balanced mutual fund final
TRANSCRIPT
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APROJ ECT REPORT ON
COMPARITIVE ANALYSIS ON BALANCED MUTUAL FUND
SUBMITTED IN PARTIAL FULFILLMENT FOR
POSTGRADUATE DIPLOMAINBANKING
Programme of
GOA
Submitted by :- Under Guidance :-
BRENDA COELHO MR.TREVOR FERNANDES
QUEENIE COELHO MR.ROHIT CHOPRA
PRANITA PILANKAR
STEFF IE NICHOL
MALBERT MONSERRATE
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CERTIFICATE
This is to certify that MS BRENDA COELHO,QUEENIE COELHO,PRANITA PILANKAR,STEFFIE NICHOL
,MALBERT MONSERRATE. Students of Institute of Finance,Banking and Insurance-Goa has
completed project work On COMPARITIVE ANALYSIS ON BALANCED MUTAL FUND under my
guidance and supervision.
I certify that this is an original work and has not been copied from any source .
Name and Signature of Guide :
MR.TREVOR FERNANDES
MR.ROHIT CHOPRA
Name of Project:COMPARITIVE ANALYSIS ON BALANCED MUTUAL FUNDDate
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DECLARATION
I hereby declare that this Project Report entitled COMPARITIVE ANALYSIS ON
BALANCED MUTUAL FUND submitted in the partial fulfilment of the requirement of
POSTGRADUATEDIPLOMAINBANKINGOf INSTITUTE OF
FINANCE,BANKING & INSURANCE GOA. Is based on COMPARITIVEANALYSISOF BALANCED MUTUAL FUND, The Data was collected from Different
Business books and Magazines & Business websites.
SUBMITTED BY
BRENDA COELHO
QUEENIE COELHO
PRANITA PILANKAR
STEFF IE NICHOL
MALBERT MONSERRATE
\
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CONTENTS
Sr.No. Chapter Name
Page no.
1. Introduction
1-25
2. Mutual Fund in India
26-32
3. Balanced Mutual Fund
33-36
4. ICICI PRUDENTIAL BALANCED MUTUAL FUND
37-38
5. CANARA ROBECO BALANCED MUTUAL FUND
39-40
6. HDFC BALANCED MUTUAL FUND
41-44
7. RELIANCE BALANCED MUTUAL FUND
45-46
8. SBI MAGNUM BALANCED MUTUAL FUND
47-48
9. COMPARITIVE ANALYSIS ON BALANCED MUTUAL FUND
49-55
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CHAPTER NO 1
Introduction of Mutual Fund
INTRODUCTION TO MUTUAL FUND AND ITS VARIOUS ASPECTS.
Mutual fund is a trust that pools the savings of a number of investors who
share a common financial goal. This pool of money is invested in
accordance with a stated objective. The joint ownership of the fund is
thus Mutual, i.e. the fund belongs to all investors. The money thus
collected is then invested in capital market instruments such as shares,
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Debentures and other securities. The income earned through these
investments and the capital appreciations realized are shared by its unit
holders in proportion 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. A Mutual Fund is an investment tool
that allows small investors access to a well-diversified portfolio of
equities, bonds and other securities. Each shareholder participates in the
gain or loss of the fund. Units are issued and can be redeemed as needed.
The funds Net Asset value (NAV) is determined each day.
Investments in securities are spread across a wide cross-section of
industries and sectors and thus the risk is reduced. Diversification reduces
the risk because all stocks may not move in the same direction in the
same proportion at the same time. Mutual fund issues units to the
investors in accordance with quantum of money invested by them.
Investors of mutual funds are known as unit holders.
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When an investor subscribes for the units of a mutual fund, he becomes
part owner of the assets of the fund in the same proportion as his
contribution amount put up with the corpus (the total amount of the
fund). Mutual Fund investor is also known as a mutual fund shareholder
or a unit holder.
Any change in the value of the investments made into capital market
instruments (such as shares, debentures etc) is reflected in the Net Asset
Value (NAV) of the scheme. NAV is defined as the market value of the
Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is
calculated by dividing the market value of scheme's assets by the total
number of units issued to the investors.
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What is Net Asset Value (NAV) of a scheme?
The performance of a particular scheme of a mutual fund is denoted by Net
Asset Value (NAV).
Mutual funds invest the money collected from the investors in securities
markets. In simple words, Net Asset Value is the market value of the securities
held by the scheme. Since market value of securities changes every day, NAV
of a scheme also varies on day to day basis. The NAV per unit is the market
value of securities of a scheme divided by the total number of units of the
scheme on any particular date. For example, if the market value of securities of
a mutual fund scheme is Rs 200 lakhs and the mutual fund has issued 10 lakhs
units of Rs. 10 each to the investors, then the NAV per unit of the fund is Rs.20.
NAV is required to be disclosed by the mutual funds on a regular basis - daily orweekly - depending on the type of scheme.
The price or NAV a unit holder is charged while investing in an open-ended
scheme is called sales price. It may include sales load, if applicable.
Repurchase or redemption price is the price or NAV at which an open-ended
scheme purchases or redeems its units from the unit holders. It may include
exit load, if applicable.
If schemes in the same category of different mutual funds are available,
should one choose a scheme with lower NAV?
Some of the investors have the tendency to prefer a scheme that is available at
lower NAV compared to the one available at higher NAV. Sometimes, they
prefer a new scheme which is issuing units at Rs. 10 whereas the existing
schemes in the same category are available at much higher NAVs. Investors
may please note that in case of mutual funds schemes, lower or higher NAVs of
similar type schemes of different mutual funds have no relevance. On theother hand, investors should choose a scheme based on its merit considering
performance track record of the mutual fund, service standards, professional
management, etc. This is explained in an example given below.
Suppose scheme A is available at a NAV of Rs.15 and another scheme B at
Rs.90. Both schemes are diversified equity oriented schemes. Investor has put
Rs. 9,000 in each of the two schemes. He would get 600 units (9000/15) in
scheme A and 100 units (9000/90) in scheme B. Assuming that the markets go
up by 10 per cent and both the schemes perform equally well and it isreflected in their NAVs. NAV of scheme A would go up to Rs. 16.50 and that of
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scheme B to Rs. 99. Thus, the market value of investments would be Rs. 9,900
(600* 16.50) in scheme A and it would be the same amount of Rs. 9900 in
scheme B (100*99). The investor would get the same return of 10% on his
investment in each of the schemes. Thus, lower or higher NAV of the schemes
and allotment of higher or lower number of units within the amount aninvestor is willing to invest, should not be the factors for making investment
decision. Likewise, if a new equity oriented scheme is being offered at Rs.10
and an existing scheme is available for Rs. 90, should not be a factor for
decision making by the investor. Similar is the case with income or debt-
oriented schemes.
On the other hand, it is likely that the better managed scheme with higher NAV
may give higher returns compared to a scheme which is available at lower NAV
but is not managed efficiently. Similar is the case of fall in NAVs. Efficientlymanaged scheme at higher NAV may not fall as much as inefficiently managed
scheme with lower NAV. Therefore, the investor should give more weight age
to the professional management of a scheme instead of lower NAV of any
scheme. He may get much higher number of units at lower NAV, but the
scheme may not give higher returns if it is not managed efficiently.
