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A STUDY OF
PERFORMANCE OF EQUITY & MUTUAL FUNDS
(A study with reference to ICICI MUTUAL FUND)
A project report submitted to Andhra University,
Visakhapatnam in partial fulfillment for the award of
degree of
BACHELOR OF BUSINESS MANAGEMENT
Submitted by
ANKIT GUPTA
Regd.No- 111131607001
Academic year- 2013-2014
Under the guidance of
Mr. Mohammed Jafrulla M.Com, M.B.A., M.Phill
DEPARTMENT OF COMMERCE AND MANAGEMENT

PRISM DEGREE AND P.G. COLLEGE
(Affiliated to the Andhra University) Visakhapatnam




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CERTIFICATE

This is to certify that the project report entitled
Performance of Equity &Mutual Fund at ICICI Mutual
Fund, Ranchi submitted in partial fulfillment of the award
of the bachelor of business management is a record of
bonafide research carried out by Mr.Ankit Gupta under
my guidance and supervision.


Place: Visakhapatnam.
Date:
Mr. Md JAFRULLA
M.Com, M.B.A,M.Phill.
Department of Commerce and Management
PRISM DEGREE & P.G. COLLEGE
VISAKHAPATNAM.




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DECLARATION

I, Ankit Gupta declare that this Project Report titled A
study on Performance of Equity & Mutual Fund at ICICI
Mutual Fund, Ranchi has been completed under the guidance
of Mr.Jaffarulla the faculty of Prism Degree and PG College.
further declare that it is my original work as a part of academic
concern.





PLACE: Visakhapatnam SIGNATURE
DATE: (ANKIT GUPTA)







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ACKNOWLEDGEMENT

I express my sincere thanks and gratitude to our Principal of our
college Dr.UMABALA for giving me the permission to carryon the
project work.
I extend my thanks to my project guide Mrs.Jafarulla (head of
department) Prism Degree And PG College, for his valuable guidence and
cooperation throughout the project work all other faculty members who
helped for the successful completion of project work.
I wish to express my deep gratitude to the Cluster Manager Pratibha
Boppana of ICICI MUTUAL FUND, RANCHI for giving me the
opportunity to do the project on PERFORMANCE OF EQUITY &
MUTUAL FUND for partial fulfillment of Bachelor of Business
Management.
And finally I would like to thank my parents and friends whose
unremarkable encouragement had helped me throughout my educational
endeavor and this project work.



(ANKIT GUPTA)





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EXECUTIVE SUMMARY



In few years Mutual Fund has emerged as a tool for ensuring ones
financial well being. Mutual Funds have not only contributed to the India
growth story but have also helped families tap into the success of Indian
Industry. As information and awareness is rising more and more people
are enjoying the benefits of investing in mutual funds. The main reason the
number of retail mutual fund investors remains small is that nine in ten
people with incomes in India do not know that mutual funds exist. But
once people are aware of mutual fund investment opportunities, the
number who decide to invest in mutual funds increases to as many as one
in five people. The trick for converting a person with no knowledge of
mutual funds to a new Mutual Fund customer is to understand which of
the potential investors are more likely to buy mutual funds and to use the
right arguments in the sales process that customers will accept as
important and relevant to their decision.

This Project gave me a great learning experience and at the same time it
gave me enough scope to implement my analytical ability. The analysis
and advice presented in this Project Report is based on market research on
the saving and investment practices of the investors and preferences of the
investors for investment in Mutual Funds. This Report will help to know
about the investors Preferences in Mutual Fund means Are they prefer
any particular Asset Management Company (AMC), Which type of
Product they prefer, Which Option (Growth or Dividend) they prefer or
Which Investment Strategy they follow (Systematic Investment Plan or
One time Plan). This Project as a whole can be divided into two parts.


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The first part gives an insight about Mutual Fund and its various aspects, the
Company Profile, Objectives of the study, Research Methodology. One can
have a brief knowledge about Mutual Fund and its basics through the Project.

The second part of the Project consists of data and its analysis collected through
survey done on 200 people. For the collection of Primary data I made a
questionnaire and surveyed of 200 people. I also taken interview of many
People those who were coming at the ICICI Branch where I done my Project. I
visited other AMCs in Ranchi to get some knowledge related to my topic. I
studied about the products and strategies of other AMCs in Ranchi to know why
people prefer to invest in those AMCs. This Project covers the topic THE
MUTUAL FUND IS BETTER INVESTMENT PLAN. The data collected has
been well organized and presented. I hope the research findings and conclusion
will be of use.
















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CONTENTS
CHAPTER I
Introduction
Objectives of the study
Need for the study
Scope of the study
Methodology of the study
Limitations of the study
CHAPTER I I
Industry profile
Company profile
CHAPTER I I I
Working of Mutual Fund
CHAPTER I V
Data Analysis & Interpretation
CHAPTER V
Findings & Conclusion
CHAPTER VI
Suggestions and
Recommendation
BI BLI OGRAPHY


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Chapter - I




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INTRODUCTION TO MUTUAL FUND AND ITS VARIOUS

ASPECTS.



Mutual fund is a trust that pools the savings of a number of investors who share a
common financial goal. This pool of money is invested in accordance with a stated
objective. The joint ownership of the fund is thus Mutual, i.e. the fund belongs to
all investors. The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities. The income earned
through these investments and the capital appreciations realized are shared by its
unit holders in proportion the number of units owned by them. Thus a Mutual Fund
is the most suitable investment for the common man as it offers an opportunity to
invest in a diversified, professionally managed basket of securities at a relatively
low cost. A Mutual Fund is an investment tool that allows small investors access to
a well-diversified portfolio of equities, bonds and other securities. Each shareholder
participates in the gain or loss of the fund. Units are issued and can be redeemed as
needed. The funds Net Asset value (NAV) is determined each day.

Investments in securities are spread across a wide cross-section of industries and
sectors and thus the risk is reduced. Diversification reduces the risk because all
stocks may not move in the same direction in the same proportion at the same time.
Mutual fund issues units to the investors in accordance with quantum of money
invested by them. Investors of mutual funds are known as unit holders.


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When an investor subscribes for the units of a mutual fund, he becomes part owner
of the assets of the fund in the same proportion as his contribution amount put up
with the corpus (the total amount of the fund). Mutual Fund investor is also known
as a mutual fund shareholder or a unit holder.
Any change in the value of the investments made into capital market instruments
(such as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the
scheme. NAV is defined as the market value of the Mutual Fund scheme's assets
net of its liabilities.

NAV of a scheme is calculated by dividing the market value of scheme's assets
by the total number of units issued to the investors.


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CATEGORIES OF MUTUAL FUND:


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Mutual funds can be classified as follow :



Based on their structure:



Open-ended funds: Investors can buy and sell the units from the fund, at any point

of time.

Close-ended funds: These funds raise money from investors only once. Therefore,
after the offer period, fresh investments can not be made into the fund. If the fund
is listed on a stocks exchange the units can be traded like stocks (E.g., Morgan
Stanley Growth Fund). Recently, most of the New Fund Offers of close-ended
funds provided liquidity window on a periodic basis such as monthly or weekly.
Redemption of units can be made during specified intervals. Therefore, such funds
have relatively low liquidity.

Based on their investment objective:



Equity funds: These funds invest in equities and equity related instruments. With
fluctuating share prices, such funds show volatile performance, even losses. However,
short term fluctuations in the market, generally smoothens out in the long term, thereby
offering higher returns at relatively lower volatility. At the same time, such funds can
yield great capital appreciation as, historically, equities have outperformed all asset
classes in the long term. Hence, investment in equity funds should be considered for a
period of at least 3-5 years. It can be further classifiedas:


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i) Index funds- In this case a key stock market index, like BSE Sensex or Nifty is
tracked. Their portfolio mirrors the benchmark index both in terms of composition
and individual stock weightages.

ii) Equity diversified funds- 100% of the capital is invested in equities spreading
across different sectors and stocks.

iii|) Dividend yield funds- it is similar to the equity diversified funds except that
they invest in companies offering high dividend yields.

iv) Thematic funds- Invest 100% of the assets in sectors which are related
through some theme.
e.g. -An infrastructure fund invests in power, construction, cements sectors etc.


v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A banking
sector fund will invest in banking stocks.

vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the investors.


Balanced fund: Their investment portfolio includes both debt and equity. As a
result, on the risk-return ladder, they fall between equity and debt funds. Balanced
funds are the ideal mutual funds vehicle for investors who prefer spreading their
risk across various instruments. Following are balanced funds classes:

i) Debt-oriented funds -Investment below 65% in equities.


ii) Equity-oriented funds -Invest at least 65% in equities, remaining in debt.


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Debt fund: They invest only in debt instruments, and are a good option for
investors averse to idea of taking risk associated with equities. Therefore, they
invest exclusively in fixed-income instruments like bonds, debentures, Government
of India securities; and money market instruments such as certificates of deposit
(CD), commercial paper (CP) and call money. Put your money into any of these
debt funds depending on your investment horizon and needs.

i) Liquid funds- These funds invest 100% in money market instruments, a large
portion being invested in call money market.

ii) Gilt funds ST- They invest 100% of their portfolio in government securities of
and T-bills.

iii) Floating rate funds - Invest in short-term debt papers. Floaters invest in debt
instruments which have variable coupon rate.

iv) Arbitrage fund- They generate income through arbitrage opportunities due to
mis-pricing between cash market and derivatives market. Funds are allocated to
equities, derivatives and money markets. Higher proportion (around 75%) is put in
money markets, in the absence of arbitrage opportunities.

v) Gilt funds LT- They invest 100% of their portfolio in long-term government
securities.


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vi) Income funds LT- Typically, such funds invest a major portion of the portfolio
in long-term debt papers.

vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an
exposure of 10%-30% to equities.

viii) FMPs- fixed monthly plans invest in debt papers whose maturity is in line
with that of the fund.


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INVESTMENT STRATEGIES



1. Systematic Investment Plan: under this a fixed sum is invested each month on a
fixed date of a month. Payment is made through post dated cheques or direct debit
facilities. The investor gets fewer units when the NAV is high and more units when
the NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA)

2. Systematic Transfer Plan: under this an investor invest in debt oriented fund and
give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of
the same mutual fund.

3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual
fund then he can withdraw a fixed amount each month.


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RISK V/S. RETURN:


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NEED OF THE STUDY
Mutual funds are a good source of investment these days. Investment is a game where risk in
high and uncertain. The way mutual funds act in the financial market gives an idea about the
investment in safe and secure market. Thus it is very necessary to study the market to have a
safe and securities in investment. The analysis of financial markets enables the investors to
have a grace and investment opportunities. This project work primarily had done in a view to
analyses the mutual funds. The main aim of the project work enables the investor to choose
the fund which will provide him/her with the right choice.
Performance evaluation is undoubtedly the most important concept among different steps of
portfolio management. Its management has been widely felt among portfolio educated
investors as well as investment advisors. The investors are risk averse and tend to avoid risk,
at the same time they try to increase their return in the process the investors the investors will
be guided by different performance evaluation measures such as sharpe ratio, treynor ratio,
Jensen. These measures give an analysis of expected return on investments and different
funds as well as their volatility. The degree of diversification will also give an account of
how safe the investment is. However, the intermediaries operating in the market, who have to
recommend the potential investors seeking guidance from their, can also make use of these
measures.






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OBJECTIVES OF THE STUDY

1. The main objective of studying a mutual fund is to study how the fulfillment of
commitment made with reducing of risk.
2. To get the knowledge of analyzing the market and going in to the section and supervision
of their investment portfolio.
3. To know how banking sector balance the risk and what are the technical terms used for risk
management.
4. To learn how to assess the investor needs and do the market research create confidence
among potential investor and strengthen their desire to their money with particular funds.
5. Studying performance indicator about fund performer like NAV.
6. To know the recent growth of the Icici Prudential mutual fund in India.




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SCOPE OF THE STUDY

The scope of the study is to give clear picture about the comparing and selecting best mutual
fund schemes and to suggest measures to overcome the problems.

A small investor is the one who is able to correctly plan and decide in which profitable and
safe instrument to invest to lock up ones hard earned money in a savings banks account is
not enough to counter the monster of inflation using simple concepts of diversification,
power of compound interest, stable returns and limited exposure to equity investment one can
maximize his returns on investments and multiply ones saving.

Investment is a serious proposition one has to look into various factors before deciding on the
instruments in which to invest to save is not enough .one must invest wisely and get
maximum returns. One must plan investment in such a way that his investment objectives are
satisfied. A sound investment is one which gives the investor reasonable returns with a
proper profitable ma agreement this report gives the details about various investment
objectives desired by an investors details about the concept and working of mutual fund. This
report also covers the different players in mutual fund and different avenues of investments
and in detail about Icici Prudential mutual fund.
















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Research Methodology


Objective of research ;

The main objective of this project is concerned with getting the opinion of people
regarding mutual funds and what they feel about availing the services of
financial advisors.
I have tried to explore the general opinion about mutual funds. It also covers
why/ why not investors are availing the services of financial advisors.
Along with it a brief introduction to Indias largest financial intermediary, ICICI
has been given and it is shown that how they operate in mutual fund deptt

Scope of the study:

The research was carried on in the Northern Region of India. It is restricted to
Ranchi. I have visited people randomly nearby my locality, different shopping
malls, small retailers etc.

Data sources:

Research is totally based on primary data. Secondary data can be used only for
the reference. Research has been done by primary data collection, and primary
data has been collected by interacting with various people. The secondary data
has been collected through various journals and websites and some special
publications of ICICI .






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Sampling:

Sampling procedure:

The sample is selected in a random way, irrespective of them being
investor or not or availing the services or not. It was collected through mails and
personal visits to the known persons, by formal and informal talks and through
filling up the questionnaire prepared. The data has been analyzed by using the
measures of central tendencies like mean, median, mode. The group has been
selected and the analysis has been done on the basis statistical tools available.

Sample size:

The sample size of my project is limited to 200 only. Out of which only 135
people attempted all the questions. Other 65 not investing in MFs attempted
only 2 questions.

Sample design:

Data has been presented with the help of bar graph, pie charts, line graphs
etc.








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LIMITATIONS OF THE STUDY
The present project work has been undertakes to provide information regarding Mutual
Funds. This has given an idea about the investment proposal relating to risk and returns of
various Mutual Funds. But the idea of finding and analysis is not possible due to the
following limitations.

The investment firms offering Mutual Funds are many but not able to get the information.
The funds are having many schemes but analyzing each scheme is very much time
consuming.
The time gives to undertake project work is very short in order to take
the analysis
Risk and returns are so voluble that the results are changing.



