Introductiondhj

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INTRODUCTION


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

Institutions, Financial Service, Financial Instruments. All are play important role for smooth

activities for the transfer of the funds and allocation of the funds. The main aim of the Indian

financial system is that providing the efficiently services to the capital market.

The following is a brief introduction of the mutual funds and fixed deposits

under consideration in the project.

1.1 SBI Mutual Fund

In November 1987, SBI Mutual Fund from the State Bank of India became the first

non UTI mutual fund in India. SBI Mutual Funds (SBI MF) is a partnership between Indias

largest bank State Bank of India and Frances Societe Generale Asset Management. State

bank of India owns 63% in SBI MF and the rest 37% is owned by Frances Societe Generale

Asset Management. As on April 30 2009, the company had assets of Rs 37213.06 Crs.

It is currently operating a total of 46 schemes which includes Equity schemes, Debt schemes,

Short term debt schemes, Equity and debt, Gilt fund.

A total of over 6 million people have invested in the funds of SBI. The fund reaches out to

investors through a network of over 150 points of acceptance, 28 investor service centres, 46

investor service desks and 56 district organisers.

On the 17th of May, 2010 the company launched a PSU fund with the aim of investing in

public sector companies which offer significant growth prospects for the investors and also

take advantage of the unlocking of value of some of these companies due to disinvestment bythe government.

Products currently being offered by the company are as follows:

Equity / Growth based products-

The equity based funds offered by SBI Mutual Fund, are as follows:

Magnum COMMA Fund

Magnum Equity Fund

Magnum Global Fund

Magnum Index Fund

Magnum MidCap Fund and many more.

Debt / Income based products-

The debt based funds that are in operation now, are as follows:

Magnum Children's Benefit Plan

Magnum Gilt Fund

Magnum Gilt Fund (Long Term)

Magnum Gilt Fund (Short Term)

Magnum Income Fund many more.


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1.2 RELIANCE MUTUAL FUND:-

Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882.

The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is

the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was

changed on March 11, 2004. Reliance Mutual Fund was formed for launching of various

schemes under which units are issued to the Public with a view to contribute to the capital

market and to provide investors the opportunities to make investments in diversified

securities.RMF is one of Indias leading Mutual Funds, with Average Assets Under

Management (AAUM) of Rs. 88,388 crores (AAUM for 30th Apr 09) and an investor base of

over 71.53 Lakhs. Reliance Mutual Fund, a part of the RelianceAnil Dhirubhai Ambani

Group, is one of the fastest growing mutual funds in the country

Sponsor:- Reliance Capital Limited.

Trustee:- Reliance Capital Trustee Co. Limited.

Investment Manager:-Reliance Capital Asset Management Limited.The Sponsor, the

Trustee and the Investment Manager are incorporated under the Companies Act 1956.

Vision Statement:- To be a globally respected wealth creator with an emphasis on

customer care and a culture of good corporate governance.

Mission Statement:-To create and nurture a world-class, high performance environment

aimed at delighting our customers.

SCHEMES

A). EQUITY/GROWTH SCHEMES:

Reliance Infrastructure Fund (Open-Ended Equity) Reliance Natural Resources Fund (Open-Ended Equity) Reliance Equity Linked Saving Fund (A 10 Year Close-Ended Equity)

B). DEBT/INCOME SCHEMES

Reliance Monthly Income Plan Reliance Income Fund etc.

C). SECTOR SPECIFIC SCHEMES

Reliance Banking Fund Reliance Pharma Fund

D). RELIANCE GOLD EXCHANGE TRADED FUND


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UTI Equity Tax Savings Plan (Open Ended Fund)

UTI Master Index Fund

UTI Short Term Income Fund -Retail Plan etc.

Bank Fixed Deposits

Bank Fixed Deposits are also known as Term Deposits. In a Fixed Deposit Account, a

certain sum of money is deposited in the bank for a specified time period with a fixed rate of

interest.

The rate of interest for Bank Fixed Deposits depends on the maturity period. It is higher in

case of longer maturity period. There is great flexibility in maturity period and it ranges from

7days to 10 years. The interest is compounded annually and is added to the principal amount.Minimum deposit amount is Rs 1000/- and there is no upper limit.

Loan / overdraft facility is available against bank fixed deposits. Premature withdrawal is

permissible but some penalty is levied. Tax Deductible at Source, if the interest paid/ payable

on deposit exceeds Rs.5000/- per customer, per year, per branch.

1.4 State Bank of India Fixed Deposits

State Bank of India fixed deposit is a good option to earn higher income on surplus

funds. Bank offers flexibility in period from 15 days to 10 years and can be opened with a

nominal amount of Rs. 1000/- only. Against your fixed deposit you can take loan/overdraft

during your urgent financial requirement. There is premature withdrawal facility, transfer of

term deposit within bank network with out any charge, interest is accumulated in your

account timely and gets compounded quarterly, automatic renewal of your deposits on

maturity. You can convert your special term deposit and vice versa.

1.5 Federal Bank Fixed Deposits

Federal Bank fixed deposit gives you option to give instructions while placing

deposits with regard to closure or renewal of deposit. There is nomination facility. You can

withdraw your money at premature or can get premature renewal of the deposit. You can take

advance also against deposit.

Federal Fixed Deposit Benefits

Minimum amount Rs.1000.

Quarterly /Monthly interest payments.

Advance upto 90% of deposit.


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1.6 ICICI BankFixed Deposit

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial

institution, and was its wholly-owned subsidiary. In October 2001, the Boards of Directors of

ICICI and ICICI Bank approved the merger of ICICI and two of its wholly-owned retail

finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services

Limited, with ICICI Bank.

ICICI bank has a set of choice of investment plans attached to fixed deposit. You get a wide

range of tenures along with auto renewal facility on maturity of deposits. You can open term

deposit with nominal amount of Rs 1000/- only. Bank has a loan facility against deposit. The

re-investment plans on fixed deposits are lucrative as re-investment fixed deposit rates do not

change in fact works like a recurring debit account transaction.

Fixed Deposit Account

Flexibility of tenure - 7 days to 10 years

Liquidity

Premature / Partial withdrawal permitted (subject to applicable charges)

Loan / Overdraft upto 90% of FD amount

Option of monthly / quarterly payout available

Competitive interest rate - Know interest rates for various tenures

Convenient ways to open a FD

Internet Banking

Phone banking

ICICI Bank Branch
http://www.icicibank.com/interest-rates.html#fdhttp://www.icicibank.com/interest-rates.html#fd


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RESEARCH OBJECTIVES


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The Research Objectives are formulated using KSA model as follows.

2.1 KSA model

Definition of KSA

KSA model is a competency model of individual. KSA is the same KSAO. KSA include

Knowledge, Skills and Abilities (also called KSAs model) that an applicant must have to

perform successfully in the position. KSA are listed in the Qualifications and Evaluation

section of the job announcement.

Components of KSA:

1. KnowledgeA body of information needed to perform a task.

For example, Human Resources Knowledge includes knowledge of personnel

recruitment, selection, training, compensation and benefits, labour relations and

negotiation, and personnel information systems.

