thesis on mutual fund

Analysis of various Balanced and Liquid Funds

SUMMER TRAINING PROJECT REPORT ON

ANALYSIS OF THE VARIOUS BALANCED AND LIQUID

FUNDS

SUBMITTED TO:

INDIAN INSTITUTE OF FINANCE

SUBMITTED BY:


PREFACE


ACKNOWLEDGEMENT

.


CONTENT

CHAPTER-1

INTRODUCTION

Introduction of Mutual Fund

Mutual Fund Structure

CHAPTER-2

Company profile

About Anand Rathi

Strength

Fact Sheet

Philosophy

Products

CHAPTER-3

Introduction of Balanced and Liquid Funds

Balanced Funds

Liquid Funds

CHAPTER-4

Introduction of SBI Mutual Fund

CHAPTER-5

Analytical Part of the Project


Sharp Ratio

Treynor Ratio

Standard Deviation

Comparison of various Balanced and Liquid Funds

CHAPTER-6

Survey and Questionnaire

Survey

Limitations of Survey

Future Of Mutual Fund Industry

CHAPTER-7

Conclusion and Suggestion

Conclusions

Suggestions

BIBLIOGRAPHY


OBJECTIVE

The objective of the project is to do comparative analysis of various balanced & liquid

funds of different AMCs.

There are variours mutual funds in the market an investor are often confused in which

fund to invest, balanced & liquid funds were in vogue in recent time so I have tried to

analyze the performance of these funds in order to identify the best among these.

To fulfill the objective of my study I have used various statistical & analytical tools like

Standard deviation

Beta

Sharpe ratio

Treynor ration


CHAPTER 1

INTRODUCTION

1.1 Introduction about Mutual Funds

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

common financial goal. The money thus collected is invested by the fund manager in

different types of securities depending upon the objective of the scheme. These could

range from shares to debentures to money market instruments. The income earned

through these investments and the capital appreciations realized by the scheme are shared

by its unit holders in proportion to the number of units owned by them (pro rata). Thus a

Mutual Fund is the most suitable investment for the common man as it offers an

opportunity to invest in a diversified, professionally managed portfolio at a relatively low

cost. Anybody with an investible surplus of as little as a few thousand rupees can invest

in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and

strategy.

A mutual fund is the ideal investment vehicle for today‘s complex and modern financial

scenario. Markets for equity shares, bonds and other fixed income instruments, real

estate, derivatives and other assets have become mature and information driven. Price

changes in these assets are driven by global events occurring in faraway places. A typical

individual is unlikely to have the knowledge, skills, inclination and time to keep track of

events, understand their implications and act speedily. An individual also finds it difficult

to keep track of ownership of his assets, investments, brokerage dues and bank

transactions etc.

A mutual fund is the answer to all these situations. It appoints professionally qualified

and experienced staff that manages each of these functions on a full time basis. The large

pool of money collected in the fund allows it to hire such staff at a very low cost to each

investor. In effect, the mutual fund vehicle exploits economies of scale in all three areas -

research, investments and transaction processing. While the concept of individuals

coming together to invest money collectively is not new, the mutual fund in its present

form is a 20th

century phenomenon. In fact, mutual funds gained popularity only after the

Second World War. Globally, there are thousands of firms offering tens of thousands of


mutual funds with different investment objectives. Today, mutual funds collectively

manage almost as much as or more money as compared to banks.

A draft offer document is to be prepared at the time of launching the fund. Typically, it

pre specifies the investment objectives of the fund, the risk associated, the costs involved

in the process and the broad rules for entry into and exit from the fund and other areas of

operation. In India, as in most countries, these sponsors need approval from a regulator,

SEBI (Securities exchange Board of India) in our case. SEBI looks at track records of the

sponsor and its financial strength in 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 and perhaps a third one to handle registry work for the unit holders (subscribers) of

the fund.

In the Indian context, the sponsors promote the Asset Management Company also, in which it

holds a majority stake. In many cases a sponsor can hold a 100% stake in the Asset Management

Company (AMC). E.g. Birla Global Finance is the sponsor of the Birla Sun Life Asset

Management Company Ltd., which has floated different mutual funds schemes and also acts as an

asset manager for the funds collected under the schemes.


Future Scenario

The asset base will continue to grow at an annual rate of about 30 to 35 % over the next

few years as investor‘s shift their assets from banks and other traditional avenues. Some

of the older public and private sector players will either close shop or be taken over.

Out of ten public sector players five will sell out, close down or merge with stronger

players in three to four years. In the private sector this trend has already started with two

mergers and one takeover. Here too some of them will down their shutters in the near

future to come.

But this does not mean there is no room for other players. The market will witness a

flurry of new players entering the arena. There will be a large number of offers from

various asset management companies in the time to come. Some big names like Fidelity,

Principal, and Old Mutual etc. are looking at Indian market seriously. One important

reason for it is that most major players already have presence here and hence these big

names would hardly like to get left behind.

The mutual fund industry is awaiting the introduction of derivatives in India as this would

enable it to hedge its risk and this in turn would be reflected in it‘s Net Asset Value

(NAV).

SEBI is working out the norms for enabling the existing mutual fund schemes to trade in

derivatives. Importantly, many market players have called on the Regulator to initiate the process

immediately, so that the mutual funds can implement the changes that are required to trade in

Derivatives.

Market Trends

A lone UTI with just one scheme in 1964 now competes with as many as 400 odd

products and 34 players in the market. In spite of the stiff competition and losing market

share, UTI still remains a formidable force to reckon with.

Last six years have been the most turbulent as well as exiting ones for the industry. New

players have come in, while others have decided to close shop by either selling off or


merging with others. Product innovation is now passé with the game shifting to

performance delivery in fund management as well as service. Those directly associated

with the fund management industry like distributors, registrars and transfer agents, and

even the regulators have become more mature and responsible.

The industry is also having a profound impact on financial markets. While UTI has

always been a dominant player on the bourses as well as the debt markets, the new

generations of private funds which have gained substantial mass are now seen flexing

their muscles. Fund managers, by their selection criteria for stocks have forced corporate

governance on the industry. By rewarding honest and transparent management with

higher valuations, a system of risk-reward has been created where the corporate sector is

more transparent then before.

Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCG

and technology sector. Funds performances are improving. Funds collection, which

averaged at less than Rs100bn per annum over five-year period spanning 1993-98

doubled to Rs210bn in 1998-99. In the current year mobilization till now have exceeded

Rs300bn. Total collection for the current financial year ending March 2000 is expected to

reach Rs450bn.

What is particularly noteworthy is that bulk of the mobilization has been by the private

sector mutual funds rather than public sector mutual funds. Indeed private MFs saw a net

inflow of Rs. 7819.34 crore during the first nine months of the year as against a net

inflow of Rs.604.40 crore in the case of public sector funds.

Mutual funds are now also competing with commercial banks in the race for retail

investor‘s savings and corporate float money. The power shift towards mutual funds has

become obvious. The coming few years will show that the traditional saving avenues are

losing out in the current scenario. Many investors are realizing that investments in

savings accounts are as good as locking up their deposits in a closet. The fund

mobilization trend by mutual funds in the current year indicates that money is going to

mutual funds in a big way. The collection in the first half of the financial year 1999-2000

matches the whole of 1998-99.


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: Think-tank,

the Financial Express September, 99) This is forcing a large number of banks to adopt

the concept of narrow banking wherein the deposits are kept in Gilts and some other

assets which improves liquidity and reduces risk. The basic fact lies that banks cannot be

ignored and they will not close down completely. Their role as intermediaries cannot be

ignored. It is just that Mutual Funds are going to change the way banks do business in the

future.


What is a Mutual Fund?

A mutual fund is a common pool of money in to which investors with common investment

objective place their contributions that are to be invested in accordance with the stated investment

objective of the scheme. The investment manager would invest the money collected from the

investor in to assets that are defined/ permitted by the stated objective of the scheme. For

example, an equity fund would invest equity and equity related instruments and a debt fund

would invest in bonds, debentures, gilts etc.


1.2 Mutual Fund Structure:

The structure consists

Sponsor: Sponsor is the person who acting alone or in combination with another body

corporate establishes a mutual fund. Sponsor must contribute at least 40% of the net worth of the

Investment Managed and meet the eligibility criteria prescribed under the Securities and

Exchange Board of India (Mutual Funds) Regulations, 1996.The Sponsor is not responsible or

liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial

contribution made by it towards setting up of the Mutual Fund.

Trust: The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian

Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act,

1908


Trustee: Trustee is usually a company (corporate body) or a Board of Trustees (body of

individuals). The main responsibility of the Trustee is to safeguard the interest of the unit holders

and inter alia ensure that the AMC functions in the interest of investors and in accordance with

the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of

the Trust Deed and the Offer Documents of the respective Schemes. At least 2/3rd directors of the

Trustee are independent directors who are not associated with the Sponsor in any manner.

Asset Management Company (AMC): The AMC is appointed by the Trustee as the

Investment Manager of the Mutual Fund. The AMC is required to be approved by the Securities

and Exchange Board of India (SEBI) to act as an asset management company of the Mutual Fund.

At least 50% of the directors of the AMC are independent directors who are not associated with

the Sponsor in any manner. The AMC must have a net worth of at least 10 crores at all times.

Registrar and Transfer Agent: The AMC if so authorized by the Trust Deed appoints

the Registrar and Transfer Agent to the Mutual Fund. The Registrar processes the application

form, redemption requests and dispatches account statements to the unit holders. The Registrar

and Transfer agent also handles communications with investors and updates investor records.


1.3 Types of Schemes:

Investment Objective: Schemes can be classified by way of their stated investment

objective such as Growth Fund, Balanced Fund, Income Fund etc

Equity Oriented Schemes: These schemes, also commonly called Growth Schemes,

seek to invest a majority of their funds in equities and a small portion in money market

instruments. Such schemes have the potential to deliver superior returns over the long term.

However, because they invest in equities, these schemes are exposed to fluctuations in value

especially in the short term.

Equity schemes are hence not suitable for investors seeking regular income or needing to use

their investments in the short-term. They are ideal for investors who have a long-term investment

horizon. The NAV prices of equity fund fluctuates with market value of the underlying stock


which are influenced by external factors such as social, political as well as economic. HDFC

Growth Fund, HDFC Tax Plan 2000 and HDFC Index Fund are examples of equity schemes.

General Purpose: The investment objectives of general-purpose equity schemes do not

restrict them to invest in specific industries or sectors. They thus have a diversified portfolio of

companies across a large spectrum of industries. While they are exposed to equity price risks,

diversified general-purpose equity funds seek to reduce the sector or stock specific risks through

diversification. They mainly have market risk exposure. HDFC Growth Fund is a general-purpose

equity scheme.

Sector Specific: These schemes restrict their investing to one or more pre-defined sectors,

e.g. technology sector. Since they depend upon the performance of select sectors only, these


schemes are inherently more risky than general-purpose schemes. They are suited for informed

investors who wish to take a view and risk on the concerned sector.

Special Schemes:

Index Schemes

The primary purpose of an Index is to serve as a measure of the performance of the market as a

whole, or a specific sector of the market. An Index also serves as a relevant benchmark to

evaluate the performance of mutual funds. Some investors are interested in investing in the

market in general rather than investing in any specific fund. Such investors are happy to receive

the returns posted by the markets. As it is not practical to invest in each and every stock in the

market in proportion to its size, these investors are comfortable investing in a fund that they

believe is a good representative of the entire market. Index Funds are launched and managed for

such investors. An example to such a fund is the HDFC Index Fund.

Tax saving schemes

Investors (individuals and Hindu Undivided Families (―HUFs‖)) are being encouraged to

invest in equity markets through Equity Linked Savings Scheme (―ELSS‖) by offering

them a tax rebate. Units purchased cannot be assigned / transferred/ pledged / redeemed /

switched– out until completion of 3 years from the date of allotment of the respective

Units.The Scheme is subject to Securities & Exchange Board of India (Mutual Funds)

Regulations, 1996 and the notifications issued by the Ministry of Finance (Department of

Economic Affairs), Government of India regarding ELSS.

Subject to such conditions and limitations, as prescribed under Section 88 of the Income-tax Act,

1961, subscriptions to the Units not exceeding Rs.10, 000 would be eligible to a deduction, from

income tax, of an amount equal to 20% of the amount subscribed. HDFC Tax Plan 2000 is such a

fund.

Real Estate Funds:


Specialized real estate funds would invest in real estates directly, or may fund real estate

developers or lend to them directly or buy shares of housing finance companies or may even buy

their securitized assets.

Debt Based Schemes:

These schemes, also commonly called Income Schemes, invest in debt securities such as

corporate bonds, debentures and government securities. The prices of these schemes tend to be


more stable compared with equity schemes and most of the returns to the investors are generated

through dividends or steady capital appreciation. These schemes are ideal for conservative

investors or those not in a position to take higher equity risks, such as retired individuals.

However, as compared to the money market schemes they do have a higher price fluctuation risk

and compared to a Gilt fund they have a higher credit risk.

Income Schemes

These schemes invest in money markets, bonds and debentures of corporate with medium and

long-term maturities. These schemes primarily target current income instead of capital

appreciation. They therefore distribute a substantial part of their distributable surplus to the

investor by way of dividend distribution. Such schemes usually declare quarterly dividends and

are suitable for conservative investors who have medium to long term investment horizon and are

looking for regular income through dividend or steady capital appreciation. HDFC Income Fund,

HDFC Short Term Plan and HDFC Fixed Investment Plans are examples of bond schemes.

Money Market Schemes

These schemes invest in short term instruments such as commercial paper (―CP‖), certificates of

deposit (―CD‖), treasury bills (―T-Bill‖) and overnight money (―Call‖). The schemes are the least

volatile of all the types of schemes because of their investments in money market instrument with

short-term maturities. These schemes have become popular with institutional investors and high

net worth individuals having short-term surplus funds.

Gilt Funds

This scheme primarily invests in Government Debt. Hence the investor usually does not have to

worry about credit risk since Government Debt is generally credit risk free. HDFC Gilt Fund is an

example of such a scheme.


Hybrid Schemes: These schemes are commonly known as balanced schemes. These

schemes invest in both equities as well as debt. By investing in a mix of this nature, balanced

schemes seek to attain the objective of income and moderate capital appreciation and are ideal for

investors with a conservative, long-term orientation. HDFC Balanced Fund and HDFC Children‘s

Gift Fund are examples of hybrid schemes.

Constitution: Schemes can be classified as Closed-ended or Open-ended depending upon

whether they give the investor the option to redeem at any time (open-ended) or whether the

investor has to wait till maturity of the scheme.

Open ended Schemes: The units offered by these schemes are available for sale and

repurchase on any business day at NAV based prices. Hence, the unit capital of the schemes

keeps changing each day. Such schemes thus offer very high liquidity to investors and are

becoming increasingly popular in India. Please note that an open-ended fund is NOT obliged to

keep selling/issuing new units at all times, and may stop issuing further subscription to new

investors. On the other hand, an open-ended fund rarely denies to its investor the facility to

redeem existing units.

Closed ended Schemes: The unit capital of a close-ended product is fixed as it makes a

one-time sale of fixed number of units. These schemes are launched with an initial public offer

(IPO) with a stated maturity period after which the units are fully redeemed at NAV linked prices.

In the interim, investors can buy or sell units on the stock exchanges where they are listed. Unlike

open-ended schemes, the unit capital in closed-ended schemes usually remains unchanged. After

an initial closed period, the scheme may offer direct repurchase facility to the investors. Closed-

ended schemes are usually more illiquid as compared to open-ended schemes and hence trade at a

discount to the NAV. This discount tends towards the NAV closer to the maturity date of the

scheme.


Interval Schemes: These schemes combine the features of open-ended and closed-ended

schemes. They may be traded on the stock exchange or may be open for sale or redemption

during pre-determined intervals at NAV based prices.

Risk:

The Risk-Return Trade-off: The most important relationship to understand is the

risk-return trade-off. Higher the risk greater the returns/loss and lower the risk lesser the

returns/loss.

Hence it is up to you, the investor to decide how much risk you are willing to take. In order to do

this you must first be aware of the different types of risks involved with your investment decision.

Market Risk: Sometimes prices and yields of all securities rise and fall. Broad outside

influences affecting the market in general lead to this. This is true, may it be big corporations or

smaller mid-sized companies. This is known as Market Risk. A Systematic Investment Plan


(―SIP‖) that works on the concept of Rupee Cost Averaging (―RCA‖) might help mitigate this

risk.

Credit Risk: The debt servicing ability (may it be interest payments or repayment of

principal) 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.

Inflation Risk: Things you hear people talk about:

―Rs. 100 today is worth more than Rs. 100 tomorrow.‖

―Remember the time when a bus ride costed 50 paise?‖

―Mehangai Ka Jamana Hai.‖

The root cause, Inflation is the loss of purchasing power over 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 the investment. This happens when inflation

grows faster than the return on your investment. A well-diversified portfolio with some

investment in equities might help mitigate this risk.

Interest Rate Risk: In a free market economy interest rates are difficult if not

impossible to predict. Changes in interest rates affect the prices of bonds as well as equities. If

interest rates rise the prices of bonds fall and vice versa. Equity might be negatively affected as

well in a rising interest rate environment. A well-diversified portfolio might help mitigate this

risk.

Political/Government Policy Risk: Changes in government policy and political

decision can change the investment environment. They can create a favorable environment for

investment or vice versa.

http://www.hdfcfund.com/fundschool/financial1Show.jsp#rupee


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

one has purchased. Liquidity Risk can be partly mitigated by diversification, staggering of

maturities as well as internal risk controls that lean towards purchase of liquid securities.

Diversification: The nuclear weapon in your arsenal for your fight against Risk. It simply

means that you must spread your investment across different securities (stocks, bonds, money

market instruments, real estate, fixed deposits etc.) and different sectors (auto, textile, information

technology etc.). This kind of a diversification may add to the stability of your returns, for

example during one period of time equities might underperforms but bonds and money market

instruments might do well enough to offset the effect of a slump in the equity markets. Similarly

the information technology sector might be faring poorly but the auto and textile sectors might do

well and may protect you principal investment as well as help you meet your return objectives.

Risk vs. Reward

Before you can begin to build a successful investment portfolio, you should understand the basic

elements of mutual fund investing and how they can affect the potential value of your

investments over the years.

When you invest in mutual funds, there is no guarantee that you will end up with more money

when you withdraw your investment than you put in to begin with -- and that's a scary prospect.

Loss of value in your investment is what is considered risk in investing. Even so, the opportunity

for investment growth that is possible through investments in mutual funds far exceeds that

concern for most investors. Consider why.


At the cornerstone of investing is the basic principal that the greater the risk you take, the greater

the potential reward. Or stated another way, you get what you pay for and you get paid a higher

return only when you're willing to accept more volatility.

Risk then, refers to the volatility -- the up and down activity in the markets and individual issues

that occurs constantly over time. This volatility can be caused by a number of factors -- interest

rate changes, inflation or general economic conditions. It is this variability, uncertainty and

potential for loss, that causes investors to worry. We all fear the possibility that a stock or bond

we invest in will fall substantially. But it is this very volatility in stocks, bonds and their markets

that is the exact reason that you can expect to earn a higher long-term return from these

investments than you can from CDs and passbook savings accounts.

Different types of mutual funds have different levels of volatility or potential price change, and

those with the greater chance of losing value are also the funds that can produce the greater

returns for you over time. So risk has two sides: it causes the value of your investments to

fluctuate, but it is precisely the reason you can expect to earn higher returns.

You might find it helpful to remember that all financial investments will fluctuate. There are very

few perfectly safe havens and those simply don't pay enough to beat inflation over the long run.


Banks v/s Mutual Funds

BANKS MUTUAL FUNDS

Returns Low Better

Administrative exp. High Low

Risk Low Moderate

Investment options Less More

Network High penetration Low but improving

Liquidity At a cost Better

Quality of assets Not transparent Transparent

Interest calculation Minimum balance between 10th. & 30th. Of every month Everyday

Guarantee Maximum Rs.1 lakh on deposits None

1.4 Benefits of Mutual Fund investment


There are numerous benefits of investing in mutual funds and one of the key reasons for

its phenomenal success in the developed markets like US and UK is the range of benefits

they offer, which are unmatched by most other investment avenues. We have explained

the key benefits in this section. The benefits have been broadly split into universal

benefits, applicable to all schemes and benefits applicable specifically to open-ended

schemes.

Professional Management

Mutual Funds provide the services of experienced and skilled professionals, backed by a

dedicated investment research team that analyses the performance and prospects of

companies and selects suitable investments to achieve the objectives of the scheme. 1.

Professional Investment Management.

By pooling the funds of thousands of investors, mutual funds provide full-time, high-

level professional management that few individual investors can afford to obtain

independently. Such management is vital to achieving results in today's complex markets.

Your fund managers' interests are tied to yours, because their compensation is based not

on sales commissions, but on how well the fund performs. These managers have

instantaneous access to crucial market information and are able to execute trades on the

largest and most cost-effective scale. In short, managing investments is a full-time job for

professionals.

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 same 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.

Mutual funds invest in a broad range of securities. This limits investment risk by

reducing the effect of a possible decline in the value of any one security. Mutual fund


shareowners can benefit from diversification techniques usually available only to

investors wealthy enough to buy significant positions in a wide variety of securities.

‗The nuclear weapon in your arsenal for fight against Risk‘ It simply means that you

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

instruments, real estate, fixed deposits etc.) and different sectors (auto, textile,

information technology etc.). This kind of a diversification may add to the stability of

your returns, for example during one period of time equities might underperforms but

bonds and money market instruments might do well enough to offset the effect of a

slump in the equity markets. Similarly the information technology sector might be faring

poorly but the auto and textile sectors might do well and may protect your principal

investment as well as help you meet your return objectives.

Convenient Administration

Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such

as bad deliveries, delayed payments and follow up with brokers and companies. Mutual

Funds save your time and make investing easy and convenient.

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.

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.

Liquidity

In open-end schemes, the investor gets 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 the Mutual Fund.

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.

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.

Affordability

A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending upon the

investment objective of the scheme. An investor can buy in to a portfolio of equities,

which would otherwise be extremely expensive. Each unit holder thus gets an exposure to

such portfolios with an investment as modest as Rs.500/-. This amount today would get

you less than quarter of an Infosys share! Thus it would be affordable for an investor to

build a portfolio of investments through a mutual fund rather than investing directly in

the stock market.

Choice of Schemes:

Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.


Well Regulated

All Mutual Funds are registered with SEBI and they function within the provisions of

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

Funds are regularly monitored by SEBI.

Life Cycle Planning

With no-load mutual funds, you can link your investment plans to future individual and

family needs -- and make changes as your life cycles change. You can invest in growth

funds for future college tuition needs, then move to income funds for retirement, and

adjust your investments as your needs change throughout your life. With no-load funds,

there are no commissions to pay when you change your investments.

Market Cycle Planning

For investors who understand how to actively manage their portfolio, mutual fund

investments can be moved as market conditions change. You can place your funds in

equities when the market is on the upswing and move into money market funds on the

downswing or take any number of steps to ensure that your investments are meeting your

needs in changing market climates. A word of caution: since it is impossible to predict

what the market will do at any point in time, staying on course with a long-term,

diversified investment view is recommended for most investors.

