Deviation Root of Variance 2.47

Covariance D*D -13.41/32 -0.42

Nifty Variance From Table 1.1 189.24

Beta Cov/ Var of Nifty -0.22%

Risk Free (RF) From Table 2.1 1.73

CAPM 1.73+(4.32-1.73)(-22%) 1.729

Sharpe Ratio (1.38-1.73) / 2.47 -0.14

Table – 4.1

From the following table the following has been calculated:-

¸ Mean

¸ Standard Deviation

¸ Covariance

¸ Beta

¸ CAPM

¸ Sharpe Ratio

The SBI MAGNUM INCOME FUND (NAV) data is represented below:-

Here ,

The X-axis represents the years and

The Y-axis represents SBI Mutual Fund NAV.

SBI MAGNUM INCOME FUND ( NAV)30

25

20

15

10

5

0

01/0

3/20

05

01/0

7/20

05

01/1

1/20

05

01/0

3/20

06

01/0

7/20

06

01/1

1/20

06

01/0

3/20

07

01/0

7/20

07

01/1

1/20

07

01/0

3/20

08

01/0

7/20

08

01/1

1/20

08

01/0

3/20

09

01/0

7/20

09

01/1

1/20

09

01/0

3/20

10

01/0

7/20

10

01/1

1/20

10

01/0

3/20

11

01/0

7/20

11

01/1

1/20

11

01/0

3/20

12

01/0

7/20

1201

/11/

2012

Graph-4

3.4 RELIANCE INCOME FUND

Calculation of Return, Standard Deviation, Co-variance, Beta and CAPM from the given

NAV (Net Asset Value):-

DATE RELIANCE RETURN DEVIATION (D)^2 D D*D

INCOME (%) (From

FUND(G) Table

NAV 1)

31 -12-2012 37.7 2.45 0.55 0.30 0.76 0.42

28-09-2012 36.8 8.97 7.07 50.01 3.16 22.32

29-06-2012 33.77 -2.96 -4.86 23.62 -4.69 22.78

30-03-2012 34.8 2.56 0.66 0.44 -3.37 -2.24

30-12-2011 33.93 2.29 0.39 0.15 -6.71 -2.62

30-09-2011 33.17 1.69 -0.21 0.05 -7.15 1.53

30-06-2011 32.62 1.05 -0.85 0.72 -8.97 7.60

31 -03-2011 32.28 1.32 -0.58 0.34 0.11 -0.06

31 -12-2010 31.86 1.05 -0.85 0.73 -12.82 10.95

30-09-2010 31.53 0.61 -1.29 1.67 7.80 -10.09

30-06-2010 31.34 1.59 -0.31 0.10 -2.62 0.82

31 -03-2010 30.85 0.92 -0.98 0.97 3.79 -3.74

31 -12-2009 30.57 1.33 -0.57 0.33 -0.70 0.40

30-09-2009 30.17 0.40 -1.50 2.25 -2.69 4.04

30-06-2009 30.05 3.44 1.54 2.38 29.15 44.95

31 -03-2009 29.05 -5.59 -7.49 56.10 16.53 -123.78

31 -12-2008 30.77 19.45 17.55 307.95 -4.69 -82.31

30-09-2008 25.76 1.50 -0.40 0.16 -37.72 15.20

30-06-2008 25.38 -0.51 -2.41 5.81 -20.44 49.26

31 -03-2008 25.51 0.71 -1.19 1.42 -3.76 4.48

31 -12-2007 25.33 4.63 2.73 7.43 -17.25 -47.02

28 -09-2007 24.21 2.98 1.08 1.16 32.33 34.82

29-06-2007 23.51 1.56 -0.35 0.12 1.32 -0.46

30-03-2007 23.15 -0.13 -2.03 4.12 -4.19 8.50

29-12-2006 23.18 1.89 -0.01 0.00 4.73 -0.05

29-09-2006 22.75 2.52 0.62 0.39 14.80 9.23

29-06-2006 22.19 0.77 -1.13 1.27 -14.72 16.61

31-03-2006 22.02 0.64 -1.26 1.59 12.59 -15.86

30-12-2005 21.88 0.83 -1.07 1.15 22.26 -23.84

30-09-2005 21.7 1.02 -0.88 0.77 -1.78 1.56

30-06-2005 21.48 1.85 -0.05 0.00 9.27 -0.47

31-03-2005 21.09 0.00 -1.90 3.61 -4.32 8.20

∑=60.81 477.10 -48.87

Table- 5

Calculation

Property Calculation Value (%)

Mean 60.81/32 1.90

Variance 477.10/32 14.90

Standard Deviation Root of Variance 3.86

Covariance D*D -48.87/32 -1.53

Nifty Variance From Table 1.1 189.24

Beta Cov/ Var of Nifty -0.8%

Risk Free (RF) From Table 2.1 1.73

CAPM 1.73+(4.32-1.73)(-0.8%) 1.71

Sharpe Ratio (1.90-1.73) / 3.86 0.044

Table- 5.1

From the following table the following has been calculated:-

¸ Mean

¸ Standard Deviation

¸ Covariance

¸ Beta

¸ CAPM

¸ Sharpe Ratio

The RELIANCE INCOME FUND (G) NAV data is represented below:-

Here ,

The X-axis represents the years and

The Y-axis represents Reliance Mutual Fund NAV.

