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PERFORMANCE EVALUATION OF MUTUAL FUNDS
IN INDIA
Submitted in partial fulfillment of te re!uirement of
Au"ilium #olle$e %Autonomou&' for te a(ard of te
MASTER DE)REE
In
COMMERCE
Submitted *+
),SO-MI.A
%RE), NO, ECO/0120'
Under te $uidan#e of
Dr, N, FAT3IMA T3A*ASSUM, M,Com,4 M,Pil,4 M*A,4 P,D,4ASSISTANT PROFESSOR
DEPARTMENT OF COMMERCE
AU5ILIUM COLLE)E4 %Autonomou&'
%Re6A##redited b+ NAAC (it A )rade (it a C)PA of 2,7/out of 7'
Vellore 8 92:009
:0// 8 :0/:
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DEPARTMENT OF COMMERCE
AU5ILIUM COLLE)E4 %Autonomou&'
%Re6A##redited b+ NAAC (it A )rade (it a C)PA of 2,7/out of 7'
Vellore 8 92:009
:0// 8 :0/:
CERTIFICATE
This is to certify that project report entitled “PERFORMANCE
EVALUATION OF PU*LIC AND PRIVATE SECTOR
MUTUAL FUNDS IN INDIA; being submitted to Auxiliumcollege (Autonomous), Vellore by ),SO-MI.A4 Re$, No,
ECO/0120 carried out in partial fulfillment of for the award ofthe Masters !egree in "ommerce is a bonafide record of wor#carried out by her, under guidance and super$ision%
M&, N,FAT3IMA T3A*ASSUM, M,Com4
M,Pil,4 M*A,4
&'"T',
Auxilium "ollege, Vellore * +-..+
/ubmitted for the Vi$a0Voce 'xamination
E"aminer&<
1%
-%
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DECLARATION
2 hereby declare that the project wor# entitled=PERFORMANCE EVALUATION OF MUTUAL FUNDS
IN INDIA ; carried out in partial fulfillment of the Master of"ommerce degree course of Auxilium "ollege (Autonoums) ismy original wor#%
3lace4 Vellore 5%/67M28A
!ate4 March -.1-
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AC>NO-LED)EMENT
2 than# 5od, the Almighty who is the author of all inspiration%
2 extend my sincere than#s to Au"ilium Colle$e for gi$ing me an
opportunity to underta#e this project for the Master !egree in "ommerce%
2 would li#e to than# our respected principal Re?, Sr, Dr, EU)INI
FAT3IMA MAR., L, M,A,4 P,D,4 L,S,)% for gi$ing us the inspiration
and moral support to complete our project wor#%
2 express my deep sense of gratitude to Mr&, Au"ilia Ro@ario
M,#om,4 M,pil,4 P,D,4 3ead in #ar$e4 Department of Commer#e
%&ift II'4 for moti$ating and inspiring me to complete this project wor#%
2 express my sincere gratitude to my respectable guide Dr,
N,Fatima Taba&&um M,Com,4 M,Pil,4 M*A,4 P,D,4 A&&i&tant
Profe&&or4 Au"ilium Colle$e, 2 express my sincere gratitude to our respectable professors in the!epartment of "ommerce, Auxilium "ollege%
2 express my faithful gratitude to my lo$ing parent& and my belo$ed
broter&, for their help and support with which 2 could purse my research
without any difficulty% 2 would also li#e to than# my friend& for their help,
moral support and moti$ation%
9inally, 2 wish to express my than#s to the entire end0users who
extended their #ind help and co0operation in completing my project wor#
successfully%
),SO-MI.A
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CONTENTS
C3APTER
NO
PARTICULARS PA)E NO
2 2:T6!T26:1%1 ;istory of mutual fund
1%- Ad$antages of mutual funds
1%!isad$antages of mutual funds
1%< 6bjecti$es
1%= esearch Methodology
1%+ /cope of the study
1%> &imitations of the study
1%? "hapterisation
22 'V2'7 69 &2T'AT'222 @A/2" "6:"'3T/ A:!
T'M2:6&652'/
%1 @asic Terminlogies
%- Types of mutual funds schemes
% steps to choose right mutual funds
schemes
%< 3rocedure for registering mutual
funds schemes%= Meaning of AM92
%+ Top 1. mutual funds in the year
-.11
< 3'96MA:"' 'VA&AT26:
69 MTA& 9:!/ /";'M'/
= 92:!2:5/ A:! "6:"&/26:/
@2@&265A3;8
A33':!'