Periodic Withdrawals

If you want steady monthly income, many funds allow you to arrange for monthly fixed

checks to be sent to you, first by distributing some or all of the income and then, if

necessary, by dipping into your principal.


Dividend Options

You can receive all dividend payments in cash. Or you can have them reinvested in the

fund free of charge, in which case the dividends are automatically compounded. This can

make a significant contribution to your long-term investment results. With some funds

you can elect to have your dividends from income paid in cash and your capital gains

distributions reinvested.

Automatic Direct Deposit

You can usually arrange to have regular, third-party payments -- such as Social Security

or pension checks -- deposited directly into your fund account. This puts your money to

work immediately, without waiting to clear your checking account, and it saves you from

worrying about checks being lost in the mail.

Recordkeeping Service

With your own portfolio of stocks and bonds, you would have to do your own

recordkeeping of purchases, sales, dividends, interest, short-term and long-term gains and

losses. Mutual funds provide confirmation of your transactions and necessary tax forms

to help you keep track of your investments and tax reporting.

Safekeeping

When you own shares in a mutual fund, you own securities in many companies without

having to worry about keeping stock certificates in safe deposit boxes or sending them by

registered mail. You don't even have to worry about handling the mutual fund stock

certificates; the fund maintains your account on its books and sends you periodic

statements keeping track of all your transactions.


Retirement and College Plans

Mutual funds are well suited to Individual Retirement Accounts and most funds offer

IRA-approved prototype and master plans for individual retirement accounts (IRAs) and

Keogh, 403(b), SEP-IRA and 401(k) retirement plans. Funds also make it easy to invest -

- for college, children or other long-term goals. Many offer special investment products

or programs tailored specifically for investments for children and college.

Online Services

The internet provides a fast, convenient way for investors to access financial information.

A host of services are available to the online investor including direct access to no-load

companies. Visit Company Links to access these Companies.

Sweep Accounts

With many funds, if you choose not to reinvest your stock or bond fund dividends, you

can arrange to have them swept into your money market fund automatically. You get all

the advantages of both accounts with no extra effort.

Asset Management Accounts

These master accounts, available from many of the larger fund groups, enable you to

manage all your financial service needs under a single umbrella from unlimited check

writing and automatic bill paying to discount brokerage and credit card accounts.

Margin

Some mutual fund shares are marginable. You may buy them on margin or use them as

collateral to borrow money from your bank or broker. Call your fund company for

details.


Structure of the Indian mutual fund industry

The Indian mutual fund industry is dominated by the Unit Trust of India which has a total

corpus of Rs700bn collected from more than 20 million investors. The UTI has many

funds/schemes in all categories ie equity, balanced, income etc with some being open-

ended and some being closed-ended. The Unit Scheme 1964 commonly referred to as US

64, which is a balanced fund, is the biggest scheme with a corpus of about Rs200bn. UTI

was floated by financial institutions and is governed by a special act of Parliament. Most

of its investors believe that the UTI is government owned and controlled, which, while

legally incorrect, is true for all practical purposes.

The second largest category of mutual funds is the ones floated by nationalized banks.

Canbank Asset Management floated by Canara Bank and SBI Funds Management floated

by the State Bank of India are the largest of these. GIC AMC floated by General

Insurance Corporation and Jeevan Bima Sahayog AMC floated by the LIC are some of

the other prominent ones. The aggregate corpus of funds managed by this category of

AMCs is about Rs150bn.

The third largest category of mutual funds is the ones floated by the private sector and by

foreign asset management companies. The largest of these are Prudential ICICI AMC and

Birla Sun Life AMC. The aggregate corpus of assets managed by this category of AMCs

is in excess of Rs250bn.

Some of the AMCs operating currently are:

Name of the AMC Nature of ownership

Alliance Capital Asset Management (I) Private Limited Private foreign

Birla Sun Life Asset Management Company Limited Private Indian

Bank of Baroda Asset Management Company Limited Banks

Bank of India Asset Management Company Limited Banks

Canbank Investment Management Services Limited Banks

Cholamandalam Cazenove Asset Management Company

Limited

Private foreign


Dundee Asset Management Company Limited Private foreign

DSP Merrill Lynch Asset Management Company Limited Private foreign

Escorts Asset Management Limited Private Indian

First India Asset Management Limited Private Indian

GIC Asset Management Company Limited Institutions

IDBI Investment Management Company Limited Institutions

Indfund Management Limited Banks

ING Investment Asset Management Company Private Limited Private foreign

J M Capital Management Limited Private Indian

Jardine Fleming (I) Asset Management Limited Private foreign

Kotak Mahindra Asset Management Company Limited Private Indian

Kothari Pioneer Asset Management Company Limited Private Indian

Jeevan Bima Sahayog Asset Management Company Limited Institutions

Morgan Stanley Asset Management Company Private Limited Private foreign

Punjab National Bank Asset Management Company Limited Banks

Reliance Capital Asset Management Company Limited Private Indian

State Bank of India Funds Management Limited Banks

Shriram Asset Management Company Limited Private Indian

Sun F and C Asset Management (I) Private Limited Private foreign

Sundaram Newton Asset Management Company Limited Private foreign

Tata Asset Management Company Limited Private Indian

Credit Capital Asset Management Company Limited Private Indian

Templeton Asset Management (India) Private Limited Private foreign

Unit Trust of India Institutions

Zurich Asset Management Company (I) Limited Private foreign

1.5 Recent trends in mutual fund industry

The most important trend in the mutual fund industry is the aggressive expansion of the

foreign owned mutual fund companies and the decline of the companies floated by

nationalized banks and smaller private sector players.

Many nationalized banks got into the mutual fund business in the early nineties and got

off to a good start due to the stock market boom prevailing then. These banks did not

really understand the mutual fund business and they just viewed it as another kind of

banking activity. Few hired specialized staff and generally chose to transfer staff from the

parent organizations. The performance of most of the schemes floated by these funds was

not good. Some schemes had offered guaranteed returns and their parent organizations


had to bail out these AMCs by paying large amounts of money as the difference between

the guaranteed and actual returns. The service levels were also very bad. Most of these

AMCs have not been able to retain staff, float new schemes etc. and it is doubtful

whether, barring a few exceptions, they have serious plans of continuing the activity in a

major way.

The experience of some of the AMCs floated by private sector Indian companies was also

very similar. They quickly realized that the AMC business is a business, which makes

money in the long term and requires deep-pocketed support in the intermediate years.

Some have sold out to foreign owned companies, some have merged with others and

there is general restructuring going on.

The foreign owned companies have deep pockets and have come in here with the

expectation of a long haul. They can be credited with introducing many new practices

such as new product innovation, sharp improvement in service standards and disclosure,

usage of technology, broker education and support etc.

1.6 FREQUENTLY USED TERMS/QUESTIONS

Net Asset Value (NAV)

Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit

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

Valuation Date.

Sale Price

Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales

load.

Repurchase Price


Is the price at which a close-ended scheme repurchases its units and it may include a back-end

load. This is also called Bid Price.

Redemption Price

Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem

their units on maturity. Such prices are NAV related.

Sales Load

Is a charge collected by a scheme when it sells the units. Also called, ‗Front-end‘ load. Schemes

that do not charge a load are called ‗No Load‘ schemes.

Repurchase or ‘Back-end’ Load

Is a charge collected by a scheme when it buys back the units from the unit holders.

1.7 Rules and Regulations

Mutual Funds in India are governed by the SEBI (Mutual Fund) Regulations 1996 as amended

from time to time.

Also, SEBI keeps on issuing various guidelines and circulars on varied topics relating to mutual

fund industry.Latest issuances related to MF’s

Circulars

30 June, 2006 Undertaking from trustees for new scheme offer document

16 June, 2006 Gazette notification no. S.O. 783(E) dated May 22, 2006 pertaining

to SEBI Mutual Funds) (Second Amendment) Regulations 2006

21 April, 2006 Dividend Distribution Procedures for Mutual Funds

Introduction of Gold Exchange Traded Funds in India

04 April, 2006 Rationalisation of Initial Issue Expenses and Dividend distribution

procedure for Mutual Funds

http://www.sebi.gov.in/circulars/2006/mfcir052006.html





http://www.sebi.gov.in/circulars/2006/imdcir0306.html

http://www.sebi.gov.in/circulars/2006/imdcir0206.html


Amendments

22 May, 2006 Securities And Exchange Board Of India (Mutual Funds) (Second

Amendment) Regulations, 2006

In addition, mutual funds of India have formed their association i.e. Association of Mutual

Funds of India ( AMFI ) which acts as a self regulatory body for its members.

Association of Mutual Funds of India (AMFI)

AMFI, the apex body of all the registered Asset Management Companies was incorporated

on August 22, 1995 as a non-profit organization. As of now, all the 30 Asset Management

companies that have launched mutual fund schemes are its members.

Objectives

To define and maintain high professional and ethical standards in all areas of operation of

mutual fund industry

To recommend and promote best business practices and code of conduct to be followed

by members and others engaged in the activities of mutual fund and asset management

including agencies connected or involved in the field of capital markets and financial

services.

To interact with the Securities and Exchange Board of India (SEBI) and to represent to

SEBI on all matters concerning the mutual fund industry.

To represent to the Government, Reserve Bank of India and other bodies on all matters

relating to the Mutual Fund Industry.

http://www.sebi.gov.in/acts/mf2ndamenda.html

http://www.sebi.gov.in/acts/mf2ndamenda.html


To develop a cadre of well-trained Agent distributors and to implement a programme of

training and certification for all intermediaries and other engaged in the industry.

To undertake nation wide investor awareness programme so as to promote proper

understanding of the concept and working of mutual funds.

To disseminate information on Mutual Fund Industry and to undertake studies and

research directly and/or in association with other bodies.

How these mutual funds scored 100%

It is one thing to ride a bull wave and quite another to keep pace in turbulent waters. As

the relentless bull-run on the bourses carried the Sensex past several "Ks" during the last

financial year, making money must have been rather easy.

With stocks of almost all shapes and sizes right from consumer, infrastructure and

engineering riding the wave, fund managers could have just dozed off doing nothing and

yet made mega bucks.

The fund managers' report card for the past fiscal does look impeccable. Out of a total of

261 pure equity funds, nine equity schemes earned more than 100 per cent returns; about

96 beat the widely accepted benchmark Sensex which itself gained a phenomenal 73 per

cent; 175 gave returns in excess of 50 per cent; and none, just none, slipped into red.

With 36 per cent of fund managers beating the benchmarks, not all the gains can be

attributed to buoyant markets though. "We have been facing a situation where the market

breadth is increasing and people are looking beyond a particular sector for out-

performance," says Chetan Sehgal, fund manager at Franklin Templeton Mutual Fund.

"It was difficult to choose the sectors as almost all sectors have been a part of the rally.

Except for capital goods there is no other sector that has outperformed significantly,"

says Viraj Ghatlia, head of financial planning, IL&FS Investsmart.

Cent per cent true. A look at the top ranking equity funds over the past one year should

demonstrate this point better. The top ranking funds constitute a variety of schemes


ranging from sectoral funds to diversified funds, from large-caps to mid-caps and even

funds that usually promise to tread the path the stocks markets have abandoned.

The top-ranking fund, for instance, was Prudential ICICI FMCG Fund, which delivered

118 per cent return. Another sectoral fund Reliance Power delivered 110 per cent during

the period with a 65 per cent allocation to power related stocks.

Apart from the three diversified equity funds from SBI Mutual, which have held on to

their top slot through this bull run, Kotak Opportunities (thematic fund that takes

concentrated bet in few sectors), Sundaram Leadership (invests in leaders in various

businesses) were some thematic funds which had a spectacular run. Besides, mid-cap

oriented funds from Sundaram and Prudential were the other two in the toppers' list.

In short, whatever the mandate of the fund, there was enough opportunity in the market to

beat the averages provided you chose the right stocks.

The toppers were generally overweight on sectors such as capital goods, construction and

sugar to name a few.

They steered clear of or cut exposure to pharma and technology. While big names like

Hindustan Lever, BHEL and Siemens, Bajaj Auto, Maruti and Tata Motors, Reliance

Industries helped beat the Street, some smaller companies like Kalpataru Power, Havells

India and Alps Industries, and even metal stock Hindustan Zinc worked as kickers to the

winning portfolios.

For instance Kalpataru Power, where Prudential ICICI Emerging Star allocated 3.32 per

cent of its assets and Sundaram Select Mid-cap placed 4.09 per cent of its assets, gained a

whopping 302 per cent in the past one year.

Deccan Holdings, another winner picked by Prudential ICICI Emerging Star Fund,

gained 203 per cent during the year. The fund had invested 5.22 per cent of its assets in

the stock.

Where winners kept the faith...


Considering that capital goods has had a spectacular run over the past couple of years,

most funds managers have been consistently overweight on the sector.

Last year, the BSE Capital Goods Index was the best performing index delivering 155 per

cent returns. With returns bettering every quarter - in Q1, the index posted a return of 16

per cent and in Q4, it nearly doubled that much at 34 per cent - fund-men allocated most

of their assets to this sector. Capital goods accounted for about 10.50 per cent of the total

allocation in Q4 (See Top Sector Holdings).

TOPPERS

Scheme Name (all equity schemes) 1 Year

Prudential ICICI FMCG – Growth 118.49

SBI Magnum Multiplier Plus 93 - Growth 111.50

Reliance Diversified Power Fund - Growth 110.18

Prudential ICICI Emerging STAR Fund –

Growth 109.48

SBI Magnum Tax Gain Scheme 93 103.67

SBI Magnum Global Fund 94 – Growth 103.23

Kotak Opportunities Fund – Growth 102.84

SBI Magnum Sector Umbrella - Contra –

Growth 101.88

Sundaram India Leadership Fund - Growth 101.64

Sundaram Select Midcap – Growth 99.45


Returns in %

The average holding of the top 10 schemes over the last four quarters in this sector was

around 15-16 per cent.

For instance, SBI Magnum Multiplier Plus had an allocation of over 8 per cent each in

Crompton Greaves and Thermax, which delivered 138 per cent and 151 per cent returns

respectively in the past year. Taking together all equity diversified funds, the allocation to

the sector has gone up from 6.10 per cent to 10.20 per cent.

Housing and construction sectors have been the most under-researched sectors according

to A K Sridhar, chief investment officer, UTI Mutual Fund. Still, the top 10 performing

funds hiked their exposure to the construction sectors from 4.23 to 5.09 per cent over the

past year.

"We stayed invested in housing and construction segment because of the sheer volume of

construction activities happening in the country," says Sanjay Sinha, fund manager, SBI

Mutual fund.

SBI Magnum Global Fund 94, again a top performing fund, has increased its allocation to

the housing and construction sector from 4.94 per cent to 10.44 per cent over the last four

quarters. One stock that the fund has bought into is Ansal Properties, which accounted for

4.58 per cent of net assets in March 2006. Some other construction bets include

Nagarjuna Construction (3.07 per cent) and IVRCL Infrastructure (3.37 per cent) both of

which were stunning performers last year.

SBI Magnum Multiplier Plus 93, another front-runner, has however maintained an

average allocation of around five per cent through all four quarters. On an average top 10

schemes held around 4-5 per cent of assets in Housing and construction over the financial

year. While all diversified equity schemes almost doubled their allocation to this sector

from 1.03 per cent to 2.04 per cent in the four quarters.


Another sector where winning funds hiked exposure was auto and auto ancilliaries. Last

year, the BSE Auto index gave 110 per cent return, second best after capital goods. The

allocations to this segment went up from 4.84 per cent in Q1 from 6.37 per cent in Q4 for

all diversified equity funds.

"We still fancy two wheelers a lot and are positive on stocks like Hero Honda and

Maruti," says Sri Vidhya, fund manager, Sundaram Leadership fund, which managed to

deliver 101 per cent return.

Last year though FMCG stocks were truly fast moving with the BSE FMCG index

gaining 109 per cent. Even the consumer durables did well with the BSE Consumer

Durable index posted a return of 115 per cent on the back of outstanding performance by

watch and jewellery market Titan Industries and Videocon.

Prudential ICICI FMCG, the topper last year, however, played it safe by maintaining an

average exposure of 15 per cent in textiles and consumer durables over the past year.

The fund did well taking exposure to lesser known companies like Alps Industries which

returned 95 per cent and emerging consumer major Dabur (124 per cent) where the fund

had placed 6.59 per cent of its net assets.

For Sundaram India Leadership Fund, the favourite was sugar. The fund almost doubled

its allocation to around 6 per cent from 3 per cent in March 2005. "We are holding sugar

since the inception of the fund. The fact that crude oil prices have risen sharply, and the

demand for ethanol has gone up, has pushed up sugar prices," says Sundaram's Sri

Vidhya.

...where they wavered

The BSE Metal was the worst performing index over the last four quarters, giving

negative returns in three of the last four quarters and just about 40 per cent over the past

year. Ironically, the top 10 performing funds constantly raised their stakes in metal stocks

(including steel) from 2.6 per cent to 4.37 per cent over the last four quarters.


Defending the move, says Nilesh Shah, CIO, Prudential ICICI Mutual Fund, "We are

looking for companies which produce value-added products, since they can escape the

vagaries of price movements."

Notably, true to its label, SBI Contra Fund, which primarily seeks to beat the market by

betting against the market, has about 10 per cent allocation to metals including steel. Its

top holding at the end of March 2006 was Hindustan Zinc constituting 5.78 per cent of

net assets. Last year, the stock zoomed 195 per cent and the party continues on the

bourses.

Over the last quarter, Prudential ICICI Emerging Star Fund, the fourth top performing

fund also increased its metal exposure to around 5.7 per cent from 1.8 per cent over the

last four quarters. On an average the top 10 schemes held around 4-5 per cent of assets in

metal stocks. The holding of all diversified equity schemes in this sector is up from 3.26

per cent to 4.47 per cent.

Textiles stocks have however been treaded with cautious optimism by fund managers

with allocations by top 10 funds averaging around 3 per cent.

Prudential ICICI FMCG fund had been more bullish than others with weightage around

6-7 per cent for the sector. That is also partly because of the nature of businesses the fund

is supposed to invest in. SBI Magnum Multiplier Plus 93 also had a weightage of 5-6 per

cent to textiles during the period.

...and what they skipped

Similarly, another laggard was pharma stocks. Over the last 12 months, the BSE

Healthcare lagged behind the Sensex posting a return of 51 per cent returns. Predictably,

those that did well did so by being underweight on the sector.

The top 10 funds pruned their exposure to pharmaceuticals from 6.07 per cent to 4.37 per

cent over the last four quarters. Sankaran Naren, fund manager, Prudential ICICI AMC.

"We are bullish on select pharma stocks with focus on exports," he adds.


In a market that has been sizzling on the glory of a resurging domestic economy, the

export-oriented technology sector seem to have been relegated to the background. One

fund manager regrets having bough mid-cap IT stocks over the last year, which have

been laggards. The average allocation to the sector by all diversified equity schemes is up

from 6.8 per cent to 7.93 per cent during the past year.

With greater earnings visibility in the sector, especially after the fourth quarter results and

bullish guidance by the top-tier companies, fund managers are back on a buying spree. "I

am bullish on the visibility in top-line growth for the IT sector.

Another disappointment has been banking stocks, which remained volatile during the year due to

uncertainties on interest rates. On an average top 10 schemes held around 3-4 per cent of assets in

banks over the past financial year.


CHAPTER 2

PROFILE OF THE COMPANY

2.1 About Anand Rathi

Anand Rathi (AR) is a leading full service securities firm providing the entire gamut of

financial services. The firm, founded in 1994 by Mr. Anand Rathi, today has a pan India

presence as well as an international presence through offices in Dubai and Bangkok.

AR provides a breadth of financial and advisory services including wealth management,

investment banking, corporate advisory, brokerage & distribution of equities,

commodities, mutual funds and insurance - all of which are supported by powerful

research teams.

The firm's philosophy is entirely client centric, with a clear focus on providing long term

value addition to clients, while maintaining the highest standards of excellence, ethics

and professionalism. The entire firm activities are divided across distinct client groups:

Individuals, Private Clients, Corporate and Institutions.

Milestones


1994: Started activities in consulting and Institutional equity sales with staff of 15

1995: Set up a research desk and empanelled with major institutional investors

1997: Introduced investment banking businesses

1999: Lead managed first IPO and executed first M & A deal

2001: Initiated Wealth Management Services

2002: Retail business expansion recommences with ownership model

2003:

Wealth Management assets cross Rs1500 crores

Retail Branch network exceeds 50

Insurance broking launched

Launch of Wealth Management services in Dubai

2004:

Retail Branch network expands across 100 locations within India

Commodities brokerage and real estate services introduced

Wealth Management assets cross Rs3000crores

Institutional equities business re launched and senior research team put in place

2005:


Real Estate Private Equity Fund Launched

2.2 Strengths

Breadth of Services

In line with its client-centric philosophy, the firm offers to its clients the entire spectrum

off financial services ranging from brokerage services in equities and commodities,

distribution of mutual funds, IPO‘s and insurance products, real estate, investment

banking, merger and acquisitions, corporate finance and corporate advisory.


Clients deal with a relationship manager who leverages and brings together the product

specialists from across the firm to create an optimum solution to the client needs.

Management Team

AR brings together a highly professional core management team that comprises of

individuals with extensive business as well as industry experience.

In-Depth Research

Our research expertise is at the core of the value proposition that we offer to our clients.

Research teams across the firm continuously track various markets and products. The aim

is however common - to go far deeper than others, to deliver incisive insights and ideas

and be accountable for results.

Management Team

Senior Management comprises a diverse talent pool that brings together rich experience

from across industry as well as financial services.

Mr. Anand Rathi - Group Chairman

Chartered Accountant

Past President, BSE

Held several Senior Management positions with one of India's largest industrial groups

Mr. Pradeep Gupta - Managing Director

Plus 15 years of experience in Financial Services

Mr. Amit Rathi - Managing Director

Chartered Accountant & MBA

Plus 9 years of experience in Financial Services


2.3 Fact Sheet

1994:

Started activities in consulting and Institutional equity sales with staff of 15

1995:

Set up a research desk and empanelled with major institutional investors

1997:

Introduced investment banking businesses

Retail brokerage services launched

1999:

Lead managed first IPO and executed first M & A deal

2000:

Group becomes India's largest retail broker - presence across 100 cities in India

Also ranked among top 5 institutional broking & investment banking groups

2001:

Initiated Wealth Management Services

2002:

Retail business expansion recommences with ownership model

2003:

Wealth Management assets cross Rs1500 crores

Retail Branch network exceeds 50

Insurance broking launched

Launch of Wealth Management services in Dubai


2004:


Commodities brokerage and real estate services introduced

Wealth Management assets cross Rs3000crores

Institutional equities business relaunched and senior research team put in place

2005:

Retail Branch network expands across 170+ locations within India

Real Estate Private Equity Fund Launched

2.4 Philosophy

We at Anand Rathi try and understand your financial needs; to offer you personal advice

and expert analysis that you need to make your assets go the extra mile. Our ability to

think far ahead and formulate a long-term strategy, coupled with long hours of practice

and research are the key drivers, which make your wealth work harder for you.

We believe that the key to build wealth lies in allocating assets across various markets,

financial instruments and industry sectors. Keeping this in mind we leverage our

expertise in scientific asset allocation, to help you maximize returns and minimize risks.

