tax saving schemes

Performance of Tax Saving Schemes in Mutual Fund

A STUDY ON PERFORMANCE OF TAX SAVING SCHEMES IN

MUTUAL FUND

Dissertation submitted in partial fulfillment of the requirements for the award

of the Degree of

MASTER OF BUSINESS ADMINISTRATION

of

BANGALORE UNIVERSITY

By

VIKAS KUMAR SONI

Reg. No: 11XWCMA117

Under the Guidance of

Dr. SUBHASREE KAR

Associate Professor

SCHOOL OF MANAGEMENT

SAMBHRAM ACADEMY OF MANAGEMENT STUDIES

BANGALORE – 560097

APRIL 2013

Sambhram Academy of Management Studies, Bangalore


CERTIFICATE OF ORIGINALITY

This is to certify that the project titled “A STUDY ON PERFORMANCE OF

TAX SAVING SCHEMES IN MUTUAL FUND” is an original work of VIKAS

KUMAR SONI and is being submitted in partial fulfillment for the award of the

Master’s Degree in Business Administration of Bangalore University. The report

has not been submitted earlier either to this University or elsewhere for the

fulfillment of the requirement of any course.

SIGNATURE OF SUPERVISOR SIGNATURE OF STUDENT

PLACE: PLACE:

DATE: DATE:



DECLARATION

I, VIKAS KUMAR SONI do hereby declare that the dissertation report entitled

“A STUDY ON PERFORMANCE OF TAX SAVING SCHEMES IN

MUTUAL FUND” is an outcome of my original work done under the guidance of

Dr. Subhasree Kar, Associate Professor, Sambhram Academy of Management

Studies, Bangalore. This report has not been submitted to any institution or

university for the award of any degree.

PLACE: SIGNATURE OF THE STUDENT

DATE:



ACKNOWLEDGEMENT

This is a great privilege to acknowledge each and everyone who are

associated with me while carrying out this study. I acknowledge each

one of them for their support.

First, I would like to thank Dr. K.C. John, Principal, and Dr. K.C. Mishra,

Director, School of Management, Sambhram Academy of Management Studies for

their encouragement and support throughout the completion of this study.

I wish to acknowledge with gratitude to my project guide Dr. Subhasree Kar,

Associate Professor, Sambhram Academy of Management Studies for her

guidance, encouragement, support and generous help to make this porjet work

successful.

I am equally thankful to my family and friends for their help and support for the

successful completion of this project.

Place: Bangalore VIKAS KUMAR SONI

Date:



EXECUTIVE SUMMARY

The Indian capital market has been growing tremendously with the reforms in

industry policy, reforms in public and financial sector and new economic policies

of liberalization, deregulation and restructuring. The Indian economy has opened

up and many developments have been taking place in the Indian capital market and

money market with the help of the financial system and financial institution or

intermediaries which faster saving and channel them to their most efficient use.

The measurement of fund performance has been a topic of increased interest

in both the academic and practitioner communities for the last four decades. It is

more so because of growing scale of mutual theory. The investment environment is

becoming increasingly complex.

The study is aimed to understand the organisation of mutual fund industry

and to examine the performance of tax saving schemes undertaken for study. It

evaluates the performance of selected schemes in comparison with benchmark

index S&P CNX Nifty, and also helps to the employ risk return measures.



ABSTRACT

Different investment avenues are available to investors. Mutual funds also offer

good investment opportunities to the investors. Like all investments, they also

carry certain risks. The investors should compare the risks and expected yields

after adjustment of tax on various instruments while taking investment decisions.

The investors may seek advice from experts and consultants including agents and

distributors of mutual funds schemes while making investment decisions. With an

objective to make the investors aware of performance of mutual funds, an attempt

has been made to provide information on the comparison of tax saving funds of

selected Asset Management Companies such as HDFC, FRANKLIN INDIA,

RELIANCE, SBI and ICICI which may help the investors in taking investment

decisions. The analysis is also compared with the calculations based on the

Standard deviation, Beta values, Correlation, Coefficient of determination, and also

Sharpe ratio, Treynors ratio, Jensen measures for the period 2008-12. This paper is

carried out to find out the returns of funds thereby studying the performance of the

selected tax saving schemes in the market. The investor invests the funds based on

the returns, net asset value and also the trend prevailing in the market.

KEYWORDS

Asset Management Companies, Performance, Tax saving schemes.



CONTENT

Chapter No. TopicPageNo.

1 INTRODUCTION 1 - 19

2 REVIEW OF LITRATURE AND

RESERCH DESIGN

20 - 29

3 INDUSTRY PROFILE /

SELECTED ORGANISATION

30 - 46

4 RESULT, ANALYSIS AND

DISCUSSION

47 - 74

5 SUMMARRY OF FINDING,

SUGGESTION AND

CONCLUSION

75 - 78

BIBLIOGRAPHY 79



LIST OF TABLES

Table No. Title of the Tables Page

No.

1.1 Banks v/s Mutual fund 19

3.1 Assets under Management (AUM) 34

3.2 Schemes renamed in HDFC mutual fund 40

3.3 SBI mutual fund schemes offers 43

4.1 Standard Deviation for HDFC Tax Saver 47

4.2 Standard Deviation for Franklin India Tax Shield 48

4.3 Standard Deviation for Reliance Tax Saving Fund 49

4.4 Standard Deviation for SBI Magnum Tax Gain 50

4.5 Standard Deviation for ICICI Prudential Tax Plan 51

4.6 Return vs. Risk estimated of selected tax saving schemes 52

4.7 Return of Franklin India Tax Shield Vs Benchmark's Return 53

4.8 Return of HDFC Tax Saver Fund Vs Benchmark's Return 54

4.9 Return of Reliance Tax Saving Fund Vs Benchmark's Fund 55

4.10 Return of SBI Magnum Tax Gain Fund Vs Benchmark's Fund 56

4.11 Return of ICICI Prudential Tax Plan Vs Benchmark's Fund 57

4.12 Beta Calculation for Franklin India Tax Shield 58

4.13 Beta Calculation for HDFC Tax Saver 59

4.14 Beta Calculation for Reliance Tax Saving Fund 60

4.15 Beta Calculation for SBI Magnum Tax Gain 61

4.16 Beta Calculation for ICICI Prudential Tax Plan 62

4.17 Beta Values estimated of selected tax saving schemes 63

4.18 Correlation calculation for Franklin India Tax Shield 64

4.19 Correlation calculation for HDFC Tax Saver 65



4.20 Correlation calculation for Reliance Tax Saving Fund 66

4.21 Correlation calculation for SBI Magnum Tax Gain 67

4.22 Correlation calculation for ICICI Prudential Tax Plan 68

4.23 Correlation estimates of selected tax saving schemes 69

4.24 Coefficient of determination estimates of selected tax saving

schemes

70

4.25 Statistical Analysis of selected tax saving scheme Performance 74



LIST OF FIGURES

Figure

No. Title of the Figures

Page

No.

1.1 Concept of mutual fund 3

1.2 Organisation structure of mutual fund 4



LIST OF CHARTS

Charts

No. Title of the Charts Page No.

4.1 Showing returns Vs risk of selected tax saving

schemes

52

4.2 Return of Franklin India Tax Shield Vs Benchmark's Return

53

4.3 Return of HDFC Tax Saver Fund Vs Benchmark's

Return

54

4.4 Return of Reliance Tax Saving Fund Vs Benchmark's

Fund

55

4.5 Return of SBI Magnum Tax Gain Fund Vs

Benchmark's Fund

56

4.6 Return of ICICI Prudential Tax Plan Vs Benchmark's

Fund

57

4.7 Beta value Plotted with the Selected tax saving

schemes

63

4.8 Correlation on selected tax saving schemes 69

4.9 Coefficient of determination on selected tax saving

schemes

70

4.10 Statistical Analysis of selected tax saving schemes

Performance

74



Chapter – 1

Introduction



INTRODUCTION

The Indian financial system based on four basic components like Financial Market,

Financial Institutions, Financial Service, Financial Instruments. All are play

important role for smooth activities for the transfer of the funds and allocation of

the funds. The main aim of the Indian financial system is that providing the

efficiently services to the capital market. The Indian capital market has been

increasing tremendously during the second generation reforms. The first generation

reforms started in 1991 the concept of LPG. (Liberalization, privatization,

Globalization).

Then after 1997 second generation reforms was started, still the it’s going on, its

include reforms of industrial investment, reforms of fiscal policy, reforms of ex-

imp policy, reforms of public sector, reforms of financial sector, reforms of foreign

investment through the institutional investors, reforms banking sectors. The

economic development model adopted by India in the post independence era has

been characterized by mixed economy with the public sector playing a dominating

role and the activities in private industrial sector control measures emaciated form

time to time. The last two decades have been a phenomenal expansion in the

geographical coverage and the financial spread of our financial system.

The spared of the banking system has been a major factor in promoting financial

intermediation in the economy and in the growth of financial savings with

progressive liberalization of economic policies, there has been a rapid growth of

capital market, money market and financial services industry including merchant

banking, leasing and venture capital, leasing, hire purchasing. Consistent with the

growth of financial sector and second generation reforms its need to fruition of the

financial sector. Its also need to providing the efficient service to the investor



mostly if the investors are supply small amount, in that point of view the mutual

fund play vital for better service to the small investors. The main vision for the

analysis for this study is to scrutinize the performance of five star rated mutual

funds, given the weight of risk, return, and assets under management, net assets

value, book value and price earnings ratio.

Concept of Mutual Fund:

Mutual fund is the pool of the money, based on the trust who invests the savings of

a number of investors who shares a common financial goal, like the capital

appreciation and dividend earning. The money thus collect is then invested in

capital market instruments such as shares, debenture, and foreign market. Investors

invest money and get the units as per the unit value which we called as NAV (net

assets value). Mutual fund is the most suitable investment for the common man as

it offers an opportunity to invest in diversified portfolio management, good

research team, professionally managed Indian stock as well as the foreign market,

the main aim of the fund manager is to taking the scrip that have under value and

future will rising, then fund manager sell out the stock. Fund manager

concentration on risk – return trade off, where minimize the risk and maximize the

return through diversification of the portfolio. The most common features of the

mutual fund unit are low cost.


INVESTORS

MUTUALFUND

SCHEMES

MARKET

FLUCTUATIONINVEST THEIR MONEY INVEST IN VARIETY OF STOCKS/BONDS

PROFIT/LOSS FROM PORTFOLIO INVESTMENTPROFIT/LOSS FROM INDIVIDUAL INVESTMENT


Mutual funds concept can be well understood with the following diagram

Figure: 1.1 Concept of mutual fund

Growth of Mutual Fund Industry

The history of mutual funds dates support to 19th century when it was introduced

in Europe, in particular, Great Britain. Robert Fleming set up in 1868 the first

investment trust called Foreign and colonial investment trust which promised to

manage the finances of the moneyed classes of Scotland by scattering the

investment over a number of different stocks. This investment trust and other

investment trusts which were afterward set up in Britain and the U.S., resembled

today’s close – ended mutual funds. The first mutual fund in the U.S.,

Massachusetts investor’s trust, was set up in March 1924. This was the open –

ended mutual fund.



