05 final mutual fundsgfhg
TRANSCRIPT
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MUTUAL FUNDS
VCR Institute Of Management Studies, Chittoor Page 1
INTRODUCTION
A mutual fund is nothing more than a collection of stocks and/or bonds. We
can think of a mutual fund as a company that brings together a group of people and
invests their money in stocks, bonds, and other securities. Each investor owns shares,
which represent a portion of the holdings of the fund.
As you probably know,mutual funds have become extremely popular over the
last 20 years. What was once just another obscure financial instrument is now a part
of our daily lives. More than 80 million people, or one half of the households in
America, invest in mutual funds. That means that, in the United States alone, trillions
of dollars are invested in mutual funds.
In fact, to many people, investing means buying mutual funds. After all, it's
common knowledge that investing in mutual funds is (or at least should be) better
than simply letting your cash waste away in a savings account, but, for most people,
that's where the understanding of funds ends. It doesn't help that mutual fund
salespeople speak a strange language that is interspersed with jargon that many
investors don't understand.
Originally, mutual funds were heralded as a way for the little guy to get a
piece of the market. Instead of spending all your free time buried in the financial
pages of the Wall Street Journal, all you had to do was buy a mutual fund and you'd
be set on your way to financial freedom. As you might have guessed, it's not that easy.
Mutual funds are an excellent idea in theory, but, in reality, they haven't always
delivered. Not all mutual funds are created equal, and investing in mutuals isn't as
easy as throwing your money at the first salesperson who solicits your business. In
this tutorial, we'll explain the basics of mutual funds and hopefully clear up some of
the myths around them. You can then decide whether or not they are right for you.
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INDUSTRY PROFILE
The origin of mutual fund industry in India is with the introduction of the
concept of mutual fund by UTI in the year 1963. Though the growth was slow, but it
accelerated from the year 1987 when non-UTI players entered the industry.
In the past decade, Indian mutual fund industry had seen a dramatic
improvements, both quality wise as well as quantity wise. Before, the monopoly of
the market had seen an ending phase, the Assets Under Management (AUM) was Rs.
67bn. The private sector entry to the fund family rose the AUM to Rs. 470 bn in
March 1993 and till April 2004, it reached the height of 1,540 bn.
Putting the AUM of the Indian Mutual Funds Industry into comparison, the
total of it is less than the deposits of SBI alone, constitute less than 11% of the total
deposits held by the Indian banking industry.
The main reason of its poor growth is that the mutual fund industry in India is
new in the country. Large sections of Indian investors are yet to be educated with the
concept. Hence, it is the prime responsibility of all mutual fund companies, to market
the product correctly abreast of selling.
The mutual fund industry can be broadly put into four phases according to the
development of the sector. Each phase is briefly described as under.
Source: Understanding Mutual funds- Sunita Abraham, Uma Shashikant
First Phase - 1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It
was set up by the Reserve Bank of India and functioned under the Regulatory and
administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from
the RBI and the Industrial Development Bank of India (IDBI) took over the
regulatory and administrative control in place of RBI. The first scheme launched by
UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets
under management.
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Second Phase - 1987-1993 (Entry of Public Sector Funds)
Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by
Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian
Bank Mutual Fund (Nov Bank of India (Jun 90), Bank of Baroda Mutual Fund
(Oct 92). LIC in 1989 and GIC in 89), 1990. The end of 1993 marked Rs.47,004 as
assets under management.
Third Phase - 1993-2003 (Entry of Private Sector Funds)
With the entry of private sector funds in 1993, a new era started in the Indian
mutual fund industry, giving the Indian investors a wider choice of fund families.
Also, 1993 was the year in which the first Mutual Fund Regulations came into being,
under which all mutual funds, except UTI were to be registered and governed. The
erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private
sector mutual fund registered in July 1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more
comprehensive and revised Mutual Fund Regulations in 1996. The industry now
functions under the SEBI (Mutual Fund) Regulations 1996.
The number of mutual fund houses went on increasing, with many foreign
mutual funds setting up funds in India and also the industry has witnessed several
mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds
with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores
of assets under management was way ahead of other mutual funds.
Fourth Phase - since February 2003
This phase had bitter experience for UTI. It was bifurcated into two separate
entities. One is the Specified Undertaking of the Unit Trust of India with AUM of
Rs.29,835 crores (as on January 2003). The Specified Undertaking of Unit Trust of
India, functioning under an administrator and under the rules framed by Government
of India and does not come under the purview of the Mutual Fund Regulations.
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The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and
LIC. It is registered with SEBI and functions under the Mutual Fund Regulations.
With the bifurcation of the erstwhile UTI which had in March 2000 more thanRs.76,000 crores of AUM and with the setting up of a UTI Mutual Fund, conforming
to the SEBI Mutual Fund Regulations, and with recent mergers taking place among
different private sector funds, the mutual fund industry has entered its current phase of
consolidation and growth. As at the end of September, 2004, there were 29 funds,
which manage assets of Rs.153108 crores under 421 schemes.
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COMPANY PROFILE
HDFC MUTUAL FUNDS
HDFC, a veteran equities solutions company with over 8 decades of
experience in the Indian stock markets. The HDFC Group companies of institutional
Broking and Corporate Finance. The institutional broking division caters to domestic
and foreign institutional investors, while the Corporate Finance Division focuses on
ninche areas such as infrastructure, telecom and media, HDFC has been voted as the
Top Domestic Brokerage House in the research category, by the Euro Money survey
and Asia Money survey.
HDFC is also about focus. Sharekhan does not claim expertise in too many
things. Sharekhans expertise lies in stocks and thats what he talks about with
authority.So when he says that investing in stocks shouldntbe confused with trading
in stocks or a portfolio-based strategy is better than betting on a single horse, it is
some thing that is spoken with years of focused learning and experience in the stock
markets. And these beliefs are reflected in everything Sharekhan does for you!
