financial advisory and research of mutual funds
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FINANCIAL ADVISORY & RESEARCH ANALYSIS OF MUTUAL FUNDS
FINANCIAL ADVISORY & RESEARCHANALYSIS OF MUTUAL FUNDS
COMPANY PROJECT STUDY AT TATA ASSET MANAGEMENT , NEW DELHI
A project submitted as a partial fulfillment for the degree of Postgraduate Diploma in Management (PGDM).
NIYATI BHARDWAJ
(MARKETING FINANCE)
SYMBIOSIS INSTITUTE OF MANAGEMENT STUDIES
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INTRODUCTION 2
MAY-JUNE, 2006DECLARATION
The present investigator has done her summer project on the topic Financial
Advisory & Research Analysis of Mutual Funds with TATA Asset
Management. The data obtained and the report of the project has not been
submitted by the present investigator for any other degree nor the project
work is published in any of the journals. This is an original piece of work.
Mr Manish Tandon
(Manager Sales)
NIYATI BHARDWAJ
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INTRODUCTION 3
ACKNOWLEGEMENT
The Summer Project at Tata Asset Management, New Delhi offered both a
learning experience, as well as, a glimpse into the daily management
functions of an organization. I would like to thank Mr. Rajiv Bagga, Branch
Manager, HDFC Bank Gopinath Bazar, Delhi Cantt without whose help and
support this project study would have been impossible. I would like to
extend my gratitude towards him for all the valuable information and
experiences shared which have helped me complete this project.
I would also like to thank Mr. Manish Tandon, Manager Sales, Tata Asset
Management who helped me with their invaluable inputs in the project.
And lastly, I would like to thank all the employees of HDFC Bank and
TATA Asset Management who were very kind to help whenever the need
arose.
EXECUTIVE SUMMARY
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EXECUTIVE SUMMARY 4
In my stint with TATA Asset Management for two months, I learnt about
the stock market and its effect on the mutual funds. In this span of two
months, the stock market saw both the sides, i.e. it saw a boom when it
reached 12K and a crash when it reached 10K. To understand this interrelationship better, I assisting the relationship manager to handle live
portfolios which are confidential information and cannot be disclosed in this
report. Analyze the investors’ profiles and their past one-year investment
patterns.
Studying their investment patterns with the bank helped in understanding the
profile of the investor. This profile helped understand whether the investor
was risk loving or risk averse. Once this was done, assets were allocated to
the different funds according to the age and profession of the investors.
The returns were then calculated for all the funds. These fund returns were also compared
with the BSE Sensex and NSE Nifty returns for the current year. When the markets fell
(19 th May 2006, 22 nd May 2006), we tracked the movement in the market and the relativeperformance of select mutual fund schemes.
TABLE OF CONTENTS
1. INTRODUCTION…………………............................…......6
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FINANCIAL ADVISORY & RESEARCH ANALYSIS OF MUTUAL FUNDS
CONTENTS 5
2. OBJECTIVES…………………………………….…………8
3. METHOLOGY…………………………………..………….9
4. MANAGING A PORTFOLIO……………………………10
4.1CUSTOMER PROFILING4.2 ASSET SELECTION4.3 PRODUCT SELECTION4.4 REVIEW AND REBALANCE
5. AVAILABLE OPTIONS ………………..…….………….18
5.1 MUTUAL FUNDS5.2 FIXED DEPOSITS5.3 RBI BONDS
6. DETAILS OF INVESTMENT FROM HDFC BANK(GOPINATH BAZAR)…………………..……………….31
7. PERFORMANCE OF SELECT MUTUAL FUNDS…..33
7.1 AGGRESSIVE FUNDS7.2 CONSERVATIVE FUNDS7.3 EMERGING FUNDS7.4 TAX SAVER FUNDS
8. TRENDA IN THE BRANCH…………………………..399. CONCLUSION ………………………………………….4010. BIBLIOGRAPHY……………………………….……….4111. APPENDIX…………………………………………..……42
1. AN INTRODUCTION
Tata Asset Management Ltd. is a part of the Tata group - one of India's
largest and most respected industrial group. The Tata Group is one of India's
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INTRODUCTION 6
best-known conglomerate in the private sector with a turnover of around US
$ 14.25 billion (equivalent to 2.6 % of India's GDP). Tata Asset
Management Limited, has Rs. 12,341.92 crores (as on July 31, 2006) of
assets under management .