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CHAPTER-II

INDUSTRY PROFILE
COMPANY PROFILE








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INDUSTRY PROFILE
The origin of mutual fund industry in India is with the introduction of the
concept of mutual fund by UTI in the year 1963. Though the growth was slow,
but it accelerated from the year 1987 when non-UTI players entered the industry.
In the past decade, Indian mutual fund industry had seen dramatic improvements,
both quality wise as well as quantity wise. Before, the monopoly of the market
had seen an ending phase; the Assets under Management (AUM) were Rs. 67bn.
The private sector entry to the fund family raised the AUM to Rs. 470 by in
March 1993 and till April 2004; it reached the height of 1,540bn.
The AUM of the Indian Mutual Funds Industry into comparison, the total
of it is less than the deposits of SBI alone, constitute less than 11% of the total
deposits held by the Indian banking industry. The main reason of its poor growth
is that the mutual fund industry in India is new in the country. Large sections of
Indian investors are yet to be intellectuated with the concept. Hence, it is the
prime responsibility of all mutual fund companies, to market the product
correctly abreast of selling. The mutual fund industry can be broadly put into
four phases according to the development of the sector. Each phase is briefly
described as under.
A mutual fund is created when investors put their money together. It is
therefore a pool of the investors funds. The most important characteristic of a
mutual fund is that the contributors and the beneficiaries of the fund are the same
class of people, namely the investors. The term mutual means that investors
contribute to the pool, and also benefit from the pool. There are no other
claimants to the funds. The pool of funds held mutually by investors is the
mutual fund. For example, a mutual fund, which sells a money market mutual
fund, is actually seeking investors willing to invest in a pool that would invest
predominately in money market instruments.


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Mutual funds are also competing with commercial banks in the race for
retail investors saving 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 account are as good as looking up their
deposits in a closet.
4, 93, 194. 77 crores as on 31
th
march 2009. 2010 to 15 recently in AUM
of rs 15 lakhs to 17 lakhs crores
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 to 115% where bank deposits rose
by only 17%. This is forcing large number of banks to adopt the concept of
narrow banking where in the deposits is kept in gilts and some other assets which
improves liquidity and reduces risk. The basic fact lies that banks cannot be
ignored and the will not close down completely. Their role as intermediaries
cannot e ignored. It is just that mutual funds are going to change the way banks
do business in the future.
LEGAL STRUCTURE OF MUTUAL FUNDS:
Mutual funds have a unique structure not shared with other entities such
as companies or firms. It is important for employees and agents to be aware of
the special nature of this structure, because it determines the rights and
responsibilities of the funds constituents viz. sponsors, trustees, custodians,
transfer agents and of course, the fund and the asset management company. The
legal structure also drives the interrelationships between these two constituents.


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STRUCTURE OF THE MUTUAL FUNDS IN INDIA:
Like other countries, India has a legal framework within which mutual
funds must be constituted. Unlike in the UK, where two distinct trust and
corporate structures are followed with separate regulations, in India, open and
close-end funds operate under the same regulatory structure, and are constituted
along one unique structure-as unit trust. A mutual fund in India is allowed to
issue open-end and closed-end schemes under a common legal structure.
Therefore, a mutual fund may have several different schemes under it i.e. under
one unit trust, at any point of time.

The structure, which is required to be followed by mutual funds in India,
is laid down under SEBI regulations, 1996.
STOCK EXHANGE IN INDIA:

Stock exchange is a market in which securities are bought and sold
and it is an essential a component of developed capital market. The securities
contracts act, 1956, defined Stock Exchange as follows: It is an association,
organization or body of individuals, whether incorporated or not, established or
the purpose of assisting, regulating and controlling of business in being, selling
and dealing in securities" A stock exchange, thus, imparting marketability and
liquidity to securities, encourages investments insecurities and assists corporate
growth.
Stock exchanges are regarded as "an essential concomitant of the
capitalistic system of economy. It is indispensable for the proper functioning of
corporate enterprise. It brings together large amounts of capital necessary for the
economic progress of a county. It is their deal of capital and the pivot of money
market. It provides necessary mobility to capital and directs the flow of capital
into profitable and successful enterprises.


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Functions of stock exchange:
The share market performs the following essential economic functions.
Provides a ready market for buying and selling of securities;
Performs an' act of magic ' as it enables long-term investments to be
financed by funds providing by individuals who are otherwise
interested in short-term or medium term investment;
Directs the flow of capital in the most profitable channels;
Induces corporate enterprises to raise third standard of performances.
Offers an easily understood evaluation of the financial condition and
prospects of listed firms;
Facilitates speculation;
Promotes the habit of savings and investments among the general
public and thereby helps capital formation
Promotes industrial growth and economic development of the county
by encouraging industrial investment rather than hoarding or investing
in gold.
On line trading equity, a market for debt instruments and a bourse for
small companies will force the markets the stock exchanges, the NSE
the OTCEL. And the primary markets into a new trajectory.

National stock exchange (NSE) of India:
Integrated in November 1992; the National Stock Exchange of India
(NSE) was initially a tariff forfeiting association. In 1993, the exchange was
certified under Securities Contracts (Regulation) Act, 1956 and in June 1994 it
started its business functioning in the Wholesale Debt Market (WDM). The
Equities division of NSE began its operations in 1994 while in 2000 the
corporation incorporated its Derivatives division.



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Bombay Stock Exchange (BSE) of India:
The oldest stock market in Asia, BSE stands for Bombay Stock Exchange
and was initially known as "The Native Share & Stock Brokers Association."
incorporated in the 1875, BSE became the first exchange in India to be certified
by the administration. It attained a permanent authorization from the Indian
government in 1956 under Securities Contracts (Regulation) Act, 1956.



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HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY:
FIRST PHASE 1964-87 ESTABLISHMENT OF UTI:
An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set
up by the Reserve Bank of India and functioned under the Regulatory and
administrative control of the Reserve Bank of India. In 1978 UTI was-linked
from the RBI and the industrial Development Bank of India (IDBI) took over the
regular and administrative control in place of RBI. The first scheme launched by
UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs 6,700 crores of
assets under management.
Second Phase 1987-1993 (Entry of Public Sector Funds)
1987 marked the entry of non-UTI, Public sector mutual funds set up by public
sector banks and life insurance Corporation of India (LIC) and General Insurance
Corporation of India (GIC). SBI Mutual Fund was the first non-UTI Mutual
Fund establish in June 1987 followed by Canara Bank Mutual Fund(Dec 87),
Punjab National Bank Mutual Fund(Aug89), Indian Bank Mutual Fund (Nov89),
Bank of India (Jun 90), Bank of Baroda Mutual Fund(Oct 92). LIC establish its
mutual fund in June 1989 while GIC had set up its mutual fund in December
1990. At the end of 1993, the Mutual Fund industry had assets under
management of Rs 47,004 Crores.
Third Phase 1993- 2003 (Entry of Private Sector Funds)
With the entry of private sector funds in 1993,a new era started in the India
mutual fund industry, giving the Indian investors a wider choice of fund families.
Also, 1993 was the year in which the first Mutual Fund Regulation came into
being, under which all mutual fund, expect UTI were to be registered and
governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton)
was the first sector mutual fund registered in July 1993. The 1993 SEBI (Mutual
Fund) Regulation were substituted by a more comprehensive and revised Mutual
Fund Regulation in 1996. The industry now functions under the SEBI (Mutual
Fund) Regulation 1996.


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The number of mutual fund houses went on increasing, with many
foreign mutual fund setting up funds in India and also the industry has witnessed
several mergers and acquisitions. As at the end of January 2003, there were 33
mutual funds with total assets of Rs 1, 21,805 crores. The Unit Trust of India
with Rs 44,541 crores of assets under management was way ahead of other
mutual funds.
Fourth Phase Since February 2003.
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI
was bifurcated into two separated entities. One is the Specified Undertaking of
the Unit Trust of India with assets under management of Rs 29,835 crores as at
the end of January 2003, representing broadly, the assets of US 64 schemes,
assured return and certain other scheme. The Specified Under the rule framed by
Government of India and does not come under the purview of the Mutual Funds
Regulations.
The Second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC.
It is registered SEBI and functions under the Mutual Fund Regulation. With the
Bifurcation of the erstwhile UTI which had in March 2000 more than Rs 76,000
crores of assets under management and with the setting up of a UTI Mutual
Fund, Conforming to the SEBI Mutual Fund Regulation and with recent mergers
taking place among different private sector funds, the mutual fund industry has
entered its current phase of consolidation and growth. As at the end of September
2004, there were 29 funds, which manage assets of Rs.153108 crores under 421
schemes.
.


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GROWTH OF MUTUAL FUND INDUSTRY IN INDIA:
The mutual fund industry in India, from a modest start with a
single scheme in 1964, has today achieved enormous sizes both in the number of
companies, schemes and also total assets under management. The process of
liberalization taken place since 1990s has opened up the economy to a lot of
opportunities in different spheres of activity. The economy until then was
plagued by inefficient political and economic systems, the license system,
bureaucratic malpractice, unwarranted subsidization, administered pricing by
government, monopolistic barriers to entry of competition, restriction on the
entry of foreign firms either by entry barriers or high tariff and taxes.
The process of liberalization in line with the globalization
occurring on all over the world has opened the doors to investment banking,
asset management, insurance services, which were opened for entry of private
sector and MNC. Mutual fund industry saw the entry of many new players,
independent Indian companies, foreign companies and joint ventures. This led to
a phenomenal increase in the number of schemes and different and various
avenues for investment.
The present government policies were directed towards the
channeling of saving and investments in the economy toward the capital markets,
thereby creating wealth for all participants. To achieve these objects, stringent
polices and regulations were put in place to ensure investors are not taken for a
ride, as has had happened in the 90s, when many investors had lost their savings
due to major scams perpetuated by fraudulent operations in the stock market.
This had led to healthy growth of the mutual fund industry and
funds under management has increased to nearly 5,00,000 Crores by Dec 2007 .




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2.3Assets under management of mutual funds in different phases:
In the past decade, Indian mutual fund industry had seen dramatic improvements,
both quality wise as well as quantity wise. Before, the monopoly of the market
had seen an ending phase, the asset under management(AUM) was Rs.67bn. the
private sector entry to the fund family rose the AUM to Rs. 470 bn in march
1993 and till April 2004, it reached the height of 1.540 bn.













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GLOBAL SCENARIO:

The money market mutual funds segment has a total corpus of $ 1.98
trillion in the U.S. against a corpus of $ 20 Billion in India.
Out of top 10 Mutual funds worldwide, eight are banks sponsored,
only Fidelity and Capital are non- bank mutual funds in this group.
In the U.S., the total number of schemes is higher that that of the listed
companies on stock exchanges, while in India we have just 1000
schemes compared to about 7500 companies listed on the BSE.
Internationally, mutual funds are allowed to go short. In India fund
managers do not have such leeway.
In the U.S. about 15.78 Million households will manage their assets
on-line by the year 2007; such a facility is not available in India.
On-line trading is a great idea to reduce management expenses from
the current 2 % of total assets to about 0.75% of the total assets.
100% of the core customers base of mutual funds in the top 50-
broking firms in the U.S. is expected to trade on-line by 2007.



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FUTURE SCENARIO:
The asset base will continue to grow at an annual rate of about 30 to 35 %
over the next few years as investors 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.
In the U.S. most mutual funds concentrate only on financial funds like
equity and debt. Some like real estate funds and commodity funds also take an
exposure to physical assets. The latter type of funds is preferred by corporate
who want to hedge their exposure to the commodities they deal with.In U.S.A.
apart from bullion funds there are copper funds, precious metal funds and real
estate funds (investing in real estate and other related assets as well.). In India,
the Canada based Dundee mutual fund is planning to launch gold and a real
estate fund before the year-end.
In developed countries like the U.S.A there are funds to satisfy
everybodys requirement, but in India only the tip of the iceberg has been
explored. In the near future India too will concentrate on financial as well as
physical funds. The mutual fund industry is awaiting the introduction of
DERIVATIVES trading on a large scale in the country as this would enable it to
hedge its risk and this in turn would be reflected in its Net Asset Value (NAV).


30


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.
Mutual funds are an under tapped market in India

Despite being available in the market for over two decades now with assets under
management equaling Rs 7,81,71,152 Lakhs (as of 28 February 2010) (Source:
Association of Mutual Funds, India), less than 10% of Indian households have
invested in mutual funds. A recent report on Mutual Fund Investments in India
published by research and analytics firm, Boston Analytics,
suggests investors are holding back from putting their money into mutual funds
due to their perceived high risk and a lack of information on how mutual funds
work. This report is based on a survey of approximately 10,000 respondents in
15 Indian cities and towns as of March 2010. There are 43 Mutual Funds
recently
[

The primary reason for not investing appears to be correlated with city size.
Among respondents with a high savings rate, close to 40% of those who live in
metros and Tier I cities considered such investments to be very risky, whereas
33% of those in Tier II cities said they did not how or where to invest in
such assets.



31


Reasons for not investing in mutual funds in India
On the other hand, among those who invested, close to nine out of
ten respondents did so because they felt these assets were more professionally
managed than other asset classes. Exhibit 2 lists some of the influencing factors
for investing in mutual funds. Interestingly, while non-investors cite risk as
one of the primary reasons they do not invest in mutual funds, those who do
invest consider that they are professionally managed and more diverse most
often as their reasons to invest in mutual funds versus other investments.


Reasons for investing in mutual funds in India

RECENT FACTS:
Mutual funds are back in fashion since the last three years beginning Aug
2005.AUM of mutual funds in India grown 57% to over 5,00,000 Crores .MF s
,other than the UTI increased their share of house hold financial saving to 3.6%
in 2005-06 from a measly 0.4% in previous year. Households deposited a huge
46.7% of the savings with the banks. The Percentage of GDP to assets under
management of funds is about 1.5% as against up to 50% in developed countries.


32

In India, mutual funds industries certainly stepped on the accelerator and
the list of global asset management companies lining up to enter the Indian
market had never been longer- Sumitomo, Nikko, Shinsei and Nippon life of
Japan as also in queue are Pioneer, Goldman Sachs, AIG, JP Morgan and
Koreas Mirae. As many as 16 international fund houses are waiting to setup
shop in India.
A mutual fund is a group of investors operating through a fund manager
to purchase a diverse portfolio of stocks or bonds. Mutual funds are
highly cost efficient and very easy to invest in. By pooling money
together in a mutual fund, investors can purchase stocks or bonds with
much lower trading costs than if they tried to do it on their own. Also, one
doesn't have to figure out which stocks or bonds to buy. But the biggest
advantage of mutual funds is diversification.