HDFC Indias leading stockbroker is the retail arm of HDFC, An organization
with over eighty years experience in the stock market. With over 240share shops in
111 Cities, and Indias premier online trading destinations-www.hdfc.com, ours
customer enjoy multi-channel access at the stock markets, share khan offer u trade
execution facilities for cash as well as derivaties on the BSE &NSE and most
importunity we bring you investment advice tempered by eighty years of broking
experience.
Through our portal hdfc.com, weve been providing investors a powerful
online trading platform, the latest news, research and other knowledge-based tools for
over 5years now. We have dedicated terms for fundamental and technical research so
that you get all the information your need to take the right investment decisions. With
branches and outlets across the country , our ground network is one of the biggest in
India.
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REASON WHY YOU SHOULD CHOOSE SHARE KHAN
1. Experience:
HDFC has more than eight decades of trust and credibility in the Indian stock
market. In the Asia Money Brokers poll held recently, HDFC won the Indias best
broking division in February 2000, it has been providing institutional-level research
and broking services to individual investors.
2.Technology:
With our online trading account you can buy and sell shares in an instant from
any PC with an Internet connection. You will get acces to our powerful inline trading
tools that will help you take complete control over your investment in shares.
3. Accessibility:
In addition to our online and phone trading services, we also have a ground
network of 240 share shops across 111 cities in India where you can get personalized
services.
4 .Knowledge:In a business where the right information at the right time can translate into
direct profit, you get access to wide range of information on our content- rich portal,
Sharekhan.com. You will also get a useful set of knowledge-based tools that will
empower you to take informed decisions.
5 .Convenience:
You can all our Dial-n-Trade number to get investment and execute your
transaction. We have a dedicated call-center to provide this service via a toll-free number
from anywhere in India.
6. Customer service:
Our customer service team will assist you for any help that you need relating
to transactions, billing, demat and other queries, our customer service can be
contacted via a toll-free number, email or live chat on sharekhan.com
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7. Investment Advice:
Sharekhan has dedicated research teams for fundamental and technical
research.Our analysts constantly track the pulse of the market and provide timely
investment advice to you in the form of daily research emails, online chat, printed
reports on SMS on your phone.Cutomers of Share Khan Experience language,
presentation style, content or for that matter the online trading facility find a common
thread; one that helps the customers make informed decisions and simplifies investing
in stocks. The common thread of empowerment is what Sharekhans all about!
Sharekhan is also about focus. Share khan does not claim expertise in too many
things. Sharekhans expertise lies in stocks and thats what he talks about withauthority. So when he says that investing in stocks should not be confused with
trading in stocks or a portfolio-based strategy is better than betting on a single horse,
it is something that is spoken with years of focused learning and experience in the
stock markets. And these beliefs are reflected in everything Sharekhan does for
customers.
Those of customers who feel comfortable dealing with a human being and
would rather visit a brick-and-mortar outlet than talk to a PC; Sharekhan offers
customers the facility to visit (or talk to) any of sharekhans share shops across the
country. In fact Sharekhan runs Indias largest chain of share shops with over hundred
outlets in 80 cities!
SHARE KHAN SERVICES
Sharekhan, one of Indias leading brokerage houses, is the retail arm of
HDFC. With over 511 share shops in 170 cities, and Indias premier online trading
portal www.sharekhan.com, sharekhans customers enjoy multi-channel access to the
stock markets.
ONLINE SERVICES TO SUIT CUSTOMERS NEEDS:
With a Sharekhan online trading account, customers can buy and sell shares in
an instant! Anytime customers like trading account that suits customers trading habits
and preferences the Classic Account for most investors and Speed trade for active
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day traders. Customers Classic Account also comes with Dial-n-Trade completely
free, which is an exclusive service for trading shares by using customers telephone.
When beginning customers foray in investing in shares, customers need a lot
of things from the right information at customers disposal, to assistance when
customers need it and advice on investing.Sharekhan have been in this business for
over 80 years now, and with sharekhan customers get a host of services and tools that
are difficult to fing in one place anywhere else. The Sharekhan First Step program,
built specifically for new investors. All customers have to do is walk into any of
sharekhans 511 share shops across 170 cities in India to get a host of trading related
services sharekhans friendly customer service staff will also help customers withany accounts related queries customers may have.
A HDFC OUTLET OFFERS THE FOLLOWING SERVICES
Online BSE and NSE execution (through BOLT & NEAT terminals)Free
access to investment advice from Sharekhan value line (a monthly publication with
reviews of recommendations, stocks to watch out for etc)
Daily research reports and market review(High Noon & Eagle Eye)
Pre-market Report (Morning Cuppa)
Daily trading calls based on Technical Analysis
Cool trading products(Darling Derivatives and Market Strategy)
Personalized Advice
Live Market Information
Depository Services: Demat & Remat Transactions
Derivatives Trading (Futures and Options)
Commodities Trading
IPOs & Mutual Funds Distribution
Interner-based Online Trading: Speed Trade
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NEED FOR THE STUDY
The main purpose of doing this project was to know about mutual fund and its
functioning.
This is helps to know in details about mutual fund industry right from its
inception stage growth and future prospects.
It also helps in understanding different schemes of mutual funds because my
study depends upon prominent funds in India and their schemes like equity,
income, balance as well as the returns associated with those schemes.
The project study was done to ascertain the asset allocation ,entry load ,exit
load associated with the mutual funds
Ultimately this would help in understanding the benefits of mutual funds to
investors.
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OBJECIVES OF THE STUDY
In-depth study to analyze the effect of financial crisis on Mutual FundCompany and studying the impact on selective debt vis--vis equity mutual
funds.
To study the changes in the portfolio in the recent one year.
To Study the various factors that affect the performance of equity and debt
schemes.
