EXECUTIVE SUMMARY

INTRODUCTION:

The main aim of the investor is to minimize the risk involved in investment &

maximize the return. Today there are number of options available to investor like Post

Office investment, Bank Deposit, Stock Market, Insurance, Mutual Fund etc... Mutual

fund is a growing investment now a day because of low cost & lack of time to look

after their money. In this project let us see the different means of investment in mutual

fund & how to analyze the risk involved in each mutual fund.

This project is about a brief introduction to mutual funds, different types, the

intermediaries involved, parties involved, regulatory bodies etc… The contents in this

project are made simple so as to make a layman understand the terms used in the field

of mutual fund.

The core area of this project focuses on risk & return analysis of mutual fund which

tells an advisory about the risk level of each option in each fund. This project contains

some elementary statistics which are used in calculation which help in drawing

inferences.

This project has been done in VERSATILE SECURITIES (Franchisee of

RELIGARE SECURITIES), which is a financial Shoppe involved in rendering

different financial services like equity brokerage, commodity research & brokerage,

portfolio management services, mutual fund distribution.

Mutual funds are truly a safer way to invest. They essentially are a pooling of small

resources by individuals, handed over to a professional fund manager to invest in well

diversified portfolio of securities such as money market instruments, corporate &

govt. bonds, equity shares of joint stock companies based on the objectives of the

scheme.

TITLE OF THE PROJECT:

“A Study on Mutual Funds and Comparative Performance Analysis [Risk and Return] of SBI

Mutual Fund with ICICI Prudential Mutual Fund.”

MAIN OBJECTIVE:

To make Comparative Analysis of Performance of SBI Mutual Fund with ICICI Prudential

Mutual Fund.

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SUB-OBJECTIVES:

To study the different kinds of schemes provided by each of Mutual funds.

Comparative risk & return analysis of SBI Gilt Fund with ICICI Prudential Gilt Fund.

Comparative risk & return analysis of SBI Equity Fund with ICICI Prudential Equity

Fund

Comparative risk & return analysis of SBI Balance Fund Plan with ICICI Prudential

Balance Fund.

FINDINGS:

Returns from ICICI Prudential Balanced Fund for the past one year period is

23.16% and return from SBI Magnum Balanced Fund is higher at 25.96% for

the same period. The NAV 40.88 of SBI Magnum Balanced Fund is 40.88 and

ICICI Prudential Balanced Fund is 35.2

The present NAV of SBI Magnum Gilt and ICICI Prudential are Rs. Rs.17.26

and Rs.22.62 respectively. Returns for the past one-year period for SBI

Magnum Gilt Fund is 5.36%, which is lower than ICICI Prudential Gilt Fund

Returns 8.09%.

NAV of SBI Magnum global Fund is Rs.48.48, and NAV of ICICI Prudential

Dynamic Fund is Rs.67.18. Returns from SBI Magnum global Fund are

17.93% and ICICI Prudential Dynamic Fund returns are 43.56% for the past

one year. Returns and NAV of both the funds are very much fluctuating.

RECOMMENDATIONS:

It is favorable for the SBI Mutual fund to promote more of SBI Magnum

Balanced Fund over ICICI Prudential Balance Fund, because SBI Magnum

balanced fund is giving consistent returns since inception.

The Performance of the SBI Magnum Gilt Fund is poor compared to ICICI

Prudential Gilt Fund. It’s better to invest more in High yield Government

Securities than investing in short term Deposits with lower rate of interest.

As the Portfolio of the SBI Magnum Global is holding More of cash balance,

the cash balance should be reduced and invest same in Mid Cap and Small

Cap.

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A BROAD VIEW OF

MUTUAL FUND INDUSTRY

The unique thing about the state of mind of investors in stocks or mutual funds

nowadays is that there is a huge diversity in their happiness level. The markets are at

or near all time high and so are equity mutual funds. Currently almost 95% of equity

mutual fund are either at an all time high or within two or three per cent of such high.

Except for a handful of perpetual dullards, there are no equity funds that haven’t

recovered the losses that the market suffered a year ago. Since June 14, 2006 when,

the major indices touched the lowest point in recent times, both the Sensex and the

Nifty have gained around 63 per cent. During this period, as many as 70 equity

mutual funds gained more than the markets did. Of course a large number, 95,

performed worse than the markets. Still the fact remain that even these have earned

substantial returns over this period.

All in all, there are hardly any investors who are today sitting on losses, no matter

when they have invested. Based on analysis done by Value Research, of the Rs.1,

10,000 crore of investor’s money that is being managed by diversified equity mutual

funds, around 94 per cent is in profits.

A great deal of money flowed into mutual funds in the first half of 2007. This was the

time of mega NFO’s like the Reliance Equity Advantage Fund, SBI Infrastructure,

HDFC Mid Cap Fund and many more.

This is a brief overview on the present scenario of mutual funds. Many people are

now aware of mutual funds as compared to earlier and mutual funds have become a

part of their portfolio.

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INTRODUCTION TO THE MUTUAL FUND INDUSTRY:

Unit Trust of India was the first mutual fund set up in India in the year 1963. In early

1990s, as a result of liberalization the Government allowed public sector banks and

institutions to set up mutual funds. SEBI formulates policies and regulates the mutual

funds to protect the interest of the investors. All mutual funds whether promoted by

public sector or private sector entities including those promoted by foreign entities are

governed by the same set of Regulations. Thus, SEBI (Securities Exchange Board of

India) regulates the security market.

DIAGRAM DEPICTING WORKING MECHANISM OF MUTUAL FUNDS.

Mutual Fund is the most suitable investment for the common man as it offers an

opportunity to invest in a diversified, professionally managed portfolio at a relatively

low cost. The small savings of all the investors are put together to increase the buying

power and hire a professional manager to invest and monitor the money. Anybody

with an invest able surplus of as little as a few thousand rupees can invest in Mutual

Funds. Each Mutual Fund scheme has a defined investment objective and strategy.

Mutual funds are financial intermediaries, which collect the savings of investors and

invest them in a large and well-diversified portfolio of securities such as money

market instruments, corporate and government bonds equity shares of joint stock

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companies. Mutual funds are conceived as institutions for providing small investors

with avenues of investments in the capital market.

Since small investors generally do not have adequate time, knowledge, experience

and resources for directly accessing the capital market, they have to rely on an

intermediary, which undertakes informed investment decisions and provides

consequential benefits of professional expertise.

THE CONCEPT:

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 invested by the fund manager in

different types of securities depending upon the objective of the scheme. These could

range from shares to debentures to money market instruments. The income earned

through these investments and the capital appreciations realized by the schemes are

shared by its unit holders in proportion to the number of units owned by them.

Thus, a Mutual Fund is the most suitable investment for the common person as it

offers an opportunity to invest in a diversified, professionally managed basket of

securities at a relatively low cost.

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HOW IS A MUTUAL FUND SET UP?

A mutual fund is set up in the form of a trust, which has sponsor, trustees, Asset

Management Company (AMC) and custodian.

The trust is established by a sponsor or more than one sponsor who is like promoter

of a company.

The trustees of the mutual fund hold its property for the benefit of the unit holders.

Asset Management Company (AMC) approved by SEBI, manages the funds by

making investments in various types of securities.

Custodian, who is registered with SEBI, holds the securities of various schemes of

the fund in its custody. The trustees are vested with the general power of

superintendence and direction over AMC. They monitor the performance and

compliance of SEBI Regulations by the mutual fund.

ORGANISATION OF MUTUAL FUND:

The SEBI (Mutual Funds) Regulations 1993 define a mutual fund (MF) as a fund

established in the form of a trust by a sponsor to raise money by the Trustees through

the sale of units to the public under one or more schemes for investing in securities in

accordance with these regulations.

There are many entities involved in organization of mutual fund. Diagram given

below illustrates the organization set-up of a mutual fund.

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Mutual funds have a unique structure not shared with other entities such as companies

or firms. It is important for employees and agents to be aware of the special nature of

this structure, because it determines the rights and responsibilities of the fund’s

constituents viz. sponsors, trustees, custodians, transfer agents and of course, the

fund and the asset management company the legal structure also drives the inter-

relationships between these constituents.

1. The Fund Sponsor

The sponsor of a fund is akin to the promoter of a company as he gets the fund

registered with SEBI. As the promoter of the fund, he is required to appoint the

people who will look after the fund.

The sponsor will form a Trust and appoint a Board of Trustees.

The sponsor will also generally appoint an Asset Management Company as

fund managers.

The sponsor, either directly or acting through the Trustees, will also appoint a

Custodian to hold the fund assets.

All these appointments are made in accordance with SEBI Regulations. For a person

to qualify as a sponsor, he must contribute at least 40% of the net worth of the AMC

and possess a sound financial track record over five years prior to registration.

2. Trustees

The mutual fund may be managed by a Board of Trustees a body of individuals, or a

Trust Company - a corporate body. Most of the funds in India are managed by Boards

of Trustees. While the Board of Trustees is governed by the provisions of the Indian

Trusts Act, where the Trustee is a corporate body, it would also be required to comply

with the provisions of the Companies Act, 1956. The Board or the trustee Company,

as an independent body, acts as protector of the unit- holders interests. The Trustees

do not directly manage the portfolio of securities. For this specialist function, they

appoint an Asset Management Company. They ensure that the fund is managed by the

AMC as per the defined objectives and in accordance with the Trust Deed and SEBI

Regulations.

The Trust is created through a document called the Trust Deed that is executed by the

Fund Sponsor in favor of the Trustees. The Trust Deed is required to be stamped as

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registered under the provisions of the Indian Registration Act and registered with

SEBI.

The Trustees being the primary guardians of the unit-holders funds and assets, a

Trustee has to be a person of high repute and integrity.

Trustees appoint AMC in consultation with the sponsors and according to SEBI

regulation. All mutual fund scheme floated by AMC have to be approved by trustees.

Trustees review and ensure that net worth of the company is according to stipulated

norms, every quarter

3. Custodian:

Often an independent organization, it takes custody of securities and other assets of

mutual fund. Its responsibilities include receipt and delivery of securities, collecting

income-distributing dividends, safekeeping of the units and segregating assets and

settlements between schemes. Their charges range between 0.15% - 0.2% of the net

asset value of the holding. Custodians can service more than one fund.

4. Transfer Agent (also Registrar):

The organization that mutual funds employ to prepare and maintain records relating to

unit holder accounts. Some mutual fund groups operate in-house transfer agencies.

5. Asset Management Company:

The role of an AMC is to act as the investment manager of the Trust. They are the one

who manage money of the investors. An AMC takes decisions, compensates investors

through dividends, maintains proper accounting and information for pricing of units,

calculates the NAV, and provides information on listed schemes. It also exercises due

diligence on investments, and submits quarterly reports to the trustees. A fund’s AMC

can neither act for any other fund nor undertake any business other than asset

management. Its net worth should not fall below Rs.10 crore. And, its fee should not

exceed 1.25% if collections are below Rs.100 crore and 1% if collections are above

Rs.100 crore. SEBI can pull up an AMC if it deviates from its prescribed role.

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AMC’S IN INDIAN CONTEXT:

In India we have four types of Asset Management Companies

AMC’s owned by banks

AMC’s owned by financial institutions

AMC’s owned by Indian private sector companies

AMC’s owned jointly by Indian and foreign investors.

SOME OF THE AMC’S OPERATING CURRENTLY ARE:

Name of the AMC Nature of ownership

Alliance Capital Asset Management (I) Private Limited Private foreign

Birla Sun Life Asset Management Company Limited Private Indian

Bank of Baroda Asset Management Company Limited Banks

Bank of India Asset Management Company Limited Banks

Can bank Investment Management Services Limited Banks

Cholamandalam Cazenove Asset Management Company Limited Private foreign

Dundee Asset Management Company Limited Private foreign

DSP Merrill Lynch Asset Management Company Limited Private foreign

Escorts Asset Management Limited Private Indian

First India Asset Management Limited Private Indian

GIC Asset Management Company Limited Institutions

IDBI Investment Management Company Limited Institutions

Indfund Management Limited Banks

ING Investment Asset Management Company Private Limited Private foreign

J M Capital Management Limited Private Indian

Jardine Fleming (I) Asset Management Limited Private foreign

Kotak Mahindra Asset Management Company Limited Private Indian

Kothari Pioneer Asset Management Company Limited Private Indian

Jeevan Bima Sahayog Asset Management Company Limited Institutions

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Morgan Stanley Asset Management Company Private Limited Private foreign

Punjab National Bank Asset Management Company Limited Banks

Reliance Capital Asset Management Company Limited Private Indian

State Bank of India Funds Management Limited Banks

Shriram Asset Management Company Limited Private Indian

Sun F and C Asset Management (I) Private Limited Private foreign

Sundaram Newton Asset Management Company Limited Private foreign

Tata Asset Management Company Limited Private Indian

Credit Capital Asset Management Company Limited Private Indian

Templeton Asset Management (India) Private Limited Private foreign

Unit Trust of India Institutions

Zurich Asset Management Company (I) Limited Private foreign

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ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI):

With the increase in Mutual Fund players in India, a need for Mutual Fund

Association in India was generated to function as a non-profit organization.

Association of Mutual Funds in India (AMFI) was incorporated on 22nd August,

1995.

AMFI is an apex body of all Asset Management Companies (AMC) which has been

registered with Securities Exchange Board of India (SEBI). Till date all the AMCs are

that have launched mutual fund schemes are its members. It functions under the

supervision and guidelines of its Board of Directors.

Association of Mutual Funds India has brought down the Indian Mutual Fund

Industry to a professional and healthy market with ethical lines enhancing and

maintaining standards. It follows the principle of both protecting and promoting the

interests of mutual funds as well as their unit holders.

