sbi sectorial funds

8/6/2019 Sbi Sectorial Funds

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SBI-SECTOR FUNDS

1.0. Statement of problem

The Indian mutual fund industry is one of the fastest growing sectors in the

Indian capital and financial markets. The mutual fund industry in India has seen

dramatic improvements in quantity as well as quality of product and service

offerings in recent years.

The study says that investors in future would prefer mutual funds for their

investment destination rather than choosing to park their funds in stock markets

because of safer returns and lower degree of risk as compared to other markets.

This research will focus on managing the mutual fund by evaluating the

performances of sector fund schemes and find out the best sector fund in SBI

Mutual Fund.

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SBI-SECTOR FUNDS

2.1. INTRODUCTION

DEFINITION

“Mutual fund is a common pool of money in which investor place their

contribution that is to be invested in accordance with the stated objective. The fund

belongs to all the investors depending on the proportion of his contribution to the

fund.”

“A fund established in the form of a trust to raise money’s through the sale of

units to the public or a section of the public under one or more schemes for

investing in securities, including money market instruments.”

-Securities exchange board of India

(SEBI)

A Mutual Fund is a trust that pools the savings of a number of investors who

share a common financial goal. The money thus collected is then invested in

capital market instruments such as shares, debentures and other securities. The

income earned through these investments and the capital appreciations realized are

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

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

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

securities at a relatively low cost.

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History

The end of millennium marks 46 years of existence of mutual funds in this

country. The ride through these 46 years is not been smooth.

UTI commenced its operations from July 1964 with a view to encouraging

savings and investment and participation in the income, profits and gains accruing

to the corporation from the acquisition, holding management and disposal of

securities Different provisions of the UTI Act laid down the structure of

management, scope of business, powers and functions of the Trust as well as

accounting, disclosures and regulatory requirements for the Trust.

One thing is certain – the fund industry is here to stay. The industry was one-

entity show till 1986 when the UTI monopoly was broken when SBI and Canara

bank mutual fund entered the arena. This was followed by the entry of others like

BOI, LIC, GIC, etc. sponsored by public sector banks. Starting with an asset base

of Rs0.25bn in 1964 the industry has grown at a compounded average growth rate

of 26.34% to its current size of Rs1130bn.The period 1986-1993 can be termed as the period of public sector mutual

funds (PMFs). From one player in 1985 the number increased to 8 in 1993. The

party did not last long. When the private sector made its debut in 1993-94, the

stock market was booming.

Mutual funds have been around for a long period of time to be precise for 46

years but the year 1999 saw immense future potential and developments in this

sector This year signaled the year of resurgence of mutual funds and the regaining

of investor confidence in these MF’s. This time around all the participants are

involved in the revival of the funds the AMC’s, the unit holders, the other related

parties. However the sole factor that gave lift to the revival of the funds was the

Union Budget. The budget brought about a large number of changes in one stroke.

An insight of the Union Budget on mutual funds taxation benefits is provided later.

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TYPES OF MUTUAL FUNDS SCHEMES:

A Mutual Fund scheme can be classified into open-ended scheme or

close-ended scheme depending on its maturity period.

1. Open-ended Fund/Scheme:

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

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

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

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

schemes is liquidity.

2. Closed-ended Fund/Scheme:

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

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

launch of the scheme. Investors can invest in the scheme at a time of the initial

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

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

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

mutual fund through periods repurchase of NAV-related prices. SEBI regulationsstipulated that at least one of the two exit routes is provided to the investor, i.e.,

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

schemes disclose NAV generally on a weekly basis.

BY INVESTMENT OBJECTIVE:

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

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

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

as follows:

1. Growth/Equity-oriented Schemes:

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

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

Such funds have comparatively high risks. These schemes provide differentoptions to the investors like dividend option, capital appreciation etc., and the

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investors may choose an option depending on their preference. The investors must

indicate the option in the application form. Mutual funds also allow investors to

change the options at the later date. Growth schemes are good for investors having

a long- term outlook seeking appreciation over a period of time.

2. Income/Debt-oriented Scheme:

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

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

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

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

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

also limited in such funds. The NAVs of such funds are affected because of a

change in the interest rates fall, NAVs of such funds are likely to increase in the

short run and vice versa. However, long-term investors may not bother about these

fluctuations.

3. Balanced Fund:

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

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

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

moderate growth. They generally invest 40%-60% in equity and debt instruments.

The funds are also affected because of fluctuation in share prices in the stock

markets. However, NAVs of such funds are likely to be less volatile compared to

pure equity funds.

4. Money market or Liquid Fund:

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

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

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

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

these schemes fluctuate much less compared to other funds. These funds are

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

funds for short periods.

Systematic Investment Plan (SIP):

Here the investor is given the option of preparing a pre-determined number of

post-dated cheques in favor of the fund. He will get units on the date of the cheque

at the existing NAV.

Systematic Withdrawal Plan (SWP):

As opposed to the Systematic Investment Plan, the Systematic Withdrawal

Plan allows the investor the facility to withdraw pre-determined amounts/units

from his fund at a pre-determined interval. The investor’s units will be redeemed at

the existing NAV as on the day.

ADVANTAGES OF MUTUAL FUNDS

Professional Management:

Qualified professionals manage your money and they have research team that

continuously analyses the performance and prospects of companies. They also

select suitable investment to achieve the objectives of the schemes and expertisewhich will add value to your investment. These fund managers are in a better

position to manage your investment and get higher returns.

Diversification:

The cliche, “don’t put all your eggs in one basket” really applies to the concept

of intelligent investing. Diversification lowers your risk of loss by spreading your

money across various industries. It is a rare occasion when all the stocks decline at

the same time and in the same proportion. Sector funds will spread your

investment across only one industry and it would not be wise for your portfolio to

be skewed towards these types of funds for obvious reasons.

Choice of Schemes:

Mutual Funds offer a variety of schemes that will suit your needs over a life

time. When you enter a new stage in your life, all you need to do is sit down with

your investment advisor who will help you to rearrange your portfolio to suit your

altered lifestyle.

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Affordability:

As small investors, many find that it is so not possible to buy shares of large

corporations. Mutual funds generally buy and sell securities in large volumes

which allow investors to benefit from lower trading costs. The smallest investor

can get started on mutual funds because of the minimal investment requirements.

You can invest with a minimum of Rs. 500 in a on a regular basis.

Tax Benefits:

Investments held by investors for a period of 12 months or more qualify for

Capital gains and will be taxed accordingly (10%of the amount by which the

investment appreciated, or 20%after factoring in the benefits of cost indexation,

whichever is lower). These investments also get the benefits of indexation.

Liquidity:

With open-ended funds, you can redeem all or part of your investment any time

you wish and receive the current value of the shares or the NAV related price.

Funds are more liquid than most investment in shares, deposits and bonds and the

process is standardized, making it quick and efficient so that you can get your cash

in hand as soon as possible.

Transparency:

The performance of a mutual fund is reviewed by various publications and

rating agencies, making it easy for investors to compare one to the other. Once you

are part of a mutual fund scheme, you are provided with regular updates, for

examples daily NAVs, as well as information on the specific investment made and

the fund manager’s strategy and out look of the scheme.

Well Regulated:

All Mutual Funds are registered by SEBI and they function within the provision

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

Mutual Funds are regularly monitored by SEBI.

Flexibility:

Through features such as regular investment plans, regular withdrawal plans

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

accordingly to your needs and convenience.

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Low Costs:

Mutual Funds are a relatively less expensive way to invest compared to directly

investing in the capital markets because the benefits of scale in brokerage,

custodial and other fees translate into lower costs for investors.

CHARACTERISTICS OF MUTUAL FUNDS

A mutual fund actually belongs to the investors who have pooled their funds. The

ownership of the mutual fund is in the hands of the investors.

A mutual fund is managed by investment professionals and others services providers, who earn a fee their services, from the fund.

The pool of the funds is invested in a portfolio of marketable investments. The

value of the portfolio is updated everyday.

The investor’s share in the fund is denominated by “units”. The value of the units

changes with the change in the portfolio’s value, everyday. The value of one unit

of the investment is called as the Net Asset Value or NAV.

The investment portfolio of the mutual fund is created accordingly to the stated

investment objectives of the funds.

RISK ASSOCIATED WITH MUTUAL FUND INVESTMENTS

At the cornerstone of investing is the basic principle that the greater the risk

you take, the greater the potential reward. Typically risk is defined as short-term

price variability. But on a long-term basis, risk is the possibility that your

accumulated real capital will be insufficient to meet your financial goals. And if

you want to reach your financial goals, you must start with an honest appraisal of

your own personal comfort zone with regard to risk, individual tolerance for risk

varies, creating a distinct “investment personality” for each investors. Someinvestor can accept short-term volatility with ease, others with near panic. So

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whether you consider your investment temperament to be conservative, moderate

or aggressive you need to focus on how comfortable or uncomfortable you will be

as the value of your investment moves up or down.

Mutual Funds offer incredible flexibility in managing Investment risk.Investment risk.

