Master of Business Administration - MBA Semester 4MF0017 – Merchant Banking and Financial Services

Assignment Set- 1

Q.1 What do you understand by insider trading. What are the SEBI rules and regulations to prevent insider trading.

Ans:- "Insider trading" is a term subject to many definitions and connotations and it encompasses both legal and prohibited activity. Insider trading takes place legally every day, when corporate insiders – officers, directors or employees – buy or sell stock in their own companies within the confines of company policy and the regulations governing this trading. It is the trading that takes place when those privileged with confidential information about important events use the special advantage of that knowledge to reap profits or avoid losses on the stock market, to the detriment of the source of the information and to the typical investors who buy or sell their stock without the advantage of "inside" information. Almost eight years ago, India's capital markets watchdog – the Securities and Exchange Board of India organised an international seminar on capital market regulations. Among others issues, it had invited senior officials of the Securities and Exchange Commission to tell us how it tackled the menace of insider trading.

SEBI rules and regulations to prevent insider trading.

SEBI had amended the Insider Trading Regulations 1992 vide a Notification dated November 19, 2008 which I had discussed it here and here. SEBI has now released a set of "Clarifications" on 24th July 2009 on certain issues arising out of the amendments made. I had opined on some of these issues in my earlier posts referred to above and hence me update on what are the clarifications so given.

Curiously, the "clarifications" have no formal standing or reference. It is neither a circular, nor a notification, nor even a press release. It is neither signed nor dated. But it seeks to "clarify" and giving meaning to the Regulations that have legal standing and where such "meaning" is quite contrary - as we will see - to the plain reading of the text. Having said that, the "clarifications" mostly relaxes the requirements and hence, being gift horses, one should not examine them in the mouth too closely!

Let us see the clarifications given.

Recollect that specified persons were banned from carrying out opposite transactions "(banned transactions") for six months of original buy/sale ("original transactions"). The question was whether acquisition of shares under ESOPs scheme and sale of such shares would be considered as transactions that trigger off such ban and whether these themselves are banned.

It is clarified that exercise of ESOPs will neither be deemed to be "original transaction" nor "banned transaction". Thus, by acquiring shares under ESOPs, you don't trigger a ban and if you are banned for six months, you can still exercise ESOPs. The reasoning given is that the ban is only on transactions in secondary market.(Incidentally, I had felt that "However, taking all things

into account, perhaps the intention is not to cover shares acquired under ESOPs Schemes. ").

But sale of shares acquired through ESOPs is covered but it will only be deemed to be a "original transaction" and not a "banned transaction". In other words, even if you are under a ban, you can still sell shares acquired under ESOPs but once you sell such shares, you have triggered a ban of six months. On this aspect, I do not understand the basis of clarifying that the sale of shares acquired under ESOPs scheme will not be an "original transaction" - the logic of covering secondary market transactions should apply here also.

Then, it is clarified that every later transaction triggers a fresh six month ban. A purchase on 1st February results in ban till 1st August. However, if there is a fresh purchase on 15th March, there is a ban now till 15th September. Effectively, this means that the ban period is from 2nd Febuary till 15th September.

What about transactions before this amendment - will the amendment create ban in respect of them too - this is an academic issue now at least as the six month period is now complete. It is clarified though that the transactions before the amendment are not to be considered. On a similar note, unwinding of positions in derivatives held on the date of this amendment is possible.

A crucial clarification is that the ban on "sale" of shares for personal emergencies is permisible by waiver by the Compliance Officer. This is not evident from a plain reading of the provision and I had opined that "This bar on such transactions is total. There are no circumstances – whether of urgent need or otherwise – under which the bar can be lifted. There is also no provision under which even SEBI could grant exemption.". But SEBI thinks it is so evident and hence let us accept this gift without creating legal niceties! Note that this clarification applies only to sales and there can be no purchases within these six month ban period - obviously there cannot be any personal emergency to purchase shares!

Q.2 What is the provision of green shoe option and how is it used by companies to stabilize prices.

Ans:- Green Shoe Option (GSO) is an option where a company can retain a part of the over-subscribed capital by issuing additional shares. Oversubscription is a situation when a new stock issue has more buyers than shares to meet their orders. This excess demand over supply increases the share price. There is another situation called undersubscription. In undersubscription, a new stock issue has fewer buyers than the shares available. An issuing company appoints a stabilizing agent, which is usually an underwriter or a lead manager, to purchase shares from the open market using the funds collected from the over-subscription of shares. The stabilizing agent stabilizes the price for a period of 30 days from the date of listing as authorised by the SEBI. Green shoe option agreement allows the underwriters to sell 15 percent more shares to the investors than planned by the issuer in an underwriting. Some issuers do not include green shoe options in their underwriting contracts under certain circumstances where the issuer funds a particular project with a fixed amount of price and does not require more funds than quoted earlier. The green shoe option is also known as over-allotment option. The over-allotment refers

to allocation of shares in excess of the size of the public issue made by the stabilizing agent out of shares borrowed from the promoters in pursuance of a GSO exercised by the issuing company.

