A project report on

MUTUAL FUNDSAt

Submitted by

Ms. SWETHA. Y.P

HT No: 245109672004

Project submitted in partial fulfillment for

The

Award Of The Degree Of

MASTER OF BUSINESS ADMINISTRATION TO

OSMANIA UNIVERSITY, Hyderabad -500007

2009-2011

DECLARATION

I hereby declare that this Project Report titled MUTUAL

FUNDS submitted by me to the Department of Business

Management, O.U., Hyderabad, is a bonafide work undertaken by

me and it is not submitted to any other University or Institution

for the award of any degree diploma / certificate or published any

time before.

Name and Address of the Student Signature of the StudentSWETHA.Y.P SWETHA.Y.P

CERTIFICATION

This is to certify that the Project Report title

EMUTUAL FUNDS submitted in partial fulfilment

for the award of MBA Programme of Department of

Business Management, O.U. Hyderabad, was

carried out by SWETHA Y.P under my guidance.

This has not been submitted to any other University

or Institution for the award of any

degree/diploma/certificate.

Name and address of the Guide Signature of the Guide

SHRAVANTHI.N SHRAVANTHI.N

CONTENTS

Chapter No. Name of the concept Page No.

I

Introduction

Need of the study

Objectives of the study

Scope of the study

Methodology of the study

Limitations of the study

II Review of Literature

III Industry Profile

IV Company Profile

V Data analysis and interpretation

VI Findings, Suggestions and Conclusion

VII Bibliography

CHAPTER I - INTRODUCTION

INTRODUCTION

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

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

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

through these investments and the capital appreciations realized are shared by its unit

holders in proportion to the number of units owned by them. Thus a Mutual Fund is the

most suitable investment for the common man as it offers an opportunity to invest in a

diversified, -professionally managed basket of securities at a relatively low cost.

The project idea is to project mutual funds as the better avenue for investment. Mutual

fund is productive package for a lay-investor with limited finances. Mutual fund is a

very old practice in U.S., and it has made a recent entry into India. Common man in

India still finds Bank as a safe door for investment. This shows that mutual funds

have not gained a strong foot-hold in his life.

The project creates an awareness that the mutual fund is worthy investment practice.

The various schemes of mutual funds provide the investor with a wide range of

investment options according to his risk-bearing capacities and interest. Besides, they

also give a handy return to the investor. The project analyses various schemes of mutual

fund by taking different mutual fund schemes from different AMCS. The future

challenges for mutual funds in India are also considered.

1

NEED OF THE STUDY

The study basically made to educate the investors about Mutual Funds. Analyze the

various schemes to highlight the risk and return of diversity of investment that mutual

funds offer. Thus, through the study one would understand how a common man could

fruitfully convert a pittance into great penny by wisely investing into the right scheme

according to his risk- taking abilities.

A small investor is the one who is able to correctly plan & decide in which profitable &

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 & limited exposure to equity

investment, one can maximize his returns on investments & multiply ones savings.

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 &

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 management

This report gives the details about various investment objectives desired by an investor,

details about the concept & working of mutual fund.

2

OBJECTIVES OF THE STUDY

To understand the concept of Mutual Funds.

To study the different Sectoral Mutual Funds in India.

To analyse the performance of different sectoral mutual funds.

To identify the best Sectoral Mutual Funds to invest in India.

To suggest the best mutual funds for investors.

SCOPE OF THE STUDY

Now a days, there is a lot of scope for the mutual funds. The Financial managers have to decide whether to invest in the Shares, bonds, debentures, real estate, gold and

other Commodities to get the maximum benefits for funds. The financial managers

should also reduce the risk from the Investments. The scope of the study is confirmed

to the sectoral funds available in Indian mutual funds.

RESEARCH METHODOLOGY

In the present project work the data as been collected from available source that is secondary data like websites, Newspapers and magazines. The sample size taken is of 7 different sectoral funds

3

Sampling Design

Sampling method use is non probabilistic judgmental sampling. The Mutual Fund Scheme for the study have been selected based on following 3 criteria

1 Type of the scheme Open-ended Sectoral Funds(growth)

2 Minimum Assets Under Mgmt. Rs. 500 Crore3 Inception Date Prior to 1st April, 2006

Growth option for the entire selected scheme has been considered.

Research Design

1.Benchmark Index: For this study the 50 shares market index S&P CNX NIFTY has been used as the market index.

2. Period of study: Period of study has been taken as 5 years starting from 1st April, 2006 to 10th July 2010.

3.Risk Free Rate Of Return: Risk free rate of return refers to that minimum return on an investment that has no risk of loosing the investment over which it is earned. For this purpose of this study risk free rate of return is represented by 91 days Treasury bill.

LIMITATIONS

1. The analysis is based on historical data and thus indicates the past performance

which may not always be indicative of the future performance.

2. Different schemes consider different market indices as their benchmarks, but for

the purpose of uniformity in the study all schemes have to be compared against

same benchmark index.

4

3. Sharpe ratio (in its simplest forms) that the relationship between risk and return

is linear and remain linear throughout its entire range. Various research works

conducted in this regard show that the relationship is not as simple as Capital

Market theory would suggest. This is an inherent weakness of capital Asset

Pricing Model.

4. The time period considered by the study is only three years; a larger period

could have ensured coverage of a full market cycle, thus giving a more real

picture of the performance of the schemes.

5

CHAPTER II - REVIEW OF LITERATURE

6

Mutual Funds: An overview A Mutual Fund is a trust that pools the savings of a number of investors who share a

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

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

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

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

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

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

offers an opportunity to invest in a diversified, professionally managed portfolio at a

relatively low cost. Anybody with an investible surplus of as little as a few thousand

rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment

objective and strategy.

A mutual fund is the ideal investment vehicle for todays complex and modern financial

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

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

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

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

track of events, understand their implications and act speedily. An individual also finds

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

bank transactions etc.

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

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

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

to each investor.

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

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

7

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

form is a 20th century phenomenon.

In fact, mutual funds gained popularity only after the Second World War. Globally,

there are thousands of firms offering tens of thousands of mutual funds with different

investment objectives. Today, mutual funds collectively manage almost as much as or

more money as compared to banks.

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

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

involved in the process and the broad rules for entry into and exit from the fund and

other areas of operation. In India, as in most countries, these sponsors need approval

from a regulator, SEBI (Securities exchange Board of India) in our case. SEBI looks at

track records of the sponsor and its financial strength in granting approval to the fund

for commencing operations.

A sponsor then hires an asset management company to invest the funds according to the

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

fund and perhaps a third one to handle registry work for the unit holders (subscribers)

of the fund.

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

which it holds a majority stake. In many cases a sponsor can hold a 100% stake in the

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

Birla Sun Life Asset Management Company Ltd., which has floated different mutual

funds schemes and also acts as an asset manager for the funds collected under the

schemes

8

History of Mutual Fund in India:The mutual fund industry in India started in 1963 with the formation of Unit Trust of

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

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

First Phase 1964-87Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set

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

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

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

and administrative control in place of RBI. The first scheme launched by UTI was Unit

Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management

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

established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National

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

90), Bank of Baroda Mutual Fund (Oct 92). LIC established 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 Indian mutual

fund industry, giving the Indian investors a wider choice of fund families. Also, 1993

was the year in which the first Mutual Fund Regulations came into being, under which

all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari

9

Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund

registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive

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

SEBI (Mutual Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual funds

setting up funds in India and also the industry has witnessed several mergers and

acquisitions. As at the end of January 2003, there were 33 mutual funds with total

assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets

under management was way ahead of other mutual funds.