The Tata Asset Management philosophy is centred on seeking consistent,
long-term results. When you choose to invest with Tata Mutual Fund, you
get the benefits of financial planning. Tata Asset Management Ltd., is
committed to providing consistent investment performance, world-class
service and a comprehensive product range to take care of all investment
requirements
Tata Asset Management constantly benchmarks its efforts against these
tenets of performance:-
Consistency
Consistently strive to deliver results through our value based investing
methodology, keeping alive the belief of the late doyen of the Tata Group,
Mr. JRD Tata, that money received from the people should go back to them
several times over.
Flexibility
Tata Mutual Fund offers investors a broad range of managed investment
products in various asset classes and risk parameters, within operational
flexibility to suit their varied investment needs
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INTRODUCTION 7
Stability
Commitment to the highest quality of service and integrity are thefoundation upon which clients can build their trust.
Service
Offer a wide range of services to assist the investor in his financial planning
experience. Services are designed keeping the needs of investors in focus,
affording them a smooth and hassle free financial planning process.
2. Objective:
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OBJECTIVE 8
• Financial Advisory and Customer Profiling : To understand the
factors effecting the portfolios of investors and thus to analyze the risk
appetite of the investor
• Maintenance of portfolios of key customers
• Research Analysis of Mutual Funds Schemes recommend by HDFC
Bank
•
Enhancement of sales of Tata Mutual fund products through HDFCBank
3. Methodology
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METHODOLOGY 9
The project involved a detailed study of various Mutual Funds schemes
offered by Asset Management Companies. HDFC Bank has its own research
department which undertakes qualitative and quantitative study of theperformance of mutual fund schemes. The outcome of the research is the
‘aag’ published every month by the research department. The Relationship
Manager gives recommendations to the clients based on these
recommendations. The process of recommendation entails the profiling of
the customer, for this purpose a questionnaire was filled. The questionnaire
has been attached in the appendix. The entire process of wealth
management covers customer profiling , asset allocation, product selection
and review and rebalance of the investments of a particular customer.
In terms of the general profile of the customer it was observed that the
majority of the investors were of defense background ( the branch being
situated in Delhi Cantonment). Among them a further bifurcation was that
between the officers and other ranks. The officers were observed to make
investment in lump sum manner and were well aware of the various mutual
fund scheme. Most of them had already undertaken some research with
respect to the performance of the schemes. Their queries were related to the
investment objective of the scheme, past performance of the fund manager
and the AMC, selection criterion for stocks etc. The time horizon for
investment ranged from 2 – 5 years . The officers of all forces were willingto invest in aggressive schemes like Reliance Vision etc , Franklin India
Prima Fund etc. They were open to high risk and high return options.
Investors from the ‘other Ranks’ had lesser investible funds and were
looking for safe investment options. They were advised to invest in SIP’s so
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METHODOLOGY 10
that they can take the advantage of Dollar cost Averaging and could avail the
facility of investing a small amount every month.
Monthly investment camps were held at the branch to educate the investorsabout the various investment options available.
4. Managing a Portfolio
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MANAGING A PORTFOLIO 11
The financial plan is made on the basis of customer’s financial goals, risk
profile and time horizon. As a part of investment offering, HDFC Bank use
global tools to help the customer manage his/her wealth. The advice based
process has the following steps-
Customer profiling
The first step is to understand the profile by taking the feedback of the
customer.
Asset allocation
This helps you to allocate your investment across different mutual fund
classes such as equity, balanced or MIP schemes. Further we advise
whether a conservative or aggressive approach should be followed by the
investor.
Product selection
HDFC Bank does a through due diligence of select Mutual Fund Houses
and offers you a shortlist of schemes based on parameters like risk
adjusted returns, industry concentration, company concentration,
liquidity, asset size, asset quality and average maturity.
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Review and Re-balance
We as wealth managers periodically review the investment portfolio and
rebalance it according to the dynamic needs of the individual. We
periodically send portfolio statements to preferred clients.