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C3APTER6I
INTRODUCTION
Mutual fund is an in$estment $ehicle that pools together funds from
in$estors to purchase stoc#s, bonds or other securities% An in$estor can
participate in the mutual fund by buying the units of the fund% 'ach unit is
bac#ed by a di$ersified pool of assets, where the funds ha$e been in$ested%
A mutual fund is the ideal in$estment $ehicle for todays complex and
modern financial scenario%
/,/, 3ISTRO. OF MUTUAL FUND
7orldwide, Mutual 9und or nit Trust as it is referred to in some parts of
the world, has a long and successful history% The popularity of Mutual 9unds
has increased manifold in de$eloped financial mar#ets, li#e the nited
/tates% As at the end of March -..?, in the / alone there were ?,.+<
mutual funds with total assets of about /B 11%>< trillion (s%<>. la#e
cores)% 2n 2ndia, the mutual fund industry started with the setting up of the
erstwhile nit Trust of 2ndia in 1C+% 3ublic sector ban#s and financial
institutions were allowed to establish mutual funds in 1C?>% /ince 1CC,
pri$ate sector and foreign institutions were permitted to set up mutual funds%2n 9ebruary -.., following the repeal of the nit Trust of 2ndia Act 1C+
the erstwhile T2 was bifurcated into two separate entities $iD%,the /pecified
nderta#ing of the nit Trust of 2ndia, representing broadly, the assets of
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/ +< scheme, schemes with assured returns and certain other schemes and
T2 Mutual 9und conforming to /'@2 Mutual 9und egulations%
/,:, ADVANTA)ES OF MUTUAL FUNDS
Profe&&ional Mana$ement<
3rofessional money managers research, select, and monitor the performance
of the securities the fund purchases%
Di?er&ifi#ation<
!i$ersification is an in$esting strategy that can be neatly summed up as
E!onFt put all your eggs in one bas#et%E /preading your in$estments across a
wide range of companies and industry sectors can help lower your ris# if a
company or sector fails% /ome in$estors find it easier to achie$e
di$ersification through ownership of mutual funds rather than through
ownership of indi$idual stoc#s or bonds%
Affordabilit+<
/ome mutual funds accommodate in$estors who donFt ha$e a lot of money to
in$est by setting relati$ely low pound amounts for initial purchases,
subseGuent monthly purchases, or both%
Li!uidit+<
Mutual fund in$estors can readily redeem their shares plus any fees and
charges assessed on redemption at any time%
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/,2, DISADVANTA)ES OF MUTUAL FUNDS
Co&t& de&pite Ne$ati?e Return&<
2n$estors must pay sales charges, annual fees, and other expenses regardless
of how the fund performs% And, depending on the timing of their in$estment,
in$estors may also ha$e to pay taxes on any capital gains distribution they
recei$e 0 e$en if the fund went on to perform poorly after they bought
shares%
La#B of Control<
2n$estors typically cannot ascertain the exact ma#e0up of a fundFs portfolio
at any gi$en time, nor can they directly influence which securities the fund
manager buys and sells or the timing of those trades%
Pri#e Un#ertaint+<
7ith an indi$idual stoc#, you can obtain real0time (or close to real0time)
pricing information with relati$e ease by chec#ing financial websites or by
calling your bro#er% 8ou can also monitor how a stoc#Fs price changes from
hour to hour 0 or e$en second to second% @y contrast, with a mutual fund, the
price at which you purchase or redeem shares will typically depend on the
fundFs net asset $alue, which the fund might not calculate until many hours
after youF$e placed your order%
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=% To pro$ide findings and suggestions based on the analysis%
/,9, MET3ODOLO).
PERIOD OF STUD.
The period of the study is only for a period of months%ie, /eptember,
6ctober and :o$ember -.11%
DATA COLLECTION
The study is based on the secondary data collected from the newspaper and
websites% /econdary data refers to the information or facts already collected%
/uch data are collected with there objecti$e of understanding the past status
of any $ariable% The secondary data is obtained from the newspaper ,
“!eccan chronicleH and the websites of mutual funds india%com, amfi%com,
and money control%com%
The following Mutual 9unds schemes are ta#en for the analysis
1% @irla /un &ife 'Guity 9und (5) scheme
-% 9ran#lin Templeton 2ndia 9lexi 9und (!) scheme
% ;!9" 2ndex 9und :ifty 3lan (5) scheme
<% 2"2"2 3rudential 2nfrastructure 9und etail 3lan (!) scheme
=% eliance 'Guity 6pportunities 9und *etail 3lan (!) scheme
+% T2 @an#ing /ector 9und (5) scheme
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TOOLS AND TEC3NIUES
9or the purpose of the analysis, the appropriate statistical and financial tools,
i%e%, A$erage, /tandard de$iation, co$ariance, $ariance, 0/Guare, @eta,
Alpha are employed to study the performance e$aluation of mutual funds in
public limited company and pri$ate limited company%These tols are
computed with M/ '"'& -..>%
/,, SCOPE AND LIMITATIONS OF T3E STUD.
