Performance Evaluation of Mutual Funds in India

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PERFORMANCE EVALUATION OF MUTUAL FUNDS

IN INDIA

Submitted in partial fulfillment of te re!uirement of

Au"ilium #olle$e %Autonomou&' for te a(ard of te

MASTER DE)REE

In

COMMERCE

Submitted *+

),SO-MI.A

%RE), NO, ECO/0120'

Under te $uidan#e of

Dr, N, FAT3IMA T3A*ASSUM, M,Com,4 M,Pil,4 M*A,4 P,D,4ASSISTANT PROFESSOR

DEPARTMENT OF COMMERCE

AU5ILIUM COLLE)E4 %Autonomou&'

%Re6A##redited b+ NAAC (it A )rade (it a C)PA of 2,7/out of 7'

Vellore 8 92:009

:0// 8 :0/:



DEPARTMENT OF COMMERCE

AU5ILIUM COLLE)E4 %Autonomou&'

%Re6A##redited b+ NAAC (it A )rade (it a C)PA of 2,7/out of 7'

Vellore 8 92:009

:0// 8 :0/:

CERTIFICATE

This is to certify that project report entitled “PERFORMANCE

EVALUATION OF PU*LIC AND PRIVATE SECTOR

MUTUAL FUNDS IN INDIA; being submitted to Auxiliumcollege (Autonomous), Vellore by ),SO-MI.A4 Re$, No,

ECO/0120 carried out in partial fulfillment of for the award ofthe Masters !egree in "ommerce is a bonafide record of wor#carried out by her, under guidance and super$ision%

M&, N,FAT3IMA T3A*ASSUM, M,Com4

M,Pil,4 M*A,4

&'"T',

Auxilium "ollege, Vellore * +-..+

/ubmitted for the Vi$a0Voce 'xamination

E"aminer&<

1%

-%



DECLARATION

2 hereby declare that the project wor# entitled=PERFORMANCE EVALUATION OF MUTUAL FUNDS

IN INDIA ; carried out in partial fulfillment of the Master of"ommerce degree course of Auxilium "ollege (Autonoums) ismy original wor#%

3lace4 Vellore 5%/67M28A

!ate4 March -.1-



AC>NO-LED)EMENT

2 than# 5od, the Almighty who is the author of all inspiration%

2 extend my sincere than#s to Au"ilium Colle$e for gi$ing me an

opportunity to underta#e this project for the Master !egree in "ommerce%

2 would li#e to than# our respected principal Re?, Sr, Dr, EU)INI

FAT3IMA MAR., L, M,A,4 P,D,4 L,S,)% for gi$ing us the inspiration

and moral support to complete our project wor#%

2 express my deep sense of gratitude to Mr&, Au"ilia Ro@ario

M,#om,4 M,pil,4 P,D,4 3ead in #ar$e4 Department of Commer#e

%&ift II'4 for moti$ating and inspiring me to complete this project wor#%

2 express my sincere gratitude to my respectable guide Dr,

N,Fatima Taba&&um M,Com,4 M,Pil,4 M*A,4 P,D,4 A&&i&tant

Profe&&or4 Au"ilium Colle$e, 2 express my sincere gratitude to our respectable professors in the!epartment of "ommerce, Auxilium "ollege%

2 express my faithful gratitude to my lo$ing parent& and my belo$ed

broter&, for their help and support with which 2 could purse my research

without any difficulty% 2 would also li#e to than# my friend& for their help,

moral support and moti$ation%

9inally, 2 wish to express my than#s to the entire end0users who

extended their #ind help and co0operation in completing my project wor#

successfully%

),SO-MI.A



CONTENTS

C3APTER

NO

PARTICULARS PA)E NO

2 2:T6!T26:1%1 ;istory of mutual fund

1%- Ad$antages of mutual funds

1%!isad$antages of mutual funds

1%< 6bjecti$es

1%= esearch Methodology

1%+ /cope of the study

1%> &imitations of the study

1%? "hapterisation

22 'V2'7 69 &2T'AT'222 @A/2" "6:"'3T/ A:!

T'M2:6&652'/

%1 @asic Terminlogies

%- Types of mutual funds schemes

% steps to choose right mutual funds

schemes

%< 3rocedure for registering mutual

funds schemes%= Meaning of AM92

%+ Top 1. mutual funds in the year

-.11

< 3'96MA:"' 'VA&AT26:

69 MTA& 9:!/ /";'M'/

= 92:!2:5/ A:! "6:"&/26:/

@2@&265A3;8

A33':!'



C3APTER6I

INTRODUCTION

Mutual fund is an in$estment $ehicle that pools together funds from

in$estors to purchase stoc#s, bonds or other securities% An in$estor can

participate in the mutual fund by buying the units of the fund% 'ach unit is

bac#ed by a di$ersified pool of assets, where the funds ha$e been in$ested%

A mutual fund is the ideal in$estment $ehicle for todays complex and

modern financial scenario%

/,/, 3ISTRO. OF MUTUAL FUND

7orldwide, Mutual 9und or nit Trust as it is referred to in some parts of

the world, has a long and successful history% The popularity of Mutual 9unds

has increased manifold in de$eloped financial mar#ets, li#e the nited

/tates% As at the end of March -..?, in the / alone there were ?,.+<

mutual funds with total assets of about /B 11%>< trillion (s%<>. la#e

cores)% 2n 2ndia, the mutual fund industry started with the setting up of the

erstwhile nit Trust of 2ndia in 1C+% 3ublic sector ban#s and financial

institutions were allowed to establish mutual funds in 1C?>% /ince 1CC,

pri$ate sector and foreign institutions were permitted to set up mutual funds%2n 9ebruary -.., following the repeal of the nit Trust of 2ndia Act 1C+

