“STATISTICAL ANALYSIS OF MUTUAL FUNDS”

PROJECT REPORT

2009

Submitted for the partial fulfillment of the requirement for the award

Of

MASTER OF BUSINESS ADMINISTRATION

SUBMITTED BY

KULDEEP KUMAR

ROLL NO. 0823170017

UNDER THE SUPERVISION OF

External: Mr. Vishal Thakur (S.R.M.)

Internal: Mrs. Poonam Singh (Lecturer)

Department Of Management

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R.D.ENGINEERING COLLEGE, DUHAI, GHAZIABAD

DECLARATION

I hereby declare that this project report prepared in lieu of a compulsory

paper for the partial fulfilment of Management of Business Administration

(Marketing and Human Resourse) is my original work which I have submitted

in Gulf Bulls Securities Pvt. Ltd. to my guide Mr. Mandip Kumar

No part of it has been submitted to any other university or organisation.

All the information and data in my project are authentic to the best of my knowledge and taken from reliable sources.

KULDEEP KUMAR

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ACKNOWLEDGEMENT

Project work is never the work of an individual. It is more a combination of views, ideas, suggestions, contribution and work involving many individuals.

I wish to express my deepest gratitude to Gulf Bulls Securities’ management for giving me an opportunity to be a part of their esteem organization and enhance my knowledge by granting permission to do my summer training project under their guidance.

I am grateful to Mr. Sachin Gupta, my guide, for his invaluable guidance and cooperation during the course of the project. He provided me with his assistance and support whenever needed that has been instrumental in completion of this project.

The project could not have completed without the guidance of Mr. Shailendra, Mr. Vishal, Ms. Neha Goel, Ms. Anuja Shukla and last but not the least Mr. Mandip Kumar.

Their continuous guidance helped me immensely during the project work

KULDEEP KUMAR

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PREFACE

The stock market in India has been a kind of mysterious place for many people who think that the persons investing their money in the market are sort of gambling on their money. There is usual misconception in the minds of the common man that because of the volatility of the market, their hard earned money is not safe in the stock market.

However, this fear can be checked by proper research on a share someone is interested to invest on. The market doesn’t behave in an arbitrate manner but certain trends are repeated over the time again and again. It is quite responsive towards the economic activities taking place in India as well as around the whole world.

The broad objective of the project is to understand the behavioural pattern of

Mutual Funds over the past one year and a half so that one can

understand the movement of the share on a particular trading session as well as the impact of news coming from different quarters of the market.

The project will provide a tool in the hands of the investors to take the decisions regarding their investment in Mutual Funds It will also give them the answer that whether it is right time to invest in this share or not, and what could be the best time to invest in this share.

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CONTENT

NALYSIS

CONTENTS2. ACKNOWLEDGWMENT 23. CONTENT 34. ABSTRACT 45. CONCEPT OF MUTUAL FUND 5a. ORIGIN OF MUTUAL FUND 6b. ABOUT MUTUAL FUNDS 7c. ADVANTAGES OF MUTUAL FUNDS 8d. TYPES OF MUTUAL FUND SCHEMES 10

6. COMPANY OVERVIEW 127. MUTUAL FUNDS INDUSTRY IN INDIA 158. STATISTICAL TOOLS 189. INFRASTRUCTURE MUTUAL FUND 23a. MARKET CAPITALISATION 27b. MEAN & STANDARD DEVIATION 28c. ANALYSIS WITH STATISTICAL TOOLS 29d. PORTFOLIO ANALYSIS 30e. COMPARISION WITH THE BENCHMARK INDEX 3310. EQUITY MUTUAL FUNDS 35a. MARKET CAPITALISATION 40b. MEAN & STANDARD DEVIATION 41c. ANALYSIS WITH STATISTICAL TOOLS 42d. PORTFOLIO ANALYSIS 44e. COMPARISION WITH THE BENCHMARK INDEX 4611. DEBT MUTUAL FUND 47a. TOTAL FUND SIZE 51b. MEAN & STANDARD DEVIATION 52c. ANALYSIS WITH STATISTICAL TOOLS 53d. PORTFOLIO ANALYSIS 55e. COMPARISION WITH THE BENCHMARK INDEX 5612. RECOMONDATION 5913. APPENDIX 60CONTENTSSTATISTICAL ANALYSIS

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ABSTRACT STRACT

This project offers a valuable opportunity to take a glimpse of the mutual

fund in India. In today’s increasingly competitive and complex world there

are large numbers of mutual funds claiming to provide maximum return with

minimum risk.

It is become very difficult to select the best mutual fund. There are more

than 1000 schemes available for the investors in India. It is very difficult to

select a particular scheme on the basis of their past records.

This project will try to analyze few popular mutual funds statistically on the

basis of the risk involved in each fund and the return of the same. Also an in-

depth analysis of their portfolio will be done which will give a better view for

a fund’s resultant performance.

This project identifies the key factors that is making a fund perform better

then is competitor. The factors identified in this study will help fund manager

design their fund’s portfolio and provide optimum return to its investors. Also

the said project will be used by Tata Asset Management Company in the

Eastern Zone to train its Relationship Managers in helping them giving an in-

depth view about their fund

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INTRODUCTION

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

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

capital market instruments such as shares, debentures and other securities.

The income earned through these investments and the capital appreciations

realized are shared by its unit holders in proportion to the Mutual Fund is the

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

invest in a diversified, professionally managed basket of securities at a

relatively low cost. The flow chart below describe mutual fund:

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Mutual Fund gets their earnings in two ways:

1. First is the most organic way, which is the dividend they get on the

securities they hold.

2. If the fund sells securities that have increased in capital gain. This is

reflected in NAV of each unit.

3. Third is by the redemption of their units by investors will be at discount to

the current NAV[net asset value].

STATISTICAL ANALYSISCONCEPT

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COMPANY’S PROFILE

About company

Gulf Bulls Securities Pvt. Ltd. is a company registered under the Companies Act,

1956 .It is a professionally managed group headed by the directors, having vast

experience in the stock market.

The company is serving a diverse customer base of institutional and retail investors The

Company has a balanced mix of revenues from emerging markets and is well

positioned to leverage the growth potential offered by these markets.

GBS provides investors a robust platform to trade in Equities in NSE and BSE, and

derivatives in NSE. The company has a worldwide vision and it along with its associates

is currently providing state of the art stock broking services through all the major stock

exchanges, trading through NSE & BSE, depository services through CDSL and all the

services are available under the one roof. With its ability to evolve with the changing

environment the Company has been able to put itself to the forefront of stock broking

activities. With its network spreading across various parts of India, it has made a distinct

mark among the stock broking houses and high net worth corporate as well as

individuals.

The company offers financial information, analysis, investment guidance, news & views,

which are designed to meet the requirements of everyone from a beginner to a savvy

and well-informed trader.

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“Our vision is to grow our business and make our presence across the world.”

“Our mission is to create and introduce the new definition of investments around the

globe.”

Management Team:

 

Name Designation

Mr. Vivek Rana Chairman / Managing Director

Mr Rajiv Balhara Director

Mr. Kuldeep Sharma Director

Mr. Yajur Chaudhary Director

Mr. Rajneesh Aggarwal Director

Mr. Vipin Kumar Director

Mr. Gajraj Singh Director

Mr. Anil Kaushik Director

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Prominent feature of Gulf Bulls Securities

Strong research department located at Faridabad office.

Well structured infrastructure for trading.

Highly skilled and experience staff.

Dedicated user friendly website for its customers, named

www.monepore.com and www.moneyporeexpress.com.

Money pore express, software developed by Gulf Bulls Securities provides

retail investors better opportunity to trade at home and that to at greater

speed and convenience.

Areas of Expertise

Gulf Bulls offers real time trading opportunities on the NSE. It also offers depository

and online services to clients for account accessing and information through its online

portal catering to the needs of mobile trader as well as the net savvy investor. Gulf Bulls

offers state-of –the–art online trading through its website (www.gulfbullsecurity.co.in).

Regular updates during trading hours, and access to information, analysis and

research, and a range of monitoring tools is available. The company has steadily

building up a comprehensive portfolio of products and services apart from conventional

broking. High speed anywhere trading through the net, online depository services,

commodities trading and retail debt products are increasingly areas of special emphasis

for the company.

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ABOUT MUTUAL FUNDSAAABOUTBOUT MUTUAL FUNDSWhat Is a Mutual Fund?

A mutual fund is a company that invests in a diversified portfolio of

securities. People who buy shares of a mutual fund are its owners or

shareholders. Their investments provide the money for a mutual fund to buy

securities such as stocks and bonds. A mutual fund can make money from its

securities in two ways: a security can pay dividends or interest to the fund or

a security can rise in value. A fund can also lose money and drop in value.

Different Funds, Different Features

There are three basic types of mutual funds—stock (also called equity),

bond, and money market. Stock mutual funds invest primarily in shares of

stock issued by Indian or foreign companies. Bond mutual funds invest

primarily in bonds. Money market mutual funds invest mainly in short-

term securities issued.

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AB

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ADVANTAGES OF MUTUAL FUNDS 4OUT MUTUAL FUNDSSTATISTICAL ANALYSIS

ADVANTAGES OF MUTUAL FUNDSWhy Invest in a Mutual Fund?

Mutual funds make saving and investing simple, accessible, and affordable.

The advantages of mutual funds include professional management,

diversification, variety, liquidity, affordability, convenience, and ease of

recordkeeping—as well as strict government regulation and full disclosure.

Professional Management: Even under the best of market conditions, it

takes an astute, experienced investor to choose investments correctly, and a

further commitment of time to continually monitor those investments. With

mutual funds, experienced professionals manage a portfolio of securities for

you full-time, and decide which securities to buy and sell based on extensive

research. A fund is usually managed by an individual or a team choosing

investments that best match the fund’s objectives. As economic conditions

change, the managers often adjust the mix of the fund’s investments to

ensure it continues to meet the fund’s objectives.

Diversification: Successful investors know that diversifying their

investments can help reduce the adverse impact of a single investment.