The greenshoe option is popular because it is the only SEC-permitted means for an underwriter to stabilize the price of a new issue post-pricing. Issuers will sometimes not permit a greenshoe on a transaction when they have a specific objective for the offering and do not want the possibility of raising more money than planned. The term comes from the first company, Green Shoe Manufacturing now called Stride Rite Corporation, to permit underwriters to use this practice in its offering.

The mechanism by which the greenshoe option works to provide stability and liquidity to a public offering is described in the following example:

A company intends to sell 1 million shares of its stock in a public offering through an investment banking firm (or group of firms which are known as the syndicate) whom the company has chosen to be the offering's underwriter(s). When the stock offering is the first time the stock is available for public trading, it is called an IPO (initial public offering). When there is already an established market and the company is simply selling more of their non-publicly traded stock, it is called a follow-on offering.

The underwriters function as the broker of these shares and find buyers among their clients. A price for the shares is determined by agreement between the company and the buyers. One responsibility of the lead underwriter in a successful offering is to help ensure that once the shares begin to publicly trade, they do not trade below the offering price.

When a public offering trades below its offering price, the offering is said to have "broke issue" or "broke syndicate bid". This creates the perception of an unstable or undesirable offering, which can lead to further selling and hesitant buying of the shares. To manage this possible situation, the underwriter initially oversells ("shorts") to their clients the offering by an additional 15% of the offering size. In this example the underwriter would sell 1.15 million shares of stock to its clients. When the offering is priced and those 1.15 million shares are "effective" (become eligible for public trading), the underwriter is able to support and stabilize the offering price bid (which is also known as the "syndicate bid") by buying back the extra 15% of shares (150,000 shares in this example) in the market at or below the offer price. They can do this without the market risk of being "long" this extra 15% of shares in their own account, as they are simply "covering" (closing out) their 15% oversell short.

If the offering is successful and in strong demand such that the price of the stock immediately goes up and stays above the offering price, then the underwriter has oversold the offering by 15% and is now technically short those shares. If they were to go into the open market to buy back that 15% of shares, the underwriter would be buying back those shares at a higher price than it sold them at, and would incur a loss on the transaction.

This is where the over-allotment (greenshoe) option comes into play: the company grants the underwriters the option to take from the company up to 15% more shares than the original offering size at the offering price. If the underwriters were able to buy back all of its oversold shares at the offering price in support of the deal, they would not need to exercise any of the

greenshoe. But if they were only able to buy back some of the shares before the stock went higher, then they would exercise a partial greenshoe for the rest of the shares. If they were not able to buy back any of the oversold 15% of shares at the offering price ("syndicate bid") because the stock immediately went and stayed up, then they would be able to completely cover their 15% short position by exercising the full greenshoe.

Q.3 Discuss the proportionate allotment procedure followed by the lead banker to allot shares.

Ans:- The post-issue Lead Merchant Banker shall ensure that moneys received pursuant to the issue and kept in a separate bank (i.e. Bankers to an Issue), as per the provisions of section 73(3) of the Companies Act 1956, is released by the said bank only after the listing permission under the said Section has been obtained from all the stock exchanges where the securities were proposed to be listed as per the offer document.

Post-issue Advertisements -(Clause 7.5)

Post-issue Lead Merchant Banker shall ensure that in all issues, advertisement giving details relating to over-subscription, basis of allotment, number, value and percentage of applications received along with stockinvest, number, value and percentage of successful allottees who have applied through stockinvest, date of completion of despatch of refund orders, date of despatch of certificates and date of filing of listing application is released within 10 days from the date of completion of the various activities at least in an English National Daily with wide circulation, one Hindi National Paper and a Regional language daily circulated at the place where registered office of the issuer company is situated.

Post-issue Lead Merchant Banker shall ensure that issuer company / advisors / brokers or any other agencies connected with the issue do not publish any advertisement stating that issue has been over-subscribed or indicating investors' response to the issue, during the period when the public issue is still open for subscription by the public.

Advertisement stating that "the subscription to the issue has been closed" may be issued after the actual closure of the issue.