Process

We realize the need to simplify the complexities of the investment strategies and we

achieve this by offering highly customized wealth management product.

Our Personalized Relationship Managers along with the expert team of analysts and

advisors will assist you in analyzing all your investment needs and advice you on

specialized solutions created exclusively for you.


We have a dedicated research team who constantly screens the market for investment

prospects. The team provides support in fine-tuning the investment strategy & suggests

how to capitalize on these opportunities.

2.5 Products

Equity & Derivatives: AnandRathi provides end-to-end equity solutions to institutional

and individual investors. Consistent delivery of high quality advice on individual stocks,

sector trends and investment strategy has established us a competent and reliable research

unit across the country.

Clients can trade through us online on BSE and NSE for both equities and derivatives.

They are supported by dedicated sales & trading teams in our trading desks across the

country. Research and investment ideas can be accessed by clients either through their

designated dealers, email, web or SMS.

Mutual Funds: AR is one of India's top mutual fund distribution houses. Our success lies

in our philosophy of providing consistently superior, independent and unbiased advice to

our clients backed by in-depth research. We firmly believe in the importance of selecting

appropriate asset allocations based on the client's risk profile.

We have a dedicated mutual fund research cell for mutual funds that consistently churns

out superior investment ideas, picking best performing funds across asset classes and

providing insights into performances of select funds.

Depository Services: AR Depository Services provides you with a secure and convenient

way for holding your securities on both CDSL and NSDL.

http://www.rathi.com/individuals/brokerage_distribution/equity&derivatives.htm

http://www.rathi.com/individuals/brokerage_distribution/mutualfunds.htm

http://www.rathi.com/individuals/brokerage_distribution/depositoryservices.htm


Our depository services include settlement, clearing and custody of securities, registration

of shares and dematerialization. We offer you daily updated internet access to your

holding statement and transaction summary.

Commodities: Commodities broking - a whole new opportunity to hedge business risk

and an attractive investment opportunity to deliver superior returns for investors.

Our commodities broking services include online futures trading through NCDEX and

MCX and depository services through CDSL. Commodities broking is supported by a

dedicated research cell that provides both technical as well as fundamental research. Our

research covers a broad range of traded commodities including precious and base metals,

Oils and Oilseeds, agri-commodities such as wheat, chana, guar, guar gum and spices

such as sugar, jeera and cotton.

In addition to transaction execution, we provide our clients customized advice on hedging

strategies, investment ideas and arbitrage opportunities.

Insurance: As an insurance broker, we provide to our clients comprehensive risk

management techniques, both within the business as well as on the personal front. Risk

management includes identification, measurement and assessment of the risk and

handling of the risk, of which insurance is an integral part. The firm deals with both life

insurance and general insurance products across all insurance companies.

Our guiding philosophy is to manage the clients' entire risk set by providing the optimal

level of cover at the least possible cost. The entire sales process and product selection is

research oriented and customized to the client's needs. We lay strong emphasis on timely

claim settlement and post sales services.

Services

Risk Management

Due diligence and research on policies available

Recommendation on a comprehensive insurance cover based on clients needs

http://www.rathi.com/individuals/brokerage_distribution/commodities.htm

http://www.rathi.com/individuals/brokerage_distribution/insurance.htm


Maintain proper records of client policies

Assist client in paying premiums

Continuous monitoring of client account

Assist client in claim negotiation and settlement

IPO’s: We are a leading primary market distributor across the country. Our strong

performance in IPO‘s has been a result of our vast experience in the Primary Market, a

wide network of branches across India, strong distribution capabilities and a dedicated

research team. We have been consistently ranked among the top 10 distributors of IPO‘s

on all major offerings. Our IPO research team provides clients with in-depth overviews of

forthcoming IPO‘s as well as investment recommendations. Online filling of forms is

also available. Other IPO‘s handled –

Name of Company Date of Issue

Bombay Rayon Fashions Limited Nov 17, 2005

Prithvi Information Solutions Ltd Oct 28, 2005

Shri Ramrupai Balaji Steels Limited Jul 14, 2005

Provogue (India) Limited Jun 16, 2005

Emami Limited Mar 10, 2005

NRIs: AR is the perfect gateway to the wealth of investment opportunities in India for

Non-Resident Indians. With our dedicated NRI desk in India and Relationship Managers

in your own country, you get the best of both worlds - real understanding of your

investment needs as well on-the-ground expertise.

http://www.rathi.com/individuals/brokerage_distribution/ipos.htm

http://www.rathi.com/Admin/Media_Centre/IPODOC/brfl.pdf%22=%22

http://www.rathi.com/Admin/Media_Centre/IPODOC/Prithvi.pdf%22=%22

http://www.rathi.com/Admin/Media_Centre/IPODOC/SRBSL.pdf%22=%22

http://www.rathi.com/Admin/Media_Centre/IPODOC/Provogue.pdf%22=%22

http://www.rathi.com/Admin/Media_Centre/IPODOC/emamifinal1.pdf%22=%22


CHAPTER 3

Introduction to Balanced fund’s Liquid Funds

3.1Balanced funds

Definition

A mutual fund that buys a combination of common stock, preferred stock, bonds, and

short-term bonds, to provide both income and capital appreciation while avoiding

excessive risk. The purpose of balanced funds (also sometimes called hybrid funds) is to

provide investors with a single mutual fund that combines both growth and income

objectives, by investing in both stocks (for growth) and bonds (for income). Such

diversified holdings ensure that these funds will manage downturns in the stock market

without too much of a loss; the flip side, of course, is that balanced funds will usually

increase less than an all-stock fund during a bull market.

An explanation of mutual funds, with specific emphasis on advantages and disadvantages

of this type of investment. If you were thinking of investing in a mutual fund, read this

article!

Describes some of the terminology necessary to understand mutual fund investments,

including open-end, closed-end, net asset value, public offering price, dividends and

capital gains distributions, family, share classes, and dual-purpose fund.

In order to evaluate a mutual fund, you should read its prospectus and annual report,

which describe the fund's investment objective, strategy, fees and expenses, past

performance, risks, and largest holdings. Click here to learn more about each of these

topics.

http://www.investorwords.com/3173/mutual_fund.html

http://www.investorwords.com/986/common_stock.html

http://www.investorwords.com/3778/preferred_stock.html

http://www.investorwords.com/521/bonds.html

http://www.investorwords.com/4563/short_term.html

http://www.investorwords.com/694/capital.html

http://www.investorwords.com/239/appreciation.html

http://www.investorwords.com/4292/risk.html

http://www.investorwords.com/2630/investors.html

http://www.investorwords.com/4743/stock_market.html

http://www.investorwords.com/616/bull_market.html


Balanced funds may lock into higher equity pie

Come June, balanced funds may have to alter their structure to step up their equity

exposures and maintain it at 65 per cent, if they are to avail themselves of the tax benefits

extended to equity oriented funds.

The recent Budget proposes to tweak the official definition of "equity oriented funds" to

include only those funds which have 65 per cent or more of their investments in stocks.

Currently, all funds that have a 50 per cent equity exposure are "equity oriented funds".

These enjoy exemption from dividend distribution tax and lower rates of tax on short-

term capital gains.

Balanced funds currently allocate between 60-65 per cent of their assets to stocks. But

they have considerable leeway in their objectives to swing between a 40 per cent and a 60

per cent equity exposure. Now, fund houses may have to tweak this structure to "fix" the

equity exposure at 65 per cent, if they want their balanced funds to enjoy tax benefits.

"The tax benefits are substantial. We will be changing the structure of the scheme and

increasing the equity exposure, but after we take a formal decision," said Mr N.

Sethuram, Chief Investment Officer of SBI Mutual Fund. SBI's Magnum Balanced Fund

had a 65 per cent exposure to equities by end-January.

Mr Sethuram also feels that the changes will blur the boundary between pure equity funds

and balanced funds. "Equity funds can hold up to 30 per cent of their portfolio in cash;

balanced funds will now have to hold 65 per cent in stocks. There is not much of a

difference between the two," he pointed out.


Franklin Templeton, which manages Franklin Templeton India Balanced Fund and FT

Dynamic P/E ratio Fund, said it is discussing the proposals with tax consultants before

finalising a decision. But the fund already has an equity allocation of 65 per cent on FT

India Balanced Fund. "Our exposure to equity has been on the higher side, on account of

our conviction about the long-term potential of equities. Having said that, these proposals

may impact the asset allocation of balanced funds that wish to offer tax-free dividends to

investors," said Mr Sukumar Rajah, CIO of the fund house.

With the stocks markets on a dream run, most fund houses have tended to take a bullish

view of equities. While most balanced funds had 60-65 per cent in stocks, HDFC

Prudence was the only outlier with a 59 per cent equity allocation by end-January. A

higher equity allocation may become a permanent feature if fund houses decide to take

advantage of the new proposals.

But as one fund manager pointed out, "You can have a lower allocation to equities over a

month or two, because the 65 per cent limit is reckoned on the average of monthly

balances through the year." Funds also have a comfortable three-month window until

June 1, to make these changes. That is when these proposals, if passed into law, will take

effect

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

These schemes generally have a three-fold objective :

i) to conserve the initial principal,

ii) to pay current income and

iii) to promote long-term growth of both principal and income.


Fund managers achieve these objectives through a diversified portfolio of equities and

debt instruments. While equities provide growth, debt instruments provide current

income and stability.

For the small investor, a balanced fund is the best way to practice asset allocation, which

means dividing your portfolio among different investments such as equity and bonds.

Fund managers apportion your investment into debt and equity investments within the

limits prescribed in the offer document.

Current tax laws have accorded a tax-free status to open-ended schemes investing more

than 50 per cent in equities. Therefore, if you are looking for tax benefits, take a look at

the asset allocation table in the offer document to ensure that the fund invests more than

50 per cent in equities.

The balanced fund is ideal :

i) for those seeking a balance between stability and growth with some protection against

inflation

ii) Those unable to choose between equities and fixed income securities.

iii) Those who have never invested in equities, and are eager to take their first step.

3.2 WORKING OF BALANCED FUNDS

Balanced mutual funds make it possible by investing in an assortment of investment

instruments such as stocks, money markets and bonds etc. Balanced mutual funds are one

of the types of various mutual funds available in the market. This article discusses:

What is the principle behind balanced mutual fund?

What is the objective of the balanced fund?

Differentiate between balanced funds and other types of funds


Balanced mutual funds are one of the types of various mutual funds available in the

market. If you are wondering if there is any fund that can combine benefits of income and

capital appreciation, look no further, this is it. Balanced mutual funds make it possible by

investing in an assortment of investment instruments such as stocks, money markets and

bonds etc. Alternately these are also called as asset allocation funds.

The proportion in which the balanced mutual funds allocate their assets is usually 60 % to

65 % in stocks and the balance in bonds. The proportion is not disturbed while managing

the fund as it is to remain within the pre set minimum and maximum limits.

Agreed that mutual funds provide better and safer investment domains for ordinary

public, but they are not completely devoid of risks and violent market fluctuation.

Balanced mutual funds try to address these concerns in a way unique to mutual funds

alone.

Investment in Stocks : One can draw some similarity of balanced funds with well

diversified funds. Asset allocated for stocks are diversified into different sectors which

are performing with high returns. Fund allocation weightage is determined by the stocks'

return potentials. The top stock, for example may get an allocation of say 10% and the

lesser the potential the lesser is the percentage allocation of funds. The same pattern is

then repeated for another sector of stocks. Sectors are chosen subject to various

parameters.

Investment in Bonds : The allocation to bonds is distributed among bonds issued by

governments and banks. Municipal bonds, called as munis, some times find their way

into this. This investment provides guaranteed returns at a steady rate over a period. This

gives the stability to the entire fund cushioning the violent fluctuations of aggressive

stock investment.

Balanced Fund v/s Other Types of Funds

The objective of the fund is to generate income while being able to grow capital.

Blend of Growth and Safety : The unique proposition of spreading the investment into


two broad divisions of mutual fund investing is hard to find in other class of funds.

Freedom to decide allocation : freedom to switch over from one proportion to the other,

which is from 60:40 to 40:60 patterns. You can switch over when you perceive a growth

opportunity or a threat into the other from the existing. This you can reverse when you

perceive the situation leading to it has changed. No other type of fund has this freedom,

having chosen the fund, you have to go through the mandate of the fund.

Best balanced mutual funds keep allocation flexible and open to changes as per demands

of market conditions but subject to regulations by laws of government and SEC

(Securities & Exchange Commission).

Risky Proposition : Consider a situation when the stock market is having a bull run (long

rally). Then you can expect a great appreciation in its principal. Naturally any manager

would be tempted to divert as much cash at his command to stocks as possible. It could

go as high as 80% with just 20% for debt instruments. Other types of funds differ here

because of SEC regulations and funds' own mandate.

3.3ADVANTAGES OF BALANCED FUNDS

For balanced mutual funds, this is one Budget where the devil is truly in the detail. By

tweaking the definition of equity-oriented funds to include only those funds that have

invested at least 65 per cent of their assets in equities, the Budget proposals put balanced

funds in a quandary.

Until now, funds with an equity exposure of 50 per cent or more were defined as "equity-

oriented funds". Investors in these funds are exempted from paying long-term capital

gains tax; and short-term gains are taxed at a concessional 10 per cent. Equity funds are

also exempt from paying dividend distribution tax, at 12.5 per cent for individuals, when

they pay out dividends.


Balanced funds that would like their investors to enjoy lower rates of tax will now be

forced to retain their equity exposure at 65 per cent, or a higher proportion, of their

assets. Funds that prefer a conservative equity exposure will have no choice but to forego

the tax benefits. Rather than lose the tax benefits, most balanced fund managers may opt

for a permanent higher allocation to equities. The proposals, if passed into law, take

effect on June 1.

More equity exposure

Given the substantial tax benefits associated with being classified as an `equity-oriented

fund', most fund-houses are likely to tweak their balanced funds to fit in with the new

objectives.

The immediate impact on the asset allocation pattern of balanced funds may not be too

significant. With corporate earnings growing at a healthy clip and the stock market on a

dream run, most fund-houses have taken a bullish view on equities and maintain a high

equity allocation in their respective balanced funds.

Tilted towards equities

Of the various long-running balanced funds, Franklin Templeton India Balanced Fund,

Magnum Balanced Fund and Kotak Balance already had equity exposures of 65 per cent

or more by end-January 2006. Others such as Sundaram Balanced and PruICICI

Balanced, were at a 64 per cent equity exposure and need only to peg it up a whisker to

make it over the threshold. Only HDFC Prudence had an equity allocation substantially

lower than the threshold, at 59.9 per cent, by end-January.

Of course, the equity allocation for this purpose is reckoned on the average monthly

balances through the year. Therefore, a fund need not necessarily retain a 65 per cent

equity exposure at all times to be eligible for the tax benefits. There could be temporary

spikes or a shortfall in the equity allocation over a month or two that could be made up in

the rest of the year.


Since these proposals take effect only in June, funds have a fairly long, three-month

window to think through and rejig their asset allocation pattern.

Less flexibility

But it is the loss of flexibility that this rule entails that is a greater worry for investors in

balanced funds. With the proportion of equity investments in a balanced fund

straitjacketed at 65 per cent, managers of such funds will have less flexibility to move to

debt investments if the equity market appears overheated.

Individual investors, on their own, are seldom savvy enough to book profits on their

equity portfolio at the right time, given the difficulty of taking a view about stock

valuations or the direction of interest rates. Managers of balanced funds are better placed

to make this call.

Most balanced funds at present have considerable leeway in their asset allocation. Their

objectives usually allow equity investments to swing between 40 per cent and 60 per cent

of their assets. In practice, though, equity investments account for 60-65 per cent of the

assets.

This flexibility has stood some funds in good stead. Successful balanced funds such as

HDFC Prudence have turned in an impressive performance by making this kind of

"tactical" asset allocation call.

If the equity exposure in this fund is "fixed" at 65 per cent, the fund may have to load up

on stocks, irrespective of whether the fund manager is really comfortable with such an

allocation. Investors could lose out on the value addition that comes from fluid asset

allocation.

Balanced funds still attractive

Do these proposals make investing in balanced funds an unattractive proposition? Could

an investor substitute a balanced fund by investing 65 per cent of his money in equity

funds and 35 per cent in debt funds? No, because balanced funds will continue to offer

three distinct advantages over this strategy. One, balanced funds periodically re-balance


assets between equity and debt — difficult for an individual investor to manage on his

own.

Second, the tax advantages over direct investing. When a fund manager books profits on

stocks or bonds to re-balance his portfolio, the fund pays no capital gains tax on these

transactions. As an investor, you will have to pay short-term capital gains tax, if you rejig

your portfolio at short intervals.

Third, balanced fund managers will still be able to add some value on asset allocation.

They could choose to have a much higher equity exposure than 65 per cent and juggle

between the debt and cash components.

Details regarding SBI Magnum‘s Balanced Fund

Magnum Balanced Fund

Magnum Balanced Fund invest in a mix of equity and debt investments. Hence they are

less risky than equity funds, but at the same time provide commensurately lower returns.

They provide a good investment opportunity to investors who do not wish to be

completely exposed to equity markets, but is looking for higher returns than those

provided by debt funds. The main features of the scheme are:

In operation since October 1995

Minimum investment of Rs. 1000

Ideal for investors who wish to benefit from equity growth without excessive

volatility

Entry Load : Investments below Rs. 5 crores – 2.25% Investments of Rs.5 crores

and above – NIL" SIP/STP - 2.25%

Exit Load: Investments below Rs.5 crores < 6 months - 1.00% 6 months and 12

months - 0.50% Investments of Rs.5 crores and above - NIL

SIP /STP-< 6 months from the date of investment of each instalment - 1.00%

SIP : Minimum amount Rs.500/month - 12 months Rs.1000/month - 6months,

Rs.1500/quarter - 12 months


STP : Minimum amount Rs.1000/- month - minimum period of 6 months

Rs.3000/ Quarter - minimum period of 6 months

Inter scheme switches to other equity schemes will not carry an Entry Load. However

exit load will be applicable.

In respect of STP transactions, an investor would now be permitted to transfer any

amount from the switch-out scheme, subject to a minimum transfer of Rs.1000 pm or

Rs.3000 per quarter, without any restriction on maintaining the minimum balance

requirement as stipulated for the switch out scheme. The minimum period for STP will be

atleast 6 months.

SBI Magnum Balanced Fund

INVESTORS in SBI Magnum Balanced Fund may retain their holdings, as there has

been a substantial improvement in the fund's performance over the past three years. The

equity portfolio has a neat mix of mid-cap stocks and large-cap stocks.

Despite a sizeable allocation to large-cap stocks, the fund has performed impressively.

The mid-cap stocks in the portfolio have delivered attractive returns as they have enjoyed

several bouts of re-rating over the past couple of years. It has outperformed the CRISIL

Balanced Fund Index and the BSE-100 by a comfortable margin.

Over a five-year period, the NAV has, however, remained largely flat.

In the 10 years since launch, the fund has turned in annual returns of 16 per cent; a large

part of this owing to the sharp improvement in fund performance since early 2003.

The recovery of SBI Magnum Balanced and the move to the top of the ranks along with

HDFC Prudence in the balanced funds category is in line with the trend evident in all the

SBI-managed funds.


The fund has consistently maintained 60-65 per cent of assets in equities. This has helped

perk up returns, aided in no small measure by the largely bullish equity market of the past

two years.

The fund has been aggressively managed and appears to have picked the right themes and

stocks to ride the momentum in the market.

Even in the large-cap space, the fund has shuffled its portfolio over the past few months.

Reliance, SBI and Jet Airways have replaced the likes of ACC, Gujarat Ambuja and

NTPC.

Among mid-cap stocks, the fund has replaced Pantaloon Retail and Uttam Galva Steels

with IVRCL Infrastructure and Adlabs Films. So far, such changes have yielded

attractive returns.

Suitability: The fund is appropriate for investors who seek a mix of equity and debt and

prefer to go through the balanced funds route.

This is especially true for investors who do not have the time and inclination to construct

a balanced portfolio and ensure that the asset allocation remains in line with their

investment objective and risk preferences.

Unlike HDFC Prudence, SBI Magnum Balanced Fund still has a small asset base of a tad

less than Rs 100 crore.

This provides for a high degree of flexibility in asset management, coupled with the

quality of stock selection, and holds promise of the fund sustaining the momentum in

NAV.

Investors may opt for the dividend option as payments are exempt from tax.

Fund facts: The fund was launched in October 1995. The minimum investment is Rs

5,000.


The entry load is 2.25 per cent. There is no exit load. Mr Sachin S. Sawarikar is the

manager.

Unitholders can retain their exposure in Magnum Balanced Fund. A high exposure to

equity during the three-year bull rally has helped SBI Magnum Balanced Fund deliver an

impressive performance through most of this period.

Over a one-year period, the fund has generated a return of 57 per cent, which makes it

one of the top performers in the category. Its returns beat the benchmark Crisil Balanced

Index by about 20 percentage points. Over a longer time-frame, however, HDFC

Prudence still enjoys a better track record.

Suitability: The latter may also be better suited for those who have a conservative risk

profile.

Prudence has maintained a 60 per cent equity allocation, compared to 65 per cent and

more in most other balanced funds. Magnum Balanced, however, had about 75 per cent

invested in equity as of April 30.

It also frequently makes "tactical" asset allocation calls, with its holdings in equity

swinging widely from 62 per cent in November 2005to 86 per cent in March 2006. These

calls have, no doubt, paid off for the fund over the past year. The fund may, however, not

be suitable for investors who want a stable mix of debt and equity in their portfolios.

Notably, most balanced funds may no longer have the flexibility to substantially cut their

exposure to equity in volatile times. Already, most have at least 65 per cent of their assets

in equity.

Recent changes in the definition of "equity-oriented" funds, to determine the tax payable

at the hands of the investor, are also likely to ensure that this bias towards equity remains

in most cases.

According to the new rules, a fund should have at least 65 per cent invested in equity, as

against 50 per cent earlier, for investors to enjoy the capital gains and dividend

distribution tax benefits of equity.


Most balanced funds may, therefore, be forced to fix their equity allocation at 65 per cent

for a greater part of the year, if they want their investors to enjoy tax benefits. The

distinction between these funds and equity is, therefore, likely to blur somewhat.

In this context, Magnum Balanced may not have a much higher risk profile than others in

its category. Balanced funds may, in general, be better suited for those who want at least

a 65 per cent exposure to equity at any given time.

Portfolio overview: The fund invests in a good mix of large-cap and mid-cap stocks.

About 30 per cent is invested in stocks with a market capitalisation of more than Rs

10,000 crore. The top ten stocks account for about 35 per cent of its assets.

Its top three sectors — consumer goods, IT and engineering — account for about a third

of the portfolio. The fund invests mainly in corporate debt. It had about 10 per cent in

cash as of April 30.

Fund Facts: SBI Magnum Balanced was launched in 1995. It has an asset base of Rs 215

crore. It offers dividend and growth options. The minimum investment is Rs 1,000

DETAILS OF TWO IMPORTANT BALANCED FUNDS FLOATED BY

SBI MAGNUM

MAGNUM NRI INVESTMENT FUND FLEXI ASSET PLAN :


Investment Objective

The investment objective of the scheme will be to provide attractive returns to the

Magnum holders either through periodic dividends or through capital

appreciation through an actively managed portfolio of debt, equity and money

market instruments. Income may be generated through the receipt of coupon

payments, the amortization of the discount on the debt instruments, receipt of

dividends or purchase and sale of securities in the underlying portfolio.