Diversification means spreading out money across many different types
of investments. When one investment is down another might be up.
Diversification of investment holdings reduces the risk tremendously.





33

COMPANY PROFILE
About the Company
ICICI Prudential Asset Management Company Ltd. (IPAMC) is the joint
venture between ICICI Bank(http://www.icicibank.com/), a well-known and
trusted name in financial services in India and Prudential
Plc(http://www.prudential.co.uk/), one of UKs largest players in the insurance
and financial services sectors.

Instituted in the year 1998, the company has forged a position of preeminence in
the Indian Mutual Fund industry as the third largest asset management company
in the country contributing significantly to the growth of the Indian mutual fund
industry.








34


Corporate Profile
ICICI Prudential Asset Management Company Ltd. (IPAMC/ the Company) is
the joint venture between ICICI Bank, a well-known and trusted name in
financial services in India and Prudential Plc, one of UKs largest players in the
financial services sectors. IPAMC was incorporated in the year 1993. The
Company in a span of over 18 years since inception and just over 13 years of the
Joint Venture, has forged a position of preeminence in the Indian Mutual Fund
industry as the third largest asset management company in the country,
contributing significantly to the growth of the Indian mutual fund industry.

The Company manages significant Mutual Fund Asset Under Management
(AUM), in addition to Portfolio Management Services and International
Advisory Mandates for clients across international markets in asset classes like
Debt, Equity and Real Estate with primary focus on risk adjusted returns.

IPAMC has witnessed substantial growth in scale. From merely 2 locations and 6
employees during inception to the current strength of over 700 employees with
reach across around 150 locations, the growth momentum of the Company has
been exponential. The organization today is an ideal mix of investment expertise,
resource bandwidth & process orientation. IPAMCs Endeavour is to bridge the
gap between savings & investments to help create long term wealth and value for
investors through innovation, consistency and sustained risk adjusted
performance.
ICICI Bank is India's second-largest bank with total assets
of Rs. 4,062.34 billion (US$ 91 billion) at March 31, 2011 and profit after tax
Rs. 51.51 billion (US$ 1,155 million) for the year ended March 31, 2011. The
Bank has a network of 2,538 branches and about 6,810 ATMs in India, and has a
presence in 19 countries, including India.


35


ICICI Bank offers a wide range of banking products and financial services to
corporate and retail customers through a variety of delivery channels and through
its specialised subsidiaries in the areas of investment banking, life and non-life
insurance, venture capital and asset management.

The Bank currently has subsidiaries in the United Kingdom, Russia and Canada,
branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and
Dubai International Finance Center and representative offices in United Arab
Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia.
Our UK subsidiary has established branches in Belgium and Germany.

ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and
the National Stock Exchange of India Limited and its American Depositary
Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).
Prudential Plc (formerly known as Prudential Corporation plc)

Prudential plc is an international financial services group with significant
operations in Asia, the US and the UK. They serve approximately, 25 million
customers and have 290 billion in assets under management. They are among
the leading capitalized insurers in the world with an Insurance Groups Directive
(IGD) capital surplus estimated at 3.4 billion (as at 31 December 2009).

The Group is structured around four main business units:
Prudential Corporation Asia (PCA)
PCA is a leading life insurer in Asia with presence in 12 markets and a top three
position in seven key locations: Hong Kong, India, Indonesia, Malaysia,
Philippines, Singapore, and Vietnam. PCA provides a comprehensive range of
savings, protection and investment products that are specifically designed to
meet the needs of customers in each of its local markets. PCAs asset


36

management business in Asia has retail operations in 10 markets and it
independently manages assets on behalf of a wide range of retail and institutional
investors across the region.
Jackson National Life Insurance Company
Jackson is one of the largest life insurance companies in the US, providing
retirement savings and income solutions to more than 2.8 million customers. It is
also one of the top five providers of variable and fixed index annuities in the US.
Founded nearly 50 years ago, Jackson has a long and successful record of
providing effective retirement solutions for their clients.
Prudential UK & Europe (PUE)
PUE is a leading life and pensions provider to approximately 7 million
customers in the UK.It has a number of major competitive advantages including
significant longevity experience, multi-asset investment capabilities, a strong
investment track record, a highly respected brand and financial strength. PUE
continues to focus on its core strengths including its annuities, pensions and
investment products where it can maximize the advantage it has in offering with-
profits and other multi-asset investment funds.
M&G
M&G is Prudentials UK and European fund management business with total
assets under management of 174 billion (as at December 31, 2009).M&G has
been investing money for individual and institutional clients for nearly 80 years.
Today it is among the largest investors in the UK stock market, as well as being a
powerhouse in fixed-income investments.







37

Vision & Mission Statement of Icici Prudential mutual fund
Vision
With integration of Indian economy with the global economy, increasing
disintermediation in financial sector and growing competition from both
domestic and global players fuelled by the proliferation and convergence of
informational and computation technologies and rapid deregulation and
liberalization, the ICICI has metamorphosed its vision to become a globally
commutative player through constant innovation and adoption of cutting edge
technology to provide superior customer solutions.


Mission Statement
To create and nurture a world-class, high performance environment aimed at
delighting our customers Developing and implementing superior risk management
and investment strategies to offer sustainable and stable returns to our policyholders.











38

THE COMPANY MAIN OBJECTIVES
To carry on the activity of a Mutual Fund as may be permitted at law and
formulate and devise various collective Schemes of savings and
investments for people in India and abroad and also ensure liquidity of
investments for the Unit holders;
To deploy Funds thus raised so as to help the Unit holders earn reasonable
returns on their savings and
To take such steps as may be necessary from time to time to realize the
effects without any limitation.
Mutual Fund
ICICI Prudential Mutual Fund (the Fund) offers a wide range of retail and
corporate investment solutions across different asset classes like Equity,
Fixed Income, Real Estate and Gold.

The Fund House has continuously aimed to provide investors with
financial solutions to aid them in achieving their lifecycle objectives. It
has constantly been on the forefront of innovation and has introduced
products aligned to meet customer needs leading to a well-diversified
portfolio of around 46 mutual fund products. The success of the
endeavors is evident in the mutual fund investor base that has witnessed
significant growth from 210 to over 2 Million currently.

ICICI Prudential Mutual Fund gained from managing funds as per its
investment objectives and was able to deliver superior risk adjusted
returns. The consistent long term performance was achieved on the
strength of fundamentals, process driven investment approach with
enough flexibility for the fund managers to manage their funds in their
unique style and insight.

The fund house over the last 18 years has garnered trust of its investors


39

and has emerged as the leading and preferred investment solution
provider in India. The fund house has always aimed to fulfill its fiduciary
responsibility of managing investor's wealth with prudence and due
diligence.
Top mutual funds in India:
Here are some of the top mutual funds in India that are listed below :
ICICI Prudential Mutual Fund
The DSP ML Tiger Fund
SBI Magnum Contra Fund
HDFC Equity Fund
SBI Mutual Fund
On the basis of their structure and objective, mutual
funds can be classified into following major types:
Closed-end funds
A closed-end mutual fund has a set number of shares issued to the public
through an initial public offering. A closed-end mutual fund has a set
number of shares issued to the public through an initial public offering.
These funds have a stipulated maturity period generally ranging from 3 to
15 years. The fund is open for subscription only during a specified period.
Investors can invest in the scheme at the time of the initial public issue
and thereafter they can buy or sell the units of the scheme on the stock
exchanges where they are listed.

Once underwritten, closed-end funds trade on stock exchanges like stocks
or bonds. The market price of closed-end funds is determined by supply
and demand and not by net-asset value (NAV), as is the case in open-end
funds. Usually closed mutual funds trade at discounts to their underlying
asset value.



40

Open-end funds
Open end funds are operated by a mutual fund house which raises money
from shareholders and invests in a group of assets Open end funds are
operated by a mutual fund house which raises money from shareholders
and invests in a group of assets, as per the stated objectives of the fund.
Open-end funds raise money by selling shares of the fund to the public, in
a manner similar to any other company, which sell its stock to raise the
capital. An open-end mutual fund does not have a set number of shares. It
continues to sell shares to investors and will buy back shares when
investors wish to sell. Units are bought and sold at their current net asset
value.

Open-end funds are required to calculate their net asset value (NAV)
daily. Since the NAV of an open-end fund is calculated daily, it serves as
a useful measure of its fair market value on a per-share basis. The NAV
of the fund is calculated by dividing the fund's assets minus liabilities by
the number of shares outstanding. Open-end funds usually charge an entry
or exit load from the investors.

Most of the open-end funds are actively managed and the fund manager
picks the stocks as per the objective of the fund. Open-end funds keep
some portion of their assets in short-term and money market securities to
provide available funds for redemptions. A large portion of most open
mutual funds is invested in highly liquid securities, which enables the
fund to raise money by selling securities at prices very close to those used
for valuations.

Some of the benefits of open-end funds include diversification,
professional money management, liquidity and convenience. But open-
end funds have one negative as compared to closed-end funds. Since
open-end funds are constantly under redemption pressure, they always
have to keep a certain amount of money in cash, which they otherwise


41

would have invested. This lowers the potential returns

Large cap funds
Large cap funds are those mutual funds, which seek capital appreciation
by investing primarily in stocks of large blue chip companies Large cap
funds are those mutual funds, which seek capital appreciation by
investing primarily in stocks of large blue chip companies with above-
average prospects for earnings growth.

Different mutual funds have different criteria for classifying companies as
large cap. Generally, companies with a market capitalisation in excess of
Rs 1000 crore are known large cap companies. Investing in large caps is a
lower risk-lower return proposition (vis--vis mid cap stocks), because
such companies are usually widely researched and information is widely
available.

Large cap funds invest in those companies that have more potential of
earning growth and higher profit. One of the major advantages of large
cap funds is that they are less volatile than mid cap and small cap funds
and the near term prospects of large cap funds can be more accurately
predicted. On the flip side, the large cap funds offer lower returns than
mid cap or small cap funds. But when compared in totality, large cap
funds outperform all other funds. These funds come under low risk low
return category. In volatile times it is advisable to invest in large cap
funds.







42

Top Large cap Funds in India
HDFC Top 200
UTI Large Cap Fund
Franklin India Blue Chip
Kotak 30
DSPML Top 100 Equity
Principal Large Cap Fund
Reliance Growth Fund


Mid-cap funds
Mid cap funds are those mutual funds, which invest in small / medium sized
companies. As there is no standard definition classifying companies Mid cap
funds are those mutual funds, which invest in small / medium sized companies.
As there is no standard definition classifying companies as small or medium,
each mutual fund has its own classification for small and medium sized
companies. Generally, companies with a market capitalization of up to Rs 500
crore are classified as small. Those companies that have a market capitalization
between Rs 500 crore and Rs 1,000 crore are classified as medium sized.

Big investors like mutual funds and Foreign Institutional Investors are
increasingly investing in mid caps nowadays because the price of large caps has
increased substantially. Small / mid sized companies tend to be under researched
thus they present an opportunity to invest in a company that is yet to be identified
by the market. Such companies offer higher growth potential going forward and
therefore an opportunity to benefit from higher than average valuations. Mid cap
companies are looked upon as wealth creators and have the potential to join the
league of large cap companies. Such companies are nimble, flexible and can
adapt to the changes faster. One of the challenges that fund managers of mid cap
funds face is to identifying such companies.



43

But mid cap funds are very volatile and tend to fall like a pack of cards in bad
times. So, caution should be exercised while investing in mid cap mutual funds.
Mid cap funds are a good option in case the investor wants to add some diversity
to his portfolio.

Top Mid Cap Funds in India
Sundaram BNP Paribas Select Midcap
Franklin India Prima Fund
HDFC Capital Builder
Kotak Indian Mid Cap Fund
HSBC Midcap Equity Fund


Equity funds
Equity mutual funds are also known as stock mutual funds. Equity mutual funds
invest pooled amounts of money in the stocks of public companies. Equity
mutual funds are also known as stock mutual funds. Equity mutual funds invest
pooled amounts of money in the stocks of public companies. Stocks represent
part ownership, or equity, in companies, and the aim of stock ownership is to see
the value of the companies increase over time. Stocks are often categorized by
their market capitalization (or caps), and can be classified in three basic sizes:
small, medium, and large. Many mutual funds invest primarily in companies of
one of these sizes and are thus classified as large-cap, mid-cap or small-cap
funds.

Equity fund managers employ different styles of stock picking when they make
investment decisions for their portfolios. Some fund managers use a value
approach to stocks, searching for stocks that are undervalued when compared to
other similar companies. Another approach to picking is to look primarily at
growth, trying to find stocks that are growing faster than their competitors, or the


44

market as a whole. Some managers buy both kinds of stocks, building a portfolio
of both growth and value stocks. Since equity funds invest in stocks, they have
the potential to generate more returns. On the other hand they carry greater risks
too. Equity funds can be classified into diversified equity funds and sectoral
equity funds.

How to Select an Equity Fund

Compare a fund with its peers:
One of the basic fundamental of benchmarking is to evaluate funds with in the
same category. For example, if you are evaluating the performance of a thematic
fund, say IT based fund, then you should compare its performance with another
similar IT based fund. Comparing it with banking sector fund for example will
not give the correct picture. Comparing a fund over stock market cycle (boom
and bust) will give investors a good idea about how the fund has fared.

Compare returns against those of the benchmark index:
Every fund mentions a benchmark index in the Offer Document. It can be BSE
100, BSE 200, Nifty or any other index. The benchmark index serves as a
guidepost for both the fund manager and the investor. Compare how the fund has
fared against the benchmark index over a period of 3-5 years. The funds that
have outperformed their benchmark indices during stock market volatility must
be given a close look.

Compare against the fund's own performance:
Apart from comparing a fund with its peers and benchmark index, investors
should evaluate its historical performance. By evaluating a fund against its own
historical performance, you can get an idea about consistent performers.

Balanced funds
Balanced fund is also known as hybrid fund. It is a type of mutual fund that buys
a combination of common stock, preferred stock, bonds, and short-term


45

bonds Balanced fund is also known as hybrid fund. It is a type of 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.

Balanced funds provide investor with an option of 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. But
on the flip side, balanced funds will usually increase less than an all-stock fund
during a bull market.

Growth funds
Growth funds are those mutual funds that aim to achieve capital appreciation by
investing in growth stocks. Growth funds are those mutual funds that aim to
achieve capital appreciation by investing in growth stocks. They focus on those
companies, which are experiencing significant earnings or revenue growth, rather
than companies that pay out dividends. Growth funds tend to look for the fastest-
growing companies in the market. Growth managers are willing to take more risk
and pay a premium for their stocks in an effort to build a portfolio of companies
with above-average earnings momentum or price appreciation.