THE OBJECTIVES OF ASSOCIATION OF MUTUAL FUNDS IN INDIA:

The Association of Mutual Funds of India works with 30 registered AMCs of the

country. It has certain defined objectives, which juxtaposes the guidelines of its Board

of Directors. The objectives are as follows:

This Mutual Fund Association of India maintains high professional and ethical

standards in all areas of operation of the industry.

It also recommends and promotes the top class business practices and code of

conduct which is followed by members and related people engaged in the

activities of Mutual Fund and Asset Management.

AMFI interacts with SEBI and works according to SEBI’s guidelines in the

Mutual Fund industry.

Associations of Mutual Fund of India do represent the Government of India,

the Reserve Bank of India and other related bodies on matters relating to the

Mutual Fund Industry.

It develops a team of well-qualified and trained Agent distributors. It

implements a programme of training and certification for all intermediaries

and other engaged in the mutual fund industry.

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AMFI undertakes all India awareness programme for investors in order to

promote proper understanding of the concept and working of Mutual Funds.

At last but not the least Association of Mutual Fund of India also disseminate

information on Mutual Fund Industry and undertakes studies and research either

directly or in association with other bodies.

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CLASSIFICATION OF MUTUAL FUNDS:

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MUTUAL FUNDS

Based on the structure

Based on investment objective

Other schemes

Open-ended

Interval Schemes

Close-ended

Growth/Equity funds

Income/Debt funds

General purpose funds

Special schemesSector fundsIndex funds

Gilt funds

Money market funds

Tax Saving schemes

Balanced funds

SCHEMES ACCORDING TO STRUCTURE:

A mutual fund scheme can be classified into open-ended scheme or close-ended

scheme depending on its maturity period.

Open-ended Fund/ Scheme:

An open-ended fund or scheme is one that is available for subscription and repurchase

on a continuous basis. These schemes do not have a fixed maturity period. Investors

can conveniently buy and sell units at Net Asset Value (NAV) related prices which

are declared on a daily basis. The key feature of open-end schemes is liquidity.

Close-ended Fund/ Scheme:

A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The

fund is open for subscription only during a specified period at the time of launch of

the scheme. Investors can invest in the scheme at the time of the initial public issue

and thereafter they can buy or sell the units of the scheme on the stock exchanges

where the units are listed. In order to provide an exit route to the investors, some

close-ended funds give an option of selling back the units to the mutual fund through

periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least

one of the two exit routes is provided to the investor i.e. either repurchase facility or

through listing on stock exchanges. These mutual funds schemes disclose NAV

generally on weekly basis.

Interval Schemes :

These schemes combine the features of open-ended and Close-ended schemes. They

may be traded on the stock exchange or may be open for sale or redemption during

pre-determined intervals at NAV based prices.

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SCHEMES ACCORDING TO INVESTMENT OBJECTIVE:

A scheme can also be classified as growth scheme, income scheme, or balanced

scheme considering its investment objective. Such schemes may be open-ended or

close-ended schemes as described earlier. Such schemes may be classified mainly as

follows:

Growth / Equity Oriented Scheme:

The aim of growth funds is to provide capital appreciation over the medium to long-

term. Such schemes normally invest a major part of their corpus in equities. Such

funds have comparatively high risks. These schemes provide different options to the

investors like dividend option, capital appreciation, etc. and the investors may choose

an option depending on their preferences. The investors must indicate the option in

the application form. The mutual funds also allow the investors to change the options

at a later date. Growth schemes are good for investors having a long-term outlook

seeking appreciation over a period of time.

Income / Debt Oriented Scheme:

The aim of income funds is to provide regular and steady income to investors. Such

schemes generally invest in fixed income securities such as bonds, corporate

debentures, Government securities and money market instruments. Such funds are

less risky compared to equity schemes. These funds are not affected because of

fluctuations in equity markets. However, opportunities of capital appreciation are also

limited in such funds. The NAVs of such funds are affected because of change in

interest rates in the country. If the interest rates fall, NAVs of such funds are likely to

increase in the short run and vice versa. However, long term investors may not bother

about these fluctuations.

Balanced Fund:

The aim of balanced funds is to provide both growth and regular income as such

schemes invest both in equities and fixed income securities in the proportion indicated

in their offer documents. These are appropriate for investors looking for moderate

growth. They generally invest 40-60% in equity and debt instruments. These funds are

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also affected because of fluctuations in share prices in the stock markets. However,

NAVs of such funds are likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund:

These funds are also income funds and their aim is to provide easy liquidity,

preservation of capital and moderate income. These schemes invest exclusively in

safer short-term instruments such as treasury bills, certificates of deposit, commercial

paper and inter-bank call money, government securities, etc. Returns on these

schemes fluctuate much less compared to other funds. These funds are appropriate for

corporate and individual investors as a means to park their surplus funds for short

periods.

Gilt Fund:

These funds invest exclusively in government securities. Government securities have

no default risk. NAVs of these schemes also fluctuate due to change in interest rates

and other economic factors as is the case with income or debt oriented schemes.

General Purpose Equity Schemes:

The investment objectives of general-purpose equity schemes do not restrict them to

invest in specific industries or sectors. They thus have a diversified portfolio of

companies across a large spectrum of industries. While they are exposed to equity

price risks, diversified general-purpose equity funds seek to reduce the sector or stock

specific risks through diversification. They mainly have market risk exposure. Sahara

Wealth Plus Fund is an Equity Fund which is a general-purpose equity scheme.

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OTHER SCHEMES:

Index Funds:

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive

index, S&P NSE 50 index (Nifty), etc. These schemes invest in the securities in the

same weight age comprising of an index. NAVs of such schemes would rise or fall in

accordance with the rise or fall in the index, though not exactly by the same

percentage due to some factors known as "tracking error" in technical terms.

Necessary disclosures in this regard are made in the offer document of the mutual

fund scheme.

There are also exchange traded index funds launched by the mutual funds which are

traded on the stock exchanges.

Sector specific funds/schemes:

These are the funds/schemes which invest in the securities of only those sectors or

industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast

Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds

are dependent on the performance of the respective sectors/industries. While these

funds may give higher returns, they are more risky compared to diversified funds.

Investors need to keep a watch on the performance of those sectors/industries and

must exit at an appropriate time. They may also seek advice of an expert.

Tax Saving Schemes:

These schemes offer tax rebates to the investors under specific provisions of the

Income Tax Act, 1961 as the Government offers tax incentives for investment in

specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes

launched by the mutual funds also offer tax benefits. These schemes are growth

oriented and invest pre-dominantly in equities. Their growth opportunities and risks

associated are like any equity-oriented scheme.

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Fund of Funds (FoF) scheme:

A scheme that invests primarily in other schemes of the same mutual fund or other

mutual funds is known as a FoF scheme. An FoF scheme enables the investors to

achieve greater diversification through one scheme. It spreads risks across a greater

universe.

Load or no-load Fund:

A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each

time one buys or sells units in the fund, a charge will be payable. This charge is used

by the mutual fund for marketing and distribution expenses. Suppose the NAV per

unit is Rs.10. If the entry as well as exit load charged is 1%, then the investors who

buy would be required to pay Rs.10.10 and those who offer their units for repurchase

to the mutual fund will get only Rs.9.90 per unit. The investors should take the loads

into consideration while making investment as these affect their yields/returns.

However, the investors should also consider the performance track record and service

standards of the mutual fund which are more important. Efficient funds may give

higher returns in spite of loads.

A no-load fund is one that does not charge for entry or exit. It means the investors can

enter the fund/scheme at NAV and no additional charges are payable on purchase or

sale of units.

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RISK HIERARCHY OF DIFFERENT MUTUAL FUNDS:

Different mutual fund schemes are exposed to different levels of risk and investors

should know the level of risks associated with these schemes before investing. The

graphical representation hereunder provides a clearer picture of the relationship

between mutual funds and levels of risk associated with these funds:

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STRUCTURE OF THE INDIAN MUTUAL FUND INDUSTRY:

The Indian mutual fund industry is dominated by the Unit Trust of India, which has a

total corpus of Rs700bn collected from more than 20 million investors. The UTI has

many funds/schemes in all categories i.e. equity, balanced, income etc with some

being open-ended and some being closed-ended. The Unit Scheme 1964 commonly

referred to as US 64, which is a balanced fund, is the biggest scheme with a corpus of

about Rs200bn. Most of its investors believe that the UTI is government owned and

controlled, which, while legally incorrect, is true for all practical purposes.

The second largest category of mutual funds is the ones floated by nationalized banks.

Can bank Asset Management floated by Canara Bank and SBI Funds Management

floated by the State Bank of India are the largest of these. GIC AMC floated by

General Insurance Corporation and Jeevan Bima Sahayog AMC floated by the LIC

are some of the other prominent ones.

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TOP TEN MUTUAL FUND TERMS:

1. Expense ratio:

The ratio of total expenses to net assets of the fund. Expenses include management

fees, the cost of shareholder mailings and other administrative expenses. The ratio is

listed in a fund's prospectus. Expense ratios may be a function of a fund's size rather

than of its success in controlling expenses. The cost of operating the fund is called

expense ratio. It is revealed as percentage of the fund’s average net assets. Eg:

Vanguard Capital.

2.12b-1 fee:

12b-1 fees’ pay funds’ marketing, promotion and distribution expenses.

3. Alpha (α):

It is measure of the difference between a fund’s expected return and its real return.

Alpha must be evaluated in context of beta (β) i.e. volatility and R-squared

(benchmark index).

A high alpha (more than 1) is a good thing and inversely a negative alpha means the

fund has under performed.

4. Beta (β):

It is the fund’s volatility measured against the S&P 500 index which has a set beta of

1. Therefore, if the fund has Beta greater than 1, it means the fund is moving up and

down more than the rest of the market.

E.g.: a fund with beta 2 will move up 20% when the S&P rises 10%.

5. R-squared:

This measures funds movements against its particular benchmark index on a scale

ranging from 1 to 100. An S&P 500 index fund will have R-squared very close to 100

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because the fund mirrors the index. A fund with a low R-squared number is moving

out of sync with its index.

A high R-squared means beta is useful. A low R-squared means ignore the beta

6. Redemption fee:

A redemption fee is charged when you withdraw money from a fund. It is different

from back-end load. A redemption fee goes back into the fund while a back-end load

profits the fund company.

A redemption fee is charged only if the money is withdrawn before a set period. Some

fund families charge it as ‘exchange fee’.

7. Volatility:

In investing, volatility refers to the ups and downs of the price of an investment. The

greater the ups and downs, the more volatile the investment is.

8. Net Asset Value:

Also known as NAV, this is the unit price (or rupee value) of one unit of a mutual

fund. NAV is calculated at the end of every business day. It is calculated by adding up

the value of all the securities and cash in the mutual fund's portfolio (its assets),

subtracting the fund's liabilities, and dividing that number by the number of units that

the fund has issued. It does not include a sales charge. The NAV increases (or

decreases) when the value of the mutual fund's holdings increase (or decrease).

NAV = Current Assets - Current Liabilities & provisions

No. of outstanding units

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9. Load:

Load is the factor that is applies to the NAV of a scheme to arrive at the price .if a

commission is paid to agents, to bring in new business; this represents a cost incurred

by the mutual fund, for the additional sales. The fund may therefore decide that

investors, who are already in the scheme, need not bear this cost. Therefore it may

decide to impose this cost on the new investors, by increasing the price at which they

can buy units. This is called “ENTRY LOAD” if a investor stays in a fund for a short

while, and decides to repurchase his units, the fund may incur some costs in

liquidating the portfolio and paying off this investor. The fund may want to impose

the cost of this operation on the exiting investor, in the form of a load. This is called

as “EXIT LOAD”

10. Asked or Offering Price:

It is the price at which a mutual fund's shares can be purchased. The asked or offering

price means the current net asset value (NAV) per share plus sales charge, if any. For

a no-load fund, the asked price is the same as the NAV.

SYSTEMATIC INVESTMENT PLAN:

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Many mutual funds offer investment programs whereby unit holders can invest. The Unit

holders of the scheme can benefit by investing specific Rupee amounts periodically, for a

continuous period. The SIP allows the investors to invest a fixed amount of Rupees every

month or quarter for purchasing additional units of the scheme at NAV based prices. It helps

investors to tide over the volatility by averaging out the cost as shown in the example.

Month NAVLump sum

Invest(Rs.) No. of

units

SIP

Invest(Rs.) No. of units

June 20 24000 1200 2000 120.00

July 22 - - 2000 90.91

August 23 - - 2000 86.96

September 21 - - 2000 95.23

October 20 - - 2000 100.00

November 19 - - 2000 105.26

December 18 - - 2000 111.11

January 16 - - 2000 125.00

February 18 - - 2000 111.11

March 19 - - 2000 105.26

April 21 - - 2000 95.23

May 22 - - 2000 90.91

Total 24000 1200 24000 1236.98

EFFECTIVENESS OF SIP BY AVERAGING OF COSTS:

Lump sum SIP______

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Total investment Rs.24, 000 Rs.24000

Total number of units 1200 1236.98

Average price per unit Rs.20 Rs.19.40

Value after 1 year Rs.26, 400 Rs.27213

Returns 10 % 13.39 %_____

Thus, SIP yields the best results only if the person continues to invest during

downturns. Often investors get so disturbed by bearish market that they stop

investing. This is a mistake because market dips are the best time to buy cheap and

average your purchase price

Importance of Offer Document:

An abridged offer document, which contains very useful information, is required to be

given to the prospective investor by the mutual fund. The application form for

subscription to a scheme is an integral part of the offer document. SEBI has

prescribed minimum disclosures in the offer document. An investor, before

investing in a scheme, should carefully read the offer document. Due care must be

given to portions relating to main features of the scheme, risk factors, initial issue

expenses and recurring expenses to be charged to the scheme, entry or exit loads,

sponsor's track record, educational qualification and work experience of key

personnel including fund managers, performance of other schemes launched by the

mutual fund in the past, pending litigations and penalties imposed, etc.