The stock market crash in 1929, the Great Depression, and the outbreak of the

Second World War slackened the pace of growth of the mutual fund industry.

Innovations in products and services increased the popularity of mutual funds in

the 1950s and 1960s. The first international stock mutual fund was introduced in

the US in 1940. In 1976, the first tax – exempt municipal bond funds emerged and

in 1979, the first money market mutual funds were created. The latest additions are

the international bond fund in 1986 arm funds in 1990. This industry witnessed

substantial growth in the eighties and nineties when there was a significant

increase in the number of mutual funds, schemes, assets, and shareholders. In the

US the mutual fund industry registered s ten – fold growth the eighties. Since

1996, mutual fund assets have exceeds bank deposits. The mutual fund industry

and the banking industry virtually rival each other in size.

ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the

organisational set up of a mutual fund

Figure:1.2 Organisation structure of mutual fund



Mutual funds have a unique structure not shared with other entities such as

companies of firms. It is important for employees & agents to be aware of the

special nature of this structure, because it determines the rights & responsibilities

of the fund’s constituents viz., sponsors, trustees, custodians, transfer agents & of

course, the fund & the Asset Management Company(AMC) the legal structure also

drives the inter-relationships between these constituents.

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

regulations, 1996. These regulations make it mandatory for mutual funds to have a

structure of sponsor, trustee, AMC, custodian. The sponsor is the promoter of the

mutual fund,& appoints the trustees. The trustees are responsible to the investors in

the mutual fund, & appoint the AMC for managing the investment portfolio. The

AMC is the business face of the mutual fund, as it manages all affairs of the mutual

fund. The mutual fund & the AMC have to be registered with SEBI. Custodian,

who is also registered with SEBI, holds the securities of various schemes of the

fund in its custody.

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

establishes the Mutual fund & registers the same with SEBI. He appoints the

trustees, Custodians & the AMC with prior approval of SEBI, & in

accordance with SEBI regulations. He must have at least five year track

record of business interest in the financial markets. Sponsor must have been

profit making in at least three of the above five years. He must contribute at

least 40% of the capital of the AMC.

Trustees:- The Mutual Fund may be managed by a Board of trustees a of

individuals, or a trust company – a corporate body. Most of the funds in India

are managed by board of trustees. While the board of trustees is governed by



the provisions of the Indian trust act, where the trustee is the corporate body,

it would also be required to comply with the provisions of the companies act,

1956. the board of trustee company, as an independent body, act as protector

of the unit-holders interest. The trustees don’t directly manage the portfolio

of securities. For this specialist function, they appoint an AMC. They ensure

that the fund is managed by AMC as per the defined objectives & in

accordance with the trust deed & SEBI regulations. The trust is created

through a document called the trust deed i.e., executed by the fund sponsor in

favor of the trustees. The trust deed is required to be stamped as registered

under the provision of the Indian registration act & registered with SEBI. The

trustees begin the primary guardians of the unit-holders funds & assets, a

trustee has to be a person of high repute & integrity.

Asset Management Company (AMC):- The role of an Asset management

companies is to act as the investment manager of the trust. They are the ones

who manage money of investors. An AMC takes decisions, compensates

investors through dividends, maintains proper accounting & information for

pricing of units, calculates the NAV, & provides information on listed

schemes. It also exercises due diligence on investments & submits quarterly

reports to the trustees. AMCs have been set up in various countries

internationally as an answer to the global problem of bad loans. Bad loans are

essentially of two types: bad loans generated out of the usual banking

operations or bad lending, and bad loans which emanate out of a systematic

banking crisis. It is in the latter case that banking regulators or governments

try to bail out the banking system of a systematic accumulation of bad loans

which acts as a drag on their liquidity, balance sheets and generally the health



of banking. So, the idea of AMCs or ARCs is not to bail out banks, but to

bail out the banking system itself.



Types of AMCs in Indian Context

The following are the various types of AMCs we have in India.

AMCs owned by banks.

AMCs owned by financial institutions.

AMCs owned by Indian private sector companies.

AMCs owned by foreign institutional investors.

AMCs owned by Indian & foreign sponsors.

Custodian:- Often an independent organization, it takes custody all

securities & other assets of mutual fund. Its responsibilities include receipt &

delivery of securities collecting income-distributing dividends, safekeeping

of the unit & segregating assets & settlements between schemes. Mutual fund

is managed either trust company board of trustees. Board of trustees & trust

are governed by provisions of Indian trust act. If trustee is a company, it is

also subject Indian Company Act. Trustees appoint AMC in consultation

with the sponsors & according to SEBI regulation. All mutual fund schemes

floated by AMC have to be approved by trustees. Trustees review & ensure

that net worth of the company is according to stipulated norms, every quarter.

Though the trust is the mutual fund, the AMC is its operational face. The

AMC is the first functionary to be appointed, & is involved in appointment of

all other functionaries. The AMC structures the mutual fund products,

markets them & mobilizes fund, manages the funds & services to the

investors. A draft offer document is to be prepared at the time of launching

the fund. Typically, it pre-specifies investment objectives of the fund, the risk



associated, the cost involved in the process & the broad rules to enter & to

exit from the fund & other areas of operation. In India as in most countries,

these sponsors need approval from a regulator, SEBI in our case. SEBI looks

at track records of the sponsor & its financial strength granting approval to

the fund for commencing operations. A sponsor then hires an asset

management company to invest the funds according to the investment

objective. It also hires another entity to be the custodian of the assets of the

fund & perhaps the third one to handle registry work for the unit holder of

the fund.

Registrars & Transfer Agent (R & T Agent):- The Registrars & Transfer

Agents(R & T Agents) are responsible for the investor servicing function, as

they maintain the records of investors in mutual funds. They process investor

applications; record details provide by the investors on application forms;

send out to investors details regarding their investment in the mutual fund;

send out periodical information on the performance of the mutual fund;

process dividend payout to investor; incorporate changes in information as

communicated by investors; & keep the investor record up-to-date, by

recording new investors & removing investors who have withdrawn their

funds.

TYPES OF MUTUAL FUND SCHEMES

1) By Structure

Open-ended Funds: An open-end fund is one that is available for

subscription all through the year. These do not have a fixed maturity.

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

related prices. The key feature of open-end schemes is liquidity.



Closed ended Funds: A closed-end fund has a stipulated maturity period

which generally ranging from 3 to 15 years. The fund is open for

subscription only during a specified period. Investors can invest in the

scheme at the time of the initial public issue and thereafter they can buy or

sell the units of the scheme on the stock exchanges where they 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 periodic

repurchase at NAV related prices. SEBI Regulations stipulate that at least

one of the two exit routes is provided to the investor.

Interval Funds: Interval funds combine the features of open-ended and

close-ended schemes. They are open for sale or redemption during pre-

determined intervals at NAV related prices

2) By Investment Objective

Growth Funds: The aim of growth funds is to provide capital appreciation

over the medium to long term. Such schemes normally invest a majority of

their corpus in equities. It has been proved that returns from stocks, have

outperformed most other kind of investments held over the long term.

Growth schemes are ideal for investors having a long term outlook seeking

growth over a period of time.

Income Funds: 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 and Government securities.

Income Funds are ideal for capital stability and regular income.



Balanced Fund: The aim of balanced funds 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. These funds are also affected

because of fluctuations in share prices in the stock markets. However, NAVs

of such funds are likely to be less volatile compared to pure equity funds.

MoneyMarketFunds: The aim of money market funds is to provide easy

liquidity, preservation of capital and moderate income. These schemes

generally invest in safer short-term instruments such as treasury bills,

certificates of deposit, commercial paper and inter-bank call money. Returns

on these schemes may fluctuate depending upon the interest rates prevailing

in the market. These are ideal for Corporate and individual investors as a

means to park their surplus funds for short periods.

3) Other Schemes

Tax Saving Schemes: These schemes offer tax rebates to the investors

under specific provisions of the Indian Income Tax laws as the Government

offers tax incentives for investment in specified avenues. Investments made

in Equity Linked Savings Schemes (ELSS) and Pension Schemes are

allowed as deduction u/s 80C of the Income Tax Act, 1961. The Act also

provides opportunities to investors to save capital gains u/s 54EA and 54EB

by investing in Mutual Funds.

Gilt Fund: These funds invest exclusively in government securities.

Government securities have no default risk. NAVs of these schemes also



fluctuate due to change in interest rates and other economic factors as is the

case with income or debt oriented schemes.



Special Schemes

Industry Specific Schemes: Industry Specific Schemes invest only in

the industries specified in the offer document. The investment of these

funds is limited to specific industries like InfoTech, FMCG, and

Pharmaceuticals etc.

Sectoral Schemes: Sectoral Funds are those which invest exclusively

in a specified sector. This could be an industry or a group of industries

or various segments such as 'A' Group shares or initial public

offerings.

Index Schemes Index Funds attempt to replicate the performance of a

particular index such as the BSE Sensex or the NSE 50.

TAX PLANNING AND MUTUAL FUND

Investors in India have option for the tax-saving mutual fund schemes for the

simple reason that it helps them to save money. The tax-saving mutual funds or the

equity-linked savings schemes (ELSS) receive certain tax exemptions under

Section 88 of the Income Tax Act. That is one of the reasons why the investors in

India add the tax-saving mutual fund schemes to their portfolio. The tax-saving

mutual fund schemes are one of the important types of mutual funds in India that

investors can option for. There are several companies in India that offer tax saving

mutual fund schemes in the country.

While planning our investments we spend a considerable amount of time

evaluating various options and determining which suits us the best. But when it

comes to planning out investments from a tax saving perspective, more often than



not, we simply go the traditional way and do the exact same thing that we did in

the earlier years. Well, in case you were not aware the guidelines governing such

investments are a lot different this year and lethargy on your part to rework your

investment plan could cost you dear.

TAX SAVING SCHEME

Equity Linked Saving Schemes (ELSS): Equity Linked Saving Scheme (ELSS)

is also a type of mutual fund and falls under the Equity Mutual Fund category. As

the name indicates, ELSS mutual fund invests major portion of its corpus into

equity and equity related instruments. But there are some distinct features which

makes ELSS plans different from other equity mutual funds.

Investments made in ELSS plans are eligible for deduction from the taxable

income under Section 80C of the Income Tax Act. There is no limit for

investments in ELSS plans, but investments of upto Rs 1,00,000 qualify for income

tax benefits. Investments made in normal mutual funds (other than ELSS plans) do

not qualify for income tax deduction.

Features of an ELSS Plan

ELSS is an equity linked tax saving investment instrument.