the erstwhile T2 was bifurcated into two separate entities $iD%,the /pecified

nderta#ing of the nit Trust of 2ndia, representing broadly, the assets of



/ +< scheme, schemes with assured returns and certain other schemes and

T2 Mutual 9und conforming to /'@2 Mutual 9und egulations%

/,:, ADVANTA)ES OF MUTUAL FUNDS

Profe&&ional Mana$ement<

3rofessional money managers research, select, and monitor the performance

of the securities the fund purchases%

Di?er&ifi#ation<

!i$ersification is an in$esting strategy that can be neatly summed up as

E!onFt put all your eggs in one bas#et%E /preading your in$estments across a

wide range of companies and industry sectors can help lower your ris# if a

company or sector fails% /ome in$estors find it easier to achie$e

di$ersification through ownership of mutual funds rather than through

ownership of indi$idual stoc#s or bonds%

Affordabilit+<

/ome mutual funds accommodate in$estors who donFt ha$e a lot of money to

in$est by setting relati$ely low pound amounts for initial purchases,

subseGuent monthly purchases, or both%

Li!uidit+<

Mutual fund in$estors can readily redeem their shares plus any fees and

charges assessed on redemption at any time%



/,2, DISADVANTA)ES OF MUTUAL FUNDS

Co&t& de&pite Ne$ati?e Return&<

2n$estors must pay sales charges, annual fees, and other expenses regardless

of how the fund performs% And, depending on the timing of their in$estment,

in$estors may also ha$e to pay taxes on any capital gains distribution they

recei$e 0 e$en if the fund went on to perform poorly after they bought

shares%

La#B of Control<

2n$estors typically cannot ascertain the exact ma#e0up of a fundFs portfolio

at any gi$en time, nor can they directly influence which securities the fund

manager buys and sells or the timing of those trades%

Pri#e Un#ertaint+<

7ith an indi$idual stoc#, you can obtain real0time (or close to real0time)

pricing information with relati$e ease by chec#ing financial websites or by

calling your bro#er% 8ou can also monitor how a stoc#Fs price changes from

hour to hour 0 or e$en second to second% @y contrast, with a mutual fund, the

price at which you purchase or redeem shares will typically depend on the

fundFs net asset $alue, which the fund might not calculate until many hours

after youF$e placed your order%



=% To pro$ide findings and suggestions based on the analysis%

/,9, MET3ODOLO).

PERIOD OF STUD.

The period of the study is only for a period of months%ie, /eptember,

6ctober and :o$ember -.11%

DATA COLLECTION

The study is based on the secondary data collected from the newspaper and

websites% /econdary data refers to the information or facts already collected%

/uch data are collected with there objecti$e of understanding the past status

of any $ariable% The secondary data is obtained from the newspaper ,

“!eccan chronicleH and the websites of mutual funds india%com, amfi%com,

and money control%com%

The following Mutual 9unds schemes are ta#en for the analysis

1% @irla /un &ife 'Guity 9und (5) scheme

-% 9ran#lin Templeton 2ndia 9lexi 9und (!) scheme

% ;!9" 2ndex 9und :ifty 3lan (5) scheme

<% 2"2"2 3rudential 2nfrastructure 9und etail 3lan (!) scheme

=% eliance 'Guity 6pportunities 9und *etail 3lan (!) scheme

+% T2 @an#ing /ector 9und (5) scheme



TOOLS AND TEC3NIUES

9or the purpose of the analysis, the appropriate statistical and financial tools,

i%e%, A$erage, /tandard de$iation, co$ariance, $ariance, 0/Guare, @eta,

Alpha are employed to study the performance e$aluation of mutual funds in

public limited company and pri$ate limited company%These tols are

computed with M/ '"'& -..>%

/,, SCOPE AND LIMITATIONS OF T3E STUD.