In India, growth funds became popular after the tremendous growth of the Indian
companies during the post economic reforms period. The rapid growth of Indian
industry attracted investors money to sectors of high growth and as a result
growth funds came into being.

No load funds
Mutual funds can be classified into two types - Load mutual funds and No-Load
mutual funds. Mutual funds can be classified into two types - Load mutual funds
and No-Load mutual funds. Load funds are those funds that charge commission


46

at the time of purchase or redemption. They can be further subdivided into
(1) Front-end load funds
(2) Back-end load funds.
Front-end load are fees or expenses recovered by mutual funds against
compensation paid to brokers, their distribution and marketing costs. These
expenses are generally called as sales loads. Front-end load funds charge
commission at the time of purchase. Similar to front end loads there are back end
loads. Back-end load funds charge commission at the time of redemption.

no-load funds are those funds that can be purchased without commission. No
load funds have several advantages over load funds. Firstly, funds with loads, on
average, consistently underperform no-load funds when the load is taken into
consideration in performance calculations. Secondly, loads understate the real
commission charged because they reduce the total amount being invested.
Finally, when a load fund is held over a long time period, the effect of the load, if
paid up front, is not diminished because if the money paid for the load had been
invested, as in a no-load fund, it would have been compounding over the whole
time period.

Exchange traded funds
Exchange Traded Funds (ETFs) represent a basket of securities that is traded on
an exchange, similar to a stock. Hence, unlike conventional mutual
funds Exchange Traded Funds (ETFs) represent a basket of securities that is
traded on an exchange, similar to a stock. Hence, unlike conventional mutual
funds, ETFs are listed on a recognised stock exchange and their units are directly
traded on stock exchange during the trading hours. In ETFs, since the trading is
largely done over stock exchange, there is minimal interaction between investors
and the fund house. ETFs can be categorised into close-ended ETFs or open-
ended ETFs.

ETFs are either actively or passively managed. Actively managed ETFs try to


47

outperform the benchmark index, whereas passively-managed ETFs attempt to
replicate the performance of a designated benchmark index.

Difference Between ETF and Conventional Mutual Funds
Mutual funds are traded through fund house where as in an ETF,
transactions are done through a broker as buying and selling is done on
the stock exchange.
In conventional mutual funds units can be bought and redeemed only at
the relevant NAV, which is declared only once at the end of the day.
ETFs can be bought and sold at any time during market hours like a
stock. As a result, ETF investors have the benefit of real time pricing and
they can take advantage of intra-day volatility.
Annual expenses charged to investors in an ETF are considerably less
than the vast majority of mutual funds. Most of the mutual funds have an
entry or exit load varying between 2.00% and 2.25%. ETFs do not have
any such loads. Instead ETF investors have to pay a brokerage to the
broker while transacting. which in most cases is not more than 0.5%.
ETFs safeguard the interests of long-term investors. This is because ETFs
are traded on exchange and fund managers do have to keep cash in hand
in order to meet redemption pressures
Value funds
Value funds are those mutual funds that tend to focus on safety rather than
growth, and often choose investments providing dividends as well as capital
appreciation. Value funds are those mutual funds that tend to focus on safety
rather than growth, and often choose investments providing dividends as well as
capital appreciation. They invest in companies that the market has overlooked,
and stocks that have fallen out of favour with mainstream investors, either due to
changing investor preferences, a poor quarterly earnings report, or hard times in
a particular industry.

Investing in value fund involves identifying fundamentally sound stocks that are


48

trading at a discount to their fair value. The fund manager buys these stocks and
holds them until the stock bounce backs to its fair value. The fund managers
identify undervalued stocks in the market on the basis of fundamental analysis
techniques. In this process stocks with low price to earnings ratios are tagged.
These stocks are then closely reviewed to see which ones have the greatest
growth potential and are paying high dividends.

Negatives of Value Funds
Though value funds are perceived as safe investments, since they have low
volatility and are long-term investments, in reality it may not be so. These
undervalued stocks can trade at discounted prices for an extended period of
time, thereby reducing the amount of return relative to the risk associated
with the investment.

Suitability of Value Funds
Value style of investing works particularly well during a bear phase in the stock
markets. During this time, the fund manager has more opportunities to invest in
stocks trading at a discount to their fair value. By buying low and selling high,
value funds take on lower risk than growth funds, which tend to buy high and
sell higher. Thus value funds are particularly suitable for investors with a
moderate risk profile. As value funds react slowly to market movements, they
can be a good instrument of investment for those investors who are due to retire
shortly.

Money market funds
A money market fund is a mutual fund that invests solely in money market
instruments. Money market instruments are forms of debt that mature in less than
one year and are very liquid. A money market fund is a mutual fund that invests
solely in money market instruments. Money market instruments are forms of
debt that mature in less than one year and are very liquid. Treasury bills make up
the bulk of the money market instruments. Securities in the money market are


49

relatively risk-free.

Money market funds are generally the safest and most secure of mutual fund
investments. The goal of a money-market fund is to preserve principal while
yielding a modest return. Money-market mutual fund is akin to a high-yield bank
account but is not entirely risk free. When investing in a money-market fund,
attention should be paid to the interest rate that is being offered.

Types of Money Market Mutual Funds
Money market funds are of two types:

1. Institutional Money Market Mutual Funds:
These funds are held by governments, institutional investors and businesses etc.
Huge sum of money is parked in institutional money funds.

2. Retail Money Market Mutual Funds:
Retail money market funds are used for parking money temporarily. The
investment portfolio of money market funds comprises of treasury bills, short
term debts, tax free bonds etc.

Special Features of Money Market Mutual Funds
Money market mutual funds are one of the safest instruments of
investment for the retail low income investor. The assets in a money
market fund are invested in safe and stable instruments of investment
issued by governments, banks and corporations etc.
Generally, money market instruments require huge amount of
investments and it is beyond the capacity of an ordinary retail investor to
invest such large sums. Money market funds allow retail investors the
opportunity of investing in money market instrument and benefit from the
price advantage.


50

Money market mutual funds are usually rated by the rating agencies. So, check
for the fund ratings before investing.

International mutual funds
International mutual funds are those funds that invest in non-domestic securities
markets throughout the world. International mutual funds are those funds that
invest in non-domestic securities markets throughout the world. Investing in
international markets provides greater portfolio diversification and let you
capitalize on some of the world's best opportunities. If investments are chosen
carefully, international mutual fund may be profitable when some markets are
rising and others are declining.

However, fund managers need to keep close watch on foreign currencies and
world markets as profitable investments in a rising market can lose money if the
foreign currency rises against the dollar. In recent years international mutual
funds have gained popularity. This can be attributed to removal of trade barriers
and expansion of economies, which has sparked off growth in various regions of
the world.

Things to Consider Before Investing in International Mutual
Funds
International Investing Formula:
According to a survey, the best policy for investment is to have a 70% domestic
investment and a 30% international diversified funds investment. The survey
reveals that this investment strategy is better than having a 100% domestic
investment portfolio or a 100% international exposure in terms of risk exposure
and return on the capital.

Diversification:
Not all the markets of the world move in one pack, so a downswing in a
country's market can be well taken care off by gains in the others. So, it is
essential to have diversification in different markets across the world.


51


Currency Exchange Risk:
You should also factor in foreign exchange currency fluctuations in your
investment returns. For example you invested INR 9000 in an international
mutual fund. At that time let say one dollar was worth Rs 45.00. This means in
effect you invested $200. After an year your investment appreciated to Rs 10,000
but at the same time dollar appreciated to Rs. 50. So due to fluctuation in dollar-
rupee rate, your investment is still worth $200

In addition to these considerations, it is advisable to aware of political history
and current events before investing in international mutual funds
Regional mutual funds
Regional mutual fund is a mutual fund that confines itself to investments in
securities from a specified geographical area, usually, the fund's local
region. Regional mutual fund is a mutual fund that confines itself to investments
in securities from a specified geographical area, usually, the fund's local region.
A regional mutual fund generally looks to own a diversified portfolio of
companies based in and operating out of its specified geographical area. The
objective is to take advantage of regional growth potential before the national
investment community does. They may be some regional funds whose objective
is to invest in a specific segment of the region's economy, such as banking,
energy etc.

For the investor, the primary benefit of a regional fund is that he/she increases
his/her diversification by being exposed to a specific foreign geographical area.
For the average investor, these funds are beneficial as most investors don't have
enough capital to adequately diversify themselves across many investments in
the region.

Regional funds select securities that pass geographical criteria. Regional funds
differ from the international mutual funds in the sense that international mutual
funds have a diversified portfolio with investment spanning all across the world,


52

where as regional funds invest in companies in one specific region or nation.
Regional funds carry more risk as compared to international mutual funds
because their investments are less diversified geographically.
Sector funds
Sector mutual funds are those mutual funds that restrict their investments to a
particular segment or sector of the economy. ector mutual funds are those mutual
funds that restrict their investments to a particular segment or sector of the
economy. Also known as thematic funds, these funds concentrate on one industry
such as infrastructure, banking, technology, energy, real estate, power heath care,
FMCG, pharmaceuticals etc. The idea is to allow investors to place bets on
specific industries or sectors, which have strong growth potential.

These funds tend to be more volatile than funds holding a diversified portfolio of
securities in many industries. Such concentrated portfolios can produce
tremendous gains or losses, depending on whether the chosen sector is in or out
of favour. Sectoral mutual funds come in the high risk high reward category and
are not suitable for investors having low risk apetite.

Generally, mutual fund houses avoid launching sectoral funds as they are
seasonal in nature and do well only in cycles. Since these funds focus on just one
sector of the economy, they limit diversification and the fund managers ability
to capitalise on other sectors, if the specific sectors arent doing well. Unless a
particular sector is doing very well and its long term growth prospects look
bright, it advisable not to trade in sector funds.
Index funds
An index fund is a a mutual fund or exchange-traded fund) that aims to replicate
the movements of an index of a specific financial market. An index fund is a a
mutual fund or exchange-traded fund) that aims to replicate the movements of an
index of a specific financial market. An Index fund follows a passive investing
strategy called indexing. It involves tracking an index say for example, the
Sensex or the Nifty and builds a portfolio with the same stocks in the same


53

proportions as the index. The fund makes no effort to beat the index and in fact it
merely tries to earn the same return.

Origin of Index Funds
Index funds first came into being in the US in the 1970s. In the US the research
established the efficient markets concept which says that stocks are mostly priced
accurately and that it is not possible to beat the market in a systematic way.
Though a few actively managed mutual funds may beat the market for a while, it
is very rare for active funds to beat the market in the long run.

Advantages of Index Funds
As per efficient markets concept index funds provide optimum returns in
the long run.
An index fund doesn't have to pay for expensive analysts and frequent
trading.
Index funds track a broad index which is less volatile than specific stocks
or sectors, thereby lessening the risk for investors.
Index Funds in the context of India
In the Indian market scenario index funds may not be the best option. The basic
principle of indexing is - the more the number of stocks comprising an index the
better is the diversification and price discovery. Indian indices like the Sensex
(30) and the Nifty (50) cover a relatively small number of stocks and ignore
many opportunities in the mid-cap sector. Also, unlike the capital markets in
developed countries, Indian markets haven't been thoroughly researched and
there is enormous scope to beat the market by sound research.

Fund of funds
A fund of funds (FoF) is an investment fund that holds a portfolio of other
investment funds rather than investing directly in shares, bonds or other
securities. A fund of funds (FoF) is an investment fund that holds a portfolio of
other investment funds rather than investing directly in shares, bonds or other


54

securities. This type of investment is also known as multi-manager investment.
Fund of funds can be classified into: Mutual fund FoF and Hedge fund FoF.
Mutual fund FoF:
A Mutual fund FoF invests in other mutual funds. Just as a mutual fund invests
in a number of different securities, a fund of funds holds shares of many different
mutual funds.
Hedge fund FoF:
A Hedge fund FoF invests in a portfolio of different hedge funds to provide
broad exposure to the hedge fund industry and to diversify the risks associated
with a single investment fund.
Pros & Cons of Fund of funds
Fund of funds are designed to achieve greater diversification than traditional
mutual funds. But on the flipside, expense fees on fund of funds are typically
higher than those on regular funds because they include part of the expense fees
charged by the underlying funds. Also, since a fund of funds buys many different
funds which themselves invest in many different stocks, it is possible for the
fund of funds to own the same stock through several different funds and it can be
difficult to keep track of the overall holdings.



55

AWARDS AND ACHIEVEMENTS
Icici Mutual Fund At a Glance:
Icici Mutual Fund (RMF) is India's No. 1 Mutual Fund, with Assets Under
Management (AUM) of Rs. 80,779 crores (AUM as on Dec 31st 2007) Investor
base of over 43.67 Lakhs as on 31st Dec. 2007 Icici Mutual Fund has over 10
years of extensive market experience, over 26 schemes combined with a strong
performance track record. Icici Equity Fund NFO (6th Feb -7th March 2006), the
largest ever collection of Rs.5, 759 crore ($1.29 billion) in the history of the
Indian Mutual Fund industry. With assets under management(AUM)of
rs.1,01,577crores (AUM as on 2010
ICICI Prudential AMC has constantly been on the forefront of innovation and has
introduced products aligned to meet customer needs leading to a well-diversified
product portfolio. As acknowledgment of our efforts , we have received valued
recognition from various organizations of international repute.
Some of the prominent awards and recognition are :
Bloomberg UTV Financial Leadership Awards 2011
ICICI Prudential AMC received the coveted UTV Bloomberg Financial
Leadership Award 2011 for Best Contribution in Investor Education &
Category Enhancement of the Year in the mutual fund category.
Mr. Nimesh Shah , Managing Director, ICICI Prudential AMC received this
prestigious accolade from Honorable Finance Minister, Shri Pranab Mukherjee.
Morning Star Mutual Fund Awards 2011
India Debt Fund House Award 2011
Business World Mutual Fund Awards 2010
ICICI Prudential Discovery Fund adjudged Emerging Leader (Based on past
3-year SIP performance)
ICICI Prudential Discovery Fund - Insti.1 adjudged Best Equity Fund Mid
and Small Cap for the year 2010
Mr Sankaran Naren adjudged Smartest Fund Manager (ICICI Prudential
Discovery Fund) for the year 2010


56

Mr Sankaran Naren adjudged Best Equity Fund Manager (ICICI Prudential
Discovery Fund ) for the year 2010

NDTV Profit Mutual Fund Awards 2010
ICICI Prudential Discovery Fund - Category Emerging Leader (Based on
past 3-year SIP performance)
Lipper Fund Awards 2010 India
ICICI Prudential Dynamic Plan-Growth - Best Fund over 3 Years (Mixed
Asset INR flexible)
ICICI Prudential Gilt Fund Investment Pl-PF Opt-Gth - Best Fund over 3 & 5
Years (Bond Indian Rupee Government)



57

Our Service Providers
Bankers to the Schemes of Icici Capital Asset Management
HDFC Bank Limited
ABN Amro Bank
Reliance mutual funds
Citibank N. A.
CITI Channel & City Wealth - only for online
Deutsche Bank AG
Standard Chartered Bank
UTI Bank
IDBI Bank
HSBC Bank
Ing Vysya Bank
Kotak Mahindra Bank
Competitors of ICICI Mutual Fund
The following companies are main competitors to reliance mutual fund
Fidelity mutual fund
Franklin Templeton mutual fund
HDFC mutual fund
HSBC mutual fund
ING Vysya mutual fund
Kotak Mahindra mutual fund
LIC mutual fund
Standard Charted
Lotus mutual fund
UTI mutual fund
Tata mutual fund
Sundaram mutual fund
SBIMF f


58












Chapter - III




59





















































Overview of existing schemes existed in mutual fund category

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial
position, risk tolerance and return expectations etc. The table below gives an overview
into the existing types of schemes in the Industry.