RELIANCE INCOME FUND(G) NAV40

35

30

25

20

15

10

5

0

01/0

3/20

05

01/0

7/20

05

01/1

1/20

05

01/0

3/20

06

01/0

7/20

06

01/1

1/20

06

01/0

3/20

07

01/0

7/20

07

01/1

1/20

07

01/0

3/20

08

01/0

7/20

08

01/1

1/20

08

01/0

3/20

09

01/0

7/20

09

01/1

1/20

09

01/0

3/20

10

01/0

7/20

10

01/1

1/20

10

01/0

3/20

11

01/0

7/20

11

01/1

1/20

11

01/0

3/20

12

01/0

7/20

12

01/1

1/20

12

Graph-5

3.5 UTI-SHORT TERM INCOME FUND-RETAIL PLAIN

Calculation of Return, Standard Deviation, Co-variance, Beta and CAPM from the

given NAV (Net Asset Value):-

DATE UTI-SHORT RETURN DEVIATION (D)^2 D D*D

TERM (%) (D) (From

INCOME Table

FUND- NAV 1)

31 -12-2012 19.87 2.42 0.52 0.27 0.76 0.40

28-09-2012 19.4 2.92 1.01 1.03 3.16 3.20

29-06-2012 18.85 2.61 0.71 0.50 -4.69 -3.33

30-03-2012 18.37 2.11 0.21 0.04 -3.37 -0.70

30-12-2011 17.99 2.39 0.49 0.24 -6.71 -3.27

30-09-2011 17.57 2.57 0.67 0.44 -7.15 -4.76

30-06-2011 17.13 3.07 1.17 1.36 -8.97 -10.45

31 -03-2011 16.62 1.53 -0.38 0.14 0.11 -0.04

31 -12-2010 16.37 1.30 -0.60 0.36 -12.82 7.74

30-09-2010 16.16 1.38 -0.52 0.27 7.80 -4.08

30 -06-2010 15.94 1.40 -0.50 0.25 -2.62 1.32

31 -03-2010 15.72 1.09 -0.81 0.66 3.79 -3.07

31 -12-2009 15.55 2.24 0.33 0.11 -0.70 -0.23

30-09-2009 15.21 1.47 -0.44 0.19 -2.69 1.17

30 -06-2009 14.99 4.61 2.70 7.30 29.15 78.77

31 -03-2009 14.33 0.92 -0.99 0.98 16.53 -16.32

31 -12-2008 14.2 2.38 0.48 0.23 -4.69 -2.23

30-09-2008 13.87 2.29 0.38 0.15 -37.72 -14.44

30 -06-2008 13.56 2.19 0.28 0.08 -20.44 -5.77

31 -03-2008 13.27 1.38 -0.53 0.28 -3.76 1.99

31 -12-2007 13.09 2.67 0.76 0.58 -17.25 -13.17

28 -09-2007 12.75 2.16 0.26 0.07 32.33 8.41

29 -06-2007 12.48 2.30 0.39 0.15 1.32 0.52

30 -03-2007 12.2 0.99 -0.91 0.83 -4.19 3.81

29-12-2006 12.08 1.26 -0.65 0.42 4.73 -3.05

29-09-2006 11.93 1.79 -0.11 0.01 14.80 -1.65

29-06-2006 11.72 1.65 -0.26 0.07 -14.72 3.76

31-03-2006 11.53 1.50 -0.41 0.17 12.59 -5.12

30-12-2005 11.36 1.43 -0.47 0.23 22.26 -10.57

30-09-2005 11.2 1.36 -0.55 0.30 -1.78 0.97

30-06-2005 11.05 1.56 -0.34 0.12 9.27 -3.16

31 -03-2005 10.88 0.00 -1.90 3.62 -4.32 8.21

60.90 21.44 14.86

Table - 6

Calculation:-

Property Calculation Value (%)

Mean 60.90/32 1.90

Variance 21.44/32 0.67

Standard Deviation Root of Variance 0.82

Covariance D*D 14.86/32 0.46

Nifty Variance From Table 1.1 189.24

Beta Cov/ Var of Nifty 0.24%

Risk Free (RF) From Table 2.1 1.73

CAPM 1.73+(4.32-1.73)(0.24%) 1.74

Sharpe Ratio (1.90 – 1.73) / .82 0.21

Table- 6.1

From the following table the following has been calculated:-

¸ Mean

¸ Standard Deviation

¸ Covariance

¸ Beta

¸ CAPM

¸ Sharpe Ratio

The UTI-SHORT TERM INCOME FUND-RETAIL PLAIN (G) NAV data is represented below:-

Here ,

The X-axis represents the years and

The Y-axis represents UTI Mutual Fund NAV.