Mutual funds introduce diversification to your investment portfolio

automatically by holding a wide variety of securities. Moreover, since you

pool your assets with those of other investors, a mutual fund allows you to

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obtain a more diversified portfolio than you would probably be able to

comfortably manage on your own—and at a fraction of the cost. In short,

funds allow you the opportunity to invest in many markets and sectors.

That’s the key benefit of diversification.

Variety: Within the broad categories of stock, bond, and money market

funds, you can choose among a variety of investment approaches. Today

there are more then 1000 types of mutual fund available for the Indian

investors.

Low Costs: Mutual funds usually hold dozens or even hundreds of securities

like stocks and bonds. The primary way you pay for this service is through a

fee that is based on the total value of your account. Because the fund

industry consists of hundreds of competing firms and thousands of funds, the

actual level of fees can vary. But for most investors, mutual funds provide

professional management and diversification at a fraction of the cost of

making such investments independentlyTUAL FUNDS

STATISTICAL ANALYSISLiquidity: Liquidity is the ability to readily access your money in an

investment. Mutual fund shares are liquid investments that can be sold on

any business day. Mutual funds are required by law to buy, or redeem,

shares each business day. The price per share at which you can redeem

shares is known as the fund’s net asset value (NAV). NAV is the current

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market value of all the fund’s assets, minus liabilities, divided by the total

number of outstanding shares.

Convenience: You can purchase or sell fund shares directly from a fund or

through a broker, financial planner, bank or insurance agent, by mail, over

the telephone, and increasingly by personal computer. You can also arrange

for automatic reinvestment or periodic distribution of the dividends and

capital gains paid by the fund. Funds may offer a wide variety of other

services, including monthly or quarterly account statements, tax information,

and 24-hour phone and computer access to fund and account information.

Protecting Investors: Not only are mutual funds subject to compliance

with their self-imposed restrictions and limitations, they are also highly

regulated by the federal government through the U.S. Securities and

Exchange Commission (SEC). As part of this government regulation, all funds

must meet certain operating standards, observe strict antifraud rules, and

disclose complete information to current and potential investors. These laws

are strictly enforced and designed to protect investors from fraud and abuse.

But these laws obviously cannot help you pick the fund that is right for you

or prevent a fund from losing money. You can still lose money by investing in

a mutual fund. A mutual fund is not guaranteed or insured by the FDIC or

SIPC, even if fund shares are purchased through a bank.

ADVANAL FUNDS SCHEMES

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Types of Mutual Fund Scheme

BY STRUCTURE:

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Open Ended Schemes: These do not have a fixed maturity. You deal

directly with the Mutual Fund for your investments and redemptions. The key

feature is liquidity. You can conveniently buy and sell your units at Net Asset

Value related prices.

Close Ended Schemes: Schemes that have a stipulated maturity period

(ranging from 2 to 15 years) are called closed ended schemes. You can

invest directly in the scheme at time of the initial issue and thereafter you

can buy and sell the units of the scheme on the stock exchanges where they

are listed. The market price of the stock exchange could from the scheme’s

NAV on account of demand and supply situation, unit holders expectation

and other market factors.

Interval Schemes: These combine the features of open ended and closed

ended schemes. They may be traded at stock exchange or may be open for

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

BY INVESTMENT OBJECTIVE:

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Growth Schemes: Aim to provide capital appreciation over the medium to

long term. These schemes normally invest a majority of their funds n equities

and are willing to bear short term decline in value for possible future

appreciation. These schemes are not for investors seeking regular income or

needing their money back in the short term.

Income Schemes: aim to provide regular and steady income to investors.

hese schemes generally invest in fixed income securities such as bonds and

corporate debentures. Capital appreciation in such schemes may be limited.

Balanced Schemes: Aim to provide both growth and income by periodically

distributing a part of the income and capital gains they earn. They invest

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

offer documents.

Money market Schemes: Aim to provide easy liquidity, preservation of

capital

gains and moderate income. These schemes generally invest in safer, short

term instruments such as treasury bills, certificate of deposits, commercial

papers etc. Return on these schemes may fluctuate, depending upon the

interest rates prevailing in the market.

OTHER SCHEMES

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Tax Saving Schemes: These schemes offer tax rebates to the investor

under tax law as prescribed from time to time. This is made possible because

the government offers tax incentives for investment in specified avenues.

For example Equity Linked Saving Schemes, and Pension Schemes.

Special Schemes: This category includes index schemes that attempt to

replicate the performance of a particular index such as BSE Sensex or the

NSE or industry specific schemes or sectoral schemes.

Index Fund Schemes: They are ideal for investors who are satisfied with a

return approximately equal to that of an index.

Sectoral Fund: These schemes are ideal for investors who have already

decided to invest in a particular sector or segment

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STATISTICA

L ANALYSIS

COMPANY OVERVIEW

COMPANY OVERVIEW

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Backed by one of the most trusted and valued brands in India, Tata Mutual

Fund has earned the trust of lakhs of investors with its consistent

performance and world-class service.

Tata Mutual Fund manages around Rs. 22,980.76 crores (as on March 31,

2008) worth of assets across its varied offerings. Tata Mutual Fund offers an

investment option for everyone, whether you are a businessman or salaried

professional, a retired person or housewife, an aggressive investor or a

conservative capital builder.

The Tata Asset Management (TAM) philosophy is centered on seeking

consistent, long-term results. Tata Asset Management aims at overall

excellence, within the framework of transparent and rigorous risk controls.

Areas of Business

A leading player in the mutual fund arena, TAM offers a wide array of product

for institutional and individual investors at various life stages across the risk-

reward spectrum. The company offers investment products under three main

categories for every financial need and under varied market conditions:

Equity funds

Balanced funds

Debt funds

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The core strength of TAM stems not only from its sound systems and

processes but also from the quality of its intellectual capital, which is made

up of the best and brightest minds. At the same time, the company provides

a robust risk management framework with inbuilt controls and balances.

The title of the project is “Investors Perception About Mutual Fund” This will

through light on how investors view our funds as a potential investment with

detailed perception. Quantify the results of our fund marketing strategy and

improve the quality of our investor communications with valuable investor

feedback.MUTUAL FUNDS SCHEMES

Core Values

The Tata Group has always sought to be a value-driven organization. These

values continue to direct the Group's growth and businesses. The five core

Tata values that underpin the way we do business are:

Integrity: We must conduct our business fairly, with honesty and

transparency. Everything we do must stand the test of public scrutiny.

Understanding: We must be caring, show respect, compassion and

humanity for our colleagues and customers around the world, and always

work for the benefit of the communities we serve.

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Excellence: We must constantly strive to achieve the highest possible

standards in our day-to-day work and in the quality of the goods and services

we provide.

Unity: We must work cohesively with our colleagues across the Group and

with our customers and partners around the world, building strong

relationships based on tolerance, understanding and mutual cooperation.

Responsibility: We must continue to be responsible, sensitive to the

countries, communities and environments in which we work, always ensuring

that what comesfrom the people goes back to the people many times over.

Statistical Tools

Mean

An average of the sub-period returns, calculated by summing the sub eturns

and dividing by the number of sub This shows the average return earned by

a good comparative tool to assess different types of fund.

Standard Deviation

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Standard deviation is a representation of the risk associated with a given

security stocks, bonds, property, etc.), or the risk of a portfolio of securities.

Risk is an important factor in determining how to efficiently manage a

portfolio of investments because it determines the variation in returns on the

asset and/or portfolio and ives investors a mathematical basis for

investment decisions. The overall concept of risk is that as it increases, the

expected return on the asset will increase as a result of the risk premium

earned higher return on an investment when said investment carries a

higher level of risk

where,

σ2 denoted standard deviation

N is number of period,

X2 is average return of a security,

x is number actual return,

The larger the Standard Deviation in a period, the greater risk the security

carries.

STATISTICAL ANALYSIS

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Beta

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

comparison to the market as a whole. Also known as "beta coefficient".

Where,

ra measures the rate of return of the asset,

rp measures the rate of return of the portfolio of which the asset is a part,

Cov(ra, rp,) is the covariance between the rates of return.

Beta is calculated using regression analysis, and you can think of beta as 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 less

than 1 means, the security will be less volatile than the market. A beta of

greater than 1 indicates that the security's price will be more volatile than

the market. For example, if a stock's beta is 1.2, it's theoretically 20% more

volatile than the market.

Many utilities stocks have a beta of less than 1. Conversely, most high-tech

Sensex-based stocks have a beta of greater than 1, offering the possibility of

a higher rate of return, but also posing more risk.

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Sharpe Ratio

A ratio developed by Nobel laureate William F. Sharpe to measure risk-

adjusted performance. The Sharpe ratio is calculated by subtracting the risk-

free rate – such as that of the 10-year U.S. Treasury bond - from the rate of

return for a portfolio and dividing the result by the standard deviation of the

portfolio returns.

R is return from the security

Rf is the Risk free return

σ= standard deviation

The Sharpe ratio tells us whether a portfolio's returns are due to smart

investment decisions or a result of excess risk. This measurement is very

useful because although one portfolio or fund can reap higher returns than

its peers, it is only a good investment if those higher returns do not come

with too much additional risk. The greater a portfolio's Sharpe ratio, the

better its risk performance has been.

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A variation of the Sharpe ratio is the Sortino ratio, which removes the upward

price movements on standard deviation to measure only return against

downward price volatility.

Sortino Ratio

A ratio developed by Frank A. Sortino to differentiate between good and bad

volatility in the Sharpe ratio. This volatility allows the calculation to provide a

risk fund's performance without penalizing it for upward price changes. It it is

calculated as follows:

The Sortino ratio is similar to the Sharpe ratio, except it uses downside

deviation for the denominator instead of standard deviation, the use of which

doesn't discriminate between up and down volatility.

P/E ratio

The P/E ratio (price-to-earnings ratio) of a stock (also called its "earnings

multiple", or simply "multiple", "P/E", or "PE") is a measure of the price paid

for a share relative to the annual income or profit earned by the firm per

share. A higher P/E ratio means that investors are paying more for each unit

of income. It is a valuation ratio included in other financial ratios. The

reciprocal of the P/E ratio is known as the earnings yield.