4.1 CUSTOMER PROFILING
1. Age
Depending upon the age of the investor a customer is advised about
the exposure to the equity market. The thumb rule for the advised
exposure is that the exposure to the equity market should be 100
minus the age of the investor. Egg – if the age of the customer is 35
years his exposure would be 65% of his savings.
2. Risk appetite
Depending upon individual perception and nature of occupation therisk appetite is measured.
3. Time horizon
The time horizon of the investment is determined by the specific
requirements of the investor. An investor may have short term and
long term goals like education of children, marriage of children etc
4. Expected Return
Based on the above analysis the expected return is determined. The
expected return will be inversely proportional to the risk that the
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customer is willing to take. E.g. If a customer is expecing return of
15% or above than he/ she can be suggested to invest in share
markets, mutual funds otherwise for an expected return of 5- 8% the
customer can invest in RBI Bonds, FD’s, PF, Post Office Schemesdepending upon the time horizon and the % of return.
5. Net worth
The net worth of an investor includes his income from his salary,
income from business and profession, income from capital gains,
income from house property and income from other sources.
6. Immediate and long term financial needs
Different people at different stages of life have different financial
needs like purchase of a vehicle, building a house, education of
children, marriage of children etc
7. Need Analysis
Determining the purpose of investment of the individual. Likewise, it
is also important to understand the individual’s objectives and
aspirations for the future. It could be any of these or something else as
well.
• Money for children’s education.
• Money for your children’s marriage.• Planning for retirement.• Buying a Ferrari, or a summerhouse in Ooty?
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• Money for children’s education.
• Money for your children’s marriage.• Planning for retirement.
4.2 ASSET ALLOCATION
Based on the above profiling the next task of the financial advisor is to
allocate the resources available with the investor across investment options
available. The table given below is an excerpt from the portfolio of an
investor havin investible resources of Rs 13,250,815.
Amount Percentage
MIPs1,157,995 8.74%
Floating Rate Funds 2,137,633 16.13%
Equity 3,495,586 26.38%
Balanced 0 0.00%
FMPs 509,690 3.85%
RBI Bonds 5,949,910 44.90%
13,250,815 100.00%
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The investor in question was in an age group of 55 and above. She was
looking for a regular income from RBI Bonds for her retirement days hence
almost 45% of her investment are in RBI Bonds of various maturities.
Type of Security Date Investment Value Dividend ReturnContribution
RBI Bonds – 6.5% 4/10/2004 2,000,000 2,223,889 65,000 2.88%
RBI Bonds - 8% 03/26/04 2,000,000 2,282,222 80,000 3.62%
RBI Bonds - 8% 09/23/05 1,400,000 1,443,799 39,890 0.84%
5,400,000 5,949,910 184,890 7.33%
4.3 PRODUCT SELECTION
Among Mutual Funds investment advice was given based on the
recommendations given by the research department of HDFC Bank. The
major equity funds recommended from the Bank are given below :
AGGRESSIVE FUNDS1 RELIANCE VISION
2 FRANKLIN INDIA PRIMA
3 TATA PURE EQUITY
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4 DSP ML OPPORTUNITIES
5 HDFC TOP 200
6 PRUDENTIAL ICICI POWER FUND
CONSERVATIVE FUNDS
1 HDFC EQUITY
2 HDFC GROWTH
3 SUNDARAM GROWTH
EMERGING FUNDS
1 DSP ML TIGER
2 FRANKLIN INDIA FLEXICAP
3 ABN AMRO EQUITY
4 RELIANCE EQUITY
TAX SAVER
1 RELIANCE TAX SAVER
2 TATA TAX SAVING
3 HDFC TAX SAVER
4 PRUDENTIAL ICICI TAX PLAN
MISCELENEOUS FUNDS
1 RELIANCE GROWTH
3 RELIANCE EQUITY OPPORTUNITY
4 FRANKLIN INDIA BLUE CHIP
5 TATA INFRASTRUCTURE
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4.4 REVIEW AND REBALANCE
The portfolios are constantly updated using the latest NAV’s. These
portfolios are analyzed and keeping in mind the needs of the investor in
terms of any requirement for liquidity like education of children, purchase
of assets like car or house, marriage of children etc the portfolio is updated.