UTI-SHORT TERM INCOME FUND-RETAIL PLAIN(G) NAV

25

20

15

10

5

0

01/0

3/20

05

01/0

7/20

05

01/1

1/20

05

01/0

3/20

06

01/0

7/20

06

01/1

1/20

06

01/0

3/20

07

01/0

7/20

07

01/1

1/20

07

01/0

3/20

08

01/0

7/20

08

01/1

1/20

08

01/0

3/20

09

01/0

7/20

09

01/1

1/20

09

01/0

3/20

10

01/0

7/20

10

01/1

1/20

10

01/0

3/20

11

01/0

7/20

11

01/1

1/20

11

01/0

3/20

12

01/0

7/20

12

01/1

1/20

12

Graph-6

3.6 STATE BANK OF INDIA FIXED DEPOSIT:-

Calculation of Return, Standard Deviation, Co-variance, Beta and CAPM from the

given NAV (Net Asset Value):-

DATE Annual Quarterly DEVIATION (D)^2 D(From D*D

RT RT (D) Table 1)

31-12-2012 8.5 2.13 0.09 0.01 0.76 0.07

28-09-2012 8.5 2.13 0.09 0.01 3.16 0.27

29-06-2012 9.75 2.44 0.40 0.16 -4.69 -1.87

30-03-2012 9.75 2.44 0.40 0.16 -3.37 -1.34

30-12-2011 9.25 2.31 0.27 0.07 -6.71 -1.83

30-09-2011 9.25 2.31 0.27 0.07 -7.15 -1.96

30-06-2011 9 2.25 0.21 0.04 -8.97 -1.89

31-03-2011 9 2.25 0.21 0.04 0.11 0.02

31-12-2010 9 2.25 0.21 0.04 -12.82 -2.70

30-09-2010 8.5 2.13 0.09 0.01 7.80 0.67

30-06-2010 8.5 2.13 0.09 0.01 -2.62 -0.23

31-03-2010 8.5 2.13 0.09 0.01 3.79 0.33

31-12-2009 7.75 1.94 -0.10 0.01 -0.70 0.07

30-09-2009 7.75 1.94 -0.10 0.01 -2.69 0.27

30-06-2009 7.75 1.94 -0.10 0.01 29.15 -2.96

31-03-2009 8 2.00 -0.04 0.00 16.53 -0.65

31-12-2008 8 2.00 -0.04 0.00 -4.69 0.18

30-09-2008 8 2.00 -0.04 0.00 -37.72 1.47

30-06-2008 8 2.00 -0.04 0.00 -20.44 0.80

31-03-2008 7.25 1.81 -0.23 0.05 -3.76 0.85

31-12-2007 7.25 1.81 -0.23 0.05 -17.25 3.91

28-09-2007 7.25 1.81 -0.23 0.05 32.33 -7.32

29-06-2007 7.5 1.88 -0.16 0.03 1.32 -0.22

30-03-2007 7.5 1.88 -0.16 0.03 -4.19 0.69

29-12-2006 7.5 1.88 -0.16 0.03 4.73 -0.78

29-09-2006 8 2.00 -0.04 0.00 14.80 -0.58

29-06-2006 8 2.00 -0.04 0.00 -14.72 0.58

31-03-2006 8 2.00 -0.04 0.00 12.59 -0.49

30-12-2005 7.5 1.88 -0.16 0.03 22.26 -3.65

30-09-2005 7.5 1.88 -0.16 0.03 -1.78 0.29

30-06-2005 7.5 1.88 -0.16 0.03 9.27 -1.52

31-03-2005 7.5 1.88 -0.16 0.03 -4.32 0.71

65.25 1.02 -18.81

Table - 7

Calculation

Property Calculation Value (%)

Mean 65.25/32 2.04

Variance 1.02/32 0.032

Standard Deviation Root of Variance 0.18

Covariance D*D -18.81/32 -0.58

Nifty Variance From Table 1.1 189.24

Beta Cov/ Var of Nifty -0.31%

Risk Free (RF) From Table 2.1 1.73

CAPM 1.73+(4.32-1.73)(-0.31%) 1.72

Sharpe Ratio (2.04 – 1.73) / .18 1.72

Table- 7.1

From the following table the following has been calculated:-

¸ Mean

¸ Standard Deviation

¸ Covariance

¸ Beta

¸ CAPM

¸ Sharpe Ratio

3.7 ICICI FIXED DEPOSIT

Calculation of Return, Standard Deviation, Co-variance, Beta and CAPM from the

given NAV (Net Asset Value):-

DATE Annual Quarterly DEVIATION (D)^2 D(From D*D

RT RT (D) Table 1)

