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




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




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




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




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




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




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:




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




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




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




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.





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





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?





• 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%





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





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





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.




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.





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.





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.)





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).





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





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





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





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.





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





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%





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%





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:





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.





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.




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.




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





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.





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





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





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





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




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.




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.




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.




APPENDIX1. A sample portfolio has been given separately in excel format.2. The performance of select mutual funds has been given in excel

format

financial advisory and research of mutual funds

Documents