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ORGANISATION OF A MUTUAL FUND
There are many entities involved and the diagram below illustrates the
organizational set up of a mutual fund:
MUTUAL FUND SET UP
A mutual fund is set up in the form of a trust, which has sponsor,
trustees, asset Management Company (AMC) and custodian. The trust is
established by a sponsor or more than one sponsor who is like promoter of a
company. The trustees of the mutual fund hold its property for the benefit of
the unit holders. Asset Management Company 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
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they launch any scheme. However, Unit Trust of India (UTI) is not registered
with SEBI (as on January 15, 2002).
The formation and operations of Mutual Funds in India is solely guided by SEBI
(Mutual Funds) Regulations, 1993, which came into force on 20th January,
1996, through a notification on 9th December, 1996. these Regulations make it
mandatory for Mutual Funds to have a three-tier structure of :
A Sponsor Institution to promote the Fund. A team of Trustees to oversee the operations and to provide checks for
the efficient, profitable and transparent operations of the fund and
An Asset Management Company (AMC) to actually deal with the funds.Sponsoring Institution:
The Company, which sets up the mutual fund, is called the Sponsor. SEBI has
laid down certain criteria to be met by the sponsor. The criterion mainly deals
with adequate experience, good past track record, net worth etc.
Sponsor appoints the Trustees, Custodian and the AMC with the priorapproval of SEBI, and in accordance with SEBI Regulations.
Sponsor must have at least 5-year track record of business interest in theFinancial Markets.
Trustees:
Trustees are the people with long experience and good integrity in the
respective fields carry the crucial responsibility in safeguarding the interests of
the investors. For this purpose, they monitor the operations of the different
schemes. They have wide ranging powers and they can even dismiss AMC with
the approval of SEBI. The Indian Trust Act governs them.
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Asset Management Company:
The AMC actually manages the funds of the various schemes. The AMC
employs a large number of professionals to make investments, carry out
research &to do agent and investor servicing. In fact, the success of any Mutual
Fund depends upon the efficiency of this AMC. The AMC submits a quarterly
report on the functioning of the mutual fund to the trustees who will guide and
control the AMC.
The AMC is usually a private limited company, in which the sponsors and their
associations or joint venture partners are shareholders. The AMC has to be
registered by SEBI and should have a minimum Net worth of Rs.10 cores all
times. The role of the AMC is to act as the Investment Manager of the Trust
along with the following functions:
It manages the funds by making investments in accordance with theprovision of the Trust Deed and Regulations
The AMC shall disclose the basis of calculation of NAV and Repurchaseprice of the schemes and disclose the same to the investors.
Funds shall be invested as per Trust Deed and Regulations.Registrars and Transfer Agents:
The Registrars and Transfer Agents are responsible for the investor servicing
functions, as they maintain the records of investors in the mutual funds. They
process investor applications , record details provided by the investors on
application forms, send out periodical information on the performance of the
mutual fund; process dividend pay-out to the investors; incorporate changes
in information as communicated by investors; and keep the investor record up
to date, by recording new investors and removing investors who have
withdrawn their funds.
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Custodian:
Custodians are responsible for the securities held in the mutual funds portfolio.
They discharge an important back-office function, by ensuring that securities
that are bought are delivered and transferred to the books of mutual funds,
and that funds are paid-out when mutual fund buys securities. They keep the
investment account of the mutual fund, and also collect the dividends and
interest payments due on the mutual fund investments. Custodians also track
corporate actions like bonus, issues, right offers, offer for sale, buy back and
open offers for acquisition.
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ADVANTAGES OF MUTUAL FUND
Portfolio Diversification: - Mutual Funds invest in a well-diversified
portfolio of securities which enables to hold a diversified investment
portfolio (whether the amount of investment is big or small).
Professional Management: - Fund manager undergoes through various
research works and has better investment management skills which ensure
higher returns than what he can manage on his own.
Less Risk: - Investors acquire a diversified portfolio of securities even with a
small investment in a Mutual Fund. The risk in a diversified portfolio is
lesser than investing in merely 2 or 3 securities.
Low Transaction: - Costs due to economies of scale (benefits of larger
volumes), mutual funds pay lesser transaction costs. These benefits are
passed on to the investors.
Liquidity: - An investor may not be able to sell some of the shares held byhim very easily and quickly, whereas units of a mutual fund are far more
liquid.
Choice of Schemes: - Mutual Funds provide investors with various schemes
with different investment objectives. Investors have the option of investing
in a scheme having a correlation between its investment objectives and
their own financial goals. These schemes further have different
plans/options.
Transparency: - Funds provide investors with updated information
pertaining to the markets and the schemes. All material facts are
disclosed to the investors as required by the regulator.
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Flexibility: - Investors also benefit from the convenience and flexibility
offered by Mutual Funds. Investors can switch their holdings from a debt
scheme to an equity scheme and vice-versa. Option of systematic (at
regular intervals) investment and withdrawal is offered to the investors
in most open-end schemes.
Safety: - Mutual Fund industry is a part of a well-regulated investment
environment where the interests of the investors are protected by the
regulator. All funds are registered with SEBI and complete transparency is
forced.
Disadvantages of Mutual Funds
Professional Management - Many investors debate whether or not the
professionals are any better than you or I at picking stocks. Management
is by no means infallible, and, even if the fund loses money, the manager
still gets paid.
Costs - Creating, distributing, and running a mutual fund is an expensive
proposition. Everything from the managers salary to the investors
statements cost money. Those expenses are passed on to the investors.
Since fees vary widely from fund to fund, failing to pay attention to the
fees can have negative long-term consequences. Remember, every
dollar spend on fees is a dollar that has no opportunity to grow over
time.
Dilution - It's possible to have too much diversification. Because funds
have small holdings in so many different companies, high returns from a
few investments often don't make much difference on the overall
return. Dilution is also the result of a successful fund getting too big.
When money pours into funds that have had strong success, the
manager often has trouble finding a good investment for all the new
money.
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Taxes - When a fund manager sells a security, a capital-gains tax is
triggered. Investors who are concerned about the impact of taxes need
to keep those concerns in mind when investing in mutual funds. Taxes
can be mitigated by investing in tax-sensitive funds or by holding non-tax
sensitive mutual fund in a tax-deferred account.
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TYPES OF MUTUAL FUNDS
Open-end Funds
Funds that can sell and purchase units at a point in time are classified as Open-
end Funds. The fund size (corpus) of an open-end fund is variable (keeps
changing) because of continuous selling (to investors) and repurchases (from
the investors) by the fund. An open-end fund is not required to keep selling
new units to the investors at all times but is required to always repurchase,
when an investor wants to sell his units. The NAV of an open-end fund is
calculated every day.
Close-end Funds
Funds that can sell a fixed number of units only during the New Fund offer
(NFO) period are known as Closed-end Funds. The corpus of a Closed-end Fund
remains unchanged at all times. After the closure of the offer, buying
redemption of units by the investors directly from the funds is not allowed.
However, to protect the interests of the investors, SEBI provides investors with
two avenues to liquidate their positions:
Closed-end Funds are listed on the stock exchanged where investors canbuy/sell units from/to each other. The trading is generally done at a
discount to the NAV of the scheme. The NAV of a closed-end fund is
computed on a weekly basis (updated every Thursday).
Closed-end Funds may also offer buy-back of units to the unitsholders. In this case, the corpus of the Fund and its outstanding units do
get changed.
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Load Funds
Mutual funds incur various expenses on marketing, distribution, advertising,
portfolio churning, fund managers salary etc. Many funds recover these
expenses from the investors in the form of load. These funds are known as
Load Funds. A load fund may impose following types of loads on the investors:
Entry Load- Also Known as Front-end load, it refers to the load chargedto an investor at the time of his entry into a scheme. Entry load is
deducted from the investors contribution amount to the fund.