1% The study is conducted for the period of months%
-% This study is based on past data%
% 6nly selected mutual fund schemes (growth plan and di$idend plan) in
public limited companies and pri$ate limited company are ta#en for this
study%
/,1, C3APTERISATION
C3APTER6I deals with 2ntroduction, ;istory, 6bjecti$es, Methodology,
/cope and &imitation of the study%
C3APTER6II traces the re$iew of pre$ious studies%
C3APTER6III co$ers the basic concepts and terminologies%
C3APTER6IV analyses the 3erformance of selected mutual fund schemes
C3APTER6V offers summary of findings ,suggestions and "onclusion
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C3APTER6II
REVIE- OF LITERATURE
A, 3i&tori#al performan#e e?aluation of mutual fund&
/, Nan#+ %/G1' has stated that study of the past performance is helpful in
forecasting% /tudy of the past performance un$eils some or all factors that
influence the le$el of financial returns% The study of these factors may help
in impro$ing the ability and accuracy of forecasting future returns% This
study is li#ely to be useful for in$estors and portfolio managers%
*, Performan#e in term& of rate of return<
:, A##ordin$ to )upta LC %/G1/' presented a detailed and well0based
estimate of E3ortfolioE rate of return on eGuities% This pioneering study in the
2ndian context has been a major contribution in this field and is regarded as
the benchmar# on the rate of return on eGuities for the specified time% ;e
laid the basis of rate of return concept in performance e$aluation%
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2,,ain %/G1:' e$aluated performance of unit trust of 2ndia (T2) during
1C+<0+= to 1C>C0?., including the profitability aspects of unit scheme 1C+<,
unit scheme 1C>1 and unit scheme 1C>+% ;e concluded that its real rate of
return ha$e been low indicating o$erall poor, performance of T2 /chemes%
There has been so significant increase in the profitability o$er the years%
<% Arnaud %/G1' has suggested that there are three basic measurements of
the performance of in$estment trust company at three basic le$els in terms
of capital changes% As per the first approach, mar#et $alue of in$estments is
to be monitored duly adjusted for liabilities% 2n the second approach :AV
per unit is measured and it is considered as more acceptable measure of
mutual fund performance% Third le$el of measurement is to follow share
price mo$ements%
, )rinblatt and Seridan %/G1G' e$aluated performance in terms of gross
returns of mutual funds% They constructed eight portfolio benchmar# based
on firmsiDe, di$idend yield and past returns% 6ne month T0@ills were used as
ris#0free return% The period of study was !ecember 1, 1C>< to !ecember
1, 1C?<% The findings re$ealed that abnormal performance of the funds
based on gross returns is in$ersely related to the siDe% They pointed out that
superior performance may exist for funds with smallest siDe of net assets
$alue% @ut due to high expenses, the in$estors are unable to ta#e ad$antage
of their superior performance%
C,PERFORMANCE IN TERMS OF *ENC3MAR> COMPARISON
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9,3a&lem %/G11' e$aluated fund performance by comparing the fund return
with the return on mar#et portfolio with the comparable ris#% The fundFs
systemic ris#, beta co0efficient is used to compare portfolio ris# relati$e to
the mar#et ris#% F@etaF is a measure of ris# of the fundFs portfolio relati$e to
the ris# of the mar#et portfolio%
,3ud&on %/GG' F7here$er performance e$aluation is implemented, there
will always be two #ey ingredients (a) a measure of return and (b) a measure
of ris#, o$er a gi$en time horiDon% 3roper e$aluation and comparison is
possible only if the reporting standard is of high Guality and there are well
based standards for calculating :AVs%
D, Performan#e in term& of ri&B6adHu&ted rate of return
1,Tre+nor %/G9' and Sarpe %/G99' ha$e pro$ided the conceptual
framewor# of relati$e measure of performance of eGuity mutual funds while
Treynor used systematic ris#% /harpe used total ris# to e$aluate the mutual
fund portfolio performance higher $alue of TreynorFs index indicates better
performance of portfolio and $ice $ersa% The TreynorFs measure of portfolio
performance is relati$e measure that ran#s the funds in terms of ris# and
return%
G,3enriB&&on %/G17' e$aluated performance in terms of mar#et timing
abilities with sample of 11+ open ended in$estment schemes during the
period, 9ebruary 1C+?, Iune 1C?.% The empirical results obtained indicated
unsatisfactory timing s#ills of the fund managers% Arnand (1C?=) had
suggested that absolute return generated by the fund is one measure of
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performance% The Guestion before fund managers is whether the find can
perform better by selecting and holding different set of stoc#s or not% This
can be judged by comparing the fund performance with some benchmar#
portfolio or index portfolio
/0,3oltau&en %/GG:' ha$e de$eloped a model based on +. financial ratios
that predicts return o$er 1- months period% The strategy used in the study is
to go long position in the companies predicted to ha$e positi$e excess return
and go short position in companies predicted to ha$e negati$e return% The
study was found particularly useful predictor of stoc# prices and can be
useful in fundamental analysis while ta#ing eGuity in$estment decisions
//,*arua and Uerma %/GG/' 3ro$ided empirical e$idence of eGuity mutual
fund performance in 2ndia% They studied the in$estment performance of
2ndiaFs first > year close0end eGuity mutual fund, Mastershare% They
concluded that the fund performance satisfactory for large in$estor in term
of rate of return%
/:,Vaid %/GG7' loo#ed at the performance in terms of the ability of the
