Dhananjay Final PJT

PROJECT REPORT ON COMPARATIVE STUDY OF THE PERFORMANCE OF THREE INCOME FUNDS (MUTUAL FUNDS) WITH THE TOP THREE
FIXED DEPOSITS SCHEMES OF BANKS (SBI, ICICI & FEDERAL BANK) IN INDIA
Chapter -1
INTRODUCTION
Ramaiah Institute of Management Studies
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PROJECT REPORT ON COMPARATIVE STUDY OF THE PERFORMANCE OF THREE INCOME FUNDS (MUTUAL FUNDS) WITH THE TOP THREE FIXED DEPOSITS SCHEMES OF BANKS (SBI, ICICI & FEDERAL BANK) IN INDIA
Proble m Definition The Indian capital market has been increasing tremendously during last few years. With the reforms of economy, reforms of industrial policy, reforms of public sector and reforms of financial sector, the economy has been opened up and many developments have been taking place in the Indian money market and capital market. In order to help the small investors, mutual fund industry has come to occupy an important place. The objective of this is to examine the importance and growth of mutual funds and evaluate the operations of mutual funds and suggest some measures to make it a successful scheme in India. The essential purpose behind mutual funds is to secure two important benefits for small investors:(a) Diversification of risk and (b) Professional management of investments As regards diversification mutual funds can spread their investments over dozens or even hundreds of companies but this is not possible for a small investor. Diversification reduces risk. As regards diversification of risk may be noted that success in the investment game requires that one must be prepared to spend the time required for selecting investments and one must also have the necessary skills. A majority of ordinary investors cant devote the time required or dont have the skills. This is not to say that all mutual funds are good. There are wide differences in their performance. Such differences become noticeable only over a long period of 5-10 years. Over short periods of 1-2 years, a particular fund may, at one time, be among the best, and at another time among the worst. Hence, you should choose from among the mutual funds those which have a record of consistently good performance and possess characteristics (e.g. the industry composition of investments) which will help to achieve good long term performance.
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In the case of equity funds, the ups and downs in the equity market have direct effect on the performance of the equity funds. This is an inherent source of risk over both shortterm and long-term in the case of equity funds. An investor inequity funds should have some understanding of the equity markets behaviour. How do we ensure that the mutual fund will be managed in the best interest of the unit holders? This problem is taken care of partly by the regulatory system and partly by fairly fierce competition among the mutual funds for the investors money. Deposits have some similarities with structured investment products, which offer 100% capital protection. In both cases, returns might be linked to the performance of one or more indices, securities or commodities. However, the mechanisms for delivering protection of capital are quite different. In the case of a deposit, the deposit-taking firm has an obligation to repay the depositor, while in the case of a structured investment product, the protection is usually provided by a third party issuer of debt securities. Firms communicating with customers in relation to accepting deposits must, from 1 November 2009, comply with the rules in the Banking Conduct of Business Sourcebook (BCOBS).1. In relation to deposit promotions, standards have not altered, as the new rules in BCOBS 2 are equivalent to the COBS 4 rules that applied previously.
Key issues identified