Asset Allocation

Instrument % of Portfolio of

Plan A & B Risk Profile

Corporate Debenture and Bonds/PSU, FI,

Government guaranteed Bonds including

Securitized Debt and In

Up to 90% of the

investments in debt

instruments

Medium to High

Of which Securitized Debt

Not more than 30%

of the investments

in debt instr

Medium to High

Government Securities

Up to 100% of the

investments in debt

instruments

Low

Equity and equity related instruments

Atleast 10% and not

exceeding 80% at

any time

High

Derivative Instruments Within approved

limits Low

Cash and Call and Money Market Up to 25% Low


Instruments

Scheme Highlights

1.All Plans have Growth and Dividend Options. 2.The returns under the Growth

option to be through capital appreciation only, The FlexiAsset Plan to follow an

Asset Allocation Model wherein depending on market conditions/based on

certain triggers, the Fund Manager can take a view on the percentage of

investments that can be allocated to equity.

3.This Plan would have a minimum of 10% investment in equity related

instruments which can be increased up to 80% depending on market

fundamentals.

4.The investment universe for equity stocks will be limited to such equity stocks

that form a part of BSE-100. 5.The scheme will declare NAV, Sale and

Repurchase prices on all business days.

6.All Plans will have separate asset classes and will declare separate NAVs for

different options.

7.Dividends distributed under the scheme will be subject to a dividend

distribution tax of 12.5% and will be tax free in the hands of the investor.

Investments in Mutual Funds by NRIs are fully repatriable in case the funds are

remitted through NRE/FCNR accounts. Short -term/Long-term Capital Gains

would be subject to a withholding tax of 30%/20%.

Launch Date Minimum Application

January 2, 2004 Rs. Rs. 50,000 and multiples of Rs.

1,000. No maximum limit.

Entry Load Exit Load

Entry Load : Investments below Rs. 5

crores - 2.25%Investments of Rs.5

crores and above - NIL

Investments below Rs.5 crores < = 6

months - 1.00% and NIL thereafter.

Investments of Rs.5 crores and above -


NIL

SIP SWP

Minimum amount Rs.500/month - 12

months Rs.1000/month - 6months,

Rs.1500/quarter - 12 months Minimum

amount

A minimum of Rs. 1000 can be

withdrawn every month or quarter by

indicating in the application form or by

issuing advance

instructions to the Registrars at any

time.

Nav's

Plan Latest Nav Date

FlexiAsset Plan - Growth 22.378 30/03/2007

FlexiAsset Plan - Dividend 22.3756 30/03/2007

MAGNUM BALANCED FUND::


To provide investors long term capital appreciation along with the liquidity of an

open-ended scheme by investing in a mix of debt and equity. The scheme will

invest in a diversified portfolio of equities of high growth companies and balance

the risk through investing the rest in a relatively safe portfolio of debt.

Asset Allocation


Plan A & B Risk Profile


Equities At least 50% Medium to High

Debt Instruments like debentures,

bonds,khokhas, etc. Up to 40%

Securitized Debt

Not more than 10%

of investments in

debt

Medium to High

Money Market Instruments Balance Low

Scheme Highlights

1. An open-ended scheme investing in a mix of debt and equity instruments.

Investors get the benefit of high expected-returns of equity investments with the

safety of debt investments in one scheme.

2. On an ongoing basis, magnums will be allotted at an entry load of 2.25% to

the NAV.

3. Scheme open for Resident Indians, Trusts, Indian Corporates, on a fully

repatriable basis for NRIs and, Overseas Corporate Bodies.

4. Facility to reinvest dividend proceeds into the scheme at NAV available.

5. Switchover facility to any other open-ended schemes of SBI Mutual Fund at

NAV related prices.

6. The scheme will declare NAV, Sale and repurchase price on a daily basis.

7. Nomination facility available for individuals applying on their behalf either

singly or jointly upto three.


May 1, 1996 Rs. subscription: 100 Magnums or

Rs.1,000/- whichever is lower, and in

multiples of Rs.500/-



Investments below Rs. 5 crores -

2.25% Investments of Rs.5 crores and

above - NIL

Investments below Rs.5 crores < = 6

months - 1.00%, > 6 months but < 12

months - 0.50% Investments of Rs.5

crores and above - NIL

SIP SWP

Rs.500/month - 12 months

Rs.1000/month - 6months

Rs.1500/quarter - 12 months

Systematic Withdrawal Plan (SWP): A

minimum of Rs. 500 can be withdrawn

every month or quarter by issuing

advance instructions to the Registrars at

any time. There is also a facility of a

Monthly Pension Plan, whereby

investors can withdraw a minimum

amount of Rs. 500/- every month.

Nav's


Growth 33.84 30/03/2007

Dividend 24.7 30/03/2007

3.4 LIQUID FUNDS

Liquid funds are used primarily as an alternative to short-term fix deposits. Liquid funds

invest with minimal risk (like money market funds).

Most funds have a lock-in period of a maximum of three days to protect against

procedural (primarily banking) glitches, and offer redemption proceeds within 24 hours.


Liquid funds score over short term fix deposits. Banks give a fixed rate in the range 5%-

5.5% p.a. for a term of 15-30 days. Returns from deposits are taxable depending on the

tax bracket of the investor, which considerably pulls down the actual return. Dividends

from liquid funds are tax-free in the hands of investor, which is why they are more

attractive than deposits.

Liquidity:

Deposits marginally score over liquid funds as far as liquidity is concerned. In bank

deposits the investor's bank account is credited as soon as his FDR (fixed deposit receipt)

is surrendered to the bank. However, in case of liquid funds the investor has to give a

redemption request to the fund within the cut off time to receive that days NAV and the

cheque is issued to him on the next working day. However, some funds give the facility

of crediting the investor's bank account e.g. Franklin Templeton gives this facility to the

HDFC bank account holders.

Factoring in all these factors, liquid funds do emerge as a better option as compared to

fixed deposits. However, while investing money in these funds investors need to carefully

evaluate the fund's performance. There is a possibility that liquid funds may not deliver in

terms of expected returns owing to market factors. Therefore, if you have Rs 100 to

invest, you should probably split the money between a liquid fund and a fixed deposit.

Corporates park surpluses in short-term liquid funds

TURBULENT markets and expectations of hardening interest rates are forcing corporates

to move funds into short-term liquid funds. Liquid and floating rate funds have been

receiving higher inflows with the trend strengthening over the last two weeks.

The mutual fund industry expects this to maintain momentum till the post-budget trends

are visible.

According to Mr Deepak Mundra, Deputy General Manager, Finance, Grasim Industries

Ltd, all incremental cash flow in the last month has gone into liquid funds. About Rs


1,000 crore to Rs 1,500 crore from the top 100 corporates would have gone into liquid

funds over the last month with the impending rise in interest rates. Liquid funds are

typically most shielded from hardening interest rate than others.

Liquid funds have been posting average returns of 4.5 per cent for the last 12 months.

Returns from floating rate funds are 0.20 per cent to 0.25 per cent over this. Income

funds, from where a lot of corporate funds are moving out, have posted nearly zero per

cent return during the corresponding period.

Income funds have also dropped to 42 per cent of the assets under management of the

mutual fund industry in May 2004.

The risk of return erosion is low in liquid and cash funds. Corporates who entered the

market earlier are booking profits on income funds and parking this money in liquid and

floating funds. "The average maturity of liquid funds is currently 51 days," said Mr K.

Ramnathan, Fund Manager, Birla Sun Life Asset Management Company.

Oil companies such as BPCL are also looking at Mumbai Inter Bank Offered Rate

(MIBOR)-linked deposits, which banks offer with returns of around 4.5 per cent. Mr S.K.

Joshi, Executive Director, Corporate Treasury, BPCL said, "With all the markets-equity,

debt and forex turning turbulent corporates like us are putting money in MIBOR-linked

deposits and liquid funds."

BPCL like most oil companies, which have a surplus of Rs 50 crore on one day and a

borrowing requirement of Rs 150 crore on another day, are planning to test the waters

with the comparatively new money market lending and borrowing platform,

Collateralised Borrowing and Lending Obligation (CBLO).

Mr Naval Bir Kumar, Managing Director, Standard Chartered Mutual Fund, said that

actively managed liquid funds have posted high returns and corporates are using this

vehicle to maximise their returns at minimal risk exposures.

The concerns in the market are the rising domestic inflation figures towards the 6 per cent

mark. The high global oil prices, violence in West Asia and impending rise of the US


interest rates are not helping. Corporate treasurers are waiting for the budget to assess

market triggers and are especially interested in how the Finance Minister is planning to

raise resources for his ambitious social initiatives.

RETURN ON LIQUID FUNDS:

Investors who have money for short-term say 15-30 days generally invest in short-term

fixed deposits with the banks. Banks give a fixed rate in the range 5%-5.5% p.a. for a

term of 15-30 days. But how do these returns compare with those offered by liquid funds,

a comparable investment products? Here we have made a brief study for our investors as

to which is the right investment option for short-term investment.

Most of the banks considered in the above table give a fixed rate of return of over 5% p.a. for

tenure of 15-30 days. However, when tax is considered the actual returns on these deposits falls to

3.5% p.a. These returns are surely unattractive!

Other factors that you need to consider:

Fixed returns:

Deposits give fixed returns to the investor. However, liquid funds don't give a fixed

return to the investor but it is clear from the above study that liquid funds give higher

returns as compared to the deposits.

Tax efficiency:

Dividends from liquid funds are tax-free in the hands of investor, which is why they are

more attractive than deposits. Returns from deposits are taxable depending on the tax

bracket of the investor, which considerably pulls down the actual return (unless of course

the interest earned does not exceed the 80 L limit).

Let's take an example of two investors `A' and `B' who invest in fixed deposit and Liquid

fund respectively. Both are in the highest tax bracket and invest for a tenure of 30 days.

`A' makes a deposit of Rs 500,000 in HDFC Bank at the rate of 5% p.a. for a tenure of 30

days and `B' invests in `Templeton (I) Liquid fund' for the same period and amount.


Liquidity:

Deposits marginally score over liquid funds as far as liquidity is concerned. In bank

deposits the investor's bank account is credited as soon as his FDR (fixed deposit receipt)

is surrendered to the bank. However, in case of liquid funds the investor has to give a

redemption request to the fund within the cut off time to receive that days NAV and the

cheque is issued to him on the next working day. However, some funds give the facility

of crediting the investor's bank account e.g. Franklin Templeton gives this facility to the

HDFC bank account holders.

Factoring in all these factors, liquid funds do emerge as a better option as compared to

fixed deposits. However, while investing money in these funds investors need to carefully

evaluate the fund's performance. There is a possibility that liquid funds may not deliver in

terms of expected returns owing to market factors. Therefore, if you have Rs 100 to

invest, you should probably split the money between a liquid fund and a fixed deposit.

DETAILS OF LIQUID FUND FLOATED BY SBI MAGNUM

SBI PREMIER LIQUID FUND:


The investment objective of the scheme will be to provide attractive returns to the

Magnum holders either through periodic dividends or through capital appreciation

through an actively managed portfolio of debt and money market instruments. Inc ome

may be generated through the receipt of coupon payments, the amortization of the


discount on the debt instruments, receipt of dividends or purchase and sale of securities

in the underlying portfolio.

Asset Allocation


Plan A & B

% of Portfolio of

Plan C Risk Profile

Of which International Bonds Within SEBI

stipulated limits

Within SEBI

stipulated limits

Medium to

High

Derivative instruments Within approved

limits Within approved Medium

Cash & call money Market

Instruments Upto 100% Upto 25% Low

Corporate Debenture and

Bonds/PSU, FI, Government

guaranteed Bonds Government

Securities

Upto 25%* Up to 100% Low to

Medium

Of which Securitized Debt

Not more than

10% of the

investments in

debt inst

Not more than

10% of the

investments in

debt inst

Medium to

High

Scheme Highlights

1. There are 2 options - Institutional Plan and Super Institutional Plan. Both plans have

Growth and Dividend Options.

2. Under Dividend option of both plans, the frequency of dividend payment will be

daily, weekly and fortnightly. Daily Dividend under Super Institutional plan will be

declared from March 24, 2007 subject to availability of distributable surplus and in

compliance with SEBI Regulations from time to time.

3. Daily Dividend will be subject to compulsory reinvestment at applicable NAV

irrespective of the amount of investment.


4. Payout and reinvestment facility will be available only under weekly and fortnightly

dividend options. The payout facility under weekly and fortnightly dividend options in

the Institutional Plan will be offered only to such investors who have a minimum

investment of Rs 1 crore in these options.

5. The Fund as a whole will be managed as a single portfolio. Both plans will not

charge any entry or exit load and will declare NAV on all calendar days with effect

from March 23, 2007.

6. Investors who wish to exit from the scheme, can do it at applicable NAV, without

exit load, on or before March 22, 2007.


March 23, 2007 Rs. For Institutional Plan - Rs 50 lacs and

multiples of Rs 1 lac. For Super

Institutional Plan - Rs 5 crores and

multiples of Rs 1 lac


Nil Nil

SIP SWP

Nil Nil

Nav's


SBI Premier Liquid Fund -

Institutional - Fortnigtly

Dividend

10.1069 30/03/2007


Institutional - Weekly Dividend

10.5785 30/03/2007

SBI Premier Liquid Fund - 10.0325 30/03/2007


Institutional - Daily Dividend


Institutional - Growth

12.0422 30/03/2007


Super Institutional -

Fortnightly Dividend

1111 30/03/2007


Super Institutional - Weekly

Dividend

1111 30/03/2007


Super Institutional - Growth

12.0422 30/03/2007

10.0325 30/03/2007

Chapter 4

INTRODUCTION OF SBI MUTUAL FUND

SBI Mutual Fund, India's largest bank sponsored mutual fund, is a joint venture between the

State Bank of India and Societe Generale Asset Management, one of the world's top-notch

fund management companies. Over the years, SBI Mutual Fund has carved a niche for itself

through prudent investment decisions and consistent wealth creation.

Since its inception, SBI Funds Management Private Ltd. has launched thirty-two schemes

and successfully redeemed fifteen of them. Throughout this journey, SBI Mutual Fund has

profusely rewarded the 20,00,000 investors who have reposed their faith in it.


Today, the SBI fund boasts of an expertise of managing assets over Rs. 13,000 crores and has

a diverse profile of investors actively parking their investments across 28 active schemes. A

vast network of 82 collection branches, 26 investor service centres, 21 investor service desks

and 21 district organizers helps the SBI Mutual Fund to reach out to their investors.

Here is a list of Mutual Funds of SBI:

Equity Funds

Magnum COMMA Fund

Magnum Equity Fund

Magnum Global Fund

Magnum Index Fund

Magnum MidCap Fund

Magnum Multicap Fund

Magnum Multiplier Plus

Magnum Sector Funds Umbrella

FMCG Fund

Emerging Businesses Fund

IT Fund

Pharmaceuticals Fund

Contra Fund

Magnum TaxGain Scheme

SBI Arbitrage Opportunities Fund

SBI Bluechip Fund

Debt Funds

Magnum Children‘s Benefit Plan

Magnum Gilt Fund


Magnum Gilt Fund (Long Term)

Mgnum Gilt Fund (Short Term)

Magnum Income Fund

Magnum Income Plus Fund

Magnum Income Plus Fund (Saving Plan)

Magnum Income Plus Fund (Investment Plan)

Magnum Insta Cash Fund

Magnum InstaCash Fund - Liquid Floater Plan

Magnum Institutional Income Fund

Magnum Monthly Income Plan

Magnum Monthly Income Plan Floater

Magnum NRI Investment Fund

SBI Debt Fund Series

15 Months Fund

SDFS 90 Days Fund

SDFS 60 Days Fund

SDFS 180 Days Fund

Balanced Funds

Magnum Balanced Fund

Magnum NRI Investment Fund FlexiAsset Plan


The investments of these schemes will predominantly be in the stock markets and

endeavor will be to provide investors the opportunity to benefit from the higher returns

which stock markets can provide. However they are also exposed to the volatility and

attendant risks of stock markets and hence should be chosen only by such investors who

have high risk taking capacities and are willing to think long term. Equity Funds include

diversified Equity Funds, Sectoral Funds and Index Funds. Diversified Equity Funds

invest in various stocks across different sectors while sectoral funds which are specialized

Equity Funds restrict their investments only to shares of a particular sector and hence, are

riskier than Diversified Equity Funds. Index Funds invest passively only in the stocks of

a particular index and the performance of such funds move with the movements of the

index.

Magnum Equity Fund

This actively managed fund offers growth through investment in a portfolio of select blue chip

stocks. The main features of the scheme are:

A diversified equity fund, focusing on aggressive growth

Minimum application of Rs. 1000

EntryLoad: – Investments below Rs. 5 crores – 2.25% Investments of Rs.5 crores and above – NIL" SIP/STP -

2.25%

Exit Load – Investments below Rs.5 crores < 6 months - 1.00% 6 months and < 12 months -

0.50% Investments of Rs.5 crores and above - NIL SIP /STP-< 6 months from the date of

investment of each instalment - 1.00%

Ideal for investors who wish to benefit from the growth of the equity markets and are

comfortable with the attendant volatility

SIP Minimum amount Rs.500/month - 12 months Rs.1000/month - 6months, Rs.1500/quarter -

12 months

STP Minimum amount Rs.1000/- month - minimum period of 6 months Rs.3000/ Quarter -

minimum period of 6 months

Inter scheme switches to other equity schemes will not carry an Entry Load. However exit

load will be applicable.


In respect of STP transactions, an investor would now be permitted to transfer any

amount from the switch-out scheme, subject to a minimum transfer of Rs.1000 pm or Rs.3000

per quarter, without any restriction on maintaining the minimum balance requirement as

stipulated for the switch out scheme. The minimum period for STP will be atleast 6 months.

Please read the Offer Document before investing.

Magnum TaxGain

What is Magnum TaxGain Scheme about?

Magnum TaxGain Scheme is an Equity Linked Savings Scheme (ELSS) from SBI Mutual Fund

which offers investors tax benefits on an investment upto Rs 1 Lakh under Section 80C of

Indian Income Tax Act 1961. The fund was launched in the year 1993 and is one of the top

performers in the ELSS category.

Scheme Highlights:

Entry Load – Investments below Rs. 5 crores – 2.25%,Investments of Rs.5 crores and above –

NIL"

SIP/STP Entry Load - 2.25%

Exit Load : NIL

SIP : Minimum amount Rs.500/month - 12 months Rs.1000/month - 6months, Rs.1500/quarter -

12 months

STP : Minimum amount Rs.1000/- month - 6 months, Rs.3000/ Quarter - 6 months

Asset Allocation – 80-100% in Equity, partly convertible debentures and fully convertible

debentures and bonds & 0 – 20% in Money market instruments.

Minimum Application Amount – Rs 500 for purchase & Multiples of Rs 500 for additional

http://www.sbimf.com/portal/static/downloads/mef-offdoc.pdf


purchase.

Plans & Options – Dividend option with payout and reinvestment facility.

In respect of STP transactions, an investor would now be permitted to transfer any amount from

the switch-out scheme, subject to a minimum transfer of Rs.1000 pm or Rs.3000 per quarter,

without any restriction on maintaining the minimum balance requirement as stipulated for the

switch out scheme. The minimum period for STP will be atleast 6 months.

Enter Section 8OC

Section 88 was scrapped in Finance Bill 2005. Instead, Section 80C has been introduced. All

avenues that were eligible for tax benefits under Section 88 were brought under the Section 80C

fold. However, instead of offering tax rebates, investments (up to Rs 100,000) under Section

80C qualify for deduction from gross total income. Hence a new system of claiming tax benefits

is now in place.

ConceptMagnum Index Fund

Magnum Index Fund invests only in the 50 stocks that constitute S&P CNX Nifty index in

proportion to each stock's weightage in the index. Hence, who the portfolio Manager is or what

his style is does not really matter in such funds. Volatility of such schemes will be in

synchronization with the index. This investment is ideal for:

Corporate, Institutions, Banks

HNIs and Retail Investors desirous of investing in a basket of Nifty Index stocks for an investment

as low as Rs. 5000/- with liquidity of Open-ended Mutual Fund

Entry load: Investments below Rs. 50 Lakhs – 1.25% Investments of Rs.50 Lakhs and above – NIL

SIP/STP - 1.00%

Exit Load: Nil SIP /STP- < 12 months from the date of investment of each instalment - 1.00%


12 months

STP : Minimum amount Rs.1000/- month - 6 months ,Rs.3000/ Quarter - 6 months


Dividend Option Available




switch out scheme. The minimum period for STP will be atleast 6 months

Magnum Sector Funds Umbrella

Launched in August 1999

Minimum investment of Rs. 2000 per sector

Entry Load : Investments below Rs. 5 crores – 2.25% Investments of Rs.5 crores and above –

NIL" SIP/STP - 2.25%

Exit Load: Investments below Rs.5 crores < 6 months - 1.00% 6 months and < 12 months -

0.50% Investments of Rs.5 crores and above - NIL


SIP : Minimum amount Rs.500/month - 12 months Rs.1000/month - 6months, Rs.1500/quarter

- 12 months

STP : Minimum amount Rs.1000/- month - minimum period of 6 months Rs.3000/ Quarter -



load will be applicable. In respect of STP transactions, an investor would now be permitted to

transfer any amount from the switch-out scheme, subject to a minimum transfer of Rs.1000

pm or Rs.3000 per quarter, without any restriction on maintaining the minimum balance


atleast 6 months.

Choice of 5 high-growth sectors:

I.T Fund

FMCG Fund

Pharma Fund


Contra Fund

Emerging Businesses Fund

Information Technology Sector:

With the threat of global economic slowdown looming large over the IT industry, software stocks

have been under pressure for quite some time now. Inspite of this, the Indian IT industry continues

to march ahead as seen by the latest results, making it one of the highest value-addition and net

foreign exchange earning industry. The Indian IT industry has zoomed from Rs.98.92 bn, five

years ago to Rs.554 bn in FY2000-01, a phenomenal CAGR of over 40%, which is almost double

the growth rate of IT industries in many of the developed countries.

The Indian IT industry can be classified into four sectors viz. Software, Hardware, Peripherals,

Networking & Internet service provider.

Fast Moving Consumer Goods:

Fast Moving Consumer Goods (FMCG) are products that are typically purchased and consumed

on a regular basis. Some examples of FMCG products include personal products (soaps,

shampoos, hair oils, toothpastes, shaving razors etc.), fabric care, processed foods (dairy products,

atta, edible oils, chocolates, ice creams etc.), beverages, cigarettes etc. to name a few. The

companies in this sector are sprucing up their brands and distribution networks to realize this huge

potential.

Pharmaceuticals:

Pharmaceutical industry is a continuous growth industry, largely immune to economic recession

and commodity cycles. The growth is spurred by a rising population, new disease incidence, and

resurgence of certain diseases.

The pharmaceutical industry grew at a compounded rate of 17% during the last 10 years. The


companies renewed focus on streamlining their production facilities and increased marketing has

seen these companies show a rise in their profits. In reflection of this, the stock prices have also

rallied in the past year.