Fourth Phase since February 2003

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

bifurcated into two separate 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 scheme, assured return and certain

other schemes. The Specified Undertaking of Unit Trust of India, functioning under an

administrator and under the rules framed by Government of India and does not come

under the purview of the Mutual Fund Regulations.

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

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

bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming

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

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

consolidation and growth. As at the end of March, 2006, there were 29 funds.

10

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

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

these big names would hardly like to get left behind.

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

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

Value (NAV).

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

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

initiate the process immediately, so that the mutual funds can implement the changes

that are required to trade in Derivatives.

11

Recent trends in mutual fund industry

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

expansion of the foreign owned mutual fund companies and the decline of

the companies floated by nationalized banks and smaller private sector players.

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

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

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

banking activity.

Few hired specialized staff and generally chose to transfer staff from the parent

organizations. The performance of most of the schemes floated by these funds was not

good. Some schemes had offered guaranteed returns and their parent organizations had

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

the guaranteed and actual returns.

The service levels were also very bad. Most of these AMCs have not been able to retain

staff, float new schemes etc. and it is doubtful whether, barring a few exceptions, they

have serious plans of continuing the activity in a major way. The experience of some of

the AMCs floated by private sector Indian companies was also very similar. They

quickly realized that the AMC business is a business, which makes money in the long

term and requires deep-pocketed support in the intermediate years. Some have sold out

to foreign owned companies, some have merged with others and there is general

restructuring going on.

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

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

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

disclosure, usage of technology, broker education and support etc. In fact, they have

12

forced the industry to upgrade itself and service levels of organizations like UTI have

improved dramatically in the last few years in response to the competition provided by

these.

Types of Mutual FundsMutual fund schemes may be classified on the basis of its structure and its investment

objective.

By Structure:

Open-ended FundsAn open-end fund is one that is available for subscription all through the year. These do

not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset

Value ("NAV") related prices. The key feature of open-end schemes is liquidity.

Closed-ended FundsA 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 FundsInterval funds combine the features of open-ended and close-ended schemes. They are

open for sale or redemption during pre-determined intervals at NAV related prices.

13

By Investment Objective:-

Growth FundsThe aim of growth funds is to provide capital appreciation over the medium to long-

term. Such schemes normally invest a majority of their corpus in equities. It has been

proven that returns from stocks, have outperformed most other kind of investments held

over the long term. Growth schemes are ideal for investors having a long-term outlook

seeking growth over a period of time.

Income FundsThe aim of income funds is to provide regular and steady income to investors. Such

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

and Government securities. Income Funds are ideal for capital stability and regular

income.

Balanced FundsThe aim of balanced funds is to provide both growth and regular income. Such schemes

periodically distribute a part of their earning and invest both in equities and fixed

income securities in the proportion indicated in their offer documents. In a rising stock

market, the NAV of these schemes may not normally keep pace, or fall equally when

the market falls. These are ideal for investors looking for a combination of income and

moderate growth.

Money Market FundsThe aim of money market funds is to provide easy liquidity, preservation of capital and

moderate income. These schemes generally invest in safer short-term instruments such

as treasury bills, certificates of deposit, commercial paper and inter-bank call money.

Returns on these schemes may fluctuate depending upon the interest rates prevailing in

the market. These are ideal for Corporate and individual investors as a means to park

their surplus funds for short periods.

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Load FundsA Load Fund is one that charges a commission for entry or exit. That is, each time you

buy or sell units in the fund, a commission will be payable. Typically entry and exit

loads range from 1% to 2%. It could be worth paying the load, if the fund has a good

performance history.

No-Load FundsA No-Load Fund is one that does not charge a commission for entry or exit. That is, no

commission is payable on purchase or sale of units in the fund. The advantage of a no

load fund is that the entire corpus is put to work.

Other Schemes:-

Tax Saving SchemesThese schemes offer tax rebates to the investors under specific provisions of the Indian

Income Tax laws as the Government offers tax incentives for investment in specified

avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension

Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also

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

investing in Mutual Funds, provided the capital asset has been sold prior to April 1,

2000 and the amount is invested before September 30, 2000.

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Special Schemes

Industry Specific SchemesIndustry Specific Schemes invest only in the industries specified in the offer document.

The investment of these funds is limited to specific industries like InfoTech, FMCG,

and Pharmaceuticals etc.

Index SchemesIndex Funds attempt to replicate the performance of a particular index such as the BSE

Sensex or the NSE 50

Sectoral SchemesSectoral Funds are those, which invest exclusively in a specified industry or a group of

industries or various segments such as 'A' Group shares or initial public offerings.

Commodities FundsCommodities funds specialize in investing in different commodities directly or through

commodities future contracts. Specialized funds may invest in a single commodity or a

commodity group such as edible oil or rains, while diversified commodity funds will

spread their assets over many commodities

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RISK HIERARCHY OF MUTUAL FUNDS

17

Money Market Funds

Gilt Funds

Balanced Funds

Equity Income Funds

Growth and Income funds

Focused Debt Funds

Value Funds

Index Funds

Diversified Equity Funds

Aggressive Growth Funds

High Yield Debt Funds

Flexible Asset allocation Funds

Growth Funds

Debt Funds Hybrid

Funds

Equity Funds

Risk Level

Money Market Funds

Gilt Funds

Diversified Debt Funds

Type of Fund

TABLE 2

Snapshot of Mutual Fund Schemes

Mutual Fund Type

Objective Risk Investment PortfolioWho should

investInvestment

horizon

Money Market

Liquidity + Moderate Income +

Reservation of Capital

Negligible

Treasury Bills, Certificate of

Deposits, Commercial Papers, Call

Money

Those who park their funds in current

accounts or short-term

bank deposits

2 days - 3 weeks

Short-term

Funds (Floating - short-term)

Liquidity + Moderate Income

Little Interest Rate

Call Money, Commercial

Papers, Treasury Bills,

CDs, Short-term

Government securities.

Those with surplus

short-term funds

3 weeks - 3 months

Bond Funds

(Floating - Long-term)

Regular Income

Credit Risk & Interest Rate Risk

Predominantly Debentures, Government securities, Corporate

Bonds

Salaried & conservative

investors

More than 9 - 12 months

Gilt Funds

Security & Income

Interest Rate Risk

Government securities

Salaried & conservative

investors12 months & more

Equity Funds

Long-term Capital

AppreciationHigh Risk Stocks

Aggressive investors with long term out

look.

3 years plus

Index Funds

To generate returns that are commensurate with returns of

respective indices

NAV varies with index

performance

Portfolio indices like

BSE, NIFTY etc

Aggressive investors. 3 years plus

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Balanced Funds

Growth & Regular Income

Capital Market Risk and Interest Rate Risk

Balanced ratio of equity and debt funds to ensure higher

returns at lower risk

Moderate & Aggressive 2 years plus

Benefits of Mutual Fund investment

1. Professional Management: Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and

prospects of companies and selects suitable investments to achieve the objectives of

the scheme.