31-12-2012 8.5 2.13 0.19 0.037 0.76 0.15

28-09-2012 8.5 2.13 0.19 0.037 3.16 0.61

29-06-2012 9.25 2.31 0.38 0.145 -4.69 -1.79

30-03-2012 9 2.25 0.32 0.101 -3.37 -1.07

30-12-2011 9 2.25 0.32 0.101 -6.71 -2.14

30-09-2011 8.5 2.13 0.19 0.037 -7.15 -1.38

30-06-2011 8.5 2.13 0.19 0.037 -8.97 -1.73

31-03-2011 8.5 2.13 0.19 0.037 0.11 0.02

31-12-2010 8.25 2.06 0.13 0.017 -12.82 -1.68

30-09-2010 8.25 2.06 0.13 0.017 7.80 1.02

30-06-2010 8 2.00 0.07 0.005 -2.62 -0.18

31-03-2010 8 2.00 0.07 0.005 3.79 0.26

31-12-2009 7.5 1.88 -0.06 0.003 -0.70 0.04

30-09-2009 7.5 1.88 -0.06 0.003 -2.69 0.15

30-06-2009 7.5 1.88 -0.06 0.003 29.15 -1.65

31-03-2009 7.5 1.88 -0.06 0.003 16.53 -0.94

31-12-2008 7.5 1.88 -0.06 0.003 -4.69 0.27

30-09-2008 7.5 1.88 -0.06 0.003 -37.72 2.14

30-06-2008 7 1.75 -0.18 0.033 -20.44 3.71

31-03-2008 7 1.75 -0.18 0.033 -3.76 0.68

31-12-2007 7 1.75 -0.18 0.033 -17.25 3.13

28-09-2007 7 1.75 -0.18 0.033 32.33 -5.87

29-06-2007 7 1.75 -0.18 0.033 1.32 -0.24

30-03-2007 7.25 1.81 -0.12 0.014 -4.19 0.50

29-12-2006 7.25 1.81 -0.12 0.014 4.73 -0.56

29-09-2006 7.5 1.88 -0.06 0.003 14.80 -0.84

29-06-2006 7.5 1.88 -0.06 0.003 -14.72 0.83

31-03-2006 7.5 1.88 -0.06 0.003 12.59 -0.71

30-12-2005 7 1.75 -0.18 0.033 22.26 -4.04

30-09-2005 7 1.75 -0.18 0.033 -1.78 0.32

30-06-2005 7 1.75 -0.18 0.033 9.27 -1.68

31-03-2005 7 1.75 -0.18 0.033 -4.32 0.78

61.81 0.932 -11.89

Table- 8

Calculation:-

Property Calculation Value (%)

Mean 61.81/32 1.93

Variance 0.932/32 0.029

Standard Deviation Root of Variance 0.17

Covariance D*D -11.89/32 -0.37

Nifty Variance From table 1.1 189.24

Beta Cov/ Var of Nifty -0.20

Risk Free (RF) From Table 2.1 1.73

CAPM 1.73+(4.32-1.73)(-0.20%) 1.72

Sharpe Ratio (1.93 – 1.73) / .17 1.18

Table- 8.1

From the following table the following has been calculated:-

¸ Mean

¸ Standard Deviation

¸ Covariance

¸ Beta

¸ CAPM

¸ Sharpe Ratio

3.8 FEDERAL BANK FIXED DEPOSIT

Calculation of Return, Standard Deviation, Co-variance, Beta and CAPM from the

given NAV (Net Asset Value):-

DATE Annual Quarterly DEVIATION (D)^2 D(From D*D

RT RT (D) Table 1)

31-12-2012 8.25 2.06 0.12 0.0133 0.76 0.09

28-09-2012 8.25 2.06 0.12 0.0133 3.16 0.36

29-06-2012 8.75 2.19 0.24 0.0577 -4.69 -1.13

30-03-2012 8.75 2.19 0.24 0.0577 -3.37 -0.81

30-12-2011 8.5 2.13 0.18 0.0316 -6.71 -1.19

30-09-2011 8.5 2.13 0.18 0.0316 -7.15 -1.27

30-06-2011 8.25 2.06 0.12 0.0133 -8.97 -1.03

31-03-2011 8.25 2.06 0.12 0.0133 0.11 0.01

31-12-2010 8.25 2.06 0.12 0.0133 -12.82 -1.48

30-09-2010 8 2.00 0.05 0.0028 7.80 0.41

30-06-2010 8 2.00 0.05 0.0028 -2.62 -0.14

31-03-2010 8 2.00 0.05 0.0028 3.79 0.20

31-12-2009 7.5 1.88 -0.07 0.0052 -0.70 0.05

30-09-2009 7.5 1.88 -0.07 0.0052 -2.69 0.19

30-06-2009 7.5 1.88 -0.07 0.0052 29.15 -2.11

31-03-2009 8 2.00 0.05 0.0028 16.53 0.87

31-12-2008 8 2.00 0.05 0.0028 -4.69 -0.25

30-09-2008 8 2.00 0.05 0.0028 -37.72 -1.99

30-06-2008 7.5 1.88 -0.07 0.0052 -20.44 1.48

31-03-2008 7 1.75 -0.20 0.0389 -3.76 0.74

31-12-2007 7 1.75 -0.20 0.0389 -17.25 3.40

28-09-2007 7 1.75 -0.20 0.0389 32.33 -6.38

29-06-2007 7 1.75 -0.20 0.0389 1.32 -0.26

30-03-2007 7.25 1.81 -0.13 0.0182 -4.19 0.56

29-12-2006 7.25 1.81 -0.13 0.0182 4.73 -0.64

29-09-2006 7.5 1.88 -0.07 0.0052 14.80 -1.07

29-06-2006 7.5 1.88 -0.07 0.0052 -14.72 1.06

31-03-2006 8 2.00 0.05 0.0028 12.59 0.66

30-12-2005 7.5 1.88 -0.07 0.0052 22.26 -1.61

30-09-2005 7.5 1.88 -0.07 0.0052 -1.78 0.13

30-06-2005 7.5 1.88 -0.07 0.0052 9.27 -0.67

31-03-2005 7.5 1.88 -0.07 0.0052 -4.32 0.31

62.31 0.5087 -11.47

Table-9

Calculation

Property Calculation Value (%)