Diversification and Automatic Investing (SIP) are two key techniques you can toDiversification and Automatic Investing (SIP) are two key techniques you can to

reduce your investment risk considerably and reach your long-term financial goals.reduce your investment risk considerably and reach your long-term financial goals.

TYPES OF RISKS:

All investment involves some from of risk. Even an insured bank account is

subject to the possibility that inflation will rise faster than your earning, leaving

you with less real purchasing power than when you started (Rs. 1000 gets you less

than it got your father when he was your age). Consider these common types of

risk and evaluate them against potential rewards when you select an investment.

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Market Risks:

At times the prices or yields of all the securities in a particular market rise or

fall due to broad outside influence. When this happen, the stock prices of both an

outstanding, highly profitable company and a fledgling corporation may be

affected. This change in price is due to “market risk”.

Inflation Risks:

Sometimes referred to as “loss of purchasing power”. Whenever inflation

sprints forward faster than earnings on your investment, you run the risk that you’ll

10

TYPE OF

RISKS

Market

Inflation

Credit

Interest Rate

Employees

Exchange Rate

Investment

Government Policies



SBI-SECTOR FUNDS

actually be able to buy less, not more. Inflation risk also occurs when prices rise

faster than your returns.

Credit Risks:

In short, how stable is the company or entity to which you lend your money

when you invest. How certain are you that it will able to pay the interest you are

promised, or repay your principal when the investment matures.

Interest Risks:

Changing interest rates affect both equities and bonds in many ways. Investors

are reminded that “predicting” which way rates wick go is rarely successful. A

diversified portfolio can help in offsetting these changes.

Employee Risks:

An industries key asset is often the personnel who run the business i.e.

intellectual properties or the key employees of the respective companies. Given the

ever-changing complexion of few industries and the high obsolescence levels,

availability of qualified, trained and motivated personnel is very critical for the

success of industries in few sectors. It is, therefore, necessary to attract key

personnel and also to retain them to meet the changing environment and challenges

the sector offers. Failure or inability to attract/retain such qualified key personnel

may impact the prospects of the companies in the particular sector in which fund

invests.

Exchange risks:

A number of companies generate revenues in foreign currencies and may have

investments or expenses also denominated in foreign currencies. Changes in

exchange rates may, therefore, have a positive negative impact on companies

which in turn would have an effect on the investment of the fund.

Investment risks:

The sect oral fund schemes, investments will be predominantly in equities of

select companies in the particular sectors. Accordingly, the NAV of the schemes

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are linked to the equity performance of such companies and may be-more volatile

than a more diversified portfolio of equities.

Changes in government policy:

Changes in government policy especially in regard to the tax benefits may

impact business prospects of the companies leading to an impact on the

investments made by the fund.

RISK RETURN GRID

RiskTolerance/

Return ExpectedFOCUS

SUITABLE

PRODUCTS

BENEFITS

OFFERED BY

MF’S

LOW Debt

Bank/company FD,

Debt based Funds

Liquidity, Better

Post-Tax return

MEDIUMPartially

Debt,

Partially

Equity

Balanced Funds,

some Diversified

Equity Funds are

some debt Funds,

Mix of share and

Fixed Deposits

Liquidity, Better

Post-Tax returns,

Better

Management,

Diversification

HIGH Equity

Capital Market,

Equity Funds

(Diversified as well

as Sector)

Diversification,

Expertise in stock

picking, Liquidity,

Tax free dividends

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NET ASSET VALUE (NAV)

The net assets value of the Fund is the cumulative market value of the assets

fund net of its liabilities. The Fund is dissolved or liquidated, by selling off all the

assets in the fund; this is the amount shareholders would collectively own. This

gives rise to the concept of the net assets value per unit, which is the value,

represented by the ownership of one unit in the fund. It is calculated simply by

dividing the net assets value fund by the number of units. However, most people

refer loosely to the NAV per unit as NAV, ignoring the “per unit”. We also abide

by the same convention.

Calculation of NAV:

The most important part of the calculation is the valuation of the assets owned

by the Fund. Once it is calculated, the NAV is simply the net value of the assets

divided by the number of units outstanding. The detailed method for the

calculation of the net asset value is given below.The net asset value is the actual value of a unit on any business day; NAV is the

barometer of the performance of the scheme. The net asset value is the market

value of the assets of the schemes minus its liabilities and expenses. The NAV is

the net asset value of the scheme divided by the number of units outstanding on the

valuation

NAV is calculated as follows:

Market value of Fund investment + receivables + accrued income- liabilities –

accrued expenses

Number of Units outstanding

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VOLATILITY MEASUREMENT OF MUTUAL FUND

When considering a fund’s volatility, an investor may find it difficult toWhen considering a fund’s volatility, an investor may find it difficult to

decide which fund will provide the optimal risk-reward combinationdecide which fund will provide the optimal risk-reward combination.

Optimal Portfolio Theory and Mutual Funds

One examination of the relationship between portfolio returns and risk is the

efficient frontier, a curve that is a part of the modern portfolio theory. The curve

forms from a graph plotting return and risk indicated by volatility, which is

represented by standard deviation. According to the modern portfolio theory, funds

lying on the curve are yielding the maximum return possible given the amount of

volatility.

Standard Deviation

The standard deviation essentially reports a fund’s volatility, which indicates the

tendency of the returns to rise or fall drastically in a short period of time. A

security that is volatile is also considered higher risk because its performance may

change quickly in either direction at any moment. The standard deviation of a fund

measures this risk by measuring the degree to which the fund fluctuates in relation

to its mean return, the average return of a fund over a period of time.

Beta

While standard deviation determines the volatility of a fund according to the

disparity of its return over a period of time, beta, another useful statistical measure,

determines the volatility, or risk, of a fund in comparison to that of its index or

benchmark. A fund with a beta very close to 1 means the fund’s performance

closely matches the index or benchmark—a beta greater than 1 indicates greater

volatility than the overall market, and beta less than 1 indicates less volatility than

the benchmark.

Investors expecting the market to be bullish may choose funds exhibiting high

betas, which increases investors’ chances of bearing the market. If an investor

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expects the market to be bearish in the near future, the funds that have betas less

than 1 are a good choice because they would be expected to decline less in value

than the index.

Alpha

Up to this point, we have learned how to examine figures that measure risk

posed by volatility, but how do we measure the extra return rewarded to you for

taking on risk posed by factors other than market volatility? Enter alpha, which

measure how much if any of this extra risk helped the fund outperform its

corresponding benchmark. Using beta, alpha’s computation compares the fund’s

performance to that of the benchmark’s risk-adjusted returns and establishes if the

fund’s returns outperformed the market’s given the same amount of risk. For

example, if a fund has an alpha of 1, it means the fund outperformed the

benchmark by 1%. Negative alphas are bad in that they indicate that the fund

under performed for the amount of extra, fund-specific risk that the fund’s

investors undertook.

Conclusion

This explanation of these four statistical measure provide with the basic

knowledge on using them apply the premises of the optimal portfolio theory,

which uses volatility to establish risk and states a guideline for determining how

much of a fund’s volatility carries a higher potential for return Benchmarks used in

Mutual fund Industry.

The BSE-100,BSE-500,BSE-IT,BSE-FMCG,BSE-HC are used as a benchmark

for actively managed all sector portfolios.

Evaluating the performance of the Mutual fund with respect to a benchmark

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Over the same period of the time, it is possible to observe how the returns of

a benchmark and NAV of the mutual fund have behaved this will provide an

indication of the extent to which the mutual fund portfolio has tracked the

underlying benchmark.

These comparisons tell us whether a fund has done well as the benchmark, better

or worse than a benchmark. In mutual fund industry, a fund that performs better

than the benchmark is know to have out-performed; those that did worse are called

under-performers.

2.2. INDUSTRY PROFILE

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The First investment trust (now called Mutual Fund) began in the Netherlands

in the early 1800s. The first in the U.S. was the New York Stock Trust, which

started in 1889. Since Boston was the economic center of the nation until the turn

of the century, the majority of funds started there—Fidelity, Pioneer and Putnam

Fund, to name a few. A Fund that was comprised of both stocks and bonds (the

Wellington Fund) started in 1928 and is still part of Vanguard. As the 20's crashed

to a close, there were 10 Mutual Funds in the nation.

Foundation for the Mutual Fund in India was laid by the parliament in 1963.

With the enactment of Unit Trust of India (UTI) Act the then Finance Minister Mr.

T.T. Krishnamacharya who initiated the act made it clear to the parliament act

“UTI would provide an opportunity for the middle and lower income groups to

acquire property in the form of share.” Thus UTI came out with the mission of

catering to the needs of individuals investors whose means are small, with its

maiden fund, an open ended fund in 1964.

HISTORY OF INDIAN MUTUAL FUND INDUSTRY

The mutual fund industry in India started in 1963 with the formation of Unit

Trust of India, at the initiative of the Government of India and Reserve Bank. The

history of mutual fund in India can be broadly divided into four distinct phases.