2. Diversification: Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all

stocks decline at the same time and in the same proportion. You achieve this

diversification through a Mutual Fund with far less money than you can do on your

own.

3. Convenient Administration: Investing in a Mutual Fund reduces paperwork and helps you avoid many

problems such as bad deliveries, delayed payments and follow up with brokers and

companies. Mutual Funds save your time and make investing easy and convenient.

4. Return Potential:

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Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.

5. Low Costs: Mutual Funds are a relatively less expensive way to invest compared to directly

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

and other fees translate into lower costs for investors.

6. Liquidity: In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be

sold on a stock exchange at the prevailing market price or the investor can avail of

the facility of direct repurchase at NAV related prices by the Mutual Fund.

7. Transparency: Investors get regular information on the value of your investment in addition to

disclosure on the specific investments made by the scheme, the proportion invested

in each class of assets and the fund manager's investment strategy and outlook.

8. Flexibility: Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, one can systematically invest or withdraw funds

according to your needs and convenience.

9. Affordability: Investors individually may lack sufficient funds to invest in high-grade stocks. A

mutual fund because of its large corpus allows even a small investor to take the

benefit of its investment strategy

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10.Well Regulated: All Mutual Funds are registered with SEBI and they function within the

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

operations of Mutual Funds are regularly monitored by SEBI.

Limitation of Mutual Fund Investment

1. No Control Over Cost:

An Investor in mutual fund has no control over the overall costs of investing. He

pays an investment management fee (which is a percentage of his investments) as

long as he remains invested in fund, whether the fund value is rising or declining.

He also has to pay fund distribution costs, which he would not incur in direct

investing.

However this only means that there is a cost to obtain the benefits of mutual fund

services. This cost is often less than the cost of direct investing.

2. No Tailor-Made Portfolios:

Investing through mutual funds means delegation of the decision of portfolio

composition to the fund managers. The very high net worth individuals or large

corporate investors may find this to be a constraint in achieving their objectives.

However, most mutual funds help investors overcome this constraint by offering

large no. of schemes within the same fund.

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3. Managing A Portfolio Of Funds:

Availability of large no. of funds can actually mean too much choice for the

investors. He may again need advice on how to select a fund to achieve his

objectives.

AMFI has taken initiative in this regard by starting a training and certification

program for prospective Mutual Fund Advisors. SEBI has made this certification

compulsory for every mutual fund advisor interested in selling mutual fund.

4. Taxes:

During a typical year, most actively managed mutual funds sell anywhere from 20

to 70 percent of the securities in their portfolios. If your fund makes a profit on its

sales, you will pay taxes on the income you receive, even if you reinvest the money

you made.

5. Cost of Churn:

The portfolio of fund does not remain constant. The extent to which the portfolio

changes is a function of the style of the individual fund manager i.e. whether he is a

buy and hold type of manager or one who aggressively churns the fund. It is also

dependent on the volatility of the fund size i.e. whether the fund constantly receives

fresh subscriptions and redemptions. Such portfolio changes have associated costs

of brokerage, custody fees etc. which lowers the portfolio return commensurately.

Conceptual background of the study:-

With a plethora of schemes to choose from, the retail investor faces problems in selecting funds. Factors such as investment strategy and management style are qualitative, but the funds record is an important indicator too. Though past performance alone can not be indicative of future performance, it is, frankly, the only quantitative way to judge how good a fund is at present.

Therefore, there is a need to correctly assess the past performance of different mutual funds. Worldwide, good mutual fund companies over are known by their AMCs and

22

this fame is directly linked to their superior stock selection skills. For mutual funds to grow, AMCs must be held accountable for their selection of stocks. In other words, there must be some performance indicator that will reveal the quality of stock selection of various AMCs.

Return alone should not be considered as the basis of measurement of the performance of a mutual fund scheme, it should also include the risk taken by the fund manager because different funds will have different levels of risk attached to them. For evaluating the performance of selected Sectoral Mutual Fund schemes risk-return relation models have been used like:

The Treynor Measure

The Sharpe Measure

Jenson Model

Fama Model

The Treynor Measure

Developed by Jack Treynor, this performance measure evaluates funds on the basis of

Treynor's Index. This Index is a ratio of return generated by the fund over and above

risk free rate of return (generally taken to be the return on securities backed by the

government, as there is no credit risk associated), during a given period and systematic

risk associated with it (beta). Symbolically, it can be represented as:

Treynor's Index (Ti) = (Ri - Rf)/Bi.

Where, Ri represents return on fund, Rf is risk free rate of return and Bi is beta of

the fund.

All risk-averse investors would like to maximize this value. While a high and positive

Treynor's Index shows a superior risk-adjusted performance of a fund, a low and

negative Treynor's Index is an indication of unfavorable performance.

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The Sharpe Measure In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is

a ratio of returns generated by the fund over and above risk free rate of return and the

total risk associated with it. According to Sharpe, it is the total risk of the fund that the

investors are concerned about. So, the model evaluates funds on the basis of reward per

unit of total risk. Symbolically, it can be written as:

Sharpe Index (Si) = (Ri - Rf)/Si

Where, Si is standard deviation of the fund.

While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a

fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.

Comparison of Sharpe and Treynor Sharpe and Treynor measures are similar in a way, since they both divide the risk

premium by a numerical risk measure. The total risk is appropriate when we are

evaluating the risk return relationship for well-diversified portfolios. On the other hand,

the systematic risk is the relevant measure of risk when we are evaluating less than

fully diversified portfolios or individual stocks. For a well-diversified portfolio the total

risk is equal to systematic risk. Rankings based on total risk (Sharpe measure) and

systematic risk (Treynor measure) should be identical for a well-diversified portfolio,

as the total risk is reduced to systematic risk. Therefore, a poorly diversified fund that

ranks higher on Treynor measure, compared with another fund that is highly

diversified, will rank lower on Sharpe Measure.

Jenson ModelJenson's model proposes another risk adjusted performance measure. This measure was

developed by Michael Jenson and is sometimes referred to as the Differential Return

24

Method. This measure involves evaluation of the returns that the fund has generated vs.

the returns actually expected out of the fund given the level of its systematic risk. The

surplus between the two returns is called Alpha, which measures the performance of a

fund compared with the actual returns over the period. Required return of a fund at a

given level of risk (Ri) can be calculated as:-

Ri = Rf + Bi (Rm - Rf)

Where, Rm is average market return during the given period. After calculating it,

alpha can be obtained by subtracting required return from the actual return of

the fund. Higher alpha represents superior performance of the fund and vice versa.

Limitation of this model is that it considers only systematic risk not the entire risk

associated with the fund and an ordinary investor can not mitigate unsystematic risk, as

his knowledge of market is primitive.

Fama ModelThe Eugene Fama model is an extension of Jenson model. This model compares the

performance, measured in terms of returns, of a fund with the required return

commensurate with the total risk associated with it. The difference between these two is

taken as a measure of the performance of the fund and is called net selectivity.

The net selectivity represents the stock selection skill of the fund manager, as it is the

excess return over and above the return required to compensate for the total risk taken

by the fund manager. Higher value of which indicates that fund manager has earned

returns well above the return commensurate with the level of risk taken by him.