Another factor to be kept in mind is the performance of the market. In case
of a volatile market the strategy to be followed is to book profits on a timely
basis. The dividend payment option may be chosen for fresh investment and
new investment must be in Systematic Investment Plans.
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AVAILABLE OPTIONS 18
5. AVAILABLE OPTIONS
5.1 Mutual Funds
Most suitable for investors who are not entirely risk averse. Investors can
expect a return of about 15-20% over a time horizon of 2 – 3 years. The use
of Systematic investment Plan is advisable for small investors. With SIP an
investor can start investment with an amount as low as Rs 500 every month.
This enables them to take advantage of Rupee cost averaging in their
portfolio. Investors with very low risk appetite are advised to go in for
Balanced funds, these funds invest a part of their portfolio in debt funds. The
returns from debt funds range between 5-8%. A few advantages of investing
in Mutual funds are listed below:
Professional Management
The primary advantage of funds (at least theoretically) is the professional
management of your money. Investors purchase funds because they do not
have the time or the expertise to manage their own portfolio. A mutual fund
is a relatively inexpensive way for a small investor to get a full-time
manager to make and monitor investments.
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Diversification
By owning shares in a mutual fund instead of owning individual Stocks or
bonds, your risk is spread out. The idea behind diversification is to invest ina large number of assets so that a loss in any particular investment is
minimized by gains in others. In other words, the more stocks and bonds you
own, the less any one of them can hurt you. Large mutual funds typically
own hundreds of different stocks in many different industries. It wouldn't be
possible for an investor to build this kind of a portfolio with a small amount
of money.
Economies of Scale
Because a mutual fund buys and sells large amounts of securities at a time,
its transaction costs are lower than you as an individual would pay.
Liquidity
Just like an individual stock, a mutual fund allows you to request that your
shares are converted into cash at any time.
Simplicity and Convenience
Buying a mutual fund is easy! Pretty well any bank has its own line of
mutual funds, and the minimum investment is small. Most companies also
have systematic investment plans whereby as little as Rs 1000 can be
invested on a monthly basis.
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You can make money from a mutual fund in three ways :
1) Income is earned from dividends on stocks and interest on bonds. A fund
pays out nearly all 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. Funds will also usually give you a choice either to receive a
check for distributions or to reinvest the earnings and get more shares.
Different Types of Funds
It's important to understand that each mutual fund has different risks and
rewards. In general, the higher the potential return, the higher the risk of
loss. Although some funds are less risky than others, all funds have some
level of risk--it's never possible to diversify away all risk. This is a fact for
all investments. (You can learn more about this in our financial concepts
tutorial.)
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Each fund has a predetermined investment objective that tailors the fund's
assets, regions of investments, and investment strategies. At the fundamental
level, there are three varieties of mutual funds:
1) Equity funds (stocks)
2) Fixed-income funds (bonds)
3) Money market funds
All mutual funds are variations of these three asset classes. For example,
while equity funds that invest in fast-growing companies are known as
growth funds, equity funds that invest only in companies of the same sector
or region are known as specialty funds.
Let's go over the many different flavors of funds. We'll start with the safest
and then work through to the more risky.
Money Market Funds
The money market consists of short-term debt instruments, mostly T-bills.
This is a safe place to park your money. You won't get great returns, but you
won't have to worry about losing your principle. A typical return is twice the
amount you would earn in a regular checking/savings account and a little
less than the average certificate of deposit (CD).
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Bond/Income Funds
Income funds are named appropriately: their purpose is to provide current
income on a steady basis. When referring to mutual funds, the terms "fixed-income," "bond," and "income" are synonymous. These terms denote funds
that invest primarily in government and corporate debt. While fund holdings
may appreciate in value, the primary objective of these funds is to provide a
steady cash flow to investors. As such, the audience for these funds consists
of conservative investors and retirees. Bond funds are likely to pay higher
returns than certificates of deposit and money market investments, but bond
funds aren't without risk. Because there are many different types of bonds,
bond funds can vary dramatically depending on where they invest. For
example, a fund specializing in high-yield junk bonds is much more risky
than a fund that invests in government securities; also, nearly all bond funds
are subject to interest rate risk, which means that if rates go up the value of
the fund goes down.