Basis of Allotment -(Clause 7.6)

In a public issue of securities, the Executive Director/Managing Director of the Designated Stock Exchange along with the post issue Lead Merchant Banker and the Registrars to the Issue shall be responsible to ensure that the basis of allotment is finalised in a fair and proper manner in accordance with the following guidelines:. Provided, in the book building portion of a book built public issue notwithstanding the above clause, Clause 11.3.5 of Chapter XI of these Guidelines shall be applicable.

Proportionate Allotment Procedure

The allotment shall be subject to allotment in marketable lots, on a proportionate basis as explained below:

a. Applicants shall be categorised according to the number of shares applied for. b. The total number of shares to be allotted to each category as a whole shall be arrived at

on a proportionate basis i.e. the total number of shares applied for in that category (number of applicants in the category x number of shares applied for) multiplied by the inverse of the over-subscription ratio as illustrated below:

     Total number of applicants in category of 100s - 1,500

Total number of shares applied for - 1,50,000

Number of times over-subscribed - 3

Proportionate allotment to category - 1,50,000 x 1/3 = 50,000

c. Number of the shares to be allotted to the successful allottees shall be arrived at on a proportionate basis i.e. total number of shares applied for by each applicant in that category multiplied by the inverse of the over-subscription ratio. Schedule XVIII of basis of allotment procedure may be referred to.

     Number of shares applied for by – 100 each applicant

Number of times oversubscribed – 3

Proportionate allotment to each successful applicant - 100 x 1/3 = 33     (to be rounded off to 100)

d. All the applications where the proportionate allotment works out to less than 100 shares per applicant, the allotment shall be made as follows:

i. Each successful applicant shall be allotted a minimum of 100 securities; and

ii. The successful applicants out of the total applicants for that category shall be determined by drawal of lots in such a manner that the total number of shares allotted in that category is equal to the number of shares worked out as per (ii) above.

e. If the proportionate allotment to an applicant works out to a number that is more than 100 but is not a multiple of 100 (which is the marketable lot), the number in excess of the multiple of 100 shall be rounded off to the higher multiple of 100 if that number is 50 or higher.

f. If that number is lower than 50, it shall be rounded off to the lower multiple of 100. As an illustration, if the proportionate allotment works out to 250, the applicant would be allotted 300 shares.

g. If however the proportionate allotment works out to 240, the applicant shall be allotted 200 shares. All applicants in such categories shall be allotted shares arrived at after such rounding off.

h. If the shares allocated on a proportionate basis to any category is more than the shares allotted to the applicants in that category, the balance available shares for allotment shall be first adjusted against any other category, where the allocated shares are not sufficient for proportionate allotment to the successful applicants in that category.

i. The balance shares if any, remaining after such adjustment shall be added to the category comprising applicants applying for minimum number of shares.

j. As the process of rounding off to the nearer multiple of 100 may result in the actual allocation being higher than the shares offered, it may be necessary to allow a 10% margin i.e. the final allotment may be higher by 10 % of the net offer to public.

Q.4 What are the advantages of leasing to a company.

Ans:- Leasing has many advantages for the lessee as well as for the lessor. Lease financing offers the following benefits to the lessee:

One hundred percent finance without immediate down payment for huge investments, except for his margin money investment.

Facilitates the availability and use of equipments without the necessary blocking of capital funds.

Acts as a less costly financing alternative as compared to other source of finance.

Offers restriction free financing without any unduly restrictive covenants.

Enhances the working capital position.

Provides finance without diluting the ownership or control of the lessor.

Offers tax benefits which depend on the structure of the lease.

Enables lessee to pay rentals from the funds generated from operations as lease structure can be made flexible to suit the cash flow.

When compared to term loan and institutional financing, lease finance can be arranged fast and documentation is simple and without much formalities.

The lessor being the owner of the asset bears the risk of obsolescence and the lessee is free on this score. This gives the option to the lessee to replace the equipment with latest technology

The following are the benefits offered by lease financing to the lessor:

The lessor’s ownership is fully secured as he is the owner and can always take possession in case of default by the lessee.

Tax benefits are provided on the depreciation value and there is a scope for him to avail more depreciation benefits by tax planning.

High profit is expected as the rate of return increases

Return on equity is elevated by leveraging results in low equity base which enhance the earnings per share.

High growth potential is maintained even during periods of depression.

Q.5 Discuss Accounting standard 19 for lease based on operating lease.