To get the knowledge on the evaluation parameters, on the basis of which the
analysis and comparison of various equity schemes is done.( NAV, AUM,
Expense ratio, Portfolio turnover, Standard deviation, Sharpe ratio, Beta, Alfa,
R-Squared, P/E Ratio and P/B Ratio)
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SCOPE OF THE STUDY
To study the performance of the mutual fund schemes in the scenario of global
financial crisis, total of 16 schemes belonging to three different companies (Birla Sun
Life Mutual fund, ICICI Prudential Mutual Fund, Reliance Mutual fund) have been
selected.The performance of all the schemes is studied by taking the NAV(Net Asset
Value) and AUM (Assets Under Management) of the schemes from the month of
January 2011 (sensex reached 21000 points) to till date. Along with the risk and
volatility measures of the fund (Beta, Sharpe ratio, Standard deviation, portfolio
turnover ratio) are studied to justify the performance of the fund. The success of any
particular scheme is determined by the ability to generate the returns, so the returns
generated by the schemes in each month are studied by plotting graphs to know the
performance of the scheme.
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LIMITATIONS
1. Unavailability of the data : This project study analyses the performance of the
mutual fund schemes form the beginning of the last year, so there is a
necessity of the historic data. The unavailability of the historic data is the big
limitation to the project study
2.
Primary survey : some conclusions of the study are drawn based on the results
of the primary survey which always have the limitations of personal bias.
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REVIEW OF LITERATURE
MEANING OF THE MUTUALFUNDS
Mutual fund is nothing more than a collection of stocks and/or bonds. We can
think of a mutual fund as a company that brings together a group of people and
invests their money in stocks, bonds, and other securities. Each investor owns shares,
which represent a portion of the holdings of the fund.
Mutual funds will give returns in three ways
1) Income is earned from dividends on stocks and interest on bonds. A fund pays
out nearly all of the income it receives over the year to fund owners in the
form of a distribution.
2) If the fund sells securities that have increased in price, the fund has a capital
gain. Most funds also pass on these gains to investors in a distribution.
3) If fund holdings increase in price but are not sold by the fund manager, the
fund's shares increase in price. You can then sell your mutual fund shares for a
profit.
WORKING OF A MUTUAL FUND
A Mutual Fund is a trust that pools the savings of a number of investors who
share a common financial goal. The money thus collected is then invested in capital
market instruments such as shares, debentures and other securities. The income earned
through these investments and the capital appreciation realized 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 man as it offers an opportunity to invest
in a diversified, professionally managed basket of securities at a relatively low cost.
The flow chart below describes broadly the working of a mutual fund:
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ORGANIZATIONAL STRUCTURE OF A MUTUAL FUND
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 unitholders. 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.
SEBI Regulations require that at least two thirds of the directors of trustee
company or board of trustees must be independent i.e. they should not be associated
with the sponsors. Also, 50% of the directors of AMC must be independent. All
mutual funds are required to be registered with SEBI before they launch any scheme.
However, Unit Trust of India (UTI) is not registered with SEBI (as on January 15,
2002).
There are many entities involved and the diagram below illustrates the
organizational set up of a mutual fund:
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CLASSIFICATION OF MUTUAL FUND SCHEMES
Mutual fund offer the services by offering different schemes, people can
choose different types of schemes depending on the requirement of the people.
Mutual funds have three types of classification
1. Based on investment objective
2.
Based on investment style
3. On the basis of flexibility
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BROAD CLASSIFICATION OF MUTUAL FUNDS
Based on their structure
Open-ended funds: Investors can buy and sell the units from the fund, at
any point of time.
Close-ended funds: These funds raise money from investors only once.
Therefore, after the offer period, fresh investments can not be made into
the fund. If the fund is listed on a stocks exchange the units can be traded
like stocks (E.g., Morgan Stanley Growth Fund). Recently, most of the
New Fund Offers of close-ended funds provided liquidity window on a
periodic basis such as monthly or weekly. Redemption of units can be
made during specified intervals. Therefore, such funds have relatively low
liquidity.
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Based on their investment objective:
Equity funds: These funds invest in equities and equity related instruments. With
fluctuating share prices, such funds show volatile performance, even losses. However,
short term fluctuations in the market, generally smoothens out in the long term,
thereby offering higher returns at relatively lower volatility. At the same time, such
funds can yield great capital appreciation as, historically, equities have outperformed
all asset classes in the long term. Hence, investment in equity funds should be
considered for a period of at least 3-5 years. It can be further classified as:
Index funds
Equity diversified funds
Dividend yield funds
Thematic funds.
Sector funds
ELSS.
Balanced fund:Their investment portfolio includes both debt and equity. As a result,
on the risk-return ladder, they fall between equity and debt funds. Balanced funds are
the ideal mutual funds vehicle for investors who prefer spreading their risk across
various instruments. Following are balanced funds classes:
i) Debt-oriented funds -Investment below 65% in equities.
ii) Equity-oriented funds -Invest at least 65% in equities, remaining in debt.
Debt fund:They invest only in debt instruments, and are a good option for investors
averse to idea of taking risk associated with equities. Therefore, they invest
exclusively in fixed-income instruments like bonds, debentures, Government of India
securities; and money market instruments such as certificates of deposit (CD),
commercial paper (CP) and call money. Put your money into any of these debt funds
depending on your investment horizon and needs.
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i. Liquid funds - These funds invest 100% in money market instruments, a large
portion being invested in call money market.
ii.
Gilt funds ST-They invest 100% of their portfolio in government securities of
and T-bills.
iii. Floating rate funds -Invest in short-term debt papers. Floaters invest in debt
instruments which we have variable coupon date.
iv.
Gilt funds LT-They invest 100% of their portfolio in long-term government
securities.
v. Income funds LT- Typically, such funds invest a major portion of the
portfolio in long-term debt papers.
vi. MIPs-Monthly Income Plans have an exposure of 70%-90% to debt and an
exposure of 10%-30% to equities.
MIP Objective: The primary objective of the scheme is to generate income so as to
make monthly distributions to unit holders with the secondary objecting being growth
of capital. Income may be generated to the receipt of coupon payment, the
amortization of the discount on debt instruments, receipts of dividends or the
purchase and sale of securities in the underlying portfolio. The schemes will under
normal market conditions, invest its net assets primarily in fixed income securities,
money market instruments, cash and cash equivalents while at the same time
maintaining a small exposure to equity markets. ( Monthly income is not assured and
is subject to availability of distributable surplus).
DOMESTIC RATE MARKETS.SHORT AND LONG
We expect short term rates are expected to be strained higher amidst the
liquidity deficit in the system owing to the festive-season currency leakage.