Contra Fund:

The objective of the Fund is to invest in undervalued scrips, which may be currently out of favour

but are likely to show attractive growth in the long term. Thus, this fund provides an alternative to

investors for investing in the growth scrips of the future. The funds collected under this scheme

will be invested in the equities of :-

Companies that are fundamentally sound, but generally are undervalued at the time of investment

due to lack of investor interest.

Companies that have embarked on the path of turnaround by restructuring of operations, hiving off

unrelated business, etc. And where the results of the turnaround are likely to accrue in the long

term.

Companies with strong management, but operating in commodities where there are signs of

bottoming out of the business cycle.

Emerging Businesses Fund is an open-ended growth fund launched as the fifth sector fund in

Magnum Sector Funds Umbrella (MSFU). The Emerging Businesses Fund will primarily focus its

investments in emerging business themes, primarily based on the export/outsourcing opportunities

and/or global competitiveness of such themes. It will also focus on emerging domestic investment

themes.

Entry Load : Investments below Rs. 5 crores – 2.25% Investments of Rs.5 crores and above – NIL"

SIP/STP - 2.25%

Exit Load: Investments below Rs.5 crores < 6 months - 1.00% 6 months and < 12 months - 0.50%

Investments of Rs.5 crores and above - NIL



12 months




Inter scheme switches to other equity schemes will not carry an Entry Load. However exit load

will be applicable.





Magnum Multiplier Plus Scheme

A diversified equity fund, focussing on steady growth

Open-ended from April 1998

Minimum application of Rs. 1000

Entry Load : Investments below Rs. 5 crores – 2.25% Investments of Rs.5 crores and above – NIL"

SIP/STP - 2.25%

Exit Load: Investments below Rs.5 crores < 6 months - 1.00% 6 months and < 12 months - 0.50%




12 months




will be applicable.





.

Magnum Global Fund


The Magnum Global Fund Scheme 1994 commenced from 24th August 1994. This scheme

was launched as a close-ended scheme redeeming on 30th September 1999. the scheme was

converted into an Open-Ended Fund from 1st October 1999. Main features of the scheme are:







- 12 months





In respect of STP transactions, an investor would now be permitted to transfer any amount

from the switch-out scheme, subject to a minimum transfer of Rs.1000 pm or Rs.3000 per

quarter, without any restriction on maintaining the minimum balance requirement as stipulated

for the switch out scheme. The minimum period for STP will be atleast 6 months.

.

Magnum MidCap Fund

The latest investment option from SBI Mutual Fund enables you to benefit from our expertise in

the intricacies of MidCap stocks. So you can leave the hard part of choosing the right stock to

grow with and concentrate on enjoying your returns, now and in the long run:

Open-ended growth shceme





0.50%




12 months




will be applicable.

In respect of STP transactions, an investor would now be permitted to transfer anyamount from



switch out scheme.

Magnum Comma Fund

A first of its kind scheme. COMMA is an acronym for Commodities in Oil, Metals, Materials

and Agriculture. The objective of the scheme would be to generate opportunities for growth

along with possibility of consistent returns by investing predominantly in a portfolio of stocks

of companies engaged in the commodity business within the following sectors - Oil& Gas,

Metals, Materials & Agriculture and in debt & money market instruments

Key Features

An open-ended equity scheme investing in stocks of commodity based companies








- 12 months




load will be applicable. In respect of STP transactions, an investor would now be permitted to

transfer any amount from the switch-out scheme, subject to a minimum transfer of Rs.1000

pm or Rs.3000 per quarter, without any restriction on maintaining the minimum balance


atleast 6 months.

Magnum Multicap

SBI Mutual Fund launches Magnum Mutlicap Fund (An open ended Growth Scheme)

Objective

Scheme objective - To provide investors with opportunities for long-term growth in capital

along with the liquidity of an open-ended scheme through an active management of

investments in a diversified basket of equity stocks spanning the entire market capitalization

spectrum, debt and money market instruments.

Fund to invest in large, medium and small cap segments in equity instruments. The fund

would invest a minimum of 50 per cent of its equity/equity related instruments in large cap

stocks and the balance 50 per cent would be dividend between mid cap and small caps with a

provision to invest at least 10 per cent in mid cap stocks.

Market Cap Minimum Maximum


Segment Allocation Allocation

Large Cap 50% 90%

Mid Cap 10% 40%

Small Cap 0% 10%

Key Features

Launch date –22nd August 2005

Scheme opened for continuous sale and repurchase.




0.50%Investments of Rs.5 crores and above - NIL



- 12 months








for the switch out scheme.

BLUE CHIP Fund

Launch date - 23rd December 2005

NFO open from 23rd December 2005 to 20th January 2006


Scheme reopens for continuous sale and repurchase from 17th February 2006

Minimum investment - Rs. 5000 and in multiples of Rs. 1000

Dividend and Growth options available. Reinvestment and payout facility available

Dividends will be completely tax-free. Long term capital gains to be completely tax-free. Short

-term capital gains to be taxed at 10% (plus applicable surcharge and cess)

Scheme objective: To provide investors with opportunities for long-term growth in capital

through an active management of investments in a diversified basket of equity stocks of

companies whose market capitalization is atleast equal to or more than the least market

capitalized stock of BSE 100 Index.

Systematic Investment Plan available during the NFO.

Asset allocation pattern

Type of Instrument

Normal

Allocation (% of

Net Assets)

Risk

Profile

Equities and equity

related instruments

including derivatives

70% - 100% High

Debt and Money Market

instruments 0% - 30%

Medium

to Low







- 12 months









for the switch out scheme. The minimum period for STP will be atleast 6 months.

What would qualify as a blue chip stock?

Large companies with an established business presence,

Good reputation

Possible market leaders in their industry/sector

Less uncertainty in topline/ bottom line growth

Normally have a history of successful growth, high visibility and reach, good credit ratings

Excellent brand equity amongst the general public

Widespread interest amongst investing public.

Risk Factors: Mutual Funds and Securities Investments are subject to market risks and there

is no assurance or guarantee that the scheme's objectives will be achieved. As with any other

investment in securities, the NAV of the Magnums issued under the schemes may go up or

down depending upon the factors and forces affecting the securities market. Past performance

of the Sponsors/AMC/Mutual Fund/Scheme(s) and their affiliates do not indicate the future

performance of the Scheme of the Mutual Fund. Please read the offer document before

investing. Statutory details: SBI Mutual Fund has been set up as a trust under the Indian Trusts

Act, 1882. State Bank of India ('SBI'), the sponsor is not responsible or liable for any loss

resulting from the operation of the schemes beyond the initial contribution made by it of an

amount of Rs. 5 lakhs towards setting up of the mutual fund


ANALYTICAL PART OF THE

PROJECT


MEHTODOLOGY

In this project ―comparative analysis of various balanced & liquid funds of different

AMC‘s I have collected data on the NAV values of the funds including the study from

may to june 2007

Basd on these data I have calculated the

Annualized return

Standard deviation

Beta

Coefficient of variation

Sharpe ratio

Treynor ratio

Based on these parameters I have tried to analyse the superiority of one fund over the

another


CHAPTER 5

Details of Various Analytical tools used for Analyzing and evaluating

Mutual Funds

5.1The Sharpe Ratio

The previous page showed that the efficient frontier is where the most risk-efficient

portfolios are, for a given collection of securities. The Sharpe Ratio goes further: it

actually helps you find the best possible proportion of these securities to use, in a

portfolio that can also contain cash.

The definition of the Sharpe Ratio is:

S(x) = ( rx - Rf ) / StdDev(x)

where

x is some investment

rx is the average annual rate of return of x

Rf is the best available rate of return of a "risk-free" security (i.e. cash)

StdDev(x) is the standard deviation of rx

The Sharpe Ratio is a direct measure of reward-to-risk. To see how it helps you in

creating a portfolio, consider the diagram of the efficient frontier again, this time with

cash drawn in.

http://www.moneychimp.com/articles/risk/efficient_frontier.htm


There are three important things to notice in this diagram:

1. If you take some investment like "x" and combine it with cash, the resulting

portfolio will lie somewhere along the straight line joining cash with x. (This time

it's a straight line, not a curve; cash is riskless, so there's no "damping out" effect

between cash and x.)

2. Since you want the rate of return to be as great as possible, you want to select the

x that gives you the line with the greatest possible slope (like we have done in the

diagram).

3. The slope of this line is equal to the Sharpe Ratio of x.

Putting this all together gives you the method for finding the best possible portfolio from

this collection of securities: First, find the investment with the highest possible Sharpe

Ratio (this part requires a computer); Next, take whatever linear combination of this

investment and cash will give you your desired value for standard deviation. The result

will be the portfolio with the greatest possible rate of return.

The Sharpe ratio is a measure of risk-adjusted performance of an investment asset, or a

trading strategy. Since its revision by the original author made in 1994, it is defined as:

,


where R is the asset return, Rf is the return on a benchmark asset, such as the risk

free rate of return, E[R − Rf] is the expected value of the excess of the asset return

over the benchmark return, and σ is the standard deviation of the excess return.

Note, if Rf is a constant risk free return throughout the period,

. Sharpe´s 1994 revision acknowledged that the

risk free rate changes with time, prior to this revision the definition was

assuming a constant Rf.

The Sharpe ratio is used to characterize how well the return of an asset compensates

the investor for the risk taken. When comparing two assets each with the expected

return E[R] against the same benchmark with return Rf, the asset with the higher

Sharpe ratio gives more return for the same risk. Investors are often advised to pick

investments with high Sharpe ratios.

Sharpe ratios, along with Treynor ratios and Jensen's alphas, are often used to rank

the performance of portfolio or mutual fund managers.

This ratio was developed by William Forsyth Sharpe. Sharpe originally called it the

"reward-to-variability" ratio before it began being called the Sharpe Ratio by later

academics and financial professionals. Recently, the (original) Sharpe ratio has often

been challenged with regard to its appropriateness as a fund performance measure

during evaluation periods of declining markets.

[Examples

Suppose the asset has an expected return of 15%. We typically do not know the asset

will have this return; suppose we assess the risk of the asset, defined as standard

deviation of the asset's excess return, as 10%. Finally, suppose the risk-free rate of

return, Rf, is 4%. Then the Sharpe ratio will be 1.10 (R = 0.15, Rf = 0.04, and σ =

0.10).

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



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

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

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

http://en.wikipedia.org/wiki/Jensen%27s_alpha

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

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


Jensen's alpha

In finance, Jensen's alpha (or Jensen's Performance Index) is used to determine the excess

return of a stock, other security, or portfolio over the security's required rate of return as

determined by the Capital Asset Pricing Model. This model is used to adjust for the level

of beta risk, so that riskier securities are expected to have higher returns. The measure

was first used in the evaluation of mutual fund managers by Michael Jensen in the 1970's.

To calculate alpha, the following inputs are needed:

the realized return (on the portfolio),

the market return,

the risk-free rate of return, and

the beta of the portfolio.

Jensen's alpha = Portfolio Return - (Risk free return + (Market Return - Risk free

Return) * Beta)

Alpha is still widely used to evaluate mutual fund and portfolio manager performance,

often in conjunction with the Sharpe ratio and the Treynor ratio.

Sortino ratio

The Sortino ratio is a measure of a risk-adjusted return of an investment asset. It is an

extension of the Sharpe ratio. While the Sharpe ratio takes into account any volatility in

return of an asset, Sortino ratio differentiates volatility due to up and down movements.

The up movements are considered desirable and not accounted in the volatility.

That is, the Sortino ratio does not penalize a fund for its upside volatility. The ratio is

calculated as

,

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

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

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

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

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

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

http://en.wikipedia.org/wiki/Risk-free_rate


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

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

http://en.wikipedia.org/w/index.php?title=Risk-adjusted_return&action=edit


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


where R is the asset return, Rf is the return on a benchmark asset, such as the risk

free rate of return, E[R − Rf] is the expected excess return, and σd is the downside

volatility. The downside volatility is computed using the standard deviation formula,

keeping only the contribution of negative excess returns. Other variations use the

semivariance as the denominator

Modern portfolio theory

Capital Market Line

Modern portfolio theory (MPT) proposes how rational investors will use diversification

to optimize their portfolios, and how a risky asset should be priced. The basic concepts of

the theory are Markowitz diversification, the efficient frontier, capital asset pricing

model, the alpha and beta coefficients, the Capital Market Line and the Securities Market

Line.

MPT models an asset's return as a random variable, and models a portfolio as a weighted

combination of assets; the return of a portfolio is thus the weighted combination of the

assets' returns. Moreover, a portfolio's return is a random variable, and consequently has

an expected value and a variance. Risk, in this model, is the standard deviation of the

portfolio's return.





http://en.wikipedia.org/w/index.php?title=Downside_volatility&action=edit




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

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

http://en.wikipedia.org/wiki/Diversification_%28finance%29

http://en.wikipedia.org/wiki/Portfolio_%28finance%29

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

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



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


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


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



Risk and reward

The model assumes that investors are risk averse. This means that given two assets that

offer the same expected return, investors will prefer the less risky one. Thus, an investor

will take on increased risk only if compensated by higher expected returns. Conversely,

an investor who wants higher returns must accept more risk. The exact trade-off will

differ by investor based on individual risk aversion characteristics. The implication is that

a rational investor will not invest in a portfolio if a second portfolio exists with a more

favourable risk-return profile - i.e. if for that level of risk an alternative portfolio exists

which has better expected returns.

Mean and variance

It is further assumed that investor's risk / reward preference can be described via a

quadratic utility function. The effect of this assumption is that only the expected return

and the volatility (i.e. mean return and standard deviation) matter to the investor. The

investor is indifferent to other characteristics of the distribution of returns, such as its

skew. Note that the theory uses a historical parameter, volatility, as a proxy for risk,

while return is an expectation on the future.

Under the model:

Portfolio return is the proportion-weighted combination of the constituent assets'

returns.

Portfolio volatility is a function of the correlation of the component assets. The

change in volatility is non-linear as the weighting of the component assets changes.

Mathematically

In general:

Expected return:

Where R is return.

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

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

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


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


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

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

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

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


Portfolio variance:

Portfolio volatility:

For a two asset portfolio:

Portfolio return:

Portfolio variance:

For a three asset portfolio, the variance is:

As can be seen, as the number of assets (n) in the portfolio increases, the calculation

becomes ―computationally intensive‖ - the number of covariance terms = n (n-1) /2. For

this reason, portfolio computations usually require specialized software. These values

can also be modeled using matrices; for a manageable number of assets, these statistics

can be calculated using a spreadsheet.

Diversification

An investor can reduce portfolio risk simply by holding instruments which are not

perfectly correlated. In other words, investors can reduce their exposure to individual

asset risk by holding a diversified portfolio of assets. Diversification will allow for the

same portfolio return with reduced risk. For diversification to work the component

assets must not be perfectly correlated, i.e. correlation coefficient not equal to 1.

Mathematically:

http://en.wikipedia.org/wiki/Matrix_%28mathematics%29

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



From the formulae above: if any two assets in the portfolio have a correlation of less

than 1 the portfolio variance and hence volatility will be less than the weighted average

of the individual instruments' volatilities.

Capital allocation line

The Capital Allocation Line (CAL) is the line of expected return plotted against risk

(standard deviation) that connects all portfolios that can be formed using a risky asset

and a riskless asset. It can be proven that it is a straight line and that it has the following

equation.

In this formula P is the risky portfolio, F is the riskless portfolio and C is a combination

of portfolios P and F.

The efficient frontier

Efficient Frontier

Every possible asset combination can be plotted in risk-return space, and the collection

of all such possible portfolios defines a region in this space. The line along the upper

edge of this region is known as the efficient frontier (sometimes ―the Markowitz

frontier‖). Combinations along this line represent portfolios for which there is lowest

risk for a given level of return. Conversely, for a given amount of risk, the portfolio


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

http://en.wikipedia.org/wiki/Capital_asset_pricing_model#The_efficient_.28Markowitz.29_frontier




lying on the efficient frontier represents the combination offering the best possible

return. Mathematically the Efficient Frontier is the intersection of the Set of Portfolios

with Minimum Variance and the Set of Portfolios with Maximum Return.

The efficient frontier is illustrated above, with return μp on the y axis, and risk σp on the

x axis; an alternative illustration from the diagram in the CAPM article is at right.

The efficient frontier will be convex – this is because the risk-return characteristics of a

portfolio change in a non-linear fashion as its component weightings are changed. (As

described above, portfolio risk is a function of the correlation of the component assets,

and thus changes in a non-linear fashion as the weighting of component assets changes.)

The region above the frontier is unachievable by holding risky assets alone. No

portfolios can be constructed corresponding to the points in this region. Points below

the frontier are suboptimal. A rational investor will hold a portfolio only on the frontier.

[edit] The risk-free asset

The risk-free asset is the (hypothetical) asset which pays a risk-free rate - it is usually

proxied by an investment in short-dated Government securities. The risk-free asset has

zero variance in returns (hence is risk-free); it is also uncorrelated with any other asset

(by definition: since its variance is zero). As a result, when it is combined with any

other asset, or portfolio of assets, the change in return and also in risk is linear.

Because both risk and return change linearly as the risk-free asset is introduced into a

portfolio, this combination will plot a straight line in risk-return space. The line starts at

100% in cash and weight of the risky portfolio = 0 (i.e. intercepting the return axis at

the risk-free rate) and goes through the portfolio in question where cash holding = 0 and

portfolio weight = 1.

Mathematically:

Using the formulae for a two asset portfolio as above:



http://en.wikipedia.org/w/index.php?title=Modern_portfolio_theory&action=edit&section=7

http://en.wikipedia.org/wiki/Risk-free_rate


Return is the weighted average of the risk free asset, f, and the risky portfolio, p,

and is therefore linear:

Return =

Since the asset is risk free, portfolio standard deviation is simply a function of the

weight of the risky portfolio in the position. This relationship is linear.

Standard deviation =

=

=

=

Portfolio leverage

An investor can add leverage to the portfolio by borrowing the risk-free asset. The

addition of the risk-free asset allows for a position in the region above the efficient

frontier. Thus, by combining a risk-free asset with risky assets, it is possible to construct

portfolios whose risk-return profiles are superior to those on the efficient frontier.

An investor holding a portfolio of risky assets, with a holding in cash, has a

positive risk-free weighting (a de-leveraged portfolio). The return and standard

deviation will be lower than the portfolio alone, but since the efficient frontier is

convex, this combination will sit above the efficient frontier – i.e. offering a higher

return for the same risk as the point below it on the frontier.

The investor who borrows money to fund his/her purchase of the risky assets has

a negative risk-free weighting -i.e a leveraged portfolio. Here the return is geared to

the risky portfolio. This combination will again offer a return superior to those on the

frontier.

The market portfolio


The efficient frontier is a collection of portfolios, each one optimal for a given amount of

risk. A quantity known as the Sharpe ratio represents a measure of the amount of

additional return (above the risk-free rate) a portfolio provides compared to the risk it

carries. The portfolio on the efficient frontier with the highest Sharpe Ratio is known as

the market portfolio, or sometimes the super-efficient portfolio; it is the tangency-

portfolio in the above diagram.

This portfolio has the property that any combination of it and the risk-free asset will

produce a return that is above the efficient frontier - offering a larger return for a given

amount of risk than a portfolio of risky assets on the frontier would.

Capital market line

When the market portfolio is combined with the risk-free asset, the result is the Capital

Market Line. All points along the CML have superior risk-return profiles to any portfolio

on the efficient frontier. (The market portfolio with zero cash weighting is on the efficient

frontier; additions of cash or leverage with the risk-free asset in combination with the

market portfolio are on the Capital Market Line. All of these portfolio represent the

highest Sharpe ratios possible.)

The CML is illustrated above, with return μp on the y axis, and risk σp on the x axis.

One can prove that the CML is the optimal CAL and that its equation is:

Asset pricing

A rational investor would not invest in an asset which does not improve the risk-return

characteristics of his existing portfolio. Since a rational investor would hold the market

portfolio, the asset in question will be added to the market portfolio. MPT derives the

required return for a correctly priced asset in this context.

Systematic risk and specific risk


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


Specific risk is the risk associated with individual assets - within a portfolio these risks

can be reduced through diversification (specific risks "cancel out"). Systematic risk, or

market risk, refers to the risk common to all securities - except for selling short as noted

below, systematic risk cannot be diversified away (within one market). Within the market

portfolio, asset specific risk will be diversified away to the extent possible. Systematic

risk is therefore equated with the risk (standard deviation) of the market portfolio.

Since a security will be purchased only if it improves the risk / return characteristics of

the market portfolio, the risk of a security will be the risk it adds to the market portfolio.

In this context, the volatility of the asset, and its correlation with the market portfolio, is

historically observed and is therefore a given (there are several approaches to asset

pricing that attempt to price assets by modelling the stochastic properties of the moments

of assets' returns - these are broadly referred to as conditional asset pricing models). The

(maximum) price paid for any particular asset (and hence the return it will generate)

should also be determined based on its relationship with the market portfolio.

Systematic risks within one market can be managed through a strategy of using both long

and short positions within one portfolio, creating a "market neutral" portfolio.

Security characteristic line

The Security Characteristic Line (SCL) represents the relationship between the market

return (rM) and the return of a given asset i (ri) at a given time t. In general, it is

reasonable to assume that the SCL is a straight line and can be illustrated as a statistical

equation:

where αi is called the asset's alpha coefficient and βi the asset's beta coefficient.

Capital asset pricing model

The asset return depends on the amount paid for the asset today. The price paid must

ensure that the market portfolio's risk / return characteristics improve when the asset

is added to it. The CAPM is a model which derives the theoretical required return

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

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





(i.e. discount rate) for an asset in a market, given the risk-free rate available to

investors and the risk of the market as a whole.

The CAPM is usually expressed:

β, Beta, is the measure of asset sensitivity to a movement in the overall

market; Beta is usually found via regression on historical data. Betas

exceeding one signify more than average "riskiness"; betas below one

indicate lower than average.

is the market premium, the historically observed excess

return of the market over the risk-free rate.

Once the expected return, E(ri), is calculated using CAPM, the future cash

flows of the asset can be discounted to their present value using this rate to

establish the correct price for the asset. (Here again, the theory accepts in its

assumptions that a parameter based on past data can be combined with a

future expectation.)

A more risky stock will have a higher beta and will be discounted at a higher

rate; less sensitive stocks will have lower betas and be discounted at a lower

rate. In theory, an asset is correctly priced when its observed price is the same

as its value calculated using the CAPM derived discount rate. If the observed

price is higher than the valuation, then the asset is overvalued; it is undervalued

for a too low price

Mathematically:

(1) The incremental impact on risk and return when an additional risky asset, a, is added

to the market portfolio, m, follows from the formulae for a two asset portfolio. These

results are used to derive the asset appropriate discount rate.

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

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



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

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


Risk =

Hence, risk added to portfolio =

but since the weight of the asset will be relatively low,

i.e. additional risk =

Return =

Hence additional return =

(2) If an asset, a, is correctly priced, the improvement in risk to return achieved

by adding it to the market portfolio, m, will at least match the gains of spending

that money on an increased stake in the market portfolio. The assumption is

that the investor will purchase the asset with funds borrowed at the risk-free

rate, Rf; this is rational if .

Thus:

i.e. :

i.e. :

is the ―beta‖, β -- the covariance between the asset and the market

compared to the variance of the market, i.e. the sensitivity of the asset price to

movement in the market portfolio.