2. Skills

Skills are the proficiency to perform a certain task.

For example, skill in operating computer peripherals such as printers.

3. Abilities

Abilities are an underlying, enduring trait useful for performing tasks.

For example, oral comprehension the ability to listen to and understand

information and ideas presented through spoken words and sentences.

Classification of KSAs

KSAs include technical elements and behavioural elements.

Technical KSAsmeasure acquired knowledge and hard technical skills.

Behavioural KSAsmeasure soft skills, include the attitudes and approaches applicants

take to their work, such as the ability to collaborate on team projects.


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Figure - 2

2.2 Objective

1. To briefly study the Mutual Fund industry in India in the last five years.

2. To give a brief idea about the benefits available from Mutual Fund investment.

3. To give an idea of the types of schemes available.

4. To discuss about the market trends of Mutual Fund investment

5. Explore the recent developments in the Mutual Funds industry in India.

6. To give an idea about the regulations of Mutual Funds.

7. To study 3 major income schemes from the mutual fund industry.( SBI Mutual Fund,

Reliance Mutual Fund, ICICI Mutual Fund.

8. Observe the fund management process of mutual funds

9. To study the Fixed Deposit scheme of 3 banks of India in last 5 years (SBI, ICICI &

Federal Bank )

10..To compares the Fixed Deposit schemes with Mutual Fund schemes.


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RESEARCH METHODOLOGY


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Research as a care full investigation or enquiry especially through search for a new

facts in any branch of knowledge Research is an academic activity and such as the term

should be used in technical sense. The manipulation of things , concepts or symbols for the

purpose of generalizing to extend ,correct or verify knowledge ,whether that knowledge

through objective.

3.1 METHODS OF DATA COLLECTION

Secondary data:

Secondary data means already available through books, journals, magazines,

newspaper.

ANALYSIS:

For the proper analysis of data statistical (mean, standard deviation and co-variance)

and financial (Beta and CAPM) method was used.

3.2 DATA ANALYSIS AND INTERPRETATION

Data analysis and interpretation is the process of assigning meaning to the collected

information and determining the conclusions, significance, and implications of the findings.

The steps involved in data analysis are a function of the type of information collected,

however, returning to the purpose of the assessment and the assessment questions will

provide a structure for the organization of the data and a focus for the analysis.

Quantitative Data is presented in a numerical format collected in a standardized manner e.g.

surveys, closed-ended interviews, tests analyzed using statistical techniques

The analysis ofNUMERICAL (QUANTITATIVE) DATA is represented in mathematical

terms. The most common statistical terms include:

MeanThe mean score represents a numerical average for a set of responses.

Standard deviationThe standard deviation represents the distribution of the

responses around the mean. It indicates the degree of consistency among the

responses. The standard deviation, in conjunction with the mean, provides a better

understanding of the data. For example, if the mean is 3.3 with a standard deviation

(StD) of 0.4, then two-thirds of the responses lie between 2.9 (3.30.4) and 3.7 (3.3

+ 0.4).

Variance-A measure of the dispersion of a set of data points around their mean value.

Variance is a mathematical expectation of the average squared deviations from the

mean. Variance measures the variability (volatility) from an average. Volatility is a


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measure of risk, so this statistic can help determine the risk an investor might take on

when purchasing a specific security.

Co-variance-A measure of the degree to which returns on two risky assets move in

tandem. A positive covariance means that asset returns move together. A negative

covariance means returns move inversely.

One method of calculating covariance is by looking at return surprises (deviations

from expected return) in each scenario. Another method is to multiply the correlation

between the two variables by the standard deviation of each variable.

Possessing financial assets that provide returns and have a high covariance with each

other will not provide very much diversification.

For example, if stock A's return is high whenever stock B's return is high and the

same can be said for low returns, then these stocks are said to have a positive

covariance. If an investor wants a portfolio whose assets have diversified earnings, he

or she should pick financial assets that have low covariance to each other.

In the project work, NAV and Nifty values are considered from 1st January 2005 to

31st December 2012. This values were then considered quarterly to calculate mean,

standard deviation, co variance. This was followed by calculation of CAPM. During

the project 3 mutual funds i.e SBI mutual fund, Reliance Mutual fund and UTI mutual

funds was considered. On the other hand 3 fixed deposits were also considered i.e SBI

Fixed Deposit, ICICI Fixed Deposit and Federal Bank Fixed Deposit.

The rate of return associated with the level of risk and the performance of mutual

funds is compared and analysed with respect to the performance of fixed deposits in

India.

The entire aim of the project work is to analyse the fact that Fixed Deposits are better

investing option than Mutual Funds.


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LIMITATIONS OF THE PROJECT


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4.1 The limitations of the project are as follows:-

The time constraint was one of the major problems.

The study is limited to the different schemes available under the mutual funds

and fixed deposits selected.

The study is limited to selected mutual fund and fixed deposit schemes.

The lack of information sources for the analysis part.


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Chapter -1

LITERATURE REVIEW


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Review of the literature plays an important role in any research, it is considering the

importance of mutual funds and several academicians have tried to study the performance of

various mutual funds. Literature on mutual fund performance evaluation is enormous.

Standard deviation, average variance and average coefficient of variation (COV) are

techniques used for measuring the performance of Mutual Funds and Fixed Deposits.

1. Nidhi Walia-

FacultyPURCITM,

Thapar University, Patiala

2. Dr. (Mrs.) Ravi Kiran,

Assosiate Professor,SOMSS,

Thapar University

Abstract

Financial innovations have become the central driving force taking any financial system

towards economic efficiency. Indian Capital market has shown a spurt growth with financial

innovations becoming a regular feature leading to change in investor's preferences for newly

fangled financial innovations. Mutual fund has become an obvious choice for most of theinvestors because of its performance in terms of providing higher returns at high risk.

At the same time there are bank that offers Fixed Deposit schemes that look attractive

enough. And even some of the top Mutual Funds that offer income schemes often find it

challenge to compute with this FD schemes.

1. Prof. Kalpesh P Prajapati,

Assistant Professor,

S.V Institute of Management,

Gujarat Technological University,

Ahmedabd, Gujarat, India

2. Prof. Mahesh K Patel,

Assistant Professor,

N.P College of Computer Studies & Management


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Hemchandracharya North Gujarat University,

Patan, Gujarat, India.

Abstract

In this paper the performance evaluation of Indian mutual funds and fixed deposits is carried

out through risk-return analysis. The data used is daily closing NAVs.

"Security Market Line" (SML) uses the systematic risk termed beta. Beta is defined as the

covariance between a security (or portfolio of securities) and the market as a whole,

divided by the variance of the market. The market as a whole is considered the point

of tangency between the SML and the efficient frontier This is the foundation for the

Capital Asset Pricing Model (CAPM).

The CAPM is,

= RF+(RM-RF)(Beta)

1.1 Mutual fund

A mutual fund is a scheme in which several people invest their money for a common

financial cause. The collected money invests in the capital market and the money, which they

earned, is divided based on the number of units, which they hold.