Required return can be calculated as:-

Ri = Rf + Si/Sm*(Rm - Rf)

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Where, Sm is standard deviation of market returns. The net selectivity is then

calculated by subtracting this required return from the actual return of the fund.

Among the above performance measures, two models namely, Treynor measure and

Jenson model use systematic risk based on the premise that the unsystematic risk

is diversifiable.

These models are suitable for large investors like institutional investors with high

risk taking capacities as they do not face paucity of funds and can invest in a number of

options to dilute some risks.

For them, a portfolio can be spread across a number of stocks and sectors. However,

Sharpe measure and Fama model that consider the entire risk associated with

fund are suitable for small investors, as the ordinary investor lacks the necessary skill

and resources to diversified.

Moreover, the selection of the fund on the basis of superior stock selection ability of the

fund manager will also help in safeguarding the money invested to a great extent. The

investment in funds that have generated big returns at higher levels of risks leaves the

money all the more prone to risks of all kinds that may exceed the individual investors'

risk appetite.

BETABeta measures a stock's volatility, the degree to which its price fluctuates in relation to

the overall market. In other words, it gives a sense of the stock's market risk compared

to the greater market. Beta is used also to compare a stock's market risk to that of other

stocks. Investment analysts use the Greek letter '' to represent beta.

This measure is calculated using regression analysis. A beta of 1 indicates that the

security's price tends to move with the market. A beta greater than 1 indicates that the

26

security's price tends to be more volatile than the market, and a beta less than 1 means it

tends to be less volatile than the market.

= imr i m ________________________ 2m imr is correlation coefficient between market returns and fund returns.

i is standard deviation of fund returns.(Si)m is standard deviation of market returns.(Sm)

2m is market variance.

Coefficient of Determination )( 2R --- a measure of reliability of Beta

Beta depends on the index used to calculate it. It can happen that the index bears no correlation with the movements in the fund. Due to this reason, it is essential to take a look at statistical value called Coefficient of Determination along with Beta. It shows how reliable the beta number is. It varies between zero and one.

Value of 1 indicates perfect correlation with the indx. Thus, an If )( 2R =0.64 it implies that 64% of the variation in the portfolio returns is due to variations in the market returns. Mathematically it is the square of correlation coefficient(R).

) }(){ ( m e a nm e a n yyxxn R= ----------------------------------------------- 22 )()( meanmean yyxx

Where X and Y are returns on the portfolio and returns on the market respectively.Beta and )( 2R should thus be used together when examining a funds risk profile.

NET ASSET VALUE (NAV)

NAV per unit of a scheme on a day is the net market value of the securities held by the total no. of the units of the scheme on the particular day. It is actually the value of of net asset per unit. Since the market value of securities changes everyday, NAV of a fund also varies on a day to day basis. NAVs for open ended schemes are required to be disclosed a daily basis(business day).

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Net Assets of the scheme NAV = ___________________

No. of units outstanding

Where, Numerator= Market value of investment+receivables+other Accrued Income +Other Assets- Accrued Expenses-Other Payables-Other Liabilities.

Standard Deviation- a measure of Total Risk

Standard Deviation is the most common statistical measure of judging a funds volatility and risk. It measures a funds total risk i.e. sum of systematic risk and unsystematic risk. Mathematically it gives a quality rating of an avg. The SD of an avg. is the amt. By which the no. that go in to an avg. deviate from that avg. It tells us how closely an avg. represents the underlying avg. But one thing to be kept in mind is that a high Standard Deviation may be a measure of volatility, but it does not necessarily mean that such a fund is worse than one with a low Standard Deviation. If the first fund is a much higher performer than the second one, the deviation will not matter much.

SD= 2)(1 meani xxn2)( meani xx gives the square of the sum of differences of each value in the sample

from the mean of the sample of n element.

Note: - For this project following tools have been used:-

Standard Deviation Beta Sharp Ratio R-Square

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CHAPTER III - INDUSTRY PROFILE

29

FINANCIAL MARKETS

Finance is the pre-requisite for modern business and financial institutions play a vital

role in the economic system. It is through financial markets and institutions that the

financial system of an economy works. Financial markets refer to the institutional

arrangements for dealing in financial assets and credit instruments of different types

such as currency, cheques, bank deposits, bills, bonds, equities, etc.

Financial market is a broad term describing any marketplace where buyers and sellers

participate in the trade of assets such as equities, bonds, currencies and derivatives.

They are typically defined by having transparent pricing, basic regulations on trading,

costs and fees and market forces determining the prices of securities that trade.

Generally, there is no specific place or location to indicate a financial market. Wherever

a financial transaction takes place, it is deemed to have taken place in the financial

market. Hence financial markets are pervasive in nature since financial transactions are

themselves very pervasive throughout the economic system. For instance, issue of

equity shares, granting of loan by term lending institutions, deposit of money into a

bank, purchase of debentures, sale of shares and so on.

In a nutshell, financial markets are the credit markets catering to the various needs of

the individuals, firms and institutions by facilitating buying and selling of financial

assets, claims and services.

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CLASSIFICATION OF FINANCIAL MARKETS

31

Financial markets

Organized markets Unorganized markets

Capital Markets Money Markets

Industrial Securities Market

Government Securities Market

Long-term loan market

Primary Market

Secondary market

Call Money Market

Commercial Bill Market

Treasury Bill Market

Money Lenders, Indigenuos Bankers

Capital Market

The capital market is a market for financial assets which have a long or indefinite

maturity. Generally, it deals with long term securities which have a period of above one

year. In the widest sense, it consists of a series of channels through which the savings

of the community are made available for industrial and commercial enterprises and

public authorities. As a whole, capital market facilitates raising of capital.

The major functions performed by a capital market are:

1. Mobilization of financial resources on a nation-wide scale.

2. Securing the foreign capital and know-how to fill up deficit in the required

resources for economic growth at a faster rate.

3. Effective allocation of the mobilized financial resources, by directing the same

to projects yielding highest yield or to the projects needed to promote balanced

economic development.

Capital market consists of primary market and secondary market.

Primary market: Primary market is a market for new issues or new financial claims.

Hence it is also called as New Issue Market. It basically deals with those securities

which are issued to the public for the first time. The market, therefore, makes available

a new block of securities for public subscription. In other words, it deals with raising of

fresh capital by companies either for cash or for consideration other than cash. The best

example could be Initial Public Offering (IPO) where a firm offers shares to the public

for the first time.

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Secondary market: Secondary market is a market where existing securities are traded.

In other words, securities which have already passed through new issue market are

traded in this market. Generally, such securities are quoted in the stock exchange and it

provides a continuous and regular market for buying and selling of securities. This

market consists of all stock exchanges recognized by the government of India.

Money Market

Money markets are the markets for short-term, highly liquid debt securities. Money

market securities are generally very safe investments which return relatively low

interest rate that is most appropriate for temporary cash storage or short term time

needs. It consists of a number of sub-markets which collectively constitute the money

market namely call money market, commercial bills market, acceptance market, and

Treasury bill market.