Issues we identified from our sample included: Explanations about the nature of deposit protection or guarantees were either omitted or potentially misleading, Lack of clarity about the roles and relationship of the promoter and deposit taker; Headline rates that do not clarify that it is possible to receive no return; Complex restrictions and rates of return; and Uncertainty and inconsistency about how to describe and categorise structured deposits. Firms must ensure that descriptions of structured deposits in financial promotions are fair, accurate and sufficiently clear for the average member of the promotions target audience to understand. This may pose particular challenges where the basis for the return on the deposit is more complex, but inexperienced customers may view structured deposits as
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simple savings products. Although some structured deposits are indeed very simple, we saw others that were either inherently complicated or described in a way that made them appear so. The main purpose is to examine the performance of the mutual fund industry in India and Fixed Deposits in INDIA and compare their performance to know whether Fixed deposits are better to invest in than Mutual Funds. The study should definitely safe- guard the interest of Investors. Hence the research is carried to suggest the Schemes based on their Risk Profile.ang some progress, the progress has been set with 1.1. Mutual fund A mutual fund is a scheme in which several people invest their money for a common financial cause. The collected money invests in the capital market and the money, which they earned, is divided based on the number of units, which they hold. The mutual fund industry started in India in a small way with the UTI Act creating what was effectively a small savings division within the RBI. Over a period of 25 years this grew fairly successfully and gave investors a good return, and therefore in 1989, as the next logical step, public sector banks and financial institutions were allowed to float mutual funds and their success emboldened the government to allow the private sector to foray into this area. There are many types of mutual funds. We can classify funds based on:1. Structure v Open-ended v Close-ended 2. Nature v Equity v Debt v Balanced 3. Investment objective v Growth v Income v Money market etc.
CONCEPT OF MUTUAL FUND:A mutual fund is a common pool of money into which investors place their contributions that are to be invested in accordance with a stated objective. The ownership of the fund is thus joint or mutual; the fund belongs to all investors. A single investors ownership of the fund is in the same proportion as the amount of the contribution made by him or her bears to the total amount of the fund Mutual Funds are trusts, which accept savings from investors and invest the same in diversified financial instruments in terms of objectives set out in the trusts deed with the view to reduce the risk and maximize the income and capital appreciation for distribution for the members. A Mutual Fund is a corporation and the fund managers interest is to professionally manage the funds provided by the investors and provide a return on them after deducting reasonable management fees. Working of Mutual Funds: The following figure explains the working of Mutual funds
Figure-1
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Common Terms Used Net Asset Value (NAV) : Net Asset Value is the market value of the assets of the scheme minus its liabilities. Per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date Beta: A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is calculated using regression analysis, and indicates the tendency of a security's returns to respond to swings in the market. A beta of 1 indicates that the security's price will move with the market. A beta indicates that the security's price will be more volatile than the market.
History of Mutual Funds The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank of India. The history of mutual funds in India can be broadly divided into four distinct phases.
First Phase 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de- linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management.
Second Phase 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General
Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). At the end of 1993, the mutual fund industry had assets under management of Rs.47, 004 crores.
Third Phase 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.
Fourth Phase since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations.
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COMPANY PROFILE 1.1(A) SBI Mutual Fund In November 1987, SBI Mutual Fund from the State Bank of India became the first non UTI mutual fund in India. SBI Mutual Funds (SBI MF) is a partnership between Indias largest bank State Bank of India and Frances Societe Generale Asset Management. State bank of India owns 63% in SBI MF and the rest 37% is owned by Frances Societe Generale Asset Management. As on April 30 2009, the company had assets of Rs 37213.06 Crs. It is currently operating a total of 46 schemes which includes Equity schemes, Debt schemes, Short term debt schemes, Equity and debt, Gilt fund. A total of over 6 million people have invested in the funds of SBI. The fund reaches out to investors through a network of over 150 points of acceptance, 28 investor service centres, 46 investor service desks and 56 district organisers. On the 17th of May, 2010 the company launched a PSU fund with the aim of investing in public sector companies which offer significant growth prospects for the investors and also take advantage of the unlocking of value of some of these companies due to disinvestment by the government.
Products curre ntly being offe red by the company are as follows: Equity / Growth based products The equity based funds offered by SBI Mutual Fund, are as follows: v Magnum COMMA Fund v Magnum Equity Fund v Magnum Global Fund v Magnum Index Fund Debt / Income based products The debt based funds that are in operation now, are as follows: v Magnum Children's Benefit Plan v Magnum Gilt Fund
v Magnum Gilt Fund (Long Term) v Magnum Gilt Fund (Short Term) v Magnum Income Fund many more. Balanced funds The balanced funds that are in operation now, are as follows: v Magnum Balanced Fund. v Magnum NRI Investment Fund - FlexiAsset Plan. Key Personnel: Mr. Achal Gupta Managing Director and Chief Executive Officer. Mr. Didier Turpin Dy. Chief Executive Officer. Mr. Navneet Munoot Chief Investment Officer. Mr. R. S. Srinivas Jain Chief Marketing Officer. Mr. Vinaya Datar - Company secretary and Compliance officer. 1.1(B) RELIANCE MUTUAL FUND:Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was changed on March 11, 2004. Reliance Mutual Fund was formed for launching of various schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities.RMF is one of Indias leading Mutual Funds, with Average Assets Under Management (AAUM) of Rs. 88,388 crores (AAUM for 30th Apr 09) and an investor base of over 71.53 Lakhs. Reliance Mutual Fund, a part of the Reliance Anil Dhirubhai Ambani Group, is one of the fastest growing mutual funds in the country Sponsor:- Reliance Capital Limited. Trustee:- Reliance Capital Trustee Co. Limited. Investment Manager:- Reliance Capital Asset Management Limited. The Sponsor, the Trustee and the Investment Manager are incorporated under the Companies Act 1956.
Vision Statement:- To be a globally respected wealth creator with an emphasis on customer care and a culture of good corporate governance. Mission Statement:- To create and nurture a world-class, high performance environment aimed at delighting our customers. SCHEMES A). EQUITY/GROWTH SCHEMES: v Reliance Infrastructure Fund (Open-Ended Equity) v Reliance Natural Resources Fund (Open-Ended Equity) v Reliance Equity Linked Saving Fund (A 10 Year Close-Ended Equity) B). DEBT/INCOME SCHEMES v Reliance Monthly Income Plan v Reliance Income Fund etc. C). SECTOR SPECIFIC SCHEMES v Reliance Banking Fund v Reliance Pharma Fund 1.1(C) UNIT TRUST OF INDIA MUTUAL FUND:'Unit Trust of India was created by the UTI Act passed by the Parliament in 1963. For more than two decades it remained the sole vehicle for investment in the capital market by the Indian citizens. In mid- 1980s public sector banks were allowed to open mutual funds. The real vibrancy and competition in the MF industry came with the setting up of the Regulator SEBI and its laying down the MF Regulations in 1993.UTI maintained its pre-eminent place till 2001, when a massive decline in the market indices and negative investor sentiments after Ketan Parekh scam created doubts about the capacity of UTI to meet its obligations to the investors. This was further compounded by two factors; namely, its flagship and largest scheme US 64 was sold and re-purchased not
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at intrinsic NAV but at artificial price and its Assured Return Schemes had promised returns as high as 18% over a period going up to two decades. Vision:- To be the most Preferred Mutual Fund. Mission: The most trusted brand, admired by all stakeholders. The largest and most efficient money manager with global presence The best in class customer service provider The most preferred employer The most innovative and best wealth creator Sponsor:v State Bank of India v Punjab National Bank v Life Insurance Corporation of India Trustee: - UTI Trustee Co. Limited SCHEMES:v UTI Energy Fund (Open Ended Fund) v UTI Equity Tax Savings Plan (Open Ended Fund) v UTI Master Index Fund v UTI Short Term Income Fund -Retail Plan etc.
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1.2 Bank Fixed Deposits Bank Fixed Deposits are also known as Term Deposits. In a Fixed Deposit Account, a certain sum of money is deposited in the bank for a specified time period with a fixed rate of interest. The rate of interest for Bank Fixed Deposits depends on the maturity period. It is higher in case of longer maturity period. There is great flexibility in maturity period and it ranges from 7days to 10 years. The interest is compounded annually and is added to the principal amount. Minimum deposit amount is Rs 1000/- and there is no upper limit. Loan / overdraft facility is available against bank fixed deposits. Premature withdrawal is permissible but some penalty is levied. Tax Deductible at Source, if the interest paid/ payable on deposit exceeds Rs.5000/- per customer, per year, per branch. 1.2(A) State Bank of India Fixed Deposits State Bank of India fixed deposit is a good option to earn higher income on surplus funds. Bank offers flexibility in period from 15 days to 10 years and can be opened with a nominal amount of Rs. 1000/- only. Against your fixed deposit you can take loan/overdraft during your urgent financial requirement. There is premature withdrawal facility, transfer of term deposit within bank network with out any charge, interest is accumulated in your account timely and gets compounded quarterly, automatic renewal of your deposits on maturity. You can convert your special term deposit and vice versa. 1.2(B) Federal Bank Fixed Deposits Federal Bank fixed deposit gives you option to give instructions while placing deposits with regard to closure or renewal of deposit. There is nomination facility. You can withdraw your money at premature or can get premature renewal of the deposit. You can take advance also against deposit. Federal Fixed Deposit Benefits v Minimum amount Rs.1000. v Quarterly /Monthly interest payments. v Advance upto 90% of deposit.
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1.2( C) ICICI Bank Fixed Deposit ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its wholly-owned subsidiary. In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI and two of its whollyowned retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank. ICICI bank has a set of choice of investment plans attached to fixed deposit. You get a wide range of tenures along with auto renewal facility on maturity of deposits. You can open term deposit with nominal amount of Rs 1000/- only. Bank has a loan facility against deposit. The re-investment plans on fixed deposits are lucrative as re-investment fixed deposit rates do not change in fact works like a recurring debit account transaction. Fixed Deposit Account v Flexibility of tenure - 7 days to 10 years v Liquidity v Premature / Partial withdrawal permitted (subject to applicable charges) v Loan / Overdraft upto 90% of FD amount v Option of monthly / quarterly payout available v Competitive interest rate - Know interest rates for various tenures v Convenient ways to open a FD v Internet Banking v Phone banking v ICICI Bank Branch
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1.3 Difference Between Bank Fixed deposit and Mutual funds
FEATURES Return on Investment
FIXED DEPOSITS Banks offer an assured fixed rate of return on maturity. Currently the rate of return varies from 3.5% to 8.5% depending on the maturity period. Interest is compounded quarterly and the proceeds are paid on maturity.
MUTUAL FUNDS The rate of return of a debt fund is not assured and is governed by movement in interest rates and money market conditions. Any fluctuations in prices or interest rate impact the NAV of the fund. Liquidity is similar to individual stocks or equity mutual funds which allow investors to liquidate their units in the market as and when they require. On redemption, one can expect to receive the amount in a day or two from the fund house. The amount received would be based on the Net Asset Value (NAV) of the fund as on the date of redemption. The short term capital gain of a debt fund is added to the income and then taxed at applicable slabs. For long term capital gain tax, it is
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Liquidity
Most banks allow premature withdrawal of the amount invested, before the actual maturity date. The interest would be calculated on the basis of the number of days the amount stayed invested with the bank. For larger amounts, banks have surrender charges or penalties. In such cases, money would not be made available without penalties or until the fixed deposit matures.
Tax Implications
The interest earned on fixed deposits is added to the total income, and then taxed at applicable slabs. Also, if the total interest earned on all
fixed deposits in a bank is greater than Rs 10,000 in a financial year, a tax of 10.3% will be deducted at source by the banks. Capital Appreciation Not too good.
calculated as 10% without indexation or 20% with indexation.
Better
Risk Factor Impact of Inflation
Assures capital protection. No protection
Not applicable to a larger extent. Mutual funds have managed to generate returns that have surpassed this inflation rate thus providing positive real returns.
Investment Costs
Banks do not generally charge any management costs for a fixed deposit investment.
Funds cost the investor investment management fees and fund distribution costs, charged as a percentage of the investment value. This is borne by the investor irrespective of the fund performance. Fund houses also charge an entry or exit load from investors during entry or exit from a scheme.
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1.4 RESEARCH OBJECTIVES
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The Research Objectives are formulated using KSA model as follows. 1.4 (A) KSA model Definition of KSA KSA model is a competency model of individual. KSA is the same KSAO. KSA include Knowledge, Skills and Abilities (also called KSAs model) that an applicant must have to perform successfully in the position. KSA are listed in the Qualifications and Evaluation section of the job announcement.
Components of KSA: 1. Knowledge A body of information needed to perform a task. For example, Human Resources Knowledge includes knowledge of personnel recruitment, selection, training, compensation and benefits, labour relations and negotiation, and personnel information systems. 2. Skills Skills are the proficiency to perform a certain task. For example, skill in operating computer peripherals such as printers. 3. Abilities Abilities are an underlying, enduring trait useful for performing tasks. For example, oral comprehension the ability to listen to and understand information and ideas presented through spoken words and sentences. Classification of KSAs KSAs include technical elements and behavioural elements. Technical KSAs measure acquired knowledge and hard technical skills. Behavioural KSAs measure soft skills, include the attitudes and approaches applicants take to their work, such as the ability to collaborate on team projects.
Figure - 2
1.4 (B) Objective 1. To briefly study the Mutual Fund industry in India in the last eight years. 2. To give an idea of the types of schemes available. 3. To study 3 major income schemes from the mutual fund industry.( SBI Mutual Fund, Reliance Mutual Fund, ICICI Mutual Fund. 4. To study the Fixed Deposit scheme of 3 banks of India in last 8 years (SBI, ICICI & Federal Bank ) 5. To compares the Fixed Deposit schemes with Mutual Fund schemes.
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1.5 RESEARCH METHODOLOGY
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Research as a care full investigation or enquiry especially through search for new facts in any branch of knowledge Research is an academic activity and such as the term should be used in technical sense. The manipulation of things , concepts or symbols for the purpose of generalizing to extend ,correct or verify knowledge ,whether that knowledge through objective. METHODS OF DATA COLLECTION Secondary data: Secondary data means already available through books, journals, magazines, newspaper, and internet. . The major sources of secondary data are given below. Textbooks Websites News papers The required data has been collected from websites like www.moneycontrol.com, www.bseindia.com. ANALYSIS: For the proper analysis of data statistical (mean, standard deviation and covariance) and financial (Beta and CAPM) method was used.
DATA ANALYSIS AND INTERPRETATION Data analysis and interpretation is the process of assigning meaning to the collected information and determining the conclusions, significance, and implications of the findings. The steps involved in data analysis are a function of the type of information collected, however, returning to the purpose of the assessment and the assessment questions will provide a structure for the organization of the data and a focus for the analysis. Quantitative Data is presented in a numerical format collected in a standardized manner e.g. surveys, closed-ended interviews, tests analyzed using statistical techniques
The analysis of NUMERICAL (QUANTITATIVE) DATA is represented in mathematical terms. The most common statistical terms include:

Mean The mean score represents a numerical average for a set of responses. Standard deviation The standard deviation represents the distribution of the responses around the mean. It indicates the degree of consistency among the responses. The standard deviation, in conjunction with the mean, provides a better understanding of the data. For example, if the mean is 3.3 with a standard deviation (StD) of 0.4, then two-thirds of the responses lie between 2.9 (3.3 0.4) and 3.7 (3.3 + 0.4).
Variance -A measure of the dispersion of a set of data points around their mean value. Variance is a mathematical expectation of the average squared deviations from the mean. Variance measures the variability (volatility) from an average. Volatility is a measure of risk, so this statistic can help determine the risk an investor might take on when purchasing a specific security.
Co-variance - A measure of the degree to which returns on two risky assets move in tandem. A positive covariance means that asset returns move together. A negative covariance means returns move inversely.
One method of calculating covariance is by looking at return surprises (deviations from expected return) in each scenario. Another method is to multiply the correlation between the two variables by the standard deviation of each variable. Possessing financial assets that provide returns and have a high covariance with each other will not provide very much diversification. For example, if stock A's return is high whenever stock B's return is high and the same can be said for low returns, then these stocks are said to have a positive covariance. If an investor wants a portfolio whose assets have diversified earnings, he or she should pick financial assets that have low covariance to each other. In the project work, NAV and Nifty values are considered from 1 st January 2005 to 31st December 2012. These values were then considered quarterly to calculate mean, standard deviation, co variance. This was followed by calculation of CAPM. During the project 3
mutual funds i.e SBI mutual fund, Reliance Mutual fund and UTI mutual funds was considered. On the other hand 3 fixed deposits were also considered i.e SBI Fixed Deposit, ICICI Fixed Deposit and Federal Bank Fixed Deposit. The rate of return associated with the level of risk and the performance of mutual funds is compared and analysed with respect to the performance of fixed deposits in India. The entire aim of the project work is to analyse the fact that Fixed Deposits are better investing option than Mutual Funds.
Sharpe Ratio : A ratio to measure risk-adjusted performance. The Sharpe ratio is calculated by subtracting the risk- free rate from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. The Sharpe ratio formula is:
Calculation of Sharpe Ratio:S(x) = ( Rx - Rf ) / StdDev(x) Where, x is some investment Rx is the average annual rate of return of x Rf is the best available rate of return of a "risk-free" security StdDev(x) is the standard deviation of Rx
The Sharpe ratio tells us whether a portfolio's returns are due to smart investment decisions or a result of excess risk. The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance has been. A negative Sharpe ratio indicates that a risk- less asset would perform better than the security being analyzed.
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The research design followe d in the study is as follows: Title of the Study : COMPARATIVE STUDY OF THE
PERFORMANCE OF THREE INCOME FUNDS (MUTUAL FUNDS) WITH THE TOP THREE FIXED DEPOSITS SCHEMES OF BANKS (SBI, ICICI & FEDERAL BANK) IN INDIA Period Sample size : : : Representative sample : : Project Design 01-Jan-2013 to 31-mar-2013 3 schemes of Mutual Funds 3 schemes of Fixed Deposits 3 Mutual Funds:- SBI MAGNUM FUND, RELIANCE MUTUAL FUND and UTI MUTUAL FUND. 3 Fixed Deposits:- SBI, ICICI, FEDERAL BANK. : The project design selected for this project is Descriptive project design. Descriptive design is one that is concern with describing the characteristics of consumers/ dealers who use/ sell the product/ services. Hence here the characteristics and performance of Mutual funds and Fixed deposits are studied through secondary information. Sampling technique : Systematic sampling technique used keeping in mind with the following, funds and fixed deposits which are in to the market for more than 5 years, different investment styles are chosen to know the importance of risk and return involved.
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1.6 LIMITATIONS OF THE PROJECT
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The limitations of the project are as follows:v The time constraint was one of the major problems. v The study is limited to the different schemes available under the mutual funds and fixed deposits selected. v The study is limited to selected mutual fund and fixed deposit schemes. v The lack of information sources for the analysis part. v Sample limitation v Reliability: - The data collected by me is not much reliable v Parameters: - All the parameters have not been taken. v Lack of Awareness v Past performance may or may not sustain in the future v Unpredictable change in the market condition will prove difficulty in analysis of preferred sector for investing v Investor preference is analyzed based only on observation v Market risk is not taken in to consideration due to non possibility of information v Micro level data have been taken in analysis; Macro level data may affect the returns.
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Chapter -2 LITERATURE REVIEW
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Review of the literature plays an important role in any research, it is considering the importance of mutual funds and several academicians have tried to study the performance of various mutual funds. Literature on mutual fund performance evaluation is enormous. Standard deviation, average variance and average coefficient of variation (COV) are techniques used for measuring the performance of Mutual Funds and Fixed Deposits. 1. Nidhi WaliaFaculty PURCITM, Thapar University, Patiala 2. Dr. (Mrs.) Ravi Kiran, Assosiate Professor,SOMSS, Thapar University
Abstract Financial innovations have become the central driving force taking any financial system towards economic efficiency. Indian Capital market has shown a spurt growth with financial innovations becoming a regular feature leading to change in investor's preferences for newly fangled financial innovations. Mutual fund has become an obvious choice for most of the investors because of its performance in terms of providing higher returns at high risk. At the same time there are bank that offers Fixed Deposit schemes that look attractive enough. And even some of the top Mutual Funds that offer income schemes often find it challenge to compute with this FD schemes.
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1. Prof. Kalpesh P Prajapati, Assistant Professor, S.V Institute of Management, Gujarat Technological University, Ahmedabd, Gujarat, India
2. Prof. Mahesh K Patel, Assistant Professor, N.P College of Computer Studies & Management Hemchandracharya North Gujarat University, Patan, Gujarat, India.
Abstract
In this paper the performance evaluation of Indian mutual funds and fixed deposits is carried out through risk-return analysis. The data used is daily closing NAVs. "Security Market Line" (SML) uses the systematic risk termed beta. Beta is defined as the covariance between a security (or portfolio of securities) and the market as a whole, divided by the variance of the market. The market as a whole is considered the point of tangency between the SML and the efficient frontier This is the foundation for the Capital Asset Pricing Model (CAPM). The CAPM is, = RF+(RM-RF)(Beta)
Dr. Shakti Kumar Assistant Professor, Departme nt of Economics and Rural Development, Dr. R.M.L. Avadh Unive rsity, Faizabad Abstract Equity mutual fund is risk adjusted return in which individual fund does not earn higher returns from following the momentum strategy in stock (Carhart, 1997) because of investment constraints (Almazan, 2004). Restriction on competing products is the reason of the development of money market and short term bond funds (Klapper, 2000). Therefore, an investor should invest in small equity fund whose trading activity is high (Dahlquist, 2000) or whose expense ratio is low ( Malkiel, 1995) . Funds that heavily underperform have very high expense ratio, while funds that are successful do not increase revenues by raising their fees but benefit from increased size of their funds (Elton 1996, Carhat 1997). Actively managed equity funds charge higher fees than index tracking funds or bond and money market funds, reflecting the higher costs of employing investment management staff to achieve diversification and strategy (James et al. 1999). Funds charge lower fees when they have smaller boards and a large proportion of independent directors (Tufano and Sevick, 1997). Larger and more mature funds as well as no load funds have lower expense ratio (Malhotra and Mcleod, 1997). Aggressive growth funds charge higher entry and exit fees to discourage redemption because they hold more of the smaller, less liquid stocks (Chordia, 1996). However, despite the basic academic advice offered to investors to prefer low expense index funds, actively managed funds continue to be popular (Gruber, 1996). To decrease the risk it is advised to use derivative. Bond mutual fund uses derivatives more than equity mutual funds. Use of derivative is negatively correlated with fund age and positively correlated with fund size (Johnson and Yu 2004) and it is positively correlated with asset turnover (Koski and Pontiff, 1999). Derivatives are used for trading rather than hedging (Minton et al. 2009). Methodology Index formula of (P1 /P0 *100) has been followed to get the value of the invested money. It has been adjusted with inflation by depreciation the inflated value.
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Harry Markowitz (1952) Abstract It provides a theory about how investors should select securities for their investment portfolio given beliefs about future performance. He claims that rational investors consider higher expected return as good and high variability of those returns as bad. From this simple construct, he says that the decision rule should be to diversify among all securities, securities which give the maximum expected returns. His rule recommends the portfolio with the highest return is not the one with the lowest variance of returns and that there is a rate at which an investor can increase return by increasing variance. This is the cornerstone of portfolio theory as we know it. His portfolio theory shows that an investor has a choice of combinations of return and variance depending on the percentage of wealth invested in various combinations of risky assets.
William Sharpe (1964) and John Lintner (1965) Abstract They show that the theory implies that the rates of return from efficient combinations of risky assets move together perfectly (will be perfectly correlated). This gave birth to the "Security Market Line" (SML). The difference between the Capital Market Line (CML) and SML is the measure of risk used for the horizontal axis. The CML uses the variance of returns, whereas the SML uses the systematic risk termed beta. Beta 1s defined as the covariance between a security (or portfolio of securities) and the market as a whole, divided by the variance of the market. The market as a whole is considered the point of tangency between the SML and the efficient frontier This is the foundation for the Capital Asset Pricing Model (CAPM ).
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SUKHWINDER KAUR DHANDA Asst. Prof. cum (Research Scholar) Department of Management Studies, Baba Banda Singh Bahdaur Engineering College, Fatehgarh Sahib (Punjab) DR. G.S.BATRA Professor, School of Management studies, Punjabi University Patiala (Punjab) DR BIMAL ANJUM Prof and HOD, Management Studies Department, RIMT-IET, Mandi Gobindgarh (Punjab) Abstract Mutual fund companies collect the savings of the investors and make a big corpus of these savings and invested in a well diversified portfolio of different companies. It is generally believed that mutual funds are able to diversify the risk. Mutual fund industry has just four decades old in India. During this short span of time it has made tremendous growth. So considering these points this paper is an attempt to study the performance evaluation of selected mutual funds in terms of risk and return relationship. For this rate of return method, Beta, Standard Deviation has been used. Nifty has been used as a benchmark to study the performance of mutual funds in India. The study period has been taken from 1st January2005 to 31st December 2012.
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Sharad Panwar and Dr. R. Madhumathi Indian Institute of Technology, Madras Abstract The study found that public-sector sponsored funds do not differ significantly from private-sector sponsored funds in terms of mean returns%. However, there is a significant difference between public-sector sponsored mutual funds and private-sector sponsored mutual funds in terms of average standard deviation, average variance and average coefficient of variation (COV).