The mutual fund industry started in India in a small way with the UTI Act creating what was

effectively a small savings division within the RBI. Over a period of 25 years this grew fairly

successfully and gave investors a good return, and therefore in 1989, as the next logical step,

public sector banks and financial institutions were allowed to float mutual funds and their

success emboldened the government to allow the private sector to foray into this area.

The advantages of mutual fund are

1. Professional management

2. Diversification

3. Economies of scale

4. Simplicity and

5. Liquidity.


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The disadvantages of mutual fund are

1. High costs

2. Over-diversification

3. Possible tax consequences and

4. The inability of management to guarantee a superior return.

The biggest problems with mutual funds are their costs and fees it include Purchase fee,

Redemption fee, Exchange fee, Management fee, Account fee & Transaction Costs. .

Mutual funds are easy to buy and sell. You can either buy them directly from the fund

company or through a third party. Before investing in any funds one should consider some

factor like objective, risk, Fund Managers and scheme track record, Cost factor etc.

There are many types of mutual funds. We can classify funds based on-:

1. Structure

Open-ended

Close-ended

2. Nature

Equity

Debt

Balanced

3. Investment objective

Growth

Income

Money market etc.


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1.2 Working of Mutual Funds:

The following figure explains the working of Mutual funds

Figure-3

The important terms of the figure are explained as follows

Fund Sponsor

A sponsor is any person who, acting alone or in combination with another body corporate,

establishes a MF.

Trustees:

The MF or trust can either be managed by the Board of Trustees, which is a body of

individuals, or by a Trust Company, which is a corporate body. Most of the funds in India are

managed by Board of Trustees.

Asset Management Company (AMC):

The AMC, which is appointed by the sponsor or the trustees and approved by SEBI, acts like

the investment manager of the trust. The AMC functions under the supervision of its own

Board of Directors, and also under the direction of the trustees and SEBI


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Others:

Apart from these, the MF has some other fund constituents, such as custodians and

depositories, banks, transfer agents and distributors.

The custodian is appointed for safe keeping of securities and participating in the clearingsystem through approved depository. The bankers handle the financial dealings of the fund.

Transfer agents are responsible for issue and redemption of units of MF.

1.3 Risk Return Matrix:

The risk return trade-off indicates that if investor is willing to take higher risk then

correspondingly he can expect higher returns and vice versa if he pertains to lower risk

instruments, which would be satisfied by lower returns. For example, if an investor opts for

bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest

in capital protected funds and the profit-bonds that give out more return which is slightlyhigher as compared to the bank deposits but the risk involved also increases.

Thus investors choose mutual funds as their primary means of investing, as Mutual funds

provide professional management, diversification, convenience and liquidity. That doesnt

mean mutual fund investments are risk free. This is because the money that is pooled in are

not invested only in debts funds which are less riskier but are also invested in the stock

markets which involves a higher risk but can expect higher returns.

Figure- 4 Risk Return Matrix


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1.4 Common Terms Used

Net Asset Value (NAV): Net Asset Value is the market value of the assets of the

scheme minus its liabilities. Per unit NAV is the net asset value of the scheme dividedby the number of units outstanding on the Valuation Date

Beta: A measure of the volatility, or systematic risk, of a security or a portfolio in

comparison to the market as a whole. Beta is calculated using regression analysis, and

indicates the tendency of a security's returns to respond to swings in the market. A

beta of 1 indicates that the security's price will move with the market. A beta indicates

that the security's price will be more volatile than the market .

R-Squared: A statistical measure that represents the percentage of a fund or security's

movements that can be explained by movements in a benchmark index. R-squared

values range from 0 to 100. An R-squared of 100 means that all movements of a

security are completely explained by movements in the index. A high R-squared

(between 85 and 100) indicates the fund's performance patterns have been in line with

the index. A fund with a low R-squared (70 or less) doesn't act much like the index.

1.5 History of Mutual Funds

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 of India. The history of

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

First Phase1964-87

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

set up by the Reserve Bank of India and functioned under the Regulatory andadministrative 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 Phase1987-1993 (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 Fundestablished in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National


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

Bank of Baroda Mutual Fund (Oct 92). At the end of 1993, the mutual fund industry had

assets under management of Rs.47, 004 crores.

Third Phase1993-2003 (Entry of Private Sector Funds)

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

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

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

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

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

mutual fund registered in July 1993.

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

comprehensive and revised Mutual Fund Regulations in 1996. The industry now

functions under the SEBI (Mutual Fund) Regulations 1996.

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

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

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

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

management was way ahead of other mutual funds.

Fourth Phasesince 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, 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.


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1.6 Types of Mutual Funds Schemes in India

Figure- 5

1.6 (A) Overview of existing schemes in mutual fund category: 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: These schemes have a pre-specified maturity period. One

can invest directly in the scheme at the time of the initial issue. Depending on the

structure of the scheme there are two exit options available to an investor after the

initial offer period closes. Investors can transact (buy or sell) the units of the scheme

on the stock exchanges where they are listed. The market price at the stock exchanges

could vary from the net asset value (NAV) of the scheme on account of demand and

supply situation, expectations of unit holder and other market factors. Alternatively

some close-ended schemes provide an additional option of selling the units directly to


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the Mutual Fund through periodic repurchase at the schemes NAV; however one

cannot buy units and can only sell units during the liquidity window. SEBI

Regulations ensure 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 exchangeor may be open for sale or redemption during pre-determined intervals at NAV related

prices.

1.6(B) Overview of existing schemes in mutual fund category: By Nature

1. Equity fund: These funds invest a maximum part of their corpus into equitiesholdings. 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 riskand 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.

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.

3. 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.


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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-returnmatrix and are considered to be the safest amongst all categories of mutual funds.

5. Balanced funds: These 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.

1.6( C) Overview of existing schemes in mutual fund category: By

Investment Objective

1. 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.

2. 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.

3. 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).

4. 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

1.6(D) Other schemes:

1. 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.

2. Index Schemes: Index schemes attempt to replicate the performance of a particular

index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will


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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.

3. 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.

1.7 Types of returns

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

enjoyed by investors:

1. 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.

2. 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.

3. 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.

1.8 Pros 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.


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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.

1.9 Cons of Investing Mutual Funds:

1. Professional Management- Some funds dont perform in 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 the

investor himself, for picking up stocks.

2. CostsThe 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.


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COMPANY PROFILE


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A) Introduction to SBI Mutual FundIn November 1987, SBI Mutual Fund from the State Bank of India became the first

non UTI mutual fund in India. SBI Mutual Funds (SBI MF) is a partnership between Indias

largest bank State Bank of India and Frances Societe Generale Asset Management. State

bank of India owns 63% in SBI MF and the rest 37% is owned by Frances Societe Generale

Asset Management. As on April 30 2009, the company had assets of Rs 37213.06 Crs.

It is currently operating a total of 46 schemes which includes Equity schemes, Debt schemes,

Short term debt schemes, Equity and debt, Gilt fund.