Exit Load- Also known as Back-end load, these charges are imposed onan investor when he redeems his units (exits from the scheme). Exit
load is deducted from the redemption proceeds to an outgoing
investor.
Deferred Load- Deferred load is charged to the scheme over a period oftime.
Contingent Deferred Sales Charge (CDSC) - In some schemes, thepercentage of exit load reduces as the investor stays longer with the
fund. This type of load is known as Contingent Deferred Sales Charge.
No-load Funds
All those funds that do not change any of the above mentioned loads are
known as No-load Funds.
Tax-exempt Funds
Funds that invest in securities free from tax are known as Tax-exempt Funds.
All open-end equity oriented funds exempt from distribution tax (tax for
distribution income to investors). Long term capital gains and dividend income
in the hands of investors are tax-free.
Non-Tax-exempt Funds
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Funds that invest in taxable securities are known as Non-Tax-Exempt Funds. In
India, all funds, except open-end equity oriented funds are liable to pay tax on
distribution income. Profits arising out of sale of units by an investor within
12months of purchase are categorized as short-term capital gains, which are
taxable. Sale of units of an equity oriented fund is subject to Securities
Transaction Tax (STT). STT is deducted from the redemption proceeds to an
investor.
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1. Equity Funds
Equity funds are considered to be the more risky funds as compared to the
other types of fund, but they also provide higher returns than any other funds.
It is advisable that an investor looking to invest in an equity fund should invest
for long term i.e. for 3years or more. There are different types of equity funds
each falling into different risk bracket. In the order if decreasing risk level,
there are following types of equity funds:
a. Aggressive Growth Funds: - in Aggressive Growth Funds, fund managersaspire for maximum capital appreciation and invest in less researched
shares of speculative nature. Because of these speculative investments
Aggressive Growth Funds become more volatile and thus, are prone to
higher risk than other equity funds.
b. Growth Funds: - Growth Funds also invest for capital appreciation(withtime horizon of 3 to 5 years) but they are different from Aggressive
Growth Funds in the sense that they invest I companies that are
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expected to outperform the market in the future. Without entirely
adopting speculative strategies, Growth Funds invest in those companies
that are expected to post above average earnings in the future.
c. Specialty Funds: - Specialty Funds have stated criteria for investmentsand their portfolio comprises of only those companies that meet their
criteria. Criteria for some specialty funds could be to invest/ not to
invest in particular regions/companies. Specialty funds are concentrated
and thus, are comparatively riskier than diversified funds. There are
following types of specialty funds:
i. Sector Funds: Equity Funds that invest in a particularsector/industry of the market are known as Sector Funds. The
exposure of these funds is limited to a particular sector (say
Information Technology, Banking, pharmaceuticals or Fast MovingConsumer Goods) which is why they are more risky than equity
funds that invest in multiple sectors.
ii. Foreign Securities Funds: Foreign Securities Equity Funds have theoption to invest in one or more foreign companies. Foreign
securities fund achieve international diversification and hence they
are less risky than sector funds. However, foreign securities funds
are exposed to foreign exchange rate risk and country risk.
iii. Mid-Cap or Small-Cap Funds: Funds that invest in companieshaving lower market capitalization than larger capitalization
companies are called Mid-Cap or Small-Cap Funds. Market
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capitalization of Mid-Cap companies is less than that if big, blue
chip companies (less than Rs. 2500 crores but more than Rs. 500
crores) and Small-Cap companies have market capitalization of less
than Rs. 500 crores. Market Capitalization of a company can be
calculated by multiplying the market price of the companys share
by the total number of its outstanding shares in the market. The
shares of Mid-Cap or Small-Cap Companies are not as liquid as
Large-Cap Companies which gives rise to volatility in share prices of
these prices of these companies and consequently, investment gets
risky.
iv. Option Income Funds: While not yet available in India, OptionIncome Funds write options on a large fraction of their portfolio.
Proper use of options can help to reduce volatility, which is
otherwise considered as a risky instrument. These funds invest in
big, high dividend yielding companies, and then sell options against
their stock positions, which generate stable income for investors.
d. Diversified Equity Funds- Except for a small portion of investment inliquid money market, diversified equity funds invest mainly in equities
without any concentration on a particular sector(s). These funds are well
diversified and reduce sector-specific or company-specific risk. However,
like all other funds diversified equity funds too are exposed to equity
market risk. One prominent type of diversified equity fund in India is
Equity Linked Savings Schemes (ELSS). As per the mandate, a minimum
of 90% of investments by ELSS should be in equities at all times. ELSS
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investors are eligible to claim deduction from taxable income (up to Rs
1lakh) at the time of filing the income tax return. ELSS usually has a lock-
in period and in case of any redemption by the investor before the
expiry of the lock-in period makes him liable to pay income tax on such
income(s) for which he may have received any tax exemption(s) in the
past.
e. Equity Index Funds- Equity Index Funds have the objective to match theperformance of a specific stock market index. The portfolio of these
funds comprises of the same companies that form the index and is
constituted in the same proportion as the index. Equity index funds that
follow broad indices (like S&P CNX Nifty, Sensex) are less risky than
equity index funds that follow narrow sectoral indices (like BSEBANKEX
or CNX Bank Index etc). narrow indices are less diversified and therefore,
are more risky.
f. Value Funds- Value Funds invest in those companies that have soundfundamentals and whose share prices are currently under-valued. The
portfolio of the funds comprises of share that are trading at a Low Price
to Earning Ratio ( Market Price per share/ Earning per share) and a low
Market to Book Value ( Fundamental Value) Ratio. Value Funds may
select companies from diversified sectors and are exposed to lower risk
level as compared to growth funds or specialty funds. Value stocks are
generally from cyclical industries ( such as cement, steel, sugar etc.)
which make them volatile in the short-term. Therefore, it is advisable to
invest in Value Funds with a long-term time horizon as risk in the long
term, to a large extent, is reduced.
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g. Equity Income or Dividend Yield Funds- The objective of Equity Incomeor Dividend Yield Equity Funds is to generate high recurring income and
steady capital appreciation for investors by investing in those companies
which issue high dividends (such as Power or Utility companies share
prices). Equity Income or Dividend Yield Equity Funds are generally
exposed to the lowest risk level as compared to other equity funds.
2. Debt/Income Funds
Funds that invest in medium to long-term debt instruments issued by
private companies, banks, financial institutions, governments and other
entities belonging to various sectors(like infrastructure companies etc.) are
known as Debt/Income Funds. Debt funds are low risk profile funds that
seek to generate fixed current income (and not capital appreciation) to
investors. In order to ensure regular income to investors, debt (or income)
funds distribute large fraction of their surplus to investors. Although debt
securities are generally less risky than equities, they are subject to credit
risk ( risk of default) by the issuer at the time of interest or principal
payment. To minimize the risk of default, debt funds usually invest in
securities from issuers who are rated by credit rating agencies and are
considered to be of Investment Grade. Debt funds that target high
returns are more risky. Based on different investment objectives, there can
be following types of debt funds:
a. Diversified Debt Funds- Debt Funds that invest in all securities issued byentities belonging to all sectors of the market are known as diversified
debt funds. The best feature of diversified debt funds is that investments
are properly diversified into all sectors which results in risk reduction.
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Any loss incurred, on account of default by a debt issuer, is shared by all
investors which further reduces risk for an individual investor.