Balanced Funds
The objective of these funds is to provide a "balanced" mixture of safety,
income, and capital appreciation. The strategy of balanced funds is to invest
in a combination of fixed-income and equities. A typical balanced fundmight have a weighting of 60% equity and 40% fixed-income. The
weighting might also be restricted to a specified maximum or minimum for
each asset class. A similar type of fund is known as an asset allocation fund.
Objectives are similar to those of a balanced fund, but these kinds of funds
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typically do not have to hold a specified percentage of any asset class. The
portfolio manager is therefore given freedom to switch the ratio of asset
classes as the economy moves through the business cycle.
Equity Funds
Funds that invest in stock represent the largest category of mutual funds.
Generally, the investment objective of this class of funds is long-term capital
growth with some income. There are, however, many different types of
equity funds because there are many different types of equities. A great way
to understand the universe of equity funds is to use a style box, an example
of which is below.
VALUE BLEND GROWTH
LARGE
MID
SMALL
INVESTMENT STYLE
SIZE
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The idea is to classify funds based on both the size of the comp anies
invested in and the investment style of the manager. The term "value" refers
to a style of investing that looks for high quality companies that are out of
favor with the market. These companies are characterized by low P/E ratios,price-to-book ratios, and high dividend yields, etc. T he opposite of value is
growth, which refers to companies that have had (and are expected to
continue to have) strong growth in earnings, sales, and cash flow, etc. A
compromise between value and growth is "blend," which simply refers to
companies that are neither value nor growth stocks and so are classified as
being somewhere in the middle. For example, a mutual fund that invests in
large-cap companies who are in strong financial shape but have recently
seen their share price fall would be placed in the upper left quadrant of the
style box (large and value). The opposite of this would be a fund that invests
in startup technology companies with excellent growth prospects. Such a
mutual would reside in the bottom right quadrant (small and growth).
Sector Funds
Sector funds are targeted at specific sectors of the economy such as
financial, technology, health, etc. Sector funds are extremely volatile. There
is a greater possibility of big gains, but you have to accept that your sector
may tank. Regional funds make it easier to focus on a specific area of the
world. Some prominent sector fuds are the Reliance Banking fund, TATAInfrastructure Fund etc
Index Funds
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The last but certainly not the least important are index funds. This type of
mutual fund replicates the performance of a broad market index such as the
S&P CNX Nifty or the SENSEX. An investor in an index fund figures that
most managers can't beat the market.An index fund merely replicates themarket return and benefits investors in the form of low fees.
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5.2 FIXED DEPOSITS
The term "fixed" in fixed deposits denotes the period of maturity or tenor.
Fixed Deposits, therefore, presupposes a certain length of time for which the
depositor decides to keep the money with the bank and the rate of interest
payable to the depositor is decided by this tenor. The rate of interest differs
from bank to bank and is generally higher for private sector and foreign
banks. This, however, does not mean that the depositor loses all his rights
over the money for the duration of the tenor decided. The deposits can bewithdrawn before the period is over. However, the amount of interest
payable to the depositor, in such cases goes down (usually 1% to 2% less
than the original rate). Moreover, as per RBI regulations there will be no
interest paid for any premature withdrawals for the period 15 days to 29 or
15 to 45 days as the case may be.
Other than banks, there are non-banking financial companies and companieswho float schemes from time to time for garnereing deposits from the public.
In the recent past, however, many such schemes have gone bust and it is
very essential to look out for danger signals before putting all your eggs in
one basket.
Things To Look Out For....
• Credit rating/ reputation of the group• The rating is posibly the best way to judge the credit worthiness of a
company. However, for manufacturing company deposits, it is not
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mandatory to get a rating. In such cases, it is better to check the size
and reputation of the company or the industrial group it belongs to.• Interest rate
• Within the same safety level (or rating), a higher interest rate is abetter option. The difference in some cases can be as high as 1%.