1% The study is conducted for the period of months%

-% This study is based on past data%

% 6nly selected mutual fund schemes (growth plan and di$idend plan) in

public limited companies and pri$ate limited company are ta#en for this

study%

/,1, C3APTERISATION

C3APTER6I deals with 2ntroduction, ;istory, 6bjecti$es, Methodology,

/cope and &imitation of the study%

C3APTER6II traces the re$iew of pre$ious studies%

C3APTER6III co$ers the basic concepts and terminologies%

C3APTER6IV analyses the 3erformance of selected mutual fund schemes

C3APTER6V offers summary of findings ,suggestions and "onclusion



C3APTER6II

REVIE- OF LITERATURE

A, 3i&tori#al performan#e e?aluation of mutual fund&

/, Nan#+ %/G1' has stated that study of the past performance is helpful in

forecasting% /tudy of the past performance un$eils some or all factors that

influence the le$el of financial returns% The study of these factors may help

in impro$ing the ability and accuracy of forecasting future returns% This

study is li#ely to be useful for in$estors and portfolio managers%

*, Performan#e in term& of rate of return<

:, A##ordin$ to )upta LC %/G1/' presented a detailed and well0based

estimate of E3ortfolioE rate of return on eGuities% This pioneering study in the

2ndian context has been a major contribution in this field and is regarded as

the benchmar# on the rate of return on eGuities for the specified time% ;e

laid the basis of rate of return concept in performance e$aluation%



2,,ain %/G1:' e$aluated performance of unit trust of 2ndia (T2) during

1C+<0+= to 1C>C0?., including the profitability aspects of unit scheme 1C+<,

unit scheme 1C>1 and unit scheme 1C>+% ;e concluded that its real rate of

return ha$e been low indicating o$erall poor, performance of T2 /chemes%

There has been so significant increase in the profitability o$er the years%

<% Arnaud %/G1' has suggested that there are three basic measurements of

the performance of in$estment trust company at three basic le$els in terms

of capital changes% As per the first approach, mar#et $alue of in$estments is

to be monitored duly adjusted for liabilities% 2n the second approach :AV

per unit is measured and it is considered as more acceptable measure of

mutual fund performance% Third le$el of measurement is to follow share

price mo$ements%

, )rinblatt and Seridan %/G1G' e$aluated performance in terms of gross

returns of mutual funds% They constructed eight portfolio benchmar# based

on firmsiDe, di$idend yield and past returns% 6ne month T0@ills were used as

ris#0free return% The period of study was !ecember 1, 1C>< to !ecember

1, 1C?<% The findings re$ealed that abnormal performance of the funds

based on gross returns is in$ersely related to the siDe% They pointed out that

superior performance may exist for funds with smallest siDe of net assets

$alue% @ut due to high expenses, the in$estors are unable to ta#e ad$antage

of their superior performance%

C,PERFORMANCE IN TERMS OF *ENC3MAR> COMPARISON



9,3a&lem %/G11' e$aluated fund performance by comparing the fund return

with the return on mar#et portfolio with the comparable ris#% The fundFs

systemic ris#, beta co0efficient is used to compare portfolio ris# relati$e to

the mar#et ris#% F@etaF is a measure of ris# of the fundFs portfolio relati$e to

the ris# of the mar#et portfolio%

,3ud&on %/GG' F7here$er performance e$aluation is implemented, there

will always be two #ey ingredients (a) a measure of return and (b) a measure

of ris#, o$er a gi$en time horiDon% 3roper e$aluation and comparison is

possible only if the reporting standard is of high Guality and there are well

based standards for calculating :AVs%

D, Performan#e in term& of ri&B6adHu&ted rate of return

1,Tre+nor %/G9' and Sarpe %/G99' ha$e pro$ided the conceptual

framewor# of relati$e measure of performance of eGuity mutual funds while

Treynor used systematic ris#% /harpe used total ris# to e$aluate the mutual

fund portfolio performance higher $alue of TreynorFs index indicates better

performance of portfolio and $ice $ersa% The TreynorFs measure of portfolio

performance is relati$e measure that ran#s the funds in terms of ris# and

return%

G,3enriB&&on %/G17' e$aluated performance in terms of mar#et timing

abilities with sample of 11+ open ended in$estment schemes during the

period, 9ebruary 1C+?, Iune 1C?.% The empirical results obtained indicated

unsatisfactory timing s#ills of the fund managers% Arnand (1C?=) had

suggested that absolute return generated by the fund is one measure of



performance% The Guestion before fund managers is whether the find can

perform better by selecting and holding different set of stoc#s or not% This

can be judged by comparing the fund performance with some benchmar#

portfolio or index portfolio

/0,3oltau&en %/GG:' ha$e de$eloped a model based on +. financial ratios

that predicts return o$er 1- months period% The strategy used in the study is

to go long position in the companies predicted to ha$e positi$e excess return

and go short position in companies predicted to ha$e negati$e return% The

study was found particularly useful predictor of stoc# prices and can be

useful in fundamental analysis while ta#ing eGuity in$estment decisions

//,*arua and Uerma %/GG/' 3ro$ided empirical e$idence of eGuity mutual

fund performance in 2ndia% They studied the in$estment performance of

2ndiaFs first > year close0end eGuity mutual fund, Mastershare% They

concluded that the fund performance satisfactory for large in$estor in term

of rate of return%

/:,Vaid %/GG7' loo#ed at the performance in terms of the ability of the

mutual fund to attract more in$estors and higher fund mobiliDation% 2t shows

the popularity of the mutual fund as it is percei$ed to pay super$isor returns

to the in$estors% /he concludes that e$en for eGuity 0 6riented funds,

in$estment is more in fixed income securities rather than in eGuities, which

is a distortion%



/2,SarBar and Ma@umdar %/GG' e$aluated financial performance of fi$e

close ended growth funds for the period 9ebruary 1CC1 to August 1CC%

"oncluded that the performance was below a$erage in terms of alpha $alues

all negati$e and statistically not significant and fund possessed high ris#% :o

reference was pro$ided about the timing parameters in their study%