Mean 62.31/32 1.95

Variance 0.5087/32 0.0159

Standard Deviation Root of Variance 0.13

Covariance D*D -11.47/32 -0.35

Nifty Variance From Table 1.1 189.24

Beta Cov/ Var of Nifty -0.18%

Risk Free (RF) From Table 2.1 1.73

CAPM 1.73+(4.32-1.73)(-0.18%) 1.73

Sharpe Ratio 1.95-1.73/(0.13) 1.69

Table- 9.1

From the following table the following has been calculated:-

¸ Mean

¸ Standard Deviation

¸ Covariance

¸ Beta

¸ CAPM

¸ Sharpe Ratio

Chapter - 4

SUMMARY OF FINDINGS

Table for mean of Mutual Funds:-

Fund Mean

SBI MF 1.38

Reliance MF 1.9

UTI MF 1.9

Table - 10

From the above table, it is found that Reliance Mutual Fund and UTI Mutual Fund are

giving equal return that is 1.9 but SBI Mutual Fund is giving a return of 1.38 during the

time interval.

Thus it can be interpreted that higher the return, better the investment.

Mean

2.00

1.80

1.60

1.40

Ret 1.20

urn 1.00

0.80

0.60

0.40

0.20

0.00SBI MF Reliance MF UTI MF

Mean 1.38 1.9 1.9

Diagram - 7

The data obtained above is shown as a graphical representation here.

Table for mean of Fixed Deposits:-

FD Mean

SBI FD 2.04

ICICI FD 1.93

Federal Bank 1.95

Table- 11

The above table represents mean of Fixed Deposits. SBI has the highest return i.e 2.04 as

compared to ICICI and Federal Bank.

Thus it can be interpreted that higher the return, better the investment.

Mean

2.04

2.02

2

1.98

Retu

rn 1.96

1.94

1.92

1.9

1.88

1.86SBI FD ICICI FD Federal Bank

Mean 2.04 1.93 1.95

Diagram - 8

The data obtained above is shown as a graphical representation here

Table For comparison of MEAN of mutual funds and fixed deposits:-

Fund Mean

SBI MF 1.38

Reliance MF 1.9

UTI MF 1.9

SBI FD 2.04

ICICI FD 1.93

Federal Bank 1.95

Table- 12

From the above table, the return from the investments (Fixed Deposits as well as

Mutual Funds), fixed deposits are performing well as compared to mutual funds. SBI

Fixed Deposits is giving a return of 2.04 which is best among Fixed Deposits as well

Mutual Funds. The minimum return obtained from Fixed Deposits i.e ICICI Fixed

Deposit is giving a return of 1.93, Federal Bank is 1.95 which is better than maximum

return of Mutual Funds from the year 2005 to 2012.

Mean

2.50

2.00

Retu

rn 1.50

1.00

0.50

0.00Sbi MF Reliance UTI MF Sbi FD ICICI FD Federal

MF Bank

Mean 1.38 1.9 1.9 2.04 1.93 1.95

Diagram - 9

The above graph represents the returns from Mutual Funds and Fixed Deposits.

Table for Standard deviation of Mutual Funds:-

Fund SD

SBI MF 2.47

Reliance MF 3.86

UTI MF 0.82

Table- 13

From above we can interpret that Reliance Mutual Fund has the highest Standard

Deviation i.e risk. Whereas UTI has the lowest risk and SBI has moderate risk.

From the investor point of view, risk should be low.

SD

Risk

4

3.5

3

2.5

2

1.5

1

0.5

0SBI MF Reliance MF UTI MF

SD 2.47 3.86 0.82

Diagram - 10

The above graph represents risk associated with mutual funds.

Table for Standard deviation of Fixed Deposits :-

Fund SD

SBI FD 0.18

ICICI FD 0.17

Federal Bank 0.126

Table - 14

The following table represents standard deviation values i.e risk associated with Fixed

Deposits. Fixed Deposits have low risk involved in the investment. All the Fixed

Deposits have almost similar risk associated with them.

SD

Risk

0.2

0.15

0.1

0.05

0SBI FD ICICI FD Federal Bank

SD 0.18 0.17 0.126

Diagram - 11

The above is the graphical representation of risk associated with Fixed Deposits.

Table For comparison of Standard Deviation of mutual funds and fixed deposits:-

Fund SD

Sbi MF 2.47

Reliance MF 3.86

UTI MF 0.82

Sbi FD 0.18

ICICI FD 0.17

Federal Bank 0.126

Table -15

The above table shows the risk involved in the investment. Reliance Mutual

Fund has the highest risk i.e 3.86 among the Mutual Funds and Fixed Deposits and from

the table it is clear that Mutual Funds are highly riskier as compared to Fixed Deposits.