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AL ANALYSIS

Treynor Ratio

A ratio developed by Jack Treynor that measures returns earned in excess of

that which could have been earned on a riskless investment per each unit of

market risk. The Treynor ratio is calculated as:

(Average Return of the Portfolio - Average Return of the Risk-Free Rate) /

Beta of the Portfolio

In other words, the Treynor ratio is a risk-adjusted measure of return based

on systematic risk. It is similar to the Sharpe ratio, with the difference being

that the Treynor ratio uses beta as the measurement of volatility.

Also known as the "reward-to-volatility ratio".

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STATISTICAL TOOLS

Fama

A factor model that expands on the capital asset pricing model (CAPM) by

adding size and value factors in addition to the market risk factor in CAPM.

This model considers the fact that value and small cap stocks outperform

markets on a regular basis. By including these two additional factors, the

model adjusts for the outperformance tendency, which is thought to make it

a better tool for evaluating manager performance.

Here r is the portfolio's return rate, Rf is the risk-free return rate, and Km is

the return of the whole stock market. The "three factor" β is analogous to the

classical β but not equal to it, since there are now two additional factors to

do some of the work. SMB and HML stand for "small [Market Capitalization]

minus big" and "high [book-to-price ratio] minus low"; they measure the

historic excess returns of small caps over big caps and "value stocks" over

"growth stocks".

Fama and French attempted to better measure market returns and, through

research, found that value stocks outperform growth stocks; similarly, small

cap stocks tend to outperform large cap stocks. As an evaluation tool, the

performance of portfolios with a large number of small cap or value stocks

would be lower than the CAPM result, as the three factor model adjusts

downward for small cap and value outperformance.

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STATISTICAL TOOLS

STATISTICAL ANALYSIS

INFRASTRUCTURE MUTUAL FUND

INFRASTRUCTURE MUTUAL FUNDS

An Infrastructure fund is a managed vehicle through which investors gain

exposure to the underlying characteristics of infrastructure assets.

Infrastructure is emerging strongly as an asset class which can be

particularly well suited to pension funds and other investors with a long-term

outlook. Infrastructure assets tend to display comparatively stable, long-term

real return and provide a good match for longdated liabilities.

They invest in private infrastructure companies, but the fnds themselves can

be listed or unlisted. For example, Macquarie has been investing in

infrastructure for more than a decade and now manages over 20

infrastructure funds around the world. Half of these are listed on the stock

exchange, with investors from pension funds and other institutions to retail

investors. The rest are unlisted funds in which the investors are largely

pension funds and other institutions.

The fund tens to either specialize in one class of infrastructure - for example

invest only in airport or only in toll-roads – or they invest across various

infrastructure sectors which meet specified investment criteria. For example

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The infrastructure assets can include telecommunications and broadcast

infrastructure, utilities, toll road, airport and other transport infrastructure.

Fundamentally, infrastructure assets are distinguished by displaying the

following key characteristics:

Provide essential community services

Have strategic competitive advantage

Have predictable long-term cash flow

These characteristics lead to the investment benefits outlined below.

Infrastructure assets display unique characteristic. Their essential and long-

term nature, combined with strong competitive position, lead to stable and

predictable consumer demand and cash generation. These assets tend to

have a high fixed capital base with comparatively low operating costs – on

average of between 10% and 30% of revenue. Along with the long-term

operating license and predictable demand, often in a regulated environment,

this allows the manager to forecast cash flows with accuracy.

Infrastructure assets have a low correlation to equity markets and other

asset classes. For the reason, it can provide valuable diversification in an

investment.

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INF

RASTRUCTURE MUTUAL FUNDS

OBJECTIVE OF THE STUDY

This project has been taken for GULF BULL stock broking limited. The

objective of the study is to know the role and performance of mutual funds &

also help in determining the preference of investors while investing in

various types of mutual fund schemes. The company has established a

strong investor’s base in FARIDABAD so the key findings of the project will

help the company to understand their investors better, their needs, and

expectations of the investors from a broker and the potential of mutual funds

scheme in Faridabad.

Many individuals find investments to be fascinating because they can

participate in the decision making process and see the results of their

choices. Not all investments will be profitable, as investor wills not always

make the correct investment decisions over the period of years; however,

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one should earn a positive return on a diversified portfolio. In addition, there

is a delight from the major success.

Investing is not a game but a serious subject that can have a major impact

on investor's future well being. Virtually everyone makes investments. Even

if the individual does not select specific assets such as stock, mutual funds,

investments are still made through participation in pension plan, and

employee saving programmed or through purchase of life insurance or a

home. Each of this investment has common characteristics such as potential

return and the risk you must bear. The future is uncertain, and one must

determine how much risk you are willing to bear since higher return is

associated with accepting more risk.

The individual should start by specifying investment goals and would like to

have true value of his wealth. Once these goals are established, the

individual should be aware of the mechanics of investing and the

environment in which investment decisions are made. These include the

process by which securities are issued and subsequently bought and sold,

the regulations and tax laws that have been enacted by various levels of

government, and the sources of information concerning investment that are

available to the individual.

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MUTUAL

FUNDS

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MUTUAL FUNDS – A CONCEPT

A mutual fund is simply a financial intermediary that allows a group of

investors to pool their money together with a predetermined investment

objective. Each unit of any scheme represents the proportion of pool owned

by the unit holder (investor). The value of each unit of mutual fund is termed

as Net Asset Value. Appreciation or reduction in value of investments is

reflected in net asset value (NAV) of the concerned scheme, which is

declared by the fund from time to time. Mutual Funds schemes are managed

by respective Asset Management Companies sponsored by financial

institutions, banks, private companies or international firms. An investor can

invest his money in one or more schemes of Mutual Fund according to his

choice and becomes the unit holder of the scheme. The income earned

through these investments and the capital appreciations realized are shared

by its unit holders in proportion to the number of units owned by them.

Mutual Fund offers an investor the opportunity to invest even a small amount

of money. The mutual fund will have a fund manager who is responsible for

investing the pooled money into specific securities. Each Mutual Fund

scheme is managed by qualified professionals, who use this money to create

a portfolio that includes stock and shares, bonds, gilt, money-market

instruments or combination of all. Thus, Mutual Fund will diversify one’s

portfolio over a variety of investment vehicles thereby reducing the risk.

Mutual funds are one of the best investments ever created because they are

very cost efficient and very easy to invest in (one doesn't have to figure out

which stocks or bonds to buy).

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By pooling money together in a mutual fund, investors can purchase stocks

or bonds with much lower trading costs than if they tried to do it on their

own. But the biggest advantage to mutual funds is diversification.

Mutual Funds offer several benefits to an investor such as potential return,

liquidity, transparency, income growth, good post tax return and reasonable

safety. But before investing in a Mutual Fund an investor must identify his

needs and preferences. He must also take in to consideration the risks

associated with such investments.

MUTUAL FUND FRAMEWORK:

MUTUAL FUND CONSTITUENTS

The FIGURE below illustrates the organizational set up of a mutual fund:

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Indian mutual funds are governed by two different structures. The Unit Trust

of India follows one defined by the UTI Act, 1963, and its subsequent

amendments. All other mutual funds follow the Securities and Exchange

Board of India's (Mutual Funds) Regulations, 1996, which are more rigorous

from the viewpoint of disclosure and accountability. Despite the differences,

all mutual funds comprise four constituents -- sponsors, trustees, asset

management companies (AMC’s) and custodians.

THE MUTUAL FUND

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A mutual fund in India is constituted in the form of a Public Trust created

under the Indian Trusts Act, 1882. The Fund Sponsor acts as the Settler of

the Trust, contributing to its initial capital and appoints a Trustee to hold the

assets of the Trust for the benefit of the unit-holders, who are the

beneficiaries of the Trust. The fund then invites investors to contribute their

money in the common pool, by subscribing to “units” issued by various

schemes established by the trust, units being the evidence of their beneficial

interest in the fund.

SPONSOR

The sponsor initiates the idea to set up a mutual fund. It could be a

registered company, scheduled bank or financial institution. For Example: For

Birla Mutual Fund, the sponsor is Birla Growth Funds. In a joint venture like

Sun F&C Mutual Fund, Foreign & Colonial Emerging Markets is the sponsor

and SUN Securities (India) Ltd, the co-sponsor

A sponsor has to satisfy certain conditions, such as on capital, track record

(at least five years' operation in financial services), default-free dealings and

a general reputation of fairness. The sponsor appoints the trustees, AMC and

custodian. Once the AMC is formed, the sponsor is just a stakeholder.

However, sponsors do play a key role in bailing out an AMC during a crisis

(Canara Bank's rescue of Canbank Mutual Fund).

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TRUST / BOARD OF TRUSTEES

Trustees hold a fiduciary responsibility towards unit holders by protecting

their interests. Sometimes, as with Canara Bank, the trustee and the sponsor

are the same. For others, like SBI Funds Management, State Bank of India is

the sponsor and SBI Capital Markets the trustee.

Trustees float and market fund schemes, and secure necessary approvals.

They check if the AMC's investments are within defined limits, whether the

fund's assets are protected, and also ensure that unit holders get their due

returns.

Trustees also review any due diligence done by the AMC. For major decisions

concerning the fund, they have to take unit holders' consent. They submit

reports every six months to SEBI; investors get an annual report. Trustees

are paid annually out of the fund's assets -- 0.05 per cent of the weekly

average net asset value.

FUND MANAGERS / AMC’S

They are the ones who manage funds money. An AMC takes investment

decisions, compensates investors through dividends, maintains proper

accounting and information for pricing of units, calculates the NAV, and

provides information on listed schemes and secondary market unit

transactions.

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It also exercises due diligence on investments, and submits quarterly reports

to the trustees. A fund's AMC can neither act for any other fund nor

undertake any business other than asset management. Its net worth should

not fall below Rs. 10 crore. And, its fee should not exceed 1.25 per cent if

collections are below Rs.100 crore and 1 per cent if collections are above

Rs.100 crore. Sebi can pull up an AMC if it deviates from its prescribed role.

TRANSFER AGENTS

Transfer agents are responsible for issuing and redeeming units of the

mutual fund and provide other related services such as preparation of

transfer documents and updating investor records. A fund may choose to

carry out this activity in-house and charge the scheme for the service at a

competitive market rate. Where an outside Transfer Agent is used, the fund

investor will find the agent to be an important interface to deal with, since all

of the investor services that a fund provides (besides the investment

management) are going to be dependent on the transfer agent.