Fama and McBeth (1973) Abstract They examine the return of securities, using OLS techniques and find that the CAPM, or market model, explains returns well. They examined three testable implications of the market model, (1) the relationship between risk and return is linear, (2) beta is a complete measure of risk, and (3) higher risk should be associated with higher returns. They conclude that none of the three testable implications can be rejected. The results are consistent with efficient markets and a sound asset pricing model, however, the estimated intercept was somewhat higher than Rf.
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Roll (1978) Abstract He shows there is ambiguity when performance is measured by the SML. The difficulty is that different market indices provide different rankings. While previous work was mathematically, theoretically, and intellectually rigorous, the author not only defined this market portfolio but made an attempt to estimate a covariance matrix with it. Theoretically, the market portfolio IS the composition of all investible assets. In practice, since this is not measurable, some proxy must be used for the true market portfolio The trouble is that even an equally weighted and value weighted Index of the same securities can produce conflicting performance results when used as the proxy for the market portfolio. The ambiguity of the SML arises because a different beta can be generated for assets and portfolios by using different indices. Therefore, beta is not an attribute of the individual asset. Beta is a measure of the risk of an asset if included in a portfolio of risky assets consisting of the market portfolio and a risk- less asset. Therefore, differences in portfolio selection ability cannot be measured by the SML criterion. If the index is ex-ante mean variance efficient, it is impossible to discriminate between winners and losers. If the index is not ex-ante mean-variance efficient, designating winners and losers is possible, but another index can designate different winners and losers and there is no way to determine which one is correct.
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Prof. Kalpesh P Prajapati, Assistant Professor, S.V Institute of Management, Gujarat Technological University, Ahmedabd, Gujarat, India.
Prof. Mahesh K Patel, Assistant Professor, N.P College of Computer Studies & Management Hemchandracharya North Gujarat University, Patan, Gujarat, India. Abstract In this paper the performance evaluation of Indian mutual funds is carried out through risk-return analysis. The data used is daily closing NAVs. The source of data is website of Association of Mutual Funds in India (AMFI). The study period is 1st January 2005 to 31st December, 2012. The results of performance measures suggest that most of the mutual fund have given positive return during 2005 to 2012.
Saris h and Ajay Jain Abstract A 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 capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them. The term risk has a variety of meanings in business and everyday life. At its most general level, risk is used to describe any situation where there is
uncertainty about what outcome will occur. Life is obviously very risky. Even the short term future is often highly uncertain. In probability and statistics, financial management and investment management, risk is often used in more specific sense to indicate possible variability of outcomes around some expected.
Zacharias Thomas (1997)Ph D Thesis, Performance effectiveness of Nationalised Bank- A Case Study of Syndicate Bank, submitted to Kochin University (1997), Abstract Thesis studied the performance effectiveness of Nationalized Bank by taking Syndicate Bank as case study in his Ph.D thesis. Thomas has examined various aspects like growth and development of banking industry, achievements of Syndicate Bank in relation to capital adequacy, quality of assets, Profitability, Social Banking, Growth, Productivity, Customer Service and also made a comparative analysis of 'the performance 34 effectiveness of Syndicate Bank in relation to Nationalized bank. A period of ten years from 1984 to 1993-94 is taken for the study. This study is undertaken to review and analyze the performance effectiveness of Syndicate Bank and other Nationalized banks in India using an Economic ManagerialEfficiency Evaluation Model (EMEE Model) developed by researcher. Thomas in this study found that Syndicate Bank got 5th Position in Capital adequacy and quality of assets, 15th in Profitability, 14th Position in Social Banking, 8th in Growth, 7th in Productivity and 15th position in Customer Service among the nationalized banks. Further, he found that five nationalized banks showed low health performance, seven low priority performance and eleven low efficiency performance in comparison with Syndicate Bank
Page 35
Singla HK Abstract In his paper, financial performance of banks in India, in ICFAI Journal of Bank Management No 7, he has examined that how financial management plays a crucial role in the growth of banking. It is concerned with examining the profitability position of the selected sixteen banks of banker index for a period of six years (2001-06). The study reveals that the profitability position was reasonable during the period of study when compared with the previous years. Strong capital position and balance sheet place, Banks in better position to deal with and absorb the economic constant over a period of time. Subramanian and Swami Abstract In their paper, Comparative performance of publc sector banks in india Prjanan, Vol. XXII, have analyzed and compared the efficiency in six public sector banks, four private sector and three foreign banks for the year 1996-97. Operational efficiency is calculated in terms of total business and salary expenditure per employee. The analysis revealed that higher per employee salary level need not result in poor efficiency and business per employee efficiency co-efficient was also calculated. Among the PSBs, Bank of Baroda registered the high efficiency and operating profit per employee. Among the private sector banks Indus Bank followed by Citibank Registered highest and second highest operating profit per employee respectively. However, among the Nationalized Banks there existed wide variations in efficiency.Frequent changes are order of the day for the topics of this nature. Therefore, one should rely on latest information. Some organizations like, RBI, IBA, SBI and ICRA have carried out several research studies on various issues relating to banking and exclusive banking journals/periodicals like Bank Quest, The Bankers, RBI occasional papers, RBI bulletins and general magazines like Business Today, Business India, Finance India, have been publishing papers on various aspects like NPAs, capital adequacy, branch expansion, credit dispensation, deposit mobilization, service quality, technology, performance evaluation, etc. Same studies and papers suitable to this study are being reviewed here.
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Chapter - 3 FINDINGS
Page 37
3.1 Tabulation of Nifty Returns :DATE 31-12-2012 28-09-2012 29-06-2012 30-03-2012 30-12-2011 30-09-2011 30-06-2011 31-03-2011 31-12-2010 30-09-2010 30-06-2010 31-03-2010 31-12-2009 30-09-2009 30-06-2009 31-03-2009 31-12-2008 30-09-2008 30-06-2008 31-03-2008 31-12-2007 28-09-2007 29-06-2007 30-03-2007 29-12-2006 29-09-2006 29-06-2006 31-03-2006 30-12-2005 Nifty 5905.1 5619.7 5229 5248.51 5199.25 5326.6 5482 5749.5 5505.9 6017.7 5367.6 5278 4882.05 4711.7 4636.45 3473.95 2874.8 2885.6 4332.95 5165.9 5137.45 5900.65 4318.3 4087.9 4082.7 3744.1 3143.2 3508.35 3001.1 Return (%) 5.08 7.47 -0.37 0.95 -2.39 -2.83 -4.65 4.42 -8.50 12.11 1.70 8.11 3.62 1.62 33.46 20.84 -0.37 -33.40 -16.12 0.55 -12.93 36.64 5.64 0.13 9.04 19.12 -10.41 16.90 26.58 D 0.76 3.16 -4.69 -3.37 -6.71 -7.15 -8.97 0.11 -12.82 7.80 -2.62 3.79 -0.70 -2.69 29.15 16.53 -4.69 -37.72 -20.44 -3.76 -17.25 32.33 1.32 -4.19 4.73 14.80 -14.72 12.59 22.26 D^2 0.58 9.96 21.98 11.35 44.98 51.13 80.44 0.01 164.38 60.77 6.86 14.40 0.49 7.25 849.56 273.09 22.00 1422.75 417.80 14.15 297.57 1045.02 1.74 17.55 22.35 219.08 216.80 158.41 495.59
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30-09-2005 30-06-2005 31-03-2005
2370.95 2312.3 2035.65
2.54 13.59 0.00 Sum= 138.11 Table 1
-1.78 9.27 -4.32
3.17 86.01 18.63 Sum=6055.85
Where, D= Deviation The Nifty data is represented below:Here , The X-axis represents the years and The Y-axis represents Nifty basic points.
Nifty
7000 6000 5000 4000 3000 2000 1000 0
01/03/2005
01/11/2010
01/07/2005
01/03/2011
01/11/2005
01/07/2011
01/03/2006
01/11/2011
01/07/2006
01/03/2012
01/11/2006
01/07/2012
01/03/2007
01/07/2007
01/11/2007
01/03/2008
01/07/2008
01/11/2008
01/03/2009
01/07/2009
01/11/2009
01/03/2010
Graph-3
01/07/2010
Page 39
01/11/2012
Formula used:-
Calculation of return:Return= (P1- P0) / P0 Where, P1= Current Month P0= Base Month
Calculation of mean:Mean= Total Return / N Where, N = Number of Month.
Calculation of Variance:Variance = (D)^2 / 32 Where, D= Deviation
Calculation of Standard Deviation:SD= Variance.
Calculation of BETA:-
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Beta= Co Variance / Variance of Nifty. Where, Co Variance= Deviation of Investment * Deviation of Nifty.
Calculation of CAPM:CAPM= Rf+(Rm-Rf)* Where, Rf= Risk Free Rate Rm= Return from Market = Beta. Calculation of Sharpe Ratio:S(x) = ( Rx - Rf ) / StdDev(x) Where, x is some investment Rx is the average annual rate of return of x Rf is the best available rate of return of a "risk-free" security StdDev(x) is the standard deviation of Rx Table 2 Note:The following table represents the set of formulas widely used and applied to the entire project for the purpose of computation and analysis of data.
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Calculation of Mean and Standard Deviation of Nifty:Property Mean Variance Standard Deviation Calculation 138.11 / 32 6055.85 / 32 Root of Variance Table- 1.1 From the above table, we have found the following: Mean Standard Deviation Note: The above calculated data of Nifty will help us to calculate co-variance with respect to particular mutual funds and fixed deposits. 3.2 Calculation of Risk Free Rate (R.F):DATE 31-12-2012 28-09-2012 29-06-2012 30-03-2012 30-12-2011 30-09-2011 30-06-2011 31-03-2011 31-12-2010 30-09-2010 30-06-2010 31-03-2010 31-12-2009 30-09-2009 30-06-2009
Value (%) 4.31 189.24 13.76
RF 8
Quarterly RF 2.00 2.00 2.00 2.00 7.8 1.95 1.95 1.95 1.95 7.5 1.88 1.88 1.88 1.88 7.2 1.8 1.8 1.8
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31-03-2009 31-12-2008 30-09-2008 30-06-2008 31-03-2008 31-12-2007 28-09-2007 29-06-2007 30-03-2007 29-12-2006 29-09-2006 29-06-2006 31-03-2006 30-12-2005 30-09-2005 30-06-2005 31-03-2005 Table- 3 Calculation of mean risk free rate. Property Mean Calculation 55.50/32 Table- 3.1 Quarterly Risk Free Rate is calculated to be 1.73(%). Note:5.3 5.5 6.8 7.4
1.8 1.85 1.85 1.85 1.85 1.7 1.7 1.7 1.7 1.38 1.38 1.38 1.38 1.33 1.33 1.33 1.33 Sum= 55.50
Value (%) 1.73
The above Risk Free Rate would help us to calculate Beta for mutual funds as well as for fixed deposits. The above interest rates have been collected from Government Deposits (Treasury bills) yearly. Later the interest rate has been converted to quarterly data.
3.3 SBI MAGNUM INCOME FUND Calculation of Return, Standard Deviation, Co-variance, Beta and CAPM from the given NAV (Net Asset Value):DATE
SBI MAGNUM INCOME FUND ( NAV)
RETURN DEVIATION (%)
(D)^2
D (From Table 1)
D*D
31-12-2012 28-09-2012 29-06-2012 30-03-2012 30-12-2011 30-09-2011 30-06-2011 31-03-2011 31-12-2010 30-09-2010 30-06-2010 31-03-2010 31-12-2009 30-09-2009 30-06-2009 31-03-2009 31-12-2008 30-09-2008 30-06-2008 31-03-2008 31-12-2007 28-09-2007 29-06-2007 30-03-2007
28.12 27.46 26.53 25.74 25.1 24.41 23.94 23.45 23.11 22.9 22.75 22.41 22.04 21.84 21.69 21.04 22.58 20.43 20.47 20.74 20.94 20.46 19.88 19.73
2.40 3.51 3.07 2.55 2.83 1.96 2.09 1.47 0.92 0.66 1.52 1.68 0.92 0.69 3.09 -6.82 10.52 -0.20 -1.30 -0.96 2.35 2.92 0.76 0.05
1.03 2.13 1.69 1.17 1.45 0.59 0.71 0.09 -0.46 -0.72 0.14 0.30 -0.46 -0.69 1.71 -8.20 9.15 -1.57 -2.68 -2.33 0.97 1.54 -0.62 -1.33
1.05 4.53 2.86 1.37 2.10 0.34 0.51 0.01 0.21 0.52 0.02 0.09 0.21 0.47 2.93 67.21 83.64 2.48 7.18 5.44 0.94 2.37 0.38 1.76
0.76 3.16 -4.69 -3.37 -6.71 -7.15 -8.97 0.11 -12.82 7.80 -2.62 3.79 -0.70 -2.69 29.15 16.53 -4.69 -37.72 -20.44 -3.76 -17.25 32.33 1.32 -4.19
0.78 6.71 -7.93 -3.95 -9.72 -4.18 -6.38 0.01 5.91 -5.60 -0.36 1.14 0.32 1.85 49.88 -135.48 -42.90 59.35 54.78 8.78 -16.70 49.77 -0.82 5.56
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29-12-2006 29-09-2006 29-06-2006 31-03-2006 30-12-2005 30-09-2005 30-06-2005 31-03-2005
19.72 19.47 19.08 18.84 18.92 18.84 18.62 18.32
1.28 2.04 1.27 -0.42 0.42 1.18 1.64 0.00 44.10 Table - 4
-0.09 0.67 -0.10 -1.80 -0.95 -0.20 0.26 -1.38
0.01 0.44 0.01 3.24 0.91 0.04 0.07 1.90 195.25
4.73 14.80 -14.72 12.59 22.26 -1.78 9.27 -4.32
-0.44 9.86 1.53 -22.67 -21.22 0.35 2.41 5.95 -13.41
Calculation. Property Mean Variance Standard Deviation Covariance Nifty Variance Beta Risk Free (RF) CAPM Sharpe Ratio 44.10/32 195.25/32 Root of Variance D*D -13.41/32 From Table 1.1 Cov/ Var of Nifty From Table 2.1 1.73+(4.32-1.73)(-22%) (1.38-1.73) / 2.47 Table 4.1 Calculation Value (%) 1.38 6.10 2.47 -0.42 189.24 -0.22% 1.73 1.729 -0.14
From the following table the following has been calculated: Mean Standard Deviation Covariance Beta CAPM Sharpe Ratio
The SBI MAGNUM INCOME FUND (NAV) data is represented below:Here , The X-axis represents the years and The Y-axis represents SBI Mutual Fund NAV.
SBI MAGNUM INCOME FUND ( NAV)