Derivatives Market

The derivatives market is the financial market for derivatives, financial instruments like

futures contracts or options, which are derived from other forms of assets. A derivative

is a security whose price is dependent upon or derived from one or more underlying

assets. The derivative itself is merely a contract between two or more parties. Its value

is determined by fluctuations in the underlying asset. The most common underlying

assets include stocks, bonds, commodities, currencies, interest rates and market

indexes. The important financial derivatives are the following:

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Forwards: Forwards are the oldest of all the derivatives. A forward contract

refers to an agreement between two parties to exchange an agreed quantity of an

asset for cash at a certain date in future at a predetermined price specified in that

agreement. The promised asset may be currency, commodity, instrument etc.

Futures: Future contract is very similar to a forward contract in all respects

excepting the fact that it is completely a standardized one. It is nothing but a

standardized forward contract which is legally enforceable and always traded on

an organized exchange.

Options: A financial derivative that represents a contract sold by one party

(option writer) to another party (option holder). The contract offers the buyer

the right, but not the obligation, to buy (call) or sell (put) a security or other

financial asset at an agreed-upon price (the strike price) during a certain period

of time or on a specific date (exercise date). Call options give the option to buy

at certain price, so the buyer would want the stock to go up. Put options give the

option to sell at a certain price, so the buyer would want the stock to go down.

Swaps: It is yet another exciting trading instrument. Infact, it is the combination

of forwards by two counterparties. It is arranged to reap the benefits arising

from the fluctuations in the market either currency market or interest rate

market or any other market for that matter.

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Foreign Exchange Market

It is a market in which participants are able to buy, sell, exchange and speculate on

currencies. Foreign exchange markets are made up of banks, commercial companies,

central banks, investment management firms, hedge funds, and retail forex brokers and

investors. The forex market is considered to be the largest financial market in the

world. It is a worldwide decentralized over-the-counter financial market for the trading

of currencies. Because the currency markets are large and liquid, they are believed to be

the most efficient financial markets. It is important to realize that the foreign exchange

market is not a single exchange, but is constructed of a global network of computers

that connects participants from all parts of the world.

Commodities Market

It is a physical or virtual marketplace for buying, selling and trading raw or primary

products. For investors' purposes there are currently about 50 major commodity

markets worldwide that facilitate investment trade in nearly 100 primary

commodities. Commodities are split into two types: hard and soft commodities. Hard

commodities are typically natural resources that must be mined or extracted (gold,

rubber, oil, etc.), whereas soft commodities are agricultural products or livestock (corn,

wheat, coffee, sugar, soybeans, pork, etc.)

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INDIAN FINANCIAL MARKETS

India Financial market is one of the oldest in the world and is considered to be the

fastest growing and best among all the markets of the emerging economies.

The history of Indian capital markets dates back 200 years toward the end of the

18th century when India was under the rule of the East India Company. The

development of the capital market in India concentrated around Mumbai where

no less than 200 to 250 securities brokers were active during the second half of

the 19th century.

The financial market in India today is more developed than many other sectors because

it was organized long before with the securities exchanges of Mumbai,

Ahmadabad and Kolkata were established as early as the 19th century.

By the early 1960s the total number of securities exchanges in India rose to eight,

including Mumbai, Ahmadabad and Kolkata apart from Madras, Kanpur, Delhi,

Bangalore and Pune. Today there are 21 regional securities exchanges in India

in addition to the centralized NSE (National Stock Exchange) and OTCEI (Over

the Counter Exchange of India).

However the stock markets in India remained stagnant due to stringent controls on the

market economy that allowed only a handful of monopolies to dominate their

respective sectors. The corporate sector wasn't allowed into many industry segments,

36

which were dominated by the state controlled public sector resulting in stagnation of

the economy right up to the early 1990s.

Thereafter when the Indian economy began liberalizing and the controls began to be

dismantled or eased out; the securities markets witnessed a flurry of IPOs that were

launched. This resulted in many new companies across different industry segments to

come up with newer products and services. A remarkable feature of the growth of the

Indian economy in recent years has been the role played by its securities markets in

assisting and fuelling that growth with money rose within the economy. This was in

marked contrast to the initial phase of growth in many of the fast growing economies of

East Asia that witnessed huge doses of FDI (Foreign Direct Investment) spurring

growth in their initial days of market decontrol. During this phase in India much of the

organized sector has been affected by high growth as the financial markets played an

all-inclusive role in sustaining financial resource mobilization. Many PSUs (Public

Sector Undertakings) that decided to offload part of their equity were also helped by the

well-organized securities market in India. The launch of the NSE (National Stock

Exchange) and the OTCEI (Over the Counter Exchange of India) during the mid 1990s

by the government of India was meant to usher in an easier and more transparent form

of trading in securities. The NSE was conceived as the market for trading in the

securities of companies from the large-scale sector and the OTCEI for those from the

small-scale sector. While the NSE has not just done well to grow and evolve into the

virtual backbone of capital markets in India the OTCEI struggled and is yet to show any

sign of growth and development. The integration of IT into the capital market

infrastructure has been particularly smooth in India due to the countrys world class IT

37

industry. This has pushed up the operational efficiency of the Indian stock market to

global standards and as a result the country has been able to capitalize on its high

growth and attract foreign capital like never before. The regulating authority for capital

markets in India is the SEBI (Securities and Exchange Board of India). SEBI came into

prominence in the 1990s after the capital markets experienced some turbulence. It had

to take drastic measures to plug many loopholes that were exploited by certain market

forces to advance their vested interests. After this initial phase of struggle SEBI has

grown in strength as the regulator of Indias capital markets and as one of the countrys

most important institutions.

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FINANCIAL MARKET REGULATIONS

Regulations are an absolute necessity in the face of the growing importance of capital

markets throughout the world. The development of a market economy is dependent on

the development of the capital market. The regulation of a capital market involves the

regulation of securities; these rules enable the capital market to function more

efficiently and impartially.

A well regulated market has the potential to encourage additional investors to partake,

and contribute in, furthering the development of the economy. The chief capital market

regulatory authority is Securities and Exchange Board of India (SEBI).

SEBI is the regulator for the securities market in India. It is the apex body to develop

and regulate the stock market in India It was formed officially by the Government of

India in 1992 with SEBI Act 1992 being passed by the Indian Parliament. Chaired by C

B Bhave, SEBI is headquartered in the popular business district of Bandra-Kurla

complex in Mumbai, and has Northern, Eastern, Southern and Western regional offices

in New Delhi, Kolkata, Chennai and Ahmedabad. In place of Government Control, a

statutory and autonomous regulatory board with defined responsibilities, to cover both

development & regulation of the market, and independent powers has been set up.

39

The basic objectives of the Board were identified as:

to protect the interests of investors in securities;

to promote the development of Securities Market;

to regulate the securities market and

For matters connected therewith or incidental thereto.

Since its inception SEBI has been working targeting the securities and is attending to

the fulfillment of its objectives with commendable zeal and dexterity. The

improvements in the securities markets like capitalization requirements, margining,

establishment of clearing corporations etc. reduced the risk of credit and also reduced

the market.

SEBI has introduced the comprehensive regulatory measures, prescribed registration

norms, the eligibility criteria, the code of obligations and the code of conduct for

different intermediaries like, bankers to issue, merchant bankers, brokers and sub-

brokers, registrars, portfolio managers, credit rating agencies, underwriters and others.

It has framed bye-laws, risk identification and risk management systems for Clearing

houses of stock exchanges, surveillance system etc. which has made dealing in

securities both safe and transparent to the end investor.