SD

43.5

32.5

21.5

10.5

0Sbi MF Reliance UTI MF Sbi FD ICICI FD Federal

MF Bank

Sd 2.47 3.86 0.82 0.18 0.17 0.12

Diagram - 12

The above figure represents the risks associated with Mutual Funds and Fixed Deposits.

Measuring Risk Return Relationship of Mutual Funds

Fund SD Mean

SBI MF 2.47 1.38

Reliance MF 3.86 1.9

UTI MF 0.82 1.9

Table- 16

From the above table it can be interpreted that UTI is performing well as it has low risk

and high return. On the other hand, Reliance has high risk and comparatively low

return and SBI has a moderate risk but low return.

From investing point of view there should be low risk and high return.

Risk Return Relationship

4

3.5

3

2.5

2

1.5

1

0.5

0SBI MF Reliance MF UTI MF

SD 2.47 3.86 0.82

Mean 1.38 1.9 1.9

Diagram - 13

The above is graphical representation of risk return relationship associated with

Mutual Funds.

Measuring Risk Return Relationship of Fixed Deposits

Fund SD Mean

SBI FD 0.18 2.04

ICICI FD 0.17 1.93

Federal Bank 0.126 1.95

Table- 17

From the above table it can be interpreted that the fixed deposits are having a directly

proportionate relationship between risk and return. Federal Bank has low risk as it’s

return is low. Whereas SBI has high risk and high return and ICICI has moderate risk

and return.

Risk Return Relationship

2.5

2

1.5

1

0.5

0SBI FD ICICI FD Federal Bank

SD 0.18 0.17 0.126

Mean 2.04 1.93 1.95

Diagram - 14

The above is graphical representation of risk return relationship associated with

Fixed Deposits.

Comparing Risk And Return

Fund SD Mean

SBI MF 2.47 1.38

Reliance MF 3.86 1.9

UTI MF 0.82 1.9

SBI FD 0.18 2.04

ICICI FD 0.17 1.93

Federal Bank 0.126 1.95

Table-18

The above table represents the relationship between risk and return of the Mutual

Funds as well as Fixed Deposits. From the table we can interpret that Mutual Funds are

more risky than Fixed Deposits. And return of Fixed Deposits is more as compared to

Mutual Funds.

Chart Title

4.00

3.00

2.00

1.00 Mean

0.00 SdSbi MF

RelianceUTI MF

Sbi FDMF ICICI FDFederalBank

Diagram - 15

The above chart clearly represents the risk and the return relationship.

From the investor point of view, standard deviation that is risk should be low and mean

that is return should be high.

Beta of Mutual Funds

Fund Beta

SBI MF -0.21%

Reliance MF -0.78%

UTI MF 0.24%

Table - 19

The above table represents the beta values of mutual funds.UTI with less than 1 value of

beta indicates that the security will be less volatile than the market. Reliance and SBI has

a negative beta denoting assets generally moves in the opposite direction as compared to

the index.

Beta

0.40%

0.20%

0.00%

-0.20%

-0.40%

-0.60%

-0.80%SBI MF Reliance MF UTI MF

Beta -0.21% -0.78% 0.24%

Diagram - 16

The above chart clearly represents the beta of mutual funds.

Table for Beta of Fixed Deposits

Fund Beta

SBI FD -0.30%

ICICI FD -0.19%

Federal Bank -0.18%

Table - 20

Here the value of beta is negative in all the cases i.e less than zero thus indicating

that assets generally move in the opposite direction as compared to the index.

Beta0.00%

-0.05%

-0.10%

-0.15%

-0.20%

-0.25%

-0.30%

-0.35%SBI FD ICICI FD Federal Bank

Beta -0.30% -0.19% -0.18%

Diagram - 17

The above chart clearly represents the beta of Fixed deposits

Comparison table for Beta

Fund Beta

SBI MF -0.21%

Reliance MF -0.78%

UTI MF 0.24%

SBI FD -0.30%

ICICI FD -0.19%

Federal Bank -0.18%

Table-21

The above table represents that all the investments have a negative beta except for

one that is UTI Mutual Fund is0.24%.

It is also clear the above investments have a negligible beta so that it can be taken as

zero. Thus movement of funds is uncorrelated with the movement of index.

Beta

0.40%

0.20%

0.00%

-0.20%

-0.40%

-0.60%

-0.80%Reliance UTI MF Sbi FD ICICI FD FederalSbi MF

MF Bank

Beta -0.21% -0.78% 0.24% -0.30% -0.19% -0.18%

Diagram - 18

The above figure represents beta (a number describing the correlated volatility of an

asset in relation to the volatility of the index that said asset is being compared to) of

various investments.

Beta (β) and it’s significance

Value of Beta Interpretation

Asset generally moves in the opposite direction as compared to theβ < 0

index

Movement of the asset is uncorrelated with the movement of theβ = 0

index

Movement of the asset is generally in the same direction as, but0 < β < 1

less than the movement of the index

Movement of the asset is generally in the same direction as, andβ = 1

about the same amount as the movement of the index

Movement of the asset is generally in the same direction as, butβ > 1

more than the movement of the index

Table for CAPM of Mutual Fund

Fund CAPM

SBI MF 1.72

Reliance MF 1.71

UTI MF 1.74

Table- 22

The CAPM says that the expected return of a security or a portfolio equals the rate on a

risk-free security plus a risk premium. Here the risk free rate is 1.73 but SBI and

Reliance are giving less than the risk free rate so the investment should not be

undertaken. On the other hand UTI should be selected as it is giving more than the risk

free rate.