Statement of account:

Mutual funds are required to dispatch certificates or statements of accounts within six

weeks from the date of closure of the initial subscription of the scheme. In case of

close-ended schemes, the investors would get either a demat account statement or unit

certificates as these are traded in the stock exchanges. In case of open-ended schemes,

a statement of account is issued by the mutual fund within 30 days from the date of

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closure of initial public offer of the scheme. The procedure of repurchase is

mentioned in the offer document.

Transfer of Units:

According to SEBI Regulations, transfer of units is required to be done within thirty

days from the date of lodgment of certificates with the mutual fund.

Dividends:

A mutual fund is required to dispatch to the unit holders the dividend warrants within

30 days of the declaration of the dividend and the redemption or repurchase proceeds

within 10 working days from the date of redemption or repurchase request made by

the unit holder.

In case of failures to dispatch the redemption/repurchase proceeds within the

stipulated time period, Asset Management Company is liable to pay interest as

specified by SEBI from time to time (15% at present).

Information on Mutual Funds:

Almost all the mutual funds have their own web sites. Investors can also access the

NAVs, half-yearly results and portfolios of all mutual funds at the web site of

Association of mutual funds in India (AMFI) www.amfiindia.com. AMFI has also

published useful literature for the investors.

Complaint redressing:

Investors would find the name of contact person in the offer document of the mutual

fund scheme that they may approach in case of any query, complaints or grievances.

Trustees of a mutual fund monitor the activities of the mutual fund. The names of the

directors of asset Management Company and trustees are also given in the offer

documents. Investors can also approach SEBI for redressal of their complaints. On

receipt of complaints, SEBI takes up the matter with the concerned mutual fund and

follows up with them till the matter is resolved.

26

MUTUAL FUND IPO:

Investors often tend to think of fund IPO’s in the same vein as they do of stock IPO’s.

However, there are some fundamental differences that they need to take into

consideration. The price of a stock is based on its supply and the demand for it. IPO’s

often get listed at a premium because when a stock opens, its demand is sometimes

much larger than its supply.

This is not true of mutual funds. In case of mutual funds, a separate unit is created at

the time of investment and it is destroyed at the time of redemption. Thus, the supply

of mutual fund units is unlimited and so any appreciation in the value of a fund's

NAV can never be due to an increase in the demand for a fund's units. Moreover, in

the case of funds, your gains depend on how well the fund manager invests

All things considered, it is generally a good idea to stay out of fund IPO’s. A new

fund is an untested entity without any track record. Your investment call will have to

be made purely by looking at the fund manager and the AMC. Another issue is that of

a possible opportunity loss. Your investments may be locked in for up to a month.

This money could instead be kept in a liquid fund for a month and then invested once

the fund opens for daily sale and repurchase post its IPO.

There are some exceptions to this. An obvious one is closed-end funds. Even though

these are no longer in vogue, there are special funds called fixed maturity plans,

which are similarly structured. If an investor wants to invest in one of these, then the

IPO may be the only option available to him because these funds are not open for

daily sale and repurchase.

Investors need to understand that fund IPO’s are purely a marketing device that

creates some excitement. AMCs always communicate strongly during an IPO. A

discerning investor should absorb this information carefully and invest later when the

fund opens for sale and repurchase on an ongoing basis.

27

HOW SAFE ARE MUTUAL FUNDS:

By investing in mutual funds, the risk is not totally removed but one will have the

benefits of diversification.

NAV of growth funds mirrors the fluctuations of the share a price of it constitutes.

Sometimes there is permanent erosion in value too.

Bond funds, in which the constituents are debt instruments, don’t waver so much.

Income funds seldom face permanent value erosion.

Generally, mutual funds are not guaranteed by anybody. However, in the Indian

context, some of the mutual funds have floated “guaranteed” or “assured” return

schemes that guarantee a certain annual return or guarantee a buyback at a

specified price after some time.

Examples of these include funds floated by the UTI, cannabis mutual fund, BSI

mutual fund, etc. many of these funds have not earned returns that they promised and

the asset management companies of the respective mutual funds or their sponsors

have made good their promises.

28

TYPES OF RETURN ONE EXPECT FROM MUTUAL FUNDS:

Capital appreciation: An increase in the value of the units of the fund is

called as capital appreciation. As the value of the individual securities in the

fund increases, the fund’s unit price increases. An investor can book a profit

by selling the units at prices higher than the price at which he bought the units.

Dividend distribution: The profit earned by the fund is distributed among

unit holders in the form of dividends. These dividends can be either re-

invested in the fund or can be withdrawn.

29

ADVANTAGES AND DISADVANTAGES:

ADVANTAGES:

1. Professional management:

Mutual funds are backed by experienced and skilled professionals, a

dedicated investment research team that analyses the performance and prospects of

companies and selects investments.

2. Diversification:

Mutual funds always have an investment mix. The diversity in this mix

spreads out the probability of profits and losses, reducing the risk of a substantial fall

in the money you have invested.

3. Return potential:

Over a medium to long term, mutual funds have the potential to provide a

higher net return as they invest in a diversified basket of selected securities.

4. Efficiency:

By pooling investors' monies together, mutual fund companies can take

advantage of economies of scale. With large sums of money to invest, they often trade

commission-free and have personal contacts at the brokerage firms.

5. Liquidity:

In open end schemes, the investor gets the money back promptly at net NAV

pegged prices. In closed end schemes, the units can be sold on a stock exchange at the

prevailing market price. The fund also repurchases from the investors at NAV pegged

prices.

6. Flexibility:

30

Through features such as regular investment plans, regular withdrawal plans

and dividend reinvestment plans, you can systematically invest or withdraw funds

according to your needs and convenience.

7. Transparency:

You get regular information on the value of your investment in addition to

disclosure on the specific investments made by your scheme, the proportion invested

in each class or assets and the fund manager’s investment strategy and outlook.

8. Affordability:

Mutual funds are excellent for the new investors because you can invest small

amounts of money and you can invest at regular intervals with no trading costs.

9. Investor’s safety:

All mutual funds are registered with SEBI and they function within the

provisions of strict regulations designed to protect the interests of investors. The

operations of mutual funds are regularly monitored by SEBI.

DISADVANTAGES:

No Control over Costs:

Since investors do not directly monitor the fund’s operations they cannot

control the costs effectively. Regulators therefore usually limit the expenses of mutual

funds.

No tailor –made portfolio:

Mutual fund portfolios are created by AMC’s into which investors invest. They

cannot create tailor made portfolios.

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SOME DO’S AND DON’TS FOR INVESTORS WHILE INVESTING IN

MUTUAL FUNDS:

DO’s:

Read the offer document carefully before investing.

Note that investments in Mutual Funds may be risky.

Mention your bank account number in the application form.

Invest in a scheme depending upon the investment objective and your appetite

for risk.

Note that Net Asset Value of a scheme is subject to change depending upon

market conditions.

Insist for a copy of the offer document/key information memorandum before

investing.

Note that past performance of a scheme is not indicative of future

performance.

Past performance of a scheme may or may not be sustained in future.

Keep track of the Net Asset Value of a scheme, where you have invested, on a

regular basis.

Ensure that you receive an account statement for the money that you have

invested.

Update yourself on the performance of the scheme on a regular basis.

DON‘Ts:

Do not invest in a scheme just because somebody is offering you a

commission

or other incentive, gifts etc.

Do not get carried away by the name of the scheme/Mutual Fund.

Do not fall prey to promises of unrealistic returns.

Do not forget to take note of risks involved in the investment.

Do not hesitate to approach concerned persons and then the appropriate

Authorities for any problem.

32

Do not deal with any agent/broker dealer who is not registered with

Association

of Mutual Funds in India (AMFI).

FUTURE OF MUTUAL FUNDS IN INDIA:

There are around 669 Mutual funds in India at present and there are 24 different types

of Mutual funds & 175 new funds being launched in the last year, the mutual fund

industry is here to stay. At the end of 2005 July, Indian mutual fund industry reached

Rs. 1, 75, 918 crores. It is estimated that by 2010 March-end, the total assets of all

scheduled commercial banks should be Rs. 40, 90, 000 crores.

The annual composite rate of growth is expected 13.4% during the rest of the decade.

In the last 5 years we have seen annual growth rate of 9%. According to the current

growth rate, by year 2010, mutual fund assets will be double.

Going by the above facts and generally, mutual funds have often been considered a

good route to invest and earn returns with reasonable safety. Small and big investors

have both invested in instruments that have suited their needs. And so equity and debt

funds have attracted investments alike. The performance of the investments, equity in

particular, for the last one-year, has however been disappointing for the investors.

The fall in NAVs of equity funds, and it is really steep in some, even to the extent of

60-70 percent, has left investors disgusted. Such backlash was only to be expected

when funds, in a hurry to post good returns invested in volatile tech stocks. The move,

though good under conducive market conditions, is the point of rebuttal now. Owing

to volatility in market and profit warnings by some IT majors, tech stocks have been

on the downhill journey and the result is fall in NAVs of most equity funds.

This hurts the investor but then investments in equity are never safe. Mutual funds are

not just guilty of mismanaging their risks as the recent survey by Pricewaterhouse

Coopers indicates but also not educating their investors enough on the risks facing

them. It is for the mutual benefit of the investors as well as mutual funds that investor

is educated enough or else an agitated investor might route his investments to other

avenues that are considered safe.

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Debt funds are safe investments and generate returns far in excess of what other so-

called safe avenues such as banks generate. Despite this, the inflow of funds in debt

funds and banks is by no means comparable.The factor contributing to this the lack of

understanding caused by improper guidance by the intermediaries.

Till now, Investor education has been one of the issues, less cared for, by the industry.

The industry focused upon the amounts and not why a person wanted to invest or

whether a particular product suited him or not. While educating the customer might

not have been on the cards earlier, the things are beginning to change now.

Steps taken:

With SEBI passing on the guidelines, the funds will engage in investor

education. The guidelines state that funds will utilize the income earned on

unclaimed money lying with them for a period exceeding three years to

educate the investors.

AMFI has started a certification program for intermediaries. This will be made

mandatory for the intermediaries and is aimed at educating the investors about

the risks attached to the schemes and to inculcate adequate skills into the

intermediaries to help the investors choose the right kind of fund.

Steps such as these are aimed at obliterating various flaws in the system by

standardizing the knowledge base of intermediaries, as they are the interface between

the investor and the funds.

Although the investors themselves are also guilty of picking funds that were not

suited for them, the blame can’t lie square on their shoulders alone. The industry has

also got to bear some of it. With such programs becoming mandatory, it can be

ensured to some extent that ignorance ceases to be an aspect associated with the

industry.

Till now, investors have been ignorant about the kind of fund to be picked or how to

select a fund. Teaching an investor how to select a fund is thus an important aspect.

Educated investors can, on their part, ask pertinent questions to find funds that qualify

to be in their portfolio as per their risk bearing capacity.

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It would not be improper to say that investor education is still the key to managing the

funds handed over by investors. It would thus be of critical importance to educate

people for an informed investor is in the best position to pick up Schemes as per his

need. This would also infuse some confidence in the minds of the investors who under

the current scenario seem to be losing faith on account of the falls suffered in recent

times.

An educated and informed intermediary stands the best chance of understanding the

needs of the client and also of winning his confidence through proper guidance. As it

is, investor education will remain a key issue for mutual funds in the longer run and

educating the intermediaries will be the first step towards it.

35

COMPANY PROFILE

This project work is been done in the esteemed organization called Versatile

Securities. It is the franchisee of the Religare Securities. So, I feel it will be better

if the introduction starts with the main company. Let us have the introduction of

the esteemed RELIGARE SECURITIES LIMITED.

ABOUT RELIGARE:

Religare is one of the leading integrated financial services institution of India. The

company offers a large and diverse bouquet of services ranging from equities,

commodities, insurance broking, to wealth advisory, portfolio management services,

personal finance services, Investment banking and institutional broking services. The

services are broadly clubbed across three key business verticals- Retail, Wealth

management and the Institutional spectrum. Religare Enterprises Limited is the

holding company for all its businesses, structured and being operated through

various subsidiaries.

Religare’s retail network spreads across the length and breadth of the country with its

presence through more than 1,217 locations across more than 392 cities and towns.

Having spread itself fairly well across the country and with the promise of not resting

on its laurels, it has also aggressively started eyeing global geographies.

36

GROUP STRUCTURE:

VISION:

To build Religare as a globally trusted brand in the financial services domain and

present it as the ‘Investment Gateway of India’.

 MISSION:

Providing financial care driven by the core values of diligence and transparency.

 BRAND ESSENCE:

Religare is driven by ethical and dynamic processes for wealth creation.

BRAND IDENTITY:

Name: Religare is a Latin word that translates as 'to bind together'. This name has

been chosen to reflect the integrated nature of the financial services the company

offers. The name is intended to unite and bring together the phenomenon of money

and wealth to co-exist and serve the interest of individuals and institutions, alike.

37

Symbol: The Religare name is paired with the symbol of a four-leaf clover. The four-

leaf clover is used to define the rare quality of good fortune that is the aim of every

financial plan. It has traditionally been considered good fortune to find a single four

leaf clover considering that statistically one may need to search through over 10,000

three-leaf clovers to even find one four leaf clover.

Each leaf of the four-leaf clover has a special meaning in the sphere of Religare.

The first leaf of the clover represents Hope. The aspirations to succeed. The dream of

becoming. Of new possibilities. It is the beginning of every step and the foundations

on which a person reaches for the stars.

The second leaf of the clover represents Trust. The ability to place ones own faith in

another. To have a relationship as partners in a team. To accomplish a given goal with

the balance that brings satisfaction to all not in the binding but in the bond that is

built.

The third leaf of the clover represents Care. The secret ingredient that is the cement in

every relationship. The truth of feeling that underlines sincerity and the triumph of

diligence in every aspect. From it springs true warmth of service and the ability to

adapt to evolving environments with consideration to all.