Focused Debt Funds- Unlike diversified debt funds, focused debt funds are
narrow focus that are confined to investments in selective debt securities,
issued by companies of a specified sector or industry or origin. Some examples
of focused debt funds are sector, specialized and offshore debt funds, funds
that invest only in Tax.
b. Free Infrastructure or Municipal Bonds. Because of their narroworientation, focused debt funds are more risky as compared to
diversified debt funds. Although not yet available in India, these funds
are conceivable and may be offered to investors very soon.
c. High Yield Debt Funds- As we now understand that risk of default ispresent in all debt funds and therefore, debt funds generally try tominimize the risk of default by investing in securities issued by only
those borrowers who are considered to be of investment grade. But,
High Yield Debt Funds adopt a different strategy and prefer securities
issued by those issuers who are considered to be of below investment
grade. The motive behind adopting this art of risky strategy is to earn
higher interest returns from these issuers. These funds are more volatile
and bear higher default risk, although they may earn at times higher
returns for investors.
d. Assured Return Funds- Although it is not necessary that a fund will meetits objectives or provide assured to investors, but there can be funds
that come with a lock-in period and offer assurance of annual returns to
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investors during the lock-in period. Any shortfall in returns is suffered by
the sponsors or the Asset Management Companies (AMCs). These funds
are generally debt funds and provide investors with a low-risk
investment opportunity. However, the security of investments depends
upon the net worth of the guarantor (whose name is specified in the
advance on the offer document). To safeguard the interests of investors,
SEBI permits only those funds to offer assured return schemes whose
sponsors have adequate net-worth to guarantee returns in the future. In
the past, UTI had offered assured return schemes (i.e. Monthly Income
Plans of UTI) that assured specified returns to investors in the future. UTI
was not able to fulfill its promises and faced large shortfalls in the
returns. Eventually, government had to intervene and took over UTIs
payment obligations on itself. Currently, no AMC in India offers assured
returns schemes to investors, though possible.
e.
Fixed Term plan Series- Fixed Term plan Series usually are closed-endschemes having short term maturity period( of less than one year) that
offer a series of plans and issue units to investors at regular intervals.
Unlike closed-end funds, fixed term plans are not listed on the
exchanges. Fixed term plan series usually invest in debt/income schemes
and target short-term investors. The objective of fixed term plan
schemes is to gratify investors by generating some expected returns in a
short period.
1. Gilt Funds-Also known as Government Securities on India, Gilt Funds invest in
Government papers(named dated securities ) having medium to long
term maturity period. Issued by the Government of India, these
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investments have little credit risk (risk of default) and provide safety of
principal to the investors. However, like all debt funds, gilt funds are
exposed to interest rate risk. Interest rates and prices of debt securities
are inversely related and any change in the interest rates results in a
change in the NAV of debt/gilt funds in an opposite direction.
2. Money Market/Liquid FundsMoney market / liquid funds invest in short-term (maturity within one
year) interest bearing debt instruments. These securities are highly
liquid and provide safety of investments, thus making money market/
liquid funds the safest investment option when compared with other
mutual fund types. However, even money market/ liquid funds are
exposed to the interest rate risk. The typical investment options for
liquid funds include Treasury Bills (issued by Governments), Commercial
papers (issued by companies) and Certificates of Deposit (issued byBanks).
3. Hybrid FundsAs the name suggests, hybrid funds are those funds whose portfolio
includes a blend of equities, debt and money market securities. Hybrid
funds have an equal proportion of debt and equity in their portfolio.
There are following types of hybrid funds in India:
a. Balanced Funds- The portfolio of balanced funds include assets likedebt securities, convertible securities and equity and preference
shares held in a relatively equal proportion. The objectives of
balanced funds are to reward investors with a regular income,
moderate capital appreciation and at the same time minimizing the
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risk of capital erosion. Balanced funds are appropriate for
conservative investors having a long term investment horizon.
b. Growth-and-Income Funds- Funds that combine features of growthfunds and income funds are known as Growth-and-Income Funds.
These funds invest in companies having potential for capital
appreciation and those known for issuing high dividends. The level of
risks involved in these funds is lower than growth funds and higher
than income funds.
c. Asset Allocation Funds- Mutual Funds may invest financial assets likeequity, debt, money market or non-financial (physical)assets like real
estate, commodities etc.. Asset allocation funds adopt a variable
asset allocation strategy that allows fund managers to switch over
from one asset class to another at any time depending upon their
outlook for specific markets. In other words, fund managers may
switch over to equity if they expect equity market to provide goodreturns and switch over to debt if they expect debt market to provide
better returns. It should be noted that switching over from one asset
class to another is a decision taken by the fund manager on the basis
of his own judgment and understanding of specific markets and
therefore, the success of these funds depends upon the skill of a fund
manager in anticipating market trends.
4. Commodity FundsThose funds that focus on investing in different commodities (like
metals, food grains, crude oil etc.) or commodity companies or
commodity futures contracts are termed as Commodity Funds. A
commodity fund that invests in a single commodity or a group of
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commodities is a specialized commodity fund and a commodity fund
that invests in all available commodities is a diversified commodity fund
and bears less risk than a specialized commodity fund. Precious Metals
Fund and Gold Funds (that invest in gold, gold futures or shares of gold
mines) are common examples of commodity funds.
5. Real Estate FundsFunds that invest directly in real estate or lend to real estate developers
or invest in shares/securitized assets of housing finance companies, are
known as Specialized Real Estate Funds. The objective of these funds
may be to generate regular income for investors or capital appreciation.
6. Exchange Traded Funds(ETF)Exchange Traded Funds provide investors with combined benefits of a
closed-end and an open-end mutual fund. Exchange Traded Funds followstock market indices and are traded on stock exchanges like a single
stock at index liked prices. The biggest advantage offered by these funds
is that they offer diversification, flexibility of holding a single share
(tradable at index linked prices) at the same time. Recently introduced in
India, these funds are quite popular abroad.
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7. Fund of FundsMutual Funds that do not invest in financial or physical assets, but do
invest in other mutual fund schemes offered by different AMCs, are
known as Fund of Funds. Fund of Funds maintain a portfolio comprising
of units of other mutual fund schemes, just like conventional mutual
funds maintain a portfolio comprising of equity/debt/money market
instruments or non-financial assets. Fund of funds provide investors with
an added advantage of diversifying into different mutual fund schemes
with even an added advantage of diversifying into different mutual fund
schemes with even a small amount of investment, which further helps in
diversification of risks. However, the expenses of Fund of Funds are
quite high on account of compounding expenses of investments into
different mutual fund schemes.
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CHAPTERNO2
MUTUALFUNDININDIA
The Evolution of the Mutual Fund in India is with different Phases:
In 1963, the Unit Trust of India enjoyed complete monopoly by an act of
Parliament. UTI was set up by the Reserve Bank of India and continued to
operate under the regulatory control of the RBI till the two were de-linked
in 1978 and the entire control was transferred in the hands of Industrial
Development Bank of India (IDBI). In 1964 the UTI launched its first scheme
named as Unit Scheme 1964 (US-64), which attracted the largest number of
investors in any single investment scheme over the yearsIn 1970's and 1980's UTI launched more innovative schemes to suit the
needs of different investors. In 1971 it launched ULIP, between 1981-84 six
more schemes between, in 1986 the Children's Gift Growth Fund and India
Fund which was the first offshore fund for India. In 1987 the Mastershare
and in 1990's the Monthly Income Schemes which were offering assured
returns. By the end of 1987, UTI's assets under management grew ten times
to Rs 6700 crores.