The Distribution Channels

Figure- 6


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Structure of SBI Mutual Funds

SBI mutual fund has a very wide and robust distribution network. It operates in 15

regions and has 29 investor service centres, 55 investor service desks, 45 district organizersand 1 overseas office in Dubai. This coupled with the reach of the State Bank of India which

has close to 15600 branches in India and more than 147 million customers provides the asset

management company (AMC) an opportunity to reach investors even in the remote parts of

the country. The decision making structure of SBI mutual fund is designed to take advantage

of this opportunity. Here, I will be explaining in detail the distribution network of SBI mutual

funds in India.

Figure- 7


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B) RELIANCE MUTUAL FUNDReliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882.

The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is

the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was

changed on March 11, 2004. Reliance Mutual Fund was formed for launching of various

schemes under which units are issued to the Public with a view to contribute to the capital

market and to provide investors the opportunities to make investments in diversified

securities.RMF is one of Indias leading Mutual Funds, with Average Assets Under

Management (AAUM) of Rs. 88,388 crores (AAUM for 30th Apr 09) and an investor base of

over 71.53 Lakhs. Reliance Mutual Fund, a part of the Reliance - Anil Dhirubhai Ambani

Group, is one of the fastest growing mutual funds in the country.

Reliance Income Fund-(An Open-ended Income Scheme)

The primary objective of the scheme is to generate optimal returns consistent with

moderate levels of risk. This income may be complemented by capital appreciation of the

portfolio. Accordingly, investments shall predominantly be made in Debt & Money market

Instruments.

C) UNIT TRUST OF INDIA MUTUAL FUND'Unit Trust of India was created by the UTI Act passed by the Parliament in 1963. For

more than two decades it remained the sole vehicle for investment in the capital market by

the Indian citizens. In mid- 1980s public sector banks were allowed to open mutual funds.

The real vibrancy and competition in the MF industry came with the setting up of the

Regulator SEBI and its laying down the MF Regulations in 1993.UTI maintained its pre-

eminent place till 2001, when a massive decline in the market indices and negative investor

sentiments after Ketan Parekh scam created doubts about the capacity of UTI to meet its

obligations to the investors. This was further compounded by two factors; namely, its

flagship and largest scheme US 64 was sold and re-purchased not at intrinsic NAV but at

artificial price and its Assured Return Schemes had promised returns as high as 18% over aperiod going up to two decades.

UTI Short Term Income Fund (Open Ended Fund):

The Scheme seeks to generate steady & reasonable income with low risk & high level

of liquidity from a portfolio of money market securities & high quality debt.


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Bank Fixed Deposits are also known as Term Deposits. In a Fixed Deposit Account, a

certain sum of money is deposited in the bank for a specified time period with a fixed rate of

interest.

The rate of interest for Bank Fixed Deposits depends on the maturity period. It is higher in

case of longer maturity period. There is great flexibility in maturity period and it ranges from7days to 10 years. The interest is compounded annually and is added to the principal amount.

Minimum deposit amount is Rs 1000/- and there is no upper limit.

Loan / overdraft facility is available against bank fixed deposits. Premature withdrawal is

permissible but some penalty is levied. Tax Deductible at Source, if the interest paid/ payable

on deposit exceeds Rs.5000/- per customer, per year, per branch.

In deposit terminology, the term fixed deposit refers to a savings account or certificate of

deposit that pays a fixed rate of interest until a given maturity date. Funds placed in a fixed

deposit usually cannot be withdrawn prior to maturity or they can perhaps only be withdrawn

with advance notice and/or by having a penalty assessed.

Fixed Deposit Example:-

For example, a fixed deposit will often be used by individuals, business and financial

institutions all around the world as a means of storing their liquid funds for a fixed period of

time for future use .In the retail market FDs are relatively safe investments when provided by

insured financial institutions like banks, savings and loan corporations and credit unions thatare duly regulated within the country in which they operate.

Features of fixed deposits:-

Tenure ranges between six months to 10 years

Guaranteed Returns

Interest income monthly, quarterly or annually.

Reinvest interest income and gain the influence of compounding

Partial or full withdrawal facility is available with penalty interest rates

Loan against deposits

Senior citizens get higher coupon rates in the range of 0.25 -100 %.

Most indefinite facts about bank Fixed Deposits:-

BankFixed Depositis the safest financial products because deposits up to Rs 1 lack

are covered under insurance. In case banks default you get principal amount up to Rs 1 lackdepending on your deposit amount under insurance cover.
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If you have multiple accounts in different banks, then each deposit is insured up to Rs 1 lack

You can also get loan against your deposits. The interest rate of loan is higher than 2% of FD

rate. You are eligible up to 75-90% of your Fixed Deposits as loans (vary from bank to bank).

Banks also offer tax-saving Fixed Deposits which have minimum five year lock-in period.

One cant get loans against these Fixed Deposits. Investment in these Fixed Deposits is

eligible for tax exemption under 80C of IT Act.

Factors you should know before selecting a Bank FD:-

(1) Compare rate of interests.

(2) Type of interest (Fixed rate or floating rate)

(3) Frequency of compounding

(4) Mode of interest payout

(5) Withdrawal facility

(6) Sweep facility

(7) Know other attached benefits.

Benefits

1. Safety

The fixed deposits of reputed banks and financial institutions regulated by RBI (Reserve

Bank of India) the banking regulator in India are very secure and considered as one of the

safest investment methods.

2. Regular Income

Fixed deposits earn fixed interest rates for their entire tenure, which is usually compounded

quarterly. So, those who want an income on a regular basis can invest into fixed deposits anduse the interest rate as their income. This makes a fixed deposit very popular way of investing

money for retirees.

3. Saves tax

With the directives of the income tax department stating that investment in fixed deposits up

to a maximum of Rs.100,000 for 5 years are eligible for tax deductions under section 80 C of

income tax act, fixed deposits have again become popular. Fixed deposits save tax and give

high returns on invested money.
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Drawbacks

1. Lower rate of returns

While the money invested in stock markets may give you a return of 20% the fixed deposits

will yield only about 10%. So, the money grows slowly in the case of fixed deposits.

2. Taxes

The interest earned on fixed deposits is fully taxable and is added to the annual income of the

individual. Gains from stocks are considered capital gains while dividends are tax free.

3. Rising inflation can wipe out the interest benefits

The actual benefits or income from fixed deposit can be annulled by a rising inflation.

Suppose the inflation which is currently at 3 % rises to about 6%, your fixed deposit at 10%

annual return will effectively yield only(10%-6%) = 4% of return. This return would have

been (10% -3%) = 7% if the rate of inflation had not changed. This can drastically eat into

your fixed deposit income.