The fourth and final leaf of the clover represents Good Fortune. Signifying that rare

ability to meld opportunity and planning with circumstance to generate those often

looked for remunerative moments of success.

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Hope, Trust, Care and Good fortune. All elements perfectly combine in the

emblematic and rare, four-leaf clover to visually symbolize the values that bind

together and form the core of the Religare vision

MANAGEMENT TEAM:

Mr. Sunil Godhwani - CEO & Managing Director, Religare Enterprises Limited

Mr. Sunil Godhwani is the CEO and Managing Director of our Company. He is a

graduate in chemical engineering and has a master’s degree in industrial engineering

and finance from Polytechnic Institute, New York. He has more than 20 years

experience in business.Mr. Godhwani joined the Board on July 13, 2006. He was

appointed as CEO and Managing Director of our Company on April 9, 2007. Mr.

Godhwani is also the managing director of Fortis Financial Services Limited. Prior to

becoming the Managing Director of our Company, he was Managing Director of

Religare Securities Limited since April 15, 2002

Mr. Shachindra Nath - Group Chief Operating Officer, Religare Enterprises

Limited

Mr. Shachindra Nath (Group Chief Operating Officer) aged 36 years, carries the

overall responsibility for managing the key operations of our group. He joined RSL

on May 8, 2000. RSL, at that relevant point of time, was a subsidiary of Fortis

Financial Services Limited, our Promoter Group company. He received a bachelor’s

degree in law from the Banaras University, Varanasi, and a post graduate diploma in

intellectual property rights from the Amity Law College, Delhi.

Prior to joining religare, he was at Abhipra Capital Limited as a Senior Consultant

and Divisional Incharge and held several key positions there from 1998 until 2000. In

the past, he has also worked with Obeetee Textiles Limited, R. D & Company and

39

Garware Wall Ropes Limited. He has over 14 years of experience in the financial

services industry.

Mr. Anil Saxena- Group Chief Finance Officer, Religare Enterprises Limited

Mr. Anil Saxena (Group Chief Finance Officer), aged 38 years, carries the overall

responsibility for management and supervision of our group and has played a key role

in driving its growth. He joined RSL on August 1, 2001. RSL, at that relevant point of

time, was a subsidiary of Fortis Financial Services Limited, our Promoter Group

Company. He received a bachelor’s degree in commerce from the University of Delhi.

He is a member of the Institute of Chartered Accountants of India as well as the

Institute of the Cost and Works Accountants of India. Prior to joining us, he was at

Kotak Securities Limited as their Vice-President. In the past, he has also worked with

Fortis Financial Services Limited and R. Singhania & Co. He has over 15 years of

experience in the financial services industry

Board of Directors - Religare Enterprises Limited

Mr. Malvinder Mohan Singh - Chairman (Non Executive)

Mr. Sunil Godhwani - CEO & Managing Director

Mr. Shivinder Mohan Singh - Non Executive Director

Mr. Harpal Singh - Non Executive Director

Mr.Deepak Ramchand Sabnani - Independent Director

Mr.Padam Bahl - Independent Director

Mr.J.W. Balani - Independent Director

Mr. Baldev Singh Johal - Independent Director

Mr. R. K. Shetty - Alternate to Mr. J. W. Balani

Capt.G.P.S.Bhalla - Alternate to Mr. Deepak Sabnani

40

CLIENT INTERFACE:

Retail Spectrum:

To cater to a large number of retail clients by offering all products under one roof

through the Branch Network and Online mode

Equity and Commodity Trading

Personal Finance Services

Mutual Funds

Insurance

Saving Products

Personal Credit

Personal Loans

Loans against Shares

Online Investment Portal

Institutional Spectrum:

To Forge & build strong relationships with Corporate and Institutions

Institutional Equity Broking

Investment Banking

Merchant Banking

Transaction Advisory

Corporate Finance

Wealth Spectrum:

41

To provide customized wealth advisory services to High Net worth Individuals

Wealth Advisory Services

Portfolio Management Services

International Advisory Fund Management Services

Priority Equity Client Services

Arts Initiative

New Initiatives

Religare is on a fast and ambitious growth trajectory with some interesting plans in

the pipeline of ;

AEGON Religare Life Insurance - Life Insurance Company, a Joint Venture with

Aegon one of the largest insurance and pension companies, globally

Religare AEGON AMC - Asset Management Company, a Joint Venture with

Aegon

Religare Finance - Personal Loans / Credit Cards / Loan against Property /

Mortgage & Reverse Mortgage

Online Trading - Agreement with IndusInd Bank to offer online trading services

Religare Macquarie Wealth Management Ltd - Wealth Management Company, a

Joint Venture with Macquarie

Wealth Management Services - with Wall Street Electronica, Inc., a U.S. broker -

dealer to give our Indian clients access to U.S markets

Religare Securities Ltd - Agreement with Vijay Co-operative Bank Ltd. and

Tamilnadu Mercantile Bank Ltd. to offer offline trading services.

42

VERSATILE SECURITIES

Now it’s the time to move towards the introduction of the company where the project

work is undertaken. The name of the company is Versatile Securities, Hubli. The

company started on 20th August 2005. This was the year, when the awareness about

stock broking and other investments was booming in this region. The company is the

Partnership Firm. Presently the company is covering 10 % to 12% share of the Mutual

funds market in Hubli city. The number of partners is four and their names are:

1. Mr. Ravindra M Neeli

2. Mr. Ashwin Gudisagar

3. Mr. Vishal Karadi

4. Mr. Santosh Naragund

The company is operated and managed by one of the partner Mr. Ravindra Neeli who

is an MBA graduate in the filed of Finance. The company is now made the

considerable goodwill in the market with the sincere efforts of the Management team

and the support of the partners. The good quality service and the advises given to

investors also made contribution.

The major source of the income is from the equity market and Mutual Funds. They

are selling at a good numbers and making contribution to profits.

43

PRODUCT RANGE:

Equity:

For the first time Religare brings investing community the power to be associated

with the elite dealing rooms and freedom to execute trade on their own. That is, you

may trade from our branches or trade on your own over the net and with that you get

our expertise and assistance. It has been designed to provide world-class experience

and expertise to investors. R-ALLY as the name suggests is the perfect partner for

savvy investors. Clients opting for this service would be provided services managed

by a team of dedicated relationship managers and experienced trade dealers. They

would not only assist the client in information dissemination but would also take care

of all post trade requirements.

Commodities:

Commodities as a word originated from the French word ‘commdite’ meaning

‘benefit, profit’. Rightly so! The kind of continuously growing turnover which

commodities market has seen is incredible, benefiting both producers and buyers.

These amazing results have transformed commodities as a most sought after asset

class. And this has caught attention of the whole world.

Commodities market is particularly significant to our country as India is essentially a

commodity-based economy. Therefore, it should not be surprising to see that Indian

Commodities Market is also taking giant strides, growing at a scorching pace and is

well poised to occupy its rightful place in the world. This has provided the Indian

investors with new emerging investment opportunities in the area of commodities.

Commodity Derivatives trading in India is now done through the electronic trading

platform of two popular exchanges NCDEX (National Commodity & Derivative

Exchange Limited) and MCX (Multi Commodity Exchange). The various

commodities being traded on the exchanges include precious metals, crude oil, agro-

commodities amongst others.

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Religare Commodities Limited is a member of both the exchanges (MCX & NCDEX)

that allows you to trade in all the commodities traded at both the exchanges. At

present, trading in commodities is restricted to futures contracts only.

Depository:

Religare is among the few major Depository Participants holding securities worth

more than Rs.6000 crore under its management. RSL provides depository services to

investors as a Depository Participant with NSDL and CDSL.

The Depository system in India links issuers, depository participants, depositories

National Securities Depository Limited (NSDL) and Central Depository Services

(India) Limited (CDSL) and clearing house / clearing corporation of stock exchanges.

These facilitate holding of securities in dematerialized form and securities

transactions are processed by means of account transfers.

Portfolio Management Services:

Portfolio Management Services manage our client’s wealth more efficiently; reduce

risk by diversifying across assets, sectors and funds, and maximizing returns. Expert

Portfolio Managers find best of avenues to achieve optimum returns at managed

levels of risk. This service could also be called as “transparent collective

investments”. You get an upper hand in many ways.

 NRI:

NRI - Non Resident Indians Invest Back Home

India has emerged as one of the fastest growing financial markets in the world and is

a preferred destination for investment among the global investor fraternity. Religare

Securities – country’s premier financial services company will help you pick the best

of products.

Corporate Advisory:

Religare has set up a new TOP level sales force named Corporate Advisory Group-

(CAG) in order to create, maintain and serve excellent relationship by providing

various solutions to the corporate and Institutional sector globally.

45

CAG is a segmentric approach where for one segment the Religare will offer all the

products.

CAG will be the one point for relationship for all big and small corporate, banks,

financial institution.

Investment Banking:

Company provides innovative, integrated and best-fit solutions to our corporate

customers, it is our continuous endeavor to provide value enhancement through

diverse financial solution on an on-going basis, through products like corporate debt,

private equity, IPO, ECB, FCCB, GDR/ADR etc.

EMPLOYEE BASE:

Number of employees working in the organization is 4 including the working partner

and Manager of the organization Mr. Ravindra Neeli. There are other 3 employees

and they are performing the task of handling Mutual Funds and terminal operation.

46

COMPANY PROFILES OF SBI MUTUAL FUNDS AND ICICI PRUDENTIAL MUTUAL FUNDS

The mutual funs companies which I have chosen for my project analysis are;

1] SBI Mutual Funds

2] ICICI Prudential Mutual Funds

A brief profile of the companies is as follows.

47

SBI MUTUAL FUNDS:

SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an

enviable track record in judicious investments and consistent wealth creation.

The fund traces its lineage to SBI - India’s largest banking enterprise. The

institution has grown immensely since its inception and today it is India's

largest bank, patronized by over 80% of the top corporate houses of the country.

SBI Mutual Fund is a joint venture between the State Bank of India and Society

General Asset Management,  one  of  the  world’s  leading  fund  management 

companies  that  manages  over US$ 330 Billion worldwide.

In eighteen years of operation, the fund has launched thirty-two schemes and

successfully redeemed fifteen of them. In the process it has rewarded its

investors handsomely with consistently high returns.

A total of over 3.5 million investors have reposed their faith in the wealth

generation expertise of the Mutual Fund.

Schemes of the Mutual fund have consistently outperformed benchmark indices

and have emerged as the preferred investment for millions of investors and

HNI’s.

Today, the fund manages over Rs. 20000 crores of assets and has a diverse

profile of investors actively parking their investments across 40 active schemes.

The fund serves this vast family of investors by reaching out to them through

network of over 100 points of acceptance, 26 investor service centers, 33

investor service desks and 52 district organizers.

48

SBI Mutual is the first bank-sponsored fund to launch an offshore fund –

Resurgent India Opportunities Fund. Growth through innovation and stable

investment policies is the SBI MF.

IMPORTANCE OF SBI MUTUAL FUND

1) SBI Mutual Fund helps in introducing a high degree of professional

management and marketing concept in to banking

2) SBI Mutual Fund creates Healthy competition on general efficiency levels in

the industry

3) SBI Mutual Fund is always trying to innovate the new products avenues, new

schemes, services etc.

MORE ABOUT SBI MUTUAL FUND:

SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an

enviable track record in judicious investments and consistent wealth

creation.The fund traces its lineage to SBI - India’s largest banking enterprise.

The institution has grown immensely since its inception and today it is India's

largest bank, patronized by over 80% of the top corporate houses of the

country. SBI Mutual Fund is a joint venture between the State Bank of India

and Society General Asset Management,  one  of  the  world’s  leading  fund 

management  companies  that  manages  over US$ 330 Billion worldwide.

BUSINESS OBJECTIVES:

The Primary Objective of SBI Mutual Fund is to enhance the Investments in the

country through the Provision of Different Mutual Fund Schemes in a systematic and

Professional Manner, and to promote the Investments in the Mutual Fund

ORGANIZATIONAL GOAL:

SBI Mutual Fund Main goals are to:

a) Develop a Close Relationship with Customer

49

b) Transform Ideas in to Viable and Creative Solutions

c) Provide Consistently high Returns to Shareholders,

d) To grow through diversification by leveraging off the existing client base.

BUSINESS FOCUS:

SBI Mutual Fund mission is to be world class Mutual Fund its Main aim is to build

Customer Franchises across distinct business So as to be the Preferred Provider of

services in the Segments that Fund Operates in and to achieve healthy growth in

profitability, and consistency.The SBI Mutual Fund is committed to maintain the

highest level of ethical standards, professional integrity and regulatory compliance

SUBSIDIARIES AND ASSOCIATES:

SBI Bank

SBI Mutual Fund

SBI Life insurance Company

SBI Securities

SBI NRI Services

Other Companies co- promoted by SBI

SBI Mutual Fund is professionally managed organization with a board of directors

consisting of eminent persons who represent various fields including finance,

taxation, construction and urban policy and development. The board primarily focuses

on strategy

Formulation, policy and control, designed to deliver increasing value to the share

holders.

50

S B I MUTUAL FUND SCHEMES:

1] EQUITY SCHEMES:

The investments of these schemes will predominantly be in the stock markets

and endeavor will be to provide investors the opportunity to benefit from the

higher returns which stock markets can provide. However they are also

exposed to the volatility and attendant risks of stock markets and hence should

be chosen only by such investors who have high risk taking capacities and are

willing to think long term. Equity Funds include diversified Equity Funds,

Sectoral Funds and Index Funds. Diversified Equity Funds invest in various

stocks across different sectors while sectoral funds which are specialized

Equity Funds restrict their investments only to shares of a particular sector and

hence, are riskier than Diversified Equity Funds. Index Funds invest passively

only in the stocks of a particular index and the performance of such funds

move with the movements of the index.