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Phase II. Entry of Public Sector Funds - 1987-1993
In the year 198, The Indian Mutual Fund industry witnessed many public sector
players entering the market. In November 1987, SBI Mutual Fund from the
State Bank of India became the first non-UTI mutual fund in India. SBI MutualFund was later found by Canbank Mutual Fund, LIC Mutual Fund, Indian Bank
Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual
Fund. By 1993, the assets under management of the industry increased seven
times to Rs. 47,004 crores. However, UTI remained to be the leader with about
80% market share.
Phase III. Emergence of Private Sector Funds - 1993-96
The permission given to private sector funds including foreign fundmanagement companies to enter the Mutual Fund Industry was in the year
1993.
Phase IV. Growth and SEBI Regulation - 1996-2004
In the year 1996 the mobilization of funds and the number of players operating
in the industry reached new heights as investors started showing more interest
in mutual funds. Investors' interests were safeguarded by SEBI and the
Government offered tax benefits to the investors in order to encourage them.SEBI (Mutual Funds) Regulations, 1996 was introduced by SEBI that set uniform
standards for all mutual funds in India. The Union Budget in 1999 exempted all
dividend incomes in the hands of investors from income tax. Various Investor
Awareness Programmes were launched during this phase, both by SEBI and
AMFI, with an objective to educate investors and make them informed about
the mutual fund industry.
Today there are plenty of investment avenues open. Some of them include
banks deposits, bonds, stocks, mutual fund investments and corporatedebentures. Investors may invest money in banks, bonds and corporate
debentures where the risk is low and so are the returns. On the contrary,
stocks of companies have high risk but the returns are also proportionately
high.
Mutual fund investments carry low risk because of their diversified nature. It is
important to understand the benefits of mutual funds before investing the
money you really care about.
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The size of Indian mutual fund industry has grown in recent few years. India
can now boast of having dominance in this industry. The total Asset Under
Management popularly known as AUM has increased from Rs.1, 01, 565 crores
in January 2000 to Rs.5, 67, 601.98 crores in April 2008.
According to the Association of Mutual Funds in India, the growth of mutual
fund industry has been exceptional. This industry has indeed come a very long
way with only 34 players in the market and more than 480 schemes.
One of the major factors contributing to the growth of this industry has been
the booming stock market with an optimistic domestic economy. Second most
important reason for this growth is a favorable regulatory regime which has
been enforced by SEBI. This regulatory board has improved the market
surveillance to protect the investor's interest.
NAV is directly proportionately to the bearish trends of the market. Top mutual
funds also suffer because of the fluctuations in the market. The pooled money
is invested in shares, debentures and treasury bills and thus has high risk
involved.
Indian mutual funds however reveal this multi-dimensional avenue and all the
intricacies in a highly fashionable manner. It provides a lot of scope to
understand the scenario and make some thoughtful investments for decent
return
Some of the top mutual funds in India are:
* Reliance Mutual Fund
* UTI Mutual Fund
* Kotak Mutual Fund
* HDFC Mutual Fund
* Prudential ICICI Mutual Fund
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BENEFITS OF MUTUAL FUND INVESTMENT
AffordableAlmost everyone can buy mutual funds. Even for a sum of Rs 1,000 an investor
can invest in a mutual fund.
Professional Management
For an average investor, it is a difficult task to decide what securities to buy,
how much to buy and when to sell. By buying a mutual fund, you acquire a
professional fund manager who manages your money. This is the person who
decides what to buy for you, when to buy it and when to sell. The fund
manager takes these decisions after doing adequate research on the economy,
industries and companies, before buying stocks or bonds. Most mutual fund
companies charge a small fee for providing this service which is called the
management fee.
Diversification
According to finance theory, when your investments are spread across several
securities, your risk reduces substantially. A mutual fund is able to diversify
more easily than an average investor across several companies, which anordinary investor may not be able to do. With an investment of Rs 5000, you
can buy stocks in some of the top Indian companies through a mutual fund,
which may not be possible to do as an individual investor.
Liquidity
Unlike several other forms of savings like the public provident fund or National
Savings Scheme, you can withdraw your money from a mutual fund on
immediate basis.
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Mutual Fund Not So Popular In India:Why??
Mutual funds are supposed to tap savings of the common man. Yet, in a
country of 120 crore people or 1.2 billion people, there are only 4 crore or 40
million (3.5 per cent) mutual fund unit investors. In US, every second citizen is
a mutual fund unit holder.
Poor investor interest: Assets managed by mutual funds are falling. For the
month ended March 2012, assets under management with all mutual funds
plunged 13 per cent to Rs. 5,87,000 crore, according to Association of Mutual
funds in India (Amfi) data. This is the lowest since June 2009. This means
investors have pulled out money. While March usually sees a high outflow of
funds as corporate India pulls out money to meet tax and other working capital
requirement, the absence of a diverse retail base hurts. The industry needs
more common people to own mutual fund units and not just large corporates
to park their money.
Other attractive investment avenues: For the common man, the Indian
government offers saving schemes with sovereign guarantee. With high
interest rates and tax rebates, post office schemes like public provident fund or
National Saving certificate offer better returns to investors. Individuals
have Rs. 5,19,162 crore invested in the post office or government guarantee
schemes, according to Karvy, securities firm. Employee Provident fund andpublic provident funds manage another Rs. 2,81,000 crore. This is more than
the size of the total mutual fund industry in India. High bank deposit rates also
reduce the risk appetite. Indian individuals own fixed deposits and government
guaranteed bonds worth Rs.22,16,307 crore, according to Karvy.
Another Rs. 6,20,000 crore is held in savings bank accounts with public and
private sector banks
Equity assets stagnant: Mutual funds manage Rs. 1,82,000 crore in equity
assets, according tothe Amfi data. This is barely 3 per cent of the total market capitalization of the
Bombay Stock Exchange. Foreign institutional investors control five times that.
A successful asset management business is evaluated on the basis of the equity
assets it manages. However, with sovereign guarantee schemes dominating
most of the household investible surplus, it is a challenge to ask individuals to
take risks.
Individuals prefer direct equity investment: Direct equity holding is
estimated at Rs. 22,73,043 crore, more than 11 times equity assets managed
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by mutual funds and a third of the BSE market cap. This means investors prefer
to buy or sell shares on their own and not rely on mutual funds. Mutual funds
have failed to educate this segment to allocate resources to them.
Tough business to be in: Fidelity, one of the biggest mutual fund manager inthe world, sold its India business to L&T Finance Holdings recently. They are
not the first foreign company to exit. Most of the foreign exits from India were
due to global restructuring or M&A. Fidelitys exit from a loss-making India
business highlights problems of doing business in India. It is not clear yet why
Fidelity decided to exit. However, an exit by one of the largest mutual fund
company in the world should not be taken lightly.
Restrictive mandate: The mutual fund industry in US relies heavily on US
state and private pension funds to manage a large amount of money. So
Fidelity and Templeton are engaged by state pension funds to manage a
portion of the pension money. In India, pension reforms are part of a major
political wrangle. Politicians do not allow government pension funds to invest
in equity markets. Even if some agree, they are not able to push through any
reforms that could push up assets under management for mutual funds.