30 25 20 15 10 5 0
01/03/2005
01/07/2005
01/11/2005
01/03/2006
01/07/2006
01/11/2006
01/03/2007
01/07/2007
01/11/2007
01/03/2008
01/07/2008
01/11/2008
01/03/2009
01/07/2009
01/11/2009
01/03/2010
01/07/2010
01/11/2010
01/03/2011
01/07/2011
01/11/2011
01/03/2012
01/07/2012
Graph-4
Page 46
01/11/2012
3.4 RELIANCE INCOME FUND Calculation of Return, Standard Deviation, Co-variance, Beta and CAPM from the given NAV (Net Asset Value):DATE RELIANCE INCOME FUND(G) NAV 31-12-2012 28-09-2012 29-06-2012 30-03-2012 30-12-2011 30-09-2011 30-06-2011 31-03-2011 31-12-2010 30-09-2010 30-06-2010 31-03-2010 31-12-2009 30-09-2009 30-06-2009 31-03-2009 31-12-2008 30-09-2008 30-06-2008 31-03-2008 31-12-2007 28-09-2007 29-06-2007 30-03-2007 37.7 36.8 33.77 34.8 33.93 33.17 32.62 32.28 31.86 31.53 31.34 30.85 30.57 30.17 30.05 29.05 30.77 25.76 25.38 25.51 25.33 24.21 23.51 23.15 2.45 8.97 -2.96 2.56 2.29 1.69 1.05 1.32 1.05 0.61 1.59 0.92 1.33 0.40 3.44 -5.59 19.45 1.50 -0.51 0.71 4.63 2.98 1.56 -0.13 0.55 7.07 -4.86 0.66 0.39 -0.21 -0.85 -0.58 -0.85 -1.29 -0.31 -0.98 -0.57 -1.50 1.54 -7.49 17.55 -0.40 -2.41 -1.19 2.73 1.08 -0.35 -2.03 0.30 50.01 23.62 0.44 0.15 0.05 0.72 0.34 0.73 1.67 0.10 0.97 0.33 2.25 2.38 56.10 307.95 0.16 5.81 1.42 7.43 1.16 0.12 4.12 RETURN (%) DEVIATION (D)^2 D (From Table 1) 0.76 3.16 -4.69 -3.37 -6.71 -7.15 -8.97 0.11 -12.82 7.80 -2.62 3.79 -0.70 -2.69 29.15 16.53 -4.69 -37.72 -20.44 -3.76 -17.25 32.33 1.32 -4.19 0.42 22.32 22.78 -2.24 -2.62 1.53 7.60 -0.06 10.95 -10.09 0.82 -3.74 0.40 4.04 44.95 -123.78 -82.31 15.20 49.26 4.48 -47.02 34.82 -0.46 8.50
Page 47
D*D
29-12-2006 29-09-2006 29-06-2006 31-03-2006 30-12-2005 30-09-2005 30-06-2005 31-03-2005
23.18 22.75 22.19 22.02 21.88 21.7 21.48 21.09
1.89 2.52 0.77 0.64 0.83 1.02 1.85 0.00 =60.81 Table- 5
-0.01 0.62 -1.13 -1.26 -1.07 -0.88 -0.05 -1.90
0.00 0.39 1.27 1.59 1.15 0.77 0.00 3.61 477.10
4.73 14.80 -14.72 12.59 22.26 -1.78 9.27 -4.32
-0.05 9.23 16.61 -15.86 -23.84 1.56 -0.47 8.20 -48.87
Calculation Property Mean Variance Standard Deviation Covariance Nifty Variance Beta Risk Free (RF) CAPM Sharpe Ratio Calculation 60.81/32 477.10/32 Root of Variance D*D -48.87/32 From Table 1.1 Cov/ Var of Nifty From Table 2.1 1.73+(4.32-1.73)(-0.8%) (1.90-1.73) / 3.86 Table- 5.1 From the following table the following has been calculated: Mean Standard Deviation Covariance Beta CAPM Sharpe Ratio Value (%) 1.90 14.90 3.86 -1.53 189.24 -0.8% 1.73 1.71 0.044
Page 48
The RELIANCE INCOME FUND (G) NAV data is represented below:Here , The X-axis represents the years and The Y-axis represents Reliance Mutual Fund NAV.
RELIANCE INCOME FUND(G) NAV