Credit spreads (both intra-credit spreads and those relative to government
bond yields) for the 1-4 year tenor are expected to widen from current levels in
the coming months as credit demand picks up.
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positioned to benefit from the above strategy, favourable to investors with
varying horizon preferences.
For the passive investor, we recommend the dynamic bond fund, which
promises to navigate through various stages of business and rate cycles by apt and
swift repositioning of its investment strategies. It is well suited for investors with one-
year investment horizon.
DIFFERENT PLANS IN MUTUAL FUNDS
Growth Plan and Dividend Plan
A growth plan is a plan under a scheme wherein the returns from investmentsare reinvested and very few income distributions, if any, are made. The investor thus
only realizes capital appreciation
Source: Understanding Mutual funds- Sunita Abraham, Uma Shashikant on
the investment. This plan appeals to investors in the high income bracket. Under the
dividend plan, income is distributed from time to time. This plan is ideal to those
investors requiring regular income.
Dividend Reinvestment Plan
Dividend plans of schemes carry an additional option for reinvestment of
income distribution. This is referred to as the dividend reinvestment plan. Under this
plan, dividends declared by a fund are reinvested on behalf of the investor, thus
increasing the number of units held by the investors.
Automatic Investment Plan
Under the Automatic Investment Plan (AIP) also called Systematic InvestmentPlan (SIP), the investor is given the option for investing in a specified frequency of
months in a specified scheme
Source: understanding Mutual Funds- sunita Abraham, Uma Shashikant of the
Mutual Fund for a constant sum of investment. AIP allows the investors to plan their
savings through a structured regular monthly savings program.
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Automatic Withdrawal Plan
Under the Automatic Withdrawal Plan (AWP) also called Systematic
Withdrawal Plan (SWP), a facility is provided to the investor to withdraw a pre-determined amount from his fund at a pre-determined interval.
PERFORMANCE OF MUTUAL FUND SCHEME
Let us start the discussion of the performance of mutual funds in India from
the day the concept of mutual fund took birth in India. The year was 1963. For 30
years it goaled without a single second player. Though the 1988 year saw some new
mutual fund companies, but UTI remained in a monopoly position.
The performance of mutual funds in India in the initial phase was not even
closer to satisfactory level. People rarely understood, and of course investing was out
of question. But yes, some 24 million shareholders was accustomed with guaranteed
high returns by the begining of liberalization of the industry in 1992. This good record
of UTI became marketing tool for new entrants. The expectations of investors touched
the sky in profitability factor. However, people were miles away from the
preparedness of the risk factors after liberalization. Assets Under Management of UTI
was Rs. 67bn. by the end of 1987. Let me concentrate about the performance of
mutual funds in India through figures. From Rs. 67bn. the Assets Under Management
rose to Rs. 470 bn. in March
1993 and the figure had a three times higher performance by April 2004. It
rose as high as Rs. 1,540bn. The net asset value (NAV) of mutual funds in India
declined when stock prices started falling in the year 1992. Those days, the market
regulations did not allow portfolio shifts into alternative investments. There wererather no choice apart from holding the cash or to further continue investing in shares.
One more thing to be noted, since only closed-end funds were floated in the market,
the investors disinvested by selling at a loss in the secondary market . The
performance of mutual funds in India suffered qualitatively. The 1992 stock market
scandal, the losses by disinvestments and of course the lack of transparent rules in the
where about rocked confidence among the investors.
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At last to mention, as long as mutual fund companies are performing with
lower risks and higher profitability within a short span of time, more and more
people will be inclined to invest until and unless they are fully educated with the dosand donts of mutual funds
EVALUATION PARAMETERS OF MUTUAL FUNDS
Following are the evaluation parameters on the basis of which the analysis and
comparison of various equity schemes is done.
Net Asset Value (NAV)
Assets under Management
Expense Ratio
Portfolio Turnover
Standard Deviation
These are the parameters that are used to study performance of mutual fund
schemes over a period of time, in my study I have used only some of them because of
the data availability constraints. Detailed explination of the parameters I have used are
given below
Net Asset Value (NAV)
The value of a collective investment fund based on the market price of
securities held in its portfolio. NAV per share is calculated by dividing net assets of
the scheme /number of Units outstanding.
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Assets under Management
It is used to gauge how much money a fund is managing. Mutual Funds use
this as a measure of success and comparison against their competitors; in lieu ofrevenue or total revenue they use total 'assets under management'.
The difference between two AUM balances consists of market performance
gains/(losses), foreign exchanges movements, net new assets (NNA) inflow/(outflow)
and structural effects of the company. Investors are mainly interested in the NNA,
which indicate how much money from clients had been newly invested. Furthermore,
it's common to calculate the key figure 'NNA growth', which shows the NNA in
relation of the previous AUM balance (annualized).
ADVANTAGES OF MUTUAL FUND
Mutual funds offers several advantages to investors
Affordable
Almost everyone can buy mutual funds. Mutual Funds generally provide a
opportunity to invest with less funds as compared to other avenues in the capital
market. Even the ancillary fee which one has to pay in the form of brokerages,
custodian etc is lower than other options and is directly linked to the performance of
the scheme.
Professional Management
For an average investor, it may be quite difficult to decide what to buy, when
to buy, how much to buy and when to sell. Mutual Funds have a skilled professionals
who have years of experience to manages your money. The fund manager takes these
decisions after doing adequate research on the economy, industries and companies,
before buying stocks or bonds. They use intensive research techniques to analyze each
investment option for the potential of returns.
Diversification
Investments are less risky as it is spread across a wide cross-section of
industries and sectors. Diversification reduces the risk because all stocks generally
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dont move in the same direction at the same time. A mutual fund is able to diversify
more easily than an average investor across several companies.
Liquidity
You can afford to withdraw your money from a mutual fund on immediate
basis when compared with other forms of savings like the public provident fund or
National Savings Scheme. You can withdraw or redeem money at the Net Asset Value
related prices in the open-end schemes. In closed-end schemes, the units can be
transacted at the prevailing market price on a stock exchange.