• The portfolio principle applies to company deposits also. It is always
better to spread deposits over different companies and industries so as
to reduce risk.• Period of deposit:• The ideal period for a company deposit is 6 months to one year as it
offers the liquidity option. Also, it gives an opportunity to review the
company's performance.• Periodic review of the company:
FIXED DEPOSIT RATES FOR HDFC BANK
(for investment less than 15 lakhs)
PeriodInterest Rate Per
AnnumSenior Citizen
Rate Per annum
15 Days - 60 Days 5.50% 5.75%
61 Days - 90 Days 5.50% 6.00%
91 Days - 180 Days 6.00% 6.25%
6 months 1 day - 1Year 6.50% 6.75%
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AVAILABLE OPTIONS 28
1 Year 1 Day - 2Years 7.00% 7.25%
2 Year 1 Day - 3
Years 7.00% 7.25%
3 Year 1 Day - 5Years 7.25% 7.50%
5 Year 1 Day - 8Years 7.25% 7.50%
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AVAILABLE OPTIONS 29
5.3 RBI BONDS
RBI bonds are the one of the safest investment options available to the
investor as RBI itself guarantees them.
Subscribe to the bonds
You can subscribe to the bonds by paying in cash, demand draft or cheque.
Cheques or drafts should be drawn in favour of the RBI and payable at the
place you submit the application. If you wish to renew the bonds, the
matured bonds held in the form of Promissory Note or Stock Certificate orBond Ledger Account will be tendered for reinvestment at the Office of
Issue only.
The terms of investment are as under:
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AVAILABLE OPTIONS 30
ITEM 8% SAVINGS (TAXABLE)BONDS REMARKS
1) Category of Investor
Individual, HUF, University,
Charitable Institution,
Non resident individuals are notallowed to invest in these bonds
2) Limit of Investment Minimum Rs 1000 and multiples of Rs 1000 thereoff
no maximum limit
3) Date of issue bonds Date of receipt of subscription in cashor the date of clearing of cheque
4) Forms of bonds Bond ledger account
5) Option Non cumulative/ cumulative Change of option is not permitted
6) InterestIncase of non cumulative optioninterest is paid on a half yearly basis,In case of a cumulative option interestis paid at the end of maturity period
Half yearly payment is availableeither on 1 February/ 1 August
7) Post maturity interest Post maturity interest is not available
8) Bank account
To facilitate payment of interest athalf yearly intervals, under the noncumulative option, it is desirable forthe investor to open a bank account inthe same branch.
9) Tax benefitsIncome from the bonds is taxable
No tax will be deducted at sourcewhile tax is paid.
10) Nomination facility Available to sole holders
Non – Resident Indians can also benominated. However, remittance of the interest/ maturity proceeds will besubject to the exchange controlregulations prevailing at the time of remittance
11) Maturity period After 6 years
12) Premature redemption NOT AVAILABLE
13) Transferability NOT TRANSFERRABLE
14) Loans from banks against thesecurity of these bonds
The bonds cannot be pledged assecurity for availing of loans frombanks
15) Application forms
Available at 1675 branches of SBI,associate banks, 17 Nationalizedbanks, 4 Private sector banks andStock Holding corporation of Indialtd.
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AVAILABLE OPTIONS 31
6. DETAILS OF INVESTMENT FROM HDFC BANK(GOPINATH BAZAR )
INVESTMENT IN MAYAMC PERCENTAGE
SHAREABSOLUTESHARE (Rs)
BIRLA 0.13% 12000DSP ML 15.97% 1472000
FRANKLIN 9.36% 863000FEDILITY 0.01% 500
HDFC 21.65% 1996000KOTAK 0.23% 21000
ICICI 1.04% 96000RELIANCE 37.87% 3491500SBI 1.27% 117000
STANDARDCHARTERED 0.49% 45000
SUNDERAM 3.32% 306000TATA 8.68% 800000
100.00% 9220000
The above table gives the AMC vise break up of the investment made
through HDFC Bank, Gopinath Bazar in the month of May. The total
investment were Rs 9220000. The highest share was taken up by Reliance
this can be attributed to the exceptional performance of Reliance Equity.