40
35
30
25
20
15
10
01/03/2005
01/07/2005
01/11/2005
01/03/2006
01/07/2006
01/11/2006
01/03/2007
01/07/2007
01/11/2007
01/03/2008
01/07/2008
01/11/2008
01/03/2009
01/07/2009
01/11/2009
01/03/2010
01/07/2010
01/11/2010
01/03/2011
01/07/2011
01/11/2011
01/03/2012
01/07/2012
Graph-5
Page 49
01/11/2012
3.5 UTI-SHORT TERM INCOME FUND-RETAIL PLAIN Calculation of Return, Standard Deviation, Co-variance, Beta and CAPM from the given NAV (Net Asset Value):DATE UTI-SHORT TERM INCOME FUND- NAV 31-12-2012 28-09-2012 29-06-2012 30-03-2012 30-12-2011 30-09-2011 30-06-2011 31-03-2011 31-12-2010 30-09-2010 30-06-2010 31-03-2010 31-12-2009 30-09-2009 30-06-2009 31-03-2009 31-12-2008 30-09-2008 30-06-2008 31-03-2008 31-12-2007 28-09-2007 29-06-2007 30-03-2007 19.87 19.4 18.85 18.37 17.99 17.57 17.13 16.62 16.37 16.16 15.94 15.72 15.55 15.21 14.99 14.33 14.2 13.87 13.56 13.27 13.09 12.75 12.48 12.2 2.42 2.92 2.61 2.11 2.39 2.57 3.07 1.53 1.30 1.38 1.40 1.09 2.24 1.47 4.61 0.92 2.38 2.29 2.19 1.38 2.67 2.16 2.30 0.99 0.52 1.01 0.71 0.21 0.49 0.67 1.17 -0.38 -0.60 -0.52 -0.50 -0.81 0.33 -0.44 2.70 -0.99 0.48 0.38 0.28 -0.53 0.76 0.26 0.39 -0.91 0.27 1.03 0.50 0.04 0.24 0.44 1.36 0.14 0.36 0.27 0.25 0.66 0.11 0.19 7.30 0.98 0.23 0.15 0.08 0.28 0.58 0.07 0.15 0.83 RETURN (%) DEVIATION (D)^2 (D) D (From Table 1) 0.76 3.16 -4.69 -3.37 -6.71 -7.15 -8.97 0.11 -12.82 7.80 -2.62 3.79 -0.70 -2.69 29.15 16.53 -4.69 -37.72 -20.44 -3.76 -17.25 32.33 1.32 -4.19 0.40 3.20 -3.33 -0.70 -3.27 -4.76 -10.45 -0.04 7.74 -4.08 1.32 -3.07 -0.23 1.17 78.77 -16.32 -2.23 -14.44 -5.77 1.99 -13.17 8.41 0.52 3.81
Page 50
D*D
29-12-2006 29-09-2006 29-06-2006 31-03-2006 30-12-2005 30-09-2005 30-06-2005 31-03-2005
12.08 11.93 11.72 11.53 11.36 11.2 11.05 10.88
1.26 1.79 1.65 1.50 1.43 1.36 1.56 0.00 60.90 Table- 6
-0.65 -0.11 -0.26 -0.41 -0.47 -0.55 -0.34 -1.90
0.42 0.01 0.07 0.17 0.23 0.30 0.12 3.62 21.44
4.73 14.80 -14.72 12.59 22.26 -1.78 9.27 -4.32
-3.05 -1.65 3.76 -5.12 -10.57 0.97 -3.16 8.21 14.86
Calculation:Property Mean Variance Standard Deviation Covariance Nifty Variance Beta Risk Free (RF) CAPM Sharpe Ratio 60.90/32 21.44/32 Root of Variance D*D 14.86/32 From Table 1.1 Cov/ Var of Nifty From Table 2.1 1.73+(4.32-1.73)(0.24%) (1.90 1.73) / .82 Table- 6.1 From the following table the following has been calculated: Mean Standard Deviation Covariance Beta CAPM Sharpe Ratio
Calculation 1.90 0.67 0.82 0.46
Value (%)
189.24 0.24% 1.73 1.74 0.21
The UTI-SHORT TERM INCOME FUND-RETAIL PLAIN (G) NAV data is represented below:Here , The X-axis represents the years and The Y-axis represents UTI Mutual Fund NAV.
UTI-SHORT TERM INCOME FUND-RETAIL PLAIN (G) NAV