Tax Benefits
Mutual funds have historically been more efficient from the tax point of view.
A debt fund pays a dividend distribution tax of 12.5 per cent before distributing
dividend to an individual investor or an HUF, whereas it is 20 per cent for all other
entities. There is no dividend tax on dividends from an equity fund for individual
investor.
Well Regulated
The Mutual Fund industry is very well regulated. All investments have to beaccounted for. SEBI acts as a true watchdog in this case and can impose penalties on
the AMCs at fault. The regulations are also designed to protect the investors interests
are also implemented effectively.
DRAWBACKS OF MUTUAL FUNDS
Mutual funds have their drawbacks. They are as follows:
No Guarantee of returnsNo 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
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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 financialadviser, 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's 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 investment as
you expected. Of course, if you invest in Index Funds, you forego management risk,
because these funds do not employ managers.
DEBT MUTUAL FUNDS
A Debt Mutual fund is a type of mutual fund that is designed especially for the
low risk investor whose main aim is capital preservation coupled with decent returns
on investment. These are for investors who prefer funds with lesser volatility, who
want a regular income and are willing to late little or very limited risk.
DEBT FUNDS
All mutual funds have some amount of risk, but debt mutual funds are less
risky than equity oriented mutual funds. Debt funds usually invest in fixed income
instruments that may also offer capital appreciation. Debt funds can give you
1. Capital Appreciation and
2. Regular Income
Capital Appreciation
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Debt funds buy either listed or unlisted debt instruments at a certain price and
then sell them. The difference between the cost and sale price accounts for the
appreciation or depreciation in the funds value. A debt instruments market pricedepends on the interest rates of its underlying assets and also any up or downward
movement in the credit ratings of its holdings.
Market prices of debt securities swing with movements in the prevailing
interest rates. Let us say our debt fund owns a security that yields a 10% interest. If
the market interest rates fall, new instruments that hit the market would reflect the
changed interest rates and offer lower returns.
Regular Income
Similar to the interest that banks offer us on our deposits, debt funds also earn
a regular interest from the fixed income securities they are invested in. This income
gets added to the debt fund on a regular basis. This income would be shared with us,
thereby providing us with regular income
Recommendation
Debt funds are specifically designed for the investor who is not ready to take
risks that come with equity mutual funds but at the same time wants a better return
than bank deposits. You can have limited exposure to these funds to add a balance to
your portfolio. An ideal investment portfolio would have around 10-15% exposure to
these instruments.
Snap shot of the funds under study
Reliance Short Term Fund Reliance Income Fund
Fund Manager Mr. Amitabh Mohanty Mr. Amit Tripathi
Category Debt : Short term income plan Debt : Medium term plan
Investment Objective The primary investment
objective of the scheme is to
generate stable returns for
The primary investment
objective of the scheme is to
generate optimal returns
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investors with a short term
investment horizon by
investing in fixed incomesecuritites of a short-term
maturity.
consistent with moderate level
of risk. This income may be
complemented by capitalappreciation of the portfolio.
Accordingly, investments shall
predominantly be made in
Debt & Money Market
Instruments.
Nature of the scheme An open ended Debt Short
term scheme
An open ended Debt scheme
Date of Inception 23/12/2002 01/01/1998
Benchmark CRISIL Liquid Fund Index CRISIL Composite Bond Fund
Index
Minimum investment
amount
50,000 5,000
Entry load Nil Nil
Exit load Nil 5 lakh - 0.10%
within 0-7 days
BIRLA SUN LIFE INCOME FUND
OBJECTIVE: An open-ended income scheme with the objective to generate
income and capital appreciation by investing 100% of the corpus in a diversified
portfolio of debt and money market securities.
LAUNCH: March 3,1997
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BIRLA SUN LIFE ULTRA SHORT TERM FUND
OBJECTIVE: An open-ended short term income scheme with the objective to
generate income and capital appreciation by investing 100% of the corpus in a
diversified portfolio of debt and money market securities with relatively low level of
interest rate risk.
LAUNCH : April 19, 2002
BIRLA SUN LIFE MEDIUM TERM PLAN
OBJECTIVE: The primary investment objective of the scheme is to generate
regular income through investments in debt & money market instruments in order to
make regular dividend payments to unitholders& secondary objective is growth of
capital.
LAUNCH : March 25, 2009
ICICI P RUDENTIAL SHORT TERM FUND
ICICI Prudential Short Term Fund is an open ended Debt scheme, with
majority of asset allocation to the debt instruments like T-bills, commercial papers etc.
These type of funds are less risky compared to that of the equity schemes and the
returns generated are also very less. Risk averse investors generally go for this type of
schemes. The ICICI Prudential Short Term Fund is operated in the same way as the
benchmark index CRISIL Short Term Bond Fund Index, ie the sector allocation will
be similar to that of the benchmark and the mutual fund scheme has the benefit of
picking a particular stock in a given sector that will generate good returns to the
investor compared to that of the benchmark.
RELIANCE SHORT TERM FUND
Reliance short term fund is an open ended Debt scheme, with majority of asset
allocation to the debt instruments like T-bills, commercial papers etc. These type of
funds are less risky compared to that of the equity schemes and the returns generated
are also very less. Risk averse investors generally go for this type of schemes.
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Reliance Short Term Fund is operated in the same way as the benchmark index
CRISIL Liquid Bond Fund Index, ie the sector allocation will be similar to that of the
benchmark and the mutual fund scheme has the benefit of picking a particular stock ina given sector that will generate good returns to the investor compared to that of the
benchmark
BIRLA SUN LIFE SHORT TERM FUND
Birla Sun Life Short Term Fund is an open ended Debt scheme, with majority
of asset allocation to the debt instruments like T-bills, commercial papers etc. These
type of funds are less risky compared to that of the equity schemes and the returns
generated are also very less. Risk averse investors generally go for this type of
schemes. The Birla Sun Life Short Term Fund is operated in the same way as the
benchmark index CRISIL Short Term Bond Fund Index, ie the sector allocation will
be similar to that of the benchmark and the mutual fund scheme has the benefit of
picking a particular stock in a given sector that will generate good returns to the
investor compared to that of the benchmark.