Ans:- Accounting Standard (AS)-19, Leases, is issued by the Council of the Institute of Chartered Accountants of India. This standard comes into force with respect of all assets leased during accounting periods commencing on or after 1.4.2001 and is mandatory in nature from that date. Accordingly, the ‘Guidance Note on Accounting for Leases’ issued by the Institute in 1995, is not applicable in respect of such assets. Earlier application of this Standard is, however, encouraged.

Scope

The right accounting policies and disclosures in relation to finance leases and operating leases should be applied in accounting for all leases other than the following:

Lease agreements to explore or to use natural resources, such as oil, gas , timber, metals and other mineral rights; and

Licensing agreements for items such as motion picture films, video recordings, plays, manuscripts, patents and copyrights; and

Lease agreements to use property such as lands.

Related definitions

The following terms are used in this statement:

Lease – A lease is an agreement calling for the lessee (user) to pay the lessor (owner) for use of an asset for an agreed period of time. A rental agreement is a lease in which the asset is a substantial property.

Finance lease – A lease which transfers all the risks and rewards incident to ownership of an asset.

Operating lease – A lease for which the lessee acquires the property for only a small portion of its useful life.

Non-cancellable lease – A non-cancellable lease is a lease that can be abandoned only:

Inception of lease – The inception of lease is the former date of the lease agreement and the commitment date by the parties to the principal provisions of the lease.

Lease term – The lease term is the non cancellable period for which the lessee has agreed to take on lease asset together with future periods.

Minimum lease payments – It is the regular rental payments excluding executory costs to be paid by the lessee to the lessor in a capital lease. The lessee informs that an asset and liability at the discounted value of the future minimum lease payments.

Fair value – The expected value of all assets and liabilities of a owned company used to combine the financial statements of both companies.

Economic life – The outstanding period of time for which real estate improvements are expected to generate more income than operating expenses cost.

Useful life – Useful life of a leased asset is either the period over which leased asset is expected to be useful by the lessee or the number of production units expected to be gained from the use of the asset by the lessee.

Residual value – The value of a leased asset is the estimated fair value of the asset at the end of the lease term.

Guaranteed residual value – It is guaranteed by the lessee or by a party on behalf of the lessee to pay the maximum amount of the guarantee; and in the case of the lessor, the part of the residual value which is guaranteed by the lessee or on behalf of the lessee, or an independent third party who is financially able of discharging the obligations under the guarantee.

Unguaranteed residual valued of a lease asset – It is the value of a leased asset that is the total amount by which the residual value of the asset exceeds its guaranteed residual value.

Gross investment in the lease – It is the sum of the minimum lease payments within a finance lease from the lessors’ view and any unguaranteed residual value accumulating to the lessor.

Unearned finance income – Any income that comes from investments and other sources unrelated to employment services.

Net investment in the lease – Net investment in the lease is the gross investment in the lease less unearned finance income.

Implicit interest – An interest rate that is not explicitly stated, but the implicit rate can be determined by use of present value factors.

Contingent rent – It is the portion of the lease payments that is not permanent in amount but is based on a factor other than just the passage of time. For example, percentage of sales.

Classification of leases

The lease can be classified as either a finance lease or an operating lease based on different accounting treatments as required for the different types of lease. This classification is based on the extent to which risks and rewards of ownership of leased asset are transferred to the lessee or remain with the lessor. Risks include loss from idle capacity, technological obsolescence, and variations in return. Rewards include the rights to sell the asset and gain from its capital value.

Leases are classified as a finance lease if it transfers considerably all the risks and rewards of ownership to the lessee; else if it does not then it is an operating lease. While classifying a lease, it is important to recognize the essence of the agreement and not just its legal form. The commercial reality is always important. Conditions in the lease may specify that an entity has only a limited disclosure to the risks and benefits of the leased asset.

The following are some of the situations where an individual or in combination, would usually direct to a lease being a finance lease:

Transfer of ownership to the lessee by the end of the lease term. The lessee has the choice to purchase the asset at a cost that is expected to be lower than

its fair value and such that the option is likely to be exercised.

The lease term is for a key part of the financial life of the asset, even if title to the asset is not transferred.

The current value of the least lease payments is equal to substantially all of the fair value of the asset.

The leased resources are of a specialized nature such that only the lessee can use them without significant modification.

Losses or gains from changes in the fair value of the residual value of the asset add to the lessee.

The lessee has the option to continue the lease for a secondary term at significantly below market rent.

The following are some of the situations where an individual or in combination, would usually direct to a lease being an operating lease:

If the lessor experiences the risk associated with a movement in the market value of the asset or the use of the asset.