Money collected under ELSS plan is mainly invested in equity and equity

related instruments.

This financial product is more suited to those investors who are willing to

take high risk and looking for high returns.



There is no upper limit on investments that can be made in ELSS. However

investments upto INR 1,00,000 made in ELSS in a financial year qualify for

deduction from taxable income under Section 80C of the Income Tax Act.

ELSS comes with a 3 year lock in period.

Long term capital gains earned on investments from ELSS are tax free.

Also dividends earned from ELSS plan are tax free in the hands of the

investor.

SWOT ANALYSIS

SWOT Analysis presents the information about external and internal environment

of mutual fund in structured from where by key external opportunity and threats

can be compared systematically with internal capabilities and weakness. The basic

objectives of SWOT analysis is provide a framework to reflect on the industry

capabilities to avail opportunities or to overcome thrats presented by environment.

Strength

Full benefit of diversification

Tax benefit

Transparancy & flexibility

Expert investment management

Weakness

Lesser return compared to equity

Poor technology & service level

Lack of proper marketing

Opportunity

Government policies & Tax

concession

Setting up a specific fund

Threats

Arrival of more private & foreign

players

Introduction of more debt



Technology development instrument in market.



ADVANTAGES OF INVESTING IN MUTUAL FUNDS

There are several that can be attributed to the growing popularities and suitability

of mutual funds as an investment vehicle especially for retail investors.

a) Professional management: Mutual funds provide the services of

experienced and skilled professionals, backed by a dedicated investment

research team that analysis the performance and prospects of companies and

selects suitable investments to achieve the objectives of the scheme.

b) Diversification: Mutual funds invest in a number of companies across a

broad cross- section of industries and sectors. This diversification reduces

the risk because seldom do all stocks decline at the sane time and in the

same proportion. You achieve this diversification through a mutual fund

with far less money than you can do on your own.

c) Convenient administration: Investing in a mutual fund reduces paperwork

and helps you avoid many problems such as bad deliveries, delayed payment

and follow up with brokers and companies. Mutual funds save your time and

make investing easy and convenient.

d) Return potential: Over a medium to long term, mutual funds have the

potential to provide a higher return as they invest in a diversified basket of

selected securities.

e) 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.



f) Liquidity: In open ended schemes, the investors get the money back

promptly at net asset value related prices from the mutual fund. In closed

end schemes, the units can be sold on a stock exchange at the prevailing

market price or the investor can avail of the facility of direct repurchase at

NAV related prices by mutual fund.

g) Transparency: You get regular information on the value of your investment

in addition to disclosure on the specific investments made by your scheme,

the proportion invested in each class of assets and the fund manager’s

investment strategy and outlook.

h) Flexibility: Through features such as regular investment plans, regular

withdrawal plans and dividend reinvestment plans, you can systematically

invest or withdraw funds according to your needs and convenience.

i) Affordability: Investors individually may lack sufficient funds to invest in

high-grade stocks. A mutual fund because of its large corpus allows even a

small investor to take the benefit of its investment strategy.

j) Choice of schemes: Mutual funds offer a family of schemes to suit your

varying needs over a lifetime.

k) Safety: Mutual Fund industry is part of a well-regulated investment

environment where the interests of the investors are protected by the

regulator. All funds are registered with SEBI and complete transparency is

forced.



DISADVANTAGES OF INVESTING IN MUTUAL FUNDS

No Guarantees :- No investment is risk free. If the entire stock market

declines in value, the value of mutual fund shares will go down as well, no

matter how balanced the portfolio.

Dilution :- Although diversification reduces the amount of risk involved

in investing in mutual funds, it can also be a disadvantage due to dilution.

Fees and Expenses :- Most mutual funds charge management and operating

fees that pay for the fund’s management expenses (usually around 1.0% to

1.5% per year for actively managed funds). In addition, some mutual funds

charge high sales commissions, and redemption fees.

Management risk :- When we invest in a mutual fund, we depend on the

fund's manager to make the right decisions regarding the fund's portfolio. If

the manager does not perform as well as we had hoped, we might not make

as much money on our investment as we expected.

Taxes :- During a typical year, most actively managed mutual funds sell

anywhere from 20 to 70 percent of the securities in their portfolios. If our

fund makes a profit on its sales, we will pay taxes on the income we

receive, even if we reinvest the money made.

ASSOCIATION OF MUTUAL FUNDS IN INDIA

With the increase in mutual fund players in India, a need for mutual fund

association in India was generated to function as a non profit organisation.

Association of Mutual Funds in India (AMFI) was incorporated on 22nd August,

1995.


http://www.investorguide.com/article/11139/disadvantages-of-investing-in-mutual-funds-igu/

http://www.investorguide.com/article/11644/6-mutual-fund-fees-and-expenses-you-should-know-about-igu/

http://www.investorguide.com/article/11644/6-mutual-fund-fees-and-expenses-you-should-know-about-igu/

http://www.investorguide.com/article/11139/disadvantages-of-investing-in-mutual-funds-igu/


AMFI is a apex body of all Asset Management Companies (AMFI) which has been

registered with SEBI. Till date all the AMCs are that have launched mutual fund

schemes are its members. It functions under the supervision and guidelines of its

Board of Directors.

Association of Mutual Funds India has brought down the Indian Mutual Fund

Industry to a professional and healthy market with ethical lines enhancing and

maintaining standards. It follows the principle of both protecting and promoting

the interests of mutual funds as well as their unit holder.

SEBI Guidelines for Mutual Funds

Securities and Exchange Board of India (SEBI) is a board (autonomous body)

created by the Government of India in 1988 and given statutory form in 1992 with

the SEBI Act 1992 with its head office at Mumbai.

SEBI (MFs) Regulation 1993, defines Mutual Fund as follows; “Mutual fund

means a fund established in the form of a trust by a sponsor to raise money by the

Trustees through the sale of units to the public under one or more schemes for

investing in Securities in accordance with these Regulations”.

The sponsor has to register the mutual fund with SEBI.

To be eligible to be a sponsor, the body corporate should have a sound track

record and a general reputation of fairness and integrity in all his business

transactions.

The sponsor should hold at least 40% of the net worth of the AMC.

A party which is not eligible to be a sponsor shall not hold 40% or more of

the net worth of the AMC.


http://en.wikipedia.org/wiki/Mumbai

http://en.wikipedia.org/wiki/Government_of_India

http://en.wikipedia.org/wiki/India


The sponsor has to appoint the trustees, the AMC and the custodian.

The trust deed and the appointment of the trustees have to be approved by

SEBI.

An AMC or its officers or employees can not be appointed as trustees of the

mutual fund.

At least two thirds of the business should be independent of the sponsor.

Only an independent trustee can be appointed as a trustee of more than one

mutual fund, such appointment can be made only with the prior approval of

the fund of which the person is already acting as a trustees.

Recent Market Trends

India is at the first stage of a revolution that has already peaked in the U.S. The

U.S. boasts of an Asset base that is much higher than its bank deposits. In India,

mutual fund assets are not even 10% of the bank deposits, but this trend is

beginning to change. Recent figures indicate that in the first quarter of the current

fiscal year mutual fund assets went up by 115% whereas bank deposits rose by

only 17%. (Source: Thinktank, the Financial Express September, 2012).



Table 1.1 Banks v/s Mutual fund

Characterstics Banks Mutual Fund

Returns Low Better

Network High penetration Low but improving

Administrative exp. High Low

Liquidity At a cost Better

Risk Low Moderate

Quality of assets Not transparent Transparent

Interest calculation Minimum balance between 10th & 30th of

every month

Everyday

Investment options Less More



Chapter – 2

Review of Literature and Research Design



INTRODUCTION

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

common financial goal. Mutual funds are one of the best investments ever created

because they are very cost efficient and very easy to invest in. Investors in India

opt for the tax-saving mutual fund schemes for the simple reason that it helps them

to save money. The tax-saving mutual funds or the equity-linked savings schemes

(ELSS) receive certain tax exemptions under Section 80C of the Income Tax Act.

That is one of the reasons why the investors in India add the tax-saving mutual

fund schemes to their portfolio. The tax-saving mutual fund schemes are one of the

important types of mutual funds in India that investors can opt for. The present

study is carried out to find out the returns of funds thereby studying the

performance of the tax saving funds in the market. The investor invests the funds

based on the returns, net asset value and also the trend prevailing in the market.

Since the market being high volatile there is a need to study the performance and

comparative statement of various tax saving funds performing in the market.

REVIEW OF THE LITERATURE

Early studies on mutual funds included the several works of Treynor (1965),

Sharp (1966) and Jensen (1968), who used the capital asset pricing model to

compare risk adjusted returns of funds with that of a benchmark market portfolio.

The findings of Sharpe and Jensen demonstrated that mutual funds under perform

market indexes and suggest that the returns were not sufficient to compensate

investors for the diverse mutual fund charges.

John and Donald (1974) examined the relationship between the stated fund

objectives and their risks-return attributes and concluded that on an average, the



fund managers appeared to keep their portfolios within the stated risk. It concludes

that mutual funds on aggregate offer superior returns but they are offset by

expenses and load charges.

Barua, Raghunathan and Varma (1991) evaluated the performance of Master

Share during the period 1987 to 1991 using Sharpe, Jensen and Treynor measures

and concluded that the fund performed better that the market, but not so well as

compared to the Capital Market Line. Although emerging markets such as India

have attracted the attention of investors all over the world, they have remained

devoid of much systematic research, especially in the area of mutual funds.

A study by Gupta and Aggarwal (2007) sought to check the performance of

mutual funds operation in India. In this regard, quarterly returns performance of all

the equity-diversified mutual funds during the period from January 2002 to

December 2006 was tested.

Guha (2008) focused on return-based style analysis of equity mutual funds in

India using quadratic optimization of an asset class factor model proposed by

William Sharpe. The study found the “Style Benchmarks” of each of its sample of

equity funds as optimum exposure to 11 passive asset class indexes. The study also

analyzed the relative performance of the funds with respect to their style

benchmarks. The results of the study showed that the funds have not been able to

beat their style benchmarks on the average.

Anand and Murugaiah (2008) examined the components and sources of

investment performance in order to attribute it to specific activities of Indian fund

managers. They also attempted to identify a part of observed return which is due to

the ability to pick up the best securities at given level of risk. For this purpose,

Fama's methodology is adopted here. The study covers the period between April



1999 and March 2003 and evaluates the performance of mutual funds based on 113

selected schemes having exposure more than 90percent of corpus to equity stocks

of 25 fund houses. The empirical results reported reveal the fact that the mutual

funds were not able to compensate the investors for the additional risk that they

have taken by investing in the mutual funds.