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Type of Mutual Fund Schemes



BY STRUCTURE


Open Ended Schemes

An open-end fund is one that is available for subscription all through the year. These do not
have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value
("NAV") related prices. The key feature of open-end schemes is liquidity.




Close Ended Schemes


A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15
years. The fund is open for subscription only during a specified period. Investors can invest in the
scheme at the time of the initial public issue and thereafter they can buy or sell the units of the
scheme on the stock exchanges where they are listed. In order to provide an exit route to the
investors, some close-ended funds give an option of selling back the units to the Mutual Fund
through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of
the two exit routes is provided to the investor.



Interval Schemes

Interval Schemes are that scheme, which combines the features of open-ended and close-
ended schemes. The units may be traded on the stock exchange or may be open for sale or
redemption during pre-determined intervals at NAV related prices.


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BY NATURE

Under this the mutual fund is categorized on the basis of Investment Objective. By nature the
mutual fund is categorized as follow


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1. Equity fund:

These funds invest a maximum part of their corpus into equities holdings. The structure of the
fund may vary different for different schemes and the fund managers outlook on different stocks.
The Equity Funds are sub-classified depending upon their investment objective, as follows:

Diversified Equity Funds

Mid-Cap Funds

Sector Specific Funds

Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on the
risk-return matrix.

2. Debt funds:

The objective of these Funds is to invest in debt papers. Government authorities, private
companies, banks and financial institutions are some of the major issuers of debt papers. By
investing in debt instruments, these funds ensure low risk and provide stable income to the
investors. Debt funds are further classified as:

Gilt Funds: Invest their corpus in securities issued by Government, popularly known
as Government of India debt papers. These Funds carry zero Default risk but are
associated with Interest Rate risk. These schemes are safer as they invest in papers
backed by Government.

Income Funds: Invest a major portion into various debt instruments such as bonds,
corporate debentures and Government securities.


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MIPs: Invests maximum of their total corpus in debt instruments while they take
minimum exposure in equities. It gets benefit of both equity and debt market. These
scheme ranks slightly high on the risk-return matrix when compared with other debt
schemes.

Short Term Plans (STPs): Meant for investment horizon for three to six months.
These funds primarily invest in short term papers like Certificate of Deposits (CDs) and
Commercial Papers (CPs). Some portion of the corpus is also invested in corporate
debentures.

4. Liquid Funds: Also known as Money Market Schemes, These funds provides easy
liquidity and preservation of capital. These schemes invest in short-term instruments like
Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for
short-term cash management of corporate houses and are meant for an investment horizon
of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to
be the safest amongst all categories of mutual funds.
5. Balanced funds:
As the name suggest they, are a mix of both equity and debt funds. They invest in both
equities and fixed income securities, which are in line with pre-defined investment
objective of the scheme. These schemes aim to provide investors with the best of both the
worlds. Equity part provides growth and the debt part provides stability in returns.

Further the mutual funds can be broadly classified on the basis of investment parameter viz,

Each category of funds is backed by an investment philosophy, which is pre-defined in the
objectives of the fund. The investor can align his own investment needs with the funds objective
and invest accordingly.


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BY INVESTMENT OBJECTIVE

Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these
schemes is to provide capital appreciation over medium to long term. These schemes normally
invest a major part of their fund in equities and are willing to bear short-term decline in value for
possible future appreciation.

Income Schemes: Income Schemes are also known as debt schemes. The aim of these
schemes is to provide regular and steady income to investors. These schemes generally invest in
fixed income securities such as bonds and corporate debentures. Capital appreciation in such
schemes may be limited.

Balanced Schemes: Balanced Schemes aim to provide both growth and income by
periodically distributing a part of the income and capital gains they earn. These schemes invest in
both shares and fixed income securities, in the proportion indicated in their offer documents
(normally 50:50).

Money Market Schemes: Money Market Schemes aim to provide easy liquidity,
preservation of capital and moderate income. These schemes generally invest in safer, short-term
instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call
money.


OTHER SCHEMES

Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws
prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any
Equity Linked Savings Scheme (ELSS) are eligible for rebate.

Index Schemes: Index schemes attempt to replicate the performance of a particular index such


65

as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those
stocks that constitute the index. The percentage of each stock to the total holding will be identical
to the stocks index weightage. And hence, the returns from such schemes would be more or less
equivalent to those of the Index.

Sector Specific Schemes: These are the funds/schemes which invest in the securities of only
those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software,
Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are
dependent on the performance of the respective sectors/industries. While these funds may give
higher returns, they are more risky compared to diversified funds. Investors need to keep a watch
on the performance of those sectors/industries and must exit at an appropriate time.




Types of returns:


There are three ways, where the total returns provided by mutual funds can be enjoyed by
investors:

Income is earned from dividends on stocks and interest on bonds. A fund pays out
nearly all income it receives over the year to fund owners in the form of a distribution.
If the fund sells securities that have increased in price, the fund has a capital gain. Most
funds also pass on these gains to investors in a distribution.

If fund holdings increase in price but are not sold by the fund manager, the fund's shares
increase in price. You can then sell your mutual fund shares for a profit. Funds will also
usually give you a choice either to receive a check for distributions or to reinvest the
earnings and get more shares.


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Pros & cons of investing in mutual funds:

For investments in mutual fund, one must keep in mind about the Pros and
cons of investments in mutual fund.


Advantages of Investing Mutual Funds:



1. Professional Management - The basic advantage of funds is that, they are professional
managed, by well qualified professional. Investors purchase funds because they do not have the
time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively
less expensive way to make and monitor their investments.

2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or
bonds, the investors risk is spread out and minimized up to certain extent. The idea behind
diversification is to invest in a large number of assets so that a loss in any particular investment
is minimized by gains in others.

3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus
help to reducing transaction costs, and help to bring down the average cost of the unit for their
investors.

4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate
their holdings as and when they want.

5. Simplicity - Investments in mutual fund is considered to be easy, compare to other
available instruments in the market, and the minimum investment is small. Most AMC also
have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50
per month basis.


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Disadvantages of Investing Mutual Funds:

1. Professional Management- Some funds doesnt perform in neither the market, as their
management is not dynamic enough to explore the available opportunity in the market, thus many
investors debate over whether or not the so-called professionals are any better than mutual fund or
investor himself, for picking up stocks.

2. Costs The biggest source of AMC income, is generally from the entry & exit load which
they charge from an investors, at the time of purchase. The mutual fund industries are thus
charging extra cost under layers of jargon.

3. Dilution - Because funds have small holdings across different companies, high returns from a
few investments often don't make much difference on the overall return. Dilution is also the result
of a successful fund getting too big. When money pours into funds that have had strong success,
the manager often has trouble finding a good investment for all the new money.

4. Taxes - when making decisions about your money, fund managers don't consider your
personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is
triggered, which affects how profitable the individual is from the sale. It might have been more
advantageous for the individual to defer the capital gains liability.


68


Guidelines of the SEBI for Mutual Fund Companies :

To protect the interest of the investors, SEBI formulates policies and regulates the mutual
funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from
time to time.

SEBI approved Asset Management Company (AMC) manages the funds by making
investments in various types of securities. Custodian, registered with SEBI, holds the
securities of various schemes of the fund in its custody. According to SEBI Regulations,
two thirds of the directors of Trustee Company or board of trustees must be independent.
The Association of Mutual Funds in India (AMFI) reassures the investors in units of
mutual funds that the mutual funds function within the strict regulatory framework. Its
objective is to increase public awareness of the mutual fund industry. AMFI also is
engaged in upgrading professional standards and in promoting best industry practices in
diverse areas such as valuation, disclosure, transparency etc.

Documents required (PAN mandatory):

Proof of identity :
1. Photo PAN card

2. In case of non-photo PAN card in addition to copy of PAN card any one of the
following: driving license/passport copy/ voter id/ bank photo pass book.
Proof of address (any of the following ) :latest telephone bill, latest electricity bill,
Passport, latest bank passbook/bank account statement, latest Demat account statement,
voter id, driving license, ration card, rent agreement.


69





Offer document: An offer document is issued when the AMCs make New Fund
Offer(NFO). Its advisable to every investor to ask for the offer document and read it before
investing. An offer document consists of the following:

Standard Offer Document for Mutual Funds (SEBI Format)

Summary Information

Glossary of Defined Terms Risk
Disclosures

Legal and Regulatory Compliance
Expenses

Condensed Financial Information of Schemes
Constitution of the Mutual Fund

Investment Objectives and Policies
Management of the Fund

Offer Related Information.

Key Information Memorandum: a key information memorandum, popularly known as
KIM, is attached along with the mutual fund form. And thus every investor get to read it.
Its contents are:
1 Name of the fund.

2. Iestment objective

3. Aset allocation pattern of the scheme.


70


4. Risk profile of the scheme

5. Plans & options

6. Minimum application amount/ no. of units

7. Benchmark index

8. Dividend policy

9. Name of the fund manager(s)

10 . Expenses of the scheme: load structure, recurring expenses

11. Performance of the scheme (scheme return v/s. benchmark
return) 12. Year- wise return for the last 5 financial year.

Distribution channels:

Mutual funds posses a very strong distribution channel so that the ultimate customers
doesnt face any difficulty in the final procurement. The various parties involved in
distribution of mutual funds are:

1. Direct marketing by the AMCs: the forms could be obtained from the AMCs directly.
The investors can approach to the AMCs for the forms. some of the top AMCs of India are;
Reliance ,Birla Sunlife, Tata, SBI magnum, Kotak Mahindra, HDFC, Sundaram, ICICI,
Mirae Assets, Canara Robeco, Lotus India, LIC, UTI etc. whereas foreign AMCs include:
Standard Chartered, Franklin Templeton, Fidelity, JP Morgan, HSBC, DSP Merill Lynch,
etc.




71

2 .Broker/ sub broker arrangements: the AMCs can simultaneously go for broker/sub-
broker to popularize their funds. AMCs can enjoy the advantage of large network of these
brokers and sub brokers.eg: ICICI being the top financial intermediary of India has the
greatest network. So the AMCs dealing through ICICI has access to most of the investors.

3. Individual agents, Banks, NBFC: investors can procure the funds through individual
agents, independent brokers, banks and several non- banking financial corporations too,
whichever he finds convenient for him.

Costs associated:

Expenses:

AMCs charge an annual fee, or expense ratio that covers administrative expenses, salaries,
advertising expenses, brokerage fee, etc. A 1.5% expense ratio means the AMC charges
Rs1.50 for every Rs100 in assets under management. A fund's expense ratio is typically to
the size of the funds under management and not to the returns earned. Normally, the costs
of running a fund grow slower than the growth in the fund size - so, the more assets in the
fund, the lower should be its expense ratio

Loads:

Entry Load/Front-End Load (0-2.25%)- its the commission charged at the time of
buying the fund to cover the cost of selling, processing etc.

Exit Load/Back- End Load (0.25-2.25%)- it is the commission or charged paid when
an investor exits from a mutual fund, it is imposed to discourage withdrawals. It may
reduce to zero with increase in holding period.






72


Measuring and evaluating mutual funds performance:

Every investor investing in the mutual funds is driven by the motto of either wealth
creation or wealth increment or both. Therefore its very necessary to continuously
evaluate the funds performance with the help of factsheets and newsletters, websites,
newspapers and professional advisors like ICICI mutual fund services. If the investors
ignore the evaluation of funds performance then he can loose hold of it any time. In this
ever-changing industry, he can face any of the following problems:

1. Variation in the funds performance due to change in its management/
objective. 2. The funds performance can slip in comparison to similar funds.

3. There may be an increase in the various costs associated with the
fund. 4 .Beta, a technical measure of the risk associated may also
surge.

5. The funds ratings may go down in the various lists published by independent
rating agencies.
6 .It can merge into another fund or could be acquired by another fund house.


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Performance measures:
Equity funds: the performance of equity funds can be measured on the basis of: NAV
Growth, Total Return; Total Return with Reinvestment at NAV, Annualized Returns and
Distributions, Computing Total Return (Per Share Income and Expenses, Per Share Capital
Changes, Ratios, Shares Outstanding), the Expense Ratio, Portfolio Turnover Rate, Fund
Size, Transaction Costs, Cash Flow, Leverage.

Debt fund: likewise the performance of debt funds can be measured on the basis of: Peer
Group Comparisons, The Income Ratio, Industry Exposures and Concentrations, NPAs,
besides NAV Growth, Total Return and Expense Ratio.

Liquid funds: the performance of the highly volatile liquid funds can be measured on the
basis of: Fund Yield, besides NAV Growth, Total Return and Expense Ratio.

Concept of benchmarking for performance evaluation:

Every fund sets its benchmark according to its investment objective. The funds
performance is measured in comparison with the benchmark. If the fund generates a
greater return than the benchmark then it is said that the fund has outperformed benchmark
, if it is equal to benchmark then the correlation between them is exactly 1. And if in case
the return is lower than the benchmark then the fund is said to be underperformed.

Some of the benchmarks are :

1. Equity funds: market indices such as S&P CNX nifty, BSE100, BSE200,
BSE-PSU BSE 500 index, BSE bankex, and other sectoral indices.