/7,)upta and Se$al %/GG' e$aluated mutual fund performance o$er a

four year period, 1CC-0C+% The sample consisted of ?. mutual fund schemes%

They concluded that mutual fund industry performed well during the period

of study% The performance was e$aluated in terms of benchmar#

comparison, performance from one period to the next and their ris# return

characteristics%

1=% Mi&ra %:00/' e$aluated performance o$er a period, April 1CC- to

!ecember 1CC+% The sample siDe was -< public sector sponsored mutual

funds% The performance was e$aluated in terms of rate of return, Treynor,

/harpe and IensenFs measure of performance% The study also addressed

betaFs instability issues% The study concluded dismal performance of 3/

mutual funds in 2ndia, in general, during the period 1CC-0C+%



C3APTER6III

*ASIC CONCEPTS AND TERMNOLO)ES

Mutual fund is a trust that pools money from a group of in$estors (sharing

common financial goals) and in$est the money thus collected into asset

classes that match the stated in$estment objecti$es of the scheme% /ince the

stated in$estment objecti$es of a mutual fund scheme generally form the

basis for an in$estorFs decision to contribute money to the pool, a mutual

fund can not de$iate from its stated objecti$es at any point of time% '$eryMutual 9und is managed by a fund manager, who using his in$estment

management s#ills and necessary research wor#s ensures much better return

than what an in$estor can manage on his own% The capital appreciation and

other incomes earned from these in$estments are passed on to the in$estors

(also #nown as unit holders) in proportion of the number of units they own%

/,/, *a&i# Terminolo$ie&

NAV ASSETS VALUE

:et Asset Value is the mar#et $alue of the assets of the scheme

minus its liabilities% The per unit :AV is the net asset $alue of the scheme

di$ided by the number of units outstanding on the $aluation date%

SALES PRICE

2t is the price you pay when you in$est in a scheme also called

6ffer 3rice% 2t may include a sales load%



REPURC3ASE PRICE

2s the price at which units under open0ended schemes are repurchased

by the Mutual 9und% /uch prices are :AV related%

REDEMPTION PRICE

2s the price at which close0ended schemes redeem their units on

maturity% /uch prices are :AV related%

SALES LOAD

2s a charge collected by a scheme when it sells the units% Also called,

J9ront0end load% /chemes that do not charge a load are called J:o &oad

schemes%

REPURC3ASE OR *AC>6END LOAD

2t is a charge collected by a scheme when it buys bac# the units from

the unit holders

ENTR. LOAD

'ntry load is the initial charges collected by Mutual 9und "ompany,

those are not refundable%

E5IT LOAD

'xit load is the charge which is le$ied by AM" in case of the in$estor exit

from the scheme% 2t can $ery from time to time%



Ri&B AdHu&ted Mea&ure&<

STANDARD DEVIATION

/tandard de$iation is used to measure the $ariation in indi$idual from

the a$erage expected return o$er a certain period% /tandard de$iation is used

in the concept of ris# of portfolio of in$estments% /! is the de$iation of the

reading from the mean of the reading, higher /! indicates higher $olatility

and higher $olatility and higher ris# of the schemes%

S3ARPE RATIO

/harpe index measures ris# premium of a portfolio, relati$e to the total

amount of ris# in the portfolio% /harpe index summariDes the ris# and return

of a portfolio in a single measure that categoriDes the performance of 9unds

on the ris#0adjusted basis%

*ETA

@eta measures the systematic ris# and shows how prices of securities

respond to the mar#et forces% @eta is used in the capital asset pricing model

("A3M) a model that calculates the expected return of an asset based on its

beta and expected mar#et returns% /ystematic ris# is measured in term of

beta which indicates the sensiti$ity of a schemes return in relation to mar#et

return%

ALP3A

The siDe of the alpha exhibits the stoc#s unsystematic returns and its

a$erage return independence of mar#et return if the fund produces the

expected return at the le$el of ris# assumed, the fund would ha$e an alpha



eGual to Dero% A positi$e alpha indicates that the manager produced return

greater than expected for the ris# ta#en% Alpha is calculate comparing the

funds actual performance with the ris#0adjusted expected return%

R6SUARED<

0/Guared is a statistical term saying how good one term is at predicting

another% 2f 0/Guared is 1%. then gi$en the $alue of one term, you can

perfectly predict the $alue of another term% 2f 0/Guared is .%., then

#nowing one term doesnFt not help you #now the other term at all% More

generally, a higher $alue of 0/Guared means that you can better predict one

term from another%

RETURN ON ASSETS<

An indicator of how profitable a company is relati$e to its total

assets% 6A gi$es an idea as to how efficient management is at using its

assets to generate earnings% "alculated by di$iding a companyFs annual

earnings by its total assets, 6A is displayed as a percentage% /ometimes

this is referred to as Ereturn on in$estmentE%

The formula for return on assets is4

:ote4 /ome in$estors add interest expense bac# into net income when

performing this calculation because theyFd li#e to use operating returns

before cost of borrowing%



AUM<

The mar#et $alue of assets that an in$estment company manages on

behalf of in$estors% Assets under (AM) is loo#ed at as a measure of

success against the competition and consists of growthKdecline due to both

capital appreciationKlosses and new money inflowKoutflow%

2,:, T.PES OF MUTUAL FUND SC3EMES

There are a wide $ariety of Mutual 9und schemes that cater to your needs,

whate$er your age, financial position, ris# tolerance and return expectations%

*+ Stru#ture

* 6pen 'nded /chemes

* "lose 'nded /chemes

* 2nter$al /chemes

In?e&tment ObHe#ti?e&

* 5rowth /chemes

* 2ncome /chemes

* @alance /chemes

* Money Mar#et /chemes

Oter S#eme&

* Tax /a$ing /chemes

Spe#ial S#eme&



* 2ndex /chemes

L /ector /pecific

*+ Stru#ture

Open-Ended Schemes

These do not ha$e a fixed maturity% The #ey feature is liGuidity% The in$estor

can con$eniently buy and sell the units at :et Asset Value(:AV) related

prices, at any point of time%

Close-Ended Schemes

/chemes that ha$e a stipulated maturity period (ranging from - to 1= years)