Reliance Equity was the first of its kind to offer a hedging option. HDFC
occupied the second place due to the performance of HDFC Equity and
HDFC Top 200. In spite of the volatility in the market investors continued toinvest taking this as an opportunity to make profits.
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DETAILS OF INVESTMENT FROM HDFC BANK (GOPINATH BAZAR ) 32
INVESTMENT IN JUNE
AMCPERCENTAGE
SHAREABSOLUTESHARE (Rs)
BIRLA 0.11% 2000DSP ML 2.13% 40000
FRANKLIN 9.37% 176000FEDILITY 0.00% 0
HDFC 27.31% 513000KOTAK 0.00% 0
ICICI 3.99% 75000RELIANCE 15.30% 287500
SBI 13.36% 251000STAN CHART 0.00% 0SUNDERAM 2.87% 54000
TATA 25.55% 480000100.00% 1878500
Total investment in the month of June amounted to Rs 1878500. This was a
sharp decline as compared to May. This can be attributed to the volatility in
the market. The investors who saw investing in the market at low levels as
an opportunity were now following a policy of wait an watch. The
noteworthy trend in June was that TATA could garner 25% market share>
This can be attributed to the effective promotion of the NFO of TATA
Equity Management Fund.
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FINANCIAL ADVISORY & RESEARCH ANALYSIS OF MUTUAL FUNDS
PERFORMANCE OF SELECT MUTUAL FUNDS 33
7. PERFORMANCE OF SELECT MUTUAL FUNDS
The charts below plot the movement of select mutual fund schemes during
the period of May and June. The black dotted line represents the percentage
change of the BSE Sensex consisting 30 stocks, selected on the criterion of
market capitalization and liquidity. The coloured lines are representative of
the percentage change of the Net Asset Values of select Mutual Fund
Schemes. The Mutual Funds schemes have been selected and categorized
based on the ‘at a glance’ published by HDFC bank.
One clear trend is the sharp negative increase in the percentage change of the
BSE Sensex as well as the NAV’s after 15 May. This trend has manifested
itself due to various events in India and abroad. The reasons include the
ambiguity regarding taxation of FII’s, the volatility in metal and oil prices
and the increase in interest rates by the Federal Reserve. These factors were
responsible for the volatility in the markets of most developing countries,
including India. On 22 nd May, in one day, i.e. intra-day, there was a fall of
almost 1300 points. And the closing day difference was about 800 points. Yet
again this happened on a Monday. This brought back the memories of the
black Monday of 2003. Before this 22 nd May, the markets had already started
falling from the previous Friday i.e. 19 th May. There was some concern in the
market but since this was an expected correction, people were still hopeful
about the market. But gradually even after a week, markets steadily kept
falling and at one time there was a gross panic in the market. At this time,
even the websites carried messages telling their investors to redeem as this
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FINANCIAL ADVISORY & RESEARCH ANALYSIS OF MUTUAL FUNDS
PERFORMANCE OF SELECT MUTUAL FUNDS 34
was getting really bad. People massively panicked and some of them even
force their portfolio managers to redeem their holdings.
People who were in need of money were advised to redeem those funds thatstill showed positive returns and hold the funds with negative returns. Due to
this, the investor would get positive returns and could wait for the markets to
turn around.
One trend note worthy is that during the initial stages of the fall the BSE
Sensex fell at a faster rate than the NAV’s of individual mutual fund
schemes across all categories. This trend was followed because during the
initial days of the fall it was mainly the FII who pulled out their money but
the mutual funds stayed invested, but with a fall in the market mutual funds
were faced with a redemption pressure which led to a fall even greater than
the Sensex.
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FINANCIAL ADVISORY & RESEARCH ANALYSIS OF MUTUAL FUNDS
PERFORMANCE OF SELECT MUTUAL FUNDS 35
7.1 AGRESSIVE FUNDS
In the initial stages of the market volatility, individual fund fell in line with
the fall in the Sensex, but at a later stage after 15 May the fall in the NAV’s
was faster and more steeper as compared with the BSE Sensex. This was
primarily because of the bearish sentiment of the retail investor and the
subsequent redemption pressure. Out of the funds under the aggressive
category, Franklin Prima was the most volatile fund with the steepest decline
where as HDFC Top 200 registered the least deviation from the BSE Sensex.