Devasenathipathi (2011) investigated the performance of public-sector and

private-sector mutual funds for the period of 2005 to 2007. Selected funds of LIC

(Public sector) and Reliance (Private sector) were chosen for the purpose of

analysis. Statistical techniques like Mean, Standard Deviation and Coefficient of

Variation were applied to study the consistency in returns subject to market risks of

each fund. The study revealed that performance of all the funds seemed to be

volatile during the study period; as such it was quite difficult to earmark one

particular fund that out performed consistently.

STATEMENT OF THE PROBLIEM

A The Indian capital market has been growing tremendously with the reforms in

industry policy, reforms in public and financial sector and new economic policies

of liberalization, deregulation and restructuring. The Indian economy has opened

up and many developments have been taking place in the Indian capital market and

money market with the help of the financial system and financial institution or

intermediaries which faster saving and channel them to their most efficient use.

The measurement of fund performance has been a topic of increased interest

in both the academic and practitioner communities for the last four decades. It is

more so because of growing scale of mutual theory. The investment environment is

becoming increasingly complex.



Markets for equity shares, debentures, bonds and other fixed income instruments;

real estate, derivatives and other assets have reached their maturity and are driven

by latest up-to-date information. A mutual fund is thus the ideal investment vehicle

for today’s complex and modern financial scenario.

NEED FOR THE STUDY

Generally, most of the investors investing in mutual funds in order to avail tax

benefits and also to earn returns, in this connection they would park their funds in

the tax saving schemes. A study required to analyze the performance of selected

tax saving schemes to fulfill the objectives of the investors. Hence the study has

been undertaken.

SCOPE OF THE STUDY

The study is all about understanding the customer’s perception to the tax benefit in

mutual fund. The purpose of this study of performance evaluation of tax saving

mutual funds by taking five selected companies which are ICICI, HDFC, SBI,

Relince and Franklin is to employ the resources in such a manner as to afford for

the investors combine benefits of low risk, steady returns, high liquidity and capital

appreciation through diversification and expert management.

OBJECTIVES OF THE STUDY

The main objective of the study is to make investors aware of performance and

provide information on the comparison of tax saving funds of selected asset

management companies. The specific objectives are:

To understand the organisation of mutual fund industry.

To employ performance evaluation measure using risk return models.



To compare the performance of selected tax saving schemes in comparison

with market portfolio.

To measure the comparative beta analysis of selected AMC.

To offer suggestion based on the finding arrived from the study.

RESEARCH METHODOLOGY

The following research methodology has been adopted for assessing the

performance of tax saving funds of selected Asset Management Companies in the

market.

Sources of data

The present study is purely based on secondary data. Top five ELSS schemes were

as per their AUM as on 30th June 2012. The sample ELSS schemes are HDFC Tax

Saver, ICICI Prudential Tax Plan, Reliance Tax Saver, SBI Magnum Tax Gain and

Franklin India Tax shield. The data is collected from the fact sheets, reports,

websites, magazines, books and journals etc. are considered. The deviations are

properly analyzed. For each of the scheme, the risk ratios (Average return, Beta,

Standard Deviation, Correlation, Coefficient of Determination, Sharpe Ratio,

Treynor’s Ratio and Jensen Model) were also observed carefully and correlated

with the returns. Accordingly, proper findings were found out and conclusions

were drawn about the best performance scheme among all.

TOOLS FOR PERFORMANCE MEASURES

In this study, the tools used for the analysis are Standard Deviation, Beta,

Correlation, Coefficient of Determination, Treynor’s Ratio, Sharp Ratio and

Jensen Measure for a period of 5 years from 2008 to 2012.



Average Mean: The most popular & widely used measure for representing

the entire data by one value is what most layman call an ‘average’ & what

the statistician call the ‘arithmetic mean’. It is obtained by adding together

all the items & by dividing this total by the number of items.

X = ∑XN

Where:

X = Average Mean

ΣX = Sum of the frequency

N = Total number of frequency.

Standard Deviation: The degree that a single value in a group of values

varies from the mean (average) of the distribution. Standard deviation is a

statistical measure that uses past performance of an investment or portfolio

to determine the potential range of future performance and assess the

probability of that performance. Standard deviations can be calculated for

an individual security or for the entire portfolio.

Beta: It describes the relationship between the stock’s return and the index

returns. The beta value may be interpreted in the following manner, ‘a 1%

change in Nifty index would cause a 1.042% (beta) change in the particular

fund. It is the slope of characteristic regression line. It signifies that a fund

with a beta of more than 1 will rise more than the market and also fall more

than market.



Where, Beta (β ) = n∑XY−(∑X∗∑Y )n∑X 2−(∑ X)2

n – Number of year

x – Returns of the index

y – Returns of the fund

Correlation: These correlation values indicate the degree to which the fund's

performance is related to its market (using the benchmark as a proxy for the

market). A high correlation to its benchmark is generally considered to be

favorable for the fund if their investment thesis closely follows the

benchmark.

r = ∑dxdy

√d x2d y2

Cefficent of Determination: the coefficent of determination is useful

because it gives the proportion of the variance (fluctuation) of one variable

that is predictable from the other variable. It is a measure that allows us to

determine how certain one can be in making prediction from the certain

model/graph. The coefficent of is the ratio of the explained variation to total

variation for e.g: if r = 0.922, then r2 = 0.850, which means 85% of the total

variation in y can be explained by the linear relationship between x and y.

the other 15% of the total variation are remain unexplained.

Coefficent of Determination = r2

Treynor’s Ratio: The Treynor Ratio, named after Jack L. Treynor, one of

the fathers of modern portfolio theory, helps analyze returns in relation to

the market risk of the fund. The Ratio, also known as the reward-to-volatility



ratio, provides a measure of performance adjusted for market risk. Higher

the Treynor Ratio, the better the performance under analysis. It is a ratio that

helps the portfolio managers to determine the excess return generated as the

difference between the fund’s return and the risk free return. The excess

return to beta ratio measures the additional return on a fund per unit of

systematic risk. Ranking of the funds is done based on this ratio.

Treynor’s Ratio = R p−Rfβ p

Where,

Rp – Avarage return on portfolio.

Rf – Risk free rate of return.

βp – Beta on portfolio

Sharpe ratio: The Sharpe index measures the risk premium of the portfolio

relative to the total amount of risk in the portfolio. The Sharpe measure

should only be used for portfolios but not for single securities. The sharpe

ratio tells us whether the returns of a portfolio are because of smart

investment decisions or a result of excess risk. This risk premium is

difference between the portfolios average rate of return & the riskfree rate of

interest dividing the result by the standard deviation of the portfolio return.

Thus,

Where, Sharp ratio = R p−Rfσ p

Rp – Avarage return on portfolio.

Rf – Risk free rate of return.

σ – Standard deviation on portfolio



Jensens Model: Jansen’s model proposes another risk adjusted performance

measure. Michael Jenson developed this measure and is something referred

as the differential return method. This measure involves evaluation of

returns that the fund has generated Vs the return actually out of the fund

given at that level of systematic risk. The surplus between the two returns in

called Alpha, which measures the performance of a fund compared with the

actual returns over the period. Required rate of return on fund at a given

level of Beta.

Jensenmodel=Rp-¿

Where:

p = Portfolio beta

Rp = Average return of portfolio

Rf = Risk free rate of return

Rm = Average market return

LIMITATIONS OF STUDY

The study was limited by the time constraint; hence extent to study is not

possible.

The study was limited to 5 companies only.

The policy and application are applicable to the particular assessment year

only.

The analysis and interpretation purely based on the data collected from

various website. The accuracy of interpretation depends upon the accuracy

of these data.



The return from the mutual fund depends upon the returns of the securities

involved in the portfolio. The return from the market depends upon the

efficiency of the market and other various factor affecting the fund and

economy as a whole. So the researcher doesn’t claim the 100% accuracy of

the result conducted from the study.

CHAPTER SCHEME

The study is structured into five chapters.

Chapter one is deal with an overview of Mutual Funds. It covers the

aspects such as introduction, type of Mutual Funds, organisation setup,

regulation, risk and market trend, advantages of investing in Mutual Funds

and tax benefits.

Chapter two reviews the literatures that focus on the performance of tax

saving schemes. This chapter provides insights into the tools they have used

and their findings that form the basis for the present study and Research

design for the study.

Chapter three presents an overview of the industry profile and sample

companies selected for the purpose of this study.

Chapter four is devoted to results, analysis and discussions.

Chapter five provides the major findings of the study and the policy

implications.



Chapter – 3Profile of Industry/ Selected Companies



INDUSTRY PROFILE

The origin of mutual fund industry in India is with the introduction of the concept

of mutual fund by UTI in the year 1963. Though the growth was slow, but it

accelerated from the year 1987 when non-UTI players entered the industry.

In the past decade, Indian mutual fund industry had seen a dramatic

improvement, both quality wise as well as quantity wise. Before, the monopoly of

the market had seen an ending phase, the Assets Under Management (AUM) was

Rs. 67bn. The private sector entry to the fund family rose the AUM to Rs. 470 bn

in March 1993 and till April 2004, it reached the height of 1,540 bn. Putting the

AUM of the Indian Mutual Funds Industry into comparison, the total of it is less

than the deposits of SBI alone, constitute less than 11% of the total deposits held

by the Indian banking industry.

The main reason of its poor growth is that the mutual fund industry in India

is new in the country. Large sections of Indian investors are yet to be intellectuated

with the concept. Hence, it is the prime responsibility of all mutual fund

companies, to market the product correctly abreast of selling.

History – The Landmarks

1963: UTI is India’s first mutual fund.

1964: UTI launches US-64.

1971: UTI’s ULIP (Unit-Linked Insurance Plan) is second scheme to be Launched.

1986: UTI Master share, India’s first true ‘mutual fund’ scheme, launched.



1987: PSU banks and insurers allowed floating mutual funds; State Bank of India

(SBI) first off the blocks.

1992: The Harshad Mehta-fuelled bull market arouses middle-class interest in

shares and mutual funds.

1993: Private sector and foreign players allowed; Kothari Pioneer first private fund

house to start operations; SEBI set up to regulate industry.

1994: Morgan Stanley is the first foreign player.

1996: Sebi’s mutual fund rules and regulations, which forms the basis of most

current laws, come into force.

1998: UTI Master Index Fund is the country’s first index fund.

1999: The takeover of 20th Century AMC by Zurich Mutual Fund is the first

acquisition in the mutual fund industry.

2000: The industry’s assets under management crosses Rs 1, 00,000 crore.

2001: US-64 scam leads to UTI overhaul.

2002: UTI bifurcated, comes under SEBI purview; mutual fund distributors banned

from giving commissions to investors; floating rate funds and Foreign debt funds

debut.

2003: AMFI certification made compulsory for new agents; fund of funds

launched.



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 funds in India can be broadly divided into four distinct phases.

1. First Phase - 1964-87 (UTI MONOPOLY)

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was

set up by the Reserve Bank of India and functioned under the Regulatory and

administrative control of the Reserve Bank of India. In 1978 UTI was de-linked

from the RBI and the Industrial Development Bank of India (IDBI) took over the

regulatory and administrative control in place of RBI. The first scheme launched

by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of

assets under management.