In India, besides brokers, independent, individuals are appointed as ‘agents”

for the purpose of selling the fund schemes to investors. These agents are

not brokers in a formal sense and do not belong to any stock exchange or

organized self-regulatory body of brokers. While individuals constitute the

largest segment in the category of mutual fund “distributors”, other

41

distributors include Banks, Non Banking Finance Companies and Distribution

Companies.

CUSTODIAN

Often an independent organization, it takes custody of securities and other

assets of a mutual fund. Among public sector mutual funds, the sponsor or

trustee generally also acts as the custodian.

A custodian's responsibilities include receipt and delivery of securities,

collecting income, distributing dividends, safekeeping of units and

segregating assets and settlements between schemes. Their charges range

between 0.15-0.2 percent of the net value of the holding. Custodians can

service more than one fund.SEBI's regulations specify each constituent's role

clearly. How well they act in concert determines the quality of the investor's

experience with the mutual fund.

NET ASSET VALUE (NAV)

A mutual fund is a common investment vehicle where the assets of the fund

belong directly to the investors. Investors’ subscriptions are accounted for by

the fund not as liabilities or deposits but as Unit Capital. On the other hand,

the investments made on behalf of the investors are reflected on the assets

42

side and are the main constituent of the balance sheet. There are, however,

liabilities of a strictly short-term nature that may be part of the balance

sheet. The fund’s Net Assets are therefore defined as the assets minus the

liabilities. As there are many investors in a fund, it is common practice for

mutual funds to compute the share of each investor on the basis of the value

of Net Assets Per Share/Unit, commonly known as the Net Asset Value (NAV).

The following are the regulatory requirements and accounting definitions laid

down by SEBI.

NAV = Net Assets of the scheme/Number of Units outstanding i.e. Market

value of investments + Receivables + Other Accrued Income + other assets.

Accrued Expenses – Other payables – Other liabilities

No. Of units outstanding as at the NAV date For the purpose of the NAV

calculation, the day on which NAV is calculated by a fund is known as the

valuation date.

A fund’s NAV is affected by four sets of factors:

Purchase and sale of investment securities

Valuation of all investment securities held

Other assets and liabilities, and

Units sold or redeemed

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ADVANTAGES OF MUTUAL FUNDS

Professional expertise: Fund managers are responsible for implementing

a consistent investment strategy that reflects the goals of the fund. Fund

managers monitor market and economic trends and analyze securities in

order to make informed investment decisions.

Diversification: In order to reduce this risk, one needs to invest in different

types of securities such that they do not move in a similar fashion. Typically,

when equity markets perform, debt markets do not yield good returns. Note

the scenario of low yields on debt securities over the last three years while

equities yielded handsome returns

Low cost of asset management: Since mutual funds collect money from

millions of investors, they achieve economies of scale. The cost of running a

mutual fund is divided between larger pools of money and hence mutual

funds are able to offer you a lower cost alternative of managing your funds.

Equity funds in India typically charge you around 2.25% of your initial money

and around 1.5% to 2% of your money invested every year as charges.

Investing in debt funds costs even less. If you had to invest smaller sums of

44

money on your own, you would have to invest significantly more for the

professional benefits and diversification.

Liquidity: Mutual funds are typically very liquid investments. Unless they

have a pre-specified lock-in, your money will be available to you anytime you

want. Typically funds take a couple of days for returning your money to you.

Since they are very well integrated with the banking system, most funds can

send money directly to your banking account.

Well regulated: India mutual funds are regulated by the Securities and

Exchange Board of India, which helps provide comfort to the investors. SEBI

forces transparency on the mutual funds, which helps the investor make an

informed choice. SEBI requires the mutual funds to disclose their portfolios at

least six monthly, which helps one keep track whether the fund is investing

in line with its objectives or not.

DRAWBACKS OF MUTUAL FUNDS

No Guarantees-There is no guarantee that the mutual fund will always do

well and provide good returns to its unit holders, as no investment is risk

free. However, risk is minimized to some extent by investing in mutual funds.

45

Fees and Commissions- All funds charge administrative fees to cover their

operational expenses. Some funds also charge sales commissions or “loads”

to compensate financial consultants or planners, brokers etc.

Taxes- Most actively managed funds sell anywhere from 20% to 70% of the

securities in their portfolio during a typical year. If the fund makes a profit on

its sales, the investor has to pay tax on the income he receives even if he

reinvests the money he made.

Management risk- the risk that an investor is taking here is that someone

else is managing his money. He depends on the fund manager to make the

right decision regarding the portfolio. If the manager does not perform as

one had hoped then the investor may not make as much money as he had

expected.

HISTORY OF MUTUAL FUNDS

MUTUAL FUNDS IN INDIA (1964 - 2005)

PHASE ONE (1964-1987):

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The first stage of Mutual funds in India started with the setup of giant public

sector mutual fund UTI in 1964. This stage continued till 1987. In this stage

UTI was the only player in the mutual fund market. At the beginning of 1988

the total assets under management of UTI were 6700 crores.

PHASE TWO (1987-1993):

In 1987 govt. allowed six PSU banks, LIC and GIC to set up mutual funds.

This increased the number of players in the mutual fund to nine. At the end

of 1994 there were 107 Mutual fund schemes with 61028 Crores worth of

assets under management.

PHASE THREE (1994 ONWARDS):

This stage saw the real boom of mutual fund industry. The GOI allowed

private mutual fund to operate. Kothari Pioneer is the first private sector

Mutual Fund of India. As on 31st March 2000 there were 32 mutual funds with

1,13,005 crores worth of assets under management out of which 70,547

crores were in UTI alone. And on august 2000 there were a total of 33 mutual

fund schemes with 391 schemes and asset base of 1,02,844 crores. Today,

we have 34 mutual funds with numerous schemes for the investor’s to invest

in.

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PHASE FOUR 1996 (SEBI REGULATION FOR MUTUAL

FUNDS):

Deregulation and liberalization of the Indian economy introduced

competition and provided impetus to the growth of the industry. Finally,

most investors – small or large –started shifting towards mutual funds as

opposed to banks or direct market investments.

More investor friendly regulatory measures were taken both by SEBI to

protect the investor, and by the Government to enhance investors’ return

through tax benefits. A comprehensive set of regulations for all mutual funds

operating in India was introduced with SEBI (Mutual Fund) Regulations, 1996.

1999 marked the beginning of a new phase in the history of the mutual fund

industry in India, a phase of significant growth in terms of both amounts

mobilized from investors and assets under management. Consider the

growth in assets as seen in the figures below:

The size of the industry grew rapidly, as seen in the figure of assets under

management which shot up from over Rs. 68000 crores to Rs. 113005

crores, a growth of nearly 60% in just one year. Within the growing industry,

by March 2000, the relative market shares of different players in terms of

amount mobilized and assets under management underwent a change.

1999—YEAR OF THE FUNDS

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Mutual funds had been around for a long period of time to be precise for 36

yrs but the year 1999 saw immense future potential and developments in

this sector. This year signaled the year of resurgence of mutual funds and

the regaining of investor confidence in these MF’s. This time around all the

participants were involved in the revival of the funds - the AMC’s, the unit

holders, the other related parties. However, the sole factor that gave lift to

the revival of the funds was the Union Budget. The budget brought about a

large number of changes in one stroke.

It provided centre stage to the mutual funds, made them more attractive and

provided acceptability among the investors. The Union Budget exempted

mutual fund dividend given out by equity-oriented schemes from tax, both at

the hands of the investor as well as the mutual fund. No longer were the

mutual funds interested in selling the concept of mutual funds they wanted

to talk business which would mean to increase asset base, and to get asset

base and investor base they had to be fully armed with a whole lot of

schemes for every investor .So new schemes for new IPO’s were inevitable.

The quest to attract investors extended beyond just new schemes. The funds

started to regulate themselves and were all out on winning the trust and

confidence of the investors under the aegis of the Association of Mutual

Funds of India (AMFI)

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One can say that today, the industry has moved from infancy to

adolescence, it is now maturing and the investors and funds are frankly and

openly discussing difficulties, opportunities and compulsions.

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TYPES OF MUTUAL FUNDS

A Mutual Fund may float several schemes, which may be classified on the

basis of its structure, its investment objectives and constitution.

INVESTMENT OBJECTIVE

Schemes can be classified by way of their stated investment objective such

as Growth Fund, Balanced Fund, and Income Fund etc

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EQUITY ORIENTED SCHEMES

These schemes, also commonly called Growth Schemes, seek to invest a

majority of their funds in equities and a small portion in money market

instruments. Such schemes have the potential to deliver superior returns

over the long term because the market boom and depression phases get

evened out over a longer time span. However, because they invest in

equities, these schemes are exposed to fluctuations in value especially in the

short-term.Equity schemes are hence not suitable for investors seeking

regular income or needing to use their investments in the short-term. They

are ideal for investors who have a long-term investment horizon. The NAV

prices of equity fund fluctuates with market value of the underlying stock

which are influenced by external factors such as social, political as well as

economic.

HDFC Growth Fund, HDFC Tax Plan 2000 and HDFC Index Fund are examples

of equity schemes.

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SECTOR SPECIFIC

These schemes restrict their investing to one or more pre-defined sectors,

e.g. technology sector, pharmaceutical, information technology etc. Since

they depend upon the performance of select sectors only, these schemes are

inherently more risky than general-purpose schemes. They are suited for

informed investors who wish to take a view and risk on the concerned sector.

SPECIAL SCHEMES:

INDEX SCHEMES

The primary purpose of an Index is to serve as a measure of the performance

of the market as a whole, or a specific sector of the market. An Index also

serves as a relevant benchmark to evaluate the performance of mutual

funds. Some investors are interested in investing in the market in general

rather than investing in any specific fund. Such investors are happy to

receive the returns posted by the markets. As it is not practical to invest in

each and every stock in the market in proportion to its size, these investors

are comfortable investing in a fund that they believe is a good representative

of the entire market. Index Funds are launched and managed for such

investors.