FIRST PHASE (19964-87)-UTI ALL THE WAY :

This phase begin with the inception of the Unit Trust of India (UTI). It

remained the only mutual fund player in the country till 1987. UTI started its

operations in July 1964 “with a view to encouraging savings and investment and

participation in the income, profits and gains accruing the corporation from the

acquisition, holding, management and disposal of securities”. In short, it was setup by the Indian Government with a view to augments small savings in the country

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and to channelize these savings to the capital markets. UTI witnessed a slow and

steady growth over the 1970s and 1980s and by the end of 1988 it had an Asset

under Management (AUM) of Rs.6,700 crore. It still continues to be the largest

player in the domestic mutual fund industry with an AUM of Rs. 23,500 crore as

on March 31, 2005.

SECOND PHASE (1987-1993)-ENTER PUBLIC SECTOR MUTUAL FUNDS :

Public sector mutual funds set up by sector banks, Life Insurance Corporations

of Indian (LIC) and the General Insurance Corporation of India (GIC) entered the

market in 1987.The first non-UTI Mutual Fund was the SBI Mutual Fund

established in June 1987, followed by Can bank Mutual Fund in December 1987,

Punjab National Bank in August 1989, India Bank Mutual Fund in November

1989, Bank of India Mutual in June 1990and Bank of Baroda Mutual Fund in

October 1992. LIC set up its Mutual Fund in June 1989 while GIC established its

mutual fund in December 1990. During this period, the total assets of the industry

grew to about Rs.61028 crore with the total number of schemes increasing to about

167 by the end of 1994.

THIRD PHASE (1993-2003)-PRIVATE PLAYERS ENTER THE SCENE :

This phase marked the entry of private sector funds. The phase also signaled the

intensification of the competition. Both domestic and foreign players entered the

schemes to investors. Kothari pioneer Mutual Fund was the first private sector

fund to be established in association with a foreign fund. The opening up of themarket to private players saw international players. The total AUM by the end of

January 312005 increased to $34,927 millions from $23,260 million in March

1995 with a CAGR of 6.92%.

FOURTH PHASE (SINCEFEBRUARY2003)-UTI RESTRUCTURING AND BEYOND:

In February 2003 the Unit Trust of India Act 1963 was repealed and UTI was

bifurcated into two separate entities: Specified Undertaking of the Unit Trust of

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India, which is still under the Government of India, and the UTI Mutual Fund Ltd.

This was done in the wake of the severe payments crisis that UTI suffered on

account of its assured return schemes of US-64 that finally resulted in an adverse

impact on the Indian capital markets. US-64 was the first scheme launched by UTI

with a significant equity exposure and the returns of which were not linked to the

market. However, the industry has overcome that shock and is hopped to have

learnt its lessons.

MUTUAL FUND A GLOBALLY PROVEN INVESTMENT AVENUE:

World wide, Mutual Fund or unit trust as it is referred to in some parts of the

world, has a long and successful history. The popularity of Mutual Fund has

increase manifold in developed financial markets, like the United States. As at the

end of March 2006, in the US alone there were 8002 Mutual Fund with total assets

of over US $ 9.36 trillion (Rs. 427 lakh core).

In India, the Mutual Fund industry started with the setting up of the Unit Trust

of India in 1964. Public sector banks and financial institutions were allowed to

establish MF in 1987. Since 1993, private sector and foreign institutions were

permitted to set up MFs.

In February 2003, following the repeal of the Unit Trust of India Act 1963 the

erstwhile UTI was bifurcated into two separate entities Viz. The specified

undertaking of the Unit Trust of India, representing broadly, the absets of US 64

Schemes, assured the turns and certain others scheme and UTI MF conforming to

SEBI MF Regulations. As at the end of September 2010, there were 42 MFs,

which managed assets of Rs 6, 58,456 cores under 500 schemes this fast growing

industry is regulated by the Securities and Exchange Board of India (SEBI).

MARKET SHARE OF DIFFERENT MUTUAL FUNDS IN INDIA

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MUTUAL FUND ASSET UNDER

MANAGEMENT

MARKET SHARE

RELIANCE 102179 15.52

HDFC 84628 12.88

ICICI PRUDENTIAL 68715 10.48

UTI 62208 9.44

BIRLA SUN LIFE 61533 9.36

SBI 38181 5.84FRANKLIN

TEMPLETON

35181 5.36

KOTAK

MAHENDRA

27490 4.08

LIC 24425 3.76

DSP BLACKROCK 21893 3.28

OTHERS 131691 20

TOTAL 658456 100

ORIGIN AND STRUCTURE

Concept of mutual fund originated in 1890 with Robert Fleming by establishing

the first investment trust in Scotland in 1980 the mutual fund industry in India was

started by UTI in 1964 with the introduction of US-64.The private sector and

foreign sectors entered the mutual fund industry in 1993. Currently there are

around 34 mutual fund organizations in India. The Security and Exchange Board

of India came out with comprehensive regulations in 1993 which defined the

structure of mutual fund and asset management companies for the first time. The

Indian mutual fund industry has already started opening up many of investment

opportunities to Indian investor. Mutual fund serves as a link between the savings

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public and the capital market as they mobilize savings from investment and bring

them to borrowers in the capital market.

Thus a mutual fund uses the money collected from investors to buy those assets

which are specifically permitted by its stated investment objective. Thus an equity

fund would buy mainly equity assets ordinary shares, preference shares, warrants

etc.

A bond fund would mainly buy debt instruments such as debentures, bonds or

government securities. It is these assets which are owned by the investor in the

same proportion as their contribution bears to the total contribution of all investors

put together.

The structure of mutual fund in India is governed by the SEBI (mutual fund)

regulations, 1996 these regulations make mandatory to for mutual funds to have a

three tire structure of Sponsor –Trustee –Asset Management Company the sponsor

is the promoter of the mutual fund and appoint the trustees.

The trustees are responsible to the investor in the mutual fund, and appoint

AMC for managing the investment portfolio. The AMC is business phase of the

mutual fund, as it manages all the affairs of the mutual fund. The mutual fund and

AMC have to be registered with SEBI.

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1. Sponsor: The sponsor is the promoter of the mutual fund. The sponsor

establishes the fund and registers the same with the SEBI. Sponsor appoints the

Trustees, Custodian and the AMC with the prior approval of SEBI, and in

accordance with the SEBI regulation.

2. Trustees: Trustees are the people within a mutual fund organization who are

responsible for ensuring that investors’ interest in a scheme are properly taken care

of.

In return for their services, they are paid trustee fees, which are normally charged

to the scheme.

3. Asset Management Company (AMC’s): AMCs manage the investment

portfolios of schemes. An AMCs income comes from the management fees it

charges the scheme it manages. In order to earn the management fee, an AMC has

naturally to employ people and bear all the establishment costs that are related to

its activity, such as for premises, furniture, computers and other assets, software

development, communication costs, etc. These are to be met out of the

management fee earned.

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Within the AMC, fund mangers are to ensure that schemes funds are

invested to achieve the objective of the scheme and in the interest of the unit

holder. The CEO, in tern, has to ensure that the fund managers perform this role.

In addition, compliance with various rules and regulations, and overall risk

management are the responsibility of the Mutual Fund’s CEO.

4. Distributors: Distributors earn a commission for bringing investors into the

scheme of a mutual fund. This commission is an expense for the scheme, although

there are occasions when an AMC may choose to bear the cost, wholly or partly.

Depending on the financial and physical resources at their disposal, the distributors

Could be:

Tier 1 distributors who have their own or franchised network reaching out to

investors all across the country; or

Tier 2 distributors who are generally regional players with some reach within their

region; or

Tier 3 distributors who are small and marginal players with limited reach.

In recognition of the anomaly in the distribution structure, a body of financial planners is expected to emerge in the Indian financial market. They will safeguard

investor’s interest in return for a fee from the investor.

5. Registrars & Transfer agents: An investor’s holding in mutual fund

schemes is typically tracked by the scheme’s Registrar and Transfer agent (R&T).

Some AMCs prefer to handle this role in-house, i.e. on their own instead of

appointing an R&T. The registrar or the AMC as the case may be maintains an

account of the investor’s investment in and disinvestment from the schemes.

Requests to invest more money into a scheme or to redeem money against existing

investments in a scheme are processed by the R&T.

6. Custodians/ Depository: The custodian maintains custody of the securities

in which the scheme invests – as distinct from the registrar who tracks theinvestment by investors in the scheme. This ensures an independent record of the

23



SBI-SECTOR FUNDS

investment of the scheme. The custodian also follows up on various corporate

actions, such as rights, bonus and dividends declared by investee companies.

2.3. COMPANY PROFILE

24



SBI-SECTOR FUNDS

INTRODUCTION:

SBI Funds Management is a joint venture between State Bank of India, the

country’s largest bank and Societe Generale Asset Management (France). A

subsidiary of state bank of India, the largest public sector bank in India & a joint

venture with societe Generale asset management with a shareholding ratio of

63:37. One of the world’s leading fund management companies. With over 23

years of rich experience in fund management, SBI Funds Management Pvt. Ltd. Is

one of the largest investment management firms in India managing investment

mandates of over 5.8 million investors, 30 Investor Service Centers, 44 Investor Service Desks and 42 District Organizers".