2. Second Phase - 1987-1993 (Entry of Public Sector Funds)

Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by

Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89),

Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda

Mutual Fund (Oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked

Rs.47,004 as assets under management.

3. Third Phase - 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian

mutual fund industry, giving the Indian investors a wider choice of fund families.

Also, 1993 was the year in which the first Mutual Fund Regulations came into

being, under which all mutual funds, except UTI were to be registered and

governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton)

was the first private sector mutual fund registered in July 1993. The 1993 SEBI



(Mutual Fund) Regulations were substituted by a more comprehensive and revised

Mutual Fund Regulations in 1996. The industry now functions under the SEBI

(Mutual Fund) Regulations 1996. The number of mutual fund houses went on

increasing, with many foreign mutual funds setting up funds in India and also the

industry has witnessed several mergers and acquisitions. As at the end of January

2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit

Trust of India with Rs.44,541 crores of assets under management was way ahead

of other mutual funds.

4. Fourth Phase - since February 2003

This phase had bitter experience for UTI. It was bifurcated into two separate

entities. One is the Specified Undertaking of the Unit Trust of India with AUM of

Rs.29,835 crores (as on January 2003). The Specified Undertaking of Unit Trust of

India, functioning under an administrator and under the rules framed by

Government of India and does not come under the purview of the Mutual Fund

Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It

is registered with SEBI and functions under the Mutual Fund Regulations. With the

bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000

crores of AUM and with the setting up of a UTI Mutual Fund, conforming to the

SEBI Mutual Fund Regulations, and with recent mergers taking place among

different private sector funds, the mutual fund industry has entered its current

phase of consolidation and growth. As at the end of September, 2004, there were

29 funds, which manage assets of Rs.153108 crores under 421 schemes.



Table 3.1 Assets under Management (AUM)

AS ON 31st MARCH AUM (Rs. Crores)

1965 24.67

1970 88.30

1975 169.95

1980 455.30

1985 2,209.61

1990 19,130.92

1995 72,967.17

2000 103,452.98

2005 486,650

2010 7,15,466

2012 5,87,217

RISK FACTORS IN MUTUAL FUND

Just like in any other investment, Mutual Fund investment also carry certain risks,

the risks in particular scheme of a mutual fund is a basically a function of five

factor.

Market Risk :- In generally, there are certain risks associated with every

kind of investments of shares. They are called market risks. The market risks

can be reduced. But cannot be completely eliminated even by good

investment management. The prices of shares are subjected to wide price

fluctuations depending upon market conditions. Eg, cycle – boom & slump

and recovery.



Credit Risk :- The debt servicing ability of a company through its cash

flows determines the Credit Risk faced by you. This credit risk is measured

by independent rating agencies like CRISIL who rate companies and their

paper. A ‘AAA’ rating is considered the safest whereas a ‘D’ rating is

considered poor credit quality. A well – diversified portfolio might help

mitigate this risk.

Scheme Risks :- There are certain risks inherent in the scheme itself. T all

depends upon the nature of the scheme. For instance, in a pure growth

scheme, risks are greater. It is obvious because if one expects more returns

an in the case of a growth scheme, one has to take more risks.

Investment Risks :- Whether the Mutual Fund makes money in shares or

loses depends upon the investment expertise of the Asset management

Company (AMC). If the investment advice goes wrong, the fund has to

suffer a lot. The investment expertises of various funds are different and it is

reflected on the returns which they offer to investors.

Business Risk :- The corpus of a Mutual Fund might have been invested in

company’s shares. If the business of that company suffers any set back, it

cannot declare any dividend.

Political Risk :- Successive Governments bring with them fancy new

economy ideologies and policies. It is often said that many economy

decisions are politically motivated. Changed in Government bring in the risk

of uncertainty which every player in the financial service industry has to

face. So Mutual Funds are no exception to it.



Liquidity Risk :- Liquidity risk arises when it becomes difficult to sell the

securities that one has purchased. It can be partly mitigated by

diversification, staggering of maturities as well as internal risk controls that

lean towards purchase of liquid securities. It simply means that you must

spread your investment across different securities (stocks, bonds, money

market instruments, real estate, fixed deposits etc.). This kind of a

diversification may add to the stability of your returns, for example, during

one period of time equities might under perform but bonds and money

market instruments might do well enough to offset the effect of a slump in

the equity Markets.

Inflation Risk :- Inflation is the loss of purchasing power over a time. A lot

of times people make conservative investment decisions to protect their

capital but end up with a sum of money that can buy less than what the

principal could, at the time of investment. A well–diversified portfolio with

some investment in equities might help mitigate this risk.

COMPANY PROFILE

ABOUT ICICI PRUDENTIAL ASSET MANAGEMENT COMPANY

ICICI Prudential Asset Management Company Ltd. (IPAMC/ the Company) is the

joint venture between ICICI Bank, a well-known and trusted name in financial

services in India and Prudential Plc, one of UK’s largest players in the financial

services sectors. IPAMC was incorporated in the year 1993. The Company in a

span of over 18 years since inception and just over 13 years of the Joint Venture,

has forged a position of preeminence in the Indian Mutual Fund industry as the

third largest asset management company in the country, contributing significantly

to the growth of the Indian mutual fund industry.



The Company manages significant Mutual Fund Asset Under Management

(AUM), in addition to Portfolio Management Services and International Advisory

Mandates for clients across international markets in asset classes like Debt, Equity

and Real Estate with primary focus on risk adjusted returns.

IPAMC has witnessed substantial growth in scale. From merely 2 locations and 6

employees during inception to the current strength of over 700 employees with

reach across around 150 locations, the growth momentum of the Company has

been exponential. The organization today is an ideal mix of investment expertise,

resource bandwidth & process orientation. IPAMC’s Endeavour is to bridge the

gap between savings & investments to help create long term wealth and value for

investors through innovation, consistency and sustained risk adjusted performance

ICICI Bank is India's second-largest bank with total assets of Rs. 4,736.47 billion

(US$ 93 billion) at March 31, 2012 and profit after tax Rs. 64.65 billion (US$

1,271 million) for the year ended March 31, 2012. The Bank has a network of

2,890 branches and 10,021 ATMs in India, and has a presence in 19 countries,

including India.

ICICI Bank offers a wide range of banking products and financial services to

corporate and retail customers through a variety of delivery channels and through

its specialised subsidiaries in the areas of investment banking, life and non-life

insurance, venture capital and asset management.

Prudential PLC

Established in London in 1848, Prudential plc, through its businesses in the UK

and Europe, the US and Asia, provides retail financial services products and

services to more than 26 million customers, policyholder and unit holders

worldwide. Today, Prudential has millions of customers worldwide and over £363



billion (as of 30 June 2012) of funds under management. In Asia, Prudential is the

leading European life insurance company with a vast network of life and fund

management operations in thirteen countries - China, Hong Kong, India, Indonesia,

Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand, Vietnam

and United Arab Emirates. The ICICI Prudential edge comes from our

commitment to our customers, in all that we do be it product development,

distribution, the sales process or servicing. Here's a peek into what makes us

leaders.

The AMC has secured a leading position in the Indian mutual fund industry with

AUM of Rs.1.5 lakh millions as on March 31, 2012. The AMC manages a

comprehensive range of Schemes to meet the varying investment needs of its

investors spread across various cities through its 264 Official Point of Transactions

in the country.

Starting with an AUM base of Rs. 160 crores in May 1998, ICICI prudential has

successfully managed to grow its assets by over 200 times to Rs. 1.5 lakh crore (as

on March 31, 2012). Having started with 2 schemes in 1998, the company

currently has over 30 schemes in its product portfolio. In order to address the issue

of penetration and to offer customer convenience, the company has expanded its

network from a presence in merely 2 cities to more than 80 cities across India.



ABOUT HDFC ASSET MANAGEMENT COMPANY LIMITED

HDFC Asset Management Company Ltd (AMC) was incorporated under the

Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset

Management Company for the HDFC Mutual Fund by SEBI vide its letter dated

July 3, 2000.

HDFC Mutual Fund is one of the largest mutual funds and well-established fund

house in the country with consistent fund performance across categories since its

incorporation on December 10, 1999. While our past experience does make us a

veteran, but when it comes to investments, we have never believed that the

experience is enough.

Investment Philosophy

The single most important factor that drives HDFC Mutual Fund is its belief to

give the investor the chance to profitably invest in the financial market, without

constantly worrying about the market swings. To realize this belief, HDFC Mutual

Fund has set up the infrastructure required to conduct all the fundamental research

and back it up with effective analysis. Our strong emphasis on managing and

controlling portfolio risk avoids chasing the latest "fads" and trends.

In terms of the Investment Management Agreement, the Trustee has appointed the

HDFC Asset Management Company Limited to manage the Mutual Fund. The

paid up capital of the AMC is Rs. 25.169 crore.

Zurich Insurance Company (ZIC), the Sponsor of Zurich India Mutual Fund,

following a review of its overall strategy, had decided to divest its Asset



Management business in India. The AMC had entered into an agreement with ZIC

to acquire the said business, subject to necessary regulatory approvals.

On obtaining the regulatory approvals, the following Schemes of Zurich

India Mutual Fund have migrated to HDFC Mutual Fund on June 19, 2003. These

Schemes have been renamed as follows:

Table 3.2 Schemes renamed in HDFC mutual fund

Former Name New Name

Zurich India Equity Fund HDFC Equity Fund

Zurich India Prudence Fund HDFC Prudence Fund

Zurich India Capital Builder Fund HDFC Capital Builder Fund

Zurich India TaxSaver Fund HDFC TaxSaver

Zurich India Top 200 Fund HDFC Top 200 Fund

Zurich India High Interest Fund HDFC High Interest Fund

Zurich India Liquidity Fund HDFC Cash Management Fund

Zurich India Sovereign Gilt Fund HDFC Sovereign Gilt Fund*

AWARDS & RECOGNITION

ICRA Mutual Fund Awards 2012

Bloomberg UTV Financial Leadership Awards, 2012

Outlook Money Awards 2011

CNBC-TV18-CRISIL Mutual Fund Awards 2012

HDFC TaxSaver (ELSS)



The nature of the scheme is open ended equity linked savings (ELSS) scheme with

a lock-in period of 3 years. It will be comes in market at March 31, 1996. The

minimum application amount is for new & existing investors Rs.500 and in

multiples of Rs. 500 thereafter.