The relationship between Beta & required return is plotted on the securities market line

(SML) which shows expected return as a function of β. The intercept is the risk-free rate

available for the market, while the slope is . The Securities market line

can be regarded as representing a single-factor model of the asset price, where Beta is

exposure to changes in value of the Market. The equation of the SML is thus:

Comparison with arbitrage pricing theory

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


The SML and CAPM are often contrasted with the Arbitrage pricing theory (APT),

which holds that the expected return of a financial asset can be modeled as a linear

function of various macro-economic factors, where sensitivity to changes in each factor

is represented by a factor specific beta coefficient.

The APT is less restrictive in its assumptions: it allows for an explanatory (as opposed

to statistical) model of asset returns, and assumes that each investor will hold a unique

portfolio with its own particular array of betas, as opposed to the identical "market

portfolio". Unlike the CAPM, the APT, however, does not itself reveal the identity of its

priced factors - the number and nature of these factors is likely to change over time and

between economies.

Upside potential ratio

The upside potential ratio is a measure of a return of an investment asset relative to the

minimal acceptable return. The measurement allows to choose strategies with growth that

is as stable as possible for a given minimum return.

where R - return, Pr - probability of such return, Rmin, min - minimal acceptable

return.

The upside potential ratio may also be expressed as a ratio of partial moments.

The measure was developed by Frank A. Sortino.

5.2 Treynor ratio

The Treynor ratio is a measurement of the returns earned in excess of that which could

have been earned on a riskless investment (i.e. Treasury Bill) (per each unit of market

risk assumed).

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

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

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



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


http://en.wikipedia.org/w/index.php?title=Minimal_acceptable_return&action=edit

http://en.wikipedia.org/wiki/Moment_%28mathematics%29#Partial_moments

http://en.wikipedia.org/w/index.php?title=Frank_A._Sortino&action=edit

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

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


The Treynor ratio (sometimes called reward-to-volatility ratio) relates excess return over

the risk-free rate to the additional risk taken; however systematic risk instead of total risk

is used. The higher the Treynor ratio, the better the performance under analysis.

where

Treynor ratio,

portfolio return,

risk free rate

portfolio beta

Like the Sharpe ratio, the Treynor ratio (T) does not quantify the value added, if any, of

active portfolio management. It is a ranking criterion only. A ranking of portfolios

based on the Treynor Ratio is only useful if the portfolios under consideration are sub-

portfolios of a broader, fully diversified portfolio. If this is not the case, portfolios with

identical systematic risk, but different total risk, will be rated the same. But the portfolio

with a higher total risk is less diversified and therefore has a higher unsystematic risk

which is not priced in the market.

An alternative method of ranking portfolio management is Jensen's alpha, which

quantifies the added return as the excess return above the security market line in the

capital asset pricing model

Information ratio

The Information Ratio concept is one measure of volatility-adjusted return and is used in

the analysis of performance of mutual funds, hedge funds, etc. Specifically, the

information ratio is defined as excess return divided by tracking error. Excess return is




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


http://en.wikipedia.org/wiki/Jensen%27s_alpha

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


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

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

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

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


the amount of performance over or under a given benchmark index. Thus, excess return

can be positive or negative. Tracking error is the standard deviation of the excess return.

The ratio compares the annualized returns of the Fund in question with those of a selected

benchmark (e.g, 3 month Treasuries). Since this ratio considers the annualized standard

deviation of both series (as measures of risks inherent in owning either the fund or the

benchmark), the ratio shows the risk-adjusted excess return of the Fund over the

benchmark. The higher the Information Ratio, the higher the excess return of the Fund,

given the amount of risk involved, and the better a Fund manager. This ratio is calculated

as:

Information Ratio = (AnnRtn(r1, ..., rn) - AnnRtn(s1, ..., sn)) / AnnStdDev(e1, ..., en)

where:

r1, ..., rn = manager return series

s1, ..., sn = benchmark return series

e1, ..., en = r1 - s1, ..., rn - sn

The Information ratio is similar to the Sharpe Ratio, but there is a major difference. The

Sharpe Ratio compares the return of an asset against the return of Treasury bills, but the

Information Ratio compares excess return to the most relevant equity (or debt)

benchmark index.

5.3 Standard deviation

In probability and statistics, the standard deviation of a probability distribution, random

variable, or population or multiset of values is a measure of the spread of its values. It is

usually denoted with the letter σ (lower case sigma). It is defined as the square root of the

variance. In other words, the standard deviation is the root mean square (RMS) deviation

of values from their arithmetic mean.

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

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

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

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

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

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




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

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

http://en.wikipedia.org/wiki/Sigma_%28letter%29

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


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

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


For example, in the population {4, 8}, the mean is 6 and the standard deviation is 2. This

may be written: {4, 8} ≈ 6±2. In this case 100% of the values in the population are at one

standard deviation of the mean.

The standard deviation is the most common measure of statistical dispersion, measuring

how widely spread the values in a data set are. If the data points are close to the mean,

then the standard deviation is small. Conversely, if many data points are far from the

mean, then the standard deviation is large. If all the data values are equal, then the

standard deviation is zeroDefinition and calculation

Standard deviation of a random variable

The standard deviation of a random variable X is defined as:

where E(X) is the expected value of X.

Not all random variables have a standard deviation, since these expected values need

not exist. For example, the standard deviation of a random variable which follows a

Cauchy distribution is undefined.

If the random variable X takes on the values x1,...,xN (which are real numbers) with

equal probability, then its standard deviation can be computed as follows. First, the

mean of X, , is defined as a summation:

where N is the number of samples taken. Next, the standard deviation simplifies to:

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

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




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

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

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

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


In other words, the standard deviation of a discrete uniform random variable X can be

calculated as follows:

1. For each value xi calculate the difference between xi and the average

value .

2. Calculate the squares of these differences.

3. Find the average of the squared differences. This quantity is the variance σ2.

4. Take the square root of the variance.

Estimating population standard deviation from sample standard deviation

In the real world, finding the standard deviation of an entire population is unrealistic

except in certain cases, such as standardized testing, where every member of a population

is sampled. In most cases, the standard deviation is estimated by examining a random

sample taken from the population. The most common measure used is the sample

standard deviation, which is defined by

where is the sample and is the mean of the sample.

The reason for this definition is that s2 is an unbiased estimator for the variance σ

2 of the

underlying population, if that variance exists and the sample values are drawn

independently with replacement. However, s is not an unbiased estimator for the standard

deviation σ; it tends to underestimate the population standard deviation. Although an

unbiased estimator for σ is known when the random variable is normally distributed, the

formula is complicated and amounts to a minor correction. Moreover, unbiasedness, in

this sense of the word, is not always desirable; see bias of an estimator.

Another estimator sometimes used is the similar expression


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

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


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



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

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


This form has a uniformly smaller mean squared error than does the unbiased estimator,

and is the maximum-likelihood estimate when the population is normally distributed.

Example

We will show how to calculate the standard deviation of a population. Our example will

use the ages of four young children: { 5, 6, 8, 9 }.

Step 1. Calculate the mean average, :

We have N = 4 because there are four data points:

Replacing N with 4

This is the mean.

Step 2. Calculate the standard deviation :

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

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

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


Replacing N with 4

Replacing with 7

So, tInterpretation and application

A large standard deviation indicates that the data points are far from the mean and a small

standard deviation indicates that they are clustered closely around the mean.

For example, each of the three data sets (0, 0, 14, 14), (0, 6, 8, 14) and (6, 6, 8, 8) has a

mean of 7. Their standard deviations are 7, 5, and 1, respectively. The third set has a

much smaller standard deviation than the other two because its values are all close to 7.

In a loose sense, the standard deviation tells us how far from the mean the data points

tend to be. It will have the same units as the data points themselves. If, for instance, the

data set (0, 6, 8, 14) represents the ages of four siblings, the standard deviation is 5 years.


As another example, the data set (1000, 1006, 1008, 1014) may represent the distances

traveled by four athletes in 3 minutes, measured in meters. It has a mean of 1007 meters,

and a standard deviation of 5 meters.

Standard deviation may serve as a measure of uncertainty. In physical science for

example, the reported standard deviation of a group of repeated measurements should

give the precision of those measurements. When deciding whether measurements agree

with a theoretical prediction, the standard deviation of those measurements is of crucial

importance: if the mean of the measurements is too far away from the prediction (with

the distance measured in standard deviations), then we consider the measurements as

contradicting the prediction. This makes sense since they fall outside the range of values

that could reasonably be expected to occur if the prediction were correct and the standard

deviation appropriately quantified.

he stGeometric interpretation

To gain some geometric insights, we will start with a population of three values, x1, x2, x3.

This defines a point P = (x1, x2, x3) in R3. Consider the line L = {(r, r, r) : r in R}. This is

the "main diagonal" going through the origin. If our three given values were all equal,

then the standard deviation would be zero and P would lie on L. So it is not unreasonable

to assume that the standard deviation is related to the distance of P to L. And that is

indeed the case. Moving orthogonally from P to the line L, one hits the point:

whose coordinates are the mean of the values we started out with. A little algebra

shows that the distance between P and R (which is the same as the distance between

P and the line L) is given by σ√3. An analogous formula (with 3 replaced by N) is

also valid for a population of N values; we then have to work in RN.

Rules for normally distributed data

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

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


Dark blue is less than one standard deviation from the mean. For the normal

distribution, this accounts for 68.27% of the set; while two standard deviations from

the mean (medium and dark blue) account for 95.45%; and three standard deviations

(light, medium, and dark blue) account for 99.73%.

In practice, one often assumes that the data are from an approximately normally

distributed population. If that assumption is justified, then about 68% of the values

are within 1 standard deviation of the mean, about 95% of the values are within two

standard deviations and about 99.7% lie within 3 standard deviations. This is known

as the "68-95-99.7 rule", or "the empirical rule"

The confidence intervals are as follows:

σ 68.26894921371%

2σ 95.44997361036%

3σ 99.73002039367%

4σ 99.99366575163%

5σ 99.99994266969%







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


6σ 99.99999980268%

7σ 99.99999999974%

Relationship between standard deviation and mean

The mean and the standard deviation of a set of data are usually reported together. In a

certain sense, the standard deviation is a "natural" measure of statistical dispersion if the

center of the data is measured about the mean. This is because the standard deviation

from the mean is smaller than from any other point. The precise statement is the

following: suppose x1, ..., xn are real numbers and define the function:

Using calculus, it is possible to show that σ(r) has a unique minimum at the mean:

(this can also be done with fairly simple algebra alone, since, as a function of r, it is a

quadratic polynomial).

The coefficient of variation of a sample is the ratio of the standard deviation to the

mean. It is a dimensionless number that can be used to compare the amount of variance

between populations with different means.

Chebyshev's inequality proves that in any data set, nearly all of the values will be nearer

to the mean value, where the meaning of "close to" is specified by the standard

deviation.

Rapid calculation methods

A slightly faster (significantly for running standard deviation) way to compute the

sample standard deviation is given by the following formula (though considerations

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

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

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

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

http://en.wikipedia.org/wiki/Chebyshev%27s_inequality


must be made for round-off error, arithmetic overflow, and arithmetic underflow

conditions):

or

where the power sums s0, s1, s2 are defined by

Similarly for population standard deviation:

Or from running sums:

See also algorithms for calculating variance.

An axiomatic approach

It is a nice fact that the mean value μ and the standard deviation σ is completely

characterized by the simple algebraic properties and

http://en.wikipedia.org/wiki/Round-off_error

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

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

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


, together with a symmetry condition and the initial

condition

The set of two numbers,

so that

and

Consider the power sums:

The power sums sj are symmetric functions of the vector X, and the symmetric functions

μ and σ2 are written in terms of these like this:

(because

by polynomial expansion and rearrangement)

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

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


or

This formula for the special case n = 2 generalizes to preserving

the rules. The power sums are

5.4 Beta coefficient

Beta coefficient, in terms of finance and investing, is a measure of a stock (or

portfolio)‘s volatility in relation to the rest of the market. Beta is calculated for

individual companies using regression analysis. (See Investing below)

The beta coefficient is a key parameter in the capital asset pricing model (CAPM). It

measures the part of the asset's statistical variance that cannot be mitigated by the

diversification provided by the portfolio of many risky assets, because it is correlated

with the return of the other assets that are in the portfolio.

For example, if every stock in the New York Stock Exchange was uncorrelated with

every other stock, then every stock would have a Beta of zero, and it would be possible

to create a portfolio that was nearly risk free, simply by diversifying it sufficiently so

that the variations in the individual stocks' prices averaged out. This would be like

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

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

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

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

http://en.wikipedia.org/wiki/Portfolio_%28finance%29


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

http://en.wikipedia.org/wiki/Beta_coefficient#Investing






owning a casino royale: essentially none of the business risk of owning a casino comes

from the uncertain outcomes of the games of chance played by the customers, because

those are uncorrelated, and average out over any significant period of time. In reality,

investments tend to be correlated, more so within an industry, or when considering a

single asset class (such as equities), as was demonstrated in the Wall Street crash of

1929. This correlated risk, measured by Beta, is what actually creates almost all of the

risk in a diversified portfolio.

The formula for the Beta of an asset within a portfolio is ,

where ra measures the rate of return of the asset and rp measures the rate of return of the

portfolio of which the asset is a part. In the CAPM formulation, the portfolio is the

market portfolio that contains all risky assets, and so the rp terms in the formula are

replaced by rm, the rate of return of the market.

Beta is also referred to as financial elasticity or correlated relative volatility, and can be

referred to as a measure of the asset's sensitivity of the asset's returns to market returns,

its non-diversifiable risk, its systematic risk or market risk. On an individual asset level,

measuring beta can give clues to volatility and liquidity in the marketplace. On a

portfolio level, measuring beta is thought to separate a manager's skill from his or her

willingness to take risk.

The beta movement should be distinguished from the actual returns of the stocks. For

example, a sector may be performing well and may have good prospects, but the fact

that its movement does not correlate well with the broader market index may decrease

its beta. However, it should not be taken as a reflection on the overall attractiveness or

the loss of it for the sector, or stock as the case may be. Beta is a measure of risk and

not to be confused with the attractiveness of the investment.

The beta coefficient was born out of linear regression analysis. It is linked to a

regression analysis of the returns of a portfolio (such as a stock index) (x-axis) in a

specific period versus the returns an individual asset (y-axis) in a specific year. The

regression line is then called the Security Characteristic Line (SCL).

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

http://en.wikipedia.org/wiki/Wall_Street_crash_of_1929



http://en.wikipedia.org/wiki/Elasticity_%28economics%29


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

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



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

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

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


αa is called the asset's alpha coefficient and βa is called the asset's beta coefficient. Both

coefficients have an important role in Modern portfolio theory.

For example, in a year where the broad market or benchmark index returns 25% above

the risk free rate, suppose two managers gain 50% above the risk free rate. Since this

higher return is theoretically possible merely by taking a leveraged position in the broad

market to double the beta so it is exactly 2.0, we would expect a skilled portfolio

manager to have built the outperforming portfolio with a beta somewhat less than 2,

such that the excess return not explained by the beta is positive. If one of the managers'

portfolios has an average beta of 3.0, and the other's has a beta of only 1.5, then the

CAPM simply states that the extra return of the first manager is not sufficient to

compensate us for that manager's risk, whereas the second manager has done more than

expected given the risk. Whether investors can expect the second manager to duplicate

that performance in future periods is of course a different question.


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

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

http://en.wikipedia.org/wiki/Leverage_%28finance%29



5.5 COMPARISON OF VARIOUS BALANCED & LIQUID FUNDS

Comparision of Balanced and Liquid Funds of SBI Magnum with Balanced and

Liquid Funds Of other AMC’s

Main Sheet

Scheme Name NAV Launch date Corpus (in Crs)

BALANCE

FUND

Birla Balance Fund -

Growth

27.96 4-Oct-99 125.70 (30-Nov-06)

Birla SunLife 95 -

Growth

174.02 11-Feb-95 128.72 (30-Nov-06)

BOB Balance Fund -

Growth

22.10 3-Sep-03 0.99 (30-Nov-06)


Can Balanced -

Growth Plan

28.01 20-Mar-98 61.81 (30-Nov-06)

Can Balanced II 37.41 1-Feb-93 81.45 (30-Nov-06)

DSP ML Balanced

Fund - Growth

38.48 14-May-99 402.46 (30-Nov-06)

Escorts Balanced

Fund - Growth

46.27 20-Mar-01 4.35 (30-Nov-06)

Escorts Opportunities

Fund - Growth

25.20 26-Feb-01 71.51 (30-Nov-06)

Franklin India

Balanced Fund –

Growth

35.25 13-Jul-00 44.05 (29-Jun-04)

FT India Balanced

Fund - Growth

32.64 10-Dec-99 249.49 (30-Nov-06)

HDFC Balanced Fund

- Growth

31.99 10-Aug-00 123.74 (30-Nov-06)

HDFC Prudence Fund

- Growth

113.76 31-Jan-94 2119.30 (30-Nov-06)

ING Vysya Balanced

Fund - Growth

18.18 17-Apr-00 8.21 (30-Nov-06)

JM Balanced -

Growth

23.30 22-Dec-94 15.92 (30-Nov-06)

Kotak Balance -

Growth

23.59 29-Nov-99 104.59 (30-Nov-06)

LIC Balanced - Plan

C (Growth)

45.46 1-Jan-91 30.04 (30-Nov-06)

PRINCIPAL

Balanced Fund -

Growth

21.89 14-Jan-00 31.12 (30-Nov-06)

Prudential ICICI

Balanced - Growth

34.63 7-Oct-99 482.62 (30-Nov-06)

Reliance RSF -

Hybrid - Growth

11.51 10-May-05 2.18 (30-Nov-06)

SBI Magnum

Balanced Fund –

Growth

35.37 31-Oct-95 252.91 (30-Nov-06)

Sundaram BNP

Balanced Fund –

Growth

32.25 25-May-00 47.79 (30-Nov-06)

Tata Balanced Fund -

Growth

49.33 7-Oct-95 155.39 (30-Nov-06)


Unit Scheme 2002 -

Growth

13.8100 (21-Nov-06) 15-Nov-02 608.14 (31-Oct-06)

UTI Balanced Fund -

Growth

55.85 12-Feb-95 1198.32 (30-Nov-06)

3 Years Rank Since

Inception Rank Beta Std. Dev. Months

Annualis

ed

Returns

Sharpe

Rastio

Teynors

ratio

83.34 17 179.60 17 1.04 1.02 75.00 28.74 22.29 21.86

109.81 8 1640.20 1 0.96 1.02 155.00 126.98 118.61 126.02

75.40 20 121.00 20 1.41 1.53 40.00 36.30 19.80 21.49

46.04 23 299.96 9 1.03 1.07 105.00 34.28 26.43 27.46

136.03 3 288.07 10 1.14 1.17 167.00 20.70 12.56 12.89

110.63 5 284.83 11 1.13 1.08 79.00 43.27 34.50 32.98

108.87 9 361.71 7 1.15 1.15 69.00 62.91 49.48 49.48

47.39 22 151.79 18 0.99 1.00 70.00 26.02 20.02 20.22

99.49 12 252.50 12 1.16 1.13 78.00 38.85 29.07 28.32

99.85 11 226.36 14 1.16 1.13 84.00 32.34 23.31 22.70

84.30 15 219.91 15 1.14 1.13 77.00 34.27 25.02 24.80

145.73 2 1378.34 2 1.00 1.06 155.00 106.71 95.01 100.71

85.51 14 81.80 23 1.11 1.13 80.00 12.27 5.55 5.65

101.73 10 593.48 5 1.20 1.23 144.00 49.46 35.33 36.21


131.28 4 319.87 8 1.17 1.18 85.00 45.16 33.18 33.47

81.08 18 112.01 22 1.29 1.27 192.00 7.00 0.79 0.78

87.09 13 118.90 21 1.15 1.18 84.00 16.99 9.31 9.55

110.13 6 246.30 13 1.24 1.21 87.00 33.97 23.12 22.56

-- -- 14.78 24 0.20 0.28 20.00 8.87 10.24 14.34

166.10 1 704.47 4 1.11 1.13 134.00 63.09 50.52 51.43

83.76 16 217.71 16 0.94 0.97 79.00 33.07 27.91 28.80

109.92 7 572.14 6 1.19 1.20 135.00 50.86 37.38 37.69

63.82 21 148.83 19 1.01 1.00 49.00 36.45 30.45 30.15

78.72 19 925.81 3 0.94 1.00 143.00 77.69 71.69 76.27

COMPARISON ON THE BASIS OF STANDARD DEVIATION & BETA

FUND NAME NAV

LAUNCH

DATE BETA ST. DEV

Can Balanced -

Growth Plan

28.01 20-Mar-98 1.03 1.07

Can Balanced II 37.41 1-Feb-93 1.14 1.17

DSP ML Balanced

Fund - Growth

38.48 14-May-99 1.13 1.08

Escorts Balanced

Fund - Growth

46.27 20-Mar-01 1.15 1.15

Escorts

Opportunities Fund -

Growth

25.20 26-Feb-01 0.99 1.00


Franklin India

Balanced Fund -

Growth

35.25 13-Jul-00 1.16 1.13

FT India Balanced

Fund - Growth

32.64 10-Dec-99 1.16 1.13

HDFC Balanced

Fund - Growth

31.99 10-Aug-00 1.14 1.13

HDFC Prudence

Fund - Growth

113.76 31-Jan-94 1.00 1.06

ING Vysya

Balanced Fund -

Growth

18.18 17-Apr-00 1.11 1.13

JM Balanced -

Growth

23.30 22-Dec-94 1.20 1.23

Kotak Balance -

Growth

23.59 29-Nov-99 1.17 1.18

LIC Balanced - Plan

C (Growth)

45.46 1-Jan-91 1.29 1.27

PRINCIPAL

Balanced Fund -

Growth

21.89 14-Jan-00 1.15 1.18

Prudential ICICI

Balanced - Growth

34.63 7-Oct-99 1.24 1.21

Reliance RSF -

Hybrid - Growth

11.51 10-May-05 0.20 0.28

SBI Magnum

Balanced Fund -

Growth

35.37 31-Oct-95 1.11 1.13

Sundaram BNP

Balanced Fund -

Growth

32.25 25-May-00 0.94 0.97

Tata Balanced Fund

- Growth

49.33 7-Oct-95 1.19 1.20

Unit Scheme 2002 -

Growth

13.81 15-Nov-02 1.01 1.00

UTI Balanced Fund

- Growth

55.85 12-Feb-95 0.94 1.00


BETA-ST.DEV ANALYSIS

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

BETA

ST. DEV

The above fig. shows the relation between std deviation &beta pf the funds under

consideration we know that std deviation signifies total risk of the fund & beta signifies

systematic risk component only. The above fig clearly signifies that for BALANCED

funds the systematic risk component is pretty higher showing that investment in these

funds is bit more higher than liquid equity funds


COMPARIOSN ON THE BASIS OF ANNUALISED RETURN OF THE FUNDS

FUND NAME NAV LAUNCH DATE

SINCE

INCEPTION RANK

Can Balanced - Growth

Plan

28.01 20-Mar-98 299.96 9

Can Balanced II 37.41 1-Feb-93 288.07 10

DSP ML Balanced Fund -

Growth

38.48 14-May-99 284.83 11

Escorts Balanced Fund -

Growth

46.27 20-Mar-01 361.71 7


Fund - Growth

25.20 26-Feb-01 151.79 18

Franklin India Balanced

Fund - Growth

35.25 13-Jul-00 252.50 12

FT India Balanced Fund -

Growth

32.64 10-Dec-99 226.36 14

HDFC Balanced Fund -

Growth

31.99 10-Aug-00 219.91 15

HDFC Prudence Fund -

Growth

113.76 31-Jan-94 1378.34 2

ING Vysya Balanced

Fund - Growth

18.18 17-Apr-00 81.80 23

JM Balanced - Growth 23.30 22-Dec-94 593.48 5

Kotak Balance - Growth 23.59 29-Nov-99 319.87 8


LIC Balanced - Plan C

(Growth)

45.46 1-Jan-91 112.01 22

PRINCIPAL Balanced

Fund - Growth

21.89 14-Jan-00 118.90 21

Prudential ICICI Balanced

- Growth

34.63 7-Oct-99 246.30 13

Reliance RSF - Hybrid -

Growth

11.51 10-May-05 14.78 24

SBI Magnum Balanced

Fund - Growth

35.37 31-Oct-95 704.47 4

Sundaram BNP Paribas

Balanced Fund - Growth

32.25 25-May-00 217.71 16


Growth

49.33 7-Oct-95 572.14 6

Unit Scheme 2002 -

Growth

13.8100 (21-Nov-06) 15-Nov-02 148.83 19

UTI Balanced Fund -

Growth

55.85 12-Feb-95 925.81 3

on the basis of annualized return i have tried to analyze various funds in the category of

BALANCED FUNDS the results are that on this basis this the HDFC BALANCED

FUND & SBI BALANCED FUND SECURED the position of 1 &4 respectively highest

return where as the lowest return is provided by RELIANCE ,LIC &PRINCIPAL

BALANCED FUNDS but knowing the fact that comparing simply on the basis of

annualized return is not a good practice so i have also included other parameters also like

sharpe ratio treynor ratio etc.