AGRESSIVE FUNDS
-25.00%
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
C H A N G E I N N
A
BSE SENSEX
RELIANCEVISION
FRANKLIN INDIAPRIMA
TATA PUREEQUITY
DSP MLOPPORTUNITIES
HDFC TOP 200
PRUDENTIALICICI POWERFUND
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PERFORMANCE OF SELECT MUTUAL FUNDS 36
7.2 CONSERVATIVE FUNDS
Even the conservative funds followed a simiar trend as the aggressive funds.
If we consider the period between 2 May and 21 June, Sundaram Growth
Fund showed a fall of nearly 22%. In this category HDFC Equity registedred
the least deviation from the BSE Sensex.
CONSERVATIVE FUND
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
1 2 3 4
C H A N G
E I N
N A
BSESENSEX
HDFCEQUITY
HDFCGROWTH
SUNDARAMGROWTH
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PERFORMANCE OF SELECT MUTUAL FUNDS 37
7.3 EMERGING FUNDS
The funds in this category also followed the sentiment of the overall market.
Here Reliance Equity was the best performing fund. Over a period of 15May and 21 June it fell by 13.60% which is least among the funds across all
categories.
EMERGING FUNDS
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
C H A N G
E I N
N A V
BSE SENSEX
DSP MLTIGER
FRANKLININDIA
FLEXICAP
ABN AMROEQUITY
RELIANCEEQUITY
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PERFORMANCE OF SELECT MUTUAL FUNDS 38
7.4 TAX SAVER FUNDS
Contrary to popular belief, Tax funds were the hardest hit. They registered
the maximum fall with Reliance Tax saver falling by as much as 27% during
the period from 15 May to 21 July.
TAX SAVER FUNDS
-30.00%
-25.00%
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
C H A N G E I N
N A V / I N D E X
BSE SENSEX
RELIANCETAX SAVER
TATA TAXSAVING
HDFC TAXSAVER
PRUDENTIALICICI TAXPLAN
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TRENDS IN THE BRANCH 39
8. TRENDS IN THE BRANCH
The total investment in the branch fell from Rs 9220000 to Rs 1878500.
This sharp decline was partly a manifestation of the inherent volatility of the
market. The investment were also effected due to the holiday season which
over the years has been a slack period for investment in the branch. One
noteworthy trend was increased investment in TATA products. This trend
can be attributed to the NFO of TATA Equity Management Fund.
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CONCLUSION 40
9. CONCLUSION
As the market appears more volatile these days, investment in mutual funds
should be done more wisely. It would seem to the investor that adding more
funds would mean better diversification. However there is an underlying
peril in this strategy of accumulating multiple funds-it may simply not serve
the intended purpose of diversification.
An individual’s portfolio must be diversified in order to reduce the risk in
that portfolio. In case the portfolio has only sectoral or thematic funds, then if the particular sector falls, the portfolio reaches negative returns which are not
desirable. Thus proper diversification of the portfolio is necessary.
During this crash, it is advisable to retain investments and not withdraw from
the market due to panic. Instead it is advisable to put in more money in the
market as we can invest into the funds at a discount.
Every individual must put in some proportion of his investment in debt andliquid funds in order to give him that cushioning effect. In case the marketscrash badly, then there must be some funds that should give him thecushioning effect else the portfolio loses a huge percentage and it is verydifficult to retrieve profits again for the portfolio.
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BIBLIOGRAPHY 41
10. BIBLIOGRAPHY
A. Websites
1. www.mutualfundsindia.com
2. www.amfi.com
3. www.myris.com
4. www.bseindia.com
5. www.nse-india.com
B. Journals And Magzines
1. Mutual Funds By Akhilesh, Volume 1, HABSG Consultancy
2. Fact Sheets Of Different Fund Houses.
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FINANCIAL ADVISORY & RESEARCH ANALYSIS OF MUTUAL FUNDS
APPENDIX1. A sample portfolio has been given separately in excel format.2. The performance of select mutual funds has been given in excel
format
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