SBI MUTUAL FUND –BACK GROUND:

SBI Mutual Fund, the first bank sponsored mutual fund in India, was

incorporated on 29 June, 1987 by SBI. The first scheme launched by the fund was

‘magnum Regular Income Scheme-1987’. The Fund has 38 schemes, with an

AUM of Rs.38, 181Core as on 30 th September 2010. Until May 1993, SBI Capital

Markets Limited (SBICAP), the investment banking subsidiary of SBI, was the

investment Manager as well as the Trustee of the Fund. In December 2004, SBI

entered into a joint venture agreement with societe Generale asset management

and transferred 37% equity shares to them.

SBI Mutual Fund has won the prestigious CNBC TV 18 Crisil Mutual

Fund of the year award 2007, apart from winning five awards for scheme

performance. SBI Mutual Fund has also won the most preferred brand of mutual

fund at the CNBC Awaaz Consumer Awards in 2006 and 2007. But above all, it is

the trust of over 46 lakh investors that eggs us on to deliver innovative and stable

investment services, day after day. It is the driving force for our achieve their

financial objectives.

25



SBI-SECTOR FUNDS

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

enviable track record in judicious investments and consistent wealth creation. The

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

has grown immensely since its inception and today it is India's largest bank,

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

Exploiting expertise, compounding growth:

In twenty three years of operation, the fund has launched 38 schemes and

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

handsomely with consistently high returns. A total of over 5.8 million investors

have reposed their faith in the wealth generation expertise of the Mutual Fund.

Schemes of the Mutual fund have consistently outperformed benchmark indices

and have emerged as the preferred investment for millions of investors and HNI’s.

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

Resurgent India Opportunities Fund. Growth through innovation and stable

investment policies is the SBI MF credo.

Investment Philosophy:

The Company seeks to provide investors with opportunities for long term

growth in capital through superior stock selection and active portfolio

management.

DIRECTORS OF THE TRUSTEE COMPANY

1. Prof. S.K. Barua2. Mrs Malati Anagol

3. Mr. Raj Nair

BOARD OF DIRECTORS

Mr. O.P Bhatt, Chairman

Mr. Syed shahabuddin, Managing Director

Mr. Alain clot

Mr. Christian d’ Allest

26



SBI-SECTOR FUNDS

Mr. P.G. Kakodkar

Mr. Jayesh Gandhi

Mr. Pradeep Mullick

Mr. Ashwin Dani

Mr.Dider Turpin, Dy,CEO(Alternate Director to Mr. Christian d’ Allest)

INVESTOR SERVICE CENTERS:

SBIMF INVESTORS SERVICE CENTERSAHMEDABAD KOLKATTA

BANGALORE LUCKNOW

BHILAI LUDHIANA

BHOPAL MUMBAI

BHUBANESHWAR NAGPUR

CHANDIGARH NEW DELHI

CHENNAI PATNA

COIMBATORE PUNE

ERNAKULAM RANCHI

GOA SILIGURI

GUWAHATI SURATHYDERABAD VADODARA

27

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http://popup1%28%27contactus/location/BHUBANESHWAR.htm')

http://popup1%28%27contactus/location/NAGPUR.htm')

http://popup1%28%27contactus/location/CHANDIGARH.htm')

http://popup1%28%27contactus/location/NEWDELHI.htm')

http://popup1%28%27contactus/location/CHENNAI.htm')

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http://popup1%28%27contactus/location/COIMBATORE.htm')

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http://popup1%28%27contactus/location/ERNAKULAM.htm')

http://popup1%28%27contactus/location/RANCHI.htm')

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http://popup1%28%27contactus/location/SILIGURI.htm')

http://popup1%28%27contactus/location/GUWAHATI.htm')

http://popup1%28%27contactus/location/SURAT.htm')

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http://popup1%28%27contactus/location/NAGPUR.htm')

http://popup1%28%27contactus/location/CHANDIGARH.htm')

http://popup1%28%27contactus/location/NEWDELHI.htm')

http://popup1%28%27contactus/location/CHENNAI.htm')

http://popup1%28%27contactus/location/PATNA.htm')

http://popup1%28%27contactus/location/COIMBATORE.htm')

http://popup1%28%27contactus/location/PUNE.htm')

http://popup1%28%27contactus/location/ERNAKULAM.htm')

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http://popup1%28%27contactus/location/AHMEDABAD.htm')



SBI-SECTOR FUNDS

INDORE VARANASI JAIPUR VIJAYAWADAKANPUR VIZAG

CAMS INVESTOR SERVICE CENTRES / TRANSACTION POINTS:M/s Computer Age Management Services Pvt. Ltd. (CAMS) is the Registrar

and Transfer Agent for SBI MF schemes. At CAMS Investor Service

Centers, you may submit transactions, service requests and make enquiries

about your balance, valuation or ask for a statement. At CAMS Transaction

Points, you may submit transactions and service requests for execution by the

nearest Investor Service Centre.

SBIMF INVESTORS SERVICE DESK:

AGRA JODHPUR

ALLAHABAD KOLHAPUR

AJMER KOTA

AMRITSAR MADURAI

AURANGABAD MANGALORE

BHAVNAGAR MORADABADCALICUT MYSORE

DEHRADUN NASHIK

DURGAPUR NOIDA

FARIDABAD PANIPAT

GHAZIABAD RAIPUR

GORAKHPUR RAJAHMUNDRY

GURGAON RAJKOT

GWALIOR ROURKELAHISSAR SHIMLA

HOWRA SRINAGAR

HUBLI TIRUPATHI

JABALPUR THIRUVANANTHAPURAM

JALANDHAR TIRUNVELI

JAMMU VARANASI

JAMNAGAR VISHAKHAPATNAM

JAMSHEDPUR WARANGAL

28

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http://popup1%28%27contactus/location/JODHPUR.htm')

http://popup1%28%27contactus/location/ALLAHABAD.htm')

http://popup1%28%27contactus/location/Kolhapur.htm')

http://popup1%28%27contactus/location/AJMER.htm')

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http://popup1%28%27contactus/location/MORADABAD.htm')

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http://popup1%28%27contactus/location/DEHRADUN.htm')

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http://popup1%28%27contactus/location/PANIPAT.htm')

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http://popup1%28%27contactus/location/RAIPUR.htm')

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http://popup1%28%27contactus/location/JABALPUR.htm')

http://popup1%28%27contactus/location/THIRUVANANTHAPURAM.htm')

http://popup1%28%27contactus/location/JALANDHAR.htm')

http://popup1%28%27contactus/location/tirunveli.htm')

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http://popup1%28%27contactus/location/JAMNAGAR.htm')

http://popup1%28%27contactus/location/VISHAKHAPATNAM.htm')

http://popup1%28%27contactus/location/JAMSHEDPUR.htm')

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http://popup1%28%27contactus/location/JAIPUR.htm')

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http://popup1%28%27contactus/location/AMRITSAR.htm')

http://popup1%28%27contactus/location/MADURAI.htm')

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http://popup1%28%27contactus/location/MANGALORE.htm')

http://popup1%28%27contactus/location/BHAVNAGAR.htm')

http://popup1%28%27contactus/location/MORADABAD.htm')

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http://popup1%28%27contactus/location/NASHIK.htm')

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http://popup1%28%27contactus/location/FARIDABAD.htm')

http://popup1%28%27contactus/location/PANIPAT.htm')

http://popup1%28%27contactus/location/GHAZIABAD.htm')

http://popup1%28%27contactus/location/RAIPUR.htm')

http://popup1%28%27contactus/location/GORAKHPUR.htm')

http://popup1%28%27contactus/location/RAJAHMUNDRY.htm')

http://popup1%28%27contactus/location/GURGAON.htm')

http://popup1%28%27contactus/location/RAJKOT.htm')

http://popup1%28%27contactus/location/Gwalior.htm')

http://popup1%28%27contactus/location/ROURKELA.htm')

http://popup1%28%27contactus/location/HISSAR.htm')

http://popup1%28%27contactus/location/SHIMLA.htm')

http://popup1%28%27contactus/location/HOWRA.htm')

http://popup1%28%27contactus/location/SRINAGAR.htm')

http://popup1%28%27contactus/location/HUBLI.htm')

http://popup1%28%27contactus/location/Tirupathi.htm')

http://popup1%28%27contactus/location/JABALPUR.htm')

http://popup1%28%27contactus/location/THIRUVANANTHAPURAM.htm')

http://popup1%28%27contactus/location/JALANDHAR.htm')

http://popup1%28%27contactus/location/tirunveli.htm')

http://popup1%28%27contactus/location/jammu.htm')


http://popup1%28%27contactus/location/JAMNAGAR.htm')

http://popup1%28%27contactus/location/VISHAKHAPATNAM.htm')

http://popup1%28%27contactus/location/JAMSHEDPUR.htm')

http://popup1%28%27contactus/location/WARANGAL.htm')



SBI-SECTOR FUNDS

MUTUAL FUND PRODUCTS:

EQUITY SCHEMES:

The investments of these schemes will predominantly be in the stock

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

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

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

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

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

and Index Funds.