An example to such a fund is the HDFC Index Fund.

TAX SAVING SCHEMES

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Investors (individuals and Hindu Undivided Families (“HUF’s”)) are being

encouraged to invest in equity markets through Equity Linked Savings

Scheme (“ELSS”) by offering them a tax rebate. Units purchased cannot be

assigned / transferred/ pledged / redeemed / switched – out until completion

of 3 years from the date of allotment of the respective Units.

The Scheme is subject to Securities & Exchange Board of India (Mutual

Funds) Regulations, 1996 and the notifications issued by the Ministry of

Finance (Department of Economic Affairs), Government of India regarding

ELSS.

Subject to such conditions and limitations, as prescribed under Section 88 of

the Income-tax Act, 1961, subscriptions to the Units not exceeding Rs.10,

000 would be eligible to a deduction, from income tax, of an amount equal to

20% of the amount subscribed.

HDFC Tax Plan 2000 is such a fund.

REAL ESTATE FUNDS

Specialized real estate funds would invest in real estates directly, or may

fund real estate developers or lend to them directly or buy shares of housing

finance companies or may even buy their securitized assets.

DEBT BASED SCHEMES

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These schemes, also commonly called Income Schemes, invest in debt

securities such as corporate bonds, debentures and government securities.

The prices of these schemes tend to be more stable compared with equity

schemes and most of the returns to the investors are generated through

dividends or steady capital appreciation. These schemes are ideal for

conservative investors or those not in a position to take higher equity risks,

such as retired individuals. However, as compared to the money market

schemes they do have a higher price fluctuation risk and compared to a Gilt

fund they have a higher credit risk.

INCOME SCHEMES

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These schemes invest in money markets, bonds and debentures of corporate

with medium and long-term maturities. These schemes primarily target

current income instead of capital appreciation. They therefore distribute a

substantial part of their distributable surplus to the investor by way of

dividend distribution. Such schemes usually declare quarterly dividends and

are suitable for conservative investors who have medium to long-term

investment horizon and are looking for regular income through dividend or

steady capital appreciation.

HDFC Income Fund, HDFC Short Term Plan and HDFC Fixed Investment Plans

are examples of bond schemes.

LIQUID INCOMES SCHEMES

Similar to the Income scheme but with a shorter maturity than Income

schemes.

An example of this scheme is the HDFC Liquid Fund

MONEY MARKET SCHEMES

These schemes invest in short-term instruments such as commercial paper

(“CP”), certificates of deposit (“CD”), treasury bills (“T-Bill”) and overnight

money (“Call”). The schemes are the least volatile of all the types of

schemes because of their investments in money market instrument with

short-term maturities. These schemes have become popular with

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institutional investors and high net worth individuals having short-term

surplus investible funds.

GILT FUNDS

This scheme primarily invests in Government Debt. Hence, the investor

usually does not have to worry about credit risk since Government Debt is

generally credit risk free.

HDFC Gilt Fund is an example of such a scheme.

HYBRID SCHEMES

These schemes are commonly known as balanced schemes. These schemes

invest in both equities as well as debt. By investing in a mix of this nature,

balanced schemes seek to attain the objective of income and moderate

capital appreciation and are ideal for investors with a conservative, long-

term orientation.

HDFC Balanced Fund and HDFC Children’s Gift Fund are examples of hybrid

schemes.

REGULATORY ASPECTS OF MUTUAL FUNDS

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SEBI MUTUAL FUNDS REGULATIONS, 1996

The regulatory framework for Mutual Fund Schemes as given by the SEBI

Regulations is as follows:

PROCEDURE FOR LAUNCHING OF SCHEMES

The asset management company shall launch no scheme unless the trustees

approve such scheme and a copy of the offer document has been filed with

the Board.

Every mutual fund shall along with the offer document of each scheme pay

filing fees.

The offer document shall contain disclosures which are adequate in order to

enable the investors to make informed investment decision including the

disclosure on maximum investments proposed to be made by the scheme in

the listed securities of the group companies of the sponsor.

No one shall issue any form of application for units of a mutual fund unless

the form is accompanied by the memorandum containing such information,

as may be specified by the Board.

DISCLOSURES IN THE OFFER DOCUMENT

The offer document shall contain disclosures, which are adequate in order to

enable the investors to make informed investment decision (including the

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disclosure on maximum investments proposed to be made by the scheme in

the listed securities of the group companies of the sponsor).

The Board may in the interest of investors require the asset management

company to carry out such modifications in the offer document as it deems

fit.

In case no modifications are suggested by the Board in the offer document

within 21 [working] days from the date of filing, the asset management

company may issue the offer document.

No one shall issue any form of application for units of a mutual fund unless

the form is accompanied by the memorandum containing such information

as may be specified by the Board.

INVESTMENT OBJECTIVES AND VALUATION POLICIES

The moneys collected under any scheme of a mutual fund shall be invested

only in transferable securities in the money market or in the capital market

or in privately placed debentures or securitized debts.

Provided that moneys collected under any money market scheme of a

mutual fund shall be invested only in money market instruments in

accordance with directions issued by the Reserve Bank of India.

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The mutual fund shall not borrow except to meet temporary liquidity needs

of the mutual funds for the purpose of repurchase, redemption of units or

payment of interest or dividend to the unit holders.

The mutual fund shall not advance any loans for any purpose.

Every mutual fund shall compute and carry out valuation of its investments

in its portfolio and publish the same in accordance with the valuation norms

specified in Eighth Schedule

Every mutual fund shall compute the Net Asset Value of each scheme by

dividing the net assets of the scheme by the number of units outstanding on

the valuation date.

The Net Asset Value of the scheme shall be calculated and published at least

in two daily newspapers at intervals of not exceeding one week:

The price at which the units may be subscribed or sold and the price at

which such units may at any time be repurchased by the mutual fund shall

be made available to the investors.

RESTRICTIONS ON INVESTMENTS

A mutual fund scheme shall not invest more than 15% of its NAV in debt

instruments issued by a single issuer, which are rated not below investment

grade by a credit rating agency authorized to carry out such activity under

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the Act. Such investment limit may be extended to 20% of the NAV of the

scheme with the prior approval of the Board of Trustees and the Board of

asset Management Company.

A mutual fund scheme shall not invest more than 10% of its NAV in unrated

debt instruments issued by a single issuer and the total investment in such

instruments shall not exceed 25% of the NAV of the scheme. All such

investments shall be made with the prior approval of the Board of Trustees

and the Board of Asset Management Company.

No mutual fund under all its schemes should own more than 10% of any

company's paid up capital carrying voting rights.

Transfers of investments from one scheme to another scheme in the same

mutual fund shall be allowed only if, -

Such transfers are done at the prevailing market price for quoted

instruments on spot basis.

The securities so transferred shall be in conformity with the investment

objective of the scheme to which such transfer has been made.

A scheme may invest in another scheme under the same asset management

company or any other mutual fund without charging any fees, provided that

aggregate inter scheme investment made by all schemes under the same

management or in schemes under the management of any other asset

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management company shall not exceed 5% of the net asset value of the

mutual fund.

The initial issue expenses in respect of any scheme may not exceed 6% of

the funds raised under that scheme.

Every mutual fund shall buy and sell securities on the basis of deliveries and

shall in all cases of purchases, take delivery of relative securities and in all

cases of sale, deliver the securities and shall in no case put itself in a

position whereby it has to make short sale or carry forward transaction or

engage in badla finance.

Every mutual fund shall, get the securities purchased or transferred in the

name of the mutual fund on account of the concerned scheme, wherever

investments are intended to be of long-term nature.

Pending deployment of funds of a scheme in securities in terms of

investment objectives of the scheme a mutual fund can invest the funds of

the scheme in short term deposits of scheduled commercial banks.

No mutual fund scheme shall make any investment in:

Any unlisted security of an associate or group company of the sponsor; or

Any security issued by way of private placement by an associate or group

company of the sponsor; or

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The listed securities of group companies of the sponsor, which is in excess of

30% of the net assets (of all the schemes of a mutual fund)

No mutual fund scheme shall invest more than 10% of its NAV in the equity

shares or equity related instruments of any company. Provided that, the limit

of 10% shall not be applicable for investments in index fund or sector or

industry specific scheme.

A mutual fund scheme shall not invest more than 5% of its NAV in the equity

shares or equity related investments in case of open-ended scheme and 10%

of its NAV in case of close-ended scheme.

PRICING OF UNITS

Although NAV per unit defines the value of the investor’s holding in the fund,

the fund may not repurchase the investor’s units at the same price as NAV.

However, SEBI requires that the fund must ensure that repurchase price is

not lower than 93% of NAV (95% in the case of a closed-end fund). On the

other side, a fund may sell new units at a price that is different from the

NAV, but the sale price cannot be higher than 107% of NAV. Also, the

difference between the repurchase price and the sale price of the unit is not

permitted to exceed 7% of the sale price.

ADVERTISEMENT MATERIAL

The advertisement for each scheme shall disclose investment objective for

each scheme.

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An advertisement shall be truthful, fair and clear and shall not contain a

statement, promise or forecast which is untrue or misleading.

Advertisements shall not be so framed as to exploit the lack of experience or

knowledge of the investors.

All advertisements issued by a mutual fund or its sponsor or Asset

Management Company shall state, "all investments in mutual funds and

securities are subject to market risks and the NAV of the schemes may go up

or down depending upon the factors and forces affecting the securities

market".

The advertisement shall not compare one fund with another, implicitly or

explicitly, unless the comparison is fair and all information relevant to the

comparison is included in the advertisement.

MISLEADING STATEMENTS

The offer document and advertisement materials shall not be misleading or

contain any statement or opinion, which are incorrect or false.

LISTING OF CLOSE-ENDED SCHEMES

Every close-ended scheme shall be listed in a recognized stock exchange

within six months from the closure of the subscription.

Provided that listing of close-ended scheme shall not be mandatory –

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if the said scheme provides for periodic repurchase facility to all the unit

holders with restriction, if any, on the extent of such repurchase; or

if the said scheme provides for monthly income or caters to special classes

of persons like senior citizens, women, children, widows or physically

handicapped or any special class of persons providing for repurchase of units

at regular intervals; or if the details of such repurchase facility are clearly

disclosed in the offer document; or if the said scheme opens for repurchase

within a period of six months from the closure of subscription.