mutual fund to attract more in$estors and higher fund mobiliDation% 2t shows
the popularity of the mutual fund as it is percei$ed to pay super$isor returns
to the in$estors% /he concludes that e$en for eGuity 0 6riented funds,
in$estment is more in fixed income securities rather than in eGuities, which
is a distortion%
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/2,SarBar and Ma@umdar %/GG' e$aluated financial performance of fi$e
close ended growth funds for the period 9ebruary 1CC1 to August 1CC%
"oncluded that the performance was below a$erage in terms of alpha $alues
all negati$e and statistically not significant and fund possessed high ris#% :o
reference was pro$ided about the timing parameters in their study%
/7,)upta and Se$al %/GG' e$aluated mutual fund performance o$er a
four year period, 1CC-0C+% The sample consisted of ?. mutual fund schemes%
They concluded that mutual fund industry performed well during the period
of study% The performance was e$aluated in terms of benchmar#
comparison, performance from one period to the next and their ris# return
characteristics%
1=% Mi&ra %:00/' e$aluated performance o$er a period, April 1CC- to
!ecember 1CC+% The sample siDe was -< public sector sponsored mutual
funds% The performance was e$aluated in terms of rate of return, Treynor,
/harpe and IensenFs measure of performance% The study also addressed
betaFs instability issues% The study concluded dismal performance of 3/
mutual funds in 2ndia, in general, during the period 1CC-0C+%
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C3APTER6III
*ASIC CONCEPTS AND TERMNOLO)ES
Mutual fund is a trust that pools money from a group of in$estors (sharing
common financial goals) and in$est the money thus collected into asset
classes that match the stated in$estment objecti$es of the scheme% /ince the
stated in$estment objecti$es of a mutual fund scheme generally form the
basis for an in$estorFs decision to contribute money to the pool, a mutual
fund can not de$iate from its stated objecti$es at any point of time% '$eryMutual 9und is managed by a fund manager, who using his in$estment
management s#ills and necessary research wor#s ensures much better return
than what an in$estor can manage on his own% The capital appreciation and
other incomes earned from these in$estments are passed on to the in$estors
(also #nown as unit holders) in proportion of the number of units they own%
/,/, *a&i# Terminolo$ie&
NAV ASSETS VALUE
:et Asset Value is the mar#et $alue of the assets of the scheme
minus its liabilities% The per unit :AV is the net asset $alue of the scheme
di$ided by the number of units outstanding on the $aluation date%
SALES PRICE
2t is the price you pay when you in$est in a scheme also called
6ffer 3rice% 2t may include a sales load%
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REPURC3ASE PRICE
2s the price at which units under open0ended schemes are repurchased
by the Mutual 9und% /uch prices are :AV related%
REDEMPTION PRICE
2s the price at which close0ended schemes redeem their units on
maturity% /uch prices are :AV related%
SALES LOAD
2s a charge collected by a scheme when it sells the units% Also called,
J9ront0end load% /chemes that do not charge a load are called J:o &oad
schemes%
REPURC3ASE OR *AC>6END LOAD
2t is a charge collected by a scheme when it buys bac# the units from
the unit holders
ENTR. LOAD
'ntry load is the initial charges collected by Mutual 9und "ompany,
those are not refundable%
E5IT LOAD
'xit load is the charge which is le$ied by AM" in case of the in$estor exit
from the scheme% 2t can $ery from time to time%
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Ri&B AdHu&ted Mea&ure&<
STANDARD DEVIATION
/tandard de$iation is used to measure the $ariation in indi$idual from
the a$erage expected return o$er a certain period% /tandard de$iation is used
in the concept of ris# of portfolio of in$estments% /! is the de$iation of the
reading from the mean of the reading, higher /! indicates higher $olatility
and higher $olatility and higher ris# of the schemes%
S3ARPE RATIO
/harpe index measures ris# premium of a portfolio, relati$e to the total
amount of ris# in the portfolio% /harpe index summariDes the ris# and return
of a portfolio in a single measure that categoriDes the performance of 9unds
on the ris#0adjusted basis%
*ETA
@eta measures the systematic ris# and shows how prices of securities
respond to the mar#et forces% @eta is used in the capital asset pricing model
("A3M) a model that calculates the expected return of an asset based on its
beta and expected mar#et returns% /ystematic ris# is measured in term of
beta which indicates the sensiti$ity of a schemes return in relation to mar#et
return%
ALP3A
The siDe of the alpha exhibits the stoc#s unsystematic returns and its
a$erage return independence of mar#et return if the fund produces the
expected return at the le$el of ris# assumed, the fund would ha$e an alpha
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eGual to Dero% A positi$e alpha indicates that the manager produced return
greater than expected for the ris# ta#en% Alpha is calculate comparing the
funds actual performance with the ris#0adjusted expected return%
R6SUARED<
0/Guared is a statistical term saying how good one term is at predicting
another% 2f 0/Guared is 1%. then gi$en the $alue of one term, you can
perfectly predict the $alue of another term% 2f 0/Guared is .%., then
#nowing one term doesnFt not help you #now the other term at all% More
generally, a higher $alue of 0/Guared means that you can better predict one
term from another%
RETURN ON ASSETS<
An indicator of how profitable a company is relati$e to its total