Diversified Equity Funds invest in various stocks across different sectors

while Sectoral funds which are specialized Equity Funds restrict their investments

only to shares of a particular sector and hence, are riskier than Diversified Equity

Funds. Index Funds invest passively only in the stocks of a particular index and the performance of such funds move with the movements of the index.

Equity schemes:

29



SBI-SECTOR FUNDS

DEBT SCHEMES

30

S.l.No Name of Fund

1. Magnum COMMA Fund

2. Magnum Equity Fund

3. Magnum Global Fund

4. Magnum Index Fund

5. Magnum Mid Cap Fund

6. Magnum Multi cap Fund

7. Magnum Multiplier Plus 1993

8. Magnum Sector Funds Umbrella

MSFU - Emerging Businesses Fund

MSFU - IT Fund

MSFU – Parma Fund

MSFU - Contra Fund

MSFU - FMCG Fund

9. SBI Arbitrage Opportunities Fund

10. SBI Blue chip Fund

11. SBI Infrastructure Fund - Series I

12. SBI Magnum Tax gain Scheme 1993

13. SBI ONE India Fund

14 SBI TAX Advantage Fund - SERIES I

http://www.sbimf.com/Product_Details.asp?ProductId=4&catid=1







http://www.sbimf.com/Product_Details.asp?ProductId=14



































SBI-SECTOR FUNDS

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

Government Securities and Money Market instruments either completely avoiding

any investments in the stock markets as in Income Funds or Gilt Funds or having a

small exposure to equities as in Monthly Income Plans. Hence they are safer than

equity funds. At the same time the expected returns from debt funds would be

lower. Such investments are advisable for the risk-averse investor and as a part of

the investment portfolio for other investors.

♦ Magnum Children’s Benefit Plan

♦ Magnum Gilt Fund

♦ Magnum Income Fund

♦ Magnum Income Plus Fund

♦ Magnum Insta Cash Fund

♦ Magnum InstaCash Fund -Liquid Floater Plan

♦ Magnum Institutional Income Fund

♦ Magnum Monthly Income Plan

♦ Magnum Monthly Income Plan Floater

♦ Magnum NRI Investment Fund

♦ SBI Capital Protection Oriented Fund - Series I

♦ SBI Debt Fund Series

♦ SBI Premier Liquid Fund

♦ SBI Short Horizon Fun d

BALANCED SCHEMES:

Magnum Balanced Fund invests in a mix of equity and debt

investments. Hence they are less risky than equity funds, but at the same time

provide commensurately lower returns. They provide a good investment

Name: K.Gowthamy Guide:Mr.Venkat Rao

R.No:093G1E0012

INTRODUCTION

31























SBI-SECTOR FUNDS

Mutual funds are finanacial intermediate in the investment business. They collect

funds from public and invest on behalf of the investors as pass through entries with

losses and gains accuring to the investing only. Mutiual funds sell their shares to

the investors, investor proceeds in awide choice of securityes in the financial

market.

“Mutual found is a common pole of money. In which investor place their

contribution that is to be invested in accordanc with the started objective.

NEED FOR THE STUDY

SBI Mutual Funds – a public sector mutual fund. Moreover, most of the

investors, even the small investors have started switching their investments from

various funds to sector funds.

SCOPE OF THE STUDY

Scope of the current study is limited to Magnum sector funds of SBI

Mutual fund. The study is basically to evaluate the performances of sector fund

schemes by taking the last one year NAV i.e., July 2009-june 2010

OBJECTIVE OF THE STUDY

To measure the performance of each selected sector fund offered by SBI

mutual fund.

To suggest the investors to select appropriate fund among the selected

sector funds.

To explain the potential of select SBI mutual funds in terms of risk andreturns

DATA SOURCES:

MSFU-EMERGING BUSINESSES FUND

MSFU-CONTRA FUND

MSFU-FMCG FUND

32



SBI-SECTOR FUNDS

MSFU-IT FUND

MSFU-PHARMA FUND

LIMITATIONS OF THE STUDY

a. The study is confined to SBI Mutual Funds only.

b. The present study is confined to a moderate period of one year from July

2009-June 2010.

c. The suggestions given in the thesis are confined to SBIMF. They may not

be generalized to any other mutual funds.

FINDINGS

The FMCG funds has a low risk of 10.14 over all other fund with a return of 41.2and IT fund has a high risk of 17.47 with a return of 33.494

The beta alues for FMCG funds and IT funds are 0.474 and 0.916 respectively. Itepresent the FMCG fund is low volatile than its benchmark index and IT fund

performance closely matches its benchmark.

SUGGETIONS

If you want to invest in sectors specific fund FMCG fund has outstanding performance over all other sector fund in SBI mutual funds. So FMCG fundis the best option for investment

CONCLUTION

The FMCG fund gives a high return of 41.2 with a low risk of 10.14 and thefund is volatile than the bench mark index over all other funds and the fundgives high excess return per unit of risk. So it is better to invest in FMCGfund.

33



SBI-SECTOR FUNDS

Literature on mutual fund performance evaluation is enormous. A few

research studies that have influenced the preparation of this paper substantially are

discussed in this section. Sharpe, William F. (1966) suggested a measure for the

evaluation of portfolio performance. Drawing on results obtained in the field of

portfolio analysis, Economist Jack L. Treynor has suggested a new predictor of

mutual fund performance, one that differs from virtually all those used previously

by incorporating the volatility of a fund's return in a simple yet meaningful

manner.

Michael C. Jensen (1967) derived a risk-adjusted measure of portfolio

performance (Jensen’s alpha) that estimates how much a manager’s forecasting

ability contributes to fund’s returns. As indicated by Statman (2000), the e SDAR

of a fund portfolio is the excess return of the portfolio over the return of the

benchmark index, where the portfolio is leveraged to have the benchmark index’s

standard deviation.

S.Narayan Rao , et. al., evaluated performance of Indian mutual funds in a

bear market through relative performance index, risk-return analysis, Treynor’s

ratio, Sharpe’s ratio, Sharpe’s measure , Jensen’s measure, and Fama’s measure.

The study used 269 open-ended schemes (out of total schemes of 433) for

computing relative performance index. Then after excluding funds whose returns

are less than risk-free returns, 58 schemes are finally used for further analysis. The

results of performance measures suggest that most of mutual fund schemes in the

34



SBI-SECTOR FUNDS

sample of 58 were able to satisfy investor’s expectations by giving excess returns

over expected returns based on both premium for systematic risk and total risk.

Bijan Roy, et. al., conducted an empirical study on conditional performance

of Indian mutual funds. This paper uses a technique called conditional

performance evaluation on a sample of eighty-nine Indian mutual fund schemes

.This paper measures the performance of various mutual funds with both

unconditional and conditional form of CAPM, Treynor- Mazuy model and

Henriksson-Merton model. The effect of incorporating lagged information

variables into the evaluation of mutual fund managers’ performance is examined in

the Indian context. The results suggest that the use of conditioning lagged

information variables improves the performance of mutual fund schemes, causing

alphas to shift towards right and reducing the number of negative timing

coefficients.

Mishra, et al., (2002) measured mutual fund performance using lower

partial moment. In this paper, measures of evaluating portfolio performance based

on lower partial moment are developed. Risk from the lower partial moment is

measured by taking into account only those states in which return is below a pre-

specified “target rate” like risk-free rate.

Kshama Fernandes(2003) evaluated index fund implementation in India. In

this paper, tracking error of index funds in India is measured .The consistency and

level of tracking errors obtained by some well-run index fund suggests that it is

possible to attain low levels of tracking error under Indian conditions. At the same

time, there do seem to be periods where certain index funds appear to depart from

the discipline of indexation.

K. Pendaraki et al. studied construction of mutual fund portfolios,

developed a multi- criteria methodology and applied it to the Greek market of

equity mutual funds. The methodology is based on the combination of discrete and

continuous multi-criteria decision aid methods for mutual fund selection and

35



SBI-SECTOR FUNDS

composition. UTADIS multi-criteria decision aid method is employed in order to

develop mutual fund’s performance models. Goal programming model is

employed to determine proportion of selected mutual funds in the final portfolios.

Zakri Y.Bello (2005) matched a sample of

socially responsible stock mutual funds matched to randomly selected

conventional funds of similar net assets to investigate differences in characteristics

of assets held, degree of portfolio diversification and variable effects of

diversification on investment performance. The study found that socially

responsible funds do not differ significantly from conventional funds in terms of

any of these attributes. Moreover, the effect of diversification on investment

performance is not different between the two groups. Both groups underperformed

the Domini 400 Social Index and S & P 500 during the study period

5.1. CONTRA FUND

Investment Objective: To provide the investors maximum growth

opportunity through equity investments in stocks of growth oriented sectors of theeconomy.