Another significant event is the approval of trading in stock indices (like S&P CNX

Nifty & Sensex) in 2000. A market Index is a convenient and effective product because

of the following reasons:

40

It acts as a barometer for market behavior;

It is used to benchmark portfolio performance;

It is used in derivative instruments like index futures and index options;

It can be used for passive fund management as in case of Index Funds.

Two broad approaches of SEBI is to integrate the securities market at the national level,

and also to diversify the trading products, so that there is an increase in number of

traders including banks, financial institutions, insurance companies, mutual funds,

primary dealers etc. to transact through the Exchanges. In this context the introduction

of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD

is a real landmark.

SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and

successively (e.g. the quick movement towards making the markets electronic and

paperless rolling settlement on T+2 bases). SEBI has been active in setting up the

regulations as required under law.

41

STOCK EXCHANGES IN INDIA

Stock Exchanges are an organized marketplace, either corporation or mutual

organization, where members of the organization gather to trade company stocks or

other securities. The members may act either as agents for their customers, or as

principals for their own accounts.

As per the Securities Contracts Regulation Act, 1956 a stock exchange is an

association, organization or body of individuals whether incorporated or not,

established for the purpose of assisting, regulating and controlling business in buying,

selling and dealing in securities.

Stock exchanges facilitate for the issue and redemption of securities and other financial

instruments including the payment of income and dividends. The record keeping is

central but trade is linked to such physical place because modern markets are

computerized. The trade on an exchange is only by members and stock broker do have

a seat on the exchange.

List of Stock Exchanges in India

Bombay Stock Exchange

National Stock Exchange

OTC Exchange of India

Regional Stock Exchanges

1. Ahmedabad

2. Bangalore

3. Bhubaneswar

4. Calcutta

5. Cochin

6. Coimbatore

7. Delhi

8. Guwahati

9. Hyderabad

10. Jaipur

11. Ludhiana

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12. Madhya Pradesh

13. Madras

14. Magadh

15. Mangalore

16. Meerut

17. Pune

18. Saurashtra Kutch

19. Uttar Pradesh

20. Vadodara

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BOMBAY STOCK EXCHANGE

A very common name for all traders in the stock market, BSE, stands for Bombay

Stock Exchange. It is the oldest market not only in the country, but also in Asia. In

the early days, BSE was known as "The Native Share & Stock Brokers Association."

It was established in the year 1875 and became the first stock exchange in the country

to be recognized by the government. In 1956, BSE obtained a permanent recognition

from the Government of India under the Securities Contracts (Regulation) Act, 1956.

In the past and even now, it plays a pivotal role in the development of the country's

capital market. This is recognized worldwide and its index, SENSEX, is also tracked

worldwide. Earlier it was an Association of Persons (AOP), but now it is a

demutualised and corporatised entity incorporated under the provisions of the

Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualization)

Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI).

BSE Vision

The vision of the Bombay Stock Exchange is to "Emerge as the premier Indian stock

exchange by establishing global benchmarks."

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BSE Management

Bombay Stock Exchange is managed professionally by Board of Directors. It

comprises of eminent professionals, representatives of Trading Members and the

Managing Director. The Board is an inclusive one and is shaped to benefit from the

market intermediaries participation.

The Board exercises complete control and formulates larger policy issues. The day-

to-day operations of BSE are managed by the Managing Director and its school of

professional as a management team.

BSE Network

The Exchange reaches physically to 417 cities and towns in the country. The

framework of it has been designed to safeguard market integrity and to operate with

transparency. It provides an efficient market for the trading in equity, debt

instruments and derivatives. Its online trading system, popularly known as BOLT, is a

proprietary system and it is BS 7799-2-2002 certified. The BOLT network was

expanded, nationwide, in 1997. The surveillance and clearing & settlement functions

of the Exchange are ISO 9001:2000 certified.

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BSE Facts

BSE as a brand is synonymous with capital markets in India. The BSE SENSEX is

the benchmark equity index that reflects the robustness of the economy and finance. It

was the

First in India to introduce Equity Derivatives

First in India to launch a Free Float Index

First in India to launch US$ version of BSE Sensex

First in India to launch Exchange Enabled Internet Trading Platform

First in India to obtain ISO certification for Surveillance, Clearing &

Settlement

'BSE On-Line Trading System (BOLT) has been awarded the globally

recognized the Information Security Management System standard

BS7799-2:2002.

First to have an exclusive facility for financial training

Moved from Open Outcry to Electronic Trading within just 50 days

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BSE with its long history of capital market development is fully geared to continue

its contributions to further the growth of the securities markets of the country, thus

helping India increases its sphere of influence in international financial markets.

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NATIONAL STOCK EXCHANGE OF INDIA LIMITED

The National Stock Exchange of India Limited has genesis in the report of the High

Powered Study Group on Establishment of New Stock Exchanges, which

recommended promotion of a National Stock Exchange by financial institutions (FIs)

to provide access to investors from all across the country on an equal footing. Based

on the recommendations, NSE was promoted by leading Financial Institutions at the

behest of the Government of India and was incorporated in November 1992 as a tax-

paying company unlike other stock Exchange in the country.

On its recognition as a stock exchange under the Securities Contracts (Regulation)

Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market

(WDM) segment in June 1994. The Capital Market (Equities) segment commenced

operations in November 1994 and operations in Derivatives segment commenced in

June 2000.

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NSE GROUP

National Securities Clearing Corporation Ltd. (NSCCL)

It is a wholly owned subsidiary, which was incorporated in August 1995 and

commenced clearing operations in April 1996. It was formed to build confidence in

clearing and settlement of securities, to promote and maintain the short and consistent

settlement cycles, to provide a counter-party risk guarantee and to operate a tight risk

containment system.

NSE.IT Ltd.

It is also a wholly owned subsidiary of NSE and is its IT arm. This arm of the NSE is

uniquely positioned to provide products, services and solutions for the securities

industry. NSE.IT primarily focuses on in the area of trading, broker front-end and

back-office, clearing and settlement, web-based, insurance, etc. Along with this, it

also provides consultancy and implementation services in Data Warehousing,

Business Continuity Plans, Site Maintenance and Backups, Stratus Mainframe

Facility Management, Real Time Market Analysis & Financial News.

India Index Services & Products Ltd. (IISL)

It is a joint venture between NSE and CRISIL Ltd. to provide a variety of indices and

index related services and products for the Indian Capital markets. It was set up in

May 1998. IISL has a consulting and licensing agreement with the Standard and

Poor's (S&P), world's leading provider of investible equity indices, for co-branding

equity indices.

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National Securities Depository Ltd. (NSDL)

NSE joined hands with IDBI and UTI to promote dematerialization of securities. This

step was taken to solve problems related to trading in physical securities. It

commenced operations in November 1996.

NSE Facts

It uses satellite communication technology to energize participation from

around 400 cities in India.

NSE can handle up to 1 million trades per day.

It is one of the largest interactive VSAT based stock exchanges in the world.

The NSE- network is the largest private wide area network in India and the

first extended C- Band VSAT network in the world.

Presently more than 9000 users are trading on the real time-online NSE

application.

Today, NSE is one of the largest exchanges in the world and still forging ahead. At

NSE, we are constantly working towards creating a more transparent, vibrant and

innovative capital market.