are called close ended schemes% The in$estor can in$est in the scheme at the

time of the initial issue and thereafter you can buy or sell the units of the

scheme on the stoc# exchanges where they are listed% The mar#et price at the

stoc# exchange could $ary from the schemes :AV on account of demandand supply situation, unit holders expectations and other mar#et factors%

Interval Schemes

These combine the features of open0ended and close0ended schemes% They

may be traded on the stoc# exchange or may be open for sale or redemption

during predetermined inter$als at :AV related prices%

*+ in?e&tment obHe#ti?e



)ro(t &#eme&

The growth schemes aim to pro$ide capital appreciation o$er the medium to

long term% These schemes normally in$est a majority of their funds in

eGuities and are willing to bear short term decline in $alue for possible future

appreciation% These schemes are not for in$estors see#ing regular income or

needing their money bac# in the short term%

Ideal for

2n$estors in their prime earning years%

2n$estors see#ing growth o$er the long term%

In#ome &#eme&

2ncome schemes aim to pro$ide regular and steady income to in$estors%

These schemes generally in$est in fixed income securities such as bonds and

corporate debentures% "apital appreciation in such schemes may be limited%

Ideal for<

etired people and others with a need for capital stability and regular

income%

2n$estors who need some income to supplement their earnings%

Balanced Schemes

These schemes aim to pro$ide both growth and income by periodically

distributing a part of the income and capital gains they earn% They in$est in

both shares and fixed income securities in the proportion indicated in their



offer documents% 2n a rising stoc# mar#et, the :AV of these schemes may

not normally #eep pace or fall eGually when the mar#et falls%

Ideal for<

2n$estors loo#ing for a combination of income and moderate growth%

Mone+ marBetLi!uid &#eme&

&iGuid schemes pro$ide easy liGuidity, preser$ation of capital and moderate

income% These schemes generally in$est in safer, short term instruments

such as treasury bills, certificates of deposit, commercial paper andinterban# call money% eturns on these schemes may fluctuate, depending

upon the interest rates pre$ailing in the mar#et%

Ideal for<

"orporates and indi$idual in$estors as a means to par# their surplus

funds for short

periods or awaiting a more fa$ourable in$estment alternati$e%

Oter &#eme&

Ta" &a?in$ &#eme&%E!uit+ LinBed Sa?in$ S#eme& ELSS'

These schemes offer tax incenti$es to the in$estors under tax laws as

prescribed from time to time and promote long term in$estments in eGuities

through Mutual 9unds%

Ideal for<

2n$estors see#ing tax incenti$es%



Spe#ial S#eme&

This category includes index schemes that attempt to replicate the

performance of a particular index such as the @/' /ensex, the :/' =.

(:29T8) or sector specific schemes which in$est in specific sectors such as

Technology, 2nfrastructure, @an#ing, 3harma etc%

@esides, there are also schemes which in$est exclusi$ely in certain

segments of the capital mar#et, such as &arge "aps, Mid "aps, /mall "aps,

Micro "aps, FAF group shares, shares issued through 2nitial 3ublic 6fferings

(236s), etc% 2ndex fund schemes are ideal for in$estors who are satisfied with

a return approximately eGual to that of an index% /ectoral fund schemes are

ideal for in$estors who ha$e already decided to in$est in a particular sector

or segment%



2,2, STEPS TO C3OOSE RI)3T MUTUAL FUNDS<

The following are the steps to select a mutual fund

Step One 6 Identif+ +our in?e&tment need&<

8our financial goals will $ary, based on your age, lifestyle, financial

independence, family commitments, le$el of income and expenses among

many other factors% Therefore, the first step is to assess your needs% @egin by

as#ing yourself these Guestions4



. What are my investment objectives and needs?

Howmuch risk am i willing to take?

7hat Armey cash flow reGuirements

Step T(o6 Coo&e te ri$t Mutual Fund,

6nce you ha$e a clear strategy in mind, you now ha$e to choose which

Mutual 9und and scheme you want to in$est in% The offer document of the

scheme tells you its objecti$es and pro$ides supplementary details li#e the

trac# record of other schemes managed the same 9und Manager% /ome

factors to e$aluate before choosing a particular Mutual 9und are4

The trac# record of performance o$er the last few years in relation to

the appropriate yardstic# and similar funds in the same category%

;ow well the Mutual 9und is organised to pro$ide efficient, prompt

and personaliDed ser$ice%

!egree of transparency as reflected in freGuency and Guality of

theircommunications%

Step tree6Sele#t te ideal mi" of S#eme&,

2n$esting in just one Mutual 9und scheme may not meet all your in$estment

needs% 8ou may consider in$esting in a combination of schemes to achie$eyour specific goals%The following charts could pro$e useful in selecting a