CAPM

1.74

1.735

1.73

1.725

1.72

1.715

1.71

1.705

1.7

1.695SBI MF Reliance MF UTI MF

CAPM 1.72 1.71 1.74

Diagram - 19

The above chart clearly represents the risk free rate of mutual funds

Table for CAPM of Fixed Deposits.

Fund CAPM

SBI FD 1.72

ICICI FD 1.72

Federal Bank 1.73

Table- 23

Here, Federal bank is giving equal return whereas SBI and ICICI are giving less than the

risk free rate so the investment should not be undertaken.

CAPM

1.73

1.728

1.726

1.724

1.722

1.72

1.718

1.716

1.714SBI FD ICICI FD Federal Bank

CAPM 1.72 1.72 1.73

Diagram – 20

The above chart clearly represents the risk free rate of Fixed deposits.

Table for comparing CAPM

Fund CAPM

SBI MF 1.72

Reliance MF 1.71

UTI MF 1.74

SBI FD 1.72

ICICI FD 1.72

Federal Bank 1.73

Table-24

The CAPM says that the expected return of a security or a portfolio equals the rate on a

risk-free security plus a risk premium. If this expected return does not meet or beat the

required return, then the investment should not be undertaken.

The above table represents the CAPM values which is equal to or more than Risk Free

Rate except for Reliance Mutual Fund.

Reliance Mutual Fund has a CAPM of 1.71 which is less than Risk Free Rate that is 1.72

and thus the investment should not be undertaken.

CAPM

1.74

1.73

1.72

1.71

1.7

1.69

Sbi MF Reliance UTI MF Sbi FD ICICI FD FederalMF Bank

Diagram - 21

The above figure represents different sets of CAPM values for different investment.

UTI has highest value. Thus, premium is given by this investment at a higher rate as compared to others.

Table for SHARPE RATIO OF MUTUAL FUNDS

Fund SHARPE RATIO

SBI MF -0.14

RELIANCE MF 0.044

UTI MF 0.21

Table- 25

From the above we can interpret that UTI mutual fund, has higher Sharpe ratio i.e

0.21,which means it is performing well as compared to other mutual funds. SBI mutual

fund should not be selected because it has a negative Sharpe ratio. This is due to the fact

that it’s risk free rate is greater than it’s return.

Sharpe Ratio

0.25

0.2

0.15

0.1

0.05

0

-0.05

-0.1

-0.15 SBI MF Reliance MF UTI MF

Sharpe Ratio -0.14 0.044 0.21

Diagram - 22

The above figure represents different sets of Sharpe Ratio values for mutual funds. Table for SHARPE RATIO OF FIXED DEPOSITS

Fund SHARPE RATIO

SBI FD 1.72

ICICI FD 1.81

Federal Bank 1.69

Table- 26

From the above we can interpret that ICICI Fixed Deposit, has higher Sharpe ratio

i.e 1.81, which means it is performing well as compared to other Fixed Deposits. It’s

better to invest in a higher Sharpe Ratio.

Sharpe Ratio

1.82

1.8

1.78

1.76

1.74

1.72

1.7

1.68

1.66

1.64

1.62 SBI FD ICICI FD Federal Bank

Diagram - 23

The above figure represents different sets of Sharpe Ratio values for fixed deposits.

Table for comparing Sharpe Ratio

Fund Sharpe Ratio

SBI MF -0.14

Reliance MF 0.044

UTI MF 0.21

SBI FD 1.72

ICICI FD 1.81

Federal Bank 1.69

Table- 27

From the above we can interpret that ICICI Fixed Deposit, has higher Sharpe ratio i.e

1.81, which means it is performing well as compared to others. The Sharpe Ratio

indicates stocks with trends that are strong and have "low risk", that is, trends that are

well-behaved and less volatile. The higher the ratio it is better to invest.

Sharpe Ratio

2

1.5

1

0.5

0 -

0.5

SBI MF Reliance UTI MF SBI FD ICICI FD FederalMF Bank

S R -0.14 0.044 0.21 1.72 1.81 1.69

Diagram - 24

The above figure represents different Sharpe Ratios ofdifferent investments.

Mean SD Beta CAPM Sharpe

SBI MF

1.38 2.47 -0.21% 1.72 -0.14

Reliance MF

1.9 3.86 -0.78% 1.71 0.044

UTI MF

1.9 0.82 0.24% 1.74 0.21

SBI FD

2.04 0.18 -0.30% 1.72 1.72

ICICI FD

1.93 0.17 -0.19% 1.72 1.81

Federal Bank

1.95 0.126 -0.18% 1.73 1.69

Nifty

4.32 13.75

RF

1.73

Table- 28

Interpretation

¸ The Risk Free Rate is 1.73.The investor should select return higher than the

risk free rate.