Magnum COMMA Fund

Magnum Equity Fund

Magnum Global Fund

Magnum Index Fund

Magnum MidCap Fund

Magnum Multicap Fund

Magnum Multiplier Plus 1993

Magnum Sector Funds Umbrella

SBI Arbitrage Opportunities Fund

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SBI Blue chip Fund

2] DEBT SCHEMES:

Debt Funds invest only in debt instruments such as Corporate Bonds,

Government Securities and Money Market instruments either completely

avoiding any investments in the stock markets as in Income Funds or Gilt

Funds or having a small exposure to equities as in Monthly Income Plans or

Children's Plan. Hence they are safer than equity funds. At the same time the

expected returns from debt funds would be lower. Such investments are

advisable for the risk-averse investor and as a part of the investment portfolio

for other investors.

Magnum Children’s Benefit Plan

Magnum Gilt Fund

Magnum Gilt Fund (Long Term) Magnum Gilt Fund (Short Term)

Magnum Income Fund

Magnum Income Plus Fund

Magnum Income Plus Fund (Saving Plan)

Magnum Income Plus Fund (Investment Plan)

Magnum Insta Cash Fund

Magnum InstaCash Fund -Liquid Floater Plan

Magnum Institutional Income Fund

Magnum Monthly Income Plan

Magnum Monthly Income Plan Floater

Magnum NRI Investment Fund

SBI Debt Fund Series

SDFS 15 Months Fund

   SDFS 90 Days Fund

   SDFS 13 Months Fund

   SDFS 18 Months Fund

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   SDFS 24 Months Fund

   SDFS 60 Days Fund

SBI PREMIER LIQUID FUND:

3] BALANCED SCHEMES:

Magnum Balanced Fund invests in a mix of equity and debt investments. Hence they

are less risky than equity funds, but at the same time provide commensurately lower

returns. They provide a good investment opportunity to investors who do not wish to

be completely exposed to equity markets, but is looking for higher returns than those

provided by debt funds.

Magnum Balanced Fund

Magnum NRI Investment Fund - Flexi Asset Plan

SBI EQUITY SCHEMES DETAILS:

MAGNUM GLOBAL FUND:

Investment Objective:

To provide the investors maximum growth opportunity through well researched

investments in Indian equities, PCDs and FCDs from selected industries with

high growth potential and Bonds.

Asset Allocation:

Instrument %of portfolio Risk

Profile

Equity, Partly Convertible Debentures, Fully 80-100% HIGH

Convertible Debentures and Bonds

Money Market instruments 0-20% LOW

SCHEME HIGHLIGHTS:

1. An open-ended equity scheme investing in stocks from selected industries

with high growth potential.

2. Minimum Investment Rs. 2000 and in multiples of Rs. 1000 with Dividend

and Growth options available. ^ Money Market Instruments will include

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Commercial Paper, Commercial Bills, Certificate of Deposit, Treasury Bills,

Bills Rediscounting, Repos, Government securities having an unexpired

maturity of less than 1 year, call or notice money, usance bills and any other

such short-term instruments as may be allowed under the regulations prevailing

from time to time.

Launch Date: September 30, 1994

Entry Load

Investments below Rs. 5 crores - 2.25% Investments of Rs.5 crores and above –

NIL

Exit Load

Investments below Rs 5 crores <= 6 months - 1.00% and NIL thereafter.

Investments of Rs 5 crores and above - NIL

SBI GILT FUND DETAILS:

SBI MAGNUM GILT FUND:

Investment Objective:

To provide the investors with returns generated through investments in

government securities issued by the Central Government and / or a State

Government

Asset Allocation:

Instrument %of portfolio Risk

Profile

Government of India Dated Securities 100% Sovereign

State Governments Dated Securities 100% Low

Government of India Treasury Bills 100% Sovereign

Scheme Highlights:

1. Open ended Gilt Scheme.

2. The scheme will invest in government securities only with the exception of

investments made in the call money markets. Investment in Government

Securities signifies no risk of default (zero credit risk) either in payment of

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principal or even interest on the investments made by the scheme. Long-Term

Plan - for investors with a long-term investment horizon. This Plan will have

two options (a) Quarterly Dividend option and (b) Growth option The Long

Term Plan Dividend Plan and the Growth Plan will each have three options for

investment 1. Regular Dividend / Growth Option : This option will be the

existing option in this Plan wherein investments in this option would be subject

to a Contingent Deferred Sales Charge (CDSC) of 0.25% for exit within 90 days

from the date of investment. 2. PF (Regular) Option: This option under both the

Dividend and Growth Plans would be a no-load option.

3. PF (Fixed Period) Option: This option under both the Dividend and Growth

Plan provides prospective investors with an option to lock-in their investments

for a period of 1 year, 2 years or 3 years from the date of their investment

Facility to reinvest dividend is available under both the Plans. Both the Plans

will have separate investment portfolios and separate NAVs. Under the Long-

Term Plan, the funds will normally be managed to an average portfolio-maturity

longer than three years.

Launch Date: January 1, 2003

Entry Load: Nil

Exit Load: Regular Plan (Long Term) - CDSC of 0.25% for exit within 90 days

from date of investment

SBI BALANCED FUND:

Investment Objective:

To provide investors long term capital appreciation along with the liquidity of

an open-ended scheme by investing in a mix of debt and equity. The scheme

will invest in a diversified portfolio of equities of high growth companies and

balance the risk through investing the rest in a relatively safe portfolio of debt.

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Asset Allocation:

Instrument %of portfolio Risk

Profile

Equities At least 50% MED-

HIGH

Debt Instruments like debentures, bonds,khokhas. UP TO 40%

Securitized Debt 10% MED-

HIGH

Money Market Instruments Balance Low

Scheme Highlights:

1. An open-ended scheme investing in a mix of debt and equity instruments.

Investors get the benefit of high expected-returns of equity investments with the

safety of debt investments in one scheme.

2. On an ongoing basis, magnums will be allotted at an entry load of 2.25% to

the NAV.

3. Scheme opens for Resident Indians, Trusts, Indian Corporates, on a fully

repatriable basis for NRIs and, Overseas Corporate Bodies.

4. Facility to reinvest dividend proceeds into the scheme at NAV available.

5. Switchover facility to any other open-ended schemes of SBI Mutual Fund at

NAV related prices.

6. The scheme will declare NAV, Sale and repurchase price on a daily basis.

7. Nomination facility available for individuals applying on their behalf either

singly or jointly up to three.

Launch Date: May 1, 1996

Entry Load: Investments below Rs. 5 crores - 2.25% Investments of Rs.5 crores

and above - NIL

Exit Load: Investments below Rs.5 crores < = 6 months - 1.00%, > 6 months

but < 12 months - 0.50% Investments of Rs.5 crores and above - NIL

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ICICI PRUDENTIAL MUTUAL FUND:

ICICI Prudential Asset Management Company enjoys the strong parentage of

prudential plc, one of UK's largest players in the insurance & fund management

sectors and ICICI Bank, a well-known and trusted name in financial services in India.

ICICI Prudential Asset Management Company, in a span of just over eight years, has

forged a position of pre-eminence in the Indian Mutual Fund industry as one of the

largest asset management companies in the country with assets under management of

Rs. 37,906.24 crores (as of March 31, 2007). The Company manages a

comprehensive range of schemes to meet the varying investment needs of its

investors spread across 68 cities in the country.

PRUDENTIAL:

Established in London in 1848, Prudential plc, through its businesses in the UK, US and

Asia, provides retail financial services products and services to more than 21 million

customers, policyholders and unit holders worldwide with over US$400 (as of 31st

December, 2005) billion in funds under management. Prudential employs some 23,000 staff

worldwide.

In Asia, Prudential has life insurance and funds management operations across twelve

countries - China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, the Philippines,

Singapore, Taiwan, Thailand and Vietnam. Prudential has championed customer-centric

products and services for over 80 years, supported by an extensive network of over 145,000

staff and agents across the region.

ICICI BANK:

ICICI Bank is India's second-largest bank with total assets of about Rs. 2,513.89 bn (US$

56.3 bn) at March 31, 2006 and profit after tax of Rs. 25.40 bn (US$ 569 mn) for the year

ended March 31, 2006 (Rs. 20.05 bn (US$ 449 mn) for the year ended March 31, 2005).

ICICI Bank has a network of about 614 branches and extension counters and over 2,200

ATMs. ICICI Bank

offers a wide range of banking products and financial services to corporate and retail

customers through a variety of delivery channels and through its specialized subsidiaries and

57

affiliates in the areas of investment banking, life and non-life insurance, venture capital and

asset management. ICICI Bank set up its international banking group in fiscal 2002 to cater to

the cross border needs of clients and leverage on its domestic banking strengths to offer

products internationally. ICICI Bank currently has subsidiaries in the United Kingdom,

Russia and Canada, branches in Singapore, Bahrain, Hong Kong, Sri Lanka and Dubai

International Finance Centre and representative offices in the United States, United Arab

Emirates, China, South Africa and Bangladesh. Our UK subsidiary has established a branch

in Belgium. ICICI Bank is the most valuable bank in India in terms of market capitalization.

ICICI PRUDENTIAL MUTUAL FUND SCHEMES:

ICICI Prudential Infrastructure Fund

ICICI Prudential Services Industries Fund

ICICI Prudential FMCG Fund

ICICI Prudential Technology Fund

ICICI Prudential Discovery Fund

ICICI Prudential Power

ICICI Prudential Dynamic Plan

ICICI Prudential Emerging S.T.A.R Fund

ICICI Prudential Tax Plan

ICICI Prudential Growth Plan

ICICI Prudential Index Fund

ICICI Prudential Spice Fund

ICICI Prudential Child Care Plan

ICICI Prudential Balanced Fund

ICICI Prudential Income Multiplier Fund

ICICI Prudential Monthly Income Plan

ICICI Prudential Gilt Fund-Investment Option

ICICI Prudential Income Plan

ICICI Prudential Flexible Income Plan

ICICI Prudential Long Term Floating Rate Plan

ICICI Prudential Blended Plan

ICICI Prudential Short Term Plan

ICICI Prudential Gilt Fund-Treasury Option

ICICI PRUDENTIAL PRODUCT DETAILS:

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EQUITY SCHEME:

ICICI PRUDENTIAL DYNAMIC PLAN is a diversified equity fund that could

be your ideal choice to make the most of dynamic changes in the market. It has the

agility to capture upside opportunities across value and growth, large and midcap,

index and non-index stocks. On the flip side it also has ability to move into cash as

markets get overvalued

Investment Objective:

To generate capital appreciation by actively investing in equity / equity related

securities. For defensive considerations, the Scheme may invest in debt, money

market instruments, to the extent permitted under the Regulations. The AMC will

have the discretion to completely or partially invest in any of the type of securities

stated above so as to maximize the returns.

Investment Philosophy:

ICICI PRUDENTIAL DYNAMIC PLAN is a diversified equity plan that follows the

growth investment philosophy to invest in a portfolio of large, mid and small-cap

stocks. It has the ability to move gradually into cash as the market gets over-valued. It

offers a portfolio of stocks selected through rigorous bottom-up fundamental analysis

across market capitalizations on a diversified basis for long-term capital appreciation.

Benefits:

1. Has the agility, aimed at capturing upside opportunities in the market across market

capitalizations.

2. On the flip side, in case stock markets get into an over valued position, the plan has

the ability to switch to cash thus seeking to limit the downside

PERFORMANCE:

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Entry Load: (i) For investments of less than Rs. 5 Crores: Entry load at 2.25% of

applicable NAV. (ii) For investments of Rs. 5 crores and Above: Nil

Exit Load: Nil

ICICI PRUDENTIAL GUILT FUND:

Investment Objective:

To generate income through investment in Gilts of various maturities.

Investment Philosophy:

ICICI PRUDENTIAL GILT FUND is a pure debt fund that invests in short tenure

Government securities (G-Secs). These securities are essentially liquid and carry no

credit risk. Having said that, the portfolios exposed to some interest rate risk as the

securities are marked to market, and therefore, respond to changes in market interest

rates. The portfolio seeks to limit volatility by deploying funds in short-term G-Secs,

with an average maturity not exceeding 3 years. The objective is to closely manage

the downside risks of the portfolio arising out of changes in the market rates, by

actively managing the duration of the portfolio.

Benefits:

1. Enables exposure to a pure Government security portfolio.

2. Facilitates participation in the wholesale market for Government debt, even for smaller ticket-size exposures.

3. Provides the benefits of professional management of investment portfolios.

Performance of the Fund:

Entry Load: Nil

Exit Load: Nil

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ICICI PRUDENTIAL BALANCED FUND:

Asset allocation is the key to investing success. It helps to reduce the volatility of

returns. A Balanced Fund takes care of this asset allocation by investing in equity for

capital appreciation and debt for stable returns. It focuses on reducing volatility of

returns by increasing / decreasing equity exposure based on the market outlook and

using a core debt portfolio to do the rebalancing.

Investment Objective:

To seek to generate long-term capital appreciation and current income from a

portfolio that is invested in equity and equity related securities as well as in fixed

income securities.

Investment Philosophy:

An open-ended fund that allocates to both equity and debt markets reflects this

wisdom. In bullish market equity allocation can go up to 80%. In bearish market

equity allocation can go down to 65%. This dynamic allocation along with core debt

portfolio reduces the volatility of return.

Benefits:

Balanced fund brings you the twin benefits of growth from equity markets and steady

income from debt markets

Performance:

Entry Load: (i) For investments of less than Rs. 5 Crores: 2.25% of applicable NAV.

(ii) For investments of Rs. 5 crores and Above: Nil

Exit Load: Nil

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KEY INFORMATION

CATEGORIES OF MUTUAL FUND SCHEMES:

1. SCHEMES ACCORDING TO MATURITY PERIOD:

A mutual fund scheme can be classified into open-ended scheme or close-ended

scheme depending on its maturity period.