combination of schemes that satisfy your needs%

Step Four6In?e&t re$ularl+



9or most of us, the approach that wor#s best is to in$est a fixed amount at

specific inter$als, say e$ery month% @y in$esting a fixed sum each month,

you get fewer units when the price is high and more units when the price is

low, thus bringing down your a$erage cost per unit% This is called rupee cost

a$eraging and is a disciplined in$estment strategy followed by in$estors all

o$er the world% 7ith many open0ended schemes offering systematic

in$estment plans, this regular in$esting habit is made easy for you%

Step Fi?e 6>eep +our ta"e& in mind

As per the current tax laws, !i$idendK2ncome !istribution made by mutualfunds is exempt from 2ncome Tax in the hands of in$estor% ;owe$er, in case

of debt schemes !i$idendK 2ncome !istribution is subject to !i$idend

!istribution Tax% 9urther, there are other benefits a$ailable for in$estment in

Mutual 9unds under the pro$isions of the pre$ailing tax laws%8ou may

therefore consult your tax ad$isor or "hartered Accountant for specific

ad$ice to achie$e maximum tax efficiency by in$esting in mutual funds%

Step Si" 6 Start earl+

2t is desirable to start in$esting early and stic# to a regular in$estment plan%

2f you start now, you will ma#e more than if you wait and in$est later% The

power of compounding lets you earn income on income and your money

multiplies at a compounded rate of return

Step Se?en 6Te final &tep

All you need to do now is to get in touch with a Mutual 9und or your

ad$isor and start in$esting% eap the rewards in the years to come% Mutual



9unds are suitable for e$ery #ind of in$estorwhether starting a career or

retiring, conser$ati$e or ris# ta#ing, growth oriented or income see#ing%

2,7, PROCEDURE FOR RE)ISTERIN) FOR MUTUAL

FUNDS IN SE*I<

An applicant proposing to sponsor a mutual fund in 2ndia must apply

in 9orm A with a fee of s%-=,...% The application is examined and

once the sponsor satisfies certain conditions such as being in the

financial ser$ices business and possessing positi$e net worth for the

last fi$e years, ha$ing net profit in three out of the last fi$e years and

possessing the general reputation of fairness and integrity in all

business transactions, it is reGuired to complete the remaining

formalities for setting up a mutual fund% These include inter alia,

executing the trust deed and in$estment management agreement,

setting up a trustee companyKboard of trustees comprising two0 thirds

independent trustees, incorporating the asset management company

(AM"), contributing to at least <.N of the net worth of the AM"

and appointing a custodian% pon satisfying these conditions, the

registration certificate is issued subject to the payment of registration

fees of s%-=%.. lacs 9or details, see the /'@2 (Mutual 9unds)

egulations, 1CC+%

Ne( SE*I )uideline& for Mutual Fund& <



Te Se#uritie& and E"#an$e *oard of India %SE*I' a& brou$t in

&(eepin$ #an$e& for te mutual fund indu&tr+, Te impa#t of (i#

(ill be felt on te in?e&tor in more (a+& tan one,

1) 9irst, for :ew 9und 6ffers (:96s)4 They will onl+ be open for /

da+&% ('&// funds though will continue to stay open for up to C. days) 2t

will sa$e in$estors from a prolonged :96 period and being harangued by

ad$isors and ad$ertisements% The moti$ation behind the rule seems to be

simple * if you can in$est anytime, why #eep :96 period long

-) :96s #an onl+ be in?e&ted at te #lo&e of te NFO period% 'arlier,Mutual funds would #eep an :96 open for . days, and the minute they

recei$ed their first cheGue, the money would be directly in$ested in the

mar#etO creating a s#ewed accounting for those that entered later since they

get a fixed :96 price% The mar#et regulator has corrected this by extending

Application /upported by @loc#ed Amount (A/@A) to mutual funds% This

will become effecti$e starting Iuly 1st this year%

@y te AS*A pro#e&& %Appli#ation Supported b+ *lo#Bed Amount' one

can continue to earn interest in the ban# account until the :96 closes

(remember there is usually no rejection or “o$ersubscriptionH in a mutual

fund :96) which means that the cheGue goes for clearing after the :96 has

closed irrespecti$e of when it was sent% The fund manager will be able to

in$est once the :96 closes%

) Di?idend& #an no( onl+ be paid out of a#tuall+ reali@ed $ain&,

2mpact4 it will reduce both the Guantum of di$idends announced, and the



measures used by M9s to garner in$estor money using di$idend as a carrot

to entice new in$estors%

<) 'Guity Mutual funds ha$e been as#ed to play a more a#ti?e role in

#orporate $o?ernan#e of the companies they in$est in% This will help

mutual funds become more acti$e and not just that, they must re$eal, in their

annual reports from next year, what they did in each “$oteH% /'@2 has now

made it mandatory for funds to disclose whether they $oted for or against

mo$es (suggested by companies in which they ha$e in$ested) such as

mergers, demergers, corporate go$ernance issues, appointment and remo$al

of directors% M9s ha$e to disclose it on their website as well as annual

reports%

=) 'Guity 9unds were allowed to charge 1N more as management fees if

the funds were “no0loadHO but since /'@2 has banned entry loads, ti& e"tra

/J a& al&o been remo?ed,

+) /'@2 has also as#ed Mutual 9unds to re?eal all #ommi&&ion paid to it&

&pon&or or a&&o#iate #ompanie&4 emplo+ee& and teir relati?e&,

>) Re$ardin$ te Fund6of6Fund %FOF' * The mar#et regulator has stated

that information documents that Asset Management "ompanies (AM"s)