COMPARISION ON THE BASIS OF COEFFICEINT OF VARIATION

FUND

NAME BETA ST. DEV Annualised

Returns

COEF OF

VARIATION

Can Balanced -

Growth Plan

1.03 1.07 28.74

27.9

Can Balanced II 1.14 1.17 126.98

111.4

DSP ML

Balanced Fund -

Growth

1.13 1.08 36.3

32.12

Escorts Balanced

Fund - Growth

1.15 1.15 34.28

29.81

Escorts

Opportunities

Fund - Growth

0.99 1 20.7

20.91

Franklin India

Balanced Fund -

Growth

1.16 1.13 43.27

37.3

FT India

Balanced Fund -

Growth

1.16 1.13 62.91

54.23

HDFC Balanced

Fund - Growth

1.14 1.13 26.02

22.82

HDFC Prudence

Fund - Growth

1 1.06 38.85

38.85

ING Vysya

Balanced Fund -

Growth

1.11 1.13 32.34

29.14


JM Balanced -

Growth

1.2 1.23 34.27

28.56

Kotak Balance -

Growth

1.17 1.18 106.71

91.21

LIC Balanced -

Plan C (Growth)

1.29 1.27 12.27

9.512

PRINCIPAL

Balanced Fund -

Growth

1.15 1.18 49.46

43.01

Prudential ICICI

Balanced -

Growth

1.24 1.21 45.16

36.42

Reliance RSF -

Hybrid - Growth

0.2 0.28 7

35

SBI Magnum

Balanced Fund -

Growth

1.11 1.13 16.99

15.31

Sundaram BNP

Balanced Fund -

Growth

0.94 0.97 33.97

36.14

Tata Balanced

Fund - Growth

1.19 1.2 8.87

7.454

Unit Scheme

2002 - Growth

1.01 1 63.09

62.47

UTI Balanced

Fund - Growth

0.94 1 33.07

35.18

As per the coefficient of UNIT SCHEME 220& PRINCIPAL BALANCED FUNDS

are the most superior fund with cov of 62.5& 43.6 TATA BALANCED FUND is

the most inferior with cov of only 7.454


COMPARISION ON THE BASIS OF SHARPE RATIO

NAME ST.DEV

SINCE

INCEPTI

ON

ANNUAL

IZED

RETURN

SHARP

E

RATIO

FUND

Birla Balance Fund – Growth 1.02 179.60 28.74 0.22

Birla SunLife 95 – Growth 1.02 1640.20 126.98 1.19

BOB Balance Fund – Growth 1.53 121.00 36.30 0.20

Can Balanced – Growth Plan 1.07 299.96 34.28 0.26

Can Balanced II 1.17 288.07 20.70 0.13

DSP ML Balanced Fund – Growth 1.08 284.83 43.27 0.35

Escorts Balanced Fund – Growth 1.15 361.71 62.91 0.49

Escorts Opportunities Fund - Growth 1.00 151.79 26.02 0.20

Franklin India Balanced Fund – Growth 1.13 252.50 38.85 0.29

FT India Balanced Fund – Growth 1.13 226.36 32.34 0.23

HDFC Balanced Fund – Growth 1.13 219.91 34.27 0.25

HDFC Prudence Fund – Growth 1.06 1378.34 106.71 0.95

ING Vysya Balanced Fund - Growth 1.13 81.80 12.27 0.06

JM Balanced – Growth 1.23 593.48 49.46 0.35

Kotak Balance – Growth 1.18 319.87 45.16 0.33

LIC Balanced - Plan C (Growth) 1.27 112.01 7.00 0.01

PRINCIPAL Balanced Fund – Growth 1.18 118.90 16.99 0.09

Prudential ICICI Balanced - Growth 1.21 246.30 33.97 0.23

Reliance RSF – Hybrid – Growth 0.28 14.78 8.87 0.10

SBI Magnum Balanced Fund – Growth 1.13 704.47 63.09 0.51

Sundaram BNP Paribas Balanced Fund – Growth 0.97 217.71 33.07 0.28

Tata Balanced Fund – Growth 1.20 572.14 50.86 0.37


Unit Scheme 2002 – Growth 1.00 148.83 36.45 0.30

UTI Balanced Fund – Growth 1.00 925.81 77.69 0.72

SHARPE RATIO

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

SHARPE RATIO

As per the SHARPE RATIO SBI MAGNUM BALANCED & RELIANCE

BALANCE FUNDS are the most superior fund & BIRLA SUNLIFE 95 FUND IS

the most inferior

.

COMPARISON ON THE BASIS OF TREYNOR RATIO BALANCED

FUNDS


FUND NAME BETA

SINCE

INCEPTION MONTHS

ANNUALIZED

RETURN

TREYNOR

RATIO


Growth

1.04 179.60 75.00

28.74 0.22

Birla SunLife 95 -

Growth

0.96 1640.20 155.00

126.98 1.26

BOB Balance Fund -

Growth

1.41 121.00 40.00

36.30 0.21

Can Balanced -

Growth Plan

1.03 299.96 105.00

34.28 0.27

Can Balanced II 1.14 288.07 167.00

20.70 0.13

DSP ML Balanced

Fund - Growth

1.13 284.83 79.00

43.27 0.33

Escorts Balanced

Fund - Growth

1.15 361.71 69.00

62.91 0.49


Fund - Growth

0.99 151.79 70.00

26.02 0.20

Franklin India

Balanced Fund -

Growth

1.16 252.50 78.00

38.85 0.28

FT India Balanced

Fund - Growth

1.16 226.36 84.00

32.34 0.23


HDFC Balanced

Fund - Growth

1.14 219.91 77.00

34.27 0.25

HDFC Prudence

Fund - Growth

1.00 1378.34 155.00

106.71 1.01

ING Vysya Balanced

Fund - Growth

1.11 81.80 80.00

12.27 0.06

JM Balanced -

Growth

1.20 593.48 144.00

49.46 0.36

Kotak Balance -

Growth

1.17 319.87 85.00

45.16 0.33

LIC Balanced - Plan

C (Growth)

1.29 112.01 192.00

7.00 0.01

PRINCIPAL

Balanced Fund -

Growth

1.15 118.90 84.00

16.99 0.10

Prudential ICICI

Balanced - Growth

1.24 246.30 87.00

33.97 0.23

Reliance RSF -

Hybrid - Growth

0.20 14.78 20.00

8.87 0.14

SBI Magnum

Balanced Fund -

Growth

1.11 704.47 134.00

63.09 0.51

Sundaram BNP

Paribas Balanced

Fund - Growth

0.94 217.71 79.00

33.07 0.29


Growth

1.19 572.14 135.00

50.86 0.38

Unit Scheme 2002 -

Growth

1.01 148.83 49.00

36.45 0.30


UTI Balanced Fund -

Growth

0.94 925.81 143.00

77.69 0.76

The above table shows the inverse relation between treynor ratio and the beta of a

portfolio. The higher the beta the lower the treynor ratio. And in the above table the SBI

MAGNUM BALANCED & BIRLA SUN LIFE have performed better than the other

funds.


TREYNOR RATIO

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

TREYNOR RATIO


COPMARISON ON THE BASIS OF INCEPTION OF THE FUND

FUND

NAME NAV LAUNCH DATE

SINCE

INCEPTION RANK

ABN AMRO

Cash Fund -

Growth

11.26 1-Sep-04 5.45 73

ABN AMRO

Cash Fund -

IP - Growth

11.38 1-Sep-04 5.98 52

Birla Cash

Plus -

Institutional

Premium Plan

- Growth

11.69 29-Mar-04 6.12 43

Birla SunLife

Cash

Manager -

Growth

18.05 14-May-98 9.32 7

DBS Chola

Liquid Fund -

Reg - Growth

14.87 9-Oct-00 7.81 15

DSP ML

Liquid Plus

Fund -

Growth

1028.44 31-Jul-06 24.61 1

DSP ML

Liquid Plus

Fund - IP -

Daily Div

1000.20 31-Jul-06 6.29 40

Escorts

Liquid Plan -

Growth

10.71 29-Sep-05 5.70 68

HDFC Cash

Mgmt Fund -

Call Plan -

Growth

12.67 6-Feb-02 5.46 72


HDFC Liquid

Fund -

Premium Plus

Plan - Growth

14.70 24-Feb-03 5.94 55

HSBC Cash

Fund - I P -

Growth

12.40 15-Sep-03 5.73 67

HSBC Cash

Fund - Reg -

Growth

12.37 3-Dec-02 5.84 64

ING Vysya

Liquid Fund -

Growth

15.57 6-Jan-00 7.94 14

JM High

Liquidity - I P

- Growth

12.18 4-Apr-03 5.82 65

JM Money

Manager

Fund -

Growth

10.17 27-Sep-06 6.84 28

Kotak Liquid

- IP - Growth

14.75 12-Mar-03 5.88 60

LIC MF

Liquid Fund -

Growth

13.34 13-Mar-02 6.95 24

Prudential

ICICI Liquid

- I P - Growth

18.19 23-Feb-03 5.97 53

Prudential

ICICI Liquid

Plan - FII -

Growth

10.53 27-Mar-06 6.94 25

Prudential

ICICI Sweep

Plan - Cash

Option -

Growth

10.56 8-Mar-06 6.90 27

Reliance

Liquid Fund -

Cash Plan -

Growth

12.85 4-Dec-01 5.62 70

Reliance

Liquidity

Fund -

Growth

11.00 16-Jun-05 6.52 33

SBI Magnum

Insta Cash -

Cash Plan

16.48 19-May-99 8.46 10


SBI Magnum

Insta Cash

Fund - Liquid

Floater Plan -

Growth

12.71 24-Sep-02 6.33 39

Sundaram

BNP Paribas

Money Fund -

Growth

15.42 6-Mar-00 7.95 13

Tata Liquid

Fund - HIP -

Growth

1225.94 24-Feb-03 5.88 60

UTI Liquid

Fund - Cash

Plan - Growth

1203.15 24-Jun-03 5.77 66

SINCE INCEPTION

0

5

10

15

20

25

30

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

SINCE INCEPTION


COMPARISON ON THE BASIS OF STD DEVIATION & BETA of

liquid funds

FUND NAME NAV

LAUNCH

DATE BETA

ST.

DEV

ABN AMRO Cash Fund - Growth 11.26 1-Sep-04 0.15 0.01

ABN AMRO Cash Fund - IP - Growth 11.38 1-Sep-04 0.16 0.02

Birla Cash Plus - Institutional Premium Plan - Growth 11.69 29-Mar-04 0.16 0.01

Birla SunLife Cash Manager - Growth 18.05 14-May-98 0.16 0.02

DBS Chola Liquid Fund - Reg - Growth 14.87 9-Oct-00 0.14 0.02

DSP ML Liquid Plus Fund - Growth 1028.44 31-Jul-06 0.14 0.02

DSP ML Liquid Plus Fund - IP - Daily Div 1000.20 31-Jul-06 0.16 0.01

Escorts Liquid Plan - Growth 10.71 29-Sep-05 0.22 0.03

HDFC Cash Mgmt Fund - Call Plan - Growth 12.67 6-Feb-02 0.22 0.02

HDFC Liquid Fund - Premium Plus Plan - Growth 14.70 24-Feb-03 0.13 0.02

HSBC Cash Fund - I P - Growth 12.40 15-Sep-03 0.16 0.02

HSBC Cash Fund - Reg - Growth 12.37 3-Dec-02 0.15 0.01

ING Vysya Liquid Fund - Growth 15.57 6-Jan-00 0.12 0.02

JM High Liquidity - I P - Growth 12.18 4-Apr-03 0.13 0.01

JM Money Manager Fund - Growth 10.17 27-Sep-06 0.12 0.02

Kotak Liquid - IP - Growth 14.75 12-Mar-03 0.16 0.01

LIC MF Liquid Fund - Growth 13.34 13-Mar-02 0.12 0.01

Prudential ICICI Liquid - I P - Growth 18.19 23-Feb-03 0.14 0.02

Prudential ICICI Liquid Plan - FII - Growth 10.53 27-Mar-06 0.14 0.02

Prudential ICICI Sweep Plan - Cash Option - Growth 10.56 8-Mar-06 0.11 0.01

Reliance Liquid Fund - Cash Plan - Growth 12.85 4-Dec-01 0.13 0.02

Reliance Liquidity Fund - Growth 11.00 16-Jun-05 0.12 0.03

SBI Magnum Insta Cash - Cash Plan 16.48 19-May-99 0.08 0.01

SBI Magnum Insta Cash Fund - Liquid Floater Plan - Growth 12.71 24-Sep-02 0.08 0.01

Sundaram BNP Paribas Money Fund - Growth 15.42 6-Mar-00 0.09 0.01


Tata Liquid Fund - HIP - Growth 1225.94 24-Feb-03 0.12 0.01

UTI Liquid Fund - Cash Plan - Growth 1203.15 24-Jun-03 0.01 0.09

The above fig. shows the relation between std deviation &beta pf the funds under

consideration we know that std deviation signifies total risk of the fund & beta signifies

systematic risk component only. The above fig clearly signifies that for liquid funds the

systematic risk component is pretty higher showing that investment in these funds is bit

COMPARISON ON THE BASIS OF COEFFICENT OF VARIATIONOF VARIOUS LIQUID

FUNDS

FUND NAME

ANNUALIZED

RETURN BETA

COFF OF

VARIATION

Birla Balance Fund - Growth 28.74 1.04 27.63462

Birla SunLife 95 - Growth 126.98 0.96 132.2708

BOB Balance Fund - Growth 36.3 1.41 25.74468

Can Balanced - Growth Plan 34.28 1.03 33.28155


Can Balanced II 20.7 1.14 18.15789

DSP ML Balanced Fund - Growth 43.27 1.13 38.29204

Escorts Balanced Fund - Growth 62.91 1.15 54.70435

Escorts Opportunities Fund - Growth 26.02 0.99 26.28283

Franklin India Balanced Fund - Growth 38.85 1.16 33.49138

FT India Balanced Fund - Growth 32.34 1.16 27.87931

HDFC Balanced Fund - Growth 34.27 1.14 30.0614

HDFC Prudence Fund - Growth 106.71 1 106.71

ING Vysya Balanced Fund - Growth 12.27 1.11 11.05405

JM Balanced - Growth 49.46 1.2 41.21667

Kotak Balance - Growth 45.16 1.17 38.59829

LIC Balanced - Plan C (Growth) 7 1.29 5.426357

PRINCIPAL Balanced Fund - Growth 16.99 1.15 14.77391

Prudential ICICI Balanced - Growth 33.97 1.24 27.39516

Reliance RSF - Hybrid - Growth 8.87 0.2 44.35

SBI Magnum Balanced Fund - Growth 63.09 1.11 56.83784

Sundaram BNP Paribas Balanced Fund - Growth 33.07 0.94 35.18085

Tata Balanced Fund - Growth 50.86 1.19 42.7395

Unit Scheme 2002 - Growth 36.45 1.01 36.08911

UTI Balanced Fund - Growth 77.69 0.94 82.64894


COFFICIENT OF VARIATION

0

20

40

60

80

100

120

140

1 3 5 7 9 11 13 15 17 19 21 23

BETA

CO

EF

FIC

EN

T O

F

VA

RIA

TIO

N

Series1

As per the coefficient of variation birla sun life 95 LIQUID & SBI MAGNUM LIQUID

FUNDS are the most superior fund with cov of132 & 56.56 respectively & LIC liquid

fund the most inferior with cov of only 5.88

COMAPRIOSN ON THE BASIS OF TREYNOR RATIO

FUND NAME BETA SINCE INCEP. ANN.RETURN

TREYNOR

RATIO

ABN AMRO Cash Fund

– Growth 0.15

5.45

2.34 -0.24

ABN AMRO Cash Fund

- IP – Growth

0.16 5.98

2.56 -0.21


Birla Cash Plus -

Institutional Premium

Plan - Growth

0.16 6.12

2.23 -0.24

Birla SunLife Cash

Manager - Growth

0.16 9.32

1.09 -0.31

DBS Chola Liquid Fund

- Reg - Growth

0.14 7.81

1.25 -0.34

DSP ML Liquid Plus

Fund - Growth

0.14 24.61

59.06 3.79

DSP ML Liquid Plus

Fund - IP - Daily Div

0.16 6.29

15.10 0.57

Escorts Liquid Plan -

Growth

0.22 5.70

4.56 -0.07

HDFC Cash Mgmt Fund

- Call Plan - Growth

0.22 5.46

1.11 -0.22

HDFC Liquid Fund -

Premium Plus Plan -

Growth

0.13 5.94

1.55 -0.34

HSBC Cash Fund - I P -

Growth

0.16 5.73

1.76 -0.26

HSBC Cash Fund - Reg

- Growth

0.15 5.84

1.46 -0.30

ING Vysya Liquid Fund

- Growth

0.12 7.94

1.13 -0.41

JM High Liquidity - I P -

Growth

0.13 5.82

1.49 -0.35

JM Money Manager

Fund - Growth

0.12 6.84

27.36 1.78

Kotak Liquid - IP -

Growth

0.16 5.88

1.50 -0.28

LIC MF Liquid Fund -

Growth

0.12 6.95

1.41 -0.38

Prudential ICICI Liquid

- I P - Growth

0.14 5.97

1.52 -0.32

Prudential ICICI Liquid

Plan - FII - Growth

0.14 6.94

9.25 0.23


Prudential ICICI Sweep

Plan - Cash Option -

Growth

0.11 6.90

8.28 0.21

Reliance Liquid Fund -

Cash Plan - Growth

0.13 5.62

1.12 -0.38

Reliance Liquidity Fund

- Growth

0.12 6.52

4.35 -0.14

SBI Magnum Insta Cash

- Cash Plan

0.08 8.46

1.12 -0.61

SBI Magnum Insta Cash

Fund - Liquid Floater

Plan - Growth

0.08 6.33

1.49 -0.56

Sundaram BNP Paribas

Money Fund - Growth

0.09 7.95

1.16 -0.54

Tata Liquid Fund - HIP -

Growth

0.12 5.88

1.53 -0.37

UTI Liquid Fund - Cash

Plan - Growth

0.01 5.77

1.65 -4.35

COMPARISON ON THE BASIS OF SHARPE RATIO

FUND NAME ST.DEV S.INCAPTION MONTH AN.RET

SHARPE

RATIO

ABN AMRO Cash

Fund - Growth 0.01 5.45 28

2.34 -3.66

ABN AMRO Cash

Fund - IP - Growth

0.02 5.98 28

2.56 -1.72

Birla Cash Plus -

Institutional

Premium Plan -

Growth

0.01 6.12 33

2.23 -3.77

Birla SunLife Cash

Manager - Growth

0.02 9.32 103

1.09 -2.46


DBS Chola Liquid

Fund - Reg - Growth

0.02 7.81 75

1.25 -2.38

DSP ML Liquid

Plus Fund - Growth

0.02 24.61 5

59.06 26.53

DSP ML Liquid

Plus Fund - IP -

Daily Div

0.01 6.29 5

15.10 9.10

Escorts Liquid Plan

- Growth

0.03 5.70 15

4.56 -0.48

HDFC Cash Mgmt

Fund - Call Plan -

Growth

0.02 5.46 59

1.11 -2.44

HDFC Liquid Fund

- Premium Plus Plan

- Growth

0.02 5.94 46

1.55 -2.23

HSBC Cash Fund - I

P - Growth

0.02 5.73 39

1.76 -2.12

HSBC Cash Fund -

Reg - Growth

0.01 5.84 48

1.46 -4.54

ING Vysya Liquid

Fund - Growth

0.02 7.94 84

1.13 -2.43

JM High Liquidity -

I P - Growth

0.01 5.82 47

1.49 -4.51

JM Money Manager

Fund - Growth

0.02 6.84 3

27.36 10.68

Kotak Liquid - IP -

Growth

0.01 5.88 47

1.50 -4.50

LIC MF Liquid

Fund - Growth

0.01 6.95 59

1.41 -4.59

Prudential ICICI

Liquid - I P -

Growth

0.02 5.97 47

1.52 -2.24

Prudential ICICI

Liquid Plan - FII -

Growth

0.02 6.94 9

9.25 1.63

Prudential ICICI

Sweep Plan - Cash

Option - Growth

0.01 6.90 10

8.28 2.28

Reliance Liquid

Fund - Cash Plan -

Growth

0.02 5.62 60

1.12 -2.44

Reliance Liquidity

Fund - Growth

0.03 6.52 18

4.35 -0.55

SBI Magnum Insta 0.01 8.46 91 1.12 -4.88


Cash - Cash Plan

SBI Magnum Insta

Cash Fund - Liquid

Floater Plan -

Growth

0.01 6.33 51

1.49 -4.51

Sundaram BNP

Paribas Money Fund

- Growth

0.01 7.95 82

1.16 -4.84

Tata Liquid Fund -

HIP - Growth

0.01 5.88 46

1.53 -4.47

UTI Liquid Fund -

Cash Plan - Growth

0.09 5.77 42

1.65 -0.48

SHARPE RATIO

-10

-5

0

5

10

15

20

25

30

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

SHARPE RATIO

As per the SHARPE RATIO DSP MERRIL LYNCH & JP MORGAN STANLEY

LIQUID FUNDS are the most superior fund & SBI MAGNUM CASH PLAN & SBI

MAGNUM LIQUID PALN the most inferior


Comparison on the basis of coefficient of variation

Scheme Name NAV

Annualised

Returns

BALANCE FUND Beta

Std.