1.1OPEN-ENDED FUND/ SCHEME:

An open-ended fund or scheme is one that is available for subscription and

repurchase on a continuous basis. These schemes do not have a fixed maturity

period. Investors can conveniently buy and sell units at Net Asset Value (NAV)

related prices, which are declared on a daily basis. The key feature of open-end

schemes is liquidity.

1.2CLOSE-ENDED FUND/ SCHEME:

A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The

fund is open for subscription only during a specified period at the time of launch

of the scheme. Investors can invest in the scheme at the time of the initial public

issue and thereafter they can buy or sell the units of the scheme on the stock

exchanges where the units are listed. In order to provide an exit route to the

investors, some close-ended funds give an option of selling back the units to the

mutual fund through periodic repurchase at NAV related prices. SEBI Regulations

stipulate that at least one of the two exit routes is provided to the investor i.e.

either repurchase facility or through listing on stock exchanges. These mutual

funds schemes disclose NAV generally on weekly basis.

2. SCHEMES ACCORDING TO INVESTMENT OBJECTIVE:

A scheme can also be classified as growth scheme, income scheme, or balanced

scheme considering its investment objective. Such schemes may be open-ended or

close-ended schemes as described earlier. Such schemes may be classified mainly

as follows:

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2.1GROWTH / EQUITY ORIENTED SCHEME:

The aim of growth funds is to provide capital appreciation over the medium to long-

term. Such schemes normally invest a major part of their corpus in equities. Such

funds have comparatively high risks. These schemes provide different options to the

investors like dividend option, capital appreciation, etc. and the investors may choose

an option depending on their preferences. The investors must indicate the option in

the application form. The mutual funds also allow the investors to change the options

at a later date. Growth schemes are good for investors having a long-term outlook

seeking appreciation over a period of time.

2.2INCOME / DEBT ORIENTED SCHEME:

The aim of income funds is to provide regular and steady income to investors. Such

schemes generally invest in fixed income securities such as bonds, corporate

debentures, Government securities and money market instruments. Such funds are

less risky compared to equity schemes. These funds are not affected because of

fluctuations in equity markets. However, opportunities of capital appreciation are also

limited in such funds. The NAVs of such funds are affected because of change in

interest rates in the country. If the interest rates fall, NAVs of such funds are likely to

increase in the short run and vice versa. However, long-term investors may not bother

about these fluctuations.

2.3BALANCED FUND:

The aim of balanced funds is to provide both growth and regular income as such

schemes invest both in equities and fixed income securities in the proportion indicated

in their offer documents. These are appropriate for investors looking for moderate

growth. They generally invest 40-60% in equity and debt instruments. These funds are

also affected because of fluctuations in share prices in the stock markets. However,

NAVs of such funds are likely to be less volatile compared to pure equity funds.

2.4MONEY MARKET OR LIQUID FUND:

These funds are also income funds and their aim is to provide easy liquidity,

preservation of capital and moderate income. These schemes invest exclusively in

safer short-term instruments such as treasury bills, certificates of deposit, commercial

paper and inter-bank call money, government securities, etc. Returns on these

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schemes fluctuate much less compared to other funds. These funds are appropriate for

corporate and individual investors as a means to park their surplus funds for short

periods.

2.5GILT FUND:

These funds invest exclusively in government securities. Government securities have

no default risk. NAVs of these schemes also fluctuate due to change in interest rates

and other economic factor as is the case with income or debt oriented schemes.

2.6INDEX FUNDS:

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive

index, S&P NSE 50 index (Nifty), etc these schemes invest in the securities in the

same weight age comprising of an index. NAVs of such schemes would rise or fall in

accordance with the rise or fall in the index, though not exactly by the same

percentage due to some factors known as "tracking error" in technical terms.

Necessary disclosures in this regard are made in the offer document of the mutual

fund scheme.

There are also exchange traded index funds launched by the mutual funds, which are

traded on the stock exchanges.

OTHER SCHEMES:

TAX SAVING SCHEMES:

These schemes offer tax rebates to the investors under tax laws as prescribed from

time to time. This is made possible because the Government offers tax incentives for

investment in specified avenues. For example, Equity Linked Savings Schemes

(ELSS) and Pension Schemes. The details of such tax saving schemes are provided in

the relevant offer documents.

Ideal for: Investors seeking tax rebates.

SPECIAL SCHEMES:

This category includes index schemes that attempt to replicate the performance of a

particular index such as the SSE Sensex or the NSE 50, or industry specific schemes

(which invest in specific industries) or sectoral schemes (which invest exclusively in

segments such as 'IXGroup shares or initial public offerings).

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Index fund schemes are ideal for investors who are satisfied with a return

approximately equal to that of an index.

Sectoral fund schemes are ideal for investors who have already decided to invest in a

particular sector or segment. Keep in mind that anyone scheme may not meet all your

requirements for all time. You need to place your money judiciously in different

schemes to be able to get the combination of growth, income and stability that is right

for you. Remember, as always, higher the return you seek higher the risk you should

be prepared to take.

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FREQUENTLY USED TERMS:

NET ASSET VALUE (NAV):

Net Asset Value is the market value of the assets of the scheme minus its liabilities.

The per unit NAV is he net asset value of the scheme divided by the number of units

outstanding on the Valuation date. Net Asset Value is the market value of securities of

scheme divided by the total number of units of the scheme on any particular date. For

example, if the market value of the securities of a mutual fund scheme is Rs 200 lakhs

and the mutual fund has issued 10 lakhs units at Rs. 10 each to the investors, then the

NAV per unit of the fund is Rs.20. NAV is required to be disclosed by the mutual

funds on a regular basis- daisy or weekly- depending on the type of scheme.

SALE PRICE:

Is the price you pay when you invest in a scheme or NAV a unit holder is charged

while investing in an open-ended scheme is sale price. Also called Offer Price. It may

include a Sale load, if applicable.

REPURCHASE PRICE:

Is the price at which a close-ended scheme repurchases its units and it may include a

back-end load. This is also called Bid Price.

REDEMPTION PRICE:

Is the price at which open-ended schemes repurchase their units and close-ended

schemes redeem their units on maturity. Such prices are NAV related.

SALES LOAD:

Is a charge collected by a scheme when it sells when it sells the units also called,

‘Front-end’ load. A Load is one that charges a percentage of NAV for entry or exit.

That is, each time one buys or sells units in the fund, a charge will be payable. This

charge is used by the mutual fund for marketing and distribution expenses. Suppose

the NAV per unit is Rs. 10. If the entry as well as exit load charged were 1%, then the

investors who buy would be required to pay Rs. 10.10 and those who offer their unit

for repurchase to the mutual fund will get only Rs.9.90 per unit. The investors should

66

take the loads into consideration while making investment as these affect their

yields/returns.

“Whether a mutual fund impose fresh load or increase the load beyond the level

mentioned in the offer documents”

Mutual funds cannot increase the load beyond the level mentioned in the offer

document. Any change in the load will be applicable only to prospective investments

and not to the original investments. In case of imposition of fresh loads or increase in

existing loads, the mutual funds are required to amend their offer documents so that

the new investors are aware of loads at the time of investments.

NO LOAD:

Schemes that do not charge a load are called ‘No Load’ schemes. A no load fund is

one that does not charge for entry or exit. It means the investors can enter the

fund/scheme at NAV and not additional charges are payable on purchase or sale of

units.

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BENEFITS OF MUTUAL FUNDS:

PROFESSIONAL MANAGEMENT:

Mutual Funds are backed by experienced and skilled professionals, a dedicated

investment research team that analyses the performance and prospects of companies

and selects investments.

CONVENIENT ADMINISTRATION:

Investing in a Mutual Fund reduces paperwork and helps you avoid many problems

such as bad deliveries, delayed payments and follow up with brokers and companies.

This is important when you want to have a diversified portfolio through direct equity

investments.

DIVERSIFICATION :

Mutual Funds always have an investment mix. The diversity in this mix spreads out

the probability of profits and losses, reducing the risk of a substantial fall in the

money you have invested.

RETURN POTENTIAL :

Over a medium to long-term, Mutual Funds have the potential to provide a higher net

return as they invest in a diversified basket of selected securities.

ECONOMIES:

Mutual Funds are a relatively less expensive way to invest compared to directly

investing in the capital markets because the benefits of scale in brokerage, custodial

and other fees translate into lower costs for investors.

LIQUIDITY:

In open-end schemes, the investor gets the money back promptly at net NAV pegged

prices. In closed-end schemes, the units can be sold on a stock exchange at the

prevailing market price. The fund also repurchases from the investors at NAV pegged

prices. There is scope to speedily disinvest assets and obtain disinvestments proceeds.

FLEXIBILITY:

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Through features such as regular investment plans, regular withdrawal plans and

dividend reinvestment plans, you can systematically invest or withdraw funds

according to your needs and convenience.

TRANSPARENCY:

You get regular information on the value of your investment in addition to disclosure

on the specific investments made by your scheme, the proportion invested in each

class of assets and the fund manager's investment strategy and outlook.

AFFORDABILITY:

Investors individually may lack sufficient funds to invest in high-grade stocks. A

mutual fund because of its large corpus allows even a small investor to take the

benefit of its investment strategy.

OPTIONS:

Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.

INVESTOR SAFETY:

All Mutual Funds are registered with SEBI and they function within the provisions of

strict regulations designed to protect the interests of investors. The operations of

Mutual Funds are regularly monitored by SEBI.

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LIMITATIONS OF MUTUAL FUND:

NO GUARANTEE:

No investment is risk free. If the entire stock market declines in value, the value of

mutual fund shares will go down as well, no matter how balanced the portfolio.

Investors encounter fewer risks when they invest in mutual funds than when they buy

and sell stocks on their own. However, anyone who invests through a mutual fund

runs the risk of losing money.

FEES AND COMMISSIONS:

All funds charge administrative fees to cover their day-to-day expenses. Some funds

also charge sales commissions or “loads” to compensate brokers, financial

consultants, or financial planners. Even if you don’t use a broker or other financial

adviser, you will pay a sales commission if you buy shares in a load fund.

TAXES:

During a typical year, most actively managed mutual funds sell anywhere from 20 to

70 percent of the securities in their portfolios. If your fund makes a profit on its sales,

you will pay taxes on the income you receive, even if you reinvest the money you

made.

MANAGEMENT RISK:

When you invest in a mutual fund, you depend on the fund manager to make the right

decisions regarding the fund’s portfolio. If the manager does not perform as well as

you had hoped, you might not make as much money on your investments as you

expected. Of course, if you invest in Index Funds, you forego management risk,

because these funds do not employ managers.

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ROLE OF INTERMEDIARIES IN THE INDIAN MUTUAL FUND

INDUSTRY:

1] The mutual fund industry in India started in 1964 with the formation of the Unit

Trust of India (UTI). In 1987, other public sector institutions entered this business,

and it was in 1993 that the first of the private sector participants commenced its

operations.

2] From the beginning, UTI and other mutual funds have relied extensively on

intermediaries to market their schemes to investors. It would be accurate to say that

without intermediaries, the mutual fund industry would not have achieved the depth

and breadth of coverage amongst investors that it enjoys today. Intermediaries have

played a pivotal and valuable role in popularizing the concept of mutual funds across

India. They make the forms available to clients, explain the schemes and provide

administrative and paperwork support to investors, making it easy and convenient

for the clients to invest.

3] Intermediation itself has undergone a change over the past few decades. While

individual agents provided the foundation for growth in the early years, institutional

agents, distribution companies and national brokers soon started to play an active

role in promoting mutual funds. Recently, banks, finance companies, secondary

market brokers and even post offices have also begun to market mutual funds to their

existing and potential client bases.

4] It is, thus clear that all types of intermediaries are required for the growth of the

industry, and their wellbeing, quality orientation and ways of doing business will have

a significant impact on how the mutual fund industry in India evolves in the future.

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HOW SAFE ARE MUTUAL FUNDS:

By investing in mutual funds, the risk is not totally removed but one will have the

benefits of diversification.

Any mutual fund is as safe or unsafe as the assets that it invests in.

NAV of growth funds mirrors the fluctuations of the share prices of its constituents.

Sometimes there is permanent erosion in value too.

Bond funds, in which the constituents are debt instruments, don't waver so much.

Income funds seldom face permanent value erosion.

Despite professional setups for both investment decisions and research, funds cannot

be immune to fluctuating market health. However, funds diversify the investment

portfolio substantially so that default in any single investment (in the case of an

income fund) will not affect the overall performance of a fund in a significant manner.

In the event of default of a part of the portfolio, an income fund is extremely unlikely

to face erosion in face value.

Generally, mutual funds are not guaranteed by anybody. However, in the Indian

context, some of the mutual funds have floated "guaranteed" or "assured" return

schemes that guarantee a certain annual return or guarantee a buyback at a specified

price after some time. Examples of these include funds floated by the TI, Cannabis

Mutual Fund, BSI Mutual Fund, etc. Many of these funds have not earned returns that

they promised and the asset management companies of the respective mutual funds or

their sponsors have made good their promises

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GROUND RULES OF MUTUAL FUND INVESTING:

Assess yourself:

Self-assessment of one’s needs; expectations and risk profile is of prime importance

failing which; one will make more mistakes in putting money in right places than

otherwise. One should identify the degree of risk bearing capacity one has and also

clearly state the expectations from the investments. Irrational expectations will only

bring pain.

Try to understand where the money is going:

It is important to identify the nature of investment and to know if one is compatible

with the investment. One can lose substantially if one picks the wrong kind of mutual

fund. In order to avoid any confusion it is better to go through the literature such as

offer document and fact sheets that mutual fund companies provide on their funds.