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CHAPTER NO 3
Balanced Mutual Fund
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Balanced funds are mutual funds that invest in both equities and debt
instruments. They normally keep their equity component in the range of 60%-
75% and the rest in debt products or cash. Some balanced mutual funds areconsidered to be more aggressive in that they have a larger equity component.
For example, HDFC Prudence keeps its equity allocation around 75% in most of
the cases and rest 25% in debt or cash. However, others like Reliance Regular
Savings Balanced are considered less aggressive and have a lower equity
component around 60-65% .
From the taxmans point of view, any mutual fund which has equity
component more than 65% is considered as an Equity Fund and so long term
capital gains from sale of balanced mutual fund units too are exempted from
tax after one year just like in the case of pure equity mutual funds .As balanced funds have to maintain their ratios between equity and debt by a
fixed percentage, they have to periodically adjust their asset allocation. So, if a
balanced fund has a ratio of 70:30 (Equity: Debt) and suppose it reaches 77:23,
the fund manager will make sure that he sells the excess equity portion to
rebalance the fund back to 70:30.This asset allocation by balanced funds
leads to superior returns over the longer term. But in the short term, balanced
funds will not out perform pure equity based funds especially in bull runs. So
you always have to give balanced funds a long time to see the performance.
As balanced funds are not exposed to equity in the same way as regular equity
diversified funds whose equity exposure is generally 95% or more in an
average scenario, their fall in case of market crash is lower than pure
diversified funds. This is why these funds do better in downturns than
diversified equity funds
How Do Balanced Mutual Funds Work?
Investment in Stocks: One can draw some similarity of balanced funds with
well diversified funds. Asset allocated for stocks are diversified into different
sectors which are performing with high returns. Fund allocation weightage is
determined by the stocks' return potentials. The top stock, for example may
get an allocation of say 10% and the lesser the potential the lesser is the
percentage allocation of funds. The same pattern is then repeated for anothersector of stocks. Sectors are chosen subject to various parameters.
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Investment in Bonds: The allocation to bonds is distributed among bonds
issued by governments and banks. Municipal bonds, called as munis,
sometimes find their way into this. This investment provides guaranteed
returns at a steady rate over a period. This gives the stability to the entire fundcushioning the violent fluctuations of aggressive stock investment.
Balanced Fund v/s Other Types of Funds
Blend of Growth and Safety:The unique proposition of spreading the
investment into two broad divisions of mutual fund investing is hard to find inother class of funds.
Freedom to decide allocation: freedom to switch over from one proportion to
the other, which is from 60:40 to 40:60 patterns. You can switch over when
you perceive a growth opportunity or a threat into the other from the existing.
This you can reverse when you perceive the situation leading to it has changed.
No other type of fund has this freedom, having chosen the fund, you have to
go through the mandate of the fund.
Best balanced mutual funds keep allocation flexible and open to changes as
per demands of market conditions but subject to regulations by laws of
government and SEC (Securities & Exchange Commission).
Risky Proposition: Consider a situation when the stock market is having a bull
run (long rally). Then you can expect a great appreciation in its principal.
Naturally any manager would be tempted to divert as much cash at his
command to stocks as possible. It could go as high as 80% with just 20% for
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debt instruments. Other types of funds differ here because of SEC regulations
and funds' own mandate.
Advantages of Balanced Mutual Funds:
The most striking advantage is being able to switch over from one
combination to the other available to a more aggressive growth oriented
stocks when the market is bullish and vice versa
It provides diversity in true sense with portfolio containing top stocksand bonds for a blend of growth and safety.
There is no trouble in managing an assortment of investments yourself.
The one fund gives it all and reduces your overall problem of managing
the investment.
Disadvantages of Balanced Mutual Funds:
Dependent on the expertise of fund manager with respect to
changes in portfolio.May not give high returns as equity funds and underperform in
bull market.
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CHAPTERNO4
ICICIPRUDENTIALBALANCEDMUTUAL
FUND
ICICI Prudential Balanced Fund is an open-ended balanced fund. It takes care of
the asset allocation by constantly investigating market outlook and
performance and accordingly by increasing / decreasing equity exposure based
on the market outlook and using a core debt portfolio to do the rebalancing.
This fund seeks to optimize the risk-adjusted return by distributing assets
between both equity and debt markets. In bullish markets equity allocation
can go upto 80%. In bearish markets equity allocation can go down to 65%.
This dynamic allocation along with core debt portfolio reduces the volatility of
return
Investor Profile
This Plan is ideal for -
Investors seeking exposure to both equity and debt markets through onefund
Investors considering reasonable returns with and lower risk throughdiversification.
Key Benefits
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Provides the twin benefits of growth from equity markets and steadyincome from debt markets.
Lower volatility of returns and lower risk through diversification.
Key Features
Type: Open ended Balanced Fund
Application Amount: Rs.5,000 (plus in multiples of Rs.1)
Min. Additional Investment: Rs.500/- and in multiples thereof
Entry Load: Nil.
Exit Load: a) If the amount, sought to be redeemed/switched out within a
period of 15 Months from the date of allotment, an exit load of 1% of theapplicable Net Asset Value shall be charged.(b) If the amount, sought to be
redeemed or switched out, is invested for a period of more than 15 Months
from the date of allotment - Nil.
Redemption Cheques Issued: generally within 3 business day for Specified RBI
locations and additional 3 Business Days for Non-RBI locations.
Minimum Redemption Amt.: Rs. 500 and in multiples of Re. 1,
Systematic Investment Plan: Monthly: Minimum Rs. 1000 + 5 post-dated
cheques for a miminum of Rs. 1000 each. Quarterly: Minimum Rs.5000 + 4
post-dated cheques of Rs. 5000 each.
Systematic Withdrawal Plan: Minimum of Rs.500/- and Multiples thereof
Net Asset Value Periodicity: Calculated & Declared on every Business day
Tax Benefits: Capital Gains Tax and Indexation benefit
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CHAPTERNO5
CANARAROBECOBALANCED
MUTUALFUND
To seek to generate long term capital appreciation and / or income from a
portfolio constituted of equity and equity related securities as well as fixed
income securities (debt and money market securities).
Minimum Investment:
Lump sum Investment: Rs 5000 and multiples of Re.1/- thereafter, NRI /FII / OCBs: Rs.50,000/- & in multiples of Rs.1,000/-, Corporate / Trusts &
Institutional Investors: Rs.50,000/- & in multiples of Rs.10,000/-,
Additional Purchase: Rs.3,000/- Repurchase: Minimum of 300 units or
with a minimum repurchase value of Rs 3000.
Systematic Investment Plan (SIP) Minimum instalment amount - Rs.1,000.00 and Rs. 2,000.00 respectively for Monthly and Quarterly
frequency respectively and in multiples of Re 1.00 thereafter.
Systematic Transfer Plan (STP) / Systematic withdrawal plan(SWP)
Minimum instalment amount - Rs. 1,000.00 and Rs. 2,000.00
respectively for Monthly and Quarterly frequency respectively and in
multiples of Re 1.00 thereafter.
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Asset Allocation:
Instruments Minimum Maximum
Equity & Equity related instruments 40% 75%
Debt Securities including Securitied debt having ratingabove AA or equivalent, Money market Instruments,
Govt. Securities
25% 60%
Plans & Options:
Plan Name
Canara Robeco Balance - Dividend Option
Canara Robeco Balance - Growth Option
Load Structure:
Entry Load: Nil
Exit Load: Lump Sum / SIP / STP: 1% - If redeemed/switched out within 1 year
from the date of allotment, Nil - if redeemed / switched out after 1 year from
the date of allotment.