Asset Allocation

Instrument% of Portfolio of

Plan A & BRisk Profile

Equity 0%-90% High

Other money market 0%-10% Low

Launch Date

July 14, 1999

Entry Load

NA

Exit Load1) For exit within 1 year from the date of allotment - 1 %.

36



SBI-SECTOR FUNDS

2) For exit after 1 year from the date of allotment - Nil.

SIP

Rs.100/ month - 60 months; Rs 500/month - 12 months, Rs 1000/month - 6months,

Rs 1500/quarter - 12 months

SWP

A minimum of Rs 500 can be withdrawn every month or quarter by issuing

advance instructions to the Registrars at any time.

TABLE 5.1.1:

CALCULATION OF STANDARD DEVIATION FOR CONTRA FUND :

MONTH2009-10

FUNDNAV

FUNDRETURNS(R)

AVGRETURN(R̄)

R-R (R- R)²

JUL 47.750

0.000 1.578 -1.578 2.490

AUG 48.970

2.555 1.578 0.977 0.954

SEP 52.18 6.555 1.578 4.977 24.771

37



SBI-SECTOR FUNDS

0

OCT 49.800

-4.561 1.578 -6.139 37.689

NOV 53.17

0

6.767 1.578 5.189 26.926

DEC 55.680

4.721 1.578 3.143 9.877

JAN 53.310

-4.256 1.578 -5.834 34.041

FEB 52.550

-1.426 1.578 -3.004 9.022

MAR 55.740

6.070 1.578 4.492 20.182

APR 56.330

1.058 1.578 -0.520 0.270

MAY 54.100

-3.959 1.578 -5.537 30.656

JUNE 57.030

5.416 1.578 3.838 14.729

R=1.578∑(R-R)²=

211.60

8

AVERAGE RETURN=1.578

ANNUAL RETURN=18.941

STANDARD DEVIATION = ∑ (R-R)²

N- 1

STANDARD DEVIATION= 4.386

ANNUAL STNDARD DEVIATION=15.194

TABLE 5.1.2:

CALCULATION OF STANDARD DEVIATION FOR BSE-100 :

38



SBI-SECTOR FUNDS

MONTH2009-10

MARK ETINDEX

INDEXRETURNS(R)

AVGRETURN(R̄)

R-R (R-R)²

JUL 8176.54

0.000 1.136 -1.136

1.290

AUG 8225.5

0.599 1.136 -0.537

0.289

SEP 8930.31

8.569 1.136 7.433 55.244

OCT 8333.18

-6.687 1.136 -7.823

61.192

NOV 8914.77

6.979 1.136 5.843 34.143

DEC 9229.

71

3.533 1.136 2.397 5.745

JAN 8707.82

-5.654 1.136 -6.790

46.110

FEB 8758.51

0.582 1.136 -0.554

0.307

MAR 9300.2

6.185 1.136 5.049 25.490

APR 9379.04

0.848 1.136 -0.288

0.083

MAY 9041.

23

-3.602 1.136 -

4.738

22.446

JUNE 9442.58

4.439 1.136 3.303 10.911

R=1.316 2.158 ∑(R-R)²=

263.249



STANDARD DEVIATION = ∑ (R-R)²

N- 1



39



SBI-SECTOR FUNDS

TABLE 5.1.3:

CALCULATION OF BETA VALUE FOR CONTRA FUND:

MONTH2009-10

INDEXRETURNS(X)

FUNDRETURNS(Y)

XY X²

JUL 0.000 0.000 0.000 0.000

AUG 0.599 2.555 1.530 0.359

SEP 8.569 6.555 56.167 73.421

OCT -6.687 -4.561 30.498 44.710

NOV 6.979 6.767 47.229 48.709

DEC 3.533 4.721 16.677 12.481

JAN -5.654 -4.256 24.068 31.973

FEB 0.582 -1.426 -0.830 0.339

MAR 6.185 6.070 37.544 38.251

APR 0.848 1.058 0.897 0.719

MAY -3.602 -3.959 14.259 12.973

JUNE 4.439 5.416 24.042 19.706

∑X=15.790

∑Y=18.941

∑XY=252.081

∑X²=283.639

n ∑XY – (∑X * ∑Y )BETA =

n ∑X² - (∑X )²

12 (252.081)-(15.79*18.94)BETA =

12*283.639-(15.79*15.79)

BETA= 0.864

40



SBI-SECTOR FUNDS

MEASURING THE PERFORMANCE OF CONTRA FUND:

1.Treynor’s Ratio

Rp-Rf Treynor’s Ratio =

β

18.94-5=

0.864

Treynor’s Ratio = 16.13

2.Sharpe Ratio

Rp-Rf

Sharpe Ratio =

σ p

18.94-5=

15.194

Sharpe Ratio = 0.917

3.Jensen Measure

Jensen Measure = Rp –[ Rf +β (Rm-Rf)]

= 18.94-[5+0.864(18.94-5)]

Jensen Measure = 1.895

41



SBI-SECTOR FUNDS

INFERENCE:

From the above observations the Contra Fund returns are slightly higher

than its bench mark (BSE-100) returns.

42



SBI-SECTOR FUNDS

5.2. EMERGING BUSINESSES FUND Investment Objective: To provide the investors maximum growth

opportunity through equity investments in stocks of growth oriented sectors of the

economy.

Asset Allocation



Equities or equity related instrumentsincluding derivatives across diversifiedsectors *

At least 90% Medium to High

Money market instruments 0%-10% Low

Launch Date

11/10/2004

Entry Load

NA

Exit Load

1) For exit within 1 year from the date of allotment - 1 %.


SIP

Rs 500/month - 12 months, Rs 1000/month - 6 months, Rs 1500/quarter - 12

months

SWP



TABLE 5.2.1:

43



SBI-SECTOR FUNDS

CALCULATION OF STANDARD DEVIATION FOR EMERGING

BUSINESSES FUND;

MONTH2009-10

FUNDNAV

FUNDRETURNS(R)

AVGRETURN(R̄)

R-R (R- R)²

JUL 26.080

0.000 2.881 -2.881 8.300

AUG 27.770

6.480 2.881 3.599 12.953

SEP 28.780

3.637 2.881 0.756 0.572

OCT 28.28

0

-1.737 2.881 -4.618 21.329

NOV 30.370

7.390 2.881 4.509 20.335

DEC 32.890

8.298 2.881 5.417 29.340

JAN 32.530

-1.095 2.881 -3.976 15.805

FEB 32.350

-0.553 2.881 -3.434 11.795

MAR 34.870 7.790 2.881 4.909 24.096

APR 37.270

6.883 2.881 4.002 16.014

MAY 35.010

-6.064 2.881 -8.945 80.010

JUNE 36.250

3.542 2.881 0.661 0.437

R=2.881 ∑(R-R)²=

240.985

44



SBI-SECTOR FUNDS


ANNUAL RETURN=34.57

STANDARD DEVIATION = ∑(R-R)²

N- 1



TABLE 5.2.2:

CALCULATION OF STANDARD DEVIATION FOR BSE-500 :

MONTH2009-10

MARK ETINDEX

INDEXRETURNS(R)

AVGRETURN(R̄)

R-R (R- R)²

JUL 5940.38

0.000 1.591 -1.591

2.531

AUG 6044.

61

1.755 1.591 0.164 0.027

SEP 6552.75

8.406 1.591 6.815 46.451

OCT 6142.43

-6.262 1.591 -7.853

61.666

NOV 6584.98

7.205 1.591 5.614 31.515

DEC 6842.25

3.907 1.591 2.316 5.363

JAN 6509.

9

-4.857 1.591 -

6.448

41.581

FEB 6518.38

0.130 1.591 -1.461

2.134

MAR 6919.55

6.154 1.591 4.563 20.825

APR 7042.68

1.779 1.591 0.188 0.036

MAY 6782.37

-3.696 1.591 -5.287

27.954

JUNE 7092.2

4.568 1.591 2.977 8.864

45



SBI-SECTOR FUNDS

R=1.591 ∑(R-R)²=

248.947


ANNUAL RETURN=19.09


N- 1



TABLE 5.2.3:

CALCULATION OF BETA VALUE FOR EMERGING BUSINESSES

FUND :

MONTH2009-10 INDEXRETURNS(X)

FUNDRETURNS(Y)

XY X²

JUL 0.000 0.000 0.000 0.000

AUG 1.755 6.480 11.370 3.079

SEP 8.406 3.637 30.574 70.669

OCT -6.262 -1.737 10.877 39.210

NOV 7.205 7.390 53.243 51.909

DEC 3.907 8.298 32.420 15.264

JAN -4.857 -1.095 5.319 23.594

FEB 0.130 -0.553 -0.072 0.017

MAR 6.154 7.789 47.937 37.877

APR 1.779 6.883 12.248 3.166

MAY -3.696 -6.064 22.414 13.662

46



SBI-SECTOR FUNDS

JUNE 4.568 3.542 16.180 20.868

∑X=19.090

∑Y=34.570

∑XY=242.510

∑X²=279.315

n ∑XY – (∑X * ∑Y )BETA =

n ∑X² - (∑X )²

12 (242.51)-(19.09*34.57)BETA =

12*279.315-(19.09*19.09)

BETA= 0.753

MEASURING THE PERFORMANCE OF CONTRA FUND:

1.Treynor’s Ratio

Rp-Rf

Treynor’s Ratio = β

34.57 - 5=

0.753


2.Sharpe Ratio

Rp-Rf

Sharpe Ratio =

σ p

34.57 - 5=

16.21

47



SBI-SECTOR FUNDS


3.Jensen Measure


= 34.57-[5+0.753(34.57-5)]


INFERENCE:

From the above observations the Emerging Businesses Fund returns are

slightly higher than its bench mark (BSE-500) returns.