2. Debt funds: Interest Rates on Alternative Investments as Benchmarks, I-
Bex Total Return Index, JPM T-Bill Index Post-Tax Returns on Bank
Deposits versus Debt Funds.

3. Liquid funds: Short Term Government Instruments Interest Rates as


74

Benchmarks, JPM T-Bill Index

To measure the funds performance, the comparisons are usually done with:

I)with a market index.

ii) Funds from the same peer group.

iii) Other similar products in which investors invest their funds.

Financial planning for investors( ref. to mutual funds):

Investors are required to go for financial planning before making investments in any
mutual fund. The objective of financial planning is to ensure that the right amount of
money is available at the right time to the investor to be able to meet his financial goals. It
is more than mere tax planning. Steps in financial planning are:

Asset allocation.

Selection of fund.

Studying the features of a scheme.

In case of mutual funds, financial planning is concerned only with broad asset allocation,
leaving the actual allocation of securities and their management to fund managers. A fund
manager has to closely follow the objectives stated in the offer document, because
financial plans of users are chosen using these objectives.

Why has it become one of the largest financial instruments?

If we take a look at the recent scenario in the Indian financial market then we can find the
market flooded with a variety of investment options which includes mutual funds, equities,


75

fixed income bonds, corporate debentures, company fixed deposits, bank deposits, PPF,
life insurance, gold, real estate etc. all these investment options could be judged on the
basis of various parameters such as- return, safety convenience, volatility and liquidity.
measuring these investment options on the basis of the mentioned parameters, we get this
in a tabular form
Return Safety Volatility Liquidity Convenienc

e

Equity High Low High High Moderate


Bonds


Moderate High Moderate Moderate High


Co.


Moderate Moderate Moderate Low Low

Debentures

Co. FDs Moderate Low Low Low Moderate


Bank


Low High Low High High

Deposits

PPF Moderate High Low Moderate High


Life


Low High Low Low Moderate

Insurance

Gold Moderate High Moderate Moderate Gold


Real Estate


High Moderate High Low Low


Mutual


High High Moderate High High

Funds




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We can very well see that mutual funds outperform every other investment option. On
three parameters it scores high whereas its moderate at one. comparing it with the other
options, we find that equities gives us high returns with high liquidity but its volatility too
is high with low safety which doesnt makes it favourite among persons who have low
risk- appetite. Even the convenience involved with investing in equities is just moderate.


Now looking at bank deposits, it scores better than equities at all
fronts but lags badly in the parameter of utmost important ie; it scores low on return , so
its not an happening option for person who can afford to take risks for higher return. The
other option offering high return is real estate but that even comes with high volatility and
moderate safety level, even the liquidity and convenience involved are too low. Gold have
always been a favourite among Indians but when we look at it as an investment option then
it definitely doesnt gives a very bright picture. Although it ensures high safety but the
returns generated and liquidity are moderate. Similarly the other investment options are not
at par with mutual funds and serve the needs of only a specific customer group.
Straightforward, we can say that mutual fund emerges as a clear winner among all the
options available.

The reasons for this being:


I)Mutual funds combine the advantage of each of the investment products:
mutual fund is one such option which can invest in all other investment options. Its
principle of diversification allows the investors to taste all the fruits in one plate. just by
investing in it, the investor can enjoy the best investment option as per the investment
objective.


II)dispense the shortcomings of the other options: Every other investment option
has more or les some shortcomings. Such as if some are good at return then they are not
safe, if some are safe then either they have low liquidity or low safety or both.likewise,


77

there exists no single option which can fit to the need of everybody. But mutual funds have
definitely sorted out this problem. Now everybody can choose their fund according to their
investment objectives.

III) Returns get adjusted for the market movements: as the mutual funds are
managed by experts so they are ready to switch to the profitable option along with the
market movement. Suppose they predict that market is going to fall then they can sell some
of their shares and book profit and can reinvest the amount again in money market
instruments.

IV) Flexibility of invested amount: Other then the above mentioned reasons, there
exists one more reason which has established mutual funds as one of the largest financial
intermediary and that is the flexibility that mutual funds offer regarding the investment
amount. One can start investing in mutual funds with amount as low as Rs. 500 through
SIPs and even Rs. 100 in some cases.

How do investors choose between funds?

When the market is flooded with mutual funds, its a very tough job for the investors to
choose the best fund for them. Whenever an investor thinks of investing in mutual funds,
he must look at the investment objective of the fund. Then the investors sort out the funds
whose investment objective matches with that of the investors. Now the tough task for
investors start, they may carry on the further process themselves or can go for advisors like
ICICI . Of course the investors can save their money by going the direct route i.e. through
the AMCs directly but it will only save 1-2.25% (entry load) but could cost the investors in
terms of returns if the investor is not an expert. So it is always advisable to go for MF
advisors. The mf advisors thoughts go beyond just investment objectives and rate of
return. Some of the basic tools which an investor may ignore but an mf advisor will always
look for are as follow:




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1. Rupee cost averaging:

The investors going for Systematic Investment Plans(SIP) and Systematic Transfer
Plans(STP) may enjoy the benefits of RCA (Rupee Cost Averaging). Rupee cost averaging
allows an investor to bring down the average cost of buying a scheme by making a fixed
investment periodically, like Rs 5,000 a month and nowadays even as low as Rs. 500 or
Rs. 100. In this case, the investor is always at a profit, even if the market falls. In case if
the NAV of fund falls, the investors can get more number of units and vice-versa. This
results in the average cost per unit for the investor being lower than the average price per
unit over time.

The investor needs to decide on the investment amount and the frequency. More frequent
the investment interval, greater the chances of benefiting from lower prices. Investors can
also benefit by increasing the SIP amount during market downturns, which will result in
reducing the average cost and enhancing returns. Whereas STP allows investors who have
lump sums to park the funds in a low-risk fund like liquid funds and make periodic
transfers to another fund to take advantage of rupee cost averaging.

2. Rebalancing:

Rebalancing involves booking profit in the fund class that has gone up and investing in the
asset class that is down. Trigger and switching are tools that can be used to rebalance a
portfolio. Trigger facilities allow automatic redemption or switch if a specified event
occurs. The trigger could be the value of the investment, the net asset value of the scheme,
level of capital appreciation, level of the market indices or even a date. The funds
redeemed can be switched to other specified schemes within the same fund house. Some
fund houses allow such switches without charging an entry load.
To use the trigger and switch facility, the investor needs to specify the event, the amount or
the number of units to be redeemed and the scheme into which the switch has to be made.
This ensures that the investor books some profits and maintains the asset allocation in the
portfolio.



79

3. Diversification:
Diversification involves investing the amount into different options. In case of mutual
funds, the investor may enjoy it afterwards also through dividend transfer option. Under
this, the dividend is reinvested not into the same scheme but into another scheme of the
investor's choice.
For example, the dividends from debt funds may be transferred to equity schemes. This
gives the investor a small exposure to a new asset class without risk to the principal
amount. Such transfers may be done with or without entry loads, depending on the MF's
policy.

4. Tax efficiency:


Tax factor acts as the x-factor for mutual funds. Tax efficiency affects the final decision
of any investor before investing. The investors gain through either dividends or capital
appreciation but if they havent considered the tax factor then they may end loosing.

Debt funds have to pay a dividend distribution tax of 12.50 per cent (plus surcharge and
education cess) on dividends paid out. Investors who need a regular stream of income have
to choose between the dividend option and a systematic withdrawal plan that allows them
to redeem units periodically. SWP implies capital gains for the investor.

If it is short-term, then the SWP is suitable only for investors in the 10-per-cent-tax
bracket. Investors in higher tax brackets will end up paying a higher rate as short-term
capital gains and should choose the dividend option.

If the capital gain is long-term (where the investment has been held for more than one
year), the growth option is more tax efficient for all investors. This is because investors
can redeem units using the SWP where they will have to pay 10 per cent as long-term
capital gains tax against the 12.50 per cent DDT paid by the MF on dividends.

All the tools discussed over here are used by all the advisors and have helped investors in
reducing risk, simplicity and affordability. Even then an investor needs to examine costs,
tax implications and minimum applicable investment amounts before committing to a
service.


80


Most popular stocks among fund managers (as on 30
th
April 2008)

Company Name no. of funds
Reliance industries limited 244
Larsen & toubro limited 206
ICICI bank limited 202
State bank of India 188
Bharti airtel limited 184
Bharat Heavy
Electricals
limited 200
Reliance n
ventures ltd 169
Infosys technologies ltd 159
Oil& Natural gas corporation
ltd. 153
ITC ltd. 143


We can easily point out that reliance industries limited emerges as a true winner over here
attracting the attention of almost244 managers well followed by Larsen & toubro ltd ICICI
bank ltd and Bharat heavy electricals ltd. The other companies succeeding in getting a
place at top 10 are ICICI, Bharti airtel limited, reliance communications, Infosys
technologies limited,

ONGC and at last ITC ltd.



What are the most lucrative sectors for mutual fund managers?


This is a question of utmost interest for all the investors even for those who dont invest in
mutual funds. Because the investments done by the MFs acts as trendsetters. The
investments made by the fund managers are used for prediction. Huge investments assure
liquidity and reflects appositive picture whereas tight investment policy reflects crunch and
investors may look forward for a gloomy picture.
Their investments show that which sector is hot? And will set the market trends. The
expert management of the funds will always look for profitable and high paying sectors.
So we can have a look at most lucrative sectors to know about the recent trends:


81



Sector name No. of MFs betting
on it
automotive 255
banking & financial 196
services
cement & 237
construction
consumer durables 51
conglomerates 218
chemicals 259
consumer non 146
durables
engineering & 317
capital goods
food & beverages 175
information 284
technology
media & 218
entertainment
Manufacturing 259
metals& mining 275
Miscellaneous 250
oil & gas 290
Pharmaceuticals 250
Services 200
Telecom 264
Tobacco 150
Utility 225

From the above data collected we can say that engineering & capital goods sector has
emerged as the hottest as most of the funds are betting on it. We can say that this sector is
on boom and presents a bright picture. Other than it other sectors on height are oil & gas,
telecom, metals & mining and information technology. Sectors performing average are
automotive, cement & construction, chemicals, media & entertainment, manufacturing,
miscellaneous, pharmaceuticals and utility. The sectors which are not so favourite are
banking & financial services, conglomerates, consumer non- durables, food & beverages,
services and tobacco. And the sector which failed to attract the fund managers is consumer
durables with just 51 funds betting on it.

Thus this analysis not only gives a picture of the mindset of fund managers rather it also


82


reflects the liquidity existing in each of the sectors. It is not only useful for investors of
mutual funds rather the investors of equity and debt too could take a hint from it. Asset
allocation by fund managers are based on several researches carried on so, it is always
advisable for other investors too take a look on it. It can be further presented in the form of
a graph as follow:


83


Systematic investment plan (in details)



We have already mentioned about SIPs in brief in the previous pages but now going into
details, we will see how the power of compounding could benefit us. In such case, every
small amounts invested regularly can grow substantially. SIP gives a clear picture of how
an early and regular investment can help the investor in wealth creation. Due to its
unlimited advantages SIP could be redefined as a methodology of fund investing
regularly to benefit regularly from the stock market volatility. In the later sections we will
see how returns generated from some of the SIPs have outperformed their benchmark. But
before moving on to that lets have a look at some of the top performing SIPs and their
return for 1 year:




Scheme

Amount NAV NAV Date
Total

Amount

Reliance
diversified
62.74
30/5/200
14524.07

power sector retail 1000 8

Reliance
regular
savings 22.20 30/5/200 13584.94

equity 1000 8 8 4

Principal
global 30/5/200 14247.72

opportunities fund 1000 18.86 8 8

DWS
investment 30/5/200 13791.15

opportunities fund 1000 35.31 8 7

BOB growth fund 1000 42.14
30/5/200 13769.15

8 2





In the above chart, we can see how if we start investing Rs.1000 per month then what
return well get for the total investment of Rs. 12000. There is reliance diversified power
sector retail giving the maximum returns of Rs. 2524.07 per year which comes to 21%


84

roughly. Next we can see if anybody would have undertaken the SIP in Principal would
have got returns of app. 18%. We can see reliance regular savings equity, DWS
investment opportunities and BOB growth fund giving returns of 13.20%, 14.92%, and
14.74% respectively which is greater than any other monthly investment options. Thus
we can easily make out how SIP is beneficial for us. Its hassle free, it forces the investors
to save and get them into the habit of saving. Also paying a small amount of Rs. 1000 is
easy and convenient for them, thus putting no pressure on their pockets.

Now we will analyze some of the equity fund SIP s of Birla Sunlife with BSE 200 and
bank fixed deposits In a tabular format as well as graphical.






NO. OF
Original Returns at BSE FUND

Scheme Name

INSTALMENTS inv 200 RETURNS

Birla SL tax relief
144


'96 144000 553190 1684008

Birla SL equity fund 114 114000 388701 669219

Birla frontline equity
66


fund 66000 156269 181127




In the above case, we have taken three funds of Birla sunlife namely Birla sunlife tax relief
96, Birla sunlife equity fund and Birla sunlife frontline equity fund. All these three funds
follow the same benchmark ie; BSE 200. Here, we have shown how one would have
benefitted if he would have put his money into these schemes since their inception. And
the amount even is a meager Rs. 1000 per month.

Starting from Birla frontline equity fund, we could spot that if someone would have
invested Rs. 1000 per month resulting into total investment of Rs. 66000 then it would
have amounted to rs.156269 if invested in BSE 200 whereas the fund would have given a
total return of Rs 181127. Now moving next to Birla sunlife equity fund, a total investment
of 114000 for a total of 114 months at BSE 200 would have given a total return of Rs.
388701 whereas the fund gave a total return of Rs. 669219, nearly double the return


85

generated at BSE 200. And now the cream of all the investments, Birla sunlife tax relief
96. A total investment of Rs. 144000 for a period of 12 years at BSE 200 would have
given total returns of just Rs. 553190 but the Birla sunlife tax relief 96 gave an
unbelievable total return of Rs 1684008.

Thus the above case very well explains the power of compounding and early investment.
We have seen how a meager amount of Rs. 144000 turned into Rs. 1684008. It may appear
unbelievable for many but SIPs have turned this into reality and the power of
compounding is speaking loud, attracting more and more investors to create wealth
through SIPs.

Does fund performance and ranking persist?
This project has been a great learning experience for me. But the analyses that are carried
onward these pages are really close to my heart. After taking a look at the data presented
below, an expert might underestimate my efforts. One might think it as a boring task and
can go for recording historic NAVs since last 1 month instead of recording it daily.