25
20
15
10
01/03/2005
01/07/2005
01/11/2005
01/03/2006
01/07/2006
01/11/2006
01/03/2007
01/07/2007
01/11/2007
01/03/2008
01/07/2008
01/11/2008
01/03/2009
01/07/2009
01/11/2009
01/03/2010
01/07/2010
01/11/2010
01/03/2011
01/07/2011
01/11/2011
01/03/2012
Graph-6
Page 52
01/07/2012
01/11/2012
3.6 STATE BANK OF INDIA FIXED DEPOSIT:Calculation of Return, Standard Deviation, Co-variance, Beta and CAPM from the given NAV (Net Asset Value):DATE 31-12-2012 28-09-2012 29-06-2012 30-03-2012 30-12-2011 30-09-2011 30-06-2011 31-03-2011 31-12-2010 30-09-2010 30-06-2010 31-03-2010 31-12-2009 30-09-2009 30-06-2009 31-03-2009 31-12-2008 30-09-2008 30-06-2008 31-03-2008 31-12-2007 28-09-2007 29-06-2007 30-03-2007 29-12-2006 29-09-2006 Annual RT 8.5 8.5 9.75 9.75 9.25 9.25 9 9 9 8.5 8.5 8.5 7.75 7.75 7.75 8 8 8 8 7.25 7.25 7.25 7.5 7.5 7.5 8 Quarterly RT 2.13 2.13 2.44 2.44 2.31 2.31 2.25 2.25 2.25 2.13 2.13 2.13 1.94 1.94 1.94 2.00 2.00 2.00 2.00 1.81 1.81 1.81 1.88 1.88 1.88 2.00 DEVIATION (D) 0.09 0.09 0.40 0.40 0.27 0.27 0.21 0.21 0.21 0.09 0.09 0.09 -0.10 -0.10 -0.10 -0.04 -0.04 -0.04 -0.04 -0.23 -0.23 -0.23 -0.16 -0.16 -0.16 -0.04 0.01 0.01 0.16 0.16 0.07 0.07 0.04 0.04 0.04 0.01 0.01 0.01 0.01 0.01 0.01 0.00 0.00 0.00 0.00 0.05 0.05 0.05 0.03 0.03 0.03 0.00 (D)^2 D(From Table 1) 0.76 3.16 -4.69 -3.37 -6.71 -7.15 -8.97 0.11 -12.82 7.80 -2.62 3.79 -0.70 -2.69 29.15 16.53 -4.69 -37.72 -20.44 -3.76 -17.25 32.33 1.32 -4.19 4.73 14.80 0.07 0.27 -1.87 -1.34 -1.83 -1.96 -1.89 0.02 -2.70 0.67 -0.23 0.33 0.07 0.27 -2.96 -0.65 0.18 1.47 0.80 0.85 3.91 -7.32 -0.22 0.69 -0.78 -0.58
Page 53
D*D
29-06-2006 31-03-2006 30-12-2005 30-09-2005 30-06-2005 31-03-2005
8 8 7.5 7.5 7.5 7.5
2.00 2.00 1.88 1.88 1.88 1.88 65.25 Table - 7
-0.04 -0.04 -0.16 -0.16 -0.16 -0.16
0.00 0.00 0.03 0.03 0.03 0.03 1.02
-14.72 12.59 22.26 -1.78 9.27 -4.32
0.58 -0.49 -3.65 0.29 -1.52 0.71 -18.81
Calculation Property Mean Variance Standard Deviation Covariance Nifty Variance Beta Risk Free (RF) CAPM Sharpe Ratio 65.25/32 1.02/32 Root of Variance D*D -18.81/32 From Table 1.1 Cov/ Var of Nifty From Table 2.1 1.73+(4.32-1.73)(-0.31%) (2.04 1.73) / .18 Table- 7.1 From the following table the following has been calculated: Mean Standard Deviation Covariance Beta CAPM Sharpe Ratio Calculation Value (%) 2.04 0.032 0.18 -0.58 189.24 -0.31% 1.73 1.72 1.72
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3.7 ICICI FIXED DEPOSIT Calculation of Return, Standard Deviation, Co-variance, Beta and CAPM from the given NAV (Net Asset Value):DATE 31-12-2012 28-09-2012 29-06-2012 30-03-2012 30-12-2011 30-09-2011 30-06-2011 31-03-2011 31-12-2010 30-09-2010 30-06-2010 31-03-2010 31-12-2009 30-09-2009 30-06-2009 31-03-2009 31-12-2008 30-09-2008 30-06-2008 31-03-2008 31-12-2007 28-09-2007 29-06-2007 30-03-2007 29-12-2006 29-09-2006 Annual RT 8.5 8.5 9.25 9 9 8.5 8.5 8.5 8.25 8.25 8 8 7.5 7.5 7.5 7.5 7.5 7.5 7 7 7 7 7 7.25 7.25 7.5 Quarterly RT 2.13 2.13 2.31 2.25 2.25 2.13 2.13 2.13 2.06 2.06 2.00 2.00 1.88 1.88 1.88 1.88 1.88 1.88 1.75 1.75 1.75 1.75 1.75 1.81 1.81 1.88 DEVIATION (D) 0.19 0.19 0.38 0.32 0.32 0.19 0.19 0.19 0.13 0.13 0.07 0.07 -0.06 -0.06 -0.06 -0.06 -0.06 -0.06 -0.18 -0.18 -0.18 -0.18 -0.18 -0.12 -0.12 -0.06 0.037 0.037 0.145 0.101 0.101 0.037 0.037 0.037 0.017 0.017 0.005 0.005 0.003 0.003 0.003 0.003 0.003 0.003 0.033 0.033 0.033 0.033 0.033 0.014 0.014 0.003 (D)^2 D(From Table 1) 0.76 3.16 -4.69 -3.37 -6.71 -7.15 -8.97 0.11 -12.82 7.80 -2.62 3.79 -0.70 -2.69 29.15 16.53 -4.69 -37.72 -20.44 -3.76 -17.25 32.33 1.32 -4.19 4.73 14.80 0.15 0.61 -1.79 -1.07 -2.14 -1.38 -1.73 0.02 -1.68 1.02 -0.18 0.26 0.04 0.15 -1.65 -0.94 0.27 2.14 3.71 0.68 3.13 -5.87 -0.24 0.50 -0.56 -0.84
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D*D
29-06-2006 31-03-2006 30-12-2005 30-09-2005 30-06-2005 31-03-2005
7.5 7.5 7 7 7 7
1.88 1.88 1.75 1.75 1.75 1.75 61.81 Table- 8
-0.06 -0.06 -0.18 -0.18 -0.18 -0.18
0.003 0.003 0.033 0.033 0.033 0.033 0.932
-14.72 12.59 22.26 -1.78 9.27 -4.32
0.83 -0.71 -4.04 0.32 -1.68 0.78 -11.89
Calculation:Property Mean Variance Standard Deviation Covariance Nifty Variance Beta Risk Free (RF) CAPM Sharpe Ratio 61.81/32 0.932/32 Root of Variance D*D -11.89/32 From table 1.1 Cov/ Var of Nifty From Table 2.1 1.73+(4.32-1.73)(-0.20%) (1.93 1.73) / .17 Table- 8.1 Calculation Value (%) 1.93 0.029 0.17 -0.37 189.24 -0.20 1.73 1.72 1.18
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3.8 FEDERAL BANK FIXED DEPOSIT Calculation of Return, Standard Deviation, Co-variance, Beta and CAPM from the given NAV (Net Asset Value):DATE 31-12-2012 28-09-2012 29-06-2012 30-03-2012 30-12-2011 30-09-2011 30-06-2011 31-03-2011 31-12-2010 30-09-2010 30-06-2010 31-03-2010 31-12-2009 30-09-2009 30-06-2009 31-03-2009 31-12-2008 30-09-2008 30-06-2008 31-03-2008 31-12-2007 28-09-2007 29-06-2007 30-03-2007 29-12-2006 29-09-2006 Annual RT 8.25 8.25 8.75 8.75 8.5 8.5 8.25 8.25 8.25 8 8 8 7.5 7.5 7.5 8 8 8 7.5 7 7 7 7 7.25 7.25 7.5 Quarterly RT 2.06 2.06 2.19 2.19 2.13 2.13 2.06 2.06 2.06 2.00 2.00 2.00 1.88 1.88 1.88 2.00 2.00 2.00 1.88 1.75 1.75 1.75 1.75 1.81 1.81 1.88 DEVIATION (D) 0.12 0.12 0.24 0.24 0.18 0.18 0.12 0.12 0.12 0.05 0.05 0.05 -0.07 -0.07 -0.07 0.05 0.05 0.05 -0.07 -0.20 -0.20 -0.20 -0.20 -0.13 -0.13 -0.07 0.0133 0.0133 0.0577 0.0577 0.0316 0.0316 0.0133 0.0133 0.0133 0.0028 0.0028 0.0028 0.0052 0.0052 0.0052 0.0028 0.0028 0.0028 0.0052 0.0389 0.0389 0.0389 0.0389 0.0182 0.0182 0.0052 (D)^2 D(From Table 1) 0.76 3.16 -4.69 -3.37 -6.71 -7.15 -8.97 0.11 -12.82 7.80 -2.62 3.79 -0.70 -2.69 29.15 16.53 -4.69 -37.72 -20.44 -3.76 -17.25 32.33 1.32 -4.19 4.73 14.80 0.09 0.36 -1.13 -0.81 -1.19 -1.27 -1.03 0.01 -1.48 0.41 -0.14 0.20 0.05 0.19 -2.11 0.87 -0.25 -1.99 1.48 0.74 3.40 -6.38 -0.26 0.56 -0.64 -1.07
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D*D
29-06-2006 31-03-2006 30-12-2005 30-09-2005 30-06-2005 31-03-2005
7.5 8 7.5 7.5 7.5 7.5
1.88 2.00 1.88 1.88 1.88 1.88 62.31 Table-9
-0.07 0.05 -0.07 -0.07 -0.07 -0.07
0.0052 0.0028 0.0052 0.0052 0.0052 0.0052 0.5087
-14.72 12.59 22.26 -1.78 9.27 -4.32
1.06 0.66 -1.61 0.13 -0.67 0.31 -11.47
Calculation Property Mean Variance Standard Deviation Covariance Nifty Variance Beta Risk Free (RF) CAPM Sharpe Ratio Calculation 62.31/32 0.5087/32 Root of Variance D*D -11.47/32 From Table 1.1 Cov/ Var of Nifty From Table 2.1 1.73+(4.32-1.73)(-0.18%) 1.95-1.73/(0.13) Table- 9.1 Value (%) 1.95 0.0159 0.13 -0.35 189.24 -0.18% 1.73 1.73 1.69
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Chapter - 4 SUMMARY OF FINDINGS
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Table for mean of Mutual Funds:Fund SBI MF Reliance MF UTI MF Table- 10 From the above table, it is found that Reliance Mutual Fund and UTI Mutual Fund are giving equal return that is 1.9 but SBI Mutual Fund is giving a return of 1.38 during the time interval. Thus it can be interpreted that higher the return, better the investment. Mean 1.38 1.9 1.9
Mean
2.00 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 Mean SBI MF 1.38 Reliance MF 1.9 UTI MF 1.9
Return
Diagram - 7
The data obtained above is shown as a graphical representation here.
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Table for mean of Fixe d Deposits:FD SBI FD ICICI FD Federal Bank Table- 11 The above table represents mean of Fixed Deposits. SBI has the highest return i.e 2.04 as compared to ICICI and Federal Bank. Thus it can be interpreted that higher the return, better the investment. Mean 2.04 1.93 1.95
Mean
2.04 2.02 2 1.98
Return
1.96 1.94 1.92 1.9 1.88 1.86 Mean SBI FD 2.04 ICICI FD 1.93 Federal Bank 1.95
Diagram - 8 The data obtained above is shown as a graphical representation here
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Table For comparison of MEAN of mutual funds and fixed deposits:Fund SBI MF Reliance MF UTI MF SBI FD ICICI FD Federal Bank Table- 12 From the above table, the return from the investments (Fixed Deposits as well as Mutual Funds), fixed deposits are performing well as compared to mutual funds. SBI Fixed Deposits is giving a return of 2.04 which is best among Fixed Deposits as well Mutual Funds. The minimum return obtained from Fixed Deposits i.e ICICI Fixed Deposit is giving a return of 1.93, Federal Bank is 1.95 which is better than maximum return of Mutual Funds from the year 2005 to 2012. Mean 1.38 1.9 1.9 2.04 1.93 1.95
Mean
2.50 2.00
Return
1.50 1.00 0.50 0.00 Mean Sbi MF 1.38 Reliance MF 1.9 UTI MF 1.9 Sbi FD 2.04 ICICI FD 1.93 Federal Bank 1.95
Diagram - 9 The above graph represents the returns from Mutual Funds and Fixed Deposits.
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Table for Standard deviation of Mutual Funds:Fund SBI MF Reliance MF UTI MF Table- 13 From above we can interpret that Reliance Mutual Fund has the highest Standard Deviation i.e risk. Whereas UTI has the lowest risk and SBI has moderate risk. From the investor point of view, risk should be low. SD 2.47 3.86 0.82
SD
4 3.5 3 2.5
Risk
2 1.5 1 0.5 0 SD SBI MF 2.47 Reliance MF 3.86 UTI MF 0.82
Diagram - 10 The above graph represents risk associated with mutual funds.
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Table for Standard deviation of Fixed Deposits :Fund SBI FD ICICI FD Federal Bank Table- 14 The following table represents standard deviation values i.e risk associated with Fixed Deposits. Fixed Deposits have low risk involved in the investment. All the Fixed Deposits have almost similar risk associated with them. SD 0.18 0.17 0.126
SD
0.2 0.15
Risk
0.1 0.05 0 SD
SBI FD 0.18
ICICI FD 0.17
Federal Bank 0.126
Diagram - 11
The above is the graphical representation of risk associated with Fixed Deposits.
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Table For comparison of Standard Deviation of mutual funds and fixed deposits:Fund Sbi MF Reliance MF UTI MF Sbi FD ICICI FD Federal Bank Table-15 The above table shows the risk involved in the investment. Reliance Mutual Fund has the highest risk i.e 3.86 among the Mutual Funds and Fixed Deposits and from the table it is clear that Mutual Funds are highly riskier as compared to Fixed Deposits. SD 2.47 3.86 0.82 0.18 0.17 0.126
SD
4 3.5 3 2.5 2 1.5 1 0.5 0 Sd
Sbi MF 2.47
Reliance MF 3.86
UTI MF 0.82
Sbi FD 0.18
ICICI FD 0.17
Federal Bank 0.12
Diagram - 12 The above figure represents the risks associated with Mutual Funds and Fixed Deposits.
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Measuring Risk Return Relationship of Mutual Funds Fund SBI MF Reliance MF UTI MF Table- 16 From the above table it can be interpreted that UTI is performing well as it has low risk and high return. On the other hand, Reliance has high risk and comparatively low return and SBI has a moderate risk but low return. From investing point of view there should be low risk and high return. SD 2.47 3.86 0.82 Mean 1.38 1.9 1.9
Risk Return Relationship