RELIANCE INCOME FUND
Reliance Income Fund is an open ended Debt scheme, with majority of asset
allocation to the debt instruments like T-bills, commercial papers etc. These type of
funds are less risky compared to that of the equity schemes and the returns generated
are also very less. Risk averse investors generally go for this type of schemes. The
Reliance Income Fund is operated in the same way as the benchmark index CRISIL
composite Bond Fund Index, ie the sector allocation will be similar to that of the
benchmark and the mutual fund scheme has the benefit of picking a particular stock in
a given sector that will generate good returns to the investor compared to that of the
benchmark.
BIRLA SUN LIFE INCOME FUND
Birla Sun Life Fund is an open ended Debt scheme, with majority of asset
allocation to the debt instruments like T-bills, commercial papers etc. These type of
funds are less risky compared to that of the equity schemes and the returns generated
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are also very less. Risk averse investors generally go for this type of schemes. The
Birla Sun Life Income Fund is operated in the same way as the benchmark index S&P
CNX Nifty.
ICICI PRUDENTIAL INCOME PLAN
ICICI plan is an open ended Debt scheme; the portfolio has the medium term
maturity, with majority of asset allocation to the debt instruments like T-bills,
commercial papers etc. These type of funds are less risky compared to that of the
equity schemes and the returns generated are also very less. These can generate
comparatively more returns than the short term fund because they have a higher level
of risk. Risk adverse investors generally go for this type of schemes.
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RESEARCH METHODOLOGY
METHODOLOGY OF THE STUDY
Data sources
Primary source
The questionnaire for collecting the primary data has been prepared. Two
questionnaires have been prepared. One questionnaire will be given to general public,
contains the questions that are used to get the data related to the perception of mutual
funds by the people, and what are the requisites of the people for the investment
options, these results are used for giving some recommendations to the company. The
other questionnaire will be given to the employees of the Birla Sun Life mutual fund,
ICICI prudential mutual fund and reliance mutual fund to know the performance of
the respective mutual funds.
SECONDARY SOURCE
The process of data collection from secondary sources is done by collecting
the data related to mutual funds from the websites www.amfiindia.com,www.mutualfundsindia.com, www.myiris.com, www.valueresearchonline.com, in
these websites update information regarding every mutual fund scheme is present, all
the necessary information for my project is taken from them. I have studied about the
financial crisis 2011 from Wikipedia and also articles in newspaper in business
standard, Times of India, Economic Times.
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SCHEMES UNDER STUDY
1Debt Short term plan ICICI Short term fund
2Debt Short term plan Reliance short term plan
3Debt Short term plan Birla Sun Life Short term fund
4
Debt Medium term plan ICICI Income plan
5Debt Medium term plan Reliance Income Fund
6Debt Medium term plan Birla Sun Life Income fund
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GRAPH 4.1.1 NET ASSET VALUE
0
2
4
6
8
10
12
14
16
18
20
NAV
NAV
Linear (NAV)
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GRAPH 4.1.2 Avg. AUM (Crores)
0
200
400
600
800
1000
1200
Avg AUM (crores)
Avg AUM (crores)
Linear (Avg AUM (crores))
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GRAPH 4.1.3 Average Maturity (Years)
0
1
2
3
4
5
6
average maturity (years)
average maturity (years)
Linear (average maturity
(years))
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GRAPH 4.1.4 Yiedl to maturity (%)
0
2
4
6
8
10
12
14
Yield to maturity(%)
Yield to maturity(%)
Linear (Yield to
maturity(%))
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GRAPH 4.1.5 Returns %
INTERPRETATION:
The above are the graphs showing the tendency of the NAV, AUM, %
Returns from January 2011, thick line shows the actual variation over the period andthe thin line shows the trend of the variation. NAV is the net asset value of the
portfolio of stocks. At the beginning of the year 2011 the NAV of the fund is 15.71
rupees, till the end of the year December 2011 NAV is falling and raising. From the
starting of the year 2011 the NAV of the fund is stabilized in the month of june 2011
the NAV of the fund is Rs.16.14. At the beginning of the year 2011 the AUM of the
fund is 441.37crores, till the end of the year December 2011 AUM is irregularly
decreasing and increasing. From the starting of the year 2011 the AUM of the fund
started to rise by the end of dec 2011 the AUM of the fund is reached to 1238.45
crores. The returns generated by the fund have shown very irregular tendency. But by
the trend line of the graph says that the returns generated by the fund are increasing
and showing the tendency to rise. Currently the returns generated by the fund in the
month of December 2011 is 2.16%. The performance of these schemes is influenced
mainly by influenced by the ratings of the bonds that are choosed in the portfolio.