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Calculation of Nifty Return (mean) and Risk(S.D)-:

Table1

Where,

D= Deviation

DATE Nifty Return (%) D D^2

31-12-2012 5905.1 5.08 0.76 0.58

28-09-2012 5619.7 7.47 3.16 9.96

29-06-2012 5229 -0.37 -4.69 21.98

30-03-2012 5248.51 0.95 -3.37 11.35

30-12-2011 5199.25 -2.39 -6.71 44.98

30-09-2011 5326.6 -2.83 -7.15 51.13

30-06-2011 5482 -4.65 -8.97 80.44

31-03-2011 5749.5 4.42 0.11 0.01

31-12-2010 5505.9 -8.50 -12.82 164.38

30-09-2010 6017.7 12.11 7.80 60.77

30-06-2010 5367.6 1.70 -2.62 6.86

31-03-2010 5278 8.11 3.79 14.40

31-12-2009 4882.05 3.62 -0.70 0.49

30-09-2009 4711.7 1.62 -2.69 7.25

30-06-2009 4636.45 33.46 29.15 849.56

31-03-2009 3473.95 20.84 16.53 273.09

31-12-2008 2874.8 -0.37 -4.69 22.00

30-09-2008 2885.6 -33.40 -37.72 1422.75

30-06-2008 4332.95 -16.12 -20.44 417.80

31-03-2008 5165.9 0.55 -3.76 14.15

31-12-2007 5137.45 -12.93 -17.25 297.57

28-09-2007 5900.65 36.64 32.33 1045.02

29-06-2007 4318.3 5.64 1.32 1.74

30-03-2007 4087.9 0.13 -4.19 17.55

29-12-2006 4082.7 9.04 4.73 22.35

29-09-2006 3744.1 19.12 14.80 219.08

29-06-2006 3143.2 -10.41 -14.72 216.80

31-03-2006 3508.35 16.90 12.59 158.41

30-12-2005 3001.1 26.58 22.26 495.59

30-09-2005 2370.95 2.54 -1.78 3.17

30-06-2005 2312.3 13.59 9.27 86.01

31-03-2005 2035.65 0.00 -4.32 18.63

Sum= 138.11 Sum=6055.85


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Formula used:-

Calculation of return:-

Return= (P1- P0) / P0

Where,

P1= Current Month

P0= Base Month

Calculation of mean:-

Mean= Total Return / N

Where,

N = Number of Month.

Calculation of Variance:-

Variance = (D)^2

Where,

D= Deviation

Calculation of Standard Deviation:-

SD= Variance.

Calculation of BETA:-

Beta= Co Variance / Variance of Nifty.

Where,

Co Variance= Deviation of Investment * Deviation of Nifty.

Calculation of CAPM:-

CAPM= Rf+(Rm-Rf)*

Where,Rf= Risk Free Rate

Rm= Return from Market

= Beta.

Note:- Table - A

The following table represents the set of formulas widely used and applied to the entireproject for the purpose of computation and analysis of data.


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Calculation of Mean And Standard Deviation ofNifty-:

Property Calculation Value (%)

Mean 138.11 / 32 4.31

Variance 6055.85 / 32 189.24

Standard Deviation 13.76Table- 1.1

From the above table, we have found the following:-

Mean

Standard Deviation

Note:

The above calculated data of Nifty will help us to calculate co-variance with respect to

particular mutual funds and fixed deposits.

Calculation of Risk Free Rate (R.F):-

DATE RF Quarterly RF

31-12-2012 8 2.00

28-09-20122.00

29-06-2012 2.00

30-03-2012 2.00

30-12-2011 7.8 1.95

30-09-2011 1.95

30-06-2011 1.95

31-03-2011 1.95

31-12-2010 7.5 1.88

30-09-2010 1.88

30-06-20101.88

31-03-2010 1.88

31-12-2009 7.2 1.8

30-09-2009 1.8

30-06-2009 1.8

31-03-2009 1.8

31-12-2008 7.4 1.85

30-09-2008 1.85

30-06-2008 1.85

31-03-20081.85

31-12-2007 6.8 1.7


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28-09-2007 1.7

29-06-2007 1.7

30-03-2007 1.7

29-12-2006 5.5 1.38

29-09-2006 1.3829-06-2006 1.38

31-03-2006 1.38

30-12-2005 5.3 1.33

30-09-2005 1.33

30-06-2005 1.33

31-03-2005 1.33

Sum= 55.50

Table- 2

Calculation of mean risk free rate.


Mean 55.50/32 1.73

Table- 2.1

Quarterly Risk Free Rate is calculated to be 1.73(%).

Note:-

The above Risk Free Rate would help us to calculate Beta for mutual funds as well as for

fixed deposits.

The above interest rates has been collected from Government Deposits(Treasury bills) yearly.

Later the interest rate has been converted to quarterly data.


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SBI MAGNUM INCOME FUND

Calculation of Return, Standard Deviation, Co-variance, Beta and CAPM from the given

NAV (Net Asset Value):-

DATE SBIMAGNUM

INCOME

FUND ( NAV)

RETURN(%)

DEVIATION (D)^2D

(From

Table 1)

D*D

31-12-2012 28.12 2.40 1.03 1.05 0.76 0.78

28-09-2012 27.46 3.51 2.13 4.53 3.16 6.71

29-06-2012 26.53 3.07 1.69 2.86 -4.69 -7.93

30-03-2012 25.74 2.55 1.17 1.37 -3.37 -3.95

30-12-2011 25.1 2.83 1.45 2.10 -6.71 -9.72

30-09-2011 24.41 1.96 0.59 0.34 -7.15 -4.18

30-06-2011 23.94 2.09 0.71 0.51 -8.97 -6.38

31-03-2011 23.45 1.47 0.09 0.01 0.11 0.01

31-12-2010 23.11 0.92 -0.46 0.21 -12.82 5.91

30-09-2010 22.9 0.66 -0.72 0.52 7.80 -5.60

30-06-2010 22.75 1.52 0.14 0.02 -2.62 -0.36

31-03-2010 22.41 1.68 0.30 0.09 3.79 1.14

31-12-2009 22.04 0.92 -0.46 0.21 -0.70 0.32

30-09-2009 21.84 0.69 -0.69 0.47 -2.69 1.85

30-06-2009 21.69 3.09 1.71 2.93 29.15 49.88

31-03-2009 21.04 -6.82 -8.20 67.21 16.53 -135.48

31-12-2008 22.58 10.52 9.15 83.64 -4.69 -42.90

30-09-2008 20.43 -0.20 -1.57 2.48 -37.72 59.35

30-06-2008 20.47 -1.30 -2.68 7.18 -20.44 54.78

31-03-2008 20.74 -0.96 -2.33 5.44 -3.76 8.78

31-12-2007 20.94 2.35 0.97 0.94 -17.25 -16.70

28-09-2007 20.46 2.92 1.54 2.37 32.33 49.77

29-06-2007 19.88 0.76 -0.62 0.38 1.32 -0.82

30-03-2007 19.73 0.05 -1.33 1.76 -4.19 5.56

29-12-2006 19.72 1.28 -0.09 0.01 4.73 -0.4429-09-2006 19.47 2.04 0.67 0.44 14.80 9.86

29-06-2006 19.08 1.27 -0.10 0.01 -14.72 1.53

31-03-2006 18.84 -0.42 -1.80 3.24 12.59 -22.67

30-12-2005 18.92 0.42 -0.95 0.91 22.26 -21.22

30-09-2005 18.84 1.18 -0.20 0.04 -1.78 0.35

30-06-2005 18.62 1.64 0.26 0.07 9.27 2.41

31-03-2005 18.32 0.00 -1.38 1.90 -4.32 5.95

44.10 195.25 -13.41

Table - 3


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Calculation.