Scheme Liquidity/Switch: Liquidity by way of repurchases facility through CRAMC Branches or offices of the Registrar and Transfer Agents (R & T).
Switch-over option to the investors within the fund to/from other open ended
Scheme(s) or to/from new Scheme(s) that may be launched from time to time.
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CHAPTER NO 6
HDFC BALANCED MUTUAL FUND
Investment Objective
The primary objective of the Scheme is to generate capital appreciation along
with current income from a combined portfolio of equity and equity related
and debt and money market instruments.
Basic Scheme Information
Nature of Scheme Open Ended Balanced Scheme
Inception Date September 11, 2000
Option/Plan Dividend Option, Growth Option. The Dividend
Option offers Dividend Payout and Reinvestment
Facility.
Entry Load
(For Lumpsum Purchases
and investments through
SIP/STP)
NIL
Unfront commission shall be paid directly by the
investor to the ARN Holder (AMFI registered
Distributor) based on the investors' assessment
of various factors including the service renderedby the ARN Holder.
Exit Load
(as a % of the Applicable
NAV)
In respect of each purchase / switchin of units,
an Exit Load of 1.00% is payable if Units are
redeemed / switched-out within 1 year from the
date of allotment..
No Exit Load is payable if Units are redeemed /switched-out after 1 year from the date of
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allotment.
Minimum Application
Amount
For new investors: Rs.5000 and any amount
thereafter.
For existing investors: Rs. 1000 and any amount
thereafter.
Lock-In-Period Nil
Net Asset Value
Periodicity
Every Business Day.
Redemption Proceeds Normally dispatched within 3-4 Business days
Investment Pattern
The Scheme will be invested in equity and equity related instruments as well as in debt
and in money market instruments in normal circumstances. The following table provides
the asset allocation of the Scheme's portfolio.
The asset allocation under the Scheme will be as follows:
Sr.
No.
Type of Instruments Normal
Allocation
(% of Net
Assets)
Normal Deviation
(% of Normal
Allocation)
Risk Profile
of
the
Instrument1 Equity and Equity
Related Instruments
60 20 Medium to
High
2 Debt Securities
(including securitised
debt) and Money
Market instruments
40 30 Low to
Medium
Investment Strategy
The balanced product is positioned as a lower risk alternative to a pureequities scheme, while retaining some of the upside potential from equities
exposure. The Scheme provides the Investment Manager with the flexibility to
shift allocations in the event of a change in view regarding an asset class.
Asset allocation between equities and debt is a critical function in a balanced
fund. It is proposed to continuously monitor the potential for both debt and
equities to arrive at a dynamic allocation between the asset classes.
The equity and debt portfolios of the Scheme would be managed as per therespective investment strategies detailed herein.
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Equity Investments:
The investment approach would be based on the concept of economic earning
power and cash return on investments.
Five basic principles serve as the foundation for this investment approach.
They are as follows:
Focus on the long term
View our investments as conferring a proportionate ownership of the business.
Maintain a margin of safety (i.e. the price of purchase represents a discount to
the intrinsic value of that business).
Maintain a balanced outlook on the market by regularly monitoring economic
trends and investor sentiment.
The decision to sell a holding would be based on one of three reasons :
The anticipated price appreciation has been achieved or is no longer probabe.
Alternative investments offer superior total return prospects, or
A fundamental change has occurred in the company or the market in which it
competes.
In summary, the assessment of investment value is a function of extensive
research and based on data and reasoning, rather than current fashion and
emotion. The idea is to develop a model that allows us to identify "businesseswith superior growth prospects and good management, at a reasonable
price".
In order to implement the investment approach effectively, it would be
important to periodically meet the management face to face. This would
provide an understanding of thei broad vision and commitment to the long-
term business objectives. These meetings would also be useful in assessing key
determinants of management quality such as orientation to minority
shareholders, ability to cope with adversity and approach to allocating surpluscash flows. Discussions with management would also enable benchmarking
actual performance against stated commitments.
Debt Investments :
Debt securities (in the form of non-convertible debentures, bonds, secured
premium notes, zero interest bonds, deep discount bonds, floating rate bond /
notes, securitised debt, pass through certificates, asset backed securities,
mortgage backed securities and any other domestic fixed income securities
including structured obligations etc.) include, but are not limited to:
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Debt obligations of / Securities issued by the Government of India, State and
local Governments, Government Agencies and statutory bodies (which may or
may not carry a state / central government guarantee).
Securities that have been guaranteed by Government of India and State
Governments.Securities issued by Corporate Entities (Public / Private sector undertakings).
Securities issued by Public / Private sector banks and development financial
institutions.
Risk Control
Investments made from the net assets of the Scheme(s) would be in
accordance with the investment objective of the Scheme(s) and the provisionsof the SEBI (MF) Regulations. The AMC will strive to achieve the investment
objective by way of a judicious portfolio mix comprising of Debt Securities and
Money Market Instruments and equity / equity related instruments. Every
investment opportunity in Debt Securities and Money Market Instruments
would be assessed with regard to credit risk, interest rate risk and liquidity risk.
Systematic Investment Plan (SIP) Details
SerialNo.
Scheme Name MinimumApplication
Amount(Rs.)
Entry Load#
Exit Load #
1 HDFC Balanced
Fund -
Dividend/Growth
Rs.500 for
Monthly &
Rs.1500 for
Quarterly
NIL In respect of each purchase /
switch-in of units, an Exit Load of
1.00% is payable if Units are
redeemed / switched-out within 1
year from the date of allotment.
No Exit Load is payable if Units are
redeemed / switched-out after 1
year from the date of allotment.
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CHAPTER NO 7
RELIANCE BALANCED MUTUAL FUND
Reliance Regular Savings Fund (An open ended Scheme) Balanced Option: The
primary investment objective of this Option is to generate consistent return
and appreciation of capital by investing in mix of securities comprising of
Equity, Equity related Instruments & Fixed income instruments.
Reliance Regular Savings Find-Hybrid Option was launched on June 9,2005 and
subsequently Hybrid Option has been changed to Balanced Option w.e.f
January 13,2007. Consequently, benchmark of Reliance Regular Savings Fund
Balanced option has been changed to Crisil Balanced Fund Index from Crisil
MIp Index with effect from February 21, 2008. Accordingly performance of the
scheme is from January 13, 2007
Investment ObjectiveInvestment Objective (Balanced Option): The primary
investment objective of this Option is to generate consistent return and
appreciation of capital by investing in mix of securities comprising of Equity,
Equity related Instruments & Fixed income instruments.
Asset Allocation
Instruments Asset Allocation Risk Profile
Equity and Equity Related Securities 50 -75% Medium to HighDebt and Money Market Instruments 25- 50% Low to Medium
The average maturity of the debt portfolio will normally be maintained
between 1 and 7 years.
Minimum Application Amount: Rs.500/- and in multiple of Re.1 thereafter.
Investors can also avail of the Systematic Investment Plan (SIP) with an option
to invest as low as Rs.100/-per month.
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Minimum additional purchase amount:Rs. 500/- and in multiples of Re. 1
thereafter.
Load Structure
Entry Load
*In terms of SEBI circular no. SEBI/IMD/CIR No.4/
168230/09 dated June 30, 2009, no entry load will be
charged by the Scheme to the investor effective August 1,
2009. Upfront commission shall be paid directly by the
investor to the AMFI registered Distributors based on the
investors' assessment of various factors including the
service rendered by the distributor.