-2
-1
0
1
2
3
4
5
6
7
8
Returns %
Returns %
Linear (Returns %)
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TABLE 4.2 RELIANCE SHORT TERM FUND
Month NAV Avg AUM (crores)
average
maturity Returns %
Jan-11 14.4718 602.7 2.18Years 0.69
Feb-11 14.5734 639.56 1.77 Years 0.09
Mar-11 14.5825 496.53 1.61 Years 0.4
Aprl-11 14.6402 385.69 1.43 Years 0.72
May-11 14.7515 370.36 1.59 Years 0.7
Jun-11 14.8664 331.19 2.16 Years 0.21
July-11 14.8847 232.33 2.18 Years 0.92
Aug-11 15.021 178.28 2.58 Years 4.98
Sep-11 15.7941 271.93 2.34 Years 0.46
Oct-11 15.8592 522.45 2.54 Years 1.33
Nov-11 16.0699 690.83 2.43 Years 0.68
Dec-11 16.1799 1191.96 2.31 Years 2.51
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Graph 4.2.1 NAV
13
13.5
14
14.5
15
15.5
16
16.5
NAV
NAV
Linear (NAV)
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Graph 4.2.2 Avg. AUM (Crores)
0
200
400
600
800
1000
1200
1400
Avg AUM (crores)
Avg AUM (crores)
Linear (Avg AUM (crores))
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Graph 4.2.3 Average Maturity
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
average maturity
average maturity
Linear (average maturity)
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Graph 4.2.4 Retunrs (%)
INTERPRETATION:
The above are the graphs showing the tendency of the NAV, AUM, % Returns
from January 2011, thick line shows the actual variation over the period and the thin
line shows the trend of the variation. NAV is the net asset value of the portfolio of
stocks. At the beginning of the year 2011 the NAV of the fund is 14.47 rupees, till the
end of the year December 2011 NAV is falling and raising
0
1
2
3
4
5
6
Returns %
Returns %
Linear (Returns %)
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Graph No.4.3.1 NAV
13.6
13.8
14
14.2
14.4
14.6
14.8
15
15.2
15.4
15.6
15.8
NAV
NAV
Linear (NAV)
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Graph No.4.3.2 Avg. AUM
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
Jan/11
Feb/11
Mar/11
Apr/11
May/11
Jun/11
Jul/11
Aug/11
Sep/11
Oct/11
Nov/11
Dec/11
Avg AUM (crores)
Avg AUM (crores)
Linear (Avg AUM (crores))
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Graph No.4.3.3: Average Maturity (Years)
-1
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
average maturity(years)
average maturity(years)
Linear (averagematurity(years))
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Graph No.4.3.4 % Returns
INTERPRETATION:
The above are the graphs showing the tendency of the NAV, AUM, %
Returns from January 2011, thick line shows the actual variation over the period and
the thin line shows the trend of the variation. NAV is the net asset value of the
portfolio of stocks. At the beginning of the year 2011 the NAV of the fund is 14.39
rupees, the NAV of this fund is continuously increasing, in the month of Sepetember
2011 the NAV of the fund is Rs. 15.16.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
% Returns
% Returns
Linear (% Returns)
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TABLE NO. 4.4 RELIANCE INCOME FUND
Month NAVAvg AUM
(crores)
average
maturity
yield to
maturity% Returns
Jan-11 25.33 80.27 13.62 7.77 1.93
Feb-11 25.93 124.68 16.09 8.29 -0.39
Mar-11 25.85 182.92 12.98 7.56 -1.32
Apr-11 25.51 199.12 9.06 8.75 0.16
May-11 25.55 179.32 7.16 7.92 0.16
Jun-11 25.596 163.31 3.62 8.14% -0.79
Jul-11 25.3888 153.29 1.53 9.39% -0.24
Aug-11 25.3348 133.13 3.10 9.51% 1.24
Sep-11 25.6685 113.46 7.69 9.88% 0.02
Oct-11 25.7618 102.4 10.23 10.21% 1.17
Nov-11 26.1378 119.63 9.79 10.23% 3.26
Dec-11 26.9895 256.72 11.21 8.50% 13.38
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GRAPH NO.4.4.1: NAV
24.5
25
25.5
26
26.5
27
27.5NAV
NAV
Linear (NAV)
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GRAPH NO.4.4.2 : Avg AUM (Crores)
0
50
100
150
200
250
300
Avg AUM (crores)
Avg AUM (crores)
Linear (NAV)
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Graph No.4.4.3: AVERAGE MATURITY
0
2
4
6
8
10
12
14
16
18
Jan/11
Feb/11
Mar/11
Apr/11
May/11
Jun/11
Jul/11
Aug/11
Sep/11
Oct/11
Nov/11
Dec/11
average maturity
average maturity
Linear (average maturity)
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Graph No.4.4.4: YIELD TO MATURITY
-4
-2
0
2
4
6
8
10
yield to maturity
yield to maturity
Linear (yield to maturity)
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GRAPH 4.5.2: Avg AUM( Crores)
0
50
100
150
200
250
300
350
Jan/11
Feb/11
Mar/11
Apr/11
May/11
Jun/11
Jul/11
Aug/11
Sep/11
Oct/11
Nov/11
Dec/11
Avg AUM (crores)
Avg AUM (crores)
Linear (Avg AUM (crores))
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GRAPH 4.5.3. Average Maturity (Years)
0
2
4
6
8
10
12
14
16
Jan/11
Feb/11
Mar/11
Apr/11
May/11
Jun/11
Jul/11
Aug/11
Sep/11
Oct/11
Nov/11
Dec/11
average maturity (years)
average maturity (years)
Linear (average maturity(years))
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GRAPH 4.5.4. % Returns
INTERPRETATION:
The above are the graphs showing the tendency of the NAV, AUM, % Returns
from January 2011, thick line shows the actual variation over the period and the thin
line shows the trend of the variation. NAV is the net asset value of the portfolio of
stocks. At the beginning of the year 2011 the NAV of the fund is 28.97 rupees, till the
end of the month Sepetember 2011 NAV is falling and raising. From the starting of
the October month 2011 the NAV of the fund is stabilized where NAV of the fund is
Rs. 30.65. At the beginning of the year 2011 the AUM of the fund is 105.88 crores,
-4
-2
0
2
4
6
8
10
12
14
16
% Returns
% Returns
Linear (% Returns)
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Table No.4.6 ICICI PRUDENTIAL INCOME PLAN
Month NAV AVG AUMavg
maturity
yield to
maturity% Returns
Jan-11 24.14 579.49 16.23 8.25% 1.99
Feb-11 23.99 704.61 18.13 8.27% -0.7
Mar-11 23.57 641.87 12.38 8.93% -1.63
Apr-11 23.53 460.36 5.57 8.83% -1.17
May-11 23.68 418.82 4.08 9.18% 0.64
Jun-11 23.42 316.9 2.1 9.37% -1.06
Jul-11 23.46 283.25 0.6 9.32% 0.17
Aug-11 23.87 249.59 4.07 9.94% 1.69
Sep-11 24.45 213.18 10.65 11.52% 2.1
Oct-11 24.75 205.5 9.54 10.76% 1.48
Nov-11 25.67 507.6 11.67 9.03% 3.72
Dec-11 29.55 2547.98 14.06 7.55% 14.54
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Graph No.4.6.1 : NAV
0
5
10
15
20
25
30
35
NAV
NAV
Linear (NAV)
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Graph No.4.6.2 AVG. AUM
0
500
1000
1500
2000
2500
3000
AVG AUM
AVG AUM
Linear (AVG AUM)
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Graph No.4.6.3 AV. MATURITY
.