48



SBI-SECTOR FUNDS

5.3.FMCG FUND



economy.

Asset Allocation

Instrument % of Portfolio of Plan A & B

Risk Profile

Equities of the FMCG sector 90-100% High


Launch Date

July-14-1999

Entry Load

NA

Exit Load



SIP


months

SWP



TABLE 5.3.1:

49



SBI-SECTOR FUNDS

CALCULATION OF STANDARD DEVIATION FOR FMCG FUND :

MONTH2009-10

FUNDNAV

FUNDRETURNS(R)

AVGRETURN(R̄)

R-R (R- R)²

JUL 17.570

0.000 3.433 -3.433 11.785

AUG 17.830

1.480 3.433 -1.953 3.815

SEP 18.270

2.468 3.433 -0.965 0.932

OCT 19.060

4.324 3.433 0.891 0.794

NOV 20.19

0

5.929 3.433 2.496 6.228

DEC 20.530

1.684 3.433 -1.749 3.059

JAN 20.550

0.097 3.433 -3.336 11.126

FEB 20.690

0.681 3.433 -2.752 7.572

MAR 22.530

8.893 3.433 5.460 29.814

APR 23.27

0

3.285 3.433 -0.148 0.022

MAY 24.380

4.770 3.433 1.337 1.788

JUNE 26.230

7.588 3.433 4.155 17.266

R=3.433 ∑(R-R)²=

94.201


ANNUAL RETURN=41.2


N- 1



50



SBI-SECTOR FUNDS

TABLE 5.3.2:

CALCULATION OF STANDARD DEVIATION FOR BSE-FMCG :

MONTH2009-10

MARKE T INDEX

INDEXRETURNS(R)

AVGRETURN(R̄)

R-R (R- R)²

JUL 2738.15

0.000 1.490 -1.490

2.220

AUG 2553.52

-6.743 1.490 -8.233

67.780

SEP 2575.82

0.873 1.490 -0.617

0.380

OCT 2808.97

9.051 1.490 7.561 57.176

NOV 2872.1 2.247 1.490 0.757 0.574

DEC 2791.55

-2.805 1.490 -4.295

18.443

JAN 2725.38

-2.370 1.490 -3.860

14.902

FEB 2662.05

-2.324 1.490 -3.814

14.544

MAR 2831.12

6.351 1.490 4.861 23.630

APR 2877.76

1.647 1.490 0.157 0.025

MAY 2980.55

3.572 1.490 2.082 4.334

JUNE 3230.23

8.377 1.490 6.887 47.430

R=1.490 ∑(R-R)²=

251.441


51



SBI-SECTOR FUNDS

ANNUAL RETURN=17.88


N- 1



TABLE 5.3.3:

CALCULATION OF BETA VALUE FOR FMCG FUND :

MONTH2009-10

INDEXRETURNS(X)

FUNDRETURNS(Y)

XY X²

JUL 0.000 0.000 0.000 0.000

AUG -6.743 1.480 -9.979 45.466

SEP 0.873 2.468 2.155 0.763

OCT 9.051 4.324 39.139 81.929

NOV 2.247 5.929 13.325 5.051

DEC -2.805 1.684 -4.723 7.866

JAN -2.370 0.097 -0.230 5.619

FEB -2.324 0.681 -1.582 5.400

MAR 6.351 8.893 56.481 40.337

APR 1.647 3.285 5.412 2.714

MAY 3.572 4.770 17.038 12.758

JUNE 8.377 7.588 63.565 70.174

∑X=17.878

∑Y=41.199

∑XY=180.599

∑X²=278.076

n ∑XY – (∑X * ∑Y )BETA =

52



SBI-SECTOR FUNDS

n ∑X² - (∑X )²

12 (180.599)-(17.878*41.199)BETA =

12*278.076-(17.878*17.878)

BETA = 0.474

MEASURING THE PERFORMANCE OF FMCG FUND:

1.Treynor’s Ratio


β

41.2 - 5=

0.474


2.Sharpe Ratio

Rp-Rf

Sharpe Ratio =

σ p

41.2 - 5=

10.14

Sharpe Ratio = 3.57

3.Jensen Measure


= 41.2-[5+0.474(41.2-5)]

53



SBI-SECTOR FUNDS


INFERENCE:

From the above observations the FMCG Fund returns are largely higher than its bench mark (BSE-FMCG) returns.

5.4 . IT FUND

54



SBI-SECTOR FUNDS



economy.

Asset Allocation



Equities of the perticular sector 90-100% High


Launch Date

July-14-1999

Entry Load NA

Exit Load



SIP


months

SWP

Available for a minimum of Rs 500/- subject to maintaining the minimum

investment payable on a monthly basis.

55



SBI-SECTOR FUNDS

TABLE 5.4.1:

CALCULATION OF STANDARD DEVIATION FOR IT FUND :

MONTH2009-10

FUNDNAV

FUNDRETURNS

(R)

AVGRETURN

(R̄)

R-R (R- R)²

JUL 14.970

0.000 2.791 -2.791 7.790

AUG 16.240

8.484 2.791 5.693 32.406

SEP 17.120

5.419 2.791 2.628 6.905

OCT 16.650

-2.745 2.791 -5.536 30.651

NOV 18.820

13.033 2.791 10.242

104.899

DEC 20.120

6.908 2.791 4.117 16.946

JAN 19.430

-3.429 2.791 -6.220 38.694

FEB 19.530

0.515 2.791 -2.276 5.182

MAR 19.770

1.229 2.791 -1.562 2.440

APR 20.360

2.984 2.791 0.193 0.037

MAY 19.770

-2.898 2.791 -5.689 32.363

JUNE 20.560

3.996 2.791 1.205 1.452

R=2.791 ∑(R-R)²=

279.765

56



SBI-SECTOR FUNDS




N- 1



TABLE 5.4.2:

CALCULATION OF STANDARD DEVIATION FOR BSE-IT:.

MONTH2009-10

MARK ETINDEX

INDEXRETURNS(R)

AVGRETURN(R̄)

R-R (R- R)²

JUL 3962.12

0.000 2.584 -2.584

6.677

AUG 4172.52

5.310 2.584 2.726 7.433

SEP 4570.91

9.548 2.584 6.964 48.497

OCT 4425.52

-3.181 2.584 -5.765

33.233

NOV 4757.27

7.496 2.584 4.912 24.131

DEC 5186.

35

9.019 2.584 6.435 41.415

JAN 4977.71

-4.023 2.584 -6.607

43.651

FEB 5173.99

3.943 2.584 1.359 1.847

MAR 5237.5

1.227 2.584 -1.357

1.840

APR 5357.83

2.297 2.584 -0.287

0.082

MAY 5174.

7

-3.418 2.584 -

6.002

36.024

57



SBI-SECTOR FUNDS

JUNE 5319.21

2.793 2.584 0.209 0.044

R=2.584 ∑(R-R)²=

244.872




N- 1



TABLE 5.4.3:

CALCULATION OF BETA VALUE FOR IT FUND:

MONTH2009-10 INDEXRETURNS(X)

FUNDRETURNS(Y)

XY X²

JUL 0.000 0.000 0.000 0.000

AUG 5.310 8.484 45.052 28.199

SEP 9.548 5.419 51.740 91.163

OCT -3.181 -2.745 8.731 10.117

NOV 7.496 13.033 97.699 56.194

DEC 9.019 6.908 62.306 81.351

JAN -4.023 -3.429 13.794 16.183

FEB 3.943 0.515 2.031 15.549

MAR 1.227 1.229 1.509 1.507

APR 2.297 2.984 6.856 5.278

MAY -3.418 -2.898 9.905 11.683

58



SBI-SECTOR FUNDS

JUNE 2.793 3.996 11.159 7.799

∑X=31.013

∑Y=33.496

∑XY=310.784

∑X²=325.023

n ∑XY – (∑X * ∑Y )BETA =

n ∑X² - (∑X )²

12 (310.784)-(31.013*33.496)BETA =

12*325.023-(31.013*31.013)

BETA= 0.916

MEASURING THE PERFORMANCE OF IT FUND:

1.Treynor’s Ratio


β

33.494-5=

0.916


2.Sharpe Ratio

Rp-Rf Sharpe Ratio =

σ p

33.494-5

59



SBI-SECTOR FUNDS

=17.47


3.Jensen Measure


= 33.494-[5+0.916(33.494-5)]


60



SBI-SECTOR FUNDS

INFERENCE:

From the above observations the IT Fund returns are higher than its

bench mark (BSE-IT) returns.