REPURCHASE OF CLOSE-ENDED SCHEMES

The asset management company may at its option repurchase or reissue the

repurchased units of a close-ended scheme.

The units of close-ended schemes referred to in the provision to regulation

32 may be open for sale or redemption at fixed pre-determined intervals if

the maximum and minimum amount of sale or redemption of the units and

the periodicity of such sale or redemption have been disclosed in the offer

document.

INFRASTRUCTURE MUTUAL FUND 0000000000000000000

INFRASTRUCTURE MUTUAL FUNDSAn Infrastructure fund is a managed vehicle through which investors gain

exposure to the underlying characteristics of infrastructure assets.

Infrastructure is emerging strongly as an asset class which can be

particularly well suited to pension funds and other investors with a long-term

65

outlook. Infrastructure assets tend to display comparatively stable, long-

term real return and provide a good match for longdated liabilities.

They invest in private infrastructure companies, but the fnds themselves can

be isted or unlisted. For example, Macquarie has been investing in

infrastructure for more than a decade and now manages over 20

infrastructure funds around the world. Half of these are listed on the stock

exchange, with investors from pension funds and other institutions to retail

investors. The rest are unlisted funds in which the investors are largely

pension funds and other institutions.

The fund tens to either specialize in one class of infrastructure - for example

invest only in airport or only in toll-roads – or they invest across various

infrastructure ectors which meet specified investment criteria. For example

The infrastructure assets can include telecommunications and broadcast

nfrastructure, utilities, toll road, airport and other transport infrastructure.

Fundamentally, infrastructure assets are distinguished by displaying the

following ey characteristics:

Provide essential community services

Have strategic competitive advantage

Have predictable long-term cash flow

These characteristics lead to the investment benefits outlined below.

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Infrastructure assets display unique characteristic. Their essential and long-

term nature, combined with strong competitive position, lead to stable and

predictable consumer demand and cash generation. These assets tend to

have a high fixed capital base with comparatively low operating costs – on

average of between 10% and 30% of revenue. Along with the long-term

operating license and predictable demand, often in a regulated environment,

this allows the manager to forecast cashflows with accuracy.

Infrastructure assets have a low correlation to equity markets and other

asset classes. For the reason, it can provide valuable diversification in an

investment portfolio. It also provides a good match for the long-dated liabilities of

ension funds due its long-life and inflation protected returns. This stability in

operating cashflows can reduce the overall volatility of returns for investors

and, in our experience; investors are finding this combination of sustainable

yields, lower volatility and inflation-linked return increasingly appealing.

But there are only five that have a sizeable money under management; and

these four were launched before 2006:

These funds include:

1.DSP ML TIGER Fund

2. Prudential ICICI Infrastructure Fund

3. Tata Infrastructure Fund

4. UTI Thematic Infrastructure Fund

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These are are open-ended funds; this means you can invest in them

whenever you like. We expect some more infrastructure funds to hit the

market but most of them would be close-ended (in open-ended funds,

investors are free to sell their units anytime; in close-ended funds, investors

cannot sell their units for a minimum period of time -- this minimum period is

decided by the fund).

INFRASTRUCTURE MUTUAL FUNDS

Infrastructure, as a theme, covers several sectors like power utilities, power

equipment and construction companies best, technology sector funds could

software stocks it traditionally invests in), infrastructure funds are a few

sectors.

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DSP Merllynch Tiger Fund

Here's a fund suitable for all types of investors. The aggressive ones will like

the returns it offers while the conservative ones will find peace in its

diversification.

DSP T.I.G.E.R. Fund was launched at a very opportune time when the Sensex

was around begun to witness high grow launched in April 2004. In the past

four years DSP India has performed excellent and has become one of the

best funds for the investor. open ended fund which can Its Market

capitalization as at 31/03/08 was 19,005.59 cr. Its

The broad investment mandate, large alleviate all their fears. An acron

Reforms, the fund focuses on sectors that are likely to prosper from growth

related to economic reforms and infrastructure development. With this as a

starting point, the fund manager follows a top resorting to bottom-up stock

picking. Unlike other infrastructure offerings, its broader mandate has

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enabled it to tap into sectors that core infrastructure funds do not -

healthcare, FMCG, textiles, consumer non-durables.

ICICI Prudential Infrastructure Fund

ICICI Prudential Infrastructure has protected the downside well while growing

at a fast pace. In fact the fund emerged as the fourth best diversified in

2006.

ICICI Prudential Infrastructure fund was

launched in August 2005. It is an open ended

fund having market capitalization last 52 weeks

highest NAV was 36.61.

UTUAL FUNDS

As infrastructure funds go, the fund is structured to exclude technology,

FMCG and pharmaceutical companies. But beyond this similarity, there exist

discernible characteristics in the fund's portfolio that set based funds.

Tata Infrastructure Fund

Tata Infrastructure Fund is one of the best fund and highly rated fund. It has

2004.

It is an open ended fund having market capitalization of

Rs. at 31/03/08. Its last 52 weeks highest NAV was

45.515 and lowest was 23.1237.

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The fund achieved this essentially on the back of a large with some help

from the mid caps. To some extent one can attribute this stellar performance

to the sector exposure that most infrastructure funds maintain. But the real

clincher had been the f has truly augmented the fund's returns.

UTI Thematic Infrastructure Fund

India’s infrastructure sector is expected to witness huge investments in the

coming years. To enable you to take advantage of this Infrastructure

Advantage Fund.

As a 3 year close ended fund it focuses on investing in high growth

infrastructure sectors such as Airports, Banking, Construction, Engineering,

Energy, Mining, Ports and Power among others. The category pioneer, UTI

Infrastructure has been going great guns. A runaway hit in 2005 and an

exemplary success in 2006 & 2007, the fund is on a roll with the future looks

just as promising. he first infrastructure fund to be launched, it was a classic

example of the early bird getting the worm. It found a spot in the top quartile

of the category in 2005, generating 57 per cent returns and outdoing the

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average peer by a marginL apart from other infrastructure recently received

as a best equity fund award by CRISIL. It is considered as one of the best

infrastructure fund. TATA Infrastructure's astute ability to spot sector trends

has handsomely. Tata Infrastructure Fund was launched in December .

24,081.68 cr. As s large-cap growthwith fund manager's ability to spot sector

trends which boom, UTI now launches the UTI delivered oriented focus, fund

of more than 10 per cent. In 2006, it leapt to the topmost slot with returns of

61.48 per cent .

UTI Infrastructure fund was launch having market capitalization of Rs.

24,247.71 cr. as at 31/03/08. thematic fund, it has a reasonably diversified

portfolio of 40 capital goods, construction and energy dominate the portfolio,

but this infrastructure fund also has a significant exposure to metals and

technology. This ne makes for a worthy and dive expenditure wave

sweeping across the country. MA

DATA ANALYSIS

MARKET CAPITALISATION

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KET CAPITALIZATIONThe above graph shows that ICICI Prudential Infrastructure Fund has

maximum fund under management as compared to other fund houses. It is

followed by UTI Infrastructure fund, Tata Mutual Fund and DSP Merllynch

Tiger Fund respectively.

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MEAN & STANDARD DEVIATIONMEAN & STANDARD DEVIATION OF THE FUNDSCalculated value of Mean andfund is shown in the chart below:

Mean Calculated above is for the period of past one year. We can see that

there is not much difference between the returns of these mutual funds.

T.I.G.E.R fund has provided maximum return of 4 been most successful fund

for the past DSP Merllynch T.I.G.E.R fund it is the least volatile fund of th

earner and comparatively low risk earner highest return with least volatility.

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If Beta less than 1 means, the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. As seen from the above table UTI Infrastructure Fund is most volatile followed by Tata, DSP and ICICI Prudential respectively. Now if market rise, UTI Infrastructure Fund will rise at faster rate than other fund, but if market falls, UTI Infrastructure Fund will fall at faster rate too.

Treynor ratio is a risk-adjusted measure of return based on systematic risk. Greater the value of Treynor Ratio, better is the fund. Here again ICICI Prudential Infrastructure fund scores higher than other funds.

Expense Ratio allowed by SEBI is 2.5% of the total asset under management. All the above funds mentioned are below the mentioned ratio. But UTI Infrastructure fund is having maximum expense ratio of 2.03%. Here again ICICI Infrastructure fund has least expense ratio. The reason might be that it is well established fund house and hence requires comparatively less expense in marketing expenditure.

PORTFOLIO ANALYSIS

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Portfolio of the fund describes compositions of various industries equity

shares. Mutual funds have much diversified portfolio as per the requirement

of the fund. Infrastructure fund has majority of its portfolio in industries like

Energy, Engineering, Metal, Construction, and Technology Industries.

IS

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There has been quite rational move by all the fund houses in including and

excluding right firm in their portfolio. ICICI Prudential made a huge change in

its portfolio by introducing 4 new companies and withdrawing from 4 existing

companies. It invested into companies like ONGC, Gujarat Ambuja Cement

ltd, India Cement Ltd and Mahindra & Mahindra Ltd, all having huge market

potential. It let away with HDFC, GAIL which are at the moment hit by the

market factors.

Both UTI & DSP Merllynch had similar changes this month with both buying

the share of Reliance Industries Infrastructure Ltd shares and selling Reliance

Energy. DSP Merllynch T.I.G.E.R Fund also purchased some shares in Idea

Cellular Ltd. It is expected that Idea Cellular is expected to do well in the

recent future; hence it might be a good move.

Tata Infrastructure also did a positive move by Reliance Petroleum which is

expected to do well. Bharti Airtel is expected to merge with MTN of South

Africa. This merger is expected to benefit Bharti Airtel by giving global

markets. Hence it’ll help its shareholder.

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COMPARISION W

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I

The above shown graph describes the movement of the selected

infrastructure funds with the benchmark. Here the benchmark chosen in BSE

Sensex. The data selected for the above graph is for the past1 year.

investing into Bharti Airtel and ARHMARK INDEX

STATISTICAL ANALYSIS

It can be seen that when the BSE Sensex was on the rise, all the funds were

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performing extremely well. The return is well above 100%. It can be seen

that Tata Infrastructure Fund was performing extremely well till Dec 07. It

had provided maximum return as compared to other fund houses and was

rated best fund of the year by CRISIL and ICRA.