assets% 6A gi$es an idea as to how efficient management is at using its
assets to generate earnings% "alculated by di$iding a companyFs annual
earnings by its total assets, 6A is displayed as a percentage% /ometimes
this is referred to as Ereturn on in$estmentE%
The formula for return on assets is4
:ote4 /ome in$estors add interest expense bac# into net income when
performing this calculation because theyFd li#e to use operating returns
before cost of borrowing%
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AUM<
The mar#et $alue of assets that an in$estment company manages on
behalf of in$estors% Assets under (AM) is loo#ed at as a measure of
success against the competition and consists of growthKdecline due to both
capital appreciationKlosses and new money inflowKoutflow%
2,:, T.PES OF MUTUAL FUND SC3EMES
There are a wide $ariety of Mutual 9und schemes that cater to your needs,
whate$er your age, financial position, ris# tolerance and return expectations%
*+ Stru#ture
* 6pen 'nded /chemes
* "lose 'nded /chemes
* 2nter$al /chemes
In?e&tment ObHe#ti?e&
* 5rowth /chemes
* 2ncome /chemes
* @alance /chemes
* Money Mar#et /chemes
Oter S#eme&
* Tax /a$ing /chemes
Spe#ial S#eme&
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* 2ndex /chemes
L /ector /pecific
*+ Stru#ture
Open-Ended Schemes
These do not ha$e a fixed maturity% The #ey feature is liGuidity% The in$estor
can con$eniently buy and sell the units at :et Asset Value(:AV) related
prices, at any point of time%
Close-Ended Schemes
/chemes that ha$e a stipulated maturity period (ranging from - to 1= years)
are called close ended schemes% The in$estor can in$est in the scheme at the
time of the initial issue and thereafter you can buy or sell the units of the
scheme on the stoc# exchanges where they are listed% The mar#et price at the
stoc# exchange could $ary from the schemes :AV on account of demandand supply situation, unit holders expectations and other mar#et factors%
Interval Schemes
These combine the features of open0ended and close0ended schemes% They
may be traded on the stoc# exchange or may be open for sale or redemption
during predetermined inter$als at :AV related prices%
*+ in?e&tment obHe#ti?e
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)ro(t &#eme&
The growth schemes aim to pro$ide capital appreciation o$er the medium to
long term% These schemes normally in$est a majority of their funds in
eGuities and are willing to bear short term decline in $alue for possible future
appreciation% These schemes are not for in$estors see#ing regular income or
needing their money bac# in the short term%
Ideal for
2n$estors in their prime earning years%
2n$estors see#ing growth o$er the long term%
In#ome &#eme&
2ncome schemes aim to pro$ide regular and steady income to in$estors%
These schemes generally in$est in fixed income securities such as bonds and
corporate debentures% "apital appreciation in such schemes may be limited%
Ideal for<
etired people and others with a need for capital stability and regular
income%
2n$estors who need some income to supplement their earnings%
Balanced Schemes
These schemes aim to pro$ide both growth and income by periodically
distributing a part of the income and capital gains they earn% They in$est in
both shares and fixed income securities in the proportion indicated in their
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offer documents% 2n a rising stoc# mar#et, the :AV of these schemes may
not normally #eep pace or fall eGually when the mar#et falls%
Ideal for<
2n$estors loo#ing for a combination of income and moderate growth%
Mone+ marBetLi!uid &#eme&
&iGuid schemes pro$ide easy liGuidity, preser$ation of capital and moderate
income% These schemes generally in$est in safer, short term instruments
such as treasury bills, certificates of deposit, commercial paper andinterban# call money% eturns on these schemes may fluctuate, depending
upon the interest rates pre$ailing in the mar#et%
Ideal for<
"orporates and indi$idual in$estors as a means to par# their surplus
funds for short
periods or awaiting a more fa$ourable in$estment alternati$e%
Oter &#eme&
Ta" &a?in$ &#eme&%E!uit+ LinBed Sa?in$ S#eme& ELSS'
These schemes offer tax incenti$es to the in$estors under tax laws as
prescribed from time to time and promote long term in$estments in eGuities
through Mutual 9unds%
Ideal for<
2n$estors see#ing tax incenti$es%
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Spe#ial S#eme&
This category includes index schemes that attempt to replicate the
performance of a particular index such as the @/' /ensex, the :/' =.
(:29T8) or sector specific schemes which in$est in specific sectors such as
Technology, 2nfrastructure, @an#ing, 3harma etc%
@esides, there are also schemes which in$est exclusi$ely in certain
segments of the capital mar#et, such as &arge "aps, Mid "aps, /mall "aps,
Micro "aps, FAF group shares, shares issued through 2nitial 3ublic 6fferings
(236s), etc% 2ndex fund schemes are ideal for in$estors who are satisfied with
a return approximately eGual to that of an index% /ectoral fund schemes are
ideal for in$estors who ha$e already decided to in$est in a particular sector
or segment%
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2,2, STEPS TO C3OOSE RI)3T MUTUAL FUNDS<
The following are the steps to select a mutual fund
Step One 6 Identif+ +our in?e&tment need&<
8our financial goals will $ary, based on your age, lifestyle, financial
independence, family commitments, le$el of income and expenses among
many other factors% Therefore, the first step is to assess your needs% @egin by
as#ing yourself these Guestions4
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. What are my investment objectives and needs?
Howmuch risk am i willing to take?