ha$e been entering into re$enue sharing arrangements with offshore funds in

respect of in$estments made on behalf of 9und of 9und schemes create

conflict of interest% ;enceforth, AM"s shall not enter into any re$enue

sharing arrangement with the underlying funds in any manner and shall not

recei$e any re$enue by whate$er meansKhead from the underlying fund%



These guidelines set by the /'@2 will lead to greater transparency for the

common in$estor% /'@2 formulates policies and regulates the mutual funds

to protect the interest of the in$estors% 7ith these guidelines falling in place

it would create better trust and transparency and an in$estable en$ironment

that would attract in$estors with greater faith and confidence%

2,, AMFI<

7ith the increase in mutual fund players in 2ndia, a need for mutual fund

association in 2ndia was generated to function as a non0profit organisation%

Association of Mutual 9unds in 2ndia (AM92) was incorporated on --nd

August, 1CC=%

AM92 is an apex body of all Asset Management "ompanies (AM") which

has been registered with /'@2% Till date all the AM"s are that ha$e launched

mutual fund schemes are its members% 2t functions under the super$ision and

guidelines of its @oard of!irectors% Association of Mutual 9unds 2ndia has

brought down the 2ndian Mutual 9und 2ndustry to a professional and healthy

mar#et with ethical lines enhancing and maintaining standards% 2t follows the

principle of both protecting and promoting the interests of mutual funds as

well as their unit holders%

Te obHe#ti?e& of A&&o#iation of Mutual Fund& in India

The Association of Mutual 9unds of 2ndia wor#s with . registered AM"s



of the country% 2t has certain defined objecti$es which juxtaposes the

guidelines of its @oard of !irectors% The objecti$es are as follows4

• This mutual fund association of 2ndia maintains a high professional

and ethical standards in all areas of operation of the industry%

• 2t also recommends and promotes the top class business practices and

code of conduct which is followed by members and related people

engaged in the acti$ities of mutual fund and asset management% The

agencies who are by any means connected or in$ol$ed in the field of

capital mar#ets and financial ser$ices also in$ol$ed in this code ofconduct of the association%