Dev.

COEFFICENT

OF

VARIATION


Growth

27.96 1.04 1.02 28.74

28.17647059

Birla SunLife 95 -

Growth

174.02 0.96 1.02 126.98

124.4901961

BOB Balance Fund -

Growth

22.1 1.41 1.53 36.3

23.7254902

Can Balanced - Growth

Plan

28.01 1.03 1.07 34.28

32.03738318

Can Balanced II 37.41 1.14 1.17 20.7 17.69230769

DSP ML Balanced Fund

- Growth

38.48 1.13 1.08 43.27

40.06481481

Escorts Balanced Fund -

Growth

46.27 1.15 1.15 62.91

54.70434783


Fund - Growth

25.2 0.99 1 26.02

26.02

Franklin India Balanced 35.25 1.16 1.13 38.85 34.38053097


Fund – Growth

FT India Balanced Fund

- Growth

32.64 1.16 1.13 32.34

28.61946903

HDFC Balanced Fund -

Growth

31.99 1.14 1.13 34.27

30.32743363

HDFC Prudence Fund -

Growth

113.76 1 1.06 106.71

100.6698113

ING Vysya Balanced

Fund - Growth

18.18 1.11 1.13 12.27

10.85840708

JM Balanced - Growth 23.3 1.2 1.23 49.46 40.21138211

Kotak Balance - Growth 23.59 1.17 1.18 45.16 38.27118644

LIC Balanced - Plan C

(Growth)

45.46 1.29 1.27 7

5.511811024

PRINCIPAL Balanced

Fund - Growth

21.89 1.15 1.18 16.99

14.39830508

Prudential ICICI

Balanced - Growth

34.63 1.24 1.21 33.97

28.07438017

Reliance RSF - Hybrid -

Growth

11.51 0.2 0.28 8.87

31.67857143

SBI Magnum Balanced

Fund – Growth

35.37 1.11 1.13 63.09

55.83185841

Sundaram BNP Balanced

Fund – Growth

32.25 0.94 0.97 33.07

34.09278351


Growth

49.33 1.19 1.2 50.86

42.38333333

Unit Scheme 2002 -

Growth

13.8100

(21-Nov-06)

1.01 1 36.45

36.45


UTI Balanced Fund -

Growth

55.85 0.94 1 77.69

77.69

COEFFICIENT OF VARIATION

0

20

40

60

80

100

120

140

1 3 5 7 9

11

13

15

17

19

21

23

COEFFICIENT OF VARIATION

As per the coefficient of variation SBI MAGNUM LIQUID PLAN &TATA LIQUID

FUNDS are the most superior fund &LIC PLAN & ESSCORTS OPPORTUNITY

PLAN are the most inferior plans . on the ground of coefficient of variation calculation


SURVEY & QUESTTIONAIRE


CHAPTER 6

6.1SURVEY

OBJECTIVE OF THE SURVEY

1. To study and analyze the perception of people when they invest in Mutual Funds

with special emphasis on Balance and Liquid Mutual Funds.

2. To study and analyze other investment preferences of people.

3. To use the information so collected to identify opportunities and challenges

faced by SBI Mutual Fund

4. To make recommendations, using the above analysis to help SBI Mutual Fund to

acquire and retain customers

SAMPLE AND SAMPLE SIZE

The sample consisted of 120 residents of Jaipur region. Most of the sample consisted of

walk-in customers at Anand Rathi Securities Ltd ( Jaipur).


PRIMARY DATA COLLECTION

Two methods were adopted:

1) Questionnaire: A questionnaire consisting of 10 questions aiming to study the

perceptions and preferences etc. of the respondents was designed and was

required to be filled by them.

2) Verbal Interaction: The respondents were verbally asked about their investment

preferences and awareness about Mutual Funds and also about their responses to

the questionnaires.

Questionnaire

Q1. On whose advise do you invest in MF?

Broker/ Friend Business newspaper/ news channel

Own expertise Any other, please specify_____________

Q2. Would you continue investing in MF‘s after such a crash?

Continue as usual Stop investing

Continue but slow down

Q3. Do you hold MF‘s of different AMC‘s at one time?

Yes No Sometimes


Q4. What‘s your normal time horizon in MF‘s?

Up to 3months 3-12months More than 1year

Q5. What are the factors you consider before investing in a particular MF?

Market situation Past performance of particular fund house/scheme

Brand name Recommendation of any friend/broker/expert/banker

Q6. What are the benefits do you think MFs offer?

Better risk diversification Tax benefits Well regulated

Better professional expertise Convenient investing e.g. SIP, STP,etc.

None of the above

Q7. When do you sell your MF units?

On completion of time horizon Negative market sentiment

Transfer to another investment avenue

Q8. Would you continue investing in MFs?

Yes No

Q9. What‘s your normal time horizon in MF?


Up to 1 year 1-3years More than 3years

Q10. What are your areas of preferred investment?

Bank deposits G-Securities Direct Equity

Real Estate Mutual Funds Insurance Others

_______________________________________________________________________

Personal details

Age Income

Occupation

THE DEMOGRAPHICS OF THE RESPONDENTS

Fig 1. Age-wise distibution of

respondents

8%

13%

28%29%

22%

<25 25-35 36-45 46-60 Above 60


8% of the respondents lie in the age group of less than 25 years. This is the stage when

most of them would have just started to earn and are mostly single.

13% of the respondents lie in the age group of 25-35 years. This is the stage when people

are ambitious and are willing to take big risks with little money.

People lying between age groups 36-45 and 46-60 are 28% and 29% respectively. Such

people have been earning for quite some time now and would have accumulated wealth

and savings over the years.

People lying above the age of 60 years are mostly those who have retired from their work

and do not have a regular occupational income. Their income is derived usually from

retirement plans or returns from their investments. This age group is usually skeptical of

entering into new areas of investments esp. into capital market as they cannot risk to lose

all that they have as there is no way of earning it back again.

19% of respondents were self-employed. The awareness level is generally low in this

class about different investment avenues.

25% of respondents were professionals and mostly have good knowledge about

investment avenues available in the market.

About 43% of the respondents were doing service. It had characteristics of both self-

employed and professionals.

Nearly 13% of the respondents were retired. They had good knowledge about safe and

regular stream of income related investment avenues.


OBSERVATIONS

Fig 4. mutual fund invesments

among respondents

12%

88%

Invests in mutual funds Never invested in equity

As per my survey, 12% of the respondents invest in Mutual Funds. Thus, there is a vast

potential of investors lying untapped.


Around 35% of the respondents were investing directly in SBI mutual funds. And, rest 65% were

investing with other AMCs

Fig 6. Continuation with MFs

investments

75%

25%

Continue invesments in MFs Will not be investing

Almost 2/3 of respondents who have ever invested in MFs will continue with their investments,

thereby indicating high satisfaction.


Around 55% of respondents would either stop investing or slow down investments.

This can be good for the mutual fund industry provided they are able to convince the person

about the risk diversification concept.

Bank Deposits and real estate are the most preferred choice.

Fig. 8 Prefered Areas of Investment

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Bank Dep

osits

G-S

ec

Dire

ct e

quity

Rea

l estate

Mut

ual F

unds

Insu

ranc

e

Oth

ers


The respondents have shown a preference for conventional investment options led by Savings

bank Account (42%) and followed by Real Estate (24%).

This shows that most people prefer secured and safe investment options and show a moderate to

low endurance to risky or uncertain investment options.

Even though, not all invest in Mutual Funds, but people have ranked them above Insurance and

others.

PEOPLE ARE NOT AWARE OF MUTUAL FUNDS AND THEIR WORKING.

PEOPLE BELIEVE THAT MUTUAL FUNDS ARE VERY RISKY

Fig. 9 Perception about MFs

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Insuff icient

know ledge

Very risky Offers risk

Diversif ication

Better than

equity


As much as 44% of the respondents agree that they do not have complete knowledge of what the

Mutual Funds are and how do they operate. Even, amongst those who invest, respondents have

accepted that they have little knowledge as they may be investing on someone else‘s call.

23% of the respondents feel that Mutual Funds are too risky and they would never invest in them.

This makes more than 60% of the entire sample population that is ignorant about the nature and

operations of Mutual funds.

Only 20% know about the risk diversification, which MFs offer.

People have given prime importance to the Recommendation of banker/friend and Market

Situation in deciding on the funds to invest in.

Fig. 10 Factors considered while investing

in a fund

0%

10%

20%

30%

40%

50%

60%

70%

80%

Bra

nd n

am

e

Mark

et situation

Past

perform

ance o

f

fund

Recom

mendation

of banker/frie

nd


Also, while interaction it was felt brand name is also an important consideration. Though only

32% marked it as an important factor.


OPPORTUNITIES IDENTIFIED

CHALLENGES FACED


THE INVESTORS’ MIND


6.2 LIMITATIONS OF THE SURVEY

• The size of the sample is only 120.

• The respondents are restricted to Jaipur territory only.

• Most of the respondents are walk-in customers of SBI MUTUAL FUND .

• During the time of the survey market was highly volatile with a downward trend, thereby

changing respondents perception drastically.

• Many respondents were not willing to disclose their financial details.


6.3 FUTURE OF MUTUAL FUND INDUSTRY:

The financial year comes to a close and the tax payments have been done. The dues have been

settled and it‘s time to step into the next fiscal, also a good time to review how investments have

performed.

The year saw the continuation of the bull-run, in fact the fourth year of the climb. The

Bombay Stock Exchange Sensitive Index or the Sensex closed the fiscal with a 15% gain.

Feelers from the market place suggest that while the economy may grow this year too, the

equity markets might not depict the same buoyancy. The current year has already been

witnessing crests and troughs worth 300 points on a regular basis.

In such volatile times, mutual funds become the obvious choice for investors - both

individual and corporate. The assets under management for the mutual fund industry have

nearly doubled in the past two years. At Rs 3,53,300 crore the size of the industry is set to

grow further. Industry experts reckon the size would easily treble in the next five years

and there would be significant additions to the 32 players currently operating in the

market place.

While that sounds fabulous for the mutual funds industry, should it really excite the

investor? FE Investor carried out a simple study to look into this. Mutual funds, by virtue

of being handled by expert fund managers who charge a fee for their expertise, should be

out-performing the market in good times and perform better than the market, when it

slides. This is the large expectation created in the market place by mutual fund sales

professionals.

There are multiple ways to look at mutual fund performance; some are erudite enough to

create total confusion while others involve pointless number crunching. Each technique

could throw up different views. FE Investor took a rather simple approach to this.

A universe of 99 growth-based equity schemes was created for the study. The

performance was then divided over two phases. Phase I includes the period from March

2005 to February 2006. And Phase II from March 2006 to March 2007. The reason for


creating two phases was to trap a year that had a clear bull-run market and also a year that

witnessed mayhem.

Although a longer period of more than five years would present a fairer picture, experts

reckon that a typical holding period for Indian investors ranges from two to three years.

Hence, the two-year time frame was selected. Here again the change in net asset values

was tracked and compared against the Sensex. Now, there could be several views on

choosing the right benchmark for comparison; however, to keep matters simple, the 30

share readily available portfolio was chosen.

And the reading is quite clear. Over the last two years, the average returns (change in net

asset value) of the 99 schemes was around 35.4%, whereas the Sensex grew by 48.66% in

the same time frame. Not a very impressive performance.

However, when the markets saw a secular bull-run, the equity funds matched the

enthusiasm. In the period from March 2005 to February 2006, the first phase of the study

saw the mutual fund schemes match the Sensex performance. Nearly 48 schemes actually

outperformed the Sensex and a similar number under-performed, albeit the returns were

largely positive.

Mayhem victims

But when the markets tumbled in the May-mayhem, many fund managers were caught

unawares. Most of the fund managers had taken positions in mid-cap funds and had to

take the plundering. Many, it seems, have not yet recovered from that exposure. The

market fell by around 21% in the May crash and the average fall for funds was more

pronounced at 23%, largely because of mid-cap exposure.

Fund managers, however, are still bullish on mid-cap stocks. ―Where have all these

companies come from? Obviously, most of these have been mid-cap companies which

have ‗migrated‘ and have become large caps. With continued growth of India, we believe

this will continue to happen. But this takes time‖, says Tridib Pathak, CIO-equities, Lotus

India Mutual Fund.


Nikunj Doshi, fund manager, Kotak Mutual Fund, reckons, ―We believe mid-cap stocks

will perform well in future. As we enter FY08 and look at the valuation gap mid-caps

look very attractive. Also, if one considers a longer time frame, mid-caps have delivered

better returns as compared to large cap.‖

While the aggregate numbers have been mixed, there have been individual funds that

have managed to beat trends. Sundaram Select Midcap has been a relative exception to

this observation and has turned out to be one of the best performers in the two-year

period. However, going forward, there could be more bumps for the mid-cap funds. TP

Raman, MD and CEO, Sundaram BNP Paribas, avers, ―If the ongoing bout of risk

aversion does not shift quickly, we may witness a renewed period of investor apathy

towards mid- and small-cap stocks.‖

Specialised conundrum

While the mid-caps looked shaky over a two-year time frame, and are expected to deliver

over a longer time frame, some sector-specific specialised funds were able to provide

smart returns. Needless to say, the funds that did well were the ones where the underlying

industry was also performing well.

Infrastructure, though there is an obscurity as to what constitutes an infrastructure fund,

was one such area. Infrastructure funds have been exemplary performers with a

consistent average returns percentage hovering around 40-50 %. This indicates that the

volatility of the market has hardly impacted the returns flow of these funds. Also, the

varied options within an infrastructure fund result in offsetting of risks. DSP Merrill

Lynch India TIGER Fund has been consistent and has been the best performer,

withstanding the bearish trend.

Similar was the trend with media stocks and funds. The Reliance Media and

Entertainment fund recorded a return of around 60% in Phase-I and around 42% in

Phase-II. Going ahead, analysts believe the growth opportunities in the media industry

will offer more choices for fund managers and investors.


No such luck was witnessed by the pharma sector funds that saw a tremendous surge in

the phase I and then a dismal performance. SBI Pharma Growth fund, which was a best

performer in phase-I emerged as the worst performer in phase-II. Sanjay Sinha, head-

equities, SBI Fund Management, justifies a changed stance in pharma sector funds,

―Since large pharma stocks were reporting lacklustre performance, we have employed a

bottom-up approach.‖

Sinha adds, ―We believe that after consistently meeting and surpassing market

expectations in terms of earnings growth and sustainability, the market valuations for the

stocks in our portfolio will reflect their underlying strengths - a process which we expect

to happen over the course of the next year. We shall also be actively looking at various

modifications in the portfolio at opportune times to enhance returns to the maximum

degree possible.‖

Passively active

While fund managers have been churning their portfolios, index funds, or a passive way

of investing by simply replicating the index portfolio, have been providing sound returns.

Like the Sensex and the Nifty, the index funds have been closely tracking index gains.

―As such they are lower risk/lower return products within the equity space. So it is just a

strategy in terms of the risk levels the investor wants to take. We feel that actively

managed diversified funds will continue to beat the market indices for some time to

come,‖ says Pathak.

A point to note for investors is that index investing is a long-term game and index funds

typically provide strong returns over a ten-year time frame. ―Index funds can be a strong

avenue when the markets are bullish. In a bear phase investors are hurt,‖ says a fund

manager.

Lucrative avenues


It is perceived that 2007 may be a bit more volatile considering the returns the markets

have generated. Investors must be on the look out for funds that hedge their risks and

which give, if not stable, decent returns.

Systematic Investment Plan (SIP) investments would be the best bet to ride the volatility

in this period as it uses the averaging principle to keep acquisition costs fair in both rising

and falling markets.

Also, Sebi has banned mutual funds to allocate 6% fund expenses in the open-ended

schemes and not in closed ended ones. This has given importance to closed ended

schemes and saw a plethora of schemes launched after the rule was passed. It is a very

good move as redemption pressures will be reduced in case of a volatile market and long-

term money will be parked in these schemes, and in the end will benefit investors.

―This year could see the emergence of commodity funds (this will see investments from

many small and medium investors) along with real estate funds (it has received a nod

from Sebi) and exchange traded gold fund (considering India is a gold-loving country).

These funds will also serve as good investing options for investors,‖ says Satish Kamdar,

country head-mutual funds, Mata Securities.

Notwithstanding such good avenues and the growing economy, one thought, which

should be heeded with strong consideration, is: Mutual funds are not short-term

investment vehicles but a long-term means that facilitate a good and steady flow of

income. ―Our study of the markets for the last 27 years very clearly indicates that the

longer your investment horizons, surer are the returns. In fact, holding equities for longer

than 10 years virtually abolishes the probability of loss to zero,‖ concludes Pathak.

Lastly, the analysis carried out simply points out the fact that investors should not invest

arbitrarily with any fund, just because they claim to have experts managing the funds. An

astute fund manager must be sifted through the chaff. There is enough information

available for investors to get by with this. At the same time, selecting an appropriate fund

can truly enhance returns. There are funds that have exceeded expectations at all levels as

well.


The coming year will definitely see more action in this field with a wider array of

structured products being on the offer. After all, the mutual fund industry in India is still

in its teens and is beginning to mature.

CHAPTER 7


CONCLUSION & SUGGESTIONS:

7.1 CONCLUSION

VAST POTENTIAL: Currently, the investments in Mutual Funds are very low. As per my

survey, only 12% of the people surveyed invest in Mutual Funds. When applied to all of

India, this figure is expected to be lesser. Thus, it presents a vast potential for the growth and

development of Mutual Fund industry in India.

The Indian Consumer market represents a large market with a middle class of nearly

300million. The economy boasts of a young population, coupled with rising salaries,

tremendous potential with an ever-increasing demand for lifestyle products.

According to A.C. Nielson‘s global online consumer confidence survey- Indian

consumers are The Most optimistic The World Over, and are ranked among the

top 5 countries who are ready to purchase what they desire and invest in Mutual Funds and

Shares, way ahead of their Asian counterparts.

India has the third largest investor base in the world and one of the world‘s lowest

transaction costs based on screen-based transactions, paperless trading and a T+2 settlements

cycle.

HIGH SATISFACTION RATE: The survey shows that 75% of those who invest in

Mutual Funds shall continue to do so. This is a positive sign depicting that people are

satisfied with their investments in Mutual Funds. Thus, it shows that the retention of

customers is not that difficult a task than their acquisition.

7.2 SUGGESTION


The first and foremost necessity to be successful in acquiring more customers to invest in Mutual

Funds is to overcome the various barriers and challenges posed by the customers and the

environment.

CREATE AWARENESS: The biggest challenge faced by all the sellers and distributors of

Mutual Funds is that

Most of the people are not aware of mutual funds and how they work

Many consider Mutual Funds to be very risky and prefer to invest directly in share

market while the truth is that Mutual Funds are lesser risky than a direct individual

investment in equity as they present the benefits of calculated diversification which is no

possible for an individual retail investor.

Thus, any step towards creating awareness about Mutual Funds and its working will be in favor

of the SBI MUTUAL FUND as well as the entire Mutual Fund industry. Whoever adopts a

proactive approach in this direction and pioneers the initiative shall get the initiator’s

advantage, which will help acquire that player, a major chunk of the market.

Some of the steps that can be taken to create awareness and attract interest and participation can

be:

1. ADVERTISING – both electronic and print

Any awareness building advertisement should not be aimed at selling any of the

products of the Bank. An ad that is issued in public interest and public awareness and that

just mentions the issuer‘s/sponsor‘s name is held in great respect by

people and helps acquire a favorable social image as a better corporate citizen. Such an

image is very essential as people are more willing to hand their money to organizations

with such a public rapport and trust.

A very widespread and less expensive way of such an advertisement is the use of popular

Radio Channels like Radio Mirchi, Red FM and Radio City etc. They have a high

popularity rate and a mass reach to all classes of population.


Such an advertising strategy is used by Sharekhan, where it sponsors informative fillers

about various financial and economic concepts like inflation, investments etc. in simple

layman language to make it more interesting to know and learn. This has lead to a

widespread recognition recollection of the brand Sharekhan.

The advertisements should reach the people through more popular channels, which are

viewed, largely by people and not only business channels and magazines like CNBC or

Business World.

2. BROCHURES AND PAMPHLETS: An easy to understand, well designed, brief

and crisply presented pamphlet or a Brochure can act as a silent guide to make

customers aware of the Mutual Funds and it‘s working. Such Brochures should be

placed at the customer dealing counters at the Bank to attract interest and lead to

action.

3. COLLECT DATABASE FROM sources like database of members of various elite

clubs and societies that shall give SBI MUTUAL FUND a vast pool of data on

potential customers. TELE CALLING can be done to these potential customers.

4. TARGET THE YOUTH: they are the future. Tying up with professional institutions

like IITs, B-Schools etc. and conducting workshops and seminars on Mutual Funds

and Capital markets will help build a strong customer base for the future as these are

the people who shall have enough disposable income in years to come, thanks to the high

pay packages they shall be offered.

5. DSAs: Hire Direct Selling Agents and form alliances with more brokerage houses.

6. CREATE TRUST AND CONFIDENCE: Consistent and Serious efforts should be

made to create a feeling of trust among the customers. They should not feel that the

Relationship Manager or the Financial Planning Manager is trying to pitch them the


service to mint his own commission. The SBI‘s MUTUAL FUND representative should

be able to carry the spirit and ideology of the SBI MUTUAL FUND with him. They

should be able to make the customers understand and accept that their money is going in

safe hands and shall be managed by experienced and well-qualified professionals.

7. EFFICIENT FUND MANAGEMENT:

A study conducted by Price Waterhouse Cooper (PWC) on risk management by mutual

funds has posted interesting as well as worrying results. According to the survey, as many

as 50 percent of the respondent mutual funds are not managing risk properly. Also,

about 50 percent of the respondents did not have documented risk procedures or

dedicated risk managers.

It is unfortunate that the fund managers are not taking due care for minimizing the risk

and are in a race to post higher and higher returns during the phase of bull-run.

They should understand that the investors forget the high returns posted in any

specific period very soon but they take hell lot of time to forget the burns

The fund managers should disclose what they are doing at the hedging front. They should

come up and tell their investors as to what they do at times of high fluctuations. Normally

it has been seen that they outperform the broad market indices during the bull runs and

under perform the indices during the bear phases. Poor performance, poor servicing to

clients and failure of third party service providers, are the three major risk factors

identified in the survey by PWC. (Source: www.mutualfundindia.com)

Thus SBI MUTUAL FUND should make sure that the funds it is investing in are

efficiently managed and justify their claims. The in-house research center of SBI

MUTUAL FUND MF can conduct a thorough risk and return analysis of various funds to

arrive at the real situation.

8. INCREASE THE POOL OF FUNDS OFFERED:


There are only a handful of funds that SBI recommends and invests into, thus limiting

the choice while its competitors offer a wide choice. It should seek to increase the basket

after a clear evaluation of performance and scope of various funds.

9. TIE UP WITH MODERN RETAIL FORMATS

With large number of modern retail formats coming up in the country within a span of 2-

3years. (E.g. Reliance Retail expects to open around 3500 stores in Ist phase of

incorporation). There lies a huge opportunity to tap the middle and affluent class of the

society visiting these stores.

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