7hat Armey cash flow reGuirements
Step T(o6 Coo&e te ri$t Mutual Fund,
6nce you ha$e a clear strategy in mind, you now ha$e to choose which
Mutual 9und and scheme you want to in$est in% The offer document of the
scheme tells you its objecti$es and pro$ides supplementary details li#e the
trac# record of other schemes managed the same 9und Manager% /ome
factors to e$aluate before choosing a particular Mutual 9und are4
The trac# record of performance o$er the last few years in relation to
the appropriate yardstic# and similar funds in the same category%
;ow well the Mutual 9und is organised to pro$ide efficient, prompt
and personaliDed ser$ice%
!egree of transparency as reflected in freGuency and Guality of
theircommunications%
Step tree6Sele#t te ideal mi" of S#eme&,
2n$esting in just one Mutual 9und scheme may not meet all your in$estment
needs% 8ou may consider in$esting in a combination of schemes to achie$eyour specific goals%The following charts could pro$e useful in selecting a
combination of schemes that satisfy your needs%
Step Four6In?e&t re$ularl+
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9or most of us, the approach that wor#s best is to in$est a fixed amount at
specific inter$als, say e$ery month% @y in$esting a fixed sum each month,
you get fewer units when the price is high and more units when the price is
low, thus bringing down your a$erage cost per unit% This is called rupee cost
a$eraging and is a disciplined in$estment strategy followed by in$estors all
o$er the world% 7ith many open0ended schemes offering systematic
in$estment plans, this regular in$esting habit is made easy for you%
Step Fi?e 6>eep +our ta"e& in mind
As per the current tax laws, !i$idendK2ncome !istribution made by mutualfunds is exempt from 2ncome Tax in the hands of in$estor% ;owe$er, in case
of debt schemes !i$idendK 2ncome !istribution is subject to !i$idend
!istribution Tax% 9urther, there are other benefits a$ailable for in$estment in
Mutual 9unds under the pro$isions of the pre$ailing tax laws%8ou may
therefore consult your tax ad$isor or "hartered Accountant for specific
ad$ice to achie$e maximum tax efficiency by in$esting in mutual funds%
Step Si" 6 Start earl+
2t is desirable to start in$esting early and stic# to a regular in$estment plan%
2f you start now, you will ma#e more than if you wait and in$est later% The
power of compounding lets you earn income on income and your money
multiplies at a compounded rate of return
Step Se?en 6Te final &tep
All you need to do now is to get in touch with a Mutual 9und or your
ad$isor and start in$esting% eap the rewards in the years to come% Mutual
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9unds are suitable for e$ery #ind of in$estorwhether starting a career or
retiring, conser$ati$e or ris# ta#ing, growth oriented or income see#ing%
2,7, PROCEDURE FOR RE)ISTERIN) FOR MUTUAL
FUNDS IN SE*I<
An applicant proposing to sponsor a mutual fund in 2ndia must apply
in 9orm A with a fee of s%-=,...% The application is examined and
once the sponsor satisfies certain conditions such as being in the
financial ser$ices business and possessing positi$e net worth for the
last fi$e years, ha$ing net profit in three out of the last fi$e years and
possessing the general reputation of fairness and integrity in all
business transactions, it is reGuired to complete the remaining
formalities for setting up a mutual fund% These include inter alia,
executing the trust deed and in$estment management agreement,
setting up a trustee companyKboard of trustees comprising two0 thirds
independent trustees, incorporating the asset management company
(AM"), contributing to at least <.N of the net worth of the AM"
and appointing a custodian% pon satisfying these conditions, the
registration certificate is issued subject to the payment of registration
fees of s%-=%.. lacs 9or details, see the /'@2 (Mutual 9unds)
egulations, 1CC+%
Ne( SE*I )uideline& for Mutual Fund& <
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Te Se#uritie& and E"#an$e *oard of India %SE*I' a& brou$t in
&(eepin$ #an$e& for te mutual fund indu&tr+, Te impa#t of (i#
(ill be felt on te in?e&tor in more (a+& tan one,
1) 9irst, for :ew 9und 6ffers (:96s)4 They will onl+ be open for /
da+&% ('&// funds though will continue to stay open for up to C. days) 2t
will sa$e in$estors from a prolonged :96 period and being harangued by
ad$isors and ad$ertisements% The moti$ation behind the rule seems to be
simple * if you can in$est anytime, why #eep :96 period long
-) :96s #an onl+ be in?e&ted at te #lo&e of te NFO period% 'arlier,Mutual funds would #eep an :96 open for . days, and the minute they
recei$ed their first cheGue, the money would be directly in$ested in the
mar#etO creating a s#ewed accounting for those that entered later since they
get a fixed :96 price% The mar#et regulator has corrected this by extending
Application /upported by @loc#ed Amount (A/@A) to mutual funds% This
will become effecti$e starting Iuly 1st this year%
@y te AS*A pro#e&& %Appli#ation Supported b+ *lo#Bed Amount' one
can continue to earn interest in the ban# account until the :96 closes
(remember there is usually no rejection or “o$ersubscriptionH in a mutual
fund :96) which means that the cheGue goes for clearing after the :96 has
closed irrespecti$e of when it was sent% The fund manager will be able to