But when Sensex crashed in the January ’08 we saw a steep fall in all the

funds.

The fall was more the 100% to the Sensex. Thereafter, there was change in

the high performer with ICICI Infrastructure fund out performing other

infrastructure funds. It can be seen in the graph that ICICi Infrastructure

performing best followed by Tata Mutual Fund, UTI Infrastructure Fund and

DSP Merllynch Fund.

COMPARSION WITH THE BENCHMARK INDEX

EQUITY MUTUAL FUNDSEQUITY FUNDSThe term Equity Investment refers to the buying and holding of stocks in the

stock market by individuals & companies, then expecting income from

dividends and capital gains when there is a rise in the stock value. It also

refers to the acquirement of ownership / equity participation in a start-up

company or a private company. When you invest in a start-up company, the

investment is termed as Venture Capital and is likely to be at a higher risk

than the on-going concerns.

The Equity Funds, also known as Stock Fund, is a fund that invests in

equities / stocks. These funds are generally held in stock or cash unlike

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securities or bonds. This may be done by means of a mutual fund or

exchange traded fund. The main objective of investing in an equity fund is to

have long-term growth via capital appreciation apart from dividends and

interest as sources of revenue. Explicit equity funds may have their focus on

specific market sector and also include certain amount of risk.

The Equity Funds are either via the mutual funds or by any other pooled

investment vehicle. These vehicles have their prices quoted, listed and

publicized. The mutual funds are generally under the management of

renowned fund management firms. Under these types of holdings, the

investors can have diversified funds with the help and services of skilled

professionals known as fund managers. These fund managers are in charge

of these funds.

Each equity fund can be distinguished from the other. For example, a fund

can be growth specific or and another can value specific. These funds can be

invested only in securities from one or more countries. Fund managed by the

fund managers are actively managed and the Index Fund reflects the specific

market indices.

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HDFC Top 200 fund has the highest market capitalization as compared to

other funds. Reliance being the oldest fund has not been able to attract large

number of investors. Tata P/E Equity fund has the lowest market

capitalization. The reason may be, it is the youngest fund of the lot launched

in December 2004.

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t

hrough Mean & Standard In the above show chart, we can see SBI Magnum Contra Fund out

performing other funds. It has given a average return of 42.24 in the past 1

year followed by Reliance Growth Fund, HDFC Top lowest average mean of

37.71.

While calculating their standard deviation, we see HDFC Top 200 having

least SD of all. It means that HDFC is least volatile fund of the lot. The most

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volatile fund is Reliance Growth Fund. Tata is also on the higher side with SD

of 27.14.

So looking at the above chart, we can say that SBI Magnum is better fund as

its average return is highest and SD is low, though not lowest.

0

10

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Looking at the above given data, we have quite mixed reactions about these

funds.

Beta of three funds is less than 1. It means that if market falls, there will

comparatively small fall in these funds, while if the market rises, there rise

will also be comparatively less. So we can say that these funds are less risky

but will also give less return. Tata P/E equity fund is having beta of more

than 1 i.e. 1.01, which means 100% change in market will bring 101%

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change in the fund. So this is comparatively more risky fund but is expected

to give higher return. In the present market scenario where it is very difficult

to say if market would rise or fall, it is very hard to say whether a fund

should have Beta more than 1 or less than 1.

Sharpe Ratio shows smart portfolio’s composition. HDFC Top 200 is having

the highest Sharpe Ratio of 1.44, followed by SBI Magnum Contra Fund,

Reliance Growth Fund and Tata P/E Equity Fund. Tata P/E is having the least

at 1.19 which refers this fund as high returns but with high risk.

Treynor Ratio measures returns earned in excess of that which could have

been earned on a riskless investment per each unit of market risk. Reliance

Growth fund out scores other funds in this ratio with Treynor Ratio equal to

1.41, followed by Tata P/E Equity Fund at 1.28, SBI Magnum Contra Fund at

1.18 and HDFC Top 200 at 0.97.

The Sortino ratio measures the risk-adjusted return of an investment asset,

portfolio or strategy. The ratio is the actual rate of return in excess of the

investor's target rate of return, per unit of downside risk. Here again Reliance

Growth is the best performer with Sortiino Rotio of 0.58 followed by Tata P/E

Equity Fund at 0.52, SBI Magnum at 0.48 and again the last is HDFC Top 200

fund at 0.42.

The P/E ratio (price-to-earnings ratio) of a fund is a measure of the price

paid for a fund relative to the annual income or profit earned by the fund per

unit. Investor who opts to purchase a fund would prefer low P/E, while a

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seller would like to sell a fund whose P/E is high. Among the above funds,

investor would prefer to invest into SBI Magnum and Tata P/E Fund as it has

low P/E, i.e. it is not listed at a high price. Reliance Growth and HDFC Top200

is listed at a high price and hence expensive to purchase for an investor.

Expense incurred by Tata is very high at 2.36% of the fund. The reason

might be that it is comparatively new fund house and needs to incur some

advertisement expenses. Also the market capitalization of the fund is

comparatively low, hence the ratio might seem to be quite big as compared

to other. Reliance Growth fund has lowest expense ratio.

Analysis through statistical

Portfolio Analysis

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The above graph shows the portfolio of the selected fund. From the graph it

can be seen that Reliance Growth and SBI different sector.

Here HDFC Top 200 Fund is having around 20% exposure in the financial

market. Financial market is on the back side, with the sub months Indian

financial market is on the back foot. Also are not very impressive. So the

retur Equity Fund is comparatively lower.

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Also the exposure of Tata P/E Equity fund is more than 27% in Metal and

metal product. The return from this fund largely depends upon this sector. If

any uncertainty hits this sector, the loss to this fund will be enormous.

We can also see that it is only HDFC Top 200 have invested in consumer

durables. While Reliance Growth Fund have invested in Textile sector.

It should also be noted that Reliance Growth Fund is having around 20% of

the fund in cash which is very large amount on which the fund is not earning

any return. It might be that the fund manager would be waiting for the right

time to invest in this volatile market. SBI Magnum is having very small

portion of the fund in cash so the return will be received on the entire fund,

but at the time of bulk return the fund manager might find problem.

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We can see that from the previous portfolio there is not much difference in

the present portfolio.

Reliance Growth bought Kotak Mahendra Bank Ltd to its portfolio which is

very smart move. Though there are number of bank’s equity shares loosing

grip in the market but Kotak Mahendra has performed well in the last few

months and the results were also quite satisfying. It also took a rational step

by selling off JSW Steel Ltd, as steel industry is in huge pressure from the

government on keeping the price of the product low and also international

rise in raw metal.

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Portfolio Analysis

Tata P/E Equity fund kept itself away from investing in the high volatile

market but it sold couple of its shares. One of which was ONGC, the stock

which expert suggest is not going to do well. So the move seems to be a

rational one from the Tata Fund House.

th the Benchmark Index

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The above given diagram shows the movement of the each fund’s NAV with

the Benchmark. Here benchmark is BSE Sensex. The NAV of past 1 year is

taken into study. We see very less gap between the NAV of these funds

during the first 5 months. For the next two months when the Sensex was at

its peak, two funds namely Tata P/E Equity Fund and Reliance Growth Fund

outperformed other funds. When the Sensex fall in the mid Jan, highest fall

was in Reliance and Tata Equity Fund, but still the remained above other

funds. It can be seen that Tata P/E Equity Fund outperforms the other fund

thro Tata P/E was highest followed by Reliance Growth, HDFC Top 200 and

SBI Magnum Contra Fund.

DEBT MUTUAL FUND

An investment pool, such as a mutual fund or exchange-traded fund, in

which core holdings are fixed income investments. A debt fund may invest in

short-term or long-term bonds, securitized products, money market

instruments or floating rate debt. The fee ratios on debt funds are lower, on

average, than equity fundsbecause the overall management costs are lower.

The main investing objectives of a debt fund will usually be preservation of

capital and generation of income. Performance against a benchmark is

considered to be a secondary consideration to absolute return when

investing in a debt fund.

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A debt fund has lots going for it as an investment. For most, it's the only way

to invest in income-generating instruments without having to commit huge

sums of money, or stressing out about assorted worries such as transaction

costs, stamp duty or lack of liquidity. In fact, many of the most attractive

debt instruments are unavailable directly to the retail investor.

Debt itself has the advantage of being much less risky than equities. Equities

may return more, but their volatility can be distressing. If steady, predictable

returns are what you expect, a debt fund will deliver precisely that. That's

why it's an essential portfolio component for people who take a keen interest

in money management, like 54-year-old housewife "Open-ended debt funds

provide regular income, liquidity and tax advantages minus the sleepless

nights of equity." There's also the tax-saving angle. Budget 99 made

dividends tax-free in the hands of the investor. Further, investors can claim

indexation benefits, which have the effect of reducing the tax liability on

their capital gains arising from the sale or redemption of units of debt funds.

Debt Fund in consideration.

Birla Sun Life Income Fund

HSBC Income Investment Fund

Kotal Income Plus Fund

Tata Income FundALYSIS

Birla Sun Life Income Fund

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This fund was launched on March 1997. It is the oldest fund of the selected

lot. This fund house is considered as the best fund house for the debt based

fund. It has been rated as Five Star Fund from the Value Research. The

fund’s investment has been largely diversified with investment in all highly

rated funds. Its Asset Under Management is more than Rs. 275 Cr.

It can be seen that the fund has always outperformed the benchmark when

the Debt Medium-term index is on the rise. Also when it falls, Birla Sun Life

Income Fund falls at greater pace.