But frankly speaking, while tracking the NAVs, I really developed some sentiments with
these funds. Really the ups and downs in the NAVs affected me as if I m tracking my own
portfolio. The portfolio consists of different types of funds. We can see some funds are 5-
star rated but their performances are below the unrated funds. We can also find some funds
which performed very well initially but gradually declined either in short- run or long run.
Some funds have high NAVS but the returns offered are low. We can also see some funds
following same benchmark and reflecting diverse NAV and returns. Even it can be seen
that the expense ratios for various funds varies which may affect the ultimate return.

Now before going into details, lets have a look at those funds: in this downgrading equity
market, we can easily make out that the 1 year return of the fund that was on 17
th
of april
could not be sustained till 1 month. One can sort out that the present return of funds has
decreased a lot and subsequently its NAV too has come down. All the funds are showing
negative returns for the last 1 month. Even the two hybrid funds are showing negative
monthly returns. That means all those who bought these funds a month back must be


86

experiencing a negative return. Although the annual return of the funds have gone down in
comparison to what it was offering a month back. Still the total return is positive. On an
average the equity funds are offering a return of 30% annually, inspite of a week equity
market.


Now checking the validity of funds ratings, we can see that some of the funds are 5 star or
4 star rated but their returns lag behind the unrated funds. Although, since the ratings
include both risk and return so it will not be a total justice to judge the funds purely on a
return basis but still we can go for it just to judge them on the basis of returns generated.

Looking at the funds, we have three 5 star rated funds, one 4star rated and six unrated
funds. In other way, we have seven equity diversified funds, one equity specialty, one
hybrid: dynamic asset allocation and one hybrid: debt oriented fund. It is not possible to
compare each and every fund in details. So I have compared 2 funds out of this list on the
basis of their returns and expenses. Here DBS Chola opportunities and ICICI Pru
infrastructure follows the same benchmark S&P CNX NIFTY. In this case, DBS Chola
opportunities is a 4 star rated fund whereas ICICI Pru infrastructure is an unrated fund. The
star rating definitely gives DBS a competitive advantage but now lets have a look at other
factors, we can see that ICICI Pru has really performed worse in the last month. Its 1
month return is -5.8% whereas DBS gave a return of -3.07%. Even if we consider 6 months
return or yearly returns, definitely DBS is a winner. We can easily spot the difference by
change in their rankings even. Considering 1 yr return, we can spot DBS at no.5 whereas
ICICI at no.6 but when we look at the monthly ratings, to our ultimate shock, DBS is at 52
and ICICI far behind at 172. But if we look at the yearly returns, then there is not much
difference between them, DBS offering returns of 35.17% whereas ICICI offering 34.27.
But looking at the expenses, the expenses charged by ICICI is lower to that of DBS, which
may act as the ultimate factor in choosing the fund in a long run.







87

Thus at last we can conclude that ratings are totally irrelevant for investors.
Here is why they are totally irrelevant to investor:

1. Mutual fund ratings are based on the returns generated, that is, appreciation of net
asset value, based on the historical performance. So they rely more on the past,
rather than the current scenario.

2. As returns play a key role in deciding the ratings, any change in returns will lead to
re-rating of the mutual fund. If you choose your mutual fund only on the basis of
rating, it will be a nuisance to keep realigning your investment in line with the
revision of the ratings.

3. The ratings dont value the investment processes followed by the mutual fund. As a
result, a fund following a certain process may lose out to a fund that has given
superior returns only because it has a star fund manager. But there is a higher risk
associated with a star fund manager that the ratings dont reflect. If the star fund
manager quits, it can throw the working of a mutual fund out of gear and thus affect
its performance.

4. The ratings dont show the level of ethics followed by the fund. A fund or fund
manager that is involved in a scam or financial irregularities wont get poor ratings
on the basis of ethics. As the star ratings look at just returns, any wrongdoing
carried out by the fund or fund manager will be completely ignored.

5. Ratings also dont consider two very important factors: transparency and keeping
investors informed. There are no negative ratings awarded to the fund for being
investor-unfriendly.

6. Ratings dont match the investors risk-appetite with their portfolio. As a matter of
fact, investments should be done only after considering the risk appetite of the
investor. For example, equities may not be the best investment vehicle for a very
conservative investor. However ratings fail to take that into account.




88


Ratings should be the starting point for making an investment decision. They are not the be
all and end all of mutual fund investments. There are other important factors like portfolio
management, age of funds and more, which should be taken into account before making an
investment.

Portfolio analysis tools:

With the increasing number of mutual fund schemes, it becomes very difficult for an
investor to choose the type of funds for investment. By using some of the portfolio analysis
tools, he can become more equipped to make a well informed choice. There are many
financial tools to analyze mutual funds. Each has their unique strengths and limitations as
well. Therefore, one needs to use a combination of these tools to make a thorough analysis
of the funds.

The present market has become very volatile and buoyant, so it is getting difficult for the
investors to take right investing decision. so the easiest available option for investors is to
choose the best performing funds in terms of returns which have yielded maximum
returns. But if we look deeply to it, we can find that the returns are important but it is also
important to look at the quality of the returns. Quality determines how much risk a fund
is taking to generate those returns. One can make a judgment on the quality of a fund from
various ratios such as standard deviation, sharpe ratio, beta, treynor measure, R-squared,
alpha, portfolio turnover ratio, total expense ratio etc.
Now I have compared two funds of ICICI on the basis of standard deviation, beta, R-
squared, sharpe ratio, portfolio turnover ratio and total expense ratio. So before going into
details, lets have a look at these ratios:

Standard deviation:
In simple terms standard deviation is one of the commonly used statistical parameter to
measure risk, which determines the volatility of a fund. Deviation is defined as any
variation from a mean value (upward & downward). Since the markets are volatile, the
returns fluctuate everyday. High standard deviation of a fund implies high volatility and a


89

low standard deviation implies low volatility.

Beta analysis:

beta is used to measure the risk. It basically indicates the level of volatility associated with
the fund as compared to the market. In case of funds, as compared to the market. In case of
funds, beta would indicate the volatility against the benchmark index. It is used as a short
term decision making tool. A beta that is greater than 1 means that the fund is more volatile
than the benchmark index, while a beta of less than 1 means that the fund is more volatile
than the benchmark index. A fund with a beta very close to 1 means the funds
performance closely matches the index or benchmark.

The success of beta is heavily dependent on the correlation between correlation between a
fund and its benchmark. Thus, if the funds portfolio doesnt have a relevant benchmark
index then a beta would be grossly inappropriate. For example if we are considering a
banking fund, we should look at the beta against a bank index.

R-Squared (R2):


R squared is the square of R (i.e.; coefficient of correlation). It describes the level of
association between the funs market volatility and market risk. The value of R- squared
ranges from0 to1. A high R- squared (more than 0.80) indicates that beta can be used as a
reliable measure to analyze the performance of a fund. Beta should be ignored when the r-
squared is low as it indicates that the fund performance is affected by factors other than the
markets.

For example:

Case 1 Case 2
R2 0.65 0.88
B 1.2 0.9

In the above tableR2 is less than 0.80 in case 1, implies that it would be wrong to mention
that the fund is aggressive on account of high beta. In case 2, the r- squared is more than


90

0.85 and beta value is 0.9. it means that this fund is less aggressive than the market.

Sharpe ratio: sharpe ratio is a risk to reward ratio, which helps in comparing the returns
given by a fund with the risk that the fund has taken. A fund with a higher sharpe ratio
means that these returns have been generated taking lesser risk. In other words, the fund is
less volatile and yet generating good returns. Thus, given similar returns, the fund with a
higher sharpe ratio offers a better avenue for investing. The ratio is calculated as:

Sharpe ratio = (Average return- risk free rate) / standard deviation


Portfolio turnover ratio: Portfolio turnover is a measure of a fund's trading activity and
is calculated by dividing the lesser of purchases or sales (excluding securities with
maturities of less than one year) by the average monthly net assets of the fund. Turnover is
simply a measure of the percentage of portfolio value that has been transacted, not an
indication of the percentage of a fund's holdings that have been changed. Portfolio turnover
is the purchase and sale of securities in a fund's portfolio. A ratio of 100%, then, means the
fund has bought and sold all its positions within the last year. Turnover is important when
investing in any mutual fund, since the amount of turnover affects the fees and costs within
the mutual fund.

Total expenses ratio: A measure of the total costs associated with managing and
operating an investment fund such as a mutual fund. These costs consist primarily of
management fees and additional expenses such as trading fees, legal fees, auditor fees and
other operational expenses. The total cost of the fund is divided by the fund's total assets to
arrive at a percentage amount, which represents the TER:
Total expense ratio = (Total fund Costs/ Total fund Assets)










91



Performance report and portfolio analysis of magnum equity fund and
magnum multiplier plus against their benchmark BSE100:


YTD 1M 3M 6M 1Y 3Y 5Y
Magnu -23.73% 9.02% -7.71% -15.18% 26.61% 45.07% 48.96%
m
equity
fund

Magnu -26.16% 5.57% -11.26% -18.00% 21.44% 45.28% 59.31%
m
multipli
er plus
Bench -17.53% 11.74% -2.56% 11.47% 30.71% 40.46% 44.24%
mark
BSE100


Now in the above table, we have two funds from ICICI ie; magnum equity fund and
magnum multiplier plus following the same benchmark i.e; BSE 100. In this case, we have
compared their returns during various time periods. We have their returns YTD, during last
1 month, 3month, 6 months, 1 year, 3 year and 5 year. If we look at a long term
perspective, then magnum multiplier plus totally outperformed both magnum equity fund
as well as bse 100. In case of 5 year returns, neither the benchmark nor the magnum equity
fund stands anywhere near multiplier plus. It is greater than equity fund by 10.35% and
from benchmark by 15.07%. but in case of 3 year returns, surely multiplier plus gave the
maximum return but it fell sharply in comparison to its 5 yr return. A 45.28% return scored
over equity fund just by a margin of 0.21% and benchmark by a mere 4.28%. now moving
down to 1 yr return, we can clearly see that bse 100 emerges as a true winner. The
benchmark gave a return of 30.71% but both the funds failed to match it even.




But the ultimate surprise comes when we look at the datas of last 6 months. Here not only
the fund mangers failed to beat or match the market. Rather they also performed as


92

laggards, giving negative returns. When the bse 100 gave returns of 11.47%, these funds
were trailing by 29.47% and 26.65% which is a huge figure. In th last 3 months too, both
the funds were behind bse100 but all the three gave negative returns and the difference
between them and benchmark was narrowed down. Again, during last 1 month return of all
three got positive but the funds always remained behind the benchmark. The bse 100
outscored multiplier plus and equity fund by 6.17% and 2.72% respectively. Similarly, the
YTD return of all 3 is negative even then the benchmark is at a better position than the
funds.

From the following analysis we can infer that inspite of all the steps taken; it is not always
possible for the fund managers to always beat the market. Also, the past performance just
tells the background and history of the fund, by looking at it we cannot interpret that the
fund will perform in the same way in the future too.
The datas can be presented in the form of a graph as follow:
Quantitative data:

Ratios Magnum equity fund Magnum multiplier plus
Standard deviation 26.00% 26.90%
Beta 0.96% 0.95%
r-squared 0.84%
Sharpe ratio 1.46% 1.42%
Portfolio turnover 31% 25%
Total expense ratio 2.5% 2.5%

Analysis:

We can see that the standard deviation of both the funds are more or less same even then
the S.D of multiplier plus is greater than that of equity fund by 0.90%. Generally higher the
SD higher is the risk and vice-versa. Therefore, magnum multiplier plus is riskier than
magnum equity fund. The beta of magnum equity fund is higher than that of magnum
multiplier plus.
Therefore, equity fund is more volatile than multiplier plus. But beta of both the funds is
smaller than 1 that means both the funds are less volatile than the market index. As r-
squared values are more than 0.80 in both the cases, we can rely on the usage of beta for


93

the analysis of these funds.
A look at the Sharpe ratio indicates that magnum equity has outperformed multiplier plus.
A higher Sharpe ratio of equity fund depicts that these return have been generated taking
lesser risk than the multiplier plus. It Is less volatile than the other.
R-squared of both the funds are greater than 0.80. it indicates that beta can be used as a
reliable measure to analyze the performance of these funds. Magnum equity funds R-
squared is higher. So its beta is more reliable.
Portfolio turnover ratio of magnum equity fund is higher than multiplier plus. It mean the
manager is frequently churning the portfolio of equity fund than of multiplier plus. It may
lead to an increase in expenses but could be ignored if could generate higher return by
changing the composition of portfolio.

Total expense ratio of both the funds are same i.e.; 2.5%
In the form of a chart :


94














Chapter - IV





95


QUESTIONNAIRE

A study of preferences of the investors for investment in mutual funds.



1. Personal Details:

(a). Name:-

(b). Add: - Phone:-
(c). Age:-
(d). Qualification:-

Graduation/PG Under Graduate Others
(e). Occupation. Pl tick ()

Govt. Ser Pvt. Ser Business Agriculture Others


(g). What is your monthly family income approximately? Pl tick ().

Up to Rs. 10,001 to Rs. 15,001 to Rs. 20,001 to Rs. 30,001 and
Rs.10,000 15000 20,000 30,000 above
2. What kind of investments you have made so far? Pl tick (). All applicable.

a. Saving account b. Fixed deposits c. Insurance d. Mutual Fund
e. Post Office-NSC, etc f. Shares/Debentures g. Gold/ Silver h. Real Estate

3. While investing your money, which factor will you prefer?
.
(a) Liquidity (b) Low Risk (c) High Return (d) Trust

4. Are you aware about Mutual Funds and their operations? Pl tick (). Yes No
5. If yes, how did you know about Mutual Fund?

a. Advertisement b. Peer Group c. Banks d. Financial Advisors
6. Have you ever invested in Mutual Fund? Pl tick (). Yes No


96






7. If not invested in Mutual Fund then why?

(a) Not aware of MF (b) Higher risk (c) Not any specific reason



8. If yes, in which Mutual Fund you have invested? Pl. tick (). All applicable.

a. ICICIMF b. UTI c. HDFC d. Reliance e. Kotak f. Other. specify


9. If invested in ICICIMF, you do so because (Pl. tick (), all applicable).

a. ICICIMF is associated with State Bank of India.
b. They have a record of giving good returns year after year.
c. Agent Advice


10. If NOT invested in ICICIMF, you do so because (Pl. tick () all applicable).

a. You are not aware of ICICIMF.
b. ICICIMF gives less return compared to the others.
c. Agent Advice


11. When you plan to invest your money in asset management co. which AMC will you prefer?


Assets Management Co.
a. SBIMF
b. UTI
c. Reliance
d. HDFC
e. Kotak
f. ICICI



12. Which Channel will you prefer while investing in Mutual Fund?

(a) Financial Advisor (b) Bank (c) AMC



13. When you invest in Mutual Funds which mode of investment will you prefer? Pl. tick ().

a. One Time Investment b. Systematic Investment Plan (SIP)


97




14. When you want to invest which type of funds would you choose?

a. Having only debt b. Having debt & equity c. Only equity portfolio.
portfolio portfolio.
15. How would you like to receive the returns every year? Pl. tick ().

a. Dividend payout b. Dividend re-investment c. Growth in NAV
16. Instead of general Mutual Funds, would you like to invest in sectorial funds?
Please tick (). Yes No











98

ANALYSIS & INTERPRETATION OF THE
DATA



1. (a) Age distribution of the Investors of Ranchi





Age Group <= 30 31-35 36-40 41-45 46-50 >50

No. of 12 18 30 24 20 16
Investors










Interpretation:

According to this chart out of 120 Mutual Fund investors of
Ranchi the most are in the age group of 36-40 yrs. i.e. 25%, the
second most investors are in the age group of 41-45yrs i.e. 20%
and the least investors are in the age group of below 30 yrs.