FRANKLIN TEMPLETON MUTUAL FUND

FTMF has been constituted as a Trust on January 4, 1996 in accordance with the

provisions of the Indian Trusts Act, 1882 and the Deed of Trust is registered under

the Indian Registration Act, 1908. FTMF has been sponsored by Templeton

International Inc. (liability restricted to the seed corpus of Rs.l lakh) with Franklin

Templeton Trustee Services Pvt. Ltd. (“Trustee”) as the Trustee. The Trustee has

entered into an Investment Management Agreement dated January 5, 1996 with

Franklin Templeton Asset Management (India) Pvt. Ltd. (“AMC”) appointing the

AMC as the Investment Manager for all the schemes of FTMF. FTMF is registered

with SEBI on February 19, 1996.

Templeton International Inc. is a part of the Franklin Templeton Group, which is

one of the largest Investment Management Company with US$683.5 bln

(approximately Rs.3,856,478 crore) in assets under management as on May 31,

2012 and around 26 million Shareholder Accounts. Franklin Templeton has offices

in over 30 countries including the United States of America, Bahamas, Canada,

Argentina, France, Germany, Italy, Luxembourg, Poland, Russia, the United

Kingdom, Hong Kong, Singapore, Korea, India, China, Australia and South Africa.

Review of activities of Franklin Templeton Mutual Fund: During the year

under review, the Mutual Fund continued to focus on launching meaningful

products with investment objectives that are relevant to investors. The Mutual

Fund launched Templeton India Corporate Bond Opportunities Fund, an open end



debt fund investing in corporate bonds, mobilizing over Rs.250 crore, FT India

Feeder - Franklin U.S. Opportunities Fund, a fund of funds scheme investing in the

units of Franklin U. S. Opportunities Fund, an overseas fund that invests primarily

in U. S. securities, mobilizing over Rs.100 crore and Franklin Templeton Fixed

Tenure Fund Series XVI mobilizing over Rs.68 crore. As a part of product

rationalization process to make the offerings more meaningful and easy to

understand for investors and to reduce product overlap between similar schemes,

few schemes / plans were merged during the year. The Liquid Plan of Templeton

India Treasury Management Account (TITMA) was merged into Regular Plan of

TITMA effective September 4, 2011. Franklin FMCG Fund and Franklin Pharma

Fund merged into Franklin India Prima Plus effective September 9, 2011. Franklin

India Index Tax Fund (FITF) merged into Franklin India Index Fund – NSE Nifty

Plan effective September 9, 2011.

Franklin India Index Tax Fund (FITF) was launched in February 2001 as open end

passively managed ELSS scheme. The scheme invested in companies, whose

securities are part of the S&P CNX Nifty, with the aim to generate returns

commensurate with S&P CNX Nifty. As part of our product rationalization process

and with a view to reduce overlap between similar schemes, it was decided to

merge FITF with the Growth Option under the Nifty Plan of Franklin India Index

Fund. The effective date of the merger was September 9, 2011. As on March 31,

2012, the Mutual Fund served more than 20 lakh active investors through its 34

branches and 105 offices of our collection partners across India.

Frankline India Tax Sheild


a lock-in period of 3 years. It will be comes in market at April 10 1999. The



minimum application amount is for new & existing investors Rs.500 and in

multiples of Rs. 500 thereafter.



ABOUT SBI FUNDS MANAGEMENT LTD (SBIFM)

SBI Funds Management Ltd. is the investment manager of SBI Mutual Fund.

SBI Mutual Fund has been constituted as a trust, sponsored by State Bank

India. Today the Fund has an investor base of over 2.8 million spread over 23

schemes. With a large network of collecting branches and investor service

centers, SBI Mutual Fund constantly endeavors to get closer to its growing

family of investors. SBI is the largest public sector Bank in India with 8,836

branches all over India. SBI is the leader in providing loans to trade &

industry. It also provides related services, which generate significant fee-

based income. It has also identified project finance and consumer banking as

key areas.

Currently the SBI Mutual Fund offers 177 schemes in with different

investment objective and needs, as follows.

Table 3.3 SBI mutual fund schemes offers

No. of schemes including options 177

Equity Schemes 36

Debt Schemes 115

Short term debt Schemes 11

Equity & Debt 3

Money Market 0

Gilt Fund 12

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.

Started in July 1987, the fund has launched 67 schemes and successfully redeemed

15 schemes. In the process, it has rewarded its investors handsomely with

consistently high returns. A total of over 3.5 million investors have reposed their

faith in the wealth generation expertise of the mutual fund. Schemes of the mutual

fund have consistently outperformed benchmarks indices and have emerged as the

preferred investment for the millions of investors.

Today the fund manages Rs.29492.9685 crore as on Mar 31, 2012 of assets and has

diversified profile of investors actively parking their investments across 37 active

schemes. The fund serves this vast family of investors by reaching out to them

through network of 100 collection branches, 26 investor service centers, 28

investor service desks, and 52 district organizers.

SBI Mutual fund is the first bank sponsored fund to launch an off-shore fund called

Resurgent India Opportunity Fund Growth through innovation and stable

investment policies is the SBI mutual fund.

SBI Magnum Tax Gain (ELSS)


a lock-in period of 3 years. It will be comes in market at 1996. The minimum

application amount is for new & existing investors Rs.500 and in multiples of Rs.

500 thereafter.



ABOUT RELIANCE MUTUAL FUND

Reliance Mutual Fund ('RMF') is one of India’s leading Mutual Funds, with

Average Assets under Management (AUM) of Rs. 90,636 Crores and an investor

count of over 58.42 and 64.53 Lakh folios. (AUM and investor count as of Oct to

Dec '12).

Reliance Mutual Fund, a part of the Reliance Group, is one of the fastest growing

mutual funds in India. RMF offers investors a well-rounded portfolio of products

to meet varying investor requirements and has presence in 179 cities across the

country. Reliance Mutual Fund constantly endeavors to launch innovative products

and customer service initiatives to increase value to investors. Reliance Capital

Asset Management Limited (‘RCAM’) is the asset manager of Reliance Mutual

Fund. RCAM is a subsidiary of Reliance Capital Limited (RCL). Presently, RCL

holds 65.23% of its total issued and paid-up equity share capital and the balance of

its issued and paid up equity share capital is held by other shareholders which

includes Nippon Life Insurance Company (“NLI”), holding 26% of RCAM’s total

issued and paid up equity share capital. NLI acquired the said 26% share holding in

RCAM on August 17, 2012.

Reliance Capital Ltd. is one of India’s leading and fastest growing private sector

financial services companies, and ranks among the top 3 private sector financial

services and banking companies, in terms of net worth. Reliance Capital Ltd. has

interests in asset management, life and general insurance, private equity and

proprietary investments, stock broking and other financial services.

Reliance Mutual Fund (RMF) was initially set up as a Trust in accordance with the

provisions of the Indian Trust Act, 1882 by Reliance Capital Limited acting as a



Settler /Sponsor, vide a Trust Deed dated April 25, 1995 (the “Original Trust

Deed”).The Original Trust Deed was duly registered under the Indian Registration

Act, 1908. The Original Trust Deed was subsequently amended from time to time.

In order to consolidate all amendments to the Original Trust Deed in one

document, an Amended and Restated Trust Deed was executed on March 15, 2011

(the “Amended and Restated Trust Deed”). The Amended and Restated Trust Deed

was subsequently registered under the Indian Registration Act, 1908 and the

Amended and Restated Trust Deed was duly filed with SEBI. Reliance Capital

Trustee Co. Limited entered into an Investment Management Agreement dated

May 12, 1995 with Reliance Capital Asset Management Ltd. (RCAM) to function

as the Investment Manager for all the Schemes of RMF.



Chapter – 4

Results, Analysis and Discussions



CALCULATION OF STANDARD DEVIATION OF SELECTED FUNDS

1. HDFC Tax Saver

Table 4.1 Standard Deviation for HDFC Tax Saver

Average Return (Ry) = ∑YN

= 77.91/5

= 15.58

∑dy2 = 9962.43

Variance √V = ∑d y2n−1

= 9962.43/4

= 2490.61

Standard Deviation (S.D) = √V = 49.90


YEAR RETURN

(Y)

AVERAGE

RETURN

(Ry)

dy = (Y-Y ) dy2

2008 -51.55 15.58 -35.97 1293.84

2009 99.07 15.58 83.49 6970.58

2010 26.42 15.58 10.84 117.55

2011 -22.62 15.58 38.2 1459.24

2012 26.59 15.58 11.01 121.22

Total 77.91 9962.43


2. Franklin India Tax Shield

Table 4.2 Standard Deviation for Franklin India Tax Shield

YEAR RETURN

(Y)

AVERAGE

RETURN (Ry) dy = (Y - Y ) dy2

2008 -49.22 13.45 -62.67 3927.53

2009 78.81 13.45 65.36 4271.93

2010 23.47 13.45 10.02 100.40

2011 -15.19 13.45 -28.64 820.24

2012 29.38 13.45 15.93 253.76

Total 67.25 9373.86

Average Return (Ry) = ∑RyN

= 67.25/5

= 13.45

∑dy2= 9373.86


= 9373.86/4

= 2343.47




3. Reliance Tax Saving Fund

Table 4.3 Standard Deviation for Reliance Tax Saving Fund

YEAR RETURN

(Y)

AVERAGE


2008 -52.35 14.79 -67.14 4507.78

2009 82.01 14.79 67.22 4518.53

2010 22.49 14.79 7.7 59.29

2011 -24.23 14.79 -39.02 1522.56

2012 46.05 14.79 31.26 977.19

Total 73.97 11585.35


= 73.97/5

= 14.79

∑dy2 = 11585.35


= 11585.35/4

=2896.34




4. SBI Magnum Tax Gain

Table 4.4 Standard Deviation for SBI Magnum Tax Gain

YEAR RETURN

(Y)

AVERAGE


2008 -54.86 11.06 -65.92 4345.45

2009 86.41 11.06 75.35 5677.62

2010 12.98 11.06 1.92 2.69

2011 -23.50 11.06 -34.56 1194.39

2012 34.29 11.06 23.23 539.63

Total 55.32 11759.78


= 55.32/5

= 11.06

∑dy2 = 11759.78


= 11759.78/4

= 2939.95




5. ICICI Prudential Tax Plan

Table 4.5 Standard Deviation for ICICI Prudential Tax Plan

YEAR RETURN

(Y)

AVERAGE


2008 -56.03 18.75 -74.78 5592.05

2009 112.00 18.75 93.25 8695.56

2010 24.11 18.75 5.36 28.73

2011 -23.96 18.75 -42.71 1824.14

2012 37.63 18.75 18.88 356.45

Total 93.75 16496.93


= 93.75/5

= 18.75

∑dy2= 16496.93


= 16496.93/4

= 4124.23




Standard deviation and return of selected tax saving schemes

Table 4.6 Return vs. Risk estimeted of selected tax saving schemes

Chart 4.1 Showing returns Vs risk of selected tax saving schemes

HDFC Franklin Relience SBI ICICI0

10

20

30

40

50

60

70

ReturnStandard Deviation

Inference: From the table 4.6 shows that average return and standard deviation

details. From the table it can be seen that ICICI fund making highest average return

of 18.75% during the period. However it’s also facing highest risk of 64.22 of all

the four funds. The SBI fund, HDFC fund, Franklin india funds and Relience fund

are making similar amount average return but risk is not much higier.