4 3.5 3 2.5 2 1.5 1 0.5 0 SD Mean SBI MF 2.47 1.38 Reliance MF 3.86 1.9 UTI MF 0.82 1.9
Diagram - 13 The above is graphical representation of risk return relationship associated with Mutual Funds.
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Measuring Risk Return Relationship of Fixed Deposits Fund SBI FD ICICI FD Federal Bank SD 0.18 0.17 0.126 Table- 17 From the above table it can be interpreted that the fixed deposits are having a directly proportionate relationship between risk and return. Federal Bank has low risk as its return is low. Whereas SBI has high risk and high return and ICICI has moderate risk and return. Mean 2.04 1.93 1.95
Risk Return Relationship

2.5 2 1.5 1 0.5 0 SD Mean SBI FD 0.18 2.04 ICICI FD 0.17 1.93 Federal Bank 0.126 1.95
Diagram - 14 The above is graphical representation of risk return relationship associated with Fixed Deposits.
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Comparing Risk And Return Fund SBI MF Reliance MF UTI MF SBI FD ICICI FD Federal Bank Table-18 The above table represents the relationship between risk and return of the Mutual Funds as well as Fixed Deposits. From the table we can interpret that Mutual Funds are more risky than Fixed Deposits. And return of Fixed Deposits is more as compared to Mutual Funds. SD 2.47 3.86 0.82 0.18 0.17 0.126 Mean 1.38 1.9 1.9 2.04 1.93 1.95
Chart Title
4.00 3.00 2.00 1.00 0.00 Sbi MF Reliance MF UTI MF Sbi FD Mean Sd
ICICI FD
Federal Bank
Diagram - 15 The above chart clearly represents the risk and the return relationship. From the investor point of view, standard deviation that is risk should be low and mean that is return should be high.
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Beta of Mutual Funds Fund SBI MF Reliance MF UTI MF Table- 19 The above table represents the beta values of mutual funds.UTI with less than 1 value of beta indicates that the security will be less volatile than the market. Reliance and SBI has a negative beta denoting assets generally moves in the opposite direction as compared to the index. Beta -0.21% -0.78% 0.24%
Beta
0.40% 0.20% 0.00% -0.20% -0.40% -0.60% -0.80% Beta SBI MF -0.21% Reliance MF -0.78% UTI MF 0.24%
Diagram - 16 The above chart clearly represents the beta of mutual funds.
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Table for Beta of Fixed Deposits Fund SBI FD ICICI FD Federal Bank Table- 20 Here the value of beta is negative in all the cases i.e less than zero thus indicating that assets generally move in the opposite direction as compared to the index. Beta -0.30% -0.19% -0.18%
Beta
0.00% -0.05% -0.10% -0.15% -0.20% -0.25% -0.30% -0.35% Beta SBI FD -0.30% ICICI FD -0.19% Federal Bank -0.18%
Diagram - 17 The above chart clearly represents the beta of Fixed deposits
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Comparison table for Beta Fund SBI MF Reliance MF UTI MF SBI FD ICICI FD Federal Bank Table-21 The above table represents that all the investments have a negative beta except for one that is UTI Mutual Fund is0.24%. It is also clear the above investments have a negligible beta so that it can be taken as zero. Thus movement of funds is uncorrelated with the movement of index. Beta -0.21% -0.78% 0.24% -0.30% -0.19% -0.18%
Beta
0.40% 0.20% 0.00% -0.20% -0.40% -0.60% -0.80% Beta Sbi MF -0.21% Reliance MF -0.78% UTI MF 0.24% Sbi FD -0.30% ICICI FD -0.19% Federal Bank -0.18%
Diagram - 18 The above figure represents beta (a number describing the correlated volatility of an asset in relation to the volatility of the index that said asset is being compared to) of various investments.
Beta () and its significance
Value of Beta
Inte rpretation
<0
Asset generally moves in the opposite direction as compared to the index
=0
Movement of the asset is uncorrelated with the move ment of the index
0<<1
Movement of the asset is generally in the same direction as, but less than the movement of the index
=1
Movement of the asset is generally in the same direction as, and about the same amount as the movement of the index
>1
Movement of the asset is generally in the same direction as, but more than the move ment of the index
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Table for CAPM of Mutual Fund Fund SBI MF Reliance MF UTI MF Table- 22 The CAPM says that the expected return of a security or a portfolio equals the rate on a risk-free security plus a risk premium. Here the risk free rate is 1.73 but SBI and Reliance are giving less than the risk free rate so the investment should not be undertaken. On the other hand UTI should be selected as it is giving more than the risk free rate. CAPM 1.72 1.71 1.74
CAPM
1.74 1.735 1.73 1.725 1.72 1.715 1.71 1.705 1.7 1.695 CAPM
SBI MF 1.72
Reliance MF 1.71
UTI MF 1.74
Diagram - 19 The above chart clearly represents the risk free rate of mutual funds
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Table for CAPM of Fixed Deposits. Fund SBI FD ICICI FD Federal Bank Table- 23 Here, Federal bank is giving equal return whereas SBI and ICICI are giving less than the risk free rate so the investment should not be undertaken. CAPM 1.72 1.72 1.73
CAPM
1.73 1.728 1.726 1.724 1.722 1.72 1.718 1.716 1.714 CAPM SBI FD 1.72 ICICI FD 1.72 Federal Bank 1.73
Diagram 20 The above chart clearly represents the risk free rate of Fixed deposits.
Table for comparing CAPM Fund SBI MF Reliance MF UTI MF SBI FD ICICI FD Federal Bank Table-24 The CAPM says that the expected return of a security or a portfolio equals the rate on a risk-free security plus a risk premium. If this expected return does not meet or beat the required return, then the investment should not be undertaken. The above table represents the CAPM values which is equal to or more than Risk Free Rate except for Reliance Mutual Fund. Reliance Mutual Fund has a CAPM of 1.71 which is less than Risk Free Rate that is 1.72 and thus the investment should not be undertaken. CAPM 1.72 1.71 1.74 1.72 1.72 1.73
CAPM
1.74 1.73 1.72 1.71 1.7 1.69 Sbi MF Reliance MF UTI MF Sbi FD ICICI FD Federal Bank
Diagram - 21 The above figure represents different sets of CAPM values for different investment. UTI has highest value. Thus, premium is given by this investment at a higher rate as compared to others.
Table for SHARPE RATIO OF MUTUAL FUNDS Fund SBI MF RELIANCE MF UTI MF Table- 25 From the above we can interpret that UTI mutual fund, has higher Sharpe ratio i.e 0.21,which means it is performing well as compared to other mutual funds. SBI mutual fund should not be selected because it has a negative Sharpe ratio. This is due to the fact that its risk free rate is greater than its return. SHARPE RATIO -0.14 0.044 0.21
Sharpe Ratio
0.25 0.2 0.15 0.1 0.05 0 -0.05 -0.1 -0.15 Sharpe Ratio
SBI MF -0.14
Reliance MF 0.044
UTI MF 0.21
Diagram - 22 The above figure represents different sets of Sharpe Ratio values for mutual funds.
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Table for SHARPE RATIO OF FIXED DEPOSITS Fund SBI FD ICICI FD Federal Bank Table- 26 From the above we can interpret that ICICI Fixed Deposit, has higher Sharpe ratio i.e 1.81, which means it is performing well as compared to other Fixed Deposits. Its better to invest in a higher Sharpe Ratio. SHARPE RATIO 1.72 1.81 1.69
Sharpe Ratio
1.82 1.8 1.78 1.76 1.74 1.72 1.7 1.68 1.66 1.64 1.62 SBI FD ICICI FD Federal Bank
Diagram - 23
The above figure represents different sets of Sharpe Ratio values for fixed deposits.
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Table for comparing Sharpe Ratio Fund SBI MF Reliance MF UTI MF SBI FD ICICI FD Federal Bank Table- 27 From the above we can interpret that ICICI Fixed Deposit, has higher Sharpe ratio i.e 1.81, which means it is performing well as compared to others. The Sharpe Ratio indicates stocks with trends that are strong and have "low risk", that is, trends that are well-behaved and less volatile. The higher the ratio it is better to invest. Sharpe Ratio -0.14 0.044 0.21 1.72 1.81 1.69
Sharpe Ratio
2 1.5 1 0.5 0 -0.5 SR SBI MF -0.14 Reliance MF 0.044 UTI MF 0.21 SBI FD 1.72 ICICI FD 1.81 Federal Bank 1.69
Diagram - 24 The above figure represents different Sharpe Ratios of different investments.
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Overall pe rformance of FDs V/s MFs Mean SBI MF 1.38 Reliance MF 1.9 UTI MF 1.9 SBI FD 2.04 ICICI FD 1.93 Federal Bank 1.95 Nifty 4.32 RF 1.73 Table-28 Inte rpretation The Risk Free Rate is 1.73.The investor should select return higher than the risk free rate. From above it can be clearly concluded that Fixed Deposits are performing better than mutual funds. SBI Mutual Fund return is less than risk free rate. So the investor should not select this scheme. The maximum return is from SBI Fixed Deposits, but if we compare with market return that is Nifty (4.32) it is less than it. 13.75 0.126 -0.18% 1.73 1.69 0.17 -0.19% 1.72 1.81 0.18 -0.30% 1.72 1.72 0.82 0.24% 1.74 0.21 3.86 -0.78% 1.71 0.044 2.47 -0.21% 1.72 -0.14 SD Beta CAPM Sharpe
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The higher the risk involved in the investment, it should give higher return. But from the above table it is clear that mutual funds have higher risk associated than fixed deposits but from performance point of view, fixed deposits are giving higher returns as compared to mutual funds. When Beta is negative, its good to invest because asset generally moves in the opposite direction as compared to the index. From the above table it is seen that only UTI Mutual Fund has a positive Beta that indicates that movement of the asset is generally in the same direction as, but more than the movement of the index. CAPM states that the expected return based on expected rate of return on the market, the risk- free rate and the beta coefficient of the stock. Here, UTI Mutual Fund having highest CAPM i.e 1.74 indicates that its return is more than risk free rate and premium is added to it. Sharpe ratio should be usually be positive so it is most beneficial from investing point of view. Here, SBI Mutual Fund has a negative Sharpe Ratio indicating that its performance is not upto the mark or rather low.
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Chapter 5 CONCLUSIONS AND SUGGESTIONS
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Conclusions FEATURES Returns Administrative exp. Risk Investment option Network Liquidity Quality of Assets Inte rest calculation Fixed Deposit Better Low Low Less High penetration At a cost Not Transparent Quarterly i.e. 3rd 6th 9th & 12th. Mutual Funds Low High Moderate More Low but improving Better Transparent Every Month
Account
Needed Table- 29
Not Needed.
Inte rpretation Thus, in this limited span of time, it has been observed that Fixed Deposits are performing better than Mutual funds. Fixed Deposits are giving better returns than Mutual funds and at the same time the risk associated with Fixed Deposits are low as compared to Mutual Funds. Mutual Funds provide more investing options but are more risk prone. Fixed Deposits offer less investing options but are having low risk. Investing is concerned with higher returns at low or minimal risk which is provided by Fixed Deposits.
Suggestions Thus it is clear from the above conclusion that Mutual Funds provide a low rate of return and are riskier to invest as compared to Fixed Deposits that are comparatively secure and yield high returns. Thus , it is better to invest in Fixed Deposits due to the following reasons: Safety The fixed deposits of reputed banks and financial institutions regulated by RBI (Reserve Bank of India) the banking regulator in India are very secure and considered as one of the safest investment methods. Regular Income Fixed deposits earn fixed interest rates for their entire tenure, which is usually compounded quarterly. So, those who want an income on a regular basis can invest into fixed deposits and use the interest rate as their income. This makes a fixed deposit very popular way of investing money for retirees. Saves tax With the directives of the income tax department stating that investment in fixed deposits up to a maximum of Rs.100,000 for 5 years are eligible for tax deductions under section 80 C of income tax act, fixed deposits have again become popular. Fixed Deposits save tax and give high returns on invested money. Guaranteed return.-The only reason why our parents and many in our generation also have this single concept of investment is because of its safety features. Easy to raise a loan against your FD - One can borrow up to 90 per cent of the FDs amount. Flexible maturity date , it is for this features that you can invest for a time frames that is as less as 6 months to as long as 10 years or even more.
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Chapter-6 BIBLIOGRAPHY
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REFERENCE BOOK: FINANCIAL MARKET AND SERVICES- Gordon and Natarajan. INVESTMENT MANAGEMENT - V.K.BHALLA FINANCIAL MANAGEMENT,10th EDITION- I.M. PANDEY INVESTMENT ANALYIS AND PORTFOLIO MANAGEMENT,3rd EDITIONPRASANNA CHANDRA Research Methodology Kothari. Haslem, John A., Baker and Smith, Performance and Characteristics of Actively Managed Retail Equity Mutual Funds with Diverse Expense Ratios, Financial Services Review, Vol17, Issue 1, Spring 2008, pages 49-68. Kapadia, Reshma and Daren Fonda, 100 Great Funds For These Tough Times, Smart Money, Vol. XVIII-No. II, February 2009, pages 61-69. Kacperczyk, Marcin, Clemens Sialm and Lu Zheng, Industry Concentration and Mutual Fund Performance, Journal of Investment Management, Vol. 5, No. 1, First Quarter, 2007, pages 50-64. Kempf, Alexander and Stefan Ruenzi, Family Matters: Rankings Within Issue 1/2, January/March 2008, pages 177-199.
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WEBSITE: www.mutualfundindia.com www.indiamarkets.com www.utimf.com www.reliancemutual.com www.sebi.gov.in www.moneycontrol.com
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PROJECT REPORT ON COMPARATIVE STUDY OF THE PERFORMANCE OF THREE INCOME FUNDS (MUTUAL FUNDS) WITH THE TOP THREE

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Key issues identified

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1.3 Difference Between Bank Fixed deposit and Mutual funds

FEATURES Return on Investment

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calculated as 10% without indexation or 20% with indexation.

Risk Factor Impact of Inflation

Assures capital protection. No protection

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1.4 RESEARCH OBJECTIVES

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1.5 RESEARCH METHODOLOGY

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1.6 LIMITATIONS OF THE PROJECT

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Chapter -2 LITERATURE REVIEW

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30-09-2005 30-06-2005 31-03-2005

2370.95 2312.3 2035.65

2.54 13.59 0.00 Sum= 138.11 Table 1

-1.78 9.27 -4.32

3.17 86.01 18.63 Sum=6055.85

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Calculation of mean:Mean= Total Return / N Where, N = Number of Month.

Calculation of Variance:Variance = (D)^2 / 32 Where, D= Deviation

Calculation of Standard Deviation:SD= Variance.

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Value (%) 4.31 189.24 13.76

Value (%) 1.73

RETURN DEVIATION (%)

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29-12-2006 29-09-2006 29-06-2006 31-03-2006 30-12-2005 30-09-2005 30-06-2005 31-03-2005

19.72 19.47 19.08 18.84 18.92 18.84 18.62 18.32

-0.09 0.67 -0.10 -1.80 -0.95 -0.20 0.26 -1.38

0.01 0.44 0.01 3.24 0.91 0.04 0.07 1.90 195.25

4.73 14.80 -14.72 12.59 22.26 -1.78 9.27 -4.32

-0.44 9.86 1.53 -22.67 -21.22 0.35 2.41 5.95 -13.41

SBI MAGNUM INCOME FUND ( NAV)

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