NIL
Exit Load
Under both Retail and Institutional Plan exit load isapplicable as below:
if redeemed or switched out on or before completion of 1
year from the date of allotment of units.1%
if redeemed or switched out after the completion of 1 year
from the date of allotment of units.NIL
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CHAPTER NO 8
SBI MAGNUM BALANCED MUTUAL
FUND
This Fund invests in a mix of equity and debt investments. It provides a good
investment opportunity to investors who do not wish to be completely
exposed to equity markets, but are looking for relatively higher returns than
those provided by debt funds.
Key BenefitSBI Magnum Balanced Fund invests in a equities across market capitalisation/
money market instruments.
To provide investors long term capital appreciation along with the liquidity of
an open-ended scheme by investing in a mix of debt and equity. The scheme
will invest in a diversified portfolio of equities of high growth companies and
balance the risk through investing the rest in a relatively safe portfolio of debt.
Asset Allocation
InstrumentNormal Allocation (% of Net
Assets)
Risk
Profile
Equities & equity related
instruments
Not less than 50% Medium
to High
Debt Instruments like
debentures, bonds, khokas, etc.
Upto 40% Medium
to Low
Securitized debt Not more than 10% of Medium
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48
investments in debt
instruments
to High
Money Market Instruments Balance Low
Date of Inception 31/12/1995
Minimum
ApplicationRs.1,000/-
Entry Load NA
Exit LoadFor exit within 1 year from the date of allotment - 1 %;
For exit after 1 year from the date of allotment - Nil
SIP
Rs.500/month - 12 months
Rs.1000/month - 6months
Rs.1500/quarter - 12 months
SWP Rs. 500/- per month or quarter
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49
CHAPTER NO.9
COMPARISON OF DIFFERENT
BALANCED MUTUAL FUNDS
Comparison of different types of Mutual funds will be done on the basis of
1) PERFORMANCE
Performance of Various Funds depending upon the Returns (%),during 1
month,6months,1year,3years,and five years respectively.
2) NAV (NET ASSET VALUE):
NET ASSET VALUE OF DIFFERENT FUNDS AS ON OCTOBER 12,2012,AND ALSO
AS ON DECEMBER 20,2011.
3) INVESTMENT DETAILS
Investment Details on Basis of Expenses Ratio (%),Front-End Load,Back-End
Load,Minimun Initial Investment(Rs),Tenure(yrs)
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50
Quantitative Measures
a) Assets under Management (AUM)This denotes the size of the fund or the scheme. Larger funds have higher
AUM and vice versa.
b) Annual ReturnA return is a measurement of how much an investment has increased or
decreased in value over any given time period. In particular, an annual return is
the percentage by which it increased or decreased over any twelve-month
period.
Return = ((End_price + Start_price) / Start_price)*100
Eg:
c) Expense RatioMutual funds too charge a fee for managing your money. This involves
the fund management fee, agent commissions, registrar fees, and selling and
promoting expenses. All this falls under a single basket called expense ratio or
annual recurring expenses that is disclosed every March and September and is
expressed as a percentage of the fund's average weekly net assets. Expense
ratio states how much you pay a fund in percentage term every year to
manage your money.
Date NAV Returns
January, 2005 18.12 -January, 2006 30.07 65.95 %
January, 2007 34.91 16.10 %
January, 2008 42.95 23.03 %
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51
d) Price Earnings RatioA companys PE is the ratio of the share price of a company to its earnings
per share (EPS). If EPS is one, the PE ratio will reflect the price that an investor
will pay for this one rupee of the company's profits.
An equity fund is a collection of shares. Therefore, a fund's PE is the
average of the PEs of all stocks, in proportion to their presence in the portfolio.
Because fund portfolios change, the PE will also change and this will not reflect
the growth prospects of the underlying assets. A fund's PE is the weighted
average PE of its stocks.
A fund's PE ratio can tell us whether the fund has more growth stocks or
value stocks compared to another fund.
e) Turnover RatioThe turnover ratio represents the percentage of a fund's holdings that
change every year. To put it simply, a turnover rate of 100 per cent implies that
the fund manager has replaced his entire portfolio during the period given.
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52
DATA ANALYSIS OF VARIOUS BALANCED MUTUAL FUND
1) IN TERMS PERFORMANCE (FIG NO 1)
As per the fig no1
In terms of Returns over a Short Period of Time, Reliance Balanced Plan
gives an impressive Returns, but however its Returns over long period of
time reduces.
In terms of Returns Over a longer Period of Time, HDFC Balanced Mutual
gives good returns.
FUND
NAME
1MONTH
RETURN(%)
6MONTH
RETURN(%)
1YEAR
RETURN(%)
3YEAR
RETURN(%)
5YEAR
RETURN(%)
Canara
Robeco
Balance
3.49 8.67 14.61 10.47 7.07
HDFC
Balanced
4.67 6.01 12.21 14.62 11.73
ICICI
Prudential
Balanced.
4.42 7.12 15.82 11.37 4.75
Reliance
Regular
Savings
Balanced
4.65 10.62 18.55 10.12 10.29
SBI
Magnum
Balanced
4.29 11.38 15.80 4.86 2.99
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53
0
2
4
6
8
10
12
14
16
18
20
1MONTH
Return
6MONTH
RETURN
1YEAR
RETURN
3YEARS
RETURN
5YEAR
RETURN
Canara Robeco Balance
HDFC Balanced
ICICI Prudential Balanced.
Reliance Regular Savings
Balanced
SBI Magnum Balanced
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54
2) IN TERMS OF NAV (Net Asset value) FIG 1.1
Fund Name NAV AS ONOCT 12 2012
AS ON DEC 20,2011
CanaraRobecoBalance-G
68.15 55.64
HDFC
Balanced-G
62.22 50.07
ICICI
PrudentialBalanced-G
52.65 42.60
RelianceRegularSavingsBalanced-G
24.40 18.82
SBI
MagnumBalanced-
G
52.77 41.65
0
10
20
30
40
50
60
70
80
Canara
Robeco
Balance-G
HDFC
Balanced-G
ICICI
Prudential
Balanced-G
Reliance
Regular
SavingsBalanced-G
SBI Magnum
Balanced-G
NAV AS ON OCT 12 2012
NAV AS ON DEC 20,2011
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3) IN TERMS OF INVESTMENTS DETAILS fig 1.2
Fund
Name
Expense
Ratio %
Front-
End
Load %
Back-
End
Load %
Min
Initial
Inv. (Rs)
Tenure (Yrs.)
Canara
Robeco
Balance
1.66 0.00 0.00 5,000 7, 5, 19, 9, 9,
6, 4, 2, 4, 2,
0, 0, 3, 1
HDFC
Balanced
1.98 0.00 0.00 5,000 6, 12, 5, 9, 2,
0
ICICI
Prudential
Balanced
2.28 0.00 0.00 5,000 13, 7, 12, 7,
4, 7, 3, 0, 4,
4, 4, 1, 3, 3,
0, 0
Reliance
Regular
Savings
Balanced
2.19 0.00 0.00 500 7, 2, 7, 5, 5,
0
SBI
Magnum
Balanced
2.32 0.00 0.00 1,000 11, 17, 7, 7,
7, 0, 6, 5, 2,
3, 1
As per the Fig 1.2
SBI MAGNUM Balanced Has the Highest Expense Ratio and theMinimum Investment.
Reliance Balanced Mutual Fund has the Average Expense Ratio, but thelowest Minimum investment.
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