OVER THE COUNTER EXCHANGE OF INDIA

OTCEI was incorporated in 1990 as a section 25 company under the companies Act

1956 and is recognized as a stock exchange under section 4 of the securities Contracts

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Regulation Act, 1956. The exchange was set up to aid enterprising promotes in

raising finance for new projects in a cost effective manner and to provide investors

with a transparent and efficient mode of trading Modeled along the lines of the

NASDAQ market of USA, OTCEI introduced many novel concepts to the Indian

capital markets such as screen-based nationwide trading, sponsorship of companies,

market making and scrip less trading. As a measure of success of these efforts, the

Exchange today has 115 listings and has assisted in providing capital for enterprises

that have gone on to build successful brands for themselves like VIP Advanta, Sonora

Tiles & Brilliant mineral water, etc.

Need for OTCEI:

Studies by NASSCOM, software technology parks of India, the venture capitals funds

and the governments IT tasks Force, as well as rising interest in IT, Pharmaceutical,

Biotechnology and Media shares have repeatedly emphasized the need for a national

stock market for innovation and high growth companies. Innovative companies are

critical to developing economics like India, which is undergoing a major

technological revolution. With their abilities to generate employment opportunities

and contribute to the economy, it is essential that these companies not only expand

existing operations but also set up new units. The key issue for these companies is

raising timely, cost effective and long term capital to sustain their operations and

enhance growth. Such companies, particularly those that have been in operation for a

short time, are unable to raise funds through the traditional financing methods,

because they have not yet been evaluated by the financial world.

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CHAPTER IV - COMPANY PROFILE

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INDIA INFOLINE LIMITED

India Infoline is a one-stop financial services shop, most respected for quality of its

information, personalized service and cutting-edge technology.

Vision

Our vision is to be the most respected company in the financial services space.

India Infoline Group

The India Infoline group, comprising the holding company, India Infoline Limited

and its wholly-owned subsidiaries, include the entire financial services space with

offerings ranging from Equity research, Equities and derivatives trading,

Commodities trading, Portfolio Management Services, Mutual Funds, Life Insurance,

Fixed deposits, GoI bonds and other small savings instruments to loan products and

Investment banking.

India Infoline also owns and manages the websites www.indiainfoline.com and

www.5paisa.com. The company has a network of over 2100 business locations

(branches and sub-brokers) spread across more than 450 cities and towns. The group

caters to approximately a million customers.

Founded in 1995 by Mr. Nirmal Jain (Chairman and Managing Director) as an

independent business research and information provider, the company gradually

evolved into a one-stop financial services solutions provider.

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India Infoline received registration for a housing finance company from the National

Housing Bank and received the Fastest growing Equity Broking House - Large

firms in India by Dun & Bradstreet in 2009. It also received the Insurance broking

license from IRDA; received the venture capital license; received in principle

approval to sponsor a mutual fund; received Best broker- India award from Finance

Asia; Most Improved Brokerage- India award from Asia money.

COMPANY STRUCTURE

India Infoline Limited is listed on both the leading stock exchanges in India, viz. the

Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) and is also

a member of both the exchanges. It is engaged in the businesses of Equities broking,

Wealth Advisory Services and Portfolio Management Services. It offers broking

services in the Cash and Derivatives segments of the NSE as well as the Cash

segment of the BSE. It is registered with NSDL as well as CDSL as a depository

participant, providing a one-stop solution for clients trading in the equities market. It

has recently launched its Investment banking and Institutional Broking business.

A SEBI authorized Portfolio Manager; it offers Portfolio Management Services to

clients. These services are offered to clients as different schemes, which are based on

differing investment strategies made to reflect the varied risk-return preferences of

clients.

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India Infoline Media and Research Services Limited

The services represent a strong support that drives the broking, commodities, mutual

fund and portfolio management services businesses. It undertakes equities research

which is acknowledged by none other than Forbes as 'Best of the Web' and 'a must

read for investors in Asia'. India Infoline's research is available not just over the

internet but also on international wire services like Bloomberg (Code: IILL),

Thomson First Call and Internet Securities where India Infoline is amongst the most

read Indian brokers.

India Infoline Commodities Limited.

India Infoline Commodities Pvt Limited is engaged in the business of commodities

broking. Their experience in securities broking empowered them with the requisite

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skills and technologies to allow them to offer commodities broking as a contra-

cyclical alternative to equities broking. It enjoys memberships with the MCX and

NCDEX, two leading Indian commodities exchanges, and recently acquired

membership of DGCX. It has a multi-channel delivery model, making it among the

select few to offer online as well as offline trading facilities.

India Infoline Marketing & Services

India Infoline Marketing and Services Limited is the holding company of India

Infoline Insurance Services Limited and India Infoline Insurance Brokers Limited.

India Infoline Insurance Services Limited is a registered Corporate Agent with

the Insurance Regulatory and Development Authority (IRDA). It is the largest

Corporate Agent for ICICI Prudential Life Insurance Co Limited, which is

India's largest private Life Insurance Company. India Infoline was the first

corporate agent to get licensed by IRDA in early 2001.

India Infoline Insurance Brokers Limited India Infoline Insurance Brokers

Limited is a newly formed subsidiary which will carry out the business of

Insurance broking.

India Infoline Investment Services Limited

Consolidated shareholdings of all the subsidiary companies engaged in loans and

financing activities under one subsidiary. Recently, Orient Global, a Singapore-based

investment institution invested USD 76.7 million for a 22.5% stake in India Infoline

Investment Services. This will help focused expansion and capital raising in the said

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subsidiaries for various lending businesses like loans against securities, SME

financing, distribution of retail loan products, consumer finance business and housing

finance business. India Infoline Investment Services Private Limited consists of the

following step-down subsidiaries.

India Infoline Distribution Company Limited (distribution of retail loan

products)

Moneyline Credit Limited (consumer finance)

India Infoline Housing Finance Limited (housing finance)

IIFL (Asia) Private Limited

IIFL (Asia) Private Limited is wholly owned subsidiary which has been incorporated

in Singapore to pursue financial sector activities in other Asian markets. Further to

obtaining the necessary regulatory approvals, the company has been initially

capitalized at 1 million Singapore dollars.

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IIFL MANAGEMENT

THE MANAGEMENT TEAM

Mr. Nirmal Jain, Chairman & Managing Director

Nirmal Jain, MBA (IIM, Ahmadabad) and a Chartered and Cost Accountant, founded

Indias leading financial services company India Infoline Ltd. in 1995,

providing globally acclaimed financial services in equities and

commodities broking, life insurance and mutual funds distribution, among others.

Mr. R Venkataraman, Executive Director

R Venkataraman, co-promoter and Executive Director of India

Infoline Ltd., is a B. Tech (Electronics and Electrical Communications

Engineering, IIT Kharagpur) and an MBA (IIM Bangalore). He joined

the India Infoline board in July 1999.