0
2
4
6
8
10
12
14
16
18
20
avg maturity
avg maturity
Linear (avg maturity)
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COMPARISON OF BIRLA SUN LIFE MUTUAL FUND
SCHEMES WITH RELIANCE MUTUAL FUND AND ICICI
PRUDENTIAL MUTUAL FUND
Comparison of Schemes in the Debt Short Term Plans
Debt schemes are those invest in the Debt instruments issued by different
companies, these instruments have relatively smaller tenure compared to that of the
equity schemes. The risk and returns with this schemes is very low, because there is
high credit quality. The credit quality of the particular debt instrument issued by thecompany is determined by the credit rating agencies. The bonds having higher credit
rating give only smaller returns. The chart below shows the NAV of three Debt short
term plans of three different companies.
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Chart No.4.7 showing the NAV of three different schemes
0
2
4
6
8
10
12
14
16
18
20
ICICI SHORT TERM FUND
RELIANCE SHORT TERM
FUND
BSL SHORT TERM FUND
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Chart No.4.7.1
INTERPRETATION:
The above graph shows the variation of the NAV of the three schemes under
study. They have shown the appreciation in the NAV. The NAV of ICICI Prudential
Short Term Fund had increased. In the beginning of the year 2011 the NAV of the
fund is 15.71 rupees it had appreciated to 17.62 rupees. NAV of Reliance Short Term
Fund had changed from 14.47 to 16.17 rupees and the NAV of the Birla Sun life Short
Term Fund is appreciated from 14.39 to 15.54 rupees.
0
2
4
6
8
10
12
14
16
18
Jan/11
Feb/11
Mar/11
Apr/11
May/11
Jun/11
Jul/11
Aug/11
Sep/11
Oct/11
Nov/11
Dec/11
ICICI SHORT TERM FUND
RELIANCE SHORT TERM FUND
BSL SHORT TERM FUND
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VCR Institute Of Management Studies, Chittoor Page 68
COMPARISON OF THE DEBT MEDIUM TERM PLANS
Medium term plans are the schemes that are schemes that are with the
medium tenure. The following chart shows the comparative analysis of the three Debt
medium term plans.
Chart No.4.8 showing the NAV variation of the three income funds of different
companies
0
5
10
15
20
25
30
35
Jan/11
Feb/11
Mar/11
Apr/11
May/11
Jun/11
Jul/11
Aug/11
Sep/11
Oct/11
Nov/11
Dec/11
ICICI INCOME FUND
RELIANCE INCOME
FUND
BSL INCOME FUND
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VCR Institute Of Management Studies, Chittoor Page 69
FINDINGS
1. Performance of Birla sun life mutual fund in 2011 was 1%.
2. Reliance was 5%. Reliance was high when compared to Birla sun life Mutual
fund.
3. ICICI was 7% and it is higher when compared to both schemes.
4. Performance of Birla sun life mutual funds was 0.5%in April 2009.
5. Reliance was 2.5% and its performance was higher than Birla sun life
mutual fund.
6. In December 2011 performance of Birla sun life mutual fund very high i.e.
12%.
7. Reliance is 1% more than Birla sun life mutual fund i.e. 13%.
8. ICICI performance is very high in December 2011 as compared to both
schemes.
9.
In January 2009 all the three schemes were below the margin i.e. negative.10.As compared to both the schemes Birla sun life mutual fund was in better
position.
11.In April 2009 again it has been raised to 0.4% from -0.3%.
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SUGGESTIONS
1.
Birla sun Life short term fund is an open ended Debt scheme, with majority
of asset allocation to the debt instruments like T-bills, commercial papers etc.
This types of funds are less risky compared to that of the equity schemes .
2. Birla Sun Lifemedium term fund had shown increase in the nav because the
portfolio of the scheme is diversified by increasing the exposure to Debt
Market.
3.
In Debt scheme risk &returns is very low, because there is higher quality.
4. The credit quality of the particular debt agency.
5. Medium term plans are the schemes that are with the medium tenure.
6. The mutual fund scheme has the benefit of picking a particular stock in a
given sector that will generate good returns to the investors compared to that
of bench mark.
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CONCLUSION
They are Equity Diversified, Equity sector schemes, ELSS (Equity Linked
Saving Schemes) schemes, Debt short term and Debt Medium term plans. In Equity
Diversified category the fund that hurt a lot is Reliance growth fund, its NAV has
dropped more than 50% during the period of study. Equity Diversified schemes as
against to the herd, Birla Sun Life Frontline Equity Fund, had shown the increase in
the NAV, the fund manager has managed to do this by allocating more percentage of
the assets to debt, as the Debt market has shown better performance the funds NAV
has increased.
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BIBLIOGRAPHY
BOOKS Sunita Abraham and Uma Shashikanth, September 2010, Understanding
Mutual Funds, Center for investment Education and Learning Pvt Ltd.
Gordon AndNatarajan, 1999 Financial Markets and Services, Himalaya
Publishing House, Ramdoot, Dr. Bhalerao Marg, Girgaon, Mumbai -400-
004.
Pattabhi Ram And S D Batla, ManagementAccounting and Financial Analysis
NEWS PAPERS
Economic times
Business standard
Business India magazine
WEBSITES
www.birlasunlife.com www.icicipruamu.com
www.reliancemutual.com
www.mutualfundsindia.com
www.amfiindia.com
www.wikipedia.com
http://www.birlasunlife.com/http://www.icicipruamu.com/http://www.reliancemutual.com/http://www.mutualfundsindia.com/http://www.amfiindia.com/http://www.wikipedia.com/http://www.wikipedia.com/http://www.amfiindia.com/http://www.mutualfundsindia.com/http://www.reliancemutual.com/http://www.icicipruamu.com/http://www.birlasunlife.com/