Mean 44.10/32 1.38

Variance 195.25/32 6.10

Standard Deviation Root of Variance 2.47

Covariance D*D -13.41/32 -0.42

Nifty Variance From Table 1.1 189.24

Beta Cov/ Var of Nifty -0.22%

Risk Free (RF) From Table 2.1 1.73

CAPM 1.73+(4.32-1.73)(-22%) 1.729

Table3.1

From the following table the following has been calculated:-

Mean

Standard Deviation

Covariance

Beta

CAPM


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RELIANCE INCOME FUND



DATE RELIANCEINCOME

FUND(G)

NAV

RETURN(%)

DEVIATION (D)^2D(FromTable 1)

D*D

31-12-2012 37.7 2.45 0.55 0.30 0.76 0.42

28-09-2012 36.8 8.97 7.07 50.01 3.16 22.32

29-06-2012 33.77 -2.96 -4.86 23.62 -4.69 22.78

30-03-2012 34.8 2.56 0.66 0.44 -3.37 -2.24

30-12-2011 33.93 2.29 0.39 0.15 -6.71 -2.62

30-09-2011 33.17 1.69 -0.21 0.05 -7.15 1.53

30-06-2011 32.62 1.05 -0.85 0.72 -8.97 7.60

31-03-2011 32.28 1.32 -0.58 0.34 0.11 -0.06

31-12-2010 31.86 1.05 -0.85 0.73 -12.82 10.95

30-09-2010 31.53 0.61 -1.29 1.67 7.80 -10.09

30-06-2010 31.34 1.59 -0.31 0.10 -2.62 0.82

31-03-2010 30.85 0.92 -0.98 0.97 3.79 -3.74

31-12-2009 30.57 1.33 -0.57 0.33 -0.70 0.40

30-09-2009 30.17 0.40 -1.50 2.25 -2.69 4.04

30-06-2009 30.05 3.44 1.54 2.38 29.15 44.95

31-03-2009 29.05 -5.59 -7.49 56.10 16.53 -123.78

31-12-2008 30.77 19.45 17.55 307.95 -4.69 -82.31

30-09-2008 25.76 1.50 -0.40 0.16 -37.72 15.20

30-06-2008 25.38 -0.51 -2.41 5.81 -20.44 49.26

31-03-2008 25.51 0.71 -1.19 1.42 -3.76 4.48

31-12-2007 25.33 4.63 2.73 7.43 -17.25 -47.02

28-09-2007 24.21 2.98 1.08 1.16 32.33 34.82

29-06-2007 23.51 1.56 -0.35 0.12 1.32 -0.46

30-03-2007 23.15 -0.13 -2.03 4.12 -4.19 8.50

29-12-2006 23.18 1.89 -0.01 0.00 4.73 -0.05

29-09-2006 22.75 2.52 0.62 0.39 14.80 9.23

29-06-2006 22.19 0.77 -1.13 1.27 -14.72 16.61

31-03-2006 22.02 0.64 -1.26 1.59 12.59 -15.86

30-12-2005 21.88 0.83 -1.07 1.15 22.26 -23.84

30-09-2005 21.7 1.02 -0.88 0.77 -1.78 1.56

30-06-2005 21.48 1.85 -0.05 0.00 9.27 -0.47

31-03-2005 21.09 0.00 -1.90 3.61 -4.32 8.20

=60.81 477.10 -48.87Table- 4.1


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Calculation


Mean 60.81/32 1.90

Variance 477.10/32 14.90






CAPM 1.73+(4.32-1.73)(-0.8%) 1.71

From the following table the following has been calculated-:

Mean

Standard Deviation

Covariance

Beta

Capm.


44/62


45/62

Calculation:-


Mean 60.90/32 1.90

Variance 21.44/32 0.67


Covariance D*D 14.86/32 0.46


Beta Cov/ Var of Nifty 0.24%


CAPM 1.73+(4.32-1.73)(0.24%) 1.74


Mean

Standard Deviation

Covariance

Beta

CAPM


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STATE BANK OF INDIA FIXED DEPOSIT:-



DATE AnnualRT

QuarterlyRT

DEVIATION(D)

(D)^2 D(FromTable 1)

D*D

31-12-2012 8.5 2.13 0.09 0.01 0.76 0.07

28-09-2012 8.5 2.13 0.09 0.01 3.16 0.27

29-06-2012 9.75 2.44 0.40 0.16 -4.69 -1.87

30-03-2012 9.75 2.44 0.40 0.16 -3.37 -1.34

30-12-2011 9.25 2.31 0.27 0.07 -6.71 -1.83

30-09-2011 9.25 2.31 0.27 0.07 -7.15 -1.96

30-06-2011 9 2.25 0.21 0.04 -8.97 -1.89

31-03-2011 9 2.25 0.21 0.040.11 0.0231-12-2010 9 2.25 0.21 0.04 -12.82 -2.70

30-09-2010 8.5 2.13 0.09 0.01 7.80 0.67

30-06-2010 8.5 2.13 0.09 0.01 -2.62 -0.23

31-03-2010 8.5 2.13 0.09 0.01 3.79 0.33

31-12-2009 7.75 1.94 -0.10 0.01 -0.70 0.07

30-09-2009 7.75 1.94 -0.10 0.01 -2.69 0.27

30-06-2009 7.75 1.94 -0.10 0.01 29.15 -2.96

31-03-2009 8 2.00 -0.04 0.00 16.53 -0.65

31-12-2008 8 2.00 -0.04 0.00 -4.69 0.18

30-09-2008 8 2.00 -0.04 0.00 -37.72 1.47

30-06-2008 8 2.00 -0.04 0.00 -20.44 0.80

31-03-2008 7.25 1.81 -0.23 0.05 -3.76 0.85

31-12-2007 7.25 1.81 -0.23 0.05 -17.25 3.91

28-09-2007 7.25 1.81 -0.23 0.05 32.33 -7.32

29-06-2007 7.5 1.88 -0.16 0.03 1.32 -0.22

30-03-2007 7.5 1.88 -0.16 0.03 -4.19 0.69

29-12-2006 7.5 1.88 -0.16 0.03 4.73 -0.78

29-09-2006 8 2.00 -0.04 0.00 14.80 -0.58

29-06-2006 8 2.00 -0.04 0.00 -14.72 0.58

31-03-2006 8 2.00 -0.04 0.00 12.59 -0.49

30-12-2005 7.5 1.88 -0.16 0.03 22.26 -3.65

30-09-2005 7.5 1.88 -0.16 0.03 -1.78 0.29

30-06-2005 7.5 1.88 -0.16 0.03 9.27 -1.52

31-03-2005 7.5 1.88 -0.16 0.03 -4.32 0.71

65.25 1.02 -18.81

Table - 5


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Calculation


Mean 65.25/32 2.04

Variance 1.02/32 0.032






CAPM 1.73+(4.32-1.73)(-0.31%) 1.72

Table- 5.1


Mean

Standard Deviation

Covariance

Beta

CAPM


48/62

ICICI FIXED DEPOSIT



DATE AnnualRT

QuarterlyRT

DEVIATION(D)

(D)^2 D(FromTable 1)