• AM92 interacts with /'@2 and wor#s according to /'@2s guidelines

in the mutual fund industry%

• Association of Mutual 9und of 2ndia do represent the 5o$ernment of

2ndia, the eser$e @an# of 2ndia and other related bodies on matters

relating to the Mutual 9und 2ndustry%

• 2t de$elops a team of well Gualified and trained Agent distributors% 2t

implements a programme of training and certification for all

intermediaries and other engaged in the mutual fund industry%

• AM92 underta#es all 2ndia awarness programme for in$estors inorder

to promote proper understanding of the concept and wor#ing of

mutual funds%

• At last but not the least association of mutual fund of 2ndia also

disseminate informations on Mutual 9und 2ndustry and underta#es

studies and research either directly or in association with other bodies%



2,9, TOP /0 MUTUAL FUNDS IN T3E .EAR :0//

/,DSP*R Top /00 E!uit+

!/3@ Top 1.. 'Guity eg

is an open ended large cap

eGuity fund bench0mar#ed against @/' 1.. running for > years now% 2t has

returned a staggering =N since launch, that is no small feat for a fund

whose net assets ha$e now swelled to s -,>>K0 crores% 7ith a low ris#

ta#ing capacity and a abo$e a$erage return, this fund should be on the top of

your shopping cart in -.11%

eturns in N

!/3@ Top 1.. 'Gt

eg

/ince

&aunch= yr yrs 1 yr

9und =%11 -1%CC %>? 1>%-

"ategory 0 1+%?0

.%.C1?%-

:, DSP*R *alan#ed

!/3@ @alanced is a hybrid eGuity oriented mutual fund that is bench

mar#ed against "2/2& @alanced% 7ith a trac# record of 11 years and a

below a$erage ris# profile, the returns ha$e been abo$e a$erage * around

http://www.thewealthwisher.com/2010/07/15/what-is-a-mutual-fund/

http://www.thewealthwisher.com/2010/07/15/what-is-a-mutual-fund/



1?N% The corpus of around s >C.K0 crores ma#es it easy for the fund

manager to manage the fund% As of writing, the portfolio allocation between

eGuity and debt stood at >=N and -=N approx%

2, FranBlin India *lue#ip

9ran#lin 2ndia @luechip fund is a $eteran of a fund * its running for some

1> years now% @ench mar#ed against the /ensex, the returns ha$e been high,

around -+%=N since launch% 7ith a low ris# profile and a steep orientation

towards large cap stoc#s, this fund is a great gem to ha$e% 2ts long term

outloo# on stoc#s and ability to gi$e returns to in$estors without ta#ing

unnecessary ris#s ma#es it a top contender in your portfolio for -.11%

eturns in N

9ran#lin 2ndia

@luechip

/ince

&aunch= yr yrs 1 yr

eturns in N

!/3@ @alanced/ince &aunch = yr yrs 1 yr

9und 1?%.+ 1?%=> =%-- 1+%11

"ategory 0 1<%-? -%.- 1+%<C

http://www.thewealthwisher.com/category/stocks/

http://www.thewealthwisher.com/category/stocks/



9und -+%+< 1C%-< <%?C 1C%?>

"ategory 0 1=%C0

1%1=1<%-

7, *irla Sun Life Frontline E!uit+

@ench mar#ed against the @/' -.. this C year old fund has come in the lime

light since -..+% @irla /un &ife 9rontline 'Guity has an allocation to both

large caps and mid caps * in fact, its allocation to mid caps has risen of late

* currently mid caps account for -.N of the portfolio while the rest is held

by large caps% 7ith a below a$erage ris# profile and a great fund manager at

the helm of affairs, @irla /un &ife 9rontline 'Guity should feature as a must

ha$e open ended di$ersified eGuity fund in your portfolio for -.11%

, 3DFC Top :00

eturns in N@irla /un &ife

9rontline 'Guity

/ince

&aunch= yr yrs 1 yr

9und .%++ -1%>C %? 1<%++

"ategory 0 1=%C0

-%11%1



This 1< year old fund needs

no introduction% p against

@/' -.., it has deli$ered -+N returns since launch and has always

maintained a low ris# profile% This should form the core part of your

portfolio * nearly ?.N of its holdings are held in large cap and the rest in

mid and small caps% A long term trac# record and process oriented

management ma#es it one of the best eGuity di$ersified mutual funds for

e$ery portfolio in -.11%

eturns in N

;!9" Top -.. /ince &aunch = yr yrs 1 yr

9und -=%?C --%.+ ?%= -.%?+

"ategory 0 1=%C 0-%1 1%1

9, 3DFC Pruden#e

;!9" 3rudence has been in existence since 1CC< and with an annual returns

of around --N, it has exhibited prudence in deli$ering returns for in$estors%

2t did falter in -..> and -..? but has come bac# strongly to show it can be

relied upon% :early =.N of its portfolio is in large caps while the rest is in

small and mid caps% As of writing, it has maintained a >=N allocation to

eGuity and -=N in debt% A great choice in the hybrid category for year -.11%

eturns in N

;!9" 3rudence/ince &aunch = yr yrs 1 yr

9und -1%CC -.%- C%-1 --%>C

"ategory 0 1%>< 1%-> 1%.>



, 3DFC Ta" Sa?er

Another one from the ;!9" stable, this '&// ('Guity &in#ed /a$ing

/cheme) fund has returned a staggering =N since its launch 1= years ago%

@ench mar#ed against /P3 ": =.., it has deli$ered high returns with a

moderate ris# profile% As of writing it has maintained +.N allocation to

large cap stoc#s and the rest to mid and small cap% :early C.N of its holding

is in eGuity%

eturns in N

;!9" Taxsa$er/ince &aunch = yr yrs 1 yr

9und <%= 1+%?< =%= -1%C"ategory 0 1%<-0-%>=1<%=

1, Canara Robe#o E!uit+ Ta" Sa?er

This 1> year old '&// ('Guity &in#ed /a$ings /cheme) mutual fund has

deli$ered returns of 1+N year on year% 2ts bench mar#ed against @/' 1..

and nearly +.N of its holding is in large cap stoc#s and the rest in mid cap

and small cap% A small net asset of s -. crores ma#es it easier for the fund

manager to manage this fund well% 7ith a mantra of long term in$estment

strategy and well di$ersified portfolio, its hard to a$oid this fund this year%

eturns in N

"anara obeco 'Guity Tax /ince = yr yrs 1 yr

http://www.thewealthwisher.com/category/tax/

http://www.thewealthwisher.com/category/tax/



/a$er &aunch

9und 1+%-- -1%<< +%=1 -1%1=

"ategory 0 1%<-0

-%>=1<%=

G, Canara Robe#o In#ome

&i#e /ahara 2ncome (:o% 1. down below), "anara obeco 2ncome is bench

mar#ed against "2/2& "omp @92 and is C years old% Majority of its

holdings are in debentures, 562 securities and commercial paper% "ertificate

of deposits and treasury bills also feature in the portfolio% The a$erage credit

rating of AAA ma#es it a safe par#ing a$enue for in$estors% 7ith a return of

?%?N in the debt category, "anara obeco 2ncome ma#es for a great asset in

your -.11 portfolio%

eturns in N

"anara obeco

2ncome

/ince

&aunch= yr yrs 1 yr

9und ?%?C 1.%1+1%><%C?"ategory 0 +%- +%= <%><

/0, Saara In#ome

As the name goes, the intent of this open ended fund is to generate regular

income through in$estments in debt instruments * most of its in$estments



are in certificate of deposits and commercial paper% The a$erage credit rating

of holdings is AAA which ma#es it a safe mutual fund * hence the ris#

profile of the fund is $ery $ery low% The returns ha$e been abo$e a$erage

when compared to the benchmar# "2/2& "omp @92% Around for some C

years now, /ahara 2ncome is a must ha$e debt oriented mutual fund in your

portfolio in -.11%

eturns in N

/ahara 2ncome /ince &aunch = yr yrs 1 yr

9und >%.C ?%+ C%?+ =%<+

"ategory 0 +%- +%= <%><

Performance Evaluation of Mutual Funds in India

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Transcript of Performance Evaluation of Mutual Funds in India