If there is an option to cancel, and the lessee is likely to exercise such an option.

Leases of land, if title is not transferred.

If the title to the land is not likely to pass to the lessee, then the rewards and risks of ownership has not substantially passed.

The lowest lease payments need to be allocated between the land and the building component in proportion to their relative fair values of the lease holding interests at the beginning of the lease. If the allocation is not be made reliably, then both leases are treated as finance leases or as operating leases.

Leases in the financial statements of lessees

Let us now discuss about leases in the financial statement of lessees.

Operating lease

In an operating lease, the lease payments are recognised as an expenditure on a straight-line basis over the lease term, unless another organised basis is more representative of the pattern of the user’s benefit. The incentives in operating leases will be in the form of up-front payments and rent-free periods. These need to be properly noticed over the lease term from its commencement.

Finance lease

At the initiation of the lease term, lessees identify finance leases as assets and liabilities in their balance sheets on sum equal to the value of the leased asset or, if lower, on the current value of the minimum lease payments. The discount rate in calculating the current value of the minimum lease payments is the interest rate contained in the lease, if this is possible to determine. Else, the lessee’s incremental borrowing rate can be used. Any initial direct costs of the lessee are included to the amount identified as an asset. After the initial recognition, the lease payments are assigned between the repayment of the outstanding liability and the finance charge in order to reflect a constant periodic rate of interest on the liability.

The asset needs to be depreciated over its expected useful life under IAS 16, using rates for similar assets. If there is no reasonable certainty that ownership will transfer to the lessee, then the shorter of the lease term and the useful life must be used.

Leases in the financial statements of lessors

This section analyses leases in the financial statement of lessors.

Operating lease

Lessors present assets under operating leases in their balance sheets based on the nature of the asset. The depreciation policy for depreciable leased assets will be consistent with the lessor’s normal depreciation policy for related assets, and depreciation is calculated in accordance with International Accounting Standard (IAS 16 and IAS 38). Lease income from operating leases is identified in income on a straight-line basis over the lease term, unless another organised basis is more representative of the pattern in which user benefit derived from the leased asset is reduced.

Finance lease

Lessors recognise assets held under a finance lease in their balance sheets and present them as a receivable on an amount equal to the net investment in the lease. The identification of finance income is based on a pattern showing a periodic rate of return on the lessor’s net investment in the finance lease.

The dealer lessors recognise selling profit or loss in the period, based on the policy followed by the entity for outright sales. If low rates of interest are quoted, selling profit will be restricted which would apply if a market rate of interest were charged. Costs incurred by manufacturer or dealer lessors associated with negotiating and arranging a lease will be recognised as an expense when the selling profit is identified.

Q.6 Given the various types of mutual funds, take any two schemes and discuss the performance of the schemes.

Ans:- Different types of mutual fund schemes

Schemes according to Maturity Period:

A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.

Open-ended Fund/ Scheme

An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.

Close-ended Fund/ Scheme

A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. 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 the units 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 i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.

Schemes according to Investment Objective:

A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:

Growth / Equity Oriented Scheme

The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

Income / Debt Oriented Scheme

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.

Balanced Fund

The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund

These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.

Gilt Fund

These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.

Index Funds

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.

There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.

How to know the performance of a mutual fund scheme?

The performance of a scheme is reflected in its net asset value (NAV) which is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes. The NAVs of mutual funds are required to be published in newspapers. The NAVs are also available on the web sites of mutual funds. All mutual funds are also required to put their NAVs on the web site of Association of Mutual Funds in India (AMFI) www.amfiindia.com and thus the investors can access NAVs of all mutual funds at one place

The mutual funds are also required to publish their performance in the form of half-yearly results which also include their returns/yields over a period of time i.e. last six months, 1 year, 3 years, 5 years and since inception of schemes. Investors can also look into other details like percentage of expenses of total assets as these have an affect on the yield and other useful information in the same half-yearly format.

The mutual funds are also required to send annual report or abridged annual report to the unitholders at the end of the year.

Various studies on mutual fund schemes including yields of different schemes are being published by the financial newspapers on a weekly basis. Apart from these, many research agencies also publish research reports on performance of mutual funds including the ranking of

various schemes in terms of their performance. Investors should study these reports and keep themselves informed about the performance of various schemes of different mutual funds.

Investors can compare the performance of their schemes with those of other mutual funds under the same category. They can also compare the performance of equity oriented schemes with the benchmarks like BSE Sensitive Index, S&P CNX Nifty, etc.

On the basis of performance of the mutual funds, the investors should decide when to enter or exit from a mutual fund scheme.