D*D

31-12-2012 8.5 2.13 0.19 0.037 0.76 0.15

28-09-2012 8.5 2.13 0.19 0.037 3.16 0.61

29-06-2012 9.25 2.31 0.38 0.145 -4.69 -1.79

30-03-2012 9 2.25 0.32 0.101 -3.37 -1.07

30-12-2011 9 2.25 0.32 0.101 -6.71 -2.14

30-09-2011 8.5 2.13 0.19 0.037 -7.15 -1.38

30-06-2011 8.5 2.13 0.19 0.037 -8.97 -1.73

31-03-2011 8.5 2.13 0.19 0.037 0.11 0.0231-12-2010 8.25 2.06 0.13 0.017 -12.82 -1.68

30-09-2010 8.25 2.06 0.13 0.017 7.80 1.02

30-06-2010 8 2.00 0.07 0.005 -2.62 -0.18

31-03-2010 8 2.00 0.07 0.005 3.79 0.26

31-12-2009 7.5 1.88 -0.06 0.003 -0.70 0.04

30-09-2009 7.5 1.88 -0.06 0.003 -2.69 0.15

30-06-2009 7.5 1.88 -0.06 0.003 29.15 -1.65

31-03-2009 7.5 1.88 -0.06 0.003 16.53 -0.94

31-12-2008 7.5 1.88 -0.06 0.003-4.69 0.2730-09-2008 7.5 1.88 -0.06 0.003 -37.72 2.14

30-06-2008 7 1.75 -0.18 0.033 -20.44 3.71

31-03-2008 7 1.75 -0.18 0.033 -3.76 0.68

31-12-2007 7 1.75 -0.18 0.033 -17.25 3.13

28-09-2007 7 1.75 -0.18 0.033 32.33 -5.87

29-06-2007 7 1.75 -0.18 0.033 1.32 -0.24

30-03-2007 7.25 1.81 -0.12 0.014 -4.19 0.50

29-12-2006 7.25 1.81 -0.12 0.014 4.73 -0.56

29-09-2006 7.5 1.88 -0.06 0.00314.80 -0.8429-06-2006 7.5 1.88 -0.06 0.003 -14.72 0.83

31-03-2006 7.5 1.88 -0.06 0.003 12.59 -0.71

30-12-2005 7 1.75 -0.18 0.033 22.26 -4.04

30-09-2005 7 1.75 -0.18 0.033 -1.78 0.32

30-06-2005 7 1.75 -0.18 0.033 9.27 -1.68

31-03-2005 7 1.75 -0.18 0.033 -4.32 0.78

61.81 0.932 -11.89

Table- 6


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Calculation:-


Mean 61.81/32 1.93

Variance 0.932/32 0.029



Nifty Variance From table 1.1 189.24

Beta Cov/ Var of Nifty -0.20


CAPM 1.73+(4.32-1.73)(-0.20%) 1.72


Mean

Standard Deviation

Covariance

Beta

CAPM


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FEDERAL BANK FIXED DEPOSIT



Table-7

DATE Annual

RT

Quarterly

RT

DEVIATION

(D)

(D)^2 D(From

Table 1)

D*D

31-12-2012 8.25 2.06 0.12 0.0133 0.76 0.09

28-09-2012 8.25 2.06 0.12 0.0133 3.16 0.36

29-06-2012 8.75 2.19 0.24 0.0577 -4.69 -1.13

30-03-2012 8.75 2.19 0.24 0.0577 -3.37 -0.81

30-12-2011 8.5 2.13 0.18 0.0316 -6.71 -1.19

30-09-2011 8.5 2.13 0.18 0.0316 -7.15 -1.27

30-06-2011 8.25 2.06 0.12 0.0133 -8.97 -1.03

31-03-2011 8.25 2.06 0.12 0.0133 0.11 0.01

31-12-2010 8.25 2.06 0.12 0.0133 -12.82 -1.48

30-09-2010 8 2.00 0.05 0.0028 7.80 0.41

30-06-2010 8 2.00 0.05 0.0028 -2.62 -0.14

31-03-2010 8 2.00 0.05 0.0028 3.79 0.20

31-12-2009 7.5 1.88 -0.07 0.0052 -0.70 0.05

30-09-2009 7.5 1.88 -0.07 0.0052 -2.69 0.19

30-06-2009 7.5 1.88 -0.07 0.0052 29.15 -2.11

31-03-2009 8 2.00 0.05 0.0028 16.53 0.8731-12-2008 8 2.00 0.05 0.0028 -4.69 -0.25

30-09-2008 8 2.00 0.05 0.0028 -37.72 -1.99

30-06-2008 7.5 1.88 -0.07 0.0052 -20.44 1.48

31-03-2008 7 1.75 -0.20 0.0389 -3.76 0.74

31-12-2007 7 1.75 -0.20 0.0389 -17.25 3.40

28-09-2007 7 1.75 -0.20 0.0389 32.33 -6.38

29-06-2007 7 1.75 -0.20 0.0389 1.32 -0.26

30-03-2007 7.25 1.81 -0.13 0.0182 -4.19 0.56

29-12-2006 7.25 1.81 -0.13 0.0182 4.73 -0.6429-09-2006 7.5 1.88 -0.07 0.0052 14.80 -1.07

29-06-2006 7.5 1.88 -0.07 0.0052 -14.72 1.06

31-03-2006 8 2.00 0.05 0.0028 12.59 0.66

30-12-2005 7.5 1.88 -0.07 0.0052 22.26 -1.61

30-09-2005 7.5 1.88 -0.07 0.0052 -1.78 0.13

30-06-2005 7.5 1.88 -0.07 0.0052 9.27 -0.67

31-03-2005 7.5 1.88 -0.07 0.0052 -4.32 0.31

62.31 0.5087 -11.47


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Calculation


Mean 62.31/32 1.95

Variance 0.5087/32 0.0159






CAPM 1.73+(4.32-1.73)(-0.18%) 1.73

Table:- 7.1


Mean

Standard Deviation

Covariance

Beta

CAPM


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Table For MEAN

Fund Mean

SBI MF 1.38

Reliance MF 1.9UTI MF 1.9

SBI FD 2.04

ICICI FD 1.93

Federal Bank 1.95

Table- 8

From the above table, the return from the investments (Fixed Deposits as well as

Mutual Funds), fixed deposits are performing well as compared to mutual funds. SBI Fixed

Deposits is giving a return of 2.04 which is best among Fixed Deposits as well Mutual Funds.The minimum return obtained from Fixed Deposits i.e ICICI Fixed Deposit is giving a return

of 1.93, Federal Bank is 1.95 which is better than maximum return of Mutual Funds from the

year 2005 to 2012.

Figure- 1

The above graph represents the returns from Mutual Funds and Fixed Deposits.

0.00

0.50

1.00

1.50

2.00

2.50

Sbi MF Reliance MF UTI MF Sbi FD ICICI FD Federal Bank

1.38

1.9 1.9 2.04 1.93 1.95

Mean


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Table For Standard Deviation

Fund SD

Sbi MF 2.47


Sbi FD 0.18

ICICI FD 0.17

Federal Bank 0.126Table-9

The above table shows the risk involved in the investment. Reliance Mutual Fund has

the highest risk i.e 3.86 among the Mutual Funds and Fixed Deposits and from the table it isclear that Mutual Funds are highly riskier as compared to Fixed Deposits.