Don't rush in picking funds, think first:

First one has to decide what he wants the money for and it is this investment goal that

should be the guiding light for all investments done. It is thus important to know the

risks associated with the fund and align it with the quantum of risk one is willing to

take. One should take a look at the portfolio of the funds for the purpose. Excessive

exposure to any specific sector should be avoided, as it will only add to the risk of the

entire portfolio. Mutual funds invest with a certain ideology such as the "Value

Principle" or "Growth Philosophy". Both have their share of critics but both

philosophies work for investors of different kinds. Identifying the proposed

investment philosophy of the fund will give an insight into the kind of risks that it

shall be taking in future.

Invest. Don’t speculate:

A common investor is limited in the degree of risk that he is willing to take. It is thus

of key importance that there is thought given to the process of investment and to the

time horizon of the intended investment. One should abstain from speculating which

in other words would mean getting out of one fund and investing in another with the

intention of making quick money. One would do well to remember that nobody can

perfectly time the market so staying invested is the best option unless there are

compelling reasons to exit.

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Don’t put all the eggs in one basket:

This old age adage is of utmost importance. No matter what the risk profile of a

person is, it is always advisable to diversify the risks associated. So putting one’s

money in different asset classes is generally the best option as it averages the risks in

each category. Thus, even investors of equity should be judicious and invest some

portion of the investment in debt. Diversification even in any particular asset class

(such as equity, debt) is good. Not all fund managers have the same acumen of fund

management and with identification of the best man being a tough task; it is good to

place money in the hands of several fund managers. This might reduce the maximum

return possible, but will also reduce the risks.

Be regular:

Investing should be a habit and not an exercise undertaken at one’s wishes, if one has

to really benefit from them. As we said earlier, since it is extremely difficult to know

when to enter or exit the market, it is important to beat the market by being

systematic.

The basic philosophy of Rupee cost averaging would suggest that if one invests

regularly through the ups and downs of the market, he would stand a better chance of

generating more returns than the market for the entire duration. The SIPs (Systematic

Investment Plans) offered by all funds helps in being systematic. All that one needs to

do is to give post-dated cheques to the fund and thereafter one will not be harried

later. The Automatic investment Plans offered by some funds goes a step further, as

the amount can be directly/electronically transferred from the account of the investor.

Do your homework:

It is important for all investors to research the avenues available to them irrespective

of the investor category they belong to. This is important because an informed

investor is in a better decision to make right decisions. Having identified the risks

associated with the investment is important and so one should try to know all aspects

associated with it. Asking the intermediaries is one of the ways to take care of the

problem.

Find the right funds

Finding funds that do not charge much fees is of importance, as the fee charged

ultimately goes from the pocket of the investor. This is even more important for debt

74

funds as the returns from these funds are not much. Funds that charge more will

reduce the yield to the investor.

RISKS INVOLVED IN INVESTING IN MUTUAL FUNDS:

75

Mutual Funds do not provide assured returns. Their returns are linked to their

performance. They invest in shares, debentures, bonds etc. All these investments

involve an element of risk. The unit value may vary depending upon the performance

of the company and if a company defaults in payment of interest/principal on their

debentures/bonds the performance of the fund may get affected. Besides incase there

is a sudden downturn in an industry or the government comes up with new a

regulation which affects a particular industry or company the fund can again be

adversely affected. All these factors influence the performance of Mutual Funds.

Some of the Risk to which Mutual Funds are exposed to is given below:

Market risk:

If the overall stock or bond markets fall on account of overall economic

factors, the value of stock or bond holdings in the fund's portfolio can drop, thereby

impacting the fund performance.

Non-market risk:

Bad news about an individual company can pull down its stock price, which can

negatively affect fund holdings. This risk can be reduced by having a diversified

portfolio that consists of a wide variety of stocks drawn from different industries.

Interest rate risk:

Bond prices and interest rates move in opposite directions. When interest rates rise,

bond prices fall and this decline in underlying securities affects the fund negatively.

Credit risk:

Bonds are debt obligations. So when the funds invest in corporate bonds, they run the

risk of the corporate defaulting on their interest and principal payment obligations and

when that risk crystallizes, it leads to a fall in the value of the bond causing the NAV

of the fund to take a beating.

PERFORMANCE MEASURES OR RISK MEASUREMENT OF MUTUAL

FUNDS:

76

Mutual Fund industry today, with about 34 players and more than five hundred

schemes, is one of the most preferred investment avenues in India. However, with a

plethora of schemes to choose from, the retail investor faces problems in selecting

funds. Factors such as investment strategy and management style are qualitative, but

the funds record is an important indicator too. Though past performance alone can not

be indicative of future performance, it is, frankly, the only quantitative way to judge

how good a fund is at present. Therefore, there is a need to correctly assess the past

performance of different mutual funds.

Worldwide, good mutual fund companies over are known by their AMCs and this

fame is directly linked to their superior stock selection skills. For mutual funds to

grow, AMCs must be held accountable for their selection of stocks. In other words,

there must be some performance indicator that will reveal the quality of stock

selection of various AMCs.

Return alone should not be considered as the basis of measurement of the

performance of a mutual fund scheme, it should also include the risk taken by the

fund manager because different funds will have different levels of risk attached to

them. Risk associated with a fund, in a general, can be defined as variability or

fluctuations in the returns generated by it. The higher the fluctuations in the returns of

a fund during a given period, higher will be the risk associated with it. These

fluctuations in the returns generated by a fund are resultant of two guiding forces.

First, general market fluctuations, which affect all the securities, present in the

market, called market risk or systematic risk and second, fluctuations due to specific

securities present in the portfolio of the fund, called unsystematic risk. The Total

Risk of a given fund is sum of these two and is measured in

terms of standard deviation of returns of the fund. Systematic risk, on the other

hand, is measured in terms of Beta, which represents fluctuations in the NAV of the

fund vis-à-vis market. The more responsive the NAV of a mutual fund is to the

changes in the market; higher will be its beta. Beta is calculated by relating the returns

on a mutual fund with the returns in the market. While unsystematic risk can be

diversified through investments in a number of instruments, systematic risk can not.

By using the risk return relationship, we try to assess the competitive strength of the

mutual funds vis-à-vis one another in a better way.

77

In order to determine the risk-adjusted returns of investment portfolios, several

eminent authors have worked since 1960s to develop composite performance indices

to evaluate a portfolio by comparing alternative portfolios within a particular risk

class.

The most important and widely used measures of performance are:

Ø The Treynor Measure

Ø The Sharpe Measure

Ø Jenson Model

Ø Fama Model

THE TREYNOR MEASURE:

Developed by Jack Treynor, this performance measure evaluates funds on the basis of

Treynor's Index. This Index is a ratio of return generated by the fund over and above

risk free rate of return (generally taken to be the return on securities backed by the

government, as there is no credit risk associated), during a given period and

systematic risk associated with it (beta). Symbolically, it can be represented as:

Treynor's Index (Ti) = (Ri - Rf)/Bi.

Where, Ri represents return on fund, Rf is risk free rate of return and Bi is beta

of the fund.

All risk-averse investors would like to maximize this value. While a high and positive

Treynor's Index shows a superior risk-adjusted performance of a fund, a low and

negative Treynor's Index is an indication of unfavorable performance.

THE SHARPE MEASURE:

In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which

is a ratio of returns generated by the fund over and above risk free rate of return and

the total risk associated with it. According to Sharpe, it is the total risk of the fund that

the investors are concerned about. So, the model evaluates funds on the basis of

reward per unit of total risk. Symbolically, it can be written as:

Sharpe Index (Si) = (Ri - Rf)/Si

Where, Si is standard deviation of the fund.

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While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of

a fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.

COMPARISON OF SHARPE AND TREYNOR:

Sharpe and Treynor measures are similar in a way, since they both divide the risk

premium by a numerical risk measure. The total risk is appropriate when we are

evaluating the risk return relationship for well-diversified portfolios. On the other

hand, the systematic risk is the relevant measure of risk when we are evaluating less

than fully diversified portfolios or individual stocks. For a well-diversified portfolio

the total risk is equal to systematic risk. Rankings based on total risk (Sharpe

measure) and systematic risk (Treynor measure) should be identical for a well-

diversified portfolio, as the total risk is reduced to systematic risk. Therefore, a poorly

diversified fund that ranks higher on Treynor measure, compared with another fund

that is highly diversified, will rank lower on Sharpe Measure.

JENSON MODEL:

Jenson's model proposes another risk adjusted performance measure. This measure

was developed by Michael Jenson and is sometimes referred to as the Differential

Return Method. This measure involves evaluation of the returns that the fund has

generated vs. the returns actually expected out of the fund given the level of its

systematic risk. The surplus between the two returns is called Alpha, which measures

the performance of a fund compared with the actual returns over the period. Required

return of a fund at a given level of risk (Bi) can be calculated as:

Ri = Rf + Bi (Rm - Rf)

Where, Rm is average market return during the given period. After calculating it,

alpha can be obtained by subtracting required return from the actual return of the

fund.

Higher alpha represents superior performance of the fund and vice versa. Limitation

of this model is that it considers only systematic risk not the entire risk associated

with the fund and an ordinary investor can not mitigate unsystematic risk, as his

knowledge of market is primitive.

FAMA MODEL:

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The Eugene Fama model is an extension of Jenson model. This model compares the

performance, measured in terms of returns, of a fund with the required return

commensurate with the total risk associated with it. The difference between these two

is taken as a measure of the performance of the fund and is called net selectivity.

The net selectivity represents the stock selection skill of the fund manager, as it is the

excess return over and above the return required to compensate for the total risk taken

by the fund manager. Higher value of which indicates that fund manager has earned

returns well above the return commensurate with the level of risk taken by him.

Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf)

Where, Sm is standard deviation of market returns. The net selectivity is then

calculated by subtracting this required return from the actual return of the fund.

Among the above performance measures, two models namely, Treynor measure and

Jenson model use systematic risk based on the premise that the unsystematic risk is

diversifiable. These models are suitable for large investors like institutional investors

with high risk taking capacities as they do not face paucity of funds and can invest in

a number of options to dilute some risks. For them, a portfolio can be spread across a

number of stocks and sectors. However, Sharpe measure and Fama model that

consider the entire risk associated with fund are suitable for small investors, as the

ordinary investor lacks the necessary skill and resources to diversified. Moreover, the

selection of the fund on the basis of superior stock selection ability of the fund

manager will also help in safeguarding the money invested to a great extent. The

investment in funds that have generated big returns at higher levels of risks leaves the

money all the more prone to risks of all kinds that may exceed the individual

investors' risk appetite.

PROJECT DETAILS

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MAIN OBJECTIVE:

To make Comparative performance analysis [Risk and Return] of SBI Mutual

Fund with ICICI Prudential Mutual Fund.

SUB-OBJECTIVES:

To study the different kinds of schemes provided by each of Mutual funds.

Comparative performance analysis of SBI Equity - Diversified with ICICI

Prudential Equity – Diversified Fund.

Comparative performance analysis of SBI Gilt Fund with ICICI Prudential

Gilt Fund

Comparative performance analysis of SBI Balance Fund with ICICI Prudential

Balance Fund.

THE STUDY COMPRISES OF:

A detailed study on Mutual Funds

Comparative analysis of Returns from SBI Mutual Fund and ICICI Prudential

Mutual fund.

Comparative analysis of Risk associated with SBI and ICICI Prudential fund,

with the use of Sharpe ratio, Expense ratio, Beta, Treynor Ratio and Standard

deviation.

To compare Mutual Fund Average Return with NIFTY Average Return

Comparative analysis of corpus of the funds.

METHODOLOGY:

Information is collected from the managers of selected firms who deal in

mutual funds.

Information is collected from the officials of SBI Mutual Fund officials.

Information is also collected from the secondary sources like the offer

documents, fact sheets, key information memorandum, web sites, magazines,

newspapers etc.

In case of corpus size, lock in period, entry and exit load the information is

collected from SBI & ICICI Prudential the offer documents.

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In case of returns, minimum investment and performance (Track Records) is

collected from the offer documents & fact sheets.

Extensive use of Mutual Fund Related magazines like “Mutual Fund Review”,

“Mutual Fund Insight by value researchers” is being made.

SOURCES OF INFORMATION:

PRIMARY SOURCES OF INFORMATION:

Officials and sales executives of Versatile Securities.

Discussion about mutual funds with existing and new investors

SECONDARY SOURCES OF INFORMATION:

Offer documents of SBI and ICICI Prudential Mutual Funds.

Mutual Fund related magazines like Mutual Fund Review, Mutual Fund

Insight by value researchers, Outlook Money.

Fact Sheets of SBI Mutual Fund and ICICI Prudential Mutual Fund

Web sites, mainly

www.mutualfundsindia.com

sbimf.com

www.valueresearchersonline.com

www.indiainfoline.com.

icicipruamc.com

LIMITATIONS OF THE STUDY:

The analysis is done on the basis of past performance of the funds. But the past

performance may not be an indicator of future performance.

Performance of mutual funds is largely affected by environmental factors, which are

beyond the control of investors.

ANALYSIS OF THE DATA

GILT FUND ANALYSIS:

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ABSOLUTE RETURNS

  1ST YEAR 2ND YEAR

3RD YEAR

NIFTY 9.715344 85.20646 125.8813SBI 5.36 8.88 13.07ICICI PRU 8.09 11.34 16.65

ABSOLUTE RETURNS

The above diagram exhibits he absolute return from Gilts funds. These are the funds,

which are known for their high consistency. The consistent appraisal is assured in this

type of funds. This type of fund is suitable for retired people, dependants on income

from fund invested.

It is clear from the diagram that the performance of ICICI Prudential is marginally

higher than SBI Mutual fund at different point of time Gilt Fund.