in$est once the :96 closes%
) Di?idend& #an no( onl+ be paid out of a#tuall+ reali@ed $ain&,
2mpact4 it will reduce both the Guantum of di$idends announced, and the
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measures used by M9s to garner in$estor money using di$idend as a carrot
to entice new in$estors%
<) 'Guity Mutual funds ha$e been as#ed to play a more a#ti?e role in
#orporate $o?ernan#e of the companies they in$est in% This will help
mutual funds become more acti$e and not just that, they must re$eal, in their
annual reports from next year, what they did in each “$oteH% /'@2 has now
made it mandatory for funds to disclose whether they $oted for or against
mo$es (suggested by companies in which they ha$e in$ested) such as
mergers, demergers, corporate go$ernance issues, appointment and remo$al
of directors% M9s ha$e to disclose it on their website as well as annual
reports%
=) 'Guity 9unds were allowed to charge 1N more as management fees if
the funds were “no0loadHO but since /'@2 has banned entry loads, ti& e"tra
/J a& al&o been remo?ed,
+) /'@2 has also as#ed Mutual 9unds to re?eal all #ommi&&ion paid to it&
&pon&or or a&&o#iate #ompanie&4 emplo+ee& and teir relati?e&,
>) Re$ardin$ te Fund6of6Fund %FOF' * The mar#et regulator has stated
that information documents that Asset Management "ompanies (AM"s)
ha$e been entering into re$enue sharing arrangements with offshore funds in
respect of in$estments made on behalf of 9und of 9und schemes create
conflict of interest% ;enceforth, AM"s shall not enter into any re$enue
sharing arrangement with the underlying funds in any manner and shall not
recei$e any re$enue by whate$er meansKhead from the underlying fund%
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These guidelines set by the /'@2 will lead to greater transparency for the
common in$estor% /'@2 formulates policies and regulates the mutual funds
to protect the interest of the in$estors% 7ith these guidelines falling in place
it would create better trust and transparency and an in$estable en$ironment
that would attract in$estors with greater faith and confidence%
2,, AMFI<
7ith the increase in mutual fund players in 2ndia, a need for mutual fund
association in 2ndia was generated to function as a non0profit organisation%
Association of Mutual 9unds in 2ndia (AM92) was incorporated on --nd
August, 1CC=%
AM92 is an apex body of all Asset Management "ompanies (AM") which
has been registered with /'@2% Till date all the AM"s are that ha$e launched
mutual fund schemes are its members% 2t functions under the super$ision and
guidelines of its @oard of!irectors% Association of Mutual 9unds 2ndia has
brought down the 2ndian Mutual 9und 2ndustry to a professional and healthy
mar#et with ethical lines enhancing and maintaining standards% 2t follows the
principle of both protecting and promoting the interests of mutual funds as
well as their unit holders%
Te obHe#ti?e& of A&&o#iation of Mutual Fund& in India
The Association of Mutual 9unds of 2ndia wor#s with . registered AM"s
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of the country% 2t has certain defined objecti$es which juxtaposes the
guidelines of its @oard of !irectors% The objecti$es are as follows4
• This mutual fund association of 2ndia maintains a high professional
and ethical standards in all areas of operation of the industry%
• 2t also recommends and promotes the top class business practices and
code of conduct which is followed by members and related people
engaged in the acti$ities of mutual fund and asset management% The
agencies who are by any means connected or in$ol$ed in the field of
capital mar#ets and financial ser$ices also in$ol$ed in this code ofconduct of the association%
• AM92 interacts with /'@2 and wor#s according to /'@2s guidelines
in the mutual fund industry%
• Association of Mutual 9und of 2ndia do represent the 5o$ernment of
2ndia, the eser$e @an# of 2ndia and other related bodies on matters
relating to the Mutual 9und 2ndustry%
• 2t de$elops a team of well Gualified and trained Agent distributors% 2t
implements a programme of training and certification for all
intermediaries and other engaged in the mutual fund industry%
• AM92 underta#es all 2ndia awarness programme for in$estors inorder
to promote proper understanding of the concept and wor#ing of
mutual funds%
• At last but not the least association of mutual fund of 2ndia also
disseminate informations on Mutual 9und 2ndustry and underta#es
studies and research either directly or in association with other bodies%
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2,9, TOP /0 MUTUAL FUNDS IN T3E .EAR :0//
/,DSP*R Top /00 E!uit+
!/3@ Top 1.. 'Guity eg
is an open ended large cap
eGuity fund bench0mar#ed against @/' 1.. running for > years now% 2t has
returned a staggering =N since launch, that is no small feat for a fund
whose net assets ha$e now swelled to s -,>>K0 crores% 7ith a low ris#
ta#ing capacity and a abo$e a$erage return, this fund should be on the top of
your shopping cart in -.11%
eturns in N
!/3@ Top 1.. 'Gt
eg
/ince
&aunch= yr yrs 1 yr
9und =%11 -1%CC %>? 1>%-
"ategory 0 1+%?0
.%.C1?%-
:, DSP*R *alan#ed
!/3@ @alanced is a hybrid eGuity oriented mutual fund that is bench
mar#ed against "2/2& @alanced% 7ith a trac# record of 11 years and a
below a$erage ris# profile, the returns ha$e been abo$e a$erage * around