Figure-2

The above figure represents the risks associated with Mutual Funds and Fixed Deposits.

0

0.5

1

1.5

2

2.5

3

3.5

4

Sbi MF Reliance MF UTI MF Sbi FD ICICI FD Federal

Bank

2.47

3.86

0.82

0.18 0.17 0.12

Sd


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Comparing Risk And Return

Fund SD Mean

SBI MF 2.47 1.38

Reliance MF 3.86 1.9

UTI MF 0.82 1.9

SBI FD 0.18 2.04

ICICI FD 0.17 1.93

Federal Bank 0.126 1.95

Table-10

The above table represents the relationship between risk and return of the Mutual

Funds as well as Fixed Deposits. From the table we can interpret that Mutual Funds are morerisky than Fixed Deposits. And return of Fixed Deposits is more as compared to Mutual

Funds.

Figure-3

The above chart clearly represents the risk and the return relationship.

From the investor point of view, standard deviation that is risk should be low and mean that is

return should be high.

0.00

1.00

2.00

3.00

4.00

Sbi MFReliance

MF

UTI MF

Sbi FD ICICI FDFederal

Bank

Chart Title

Mean

Sd


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Table for Beta

Fund Beta

SBI MF -0.21%

Reliance MF -0.78%UTI MF 0.24%

SBI FD -0.30%

ICICI FD -0.19%

Federal Bank -0.18%Table-11

The above table represents that all the investments have a negative beta except for one that is

UTI Mutual Fund is0.24%.

It is also clear the above investments have a negligible beta so that it can be taken as zero.Thus movement of funds is uncorrelated with the movement of index.

Beta () and its significance

Value of Beta Interpretation

< 0Asset generally moves in the opposite direction as compared to

the index

= 0 Movement of the asset is uncorrelated with the movement of theindex

0 < < 1 Movement of the asset is generally in the same direction as, butless than the movement of the index

= 1 Movement of the asset is generally in the same direction as, andabout the same amount as the movement of the index

> 1 Movement of the asset is generally in the same direction as, butmore than the movement of the index

Table-B


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Figure-4

The above figure represents beta( a number describing thecorrelatedvolatilityof an asset in

relation to the volatility of the index that said asset is being compared to) of various

investments.

-0.80%

-0.60%

-0.40%

-0.20%

0.00%

0.20%

0.40%

Sbi MF Reliance

MF

UTI MF Sbi FD ICICI FD Federal

Bank

Beta -0.21% -0.78% 0.24% -0.30% -0.19% -0.18%

AxisTitle

Beta
http://en.wikipedia.org/wiki/Correlationhttp://en.wikipedia.org/wiki/Correlationhttp://en.wikipedia.org/wiki/Volatility_(finance)http://en.wikipedia.org/wiki/Volatility_(finance)http://en.wikipedia.org/wiki/Volatility_(finance)http://en.wikipedia.org/wiki/Volatility_(finance)http://en.wikipedia.org/wiki/Correlation


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Table for CAPM

Fund Capm

SBI MF 1.72


SBI FD 1.72

ICICI FD 1.72

Federal Bank 1.73Table-12

The CAPM says that the expected return of a security or a portfolio equals the rate on a risk-

free security plus a risk premium. If this expected return does not meet or beat the requiredreturn, then the investment should not be undertaken.

The above table represents the CAPM values which is equal to or more than Risk Free Rate

except for Reliance Mutual Fund.

Reliance Mutual Fund has a CAPM of 1.71 which is less than Risk Free Rate that is 1.72 and

thus the investment should not be undertaken.

Figure-5

The above figure represents different sets of CAPM values for different investment.

UTI has highest value. Thus, premium is given by this investment at a higher rate as

compared to others.

1.69

1.7

1.71

1.72

1.73

1.74

Sbi MF Reliance MF UTI MF Sbi FD ICICI FD Federal Bank

CAPM


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4.Conc l us io ns an d s ug g e s t ions

conclusions

BANKS MUTUAL FUNDS

Returns Low Better

Administrative exp. High Low

Risk Low Moderate

Investment option Less More

Network High penetration Low but improving

Liquidity At a cost Better

Quality of Assets Not Transparent Transparent

Interest calculation Quarterly

i.e. 3rd

6th

9th

& 12th

.

Every Month

Guarantor Guarantor is needed. Guarantor is not needed.

Account Needed Not Needed.


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Suggestions

Thus it is clear from the above conclusion that Mutual Funds provide a low rate of

return and are riskier to invest as compared to Fixed Deposits that are comparatively

secure and yield high returns.

Thus , it is better to invest in Fixed Deposits due to the following reasons-:

Safety

The fixed deposits of reputed banks and financial institutions regulated by RBI (Reserve

Bank of India) the banking regulator in India are very secure and considered as one of

the safest investment methods.

Regular Income

Fixed deposits earn fixed interest rates for their entire tenure, which is usually

compounded quarterly. So, those who want an income on a regular basis can invest into

fixed deposits and use the interest rate as their income. This makes a fixed deposit very

popular way of investing money for retirees. Saves tax

With the directives of the income tax department stating that investment in fixed

deposits up to a maximum of Rs.100,000 for 5 years are eligible for tax deductions

under section 80 C of income tax act, fixed deposits have again become popular.Fixed

deposits save taxand give high returns on invested money.

Guaranteed return. The only reason why our parents and many inour generation also have this single concept of investment isbecause of its safety features.

Easy to raise a loan against your FD. One can borrow up to 90 percent of the FDs amount.

Flexible maturity date, it is for this feature that you can invest for atime frame that is as less as 6 months to as long as 10 years oreven more.

Bibliography

REFERENCE BOOK:

FINANCIAL MARKET AND SERVICES- Gordon and Natarajan.
http://www.rupeetimes.com/article/fixed_deposits/tax_saver_fixed_deposits_in_india_earn_you_more_1007.htmlhttp://www.rupeetimes.com/article/fixed_deposits/tax_saver_fixed_deposits_in_india_earn_you_more_1007.htmlhttp://www.rupeetimes.com/article/fixed_deposits/tax_saver_fixed_deposits_in_india_earn_you_more_1007.htmlhttp://www.rupeetimes.com/article/fixed_deposits/tax_saver_fixed_deposits_in_india_earn_you_more_1007.htmlhttp://www.rupeetimes.com/article/fixed_deposits/tax_saver_fixed_deposits_in_india_earn_you_more_1007.htmlhttp://www.rupeetimes.com/article/fixed_deposits/tax_saver_fixed_deposits_in_india_earn_you_more_1007.html


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INVESTMENT MANAGEMENT - V.K.BHALLA

Research Methodology Kothari.

WEBSITE:

www.mutualfundindia.com

www.indiamarkets.com

www.utimf.com

www.reliancemutual.com

www.sebi.gov.in

www.moneycontrol.com
http://www.sebi.gov.in/http://www.sebi.gov.in/http://www.sebi.gov.in/

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