0
5
10
15
20
25
30
Age
Group
<= 30 31-35 36-40 41-45 46-50 >50
Series4
Series3
Series2
Series1


99

(b). Educational Qualification of investors of
Ranchi


Educational Qualification Number of Investors
Graduate/ Post Graduate 88
Under Graduate 25
Others 7
Total 120





Interpretation:

Out of 120 Mutual Fund investors 71% of the investors in
Ranchi are Graduate/Post Graduate, 23% are Under Graduate
and 6% are others (under HSC).

Number of Investors
Graduate/ Post Graduate
Under Graduate
Others


100


c). Occupation of the investors of Ranchi

Occupation No. of Investors
Govt. Service 30
Pvt. Service 45
Business 35
Agriculture 4
Others 6














Interpretation:


In Occupation group out of 120 investors, 38% are Pvt. Employees, 25% are
Businessman, 29% are Govt. Employees, 3% are in Agriculture and 5% are in
others.

No. of Investors
Govt. Service
Pvt. Service
Business
Agriculture
Others


101




(d). Monthly Family Income of the Investors of Ranchi.

Income Group No. of Investors
<=10,000 5
10,001-15,000 12
15,001-20,000 28
20,001-30,000 43
>30,000 32




Interpretation:

In the Income Group of the investors of Ranchi, out of 120 investors, 36%
investors that is the maximum investors are in the monthly income group Rs
20,001 to Rs. 30,000, Second one i.e. 27% investors are in the monthly
income group of more than Rs. 30,000 and the minimum investors i.e. 4%
are in the monthly income group of below Rs. 10,000.
No. of Investors
<=10,000
10,001-15,000
15,001-20,000
20,001-30,000
>30,000


102




(2) Investors invested in different kind of investments.

Kind of Investments No. of Respondents
Saving A/C 195
Fixed deposits 148
Insurance 152
Mutual Fund 120
Post office (NSC) 75
Shares/Debentures 50
Gold/Silver 30
Real Estate 65



Interpretation:
From the above graph it can be inferred that out of 200 people, 97.5% people have invested in Saving A/c, 76% in Insurance, 74% in Fixed
Deposits, 60% in Mutual Fund, 37.5% in Post Office, 25% in Shares or Debentures, 15% in Gold/Silver and 32.5% in Real Estate.




0
50
100
150
200
250
No. of Respondents
No. of Respondents


103



3. Preference of factors while investing


Factors (a) Liquidity (b) Low Risk (c) High Return (d) Trust

No. of 40 60 64 36
Respondents








Interpretation:

Out of 200 People, 32% People prefer to invest where there is High Return, 30% prefer to
invest where there is Low Risk, 20% prefer easy Liquidity and 18% prefer Trust









No. of Respondents
(a) Liquidity
(b) Low Risk
(c) High Return
(d) Trust


104


5. Awareness about Mutual Fund and its Operations

Response Yes No
No. of Respondents 135 65





Interpretation:



From the above chart it is inferred that 67% People are aware of Mutual Fund
and its operations and 33% are not aware of Mutual Fund and its operations.














No. of Respondents
Yes
No


105



6. Source of information for customers about Mutual Fund

Source of information No. of Respondents
Advertisement 18
Peer Group 25
Bank 30
Financial Advisors 62





Interpretation:



From the above chart it can be inferred that the Financial Advisor is the most
important source of information about Mutual Fund. Out of 135 Respondents,
46% know about Mutual fund Through Financial Advisor, 22% through Bank,
19% through Peer Group and 13% through Advertisement.
0
10
20
30
40
50
60
70
No. of Respondents
No. of Respondents


106







7. Investors invested in Mutual Fund

Response No. of Respondents
YES 120
NO 80
Total 200





Interpretation:



Out of 200 People, 60% have invested in Mutual Fund and 40% do not have invested

in Mutual Fund.
No. of Respondents
YES
NO
Total


107






8. Reason for not invested in Mutual Fund

Reason No. of Respondents
Not Aware 65
Higher Risk 5
Not any Specific Reason 10




Interpretation:



Out of 80 people, who have not invested in Mutual Fund, 81% are not aware of Mutual
Fund, 13% said there is likely to be higher risk and 6% do not have any specific reason.






No. of Respondents
Not Aware
Higher Risk
Not any Specific Reason


108




9. Investors invested in different Assets Management Co. (AMC)

Name of AMC No. of Investors
SBIMF 55
UTI 75
HDFC 30
Reliance 75
ICICI Prudential 56
Kotak 45
Others 70






Interpretation:



In Ranchi most of the Investors preferred UTI and Reliance Mutual Fund. Out of
120 Investors 62.5% have invested in each of them, only 46% have invested in
SBIMF, 47% in ICICI Prudential, 37.5% in Kotak and 25% in HDFC.
0
10
20
30
40
50
60
70
80
No. of Investors
No. of Investors


109




10. Reason for invested in ICICIMF

Reason No. of Respondents
Associated with ICICI 35
Better Return 5
Agents Advice 15




Interpretation:



Out of 55 investors of ICICIMF 64% have invested because of its association with
Brand ICICI, 27% invested on Agents Advice, 9% invested because of better
return.
No. of Respondents
Associated with ICICI
Better Return
Agents Advice


110



10. Reason for not invested in ICICIMF


Reason No. of Respondents
Not Aware 25
Less Return 18
Agents Advice 22






Interpretation:



Out of 65 people who have not invested in ICICIMF, 38% were not aware with
ICICIMF, 28% do not have invested due to less return and 34% due to Agents Advice.




0
5
10
15
20
25
30
Not Aware Less Return Agents Advice
No. of Respondents
No. of Respondents


111


11. Preference of Investors for future investment in
Mutual Fund

Name of AMC No. of Investors
SBIMF 76
UTI 45
HDFC 35
Reliance 82
ICICI Prudential 80
Kotak 60
Others 75


INTERPRETATION:
Out of 120 investors, 68% prefer to invest in Reliance, 67% in ICICI Prudential,
63% in SBIMF, 62.5% in Others, 50% in Kotak, 37.5% in UTI and 29% in HDFC
Mutual Fund.


No. of Investors
SBIMF
UTI
HDFC
Reliance
ICICI Prudential
Kotak
Others


112


12. Channel Preferred by the Investors for Mutual Fund
Investment

Channel Financial Advisor Bank AMC
No. of
Respondents 72 18 30








Interpretation:



Out of 120 Investors 60% preferred to invest through Financial Advisors, 25% through

AMC and 15% through Bank.













113


13. Mode of Investment Preferred by the Investors

Mode of Investment One time Investment
Systematic Investment
Plan (SIP)
No. of Respondents 78 42







Interpretation:



Out of 120 Investors 65% preferred One time Investment and 35 % Preferred through

Systematic Investment Plan.














No. of Respondents
One time Investment
Systematic Investment
Plan (SIP)


114

14. Preferred Portfolios by the Investors

Portfolio No. of Investors
Equity 56
Debt 20
Balanced 44






Interpretation:



From the above graph 46% preferred Equity Portfolio, 37% preferred Balance and
17% preferred Debt portfolio









No. of Investors
Equity
Debt
Balanced


115


15. Option for getting Return Preferred by the Investors

Option Dividend Payout
Dividend
Reinvestment Growth
No. of
Respondents 25 10 85







Interpretation:



From the above graph 71% preferred Growth Option, 21% preferred Dividend Payout

and 8% preferred Dividend Reinvestment Option.












No. of Respondents
1
2
3


116



16. Preference of Investors whether to invest in Sectoral Funds




Response No. of Respondents
Yes 25
No 95






Interpretation:

From the above graph 75% people respond Yes towards mutual funds while
25% people responded No.



No. of Respondents
Yes
No


117




Chapter - V




118




Findings



In Ranchi in the Age Group of 36-40 years were more in numbers. The second most
Investors were in the age group of 41-45 years and the least were in the age group
of below 30 years.

In Ranchi most of the Investors were Graduate or Post Graduate and below HSC
there were very few in numbers.

In Occupation group most of the Investors were Govt. employees, the second most
Investors were Private employees and the least were associated with Agriculture.

In family Income group, between Rs. 20,001- 30,000 were more in numbers, the
second most were in the Income group of more than Rs.30,000 and the least were
in the group of below Rs. 10,000.

About all the Respondents had a Saving A/c in Bank, 76% Invested in Fixed
Deposits, Only 60% Respondents invested in Mutual fund.

Mostly Respondents preferred High Return while investment, the second most
preferred Low Risk then liquidity and the least preferred Trust.

Only 67% Respondents were aware about Mutual fund and its operations and 33%
were not.

Among 200 Respondents only 60% had invested in Mutual Fund and 40% did not
have invested in Mutual fund.



119

Out of 80 Respondents 81% were not aware of Mutual Fund, 13% told there is not
any specific reason for not invested in Mutual Fund and 6% told there is likely to
be higher risk in Mutual Fund.

Most of the Investors had invested in Reliance or UTI Mutual Fund, ICICI
Prudential has also good Brand Position among investors, SBIMF places after
ICICI Prudential according to the Respondents.

Out of 55 investors of SBIMF 64% have invested due to its association with the
Brand ICICI, 27% Invested because of Advisors Advice and 9% due to better
return.

Most of the investors who did not invested in SBIMF due to not Aware of SBIMF,
the second most due to Agents advice and rest due to Less Return.

For Future investment the maximum Respondents preferred Reliance Mutual
Fund, the second most preferred ICICI Prudential, SBIMF has been preferred after
them.

60% Investors preferred to Invest through Financial Advisors, 25% through AMC
(means Direct Investment) and 15% through Bank.

65% preferred One Time Investment and 35% preferred SIP out of

both type of Mode of Investment.

The most preferred Portfolio was Equity, the second most was Balance (mixture of
both equity and debt), and the least preferred Portfolio was Debt portfolio.
Maximum Number of Investors Preferred Growth Option for returns, the second
most preferred Dividend Payout and then Dividend Reinvestment.


120


Most of the Investors did not want to invest in Sectoral Fund, only 21% wanted to
invest in Sectoral Fund.




Conclusion

Running a successful Mutual Fund requires complete understanding of the
peculiarities of the Indian Stock Market and also the psyche of the small investors.
This study has made an attempt to understand the financial behavior of Mutual
Fund investors in connection with the preferences of Brand (AMC), Products,
Channels etc. I observed that many of people have fear of Mutual Fund. They think
their money will not be secure in Mutual Fund. They need the knowledge of Mutual
Fund and its related terms. Many of people do not have invested in mutual fund due
to lack of awareness although they have money to invest. As the awareness and
income is growing the number of mutual fund investors are also growing.

Brand plays important role for the investment. People invest in those Companies
where they have faith or they are well known with them. There are many AMCs in
Ranchi but only some are performing well due to Brand awareness. Some AMCs
are not performing well although some of the schemes of them are giving good
return because of not awareness about Brand. Reliance, UTI, SBIMF, ICICI
Prudential etc. they are well known Brand, they are performing well and their
Assets Under Management is larger than others whose Brand name are not well
known like Principle, Sunderam, etc.


121


Distribution channels are also important for the investment in mutual fund.
Financial Advisors are the most preferred channel for the investment in mutual
fund. They can change investors mind from one investment option
to others. Many of investors directly invest their money through AMC because they
do not have to pay entry load. Only those people invest directly who know well
about mutual fund and its operations and those have time.


122





Chapter - VI




123



Suggestions and Recommendations

The most vital problem spotted is of ignorance. Investors should be made aware of the
benefits. Nobody will invest until and unless he is fully convinced. Investors should be
made to realize that ignorance is no longer bliss and what they are losing by not

investing.

Mutual funds offer a lot of benefit which no other single option could offer. But most of the
people are not even aware of what actually a mutual fund is? They only see it as just another
investment option. So the advisors should try to change their mindsets. The advisors should
target for more and more young investors. Young investors as well as persons at the height
of their career would like to go for advisors due to lack of expertise and time.

Mutual Fund Company needs to give the training of the Individual Financial Advisors about
the Fund/Scheme and its objective, because they are the main source to influence the
investors.


Before making any investment Financial Advisors should first enquire about the risk
tolerance of the investors/customers, their need and time (how long they want to invest). By
considering these three things they can take the customers into consideration.


124



Younger people aged under 35 will be a key new customer group into the future, so
making greater efforts with younger customers who show some interest in investing should
pay off.

Customers with graduate level education are easier to sell to and there is a large untapped
market there. To succeed however, advisors must provide sound advice and high quality.

Systematic Investment Plan (SIP) is one the innovative products launched by Assets
Management companies very recently in the industry. SIP is easy for monthly salaried
person as it provides the facility of do the investment in EMI. Though most of the
prospects and potential investors are not aware about the SIP. There is a large scope for the
companies to tap the salaried persons.



























125

BIBLIOGRAPHY



NEWS PAPERS

OUTLOOK MONEY

TELEVISION CHANNEL (CNBC AAWAJ)

MUTUAL FUND HAND BOOK

FACT SHEET AND STATEMENT

WWW.SBIMF.COM

WWW.MONEYCONTROL.COM

WWW.AMFIINDIA.COM

WWW.ONLINERESEARCH ONLINE.COM

WWW. MUTUALFUNDSINDIA.COM