Fund Return Standard deviation

HDFC 15.58 49.90

Franklin 13.45 48.41

Reliance 14.49 53.82

SBI 11.06 54.22

ICICI 18.75 64.22


COMPARISION BETWEEN RETURNS OF FUND AND BENCHMARK

RETURNS


Table 4.7 Return of Franklin India Tax Shield Vs Benchmark's Return

Year Returns on fund (y) Returns on index(x)

2008 -49.22 -51.79

2009 78.81 75.76

2010 23.47 17.95

2011 -15.19 -24.62

2012 29.38 27.70

Chart 4.2 Return of Franklin India Tax Shield Vs Benchmark's Return

2008 2009 2010 2011 2012

-60

-40

-20

0

20

40

60

80

100

Return on Fund (Y)Return on Index (X)

Inference: From table 4.7 show that that the fund yielded 78.81% return while

index return is 75.76% in 2009 will be higher as compare to all year. In the year

2008 index return is -51.79% while fund return is -49.22% that shows fund will not

perform well.



2. HDFC Tax Saver

Table 4.8 Return of HDFC Tax Saver Fund Vs Benchmark's Return

Year Returns on fund (y) Returns on index (x)

2008 -51.55 -51.79

2009 99.07 75.76

2010 26.42 17.95

2011 -22.62 -24.62

2012 26.59 27.70

Chart 4.3 Return of HDFC Tax Saver Fund Vs Benchmark's Return

2008 2009 2010 2011 2012

-60

-40

-20

0

20

40

60

80

100

120


Inference: From the table 4.8 it is found that the HDFC tax saver fund will be

performed well in 2009 which is 99.07% return of fund while index return is

75.76%.



3. Reliance Tax Saving Fund

Table 4.9 Return of Reliance Tax Saving Fund Vs Benchmark's Fund


2008 -52.35 -51.79

2009 82.01 75.76

2010 22.49 17.95

2011 -24.23 -24.62

2012 46.05 27.70

Chart 4.4 Return of Reliance Tax Saving Fund Vs Benchmark's Fund

2008 2009 2010 2011 2012

-60

-40

-20

0

20

40

60

80

100


Inference: In table 4.9 shows that the fund yielded 82.01% return while index

return is 75.76% in 2009. In the year 2008 index return is -51.79% while fund

return is -52.35%. so that in year 2009 Reliance fund performe well.



4. SBI MAGNUM TAX GAIN

Table 4.10 Return of SBI Magnum Tax Gain Fund Vs Benchmark's Fund


2008 -54.86 -51.79

2009 86.41 75.76

2010 12.98 17.95

2011 -23.50 -24.62

2012 34.29 27.70

Chart 4.5 Return of Sbi Magnum Tax Gain Fund Vs Benchmark's Fund

2008 2009 2010 2011 2012

-80

-60

-40

-20

0

20

40

60

80

100


Inference: From the table 4.10 found that the fund yielded 86.41% return while

index return is 75.76% in 2009. In the year 2008 index return is -51.79% while

fund return is -54.86%. it shows that in 2008 fund and market are not performed.



5. ICICI PRUDENTIAL TAX PLAN

Table 4.11 Return of ICICI Prudential Tax Plan Vs Benchmark's Fund


2008 -56.03 -51.79

2009 112.00 75.76

2010 24.11 17.95

2011 -23.96 -24.62

2012 37.63 27.70

Chart 4.6 Return of ICICI Prudential Tax Plan Vs Benchmark's Fund

2008 2009 2010 2011 2012

-100

-50

0

50

100

150


Inference: Table 4.11 shows that the fund yielded 112% return while index return

is 75.76% in 2009. It shows higher return amoung all the year.



CALCULATION OF BETA VLAUES


Table 4.12 Beta Calculation for Franklin India Tax Shield

Year

Returns on

Fund

(Y)

Returns on

Index

(X)

XY X2

2008 -49.22 -51.79 2549.10 2682.20

2009 78.81 75.76 5970.65 5739.58

2010 23.47 17.95 421.29 322.20

2011 -15.19 -24.62 373.98 606.14

2012 29.38 27.70 813.83 767.29

Total 67.25 45 10128.85 10117.41

Beta (β ) = n∑XY−(∑X∗∑Y )n∑X 2−(∑ X)2

= 5(10128.85)-(45*67.25)/5*(10117.41)-(45)2

= 0.98



2. HDFC Tax Saver

Table 4.13 Beta Calculation for HDFC Tax Saver

Year

Returns on

Fund

(Y)

Returns on

Index

(X)

XY X2

2008 -51.55 -51.79 2669.77 2682.20

2009 99.07 75.76 7505.54 5739.58

2010 26.42 17.95 474.24 322.20

2011 -22.62 -24.62 556.90 606.14

2012 26.59 27.70 736.54 767.29

Total 77.91 45 11943 10117.41

Beta (β ) = n∑XY−(∑X∗∑Y )n∑X 2−(∑ X)2

= 5(11943)-(45*77.91)/5(10117.41)-(45)2

=1.16



3. RELIANCE Tax Saving Fund

Table 4.14 Beta Calculation for Reliance Tax Saving Fund

Year

Returns on

Fund

(Y)

Returns on

Index

(X)

XY X2

2008 -52.35 -51.79 2711.21 2682.20

2009 82.01 75.76 6213.07 5739.58

2010 22.49 17.95 403.70 322.20

2011 -24.23 -24.62 596.78 606.14

2012 46.05 27.70 1275.59 767.29

Total 73.97 45 11200.35 10117.41

Beta (β ) = n∑XY−(∑X∗∑Y )n∑X 2−(∑ X)2

= 5(11200.35)-(45*73.97)/5(10117.41)-(45)2

= 1.08



4. SBI Magnum Tax Gain

Table 4.15 Beta Calculation for SBI Magnum Tax Gain

Year

Returns on

Fund

(Y)

Returns on

Index

(X)

XY X2

2008 -54.86 -51.79 2841.20 2682.20

2009 86.41 75.76 6546.42 5739.58

2010 12.98 17.95 233 322.20

2011 -23.50 -24.62 578.57 606.14

2012 34.29 27.70 949.83 767.29

Total 55.32 45 11149.02 10117.41

Beta (β ) = n∑XY−(∑X∗∑Y )n∑X 2−(∑ X)2

= 5(11149.02)-(45*55.32)/5(10117.41)-(45)2

= 1.10



5. ICICI Prudential Tax Plan

Table 4.16 Beta Calculation for ICICI Prudential Tax Plan

Year

Returns on

Fund

(Y)

Returns on

Index

(X)

XY X2

2008 -56.03 -51.79 2901.79 2682.20

2009 112.00 75.76 8485.12 5739.58

2010 24.11 17.95 432.77 322.20

2011 -23.96 -24.62 589.90 606.14

2012 37.63 27.70 1042.35 767.29

Total 93.75 45 13451.93 10117.41

Beta (β ) = n∑XY−(∑X∗∑Y )n∑X 2−(∑ X)2

= 5(13451.93)-(45*93.75)/5(10117.41)-(45)2

= 1.29



BETA VALUES OF FIVE SCHEMES

Table 4.17 Beta Values estimated of selected tax saving schemes

Chart 4.7: Beta value plotted with the selected tax saving schemes

ICICI Pru. Tax Plan

SBI Magnum Tax Gain

HDFC Tax Saver Fund

Reliance Tax saving Fund

Franklin India Tax Shield

0

0.2

0.4

0.6

0.8

1

1.2

1.4

Beta ValueIndex

Inference: The result of beta is present in table 4.17. It shows that only Franklin

India tax shield fund beta value is (0.98< 1), that means only Franklin India tax

shield fund will be performed in defensive way as compare to all the other selected

tax saving schemes.


Fund Beta value Findings

ICICI Prudential Tax Plan

1.29 Aggressive

SBI Magnum Tax Gain

1.10 Aggressive

HDFC Tax Saver Fund

1.16 Aggressive


1.08 Aggressive


0.98 Defensive


CALCULATION OF CORRELATION


Table 4.18 Correlation calculation for Franklin India Tax Shield

Year

Returns

on Fund

(Y)

Returns

on Index

(X)

dy =

(Y - Y )

dx =

(X – X)

dy2 dx

2 dx dy

2008 -49.22 -51.79 -62.67 -60.79 3927.53 3695.42 3809.71

2009 78.81 75.76 65.36 66.76 4271.93 4456.89 4363.43

2010 23.47 17.95 10.02 8.95 100.40 80.10 89.68

2011 -15.19 -24.62 -28.64 -33.62 820.24 1130.30 964.22

2012 29.38 27.70 15.93 18.7 253.76 349.69 297.89

Total 67.25 45 9373.86 9712.4 5205.13

Average Return (Rx) = ∑RxN

(Rx) = 455 = 9

r = ∑dxdy

√d x2d y2

r = 5205.13

√( 9712.4 )(5205.13) = 0.732



2. HDFC TAX SAVER

TABLE 19 Correlation calculation for HDFC Tax Saver

Year

Returns

on Fund

(Y)

Returns

on Index

(X)

dy =

(Y - Y )

dx =

(X – X)

dy2 dx

2 dx dy

2008 -51.55 -51.79 -35.97 -60.79 1293.84 3695.42 2186.62

2009 99.07 75.76 83.49 66.76 6970.58 4456.89 5573.79

2010 26.42 17.95 10.84 8.95 117.55 80.10 97.02

2011 -22.62 -24.62 38.2 -33.62 1459.24 1130.30 1284.29

2012 26.59 27.70 11.01 18.7 121.22 349.69 205.89

Total 77.91 45 9962.43 9712.4 9347.61


(Rx) = 455 = 9

r = ∑dxdy

√d x2d y2

r = 9347.61

√( 9712.4 )(9962.43) = 0.950



3. RELIANCE TAX SAVING FUND

TABLE 4.20 Correlation calculation for Reliance Tax Saving Fund

Year

Returns

on Fund

(Y)

Returns

on Index

(X)

dy =

(Y - Y )

dx =

(X – X)

dy2 dx

2 dx dy

2008 -52.35 -51.79 -67.14 -60.79 4345.45 3695.42 4081.44

2009 82.01 75.76 67.22 66.76 5677.62 4456.89 4487.61

2010 22.49 17.95 7.7 8.95 2.69 80.10 68.92

2011 -24.23 -24.62 -39.02 -33.62 1194.39 1130.30 1311.85

2012 46.05 27.70 31.26 18.7 539.63 349.69 584.56

Total 73.97 45 11759.78 9712.4 10534.38


(Rx) = 455 = 9

r = ∑dxdy

√d x2d y2

r = 10534.38

√( 9712.4 )(11759.78) = 0.986



4. SBI MAGNUM TAX GAIN

TABLE 4.21 Correlation calculation for Sbi Magnum Tax Gain

Year

Returns

on Fund

(Y)