5.5. PHARMA FUND

61



SBI-SECTOR FUNDS



economy.

Asset Allocation



Equities of the particular sector 90-100% High


Launch Date

July-14-1999

Entry Load

NA

Exit Load



SIP


months

SWP

Available for a minimum of Rs 500/- subject to maintaining the minimum

investment payable on a monthly basis.

TABLE 5.5.1:

CALCULATION OF STANDARD DEVIATION FOR PHARMA FUND:

MONTH2009-10

FUNDNAV

FUNDRETURNS

(R)

AVGRETURN

(R̄)

R-R (R- R)²

62



SBI-SECTOR FUNDS

JUL 27.930

0.000 3.553 -3.553 12.624

AUG 29.960

7.268 3.553 3.715 13.802

SEP 32.430 8.244 3.553 4.691 22.009

OCT 32.260

-0.524 3.553 -4.077 16.624

NOV 33.650

4.309 3.553 0.756 0.571

DEC 35.900

6.686 3.553 3.133 9.819

JAN 33.800

-5.850 3.553 -9.403 88.409

FEB 34.310

1.509 3.553 -2.044 4.178

MAR 37.440

9.123 3.553 5.570 31.022

APR 38.540

2.938 3.553 -0.615 0.378

MAY 39.640

2.854 3.553 -0.699 0.488

JUNE 42.050

6.080 3.553 2.527 6.384

R=3.553 ∑(R-R)²=

206.308




N- 1



63



SBI-SECTOR FUNDS

TABLE 5.5.2:

CALCULATION OF STANDARD DEVIATION FOR BSE-HC:

MONTH2009-10

MARKE TINDEX

INDEXRETURNS(R)

AVGRETURN(R̄)

R-R (R- R)²

JUL 3805.050

0.000 3.603 -3.603

12.982

AUG 3900.930

2.520 3.603 -1.083

1.173

SEP 4404.260

12.903 3.603 9.300 86.487

OCT 4377.200

-0.614 3.603 -4.217

17.787

NOV 4767.410

8.915 3.603 5.312 28.213

DEC 5018.330

5.263 3.603 1.660 2.756

JAN 4765.140

-5.045 3.603 -8.648

74.793

FEB 4912.980

3.103 3.603 -0.500

0.250

MAR 5328.370

8.455 3.603 4.852 23.541

APR 5344.710

0.307 3.603 -3.296

10.866

MAY 5490.270

2.723 3.603 -0.880

0.774

JUNE 5748.780

4.709 3.603 1.106 1.222

R=3.603 ∑(R-R)²=

260.844




64



SBI-SECTOR FUNDS

N- 1



TABLE 5.5.3:

CALCULATION OF BETA VALUE FOR PHARMA FUND:

MONTH2009-10

INDEXRETURNS

(X)

FUNDRETURNS

(Y)

XY X²

JUL 0.000 0.000 0.000 0.000

AUG 2.520 7.268 18.314 6.349

SEP 12.903 8.244 106.371 166.483

OCT -0.614 -0.524 0.322 0.377

NOV 8.915 4.309 38.413 79.470

DEC 5.263 6.686 35.190 27.702

JAN -5.045 -5.849 29.510 25.455

FEB 3.103 1.509 4.682 9.626

MAR 8.455 9.123 77.135 71.486

APR 0.307 2.938 0.901 0.094

MAY 2.723 2.854 7.773 7.417

JUNE 4.709 6.079 28.623 22.170

∑X=43.237

∑Y=42.637

∑XY=347.233

∑X²=416.630

n ∑XY – (∑X * ∑Y )BETA =

n ∑X² - (∑X )²

12 (347.233)-(43.24*42.637)BETA =

65



SBI-SECTOR FUNDS

12*416.63-(43.24*43.24)

BETA= 0.742

MEASURING THE PERFORMANCE OF PHARMA FUND:

1.Treynor’s Ratio


β

42.637-5=

0.742


2.Sharpe Ratio

Rp-Rf Sharpe Ratio =

σ p

42.637-5=

15.002

Sharpe Ratio = 2.51

3.Jensen Measure


= 42.637-[5+0.742(42.637-5)]

66



SBI-SECTOR FUNDS


INFERENCE:

From the above observations the Pharma Fund returns are higher than its bench mark (BSE-HC) returns.

67



SBI-SECTOR FUNDS

INFERENCE:

68

ANNUALRETURN

STANDARDDEVIATION

BETA

TREYNOR’SRATIO

SHARPERATIO

JENSENMEASURE

RANK S

CONTRAFUND

18.941

15.194 0.864

16.13 0.917 1.895 4

EMERGING

BUSINESESFUND

34.57 16.21 0.75

3

39.27 1.824 7.303 3

FMCG-FUND

41.2 10.14 0.474

76.37 3.57 19.04 1

IT-FUND

33.494

17.47 0.916

31.11 1.631 2.393 5

PHARMA-FUND

42.637

15.002 0.742

50.72 2.51 9.71 2



SBI-SECTOR FUNDS

Above figure shows that the FMCG Fund return is more when compared

with its risk so it gives first rank, where as the IT Fund return is less when

compared to its risk among all sector funds so it gives fifth rank.

BETAVALUES O

1

INFERENCE:

The volatility of all the funds are less than that of the bench mark index

because the beta of all the funds is less than 1.Among the selected funds the

volatility is more in case of IT-Fund, less incase of FMCG-Fund.

69



SBI-SECTOR FUNDS

SHARPE’S

70

TREYNOR’S’S MEASURE OF PERFORMANCE

0

1020

30

40

50

60

70

80

90

TREYNOR'S MEASURE

TREYNOR'S MEASURE



SBI-SECTOR FUNDS

JENSENS’S

35

JEN

INFERENCE:

The above figure shows the performance of sector funds and it is clear that

the FMCG Fund shows an outstanding performance over all other sector funds

offered by SBI Mutual Funds.

6.1. FINDINGS:

The FMCG fund has a low risk of 10.14 over all other funds with a

return of 41.2 and the IT fund has a high risk of 17.47 with a return of

33.494.

The beta values for FMCG fund and IT fund are 0.474 and 0.916

respectively. It represents the FMCG fund is low volatile than its bench

mark index and the IT fund performance closely matches its benchmark.

71



SBI-SECTOR FUNDS

In performance FMCG fund stands first with a Sharpe’s ratio of

3.57 , Treynor’s ratio of 76.37 and Jensen measure of 30.09 and CONTRA

fund stands last with a Sharpe’s ratio of 0.917, Treynor’s ratio of 16.13

and Jensen measure of 4.62.

The Pharma fund has a high return of 42.637 over all other funds

with a risk of 15.002 and the Contra fund has a low return of 18.941 with a

risk of 15.194.

In performance Pharma fund stands second with a Sharpe’s ratio of

2.51, Treynor’s ratio of 50.72 and Jensen measure of 9.27.

6.2. SUGGETIONS:

• If you want to invest in sector specific fund FMCG fund hasoutstanding performance over all other sector fund in SBI Mutual funds. So

FMCG Fund is the best option for investment.

• The PHARMA fund also the best option to invest because it

gives high return with high risk when compared to all sector funds offered by SBI

Mutual Funds.

• During the year 2009-10 The IT sector was hit by recession

due to that The fund performance was not good. The company has to take right

decision and make investment in IT funds of well reputed company’s so as to

reduce the risk instead of investing in smaller companies.

72



SBI-SECTOR FUNDS

6.3. CONCLUSION:

The FMCG fund gives a high return of 41.2 with a low risk

of 10.14 and the fund is less volatile than the Bench mark index over all other

funds and the fund gives high excess return per unit of risk . So it is better to invest

in FMCG fund.

In the year 2009-10 The IT sector was hit by recession so in

that reason the fund gives a less return i.e 33.494 with a high risk of 17.47 and the

fund is more volataile than the bench mark index over all other funds and the fund

gives less return per unit of risk so it is not good to invest in IT fund particularly

for 2009-10.

73



SBI-SECTOR FUNDS

BIBLIOGRAPHY

Reference Books

IM Pandey, Financial Management, Vikas Publications, NewDelhi, 9th Ed.

Prasanna Chandra, 2002, “Financial Management”, 5th Edition,Tata-McGraw Hill, New Delhi.

Websites

h tt p:// www.inv est op edi a.co m/ cat ego ri es/ mu tu al fu nds .asp

(For Understanding Terms related to Mutual Funds)

http://www.sbimf.com (For historical values of sector funds)

http://www.amfiindia.com/navhistoryreport.asp

http://www. moneycontrol.com

http://www. bse.com (For historical values of bench mark indices)

http://www.investopedia.com/categories/mutualfunds.asp



sbi sectorial funds

Documents