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  SBIICICI PRU

BETA 0.0004 0.00035

 1ST YEAR -0.0001 0.00003

RISK PREMIUM2ND YEAR -0.0002 -0.002

 3RD YEAR -0.0002 -0.001

Sharpe Ratio, which measures risk free return from the fund, is favorable in case of

ICICI Prudential Fund when compared to SBI.Higher the Sharpe Ratio indicates

higher safety. So depending on Sharpe Ratio SBI is safer than SBI.

Standard Deviation of SBI is lower than ICICI Prudential. It indicates lower risk

profile of SBI when compared to ICICI Prudential.

Beta, which measures impact of market condition on funds, is lower in case of ICICI

Prudential when compared to SBI. It indicates lower risk profile of ICICI Prudential

than SBI.

TREYNOR INDEX RANKING

  SBIICICI PRU

1ST YEAR -2.64 0.09

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SHARPE INDEX RANKING

SBIICICI PRU

1ST YEAR -0.86 0.032ND YEAR -1.51 -1.43RD YEAR -1.35 -0.91AVERAGE -0.45 -0.76

2ND YEAR -4.66 -4.993RD YEAR -4.15 -3.23AVERAGE -3.82 -2.71

A measure of a portfolio's excess return per unit of risk, equal to the portfolio's rate of

return minus the risk-free rate of return, divided by the portfolio's beta.

ICICI Prudential Mutual Fund is having a higher Treynor ratio of -2.71% as compared

to SBI Mutual Fund which is having a Treynor Ratio of -3.82%. A high Treynor

Index indicates that we're getting a good deal in terms of the return-to-risk ratio.

.

BALANCED FUND ANALYSIS:

85

ABSOLUTE RETURNS1ST YEAR

2ND YEAR

3RD YEAR

     NIFTY 9.715344 85.20646 125.8813SBI BALANCED FUND 25.96 91.85 172.5ICICI PRU BALANCED FUND 23.16 77.69 148.41

The above Diagram exhibits the absolute return of SBI and ICICI Prudential Balance

Funds. Both the funds are fluctuating. But in many a point of time returns from SBI

Balance Fund are higher than ICICI Prudential Balance Fund

Balance funds are known for their consistent return and are suitable for the investors

who can bear moderate risk and investors seeking consistent return.

86

    SBI ICICI PRU

BETA 0.003 -0.0003  1ST YEAR 0.05 -0.004RISK PREMIUM 2ND YEAR 0.23 -0.009  3RD YEAR 0.09 -0.008

Sharpe Ratio, which measures risk free return from the fund, is favorable in case of

SBI Mutual Fund when compared to ICICI Prudential Fund. Higher the Sharpe Ratio

indicates higher safety. So depending on Sharpe Ratio SBI Magnum Balanced Fund is

safer than ICICI Prudential Balanced Fund.

Standard Deviation of SBI Mutual Fund is higher than ICICI Prudential. It indicates

lower risk profile of ICICI Prudential Fund when compared to SBI Mutual Fund.

Beta, which measures impact of market condition on funds on funds, is higher in case

of SBI Mutual Fund when compared to ICICI Prudential. It indicates lower risk

profile of ICICI Prudential Balanced Fund than SBI Magnum Balanced Fund.

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SHARPE RATIO SBIICICI PRU

1ST YEAR 0.91 1.012ND YEAR 4.23 2.423RD YEAR 1.72 2.13AVG 2.29 1.85

TREYNOR INDEX RANKING

  SBI ICICI PRU

1ST YEAR 17.96 15.162ND YEAR 83.85 36.273RD YEAR 34.04 31.8AVERAGE 34.95 27.74

A measure of a portfolio's excess return per unit of risk, equal to the portfolio's rate of

return minus the risk-free rate of return, divided by the portfolio's beta.

SBI Balanced Fund is having a higher Treynor ratio of 34.95%. As Compared to

ICICI Prudential Balanced Fund having a Treynor Ratio of 27.74%. A high Treynor

Index indicates that we're getting a good deal in terms of the return-to-risk ratio.

EQUITY FUND ANALYSIS:

1.ABSOLUTE RETURNS

AVERAGE RETURN  1ST YEAR

2ND YEAR

3RD YEAR

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ABSOLUTE RETURNS

0.00

100.00

200.00

300.00

400.00

1 2 3

YEAR

RE

TU

RN

S

NIFTY

SBI MAGNUM GLOBAL

ICICI PRU DYNAMIC

NIFTY   9.72 85.21 125.88SBI MAGNUM GLOBAL FUND   17.93 130.42 320.76ICICI PRUDENTIAL DYNAMIC   43.56 148.63 319.79

The above diagram exhibits the absolute return from Equity Funds for different point

of time. It is clear from the diagram that the returns from Equity Funds are very

fluctuating. Only moderate risk takers invest in this fund. ICICI Prudential Magnum

Global Fund comparatively has given more return compared to SBI Magnum Global

Equity Fund.

SHARPE RATIO  

 SBI GLOBAL

ICICI PRU

1ST YEAR 0.07 1.42ND YEAR 0.58 2.583RD YEAR 0.51 2.4

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  SBIICICI PRU

BETA   0.08 0.01

 1ST YEAR 0.81 0.37

RISK PREMIUM2ND YEAR 7.16 0.68

 3RD YEAR 6.33 0.63

AVG SHARPE RATIO 0.387 2.127

Sharpe Ratio, which measures risk free return from the fund, is favorable in case of

ICICI Prudential Dynamic Fund when compared to SBI Magnum Global Fund.

Higher the Sharpe Ratio indicates higher safety. So depending on Sharpe Ratio ICICI

Prudential Dynamic Fund is safer than SBI Magnum Global Fund.

Standard Deviation of SBI Magnum Global Fund is higher than ICICI Prudential. It

indicates lower risk profile of ICICI Prudential Dynamic Fund when compared to SBI

Mutual Fund.

Beta, which measures impact of market condition on funds on funds, is higher in case

of SBI Magnum Global Fund when compared to ICICI Prudential Dynamic Fund. It

indicates lower risk profile of ICICI Prudential Balanced Fund than SBI Magnum

Balanced Fund.

TREYNOR RATIO  

  SBIICICI PRU

1ST YEAR 9.93 35.562ND YEAR 87.39 65.193RD YEAR 77.21 60.84AVG 58.177 53.87

90

s

A measure of a portfolio's excess return per unit of risk, equal to the portfolio's rate of

return minus the risk-free rate of return, divided by the portfolio's beta.

SBI Balanced Fund is having a higher Treynor ratio of 58.17%. As Compared to

ICICI Prudential Balanced Fund having a Treynor Ratio of 53.87%.A high Treynor

Index indicates that we're getting a good deal in terms of the return-to-risk ratio.

FINDINGS & RECOMMENDATIONS

FINDINGS:

BALANCED FUNDS:

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Returns from ICICI Prudential Balanced Fund for the past one year period is 23.16%

and returns from SBI Magnum Balanced Fund is higher at 25.96% for the same

period SBI Magnum Balance Fund is more consistently increasing than ICICI

Balanced Funds and its standard deviation is higher than ICICI Prudential Balanced

Fund. SBI Magnum Balanced Fun has standard deviation of 0.20% and ICICI

Prudential Balanced Fund has standard deviation of 0.15%.

Sharpe Ratio is comparatively favorable in case of ICICI Prudential Balance Fund.

Treynor ratio is comparatively favorable in case of SBI Magnum Balance Fund.

Sharpe Ratio and Treynor Ratio of SBI Magnum Balanced fund are 0.91, 34.95

respectively. Sharpe Ratio and Treynor Ratio of ICICI Prudential Balanced Fund are

1.01, and 27.74% respectively.

Beta coefficient of ICICI Prudential Balanced Fund is -0.0003, which is lower than

SBI Magnum Balance Fund’s Beta coefficient of 0.003.

GILT FUNDS:The present NAV of SBI Magnum Gilt and ICICI Prudential are Rs. Rs.17.26 and

Rs.22.62 respectively. Returns for the past one-year period for SBI Magnum Gilt

Fund is 5.36%, which is lower than ICICI Prudential Gilt Fund Returns 8.09%.

SBI Magnum Gilt Fund’s NAV is more consistently increasing than ICICI Prudential

Gilt Fund. Standard Deviation of SBI Magnum Gilt Fund and ICICI Prudential Gilt

Fund is 0.35 and 0.31 respectively.

Sharpe Ratio is comparatively favorable in case of SBI Magnum Gilt Fund. ICICI

Prudential is having a good treynor ratio compared to SBI Magnum Fund. Sharpe

Ratio and Treynor Ratio of SBI Magnum Gilt Fund are -0.45, and -3.82. Sharpe Ratio

and Treynor Ratio of ICICI Prudential are -0.76 and -2.71 respectively.

Beta coefficient of SBI Magnum Gilt Fund 0.0004 which is lower than ICICI

Prudential Gilt Fund Beta coefficient of 0.00035

EQUITY FUND:

NAV of SBI Magnum global Fund is Rs.48.48, and NAV of ICICI Prudential

Dynamic Fund is Rs.67.18.

Returns from SBI Magnum global Fund are 17.93% and ICICI Prudential Dynamic

Fund returns are 43.56% for the past one year.

Returns and NAV of both the funds are very much fluctuating.

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Sharpe Ratio and Treynor Ratio are comparatively favorable in case of ICICI

Prudential Dynamic Fund. Sharpe ratio and treynor ratio of SBI Mutual fund are

0.066 and 9.93 respectively. Sharpe ratio and treynor ratio of ICICI Prudential

Dynamic fund are 1.40 and 35.5 respectively

Standard deviation of SBI Magnum Global Fund is 1.51 and ICICI Prudential has

standard deviation of 0.25

RECOMMENDATIONS:

BALANCED FUNDS:

It is favorable for the SBI Mutual fund to promote more of SBI Magnum Balanced

Fund over ICICI Prudential Balance Fund, because SBI Magnum balanced fund is

giving consistent returns since inception.

SUPPORTING ANALYSIS FOR THE ABOVE STATEMENT:

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Returns of SBI Magnum Balanced Fund are marginally higher than ICICI Prudential

Balance Fund. Returns from SBI Magnum Balanced Fund for the past one-year period

were 25.96% and returns from ICICI Prudential Balanced Fund are lower at 23.16%

for the same period. Even the standard deviation of SBI Magnum Balanced Fund is

higher than ICICIC Prudential Balanced Fund’s Standard Deviation. SBI Magnum

Balanced Fund has a standard deviation of 0.20 where as ICICI Prudential Balanced

Fund has standard deviation of 0.15. It shows justified returns against risk in case of

SBI Magnum Balance Fund, the high fluctuation, higher the returns for SBI Magnum

Balance Fund.

The Treynor ratio of SBI Magnum Balanced Fund is also high as compared to ICICI

Prudential Balanced Fund. The Treynor Ratio of SBI Magnum Balanced Fund and

ICICI Prudential Balanced Fund are 34.95 and 27.74 respectively.

GILT FUNDS:

It’s better to invest more in High yield Government Securities than investing in short

term Deposits with lower rate of interest

SUPPORTING ANALYSIS FOR THE ABOVE STATEMENT:

As everyone knows the rate of return on short term deposits is obviously low however

the only advantage is the liquidity. It would, therefore, necessary to invest higher

percentage of corpus into Government Gilt Edged securities. With a view to

maximize return on funds the fund may consider to invest in certificate of deposits.

The Portfolio of SBI Magnum global is showing that 50% of the corpus is invested

in short term deposits, the percentage should be brought down, and invest more and

more in High yield government securities.

EQUITY FUNDS:

As the Portfolio of the SBI Magnum Global is holding More of cash balance, the cash

balance should be reduced and invest same in Mid Cap and Small Cap.

SUPPORTING ANALYSIS FOR THE ABOVE STATEMENT:

As the portfolio of SBI Magnum Global Fund is showing that lot cash is idle i.e. 30%

only 70% of the corpus is utilized. Portfolio composition of SBI Magnum Global is

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11% in large cap, 52% in small cap, 9% in small cap and rest of the 30% is cash. To

yield more the cash balance should be reduced and invest the same in mid cap and

small cap which yield abnormal returns.

CONCLUSION

The Global market is fast growing in investment business. Countries like US, whole

of Europe spread their investment in different investment alternatives with the help of

advisory services to recommend investor.

95

Investment is the stepping stone to achieving one’s financial dreams. Mutual funds

offer an opportune way to long-term wealth creation. However, with more and more

funds flooding the market, the task of selecting the most suitable scheme gets even

more complicated.

In Indian scenario the investments are spread over Bank Deposits, Savings Certificate,

Post Office, Equity Markets and the latest Mutual Fund. Since Mutual Funds are

subject to market risk the investor take help of advisory services for financial

planning which helps the investor to take calculated risk.

The recent correction in the stock market has left many investors unsettled it is quite

common to see many investors moving to side lines every time the market turns

volatile or corrects itself. No doubt, watching the value of investments go down day

after day can be pretty tough. However, the pain becomes more bearable if one

follows a proper investment plan and invests for the long term. Having a well

diversified portfolio as well as a plan to rebalance it from time to time also helps a

great deal. No wonder, Mutual funds are considered to be the best way to invest in the

stock market.

The mutual fund industry has gained a higher growth in the recent years. There are

around 34 Asset Management Companies which are currently operating and the

numbers of Mutual funds are around 630 funds, so it is difficult to analyze each and

every fund in order to known their riskiness and return. Some tools are used to find

risk and return of the fund, which helps an investor to find out their risk.

BIBLIOGRAPHY

AMFI Work Book

Mutual Fund review by ICICI Bank Ltd.

Mutual Fund Insight by Value Researcher.

96

Marketing Management by Philip Kotler

www.mutualfundsindia.com

www.indiainfoline.com

www.valueresearcersonline.com

www.icicidirect.com

www.amfi.com

www.sbimf.com

Reference Books: Security analysis & Portfolio Management

- Punithavathy Pandian

- Donald E. Fischer

- Ronald J. Jordan

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