HSBC Income Investment Fund

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HSBC Income Investment Fund (HIF) seeks to generate regular returns by

investing in bonds, debentures, government securities and short term

instruments like commercial papers, repos etc. For a time horizon greater

than a year and if one seek regular returns, then one can invest in the

Investment Plan of HSBC Income Investment Fund.bout Debt Fu

Kotak Income Plus Fund

Kotak Income Plus invests 80% - 100% in debt and money market

instruments and 0 - 20% in equity related instruments. The scheme

endeavors to provide safety of a debt fund with superior returns of equity

product. To ensure safety of a debt fund the scheme invests in top rated

debt instruments thereby ensuring good credit quality and liquidity. It was

launched in the year 2003.

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Tata Income Fund

Tata launched the fund way back in 1997. The objective of the scheme is to

provide income distribution and/ or medium to long term capital gains while

at all times emphasising the importance of safety and capital appreciation.

It is having its investment spread through only 14 debt funds.

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97

Size

The above given figure shows the net asset of each fund as on 30 April 08.

It can be clearly seen that in type of fund that we have selected, Birla Sun

Life Income Fund leads others with its fund size of more than 250 crs.

launched 10 years ago and has been able to attract huge amount of their

fund.

The oldest fund of all, HSBC Income Investment Fund has not been able to

attract and keep large number of investment. This might be the reason for

its fulowest of the lot.

Tata Mutual fund has also been launched very small as to Birla Sun Life

Income fund it is doing better than other two funds.

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St

99

We can see here that Birla Sun Life Income Fund has out the form of average

return. It has provided return more than 10% while less than 8% of return. So

we can say that Birla Fund house has performed exceptionally well.

HSBC Income Investment Fund is giving second highest return at 7.3% while

Kotak and Tata fund houses follow them respectively.

While looking at the deviation from their mean, we find HSBC Income

Investment Plan is having lowest volatility at 1.77% followed by Tata Income

Fund Birla Sun Life Income Fund at 2.98 and Kotak Income Plus Fund at

5.63%. Kotak Income Plus Fund is most volatile fund as its Standard

Deviation is very high as compared to other such schemes.

A rational investor will always prefer a fund giving high return with least

standard deviation. Also in debt fund, the investors are low risk takers and

avoid I the funds having Standard Deviation high. So for them Birla Sun Life

Income Fund will be considered as the optimal plan.

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100

2

Beta of all the fund is more than 1 which means if its benchmark quotes

increase by 100% all the fund’s NAV will increase by more than 100%. The

biggest change will be in Tata Income Fund as its Beta is highest at 1.09. So

if the benchmark will be on the rise, Tata will rise at fastest rate of all other

fund followed by HSBC and Kotak fund with Birla being the last of the lot.

Analysis through Statistical Tools

101

Sharpe ratio concentrates on the composition of the fund. It calculates how

smart the fund is structured. Without a doubt, Birla Fund House tops the

ratio followed by Kotak Income Plus fund. Both HSBC Income Investment

fund and Tata Income fund are having lowest Sharpe Ratio.

Sortino Ratio calculated only downward movement of the fund with its

benchmark. Higher the ratio better the fund is. Here again Birla Sun Life

Income Fund Tops the list with ratio of 0.76. Second place is taken by Kotak

Income Fund followed by HSBC and Tata Income Fund respectively.

Here again we see that Tata Income Fund is having highest expense ratio of

2.25 of the total asset. It is having very high expense throughout its entire

funds. Even Kotak Income Plus Fund is also having very high expense. Both

HSBC Income Investment Fund and Birla Sun Life Income Fund is having

lowest expense ratio of the lot.

So reviewing the above table we can say Birla Sun Life Income Fund is the

best of the lot in almost all the ratios and hence most attractive fund.

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A good mutual fund is that fund which is optimally Income Investment Fund

having more than 85% of the fund invested in the AAA Rated Funds which

may not be that much rational. Also its cash in hand is in negative. It implies

that it has taken money on credit to invest in the m this case, if there is any

large redemption from the investors, in that case the fund manager might

not be able to provide timely money to the investors.

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Birla Sun Life Income Fund is having properly diversified portfolio with its

investment in all high credit rated funds. We can see that its investment is

less in the GOL securities as in these securities risk is very less or we can

say, there is no risk but return is very less which does not help in earning

more of a return. Its high investment in money market helps the fund in

receiving more return from the investment. So it is well balanced fund

Looking at the above graph we can see that Kotak Income Plus Fund is

slightly more risky as compared to other funds as it is having its investment

in th companies with not the top level of Rating. It is also having investment

in the companies with credit rating AA+ which makes it slightly more risky

than other funds. Also it is only Kotak which has invested in AA+ rated

companies.

Tata Income fund is also well diversified fund with its investment in all top

credit rated companies. It is having highest investment in GOI securities

which makes this fund least risky but also reduces the opportunity of earning

more from other companies.

Mov

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the Ben

Source: www.mutualfundsindia.com

The above NAV graph has been drawn taken the NAV of period of past 1

year. The benchmark selected for the formulation for this graph is CRISIL

Composite Bond Fund Index.

It can be seen in the graph that Kotak Income Plus Fund has been most

volatile fund and has fluctuated a lot f growth was similar to other funds but

in the month of September we saw a big fall in the NAV of Kotak Income

fund. This fall led to its NAV even below Benchmark. Tata Income Fund

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But thereafter for the next 4 months there was a big gain in its NAV. Its NAV

was highest for that period outperforming all other funds. But it again

noticed a major fall, ending the year with lowest NAV for the year. The

reason for such volatility can be its portfolio composition having AA+ rated

bond funds.

As far as Birla Sun Life Income Fund is concerned, it has constantly provided

high return. It can be seen from the graph that when there is an increase in

the benchmark index, Birla Fund saw a greater rise, but there was not

greater fall when there was a fall in the Benchmark Index. This really makes

fund most attractive and desirable for the investors. It ended the year with

staying on the top of the selected fund. This is the reason it was accredited

with five star rated fund from CRISIL.

HSBC Income Investment fund performed fairly well with always staying

above the benchmark Index. It has never fallen below the benchmark and

this makes this fund second most preferred fund as there is least volatility

and steady growth. It ended the year with second highest NAV of the

selected funds.

Tata Income Fund has not performed well. For the most of the period its NAV

stayed below the benchmark index. Though we don’t see much of the

volatility in the fund, which makes it less risky but investor do demand

returns at least as that of its benchmark if not more. But for 9 months its

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NAV was below CRISIL Composite Bond Fund Index. At the end of the year,

we saw some upward movement in the NAV ending third of the selected

funds.

NAV Graph

RECOMMENDATION

Companys are comparatively a young company. It is having best of the

personals who can take Tata Mutual Funds to great heights. I have following

suggestion which I feel might help them in achieving their desire goals.

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Companys should diversify their investment throughout the different

sector and avoid keeping majority funds only in a particular sector.

It should reduce its Expense Ratio which is very high as compared to

other fund houses

Its changes in portfolio compared to previous are very rational but it

should also try to reduce its share in the financial sector which is at the

downside.

Companys are not doing very good in the Debt Fund category. It

should try to reduce its share from the GOI securities and participate

more in the money market.

DSP Merllynch Tiger Fund

Here's a fund suitable for all types of investors. The aggressive ones

will like the returns it offers while the conservative ones will find peace

in its diversification.

DSP T.I.G.E.R. Fund was launched at a very opportune time when the Sensex

was around begun to witness high grow .

ICICI Prudential Infrastructure Fund

ICICI Prudential Infrastructure has protected the downside well while

growing at a fast pace.

In fact the fund emerged as the fourth best diversified in 2006.

UTI Thematic Infrastructure Fund

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India’s infrastructure sector is expected to witness huge investments in the

coming years. To enable you to take advantage of this Infrastructure

Advantage Fund. As a 3 year close ended fund it focuses on investing in high

growth infrastructure sectors such as Airports, Banking, Construction,

Engineering, Energy, Mining, Ports and Power among others.

Tata Infrastructure Fund

Tata Infrastructure Fund is one of the best fund and highly rated fund. It has

2004. It is an open ended fund having market capitalization of Rs. at

31/03/08. Its last 52 weeks highest NAV was 45.515 and lowest was

23.1237The fund achieved this essentially on the back of a large with some

help from the mid caps. To some extent one can attribute this stellar

performance to the sector exposure that most infrastructure funds maintain.

But the real clincher had been truly augmented the fund's returns.

APPENDIX I

CRISIL Rating Symbols For Long Term Ratings

Investment Grade Ratings

AAA (Triple A) Highest Safety

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Instruments rated 'AAA' are judged to offer the highest degree of safety with

regard to timely payment of financial obligations. Any adverse changes in

circumstances are most unlikely to affect the payments on the instrument

AA (Double A) High Safety

Instruments rated 'AA' are judged to offer a high degree of safety with regard

to timely payment of financial obligations. They differ only marginally in

safety from `AAA' issues.

A(Adequate Safety)

Instruments rated 'A' are judged to offer an adequate degree of safety with

regard to timely payment of financial obligations. However, changes in

circumstances can adversely affect such issues more than those in the

higher rating categories.

Appendix II

Few of the Funds Provided By Tata Mutual Funds

Equity fund

Tata Pure equity fund

Equity opportunity fund

Equity P/E fund

Select equity fund

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Growth fund

Index fund

Life science & Tech fund

Div Yield fund

Infrastructure Fund

Mid Cap Fund

Contra Fund

Debt Fund

Tata Short Term Bond Fund

Income Fund

Gilt Securities Fund

Gilt Short Maturity Fund

Income plus Fund

Liquid Fund

Floating rate Fund- short run

Floating rate fund- long run

Floater Fund

Liquidity Management fund

Dynamic Bond Fund

Balance Scheme

Tata Balanced Fund

Young Citizens’ Fund

Monthly Income Scheme

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Tata Monthly Income Fund Scheme (Debt Fund)

Tata MIP Plus Fund (Debt Fund)

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ANALYSIS

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REFERENCES

Khan & Jain

www.mutualfundindia.com

www.amfiindia.com

www.tatamutualfund.com

www.pruiciciamc.com

www.principleindia.com

www.bobmf.com

www.jpmorganmf.com

www.hdfcfund.com

www.taurusmutualfund.com

www.reliancemutual.com

www.moneycontrol.com

www.valueresearchonline.com

www.investopedia.com

www.wikipedia.com

AMFI study material

Mutual Fund Insight magazine

Capital market magazine

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