Returns

on Index

(X)

dy =

(Y - Y )

dx =

(X – X)

dy2 dx

2 dx dy

2008 -54.86 -51.79 -65.92 -60.79 4345.45 3695.42 4120.95

2009 86.41 75.76 75.35 66.76 5677.62 4456.89 4487.60

2010 12.98 17.95 1.92 8.95 2.69 80.10 68.92

2011 -23.50 -24.62 -34.56 -33.62 1194.39 1130.30 1311.85

2012 34.29 27.70 23.23 18.7 539.63 349.69 584.56

Total 55.32 45 11759.78 9712.4 10573.88


(Rx) = 455 = 9

r = ∑dxdy

√d x2d y2

r = 10573.88

√( 9712.4 )(11759.78) = 0.989



5. ICICI PRUDENTIAL TAX PLAN

TABLE 4.22 Correlation calculation for ICICI Prudential Tax Plan

Year

Returns

on Fund

(Y)

Returns

on Index

(X)

dy =

(Y - Y )

dx =

(X – X)

dy2 dx

2 dx dy

2008 -56.03 -51.79 -74.78 -60.79 5592.05 3695.42 4545.87

2009 112.00 75.76 93.25 66.76 8695.56 4456.89 6225.37

2010 24.11 17.95 5.36 8.95 28.73 80.10 47.97

2011 -23.96 -24.62 -42.71 -33.62 1824.14 1130.30 1435.91

2012 37.63 27.70 18.88 18.7 356.45 349.69 353.06

Total 93.75 45 16493.93 9712.4 12608.18


(Rx) = 455 = 9

r = ∑dxdy

√d x2d y2

r = 12608.18

√( 9712.4 )(16493.93) = 0.996



CORRELATION VALUES OF FIVE SCHEMES

Table 4.23 Correlation estimates of selected tax saving schemes

Chart 4.8 Correlation on selected tax saving schemes

Inference: Table 4.23 present the result of correlation estimated of selected tax

saving schemes the analysis reveals that all the scheme are highly correlated with

market index suggesting direct relationship between returns of tax saving schemes

and benchmark index. It shows that the results follow the market index.



HDFC Tax Saver Fund


SBI Magnum Tax Gain

ICICI Pru. Tax Plan

0

0.2

0.4

0.6

0.8

1

1.2

Correlation

Correlation

Fund Correlation (r)


0.732

HDFC Tax Saver Fund

0.950


0.986

SBI Magnum Tax Gain

0.989


0.996


COEFFICIENT OF DETERMINATION OF FIVE SELECTED SCHEMES

Table 4.24 Coefficient of determination estimates of selected tax saving

schemes

Chart 4.9 Coefficient of determination on selected tax saving schemes

Franklin India Tax

Shield

HDFC Tax Saver Fund


SBI Magnum Tax Gain

ICICI Pru. Tax Plan

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

CorrelationCoefficient of Determination

Inference: The result of coefficient of determination is present in table 4.24. It

shows the percentage of variation attributes to the market movement. It is seen that

except Franklin India all other scheme are highest values of (r2) indicates that much

of the variation in return of the scheme are return by market.


Fund Correlation(r)

Coefficient of Determination (r2)


0.732 0.535

HDFC Tax Saver Fund

0.950 0.903


0.986 0.972

SBI Magnum Tax Gain

0.989 0.978


0.996 0.992


MEASURING THE PERFORMANCE OF THE SCHEMES

1. Treynor Ratio

Treynor ratio = R p−Rfβ p

Franklin = 13.45−8

0.98

= 5.56

HDFC =15.58−8

1.16

= 6.53

Relience =14.49−8

1.08

= 6.01

SBI =11.06−8

1.06

= 2.78

ICICI =18.75−8

1.29

= 8.33



2. Sharpe Ratio

Sharpe Ratio = R p−Rfσ p

Franklin =13.45−8

48.41

= 0.113

HDFC =15.58−8

49.90

= 0.152

Relience =14.49−8

53.82

= 0.121

SBI =11.06−8

54.22

= 0.056

ICICI =18.75−8

64.22

= 0.167



3. Jensen Model

Jensen model = Rp-[Rf+βp(Rm-Rf)]

Franklin = 13.45-[8+0.98(9-8)]

= 4.47

HDFC = 15.58-[8+1.16(9-8)]

= 6.42

Relience = 14.49-[8+1.08(9-8)]

= 5.41

SBI = 11.06-[8+1.06(9-8)]

= 2

ICICI = 18.75-[8+1.29(9-8)]

= 9.46



STATISTICAL ANALYSIS OF FUND PERFORMANCE

Table 4.25 Statistical Analysis of selected tax saving scheme Performance

Fund Treynor’s

Measure

Sharpe

Measure

Jensen

Measure

ICICI 8.33 0.167 9.46

HDFC 6.53 0.152 6.42

Reliance 6.01 0.121 5.41

Franklin 5.56 0.113 4.47

SBI 2.78 0.056 2

Chart 4.10 Statistical Analysis of selected tax saving schemes Performance

ICICI HDFC Relience Franklin SBI

8.33

6.536.01

5.56

2.78

0.167 0.152 0.121 0.114 0.056

9.46

6.425.41

4.47

2

Chart TitleTreynor's Measures Sharpe Measure Jensen Measure

Inference: The result of Treynor’s, Sharpe and Jensen method is present in table

4.18. It show the performance level of all the five selected tax saving schemes. It is

seen that analysis of returns in relation to the market risk of the fund.The higher

returns are ranked accordingly ICICI fund is ranked 1st, HDFC fund 2nd, Reliance

fund is 3rd, Frankline fund is 4th and SBI fund is 5th by using all the three methods.



Chapter – 5Summary of Findings,

Suggestions and Conclusion



SUMMARY OF FINDINGS

In order to know the performance of the tax saving schemes in mutual fund as per

the research design from five selected AMC company data was collected. Further

the data was analysed in previous chapter evaluating by ( Average return, standard

deviation, beta, correlation, coefficent of determination and methods of mutual

fund) to getting some finding.

An Individual can take an advantage of this funds and schemes to save tax

by investing maximum of Rs 1,00,000.

After analyzing the data, it is understood that the ICICI Prudential Tax Plan,

Reliance Tax Saving, Franklin India Tax Shield and HDFC Tax saver fund

have performed better with average return of 18.75, 14.49, 13.45 and

15.58% respectively when compared to its benchmark return S&P CNX 500

of 45%.

Further, ICICI Prudential Tax Plan has a higher risk (standard deviation) of

64.22, which has given the highest return among selected schemes. In the

case of return, the SBI Magnum Tax Gain has given less return when

compared to its benchmark of market index with a high risk (standard

deviation) of 54.22%.

Beta of the selected schemes have posted a beta value less than 1; thus

belonging to defensive category. A beta (<1) implies that this schemes tend

to hold portfolio that were less risky than the market portfolio. So that only

Franklin India Tax Shield has a defensive performed.

According to correlation it is found that the entire schemes are highly

correlated with market index.



According to coefficient of determination it is seen that except Franklin

India Tax Shield Scheme all other scheme are highest values of (r2) indicates

that much of the variation in return of the scheme are return by market.

All the five tax saving schemes have positive sharp ratio. The highest sharp

ratio is found in ICICI prudential Tax Plan. While suggest that the fund has

generated adequate returns as against the level of risk.

The maximum treynor’s value of index are found in ICICI Prudential Tax

Plan (8.33) and minimum value was found in SBI Magnum Tax Gain (2.78).

it indicates that the schemes have provied adequate returns as against the

risk involved in the investment.



SUGGESTIONS

Investors can go ahead in investing in ICICI Prudential Tax Plan, Reliance

Tax Saving, Franklin India Tax Shield and HDFC Tax saver fund for

acquiring better returns as well as tax savings.

SBI AMC has to revise SBI Magnum Tax Gain portfolio to increase fund

returns and provide to the investors a more secure investment option along

with tax saving.

The Franklin India Tax Shield scheme tends to hold portfolio that were less

risky than the market portfolio.

According return against the risk schemes will be ranked accordingly ICICI

fund is ranked 1st, HDFC fund 2nd, Reliance fund is 3rd, Frankline fund is 4th

and SBI fund is 5th by using all the three methods.

AMC’s should take more efforts on spreading awareness about taxing

mutual funds as these investment instruments provides a higher return with

tax saving

It should also induce technology that reduces turnaround time for services

like investment, redemptions and transfers and bring them on par with bank

in turnaround time.



CONCLUSION

Mutual funds are one of the best investments ever created because they are very

cost efficient and very easy to invest in. All the selected schemes have allocated

majority of corpus to large cap stock and some schemes also have allocation to mid

cap. Various external causes affect the fund performance. It is suggestible for the

investors to choose the right scheme according to their risk apatite tolerance and

objective of the scheme. And it is always suggested to invest in equity schemes for

longer tenure. Investors while investing in the mutual funds is very cautious. ICICI

Prudential Tax Plan, HDFC Tax saver fund, SBI Magnum Tax Gain and Reliance

Tax Saving fund’s beta is more than one, so these funds are having aggressive

relationship with market.



Bibliography



BIBLIOGRAPHY

Books:

Gordon E. (2008) Financial Markets and Services, Mumbai; Himalaya

Publising House.

Sadhak H. (2008) Mutual Funds in India (Marketing Strategies and

Investment Practices), New Delhi; Sage Publication.

Chandra P. (2010) Investment Analysis and Portfolio Management, Noida;

Tata Mcgraw Hill Education.

Gupta C.S. (2005) Fundamental of Statistics, Mumbai; Himalaya

Publication House.

Kothari C.R. (2008) Research Methodology (Methods of Techniques), New

Delhi; New Age International (P) Ltd.

Mehrotra C.H. (2012) Direct Taxes Law & Practice, Agra; Sahitya Bhawan

Publication.

Jornals:

Vasu S. (2012) Performance of Tax saving Funds of Selected Asset

Management Companies: A Comparative Analysis, International Jornal of

Research in Commerce & Management, October, Vol. 3,No. 10

Arora H. (2012) Are Mutual fund Outperforming Market?, Zenith

International Jornal of Business Economics & Management Research, June,

Vol. 2, No.6

Websites:

http://www.amfiindia.com

http://www.valueresearchonline.com

http://www.moneycontrol.com

http://www.mutualfundsindia.com


http://www.moneycontrol.com/

http://www.valueresearchonline.com/

http://www.amfiindia.com/

tax saving schemes

Economy & Finance

selected tax saving

mutual fund dissertation

bangalore page

adjustment of tax

investors aware of performance

growing scale of mutual

investment decisions

returns of funds