¸ From above it can be clearly concluded that Fixed Deposits are performing

better than mutual funds.

¸ SBI Mutual Fund return is less than risk free rate. So the investor should not

select this scheme.

¸ The maximum return is from SBI Fixed Deposits, but if we compare with

market return that is Nifty (4.32) it is less than it

The higher the risk involved in the investment, it should give higher return. But from

the above table it is clear that mutual funds have higher risk associated than fixed

deposits but from performance point of view, fixed deposits are giving higher returns

as compared to mutual funds.

¸ When Beta is negative, it’s good to invest because asset generally moves in the

opposite direction as compared to the index.

¸ From the above table it is seen that only UTI Mutual Fund has a positive Beta that

indicates that movement of the asset is generally in the same direction as, but more

than the movement of the index.

¸ CAPM states that the expected return based on expected rate of return on the market,

the risk-free rate and the beta coefficient of the stock.

¸ Here, UTI Mutual Fund having highest CAPM i.e 1.74 indicates that it’s return is

more than risk free rate and premium is added to it.

¸ Sharpe ratio should be usually be positive so it is most beneficial from investing point

of view.

¸ Here, SBI Mutual Fund has a negative Sharpe Ratio indicating that its performance is

not upto the mark or rather low

¸

Chapter – 5

CONCLUSIONS AND SUGGESTIONS

Conclusions

FEATURES Fixed Deposit Mutual Funds

Returns Better Low

Administrative exp. Low High

Risk Low Moderate

Investment option Less More

Network High penetration Low but improving

Liquidity At a cost Better

Quality of Assets Not Transparent Transparent

Interest calculation Quarterly Every Month

i.e. 3rd 6th 9th & 12th.

Account Needed Not Needed.

Table- 29

Interpretation

∑Thus, in this limited span of time, it has been observed that Fixed Deposits

are performing better than Mutual funds.

∑Fixed Deposits are giving better returns than Mutual funds and at the same

time the risk associated with Fixed Deposits are low as compared to Mutual

Funds.

∑Mutual Funds provide more investing options but are more risk prone.

∑Fixed Deposits offer less investing options but are having low risk.

∑Investing is concerned with higher returns at low or minimal risk which is

provided by Fixed Deposits.

Suggestions

Thus it is clear from the above conclusion that Mutual Funds provide a low rate of return

and are riskier to invest as compared to Fixed Deposits that are comparatively secure and

yield high returns.

Thus , it is better to invest in Fixed Deposits due to the following reasons:-

Safety

The fixed deposits of reputed banks and financial institutions regulated by RBI

(Reserve Bank of India) the banking regulator in India are very secure and

considered as one of the safest investment methods.

Regular Income

Fixed deposits earn fixed interest rates for their entire tenure, which is usually

compounded quarterly. So, those who want an income on a regular basis can

invest into fixed deposits and use the interest rate as their income. This makes a

fixed deposit very popular way of investing money for retirees.

Saves tax

With the directives of the income tax department stating that investment in fixed

deposits up to a maximum of Rs.100,000 for 5 years are eligible for tax

deductions under section 80 C of income tax act, fixed deposits have again

become popular. Fixed Deposits save tax and give high returns on invested

money.

¸Guaranteed return.-The only reason why our parents and many in our

generation also have this single concept of investment is because of its safety

features.

¸Easy to raise a loan against your FD- One can borrow up to 90 per cent of the

FDs amount.

¸ Flexible maturity date, it is for this features that you can invest for a time

frames that is as less as 6 months to as long as 10 years or even more.

Chapter-6

BIBLIOGRAPHY

REFERENCE BOOK:-

¸ FINANCIAL MARKET AND SERVICES- Gordon and Natarajan.

¸ INVESTMENT MANAGEMENT - V.K.BHALLA

¸ FINANCIAL MANAGEMENT,10th EDITION- I.M. PANDEY

¸ INVESTMENT ANALYIS AND PORTFOLIO MANAGEMENT,3rd EDITION-

PRASANNA CHANDRA

¸ Research Methodology – Kothari.

¸ Haslem, John A., Baker and Smith, “Performance and Characteristics of Actively

Managed

¸ Retail Equity Mutual Funds with Diverse Expense Ratios,” Financial Services

Review, Vol17, Issue 1, Spring 2008, pages 49-68.

¸ Kapadia, Reshma and Daren Fonda, “100 Great Funds For These Tough Times,”

Smart Money, Vol. XVIII-No. II, February 2009, pages 61-69.

¸ Kacperczyk, Marcin, Clemens Sialm and Lu Zheng, “ Industry Concentration and

Mutual Fund Performance,” Journal of Investment Management, Vol. 5, No. 1,

First Quarter, 2007, pages 50-64.

¸ Kempf, Alexander and Stefan Ruenzi, “Family Matters: Rankings Within Issue

1/2, January/March 2008, pages 177-199.

¸

WEBSITE:-

• www.mutualfundindia.com

• www.indiamarkets.com

• www.utimf.com

• www.reliancemutual.com

• www.sebi.gov.in

• www.moneycontrol.com