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1?N% The corpus of around s >C.K0 crores ma#es it easy for the fund
manager to manage the fund% As of writing, the portfolio allocation between
eGuity and debt stood at >=N and -=N approx%
2, FranBlin India *lue#ip
9ran#lin 2ndia @luechip fund is a $eteran of a fund * its running for some
1> years now% @ench mar#ed against the /ensex, the returns ha$e been high,
around -+%=N since launch% 7ith a low ris# profile and a steep orientation
towards large cap stoc#s, this fund is a great gem to ha$e% 2ts long term
outloo# on stoc#s and ability to gi$e returns to in$estors without ta#ing
unnecessary ris#s ma#es it a top contender in your portfolio for -.11%
eturns in N
9ran#lin 2ndia
@luechip
/ince
&aunch= yr yrs 1 yr
eturns in N
!/3@ @alanced/ince &aunch = yr yrs 1 yr
9und 1?%.+ 1?%=> =%-- 1+%11
"ategory 0 1<%-? -%.- 1+%<C
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9und -+%+< 1C%-< <%?C 1C%?>
"ategory 0 1=%C0
1%1=1<%-
7, *irla Sun Life Frontline E!uit+
@ench mar#ed against the @/' -.. this C year old fund has come in the lime
light since -..+% @irla /un &ife 9rontline 'Guity has an allocation to both
large caps and mid caps * in fact, its allocation to mid caps has risen of late
* currently mid caps account for -.N of the portfolio while the rest is held
by large caps% 7ith a below a$erage ris# profile and a great fund manager at
the helm of affairs, @irla /un &ife 9rontline 'Guity should feature as a must
ha$e open ended di$ersified eGuity fund in your portfolio for -.11%
, 3DFC Top :00
eturns in N@irla /un &ife
9rontline 'Guity
/ince
&aunch= yr yrs 1 yr
9und .%++ -1%>C %? 1<%++
"ategory 0 1=%C0
-%11%1
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This 1< year old fund needs
no introduction% p against
@/' -.., it has deli$ered -+N returns since launch and has always
maintained a low ris# profile% This should form the core part of your
portfolio * nearly ?.N of its holdings are held in large cap and the rest in
mid and small caps% A long term trac# record and process oriented
management ma#es it one of the best eGuity di$ersified mutual funds for
e$ery portfolio in -.11%
eturns in N
;!9" Top -.. /ince &aunch = yr yrs 1 yr
9und -=%?C --%.+ ?%= -.%?+
"ategory 0 1=%C 0-%1 1%1
9, 3DFC Pruden#e
;!9" 3rudence has been in existence since 1CC< and with an annual returns
of around --N, it has exhibited prudence in deli$ering returns for in$estors%
2t did falter in -..> and -..? but has come bac# strongly to show it can be
relied upon% :early =.N of its portfolio is in large caps while the rest is in
small and mid caps% As of writing, it has maintained a >=N allocation to
eGuity and -=N in debt% A great choice in the hybrid category for year -.11%
eturns in N
;!9" 3rudence/ince &aunch = yr yrs 1 yr
9und -1%CC -.%- C%-1 --%>C
"ategory 0 1%>< 1%-> 1%.>
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, 3DFC Ta" Sa?er
Another one from the ;!9" stable, this '&// ('Guity &in#ed /a$ing
/cheme) fund has returned a staggering =N since its launch 1= years ago%
@ench mar#ed against /P3 ": =.., it has deli$ered high returns with a
moderate ris# profile% As of writing it has maintained +.N allocation to
large cap stoc#s and the rest to mid and small cap% :early C.N of its holding
is in eGuity%
eturns in N
;!9" Taxsa$er/ince &aunch = yr yrs 1 yr
9und <%= 1+%?< =%= -1%C"ategory 0 1%<-0-%>=1<%=
1, Canara Robe#o E!uit+ Ta" Sa?er
This 1> year old '&// ('Guity &in#ed /a$ings /cheme) mutual fund has
deli$ered returns of 1+N year on year% 2ts bench mar#ed against @/' 1..
and nearly +.N of its holding is in large cap stoc#s and the rest in mid cap
and small cap% A small net asset of s -. crores ma#es it easier for the fund
manager to manage this fund well% 7ith a mantra of long term in$estment
strategy and well di$ersified portfolio, its hard to a$oid this fund this year%
eturns in N
"anara obeco 'Guity Tax /ince = yr yrs 1 yr
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/a$er &aunch
9und 1+%-- -1%<< +%=1 -1%1=
"ategory 0 1%<-0
-%>=1<%=
G, Canara Robe#o In#ome
&i#e /ahara 2ncome (:o% 1. down below), "anara obeco 2ncome is bench
mar#ed against "2/2& "omp @92 and is C years old% Majority of its
holdings are in debentures, 562 securities and commercial paper% "ertificate
of deposits and treasury bills also feature in the portfolio% The a$erage credit
rating of AAA ma#es it a safe par#ing a$enue for in$estors% 7ith a return of
?%?N in the debt category, "anara obeco 2ncome ma#es for a great asset in
your -.11 portfolio%
eturns in N
"anara obeco
2ncome
/ince
&aunch= yr yrs 1 yr
9und ?%?C 1.%1+1%><%C?"ategory 0 +%- +%= <%><
/0, Saara In#ome
As the name goes, the intent of this open ended fund is to generate regular
income through in$estments in debt instruments * most of its in$estments
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are in certificate of deposits and commercial paper% The a$erage credit rating
of holdings is AAA which ma#es it a safe mutual fund * hence the ris#
profile of the fund is $ery $ery low% The returns ha$e been abo$e a$erage
when compared to the benchmar# "2/2& "omp @92% Around for some C
years now, /ahara 2ncome is a must ha$e debt oriented mutual fund in your
portfolio in -.11%
eturns in N
/ahara 2ncome /ince &aunch = yr yrs 1 yr
9und >%.C ?%+ C%?+ =%<+
"ategory 0 +%- +%= <%><
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