THE BOARD OF DIRECTORS

Apart from Nirmal Jain and R Venkataraman, the Board of Directors of India Infoline

Ltd. comprises:

Mr. Nilesh Vikamsey, Independent Director

Mr. Vikamsey, Board member since February 2005 - a practicing Chartered

Accountant and partner (Khimji Kunverji & Co., Chartered

Accountants), a member firm of HLB International, headed the audit

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department till 1990 and thereafter also handles financial services, consultancy,

investigations, mergers and acquisitions, valuations etc

Mr Sat Pal Khattar, Non Executive Director

Mr Sat Pal Khattar, - Board member since April 2001 - Presidential Council of

Minority Rights member, Chairman of the Board of Trustee of

Singapore Business Federation, is also a life trustee of SINDA, a non

profit body, helping the under-privileged Indians in Singapore. He joined the India

Infoline board in April 2001.

Mr Kranti Sinha, Independent Director

Mr. Kranti Sinha Board member since January 2005 completed

his masters from the Agra University and started his career as a Class I

officer with Life Insurance Corporation of India.

Mr Arun K. Purvar, Independent Director

Mr. A.K. Purvar Board member since March 2008 completed his

Masters degree in commerce from Allahabad University in 1966 and a

diploma in Business Administration in 1967.

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PRODUCTS & SERVICES

Equities

India Infoline provided the prospect of researched investing to its clients, which was

hitherto restricted only to the institutions. Research for the retail investor did not exist

prior to India Infoline. India Infoline leveraged technology to bring the convenience

of trading to the investors location of preference (residence or office) through

computerized access. India Infoline made it possible for clients to view transaction

costs and ledger updates in real time. The Company is among the few financial

intermediaries in India to offer a complement of online and offline broking. The

Companies network of branches also allows customers to place orders on phone or

visit our branches for trading.

Commodities

India Infolines extension into commodities trading reconciles its strategic intent to

emerge as a one stop solutions financial intermediary. Its experience in securities

broking has empowered it with requisite skills and technologies. The Companies

commodities business provides a contra-cyclical alternative to equities broking. The

Company was among the first to offer the facility of commodities trading in Indias

young commodities market (the MCX commenced operations in 2003). Average

monthly turnover on the commodity exchanges increased from Rs 0.34 bn to Rs

20.02 bn.

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Insurance

An entry into this segment helped complete the client's product basket; concurrently,

it graduated the Company into a one stop retail financial solutions provider. To ensure

maximum reach to customers across India, it has employed a multi pronged approach

and reaches out to customers via our Network, Direct and Affiliate channels. India

Infoline was the first corporate in India to get the agency license in early 2001.

Invest Online

India Infoline has made investing in Mutual funds and primary market so effortless.

Only registration is needed. No paperwork no queues and No registration

charges. India Infoline offers a host of mutual fund choices under one roof,

backed by in-depth research and advice from research house and tools configured

as investor friendly.

Wealth Management

The key to achieving a successful Investment Portfolio is to have a carefully planned

financial strategy based on a thorough understanding of the client's investment

needs and risk appetite. The IIFL Private Wealth Management Team of financial

experts will recommend an appropriate financial strategy to effectively meet

customers investment requirements.

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Asset Management

India Infoline is a leading pan-India mutual fund distribution house associated with

leading asset management companies. It operates primarily in the retail segment

leveraging its existing distribution network to reach prospective clients. It has

received the in-principle approval to set up a mutual fund.

Portfolio Management

IIFL Portfolio Management Service is a product wherein an equity investment

portfolio is created to suit the investment objectives of a client. India Infoline

invests the clients resources into stocks from different sectors, depending on

clients risk-return profile. This service is particularly advisable for investors who

cannot afford to give time or don't have that expertise for day-to-day

management of their equity portfolio.

Newsletters

As a subscriber to the Daily Market Strategy, clients get research reports of India

Infoline research team on a priority basis. The Indiainfoline Weekly Newsletter is

the flashback for the week gone by. A weekly outlook coupled with the best of

the web stories from Indiainfoline and links to important investment ideas,

Leader Speak and features is delivered in the clients inbox every Friday evening.

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CHAPTER V

DATA ANALYSIS & INTERPRETATIONS

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Sectoral Mutual Funds Considered:-

1. Auto Sector - UTI Transportation and Logistics Fund

2. Banking Sector - UTI Banking Sector Fund

3. FMCG Sector - Franklin FMCG Fund

4. Infrastructure Sector - Tata Infrastructure Fund

5. Power Sector - Reliance Diversified Power Sector Fund

6. Service Sector - Prudential ICICI Services Industries Fund

7. Technology Sector - Franklin Infotech Fund

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1. Auto Sector:-

UTI Transportation and Logistics Fund

Scheme Snapshot

Asset AllocationEquity Shares 95.83Net Current Assets 3.40Unlisted Equities 0.70Short Term Deposits 0.07As on 31-OCT-10

Top 5 holdings As on 31-OCT-10Mahindra & Mahindra Limited 7.56

Tata Motors Limited 7.23

Ashok Leyland Limited 6.18

Bajaj Auto Limited 5.96

Eicher Motors Limited 5.89

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CIO: A K Shridhar

Fund Manager: Anoop Bhaskar

Address: UTI Towers, `Gn` Block, Bandra-Kurla Complex, Bandra (East), Mumbai 400051

Phone: 91 22 5678 6666 / 56578210

Fax: 91 22 2652 4921

website: www.utimf.com

Category: Equity

Sub-Category: Sectoral-Auto

Type: Open

Min. Investment(Rs): 5000

Total Assets(Rs./Mn): 719.8

Registrars: UTI Technology Services Limited

Launch Date: 09-MAR-04

Scheme Objective: The scheme aims to provide to investors growth of capital over a period of time as well as to make periodical distribution of income from investment in stocks of respective sectors of the Indian economy.

2. Banking Sector:-

UTI Banking Sector Fund

Scheme Snapshot

Asset AllocationEquity Shares 97.97Short Term Deposits 2.22Net Current Assets -0.19As on 31-OCT-10

Top 5 holdings As on 31-OCT-10I C I C I Bank Limited 19.73

State Bank Of India 13.71

H D F C Bank Limited 12.51

Axis Bank Limited 10.11

Bank Of Baroda 7.28

3. FMCG Sector:-

Franklin FMCG Fund

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CIO: A K Shridhar

Fund Manager: Arun Khurana, Anoop Bhaskar

Address: UTI Towers, `Gn` Block, Bandra-Kurla Complex, Bandra (East), Mumbai 400051

Phone: 91 22 5678 6666 / 56578210

Fax: 91 22 2652 4921

website: www.utimf.com

Category: Equity

Sub-Category: Sectoral-Bank

Type: Open

Min. Investment(Rs): 5000

Total Assets(Rs./Mn): 2312.5

Registrars: UTI Technology Services Limited

Launch Date: 09-MAR-04

Scheme Objective: To generate capital appreciation through investments in the stocks of the companies/institutions engaged in the banking and financial services activities.

Scheme Snapshot

Asset AllocationEquity Shares 96.13Call And Other Assets 2.84Corporate Debt / Bonds 1.03As on 30-NOV-10

Top 5 holdings As on 30-NOV-10Nestle India Limited 14.97

I T C Limited 11.27

Asian Paints Limited 9.25

Pidilite Industries Limited 6.48

Marico Limited 6.08

4. Infrastructure Sector

Tata Infrastructure Fund

Scheme Snapshot

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CIO: Santosh Kamath

Fund Manager: Anil Prabhudas

Address: Level 4, Wockhardt Towers, Bandra - Kurla Complex, Bandra (East), Mumbai - 400051